updated 5/6/2005 12:33:57 PM ET 2005-05-06T16:33:57

General Electric Co. said Friday it will restate financial results for several years, boosting earnings by $381 million from 2001 through the first quarter of 2005. The company said federal regulators are conducting an informal probe into accounting issues related to the restatement, and it is cooperating with the inquiry.

The diversified industrial, finance and media company also boosted guidance for earnings in the second quarter and reaffirmed its full-year forecast.

In addition, Fairfield, Conn.-based GE disclosed it is selling a business that provides liability insurance for physicians and dentists to a unit of Warren Buffett’s Berkshire Hathaway Inc. for $825 million.

(GE is the parent of NBC, which is an MSNBC joint-venture partner with Microsoft.)

GE said that during a regular audit staff review, it concluded that some of its derivatives don’t qualify for hedge accounting. The company uses hedge accounting to protect financial services businesses from changes in interest and currency exchange rates.

The company said the $381 million non-cash restatement represents less than six-tenths of one percent of GE’s earnings over this period. The restatement covers the years 2002 through 2004, certain financial information for the year 2001 and each quarter in 2003 and 2004.

In a filing with the Securities and Exchange Commission, GE said that after it began work for an internal audit, the company received a letter dated Jan. 20, 2005 from the Boston District Office of the SEC, indicating that it was conducting an informal investigation and requesting that GE voluntarily provide certain documents and information with respect to the use of hedge accounting for derivatives.

In response to the staff’s request, GE said it voluntarily provided documents and other information and intends to continue to cooperate fully with the SEC office in the ongoing investigation.

In a conference call, analysts asked if other areas of accounting were under scrutiny and whether more restatements were possible. GE officials noted that they had carefully reviewed the issue and filed the changes with regulators.

“We clearly wouldn’t do all that if we really didn’t think we’ve got it behind us,” GE Chairman and CEO Jeff Immelt said. “We really believe strongly that we’ve got full risk transfer, appropriate accounting and great disclosure.”

Keith Sherin, senior vice president and CFO, said in a release, “Looking back, the result of not using hedge accounting is immaterial on an annual basis. However, on a quarterly basis the impacts would be material and we decided to restate results. There is no effect economically as the company’s match funding objectives were met, and there has been no effect on cash flows.”

Due to the restatement, first-quarter earnings are reduced by $78 million, or 1 cent per share, resulting in earnings per share of 37 cents.

Also Friday, GE announced its GE Insurance Solutions unit has agreed to sell Medical Protective Corp., a professional liability insurer for physicians and dentists, to National Indemnity, a unit of Buffet’s Berkshire Hathaway for $825 million.

In a conference call, General Electric said it expects to report $75 million profit on the deal.

The sale of the Medical Protective unit is subject to completion of a definitive agreement as well as regulatory approvals, but is expected to close by June 30.

Medical Protective is based in Ft. Wayne, Ind., and employs about 330 people. The company posted 2004 gross written premiums of $737 million, and serves about 75,000 physicians and dentists.

GE said Tim Kenesey will remain as president and CEO of Medical Protective, the management team will remain in place, and its principal operations will remain in Ft. Wayne where it was founded in 1899.

Separately, GE reaffirmed 2005 earnings per share guidance of $1.78 to $1.83. The company also raised estimates for second-quarter profit to between 43 cents and 45 cents per share from prior guidance of 42 cents to 44 cents, citing income of $50 million related to the restatement and the transaction with Berkshire Hathaway.

On average, analysts surveyed by Thomson Financial are expecting second-quarter and full-year profit of 45 cents and $1.82 per share, respectively.

Immelt said April orders were strong, and though he is “disappointed by the restatement, the GE business outlook is unaffected and remains robust. We remain committed to meeting or exceeding our expectations and those of investors.”

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