<PAGE>
1
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, 1994
---------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-35
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GENERAL ELECTRIC COMPANY
----------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 14-0689340
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3135 Easton Turnpike, Fairfield, CT 06431-0001
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(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (203) 373-2459
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---------------------------------------------------
(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 1,712,367,373 shares with a par value of $0.32 per share
outstanding at June 30, 1994.
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2
Part I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Condensed Statement of Earnings
General Electric Company and consolidated affiliates
<TABLE>
<CAPTION>
(Dollars, except per-share amounts, in millions) Second quarter ended June 30 (Unaudited)
--------------------------------------------------------------------------
Consolidated GE GECS
---------------------- ---------------------- ----------------------
1994 1993 1994 1993 1994 1993
--------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Sales of goods $7,542 $7,258 $7,548 $7,262 $ - $ -
Sales of services 2,478 2,200 2,490 2,206 - -
Net earnings of GECS - - 463 414 - -
GECS revenues from operations 5,998 5,108 - - 6,023 5,129
Other income 178 195 179 196 - -
-------- ---------- ---------- ---------- ---------- ----------
Total revenues 16,196 14,761 10,680 10,078 6,023 5,129
-------- ---------- ---------- ---------- ---------- ----------
Cost of goods sold 5,534 5,967 5,541 5,971 - -
Cost of services sold 1,742 1,829 1,754 1,835 - -
Interest and other financial charges 2,252 1,729 104 149 2,153 1,585
Insurance losses and policyholder and annuity benefits 779 692 - - 779 692
Provision for losses on financing receivables 251 292 - - 251 292
Other costs and expenses 3,353 3,245 1,207 1,311 2,166 1,951
Minority interest in net earnings of
consolidated affiliates 56 29 6 3 50 26
-------- ---------- ---------- ---------- ---------- ----------
Total costs and expenses 13,967 13,783 8,612 9,269 5,399 4,546
-------- ---------- ---------- ---------- ---------- ----------
Earnings from continuing operations before income taxes 2,229 978 2,068 809 624 583
Provision for income taxes (707) (322) (546) (153) (161) (169)
-------- ---------- ---------- ---------- ---------- ----------
Earnings from continuing operations 1,522 656 1,522 656 463 414
Gain on transfer of discontinued operations
(net of income taxes of $752) - 678 - 678 - -
--------- ---------- ---------- ---------- ---------- ----------
Net earnings $1,522 $1,334 $1,522 $1,334 $463 $414
======== ========== ========== ========== ========== ==========
Net earnings per share -a)
Continuing operations $0.89 $0.38
Discontinued operations - 0.40
-------- ----------
Net earnings per share $0.89 $0.78
======== ==========
Dividends declared per share -a) $0.36 $0.315
-------- ----------
<FN>
(a- 1993 data have been adjusted to reflect the two-for-one stock split effective on April 28, 1994.
See notes to Condensed Consolidated Financial Statements. Supplemental consolidating data are shown for "GE" and "GECS."
Transactions between GE and GECS have been eliminated from the "consolidated" columns. See note 1 to the consolidated financial
statements in the 1993 Annual Report to Share Owners for further information about consolidation matters.
</TABLE>
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3
Condensed Statement of Earnings
General Electric Company and consolidated affiliates
<TABLE>
<CAPTION>
(Dollars, except per-share amounts, in millions) Six months ended June 30 (Unaudited)
---------------------------------------------------------------------------
Consolidated GE GECS
----------------------- ---------------------- ----------------------
1994 1993 1994 1993 1994 1993
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Sales of goods $13,718 $13,343 $13,730 $13,351 $ - $ -
Sales of services 4,553 4,075 4,572 4,085 - -
Net earnings of GECS - - 793 865 - -
GECS revenues from operations 11,768 9,848 - - 11,816 9,892
Other income 339 351 341 355 - -
---------- ---------- ---------- ---------- ---------- ----------
Total revenues 30,378 27,617 19,436 18,656 11,816 9,892
---------- ---------- ---------- ---------- ---------- ----------
Cost of goods sold 9,974 10,404 9,986 10,412 - -
Cost of services sold 3,272 3,278 3,291 3,288 - -
Interest and other financial charges 4,531 3,298 195 301 4,344 3,007
Insurance losses and policyholder and annuity benefits 1,472 1,237 - - 1,472 1,237
Provision for losses on financing receivables 421 547 - - 421 547
Other costs and expenses 6,874 6,223 2,454 2,432 4,462 3,829
Minority interest in net earnings of consolidated
affiliates 87 49 13 4 74 45
---------- ---------- ---------- ---------- ---------- ----------
Total costs and expenses 26,631 25,036 15,939 16,437 10,773 8,665
---------- ---------- ---------- ---------- ---------- ----------
Earnings from continuing operations before
income taxes and accounting change 3,747 2,581 3,497 2,219 1,043 1,227
Provision for income taxes (1,157) (840) (907) (478) (250) (362)
---------- ---------- ---------- ---------- ---------- ----------
Earnings from continuing operations before
accounting change 2,590 1,741 2,590 1,741 793 865
---------- ---------- ---------- ---------- ---------- ----------
Earnings from discontinued operations (net of
income taxes of $44) - 75 - 75 - -
Gain on transfer of discontinued operations
(net of income taxes of $752) - 678 - 678 - -
---------- ---------- ---------- ---------- ---------- ----------
Earnings from discontinued operations - 753 - 753 - -
---------- ---------- ---------- ---------- ---------- ----------
Earnings before accounting change 2,590 2,494 2,590 2,494 793 865
Accounting change - cumulative effect to
January 1, 1993, of postemployment benefits - (862) - (862) - -
---------- ---------- ---------- ---------- ---------- ----------
Net earnings $2,590 $1,632 $2,590 $1,632 $793 $865
========== ========== ========== ========== ========== ==========
Net earnings per share -a)
Continuing operations $1.52 $1.02
Discontinued operations - 0.44
---------- ----------
Earnings before accounting change 1.52 1.46
Cumulative effect of change in accounting for
postemployment benefits - (0.51)
---------- ----------
Net earnings per share $1.52 $0.95
========== ==========
Dividends declared per share -a) $0.72 $0.63
---------- ----------
<FN>
(a- 1993 data have been adjusted to reflect the two-for-one stock split effective on April 28, 1994.
