BSE

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 
WASHINGTON, D.C. 20549
 
FORM 10-Q/A
Amendment No. 1 to Form 10-Q

(Mark One)
 
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2006
 
OR
 
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ____ to ____
 
Commission file number 1-35
 
GENERAL ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer þ
 
Accelerated filer ¨
 
Non-accelerated filer ¨
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No þ
 
There were 10,398,398,000 shares of common stock with a par value of $0.06 per share outstanding at March 31, 2006.
 



(1)





General Electric Company
 
   
Page
     
Explanatory Note
 
3
     
Part I - Financial Information
   
   
 
Item 1. Financial Statements
   
 
7
 
8
 
9
 
10
 
11
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
25
Item 4. Controls and Procedures
 
36
     
Part II - Other Information
   
     
Item 1. Legal Proceedings
 
37
Item 2. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
 
37
Item 6. Exhibits
 
38
 
39
 
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 “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” or “will.” Forward-looking statements by their nature address matters that are, to different degrees, uncertain. For us, particular uncertainties which could adversely or positively affect our future results include: the behavior of financial markets, including fluctuations in interest rates and commodity prices; strategic actions, including 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; unanticipated loss development in our insurance businesses; and numerous other matters of national, regional and global scale, including those of a political, economic, business, competitive and regulatory 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)


Explanatory Note
 
Overview
 
General Electric Company (GE) is filing this amendment to its Quarterly Reports on Form 10-Q for the period ended March 31, 2006, to amend and restate financial statements and other financial information for the three months ended March 31, 2006 and 2005. The restatement adjusts our accounting for interest rate swap transactions related to a portion of the commercial paper issued by General Electric Capital Corporation (GECC) and General Electric Capital Services, Inc. (GECS), each wholly-owned subsidiaries of GE, from January 1, 2001, the date we adopted Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. The restatement has no effect on our cash flows or liquidity, and its effects on our financial position at the ends of the respective restated periods are immaterial. We have not found that any of our hedge positions were inconsistent with our risk management policies or economic objectives.
 
For the three and three months ended March 31, 2006 and 2005, this non-cash restatement had the following earnings effects:
 
 
Effects of Correction
 
 
Three months ended
March 31
 
(In millions)
2006
 
2005
 
             
Increase (decrease) in earnings from
           
continuing operations
$
135
 
$
225
 

 
Background
 
As previously disclosed, the Boston Office of the U.S. Securities and Exchange Commission (SEC) is conducting a formal investigation of our application of SFAS 133. In the course of that investigation, the SEC Enforcement staff raised certain concerns about our accounting for the use of interest rate swaps to fix certain otherwise variable interest costs in a portion of our commercial paper program at GECC and GECS. The SEC Enforcement staff referred such concerns to the Office of Chief Accountant. We and our auditors determined that our accounting for the commercial paper hedging program satisfied the requirements of SFAS 133 and conveyed our views to the staff of the Office of Chief Accountant. Following our discussions, however, the Office of Chief Accountant communicated its view to us that our commercial paper hedging program as structured did not meet the SFAS 133 specificity requirement.
 

(3)


After considering the staff’s view, management recommended to the Audit Committee of our Board of Directors that previously reported financial results be restated to eliminate hedge accounting for the interest rate swaps entered into as part of our commercial paper hedging program from January 1, 2001. The Audit Committee discussed and agreed with this recommendation. At a meeting on January 18, 2007, the Board of Directors adopted the recommendation of the Audit Committee and determined that previously reported results for GE should be restated and, therefore, that the previously filed financial statements and other financial information referred to above should not be relied upon. The restatement resulted from a material weakness in internal control over financial reporting, namely, that we did not have adequately designed procedures to designate, with the specificity required under SFAS 133, each hedged commercial paper transaction.
 
As of January 1, 2007, we modified our commercial paper hedging program and adopted documentation for interest rate swaps that we believe complies with the requirements of SFAS 133 and remediated the related internal control weakness.
 
The SEC investigation into our application of SFAS 133 and hedge accounting is continuing. We continue to cooperate fully.
 
Amendment to this Form 10-Q
 
The following sections of this Form 10-Q have been revised to reflect the restatement: Part I - Item 1 - Financial Statements, - Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations, and - Item 4 - Controls and Procedures; and Part II - Item 6 - Exhibits are revised in this filing to reflect the restatement. Except to the extent relating to the restatement of our financial statements and other financial information described above, the financial statements and other disclosure in this Form 10-Q do not reflect any events that have occurred after this Form 10-Q was initially filed on April 26, 2006.
 
Effects of Restatement
 
The following tables set forth the effects of the restatement relating to the aforementioned hedge accounting on affected line items within our previously reported Statements of Earnings for the three months ended March 31, 2006 and 2005. The restatement has no effect on our cash flows or liquidity, and its effects on our financial position at the ends of the respective restated periods are immaterial.
 

(4)


Effects on Statements of Earnings
 
Income (expense)
(In millions; per share amounts in dollars)
Three months ended
March 31
 
 
2006
 
2005
 
             
Consolidated
           
Commercial paper interest rate swap
           
adjustment (note 1) (a)
$
208
 
$
358
 
Interest and other financial charges
 
13
   
12
 
Earnings from continuing operations before
           
income taxes
 
221
   
370
 
Provision for income taxes
 
(86
)
 
(145
)
Earnings from continuing operations
 
135
   
225
 
Net earnings
 
135
   
225
 

(a)
Included in total revenues.

