Form 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 
WASHINGTON, D.C. 20549
 
FORM 10-Q

(Mark One)
 
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2007
 
OR
 
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ____ to ____
 
Commission file number 1-35
 
GENERAL ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer þ
 
Accelerated filer ¨
 
Non-accelerated filer ¨
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
 
There were 10,288,157,000 shares of common stock with a par value of $0.06 per share outstanding at March 31, 2007.
 




General Electric Company
 
Part I - Financial Information
  
Page
   
 
   
 
3
 
4
 
5
 
6
 
7
 
14
 
23
     
Part II - Other Information
    
     
 
23
 
24
 
24
 
25
 
Forward-Looking Statements
 
This document contains “forward-looking statements”- that is, statements related to future, not past, events. In this context, forward-looking statements often address our expected future business and financial performance, and often contain words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” or “will.” Forward-looking statements by their nature address matters that are, to different degrees, uncertain. For us, particular uncertainties that could adversely or positively affect our future results include: the behavior of financial markets, including fluctuations in interest and exchange rates and commodity and equity prices; the commercial and consumer credit environment; the impact of regulation and regulatory, investigative and legal actions; strategic actions, including acquisitions and dispositions; future integration of acquired businesses; future financial performance of major industries which we serve, including, without limitation, the air and rail transportation, energy generation, media, real estate and healthcare industries; and numerous other matters of national, regional and global scale, including those of a political, economic, business and competitive nature. These uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements.
 




Part I. Financial Information
 
Item 1. Financial Statements
 
Condensed Statement of Earnings
General Electric Company and consolidated affiliates
 
 
Three months ended March 31 (Unaudited)
  
 
Consolidated
  
GE
  
Financial
Services (GECS)
  
(In millions; per-share amounts in dollars)
2007
  
2006
  
2007
  
2006
  
2007
  
2006
  
                                     
Sales of goods
$
14,293
  
$
14,535
  
$
14,325
  
$
14,026
  
$
32
  
$
555
  
Sales of services
  
8,392
    
8,949
    
8,533
    
9,060
    
-
    
-
  
Other income
  
488
    
451
    
551
    
479
    
-
    
-
  
GECS earnings from continuing operations
  
-
    
-
    
3,025
    
2,405
    
-
    
-
  
GECS revenues from services
 
17,022
    
13,886
    
-
    
-
    
17,302
    
14,126
  
GECS commercial paper interest rate swap adjustment
  
-
    
208
    
-
    
-
    
-
    
208
  
Total revenues
  
40,195
    
38,029
    
26,434
    
25,970
    
17,334
    
14,889
  
                                     
Cost of goods sold
  
11,588
    
11,656
    
11,627
    
11,188
    
25
    
513
  
Cost of services sold
  
5,263
    
6,005
    
5,404
    
6,117
    
-
    
-
  
Interest and other financial charges
  
5,699
    
4,348
    
575
    
384
    
5,324
    
4,094
  
Investment contracts, insurance losses and
                                    
insurance annuity benefits
  
860
    
749
    
-
    
-
    
930
    
805
  
Provision for losses on financing receivables
  
1,174
    
822
    
-
    
-
    
1,174
    
822
  
Other costs and expenses
  
9,975
    
9,037
    
3,604
    
3,396
    
6,444
    
5,723
  
Minority interest in net earnings of
                                   
consolidated affiliates
 
219
    
238
    
126
    
163
    
93
    
75
  
Total costs and expenses
  
34,778
    
32,855
    
21,336
    
21,248
    
13,990
    
12,032
  
                                     
Earnings from continuing operations
                                    
before income taxes
  
5,417
    
5,174
    
5,098
    
4,722
    
3,344
    
2,857
  
Provision for income taxes
  
(907
)
  
(997
)
  
(588
)
  
(545
)
  
(319
)
  
(452
)
Earnings from continuing operations
  
4,510
    
4,177
    
4,510
    
4,177
    
3,025
    
2,405
  
Earnings (loss) from discontinued operations,
                                    
net of taxes
  
(2
)
  
263
    
(2
)
  
263
    
(2
)
  
263
  
Net earnings
$
4,508
  
$
4,440
  
$
4,508
  
$
4,440
  
$
3,023
  
$
2,668
  
                                     
Per-share amounts
                                   
Per-share amounts - earnings from
                                    
continuing operations
                                    
Diluted earnings per share
$
0.44
  
$
0.40
                          
Basic earnings per share
$
0.44
  
$
0.40
                          
                                     
Per-share amounts - net earnings
                                   
Diluted earnings per share
$
0.44
  
$
0.42
                          
Basic earnings per share
$
0.44
  
$
0.43
                          
                                     
Dividends declared per share
$
0.28
  
$
0.25
                          

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


Condensed Statement of Financial Position
General Electric Company and consolidated affiliates
 
 
Consolidated
  
GE
  
Financial
Services (GECS)
  
(In millions; except share amounts)
3/31/07
  
12/31/06
  
3/31/07
  
12/31/06
  
3/31/07
  
12/31/06
  
                                     
Cash and equivalents
$
19,260
  
$
14,275
  
$
9,076
  
$
4,480
  
$
13,173
  
$
12,629
  
Investment securities
  
45,176
    
47,826
    
381
    
342
    
44,803
    
47,492
  
Current receivables
  
12,696
    
13,954
    
12,977
    
14,278
    
-
    
-
  
Inventories
  
13,137
    
11,401
    
13,074
    
11,347
    
63
    
54
  
Financing receivables - net
  
335,425
    
334,205
    
-
    
-
    
335,452
    
334,232
  
Other GECS receivables
  
15,493
    
17,067
    
-
    
-
    
20,230
    
21,853
  
Property, plant and equipment (including
                                    
equipment leased to others) - net
  
77,746
    
74,966
    
16,648
    
16,738
    
61,098
    
58,228
  
Investment in GECS
  
-
    
-
    
52,690
    
54,097
    
-
    
-
  
Intangible assets - net
  
89,352
    
86,433
    
61,831
    
60,465
    
27,521
    
25,968
  
All other assets
  
105,795
    
97,112
    
35,229
    
34,078
    
71,640
    
64,212
  
Total assets
$
714,080
  
$
697,239
  
$
201,906
  
$
195,825
  
$
573,980
  
$
564,668
  
                                     
Short-term borrowings
$
175,002
  
$
172,153
  
$
5,165
  
$
2,212
  
$
173,346
  
$
173,316
  
Accounts payable, principally trade accounts
  
19,690
    
21,697
    
11,359
    
11,913
    
12,260
    
13,923
  
Progress collections and price adjustments accrued
  
6,065
    
5,248
    
6,065
    
5,248
    
-
    
-
  
Other GE current liabilities
  
19,717
    
21,416
    
19,717
    
21,416
    
-
    
-
  
Long-term borrowings
  
275,071
    
260,804
    
9,117
    
9,085
    
267,185
    
252,963
  
Investment contracts, insurance liabilities
                                    
and insurance annuity benefits
  
34,750
    
34,499
    
-
    
-
    
35,180
    
34,807
  
All other liabilities
  
47,785
    
46,884
    
28,350
    
26,060
    
19,452
    
20,935
  
Deferred income taxes
  
13,497
    
14,171
    
2,006
    
1,954
    
11,491
    
12,217
  
Liabilities of discontinued operations
  
482
    
475
    
-
    
-
    
482
    
455
  
Total liabilities
  
592,059
    
577,347
    
81,779
    
77,888
    
519,396
    
508,616
  
                                     
Minority interest in equity of consolidated affiliates
  
7,852
    
7,578
    
5,958
    
5,623
    
1,894
    
1,955
  
Common stock (10,288,157,000 and 10,277,373,000
                                    
shares outstanding at March 31, 2007 and
                                    
December 31, 2006, respectively)
 
