management’s discussion and analysis we closed two significant issues: the 1997 tax-free exchange of the Lockheed Martin convertible preferred stock we received on the disposition of our Aerospace business in 1993, and a 1998 tax loss on the sale of a Puerto Rican subsidiary. The tax portion of these settlements is included in the line “IRS settlements of Lockheed Martin tax-free exchange/Puerto Rico subsidiary loss” in note 8. The tax benefits associated with the NBC Universal combination are included in the line “All other — net” in note 8. GECS effective tax rate was 11.6% in 2006, compared with 11.9% in 2005 and 17.4% in 2004. The 2006 GECS rate was about the same as 2005 as growth in lower-taxed earnings from global operations was largely offset by a smaller benefi t on the reorganization, discussed below, of our aircraft leasing business. The increased benefits from lower-taxed earnings from global operations (2.4 percentage points) and the lower benefi ts from the reorganization of our aircraft leasing business (1.9 percentage points) are included in the line “Tax on global activities including exports” in note 8. The 2005 GECS rate reflects the net benefits, discussed below, of a reorganization of our aircraft leasing business and an increase in lower-taxed earnings from global operations. Together, these items more than account for the 7.2 percentage point decrease in rate from 2004 reflected in the line “Tax on global activities including exports” in note 8. Partially offsetting these benefi ts was the nonrecurrence of the benefits from 2004 favorable settlements with the IRS and the low-taxed disposition of a majority interest in Genpact. The lack of counterparts to these items increased the 2005 GECS tax rate by 1.7 percentage points. The favorable settlements with the IRS are included in the line “All other — net” and the benefit of the low-taxed disposition of a majority interest in Genpact is included in the line “Tax on global activities including exports” in note 8. As a result of the repeal of the extraterritorial income (ETI) taxing regime as part of the American Jobs Creation Act of 2004 (the Act), our aircraft leasing business no longer qualifies for a reduced U.S. tax rate. However, the Act also extended to aircraft leasing, the U.S. tax deferral benefits that were already available to other GE non-U.S. active operations. These legislative changes, coupled with a reorganization of our aircraft leasing business and a favorable Irish tax ruling, decreased the GECS effective tax rate 1.1 percentage points in 2006, compared with 3.0 and 1.6 percentage points in 2005 and 2004, respectively. Global Risk Management A disciplined approach to risk is important in a diversifi ed organization such as ours in order to ensure that we are executing according to our strategic objectives and that we only accept risk for which we are adequately compensated. It is necessary for us to manage risk at the individual transaction level, and to consider aggregate risk at the customer, industry, geography and collateral-type levels, where appropriate. The GE Board of Directors oversees the risk management process through clearly established delegation of authority. Board and committee meeting agendas are jointly developed with management to cover risk topics presented to our Corporate Risk Committee, including environmental, compliance, liquidity, credit and market risks. The GECS Board of Directors oversees the risk management process for financial services, and approves all signifi cant acqui- sitions and dispositions as well as borrowings and investments. All participants in the risk management process must comply with approval limits established by the Board. The GECS Chief Risk Officer is responsible, through the Corporate Risk Function, for establishing standards for the measurement, reporting and limiting of risk for managing and evaluating risk managers for approving risk management policies and for reviewing major risk exposures and concentrations across the organization. The GECS Corporate Risk Function analyzes certain business risks and assesses them in relation to aggregate risk appetite and approval limits set by the GECS Board of Directors. Threshold responsibility for identifying, quantifying and miti- gating risks is assigned to our individual businesses. We employ proprietary analytic models to allocate capital to our fi nancing activities, to identify the primary sources of risk and to measure the amount of risk we will take for each product line. This approach allows us to develop early signals that monitor changes in risk affecting portfolio performance and actively manage the portfolio. Other corporate functions such as Financial Planning and Analysis, Treasury, Legal and our Corporate Audit Staff support business- level risk management. Businesses that, for example, hedge financial risk with derivative financial instruments must do so using our centrally-managed Treasury function, providing assurance that the business strategy complies with our corporate policies and achieves economies of scale. We review risks periodically with business-level risk managers, senior management and our Board of Directors. GECS employs about 18,000 dedicated risk professionals, including 11,400 involved in collection activities and 680 special- ized asset managers who evaluate leased asset residuals and remarket off-lease equipment. GE and GECS manage a variety of risks including liquidity, credit and market risks. • Liquidity risk is the risk of being unable to accommodate liability maturities, fund asset growth and meet contractual obligations through access to funding at reasonable market rates. Additional information about our liquidity and how we manage this risk can be found in the Financial Resources and Liquidity section and in notes 18 and 27. ge 2006 annual report 51

management’s discussion and analysis • Credit risk is the risk of financial loss arising from a customer or counterparty failure to meet its contractual obligations. We face credit risk in our lending and leasing activities (see the Financial Resources and Liquidity and Critical Accounting Estimates sections and notes 1, 13, 14 and 29) and derivative financial instruments activities (see note 27). • Market risk is the potential loss in value of investment and other asset and liability portfolios, including fi nancial instruments and residual values of leased assets. This risk is caused by changes in market variables, such as interest and currency exchange rates and equity and commodity prices. We are exposed to market risk in the normal course of our business operations as a result of our ongoing investing and funding activities. Additional information can be found in the Financial Resources and Liquidity section and in notes 15 and 27. Other risks include natural disasters, availability of necessary materials, guarantees of product performance and business interruption. These types of risks are often insurable, and success in managing these risks is ultimately determined by the balance between the level of risk retained or assumed and the cost of transferring risk to others. Segment Operations Operating segments comprise our six businesses focused on the broad markets they serve: Infrastructure, Commercial Finance, GE Money, Healthcare, NBC Universal and Industrial. For segment reporting purposes, certain GECS businesses are included in the industrial operating segments that actively manage such businesses and report their results for internal performance measurement purposes. These include Aviation Financial Services, Energy Financial Services and Transportation Finance reported in the Infrastructure segment, and Equipment Services reported in the Industrial segment. SEGMENT REVENUES 2002 2003 2004 2005 2006 (In $ billions) 159 144 130 108 108 A. Infrastructure B. Commercial Finance C. GE Money D. Healthcare E. NBC Universal F. Industrial Segment profit is determined based on internal performance measures used by the Chief Executive Officer to assess the performance of each business in a given period. In connection with that assessment, the Chief Executive Officer may exclude matters such as charges for restructuring rationalization and other similar expenses in-process research and development and certain other acquisition-related charges and balances technology and product development costs certain gains and losses from dispositions and litigation settlements or other charges, respon- sibility for which preceded the current management team. SEGMENT PROFIT 2002 2003 2004 2005 2006 (In $ billions) 26.3 23.4 19.6 18.2 17.5 A. Infrastructure B. Commercial Finance C. GE Money D. Healthcare E. NBC Universal F. Industrial Segment profit always excludes the effects of principal pension plans, results reported as discontinued operations and accounting changes. Segment profit excludes or includes interest and other financial charges and income taxes according to how a particular segment’s management is measured — excluded in determining segment profit, which we refer to as “operating profi t,” for Healthcare, NBC Universal and the industrial businesses of the Infrastructure and Industrial segments included in determining segment profit, which we refer to as “net earnings,” for Commercial Finance, GE Money, and the financial services businesses of the Infrastructure segment (Aviation Financial Services, Energy Financial Services and Transportation Finance) and the Industrial segment (Equipment Services). In addition to providing information on segments in their entirety, we have also provided supplemental information for certain businesses within the segments. We have reclassified certain prior-period amounts to conform to the current period’s presentation. For additional information about our segments, see note 26. 52 ge 2006 annual report