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 September 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 Exchange Act). Yes ¨ No þ
 
There were 10,308,102,000 shares of common stock with a par value of $0.06 per share outstanding at September 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
 
27
 
41
     
Part II - Other Information
   
     
 
42
 
42
 
43
 
44
 
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 September 30, 2006, to amend and restate financial statements and other financial information for the three and nine months ended September 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 of GE, from January 1, 2001, the date we adopted Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivatives 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 nine months ended September 30, 2006 and 2005, this non-cash restatement had the following earnings effects:
 
 
Effects of Correction
 
 
Three months ended
September 30
 
Nine months ended
September 30
 
(In millions)
2006
 
2005
 
2006
 
2005
 
                         
Increase (decrease) in earnings from
                       
continuing operations
$
(97
)
$
173
 
$
132
 
$
259
 

 
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 October 31, 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 nine months ended September 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
September 30
 
Nine months ended
September 30
 
Income (expense)
(In millions; per share amounts in dollars)
2006
 
2005
 
2006
 
2005
 
                         
Consolidated
                       
Commercial paper interest rate swap
                       
adjustment (note 1) (a)
$
(163
)
$
271
 
$
193
 
$
390
 
Interest and other financial charges
 
4
 
 
13
 
 
23
 
 
36
 
Earnings from continuing operations before
                       
income taxes
 
(159
)
 
284
   
216
   
426
 
Provision for income taxes
 
62
   
(111
)
 
(84
)
 
(167
)
Earnings from continuing operations
 
(97
)
 
173
   
132
   
259
 
Net earnings
 
(97
)
 
173
   
132
   
259
 

(a)
Included in total revenues.

 
 
Three months ended
September 30
 
Nine months ended
September 30
 
 
2006
 
2005
 
2006
 
2005
 
Per share amounts - earnings from continuing
                       
operations
                       
Diluted, as reported
$
0.49
 
$
0.43
 
$
1.34
 
$
1.18
 
Adjustment
 
(0.01
)
 
0.02
   
0.01
   
0.02
 
Diluted, as restated
$
0.48
 
$
0.45
 
$
1.35
 
$
1.20
 
                         
Basic, as reported
$
0.49
 
$
0.43
 
$
1.34
 
$
1.18
 
Adjustment
 
(0.01
)
 
0.02
   
0.02
   
0.03
 
Basic, as restated
$
0.48
 
$
0.45
 
$
1.36
 
$
1.21
 
                         
Per share amounts - net earnings
                       
Diluted, as reported
$
0.48
 
$
0.44
 
$
1.36
 
$
1.25
 
Adjustment
 
(0.01
)
 
0.02
   
0.01
   
0.02
 
Diluted, as restated
$
0.47
 
$
0.46
 
$
1.37
 
$
1.27
 
                         
Basic, as reported
$
0.48
 
$
0.44
 
$
1.36
 
$
1.25
 
Adjustment
 
(0.01
)
 
0.02
   
0.01
   
0.03
 
Basic, as restated
$
0.47
 
$
0.46
 
$
1.37
 
$
1.28
 
                         
                         

 

(5)



 
Three months ended
September 30
 
Nine months ended
September 30
 
Income (expense) (In millions)
2006
 
2005
 
2006
 
2005
 
                         
GECS
                       
Commercial paper interest rate swap
                       
adjustment (note 1) (a)
$
(163
)
$
271
 
$
193
 
$
390
 
Interest and other financial charges
 
4
 
 
13
 
 
23
 
 
36
 
Earnings from continuing operations before
                       
income taxes
 
(159
)
 
284
   
216
   
426
 
Provision for income taxes
 
62
   
(111
)
 
(84
)
 
(167
)
Earnings from continuing operations
 
(97
)
 
173
   
132
   
259
 
Net earnings
 
(97
)
 
173
   
132
   
259
 

(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 nine months ended September 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 September 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
$
15,656
 
$
14,346
 
$
15,255
 
$
13,823
 
$
519
 
$
543
 
Sales of services
 
9,134
   
7,673
   
9,223
   
7,744
   
-
   
-
 
Other income
 
570
   
347
   
613
   
367
   
-
   
-
 
GECS earnings from continuing operations
 
-
   
-
   
2,607
   
2,773
   
-
   
-
 
GECS revenues from services
 
15,496
   
14,002
   
-
   
-
   
15,756
   
14,323
 
GECS commercial paper interest rate swap adjustment
 
(163
)
 
