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Securities and Exchange Commission
Washington, D.C. 20549


Form 10-Q


 (Mark One)
[x]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002

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    x      No __

          There were 9,949,471,000 shares with a par value of $0.06 per share outstanding at June 28, 2002.


General Electric Company

Part I. Financial Information   Page
      
    Item 1. Financial Statements    
             Statement of Earnings  
                     Second Quarter Ended June 30, 2002 3
                     Six Months Ended June 30, 2002 4
             Statement of Financial Position   5
             Statement of Cash Flows   6
             Summary of Operating Segments   7
             Notes to Financial Statements   8
    Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition   14
     
Part II. Other Information    
    Item 1. Legal Proceedings 37
    Item 4. Submission of Matters to a Vote of Security Holders   38
    Item 6. Exhibits and Reports on Form 8–K   39
    Signatures   40

Forward Looking Statements

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.


Part I. Financial Information

Item 1. Financial Statements

Condensed Statement of Earnings
General Electric Company and consolidated affiliates

Second quarter ended June 30 (Unaudited)
Consolidated
GE
GECS
(Dollars, except per-share amounts, in millions) 2002  2001  2002  2001  2002  2001 






Sales of goods    $ 14,678    $ 13,427    $ 13,822    $ 12,474    $ 899    $ 960 
Sales of services      5,583      5,053      5,637      5,114      –      – 
Earnings of GECS      –      –      1,327      1,477      –      – 
GECS revenues from services      12,867      13,341      –      –      12,953      13,439 
Other income      86      156      103      200      –      – 






   Total revenues      33,214      31,977      20,889      19,265      13,852      14,399 






Cost of goods sold      10,300      9,196      9,521      8,337      822      866 
Cost of services sold      3,565      3,513      3,619      3,574      –      – 
Interest and other financial charges      2,443      2,707      75      115      2,429      2,671 
Insurance losses and policyholder 
   and annuity benefits      3,689      3,712      –      –      3,689      3,712 
Provision for losses on financing receivables      785      496      –      –      785      496 
Other costs and expenses      6,735      6,756      2,201      2,062      4,576      4,757 
Minority interest in net earnings of                                      
   consolidated affiliates      90      101      50      59      40      42 






   Total costs and expenses      27,607      26,481      15,466      14,147      12,341      12,544 






Earnings before income taxes      5,607      5,496      5,423      5,118      1,511      1,855 
Provision for income taxes      (1,181)     (1,599)     (997)     (1,221)     (184)     (378)
 





   Net earnings    $ 4,426    $ 3,897    $ 4,426    $ 3,897    $ 1,327    $ 1,477 
 





Per-share amounts                                     
    Diluted earnings per share    $ 0.44    $ 0.39                         
    Basic earnings per share    $ 0.45    $ 0.39                         
  
Dividends declared per share    $ 0.18    $ 0.16                         

See notes to condensed consolidated financial statements. Consolidating information is shown for "GE" and "GECS." Transactions between GE and GECS have been eliminated from the "consolidated" columns.

Condensed Statement of Earnings
General Electric Company and consolidated affiliates

Six months ended June 30 (Unaudited)
Consolidated
GE
GECS
(Dollars, except per-share amounts, in millions) 2002  2001  2002  2001  2002  2001 






Sales of goods    $ 27,224    $ 25,861    $ 25,552    $ 23,840    $ 1,715    $ 2,028 
Sales of services      10,525      9,479      10,655      9,598      –      – 
Earnings of GECS before accounting changes      –      –      2,984      2,878      –      – 
GECS revenues from services      25,845      26,915      –      –      26,036      27,094 
Other income      141      215      189      309      –      – 






   Total revenues      63,735      62,470      39,380      36,625      27,751      29,122 






Cost of goods sold      19,204      17,784      17,683      15,964      1,564      1,827 
Cost of services sold      7,008      6,718      7,138      6,837      –      – 
Interest and other financial charges      4,817      5,783      232      370      4,717      5,569 
Insurance losses and policyholder and 
   annuity benefits      7,238      7,235      –      –      7,238      7,235 
Provision for losses on financing receivables      1,447      979      –      –      1,447      979 
Other costs and expenses      13,241      13,818      4,220      4,216      9,128      9,719 
Minority interest in net earnings of consolidated                                     
    affiliates       166      203      92      104      74      99 






   Total costs and expenses      53,121      52,520      29,365      27,491      24,168      25,428 






Earnings before income taxes and accounting changes      10,614      9,950      10,015      9,134      3,583      3,694 
Provision for income taxes      (2,670)     (3,036)     (2,071)     (2,220)     (599)     (816)






   Earnings before accounting changes      7,944      6,914      7,944      6,914      2,984      2,878 
Cumulative effect of accounting changes (notes 3 and 4)     (1,015)     (444)     (1,015)     (444)     (1,015)     (169)






   Net earnings    $ 6,929    $ 6,470    $ 6,929    $ 6,470    $ 1,969    $ 2,709 






Per-share amounts before accounting changes                                     
    Diluted earnings per share    $ 0.79    $ 0.69                         
    Basic earnings per share    $ 0.80    $ 0.70                         
  
Per-share amounts after accounting changes                                     
    Diluted earnings per share    $ 0.69    $ 0.64                         
    Basic earnings per share    $ 0.70    $ 0.65                         
  
Dividends declared per share    $ 0.36    $ 0.32                         

See notes to condensed consolidated financial statements. Consolidating information is shown for "GE" and "GECS." Transactions between GE and GECS have been eliminated from the "consolidated" columns.

Condensed Statement of Financial Position
General Electric Company and consolidated affiliates

Consolidated
GE
GECS
(Dollars in millions) 6/30/02   12/31/01  6/30/02   12/31/01  6/30/02   12/31/01 






Cash and equivalents    $ 10,211    $ 9,082    $ 1,688    $ 10,447    $ 8,580    $ 7,314 
Investment securities      107,157      101,017      565      879      106,592      100,138 
Current receivables      10,207      9,590      10,477      9,805      –      – 
Inventories      9,139      8,565      8,873      8,295      266      270 
Financing receivables – net      185,373      174,032      –      –      185,373      174,032 
Other GECS receivables      40,218      38,422      –      –      42,224      40,584 
Property, plant and equipment (including equipment                                     
   leased to others) – net      44,471      42,140      13,186      12,799      31,285      29,341 
Investment in GECS      –      –      29,643      28,590      –      – 
Intangible assets – net      43,718      35,124      21,423      14,367      22,295      20,757 
All other assets      90,394      77,051      27,291      24,551      64,010      53,048 






Total assets    $ 540,888    $ 495,023    $ 113,146    $ 109,733    $ 460,625    $ 425,484 






Short-term borrowings    $ 135,224    $ 153,076    $ 2,378    $ 1,722    $ 133,772    $ 160,844 
Accounts payable, principally trade accounts      17,510      18,158      6,323      6,680      13,541      13,705 
Progress collections and price adjustments accrued      9,132      11,751      9,132      11,751      –      – 
Other GE current liabilities      16,860      15,919      16,860      15,919      –      – 
Long-term borrowings     125,206      79,806      870      787      124,448      79,091 
Insurance liabilities, reserves and annuity benefits      128,974      114,223      –      –      128,974      114,223 
All other liabilities      33,740      32,921      16,674      16,089      16,914      16,647 
Deferred income taxes      10,194      9,130      1,202      1,013      8,992      8,117 






Total liabilities      476,840      434,984      53,439      53,961      426,641      392,627 






Minority interest in equity of consolidated                                      
   affiliates      5,321      5,215      980      948      4,341      4,267 
Accumulated gains/(losses) – net (a)                                    
   Investment securities      100      (232)     100      (232)     230      (348)
   Currency translation adjustments      (2,985)     (3,136)     (2,985)     (3,136)     (929)     (840)
   Derivatives qualifying as hedges      (1,351)     (955)     (1,351)     (955)     (1,333)     (890)
Common stock (9,949,471,000 and 9,925,938,000
    shares outstanding at June 30, 2002 and                                     
   December 31, 2001, respectively)     669      669      669      669         
Other capital      17,146      16,693      17,146      16,693      5,988      5,989 
Retained earnings      72,051      68,701      72,051      68,701      25,686      24,678 
Less common stock held in treasury      (26,903)     (26,916)     (26,903)     (26,916)     –      – 






   Total share owners' equity      58,727      54,824      58,727      54,824      29,643      28,590 






Total liabilities and equity    $ 540,888    $ 495,023    $ 113,146    $ 109,733    $ 460,625    $ 425,484 







(a) The sum of accumulated gains/(losses) on currency translation adjustments, investment securities and derivatives qualifying as hedges constitutes "Accumulated nonowner changes other than earnings," and was $(4,236) million and $(4,323) million at June 30, 2002 and December 31, 2001, respectively. 

See notes to condensed consolidated financial statements. Consolidating information is shown for "GE" and "GECS." June 30, 2002, information is unaudited. Transactions between GE and GECS have been eliminated from the "consolidated" columns.