669
    
669
    
669
    
669
    
1
    
1
  
Accumulated gains (losses) - net
                                    
Investment securities
  
1,306
    
1,608
    
1,306
    
1,608
    
1,268
    
1,594
  
Currency translation adjustments
  
6,131
    
6,181
    
6,131
    
6,181
    
4,603
    
4,837
  
Cash flow hedges
  
(73
)
  
(129
)
  
(73
)
  
(129
)
  
(104
)
  
(171
)
Benefit plans
  
(4,171
)
  
(4,406
)
  
(4,171
)
  
(4,406
)
  
(263
)
  
(278
)
Other capital
  
25,630
    
25,486
    
25,630
    
25,486
    
12,534
    
12,537
  
Retained earnings
  
109,293
    
107,798
    
109,293
    
107,798
    
34,651
    
35,577
  
Less common stock held in treasury
  
(24,616
)
  
(24,893
)
  
(24,616
)
  
(24,893
)
  
-
    
-
  
                                     
Total shareowners’ equity
  
114,169
    
112,314
    
114,169
    
112,314
    
52,690
    
54,097
  
                                     
Total liabilities and equity
$
714,080
  
$
697,239
  
$
201,906
  
$
195,825
  
$
573,980
  
$
564,668
  

The sum of accumulated gains (losses) on investment securities, currency translation adjustments, cash flow hedges and benefit plans constitutes “Accumulated nonowner changes other than earnings,” and was $3,193 million and $3,254 million at March 31, 2007, and December 31, 2006, respectively.
 
See notes to condensed, consolidated financial statements. Separate information is shown for “GE” and “Financial Services (GECS).” March 31, 2007, data are unaudited. Transactions between GE and GECS have been eliminated from the “Consolidated” columns.
 


Condensed Statement of Cash Flows
General Electric Company and consolidated affiliates
 
 
Three months ended March 31 (Unaudited)
  
 
Consolidated
  
GE
  
Financial
Services (GECS)
  
(In millions)
2007
  
2006
  
2007
  
2006
  
2007
  
2006
  
                                     
Cash flows - operating activities
                                    
Net earnings
$
4,508
  
$
4,440
  
$
4,508
  
$
4,440
  
$
3,023
  
$
2,668
  
Loss (earnings) from discontinued operations
 
2
    
(263
)
  
-
    
-
    
2
    
(263
)
Adjustments to reconcile net earnings to cash
                                   
provided from operating activities
                                    
Depreciation and amortization of property,
                                    
plant and equipment
  
2,585
    
2,132
    
656
    
633
    
1,929
    
1,499
  
Net earnings retained by GECS
  
-
    
-
    
849
    
736
    
-
    
-
  
Deferred income taxes
  
3
    
307
    
(19
)
  
73
    
22
    
234
  
Decrease in GE current receivables
  
1,607
    
1,839
    
1,587
    
2,472
    
-
    
-
  
Increase in inventories
  
(1,311
)
  
(878
)
  
(1,305
)
  
(876
)
  
(6
)
  
(2
)
Decrease in accounts payable
  
(819
)
  
(1,422
)
  
(538
)
  
(683
)
  
(121
)
  
(385
)
Increase (decrease) in GE progress collections
  
680
    
(108
)
  
680
    
(108
)
  
-
    
-
  
Provision for losses on GECS financing receivables
  
1,174
    
822
    
-
    
-
    
1,174
    
822
  
All other operating activities
  
(3,506
)
  
(1,451
)
  
956
    
25
    
(4,211
)
  
(1,312
)
Cash from operating activities - continuing operations
  
4,923
    
5,418
    
7,374
    
6,712
    
1,812
    
3,261
  
Cash from operating activities - discontinued operations
  
19
    
91
    
-
    
-
    
19
    
91
  
Cash from operating activities
  
4,942
    
5,509
    
7,374
    
6,712
    
1,831
    
3,352
  
                                     
Cash flows - investing activities
                                    
Additions to property, plant and equipment
  
(4,905
)
  
(2,931
)
  
(918
)
  
(853
)
  
(4,052
)
  
(2,131
)
Dispositions of property, plant and equipment
  
2,716
    
1,113
    
-
    
-
    
2,716
    
1,113
  
Net increase in GECS financing receivables
  
(1,363
)
  
(2,483
)
  
-
    
-
    
(1,234
)
  
(3,063
)
Proceeds from sale of discontinued operations
 
-
    
2,753
    
-
    
-
    
-
    
2,753
  
Payments for principal businesses purchased
  
(5,752
)
  
(2,075
)
  
(2,218
)
  
(1,651
)
  
(3,534
)
  
(424
)
Proceeds from principal business dispositions
  
1,131
    
40
    
29
    
40
    
1,102
    
-
  
All other investing activities
  
1,017
    
(3,580
)
  
243
    
306
    
700
    
(4,234
)
Cash used for investing activities - continuing operations
  
(7,156
)
  
(7,163
)
  
(2,864
)
  
(2,158
)
  
(4,302
)
  
(5,986
)
Cash from (used for) investing activities - discontinued operations
  
(19
)
  
800
    
-
    
-
    
(19
)
  
800
  
Cash used for investing activities
  
(7,175
)
  
(6,363
)
  
(2,864
)
  
(2,158
)
  
(4,321
)
  
(5,186
)
                                     
Cash flows - financing activities
                                    
Net increase (decrease) in borrowings (maturities of 90 days or less)
 
(8,699
)
  
(1,498
)
  
(1,685
)
  
1,054
    
(7,227
)
  
(2,876
)
Newly issued debt (maturities longer than 90 days)
 
34,218
    
24,623
    
4,654
    
43
    
29,551
    
24,583
  
Repayments and other reductions (maturities longer than 90 days)
  
(15,195
)
  
(16,103
)
  
(50
)
  
(122
)
  
(15,145
)
  
(15,981
)
Net dispositions (purchases) of GE treasury shares
  
53
    
(3,141
)
  
53
    
(3,141
)
  
-
    
-
  
Dividends paid to shareowners
  
(2,886
)
  
(2,631
)
  
(2,886
)
  
(2,631
)
  
(3,872
)
  
(3,404
)
All other financing activities
  
(273
)
  
173
    
-
    
-
    
(273
)
  
173
  
Cash from (used for) financing activities - continuing operations
  
7,218
    
1,423
    
86
    
(4,797
)
  
