frm8k093008.htm
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 
WASHINGTON, D.C. 20549
 
FORM 10-Q

(Mark One)
 
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2008
 
OR
 
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ____ to ____
 
Commission file number 001-00035
 
GENERAL ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer þ
 
Accelerated filer ¨
 
Non-accelerated filer ¨
 
Smaller reporting company ¨
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
 
There were 9,955,456,000 shares of common stock with a par value of $0.06 per share outstanding at September 26, 2008.
 

 
(1)

 

General Electric Company
 
   
Page
Part I - Financial Information
   
     
Item 1. Financial Statements
   
Condensed Statement of Earnings
   
 
3
 
4
 
5
 
6
 
7
 
8
 
29
 
47
 
47
     
Part II - Other Information
   
     
 
48
 
48
 
52
 
52
 
53
 
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, commodity and equity prices and the value of financial assets; continued volatility and further deterioration of the capital markets; the commercial and consumer credit environment; the impact of regulation and regulatory, investigative and legal actions; strategic actions, including acquisitions and dispositions; future integration of acquired businesses; future financial performance of major industries which we serve, including, without limitation, the air and rail transportation, energy generation, media, real estate and healthcare industries; and numerous other matters of national, regional and global scale, including those of a political, economic, business and competitive nature. These uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements.
 

 
(2)

 

Part I. Financial Information
 
Item 1. Financial Statements
 
Condensed Statement of Earnings
General Electric Company and consolidated affiliates
 
 
Three months ended September 30 (Unaudited)
 
 
Consolidated
   
GE(a)
 
Financial
Services (GECS)
 
(In millions; per-share amounts in dollars)
 
2008
   
2007
     
2008
   
2007
   
2008
   
2007
 
                                       
Sales of goods
$
17,924
 
$
15,354
   
$
17,473
 
$
15,271
 
$
579
 
$
277
 
Sales of services
 
11,236
   
9,301
     
11,395
   
9,419
   
   
 
Other income
 
544
   
384
     
659
   
464
   
   
 
GECS earnings from continuing operations
 
   
     
2,010
   
3,219
   
   
 
GECS revenues from services
 
17,530
   
17,473
     
   
   
17,852
   
17,789
 
Total revenues
 
47,234
   
42,512
     
31,537
   
28,373
   
18,431
   
18,066
 
                                       
Cost of goods sold
 
14,184
   
12,113
     
13,826
   
12,071
   
486
   
236
 
Cost of services sold
 
7,953
   
6,145
     
8,112
   
6,262
   
   
 
Interest and other financial charges
 
6,955
   
6,070
     
525
   
473
   
6,723
   
5,780
 
Investment contracts, insurance losses and
                                     
insurance annuity benefits
 
787
   
849
     
   
   
839
   
889
 
Provision for losses on financing receivables
 
1,641
   
1,190
     
   
   
1,641
   
1,190
 
Other costs and expenses
 
10,542
   
10,204
     
3,541
   
3,684
   
7,093
   
6,694
 
Minority interest in net earnings of
                                     
consolidated affiliates
 
156
   
190
     
60
   
136
   
96
   
54
 
Total costs and expenses
 
42,218
   
36,761
     
26,064
   
22,626
   
16,878
   
14,843
 
                                       
Earnings from continuing operations
                                     
before income taxes
 
5,016
   
5,751
     
5,473
   
5,747
   
1,553
   
3,223
 
Benefit (provision) for income taxes
 
(539
)
 
(640
)
   
(996
)
 
(636
)
 
457
   
(4
)
Earnings from continuing operations
 
4,477
   
5,111
     
4,477
   
5,111
   
2,010
   
3,219
 
Earnings (loss) from discontinued operations,
                                     
net of taxes
 
(165
)
 
448
     
(165
)
 
448
   
(170
)
 
(1,352
)
Net earnings
$
4,312
 
$
5,559
   
$
4,312
 
$
5,559
 
$
1,840
 
$
1,867
 
                                       
Per-share amounts
                                     
Per-share amounts – earnings from
                                     
continuing operations
                                     
Diluted earnings per share
$
0.45
 
$
0.50
                           
Basic earnings per share
$
0.45
 
$
0.50
                           
                                       
Per-share amounts – net earnings
                                     
Diluted earnings per share
$
0.43
 
$
0.54
                           
Basic earnings per share
$
0.43
 
$
0.55
                           
                                       
Dividends declared per share
$
0.31
 
$
0.28
                           
                                       

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

 
(3)

 

Condensed Statement of Earnings
General Electric Company and consolidated affiliates
 
 
Nine months ended September 30 (Unaudited)
 
 
Consolidated
   
GE(a)
 
