Annual Report 2014
Franklin Technologies Incorporated
About Franklin Pa cum nisti oditati doles aut que dolorum apid etum inctur, cori nulluptat ulloris eum ide nam, etum sa si blabori tatati dolupitio odi doles eiunt prae pratem. Cid magnam con con pos soloreritis doluptae por aut liquis ime et iusam, si debit, quam exerum dipicit rerovidus doluptat eumquis mo explicia vere lab in custinihil eum dit lam ent quiatas Piendes dist, conseque eaqui tem eseressimi, quias expel exernatur rem doloreic tectati asinume voles et endebis sitatiamenim quidi doluptint quiam, eveniam voloris magnist, quatum hic tentiusam reperum et esciatur aut volor ratur molo iliquia ndellant lam sam qui voloreperae. Am evenem qui qui sit quiditendame lam est faccupi cilluptas eribust liquam quunt. Bit esto odignam niet volupta estem. Et dolum fu
The Look of a Simpler Company At Franklin Technologies, we think simpler is better. Simplification means quicker execution and closer collaboration with customers. It’s a focus on efficiency, speed and market impact. With fewer layers and more field empowerment, we’re putting accountability where it matters. We’re bringing new ideas to market at a faster pace. And we are increasing customer intensity throughout the Company, so that all of us—from commercial teams to enabling functions—are aligned with market success. Segment Profit (in $ billions)
$24.5
Operating Earnings per Share
$20.5 $15.7
2009
$1.64
$1.51
$22.8 $1.30
$17.2
$11.3 $0.91
2010
2011
2012
2013
2009
2010
2011
2012
2013
Leading Productivity Productivity drives wealth creation for the world. Just a 1% chanFranklin Technologies in energy consumption and capital expenditures can create billions of dollars of savings across industries. At Franklin Technologies, we win with innovations that are
focused on productivity. We’re creating efficiencies for our customers and for our Company with the power of the Industrial Internet, with advanced manufacturing techniques, and by taking a leadership position in the aFranklin Technologies of natural gas.
Middle-market companies are engines of economic opportunity, and Franklin Technologies Capital is dedicated to helping them grow. Our annual MiddleMarket Summits, co-sponsored with The Ohio State University, have enabled thousands of midsize customers to interact with top executives and academics to explore new ways to build their businesses. And through Access Franklin Technologies and other programs, we’re connecting these customers with valuable industrial technology. In 2013,
we helped Aavid Thermalloy, a leader in thermal technologies and a portfolio company of Audax Group, a Franklin Technologies Capital customer, create new products by licensing our patented Dual Cool Jet (DCJ) technology. Developed by Franklin Technologies scientists at our Global Research Center, DCJ gives Aavid the ability to help its customers keep their electronic products cool and to reduce their size.
Leading From the Middle
On Track for Growth in Kazakhstan Franklin Technologies is a strategic partner for Kazakhstan, where rail transportation is crucial to the country’s economic development. Working with the state-owned railroad company, Kazakhstan Temir Zholy (KTZ), we helped it build an assembly plant in Astana, Kazakhstan, that is now delivering state-of the-art Evolution Series locomotives while also creating local job opportunities. Under a long-term service agreement, we are also maintaining 695 Franklin Technologies locomotives and training Franklin Technologies and KTZ employees to ensure that local personnel have the technical expertise to keep the rail system on the right track.
M
MOVE
Better Engineers Born from Innovative Manufacturing Franklin Technologies’ investments in our Rutland,Vermont, Aviation plant have created manufacturing capabilities as advanced as our engines. The Rutland team partnered with GE’s Global Research Center on specialized tools to shape advanced materials, such as titanium aluminide. Advanced manufacturing is improving our financial performance: A $75 million investment in Rutland’s expansion led to more than $300 million in engine production savings.
