Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2010

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission file number 001-00035

 

 

GENERAL ELECTRIC COMPANY

(Exact name of registrant as specified in its charter)

 

 

 

New York   14-0689340

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

3135 Easton Turnpike, Fairfield, CT   06828-0001
(Address of principal executive offices)   (Zip Code)

(Registrant’s telephone number, including area code) (203) 373-2211

 

(Former name, former address and former fiscal year, if changed since last report)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer      Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

There were 10,691,220,000 shares of common stock with a par value of $0.06 per share outstanding at June 25, 2010.

 

 

 


Table of Contents

General Electric Company

 

     Page

Part I – Financial Information

  

Item 1. Financial Statements

  

Condensed Statement of Earnings

   3

Three Months Ended June 30, 2010

   3

Six Months Ended June 30, 2010

   4

Condensed Statement of Financial Position

   5

Condensed Statement of Cash Flows

   6

Summary of Operating Segments

   7

Notes to Condensed, Consolidated Financial Statements (Unaudited)

   8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

   47

Item 3. Quantitative and Qualitative Disclosures About Market Risk

   72

Item 4. Controls and Procedures

   72
Part II – Other Information   

Item 1. Legal Proceedings

   72

Item 2. Purchases of Equity Securities by the Issuer and Affiliated Purchasers

   74

Item 6. Exhibits

   75

Signatures

   76

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 financial condition, and often contain words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “see,” or “will.” Forward-looking statements by their nature address matters that are, to different degrees, uncertain. For us, particular uncertainties that could cause our actual results to be materially different than those expressed in our forward-looking statements include: current economic and financial conditions, including volatility in interest and exchange rates, commodity and equity prices and the value of financial assets; the impact of conditions in the financial and credit markets on the availability and cost of General Electric Capital Corporation’s (GECC) funding and on our ability to reduce GECC’s asset levels as planned; the impact of conditions in the housing market and unemployment rates on the level of commercial and consumer credit defaults; our ability to maintain our current credit rating and the impact on our funding costs and competitive position if we do not do so; the adequacy of our cash flow and earnings and other conditions which may affect our ability to pay our quarterly dividend at the planned level; the level of demand and financial performance of the major industries we serve, including, without limitation, air and rail transportation, energy generation, network television, real estate and healthcare; the impact of regulation and regulatory, investigative and legal proceedings and legal compliance risks, including the impact of financial services regulation; strategic actions, including acquisitions and dispositions and our success in integrating acquired businesses; 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.

 

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Table of Contents

Part I. Financial Information

Item 1. Financial Statements.

General Electric Company and consolidated affiliates

Condensed Statement of Earnings

 

     Three months ended June 30 (Unaudited)  
     Consolidated          GE(a)     Financial Services (GECS)  
(In millions, except share amounts)    2010     2009           2010     2009     2010     2009  

Revenues

                 

Sales of goods

   $ 14,905     $ 15,906          $ 14,736     $ 15,701     $ 168     $ 205  

Sales of services

     9,599       10,172            9,667       10,311       —          —     

Other income

     278       34            304       80       —          —     

GECS earnings from continuing operations

     —          —               822       367       —          —     

GECS revenues from services

     12,662       12,996            —          —          12,980       13,252  
                                                     

Total revenues

     37,444       39,108            25,529       26,459       13,148       13,457  
                                                     
 

Costs and expenses

                 

Cost of goods sold

     11,129       12,450            10,975       12,287       154       164  

Cost of services sold

     6,067       6,354            6,134       6,493       —          —     

Interest and other financial charges

     4,171       4,653            430       348       3,870       4,468  

Investment contracts, insurance losses and insurance annuity benefits

     722       779            —          —          770       823  

Provision for losses on financing receivables

     2,009       2,817            —          —          2,009       2,817  

Other costs and expenses

     9,059       8,933            3,589       3,556       5,637       5,471  
                                                     

Total costs and expenses

     33,157       35,986            21,128       22,684       12,440       13,743  
                                                     
 

Earnings (loss) from continuing operations before income taxes

     4,287       3,122            4,401       3,775       708       (286

Benefit (provision) for income taxes

     (885     (227          (986     (897     101       670  
                                                     

Earnings from continuing operations

     3,402       2,895            3,415       2,878       809       384  

Loss from discontinued operations, net of taxes

     (188     (194          (188     (194     (188     (193
                                                     

Net earnings

     3,214       2,701            3,227       2,684       621       191  

Less net earnings (loss) attributable to noncontrolling interests

     105       12            118       (5     (13     17  
                                                     

Net earnings attributable to the Company

     3,109       2,689            3,109       2,689       634       174  

Preferred stock dividends declared

     (75     (75          (75     (75     —          —     
                                                     

Net earnings attributable to GE common shareowners

   $ 3,034     $ 2,614          $ 3,034     $ 2,614     $ 634     $ 174  
                                                   
                                                       

Amounts attributable to the Company

               

Earnings from continuing operations

   $ 3,297     $ 2,883        $ 3,297     $ 2,883     $ 822     $ 367  

Loss from discontinued operations, net of taxes

     (188     (194        (188     (194     (188     (193
                                                   

Net earnings attributable to the Company

   $ 3,109     $ 2,689        $ 3,109     $ 2,689     $ 634     $ 174  
                                                   

Per-share amounts

               

Earnings from continuing operations

               

Diluted earnings per share

   $ 0.30     $ 0.26             

Basic earnings per share

   $ 0.30     $ 0.26             

Net earnings

               

Diluted earnings per share

   $ 0.28     $ 0.25             

Basic earnings per share

   $ 0.28     $ 0.25             

Dividends declared per common share

   $ 0.10     $ 0.10             

 

 

 

(a) Represents the adding together of all affiliated companies except General Electric Capital Services, Inc. (GECS or financial services), which is presented on a one-line basis.

See Note 3 for other-than-temporary impairment amounts.

See accompanying notes. Separate information is shown for “GE” and “Financial Services (GECS).” Transactions between GE and GECS have been eliminated from the “Consolidated” columns.

 

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Table of Contents

General Electric Company and consolidated affiliates

Condensed Statement of Earnings

 

     Six months ended June 30 (Unaudited)  
     Consolidated          GE(a)     Financial Services (GECS)  
(In millions, except share amounts)    2010     2009           2010     2009     2010     2009  

Revenues

                 

Sales of goods

   $ 28,670     $ 29,978          $ 28,225     $ 29,514     $ 449     $ 478  

Sales of services

     19,507       20,227            19,687       20,520       —          —     

Other income

     628       462            680       559       —          —     

GECS earnings from continuing operations

     —          —               1,361       1,346       —          —     

GECS revenues from services

     25,244       26,879            —          —          25,870       27,436  
                                                     

Total revenues

     74,049       77,546            49,953       51,939       26,319       27,914  
                                                     
 

Costs and expenses

                 

Cost of goods sold

     21,701       23,883            21,286       23,509       419       388  

Cost of services sold

     13,007       12,987            13,186       13,280       —          —     

Interest and other financial charges

     8,332       9,980            773       724       7,808       9,589  

Investment contracts, insurance losses and insurance annuity benefits

     1,469       1,525            —          —          1,557       1,596  

Provision for losses on financing receivables

     4,272       5,153            —          —          4,272       5,153  

Other costs and expenses

     18,154       18,270            7,126       6,920       11,370       11,600  
                                                     

Total costs and expenses

     66,935       71,798            42,371       44,433       25,426       28,326  
                                                     
 

Earnings (loss) from continuing operations before income taxes

     7,114       5,748            7,582       7,506       893       (412

Benefit (provision) for income taxes

     (1,316     82            (1,774     (1,739     458       1,821  
                                                     

Earnings from continuing operations

     5,798       5,830            5,808       5,767       1,351       1,409  

Loss from discontinued operations,

                 

net of taxes

     (578     (215          (578     (215     (575     (197
                                                     

Net earnings

     5,220       5,615            5,230       5,552       776       1,212  

Less net earnings (loss) attributable to

                 

noncontrolling interests

     166       97            176       34       (10     63  
                                                     

Net earnings attributable to the Company

     5,054       5,518            5,054       5,518       786       1,149  

Preferred stock dividends declared

     (150     (150          (150     (150     —          —     
                                                     

Net earnings attributable to GE common shareowners

   $ 4,904     $ 5,368          $ 4,904     $ 5,368     $ 786     $ 1,149  
                                                     
                                                       

Amounts attributable to the Company

               

Earnings from continuing operations

   $ 5,632     $ 5,733        $ 5,632     $ 5,733     $ 1,361     $ 1,346  

Loss from discontinued operations, net of taxes

     (578     (215        (578     (215     (575     (197
                                                   

Net earnings attributable to the Company

   $ 5,054     $ 5,518        $ 5,054     $ 5,518     $ 786     $ 1,149  
                                                   

Per-share amounts

               

Earnings from continuing operations

               

Diluted earnings per share

   $ 0.51     $ 0.53             

Basic earnings per share

   $ 0.51     $ 0.53             

Net earnings

               

Diluted earnings per share

   $ 0.45     $ 0.51             

Basic earnings per share

   $ 0.46     $ 0.51             

Dividends declared per common share

   $ 0.20     $ 0.41             

 

 

 

(a) Represents the adding together of all affiliated companies except General Electric Capital Services, Inc. (GECS or financial services), which is presented on a one-line basis.

See Note 3 for other-than-temporary impairment amounts.

See accompanying notes. Separate information is shown for “GE” and “Financial Services (GECS).” Transactions between GE and GECS have been eliminated from the “Consolidated” columns.

 

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Table of Contents

General Electric Company and consolidated affiliates

Condensed Statement of Financial Position

 

     Consolidated          GE(a)     Financial Services (GECS)  
     June 30,     December 31,           June 30,     December 31,     June 30,     December 31,  
(In million, except share amounts)    2010     2009           2010     2009     2010     2009  
     (Unaudited)                 (Unaudited)           (Unaudited)        

Assets

                 

Cash and equivalents

   $ 73,848     $ 72,260          $ 12,861     $ 8,654     $ 61,547     $ 64,356  

Investment securities

     42,102       51,941            21       30       42,083       51,913  

Current receivables

     17,589       16,458            9,471       9,818       —          —     

Inventories

     11,366       11,987            11,295       11,916       71       71  

Financing receivables – net

     324,145       329,232            —          —          333,262       336,926  

Other GECS receivables

     8,577       14,177            —          —          13,093       18,752  

Property, plant and equipment – net

     65,358       69,212            11,668       12,495       53,690       56,717  

Investment in GECS

     —          —               67,267       70,833       —          —     

Goodwill

     63,094       65,574            35,951       36,613       27,143       28,961  

Other intangible assets – net

     10,946       11,929            8,153       8,450       2,793       3,479  

All other assets

     98,363       103,417            16,991       17,097       82,432       87,471  

Assets of businesses held for sale

     33,289       34,111            32,690       33,986       599       125  

Assets of discontinued operations

     1,253       1,520            50       50       1,203       1,470  
                                                     

Total assets(b)

   $ 749,930     $ 781,818          $ 206,418     $ 209,942     $ 617,916     $ 650,241  
                                                     

Liabilities and equity

                 

Short-term borrowings

   $ 120,154     $ 130,252          $ 289     $ 504     $ 121,011     $ 131,137  

Accounts payable, principally trade accounts

     14,230       19,703            10,101       10,373       8,184       13,275  

Progress collections and price adjustments accrued

     10,868       12,192            11,514       12,957       —          —     

Other GE current liabilities

     14,313       14,527            14,313       14,527       —          —     

Non-recourse borrowings of consolidated securitization entities

     33,411       3,883            —          —          33,411       3,883  

Bank deposits

     37,471       38,923            —          —          37,471       38,923  

Long-term borrowings

     298,701       337,134            9,617       11,681       289,768       326,391  

Investment contracts, insurance liabilities and insurance annuity benefits

     30,529       31,641            —          —          31,015       32,009  

All other liabilities

     55,349       58,861            34,904       35,232       20,565       23,756  

Deferred income taxes

     2,434       2,173            (4,217     (4,620     6,651       6,793  

Liabilities of businesses held for sale

     10,364       6,092            10,103       6,037       261       55  

Liabilities of discontinued operations

     1,381       1,301            167       163       1,214       1,138  
                                                     

Total liabilities(b)

     629,205       656,682            86,791       86,854       549,551       577,360  
                                                     

Preferred stock (30,000 shares outstanding at both June 30, 2010 and December 31, 2009)

     —          —               —          —          —          —     

Common stock (10,691,220,000 and 10,663,075,000 shares outstanding at June 30, 2010 and December 31, 2009, respectively)

     702       702            702       702       1       1  

Accumulated other comprehensive income – net(c)

                 

Investment securities

     291       (435          291       (435     289       (436

Currency translation adjustments

     (3,319     3,836            (3,319     3,836       (2,636     1,372  

Cash flow hedges

     (1,290     (1,734          (1,290     (1,734     (1,268     (1,769

Benefit plans

     (16,008     (16,932          (16,008     (16,932     (369     (434

Other capital

     37,357       37,729            37,357       37,729       27,583       27,591  

Retained earnings

     127,436       126,363            127,436       126,363       43,667       44,508  

Less common stock held in treasury

     (31,235     (32,238          (31,235     (32,238     —          —     
                                                     

Total GE shareowners’ equity

     113,934       117,291            113,934       117,291       67,267       70,833  

Noncontrolling interests(d)

     6,791       7,845            5,693       5,797       1,098       2,048  
                                                     

Total equity

     120,725       125,136            119,627       123,088       68,365       72,881  
                                                     

Total liabilities and equity

   $ 749,930     $ 781,818          $ 206,418     $ 209,942     $ 617,916     $ 650,241  
                                                     

 

 

 

(a) Represents the adding together of all affiliated companies except General Electric Capital Services, Inc. (GECS or financial services), which is presented on a one-line basis.
(b) Our consolidated assets at June 30, 2010 include total assets of $53,755 million of certain variable interest entities (VIEs) that can only be used to settle the liabilities of those VIEs. These assets include net financing receivables of $42,786 million and investment securities of $7,126 million. Our consolidated liabilities at June 30, 2010 include liabilities of certain VIEs for which the VIE creditors do not have recourse to GE. These liabilities include non-recourse borrowings of consolidated securitization entities (CSEs) of $32,696 million. See Note 16.
(c) The sum of accumulated other comprehensive income—net was $(20,326) million and $(15,265) million at June 30, 2010 and December 31, 2009, respectively.
(d) Included accumulated other comprehensive income—net attributable to noncontrolling interests of $(185) million and $(188) million at June 30, 2010 and December 31, 2009, respectively.

See accompanying notes. Separate information is shown for “GE” and “Financial Services (GECS).” Transactions between GE and GECS have been eliminated from the “Consolidated” columns.

 

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Table of Contents

General Electric Company and consolidated affiliates

Condensed Statement of Cash Flows

 

     Six months ended June 30 (Unaudited)  
     Consolidated          GE(a)     Financial Services (GECS)  
(In millions)    2010     2009           2010     2009     2010     2009  

Cash flows – operating activities

                 

Net earnings

   $ 5,220     $ 5,615          $ 5,230     $ 5,552     $ 776     $ 1,212  

Less net earnings attributable to noncontrolling interests

     166       97            176       34       (10     63  
                                                     

Net earnings attributable to the Company

     5,054       5,518            5,054       5,518       786       1,149  

Loss from discontinued operations

     578       215            578       215       575       197  

Adjustments to reconcile net earnings attributable to the Company to cash provided from operating activities

                 

Depreciation and amortization of property, plant and equipment

     4,856       5,235            1,075       1,107       3,781       4,128  

Earnings from continuing operations retained by GECS

     —          —               (1,361     (1,346     —          —     

Deferred income taxes

     (1,615     (1,150          (422     29       (1,193     (1,179

Decrease (increase) in GE current receivables

     892       2,187            559       2,836       —          —     

Decrease (increase) in inventories

     522       210            559       246       —          4  

Increase (decrease) in accounts payable

     593       (984          201       (651     502       (1,278

Increase (decrease) in GE progress collections

     (1,452     (675          (1,486     (651     —          —     

Provision for losses on GECS financing receivables

     4,272       5,153            —          —          4,272       5,153  

All other operating activities

     2,919       (10,131          1,557       (259     1,564       (9,839
                                                     

Cash from (used for) operating activities – continuing operations

     16,619       5,578            6,314       7,044       10,287       (1,665

Cash from (used for) operating activities – discontinued operations

     (92     (44          —          —          (92     (44
                                                     

Cash from (used for) operating activities

     16,527       5,534            6,314       7,044       10,195       (1,709
                                                     

Cash flows – investing activities

                 

Additions to property, plant and equipment

     (3,019     (4,459          (937     (1,325     (2,204     (3,299

Dispositions of property, plant and equipment

     2,501       2,605            —          —          2,501       2,605  

Net decrease (increase) in GECS financing receivables

     16,669       25,944            —          —          17,312       25,450  

Proceeds from principal business dispositions

     2,678       9,032            1,683       186       825       8,846  

Payments for principal businesses purchased

     (19     (5,973          (19     (336     —          (5,637

Capital contribution from GE to GECS

     —          —               —          (9,500     —          —     

All other investing activities

     8,898       5            (91     (14     8,963       1,027  
                                                     

Cash from (used for) investing activities – continuing operations

     27,708       27,154            636       (10,989     27,397       28,992  

Cash from (used for) investing activities – discontinued operations

     26       48            —          —          26       48  
                                                     

Cash from (used for) investing activities

     27,734       27,202            636       (10,989     27,423       29,040  
                                                     
 

Cash flows – financing activities

                 

Net increase (decrease) in borrowings (maturities of 90 days or less)

     (1,357     (22,964          (1,063     1,564       (537     (25,512

Net increase (decrease) in bank deposits

     748       (6,450          —          —          748       (6,450

Newly issued debt (maturities longer than 90 days)

     31,661       49,890            4,116       1,330       27,291       48,691  

Repayments and other reductions (maturities longer than 90 days)

     (68,140     (40,681          (3,218     (1,559     (64,922     (39,122

Net dispositions (purchases) of GE shares for treasury

     178       484            178       484       —          —     

Dividends paid to shareowners

     (2,287     (6,705          (2,287     (6,705     —          —     

Capital contribution from GE to GECS

     —          —               —          —          —          9,500  

All other financing activities

     (1,637     (2,143          (162     (293     (1,475     (1,850
                                                     

Cash from (used for) financing activities – continuing operations

     (40,834     (28,569          (2,436     (5,179     (38,895     (14,743

Cash from (used for) financing activities – discontinued operations

     —          —               —          —          —          —     
                                                     

Cash from (used for) financing activities

     (40,834     (28,569          (2,436     (5,179     (38,895     (14,743
                                                     

Effect of currency exchange rate changes on cash

                 

and equivalents

     (1,905     (34          (307     19       (1,598     (53
                                                     

Increase (decrease) in cash and equivalents

     1,522       4,133            4,207       (9,105     (2,875     12,535  

Cash and equivalents at beginning of year

     72,444       48,367            8,654       12,090       64,540       37,666  
                                                     

Cash and equivalents at June 30

     73,966       52,500            12,861       2,985       61,665       50,201  

Less cash and equivalents of discontinued operations at June 30

     118       184            —          —          118       184  
                                                     

Cash and equivalents of continuing operations at June 30

   $ 73,848     $ 52,316          $ 12,861     $ 2,985     $ 61,547     $ 50,017  
                                                     

 

 

 

(a) Represents the adding together of all affiliated companies except General Electric Capital Services, Inc. (GECS or financial services), which is presented on a one-line basis.

See accompanying notes. Separate information is shown for “GE” and “Financial Services (GECS).” Transactions between GE and GECS have been eliminated from the “Consolidated” columns and are discussed in Note 17.

 

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Summary of Operating Segments

General Electric Company and consolidated affiliates

 

     Three months ended June 30
(Unaudited)
    Six months ended June 30
(Unaudited)
 
(In millions)    2010     2009     2010     2009  

Revenues

        

Energy Infrastructure(a)

   $ 9,540     $ 10,459     $ 18,195     $ 19,541  

Technology Infrastructure(a)

     9,061       9,637       17,720       19,160  

NBC Universal

     3,750       3,565       8,070       7,089  

GE Capital(a)

     12,297       12,736       24,628       26,511  

Home & Business Solutions(a)

     2,250       2,169       4,190       4,093  
                                

Total segment revenues

     36,898       38,566       72,803       76,394  

Corporate items and eliminations

     546       542       1,246       1,152  
                                

Consolidated revenues

   $ 37,444     $ 39,108     $ 74,049     $ 77,546  
                                

Segment profit(b)

        

Energy Infrastructure(a)

   $ 1,910     $ 1,863     $ 3,391     $ 3,181  

Technology Infrastructure(a)

     1,554       1,743       2,957       3,445  

NBC Universal

     607       539       806       930  

GE Capital(a)

     830       431       1,437       1,460  

Home & Business Solutions(a)

     143       90       214       135  
                                

Total segment profit

     5,044       4,666       8,805       9,151  

Corporate items and eliminations

     (331     (538     (626     (955

GE interest and other financial charges

     (430     (348     (773     (724

GE provision for income taxes

     (986     (897     (1,774     (1,739
                                

Earnings from continuing operations attributable

        

to the Company

     3,297       2,883       5,632       5,733  

Loss from discontinued operations, net of taxes, attributable to the Company

     (188     (194     (578     (215
                                

Consolidated net earnings attributable to the Company

   $ 3,109     $ 2,689     $ 5,054     $ 5,518  
                                

 

 

 

(a) Effective January 1, 2010, we reorganized our segments. We have reclassified prior-period amounts to conform to the current-period presentation. See Note 1 for a description of the reorganization.
(b) Segment profit always excludes the effects of principal pension plans, results reported as discontinued operations, earnings attributable to noncontrolling interests of consolidated subsidiaries 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 acquisitions or dispositions; and litigation settlements or other charges, responsibility for which preceded the current management team. Segment profit excludes or includes interest and other financial charges and income taxes according to how a particular segment’s management is measured – excluded in determining segment profit, which we sometimes refer to as “operating profit,” for Energy Infrastructure, Technology Infrastructure, NBC Universal and Home & Business Solutions; included in determining segment profit, which we sometimes refer to as “net earnings,” for GE Capital.

See accompanying notes to condensed, consolidated financial statements.

 

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Notes to Condensed, Consolidated Financial Statements (Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying condensed, consolidated financial statements represent the consolidation of General Electric Company and all companies that we directly or indirectly control, either through majority ownership or otherwise. See Note 1 to the consolidated financial statements for the year ended December 31, 2009, included in our Form 8-K filed on May 6, 2010, which discusses our consolidation and financial statement presentation. As used in this report on Form 10-Q (Report) and in our 2009 consolidated financial statements, “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.

Effective January 1, 2010, we reorganized our segments to better align our Consumer & Industrial and Energy businesses for growth. As a result of this reorganization, we created a new segment called Home & Business Solutions that includes the Appliances and Lighting businesses from our previous Consumer & Industrial segment and the retained portion of the GE Fanuc Intelligent Platforms business of our previous Enterprise Solutions business (formerly within our Technology Infrastructure segment). In addition, the Industrial business of our previous Consumer & Industrial segment and the Sensing & Inspection Technologies and Digital Energy businesses of our previous Enterprise Solutions business are now part of the Energy business within the Energy Infrastructure segment. The Security business of Enterprise Solutions is reported in Corporate Items and Eliminations for periods prior to its sale in the first quarter of 2010. Also, effective January 1, 2010, the Capital Finance segment was renamed GE Capital and includes all of the continuing operations of General Electric Capital Corporation (GECC). In addition, the Transportation Financial Services business, previously reported in GE Capital Aviation Services (GECAS), is now included in Commercial Lending and Leasing (CLL) and our Consumer business in Italy, previously reported in Consumer, is now included in CLL. GE includes Energy Infrastructure, Technology Infrastructure, NBC Universal (NBCU) and Home & Business Solutions. GECS includes GE Capital.

Beginning in the first quarter of 2010, we have included a separate line on the statement of cash flows for the effect of currency exchange rate changes on cash and equivalents. We had previously included the effect of currency exchange rate changes on cash and equivalents in “All other operating activities” for GE and “All other investing activities” for GECS, as the effect was insignificant.

We have reclassified certain prior-period amounts to conform to the current-period presentation. Unless otherwise indicated, information in these notes to condensed, consolidated financial statements relates to continuing operations.

Accounting Changes

On January 1, 2010, we adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2009-16 and ASU 2009-17, amendments to Accounting Standards Codification (ASC) 860, Transfers and Servicing, and ASC 810, Consolidation, respectively (ASU 2009-16 & 17). ASU 2009-16 eliminates the Qualified Special Purpose Entity (QSPE) concept, and ASU 2009-17 requires that all such entities be evaluated for consolidation as Variable Interest Entities (VIEs). Adoption of these amendments resulted in the consolidation of all of our sponsored QSPEs. In addition, we consolidated assets of VIEs related to direct investments in entities that hold loans and fixed income securities, a media joint venture and a small number of companies to which we have extended loans in the ordinary course of business and subsequently were subject to a troubled debt restructuring (TDR).

 

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We consolidated the assets and liabilities of these entities at amounts at which they would have been reported in our financial statements had we always consolidated them. We also deconsolidated certain entities where we did not meet the definition of the primary beneficiary under the revised guidance; however the effect was insignificant at January 1, 2010. The incremental effect on total assets and liabilities, net of our investment in these entities, was an increase of $31,097 million and $33,042 million, respectively, at January 1, 2010. The net reduction of total equity (including noncontrolling interests) was $1,945 million at January 1, 2010, principally related to the reversal of previously recognized securitization gains as a cumulative effect adjustment to retained earnings. See Note 16 for additional information.