See notes to Condensed Consolidated Financial Statements. Supplemental consolidating data are shown for "GE" and "GECS."
Transactions between GE and GECS have been eliminated from the "consolidated" columns. See note 1 to the consolidated financial
statements in the 1993 Annual Report to Share Owners for further information about consolidation matters.
</TABLE>
<PAGE>
4
Condensed Statement of Financial Position
General Electric Company and consolidated affiliates
<TABLE>
<CAPTION>
(Dollars in millions) Consolidated GE GECS
----------------------- ---------------------- ----------------------
6/30/94 12/31/93 6/30/94 12/31/93 6/30/94 12/31/93
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Cash and equivalents $3,371 $3,218 $1,591 $1,536 $1,780 $1,682
GECS trading securities 22,781 30,165 - - 22,781 30,165
Investment securities 24,822 26,811 74 19 24,748 26,792
Securities purchased under agreements to resell 57,559 43,463 - - 57,559 43,463
Current receivables 7,993 8,195 8,320 8,561 - -
Inventories 4,500 3,824 4,500 3,824 - -
GECS financing receivables - net 68,678 63,948 - - 68,678 63,948
Other GECS receivables 15,788 15,616 - - 15,873 15,799
Property, plant and equipment (including equipment
leased to others) - net 22,095 21,228 9,523 9,542 12,572 11,686
Investment in GECS - - 10,235 10,809 - -
Intangible assets 10,757 10,364 6,340 6,466 4,417 3,898
All other assets 23,559 24,674 11,751 10,377 11,808 14,297
---------- ---------- ---------- ---------- ---------- ----------
Total assets $261,903 $251,506 $52,334 $51,134 $220,216 $211,730
========== ========== ========== ========== ========== ==========
Short-term borrowings $60,186 $62,135 $2,813 $2,391 $57,583 $60,003
Accounts payable 12,791 11,956 2,436 2,331 10,525 9,885
Securities sold under agreements to repurchase 59,321 56,669 - - 59,321 56,669
Securities sold but not yet purchased, at market 19,559 15,332 - - 19,559 15,332
Other GE current liabilities 9,255 9,637 9,255 9,637 - -
Long-term borrowings 32,631 28,270 2,915 2,413 29,746 25,885
Insurance reserves and annuity benefits 22,739 22,909 - - 22,739 22,909
All other liabilities 12,263 12,009 8,153 8,482 4,112 3,529
Deferred income taxes 4,852 5,109 15 (299) 4,837 5,408
---------- ---------- ---------- ---------- ---------- ----------
Total liabilities 233,597 224,026 25,587 24,955 208,422 199,620
---------- ---------- ---------- ---------- ---------- ----------
Minority interest in equity of consolidated
affiliates 1,922 1,656 363 355 1,559 1,301
---------- ---------- ---------- ---------- ---------- ----------
Common stock (1,853,128,000 shares issued) -a) 593 584 593 584 1 1
Other capital 535 1,398 535 1,398 1,503 2,596
Retained earnings 29,971 28,613 29,971 28,613 8,731 8,212
Less common stock held in treasury (4,715) (4,771) (4,715) (4,771) - -
---------- ---------- ---------- ---------- ---------- ----------
Total share owners' equity 26,384 25,824 26,384 25,824 10,235 10,809
---------- ---------- ---------- ---------- ---------- ----------
Total liabilities and equity $261,903 $251,506 $52,334 $51,134 $220,216 $211,730
========== ========== ========== ========== ========== ==========
<FN>
(a- Reflects the two-for-one stock split effective on April 28, 1994.
See notes to Condensed Consolidated Financial Statements. June data are unaudited. Consolidating data are shown
supplementally for "GE" and "GECS." Transactions between GE and GECS have been eliminated from the "consolidated"
columns.
</TABLE>
<PAGE>
5
Condensed Statement of Cash Flows
General Electric Company and consolidated affiliates
<TABLE>
<CAPTION>
(Dollars in millions) Six months ended June 30 (Unaudited)
-----------------------------------------------------------------------------
Consolidated GE GECS
----------------------- ---------------------- ----------------------
1994 1993 1994 1993 1994 1993
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities
- ------------------------------------
Net earnings $2,590 $1,632 $2,590 $1,632 $793 $865
Less earnings from discontinued operations - (753) - (753) - -
Adjustments to reconcile net earnings to cash
from (used for) continuing operating activities
Cumulative effect of accounting change - 862 - 862 - -
Depreciation, depletion and amortization 1,521 1,442 736 716 785 726
Earnings retained by GECS - - (519) (715) - -
Deferred income taxes 755 (244) 316 (76) 439 (168)
Decrease (increase) in GE current receivables 202 32 241 (204) - -
Decrease (increase) in GE inventories (676) (409) (676) (409) - -
Increase (decrease) in accounts payable 345 (303) 105 (123) 150 17
Increase (decrease) in insurance reserves (86) 771 - - (86) 771
Provision for losses on financing
receivables 421 547 - - 421 547
Net change in certain broker-dealer accounts 167 1,998 - - 167 1,998
All other operating activities (1,628) (1,825) (1,275) 192 (261) (2,018)
---------- ---------- ---------- ---------- ---------- ----------
Net cash from continuing operations 3,611 3,750 1,518 1,122 2,408 2,738
Net cash from discontinued operations - 76 - 76 - -
---------- ---------- ---------- ---------- ---------- ----------
Cash from operating activities 3,611 3,826 1,518 1,198 2,408 2,738
---------- ---------- ---------- ---------- ---------- ----------
Cash flows from investing activities
- ------------------------------------
Property, plant and equipment (including
equipment leased to others) - additions (2,449) (2,547) (727) (620) (1,722) (1,927)
Net (increase) decrease in GECS financing receivables (3,748) (228) - - (3,748) (228)
Payments for principal businesses purchased (1,484) (1,197) (431) - (1,053) (1,197)
All other investing activities 3,631 915 (55) 95 3,692 908