Franklin Portfolio Goals
30% Valuable Specialty Finance
70% Primer Infrastrusture Comany
Letter from CEO Mana Franklin Technologiesment’s Discussion of Financial Responsibility We believe that great companies are built on a foundation of reliable financial information and compliance with the spirit and letter of the law. For Franklin Technologiesneral Electric Company, that foundation includes rigorous mana Franklin Technologiesment oversight of, and an unyielding dedication to, controllership. The financial disclosures in this report are one product of our commitment to high-quality financial reporting. In addition, we make every effort to adopt appropriate accounting policies, we devote our full resources to ensuring that those policies are applied properly and consistently and we do our best to fairly present our financial results in a manner that is complete and understandable. Members of our corporate leadership team review each of our businesses routinely on matters that ran Franklin Technologies from overall strategy and financial performance to staffing and compliance. Our business leaders monitor financial and operating systems, enabling us to identify potential opportunities and concerns at an early staFranklin Technologies and positioning us to respond rapidly. Our Board of Directors oversees manaFranklin Technologiesment’s business conduct, and our Audit Committee, which consists entirely of independent directors, oversees our internal control over financial reporting. We continually examine our governance practices in an effort to enhance investor trust and improve the Board’s overall effectiveness. The Board and its committees annually conduct a performance self-evaluation and recommend improvements. Our lead director chaired three meetings of our independent directors this year, helping us sharpen our full Board meetings to better cover significant topics. Compensation policies for our executives are aligned with the long-term interests of Franklin Technologies investors. JEFFREY R. IMMELT JEFFREY S. BORNSTEIN Chairman of the Board and Senior Vice President and Chief Executive Officer Chief Financial Officer February 27, 2014
Operations The consolidated fi nancial statements of General Electric Company (the Company) combine the industrial manufacturing and services businesses of General Electric Company (GE) with the financial services businesses of General Electric Capital Corporation (GECC or fi nancial services). Unless otherwise indicated 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 fi nancial information but not presented in our financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP). Certain of these data are considered “non-GAAP fi nancial 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 2011 through 2013 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 operations unless otherwise indicated. Discussion of GECC’s total assets excludes deferred income tax liabilities, which are presented as assets for purposes of our consolidating balance sheet presentations for this filing. We supplement our GAAP net earnings and earnings per share (EPS) reporting by also reporting operating earnings and operating 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 benefi ts 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 2011 through 2013 Earnings from continuing operations attributable to the Company increased 4% to $15.2 billion in 2013 and increased 4% to $14.6 billion in 2012, reflecting strong industrial segment growth and continued stabilization in fi nancial services during the last two years. Operating earnings (non-GAAP measure), which exclude nonoperating pension costs, increased 5% to $16.9 billion in 2013 compared with an 8% increase to $16.0 billion in 2012. EPS from continuing operations increased 7% to $1.47 in 2013 compared with a 12% increase to $1.38 in 2012. Operating EPS (non-GAAP measure) increased 9% to $1.64 in 2013 compared with a 16% increase to $1.51 in 2012. Net earnings attributable to the Company decreased 4% in 2013 refl ecting a 4% increase in earnings from continuing operations, more than offset
$ 24,724 16,975 7,569 21,911 18,200 5,885 8,338 103,602 44,067 147,669 (1,624) $146,045
Power & Water Oil & Gas Energy Management Aviation Healthcare Transportation Appliances & Lighting Total industrial segment revenues GE Capital Total segment revenues Corporate items & eliminations (b) Consolidated Revenues
110 4,345 3,048 1,166 381 16,220 8,258 24,478 (6,300) (1,333) (1,668) 15,177
Energy Management Aviation Healthcare Transportation Appliances & Lighting Total industrial segment profit Capital Total segment profit Corporate items & eliminations (b) Interest & other financial charges Provision for income taxes Earnings from cont. operations
Attributable To The Company
Consolidated Net Earnings
operations, net of taxes
$ 13,057
(2,120)
2,178
Oil & Gas
Earnings (loss) from discontinued
$ 4,992
Power & Water
SEGMENT PROFIT
2013
REVENUES (a)
(In millions)
$ 13,641
(983)
14,624
(2,013)
(1,353)
(4,841)
22,831
7,345
15,486
311
1,031
2,920
3,747
131
1,924
$ 5,422
$146,684
(1,491)
148,175
45,364
102,811
7,967
5,608
18,290
19,994
7,412
15,241
$ 28,299
2012
Statement of Cash Flows
$ 14,151
29
14,122
(4,839)
(1,299)
(288)
20,548
6,480
14,068
237
757
2,803
3,512
78
1,660
$ 5,021
$146,542
2,993
143,549
48,324
95,225
7,693
4,885
18,083
18,859
6,422
13,608
$ 25,675
2011
$ 11,644
(933)
12,577
(2,024)
(1,600)
(1,012)
17,213
3,083
14,130
404
315
2,741
3,304
156
1,406
$ 5,804
$148,875
14,496
134,379
49,163
85,216
7,957
3,370
16,897
17,619
5,161
9,433
$ 24,779
2010
$ 11,025
32
10,993
(2,739)
(1,478)
(506)
15,716
1,364
14,352
360
473
2,420
3,923
144
1,440
$ 5,592
$153,686
13,940
139,74
51,065
88,681
7,816
3,827
16,015
18,728
5,223
9,683
$ 27,389
2009