morning and welcome to GE's 2013 Annual Meeting. I'm Jeff Himmel, Chairman of the Board of GE and here with me today are Keith Sharon, our CFO and Brackett Dennis, our General Counsel. Each year we have our annual meeting in a GE town that epitomizes what our company is about and that our shareowners deserve to see. This year it's New Orleans and we're very proud to be here. New Orleans is a great vibrant city and the state of Louisiana is a great place to do business.
We have more than 1300 employees working across the state in businesses such as energy management, oil and gas, healthcare and GE Capital. And we have 1300 retirees across the state. GE we take on the world's toughest challenges and we find ways to build a better future. We want to be in places where the people share that same spirit. New Orleans has faced its shared challenges and its people have only made this city stronger.
That commitment is making a better future is a critical part of GE's culture. That's why we've invested 1,000,000 of dollars in a state of the art IT facility here in New Orleans. We officially opened the GE Capital Technology Center this week and have already begun staffing the facility. We'll bring more than 300 jobs to New Orleans and these are high-tech jobs that will add to the city's economy. Over the years, we've developed solutions for our customers that build on strong relationships and help communities.
Ochsner has been a partner to GE Healthcare for years. This is a great relationship on several levels technology, efficiency and culture. And across the U. S. We must develop new models of health care building both the structure and culture that allows us to move faster.
This week we also announced a donation to the Congressional Medal of Honor Foundation for the educational programs with World War II Museum here in New Orleans. It's a way for us to support a great organization and the local teachers and students will help benefit from these programs. So this is a special place for GE and its shareowners and to be and I welcome all of you. We like to think that GE is a company that can compete and help our customers compete in today's environment. And we're focused on big productivity drivers of our time.
And this includes things like unconventional resources, the shale gas revolution, advanced manufacturing, owning the analytical layers around our products and simplification which we'll work on very hard in GE to move faster and be more competitive. Today with $100,000,000,000 in revenue and 15% margins, we're the largest and most profitable infrastructure company in the world, selling in more than 160 countries. We put about 6% of our revenue back into R and D. We invest some $10,000,000,000 to launch products and build global capability. And we're big financial service players with an emphasis on specialty finance for small and medium sized business.
The culture of our company is based on 4 principles. We're mission based. We believe that the products we make change the world we build, we power, we move, we cure. We're constantly searching for a better way. We always learn more and do better.
We're working on solutions for our customers and our society like we do here in New Orleans. We're working on affordable health care energy and the big problems that shape the 21st century. And we're a We company. We believe in teamwork. Those are the principles that have allowed us to grow and be successful over the past 130 years and really that's what keeps us hungry and humble as we look at the future.
This is who we are. It's why GE works and it's why you can be proud of your company and why your company is positioned for success. So now on the order of business, I'm advised that this meeting is properly convened that we have a quorum and that the proposed resolution set forth in the proxy statement are filed as part of these proceedings. We received proxies representing over 79% of the approximately 10,400,000,000 outstanding shares eligible to vote. The management proxy committee has voted these shares in accordance with shareowner wishes.
It's now my privilege to introduce the director nominees and the members of your Board of Directors who are here with us today. I'm going to ask the directors to stand briefly as I introduce them so you can see who they are. Sandy Warner, former Chairman of the Board of JPMorgan Chase and Director since 1992 Sandy is Chairman of the Audit Committee Jim Cash, Emeritus James E. Robinson Professor of Business Administration at Harvard Business School, a Director since 1997 Andrea Jung, former Chairman and Chief Executive Officer Avon, a Director since 1998 Ann Fudge, former Chairman and Chief Executive Officer, Young and Rubicon, a Director since 1999 Shelley Lazarus, Chairman Emeritus and former Chief Executive Officer, Olga Villanather, a Director since 2000. Shelley is Chairman of the Nominating and Corporate Governance Committee Ralph Larsen, former Chairman and Chief Executive Officer Johnson and Johnson, a Director since 2002 Ralph is Presiding Director and Chairman of the Management Development and Compensation Committee Bob Swearinga, Professor of Accounting and former Dean of Johnson Graduate School of Management Cornell University, a Director since 2002 Bob Lane, former Chairman and Chief Executive of DEER, a Director since 2005 Susan Hockfield, President of Meritana and Professor of Neuroscience, MIT, a Director since 2006 Jim of Neuroscience MIT, a Director since 2006 Jim Mollbuck, former Chairman and Chief Executive Officer, ConocoPhillips and Director since 2008 Jeff Beatty, Deputy Chairman Thompson Reuters and Director since 2009 Mr.
Beatty is Chairman of our Risk Committee Jim Tisch, President and Chief Executive Officer of Loews Corporation and Director since 2010 Jack Brennan, Chairman Emeritus and Senior Advisor to Vanguard Group and Director since 2012 Frank D'Souza, Chief Executive of Cognitive Technology Solutions and Director since 2013 and Mary Shapiro, former Chairman Securities and Exchange Commission and Director nominee. I would like to acknowledge 3 directors who are not attending this meeting and not standing for election today. Roger Penske has been a GE Director for 19 years. We'll always appreciate Roger's entrepreneurial spirit and operational insight. Sam Nunn, a Director for 16 years.
We will always miss his wisdom and judgment across every business. And AG Laffley was a GE Director for 10 years. We'll always remember AG's strategic and operational skills. Please acknowledge all of their great work, the Board and Ameritide for their great work on behalf of GE. I would also like to ask Mike, Neal and John Wright to stand briefly.
Their Vice Chairman of GES is Keith Sharon who is here today is with me. Mike and John? And now to the 2nd item on our agenda, I'll report on company operations. Keith Sharon will review GE's financial performance and strategy and then I'll review a long term outlook and key strategy items. Keith?
Jeff, thank you. Good morning, everyone. It's great to be here in New Orleans. I'm going to just cover a couple of charts about our financial performance. I thought I'd start with the economy.
We see 2013 to be shaping up sort of similar to 2012. We have slow growth in the developed world like the United States and Western Europe and Japan and we have pretty strong growth in the emerging markets and that's continuing. You can see for our outlook, the United States we expect to have around 2% GDP growth about flat with last year. We can see that unemployment remains stubbornly high. One of the bright spots that we're experiencing is in housing.
