General Electric Q4 2006 Earnings Call Transcript

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General Electric Company (NYSE:GE)

Q4 2006 Earnings Call

January 19, 2006 8:30 am ET


Dan Janki - Vice President, Investor Communications

Jeffrey R. Immelt - Chairman of the Board, Chief Executive Officer

Keith S. Sherin - Chief Financial Officer, Senior Vice President - Finance

Joseph M. Hogan - CEO, GE Healthcare

Scott C. Donnelly - CEO, GE Aviation


Robert Cornell - Lehman Brothers

Jeffrey Sprague - Citigroup

Nicole Parent - Credit Suisse

Deane Dray - Goldman Sachs

Scott Davis - Morgan Stanley

Robert McCarthy - Banc of America Securities

Ann Duignan - Bear Stearns

Peter Nesvold - Bear Stearns



Good day, ladies and gentlemen, and welcome to the General Electric fourth quarter 2006 earnings conference call. At this time, all participants are in a listen-only mode. My name is Candice and I will be your conference coordinator for today.

(Operator Instructions)

I would now like to turn the program over to your host for today’s conference, Mr. Dan Janki, Vice President of Investor Communications. Please proceed.

Dan Janki

Thank you, Candice. Welcome, everybody. Joanne and I are pleased to host today’s conference call. Our press release went out at 6:30. That, along with today’s presentation material, is available at our investor website at You can download, print the information or follow along online.

The presentation material does contain forward-looking statements. It is based on the environment as we see it today and that is subject to change.

Today we have a full agenda. We are going to run a little bit longer than we traditionally do. We will go through the earnings and also our recent acquisitions. To cover that today, we have our Chairman and CEO, Jeff Immelt; our Senior Vice President and CFO, Keith Sherin; and we also have Joe Hogan, CEO of GE Healthcare; and Scott Donnelly, our CEO of GE Aviation with us today. Why don’t I kick it over to Jeff to get us started.


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Jeffrey R. Immelt

Great, Dan, thanks. Good morning, everybody. As Dan said, we have a lot to cover today. Just to go through the agenda, we are going to go through the fourth quarter and total year ’06. We are going to go through the FAS-133 restatement, and then we are going to switch gears and talk about the first quarter and total year ’07, and lastly, we will go through all of the acquisitions in detail and give you a sense of how they impact the company going forward.

The 2007 environment is similar to what we saw in December. We still think global economic growth continues to be favorable. The global markets are strong. As we said earlier, we have seen an impact on housing and auto, but overall we are seeing underlying economic growth to be fairly solid. Margins have stabilized in a time period of higher inflation and higher interest rates. We still think we see a great risk environment. Liquidity is high. This is something companies have to manage, and we think we are in good shape here. The macro drivers continue robust. When you look at our order rates, particularly for large infrastructure products, we continue to boom around the world.

We have always said winning in 2007 depended on a really strong position globally, pricing ahead of inflation, driving productivity. We have a union negotiation in the summer that we need to manage our way through, just stability and risk management. We see that today as well.

To talk about the fourth quarter, we believe we had a solid and high-quality quarter. If you look at the metrics that we go through consistently, from a standpoint of reporting to our investors, from a growth standpoint, orders growth was 19%, revenue growth 11%, asset growth 21%, organic growth for the quarter was 8%, earnings per share at $0.64 on consensus. Returns continued to expand, per our guidance. Returns were up 180 basis points to 18.4%. We are still on track to hit 20% by 2008.

We had our best growth in margin rates in the last several years. We saw 190 basis points of margin rate expansion. Cash flow grew 14% to $25 billion, roughly $25 billion. All of them on track for what we committed. Excellent financial performance.

As we said in our third quarter call and again in December, all gains haven’t been applied to restructuring and other charges, so we are making the investments in the company to improve future earnings and we will continue that practice as we go into 2007 and beyond.

If you look at the long-term strategy and what we have talked about, investing in leadership businesses, the core of infrastructure, healthcare, commercial, financing, GE money, were earning 17% of the quarter. NBCU is rebounding. We have announced or concluded the exit of advance material supply hydro and GE Life.

We announced the strategic review of plastics this morning. Meanwhile, we are investing in businesses that we think are going to help us drive growth in the future -- all consistent with strategy and all consistent with previous communications.

From an execution standpoint again, the segment profit was up 13%, total year up 12%. Operating profit leverage, as we have said on the total year of 40 basis points, with good momentum going into next year, ROTC expansion.

The negative really has been plastics, as we signaled in December. This continues to be a tough market for us.

From a growth standpoint, again we told you about some of the key details on order rates and organic growth of 8%. Services revenues continues to be very strong, and we continue to drive growth as a process throughout the company. Our expectation for 2007 is sustained 8% organic growth, and again, that does not reflect any of the impact of the deals. Just on an organic growth basis, we are sustaining the two to three times GDP basis.

Looking at the key growth initiatives, that again we report on every quarter, services at $30 billion grew 12% for the year. CSA backlog continued to grow, and the operating profit on our services business remained very strong. Our global growth at $78 billion was up 15%, again seeing very strong growth in the emerging markets, as that continues to power our presence around the world.

Growth platforms at $13 billion was up 17%. Again, we have talked about the growth platforms since 2003 and continue to get great results there. And the imagination breakthroughs delivered on $20 billion of revenue in 2006, up 33%, with the technical and commercial innovation continuing to drive growth.

Eight straight quarter of organic growth at two to three times GDP, total year at 9% organic growth. The key initiative we think is delivering for investors.

With that, I will turn it over to Keith to really go through the financials.

Keith S. Sherin

Thanks, Jeff. Orders continued very strong in the fourth quarter. Great news on the left side, major equipment at $10.5 billion was up 35%. That was really powered by aviation and energy. Aviation, $2.2 billion, was up 2X over last year in the fourth quarter. Just tremendous growth with the JANEX orders and [Ameritz] and China Eastern, China Southern, Shanghai.

Energy at $3.3 billion was up 24% -- just a terrific performance. Energy thermal orders were up 32% to $1.2 billion. You saw the great order we had in Saudi Arabia, and we are building a backlog. The infrastructure orders of 57% up over in ’06 in total and the backlog is up 37% at $32 billion. These order rates will not continue forever, but boy that is a terrific performance for the year and a great backlog to work from.

In the middle is services, $9.5 billion, up 10%, so strong double-digits. You can see the Vs by business. Aviation and the commercial spares were up 15%, partially offset by lower military spares, giving us 6% performance for total services in the quarter. Energy core services was up 18%, and that is compared in total, the energy V of 7% is compared to a large nuclear reload in ’05. So good services orders, and the CSA backlog at $93 billion is up 7%.

On the right side, the flow businesses continued basically as we have seen them through the year. You can see the strong performance of C&I continued. That was driven by industrial. Plastics had a tough quarter, as Jeff said, in the orders area. Price was down four, volume was up two, FX was positive one, so you were down three. Security was basically flat.

So overall, terrific orders in the quarter. $24.9 billion, up 19%, and for the year, $90 billion, up 21%.

Next I will look at the indicators, the core indicators for financial services. On the left side are our margins. The blue bars are the net revenue, which is contributed value as a percent of average assets. So we take out the impact of interest rates on this from our total revenue, and then the green bars are the net revenue less the losses as a percent of average assets. So they are loss adjusted, contributed value, basically.

You can see the adjusted margins are down slightly from last year and up slightly from the third quarter. I would say the good news here is the margins are stabilizing and the losses continue to remain at historic lows.

We do see continued liquidity pressure in the portfolio, but over on the right side, the 30-plus day delinquencies continue to be very stable. Basically they are flat to last year. When you look at the commercial finance, delinquencies at 1.22% or very low.

On the bottom right, utilization remains strong, led by Penske and trailers and rail.

So overall, the economic indicators here still continue to be pretty good.

The next one is on margins and returns, and I am happy to say at the third quarter call, we committed to deliver 100 basis points of margin growth in Q4. we delivered 190 basis points of growth. We said that we would get 15% margin rate for the total year, and we got to 15.2%. We signaled that in December, that it would be a little better and it was. It is great to have this margin expansion. It is coming from strong base cost productivity. It is coming from balanced growth.

In the fourth quarter, our services revenues were up 12%. Our product revenues were up 10%, so we have that in line. It is still a great thing to continue to grow those equipment revenues at those double-digit rates and build that installed base, but the balance with services helped us on a growth in margin.

Our healthcare business had great volume and all the businesses are getting benefits from simplification. The one drag was plastics. The price inflation dynamics there were a drag of about two-tenths of a point on the total year for us and about four-tenths of a point in the fourth quarter.

Over on the right side, return on total capital, we have a strategic goal to get to 20% by 2008. We are on track to do that. We delivered 180 basis points of growth in return on total capital. That is really driven by strong earnings growth. We continued to be disciplined on capital allocation and our whole portfolio is focused on investing in capital efficient businesses.

So pretty good improvement. We fee great about the fourth quarter margins. It is what we said we were going to deliver, even despite the plastics headwinds.

The next page, I want to update the page we had in the third quarter earnings call on corporate items. For the year, on the left side, we have increased the gains from our $0.04 estimate in the third quarter call to $0.06. You saw that in the fourth quarter we closed the sale of advanced materials to Apollo. Our total gain on that transaction was about $370 million, which included $200 million of benefits that showed up in taxes, and that accounts for almost all of the decline in our tax rate in the fourth quarter year over year.

On the right side, you can see because the gain was better, we were able to accelerate some restructuring. The $0.02 restructuring and other charges that we talked about increased to $0.04. During the quarter, in total, we had about $390 million of after-tax charges for restructuring and related charges, including early retirements. You read about the NBC cost-out activity. We announced plant closings in C&I. We announced the exit of hydro. We had more than 450 early retirements associated with structural reductions across the company. So our gains were great. We are happy to have it and we are happy to fund restructuring and early retirement and improve the cost structure of this company.

