The Plastics business was hit particularly hard during these three years because of additional pressure from signifi cant infl ation in natural gas and certain raw materials such as benzene. As a result of these factors and the 2006 sales of GE Supply and Advanced Materials, we do not expect this segment to experience signifi cant growth in 2007. Overall, acquisitions contributed $3.9 billion, $9.6 billion and $12.3 billion to consolidated revenues in 2006, 2005 and 2004, respectively. Our consolidated earnings in 2006, 2005 and 2004 included approximately $0.5 billion, $0.9 billion and $1.2 billion, respectively, from acquired businesses. We integrate acquisitions as quickly as possible. Only revenues and earnings from the date we complete the acquisition through the end of the fourth follow- ing quarter are attributed to such businesses. Dispositions also affected our ongoing results through lower revenues of $2.6 billion, $2.0 billion and $3.0 billion in 2006, 2005 and 2004, respectively. This resulted in lower earnings of $0.1 billion in both 2006 and 2005 and $0.5 billion in 2004. Significant matters relating to our Statement of Earnings are explained below. INSURANCE EXIT. In 2006, we substantially completed our planned exit of the insurance businesses through the sale of the property and casualty insurance and reinsurance businesses and the European life and health operations of GE Insurance Solutions Corporation (GE Insurance Solutions) and the sale of GE Life, our U.K.-based life insurance operation, to Swiss Reinsurance Company (Swiss Re). Also during 2006, we completed the sale of our remaining 18% investment in Genworth Financial, Inc. (Genworth), our formerly wholly-owned subsidiary that conducted most of our consumer insurance business, including life and mortgage operations, through a secondary public offering. We reported the insurance businesses described above as discontinued operations for all periods presented. Unless otherwise indicated, we refer to captions such as revenues and earnings from continuing operations simply as “revenues” and “earnings” throughout this Management’s Discussion and Analysis. Similarly, discussion of other matters in our consolidated fi nancial statements relates to continuing operations unless otherwise indicated. WE DECLARED $10.7 BILLION IN DIVIDENDS IN 2006. Per-share dividends of $1.03 were up 13% from 2005, following an 11% increase from the preceding year. In December 2006, our Board of Directors raised our quarterly dividend 12% to $0.28 per share. We have rewarded our shareowners with over 100 consecutive years of dividends, with 31 consecutive years of dividend growth. 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. management’s discussion and analysis GE SALES OF PRODUCT SERVICES were $30.3 billion in 2006, a 12% increase over 2005. Increases in product services in 2006 and 2005 were widespread, led by continued strong growth at Infrastructure and Healthcare. Operating profit from product services was approximately $8.3 billion in 2006, up 19% from 2005, refl ecting ongoing improvements at Infrastructure and Healthcare. POSTRETIREMENT BENEFIT PLANS reduced pre-tax earnings by $2.3 billion, $1.7 billion and $1.2 billion in 2006, 2005 and 2004, respectively. Costs of our principal pension plans increased over the last three years primarily because of the effects of: • Prior years’ investment losses which reduced pre-tax earnings from the preceding year by $0.5 billion, $0.5 billion and $0.6 billion in 2006, 2005 and 2004, respectively, and • Lowering pension discount rates which reduced pre-tax earn- ings from the preceding year by $0.1 billion, $0.1 billion and $0.4 billion in 2006, 2005 and 2004, respectively. Considering 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 would be 8.5% throughout this period and in 2007. U.S. generally accepted accounting principles provide for recognition of differences between assumed and actual returns over a period no longer than the average future service of employees. We expect costs of our principal pension plans to stabilize in 2007. However, our labor agreements with various U.S. unions expire in June 2007, and we will be engaged in negotiations to attain new agreements. While results of the 2007 union negotia- tions cannot be predicted, our recent past negotiations have resulted in agreements that increased costs. Our principal pension plans had a surplus of $11.5 billion at December 31, 2006. We will not make any contributions to the GE Pension Plan in 2007. To the best of our ability to forecast the next five years, we do not anticipate making contributions to that plan as long as expected investment returns are achieved. At December 31, 2006, the fair value of assets for our other pension plans was $2.6 billion less than their respective projected benefi t obligations. We expect to contribute $0.6 billion to these plans in 2007, compared with $0.5 billion and $0.4 billion in 2006 and 2005, respectively. The funded status of our postretirement benefit plans and future effects on operating results depend on economic conditions and investment performance. See notes 6 and 7 for additional information about funded status, components of earnings effects and actuarial assumptions. See the Critical Accounting Estimates section for discussion of pension assumptions. GE OTHER COSTS AND EXPENSES are selling, general and adminis- trative expenses. These costs were 14.0%, 14.7% and 14.6% of total GE sales in 2006, 2005 and 2004, respectively. ge 2006 annual report 49

