General Electric - 10-Q quarterly report FY

This document includes certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to changes in global political, economic, business, competitive, market and regulatory factors.

(6)

Notes to Condensed, Consolidated Financial Statements (Unaudited)

     1. The accompanying condensed quarterly 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, 2002. 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 presentation.

     2. The condensed, consolidated quarterly financial statements are unaudited. These statements include all adjustments (consisting of normal recurring accruals) that we considered necessary to present a fair statement of the 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 consistently 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 actual interim closing dates using a "fiscal" calendar, which requires our businesses to close their books on either a Saturday or Sunday, depending on the business, in order to normalize the potentially disruptive effects of quarterly closing on business processes. 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/en/company/investor/secreports.htm.

     3. The Financial Accounting Standards Board's (FASB) Statement of Financial Accounting Standards (SFAS) 143,Accounting for Asset Retirement Obligations, became effective for us on January 1, 2003. Under SFAS 143, obligations associated with the retirement of long-lived assets are recorded when there is a legal obligation to incur such costs. This amount is accounted for like an additional element of cost, and, like other cost elements, is depreciated over the corresponding asset's useful life. SFAS 143 primarily affects our accounting for costs associated with the future retirement of facilities used for storage and production of nuclear fuel. On January 1, 2003, we recorded a liability for the expected present value of future retirement costs of $363 million; increased net property, plant and equipment by $24 million and recognized a one-time, non-cash transition charge of $330 million ($215 million after tax, or $0.02 per share) which is reported in the caption "Cumulative effect of accounting changes." Pro forma effects for the three months ended March 31, 2002, assuming adoption of SFAS 143 as of January 1, 2002, were not material to net earnings or per-share amounts.

     In November 2002, the FASB issued Interpretation No. (FIN) 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. Among other things, the Interpretation requires guarantors to recognize, at fair value, their obligations to stand ready to perform under certain guarantees. FIN 45 became effective for guarantees issued or modified on or after January 1, 2003, and had an inconsequential effect on our financial position as of March 31, 2003, and results of operations for the first quarter of 2003.

(7)

     In January 2003, the FASB issued FIN 46, Consolidation of Variable Interest Entities, which we intend to adopt on July 1, 2003. FIN 46's consolidation criteria are based on analysis of risks and rewards, not control, and represent a significant and complex modification of previous accounting principles. FIN 46 represents an accounting change, not a change in the underlying economics of asset sales. Under its provisions, certain assets previously sold to our special purpose entities (SPEs) could be consolidated on our books, and, if consolidated, certain assets and liabilities now on our books related to those SPEs would be removed. In the event we consolidated these assets, we would not reacquire their legal ownership, nor would our legal rights and obligations change. We are also in the process of reviewing application of FIN 46 to all of our investments in operating entities that are not presently consolidated, including but not limited to joint ventures and associated companies. The very complexity of the new consolidation rules and their evolving clarification make forecasting that July 1 effect impracticable. It is also clear that many alternative structures for sales of financial assets would continue to be reported as sales under FIN 46 with the assets qualifying for sale not consolidated. We are evaluating whether characteristics of those structures can cost-beneficially be applied to our arrangements before the July 1 effective date.

     4. SFAS 142, Goodwill and Other Intangible Assets, generally became effective for us on January 1, 2002. Under SFAS 142, goodwill is no longer amortized but is tested for impairment using a fair value methodology. We stopped amortizing goodwill effective January 1, 2002.

     Under SFAS 142, we were required to test all existing goodwill for impairment as of January 1, 2002, on a "reporting unit" basis. A reporting unit is the operating segment unless, at businesses one level below that operating segment (the "component" level), discrete financial information is prepared and regularly reviewed by management, in which case such component is the reporting unit.

     A fair value approach is used to test goodwill for impairment. An impairment charge is recognized for the amount, if any, by which the carrying amount of goodwill exceeds its fair value. We established fair values using discounted cash flows. When available and as appropriate, we use comparative market multiples to corroborate discounted cash flow results.

     The result of testing goodwill impairment in accordance with SFAS 142, as of January 1, 2002, was a non-cash charge of $1.204 billion ($1.015 billion after tax, or $0.10 per share), which is reported in the caption "Cumulative effect of accounting changes." Substantially all of the charge relates to the GECS IT Solutions business and the GECS GE Auto and Home business. Factors contributing to the impairment charge were the difficult economic environment in the information technology sector and heightened price competition in the auto insurance industry. No impairment charge had been required under our previous goodwill impairment policy, which was based on undiscounted cash flows.