The amended guidance on ASC 860 changed existing derecognition criteria in a manner that significantly narrows the types of transactions that will qualify as sales. The revised criteria apply to transfers of financial assets occurring after December 31, 2009.

Interim Period Presentation

The condensed, consolidated financial statements and notes thereto are unaudited. These statements include all adjustments (consisting of normal recurring accruals) that we considered necessary to present a fair statement of our results of operations, financial position and cash flows. The results reported in these condensed, consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for the entire year. It is suggested that these condensed, consolidated financial statements be read in conjunction with the financial statements and notes thereto included in our 2009 consolidated financial statements. 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.

2. ASSETS AND LIABILITIES OF BUSINESSES HELD FOR SALE AND DISCONTINUED OPERATIONS

Assets and Liabilities of Businesses Held for Sale

NBC Universal

On December 3, 2009, we entered into an agreement with Comcast Corporation to transfer the assets of the NBCU business to a newly formed entity, which will consist of our NBCU businesses and Comcast Corporation's cable networks, regional sports networks, certain digital properties and certain unconsolidated investments. Pursuant to the transaction, we currently expect to receive $6,400 million in cash ($7.1 billion less certain adjustments based on various events between contract signing and closing) and will own a 49% interest in the newly formed entity. The transaction is subject to receipt of various regulatory approvals and is expected to close within the next six months.

We also entered into an agreement whereby we will acquire approximately 38% of Vivendi’s interest in NBCU for $2,000 million on September 26, 2010, if the transaction described above has not yet closed. Provided the transaction subsequently closes, we will acquire the remaining Vivendi NBCU interest for $3,578 million and make an additional payment of $222 million related to the previously purchased shares. If the entity formation transaction closes before September 26, 2010, we will purchase Vivendi’s entire ownership interest in NBCU (20%) for $5,800 million.

Prior to the sale, NBCU will borrow approximately $9,100 million from third-party lenders and distribute the cash to us. We expect to realize approximately $7,900 million in cash after debt reduction, transaction fees and the buyout of the Vivendi interest in NBCU.

 

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With respect to our 49% interest in the newly formed entity, we will hold redemption rights which, if exercised, cause the entity to purchase half of our ownership interest after 3.5 years and the remaining half after 7 years subject to certain exceptions, conditions and limitations. Our interest will also be subject to call provisions which, if exercised, allow Comcast Corporation to purchase our interest at specified times subject to certain exceptions. The redemption price for such transactions is determined pursuant to a formula specified in the agreement.

Subsequent to the close of the transaction, we will account for our 49% interest in the newly formed entity under the equity method.

On March 19, 2010, NBCU entered into a three-year credit agreement and a 364-day bridge loan agreement and on April 30, 2010, issued $4,000 million of senior, unsecured notes with maturities ranging from 2015 to 2040, in connection with the $9,100 million financing described above. If the transaction has not closed before June 10, 2011 or such earlier date as the master agreement governing the transaction is terminated, NBCU will redeem the senior, unsecured notes at a redemption price equal to 101% of the aggregate principal amount.

At June 30, 2010, NBCU assets and liabilities of $32,688 million and $10,103 million, respectively, were classified as held for sale. The major classes of assets are current receivables ($1,932 million), property, plant and equipment – net ($1,939 million), goodwill and other intangible assets – net ($22,212 million) and all other assets ($6,482 million), including film and television production costs of $4,379 million. The major classes of liabilities are accounts payable ($427 million), other GE current liabilities ($3,751 million), all other liabilities ($1,115 million) and long-term borrowings ($4,810 million).

At December 31, 2009, we classified the NBCU assets and liabilities of $32,150 million and $5,751 million, respectively, as held for sale. The major classes of assets are current receivables ($2,136 million), property, plant and equipment – net ($1,805 million), goodwill and other intangible assets – net ($21,574 million) and all other assets ($6,514 million), including film and television production costs of $4,507 million. The major classes of liabilities are accounts payable ($398 million), other GE current liabilities ($4,051 million) and all other liabilities ($1,300 million).

Other

On February 28, 2010, we completed the sale of our Security business for $1,787 million. Assets and liabilities of $1,780 million and $282 million, respectively, were classified as held for sale at December 31, 2009.

In June 2010, we committed to sell our GE Capital Consumer businesses in Indonesia and Argentina. Assets of $571 million and liabilities of $212 million were classified as held for sale at June 30, 2010.

 

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Summarized financial information for businesses held for sale is shown below.

 

(In millions)    June 30,
2010
   December 31,
2009

Assets

     

Cash and equivalents

   $ 62    $ —  

Current receivables

     1,932      2,188

Financing receivables – net

     467      —  

Property, plant and equipment – net

     1,973      1,978

Goodwill

     19,599      20,086

Other intangible assets – net

     2,639      2,866

All other assets

     6,484      6,621

Other

     133      372
             

Assets of businesses held for sale

   $ 33,289    $ 34,111
             

Liabilities

     

Accounts payable

   $ 448    $ 451

Other GE current liabilities

     3,755      4,139

All other liabilities

     1,219      1,447

Long-term borrowings

     4,810      2

Other

     132      53
             

Liabilities of businesses held for sale

   $ 10,364    $ 6,092
             

Discontinued Operations

Discontinued operations comprised GE Money Japan (our Japanese personal loan business, Lake, and our Japanese mortgage and card businesses, excluding our investment in GE Nissen Credit Co., Ltd.), our U.S. mortgage business (WMC) and Plastics. Associated results of operations, financial position and cash flows are separately reported as discontinued operations for all periods presented.

Summarized financial information for discontinued GECS operations is shown below.

 

     Three months ended June 30     Six months ended June 30  
(In millions)    2010     2009     2010     2009  

Total revenues

   $ (2   $ (2   $ (3   $ (8
                                

Loss from discontinued operations, net of taxes

        

Loss from operations

   $ (3   $ (62   $ (9   $ (70

Loss on disposal

     (185     (131     (566     (127
                                

Total loss from discontinued operations, net of taxes

   $ (188   $ (193   $ (575   $ (197
                                

Assets of GECS discontinued operations were $1,203 million and $1,470 million at June 30, 2010 and December 31, 2009, respectively, and primarily comprised a deferred tax asset for a loss carryforward, which expires in 2015, related to the sale of our GE Money Japan business. Liabilities of GECS discontinued operations were $1,214 million and $1,138 million at June 30, 2010 and December 31, 2009, respectively. During the first six months of 2010, we recorded incremental reserves of $566 million related to interest refund claims on the 2008 sale of GE Money Japan. During the first quarter of 2010, we also reduced tax reserves by $325 million related to resolution of an uncertain tax position in Japan, but were required to record an offsetting valuation allowance on our deferred tax asset in Japan.

 

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GE Money Japan

During the third quarter of 2007, we committed to a plan to sell Lake upon determining that, despite restructuring, Japanese regulatory limits for interest charges on unsecured personal loans did not permit us to earn an acceptable return. During the third quarter of 2008, we completed the sale of GE Money Japan, which included Lake, along with our Japanese mortgage and card businesses, excluding our investment in GE Nissen Credit Co., Ltd. As a result, we recognized an after-tax loss of $908 million in 2007 and an incremental loss in 2008 of $361 million. In connection with the sale, we reduced the proceeds on the sale for estimated interest refund claims in excess of the statutory interest rate. Proceeds from the sale may be increased or decreased based on the actual claims experienced in accordance with loss-sharing terms specified in the agreement, with all claims in excess of 258 billion Japanese Yen (approximately $2,900 million) remaining our responsibility. The underlying portfolio to which this obligation relates is in runoff and interest rates were capped for all designated accounts by mid-2009.

We update our estimate of our share of expected losses quarterly. We recorded a reserve of $132 million in the second quarter of 2009 for our estimated share of incremental losses under the loss-sharing provisions of the agreement based on our experience at that time. In the last several months, our overall claims experience has developed unfavorably. While the number of new claims continues to decline from 2009, the pace of the decline has been slower than expected and claims severity has increased. We believe that the level of excess interest refund claims has been impacted by the challenging global economic conditions, in addition to Japanese legislative and regulatory changes. During the first quarter of 2010, we accrued $380 million of incremental reserves for these claims. In the second quarter of 2010, we accrued an additional $186 million of reserves for these claims. As of June 30, 2010, our liability for reimbursement of claims in excess of the statutory interest rate was $697 million.

The amount of these reserves is based on analyses of recent and historical claims experience, pending and estimated future excess interest refund requests, the estimated percentage of customers who present valid requests, and our estimated payments related to those requests. We continue to monitor incoming claims activity relative to our expected claims levels. Our current expectations are that the pace of incoming claims continues to decelerate, average exposure per claim remains consistent with recent levels and we see the impact of our loss mitigation efforts. Estimating the pace of decline in incoming claims can have a significant impact on the total amount of our liability. For example, our current model assumes incoming claims continue to decline at a rate of 11% per month. June daily claims declined at a rate higher than assumed in our model. Holding all other assumptions constant, if claims were to decline at rates of 9%, 6% or 3% and we assume no impact from our loss mitigation efforts, our estimate of our liability would increase by approximately $100 million, $400 million and $1,200 million, respectively.

Uncertainties around the impact of laws and regulations, challenging economic conditions, the runoff status of the underlying book of business and the effects of our mitigation efforts make it difficult to develop a meaningful estimate of the aggregate possible claims exposure. Recent trends, including the effect of governmental actions, may continue to have an adverse effect on claims development. We will continue to review our estimated exposure quarterly, and make adjustments if required.

GE Money Japan revenues from discontinued operations were an insignificant amount in both the second quarter of 2010 and 2009 and both the first six months of 2010 and 2009, respectively. In total, GE Money Japan losses from discontinued operations, net of taxes, were $188 million and $136 million in the second quarters of 2010 and 2009, respectively, and $571 million and $132 million in the first six months of 2010 and 2009, respectively.

WMC

During the fourth quarter of 2007, we completed the sale of WMC, our U.S. mortgage business. WMC revenues from discontinued operations were $(2) million in both the second quarters of 2010 and 2009, and $(3) million and $(9) million in the first six months of 2010 and 2009, respectively. In total, WMC’s earnings (loss) from discontinued operations, net of taxes, were $1 million and $(5) million in the second quarters of 2010 and 2009, respectively, and $(3) million and $(11) million in the first six months of 2010 and 2009, respectively.

 

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GE Industrial

GE industrial loss from discontinued operations, net of taxes, were $1 million in the second quarter of 2009 and $3 million and $18 million in the first six months of 2010 and 2009, respectively. There were no GE industrial losses from discontinued operations in the second quarter of 2010. The sum of GE industrial loss from discontinued operations, net of taxes, and GECS loss from discontinued operations, net of taxes, are reported as GE industrial loss from discontinued operations, net of taxes, on the Condensed Statement of Earnings.

Assets of GE industrial discontinued operations were $50 million at both June 30, 2010 and December 31, 2009. Liabilities of GE industrial discontinued operations were $167 million and $163 million at June 30, 2010, and December 31, 2009, respectively, and primarily represent taxes payable and pension liabilities related to the sale of our Plastics business in 2007.

3. INVESTMENT SECURITIES

Substantially all of our investment securities are classified as available-for-sale. These comprise mainly investment-grade debt securities supporting obligations to annuitants and policyholders in our run-off insurance operations and holders of guaranteed investment contracts (GICs) in Trinity (which ceased issuing new investment contracts beginning in the first quarter of 2010), and investment securities held at our global banks. None of our securities are classified as held to maturity.

 

     At  
     June 30, 2010     December 31, 2009  
(In millions)    Amortized
cost
    Gross
unrealized
gains
   Gross
unrealized
losses
    Estimated
fair value
    Amortized
cost
    Gross
unrealized
gains
   Gross
unrealized
losses
    Estimated
fair value
 

GE

                  

Debt – U.S. corporate

   $ 4     $ —      $ —        $ 4     $ 12     $ 4    $ (1   $ 15  

Equity – available-for-sale

     17       —        —          17       14       1      —          15  
                                                              
     21       —        —          21       26       5      (1     30  
                                                              

GECS

                  

Debt

                  

U.S. corporate

     21,914       1,691      (442     23,163       23,410       981      (756     23,635  

State and municipal

     2,876       108      (207     2,777       2,006       34      (246     1,794  

Residential mortgage- backed(a)

     3,455       123      (492     3,086       4,005       79      (766     3,318  

Commercial mortgage-backed

     2,993       144      (260     2,877       3,053       89      (440     2,702  

Asset-backed

     2,908       86      (235     2,759       2,994       48      (305     2,737  

Corporate – non-U.S.

     2,301       99      (104     2,296       1,831       59      (50     1,840  

Government – non-U.S.

     2,585       78      (43     2,620       2,902       63      (29     2,936  

U.S. government and federal agency

     1,380       66      (26     1,420       2,628       46      —          2,674  

Retained interests(b)

     58       9      (26     41       8,479       392      (40     8,831  

Equity

                  

Available-for-sale

     540       123      (39     624       489       242      (5     726  

Trading

     420       —        —          420       720       —        —          720  
                                                              
     41,430       2,527      (1,874     42,083       52,517       2,033      (2,637     51,913  
                                                              

Eliminations

     (2     —        —          (2     (2     —        —          (2
                                                              

Total

   $ 41,449     $ 2,527    $ (1,874   $ 42,102     $ 52,541     $ 2,038    $ (2,638   $ 51,941  
                                                              

 

 

 

(a) Substantially collateralized by U.S. mortgages. Of our total RMBS portfolio at June 30, 2010, $2,039 million relates to securities issued by government sponsored entities and $1,047 million relates to securities of private label issuers. Securities issued by private label issuers are collateralized primarily by pools of individual direct mortgage loans of individual financial institutions.
(b) Included $1,918 million of retained interests at December 31, 2009 accounted for at fair value in accordance with ASC 815, Derivatives and Hedging. See Note 16.

 

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The fair value of investment securities decreased to $42,102 million at June 30, 2010, from $51,941 million at December 31, 2009, primarily driven by a decrease in retained interests as a result of our adoption of ASU 2009-16 & 17 and maturities, partially offset by improved market conditions.

The following tables present the estimated fair values and gross unrealized losses of our available-for-sale investment securities.

 

     In loss position for  
     Less than 12 months     12 months or more  
(In millions)    Estimated
fair value
   Gross
unrealized
losses
    Estimated
fair value
   Gross
unrealized
losses
 

June 30, 2010

          

Debt

          

U.S. corporate

   $ 1,373    $ (43   $ 3,216    $ (399

State and municipal

     431      (23     531      (184

Residential mortgage-backed

     692      (2     1,356      (490

Commercial mortgage-backed

     366      (3     1,327      (257

Asset-backed

     192      (22     959      (213

Corporate – non-U.S.

     486      (32     726      (72

Government – non-U.S.

     724      (3     135      (40

U.S. government and federal agency

     250      (26     —        —     

Retained interests

     —        —          14      (26

Equity

     209      (38     6      (1
                              

Total

   $ 4,723    $ (192   $ 8,270    $ (1,682
                              

December 31, 2009

          

Debt

          

U.S. corporate

   $ 3,146    $ (88   $ 4,881    $ (669

State and municipal

     592      (129     535      (117

Residential mortgage-backed

     118      (14     1,678      (752

Commercial mortgage-backed

     167      (5     1,293      (435

Asset-backed

     126      (11     1,342      (294

Corporate – non-U.S.

     374      (18     481      (32

Government – non-U.S.

     399      (4     224      (25

U.S. government and federal agency

     —        —          —        —     

Retained interests

     208      (16     27      (24

Equity

     92      (2     10      (3
                              

Total

   $ 5,222    $ (287   $ 10,471    $ (2,351
                              

We adopted amendments to ASC 320 and recorded a cumulative effect adjustment to increase retained earnings as of April 1, 2009 of $62 million.

We regularly review investment securities for impairment using both qualitative and quantitative criteria. We presently do not intend to sell our debt securities and believe that it is not more likely than not that we will be required to sell these securities that are in an unrealized loss position before recovery of our amortized cost. We believe that the unrealized loss associated with our equity securities will be recovered within the foreseeable future. The methodologies and significant inputs used to measure the amount of credit loss for our investment securities during the first six months of 2010 have not changed from those described in our 2009 consolidated financial statements. See Note 3 in our 2009 consolidated financial statements, for additional information regarding these methodologies and inputs.

 

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During the second quarter of 2010, we recorded pre-tax, other-than-temporary impairments of $101 million, of which $56 million was recorded through earnings and $45 million was recorded in accumulated other comprehensive income (AOCI). At April 1, 2010, cumulative impairments recognized in earnings associated with debt securities still held were $381 million. During the second quarter, we recognized first time impairments of $36 million and incremental charges on previously impaired securities of $17 million. These amounts included $7 million related to securities that were subsequently sold.

During the six months of 2010, we recorded pre-tax, other-than-temporary impairments of $259 million, of which $135 million was recorded through earnings and $124 million was recorded in AOCI. At January 1, 2010, cumulative impairments recognized in earnings associated with debt securities still held were $340 million. During the first six months of 2010, we recognized first time impairments of $92 million and incremental charges on previously impaired securities of $35 million. These amounts included $39 million related to securities that were subsequently sold.

During the three months ended June 30, 2009, we recorded pre-tax, other-than-temporary impairments of $306 million, of which $205 million was recorded through earnings, and $101 million was recorded in AOCI. At April 1, 2009 cumulative impairments recognized in earnings associated with debt securities still held were $258 million. During the second quarter, we recognized first time impairments of $26 million and incremental charges on previously impaired securities of $150 million. There were no securities sold that had previously been impaired.

During the first six months ended June 30, 2009, we recognized impairments of $603 million. Of the $603 million, $33 million was reclassified to retained earnings at April 1, 2009, as a result of the amendments to ASC 320, Investments – Debt and Equity Securities. Subsequent to April 1, 2009, first time and incremental credit impairments were $26 million and $150 million, respectively. There were no securities sold that had previously been impaired.

Contractual Maturities of GECS Investment in Available-for-Sale Debt Securities (Excluding Mortgage-Backed and Asset-Backed Securities)

 

(In millions)

   Amortized
cost
   Estimated
fair value

Due in

     

2010

   $ 2,878    $ 2,907

2011-2014

     6,221      6,420

2015-2019

     4,202      4,245

2020 and later

     17,755      18,704

We expect actual maturities to differ from contractual maturities because borrowers have the right to call or prepay certain obligations.

Supplemental information about gross realized gains and losses on available-for-sale investment securities follows.

 

     Three months ended June 30     Six months ended June 30  
(In millions)    2010     2009     2010     2009  

GE

        

Gains

   $ —        $ —        $ —        $ —     

Losses, including impairments

     —          (107     —          (172
                                

Net

     —          (107     —          (172
                                

GECS

        

Gains

     40       35       133       59  

Losses, including impairments

     (62     (115     (144     (354
                                

Net

     (22     (80     (11     (295
                                

Total

   $ (22   $ (187   $ (11   $ (467
                                

 

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Although we generally do not have the intent to sell any specific securities at the end of the period, in the ordinary course of managing our investment securities portfolio, we may sell securities prior to their maturities for a variety of reasons, including diversification, credit quality, yield and liquidity requirements and the funding of claims and obligations to policyholders. In some of our bank subsidiaries, we maintain a certain level of purchases and sales volume principally of non-U.S. government debt securities. In these situations, fair value approximates carrying value for these securities.

Proceeds from investment securities sales and early redemptions by the issuer totaled $3,641 million and $1,491 million in the second quarters of 2010 and 2009, respectively, and $7,588 million and $3,633 million in the first six months of 2010 and 2009, respectively, principally from the sales of short-term securities in our bank subsidiaries.

We recognized net pre-tax gains on trading securities of $4 million and $204 million in the second quarters of 2010 and 2009, respectively, and $19 million and $244 million in the first six months of 2010 and 2009, respectively.

4. INVENTORIES

Inventories consisted of the following.

 

     At  
(In millions)    June 30,
2010
    December 31,
2009
 

Raw materials and work in process

   $ 6,894     $ 7,581  

Finished goods

     4,301       4,176  

Unbilled shipments

     664       759  
                
     11,859       12,516  

Less revaluation to LIFO

     (493     (529
                

Total

   $ 11,366     $ 11,987  
                

5. GECS FINANCING RECEIVABLES AND ALLOWANCE FOR LOSSES ON FINANCING RECEIVABLES

GECS financing receivables – net, consisted of the following.

 

     At  
(In millions)    June 30,
2010
    January 1,
2010(a)
    December 31,
2009
 

Loans, net of deferred income

   $ 294,016     $ 331,710     $ 290,586  

Investment in financing leases, net of deferred income

     48,339       55,209       54,445  
                        
     342,355       386,919       345,031  

Less allowance for losses

     (9,093     (9,805     (8,105
                        

Financing receivables – net(b)

   $ 333,262     $ 377,114     $ 336,926  
                        

 

 

 

(a) Reflects the effects of our adoption of ASU 2009-16 & 17 on January 1, 2010.
(b) Financing receivables at June 30, 2010 and December 31, 2009 included $1,621 million and $2,704 million, respectively, relating to loans that had been acquired in a transfer but have been subject to credit deterioration since origination per ASC 310, Receivables.

 

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Effective January 1, 2009, loans acquired in a business acquisition are recorded at fair value, which incorporates our estimate at the acquisition date of the credit losses over the remaining life of the portfolio. As a result, the allowance for loan losses is not carried over at acquisition. This may result in lower reserve coverage ratios prospectively. Details of financing receivables – net follow.

 

     At  
(In millions)    June 30,
2010
    January 1,
2010(a)
    December 31,
2009
 

CLL(b)

      

Americas

   $ 93,042     $ 99,666     $ 87,496  

Europe

     36,067       43,403       41,455  

Asia

     11,914       13,159       13,202  

Other

     2,727       2,836       2,836  
                        
     143,750       159,064       144,989  
                        

Consumer(b)

      

Non-U.S. residential mortgages

     48,013       58,345       58,345  

Non-U.S. installment and revolving credit

     21,783       24,976       24,976  

U.S. installment and revolving credit

     42,946       47,171       23,190  

Non-U.S. auto

     10,012       13,344       13,344  

Other

     9,764       11,688       11,688  
                        
     132,518       155,524       131,543  
                        

Real Estate

     44,006       48,673       44,841  
                        

Energy Financial Services

     7,472       7,790       7,790  
                        

GECAS(b)

     12,337       13,254       13,254  
                        

Other(c)

     2,272       2,614       2,614  
                        
     342,355       386,919       345,031  

Less allowance for losses

     (9,093     (9,805     (8,105
                        

Total

   $ 333,262     $ 377,114     $ 336,926  
                        

 

 

 

(a) Reflects the effects of our adoption of ASU 2009-16 & 17 on January 1, 2010.
(b) During the first quarter of 2010, we transferred the Transportation Financial Services business from GECAS to CLL and the Consumer business in Italy from Consumer to CLL. Prior-period amounts were reclassified to conform to the current-period presentation.
(c) Consisted of loans and financing leases related to certain consolidated, liquidating securitization entities.

Individually impaired loans are defined by U.S. generally accepted accounting principles (GAAP) as larger balance or restructured loans for which it is probable that the lender will be unable to collect all amounts due according to original contractual terms of the loan agreement. The vast majority of our consumer and a portion of our CLL nonearning receivables are excluded from this definition, as they represent smaller balance homogeneous loans that we evaluate collectively by portfolio for impairment. An analysis of impaired loans and specific reserves follows.

 

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     At
(In millions)    June 30,
2010
   January 1,
2010(a)
    December 31,
2009

Loans requiring allowance for losses

   $ 11,515    $ 9,541     $ 9,145

Loans expected to be fully recoverable

     3,924      3,914       3,741
                     

Total impaired loans

   $ 15,439    $ 13,455     $ 12,886
                     

Allowance for losses (specific reserves)

   $ 3,033    $ 2,376     $ 2,331

Average investment during the period

     14,182      (c     8,493

Interest income earned while impaired(b)

     206      (c     227

 

 

 

(a) Reflects the effects of our adoption of ASU 2009-16 & 17 on January 1, 2010.
(b) Recognized principally on cash basis.
(c) Not applicable.

Impaired loans increased by $1,984 million from January 1, 2010, to June 30, 2010, primarily relating to increases at Real Estate. Impaired loans consolidated as a result of our adoption of ASU 2009-16 & 17 primarily related to our Consumer business. We regularly review our Real Estate loans for impairment using both quantitative and qualitative factors, such as debt service coverage and loan-to-value ratios. We classify Real Estate loans as impaired when the most recent valuation reflects a projected loan-to-value ratio at maturity in excess of 100%, even if the loan is currently paying in accordance with contractual terms. The increase in impaired loans and related specific reserves at Real Estate reflects our current estimate of collateral values of the underlying properties, and our estimate of loans which are not past due, but for which it is probable that we will be unable to collect the full principal balance at maturity due to a decline in the underlying value of the collateral. Of our $8,281 million impaired loans at Real Estate at June 30, 2010, $5,892 million are currently paying in accordance with the contractual terms of the loan. Impaired loans at CLL primarily represent senior secured lending positions.

Our loss mitigation strategy intends to minimize economic loss and, at times, can result in rate reductions, principal forgiveness, extensions, forbearance or other actions, which may cause the related loan to be classified as a TDR. Such loans are classified as impaired, and specific reserves are determined based upon the present value of expected future cash flows discounted at the loan’s original effective interest rate, or collateral value as a practical expedient in accordance with the requirements of ASC 310-10-35. As of June 30, 2010, TDRs included in impaired loans were $5,942 million, primarily relating to Real Estate ($2,127 million), Consumer ($1,918 million) and CLL ($1,835 million). TDRs consolidated as a result of our adoption of ASU 2009-16 & 17 primarily related to our Consumer business ($364 million).