---------- ---------- ---------- ---------- ---------- ----------
Cash used for investing activities - continuing
operations (4,050) (3,057) (1,213) (525) (2,831) (2,444)
Cash from investing activities - discontinued
operations - 1,230 - 1,230 - -
---------- ---------- ---------- ---------- ---------- ----------
Cash from (used for) investing activities (4,050) (1,827) (1,213) 705 (2,831) (2,444)
---------- ---------- ---------- ---------- ---------- ----------
Cash flows from financing activities
- ------------------------------------
Net change in borrowings (maturities 90 days or less) (2,962) (2,604) 896 1,011 (3,905) (3,663)
Newly issued debt (maturities more than 90 days) 10,946 6,864 520 109 10,426 6,755
Repayments and other reductions (maturities
more than 90 days) (6,374) (5,103) (492) (1,387) (5,882) (3,716)
Disposition of GE shares from treasury 343 184 343 184 - -
Purchase of GE shares for treasury (287) (389) (287) (389) - -
Dividends paid to share owners (1,230) (1,078) (1,230) (1,078) (274) (150)
All other financing activities 156 (14) - - 156 (14)
---------- ---------- ---------- ---------- ---------- ----------
Cash from (used for) financing activities 592 (2,140) (250) (1,550) 521 (788)
---------- ---------- ---------- ---------- ---------- ----------
Increase (decrease) in cash and cash equivalents 153 (141) 55 353 98 (494)
Cash and cash equivalents at beginning of year 3,218 3,129 1,536 1,189 1,682 1,940
---------- ---------- ---------- ---------- ---------- ----------
Cash and equivalents at June 30 $3,371 $2,988 $1,591 $1,542 $1,780 $1,446
========== ========== ========== ========== ========== ==========
<FN>
See notes to Condensed Consolidated Financial Statements. Consolidating data are shown supplementally for "GE" and
"GECS." Transactions between GE and GECS have been eliminated from the "consolidated" columns.
</TABLE>
<PAGE>
6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying condensed quarterly financial statements represent
the consolidation of General Electric Company and all companies in which
it directly or indirectly has a majority ownership or otherwise
controls. Reference is made to note 1 to the consolidated financial
statements included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1993. That note discusses consolidation and
financial statement presentation. As used in this Report and in the
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. Consolidating data
are shown supplementally for GE and GECS.
2. On April 2, 1993, General Electric Company transferred to a new
company, controlled by the shareholders of Martin Marietta Corporation,
GE's Aerospace business segment; GE Government Services, Inc.; and an
operating component of GE that operated Knolls Atomic Power Laboratory
under a contract with the U.S. Department of Energy. As part of the
transaction, GE also transferred the assets and business of the Lakeland
Accounting Center. Results of the businesses which were transferred
have been classified as discontinued operations in the 1993 Condensed
Statement of Earnings and Condensed Statement of Cash Flows.
3. Statement of Financial Accounting Standards (SFAS) No. 112,
Employers' Accounting for Postemployment Benefits, was adopted during
the second quarter of 1993, effective January 1, 1993. SFAS No. 112
requires that employers expense the costs of postemployment benefits (as
distinct from postretirement pension, medical and life insurance
benefits, accounting for which is covered by SFAS Nos. 87, 88 and 106)
over the working lives of employees. The principal effect for GE was to
change the method of accounting for severance benefits. Under the
Company's previous accounting policy, the total cost of severance
benefits was expensed when the severance event occurred. This
accounting change was reflected by a first-quarter 1993 charge to net
earnings of $862 million ($0.51 per share), with a corresponding
decrease in share owners' equity.
4. 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.
5. First-half 1994 net earnings included a $210 million ($350 million
before tax) first-quarter charge resulting from the discovery of false
trading profits created by the then head U.S. government securities
trader at Kidder, Peabody & Co. Incorporated, a subsidiary within the
Company's securities broker-dealer business, Kidder, Peabody Group Inc.
(Kidder, Peabody). Approximately $143 million ($238 million before tax)
of the charge related to periods prior to 1994. The United States
<PAGE>
7
Securities and Exchange Commission, the United States Attorney for the
Southern District of New York, and the New York Stock Exchange are
conducting investigations relating to the false trading profits. The
Company also completed and released a report on its internal
investigation of the matter. See Legal Proceedings beginning on page 15
for information concerning Kidder-related litigation.
6. On April 27, 1994, the share owners of General Electric Company
authorized the amendment of its Restated Certificate of Incorporation to
change and increase the Company's authorized common stock from
1,100,000,000 shares, par value $0.63 per share, to 2,200,000,000
shares, par value $0.32 per share, and in so doing to split the common
stock (including outstanding shares) on a 2-for-1 basis. Such split
became effective April 28, 1994, and is reflected in all references to
the number of common shares and per-share amounts in this report.
Average shares outstanding for the second quarter of 1994 and 1993 were
1,710,380,465 and 1,707,931,566, respectively. Average shares
outstanding for the first six months of 1994 and 1993 were 1,709,354,523
and 1,708,907,316, respectively.