(8)

Intangibles Subject to Amortization

     Consolidated amortization expense related to amortizable intangible assets for the quarters ended March 31, 2003 and 2002, was $436 million and $351 million, respectively. The estimated percentage of the December 31, 2002, net PVFP balance to be amortized over each of the next five years follows:

     Amortization expense for PVFP in future periods will be affected by acquisitions, realized capital gains/losses or other factors affecting the ultimate amount of gross profits realized from certain lines of business. Similarly, future amortization expense for other intangibles will depend on acquisition activity and other business transactions.

(9)

Goodwill

     Goodwill balances follow:

     5. A summary of increases/(decreases) in share owners' equity that did not result directly from transactions with share owners, net of income taxes, follows:

(10)

6. Inventories consisted of the following:

     7. Property, plant and equipment (including equipment leased to others) – net, consisted of the following:

(11)

     8. 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.

(12)

     9. In the third quarter of 2002, we adopted the stock option expense provisions of SFAS 123, Accounting for Stock Based Compensation under the prospective method of transition. We first measure the total cost of each option grant at the grant date, using market-based option trading models. We then recognize each grant's total cost over the period that the options vest. Under this approach, we charged $22 million to net earnings in the first quarter of 2003. The effect on the net earnings of the first quarter of 2002 was insignificant. A comparison of as reported and pro-forma net earnings, including effects of expensing stock options, follows.

Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition

Overview

     General Electric Company's consolidated financial statements represent the combination of the industrial manufacturing and product services businesses of General Electric Company (GE) and the financial services businesses of General Electric Capital Services, Inc. (GECS or financial services).

     In the accompanying analysis of financial information, we sometimes refer to information extracted from consolidated financial information but not required by generally accepted accounting principles (GAAP) to be presented in financial statements. Certain of this information is considered "non-GAAP financial measures" under Securities and Exchange Commission rules; those rules require supplemental explanation and reconciliation which we have provided in Exhibit 99.3 to this Form 10-Q report.

A. Results of Operations – First Quarter of 2003 Compared with First Quarter of 2002

     General Electric Company earnings before accounting changes were $3.214 billion, or $0.32 per share, compared with $3.518 billion, or $0.35 per share in the first quarter of 2002. Net earnings were $2.999 billion, or $0.30 per share in the first quarter of 2003 compared with $2.503 billion, or $0.25 per share in first quarter of 2002. In the first quarter of 2003, GE recorded a non-cash transition charge to earnings of $215 million (after tax), or $0.02 per share, for the required change in accounting for obligations associated with the eventual retirement of certain operating facilities (discussed in note 3 of this Form 10-Q report). In the first quarter of 2002, GE recorded a non-cash transition charge of $1.015 billion (after tax), or $0.10 per share, for impairment of goodwill required upon the adoption of a new accounting standard (discussed in note 4 of this Form 10-Q report).

(13)

     Revenues of $30.3 billion were 1% lower than in the first quarter of 2002, reflecting lower U.S. gas turbine sales at Power Systems and the absence in 2003 of NBC Winter Olympic broadcast revenues. Industrial sales were down 6% to $15.8 billion. Excluding Power Systems in both periods and the Winter Olympics broadcast in 2002, industrial sales rose 7%. Sales of product services (including sale of spare parts, monitoring, maintenance and repair services) grew 20% to $5.1 billion. Financial services revenues of $14.7 billion were up 6%.

     Acquisitions contributed $112 million to consolidated earnings in the first quarter of 2003 compared with approximately $160 million in the first quarter of 2002. We integrate acquisitions as quickly as possible and only earnings during the first 12 months following the quarter in which we complete the acquisition are considered to be related to acquired businesses.

     Operating margin in the first quarter of 2003 was 15.4% of sales, compared with an operating margin of 18.2% for the first quarter of 2002, reflecting the anticipated effect of lower sales of high-margin products by Power Systems.

Segment Analysis

     The comments that follow compare revenues and segment profit by operating segment for the first quarters of 2003 and 2002. Segment profit excludes the effects of pension and other retiree benefit plans, accounting changes and certain restructuring and other charges. Segment profit includes or excludes interest and other financial charges and segment income taxes according to how segment management is measured – excluded in determining operating profit for Aircraft Engines, Consumer Products, Industrial Products and Systems, Medical Systems, NBC, Plastics, Power Systems, Specialty Materials and Transportation Systems, but included in determining net earnings for Commercial Finance, Consumer Finance, Equipment Management, Insurance and All Other GECS. We have reclassified certain prior-year amounts to conform to this year's presentation.

