GE 2007 Annual Report Download - page 44

42 ge 2007 annual report
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Operations
Our consolidated fi nancial statements combine the industrial
manufacturing, services and media businesses of General Electric
Company (GE) with the fi nancial services businesses of General
Electric Capital Services, Inc. (GECS or fi nancial services).
In the accompanying analysis of fi nancial information, we
sometimes use information derived from consolidated fi nancial
information but not presented in our fi nancial statements prepared
in accordance with U.S. generally accepted accounting principles
(GAAP). Certain of these data are considered “non-GAAP fi nancial
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 fi ve
parts: Overview of Our Earnings from 2005 through 2007, Global
Risk Management, Segment Operations, Geographic Operations
and Environmental Matters. 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.
Overview of Our Earnings from 2005 through 2007
Our results for the last three years refl ect our strategy to strengthen
our position as a worldwide growth company operating in
diverse industries in which we maintain strong market-leader
positions. During these three years, we increased revenues
through organic growth (averaging 9% per year) and reallocated
resources from nonstrategic operations to businesses that provide
higher returns. As a result, over the last three years our revenues
grew 26% and earnings, 29%. Orders for products and services
also increased. Emerging markets continued to provide us
opportunities to grow as evidenced by a 42% increase in global
revenues during this period. We also experienced a weaker U.S.
dollar and rising energy cost during this period.
Our debt continues to receive the highest ratings of the major
rating agencies and has allowed us to consistently fund our oper-
ations in an effi cient manner even through this diffi cult credit
environment.
The information that follows will show how our global diversi-
fi cation and risk management strategies have helped us to grow
revenues and earnings to record levels. We also believe that
the disposition of our less strategic businesses, our restructuring
actions and our investment in businesses with strong growth
potential position us well for the future.
152
137
124
105
A. GECS Revenues
B. GE Revenues
2003 2004 2005 2006 2007
173
CONSOLIDATED REVENUES
(In $ billions)
Of our six segments, Infrastructure (32% and 36% of consolidated
three-year revenues and total segment profi t, respectively) was
one of the most signifi cantly affected by the recent economic
environment, growing revenues and profi t about 40% over the
three-year period. We continued to invest in market-leading tech-
nology and services at Aviation, Energy, Oil & Gas, Transportation
and Water. At December 31, 2007, we owned 1,479 commercial
aircraft, of which all but fi ve were on lease, and we held $20.0 billion
(list price) of multiple-year orders for various Boeing, Airbus and
other aircraft, including 75 aircraft ($5.1 billion list price) scheduled
for delivery in 2008, all under agreement to commence operations
with commercial airline customers. Product services and sales of
our Evolution Series locomotives continue to be strong.
Commercial Finance (20% and 21% of consolidated three-
year revenues and total segment profi t, respectively) is a large,
profi table growth business in which we continue to invest with
confi dence. In a competitive environment, this business grew
earnings by $0.7 billion and $0.8 billion in 2007 and 2006, respec-
tively, and has delivered strong results through solid core growth,
disciplined risk management and successful acquisitions. The most
signifi cant acquisitions affecting Commercial Finance results in
2007 were the custom fl eet business of National Australia Bank
Ltd.; Sanyo Electric Credit Co., Ltd.; and Diskont und Kredit AG
and Disko Leasing GmbH (DISKO) and ASL Auto Service-Leasing
GmbH (ASL), the leasing businesses of KG Allgemeine Leasing
GmbH & Co. These acquisitions collectively contributed $1.4 billion
and $0.2 billion to 2007 revenues and net earnings, respectively.
During the fi rst half of 2007, Commercial Finance faced margin
compression as a decline in market risk premiums for new
fi nancing opportunities outpaced the decline in cost of our
investment-grade debt. In the second half of 2007, Commercial
Finance was able to capitalize on markets in transition, using its
size, liquidity and fi nancial fl exibility for opportunistic originations,
taking advantage of the liquidity conditions with which certain
competitors contended. Commercial Finance is well positioned
for growth in 2008 and beyond.
GE Money (13% of both consolidated three-year revenues and
total segment profi t) continues to succeed despite the slowing
U.S. economy, tightening credit conditions and limited liquidity.
GE Money grew earnings by $1.0 billion and $0.7 billion in 2007
and 2006, respectively, and has delivered strong results through
solid core growth, disciplined risk management and successful
acquisitions. In mid-2007, as a result of pressures in the U.S.