Form 10-Q

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 June 30, 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 10,323,359,000 shares of common stock with a par value of $0.06 per share outstanding at June 30, 2006.
 



 
(1)

 



General Electric Company
 
   
Page
     
Explanatory Note
 
3
     
Part I - Financial Information
   
   
 
Item 1. Financial Statements
   
Condensed Statement of Earnings
   
 
7
 
8
 
9
 
10
 
11
 
12
 
28
 
42
     
Part II - Other Information
   
     
 
42
 
42
 
44
 
45
 
46
 
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 June 30, 2006, to amend and restate financial statements and other financial information for the three and six months ended June 30, 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 a 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 six months ended June 30, 2006 and 2005, this non-cash restatement had the following earnings effects:
 
 
Effects of Correction
 
 
Three months ended
June 30
 
Six months ended
June 30
 
(In millions)
2006
 
2005
 
2006
 
2005
 
                         
Increase (decrease) in earnings from
                       
continuing operations
$
94
 
$
(139
)
$
 
229
$
 
86

 
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 Results of Financial Condition and 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 July 24, 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 and six months ended June 30, 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
 
 
Three months ended
June 30
 
Six months ended
June 30
 
Income (expense)
(In millions; per share amounts in dollars)
2006
 
2005
 
2006
 
2005
 
                         
Consolidated
                       
Commercial paper interest rate swap
                       
adjustment (note 1) (a)
$
148
 
$
(239
)
$
356
 
$
119
 
Interest and other financial charges
 
6
   
11
   
19
   
23
 
Earnings from continuing operations before
                       
income taxes
 
154
   
(228
)
 
375
   
142
 
Provision for income taxes
 
(60
)
 
89
   
(146
)
 
(56
)
Earnings from continuing operations
 
94
   
(139
)
 
229
   
86
 
Net earnings
 
94
   
(139
)
 
229
   
86
 

(a)
Included in total revenues.

 
 
Three months ended
June 30
 
Six months ended
June 30
 
 
2006
 
2005
 
2006
 
2005
 
Per share amounts - earnings from continuing
                       
operations
                       
Diluted, as reported
$
0.47
 
$
0.41
 
$
0.85
 
$
0.75
 
Adjustment
 
0.01
   
(0.01
)
 
0.02
   
-
 
Diluted, as restated
$
0.48
 
$
0.40
 
$
0.87
 
$
0.75
 
                         
Basic, as reported
$
0.47
 
$
0.41
 
$
0.86
 
$
0.75
 
Adjustment
 
0.01
   
(0.01
)
 
0.02
   
0.01
 
Basic, as restated
$
0.48
 
$
0.40
 
$
0.88
 
$
0.76
 
                         
Per share amounts - net earnings
                       
Diluted, as reported
$
0.47
 
$
0.44
 
$
0.88
 
$
0.81
 
Adjustment
 
0.01
   
(0.02
)
 
0.02
   
0.01
 
Diluted, as restated
$
0.48
 
$
0.42
 
$
0.90
 
$
0.82
 
                         
Basic, as reported
$
0.47
 
$
0.44
 
$
0.88
 
$
0.81
 
Adjustment
 
0.01
   
(0.01
)
 
0.02
   
0.01
 
Basic, as restated
$
0.48
 
$
0.43
 
$
0.90
 
$
0.82
 
                         
                         

 

 
(5)

 


 
Three months ended
June 30
 
Six months ended
June 30
 
Income (expense)
(In millions; per share amounts in dollars)
2006
 
2005
 
2006
 
2005
 
                         
GECS
                       
Commercial paper interest rate swap
                       
adjustment (note 1) (a)
$
148
 
$
(239
)
$
356
 
$
119
 
Interest and other financial charges
 
6
   
11
   
19
   
23
 
Earnings from continuing operations before
                       
income taxes
 
154
   
(228
)
 
375
   
142
 
Provision for income taxes
 
(60
)
 