7. GE's inventories consisted of the following:
<TABLE>
<CAPTION>
(Dollars in millions) As of
-------------------------
6/30/94 12/31/93
------- --------
<S> <C> <C>
Raw materials and work in process $ 3,326 $ 2,983
Finished goods 2,521 2,314
Unbilled shipments 176 156
Revaluation to LIFO (1,523) (1,629)
------- -------
Total inventories $ 4,500 $ 3,824
======= =======
</TABLE>
8. Property, plant and equipment, including equipment leased to others,
consisted of the following:
<TABLE>
<CAPTION>
(Dollars in millions) As of
-------------------------
6/30/94 12/31/93
------- --------
<S> <C> <C>
Original cost
- GE $22,928 $22,441
- GECS 17,159 15,738
------- -------
Total 40,087 38,179
------- -------
Accumulated depreciation and amortization
- GE 13,405 12,899
- GECS 4,587 4,052
------- -------
Total 17,992 16,951
------- -------
Net
- GE 9,523 9,542
- GECS 12,572 11,686
------- -------
Total $22,095 $21,228
======= =======
<PAGE>
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
A. RESULTS OF OPERATIONS - SECOND QUARTER OF 1994 COMPARED WITH SECOND
QUARTER OF 1993
General Electric Company's net earnings for the second quarter of
1994 were $1.522 billion, or $0.89 per share, up 14% from the $1.334
billion, or $0.78 per share, reported in the same quarter last year.
These were the highest quarterly earnings in the Company's history.
Consolidated revenues were $16.20 billion in 1994's second
quarter, an increase of 10% from the prior year's $14.76 billion. Sales
of goods and services increased 6%. The sales growth was led by Power
Systems, Appliances, Plastics, Transportation Systems, Motors, and GE
Information Services, each of which had double-digit increases. GECS'
revenues from operations increased 17%.
Operating margin in the second quarter of 1994 was a record 15.3%
of sales, up more than a full percentage point from last year's
comparable (that is, excluding 1993 restructuring provisions) 14.2%.
Eight of GE's eleven manufacturing and nonfinancial services businesses
increased their comparable margin rates, with five businesses - Power
Systems, Transportation Systems, Medical Systems, Appliances, and Motors
- - improving by more than one percentage point.
As discussed in note 2 to the condensed consolidated financial
statements, the Company transferred the discontinued Aerospace
businesses during the second quarter of 1993 to a new company controlled
by the shareholders of Martin Marietta Corporation, resulting in a net
gain of $678 million, or $0.40 per share. The Aerospace gain was
included in "earnings from discontinued operations." Also in the second
quarter of 1993, the Company adopted explicit restructuring programs to
enhance the Company's global competitiveness. The one-time restructuring
charges ($0.40 per share after tax) were included in "earnings from
continuing operations."
SEGMENT ANALYSIS:
Comments that follow compare revenues and operating profit by
industry segment for the second quarters of 1994 and 1993.
* Aircraft Engines operating profit was sharply higher in the
second quarter of 1994 because of the impact of restructuring provisions
recorded in the comparable 1993 period. Excluding such restructuring
provisions, operating profit in the 1994 quarter was much lower on
considerably lower revenues, reflecting continued weakness in both
commercial engine and military markets.
* Appliances operating profit was sharply higher in the second
quarter of 1994 because of the impact of restructuring provisions
recorded in the comparable 1993 period. Excluding such restructuring
provisions, 1994 operating profit was still sharply higher as a result
of continued productivity and a good increase in revenues. Higher
shipments across all product lines much more than offset pricing
pressures in refrigeration products.
<PAGE>
9
* Broadcasting operating profit was sharply higher in the second
quarter of 1994 because of the impact of restructuring provisions
recorded in the comparable 1993 period. Excluding such restructuring
provisions, operating profit was down somewhat on modestly higher
revenues. An increase in advertising sales related to sporting events,
particularly the NBA playoffs, more than offset the lack of a
counterpart to revenues from the final episode of "Cheers" in the second
quarter of 1993. Higher 1994 programming costs and absence of 1993's
profitable "Cheers" episode were the principal reasons for the lower
1994 operating profit.
* GECS' net earnings in the second quarter of 1994 were 12% ahead
of last year's quarter, with excellent improvements in the Consumer
Services, Specialty Insurance and Equipment Management segments much more
than offsetting a $29 million net loss at Kidder, Peabody. The poor
performance at Kidder, Peabody was principally attributable to mortgage-
backed securities market conditions. GECS was not affected by 1993
provisions for restructuring.
* Industrial operating profit was sharply higher in the second
quarter of 1994 because of the impact of restructuring provisions
recorded in the comparable 1993 period. Excluding such restructuring
provisions, operating profit was considerably higher in the second
quarter of 1994, primarily due to sharply improved results in the Motors
and Transportation Systems businesses and European Lighting Operations.
Revenues were somewhat higher in the current-year's quarter, principally
because of a strong increase in Transportation Systems' shipments of
locomotives.
* Materials operating profit was up sharply in the second quarter
of 1994 because of the impact of restructuring provisions recorded in
the comparable 1993 period. Excluding such restructuring provisions,
operating profit was up considerably in the current period on a good
increase in revenues. Increased volume in all businesses and reductions
in the cost of materials in the plastics business, coupled with
continued productivity, much more than offset generally lower selling
prices.
* Power Systems operating profit was up sharply in the second
quarter of 1994 because of the impact of restructuring provisions
recorded in the comparable 1993 period. Excluding such restructuring
provisions, operating profit was still up sharply, reflecting the
performance of Power Generation which was well ahead of last year,
principally because of a favorable mix of large gas and steam turbine
shipments and productivity, the combination of which was only partially
offset by lower prices.
* Technical Products and Services operating profit was sharply
higher in the second quarter of 1994 because of the impact of
restructuring provisions recorded in the comparable 1993 period.
Excluding such restructuring provisions, operating profit was
considerably higher in this year's quarter on slightly higher revenues.
Both GE Information Services and Medical Systems reported strong
productivity which more than offset general price erosion.
<PAGE>
10
* All Other operating profit, which was unaffected by 1993
restructuring, was up sharply on somewhat higher revenues. The
improvement was primarily attributable to income associated with
licensing the use of GE know-how to others.
