GE 2005 Annual Report Download - page 52

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• It is our policy to minimize exposure to interest rate changes. We fund our financial investments using debt or a
combination of debt and hedging instruments so that the interest rates and terms of our borrowings match the
expected yields and terms on our assets. To test the effectiveness of our positions, we assumed that, on January
1, 2006, interest rates increased by 100 basis points across the yield curve (a “parallel shift” in that curve) and
further assumed that the increase remained in place for 2006. We estimated, based on that year-end 2005
portfolio and holding everything else constant, that our 2006 GE consolidated net earnings would decline by
$0.2 billion.
• It is our policy to minimize currency exposures and to conduct operations either within functional currencies or
using the protection of hedge strategies. We analyzed year-end 2005 consolidated currency exposures, including
derivatives designated and effective as hedges, to identify assets and liabilities denominated in other than their
relevant functional currencies. For such assets and liabilities, we then evaluated the effects of a 10% shift in
exchange rates between those currencies and the U.S. dollar. This analysis indicated that there would be an
inconsequential effect on 2006 earnings of such a shift in exchange rates.
Restated Statement of Changes in Shareowners’ Equity
Shareowners’ equity decreased $1.6 billion in 2005, and increased $31.2 billion in 2004 and $15.7 billion in 2003.
Changes over the three-year period were largely attributable to net earnings, partially offset by dividends declared of
$9.6 billion, $8.6 billion and $7.8 billion in 2005, 2004 and 2003, respectively. In 2005, we purchased $5.3 billion
of GE stock (153.3 million shares) under our $25 billion share repurchase program. In 2004, we issued 341.7 million
shares of stock in connection with the Amersham acquisition, which increased equity by $10.7 billion, and 119.4
million shares of stock to partially fund the combination of NBC and VUE, which increased equity by $3.8 billion.
Currency translation adjustments decreased equity by $4.3 billion in 2005, compared with a $3.9 billion increase in
2004. Changes in currency translation adjustments reflect the effects of changes in currency exchange rates on our
net investment in non-U.S. subsidiaries that have functional currencies other than the U.S. dollar. In 2005, the U.S.
dollar strengthened against the pound sterling and euro. In 2004, the pound sterling, euro and, to a lesser extent,
Asian currencies strengthened against the U.S. dollar. See note 23. Accumulated currency translation adjustments
affect net earnings only when all or a portion of an affiliate is disposed of or substantially liquidated.
Overview of Our Cash Flow from 2003 through 2005
GE cash from operating activities (CFOA) is a useful measure of performance for our non-financial businesses and
totaled $21.6 billion in 2005, $15.2 billion in 2004 and $12.9 billion in 2003. Generally, factors that affect our
earnings-for example, pricing, volume, costs and productivity-affect CFOA similarly. However, while management
of working capital, including timing of collections and payments and levels of inventory, affects operating results
only indirectly, the effect of these programs on CFOA can be significant. Excluding progress collections, working
capital improvements benefited CFOA by $2.8 billion since 2002, as we applied our Lean Six Sigma and other
working capital management tools broadly.
Our GE Statement of Cash Flows shows CFOA in the required format. While that display is of some use in
analyzing how various assets and liabilities affected our year-end cash positions, we believe that it is also useful to
supplement that display and to examine in a broader context the business activities that provide and require cash.