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EX-31.A - GECC EX31A 09-30-09 - GENERAL ELECTRIC CAPITAL CORPgeccex31a0903.htm
EX-31.B - GECC EX31B 09-30-09 - GENERAL ELECTRIC CAPITAL CORPgeccex31b0903.htm
EX-99 - GECC EX99 09-30-09 - GENERAL ELECTRIC CAPITAL CORPgeccex99093009.htm
EX-10 - GECC EX10 09-30-09 - GENERAL ELECTRIC CAPITAL CORPgeccex10093009.htm
EX-12 - GECC EX12 09-30-09 - GENERAL ELECTRIC CAPITAL CORPgeccex12093009.htm
EX-32 - GECC EX32 09-30-09 - GENERAL ELECTRIC CAPITAL CORPgeccex32093009.htm

 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 
WASHINGTON, D.C. 20549
 
     
 
FORM 10-Q
 

(Mark One)
       
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
 
THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2009
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ___________to ___________
_____________________________
 
Commission file number 001-06461
_____________________________
 
GENERAL ELECTRIC CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)

Delaware
 
13-1500700
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
     
3135 Easton Turnpike, Fairfield, Connecticut
 
06828-0001
(Address of principal executive offices)
 
(Zip Code)

(Registrant’s telephone number, including area code) (203) 373-2211

                                                                                              
(Former name, former address and former fiscal year,
if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨No ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer ¨ 
Accelerated filer ¨
Non-accelerated filer þ
Smaller reporting company ¨

 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
 
At October 30, 2009, 3,985,404 shares of voting common stock, which constitute all of the outstanding common equity, with a par value of $14 per share were outstanding.
 
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM 10-Q WITH THE REDUCED DISCLOSURE FORMAT.
 

 
(1)

 


 
General Electric Capital Corporation
 
Part I – Financial Information
 
Page
       
Item 1.
Financial Statements
   
 
Condensed Statement of Current and Retained Earnings
 
3
 
Condensed Statement of Financial Position
 
4
 
Condensed Statement of Cash Flows
 
5
 
Notes to Condensed, Consolidated Financial Statements (Unaudited)
 
6
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
40
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
61
Item 4.
Controls and Procedures
 
61
       
Part II – Other Information
   
       
Item 1.
Legal Proceedings
 
61
Item 5.
Other Information
 
62
Item 6.
Exhibits
 
63
Signatures
 
64

 
Forward-Looking Statements
 
This document contains “forward-looking statements”- that is, statements related to future, not past, events. In this context, forward-looking statements often address our expected future business and financial performance and financial condition, and often contain words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “see,” or “will.” Forward-looking statements by their nature address matters that are, to different degrees, uncertain. For us, particular uncertainties that could cause our actual results to be materially different than those expressed in our forward-looking statements include: the severity and duration of current economic and financial conditions, including volatility in interest and exchange rates, commodity and equity prices and the value of financial assets; the impact of U.S. and foreign government programs to restore liquidity and stimulate national and global economies; the impact of conditions in the financial and credit markets on the availability and cost of our funding and on our ability to reduce our asset levels as planned; the impact of conditions in the housing market and unemployment rates on the level of commercial and consumer credit defaults; our ability to maintain our current credit rating and the impact on our funding costs and competitive position if we do not do so; the soundness of other financial institutions with which we do business; the level of demand and financial performance of the major industries we serve, including, without limitation, real estate and healthcare; the impact of regulation and regulatory, investigative and legal proceedings and legal compliance risks, including the impact of proposed financial services regulation; strategic actions, including acquisitions and dispositions and our success in integrating acquired businesses; and numerous other matters of national, regional and global scale, including those of a political, economic, business and competitive nature. These uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements.
 

 
(2)

 

Part I. Financial Information
 
 
Item 1. Financial Statements.
 
General Electric Capital Corporation and consolidated affiliates
 
Condensed Statement of Current and Retained Earnings
 
(Unaudited)
 
   
 
Three months ended
   
Nine months ended
 
September 30
   
September 30
(In millions)
 
2009
   
2008
     
2009
   
2008
                         
Revenues
                       
Revenues from services (Note 9)
$
 11,652 
 
$
 17,045 
   
$
 37,398 
 
$
 51,422 
Sales of goods
 
 213 
   
 579 
     
 691 
   
 1,474 
   Total revenues
 
 11,865 
   
 17,624 
     
 38,089 
   
 52,896 
                         
Costs and expenses
                       
Interest
 
 4,122 
   
 6,675 
     
 13,648 
   
 19,021 
Operating and administrative
 
 3,633 
   
 4,580 
     
 10,945 
   
 13,946 
Cost of goods sold
 
 181 
   
 486 
     
 569 
   
 1,264 
Investment contracts, insurance losses and insurance annuity benefits
 
 47 
   
 108 
     
 165 
   
 373 
Provision for losses on financing receivables
 
 2,860 
   
 1,634 
     
 7,997 
   
 4,437 
Depreciation and amortization
 
 2,064 
   
 2,355 
     
 6,176 
   
 6,612 
   Total costs and expenses
 
 12,907 
   
 15,838 
     
 39,500 
   
 45,653 
                         
Earnings (loss) from continuing operations before income taxes
 
 (1,042)
   
 1,786 
     
 (1,411)
   
 7,243 
Benefit for income taxes
 
 1,145 
   
 413 
     
 2,978 
   
 286 
                         
Earnings from continuing operations
 
 103 
   
 2,199 
     
 1,567 
   
 7,529 
Earnings (Loss) from discontinued operations, net of taxes (Note 2)
 
 84 
   
 (169)
     
 (113)
   
 (551)
Net earnings
 
 187 
   
 2,030 
     
 1,454 
   
 6,978 
Less net earnings attributable to noncontrolling interests
 
 16 
   
 111 
     
 95 
   
 210 
Net earnings attributable to GECC
 
 171 
   
 1,919 
     
 1,359 
   
 6,768 
Dividends
 
 – 
   
 (273)
     
 – 
   
 (2,292)
Retained earnings at beginning of period(a)
 
 46,662 
   
 43,343 
     
 45,474 
   
 40,513 
Retained earnings at end of period
$
 46,833 
 
$
 44,989 
   
$
 46,833 
 
$
 44,989 
                         
Amounts attributable to GECC
                       
Earnings from continuing operations
$
 87 
 
$
 2,088 
   
$
 1,472 
 
$
 7,319 
Earnings (loss) from discontinued operations, net of taxes
 
 84 
   
 (169)
     
 (113)
   
 (551)
Net earnings attributable to GECC
$
 171 
 
$
 1,919 
   
$
 1,359 
 
$
 6,768 
                         

 
(a)    
Primarily included a cumulative effect adjustment to increase retained earnings in 2009.
 

 
See Note 3 for other-than-temporary impairment amounts.
 
See accompanying notes.
 

 
(3)

 

General Electric Capital Corporation and consolidated affiliates
 
 
   
September 30,
 
December 31,
(In millions)
 
2009
 
2008
   
(Unaudited)
   
Assets
           
Cash and equivalents
 
$
 56,250 
 
$
 36,430 
Investment securities (Note 3)
   
 26,325 
   
 19,318 
Inventories
   
 79 
   
 77 
Financing receivables – net (Note 4)
   
 347,356 
   
 370,592 
Other receivables
   
 20,748 
   
 22,175 
Property, plant and equipment, less accumulated amortization of $26,458
           
   and $29,026
   
 58,685 
   
 64,043 
Goodwill (Note 5)
   
 28,043 
   
 25,204 
Other intangible assets – net (Note 5)
   
 3,371 
   
 3,174 
Other assets
   
 87,133 
   
 84,201 
Assets of businesses held for sale
   
 1,263 
   
 10,556 
Assets of discontinued operations (Note 2)
   
 1,533 
   
 1,640 
Total assets
 
$
 630,786 
 
$
 637,410 
             
Liabilities and equity
           
Short-term borrowings (Note 6)
 
$
 155,722 
 
$
 188,601 
Accounts payable
   
 12,560 
   
 14,863 
Long-term borrowings (Note 6)
   
 348,354 
   
 321,755 
Investment contracts, insurance liabilities and insurance annuity benefits
   
 9,640 
   
 11,403 
Other liabilities
   
 20,099 
   
 30,629 
Deferred income taxes
   
 8,128 
   
 8,112 
Liabilities of businesses held for sale
   
 143 
   
 636 
Liabilities of discontinued operations (Note 2)
   
 843 
   
 799 
Total liabilities
   
 555,489 
   
 576,798 
             
Capital stock
   
 56 
   
 56 
Accumulated other comprehensive income – net(a)
           
   Investment securities
   
 (1,077)
   
 (2,013)
   Currency translation adjustments
   
 1,266 
   
 (1,337)
   Cash flow hedges
   
 (1,954)
   
 (3,253)
   Benefit plans
   
 (374)
   
 (367)
Additional paid-in capital
   
 28,418 
   
 19,671 
Retained earnings
   
 46,833 
   
 45,472 
Total GECC shareowner's equity
   
 73,168 
   
 58,229 
Noncontrolling interests(b)
   
 2,129 
   
 2,383 
Total equity
   
 75,297 
   
 60,612 
Total liabilities and equity
 
$
 630,786 
 
$
 637,410 
             

 
(a)   
The sum of accumulated other comprehensive income − net was $(2,139) million and $(6,970) million at September 30, 2009 and December 31, 2008, respectively.
 
(b)    
Included accumulated other comprehensive income attributable to noncontrolling interests of $(97) million and $(181) million at September 30, 2009 and December 31, 2008, respectively.
 

 
See accompanying notes.
 
(4)

 
General Electric Capital Corporation and consolidated affiliates
 
Condensed Statement of Cash Flows
 
(Unaudited)
 
   
Nine months ended September 30
(In millions)
   
2009
   
2008
             
Cash flows – operating activities
           
Net earnings attributable to GECC
 
$
 1,359 
 
$
 6,768 
Loss from discontinued operations
   
 113 
   
 551 
Adjustments to reconcile net earnings attributable to GECC
           
   to cash provided from operating activities
           
      Depreciation and amortization of property, plant and equipment
   
 6,176 
   
 6,612 
      Increase (decrease) in accounts payable
   
 (2,422)
   
 (62)
      Provision for losses on financing receivables
   
 7,997 
   
 4,437 
      All other operating activities
   
 (12,762)
   
 (462)
Cash from (used for) operating activities – continuing operations
   
 461 
   
 17,844 
Cash from (used for) operating activities – discontinued operations
   
 (41)
   
 512 
Cash from (used for) operating activities
   
 420 
   
 18,356 
             
Cash flows – investing activities
           
Additions to property, plant and equipment
   
 (4,184)
   
 (9,348)
Dispositions of property, plant and equipment
   
 3,921 
   
 7,055 
Increase in loans to customers
   
 (175,395)
   
 (290,958)
Principal collections from customers – loans
   
 200,097 
   
 263,839 
Investment in equipment for financing leases
   
 (6,155)
   
 (18,477)
Principal collections from customers – financing leases
   
 13,554 
   
 17,850 
Net change in credit card receivables
   
 3,859 
   
 (2,852)
Proceeds from sale of discontinued operations
   
 – 
   
 5,220 
Proceeds from principal business dispositions
   
 8,818 
   
 4,422 
Payments for principal businesses purchased
   
 (5,637)
   
 (24,989)
All other investing activities
   
 35 
   
 (969)
Cash from (used for) investing activities – continuing operations
   
 38,913 
   
 (49,207)
Cash from (used for) investing activities – discontinued operations
   
 45 
   
 (631)
Cash from (used for) investing activities
   
 38,958 
   
 (49,838)
             
Cash flows – financing activities
           
Net increase (decrease) in borrowings (maturities of 90 days or less)
   
 (33,884)
   
 (16,888)
Newly issued debt
           
   Short-term (91 to 365 days)
   
 4,008 
   
 26,982 
   Long-term (longer than one year)
   
 68,495 
   
 72,175 
   Non-recourse, leveraged lease
   
 – 
   
 113 
Repayments and other debt reductions
           
   Short-term (91 to 365 days)
   
 (60,158)
   
 (41,778)
   Long-term (longer than one year)
   
 (4,664)
   
 (2,471)
   Non-recourse, leveraged lease
   
 (587)
   
 (524)
Dividends paid to shareowner
   
 – 
   
 (2,291)
Capital contribution and share issuance
   
 8,750 
   
 – 
All other financing activities
   
 (1,514)
   
 (362)
Cash from (used for) financing activities – continuing operations
   
 (19,554)
   
 34,956 
Cash used for financing activities – discontinued operations
   
 – 
   
 (4)
Cash from (used for) financing activities
   
 (19,554)
   
 34,952 
             
Increase in cash and equivalents
   
 19,824 
   
 3,470 
Cash and equivalents at beginning of year
   
 36,610 
   
 8,907 
Cash and equivalents at September 30
   
 56,434 
   
 12,377 
Less cash and equivalents of discontinued operations at September 30
   
 184 
   
 177 
Cash and equivalents of continuing operations at September 30
 
$
 56,250 
 
$
 12,200 
             

 
See accompanying notes.
 
(5)

 
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
All of the outstanding common stock of General Electric Capital Corporation (GE Capital or GECC) is owned by General Electric Capital Services, Inc. (GECS), all of whose common stock is owned by General Electric Company (GE Company or GE). Our financial statements consolidate all of our affiliates – companies that we control and in which we hold a majority voting interest. We also consolidate the economic interests we hold in certain businesses within companies in which we hold a voting equity interest and are majority owned by our ultimate parent, but which we have agreed to actively manage and control. See Note 1 to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2008 (2008 Form 10-K), which discusses our consolidation and financial statement presentation. GECC includes Commercial Lending and Leasing (CLL), Consumer (formerly GE Money), Real Estate, Energy Financial Services and GE Capital Aviation Services (GECAS). During the first quarter of 2009, we transferred Banque Artesia Nederland N.V. (Artesia) from CLL to Consumer. Details of total revenues and segment profit by operating segment can be found on page 43 of this report. We have reclassified certain prior-period amounts to conform to the current-period’s presentation. Unless otherwise indicated, information in these notes to condensed, consolidated financial statements relates to continuing operations.
 
Accounting Changes
 
The Financial Accounting Standards Board (FASB) issued FASB Accounting Standards Codification (ASC) effective for financial statements issued for interim and annual periods ending after September 15, 2009. The ASC is an aggregation of previously issued authoritative U.S. generally accepted accounting principles (GAAP) in one comprehensive set of guidance organized by subject area. In accordance with the ASC, references to previously issued accounting standards have been replaced by ASC references. Subsequent revisions to GAAP will be incorporated into the ASC through Accounting Standards Updates (ASU).
 
We adopted FASB ASC 820, Fair Value Measurements and Disclosures, in two steps; effective January 1, 2008, we adopted it for all financial instruments and non-financial instruments accounted for at fair value on a recurring basis and effective January 1, 2009, for all non-financial instruments accounted for at fair value on a non-recurring basis. This guidance establishes a new framework for measuring fair value and expands related disclosures. See Note 10.
 
On January 1, 2009, we adopted an amendment to FASB ASC 805, Business Combinations. This amendment significantly changed the accounting for business acquisitions both during the period of the acquisition and in subsequent periods. Among the more significant changes in the accounting for acquisitions are the following:
 
·  
Acquired in-process research and development (IPR&D) is accounted for as an asset, with the cost recognized as the research and development is realized or abandoned. IPR&D was previously expensed at the time of the acquisition.
 
·  
Contingent consideration is recorded at fair value as an element of purchase price with subsequent adjustments recognized in operations. Contingent consideration was previously accounted for as a subsequent adjustment of purchase price.
 
·  
Subsequent decreases in valuation allowances on acquired deferred tax assets are recognized in operations after the measurement period. Such changes were previously considered to be subsequent changes in consideration and were recorded as decreases in goodwill.
 
·  
Transaction costs are expensed. These costs were previously treated as costs of the acquisition.
 
In April 2009, the FASB amended FASB ASC 805 and changed the previous accounting for assets and liabilities arising from contingencies in a business combination. We adopted this amendment retrospectively effective January 1, 2009. The amendment requires pre-acquisition contingencies to be recognized at fair value, if fair value can be determined or reasonably estimated during the measurement period. If fair value cannot be determined or reasonably estimated, the standard requires measurement based on the recognition and measurement criteria of FASB ASC 450, Contingencies.
 

 
(6)

 

On January 1, 2009, we adopted an amendment to FASB ASC 810, Consolidation, which requires us to make certain changes to the presentation of our financial statements. This amendment requires us to classify noncontrolling interests (previously referred to as “minority interest”) as part of consolidated net earnings ($16 million and $111 million for the three months ended September 30, 2009 and 2008, respectively, and $95 million and $210 million for the nine months ended September 30, 2009 and 2008, respectively) and to include the accumulated amount of noncontrolling interests as part of shareowner’s equity ($2,129 million and $2,383 million at September 30, 2009 and December 31, 2008, respectively). The net earnings amounts we have previously reported are now presented as "Net earnings attributable to GECC". Similarly, in our presentation of shareowner’s equity, we distinguish between equity amounts attributable to the GECC shareowner and amounts attributable to the noncontrolling interests – previously classified as minority interest outside of shareowner’s equity. Beginning January 1, 2009, dividends to noncontrolling interests are classified as financing cash flows. In addition to these financial reporting changes, this guidance provides for significant changes in accounting related to noncontrolling interests; specifically, increases and decreases in our controlling financial interests in consolidated subsidiaries will be reported in equity similar to treasury stock transactions. If a change in ownership of a consolidated subsidiary results in loss of control and deconsolidation, any retained ownership interests are remeasured with the gain or loss reported in net earnings.
 
Effective April 1, 2009, the FASB amended ASC 820 in relation to determining fair value when the volume and level of activity for an asset or liability have significantly decreased and identifying transactions that are not orderly. Adoption of this amendment had an insignificant effect on our financial statements.
 
Effective April 1, 2009, the FASB amended ASC 320, Investments – Debt and Equity Securities. See Note 3. This amendment modified the existing model for recognition and measurement of impairment for debt securities. The two principal changes to the impairment model for securities are as follows:
 
·  
Recognition of an other-than-temporary impairment charge for debt securities is required if any of these conditions are met: (1) we do not expect to recover the entire amortized cost basis of the security, (2) we intend to sell the security or (3) it is more likely than not that we will be required to sell the security before we recover its amortized cost basis.
 
·  
If the first condition above is met, but we do not intend to sell and it is not more likely than not that we will be required to sell the security before recovery of its amortized cost basis, we would be required to record the difference between the security’s amortized cost basis and its recoverable amount in earnings and the difference between the security’s recoverable amount and fair value in other comprehensive income. If either the second or third criteria are met, then we would be required to recognize the entire difference between the security’s amortized cost basis and its fair value in earnings.
 