 
 
Three months ended
March 31
 
 
2006
 
2005
 
Per share amounts - earnings from continuing
           
operations
           
Diluted, as reported
$
0.39
 
$
0.33
 
Adjustment
 
0.01
   
0.03
 
Diluted, as restated
$
0.40
 
$
0.36
 
             
Basic, as reported
$
0.39
 
$
0.34
 
Adjustment
 
0.01
   
0.02
 
Basic, as restated
$
0.40
 
$
0.36
 
             
Per share amounts - net earnings
           
Diluted, as reported
$
0.41
 
$
0.37
 
Adjustment
 
0.01
   
0.02
 
Diluted, as restated
$
0.42
 
$
0.39
 
             
Basic, as reported
$
0.41
 
$
0.37
 
Adjustment
 
0.02
   
0.03
 
Basic, as restated
$
0.43
 
$
0.40
 
             

 


(5)



Income (expense)
(In millions)
Three months ended
March 31
 
 
2006
 
2005
 
             
GECS
           
Commercial paper interest rate swap
           
adjustment (note 1) (a)
$
208
 
$
358
 
Interest and other financial charges
 
13
   
12
 
Earnings from continuing operations before
           
income taxes
 
221
   
370
 
Provision for income taxes
 
(86
)
 
(145
)
Earnings from continuing operations
 
135
   
225
 
Net earnings
 
135
   
225
 

(a)
Included in total revenues.


 
For additional information relating to the effect of the restatement, see the following items:
 
Part I
 
Item 1 - Financial Statements
 
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Item 4 - Controls and Procedures
 
Part II:
 
Item 6 - Exhibits
 
In light of the restatement, readers should not rely on our previously filed financial statements and other financial information for the three months ended March 31, 2006 and 2005.
 



(6)




Part I. Financial Information
 
Item 1. Financial Statements
 
Condensed Statement of Earnings
General Electric Company and consolidated affiliates
 
 
Three months ended March 31 (Unaudited)
 
 
Consolidated
 
GE
 
Financial
Services (GECS)
 
(In millions; per-share amounts in dollars)
2006
(Restated)
 
2005
(Restated)
 
2006
(Restated)
 
2005
(Restated)
 
2006
(Restated)
 
2005
(Restated)
 
                                     
Sales of goods
$
14,535
 
$
13,656
 
$
14,026
 
$
12,988
 
$
555
 
$
674
 
Sales of services
 
8,949
   
7,749
   
9,060
   
7,845
   
-
   
-
 
Other income
 
451
   
317
   
479
   
330
   
-
   
-
 
GECS earnings from continuing operations
 
-
   
-
   
2,405
   
2,088
   
-
   
-
 
GECS revenues from services
 
13,886
   
12,628
   
-
   
-
   
14,126
   
12,931
 
GECS commercial paper interest rate swap adjustment
 
208
   
358
   
-
   
-
   
208
   
358
 
Total revenues
 
38,029
   
34,708
   
25,970
   
23,251
   
14,889
   
13,963
 
                                     
Cost of goods sold
 
11,656
   
10,606
   
11,188
   
9,977
   
513
   
635
 
Cost of services sold
 
6,005
   
4,936
   
6,117
   
5,032
   
-
   
-
 
Interest and other financial charges
 
4,348
   
3,659
   
384
   
381
   
4,094
   
3,402
 
Investment contracts, insurance losses and
                                   
insurance annuity benefits
 
749
   
827
   
-
   
-
   
805
   
866
 
Provision for losses on financing receivables
 
822
   
902
   
-
   
-
   
822
   
902
 
Other costs and expenses
 
9,037
   
8,848
   
3,396
   
3,311
   
5,723
   
5,690
 
Minority interest in net earnings of
                                   
consolidated affiliates
 
238
   
216
   
163
   
186
   
75
   
30
 
Total costs and expenses
 
32,855
   
29,994
   
21,248
   
18,887
   
12,032
   
11,525
 
                                     
Earnings from continuing operations
                                   
before income taxes
 
5,174
   
4,714
   
4,722
   
4,364
   
2,857
   
2,438
 
Provision for income taxes
 
(997
)
 
(929
)
 
(545
)
 
(579
)
 
(452
)
 
(350
)
Earnings from continuing operations
 
4,177
   
3,785
   
4,177
   
3,785
   
2,405
   
2,088
 
Earnings from discontinued operations, net of taxes
 
263
   
405
   
263
   
405
   
263
   
405
 
Net earnings
$
4,440
 
$
4,190
 
$
4,440
 
$
4,190
 
$
2,668
 
$
2,493
 
                                     
Per-share amounts
                                   
Per-share amounts - earnings from
                                   
continuing operations
                                   
Diluted earnings per share
$
0.40
 
$
0.36
                         
Basic earnings per share
$
0.40
 
$
0.36
                         
                                     
Per-share amounts - net earnings
                                   
Diluted earnings per share
$
0.42
 
$
0.39
                         
Basic earnings per share
$
0.43
 
$
0.40
                         
                                     
Dividends declared per share
$
0.25
 
$
0.22
                         

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

(7)


Condensed Statement of Financial Position
General Electric Company and consolidated affiliates
 
 
Consolidated
 
GE
 
Financial
Services (GECS)
 
(In millions; except share amounts)
3/31/06
(Restated)
 
12/31/05
(Restated)
 
3/31/06
(Restated)
 
12/31/05
(Restated)
 
3/31/06
(Restated)
 
12/31/05
(Restated)
 