89
   
(146
)
 
(56
)
Earnings from continuing operations
 
94
   
(139
)
 
229
   
86
 
Net earnings
 
94
   
(139
)
 
229
   
86
 

(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 and six months ended June 30, 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 June 30 (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
$
16,524
 
$
14,749
 
$
15,993
 
$
14,101
 
$
712
 
$
664
 
Sales of services
 
8,373
   
8,240
   
8,455
   
8,307
   
-
   
-
 
Other income
 
657
   
596
   
695
   
624
   
-
   
-
 
GECS earnings from continuing operations
 
-
   
-
   
2,594
   
1,889
   
-
   
-
 
GECS revenues from services
 
14,346
   
12,954
   
-
   
-
   
14,595
   
13,297
 
GECS commercial paper interest rate swap adjustment
 
148
   
(239
)
 
-
   
-
   
148
   
(239
)
Total revenues
 
40,048
   
36,300
   
27,737
   
24,921
   
15,455
   
13,722
 
                                     
Cost of goods sold
 
12,827
   
11,425
   
12,350
   
10,812
   
659
   
628
 
Cost of services sold
 
5,316
   
5,171
   
5,397
   
5,238
   
-
   
-
 
Interest and other financial charges
 
4,527
   
3,775
   
486
   
336
   
4,196
   
3,592
 
Investment contracts, insurance losses and
                                   
insurance annuity benefits
 
793
   
799
   
-
   
-
   
831
   
850
 
Provision for losses on financing receivables
 
896
   
958
   
-
   
-
   
896
   
958
 
Other costs and expenses
 
9,406
   
8,741
   
3,647
   
3,266
   
5,853
   
5,643
 
Minority interest in net earnings of
                                   
consolidated affiliates
 
235
   
290
   
186
   
249
   
49
   
41
 
Total costs and expenses
 
34,000
   
31,159
   
22,066
   
19,901
   
12,484
   
11,712
 
                                     
Earnings from continuing operations
                                   
before income taxes
 
6,048
   
5,141
   
5,671
   
5,020
   
2,971
   
2,010
 
Provision for income taxes
 
(1,100
)
 
(904
)
 
(723
)
 
(783
)
 
(377
)
 
(121
)
Earnings from continuing operations
 
4,948
   
4,237
   
4,948
   
4,237
   
2,594
   
1,889
 
Earnings (loss) from discontinued operations,
                                   
net of taxes
 
(2
)
 
271
   
(2
)
 
271
   
(2
)
 
271
 
Net earnings
$
4,946
 
$
4,508
 
$
4,946
 
$
4,508
 
$
2,592
 
$
2,160
 
                                     
Per-share amounts
                                   
Per-share amounts - earnings from
                                   
continuing operations
                                   
Diluted earnings per share
$
0.48
 
$
0.40
                         
Basic earnings per share
$
0.48
 
$
0.40
                         
                                     
Per-share amounts - net earnings
                                   
Diluted earnings per share
$
0.48
 
$
0.42
                         
Basic earnings per share
$
0.48
 
$
0.43
                         
                                     
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 Earnings
General Electric Company and consolidated affiliates
 
 
Six months ended June 30 (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
$
31,059
 