Interim Period Presentation
 
The condensed, consolidated financial statements and notes thereto are unaudited. These statements include all adjustments (consisting of normal recurring accruals) that we considered necessary to present a fair statement of our results of operations, financial position and cash flows. We have evaluated subsequent events that have occurred through November 2, 2009, the date of financial statement issuance. The results reported in these condensed, consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for the entire year. It is suggested that these condensed, consolidated financial statements be read in conjunction with the financial statements and notes thereto included in our 2008 Form 10-K. We label our quarterly information using a calendar convention, that is, first quarter is labeled as ending on March 31, second quarter as ending on June 30, and third quarter as ending on September 30. It is our longstanding practice to establish interim quarterly closing dates using a fiscal calendar, which requires our businesses to close their books on either a Saturday or Sunday, depending on the business. The effects of this practice are modest and only exist within a reporting year. The fiscal closing calendar from 1993 through 2013 is available on our website, www.ge.com/secreports.
 

 
(7)

 

2. DISCONTINUED OPERATIONS
 
Discontinued operations comprised GE Money Japan (our Japanese personal loan business, Lake, and our Japanese mortgage and card businesses, excluding our investment in GE Nissen Credit Co., Ltd.), our U.S. mortgage business (WMC), GE Life and Genworth Financial, Inc. (Genworth). Associated results of operations, financial position and cash flows are separately reported as discontinued operations for all periods presented.
 
GE Money Japan
 
During the third quarter of 2007, we committed to a plan to sell Lake upon determining that, despite restructuring, Japanese regulatory limits for interest charges on unsecured personal loans did not permit us to earn an acceptable return. During the third quarter of 2008, we completed the sale of GE Money Japan, which included Lake, along with our Japanese mortgage and card businesses, excluding our investment in GE Nissen Credit Co., Ltd. As a result, we recognized an after-tax loss of $908 million in 2007 and an incremental loss in 2008 of $361 million. In connection with the transaction, GE Money Japan reduced the proceeds on the sale for estimated interest refund claims in excess of the statutory interest rate. Proceeds from the sale may be increased or decreased based on the actual claims experienced in accordance with terms specified in the agreement, and will not be adjusted unless claims exceed approximately $3,000 million. During the second quarter of 2009, we accrued $132 million, which represents the amount by which we expect claims to exceed those levels and is based on our historical and recent claims experience and the estimated future requests, taking into consideration the ability and likelihood of customers to make claims and other industry risk factors. Uncertainties around the status of laws and regulations and lack of certain information related to the individual customers make it difficult to develop a meaningful estimate of the aggregate claims exposure. We will continue to review our estimated exposure quarterly, and make adjustments when required. GE Money Japan revenues from discontinued operations were an insignificant amount and $209 million in the third quarters of 2009 and 2008, respectively, and an insignificant amount and $760 million in the first nine months of 2009 and 2008, respectively. In total, GE Money Japan losses from discontinued operations, net of taxes, were $10 million and $160 million in the third quarters of 2009 and 2008, respectively, and $142 million and $508 million in the first nine months of 2009 and 2008, respectively.
 
WMC
 
During the fourth quarter of 2007, we completed the sale of our U.S. mortgage business. In connection with the transaction, WMC retained certain obligations related to loans sold prior to the disposal of the business, including WMC’s contractual obligations to repurchase previously sold loans as to which there was an early payment default or with respect to which certain contractual representations and warranties were not met. Reserves related to these obligations were $212 million at September 30, 2009, and $244 million at December 31, 2008. The amount of these reserves is based upon pending and estimated future loan repurchase requests, the estimated percentage of loans validly tendered for repurchase, and our estimated losses on loans repurchased. Based on our historical experience, we estimate that a small percentage of the total loans we originated and sold will be tendered for repurchase, and of those tendered, only a limited amount will qualify as “validly tendered,” meaning the loans sold did not satisfy specified contractual obligations. The amount of our current reserve represents our best estimate of losses with respect to our repurchase obligations. However, actual losses could exceed our reserve amount if actual claim rates, valid tenders or losses we incur on repurchased loans are higher than historically observed. WMC revenues from discontinued operations were $4 million and $(7) million in the third quarters of 2009 and 2008, respectively, and $(5) million and $(64) million in the first nine months of 2009 and 2008, respectively. In total, WMC’s earnings (loss) from discontinued operations, net of taxes, were $3 million and $(8) million in the third quarters of 2009 and 2008, respectively, and $(8) million and $(35) million in the first nine months of 2009 and 2008, respectively.
 

 
(8)

 

Summarized financial information for discontinued operations is shown below.
 
 
Three months ended September 30
 
Nine months ended September 30
(In millions)
2009
 
2008
 
2009
 
2008
                       
Operations
                     
Total revenues
$
 
$
202 
 
$
(4)
 
$
696 
                       
Earnings (loss) from discontinued operations before income taxes
$
12 
 
$
(206)
 
$
(100)
 
$
(488)
Income tax benefit (expense)
 
(16)
   
51 
   
26 
   
184 
Loss from discontinued operations, net of taxes
$
(4)
 
$
(155)
 
$
(74)
 
$
(304)
                       
Disposal
                     
Earnings (loss) on disposal before income taxes
$
88 
 
$
(1,278)
 
$
(35)
 
$
(1,502)
Income tax benefit (expense)
 
– 
   
1,264 
   
(4)
   
1,255 
Earnings (loss) on disposal, net of taxes
$
88 
 
$
(14)
 
$
(39)
 
$
(247)
                       
Earnings (loss) from discontinued operations, net of taxes
$
84 
 
$
(169)
 
$
(113)
 
$
(551)
                       
     
At
         
September 30,
 
December 31,
(In millions)
       
2009
 
2008
                       
Assets
                     
Cash and equivalents
           
$
184 
 
$
180 
Other assets
             
13 
   
19 
Other
             
1,336 
   
1,441 
Assets of discontinued operations
           
$
1,533 
 
$
1,640 
                       
     
At
         
September 30,
 
December 31,
(In millions)
       
2009
 
2008
                       
Liabilities
                     
Liabilities of discontinued operations
           
$
843 
 
$
799 

 
Assets at September 30, 2009 and December 31, 2008, primarily comprised a deferred tax asset for a loss carryforward, which expires in 2015, related to the sale of our GE Money Japan business.
 

 
(9)

 

3. INVESTMENT SECURITIES
 
The vast majority of our investment securities are classified as available-for-sale and comprise mainly investment-grade debt securities supporting obligations to holders of guaranteed investment contracts and retained interests in securitization entities.
 
 
At
 
September 30, 2009
 
December 31, 2008
     
Gross
 
Gross
         
Gross
 
Gross
   
 
Amortized
 
unrealized
 
unrealized
 
Estimated
 
Amortized
 
unrealized
 
unrealized
 
Estimated
(In millions)
cost
 
gains
 
losses
 
fair value
 
cost
 
gains
 
losses
 
fair value
                                               
Debt
                                             
   U.S. corporate
$
4,053 
 
$
85 
 
$
 (410)
 
$
 3,728 
 
$
4,456 
 
$
54 
 
$
 (637)
 
$
 3,873 
   State and municipal
 
1,231 
   
10 
   
 (202)
   
 1,039 
   
915 
   
   
 (70)
   
 850 
   Residential mortgage-backed(a)
 
3,200 
   
21 
   
 (828)
   
 2,393 
   
4,228 
   
   
 (976)
   
 3,261 
   Commercial mortgage-backed
 
1,628 
   
   
 (390)
   
 1,241 
   
1,664 
   
 - 
   
 (509)
   
 1,155 
   Asset-backed
 
2,844 
   
35 
   
 (330)
   
 2,549 
   
2,922 
   
 2 
   
 (668)
   
 2,256 
   Corporate – non-U.S.
 
832 
   
24 
   
 (23)
   
 833 
   
608 
   
 6 
   
 (23)
   
 591 
   Government – non-U.S.
 
2,896 
   
11 
   
 (9)
   
 2,898 
   
936 
   
 2 
   
 (15)
   
 923 
   U.S. government and
                                             
       federal agency
 
2,728 
   
   
 - 
   
 2,730 
   
26 
   
 3 
   
 - 
   
 29 
Retained interests(b)(c)
 
6,907 
   
223 
   
 (44)
   
 7,086 
   
5,144 
   
 73 
   
 (136)
   
 5,081 
Equity
                                             
   Available-for-sale
 
982 
   
195 
   
 (8)
   
 1,169 
   
1,023 
   
 22 
   
 (134)
   
 911 
   Trading
 
659 
   
 - 
   
 - 
   
 659 
   
388 
   
 - 
   
 - 
   
 388 
Total
$
27,960 
 
$
609 
 
$
 (2,244)
 
$
 26,325 
 
$
22,310 
 
$
176 
 
$
 (3,168)
 
$
 19,318 
                                               

 
(a)   
Substantially collateralized by U.S. mortgages.
 
(b)    
Included $1,846 million and $1,752 million of retained interests at September 30, 2009 and December 31, 2008, respectively, accounted for in accordance with FASB ASC 815, Derivatives and Hedging. See Note 12.
 
(c)    
Amortized cost and estimated fair value included $2 million of trading securities at September 30, 2009.
 

 
(10)

 

The following tables present the estimated fair values and gross unrealized losses of our available-for-sale investment securities.
 
 
In loss position for
 
Less than 12 months
 
12 months or more
     
Gross
     
Gross
 
Estimated
unrealized
Estimated
unrealized
(In millions)
fair value
losses
fair value
losses
                       
September 30, 2009
                     
Debt
                     
   U.S. corporate
$
1,273 
 
$
 (27)
 
$
 1,485 
 
$
 (383)
   State and municipal
 
387 
   
 (120)
   
 393 
   
 (82)
   Residential mortgage-backed
 
159 
   
 (11)
   
 1,633 
   
 (817)
   Commercial mortgage-backed
 
 - 
   
 - 
   
 1,016 
   
 (390)
   Asset-backed
 
81 
   
 (2)
   
 1,378 
   
 (328)
   Corporate – non-U.S.
 
203 
   
 (10)
   
 305 
   
 (13)
   Government – non-U.S.
 
1,067 
   
 (7)
   
 224 
   
 (2)
   U.S. government and federal agency
 
   
 - 
   
 - 
   
 - 
Retained interests
 
272 
   
 (9)
   
 90 
   
 (35)
Equity
 
63 
   
 (4)
   
 21 
   
 (4)
Total
$
3,512 
 
$
 (190)
 
$
 6,545 
 
$
 (2,054)
                       
December 31, 2008
                     
Debt
                     
   U.S. corporate
$
1,152 
 
$
 (397)
 
$
 1,253 
 
$
 (240)
   State and municipal
 
302 
   
 (21)
   
 278 
   
 (49)
   Residential mortgage-backed
 
1,216 
   
 (64)
   
 1,534 
   
 (912)
   Commercial mortgage-backed
 
285 
   
 (85)
   
 870 
   
 (424)
   Asset-backed
 
903 
   
 (406)
   
 1,031 
   
 (262)
   Corporate – non-U.S.
 
60 
   
 (7)
   
 265 
   
 (16)
   Government – non-U.S.
 
 - 
   
 - 
   
 275 
   
 (15)
   U.S. government and federal agency
 
 - 
   
 - 
   
 - 
   
 - 
Retained interests
 
1,246 
   
 (61)
   
 238 
   
 (75)
Equity
 
200 
   
 (132)
   
 6 
   
 (2)
Total
$
5,364 
 
$
 (1,173)
 
$
 5,750 
 
$
 (1,995)
                       

 
We adopted amendments to FASB ASC 320 and recorded a cumulative effect adjustment to increase retained earnings as of April 1, 2009 of $25 million.
 
We regularly review investment securities for impairment using both qualitative and quantitative criteria. We presently do not intend to sell our debt securities and believe that it is not more likely than not that we will be required to sell these securities that are in an unrealized loss position before recovery of our amortized cost. We believe that the unrealized loss associated with our equity securities will be recovered within the foreseeable future.
 
The vast majority of our U.S. corporate debt securities are rated investment grade by the major rating agencies. We evaluate U.S. corporate debt securities based on a variety of factors such as the financial health of and specific prospects for the issuer, including whether the issuer is in compliance with the terms and covenants of the security. In the event a U.S. corporate debt security is deemed to be other-than-temporarily impaired, we isolate the credit portion of the impairment by comparing the present value of our expectation of cash flows to the amortized cost of the security. We discount the cash flows using the original effective interest rate of the security.
 
The vast majority of our residential mortgage-backed securities (RMBS) have investment-grade credit ratings from the major rating agencies and are in a senior position in the capital structure of the deal. Of our total RMBS at September 30, 2009 and December 31, 2008, approximately $968 million and $1,284 million, respectively, relate to residential subprime credit, primarily supporting our guaranteed investment contracts. These are collateralized primarily by pools of individual, direct mortgage loans (a majority of which were originated in 2006 and 2005), not other structured products such as collateralized debt obligations. In addition, of the total residential subprime credit exposure at September 30, 2009 and December 31, 2008, approximately $836 million and $1,089 million, respectively, was insured by monoline insurers.
 

 
(11)

 

Substantially all of our commercial mortgage-backed securities (CMBS) also have investment-grade credit ratings from the major rating agencies and are in a senior position in the capital structure of the deal. Our CMBS investments are collateralized by both diversified pools of mortgages that were originated for securitization (conduit CMBS) and pools of large loans backed by high quality properties (large loan CMBS), a majority of which were originated in 2006 and 2007.
 
For asset-backed securities, including RMBS, we estimate the portion of loss attributable to credit using a discounted cash flow model that considers estimates of cash flows generated from the underlying collateral. Estimates of cash flows consider internal credit risk, interest rate and prepayment assumptions that incorporate management’s best estimate of key assumptions, including default rates, loss severity and prepayment rates. For CMBS, we estimate the portion of loss attributable to credit by evaluating potential losses on each of the underlying loans in the security. Collateral cash flows are considered in the context of our position in the capital structure of the deal. Assumptions can vary widely depending upon the collateral type, geographic concentrations and vintage.
 
If there has been an adverse change in cash flows for RMBS, management considers credit enhancements such as monoline insurance (which are features of a specific security). In evaluating the overall credit worthiness of the Monoline, we use an analysis that is similar to the approach we use for corporate bonds, including an evaluation of the sufficiency of the Monoline’s cash reserves and capital, ratings activity, whether the Monoline is in default or default appears imminent, and the potential for intervention by an insurance or other regulator.
 
During the three months ended September 30, 2009, we recorded pre-tax, other-than-temporary impairments of $239 million, of which $79 million was recorded through earnings ($18 million relates to equity securities), and $160 million was recorded in Accumulated Other Comprehensive Income (AOCI).
 
Previously recognized other-than-temporary impairments related to credit on securities still held at July 1, 2009 were $159 million. During the third quarter, first time and incremental credit impairments were $27 million and $31 million, respectively. Previous credit impairments relating to securities sold were $82 million.
 
During the period April 1, 2009 through September 30, 2009, we recorded pre-tax, other-than-temporary impairments of $391 million, of which $130 million was recorded through earnings ($26 million relates to equity securities), and $261 million was recorded in AOCI.
 
Previously recognized other-than-temporary impairments related to credit on securities still held at April 1, 2009 were $117 million. During the period April 1, 2009 through September 30, 2009, first time and incremental credit impairments were $48 million and $52 million, respectively. Previous credit impairments relating to securities sold were $82 million.
 

 
(12)

 

Supplemental information about gross realized gains and losses on available-for-sale investment securities follows.
 
 
Three months ended September 30
 
Nine months ended September 30
(In millions)
2009 
 
2008 
 
2009 
 
2008 
                       
Gains
$
36 
 
$
26 
 
$
63 
 
$
133 
Losses, including impairments
 
(101)
   
(110)
   
(299)
   
(210)
   Net
$
(65)
 
$
(84)
 
$
(236)
 
$
(77)

 
Although we generally do not have the intent to sell any specific securities at the end of the period, in the ordinary course of managing our investment securities portfolio, we may sell securities prior to their maturities for a variety of reasons, including diversification, credit quality, yield and liquidity requirements and the funding of claims and obligations to policyholders.
 
Proceeds from investment securities sales and early redemptions by the issuer totaled $3,393 million and $887 million in the third quarters of 2009 and 2008, respectively, and $6,671 million and $2,177 million in the first nine months of 2009 and 2008, respectively, principally from the sales and maturities of short-term securities in our bank subsidiaries.
 
We recognized pre-tax gains on trading securities of $29 million and pre-tax losses of $(164) million in the third quarters of 2009 and 2008, respectively, and pre-tax gains of $273 million and $223 million in the first nine months of 2009 and 2008, respectively. Investments in retained interests increased by $210 million and $10 million during the first nine months of 2009 and 2008, respectively, reflecting changes in fair value.
 

4. FINANCING RECEIVABLES AND ALLOWANCE FOR LOSSES ON FINANCING RECEIVABLES
 
Financing receivables - net, consisted of the following.
 
 
At
 
September 30,
 
December 31,
(In millions)
2009
 
2008
           
Loans, net of deferred income
$
297,568 
 
$
308,821 
Investment in financing leases, net of deferred income
 
57,136 
   
67,077 
   
354,704 
   
375,898 
Less allowance for losses
 
(7,348)
   
(5,306)
Financing receivables – net(a)
$
347,356 
 
$
370,592 
           

 
(a)   
Included $4,406 million and $6,461 million related to consolidated, liquidating securitization entities at September 30, 2009 and December 31, 2008, respectively. In addition, financing receivables at September 30, 2009 and December 31, 2008 included $2,880 million and $2,736 million, respectively, relating to loans that had been acquired in a transfer but have been subject to credit deterioration since origination per FASB ASC 310, Receivables.
 

 
(13)

 

Effective January 1, 2009, loans acquired in a business acquisition are recorded at fair value, which incorporates our estimate at the acquisition date of the credit losses over the remaining life of the portfolio. As a result, the allowance for loan losses is not carried over at acquisition. This may result in lower reserve coverage ratios prospectively. Details of financing receivables – net follow.
 
 
At
 
September 30,
 
December 31,
(In millions)
2009
 
2008
           
Commercial Lending and Leasing (CLL)(a)
         
Americas
$
91,807 
 
$
104,462 
Europe
 
39,804 
   
36,972 
Asia
 
14,096 
   
16,683 
Other
 
776 
   
786 
   
146,483 
   
158,903 
Consumer(a)
         
Non-U.S. residential mortgages
 
61,308 
   
60,753 
Non-U.S. installment and revolving credit
 
25,197 
   
24,441 
U.S. installment and revolving credit
 
22,324 
   
27,645 
Non-U.S. auto
 
14,366 
   
18,168 
Other
 
13,191 
   
11,541 
   
136,386 
   
142,548 
           
Real Estate
 
45,471 
   
46,735 
           
Energy Financial Services
 
8,326 
   
8,355 
           
GE Capital Aviation Services (GECAS)(b)
 
14,943 
   
15,326 
           
Other(c)
 
3,095 
   
4,031 
   
354,704 
   
375,898 
Less allowance for losses
 
(7,348)
   
(5,306)
Total
$
347,356 
 
$
370,592 
           

 
(a)   
During the first quarter of 2009, we transferred Artesia from CLL to Consumer. Prior-period amounts were reclassified to conform to the current-period’s presentation.
 