Condensed Statement of Cash Flows
General Electric Company and consolidated affiliates

Six months ended June 30 (Unaudited)
Consolidated
GE
GECS
(Dollars in millions) 2002  2001  2002  2001  2002  2001 






Cash flows – operating activities                                     
Net earnings    $ 6,929    $ 6,470    $ 6,929    $ 6,470    $ 1,969    $ 2,709 
Adjustments to reconcile net earnings to cash                                      
   provided from operating activities                                     
      Cumulative effect of accounting changes      1,015      444      1,015      444      1,015      169 
      Depreciation and amortization of 
         property, plant and equipment      2,730      2,542      1,010      952      1,720      1,590 
      Amortization of goodwill      –      605      –      259      –      346 
      Earnings retained by GECS      –      –      (2,023)     (1,872)     –      – 
      Deferred income taxes      1,574      (265)     354      262      1,220      (527)
      Increase in GE current receivables      (107)     (347)     (162)     (294)     –      – 
      Decrease (increase) in inventories      (185)     (238)     (189)     (585)         347 
      Increase (decrease) in accounts payable      (631)     1,655      (521)     (137)     16      2,022 
      Increase in insurance liabilities, reserves 
         and annuity benefits      2,626      1,967      –      –      2,626      1,967 
      Provision for losses on financing receivables      1,447      979      –      –      1,447      979 
      All other operating activities      (4,552)     2,456      (2,936)     2,305      (1,600)     676 






Cash from operating activities      10,846      16,268      3,477      7,804      8,417      10,278 






Cash flows – investing activities                                     
Additions to property, plant and equipment      (5,652)     (7,730)     (953)     (1,336)     (4,699)     (6,394)
Net increase in GECS financing receivables      (7,614)     (1,006)     –      –      (7,614)     (1,006)
Payments for principal businesses purchased      (12,752)     (3,704)     (7,508)     (424)     (5,244)     (3,280)
All other investing activities      (1,757)     53      (207)     786      (1,787)     (1,236)






Cash used for investing activities      (27,775)     (12,387)     (8,668)     (974)     (19,344)     (11,916)






Cash flows – financing activities                                     
Increase (decrease) in borrowings (maturities 90 days or less)     (26,541)     (1,507)     830      315      (35,883)     431 
Newly issued debt (maturities longer than 90 days)     59,124      12,461      300      396      58,864      12,037 
Repayments and other reductions (maturities                                      
   longer than 90 days)     (12,777)     (10,538)     (587)     (595)     (12,190)     (9,943)
Net purchases of GE shares for treasury      (535)     (1,337)     (535)     (1,337)     –      – 
Dividends paid to share owners      (3,576)     (3,178)     (3,576)     (3,178)     (961)     (1,006)
All other financing activities      2,363      23      –      –      2,363      23 






Cash from (used for) financing activities      18,058      (4,076)     (3,568)     (4,399)     12,193      1,542 






Increase (decrease) in cash and equivalents      1,129      (195)     (8,759)     2,431      1,266      (96)
Cash and equivalents at beginning of year      9,082      8,195      10,447      7,210      7,314      6,052 






Cash and equivalents at June 30    $ 10,211    $ 8,000    $ 1,688    $ 9,641    $ 8,580    $ 5,956 







See notes to condensed consolidated financial statements. Consolidating information is shown for "GE" and "GECS." Transactions between GE and GECS have been eliminated from the "consolidated" columns.

Summary of Operating Segments
General Electric Company and consolidated affiliates
(Dollars in millions) Second quarter ended
June 30 (Unaudited)
     Six months ended
June 30 (Unaudited)


2002  2001  2002  2001 




Revenues                         
   GE                         
      Aircraft Engines    $ 2,764    $ 3,055    $ 5,341    $ 5,793 
      Appliances      1,600      1,402      3,014      2,717 
      Industrial Products and Systems      3,025      2,982      5,676      5,829 
      Materials      2,028      1,856      3,608      3,790 
      NBC      1,987      1,831      3,985      3,182 
      Power Systems      6,526      5,142      11,797      9,402 
      Technical Products and Services      2,316      2,148      4,284      4,146 
      Eliminations      (757)     (667)     (1,468)     (1,216)




          Total GE segment revenues      19,489      17,749      36,237      33,643 
   Corporate items      73      39      159      104 
   Earnings of GECS before accounting changes      1,327      1,611      2,984      3,151 




         Total GE revenues      20,889      19,399      39,380      36,898 
   GECS segment revenues      13,852      14,399      27,751      29,122 
   Eliminations (a)     (1,527)     (1,821)     (3,396)     (3,550)




Consolidated revenues    $ 33,214    $ 31,977    $ 63,735    $ 62,470 




Segment profit                         
   GE                         
      Aircraft Engines    $ 566    $ 552    $ 987    $ 1,032 
      Appliances      119      93      210      180 
      Industrial Products and Systems      310      382      506      642 
      Materials      369      431      623      851 
      NBC      545      491      858      789 
      Power Systems      1,910      1,153      3,462      2,010 
      Technical Products and Services      411      423      682      747 




          Total GE operating profit      4,230      3,525      7,328      6,251 
   Earnings of GECS before accounting changes      1,327      1,611      2,984      3,151 




         Total segment profit      5,557      5,136      10,312      9,402 
   Corporate items and eliminations      (59)     97      (65)     102 
   GE interest and other financial charges      (75)     (115)     (232)     (370)
   GE provision for income taxes      (997)     (1,221)     (2,071)     (2,220)




Earnings before accounting changes      4,426      3,897      7,944      6,914 
   Cumulative effect of accounting changes                  (1,015)     (444)




Consolidated net earnings    $ 4,426    $ 3,897    $ 6,929    $ 6,470 





(a) Principally the elimination of GECS earnings before accounting changes.

See notes to condensed consolidated financial statements


Notes to Condensed Consolidated Financial Statements (Unaudited)   

     1. The accompanying condensed quarterly financial statements represent the consolidation of General Electric Company and all companies which it directly or indirectly controls, either through majority ownership or otherwise. Reference is made to note 1 to the consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2001. 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), 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. Certain prior year amounts have been reclassified to conform to the current period's presentation.

     2. The condensed consolidated quarterly financial statements are unaudited. These statements include all adjustments (consisting of normal recurring accruals) considered necessary by management 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.

     3. The Financial Accounting Standards Board's (FASB) Statement of Financial Accounting Standards (SFAS) 142, Goodwill and Other Intangible Assets, generally became effective for GE and GECS on January 1, 2002. Under SFAS 142, goodwill is no longer amortized but is tested for impairment using a fair value methodology.

     GE and GECS ceased amortizing goodwill effective January 1, 2002. Simultaneously, to maintain a consistent basis for its measurement of performance, management revised previously-reported segment information to correspond to the earnings measurements by which businesses were to be evaluated. Accordingly, goodwill amortization is now treated as a corporate rather than a segment cost. Other measurement changes relate to the GE pension and other retiree benefit plans, whose effects are now reported at the corporate level, and allocation to segments of other selected costs previously reported at the corporate level. GECS previously-reported segment information has also been revised to reflect changes effective as of January 1, 2002, in GECS internal organization. GECS Asia/Pacific operations previously managed by region are now managed and reported by the respective operating business. Also, certain businesses previously in separate segments are now reviewed directly by the GECS chief operating decision maker, and are therefore designated by GECS as operating segments. Because none of these operating segments qualifies as a GECS reporting segment, they have been combined for reporting purposes and are presented in "All Other GECS."

     Goodwill amortization expense for the second quarter ended June 30, 2001, was $138 million ($133 million after tax) and $172 million ($134 million after tax) for GE and GECS, respectively. Goodwill amortization expense for the six months ended June 30, 2001, was $259 million ($244 million after tax) and $346 million ($273 million after tax) for GE and GECS, respectively. The effects on earnings and earnings per share of excluding such goodwill amortization from the second quarter and first six months of 2001 follow.

 

 

Second quarter ended June 30

 

 


 

 

Consolidated

 

GE

 

GECS

 

 


 


 


(Dollars, except per-share amounts in millions)

 

 

2002

 

 

2001

 

 

2002

 

 

2001

 

 

2002

 

 

2001

 

 


 


 


 


 


 


Net earnings, as reported

 

$

4,426

 

$

3,897

 

$

4,426

 

$

3,897

 

$

1,327

 

$

1,477

 

 


 


 


 


 


 


Net earnings, excluding 2001 goodwill
     amortization

 

$

4,426

 

$

4,164

 

$

4,426

 

$

4,164

 

$

1,327

 

$

1,611

 

 


 


 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted

 

Basic

 

 

 

 

 

 



 

 

 

2002

 

 

2001

 

 

2002

 

 

2001

 

 

 

 

 

 

 

 


 


 


 


 

 

 

 

 

 

Earnings per share, as reported

 

$

0.44

 

$

0.39

 

$

0.45

 

$

0.39

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share, excluding
     2001 goodwill amortization

 

$

0.44

 

$

0.41

 

$

0.45

 

$

0.42

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30

 

 


 

 

Consolidated

 

GE

 

GECS

 

 


 


 


(Dollars, except per-share amounts in millions)

 

 

2002

 

 

2001

 

 

2002

 

 

2001

 

 

2002

 

 

2001

 

 


 


 


 


 


 


Earnings before accounting changes, as

reported

 

$

7,944

 

$

6,914

 

$

7,944

 

$

6,914

 

$

2,984

 

$

2,878

 

 


 


 


 


 


 


Earnings before accounting changes,
     excluding 2001 goodwill amortization

 

$

7,944

 

$

7,431

 

$

7,944

 

$

7,431

 

$

2,984

 

$

3,151

 

 


 


 


 


 


 


Net earnings, as reported

 

$

6,929

 

$

6,470

 

$

6,929

 

$

6,470

 

$

1,969

 

$

2,709

 

 


 


 


 


 


 


Net earnings, excluding 2001 goodwill
     amortization

 

$

6,929

 

$

6,987

 

$

6,929

 

$

6,987

 

$

1,969

 

$

2,982

 

 


 


 


 


 


 


 

 

 

Diluted

 

Basic

 

 

 

 

 

 

 

 


 


 

 

 

 

 

 

 

 

 

2002

 

 

2001

 

 

2002

 

 

2001

 

 

 

 

 

 

 

 


 


 


 


 

 

 

 

 

 

Earnings per share before accounting
     changes, as reported

 

$

0.79

 

$

0.69

 

$

0.80

 

$

0.70

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share before accounting
     changes, excluding 2001 goodwill
     amortization

 

$

0.79

 

$

0.74

 

$

0.80

 

$

0.75

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share, as reported

 

$

0.69

 

$

0.64

 

$

0.70

 

$

0.65

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share, excluding
     2001 goodwill amortization

 

$

0.69

 

$

0.69

 

$

0.70

 

$

0.70

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Under SFAS 142, GE and GECS 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. Fair values were established using discounted cash flows. When available and as appropriate, comparative market multiples were used to corroborate discounted cash flow results.

     The result of testing goodwill of GE and GECS for 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 GECS IT Solutions business and the GECS GE Auto and Home business, a direct subsidiary of GE Financial Assurance. The primary factors resulting in 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 was appropriate under the FASB's previous goodwill impairment standard, which was based on undiscounted cash flows.

