management’s discussion and analysis that curve) and further assumed that the increase remained in place for 2007. We estimated, based on that year-end 2006 portfolio and holding everything else constant, that our 2007 GE consolidated net earnings would decline by $0.2 billion. • It is our policy to minimize currency exposures and to conduct operations either within functional currencies or using the protection of hedge strategies. We analyzed year-end 2006 consolidated currency exposures, including derivatives desig- nated and effective as hedges, to identify assets and liabilities denominated in other than their relevant functional currencies. For such assets and liabilities, we then evaluated the effects of a 10% shift in exchange rates between those currencies and the U.S. dollar. This analysis indicated that there would be an inconsequential effect on 2007 earnings of such a shift in exchange rates. Consolidated Statement of Changes in Shareowners’ Equity Shareowners’ equity increased by $3.0 billion and $31.2 billion in 2006 and 2004, respectively, and decreased by $1.6 billion in 2005. Changes over the three-year period were largely attributable to net earnings, partially offset by dividends declared of $10.7 billion, $9.6 billion and $8.6 billion in 2006, 2005 and 2004, respectively. In 2006, we purchased $7.8 billion of GE stock (229.4 million shares) and in 2005, we purchased $5.3 billion of GE stock (153.3 million shares) under our $25 billion share repurchase program. In 2004, we issued 341.7 million shares of stock in connection with the Amersham acquisition, which increased equity by $10.7 billion, and 119.4 million shares of stock to partially fund the combination of NBC and VUE, which increased equity by $3.8 billion. Currency translation adjustments increased equity by $3.6 billion in 2006 and $3.9 billion in 2004, compared with a $4.3 billion decrease in 2005. Changes in currency translation adjustments refl ect the effects of changes in currency exchange rates on our net invest- ment in non-U.S. subsidiaries that have functional currencies other than the U.S. dollar. As of December 31, 2006, the U.S. dollar was weaker than the pound sterling and the euro and slightly stronger than the Japanese yen. As of December 31, 2005, the U.S. dollar was stronger than the pound sterling, the euro and the Japanese yen. As of December 31, 2004, the pound sterling, the euro and to a lesser extent, Asian currencies were stronger than the U.S. dollar. See note 23. Accumulated currency translation adjustments affect net earnings only when all or a portion of an affiliate is disposed of or substantially liquidated. Overview of Our Cash Flow from 2004 through 2006 GE cash from operating activities (CFOA) is a useful measure of performance for our non-financial businesses and totaled $24.6 billion in 2006, $21.6 billion in 2005 and $15.2 billion in 2004. Generally, factors that affect our earnings — for example, pricing, volume, costs and productivity — affect CFOA similarly. However, while management of working capital, including timing of collections and payments and levels of inventory, affects operating results only indirectly, the effect of these programs on CFOA can be signifi cant. GE CUMULATIVE CASH FLOWS 2002–2006 2002 2003 2004 2005 2006 (In $ billions) 84 60 38 23 A. Cash flows from operating activities 10 B. Dividends paid C. Shares repurchased ($) Our GE Statement of Cash Flows shows CFOA in the required format. While that display is of some use in analyzing how various assets and liabilities affected our year-end cash positions, we believe that it is also useful to supplement that display and to examine in a broader context the business activities that provide and require cash. December 31 (In billions) 2006 2005 2004 Operating cash collections $ 98.2 $ 89.9 $ 81.6 Operating cash payments (83.4) (76.1) (69.5) Cash dividends from GECS 9.8 7.8 3.1 GE cash from operating activities $ 24.6 $ 21.6 $ 15.2 The most significant source of cash in CFOA is customer-related activities, the largest of which is collecting cash following a product or services sale. GE operating cash collections increased by $8.3 billion during both 2006 and 2005. These increases are consistent with the changes in comparable GE operating segment revenues, comprising Healthcare, NBC Universal and the industrial businesses of the Industrial and Infrastructure segments. Analyses of operating segment revenues discussed in the preceding Segment Operations section is the best way of understanding their customer-related CFOA. The most significant operating use of cash is to pay our suppliers, employees, tax authorities and others for the wide range of materials and services necessary in a diversifi ed global organization. GE operating cash payments increased by $7.3 billion in 2006 and by $6.6 billion in 2005, comparable to the increases in GE total costs and expenses. Dividends from GECS represented distribution of a portion of GECS retained earnings, including proceeds from certain business sales, and are distinct from cash from continuing operating activities within the financial services businesses, which increased in 2006 by $2.1 billion to $21.9 billion and decreased in 2005 by $0.7 billion to $19.8 billion. The amount we show in CFOA is the total dividend, including the normal dividend as well as any special dividends from excess capital primarily resulting from GECS business sales. ge 2006 annual report 61