3,034
    
2,495
  
Cash used for financing activities - discontinued operations
  
-
    
(249
)
  
-
    
-
    
-
    
(249
)
Cash from (used for) financing activities
  
7,218
    
1,174
    
86
    
(4,797
)
  
3,034
    
2,246
  
Increase (decrease) in cash and equivalents
  
4,985
    
320
    
4,596
    
(243
)
  
544
    
412
  
Cash and equivalents at beginning of year
  
14,275
    
11,801
    
4,480
    
2,015
    
12,629
    
10,106
  
Cash and equivalents at March 31
  
19,260
    
12,121
    
9,076
    
1,772
    
13,173
    
10,518
  
Less cash and equivalents of discontinued operations at March 31
  
-
    
3,618
    
-
    
-
    
-
    
3,618
  
Cash and equivalents of continuing operations at March 31
$
19,260
  
$
8,503
  
$
9,076
  
$
1,772
  
$
13,173
  
$
6,900
  

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




Summary of Operating Segments
General Electric Company and consolidated affiliates
 
 
Three months ended
March 31 (Unaudited)
  
(In millions)
2007
  
2006
  
             
Revenues
            
Infrastructure
$
11,983
  
$
10,152
  
Commercial Finance
  
6,283
    
5,484
  
GE Money
  
5,807
    
5,090
  
Healthcare
  
3,641
    
3,659
  
NBC Universal
  
3,484
    
4,482
  
Industrial
  
7,428
    
8,140
  
Total segment revenues
  
38,626
    
37,007
  
Corporate items and eliminations
  
1,569
    
1,022
  
Consolidated revenues
$
40,195
  
$
38,029
  
             
Segment profit (a)
            
Infrastructure
$
2,183
  
$
1,703
  
Commercial Finance
  
1,421
    
1,174
  
GE Money
  
851
    
836
  
Healthcare
  
520
    
496
  
NBC Universal
  
691
    
654
  
Industrial
  
481
    
600
  
Total segment profit
 
6,147
    
5,463
  
Corporate items and eliminations
  
(474
)
  
(357
)
GE interest and other financial charges
  
(575
)
  
(384
)
GE provision for income taxes
  
(588
)
  
(545
)
Earnings from continuing operations
 
4,510
    
4,177
  
Earnings (loss) from discontinued operations, net of taxes
  
(2
)
  
263
  
Consolidated net earnings
$
4,508
  
$
4,440
  
             

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

 


Notes to Condensed, Consolidated Financial Statements (Unaudited)
 
1. The accompanying condensed, consolidated financial statements represent the consolidation of General Electric Company and all companies that we directly or indirectly control, either through majority ownership or otherwise. See note 1 to the consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2006. That note discusses consolidation and financial statement presentation. As used in this report on Form 10-Q (Report) and in the Annual Report on Form 10-K, “GE” represents the adding together of all affiliated companies except General Electric Capital Services, Inc. (GECS or financial services), which is presented on a one-line basis; GECS consists of General Electric Capital Services, Inc. and all of its affiliates; and “Consolidated” represents the adding together of GE and GECS with the effects of transactions between the two eliminated. We have reclassified certain prior-period amounts to conform to the current period presentation. Unless otherwise indicated, information in these notes to condensed, consolidated financial statements relates to continuing operations.
 
Accounting changes
 
On January 1, 2007, we adopted Financial Accounting Standards Board Interpretation 48, Accounting for Uncertainty in Income Taxes (FIN 48), and FASB Staff Position (FSP) FAS 13-2, Accounting for a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction. Among other things, FIN 48 requires application of a “more likely than not” threshold to the recognition and derecognition of tax positions. It further requires that a change in judgment related to prior years’ tax positions be recognized in the quarter of such change. FSP FAS 13-2 requires recalculation of returns on leveraged leases when there is a change in the timing or projected timing of cash flows relating to income taxes associated with such leases. The January 1, 2007 transition reduced our retained earnings by $126 million, $49 million associated with FIN 48 and $77 million with FSP FAS 13-2. Of this total, $89 million was a decrease in goodwill and $77 million was a decrease in financing receivables - net, partially offset by a $40 million decrease in income tax liabilities.
 
Annually, we file over 6,500 income tax returns in over 250 global taxing jurisdictions. We are under examination or engaged in tax litigation in many of these jurisdictions. The U.S. Internal Revenue Service is currently auditing our consolidated income tax returns in two cycles: 2000-2002 and 2003-2005. In addition, certain other tax deficiency issues and refund claims for previous years remain unresolved. Our largest unresolved issues relate to deductions associated with certain leases. It is reasonably possible that one or both of these U.S. audit cycles will be completed during 2007. We believe that there is no other tax jurisdiction in which the outcome of unresolved issues or claims is likely to be material to our financial position, cash flows or results of operations. We further believe that we have made adequate provision for all income tax uncertainties.
 
At January 1, 2007, our “unrecognized tax benefits” - that is, the aggregate tax effect of differences between tax return positions and the benefits recognized in our financial statements - amounted to $6,806 million. If recognized, $4,302 million of our unrecognized tax benefits would reduce our income tax expense and effective tax rate. Some portion of any such reduction might be reported as discontinued operations. During 2007, global audit resolutions could potentially reduce our unrecognized tax benefits, either because our tax positions are sustained on audit or because we agree to their disallowance, by as much as $1,900 million, depending on the outcomes of ongoing examinations and litigation. Of this amount, $1,000 million relates to positions that would not affect our total tax provision or effective tax rate.
 


We classify interest on tax deficiencies as interest expense; we classify income tax penalties as income tax expense. At January 1, 2007, before any tax benefits, our accrued interest on unrecognized tax benefits amounted to $1,281 million and related accrued penalties amounted to $121 million.
 
The GE 2006 annual report, footnote 26, misclassified $39,335 million of assets in the Industrial segment rather than in Corporate items and eliminations. Industrial assets reported as $81,178 million were actually $41,843 million; Corporate items and eliminations assets reported as $33,511 million were actually $72,846 million.
 
2. The condensed, consolidated financial statements and notes thereto are unaudited. These statements include all adjustments (consisting of normal recurring accruals) that we considered necessary to present a fair statement of our results of operations, financial position and cash flows. The results reported in these condensed, consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for the entire year. We label our quarterly information using a calendar convention, that is, first quarter is labeled as ending on March 31, second quarter as ending on June 30, and third quarter as ending on September 30. It is our longstanding practice to establish interim quarterly closing dates using a fiscal calendar, which requires our businesses to close their books on either a Saturday or Sunday, depending on the business. The effects of this practice are modest and only exist within a reporting year. The fiscal closing calendar from 1993 through 2013 is available on our website, www.ge.com/secreports.
 
3. In 2006, we substantially completed our planned exit of the insurance businesses through the sale of the property and casualty insurance and reinsurance businesses and the European life and health operations of GE Insurance Solutions Corporation (GE Insurance Solutions) and the sale of GE Life, our U.K.-based life insurance operation, to Swiss Reinsurance Company (Swiss Re). Also during 2006, we completed the sale of our remaining 18% investment in Genworth Financial, Inc. (Genworth), our formerly wholly-owned subsidiary that conducted most of our consumer insurance business, including life and mortgage insurance operations, through a secondary public offering. Results of these businesses are reported as discontinued operations for all periods presented.
 
