XMEX:GE General Electric Co Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 
WASHINGTON, D.C. 20549
 
FORM 10-Q
 (Mark One)
 
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2012
 
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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes 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 10,558,844,000 shares of common stock with a par value of $0.06 per share outstanding at July 1, 2012.





 
(1)
 
 




 
General Electric Company
 

 
   
Page
Part I - Financial Information
   
     
Item 1. Financial Statements
   
Condensed Statement of Earnings
   
Three Months Ended June 30, 2012
 
3
Six Months Ended June 30, 2012
 
4
Condensed, Consolidated Statement of Comprehensive Income
 
5
Condensed, Consolidated Statement of Changes in Shareowners' Equity
 
5
Condensed Statement of Financial Position
 
6
Condensed Statement of Cash Flows
 
7
Summary of Operating Segments
 
8
Notes to Condensed, Consolidated Financial Statements (Unaudited)
 
9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
 
59
Item 3. Quantitative and Qualitative Disclosures About Market Risk
 
86
Item 4. Controls and Procedures
 
86
     
Part II - Other Information
   
     
Item 1. Legal Proceedings
Item 2. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
 
87
88
Item 6. Exhibits
 
89
Signatures
 
90
 
Forward-Looking Statements
 
This document contains “forward-looking statements” – that is, statements related to future, not past, events. In this context, forward-looking statements often address our expected future business and financial performance and financial condition, and often contain words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “see,” or “will.” Forward-looking statements by their nature address matters that are, to different degrees, uncertain. For us, particular uncertainties that could cause our actual results to be materially different than those expressed in our forward-looking statements include: current economic and financial conditions, including volatility in interest and exchange rates, commodity and equity prices and the value of financial assets; potential market disruptions or other impacts arising in the United States or Europe from developments in the European sovereign debt situation; the impact of conditions in the financial and credit markets on the availability and cost of General Electric Capital Corporation’s (GECC) funding and on our ability to reduce GECC’s asset levels as planned; the impact of conditions in the housing market and unemployment rates on the level of commercial and consumer credit defaults; changes in Japanese consumer behavior that may affect our estimates of liability for excess interest refund claims (GE Money Japan); pending and future mortgage securitization claims and litigation in connection with WMC, which may affect our estimates of liability, including possible loss estimates; our ability to maintain our current credit rating and the impact on our funding costs and competitive position if we do not do so; the adequacy of our cash flow and earnings and other conditions which may affect our ability to pay our quarterly dividend at the planned level; GECC’s ability to pay dividends to GE at the planned level; the level of demand and financial performance of the major industries we serve, including, without limitation, air and rail transportation, energy generation, real estate and healthcare; the impact of regulation and regulatory, investigative and legal proceedings and legal compliance risks, including the impact of financial services regulation; strategic actions, including acquisitions, joint ventures and dispositions and our success in completing announced transactions and integrating acquired businesses; the impact of potential information technology or data security breaches; and numerous other matters of national, regional and global scale, including those of a political, economic, business and competitive nature. These uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements.

 
(2)
 
 

Part I. Financial Information
 
 
Item 1. Financial Statements.
 
General Electric Company and consolidated affiliates
 
Condensed Statement of Earnings
 
 
Three months ended June 30 (Unaudited)
 
Consolidated
   
GE(a)
 
Financial Services (GECC)
(In millions, except share amounts)
2012 
 
2011 
   
2012 
 
2011 
 
2012 
 
2011 
                                     
Revenues and other income
                                   
Sales of goods
$
 18,185 
 
$
 16,223 
   
$
 18,215 
 
$
 16,181 
 
$
 26 
 
$
 42 
Sales of services
 
 6,818 
   
 6,685 
     
 6,923 
   
 6,780 
   
– 
   
– 
Other income
 
 393 
   
 624 
     
 409 
   
 676 
   
– 
   
– 
GECC earnings from continuing operations
 
– 
   
– 
     
 2,122 
   
 1,615 
   
– 
   
– 
GECC revenues from services
 
 11,105 
   
 12,091 
     
– 
   
– 
   
 11,432 
   
 12,398 
   Total revenues and other income
 
 36,501 
   
 35,623 
     
 27,669 
   
 25,252 
   
 11,458 
   
 12,440 
                                     
Costs and expenses
                                   
Cost of goods sold
 
 14,797 
   
 12,952 
     
 14,831 
   
 12,914 
   
 23 
   
 38 
Cost of services sold
 
 4,402 
   
 4,465 
     
 4,507 
   
 4,559 
   
– 
   
– 
Interest and other financial charges
 
 3,211 
   
 3,770 
     
 351 
   
 321 
   
 2,988 
   
 3,598 
Investment contracts, insurance losses and
                                   
   insurance annuity benefits
 
 662 
   
 746 
     
– 
   
– 
   
 702 
   
 790 
Provision for losses on financing receivables
 
 743 
   
 792 
     
– 
   
– 
   
 743 
   
 792 
Other costs and expenses
 
 8,501 
   
 8,362 
     
 3,911 
   
 3,288 
   
 4,764 
   
 5,241 
   Total costs and expenses
 
 32,316 
   
 31,087 
     
 23,600 
   
 21,082 
   
 9,220 
   
 10,459 
                                     
Earnings from continuing operations
                                   
   before income taxes
 
 4,185 
   
 4,536 
     
 4,069 
   
 4,170 
   
 2,238 
   
 1,981 
Benefit (provision) for income taxes
 
 (494)
   
 (892)
     
 (392)
   
 (546)
   
 (102)
   
 (346)
Earnings from continuing operations
 
 3,691 
   
 3,644 
     
 3,677 
   
 3,624 
   
 2,136 
   
 1,635 
Earnings (loss) from discontinued operations,
                                   
   net of taxes
 
 (553)
   
 194 
     
 (553)
   
 194 
   
 (553)
   
 195 
Net earnings (loss)
 
 3,138 
   
 3,838 
     
 3,124 
   
 3,818 
   
 1,583 
   
 1,830 
Less net earnings (loss) attributable to
                                   
   noncontrolling interests
 
 33 
   
 74 
     
 19 
   
 54 
   
 14 
   
 20 
Net earnings (loss) attributable to the Company
 
 3,105 
   
 3,764 
     
 3,105 
   
 3,764 
   
 1,569 
   
 1,810 
Preferred stock dividends declared
 
– 
   
 (75)
     
– 
   
 (75)
   
– 
   
– 
Net earnings (loss) attributable to GE common
                                   
   shareowners
$
 3,105 
 
$
 3,689 
   
$
 3,105 
 
$
 3,689 
 
$
 1,569 
 
$
 1,810 
                                     
                                     
Amounts attributable to the Company
                                   
   Earnings from continuing operations
$
 3,658 
 
$
 3,570 
   
$
 3,658 
 
$
 3,570 
 
$
 2,122 
 
$
 1,615 
   Earnings (loss) from discontinued operations,
                                   
      net of taxes
 
 (553)
   
 194 
     
 (553)
   
 194 
   
 (553)
   
 195 
   Net earnings (loss) attributable to the Company
$
 3,105 
 
$
 3,764 
   
$
 3,105 
 
$
 3,764 
 
$
 1,569 
 
$
 1,810 
                                     
Per-share amounts
                                   
   Earnings from continuing operations
                                   
      Diluted earnings per share
$
 0.34 
 
$
 0.33 
                         
      Basic earnings per share
$
 0.35 
 
$
 0.33 
                         
                                     
   Net earnings
                                   
      Diluted earnings per share
$
 0.29 
 
$
 0.35 
                         
      Basic earnings per share
$
 0.29 
 
$
 0.35 
                         
                                     
Dividends declared per common share
$
 0.17 
 
$
 0.15 
                         
                                     
                                     
(a)
Represents the adding together of all affiliated companies except General Electric Capital Corporation (GECC or Financial Services), which is presented on a one-line basis.
 
 
 
See Note 3 for other-than-temporary impairment amounts.
 
 
See accompanying notes. Separate information is shown for "GE" and "Financial Services (GECC)." Transactions between GE and GECC have been eliminated from the "Consolidated" columns.
 