 

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GECS Allowance for Losses on Financing Receivables

 

(In millions)    Balance
December 31,
2009
   Adoption of
ASU 2009-
16 & 17 (a)
    Balance
January 1,
2010
   Provision
charged to
operations
    Other(b)     Gross
write-offs
    Recoveries    Balance
June 30,
2010

CLL(c)

                   

Americas

   $ 1,179    $ 66      $ 1,245    $ 630     $ (10   $ (558   $ 55    $ 1,362

Europe

     575      —          575      137       (70     (288     28      382

Asia

     244      (10     234      108       (23     (94     9      234

Other

     11      —          11      (1     (2     —          —        8

Consumer(c)

                   

Non-U.S. residential mortgages

     949      —          949      184       (105     (187     51      892

Non-U.S. installment and revolving credit

     1,181      —          1,181      652       (114     (987     288      1,020

U.S. installment and revolving credit

     1,698      1,602        3,300      1,604       (1     (2,400     251      2,754

Non-U.S. auto

     308      —          308      71       (43     (204     102      234

Other

     300      —          300      165       (34     (217     43      257

Real Estate

     1,494      42        1,536      645       (11     (374     1      1,797

Energy Financial Services

     28      —          28      24       1       —          —        53

GECAS(c)

     104      —          104      35       —          (89     —        50

Other

     34      —          34      18       —          (3     1      50
                                                           

Total

   $ 8,105    $ 1,700      $ 9,805    $ 4,272     $ (412   $ (5,401   $ 829    $ 9,093
                                                           

 

 

 

(a) Reflects the effects of our adoption of ASU 2009-16 & 17 on January 1, 2010.
(b) Other primarily included the effects of currency exchange.
(c) During the first quarter of 2010, we transferred the Transportation Financial Services business from GECAS to CLL and the Consumer business in Italy from Consumer to CLL. Prior-period amounts were reclassified to conform to the current-period presentation.

 

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Table of Contents
(In millions)    Balance
January 1,
2009
   Provision
charged to
operations
   Other(a)     Gross
write-offs
    Recoveries    Balance
June 30,
2009

CLL(b)

               

Americas

   $ 843    $ 736    $ (33   $ (457   $ 44    $ 1,133

Europe

     311      323      —          (192     36      478

Asia

     163      120      (6     (85     7      199

Other

     4      3      2       (1     —        8

Consumer(b)

               

Non-U.S. residential mortgages

     381      560      59       (231     59      828

Non-U.S. installment and revolving credit

     1,049      891      65       (1,092     228      1,141

U.S. installment and revolving credit

     1,700      1,729      (497     (1,438     81      1,575

Non-U.S. auto

     203      242      26       (297     90      264

Other

     226      160      (16     (163     27      234

Real Estate

     301      344      10       (85     —        570

Energy Financial Services

     58      32      2       —          —        92

GECAS(b)

     58      1      (1     —          —        58

Other

     28      12      1       (14     —        27
                                           

Total

   $ 5,325    $ 5,153    $ (388   $ (4,055   $ 572    $ 6,607
                                           

 

 

 

(a) Other primarily included the effects of securitization activity and currency exchange.
(b) During the first quarter of 2010, we transferred the Transportation Financial Services business from GECAS to CLL and the Consumer business in Italy from Consumer to CLL. Prior-period amounts were reclassified to conform to the current-period presentation.

6. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment – net, consisted of the following.

 

     At  
(In millions)    June 30,
2010
    December 31,
2009
 

Original cost

   $ 108,976     $ 113,315  

Less accumulated depreciation and amortization

     (43,618     (44,103
                

Property, plant and equipment – net

   $ 65,358     $ 69,212  
                

 

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7. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill and other intangible assets – net, consisted of the following.

 

     At
(In millions)    June 30,
2010
   December 31,
2009

Goodwill

   $ 63,094    $ 65,574
             

Other intangible assets

     

Intangible assets subject to amortization

   $ 10,842    $ 11,824

Indefinite-lived intangible assets(a)

     104      105
             

Total

   $ 10,946    $ 11,929
             

 

 

 

(a) Indefinite-lived intangible assets principally comprised trademarks and tradenames.

Changes in goodwill balances follow.

 

(In millions)    Balance
January 1,
2010
   Acquisitions    Dispositions,
currency
exchange
and other
    Balance
June 30,
2010

Energy Infrastructure

   $ 12,777    $ —      $ (340   $ 12,437

Technology Infrastructure

     22,648      13      (158     22,503

GE Capital

     28,961      —        (1,818     27,143

Home & Business Solutions

     1,188      —        (177     1,011
                            

Total

   $ 65,574    $ 13    $ (2,493   $ 63,094
                            

Goodwill balances decreased $2,480 million during the first six months of 2010, primarily as a result of the stronger U.S. dollar ($1,780 million) and the deconsolidation of Regency Energy Partners L.P. (Regency) at GE Capital ($557 million).

On May 26, 2010, we sold our general partnership interest in Regency, a midstream natural gas services provider, and retained a 21% limited partnership interest. This resulted in the deconsolidation of Regency and the remeasurement of our limited partnership interest to fair value. We recorded a pre-tax gain of $119 million, which is reported in GECS revenues from services.

 

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Intangible Assets Subject to Amortization

 

     At
     June 30, 2010    December 31, 2009
(In millions)    Gross
carrying
amount
   Accumulated
amortization
    Net    Gross
carrying
amount
   Accumulated
amortization
    Net

Customer-related

   $ 5,826    $ (1,523   $ 4,303    $ 6,044    $ (1,392   $ 4,652

Patents, licenses and trademarks

     5,301      (2,404     2,897      5,198      (2,177     3,021

Capitalized software

     6,491      (4,201     2,290      6,549      (4,127     2,422

Lease valuations

     1,643      (831     812      1,754      (793     961

Present value of future profits

     889      (452     437      921      (470     451

All other

     399      (296     103      745      (428     317
                                           

Total

   $ 20,549    $ (9,707   $ 10,842    $ 21,211    $ (9,387   $ 11,824
                                           

Consolidated amortization related to intangible assets subject to amortization was $452 million and $553 million for the three months ended June 30, 2010 and 2009, respectively. Consolidated amortization related to intangible assets subject to amortization for the six months ended June 30, 2010 and 2009, was $858 million and $1,013 million, respectively.

 

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8. GECS BORROWINGS AND BANK DEPOSITS

GECS borrowings are summarized in the following table.

 

     At
(In millions)    June 30,
2010
   December 31,
2009

Short-term borrowings

     

Commercial paper

     

U.S.

   $ 36,330    $ 37,775

Non-U.S.

     9,647      9,525

Current portion of long-term borrowings(a)(b)(c)

     63,000      69,883

GE Interest Plus notes(d)

     8,354      7,541

Other(c)

     3,680      6,413
             

GECS short-term borrowings

   $ 121,011    $ 131,137
             

Long-term borrowings

     

Senior unsecured notes(a)(b)

   $ 269,641    $ 305,306

Subordinated notes(e)

     2,411      2,686

Subordinated debentures(f)

     6,952      7,647

Other(c)(g)

     10,764      10,752
             

GECS long-term borrowings

   $ 289,768    $ 326,391
             

Non-recourse borrowings of consolidated securitization entities(h)

   $ 33,411    $ 3,883
             

Bank deposits(i)

   $ 37,471    $ 38,923
             

Total borrowings and bank deposits

   $ 481,661    $ 500,334
             

 

 

 

(a) GECC had issued and outstanding $58,045 million and $59,336 million of senior, unsecured debt that was guaranteed by the Federal Deposit Insurance Corporation (FDIC) under the Temporary Liquidity Guarantee Program at June 30, 2010 and December 31, 2009, respectively. Of the above amounts $13,000 million and $5,841 million is included in current portion of long-term borrowings at June 30, 2010 and December 31, 2009, respectively.
(b) Included in total long-term borrowings was $2,624 million and $3,138 million of obligations to holders of guaranteed investment contracts at June 30, 2010 and December 31, 2009, respectively. GECC could be required to repay up to approximately $2,500 million if its long-term credit rating were to fall below AA–/Aa3 or its short-term credit rating were to fall below A–1+/P–1.
(c) Included $10,400 million and $10,604 million of secured funding at June 30, 2010 and December 31, 2009, respectively, of which $3,795 million and $5,667 million is non-recourse to GECS at June 30, 2010 and December 31, 2009, respectively.
(d) Entirely variable denomination floating rate demand notes.
(e) Included $417 million of subordinated notes guaranteed by GE at both June 30, 2010 and December 31, 2009.
(f) Subordinated debentures receive rating agency equity credit and were hedged at issuance to the U.S. dollar equivalent of $7,725 million.
(g) Included $1,533 million and $1,649 million of covered bonds at June 30, 2010 and December 31, 2009, respectively. If the short-term credit rating of GECC were reduced below A–1/P–1, GECC would be required to partially cash collateralize these bonds in an amount up to $707 million.
(h) Included at June 30, 2010 was $2,100 million of commercial paper, $11,674 million of current portion of long-term borrowings and $19,637 million of long-term borrowings related to former QSPEs consolidated on January 1, 2010 upon our adoption of ASU 2009-16 & 17, previously consolidated liquidating securitization entities and other on-book securitization borrowings. Included at December 31, 2009, was $2,424 million of commercial paper, $378 million of current portion of long-term borrowings and $1,081 million of long-term borrowings issued by consolidated liquidating securitization entities. See Note 16.
(i) Included $19,816 million and $21,252 million of deposits in non-U.S. banks at June 30, 2010 and December 31, 2009, respectively, and $10,882 million and $10,476 million of certificates of deposits distributed by brokers with maturities greater than one year at June 30, 2010 and December 31, 2009, respectively.

 

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9. POSTRETIREMENT BENEFIT PLANS

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 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)    2010     2009     2010     2009  

Expected return on plan assets

   $ (1,084   $ (1,127   $ (2,170   $ (2,253

Service cost for benefits earned

     277       336       569       689  

Interest cost on benefit obligation

     667       665       1,342       1,334  

Prior service cost amortization

     59       80       119       161  

Net actuarial loss amortization

     329       83       662       173  
                                

Pension plans cost

   $ 248     $ 37     $ 522     $ 104  
                                

 

     Other Pension Plans  
     Three months ended June 30     Six months ended June 30  
(In millions)    2010     2009     2010     2009  

Expected return on plan assets

   $ (124   $ (105   $ (254   $ (211

Service cost for benefits earned

     62       82       144       165  

Interest cost on benefit obligation

     120       109       244       221  

Prior service cost amortization

     4       3       8       5  

Net actuarial loss amortization

     52       27       111       56  
                                

Pension plans cost

   $ 114     $ 116     $ 253     $ 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)    2010     2009     2010     2009  

Expected return on plan assets

   $ (29   $ (32   $ (58   $ (64

Service cost for benefits earned

     54       85       112       159  

Interest cost on benefit obligation

     175       177       350       354  

Prior service cost amortization

     158       168       316       336  

Net actuarial gain amortization

     (6     (27     (12     (54
                                

Retiree benefit plans cost

   $ 352     $ 371     $ 708     $ 731  
                                

 

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10. INCOME TAXES

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)    June 30,
2010
   December 31,
2009

Unrecognized tax benefits

   $ 6,862    $ 7,251

Portion that, if recognized, would reduce tax expense and effective tax rate(a)

     4,648      4,918

Accrued interest on unrecognized tax benefits

     1,498      1,369

Accrued penalties on unrecognized tax benefits

     99      99

Reasonably possible reduction to the balance of unrecognized tax benefits in succeeding 12 months

     0-2,100      0-1,800

Portion that, if recognized, would reduce tax expense and effective tax rate(a)

     0-1,600      0-1,400

 

 

 

(a) Some portion of such reduction may be reported as discontinued operations.

The IRS is currently auditing our consolidated income tax returns for 2003-2007. In addition, certain other U.S. tax deficiency issues and refund claims for previous years remain unresolved. It is reasonably possible that the 2003-2005 U.S. audit cycle will be completed during the next 12 months, which could result in a decrease in our balance of “unrecognized tax benefits” – that is, the aggregate tax effect of differences between tax return positions and the benefits recognized in our financial statements. We believe that there are no other jurisdictions in which the outcome of unresolved issues or claims is likely to be material to our results of operations, financial position or cash flows. We further believe that we have made adequate provision for all income tax uncertainties.

GE and GECS file a consolidated U.S. federal income tax return. The GECS provision for current tax expense includes its effect on the consolidated return. The effect of GECS on the consolidated liability is generally settled in cash as GE tax payments are due. The effect of GECS on the amount of the consolidated tax liability from the formation of the NBCU joint venture will be settled in cash when it otherwise would have reduced the liability of the group absent the tax on formation.

During the first quarter of 2009, following the change in our external credit ratings, funding actions taken and review of our operations, liquidity and funding, we determined that undistributed prior-year earnings of non-U.S. subsidiaries of GECS, on which we had previously provided deferred U.S. taxes, would be indefinitely reinvested outside the U.S. This change increased the amount of prior-year earnings indefinitely reinvested outside the U.S. by approximately $2 billion, resulting in an income tax benefit of $700 million in the first quarter of 2009.

 

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11. SHAREOWNERS’ EQUITY

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

 

     Three months ended June 30    Six months ended June 30
(In millions)    2010     2009    2010     2009

Net earnings attributable to the Company

   $ 3,109     $ 2,689    $ 5,054     $ 5,518

Investment securities – net

     633       1,553      726       918

Currency translation adjustments – net

     (4,743     6,545      (7,155     2,485

Cash flow hedges – net

     42       688      444       1,405

Benefit plans – net

     526       240      924       479
                             

Total

   $ (433   $ 11,715    $ (7   $ 10,805
                             

 

 

On January 1, 2010, we adopted ASU 2009-16 & 17. This resulted in a reduction of GE shareowners’ equity primarily related to the reversal of a portion of previously recognized securitization gains. This adjustment is reflected as a cumulative effect adjustment of the opening balances of retained earnings ($1,708 million) and accumulated other comprehensive income ($265 million). See Notes 1 and 16 for additional information.

Changes to noncontrolling interests during the second quarter of 2010 resulted from net earnings $105 million, dividends $(74) million, the effects of deconsolidating Regency $(979) million, AOCI $(48) million and other $31 million. Changes to the individual components of AOCI attributable to noncontrolling interests were insignificant.

Changes to noncontrolling interests during the first six months of 2010 resulted from net earnings $166 million, dividends $(259) million, the effects of deconsolidating Regency $(979) million, AOCI $(47) million and other $65 million. Changes to the individual components of AOCI attributable to noncontrolling interests were insignificant.

Changes to noncontrolling interests during the second quarter of 2009 resulted from net earnings $12 million, dividends $(93) million, AOCI $29 million and other $(12) million. Changes to the individual components of AOCI attributable to noncontrolling interests were insignificant.

Changes to noncontrolling interests during the first six months of 2009 resulted from net earnings $97 million, dividends $(292) million, the effects of deconsolidating Penske Truck Leasing Co., L.P. (PTL) $(331) million, AOCI $(4) million and other $(24) million. Changes to the individual components of AOCI attributable to noncontrolling interests were insignificant.

 

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12. GECS REVENUES FROM SERVICES

GECS revenues from services are summarized in the following table.

 

     Three months ended June 30    Six months ended June 30
(In millions)    2010    2009    2010    2009

Interest on loans(a)

   $ 5,604    $ 5,080    $ 11,330    $ 10,180

Equipment leased to others

     2,769      2,927      5,530      6,412

Fees(a)

     1,224      1,099      2,489      2,259

Investment income(a)(b)

     518      993      1,086      1,658

Financing leases(a)

     703      830      1,459      1,738

Premiums earned by insurance activities

     490      500      979      1,010

Net securitization gains(a)

     —        394      —        720

Real estate investments

     354      371      631      718

Associated companies

     460      309      1,057      474

Other items(c)(d)

     858      749      1,309      2,267
                           

Total

   $ 12,980    $ 13,252    $ 25,870    $ 27,436
                           

 

 

 

(a) On January 1, 2010, we adopted ASU 2009-16 & 17 which required us to consolidate substantially all of our former QSPEs. As a result, 2010 GECS Revenues from services include interest and fee income from these entities, which were not presented on a consolidated basis in 2009. Also beginning in 2010, we no longer record gains for substantially all of our securitizations as they are recorded as on-book financings. See Note 16.
(b) Included net other-than-temporary impairments on investment securities of $56 million and $97 million in the second quarters of 2010 and 2009, respectively, and $135 million and $329 million in the first six months of 2010 and 2009, respectively. See Note 3.
(c) Included a gain on the sale of a limited partnership interest in PTL and a related gain on the remeasurement of the retained investment to fair value totaling $296 million in the first quarter of 2009.
(d) Including a gain of $343 million on the remeasurement to fair value of our equity method investment in BAC Credomatic GECF Inc. (BAC), following our acquisition of a controlling interest in the second quarter of 2009.

 

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13. EARNINGS PER SHARE INFORMATION

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 June 30  
    2010     2009  
(In millions; per-share amounts in dollars)   Diluted     Basic     Diluted     Basic  

Amounts attributable to the Company:

       

Consolidated

       

Earnings from continuing operations for per-share calculation(a)

  $ 3,273     $ 3,273     $ 2,876     $ 2,876  

Preferred stock dividends declared

    (75     (75     (75     (75
                               

Earnings from continuing operations attributable to common shareowners for per-share calculation

  $ 3,198     $ 3,198     $ 2,801     $ 2,801  

Loss from discontinued operations for per-share calculation

    (188     (188     (194     (194

Net earnings attributable to GE common shareowners for per-share calculation

    3,011       3,011       2,607       2,607  

Average equivalent shares

       

Shares of GE common stock outstanding

    10,685       10,685       10,609       10,609  

Employee compensation-related shares, including stock options

    17       —          —          —     
                               

Total average equivalent shares

    10,702       10,685       10,609       10,609  
                               

Per-share amounts

       

Earnings from continuing operations

  $ 0.30     $ 0.30     $ 0.26     $ 0.26  

Loss from discontinued operations

    (0.02     (0.02     (0.02     (0.02

Net earnings

    0.28       0.28       0.25       0.25  

 

 

 

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    Six months ended June 30  
    2010     2009  
(In millions; per-share amounts in dollars)   Diluted     Basic     Diluted     Basic  

Amounts attributable to the Company:

       

Consolidated

       

Earnings from continuing operations for per-share calculation(a)

  $ 5,590     $ 5,589     $ 5,718     $ 5,717  

Preferred stock dividends declared

    (150     (150     (150     (150
                               

Earnings from continuing operations attributable to common shareowners for per-share calculation

  $ 5,440     $ 5,439     $ 5,568     $ 5,567  

Loss from discontinued operations for per-share calculation

    (578     (578     (215     (215

Net earnings attributable to GE common shareowners for per-share calculation

    4,863       4,863       5,353       5,353  

Average equivalent shares

       

Shares of GE common stock outstanding

    10,678       10,678       10,585       10,585  

Employee compensation-related shares, including stock options

    16       —          —          —     
                               

Total average equivalent shares

    10,694       10,678       10,585       10,585  
                               

Per-share amounts

       

Earnings from continuing operations

  $ 0.51     $ 0.51     $ 0.53     $ 0.53  

Loss from discontinued operations

    (0.05     (0.05     (0.02     (0.02

Net earnings

    0.45       0.46       0.51       0.51  

 

 

 

(a) Included an insignificant amount of dividend equivalents in each of the periods presented and an insignificant amount related to accretion of redeemable securities for the three and six months ended June 30, 2010.

For the three and six months ended June 30, 2010 and 2009, there were approximately 309 million and 311 million, respectively, and 337 million and 342 million, respectively, of outstanding stock awards that were not included in the computation of diluted earnings per share because their effect was anti-dilutive.

Earnings-per-share amounts are computed independently for earnings from continuing operations, loss from discontinued operations and net earnings. As a result, the sum of per-share amounts from continuing operations and discontinued operations may not equal the total per-share amounts for net earnings.

14. FAIR VALUE MEASUREMENTS

For a description on how we estimate fair value, see Note 1 in our 2009 consolidated financial statements for information.

The following tables present our assets and liabilities measured at fair value on a recurring basis. Included in the tables are investment securities of $27,329 million and $25,729 million at June 30, 2010 and December 31, 2009, respectively, primarily supporting obligations to annuitants and policyholders in our run-off insurance operations, and $6,168 million and $6,629 million at June 30, 2010 and December 31, 2009, respectively, supporting obligations to holders of GICs in Trinity (which ceased issuing new investment contracts beginning in the first quarter of 2010), and investment securities held at our global banks. Such securities are mainly investment-grade.

 

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(In millions)    Level 1(a)    Level 2(a)    Level 3(b)    Netting
adjustment(c)
    Net balance

June 30, 2010

             

Assets

             

Investment securities

             

Debt

             

U.S. corporate

   $ 185    $ 19,673    $ 3,309    $ —        $ 23,167

State and municipal

     —        2,539      238      —          2,777

Residential mortgage-backed

     —        2,955      131      —          3,086

Commercial mortgage-backed

     —        2,825      52      —          2,877

Asset-backed

     —        874      1,885      —          2,759

Corporate – non-U.S.

     137      1,074      1,085      —          2,296

Government – non-U.S.

     934      1,543      143      —          2,620

U.S. government and federal agency

     47      1,120      253      —          1,420

Retained interests(d)

     —        —        41      —          41

Equity

             

Available-for-sale

     471      151      17      —          639

Trading

     420      —        —        —          420

Derivatives(e)

     —        12,118      707      (4,839     7,986

Other(f)

     —        —        897      —          897
                                   

Total

   $ 2,194    $ 44,872    $ 8,758    $ (4,839   $ 50,985
                                   

Liabilities

             

Derivatives

   $ —      $ 6,930    $ 491    $ (4,848   $ 2,573

Other(g)

     —        759      —        —          759
                                   

Total

   $ —      $ 7,689    $ 491    $ (4,848   $ 3,332
                                   

December 31, 2009

             

Assets

             

Investment securities

             

Debt

             

U.S. corporate

   $ 723    $ 19,669    $ 3,258    $ —        $ 23,650

State and municipal

     —        1,621      173      —          1,794

Residential mortgage-backed

     —        3,195      123      —          3,318

Commercial mortgage-backed

     —        2,647      55      —          2,702

Asset-backed

     —        860      1,877      —          2,737

Corporate – non-U.S.

     159      692      989      —          1,840

Government – non-U.S.

     1,277      1,483      176      —          2,936

U.S. government and federal agency

     85      2,307      282      —          2,674

Retained interests

     —        —        8,831      —          8,831

Equity

             

Available-for-sale

     536      184      19      —          739

Trading

     720      —        —        —          720

Derivatives(e)

     —        11,056      804      (3,851     8,009

Other(f)

     —        —        1,006      —          1,006
                                   

Total

   $ 3,500    $ 43,714    $ 17,593    $ (3,851   $ 60,956
                                   

Liabilities

             

Derivatives

   $ —      $ 7,295    $ 222    $ (3,860   $ 3,657

Other(g)

     —        798      —        —          798
                                   

Total

   $ —      $ 8,093    $ 222    $ (3,860   $ 4,455
                                   

 

 

 

(a) Transfers between Level 1 and 2 were insignificant.
(b) Level 3 investment securities valued using non-binding broker quotes totaled $748 million and $1,055 million at June 30, 2010 and December 31, 2009, respectively, and were classified as available-for-sale securities.
(c) The netting of derivative receivables and payables is permitted when a legally enforceable master netting agreement exists. Included fair value adjustments related to our own and counterparty credit risk.
(d) Substantially all of our retained interests were consolidated in connection with our adoption of ASU 2009-16 & 17 on January 1, 2010.
(e) The fair value of derivatives included an adjustment for non-performance risk. At both June 30, 2010 and December 31, 2009, the cumulative adjustment was a gain $9 million. See Note 15 for additional information on the composition of our derivative portfolio.
(f) Included private equity investments and loans designated under the fair value option.
(g) Primarily represented the liability associated with certain of our deferred incentive compensation plans.

 

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The following tables present the changes in Level 3 instruments measured on a recurring basis for the three months ended June 30, 2010 and 2009 and the six months ended June 30, 2010 and 2009. The majority of our Level 3 balances consist of investment securities classified as available-for-sale with changes in fair value recorded in shareowners’ equity.

Changes in Level 3 Instruments for the Three Months Ended June 30, 2010

 

(In millions)   April 1,
2010
  Net realized/
unrealized
gains(losses)
included in
earnings(a)
    Net realized/
unrealized
gains (losses)
included in
accumulated
other
comprehensive
income
    Purchases,
issuances
and
settlements
    Transfers
in and/or
out of
Level 3(b)
    June 30,
2010
       Net change
in unrealized
gains (losses)
relating to
instruments
still held at
June 30,
2010 (c)
 
 

Investment securities

                 

Debt

                 

U.S. corporate

  $ 2,997   $ 16      $ 31     $ 271     $ (6   $ 3,309       $ —     

State and municipal

    243     —          (5     —          —          238         —     

Residential mortgage-backed

    133     —          (7     (1     6        131         —     

Commercial mortgage-backed

    116     —          (5     (62     3        52         —     

Asset-backed

    1,862     12        4       78       (71     1,885         —     

Corporate – non-U.S.

    1,203     2        (57     (26     (37     1,085         (7

Government – non-U.S.