Financial
Services (GECS)
 
(In millions; per-share amounts in dollars)
 
2008
   
2007
     
2008
   
2007
   
2008
   
2007
 
                                       
Sales of goods
$
50,092
 
$
43,352
   
$
48,876
 
$
43,373
 
$
1,474
 
$
337
 
Sales of services
 
31,489
   
26,867
     
32,024
   
27,274
   
   
 
Other income
 
1,693
   
2,319
     
1,984
   
2,550
   
   
 
GECS earnings from continuing operations
 
   
     
7,240
   
9,042
   
   
 
GECS revenues from services
 
53,028
   
51,417
     
   
   
54,027
   
52,308
 
Total revenues
 
136,302
   
123,955
     
90,124
   
82,239
   
55,501
   
52,645
 
                                       
Cost of goods sold
 
39,977
   
34,607
     
38,971
   
34,681
   
1,264
   
284
 
Cost of services sold
 
20,882
   
17,005
     
21,417
   
17,412
   
   
 
Interest and other financial charges
 
20,103
   
17,279
     
1,681
   
1,428
   
19,242
   
16,478
 
Investment contracts, insurance losses and
                                     
insurance annuity benefits
 
2,412
   
2,601
     
   
   
2,557
   
2,744
 
Provision for losses on financing receivables
 
4,453
   
3,132
     
   
   
4,453
   
3,132
 
Other costs and expenses
 
31,317
   
29,733
     
10,780
   
10,636
   
20,862
   
19,449
 
Minority interest in net earnings of
                                     
consolidated affiliates
 
502
   
634
     
318
   
445
   
184
   
189
 
Total costs and expenses
 
119,646
   
104,991
     
73,167
   
64,602
   
48,562
   
42,276
 
                                       
Earnings from continuing operations
                                     
before income taxes
 
16,656
   
18,964
     
16,957
   
17,637
   
6,939
   
10,369
 
Benefit (provision) for income taxes
 
(2,434
)
 
(3,334
)
   
(2,735
)
 
(2,007
)
 
301
   
(1,327
)
Earnings from continuing operations
 
14,222
   
15,630
     
14,222
   
15,630
   
7,240
   
9,042
 
Loss from discontinued operations,
                                     
net of taxes
 
(534
)
 
(118
)
   
(534
)
 
(118
)
 
(568
)
 
(1,986
)
Net earnings
$
13,688
 
$
15,512
   
$
13,688
 
$
15,512
 
$
6,672
 
$
7,056
 
                                       
Per-share amounts
                                     
Per-share amounts – earnings from
                                     
continuing operations
                                     
Diluted earnings per share
$
1.42
 
$
1.52
                           
Basic earnings per share
$
1.43
 
$
1.53
                           
                                       
Per-share amounts – net earnings
                                     
Diluted earnings per share
$
1.37
 
$
1.51
                           
Basic earnings per share
$
1.37
 
$
1.52
                           
                                       
Dividends declared per share
$
0.93
 
$
0.84
                           
                                       

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

 
(4)

 

Condensed Statement of Financial Position
General Electric Company and consolidated affiliates
 
 
Consolidated
   
GE(a)
 
Financial
Services (GECS)
 
(In millions; except share amounts)
September 30,
2008
 
December 31,
2007
   
September 30,
2008
 
December 31,
2007
 
September 30,
2008
 
December 31,
2007
 
 
(Unaudited)
   
     
(Unaudited)
   
 
   
(Unaudited)
   
   
                                       
Cash and equivalents
$
16,301
 
$
15,731
   
$
3,498
 
$
6,702
 
$
13,075
 
$
9,439
 
Investment securities
 
43,459
   
45,276
     
276
   
343
   
43,188
   
44,941
 
Current receivables
 
22,439
   
22,259
     
14,792
   
15,093
   
   
 
Inventories
 
14,719
   
12,897
     
14,646
   
12,834
   
73
   
63
 
Financing receivables – net
 
413,170
   
376,123
     
   
   
421,788
   
384,067
 
Other GECS receivables
 
15,620
   
16,514
     
   
   
21,072
   
22,078
 
Property, plant and equipment (including
                                     
equipment leased to others) – net
 
80,095
   
77,888
     
14,316
   
14,142
   
65,779
   
63,746
 
Investment in GECS
 
   
     
55,698
   
57,676
   
   
 
