management’s discussion and analysis Environmental Matters Our operations, like operations of other companies engaged in similar businesses, involve the use, disposal and cleanup of substances regulated under environmental protection laws. We are involved in a sizable number of remediation actions to clean up hazardous wastes as required by federal and state laws. Such statutes require that responsible parties fund reme- diation actions regardless of fault, legality of original disposal or ownership of a disposal site. Expenditures for site remediation actions amounted to $0.2 billion in 2006 and $0.1 billion in both 2005 and 2004. We presently expect that such remediation actions will require average annual expenditures in the range of $0.2 billion to $0.3 billion over the next two years. The U.S. Environmental Protection Agency (EPA) ruled in February 2002 that approximately 150,000 pounds of polychlori- nated biphenyls (PCBs) must be dredged from a 40-mile stretch of the upper Hudson River in New York state. On November 2, 2006, the U.S. District Court for the Northern District of New York approved a consent decree entered into between GE and the EPA that represents a comprehensive framework for implementation of the EPA’s 2002 decision to dredge PCB-containing sediments in the upper Hudson River. The dredging will be performed in two phases with an intervening peer review of performance after phase 1. Under this consent decree, we have committed up to $0.1 billion to reimburse the EPA for its past and future project oversight costs and agreed to perform the first phase of dredging. We further committed that, subject to future agreement with the EPA about completion of dredging after completion of phase 1 and the peer review, we will be responsible for further costs, including costs of phase 2 dredging. Our Statement of Financial Position as of December 31, 2006 and 2005, included liabilities for the estimated costs of this remediation. Financial Resources and Liquidity This discussion of financial resources and liquidity addresses the Statement of Financial Position, the Statement of Changes in Shareowners’ Equity, the Statement of Cash Flows, Contractual Obligations, Off-Balance Sheet Arrangements, and Debt Instruments, Guarantees and Covenants. The fundamental differences between GE and GECS are reflected in the measurements commonly used by investors, rating agencies and financial analysts. These differences will become clearer in the discussion that follows with respect to the more significant items in the fi nancial statements. Overview of Financial Position Major changes in our financial position resulted from the following: • During 2006, we substantially completed our insurance exit, which reduced assets and liabilities of discontinued opera- tions by $61.1 billion and $49.1 billion, respectively. • During 2006, we completed the acquisitions of ZENON Environmental Inc. at Infrastructure IDX Systems Corporation and Biacore International AB at Healthcare iVillage Inc. at NBC Universal Banque Artesia Nederland N.V., Arden Realty, Inc., the custom fleet business of National Australia Bank Ltd., and the senior housing portfolios of Formation Capital LLC at Commercial Finance and the private-label credit card portfolio of Hudson’s Bay Company at GE Money. • The U.S. dollar was weaker at December 31, 2006, than it was at December 31, 2005, increasing the translated levels of our non-U.S. dollar assets and liabilities. Overall, on average, the U.S. dollar in 2006 was slightly stronger than during the comparable 2005 period stronger in the first half and weaker in the second half of the year. Depending on the timing of our non-U.S. dollar operations, this resulted in either decreasing or increasing the translated levels of our operations as noted in the preceding Operations section. Statement of Financial Position Because GE and GECS share certain significant elements of their Statements of Financial Position — property, plant and equipment and borrowings, for example — the following discussion addresses significant captions in the “consolidated” statement. Within the following discussions, however, we distinguish between GE and GECS activities in order to permit meaningful analysis of each individual consolidating statement. INVESTMENT SECURITIES comprise mainly investment-grade debt securities supporting obligations to annuitants and policyholders. Investment securities were $47.8 billion at December 31, 2006, compared with $42.1 billion at December 31, 2005. We regularly review investment securities for impairment based on both quantitative and qualitative criteria. Quantitative criteria include length of time and amount that each security is in an unrealized loss position and, for fixed maturities, whether the issuer is in compliance with terms and covenants of the security. Qualitative criteria include the financial health of and specific prospects for the issuer, as well as our intent and ability to hold the security to maturity or until forecasted recovery. Our impairment reviews involve our finance, risk and asset management teams as well as the portfolio management and research capabilities of our internal and third-party asset managers. Our qualitative review attempts to identify those issuers with a greater than 50% chance of default in the following 12 months. These securities are characterized as “at-risk” of impairment. Of investment securities with unrealized losses at December 31, 2006, an insignificant amount was at risk of being charged to earnings in the next 12 months. Impairment losses for both 2006 and 2005 totaled $0.1 billion. We recognized impairments in both periods for issuers in a variety of industries we do not believe that any of the impairments indi- cate likely future impairments in the remaining portfolio. Gross unrealized gains and losses totaled $2.9 billion and $0.3 billion, respectively, at December 31, 2006, compared with $2.3 billion and $0.5 billion, respectively, at December 31, 2005, primarily reflecting an increase in the estimated fair value of equity securities, partially offset by a decrease in the estimated fair value of debt securities as interest rates increased. At December 31, 2006, available 2007 accounting gains could be as much as $1.7 billion, net of consequential adjustments to certain insurance assets that are amortized based on anticipated 58 ge 2006 annual report