271
   
-
   
-
   
(163
)
 
271
 
Total revenues
 
40,693
   
36,639
   
27,698
   
24,707
   
16,112
   
15,137
 
                                     
Cost of goods sold
 
12,705
   
11,247
   
12,343
   
10,764
   
480
   
505
 
Cost of services sold
 
5,763
   
4,754
   
5,852
   
4,825
   
-
   
-
 
Interest and other financial charges
 
5,139
   
3,702
   
507
   
339
   
4,798
   
3,495
 
Investment contracts, insurance losses and
                                   
insurance annuity benefits
 
822
   
874
   
-
   
-
   
867
   
926
 
Provision for losses on financing receivables
 
965
   
1,095
   
-
   
-
   
965
   
1,095
 
Other costs and expenses
 
9,233
   
8,749
   
3,262
   
3,200
   
6,063
   
5,704
 
Minority interest in net earnings of
                                   
consolidated affiliates
 
215
   
230
   
158
   
146
   
57
   
84
 
Total costs and expenses
 
34,842
   
30,651
   
22,122
   
19,274
   
13,230
   
11,809
 
                                     
Earnings from continuing operations
                                   
before income taxes
 
5,851
   
5,988
   
5,576
   
5,433
   
2,882
   
3,328
 
Provision for income taxes
 
(889
)
 
(1,223
)
 
(614
)
 
(668
)
 
(275
)
 
(555
)
Earnings from continuing operations
 
4,962
   
4,765
   
4,962
   
4,765
   
2,607
   
2,773
 
Earnings (loss) from discontinued operations,
                                   
net of taxes
 
(95
)
 
85
   
(95
)
 
85
   
(95
)
 
85
 
Net earnings
$
4,867
 
$
4,850
 
$
4,867
 
$
4,850
 
$
2,512
 
$
2,858
 
                                     
Per-share amounts
                                   
Per-share amounts - earnings from
                                   
continuing operations
                                   
Diluted earnings per share
$
0.48
 
$
0.45
                         
Basic earnings per share
$
0.48
 
$
0.45
                         
                                     
Per-share amounts - net earnings
                                   
Diluted earnings per share
$
0.47
 
$
0.46
                         
Basic earnings per share
$
0.47
 
$
0.46
                         
                                     
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
 
 
Nine months ended September 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
$
46,715
 
$
42,751
 
$
45,274
 
$
40,912
 
$
1,786
 
$
1,881
 
Sales of services
 
26,456
   
23,662
   
26,738
   
23,896
   
-
   
-
 
Other income
 
1,678
   
1,260
   
1,787
   
1,321
   
-
   
-
 
GECS earnings from continuing operations
 
-
   
-
   
7,606
   
6,750
   
-
   
-
 
GECS revenues from services
 
43,728
   
39,584
   
-
   
-
   
44,477
   
40,551
 
GECS commercial paper interest rate swap adjustment
 
193
   
390
   
-
   
-
   
193
   
390
 
Total revenues
 
118,770
   
107,647
   
81,405
   
72,879
   
46,456
   
42,822
 
                                     
Cost of goods sold
 
37,188
   
33,278
   
35,881
   
31,553
   
1,652
   
1,768
 
Cost of services sold
 
17,084
   
14,861
   
17,366
   
15,095
   
-
   
-
 
Interest and other financial charges
 
14,014
   
11,136
   
1,377
   
1,056
   
13,088
   
10,489
 
Investment contracts, insurance losses and
                                   
insurance annuity benefits
 
2,364
   
2,500
   
-
   
-
   
2,503
   
2,642
 
Provision for losses on financing receivables
 
2,683
   
2,955
   
-
   
-
   
2,683
   
2,955
 
Other costs and expenses
 
27,676
   
26,338
   
10,305
   
9,777
   
17,639
   
17,037
 
Minority interest in net earnings of
                                   
consolidated affiliates
 
688
   
736
   
507
   
581
   
181
   
155
 
Total costs and expenses
 
101,697
   
91,804
   
65,436
   
58,062
   
37,746
   
35,046
 
                                     
Earnings from continuing operations
                                   
before income taxes
 
17,073
   
15,843
   
15,969
   
14,817
   
8,710
   
7,776
 
Provision for income taxes
 
(2,986
)
 