                                     
Cash and equivalents
$
8,503
 
$
8,825
 
$
1,772
 
$
2,015
 
$
6,900
 
$
7,130
 
Investment securities
 
45,100
   
42,148
   
596
   
461
   
44,512
   
41,710
 
Current receivables
 
12,558
   
14,851
   
12,764
   
15,058
   
-
   
-
 
Inventories
 
11,364
   
10,474
   
11,203
   
10,315
   
161
   
159
 
Financing receivables - net
 
286,834
   
287,639
   
-
   
-
   
286,834
   
287,639
 
Other GECS receivables
 
14,360
   
14,332
   
-
   
-
   
18,855
   
18,625
 
Property, plant and equipment (including
                                   
equipment leased to others) - net
 
67,684
   
67,528
   
16,370
   
16,504
   
51,314
   
51,024
 
Investment in GECS
 
-
   
-
   
49,291
   
50,812
   
-
   
-
 
Intangible assets - net
 
82,955
   
81,630
   
59,141
   
57,839
   
23,814
   
23,791
 
All other assets
 
86,995
   
84,828
   
36,540
   
36,752
   
51,919
   
49,440
 
Assets of discontinued operations
 
58,512
   
61,066
   
-
   
-
   
58,512
   
61,066
 
Total assets
$
674,865
 
$
673,321
 
$
187,677
 
$
189,756
 
$
542,821
 
$
540,584
 
                                     
Short-term borrowings
$
153,200
 
$
158,156
 
$
2,112
 
$
1,127
 
$
151,593
 
$
157,672
 
Accounts payable, principally trade accounts
 
19,173
   
21,183
   
10,752
   
11,870
   
12,291
   
13,043
 
Progress collections and price adjustments accrued
 
4,354
   
4,456
   
4,354
   
4,456
   
-
   
-
 
Other GE current liabilities
 
21,181
   
21,042
   
21,199
   
21,059
   
-
   
-
 
Long-term borrowings
 
222,970
   
212,281
   
9,085
   
9,081
   
215,086
   
204,397
 
Investment contracts, insurance liabilities
                                   
and insurance annuity benefits
 
33,386
   
33,097
   
-
   
-
   
33,811
   
33,387
 
All other liabilities
 
38,675
   
39,966
   
23,020
   
23,273
   
15,752
   
16,787
 
Deferred income taxes
 
16,782
   
16,208
   
3,775
   
3,733
   
13,007
   
12,475
 
Liabilities of discontinued operations
 
49,476
   
49,527
   
-
   
-
   
49,702
   
49,763
 
Total liabilities
 
559,197
   
555,916
   
74,297
   
74,599
   
491,242
   
487,524
 
                                     
Minority interest in equity of consolidated affiliates
 
8,143
   
8,054
   
5,855
   
5,806
   
2,288
   
2,248
 
Common stock (10,398,398,000 and 10,484,268,000
                                   
shares outstanding at March 31, 2006 and
                                   
December 31, 2005, respectively)
 
669
   
669
   
669
   
669
   
1
   
1
 
Accumulated gains (losses) - net
                                   
Investment securities
 
1,159
   
1,831
   
1,159
   
1,831
   
1,049
   
1,754
 
Currency translation adjustments
 
2,272
   
2,532
   
2,272
   
2,532
   
2,007
   
2,287
 
Cash flow hedges
 
(174
)
 
(352
)
 
(174
)
 
(352
)
 
(132
)
 
(343
)
Minimum pension liabilities
 
(889
)
 
(874
)
 
(889
)
 
(874
)
 
(189
)
 
(179
)
Other capital
 
25,362
   
25,227
   
25,362
   
25,227
   
12,525
   
12,386
 
Retained earnings
 
99,470
   
97,644
   
99,470
   
97,644
   
34,030
   
34,906
 
Less common stock held in treasury
 
(20,344
)
 
(17,326
)
 
(20,344
)
 
(17,326
)
 
-
   
-
 
                                     
Total shareowners’ equity
 
107,525
   
109,351
   
107,525
   
109,351
   
49,291
   
50,812
 
                                     
Total liabilities and equity
$
674,865
 
$
673,321
 
$
187,677
 
$
189,756
 
$
542,821
 
$
540,584
 

The sum of accumulated gains (losses) on investment securities, currency translation adjustments, cash flow hedges and minimum pension liabilities constitutes “Accumulated nonowner changes other than earnings,” and was $2,368 million and $3,137 million at March 31, 2006, and December 31, 2005, respectively.
 
See notes to condensed, consolidated financial statements. Separate information is shown for “GE” and “Financial Services (GECS).” March 31, 2006, data are unaudited. Transactions between GE and GECS have been eliminated from the “Consolidated” columns.
 

(8)


Condensed Statement of Cash Flows
General Electric Company and consolidated affiliates
 
 
Three months ended March 31 (Unaudited)
 
 
Consolidated
 
GE
 
Financial
Services (GECS)
 
(In millions)
2006
(Restated)
(a)
2005
(Restated)
(a)
2006
(Restated)
(a)
2005
(Restated)
(a)
2006
(Restated)
(a)
2005
(Restated)
(a)
                                     
Cash flows - operating activities
                                   
Net earnings
$
4,440
 
$
4,190
 
$
4,440
 
$
4,190
 
$
2,668
 
$
2,493
 
Earnings from discontinued operations
 
(263
)
 
(405
)
 
-
   
-
   
(263
)
 
(405
)
Adjustments to reconcile net earnings to cash
                                   
provided from operating activities
                                   
Depreciation and amortization of property,
                                   
plant and equipment
 
2,132
   
2,280
   
633
   
643
   
1,499
   
1,637
 
Earnings retained by GECS
 
-
   
-
   
736
   
(2,269
)
 
-
   
-
 
Deferred income taxes
 
307
   
(23
)
 
73
   
(1
)
 