Next is the fourth quarter, and on the left side is a summary of operations. Revenues were very good, $44.6 billion, up 11%. You can see financial services revenue were up 16%. The net revenue was up 11%, more in line with our earnings growth. Earnings at $6.6 billion, up 12% and EPS at $0.64, up 14%.

I have a footnote here on the Vs. The growth variances are impacted by the restatement, which I am going to cover in the next couple of pages. While there was a $2 million impact in the fourth quarter of ’06, insignificant, there was an increase in fourth quarter ’05 earnings and that lowers our fourth quarter ’06 Vs by two points.

So we hit what we said. The Vs are lower on a reported basis because we increased earnings last year as a result of our restatement.

Cash flow at 24.6, I will cover in a few pages, up 14%, and industrial cash up 7. The tax rate for the year, GE tax rate in the fourth quarter was 16%. That is down three points from 2005 and that is more than driven by the tax favorability that I mentioned on the silicones gain. The tax rate was flat year over year in the fourth quarter and stayed at 12% total year, in line with the third quarter guidance.

On the right side are segment results for the quarter. Infrastructure had a great quarter, came in at the high-end of the guidance of 15 to 20. Industrial had a tough quarter. It was impacted by plastics and advanced materials. It cost us about $100 million versus what we were expecting, and that is down 12.

Commercial financing, GE Money and Healthcare all hit their guidance, and NBC-Universal turned positive, which was great. It was a little light versus what we were guiding, and it was impacted by film performance in the fourth quarter a little less than what we were expecting. But overall, a very strong performance. We have infrastructure at the high-end of the range, and we got to do more restructuring, which is terrific for the future.

Let me cover the restatement. I can tell you I am disappointed that we have another restatement. We take our commitment to meet the FAS-133 requirements extremely seriously, and let me explain what happened.

Basically, you are familiar with the background of FAS-133, effective 1-1-01. Accounting for derivatives became effective to get hedge accounting. It’s elective and there are very strict criteria to quality. We have undertaken a substantial effort to comply with 133R. Our implementation and our subsequent programs have been reviewed by our corporate audit staff and by our auditor, KPMG, and this is a challenging standard.

Many companies and auditors have had difficulty with the standard, as evidenced by 230-plus restatements since adoption. So this is something that others are also wrestling with.

On the right side for GE, in 2005 in May, we restated. The corporate auditors had identified an error in swaps with fees and other terms that resulted in a $381 million positive cumulative impact on the restatement.

Obviously as a part of this derivatives restatement, we are reviewing both GE, our auditors, and our internal team at KPMG, looked at our derivative activities, including commercial paper hedging. Both GE and KPMG reconfirmed that our CP hedging met the objectives of 133 as a part of that review, 2005.

We have also been fully cooperating with the SEC on the ongoing formal investigation. We have been working with them cooperatively for two years. As part of that review, the SEC staff referred accounting issues to the Office of Chief Accountant, and after that review, the Office of Chief Accountant determined that our hedging program does not meet the specificity requirements of FAS-133. I am going to take you through what the CP program is on the next page and show you what that means.

On the top is a simple diagram of our CP hedging program. Basically, on the left side, GE capital core funds itself by borrowing commercial paper from investors in the marketplace, and the interest payments that we pay on those commercial paper instruments give us floating rate exposure, because they turn over frequently, short duration.

Our total commercial paper balance today is a little over $90 billion, so this is about a quarter of how we fund ourselves. On the right side, we make loans to customers, and a significant part of our loans to customers include fixed rate payments of interest. So to match fund our assets, to have fixed rate interest costs to go with the fixed rate interest income, we enter into a basis interest rate swap. We offset the floating interest rate exposure to the CP and we pay a fixed rate of interest to the swap counter-party, and that match funds our asset.

Now, the box on the right side shows the size of the hedging program over time, so we have been hedging a portion of our total commercial paper outstanding and swapping that floating rate of interest to fixed to match fund assets. At adoption, it was $22 billion was in the swap program. At the peak in 2002 it was $33 billion. As of 1-1, it is down to $12 billion, so it is a subset of our total commercial paper that we hedge.

Now, our program is economically effective. We do completely match fund and take out the economic risk of interest rates on the asset versus the borrowing. But the accounting for the CP is not specifically covered in FAS-133.

We have thousands of transactions every week in the commercial paper program. It is a constantly rolling pool of CP, and that is what makes this complicate. The SEC view is that our program needs to identify which CP is hedged prior to issuance, and that is called specificity. Our view and KPMG’s view was that the structured approach that we had met the FAS-133 specificity, and I have obviously oversimplified the issue here, but I can say we had strong technical and procedural arguments. We were backed by our auditors, but the SEC has the final say on the technical merits and we are moving forward. We agree with their view.

So what is the impact? This morning we restated our 2005 10-K and our 2006 first, second and third quarters. We have re-filed those statements. We know the impact and we have got new financial statements out there.

Because we did not meet specificity back to 1-1-01 adoption, we have to remove the effects of hedge accounting from our financial statements. Basically, we have to mark the hedges, those swaps that I showed you on the previous page, to market every period from 1-1-01 forward.

You can see in the box on the top, the impact was a reduction in reported earnings in ’01 and ’02, and an increase in earnings from 2003 through 2006. This is driven by interest rate moves during the time. After 9-11, interest rates came down, and then subsequently in 2003, ’04 and ’05, interest rates went back up and that is why those fluctuations occur on those received, and pay fixed interest rate swaps.

The cumulative impact to earnings since inception is a $344 million reduction. It does not affect retained earnings because this was already run through equity and other comprehensive income. The impact on 2006 is $130 million positive. The going forward impact is slightly positive on earnings over the next 10 years. Over 90% of the impact comes back into earnings by the next 10 years, and the life of the program in fact is zero. There is a timing mark-to-market on these swaps. It will show up as lower interest costs going forward, slightly.

If we had known, obviously, that there was a problem, we would have designed the program to meet the specificity as interpreted by the SEC, and that would reduce the interest rate volatility that I am showing in the restated financials.

The economic impacts are definitely hedged, and these were effective interest rate swaps. And while those interest rates moved, there was an offsetting impact on our assets, but in current accounting, the fair value changes related to the fixed rate assets are not recognized in earnings in the current period, so there was an offsetting economic impact that did not get recognized in the financial statements now.

Finally, going forward, we have implemented a first issued CP hedging program, 1107. We have designed it and we have reviewed it with KPMG and experts and we believe it meets the technical requirements.

I will say we are committed to getting this accounting right. We have added technical resources. We have increased our audit oversight. We have invested in IT systems, and the SEC told us we need to fix this and we are fixing it and moving forward. There is absolutely no change in GE fundamentals or liquidity. You saw the rating agencies have reviewed this and reaffirmed our ratings, and let me go back to the financials.

Next is total year consolidated results. On the left side is our summary of operations. The total year revenue is $163 billion, up 10%, a great, great top line year. Earnings at $20.7 billion, up 11%. You can see the restatement lowered our Vs here again by adding more income in 2005 in total. EPS at $1.99, we added a penny to 2006 with the restatement in the first three quarters. The net impact was $0.01. I will show you that.

Then, industrial cash I will cover on the next slide, and tax rates, I covered the rate impact on the fourth quarter, which are the same drivers for the total year, basically.

So on the right side, we have summarized the full year segment results. We feel great about the year. Our businesses are right in line with the guidance that we gave, and industrial is a little light. That was because of plastics, and I will cover that when I get to the industrial page.

Next is total year cash flow, $24.6 billion, up 14%. The growth came from two areas. One, it came from the GECS dividend, which includes the proceeds from our last sale of the Genworth shares and our insurance solutions cash that we got when we sold Insurance Solutions to Swiss Re. That is about $5.5 billion out of the 9.8.

The $14.8 billion industrial is the other part of the growth, up $1 billion, driven by our net income performance and a little bit of working capital.

We repurchased $8.1 billion in shares last year, 236 million shares, and over on the right side, the cash balance walk. We started the year with $2 billion. We get the cash from operating activities on the left side, $24.6 billion. We paid out $10.4 billion in dividends. We bought back $8 billion of stock. We invested in our plant equipment for $3.5 billion, and the net of acquisitions and dispositions was about $900 million. That’s because we had some more disposition activity in 2006, as you know, with silicones and GE supply.

At the end of the year, we ended the year with $4.5 billion in cash, $2.5 billion more than we started, and that is part of what we are using for the acquisitions that we recently announced. So a strong cash performance, and in line with our expectations.

Next is first quarter, and before I go through the individual businesses, I thought I would show you the outlook for the quarter. On the left side, infrastructure, the outlook continues very strong. We have a great top line and great segment profit growth.

Industrial will continue to be impacted by both the dispositions of GE supply and advanced materials on their variances, but also the continued pressure in plastics, so we expect a similar profile to Q4. Commercial finance and GE money and healthcare, all continued strong outlook.

At NBC-Universal, the turnaround continues. The revenue, down 20, looks funny but that does have a comparable to the 2006 Winter Olympics, obviously, so NBC, ex the Olympics on revenue, is basically flat.

On the right side summary, this was the same as our expectation for December. If you look, revenue is about $40 billion, up 5% on a reported basis, two points impact on the total company from the Olympics, so up 7% on an organic basis.

Earnings of $4.5 billion to $4.6 billion, up 10%, and EPS at $0.43 to $0.45, up 8% to 13%. Remember, the Vs are slightly lower here, and I apologize for this but the restatement added $135 million of earnings to the first quarter of ’06, so our outlook is the same as what we said. It is very strong and the Vs just come down because we added income to 2006 on a comparison.

Let me take you through the businesses. First is infrastructure. Infrastructure had another great quarter. We feel great about the performance here. Revenues at $13.8 billion, up 15%, driven by those great orders around the world. Segment profit at $2.9 billion, up 19%. We got the leverage. Orders up 26%, and great equipment orders, as I showed, and great service orders, and that is fueling the revenue growth. Aviation up 10%, good strong services, good strong commercial units. Energy up 16%. Thermal had a good quarter, with total delivery of 40 gas turbines, which was up 6 from last year. Good services performance, great wind performance.