(b)    
Included loans and financing leases of $12,927 million and $13,078 million at September 30, 2009 and December 31, 2008, respectively, related to commercial aircraft at Aviation Financial Services.
 
(c)    
Consisted of loans and financing leases related to certain consolidated, liquidating securitization entities.
 

 

 
(14)

 

Individually impaired loans are defined by GAAP as larger balance or restructured loans for which it is probable that the lender will be unable to collect all amounts due according to original contractual terms of the loan agreement. An analysis of impaired loans and specific reserves follows. The vast majority of our consumer and a portion of our CLL nonearning receivables are excluded from this definition, as they represent smaller balance homogeneous loans that we evaluate collectively by portfolio for impairment.
 
 
At
 
September 30,
 
December 31,
(In millions)
2009
 
2008
           
Loans requiring allowance for losses
$
8,842 
 
$
2,712 
Loans expected to be fully recoverable
 
3,218 
   
871 
   Total impaired loans
$
12,060 
 
$
3,583 
           
Allowance for losses (specific reserves)
$
1,874 
 
$
635 
Average investment during the period
 
7,463 
   
2,064 
Interest income earned while impaired(a)
 
133 
   
48 
           

 
(a)   
Recognized principally on cash basis.
 

 
(15)

 

Impaired loans increased by $8.5 billion from December 31, 2008 to September 30, 2009 primarily relating to increases at Real Estate ($5.4 billion) and CLL ($2.2 billion). Impaired loans increased by $4.0 billion from June 30, 2009 to September 30, 2009, primarily relating to increases at Real Estate ($2.9 billion) and CLL ($0.7 billion). The increase in impaired loans and related specific reserves in Real Estate reflects our current estimate of collateral values of the underlying properties, and our estimate of loans which are not past due, but for which it is probable that we will be unable to collect the full principal balance at maturity due to a decline in the underlying value of the collateral. Of our $6.2 billion impaired loans at Real Estate at September 30, 2009, approximately $4 billion are currently paying in accordance with the contractual terms of the loan. Impaired loans at CLL primarily represent senior secured lending positions.
 
Allowance for Losses on Financing Receivables
 
 
Balance
 
Provision
             
Balance
 
January 1,
 
charged to
     
Gross
     
September 30,
(In millions)
2009 
 
operations
 
Other(a)
 
write-offs
 
Recoveries
 
2009 
                                   
CLL(b)
                                 
Americas
$
824 
 
$
945 
 
$
(31)
 
$
(715)
 
$
63 
 
$
 1,086 
Europe
 
288 
   
412 
   
   
(225)
   
17 
   
500 
Asia
 
163 
   
188 
   
   
(136)
   
19 
   
242 
Other
 
   
   
   
(1)
   
– 
   
                                   
Consumer(b)
                                 
Non-U.S. residential
                                 
   mortgages
 
383 
   
805 
   
81 
   
(424)
   
130 
   
975 
Non-U.S. installment
                                 
   and revolving credit
 
1,051 
   
1,347 
   
41 
   
(1,702)
   
376 
   
1,113 
U.S. installment and
                                 
   revolving credit
 
1,700 
   
2,631 
   
(761)
   
(2,134)
   
132 
   
1,568 
Non-U.S. auto
 
222 
   
351 
   
31 
   
(441)
   
138 
   
301 
Other
 
226 
   
284 
   
25 
   
(329)
   
73 
   
279 
                                   
Real Estate
 
301 
   
903 
   
13 
   
(190)
   
   
1,028 
                                   
Energy Financial
                                 
   Services
 
58 
   
42 
   
   
– 
   
– 
   
101 
                                   
GECAS
 
60 
   
69 
   
– 
   
(3)
   
– 
   
126 
                                   
Other
 
28 
   
16 
   
– 
   
(22)
   
   
23 
Total
$
5,306 
 
$
7,997 
 
$
(583)
 
$
(6,322)
 
$
950 
 
$
7,348 
                                   
 
(a)   
Other primarily included the effects of securitization activity and currency exchange.
 
(b)   
During the first quarter of 2009, we transferred Artesia from CLL to Consumer. Prior-period amounts were reclassified to conform to the current-period’s presentation.
 

 
(16)

 


 
Balance
 
Provision
             
Balance
 
January 1,
 
charged to
     
Gross
     
September 30,
(In millions)
2008 
 
operations
 
Other(a)
 
write-offs
 
Recoveries
 
2008 
                                   
CLL(b)
                                 
Americas
$
451 
 
$
377 
 
$
157 
 
$
(352)
 
$
50 
 
$
683 
Europe
 
230 
   
146 
   
(58)
   
(141)
   
23 
   
200 
Asia
 
226 
   
78 
   
(7)
   
(188)
   
   
114 
Other
 
   
   
– 
   
– 
   
– 
   
                                   
Consumer(b)
                                 
Non-U.S. residential
                                 
   mortgages
 
246 
   
147 
   
(15)
   
(135)
   
52 
   
295 
Non-U.S. installment
                                 
   and revolving credit
 
1,371 
   
1,259 
   
(57)
   
(1,968)
   
722 
   
1,327 
U.S. installment and
                                 
   revolving credit
 
985 
   
1,908 
   
(416)
   
(1,477)
   
215 
   
1,215 
Non-U.S. auto
 
324 
   
260 
   
(59)
   
(479)
   
225 
   
271 
Other
 
167 
   
136 
   
25 
   
(182)
   
54 
   
200 
                                   
Real Estate
 
168 
   
47 
   
   
(10)
   
   
210 
                                   
Energy Financial
                                 
   Services
 
19 
   
12 
   
   
– 
   
– 
   
33 
                                   
GECAS
 
   
47 
   
– 
   
(1)
   
– 
   
54 
                                   
Other
 
18 
   
18 
   
(1)
   
(15)
   
– 
   
20 
Total
$
4,216 
 
$
4,437 
 
$
(425)
 
$
(4,948)
 
$
1,347 
 
$
4,627 
                                   

 
(a)   
Other primarily included the effects of securitization activity, currency exchange, dispositions and acquisitions.
 
(b)    
During the first quarter of 2009, we transferred Artesia from CLL to Consumer. Prior-period amounts were reclassified to conform to the current-period’s presentation.
 

 
(17)

 

5. GOODWILL AND OTHER INTANGIBLE ASSETS
 
Goodwill and other intangible assets – net, consisted of the following.
 
 
At
 
September 30,
 
December 31,
(In millions)
2009
 
2008
           
Goodwill
$
28,043 
 
$
25,204 
           
Other intangible assets
         
    Intangible assets subject to amortization
$
3,371 
 
$
3,174 
           

 
Changes in goodwill balances follow.
 
     
Acquisitions/
 
Dispositions,
     
 
Balance
 
acquisition
 
currency
 
Balance
 
 
January 1,
 
accounting
 
exchange
 
September 30,
 
(In millions)
2009
 
adjustments
 
and other
 
2009
 
                         
CLL
$
12,321 
(a)
$
1,262 
 
$
 (109)
 
$
 13,474 
 
Consumer
 
9,407 
(a)
 
1,352 
   
 325 
   
 11,084 
 
Real Estate
 
1,159 
   
 (7)
   
 57 
   
 1,209 
 
Energy Financial Services
 
2,162 
   
 (4)
   
 (39)
   
 2,119 
 
GECAS
 
 155 
   
 - 
   
 2 
   
 157 
 
Total
$
25,204 
 
$
2,603 
 
$
 236 
 
$
28,043 
 
                         

 
(a)    
Reflected the transfer of Artesia during the first quarter of 2009, resulting in a related movement of beginning goodwill balance of $326 million.
 

 
Goodwill related to new acquisitions in the first nine months of 2009 was $2,384 million and included acquisitions of BAC Credomatic (BAC) ($1,309 million) at Consumer and Interbanca S.p.A. (Interbanca) ($1,075 million) at CLL. During the first nine months of 2009, the goodwill balance increased by $219 million related to acquisition accounting adjustments for prior-year acquisitions. The most significant of these adjustments was an increase of $180 million associated with the 2008 acquisition of CitiCapital at CLL. Also during the first nine months of 2009, goodwill balances increased $236 million, primarily as a result of the weaker U.S. dollar ($1,034 million), partially offset by the deconsolidation of Penske Truck Leasing Co., L.P. (PTL) ($634 million) at CLL.
 
On June 25, 2009, we increased our ownership in BAC from 49.99% to 75% for a purchase price of $623 million, in accordance with terms of a previous agreement. We remeasured our previously held equity investment to fair value, resulting in a pre-tax gain of $343 million, which is reported in Revenues from services.
 
We test goodwill for impairment annually and more frequently if circumstances warrant. We determine fair values for each of the reporting units using an income approach. When available and as appropriate, we use comparative market multiples to corroborate discounted cash flow results. For purposes of the income approach, fair value is determined based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. We use our internal forecasts to estimate future cash flows and include an estimate of long-term future growth rates based on our most recent views of the long-term outlook for each business. Actual results may differ from those assumed in our forecasts. We derive our discount rates by applying the capital asset pricing model (i.e., to estimate the cost of equity financing) and analyzing published rates for industries relevant to our reporting units. We use discount rates that are commensurate with the risks and uncertainty inherent in the respective businesses and in our internally developed forecasts. Valuations using the market approach reflect prices and other relevant observable information generated by market transactions involving comparable businesses.
 

 
(18)

 

Compared to the market approach, the income approach more closely aligns the reporting unit valuation to a company’s or business’ specific business model, geographic markets and product offerings, as it is based on specific projections of the business. Required rates of return, along with uncertainty inherent in the forecasts of future cash flows are reflected in the selection of the discount rate. Equally important, under this approach, reasonably likely scenarios and associated sensitivities can be developed for alternative future states that may not be reflected in an observable market price. A market approach allows for comparison to actual market transactions and multiples. It can be somewhat more limited in its application because the population of potential comparables (or pure plays) is often limited to publicly-traded companies where the characteristics of the comparative business and ours can be significantly different, market data is usually not available for divisions within larger conglomerates or non-public subsidiaries that could otherwise qualify as comparable, and the specific circumstances surrounding a market transaction (e.g., synergies between the parties, terms and conditions of the transaction, etc.) may be different or irrelevant with respect to our business. It can also be difficult under the current market conditions to identify orderly transactions between market participants in similar financial services businesses. We assess the valuation methodology based upon the relevance and availability of data at the time of performing the valuation and weight the methodologies appropriately.
 
Given the significant decline in GE’s stock price in the first quarter of 2009 and market conditions in the financial services industry at that time, we conducted an additional impairment analysis of the reporting units during the first quarter of 2009 using data as of January 1, 2009. As a result of these tests, no goodwill impairment was recognized.
 
We performed our annual impairment test for goodwill at all of our reporting units in the third quarter using data as of July 1, 2009. In performing the valuations, we used cash flows which reflected management’s forecasts and discount rates which reflect the risks associated with the current market. Based on the results of our testing, the fair values of CLL, Consumer, Energy Financial Services and GECAS reporting units exceeded their book values; therefore, the second step of the impairment test (in which fair value of each of the reporting unit’s assets and liabilities are measured) was not required to be performed and no goodwill impairment was recognized. Due to the volatility and uncertainties in the current commercial real estate environment, we used a range of valuations to determine the fair value for our Real Estate reporting unit. While the Real Estate reporting unit’s book value was within the range of its fair value, we further substantiated our Real Estate goodwill balance by performing the second step analysis described above. As a result of our tests for Real Estate, no goodwill impairment was recognized. Our Real Estate reporting unit had a goodwill balance of $1,209 million at September 30, 2009.
 
Estimating the fair value of reporting units involves the use of estimates and significant judgments that are based on a number of factors including actual operating results. If current conditions persist longer or deteriorate further than expected, it is reasonably possible that the judgments and estimates described above could change in future periods.
 
Intangible Assets Subject to Amortization
 
 
At
 
September 30, 2009
 
December 31, 2008
 
Gross
         
Gross
       
 
carrying
 
Accumulated
     
carrying
 
Accumulated
   
(In millions)
amount
 
amortization
 
Net
 
amount
 
amortization
 
Net
                                   
                                   
Customer-related
$
1,801 
 
$
 (767)
 
$
1,034 
 
$
1,790 
 
$
 (616)
 
$
1,174 
Patents, licenses and trademarks
 
568 
   
 (409)
   
159 
   
564 
   
 (460)
   
104 
Capitalized software
 
2,161 
   
 (1,517)
   
644 
   
2,148 
   
 (1,463)
   
685 
Lease valuations
 
1,734 
   
 (730)
   
1,004 
   
1,761 
   
 (594)
   
1,167 
All other
 
895 
   
 (365)
   
530 
   
233 
   
 (189)
   
44 
Total
$
7,159 
 
$
 (3,788)
 
$
3,371 
 
$
6,496 
 
$
 (3,322)
 
$
3,174 

 
Amortization related to intangible assets subject to amortization was $298 million and $273 million for the quarters ended September 30, 2009 and 2008, respectively. Amortization related to intangible assets subject to amortization for the nine months ended September 30, 2009 and 2008, was $708 million and $675 million, respectively.
 

 
(19)

 

6. BORROWINGS
 
Borrowings are summarized in the following table.
 
 
At
(In millions)
September 30,
 
December 31,
 
2009
 
2008
Short-term borrowings
         
           
Commercial paper
         
   U.S.
         
     Unsecured(a)
$
34,669 
 
$
57,665 
     Asset-backed(b)
 
2,884 
   
3,652 
   Non-U.S.
 
9,871 
   
9,033 
Current portion of long-term debt(a)(c)(d)
 
69,322 
   
69,680 
Bank deposits(e)
 
25,738 
   
29,634 
Bank borrowings(f)
 
5,041 
   
10,569 
GE Interest Plus notes(g)
 
6,520 
   
5,633 
Other
 
1,677 
   
2,735 
Total
 
155,722 
   
188,601 
           
Long-term borrowings
         
           
Senior notes
         
    Unsecured(a)(d)(h)
 
323,518 
   
299,651 
    Asset-backed(i)
 
4,069 
   
5,002 
Subordinated notes(j)
 
2,412 
   
2,567 
Subordinated debentures(k)
 
7,706 
   
7,315 
Bank deposits(l)
 
10,649 
   
7,220 
Total
 
348,354 
   
321,755 
Total borrowings
$
504,076 
 
$
510,356 
           

 
(a)   
GE Capital had issued and outstanding $59,110 million ($3,660 million commercial paper and $55,450 million long-term borrowings) and $35,243 million ($21,823 million commercial paper and $13,420 million long-term borrowings) of senior, unsecured debt that was guaranteed by the Federal Deposit Insurance Corporation (FDIC) under the Temporary Liquidity Guarantee Program at September 30, 2009 and December 31, 2008, respectively. GE Capital and GE are parties to an Eligible Entity Designation Agreement and GE Capital is subject to the terms of a Master Agreement, each entered into with the FDIC. The terms of these agreements include, among other things, a requirement that GE and GE Capital reimburse the FDIC for any amounts that the FDIC pays to holders of GE Capital debt that is guaranteed by the FDIC.
 
(b)    
Consists entirely of obligations of consolidated, liquidating securitization entities. See Note 12.
 
(c)    
Included $239 million and $326 million of asset-backed senior notes, issued by consolidated, liquidating securitization entities at September 30, 2009 and December 31, 2008, respectively.
 
(d)    
Included $1,665 million ($74 million short-term and $1,591 million long-term) of borrowings under European government-sponsored programs at September 30, 2009.
 
(e)    
Included $20,893 million and $11,793 million of deposits in non-U.S. banks at September 30, 2009 and December 31, 2008, respectively, and included certificates of deposits distributed by brokers of $4,845 million and $17,841 million at September 30, 2009 and December 31, 2008, respectively.
 
(f)    
Term borrowings from banks with an original term to maturity of less than 12 months.
 
(g)    
Entirely variable denomination floating rate demand notes.
 
(h)    
Included borrowings from GECS affiliates of $1,011 million and $1,006 million at September 30, 2009 and December 31, 2008, respectively.
 
(i)    
Included $895 million and $2,104 million of asset-backed senior notes, issued by consolidated, liquidating securitization entities at September 30, 2009 and December 31, 2008, respectively. See Note 12.
 
(j)    
Included $117 million and $450 million of subordinated notes guaranteed by GE at September 30, 2009 and December 31, 2008, respectively.
 
(k)    
Subordinated debentures receive rating agency equity credit and were hedged at issuance to the U.S. dollar equivalent of $7,725 million.
 
(l)    
Included certificates of deposits distributed by brokers with maturities greater than one year of $9,898 million and $6,699 million at September 30, 2009 and December 31, 2008, respectively.
 

 
(20)

 

7. INCOME TAXES
 
During the first quarter of 2009, following the change in our external credit ratings, funding actions taken and review of our operations, liquidity and funding, we determined that undistributed prior-year earnings of non-U.S. subsidiaries of GECC, on which we had previously provided deferred U.S. taxes, would be indefinitely reinvested outside the U.S. This change increased the amount of prior-year earnings indefinitely reinvested outside the U.S. by approximately $2 billion to $52 billion, resulting in an income tax benefit of $700 million in the first quarter of 2009.
 
The balance of “unrecognized tax benefits,” the amount of related interest and penalties we have provided and what we believe to be the range of reasonably possible changes in the next 12 months, were:
 
 
At
 
September 30,
 
December 31,
(In millions)
2009
 
2008
           
Unrecognized tax benefits
$
3,711 
 
$
3,454 
   Portion that, if recognized, would reduce tax expense and effective tax rate(a)
 
1,822 
   
1,734 
Accrued interest on unrecognized tax benefits
 
701 
   
693 
Accrued penalties on unrecognized tax benefits
 
72 
   
65 
Reasonably possible reduction to the balance of unrecognized
         
   tax benefits in succeeding 12 months
 
0-300
   
0-350
   Portion that, if recognized, would reduce tax expense and effective tax rate(a)
 
0-150
   
0-50
           

 
(a)   
Some portion of such reduction might be reported as discontinued operations.
 