Revenues from discontinued operations for the first quarter of 2006 were $2,345 million. Earnings from operations and disposal for the first quarter of 2006 were $138 million ($179 million pre tax) and $125 million ($306 million pre tax), respectively. Revenues and earnings from discontinued operations for the first quarter of 2007 were insignificant. Accrued liabilities, primarily tax related, amounted to $482 million as of March 31, 2007, and will be settled beginning this year.
 


4. GECS revenues from services are summarized in the following table.
 
 
Three months ended
March 31
  
(In millions)
2007
  
2006
  
             
Interest on loans
$
6,046
  
$
5,342
  
Equipment leased to others
  
3,763
    
2,915
  
Financing leases
  
1,138
    
1,002
  
Fees
  
1,193
    
1,007
  
Real estate investments
  
1,089
    
668
  
Investment income(a)
  
1,441
    
660
  
Premiums earned by insurance activities
  
551
    
491
  
Associated companies
  
425
    
445
  
Gross securitization gains
  
571
    
268
  
Other items
  
1,085
    
1,328
  
Total
$
17,302
  
$
14,126
  
             

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

 
5. We sponsor a number of pension and retiree health and life insurance benefit plans. Principal pension plans include the GE Pension Plan and the GE Supplementary Pension Plan. Principal retiree benefit plans generally provide health and life insurance benefits to employees who retire under the GE Pension Plan with 10 or more years of service. Other pension plans include the U.S. and non-U.S. pension plans 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 pension plans follows.
 
 
Principal
Pension Plans
  
Other
Pension Plans
  
 
Three months ended
March 31
  
Three months ended
March 31
  
(In millions)
2007
  
2006
  
2007
  
2006
  
                         
Expected return on plan assets
$
(986
)
$
(952
)
$
(120
)
$
(98
)
Service cost for benefits earned
  
314
    
366
    
85
    
83
  
Interest cost on benefit obligation
  
605
    
579
    
111
    
93
  
Prior service cost
  
47
    
58
    
2
    
1
  
Net actuarial loss recognized
  
176
    
188
    
41
    
39
  
Cost of pension plans
$
156
  
$
239
  
$
119
  
$
118
  

 


The effect on operations of principal retiree health and life insurance plans follows.
 
 
Three months ended
March 31
  
(In millions)
2007
  
2006
  
             
Expected return on plan assets
$
(31
)
$
(32
)
Service cost for benefits earned
  
41
    
54
  
Interest cost on benefit obligation
  
113
    
114
  
Prior service cost
  
71
    
74
  
Net actuarial loss recognized
  
2
    
18
  
Cost of principal retiree benefit plans
$
196
  
$
228
  

 
6. GE’s authorized common stock consists of 13,200,000,000 shares having a par value of $0.06 each. Information related to the calculation of earnings per share follows.
 
 
Three months ended March 31
  
 
2007
  
2006
  
(In millions; per-share amounts in dollars)
Diluted
  
Basic
  
Diluted
  
Basic
  
                         
Consolidated
                       
Earnings from continuing operations for
                        
per-share calculation(a)
$
4,511
  
$
4,510
  
$
4,178
  
$
4,178
  
Earnings (loss) from discontinued operations
                        
for per-share calculation
  
(3
)
  
(3
)
  
263
    
263
  
Net earnings available for per-share calculation
$
4,508
  
$
4,508
  
$
4,440
  
$
4,440
  
                         
Average equivalent shares
                        
Shares of GE common stock outstanding
  
10,284
    
10,284
    
10,442
    
10,442
  
Employee compensation-related shares,
                        
including stock options
  
33
    
-
    
38
    
-
  
Total average equivalent shares
  
10,317
    
10,284
    
10,480
    
10,442
  
                         
Per-share amounts
                        
Earnings from continuing operations
$
0.44
  
$
0.44
  
$
0.40
  
$
0.40
  
Earnings from discontinued operations
$
-
  
$
-
  
$
0.03
  
$
0.03
  
Net earnings
$
0.44
  
$
0.44
  
$
0.42
  
$
0.43
  
                         

(a)
Including dividend equivalents.

 
Earnings-per-share amounts are computed independently for earnings from continuing operations, earnings (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.
 


7. Inventories consisted of the following.
 
 
At
  
(In millions)
3/31/07
  
12/31/06
  
             
Raw materials and work in process
$
7,466
  
$
6,547
  
Finished goods
  
5,843
    
5,052
  
Unbilled shipments
  
451
    
424
  
   
13,760
    
12,023
  
Less revaluation to LIFO
  
(623
)
  
(622
)
Total
$
13,137
  
$
11,401
  

 
8. Financing receivables - net, consisted of the following.
 
 
At
  
(In millions)
3/31/07
  
12/31/06
  
             
Loans, net of deferred income
$
271,530
  
$
270,343
  
Investment in financing leases, net of deferred income
  
68,500
    
68,569
  
   
340,030
    
338,912
  
Less allowance for losses
  
(4,578
)
  
(4,680
)
Financing receivables - net (a)
$
335,452
  
$
334,232
  
             

(a)
Included $10,724 million and $11,509 million related to consolidated, liquidating securitization entities at March 31, 2007, and December 31, 2006, respectively.

 
9. Property, plant and equipment (including equipment leased to others) - net, consisted of the following.
 
 
At
  
(In millions)
3/31/07
  
12/31/06
  
             
Original cost
$
123,752
  
$
120,434
  
Less accumulated depreciation and amortization
  
(46,006
)
  
(45,468
)
Property, plant and equipment - net
$
77,746
  
$
74,966
  

 
10. Intangible assets - net, consisted of the following.
 
 
At
  
(In millions)
3/31/07
  
12/31/06
  
             
Goodwill
$
75,752
  
$
73,339
  
Intangible assets subject to amortization
  
11,304
    
10,799
  
Indefinite-lived intangible assets(a)
  
2,296
    
2,295
  
Total
$
89,352
  
$
86,433
  
             

(a)
Indefinite-lived intangible assets principally comprised trademarks, tradenames and U.S. Federal Communications Commission licenses.

 


Changes in goodwill balances follow.
 
(In millions)
Balance
1/1/07
  
Acquisitions/
purchase
accounting
adjustments
  
Dispositions, currency
exchange
and other
  
Balance
3/31/07
  
                                 
Infrastructure
$
10,931
    
$
1,384
      
$
(58
)
  
$
12,257
  
Commercial Finance
  
11,315
      
1,287
        
11
      
12,613
  
GE Money
  
9,845
      
(24
)
      
24
      
9,845
  
Healthcare
  
14,759
      
(20
)
      
3
      
14,742
  
NBC Universal
  
18,000
      
22
        
-
      
18,022
  
Industrial
  
8,400
      
208
        
(335
)
    
8,273
  
Total
$
73,250
    
$
2,857
      
$
(355
)
  
$
75,752
  

 
Goodwill balances increased $2,978 million in 2007 as a result of new acquisitions. The largest goodwill balance increases arose from acquisitions of Vetco Gray ($1,387 million at Infrastructure), Trustreet Properties, Inc. ($815 million at Commercial Finance), and Diskont und Kredit AG and Disko Leasing GmbH (DISKO) and ASL Auto Service-Leasing GmbH (ASL), the leasing businesses of KG Allgemeine Leasing GmbH & Co. ($486 million at Commercial Finance). During 2007, we decreased goodwill associated with previous acquisitions by $121 million. The largest such adjustment was the decrease of $54 million associated with the 2006 acquisition of Banque Artesia Nederland N.V. by Commercial Finance. Also during 2007, the goodwill balance declined $321 million as a result of reclassifying the Homeland Protection business of Industrial as assets held for sale.
 