$
28,405
 
$
30,019
 
$
27,089
 
$
1,267
 
$
1,338
 
Sales of services
 
17,322
   
15,989
   
17,515
   
16,152
   
-
   
-
 
Other income
 
1,108
   
913
   
1,174
   
954
   
-
   
-
 
GECS earnings from continuing operations
 
-
   
-
   
4,999
   
3,977
   
-
   
-
 
GECS revenues from services
 
28,232
   
25,582
   
-
   
-
   
28,721
   
26,228
 
GECS commercial paper interest rate swap adjustment
 
356
   
119
               
356
   
119
 
Total revenues
 
78,077
   
71,008
   
53,707
   
48,172
   
30,344
   
27,685
 
                                     
Cost of goods sold
 
24,483
   
22,031
   
23,538
   
20,789
   
1,172
   
1,263
 
Cost of services sold
 
11,321
   
10,107
   
11,514
   
10,270
   
-
   
-
 
Interest and other financial charges
 
8,875
   
7,434
   
870
   
717
   
8,290
   
6,994
 
Investment contracts, insurance losses and
                                   
insurance annuity benefits
 
1,542
   
1,626
   
-
   
-
   
1,636
   
1,716
 
Provision for losses on financing receivables
 
1,718
   
1,860
   
-
   
-
   
1,718
   
1,860
 
Other costs and expenses
 
18,443
   
17,589
   
7,043
   
6,577
   
11,576
   
11,333
 
Minority interest in net earnings of
                                   
consolidated affiliates
 
473
   
506
   
349
   
435
   
124
   
71
 
Total costs and expenses
 
66,855
   
61,153
   
43,314
   
38,788
   
24,516
   
23,237
 
                                     
Earnings from continuing operations
                                   
before income taxes
 
11,222
   
9,855
   
10,393
   
9,384
   
5,828
   
4,448
 
Provision for income taxes
 
(2,097
)
 
(1,833
)
 
(1,268
)
 
(1,362
)
 
(829
)
 
(471
)
Earnings from continuing operations
 
9,125
   
8,022
   
9,125
   
8,022
   
4,999
   
3,977
 
Earnings from discontinued operations, net of taxes
 
261
   
676
   
261
   
676
   
261
   
676
 
Net earnings
$
9,386
 
$
8,698
 
$
9,386
 
$
8,698
 
$
5,260
 
$
4,653
 
                                     
Per-share amounts
                                   
Per-share amounts - earnings from
                                   
continuing operations
                                   
Diluted earnings per share
$
0.87
 
$
0.75
                         
Basic earnings per share
$
0.88
 
$
0.76
                         
                                     
Per-share amounts - net earnings
                                   
Diluted earnings per share
$
0.90
 
$
0.82
                         
Basic earnings per share
$
0.90
 
$
0.82
                         
                                     
Dividends declared per share
$
0.50
 
$
0.44
                         

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.

 
(8)

 

Condensed Statement of Financial Position
General Electric Company and consolidated affiliates
 
 
Consolidated
 
GE
 
Financial
Services (GECS)
 
(In millions; except share amounts)
6/30/06
(Restated)
 
12/31/05
(Restated)
 
6/30/06
(Restated)
 
12/31/05
(Restated)
 
6/30/06
(Restated)
 
12/31/05
(Restated)
 