We see quite an increase in both single family housing starts as well as multifamily housing starts. That's good for the economy. It's good for our clients business. And then one of the challenges that we continue to face are our large fiscal deficits. And with programs like sequestration, that's going to continue to provide a drag on growth.
Europe, tougher than we expected. Europe was slow growth last year. This year, it could be down a bit. For us in the quarter it was down quite a bit. We expect that to continue through the year as they wrestle with their austerity and fiscal challenges.
And the bright spot is in the global markets. Places like China, the Middle East, Africa, Latin America we continue to see very strong growth. Our orders were up 17% in the Q1. So the recovery is mixed. The strength for us is in the emerging markets and we continue to shift the center of gravity of the company to take advantage of those opportunities.
For 2012, we laid out a number of objectives with investors. We had 5 big commitments we made at the end of 2011 and we had a pretty good year in terms of performance. Number 1, we wanted to grow our industrial earnings double digit. We grew them 10%. That was a great performance.
Number 2, we want to increase our pre tax profitability, our operating margins. We grew them by 30 basis points. Number 3, we wanted to restart the dividend out of GE Capital and the team did a great job. We received $6,400,000,000 from GE Capital back to the parent last year, which helped a lot with capital allocation. Number 4, we want to continue to run off our non core assets in G Capital, make the non core assets smaller and invest in our mid market leasing and lending business and the team exceeded all of their targets.
And number 5, we want to have a good year on balanced capital allocation returning cash back to you, back to our shareholders. We had a good year with a mix of about $5,000,000,000 of buyback and $7,000,000,000 of dividends, so $12,000,000,000
back to shareholders.
And on the right side, you can see we still have just tremendously strong fundamentals in the company. We ended the year with a record backlog, dollars 210,000,000,000 of products and services that we'll deliver over the next several years. We had a $77,000,000,000 of cash between the cash at GE Capital and the cash at the parent. That keeps GE Capital safe and secure and it gives GE the ability to do a lot of different things in capital allocation. And we want a strong dividend.
Our yield last year averaged 3.3% and it's very important to us. I'll cover more on that in a minute. And Jeff's going to talk about the growth enablers. We continue to invest in our global growth. We continue to invest in new technology and we continue to invest in our services platform.
So we had a pretty good year. We met or exceeded all of our investment commitments that we laid out at the end of 2011. When I talk about investor friendly capital allocation, here's really on top of what we invest organically for our new product introduction or globalization or other technology investments, here's what we do with investors. On the left side, the dividend is the number one priority for us. Last year, we paid $7,200,000,000 of dividends to our investors.
In December, our Board of Directors approved a dividend increase of 12%. And this year, we expect to pay about $8,000,000,000 of dividends. With the dividend increase, even though the stock is higher, the yield is up to 3.5%. In an environment where the 10 year treasuries are trading at 1.7%, it's a pretty nice return for shareholders on an ongoing basis. In the middle of the buyback, we're buying back shares.
Last year, we bought back a little over $5,000,000,000 of stock. With the closing of the NBC transaction, we received the cash for selling the remaining 49% back to Comcast. We've increased the buyback objective this year. We expect to do almost twice as much as we did last year. And then finally on the right side our strategic acquisitions.
We continue to invest in inorganic capability. We're adding new capability to the company. We have $8,000,000,000 of announced transactions. The 2 biggest ones that you're all familiar with are Avio and our aviation space, which is going to add a lot of capability to the aircraft engine team as well as Lufkin, an oil and gas deal that we announced 2 weeks ago that builds out our oil and gas space and we're very excited about both of those acquisitions. So we're returning a lot of capital back to shareholders plus we're reinvesting in the capability of the company.
Now I talked about dividends being our number one priority. I thought I'd put this chart in to talk about put some numbers to put that in perspective. So this is the amount of dividends the company paid in the decade of the 70s, 80s 90s and then from 2000 to 2,000 and the Q1 the amount of dividends we paid. So if you look at from 2000 to the Q1 that's about a 13 year period. We paid 2.5 times the amount of dividend that we paid over the previous 30 year periods.
So this is a really a big priority for us. Our objective is to have an attractive payout ratio. And what we mean by that is that for every dollar of net income we generate, we're going to pay out about $0.45 45 percent of that back to shareholders in the form of the dividend. We'd like to have an attractive yield. So when you buy a share of G stock and you get that dividend of $0.19 every quarter on an annual basis today as I said that's about a 3.5% yield which is a premium versus the S and P 500 and a significant premium to some of the other alternative investments out there.
We want to grow the dividend in line with earnings. So as we grow the company, we expect to continue to grow the dividend. And as we said, the Board last increased the dividend in December and it's at a very attractive level. And then finally including the buyback, we do have a significant amount of capital returning back to investors. So to wrap up, our performance, how the company performs is what's going to drive the total shareholder return that you all get.
This is a chart of our operating earnings per share from 2,009 through 2012. You can see through that period we've been able to deliver double digit earnings growth. Through that period on a cash basis we've delivered $36,000,000,000 back to investors in the form of dividends and buybacks. You can see on the bottom that from that time 2,009 to today, the GE total shareholder return has exceeded that of the S and P 500. In 2012, we delivered a 21% total shareholder return based on our performance and that also exceeded the return of the S and P 500.
And while year to date we're off to a slow start, we've always known that we have a plan that has a first half with lower equipment deliveries and a second half that's got a much better profile. Our expectation is that we're
going to have a pretty
good year in terms of operating EPS. We'd like to deliver double digit operating EPS. And if we deliver that performance, we think we're going to have another very good year for investors. We plan on returning We plan on returning $18,000,000,000 of cash to our investors this year, dollars 10,000,000,000 through the buyback, dollars 8,000,000,000 through the dividend and most of that is still to come in the second, third and fourth quarter. So we have a good outlook for the year.
We have a good expectation and we look forward to a good performance delivering good returns. So thank you and I'll turn it back to Jeff.
Great, Keith. Thanks.
And just a few comments on kind of where we're taking the company next. We really have 2 pieces to the portfolio a great infrastructure company and a very valuable specialty finance company. And we expect to get dividends as we grow and strengthen our financial service company to back and to invest in a strong infrastructure company. And our enterprise capabilities are really technology, very strong focus on services and growing that into analytics, a very good capability and market share in our growth markets and a simple and competitive cost structure. So we as a company really focus on those four things.