Goodwill
 
83,061
   
81,116
     
56,742
   
55,689
   
26,319
   
25,427
 
Other intangible assets – net
 
15,593
   
16,142
     
11,401
   
11,633
   
4,192
   
4,509
 
All other assets
 
123,855
   
122,848
     
43,481
   
40,608
   
81,628
   
83,392
 
Assets of discontinued operations
 
1,238
   
8,889
     
   
66
   
1,238
   
8,823
 
Total assets
$
829,550
 
$
795,683
   
$
214,850
 
$
214,786
 
$
678,352
 
$
646,485
 
                                       
Short-term borrowings
$
218,748
 
$
195,100
   
$
4,394
 
$
4,106
 
$
215,409
 
$
192,420
 
Accounts payable, principally trade accounts
 
20,679
   
21,338
     
11,409
   
11,120
   
13,952
   
14,714
 
Progress collections and price adjustments accrued
 
12,835
   
9,885
     
13,422
   
10,374
   
   
 
Other GE current liabilities
 
20,344
   
18,916
     
20,447
   
18,916
   
   
 
Long-term borrowings
 
329,915
   
319,013
     
10,018
   
11,656
   
321,019
   
308,502
 
Investment contracts, insurance liabilities
                                     
and insurance annuity benefits
 
34,533
   
34,068
     
   
   
34,886
   
34,359
 
All other liabilities
 
55,933
   
59,316
     
32,034
   
32,859
   
23,951
   
26,522
 
Deferred income taxes
 
14,269
   
12,490
     
3,942
   
3,391
   
10,327
   
9,099
 
Liabilities of discontinued operations
 
931
   
1,994
     
188
   
302
   
743
   
1,692
 
Total liabilities
 
708,187
   
672,120
     
95,854
   
92,724
   
620,287
   
587,308
 
                                       
Minority interest in equity of consolidated affiliates
 
9,036
   
8,004
     
6,669
   
6,503
   
2,367
   
1,501
 
Common stock (9,955,456,000 and 9,987,599,000
                                     
shares outstanding at September 30, 2008 and
                                     
December 31, 2007, respectively)
 
669
   
669
     
669
   
669
   
1
   
1
 
Accumulated gains (losses) – net
                                     
Investment securities
 
(2,290
)
 
124
     
(2,290
)
 
124
   
(2,251
)
 
110
 
Currency translation adjustments
 
7,200
   
10,708
     
7,200
   
10,708
   
4,816
   
7,472
 
Cash flow hedges
 
(2,168
)
 
(668
)
   
(2,168
)
 
(668
)
 
(2,096
)
 
(727
)
Benefit plans
 
(916
)
 
(1,840
)
   
(916
)
 
(1,840
)
 
(84
)
 
(105
)
Other capital
 
25,906
   
26,100
     
25,906
   
26,100
   
12,580
   
12,574
 
Retained earnings
 
121,755
   
117,362
     
121,755
   
117,362
   
42,732
   
38,351
 
Less common stock held in treasury
 
(37,829
)
 
(36,896
)
   
(37,829
)
 
(36,896
)
 
   
 
                                       
Total shareowners’ equity
 
112,327
   
115,559
     
112,327
   
115,559
   
55,698
   
57,676
 
                                       
Total liabilities and equity
$
829,550
 
$
795,683
   
$
214,850
 
$
214,786
 
$
678,352
 
$
646,485
 
                                       

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 $1,826 million and $8,324 million at September 30, 2008, and December 31, 2007, respectively.
 
(a)
 
Represents the adding together of all affiliated companies except General Electric Capital Services, Inc. (GECS or financial services) which is presented on a one-line basis.
 
See accompanying notes. Separate information is shown for “GE” and “Financial Services (GECS).” Transactions between GE and GECS have been eliminated from the “Consolidated” columns.

 

 
(5)

 

Condensed Statement of Cash Flows
General Electric Company and consolidated affiliates
 
 
Nine months ended September 30 (Unaudited)
 
 
Consolidated
   
GE(a)
 
Financial
Services (GECS)
 
(In millions)
 
2008
   
2007
  
  
 
2008
   
2007
   
2008
   
2007
 
                                       
Cash flows – operating activities
                                     
Net earnings
$
13,688
 
$
15,512
   
$
13,688
 
$
15,512
 
$
6,672
 
$
7,056
 
Loss from discontinued operations
 
534
   
118
     
534
   
118
   
568
   
1,986
 
Adjustments to reconcile net earnings to cash
                                     
provided from operating activities
                                     
Depreciation and amortization of property,
                                     
plant and equipment
 
8,216
   
7,431
     
1,587
   
1,577
   
6,629
   
5,854
 
Net earnings from continuing operations retained by GECS
 
   
     
(4,949
)
 
(3,171
)
 
   
 
Deferred income taxes
 
1,798
   
828
     
(454
)
 
278
   
2,252
   
550
 
Decrease (increase) in GE current receivables
 
(1,344
)
 
(159
)
   
41
   
1,004
   
   
 
