Management’s Discussion and Analysis Operations: Global Operations

Our global activities span all geographic regions and primarily encompass manufacturing for local and export markets, import and sale of products produced in other regions, leasing of aircraft, sourcing for our plants domiciled in other global regions and provision of financial services within these regional economies. Thus, when countries or regions experience currency and/or economic stress, we often have increased exposure to certain risks, but also often have new profit opportunities. Potential increased risks include, among other things, higher receivable delinquencies and bad debts, delays or cancellations of sales and orders principally related to power and aircraft equipment, higher local currency financing costs and slowdown in established financial services activities. New profit opportunities include, among other things, more opportunities for lower cost outsourcing, expansion of industrial and financial services activities through purchases of companies or assets at reduced prices and lower U.S. debt financing costs.

Estimated results of global activities include the results of our operations located outside the United States plus all U.S. exports. We classify certain GECS operations that cannot meaningfully be associated with specific geographic areas as “Other Global” for this purpose.

GLOBAL REVENUES BY REGION

(In millions)
2006 2005 2004
Europe  
$ 39,700
   
$ 34,600
   
$ 31,700
 
Pacific Basin   18,000     16,000     13,000  
Americas   9,600     7,500     7,000  
Other Global   7,000     6,100     5,700  
    74,300     64,200     57,400  
Exports from the U.S. to external customers   13,100     11,400     8,800  
Total(a)  
$ 87,400
   
$ 75,600
   
$ 66,200
 
 
(a) Included $7.7 billion, $6.6 billion and $5.8 billion of intercompany revenues in 2006, 2005 and 2004, respectively.

Global revenues rose 16% to $87.4 billion in 2006, compared with $75.6 billion and $66.2 billion in 2005 and 2004, respectively. Global revenues to external customers as a percentage of consolidated revenues were 49% in 2006, compared with 47% and 45% in 2005 and 2004, respectively. The effects of currency fluctuations on reported results were to decrease revenues by $0.1 billion in 2006 and increase revenues by $0.9 billion and $4.1 billion in 2005 and 2004, respectively; and to increase earnings by $0.1 billion in both 2005 and 2004, compared with an inconsequential effect on earnings in 2006.

GE global revenues in 2006 were $56.5 billion, up 17% over 2005, led by increases at Infrastructure, primarily in Europe and the Americas. U.S. exports grew 14% in 2006 on strong growth led by Infrastructure, again showing strength in Europe and the Americas. GE global revenues were $48.2 billion in 2005, up 15% over 2004, led by increases at Infrastructure and NBC Universal, mainly in Europe and the Pacific Basin. Exports from the U.S. were up 30%, led by Infrastructure, again showing strength in Europe and the Pacific Basin.

2006 Global Revenues by Region

GECS global revenues rose 12% to $30.9 billion in 2006, compared with $27.4 billion and $24.5 billion in 2005 and 2004, respectively. GECS revenues in Other Global increased 21% in 2006, primarily as a result of organic revenue growth at the Aviation Financial Services business of Infrastructure. GECS revenues increased 19% in the Americas, primarily as a result of organic revenue growth and acquisitions at Commercial Finance and GE Money, partially offset by dispositions at Commercial Finance. GECS revenues increased 10% in Europe, primarily as a result of organic revenue growth and acquisitions at Commercial Finance and GE Money, partially offset by results of our remaining insurance activities.

Global operating profit was $15.2 billion in 2006, an increase of 20% over 2005, which was 20% higher than in 2004. GE global operating profit in 2006 rose 18%, primarily from gains on the sale of Advanced Materials in the Pacific Basin and core growth in Europe, primarily at Infrastructure.

2006 Global Assets by Region

Total assets of global operations on a continuing basis were $344.9 billion in 2006, an increase of $59.9 billion, or 21%, over 2005. GECS global assets on a continuing basis of $305.9 billion at the end of 2006 were 24% higher than at the end of 2005, reflecting core growth and acquisitions in Europe, the Pacific Basin and the Americas, primarily at Commercial Finance and GE Money.

Financial results of our global activities reported in U.S. dollars are affected by currency exchange. We use a number of techniques to manage the effects of currency exchange, including selective borrowings in local currencies and selective hedging of significant cross-currency transactions. Such principal currencies are the pound sterling, the euro, the Japanese yen and the Canadian dollar.

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 remediation 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 polychlorinated 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.

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