 

 
(3)
 
 

General Electric Company and consolidated affiliates
 
Condensed Statement of Earnings
 
 
Six months ended June 30 (Unaudited)
 
Consolidated
   
GE(a)
 
Financial Services (GECC)
(In millions, except share amounts)
2012 
 
2011 
   
2012 
 
2011 
 
2012 
 
2011 
                                     
Revenues and other income
                                   
Sales of goods
$
 35,500 
 
$
 30,712 
   
$
 35,572 
 
$
 30,670 
 
$
 56 
 
$
 84 
Sales of services
 
 13,030 
   
 14,187 
     
 13,253 
   
 14,393 
   
– 
   
– 
Other income
 
 950 
   
 4,249 
     
 1,009 
   
 4,341 
   
– 
   
– 
GECC earnings from continuing operations
 
– 
   
– 
     
 3,914 
   
 3,405 
   
– 
   
– 
GECC revenues from services
 
 22,203 
   
 24,804 
     
– 
   
– 
   
 22,844 
   
 25,392 
   Total revenues and other income
 
 71,683 
   
 73,952 
     
 53,748 
   
 52,809 
   
 22,900 
   
 25,476 
                                     
Costs and expenses
                                   
Cost of goods sold
 
 28,262 
   
 24,768 
     
 28,343 
   
 24,732 
   
 48 
   
 78 
Cost of services sold
 
 8,806 
   
 9,365 
     
 9,029 
   
 9,570 
   
– 
   
– 
Interest and other financial charges
 
 6,569 
   
 7,566 
     
 666 
   
 676 
   
 6,184 
   
 7,182 
Investment contracts, insurance losses and
                                   
   insurance annuity benefits
 
 1,399 
   
 1,482 
     
– 
   
– 
   
 1,473 
   
 1,559 
Provision for losses on financing receivables
 
 1,606 
   
 1,932 
     
– 
   
– 
   
 1,606 
   
 1,932 
Other costs and expenses
 
 16,930 
   
 16,869 
     
 7,914 
   
 6,687 
   
 9,360 
   
 10,494 
   Total costs and expenses
 
 63,572 
   
 61,982 
     
 45,952 
   
 41,665 
   
 18,671 
   
 21,245 
                                     
Earnings (loss) from continuing operations
                                   
   before income taxes
 
 8,111 
   
 11,970 
     
 7,796 
   
 11,144 
   
 4,229 
   
 4,231 
Benefit (provision) for income taxes
 
 (1,131)
   
 (4,834)
     
 (842)
   
 (4,059)
   
 (289)
   
 (775)
Earnings from continuing operations
 
 6,980 
   
 7,136 
     
 6,954 
   
 7,085 
   
 3,940 
   
 3,456 
Earnings (loss) from discontinued operations,
                                   
   net of taxes
 
 (770)
   
 229 
     
 (770)
   
 229 
   
 (770)
   
 230 
Net earnings (loss)
 
 6,210 
   
 7,365 
     
 6,184 
   
 7,314 
   
 3,170 
   
 3,686 
Less net earnings (loss) attributable to
                                   
   noncontrolling interests
 
 71 
   
 168 
     
 45 
   
 117 
   
 26 
   
 51 
Net earnings (loss) attributable to the Company
 
 6,139 
   
 7,197 
     
 6,139 
   
 7,197 
   
 3,144 
   
 3,635 
Preferred stock dividends declared
 
– 
   
 (150)
     
– 
   
 (150)
   
– 
   
– 
Net earnings (loss) attributable to GE common
                                   
   shareowners
$
 6,139 
 
$
 7,047 
   
$
 6,139 
 
$
 7,047 
 
$
 3,144 
 
$
 3,635 
                                     
                                     
Amounts attributable to the Company
                                   
   Earnings from continuing operations
$
 6,909 
 
$
 6,968 
   
$
 6,909 
 
$
 6,968 
 
$
 3,914 
 
$
 3,405 
   Earnings (loss) from discontinued operations,
                                   
      net of taxes
 
 (770)
   
 229 
     
 (770)
   
 229 
   
 (770)
   
 230 
   Net earnings (loss) attributable to the Company
$
 6,139 
 
$
 7,197 
   
$
 6,139 
 
$
 7,197 
 
$
 3,144 
 
$
 3,635 
                                     
Per-share amounts
                                   
   Earnings from continuing operations
                                   
      Diluted earnings per share
$
 0.65 
 
$
 0.64 
                         
      Basic earnings per share
$
 0.65 
 
$
 0.64 
                         
                                     
   Net earnings
                                   
      Diluted earnings per share
$
 0.58 
 
$
 0.66 
                         
      Basic earnings per share
$
 0.58 
 
$
 0.66 
                         
                                     
Dividends declared per common share
$
 0.34 
 
$
 0.29 
                         
                                     
                                     

(a)
Represents the adding together of all affiliated companies except General Electric Capital Corporation (GECC or Financial Services), which is presented on a one-line basis.
 
See Note 3 for other-than-temporary impairment amounts.
 
See accompanying notes. Separate information is shown for “GE” and “Financial Services (GECC).” Transactions between GE and GECC have been eliminated from the “Consolidated” columns.
 


 
(4)
 
 
 
 

General Electric Company and consolidated affiliates
                 
Condensed, Consolidated Statement of Comprehensive Income
                 
                         
   
Three months ended June 30 (Unaudited)
 
Six months ended June 30 (Unaudited)
(In millions)
   
2012 
   
2011 
   
2012 
   
2011 
                         
Net earnings
 
$
3,138 
 
$
3,838 
 
$
6,210 
 
$
7,365 
   Less: Net earnings (loss) attributable to noncontrolling interests
   
33 
   
74 
   
71 
   
168 
Net earnings attributable to GE
 
$
3,105 
 
$
3,764 
 
$
6,139 
 
$
7,197 
                         
Other comprehensive income (loss), net of tax
                       
   Investment securities
 
$
169 
 
$
393 
 
$
506 
 
$
204 
   Currency translation adjustments
   
(1,330)
   
1,814 
   
(998)
   
4,353 
   Cash flow hedges
   
21 
   
(185)
   
145 
   
(259)
   Benefit plans
   
560 
   
505 
   
1,600 
   
1,098 
Other comprehensive income (loss), net of tax
   
(580)
   
2,527 
   
1,253 
   
5,396 
   Less: Other comprehensive income (loss) attributable to
                       
   noncontrolling interests
   
10 
   
(19)
   
   
(4)
Other comprehensive income (loss) attributable to GE
 
$
(590)
 
$
2,546 
 
$
1,251 
 
$
5,400 
                         
Comprehensive income, net of tax
 
$
2,558 
 
$
6,365 
 
$
7,463 
 
$
12,761 
   Less: Comprehensive income attributable to
                       
   noncontrolling interests
   
43 
   
55 
   
73 
   
164 
Comprehensive income attributable to GE
 
$
2,515 
 
$
6,310 
 
$
7,390 
 
$
12,597 
                         
                         

General Electric Company and consolidated affiliates
               
Condensed, Consolidated Statement of Changes in Shareowners' Equity
             
                       
                       
     
Six months ended June 30 (Unaudited)
(In millions)
             
2012 
   
2011 
                 
Beginning balance
           
$
116,438 
 
$
118,936 
Dividends and other transactions with shareowners
             
(3,709)
   
(3,459)
Other comprehensive income (loss), net of tax
             
1,251 
   
5,400 
Increases from net earnings attributable to the company
             
6,139 
   
7,197 
Ending balance
             
120,119 
   
128,074 
Noncontrolling interests
             
3,780 
   
2,323 
Total equity
           
$
123,899 
 
$
130,397 
 
 

 
(5)
 
 
 
 

General Electric Company and consolidated affiliates
Condensed Statement of Financial Position
 
Consolidated
   
GE(a)
 
Financial Services (GECC)
 
June 30,
 
December 31,
   
June 30,
 
December 31,
 
June 30,
 
December 31,
(In millions, except share amounts)
2012 
 
2011 
   
2012 
 
2011 
 
2012 
 
2011 
 
(Unaudited)
       
(Unaudited)
     
(Unaudited)
   
