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Subject:  Please lie to me. Date:  2/21/2002  5:35 PM
Author:  EliasFardo Number:  61096 of 220838

Please lie to me. After all, I am only a shareholder. And could you do it regularly, quarter after quarter, year after year? I sleep better at night. And my cat seems to enjoy it also.

In the current edition of Fortune, GE is selected as America's most admired company. And in the same issue, GE's management of earnings is discussed. Doesn't anyone see the irony?

From the article: In April 1994 the escapades of rogue Kidder Peabody trader Joseph Jett left GE with a $350 million hole in its earnings. "The response of our business leaders to the crisis was typical of the GE culture," Welch recalls in the book. "Even though the books had closed on the quarter, many immediately offered to pitch in to cover the Kidder gap. Some said they could find an extra $10 million, $20 million, and even $30 million from their businesses to offset the surprise."

It's long-standing practice at GE, whenever the company makes a big gain from the sale of a subsidiary or another asset, to come up with some sort of big discretionary investment or a restructuring charge in the same quarter--which keeps net earnings rising smoothly instead of jumping around from quarter to quarter. In the fourth quarter of 2001, for example, GE made a $642 million gain on a satellite partnership and conveniently took a $656 million charge for exiting unprofitable businesses and marking down unsuccessful investments (including an $84 million loss on Enron bonds).

Immelt and CFO Keith Sherin don't deny this at all. They just find it incomprehensible that anyone would want them to report 30% earnings growth one quarter and 3% the next if they can avoid it. "It just doesn't make any sense to us in managing a business," Sherin says.

So lie to us then.

I am reminded of the perfect of police in Casablanca. Just before pocketing his winnings for the night, he announced that he was shocked to see gambling going on in Rick's, and closed the place down. We are collectively shocked at the fraud in the statements of Enron, all the while celebrating the earnings management that is standard practice at GE, our most admired company. And it is done for our sake. It is incomprehensible that we would want the facts, when warm and fuzzy lies