GE 2005 Annual Report Download - page 30

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In the accompanying analysis of financial information, we sometimes use information derived from
consolidated financial information but not presented in our financial statements prepared in accordance with U.S.
generally accepted accounting principles (GAAP). Certain of these data are considered “non-GAAP financial
measures” under the U.S. Securities and Exchange Commission (SEC) rules. For such measures, we have provided
supplemental explanations and reconciliations in the Supplemental Information section.
We present Management’ s Discussion of Operations in five parts: Overview of Our Earnings from 2003
through 2005, Global Risk Management, Segment Operations, Global Operations and Environmental Matters.
Overview of Our Earnings from 2003 through 2005
Our results over the last several years reflect the global economic environment in which we operate. During these
years, the economy has grown, but at a rate that, in historic terms, has been relatively modest. Long-term interest
rates have been stable. We also experienced a weaker, but recently strengthening, U.S. dollar, escalating energy
costs and higher fossil fuel-related raw material prices. Market developments in two industries in which we operate-
power generation and commercial aviation – also had significant effects on our results. As the following pages
show, our diversification and risk management strategies enabled us to continue to grow revenues and earnings to
record levels during this challenging time.
Of our six segments, Infrastructure (29% and 36% of consolidated three-year revenues and total segment
profit, respectively) was one of the most significantly affected by the recent economic environment. Infrastructure’ s
Energy business was particularly affected by the period of unprecedented U.S. power industry demands that peaked
in 2002. The return to normal demand levels was reflected in subsequent lower shipments of large heavy-duty gas
turbine units. In 2003, we sold 175 such units, compared with 122 in 2004 and 127 in 2005. During these years we
invested in other lines of power generation such as wind power and developed product services that we believe will
position the Energy business well for continued growth in 2006 and beyond. We also continued to invest in market-
leading technology and services at Aviation, Transportation and Water. We had 1,405 commercial aircraft on lease
at December 31, 2005, an increase of 63 aircraft from last year. All of our aircraft were on lease at the end of 2005,
and at that time we held $10.6 billion (list price) of multiple-year orders for various Boeing, Airbus and other
aircraft, including 73 aircraft ($4.8 billion list price) scheduled for delivery in 2006, all under agreement to
commence operations with commercial airline customers. Product services and sales of our Evolution Series
locomotives continue to be strong.
Industrial (22% and 10% of consolidated three-year revenues and total segment profit, respectively) is
particularly sensitive to economic conditions. Higher capacity, in combination with declining or weak volume
growth in many of the industries in which it operates, resulted in increased competitive price pressures. The
Consumer & Industrial business continued to grow through product innovation and its focus on high-end appliances.
The Plastics business was hit particularly hard during these three years because of additional pressure from
significant inflation in natural gas and certain raw materials such as benzene. Increased earnings at Plastics reflected
improved product pricing.