Assets
                                   
Cash and equivalents
$
 74,295 
 
$
 84,501 
   
$
 8,644 
 
$
 8,382 
 
$
 66,252 
 
$
 76,702 
Investment securities
 
 47,931 
   
 47,374 
     
 28 
   
 18 
   
 47,906 
   
 47,359 
Current receivables
 
 19,295 
   
 19,531 
     
 11,323 
   
 11,807 
   
– 
   
– 
Inventories
 
 15,440 
   
 13,792 
     
 15,380 
   
 13,741 
   
 60 
   
 51 
Financing receivables – net
 
 264,848 
   
 279,918 
     
– 
   
– 
   
 273,984 
   
 288,847 
Other GECC receivables
 
 7,696 
   
 7,561 
     
– 
   
– 
   
 13,701 
   
 13,390 
Property, plant and equipment – net
 
 66,660 
   
 65,739 
     
 14,655 
   
 14,283 
   
 51,969 
   
 51,419 
Investment in GECC
 
– 
   
– 
     
 77,600 
   
 77,110 
   
– 
   
– 
Goodwill
 
 72,401 
   
 72,625 
     
 45,329 
   
 45,395 
   
 27,072 
   
 27,230 
Other intangible assets – net
 
 11,738 
   
 12,068 
     
 10,295 
   
 10,522 
   
 1,443 
   
 1,546 
All other assets
 
 109,288 
   
 111,701 
     
 37,762 
   
 36,675 
   
 71,897 
   
 75,612 
Assets of businesses held for sale
 
 3,039 
   
 711 
     
– 
   
– 
   
 3,039 
   
 711 
Assets of discontinued operations
 
 1,490 
   
 1,721 
     
 9 
   
 52 
   
 1,481 
   
 1,669 
Total assets(b)
$
 694,121 
 
$
 717,242 
   
$
 221,025 
 
$
 217,985 
 
$
 558,804 
 
$
 584,536 
                                     
Liabilities and equity
                                   
Short-term borrowings
$
 126,319 
 
$
 137,611 
   
$
 7,324 
 
$
 2,184 
 
$
 119,796 
 
$
 136,333 
Accounts payable, principally trade accounts
 
 16,718 
   
 16,400 
     
 14,249 
   
 14,209 
   
 7,700 
   
 7,239 
Progress collections and price adjustments accrued
 
 9,982 
   
 10,402 
     
 10,913 
   
 11,349 
   
– 
   
– 
Dividends payable
 
 1,798 
   
 1,797 
     
 1,798 
   
 1,797 
   
– 
   
– 
Other GE current liabilities
 
 14,967 
   
 14,796 
     
 14,967 
   
 14,796 
   
– 
   
– 
Non-recourse borrowings of consolidated
                                   
   securitization entities
 
 30,696 
   
 29,258 
     
– 
   
– 
   
 30,696 
   
 29,258 
Bank deposits
 
 41,942 
   
 43,115 
     
– 
   
– 
   
 41,942 
   
 43,115 
Long-term borrowings
 
 229,817 
   
 243,459 
     
 4,391 
   
 9,405 
   
 225,539 
   
 234,391 
Investment contracts, insurance liabilities
                                   
   and insurance annuity benefits
 
 27,790 
   
 29,774 
     
– 
   
– 
   
 28,328 
   
 30,198 
All other liabilities
 
 67,514 
   
 70,653 
     
 53,249 
   
 53,826 
   
 14,759 
   
 17,334 
Deferred income taxes
 
 456 
   
 (131)
     
 (6,936)
   
 (7,183)
   
 7,392 
   
 7,052 
Liabilities of businesses held for sale
 
 283 
   
 345 
     
– 
   
– 
   
 283 
   
 345 
Liabilities of discontinued operations
 
 1,940 
   
 1,629 
     
 157 
   
 158 
   
 1,783 
   
 1,471 
Total liabilities(b)
 
 570,222 
   
 599,108 
     
 100,112 
   
 100,541 
   
 478,218 
   
 506,736 
                                     
GECC preferred stock (22,500 outstanding at June 30, 2012)
 
– 
   
– 
     
– 
   
– 
   
– 
   
– 
Common stock (10,558,844,000 and 10,573,017,000
                                   
  shares outstanding at June 30, 2012 and
                                   
  December 31, 2011, respectively)
 
 702 
   
 702 
     
 702 
   
 702 
   
– 
   
– 
                                     
Accumulated other comprehensive income – net(c)
                                   
   Investment securities
 
 472 
   
 (30)
     
 472 
   
 (30)
   
 476 
   
 (33)
   Currency translation adjustments
 
 (861)
   
 133 
     
 (861)
   
 133 
   
 (673)
   
 (399)
   Cash flow hedges
 
 (1,031)
   
 (1,176)
     
 (1,031)
   
 (1,176)
   
 (989)
   
 (1,101)
   Benefit plans
 
 (21,303)
   
 (22,901)
     
 (21,303)
   
 (22,901)
   
 (568)
   
 (563)
Other capital
 
 33,498 
   
 33,693 
     
 33,498 
   
 33,693 
   
 29,859 
   
 27,628 
Retained earnings
 
 140,324 
   
 137,786 
     
 140,324 
   
 137,786 
   
 51,722 
   
 51,578 
Less common stock held in treasury
 
 (31,682)
   
 (31,769)
     
 (31,682)
   
 (31,769)
   
– 
   
– 
                                     
Total GE shareowners’ equity
 
 120,119 
   
 116,438 
     
 120,119 
   
 116,438 
   
 79,827 
   
 77,110 
Noncontrolling interests(d)
 
 3,780 
   
 1,696 
     
 794 
   
 1,006 
   
 759 
   
 690 
Total equity
 
 123,899 
   
 118,134 
     
 120,913 
   
 117,444 
   
 80,586 
   
 77,800 
                                     
Total liabilities and equity
$
 694,121 
 
$
 717,242 
   
$
 221,025 
 
$
 217,985 
 
$
 558,804 
 
$
 584,536 
                                     
                                     
(a)
Represents the adding together of all affiliated companies except General Electric Capital Corporation (GECC or Financial Services), which is presented on a one-line basis.
 
(b)
Our consolidated assets at June 30, 2012 include total assets of $47,514 million of certain variable interest entities (VIEs) that can only be used to settle the liabilities of those VIEs. These assets include net financing receivables of $38,554 million and investment securities of $4,874 million. Our consolidated liabilities at June 30, 2012 include liabilities of certain VIEs for which the VIE creditors do not have recourse to GE. These liabilities include non-recourse borrowings of consolidated securitization entities (CSEs) of $29,796 million. See Note 18.
 
(c)
The sum of accumulated other comprehensive income - net was $(22,723) million and $(23,974) million at June 30, 2012 and December 31, 2011, respectively.
 
(d)
Included accumulated other comprehensive income - net attributable to noncontrolling interests of $(170) million and $(168) million at June 30, 2012 and December 31, 2011, respectively.
 
See accompanying notes. Separate information is shown for "GE" and "Financial Services (GECC)." Transactions between GE and GECC have been eliminated from the "Consolidated" columns.
 
 

 
 
(6)
 
 
 
 

General Electric Company and consolidated affiliates
Condensed Statement of Cash Flows
 
Six months ended June 30 (Unaudited)
 
Consolidated
   
GE(a)
 
Financial Services (GECC)
(In millions)
2012 
 
2011 
   
2012 
 
2011 
 
2012 
 
2011 
                                     
Cash flows – operating activities
                                   
Net earnings
$
 6,210 
 
$
 7,365 
   
$
 6,184 
 
$
 7,314 
 
$
 3,170 
 
$
 3,686 
Less net earnings (loss) attributable to noncontrolling
   interests
 
 71 
   
 168 
     
 45 
   
 117 
   
 26 
   
 51 
Net earnings attributable to the Company
 
 6,139 
   
 7,197 
     
 6,139 
   
 7,197 
   
 3,144 
   
 3,635 
(Earnings) loss from discontinued operations
 
 770 
   
 (229)
     
 770 
   
 (229)
   
 770 
   
 (230)
Adjustments to reconcile net earnings attributable to the
                                   
   Company to cash provided from operating activities
                                   
      Depreciation and amortization of property,
                                   
         plant and equipment
 
 4,493 
   
 4,594 
     
 1,124 
   
 1,026 
   
 3,369 
   
 3,568 
      Earnings from continuing operations retained by GECC(b)
 
– 
   
– 
     
 (914)
   
 (3,405)
   
– 
   
– 
      Deferred income taxes
 
 (219)
   
 (3,170)
     
 (547)
   
 (97)
   
 328 
   
 (3,073)
      Decrease (increase) in GE current receivables
 
 (9)
   
 43 
     
 296 
   
 (726)
   
– 
   
– 
      Decrease (increase) in inventories
 
 (1,645)
   
 (2,212)
     
 (1,615)
   
 (2,196)
   
 (9)
   
 14 
      Increase (decrease) in accounts payable
 
 872 
   
 1,177 
     
 698 
   
 1,176 
   
 201 
   
 885 
      Increase (decrease) in GE progress collections
 
 (299)
   
 (435)
     
 (316)
   
 (356)
   
– 
   
– 
      Provision for losses on GECC financing receivables
 
 1,606 
   
 1,932 
     
– 
   
– 
   
 1,606 
   
 1,932 
      All other operating activities
 
 2,554 
   
 5,569 
     
 1,154 
   
 1,990 
   
 1,415 
   
 2,976 
Cash from (used for) operating activities – continuing
                                   
   operations
 
 14,262 
   
 14,466 
     
 6,789 
   
 4,380 
   
 10,824 
   
 9,707 
Cash from (used for) operating activities – discontinued
                                   
   operations
 
 (45)
   