Intangible assets subject to amortization
 
 
At
  
 
3/31/07
  
12/31/06
  
(In millions)
Gross
carrying
amount
  
Accumulated
amortization
  
Net
  
Gross
carrying
amount
  
Accumulated
amortization
  
Net
  
                                             
Patents, licenses and trademarks 
$
5,620
    
$
(1,669
)
  
$
3,951
  
$
5,137
    
$
(1,610
)
  
$
3,527
  
Capitalized software
  
6,385
      
(3,884
)
    
2,501
    
6,227
      
(3,722
)
    
2,505
  
All other
  
6,638
      
(1,786
)
    
4,852
    
6,450
      
(1,683
)
    
4,767
  
Total
$
18,643
    
$
(7,339
)
  
$
11,304
  
$
17,814
    
$
(7,015
)
  
$
10,799
  

 
Consolidated amortization expense related to intangible assets subject to amortization was $455 million and $432 million for the quarters ended March 31, 2007 and 2006, respectively.
 


11. GECS borrowings are summarized in the following table.
 
 
At
  
(In millions)
3/31/07
  
12/31/06
  
             
Short-term borrowings
            
             
Commercial paper
            
U.S.
            
Unsecured
$
63,909
  
$
67,423
  
Asset-backed(a)
  
5,912
    
6,430
  
Non-U.S.
  
25,732
    
26,328
  
Current portion of long-term debt
  
51,808
    
44,553
  
GE Interest Plus notes(b)
  
9,772
    
9,161
  
Other
  
16,213
    
19,421
  
Total
  
173,346
    
173,316
  
             
Long-term borrowings
            
             
Senior notes
            
Unsecured
  
250,527
    
235,952
  
Asset-backed(c)
  
5,459
    
5,810
  
Extendible notes
  
6,000
    
6,000
  
Subordinated notes(d)
  
5,199
    
5,201
  
Total
  
267,185
    
252,963
  
Total borrowings
$
440,531
  
$
426,279
  
             

(a)
 
Entirely obligations of consolidated, liquidating securitization entities. See note 13.
 
(b)
 
Entirely variable denomination floating rate demand notes.
 
(c)
 
Included $4,325 million and $4,684 million of asset-backed senior notes, issued by consolidated, liquidating securitization entities at March 31, 2007, and December 31, 2006, respectively. See note 13.
 
(d)
Included $750 million of subordinated notes guaranteed by GE at March 31, 2007, and December 31, 2006.

 
12. A summary of increases (decreases) in shareowners’ equity that did not result directly from transactions with shareowners, net of income taxes, follows.
 
 
Three months ended
March 31
  
(In millions)
2007
  
2006
  
             
Net earnings
$
4,508
  
$
4,440
  
Investment securities - net
  
(302
)
  
(672
)
Currency translation adjustments - net
  
(50
)
  
(260
)
Cash flow hedges - net
 
56
    
178
  
Benefit plans - net
  
235
    
(15
)
Total
$
4,447
  
$
3,671
  

 


13. The following table represents assets in securitization entities, both consolidated and off-balance sheet.
 
 
At
  
(In millions)
3/31/07
  
12/31/06
  
             
Receivables secured by
            
Equipment
$
8,409
  
$
9,590
  
Commercial real estate
 
11,197
    
11,324
  
Residential real estate
  
7,027
    
7,329
  
Other assets
  
14,413
    
14,743
  
Credit card receivables
  
17,293
    
12,947
  
Trade receivables, principally GE
  
3,660
    
3,918
  
Total securitized assets
$
61,999
  
$
59,851
  

 
 
At
  
(In millions)
3/31/07
  
12/31/06
  
             
Off-balance sheet(a)(b)
$
51,152
  
$
48,204
  
On-balance sheet(c)(d)
  
10,847
    
11,647
  
Total securitized assets
$
61,999
  
$
59,851
  
             
 
(a)
 
At March 31, 2007, and December 31, 2006, liquidity support amounted to $677 million and $753 million, respectively. These amounts are net of $2,873 million and $3,034 million, respectively, deferred beyond one year. Credit support amounted to $3,577 million and $3,815 million at March 31, 2007, and December 31, 2006, respectively.
 
(b)
 
Liabilities for recourse obligations related to off-balance sheet assets were $14 million and $27 million at March 31, 2007, and December 31, 2006, respectively.
 
(c)
 
At March 31, 2007, and December 31, 2006, liquidity support amounted to $6,055 million and $6,585 million, respectively. Credit support amounted to $2,874 million and $2,926 million at March 31, 2007, and December 31, 2006, respectively.
 
(d)
Included $10,724 million and $11,509 million of financing receivables - net related to consolidated, liquidating securitization entities at March 31, 2007, and December 31, 2006, respectively.

 
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 to this report on Form 10-Q.
 
Unless otherwise indicated, we refer to captions such as revenues and earnings from continuing operations simply as “revenues” and “earnings” throughout this Management’s Discussion and Analysis. Similarly, discussion of other matters in our consolidated financial statements relates to continuing operations unless otherwise indicated.
 


Overview
 
General Electric Company earnings from continuing operations increased 8% to $4.510 billion in the first quarter of 2007 compared with $4.177 billion in 2006. Earnings per share (EPS) from continuing operations were $0.44 in the first quarter of 2007, up 10% from last year’s $0.40.
 
Net earnings increased 2% to $4.508 billion and EPS increased 5% to $0.44 in the first quarter of 2007.
 
Revenues of $40.2 billion in the first quarter of 2007 were 6% higher than in the corresponding period of 2006, reflecting strong organic revenue growth of 8% and the weakening U.S. dollar, partially offset by the net effects of acquisitions and dispositions. Industrial sales decreased 1% to $22.9 billion, reflecting the dispositions of GE Supply and Advanced Materials and the lack of a current-year counterpart to the 2006 Olympics broadcasts, partially offset by the effects of acquisitions and organic revenue growth. Sales of product services (including sales of spare parts and related services) grew 10% to $7.3 billion in the first quarter of 2007. Financial services revenues grew 16% over the comparable period of last year to $17.3 billion, reflecting organic revenue growth and the net effects of acquisitions and dispositions.
 