Intangibles Subject to Amortization

 

(Dollars in millions)

At
June 30, 2002

   

At
December 31, 2001



 

Gross
Carrying
Amount

 

Accumulated
Amortization

 

Gross
Carrying
Amount

 

Accumulated
Amortization





GE

 

 

 

 

 

 

 

Patents, licenses and other

$1,926

 

$(458)

 

$960

 

$(382)

Capitalized software

2,461

 

(1,040)

 

2,353

 

(918)

 


 


 


 


     Total GE

4,387

 

(1,498)

 

3,313

 

(1,300)

 

 

 

 

 

 

 

 

GECS

 

 

 

 

 

 

 

Present value of

 

 

 

 

 

 

 

     future profits (PVFP)

5,752

 

(3,434)

 

5,504

 

(3,306)

Capitalized software

1,389

 

(500)

 

1,307

 

(406)

Mortgage servicing assets

3,942

 

(3,081)

 

3,768

 

(2,629)

All other

851

 

(498)

 

1,092

 

(506)

 


 


 


 


     Total GECS

11,934

 

(7,513)

 

11,671

 

(6,847)

 

 

 

 

 

 

 

 

Total

$16,321

 

$(9,011)

 

$14,984

 

$(8,147)

 


 


 


 


     Consolidated amortization expense related to intangible assets, excluding goodwill for the quarters ended June 30, 2002 and 2001, was $568 million ($117 million for GE and $451 million for GECS) and $437 million ($55 million for GE and $382 million for GECS), respectively. Consolidated amortization expense related to intangible assets, excluding goodwill for the six months ended June 30, 2002 and 2001, was $918 million ($197 million for GE and $721 million for GECS) and $731 million ($110 million for GE and $621 million for GECS), respectively. The estimated percentage of the December 31, 2001, PVFP balance to be amortized over each of the next five years follows:

2002

13.0

%

2003

10.5

%

2004

8.9

%

2005

7.6

%

2006

6.3

%

     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.

Goodwill

     Goodwill balances follow:

(Dollars in millions)

          

Balance
12/31/01

 

Transition
Impairment

 

Acquired

 

Foreign
Exchange
and Other

 

Balance
6/30/02

 

 


 


 


 


 


Aircraft Engines

 

$1,916

 

$         --

 

$345

 

$   11

 

$2,272

Appliances

 

234

 

--

 

--

 

(11)

 

223

Industrial Products and Systems

 

1,357

 

--

 

949

 

6

 

2,312

Materials

 

1,923

 

--

 

1,474

 

(21)

 

3,376

NBC

 

2,568

 

--

 

2,386

 

--

 

4,954

Power Systems

 

1,948

 

--

 

689

 

58

 

2,695

Technical Products and Services

 

2,408

 

--

 

278

 

16

 

2,702

 

 


 


 


 


 


     Total GE

 

12,354

 

--

 

6,121

 

59

 

18,534

 

 

 

 

 

 

 

 

 

 

 

GECS

 

15,933

 

(1,204)

 

2,756

 

389

 

17,874

 

 


 


 


 


 


Total

 

$28,287

 

$(1,204)

 

$8,877

 

$448

 

$36,408

 

 


 


 


 


 


 

     4. At January 1, 2001, GE and GECS adopted SFAS 133, Accounting for Derivative Instruments and Hedging Activities, as amended. Under SFAS 133, all derivative instruments are recognized in the statement of financial position at their fair values. The cumulative effect of adopting this standard was a one-time reduction of net earnings in the first quarter of 2001 of $324 million ($0.03 per share) and comprised two significant elements: one element represented the fair value of equity options embedded in loans that provided both GE and the borrower the right, but not the obligation, to convert the loans into shares of the borrower's stock; the second element of the transition effect was a portion of the effect of marking to market options and currency contracts used for hedging. Also at January 1, 2001, GE and GECS adopted the consensus of the Emerging Issues Task Force of the FASB on accounting for impairment of beneficial interests (EITF 99-20). Under this consensus, impairment of certain beneficial interests in securitized assets must be recognized when the asset's fair value is below its carrying value and it is probable that there has been an adverse change in estimated cash flows. The cumulative effect of adopting EITF 99-20 was a one-time reduction of net earnings in the first quarter of 2001 of $120 million ($0.01 per share).

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

 

 

Second quarter ended

 

 

 


 

(Dollars in millions)

 

6/30/02

 

6/30/01

 

 

 


 


 

Net earnings

 

$

4,426

 

$

3,897

 

Investment securities -- net changes in value

 

 

779

 

 

(938

)

Currency translation adjustments

 

 

556

 

 

(171

)

Derivatives qualifying as hedges -- net changes in value

 

 

(759)

 

 

343

 

 

 


 


 

Total

 

$

5,002

 

$

3,131

 

 

 


 


 

 

 

 

Six months ended

 

 

 


 

(Dollars in millions)

 

6/30/02

 

6/30/01

 

 

 


 


 

Net earnings

 

$

6,929

 

$

6,470

 

Investment securities -- net changes in value

 

 

332

 

 

71

 

Currency translation adjustments

 

 

151

 

 

(27

)

Derivatives qualifying as hedges -- net changes in value

 

 

(396)

 

 

(213

)

Cumulative effect on equity of adopting SFAS 133

 

 

--

 

 

(827

)

 

 


 


 

Total

 

$

7,016

 

$

5,474

 

 

 


 


 

     6. Inventories consisted of the following:

 

 

At

 

 

 


 

(Dollars in millions)

 

6/30/02

 

12/31/01

 

 

 


 


 

GE

 

 

 

 

 

 

 

Raw materials and work in process

 

$

4,955

 

$

4,708

 

Finished goods

 

 

4,258

 

 

3,951

 

Unbilled shipments

 

 

320

 

 

312

 

Revaluation to LIFO

 

 

(660

)

 

(676

)

 

 


 


 

Total GE inventories

 

 

8,873

 

 

8,295

 

 

 


 


 

GECS

 

 

 

 

 

 

 

Finished goods

 

 

266

 

 

270

 

 

 


 


 

Total

 

$

9,139

 

$

8,565

 

 

 


 


 

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

 

 

At

 

 

 


 

(Dollars in millions)

 

6/30/02

 

12/31/01

 

 

 


 


 

Original cost

 

 

 

 

 

 

 

     GE

 

$

32,258

 

$

31,232

 

     GECS

 

 

43,126

 

 

40,055

 

 

 


 


 

          Total

 

 

75,384

 

 

71,287

 

 

 


 


 

Accumulated depreciation and amortization

 

 

 

 

 

 

 

     GE

 

 

19,072

 

 

18,433

 

     GECS

 

 

11,841

 

 

10,714

 

 

 


 


 

          Total

 

 

30,913

 

 

29,147

 

 

 


 


 

Property, plant and equipment -- net

 

 

 

 

 

 

 

     GE

 

 

13,186

 

 

12,799

 

     GECS

 

 

31,285

 

 

29,341

 

 

 


 


 

          Total

 

$

44,471

 

$

42,140

 

 

 


 


 

     8. GE's authorized common stock consisted of 13,200,000,000 shares, having a par value of $0.06 each. Information related to the calculation of earnings per share follows.

 

 

Second quarter ended

 

 

 


 

 

6/30/02

 

6/30/01

 

(Dollar amounts and shares in millions; 

 


 


 

per-share amounts in dollars)

 

Diluted

 

Basic

 

Diluted

 

Basic

 

 

 


 


 


 


 

Consolidated operations

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings available to common share owners

 

$

4,426

 

$

4,426

 

$

3,897

 

$

3,897

 

Dividend equivalents -- net of tax

 

 

3

 

 

--

 

 

3

 

 

--

 

 

 


 


 


 


 

Net earnings available for per-share calculation

 

$

4,429

 

$

4,426

 

$

3,900

 

$

3,897

 

 

 


 


 


 


 

Average equivalent shares

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares of GE common stock

 

 

9,942

 

 

9,942

 

 

9,936

 

 

9,936

 

Employee compensation-related shares,
     including stock options

 

 

87

 

 

--

 

 

129

 

 

--

 

 

 


 


 


 


 

Total average equivalent shares

 

 

10,029

 

 

9,942

 

 

10,065

 

 

9,936

 

 

 


 


 


 


 

Net earnings per share

 

$

0.44

 

$

0.45

 

$

0.39

 

$

0.39

 

 

 


 


 


 


 

 

 

 

 

 

 

Six months ended

 

 

 


 

 

6/30/02

 

6/30/01

 

(Dollar amounts and shares in millions; 

 


 


 

per-share amounts in dollars)

 

Diluted

 

Basic

 

Diluted

 

Basic

 

 

 


 


 


 


 

Consolidated operations

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings before accounting changes

 

$

7,944

 

$

7,944

 

$

6,914

 

$

6,914

 

Dividend equivalents -- net of tax

 

 

6

 

 

--

 

 

6

 

 

--

 

 

 


 


 


 


 

Earnings before accounting changes for
     per-share calculation

 

$

7,950

 

$

7,944

 

$

6,920

 

$

6,914

 

 

 


 


 


 


 

Cumulative effect of accounting changes

 

$

(1,015

)

$

(1,015

)

$

(444

)

$

(444

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings available to common share owners

 

$

6,929

 

$

6,929

 

$

6,470

 

$

6,470

 

Dividend equivalents -- net of tax

 

 

6

 

 

--

 

 

6

 

 

--

 

 

 


 


 


 


 

Net earnings available for per-share calculation

 

$

6,935

 

$

6,929

 

$

6,476

 

$

6,470

 

 

 


 


 


 


 

Average equivalent shares

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares of GE common stock

 

 

9,937

 

 

9,937

 

 

9,935

 

 

9,935

 

Employee compensation-related shares,
     including stock options

 

 

95

 

 

--

 

 

131

 

 

--

 

 

 


 


 


 


 

Total average equivalent shares

 

 

10,032

 

 

9,937

 

 

10,066

 

 

9,935

 

 

 


 


 


 


 

Per-share amounts

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings before accounting changes

 

$

0.79

 

$

0.80

 

$

0.69

 

$

0.70

 

Cumulative effect of accounting changes

 

 

(0.10

)

 

(0.10

)

 

(0.05

)

 

(0.05

)

 

 


 


 


 


 

Net earnings

 

$

0.69

 

$

0.70

 

$

0.64

 

$

0.65

 

 

 


 


 


 


 

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

A. Results of Operations -- Second Quarter of 2002 Compared With Second Quarter of 2001

     General Electric Company's earnings rose 14% to $4.426 billion from $3.897 billion in the second quarter of 2001, and earnings per share increased 13% to $0.44. Both earnings and earnings per share were records for the quarter. Power Systems, NBC, Medical Systems and Appliances had double-digit operating profit growth and eight GE Capital businesses had double-digit net earnings growth. Earnings reflect $358 million from a favorable settlement with the Internal Revenue Service of a dispute regarding exports from Aircraft Engines since 1979; a $70 million after-tax benefit from the termination of Power Systems gas turbine orders; approximately $350 million of after-tax adjustments to estimates of prior-year loss events at Employers Reinsurance Corporation (ERC), a direct subsidiary of GE Global Insurance Holdings, which resulted in a quarterly loss for GE Global Insurance Holdings of $236 million; and a $110 million after-tax loss to recognize impairment of WorldCom, Inc. bonds.