(3,056
)
 
(1,882
)
 
(2,030
)
 
(1,104
)
 
(1,026
)
Earnings from continuing operations
 
14,087
   
12,787
   
14,087
   
12,787
   
7,606
   
6,750
 
Earnings from discontinued operations, net of taxes
 
166
   
761
   
166
   
761
   
166
   
761
 
Net earnings
$
14,253
 
$
13,548
 
$
14,253
 
$
13,548
 
$
7,772
 
$
7,511
 
                                     
Per-share amounts
                                   
Per-share amounts - earnings from
                                   
continuing operations
                                   
Diluted earnings per share
$
1.35
 
$
1.20
                         
Basic earnings per share
$
1.36
 
$
1.21
                         
                                     
Per-share amounts - net earnings
                                   
Diluted earnings per share
$
1.37
 
$
1.27
                         
Basic earnings per share
$
1.37
 
$
1.28
                         
                                     
Dividends declared per share
$
0.75
 
$
0.66
                         

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)
9/30/06
(Restated)
 
12/31/05
(Restated)
 
9/30/06
(Restated)
 
12/31/05
(Restated)
 
9/30/06
(Restated)
 
12/31/05
(Restated)
 
                                     
Cash and equivalents
$
13,782
 
$
8,825
 
$
1,739
 
$
2,015
 
$
12,144
 
$
7,130
 
Investment securities
 
45,626
   
42,148
   
425
   
461
   
45,208
   
41,710
 
Current receivables
 
12,535
   
14,851
   
12,771
   
15,058
   
-
   
-
 
Inventories
 
11,855
   
10,474
   
11,681
   
10,315
   
174
   
159
 
Financing receivables - net
 
310,231
   
287,639
   
-
   
-
   
310,258
   
287,639
 
Other GECS receivables
 
16,359
   
14,332
   
-
   
-
   
20,741
   
18,625
 
Property, plant and equipment (including
                                   
equipment leased to others) - net
 
72,246
   
67,528
   
15,834
   
16,504
   
56,412
   
51,024
 
Investment in GECS
 
-
   
-
   
51,035
   
50,812
   
-
   
-
 
Intangible assets - net
 
85,468
   
81,630
   
60,129
   
57,839
   
25,339
   
23,791
 
All other assets
 
98,423
   
84,828
   
39,232
   
36,752
   
60,391
   
49,440
 
Assets of discontinued operations
 
15,540
   
61,066
   
-
   
-
   
15,540
   
61,066
 
Total assets
$
682,065
 
$
673,321
 
$
192,846
 
$
189,756
 
$
546,207
 
$
540,584
 
                                     
Short-term borrowings
$
167,206
 
$
158,156
 
$
2,679
 
$
1,127
 
$
165,073
 
$
157,672
 
Accounts payable, principally trade accounts
 
18,864
   
21,183
   
10,500
   
11,870
   
12,145
   
13,043
 
Progress collections and price adjustments accrued
 
4,949
   
4,456
   
4,949
   
4,456
   
-
   
-
 
Other GE current liabilities
 
20,430
   
21,042
   
20,430
   
21,059
   
-
   
-
 
Long-term borrowings
 
242,927
   
212,281
   
9,010
   
9,081
   
235,123
   
204,397
 
Investment contracts, insurance liabilities
                                   
and insurance annuity benefits
 
34,570
   
33,097
   
-
   
-
   
34,894
   
33,387
 
All other liabilities
 
41,863
   
39,966
   
23,803
   
23,273
   
18,156
   
16,787
 
Deferred income taxes
 
16,374
   
16,208
   
4,183
   
3,733
   
12,191
   
12,475
 
Liabilities of discontinued operations
 
15,289
   
49,527
   
-
   
-
   
15,289
   
49,763
 
Total liabilities
 
562,472
   
555,916
   
75,554
   
74,599
   
492,871
   
487,524
 
                                     
Minority interest in equity of consolidated affiliates
 
8,211
   
8,054
   
5,910
   
5,806
   
2,301
   
2,248
 
Common stock (10,308,102,000 and 10,484,268,000
                                   
shares outstanding at September 30, 2006 and
                                   
December 31, 2005, respectively)
 