    148     —          (21     16       —          143         —     

U.S. government and federal agency

    269     —          (15     (1     —          253         —     

Retained interests

    43     (1     1       (2     —          41         —     

Equity

                 

Available-for-sale

    19     —          (1     —          (1     17         1   

Trading

    —       —          —          —          —          —           —     

Derivatives(d)

    200     55        5       6       —          266         61   

Other

    896     (10     (45     28       28        897         (10
                                                       

Total

  $ 8,129   $ 74      $ (115   $ 307     $ (78   $ 8,317       $ 45   
                                                       

 

 

 

(a) Earnings effects are primarily included in the “GECS revenues from services” and “Interest and other financial charges” captions in the Condensed Statement of Earnings.
(b) Transfers in and out of Level 3 are considered to occur at the beginning of the period. Transfers out of Level 3 were a result of increased use of quotes from independent pricing vendors based on recent trading activity.
(c) Represented the amount of unrealized gains or losses for the period included in earnings.
(d) Represented derivative assets net of derivative liabilities and included cash accruals of $50 million not reflected in the fair value hierarchy table.

 

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Changes in Level 3 Instruments for the Three Months Ended June 30, 2009

 

(In millions)   April 1,
2009
  Net realized/
unrealized
gains(losses)
included in
earnings(a)
    Net realized/
unrealized
gains (losses)
included in
accumulated
other
comprehensive
income
    Purchases,
issuances
and
settlements
    Transfers
in and/or
out of
Level 3(b)
    June 30,
2009
       Net change
in unrealized
gains (losses)
relating to
instruments
still held at
June 30,
2009(c)
 
 

Investment securities

                 

Debt

                 

U.S. corporate

  $ 2,744   $ (66   $ 199     $ 24     $ 24      $ 2,925       $ 2   

State and municipal

    90     (1     44       (1     25        157         —     

Residential mortgage-backed

    106     —          —          —          (44     62         —     

Commercial mortgage-backed

    58     —          —          —          (8     50         —     

Asset-backed

    1,580     2        124       122       (14     1,814         —     

Corporate – non-U.S.

    595     (4     96       (36     (12     639         —     

Government – non-U.S.

    128     —          15       3       (3     143         —     

U.S. government and federal agency

    145     —          121       —          —          266         —     

Retained interests

    6,444     351        126       604       —          7,525         124   

Equity

                 

Available-for-sale

    16     —          3       (2     1        18         —     

Trading

    —       —          —          —          —          —           —     

Derivatives(d)(e)

    926     (15     (22     (110     10        789         (103

Other

    1,062     (109     28       50       —          1,031         (110
                                                       

Total

  $ 13,894   $ 158      $ 734     $ 654     $ (21   $ 15,419       $ (87
                                                       

 

 

 

(a) Earnings effects are primarily included in the “GECS revenues from services” and “Interest and other financial charges” captions in the Condensed Statement of Earnings.
(b) Transfers in and out of Level 3 are considered to occur at the beginning of the period. Transfers out of Level 3 were a result of increased use of quotes from independent pricing vendors based on recent trading activity.
(c) Represented the amount of unrealized gains or losses for the period included in earnings.
(d Losses from derivatives were more than offset by $66 million in gains from related derivatives included in Level 2 and $5 million in gains from qualifying fair value hedges.
(e) Represented derivative assets net of derivative liabilities and included cash accruals of $57 million not reflected in the fair value hierarchy table.

 

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Table of Contents

Changes in Level 3 Instruments for the Six Months Ended June 30, 2010

 

(In millions)   January 1,
2010 (a)
  Net realized/
unrealized
gains(losses)
included in
earnings(b)
    Net realized/
unrealized
gains (losses)
included in
accumulated
other
comprehensive
income
    Purchases,
issuances
and
settlements
    Transfers
in and/or
out of
Level 3(c)
    June 30,
2010
       Net change
in unrealized
gains (losses)
relating to
instruments
still held at
June 30,
2010 (d)
 
 

Investment securities

                 

Debt

                 

U.S. corporate

  $ 3,258   $ 32      $ 82     $ (57   $ (6   $ 3,309       $ —     

State and municipal

    173     —          69       (4     —          238         —     

Residential mortgage-backed

    123     —          10       (1     (1     131         —     

Commercial mortgage-backed

    1,038     30        (3     (1,013     —          52         —     

Asset-backed

    1,872     21        27       62       (97     1,885         —     

Corporate – non-U.S.

    1,206     (2     (77     153       (195     1,085         (20

Government – non-U.S.

    176     —          (23     15       (25     143         —     

U.S. government and federal agency

    282     —          (27     (2     —          253         —     

Retained interests

    45     (1     2       (5     —          41         —     

Equity

                 

Available-for-sale

    19     —          (1     —          (1     17         1   

Trading

    —       —          —          —          —          —           —     

Derivatives(e)

    236     143        (2     (51     (60     266         88   

Other

    960     (25     (68     30       —          897         (19
                                                       

Total

  $ 9,388   $ 198      $ (11   $ (873   $ (385   $ 8,317       $ 50   
                                                       

 

 

 

(a) Included $1,015 million in debt securities, a reduction in retained interests of $8,782 million and a reduction in derivatives of $365 million related to adoption of ASU 2009-16 & 17.
(b) Earnings effects are primarily included in the “GECS revenues from services” and “Interest and other financial charges” captions in the Condensed Statement of Earnings.
(c) Transfers in and out of Level 3 are considered to occur at the beginning of the period. Transfers out of Level 3 were a result of increased use of quotes from independent pricing vendors based on recent trading activity.
(d) Represented the amount of unrealized gains or losses for the period included in earnings.
(e) Represented derivative assets net of derivative liabilities and included cash accruals of $50 million not reflected in the fair value hierarchy table.

 

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Table of Contents

Changes in Level 3 Instruments for the Six Months Ended June 30, 2009

 

(In millions)   January 1,
2009
  Net realized/
unrealized
gains(losses)
included in
earnings(a)
    Net realized/
unrealized
gains (losses)
included in
accumulated
other
comprehensive
income
    Purchases,
issuances
and
settlements
    Transfers
in and/or
out of
Level 3(b)
    June 30,
2009
       Net change
in unrealized
gains (losses)
relating to
instruments
still held at
June 30,
2009 (c)
 
 

Investment securities

                 

Debt

                 

U.S. corporate

  $ 3,220   $ (118   $ 62     $ (60   $ (179   $ 2,925       $ 3   

State and municipal

    247     —          (107     (8     25        157         —     

Residential mortgage-backed

    173     —          (15     (20     (76     62         —     

Commercial mortgage-backed

    66     —          (8     —          (8     50         —     

Asset-backed

    1,605     9        227       114       (141     1,814         —     

Corporate – non-U.S.

    659     (13     15       35       (57     639         —     

Government – non-U.S.

    424     —          (4     3       (280     143         —     

U.S. government and federal agency

    183     —          84       (1     —          266         —     

Retained interests

    6,356     649        170       350       —          7,525         198   

Equity

                 

Available-for-sale

    23     (1     3       (2     (5     18         —     

Trading

    —       —          —          —          —          —           —     

Derivatives(d)

    1,003     9        (65     (173     15        789         (112

Other

    1,105     (137     11       45       7        1,031         (144
                                                       

Total

  $ 15,064   $ 398      $ 373     $ 283     $ (699   $ 15,419       $ (55
                                                       

 

 

 

(a) Earnings effects are primarily included in the “GECS revenues from services” and “Interest and other financial charges” captions in the Condensed Statement of Earnings.
(b) Transfers in and out of Level 3 are considered to occur at the beginning of the period. Transfers out of Level 3 were a result of increased use of quotes from independent pricing vendors based on recent trading activity.
(c) Represented the amount of unrealized gains or losses for the period included in earnings.
(d) Represented derivative assets net of derivative liabilities and included cash accruals of $57 million not reflected in the fair value hierarchy table.

 

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Table of Contents

Non-Recurring Fair Value Measurements

The following table represents non-recurring fair value amounts (as measured at the time of the adjustment) for those assets remeasured to fair value on a non-recurring basis during the fiscal year and still held at June 30, 2010 and at December 31, 2009.

 

     Remeasured during
the six months ended
June 30, 2010
   Remeasured during
the year ended
December 31, 2009
(In millions)    Level 2    Level 3    Level 2    Level 3

Financing receivables and loans held for sale

   $ 138    $ 7,170    $ 81    $ 5,420

Cost and equity method investments(a)

     —        504      —        1,006

Long-lived assets, including real estate

     294      4,907      435      5,105

Retained investment in formerly consolidated subsidiaries(b)

     —        113      —        5,903
                           

Total

   $ 432    $ 12,694    $ 516    $ 17,434
                           

 

 

 

(a) Includes the fair value of private equity and real estate funds included in Level 3 of $113 million and $409 million at June 30, 2010 and December 31, 2009, respectively.
(b) During the first six months ended June 30, 2010, we had a retained investment in Regency, a formerly consolidated subsidiary, in Level 1 that was remeasured to a fair value of $549 million.

The following table represents the fair value adjustments to assets measured at fair value on a non-recurring basis and still held at June 30, 2010 and June 30, 2009.

 

     Three months ended June 30     Six months ended June 30  
(In millions)    2010     2009     2010     2009  

Financing receivables and loans held for sale

   $ (684   $ (430   $ (1,211   $ (717

Cost and equity method investments(a)

     (40     (266     (94     (492

Long-lived assets, including real estate

     (747     (189     (1,348     (321

Retained investments in formerly consolidated

        

subsidiaries

     183       11       183       237  
                                

Total

   $ (1,288   $ (874   $ (2,470   $ (1,293
                                

 

 

 

(a) Includes fair value adjustments associated with private equity and real estate funds of $13 million and $74 million in the second quarters of 2010 and 2009, respectively, and $26 million and $171 million in the first six months of 2010 and 2009, respectively.

15. FINANCIAL INSTRUMENTS

The following table provides information about the assets and liabilities not carried at fair value in our Condensed Statement of Financial Position. Consistent with ASC 825, Financial Instruments, the table excludes financing leases and non-financial assets and liabilities. Apart from certain of our borrowings and certain marketable securities, few of the instruments identified below are actively traded and their fair values must often be determined using financial models. Realization of the fair value of these instruments depends upon market forces beyond our control, including marketplace liquidity. For a description on how we estimate fair value, see Note 22 in our 2009 consolidated financial statements.

 

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Table of Contents
     At  
   June 30, 2010     December 31, 2009  
         Assets (liabilities)           Assets (liabilities)  
(In millions)    Notional
amount
    Carrying
amount
(net)
    Estimated
fair value
    Notional
amount
    Carrying
amount
(net)
    Estimated
fair value
 

GE

            

Assets

            

Investments and notes receivable

   $ (a   $ 400     $ 400     $ (a   $ 412     $ 412  

Liabilities

            

Borrowings

     (a     (9,906     (10,783     (a     (12,185     (12,757

GECS

            

Assets

            

Loans(b)

     (a     285,409       279,746       (a     283,135       269,283  

Other commercial mortgages

     (a     1,062       1,149       (a     1,151       1,198  

Loans held for sale

     (a     265       271       (a     1,303       1,343  

Other financial instruments(c)

     (a     2,082       2,493       (a     2,096       2,385  

Liabilities

            

Borrowings and bank deposits(b)(d)

     (a     (481,661     (487,574     (a     (500,334     (506,148

Investment contract benefits

     (a     (3,837     (4,456     (a     (3,940     (4,397

Guaranteed investment contracts

     (a     (7,145     (6,870     (a     (8,310     (8,394

Insurance – credit life(e)

     1,574       (80     (54     1,595       (80     (53

 

 

 

(a) These financial instruments do not have notional amounts.
(b) Amounts at June 30, 2010 reflect our adoption of ASU 2009-16 & 17 on January 1, 2010. See Notes 5, 8 and 16.
(c) Principally cost method investments.
(d) Fair values exclude interest rate and currency derivatives designated as hedges of borrowings. Had they been included, the fair value of borrowings at June 30, 2010 and December 31, 2009 would have been reduced by $3,844 million and $2,856 million, respectively.
(e) Net of reinsurance of $2,600 million and $2,800 million at June 30, 2010 and December 31, 2009, respectively.

Loan Commitments

 

     Notional amount at
(in millions)    June 30,
2010
   December 31,
2009

Ordinary course of business lending commitments (a)(b)

   $ 5,231    $ 6,676

Unused revolving credit lines(c)

     

Commercial

     29,556      31,803

Consumer – principally credit cards

     255,602      231,880

 

 

 

(a) Excluded investment commitments of $2,687 million and $2,659 million as of June 30, 2010 and December 31, 2009, respectively.
(b) Included a $920 million and $972 million commitment as of June 30, 2010 and December 31, 2009, respectively, associated with a secured financing arrangement that can increase to a maximum of $5,000 million and $4,998 million based on the asset volume under the arrangement as of June 30, 2010 and December 31, 2009, respectively.
(c) Excluded inventory financing arrangements, which may be withdrawn at our option, of $12,890 million and $13,889 million as of June 30, 2010 and December 31, 2009, respectively.

 

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Table of Contents

Derivatives and hedging

As a matter of policy, we use derivatives for risk management purposes, and we do not use derivatives for speculative purposes. A key risk management objective for our financial services businesses is to mitigate interest rate and currency risk by seeking to ensure that the characteristics of the debt match the assets they are funding. If the form (fixed versus floating) and currency denomination of the debt we issue do not match the related assets, we typically execute derivatives to adjust the nature and tenor of funding to meet this objective. The determination of whether we enter into a derivative transaction or issue debt directly to achieve this objective depends on a number of factors, including customer needs for specific types of financing, and market related factors that affect the type of debt we can issue.

Of the outstanding notional amount of $313,000 million at June 30, 2010, approximately 86% or $268,000 million, is associated with reducing or eliminating the interest rate, currency or market risk between financial assets and liabilities in our financial services businesses. The remaining derivative activities primarily relate to hedging against adverse changes in currency exchange rates and commodity prices related to anticipated sales and purchases, providing certain derivatives and/or support arrangements to our customers, and contracts containing certain clauses which meet the accounting definition of a derivative. The instruments used in these activities are designated as hedges when practicable. In certain cases, the hedged item is already recorded in earnings currently, such as when we hedge a recognized foreign currency transaction (e.g., a receivable or payable) with a derivative. In such instances, hedge accounting is not necessary and the derivatives are classified as freestanding.

The following table provides information about the fair value of our derivatives, by contract type, separating those accounted for as hedges and those that are not.

 

     At June 30, 2010     At December 31, 2009  
     Fair value     Fair value  
(In millions)    Assets     Liabilities     Assets     Liabilities  

Derivatives accounted for as hedges

        

Interest rate contracts

   $ 6,675     $ 2,542     $ 4,477     $ 3,469  

Currency exchange contracts

     3,717       2,844       4,273       2,361  

Other contracts

     5       1       16       4  
                                
     10,397       5,387       8,766       5,834  
                                

Derivatives not accounted for as hedges

        

Interest rate contracts

     425       700       977       889  

Currency exchange contracts

     1,607       1,274       1,639       658  

Other contracts

     396       60       478       136  
                                
     2,428       2,034       3,094       1,683  
                                

Netting adjustment(a)

     (4,839     (4,848     (3,851     (3,860
                                

Total

   $ 7,986     $ 2,573     $ 8,009     $ 3,657  
                                

 

 

Derivatives are classified in the captions “All other assets” and “All other liabilities” in our financial statements.

 

(a) The netting of derivative receivables and payables is permitted when a legally enforceable master netting agreement exists. Amounts included fair value adjustments related to our own and counterparty non-performance risk. At both June 30, 2010 and December 31, 2009, the cumulative adjustment for non-performance risk was a gain of $9 million.

 

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Table of Contents

Fair value hedges

We use interest rate and currency exchange derivatives primarily to hedge the fair value effects of interest rate and currency exchange rate changes on local and non-functional currency denominated fixed-rate debt. For relationships designated as fair value hedges, changes in fair value of the derivatives are recorded in earnings along with offsetting adjustments to the carrying amount of the hedged debt. The following tables provide information about the earnings effects of our fair value hedging relationships for the three and six months ended June 30, 2010 and 2009.

 

          Three months ended
          June 30, 2010     June 30, 2009
(In millions)   

Financial statement caption

   Gain (loss)
on hedging
derivatives
   Gain (loss)
on hedged
items
    Gain (loss)
on hedging
derivatives
    Gain (loss)
on hedged
items

Interest rate contracts

   Interest and other financial charges    $ 2,551    $ (2,721   $ (4,243   $ 4,260

Currency exchange contracts

   Interest and other financial charges      11      (15     (91     83

 

 

Fair value hedges resulted in $(174) million and $9 million of ineffectiveness of which $(1) million and $(48) million reflects amounts excluded from the assessment of effectiveness for the three months ended June 30, 2010 and 2009, respectively.

 

          Six months ended
          June 30, 2010     June 30, 2009
(In millions)   

Financial statement caption

   Gain (loss)
on hedging
derivatives
    Gain (loss)
on hedged
items
    Gain (loss)
on hedging
derivatives
    Gain (loss)
on hedged
items

Interest rate contracts

   Interest and other financial charges    $ 3,811     $ (4,130   $ (5,180   $ 5,246

Currency exchange contracts

   Interest and other financial charges      (9     1       (1,058     1,032

 

 

Fair value hedges resulted in $(327) million and $40 million of ineffectiveness for the six months ended June 30, 2010 and 2009, respectively, of which $(75) million reflects amounts excluded from the assessment of effectiveness for the six months ended June 30, 2009.

Cash flow hedges and net investment hedges in foreign operations

We use interest rate, currency exchange and commodity derivatives to reduce the variability of expected future cash flows associated with variable rate borrowings and commercial purchase and sale transactions, including commodities. For derivatives that are designated in a cash flow hedging relationship, the effective portion of the change in fair value of the derivative is reported as a component of AOCI and reclassified into earnings contemporaneously and in the same caption with the earnings effects of the hedged transaction. Hedge ineffectiveness is recognized in earnings, primarily in “GECS revenues from services” each reporting period.

We use currency exchange derivatives to protect our net investments in global operations conducted in non-U.S. dollar currencies. For derivatives that are designated as hedges of net investment in a foreign operation, we assess effectiveness based on changes in spot currency exchange rates. Changes in spot rates on the derivative are recorded as a component of AOCI until such time as the foreign entity is substantially liquidated or sold. The change in fair value of the forward points, which reflects the interest rate differential between the two countries on the derivative, are excluded from the effectiveness assessment and are recorded currently in “Interest and other financial charges”.

The following tables provide information about the amounts recorded in AOCI for the three months ended June 30, 2010 and 2009, and the six months ended June 30, 2010 and 2009, as well as the amounts recorded in each caption in the Condensed Statement of Earnings when derivative amounts are reclassified out of AOCI related to our cash flow hedges and net investment hedges.

 

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Table of Contents
     Gain (loss) recognized in  AOCI
for the three months ended
         Gain (loss)  reclassified
from AOCI into earnings
for the three months ended
 
(In millions)    June 30,
2010
    June 30,
2009
   

Financial statement caption

   June 30,
2010
    June 30,
2009
 

Cash flow hedges

           

Interest rate contracts

   $ (214   $ 577     Interest and other financial charges    $ (355   $ (558
       GECS revenues from services      3       —     

Currency exchange contracts

     (1,070     1,803     Interest and other financial charges      (86     996  
       Other costs and expenses      117       (31
       GECS revenues from services      (951     207  
       Sales of goods and services      (63     59  

Commodity contracts

     6       29     GECS revenues from services      —          24  
       Other costs and expenses      2       5  
                                   

Total

   $ (1,278   $ 2,409        $ (1,333   $ 702  
                                   
     Gain (loss) recognized in  CTA
for the three months ended
         Gain (loss) reclassified from  CTA
for the three months ended
 
(In millions)    June 30,
2010
    June 30,
2009
   

Financial statement caption

   June 30,
2010
    June 30,
2009
 

Net investment hedges

           

Currency exchange contracts

   $ 1,813     $ (5,629   GECS revenues from services    $ (9   $ 9  
                                   

 

 

 

     Gain (loss) recognized in  AOCI
for the six months ended
        Gain (loss)  reclassified
from AOCI into earnings
for the six months ended
 
(In millions)    June 30,
2010
    June 30,
2009
  

Financial statement caption

   June 30,
2010
    June 30,
2009
 

Cash flow hedges

            

Interest rate contracts

   $ (444   $ 676    Interest and other financial charges    $ (776   $ (1,044
        GECS revenues from services      5         

Currency exchange contracts

     (1,604     2,328    Interest and other financial charges      (91     993  
        Other costs and expenses      4       (108
        GECS revenues from services      (1,488     (62
        Sales of goods and services      (110     62  

Commodity contracts

     9       34    GECS revenues from services             24  
        Other costs and expenses             (3
                                  

Total

   $ (2,039   $ 3,038       $ (2,456   $ (138
                                  

 

     Gain (loss) recognized in  CTA
for the six months ended
         Gain (loss) reclassified from CTA
for the six months ended
 
(In millions)    June 30,
2010
   June 30,
2009
   

Financial statement caption

   June 30,
2010
    June 30,
2009
 

Net investment hedges

            

Currency exchange contracts

   $ 2,217    $ (3,274   GECS revenues from services    $ (9   $ (30
                                  

 

 

Of the total pre-tax amount in AOCI at June 30, 2010, $2,177 million related to cash flow hedges of forecasted transactions of which we expect to transfer $1,237 million to earnings as an expense in the next 12 months contemporaneously with the earnings effects of the related forecasted transactions. In the first six months of 2010 and 2009, we recognized insignificant gains and losses related to hedged forecasted transactions and firm commitments that did not occur by the end of the originally specified period. At June 30, 2010 and 2009, the maximum term of derivative instruments that hedge forecasted transactions was 26 years and 27 years, respectively, and related to hedges of anticipated interest payments associated with external debt.

 

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For cash flow hedges, the amount of ineffectiveness in the hedging relationship and amount of the changes in fair value of the derivatives that are not included in the measurement of ineffectiveness are both reflected in earnings each reporting period. These amounts primarily appear in “GECS revenues from services” and totaled $7 million and $9 million for the three months ended June 30, 2010 and 2009, respectively, of which $(17) million represents amounts excluded from the assessment of effectiveness for the three months ended June 30, 2009. These amounts totaled $(27) million and $2 million for the six months ended June 30, 2010 and 2009, respectively, of which $(15) million represents amounts excluded from the assessment of effectiveness for the six months ended June 30, 2009.

Amounts from net investment hedges related to the change in the fair value of the forward points were $(213) million and $(167) million for the three months ended June 30, 2010 and 2009, respectively, and $(412) million and $(557) million for the six months ended June 30, 2010 and 2009, respectively.

Free-standing derivatives

Changes in the fair value of derivatives that are not designated as hedges are recorded in earnings each period. As discussed above, these derivatives are typically entered into as economic hedges of changes in interest rates, currency exchange rates, commodity prices and other risks. Gains or losses related to the derivative are typically recorded in “GECS revenues from services” or “Other income,” based on our accounting policy. In general, the earnings effects of the item that represent the economic risk exposure are recorded in the same caption as the derivative. Losses for the first six months of 2010 on derivatives not designated as hedges were $(1,291) million comprised of amounts related to interest rate contracts of $179 million, currency exchange contracts of $(1,459) million, and other derivatives of $(11) million. These losses of $(1,291) million were more than offset by the earnings effects from the underlying items that were economically hedged. Gains for the first six months of 2009 on derivatives not designated as hedges, without considering the offsetting earnings effects from the item representing the economic risk exposure, were $272 million comprised of amounts related to interest rate contracts of $256 million, currency exchange contracts of $(23) million, and other derivatives of $39 million.

Counterparty credit risk

Fair values of our derivatives can change significantly from period to period based on, among other factors, market movements and changes in our positions. Accordingly, we actively monitor these exposures and take appropriate actions in response. We manage counterparty credit risk (the risk that counterparties will default and not make payments to us according to the terms of our standard master agreements) on an individual counterparty basis. Where we have agreed to netting of derivative exposures with a counterparty, we offset our exposures with that counterparty and apply the value of collateral posted to us to determine the exposure. When net exposure to a counterparty, based on the current market values of agreements and collateral, exceeds credit exposure limits, we typically take action to reduce such exposures. These actions may include prohibiting additional transactions with the counterparty, requiring additional collateral from the counterparty (as described below) and terminating or restructuring transactions.

As discussed above, we have provisions in certain of our master agreements that require counterparties to post collateral (typically, cash or U.S. Treasuries) when our receivable due from the counterparty, measured at current market value, exceeds a specified limit. At June 30, 2010, our exposure to counterparties, net of collateral we hold, was $1,134 million. The fair value of such collateral was $8,530 million, of which $2,163 million was cash and $6,367 million was in the form of securities held by a custodian for our benefit. Under certain of these same agreements, we post collateral to our counterparties for our derivative obligations, the fair value of which was $1,229 million at June 30, 2010.

Additionally, our standard master agreements typically contain mutual downgrade provisions that provide the ability of each party to require termination if the long-term credit rating of the counterparty were to fall below A-/A3. In certain of these master agreements, each party also has the ability to require termination if the short-term rating of the counterparty were to fall below A-1/P-1. The net amount relating to our derivative liability of $2,573 million subject to these provisions, after consideration of collateral posted by us, was $1,095 million at June 30, 2010.

 

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More information regarding our counterparty credit risk and master agreements can be found in Note 22 in our 2009 consolidated financial statements.

