What is the impact of the new accounting standard SFAS 142 on GE's financial results?

GE adopted SFAS 142, which requires goodwill to be tested for impairment instead of being amortized. As a result, GE recognized a one-time, non-cash goodwill impairment charge of $1.204 billion ($1.015 billion after tax) as of January 1, 2002, impacting net earnings. This change means that goodwill amortization expense is no longer recorded, affecting year-over-year comparisons. The impairment charge was primarily related to GECS IT Solutions and GE Auto and Home businesses due to economic conditions and competitive pressures.

How did GE Capital Services (GECS) perform in the quarter, and what were the main drivers of its performance?

GECS net earnings decreased by 10% to $1.327 billion in the second quarter of 2002 compared to the prior year. This decline was significantly influenced by approximately $350 million of after-tax adjustments to prior-year loss estimates at Employers Reinsurance Corporation (ERC), increased credit losses, and a $110 million after-tax impairment charge on WorldCom bonds. These factors were partially offset by contributions from acquisitions and origination growth in certain segments.

What are the key operational highlights and segment performances for GE in the second quarter?

GE reported strong operational performance in its industrial segments. Power Systems and NBC showed significant double-digit growth in revenues and operating profit. Appliances and Medical Systems also demonstrated robust growth. However, Aircraft Engines experienced a revenue decline due to reduced commercial sales and servicing, while Industrial Products and Systems saw lower operating profit primarily due to pricing pressures. Acquisitions played a notable role, contributing $215 million to earnings in the quarter.

What is the company's liquidity position and how is it managing its debt and funding?

GE's consolidated cash and equivalents increased to $10.2 billion at June 30, 2002. GE Capital (GECS) maintains a strong liquidity position, with substantial committed lending agreements and significant issuance of long-term debt ($58 billion in the first half of 2002) to reduce commercial paper outstanding, fund maturities, and support growth. GECS targets its commercial paper as a percentage of outstanding debt to remain between 25% and 35%. Both GE and GE Capital continue to hold the highest credit ratings (AAA/Aaa and A-1+/P-1).

GE 10-Q Quarterly Report Q2 FY2002 — Revenue, Net Income, EPS

Summary

General Electric Company (GE) reported solid financial results for the second quarter and first half of 2002, demonstrating resilience in a challenging economic environment. Total revenues saw a modest increase, driven by strong performance in GE's industrial segments, particularly Power Systems and NBC, which experienced significant double-digit growth in revenues and operating profit. This growth was partially offset by a slight decline in GE Capital Services (GECS) revenues, attributed to factors like the Employers Reinsurance Corporation (ERC) adjustments and investment impairments. The company highlighted record earnings per share for both the quarter and the first half, reflecting effective cost management and productivity gains across its operations. Significant events impacting the results included a favorable settlement with the IRS for Aircraft Engines, a benefit from the termination of Power Systems orders, and a charge related to the impairment of WorldCom bonds. The adoption of SFAS 142 led to a one-time goodwill impairment charge, primarily impacting GECS IT Solutions and GE Auto and Home businesses, but goodwill is no longer being amortized, which impacts year-over-year comparisons. Overall, GE demonstrated strong operational execution and delivered shareholder value through dividends and share repurchases.

Key Highlights

1Net earnings for the second quarter of 2002 increased by 14% to $4.426 billion, with diluted earnings per share rising 13% to $0.44, both record highs for the quarter.
2Total revenues for the second quarter increased by 4% to $33.214 billion, driven by a 10% growth in GE industrial revenues, particularly in Power Systems, Medical Systems, Appliances, and Specialty Materials.
3GE Capital Services (GECS) net earnings decreased by 10% to $1.327 billion for the quarter, impacted by approximately $350 million in after-tax adjustments for prior-year loss events at Employers Reinsurance Corporation and a $110 million after-tax impairment charge on WorldCom bonds.
4Adoption of SFAS 142 resulted in a non-cash goodwill impairment charge of $1.204 billion ($1.015 billion after tax) as of January 1, 2002, which is reported as a cumulative effect of accounting changes.
5Acquisitions contributed $215 million to earnings in Q2 2002, up from $25 million in Q2 2001, indicating strategic expansion efforts.
6GE's operating margin improved to 21.2% in the second quarter from 20.6% in the prior year, reflecting continued productivity gains.
7Cash generated from GE's operating activities, excluding progress collections, increased by 12% to $6.1 billion in the first half of 2002.

GENERAL ELECTRIC CO Quarterly Report for Q2 Ended Jun 30, 2002

Summary

Key Highlights

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