 674 
     
– 
   
– 
   
 (45)
   
 674 
Cash from (used for) operating activities
 
 14,217 
   
 15,140 
     
 6,789 
   
 4,380 
   
 10,779 
   
 10,381 
                                     
Cash flows – investing activities
                                   
Additions to property, plant and equipment
 
 (7,307)
   
 (6,538)
     
 (2,020)
   
 (1,544)
   
 (5,514)
   
 (5,118)
Dispositions of property, plant and equipment
 
 2,726 
   
 3,505 
     
– 
   
– 
   
 2,726 
   
 3,505 
Net decrease (increase) in GECC financing receivables
 
 5,924 
   
 15,957 
     
– 
   
– 
   
 5,798 
   
 16,749 
Proceeds from sale of discontinued operations
 
– 
   
 4,371 
     
– 
   
– 
   
– 
   
 4,371 
Proceeds from principal business dispositions
 
 117 
   
 7,897 
     
 29 
   
 5,820 
   
 88 
   
 2,077 
Payments for principal businesses purchased
 
 (394)
   
 (7,519)
     
 (394)
   
 (7,426)
   
– 
   
 (93)
All other investing activities
 
 3,535 
   
 3,715 
     
 37 
   
 (340)
   
 3,779 
   
 3,659 
Cash from (used for) investing activities – continuing
                                   
   operations
 
 4,601 
   
 21,388 
     
 (2,348)
   
 (3,490)
   
 6,877 
   
 25,150 
Cash from (used for) investing activities – discontinued
                                   
   operations
 
 37 
   
 (614)
     
– 
   
– 
   
 37 
   
 (614)
Cash from (used for) investing activities
 
 4,638 
   
 20,774 
     
 (2,348)
   
 (3,490)
   
 6,914 
   
 24,536 
                                     
Cash flows – financing activities
                                   
Net increase (decrease) in borrowings (maturities of
                                   
   90 days or less)
 
 (731)
   
 (1,548)
     
 (143)
   
 1,288 
   
 (621)
   
 (2,857)
Net increase (decrease) in bank deposits
 
 (890)
   
 2,464 
     
– 
   
– 
   
 (890)
   
 2,464 
Newly issued debt (maturities longer than 90 days)
 
 30,053 
   
 27,009 
     
 167 
   
 137 
   
 29,658 
   
 26,964 
Repayments and other reductions (maturities longer
                                   
   than 90 days)
 
 (52,868)
   
 (44,967)
     
 (24)
   
 206 
   
 (52,844)
   
 (45,173)
Proceeds from issuance of GECC preferred stock
 
 2,227 
   
– 
     
– 
   
– 
   
 2,227 
   
– 
Net dispositions (purchases) of GE shares for treasury
 
 (505)
   
 (695)
     
 (505)
   
 (695)
   
– 
   
– 
Dividends paid to shareowners
 
 (3,601)
   
 (3,128)
     
 (3,601)
   
 (3,128)
   
 (3,000)
   
– 
Purchase of subsidiary shares from
                                   
   noncontrolling interest
 
– 
   
 (4,298)
     
– 
   
 (4,298)
   
– 
   
– 
All other financing activities
 
 (2,416)
   
 (1,061)
     
 (62)
   
 (125)
   
 (2,354)
   
 (936)
Cash from (used for) financing activities – continuing
                                   
   operations
 
 (28,731)
   
 (26,224)
     
 (4,168)
   
 (6,615)
   
 (27,824)
   
 (19,538)
Cash from (used for) financing activities – discontinued
                                   
   operations
 
– 
   
 (42)
     
– 
   
– 
   
– 
   
 (42)
Cash from (used for) financing activities
 
 (28,731)
   
 (26,266)
     
 (4,168)
   
 (6,615)
   
 (27,824)
   
 (19,580)
Effect of currency exchange rate changes on cash
                                   
   and equivalents
 
 (338)
   
 2,480 
     
 (11)
   
 73 
   
 (327)
   
 2,407 
Increase (decrease) in cash and equivalents
 
 (10,214)
   
 12,128 
     
 262 
   
 (5,652)
   
 (10,458)
   
 17,744 
Cash and equivalents at beginning of year
 
 84,622 
   
 79,084 
     
 8,382 
   
 19,241 
   
 76,823 
   
 60,398 
Cash and equivalents at June 30
 
 74,408 
   
 91,212 
     
 8,644 
   
 13,589 
   
 66,365 
   
 78,142 
Less cash and equivalents of discontinued operations
                                   
   at June 30
 
 113 
   
 159 
     
– 
   
– 
   
 113 
   
 159 
Cash and equivalents of continuing operations
                                   
   at June 30
$
 74,295 
 
$
 91,053 
   
$
 8,644 
 
$
 13,589 
 
$
 66,252 
 
$
 77,983 
                                     
                                     
(a)
(b)
Represents the adding together of all affiliated companies except General Electric Capital Corporation (GECC or Financial Services), which is presented on a one-line basis.
Represents GECC earnings from continuing operations attributable to the Company, net of GECC dividends paid to GE.
 
See accompanying notes. Separate information is shown for "GE" and "Financial Services (GECC)." Transactions between GE and GECC have been eliminated from the "Consolidated" columns and are discussed in Note 19.
 
 

 
 
(7)
 
 
 

Summary of Operating Segments
General Electric Company and consolidated affiliates
 
 
Three months ended June 30
 
Six months ended June 30
 
(Unaudited)
 
(Unaudited)
(In millions)
2012 
 
2011 
 
2012 
 
2011 
                       
Revenues(a)
                     
   Energy Infrastructure
$
 11,919 
 
$
 10,402 
 
$
 23,087 
 
$
 19,851 
   Aviation
 
 4,855 
   
 4,732 
   
 9,746 
   
 9,100 
   Healthcare
 
 4,500 
   
 4,498 
   
 8,800 
   
 8,588 
   Transportation
 
 1,565 
   
 1,231 
   
 2,835 
   
 2,134 
   Home & Business Solutions
 
 2,204 
   
 2,153 
   
 4,295 
   
 4,142 
   Total industrial segment revenues
 
 25,043 
   
 23,016 
   
 48,763 
   
 43,815 
   GE Capital
 
 11,458 
   
 12,440 
   
 22,900 
   
 25,476 
      Total segment revenues
 
 36,501 
   
 35,456 
   
 71,663 
   
 69,291 
Corporate items and eliminations(a)
 
– 
   
 167 
   
 20 
   
 4,661 
Consolidated revenues and other income
$
 36,501 
 
$
 35,623 
 
$
 71,683 
 
$
 73,952 
                       
Segment profit(a)
                     
   Energy Infrastructure
$
 1,755 
 
$
 1,552 
 
$
 3,279 
 
$
 2,933 
   Aviation
 
 922 
   
 959 
   
 1,784 
   
 1,800 
   Healthcare
 
 694 
   
 711 
   
 1,279 
   
 1,242 
   Transportation
 
 282 
   
 178 
   
 514 
   
 335 
   Home & Business Solutions
 
 91 
   
 106 
   
 157 
   
 180 
   Total industrial segment profit
 
 3,744 
   
 3,506 
   
 7,013 
   
 6,490 
   GE Capital
 
 2,122 
   
 1,615 
   
 3,914 
   
 3,405 
      Total segment profit
 
 5,866 
   
 5,121 
   
 10,927 
   
 9,895 
Corporate items and eliminations(a)
 
 (1,465)
   
 (684)
   
 (2,510)
   
 1,808 
GE interest and other financial charges
 
 (351)
   
 (321)
   
 (666)
   
 (676)
GE provision for income taxes
 
 (392)
   
 (546)
   
 (842)
   
 (4,059)
Earnings from continuing operations attributable
                     
  to the Company
 
 3,658 
   
 3,570 
   
 6,909 
   
 6,968 
Earnings (loss) from discontinued operations,
                     
  net of taxes, attributable to the Company
 
 (553)
   
 194 
   
 (770)
   
 229 
Consolidated net earnings attributable to
                     
   the Company
$
 3,105 
 
$
 3,764 
 
$
 6,139 
 
$
 7,197 
                       
                       
(a)  
Segment revenues includes both revenues and other income related to the segment. Segment profit excludes results reported as discontinued operations, earnings attributable to noncontrolling interests of consolidated subsidiaries, GECC preferred stock dividends declared and accounting changes. Segment profit excludes or includes interest and other financial charges and income taxes according to how a particular segment’s management is measured – excluded in determining segment profit, which we sometimes refer to as “operating profit,” for Energy Infrastructure, Aviation, Healthcare, Transportation and Home & Business Solutions; included in determining segment profit, which we sometimes refer to as “net earnings,” for GE Capital. Results of our run-off insurance operations previously reported in Corporate items and eliminations are now reported in GE Capital.
 