234
   
(22
)
Decrease in GE current receivables
 
2,472
   
1,315
   
2,472
   
1,387
   
-
   
-
 
Increase in inventories
 
(878
)
 
(678
)
 
(876
)
 
(671
)
 
(2
)
 
(7
)
Decrease in accounts payable
 
(1,209
)
 
(1,583
)
 
(683
)
 
(1,032
)
 
(385
)
 
(850
)
Decrease in GE progress collections
 
(108
)
 
(102
)
 
(108
)
 
(102
)
 
-
   
-
 
Provision for losses on GECS financing receivables
 
822
   
902
   
-
   
-
   
822
   
902
 
All other operating activities
 
(2,297
)
 
1,818
   
25
   
745
   
(1,312
)
 
1,338
 
Cash from operating activities - continuing operations
 
5,418
   
7,714
   
6,712
   
2,890
   
3,261
   
5,086
 
Cash from operating activities - discontinued operations
 
91
   
1,210
   
-
   
-
   
91
   
1,210
 
Cash from operating activities
 
5,509
   
8,924
   
6,712
   
2,890
   
3,352
   
6,296
 
                                     
Cash flows - investing activities
                                   
Additions to property, plant and equipment
 
(2,984
)
 
(2,934
)
 
(853
)
 
(412
)
 
(2,131
)
 
(2,522
)
Dispositions of property, plant and equipment
 
1,158
   
1,811
   
-
   
-
   
1,113
   
1,814
 
Net decrease (increase) in GECS financing receivables
 
(3,063
)
 
750
   
-
   
-
   
(3,063
)
 
750
 
Payments for principal businesses purchased
 
(2,075
)
 
(7,300
)
 
(1,651
)
 
(2,669
)
 
(424
)
 
(4,631
)
All other investing activities
 
(199
)
 
866
   
346
   
586
   
(1,481
)
 
156
 
Cash used for investing activities - continuing operations
 
(7,163
)
 
(6,807
)
 
(2,158
)
 
(2,495
)
 
(5,986
)
 
(4,433
)
Cash from (used for) investing activities - discontinued operations
 
800
   
(359
)
 
-
   
-
   
800
   
(359
)
Cash used for investing activities
 
(6,363
)
 
(7,166
)
 
(2,158
)
 
(2,495
)
 
(5,186
)
 
(4,792
)
                                     
Cash flows - financing activities
                                   
Net increase (decrease) in borrowings (maturities of 90 days or less)
 
(1,498
)
 
(3,270
)
 
1,054
   
503
   
(2,876
)
 
(3,675
)
Newly issued debt (maturities longer than 90 days)
 
24,623
   
23,722
   
43
   
14
   
24,583
   
23,677
 
Repayments and other reductions (maturities longer than 90 days)
 
(16,103
)
 
(21,219
)
 
(122
)
 
(342
)
 
(15,981
)
 
(20,877
)
Net dispositions (purchases) of GE treasury shares
 
(3,141
)
 
121
   
(3,141
)
 
121
   
-
   
-
 
Dividends paid to shareowners
 
(2,631
)
 
(2,336
)
 
(2,631
)
 
(2,336
)
 
(3,404
)
 
(224
)
All other financing activities
 
173
   
(592
)
 
-
   
-
   
173
   
(592
)
Cash from (used for) financing activities - continuing operations
 
1,423
   
(3,574
)
 
(4,797
)
 
(2,040
)
 
2,495
   
(1,691
)
Cash used for financing activities - discontinued operations
 
(249
)
 
(613
)
 
-
   
-
   
(249
)
 
(613
)
Cash from (used for) financing activities
 
1,174
   
(4,187
)
 
(4,797
)
 
(2,040
)
 
2,246
   
(2,304
)
                                     
Increase (decrease) in cash and equivalents
 
320
   
(2,429
)
 
(243
)
 
(1,645
)
 
412
   
(800
)
Cash and equivalents at beginning of year
 
11,801
   
15,328
   
2,015
   
3,155
   
10,106
   
12,367
 
Cash and equivalents at March 31
 
12,121
   
12,899
   
1,772
   
1,510
   
10,518
   
11,567
 
Less cash and equivalents of discontinued operations at March 31
 
3,618
   
3,504
   
-
   
-
   
3,618
   
3,504
 
Cash and equivalents of continuing operations at March 31
$
8,503
 
$
9,395
 
$
1,772
 
$
1,510
 
$
6,900
 
$
8,063
 

See notes to condensed, consolidated financial statements. Separate information is shown for “GE” and “Financial Services (GECS).” Transactions between GE and Financial Services (GECS) have been eliminated from the “Consolidated” columns.
 
(a)
Certain individual line items within cash from operating activities have been restated.




(9)




Summary of Operating Segments
General Electric Company and consolidated affiliates
 
 
Three months ended
March 31 (Unaudited)
 
(In millions)
2006
 
2005
 
             
Revenues
           
Infrastructure
$
10,152
 
$
9,374
 
Industrial
 
8,140
   
7,668
 
Healthcare
 
3,659
   
3,321
 
NBC Universal
 
4,482
   
3,601
 
Commercial Finance
 
5,484
   
5,072
 
Consumer Finance
 
5,090
   
4,689
 
Total segment revenues
 
37,007
   
33,725
 
Corporate items and eliminations
 
1,022
   
983
 
Consolidated revenues
$
38,029
 
$
34,708
 
             
Segment profit (a)
           