Oil and gas strong, top line. Transportation strong, top line, and at the end of the day, those revenues are getting solid operating leverage. Op profit was up to 19.2%, up six-tenths of a point. Energy was a real star here, was up almost two points of segment profit performance. Good pricing across the segment and good productivity. You can see the solid performances in the bottom left by the businesses. We had a terrific year in infrastructure and that should continue.

You know, you look at the first quarter segment profit dynamics, revenue will be up 10 to 15, infrastructure business’ Op profit should be up 15, really a great outlook here.

Commercial finance had another great quarter, and it capped off a great year. You can see revenues up 30%. That is pretty high. Net revenue was up 24%, more in line with the asset growth. Assets up 23%, just great strong originations. We are getting the benefit of our terrific front line, around the world global origination and risk management. You can see commercial financial services is up 28%, healthcare financial services is up 27%, cap solutions up 8%, real estate just had a terrific quarter.

Assets were up 52% for the year. The segment profit growth in the fourth quarter was driven by real estate. Earnings were up 60%. We had great asset growth -- $18 billion year over year of asset growth, so we have been able to really rebuild that portfolio and grow globally with great underwriting and strong property sales.

Cap solutions in the quarter had assets up 8%, earnings were down 7% in the fourth quarter. That is driven by lower asset sales and higher reserves in the fourth quarter of ’05, but a great year in total. Total year results up 14%.

Asset quality is stable. Delinquencies and losses near historic lows, and we continue to see good outlook here in commercial finance. First quarter segment profit dynamics, driven by strong volume and asset growth segment profit, up 10% to 15%.

Industrial, and it had another mixed quarter. There is really three things I want to cover here on this page. First, the segment is impacted by the dispositions of supply in advanced materials. You can see the adjusted Vs for organic growth here. Revenue would be up 2% and segment profit up 2%, so they did have a big impact, about $70 million just on the two dispositions, really, in this segment. You can see that in the supplemental schedules.

Second, C&I and equipment services had another great quarter. You can see the organic revenue up 5% and the op profit up 43% for C&I. A terrific performance in appliances and lighting and industrial. Revenues were up 5%. On the retail side in appliances, we are winning in high-end. Global industrial had a terrific quarter. We are benefiting from our global product project management, large projects with great op profit performance in the quarter and good productivity.

Finally, the third point on the chart is the plastics had another tough quarter. Op profit you can see was down 49%. We had volume up slightly, up 3%, but price was down 5%. That is about $90 million. Inflation was about $80 million. Benzene at $3.64 is up 43% year over year. With oil where it is, Benzene should be $1 a gallon lower, and we are just getting killed by this inflation. That is partially offset by the volume in productivity, delivering the op profit of 114, down 49%.

So the first quarter dynamics look pretty similar to the fourth quarter. We are going to get a good performance in C&I and equipment services and continue to have a tough outlook for plastics and the segment profit in the first quarter will be down about 5 to 10 and revenue will be down about 5 to 10.

Next is NBCU. Really pleased to report that NBCU delivered positive op profit growth in the fourth quarter. Revenues of 4.2, up 1%, and segment profit up 5%. The turnaround is underway. You look at prime time, we are making real progress. The ratings are up 16%. We love Heroes. It has been really successful and it is doing great across all the media outlets. Number two in the November sweeps, and that is a great performance by the team. The NFL is a key driver. Ratings are up 6% over the 2005 Monday Night performance, so we are delivering good ratings there.

Entertainment cable had a great quarter, a great year op profit, up 10%. USA is number one. Bravo is doing fantastic, and news and info cable, the momentum continues with Today and Nightly maintaining number one, and CNBC really having a terrific quarter, ratings up 65%, all day parts up double-digit.

On the film side, we had a very positive film dynamics in the fourth quarter. It is really favorable advertising and promotion comparisons versus fourth quarter. If you remember last year, the principal large one was King Kong, with a heavy A&P spend. This year, we had just fewer films, and as I said, they didn’t give us as much we wanted. They underperformed a little bit in the fourth quarter, and that was a little bit less than what we expected.

Good progress in digital. We continued to really do a great job of maximizing our sale of our content throughout the properties, and profitable growth coming from taking costs out. You saw our restructuring, and that is underway.

So if you look at the first quarter, revenues ex the Olympics, about flat, and segment profit 0 to 5. Great progress. We are seeing real operating improvements here and we are going to have a lot less of one-time type of gains and things in this business and that is a great story.

Finally, healthcare and GE money. Healthcare had another strong quarter, and I will tell you if you look, the revenue is up 8% and the segment profit up 16%, it shows the strength of a diversified business like Healthcare, and that is without shipping any OEC product. As you know, we are under an FDA consent decree. We did not ship any OEC product, which had an impact in the quarter. So terrific performance by this team.

Orders were solid, up 8%. That was driven by x-ray, it was up 23%. CT was up 17%, MR was up 11%, services was up 5%. You can see the revenue is up 8%. It is globally a pretty good performance. Americas were strong, Europe was very strong. Asia was down. We continue to see softness in China, and that probably is going to continue for the first-half of 2007.

If you look at the revenues by product, MR was up 17%, ultrasound was up 12%, monitoring was up 18%, CT was down 5%, but we continued to get great performance in the VCT high-end and we have some pretty tough comparisons there with the great growth we had last year. Services was up 16% and bio-sciences was up 12%, so a pretty good performance across the portfolio and great leverage. The operating profit expanded 1.6 points to 23.7, and we expect to see continued performance in the first quarter. We have a great outlook for strong top line growth and segment profit about 15 in the first quarter.

Over on the right side, GE Money had another strong performance. If you look at revenues, $5.8 billion, up 19%, a little bit driven by interest rates. Again, net revenue was up 11%. Assets up 20%, really good organic asset growth, up 11%. A little bit of benefit from acquisitions, three points and FX was six points to get the 20% asset growth.

Global net income up 14. Very good in Americas, up 19%, driven by core growth. Europe was up 33%, driven by core growth. Central and Eastern Europe very strong. Our Garanti investment very strong. Japan was down $85 million year over year. That is really driven by reserves. If you look, the diet in Japan has passed. The rate reduction law, which will reduce the interest rates in three years down to 20%. We are dealing with it in our run-rate. We see the impact in 2006 and we see that is in our run-rate for 2007 and the rest of Asia is continuing to grow and be able to offset that and give us profitable growth in total for GE Money.

So asset growth, 20%. Portfolio quality stable. We look to have a similar profile in the first quarter.

Let me turn it over to Jeff to cover business development.

Jeffrey R. Immelt

Great, thanks, Keith. In business development, clearly we have a lot to talk about. You never pick to do three deals of this size within two weeks, but strategically these were deals that we had been working on for a long time, and in the case of Vetco Gray, we have been working on this deal for probably more than four years. The case of Abbott, we’d had discussions off and on for years, but are working on this specifically for about nine months. In the case of Smiths, we were part of a formal process.

I think all three deals are right on strategy. They are very important for the company long-term, and we think that they are businesses that we can do a lot significantly with.

I want to tell you about them, and we have Scott and Joe here to fill in some of the details. First, just starting from the standpoint of what we talked about in December, which was a desire to invest in leadership businesses. We talked about the desire to continue to grow earnings 10% and make that consistent and not ever deviate from that, to increase return on total capital with the long-term target of 20% return on total capital. We are well on the way to do that, and even doing these deals will have return on total capital trajectory to hit the 20% by 2008, and positive growth and return on total capital in 2007.

Then all of them are based on building leadership positions and long-term dynamics allow us to capitalize on the demographic trends that we talked about in December.

If you look at the right-hand side of the page, we have made great progress since 2001. We have been very diligent and disciplined on reducing the low, ROTC and volatile businesses and reinvesting back into higher growth, higher margin leadership businesses. We have dramatically transformed this company over the last five years, while almost doubling earnings and bringing return on total capital up to close to 20%.

I just want to put in a backdrop. When you see us do or when you see me do $15 billion in two weeks, sometimes you say is he crazy? But this is all part of a five-year, disciplined, diligent long-term focus on the company, and I just want to give you a sense for that.

And basically on strategy. Redeploy from slow growth into high growth, and a real target on healthcare and infrastructure.

The next page just goes through the deal impacts in aggregate. Just to kind of see how they piece all together. The acquisition timing, we think we should close all three acquisitions in the first-half of the year, so Vetco early and Abbott and Smiths by the end of the second quarter.

Plastics, we announced the disposition of plastics business today. We have a lot of interest in that business. It is a world-class property. As Keith told you, you know, look, people who know chemical assets know that there is growth in that business in the future when the Benzene corrects itself. So there is a lot of sophisticated strategic and financial buyers for an asset like that. It is a world-class franchise with GE leaders and it will be better off, we believe, outside the GE umbrella.

The buy-back, we are still committed to doing $5 billion to $7 billion of buy-back this year, but they will be back-end loaded once we do the disposition of plastics, so no change in the buy-back strategy.

All the acquisition charges will be offset with gains. Remember we talked about in December that we will have $1.5 billion in gains that are not going to falter to the bottom line. They are going to be based on helping us restructure the company and offset charges like in process R&D.

All of these actions are within our guidance of EPS growth and ROTC, so while it seems like a lot, these, for a company of our size and with our management team, we can execute on these deals, still hit our commitments to you, and make them be on strategy and accretive over time.

If you look at the right-hand side, basically what this says is this year, the impact of the puts and takes will be about flat. So in 2007, we will have roughly no impact of all these deals, that the three deals will be accretive about $0.04.

If you think about potentially the timing of the buy-back, that may take $0.02 away, and when we sell plastics in the second-half of the year, that takes $0.02 away. So I would say conservatively, it is flat on the year, maybe a little bit better than that, but we do not want to count on it.