Increase in inventories
 
(1,765
)
 
(2,017
)
   
(1,624
)
 
(1,959
)
 
(10
)
 
(4
)
Increase (decrease) in accounts payable
 
(411
)
 
(2,665
)
   
444
   
(1,071
)
 
(669
)
 
(1,359
)
Increase in GE progress collections
 
3,103
   
2,998
     
3,241
   
2,805
   
   
 
Provision for losses on GECS financing receivables
 
4,453
   
3,132
     
   
   
4,453
   
3,132
 
All other operating activities
 
(468
)
 
(1,052
)
   
1,127
   
1,574
   
(1,751
)
 
(3,000
)
Cash from operating activities – continuing operations
 
27,804
   
24,126
     
13,635
   
16,667
   
18,144
   
14,215
 
Cash from (used for) operating activities – discontinued operations
 
497
   
4,099
     
(9
)
 
(856
)
 
506
   
4,757
 
Cash from operating activities
 
28,301
   
28,225
     
13,626
   
15,811
   
18,650
   
18,972
 
                                       
Cash flows – investing activities
                                     
Additions to property, plant and equipment
 
(11,484
)
 
(12,115
)
   
(2,263
)
 
(2,025
)
 
(9,468
)
 
(10,334
)
Dispositions of property, plant and equipment
 
7,286
   
7,218
     
   
   
7,286
   
7,218
 
Net increase in GECS financing receivables
 
(26,898
)
 
(24,482
)
   
   
   
(28,359
)
 
(24,662
)
Proceeds from sales of discontinued operations
 
5,423
   
11,457
     
203
   
10,826
   
5,220
   
 
Proceeds from principal business dispositions
 
4,480
   
2,114
     
58
   
1,012
   
4,422
   
1,102
 
Payments for principal businesses purchased
 
(27,042
)
 
(14,910
)
   
(2,053
)
 
(7,388
)
 
(24,989
)
 
(7,522
)
All other investing activities
 
(3,283
)
 
(6,792
)
   
(56
)
 
(2,108
)
 
(2,948
)
 
(4,519
)
Cash from (used for) investing activities – continuing operations
 
(51,518
)
 
(37,510
)
   
(4,111
)
 
317
   
(48,836
)
 
(38,717
)
Cash from (used for) investing activities – discontinued operations
 
(616
)
 
(3,973
)
   
9
   
1,002
   
(625
)
 
(4,777
)
Cash from (used for) investing activities
 
(52,134
)
 
(41,483
)
   
(4,102
)
 
1,319
   
(49,461
)
 
(43,494
)
                                       
Cash flows – financing activities
                                     
Net decrease in borrowings (maturities of
                                     
90 days or less)
 
(18,298
)
 
(8,589
)
   
(1,719
)
 
(2,853
)
 
(16,949
)
 
(8,467
)
Newly issued debt (maturities longer than 90 days)
 
99,373
   
81,450
     
122
   
4,663
   
99,228
   
76,834
 
Repayments and other reductions (maturities longer
                                     
than 90 days)
 
(45,055
)
 
(36,801
)
   
(145
)
 
(171
)
 
(44,910
)
 
(36,630
)
Net purchases of GE shares for treasury
 
(1,678
)
 
(7,220
)
   
(1,678
)
 
(7,220
)
 
   
 
Dividends paid to shareowners
 
(9,308
)
 
(8,651
)
   
(9,308
)
 
(8,651
)
 
(2,291
)
 
(5,871
)
All other financing activities
 
(750
)
 
(1,068
)
   
   
   
(750
)
 
(1,068
)
Cash from (used for) financing activities – continuing operations
 
24,284
   
19,121
     
(12,728
)
 
(14,232
)
 
34,328
   
24,798
 
Cash used for financing activities – discontinued operations
 
(4
)
 
(151
)
   
   
(146
)
 
(4
)
 
(5
)
Cash from (used for) financing activities
 
24,280
   
18,970
     
(12,728
)
 
(14,378
)
 
34,324
   
24,793
 
Increase (decrease) in cash and equivalents
 
447
   
5,712
     
(3,204
)
 
2,752
   
3,513
   
271
 
Cash and equivalents at beginning of year
 
16,031
   
14,276
     
6,702
   
4,480
   
9,739
   
12,629
 
Cash and equivalents at September 30
 
16,478
   
19,988
     
3,498
   
7,232
   
13,252
   
12,900
 
Less cash and equivalents of discontinued operations at September 30
 
177
   
165
     
   
   
177
   
165
 
Cash and equivalents of continuing operations at September 30
$
16,301
 
$
19,823
   
$
3,498
 
$
7,232
 
$
13,075
 
$
12,735
 
                                       

(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.

