GE 2006 Annual Report Download - page 51

The Plastics business was hit particularly hard during these three
years because of additional pressure from signifi cant infl ation in
natural gas and certain raw materials such as benzene. As a result
of these factors and the 2006 sales of GE Supply and Advanced
Materials, we do not expect this segment to experience signifi cant
growth in 2007.
Overall, acquisitions contributed $3.9 billion, $9.6 billion and
$12.3 billion to consolidated revenues in 2006, 2005 and 2004,
respectively. Our consolidated earnings in 2006, 2005 and 2004
included approximately $0.5 billion, $0.9 billion and $1.2 billion,
respectively, from acquired businesses. We integrate acquisitions
as quickly as possible. Only revenues and earnings from the date
we complete the acquisition through the end of the fourth follow-
ing quarter are attributed to such businesses. Dispositions also
affected our ongoing results through lower revenues of $2.6 billion,
$2.0 billion and $3.0 billion in 2006, 2005 and 2004, respectively.
This resulted in lower earnings of $0.1 billion in both 2006 and
2005 and $0.5 billion in 2004.
Significant matters relating to our Statement of Earnings are
explained below.
INSURANCE EXIT. In 2006, we substantially completed our planned
exit of the insurance businesses through the sale of the property
and casualty insurance and reinsurance businesses and the
European life and health operations of GE Insurance Solutions
Corporation (GE Insurance Solutions) and the sale of GE Life, our
U.K.-based life insurance operation, to Swiss Reinsurance Company
(Swiss Re). Also during 2006, we completed the sale of our
remaining 18% investment in Genworth Financial, Inc. (Genworth),
our formerly wholly-owned subsidiary that conducted most of
our consumer insurance business, including life and mortgage
operations, through a secondary public offering.
We reported the insurance businesses described above as
discontinued operations for all periods presented. Unless otherwise
indicated, we refer to captions such as revenues and earnings
from continuing operations simply as “revenues” and “earnings”
throughout this Management’s Discussion and Analysis. Similarly,
discussion of other matters in our consolidated fi nancial statements
relates to continuing operations unless otherwise indicated.
WE DECLARED $10.7 BILLION IN DIVIDENDS IN 2006. Per-share
dividends of $1.03 were up 13% from 2005, following an 11%
increase from the preceding year. In December 2006, our Board
of Directors raised our quarterly dividend 12% to $0.28 per share.
We have rewarded our shareowners with over 100 consecutive
years of dividends, with 31 consecutive years of dividend growth.
Except as otherwise noted, the analysis in the remainder of this
section presents the results of GE (with GECS included on a one-
line basis) and GECS. See the Segment Operations section for a
more detailed discussion of the businesses within GE and GECS.
’   
GE SALES OF PRODUCT SERVICES were $30.3 billion in 2006, a 12%
increase over 2005. Increases in product services in 2006 and 2005
were widespread, led by continued strong growth at Infrastructure
and Healthcare. Operating profit from product services was
approximately $8.3 billion in 2006, up 19% from 2005, refl ecting
ongoing improvements at Infrastructure and Healthcare.
POSTRETIREMENT BENEFIT PLANS reduced pre-tax earnings by
$2.3 billion, $1.7 billion and $1.2 billion in 2006, 2005 and 2004,
respectively. Costs of our principal pension plans increased over
the last three years primarily because of the effects of:
• Prior years’ investment losses which reduced pre-tax
earnings from the preceding year by $0.5 billion, $0.5 billion
and $0.6 billion in 2006, 2005 and 2004, respectively, and
• Lowering pension discount rates which reduced pre-tax earn-
ings from the preceding year by $0.1 billion, $0.1 billion and
$0.4 billion in 2006, 2005 and 2004, respectively.
Considering current and expected asset allocations, as well as
historical and expected returns on various categories of assets
in which our plans are invested, we have assumed that long-
term returns on our principal pension plan assets would be 8.5%
throughout this period and in 2007. U.S. generally accepted
accounting principles provide for recognition of differences
between assumed and actual returns over a period no longer
than the average future service of employees.
We expect costs of our principal pension plans to stabilize in
2007. However, our labor agreements with various U.S. unions
expire in June 2007, and we will be engaged in negotiations to
attain new agreements. While results of the 2007 union negotia-
tions cannot be predicted, our recent past negotiations have
resulted in agreements that increased costs.
Our principal pension plans had a surplus of $11.5 billion at
December 31, 2006. We will not make any contributions to the
GE Pension Plan in 2007. To the best of our ability to forecast
the next five years, we do not anticipate making contributions to
that plan as long as expected investment returns are achieved.
At December 31, 2006, the fair value of assets for our other pension
plans was $2.6 billion less than their respective projected benefi t
obligations. We expect to contribute $0.6 billion to these plans
in 2007, compared with $0.5 billion and $0.4 billion in 2006 and
2005, respectively.
The funded status of our postretirement benefit plans and
future effects on operating results depend on economic conditions
and investment performance. See notes 6 and 7 for additional
information about funded status, components of earnings effects
and actuarial assumptions. See the Critical Accounting Estimates
section for discussion of pension assumptions.
GE OTHER COSTS AND EXPENSES are selling, general and adminis-
trative expenses. These costs were 14.0%, 14.7% and 14.6% of
total GE sales in 2006, 2005 and 2004, respectively.
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