GE 2008 Annual Report Download - page 106

104 ge 2008 annual report
supplemental information
We have provided the GE Capital ratio of debt to equity on a basis
that reflects the use of cash and equivalents to reduce debt, and
with long-term debt due in 2066 and 2067 classified as equity.
We believe this is a useful comparison to a GAAP-based ratio of
debt to equity because cash balances may be used to reduce debt
and because this long-term debt has equity-like characteristics.
The usefulness of this supplemental measure may be limited,
however, as the total amount of cash and equivalents at any point
in time may be different than the amount that could practically
be applied to reduce outstanding debt, and it may not be advan-
tageous or practical to replace debt that does not mature for
more than 50 years with equity. Also, in February 2009, the GE
Board authorized a capital contribution of up to $9.5 billion to
GE Capital, which is expected to be made in the first quarter of
2009. The effect of this contribution on GE Capital equity is not
reflected in the ratio above. Despite these potential limitations, we
believe that this measure, considered along with the correspond-
ing GAAP measure, provides investors with additional information
that may be more comparable to other financial institutions and
businesses.
GE Income Tax Rate, Excluding GECS Earnings
(In millions) 2008 2007 2006
GE earnings from continuing
operations before income taxes $21,516 $25,251 $21,896
Less GECS earnings from
continuing operations 7,774 12,417 10,219
Total $13,742 $12,834 $11,677
GE provision for income taxes $ 3,427 $ 2,794 $ 2,552
GE effective tax rate, excluding
GECS earnings 24.9% 21.8% 21.9%
Reconciliation of U.S. Federal Statutory Income Tax Rate to
GE Income Tax Rate, Excluding GECS Earnings
2008 2007 2006
U.S. federal statutory income tax rate 35.0% 35.0% 35.0%
Reduction in rate resulting from
Tax on global activities including exports (8.2) (9.9) (12.2)
U.S. business credits (0.6) (0.6) (0.7)
All other —net (1.3) (2.7) (0.2)
(10.1) (13.2) (13.1)
GE income tax rate, excluding
GECS earnings 24.9% 21.8% 21.9%
We believe that the GE effective tax rate is best analyzed in relation
to GE earnings before income taxes excluding the GECS net
earnings from continuing operations, as GE tax expense does
not include taxes on GECS earnings. Management believes that
in addition to the Consolidated and GECS tax rates shown in
Note 7, this supplemental measure provides investors with useful
information as it presents the GE effective tax rate that can be
used in comparing the GE results to other non-financial services
businesses.
Cash Generated by our Industrial Businesses
(In millions) 2008
Cash from GE’s operating activities as reported $19,086
Less dividends from GECS 2,351
Cash from GE’s operating activities excluding dividends
from GECS (industrial CFOA) $16,735
We refer to cash generated by our industrial businesses as
“industrial CFOA,” which we define as GE’s cash from operating
activities less the amount of dividends received by GE from GECS.
This includes the effects of intercompany transactions, including
GECS services for material procurement, trade receivables
management and factoring; buildings and equipment leasing by
GE from GECS; information technology and other services sold
to GECS by GE; aircraft engines manufactured by GE that are
installed on aircraft purchased 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. We believe that
investors may find it useful to compare GE’s operating cash flows
without the effect of GECS dividends, since these dividends are
not representative of the operating cash flows of our industrial
businesses and can vary from period to period based upon the
results of the financial services businesses. Management recog-
nizes that this measure may not be comparable to cash flow
results of companies which contain both industrial and financial
services businesses, but believes that this comparison is aided
by the provision of additional information about the amounts of
dividends paid by our financial services business and the separate
presentation in our financial statements, of the Financial Services
(GECS) cash flows statement. We believe that our measure of
industrial CFOA provides management and investors with a useful
measure to compare the capacity of our industrial operations to
generate operating cash flow with the operating cash flow of other
non-financial businesses and companies and as such provides a
useful measure to supplement the reported GAAP CFOA measure.
Ratio of Debt to Equity at GE Capital, Net of Cash and
Equivalents and with Classification of Hybrid Debt as Equity
December 31 (Dollars in millions) 2008
GE Capital debt $510,356
Less cash and equivalents 36,430
Less hybrid debt 7,725
$466,201
GE Capital equity $ 58,229
Plus hybrid debt 7,725
$ 65,954
Ratio 7.07:1