Infrastructure
$
1,703
 
$
1,540
 
Industrial
 
600
   
526
 
Healthcare
 
496
   
409
 
NBC Universal
 
654
   
709
 
Commercial Finance
 
1,174
   
926
 
Consumer Finance
 
836
   
735
 
Total segment profit
 
5,463
   
4,845
 
Corporate items and eliminations
 
(357
)
 
(100
)
GE interest and other financial charges
 
(384
)
 
(381
)
GE provision for income taxes
 
(545
)
 
(579
)
Earnings from continuing operations
 
4,177
   
3,785
 
Earnings from discontinued operations, net of taxes
 
263
   
405
 
Consolidated net earnings
$
4,440
 
$
4,190
 
             

(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 development costs; certain gains and losses from dispositions; and litigation settlements or other charges, responsibility for which preceded the current management team. Segment profit excludes or includes interest and other financial charges and income taxes according to how a particular segment’s management is measured - excluded in determining segment profit, which we refer to as “operating profit,” for Healthcare, NBC Universal and the industrial businesses of the Infrastructure and Industrial segments; included in determining segment profit, which we refer to as “net earnings,” for Commercial Finance, Consumer Finance, and the financial services businesses of the Infrastructure segment (Aviation Financial Services, Energy Financial Services and Transportation Finance) and the Industrial segment (Equipment Services).
 

 

(10)


Notes to Condensed, Consolidated Financial Statements (Unaudited)
 
1. 2007 Restatement
 
General Electric Company (GE) is filing this amendment to its Quarterly Report on Form 10-Q for the period ended March 31, 2006, to amend and restate financial statements and other financial information for the three months ended March 31, 2006 and 2005. The restatement adjusts our accounting for interest rate swap transactions related to a portion of the commercial paper issued by General Electric Capital Corporation (GECC) and General Electric Capital Services, Inc. (GECS), each wholly-owned subsidiaries, from January 1, 2001, the date we adopted Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. The restatement has no effect on our cash flows or liquidity, and its effects on our financial position at the ends of the respective periods are immaterial.
 
Background
 
As previously disclosed, the Boston Office of the U.S. Securities and Exchange Commission (SEC) is conducting a formal investigation of our application of SFAS No. 133. In the course of that investigation, the SEC Enforcement staff raised certain concerns about our accounting for the use of interest rate swaps to fix certain otherwise variable interest costs in a portion of our commercial paper program at GECC and GECS. The SEC Enforcement staff referred such concerns to the Office of Chief Accountant. We and our auditors determined that our accounting for the commercial paper hedging program satisfied the requirements of SFAS 133 and conveyed our views to the staff of the Office of Chief Accountant. Following our discussions, however, the Office of Chief Accountant communicated its view to us that our commercial paper hedging program as structured did not meet the SFAS 133 specificity requirement.
 
After considering the staff’s view, management recommended to the Audit Committee of our Board of Directors that previously reported financial results be restated to eliminate hedge accounting for the interest rate swaps entered into as part of our commercial paper hedging program from January 1, 2001. The Audit Committee discussed and agreed with this recommendation. At a meeting on January 18, 2007, the Board of Directors adopted the recommendation of the Audit Committee and determined that previously reported results for GE should be restated and, therefore, that the previously filed financial statements and other financial information referred to above should not be relied upon. The restatement resulted from a material weakness in internal control over financial reporting, namely, that we did not have adequately designed procedures to designate, with the specificity required under SFAS 133, each hedged commercial paper transaction.
 
The SEC investigation into our application of SFAS 133 and hedge accounting is continuing. We continue to cooperate fully.
 

(11)


Effects of the restatement by line item follow:
 
 
Three months ended
March 31
 
 
2006
 
2005
 
(In millions; per share amounts in dollars)
(unaudited)
As
previously
reported
 
As
restated
 
As
previously
reported
 
As
restated
 
                         
Statement of Earnings
                       
                         
Consolidated
                       
GECS commercial paper interest rate
                       
swap adjustment (a)
$
-
 
$
208
 
$
-
 
$
358
 
Interest and other financial charges
 
4,361
   
4,348
   
3,671
   
3,659
 
Earnings from continuing operations
                       
before income taxes
 
4,953
   
5,174
   
4,344
   
4,714
 
Provision for income taxes
 
(911
)
 
(997
)
 
(784
)
 
(929
)
Earnings from continuing operations
 
4,042
   
4,177
   
3,560
   
3,785
 
Net earnings
 
4,305
   
4,440
   
3,965
   
4,190
 
                         
(a)
Included in total revenues.
                         
Per share amounts
                       
Earnings from continuing
                       
operations
                       
Diluted earnings per share
$
0.39
 
$
0.40
 
$
0.33
 
$
0.36
 
Basic earnings per share
 
0.39
   
0.40
   
0.34
   
0.36
 
                         
Net earnings
                       
Diluted earnings per share
$
0.41
 
$
0.42
 
$
0.37
 
$
0.39
 
Basic earnings per share
 
0.41
   
0.43
   
0.37
   
0.40
 
                         
GECS
                       
GECS commercial paper interest rate
                       
swap adjustment (a)
$
-
 
$
208
 
$
-
 
$
358
 
Interest and other financial charges
 
4,107
   
4,094
   
3,414
   
3,402
 
Earnings from continuing operations
                       
before income taxes
 
2,636
   
2,857
   
2,068
   
2,438
 
Provision for income taxes
 
(366
)
 
(452
)
 
(205
)
 
(350
)
Earnings from continuing operations
 
2,270
   
2,405
   
1,863
   
2,088
 
Net earnings
 
2,533
   
2,668
   
2,268
   
2,493
 
                         
(a)
Included in total revenues.