In ’08, these should be at least $0.04 accretive, and in ’09, you know, we are talking about growing 15% a year on an earnings basis as we drive synergy. So again, I think if you think about the company long-term, by taking these moves, we are increasing the growth rate of the company. Again, one of the things we always go through with the board is are they accretive versus a buy-back, and these are accretive versus the buy-back by ’09, so we like these deals and we like what they do for us.

Kind of a conceptual chart on value enhancement, and Scott and Joe will go through this in more detail. Any time we buy companies that are strategically aligned with what our core strengths are, we expect to get both revenue and cost synergies. All three of these deals fit very well with our commercial processes. They fit very well with our ability to drive service, and they fit very well with our technical platform, so that we feel like we can drive great technology fits right away, and that is on the revenue side.

On the cost side, we are all about operating profit expansion and operating profit leverage. If you look at all three of these deals compared to their GE counterpart, we see hundreds of millions of dollars that we can create that creates long-term shareholder value in each one of these segments, and we think we can grow with that over time.

We like these deals. We have been successful investing in good platforms that fit very well with where our core strengths are.

The next page on healthcare, just to put it in context, since this is the most recent deal, and then I will turn it over to Joe, we like the healthcare market. We think this is an exceptionally good market for the company long-term. It is a market that you can be consistent in, grow over time, you have high visibility on.

What we have tried to do is build a big, diversified healthcare franchise. This just gives you a ten-year retrospective, and shows you that over time, we have done inorganic acquisitions, but then we have been able to take each one of those platforms and grow them organically 9% a year. So our organic growth rate has been very strong over this time period.

At the same time, we have been able to do cost synergies, which has allowed us to grow margin rates, expand returns and generate cash over time. This is a business that once we do the Abbott acquisition, gets up to $20 billion in ’07 with good growth into time. I think we have demonstrated to our investors over time that we have been able to create economic value by making these investments.

Now, the way we have thought about Abbott, and again Joe will go through this in more detail, is it is a market growing 6% to 8% a year, similar to diagnostic imaging. It fits very well with the GE skill set. It is a great franchise that was under stress and is now coming out of that, with good tailwind. As Joe will tell you, their fourth quarter revenue growth was 9% as they have come out of this.

If we just hit on similar performance to diagnostic imaging, in other words, high-single-digit, mid-double-digit earnings, then we can take capital out of this business by both reducing investment and improving working capital turns, this is a 14% cash-on-cash return by year five, but fits our investment criteria as well as being a great strategic fit as we look at this investment.

With that, I will turn it over to Joe to give you some more details about Abbott.

Joseph M. Hogan

We announced the deal yesterday with Abbott on their in-vitro diagnostics business, and I just want to explain to you why I feel such a strong strategic and operational fit for the business, and just right on target with where we wanted to go.

As Jeff indicated, we had been looking at this for like five years. I feel strongly now, with the integration of Amersham over the last three years, we have a much more solid platform to bring this on, and I will explain why the synergies I think are much in line with the business.

Overall, this is the world’s premier in-vitro diagnostics business. It expands our diagnostics capability in large, un-served segments, particularly in some global areas where we have gained scale in our diagnostic imaging business over the last several years.

It has solid industry fundamentals, again as Jeff indicated. This grows roughly in line with our in-vivo, our imaging business, of 6% to 8% a year, and I think we can extend that when you look at the emerging areas.

It increases relevance for our customers. These are the same customers that are served by the Abbott diagnostics business as our customers that we have today, and we feel that we will be able to enhance each side of the equation from a go-to-market standpoint by the customer relationships that are out there.

I wanted to walk you through how all this fits together in a disease paradigm standpoint. If you start off with an IBD test, the blood test, say you are thinking about a cardiology exam. Many of you out there, you draw blood, you take a look at blood profile and you pull out that there is a certain amount of cholesterol, and your low-level cholesterol might be bad, it might be over 130 or so. That will send you into a different sequence. You will move into a stress test, which is GE Healthcare type of system. From a stress test, you might go to volumetric CP to understand if there is a certain amount of blockage. From there, you might go into a CAT lab, again another GE piece of equipment that you have a therapeutic or maybe a cardiac by-pass in some way. After that, you are going to be monitored from a therapeutic standpoint, again with IBD testing.

The important thing is we are on a complete path of that disease paradigm. But information technology is around each one of those sequences in that paradigm, both from an applications in information technology standpoint and also a system standpoint, and also services across that complete paradigm.

There is a huge services component to the business that we just acquired. We have a core competency in that capability and again, we think we can add and enhance not just the operational capability but the profitability of that sequence too.

Down below, this reinforces our early health strategy too. I think it is important to remember that IBD testing represents about 1% of the spend out there in healthcare in the United States, but it trips off about two-thirds of the therapeutic activities, so it is really the front-end of how you drive therapeutic in the United States, and with more and more clinical specificity as the test gets more specific, you are finding more things, and again, that drives more therapeutics. It drives again more in-vitro diagnostics testing, both on the initial phases and also on the end phases.

And look, I want to emphasize here, this places GE skills, whether it is a high installed base or services, and significant revenue and cost synergies that we feel we will be able to obtain with this. So it is creating the world’s best and broadest diagnostics company.

On the next page, I wanted to just walk through the marketplace with you so you understand it better. Again, this is about a $24 billion market, which mirrors the imaging market that we lead in now. You can think of this almost the way we do the CT and MR marketplace. It has a very large installed base of about 70,000 units, and we have close to 100,000 units in our in vivo business.

You can see it segmented around these different areas. Where Abbott is extremely strong, one of the exciting areas of immunoassays. I will talk to you about what that is and why it fits.

Then we look at the geographics splits of this business. Again, it follows very closely to what our imaging business is also, with about a little less than half of the marketplace being in North America, 30% in Europe, and the rest in Japan, in China, and different parts of Asia.

Down below, the segmentations on immunoassays, these are big pieces of sophisticated equipment. Remember, there is a lot of embedded technology in this equipment, so when you think about firmware and software and decision support capability, this is an amazing amount of technology. And it’s why it fits so much better in a GE portfolio because we have that capability. We have 4,000 software engineers. We know how to write the system support software. This is something that necessarily as this business evolved within the Abbott portfolio, it was not in their core competency because they had more biochemistry and organic science capability. Also, logistics around this fits well, too.

So immunoassays, clinical chemistry, hematology, and the point of care is something where it is real-time feedback. It is basically lab on a chip, where if you are in a theater such as an operation room, or in an intensive care unit, you need immediate feedback. You have a portable unit and you have a drop of blood. It tells you immediately blood gas levels and those kinds of things, and it mirrors the clinical kind of, you know, the patient thing that our portable ultrasound unit in our clinical systems business has.

So again, this is a market, it is $24 billion, grows 6% to 8% annually. All we have to do is execute the way we do around our current imaging marketplace and then be able to gain a little more synergy from the standpoint of overseas and capturing back some U.S. share that has been affected by the consent decree, and we think we can grow it above this range.

The next page is some more specifics on the Abbott diagnostics business. Revenue this year will be about $2.7 billion. The growth rates we are projecting for ’06 and ’09 are in the 8% to 10% range.

Down below, you can see the product mixes. Very strong hematology business, very strong in hepatitis. That would be an immunoassay kind of area.

On the right-hand side is interesting. You can see the geographic splits for Abbott are 44% of their business is in Europe and only 26% in the United States. On the previous page, you saw the United States has 45% of the marketplace. You are seeing the effect of the consent decree here. So there is a big opportunity for us as Abbott in conformity now with the consent decree to be able to focus on the U.S. geography and gain that position back.

Remember, these are all our customers. We have a very strong position with these customers in the United States marketplace. I can give you specifics by region of where Abbott has had a difficult time because of the consent decree while we have strength in both hospital relationships and industry relationships that we think will be able to help from.

Down below is some more specifics on the different types of equipment. Again, immunoassays and hematology. I think it is important also when you think about these in ’06 is the growth trend of the business is very strong, too. Beginning in 2002, 2003, this business did not grow at all. It was about 0.2%, as they were under the consent decree in the United States.

In 2004 and 2005, it grew about 2% to 3%. In 2005, the momentum was at about 4%, and the second-half of this year, as Jeff indicated, in the third and fourth quarters of this year, the business has grown 7% to 9% in each one of those quarters, so you can see the impact of coming up from underneath that consent decree, getting back in the United States marketplace but continuing good global expansion at the same time. We feel we are on the upper end in that momentum on the growth curve.

On the next page is the deal economics. So we paid $8.1 billion for this asset. We are projecting revenues next year of about $2.9 billion. Down below are the multiples. You can see we paid in line with industry multiples, with EBITDA of about 15x. If you look at 2007 projections of about 11x EBITDA range.

Now, what is important to remember too is we paid I feel an industry multiple around an asset that is really beginning to gain momentum now too. We have the best asset in the marketplace, while at the same time, this asset has an unusual opportunity to grow because of the impact of the consent decree over the last few years.

On the right-hand side, you can see the revenue synergies on three years out of about $200 million. We will be able to put this together both globally and domestically, we feel. Down below the cost, remember in key healthcare, we have about $13 billion of cost, split up between base and variable cost. You add Abbott, brings in another $1.5 billion of cost, so we are looking to pull about 2%, 1.5% of cost out of this.

We have shown you we know how to do this with the Amersham and subsequent deals that we have done. We feel very confident. We have gone through due diligence. We will be able to do that with this deal too.

We think we can really leverage our capital position in this business. Remember, these are big, sophisticated pieces of equipment that are embedded in customers. As we lease the kind of diagnostic imaging machines that we have today, we will be able to take that same core competency and apply it here, and we think we will be able to expand our ROTC about 2 points.

So look, in total here, when you think about execution around this deal, we have to drive growth and we think we are seeing great momentum out of this business to combining with GE Healthcare and our relationships and capability. We feel strongly we will be able to grow the business.