Overall, acquisitions contributed $1.3 billion and $1.0 billion to consolidated revenues in the first quarters of 2007 and 2006, respectively. Our consolidated net earnings in the first quarters of 2007 and 2006 included an insignificant amount and $0.1 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 $1.5 billion and $0.3 billion in the first quarters of 2007 and 2006, respectively. The effect of dispositions on earnings was insignificant in each of the first quarters of 2007 and 2006. We continue to explore opportunities for the disposition of our Plastics business.
 
The most significant acquisitions affecting first quarter 2007 results were Vetco Gray at Infrastructure, the custom fleet business of National Australia Bank Ltd.; Diskont und Kredit AG and Disko Leasing GmbH (DISKO) and ASL Auto Service-Leasing GmbH (ASL), the leasing businesses of KG Allgemeine Leasing GmbH & Co.; and Banque Artesia Nederland N.V. at Commercial Finance.
 
Segment Operations
 
Operating segments comprise our six businesses focused on the broad markets they serve: Infrastructure, Commercial Finance, GE Money, Healthcare, NBC Universal and Industrial. For segment reporting purposes, certain GECS businesses are included in the industrial operating segments that actively manage such businesses and report their results for internal performance measurement purposes. These include Aviation Financial Services, Energy Financial Services and Transportation Finance reported in the Infrastructure segment, and Equipment Services reported in the Industrial segment.
 
Segment profit is determined based on internal performance measures used by the Chief Executive Officer to assess the performance of each business in a given period. In connection with that assessment, the Chief Executive Officer may exclude matters such as charges for restructuring; rationalization and other similar expenses; in-process research and development and certain other acquisition-related charges and balances; technology and product development costs; certain gains and losses from dispositions; and litigation settlements or other charges, responsibility for which preceded the current management team.
 


Segment profit always excludes the effects of principal pension plans, results reported as discontinued operations and accounting changes. Segment profit excludes or includes interest and other financial charges and income taxes according to how a particular segment’s management is measured - excluded in determining segment profit, which we refer to as “operating profit,” for Healthcare, NBC Universal and the industrial businesses of the Infrastructure and Industrial segments; included in determining segment profit, which we refer to as “net earnings,” for Commercial Finance, GE Money, and the financial services businesses of the Infrastructure segment (Aviation Financial Services, Energy Financial Services and Transportation Finance) and the Industrial segment (Equipment Services).
 
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.
 
Infrastructure
 
 
Three months ended
March 31
        
(In millions)
2007
  
2006
        
                   
Revenues
$
11,983
  
$
10,152
        
                   
Segment profit
$
2,183
  
$
1,703
        
                   
Revenues
                  
Aviation
$
3,514
  
$
3,041
        
Aviation Financial Services
  
1,249
    
934
        
Energy
  
4,393
    
3,835
        
Energy Financial Services
  
324
    
301
        
Oil & Gas
  
1,146
    
772
        
Transportation
  
1,122
    
1,023
        
                   
Segment profit
                  
Aviation
$
755
  
$
645
        
Aviation Financial Services
  
388
    
206
        
Energy
  
613
    
436
        
Energy Financial Services
  
101
    
117
        
Oil & Gas
  
101
    
55
        
Transportation
  
210
    
204
        

 
Infrastructure revenues increased 18%, or $1.8 billion, in the first quarter of 2007 on higher volume ($1.2 billion), higher prices ($0.2 billion) and the weakening U.S. dollar ($0.1 billion) at the industrial businesses of the segment. The increase in volume reflects shipments of more large, heavy-duty gas turbines at Energy, increased sales of commercial services and engines at Aviation, the Vetco Gray acquisition and increased equipment and services sales at Oil & Gas, and increased locomotive sales at Transportation. Higher prices were primarily at Energy and Aviation while the effect of currency exchange rates was principally at Oil & Gas. Revenues also increased as a result of organic revenue growth at Aviation Financial Services ($0.3 billion), primarily related to the sale of aircraft.
 


Segment profit rose 28%, or $0.5 billion, as higher prices ($0.2 billion), higher volume ($0.2 billion) and productivity ($0.1 billion) were partially offset by higher material and other costs ($0.2 billion) at the industrial businesses of the segment. The effects of higher prices were primarily at Energy and Aviation. Volume increases were primarily at Aviation and Energy, while productivity improvements were primarily at Aviation. Segment profit from the financial services businesses increased as a result of core growth at Aviation Financial Services ($0.2 billion).
 
Commercial Finance
 
 
Three months ended
March 31
        
(In millions)
2007
  
2006
        
                   
Revenues
$
6,283
  
$
5,484
        
                   
Segment profit
$
1,421
  
$
1,174
        
                   
                   
 
At
  
(In millions)
3/31/07
  
3/31/06
  
12/31/06
  
                   
Total assets
$
246,095
  
$
195,209
  
$
233,536
  
                   
                   
 
Three months ended
March 31
        
(In millions)
2007
  
2006
        
                   
Revenues
                 
Capital Solutions
$
2,893
  
$
2,820
        
Real Estate
  
1,615
    
1,075
        
                   
Segment profit
                 
Capital Solutions
$
380
  
$
339
        
Real Estate
  
564
    
441
        
                   
                   
 
At
  
(In millions)
3/31/07
  
3/31/06
  
12/31/06
  
                   
Assets
                 
Capital Solutions
$
103,112
  
$
88,661
  
$
94,523
  
Real Estate
  
59,405
    
37,566
    
53,786
  

 


Commercial Finance revenues and net earnings increased 15% and 21%, respectively, compared with the first quarter of 2006. Revenues for the first quarter of 2007 included $0.5 billion from acquisitions and were reduced by $0.5 billion as a result of dispositions. Revenues for the quarter also increased $0.8 billion compared with the first quarter of 2006 as a result of organic revenue growth ($0.6 billion) and the weakening U.S. dollar ($0.2 billion). Net earnings increased by $0.2 billion in the first quarter of 2007, with $0.3 billion from core growth before losses and investment income, which included higher SES Global gains ($0.1 billion). Core growth included $0.1 billion representing one quarter of the total year’s tax benefit on the disposition of SES Global. These items were partially offset by $0.1 billion of higher losses, which were in part caused by lower recoveries.
 
GE Money
 
 
Three months ended
March 31
        
(In millions)
2007
  
2006
        
                   
Revenues
$
5,807
  
$
5,090
        
                   
Segment profit
$
851
  
$
836
        
                   
                   
(In millions)
At
  
 
3/31/07
  
3/31/06
  
12/31/06
  
                   
Total assets
$
190,472
  
$
158,508
  
$
190,403
  

 
GE Money revenues and net earnings increased 14% and 2%, respectively, in the first quarter of 2007. Revenues for the first quarter of 2007 included $0.1 billion from acquisitions. Revenues for the quarter also increased $0.6 billion compared with the first quarter of 2006 as a result of organic revenue growth ($0.4 billion) and the weakening U.S. dollar ($0.2 billion). The increase in net earnings resulted primarily from core growth ($0.3 billion), including growth in lower-taxed earnings from global operations, and higher securitizations ($0.2 billion). These increases were substantially offset by reduced earnings from our U.S. mortgage business, WMC, ($0.4 billion) and our Japanese business ($0.1 billion).
 