 

(12)



 
3/31/06
 
12/31/05
 
(In millions) (unaudited)
As
previously
reported
 
As
restated
 
As
previously
reported
 
As
restated
 
                         
Statement of Financial Position
                       
                         
Consolidated
                       
All other assets
$
86,947
 
$
86,995
 
$
84,849
 
$
84,828
 
Total assets
 
674,817
   
674,865
   
673,342
   
673,321
 
                         
Accounts payable
 
19,096
   
19,173
   
21,183
   
21,183
 
Other liabilities
 
38,661
   
38,675
   
39,966
   
39,966
 
Deferred income taxes
 
16,862
   
16,782
   
16,226
   
16,208
 
Total liabilities
 
559,186
   
559,197
   
555,934
   
555,916
 
                         
Cash flow hedges
 
(549
)
 
(174
)
 
(822
)
 
(352
)
Retained earnings
 
99,808
   
99,470
   
98,117
   
97,644
 
Total shareowners’ equity
 
107,488
   
107,525
   
109,354
   
109,351
 
Total liabilities and equity
 
674,817
   
674,865
   
673,342
   
673,321
 
                         
GECS
                       
All other assets
$
51,871
 
$
51,919
 
$
49,461
 
$
49,440
 
Total assets
 
542,773
   
542,821
   
540,605
   
540,584
 
                         
Accounts payable
 
12,214
   
12,291
   
13,043
   
13,043
 
Other liabilities
 
15,738
   
15,752
   
16,787
   
16,787
 
Deferred income taxes
 
13,087
   
13,007
   
12,493
   
12,475
 
Total liabilities
 
491,231
   
491,242
   
487,542
   
487,524
 
                         
Cash flow hedges
 
(507
)
 
(132
)
 
(813
)
 
(343
)
Retained earnings
 
34,368
   
34,030
   
35,379
   
34,906
 
Total shareowners’ equity
 
49,254
   
49,291
   
50,815
   
50,812
 
Total liabilities and equity
 
542,773
   
542,821
   
540,605
   
540,584
 

 
The accompanying condensed, consolidated financial statements represent the consolidation of General Electric Company and all companies that we directly or indirectly control, either through majority ownership or otherwise. See note 1 to the consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2005. That note discusses consolidation and financial statement presentation. As used in this report on Form 10-Q (Report) and in the Annual Report on Form 10-K, “GE” represents the adding together of all affiliated companies except General Electric Capital Services, Inc. (GECS or financial services), which is presented on a one-line basis; GECS consists of General Electric Capital Services, Inc. and all of its affiliates; and “Consolidated” represents the adding together of GE and GECS with the effects of transactions between the two eliminated. We 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.
 

(13)


2. The condensed, consolidated financial statements and notes thereto are unaudited. These statements include all adjustments (consisting of normal recurring accruals) that we considered necessary to present a fair statement of our results of operations, financial position and cash flows. The results reported in these condensed, consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for the entire year. We label our quarterly information using a calendar convention, that is, first quarter is labeled as ending on March 31, second quarter as ending on June 30, and third quarter as ending on September 30. It is our longstanding practice to establish interim quarterly closing dates using a fiscal calendar, which requires our businesses to close their books on either a Saturday or Sunday, depending on the business. The effects of this practice are modest and only exist within a reporting year. The fiscal closing calendar from 1993 through 2013 is available on our website, www.ge.com/secreports.
 
3. At March 31, 2006, we classified 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.
 
Planned sale of GE Life
 
In March 2006, we initiated a plan to sell GE Life, our U.K.-based life insurance operation. GE Life’s assets were $14,520 million at March 31, 2006; its first quarter 2006 revenues were $799 million; and its first quarter 2006 earnings were insignificant. We have provided for a pre-tax loss of $210 million ($175 million after tax or $0.02 per share) based on our best estimate of sales proceeds. We anticipate selling GE Life by March 31, 2007.
 
Planned sale of GE Insurance Solutions
 
Swiss Reinsurance Company (Swiss Re) has agreed to buy the property and casualty insurance and reinsurance businesses and the European life and health operations of GE Insurance Solutions for $8,500 million, including the assumption of $1,700 million of debt. On April 20, 2006, we and Swiss Re agreed that consideration, other than assumed debt, will consist of $2,400 million of newly issued Swiss Re common stock that we will be restricted from selling for 360 days and the remainder will consist of some combination of cash, immediately salable notes and mandatory convertible instruments. We presently expect this transaction to close in the second quarter of 2006, subject to regulatory approvals and customary closing conditions.
 
Completed sale of 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, we recognized a pre-tax gain of $516 million ($300 million after tax or $0.03 per share).
 
Summarized financial information for discontinued operations is set forth below. Gain on disposal included both actual (Genworth) and estimated (GE Life) effects.
 

(14)



 
Three months ended
March 31
 
(In millions)
2006
 
2005
 
             
Discontinued operations before disposal
           
Revenues from services
$
2,345
 
$
5,213
 
             
Earnings from discontinued operations before
           
minority interest and income taxes
$
179
 
$
698
 
Minority interest
 
-
   
99
 
Earnings from discontinued operations before income taxes
 
179
   
599
 
Income tax expense
 
(41
)
 
(280
)
Earnings from discontinued operations before disposal, net of taxes
$
138
 
$
319
 
             
Disposal
           
Gain on disposal before income taxes
$
306
 
$
156
 
Income tax expense
 
(181
)
 
(70
)
Gain on disposal, net of taxes
$
125
 
$
86
 
             
Earnings from discontinued operations, net of taxes
$
263
 
$
405
 

 
 