• Aircraft Engines
reported revenues of $2.383 billion, 8% lower than the first quarter of 2002, reflecting lower volume primarily related to commercial and industrial aero-derivative engines, partially offset by an increase in product services volume. Despite these lower engine sales, operating profit increased 13% to $474 million in the first quarter of 2003 reflecting the effects of productivity and higher product services volume.

(14)

• Commercial Finance

Commercial Finance revenues and net earnings increased 8% and 15%, respectively, compared with the first quarter of 2002. The increase in revenues and net earnings resulted primarily from asset growth across all business units reflecting acquisitions and origination growth, partially offset by lower securitzation gains at Commercial Equipment Financing and a specific loss on a telecommunications investment by Structured Finance Group, with lower credit losses also contributing to the increase in net earnings. Other Commercial Finance principally includes revenues of $177 million and $136 million and net earnings of $29 million and $24 million of the Healthcare Financial Services business in the first quarters of 2003 and 2002, respectively.

(15)

• Consumer Finance

     During the first quarter of 2003, we issued $5 billion of debt and used the funds primarily to reduce the amount of outstanding commercial paper. We also issued approximately $16 billion of long-term debt in U.S. and international markets from our financial services businesses during the first quarter of 2003. These funds were used primarily to fund maturing long-term debt, reduce the amount of commercial paper outstanding and to fund new asset growth. We target a ratio for commercial paper of 25% to 35% of outstanding debt based on the anticipated composition of our assets. We anticipate the financial services businesses issuing approximately $44 billion of additional long-term debt using both U.S. and international markets during the remainder of 2003. The proceeds from such issuances will be used to fund maturing long-term debt, additional acquisitions and asset growth. The ultimate amount of debt issuances will depend on the growth in assets, acquisition activity, availability of markets and movements in interest rates.

(23)

     We believe that alternative sources of liquidity are sufficient to permit an orderly transition from commercial paper in the unlikely event of impaired access to those markets. Funding sources on which we would rely would depend on the nature of such a hypothetical event, but includes $54 billion of contractually committed lending agreements with highly-rated global banks and investment banks, as well as other sources of liquidity, including medium and long-term funding, monetization, asset securitization, cash receipts from GECS lending and leasing activities, short-term secured funding on global assets, and potential asset sales.

     We use special purpose entities (SPEs) as described in our Annual Report on Form 10-K for the year ended December 31, 2002. Receivables held by SPEs as of March 31, 2003 and December 31, 2002, were $40.1 billion and $42.2 billion, respectively. Net credit and liquidity support amounted to $26.0 billion as of March 31, 2003, after consideration of participated liquidity and arrangements that defer liquidity draws beyond 2003, a reduction of $1.2 billion from December 31, 2002. This amount includes credit support, in which we provide recourse for a maximum of $16.7 billion of credit losses in SPEs at March 31, 2003.

E. Financial Services Portfolio Quality

     Financing Receivablesis the largest category of assets for GECS and represents one of its primary sources of revenues. The portfolio of financing receivables, before allowance for losses, decreased to $205.3 billion at March 31, 2003, from $205.4 billion at the end of 2002, as discussed in the following paragraphs. The related allowance for losses at March 31, 2003, amounted to $5.6 billion ($5.5 billion at the end of 2002), representing our best estimate of probable losses inherent in the portfolio.

     A discussion of the quality of certain elements of the financing receivables portfolio follows. "Nonearning" receivables are those that are 90 days or more delinquent (or for which collection has otherwise become doubtful) and "reduced-earning" receivables are commercial receivables whose terms have been restructured to a below-market yield.

     Commercial Finance financing receivables before allowance for losses totaled $131.2 billion at March 31, 2003 ($130.9 billion at December 31, 2002) and consisted of loans and leases to the equipment, commercial and industrial, real estate and commercial aircraft industries. This portfolio of receivables increased primarily as a result of origination growth and the net effects of foreign currency translation, partially offset by securitizations. Related nonearning and reduced-earning receivables were consistent at $2.2 billion, about 1.7% of outstandings at March 31, 2003, and at year-end 2002. Commercial Finance financing receivables are generally backed by assets and there is a broad spread of geographic and credit risk in the portfolio. Write-offs for the first quarter of 2003 were $0.2 billion compared with $0.1 billion during the first quarter of 2002.

