GE 2011 Annual Report Download - page 140

138 GE 2011 ANNUAL REPORT
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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 and prior service cost compo-
nents of our principal pension plans are included in operating
earnings. We believe that these components of pension cost
better refl ect the ongoing service-related costs of providing
pension benefi ts 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 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 fl ow requirements related to our
pension plan. We also believe that this measure, considered
along with the corresponding GAAP measure, provides manage-
ment and investors with additional information for comparison
of our operating results to the operating results of other compa-
nies. We also believe that Operating EPS excluding the effects of
the $0.8 billion preferred dividend related to the redemption of
our preferred stock (calculated as the difference between the
carrying value and the redemption value of the preferred stock)
is a meaningful measure because it increases the comparability
of period-to-period results.
Operating and Non-Operating Pension Costs (Income)
(In millions) 2011 2010 2009
Service cost for benefits earned $ 1,195 $ 1,149 $ 1,609
Prior service cost amortization 194 238 426
Operating pension costs 1,389 1,387 2,035
Expected return on plan assets (3,940) (4,344) (4,505)
Interest cost on benefit obligations 2,662 2,693 2,669
Net actuarial loss amortization 2,335 1,336 348
Non-operating pension costs
(income) 1,057 (315) (1,488)
Total principal pension plans costs $ 2,446 $ 1,072 $ 547
We have provided the operating and non-operating components
of cost for our principal pension plans. Operating pension costs
comprise the service cost of benefi ts earned and prior service
cost amortization for our principal pension plans. Non-operating
pension costs (income) comprise the expected return on plan
assets, interest cost on benefi t obligations and net actuarial loss
amortization for our principal pension plans. We believe that the
operating components of pension costs better refl ects the ongo-
ing service-related costs of providing pension benefi ts to our
employees. We believe that the operating and non-operating
components of cost for our principal pension plans, considered
along with the corresponding GAAP measure, provide manage-
ment and investors with additional information for comparison of
our pension plan costs and operating results with the pension
plan costs and operating results of other companies.
Average GE Shareowners’ Equity, Excluding Effects of Discontinued Operations(a)
December 31 (In millions) 2011 2010 2009 2008 2007
Average GE shareowners’ equity (b) $122,289 $116,179 $110,535 $113,387 $113,842
Less the effects of the average net investment in
discontinued operations 4,340 13,137 17,092 8,859 12,830
Average GE shareowners’ equity, excluding effects of
discontinued operations (a) $117,949 $103,042 $ 93,443 $104,528 $101,012
(a) Used for computing return on average GE shareowners’ equity and return on average total capital invested (ROTC).
(b) On an annual basis, calculated using a five-point average.
Our ROTC calculation excludes earnings (losses) of discontinued
operations from the numerator because U.S. 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 compa-
nies. 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 evalu-
ate performance of our continuing operations, on a consistent
basis, and to evaluate and compare the performance of our con-
tinuing operations with the ongoing operations of other
businesses and companies.
Defi nitions indicating how the above-named ratios are calcu-
lated using average GE shareowners’ equity, excluding effects of
discontinued operations, can be found in the Glossary.
Ratio of Debt to Equity at GECS, Net of Cash and Equivalents
and with Classification of Hybrid Debt as Equity
December 31 (Dollars in millions) 2011 2010 2009
GECS debt $443,097 $470,520 $493,324
Less cash and equivalents 76,702 60,257 62,575
Less hybrid debt 7,725 7,725 7,725
$358,670 $402,538 $423,024
GECS equity $ 77,110 $ 68,984 $ 70,833
Plus hybrid debt 7,725 7,725 7,725
$ 84,835 $ 76,709 $ 78,558
Ratio 4.23:1 5.25:1 5.39:1
We have provided the GECS ratio of debt to equity on a basis that
refl ects the use of cash and equivalents to reduce debt, and with
long-term debt due in 2066 and 2067 classifi ed as equity. We
believe that this is a useful comparison to a GAAP-based ratio of
debt to equity because cash balances may be used to reduce
debt and because this long-term debt has equity-like characteris-
tics. The usefulness of this supplemental measure may be limited,