 
(6)

 

Summary of Operating Segments
General Electric Company and consolidated affiliates
 
 
Three months ended
September 30 (Unaudited)
 
Nine months ended
September 30 (Unaudited)
 
(In millions)
2008
 
2007
 
2008
 
2007
 
                         
Revenues
                       
Technology Infrastructure
$
11,450
 
$
10,549
 
$
33,761
 
$
30,309
 
Energy Infrastructure
 
9,769
   
7,386
   
27,164
   
21,251
 
Capital Finance
 
17,292
   
16,979
   
52,242
   
48,447
 
NBC Universal
 
5,073
   
3,756
   
12,539
   
10,865
 
Consumer & Industrial
 
2,989
   
3,163
   
8,990
   
9,337
 
Total segment revenues
 
46,573
   
41,833
   
134,696
   
120,209
 
Corporate items and eliminations
 
661
   
679
   
1,606
   
3,746
 
Consolidated revenues
$
47,234
 
$
42,512
 
$
136,302
 
$
123,955
 
                         
Segment profit(a)
                       
Technology Infrastructure
$
1,900
 
$
1,869
 
$
5,657
 
$
5,408
 
Energy Infrastructure
 
1,425
   
1,086
   
4,074
   
3,016
 
Capital Finance
 
2,020
   
3,021
   
7,602
   
9,080
 
NBC Universal
 
645
   
589
   
2,266
   
2,184
 
Consumer & Industrial
 
47
   
255
   
329
   
780
 
Total segment profit
 
6,037
   
6,820
   
19,928
   
20,468
 
Corporate items and eliminations
 
(39
)
 
(600
)
 
(1,290
)
 
(1,403
)
GE interest and other financial charges
 
(525
)
 
(473
)
 
(1,681
)
 
(1,428
)
GE provision for income taxes
 
(996
)
 
(636
)
 
(2,735
)
 
(2,007
)
Earnings from continuing operations
 
4,477
   
5,111
   
14,222
   
15,630
 
Earnings (loss) from discontinued operations,
                       
net of taxes
 
(165
)
 
448
   
(534
)
 
(118
)
Consolidated net earnings
$
4,312
 
$
5,559
 
$
13,688
 
$
15,512
 
                         

(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 sometimes refer to as “operating profit,” for Technology Infrastructure, Energy Infrastructure, NBC Universal and Consumer & Industrial; included in determining segment profit, which we sometimes refer to as “net earnings,” for Capital Finance.
 
See accompanying notes to condensed, consolidated financial statements.

 

 
(7)

 

Notes to Condensed, Consolidated Financial Statements (Unaudited)
 
1. Summary of Significant Accounting Policies
 
The accompanying condensed, consolidated financial statements represent the consolidation of General Electric Company and all companies that we directly or indirectly control, either through majority ownership or otherwise. See Note 1 to the consolidated financial statements for the year ended December 31, 2007, included in our Form 8-K dated October 8, 2008, which discusses our consolidation and financial statement presentation. As used in this report on Form 10-Q (Report) and in the financial statements included in our Form 8-K dated October 8, 2008, “GE” represents the adding together of all affiliated companies except General Electric Capital Services, Inc. (GECS or financial services), which is presented on a one-line basis; GECS consists of General Electric Capital Services, Inc. and all of its affiliates; and “Consolidated” represents the adding together of GE and GECS with the effects of transactions between the two eliminated. GE includes Technology Infrastructure, Energy Infrastructure, NBC Universal and Consumer & Industrial. GECS includes Capital Finance. We have reclassified certain prior-period amounts to conform to the current-period’s presentation. Unless otherwise indicated, information in these notes to condensed, consolidated financial statements relates to continuing operations.
 
Our accounting policy for sales of goods and services is included below. See Note 1 to the consolidated financial statements for the year ended December 31, 2007, included in our Form 8-K dated October 8, 2008, for a summary of the remainder of our significant accounting policies.
 
Sales of goods and services
 
We record all sales of goods and services only when a firm sales agreement is in place, delivery has occurred or services have been rendered and collectibility of the fixed or determinable sales price is reasonably assured. In addition, if a sales agreement includes customer acceptance provisions, we recognize revenues as follows:
 
·  
In arrangements where we provide equipment and software for trial and evaluation purposes, we only recognize revenue after the customer accepts the product as set forth in the contract. In rare instances, we offer acceptance provisions that lapse over time. In these instances, we only recognize revenue upon the earlier of customer acceptance or after the specified time elapses.
 
·  
If a sales agreement includes general return rights, revenue is deferred until the return rights lapse unless future returns can be reasonably estimated, in which case revenue is recognized and an allowance is recorded for the returns.
 