From a portfolio standpoint, we really aspire to get our industrial percentage of earnings over time up close to 70%. We want to have good relative performance versus our peers. And we just want to keep investing in great markets where we have long term tailwinds, continue to build our strength in infrastructure, drive returns and margins and again, as I said, continue to create great value in our GE Capital franchise. And so this is something we communicate very frequently. A good example of how we create fast growth industrial businesses is in oil and gas.
This is a place where we've put a lot of capital over the last 15 years to kind of grow the business and establish strong competitive position. And we've got a business that's in excess of $15,000,000,000 today, should be higher in $13,000,000,000 with good margins and returns. It really leverages the capabilities that I talked about earlier. It leverages all of the GE industrial capability. It allows us to build integrated solutions for our customers.
We can leverage our global capability and our global footprint. And we can utilize our cost base and our operating capabilities on margins to build good margins and returns in business as well. The financial services team has done a great job of repositioning in the new world for financial service markets. As you can see on the left, we're down at about $400,000,000,000 of assets And we've got very strong liquidity and have really improved the funding profile, a very strong Tier 1 capital. And so we believe that GE Capital ought to be able to increase their dividends back to the GE parent.
And the right hand side just takes a look at GE Capital versus some of our peer banks. And on a lot of the metrics that are important that investors follow GE Capital has a very strong position. So we've got a great franchise in mid market areas. We're generating substantial excess cash and we have a lot of financial strength. So strong industrial, strong infrastructure, strong financial services.
As Keith said, we continue to invest in R and D. I think this is a core strength of the company. We invest between 5% 6% of our revenues back into R and D. And you see that output in terms of a great array of new technologies and jet engines and blowout preventers, new health care products, mining equipment appliances. Again, we think this is the key competitive advantage as we look at the 21st century and it's a place where GE wants to invest and grow.
Our service business is incredible driver of profitability. We've grown our revenue by more than 2 times over the last decade. This is a very high margin business. In the service business, we want to continue to grow around our installed base. We want to continue to add technology to improve our customers' performance.
And want to drive analytics that are going to help drive better product performance to help our customers be more profitable. So services continues to be a big thrust when we look at the company. One of the places where we're investing a lot of money in R and D is in analytics. And this kind of shows you one of the reasons why we do that is to make our customers more profitable. And our big customer base is where our installed base is in places like aviation power and rail and healthcare.
And just a 1% improvement in fuel savings over 15 years for our airline customers is worth $30,000,000,000 of profit to them. So these small changes in our product performance really bleed through into great performance enhancements for our customers. And then the right hand side just shows you some of the opportunities we have to work with customers from a software and analytics standpoint. Rail Connect goes to our railroad customers and helps make them AgileTrak is kind And AgileTrack is kind of an air traffic control system for hospitals. And so we have customers for all these and this is a key way that we can use our service business to add customer value.
We're winning around the world. We have a business and a framework in our growth markets that's growing 10% to 15% every year. We've added commercial resources. And we want you to think about your company as one that can really invest and grow on all these global markets. We can compete in places like China very successfully, India, Russia, all around the world.
And so we are a very strong global company. More than half our revenues are outside the United States and I expect that will continue into the future. So we've seen great growth. We had 17% orders growth in these growth markets in the Q1 and we see this big theme continuing into the future. Our costs and margins are very important to all of us in terms of how we run the company.
We've got a commitment to grow margin rates by 70 basis points in 2013. One of the key ways we're doing that is by simplifying our cost structure and continue to drive lower costs and our administrative costs. And so we see that going down to probably 15% by 20 14. So we continue to grow and work on margins, which we are expanding and we continue to simplify the company to really only be putting the resources where we can get the most bang for the buck. And so it's all about speed, accountability and compliance when we look at the company.
One of the big investments you saw in some of the videos and some of the things we've done is to invest in advanced manufacturing. Just like technology, we think manufacturing is a core part of the company's strength. And so when you read about things like additive manufacturing or design to cost or 3 d printing or some of the new themes in technologies and technology, this is going to allow us to be faster to market, lower our product costs, improve cycle times. And we think again this is a place where GE has a strong leadership position. Lastly, when you think about and you read the annual report and the proxy, we always have a 3 year plan that holds managers accountable for certain metrics.
We just launched another one in 2013, 2014 and 2015 and that's all about operating EPS growth, overall cash both CFOA and cash from disposition growth, growth in our industrial percent of earnings and growth in return on total capital. So we think these four metrics really capture what's most important to our investors. It's the way that we'll align managers looking forward into the future. And again, we think this is make sure that we are focused on what's more most important to you and your colleagues around the world. Culture count to GE, we talk about the culture of GE Works mission based, search for a better way, solutions oriented for our customers and a team that works together working on a way to make the world more valuable and understand our context and fit with the world.
So that's just a brief update on the company operations. And now we're going to move forward with the agenda. So let's move on to discussion and voting on matters set forth in the proxy statement. We'll take up the election of directors and the management and churn of proposals in the order in which they appear in the proxy statement. After the election of directors and management proposals are introduced, so what we're going to do is go through the up through all the management proposals, there's going to be an opportunity for questions and discussion at that time.
And then after the sharing of proposals are introduced, there'll be a chance to discuss those as well. And there'll be time later on in the meeting for discussion on other business matters, but first we need to address the items that are presented in the proxy statement. The independent inspectors of election for this year's meeting are representatives of IBS Associates. The inspectors have taken the oath of required by law and have been at work since the proxy started coming in. If you've already voted by proxy, there's no need to change your vote by ballot today unless you like to change your vote.
You will find a ballot on your seat. So let's return to the election of directors and to the presentation of proposals in the proxy statement. The first matter is the election of directors. I placed before the meeting to service directors for the coming year. The 17 individuals whose names and biographies appear on pages 3 through 9 of the proxy statement, namely those nominees are Beatty, Brennan, Cash, D'Souza, Deckers, Fudge, Hockfield, Emil, Jung, Lane, Larson, Lazarus, Mobile, Shapiro, Swearingert, Tish and Warner.