WMC’s portfolio of U.S. wholesale mortgage loans, originated with the intent to sell, totaled $5.0 billion at March 31, 2007. Recent pressures in the U.S. subprime mortgage industry have resulted in limited liquidity and a higher number of loans being put back to the originators. For GE Money this resulted in a $0.3 billion after-tax charge that, along with the changes made to our underwriting guidelines, rightsizing the organization and lower production volume are intended to reduce our ongoing exposure.
 
In Japan, we continue to face pressures as a result of the December 2006 lending law, as well as customer claims for partial interest refunds. In response, we announced restructuring actions to allow us to operate more efficiently in the current environment, including consolidating our branch network. We continue to monitor the business closely and to assess further strategic actions.
 


Healthcare revenues of $3.6 billion in the first quarter of 2007 were flat compared with the first quarter of 2006 as the weakening U.S. dollar ($0.1 billion) was more than offset by lower prices ($0.1 billion) and lower volume ($0.1 billion). Despite price pressures on equipment sales, revenues at the medical diagnostics, clinical systems and life sciences businesses rose. This net increase was offset by lower sales of surgical supplies resulting from a regulatory suspension on shipments as well as the effects of the Deficit Reduction Act on U.S. equipment sales. Operating profit of $0.5 billion in 2007 was up 5% compared with the first quarter of 2006 as the effects of productivity ($0.1 billion) were partially offset by the effects of lower prices ($0.1 billion).
 
NBC Universal revenues declined 22%, or $1.0 billion, in the first quarter of 2007 reflecting the lack of a current-year counterpart to the 2006 Olympic Games broadcasts ($0.7 billion) and lower film revenues ($0.3 billion), primarily from lower home video sales. Segment profit increased 6% to $0.7 billion as the absence of Olympic broadcasts in 2007 ($0.1 billion) more than offset the effects of lower film revenues ($0.1 billion).
 
Industrial
 
 
Three months ended
March 31
        
(In millions)
2007
  
2006
        
                   
Revenues
$
7,428
  
$
8,140
        
                   
Segment profit
$
481
  
$
600
        
                   
Revenues
                  
Consumer & Industrial
$
3,233
  
$
3,534
        
Equipment Services
  
1,748
    
1,634
        
Plastics
  
1,598
    
1,644
        
                   
Segment profit
                  
Consumer & Industrial
$
267
  
$
220
        
Equipment Services
  
19
    
16
        
Plastics
  
121
    
225
        

 
Industrial revenues fell 9%, or $0.7 billion, in the first quarter of 2007 as lower volume ($0.9 billion) was partially offset by the weakening U.S. dollar ($0.1 billion) at the industrial businesses in the segment. The decrease in volume reflects the sale of GE Supply in the third quarter of 2006 and Advanced Materials in the fourth quarter of 2006. Revenues increased $0.1 billion at Equipment Services, primarily as a result of the second quarter 2006 consolidation of GE SeaCo, an entity previously accounted for using the equity method.
 
Segment profit decreased 20%, or $0.1 billion, in the first quarter of 2007 as higher material and other costs ($0.2 billion) and lower volume ($0.1 billion) were partially offset by higher productivity ($0.2 billion) at the industrial businesses in the segment. Higher material and other costs and improved productivity were primarily at Consumer & Industrial and Plastics.
 


Corporate items and eliminations revenues in the first quarter of 2007 increased $0.5 billion, as a gain on sale of common stock in Swiss Re ($0.6 billion) and higher revenues of insurance activities ($0.1 billion) were partially offset by the lack of a current-year counterpart to the GECS commercial paper interest rate swap adjustment in 2006 ($0.2 billion). Corporate items and eliminations cost increased $0.1 billion reflecting 2007 restructuring and other charges ($0.3 billion, including GECS on an after-tax basis) and a charge for an asbestos-related legal ruling ($0.2 billion), partially offset by the gain on sale of common stock in Swiss Re ($0.3 billion on an after-tax basis) and lower costs of our principal pension plans primarily due to a higher discount rate in 2007 ($0.1 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 first quarter of 2007, these included $0.1 billion at each of Industrial, Infrastructure and Healthcare, primarily restructuring and other charges, including a product quality issue at Industrial.
 
B. Statement of Financial Position
 
Overview of Financial Position
 
Major changes in our financial position resulted from the following:
 
·  
During the first quarter of 2007, we completed the acquisitions of Vetco Gray, Trustreet Properties, Inc., DISKO and ASL, the leasing businesses of KG Allgemeine Leasing GmbH & Co. and Crow Holdings.
 
·  
The U.S. dollar was weaker at March 31, 2007, than at December 31, 2006, increasing the translated levels of our non-U.S. dollar assets and liabilities.
 
Consolidated assets were $714.1 billion at March 31, 2007, an increase of $16.8 billion from December 31, 2006. GE assets increased $6.1 billion, and GECS assets increased $9.3 billion.  
 
GE assets were $201.9 billion at March 31, 2007, a $6.1 billion increase from December 31, 2006. The increase reflects a $4.6 billion increase in cash and equivalents, a $1.7 billion increase in inventory and a $1.2 billion increase in all other assets, partially offset by a $1.4 billion decrease in GE’s investment in GECS and a $1.3 billion decrease in current receivables.
 
GECS assets were $574.0 billion at March 31, 2007. The $9.3 billion increase from December 31, 2006, was primarily attributable to increases in all other assets of $7.4 billion, property, plant and equipment of $2.9 billion and intangible assets of $1.6 billion, partially offset by a decrease in investment securities of $2.7 billion and other GECS receivables of $1.6 billion.
 
Consolidated liabilities of $592.1 billion at March 31, 2006, were $14.7 billion higher than the year-end 2006 balance. GE liabilities increased $3.9 billion, and GECS liabilities increased $10.8 billion.
 
GE liabilities were $81.8 billion at March 31, 2007. During the first quarter of 2007, total borrowings increased $3.0 billion to $14.3 billion ($5.2 billion short term and $9.1 billion long term) at March 31, 2007, compared with December 31, 2006. The ratio of borrowings to total capital invested for GE at the end of the first quarter was 10.6% compared with 8.7% at the end of last year and 9.0% at March 31, 2006.
 


GECS liabilities increased $10.8 billion from year-end 2006 to $519.4.billion reflecting an increase in total borrowings of $14.3 billion, partially offset by decreases in accounts payable of $1.7 billion and other liabilities of $1.5 billion.
 
Consolidated cash and equivalents were $19.3 billion at March 31, 2007, an increase of $5.0 billion during the first quarter of 2007. Cash and equivalents amounted to $8.5 billion at March 31, 2006, a decrease of $0.3 billion from December 31, 2005. GE cash from operating activities (CFOA) is a useful measure of performance for our non-financial services businesses and totaled $7.4 billion in the first quarter of 2007 and $6.7 billion in the first quarter of 2006.
 
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.
 