Support of customer derivatives

For information related to support of customer derivatives, see Note 22 in our 2009 consolidated financial statements. The fair value of support agreements was $21 million and $24 million at June 30, 2010 and December 31, 2009, respectively. Because we are supporting the performance of the customer under these arrangements, our exposure to loss at any point in time is limited to the fair value of the customer’s derivative contracts that are in a liability position. The aggregate fair value of customer derivative contracts in a liability position at June 30, 2010 and December 31, 2009, was $215 million and $260 million, respectively, before consideration of any offsetting effect of collateral. At June 30, 2010 and December 31, 2009, collateral value was sufficient to cover the loan amount and the fair value of the customer’s derivative, in the event we had been called upon to perform under the derivative. Given our underwriting criteria, we believe that the likelihood that we will be required to perform under these arrangements is remote.

16. VARIABLE INTEREST ENTITIES

We securitize financial assets and arrange other forms of asset-backed financing in the ordinary course of business. The securitization transactions we engage in are similar to those used by many financial institutions. Beyond improving returns, these securitization transactions serve as alternative funding sources for a variety of diversified lending and securities transactions. Historically, we have used both GE-supported and third-party VIEs to execute off-balance sheet securitization transactions funded in the commercial paper and term markets. The largest group of VIEs that we are involved with are QSPEs, which under guidance in effect through December 31, 2009 were excluded from the scope of consolidation standards based on their characteristics. Except as noted below, investors in these entities only have recourse to the assets owned by the entity and not to our general credit. We do not have implicit support arrangements with any VIE or QSPE. We did not provide non-contractual support for previously transferred financing receivables to any VIE or QSPE in 2010 or 2009.

On January 1, 2010, we adopted FASB ASU 2009-16 & 17, which amended ASC 860, Transfers and Servicing, and ASC 810, Consolidation, respectively. These amendments eliminated the scope exception for QSPEs and required that all such entities be evaluated for consolidation as VIEs, which resulted in the consolidation of all of our sponsored QSPEs. Among other changes, the amendments to ASC 810 replaced the existing quantitative approach for identifying the party that should consolidate a VIE, which was based on exposure to a majority of the risks and rewards, with a qualitative approach, based on determination of which party has the power to direct the most economically significant activities of the entity. The revised guidance will sometimes change the composition of entities that meet the definition of a VIE and the determination about which party should consolidate a VIE, as well as requiring the latter to be evaluated continuously.

In evaluating whether we have the power to direct, as defined in the standard, we consider the purpose for which the VIE was created, the importance of each of the activities in which it is engaged and our decision-making role, if any, in those activities that significantly determine the entity’s economic performance as compared to other economic interest holders. This evaluation requires consideration of all facts and circumstances relevant to decision-making that affects the entity’s future performance and the exercise of professional judgment in deciding which decision-making rights are most important.

In determining whether we have the right to receive benefits or the obligation to absorb losses that could potentially be significant to the VIE, we evaluate all of our economic interests in the entity, regardless of form (debt, equity, management and servicing fees, and other contractual arrangements). This evaluation considers all relevant factors of the entity’s design, including: the entity’s capital structure, contractual rights to earnings (losses), subordination of our interests relative to those of other investors, contingent payments, as well as other contractual arrangements that have potential to be economically significant. The evaluation of each of these factors in reaching a conclusion about the potential significance of our economic interests is a matter that requires the exercise of professional judgment.

 

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As of January 1, 2010 and subsequently, we evaluated all entities that fall within the scope of the amended ASC 810 to determine whether we were required to consolidate or deconsolidate them based on the approach described above. In addition to the securitization QSPEs described above, we were required to consolidate assets of VIEs related to direct investments in entities that hold loans and fixed income securities, a media joint venture and a small number of companies to which we have extended loans in the ordinary course of business and have subsequently been subject to a TDR. The incremental effect of these entities on our total assets and liabilities, net of our investment in them, was an increase of approximately $31,097 million and $33,042 million, respectively, at January 1, 2010. There also was a net reduction of total equity (including noncontrolling interests) of approximately $1,945 million at January 1, 2010, principally related to the reversal of previously recognized securitization gains as a cumulative effect adjustment to retained earnings.

The assets of QSPEs that we consolidated were $29,792 million, net of our existing retained interests of $8,782 million, and liabilities were $31,616 million at January 1, 2010. Significant assets of the QSPEs included net financing receivables and trade receivables of $39,463 million and investment securities of $1,015 million at January 1, 2010. Significant liabilities included non-recourse borrowings of $36,112 million. The assets and liabilities of other VIEs we consolidated were $1,305 million and $1,426 million, respectively.

Consolidated Variable Interest Entities

We consolidate VIEs because we have the power to direct the activities that significantly affect the VIEs economic performance, typically because of our role as either servicer or manager for the VIE. Our consolidated VIEs fall into four main groups, which are further described below:

 

 

Trinity is a group of sponsored special purpose entities that holds investment securities, the majority of which are investment grade, and are funded by the issuance of GICs. These entities were consolidated in 2003, and ceased issuing new investment contracts beginning in the first quarter of 2010.

If the long-term credit rating of GECC were to fall below AA-/Aa3 or its short-term credit rating were to fall below A-1+/P-1, GECC would be required to provide approximately $1,896 million to such entities as of June 30, 2010 pursuant to letters of credit issued by GECC. To the extent that the entities’ liabilities exceed the ultimate value of the proceeds from the sale of their assets and the amount drawn under the letters of credit, GECC could be required to provide such excess amount. As the borrowings of these entities are already reflected in our consolidated Statement of Financial Position, there would be no change in our debt if this were to occur. As of June 30, 2010, the carrying value of the liabilities of these entities’ was $7,329 million and the fair value of their assets was $6,563 million (which included net unrealized losses on investment securities of $949 million). With respect to these investment securities, we intend to hold them at least until such time as their individual fair values exceed their amortized cost. We have the ability to hold all such debt securities until maturity.

 

 

Consolidated liquidating securitization entities comprise entities that were consolidated in 2003 and which have been in run-off since then. These entities hold financing receivables and other financial assets. There has been no significant difference between the performance of these financing receivables and our on-book receivables on a blended basis. Contractually the cash flows from these financing receivables must first be used to pay down outstanding commercial paper and interest thereon as well as other expenses of the entity. Excess cash flows are available to GE. The creditors of these entities have no claim on the other assets of GE.

If the short-term credit rating of GECC or these entities were reduced below A–1+/P–1, GECC would be required to provide substitute liquidity for those entities or provide funds to retire the outstanding commercial paper. The maximum net amount that we would be required to provide in the event of such a downgrade is determined by contract, and totaled $2,161 million at June 30, 2010. As the borrowings of these entities are reflected in our Statement of Financial Position, our total debt would not change as a result of such an event.

 

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Securitization QSPEs comprise previously off-book QSPEs that were consolidated on January 1, 2010 in connection with our adoption of ASU 2009-16 & 17. These entities were created to facilitate securitization of financial assets and other forms of asset-backed financing which serve as an alternative funding source by providing access to the commercial paper and term markets. The securitization transactions executed with these entities are similar to those used by many financial institutions and substantially all are non-recourse. We provide servicing for substantially all of the assets in these entities.

The financing receivables in these entities have similar risks and characteristics to our other financing receivables and were underwritten to the same standard. Accordingly, the performance of these assets has been similar to our other financing receivables; however, the blended performance of the pools of receivables in these entities reflects the eligibility criteria that we apply to determine which receivables are selected for transfer. Contractually the cash flows from these financing receivables must be used to pay third-party debt holders as well as other expenses of the entity. Excess cash flows are available to GE. The creditors of these entities have no claim on the other assets of GE.

 

 

Other remaining assets and liabilities of consolidated VIEs relate primarily to five categories of entities: (1) enterprises we acquired that had previously created asset-backed financing entities to fund commercial real estate, middle-market and equipment loans; we are the collateral manager for these entities; (2) joint ventures that lease light industrial equipment and that hold a limited partnership interest in certain media properties; (3) entities that have executed on-balance sheet securitizations of financial assets and of third party trade receivables; (4) insurance entities that, among other lines of business, provide property and casualty and workers’ compensation coverage for GE, and (5) other entities that are involved in power generating, leasing and real estate activities.

 

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The table below summarizes the assets and liabilities of consolidated VIEs described above.

 

(In millions)    Trinity(a)    Consolidated
Liquidating
Securitization
Entities(a)
   Securitization
QSPEs(b)(c)
   Other(c)    Total

June 30, 2010

              

Assets

              

Financing receivables, net

   $ —      $ 2,222    $ 36,758    $ 4,702    $ 43,682

Investment securities

     6,168      —        —        957      7,125

Other assets(d)

     395      23      627      3,621      4,666
                                  

Total

     6,563      2,245      37,385      9,280      55,473
                                  

Liabilities

              

Borrowings(d)

   $ —      $ —      $ 239    $ 1,691    $ 1,930

Non-recourse borrowings of consolidated securitization entities

     —        2,100      28,786      1,810      32,696

Other liabilities(d)

     7,329      60      544      1,876      9,809
                                  

Total

   $ 7,329    $ 2,160    $ 29,569    $ 5,377    $ 44,435
                                  

December 31, 2009

              

Assets

              

Financing receivables, net

   $ —      $ 2,576    $ —      $ 4,277    $ 6,853

Investment securities

     6,629      —        —        944      7,573

Other assets(d)

     716      32      —        1,820      2,568
                                  

Total

   $ 7,345    $ 2,608    $ —      $ 7,041    $ 16,994
                                  

Liabilities

              

Borrowings(d)

   $ —      $ —      $ —      $ 1,835    $ 1,835

Non-recourse borrowings of consolidated securitization entities

     —        2,424      —        684      3,108

Other liabilities(d)

     8,519      80      —        1,689      10,288
                                  
   $ 8,519    $ 2,504    $ —      $ 4,208    $ 15,231
                                  

 

 

 

(a) Entities consolidated on July 1, 2003 or January 1, 2004 as a result of amendments to U.S. GAAP.
(b) Entities consolidated on January 1, 2010 by the initial application of ASU 2009-16 & 17.
(c) In certain transactions entered into prior to December 31, 2004, we provided contractual credit and liquidity support to third parties who funded the purchase of securitized or participated interests in assets. We have not entered into additional arrangements since that date. Liquidity and credit support was $1,060 million at June 30, 2010 and $2,088 million at December 31, 2009.
(d) Other assets, borrowings and other liabilities exclude intercompany balances that are eliminated in consolidation.

GECS revenues from services from our consolidated VIEs were $1,785 million and $3,674 million in the second quarter and first six months of 2010, respectively. Related expenses consisted primarily of provisions for losses of $279 million and $747 million and interest and other financial charges of $205 million and $416 million in the second quarter and the first six months of 2010, respectively. These amounts do not include intercompany revenues and costs, principally fees and interest between GE and the VIEs, which are eliminated in consolidation.

 

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The collateral and outstanding debt in Securitization QSPEs at June 30, 2010 and December 31, 2009 is provided below.

 

(In millions)    Credit card
receivables
   Real estate    Equipment(a)    Other    Total

June 30, 2010

              

Asset amount outstanding

   $ 22,051    $ 4,779    $ 8,945    $ 2,917    $ 38,692

Outstanding debt

     13,511      4,616      7,621      3,277      29,025

December 31, 2009

              

Asset amount outstanding

   $ 25,573    $ 7,381    $ 10,414    $ 3,528    $ 46,896

Outstanding debt

     18,799      7,367      9,312      4,206      39,684

 

 

 

(a) Included floorplan receivables.

Unconsolidated Variable Interest Entities

Our involvement with unconsolidated VIEs consists of the following activities: assisting in the formation and financing of the entity, providing recourse and/or liquidity support, servicing the assets and receiving variable fees for services provided. We are not required to consolidate these entities because the nature of our involvement with the activities of the VIEs does not give us power over decisions that significantly affect their economic performance.

Unconsolidated VIEs at June 30, 2010 include our non-controlling stake in PTL ($5,637 million); investments in real estate entities ($1,749 million), which generally consist of passive limited partnership investments in tax-advantaged, multi-family real estate and investments in various European real estate entities; and investments in joint ventures that purchase factored receivables ($1,160 million). Substantially all of our other unconsolidated entities consist of passive investments in various asset-backed financing entities.

The largest unconsolidated VIE with which we are involved is PTL, which is a truck rental and leasing joint venture. The total consolidated assets and liabilities of PTL at December 31, 2008 were $7,444 million and $1,339 million, respectively. As part of our strategy to reduce our investment in the equipment management market, we reduced our partnership interest in PTL from 79% at December 31, 2005 to 50.9% at December 31, 2008 through a series of dispositions to Penske Truck Leasing Corporation (PTLC), the general partner of PTL, and an entity affiliated with PTLC. In addition, in the first quarter of 2009, we sold a 1% partnership interest in PTL, a previously consolidated VIE, to PTLC. The disposition of this partnership interest, coupled with our resulting minority position on the PTL advisory committee and related changes in our contractual rights, resulted in the deconsolidation of PTL. We recognized a pre-tax gain on the sale of $296 million, including a gain on the remeasurement of our retained investment of $189 million. The transaction price was determined on an arm’s-length basis and GE obtained a fairness opinion from a third-party financial advisor because of the related party nature of the transaction. The measurement of the fair value of our retained investment in PTL was based on a methodology that incorporated both discounted cash flow information and market data. In applying this methodology, we utilized different sources of information, including actual operating results, future business plans, economic projections and market observable pricing multiples of similar businesses. The resulting fair value of our retained interest reflected our position as a noncontrolling shareowner at the conclusion of the transaction. At June 30, 2010, our remaining investment in PTL of $5,637 million comprised a 49.9% partnership interest of $881 million and loans and advances of $4,756 million. GECC continues to provide loans under long-term revolving credit and letter of credit facilities to PTL.

 

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The classification of our variable interests in these entities in our financial statements is based on the nature of the entity and the type of investment we hold. Variable interests in partnerships and corporate entities are classified as either equity method or cost method investments. In the ordinary course of business, we also make investments in entities in which we are not the primary beneficiary but may hold a variable interest such as limited partner interests or mezzanine debt investments. These investments are classified in two captions in our financial statements: “All other assets” for investments accounted for under the equity method, and “Financing receivables – net” for debt financing provided to these entities. Our investments in unconsolidated VIEs at June 30, 2010 and December 31, 2009 follow.

 

     At
(In millions)    June 30,
2010
   December 31,
2009

Other assets and investment securities

   $ 9,515    $ 8,911

Financing receivables

     1,750      769
             

Total investment

     11,265      9,680

Contractual obligations to fund new investments

     1,959      1,396
             

Maximum exposure to loss

   $ 13,224    $ 11,076
             

 

 

Our maximum exposure to loss is limited to our investment in the entities and related contractual obligations to fund further investments.

In addition to the entities included in the table above, we also hold passive investments in residential mortgage-backed securities (RMBS), commercial mortgage-backed securities (CMBS) and asset-backed securities issued by VIEs. Such investments were, by design, investment grade at issuance and held by a diverse group of investors. Further information about such investments is provided in Note 3.

17. INTERCOMPANY TRANSACTIONS

Transactions between related companies are made on an arms-length basis, are eliminated and consist primarily of capital contributions from GE to GECS; GE customer receivables sold to GECS; GECS services for trade receivables management and material procurement; buildings and equipment (including automobiles) leased between GE and GECS; information technology (IT) and other services sold to GECS by GE; aircraft engines manufactured by GE that are installed on aircraft purchased by GECS from third-party producers for lease to others; and various investments, loans and allocations of GE corporate overhead costs.

These intercompany transactions are reported in the GE and GECS columns of our financial statements, but are eliminated in deriving our consolidated financial statements. Effects of these eliminations on our consolidated cash flows from operating, investing and financing activities include the following. Net decrease (increase) in GE customer receivables sold to GECS of $144 million and $(765) million have been eliminated from consolidated cash from operating and investing activities for the six months ended June 30, 2010 and 2009, respectively. A capital contribution from GE to GECS of $9,500 million has been eliminated from consolidated cash from investing and financing activities for the first six months ended June 30, 2009. There were no such capital contributions for the six months ended June 30, 2010. Eliminations of intercompany borrowings (includes GE investment in GECS short-term borrowings, such as commercial paper) of $497 million and $853 million have been eliminated from financing activities for the six months ended June 30, 2010 and 2009, respectively. Other reclassifications and eliminations of $(126) million and $964 million have been eliminated from consolidated cash from operating activities and $(181) million and $(1,114) million have been eliminated from consolidated cash from investing activities for the six months ended June 30, 2010 and 2009, respectively.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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(a) to this Form 10-Q Report.

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

Overview

Earnings from continuing operations attributable to the Company increased 14% to $3.297 billion in the second quarter of 2010 compared with $2.883 billion in the second quarter of 2009. Earnings per share (EPS) from continuing operations were $0.30 in the second quarter of 2010, up 15% compared with $0.26 in the second quarter of 2009.

For the first six months of 2010, earnings from continuing operations attributable to the Company decreased 2% to $5.632 billion compared with $5.733 billion for the same period in 2009. EPS from continuing operations were $0.51 in the first six months of 2010, down 4% compared with $0.53 in the first six months of 2009.

Loss from discontinued operations, net of taxes, was $0.2 billion in both the second quarters of 2010 and 2009, and included the results of GE Money Japan (our Japanese personal loan business, Lake, and Japanese mortgage and card businesses, excluding our investment in GE Nissen Credit Co., Ltd.), our U.S. mortgage business (WMC) and Plastics.

Loss from discontinued operations, net of taxes, was $0.6 billion for the first six months of 2010 compared with $0.2 billion for the same period in 2009, primarily due to $0.6 billion of incremental reserves we recorded related to the 2008 disposal of GE Money Japan.

Net earnings attributable to GE common shareowners increased 16% to $3.034 billion and EPS increased 12% to $0.28 in the second quarter of 2010 compared with $2.614 billion and $0.25 respectively, in the second quarter of 2009.

For the first six months of 2010, net earnings attributable to GE common shareowners decreased 9% to $4.904 billion, compared with $5.368 billion for the same period in 2009, and EPS decreased 12% to $0.45, compared with $0.51 in the first six months of 2009.

Revenues of $37.4 billion in the second quarter of 2010 were 4% lower than in the second quarter of 2009, reflecting organic revenue declines and the net effects of acquisitions and dispositions, partially offset by the weaker U.S. dollar. Industrial sales decreased 6% to $24.4 billion, reflecting organic revenue declines and the net effects of acquisitions and dispositions. Sales of product services (including sales of spare parts and related services) of $8.5 billion in the second quarter of 2010 decreased 5% compared with the second quarter of 2009. Financial services revenues decreased 2% over the comparable period of last year to $13.1 billion, reflecting organic revenue declines and the net effects of acquisitions and dispositions, partially offset by the weaker U.S. dollar.

 

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Revenues of $74.0 billion in the first six months of 2010 were 5% lower than in the first six months of 2009, reflecting organic revenue declines and the net effects of acquisitions and dispositions, partially offset by the weaker U.S. dollar and the effects of the 2010 Olympics broadcasts. Industrial sales decreased 4% to $47.9 billion, reflecting organic revenue declines and the net effects of acquisitions and dispositions, partially offset by the effects of the 2010 Olympics broadcasts and the weaker U.S. dollar. Financial services revenues decreased 6% over the comparable period of last year to $26.3 billion, reflecting the net effects of acquisitions and dispositions and organic revenue declines, partially offset by the weaker U.S. dollar.

Overall, acquisitions contributed $0.2 billion and $1.0 billion to consolidated revenues in the second quarters of 2010 and 2009, respectively, excluding the effects of acquisition gains following an amendment to the Accounting Standards Codification (ASC) 810, Consolidation, effective January 1, 2009, which requires us to remeasure previously held equity investments upon acquisition of a controlling interest. Our consolidated earnings in the second quarters of 2010 and 2009 included an insignificant amount and approximately $0.2 billion, respectively, from acquired businesses. 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 operations through lower revenues of $0.4 billion and $1.8 billion in the second quarters of 2010 and 2009, respectively. The effect of dispositions on earnings was an increase of $0.1 billion and an insignificant amount in the second quarters of 2010 and 2009, respectively.

Acquisitions contributed $0.7 billion and $2.0 billion to consolidated revenues in the first six months of 2010 and 2009, respectively, excluding the effects of acquisition gains following our adoption of an amendment to ASC 810 on January 1, 2009. Our consolidated earnings in the first six months of 2010 and 2009 included approximately $0.1 billion and $0.3 billion, respectively, from acquired businesses. Dispositions also affected our operations through lower revenues of $1.5 billion and $1.9 billion in the first six months of 2010 and 2009, respectively. The effect of dispositions on earnings was an increase of $0.2 billion and $0.4 billion in the first six months of 2010 and 2009, respectively.

The most significant acquisition affecting results in the first six months of 2010 was BAC Credomatic GECF Inc. (BAC) at GE Capital.

 

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Segment Operations

Effective January 1, 2010, we reorganized our segments to better align our Consumer & Industrial and Energy businesses for growth. As a result of this reorganization, we created a new segment called Home & Business Solutions that includes the Appliances and Lighting businesses from our previous Consumer & Industrial segment and the retained portion of the GE Fanuc Intelligent Platforms business of our previous Enterprise Solutions business (formerly within our Technology Infrastructure segment). In addition, the Industrial business of our previous Consumer & Industrial segment and the Sensing & Inspection Technologies and Digital Energy businesses of our previous Enterprise Solutions business are now part of the Energy business within the Energy Infrastructure segment. The Security business of Enterprise Solutions is reported in Corporate Items and Eliminations for periods prior to its sale in the first quarter of 2010. Also, effective January 1, 2010, the Capital Finance segment was renamed GE Capital and includes all of the continuing operations of General Electric Capital Corporation (GECC). In addition, the Transportation Financial Services business, previously reported in GE Capital Aviation Services (GECAS), is now included in Commercial Lending and Leasing (CLL) and our Consumer business in Italy, previously reported in Consumer, is now included in CLL.

Operating segments comprise our five businesses focused on the broad markets they serve: Energy Infrastructure, Technology Infrastructure, NBC Universal, GE Capital and Home & Business Solutions.

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 acquisitions or 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, earnings attributable to noncontrolling interests of consolidated subsidiaries 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 sometimes refer to as “operating profit,” for Energy Infrastructure, Technology Infrastructure, NBC Universal and Home & Business Solutions; included in determining segment profit, which we sometimes refer to as “net earnings,” for GE Capital.

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

Energy Infrastructure

 

     Three months ended June 30    Six months ended June 30
(In millions)    2010    2009    2010    2009

Revenues

   $ 9,540    $ 10,459    $ 18,195    $ 19,541
                           

Segment profit

   $ 1,910    $ 1,863    $ 3,391    $ 3,181
                           

Revenues

           

Energy

   $ 8,027    $ 8,686    $ 15,232    $ 16,470

Oil & Gas

     1,774      1,948      3,367      3,491

Segment profit

           

Energy

   $ 1,661    $ 1,614    $ 3,000    $ 2,810

Oil & Gas

     292      283      483      462

 

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Energy Infrastructure revenues decreased 9% or $0.9 billion, in the second quarter of 2010 as lower volume ($1.0 billion) and the stronger U.S. dollar ($0.1 billion) were partially offset by higher prices ($0.1 billion). Lower volume at Energy primarily related to decreases in wind and thermal equipment sales. Higher prices at Energy were partially offset by lower prices at Oil & Gas. The effect of the stronger U.S. dollar was at Oil & Gas.

Segment profit increased 3% as higher prices ($0.1 billion) and lower material costs ($0.1 billion) were partially offset by lower volume ($0.2 billion). Lower volume and lower material costs were primarily at Energy.

Energy Infrastructure revenues decreased 7%, or $1.3 billion, in the first six months of 2010 as lower volume ($1.9 billion) was partially offset by higher prices ($0.4 billion) and the weaker U.S. dollar ($0.1 billion). Lower volume primarily reflected decreases in thermal and wind equipment sales at Energy. Higher prices at Energy were partially offset by lower prices at Oil & Gas. The effects of the weaker U.S. dollar were at Energy.

Segment profit for the first six months of 2010 increased 7%, or $0.2 billion, as higher prices ($0.4 billion) and lower material costs ($0.3 billion) were partially offset by lower volume ($0.3 billion) and higher labor and other cost ($0.1 billion). Lower material costs were at both Energy and Oil & Gas and lower volume was primarily at Energy.

Technology Infrastructure

 

     Three months ended June 30    Six months ended June 30
(In millions)    2010    2009    2010    2009

Revenues

   $ 9,061    $ 9,637    $ 17,720    $ 19,160
                           

Segment profit

   $ 1,554    $ 1,743    $ 2,957    $ 3,445
                           

Revenues

           

Aviation

   $ 4,259    $ 4,619    $ 8,424    $ 9,436

Healthcare

     4,102      3,964      7,835      7,509

Transportation

     709      1,069      1,475      2,240

Segment profit

           

Aviation

   $ 879    $ 923    $ 1,678    $ 2,003

Healthcare

     661      590      1,158      1,001

Transportation

     26      236      141      453

Technology Infrastructure revenues decreased 6%, or $0.6 billion, in the second quarter of 2010 as lower volume ($0.8 billion) was partially offset by higher other income ($0.2 billion). The decrease in volume reflected decreased services and commercial engine sales at Aviation and decreased services and equipment sales at Transportation, partially offset by increased equipment sales at Healthcare. Higher other income primarily reflects a gain on a partial sale of a materials business at Aviation.

Segment profit decreased 11%, or $0.2 billion, in the second quarter of 2010, primarily from lower productivity ($0.2 billion) and lower volume ($0.1 billion), partially offset by higher other income ($0.1 billion). The decreases in productivity and lower volume were at Transportation, primarily due to higher service costs, and Aviation, partially offset by Healthcare. Higher other income primarily reflects a gain on a partial sale of a materials business at Aviation.

