letter to investors Execution and Financial Discipline Building a reliable growth company requires excellent execution around margin expansion, cash flow generation and the capital allocation required to achieve high returns. These results must be achieved with high levels of transparency and controllership. We must deliver to earn the “right” to invest. The core of our financial strength is the ability to generate excess cash. In 2007, we should generate $40 billion of cash from earnings, working capital reductions and potential divestitures. This is cash that will be available after we have invested in R&D, programming and capital expenditures. We allocate this cash with discipline. Our first priority is to pay your dividends. We are committed to return 50% of our earnings back to you in dividends. We reinvest 60% of our fi nancial ser- vices earnings to sustain their future growth. That still leaves $20 billion to drive industrial growth through acquisitions and to buy back stock. As I mentioned earlier, we like investing in the Company and have announced almost $15 billion of industrial acquisitions for 2007. We target every investment to achieve a 20% return over time. We should also complete our current $25 billion stock buyback program by 2008. Our return hit 18.4% in 2006, a 180 basis point improvement. We are on track to hit 20% by 2008. With a return of 20% and capital cost of 9%, our investments create signifi cant economic value. Any private equity firm would “die” for our unlevered returns. Another way we improve investor returns is through a detailed focus on margin expansion. GE’s operating profit rate hit 15.2% in 2006, a 40 basis point improvement from the previous year. We have targeted a 100 basis point improvement for 2007. We should achieve gains through improving the mix of our high-margin services, driving product line profi tability and lowering overhead costs. GE’s long-term commitment to services growth will benefi t our investors. Our services revenues were $30 billion in 2006 and are growing more than 10% annually. With margin rates of nearly 30%, services have a significantly positive impact on GE’s profitability, and should fuel our margin rate growth for many years. We drive a lean structure through our simplifi cation initiative. Our overhead costs have declined by $4 billion since 2004. We are consolidating backrooms, restructuring old facilities and reducing management layers. Corporate costs should decline 5% in 2007. This initiative still has years of opportunity ahead. We continue to use tools such as Lean, a process for reduc- ing cycle time, and Six Sigma to reduce working capital. Our Transportation business has reduced the cycle time needed to build a locomotive from 31 days to 26 days, with a target of 10 days. This has created 30% more capacity and reduced inventory by 30%. This business has an ROTC of 33%. Our financial services businesses are also very profi table. The returns in Commercial Finance and GE Money exceed 25%. We have great origination and excellent risk management, and our capital markets capability allows us to keep only the highest margin assets on our books. Risk management is an important skill at GE. We manage more than $560 billion of financial assets with losses less than the industry average. The GE Capital Board meets monthly, where we approve all our significant deals. Before each meeting, our Chief Risk Officer, Jim Colica, sends a memo to the Board refl ecting his views of each deal. I spend an hour alone with Jim to review each deal through his eyes. There is no “deal heat” in my conference room. Jim’s keen eye for detail has saved GE billions. We are committed to having transparent and high-quality earnings. By that, we mean earnings that convert into cash and are repeatable. Over the past five years, 100% of our earnings have been converted into cash. Meanwhile, we believe the com- bined impact of non-cash pension effects, gains, restructuring and changes in tax rate — financial elements that are a part of a company our size — basically offset each other over time. GE’s earnings are driven by our businesses, which should always be transparent and well understood by investors. A key part of our operating discipline is excellence in control- lership. While I am confident in our processes and culture, we did restate our earnings from 2001 to 2005 due to differing accounting interpretations between us, together with our auditors, and the U.S. Securities and Exchange Commission. The restatement did not have a significant impact on our financial position, but the outcome is unacceptable. We are strengthening our processes even further. Building a reliable growth company requires the generation of cash and the discipline to invest with high returns. It requires ongoing process excellence to improve margins and returns over time. Invest and deliver this is our responsibility and a “right” that we earn by executing over time. Growth as a Process We have invested in capabilities that create organic growth. These capabilities include investing in leadership technology and innovation, taking an enterprise approach to customers and positioning GE for global success. Over the