·  
In situations where acceptance provisions are based on seller-specified objective criteria, we recognize revenue only after we have demonstrated that the delivered product meets those specifications.
 
·  
If a sales agreement includes customer-specified objective criteria, we recognize revenue when formal acceptance occurs or we have reliably demonstrated that all specified customer acceptance criteria have been met.
 
Sales of goods in the Consumer & Industrial segment typically do not include multiple product and/or service elements. In contrast, sales of goods in the Technology Infrastructure and Energy Infrastructure segments sometimes include multiple components. Our arrangements with multiple components usually involve future service deliverables such as installation, training or the future delivery of ancillary equipment. In such agreements, the amount assigned to each component is based on the total price and the undelivered component’s objectively determined fair value, determined from sources such as the separate selling price for that or a similar component or from competitor prices for similar components. If fair value of an undelivered component cannot be satisfactorily determined, we defer revenue until all multiple components are delivered.
 

 
(8)

 

Certain of our sales of products and services involve inconsequential or perfunctory performance obligations. These obligations can include non-essential installation or training, non-essential third party supplied items related to sales of healthcare devices, commissioning services related to the sales of locomotives, and provision of product manuals and limited technical product support. We consider these obligations to be inconsequential and perfunctory as their fair value is relatively insignificant relative to the related revenue; we have a demonstrated history of completing the remaining tasks in a timely manner; the work can be performed by customers or other contractors; and in the event that we were to fail to complete the remaining obligations under the sales contract, we do not have a refund obligation. When the only remaining undelivered performance obligation under an arrangement is inconsequential or perfunctory, we recognize revenue on the total contract and provide for the cost of the unperformed obligation.
 
Except for goods sold under long-term agreements, we recognize sales of goods under the provisions of U.S. Securities and Exchange Commission (SEC) Staff Accounting Bulletin (SAB) 104, Revenue Recognition. Among other things, we recognize such sales when we have no risk of transit damage, a policy that in certain cases requires us to delay recognition of otherwise qualified sales until the goods have been physically delivered. We often sell consumer products, home videos and computer hardware and software products with a right of return. We use our accumulated experience to estimate and provide for such returns when we record the sale. Unless otherwise noted, we do not provide for anticipated losses before we record sales.
 
We account for revenue recognition on agreements for sales of goods and services under power generation unit and uprate contracts; nuclear fuel assemblies; larger oil drilling equipment projects; turbo-machinery unit contracts; military development contracts; and long-term construction projects, including construction of information technology systems in our Healthcare business, under AICPA Statement of Position (SOP) 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts. Under SOP 81-1, we estimate total contract revenue net of price concessions as well as total contract costs. For goods sold under power generation unit and uprate contracts, nuclear fuel assemblies, turbo-machinery unit contracts and military development contracts, we recognize sales as we complete major contract-specified deliverables, most often when customers receive title to the goods or accept the services as performed. For larger oil drilling equipment projects and long-term construction projects, we recognize sales based on our progress towards contract completion measured by actual costs incurred in relation to our estimate of total expected costs. We measure SOP 81-1 revenues by applying our contract-specific estimated margin rates to incurred costs. We routinely update our estimates of future costs for agreements in process and report any cumulative effects of such adjustments in current operations. We provide for any loss that we expect to incur on these agreements when that loss is probable.
 
We recognize revenue upon delivery for sales of aircraft engines, military propulsion equipment and related spare parts not sold under long-term product services agreements. Delivery of large and small commercial engines, non-U.S. military equipment and all related spare parts occurs on shipment; delivery of military propulsion equipment sold to the U.S. Government or agencies thereof occurs upon receipt of a Material Inspection and Receiving Report, DD Form 250 or Memorandum of Shipment. Large commercial engines (CF6, CFM56, GE90, GEnx and GP7000) are complex aerospace equipment manufactured to customer order under a variety of sometimes-complex, long-term agreements. We measure sales of large commercial engines by applying our contract-specific estimated margin rates to incurred costs. We routinely update our estimates of future costs for large commercial engine agreements in process and report any cumulative effects of such adjustments in current operations. We measure revenue for small aircraft engines, military propulsion equipment and spare parts not subject to long-term product services agreements based on the specific contract on a specifically-measured output basis. We provide for any loss that we expect to incur on these agreements when that loss is probable; consistent with industry practice, for commercial engines, we make such provision only if such losses are not recoverable from future highly probable sales of spare parts for those engines.
 