Each of those nominees has received the overwhelming majority of the 8,000,000,000 shares voted by proxy. The next on the agenda is a proposal to approve our named executives' compensation. Your Board of Directors recommends a vote for the approval of the named executives' compensation. And then there's the proposal to ratify the selection of KPMG as independent auditors for 13. We have with us today John Vmeir, Bill O'Meara of KPMG responsible for the GE audit who are available after the meeting to respond to your appropriate questions.
Your Board of Directors recommends to vote for the ratification of KPMG as independent auditors. So now if you'd like to speak, go to 1 of the 2 aisle microphones and I'll call on you there. Give your name when you're recognized. So is there any discussion on the board nominees for the management proposals? So Doctor.
Barelli, I'm going to start with you Tom and on microphone number 1.
Good morning, Mr. Immelt and shareholders. My name is Doctor. Tom Barelli. I'm with a senior fellow at FreedomWorks, a national grassroots organization and on managing the Market Freedom Project there.
Before we have a chance to vote on the Board and yourself, I'd like to explore your statements you've made about our national debt. As you know, our national debt is $17,000,000,000,000 and counting and it's not only bad for citizens, it's actually bad for shareholders. And to your credit, you've recently joined a fixed the debt commission with Mr. Bowles and Mr. Simpson as well as other 80 CEOs who want the government to do something about this massive debt.
The problem we have here though Mr. Immelt is that your actions as CEO undermines the reduction of our debt. As you know, you lobby, General Electric lobby for Obama's $787,000,000,000 stimulus, which added almost $1,000,000,000,000 to our debt. And then making matters
worse, our profitable company
took $100,000,000,000 in grant. Come on, that just doesn't make any sense. And I think, Come on, that just doesn't make any sense. And I think it represents a real reputational risk for the company to lobby for big government to say we're for cutting the deficit. And then on the back end, a profitable company that last year made 16 $1,000,000,000 ends up taking grant money from taxpayers.
I mean that's outrageous, but we have a solution. We think it's in the company's best interest and your best interest to return the $100,000,000 back to the taxpayers. We think that's a noble initiative. You're making plenty of money. You really don't need the $100,000,000 We make a great statement for General Electric's leadership and to make sure you understand that grassroots activists understand this issue and mean business.
Today we launched a website GE Give It Back. And we have an online petition that's being directed to the Board of Directors encouraging them to return the money, our taxpayer money back to We the People. I'd like your reaction to our request that you return our money back to the people.
Doctor. Breil, I always listen to what you have to say. So I appreciate your comments at this year's meeting. Thank you. Yes or no?
I always listen to what you say. So I'm not
going to return money.
Let's go to microphone. Kevin, let's go to microphone number 2.
Answer the question please.
Again, Doctor. Barely, I always appreciate having you here at the meeting. Okay, Kevin. Good morning.
My name is Kevin Ma and I'm a 19 year old veteran of every shareowners meeting. This morning I rise on the basis of the Board of Directors to give a statement from Bill Frieder, whose wife was hurt in an accident and he had to take her home. So Bill asked me to make the statement firm. Good morning. My name is Bill Frieder.
I'm here this morning to ask that shareowners vote against the members of the Management Development and Compensation Committee of our Board of Directors, Ralph Larsen, Chairman James Cash, Jr, Andrea Chung, Robert Lane and Douglas Warner III. I do not take this action lightly, but I find it necessary because I believe these directors bear at least some of the responsibility for the continuing and disturbing policy of phantom dividends. This is the practice where GE senior executives are permitted to collect dividends or dividend equivalents on shares of GE stock they do not currently and may never own. This year, there were 2 share owner proposals submitted on the subject and it disappoints me to tell you all that GE did everything it could and was successful in its efforts to convince the Securities and Exchange Commission disqualify the proposal on phantom dividend. In fact, GE paid a considerable amount of shareowners' money to the law firms of Gibson, Dunn and Crutcher to have the shareowners' proposal disqualified.
Please keep in mind that the executives who profit from this practice spent our money not their own just so we the shareowners would not have a voice as to whether we wanted this practice to continue. What makes this practice so egregious this year is the fact that in 2012 GE notified those who retired as salaried employees and their spouses that if they had not reached the age of 65 and enrolled in Medicare by January 1, 2015, they would no longer be offered post-sixty five retirement benefits, which include a Medicare supplement prescription plan and life insurance plan. GE claims they had taken this action to remain competitive. Beginning in 2005, all newly hired GE employees were told that they would not be permitted to participate in the GE pension plan. Again, GE claims it was necessary to remain competitive.
When asked if the supplementary pension plan, a plan reserved for the privileged few would continue after January 1, 2005, the answer from GE was, yes, it was necessary to remain competitive. When GE was asked why they do not end the practice of phantom dividends, GE answer was, you guessed it, we need to be more competitive. Is it possible, Mr. Chairman, that the only way the General Electric Company can remain competitive is to take benefits away from employees and retirees who make design and sell GE products and give even more to among those of the 3 of you on the stage really. This past election season, we heard quite a bit about the makers and the takers.
I asked GE share owners to consider who at the GE company are truly the makers and who are the takers? Thank you.
Thanks, Kevin. Ms. Barelli?
Were you going to answer the question?
No. He had a proposal for the Board, so.
Good morning. It's Annin Baralian with FreedomWorks and shareholder. Mr. Immelt, GE has benefited from the fiscal cliff deal where there were wind production tax credits and GE has also taken comes to companies that are profitable, are turning a profit and issuing dividends?
Again, I we run a global company, globally competitive company. Our sales to the government are less than 3% of our total revenue. So we are 55% of our industrial company is outside the United States. So we try to compete and use the same rules of every other company in the U. S.
So by using our tax dollars, how dependent is the wind production? How dependent is the wind energy industry regarding general electric without government assistance? How dependent would that industry be?
Again, you need to our customers would be better off answering that question, but the cost of We
go to CEO.
Cost of no, our customers are the ones that really have the benefits there. Cost of electricity is probably 0 point 0 $7 or 0 point 0 $8 a kilowatt hour now.
Which is much more higher than it would be for
half of the revenue was outside the United States. So it will find its fit.
Wind energy products that you produce and you're gaining the benefit from the government propping up that industry, which clearly can't stand on its own, does General Electric highly depend on government support in order to produce those products and sell them?