past two years, our organic growth has averaged 8%, higher than our industrial and financial peers, and twice our historic average. Our focus on technology has created a pipeline of 40 “$1 billion- revenue products” that will be introduced in the next three years. This results in an installed base that should generate decades of services growth. Improving customer value has made the Company more externally focused. We are further enhancing customer value throughout the Company using Lean and Net Promoter Score (NPS), a tool to measure how customers view GE. We are increas- ing share through commercial excellence. Enterprise selling is creating accelerated growth in Commercial Finance, Healthcare, Infrastructure and NBCU. Our increased focus on globalization has transformed GE. Our global revenues should equal our U.S. revenues in 2007 and grow at 15% annually. Innovation has become mainstream. We should have 60 Imagination Breakthroughs generating $25 billion revenues in 2007, and we have another 90 in the pipeline. ge 2006 annual report 7

letter to investors Investing in growth capability allows the Company to deliver through economic cycles. Our Energy team, led by John Krenicki, is a dynamic example. They are growth leaders. As the U.S. power bubble came to an end in 2001, the future of our Energy business was uncertain. In 2001, 75% of Energy’s Power Generation earnings came from selling large gas turbines in the U.S. In 2007, this should be 2% of their earnings. Yet our business is booming. Why? Because we invested in technology and growth. Today, Energy has six products with revenues greater than $1 billion versus one in 2000. Because of a focus on environmental solutions, our lineup of renewable energy technologies is the largest in the world with $5 billion in revenues. This leadership in technology has created a large installed base generating $10+ billion of services revenues. We are using Lean and NPS to improve our performance. Energy’s customer outage cycle has improved 30%, and their parts repair cycle has improved 25%. Energy’s NPS with key utility customers has gained five points, showing increasing customer satisfaction. We enhanced our commercial excellence by taking an enterprise approach to customers. We have strengthened the coordination with our Energy Financial Services business to fully serve customer needs and improve investor returns. We can take a strategic approach to major projects like integrated water and power gen- eration in Saudi Arabia. We are the industry leader in innovation. We are investing more than $500 million in coal gasification and the next-generation nuclear boiling water reactor. These will be “workhorse” technologies as the world grapples with the need for low-cost power with reduced greenhouse gas emissions. These products could generate $10–$20 billion of orders over the next 10 years. Energy is winning globally, by aggressively redeploying assets to serve customers everywhere. We are operating in China, Russia and the Middle East. We have created a coal center of excellence in Poland. About 80% of our gas turbine orders in 2006 came from outside the U.S. We invested in a “growth team.” At Energy, Rick Stanley (Technology) and Dan Heintzelman (Services) are alumni of our Aviation business and recognize the importance of innovative technologies linked with services. Alex Urquhart is the long-time leader of Energy Financial Services with deep industry knowledge and customer contacts. Jim Suciu, Chi Choi and Ricardo Cordoba (Sales) are empowered to deliver for customers around the world. Jody Markopoulus (Sourcing) and Larry Blystone (Manufacturing) are reducing costs and fulfilling customer commitments. As a result, Energy is delivering. It is a $19 billion business, growing 16% organically. Because of our ability to invest and deliver, Energy is an innovation powerhouse with decades of growth ahead. At GE, we launch initiatives so that we can unleash our teams’ intellect to create shareowner value. Sometimes, it is diffi cult to see the value of our initiatives immediately. The story of our Energy business is tangible proof that our growth process is paying off. Growth as a Process Technology Customers Globalization Commercial Excellence Innovation Growth Leaders Execute for Growth Great People and Teams At the end of each training course that I teach at Crotonville, I give our team a challenge: return to work as a GE zealot or find a new job. It has never been more important for people to understand exactly why they work for a company. We value leaders who perform over time. As a result, we don’t have a lot of debates about short-term versus long-term performance. In the short term, we have a sense of mutual accountability. In other words, the businesses are committed to deliver for investors and for each other. Our “average hold” of a business is measured in decades. We do not “flip” assets. We are builders of businesses. This takes people who believe in teamwork and have pride in workmanship. We have a team that is focused on building a company that has enduring value and makes the world a better place. Our culture matches the expectations of long-term investors. 8 ge 2006 annual report