Secondly, the services capability for synergies here is tremendous. Merging this with our services business and combining both installed base offers a tremendous opportunity for growth. Then also, the point of care side of this business and the international opportunities for growth also excite us.

We are excited about the deal. We look to close this in the first-half of ’07, and we cannot wait to get started on it.

With that, I will turn it over to -- oh, and the next page is, just as you look at the GE Healthcare in total. As Keith indicated, we ended off the year at $16.6 billion, with segment profit of $3.1 billion. For next year, in the M&I space, it is about a $20 billion business. Operating segment profit growing at about 20%, and think of us as the leader in diagnostic imaging, information technology, and also life sciences throughout the industry. Really well-positioned for the 21st century. This is the 21st century healthcare company in the sense that we focus on the whole idea of early health, of identifying disease early, with more and more sophisticated equipment, and driving efficiency in this system but also efficacy from a patient standpoint.

Multiple returns of recurring revenue, about 40%. You are going to see on the revenue streams, surrounded by services. Again, the services part of this helps the predictability of earnings, and I think it also helps to expand our services capacity, obviously. Every year we are going to drive for about 100 points annual of expansion, and that is in our calculations as we go forward for this business.

Again, we are excited about this. We think we will close here in the first-half of ’07, and we think it is a tremendous fit for GE Healthcare and for GE.

With that, I will turn it over to Scott. He is going to talk to you about aviation.

Scott C. Donnelly

That’s great, Joe. Thanks a lot. First of all, let me give you a quick update on where the business is. First of all, we think we have a great business in a great industry right now. Demand for aircraft, revenue passenger miles is growing all around the world. Emerging markets in China, India, the Middle East continue to be very strong. Low-cost carriers around the world continue to add capacity, and we are starting to see the big carriers in Europe and the Americas start to look at some pretty major re-fleeting that further generates opportunity.

Right now, we think we have great products at the right time. We have great relationships with both the airframe and our airline end-user customers. I think that is reflected when you look at the growth that we are seeing in both our original equipment, our new engine orders, as well as our services backlog.

So it is a business that has been growing organically very strongly. It is one that delivers consistent reliable margin expansion, and I think we have a great track record to build on.

So we have been looking for some time at expanding our position in this industry. As we look around, we look at Smiths Aerospace as a great opportunity. This is a company that also has a great reputation in the industry, has a great footprint in a number of technologies where we really believe you can add value to the customer through technological differentiation. They’ve got a great footprint in digital systems, electric power, which is an increasingly growing part of the marketplace, mechanical actuation systems, as well as a great technology and engine component supply area.

We think it is a great company. They have a lot of great technology. They have made some very smart investments on the next generation of aircraft platforms. We think they are well-positioned for growth, and frankly it looks like it is a great fit between what GE brings and what Smiths Aerospace has in their segment of the industry.

If you look at the product lines that Smiths Aerospace brings, digital systems, strength in the cockpit, from displays to platform computing, flight management systems. Particularly strong in the next generation of commercial platforms on the Boeing 787, the Airbus A380, and also a great position on a number of military aircraft, including the joint strike fighter in the U.S.

Also very strong in mechanical systems. Actuation that controls landing gear and flight control services and thrust reverser actuators. Again, very well-positioned on most of the important platforms going forward.

Electrical power, this is a segment that we have been looking at for quite some time, as more and more of the control and systems on the aircraft go electric, this is a big growth opportunity and Smiths has a great foothold on that position.

Also, these guys are a great supplier of engine components. In fact, a very important part of our supply chain with some great process capabilities that is important in our supply.

So if you look at what GE plus Smiths means, in addition to our position as a propulsion supplier, the investments they have made, the product line that comes with Smiths Aerospace really are technologies and products that help differentiate and add value to the platform, whether it is for the air-framer or for the end-user airline, by reducing weight, improving maintenance capability, improving and reducing the cycle time for the manufacturers -- these are all technologies that like the propulsion system, have a real value for both the air-framer and the end-user airline. So we think it fits very well.

If you look at a platform like a 787, in addition to our propulsion offerings, we now offer a very broad range of products that helps to differentiate and really add value to that product line, so it positions us I think very well going into the future.

If we look at the deal economics, it is a $4.8 billion cash deal. We believe this trades really consistent with the fair market value of companies that are out there in this space, so we think it is an appropriately priced transaction, and we think frankly we are buying an asset that has a lot of top-line opportunity because they are so well-positioned and have made good investments on aircraft that are going to be growth in the future, like the 787, the 380, 747, Dash 8, and joint strike fighters.

We clearly see revenue opportunities. We have already had some great customers with the airline customers that would love to see Smiths participating more in retrofit and upgrade opportunities out there in the marketplace, so I think we see great synergies with our distribution, our sales channels, and our relationship with the end-user airlines. Clearly there is an opportunity here for cost synergies. This is a strong company, one that is running in the low double-digit op margins and we can clearly see this is a mid- to high-teens op margin business going into the future.

Jeffrey R. Immelt

Thanks, Scott. You can see from both Joe and Scott that we have really I think bought good assets at the right time and are well-positioned for growth.

Just to wrap up on infrastructure, if you include the impact of both Vetco Gray and Smiths in this segment, you should have revenue and infrastructure up at $55 billion and segment profit growing about 20%, with a segment profit rate of 20%.

If you think about the infrastructure business, much the way Joe talked about, we have technical leadership. We have strong global leadership. We have broad solutions for our customers, and we have real opportunity for margin expansion and a very strong return on capital. If you think about now infrastructure and healthcare now in ’08 will be more than 50% of our company’s earnings.

Just quickly on the Detection joint venture, I believe that joint ventures are a good way to extend our reach and our ability to be competitive. Hitachi, we did a joint venture with Hitachi in the fourth quarter, announced it in the nuclear business. I look at the Smiths-GE Detection JV along the same lines. These businesses are very complementary.

We basically put them together based on current evaluations. I am very encouraged about the ability for this business to create value over the long term, and we think this makes us a stronger player in security, and we plan to be an active participant in security going forward. Again, we like this position as it pertains to where we go.

So just to wrap up a little bit on capital allocation and give you a look at the year, I will turn it back to Keith.

Keith S. Sherin

Thanks, Jeff. How do we pay for this? Here’s an update of the capital generation and allocation page we showed in December. The great news is we have a lot of financial flexibility. We have told you that.

On the left side is our available capital. We have cash carry-over from 2006, plus some other cash generation in the year, that’s $5 billion. We are planning on $23 billion in net income. We have dispositions, working capital for $12 billion. You can see the deals that have been announced on the right side that will give us those amounts. The GECS amount there represents the Swiss Re shares that over the year, we plan on monetizing.

So $40 billion of available capital. That is after we invest in R&D, that is after we invest in programming, that is after we spend our capital expenditures of more than $13 billion. So this is a tremendous amount of flexibility.

On the right side, we have said how we are going to use it. The dividends are going to grow in line with earnings. We increased the dividend. The Board did in December, to up 12%. We still have about a 3% dividend yield. We are going to continue to reinvest in financial services. With the earnings growth in financial services and GE Money and Commercial Finance, will leave about $7 billion of retained earnings in there that will fund growth.

We are doing $15 billion of acquisitions. I would say we have completed our acquisition plan for 2007, and we are committed to the buy-back. The buy-back will be in the second-half of the year. It will be tied to the disposition proceeds.

We are reinvesting in growth in the company and we are returning capital to shareholders at the same time, and we are growing our return on total capital. Return on total capital will be 19% in ’07 and on our way to 20% in ’08, even with the reinvestments and the redeployment. So a terrific financial flexibility page.

Jeffrey R. Immelt

So on page 42, just to give you a sense of, we are really making we think a better GE. If you think about how we have redeployed capital and you look at the advanced materials sale, the plastics sale, and internally generated cash flow, and with that we are investing in Vetco, we are investing in Abbott, we are growing through Smiths, we have a dividend and buy-back underway, so again, very strong performance overall.

With that performance, we think that the net, if you will, of industrial acquisitions remains about $7 billion or $8 billion as we go through that, so pretty much consistent with what we have committed and what we are doing outside. As Keith said, the return on total capital remains between 19 and 19.5 as we look at going out the year.

If you think about how the company looks in 2008 and beyond, 38% of our earnings will be in Infrastructure, where we have a great position and a fast-growth strong market; 32% in Commercial Finance and GE Money, where we have great position in a very strong market; 15% of our earnings in Healthcare -- we have a great position and a strong, growing market; 9% of our earnings in NBC-Universal, where we have turnaround on track and good progress towards our goals; 6% in Industrial, where we have great brand, strong, high-tech performance.

Importantly, as an opportunity, we have the ability to capitalize on all the big trends that we talked about in December, on global infrastructure, emerging markets, demographics, and things like that. We really feel like we have positioned the company for long-term growth and we feel very strongly that this is a better GE.

When you look at 2007, on a total year outlook, just so you can update your models and get a sense for how we are positioned, we think the revenues will be slightly higher than what we talked about in December. Earnings will be pretty much consistent with what we talked about before -- again, Keith talked about the restatement earlier, but earnings growth up about 10% to 12%.

Industrial, CFOA, again on plan with what we talked about in December, and return on total capital exceeding 19% as we look at 2007.

In the segment guidance, three segments change. Infrastructure goes from 15 to 20 to about 20%. Healthcare goes from 15 to 20 to 20%-plus. Industrial goes from about 5 to even, and NBCU, GE Money and Commercial Finance remain about the same, so the overall segment outlook, net net, is about the same as what we talked about before.

Total year EPS, we have taken kind of a penny off the low-end, so we have raised it from $2.18 to $2.23. That is 10% to 12% versus the restatement impact in 2006. Again, very consistent with what we talked about in December.

I just want to summarize by saying, you know, we talked about, throughout all of our strategic presentations, a focus on invest and deliver. We feel like we delivered a very strong 2006. The growth processes are delivering great results in orders and sales and asset growth. Operational performance is gaining momentum, and we have expansion in margins and returns. NBCU turnaround is on track, and we are really well-positioned for 2007 and beyond.