Again, we make the products and we'll see where they fit in the market.
So you're not for free market you prefer government support?
Again, I just we make the technology.
We'll see where they fit. Thanks. Thank you. To support? Again,
I just we make the technology.
We'll see where they fit. Thanks. Thank you. We'll now move to the 6 shareowner proposals in the order that they appear on the agenda. We have 6 shareowner proposals being presented.
The first proposal asked the Board to seesaw executives' stock option and bonus programs and was submitted by Mr. Timothy Roberts of Louisville, Kentucky. The second proposal relates to director term limits and was submitted by Dennis Rochele of Fairfield, Connecticut. The third proposal requests that the Board have a policy that the Chairman and be an independent director and was submitted by the American Federation of State County and Municipal Employees. The 4th proposal relates to shareowner action by written consent was submitted by Mr.
William Steiner. The 5th proposal requested senior executives retain a a significant percentage of G shares until reaching retirement age was also submitted by Mr. Steiner. The 6th proposal relates to multiple candidate elections and was submitted by Mr. Martin Haringoza of Louisville, Kentucky.
We ask that the presenters can find their comments during this portion of the meeting to the subject matter of the proposal being presented. And we ask that the other speakers wait until all the sharing of proposals are presented before providing their comments. We will have an opportunity for discussion of other matters after we have finished the balloting and report on inspectors of election on the voting results. So let me begin with Mr. Timothy Roberts, who I believe is here today to present proposal number 1.
Mr. Roberts? Good morning. Good morning.
My name is Tim Roberts. It's great to be here. Please turn to the back of the annual report to the performance chart on page 143. The market is at near record highs, yet our stocks, our dividends and our earnings are trailing like a caboose. When the company underperforms the market, wholeness are paid.
This is accomplished by taking the company nearly bankrupt according to Forbes and claiming a slight recovery as an outperformance to the market. Purchasing agents can be told to beg GE suppliers to raise prices harming net income and performance to produce trading and recovery opportunity. Trading patterns show that both Mr. Welch and Mr. Immelt made enormous amounts of money on options and traded GE stock.
Collectively, they earned 100 of 1,000,000 doing this. Welch and Immelt become rich utilizing the shareholders as useful idiots. Their inside trading even if legal is outperforming the buy and hold shareholders. Shareholders do not have the same inside control and we lose money. Again, see the GE performance chart in page 143 in fine print.
Wells said to the Financial Times effectively that much of GE valuation was unsustainably driven by debt. Wells did not however return to the GE shareholders the 100 of millions he collected in creating that GE bubble. Wells and them will kept their money as shareholders lost their shirts. Again, see page 143. Given the size of the valuation declines and dividend declines and Wells' acknowledgment that debt driven profits are not sustainable, profit decreases should only offer salary increases when profits increase with debt simultaneously decreasing.
Increasing the profits by increasing debt continues insanity as Wells discussed in Financial Times. As my home address is on the proposal, I have received correspondence from several shareholders. All have been positive. One wrote that he lost both his shirt and his underwear. So shareholders, I urge you to make proxy recommendations and ask me if you need any help in doing so.
The proposal, the Board of Directors are requested to consider voting a cessation of all executive stock option programs and bonus programs. If you look at the chart on page 143, Mr. Emil, you see that $100 invested in the market becomes $109 You see $100 invested in the Dow becomes $114 Yet we see $100 invested in GE becomes $69 So this raises questions collectively for you Mr. Emil. Would you rather have $69 or $109 And how does $69 outperform $109 Will GE catch to the market beginning your tenure?
And why is the GE performance chart in the back of the book and not in the front of the book? And next year will you put the performance chart in the front of the book? And finally, can you chart the GE performance to the market since your tenure in the front of the annual report? Please vote yes for proposal number 1. Thank you.
Thank you.
I understand that Dennis Rossello will present proposal number 2. Dennis?
Thank you, gentlemen.
Contrary to the ad hominem argumentation of attorney Mueller and his associates at Gibson Dunn and Crutcher, this proposal is pure process and GE's obduracy is its wellspring. That said, I'll reserve my time for another matter.
Okay. I believe that Mr. John Keenan is here to present proposals number 3, 45. Mr. Keenan?
Yes.
Thank you. Fellow share owners and members of the Board, my name is John Keenan and I'm representing the Ask Me Employees Pension Plan and co filers Missionary Oblates, Congregation of the Sisters of Charity of the Incarnate Ward, Congregation of Divine Providence, Benedictine Sisters of Mount St. Scholastica and Benedictine Sisters of Virginia. I hereby move Sherwin to Proposal 3 asking the company to adopt a policy that the Chairman of the Board be an independent Director. We believe an independent Board Chair provides a better balance of power between the CEO and the Board and supports strong independent Board leadership and functioning.
The proposal boils down to preventing an inherent conflict of interest. It's the Board's job to monitor the CEO and the Chair's job to run the Board. The CEO is also the Chair, then he or she is effectively in charge of monitoring his or her own performance. We believe that independent Board leadership would be constructive here at General Electric, where our Chairman and CEO, Jeffrey Immelt, has served in both positions since 2000 and 1. And according to Forbes 2012 rankings of pay efficiencies for CEOs serving at least 6 years, Mr.
Immelt was named one of the worst CEOs for pay for performance, ranking 200 out of 206 for executives who delivered the most to shareholders relative to their total compensation. Our company states that according to the 2012 Spencer and Stewart Board Index report, 77% of the S and P 500 do not have an independent share. But saying everyone else is doing it does not make it right. And the Spencer Stewart surveys clearly indicate an increasing trend toward independent Board leadership in the U. S.
The same 2012 report found that 43% of S and P 500 Companies split the Chair and CEO roles, up from 35% in 2,007. It also shows 21% of boards now have a truly independent chair, up from which is more than double the 10% found in 2006. Our board argues that splitting the roles of Chair and CEO would have the consequences of making our management and governance processes less effective than they are today through undesirable duplication of work and in the worst case lead to a blurring of the clear lines of accountability and responsibility. We strongly disagree. Combining the positions clearly blurs the lines of accountability and responsibility.