     Revenues rose 4% over the second quarter of 2001 to $33.214 billion. GE industrial revenues grew 10%, with double-digit growth at Power Systems, Medical Systems, Appliances and Specialty Materials. Revenues at GE Capital Services (GECS) declined 4% because of the revenue effects of ERC and portfolio losses including the impairment of WorldCom, Inc. bonds.

     Acquisitions contributed $215 million to earnings in the second quarter of 2002 compared with approximately $25 million in the comparable 2001 period. For purposes of this discussion, only earnings during the first 12 months following the quarter in which the acquisition is completed are considered to be related to acquired companies.

     GE's second-quarter operating margin was 21.2%, up from last year's 20.6%, reflecting continuing productivity gains.

     Cash generated from GE's operating activities, excluding progress collections, was $6.1 billion in the first half of 2002, up 12% from $5.4 billion last year. Progress collections are primarily payments received from customers in advance of the sale of heavy-duty gas turbines and aircraft engines. Excluding progress payments from operating activities portrays cash flow as if collections occurred at the time of sale. Reported cash flow from GE's operating activities was $3.5 billion which, reflecting the record progress collections in 2001, was 55% lower than last year's $7.8 billion. GE returned $4.7 billion to shareowners in the first half of 2002 through $3.6 billion in dividends and $1.1 billion in shares repurchased.

Segment Analysis:

     The comments that follow compare revenues and segment profit by operating segment for the second quarters of 2002 and 2001.

       • Aircraft Engines reported revenues of $2.764 billion, 10% lower than the second quarter of 2001, reflecting reduced commercial engine sales and servicing revenues partially offset by increased military sales. Operating profit increased to $566 million, 3% over the second quarter of 2001, reflecting continued base cost productivity that offset the effects of lower volume and unfavorable product mix.

       • Appliances revenues of $1.600 billion rose 14% over the second quarter of 2001 as new products continued to gain market share, more than offsetting lower selling prices. Operating profit increased 28% to $119 million largely as a result of volume, continued base cost productivity and lower material costs, which more than offset decreases in selling prices.

       • Industrial Products and Systems

 

Second quarter ended

 

 


 

(Dollars in millions)

6/30/02

 

 

6/30/01

 

 


 

 


 

Revenues

 

 

 

 

 

 

 

Industrial Systems

$

1,273

 

 

$

1,220

 

Lighting

 

532

 

 

 

604

 

Transportation Systems

 

594

 

 

 

572

 

GE Supply

 

626

 

 

 

586

 

 


 

 


 

     Total revenues

$

3,025

 

 

$

2,982

 

 


 

 


 

Operating profit

 

 

 

 

 

 

 

Industrial Systems

$

129

 

 

$

160

 

Lighting

 

29

 

 

 

78

 

Transportation Systems

 

124

 

 

 

122

 

GE Supply

 

28

 

 

 

22

 

 


 

 


 

     Total operating profit

$

310

 

 

$

382

 

 


 

 


 

Industrial Products and Systems reported a 1% increase in revenues and a 19% decrease in operating profit primarily as a result of lower selling prices across the businesses. Industrial Systems revenues were 4% higher than in the second quarter of 2001 reflecting contributions from acquisitions that more than offset lower volume and sharply lower selling prices. Industrial Systems operating profit was 19% lower than last year primarily because of sharply lower selling prices. Lighting continued to experience lower volumes and pricing which adversely affected revenues -- down 12% and operating profit -- 63% lower than last year. Transportation System's operating profit rose 2% on 4% higher revenue reflecting the effect of acquisitions. GE Supply reported an operating profit increase of $6 million on revenues that were 7% higher reflecting higher volume, lower material costs and productivity which offset the effect of lower prices.

       • Materials

 

Second quarter ended

 

 


 

(Dollars in millions)

6/30/02

 

 

6/30/01

 

 


 

 


 

Revenues

 

 

 

 

 

 

 

Plastics

$

1,420

 

 

$

1,363

 

Specialty Materials

 

608

 

 

 

493

 

 


 

 


 

     Total revenues

$

2,028

 

 

$

1,856

 

 


 

 


 

Operating profit

 

 

 

 

 

 

 

Plastics

$

275

 

 

$

334

 

Specialty Materials

 

94

 

 

 

97

 

 


 

 


 

     Total operating profit

$

369

 

 

$

431

 

 


 

 


 

Materials revenues were up 9% from last year's first quarter as volume increases, including revenues from acquired businesses, more than offset continued weakness in pricing. Operating profit decreased 14% principally as a result of lower pricing that more than offset higher volumes and lower material costs. Plastics experienced continued pricing pressure that accounted for most of an 18% decline in operating profit. Specialty Materials revenue increased 23% primarily as a result of acquisition volume. Operating profit in the second quarter of 2002 was 3% lower than last year as pricing and lower productivity offset the benefits of higher volumes and lower material costs.

       • NBC reported a 9% increase in revenues compared with the second quarter of 2001, primarily reflecting improved performance in the advertising market, the Telemundo acquisition and the absence of a counterpart to a one-time charge related to the shutdown of the XFL in 2001. Operating profit increased 11% reflecting improved performance in the advertising market, productivity improvements and absence of the XFL charge.

       • Power Systems revenues increased 27%, primarily as a result of higher volume in gas turbines (109 vs. 90 in 2001), growth in services, higher selling prices and contract cancellation fees of $162 million. Operating profit rose 66%, reflecting the combined effects of higher volume, productivity, improved selling prices and contract cancellation fees, net of related costs.

       • Technical Products and Services

 

Second quarter ended

 

 


 

(Dollars in millions)

6/30/02

 

 

6/30/01

 

 


 

 


 

Revenues

 

 

 

 

 

 

 

Medical Systems

$

2,212

 

 

$

1,960

 

Global eXchange Services

 

104

 

 

 

188

 

 


 

 


 

     Total revenues

$

2,316

 

 

$

2,148

 

 


 

 


 

Operating profit

 

 

 

 

 

 

 

Medical Systems

$

401

 

 

$

356

 

Global eXchange Services

 

10

 

 

 

67

 

 


 

 


 

     Total operating profit

$

411

 

 

$

423

 

 


 

 


 

Technical Products and Services revenues increased 8% from the second quarter of 2001, primarily as a result of 13% revenue and operating profit growth at Medical Systems, which reported higher equipment volume, including acquisitions, and continued growth in services. Operating profit for the segment fell 3% in the second quarter, reflecting the absence in 2002 of a counterpart to a gain on disposition of a joint venture at Global eXchange Services in 2001.

       • GE Capital Services

 

Second quarter ended

 

 


 

(Dollars in millions)

6/30/02

 

 

6/30/01

 

 


 

 


 

 

Revenues

 

 

 

 

 

 

 

Consumer Services

$

5,330

 

 

$

5,618

 

Equipment Management

 

1,733

 

 

 

1,768

 

Mid-Market Financing

 

2,346

 

 

 

1,920

 

Specialized Financing

 

784

 

 

 

727

 

Specialty Insurance

 

2,446

 

 

 

2,981

 

All Other

 

1,213

 

 

 

1,385

 

 


 

 


 

     Total revenues

$

13,852

 

 

$

14,399

 

 


 

 


 

Net earnings

 

 

 

 

 

 

 

Consumer Services

$

559

 

 

$

586

 

Equipment Management

 

183

 

 

 

360

 

Mid-Market Financing

 

392

 

 

 

277

 

Specialized Financing

 

171

 

 

 

161

 

Specialty Insurance

 

(50

)

 

 

279

 

All Other

 

72

 

 

 

(52

)

 


 

 


 

     Net earnings

$

1,327

 

 

$

1,611

 

 


 

 


 

GECS net earnings for the second quarter of 2002 were $1,327 million, a $150 million (10%) decrease from the second quarter of 2001. Excluding the effect of the prior year goodwill amortization ($134 million after tax) net earnings decreased 18% reflecting approximately $350 million of after-tax adjustments to estimates of prior-year loss events at Employers Reinsurance Corporation, a direct subsidiary of GE Global Insurance Holdings, increased credit losses, $270 million lower after-tax gains from investment securities (including a $110 million after-tax impairment on WorldCom, Inc. bonds) and $55 million after-tax of lower gains on securitizations. These decreases were partially offset by contributions from acquisitions, productivity and origination growth. Contributions from acquired companies to net earnings in the second quarter of 2002 and 2001 included approximately $168 million and $20 million, respectively. Acquisitions are integrated as quickly as possible; only earnings during the first 12 months following the quarter in which the acquisition is completed are considered to be related to acquired companies.

Consumer Services

 

Second quarter ended

 

 


 

(Dollars in millions)

6/30/02

 

 

6/30/01

 

 


 

 


 

Revenues

 

 

 

 

 

 

 

Global Consumer Finance

$

1,501

 

 

$

1,370

 

GE Financial Assurance

 

2,817

 

 

 

3,198

 

GE Card Services

 

962

 

 

 

956

 

Other Consumer Services

 

50

 

 

 

94

 

 


 

 


 

     Total revenues

$

5,330

 

 

$

5,618

 

 


 

 


 

Net earnings

 

 

 

 

 

 

 

Global Consumer Finance

$

323

 

 

$

242

 

GE Financial Assurance

 

53

 

 

 

149

 

GE Card Services

 

176

 

 

 

187

 

Other Consumer Services

 

7

 

 

 

8

 

 


 

 


 

     Net earnings

$

559

 

 

$

586

 

 


 

 


 

Consumer Services revenues decreased 5% and net earnings decreased 5% compared with the second quarter of 2001, as the effects of acquisitions were more than offset by lower earnings at GE Financial Assurance, which reflected impairment of $167 million pre-tax ($110 million after tax) of WorldCom, Inc. bonds, decreased premium volume, and the planned transition of the restructured Toho insurance policies. GE Financial Assurance had $42 million remaining exposure to WorldCom, Inc. at June 30, 2002. Other Consumer Services revenues decreased as a result of the planned run-off of the U.S. auto finance business portfolio. Consumer Services net earnings decreased primarily as a result of losses recognized on the impairment of investments at GE Financial Assurance, as well as lower securitization gains at GE Financial Assurance and Card Services, the combination of which more than offset increased productivity at GE Financial Assurance and Global Consumer Finance, increased volume growth and acquisitions at Global Consumer Finance and volume growth at Card Services.