                                     
Cash and equivalents
$
11,099
 
$
8,825
 
$
1,766
 
$
2,015
 
$
9,484
 
$
7,130
 
Investment securities
 
45,021
   
42,148
   
469
   
461
   
44,559
   
41,710
 
Current receivables
 
12,043
   
14,851
   
12,255
   
15,058
   
-
   
-
 
Inventories
 
11,744
   
10,474
   
11,579
   
10,315
   
165
   
159
 
Financing receivables - net
 
303,899
   
287,639
   
-
   
-
   
303,899
   
287,639
 
Other GECS receivables
 
15,732
   
14,332
   
-
   
-
   
20,282
   
18,625
 
Property, plant and equipment (including
                                   
equipment leased to others) - net
 
71,005
   
67,528
   
16,724
   
16,504
   
54,281
   
51,024
 
Investment in GECS
 
-
   
-
   
48,608
   
50,812
   
-
   
-
 
Intangible assets - net
 
85,583
   
81,630
   
60,719
   
57,839
   
24,864
   
23,791
 
All other assets
 
91,221
   
84,828
   
36,641
   
36,752
   
55,702
   
49,440
 
Assets of discontinued operations
 
15,090
   
61,066
   
-
   
-
   
15,090
   
61,066
 
Total assets
$
662,437
 
$
673,321
 
$
188,761
 
$
189,756
 
$
528,326
 
$
540,584
 
                                     
Short-term borrowings
$
157,449
 
$
158,156
 
$
1,517
 
$
1,127
 
$
156,327
 
$
157,672
 
Accounts payable, principally trade accounts
 
19,446
   
21,183
   
10,577
   
11,870
   
12,848
   
13,043
 
Progress collections and price adjustments accrued
 
4,708
   
4,456
   
4,708
   
4,456
   
-
   
-
 
Other GE current liabilities
 
21,020
   
21,042
   
21,020
   
21,059
   
-
   
-
 
Long-term borrowings
 
236,935
   
212,281
   
9,090
   
9,081
   
229,033
   
204,397
 
Investment contracts, insurance liabilities
                                   
and insurance annuity benefits
 
34,491
   
33,097
   
-
   
-
   
34,872
   
33,387
 
All other liabilities
 
40,933
   
39,966
   
23,328
   
23,273
   
17,702
   
16,787
 
Deferred income taxes
 
15,432
   
16,208
   
3,750
   
3,733
   
11,682
   
12,475
 
Liabilities of discontinued operations
 
14,957
   
49,527
   
-
   
-
   
14,959
   
49,763
 
Total liabilities
 
545,371
   
555,916
   
73,990
   
74,599
   
477,423
   
487,524
 
                                     
Minority interest in equity of consolidated affiliates
 
8,274
   
8,054
   
5,979
   
5,806
   
2,295
   
2,248
 
Common stock (10,323,359,000 and 10,484,268,000
                                   
shares outstanding at June 30, 2006 and
                                   
December 31, 2005, respectively)
 
669
   
669
   
669
   
669
   
1
   
1
 
Accumulated gains (losses) - net
                                   
Investment securities
 
453
   
1,831
   
453
   
1,831
   
381
   
1,754
 
Currency translation adjustments
 
4,267
   
2,532
   
4,267
   
2,532
   
3,435
   
2,287
 
Cash flow hedges
 
27
   
(352
)
 
27
   
(352
)
 
23
   
(343
)
Minimum pension liabilities
 
(917
)
 
(874
)
 
(917
)
 
(874
)
 
(192
)
 
(179
)
Other capital
 
25,482
   
25,227
   
25,482
   
25,227
   
12,524
   
12,386
 
Retained earnings
 
101,817
   
97,644
   
101,817
   
97,644
   
32,436
   
34,906
 
Less common stock held in treasury
 
(23,006
)
 
(17,326
)
 
(23,006
)
 
(17,326
)
 
-
   
-
 
                                     
Total shareowners’ equity
 
108,792
   
109,351
   
108,792
   
109,351
   
48,608
   
50,812
 
                                     
Total liabilities and equity
$
662,437
 
$
673,321
 
$
188,761
 
$
189,756
 
$
528,326
 
$
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 amounted to $3,830 million and $3,137 million at June 30, 2006, and December 31, 2005, respectively.
 
See notes to condensed, consolidated financial statements. Separate information is shown for “GE” and “Financial Services (GECS).” June 30, 2006, data are unaudited. Transactions between GE and GECS have been eliminated from the “Consolidated” columns.

 
(9)

 

Condensed Statement of Cash Flows
General Electric Company and consolidated affiliates
 
 
Six months ended June 30 (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
$
9,386
 
$
8,698
 
$
9,386
 
$
8,698
 
$
5,260
 
$
4,653
 
Earnings from discontinued operations
 
(261
)
 
(676
)
 
-
   
-
   
(261
)
 
(676
)
Adjustments to reconcile net earnings to cash
                                   
provided from operating activities
                                   
Depreciation and amortization of property,
                                   
plant and equipment
 
4,378
   
4,266
   
1,300
   
1,225
   
3,078
   
3,041
 
Earnings retained by GECS
 
-
   
-
   
2,330
   
(2,814
)
 