 
The IRS is currently auditing the GE consolidated income tax returns for 2003-2007, a substantial portion of which include our activities. In addition, certain other U.S. tax deficiency issues and refund claims for previous years remain unresolved. It is reasonably possible that the 2003-2005 U.S. audit cycle will be completed during the next 12 months, which could result in a decrease in our balance of unrecognized tax benefits. We believe that there are no other jurisdictions in which the outcome of unresolved issues or claims is likely to be material to our results of operations, financial position or cash flows. We further believe that we have made adequate provision for all income tax uncertainties.
 
GE and GECC file a consolidated U.S. federal income tax return. The GECC provision for current tax expense includes its effect on the consolidated return. The effect of GECC on the consolidated liability is settled in cash as GE tax payments are due.
 
8. SHAREOWNER’S EQUITY
 
A summary of increases (decreases) in GECC shareowner’s equity that did not result directly from transactions with the shareowner, net of income taxes, follows.
 
 
Three months ended September 30
 
Nine months ended September 30
(In millions)
2009 
 
2008 
 
2009 
 
2008 
                       
Net earnings attributable to GECC
$
171 
 
$
1,919 
 
$
1,359 
 
$
6,768 
Investment securities – net
 
420 
   
(367)
   
936 
   
(1,108)
Currency translation adjustments – net
 
896 
   
(3,389)
   
2,603 
   
(2,600)
Cash flow hedges – net
 
(17)
   
(1,513)
   
1,299 
   
(1,399)
Benefit plans – net
 
   
   
(7)
   
21 
Total
$
1,472 
 
$
(3,347)
 
$
6,190 
 
$
1,682 

 

 
(21)

 

Changes to noncontrolling interests during the third quarter of 2009 resulted from net earnings ($16 million), dividends ($(6) million), AOCI ($(9) million) and other ($10 million). Changes to the individual components of AOCI attributable to noncontrolling interests were insignificant.
 
Changes to noncontrolling interests during the first nine months of 2009 resulted from net earnings ($95 million), dividends ($(12) million), the effects of deconsolidating PTL ($(331) million, including $101 million of AOCI), other AOCI ($(17) million) and other ($11 million). Changes to the individual components of AOCI attributable to noncontrolling interests were insignificant.
 
During the first quarter of 2009, GE made a $9,500 million capital contribution to GECS, of which GECS subsequently contributed $8,250 million to us. In addition, we issued one share of common stock (par value $14) to GECS for $500 million.
 
9. REVENUES FROM SERVICES
 
Revenues from services are summarized in the following table.
 
 
Three months ended September 30
 
Nine months ended September 30
(In millions)
2009
 
2008
 
2009
 
2008
                       
Interest on loans
$
4,906 
 
$
7,153 
 
$
15,012 
 
$
20,258 
Equipment leased to others
 
2,894 
   
3,953 
   
9,283 
   
11,644 
Fees
 
1,158 
   
1,985 
   
3,417 
   
4,716 
Financing leases
 
791 
   
1,099 
   
2,517 
   
3,438 
Real estate investments
 
410 
   
798 
   
1,125 
   
3,088 
Associated companies
 
277 
   
560 
   
751 
   
1,676 
Investment income(a)
 
379 
   
300 
   
1,303 
   
1,446 
Net securitization gains
 
403 
   
275 
   
1,043 
   
897 
Other items(b)(c)
 
434 
   
922 
   
2,947 
   
4,259 
Total
$
 11,652 
 
$
 17,045 
 
$
 37,398 
 
$
 51,422 
                       

 
(a)    
Included net other-than-temporary impairments on investment securities of $79 million and $109 million in the third quarters of 2009 and 2008, respectively, and $272 million and $206 million in the first nine months of 2009 and 2008, respectively. See Note 3.
 
(b)    
Included a gain on the sale of a limited partnership interest in PTL and a related gain on the remeasurement of the retained investment to fair value totaling $296 million in the first quarter of 2009. See Note 12.
 
(c)    
Included a gain of $343 million on the remeasurement to fair value of our equity method investment in BAC, following our acquisition of a controlling interest in the second quarter of 2009. See Note 5.
 

 
(22)

 

10. FAIR VALUE MEASUREMENTS
 
We adopted FASB ASC 820 in two steps; effective January 1, 2008, we adopted it for all financial instruments and non-financial instruments accounted for at fair value on a recurring basis and effective January 1, 2009, for all non-financial instruments accounted for at fair value on a non-recurring basis. This guidance establishes a new framework for measuring fair value and expands related disclosures. Broadly, the framework requires fair value to be determined based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. It also establishes a three-level valuation hierarchy based upon observable and non-observable inputs.
 
For financial assets and liabilities, fair value is the price we would receive to sell an asset or pay to transfer a liability in an orderly transaction with a market participant at the measurement date. In the absence of active markets for the identical assets or liabilities, such measurements involve developing assumptions based on market observable data and, in the absence of such data, internal information that is consistent with what market participants would use in a hypothetical transaction that occurs at the measurement date.
 
Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. Preference is given to observable inputs. These two types of inputs create the following fair value hierarchy:
 
Level 1  –                      Quoted prices for identical instruments in active markets.
 
Level 2  –                       Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
 
Level 3  –                       Significant inputs to the valuation model are unobservable.
 
We maintain policies and procedures to value instruments using the best and most relevant data available. In addition, we have risk management teams that review valuation, including independent price validation for certain instruments. Further, in other instances, we retain independent pricing vendors to assist in valuing certain instruments.
 
The following section describes the valuation methodologies we use to measure different financial instruments at fair value on a recurring basis. There has been no change to the valuation methodologies during 2009.
 
Investments in Debt and Equity Securities
 
When available, we use quoted market prices to determine the fair value of investment securities, and they are included in Level 1. Level 1 securities primarily include publicly-traded equity securities.
 
When quoted market prices are unobservable, we obtain pricing information from an independent pricing vendor. The pricing vendor uses various pricing models for each asset class that are consistent with what other market participants would use. The inputs and assumptions to the model of the pricing vendor are derived from market observable sources including: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities, bids, offers, and other market-related data. Since many fixed income securities do not trade on a daily basis, the methodology of the pricing vendor uses available information as applicable such as benchmark curves, benchmarking of like securities, sector groupings, and matrix pricing. The pricing vendor considers all available market observable inputs in determining the evaluation for a security. Thus, certain securities may not be priced using quoted prices, but rather determined from market observable information. These investments are included in Level 2 and primarily comprise our portfolio of corporate fixed income, and government, mortgage and asset-backed securities. In infrequent circumstances, our pricing vendors may provide us with valuations that are based on significant unobservable inputs, and in those circumstances we classify the investment securities in Level 3.
 

 
(23)

 

Annually, we conduct reviews of our primary pricing vendor, with the assistance of an accounting firm, to validate that the inputs used in that vendor’s pricing process are deemed to be market observable as defined in the standard. While we were not provided access to proprietary models of the vendor, our reviews have included on-site walk-throughs of the pricing process, methodologies and control procedures for each asset class and level for which prices are provided. Our review also included an examination of the underlying inputs and assumptions for a sample of individual securities across asset classes, credit rating levels and various durations, a process we continue to perform for each reporting period. In addition, the pricing vendor has an established challenge process in place for all security valuations, which facilitates identification and resolution of potentially erroneous prices. We believe that the prices received from our pricing vendor are representative of prices that would be received to sell the assets at the measurement date (exit prices) and are classified appropriately in the hierarchy.
 
We use non-binding broker quotes as our primary basis for valuation when there is limited, or no, relevant market activity for a specific instrument or for other instruments that share similar characteristics. We have not adjusted the prices we have obtained. Investment securities priced using non-binding broker quotes are included in Level 3. As is the case with our primary pricing vendor, third-party brokers do not provide access to their proprietary valuation models, inputs and assumptions. Accordingly, our risk management personnel conduct internal reviews of pricing for all such investment securities quarterly to ensure reasonableness of valuations used in our financial statements. These reviews are designed to identify prices that appear stale, those that have changed significantly from prior valuations, and other anomalies that may indicate that a price may not be accurate. Based on the information available, we believe that the fair values provided by the brokers are representative of prices that would be received to sell the assets at the measurement date (exit prices). Level 3 investment securities valued using non-binding broker quotes totaled $620 million and $556 million at September 30, 2009 and December 31, 2008, respectively, and were classified as available-for-sale securities.
 
Retained interests in securitizations are valued using a discounted cash flow model that considers the underlying structure of the securitization and estimated net credit exposure, prepayment assumptions, discount rates and expected life.
 
Private equity investments held in investment company affiliates are initially valued at cost. Valuations are reviewed at the end of each quarter utilizing available market data to determine whether or not any fair value adjustments are necessary. Such market data include any comparable public company trading multiples. Unobservable inputs include company-specific fundamentals and other third-party transactions in that security. These investments are generally included in Level 3.
 
Derivatives
 
We use closing prices for derivatives included in Level 1, which are traded either on exchanges or liquid over-the-counter markets.
 
The majority of our derivatives portfolio is valued using internal models. The models maximize the use of market observable inputs including interest rate curves and both forward and spot prices for currencies and commodities. Derivative assets and liabilities included in Level 2 primarily represent interest rate swaps, cross-currency swaps and foreign currency and commodity forward and option contracts.
 
Derivative assets and liabilities included in Level 3 primarily represent interest rate products that contain embedded optionality or prepayment features.
 
The following tables present our assets and liabilities measured at fair value on a recurring basis. Included in the tables are investment securities of $7,204 million and $8,190 million at September 30, 2009 and December 31, 2008, respectively, supporting obligations to holders of guaranteed investment contracts. Such securities are mainly investment grade.
 

 
(24)

 


(In millions)
                 
Netting
     
 
Level 1
 
Level 2
 
Level 3
   
adjustment
(a)
Net balance
September 30, 2009
                           
                             
Assets
                           
Investment securities
                           
    Debt
                           
       U.S. corporate
$
180 
 
$
1,981 
 
$
1,567 
 
$
– 
 
$
3,728 
       State and municipal
 
185 
   
607 
   
247 
   
– 
   
1,039 
       Residential mortgage-backed
 
– 
   
2,348 
   
45 
   
– 
   
2,393 
       Commercial mortgage-backed
 
– 
   
1,188 
   
53 
   
– 
   
1,241 
       Asset-backed
 
– 
   
716 
   
1,833 
   
– 
   
2,549 
       Corporate - non-U.S.
 
238 
   
43 
   
552 
   
– 
   
833 
       Government - non-U.S.
 
1,156 
   
1,576 
   
166 
   
– 
   
2,898 
       U.S. government and federal agency
 
   
2,722 
   
– 
   
– 
   
2,730 
   Retained interests
 
– 
   
– 
   
7,086 
   
– 
   
7,086 
   Equity
                           
        Available-for-sale
 
508 
   
643 
   
18 
   
– 
   
1,169 
        Trading
 
659 
   
– 
   
– 
   
– 
   
659 
Derivatives(b)
 
– 
   
11,620 
   
434 
   
(4,541)
   
7,513 
Other(c)
 
– 
   
– 
   
604 
   
– 
   
604 
Total
$
2,934 
 
$
23,444 
 
$
12,605 
 
$
(4,541)
 
$
34,442 
                             
Liabilities
                           
Derivatives
$
– 
 
$
8,108 
 
$
275 
 
$
(4,567)
 
$
3,816 
Other
 
– 
   
32 
   
– 
   
– 
   
32 
Total
$
– 
 
$
8,140 
 
$
275 
 
$
(4,567)
 
$
3,848 
                             
December 31, 2008
                           
                             
Assets
                           
Investment securities
                           
    Debt
                           
       U.S. corporate
$
525 
 
$
1,708 
 
$
1,640 
 
$
– 
 
$
3,873 
       State and municipal
 
– 
   
603 
   
247 
   
– 
   
850 
       Residential mortgage-backed
 
30 
   
3,113 
   
118 
   
– 
   
3,261 
        Commercial mortgage-backed
 
– 
   
1,098 
   
57 
   
– 
   
1,155 
       Asset-backed
 
– 
   
676 
   
1,580 
   
– 
   
2,256 
       Corporate - non-U.S.
 
69 
   
50 
   
472 
   
– 
   
591 
       Government - non-U.S.
 
495 
   
11 
   
417 
   
– 
   
923 
       U.S. government and federal agency
 
   
24 
   
– 
   
– 
   
29 
    Retained interests
 
– 
   
– 
   
5,081 
   
– 
   
5,081 
    Equity
                           
       Available-for-sale
 
395 
   
498 
   
18 
   
– 
   
911 
       Trading
 
83 
   
305 
   
– 
   
– 
   
388 
Derivatives(b)
 
– 
   
17,721 
   
544 
   
(7,054)
   
11,211 
Other(c)
 
– 
   
288 
   
551 
   
– 
   
839 
Total
$
1,602 
 
$
26,095 
 
$
10,725 
 
$
(7,054)
 
$
31,368 
                             
Liabilities
$
 
$
10,810 
 
$
162 
 
$
(7,218)
 
$
3,756 
Derivatives
 
– 
   
323 
   
– 
   
– 
   
323 
Other
$
 
$
11,133 
 
$
162 
 
$
(7,218)
 
$
4,079 
Total
                           
                             

 
(a)    
The netting of derivative receivables and payables is permitted when a legally enforceable master netting agreement exists. Included fair value adjustments related to our own and counterparty credit risk.
 
(b)    
The fair value of derivatives included an adjustment for non-performance risk. At September 30, 2009 and December 31, 2008, the cumulative adjustment was a gain of $26 million and $164 million, respectively.
 
(c)    
Included private equity investments and loans designated under the fair value option.
 

 
(25)

 

The following tables present the changes in Level 3 instruments measured on a recurring basis for the three months ended September 30, 2009 and 2008, and the nine months ended September 30, 2009 and 2008. The majority of our Level 3 balances consist of investment securities classified as available-for-sale with changes in fair value recorded in shareowner’s equity.
 
Changes in Level 3 Instruments for the Three Months Ended September 30, 2009
 
(In millions)
       
Net realized/
               
Net change
 
         
unrealized
               
in unrealized
 
         
gains (losses)
               
gains (losses)
 
     
Net realized/
 
included in
               
relating to
 
     
unrealized
 
accumulated
 
Purchases,
 
Transfers
       
instruments
 
     
gains(losses)
 
other
 
issuances
 
in and/or
       
still held at
 
 
July 1,
 
included in
 
comprehensive
 
and
 
out of
 
September 30,
   
September 30,
 
 
2009 
 
earnings
(a)
income
 
settlements
 
Level 3
(b)
2009 
   
2009 
(c)
                                             
Investment securities   
                                           
    Debt
                                           
        U.S. corporate
$
1,546 
 
$
(38)
 
$
69 
 
$
(8)
 
$
(2)
 
$
1,567 
   
$
– 
 
        State and municipal
 
157 
   
– 
   
   
73 
   
11 
   
247 
     
– 
 
        Residential
                                           
            mortgage-backed
 
51 
   
– 
   
   
– 
   
(9)
   
45 
     
– 
 
        Commercial
                                           
            mortgage-backed
 
50 
   
– 
   
   
– 
   
– 
   
53 
     
– 
 
        Asset-backed
 
1,748 
   
(9)
   
14 
   
(28)
   
108 
   
1,833 
     
– 
 
        Corporate - non-U.S.
 
452 
   
12 
   
58 
   
(4)
   
34 
   
552 
     
– 
 
        Government
                                           
             - non-U.S.
 
142 
   
– 
   
10 
   
14 
   
– 
   
166 
     
– 
 
        U.S. government and
                                           
            federal agency
 
– 
   
– 
   
– 
   
– 
   
– 
   
– 
     
– 
 
    Retained interests
 
6,259 
   
250 
   
46 
   
531 
   
– 
   
7,086 
     
75 
 
    Equity
                                           
        Available-for-sale
 
16 
   
– 
   
   
– 
   
– 
   
18 
     
– 
 
        Trading
 
– 
   
– 
   
– 
   
– 
   
– 
   
– 
     
– 
 
Derivatives(d)
 
380 
   
(17)
   
26 
   
(15)
   
(184)
   
190 
     
(10)
 
Other
 
571 
   
12 
   
21 
   
– 
   
– 
   
604 
     
12 
 
Total
$
11,372 
 
$
210 
 
$
258 
 
$
563 
 
$
(42)
 
$
12,361 
   
$
77 
 
                                             

 
(a)   
Earnings effects are primarily included in the “Revenues from services” and “Interest” captions in the Condensed Statement of Current and Retained Earnings.
 
(b)    
Transfers in and out of Level 3 are considered to occur at the beginning of the period. Transfers out of Level 3 were a result of increased use of quotes from independent pricing vendors based on recent trading activity.
 
(c)    
Represented the amount of unrealized gains or losses for the period included in earnings.
 
(d)    
Represented derivative assets net of derivative liabilities and included cash accruals of $31 million not reflected in the fair value hierarchy table.
 

 
(26)

 

Changes in Level 3 Instruments for the Three Months Ended September 30, 2008
 
(In millions)
       
Net realized/
               
Net change
 
         
unrealized
               
in unrealized
 
         
gains (losses)
               
gains (losses)
 
     
Net realized/
 
included in
               
relating to
 
     
unrealized
 
accumulated
 
Purchases,
 
Transfers
       
instruments
 
     
gains(losses)
 
other
 
issuances
 
in and/or
       
still held at
 
 
July 1,
 
included in
 
comprehensive
 
and
 
out of
 
September 30,
   
September 30,
 
 
2008 
 
earnings
(a)
income
 
settlements
 
Level 3
(b)
2008 
   
2008 
(c)
                                             
Investment securities   
$
9,797 
 
$
284 
 
$
(215)
 
$
(477)
 
$
(75)
 
$
9,314 
   
$
128 
 
Derivatives(d)(e)
 
414 
   
301 
   
17 
   
(30)
   
   
709 
     
268 
 
Other
 
715 
   
(34)
   
(37)
   
   
– 
   
645 
     
(31)
 
Total
$
10,926 
 
$
551 
 
$
(235)
 
$
(506)
 
$
(68)
 
$
10,668 
   
$
365 
 
                                             

 
(a)    
Earnings effects are primarily included in the “Revenues from services” and “Interest” captions in the Condensed Statement of Current and Retained Earnings.
 
(b)    
Transfers in and out of Level 3 are considered to occur at the beginning of the period.
 
(c)    
Represented the amount of unrealized gains or losses for the period included in earnings.
 
(d)    
Earnings from derivatives were more than offset by $85 million in losses from related derivatives included in Level 2 and $253 million in losses from qualifying fair value hedges.
 
(e)    
Represented derivative assets net of derivative liabilities and included cash accruals of $19 million not reflected in the fair value hierarchy table.
 