Equipment Management

 

Second quarter ended

 

 


 

(Dollars in millions)

6/30/02

 

 

6/30/01

 

 


 

 


 

Revenues

 

 

 

 

 

 

 

Aviation Services (GECAS)

$

683

 

 

$

589

 

Americom

 

--

 

 

 

118

 

Other Equipment Management

 

1,050

 

 

 

1,061

 

 


 

 


 

     Total revenues

$

1,733

 

 

$

1,768

 

 


 

 


 

Net earnings

 

 

 

 

 

 

 

Aviation Services (GECAS)

$

117

 

 

$

155

 

Americom

 

--

 

 

 

34

 

Other Equipment Management

 

66

 

 

 

171

 

 


 

 


 

     Net earnings

$

183

 

 

$

360

 

 


 

 


 

Equipment Management revenues and net earnings decreased 2% and 49%, respectively, in the second quarter of 2002, compared with the corresponding period in 2001, reflecting the absence of a counterpart to 2001 Americom revenues following its divestiture in the fourth quarter of 2001, partially offset by volume growth at GECAS. The decrease in net earnings is attributable to prior year tax benefits from restructuring at Penske (included in Other Equipment Management), decreased gains from asset sales at GECAS and the divestiture of Americom, partially offset by volume growth and acquisitions at GECAS. As a result of the divestiture of Americom, GECS received an equity interest in SES Global, which is included in the Specialized Financing operating activity.

Mid-Market Financing

 

Second quarter ended

 

 


 

(Dollars in millions)

6/30/02

 

 

6/30/01

 

 


 

 


 

Revenues

 

 

 

 

 

 

 

Commercial Equipment Financing

$

1,170

 

 

$

997

 

Commercial Finance

 

554

 

 

 

436

 

Vendor Financial Services

 

554

 

 

 

487

 

Other Mid-Market Financing

 

68

 

 

 

--

 

 


 

 


 

     Total revenues

$

2,346

 

 

$

1,920

 

 


 

 


 

Net earnings

 

 

 

 

 

 

 

Commercial Equipment Financing

$

165

 

 

$

119

 

Commercial Finance

 

138

 

 

 

92

 

Vendor Financial Services

 

74

 

 

 

62

 

Other Mid-Market Financing

 

15

 

 

 

4

 

 


 

 


 

     Net earnings

$

392

 

 

$

277

 

 


 

 


 

Mid-Market Financing revenues and net earnings increased 22% and 42%, respectively, in the second quarter of 2002 compared with the second quarter of 2001. The increase in revenues principally reflected acquisition growth across all businesses. The increase in net earnings reflected contributions from acquisitions across all businesses, partially offset by higher credit losses at Commercial Finance, Commercial Equipment Financing and Vendor Financial Services. Other Mid-Market Financing also includes results of the Healthcare Financial Services business, which was recently launched primarily from assets acquired in the October 2001, acquisition of Heller Financial, Inc. ("Heller").

Specialized Financing

 

Second quarter ended

 

 


 

(Dollars in millions)

6/30/02

 

 

6/30/01

 

 


 

 


 

Revenues

 

 

 

 

 

 

 

Real Estate

$

557

 

 

$

461

 

Structured Finance Group

 

296

 

 

 

275

 

GE Equity

 

(87

)

 

 

(21

)

Other Specialized Financing

 

18

 

 

 

12

 

 


 

 


 

     Total revenues

$

784

 

 

$

727

 

 


 

 


 

Net earnings

 

 

 

 

 

 

 

Real Estate

$

133

 

 

$

123

 

Structured Finance Group

 

125

 

 

 

106

 

GE Equity

 

(85

)

 

 

(64

)

Other Specialized Financing

 

(2

)

 

 

(4

)

 


 

 


 

     Net earnings

$

171

 

 

$

161

 

 


 

 


 

Specialized Financing revenues increased 8% in the second quarter of 2002 as a result of acquisitions at Real Estate and Structured Finance Group and revenues associated with Structured Finance Group's equity method investment in SES Global (acquired in the fourth quarter of 2001), partially offset by increased asset losses on investments at GE Equity and reduced asset gains at Structured Finance Group and Real Estate. GE Equity manages equity investments in early-stage, early growth, pre-IPO companies. Revenues at GE Equity include income, gains and losses on such investments. During the second quarter of 2002 and 2001, losses on GE Equity's investments exceeded gains and other investment income, resulting in negative revenues. Specialized Financing net earnings increased 6% as a result of acquisitions at Real Estate and volume growth and net income associated with the equity investment in SES Global at Structured Finance Group, the combination of which more than offset increased asset losses at GE Equity and reduced asset gains at Structured Finance Group.

Specialty Insurance

 

Second quarter ended

 

 


 

(Dollars in millions)

6/30/02

 

 

6/30/01

 

 


 

 


 

Revenues

 

 

 

 

 

 

 

Mortgage Insurance

$

256

 

 

$

270

 

GE Global Insurance Holdings

 

2,076

 

 

 

2,565

 

Other Specialty Insurance

 

114

 

 

 

146

 

 


 

 


 

     Total revenues

$

2,446

 

 

$

2,981

 

 


 

 


 

Net earnings

 

 

 

 

 

 

 

Mortgage Insurance

$

133

 

 

$

93

 

GE Global Insurance Holdings

 

(236

)

 

 

140

 

Other Specialty Insurance

 

53

 

 

 

46

 

 


 

 


 

     Net earnings

$

(50

)

 

$

279

 

 


 

 


 

Specialty Insurance revenues decreased 18% in the second quarter of 2002 primarily as a result of reduced premiums resulting from approximately $325 million of pre-tax adjustments to estimates of prior-year loss events, lower investment income at GE Global Insurance Holdings and reduced gains at GE Global Insurance Holdings and Mortgage Insurance. The decrease in Other Specialty Insurance revenues related to the portfolio run-off at Mortgage Services, partially offset by increased investment gains at Financial Guaranty Insurance Company. The 118% decrease in Specialty Insurance net earnings during the second quarter of 2002 resulted from  approximately $350 million of after-tax adjustments (including both reduced revenues and increased costs) to estimates of prior-year loss events, lower investment income at GE Global Insurance Holdings, and reduced investment gains at GE Global Insurance Holdings and Mortgage Insurance, partially offset by favorable development on prior year loss reserves and volume growth at Mortgage Insurance, primarily in Canada and Australia.

All Other GECS

 

Second quarter ended

 

 


 

(Dollars in millions)

6/30/02

 

 

6/30/01

 

 


 

 


 

Revenues

 

 

 

 

 

 

 

IT Solutions

$

994

 

 

$

1,090

 

Other

 

219

 

 

 

295

 

 


 

 


 

     Total revenues

$

1,213

 

 

$

1,385

 

 


 

 


 

Net earnings

 

 

 

 

 

 

 

IT Solutions

$

7

 

 

$

(4

)

Other

 

65

 

 

 

(48

)

 


 

 


 

     Net earnings

$

72

 

 

$

(52

)

 


 

 


 

All Other GECS decline in revenues primarily related to reduced volume at IT Solutions, including the effects of exiting lower performing businesses. The increase in All Other GECS net earnings reflects the inclusion of a tax settlement with the Internal Revenue Service (IRS) resulting from revised IRS regulations, allowing the deductibility of previously realized losses associated with the prior disposition of Kidder Peabody preferred stock and the recovery of state tax benefits. Corporate expenses were also lower in 2002. The net earnings improvement in IT Solutions related to exiting lower performing businesses.

B. Results of Operations -- First Half of 2002 Compared With First Half of 2001

     Earnings before accounting changes for the first half rose 15% to $7.944 billion and earnings per share before accounting changes increased 14% to $.79, up from last year's $.69. Earnings before accounting changes exclude the one-time, non-cash impact of adopting new accounting rules (discussed in notes 3 and 4 of this 10-Q report). Both earnings per share and earnings were records for the first half.

     Consolidated revenues for the first six months of 2002 aggregated $63.7 billion, up 2% from last year. GE sales of goods and services were 8% higher, with improvements led by double-digit increases at Power Systems, NBC and Appliances. Operating profit of GE's industrial operating segments increased to $7.3 billion up from $6.3 billion in the first half of 2001, as double-digit growth in Power Systems and Appliances more than offset lower operating profit at Lighting, Plastics, Specialty Materials and Industrial Systems.

     Acquisitions contributed $374 million to earnings in the first six months of 2002 compared with approximately $50 million in the comparable 2001 period.

     Operating margin in the first half of 2002 was 19.8% of sales, compared with last year's 19.2%. The improvement in operating margin reflects continuing productivity gains.

Segment Analysis:

     The following comments compare revenues and segment profit by industry segment for the first half of 2002 with the same period of 2001.

       • Aircraft Engines revenues decreased 8% from the first half of 2001, reflecting reduced commercial product service revenues partially offset by increased military sales. Following the events of September 11, product service revenues were adversely affected by reduced customer flight hours and corresponding servicing requirements, resulting in lower product service revenue during the first half of 2002. Operating profit was 4% lower primarily as a result of lower service volumes and lower pricing, partially offset by base cost and other productivity.

       • Appliances revenues were 11% higher than last year as new products continued to gain market share, especially in the U.S. market, more than offsetting lower selling prices. Operating profit increased 17% principally as a result of volume, base cost productivity and lower material costs, which more than offset decreases in selling prices.