It's the Board's job to provide oversight of the CEO and the Chair's job to run the When the CEO is also the Chair, as this case here, then he is effectively in charge of the oversight of his own performance, which is an obvious conflict. An independent Board Chair presents a culture shift to the U. S. Imperial CEO model, but this goes to the heart of corporate governance. Who runs the Board and what's the Board's role?
Is it to work on behalf of shareholders or work on behalf of the CEO? We maintain it should be to work on behalf of the shareholders. Proxy advisor Glass Lewis supports this proposal stating that an independent Chairman is better able to oversee the executives of a company and set a pro shareholder agenda without the management conflicts that CEO or other executive insiders often face leading to a more proactive and effective Board of Directors. We believe that independent Board leadership would be in shareholders' best interest and urge shareholders to vote for this proposal. Thank you.
Thank you.
Will you do number 4 and number 5 as well?
Thank you. We'll also do number 5. Great. On behalf of the proponent of Share Owner Proposal 4, I hereby move Share Owner Proposal 4 asking our company to provide the right to act by written consent. Thank you.
On to 5. On behalf of the proponent, I hereby move Share Owner Proposal 5 asking our company to implement a stock retention policy to require executives to retain 25% of shares gained through equity programs through retirement. The idea here is that by requiring our executives to hold their shares, this will better align executive interests with those of the shareholders. Thank you.
Thank you very much. I understand that on proposal number 6 will be presented by Martin Harangoso. Martin? Good morning.
My name is Martin Harangoso. I am grateful to be a shareholder. I love this company, people and products. I own more voting shares than more than half of your directors and directors' nominees. Eco Imagination is a proposal on proxy without spending $0.01 for postage.
General Electric, a $100,000,000,000 plus net asset company, 12 digits, growing to a historical market average will gain an additional 7 digits in 200 years making 19 digits. A one time 1% donation 17 digits would give each person today much more than $1,000,000 2 centuries of intelligent monetary growth can forever change the world financially, permanently eliminating millenniums of persistent poverty and illiteracy. No more biblical poor Lazarus. As Lazarus becomes a millionaire, the $1,000 shareholder becomes a deca billionaire. The pensioner is whole.
We can give the public this much. Today, we use more steel and build larger ships than ever. Yet one time largest shipbuilder Bethlehem Steel led by charming CEOs guided by rigorously directed cozy directors with impressive credentials went bankrupt as Warren Buffett did not build them out. Bethlehem Steel did not see its underperformance to market as an opportunity to harness the market until it could once again lead the market. It simply went bust.
Millenniums of commerce and centuries of equity growth teach us that debt free indexing should enable General Electric to permit perpetually grow exceeding 3 digits each century. All of history shows that any plan short of this will likely not achieve such growth. Something always goes wrong, somebody will borrow too much. Financial saviors as Buffett are rare. A U.
S. Housing crisis occurs when 99.2% of average Americans make good on their 30 year mortgages. Our Board likely all multimillionaires did not protect a dividend 6 months after doing so, promising to do so. Dividend cuts and share depreciation hurt the poor elderly widow much more than a wealthy director. Default on dividends.
We can lend to many nations, but borrow from none. Ellis Schroeder writes regarding Buffett's Berkshire Hathaway, the Board members may as well be Barbie Dolls. Buffett has criticized his ineffectiveness as a board member. Presidential elections on the other hand teach spirited competition. This creates the world's greatest economies.
Single candidate director election should be improved. My dear fellow shareholders, I bring a plan with a date to add 7 digits to the company's performance while reducing risk. If you like such a plan, you should vote for those directors that present a plan meeting such investment objectives in our report. This is recommended by Buffett's mentor, late Benjamin Grossbaum in security analysis. This requires a choice in director elections.
Please vote for multiple candidate elections proposal number 6. Thanks, Martin.
So let's move on to agenda item number 4, balloting. Remember, we'll provide an opportunity for discussion on other business matters in a few minutes, but balloting on the items in the proxy statement comes first. You'll find a ball on your seat. If you have a balloting ready to turn in, please hold it up and I'll ask the ushers to collect it. We'll make sure to get you there we go.
So while that's happening, let's move on to the next agenda item. I believe the inspectors of election are ready to announce the outcome of the voting. So let's go to the inspector's report. Mr. Michael Barbera of IVS Associates will be presenting the report on the inspectors.
Mr. Barber, do you have a report for us?
Mr. Chairman, the inspectors of election have completed initial tally of the votes cast at this meeting in person or by proxy. Proxies representing approximately 8,000,000,000,27,000,000 shares or 77.4% of the total shares eligible to vote were received. Other shares have been voted at this meeting by ballot or by proxy. On the basis of our initial count, the inspectors of the election announced the following results.
On the election of directors, each director received at least 5,200,000,000 favorable votes and all nominees have been elected. On the management proposals, the advisory approval of our named executives' compensation for 94.5 percent of shares voted against 5 point 5%. On the ratification of selection of independent registered public accounting firm for 97.4% of shares voted against 2.6%. On the share owner proposals, number 1, the cessation of all stock options and bonuses 4, 4.4 percent of shares voted against 95.6 percent. Director term limits 4, 5 point 9% of shares voted against 94.1 percent.
On the independent Chairman, 4, 24.7% of shares voted against 75.3%. The right to act by written consent for 21.7 percent of shares voted against 78.3%. Executives to retain significant stock for 20 a 0.1%. Mr. Chairman, this initial tally is subject to verification and the final tabulation may reflect small changes in the vote I have announced.
The final tabulation will be set forth in the formal report of the inspectors of election to the Secretary of the company, which will be made after the count has been verified. This concludes our report. Thank you.
This concludes the formal business of our annual meeting, but we now turn to questions and discussion on other business matters, which is agenda number 6. We've already heard comments on the issues raised in this year's proposal. So we'll try to give other share owners who have not spoken a chance to discuss the other matters which might be on their minds. If you wish to speak, please come to 1 of the 2 microphones and wait to be recognized. Please remember to give your name when you're recognized.
So is there anyone that would like to discuss an issue? Go to microphone number 2. Yes, sir.
Yes. Mr. Amelt, stockholders, I'm Ron Flowers. I'm President of the Retirees Association in Erie, Pennsylvania. We talked about some history today about how the company is making it pretty well.