 
See accompanying notes.
 

 
(8)
 
 


 
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 (the Company) and all companies that we directly or indirectly control, either through majority ownership or otherwise. See Note 1 to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 (2011 consolidated financial statements), which discusses our consolidation and financial statement presentation. As used in this report on Form 10-Q (Report), “GE” represents the adding together of all affiliated companies except General Electric Capital Corporation (GECC or Financial Services), which is presented on a one-line basis; GECC consists of General Electric Capital Corporation and all of its affiliates; and “Consolidated” represents the adding together of GE and GECC with the effects of transactions between the two eliminated. Unless otherwise indicated, we refer to the caption revenues and other income simply as “revenues” throughout Item 1 of this Form 10-Q.

On February 22, 2012, we merged our wholly-owned subsidiary, General Electric Capital Services, Inc. (GECS), with and into GECS’ wholly-owned subsidiary, GECC.  The merger simplified our financial services’ corporate structure by consolidating financial services entities and assets within our organization and simplifying Securities and Exchange Commission and regulatory reporting. Upon completion of the merger, (i) all outstanding shares of GECC common stock were cancelled, (ii) all outstanding GECS common stock and all GECS preferred stock held by the Company were converted into an aggregate of 1,000 shares of GECC common stock, and (iii) all treasury shares of GECS and all outstanding preferred stock of GECS held by GECC were cancelled. As a result, GECC became the surviving corporation, assumed all of GECS’ rights and obligations and became wholly-owned directly by the Company.

Because we wholly-owned both GECS and GECC, the merger was accounted for as a transfer of assets between entities under common control. Transfers of net assets or exchanges of shares between entities under common control are accounted for at historical value, and as if the transfer occurred at the beginning of the period.

Our financial services segment, GE Capital, comprises the continuing operations of GECC, which includes the run-off insurance operations previously held and managed in GECS. Unless otherwise indicated, references to GECC and the GE Capital segment in this Form 10-Q Report relate to the entity or segment as they exist subsequent to the February 22, 2012 merger. In addition, during the first quarter of 2012, we announced the planned disposition of the Consumer mortgage lending business in Ireland (Consumer Ireland). This disposition is reported as a discontinued operation, which requires retrospective restatement of prior periods to classify the assets, liabilities and results of operations as discontinued operations.

On January 28, 2011, we sold the assets of our NBC Universal (NBCU) business in exchange for cash and a 49% interest in a new entity, NBCUniversal LLC (see Note 2). Results of our formerly consolidated subsidiary, NBCU, and our current equity method investment in NBCUniversal LLC (NBCU LLC) are reported in the Corporate items and eliminations line on the Summary of Operating Segments.

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

 
(9)
 
 


Accounting Changes
 
On January 1, 2012, we adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2011-05, an amendment to Accounting Standards Codification (ASC) 220, Comprehensive Income. ASU 2011-05 introduces a new statement, the Consolidated Statement of Comprehensive Income, which begins with net earnings and adds or deducts other recognized changes in assets and liabilities that are not included in net earnings, but are reported directly to equity, under GAAP.  For example, unrealized changes in currency translation adjustments are included in the measure of comprehensive income but are excluded from net earnings. The amendments became effective for the first quarter 2012 financial statements.  The amendments affect only the display of those components of equity categorized as other comprehensive income and do not change existing recognition and measurement requirements that determine net earnings.

On January 1, 2012, we adopted FASB ASU 2011-04, an amendment to ASC 820, Fair Value Measurements. ASU 2011-04 clarifies or changes the application of existing fair value measurements, including: that the highest and best use valuation premise in a fair value measurement is relevant only when measuring the fair value of nonfinancial assets; that a reporting entity should measure the fair value of its own equity instrument from the perspective of a market participant that holds that instrument as an asset; to permit an entity to measure the fair value of certain financial instruments on a net basis rather than based on its gross exposure when the reporting entity manages its financial instruments on the basis of such net exposure; that in the absence of a Level 1 input, a reporting entity should apply premiums and discounts when market participants would do so when pricing the asset or liability consistent with the unit of account; and that premiums and discounts related to size as a characteristic of the reporting entity’s holding are not permitted in a fair value measurement. Adopting these amendments had no effect on the financial statements. For a description of how we estimate fair value and our process for reviewing fair value measurements classified as Level 3 in the fair value hierarchy, see Note 1 in our 2011 consolidated financial statements.

See Note 1 in our 2011 consolidated financial statements for a summary of our significant accounting policies.

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 2011 consolidated financial statements. We label our quarterly information using a calendar convention, that is, first quarter is labeled as ending on March 31, second quarter as ending on June 30, and third quarter as ending on September 30. It is our longstanding practice to establish interim quarterly closing dates using a fiscal calendar, which requires our businesses to close their books on either a Saturday or Sunday, depending on the business. The effects of this practice are modest and only exist within a reporting year. The fiscal closing calendar from 1993 through 2013 is available on our website, www.ge.com/secreports.
 

 
(10)
 
 


 
2. ASSETS AND LIABILITIES OF BUSINESSES HELD FOR SALE AND DISCONTINUED OPERATIONS
 
Assets and Liabilities of Businesses Held for Sale
 
In the second quarter of 2012, we committed to sell a portion of our Business Properties portfolio (Business Property) in Real Estate, including certain commercial loans, the origination and servicing platforms and the servicing rights on loans previously securitized by GECC. Upon closing, we will also expect to deconsolidate substantially all Real Estate securitization entities as servicing rights related to these entities will be transferred to the buyer.

In the second quarter of 2011, we committed to sell our GE Capital Consumer business banking operations in Latvia.

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

 
At
 
June 30,
 
December 31,
(In millions)
2012
 
2011
   
           
     
Assets
 
           
     
Cash and equivalents
$
135 
 
$
149 
Financing receivables – net
 
2,794 
   
412 
Property, plant and equipment – net
 
56 
   
81 
Other
 
54 
   
69 
Assets of businesses held for sale
$
3,039 
 
$
711 
         
           
Liabilities
         
Short-term borrowings
$
223 
 
$
252 
Other
 
60 
   
93 
Liabilities of businesses held for sale
$
283 
 
$
345 

NBCU
 
On January 28, 2011, we sold the assets of our NBCU business in exchange for cash and a 49% interest in a new entity, NBCU LLC. With respect to our 49% interest in NBCU LLC, we hold redemption rights, which, if exercised, would require NBCU LLC or Comcast Corporation to purchase (either directly or indirectly) half of our ownership interest after three and a half years and the remaining half after seven years, subject to certain exceptions, conditions and limitations. Our interest in NBCU LLC also is subject to call provisions, which, if exercised, allow Comcast to purchase our interest (either directly or indirectly) at specified times subject to certain exceptions. The redemption prices for such transactions are based on a contractually specified formula, the determination of which involves valuations from two or more independent appraisers separately selected by GE and Comcast. As an input to the formula, the appraisers will determine the aggregate common equity market value of NBCU LLC following the completion of a hypothetical IPO, which is then adjusted for a control premium and a value-sharing adjustment with Comcast based on specified formulas. Differences in valuation methodologies, market comparables and various other assumptions made by the appraisers can have a significant impact on any final transaction value. See Note 2 in our 2011 consolidated financial statements for additional information related to the NBCU transaction.

At June 30, 2012 and December 31, 2011, the carrying amount of our equity investment in NBCU LLC was $18,253 million and $17,955 million, respectively, reported in the “All other assets” caption in our Condensed Statement of Financial Position. At June 30, 2012 and December 31, 2011, deferred tax liabilities related to our NBCU LLC investment were $4,960 million and $4,880 million, respectively, and were reported in the “Deferred income taxes” caption in our Condensed Statement of Financial Position.
 

 
(11)
 
 


 
Discontinued Operations
 
Discontinued operations primarily comprised GE Money Japan (our Japanese personal loan business, Lake, and our Japanese mortgage and card businesses, excluding our investment in GE Nissen Credit Co., Ltd.), our U.S. mortgage business (WMC), our U.S. recreational vehicle and marine equipment financing business (Consumer RV Marine), Consumer Mexico, Consumer Singapore, our Consumer home lending operations in Australia and New Zealand (Australian Home Lending) and Consumer Ireland. Associated results of operations, financial position and cash flows are separately reported as discontinued operations for all periods presented.