B. RESULTS OF OPERATIONS - FIRST HALF OF 1994 COMPARED WITH FIRST HALF
OF 1993
Consolidated revenues from continuing operations for the first six
months of 1994 aggregated $30.4 billion, up 10% from the comparable
$27.6 billion in 1993's first half. GE's sales of goods and services
were 5% higher in the first half of the current year as Appliances,
Plastics, Power Systems and Transportation Systems improved by double-
digits, and more than offset much lower sales of aircraft engine goods
and services. Overall, the volume of goods and services sold was up
about 8%, approximately one-third of which was offset by lower selling
prices. GECS' revenues from operations were up 19%, principally
reflecting a higher average level of invested assets from both the
acquisitions of portfolios and new businesses and increased volume in
established businesses.
Net earnings for the first half of 1994 were $2.590 billion, or
$1.52 per share, compared with $1.632 billion, or $0.95 per share, in
the first half of 1993. Four important factors, all of which have been
disclosed previously, should be considered in comparing the Company's
first-half operations. These factors are discussed separately in the
following paragraphs:
* As discussed in note 5, current-year earnings included a one-
time charge of $210 million ($350 million before tax), recorded in the
first quarter, resulting from the discovery of false trading profits
created by the then head U.S. government securities trader at Kidder,
Peabody. Approximately $143 million ($238 million before tax) of the
charge related to periods prior to 1994.
* The year-earlier half included restructuring provisions ($678
million after tax) recorded in the second quarter as discussed above.
* The first six months of 1993 included $753 million, or $0.44 per
share, of net earnings related to the discontinued Aerospace businesses,
as discussed in note 2 to the condensed consolidated financial
statements. Such net earnings comprised $678 million from the gain on
transfer of the discontinued businesses during the second quarter of
1993 and $75 million from first-quarter 1993 operations. The one-time
gain from the transfer and first-quarter 1993 operating results were
classified as "earnings from discontinued operations."
* The year-earlier period also included a one-time charge of $862
million, or $0.51 per share, to first quarter's earnings for an
accounting change associated with the adoption of Statement of Financial
Accounting Standards (SFAS) No. 112, Employers' Accounting for
<PAGE>
11
Postemployment Benefits. See note 3 to the condensed consolidated
financial statements.
Operating margin in the first half of 1994 was 14.0% of sales, up
substantially from last year's comparable margin rate of 13.2%. Six of
GE's manufacturing and nonfinancial services businesses - Appliances,
Aircraft Engines, Medical Systems, Motors, NBC and Transportation
Systems - improved their comparable rates by one percentage point or
more.
GE generated $1.5 billion of cash from operating activities in the
first six months of 1994, exceeding last year's cash provided from
operating activities by more than $300 million. This record performance
resulted principally from improvement in earnings, coupled with the
continuing success in reducing order-to-remittance cycle times
throughout the Company.
SEGMENT ANALYSIS:
The following comments compare revenues and operating profit by
industry segment for the first half of 1994 with the same period of
1993.
* Aircraft Engines operating profit was up sharply in the first
half of 1994 because of the impact of restructuring provisions recorded
in the comparable 1993 period. Excluding such restructuring provisions,
operating profit was considerably lower in 1994 on much lower revenues.
The impact of the lower revenues, which resulted principally from
reduced shipments to both commercial and military customers, was offset
somewhat by lower costs and expenses.
* Appliances operating profit was up sharply in the first half of
1994 largely because of the impact of restructuring provisions in the
comparable 1993 period. Excluding such provisions, the segment still
reported sharply higher operating profit on considerably higher
revenues. Good productivity and much higher volume across all product
lines were the principal reasons for the improved results.
* Broadcasting operating profit was sharply higher in the first
half of 1994 because of the impact of restructuring provisions recorded
in the comparable 1993 period. Excluding such provisions, operating
profit was much higher, principally because of somewhat higher revenues
and continued success in lowering overhead costs, factors that more than
offset the negative effect on operating profit of the lack of a
counterpart to 1993's final episode of "Cheers" and 1994's higher
programming costs.
* GECS' earnings of $793 million were 8% lower than the comparable
earnings of $865 million a year ago, reflecting the aforementioned one-
time, after-tax charge of $210 million at Kidder, Peabody during the
first quarter. Kidder, Peabody's net loss amounted to $183 million for
the first half of 1994 compared with reported net earnings of $115
million in the same period last year. Excluding estimated effects of
the false trading profits from both periods, Kidder, Peabody's net loss
<PAGE>
12
amounted to $40 million for the first half of 1994 (compared with net
earnings of $81 million for the first six months of 1993) principally
due to mortgage-backed securities market conditions. The poor
performance at Kidder, Peabody was substantially offset by higher
earnings in GECS' Financing Segment, reflecting a higher average level
of invested assets and reduced provisions for losses on highly leveraged
transaction investments. GECS was not affected by 1993 provisions for
restructuring.
* Industrial operating profit was sharply higher in the first half
of 1994 because of the impact of restructuring provisions recorded
during the comparable 1993 period. Excluding such restructuring
provisions, operating profit was well ahead of the year-earlier half on
a good increase in revenues. The favorable performance in both operating
profit and revenues was led by Motors and Transportation Systems. In
addition, European Lighting Operations improved sharply, largely because
of strong productivity gains.
* Materials operating profit was much higher in the first half of
1994, primarily because of the impact of restructuring provisions
recorded in the comparable 1993 period. Excluding such provisions,
operating profit was somewhat higher in the current period on a good
increase in revenues. The effects of productivity and a much higher
level of shipments were partially offset by unexpected costs and
inefficiencies during the first quarter of 1994 and lower selling prices
throughout the first half of the year.
* Power Systems operating profit was sharply higher during the
first half of 1994 because of the impact of restructuring provisions
during the comparable 1993 period. Excluding such provisions, operating
profit was down slightly, despite a good increase in revenues, as
favorable volume and productivity failed to offset lower selling prices.
* Technical Products and Services operating profit was sharply
higher in the first half of 1994 because of the impact of restructuring
provisions recorded in the comparable 1993 period. Excluding such
provisions, operating profit was considerably higher, reflecting strong
productivity in both GE Information Services and Medical Systems, and
slightly higher revenues. In connection with the latter, about one-half
of the effect of a higher level of shipments was offset by lower selling
prices.