management’s discussion and analysis GE OPERATING PROFIT is earnings from continuing operations before interest and other financial charges, and income taxes. GE operating profit excluding the effects of pension costs was $15.5 billion in 2006, up from $13.6 billion in 2005 and $11.3 billion in 2004 (15.2%, 14.8% and 13.5% of GE industrial revenues in 2006, 2005 and 2004, respectively). The increase in 2006 operating profi t reflected higher productivity (principally Industrial and Healthcare), volume (Infrastructure) and prices (Infrastructure), partially offset by higher material and other costs across all segments. The increase in 2005 operating profi t reflected higher productivity (principally Healthcare and Infrastructure), volume (Infrastructure and NBC Universal) and prices (Industrial), partially offset by higher material and other costs across all segments. INTEREST ON BORROWINGS AND OTHER FINANCIAL CHARGES amounted to $19.3 billion, $15.1 billion and $11.6 billion in 2006, 2005 and 2004, respectively. Substantially all of our borrowings are through GECS, where interest expense was $18.1 billion, $14.2 billion and $11.1 billion in 2006, 2005 and 2004, respectively. Changes over the three-year period reflected increased average borrowings and increased interest rates. GECS average borrowings were $389.0 billion, $346.1 billion and $319.2 billion in 2006, 2005 and 2004, respectively. GECS average composite effective interest rate was 4.7% in 2006, compared with 4.2% in 2005 and 3.5% in 2004. Proceeds of these borrowings were used in part to fi nance asset growth and acquisitions. In 2006, GECS average assets of $514.5 billion were 9% higher than in 2005, which in turn were 7% higher than in 2004. See the Financial Resources and Liquidity section for a discussion of interest rate risk management. GECS BORROWINGS 2002 2003 2004 2005 2006 (In $ billions) 426 362 356 317 267 A. Senior notes B. Other C. Commercial paper D. Subordinated notes INCOME TAXES are a significant cost. As a global commercial enterprise, our tax rates are affected by many factors, including our global mix of earnings, legislation, acquisitions, dispositions and the tax characteristics of our income. Our tax returns are routinely audited and settlements of issues raised in these audits sometimes affect our tax provisions. Income taxes on consolidated earnings from continuing operations were 16.1% in 2006, compared with 17.8% in 2005 and 18.2% in 2004. Our consolidated income tax rate decreased from 2005 to 2006 as growth in lower-taxed earnings from global operations, including one-time tax benefits from non-U.S. tax net operating losses and the non-U.S. gain on disposition of the Advanced Materials business, exceeded 2005 tax benefi ts from a reorganization of our aircraft leasing business, a repatriation of non-U.S. earnings at a reduced rate of U.S. tax and favorable settlements with tax authorities. Our consolidated income tax rate was essentially unchanged in 2005 from 2004 because the 2005 tax benefits from a reorganization of our aircraft leasing business and from the growth in lower- taxed global operations were about the same as the 2004 tax benefits from favorable U.S. Internal Revenue Service (IRS) settle- ments, the NBC Universal combination, the 2004 reorganization of our aircraft leasing business and a lower tax rate on the sale of a portion of Genpact, our business process outsourcing operation. A more detailed analysis of differences between the U.S. federal statutory rate and the consolidated rate, as well as other informa- tion about our income tax provisions, is provided in note 8. The nature of business activities and associated income taxes differ for GE and for GECS and a separate analysis of each is presented in the paragraphs that follow. Because GE tax expense does not include taxes on GECS earnings, the GE effective tax rate is best analyzed in relation to GE earnings excluding GECS. GE pre-tax earnings from continuing operations excluding comparable GECS earnings were $12.8 billion, $11.9 billion and $10.4 billion for 2006, 2005 and 2004, respec- tively. On this basis, GE’s effective tax rate was 20.2% in 2006, 23.1% in 2005 and 19.0% in 2004. The decrease in the 2006 rate from 2005 was primarily attrib- utable to growth in lower-taxed earnings from global operations, including one-time tax benefits from non-U.S. net operating losses and the non-U.S. gain on the disposition of the Advanced Materials business. These benefits, which decreased the GE rate by 4.5 percentage points, are included in note 8 in the line “Tax on global activities including exports.” Partially offsetting these items was the lack of a counterpart to the 2005 repatriation of non-U.S. earnings at a reduced U.S. tax rate, discussed below (0.9 percentage points) and a decrease in benefits from favorable audit resolutions with tax authorities (0.8 percentage points). The effects of 2006 favorable audit resolutions are reflected in note 8 in the lines “All other — net” (0.8 percentage points) and “Tax on global activities including exports” (0.7 percentage points). The increase in the 2005 rate over the 2004 rate was primarily attributable to the lack of current-year counterparts to the 2004 settlements with the IRS and 2004 tax benefi ts associated with the NBC Universal combination, both discussed below, that together reduced the 2004 rate by 7.2 percentage points. Partially offsetting this increase were the favorable effects of a number of audit resolutions with taxing authorities and our 2005 repatriation of non-U.S. earnings at the reduced U.S. tax rate provided in 2004 legislation (together representing a 3.2 percentage point reduction of the GE tax rate). These 2005 tax benefits are reflected in note 8 in the lines “All other — net” (1.6 percentage points) and “Tax on global activities including exports” (1.6 percentage points). The 2004 GE rate reflects two items that decreased the rate by 7.2 percentage points — settling several issues with the IRS for the years 1985 through 1999 and tax benefi ts associated with the NBC Universal combination. As part of the IRS settlements, 50 ge 2006 annual report