GE 2005 Annual Report Download - page 35

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The increase in the GECS effective tax rate from 2003 to 2004 also reflected the net benefits, discussed
below, of a reorganization of our aircraft leasing business, which decreased the 2004 effective tax rate 1.6
percentage points and is included in the line “Tax on global activities including exports” in note 8; tax benefits from
favorable IRS settlements, which decreased the 2004 effective tax rate 1.2 percentage points and is included in the
line “All other – net” in note 8; and the low-taxed disposition of a majority interest in Genpact which decreased the
2004 effective tax rate 0.8 percentage points, and is included in the line “Tax on global activities including exports”
in note 8. Offsetting these benefits were the effects of higher pre-tax income and the nonrecurrence of a 2003 tax
benefit on the disposition of shares of ERC Life Reinsurance Corporation.
As a result of the repeal of the extraterritorial income (ETI) taxing regime as part of the American Jobs
Creation Act of 2004 (the Act), our aircraft leasing business no longer qualifies for a reduced U.S. tax rate.
However, the Act also extended to aircraft leasing, the U.S. tax deferral benefits that were already available to other
GE non-U.S. active operations. These legislative changes, coupled with a reorganization of our aircraft leasing
business and a favorable Irish tax ruling, decreased the GECS effective tax rate 2.8 percentage points in 2005 and
1.6 percentage points in 2004.
Global Risk Management
A disciplined approach to risk is important in a diversified organization such as ours in order to ensure that we are
executing according to our strategic objectives and that we only accept risk for which we are adequately
compensated. It is necessary for us to manage risk at the individual transaction level, and to consider aggregate risk
at the customer, industry, geography and collateral-type levels, where appropriate.
The GE Board of Directors oversees the risk management process through clearly established delegation of
authority. Board and committee meeting agendas are jointly developed with management to cover risk topics
presented to our Corporate Risk Committee, including environmental, compliance, liquidity, credit, market and
event risks.
The GECS Board of Directors oversees the risk management process for financial services, and approves
directly or by delegation all significant acquisitions and dispositions as well as borrowings and investments. All
participants in the risk management process must comply with approval limits established by the Board.
The GECS Chief Risk Officer is responsible, through the Corporate Risk Function, for establishing
standards for the measurement, reporting and limiting of risk; for managing and evaluating risk managers; for
approving risk management policies; and for reviewing major risk exposures and concentrations across the
organization. The GECS Corporate Risk Function analyzes certain business risks and assesses them in relation to
aggregate risk appetite and approval limits set by the GECS Board of Directors.
Threshold responsibility for identifying, quantifying and mitigating risks is assigned to our individual
businesses. Because the risks and their interdependencies are complex, we apply a Six Sigma-based analytical
approach to each major product line that monitors performance against external benchmarks, proactively manages
changing circumstances, provides early warning detection of risk and facilitates communication to all levels of
authority. Other corporate functions such as Financial Planning and Analysis, Treasury, Legal and our Corporate
Audit Staff support business-level risk management. Businesses that, for example, hedge financial risk with
derivative financial instruments must do so using our centrally-managed Treasury function, providing assurance that
the business strategy complies with our corporate policies and achieves economies of scale. We review risks
periodically with business-level risk managers, senior management and our Board of Directors.