GE 2006 Annual Report Download - page 5

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To Our Investors:
I assumed the CEO job on September 7, 2001,
a fact most of you know. The week after
September 11, GE’s stock was in a “free fall.”
On September 21, GE opened at $29 and
then stabilized. As the stock hit $34 during
the fall, I bought 15,000 shares thinking,
“I love the Company and when will it ever
be this cheap again?” The answer turned
out to be — in 2006.
You can only believe one thing if you run GE or own GE stock:
Consistent earnings and cash flow growth, with expanding returns,
increase shareowner value. This is a long-term investment. There
are no short-term tricks.
We lead the Company to grow earnings and cash fl ow with
high returns. We invest and deliver consistently. If you take out
the effect of non-cash pension, over the last fi ve years we have
nearly doubled GE’s profits from $11 billion in 2001 to $21 billion.
Cash flow from operations has made similar progress, growing
to $24.6 billion. Our return, at 18.4%, has increased 220 basis
points in the last two years and is near our target.
We strive to be a reliable growth company. Our earnings
growth has been 11% over one year, 10% over fi ve years, 11%
over 10 years, 12% over 15 years and 11% over 20 years. Over
the past 20 years, the S&P 500’s earnings growth has averaged 8%.
The question is: Has reliable growth gone out of style?
Alternative investments such as hedge funds are very popular
today. GE’s PE ratio is only a modest premium to that of the
S&P 500, despite our strong performance.
We don’t believe reliable growth has gone out of style. We
know that reliable growth is always in style for long-term investors.
They look at the Company over an extended horizon, like I do.
They benefit from a company that anticipates change in the envi-
ronment and executes aggressively. This is your GE.
A reliable growth company must have the
courage to invest and the discipline to deliver.
It took courage to invest over $1 billion in a
new jet engine, such as the GE90, with minimal
returns for more than 10 years. Today, because
of these investments, GE enjoys exceptional
success in commercial aviation. The GE90
engine should generate $40 billion of revenues
over the next 30 years.
It took courage to invest $11 billion to acquire Amersham in
2004. This was our biggest industrial acquisition, and it gave us
capability in molecular diagnostics. Today, we have a transformed
Healthcare business that is a leader in the early detection
of disease.
At the same time, we will always be disciplined in our actions.
It takes discipline to be one of only six U.S. industrial companies
with a “Triple-A” balance sheet. It is tempting, particularly today,
to add more leverage. However, we like the fi nancial fl exibility of
a strong balance sheet.
ge 2006 annual report 3