GE 2008 Annual Report Download - page 22

20 ge 2008 annual report
Operations
Our consolidated financial statements combine the industrial
manufacturing, services and media businesses of General Electric
Company (GE) with the financial services businesses of General
Electric Capital Services, Inc. (GECS or financial services).
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 2006 through 2008, 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 financial statements relates to
continuing operations unless otherwise indicated.
Overview of Our Earnings from 2006 through 2008
Our results for the last three years reflect our strategy to
strengthen our position as a worldwide growth company operat-
ing in diverse industries in which we maintain strong market-
leader positions. During 2008, we encountered unprecedented
conditions in the world economy and financial markets that
affected all of our businesses. Over the three-year period our
consolidated revenues grew 20% on organic growth that averaged
6% per year, yet earnings declined 6%. Our financial services
businesses were most significantly affected as earnings fell 24%
on a 16% increase in revenues over this three-year period.
The information that follows will show how our global diver-
sification and risk management strategies have helped us to
grow revenues and industrial earnings to record levels and to
outperform our peers in financial services businesses. We also
believe that the disposition of our less strategic businesses, our
restructuring actions and our investment in businesses with
strong growth potential have positioned us well for the future.
Energy Infrastructure (19% and 18% of consolidated three-
year revenues and total segment profit, respectively) was well
positioned to grow significantly over the last several years as the
worldwide demand for energy, and for alternative sources of
power, such as wind and thermal, rose to new levels. This resulted
in a 53% increase in revenues and a 73% increase in segment
profit over the three-year period. We continued to invest in market-
leading technology and services at Energy, Oil & Gas and Water.
Technology Infrastructure (25% and 29% of consolidated
three-year revenues and total segment profit, respectively) grew
revenues 23% and earnings 12% over the three-year period as
we continued to invest in market-leading technologies and ser-
vices at Aviation and Transportation and strategic acquisitions at
Healthcare. Aviation continued to grow revenues and earnings to
record levels as one of the world’s leading providers of aircraft
engines and services. The Aviation orders backlog also contin-
ued to grow, positioning us well for the future. Product services
and sales of our Evolution Series locomotives contributed to
Transportation’s growth over the last three years and we have
invested heavily in expanding our global platform. Healthcare
realized benefits from the acquisition of IDX Systems Corporation
in 2006, expanding the breadth of our product and service
offerings to the healthcare industry. Healthcare was adversely
affected by the effects of the Deficit Reduction Act on U.S.
equipment sales. In addition, lower sales of surgical imaging
equipment resulted from a regulatory suspension on shipments
at one of our facilities. We began shipping some of these products
in the first half of 2008. Enterprise Solutions offers protection and
productivity solutions such as safe facilities, plant automation,
power control and sensing applications.
NBC Universal (10% and 11% of consolidated three-year rev-
enues and total segment profit, respectively) is a diversified media
and entertainment company that has grown through business
and geographic diversity. While the television business continues
to be challenged by the effects of a difficult economy, our cable
business continues to grow and become more profitable. Our film
business also continues to perform well, with consistent contri-
butions to earnings.
Capital Finance (37% and 39% of consolidated three-year
revenues and total segment profit, respectively) is a strong,
focused business with leading positions in several mid-market,
corporate and consumer financing segments. Our performance
has been strong over the long-term, with solid risk management
and underwriting through various credit cycles. More recently,
we have been affected by economic changes, specifically the
disruptions in capital markets, challenging credit market environ-
ment and rising unemployment. Our earnings in 2008 and 2007
were $8.6 billion and $12.2 billion, respectively. We expect the
current challenging credit and economic environment to continue
to affect our earnings in 2009. Throughout 2008, we tightened
underwriting standards, shifted teams from origination to collec-
tion and maintained a proactive risk management focus. Our focus
is to manage through the current challenging credit environment
and reposition GE Capital as a diversely funded and smaller
finance company.
Consumer & Industrial (7% and 3% of consolidated three-year
revenues and total segment profit, respectively) is particularly
sensitive to changes in economic conditions. Reflective of the
downturn in the U.S. housing market, Consumer & Industrial
revenues have declined over the three-year period. In response to
these tough economic conditions, in 2007, Consumer & Industrial
began a restructuring plan focused on reducing manufacturing
capacity and transferring work to lower-cost countries. Despite
management’s discussion and analsis