669
   
669
   
669
   
669
   
1
   
1
 
Accumulated gains (losses) - net
                                   
Investment securities
 
1,253
   
1,831
   
1,253
   
1,831
   
1,188
   
1,754
 
Currency translation adjustments
 
4,748
   
2,532
   
4,748
   
2,532
   
3,774
   
2,287
 
Cash flow hedges
 
(172
)
 
(352
)
 
(172
)
 
(352
)
 
(139
)
 
(343
)
Minimum pension liabilities
 
(895
)
 
(874
)
 
(895
)
 
(874
)
 
(193
)
 
(179
)
Other capital
 
25,344
   
25,227
   
25,344
   
25,227
   
12,538
   
12,386
 
Retained earnings
 
104,111
   
97,644
   
104,111
   
97,644
   
33,866
   
34,906
 
Less common stock held in treasury
 
(23,676
)
 
(17,326
)
 
(23,676
)
 
(17,326
)
 
-
   
-
 
                                     
Total shareowners’ equity
 
111,382
   
109,351
   
111,382
   
109,351
   
51,035
   
50,812
 
                                     
Total liabilities and equity
$
682,065
 
$
673,321
 
$
192,846
 
$
189,756
 
$
546,207
 
$
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 $4,934 million and $3,137 million at September 30, 2006, and December 31, 2005, respectively.
 
See notes to condensed, consolidated financial statements. Separate information is shown for “GE” and “Financial Services (GECS).” September 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
 
 
Nine months ended September 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
$
14,253
 
$
13,548
 
$
14,253
 
$
13,548
 
$
7,772
 
$
7,511
 
Earnings from discontinued operations
 
(166
)
 
(761
)
 
-
   
-
   
(166
)
 
(761
)
Adjustments to reconcile net earnings to cash
                                   
provided from operating activities
                                   
Depreciation and amortization of property,
                                   
plant and equipment
 
6,672
   
6,483
   
1,935
   
1,867
   
4,737
   
4,616
 
Earnings retained by GECS
 
-
   
-
   
899
   
(1,999
)
 
-
   
-
 
Deferred income taxes
 
1,505
   
(642
)
 
754
   
(146
)
 
751
   
(496
)
Decrease in GE current receivables
 
2,337
   
1,766
   
2,307
   
1,857
   
-
   
-
 
Decrease (increase) in inventories
 
(1,908
)
 
(919
)
 
(1,893
)
 
(934
)
 
(15
)
 
15
 
Increase (decrease) in accounts payable
 
(1,432
)
 
(1,096
)
 
(435
)
 
(1,198
)
 
(946
)
 
468
 
Increase in GE progress collections
 
469
   
395
   
469
   
395
   
-
   
-
 
Provision for losses on GECS financing receivables
 
2,683
   
2,955
   
-
   
-
   
2,683
   
2,955
 
All other operating activities
 
(2,654
)
 
3,645
   
196
   
1,307
   
297
   
2,692
 
Cash from operating activities - continuing operations
 
21,759
   
25,374
   
18,485
   
14,697
   
15,113
   
17,000
 
Cash from (used for) operating activities - discontinued operations
 
(64
)
 
3,888
   
-
   
-
   
(64
)
 
3,888
 
Cash from operating activities
 
21,695
   
29,262
   
18,485
   
14,697
   
15,049
   
20,888
 
                                     
Cash flows - investing activities
                                   
Additions to property, plant and equipment
 
(11,045
)
 
(9,666
)
 
(2,450
)
 
(1,616
)
 
(8,595
)
 
(8,050
)
Dispositions of property, plant and equipment
 
4,429
   
4,433
   
-
   
-
   
4,429
   
4,433
 
Net increase in GECS financing receivables
 
(24,179
)
 
(5,513
)
 
-
   
-
   
(24,179
)
 
(5,513
)
Payments for principal businesses purchased
 
(10,966
)
 
(10,527
)
 
(4,068
)
 
(3,784
)
 
(6,898
)
 
(6,743
)
Proceeds from sales of discontinued operations
 
8,112
   
6,690
   
-
   
-
   
8,112
   
6,690
 
All other investing activities
 
1,224
   
(1,347
)
 