They're painting a fairly rosy picture. But according to the information that the company gave the union in 2,006, The retirees 81,000 retirees hourly employees averaged $6.25 a month in a pension, while a surviving spouse is getting about $300 a month. These retirees received a structural increase in 2,007 and a 13th check-in 2011. Didn't do a whole lot for that $6.25 a month, but it was well accepted. Even with these, you can see they don't have a lot to live on.
The retirees groups across the country used to bring in proxies. We used to bring as a retirees group collect proxies and bring them in to be voted at the meeting. In 2006, I brought in almost 500,000 shares to be voted from 248 people. At the stock price at that time $40 they were worth over $19,000,000 Now this sounds like a lot of money. Wrong.
This was an average per retiree of 19 97 shares worth $79,880 per person at $40 a share. For this for many this was a total life savings. But this also gave them a quarterly income from their dividends of over $600 a quarter, dollars 2,400 a year. This could pay property taxes and many other things. This was money that they could count on.
So then what happened? Suddenly the stock was under $7 and their total savings went from $79,000 down to under $14,000 Now these are all averages, but these are the averages that the company reported to the union. Then the dividend went from $0.31 to a dime. When you're on a fixed income, a loss like this is devastating. The $2,400 they had counted on was suddenly under $800 How do they make up a 30% reduction in this income?
Over $600 they have no more. What do they do? They sell their stock at $7 a share, cut out essentials, get a job. The average age of one of my meetings is approximately 72 years old, so that option is out. I have been told that many of them sold the stock.
On top of that, they went for years without Social Security increase, but the cost of food, utilities and many other things still went up. So here we are 5 years after the crash and the company is almost back to normal, except for the stock of course. And everything is great. Everything is looking up. You have even said in recent press releases that you have up to $12,000,000,000 that's with a B, in cash and you're looking for investments.
Well, I have a suggestion. Why don't you invest in the people who built your company, your retirees? I can remember in the Erie plant in the mid-70s, the management, Rick Richardson, was in charge of the plant back then. He came to us and he says we have this modular locomotive that we want to put into production and see if we can take some of the share away from EMD. At that time, we had 15%.
By the mid-80s, we had 85% of the business like we do today and EMD had 15%. Now I got all around the plant in my job and I can never remember Reggie Jones or Jack Welch or any of the Board of Directors in that shop making locomotives. We made the locomotives. We turned it around. It was our sweat.
It was our labor that turned it around and made this company what there is today. So yes, we did that for you. Your retirees have not recovered. The devastation that happened in the crash is still affecting them. Your retirees were hit hard.
They need to be bolstered by a substantial structural raise in their pensions pointed towards the people with the smallest pensions. Help them out because they are the people that turned your company around.
Thanks, Ron. Thank you. Thanks, Ron. Microphone number 1. Yes, sir.
Good morning. My name is Justin Danhof. I'm representing the National Center For Public Policy Research. We're a free market think tank and a company shareholder. I appreciate the opportunity to speak with you today.
Mr. Immo, last September, the Milwaukee Business Journal reported that Obamacare's 2.3 percent excise tax on revenues of medical device companies could cost GE Healthcare Services between $100,000,000 $150,000,000 per year. GE is one of the largest lobbyists in the medical device arena and surely you recognize the market evils of this tax. Currently lawmakers from both sides of the political aisle support revoking it. They just differ on the means to do so.
I want to present you with a financially responsible proposal to accomplish repeal of the medical device excise tax and I hope you will support it. GE is the market leader in wind turbine production, a market that relies heavily on federal subsidies. The Joint Committee for Taxation estimates that the production tax credit for wind will cost the American taxpayers $7,800,000,000 between 2013 2017. However, some believe even some within the alternative energy industry that these subsidies are providing perverse incentives that hamper Wind Energy's true potential. Writing in the Wall Street Journal, Patrick Jenavan, CEO of the Dallas based Tang Energy Group explained quote, as long as these subsidies and tax credits exist, clean energy executives will likely spend most of their time pursuing advanced legal and accounting methods rather than investing in studies, innovation, new transmission technology and turbine development.
So would you support a financially responsible proposal that would repeal the medical device tax while simultaneously putting an end to federal wind subsidies? Doing so could save this company 100 of 1,000,000 in the coming years from the medical device tax and would help move wind energy towards true marketplace competitiveness? I'd like to hear what you have to think about that.
Really it's the first I've heard of it. It's interesting. I'm not going to commit one way or the other today. But I will tell you we'll continue to invest in R and D around wind turbines and we want to have the most efficient wind turbines that are available anywhere in the world. Thank you.
Kevin?
Yes. My name is Kevin Maher. I spoke before 19 years at the Annual Meeting. I'd just like to say that a moment of silence is in order for those people that were maimed in the Boston Marathon. The shirt I have on was worn, pension plan, which is what Ron was talking about.
So that was a tragedy in Boston. I just want to have a moment of silence. And just as the Board of Directors were brought up and they were introduced on what they have done for the company, I would ask for every GE retiree here to stand up because just as Ron said, we're the people that have made this company the company that it is.
And a round of applause.
And I want to thank you, Jeff, for attending that meeting we had in Fairfield, Connecticut. We've been having annual meetings with your team, John Lynch, Mike DeSantis and then you yourself attended the last time out. And in that process of talking about retiree problems, we actually have solved the number of GE problems that we by talking, we can get something done. So I'm looking forward to that kind of problem meeting again this year, and I hope you can make it. If you can, you can.
If you can't, you can't. But just like the hoists at the Boston Marathon, our retirees have the determination to increase benefits and pensions for GE retirees. Thank you. Thanks, Kevin.
Do we have Mike 1?
Yes. Yes, sir. My name is Joe Matteo and I'd just like your comments on the risks involved with attacks on your proprietary property in countries like China and what you're doing to mitigate those risks. How does that compare with domestic operations? Thank you.
Again, we believe in the right protection for intellectual property rights. We're very careful when we invest around the world in China and every other country. We believe our patent portfolio is critical to the future of the company. Dennis, let me turn you on Mike too.
Thank you, Jeff. I'm Dennis Rocheleau, Fairfield, Connecticut. According to Bill Frieda, one of the privileged few according to the recent proxy vote Mr. 5 0.9%. As much as I want to improve corporate governance, the character of GE as demonstrated by its treatment of its employees and retirees is of even greater importance to me.