 
(27)

 
 

 
Changes in Level 3 Instruments for the Nine Months Ended September 30, 2009
 
(In millions)
       
Net realized/
               
Net change
 
         
unrealized
               
in unrealized
 
         
gains (losses)
               
gains (losses)
 
     
Net realized/
 
included in
               
relating to
 
     
unrealized
 
accumulated
 
Purchases,
 
Transfers
       
instruments
 
     
gains(losses)
 
other
 
issuances
 
in and/or
       
still held at
 
 
January 1,
 
included in
 
comprehensive
 
and
 
out of
 
September 30,
   
September 30,
 
 
2009 
 
earnings
(a)
income
 
settlements
 
Level 3
(b)
2009 
   
2009 
(c)
                                             
Investment securities   
                                           
    Debt
                                           
        U.S. corporate
$
1,640 
 
$
(26)
 
$
69 
 
$
(11)
 
$
(105)
 
$
1,567 
   
$
– 
 
        State and municipal
 
247 
   
– 
   
(101)
   
65 
   
36 
   
247 
     
– 
 
        Residential
                                           
            mortgage-backed
 
118 
   
– 
   
(6)
   
(20)
   
(47)
   
45 
     
– 
 
        Commercial
                                           
            mortgage-backed
 
57 
   
– 
   
(4)
   
– 
   
– 
   
53 
     
– 
 
        Asset-backed
 
1,580 
   
(1)
   
232 
   
55 
   
(33)
   
1,833 
     
– 
 
        Corporate - non-U.S.
 
472 
   
(3)
   
46 
   
43 
   
(6)
   
552 
     
– 
 
        Government
                                           
             - non-U.S.
 
418 
   
– 
   
   
17 
   
(275)
   
166 
     
– 
 
        U.S. government and
                                           
            federal agency
 
– 
   
– 
   
– 
   
– 
   
– 
   
– 
     
– 
 
    Retained interests
 
5,081 
   
856 
   
244 
   
905 
   
– 
   
7,086 
     
167 
 
    Equity
                                           
        Available-for-sale
 
17 
   
– 
   
   
(1)
   
– 
   
18 
     
– 
 
        Trading
 
– 
   
– 
   
– 
   
– 
   
– 
   
– 
     
– 
 
Derivatives(d)(e)
 
401 
   
60 
   
(40)
   
(82)
   
(149)
   
190 
     
(114)
 
Other
 
551 
   
(7)
   
31 
   
29 
   
– 
   
604 
     
(10)
 
Total
$
10,582 
 
$
879 
 
$
479 
 
$
1,000 
 
$
(579)
 
$
12,361 
   
$
43 
 
                                             

 
(a)   
Earnings effects are primarily included in the “Revenues from services” and “Interest” captions in the Condensed Statement of Current and Retained Earnings.
 
(b)    
Transfers in and out of Level 3 are considered to occur at the beginning of the period. Transfers out of Level 3 were a result of increased use of quotes from independent pricing vendors based on recent trading activity.
 
(c)    
Represented the amount of unrealized gains or losses for the period included in earnings.
 
(d)    
Earnings from derivatives were partially offset by $56 million in losses from related derivatives included in Level 2.
 
(e)   
Represented derivative assets net of derivative liabilities and included cash accruals of $31 million not reflected in the fair value hierarchy table.
 

 
(28)

 

Changes in Level 3 Instruments for the Nine Months Ended September 30, 2008
 
(In millions)
       
Net realized/
               
Net change
 
         
unrealized
               
in unrealized
 
         
gains (losses)
               
gains (losses)
 
     
Net realized/
 
included in
               
relating to
 
     
unrealized
 
accumulated
 
Purchases,
 
Transfers
       
instruments
 
     
gains(losses)
 
other
 
issuances
 
in and/or
       
still held at
 
 
January 1,
 
included in
 
comprehensive
 
and
 
out of
 
September 30,
   
September 30,
 
 
2008 
 
earnings
(a)
income
 
settlements
 
Level 3
(b)
2008 
   
2008 
(c)
                                             
Investment securities   
$
8,329 
 
$
665 
 
$
(314)
 
$
221 
 
$
413 
 
$
9,314 
   
$
102 
 
Derivatives(d)(e)
 
200 
   
591 
   
43 
   
(132)
   
   
709 
     
464 
 
Other
 
689 
   
(42)
   
(9)
   
(44)
   
51 
   
645 
     
 
Total
$
9,218 
 
$
1,214 
 
$
(280)
 
$
45 
 
$
471 
 
$
10,668 
   
$
575 
 
                                             

 
(a)    
Earnings effects are primarily included in the “Revenues from services” and “Interest” captions in the Condensed Statement of Current and Retained Earnings.
 
(b)    
Transfers in and out of Level 3 are considered to occur at the beginning of the period.
 
(c)    
Represented the amount of unrealized gains or losses for the period included in earnings.
 
(d)    
Earnings from derivatives were partially offset by $132 million in losses from related derivatives included in Level 2 and $309 million in losses from qualifying fair value hedges.
 
(e)    
Represented derivative assets net of derivative liabilities and included cash accruals of $19 million not reflected in the fair value hierarchy table.
 

Non-Recurring Fair Value Measurements
 
Certain assets are measured at fair value on a non-recurring basis. These assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances. These include certain loans that are written down to fair value when they are held for sale or when they are written down to the fair value of their underlying collateral when deemed impaired, cost and equity method investments that are written down to fair value when their declines are determined to be other-than-temporary, long-lived assets that are written down to fair value when they are held for sale or determined to be impaired and the remeasurement of retained investments in formerly consolidated subsidiaries.
 
Non-recurring fair value amounts (as measured at the time of the adjustment) for assets still held at September 30, 2009 and December 31, 2008, totaled $741 million and $48 million, identified as Level 2, and $16,149 million and $3,100 million, identified as Level 3, respectively. Level 3 amounts at September 30, 2009 primarily included our retained investment in PTL ($5,991 million), financing receivables and loans held for sale ($5,404 million), long-lived assets ($3,145 million), primarily real estate held for investment and equipment leased to others, and cost and equity method investments ($1,299 million).
 
The following table represents the fair value adjustments to assets measured at fair value on a non-recurring basis and still held at September 30, 2009 and September 30, 2008.
 

 
Three months ended September 30
 
Nine months ended September 30
(In millions)
2009
 
2008
 
2009
 
2008
                       
Financing receivables and loans held for sale
$
(656)
 
$
(121)
 
$
(1,338)
 
$
(379)
Cost and equity method investments
 
(219)
   
(199)
   
(674)
   
(275)
Long-lived assets(a)
 
(351)
   
(135)
   
(615)
   
(180)
Retained investments in formerly consolidated subsidiaries(a)
 
– 
   
– 
   
237 
   
– 
Total
$
(1,226)
 
$
(455)
 
$
(2,390)
 
$
(834)
                       


 
(a)    
FASB ASC 820 was adopted for non-financial assets valued on a non-recurring basis as of January 1, 2009.
 

 

 
(29)

 

The following describes the valuation methodologies we use to measure non-financial instruments accounted for at fair value on a non-recurring basis. There has been no change to the valuation methodologies during 2009.
 
Loans
 
When available, we use observable market data, including pricing on recent closed market transactions, to value loans which are included in Level 2. When this data is unobservable, we use valuation methodologies using current market interest rate data adjusted for inherent credit risk, and such loans are included in Level 3. When appropriate, loans are valued using collateral values as a practical expedient.
 
Long-lived Assets
 
Long-lived assets, including aircraft and real estate, may be measured at fair value if such assets are held for sale or when there is a determination that the asset is impaired. The determination of fair value is based on the best information available, including internal cash flow estimates discounted at an appropriate interest rate, quoted market prices when available, market prices for similar assets and independent appraisals, as appropriate. For real estate, cash flow estimates are based on current market estimates that reflect current and projected lease profiles and available industry information about expected trends in rental, occupancy and capitalization rates.
 
Investments in Subsidiaries and Formerly Consolidated Subsidiaries
 
Upon a change in control that results in deconsolidation of a subsidiary, a fair value measurement may be required if we sell a controlling interest and retain a noncontrolling stake in the entity. Such investments are valued using a discounted cash flow model, comparative market multiples or a combination of both approaches as appropriate. In applying these methodologies, we rely on a number of factors, including actual operating results, future business plans, economic projections and market data.
 

 
(30)

 

11. FINANCIAL INSTRUMENTS
 
The following table provides information about the assets and liabilities not carried at fair value in our Statement of Financial Position. Consistent with FASB ASC 825, the table excludes financing leases and non-financial assets and liabilities. Apart from certain of our borrowings and certain marketable securities, few of the instruments identified below are actively traded and their fair values must often be determined using financial models. Realization of the fair value of these instruments depends upon market forces beyond our control, including marketplace liquidity. For a description on how we estimate fair value, see Note 20 to the consolidated financial statements in our 2008 Form 10-K.
 

   
At
   
September 30, 2009
   
December 31, 2008
         
Assets (liabilities)
         
Assets (liabilities)
   
Notional
   
Carrying
   
Estimated
   
Notional
   
Carrying
   
Estimated
(In millions)
 
amount
   
amount(net)
   
fair value
   
amount
   
amount(net)
   
fair value
                                   
Assets
                                 
    Loans
$
(a)
 
$
290,921 
 
$
272,186 
 
$
(a)
 
$
304,010 
 
$
291,465 
    Other commercial mortgages
 
(a)
   
132 
   
132 
   
(a)
   
374 
   
374 
    Loans held for sale
 
(a)
   
1,864 
   
1,898 
   
(a)
   
3,640 
   
3,670 
    Other financial instruments(b)
 
(a)
   
2,210 
   
2,333 
   
(a)
   
2,609 
   
2,781 
Liabilities
                                 
    Borrowings(c)(d)
 
(a)
   
(504,076)
   
(505,122)
   
(a)
   
(510,356)
   
(491,240)
    Guaranteed investment contracts
 
(a)
   
(9,241)
   
(9,156)
   
(a)
   
(10,828)
   
(10,677)
    Insurance - credit life(e)
 
1,447 
   
(72)
   
(47)
   
1,052 
   
(46)
   
(33)
                                   

 
(a)   
These financial instruments do not have notional amounts.
 
(b)    
Principally cost method investments.
 
(c)    
See Note 6.
 
(d)    
Fair values exclude interest rate and currency derivatives designated as hedges of borrowings. Had they been included, the fair value of borrowings at September 30, 2009 and December 31, 2008 would have been reduced by $3,367 million and $3,776 million, respectively.
 
(e)  
Net of reinsurance of $2,300 million and $3,100 million at September 30, 2009 and December 31, 2008, respectively.
 

 
Loan Commitments
 
   
Notional amount at
   
September 30,
   
December 31,
(In millions)
 
2009 
   
2008 
           
Ordinary course of business lending commitments(a)(b)
$
7,370 
 
$
8,507 
Unused revolving credit lines(c)
         
    Commercial
 
30,259 
   
26,300 
    Consumer - principally credit cards
 
245,764 
   
252,867 
           

 
(a)    
Excluded investment commitments of $2,493 million and $3,501 million as of September 30, 2009 and December 31, 2008, respectively.
 
(b)    
Included a $1,004 million and $1,067 million commitment as of September 30, 2009 and December 31, 2008, respectively, associated with a secured financing arrangement that can increase to a maximum of $4,943 million based on the asset volume under the arrangement.
 
(c)    
Excluded inventory financing arrangements, which may be withdrawn at our option, of $13,234 million and $14,503 million as of September 30, 2009 and December 31, 2008, respectively.
 

(31)

 
Derivatives and Hedging
 
On January 1, 2009, in accordance with FASB ASC 815, we began disclosing additional qualitative and quantitative information about our derivative and hedging activities. The following disclosures should be read in the context of our existing disclosure in Note 20 to the consolidated financial statements in our 2008 Form 10-K.
 
As a matter of policy, we use derivatives for risk management purposes. We do not use derivatives for speculative purposes. A key risk management objective for our financial services businesses is to mitigate interest rate and currency risk by seeking to ensure that the characteristics of the debt match the assets they are funding. If the form (fixed versus floating) and currency denomination of the debt we issue do not match the related assets, we typically execute derivatives to adjust the nature and tenor of debt funding to meet this objective. The determination of whether a derivative is used to achieve this objective depends on a number of factors, including customer needs for specific types of financing, and market factors affecting the type of debt we can issue.
 
Of the outstanding notional amount of $312,000 million, approximately 93%, or $289,000 million, is associated with reducing or eliminating the interest rate, currency or market risk between financial assets and liabilities in our financial services businesses. The remaining derivatives activity primarily relates to hedging against adverse changes in currency exchange rates and commodity prices related to anticipated sales and purchases. These activities are designated as hedges when practicable. When it is not possible to apply hedge accounting, or when the derivative and the hedged item are both recorded in earnings currently, the derivatives are accounted for as economic hedges and hedge accounting is not applied. This most frequently occurs when we hedge a recognized foreign currency transaction (e.g., a receivable or payable) with a derivative. Since the effects of changes in exchange rates are reflected currently in earnings for both the derivative and the underlying, the economic hedge does not require hedge accounting.
 
The following table provides information about the fair value of our derivatives, by contract type, separating those accounted for as hedges and those that are not.
 
 
At September 30, 2009
 
Fair value
(In millions)
Assets
 
Liabilities
           
Derivatives accounted for as hedges
         
   Interest rate contracts
$
5,455 
 
$
3,690 
   Currency exchange contracts
 
3,996 
   
3,301 
   Other contracts
 
28 
   
   
9,479 
   
6,993 
Derivatives not accounted for as hedges
         
   Interest rate contracts
 
878 
   
789 
   Currency exchange contracts
 
1,423 
   
532 
   Other contracts
 
274 
   
69 
   
2,575 
   
1,390 
Netting adjustment(a)
 
(4,541)
   
(4,567)
           
Total
$
7,513 
 
$
3,816 
           
           

 
Derivatives are classified in the captions “Other assets” and “Other liabilities” in our financial statements.
 

 
(a)   
The netting of derivative receivables and payables is permitted when a legally enforceable master netting agreement exists. Amounts included fair value adjustments related to our own and counterparty credit risk. At September 30, 2009 and December 31, 2008, the cumulative adjustment for non-performance risk was a gain of $26 million and $164 million, respectively.
 

 
(32)

 

Earnings Effects of Derivatives on the Statement of Current and Retained Earnings
For relationships designated as fair value hedges, which relate entirely to hedges of debt, changes in fair value of the derivatives are recorded in earnings along with offsetting adjustments to the carrying amount of the hedged debt. Through September 30, 2009, such adjustments increased the carrying amount of debt outstanding by $4,355 million. The following table provides information about the earnings effects of our fair value hedging relationships for the three and nine months ended September 30, 2009.
 
       
Three months ended
 
Nine months ended
 
September 30, 2009
September 30, 2009
(In millions)
 
Financial statement caption
 
Gain (loss)
 
Gain (loss)
 
Gain (loss)
 
Gain (loss)
 
on hedging
on hedged
on hedging
on hedged
 
derivatives
items
derivatives
items
                             
Interest rate contracts
 
Interest
 
$
 1,559 
 
$
(1,768)
 
$
 (3,621)
 
$
3,478 
Currency exchange contracts
 
Interest
   
 (36)
   
53 
   
 (1,094)
   
1,085 
                             

 
Fair value hedges resulted in $(192) million and $(152) million of ineffectiveness of which $(153) million and $(228) million reflects amounts excluded from the assessment of effectiveness for the three and nine months ended September 30, 2009, respectively.
 

For derivatives that are designated in a cash flow hedging relationship, the effective portion of the change in fair value of the derivative is reported in the cash flow hedges subaccount of AOCI and reclassified into earnings contemporaneously with the earnings effects of the hedged transaction. Earnings effects of the derivative and the hedged item are reported in the same caption in the Statement of Current and Retained Earnings. Hedge ineffectiveness and components of changes in fair value of the derivative that are excluded from the assessment of effectiveness are recognized in earnings each reporting period.
 
For derivatives that are designated as hedges of net investment in a foreign operation, we assess effectiveness based on changes in spot currency exchange rates. Changes in spot rates on the derivative are recorded in the currency translation adjustments subaccount of AOCI until such time as the foreign entity is substantially liquidated or sold. The change in fair value of the forward points, which reflects the interest rate differential between the two countries on the derivative, are excluded from the effectiveness assessment and are recorded currently in earnings.
 

 
(33)

 

The following tables provide additional information about the financial statement effects related to our cash flow hedges and net investment hedges for the three and nine months ended September 30, 2009.
 
Three months ended September 30, 2009
       
Financial statement caption
 
Gain (loss)
     
reclassified
 
Gain (loss)
from
 
recognized
AOCI into
 
in OCI
earnings
(In millions)
               
       
     
 
   
   
Cash flow hedges
               
Interest rate contracts
 
$
17 
 
Interest
 
$
(446)
Currency exchange contracts
   
257 
 
Interest
   
219 
         
Revenues from services
   
(102)
Commodity contracts
   
(33)
         
                 
Total
 
$
241 
     
$
(329)
                 
   
Gain (loss)
     
Gain (loss)
 
recognized
reclassified
 
in CTA
from CTA
                 
Net investment hedges
               
Currency exchange contracts
 
$
(1,916)
 
Revenues from services
 
$
(2)
                 
                 

                 
Nine months ended September 30, 2009
       
Financial statement caption
 
Gain (loss)
     
reclassified
 
Gain (loss)
from
 
recognized
AOCI into
 
in OCI
earnings
(In millions)
               
       
     
 
   
   
Cash flow hedges
               
Interest rate contracts
 
$
790 
 
Interest
 
$
(1,536)
Currency exchange contracts
   
2,379 
 
Interest
   
1,215 
         
Revenues from services
   
(98)
Commodity contracts
   
(18)
         
                 
Total
 
$
3,151 
     
$
(419)
                 
   
Gain (loss)
     
Gain (loss)
 
recognized
reclassified
 
in CTA
from CTA
                 
Net investment hedges
               
Currency exchange contracts
 
$
(5,075)
 
Revenues from services
 
$
(32)
                 

 
Of the total pre-tax amount recorded in AOCI, $3,281 million related to cash flow hedges of forecasted transactions of which we expect to transfer $1,471 million to earnings as an expense in the next 12 months contemporaneously with the earnings effects of the related forecasted transactions. In the first nine months of 2009, we recognized insignificant gains and losses related to hedged forecasted transactions and firm commitments that did not occur by the end of the originally specified period. At September 30, 2009, the maximum term of derivative instruments that hedge forecasted transactions was 26 years and related to hedges of anticipated interest payments associated with external debt.
 

 
(34)

 

For cash flow hedges, the amount of ineffectiveness in the hedging relationship and amount of the changes in fair value of the derivative that are not included in the measurement of ineffectiveness are both reflected in earnings each reporting period. These amounts totaled $9 million and $11 million for the three and nine months ended September 30, 2009, respectively, and primarily appear in Revenues from services. Ineffectiveness from net investment hedges was $(99) million and $(656) million for the three and nine months ended September 30, 2009, respectively, which primarily related to changes in value of the forward points that under our hedge accounting designations are excluded from the assessment of effectiveness and recorded directly into earnings. These amounts appear in the “Interest” caption in the Statement of Current and Retained Earnings.
 