1,405
   
819
   
(3,483
)
 
(2,937
)
Cash used for investing activities - continuing operations
 
(32,425
)
 
(15,930
)
 
(5,113
)
 
(4,581
)
 
(30,614
)
 
(12,120
)
Cash used for investing activities - discontinued operations
 
(2,469
)
 
(5,250
)
 
-
   
-
   
(2,469
)
 
(5,250
)
Cash used for investing activities
 
(34,894
)
 
(21,180
)
 
(5,113
)
 
(4,581
)
 
(33,083
)
 
(17,370
)
                                     
Cash flows - financing activities
                                   
Net increase (decrease) in borrowings (maturities of 90 days or less)
 
600
   
(9,871
)
 
1,596
   
(493
)
 
(1,089
)
 
(7,680
)
Newly issued debt (maturities longer than 90 days)
 
60,745
   
48,289
   
88
   
151
   
60,665
   
48,159
 
Repayments and other reductions (maturities longer than 90 days)
 
(29,754
)
 
(40,866
)
 
(111
)
 
(819
)
 
(29,643
)
 
(40,047
)
Net purchases of GE treasury shares
 
(7,390
)
 
(1,868
)
 
(7,390
)
 
(1,868
)
 
-
   
-
 
Dividends paid to shareowners
 
(7,831
)
 
(7,015
)
 
(7,831
)
 
(7,015
)
 
(8,671
)
 
(5,512
)
All other financing activities
 
(747
)
 
(1,401
)
 
-
   
-
   
(747
)
 
(1,401
)
Cash from (used for) financing activities - continuing operations
 
15,623
   
(12,732
)
 
(13,648
)
 
(10,044
)
 
20,515
   
(6,481
)
Cash from (used for) financing activities - discontinued operations
 
(257
)
 
249
   
-
   
-
   
(257
)
 
249
 
Cash from (used for) financing activities
 
15,366
   
(12,483
)
 
(13,648
)
 
(10,044
)
 
20,258
   
(6,232
)
                                     
Increase (decrease) in cash and equivalents
 
2,167
   
(4,401
)
 
(276
)
 
72
   
2,224
   
(2,714
)
Cash and equivalents at beginning of year
 
11,801
   
15,328
   
2,015
   
3,155
   
10,106
   
12,367
 
Cash and equivalents at September 30
 
13,968
   
10,927
   
1,739
   
3,227
   
12,330
   
9,653
 
Less cash and equivalents of discontinued operations at September 30
 
186
   
2,154
   
-
   
-
   
186
   
2,154
 
Cash and equivalents of continuing operations at September 30
$
13,782
 
$
8,773
 
$
1,739
 
$
3,227
 
$
12,144
 
$
7,499
 

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 item within cash from operating activities have been restated.



(10)




Summary of Operating Segments
General Electric Company and consolidated affiliates
 
 
Three months ended
September 30 (Unaudited)
 
Nine months ended
September 30 (Unaudited)
 
(In millions)
2006
 
2005
 
2006
 
2005
 
                         
Revenues
                       
Infrastructure
$
12,104
 
$
10,128
 
$
33,588
 
$
29,723
 
Industrial
 
8,526
   
8,257
   
25,454
   
24,178
 
Healthcare
 
3,897
   
3,578
   
11,712
   
10,667
 
NBC Universal
 
3,631
   
3,038
   
11,971
   
10,497
 
Commercial Finance
 
6,006
   
5,414
   
17,017
   
15,415
 
GE Money (a)
 
5,590
   
4,913
   
15,948
   
14,530
 
Total segment revenues
 
39,754
   
35,328
   
115,690
   
105,010
 
Corporate items and eliminations
 
939
   
1,311
   
3,080
   
2,637
 
Consolidated revenues
$
40,693
 
$
36,639
 
$
118,770
 
$
107,647
 
                         
Segment profit (b)
                       
Infrastructure
$
2,336
 
$
1,880
 
$
6,146
 
$
5,336
 
Industrial
 
692
   
629
   
2,021
   
1,790
 
Healthcare
 
700
   
589
   
1,991
   
1,670
 
NBC Universal
 
542
   
603
   
2,078
   
2,291
 
Commercial Finance
 
1,290
   
1,212
   
3,521
   
3,010
 
GE Money (a)
 
