GE 2012 Annual Report Download - page 59

management’s discussion and analsis
GE 2012 ANNUAL REPORT 57
growth through new capacity and product development; 22%
was investment in productivity through new equipment and pro-
cess improvements; and 35% was investment for other purposes
such as improvement of research and development facilities and
safety and environmental protection.
GECC additions to property, plant and equipment were
$11.9 billion and $9.9 billion during 2012 and 2011, respectively,
primarily reflecting additions of commercial aircraft at GECAS.
GOODWILL AND OTHER INTANGIBLE ASSETS totaled $73.4 billion
and $12.0 billion, respectively, at December 31, 2012. Goodwill
increased $0.8 billion from 2011, primarily from the acquisitions
of Industrea Limited and Railcar Management, Inc., and the
weaker U.S. dollar. Other intangible assets decreased $0.1 billion
from 2011, primarily from dispositions and amortization expense,
partially offset by acquisitions. Goodwill and other intangible
assets increased $8.2 billion and $2.1 billion, respectively, in 2011
primarily from the acquisitions of Converteam, the Well Support
division of John Wood Group PLC, Dresser, Inc., Wellstream PLC
and Lineage Power Holdings, Inc. See Note 8.
ALL OTHER ASSETS comprise mainly real estate equity properties
and investments, equity and cost method investments, derivative
instruments and assets held for sale, and totaled $100.1 billion at
December 31, 2012, a decrease of $11.6 billion, primarily related
to decreases in the fair value of derivative instruments ($6.1 bil-
lion), the sale of certain held-for-sale real estate and aircraft
($4.8 billion) and decreases in our Penske Truck Leasing Co., L.P.
(PTL) investment ($4.5 billion), partially offset by the consolidation
of an entity involved in power generating activities ($1.6 billion).
During 2012, we recognized $0.1 billion of other-than-temporary
impairments of cost and equity method investments, excluding
those related to real estate.
Included in other assets are Real Estate equity investments
of $20.7 billion and $23.9 billion at December 31, 2012 and
December 31, 2011, respectively. Our portfolio is diversified, both
geographically and by asset type. We review the estimated val-
ues of our commercial real estate investments annually, or more
frequently as conditions warrant. Based on the most recent valu-
ation estimates available, the carrying value of our Real Estate
investments exceeded their estimated value by about $1.1 billion.
This amount is subject to variation and dependent on economic
and market conditions, changes in cash flow estimates and com-
position of our portfolio, including sales such as our recently
announced disposition of certain floors located at 30 Rockefeller
Center, New York to an affiliate of NBCU. Commercial real estate
valuations have shown signs of improved stability and liquid-
ity in certain markets, primarily in the U.S.; however, the pace
of improvement varies significantly by asset class and market.
Accordingly, there continues to be risk and uncertainty sur-
rounding commercial real estate values. Declines in estimated
value of real estate below carrying amount result in impairment
losses when the aggregate undiscounted cash flow estimates
used in the estimated value measurement are below the carry-
ing amount. As such, estimated losses in the portfolio will not
necessarily result in recognized impairment losses. During 2012,
Real Estate recognized pre-tax impairments of $0.1 billion in
its real estate held for investment, which were primarily driven
by declining cash flow projections for properties in Japan and
Europe, as well as strategic decisions to sell portfolios in Asia and
Europe. Real Estate investments with undiscounted cash flows in
excess of carrying value of 0% to 5% at December 31, 2012 had a
carrying value of $2.1 billion and an associated estimated unreal-
ized loss of an insignificant amount. Continued deterioration in
economic conditions or prolonged market illiquidity may result in
further impairments being recognized.
Contract costs and estimated earnings reflect revenues
earned in excess of billings on our long-term contracts to con-
struct technically complex equipment (such as power generation,
aircraft engines and aeroderivative units) and long-term prod-
uct maintenance or extended warranty arrangements. Our total
contract costs and estimated earnings balances at December 31,
2012 and December 31, 2011, were $9.4 billion and $9.0 billion,
respectively, reflecting the timing of billing in relation to work
performed, as well as changes in estimates of future revenues
and costs. Our total contract costs and estimated earnings bal-
ance at December 31, 2012 primarily related to customers in
our Power & Water, Oil & Gas, Aviation and Transportation busi-
nesses. Further information is provided in the Critical Accounting
Estimates section.
LIQUIDITY AND BORROWINGS
We maintain a strong focus on liquidity. At both GE and GECC we
manage our liquidity to help provide access to sufficient funding
to meet our business needs and financial obligations throughout
business cycles.
Our liquidity and borrowing plans for GE and GECC are estab-
lished within the context of our annual financial and strategic
planning processes. At GE, our liquidity and funding plans take
into account the liquidity necessary to fund our operating com-
mitments, which include primarily purchase obligations for
inventory and equipment, payroll and general expenses (including
pension funding). We also take into account our capital allocation
and growth objectives, including paying dividends, repurchas-
ing shares, investing in research and development and acquiring
industrial businesses. At GE, we rely primarily on cash generated
through our operating activities, any dividend payments from
GECC, and also have historically maintained a commercial paper
program that we regularly use to fund operations in the U.S., prin-
cipally within fiscal quarters. During 2012, GECC paid dividends of
$1.9 billion and special dividends of $4.5 billion to GE.
GECC’s liquidity position is targeted to meet its obligations
under both normal and stressed conditions. GECC establishes a
funding plan annually that is based on the projected asset size
and cash needs of the Company, which over the past few years,
has included our strategy to reduce our ending net investment in
GE Capital. GECC relies on a diversified source of funding, includ-
ing the unsecured term debt markets, the global commercial
paper markets, deposits, secured funding, retail funding prod-
ucts, bank borrowings and securitizations to fund its balance
sheet, in addition to cash generated through collection of princi-
pal, interest and other payments on the existing portfolio of loans
and leases to fund its operating and interest expense costs.
Our 2013 GECC funding plan anticipates repayment of princi-
pal on outstanding short-term borrowings, including the current
portion of long-term debt ($44.3 billion at December 31, 2012),