Download GE 2015 Proxy - Supplemental Information

2015 Proxy Statement
Supplemental Information
1 Non-GAAP Financial Measures Used in 2015 Proxy Statement
• Free cash flow
• GE Capital ending net investment (GE Capital ENI) excluding liquidity
• GECC Tier 1 Common Ratio Estimate
• Average GE Shareowners’ Equity for Return on Total Capital (ROTC) Calculation
• Industrial ROTC
• Industrial segment organic revenue growth
2 2013-2015 Long-Term Performance Award (LTPA) Program Metrics
• Cumulative operating earnings per share (Operating EPS) (2013-2015)
• Cumulative total cash generation (Total Cash) (2013-2015)
• Industrial operating earnings as a percentage of total company operating
earnings (Industrial Earnings %) (2015)
• ROTC (2015)
3 Reconciliation of Realized Compensation to Summary Compensation
Non-GAAP Financial Measures
Used in 2015 Proxy Statement
Free Cash Flow
($ in millions)
Cash from GE’s operating activities
(continuing operations)
Less: GE additions to property, plant
& equipment
Free cash flow
2014
2013
$15,171
$14,255
3,970
3,680
$11,201
$10,575
V%
6%
6%
We define free cash flow as GE’s cash from operating activities (continuing operations) less GE additions to property, plant and equipment, which are included in cash
flows from investing activities. We believe that free cash flow is a useful financial metric to assess our ability to pursue opportunities to enhance our growth. We also
believe that presenting free cash flow separately for our industrial businesses provides management and investors with useful information about the trends of our
industrial businesses and enables a more direct comparison to other non-financial businesses and companies. Management recognizes that the term free cash flow may
be interpreted differently by other companies and under different circumstances. Although this may have an effect on comparability of absolute percentage growth from
company to company, we believe that these measures are useful in assessing trends of the respective businesses or companies and may therefore be a useful tool in
assessing period-to-period performance trends.
Preliminary 2012 fourth quarter results 3
GE Capital ENI (excluding liquidity)
($ in billions)
12/31/14
12/31/13
$494.0
6.2
$512.0
4.8
(4)%
GECC total assets
Less: assets of discontinued operations
Less: non-interest bearing
liabilities
500.2
1.2
516.8
2.3
(3)%
60.5
59.3
GE Capital ENI
Less: liquidity(a)
438.5
75.5
455.2
74.9
(4)%
$363.0
$380.3
(5)%
Financial services (GECC) total assets
Adjustment: deferred income taxes
GE Capital ENI (ex. liquidity)
V%
(a) Liquidity includes cash and equivalents and $1.2 billion of debt obligations of the U.S. Treasury at December 31, 2014.
We use ENI to measure the size of our GE Capital segment. We believe that this measure is a useful indicator of the capital (debt or equity) required to fund a business as
it adjusts for non-interest bearing current liabilities generated in the normal course of business that do not require a capital outlay. We also believe that by excluding
liquidity, we provide a meaningful measure of assets requiring capital to fund our GE Capital segment as a substantial amount of liquidity resulted from debt issuances to
pre-fund future debt maturities and will not be used to fund additional assets. Liquidity consists of cash and equivalents and certain debt obligations of the U.S. Treasury.
As a general matter, investments included in liquidity are expected to be highly liquid, giving us the ability to readily convert them to cash. Providing this measure will
help investors measure how we are performing against our previously communicated goal to reduce the size of our financial services segment.
Preliminary 2012 fourth quarter results 4
GECC Tier 1 Common Ratio Estimate(a)
($ in billions)
12/31/14
12/31/13
V%
Shareowners’ equity(b)
$87.5
Adjustments:
Preferred equity
(4.9)
Goodwill & other intangible assets
(26.3)
Unrealized gain (loss) on investments/hedges (0.3)
Other additions (deductions)
(0.5)
$82.7
GECC Tier 1 common
Estimated risk-weighted assets(c)
55.5
438.1
50.1
447.2
(2)%
12.7%
11.2%
150 bps
GECC Tier 1 Common Ratio Estimate
5%
(4.9)
(27.4)
(0.3)
(a) Includes discontinued operations for all periods.
(b) Total equity excluding noncontrolling interests.
(c) Based on Basel 1 risk-weighted assets estimates.
The GECC Tier 1 common ratio estimate is the ratio of Tier 1 common equity to total risk-weighted assets as calculated based on our interpretation of the U.S. Basel I
capital rules. We are not required by regulators to disclose this capital ratio, and therefore this capital ratio is considered a non-GAAP financial measure. We believe that
this capital ratio is a useful measure to investors because it is widely used by analysts and regulators to assess the capital position of financial services companies.
GECC’s Tier 1 common ratio estimate is not a Basel I defined regulatory capital ratio and may not be comparable to similarly titled measures reported by other
companies.