       • Industrial Products and Systems

 

Six months ended

 

 


 

(Dollars in millions)

6/30/02

 

 

6/30/01

 

 


 

 


 

Revenues

 

 

 

 

 

 

 

Industrial Systems

$

2,370

 

 

$

2,344

 

Lighting

 

1,072

 

 

 

1,213

 

Transportation Systems

 

1,076

 

 

 

1,120

 

GE Supply

 

1,158

 

 

 

1,152

 

 


 

 


 

     Total revenues

$

5,676

 

 

$

5,829

 

 


 

 


 

Operating profit

 

 

 

 

 

 

 

Industrial Systems

$

232

 

 

$

293

 

Lighting

 

49

 

 

 

137

 

Transportation Systems

 

177

 

 

 

172

 

GE Supply

 

48

 

 

 

40

 

 


 

 


 

     Total operating profit

$

506

 

 

$

642

 

 


 

 


 

Industrial Products and Systems reported a 3% decrease in revenues and 21% lower operating profit primarily as a result of declines in selling prices across the businesses in the segment. Industrial Systems revenues rose 1% compared with last year reflecting contributions from acquisitions that more than offset lower volume and sharply lower selling prices. Industrial Systems'  lower operating profit was principally the result of lower selling prices that offset the contributions of acquisitions. During the first half of 2002, Lighting was adversely affected by volume declines, higher advertising costs related to new product introductions and charges related to customer delinquencies, resulting in a 12% decline in revenues and a 64% drop in operating profit. Transportation operating profit rose 3% on 4% lower revenues as a result of strong variable cost productivity. Supply operating profits for the first half of 2002 increased $8 million on revenues that were about flat, reflecting lower material costs and continued variable and base cost productivity.

       • Materials

 

Six months ended

 

 


 

(Dollars in millions)

6/30/02

 

 

6/30/01

 

 


 

 


 

Revenues

 

 

 

 

 

 

 

Plastics

$

2,599

 

 

$

2,811

 

Specialty Materials

 

1,009

 

 

 

979

 

 


 

 


 

     Total revenues

$

3,608

 

 

$

3,790

 

 


 

 


 

Operating profit

 

 

 

 

 

 

 

Plastics

$

482

 

 

$

673

 

Specialty Materials

 

141

 

 

 

178

 

 


 

 


 

     Total operating profit

$

623

 

 

$

851

 

 


 

 


 

Materials revenues decreased 5% and operating profit declined 27% from first half of 2001 levels. Plastics revenues were 8% below the first half of 2001, primarily due to continued weakness in pricing. Operating profit declined 28% as lower raw material prices were not sufficient to offset lower pricing. Similarly at Specialty Materials, operating profit decreased 21% as higher volumes and lower material costs were more than offset by lower pricing and productivity.

       • NBC reported a 25% increase in revenues compared with the first half of 2001, primarily reflecting NBC's improved performance in the advertising market, its broadcast of the Winter Olympics, the Telemundo acquisition and absence of a counterpart to a one-time charge related to the shutdown of the XFL in 2001. Operating profit increased 9% reflecting NBC's improved performance in the advertising market and absence of the XFL charge.

       • Power Systems revenues increased 25%, reflecting higher volume in gas turbines (194 vs. 170 in 2001), continued growth in services, higher selling prices and contract cancellation fees of $638 million. Operating profit increased 72%, primarily as a result of the increase in volume coupled with higher selling prices, productivity and contract cancellation fees, net of related costs.

       • Technical Products and Services

 

Six months ended

 

 


 

(Dollars in millions)

6/30/02

 

 

6/30/01

 

 


 

 


 

Revenues

 

 

 

 

 

 

 

Medical Systems

$

4,075

 

 

$

3,788

 

Global eXchange Services

 

209

 

 

 

358

 

 


 

 


 

     Total revenues

$

4,284

 

 

$

4,146

 

 


 

 


 

Operating profit

 

 

 

 

 

 

 

Medical Systems

$

667

 

 

$

649

 

Global eXchange Services

 

15

 

 

 

98

 

 


 

 


 

     Total operating profit

$

682

 

 

$

747

 

 


 

 


 

Technical Products and Services revenues increased 3% from the first half of 2001, principally as a result of 8% revenue growth at Medical Systems, which reported higher equipment volume, including acquisitions, and continued growth in services. Operating profit for the segment fell 9% as the growth at Medical Systems was more than offset by the absence of a counterpart to a gain on disposition of a joint venture at Global eXchange Services in 2001.

       • GE Capital Services

 

Six months ended

 

 


 

(Dollars in millions)

6/30/02

 

 

6/30/01

 

 


 

 


 

Revenues

 

 

 

 

 

 

 

Consumer Services

$

10,740

 

 

$

11,310

 

Equipment Management

 

3,332

 

 

 

3,613

 

Mid-Market Financing

 

4,617

 

 

 

3,871

 

Specialized Financing

 

1,504

 

 

 

1,562

 

Specialty Insurance

 

5,231

 

 

 

5,869

 

All Other

 

2,327

 

 

 

2,897

 

 


 

 


 

     Total revenues

$

27,751

 

 

$

29,122

 

 


 

 


 

Earnings before accounting changes

 

 

 

 

 

 

 

Consumer Services

$

1,263

 

 

$

1,234

 

Equipment Management

 

352

 

 

 

666

 

Mid-Market Financing

 

746

 

 

 

569

 

Specialized Financing

 

389

 

 

 

280

 

Specialty Insurance

 

184

 

 

 

549

 

All Other

 

50

 

 

 

(147

)

 


 

 


 

     Total earnings before accounting changes

$

2,984

 

 

$

3,151

 

 


 

 


 

GECS earnings before accounting changes decreased 5% to $2,984 million reflecting increased credit losses, $367 million lower after-tax gains from investment securities (including a $110 million after-tax impairment on WorldCom, Inc. bonds),  approximately $385 million after-tax adjustments to estimates of prior-year loss events at Employers Reinsurance Corporation, a direct subsidiary of GE Global Insurance Holdings, and $82 million after tax of lower gains on securitizations. These decreases were partially offset by contributions from acquisitions, productivity and origination growth, as well as lower taxes. Contributions to net earnings in the first six months of 2002 and 2001 included approximately $317 million and $37 million, respectively, from acquired companies. Acquisitions are integrated as quickly as possible; only earnings during the first 12 months following the quarter in which the acquisition is completed are considered to be related to acquired companies. For purposes of this discussion, earnings before accounting changes is referred to as "net earnings."

Consumer Services

 

Six months ended

 

 


 

(Dollars in millions)

6/30/02

 

 

6/30/01

 

 


 

 


 

Revenues

 

 

 

 

 

 

 

Global Consumer Finance

$

2,971

 

 

$

2,688

 

GE Financial Assurance

 

5,800

 

 

 

6,298

 

GE Card Services

 

1,865

 

 

 

2,078

 

Other Consumer Services

 

104

 

 

 

246

 

 


 

 


 

     Total revenues

$

10,740

 

 

$

11,310

 

 


 

 


 

Net earnings

 

 

 

 

 

 

 

Global Consumer Finance

$

643

 

 

$

539

 

GE Financial Assurance

 

226

 

 

 

308

 

GE Card Services

 

387

 

 

 

364

 

Other Consumer Services

 

7

 

 

 

23

 

 


 

 


 

     Net earnings

$

1,263

 

 

$

1,234

 

 


 

 


 

Consumer Services net earnings increased 2% on revenues that were 5% lower compared with the first six months of 2001. Revenues decreased at GE Financial Assurance and Card Services and were partially offset by increased revenues at Global Consumer Finance. The decrease at GE Financial Assurance included impairment of $167 million pre-tax ($110 million after tax) of WorldCom, Inc. bonds, declines from the planned transition of restructured Toho insurance policies and decreased premium volume. GE Financial Assurance had $42 million remaining exposure to WorldCom, Inc. at June 30, 2002. The decrease at Card Services related to exited businesses and lower securitizations. The revenue decreases at GE Financial Assurance and Card Services were partially offset by acquisitions at all three major businesses and volume growth at Global Consumer Finance. Other Consumer Services revenues decreased as a result of the planned run-off of the U.S. auto finance business portfolio. The increase in Consumer Services net earnings reflects acquisitions and volume growth at Global Consumer Finance, volume growth at Card Services, as well as productivity at GE Financial Assurance, the combination of which was partially offset by losses recognized on the impairments of investments at GE Financial Assurance, lower securitization gains at Card Services and the planned run-off of the auto finance business portfolio.

Equipment Management

 

Six months ended

 

 


 

(Dollars in millions)

6/30/02

 

 

6/30/01

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

Aviation Services (GECAS)

$

1,251

 

 

$

1,105

 

Americom

 

--

 

 

 

355

 

Other Equipment Management

 

2,081

 

 

 

2,153

 

 


 

 


 

     Total revenues

$

3,332

 

 

$

3,613

 

 


 

 


 

Net earnings

 

 

 

 

 

 

 

Aviation Services (GECAS)

$

212

 

 

$

285

 

Americom

 

--

 

 

 

125

 

Other Equipment Management

 

140

 

 

 

256

 

 


 

 


 

     Net earnings

$

352

 

 

$

666

 

 


 

 


 

Equipment Management revenues decreased 8% and net earnings decreased 47% in the first six months of 2002 compared with the corresponding period in 2001. The decrease in revenues principally reflected the divestiture of Americom in the fourth quarter of 2001, partially offset by volume growth and acquisitions at GECAS. The decrease in net earnings principally reflected the divestiture of Americom, prior year tax benefits from restructuring at Penske (included in Other Equipment Management), and decreased gains from asset sales at GECAS, the combination of which more than offset volume growth and acquisitions at GECAS. As a result of the divestiture of Americom, GECS received an equity interest in SES Global, which is included in the Specialized Financing operating activity.

Mid-Market Financing

 

Six months ended

 

 


 

(Dollars in millions)

6/30/02

 

 

6/30/01

 

 


 

 


 

Revenues

 

 

 

 

 

 

 

Commercial Equipment Financing

$

2,251

 

 

$

1,953

 

Commercial Finance

 

1,164

 

 

 

960

 

Vendor Financial Services

 

1,089

 

 

 

958

 

Other Mid-Market Financing

 

113

 

 

 

--

 

 


 

 


 

     Total revenues

$

4,617

 

 

$

3,871

 

 


 

 


 

Net earnings

 

 

 

 

 

 

 

Commercial Equipment Financing

$

333

 

 

$

239

 

Commercial Finance

 

245

 

 

 

205

 

Vendor Financial Services

 

141

 

 

 

119

 

Other Mid-Market Financing

 

27

 

 

 

6

 

 


 

 


 

     Net earnings

$

746

 

 

$

569

 

 


 

 


 

Mid-Market Financing revenues and net earnings increased 19% and 31%, respectively, in the first six months of 2002 compared with the first six months of 2001. The increase in revenues principally reflected acquisitions across all businesses, partially offset by decreased market interest rates. Growth in net earnings reflected the results of acquisitions across all businesses, partially offset by reduced asset gains at Commercial Finance and higher credit losses at Commercial Finance, Commercial Equipment Financing and Vendor Financial Services. Other Mid-Market Financing principally includes the results of the Healthcare Financial Services business, which was recently launched primarily from assets acquired in the October 2001, acquisition of Heller.

