GE 2012 Annual Report Download - page 36

34 GE 2012 ANNUAL REPORT
management’s discussion and analsis
Operations
The consolidated financial statements of General Electric
Company (the Company) combine the industrial manufactur-
ing and services businesses of General Electric Company (GE)
with the financial services businesses of General Electric Capital
Corporation (GECC or financial services). Unless otherwise indi-
cated by the context, we use the terms “GE” and “GECC” on the
basis of consolidation described in Note 1.
In the accompanying analysis of financial information, we
sometimes use information derived from consolidated finan-
cial information but not presented in our financial statements
prepared in accordance with U.S. generally accepted account-
ing principles (GAAP). Certain of these data are considered
“non-GAAP financial measures” under the U.S. Securities and
Exchange Commission (SEC) rules. For such measures, we have
provided supplemental explanations and reconciliations in the
Supplemental Information section.
We present Management’s Discussion of Operations in five
parts: Overview of Our Earnings from 2010 through 2012, Global
Risk Management, Segment Operations, Geographic Operations
and Environmental Matters. Unless otherwise indicated, we refer
to captions such as revenues and other income and earnings
from continuing operations attributable to the Company simply
as “revenues” and “earnings” throughout this Management’s
Discussion and Analysis. Similarly, discussion of other matters in
our consolidated financial statements relates to continuing oper-
ations unless otherwise indicated.
On February 22, 2012, we merged our wholly-owned sub-
sidiary, General Electric Capital Services, Inc. (GECS), with and
into GECS’ wholly-owned subsidiary, GECC. The merger simpli-
fied our financial services’ corporate structure by consolidating
financial services entities and assets within our organization
and simplifying SEC and regulatory reporting. Upon the merger,
GECC became the surviving corporation and assumed all of GECS’
rights and obligations and became wholly-owned directly by
General Electric Company. Our financial services segment, GE
Capital, continues to comprise the continuing operations of GECC,
which now include the run-off insurance operations previously
held and managed in GECS. Unless otherwise indicated, refer-
ences to GECC and the GE Capital segment in this Management’s
Discussion and Analysis relate to the entity or segment as they
exist subsequent to the February 22, 2012 merger.
Effective October 1, 2012, we reorganized the former Energy
Infrastructure segment into three segments—Power & Water,
Oil & Gas and Energy Management. We also reorganized our
Home & Business Solutions segment by transferring our
Intelligent Platforms business to Energy Management. Results for
2012 and prior periods are reported on this basis.
We supplement our GAAP net earnings and earnings per share
(EPS) reporting by also reporting operating earnings and operat-
ing EPS (non-GAAP measures). Operating earnings and operating
EPS include service costs and plan amendment amortization for
our principal pension plans as these costs represent expenses
associated with employee benefits earned. Operating earnings
and operating EPS exclude non-operating pension cost/income
such as interest costs, expected return on plan assets and non-
cash amortization of actuarial gains and losses. We believe that
this reporting provides better transparency to the employee
benefit costs of our principal pension plans and Company
operating results.
Overview of Our Earnings from 2010 through 2012
Earnings from continuing operations attributable to the Company
increased 3% to $14.7 billion in 2012 and 13% to $14.2 billion in
2011, reflecting the relative stabilization of overall economic condi-
tions during the last two years. Operating earnings (non-GAAP
measure) which exclude non-operating pension costs increased
8% to $16.1 billion in 2012 compared with a 20% increase to
$14.9 billion in 2011. Earnings per share from continuing operations
increased 12% to $1.39 in 2012 compared with an 8% increase to
$1.24 in 2011. Operating EPS (non-GAAP measure) increased 16%
to $1.52 in 2012 compared with a 16% increase to $1.31 in 2011.
Operating EPS excluding the effects of our 2011 preferred stock
redemption (non-GAAP measure) increased 10% to $1.52 in 2012
compared with $1.38 in 2011. We believe that we are seeing con-
tinued signs of stabilization in much of the global economy,
including in financial services, as GECC earnings from continuing
operations attributable to the Company increased 12% in 2012 and
111% in 2011. Net earnings attributable to the Company decreased
4% in 2012 reflecting an increase of losses from discontinued
operations partially offset by a 3% increase in earnings from
continuing operations. Net earnings attributable to the Company
increased 22% in 2011, as losses from discontinued operations in
2011 decreased and earnings from continuing operations
increased 13%. We begin 2013 with a record backlog of $210 bil-
lion, continue to invest in market-leading technology and services
and expect to continue our trend of revenue and earnings growth.
Power & Water (18% and 27% of consolidated three-year rev-
enues and total segment profit, respectively) revenues increased
10% in 2012 primarily as a result of higher volume mainly driven
by an increase in equipment sales at the Wind business after
increasing 4% in 2011 primarily as a result of higher volume.
Segment profit increased 8% in 2012 primarily driven by higher
volume. Segment profit decreased 13% in 2011 primarily due to
lower productivity and lower prices in the wind turbines business.
Oil & Gas (9% and 8% of consolidated three-year revenues
and total segment profit, respectively) revenues increased 12% in
2012 primarily as a result of higher volume driven by acquisitions
and higher sales of both equipment and services, after increas-
ing 44% in 2011 as a result of acquisitions and higher volume.
Segment profit increased 16% in 2012 primarily on higher volume
and increased productivity reflecting increased equipment mar-
gins. Segment profit increased 18% in 2011 primarily driven by
higher volume.