Preliminary 2012 fourth quarter results 5
Average GE shareowners’ equity for
ROTC calculation
($ in millions)
Average GE shareowners’ equity(a)
Less the effects of the average net
investment in discontinued operations
12/31/14
$131,914
(167)
Average GE shareowners’ equity, excluding
effects of discontinued operations(b)
$132,081
12/31/13
12/31/12
$124,501
$120,411
(167)
(478)
$124,668
$120,889
(a) On an annual basis, calculated using a five-point average.
(b) Used for computing return on average GE shareowners’ equity and return on average total capital invested (ROTC).
Our ROTC calculation excludes earnings (losses) of discontinued operations from the numerator because GAAP requires us to display those earnings (losses) in the
Statement of Earnings. Our calculation of average GE shareowners’ equity may not be directly comparable to similarly titled measures reported by other companies. We
believe that it is a clearer way to measure the ongoing trend in return on total capital for the continuing operations of our businesses given the extent that discontinued
operations have affected our reported results. We believe that this results in a more relevant measure for management and investors to evaluate performance of our
continuing operations, on a consistent basis, and to evaluate and compare the performance of our continuing operations with the ongoing operations of other
businesses and companies.
Preliminary 2012 fourth quarter results 6
Industrial ROTC
($ in millions)
Earnings from continuing operations
Less: GECC earnings from continuing operations
Plus: GE after-tax interest(a)
Adjusted Industrial return
Average GE shareholders’ equity, excluding effects
of discontinued operations(b)
Less: average GECC shareholders’ equity,
excluding effects of discontinued operations(b)
Average Industrial shareholders’ equity, excluding
effects of discontinued operations
Plus: average debt(b)
Plus other, net(c)
Adjusted Industrial capital
Industrial ROTC
12/31/14
12/31/13
$15,457
7,503
1,026
8,980
$15,475
8,311
866
8,030
11%
132,081
124,668
5%
85,403
83,450
46,678
15,770
1,743
64,191
41,218
13,665
1,367
56,250
12%
14.0%
14.3%
(30) bps
V%
-
12%
(a) GE interest at a 35% tax rate.
(b) On an annual basis, calculated using a five-point average.
(c) Includes average noncontrolling interests, calculated using a 5-point average partially offset by the estimated value of assets held by GE to support GECC.
Our Industrial ROTC calculation excludes earnings (losses) of discontinued operations from the numerator. We believe that this is a clearer way to measure the
ongoing trend in return on Industrial capital for the continuing operations of the business to the extent that discontinued operations have affected our reported
results. Our Industrial shareowners’ equity used in the denominator is adjusted for debt, noncontrolling interests and the estimated value of assets held by the GE
parent to support GECC. We believe that these adjustments provide a more meaningful denominator in measuring the return on our industrial businesses. Our
calculation of the return on Industrial capital may not be directly comparable to similarly titled measures reported by other companies. We believe that the
2012 fourth
quarter results
7
adjustments described above result in a more relevant measure for management and investors to evaluate performance of our Preliminary
Industrial continuing
operations,
on
a consistent basis, and to evaluate and compare the performance of our Industrial continuing operations with the continuing operations of other businesses and
companies.
Industrial Segment Organic Revenue
Growth
($ in millions)
Industrial segment revenues
Less the effects of: Acquisitions,
business dispositions (other than
dispositions of businesses acquired for
investment) & currency exchange rates
Industrial segment organic revenues
2014
2013
$109,902
$103,602
1,871
2,175
$108,031
$101,427
V%
6%
7%
Organic revenue growth measures revenue excluding the effects of acquisitions, business dispositions and currency exchange rates. We believe that this measure
provides management and investors with a more complete understanding of underlying operating results and trends of established, ongoing operations by excluding the
effect of acquisitions, dispositions and currency exchange, which activities are subject to volatility and can obscure underlying trends. We also believe that presenting
organic revenue growth separately for our industrial businesses provides management and investors with useful information about the trends of our industrial
businesses and enables a more direct comparison to other non-financial businesses and companies. Management recognizes that the term "organic revenue growth"
may be interpreted differently by other companies and under different circumstances. Although this may have an effect on comparability of absolute percentage growth
from company to company, we believe that these measures are useful in assessing trends of the respective businesses or companies and may therefore be a useful tool
in assessing period-to-period performance trends.
Preliminary 2012 fourth quarter results 8
2013-2015 LTPA
Program Metrics
2013-2015 LTPA metrics*
• Operating EPS (2013-2015)
Represents operating earnings divided by the average number of fully diluted shares. See
page 11 for how Operating EPS is calculated.
• Total Cash (2013-2015)
Represents GE cash from operating activities (including from the Industrial continuing
operations of the company and dividends from GE Capital) plus net proceeds from
dispositions.
• Industrial Earnings % (2015)
Represents Industrial operating earnings as a percentage of total company operating
earnings. See page 12 for how Industrial operating earnings is calculated.
• ROTC (2015)
Represents total company earnings from continuing operations before accounting
changes plus the sum of after-tax interest and other financial charges and noncontrolling
interests, divided by the sum of the averages of equity (excluding effects of discontinued
operations), borrowings, mandatorily redeemable preferred stock and noncontrolling
interests (on an annual basis, calculated using a five-point average). See page 6 for how
average GE shareowners’ equity is calculated.
