Overview of Our Cash Flow from 2002 through 2004 (pages 61-62)
GE cash from operating activities (CFOA) is a useful measure of performance for our non-financial businesses and totaled $15.2 billion in 2004, $12.9 billion in 2003 and $10.1 billion in 2002. 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 $2.7 billion since 2002, as we applied our inventory Lean Six Sigma and other working capital management tools broadly.
Our GE Statement of Cash Flows on page 62 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 it is also useful to supplement that display and to examine in a broader context the business activities that provide and require cash.
| December 31 (In billions) | 2004 | 2003 | 2002 | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Operating cash collections | $ | 81.6 | $ | 68.4 | $ | 67.5 | |||
| Operating cash payments | (69.5 | ) | (58.9 | ) | (59.4 | ) | |||
| Cash dividends from GECS | 3.1 | 3.4 | 2.0 | ||||||
| GE cash from operating activities | $ | 15.2 | $ | 12.9 | $ | 10.1 | |||
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 about $13.2 billion during 2004 and by about $0.9 billion during 2003. These increases are consistent with the changes in comparable GE operating segment revenues, including the 2004 effects of our acquisition of Amersham and the combination of NBC and VUE. Analyses of operating segment revenues on page 52 is 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 the wide range of material and services necessary in a diversified global organization. GE operating cash payments increased in 2004 by about $10.6 billion, primarily because of the effects of our acquisition of Amersham and the combination of NBC and VUE, and decreased in 2003 by about $0.5 billion.
Dividends from GECS represented distribution of a portion of GECS retained earnings, including proceeds from certain business sales, and are distinct from cash from operating activities within the financial services businesses, which increased in 2004 by $4.7 billion to $26.1 billion and decreased in 2003 by $0.1 billion to $21.4 billion. Financial services cash is not necessarily freely available for alternative uses. For example, certain cash generated by our Insurance businesses is restricted by various insurance regulations. See note 23. Further, any reinvestment in financing receivables is shown in cash used for investing, not operating activities. Therefore, maintaining or growing Commercial and Consumer Finance assets requires that we invest much of the cash they generate from operating activities in their earning assets. Also, we have been increasing the equity of our financial services businesses as discussed on page 46. The amount we show in CFOA is the total dividend, including the normal dividend as well as any special dividends such as proceeds from business sales.
Based on past performance and current expectations, in combination with the financial flexibility that comes with a strong balance sheet and the highest credit ratings, we believe we are in a sound position to grow dividends, execute on our announced $15 billion share repurchase program and continue making selective investments for long-term growth. With the financial flexibility that comes with excellent credit ratings, we believe that GE and GECS should be well positioned to meet the global needs of its customers for capital and to continue providing our shareowners with good returns.
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