 
(9)

 

We sell product services under long-term agreements in our Technology Infrastructure and Energy Infrastructure segments, principally in Aviation, Energy and Transportation, where costs of performing services are incurred on other than a straight-line basis. We also sell product services in Healthcare, where such costs are expected to be on a straight-line basis. All of these agreements are accounted for under Financial Accounting Standards Board (FASB) Technical Bulletin (FTB) 90-1, Accounting for Separately Priced Extended Warranty and Product Maintenance Contracts. For the Aviation, Energy and Transportation FTB 90-1 agreements, we recognize related sales based on the extent of our progress towards completion measured by actual costs incurred in relation to total expected costs. We routinely update our estimates of future costs for agreements in process and report any cumulative effects of such adjustments in current operations. For the Healthcare FTB 90-1 agreements, we recognize revenues on a straight-line basis and expense related costs as incurred. We provide for any loss that we expect to incur on any of these agreements when that loss is probable.
 
NBC Universal records broadcast and cable television and Internet advertising sales when advertisements are aired, net of provision for any viewer shortfalls (make goods). We record sales from theatrical distribution of films as the films are exhibited; sales of home videos, net of a return provision, when the videos are delivered to and available for sale by retailers; fees from cable/satellite operators when services are provided; and licensing of film and television programming when we make the material available for airing.
 
Accounting changes
 
On January 1, 2008, we adopted FASB Statement of Financial Accounting Standards (SFAS) 157, Fair Value Measurements, and SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities, which are more fully discussed in Note 14 to the condensed, consolidated financial statements.
 
2. Interim Period Presentation
 
The condensed, consolidated financial statements and notes thereto are unaudited. These statements include all adjustments (consisting of normal recurring accruals) that we considered necessary to present a fair statement of our results of operations, financial position and cash flows. The results reported in these condensed, consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for the entire year. It is suggested that these condensed, consolidated financial statements be read in conjunction with the financial statements and notes thereto included in our Form 8-K dated October 8, 2008. We label our quarterly information using a calendar convention, that is, first quarter is labeled as ending on March 31, second quarter as ending on June 30, and third quarter as ending on September 30. It is our longstanding practice to establish interim quarterly closing dates using a fiscal calendar, which requires our businesses to close their books on either a Saturday or Sunday, depending on the business. The effects of this practice are modest and only exist within a reporting year. The fiscal closing calendar from 1993 through 2013 is available on our website, www.ge.com/secreports.
 
3. Discontinued Operations
 
Discontinued operations is comprised of our Japanese personal loan business (Lake) and our Japanese mortgage and card businesses, excluding our minority ownership in GE Nissen Credit Co., Ltd. (GE Money Japan), our U.S. mortgage business (WMC), Plastics, Advanced Materials, GE Life, Genworth Financial, Inc. (Genworth) and most of GE Insurance Solutions Corporation (GE Insurance Solutions). Associated results of operations, financial position and cash flows are separately reported as discontinued operations for all periods presented.
 

 
(10)

 

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 second quarter of 2008, we committed to sell GE Money Japan, resulting in the addition of our Japanese mortgage and card businesses to discontinued operations. Subsequent to the end of the second quarter, we reached an agreement to sell these businesses and completed the sale during the third quarter of 2008. In connection with this agreement, and primarily related to our Japanese mortgage and card businesses, we recorded an incremental $247 million impairment loss in the first nine months of 2008. Under this agreement, the sale proceeds will be increased or reduced to reflect our portion of actual interest refund claims based on terms specified in the agreement. GE Money Japan revenues from discontinued operations were $209 million and $298 million in the third quarters of 2008 and 2007, respectively, and $760 million and $1,017 million in the first nine months of 2008 and 2007, respectively. In total, GE Money Japan losses from discontinued operations, net of taxes, were $160 million and $1,030 million in the third quarters of 2008 and 2007, respectively, and $508 million and $1,077 million in the first nine months of 2008 and 2007, respectively.
 
WMC
 
During the fourth quarter of 2007, we completed the sale of our U.S. mortgage business. In connection with the transaction, WMC retained certain obligations related to loans sold prior to the disposal of the business, including WMC’s contractual obligations to repurchase previously sold loans as to which there was an early payment default or with respect to which certain contractual representations and warranties were not met. Reserves related to these obligations were $224 million at September 30, 2008. The amount of these reserves is based upon pending and estimated future loan repurchase requests, the estimated percentage of loans validly tendered for repurchase, and our estimated losses on loans repurchased. Based on our historical experience, we estimate that a small percentage of the total loans we originated and sold will be tendered for repurchase, and of those tendered, only a limited amount will qualify as “validly tendered,” meaning the loans sold did not satisfy specified contractual obligations. The amount of our current reserve represents our best estimate of losses with respect to our repurchase obligations. However, actual losses could exceed our reserve amount, if actual claim rates, valid tenders or losses we incur on repurchased loans, are higher than historically observed. WMC revenues from discontinued operations were $(7) million and $(431) million in the third quarters of 2008 and 2007, respectively, and $(64) million and $(1,291) million in the first nine months of 2008 and 2007, respectively. In total, WMC’s losses from discontinued operations, net of taxes, were $8 million and $332 million in the third quarters of 2008 and 2007, respectively, and $35 million and $916 million in the first nine months of 2008 and 2007, respectively.
 