* All Other operating profit, which was unaffected by
restructuring, was up sharply on somewhat higher revenues. The
improvement was primarily attributable to income related to licensing
the use of GE know-how to others.
C. FINANCIAL CONDITION
With respect to the Condensed Statement of Financial Position,
consolidated assets of $261.9 billion were $10.4 billion higher at June
30, 1994, than the $251.5 billion at December 31, 1993. GECS' assets
increased $8.5 billion; GE's assets were up $1.2 billion; eliminations
between the two groups were $0.7 billion lower, principally because of
<PAGE>
13
lower investment in GECS which was more than explained by the mark-to-
market adjustment of investment securities.
GECS' assets increased $8.5 billion from the end of last year,
representing the net result of changes in several accounts. Increases
included an increase in securities purchased under agreements to resell
(reverse repurchase agreements) of $14.1 billion at Kidder, Peabody,
principally attributable to the use of these agreements to cover higher
levels of short inventory positions and "matched-book" transactions. GE
Capital Corporation's financing receivables, which net of reserves
aggregated $68.7 billion at the end of the first half of 1994, increased
$4.7 billion from the year-end 1993. Management believes that GE
Capital's reserves of $1.9 billion (2.63% of the receivables balance at
June 30, 1994 - the same percent as year end 1993) are appropriate given
the strength and diversity of the portfolio, and current economic
circumstances. A number of GECS' businesses added a total of $0.9
billion to equipment leased to others during the first six months of
1994. Partially offsetting the higher balances in these accounts were a
decrease in GECS' trading securities (entirely Kidder, Peabody) of $7.4
billion, reflecting principally reduced activity in the fixed-income
business as a result of the current interest-rate environment; a
decrease in other assets of $2.5 billion, primarily a reduction in
mortgages acquired for resale; and a decrease in investment securities
of $2.0 billion, resulting principally from the before-tax, mark-to-
market adjustment under SFAS No. 115, Accounting for Certain Investments
in Equity Securities, which was implemented at the end of 1993.
An increase of $1.2 billion in GE's assets from year end 1993
consisted of numerous relatively small changes, the largest of which
resulted from normal seasonal increases of inventories ($0.7 billion).
Consolidated liabilities of $233.6 billion at June 30, 1994, were
$9.6 billion higher than the year-end 1993 balance of $224.0 billion.
GECS' liabilities increased $8.8 billion; GE's liabilities were up $0.6
billion.
The GECS' liabilities increase of $8.8 billion was, as with
assets, the net result of changes in several accounts. Increases
included (1) higher securities sold but not yet purchased (short sales)
of $4.2 billion, primarily because of a shift in the mix of financial
instruments used to effect hedging strategies at Kidder, Peabody, (2) an
increase of $2.7 billion in securities sold under agreements to
repurchase (repurchase agreements) at Kidder, Peabody, reflecting
principally the net changes in trading securities, reverse purchase
agreements and short sales discussed previously, (3) higher borrowings
of $1.4 billion (long-term borrowings up $3.8 billion; short-term
borrowings down $2.4 billion), primarily at GE Capital, reflecting a
change in the mix of borrowings to finance its asset growth, and (4)
higher accounts payable and all other liabilities of $0.6 billion each,
comprising the net result of numerous, relatively small changes. These
increases were partially offset by a $0.6 billion reduction in the
balance of deferred income taxes, primarily deferred tax benefits
associated with unrealized losses on investment securities.
<PAGE>
14
GE's liabilities increased $0.6 billion during the first six
months of 1994, which was more than explained by an increase of $0.9
billion in the level of borrowings (short-term up $0.4 billion; long-
term up $0.5 billion) primarily to fund additional cash requirements
during the period, including acquisition of a majority interest in Nuovo
Pignone, an Italian electrical equipment maker. GE's total borrowings
were $5.7 billion ($2.8 billion short-term and $2.9 billion long-term)
at June 30, 1994. The Company's ratio of total debt to capital at the
end of the first half of 1994 was 17.6% compared with 15.5% at the end
of last year and 21.5% at June 30, 1993.
With respect to cash flows, consolidated cash and cash equivalents
were 3.4 billion at June 30, 1994, $0.2 billion higher than December 31,
1993. Cash and cash equivalents were $3.0 billion at June 30, 1993,
$0.1 billion below December 31, 1992.
GE's cash and equivalents increased $0.1 billion to $1.6 billion
at June 30, 1994, compared with $1.5 billion at year end 1993. During
the first half of 1994, cash from operating activities totaled $1.5
billion, despite the use of (a) $1.3 billion for "all other activities,"
which consisted of the net result of numerous changes (none of which was
significant) in all other assets and other current and noncurrent
liabilities, and (b) $0.7 billion for normal seasonal increases in
inventories from inventory levels which were much lower at the end of
1993 than they had been at the end of 1992. Cash used for investing
activities ($1.2 billion) primarily was attributable to investments in
new plant and equipment for a wide variety of projects to reduce costs
and improve efficiencies, and for acquisition of a majority interest in
Nuovo Pignone. Cash used for financing activities ($0.3 billion)
included $1.2 billion for dividends paid to share owners, representing a
14% increase in the per-share dividend rate compared with the first half
of last year, which was offset partially by cash from higher borrowings
of $0.9 billion.
GE's cash and equivalents increased $0.3 billion to $1.5 billion
at June 30, 1993, compared with $1.2 billion at year end 1992. During
the first half of 1993, cash from continuing operating activities
totaled $1.1 billion, despite the use of cash for normal seasonal
increases in inventories ($0.4 billion) from inventory levels which were
much lower at the end of 1992 than they had been at the end of 1991.
