GE 2009 Annual Report Download - page 53

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GE 2009 ANNUAL REPORT 51
• The change in fair value of investment securities increased
shareowners’ equity by $2.7 billion in 2009, reflecting improved
market conditions related to securities classified as available
for sale, primarily corporate debt and mortgage-backed
securities. The change in fair value of investment securities
decreased shareowners’ equity by $3.2 billion and $1.5 billion
in 2008 and 2007, respectively. Further information about
investment securities is provided in Note 3.
• Changes in the fair value of derivatives designated as cash
flow hedges increased shareowners’ equity by $1.6 billion in
2009, primarily related to the effect of higher U.S. interest
rates on interest rate swaps and lower foreign rates on cross-
currency swaps. The change in the fair value of derivatives
designated as cash flow hedges decreased equity by $2.7 billion
and $0.5 billion in 2008 and 2007, respectively. Further infor-
mation about the fair value of derivatives is provided in Note 22.
As discussed previously in the Liquidity and Borrowings section,
we took a number of actions in 2008 and 2009 to strengthen our
liquidity and our credit rating. Such actions also had an effect
on shareowners’ equity, which included a $15 billion addition to
equity through common and preferred stock offerings in the
fourth quarter of 2008 and reduction in the dividend on GE stock,
which had a $4 billion positive effect on equity in 2009.
Overview of Our Cash Flow from 2007 through 2009
Consolidated cash and equivalents were $72.3 billion at December 31,
2009, an increase of $24.1 billion from December 31, 2008. Cash and
equivalents totaled $48.2 billion at December 31, 2008, an increase
of $32.5 billion from December 31, 2007.
We evaluate our cash flow performance by reviewing our
industrial (non-financial services) businesses and financial services
businesses separately. Cash from operating activities (CFOA) is
the principal source of cash generation for our industrial busi-
nesses. The industrial businesses also have liquidity available via
the public capital markets. Our financial services businesses use
a variety of financial resources to meet our capital needs. Cash
for financial services businesses is primarily provided from the
issuance of term debt and commercial paper in the public and
private markets, as well as financing receivables collections, sales
and securitizations.
GE Cash Flow
GE cash and equivalents were $8.7 billion at December 31, 2009,
compared with $12.1 billion at December 31, 2008. GE CFOA
totaled $16.6 billion in 2009 compared with $19.1 billion and
$23.3 billion in 2008 and 2007, respectively. With respect to GE
CFOA, we believe that it is useful to supplement our GE Statement
of Cash Flows and to examine in a broader context the business
activities that provide and require cash.
December 31 (In billions) 2009 2008 2007
Operating cash collections (a) $104.1 $115.5 $ 102.8
Operating cash payments (87.5) (98.8) (86.8)
Cash dividends from GECS —2.4 7.3
GE cash from operating activities
(GE CFOA) (a) $ 16.6 $ 19.1 $ 23.3
(a) 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. During
any given period, GE receives cash from the sale of receivables to GECS. It also
foregoes collection of cash on receivables sold. The incremental amount of cash
received from sale of receivables in excess of the cash GE would have otherwise
collected had those receivables not been sold, represents the cash generated or
used in the period relating to this activity. The incremental cash generated in GE CFOA
from selling these receivables to GECS increased GE CFOA by an insignificant amount
and $0.1 billion in 2009 and 2008, respectively. See Note 26 for additional information
about the elimination of intercompany transactions between GE and GECS.
The most significant source of cash in GE CFOA is customer-
related activities, the largest of which is collecting cash following a
product or services sale. GE operating cash collections decreased
by $11.4 billion in 2009 and increased by $12.7 billion in 2008.
These changes are consistent with the changes in comparable
GE operating segment revenues. Analyses of operating segment
revenues discussed in the preceding Segment Operations section
are the best way of understanding their customer-related CFOA.
The most significant operating use of cash is to pay our
suppliers, employees, tax authorities and others for a wide range
of material and services. GE operating cash payments decreased
in 2009 by $11.3 billion and increased by $12.0 billion in 2008.
These changes are consistent with the changes in GE total costs
and expenses.
GE CFOA decreased $2.5 billion compared with 2008, primarily
reflecting the lack of a current-year dividend from GECS ($2.4 bil-
lion). In 2008, GE CFOA decreased $4.2 billion compared with
2007, primarily reflecting a decrease in the dividend from GECS
of $4.9 billion.
Dividends from GECS represented the distribution of a portion
of GECS retained earnings and are distinct from cash from continu-
ing operating activities within the financial services businesses.
The amounts included in GE CFOA are the total dividends, includ-
ing normal dividends as well as any special dividends from excess
capital, primarily resulting from GECS business sales. Beginning
in the first quarter of 2009, GECS fully suspended its normal
dividend to GE.