GE 2011 Annual Report Download - page 38

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36 GE 2011 ANNUAL REPORT
Except as otherwise noted, the analysis in the remainder of
this section presents the results of GE (with GECS included on a
one-line basis) and GECS. See the Segment Operations section for
a more detailed discussion of the businesses within GE and GECS.
Signifi cant matters relating to our Statement of Earnings are
explained below.
GE SALES OF PRODUCT SERVICES were $41.9 billion in 2011, an
increase of 14% compared with 2010, and operating profi t from
product services was $11.8 billion in 2011, an increase of 15%
compared with 2010. Both the sales and operating profi t of prod-
uct services increases were at Energy Infrastructure, Aviation,
Transportation and Healthcare.
POSTRETIREMENT BENEFIT PLANS costs were $4.1 billion, $3.0 bil-
lion and $2.6 billion in 2011, 2010 and 2009, respectively. Costs
increased in 2011 primarily due to the continued amortization of
2008 investment losses and the effects of lower discount rates
(principal pension plans discount rate decreased from 5.78% at
December 31, 2009 to 5.28% at December 31, 2010). Costs
increased in 2010 primarily due to the amortization of 2008
investment losses and the effects of lower discount rates (princi-
pal pension plans discount rate decreased from 6.11% at
December 31, 2008 to 5.78% at December 31, 2009), partially
offset by lower early retirement costs.
Our discount rate for our principal pension plans at
December 31, 2011 was 4.21%, which refl ected current histori-
cally low interest rates. Considering the current and expected
asset allocations, as well as historical and expected returns on
various categories of assets in which our plans are invested, we
have assumed that long-term returns on our principal pension
plan assets will be 8.0% for cost recognition in 2012, compared
to 8.0% in 2011 and 8.5% in both 2010 and 2009. GAAP pro-
vides recognition of differences between assumed and actual
returns over a period no longer than the average future service
of employees. See the Critical Accounting Estimates section for
additional information.
We expect the costs of our postretirement benefi ts to
increase in 2012 by approximately $1.3 billion as compared to
2011, primarily because of the effects of additional 2008 invest-
ment loss amortization and lower discount rates.
Pension expense for our principal pension plans on a GAAP
basis was $2.4 billion, $1.1 billion and $0.5 billion for 2011, 2010
and 2009, respectively. Operating pension costs (non-GAAP) for
these plans were $1.4 billion in both 2011 and 2010 and $2.0 billion
in 2009. Operating earnings include service cost and plan amend-
ment amortization for our principal pension plans as these costs
represent expenses associated with employee benefi ts earned.
Operating earnings exclude non-operating pension cost/income
such as interest cost, expected return on plan assets and non-cash
amortization of actuarial gains and losses. We expect operating
pension costs for these plans will be about $1.7 billion in 2012.
The GE Pension Plan was underfunded by $13.2 billion at the
end of 2011 as compared to $2.8 billion at December 31, 2010.
The GE Supplementary Pension Plan, which is an unfunded plan,
had projected benefi t obligations of $5.2 billion and $4.4 billion
at December 31, 2011 and 2010, respectively. The increase in
underfunding from year-end 2010 was primarily attributable to
the effects of lower discount rates and lower investment returns.
Our principal pension plans discount rate decreased from 5.28%
at December 31, 2010 to 4.21% at December 31, 2011, which
increased the pension benefi t obligation at year-end 2011 by
approximately $7.4 billion. A 100 basis point increase in our pen-
sion discount rate would decrease the pension benefi t obligation
at year end by approximately $7.0 billion. Our GE Pension Plan
assets decreased from $44.8 billion at the end of 2010 to $42.1 bil-
lion at December 31, 2011, primarily driven by benefi t payments
made during the year which were partially offset by investment
returns. Assets of the GE Pension Plan are held in trust, solely for
the benefi t of Plan participants, and are not available for general
company operations.
On an Employee Retirement Income Security Act (ERISA) basis,
the GE Pension Plan was 92% funded at January 1, 2012. We will
contribute approximately $1.0 billion to the GE Pension Plan in
2012. Funding requirements are determined as prescribed by
ERISA and for GE, are based on the Plan’s funded status as of the
beginning of the previous year and future contributions may vary
based on actual plan results. Assuming our 2012 actual experi-
ence is consistent with our current benefi t assumptions (e.g.,
expected return on assets and interest rates), we expect to make
about $2.1 billion in contributions to the GE Pension Plan in 2013.
At December 31, 2011, the fair value of assets for our other
pension plans was $3.3 billion less than the respective projected
benefi t obligations. The comparable amount at December 31,
2010, was $2.1 billion. We expect to contribute $0.7 billion to our
other pension plans in 2012, compared with actual contributions
of $0.7 billion and $0.6 billion in 2011 and 2010, respectively. We
fund our retiree health benefi ts on a pay-as-you-go basis. The
unfunded liability for our principal retiree health and life plans
was $12.1 billion and $10.9 billion at December 31, 2011 and
2010, respectively. This increase was primarily attributable to the
effects of lower discount rates (retiree health and life plans dis-
count rate decreased from 5.15% at December 31, 2010 to 4.09%
at December 31, 2011), partially offset by lower cost trends. We
expect to contribute $0.6 billion to these plans in 2012 compared
with actual contributions of $0.6 billion in both 2011 and 2010.
The funded status of our postretirement benefi ts plans and
future effects on operating results depend on economic condi-
tions and investment performance. For additional information
about funded status, components of earnings effects and actu-
arial assumptions, see Note 12.