Cash used for continuing investing activities ($0.5 billion) was more
than explained by investments in new plant and equipment for a wide
variety of projects. Cash used for financing activities ($1.6 billion)
included $1.1 billion for dividends paid to share owners, representing a
15% increase in the per-share dividend rate compared with the first half
of 1992, $0.3 billion to reduce borrowings and $0.2 billion for net
repurchases of the Company's common stock for treasury. Cash from
discontinued operations totaled $1.3 billion, principally cash received
upon transfer of GE's Aerospace businesses.
GECS' cash and equivalents increased $0.1 billion during the first
half of 1994. Cash was used primarily to fund GE Capital's growth in
financing receivables ($3.7 billion), for additions to equipment that is
provided to third parties on operating leases ($1.7 billion), and for
acquisitions of businesses ($1.1 billion), the largest of which was
Northern Telecom Financial Corporation. Cash provided by operating
activities totaled $2.4 billion. Cash of $3.7 billion was provided by
"all other investing activities," principally because of a decrease in
<PAGE>
15
other assets ($1.5 billion), largely attributable to a reduced level of
mortgages acquired for resale, and because of a net decrease ($1.8
billion) in GE Capital's other receivables and equipment leased to
others. Funds provided from increased borrowings during the first six
months of 1994 aggregated $0.6 billion.
GECS' cash and equivalents decreased $0.5 billion during the first
half of 1993. Cash was used primarily for additions to equipment that
is provided to third parties on operating leases ($1.9 billion), for
acquisitions of businesses ($1.2 billion), including GNA Corporation,
and to reduce borrowings ($0.6 billion). These uses were mostly funded
by cash provided from operating activities ($2.7 billion). Included in
this category was cash provided from "net change in broker-dealer
accounts" ($2.0 billion) which consisted of $8.7 billion from repurchase
and reverse repurchase agreements and $3.7 billion from short sales,
partially offset by cash usage of $10.4 billion for marketable
securities. Cash used for "all other operating activities" ($2.0
billion) consisted primarily of changes in GECS' all other receivables
associated with Kidder's increased trading activities. Cash provided
from "all other investing activities" of $0.9 billion was generated
principally from disposition of equipment leased to others ($1.1
billion).
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
GENERAL
- -------
Following the Company's announcement on April 17, 1994, of a $210
million charge to net earnings based upon its discovery of false trading
profits at its indirect subsidiary, Kidder, Peabody & Co., Incorporated
("Kidder"), two civil suits purportedly brought on behalf of the Company
as shareholder derivative actions were filed in New York State Supreme
Court in New York County. Both suits claim that the Company's directors
breached their fiduciary duties to the Company by failing to adequately
supervise and control the Kidder employee responsible for the irregular
trading. One suit, claiming damages of over $350 million, was filed on
May 10, 1994, by the Teachers' Retirement System of Louisiana against
the Company, its directors, Kidder, its parent, Kidder, Peabody Group
Inc., and certain of Kidder's former officers and directors. The other
suit was filed on June 3, 1994, by William Schrank and others against
the Company's directors claiming unspecified damages and other relief.
In addition, various shareholders of the Company have filed purported
class action suits claiming that the Company, and certain of its
directors and officers, among others, allegedly violated federal
securities laws by issuing statements concerning the Company's financial
condition that included the false trading profits at Kidder, and seeking
compensatory damages for shareholders who purchased the Company's stock
beginning as early as January 1993.
<PAGE>
16
ENVIRONMENTAL
- -------------
As previously reported, on December 29, 1993, EPA issued an
administrative complaint to the Company alleging a violation of the
Toxic Substances Control Act ("TSCA") for manufacturing a chemical not
on the U.S. Environmental Protection Agency (EPA) TSCA Inventory at its
Waterford facility. The complaint seeks a penalty of $137,250. EPA has
since agreed to settle the matter for $34,600. Settlement discussions
are continuing.
In April of 1994, EPA issued an administrative complaint to the
Company alleging violations of the TSCA at its Schenectady Research and
Development facility, including improper manufacturing, handling and
disposal of PCBs from 1989-1991. The complaint seeks a penalty of
$139,875. Settlement discussions 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 27, 1994.
(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
</TABLE>
<TABLE>
<CAPTION>
Votes Cast
-------------------
Broker
For Against Abstain Non-votes
--- ------- ------- ---------
<S> <C> <C> <C> <C>
MANAGEMENT PROPOSALS
Approval of appointment of independent
auditors 703,678,011 2,158,047 5,767,000 0
Amendment of Certificate of Incorporation
regarding 2-for-1 stock split and
increase in number of authorized
shares 704,911,164 3,858,321 2,833,573 0
SHARE OWNER PROPOSALS
(1) Relating to political contributions 25,057,359 556,189,579 53,854,476 76,501,644
(2) Relating to economic conversion 23,911,743 545,069,554 66,120,115 76,501,646
(3) Relating to NBC programming 38,991,672 537,982,577 58,127,163 76,501,646
(4) Relating to the CERES principles 38,441,249 544,610,793 52,049,370 76,501,646
</TABLE>
<PAGE>
17
ELECTION OF DIRECTORS
<TABLE>
<CAPTION>
Director Votes Received Votes Withheld
<S> <C> <C>
H. Brewster Atwater, Jr. 704,867,216 6,735,842
D. Wayne Calloway 704,779,839 6,823,219
Silas S. Cathcart 704,717,111 6,885,947
Lawrence E. Fouraker 703,923,653 7,679,405
Paolo Fresco 704,794,001 6,809,057
Claudio X. Gonzalez 704,655,748 6,947,310
Henry H. Henley, Jr. 704,231,474 7,371,584
David C. Jones 703,657,795 7,945,263
Robert E. Mercer 704,705,627 6,897,431
Gertrude G. Michelson 704,533,416 7,069,642
Barbara Scott Preiskel 704,470,653 7,132,405
Frank H. T. Rhodes 704,658,994 6,944,064
Andrew C. Sigler 703,692,307 7,910,751
Douglas A. Warner III 704,846,506 6,756,552
John F. Welch, Jr. 704,299,898 7,303,160
</TABLE>
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.
b. Reports on Form 8-K during the quarter ended June 30, 1994.
