GE 2008 Annual Report Download - page 43

management’s discussion and analsis
ge 2008 annual report 41
GECS Cash Flow
GECS cash and equivalents aggregated $37.5 billion at
December 31, 2008, compared with $9.4 billion at December 31,
2007. GECS CFOA totaled $31.2 billion in 2008, compared with
$25.0 billion in 2007. The increase is primarily the result of
increased collections of interest from loans and finance leases
and rental income from operating leases, resulting primarily
from core growth and currency exchange; and increases in cash
collateral received from counterparties on derivative contracts.
These increases were partially offset by increases in interest
payments resulting from increased borrowings and taxes paid.
GECS principal use of cash has been investing in assets to
grow its businesses. Of the $28.6 billion that GECS invested
during 2008, $17.4 billion was used for additions to financing
receivables; $13.3 billion was used to invest in new equipment,
principally for lease to others; and $25.0 billion was used for
acquisitions of new businesses, the largest of which were
Merrill Lynch Capital, CitiCapital and Bank BPH in 2008. This use
of cash was partially offset by proceeds from dispositions of
property, plant and equipment of $11.0 billion and proceeds
from sales of discontinued operations and principal businesses
of $10.1 billion.
GECS paid dividends to GE through a distribution of its
retained earnings, including special dividends from proceeds of
certain business sales. Dividends paid to GE totaled $2.4 billion in
2008, compared with $7.3 billion in 2007. There were no special
dividends paid to GE in 2008, compared with $2.4 billion in 2007.
During 2008, GECS borrowings with maturities of 90 days or less
decreased by $31.3 billion. New borrowings of $122.5 billion
having maturities longer than 90 days were added during 2008,
while $67.1 billion of such long-term borrowings were retired.
Intercompany Eliminations
Effects of transactions between related companies are eliminated
and consist primarily of GECS dividends to GE; GE customer
receivables sold to GECS; GECS services for trade receivables
management and material procurement; buildings and equipment
(including automobiles) leased by GE from GECS; information
technology (IT) and other services sold to GECS by GE; aircraft
engines manufactured by GE that are installed on aircraft pur-
chased by GECS from third-party producers for lease to others;
medical equipment manufactured by GE that is leased by GECS
to others; and various investments, loans and allocations of GE
corporate overhead costs. See Note 26 for further information
related to intercompany eliminations.
The lack of a current-year counterpart to last year’s $2.4 billion
GECS special dividend and a $2.5 billion decrease in GECS ordinary
dividend are the primary reasons for the decrease in the amount
of intercompany eliminations referred to above.
December 31 (In billions) 2008 2007 2006
Operating cash collections $115.5 $102.8 $ 90.6
Operating cash payments (98.8) (86.8) (76.6)
Cash dividends from GECS 2.4 7.3 9.8
GE cash from operating
activities (GE CFOA) $ 19.1 $ 23.3 $ 23.8
The most significant source of cash in CFOA is customer-related
activities, the largest of which is collecting cash following a product
or services sale. GE operating cash collections increased by
$12.7 billion in 2008 and $12.2 billion in 2007. These increases
are consistent with the changes in comparable GE operating
segment revenues, comprising Energy Infrastructure, Technology
Infrastructure, NBC Universal and Consumer & Industrial. Analyses
of operating segment revenues discussed in the preceding
Segment Operations section is the best way of understanding
their customer-related CFOA.
The most significant operating use of cash is to pay our sup-
pliers, employees, tax authorities and others for the wide range of
materials and services necessary in a diversified global organiza-
tion. GE operating cash payments increased by $12.0 billion in
2008 and by $10.2 billion in 2007, comparable to the increases in
GE total costs and expenses.
Dividends from GECS represented distribution of a portion of
GECS retained earnings, including special dividends from proceeds
from certain business sales, and are distinct from cash from
continuing operating activities within the financial services busi-
nesses, which increased in 2008 by $6.2 billion to $31.2 billion,
following an increase of $3.4 billion in 2007. The amounts we show
in GE CFOA are the total dividends, including normal dividends
as well as any special dividends from excess capital, primarily
resulting from GECS business sales. Beginning in the third quarter
of 2008, we reduced our dividend from GECS from 40% to 10%
of GECS earnings.
GE sells customer receivables to GECS in part to fund the
growth of our industrial businesses. These transactions can result
in cash generation or cash use in any given period. The incremental
cash generated or used from the sale of customer receivables
(net effect) is the amount of cash received for receivables sold
in a period less the amount of cash collected on receivables
previously sold. This net effect represents the cash generated or
used in the period related to this activity. The incremental cash
generated in GE CFOA from selling these receivables to GECS
decreased GE CFOA by $0.1 billion in 2008, and increased GE CFOA
by $0.3 billion and $2.0 billion in 2007 and 2006, respectively.
See Note 26 for additional information about the elimination of
intercompany transactions between GE and GECS.