Specialized Financing

 

Six months ended

 

 


 

(Dollars in millions)

6/30/02

 

 

6/30/01

 

 


 

 


 

Revenues

 

 

 

 

 

 

 

Real Estate

$

1,018

 

 

$

1,059

 

Structured Finance Group

 

592

 

 

 

587

 

GE Equity

 

(142

)

 

 

(110

)

Other Specialized Financing

 

36

 

 

 

26

 

 


 

 


 

     Total revenues

$

1,504

 

 

$

1,562

 

 


 

 


 

Net earnings

 

 

 

 

 

 

 

Real Estate

$

295

 

 

$

255

 

Structured Finance Group

 

254

 

 

 

212

 

GE Equity

 

(155

)

 

 

(181

)

Other Specialized Financing

 

(5

)

 

 

(6

)

 


 

 


 

     Net earnings

$

389

 

 

$

280

 

 


 

 


 

Specialized Financing revenues decreased 4% in the first six months of 2002, primarily reflecting lower market interest rates at Real Estate, lower asset gains at Structured Finance Group and increased asset losses on investments at GE Equity, partially offset by acquisitions at Real Estate and Structured Finance Group and revenues associated with Structured Finance Group's equity method investment in SES Global (acquired in the fourth quarter of 2001). GE Equity manages equity investments in early-stage, early growth, pre-IPO companies. Revenues at GE Equity include income, gains and losses on such investments. During the first six months of 2002 and 2001, losses on GE Equity's investments exceeded gains and other investment income, resulting in negative revenues. Specialized Financing net earnings increased 39% in the first six months of 2002, reflecting origination growth at Structured Finance Group, acquisitions at Real Estate and Structured Finance Group and net income associated with Structured Finance Group's equity investment in SES Global, partially offset by lower asset gains at Structured Finance Group.

Specialty Insurance

 

Six months ended

 

 


 

(Dollars in millions)

6/30/02

 

 

6/30/01

 

 


 

 


 

Revenues

 

 

 

 

 

 

 

Mortgage Insurance

$

536

 

 

$

579

 

GE Global Insurance Holdings

 

4,483

 

 

 

5,062

 

Other Specialty Insurance

 

212

 

 

 

228

 

 


 

 


 

     Total revenues

$

5,231

 

 

$

5,869

 

 


 

 


 

Net earnings

 

 

 

 

 

 

 

Mortgage Insurance

$

233

 

 

$

217

 

GE Global Insurance Holdings

 

(156

)

 

 

286

 

Other Specialty Insurance

 

107

 

 

 

46

 

 


 

 


 

     Net earnings

$

184

 

 

$

549

 

 


 

 


 

Specialty Insurance revenues decreased 11% in the first six months of 2002, primarily as a result of reduced premiums resulting from approximately $325 million of pre-tax adjustments to estimates of prior- year loss events and reduced gains at GE Global Insurance Holdings, reduced premiums associated with mortgage refinancing activities and reduced gains at Mortgage Insurance. Net earnings decreased 66% in the first six months of 2002, resulting from  approximately $385 million of after-tax adjustments (including both reduced revenues and increased costs) to estimates of prior-year loss events and lower investment income at GE Global Insurance Holdings, as well as reduced gains at GE Global Insurance Holdings and Mortgage Insurance, partially offset by volume growth at Mortgage Insurance, primarily in Canada and Australia. The increase in Other Specialty Insurance was attributable to lower costs associated with the portfolio run-off at Mortgage Services and higher earned premiums at Financial Guaranty Insurance Company.

All Other GECS

 

Six months ended

 

 


 

(Dollars in millions)

6/30/02

 

 

6/30/01

 

 


 

 


 

Revenues

 

 

 

 

 

 

 

IT Solutions

$

1,910

 

 

$

2,311

 

Other

 

417

 

 

 

586

 

 


 

 


 

     Total revenues

$

2,327

 

 

$

2,897

 

 


 

 


 

Net earnings

 

 

 

 

 

 

 

IT Solutions

$

5

 

 

$

(7

)

Other

 

45

 

 

 

(140

)

 


 

 


 

     Net earnings

$

50

 

 

$

(147

)

 


 

 


 

All Other GECS decline in revenues primarily related to reduced volume at IT Solutions including the effects of exiting lower performing businesses. The increase in All Other GECS net earnings reflects the inclusion of a tax settlement with the Internal Revenue Service resulting from revised IRS regulations, allowing the deductibility of previously realized losses associated with the prior disposition of Kidder Peabody preferred stock and the recovery of state tax benefits. Corporate expenses were also lower in 2002. The net earnings improvement in IT Solutions related to exiting lower performing businesses.

C. Financial Condition

     With respect to the Condensed Statement of Financial Position, consolidated assets of $540.9 billion at June 30, 2002, were $45.9 billion higher than at December 31, 2001.

     GE assets were $113.1 billion at June 30, 2002, an increase of $3.4 billion from December 31, 2001. The increase was primarily attributable to a $7.1 billion increase in intangible assets from acquisitions, principally Telemundo and Betz Dearborn, and an increase of $2.7 billion in all other assets offset , by an $8.8 billion decrease in cash and equivalents. During the second quarter of 2002, GE announced its intent to sell the Global eXchange Services (GXS) business. GXS assets and liabilities have therefore been classified as assets and liabilities held for sale. GXS assets approximate $265 million, primarily intangible assets, accounts receivable and property, plant and equipment, and are included in "All other assets." Related GXS liabilities approximating $80 million are included in "All other liabilities."

     GECS assets increased by $35.1 billion from the end of 2001 primarily because of increases in financing receivables, all other assets and investment securities. Financing receivables, net of the allowance for losses, aggregated $185.4 billion at June 30, 2002, an increase of $11.3 billion. The increase primarily reflected the effects of higher origination volume, acquisitions and the effects of foreign currency translation, partially offset by securitizations. GECS allowance for losses on financing receivables of $5.2 billion at June 30, 2002, reflected management's best estimate of probable losses inherent in the portfolio. All other assets increased $11.0 billion at the end of the second quarter primarily due to acquisitions in separate accounts and real estate investments. Investment securities increased $6.5 billion to $106.6 billion at the end of the second quarter, primarily reflecting investment of premiums received and acquisitions. In addition, property, plant and equipment (including equipment leased to others) increased $1.9 billion to $31.3 billion at the end of the second quarter and primarily related to the acquisition of aircraft. Intangible assets increased $1.5 billion to $22.3 billion at the end of the second quarter primarily due to acquisitions, partially offset by the goodwill impairment recorded upon adoption of SFAS 142. Other GECS receivables increased $1.6 billion to $42.2 billion at the end of the second quarter primarily due to growth from the acquisitions of AGC Limited and Saison Life.

     Consolidated liabilities of $476.8 billion at June 30, 2002, were $41.9 billion higher than the year-end 2001 balance. GE liabilities were relatively unchanged; GECS liabilities increased $34.0 billion.

     GE total borrowings were $3.3 billion ($2.4 billion short-term and $0.9 billion long-term) at June 30, 2002, an increase of $0.7 billion from December 31, 2001. GE's ratio of debt to total capital at the end of June 2002 was 5.2% compared with 4.3% at the end of last year and 3.4% at June 30, 2001.

     GECS liabilities increased by $34.0 billion reflecting an increase in long-term borrowings of $45.4 billion and a decrease in short-term borrowings of $27.1 billion from year-end 2001 as discussed in the "Liquidity" section of this report. In addition, insurance liabilities, reserves and annuity benefits increased $14.8 billion to $129.0 billion at the end of June 2002, primarily reflecting acquisition growth and growth in deferred annuities and guaranteed investment contracts. Other changes in GECS liabilities comprised numerous, relatively small items.

     Consolidated cash and equivalents were $10.2 billion at June 30, 2002, an increase of $1.1 billion during the first half of 2002. Cash and equivalents were $8.0 billion at June 30, 2001, a decrease of $0.2 billion during last year's first half.

     GE cash and equivalents decreased $8.8 billion during the first half of 2002 to $1.7 billion at June 30, 2002. Cash provided from operating activities was $3.5 billion during the first six months of 2002, compared with $7.8 billion in the first half of 2001, reflecting continuing improvements in earnings and lower progress collections during the period. Progress collections are primarily payments received from customers in advance of the sale of heavy-duty gas turbines and aircraft engines. Had collections occurred at the time of sale, cash provided from operating activities would have been $6.1 billion compared with $5.4 billion in 2001. Cash used for investing activities ($8.7 billion) principally resulted from investments in business acquisitions. Cash used for financing activities ($3.6 billion) included $1.1 billion for repurchases of common stock under the share repurchase program and $3.6 billion for dividends paid to share owners, a 12.5% increase in the per-share dividend rate compared with the first half of last year.

     GE cash and equivalents increased $2.4 billion during the first half of 2001 to $9.6 billion at June 30, 2001. Cash provided from operating activities was $7.8 billion during the first six months of 2001, compared with $5.9 billion in the first half of 2000, reflecting continuing improvements in earnings as well as higher progress collections during the period. Cash used for investing activities ($1.0 billion) principally resulted from investments in new plant and equipment for a diverse number of projects to lower costs and improve efficiencies as well as investments in business acquisitions. Cash used for financing activities ($4.4 billion) included $1.5 billion for repurchases of common stock under the share repurchase program and $3.2 billion for dividends paid to share owners, a 17% increase in the per-share dividend rate compared with the first half of 2000.

     GECS cash and equivalents increased by $1.3 billion during the first half of 2002 to $8.6 billion. Cash provided from operating activities was $8.4 billion during the first six months of 2002, compared with $10.3 billion during the first half of 2001. The decrease in cash from operating activities compared with last year was largely attributable to lack of a current year counterpart to the prior year increase in accounts payable, increases in income taxes payable and payables on purchases of investment securities. Cash from financing activities totaled $12.2 billion, reflecting net additions of debt. The principal use of GECS cash during the period was for investing activities ($19.3 billion), a majority of which was attributable to financing receivables, business acquisitions and additions to property, plant and equipment (including equipment leased to others).