gross profits. The market values we used in determining unrealized gains and losses are those defined by relevant accounting standards and should not be viewed as a forecast of future gains or losses. We also hold collateralized investment securities issued by various airlines, including those operating in bankruptcy. Total amortized cost and fair value of these securities were $0.7 billion at December 31, 2006. Unrealized losses associated with securities in an unrealized loss position for more than 12 months were insignificant, an improvement from the comparable $0.1 billion a year earlier. All of these securities have remained current on all payment terms we do not expect the borrowers to default. Current appraised market values of associated aircraft collateral exceeded both the market value and the amortized cost of our related securities at December 31, 2006, offering protection in the event of foreclosure. Therefore, we expect full recovery of our investment as well as our contractual returns. See note 10. WORKING CAPITAL, representing GE inventories and receivables from customers, less trade payables and progress collections, was $7.6 billion at December 31, 2006, down $0.8 billion from December 31, 2005. We discuss current receivables and inventories, two important elements of working capital, in the following paragraphs. CURRENT RECEIVABLES for GE amounted to $14.3 billion at the end of 2006 and $15.1 billion at the end of 2005, and included $9.1 billion due from customers at the end of 2006 compared with $10.3 billion at the end of 2005. Turnover of customer receivables from sales of goods and services was 10.6 in 2006, compared with 9.0 in 2005. Other current receivables are primarily amounts that did not originate from sales of GE goods or services, such as advances to suppliers in connection with large contracts. The allowance for losses decreased $0.3 billion in 2006, primarily reflecting write-offs of receivables for which losses were previously provided. See note 11. INVENTORIES for GE amounted to $11.3 billion at December 31, 2006, up $1.0 billion from the end of 2005. This increase refl ected higher inventories at Infrastructure, which is in line with anticipated growth. GE inventory turnover was 8.3 in both 2006 and 2005. See note 12. FINANCING RECEIVABLES is our largest category of assets and represents one of our primary sources of revenues. The portfolio of financing receivables, before allowance for losses, was $338.9 billion at December 31, 2006, and $292.2 billion at December 31, 2005. The related allowance for losses at December 31, 2006, amounted to $4.7 billion, compared with $4.6 billion at December 31, 2005, representing our best estimate of probable losses inherent in the portfolio. The 2006 increase reflected overall growth in our portfolio at GE Money and late- year weakening of the U.S. dollar, primarily at GE Money partially offset by overall improvement in portfolio quality at Commercial Finance and lower losses on commercial aviation loans and leases in our Infrastructure segment. Balances at December 31, 2006 and 2005, included securitized, managed GE trade receivables of $6.0 billion and $3.9 billion, respectively. management’s discussion and analysis A discussion of the quality of certain elements of the fi nanc- ing receivables portfolio follows. For purposes of that discussion, “delinquent” receivables are those that are 30 days or more past due and “nonearning” receivables are those that are 90 days or more past due (or for which collection has otherwise become doubtful). Commercial Finance fi nancing receivables, before allowance for losses, totaled $153.2 billion at December 31, 2006, compared with $131.8 billion at December 31, 2005, and consisted of loans and leases to the equipment and leasing, commercial and industrial and real estate industries. This portfolio of receivables increased primarily from core growth ($58.3 billion), acquisitions ($5.6 billion), and late-year weakening of the U.S. dollar ($2.4 billion), partially offset by securitizations and sales ($42.8 billion). Related nonearning receivables were $1.6 billion (1.0% of outstanding receivables) at December 31, 2006, and $1.3 billion (1.0% of outstanding receivables) at year-end 2005. Commercial Finance financing receivables are generally backed by assets and there is a broad spread of geographic and credit risk in the portfolio. GE Money financing receivables, before allowance for losses, were $156.7 billion at December 31, 2006, compared with $130.1 billion at December 31, 2005, and consisted primarily of card receivables, installment loans, auto loans and leases, and residential mortgages. This portfolio of receivables increased primarily as a result of core growth ($17.7 billion), late-year weakening of the U.S. dollar ($8.2 billion) and acquisitions ($3.2 billion), partially offset by loans transferred to assets held for sale ($2.5 billion). Related nonearning receivables were $3.3 billion at December 31, 2006, compared with $2.8 billion at December 31, 2005, both representing 2.1% of outstanding receivables. The increase was primarily related to the weaker U.S. dollar at the end of the year and overall growth in the portfolio. Infrastructure financing receivables, before allowance for losses, were $21.2 billion at December 31, 2006, compared with $19.1 billion at December 31, 2005, and consisted primarily of loans and leases to the commercial aircraft and energy industries. Related nonearning receivables were insignificant at December 31, 2006 and 2005. Other financing receivables, before allowance for losses, were $7.8 billion and $11.2 billion at December 31, 2006, and December 31, 2005, respectively, and consisted primarily of financing receivables in consolidated, liquidating securitization entities. This portfolio of receivables decreased because we have stopped transferring assets to these entities. Related non- earning receivables at December 31, 2006, were $0.1 billion (1.1% of outstanding receivables) compared with $0.1 billion (0.7% of outstanding receivables) at December 31, 2005. Delinquency rates on managed Commercial Finance equipment loans and leases and managed GE Money fi nancing receivables follow. December 31 2006 2005 2004 Commercial Finance 1.22% 1.31% 1.40% GE Money 5.05 5.08 4.85 ge 2006 annual report 59