We have a dramatically improved business portfolio, a high-quality, consistent, and sustainable double-digit earnings growth capability, and tremendous financial flexibility with excellent cash flow and a solid triple A.

As Keith said, the restatement is disappointing, but we have a strong commitment to control our ship and we believe that all of our internal processes and the way we run the company is very strong.

We are executing on the strategy. We think we are making the company a better place, and again, invest and deliver and we think the long-term outlook for the company in 2007 and beyond is just a safe and reliable growth company, and one that is going deliver expanding margin rates, expanding returns, consistent earnings growth over time.

Dan, let me turn it back over to you.

Dan Janki

Great, thank you, Jeff. Candice, we would now like to open it up for questions.

Question-and-Answer Session


(Operator Instructions)

Our first question will come from the line of Robert Cornell of Lehman Brothers.

Robert Cornell - Lehman Brothers

It does seem like a lot of action going on here. You know, it raises the point -- you say you guys have been talking about Vetco Gray and Smiths and Abbott for quite a while. Why have these businesses come together all of a sudden here just in a brief period of time? Was it in the anticipation of the plastics proceeds, or something else at work?

Jeffrey R. Immelt

I think we have always got options around dispositions and things like that. I would just say in some ways it is just happenstance. You know, a similar thing happened in 2003 around Vivendi and Amersham, and I would just say it is just the way the processes work.

Vetco had been in a discussion for a while, as had Abbott. Smiths was really their call from the standpoint of how the process worked, but we have been thinking, again, as we model our business development activity, we had always looked at these companies over time, and so again, we consistently thought if we ever had opportunities here, that would be kind of the types of companies that we want to invest in.

Robert Cornell - Lehman Brothers

You know, you guys have talked historically before this year about targeting growth into the 10 to 15 area, and this year with all of the puts and takes, you are talking 10 to 12, but as you say, going forward, infrastructure, healthcare are so much a bigger part of the company. Is it too early to ask, what does the growth rate range look like for this reconfigured company?

Jeffrey R. Immelt

Again, Bob, I think what we want to be is a safe and reliable growth company. The emphasis in 2007 is on high-quality, so we really want to have a clearly outlined, high-quality number that everybody can depend on quarter after quarter after quarter. We took criticism for that in 2006. I understand that. I think it is important for us to deliver on that now.

I think if you strip away and you think about what we have done over the last five years, we had 40% of the portfolio five years ago that really was not capable of 10% earnings growth and 20% returns. Now that is approaching zero. So now we have almost nothing holding us back, and we have a lot of businesses -- you know, what Scott and Joe talked about is these two businesses that we have invested in have tremendous tailwind in terms of what we need to do and what we need to get done.

Robert Cornell - Lehman Brothers

It does look good. Just a more provincial question, to end up my questions, how did the economy, your served markets, both the U.S. and abroad, end ’06? Did it end with strength or with a whimper?

Jeffrey R. Immelt

I think our orders really speak for themselves, Bob. In the world that GE sees, clearly housing had a negative impact in Q4. Clearly automotive had a negative impact in Q4. Plastics saw both of those, but the demand for gas turbines, the demand for aircraft engines, the general healthcare spend, things like that, are still very robust.


Our next question will come from the line of Jeffrey Sprague. Please proceed.

Jeffrey Sprague - Citigroup

Good morning. Just kind of back along the issue of pipeline, Jeff, if I think about all this stuff coming to a head that you maybe worked on for years. Obviously there are probably other things in the pipeline that maybe you have worked on for years.

How do you manage now maybe something opportunistically happening that you did not expect? Would you by definition just push that out, or maybe these are the bigger moves you had envisioned in this multi-year plan and the acquisitions in general maybe are just smaller from here going forward, once we get into ’08, ’09?

Jeffrey R. Immelt

You know, Jeff, what I would say first of all, what I am committed to do is only using cash, expanding ROTC, consistent earnings growth, so no surprises on consistent earnings growth, and retaining the triple A. So as a backdrop, I have those four things that are on my mind all the time.

These deals fit within that, and like I said, it is almost happenstance that they happened when they did. If something was totally compelling out there that happened, I would think about other dispositions to fund it and things like that.

You know, what I said in December is there incident liquidity because of private equity out in the market, so we can always make trade-offs, but those four things are tattooed on my brain. It is the way the board compensates me, and we are just not going to make decisions that veer from that.

Jeffrey Sprague - Citigroup

A specific question on Abbott, I don’t know if you want to take it, Jeff, or if Joe is still on the line. I am wondering how quickly you can impact their product pipeline, and kind of thinking about growth separate and apart from the easy comp created by the consent decree, but actually impacting the product pipeline and how you recover share, other than using price. I would think it would be a product-driven approach to recover that market share.

Joseph M. Hogan

The great thing about Abbott is even on a consent decree over the last three years, they have invested heavily into R&D on new assays. So they have several assays, like hepatitis C, a full slate of those, just coming out.

What I like about it is it is not like we have to put a lot of focus on new products coming into this, because Abbott has maintained that. We see a great platform of products coming out.

What is nice about that too is these are unique, so it is not necessarily a price play. It is just a broader portfolio of assays that they move through.

Also, from a growth standpoint, the services side too. The services has never been a big profit driver for them, and our services business is in the 30% range from a return standpoint. We feel we will be able to drive more operational execution there and better pricing in that area to try to help drive some growth through.

So those two dimensions, Jeff, I think will help us a lot.

Jeffrey Sprague - Citigroup

Is it service just was not concentrated on, so others were doing it, or is there actually a redefinition of what can be called service in this business, as you try to reposition it?

Joseph M. Hogan

I would take one step back first. To be effective in services, you need scale, so I will give you an example. In our diagnostic imaging business, the logistics of shipping parts, we ship 6,000 parts a day. You have to have infrastructure in place, strong IT systems to be able to do those kinds of things. This business never had that kind of a scale capability. We will be able to merge that with ours.

Secondly is just how you position for value. A lot of our services contracts have to do with productivity. Driving productivity, you know, we have a performance solutions business where we have lien experts that we send to the customers around performance contracts that we get paid for.

There is a reagent stream in this whole thing, too. It is a constant reagent flow. You know that a reagent is just a fancy name for a chemical composition to identify certain antibodies and those kinds of things, and that is a constant flow-through stream that exists from a services standpoint also.

Jeffrey Sprague - Citigroup

Right, and then, maybe if I could just flip it back to Keith or Jeff for one last one, interesting the strength on the real estate, and obviously things are getting bid up, a bidding war for equity office properties right now. Are you guys more inclined to be sellers or buyers in this market? You have done a little bit of both, but I just wonder what your take is on the whole commercial property market today?

Jeffrey R. Immelt

We are both. I think the strength of our team is, the underwriting process, we look at the dynamics of the markets that we are investing in for capacity, supply and demand. We look at the future rent growth appreciation that we expect to see. We look at the economic activity in the regions that we are in, and so what we look for is opportunities where we think we can underwrite a transaction that has an opportunity for rents up or a change in the portfolio by reinvesting and then changing the nature of the investment in the region that you are putting the real estate in, so you may be able to go higher scale, you may be able to put a different set of office tenants in the property.

Then, over time, drive that rental growth and the net operating income improvement and then resell those properties.

We have a strategic plan that looks at investing in equity where we think we can get rental growth driven by supply/demand characteristics, and we are doing a lot of that. You know, you saw the assets up 52%, so we are continuing to invest globally. We see a lot of opportunities outside the U.S. Japan has been a terrific market for us, and we also see market opportunities inside the U.S. Cap rates have been very favorable, and the liquidity out there is just tremendous, as you know, with all these investment pools who need to get some good returns.

We have been able to invest smartly where we think we have good supply-demand characteristics, and we have been able to take advantage of the liquidity and realize benefits from the properties that we invested in previously, and we are able to realize the underwriting case that we had.

So we are doing both.


Our next question will come from the line of Nicole Parent of Credit Suisse. Please proceed.

Nicole Parent - Credit Suisse

Good morning. I guess just first, big picture, two organizational structure questions. The first one would be for Joe. When we think about the organization, you have now integrated Amersham. You are going to have Abbott. You have a broader portfolio of products. It looks like you had some changes in the organization. You have new heads of surgery and different things. Could you just talk about the organization’s capacity? As you look at the direction achieved going forward, how does that change how the business is run?

Joseph M. Hogan

On this question on the organizational structure side, we try to organize around discreet P&Ls. You saw as we brought Amersham in and we broke that business up into two areas. One is their diagnostic pharmaceutical side that has done extremely well, that reports directly into me. And then also on the life sciences side, under Peter [Aaronheimer], $1.5 billion.

If I interpret your question correctly, we will do the same thing here with Abbott. We will bring Abbott in as an in-vitro diagnostics P&L that reports to me. Most important, when you get underneath that, Nicole, is how we run the services business versus the reagent business day in and day out.

We will probably have to break those up in the sense of making sure we get good visibility on the services side as we try to drive the efficiencies that exist there.

But think about, Nicole, as you think about the organizational capability to do this kind of thing. We have been through the Amersham acquisition for the last three years. We have a very battle-hardened integration crew that knows what to do and how to go in and drive an integration like this, and so we take a number of those resources and we redeploy them on this asset.

I am very much aware of what my organization capability is to do something like this. This is a big deal, but since we are through the Amersham piece, and what is great is we have a lot of experience through that, we can take a lot of that experience and apply it to here.

I hope that addresses what you asked.

Nicole Parent - Credit Suisse

Absolutely, thanks, Joe. And I guess, Jeff, with part of the security detection business going to the Smiths JV and you are going to be out of plastics and advanced materials by year-end, do we see a reorganization or the remainder of C&I folded into another platform? How should we think about that from an organizational perspective?

Jeffrey R. Immelt

I am not changing the organization again.

Nicole Parent - Credit Suisse

Excellent. Glad to hear it.