Changes in the fair value of derivatives that are not designated as hedges are recorded in earnings each period. As discussed above, these derivatives are entered into as economic hedges of changes in interest rates, currency exchange rates, commodity prices and other market risks. Gains or losses related to the derivative are recorded in predefined captions in the Statement of Current and Retained Earnings, typically “Revenues from services”, based on our accounting policy. In general, the earnings effects of the item that represents the economic risk exposure is recorded in the same caption as the derivative. Gains for the first nine months of 2009 on derivatives not designated as hedges, without considering the offsetting earnings effects from the item representing the economic risk exposure, were $403 million, related to interest rate contracts of $151 million, currency exchange contracts of $198 million and equity, credit and commodity derivatives of $54 million.
 
Counterparty Credit Risk
 
To lower our exposure to credit risk, our standard master agreements typically contain mutual downgrade provisions that provide the ability of each party to require assignment or termination if the long-term credit rating of the counterparty were to fall below A-/A3. In certain of these master agreements, each party also has the ability to require assignment or termination if the short-term rating of the counterparty were to fall below A-1/P-1. The net derivative liability subject to these provisions was approximately $2,029 million at September 30, 2009. In addition to these provisions, in certain of these master agreements, we also have collateral arrangements that provide us with the right to hold collateral (cash or U.S. Treasuries or other highly-rated securities) when the current market value of derivative contracts exceeds a specified limit. We also have a limited number of such collateral agreements under which we must post collateral. Under these agreements and in the normal course of business, the fair value of collateral posted by counterparties at September 30, 2009, was approximately $7,868 million, of which $2,500 million was held in cash and $5,368 million represented pledged securities. The fair value of collateral posted by us was approximately $1,836 million, of which $1,771 million was cash and $65 million represented securities repledged.
 
More information regarding our counterparty credit risk and master agreements can be found in Note 20 to the consolidated financial statements in our 2008 Form 10-K.
 
Guarantees of Derivatives
 
We do not sell credit default swaps; however, as part of our risk management services, we provide certain performance guarantees to third-party financial institutions related to plain vanilla interest rate swaps on behalf of some customers related to variable rate loans we have extended to them. The fair value of such guarantees was $28 million at September 30, 2009. The aggregate fair value of customer derivative contracts in a liability position at September 30, 2009, was $314 million before consideration of any offsetting effect of collateral. At September 30, 2009, collateral value was sufficient to cover the loan amount and the fair value of the customer’s derivative, in the event we had been called upon to perform under the derivative. Given our strict underwriting criteria, we believe the likelihood that we will be required to perform under these guarantees is remote.
 

 
(35)

 

12. OFF-BALANCE SHEET ARRANGEMENTS
 
We securitize financial assets and arrange other forms of asset-backed financing in the ordinary course of business to improve shareowner returns. The securitization transactions we engage in are similar to those used by many financial institutions. Beyond improving returns, these securitization transactions serve as funding sources for a variety of diversified lending and securities transactions. Historically, we have used both GE-supported and third-party Variable Interest Entities (VIEs) to execute off-balance sheet securitization transactions funded in the commercial paper and term markets. The largest single category of VIEs that we are involved with are Qualifying Special Purpose Entities (QSPEs), which meet specific characteristics defined in U.S. GAAP that exclude them from the scope of consolidation standards. Investors in these entities only have recourse to the assets owned by the entity and not to our general credit, unless noted below. We did not provide non-contractual support to any consolidated VIE, unconsolidated VIE or QSPE in the nine months ended September 30, 2009. We do not have implicit support arrangements with any VIE or QSPE.
 
Variable Interest Entities
 
When evaluating whether we are the primary beneficiary of a VIE, and must therefore consolidate the entity, we perform a qualitative analysis that considers the design of the VIE, the nature of our involvement and the variable interests held by other parties. If that evaluation is inconclusive as to which party absorbs a majority of the entity’s expected losses or residual returns, a quantitative analysis is performed to determine who is the primary beneficiary.
 
Consolidated Variable Interest Entities
 
For additional information about our consolidated VIEs, see Note 21 to the consolidated financial statements in our 2008 Form 10-K. Consolidated VIEs at September 30, 2009 and December 31, 2008 follow:
 

 
 
At
 
September 30, 2009
 
December 31, 2008
(In millions)
Assets
 
Liabilities
 
Assets
 
Liabilities
                       
Consolidated, liquidating securitization entities(a)
$
2,790 
 
$
2,969 
 
$
4,000 
 
$
3,868 
Trinity(b)
 
7,657 
   
9,447 
   
9,192 
   
11,623 
Penske Truck Leasing Co., L.P. (PTL)(c)
 
– 
   
– 
   
7,444 
   
1,339 
Other(d)
 
3,602 
   
1,664 
   
4,574 
   
3,335 
 
$
14,049 
 
$
14,080 
 
$
25,210 
 
$
20,165 
                       

 
(a)    
If the short-term credit rating of GE Capital or these entities were reduced below A–1/P–1, we could be required to provide substitute liquidity for those entities or provide funds to retire the outstanding commercial paper. The maximum net amount that we could be required to provide in the event of such a downgrade is determined by contract and totaled $2,900 million at September 30, 2009. The borrowings of these entities are reflected in our Statement of Financial Position.
 
(b)    
If the long-term credit rating of GE Capital were to fall below AA-/Aa3 or its short-term credit rating were to fall below A-1+/P-1, GE Capital could be required to provide approximately $2,917 million to such entities as of September 30, 2009 pursuant to letters of credit issued by GE Capital. To the extent that the entities’ liabilities exceed the ultimate value of the proceeds from the sale of their assets and the amount drawn under the letters of credit, GE Capital could be required to provide such excess amount. The borrowings of these entities are reflected in our Statement of Financial Position.
 
(c)    
In the first quarter of 2009, we sold a 1% limited partnership interest in PTL, a previously consolidated VIE, to Penske Truck Leasing Corporation, the general partner of PTL, whose majority shareowner is a member of GE’s Board of Directors. The disposition of the shares, coupled with our resulting minority position on the PTL advisory committee and related changes in our contractual rights, resulted in the deconsolidation of PTL. We recognized a pre-tax gain on the sale of $296 million, including a gain on the remeasurement of our retained investment of $189 million. The measurement of the fair value of our retained investment in PTL was based on a methodology that incorporated both discounted cash flow information and market data. In applying this methodology, we utilized different sources of information, including actual operating results, future business plans, economic projections and market observable pricing multiples of similar businesses. The resulting fair value reflected our position as a noncontrolling shareowner at the conclusion of the transaction.
 
(d)    
A majority of the remaining assets and liabilities of VIEs that are included in our consolidated financial statements were acquired in transactions subsequent to January 1, 2004. Assets of these entities consist of amortizing securitizations of financial assets originated by acquirees in Australia and Japan, and real estate partnerships. We have no recourse arrangements with these entities.
 


 
(36)

 

Unconsolidated Variable Interest Entities
 
Our involvement with unconsolidated VIEs consists of the following activities: assisting in the formation and financing of an entity, providing recourse and/or liquidity support, servicing the assets and receiving variable fees for services provided. The classification in our financial statements of our variable interests in these entities depends on the nature of the entity. As described below, our retained interests in securitization-related VIEs and QSPEs is reported in financing receivables or investment securities depending on its legal form. Variable interests in partnerships and corporate entities would be classified as either equity method or cost method investments.
 
In the ordinary course of business, we make investments in entities in which we are not the primary beneficiary, but may hold a variable interest such as limited partner equity interests or mezzanine debt investment. These investments are classified in two captions in our financial statements: “Other assets” for investments accounted for under the equity method, and “Financing receivables” for debt financing provided to these entities.
 
Investments in unconsolidated VIEs at September 30, 2009 and December 31, 2008 follow:
 
 
At
(In millions)
September 30,
 
December 31,
2009 
2008 
             
Other assets(a)
$
8,989 
 
$
2,919 
 
Financing receivables
 
712 
   
1,045 
 
Total investment
 
9,701 
   
3,964 
 
Contractual obligations to fund new investments
 
1,477 
   
1,159 
 
Maximum exposure to loss
$
11,178 
 
$
5,123 
 
             

 
(a)    
At September 30, 2009, our remaining investment in PTL of $5,991 million comprised a 49.9% partnership interest of $950 million and loans and advances of $5,041 million.
 

 
Other than those entities described above, we also hold passive investments in RMBS, CMBS and asset-backed securities issued by entities that may be either VIEs or QSPEs. Such investments were, by design, investment grade at issuance and held by a diverse group of investors. As we have no formal involvement in such entities beyond our investment, we believe that the likelihood is remote that we would be required to consolidate them. Further information about such investments is provided in Note 3.
 
Securitization Activities
 
We transfer assets to QSPEs in the ordinary course of business as part of our ongoing securitization activities. In our securitization transactions, we transfer assets to a QSPE and receive a combination of cash and retained interests in the assets transferred. The QSPE sells beneficial interests in the assets transferred to third-party investors, to fund the purchase of the assets.
 
The financing receivables in our QSPEs have similar risks and characteristics to our on-book financing receivables and were underwritten to the same standard. Accordingly, the performance of these assets has been similar to our on-book financing receivables; however, the blended performance of the pools of receivables in our QSPEs reflects the eligibility screening requirements that we apply to determine which receivables are selected for sale. Therefore, the blended performance can differ from the on-book performance.
 
When we securitize financing receivables we retain interests in the transferred receivables in two forms: a seller’s interest in the assets of the QSPE, which we classify as financing receivables, and subordinated interests in the assets of the QSPE, which we classify as investment securities. In certain credit card receivables trusts, we are required to maintain minimum free equity (subordinated interest) of 4% or 7% depending on the credit rating of GE Capital.
 

 
(37)

 

Financing receivables transferred to securitization entities that remained outstanding and our retained interests in those financing receivables at September 30, 2009 and December 31, 2008 follow.
 
                             
         
Commercial
   
Credit card
   
Other
   
Total
(In millions)
 
Equipment
(a)(b)
 
real estate
   
receivables
(b)
 
assets
   
assets
                             
September 30, 2009
                           
Asset amount outstanding
$
10,533 
 
$
7,533 
 
$
24,570 
 
$
1,773 
 
$
44,409 
Included within the amount above are
                           
    retained interests of:
                           
      Financing receivables(c)
 
– 
   
– 
   
1,770 
   
– 
   
1,770 
      Investment securities
 
266 
   
12 
   
6,712 
   
56 
   
7,046 
                             
December 31, 2008
                           
Asset amount outstanding
$
13,298 
 
$
7,970 
 
$
26,046 
 
$
2,782 
 
$
50,096 
Included within the amount above are
                           
    retained interests of:
                           
      Financing receivables(c)
 
– 
   
– 
   
3,802 
   
– 
   
3,802 
      Investment securities
 
148 
   
16 
   
4,806 
   
61 
   
5,031 
                             

 
(a)    
Included inventory floorplan receivables.
 
(b)    
As permitted by the terms of the applicable trust documents, in the second and third quarters of 2009, we transferred $268 million of floorplan financing receivables to the GE Dealer Floorplan Master Note Trust and $328 million of credit card receivables to the GE Capital Credit Card Master Note Trust in exchange for additional subordinated interests. These actions had the effect of maintaining the AAA ratings of certain securities issued by these entities.
 
(c)    
Uncertificated seller’s interests.
 

 
Retained Interests in Securitization Transactions
 
When we transfer financing receivables, we determine the fair value of retained interests received as part of the securitization transaction. Further information about how fair value is determined is presented in Note 10. Retained interests in securitized receivables that are classified as investment securities are reported at fair value in each reporting period. These assets decrease as cash is received on the underlying financing receivables. Retained interests classified as financing receivables are accounted for in a similar manner to our on-book financing receivables.
 

 
(38)

 

Key assumptions used in measuring the fair value of retained interests classified as investment securities and the sensitivity of the current fair value to changes in those assumptions related to all outstanding retained interests at September 30, 2009 and December 31, 2008 follow.
 
 (In millions)
Equipment
 
Commercial
 
Credit card
 
Other
 
real estate
receivables
assets
                         
September 30, 2009
                       
Discount rate(a)
 
 8.9 
%
 
 68.1 
%
 
 11.2 
%
 
 4.8 
%
Effect of
                       
     10% adverse change
$
(3)
 
$
(1)
 
$
(69)
 
$
 
     20% adverse change
 
(7)
   
(2)
   
(136)
   
 
                         
Prepayment rate(a)(b)
 
5.0 
%
 
1.1 
%
 
9.4 
%
 
50.3 
%
Effect of
                       
     10% adverse change
$
 
$
 
$
(56)
 
$
 
     20% adverse change
 
   
   
(103)
   
 
                         
Estimate of credit losses(a)
 
0.6 
%
 
7.8 
%
 
16.0 
%
 
0.1 
%
Effect of
                       
     10% adverse change
$
 
$
 
$
(231)
 
$
 
     20% adverse change
 
(1)
   
(1) 
   
(459)
   
 
                         
Remaining weighted average
                       
     asset lives (in months)
 
   
76 
   
10 
   
 
Net credit losses for the quarter
$
– 
 
$
14 
 
$
1,333 
 
$
 
Delinquencies
 
– 
   
   
1,561 
   
 
                         
December 31, 2008
                       
Discount rate(a)
 
16.7 
%
 
54.2 
%
 
15.1 
%
 
13.4 
%
Effect of
                       
     10% adverse change
$
(6)
 
$
(1)
 
$
(53)
 
$
 
     20% adverse change
 
(12)
   
(2)
   
(105)
   
(1)
 
                         
Prepayment rate(a)(b)
 
10.0 
%
 
1.5 
%
 
 9.6 
%
 
 43.8 
%
Effect of
                       
     10% adverse change
$
(1)
 
$
 
$
(60)
 
$
 
     20% adverse change
 
(1)
   
   
(118)
   
(1)
 
                         
Estimate of credit losses(a)
 
0.4 
%
 
4.9 
%
 
16.2 
%
 
0.1 
%
Effect of
                       
     10% adverse change
$
(1)
 
$
 
$
(223)
 
$
 
     20% adverse change
 
(3)
   
   
(440)
   
 
                         
Remaining weighted average
                       
     asset lives (in months)
 
20 
   
70 
   
10 
   
 
Net credit losses for the year
$
 
$
 
$
1,512 
 
$
 
Delinquencies
 
27 
   
58 
   
1,833 
   
 
                         

 
(a)    
Based on weighted averages.
 
(b)    
Represented a payment rate on credit card receivables, inventory financing receivables (included within equipment) and trade receivables (included within other assets).
 

 
(39)

 

Activity related to retained interests classified as investment securities in our consolidated financial statements for the three and nine months ended September 30, 2009 and 2008 follows.
 
 
Three months ended September 30
 
Nine months ended September 30
(In millions)
2009 
 
2008 
 
2009 
 
2008 
                       
Cash flows on transfers
                     
                       
Proceeds from new transfers
$
3,724 
 
$
657 
 
$
6924 
 
$
4,313 
Proceeds from collections reinvested
                     
    in revolving period transfers
 
10,285 
   
12,856 
   
31,598 
   
42,388 
Cash flows on retained interests recorded
                     
    as investment securities
 
1,236 
   
901 
   
3,253 
   
2,752 
                       
Effect on Revenues from services
                     
Net gain on sale
$
403 
 
$
275 
 
$
1043 
 
$
897 
Change in fair value of retained interests
                     
    recorded in earnings
 
38 
   
 103 
   
210 
   
 10 
Other-than-temporary impairments
 
 (18)
   
 (4)
   
 (34)
   
 (5)

 
Derivative Activities
 
Our QSPEs use derivatives to eliminate interest rate risk between the assets and liabilities. At inception of the transaction, the QSPE will enter into derivative contracts to receive a floating rate of interest and pay a fixed rate with terms that effectively match those of the financial assets held. In some cases, we are the counterparty to such derivative contracts, in which case a second derivative is executed with a third party to substantially eliminate the exposure created by the first derivative. The fair value of such derivative contracts was a net asset of $123 million and $205 million at September 30, 2009 and December 31, 2008, respectively. We have no other derivatives arrangements with QSPEs or other VIEs.
 
 
Servicing Activities
 
The amount of our servicing assets and liabilities was insignificant at September 30, 2009 and December 31, 2008. We received servicing fees from QSPEs of $144 million and $162 million, respectively, for the three months ended September 30, 2009 and 2008, and $447 million and $486 million, respectively, for the first nine months ended September 30, 2009 and 2008.
 
At September 30, 2009 and December 31, 2008, accounts payable included $3,309 million and $3,456 million, respectively, representing obligations to QSPEs for collections received in our capacity as servicer from obligors of the QSPEs.
 
Included in other receivables at September 30, 2009 and December 31, 2008, were $2,756 million and $2,346 million, respectively, relating to amounts owed by QSPEs to GECC, principally for the purchase of financial assets.
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
A. Results of Operations
 
In the accompanying analysis of financial information, we sometimes use information derived from consolidated financial information but not presented in our financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP). Certain of these data are considered “non-GAAP financial measures” under the U.S. Securities and Exchange Commission (SEC) rules. For such measures, we have provided supplemental explanations and reconciliations in Exhibit 99 to this Form 10-Q Report.
 
Unless otherwise indicated, we refer to captions such as revenues and earnings from continuing operations attributable to GECC simply as “revenues” and “earnings” throughout this Management’s Discussion and Analysis. Similarly, discussion of other matters in our condensed, consolidated financial statements relates to continuing operations unless otherwise indicated.
 

 
(40)

 

Overview
 
Revenues for the third quarter of 2009 were $11.9 billion, a $5.8 billion (33%) decrease from the third quarter of 2008. Revenues for the third quarter of 2009 and 2008 included $0.7 billion and $0.2 billion of revenue from acquisitions, respectively, and in 2009 were reduced by $1.5 billion as a result of dispositions, including the effect of the deconsolidation of Penske Truck Leasing Co., L.P. (PTL). Revenues for the quarter also decreased $4.8 billion compared with the third quarter of 2008 as a result of organic revenue declines and the stronger U.S. dollar. Organic revenue growth excludes the effects of acquisitions, business dispositions (other than dispositions of businesses acquired for investment) and currency exchange rates. Earnings were $0.1 billion, down 96% from $2.1 billion in the third quarter of 2008.
 
