An energized and accountable team.

One of the challenges of leadership in tough times is keeping your team realistic in the present and optimistic about the future. The pre-crisis business rules are gone forever. In their place are different challenges like resourcing for growth in emerging markets, working with global governments and adapting to economic volatility.

Evolving leadership is a strength for GE. We learn constantly from success and failure, and we use what we learn to educate our leaders. For example, we learned important lessons about risk and liquidity management over the past 18 months. In the next few years, we will intensify development of leaders who will thrive in the future.

One way to rejuvenate leadership is to learn from others. We sent 30 of our best leaders to more than 100 major institutions to learn how they are training for the future. We visited Google, West Point, MIT and other institutions around the world.

This is what we have learned, and what we will teach: Leaders must be better listeners; we must be comfortable with ambiguity; we must inspire by example and vision; we must move with competence and speed; and we must respect people and connect with society. The bottom line is that people have different expectations for leaders.

At the same time, when leaders come together in their business teams, they must execute better than ever. We plan to send our top business units through a team-based course called “Leadership Innovation and Growth.” They will focus on operational execution, organic investment and anticipating change. We aim to develop a new generation of leaders who will power the most competitive company in the world.

Our leaders’ measurements and compensation will be further aligned with investors. In 2010, we will have a long-term incentive plan using four key metrics: 2010–12 cumulative earnings-per-share, where targets will reflect the attractive financial profile I described earlier; cumulative industrial cash generation, which provides the capability to grow our dividend in line with earnings; industrial return on total capital goals, which would keep GE on a level with other highly valued companies and reflect effective capital allocation; and GE Capital ending net investment consistent with our vision of a smaller, more focused financial services business. Achieving these goals will create a more valuable company.

Intensifying efforts to grow leaders, incorporating external perspectives, operationalizing learning and further aligning incentives with investor interests — that’s how GE is energizing leadership for the 21^st century.

Attractive growth in earnings, cash and returns.

We expect 2010 earnings to be flat with 2009. In 2011 and beyond, we expect GE to generate solid earnings growth, even if the economic recovery is uneven. We will achieve this growth while generating substantial “free cash” that could further enhance investor returns.

Infrastructure earnings should continue to be strong. We won many big global orders in 2008–09 and face the future with $175 billion in backlog, a record high. We have a full pipeline of new products. And product services, which account for more than 70% of our infrastructure profitability, will continue to grow. By 2011, we should see earnings growth from both equipment and services.

Productivity and cost control will be important. Since 2008, we have invested about $3 billion in restructuring. We have closed more than 400 facilities, while creating a leaner and more agile company. We are on track to reduce working capital by $5 billion in 2009–10. We remain near the top of our industrial peers in margins and returns.

In the near future, we expect to earn a full return on investment in GE Capital, with annual profit growing substantially in the next few years. Regardless of how financial regulation evolves, there will be great demand for strong lenders that can help companies grow.

Capital Finance earned $2.3 billion in 2009 and should strengthen during 2010. Earnings could experience a significant “bounce back” in 2011. Our credit costs in 2009–10 are about three times those in the last few years. But it appears that nonearning assets have peaked and losses will be declining substantially over the next year or two. At the same time, margins on new business remain strong.

We should have more than $25 billion of cash at the GE parent during 2010, including cash from internal generation and the impact of announced divestitures. In addition, this cash will grow in line with profits each year and could be even greater as we restore the GE Capital dividend in the future.

We plan to allocate capital for acquisitions to build out our strong infrastructure franchise and grow our dividend in line with earnings. Over time, we may buy back stock. We will be disciplined, patient and committed to improving long-term returns.

We worked hard during the crisis to prepare the Company for the future. We are emerging as a “Renewed GE,” a company that is more competitive and positioned for long-term growth.

Business Accountability

My job is to run GE. But we all have responsibilities to our country, and there are times when CEOs need to speak up about practices that are not in the best interests of the United States and our free market economy, that great engine of prosperity. A recent Gallup poll showed that only 13% of Americans trust big business, while more than 40% have no confidence in its integrity and competence.

When citizens distrust big business, governments will follow suit. We can find ourselves in a sort of “dark cycle,” where the people who can make our economy better are considered its worst enemies. The rallying cry becomes, “Why can’t you clowns just create some jobs?” That is where we are today, both in this country and in much of the developed world. I fear that if we don’t improve the mood in our country, populism will turn to protectionism, to the great detriment of us all.

Americans are angry. People around the world are angry. But anger is not a strategy. The only strategy we can have as a country is to create more growth. And GE will continue to be a tough-minded and optimistic growth company.

GE wants to help lead an American growth renewal. We are investing more in technology than at any time in our history. We are rebuilding manufacturing capability. We are selling our products in every corner of the world. We are one of the country’s biggest exporters, with $18 billion in export-related revenue. We are financing small and medium-sized companies and working with them to grow their businesses.

We will add nearly 1,200 jobs in Michigan over the next decade to accelerate our capacity in manufacturing. And, we committed to add almost 1,000 jobs in Louisville, Kentucky, to make the next generation of smart appliances. Similarly, we created valuable manufacturing jobs in Mississippi, South Carolina, Ohio and other regions across the country. We have decided to double our on-campus hiring in the 2010 recruitment cycle versus the previous year.

We are doing this despite the fact that more than half of our revenue is generated outside the United States. Why? Because a confident America is important for globalization to continue; and globalization is important for economic growth; and economic growth is important for GE to succeed. In the future, companies must “earn the right” to globalize. It can’t be taken for granted.

I know GE can make a difference to the American economy and innovation; we can also make a difference by the example that we set. We want to be a company that is always getting better. A company that understands where it fits in markets and in society — and appreciates its responsibility to both. A company that makes better the great nation that made possible its success.

I am proud to work at GE, and I love our team. We are beginning a renewal that should be financially attractive to investors, while positioning GE to lead and our shareowners to prosper as new systems and values for the global economy are created. We are grateful for your support, and we will prove ourselves worthy of your trust.

Jeffrey R. Immelt
Chairman of the Board
and Chief Executive Officer
February 19, 2010