Technology Infrastructure revenues decreased 8%, or $1.4 billion, in the first six months of 2010 as lower volume ($1.5 billion) and lower other income ($0.1 billion), reflecting lower transaction gains, were partially offset by the weaker U.S. dollar ($0.2 billion). The decrease in volume reflected decreased commercial and military equipment sales and services at Aviation and decreased equipment sales and services at Transportation, partially offset by increased equipment sales and services at Healthcare. Lower transaction gains reflect a gain on a partial sale of a materials business and a franchise fee at Aviation, which were more than offset by the absence of gains related to the Airfoils Technologies International-Singapore Pte. Ltd. (ATI) acquisition and the Times Microwave Systems disposition in the first quarter of 2009. The effects of the weaker U.S. dollar were primarily at Healthcare.

 

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Segment profit for the first six months of 2010 decreased 14%, or $0.5 billion, primarily from lower volume ($0.2 billion), lower productivity ($0.2 billion), higher labor and other costs ($0.1 billion) and lower other income ($0.1 billion), reflecting lower transaction gains, partially offset by the weaker U.S. dollar ($0.1 billion) and lower material costs ($0.1 billion). The decreases in volume were at Aviation and Transportation, partially offset by Healthcare. Lower productivity at Transportation, primarily due to higher service costs, and Aviation was partially offset by Healthcare. Higher labor and other costs were primarily at Healthcare and Aviation. Lower transaction gains reflect a gain on a partial sale of a materials business and a franchise fee at Aviation, which were more than offset by the absence of gains related to the ATI acquisition and the Times Microwave Systems disposition in the first quarter of 2009. The weaker U.S. dollar and lower material costs were primarily at Healthcare.

NBC Universal revenues of $3.8 billion increased 5%, or $0.2 billion, in the second quarter of 2010 as higher revenues in cable ($0.1 billion), higher revenues in film ($0.1 billion) and lower impairments related to investment securities ($0.1 billion) were partially offset by lower gains related to associated companies ($0.1 billion). Segment profit of $0.6 billion increased 13%, or $0.1 billion, as higher earnings in cable ($0.1 billion) and lower impairments related to investment securities ($0.1 billion) were partially offset by lower gains related to associated companies ($0.1 billion).

NBC Universal revenues of $8.1 billion increased 14%, or $1.0 billion, in the first six months of 2010 as higher revenues in our broadcast television business ($0.6 billion), higher revenues in film ($0.2 billion), higher revenues in cable ($0.1 billion) and lower impairments related to investment securities ($0.2 billion) were partially offset by lower gains related to associated companies ($0.1 billion). The increase in broadcast revenues reflects the 2010 Olympics broadcasts, partially offset by the absence of revenues from the 2009 Super Bowl broadcast. Segment profit of $0.8 billion decreased 13%, or $0.1 billion, as lower earnings in our broadcast television business ($0.2 billion) and lower gains related to associated companies ($0.1 billion) were partially offset by higher earnings in cable ($0.1 billion) and lower impairments related to investment securities ($0.2 billion). The decrease in broadcast television earnings reflects losses from the Olympics broadcast, partially offset by the lack of losses related to the 2009 Super Bowl Broadcast.

GE Capital

 

     Three months ended June 30    Six months ended June 30
(In millions)    2010    2009    2010    2009

Revenues

   $ 12,297    $ 12,736    $ 24,628    $ 26,511
                           

Segment profit

   $ 830    $ 431    $ 1,437    $ 1,460
                           

 

     At
(In millions)    June 30,
2010
   June 30,
2009
   December 31,
2009

Total assets

   $ 587,956    $ 622,874    $ 621,232
                    

 

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     Three months ended June 30     Six months ended June 30  
(In millions)    2010     2009     2010     2009  

Revenues

        

CLL(a)

   $ 4,506     $ 5,306     $ 9,100     $ 10,986  

Consumer(a)

     4,832       4,851       9,796       9,563  

Real Estate

     991       1,014       1,935       1,989  

Energy Financial Services

     595       490       1,386       1,134  

GECAS(a)

     1,259       1,163       2,498       2,266  

Segment profit

        

CLL(a)

   $ 312     $ 243     $ 544     $ 481  

Consumer(a)

     735       252       1,328       989  

Real Estate

     (524     (237     (927     (410

Energy Financial Services

     126       65       279       140  

GECAS(a)

     288       285       605       546  

 

     At
(In millions)    June 30,
2010
   June 30,
2009
   December 31,
2009

Assets

        

CLL(a)

   $ 202,386    $ 224,556    $ 210,742

Consumer(a)

     161,989      178,325      174,019

Real Estate

     76,597      83,960      81,505

Energy Financial Services

     20,489      22,956      22,616

GECAS(a)

     48,555      47,237      48,178

 

 

 

(a) During the first quarter of 2010, we transferred the Transportation Financial Services business from GECAS to CLL and the Consumer business in Italy from Consumer to CLL. Prior-period amounts were reclassified to conform to the current-period presentation.

GE Capital revenues decreased 3% and net earnings increased 93% compared with the second quarter of 2009. Revenues for the second quarters of 2010 and 2009 included $0.2 billion and $0.3 billion of revenues from acquisitions, respectively, and in 2010 were reduced by $0.1 billion as a result of dispositions. The $0.1 billion net reduction from dispositions reflects a $0.1 billion gain in 2010, offset by $0.2 billion from dispositions in 2009. The 2010 dispositions primarily related to the deconsolidation of Regency Energy Partners L.P. (Regency), which included a $0.1 billion gain on sale of our general partnership interest in Regency and remeasurement of our retained investment (the Regency transaction). Revenues for the quarter also decreased $0.2 billion compared with the second quarter of 2009 as a result of organic revenue declines primarily driven by a lower asset base and a lower interest rate environment, partially offset by the weaker U.S. dollar. Net earnings increased by $0.4 billion in the second quarter of 2010 compared with the second quarter of 2009, primarily due to lower provisions for losses on financing receivables, lower selling, general and administrative costs and the gain on the Regency transaction. These increases were partially offset by the absence of the second quarter 2009 gain on the remeasurement of our previously held equity investment in BAC related to the acquisition of a controlling interest (BAC acquisition gain). GE Capital net earnings also included restructuring, rationalization and other charges of $0.1 billion in both the second quarters of 2010 and 2009.

 

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GE Capital revenues decreased 7% and net earnings decreased 2% compared with the first six months of 2009. Revenues for the first six months of 2010 and 2009 included $0.6 billion and $0.5 billion of revenues from acquisitions, respectively, and in 2010 were increased by $0.1 billion and in 2009 were reduced by $1.6 billion as a result of dispositions, including the effects of the 2010 deconsolidation of Regency and the 2009 deconsolidation of Penske Truck Leasing Co., L.P. (PTL). Revenues for the first six months of 2010 also decreased $0.5 billion compared with the first six months of 2009 as a result of organic revenue declines primarily driven by a lower asset base and a lower interest rate environment, partially offset by the weaker U.S. dollar. Net earnings decreased in the first six months of 2010 compared with the first six months of 2009, primarily due to the absence of the first quarter 2009 tax benefit from the decision to indefinitely reinvest prior-year earnings outside the U.S., the absence of the first quarter 2009 gain on the PTL sale and remeasurement and the absence of the BAC acquisition gain, offset by lower provisions for losses on financing receivables, lower selling, general and administrative costs and the gain on the Regency transaction. GE Capital net earnings also included restructuring, rationalization and other charges of $0.1 billion in both the first six months of 2010 and 2009.

During the first six months of 2010, GE Capital provided approximately $38 billion of new financings in the U.S. to various companies, infrastructure projects and municipalities. Additionally, we extended approximately $35 billion of credit to approximately 48 million U.S. consumers. GE Capital provided credit to approximately 14,000 new commercial customers and 19,000 new small businesses in the U.S. during the first six months of 2010 and ended the period with outstanding credit to more than 329,000 commercial customers and 175,000 small businesses through retail programs in the U.S.

Additional information about certain GE Capital businesses follows.

CLL revenues decreased 15% and net earnings increased 28% compared with the second quarter of 2009. Revenues for the quarter decreased $0.8 billion compared with the second quarter of 2009 as a result of organic revenue declines ($0.9 billion), partially offset by the weaker U.S. dollar ($0.1 billion). Net earnings increased in the second quarter of 2010, reflecting lower provisions for losses on financing receivables ($0.2 billion), lower selling, general and administrative costs ($0.1 billion) and higher gains ($0.1 billion), partially offset by marks and impairments ($0.2 billion) and core declines ($0.1 billion).

CLL revenues decreased 17% and net earnings increased 13% compared with the first six months of 2009. Revenues for the first six months of 2010 and 2009 included $0.2 billion and $0.1 billion, respectively, from acquisitions, and in 2009 were reduced by $1.2 billion from dispositions, primarily related to the deconsolidation of PTL, which included $0.3 billion related to a gain on the sale of a partial interest in a limited partnership in PTL and remeasurement of our retained investment. Revenues for the first six months of 2010 also decreased $0.7 billion compared with the first six months of 2009 as a result of organic revenue declines ($1.0 billion), partially offset by the weaker U.S. dollar ($0.3 billion). Net earnings increased in the first six months of 2010, reflecting lower provisions for losses on financing receivables ($0.3 billion), lower selling, general and administrative costs ($0.2 billion) and higher gains ($0.1 billion). These increases were partially offset by the absence of the gain on the PTL sale and remeasurement ($0.3 billion), declines in lower-taxed earnings from global operations ($0.1 billion) and marks and impairments ($0.1 billion).

 

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Consumer revenues remained flat and net earnings increased 192% compared with the second quarter of 2009. Revenues for the second quarter of 2010 included $0.2 billion from acquisitions and were reduced by $0.1 billion as a result of dispositions. Revenues for the second quarter of 2009 included a gain of $0.3 billion on the remeasurement of our previously held equity investment in BAC related to the acquisition of a controlling interest (BAC acquisition gain). Revenues for the second quarter also increased $0.2 billion compared with the second quarter of 2009 as a result of the weaker U.S dollar ($0.2 billion). The increase in net earnings resulted primarily from core growth of $0.7 billion, partially offset by the absence of the BAC acquisition gain of $0.2 billion. Core growth included lower provisions for losses on financing receivables primarily in Global Banking and U.K. ($0.4 billion), lower impairments ($0.1 billion) and lower selling, general and administrative costs ($0.1 billion).

Consumer revenues increased 2% and net earnings increased 34% compared with the first six months of 2009. Revenues for the first six months of 2010 and 2009 included $0.5 billion and $0.3 billion (including the BAC acquisition gain), respectively, from acquisitions and were reduced by $0.2 billion as a result of dispositions. Revenues for the six months of 2010 also increased $0.4 billion compared with the first six months of 2009 as a result of the weaker U.S. dollar of $0.5 billion, partially offset by organic revenue declines of $0.2 billion. The increase in net earnings resulted primarily from core growth of $0.5 billion and the weaker U.S dollar of $0.1 billion, partially offset by the absence of the BAC acquisition gain of $0.2 billion and the effects of dispositions of $0.1 billion. Core growth included lower provisions for losses on financing receivables across most platforms ($0.8 billion), lower selling, general and administrative costs ($0.2 billion) and lower impairments, partially offset by the absence of the first quarter 2009 tax benefit of $0.5 billion from the decision to indefinitely reinvest prior-year earnings outside the U.S.

Real Estate revenues decreased 2% and net earnings decreased 121% compared with the second quarter of 2009. Revenues for the quarter decreased compared with the second quarter of 2009 as a result of organic revenue declines, partially offset by the weaker U.S. dollar and an increase in property sales. Real Estate net earnings decreased $0.3 billion compared with the second quarter of 2009, primarily from an increase in provisions for losses on financing receivables and impairments ($0.4 billion), partially offset by core increases ($0.1 billion). Depreciation expense on real estate equity investments totaled $0.3 billion in both the second quarters of 2010 and 2009, respectively.

Real Estate revenues decreased 3% and net earnings decreased 126% compared with the first six months of 2009. Revenues for the first six months of 2010 decreased $0.1 billion compared with the first six month of 2009 as a result of organic revenue declines, partially offset by the weaker U.S. dollar and an increase in property sales. Real Estate net earnings decreased $0.5 billion compared with the first six months of 2009, primarily from an increase in provisions for losses on financing receivables and impairments ($0.7 billion), partially offset by core increases ($0.2 billion). Depreciation expense on real estate equity investments totaled $0.5 billion and $0.6 billion in the first six months of 2010 and 2009, respectively.

Energy Financial Services revenues increased 21% and net earnings increased 94% compared with the second quarter of 2009. Revenues for the second quarter of 2010 included a $0.1 billion gain related to the Regency transaction. Revenues for the quarter also increased compared with the second quarter of 2009 as a result of organic revenue growth, primarily as a result of higher energy commodity prices. The increase in net earnings resulted primarily from the gain related to the Regency transaction ($0.1 billion) and higher core increases resulting from higher energy commodity prices.

Energy Financial Services revenues increased 22% and net earnings increased 99% compared with the first six months of 2009. Revenues for the first six months of 2010 included a $0.1 billion gain related to the Regency transaction. Revenues for the first six months of 2009 included $0.1 billion of gains from dispositions. Revenues for the first six months of 2010 increased compared with the first six months of 2009 as a result of organic revenue growth, primarily increases in associated company revenues resulting from an asset sale by an investee of $0.2 billion. The increase in net earnings resulted primarily from core increases, primarily increases in associated company earnings resulting from an asset sale by an investee of $0.1 billion and the gain related to the Regency transaction ($0.1 billion).

 

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GECAS revenues increased 8% and net earnings increased 1% compared with the second quarter of 2009. Revenues for the quarter increased compared with the second quarter of 2009 as a result of organic revenue growth ($0.1 billion), including higher investment income and lower asset sales. Net earnings were flat at $0.3 billion for the second quarter of 2010.

GECAS revenues increased 10% and net earnings increased 11% compared with the first six months of 2009. Revenues for the first six months of 2010 increased compared with the first six months of 2009 as a result of organic revenue growth ($0.2 billion), including higher investment income ($0.1 billion). The increase in net earnings resulted primarily from core increases and higher investment income, partially offset by higher impairments and credit losses.

Home & Business Solutions revenues of $2.3 billion increased 4% in the second quarter of 2010 compared with the second quarter of 2009, as higher volume ($0.2 billion) was partially offset by lower prices ($0.1 billion). The increase in volume primarily reflected increased lighting sales. Segment profit increased 59% in the second quarter of 2010, primarily as a result of the effects of productivity ($0.1 billion), partially offset by lower prices ($0.1 billion).

Home & Business Solutions revenues of $4.2 billion increased 2% in the first six months of 2010 compared with the first six months of 2009, as higher volume ($0.2 billion) was partially offset by lower prices ($0.1 billion). The increase in volume primarily reflected increased lighting sales. Segment profit increased 59% to $0.2 billion in the first six months of 2010, primarily as a result of the effects of productivity ($0.2 billion), partially offset by lower prices ($0.1 billion).

Discontinued Operations

 

     Three months ended June 30     Six months ended June 30  
(In millions)    2010     2009     2010     2009  

Loss from discontinued operations, net of taxes

   $ (188   $ (194   $ (578   $ (215
                                

Discontinued operations primarily comprised GE Money Japan, WMC and Plastics. Results of these businesses are reported as discontinued operations for all periods presented.

Loss from discontinued operations, net of taxes, for the second quarter and the first six months of 2010, primarily reflected $0.2 billion and $0.6 billion, respectively, of incremental reserves related to the 2008 disposal of GE Money Japan.

Loss from discontinued operations, net of taxes, for the second quarter and the first six months of 2009, primarily reflected $0.1 billion of incremental reserves related to the 2008 disposal of GE Money Japan.

For additional information related to discontinued operations, see Note 2 to the condensed, consolidated financial statements.

Corporate items and eliminations revenues in the second quarter of 2010 were flat reflecting lower revenues from the disposed businesses ($0.4 billion), offset by lower eliminations, reflecting lower volume of intersegment sales ($0.2 billion), higher asset management revenues ($0.1 billion) and increased insurance revenues. Corporate items and eliminations costs decreased by $0.2 billion compared with the second quarter of 2009 due to a decrease in restructuring, rationalization and other charges ($0.2 billion) and lower corporate staff costs and an insurance settlement ($0.2 billion), partially offset by higher costs of our principal pension plans ($0.2 billion).

 

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Corporate items and eliminations revenues in the first six months of 2010 increased by $0.1 billion as lower eliminations, reflecting lower volume of intersegment sales ($0.3 billion), increased insurance revenues ($0.2 billion) and higher asset management revenues ($0.1 billion) were partially offset by lower revenues from disposed businesses ($0.4 billion). Corporate items and eliminations costs decreased by $0.3 billion compared with the first six months of 2009 due to a decrease in restructuring, rationalization and other charges ($0.4 billion) and higher net gains on dispositions ($0.3 billion), partially offset by higher costs of our principal pension plans ($0.4 billion).

Certain amounts included in Corporate items and eliminations cost are not allocated to GE operating segments because they are excluded from the measurement of their operating performance for internal purposes. In the second quarter of 2010, these included $0.1 billion at Technology Infrastructure, primarily for restructuring, rationalization and other charges. In the first six months of 2010, these included $0.1 billion at each of Technology Infrastructure, Home & Business Solutions and Energy Infrastructure, primarily for restructuring, rationalization and other charges.

B. Statement of Financial Position

Overview of Financial Position

Major changes in our financial position in the first six months of 2010 resulted from the following:

 

 

Increase of $31.1 billion in assets and $33.0 billion in liabilities and a net reduction of total equity (including noncontrolling interests) of $1.9 billion on January 1, 2010, as a result of the adoption of Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2009-16 and ASU 2009-17 (ASU 2009-16 & 17);

 

 

At GECS, repayments exceeded new issuances of total borrowings by $38.2 billion and collections on financing receivables exceeded originations by $17.3 billion;

 

 

On February 28, 2010, we completed the sale of our Security business for $1.8 billion in cash; and

 

 

The U.S. dollar was stronger at June 30, 2010 than at December 31, 2009, decreasing the translated levels of our non-U.S. dollar assets and liabilities.

Consolidated assets were $749.9 billion at June 30, 2010, a decrease of $31.9 billion from December 31, 2009. GE assets decreased $3.5 billion, and financial services assets decreased $32.3 billion.

GE assets were $206.4 billion at June 30, 2010, a $3.5 billion decrease from December 31, 2009. The decrease reflects a $3.6 billion decrease in investment in GECS mainly due to the impact of the adoption of ASU 2009-16 and ASU 2009-17 and the effects of the stronger U.S. dollar.

Financial Services assets were $617.9 billion at June 30, 2010 and reflect the effect of our adoption of ASU 2009-16 & 17 (see Note 16). Excluding the effect of the adoption of ASU 2009-16 & 17, assets decreased $62.9 billion, reflecting a reduction of financing receivables of $43.9 billion, primarily through collections exceeding originations ($17.3 billion), the effects of the stronger U.S. dollar ($14.6 billion), net write-offs ($4.6 billion) and a reduction in cash and investment securities ($5.1 billion) mainly used to pay down borrowings.

Consolidated liabilities were $629.2 billion at June 30, 2010, a $27.5 billion decrease from December 31, 2009. GE liabilities decreased $0.1 billion and financial services liabilities decreased $27.8 billion.

GE liabilities were $86.8 billion at June 30, 2010. The $0.1 billion decrease from December 31, 2009 was primarily attributable to net repayments of total borrowings of $2.3 billion, decreases in progress collections of $1.4 billion and other liabilities of $0.9 billion, partially offset by an increase in liabilities of businesses held for sale of $4.1 billion, mainly related to the NBCU notes offering, and deferred income taxes of $0.4 billion. The ratio of borrowings to total capital invested for GE at the end of the second quarter was 7.6% compared with 9.0% at the end of last year and 10.3% at June 30, 2009.

 

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Financial Services liabilities decreased $27.8 billion from December 31, 2009 to $549.6 billion and reflect the adoption of ASU 2009-16 & 17 (see Note 16). Excluding the effect of the adoption of ASU 2009-16 & 17, liabilities decreased $60.2 billion primarily attributable to a $38.2 billion net reduction in borrowings, including non-recourse borrowings of consolidated securitization entities (CSEs), mainly due to maturities which were pre-funded in 2009 and consistent with our overall reduction in financial services assets, and the effects of the stronger U.S. dollar.

Cash Flows

Consolidated cash and equivalents were $73.8 billion at June 30, 2010, an increase of $1.6 billion during the first six months of 2010. Cash and equivalents totaled $52.3 billion at June 30, 2009, an increase of $4.1 billion from December 31, 2008.

We evaluate our cash flow performance by reviewing our industrial (non-financial services) businesses and financial services businesses separately. Cash from operating activities (CFOA) is the principal source of cash generation for our industrial businesses. The industrial businesses also have liquidity available via the public capital markets. Our financial services businesses use a variety of financial resources to meet our capital needs. Cash for financial services businesses is primarily provided from the issuance of term debt and commercial paper in the public and private markets, time deposits, as well as financing receivables collections, sales and securitizations.

GE Cash Flow

GE cash and equivalents were $12.9 billion at June 30, 2010, compared with $3.0 billion at June 30, 2009. GE CFOA totaled $6.3 billion for the first six months of 2010 compared with $7.0 billion for the first six months of 2009. 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.

 

     Six months ended June 30  
(In billions)    2010     2009  

Operating cash collections(a)

   $ 42.1     $ 51.2  

Operating cash payments

     (35.8     (44.2
                

GE cash from operating activities (GE CFOA)(a)

   $ 6.3     $ 7.0  
                

 

 

 

(a) GE sells customer receivables to GECS in part to fund the growth of our industrial businesses. These transactions can result in cash generation or cash use. During any given period, GE receives cash from the sale of receivables to GECS. It also foregoes collection of cash on receivables sold. The incremental amount of cash received from sale of receivables in excess of the cash GE would have otherwise collected had those receivables not been sold, represents the cash generated or used in the period relating to this activity. The incremental cash generated in GE CFOA from selling these receivables to GECS decreased GE CFOA by $0.3 billion for the six months ended June 30, 2010 and increased GE CFOA by $0.5 billion for the six months ended June 30, 2009. See Note 17 to the condensed, consolidated financial statements for additional information about the elimination of intercompany transactions between GE and GECS.

The most significant source of cash in GE CFOA is customer-related activities, the largest of which is collecting cash following a product or services sale. GE operating cash collections decreased by $9.1 billion during the first six months of 2010. This decrease is consistent with the changes in comparable GE operating segment revenues. Analyses of operating segment revenues discussed in the preceding Segment Operations section are 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 a wide range of material and services. GE operating cash payments decreased in the first six months of 2010 by $8.4 billion, consistent with the decrease in GE total costs and expenses.

GE CFOA decreased $0.7 billion compared with the first six months of 2009, primarily reflecting an overall decline in net earnings, a decrease in progress collections of $1.5 billion, partially offset by working capital improvements of $1.3 billion.

 

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GECS Cash Flow

GECS cash and equivalents were $61.5 billion at June 30, 2010, compared with $50.0 billion at June 30, 2009. GECS cash from operating activities totaled $10.3 billion for the first six months of 2010, compared with cash used for operating activities of $1.7 billion for the first six months of 2009. This was primarily due to a prior-year decrease in cash collateral held from counterparties on derivative contracts of $6.7 billion and a decrease, as compared to the prior year, in cash used for other liabilities of $2.3 billion, primarily related to taxes payable, and lower gains and higher impairments at Real Estate of $1.7 billion, also as compared to the prior year.

Consistent with our plan to reduce GECS asset levels, cash from investing activities was $27.4 billion during the first six months of 2010; $17.3 billion resulted from a reduction in financing receivables, due to collections exceeding originations, and $3.3 billion in investment securities was mainly due to maturities of short-term investments at our Treasury operations.

GECS cash used for financing activities in the first six months of 2010 of $38.9 billion related primarily to a $38.2 billion reduction in total borrowings, mainly due to maturities which were pre-funded in 2009 and a reduction in non-recourse borrowings of CSEs on lower volumes.

Other Liabilities

As previously disclosed, under a 2006 consent decree with the Environmental Protection Agency (EPA), GE has agreed to dredge PCB-containing sediment from the upper Hudson River. The dredging is to be performed in two phases and Phase I was completed in May through November of 2009. Between Phase I and Phase II there will be an intervening peer review by an independent panel of national experts. The panel will evaluate the performance of Phase I dredging operations with respect to Phase I Engineering Performance Standards, evaluate experience gained from Phase I and may set forth proposed changes to the standards. This evaluation is expected to conclude in the early fall of 2010 after which EPA, considering the peer review panel’s recommendations, GE’s proposed changes, and its own analysis, will issue its regulatory decision setting forth any changes to the scope of, or performance standards for, Phase II. Following EPA’s decision, GE has 90 days to either elect to perform Phase II or to opt out of the project, at which point GE may be responsible for further costs. The amount of additional cost is uncertain and will depend on a number of factors, including the EPA’s evaluation of potential changes to the scope, design and engineering controls of the remedy, the volume of any additional sediment required to be removed and the duration of further remediation; these costs may differ from our current estimates. Our statement of financial position as of June 30, 2010, included liabilities for the probable and estimable costs of the project under the consent decree.

Intercompany Eliminations

Effects of transactions between related companies are eliminated and consist primarily of capital contributions from GE to GECS; GE customer receivables sold to GECS; GECS services for trade receivables management and material procurement; buildings and equipment (including automobiles) leased between GE and GECS; information technology (IT) and other services sold to GECS by GE; aircraft engines manufactured by GE that are installed on aircraft purchased by GECS from third-party producers for lease to others; and various investments, loans and allocations of GE corporate overhead costs. See Note 17 to the condensed, consolidated financial statements for further information related to intercompany eliminations.