At
 
(In millions)
3/31/06
 
12/31/05
 
             
Assets
           
Cash and equivalents
$
3,618
 
$
2,976
 
Investment securities
 
35,023
   
37,633
 
Other GECS receivables
 
13,333
   
13,915
 
Other
 
6,538
   
6,542
 
Assets of discontinued operations
 
58,512
   
61,066
 
Eliminations
 
-
   
-
 
Total
$
58,512
 
$
61,066
 
             
Liabilities and equity
           
Investment contracts, insurance liabilities and
           
insurance annuity benefits
$
43,525
 
$
43,378
 
Other
 
6,177
   
6,385
 
Liabilities of discontinued operations
 
49,702
   
49,763
 
Eliminations
 
(226
)
 
(236
)
Total
$
49,476
 
$
49,527
 
             
Total accumulated nonowner changes other than earnings
$
65
 
$
652
 

 

(15)


4. GECS revenues from services are summarized in the following table.
 
 
Three months ended
March 31
 
(In millions)
2006
 
2005
 
             
Interest on loans
$
5,342
 
$
4,863
 
Operating lease rentals
 
2,915
   
2,757
 
Investment income
 
660
   
655
 
Fees
 
1,007
   
847
 
Financing leases
 
1,002
   
1,033
 
Premiums earned by insurance activities
 
491
   
553
 
Other income
 
2,709
   
2,223
 
Total
$
14,126
 
$
12,931
 

 
5. We sponsor a number of pension and retiree health and life insurance benefit plans. Principal pension plans include the GE Pension Plan and the GE Supplementary Pension Plan. Principal retiree benefit plans generally provide health and life insurance benefits to employees who retire under the GE Pension Plan with 10 or more years of service. Other pension plans include the U.S. and non-U.S. pension plans whose pension assets or obligations exceeded $50 million. Smaller pension plans and other retiree benefit plans are not material individually or in the aggregate. The effect on operations of the pension and retiree benefit plans follows.
 
 
Principal
Pension Plans
 
Other
Pension Plans
 
 
Three months ended
March 31
 
Three months ended
March 31
 
(In millions)
2006
 
2005
 
2006
 
2005
 
                         
Expected return on plan assets
$
(952
)
$
(970
)
$
(98
)
$
(88
)
Service cost for benefits earned
 
366
   
325
   
83
   
73
 
Interest cost on benefit obligation
 
579
   
557
   
93
   
90
 
Prior service cost
 
58
   
62
   
1
   
2
 
Net actuarial loss recognized
 
188
   
81
   
39
   
31
 
Cost of pension plans
$
239
 
$
55
 
$
118
 
$
108
 

 

(16)



 
Principal
Retiree Health and
Life Insurance Plans
 
 
Three months ended
March 31
 
(In millions)
2006
 
2005
 
             
Expected return on plan assets
$
(32
)
$
(34
)
Service cost for benefits earned
 
54
   
53
 
Interest cost on benefit obligation
 
114
   
126
 
Prior service cost
 
74
   
75
 
Net actuarial loss recognized
 
18
   
18
 
Cost of principal retiree benefit plans
$
228
 
$
238
 

 
6. GE’s authorized common stock consists of 13,200,000,000 shares having a par value of $0.06 each. Information related to the calculation of earnings per share follows.
 
 
Three months ended March 31
 
 
2006
 
2005
 
(In millions; per-share amounts in dollars)
Diluted
 
Basic
 
Diluted
 
Basic
 
                         
Consolidated
                       
Earnings from continuing operations for
                       
per-share calculation(a)
$
4,178
 
$
4,178
 
$
3,785
 
$
3,785
 
Earnings from discontinued operations
                       
for per-share calculation(b)
 
263
   
263
   
403
   
405
 
Net earnings available for per-share calculation
$
4,440
 
$
4,440
 
$
4,188
 
$
4,190
 
                         
Average equivalent shares
                       
Shares of GE common stock outstanding
 
10,442
   
10,442
   
10,597
   
10,597
 
Employee compensation-related shares,
                       
including stock options
 
38
   
-
   
44
   
-
 
Total average equivalent shares
 
10,480
   
10,442
   
10,641
   
10,597
 
                         
Per-share amounts
                       
Earnings from continuing operations
$
0.40
 
$
0.40
 
$
0.36
 
$
0.36
 
Earnings from discontinued operations
$
0.03
 
$
0.03
 
$
0.04
 
$
0.04
 
Net earnings
$
0.42
 
$
0.43
 
$
0.39
 
$
0.40
 
                         

(a)
 
Including dividend equivalents.
 
(b)
Including dilutive effects of subsidiary-issued stock-based awards.

 
Earnings-per-share amounts are computed independently each quarter for earnings from continuing operations, earnings from discontinued operations and net earnings. As a result, the sum of per-share amounts from continuing operations and discontinued operations does not always equal the total per-share net earnings for the respective quarters.
 