Summarized financial information for discontinued operations is shown below.
 
 
Three months ended June 30
 
Six months ended June 30
(In millions)
 
2012
   
2011 
   
2012
   
2011 
                       
Operations
                     
Total revenues
$
(348)
 
$
124 
 
$
(349)
 
$
331 
                       
Earnings (loss) from discontinued operations
                     
   before income taxes
$
(380)
 
$
(39)
 
$
(438)
 
$
(39)
Benefit (provision) for income taxes
 
121 
   
37 
   
127 
   
33 
Earnings (loss) from discontinued operations,
                     
   net of taxes
$
(259)
 
$
(2)
 
$
(311)
 
$
(6)
                       
Disposal
                     
Gain (loss) on disposal before income taxes
$
(308)
 
$
(52)
 
$
(502)
 
$
(41)
Benefit (provision) for income taxes
 
14 
   
248 
   
43 
   
276 
Gain (loss) on disposal, net of taxes
$
(294)
 
$
196 
 
$
(459)
 
$
235 
                       
Earnings (loss) from discontinued operations,
                     
   net of taxes(a)
$
(553)
 
$
194 
 
$
(770)
 
$
229 
                       
                       
(a)
GECC earnings (loss) from discontinued operations, net of taxes, is presented combined with GE earnings (loss) from discontinued operations, net of taxes, on the Condensed Statement of Earnings.
 


 
At
 
June 30,
 
December 31,
(In millions)
2012 
 
2011 
           
Assets
         
Cash and equivalents
$
113 
 
$
121 
Financing receivables – net
 
234 
   
521 
Other
 
1,143 
   
1,079 
Assets of discontinued operations
$
1,490 
 
$
1,721 
           
Liabilities
         
Deferred income taxes
$
230 
 
$
205 
Other
 
1,710 
   
1,424 
Liabilities of discontinued operations
$
1,940 
 
$
1,629 


Assets at June 30, 2012 and December 31, 2011 primarily comprised cash, financing receivables and a deferred tax asset for a loss carryforward, which expires principally in 2017 and in part in 2019, related to the sale of our GE Money Japan business.
 

 
(12)
 
 


GE Money Japan
 
During the third quarter of 2007, we committed to a plan to sell our Japanese personal loan business, Lake, upon determining that, despite restructuring, Japanese regulatory limits for interest charges on unsecured personal loans did not permit us to earn an acceptable return. During the third quarter of 2008, we completed the sale of GE Money Japan, which included Lake, along with our Japanese mortgage and card businesses, excluding our investment in GE Nissen Credit Co., Ltd. In connection with the sale, we reduced the proceeds from the sale for estimated interest refund claims in excess of the statutory interest rate. Proceeds from the sale were to be increased or decreased based on the actual claims experienced in accordance with loss-sharing terms specified in the sale agreement, with all claims in excess of 258 billion Japanese yen (approximately $3,000 million) remaining our responsibility. The underlying portfolio to which this obligation relates is in runoff and interest rates were capped for all designated accounts by mid-2009. In the third quarter of 2010, we began making reimbursements under this arrangement.

Our overall claims experience developed unfavorably through 2010. We believe that the level of excess interest refund claims was impacted by the challenging global economic conditions, in addition to Japanese legislative and regulatory changes. In September 2010, a large independent personal loan company in Japan filed for bankruptcy, which precipitated a significant amount of publicity surrounding excess interest refund claims in the Japanese marketplace, along with substantial legal advertising. We observed an increase in claims during the latter part of 2010 and the first two months of 2011. Since February and through the end of 2011, we experienced substantial declines in the rate of incoming claims, though the overall rate of reduction was slower than we expected. The September 2010 bankruptcy filing referenced above had a significant effect on the pace of incoming claim declines and it is difficult to predict the pace and pattern at which claims will continue to decelerate.  During the first half of 2012, we recorded increases to our reserve of $336 million to reflect an excess of claims activity over our previous estimates and, based on recent experience, revisions to our assumptions about the level of future claim activity. We continue to closely monitor and evaluate claims activity. At June 30, 2012, our reserve for reimbursement of claims in excess of the statutory interest rate was $695 million.

The amount of these reserves is based on analyses of recent and historical claims experience, pending and estimated future excess interest refund requests, the estimated percentage of customers who present valid requests, and our estimated payments related to those requests. Our estimated liability for excess interest refund claims at June 30, 2012 assumes the pace of incoming claims will continue to decelerate, average exposure per claim remains consistent with recent experience, and we continue to see the impact of loss mitigation efforts. Estimating the pace and pattern of decline in incoming claims has a significant effect on the total amount of our liability. While the pace of incoming claims continues to decline, it is highly variable and difficult to predict. Holding all other assumptions constant, for example, adverse changes of 20% and 50% in assumed incoming daily claim rate reduction would result in an increase to our reserves of approximately $100 million and $350 million, respectively.

Uncertainties about the likelihood of consumers to present valid claims, the runoff status of the underlying book of business, the financial status of other personal lending companies in Japan, challenging economic conditions and the impact of laws and regulations make it difficult to develop a meaningful estimate of the aggregate possible claims exposure. Additionally, the Japanese government is currently considering the introduction of proposed legislation to develop a framework for collective legal action proceedings. Recent trends, including the effect of consumer activity, market activity regarding other personal loan companies, higher claims severity and potential Japanese legislative actions, may continue to have an adverse effect on claims development.

GE Money Japan losses from discontinued operations, net of taxes, were $327 million and an insignificant amount in the three months ended June 30, 2012 and 2011, respectively, and $354 million and $1 million in the six months ended June 30, 2012 and 2011, respectively.
 

 
(13)
 
 


WMC
 
During the fourth quarter of 2007, we completed the sale of WMC, our U.S. mortgage business. WMC substantially discontinued all new loan originations by the second quarter of 2007, and is not a loan servicer. In connection with the sale, WMC retained certain representation and warranty obligations related to loans sold to third parties prior to the disposal of the business and contractual obligations to repurchase previously sold loans as to which there was an early payment default. All claims received by WMC for early payment default have either been resolved or are no longer being pursued.
 
Pending repurchase claims based upon representations and warranties made in connection with loan sales were $2,731 million at June 30, 2012, $705 million at December 31, 2011 and $347 million at December 31, 2010. Pending claims represent those active repurchase claims that identify the specific loans tendered for repurchase and, for each loan, the alleged breach of a representation or warranty. The amounts reported reflect the purchase price or unpaid principal balances of the loans at the time of purchase and do not give effect to pay downs, accrued interest or fees, or potential recoveries based upon the underlying collateral.  Historically, a small percentage of the total loans WMC originated and sold has been tendered for repurchase, and of those loans tendered, only a limited amount has qualified as “validly tendered,” meaning the loans sold did not satisfy contractual obligations.  The increase in loan repurchase claims in the second quarter was driven by an increase in activity by securitization trustees and certain investors in residential mortgage-backed securities issued beginning in the second quarter of 2006, and, we believe, may reflect applicable statutes of limitations considerations.  

WMC is a party to nine lawsuits involving repurchase claims on loans included in six private-label securitizations. Seven of these actions were commenced in the second quarter of 2012, one was commenced in July 2012 and one began in the third quarter of 2011. Five of the actions were initiated by WMC.  Adverse to WMC in these cases are affiliates of either Deutsche Bank National Trust Company (Deutsche Bank) or US Bank National Association, solely in their capacity as trustees for the securitization trusts at issue in the cases.  In two actions commenced by Deutsche Bank, it purports to assert approximately $850 million of claims beyond those included in WMC’s previously discussed pending claims at June 30, 2012, based on loan sampling. WMC intends to defend itself vigorously.

Reserves related to contractual representations and warranties were $491 million and $140 million at June 30, 2012 and March 31, 2012, respectively, and reflect an increase to reserves in the second quarter of 2012 of $351 million due to higher pending claims and an increase in estimated future loan repurchase requests.  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 WMC’s historical loss rates on loans repurchased.  Assuming a 10% increase in our estimated loss rate and 50% increases to our estimates of future loan repurchase requests and estimated percentage of loans repurchased would result in an increase to our reserves of approximately $500 million.  Our reserve reflects our judgment, based on currently available information, and a number of assumptions, including economic conditions, claim activity, pending and threatened litigation and indemnification demands, and other activity in the mortgage industry.