*Under the terms of the LTPA program, the MDCC can adjust these metrics for extraordinary items.
Preliminary 2012 fourth quarter results 10
Operating EPS
($ in millions except earnings per share)
Earnings from continuing operations
attributable to GE
Adjustment (net of tax): non-operating
pension costs
Operating earnings
V%
2014
2013
$15,345
$15,177
1,378
1,705
$16,723
$16,882
(1)%
$1.51
$1.47
3%
0.14
0.16
$1.65
$1.64
1%
Earnings per share – diluted(a)
Continuing earnings per share
Adjustment (net of tax): non-operating
pension costs
Operating earnings per share
1%
(a) Earnings-per-share amounts are computed independently. As a result, the sum of per share amounts may not equal the total.
Operating earnings excludes non-service-related pension costs of our principal pension plans comprising interest cost, expected return on plan assets and
amortization of actuarial gains/losses. The service cost, prior service cost and curtailment loss components of our principal pension plans are included in operating
earnings. We believe that these components of pension cost better reflect the ongoing service-related costs of providing pension benefits to our employees. As such,
we believe that our measure of operating earnings provides management and investors with a useful measure of the operational results of our business. Other
components of GAAP pension cost are mainly driven by capital allocation decisions and market performance, and we manage these separately from the operational
performance of our businesses. Neither GAAP nor operating pension costs are necessarily indicative of the current or future cash flow requirements related to our
pension plan. We also believe that this measure, considered along with the corresponding GAAP measure, provides management and investors with additional
information for comparison of our operating results to the operating results of other companies.
Preliminary 2012 fourth quarter results 11
Industrial operating earnings for
Industrial Earnings % calculation
($ in millions)
2014
2013
$15,345
$15,177
1,378
1,705
16,723
16,882
Less GECC earnings from continuing operations attributable to the Company 7,341
8,258
Earnings from continuing operations attributable to GE
Adjustments (net of tax): non-operating pension costs
Operating earnings
Less effect of GECC preferred stock dividends
Operating earnings excluding GECC earnings from continuing operations &
the effect of GECC preferred stock dividends (Industrial operating earnings)
Industrial operating earnings as a percentage of operating earnings
(322)
(298)
$9,704
$8,922
58%
53%
Operating earnings excludes non-service-related pension costs of our principal pension plans comprising interest cost, expected return on plan assets and amortization
of actuarial gains/losses. The service cost, prior service cost and curtailment loss components of our principal pension plans are included in operating earnings. We
believe that these components of pension cost better reflect the ongoing service-related costs of providing pension benefits to our employees. As such, we believe that
our measure of operating earnings provides management and investors with a useful measure of the operational results of our business. Other components of GAAP
pension cost are mainly driven by capital allocation decisions and market performance, and we manage these separately from the operational performance of our
businesses. Neither GAAP nor operating pension costs are necessarily indicative of the current or future cash flow requirements related to our pension plan. We also
believe that this measure, considered along with the corresponding GAAP measure, provides management and investors with additional information for comparison of
our operating results to the operating results of other companies.
Preliminary 2012 fourth quarter results 12
Reconciliation of Realized
Compensation to Summary
Compensation
Reconciliation of Realized Compensation
to Summary Compensation
To calculate realized compensation for 2014 (which represents taxable W-2 income for 2014), we started with the
compensation shown in the SEC Total column in the 2014 Summary Compensation Table on page 21 and made the following
adjustments:*
Subtractions from SEC Total
Additions to SEC Total
• Bonus and LTPA earned for 2014 (reflected in Bonus and NonEquity Incentive Plan Comp. columns for 2014)
• Aggregate grant date fair value of equity awards (reflected in
Stock Awards and Option Awards columns)
• Year-over-year change in pension value and nonqualified
deferred compensation earnings (reflected in the Change in
Pension Value & Nonqualified Deferred Comp. Earnings
column)
• Contributions to the Retirement Savings Plan (RSP) and
medical premiums that are deducted from income on a pretax
basis
• Difference between the cost attributable to personal use of
aircraft as calculated under SEC rules versus tax rules
• The company’s RSP match (reflected in the 2014 All Other
Compensation Table on page 22)
• Bonus actually paid in 2014 (reflected in Bonus
column for 2013)
• Value realized from vesting of RSUs before payment
of applicable withholding taxes and brokerage
commissions (reflected in 2014 Options Exercises
and Stock Vested Table on page 42), including the
value realized from payment of any dividend
equivalents
• Travel costs attributable to the named executives’
guests when there is no aggregate incremental
cost to the company under SEC rules but there is
imputed income for tax purposes
Also, certain other benefits (reflected in the 2014 Other Benefits Table on page 23) are accounted for on a tax year of
November through October for realized compensation purposes and on a calendar-year basis under SEC rules. For more
information on total compensation as calculated under SEC rules, see the notes accompanying the 2014 Summary
Compensation Table on page 21.
2012 fourth quarter results 14
*Page numbers refer to the company’s 2015 Proxy Statement, as filed with thePreliminary
SEC.