     Consumer Finance financing receivables before allowance for losses, primarily installment loans, auto loans and leases, and residential mortgages, were $65.8 billion at March 31, 2003, a decrease of $0.2 billion from year-end 2002. This portfolio of receivables decreased as a result of normal seasonal variation in consumer spending and the transfer of Home Depot private label credit card receivables (assets held for sale) to All Other Assets in preparation for their sale when that contract is terminated in 2003, partially offset by the net effects of foreign currency translation. Nonearning consumer receivables at March 31, 2003, were $1.7 billion, about 2.5% of outstandings, compared with $1.6 billion, about 2.4% of outstandings at year-end 2002. Write-offs for the first quarter of 2003 were $0.5 billion compared with $0.4 billion during the first quarter of 2002.

(24)

     Other, principally Equipment Management financing receivables before allowance for losses amounted to $8.3 billion at March 31, 2003, a decrease of $0.2 billion from year-end 2002, primarily as a result of the run-off of the liquidating Auto Financial Services portfolio reported within the All Other GECS segment. Nonearning receivables were consistent at $0.1 billion, about 1.0% of outstandings at the end of the first quarter of 2003 and at year-end 2002.

     Delinquency rates on Consumer Finance financing receivables were 5.84% at March 31, 2003 and 5.58% at year-end 2002, on a managed basis. Delinquency rates on Commercial Finance equipment loans and leases were 1.92% at the end of the first quarter of 2003 and 1.71% at year-end 2002, on a managed basis.

     Investment securities comprise mainly investment-grade debt securities held by Insurance in support of obligations to annuitants and policyholders. Investment securities were $120.8 billion as of March 31, 2003, compared with $116.5 billion as of December 31, 2002. The increase of $4.3 billion resulted from investment of premiums received, reinvestment of investment income and increases in fair value, primarily debt securities, partially offset by sales and maturities as well as impairments and losses related to certain debt and equity securities.

     Gross unrealized gains and losses were $6.0 billion and $2.5 billion, respectively, at March 31, 2003, ($4.4 billion and $2.5 billion, respectively, as of December 31, 2002). Market value used in determining unrealized gains and losses is defined by relevant accounting standards and should not be viewed as a forecast of future gains or losses. We estimate that available gains, net of hedging positions and estimated impairment of insurance intangible assets, could be as much as $1.8 billion.

     We regularly review investment securities for impairment based on criteria that include the extent to which cost exceeds market value, the duration of that market decline and the financial health and specific prospects for the issuer. Of securities with unrealized losses at first quarter 2003, approximately $600 million of portfolio value is at risk of being charged to earnings in the next 12 months. Impairment losses recognized for the first quarter of 2003 were $155.4 million.

Item 4. Controls and Procedures

     Within the 90-day period prior to the filing of this report, GE management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of the company's disclosure controls and procedures as defined in Exchange Act Rule 13a-14(c). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of the date of that evaluation. There have been no significant changes in internal controls, or in factors that could significantly affect internal controls, subsequent to the date the Chief Executive Officer and Chief Financial Officer completed their evaluation.

(25)

Part II. Other Information

Item 6. Exhibits and Reports on Form 8-K

1. Exhibits

2. Reports on Form 8-K during the quarter ended March 31, 2003.

A Form 8-K was filed on January 17, 2003, under Item 9, incorporating by reference GE's January 17, 2003, press release setting forth our fourth-quarter 2002 earnings.

A Form 8-K was filed on January 29, 2003, (a) reporting under Item 5 thereof, that on January 23, 2003, we entered into an Underwriting Agreement covering the issue and sale of our 5% Notes due February 1, 2013, and (b) filing as exhibits under Item 7 thereof, the Underwriting Agreement, dated January 23, 2002, the Senior Note Indenture dated as of January 1, 2003, the Form of Senior Note and opinion of counsel.

(26)

Signatures

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

(27)

GENERAL ELECTRIC COMPANY

CERTIFICATIONS PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002

CERTIFICATION

I, Jeffrey R. Immelt, certify that:

1. I have reviewed this quarterly report on Form 10-Q of General Electric Company;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: May 2, 2003

/s/ Jeffrey R. Immelt                                      
Jeffrey R. Immelt
Chief Executive Officer

(28)

CERTIFICATION

I, Keith S. Sherin, certify that:

1. I have reviewed this quarterly report on Form 10-Q of General Electric Company;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: May 2, 2003

/s/ Keith S. Sherin                                      
Keith S. Sherin
Chief Financial Officer