Investing

Corporate Cash: Big Stockpiles for Tough Times


At a time when the economy is experiencing its steepest drop-off since the depths of the 1982 recession, it's perhaps not surprising that cash is the new black at big corporations—and the bigger the pile, the better. With that in mind, BusinessWeek sought out 21 U.S. outfits that most aggressively stockpiled cash in the most recent quarter. Collectively, this group of companies added $83.7 billion to their balance sheets. By contrast, they reduced their cash by a total of $808 million during the same quarter of 2007.

So what will these companies do with all of their cash? Some want to use the money to play extreme defense: General Electric (GE) added $33.6 billion to its balance sheet to amass a $50 billion hoard to make the company "more safe and secure in this environment," according to spokesman Russell Wilkerson.

The environment, at least in the stock market, has certainly turned hostile for GE recently. The company's shares fell to a 17-year low of $5.73 before closing at $6.69 on Mar. 4 amid rising worries about the health of its finance arm, GE Capital, into which the company pumped $9.5 billion of additional capital in February. On Feb. 27, GE's board of directors also announced the company is slashing its quarterly dividend by 68% starting in the second half of 2009. That move is designed to save the company $9 billion a year—giving GE even more financial flexibility.

Others are going on the offensive. Cisco Systems (CSCO), whose official filings say its recently raised cash will be used for "general corporate purposes," is widely believed to be looking for deals. Verizon Communications (VZ) has used much of its pile of cash to digest Alltel Wireless, making the company the nation's biggest cell-phone player. Altria (MO) used much of its cash to acquire smokeless tobacco manufacturer UST Inc.

Many other companies are considering an array of uses. Google (GOOG) plans to use its cash to pursue both strategic opportunities as well as to invest in its business, while DuPont says only that it wants to increase its flexibility. Qualcomm is considering using its cash for everything from dividends to buybacks to deals. "We think in this current environment we can be more opportunistic," says Qualcomm Senior Vice-President Bill Davidson.

Time Warner (TWX), which added $2.3 billion to its balance sheet in the most recent quarter, will be receiving another $9.2 billion in cash at the end of March after it spins off Time Warner Cable. The company plans to use the money for everything from dividends to paying down its debt to investing in high-growth areas of the media business. As for Apple (AAPL), CEO Steve Jobs pointed out to analysts last October that cash gives him the "ability to invest through this downturn." The last time Apple did that, in the dot-com bust, one result was the iPod.

Thornton is a senior writer for BusinessWeek. Jespersen is scoreboard department editor for BusinessWeek.

Emily_thornton
Thornton is a senior writer for BusinessWeek.
Jespersen is scoreboard department editor for BusinessWeek.

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