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

management’s discussion and analysis We believe that alternative sources of liquidity are suffi cient to permit an orderly transition from commercial paper in the unlikely event of impaired access to those markets. Funding sources on which we would rely would depend on the nature of such a hypothetical event, but include $59.9 billion of contractually committed lending agreements with 75 highly-rated global banks and investment banks. Total credit lines extending beyond one year increased $2.7 billion to $59.8 billion at December 31, 2006. See note 18. Beyond contractually committed lending agreements, other sources of liquidity include medium and long-term funding, monetization, asset securitization, cash receipts from our lending and leasing activities, short-term secured funding on global assets and potential sales of other assets. PRINCIPAL DEBT CONDITIONS are described below. The following conditions relate to GE and GECS: • Swap, forward and option contracts are required to be exe- cuted under master-netting agreements containing mutual downgrade provisions that provide the ability of the counter- party to require assignment or termination if the long-term credit rating of either GE or GECS were to fall below A–/A3. Had this provision been triggered at December 31, 2006, we could have been required to disburse $2.9 billion. • If GE Capital’s ratio of earnings to fixed charges, which was 1.64:1 at the end of 2006, were to deteriorate to 1.10:1, GE has committed to contribute capital to GE Capital. GE also guaranteed certain issuances of GECS subordinated debt having a face amount of $0.8 billion and $1.0 billion at December 31, 2006 and 2005, respectively. The following conditions relate to consolidated, liquidating securitization entities: • If the short-term credit rating of GE Capital or certain consoli- dated, liquidating securitization entities discussed further in note 28 were to be reduced below A–1/P–1, GE Capital would be required to provide substitute liquidity for those entities or provide funds to retire the outstanding commercial paper. The maximum net amount that GE Capital would be required to provide in the event of such a downgrade is determined by contract, and amounted to $8.0 billion at January 1, 2007. Amounts related to non-consolidated SPEs were $0.6 billion. • Under terms of other agreements in effect at December 31, 2006, specified downgrades in the credit ratings of GE Capital could cause us to provide up to $1.1 billion of funding. One group of consolidated SPEs holds high quality investment securities funded by the issuance of guaranteed investment contracts (GICs). If the long-term credit rating of GE Capital were to fall below AA–/Aa3 or its short-term credit rating were to fall below A–1+/P–1, GE Capital could be required to provide up to $4.7 billion of capital to such entities. In our history, we have never violated any of the above con- ditions either at GE, GECS or GE Capital. We believe that under any reasonable future economic developments, the likelihood that any such arrangements could have a significant effect on our operations, cash flows or financial position is remote. Critical Accounting Estimates Accounting estimates and assumptions discussed in this section are those that we consider to be the most critical to an under- standing of our financial statements because they inherently involve significant judgments and uncertainties. For all of these estimates, we caution that future events rarely develop exactly as forecast, and the best estimates routinely require adjustment. Also see note 1, Summary of Significant Accounting Policies, which discusses accounting policies that we have selected from acceptable alternatives. LOSSES ON FINANCING RECEIVABLES are recognized when they are incurred, which requires us to make our best estimate of probable losses inherent in the portfolio. Such estimate requires consideration of historical loss experience, adjusted for current conditions, and judgments about the probable effects of relevant observable data, including present economic conditions such as delinquency rates, financial health of specific customers and market sectors, collateral values, and the present and expected future levels of interest rates. Our risk management process, which includes standards and policies for reviewing major risk exposures and concentrations, ensures that relevant data are identified and considered either for individual loans or leases, or on a portfolio basis, as appropriate. Our lending and leasing experience and the extensive data we accumulate and analyze facilitate estimates that have proven reliable over time. Our actual loss experience was in line with expectations for 2006, 2005 and 2004. While prospective losses depend to a large degree on future economic conditions, we do not anticipate significant adverse credit development in 2007. Further information is provided in the Financial Resources and Liquidity — Financing Receivables section, the Asset Impairment section that follows and in notes 1, 13 and 14. REVENUE RECOGNITION ON LONG-TERM AGREEMENTS to provide product services (product services agreements) requires estimates of profits over the multiple-year terms of such agreements, considering factors such as the frequency and extent of future monitoring, maintenance and overhaul events the amount of personnel, spare parts and other resources required to perform the services and future billing rate and cost changes. We routinely review estimates under product services agreements and regularly revise them to adjust for changes in outlook. We also regularly assess customer credit risk inherent in the carrying amounts of receivables and contract costs and estimated earnings, including the risk that contractual penalties may not be sufficient to offset our accumulated investment in the event of customer termina- tion. We gain insight into future utilization and cost trends, as well as credit risk, through our knowledge of the installed base of equipment and the close interaction with our customers that comes with supplying critical services and parts over extended periods. Revisions that affect a product services agreement’s total estimated profitability result in an immediate adjustment of earnings. We provide for probable losses. ge 2006 annual report 63