Uncertainties surrounding economic conditions, the ability and propensity of mortgage holders to present valid claims, governmental actions, pending and threatened litigation against WMC, including increased activity by securitization trustees, indemnification demands and other activity in the mortgage industry make it difficult to develop a meaningful estimate of aggregate possible claims exposure.  Actual losses could exceed the reserve amount if actual claim rates, governmental actions, litigation and indemnification activity, or losses WMC incurs on repurchased loans differ from our assumptions.

WMC revenues (loss) from discontinued operations were $(351) million and an insignificant amount in the three months ended June 30, 2012 and 2011, respectively, and $(358) million and an insignificant amount in the six months ended June 30, 2012 and 2011, respectively. In total, WMC’s losses from discontinued operations, net of taxes, were $227 million and $1 million in the three months ended June 30, 2012 and 2011, respectively, and $236 million and $3 million in the six months ended June 30, 2012 and 2011, respectively.
 

 
(14)
 
 


Other Financial Services
 
In the first quarter of 2012, we announced the planned disposition of Consumer Ireland and classified the business as discontinued operations.  Consumer Ireland revenues from discontinued operations were $2 million and $4 million in the three months ended June 30, 2012 and 2011, respectively, and $6 million and $8 million in the six months ended June 30, 2012 and 2011, respectively. Consumer Ireland earnings (loss) from discontinued operations, net of taxes, were $2 million and $(23) million in the three months ended June 30, 2012 and 2011, respectively, and $(186) million (including a $131 million loss on disposal) and $(44) million in the six months ended June 30, 2012 and 2011, respectively.

In the second quarter of 2011, we entered into an agreement to sell our Australian Home Lending operations and classified it as discontinued operations.  As a result, we recognized an after-tax loss of $148 million in 2011.  We completed the sale in the third quarter of 2011 for proceeds of approximately $4,577 million.  Australian Home Lending revenues from discontinued operations were an insignificant amount and $101 million in the three months ended June 30, 2012 and 2011, respectively, and $1 million and $215 million in the six months ended June 30, 2012 and 2011, respectively. Australian Home Lending earnings (loss) from discontinued operations, net of taxes, were an insignificant amount and $(117) million in the three months ended June 30, 2012 and 2011, respectively, and $2 million and $(80) million in the six months ended June 30, 2012 and 2011, respectively.

In the first quarter of 2011, we entered into an agreement to sell our Consumer Singapore business for $692 million. The sale was completed in the second quarter of 2011 and resulted in the recognition of a gain on disposal, net of taxes, of $319 million. Consumer Singapore revenues from discontinued operations were $1 million and $2 million in the three months ended June 30, 2012 and 2011, respectively, and $1 million and $31 million in the six months ended June 30, 2012 and 2011, respectively. Consumer Singapore earnings from discontinued operations, net of taxes, were $1 million and $319 million in the three months ended June 30, 2012 and 2011, respectively, and $1 million and $326 million in the six months ended June 30, 2012 and 2011, respectively.

In the fourth quarter of 2010, we entered into agreements to sell our Consumer RV Marine portfolio and Consumer Mexico business. The Consumer RV Marine and Consumer Mexico dispositions were completed during the first quarter and the second quarter of 2011, respectively, for proceeds of $2,365 million and $1,943 million, respectively. Consumer RV Marine revenues from discontinued operations were an insignificant amount and $6 million in the three months ended June 30, 2012 and 2011, respectively, and an insignificant amount and $11 million in the six months ended June 30, 2012 and 2011, respectively. Consumer RV Marine earnings from discontinued operations, net of taxes, were $1 million and $2 million in the three months ended June 30, 2012 and 2011, respectively, and an insignificant amount and $2 million in the six months ended June 30, 2012 and 2011, respectively. Consumer Mexico revenues (losses) from discontinued operations were $(1) million and $12 million in the three months ended June 30, 2012 and 2011, respectively, and an insignificant amount and $67 million in the six months ended June 30, 2012 and 2011, respectively. Consumer Mexico earnings (loss) from discontinued operations, net of taxes, were $(2) million and $17 million in the three months ended June 30, 2012 and 2011, respectively, and $(4) million and $33 million in the six months ended June 30, 2012 and 2011, respectively.


 
(15)
 
 


3. INVESTMENT SECURITIES
 
Substantially all of our investment securities are classified as available-for-sale. These comprise mainly investment grade debt securities supporting obligations to annuitants, policyholders and holders of guaranteed investment contracts (GICs) in our run-off insurance operations and Trinity, investment securities at our treasury operations and investments held in our Commercial Lending and Leasing (CLL) business collateralized by senior secured loans of high-quality, middle-market companies in a variety of industries. We do not have any securities classified as held to maturity.
 
 
At
 
June 30, 2012
 
December 31, 2011
     
Gross
 
Gross
         
Gross
 
Gross
   
 
Amortized
 
unrealized
 
unrealized
 
Estimated
 
Amortized
 
unrealized
 
unrealized
 
Estimated
(In millions)
cost
 
gains
 
losses
 
fair value
 
cost
 
gains
 
losses
 
fair value
                                               
GE
                                             
   Debt – U.S. corporate
$
 
$
– 
 
$
– 
 
$
 
$
– 
 
$
– 
 
$
– 
 
$
– 
   Equity – available-for-sale
 
27 
   
– 
   
– 
   
27 
   
18 
   
– 
   
– 
   
18 
   
28 
   
– 
   
– 
   
28 
   
18 
   
– 
   
– 
   
18 
GECC
                                             
Debt
                                             
      U.S. corporate
 
20,994 
   
4,003 
   
(327)
   
24,670 
   
20,748 
   
3,432 
   
(410)
   
23,770 
      State and municipal
 
3,436 
   
463 
   
(130)
   
3,769 
   
3,027 
   
350 
   
(143)
   
3,234 
      Residential mortgage-
                                             
         backed(a)
 
2,440 
   
195 
   
(198)
   
2,437 
   
2,711 
   
184 
   
(286)
   
2,609 
      Commercial mortgage-backed
 
3,060 
   
171 
   
(180)
   
3,051 
   
2,913 
   
162 
   
(247)
   
2,828 
      Asset-backed
 
5,269 
   
   
(148)
   
5,129 
   
5,102 
   
32 
   
(164)
   
4,970 
      Corporate – non-U.S.
 
2,592 
   
140 
   
(168)
   
2,564 
   
2,414 
   
126 
   
(207)
   
2,333 
      Government – non-U.S.
 
1,792 
   
137 
   
(30)
   
1,899 
   
2,488 
   
129 
   
(86)
   
2,531 
      U.S. government and federal
                                             
         agency
 
3,412 
   
90 
   
– 
   
3,502 
   
3,974 
   
84 
   
– 
   
4,058 
   Retained interests
 
28 
   
   
– 
   
31 
   
25 
   
10 
   
– 
   
35 
   Equity
                                             
      Available-for-sale
 
502 
   
98 
   
(6)
   
594 
   
713 
   
75 
   
(38)
   
750 
      Trading
 
260 
   
– 
   
– 
   
260 
   
241 
   
– 
   
– 
   
241 
   
43,785 
   
5,308 
   
(1,187)
   
47,906 
   
44,356 
   
4,584 
   
(1,581)
   
47,359 
Eliminations
 
(3)
   
– 
   
– 
   
(3)
   
(3)
   
– 
   
– 
   
(3)
Total
$
43,810 
 
$
5,308 
 
$
(1,187)
 
$
47,931 
 
$
44,371 
 
$
4,584 
 
$
(1,581)
 
$
47,374 
                                               
                                               
(a)
Substantially collateralized by U.S. mortgages. Of our total residential mortgage-backed securities (RMBS) portfolio at June 30, 2012, $1,626 million relates to securities issued by government-sponsored entities and $811 million relates to securities of private label issuers. Securities issued by private label issuers are collateralized primarily by pools of individual direct mortgage loans of financial institutions.
 


The fair value of investment securities increased to $47,931 million at June 30, 2012, from $47,374 million at December 31, 2011, primarily due to the impact of lower interest rates and additional purchases in our CLL business of investments collateralized by senior secured loans of high-quality, middle-market companies in a variety of industries.
 

 
(16)
 
 


The following tables present the estimated fair values and gross unrealized losses of our available-for-sale investment securities.
 
 
In loss position for
 
 
Less than 12 months
 
12 months or more
 
     
Gross
     
Gross
 
 
Estimated
 
unrealized
 
Estimated
 
unrealized
 
(In millions)
fair value
 
losses
(a)
fair value
 
losses
(a)
                         
June 30, 2012
                       
Debt
                       
   U.S. corporate
$
365 
 
$
(16)
 
$
1,121 
 
$
(311)
 
   State and municipal
 
71 
   
(1)
   
233 
   
(129)
 
   Residential mortgage-backed
 
26 
   
– 
   
752 
   
(198)
 
   Commercial mortgage-backed
 
268 
   
(7)
   
1,057 
   
(173)
 
   Asset-backed
 
4,136 
   
(27)
   
792 
   
(121)
 
   Corporate – non-U.S.
 