916
   
810
   
2,632
   
2,280
 
Total segment profit
 
6,476
   
5,723
   
18,389
   
16,377
 
Corporate items and eliminations
 
(393
)
 
49
   
(1,043
)
 
(504
)
GE interest and other financial charges
 
(507
)
 
(339
)
 
(1,377
)
 
(1,056
)
GE provision for income taxes
 
(614
)
 
(668
)
 
(1,882
)
 
(2,030
)
Earnings from continuing operations
 
4,962
   
4,765
   
14,087
   
12,787
 
Earnings (loss) from discontinued operations,
                       
net of taxes
 
(95
)
 
85
   
166
   
761
 
Consolidated net earnings
$
4,867
 
$
4,850
 
$
14,253
 
$
13,548
 
                         

(a)
 
Formerly known as Consumer Finance.
 
(b)
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, GE Money, 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 September 30, 2006, to amend and restate financial statements and other financial information for the three and nine months ended September 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 not 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
September 30
 
Nine months ended
September 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)
$
-
 
$
(163
)
$
-
 
$
271
 
$
-
 
$
193
 
$
-
 
$
390
 
Interest and other financial charges
 
5,143
   
5,139
   
3,715
   
3,702
   
14,037
   
14,014
   
11,172
   
11,136
 
Earnings from continuing operations
                                               
before income taxes
 
6,010
   
5,851
   
5,704
   
5,988
   
16,857
   
17,073
   
15,417
   
15,843
 
Provision for income taxes
 
(951
)
 
(889
)
 
(1,112
)
 
(1,223
)
 
(2,902
)
 
(2,986
)
 
(2,889
)
 
(3,056
)
Earnings from continuing operations
 
5,059
   
4,962
   
4,592
   
4,765
   
13,955
   
14,087
   
12,528
   
12,787
 
Net earnings
 
4,964
   
4,867
   
4,677
   
4,850
   
14,121
   
14,253
   
13,289
   
13,548
 
                                                 
(a)
Included in total revenues.
                                                 
Per share amounts
                                               
Earnings from continuing
                                               
operations
                                               
Diluted earnings per share
$
0.49
 
$
0.48
 
$
0.43
 
$
0.45
 
$
1.34
 
$
1.35
 
$
1.18
 
$
1.20
 
Basic earnings per share
 
0.49
   
0.48
   
0.43
   
0.45
   
1.34
   
1.36
   
1.18
   
1.21
 
                                                 
Net earnings
                                               
Diluted earnings per share
$
0.48
 
$
0.47
 
$
0.44
 
$
0.46
 
$
1.36
 
$
1.37
 
$
1.25
 
$
1.27
 
Basic earnings per share
 
0.48
   
0.47
   
0.44
   
0.46
   
1.36
   
1.37
   
1.25
   
1.28
 
                                                 
GECS
                                               
GECS commercial paper interest rate
                                               
swap adjustment (a)
$
-
 
$
(163
)
$
-
 
$
271
 
$
-
 
$
193
 
$
-
 
$
390
 
Interest and other financial charges
 
4,802
   
4,798
   
3,508
   
3,495
   
13,111
   
13,088
   
10,525
   
10,489
 
Earnings from continuing operations
                                               
before income taxes
 
3,041
   
2,882
   
3,044
   
3,328
   
8,494
   
8,710
   
7,350
   
7,776
 
Provision for income taxes
 
(337
)
 
(275
)
 
(444
)
 
(555
)
 
(1,020
)
 
(1,104
)
 
(859
)
 
(1,026
)
Earnings from continuing operations
 
2,704
   
2,607
   
2,600
   
2,773
   
7,474
   
7,606
   
6,491
   
6,750
 
Net earnings
 
2,609
   
2,512
   
2,685
   
2,858
   
7,640
   
7,772
   
7,252
   
7,511
 
                                                 
(a)
Included in total revenues.