Revenues for the first nine months of 2009 were $38.1 billion, a $14.8 billion (28%) decrease from the first nine months of 2008. Revenues for the first nine months of 2009 and 2008 included $2.6 billion and $0.4 billion of revenue from acquisitions, respectively, and in 2009 were reduced by $3.7 billion as a result of dispositions, including the effect of the deconsolidation of PTL. Revenues for the first nine months of 2009 also decreased $13.3 billion compared with the first nine months of 2008 as a result of organic revenue declines and the stronger U.S. dollar. Organic revenue growth excludes the effects of acquisitions, business dispositions (other than dispositions of businesses acquired for investment) and currency exchange rates. Earnings were $1.5 billion, down 80% from $7.3 billion in the first nine months of 2008.
 
Overall, acquisitions contributed $0.7 billion and $1.4 billion to total revenues in the third quarters of 2009 and 2008, respectively. Our earnings in both the third quarters of 2009 and 2008 included approximately $0.1 billion from acquired businesses. We integrate acquisitions as quickly as possible. Only revenues and earnings from the date we complete the acquisition through the end of the fourth following quarter are attributed to such businesses. Dispositions also affected our operations through lower revenues of $1.5 billion and $0.1 billion in the third quarters of 2009 and 2008, respectively. The effect of dispositions on earnings was an insignificant amount in both the third quarters of 2009 and 2008.
 
Acquisitions contributed $2.6 billion and $3.6 billion to total revenues in the first nine months of 2009 and 2008, respectively. Our earnings in the first nine months of 2009 and 2008 included approximately $0.6 billion and $0.4 billion, respectively, from acquired businesses. We integrate acquisitions as quickly as possible. Only revenues and earnings from the date we complete the acquisition through the end of the fourth following quarter are attributed to such businesses. Dispositions also affected our operations through lower revenues of $3.2 billion in the first nine months of 2009 and higher revenues of $0.3 billion in the first nine months of 2008. The effect of dispositions on earnings was an increase of $0.3 billion in both the first nine months of 2009 and 2008.
 
The most significant acquisitions affecting results in the first nine months of 2009 were CitiCapital and Interbanca S.p.A. at Commercial Lending and Leasing (CLL); and BAC Credomatic (BAC) and Bank BPH at Consumer (formerly GE Money).
 
The provision for income taxes was a benefit of $1.1 billion for the third quarter of 2009 (effective tax rate of 109.9%), compared with $0.4 billion benefit for the third quarter of 2008 (effective tax rate of a negative 23.1%). The third quarter 2009 tax benefit when compared to the pre-tax loss results in a positive rate for the quarter. The tax rate increased primarily because of a reduction of income in higher-taxed jurisdictions. This had the effect of increasing the relative impact on the rate of tax benefits from lower-taxed global operations that more than offset the decline in those benefits.
 
The provision for income taxes was a benefit of $3.0 billion for the first nine months of 2009 (effective tax rate of 211.1%), compared with $0.3 billion benefit for the first nine months of 2008 (effective tax rate of negative 3.9%). The tax benefit when compared to the pre-tax loss results in a positive rate for the first nine months of 2009. The tax rate increased primarily because of a reduction of income in higher-taxed jurisdictions. This had the effect of increasing the relative impact on the rate of tax benefits from lower-taxed global operations that more than offset the decline in those benefits. Mitigating the reduction in tax benefits from lower-taxed global operations, were increased benefits from management’s decision (discussed below) in the first quarter to indefinitely reinvest outside the U.S. prior year earnings.
 

 
(41)

 

During the first quarter of 2009, following the change in our external credit ratings, funding actions taken and our continued review of our operations, liquidity and funding, we determined that undistributed prior-year earnings of non- U.S. subsidiaries of General Electric Capital Corporation (GE Capital or GECC), on which we had previously provided deferred U.S. taxes, would now be indefinitely reinvested outside the U.S. This change increased the amount of prior-year earnings indefinitely reinvested outside the U.S. by approximately $2 billion to $52 billion, resulting in an income tax benefit of $0.7 billion in the first quarter of 2009.
 
During the first nine months of 2009, GE Capital provided $51 billion of new financings in the U.S. to various companies, infrastructure projects and municipalities. Additionally, we extended $54 billion of credit to approximately 49 million U.S. consumers. GE Capital provided credit to approximately 19,700 new commercial customers and 26,000 new small businesses during the first nine months of 2009 in the U.S. and ended the period with outstanding credit to more than 350,000 commercial customers and 147,000 small businesses through retail programs in the U.S.
 
Segment Operations
 
Operating segments comprise our five businesses focused on the broad markets they serve: CLL, Consumer, Real Estate, Energy Financial Services and GE Capital Aviation Services (GECAS). The Chairman allocates resources to, and assesses the performance of, these five businesses. We also provide a one-line reconciliation to GECC-only results, the most significant component of these reconciliations is the exclusion of the results of businesses which are not subsidiaries of GECC but instead are direct subsidiaries of General Electric Capital Services (GECS). In addition to providing information on GECS segments in their entirety, we have also provided supplemental information for the geographic regions within the CLL segment for greater clarity.
 
GECC corporate items and eliminations include the effects of eliminating transactions between operating segments; results of our run-off insurance operations remaining in continuing operations attributable to GECC; underabsorbed corporate overhead; certain non-allocated amounts determined by the Chairman; and a variety of sundry items. GECC corporate items and eliminations is not an operating segment. Rather, it is added to operating segment totals to reconcile to consolidated totals on the financial statements.
 
Segment profit is determined based on internal performance measures used by the Chairman to assess the performance of each business in a given period. In connection with that assessment, the Chairman may exclude matters such as charges for restructuring; rationalization and other similar expenses; in-process research and development and certain other acquisition-related charges and balances; technology and product development costs; certain gains and losses from acquisitions or dispositions; and litigation settlements or other charges, responsibility for which preceded the current management team.
 
Segment profit always excludes the effects of principal pension plans, results reported as discontinued operations, earnings attributable to noncontrolling interests of consolidated subsidiaries and accounting changes. Segment profit, which we sometimes refer to as “net earnings”, includes interest and income taxes.
 
We have reclassified certain prior-period amounts to conform to the current period’s presentation.
 

 
(42)

 

 
 
Three months ended September 30
 
Nine months ended September 30
 
(Unaudited)
 
(Unaudited)
(In millions)
2009 
 
2008 
 
2009 
 
2008 
Revenues
                     
CLL (a)
$
4,668 
 
$
6,474 
 
$
15,519 
 
$
20,297 
Consumer (a)
 
4,878 
   
6,613 
   
14,508 
   
19,709 
Real Estate
 
982 
   
1,679 
   
2,970 
   
5,526 
Energy Financial Services
 
483 
   
1,261 
   
1,617 
   
3,020 
GECAS
 
1,150 
   
1,265 
   
3,486 
   
3,690 
      Total segment revenues
 
12,161 
   
17,292 
   
38,100 
   
52,242 
GECC corporate items and eliminations
 
(197)
   
501 
   
307 
   
1,011 
Total revenues
 
11,964 
   
17,793 
   
38,407 
   
53,253 
Less portion of revenues not included in GECC
 
(99)
   
(169)
   
(318)
   
(357)
Total revenues in GECC
$
11,865 
 
$
17,624 
 
$
38,089 
 
$
52,896 
                       
Segment profit
                     
CLL (a)
$
135 
 
$
389 
 
$
625 
 
$
1,985 
Consumer (a)
 
434 
   
796 
   
1,404 
   
2,852 
Real Estate
 
(538)
   
244 
   
(948)
   
1,204 
Energy Financial Services
 
41 
   
306 
   
181 
   
606 
GECAS
 
191 
   
285 
   
746 
   
955 
      Total segment profit
 
263 
   
2,020 
   
2,008 
   
7,602 
GECC corporate items and eliminations (b)(c)
 
(127)
   
121 
   
(406)
   
(146)
Less portion of segment profit not included in GECC
 
(49)
   
(53)
   
(130)
   
(137)
Earnings from continuing operations attributable to GECC
 
87 
   
2,088 
   
1,472 
   
7,319 
Earnings (loss) from discontinued operations, net of taxes,
                     
     attributable to GECC
 
84 
   
(169)
   
(113)
   
(551)
Total net earnings attributable to GECC
$
171 
 
$
1,919 
 
$
1,359 
 
$
6,768 
                       

 
(a)    
During the first quarter of 2009, we transferred Banque Artesia Nederland N.V. (Artesia) from CLL to Consumer. Prior-period amounts were reclassified to conform to the current-period’s presentation.
 
(b)    
Included restructuring and other charges of $0.2 billion and $0.1 billion in the first nine months of 2009 and 2008, respectively, primarily related to CLL and Consumer.
 
(c)    
Included $0.1 billion of net losses compared with $0.1 billion of net earnings during the first nine months of 2009 and 2008, respectively, related to our treasury operations.
 

 
See accompanying notes to condensed, consolidated financial statements.
 

 
(43)

 

CLL
 
       
Three months ended September 30
 
Nine months ended September 30
(In millions)
   
2009 
 
2008 
 
2009 
 
2008 
                             
Revenues
     
$
4,668 
 
$
6,474 
 
$
15,519 
 
$
20,297 
Less portion of CLL not included in GECC
       
(104)
   
(148)
   
(301)
   
(335)
     Total revenues in GECC
     
$
4,564 
 
$
6,326 
 
$
15,218 
 
$
19,962 
                             
Segment profit
     
$
135 
 
$
389 
 
$
625 
 
$
1,985 
Less portion of CLL not included in GECC
       
(51)
   
(32)
   
(121)
   
(113)
     Total segment profit in GECC
     
$
84 
 
$
357 
 
$
504 
 
$
1,872 
                             
               
At
     
         
September 30,
 
September 30,
 
December 31,
(In millions)
       
2009 
 
2008 
 
2008 
                             
Total assets
           
$
213,979 
 
$
247,810 
 
$
228,176 
Less portion of CLL not included in GECC
             
(2,087)
   
(1,962)
   
(2,015)
     Total assets in GECC
           
$
211,892 
 
$
245,848 
 
$
226,161 
                             
                             
       
Three months ended September 30
 
Nine months ended September 30
(In millions)
   
2009 
 
2008 
 
2009 
 
2008 
Revenues
                           
   Americas
     
$
2,485 
 
$
2,672 
 
$
7,466 
 
$
8,702 
   Europe
       
1,148 
   
1,515 
   
3,667 
   
4,477 
   Asia
       
 484 
   
602 
   
1,574 
   
2,015 
   Other
       
551 
   
1,685 
   
2,812 
   
5,103 
                             
Segment profit
                           
   Americas
     
$
204 
 
$
79 
 
$
360 
 
$
1,185 
   Europe
       
82 
   
211 
   
320 
   
621 
   Asia
       
(18)
   
39 
   
28 
   
258 
   Other
       
(133)
   
60 
   
(83)
   
(79)
                             
                     
At
     
         
September 30,
 
September 30,
 
December 31,
(In millions)
       
2009 
 
2008 
 
2008 
                             
Total assets
                           
   Americas
           
$
121,345 
 
$
146,839 
 
$
135,253 
   Europe
             
53,536 
   
55,556 
   
49,734 
   Asia
             
20,356 
   
24,416 
   
23,127 
   Other
             
18,742 
   
20,999 
   
20,062 


CLL revenues decreased 28% and net earnings decreased 65% compared with the third quarter of 2008. Revenues for the third quarters of 2009 and 2008 included $0.5 billion and $0.2 billion, respectively, from acquisitions, and were reduced by $1.1 billion from dispositions, primarily related to the deconsolidation of PTL. Revenues for the quarter also decreased $1.0 billion compared with the third quarter of 2008 as a result of organic revenue declines ($0.8 billion) and the stronger U.S. dollar ($0.2 billion). Net earnings decreased by $0.3 billion in the third quarter of 2009, reflecting higher provisions for losses on financing receivables ($0.1 billion) and declines in lower-taxed earnings from global operations ($0.1 billion), partially offset by higher investment income ($0.1 billion) and acquisitions ($0.1 billion). Net earnings also included mark-to-market losses and other-than-temporary impairments ($0.2 billion), partially offset by the absence of the 2008 Genpact loss ($0.2 billion).
 

 
(44)

 

CLL revenues decreased 24% and net earnings decreased 69% compared with the first nine months of 2008. Revenues for the first nine months of 2009 and 2008 included $1.7 billion and $0.3 billion from acquisitions, respectively, and were reduced by $2.0 billion from dispositions, primarily related to the deconsolidation of PTL. Revenues for the first nine months of 2009 also included $0.3 billion related to a gain on the partial sale of a limited partnership interest in PTL and remeasurement of our retained investment. Revenues for the first nine months decreased $4.2 billion compared with the first nine months of 2008 as a result of organic revenue declines ($3.3 billion) and the stronger U.S. dollar ($0.9 billion). Net earnings decreased by $1.4 billion in the first nine months of 2009, reflecting higher provisions for losses on financing receivables ($0.6 billion), lower gains ($0.4 billion), declines in lower-taxed earnings from global operations ($0.3 billion) and the stronger U.S. dollar (0.1 billion), partially offset by acquisitions ($0.4 billion). Net earnings also included mark-to-market losses and other-than-temporary impairments ($0.3 billion) and the absence of the 2008 Genpact gain ($0.1 billion), partially offset by the gain on PTL sale and remeasurement ($0.3 billion).
 
Consumer
 
     
Three months ended September 30
 
Nine months ended September 30
(In millions)
   
2009
 
2008
 
2009
 
2008
                             
Revenues
     
$
4,878 
 
$
6,613 
 
$
14,508 
 
$
19,709 
Less portion of Consumer not included in GECC
       
– 
   
– 
   
– 
   
– 
    Total revenue in GECC
     
$
4,878 
 
$
6,613 
 
$
14,508 
 
$
19,709 
                             
Segment profit
     
$
434 
 
$
796 
 
$
1,404 
 
$
2,852 
Less portion of Consumer not included in GECC
       
(6)
   
(14)
   
(15)
   
(21)
    Total segment profit in GECC
     
$
428 
 
$
782 
 
$
1,389 
 
$
2,831 
                             
                             
                     
At
     
         
September 30,
 
September 30,
 
December 31,
(In millions)
       
2009 
 
2008 
 
2008 
                             
Total assets
           
$
180,070 
 
$
213,889 
 
$
187,927 
Less portion of Consumer not included in GECC
             
(887)
   
135 
   
(167)
   Total assets in GECC
           
$
179,183 
 
$
214,024 
 
$
187,760 


Consumer revenues decreased 26% and net earnings decreased 45% compared with the third quarter of 2008. Revenues for the third quarter of 2009 included $0.3 billion from acquisitions and were reduced by $0.4 billion as a result of dispositions. Revenues for the quarter decreased $1.6 billion compared with the third quarter of 2008 as a result of organic revenue declines ($1.1 billion) and the stronger U.S. dollar ($0.5 billion). The decrease in net earnings resulted from core declines ($0.5 billion), partially offset by higher securitization income ($0.1 billion). Core declines primarily resulted from lower results in the U.S. and U.K., reflecting higher provisions for losses on financing receivables ($0.4 billion) and the effects of mark-to-market losses and other-than-temporary impairments ($0.1 billion).
 
Consumer revenues decreased 26% and net earnings decreased 51% compared with the first nine months of 2008. Revenues for the first nine months of 2009 included $0.8 billion from acquisitions (including a gain of $0.3 billion on the remeasurement of our previously held equity investment in BAC related to the acquisition of a controlling interest (BAC acquisition gain)) and were reduced by $1.3 billion as a result of dispositions, and the lack of a current-year counterpart to the 2008 gain on sale of our Corporate Payment Services (CPS) business ($0.4 billion). Revenues for the first nine months decreased $4.3 billion compared with the first nine months of 2008 as a result of organic revenue declines ($2.5 billion) and the stronger U.S. dollar ($1.9 billion). The decrease in net earnings resulted primarily from core declines ($1.7 billion) and the lack of a current-year counterpart to the 2008 gain on sale of our CPS business ($0.2 billion). These decreases were partially offset by higher securitization income ($0.2 billion) and the BAC acquisition gain ($0.2 billion). Core declines primarily resulted from lower results in the U.S. & U.K., reflecting higher provisions for losses on financing receivables ($1.6 billion) and the effects of mark-to-market losses and other-than-temporary impairments ($0.2 billion), partially offset by growth in lower-taxed earnings from global operations ($0.1 billion). The benefit from lower-taxed earnings from global operations included $0.5 billion from the decision to indefinitely reinvest prior-year earnings outside the U.S.
 

 
(45)

 

Real Estate
 
     
Three months ended September 30
 
Nine months ended September 30
(In millions)
   
2009
 
2008
 
2009
 
2008
                             
Revenues
     
$
982 
 
$
1,679 
 
$
2,970 
 
$
5,526 
Less portion of Real Estate not included in GECC
       
   
(9)
   
(15)
   
(9)
     Total revenues in GECC
     
$
986 
 
$
1,670 
 
$
2,955 
 
$
5,517 
                             
Segment profit
     
$
(538)
 
$
244 
 
$
(948)
 
$
1,204 
Less portion of Real Estate not included in GECC
       
   
(2)
   
   
   Total segment profit in GECC
     
$
(530)
 
$
242 
 
$
(941)
 
$
1,208 
                             
                             
                     
At
     
         
September 30,
 
September 30,
 
December 31,
(In millions)
       
2009 
 
2008 
 
2008 
                             
Total assets
           
$
83,684 
 
$
88,739 
 
$
85,266 
Less portion of Real Estate not included in GECC
             
(159)
   
(32)
   
(357)
   Total assets in GECC
           
$
83,525 
 
$
88,707 
 
$
84,909 


Real Estate revenues decreased 42% and net earnings decreased 320% compared with the third quarter of 2008. Revenues for the quarter decreased $0.7 billion compared with the third quarter of 2008 as a result of organic revenue declines ($0.6 billion), primarily as a result of a decrease in sales of properties, and the stronger U.S. dollar ($0.1 billion). Real Estate net earnings decreased $0.8 billion compared with the third quarter of 2008, primarily from an increase in provisions for losses on financing receivables and impairments ($0.5 billion) and a decrease in gains on sales of properties as compared to the prior period ($0.2 billion). Depreciation expense on real estate equity investments totaled $0.3 billion and $0.4 billion in the third quarters of 2009 and 2008, respectively.
 
Real Estate revenues decreased 46% and net earnings decreased 179% compared with the first nine months of 2008. Revenues for the first nine months decreased $2.6 billion compared with the first nine months of 2008 as a result of organic revenue declines ($2.3 billion), primarily as a result of a decrease in sales of properties, and the stronger U.S. dollar ($0.3 billion). Real Estate net earnings decreased $2.2 billion compared with the first nine months of 2008, primarily from a decrease in gains on sales of properties as compared to the prior period ($1.1 billion) and an increase in provisions for losses on financing receivables and impairments ($0.8 billion). Depreciation expense on real estate equity investments totaled $0.9 billion in both the first nine months of 2009 and 2008, respectively.
 