Report on Form 8-K (Items 5 and 7) filed on April 28, 1994,
regarding amendment of the Company's Restated Certificate of
Incorporation to change and increase the Company's authorized
common stock from 1,100,000,000 shares, par value $0.63 per share,
to 2,200,000,000 shares, par value $0.32 per share, and in so
doing split the common stock (including outstanding shares) on a 2-
for-1 basis.
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)
August 15, 1994 Philip D. Ameen
- --------------- ----------------------------------------------------
Date Vice President and Comptroller
Duly Authorized Officer and Principal Accounting
Officer
<PAGE>
(1)
EXHIBIT 11
GENERAL ELECTRIC COMPANY
COMPUTATION OF PER SHARE EARNINGS -a)
(Shares in thousands, dollar amounts, except
earnings per share, in millions)
<TABLE>
<CAPTION>
Fully
Earnings Primary diluted
per common earnings earnings
Second quarter ended June 30, 1994 share per share per share
- ---------------------------------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Net earnings applicable to common stock $1,522 $1,522 $1,522
Dividend equivalents (net of tax) applicable
to deferred incentive compensation shares - - -
--------- --------- ---------
Earnings for per-share calculations $1,522 $1,522 $1,522
--------- --------- ---------
Average number of shares outstanding 1,710,380 1,710,380 1,710,380
Average number of deferred incentive
compensation shares - 8,607 8,607
Average stock option shares - 8,917 8,917
Average number of restricted stock units - 1,084 1,084
--------- --------- ---------
Shares for earnings calculation 1,710,380 1,728,988 1,728,988
--------- --------- ---------
Earnings per share $0.89 $0.88 $0.88
- ------------------ ========= ========= =========
Second quarter ended June 30, 1993
- ----------------------------------
Net earnings applicable to common stock $1,334 $1,334 $1,334
Dividend equivalents (net of tax) applicable
to deferred incentive compensation shares - 4 4
--------- --------- ---------
Earnings for per-share calculations $1,334 $1,338 $1,338
--------- --------- ---------
Average number of shares outstanding 1,707,932 1,707,932 1,707,932
Average number of deferred incentive
compensation shares - 8,778 8,778
Average stock option shares - 10,888 11,660
--------- --------- ---------
Shares for earnings calculation 1,707,932 1,727,598 1,728,370
--------- --------- ---------
Earnings per share $0.78 $0.77 $0.77
- ------------------ ========= ========= =========
<FN>
(a- Adjusted to reflect the two-for-one stock split effective on April 28, 1994.
</TABLE>
<PAGE>
(2)
EXHIBIT 11
GENERAL ELECTRIC COMPANY
COMPUTATION OF PER SHARE EARNINGS -a)
(Shares in thousands, dollar amounts, except
earnings per share, in millions)
<TABLE>
<CAPTION>
Fully
Earnings Primary diluted
per common earnings earnings
Six months ended June 30, 1994 share per share per share
- ---------------------------------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Net earnings applicable to common stock $ 2,590 $ 2,590 $ 2,590
Dividend equivalents (net of tax) applicable
to deferred incentive compensation shares - 2 2
--------- --------- ---------
Earnings for per-share calculations $ 2,590 $ 2,592 $ 2,592
--------- --------- ---------
Average number of shares outstanding 1,709,355 1,709,355 1,709,355
Average number of deferred incentive
compensation shares - 8,557 8,557
Average stock option shares - 10,679 10,679
Average number of restricted stock units - 1,119 1,119
--------- --------- ---------
Shares for earnings calculation 1,709,355 1,729,710 1,729,710
--------- --------- ---------
Earnings per share $1.52 $1.50 $1.50
- ------------------ ========= ========= =========
Six months ended June 30, 1993
- ------------------------------
Net earnings applicable to common stock $ 1,632 $ 1,632 $ 1,632
Dividend equivalents (net of tax) applicable
to deferred incentive compensation shares - 4 4
--------- --------- ---------
Earnings for per-share calculations $ 1,632 $ 1,636 $ 1,636
--------- --------- ---------
Average number of shares outstanding 1,708,908 1,708,908 1,708,908
Average number of deferred incentive
compensation shares - 8,578 8,578
Average stock option shares - 9,804 11,636
--------- --------- ---------
Shares for earnings calculation 1,708,908 1,727,290 1,729,122
--------- --------- ---------
Earnings per share $0.95 $0.95 $0.95
- ------------------ ========= ========= =========
<FN>
(a- Adjusted to reflect the two-for-one stock split effective on April 28, 1994.
</TABLE>
<PAGE>
EXHIBIT 12
GENERAL ELECTRIC COMPANY
RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions) Six months ended
June 30, 1994
-----------------
GE except GECS
- ---------------
"Earnings" -a) $3,510
Less: Equity in undistributed earnings
of General Electric Capital
Services, Inc. -b) (519)
Plus: Interest and other financial
charges included in expense 195
One-third of rental expense -c) 106
-------
Adjusted "earnings" $3,292
=======
Fixed Charges:
Interest and other financial charges $195
Interest capitalized 8
One-third of rental expense -c) 106
-------
Total fixed charges $309
=======
Ratio of earnings to fixed charges 10.65
=======
General Electric Company and consolidated affiliates
- ----------------------------------------------------
"Earnings" -a) $3,834
Plus: Interest and other financial
charges included in expense 4,551
One-third of rental expense -c) 190
-------
Adjusted "earnings" $8,575
=======
Fixed Charges:
Interest and other financial charges $4,551
Interest capitalized 13
One-third of rental expense -c) 190
-------
Total fixed charges $4,754
=======
Ratio of earnings to fixed charges 1.80
=======
(a- Earnings before income taxes and minority interest.
(b- Earnings after income taxes.
(c- Considered to be representative of interest factor in rental expense.