488 
   
(31)
   
571 
   
(137)
 
   Government – non-U.S.
 
196 
   
(1)
   
171 
   
(29)
 
   U.S. government and federal agency
 
– 
   
– 
   
– 
   
– 
 
Retained interests
 
   
– 
   
– 
   
– 
 
Equity
 
64 
   
(5)
   
   
(1)
 
Total
$
5,616 
 
$
(88)
 
$
4,704 
 
$
(1,099)
 
                         
December 31, 2011
                       
Debt
                       
   U.S. corporate
$
1,435 
 
$
(241)
 
$
836 
 
$
(169)
 
   State and municipal
 
87 
   
(1)
   
307 
   
(142)
 
   Residential mortgage-backed
 
219 
   
(9)
   
825 
   
(277)
 
   Commercial mortgage-backed
 
244 
   
(23)
   
1,320 
   
(224)
 
   Asset-backed
 
100 
   
(7)
   
850 
   
(157)
 
   Corporate – non-U.S.
 
330 
   
(28)
   
607 
   
(179)
 
   Government – non-U.S.
 
906 
   
(5)
   
203 
   
(81)
 
   U.S. government and federal agency
 
502 
   
– 
   
– 
   
– 
 
Retained interests
 
– 
   
– 
   
– 
   
– 
 
Equity
 
440 
   
(38)
   
– 
   
– 
 
Total
$
4,263 
 
$
(352)
 
$
4,948 
 
$
(1,229)
 
                         
                         
(a)  
Includes gross unrealized losses at June 30, 2012 of $(200) million related to securities that had other-than-temporary impairments previously recognized.
 

 
We regularly review investment securities for impairment using both qualitative and quantitative criteria. We presently do not intend to sell the vast majority of our debt securities that are in an unrealized loss position and believe that it is not more likely than not that we will be required to sell these securities before recovery of our amortized cost. We believe that the unrealized loss associated with our equity securities will be recovered within the foreseeable future. The methodologies and significant inputs used to measure the amount of credit loss for our investment securities during the six months ended June 30, 2012 have not changed from those described in our 2011 consolidated financial statements. See Note 3 in our 2011 consolidated financial statements for additional information regarding these methodologies and inputs.
 
 
During the second quarter of 2012, we recorded pre-tax, other-than-temporary impairments of $33 million, of which $32 million was recorded through earnings ($16 million relates to equity securities) and $1 million was recorded in accumulated other comprehensive income (AOCI). At April 1, 2012, cumulative impairments recognized in earnings associated with debt securities still held were $602 million. During the second quarter, we recognized first-time impairments of $3 million and incremental charges on previously impaired securities of $6 million. These amounts included $33 million related to securities that were subsequently sold.
 

 
(17)
 
 


During the second quarter of 2011, we recorded pre-tax, other-than-temporary impairments of $113 million, of which $54 million was recorded through earnings ($5 million relates to equity securities) and $59 million was recorded in AOCI. At April 1, 2011, cumulative impairments recognized in earnings associated with debt securities still held were $536 million. During the second quarter of 2011, we recognized first-time impairments of $19 million and incremental charges on previously impaired securities of $24 million. These amounts included $18 million related to securities that were subsequently sold.
 
During the six months ended June 30, 2012, we recorded pre-tax, other-than-temporary impairments of $65 million, of which $64 million was recorded through earnings ($23 million relates to equity securities) and $1 million was recorded in AOCI. At January 1, 2012, cumulative impairments recognized in earnings associated with debt securities still held were $726 million. During the six months ended June 30, 2012, we recognized first-time impairments of $10 million and incremental charges on previously impaired securities of $11 million. These amounts included $169 million related to securities that were subsequently sold.

During the six months ended June 30, 2011, we recorded pre-tax, other-than-temporary impairments of $184 million, of which $118 million was recorded through earnings ($10 million relates to equity securities) and $66 million was recorded in AOCI. At January 1, 2011, cumulative impairments recognized in earnings associated with debt securities still held were $500 million. During the six months ended June 30, 2011, we recognized first-time impairments of $20 million and incremental charges on previously impaired securities of $81 million. These amounts included $41 million related to securities that were subsequently sold.

Contractual Maturities of GECC Investment in Available-for-Sale Debt Securities (Excluding Mortgage-Backed and Asset-Backed Securities)
         
 
 
Amortized
 
Estimated
(In millions)
cost
 
fair value
           
Due in
         
   2012
$
 2,082 
 
$
 2,112 
   2013-2016
 
 7,450 
   
 7,447 
   2017-2021
 
 9,080 
   
 10,591 
   2022 and later
 
 13,607 
   
 16,247 
           


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

Supplemental information about gross realized gains and losses on available-for-sale investment securities follows.
 
 
Three months ended June 30
 
Six months ended June 30
(In millions)
2012 
 
2011 
 
2012 
 
2011 
                       
GE
                     
Gains
$
– 
 
$
– 
 
$
– 
 
$
– 
Losses, including impairments
 
– 
   
– 
   
– 
   
– 
Net
 
– 
   
– 
   
– 
   
– 
                       
GECC
                     
Gains
 
 21 
   
 45 
   
 59 
   
 161 
Losses, including impairments
 
 (34)
   
 (56)
   
 (104)
   
 (127)
Net
 
 (13)
   
 (11)
   
 (45)
   
 34 
Total
$
 (13)
 
$
 (11)
 
$
 (45)
 
$
 34 


 
(18)
 
 


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

Proceeds from investment securities sales and early redemptions by issuers totaled $2,742 million and $4,833 million in the second quarters of 2012 and 2011, respectively, and $6,504 million and $9,972 million in the six months ended June 30, 2012 and 2011, respectively, principally from the sales of short-term securities in our bank subsidiaries and treasury operations.

We recognized pre-tax gains on trading securities of $13 million and $52 million in the second quarters of 2012 and 2011, respectively, and $36 million and $55 million in the six months ended June 30, 2012 and 2011, respectively.


4. INVENTORIES
 
At
 
June 30,
 
December 31,
(In millions)
2012 
 
2011 
           
Raw materials and work in process
$
9,404 
 
$
8,735 
Finished goods
 
6,200 
   
5,022 
Unbilled shipments
 
274 
   
485 
   
15,878 
   
14,242 
Less revaluation to LIFO
 
(438)
   
(450)
Total
$
15,440 
 
$
13,792 


5. GECC FINANCING RECEIVABLES AND ALLOWANCE FOR LOSSES ON FINANCING RECEIVABLES
 
 
At
 
June 30,
 
December 31,
(In millions)
2012
 
2011 
           
Loans, net of deferred income(a)
$
243,625 
 
$
256,895 
Investment in financing leases, net of deferred income
 
35,564 
   
38,142 
   
279,189 
   
295,037 
Less allowance for losses
 
(5,205)
   
(6,190)
Financing receivables – net(b)
$
273,984 
 
$
288,847 
           
           
(a)  
Deferred income was $2,197 million and $2,329 million at June 30, 2012 and December 31, 2011, respectively.
 
(b)  
Financing receivables at June 30, 2012 and December 31, 2011 included $895 million and $1,062 million, respectively, of loans that were acquired in a transfer but have been subject to credit deterioration since origination per ASC 310, Receivables.
 

 
(19)
 
 



The following tables provide additional information about our financing receivables and related activity in the allowance for losses for our Commercial, Real Estate and Consumer portfolios.

Financing Receivables – net
 
 
At
 
June 30,
 
December 31,
(In millions)
2012
 
2011 
           
Commercial
         
CLL
         
Americas
$
77,241 
 
$
80,505 
Europe
 
34,722 
   
36,899 
Asia
 
11,313 
   
11,635 
Other
 
711 
   
436 
Total CLL
 
123,987 
   
129,475 
           
Energy Financial Services
 
5,159 
   
5,912 
           
GE Capital Aviation Services (GECAS)
 
12,046 
   
11,901 
           
Other
 
587 
   
1,282 
Total Commercial financing receivables
 
141,779 
   
148,570 
           
Real Estate
         
Debt
 
22,409 
   
24,501 
Business Properties
 
5,301 
   
8,248 
Total Real Estate financing receivables
 
27,710 
   
32,749 
           
Consumer