 

(13)



 
9/30/06
 
12/31/05
 
(In millions) (unaudited)
As
previously
reported
 
As
restated
 
As
previously
reported
 
As
restated
 
                         
Statement of Financial Position
                       
                         
Consolidated
                       
All other assets
$
98,458
 
$
98,423
 
$
84,849
 
$
84,828
 
Total assets
 
682,100
   
682,065
   
673,342
   
673,321
 
                         
Accounts payable
 
18,788
   
18,864
   
21,183
   
21,183
 
All other liabilities
 
41,849
   
41,863
   
39,966
   
39,966
 
Deferred income taxes
 
16,484
   
16,374
   
16,226
   
16,208
 
Total liabilities
 
562,492
   
562,472
   
555,934
   
555,916
 
                         
Cash flow hedges
 
(498
)
 
(172
)
 
(822
)
 
(352
)
Retained earnings
 
104,452
   
104,111
   
98,117
   
97,644
 
Total shareowners’ equity
 
111,397
   
111,382
   
109,354
   
109,351
 
Total liabilities and equity
 
682,100
   
682,065
   
673,342
   
673,321
 
                         
                         
GECS
                       
All other assets
$
60,426
 
$
60,391
 
$
49,461
 
$
49,440
 
Total assets
 
546,242
   
546,207
   
540,605
   
540,584
 
                         
Accounts payable
 
12,069
   
12,145
   
13,043
   
13,043
 
All other liabilities
 
18,142
   
18,156
   
16,787
   
16,787
 
Deferred income taxes
 
12,301
   
12,191
   
12,493
   
12,475
 
Total liabilities
 
492,891
   
492,871
   
487,542
   
487,524
 
                         
Cash flow hedges
 
(465
)
 
(139
)
 
(813
)
 
(343
)
Retained earnings
 
34,207
   
33,866
   
35,379
   
34,906
 
Total shareowner’s equity
 
51,050
   
51,035
   
50,815
   
50,812
 
Total liabilities and equity
 
546,242
   
546,207
   
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 before June 4, 2007, under the agreement we have with Swiss Re. GE Insurance Solutions loss from discontinued operations, net of taxes, for the third quarter of 2006 was $25 million and earnings from discontinued operations, net of taxes, for the first nine months of 2006 were $211 million.
 
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
 
On October 13, 2006, Swiss Re agreed to purchase GE Life, our U.K.-based life insurance operation, for 465 million pounds (approximately $863 million). Operating results through closing will be controlled by us and be for our benefit, subject to certain restrictions with respect to conducting the operation being sold. Effective at closing, all policyholder and other customer contracts will be the responsibility of Swiss Re. We expect this transaction to close in the fourth quarter of 2006, subject to regulatory approvals and customary closing conditions. GE Life revenues for the third quarter and first nine months of 2006 were $490 million and $1,352 million, respectively; its earnings from operations for the third quarter and first nine months of 2006 were $12 million and $29 million, respectively. We have provided for our best estimate of loss on the sale. We made no such provision in the third quarter of 2006. We have provided $320 million ($285 million after tax) for the first nine months of 2006.
 
Summarized financial information for discontinued operations
 
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.
 

(15)



 
Three months ended
September 30
 
Nine months ended
September 30
 
(In millions)
2006
 
2005
 
2006
 
2005
 
                         
Operations
                       
Revenues from services
$
489
 
$
5,137
 
$
4,171
 
$
15,367
 
                         
Earnings from discontinued operations before
                       
minority interest and income taxes
$
9
 
$
47
 
$
391
 
$
1,381
 
Minority interest
 
-
   
150
   
-
   
394
 
Earnings (loss) from discontinued operations
                       
before income taxes
 
9
   
(103
)
 
391
   
987
 
Income tax expense
 
(4
)
 
(66
)
 
(86
)
 
(566
)
Earnings (loss) from discontinued operations
                       
before disposal, net of taxes
$
5
 
$
(169
)
$
305
 
$
421
 
                         
Disposal
                       
Gain (loss) on disposal before income taxes
$
(163
)
$
420
 
$
(152
)
$
576
 
Income tax benefit (expense)
 
63
   
(166
)
 
13
   
(236
)
Gain (loss) on disposal, net of taxes
$
(100
)
$
254
 
$
(139
)
$
340
 
                         
Earnings (loss) from discontinued operations,
                       
net of taxes
$
(95
)
$
85
 
$
166
 
$
761
 

 
 
At
 
(In millions)
9/30/06
 
12/31/05
 
             
Assets
           
Cash and equivalents
$
186
 
$
2,976
 
Investment securities
 
12,107
   
37,633
 
Other receivables