(17)


7. Inventories consisted of the following.
 
 
At
 
(In millions)
3/31/06
 
12/31/05
 
             
Raw materials and work in process
$
6,176
 
$
5,527
 
Finished goods
 
5,561
   
5,311
 
Unbilled shipments
 
280
   
333
 
   
12,017
   
11,171
 
Less revaluation to LIFO
 
(653
)
 
(697
)
Total
$
11,364
 
$
10,474
 

 
8. GECS financing receivables - net, consisted of the following.
 
 
At
 
(In millions)
3/31/06
 
12/31/05
 
             
Loans, net of deferred income
$
227,528
 
$
227,923
 
Investment in financing leases, net of deferred income
 
63,810
   
64,309
 
   
291,338
   
292,232
 
Less allowance for losses
 
(4,504
)
 
(4,593
)
Financing receivables - net
$
286,834
 
$
287,639
 

 
Included in the above are the financing receivables of consolidated, liquidating securitization entities as follows:
 
 
At
 
(In millions)
3/31/06
 
12/31/05
 
             
Loans, net of deferred income
$
14,755
 
$
15,868
 
Investment in financing leases, net of deferred income
 
131
   
769
 
   
14,886
   
16,637
 
Less allowance for losses
 
(22
)
 
(22
)
Financing receivables - net
$
14,864
 
$
16,615
 

 
9. Property, plant and equipment (including equipment leased to others) - net, consisted of the following.
 
 
At
 
(In millions)
3/31/06
 
12/31/05
 
             
Original cost
$
112,457
 
$
111,733
 
Less accumulated depreciation and amortization
 
(44,773
)
 
(44,205
)
Property, plant and equipment - net
$
67,684
 
$
67,528
 

 

(18)


10. Intangible assets - net, consisted of the following.
 
 
At
 
(In millions)
3/31/06
 
12/31/05
 
             
Goodwill
$
71,002
 
$
69,611
 
Intangible assets subject to amortization
 
9,841
   
9,932
 
Indefinite-lived intangible assets(a)
 
2,112
   
2,087
 
Total
$
82,955
 
$
81,630
 
             

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

 
First quarter 2006 changes in goodwill balances follow.
 
(In millions)
Balance
1/1/06
 
Acquisitions/
purchase
accounting
adjustments
 
Currency
exchange
and other
 
Balance
3/31/06
 
                                 
Infrastructure
$
10,166
   
$
163
     
$
(14
)
 
$
10,315
 
Industrial
 
8,702
     
95
       
7
     
8,804
 
Healthcare
 
13,404
     
1,081
       
4
     
14,489
 
NBC Universal
 
17,534
     
10
       
-
     
17,544
 
Commercial Finance
 
10,621
     
85
       
(11
)
   
10,695
 
Consumer Finance
 
9,184
     
53
       
(82
)
   
9,155
 
Total
$
69,611
   
$
1,487
     
$
(96
)
 
$
71,002
 

 
The amount of goodwill related to new acquisitions recorded during the first quarter of 2006 was $1,277 million. The largest such acquisition was IDX Systems Corporation ($1,099 million), acquired by Healthcare. During 2006, we increased goodwill associated with previous acquisitions by $210 million; the largest such adjustment was an increase of $123 million associated with the 2005 acquisition of Ionics, Inc. by Infrastructure.
 
Intangible Assets Subject to Amortization
 
 
At
 
 
3/31/06
 
12/31/05
 
(In millions)
Gross
carrying
amount
 
Accumulated
amortization
 
Net
 
Gross
carrying
amount
 
Accumulated
amortization
 
Net
 
                                             
Patents, licenses and trademarks 
$
5,237
   
$
(1,484
)
 
$
3,753
 
$
5,311
   
$
(1,406
)
 
$
3,905
 
Capitalized software
 
5,738
     
(3,230
)
   
2,508
   
5,586
     
(3,059
)
   
2,527
 
All other
 
4,911
     
(1,331
)
   
3,580
   
4,737
     
(1,237
)
   
3,500
 
Total
$
15,886
   
$
(6,045
)
 
$
9,841
 
$
15,634
   
$
(5,702
)
 
$
9,932
 

 
Consolidated amortization expense related to intangible assets subject to amortization was $432 million and $363 million for the quarters ended March 31, 2006 and 2005, respectively.
 

(19)


11. GECS borrowings are summarized in the following table.
 
 
At
 
(In millions)
3/31/06
 
12/31/05
 
             
Short-term borrowings
           
             
Commercial paper
           
U.S.
           
Unsecured
$
61,724
 
$
67,643
 
Asset-backed(a)
 
8,157
   
9,267
 
Non-U.S.
 
24,870
   
20,456
 
Current portion of long-term debt(b)(c)
 
38,693
   
41,792
 
Other
 
18,149
   
18,514
 
Total
 
151,593
   
157,672
 
             
Long-term borrowings
           
             
Senior notes
           
Unsecured
 
192,239
   
180,546
 
Asset-backed(d)
 
5,899
   
6,845
 
Extendible notes(e)
 
13,984
   
14,022
 
Subordinated notes(f)
 
2,964
   
2,984
 
Total
 
215,086
   
204,397
 
Total borrowings
$
366,679
 
$
362,069
 
             

(a)
 
Entirely obligations of consolidated, liquidating securitization entities. See note 14.
 
(b)
 
Included short-term borrowings by consolidated, liquidating securitization entities of $732 million and $697 million at March 31, 2006 and December 31, 2005, respectively. See note 14.
 
(c)
 
Included $250 million of subordinated notes guaranteed by GE at both March 31, 2006, and December 31, 2005.
 
(d)
 
Asset-backed senior notes were all issued by consolidated, liquidating securitization entities. See note 14.
 
(e)
 
Included $38 million of obligations of consolidated, liquidating securitization entities at December 31, 2005. See note 14.
 
(f)
 
Included $750 million of subordinated notes guaranteed by GE at both March 31, 2006, and December 31, 2005.
 

 
12. A summary of increases (decreases) in shareowners’ equity that did not result directly from transactions with shareowners, net of income taxes, follows.
 
 
Three months ended
March 31
 
(In millions)
2006
 
2005
 
             
Net earnings
$
4,440
 
$
4,190
 
Investment securities - net
 
(672
)
 
(820
)
Currency translation adjustments - net
 
(260
)
 
61