management’s discussion and analysis Based on past performance and current expectations, in combination with the fi nancial flexibility that comes with a strong balance sheet and the highest credit ratings, we believe that we are in a sound position to grow dividends, continue making selective investments for long-term growth and, depending on proceeds from a potential business disposition, continue to execute our $25 billion share repurchase program. Contractual Obligations As defined by reporting regulations, our contractual obligations for future payments as of December 31, 2006, follow. Payments due by period 2008– 2009 2010– 2011 2012 and thereafter (In billions) Total 2007 Borrowings (note 18) $433.0 $172.2 $100.6 $55.1 $105.1 Interest on borrowings 98.0 17.0 25.0 15.0 41.0 Operating lease obligations (note 5) 6.6 1.3 2.1 1.4 1.8 Purchase obligations(a)(b) 72.0 47.0 15.0 7.0 3.0 Insurance liabilities (note 19)(c) 24.0 2.0 7.0 4.0 11.0 Other liabilities(d) 68.0 21.0 6.0 4.0 37.0 (a) Included all take-or-pay arrangements, capital expenditures, contractual commit- ments to purchase equipment that will be classified as equipment leased to others, software acquisition/license commitments, contractual minimum programming commitments and any contractually required cash payments for acquisitions. (b) Excluded funding commitments entered into in the ordinary course of business by our financial services businesses. Further information on these commitments and other guarantees is provided in note 29. (c) Included guaranteed investment contracts, structured settlements and single premium immediate annuities based on scheduled payouts, as well as those contracts with reasonably determinable cash flows such as deferred annuities, universal life, term life, long-term care, whole life and other life insurance contracts. (d) Included an estimate of future expected funding requirements related to our pension and postretirement benefit plans. Because their future cash outflows are uncertain, the following non-current liabilities are excluded from the table above: deferred taxes, derivatives, deferred revenue and other sundry items. See notes 21 and 27 for further information on certain of these items. Off-Balance Sheet Arrangements Before 2003, we executed securitization transactions using enti- ties sponsored by us and by third parties. Subsequently, we only have executed securitization transactions with third parties in the asset-backed commercial paper and term markets and we consolidated those we sponsored. Securitization entities held receivables secured by a variety of high-quality assets totaling $59.9 billion at December 31, 2006, down $1.9 billion during the year. Off-balance sheet securitization entities held $48.2 billion of that total, up $4.4 billion during the year. The remainder, in the consolidated entities we sponsored, decreased $6.3 billion during 2006, reflecting collections. We have entered into various credit enhancement positions with these securitization entities, includ- ing overcollateralization, liquidity and credit support agreements and guarantee and reimbursement contracts. We have provided for our best estimate of the fair value of estimated losses on such positions, $27 million at December 31, 2006. Debt Instruments, Guarantees and Covenants The major debt rating agencies routinely evaluate the debt of GE, GECS and GE Capital, the major borrowing affiliate of GECS. These agencies have given the highest debt ratings to GE and GE Capital (long-term rating AAA/Aaa short-term rating A–1+/P–1). One of our strategic objectives is to maintain these ratings, as they serve to lower our cost of funds and to facilitate our access to a variety of lenders. We manage our businesses in a fashion that is consistent with maintaining these ratings. GE, GECS and GE Capital have distinct business characteristics that the major debt rating agencies evaluate both quantitatively and qualitatively. Quantitative measures include: • Earnings and profitability, revenue growth, the breadth and diversity of sources of income and return on assets, • Asset quality, including delinquency and write-off ratios and reserve coverage, • Funding and liquidity, including cash generated from operating activities, leverage ratios such as debt-to-capital, market access, back-up liquidity from banks and other sources, composition of total debt and interest coverage, and • Capital adequacy, including required capital and tangible leverage ratios. Qualitative measures include: • Franchise strength, including competitive advantage and market conditions and position, • Strength of management, including experience, corporate governance and strategic thinking, and • Financial reporting quality, including clarity, completeness and transparency of all financial performance communications. GE Capital’s ratings are supported contractually by a GE commit- ment to maintain the ratio of earnings to fixed charges at a specified level as described below. During 2006, GECS paid $5.7 billion of special dividends to GE, of which $3.2 billion and $2.5 billion, respectively, were funded by the proceeds of the sale of GE Insurance Solutions and from the Genworth secondary public offerings. During 2006, GECS and GECS affiliates issued $82 billion of senior, unsecured long-term debt and $2 billion of subordinated debt. This debt was both fixed and floating rate and was issued to institutional and retail investors in the U.S. and 18 other global markets. Maturities for these issuances ranged from one to 60 years. We used the proceeds primarily for repayment of maturing long-term debt, but also to fund acquisitions and organic growth. We anticipate that we will issue approximately $75 billion of additional long-term debt during 2007. The ultimate amount we issue will depend on our needs and on the markets. We target a ratio for commercial paper not to exceed 35% of outstanding debt based on the anticipated composition of our assets and the liquidity profile of our debt. GE Capital is the most widely held name in global commercial paper markets. 62 ge 2006 annual report