Jeffrey R. Immelt

Believe me, I learned my lesson last time.

Nicole Parent - Credit Suisse

Okay, and one last one, just maybe with Scott on the call. Within aviation, you had service revenues up 22% in the quarter. Could you just talk about how we should think about these margin dynamics in the quarter? Then also, as you look ahead to R&D investment, when we think about the next gen aerobody, longer term, how do we think about the R&D investment in the business?

Scott C. Donnelly

I think we have had, to talk about the R&D side, a huge commitment on R&D. We continue to have a run-rate in excess of $1 billion as we have been investing in this generation of engines, particularly into the wide body market. I expect we are going to have to continue that little commitment to R&D as we go into the future for the next generation aerobody.

In fact, we are already spending a good deal of money last year, we have a good deal of money this year, looking at the technologies that are going to be required to be on the replacement products for the 737, the A320 family.

I think for us, the deal has been that regardless of whether the cycle is going up or down, we just make a continued investment to ensure that we have the right products for all those new aircraft platforms, and I think we are going to stay with that. It has absolutely been working for us.

You are right. We had big Vs in our service business in the fourth quarter, which delivered great margin for us. We also continued to see strong revenue on the original equipment, as we are shipping record numbers of new engines. We did have some dilution in the fourth quarter and frankly, what happened was we had a deal that goes back to the late 90s, with an airline in Brazil. We had an outstanding receivable, which at the time was done by them compensating us with some tax credits. There has been five or six years of litigation around that thing, and what happened in the fourth quarter was a window opened up for a tax amnesty with the Brazilian Government, and we felt it was prudent to bring some consistency and frankly, cap our exposure. So we took the write-off on that, and that created a little bit of dilution. Had we not had that, we would have seen about 14% on the bottom line expansion.


Our next question will come from the line of Deane Dray of Goldman Sachs. Please proceed.

Deane Dray - Goldman Sachs

Thank you, good morning. Let me go back to Joe for a moment, please. We can hear your enthusiasm about starting off with an operating margin at 10%, and it does sound as though that has been depressed because of the consent decree. Just give us a sense of how much do you think, what the normalized operating margin might be, and then what sort of step function should we see in terms of margin improvement?

Joseph M. Hogan

Yes, it is 10% operating margin today. I think it is important to look back before the consent decree four years ago, this is a 19% operating margin business. That is not an uncommon operating margin percent in in-vitro diagnostics business on that end. So it is my expectation that we will drive the business back to that area.

I think it is reasonable to expect to a 1 point to a 1.5 point year of incremental improvement. I mean, that is what I am going to have to drive for. That is what we are going to have to do to reach the numbers that we need to hit in this business.

If anyone would understand this piece, it is you in the sense of this is not just about cost here. The point of care business within this unit grows anywhere between 20% and 30% a year also. We think we can enhance that with increased distribution we have throughout our business. The global component of this also will allow us to expand that growth.

The last piece, the assets of this business, which you know are capital intensive. We are only running at about 40% of capacity. By running more revenue over top of that in those three dimensions I just talked about, we think we will be able to drive that kind of operational leverage too.

Deane Dray - Goldman Sachs

How does the business mix look today? We have touched on services -- just a rough split, equipment, consumables, service?

Joseph M. Hogan

The way this is, it is hard to break it out that way, but think about the reagent stream is about 40% of recurring revenue. The large lab machines are embedded within these facilities, and often the contracts are written around the reagent stream that flows through there.

I think you can safely say that about 60% of this would be equipment and 40% is recurring kind of revenue stream.

Deane Dray - Goldman Sachs

Terrific. Then, if I can, I have a question for Keith. If we go back to the slide on deal impacts, we can see you assumed accretion from the three deals of $0.04 for ’07. Take us through the assumptions on the buy-back timing and interest rate cost impact. What are the financing assumptions for the three deals? What should we see in terms of financing the size of rating agencies reaffirm the triple A? Could you sell some of the Swiss Re position sooner? How might that $0.02 actually be less?

Keith S. Sherin

Basically what we are doing is we are going to do these deals for cash. Jeff showed you the timing of when we think we will close them. We can do all those deals and we anticipate doing all those deals before the disposition of plastics. So we are prepared to have our borrowings go up in the first half. You saw we have cash carry-over. We will have the borrowings go up and then we will pay that down as we do the disposition of plastics and generate cash flow from operations.

Basically what we are saying there, the $0.02, is that the cash borrowing costs, in the interim until we get the debt levels back down by the end of the year, and the timing of the buy-back being pushed into the second-half, create what we think will be the equivalent of $0.02. It is close enough, Deane, in terms of how we have estimated that. We will obviously try to optimize that.

Deane Dray - Goldman Sachs

And the potential tax leakage on the plastics transaction?

Keith S. Sherin

Well, we have anticipated what the tax impact will be and what we think the gross price and the net proceeds that we need are, so we will have to work our way through that.

Deane Dray - Goldman Sachs

Okay, thank you.


Our next question will come from the line of Scott Davis of Morgan Stanley. Please proceed.

Scott Davis - Morgan Stanley

Good morning, thank you. How do you think about -- the three transactions that you did, there is certainly some -- in figuring out kind of a day one cash on cash return is a little challenging for us, given the limited information and also that Vetco was private, but how do you think about 2008? I understand your long-term goal is to get these businesses up into the mid-teens returns, but how should we think about 2008 and where your returns on capital on those three businesses will be? Just to get a sense of really what the economics of these transactions are.

Keith S. Sherin

You know, we are on a path. I think if you look at our -- first of all, in 2008, you are only going to have -- it will be the first full year and it will be compared to a partial year in 2007. What we have said is that we are going to get our weighted average cost of capital return run-rate by the end of year two. We are going to get to, as Jeff said, on the Abbott deal, we will be at 14% cash on cash return by year five, and we are higher than that in the other two transactions.

What you have to remember is we have a core company that has great returns on capital, that is growing earnings and is very capital efficient, and that is allowing us to make these investments in new product lines while still growing return on total capital for the whole company.

So we are able to make these investments, grow them over time, and get the returns up in line with making a good return on investment for incremental cash use, and put it into a portfolio that has fantastic returns on capital, cash-generating capability and cash efficiencies.

I think that we think through this the same way we thought through all the transactions that we have done over the last five years, and these look terrific for us, on strategy and very financial accretive.

Scott Davis - Morgan Stanley

Let me ask the question a slightly different way then. I think GE historically has been extremely successful in taking out cost synergies and maybe not quite as successful in achieving revenue synergies. That is why I chose 2008, because you are probably going to have a couple of quarters to really start to take costs out, but it will be a little bit early to really achieve a lot in revenue synergies.

Am I just asking for the wrong timeframe? I mean, I am just trying to get a feel for are these 6% return acquisitions, are they 10%? You know, when you take cost synergies out and not really the revenue synergies to make the deal work?

Keith S. Sherin

You are talking about in year one?

Scott Davis - Morgan Stanley

Yes, really the first full year.

Keith S. Sherin

Look, I think the way we try to model these, and they do not all do it, is to at least hit our weighted average cost of capital by year two. So that is 9% or 10% by year two. My belief is that even though the synergies may take some time, we will get a good pop in year one from that.

Look, we showed you $0.08 accretion after tax in ’08.

Scott Davis - Morgan Stanley

Yes, no, and I cannot get there with my numbers, and that is why I asked the question. I’m just trying to get a feel for, are you assuming revenue synergies above and beyond what I am assuming? I am struggling to get there with just taking cost synergies out.

Keith S. Sherin

We can help you on that.

Scott Davis - Morgan Stanley

Okay. Moving on, and I hate to be a -- I know year over year margin improvements were substantial, but margins did come in below our forecast for the quarter. I am guessing that is because some of the restructuring, the pay-as-you-go stuff that you put through the P&L. Could you talk to us a little bit about where the restructuring took place? Maybe I can get a better feel for really where the margin, the true apples-to-apples margins were for the quarter?

Keith S. Sherin

First of all, what I would say is what we were expecting, we hit. I think the delivery was what was in line with what we both said. It was better than what we said when we did the margin meeting last year and it was in line with what we committed to in December when we said the margins were going to be a little better than our third quarter guidance, so we feel pretty good about it.

In terms of where the restructuring shows up, I would say the majority of it is in corporate. Probably about 260 of the $390 million is in corporate, and about 130 of it is in the segments, principally infrastructure.

If you look, there were restructuring activities in aviation, in Brazil, as Scott said. There was some inventory adjustments. There was some oil and gas downsizing. There was some water downsizing, and then there was some cash activity where we exited some product lines.

I think that would be the one place that had segment. The rest of it, for things like the NBC and the closing of the plants in industrial and the hydro, we took that corporate. You can see that in the other income line.

Scott Davis - Morgan Stanley

Okay, good, that is helpful. Lastly, for Joe, I guess I will be the moron on the call, because I am not as familiar with the consent decree and the history with Abbott, but maybe Joe can give us a little bit of a history and background of what caused the consent decree, what the outlook and timing is of really being able to get back on track without the FDA supervision?

Joseph M. Hogan

Sure, Scott. The consent decree came down in 1999. A consent decree has to do with when you operate a healthcare business like this, you are underneath FDA guidelines. This is a case where the product -- there weren’t any quality problems in the field, but their quality processes in the plant. Things like design controls, which is how you design your product or incoming raw materials and how you inspect those things. There are very detailed processes on how those things are supposed to occur based on what the FDA thinks.

The FDA, on an audit, had found that Abbott was deficient, gave them a warning letter probably in ’98 or ’99. They did not feel they made enough progress, so they put them under a consent decree.

The consent decree basically means the FDA is going to oversee your plant. There are going to be standard audits on it and they are going to control your new product introduction until you are actually able to ship, and then watching how you ship your current product, in this case with Abbott.