     GECS cash and equivalents decreased by $0.1 billion during the first half of 2001 to $6.0 billion. Cash provided from operating activities was $10.3 billion during the first six months of 2001, compared with $0.8 billion during the first half of 2000. The increase in cash from operating activities compared with last year was largely attributable to insurance policyholder redemptions in 2000 associated with the Toho acquisition. Cash from financing activities totaled $1.5 billion, reflecting net additions of debt. The principal use of GECS cash during the period was for investing activities ($11.9 billion), a majority of which was attributable to additions to property, plant and equipment (including equipment leased to others) and business acquisitions.

Liquidity

     The major debt-rating agencies evaluate the financial condition of GE and of GE Capital Corporation ("GE Capital"), the major public borrowing entity of GECS, differently because of their distinct business characteristics. Factors that are important to the ratings of both include the following: cash generating ability -- including cash generated from operating activities; earnings quality -- including revenue growth and the breadth and diversity of sources of income; leverage ratios - such as debt to total capital and interest coverage; and asset utilization, including return on assets and asset turnover ratios. Considering those factors, as well as other criteria appropriate to GE and GECS individually, those major rating agencies continue to give the highest ratings to debt of GE and GE Capital (long-term credit rating AAA/Aaa; short-term credit rating A-1+/P-1).

     Global commercial paper markets are a primary source of cash for GE and GECS. GE Capital is the most widely-held name in those markets. GECS began the year with $117 billion of commercial paper, about 49% of GECS total debt outstanding at December 31, 2001, and at the end of the second quarter of 2002 had $83 billion of commercial paper outstanding, about 32% of GECS total debt outstanding. GECS now targets a ratio for commercial paper as a percent of outstanding debt of 25% to 35%.

     As of June 30, 2002, GECS held approximately $54 billion of contractually committed lending agreements with highly-rated global banks and investment banks, an increase of $21 billion since December 31, 2001. When considering the contractually committed lending agreements 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, management believes it could achieve an orderly transition from commercial paper in the unlikely event of impaired access to the commercial paper market.

     During the first half of 2002, GECS issued approximately $58 billion of long-term debt in U.S. and international markets. These funds were used primarily to reduce the amount of commercial paper outstanding, fund maturing long-term debt, and fund acquisitions and asset growth. GECS anticipates issuing approximately $20 billion to $40 billion of additional long-term debt using both U.S. and international markets during the remainder of 2002. 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 upon the growth in assets, acquisition activity, availability of markets and movements in interest rates.

     GE and GECS use special purpose entities as described in the December 31, 2001, Annual Report on Form 10-K. Receivables held by special purpose entities as of June 30, 2002 and December 31, 2001, were $44.4 billion and $43.0 billion, respectively, and the maximum amount of liquidity support for commercial paper outstanding was about the same at $43.3 billion. The maximum recourse provided under credit support agreements increased from $14.5 billion at December 31, 2001, to $15.1 billion at June 30, 2002.

GECS Portfolio Quality

     Financing receivables is 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, increased to $190.6 billion at June 30, 2002, from $178.8 billion at the end of 2001, primarily reflecting acquisitions, as well as the effects of foreign currency translation of financing receivables, in excess of securitizations. The related allowance for losses at June 30, 2002 amounted to $5.2 billion ($4.8 billion at the end of 2001) and represents GECS management's best estimate of probable losses inherent in the portfolio. A discussion about the quality of certain elements of the portfolio of financing receivables 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.

     Consumer financing receivables, primarily credit card and personal loans and auto loans and leases, were $60.7 billion at June 30, 2002 ($52.3 billion at December 31, 2001). Nonearning consumer receivables at June 30, 2002 were consistent with year-end 2001, at $1.5 billion, about 2.4% of outstandings at June 30, 2002 and about 2.9% of outstandings at December 31, 2001. Write-offs of consumer receivables were $0.9 billion for the first six months of both 2002 and 2001.

     Commercial financing receivables, which totaled $129.9 billion at June 30, 2002 ($126.5 billion at December 31, 2001), consisted of a diverse commercial, industrial and equipment loan and lease portfolio. Related nonearning and reduced-earning receivables were $2.5 billion at June 30, 2002, about 1.9% of outstandings, compared with $1.7 billion, about 1.4% of outstandings at year-end 2001. The increase is primarily driven by nonearning and reduced-earning receivables associated with Heller of approximately $430 million; at December 31, 2001, $408 million of such loans were earning but classified as impaired. The increase also related to several bankruptcies and deal restructurings involving middle-market customers, including a significant amount related to the telecommunication industry. These receivables are generally backed by assets and are covered by reserves for probable losses. Such reserves are based on management's best estimates and changes to these provisions will be dependent upon future associated business and economic conditions. At June 30, 2002 and December 31, 2001, the portfolio included loans and leases on commercial aircraft of $24.2 billion and $21.5 billion, respectively.

     Investment securities comprise principally investment grade debt securities held by GE Financial Assurance and the GECS specialty insurance businesses and were $106.6 billion, including gross unrealized gains and losses of $2.6 billion and $2.0 billion, respectively, at June 30, 2002 ($100.1 billion, including gross unrealized gains and losses of $2.1 billion and $2.7 billion, respectively, as of December 31, 2001). Investment securities are regularly reviewed 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 those securities whose carrying amount exceeds fair value at June 30, 2002, and based upon application of GE' accounting policy for impairment, approximately $570 million of portfolio value is at risk of being charged to earnings in the second half of 2002. Impairment losses recognized for the first six months of 2002 were $429 million, including $334 million ($217 million after-tax) from the telecommunications and cable industries, of which $167 million ($110 million after tax) was recognized in the second quarter of 2002 due to the events relating to WorldCom, Inc.

     In recent periods the telecommunication and cable industries have experienced significant volatility. GECS investments in (primarily within financing receivables and investment securities), and commitments to these industries aggregate approximately $13 billion as of June 30, 2002. These investments are subject to GE and GECS policies for reserving (on financing receivables) and other than temporary impairment, as appropriate; future losses will be dependent upon associated business and economic conditions.

Part II. Other Information

Item 1. Legal Proceedings

Environmental

     As previously reported, in January 2002, the Company entered into discussions with the New York State Department of Environmental Conservation regarding potential noncompliance with the state's Clean Water Act at its Waterford, NY facility. The state alleges spills and discharges in excess of permitted limits as well as reporting violations. The state has informed the company that it is currently seeking a penalty of $1.5 million. The Company has disputed both the allegations and penalty amount. Negotiations are underway with the State.

     In April 2002, the Ohio Environmental Protection Agency informed the Company that it was seeking penalties of $4.3 million for violations of the state's Clean Air Act at its Newark, OH facility. The state alleges that the site constructed air emission sources without undergoing adequate New Source Review. The matter involves conditions identified by the Company and voluntarily disclosed to the state more than 5 years ago which the Company proactively addressed with the concurrence of the State. The Company believes that the penalty demand by the state is inappropriate and unreasonable considering the history of the matter. Negotiations with the State are underway.

Item 4. Submission of Matters to a Vote of Security Holders

(a)     The annual meeting of Share Owners of General Electric Company was held on April 24, 2002.

(b)     All director nominees were elected.

(c)     Certain matters voted upon at the meeting and the votes cast with respect to such matters are as follows:

Proposals and Vote Tabulations

 

Votes Cast

 

 


 

Broker 

 

For

Against

Abstain

Non-votes

Management Proposals





 

 

 

 

 

Approval of the appointment of
independent auditors for 2002

7,896,606,625

297,096,241

54,930,336

0

Proposal to approve material terms of executive officer performance goals

7,802,890,560

346,104,521

99,638,121

0

 

 

 

 

 

Share Owner Proposals

 

 

 

 

 

 

 

 

 

(1)

Relating to cumulative voting

1,625,542,524

4,796,391,987

121,177,359

1,705,521,332

(2)

Relating to global warming

1,165,992,005

4,915,366,495

461,753,370

1,705,521,332

(3)

Relating to nuclear power report

362,349,198

5,844,927,778

335,834,894

1,705,521,332

(4)

Relating to report on PCB cleanup costs

1,360,500,795

4,903,418,739

279,192,336

1,705,521,332

(5)

Relating to poison pill

2,553,318,036

3,854,959,604

134,834,230

1,705,521,332

(6)

Relating to pension fund income/executive compensation

848,064,339

5,544,897,701

150,149,830

1,705,521,332

(7)

Relating to performance-based stock options

2,019,606,863

4,388,248,216

135,256,791

1,705,521,332

(8)

Related to executive severance agreements

2,458,423,421

3,850,087,784

234,600,665

1,705,521,332

Election of Directors

Director

Votes Received

 

Votes Withheld



 


James I. Cash, Jr.

7,942,670,273

 

305,962,929

Dennis D. Dammerman

7,920,628,859

 

328,004,343

Paolo Fresco

7,921,525,398

 

327,107,804

Ann M. Fudge

7,854,712,598

 

393,920,604

Claudio X. Gonzalez

7,895,543,791

 

353,089,411

Jeffrey R. Immelt

7,920,960,441

 

327,672,761

Andrea Jung

7,944,200,883

 

304,432,319

Kenneth G. Langone

7,920,565,094

 

328,068,108

Rochelle B. Lazarus

7,945,434,987

 

303,198,215

Scott G. McNealy

7,874,846,940

 

373,786,262

Sam Nunn

7,861,818,850

 

386,814,352

Roger S. Penske

7,854,963,478

 

393,669,724

Gary L. Rogers

7,920,736,573

 

327,896,629

Andrew C. Sigler

7,893,342,433

 

355,290,769

Douglas A. Warner III

7,901,554,400

 

347,078,802

Robert C. Wright

7,921,471,443

 

327,161,759

Item 6. Exhibits and Reports on Form 8-K

a.     Exhibits

     Exhibit 11. Computation of Per Share Earnings*
     Exhibit 12. Computation of Ratio of Earnings to Fixed Charges.
     Exhibit 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     Exhibit 99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*     Data required by Statement of Financial Accounting Standards No. 128, Earnings per Share, is provided in note 8 to the condensed consolidated financial statements in this report.

b.     Reports on Form 8-K during the quarter ended June 30, 2002.

     A Form 8-K was filed on April 11, 2002, under Item 9, incorporating by reference GE's April 11, 2002, press release setting forth GE's first-quarter 2002 earnings.

 


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.
 
 
General Electric Company
            (Registrant)

 

July 31, 2002
 /s/ Philip D. Ameen 
Date Philip D. Ameen
Vice President and Comptroller
Duly Authorized Officer and Principal Accounting Officer