 
Three months ended
March 31
  
(In billions)
2007
  
2006
  
             
Operating cash collections
$
24.9
  
$
24.7
  
Operating cash payments
  
(21.4
)
  
(21.4
)
Cash dividends from GECS
  
3.9
    
3.4
  
GE cash from operating activities
$
7.4
  
$
6.7
  

 
The most significant source of cash in CFOA is customer-related activities, the largest of which is collecting cash following a product or services sale. GE operating cash collections increased by about $0.2 billion during the first quarter of 2007. This increase 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 the wide range of material and services necessary in a diversified global organization. GE operating cash payments were flat for the first quarter of 2007 compared with the first quarter of 2006.
 
Dividends from GECS represented distribution of a portion of GECS retained earnings, including proceeds from certain business sales, and are distinct from cash from continuing operating activities within the financial services businesses, which decreased in the first quarter of 2007 by $1.4 billion to $1.8 billion. The amounts we show in CFOA ($3.9 billion and $3.4 billion for the three months ended March 31, 2007 and 2006, respectively) are the total dividends, including normal dividends as well as any special dividends from excess capital, primarily resulting from GECS business sales. Special dividends of $2.7 billion were paid by GECS to GE in the first quarter of 2007 compared with $2.5 billion in the first quarter of 2006.
 
Based on past performance and current expectations, in combination with the financial flexibility that comes with a strong balance sheet and the highest credit ratings, we believe that we are in a sound position to grow dividends, continue to execute on our announced $25 billion share repurchase program and continue making selective investments for long-term growth.
 


C. Financial Services Portfolio Quality
 
Investment securities comprise mainly investment-grade debt securities supporting obligations to annuitants and policyholders. We regularly review investment securities for impairment based on criteria that include the extent to which cost exceeds market value, the duration of that market decline, our intent and ability to hold to recovery and the financial health and specific prospects for the issuer. Of securities with unrealized losses at March 31, 2007, an insignificant amount was at risk of being charged to earnings in the next 12 months. Impairment losses were insignificant for each of the first quarters of 2007 and 2006.
 
Financing receivables is our largest category of assets and represents one of our primary sources of revenues. The portfolio of financing receivables, before allowance for losses, was $340.0 billion at March 31, 2007, and $338.9 billion at December 31, 2006. The related allowance for losses at March 31, 2007, amounted to $4.6 billion compared with $4.7 billion at December 31, 2006, representing our best estimate of probable losses inherent in the portfolio. A discussion of the quality of certain elements of the financing receivables portfolio follows. For purposes of that discussion, “delinquent” receivables are those that are 30 days or more past due; and “nonearning” receivables are those that are 90 days or more past due (or for which collection has otherwise become doubtful).
 
Financing receivables, before allowance for losses, increased $1.1 billion from December 31, 2006, primarily as a result of core growth ($7.6 billion), acquisitions ($4.2 billion) and the weakening U.S. dollar ($0.5 billion), partially offset by securitization and sales ($10.2 billion) and loans transferred to assets held for sale ($0.5 billion). Related nonearning receivables were $5.0 billion at March 31, 2007, compared with $4.9 billion at year-end 2006, both representing 1.5% of outstanding receivables, respectively. Nonearning receivables excludes loans held for sale.
 
Delinquency rates on managed Commercial Finance equipment loans and leases and managed GE Money financing receivables follow.
 
   
Delinquency rates at
  
   
3/31/07
(a)
  
12/31/06
    
3/31/06
  
                   
Commercial Finance
  
1.26
%
    
1.22
%
    
1.31
%
  
GE Money
  
5.48
      
5.05
      
5.14
    
GE Money excluding WMC
  
5.15
      
5.15
      
5.25
    
                         

(a)
Subject to update.

 
Stable delinquency rates at Commercial Finance over the periods reflected continued stable portfolio quality.
 
Delinquency rates at GE Money increased from December 31, 2006, and March 31, 2006, to March 31, 2007, as a result of higher delinquencies in WMC associated with increased early payment defaults. Delinquency rates excluding WMC decreased from March 31, 2006, to March 31, 2007, primarily resulting from improvements in our European secured financing business.
 


D. Debt Instruments
 
During the first quarter of 2007, GECS and GECS affiliates issued $29 billion of senior, unsecured long-term debt. This debt was both fixed and floating rate and was issued to institutional and retail investors in the U.S. and 10 other global markets. Maturities for these issuances ranged from two to 40 years. We used the proceeds primarily for repayment of maturing long-term debt, but also to fund acquisitions and organic growth. We anticipate that we will issue approximately $45 billion of additional long-term debt during the remainder of 2007, mostly to repay maturing long-term debt. The ultimate amount we issue will depend on our needs and on the markets.
 
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 March 31, 2007, and (ii) no change in internal control over financial reporting occurred during the quarter ended March 31, 2007, 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
 

As previously reported, since January 2005, the U.S. Securities and Exchange Commission (SEC) staff has been conducting an investigation of the use of hedge accounting for derivatives by us and General Electric Capital Corporation (GE Capital). In August 2005 the SEC staff advised us that the SEC had issued a formal order of investigation in the matter. The SEC has continued to subpoena documents, take testimony and request other information in this matter. In connection with this investigation, the SEC has asked for information about other GE accounting policies and practices, including items related to certain pre-2004 transactions in our Rail business. We and GE Capital continue to cooperate fully with the investigation and to discuss matters with the SEC staff as they arise.
 
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 GE Capital have received subpoenas: GE Funding CMS (Trinity Funding Co.) received a subpoena requesting documents from DOJ and GE Funding Capital Market Services, Inc. received a subpoena from the SEC that requests similar information about Trinity Funding Company, LLC. The Company is cooperating fully with the SEC and DOJ in this matter.
 
 


 
Item 2. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
 
Period(a)
  
Total number
of shares
purchased(b)
  
Average
price paid
per share
  
Total number of
shares purchased as
part of our share
repurchase program(c)
  
Approximate dollar
value of shares that
may yet be purchased
under our share
repurchase program
  
(Shares in thousands)
                                
                                 
2007
                                
January
    
4,566
      
$37.92
      
885
          
February
    
769
      
$35.80
      
595
          
March
    
878
      
$35.09
      
565
          
Total
    
6,213
      
$37.26
      
2,045
      
$11.7 billion
  
                                 

(a)
 
Information is presented on a fiscal calendar basis, consistent with our quarterly financial reporting.
 
(b)
 
This category includes 4,168 thousand shares repurchased from our various benefit plans, primarily the GE Savings and Security Program (the S&SP). Through the S&SP, a defined contribution plan with Internal Revenue Service Code 401(k) features, we repurchase shares resulting from changes in investment options by plan participants.
 
(c)
This balance represents the number of shares that were repurchased through the 2004 GE Share Repurchase Program as modified by the GE Board in November 2005 (the Program) under which we were authorized to repurchase up to $25 billion of our common stock through 2008. The Program is flexible and shares are acquired with a combination of borrowings and free cash flow from the public markets and other sources, including GE Stock Direct, a stock purchase plan that is available to the public. As major acquisitions or other circumstances warrant, we modify the frequency and amount of share repurchases under the Program.

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

 


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)
 
 
  
April 27, 2007
  
/s/ Philip D. Ameen
  
Date
  
Philip D. Ameen
Vice President and Comptroller
Duly Authorized Officer and Principal Accounting Officer
  

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