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GENERAL ELECTRIC CO 8-K Report, Corporate Update (Jan 18, 2008)

Filed January 18, 2008For Securities:GE

Summary

This 8-K filing from General Electric (GE) on January 18, 2008, details the company's identification of certain non-cash accounting errors related to revenue recognition, primarily impacting its Aviation and Infrastructure businesses. These errors, identified during an internal review in connection with an ongoing SEC investigation, involve the accounting for profits on spare parts in the Aviation segment and the application of revenue measurement principles for long-term contracts in Infrastructure. The "Spare parts profit" error, dating back to before 2002 and adjusted through 2006, resulted in an acceleration of revenues and profits in 2002 and an understatement in subsequent periods. The "Long-term contracts" error, prior to 2004, also led to a misstatement of revenues and profits. GE has provided tables illustrating the impact of these adjustments on its financial statements, including net earnings and earnings per share, across several years. The company, with its audit committee, is evaluating the full impact on financial reporting and internal controls, with a view to potential restatement of its 2006 Form 10-K.

Key Highlights

  • 1GE identified non-cash accounting errors related to revenue recognition in its Aviation and Infrastructure segments.
  • 2An error in accounting for spare parts profits in the Aviation business led to an acceleration of revenue and profit recognition in 2002 and understatements in later years.
  • 3A separate error in applying revenue measurement principles for long-term contracts in Infrastructure also caused financial statement misstatements.
  • 4The cumulative impact of these errors significantly reduced 2002 net earnings by approximately $770 million but increased net earnings in 2003, 2004, 2005, and 2006 by a total of approximately $300 million.
  • 5The adjustments, including per-share impacts, have been detailed for fiscal years 2002-2006 and for various quarters in 2005-2007.
  • 6GE is continuing its internal review and cooperating with an ongoing SEC investigation, evaluating the effect of these items on financial statements and internal controls, with a potential restatement of the 2006 10-K.
  • 7The identified accounting errors do not impact the financial position, results of operations, or cash flows of GE Capital or GE Capital Services.

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