Plastics and Advanced Materials
 
During the third quarter of 2007, we completed the sale of our Plastics business to Saudi Basic Industries Corporation. Also, during the fourth quarter of 2006, we sold our Advanced Materials business. Plastics revenues from discontinued operations were $1,001 million in the third quarter of 2007 and $4,286 million in the first nine months of 2007. In total, Plastics and Advanced Materials earnings from discontinued operations, net of taxes, were $5 million and $1,800 million in the third quarters of 2008 and 2007, respectively, and $34 million and $1,868 million in the first nine months of 2008 and 2007, respectively.
 
Insurance
 
In total, earnings (losses) from insurance-related discontinued operations, net of taxes, were $(2) million and $10 million in the third quarters of 2008 and 2007, respectively, and $(25) million and $7 million in the first nine months of 2008 and 2007, respectively.
 

 
(11)

 

Summarized financial information for discontinued GE industrial operations is shown below.
 
 
Three months ended
September 30
 
Nine months ended
September 30
 
(In millions)
2008
 
2007
 
2008
 
2007
 
                         
Operations
                       
Total revenues
$
 
$
1,001
 
$
 
$
4,286
 
                         
Earnings from discontinued operations
                       
before income taxes
$
10
 
$
28
 
$
 
$
238
 
Income tax benefit (expense)
 
(4
)
 
61
   
16
   
69
 
Earnings from discontinued operations before
                       
disposal, net of taxes
$
6
 
$
89
 
$
16
 
$
307
 
                         
Disposal
                       
Gain (loss) on disposal before income taxes
$
(1
)
$
2,554
 
$
18
 
$
2,363
 
Income tax expense
 
   
(843
)
 
   
(802
)
Gain (loss) on disposal, net of taxes
$
(1
)
$
1,711
 
$
18
 
$
1,561
 
                         
Earnings from discontinued operations, net of taxes(a)
$
5
 
$
1,800
 
$
34
 
$
1,868
 
                         

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

 
Assets of GE industrial discontinued operations were $66 million at December 31, 2007. There were no such assets at September 30, 2008. Liabilities of GE industrial discontinued operations were $188 million and $302 million at September 30, 2008, and December 31, 2007, respectively, and primarily represent taxes payable and pension liabilities related to the sale of our Plastics business.
 
Summarized financial information for discontinued GECS operations is shown below.
 
 
Three months ended
September 30
 
Nine months ended
September 30
 
(In millions)
2008
 
2007
 
2008
 
2007
 
                         
Operations
                       
Total revenues
$
202
 
$
(133
)
$
696
 
$
(274
)
                         
Loss from discontinued operations before
                       
income taxes
$
(207
)
$
(615
)
$
(516
)
$
(1,929
)
Income tax benefit
 
50
   
184
   
193
   
863
 
Loss from discontinued operations,
                       
net of taxes
$
(157
)
$
(431
)
$
(323
)
$
(1,066
)
                         
Disposal
                       
Loss on disposal before income taxes
$
(1,277
)
$
(1,549
)
$
(1,499
)
$
(1,560
)
Income tax benefit
 
1,264
   
628
   
1,254
   
640
 
Loss on disposal, net of taxes
$
(13
)
$
(921
)
$
(245
)
$
(920
)
                         
Loss from discontinued operations, net of taxes
$
(170
)
$
(1,352
)
$
(568
)
$
(1,986
)

 


 
(12)

 


 
At
(In millions)
September 30,
2008
 
December 31,
2007
             
Assets
           
Cash and equivalents
$
177
 
$
300
 
Financing receivables – net
 
   
6,675
 
Other
 
1,061
   
1,848
 
Assets of discontinued operations
$
1,238
 
$
8,823
 

 
 
At
(In millions)
September 30,
2008
 
December 31,
2007
             
Liabilities
           
Liabilities of discontinued operations
$
743
 
$
1,692
 

 
4. GECS Revenues from Services
 
GECS revenues from services are summarized in the following table.
 
 
Three months ended
September 30
 
Nine months ended
September 30
 
(In millions)
2008
 
2007
 
2008
 
2007
 
                         
Interest on loans
$
7,198
 
$
6,075
 
$
20,426
 
$
17,438
 
E