So what happened is over those years, 2000, 2001, 2003, Abbott worked very diligently on their quality processes. Beginning in 2003, the FDA began to let them qualify new products, but it takes a while to get those products again through the pipeline. You saw some of those begin to come out in the second-half of ’05, beginning in ’06, and then we see that really coming out.

Picture it, Scott, almost like a throttle. As the FDA gains more confidence that your quality control processes are in line with what their expectations are, they will give you more degrees of freedom.

You have to think in terms of consent decrees, that they last for five years and after that, you have to petition to have them removed, when you are more comfortable with that.

As we move forward with this, we understand what our obligations are in that consent decree. We will work very closely with the FDA, but we feel good about the progress that Abbott’s made and the relationship they have developed with the FDA over this time period.

I hope that helps, Scott.

Scott Davis - Morgan Stanley

It does, and just a comment to Keith and Jeff, it is really helpful to have guys like Joe and Scott on the call, too, so if we could do that in the future, that would be just super. Thanks, guys.


Our next question will come from the line of Robert McCarthy with Banc of America Securities. Please proceed.

Robert McCarthy - Banc of America Securities

First, just a question for Jeff. The 5% of businesses left I think we know what those candidates are that you believe are low ROTC and volatile. Perhaps you could talk about the prospects for divesting those. There might be some structural issue with respect to those.

And then also, could you just talk through the decision process or thought process which made you finally capitulate on your plastics and put it up for divestiture?

Jeffrey R. Immelt

I will start with the second one first. I would say kind of as the philosophy that we have here and that I would say the board shares, is when we are convinced that a business might be better run outside GE than inside GE, we divest. This is how we thought about insurance and others.

When I look at plastics today, I think it is a world-class franchise. I do not think it has to be triple A. I think it can be put together. You know, there is real consolidation opportunities that we did not want to be a consolidator in that they can now utilize.

I think there are people that are basic in feed stock, Middle Eastern companies, Russian companies that are basic in feed stock to whom plastics will be very attractive. Since we did not want to backward integrate, we think somebody else can forward integrate.

When we looked at all the strategic considerations, we just could not add enough value to be successful. We can put up with cyclical businesses inside the company, but it is hard to put up with volatile businesses inside the company, or I would say unpredictable businesses.

So in some ways, plastics took on the same characteristics as reinsurance did over time.

The other obvious candidate, Rob, is consumer industrial. The way I would think about consumer industrial, it is driven by the brand. It is a 40% return on total capital business. It is a strong cash flow business. It is one you can innovate around. Clearly we could do something with that at any point in time we wanted too, but I do not see that in the same way that I see plastics.

Long term, we are going to continue to redeploy capital from slower growth into higher growth and build a stronger company.

Robert McCarthy - Banc of America Securities

Understood, and then one for Scott. Obviously one thing your acquisition of Smiths would seem to indicate is a confirmatory data point about the durability of the aerospace cycle. Could you maybe talk about where you see the cycle over the next three to five years? How long do you think it will be? What do you think is the biggest risk at this point?

Scott C. Donnelly

Well, I think obviously the cycle continues to be strong. We see that continuing at least for the next few years. The order book reflects that. A huge backlog in both wide body and narrow body aircraft.

If you look around the world, the strong part about this I think is that it is very broad-strength. It is in emerging markets and in developing countries. It is still a great opportunity for re-fleeting of older fleets in European and U.S. fleets that we think are going to happen.

There is everything about economics and the number of people now that can afford to fly continues to blossom, so the passenger miles continue to grow and that is obviously going to be dictating both new equipment as well as utilization, which fuels our service business.

It is a cyclical business. I do not think anybody questions that. In terms of what causes the thing to flatten out or turn down is I think at this point hard to figure out, other than something that would be a shock to the whole system. We just do not see something from a demographic standpoint or economic standpoint because of the broad strength around the world that would slow it down inside five years.

Robert McCarthy - Banc of America Securities

All right, and then one final one, just in terms of the broad economic overlay. Jeff, could you discuss maybe just the impact of this broad retrenchment in oil, kind of hovering around $50 right now? If that trend continues or flattens, what is the near-term impact to the portfolio on operating performance?

Jeffrey R. Immelt

What I would say is the oil at $50 is still three times higher than it was for the 20 years preceding 2003. There is still a lot of capital being invested in new finds. There is still a real premium placed on the industry to continue to drive more growth.

I do not think it has hit a cross-section point, Rob, in terms of the long-term impact in terms of how people see an elevated oil price, even though it is not quite as high as it was two months ago.


Our next question will come from the line of Ann Duignan of Bear Stearns. Please proceed.

Ann Duignan - Bear Stearns

Good morning, everybody. A question on the acquisitions. If you look at the geographic mix of the newly acquired business versus the geographic mix of the plastics business, net net, is there any likelihood that there will be a change in your tax rate going forward?

Keith S. Sherin

We will have to see. I think it is probably -- I would say it is probably going to be a little higher on these deals than what we have in plastics, but we will have to see.

Jeffrey R. Immelt

Yes, I mean, it is roughly probably 50-50 when you look at it. I think it is something we will have to get back to you on.

Ann Duignan - Bear Stearns

Okay, because it does appear, if you look at Abbott and look at Smiths, they are a little bit more European focused, or non-U.S. focused than the plastics business, perhaps which might suggest a lower tax rate in the long-term.

Keith S. Sherin

I do not think it is going to do that. I think if I look at the current global plastics tax rate and I think about the two deals that we just talked about and I look at them, I think you are not going to have an impact that will lower the tax rate. I am pretty sure of that.

Ann Duignan - Bear Stearns

Okay. On the Abbott business, do you expect that longer term, you might start to move into some more segments in the industry, such as clinical chemistry or hematology?

Joseph M. Hogan

We have a great hematology business through this acquisition, in both blood screening and in blood analysis. It is about $300 million a year when you combine those two together.

If you look at the blood bank in the United States, Abbott is, American Red Cross and those agencies that really bring that together, Abbott has about 67% to 70% of that market share, so it is very strong.

On the records diagnostics piece, I think is your second question. It is kind of a branch out. We will approach that through our life sciences business, because we have a little bit of that right now. We thought it was better to build it out from that platform than to try to acquire that or piece that together.

Ann Duignan - Bear Stearns

Okay, and then, I would be remiss if I did not ask my usual question about renewable energy. Could you just give us an update on the wind business, how that finished the year in terms of revenues and profits and units shipped? And what you are seeing out there for ’07, is there any relief on the supply side?

Keith S. Sherin

Wind had a pretty good quarter. We had 670 units in the fourth quarter. That was versus 730 last year, but if you look at it, the price on those units actually gave us an increase in revenue. We are continuing to see very strong orders. The PTC got extended, as you know.

In the first quarter, we think we will probably have around 350 units. For the total year of 2006, we did 2100 units, and the last year we did 1570 units. So this business has really got a great backlog. It has good technology. We really have a product here that is winning in the marketplace and the team has done a terrific job. That continues to be very strong, Ann.

Jeffrey R. Immelt

The interest in renewables, Ann, is only accelerating.

Ann Duignan - Bear Stearns

Yes, we expect President Bush to address that next week at the State of the Union. I think Peter has a follow-up on the financial services side.

Peter Nesvold - Bear Stearns

Actually, I am going to join Scott as the second moron on the call. A question for you, Keith. GE went through FAS-133 restatement just a short while ago. Less than a year-and-a-half later, we are going through it again. Given that you have put new financial controls into place, how is it that this is an issue that recurs? Granted, it is enormously complex, but why isn’t this an issue that comes up again?

Keith S. Sherin

I think the issue for us is that this is an issue that goes back to adoption of FAS-133. We designed a program for our commercial paper hedging back at adoption, so you are back in 2001. We reviewed it with our technical people here, our corporate audit staff, and our auditor, KPMG, and they said this meets what we need to do for FAS-133.

Now, we have run that program since then. In 2006, the SEC has asked us to look at the specificity requirement according to FAS-133. Our auditor has reconfirmed that our program met FAS-133, and the SEC has determined that it did not.

This is a difficult one for me from a control perspective, when I have our internal team and experts. And I would say it is related to the complexity of 133 and the precision you have to have to apply 133.

We have increased our efforts to make sure we comply with the controllership requirements of 133 and I am going to get it right, but this is the one where we have a technical call where we have experts who think we did it right and they have experts who think we had to change it, and we are going to change.

I do not think it is systemic in any way, but I will say that around hedging and 133, it is very challenging.

Dan Janki

I think we are all done with questions at this point. I will turn it over to Jeff.

Jeffrey R. Immelt

Thanks, Dan. I know we had a lot to give you. One of the things that I want to just make sure is clear as we leave here, because I think it is very important, and that is the notion of gains being offset by restructuring. I just want to reiterate that one more time to say look, we had an advanced materials business that we sold. The impact of that was a lower tax rate as we got the gain, and those gains were applied to do restructuring and other charges inside the company.

As we go into 2007, we have got gains that are going to drive restructuring in 2007, and so this is going to be -- what we did in the fourth quarter is going to be very consistent with what we do as we go into 2007 and beyond.

We now have the opportunity to reapply in a way that we couldn’t while we had reinsurance back into the long-term cost position and growth of the company.

I know that is a tough thing to trace through the segments and things like that, but I just want to keep pounding home that point, because I think it is important in terms of how you view the quarter, which we view as a high-quality quarter. As we go into next year, the commitment to 10% to 12% earnings growth, with the gains not falling through but the gains being applied to restructuring of the company as we look forward into the future.

So a lot going on. We think we have made the company dramatically stronger in the last few weeks, and we feel very strongly that 2007 is going to be a high-quality, low-risk, double-digit earnings growth year, and 2008 and 2009, this is a much better company with the opportunity for faster growth and high returns and real benefits for investors.


Dan Janki

Great, thanks, Jeff. We want to thank everybody for hanging in there with us past 10:00. The webcast replay will be available on our website, along with transcripts, and Joanne and I are around all day to answer questions, so thank you very much.


This concludes your conference call. Thank you for your participation today. You may now disconnect.


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