-
   
-
 
Deferred income taxes
 
395
   
(493
)
 
55
   
(87
)
 
340
   
(406
)
Decrease in GE current receivables
 
2,931
   
1,544
   
2,925
   
1,663
   
-
   
-
 
Increase in inventories
 
(1,467
)
 
(613
)
 
(1,461
)
 
(583
)
 
(6
)
 
(30
)
Decrease in accounts payable
 
(1,537
)
 
(1,401
)
 
(915
)
 
(1,228
)
 
(373
)
 
(71
)
Increase in GE progress collections
 
246
   
110
   
246
   
110
   
-
   
-
 
Provision for losses on GECS financing receivables
 
1,718
   
1,860
   
-
   
-
   
1,718
   
1,860
 
All other operating activities
 
(3,576
)
 
(34
)
 
457
   
1,043
   
(974
)
 
(525
)
Cash from operating activities - continuing operations
 
12,213
   
13,261
   
14,323
   
8,027
   
8,782
   
7,846
 
Cash from (used for) operating activities - discontinued operations
 
(9
)
 
2,407
   
-
   
-
   
(9
)
 
2,407
 
Cash from operating activities
 
12,204
   
15,668
   
14,323
   
8,027
   
8,773
   
10,253
 
                                     
Cash flows - investing activities
                                   
Additions to property, plant and equipment
 
(7,384
)
 
(6,141
)
 
(1,497
)
 
(1,049
)
 
(5,887
)
 
(5,092
)
Dispositions of property, plant and equipment
 
2,930
   
3,071
   
-
   
-
   
2,896
   
3,075
 
Net decrease (increase) in GECS financing receivables
 
(15,483
)
 
4,249
   
-
   
-
   
(15,483
)
 
4,249
 
Payments for principal businesses purchased
 
(7,000
)
 
(10,341
)
 
(3,491
)
 
(3,499
)
 
(3,509
)
 
(6,842
)
Proceeds from sales of discontinued operations
 
8,112
   
3,403
   
-
   
-
   
8,112
   
3,403
 
All other investing activities
 
1,965
   
(1,263
)
 
1,403
   
687
   
(2,481
)
 
(2,584
)
Cash used for investing activities - continuing operations
 
(16,860
)
 
(7,022
)
 
(3,585
)
 
(3,861
)
 
(16,352
)
 
(3,791
)
Cash used for investing activities - discontinued operations
 
(2,558
)
 
(1,131
)
 
-
   
-
   
(2,558
)
 
(1,131
)
Cash used for investing activities
 
(19,418
)
 
(8,153
)
 
(3,585
)
 
(3,861
)
 
(18,910
)
 
(4,922
)
                                     
Cash flows - financing activities
                                   
Net increase (decrease) in borrowings (maturities of 90 days or less)
 
(3,312
)
 
(5,667
)
 
561
   
48
   
(4,127
)
 
(5,801
)
Newly issued debt (maturities longer than 90 days)
 
44,178
   
40,526
   
64
   
87
   
43,974
   
40,378
 
Repayments and other reductions (maturities longer than 90 days)
 
(21,935
)
 
(38,191
)
 
(148
)
 
(692
)
 
(21,787
)
 
(37,499
)
Net purchases of GE treasury shares
 
(6,217
)
 
(389
)
 
(6,217
)
 
(389
)
 
-
   
-
 
Dividends paid to shareowners
 
(5,247
)
 
(4,677
)
 
(5,247
)
 
(4,677
)
 
(7,590
)
 
(1,839
)
All other financing activities
 
(546
)
 
(860
)
 
-
   
-
   
(546
)
 
(860
)
Cash from (used for) financing activities - continuing operations
 
6,921
   
(9,258
)
 
(10,987
)
 
(5,623
)
 
9,924
   
(5,621
)
Cash used for financing activities - discontinued operations
 
(256
)
 