Fair Value Measurements

See Note 1 to our 2009 consolidated financial statements for disclosures related to our methodology for fair value measurements. Additional information about fair value measurements is provided in Note 14 to the condensed, consolidated financial statements.

At June 30, 2010, the aggregate amount of investments that are measured at fair value through earnings totaled $4.6 billion and consisted primarily of various assets held for sale in the ordinary course of business, as well as equity investments.

 

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C. Financial Services Portfolio Quality

Investment securities comprise mainly investment-grade debt securities supporting obligations to annuitants and policyholders in our run-off insurance operations and holders of guaranteed investment contracts (GICs) in Trinity (which ceased issuing new investment contracts beginning in the first quarter of 2010) and investment securities held at our global banks. The fair value of investment securities decreased to $42.1 billion at June 30, 2010, from $51.9 billion at December 31, 2009, primarily driven by a decrease in retained interests as a result of our adoption of ASU 2009-16 & 17 and maturities, partially offset by improved market conditions. Of the amount at June 30, 2010, we held debt securities with an estimated fair value of $41.0 billion, which included corporate debt securities, residential mortgage-backed securities (RMBS) and commercial mortgage-backed securities (CMBS) with estimated fair values of $25.5 billion, $3.1 billion and $2.9 billion, respectively. Unrealized losses on debt securities were $1.8 billion and $2.6 billion at June 30, 2010 and December 31, 2009, respectively. This amount included unrealized losses on corporate debt securities, RMBS and CMBS of $0.5 billion, $0.5 billion and $0.3 billion, respectively, at June 30, 2010, as compared with $0.8 billion, $0.8 billion and $0.4 billion, respectively, at December 31, 2009.

Of the $3.1 billion of RMBS, our exposure to subprime credit was approximately $0.8 billion. These securities are primarily held to support obligations to holders of GICs. We purchased no such securities in the first six months of 2010 and 2009. These investment securities are collateralized primarily by pools of individual direct mortgage loans, and do not include structured products such as collateralized debt obligations. Additionally, a majority of exposure to residential subprime credit related to investment securities backed by mortgage loans originated in 2006 and 2005. The vast majority of the securities we hold are in a senior position in the capital structure of the deal.

The vast majority of our CMBS have investment-grade credit ratings from the major rating agencies and are in a senior position in the capital structure of the deal. Our CMBS investments are collateralized by both diversified pools of mortgages that were originated for securitization (conduit CMBS) and pools of large loans backed by high quality properties (large loan CMBS), a majority of which were originated in 2006 and 2007.

We regularly review investment securities for impairment. Our review uses both qualitative and quantitative criteria. Effective April 1, 2009, the FASB amended ASC 320, Investments – Debt and Equity Securities, and modified the requirements for recognizing and measuring other-than-temporary impairment for debt securities. This did not have a material impact on our results of operations. We presently do not intend to sell our debt securities and believe that it is not more likely than not that we will be required to sell these securities that are in an unrealized loss position before recovery of our amortized cost. If we do not intend to sell the security and it is not more likely than not that we will be required to sell the security before recovery of our amortized cost, we evaluate other qualitative criteria to determine whether a credit loss exists, such as the financial health of and specific prospects for the issuer, including whether the issuer is in compliance with the terms and covenants of the security. Quantitative criteria include determining whether there has been an adverse change in expected future cash flows. With respect to corporate bonds, we placed greater emphasis on the credit quality of the issuer. With respect to RMBS and CMBS, we placed greater emphasis on our expectations with respect to cash flows from the underlying collateral and with respect to RMBS, we considered other features of the security, principally monoline insurance. For equity securities, our criteria include the length of time and magnitude of the amount that each security is in an unrealized loss position. Our other-than-temporary impairment reviews involve our finance, risk and asset management functions as well as the portfolio management and research capabilities of our internal and third-party asset managers.

Monoline insurers (Monolines) provide credit enhancement for certain of our investment securities, primarily residential mortgage-backed securities and municipal securities. The credit enhancement is a feature of each specific security that guarantees the payment of all contractual cash flows, and is not purchased separately by GE. The Monoline industry continues to experience financial stress from increasing delinquencies and defaults on the individual loans underlying insured securities. We continue to rely on Monolines with adequate capital and claims paying resources. We have reduced our reliance on Monolines that do not have adequate capital or have experienced regulator intervention. At June 30, 2010, our investment securities insured by Monolines on which we continue to place reliance were $1.8 billion, including $0.4 billion of our $0.8 billion investment in subprime RMBS. At June 30, 2010, the unrealized loss associated with securities subject to Monoline credit enhancement for which there is an expected credit loss was $0.2 billion.

 

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Total pre-tax other-than-temporary impairment losses during the second quarter of 2010 were $0.1 billion, of which $0.1 billion was recognized in earnings and primarily relates to credit losses on RMBS and non-U.S. government securities.

Total pre-tax other-than-temporary impairment losses during the first six months of 2010 were $0.3 billion, of which $0.2 billion was recognized in earnings and primarily relates to credit losses on RMBS and non-U.S. government securities and $0.1 billion primarily relates to non-credit related losses on RMBS and is included within accumulated other comprehensive income.

Our qualitative review attempts to identify issuers’ securities that are “at-risk” of other-than-temporary impairment, that is, for securities that we do not intend to sell and it is not more likely than not that we will be required to sell before recovery of our amortized cost, whether there is a possibility of credit loss that would result in an other-than-temporary impairment recognition in the following 12 months. Securities we have identified as “at-risk” primarily relate to investments in RMBS securities and corporate debt securities across a broad range of industries. The amount of associated unrealized loss on these securities at June 30, 2010, is $0.4 billion. Credit losses that would be recognized in earnings are calculated when we determine the security to be other-than-temporarily impaired. Uncertainty in the capital markets may cause increased levels of other-than-temporary impairments.

At June 30, 2010, unrealized losses on investment securities totaled $1.9 billion, including $1.7 billion aged 12 months or longer, compared with unrealized losses of $2.6 billion, including $2.3 billion aged 12 months or longer, at December 31, 2009. Of the amount aged 12 months or longer at June 30, 2010, approximately 70% of our debt securities were considered to be investment grade by the major rating agencies. In addition, of the amount aged 12 months or longer, $1.0 billion and $0.5 billion related to structured securities (mortgage-backed, asset-backed and securitization retained interests) and corporate debt securities, respectively. With respect to our investment securities that are in an unrealized loss position at June 30, 2010, the vast majority relate to debt securities held to support obligations to holders of GICs and annuitants and policyholders in our run-off insurance operations. We presently do not intend to sell our debt securities and believe that it is not more likely than not that we will be required to sell these securities that are in an unrealized loss position before recovery of our amortized cost. The fair values used to determine these unrealized gains and losses are those defined by relevant accounting standards and are not a forecast of future gains or losses. For additional information, see Note 3 to the condensed, consolidated financial statements.

Financing receivables is our largest category of assets and represents one of our primary sources of revenues. Our portfolio of financing receivables is diverse and not directly comparable to major U.S. banks. A discussion of the quality of certain elements of the financing receivables portfolio follows.

Our consumer portfolio is largely non-U.S. and primarily comprises mortgage, sales finance, auto and personal loans in various European and Asian countries. Our U.S. consumer financing receivables comprise 13% of our total portfolio. Of those, approximately 59% relate primarily to credit cards, which are often subject to profit and loss sharing arrangements with the retailer (the results of which are reflected in revenues), and have a smaller average balance and lower loss severity as compared to bank cards. The remaining 41% are sales finance receivables, which provide electronics, recreation, medical and home improvement financing to customers. In 2007, we exited the U.S. mortgage business and we have no U.S. auto or student loans.

Our commercial portfolio primarily comprises senior, secured positions with comparatively low loss history. The secured receivables in this portfolio are collateralized by a variety of asset classes, which for our CLL business primarily include: industrial-related facilities and equipment; vehicles, corporate aircraft, and equipment used in many industries, including the construction, manufacturing, transportation, media, communications, entertainment, and healthcare industries. The portfolios in our Real Estate, GECAS and Energy Financial Services businesses are collateralized by commercial real estate, commercial aircraft and operating assets in the global energy and water industries, respectively. We are in a secured position for substantially all of our commercial portfolio.

 

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Losses on financing receivables are recognized when they are incurred, which requires us to make our best estimate of probable losses inherent in the portfolio. Such estimate requires consideration of historical loss experience, adjusted for current conditions, and judgments about the probable effects of relevant observable data, including present economic conditions such as delinquency rates, financial health of specific customers and market sectors, collateral values (including housing price indices as applicable), and the present and expected future levels of interest rates. As our revolving credit portfolios turn over more than once per year, write-offs in our Consumer Installment and Revolving credit portfolios during a particular fiscal year will be related to both loans with incurred losses that existed in the portfolio as of the beginning of that fiscal year and those that were originated and written-off during that fiscal year. For example, our U.S. credit card portfolio has a weighted average turnover of approximately 6 months as of June 30, 2010. In addition, write-offs in both our consumer and commercial portfolios can also reflect both losses that are incurred subsequent to the beginning of a fiscal year and information becoming available during that fiscal year which may identify further deterioration on exposures existing prior to the beginning of that fiscal year, and for which reserves could not have been previously recognized.

Our risk management process includes standards and policies for reviewing major risk exposures and concentrations, and evaluates relevant data either for individual loans or financing leases, or on a portfolio basis, as appropriate.

For consumer loans, we collectively evaluate each portfolio for impairment quarterly. The allowance for losses on these receivables is established through a process that estimates the probable losses inherent in the portfolio based upon statistical analyses of portfolio data. These analyses include migration analysis, in which historical delinquency and credit loss experience is applied to the current aging of the portfolio, together with other analyses that reflect current trends and conditions. We also consider overall portfolio indicators including nonearning loans, trends in loan volume and lending terms, credit policies and other observable environmental factors such as unemployment rates and home price indices.

For commercial loans, we routinely evaluate our entire portfolio for potential specific credit or collection issues that might indicate an impairment. For larger balance, non-homogenous loans and leases, this survey first considers the financial status, payment history, request for amended contractual terms, collateral value, industry conditions and guarantor support related to specific customers. Any delinquencies or bankruptcies are also indications of potential impairment requiring further assessment of collectability. We routinely receive financial as well as rating agency reports on our customers, and we elevate for further attention those customers whose operations we judge to be marginal or deteriorating. We also elevate customers for further attention when we observe a decline in collateral values for asset-based loans. We consider multiple factors in evaluating the adequacy of our allowance for losses on Real Estate financing receivables, including loan-to-value ratios, collateral values at the individual loan level, debt service coverage ratios, delinquency status, and economic factors including interest rate and real estate market forecasts. In addition to evaluating these factors, we deem a Real Estate loan to be impaired if its projected loan-to-value ratio at maturity is in excess of 100%, even if the loan is currently paying in accordance with its contractual terms.

We provide specific reserves for commercial loans based upon expected cash flows discounted at the loan’s effective interest rate or the fair value of the collateral, net of expected disposal costs, as a practical expedient. This often results in reserves being established in advance of a modification of terms or designation as a troubled debt restructuring (TDR). After providing for specific incurred losses, we then determine an allowance for losses that have been incurred in the balance of the portfolio but cannot yet be identified to a specific loan or lease. This estimate is based on the historical and projected default rates and loss severity, and is prepared by each respective line of business. For Real Estate, this includes converting economic indicators into real estate market indicators that are calibrated by market and asset class and which are used to project expected performance of the portfolio based on specific loan portfolio metrics.

The remainder of our commercial loans and leases are portfolios of smaller balance homogenous commercial and equipment positions that we evaluate collectively by portfolio for impairment based upon statistical analyses considering historical losses and aging, as well as our view on current market and economic conditions.

 

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This process is further detailed in Note 1 to our 2009 consolidated financial statements.

Effective January 1, 2009, loans acquired in a business acquisition are recorded at fair value, which incorporates our estimate at the acquisition date of the credit losses over the remaining life of the portfolio. As a result, the allowance for loan losses is not carried over at acquisition. This may result in lower reserve coverage ratios prospectively.

For purposes of the discussion that follows, “delinquent” receivables are those that are 30 days or more past due based on their contractual terms; and “nonearning” receivables are those that are 90 days or more past due (or for which collection has otherwise become doubtful). Nonearning receivables exclude loans purchased at a discount (unless they have deteriorated post acquisition). Under ASC 310, Receivables, these loans are initially recorded at fair value and accrete interest income over the estimated life of the loan based on reasonably estimable cash flows even if the underlying loans are contractually delinquent at acquisition. In addition, nonearning receivables exclude loans that are paying currently under a cash accounting basis, but classified as impaired. Recently restructured financing receivables are not considered delinquent when payments are brought current according to the restructured terms, but may remain classified as nonearning until there has been a period of satisfactory payment performance by the borrower and future payments are reasonably assured of collection.

 

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    Financing receivables at   Nonearning receivables at   Allowance for losses at
(In millions)   June 30,
2010
  January 1,
2010(a)
  December 31,
2009
  June 30,
2010
  January 1,
2010(a)
  December 31,
2009
  June 30,
2010
  January 1,
2010(a)
  December 31,
2009

CLL(b)

                 

Americas

  $ 93,042   $ 99,666   $ 87,496   $ 3,076   $ 3,437   $ 3,155   $ 1,362   $ 1,245   $ 1,179

Europe

    36,067     43,403     41,455     902     1,441     1,441     382     575     575

Asia

    11,914     13,159     13,202     422     559     576     234     234     244

Other

    2,727     2,836     2,836     24     24     24     8     11     11

Consumer(b)

                 

Non-U.S. residential mortgages(c)

    48,013     58,345     58,345     4,187     4,515     4,515     892     949     949

Non-U.S. installment and revolving credit

    21,783     24,976     24,976     408     451     451     1,020     1,181     1,181

U.S. installment and revolving credit

    42,946     47,171     23,190     1,228     1,633     841     2,754     3,300     1,698

Non-U.S. auto

    10,012     13,344     13,344     54     72     72     234     308     308

Other

    9,764     11,688     11,688     473     625     625     257     300     300

Real Estate(d)

    44,006     48,673     44,841     1,618     1,358     1,252     1,797     1,536     1,494

Energy Financial Services

    7,472     7,790     7,790     77     78     78     53     28     28

GECAS(b)

    12,337     13,254     13,254     77     153     153     50     104     104

Other(e)

    2,272     2,614     2,614     105     72     72     50     34     34
                                                     

Total

  $ 342,355   $ 386,919   $ 345,031   $ 12,651   $ 14,418   $ 13,255   $ 9,093   $ 9,805   $ 8,105
                                                     

 

 

 

(a) Reflects the adoption of ASU 2009-16 & 17 on January 1, 2010. See Note 16.
(b) During the first quarter of 2010, we transferred the Transportation Financial Services business from GECAS to CLL and the Consumer business in Italy from Consumer to CLL. Prior-period amounts were reclassified to conform to the current-period presentation.
(c) At June 30, 2010, net of credit insurance, approximately 23% of this portfolio comprised loans with introductory, below market rates that are scheduled to adjust at future dates; with high loan-to-value ratios at inception; whose terms permitted interest-only payments; or whose terms resulted in negative amortization. At origination, we underwrite loans with an adjustable rate to the reset value. 81% of these loans are in our U.K. and France portfolios, which comprise mainly loans with interest-only payments and introductory below market rates, have a delinquency rate of 17.2% and have loan-to-value ratio at origination of 75%. At June 30, 2010, 2% (based on dollar values) of these loans in our U.K. and France portfolios have been restructured.
(d) Financing receivables included $224 million and $317 million of construction loans at June 30, 2010 and December 31, 2009, respectively.
(e) Consisted of loans and financing leases related to certain consolidated, liquidating securitization entities.

Further information on the determination of the allowance for losses on financing receivables is provided in the Critical Accounting Estimates section in Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 1 in our 2009 consolidated financial statements.

On January 1, 2010, we adopted ASU 2009-16 & 17, resulting in the consolidation of $40,188 million of net financing receivables at January 1, 2010. We have provided comparisons of our financing receivables portfolio at June 30, 2010 to January 1, 2010, as we believe that it provides a more meaningful comparison of our portfolio quality following the adoption of ASU 2009-16 & 17.

 

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The portfolio of financing receivables, before allowance for losses, was $342.4 billion at June 30, 2010, and $386.9 billion at January 1, 2010. Financing receivables, before allowance for losses, decreased $44.5 billion from January 1, 2010, primarily as a result of core declines of $18.2 billion mainly from collections exceeding originations ($17.3 billion) (which includes sales), the stronger U.S. dollar ($14.6 billion), dispositions ($0.8 billion), partially offset by acquisitions ($0.3 billion).

Related nonearning receivables totaled $12.7 billion (3.7% of outstanding receivables) at June 30, 2010, compared with $14.4 billion (3.7% of outstanding receivables) at January 1, 2010. Nonearning receivables decreased from January 1, 2010, primarily due to improvements in our entry rates in our Consumer business and improved performance in commercial lending, offset by increased real estate delinquencies driven by continued deterioration in the commercial real estate markets.

The allowance for losses at June 30, 2010 totaled $9.1 billion compared with $9.8 billion at January 1, 2010, representing our best estimate of probable losses inherent in the portfolio and reflecting the then current credit and economic environment. Allowance for losses decreased $0.7 billion from January 1, 2010, primarily due to a reduction in the overall financing receivables balance. Overall coverage has increased to 2.7% at June 30, 2010 from 2.5% at January 1, 2010.

 

    Nonearning receivables as a     Allowance for losses as     Allowance for losses as a  
    percent of financing     a percent of nonearning     percent of total financing  
    receivables     receivables     receivables  
    June 30,     January 1,     December 31,     June 30,     January 1,     December 31,     June 30,     January 1,     December 31,  
    2010     2010(a)     2009     2010     2010(a)     2009     2010     2010(a)     2009  

CLL(b)

                 

Americas

  3.3    3.4    3.6    44.3    36.2    37.4    1.5    1.2    1.3 

Europe

  2.5     3.3     3.5     42.4     39.9     39.9     1.1     1.3     1.4  

Asia

  3.5     4.2     4.4     55.5     41.9     42.4     2.0     1.8     1.8  

Other

  0.9     0.8     0.8     33.3     45.8     45.8     0.3     0.4     0.4  

Consumer(b)

                 

Non-U.S. residential mortgages

  8.7     7.7     7.7     21.3     21.0     21.0     1.9     1.6     1.6  

Non-U.S. installment and revolving credit

  1.9     1.8     1.8     250.0     261.9     261.9     4.7     4.7     4.7  

U.S. installment and revolving credit

  2.9     3.5     3.6     224.3     202.1     201.9     6.4     7.0     7.3  

Non-U.S. auto

  0.5     0.5     0.5     433.3     427.8     427.8     2.3     2.3     2.3  

Other

  4.8     5.3     5.3     54.3     48.0     48.0     2.6     2.6     2.6  

Real Estate

  3.7     2.8     2.8     111.1     113.1     119.3     4.1     3.2     3.3  

Energy Financial Services

  1.0     1.0     1.0     68.8     35.9     35.9     0.7     0.4     0.4  

GECAS(b)

  0.6     1.2     1.2     64.9     68.0     68.0     0.4     0.8     0.8  

Other

  4.6     2.8     2.8     47.6     47.2     47.2     2.2     1.3     1.3  

Total

  3.7     3.7     3.8     71.9     68.0     61.1     2.7     2.5     2.3  

 

 

 

(a) Reflects the adoption of ASU 2009-16 & 17 on January 1, 2010. See Note 16.
(b) During the first quarter of 2010, we transferred the Transportation Financial Services business from GECAS to CLL and the Consumer business in Italy from Consumer to CLL. Prior-period amounts were reclassified to conform to the current-period presentation.

 

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“Impaired” loans in the table below are defined as larger balance or restructured loans for which it is probable that the lender will be unable to collect all amounts due according to original contractual terms of the loan agreement. The vast majority of our consumer and a portion of our CLL nonearning receivables are excluded from this definition, as they represent smaller balance homogenous loans that we evaluate collectively by portfolio for impairment.

Impaired loans include nonearning receivables on larger balance or restructured loans, loans that are currently paying interest under the cash basis (but are excluded from the nonearning category), and loans paying currently but which have been previously restructured.

Specific reserves are recorded for individually impaired loans to the extent we have determined that it is probable that we will be unable to collect all amounts due according to original contractual terms of the loan agreement. Certain loans classified as impaired may not require a reserve because we believe that we will ultimately collect the unpaid balance (through collection or collateral repossession).

Further information pertaining to loans classified as impaired and specific reserves is included in the table below.

 

     At
(In millions)    June 30,
2010
   January 1,
2010(a)
  December 31,
2009

Loans requiring allowance for losses

   $ 11,515    $ 9,541   $ 9,145

Loans expected to be fully recoverable

     3,924      3,914     3,741
                   

Total impaired loans

   $ 15,439    $ 13,455   $ 12,886
                   

Allowance for losses (specific reserves)

   $ 3,033    $ 2,376   $ 2,331

Average investment during the period

     14,182      (c)     8,493

Interest income earned while impaired(b)

     206      (c)     227

 

 

 

(a) Reflects the effects of our adoption of ASU 2009-16 & 17 on January 1, 2010.
(b) Recognized principally on cash basis.
(c) Not applicable.

Impaired loans increased by $2.0 billion from January 1, 2010, to June 30, 2010, primarily relating to increases at Real Estate. Impaired loans consolidated as a result of our adoption of ASU 2009-16 & 17 primarily related to our Consumer business. We regularly review our Real Estate loans for impairment using both quantitative and qualitative factors, such as debt service coverage and loan-to-value ratios. We classify Real Estate loans as impaired when the most recent valuation reflects a projected loan-to-value ratio at maturity in excess of 100%, even if the loan is currently paying in accordance with contractual terms. The increase in impaired loans and related specific reserves at Real Estate reflects our current estimate of collateral values of the underlying properties, and our estimate of loans which are not past due, but for which it is probable that we will be unable to collect the full principal balance at maturity due to a decline in the underlying value of the collateral. Of our $8.3 billion impaired loans at Real Estate at June 30, 2010, $5.9 billion are currently paying in accordance with the contractual terms of the loan. Impaired loans at CLL primarily represent senior secured lending positions.

We review collateral values for collateral dependent impaired loans in CLL quarterly. These collateral values are primarily derived internally and are based on observed sales transactions for similar assets (e.g., corporate aircraft and equipment). In other instances, for example, collateral types for which we do not have comparable observed sales transaction data (e.g., franchise-related assets), collateral values are developed internally and corroborated by external appraisal information. Adjustments to third party valuations may be performed in circumstances where market comparables are not specific to the attributes of the specific collateral or appraisal information may not be reflective of current market conditions due to the passage of time and the occurrence of market events since receipt of the information.

 

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Collateral values for our Real Estate loans are determined based upon internal cash flow estimates discounted at an appropriate interest rate and corroborated by external appraisals, as appropriate. These cash flow estimates are based on current market estimates that reflect current and projected lease profiles and available industry information about capitalization rates and expected trends in rental and occupancy. Collateral valuations are updated at least semi-annually, or more frequently for higher risk loans.

Our loss mitigation strategy intends to minimize economic loss and, at times, can result in rate reductions, principal forgiveness, extensions, forbearance or other actions, which may cause the related loan to be classified as a TDR. Such loans are classified as impaired, and specific reserves are determined based upon the present value of expected future cash flows discounted at the loan’s original effective interest rate, or collateral value as a practical expedient in accordance with the requirements of ASC 310-10-35. As of June 30, 2010, TDRs included in impaired loans were $5.9 billion, primarily relating to Real Estate ($2.1 billion), Consumer ($1.9 billion) and CLL ($1.8 billion). TDRs consolidated as a result of our adoption of ASU 2009-16 & 17 primarily related to our Consumer business ($0.4 billion).

We utilize certain short-term loan modification programs for borrowers experiencing temporary financial difficulties in our consumer loan portfolio. These loan modification programs are primarily concentrated in our U.S. credit card and non-U.S. residential mortgage portfolios. We sold our U.S. residential mortgage business in 2007 and as such, do not participate in the U.S. government sponsored mortgage modification programs. During the six months ended June 30, 2010, we provided short-term modifications of approximately $1.3 billion of consumer loans for borrowers experiencing financial difficulties. This included approximately $0.8 billion of credit card loans in the United States (U.S.) and approximately $0.5 billion of other consumer loans primarily non-U.S. residential mortgages, credit cards and personal loans, which were not classified as TDRs. For these modified loans, we provided short-term (12 months or less) interest rate reductions and payment deferrals, which were not part of the terms of the original contract. During the six months ended June 30, 2010, approximately $0.1 billion of these modified loans redefaulted.

Our allowance for losses on financing receivables on these modified loans is determined based upon a formulaic approach that estimates the probable losses inherent in the portfolio based upon statistical analyses of the portfolio. Once the loan has been modified, it returns to current status (re-aged) only after receipt of at least three consecutive minimum monthly payments or the equivalent cumulative amount, subject to a re-aging limitation of once a year, or twice in a five-year period.

For commercial loans, we evaluate changes in terms and conditions to determine whether those changes meet the criteria for classification as a TDR on a loan-by-loan basis.

In CLL, these changes primarily take the following forms: changes to covenants, short-term payment deferrals and maturity extensions. For these changes, we receive economic consideration, including additional fees and/or increased interest rates, and evaluate them under our normal underwriting standards and criteria. Changes to Real Estate’s loans primarily include maturity extensions, principal payment acceleration, changes to collateral terms, and cash sweeps, which are in addition to, or sometimes in lieu of, fees and rate increases.

