Note 2: Discontinued Operations
We classified our Japanese personal loan business (Lake), 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) as discontinued operations. Associated results of operations, financial position and cash flows are separately reported for all periods presented.
WMC
In December 2007, we completed the sale of our U.S. mortgage business for $117 million in cash. In connection with the transaction, certain contractual obligations and potential liabilities related to previously sold loans were retained. We sold this business because of continued pressures in the U.S. subprime mortgage industry. As a result, we recognized an after-tax loss of $62 million during 2007. WMC revenues from discontinued operations were ($1,424) million, $536 million and $607 million in 2007, 2006 and 2005, respectively. In total, WMC’s loss from discontinued operations, net of taxes, was $987 million in 2007, compared with earnings of $29 million and $122 million in 2006 and 2005, respectively.
Lake
In September 2007, we committed to a plan to sell our Lake business. We made the decision to sell this business upon determining that, despite restructuring, Japanese regulatory limits for interest charges on unsecured personal loans did not permit us to earn an acceptable return. We are actively pursuing a buyer and expect to complete the sale of this business by the end of the third quarter of 2008. In connection with this exit, we recorded an after-tax loss of $908 million in 2007, which represents the difference between the net book value of our Lake business and the projected sale price. Lake revenues from discontinued operations were $1,056 million, $1,440 million and $1,737 million in 2007, 2006 and 2005, respectively. In total, Lake’s loss from discontinued operations, net of taxes, was $1,231 million in 2007, compared with earnings of $211 million and $401 million in 2006 and 2005, respectively.
Plastics and Advanced Materials
In August 2007, we completed the sale of our Plastics business to Saudi Basic Industries Corporation for $11,577 million in cash. We sold this business because of its cyclicality, rising costs of natural gas and raw materials, and the decision to redeploy capital resources into higher-growth businesses. Also, during the fourth quarter of 2006, we sold our Advanced Materials business. As a result of these sales, we recognized after-tax gains of $1,578 million and $441 million during 2007 and 2006, respectively. Plastics and Advanced Materials revenues from discontinued operations were $4,286 million, $8,795 million and $8,882 million in 2007, 2006 and 2005, respectively. In total, Plastics and Advanced Materials earnings from discontinued operations, net of taxes, were $1,867 million, $959 million and $793 million in 2007, 2006 and 2005, respectively.
GE Life
In December 2006, we completed the sale of GE Life, our U.K.-based life insurance operation, to Swiss Reinsurance Company (Swiss Re) for $910 million. As a result, we recognized after-tax losses of $3 million and $267 million during 2007 and 2006, respectively. GE Life revenues from discontinued operations were $2,096 million and $2,286 million in 2006 and 2005, respectively. In total, GE Life losses from discontinued operations, net of taxes, were $3 million, $178 million and $28 million in 2007, 2006 and 2005, respectively.
GE Insurance Solutions
In June 2006, we completed the sale of the property and casualty insurance and reinsurance businesses and the European life and health operations of GE Insurance Solutions to Swiss Re for $9,297 million, including the assumption of $1,700 million of debt. We received $5,359 million in cash and $2,238 million of newly issued Swiss Re common stock, representing a 9% interest in Swiss Re. As a result of the exit, we recognized earnings of $16 million in 2007, compared with losses of $134 million and $934 million in 2006 and 2005, respectively. GE Insurance Solutions revenues from discontinued operations were $2,815 million and $7,451 million in 2006 and 2005, respectively. In total, GE Insurance Solutions earnings from discontinued operations, net of taxes, were $15 million and $148 million in 2007 and 2006, respectively, compared with a loss of $2,850 million in 2005.
Genworth
In March 2006, we completed the sale of our remaining 18% investment in Genworth through a secondary public offering of 71 million shares of Class A Common Stock and direct sale to Genworth of 15 million shares of Genworth Class B Common Stock. As a result of initial and secondary public offerings, we recognized after-tax gains of $85 million (primarily from a tax adjustment related to the 2004 initial public offering), $220 million and $552 million in 2007, 2006 and 2005, respectively. Genworth revenues from discontinued operations were $5 million and $7,908 million in 2006 and 2005, respectively. In total, Genworth earnings from discontinued operations, net of taxes, were $79 million, $193 million and $928 million in 2007, 2006 and 2005, respectively.
Summarized financial information for discontinued GE industrial operations is shown below.
| (In millions) | 2007 | 2006 | 2005 |
|---|---|---|---|
| OPERATIONS | |||
| Total revenues | $ 4,286 | $ 8,795 | $ 8,882 |
| Earnings from discontinued operations before income taxes | $ 233 | $ 577 | $ 875 |
| Income tax benefit (expense) | 56 | (59) | (82) |
| Earnings from discontinued operations before disposal, net of taxes | $ 289 | $ 518 | $ 793 |
| DISPOSAL | |||
| Gain on disposal before income taxes | $ 2,362 | $ 357 | $ — |
| Income tax benefit (expense) | (784) | 84 | — |
| Gain on disposal, net of taxes | $ 1,578 | $ 441 | $ — |
| EARNINGS FROM DISCONTINUED OPERATIONS, NET OF TAXES | $ 1,867 | $ 959 | $ 793 |
| December 31 (In millions) | 2007 | 2006 |
|---|---|---|
| ASSETS | ||
| Inventories | $ — | $ 1,447 |
| Property, plant and equipment — net | 9 | 4,063 |
| Intangible assets — net | — | 2,081 |
| Other | 57 | 1,165 |
| Assets of discontinued operations | $ 66 | $ 8,756 |
| LIABILITIES | ||
| Accounts payable, principally trade accounts | $ — | $ 944 |
| Other GE current liabilities | 146 | 594 |
| Other | 156 | 701 |
| Liabilities of discontinued operations | $ 302 | $ 2,239 |
Summarized financial information for discontinued GECS operations is shown below.
| (In millions) | 2007 | 2006 | 2005 |
|---|---|---|---|
| OPERATIONS | |||
| Total revenues | $ (368) | $ 6,892 | $ 19,989 |
| Earnings (loss) from discontinued operations before income taxes | $ (2,211) | $ 599 | $ (1,457) |
| Income tax benefit (expense) | 956 | (15) | 412 |
| Earnings (loss) from discontinued operations before disposal, net of taxes | $ (1,255) | $ 584 | $ (1,045) |
| DISPOSAL | |||
| Gain (loss) on disposal before income taxes | $ (1,510) | $ (75) | $ 629 |
| Income tax benefit (expense) | 638 | (106) | (1,011) |
| Loss on disposal, net of taxes | $ (872) | $ (181) | $ (382) |
| EARNINGS (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAXES | $ (2,127) | $ 403 | $ (1,427) |
| December 31 (In millions) | 2007 | 2006 |
|---|---|---|
| ASSETS | ||
| Cash and equivalents | $ 284 | $ 177 |
| Financing receivables — net | 5,138 | 5,643 |
| All other assets | 115 | 4,823 |
| Other | 1,166 | 476 |
| Assets of discontinued operations | $ 6,703 | $ 11,119 |
| LIABILITIES | ||
| Liabilities of discontinued operations | $ 1,526 | $ 485 |
Assets and liabilities at December 31, 2007, were primarily at our Lake business.