(691
)
 
-
   
-
   
(256
)
 
(691
)
Cash from (used for) financing activities
 
6,665
   
(9,949
)
 
(10,987
)
 
(5,623
)
 
9,668
   
(6,312
)
                                     
Decrease in cash and equivalents
 
(549
)
 
(2,434
)
 
(249
)
 
(1,457
)
 
(469
)
 
(981
)
Cash and equivalents at beginning of year
 
11,801
   
15,328
   
2,015
   
3,155
   
10,106
   
12,367
 
Cash and equivalents at June 30
 
11,252
   
12,894
   
1,766
   
1,698
   
9,637
   
11,386
 
Less cash and equivalents of discontinued operations at June 30
 
153
   
3,852
   
-
   
-
   
153
   
3,852
 
Cash and equivalents of continuing operations at June 30
$
11,099
 
$
9,042
 
$
1,766
 
$
1,698
 
$
9,484
 
$
7,534
 

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.
(a)
Certain individual line items within cash from operating activities have been restated.




 
(10)

 



Summary of Operating Segments
General Electric Company and consolidated affiliates
 
 
Three months ended
June 30 (Unaudited)
 
Six months ended
June 30 (Unaudited)
 
(In millions)
2006
 
2005
 
2006
 
2005
 
                         
Revenues
                       
Infrastructure
$
11,332
 
$
10,221
 
$
21,484
 
$
19,595
 
Industrial
 
8,788
   
8,253
   
16,928
   
15,921
 
Healthcare
 
4,156
   
3,768
   
7,815
   
7,089
 
NBC Universal
 
3,858
   
3,858
   
8,340
   
7,459
 
Commercial Finance
 
5,527
   
4,929
   
11,011
   
10,001
 
Consumer Finance
 
5,268
   
4,928
   
10,358
   
9,617
 
Total segment revenues
 
38,929
   
35,957
   
75,936
   
69,682
 
Corporate items and eliminations, as restated
 
1,119
   
343
   
2,141
   
1,326
 
Consolidated revenues
$
40,048
 
$
36,300
 
$
78,077
 
$
71,008
 
                         
Segment profit (a)
                       
Infrastructure
$
2,107
 
$
1,916
 
$
3,810
 
$
3,456
 
Industrial
 
729
   
635
   
1,329
   
1,161
 
Healthcare
 
795
   
672
   
1,291
   
1,081
 
NBC Universal
 
882
   
979
   
1,536
   
1,688
 
Commercial Finance
 
1,057
   
872
   
2,231
   
1,798
 
Consumer Finance
 
880
   
735
   
1,716
   
1,470
 
Total segment profit
 
6,450
   
5,809
   
11,913
   
10,654
 
Corporate items and eliminations, as restated
 
(293
)
 
(453
)
 
(650
)
 
(553
)
GE interest and other financial charges
 
(486
)
 
(336
)
 
(870
)
 
(717
)
GE provision for income taxes
 
(723
)
 
(783
)
 
(1,268
)
 
(1,362
)
Earnings from continuing operations
 
4,948
   
4,237
   
9,125
   
8,022
 
Earnings (loss) from discontinued operations,
                       
net of taxes
 
(2
)
 
271
   
261
   
676
 
Consolidated net earnings
$
4,946
 
$
4,508
 
$
9,386
 
$
8,698
 
                         

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

 

 
(11)

 

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 June 30, 2006, to amend and restate financial statements and other financial information for the three and six months ended June 30, 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.
 