The determination of whether these changes to the terms and conditions of our commercial loans meet the TDR criteria includes our consideration of all of the relevant facts and circumstances. When the borrower is experiencing financial difficulty, we carefully evaluate these changes to determine whether they meet the form of a concession. In these circumstances, if the change is deemed to be a concession, we classify the loan as a TDR.

The below includes a discussion of financing receivables, allowance for losses, nonearning receivables and related metrics for each of our significant portfolios.

 

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CLL – Americas. Nonearning receivables of $3.1 billion represented 24.3% of total nonearning receivables at June 30, 2010. The ratio of allowance for losses as a percent of nonearning receivables increased from 36.2% at January 1, 2010, to 44.3% at June 30, 2010, reflecting further loss severity in our equipment and franchise restaurant, limited-service hotel, and to a lesser extent, transportation portfolios, combined with an overall decrease in nonearning receivables. The ratio of nonearning receivables as a percent of financing receivables decreased from 3.4% at January 1, 2010, to 3.3% at June 30, 2010, primarily from reduced nonearning exposures in our corporate lending, inventory financing and industrial materials portfolios primarily due to collections and write-offs, partially offset by an increase in nonearning receivables, mainly in our healthcare portfolio. Collateral supporting these non-earning financing receivables primarily includes corporate aircraft and assets in the restaurant and hospitality, trucking, and forestry industries, and for our leveraged finance business, equity of the underlying businesses. The underlying collateral values remained adequate to cover the unpaid balance after recognition of specific reserves, if required.

CLL – Europe. Nonearning receivables of $0.9 billion represented 7.1% of total nonearning receivables at June 30, 2010. The ratio of allowance for losses as a percent of nonearning receivables increased from 39.9% at January 1, 2010, to 42.4% at June 30, 2010, primarily from a decrease in nonearning receivables in our senior secured lending and equipment portfolios (including loans acquired in a business acquisition) due to write-offs and collections, partially offset by new exposures. The ratio of nonearning receivables as a percent of financing receivables decreased from 3.3% at January 1, 2010, to 2.5% at June 30, 2010, primarily from the decrease in nonearning receivables in our senior secured lending and equipment portfolios. Collateral supporting these secured nonearning financing receivables are primarily equity of the underlying businesses for our senior secured lending business, and equipment. The underlying collateral values related to these nonearning financing receivables remained adequate to cover the unpaid balance after recognition of specific reserves, if required.

CLL – Asia. Nonearning receivables of $0.4 billion represented 3.3% of total nonearning receivables at June 30, 2010. The ratio of allowance for losses as a percent of nonearning receivables increased from 41.9% at January 1, 2010, to 55.5% at June 30, 2010, primarily due to a larger percentage decrease in nonearning receivables primarily in our asset-based financing businesses in Japan. The ratio of nonearning receivables as a percent of financing receivables decreased from 4.2% at January 1, 2010, to 3.5% at June 30, 2010, primarily due to the decline in nonearning receivables related to our asset-based financing businesses in Japan, partially offset by a lower financing receivable balance. Collateral supporting these nonearning financing receivables is primarily manufacturing equipment, corporate aircraft, and assets in the hospitality and auto industries. The underlying collateral values related to these nonearning financing remained adequate to cover the unpaid balance after recognition of specific reserves, if required.

Consumer – Non-U.S. residential mortgages. Nonearning receivables of $4.2 billion represented 33.1% of total nonearning receivables at June 30, 2010. The ratio of allowance for losses as a percent of nonearning receivables increased slightly from 21.0% at January 1, 2010, to 21.3% at June 30, 2010. In 2010, our nonearning receivables decreased primarily due to signs of stabilization in the U.K. housing market. Our non-U.S. mortgage portfolio has a loan-to-value ratio of approximately 75% at origination and the vast majority are first lien positions. Our U.K. and France portfolios, which comprise a majority of our total mortgage portfolio, have reindexed loan-to-value ratios of 82% and 67%, respectively. About 4% of these loans are without mortgage insurance and have a reindexed loan-to-value ratio equal to or greater than 100%. Loan-to-value information is updated on a quarterly basis for a majority of our loans and considers economic factors such as the housing price index. At June 30, 2010, we had in repossession stock approximately 1,000 houses in the U.K., which had a value of approximately $0.1 billion.

Consumer – Non-U.S. installment and revolving credit. Nonearning receivables of $0.4 billion represented 3.2% of total nonearning receivables at June 30, 2010. The ratio of allowance for losses as a percent of nonearning receivables decreased from 261.9% at January 1, 2010, to 250.0% at June 30, 2010, reflecting the effects of loan repayments and reduced originations.

 

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Consumer – U.S. installment and revolving credit. Nonearning receivables of $1.2 billion represented 9.7% of total nonearning receivables at June 30, 2010. The ratio of allowance for losses as a percent of nonearning receivables increased from 202.1% at January 1, 2010, to 224.3% at June 30, 2010, as a result of lower entry rates, improved collections, and higher write-offs, resulting in reductions in our delinquency and nonearning balances.

Real Estate. Nonearning receivables of $1.6 billion represented 12.8% of total nonearning receivables at June 30, 2010. The $0.3 billion increase in nonearning receivables from January 1, 2010, was driven primarily by increased delinquencies in the U.S. apartment and hotel loan portfolios, which have been adversely affected by rent and occupancy declines. The ratio of allowance for losses as a percent of total financing receivables increased from 3.2% at January 1, 2010, to 4.1% at June 30, 2010, driven primarily by continued rental rate deterioration in the U.S. markets, which resulted in an increase in specific credit loss provisions. The ratio of allowance for losses as a percent of nonearning receivables decreased from 113.1% to 111.1% reflecting a higher portion of the allowance being attributable to specific reserves and our estimate of underlying collateral values. Since our approach identifies loans as impaired even when the loan is currently paying in accordance with contractual terms, increases in nonearning receivables do not necessarily require proportionate increases in reserves upon migration to nonearning status as specific reserves have often been established on the loans prior to their migration to nonearning status.

In 2010, commercial real estate markets have continued to be under pressure, with limited market liquidity and challenging economic conditions. We have and continue to maintain an intense focus on operations and risk management; however, we continue to expect higher losses for Real Estate as compared with 2009. Loan loss reserves related to our Real Estate financing receivables are particularly sensitive to declines in underlying property values. Assuming global property values decline an incremental 1% or 5%, we estimate incremental loan loss reserves would be required of approximately $0.1 billion and $0.4 billion, respectively. Estimating the impact of global property values on loss performance across our portfolio depends on a number of factors, including macroeconomic conditions, property level operating performance, local market dynamics and individual borrower behavior. As a result, any sensitivity analyses or attempts to forecast potential losses carry a high degree of imprecision and are subject to change. At June 30, 2010, real estate held for investment included $0.7 billion representing 118 foreclosed commercial real estate properties.

Delinquencies

Additional information on delinquency rates at each of our major portfolios follows:

 

     Delinquency rates at(a)  
     June 30,
2010(b)
    December 31,
2009
    June 30,
2009
 

Equipment Financing

   2.50   2.81   2.78

Real Estate

   5.40     4.22     3.88  

Consumer

   8.66     8.85     8.77  

U.S.

   6.30     7.66     6.99  

Non-U.S.

   9.84     9.38     9.52  

 

 

 

(a) Excludes loans purchased at a discount (unless they have deteriorated post acquisition).
(b) Subject to update.

 

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Delinquency rates on equipment financing loans and leases decreased from December 31, 2009 and June 30, 2009, to June 30, 2010, as a result of improvements in the global economic and credit environment. The challenging credit environment may continue to lead to a higher level of commercial delinquencies and provisions for financing receivables and could adversely affect results of operations at CLL.

Delinquency rates on Real Estate loans and leases increased from December 31, 2009 and June 30, 2009, to June 30, 2010, primarily because of continued challenging real estate market fundamentals, including reduced occupancy rates and rents and the effects of limited real estate market liquidity. The overall challenging economic environment may continue to lead to a higher level of delinquencies and provisions for financing receivables and could adversely affect results of operations at Real Estate.

Delinquency rates on consumer financing receivables increased from June 30, 2009 to December 31, 2009, primarily because of rising unemployment, a challenging economic environment and lower volume. In response, we continued to tighten underwriting standards globally, increased focus on collection effectiveness and continued the process of regularly reviewing and adjusting reserve levels. Delinquency rates on consumer financing receivables decreased from December 31, 2009 to June 30, 2010, primarily due to signs of stabilization in the U.S. portfolio. We expect the global environment, along with U.S. unemployment levels, to further show signs of stabilization in 2010; however, a continued challenging economic environment may continue to result in higher provisions for loan losses and could adversely affect results of operations at Consumer. At June 30, 2010, roughly 39% of our U.S. managed portfolio (excluding delinquent or impaired), which consisted of credit cards, installment and revolving loans, was receivable from subprime borrowers. We had no U.S. subprime residential mortgage loans at June 30, 2010. See Note 5 to the condensed, consolidated financial statements.

All other assets comprise mainly real estate equity investments, equity and cost method investments, derivative instruments and assets held for sale, and totaled $82.4 billion at June 30, 2010, a decrease of $5.0 billion, primarily related to declines in our real estate equity investments due to the strengthening of the U.S. dollar, impairments and depreciation. During the first six months of 2010, we recognized other-than-temporary impairments of cost and equity method investments of $0.1 billion.

Included in other assets are Real Estate equity investments of $28.3 billion and $32.2 billion at June 30, 2010 and December 31, 2009, respectively. Our portfolio is diversified, both geographically and by asset type. We review the estimated values of our commercial real estate investments semi-annually. As of our most recent estimate performed in the second quarter of 2010, the carrying value of our Real Estate investments exceeded their estimated value by approximately $6.3 billion. The estimated value of the portfolio continues to reflect deteriorating real estate values and market fundamentals, including reduced market occupancy rates and market rents as well as the effects of limited real estate market liquidity. Given the current and expected challenging market conditions, there continues to be risk and uncertainty surrounding commercial real estate values and our unrealized loss on real estate equity properties may continue to increase. Declines in estimated value of real estate below carrying amount result in impairment losses when the aggregate undiscounted cash flow estimates used in the estimated value measurement are below the carrying amount. As such, estimated losses in the portfolio will not necessarily result in recognized impairment losses. When we recognize an impairment, the impairment is measured based upon the fair value of the underlying asset which is based upon current market data, including capitalization rates. During the first six months of 2010, Real Estate recognized pre-tax impairments of $1.0 billion in its real estate investments, compared with $0.2 billion for the comparable period in 2009. Based on our historical experience, Real Estate investments with undiscounted cash flows in excess of carrying value of 0 to 5% are at most risk of impairment. Real Estate investments in this category at June 30, 2010 had a carrying value of $2.2 billion and an associated unrealized loss of approximately $0.7 billion. Continued deterioration in economic and market conditions may result in further impairments being recognized.

 

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D. Liquidity and Borrowings

We manage our liquidity to help ensure access to sufficient funding at acceptable costs to meet our business needs and financial obligations throughout business cycles. Our obligations include principal payments on outstanding borrowings, interest on borrowings, purchase obligations for inventory and equipment and general obligations such as collateral deposits held or collateral required to be posted to counterparties, payroll and general expenses. We rely on cash generated through our operating activities as well as unsecured and secured funding sources, including commercial paper, term debt, bank borrowings, securitization and other retail funding products.

Sources for payment of our obligations are determined through our annual financial and strategic planning processes. Our 2010 funding plan anticipates repayment of principal on outstanding short-term borrowings ($133.1 billion at December 31, 2009) through commercial paper issuances; cash on hand; long-term debt issuances; collections of financing receivables exceeding originations; and deposit funding and alternative sources of funding. In addition to GECS, GE has historically maintained a commercial paper program that we regularly access to fund operations, principally within fiscal quarters.

Interest on borrowings is primarily funded through interest earned on existing financing receivables. During the first six months of 2010, GECS earned interest income on financing receivables of $12.8 billion, which more than offset interest expense of $7.8 billion. Purchase obligations and other general obligations are funded through customer sales revenues (industrial) or collection of principal on our existing portfolio of loans and leases (financial services), cash on hand and operating cash flow.

We maintain a strong focus on our liquidity. Actions taken to strengthen and maintain our liquidity are described in the following section, as well as in the Liquidity and Borrowings section in the Management’s Discussion and Analysis of Financial Condition and Results of Operations of our 2009 consolidated financial statements.

Cash and Equivalents

We have cash and equivalents of $73.8 billion at June 30, 2010, which is available to meet our needs. A substantial portion of this is freely available. About $9 billion is in regulated entities and is subject to regulatory restrictions. About $12 billion is held outside the U.S. and is available to fund operations and other growth of non-U.S. subsidiaries; it is also available to fund our needs in the U.S. on a short-term basis (without being subject to U.S. tax). We anticipate that we will continue to generate cash from operating activities in the future, which will be available to help meet our liquidity needs. We also generate substantial cash from the principal collections of loans and rentals from leased assets.

 

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We have committed, unused credit lines totaling $51.7 billion that had been extended to us by 59 financial institutions at June 30, 2010. These lines include $35.6 billion of revolving credit agreements under which we can borrow funds for periods exceeding one year. Additionally, $15.6 billion are 364-day lines that contain a term-out feature that allows us to extend borrowings for one year from the date of expiration of the lending agreement.

At June 30, 2010, our aggregate cash and equivalents and committed credit lines were more than twice our GECS commercial paper borrowings balance.

Funding Plan

Our strategy has been to reduce our ending net investment in GE Capital. In the first six months of 2010, we reduced our GE Capital ending net investment, excluding cash and equivalents, to $487.0 billion through continued reductions, primarily collections exceeding originations by approximately $17.3 billion.

Our 2010 funding plan anticipates $38 billion of senior, unsecured debt issuance which we fully pre-funded during 2009. In the first six months of 2010, we completed issuances of $9.3 billion of senior, unsecured debt with maturities up to 13 years toward our 2011 long-term debt funding plan. Average commercial paper borrowings for GECS and GE in the second quarter of 2010 were $44.1 billion and $10.3 billion, respectively. Commercial paper maturities at GECS are funded principally through new issuances and at GE are repaid by quarter-end using available cash.

Under the Federal Deposit Insurance Corporation’s (FDIC) Temporary Liquidity Guarantee Program (TLGP), the FDIC guaranteed certain senior, unsecured debt issued on or before October 31, 2009. Our TLGP-guaranteed debt has remaining maturities in 2010 of $5 billion, $18 billion in 2011 and $35 billion in 2012. We anticipate funding of these and our other long-term debt maturities through a combination of new debt issuances, collections exceeding originations, alternative funding sources and use of existing cash.

Total alternative funding for the period ending June 30, 2010 is $60 billion, comprised mainly of $37 billion bank deposits, $10 billion secured funding and $8 billion GE Interest Plus notes. The comparable amount for December 31, 2009 is $63 billion. We have deposit-taking capability at 19 banks outside of the U.S. and two banks in the U.S. – GE Money Bank, a Federal Savings Bank (FSB), and GE Capital Financial Inc., an industrial bank (IB). The FSB and IB currently issue certificates of deposit (CDs) distributed by brokers in maturity terms from three months to ten years.

In addition, we securitize a number of types of financial assets in the ordinary course of business. These securitization transactions serve as alternative funding sources for a variety of assets that we originate, including credit card receivables, floorplan receivables, equipment loans and leases, trade receivables and other asset types. In the first six months of 2010, we completed issuances of $1.7 billion. Total non-recourse borrowings of CSEs at June 30, 2010 were $33 billion. We anticipate that securitization will remain a part of our overall funding capabilities notwithstanding the changes in consolidation rules described in Notes 1 and 16 to the condensed, consolidated financial statements.

Our issuances of securities repurchase agreements are insignificant and are limited to activities at certain of our foreign banks. At June 30, 2010 and December 31, 2009, we were party to repurchase agreements totaling $0.1 billion and an insignificant amount, respectively, which were accounted for as on-book financings. We have had no repurchase agreements which were not accounted for as financings and we do not engage in securities lending transactions.

Dividends and Share Repurchase Program

On July 23, 2010, the GE Board of Directors increased our quarterly dividend 20% from $0.10 per outstanding share of common stock to $0.12 per outstanding share of common stock for shareholders of record at the close of business on September 20, 2010.

Also on July 23, 2010, the GE Board of Directors extended the existing share repurchase plan, which would have otherwise expired on December 31, 2010, through 2013. We will resume repurchases under the plan beginning in the third quarter of 2010.

 

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Income Maintenance Agreement

As set forth in Exhibit 99(b) hereto, GECC’s ratio of earnings to fixed charges was 1.08:1 during the first six months of 2010 due to higher pre-tax earnings at GECC, which were primarily driven by lower losses and delinquencies. If we continue to see improvements in GECC’s pre-tax results consistent with the first half of 2010, we would not expect any payment from GE to GECC in 2011 pursuant to the Income Maintenance Agreement. For additional information, see the Income Maintenance Agreement section in the Management’s Discussion and Analysis of Financial Condition and Results of Operations of our 2009 consolidated financial statements.

E. New Accounting Standards

On September 23, 2009, the FASB issued amendments to existing standards for revenue arrangements with multiple components. The amendments generally require the allocation of consideration to separate components based on the relative selling price of each component in a revenue arrangement. The amendments also require certain software-enabled products to be accounted for under the general accounting standards for multiple component arrangements as opposed to accounting standards specifically applicable to software arrangements. The amendments are effective prospectively for revenue arrangements entered into or materially modified after January  1, 2011. The impact of adopting these amendments is expected to be insignificant to our financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

There have been no significant changes to our market risk since December 31, 2009. For a discussion of our exposure to market risk, refer to Part II, Item 7A. “Quantitative and Qualitative Disclosures about Market Risk,” contained in our Annual Report on Form 10-K for the year ended December 31, 2009.

Item 4. Controls and Procedures.

Under the direction of our Chief Executive Officer and Chief Financial Officer, we evaluated our disclosure controls and procedures and internal control over financial reporting and concluded that (i) our disclosure controls and procedures were effective as of June 30, 2010, and (ii) no change in internal control over financial reporting occurred during the quarter ended June 30, 2010, that has materially affected, or is reasonably likely to materially affect, such internal control over financial reporting.

Part II. Other Information

Item 1. Legal Proceedings.

The following information supplements and amends our discussion set forth under Part I, Item 3 “Legal Proceedings” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009.

In July 2010, the United States District Court for the District of Connecticut granted our motion to dismiss in their entirety two purported class actions under the federal securities laws naming us, our chief executive officer, and our chief financial officer as defendants. These two actions, which we previously reported, alleged that we and our chief executive officer made false and misleading statements that artificially inflated our stock price between March 12, 2008 and April 10, 2008, when we announced that our results for the first quarter of 2008 would not meet our previous guidance and also lowered our full year guidance for 2008.

 

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As previously reported, in October 2008, shareholders filed a purported class action under the federal securities laws in the United States District Court for the Southern District of New York naming us as defendant, as well as our chief executive officer and chief financial officer. The complaint alleges that during a conference call with analysts on September 25, 2008, defendants made false and misleading statements concerning (i) the state of GE’s funding, cash flows, and liquidity and (ii) the question of issuing additional equity, which caused economic loss to those shareholders who purchased GE stock between September 25, 2008 and October 2, 2008, when we announced the pricing of a common stock offering. The case seeks unspecified damages. Our motion to dismiss the third amended complaint was fully briefed in April 2010 and is currently under consideration by the court. We intend to defend ourselves vigorously.

As previously reported, the Antitrust Division of the Department of Justice (DOJ) and the SEC are conducting an industry-wide investigation of marketing and sales of guaranteed investment contracts, and other financial instruments, to municipalities. In connection with this investigation, two subsidiaries of General Electric Capital Corporation (GECC) have received subpoenas and requests for information in connection with the investigation: GE Funding CMS (Trinity Funding Co.) and GE Funding Capital Market Services, Inc. (GE FCMS). GECC has cooperated and continues to cooperate fully with the SEC and DOJ in this matter. In July 2008, GE FCMS received a “Wells notice” advising that the SEC staff is considering recommending that the SEC bring a civil injunctive action or institute an administrative proceeding in connection with the bidding for various financial instruments associated with municipal securities by certain former employees of GE FCMS. GE FCMS is one of several industry participants that received Wells notices during 2008. GE FCMS disagrees with the SEC staff regarding this recommendation and has been in discussions with the staff, including discussion of potential resolution of the matter. GE FCMS intends to continue these discussions and understands that it will have the opportunity to address any disagreements with the SEC staff with respect to its recommendation through the Wells process with the full Commission. In March 2008, GE FCMS and Trinity Funding Co., LLC (Trinity Funding) were served with a federal class action complaint asserting antitrust violations. This action was combined with other related actions in a multidistrict litigation proceeding in the United States District Court for the Southern District of New York. The claims against GE FCMS and Trinity Funding in the federal class action complaint and the similar claims asserted in the other related actions were dismissed without prejudice. In June 2010, the State of West Virginia brought an action against GE FCMS asserting antitrust violations. In addition, GE FCMS and Trinity Funding also received subpoenas from the Attorneys General of the State of Connecticut and Florida on behalf of a working group of State Attorneys General in June 2008. GE FCMS and Trinity Funding are cooperating with those investigations.

As previously reported, in March 2010, a shareholder derivative action was filed in the United States District Court for the Southern District of New York naming as defendants GE, a number of GE officers (including our chief executive officer and chief financial officer) and our directors. The complaint principally alleges breaches of fiduciary duty and other causes of action related to the SEC matter which GE resolved in August 2009, and alleged resulting losses suffered by our financial services businesses. An additional derivative action making essentially the same claims was filed in May in the Southern District of New York as a related case. We intend to defend ourselves vigorously.

On July 27th, 2010, GE and the SEC announced that they had reached a settlement concerning the involvement in 2000-2003 of certain of its non-U.S. subsidiaries in the United Nations Oil-for-Food Program. GE also received confirmation from the Department of Justice that it has closed its investigation and will not be pursuing any criminal charges or taking any other action in this matter. In connection with the SEC settlement, which brings the SEC investigation of GE to a close, the SEC filed a civil complaint in the U.S. District Court for the District of Columbia alleging misconduct by two European subsidiaries of GE, and by subsidiaries of Amersham plc (“Amersham”) and Ionics, Inc. (“Ionics”) in 2000-2002, before GE acquired those businesses. Amersham was acquired by GE in 2004 and Ionics was acquired in 2005. The SEC alleges the conduct violated provisions of the Securities Exchange Act of 1934 that relate to keeping and maintaining accurate books and records and implementing sufficient controls to prevent inaccurate recording of transactions. To resolve both the alleged liabilities of its own subsidiaries and the alleged pre-acquisition liabilities of the subsidiaries that GE acquired, GE has agreed to pay a $1 million penalty and to disgorge the profits plus interest these subsidiaries are estimated to have earned on the transactions in the amount of approximately $22.5 million. Consistent with standard SEC practice, we neither admit nor deny the allegations in the SEC’s complaint.

 

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Item 2. Purchases of Equity Securities by the Issuer and Affiliated Purchasers.

 

Period(a)

   Total number
of shares
purchased(a)(b)
   Average
price paid
per share
   Total number
of shares
purchased as
part of our
share
repurchase
program(a)(c)
   Approximate
dollar value of
shares that
may yet be
purchased
under our
share
repurchase
program
(Shares in thousands)                    

2010

           

April

   948    $ 18.80    716   

May

   777    $ 17.54    576   

June

   624    $ 15.80    502   
               

Total

   2,349    $ 17.59    1,794    $ 11.6 billion
               

 

 

 

(a) Information is presented on a fiscal calendar basis, consistent with our quarterly financial reporting.
(b) This category includes 555 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 from the GE Stock Direct Plan, a direct stock purchase plan that is available to the public. Repurchases from GE Stock Direct are part of the 2007 GE Share Repurchase Program (the Program) under which we are authorized to repurchase up to $15 billion of our common stock through 2010. 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. Effective September 25, 2008, we suspended the Program for purchases other than from GE Stock Direct. Effective July 23, 2010, we extended the Program, which would have otherwise expired on December 31, 2010 through 2013. We will resume repurchases under the Program in the third quarter of 2010.

 

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Item 6. Exhibits.

 

Exhibit 11   Computation of Per Share Earnings*.
Exhibit 12(a)   Computation of Ratio of Earnings to Fixed Charges.
Exhibit 12(b)   Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends.
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(a)   Financial Measures That Supplement Generally Accepted Accounting Principles.
Exhibit 99(b)   Computation of Ratio of Earnings to Fixed Charges (Incorporated by reference to Exhibit 12 to General Electric Capital Corporation’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2010 (Commission file number 001-06461)).
Exhibit 101   The following materials from General Electric Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010, formatted in XBRL (eXtensible Business Reporting Language); (i) Condensed Statement of Earnings for the three months and six months ended June 30, 2010 and 2009, (ii) Condensed Statement of Financial Position at June 30, 2010 and December 31, 2009, (iii) Condensed Statement of Cash Flows for the six months ended June 30, 2010 and 2009, and (iv) Notes to Condensed Consolidated Financial Statements**.
  *    Data required by Financial Accounting Standards Board Accounting Standards Codification 260, Earnings Per Share, is provided in Note 13 to the condensed, consolidated financial statements in this Report.
  **    Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

 

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Signatures

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)

 

August 2, 2010

    

/s/ Jamie S. Miller

  
Date     

Jamie S. Miller

Vice President and Controller

Duly Authorized Officer and Principal Accounting Officer

  

 

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