As I wrote to you personally, Jeff, the company September announcement that it was breaking certain retirement healthcare benefit promises was deeply disturbing to me. I asked you for a seat at the table before I was put on the menu. Being a Florida nun, I have crashed this venue. The lawyer in me acknowledges that Section 5.4 of the 2012 benefits handbook for GE pensioner healthcare options at age 65 gives the company the right to amend the retiree healthcare plans for any reason. But the changes set forth in John Lynch's September 2012 letter are so dramatic and utterly surprising to some GE retirees and long service employees that I feel compelled to repeat the words of Edmund Burke that I quoted in a different context 5 years ago in Erie.
It is not what a lawyer tells me I may do, it is what humanity, reason and justice tell me I ought to do. The proposal led issue constitutes a sea change in company behavior contrary to all reasonable expectations and experience. It gives little consideration to recent retirees now left with no GE post-sixty five healthcare who made irreversible retirement and financial decisions based on the GE benefits described in their retirement papers, papers which made no reference to the possibility that this coverage could be terminated for any reason. That company executives would propose such actions and the Board would approve them is astonishing to me given the absence of a financial imperatives such as impending bankruptcy or several years of unprofitable performance or even wildly escalating healthcare expenses for the company. When the initial notice of this evisceration did not even attempt to quantify the financial impact on the average salaried employee or retiree and the concomitant enrichment of the company, I knew the news had to be very bad for current and future retirees.
That lack of courage, candor and transparency on the company's part was frankly insulting. A passion for cutting excessive costs is an admirable quality if honestly expressed and intelligently administered. But branding commitments to long service employees legacy costs does not give a company license to fleece retirees while countenancing the use of chartered or company aircraft to shadow the Global Express on certain international trips. Where is the competitiveness in that? I am fortunate enough to enjoy a substantial pension for which I worked for 36 years and I value every penny.
Being asked to shoulder an unanticipated $50,000 bill in additional future costs is something of considerable consequence to even me. For many other near and current retirees, the financial impact of losing coverage they counted on is much, much greater. In the case of some married future retirees who lose eligibility for retirement for retiree life insurance, the value is $125,000
or more.
If anyone here today would like a more vivid description of this pernicious nature of this change, Suffice it to say that the change which reduced the company's post retirement health and life benefit liability by $832,000,000 comes with a high personal price tag for each of thousands of current and future retirees. I believe I had earned my benefits, but I did not appreciate is how fragile a purchase I really had on them. Naively, I believe the mantra I mouthed on behalf of GE at the bargaining table over 3 decades to representatives of tens of thousands of employees and retirees, promises made by GE are promises kept. In retrospect, I did not perform as well as I thought I had. I failed to live up to my standard of being candid and forthright with union representatives whom I always respected even when I often disagreed with them.
Several efforts to establish a reasonable dialogue with the company about this decision, to understand the context and justification for it and to explore acceptable alternatives to it have been rejected. The protocols of fair treatment for loyal long term salaried employees that I believe should exist have been unceremoniously abandoned. In the eyes of many retirees to whom I have spoken, most of whom are shareholders, the company defaulted on its obligations, turned its back on its traditions and renounced its off stated integrity values. Accordingly, I would like very much to have answers to 3 questions, which in the interest of giving others the time to talk about issues of importance to them, I will submit to you in writing with the expectation of a reply. For now, I ask only this, where in your view does the process of benefits reduction logically end other than at the trust fund productive portion of our pensions?
Thank you. Thank you. Mike, number 1. Good morning. Greg Ronhard, shareholder, I think 3,800 shares.
Question for Mr. Sharon. Mr. Sharon, you're the one made a lot of statement regarding the dividend. Okay.
Will you acknowledge that dividend is not even close to what was paid in the Q4 of 2,008? That's correct. Okay. There's a lot of questions there. Okay.
I mean you've gone on about that the dividend is this. Doing this. We're doing that. Something is wrong if there's a cut and we've still not even been restored to what the original dividend was.
And we're still working on improving the performance of the company and growing the dividend as we grow those earnings.
Okay. And it does bring another question though. What were you doing with the business at the time that you would put it in that kind of a situation that the dividend gets whacked that hard and it still hasn't been restored?
We did have a significant Financial Services business and we ended up with a lot of stress in the financial crisis as did many others. I think we've come out of it stronger than almost anybody else and we've got a great business going forward.
Right. That's
what I'd asked you.
On the lobby. Right. I mean that's really the answer.
Okay. Well, there's another question though
regarding all that is the idea that okay as a capital allocator, which I am
I make different investments in different companies.
Raised
their dividend. So the question comes what was raised their dividend. So the question comes what was going on and what were you all doing that you could not continue the dividend?
I mean there's a lot of questions there of what We understand again. Okay. Financial crisis money went into GE Capital. We very much look forward to continue to increase the dividend. Okay.
Thank
you very much. Okay, Ron one more.
Just a quickie. I would be remiss if I didn't say something. The Erie plant of General Electric Company makes the best locomotives in the world. We have for a lot of years and about a year and a half ago, the company gave the Erie plant an award for being one of those most profitable long time contributors to the company. Along that same time that they gave this award, they said, oh yes, by the way, we've started building this plant in Texas to build locomotives.
But you don't have to worry because the only thing we're going to use this plant for is overflow if there's too much work for this Erie plant that does such a good job and makes us so much money. Well, about 3 weeks ago, they announced that, oh, yes, by the way, we're going to move the number one brand new line for locomotives out of Erie to Texas. That kind of sounds like you're speaking with a pork tongue. And I'm speaking for the membership in Erie when I'm saying it's wrong. This is our company.
The people in Erie that work for our company, we had 2,000 to 3000 people that rallied at the gate the other day. You are taking a known quantity, a known entity moving it to Texas and who knows what's going to happen after that. I believe it's wrong. I think it should stay right where it is. We need the 1,000 jobs that you say you're eliminating in Erie.
Thanks, Frank. Thank you. So again, thank you this morning. New Orleans has been a great host to the Shareholders' Meeting. We thank everybody for their time and attention this morning.
Again, we feel very good about how the company is positioned. Thanks for all of your great support. The meeting is adjourned. Thank you.