 
(12)

 

Effects of the restatement by line item follow:
 
 
Three months ended
June 30
 
Six months ended
June 30
 
 
2006
 
2005
 
2006
 
2005
 
(In millions; per share amounts in dollars)
(unaudited)
As
previously
reported
 
As
restated
 
As
previously
reported
 
As
restated
 
As
previously
reported
 
As
restated
 
As
previously
reported
 
As
restated
 
                                                 
Statement of Earnings
                                               
                                                 
Consolidated
                                               
GECS commercial paper interest rate
                                               
swap adjustment (a)
$
-
 
$
148
 
$
-
 
$
(239
)
$
-
 
$
356
 
$
-
 
$
119
 
Interest and other financial charges
 
4,533
   
4,527
   
3,786
   
3,775
   
8,894
   
8,875
   
7,457
   
7,434
 
Earnings from continuing operations
                                               
before income taxes
 
5,894
   
6,048
   
5,369
   
5,141
   
10,847
   
11,222
   
9,713
   
9,855
 
Provision for income taxes
 
(1,040
)
 
(1,100
)
 
(993
)
 
(904
)
 
(1,951
)
 
(2,097
)
 
(1,777
)
 
(1,833
)
Earnings from continuing operations
 
4,854
   
4,948
   
4,376
   
4,237
   
8,896
   
9,125
   
7,936
   
8,022
 
Net earnings
 
4,852
   
4,946
   
4,647
   
4,508
   
9,157
   
9,386
   
8,612
   
8,698
 
                                                 
(a)
Included in total revenues.
                                                 
Per share amounts
                                               
Earnings from continuing
                                               
operations
                                               
Diluted earnings per share
$
0.47
 
$
0.48
 
$
0.41
 
$
0.40
 
$
0.85
 
$
0.87
 
$
0.75
 
$
0.75
 
Basic earnings per share
 
0.47
   
0.48
   
0.41
   
0.40
   
0.86
   
0.88
   
0.75
   
0.76
 
                                                 
Net earnings
                                               
Diluted earnings per share
$
0.47
 
$
0.48
 
$
0.44
 
$
0.42
 
$
0.88
 
$
0.90
 
$
0.81
 
$
0.82
 
Basic earnings per share
 
0.47
   
0.48
   
0.44
   
0.43
   
0.88
   
0.90
   
0.81
   
0.82
 
                                                 
GECS
                                               
GECS commercial paper interest rate
                                               
swap adjustment (a)
$
-
 
$
148
 
$
-
 
$
(239
)
$
-
 
$
356
 
$
-
 
$
119
 
Interest and other financial charges
 
4,202
   
4,196
   
3,603
   
3,592
   
8,309
   
8,290
   
7,017
   
6,994
 
Earnings from continuing operations
                                               
before income taxes
 
2,817
   
2,971
   
2,238
   
2,010
   
5,453
   
5,828
   
4,306
   
4,448
 
Provision for income taxes
 
(317
)
 
(377
)
 
(210
)
 
(121
)
 
(683
)
 
(829
)
 
(415
)
 
(471
)
Earnings from continuing operations
 
2,500
   
2,594
   
2,028
   
1,889
   
4,770
   
4,999
   
3,891
   
3,977
 
Net earnings
 
2,498
   
2,592
   
2,299
   
2,160
   
5,031
   
5,260
   
4,567
   
4,653
 
                                                 
(a)
Included in total revenues.

 

 
(13)

 


 
6/30/06
 
12/31/05
 
(In millions) (unaudited)
As
previously
reported
 
As
restated
 
As
previously
reported
 
As
restated
 
                         
Statement of Financial Position
                       
                         
Consolidated
                       
All other assets
$
91,199
 
$
91,221
 
$
84,849
 
$
84,828
 
Total assets
 
662,415
   
662,437
   
673,342
   
673,321
 
                         
Accounts payable
 
19,315
   
19,446
   
21,183
   
21,183
 
Other liabilities
 
40,910
   
40,933
   
39,966
   
39,966
 
Deferred income taxes
 
15,583
   
15,432
   
16,226
   
16,208
 
Total liabilities
 
545,368
   
545,371
   
555,934
   
555,916
 
                         
Cash flow hedges
 
(236
)
 
27
   
(822
)
 
(352
)
Retained earnings
 
102,061
   
101,817
   
98,117
   
97,644
 
Total shareowners’ equity
 
108,773
   
108,792
   
109,354
   
109,351
 
Total liabilities and equity
 
662,415
   
662,437
   
673,342
   
673,321
 
                         
GECS
                       
All other assets
$
55,680
 
$
55,702
 
$
49,461
 
$
49,440
 
Total assets
 
528,304
   
528,326
   
540,605
   
540,584
 
                         
Accounts payable
 
12,717
   
12,848
   
13,043
   
13,043
 
Other liabilities
 
17,679
   
17,702
   
16,787
   
16,787
 
Deferred income taxes
 
11,833
   
11,682
   
12,493
   
12,475
 
Total liabilities
 
477,420
   
477,423
   
487,542
   
487,524
 
                         
Cash flow hedges
 
(240
)
 
23
   
(813
)
 
(343
)
Retained earnings
 
32,680
   
32,436
   
35,379
   
34,906
 
Total shareowners’ equity
 
48,589
   
48,608
   
50,815
   
50,812
 
Total liabilities and equity
 
528,304
   
528,326
   
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.
 

 
(14)

 

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. 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.
 
Completed sale of 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 Reinsurance Company (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, that we are not permitted to sell until June 4, 2007, under the agreement we have with Swiss Re. GE Insurance Solutions’ earnings from discontinued operations, net of taxes, for the second quarter of 2006 and first six months of 2006 were $101 million and $236 million, respectively.
 
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) in the first quarter of 2006.
 
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 revenues for the second quarter and first six months of 2006 were $63 million and $862 million, respectively; and its earnings from operations for the second quarter and first six months of 2006 were $12 million and $17 million, respectively. For the first six months of 2006, we have provided for a pre-tax loss of $320 million ($285 million after tax), including a $110 million loss recognized in the second quarter of 2006 based on our best estimate of sales proceeds. We do not expect to realize a tax benefit for this loss. We anticipate selling GE Life by March 31, 2007.
 

 
(15)

 

Summarized financial information
 
Summarized financial information for discontinued operations is set forth below. Gain (loss) on disposal included both actual (GE Insurance Solutions and Genworth) and estimated (GE Life) effects.
 
 
Three months ended
June 30
 
Six months ended
June 30
 
(In millions)
2006
 
2005
 
2006
 
2005
 
                         
Discontinued operations before disposal
                       
Revenues from services
$
1,337
 
$
5,017
 
$
3,682
 
$
10,230
 
                         
Earnings from discontinued operations before
                       
minority interest and income taxes
$
203
 
$
636
 
$
382
 
$
1,334
 
Minority interest
 
-
   
145
   
-
   
244
 
Earnings from discontinued operations before
                       
income taxes
 
203
   
491
   
382
   
1,090
 
Income tax expense
 
(41
)
 
(220
)
 
(82
)
 
(500
)
Earnings from discontinued operations before
                       
disposal, net of taxes
$
162
 
$
271
 
$
300
 
$
590
 
                         
Disposal
                       
Gain (loss) on disposal before income taxes
$
(295
)
$
-
 
$
11
 
$
156
 
Income tax benefit (expense)
 
131
   
-
   
(50
)
 
(70
)
Gain (loss) on disposal, net of taxes
$
(164
)
$
-
 
$
(39
)
$
86
 
                         
Earnings (loss) from discontinued operations,
                       
net of taxes
$
(2
)
$
271
 
$
261
 
$
676
 

 
 
At
 
(In millions)
6/30/06
 
12/31/05
 
             
Assets
           
Cash and equivalents
$
153
 
$
2,976
 
Investment securities
 
11,776
   
37,633
 
Other receivables
 
472
   
13,915
 
Other
 
2,689
   
6,542
 
Assets of discontinued operations
 
15,090
   
61,066
 
Eliminations
 
-
   
-
 
Total