 
(46)

 

Energy Financial Services
 
     
Three months ended September 30
 
Nine months ended September 30
(In millions)
   
2009
 
2008
 
2009
 
2008
                             
Revenues
     
$
483 
 
$
1,261 
 
$
1,617 
 
$
3,020 
Less portion of Energy Financial Services
                           
     not included in GECC
       
   
(11)
   
(1)
   
(11)
       Total revenues in GECC
     
$
484 
 
$
1,250 
 
$
1,616 
 
$
3,009 
                             
Segment profit
     
$
41 
 
$
306 
 
$
181 
 
$
606 
Less portion of Energy Financial Services
                           
     not included in GECC
       
– 
   
(6)
   
– 
   
(5)
       Total segment profit in GECC
     
$
41 
 
$
300 
 
$
181 
 
$
601 
                             
                             
                     
At
     
         
September 30,
 
September 30,
 
December 31,
(In millions)
       
2009 
 
2008 
 
2008 
                             
Total assets
           
$
22,598 
 
$
21,856 
 
$
22,079 
Less portion of Energy Financial Services
                           
     not included in GECC
             
(71)
   
(53)
   
(54)
       Total assets in GECC
           
$
22,527 
 
$
21,803 
 
$
22,025 


Energy Financial Services revenues decreased 62% and net earnings decreased 87% compared with the third quarter of 2008. Revenues for the quarter decreased $0.8 billion compared with the third quarter of 2008 as a result of organic declines ($0.8 billion), primarily as a result of the effects of lower energy commodity prices and a decrease in gains on sales of assets. The decrease in net earnings resulted primarily from core declines, including a decrease in gains on sales of assets as compared to the prior period and the effects of lower energy commodity prices.
 
Energy Financial Services revenues decreased 46% and net earnings decreased 70% compared with the first nine months of 2008. Revenues for the first nine months of 2009 included $0.1 billion of gains from dispositions. Revenues for the first nine months also decreased $1.5 billion compared with the first nine months of 2008 as a result of organic declines ($1.5 billion), primarily as a result of the effects of lower energy commodity prices and a decrease in gains on sales of assets. The decrease in net earnings resulted primarily from core declines, including a decrease in gains on sales of assets as compared to the prior period and the effects of lower energy commodity prices.
 

 
(47)

 

GECAS
 
     
Three months ended September 30
 
Nine months ended September 30
(In millions)
   
2009
 
2008
 
2009
 
2008
                             
Revenues
     
$
1,150 
 
$
1,265 
 
$
3,486 
 
$
3,690 
Less portion of GECAS not included in GECC
       
– 
   
(1)
   
(1)
   
(2)
    Total revenues in GECC
     
$
1,150 
 
$
1,264 
 
$
3,485 
 
$
3,688 
                             
                             
Segment profit
     
$
191 
 
$
285 
 
$
746 
 
$
955 
Less portion of GECAS not included in GECC
       
– 
   
   
(1)
   
(2)
    Total segment profit in GECC
     
$
191 
 
$
286 
 
$
745 
 
$
953 
                             
                             
                     
At
     
         
September 30,
 
September 30,
 
December 31,
(In millions)
       
2009 
 
2008 
 
2008 
                             
Total assets
           
$
50,413 
 
$
49,841 
 
$
49,455 
Less portion of GECAS not included in GECC
             
(210)
   
(225)
   
(198)
    Total assets in GECC
           
$
50,203 
 
$
49,616 
 
$
49,257 


GECAS revenues decreased 9% and net earnings decreased 33% compared with the third quarter of 2008. The decrease in revenues resulted primarily from organic revenue declines ($0.1 billion). The decrease in net earnings resulted primarily from core declines ($0.1 billion) reflecting higher credit losses and impairments.
 
GECAS revenues decreased 6% and net earnings decreased 22% compared with the first nine months of 2008. The decrease in revenues resulted primarily from lower asset sales ($0.2 billion). The decrease in net earnings resulted primarily from lower asset sales ($0.1 billion) and core declines ($0.1 billion) reflecting higher credit losses and impairments.
 
Discontinued Operations
 
 
Three months ended September 30
 
Nine months ended September 30
(In millions)
2009
 
2008
 
2009
 
2008
                       
Earnings (loss) from discontinued operations,
                     
    net of taxes
$
84 
 
$
(169)
 
$
(113)
 
$
(551)

 
Discontinued operations comprised GE Money Japan (our Japanese personal loan business, Lake, and our Japanese mortgage and card businesses, excluding our investment in GE Nissen Credit Co., Ltd.), our U.S. mortgage business (WMC), GE Life, and Genworth Financial, Inc. Results of these businesses are reported as discontinued operations for all periods presented.
 
Earnings from discontinued operations, net of taxes, for the third quarter of 2009, primarily related to certain tax items in our discontinued insurance operations. Loss from discontinued operations, net of taxes, for the first nine months of 2009, primarily reflected the incremental loss on disposal of GE Money Japan ($0.1 billion).
 
Loss from discontinued operations, net of taxes, for the third quarter of 2008, primarily reflected the loss from operations ($0.2 billion) at GE Money Japan. Loss from discontinued operations, net of taxes, for the first nine months of 2008, primarily reflected loss from operations ($0.3 billion) and the estimated incremental loss on disposal of GE Money Japan ($0.2 billion).
 
For additional information related to discontinued operations, see Note 2 to the condensed, consolidated financial statements.
 

 
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B. Statement of Financial Position
 
Overview of Financial Position
 
Major changes in our financial position in the first nine months of 2009 resulted from the following:
 
·  
At GECS, collections on financing receivables exceeded originations by approximately $37 billion in the first nine months of 2009.
 
·  
We completed the exchange of our Consumer businesses in Austria and Finland, the credit card and auto businesses in the U.K., and the credit card business in Ireland for a 100% ownership interest in Interbanca S.p.A., an Italian corporate bank;
 
·  
In order to improve tangible capital and reduce leverage, General Electric Company (GE), our ultimate parent, contributed $9.5 billion to GECS, of which $8.8 billion was subsequently contributed to us;
 
·  
The U.S. dollar was weaker at September 30, 2009 than at December 31, 2008, increasing the translated levels of our non-U.S. dollar assets and liabilities;
 
·  
We deconsolidated PTL following our partial sale during the first quarter of 2009;
 
·  
We purchased a controlling interest in BAC in the second quarter of 2009; and
 
·  
Our investment securities balance increased primarily as a result of purchases and a reduction in unrealized losses due to improved credit markets.
 
Cash Flows
 
GECC cash and equivalents were $56.3 billion at September 30, 2009, compared with $12.2 billion at September 30, 2008. GECC cash from operating activities totaled $0.5 billion for the first nine months of 2009, compared with cash from operating activities of $17.8 billion for the first nine months of 2008. This decrease was primarily due to an overall decline in net earnings, decreases in cash collateral held from counterparties on derivative contracts ($6.7 billion) and declines in taxes payable ($4.6 billion).
 
Consistent with our plan to reduce GECC asset levels, cash from investing activities was $38.9 billion during the first nine months of 2009. $36.0 billion resulted from a reduction in financing receivables, primarily from collections exceeding originations and $8.8 billion resulted from proceeds from business dispositions, including the consumer businesses in Austria and Finland, the credit card and auto businesses in the U.K., the credit card business in Ireland and a portion of our Australian residential mortgage business. These sources were partially offset by cash used for acquisitions of $5.6 billion, primarily for the acquisition of Interbanca S.p.A.
 
GECC cash used for financing activities in the first nine months of 2009 of $19.6 billion related primarily to a $33.9 billion reduction in borrowings (maturities 90 days or less) and $1.5 billion of net redemptions of investment contracts, partially offset by $7.1 billion of new issuances on borrowings (maturities longer than 90 days) exceeding repayments and a capital contribution and share issuance totaling $8.8 billion.
 
Fair Value Measurements
 
We adopted Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures, in two steps; effective January 1, 2008, we adopted it for all financial instruments and non-financial instruments accounted for at fair value on a recurring basis and effective January 1, 2009, for all non-financial instruments accounted for at fair value on a non-recurring basis. Adoption of this did not have a material effect on our financial position or results of operations. During the first nine months of 2009, there were no significant changes in our methodology for measuring fair value of financial instruments as compared to prior quarters. Additional information about our application of this guidance is provided in Note 10 to the condensed, consolidated financial statements.
 

 
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At September 30, 2009, the aggregate amount of investments that are measured at fair value through earnings totaled $7.8 billion and consisted primarily of retained interests in securitizations, equity investments, as well as various assets held for sale in the ordinary course of business, such as credit card receivables.
 
C. Financial Services Portfolio Quality
 
Investment securities comprise mainly investment-grade debt securities supporting obligations to holders of guaranteed investment contracts (GICs) and retained interests in securitization entities. The fair value of investment securities totaled $26.3 billion at September 30, 2009, compared with $19.3 billion at December 31, 2008. Of the amount at September 30, 2009, we held debt securities with an estimated fair value of $17.4 billion, which included corporate debt securities, residential mortgage-backed securities (RMBS) and commercial mortgage-backed securities (CMBS) with estimated fair values of $4.6 billion, $2.4 billion and $1.2 billion, respectively. Unrealized losses on debt securities were $2.2 billion and $2.9 billion at September 30, 2009 and December 31, 2008, respectively. This amount included unrealized losses on corporate debt securities, RMBS and CMBS of $0.4 billion, $0.8 billion and $0.4 billion, respectively, at September 30, 2009, as compared with $0.7 billion, $1.0 billion and $0.5 billion, respectively, at December 31, 2008.
 
Of the $2.4 billion of RMBS, our exposure to subprime credit was approximately $1.0 billion. These securities are primarily held to support obligations to holders of GICs. A majority of these securities have received investment-grade credit ratings from the major rating agencies. We purchased no such securities in the first nine months of 2009 and 2008. These investment securities are collateralized primarily by pools of individual direct mortgage loans, and do not include structured products such as collateralized debt obligations. Additionally, a majority of exposure to residential subprime credit related to investment securities backed by mortgage loans originated in 2006 and 2005.
 
We regularly review investment securities for impairment. Our review uses both qualitative and quantitative criteria. Effective April 1, 2009, the FASB amended FASB ASC 320 and modified the requirements for recognizing and measuring other-than-temporary impairment for debt securities. This did not have a material impact on our results of operations. We presently do not intend to sell our debt securities and believe that it is not more likely than not that we will be required to sell these securities that are in an unrealized loss position before recovery of our amortized cost. If we do not intend to sell the security and it is not more likely than not we will be required to sell the security before recovery of our amortized cost, we evaluate other qualitative criteria to determine whether a credit loss exists, such as the financial health of and specific prospects for the issuer, including whether the issuer is in compliance with the terms and covenants of the security. Quantitative criteria include determining whether there has been an adverse change in expected future cash flows. With respect to corporate bonds we placed greater emphasis on the credit quality of the issuer. With respect to RMBS and CMBS, we placed greater emphasis on our expectations with respect to cash flows from the underlying collateral and with respect to RMBS, we considered other features of the security, principally monoline insurance. For equity securities, our criteria include the length of time and magnitude of the amount that each security is in an unrealized loss position. Our other-than-temporary impairment reviews involve our finance, risk and asset management functions as well as the portfolio management and research capabilities of our internal and third-party asset managers.
 
Monoline insurers (Monolines) provide credit enhancement for certain of our investment securities. The credit enhancement is a feature of each specific security that guarantees the payment of all contractual cash flows, and is not purchased separately by GE. At September 30, 2009, our investment securities insured by Monolines totaled $2.2 billion, including $0.8 billion of our $1.0 billion investment in subprime RMBS. The Monoline industry continues to experience financial stress from increasing delinquencies and defaults on the individual loans underlying insured securities. In evaluating whether a security with Monoline credit enhancement is other-than-temporarily impaired, we first evaluate whether there has been an adverse change in estimated cash flows. If there has been an adverse change in estimated cash flows, we then evaluate the overall credit worthiness of the Monoline using an analysis that is similar to the approach we use for corporate bonds. This includes an evaluation of the following factors: sufficiency of the Monoline’s cash reserves and capital, ratings activity, whether the Monoline is in default or default appears imminent, and the potential for intervention by an insurance or other regulator. At September 30, 2009, the unrealized loss associated with securities subject to Monoline credit enhancement for which there is an expected loss was $0.5 billion, of which $0.3 billion relates to expected credit losses and the remaining $0.2 billion relates to other market factors.
 

 
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Total pre-tax other-than-temporary impairment losses during the three months ended September 30, 2009 were $0.2 billion of which, $0.1 billion was recognized in earnings and primarily relates to credit losses on RMBS and retained interests in our securitization arrangements, and $0.1 billion primarily relates to non-credit related losses on RMBS and is included within accumulated other comprehensive income.
 
Our qualitative review attempts to identify issuers’ securities that are “at-risk” of other-than-temporary impairment, that is, for securities that we do not intend to sell and it is not more likely than not that we will be required to sell before recovery of our amortized cost, whether there is a possibility of credit loss that would result in an other-than-temporary impairment recognition in the following 12 months. Securities we have identified as “at-risk” primarily relate to investments in RMBS securities and corporate debt securities across a broad range of industries. The amount of associated unrealized loss on these securities at September 30, 2009 is $0.8 billion. Credit losses that would be recognized in earnings are calculated when we determine the security to be other-than-temporarily impaired. Continued uncertainty in the capital markets may cause increased levels of other-than-temporary impairments.
 
At September 30, 2009, unrealized losses on investment securities totaled $2.2 billion, including $2.0 billion aged 12 months or longer, compared with unrealized losses of $3.2 billion, including $2.0 billion aged 12 months or longer, at December 31, 2008. Of the amount aged 12 months or longer at September 30, 2009, more than 70% of our debt securities were considered to be investment-grade by the major rating agencies. In addition, of the amount aged 12 months or longer, $1.6 billion and $0.4 billion related to structured securities (mortgage-backed, asset-backed and securitization retained interests) and corporate debt securities, respectively. With respect to our investment securities that are in an unrealized loss position at September 30, 2009, the vast majority relate to debt securities held to support obligations to holders of GICs. We presently do not intend to sell our debt securities and believe that it is not more likely than not that we will be required to sell these securities that are in an unrealized loss position before recovery of our amortized cost. The fair values used to determine these unrealized gains and losses are those defined by relevant accounting standards and are not a forecast of future gains or losses. For additional information, see Note 3 to the condensed, consolidated financial statements.
 
Financing receivables is our largest category of assets and represents one of our primary sources of revenues. A discussion of the quality of certain elements of the financing receivables portfolio follows. For purposes of that discussion, “delinquent” receivables are those that are 30 days or more past due based on their contractual terms; and “nonearning” receivables are those that are 90 days or more past due (or for which collection has otherwise become doubtful). Nonearning receivables exclude loans purchased at a discount (unless they have deteriorated post acquisition). Under FASB ASC 310, these loans are initially recorded at fair value and accrete interest income over the estimated life of the loan based on reasonably estimable cash flows even if the underlying loans are contractually delinquent at acquisition. In addition, nonearning receivables exclude loans which are paying currently under a cash accounting basis, but classified as impaired.
 
Our portfolio of financing receivables is diverse and not directly comparable to major U.S. banks. Historically, we have had less consumer exposure, which over time has had higher loss rates than commercial exposure. Our consumer exposure is largely non-U.S. and primarily comprises mortgage, sales finance, auto and personal loans in various European and Asian countries. Our U.S. consumer financing receivables comprise 7% of our total portfolio. Of those, approximately 35% relate primarily to credit cards, which are often subject to profit and loss sharing arrangements with the retailer (the results of which are reflected in GECC revenues), and have a smaller average balance and lower loss severity as compared to bank cards. The remaining 65% are sales finance receivables, which provide electronics, recreation, medical and home improvement financing to customers. In 2007, we exited the U.S. mortgage business and we have no U.S. auto or student loans.
 
Our commercial portfolio primarily comprises senior, secured positions with comparatively low loss history. The secured receivables in this portfolio are collateralized by a variety of asset classes, including industrial-related facilities and equipment; commercial and residential real estate; vehicles, aircraft, and equipment used in many industries, including the construction, manufacturing, transportation, telecommunications and healthcare industries. Substantially all of this portfolio is secured.
 

 
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Losses on financing receivables are recognized when they are incurred, which requires us to make our best estimate of probable losses inherent in the portfolio. Such estimate requires consideration of historical loss experience, adjusted for current conditions, and judgments about the probable effects of relevant observable data, including present economic conditions such as delinquency rates, financial health of specific customers and market sectors, collateral values (including housing price indices as applicable), and the present and expected future levels of interest rates. Our risk management process includes standards and policies for reviewing major risk exposures and concentrations, and evaluates relevant data either for individual loans or financing leases, or on a portfolio basis, as appropriate. Effective January 1, 2009, loans acquired in a business acquisition are recorded at fair value, which incorporates our estimate at the acquisition date of the credit losses over the remaining life of the portfolio. As a result, the allowance for loan losses is not carried over at acquisition. This may result in lower reserve coverage ratios prospectively.
 
 
Financing receivables at
 
Nonearning receivables at
 
Allowance for losses at
 
September 30,
 
December 31,
 
September 30,
 
December 31,
 
September 30,
 
December 31,
(In millions)
2009 
 
2008 
 
2009 
 
2008 
 
2009 
 
2008 
                                   
CLL(a)
                                 
Americas
$
91,807 
 
$
104,462 
 
$
3,451 
 
$
1,944 
 
$
 1,086 
 
$
824 
Europe
 
39,804 
   
36,972 
   
 1,240 
   
345 
   
500 
   
288 
Asia
 
14,096 
   
16,683 
   
594 
   
306 
   
242 
   
163 
Other
 
776 
   
786 
   
14 
   
   
   
                                   
Consumer(a)
                                 
Non-U.S. residential
                                 
   mortgages(b)
 
61,308 
   
60,753 
   
4,768 
   
3,321 
   
975 
   
383 
Non-U.S. installment and
                                 
   revolving credit
 
25,197 
   
24,441 
   
450 
   
413 
   
1,113 
   
1,051 
U.S. installment and
                                 
   revolving credit
 
22,324 
   
27,645 
   
749 
   
758 
   
1,568 
   
1,700 
Non-U.S. auto
 
14,366 
   
18,168 
   
75 
   
83 
   
301 
   
222 
Other
 
13,191 
   
11,541 
   
477 
   
175 
   
279 
   
226 
                                   
Real Estate(c)
 
45,471 
   
46,735 
   
 1,320 
   
194 
   
1,028 
   
301 
                                   
Energy Financial Services
 
8,326 
   
8,355 
   
360 
   
241 
   
101 
   
58 
                                   
GECAS
 
14,943 
   
15,326 
   
211 
   
146 
   
126 
   
60 
                                   
Other(d)
 
3,095 
   
4,031 
   
78 
   
38 
   
23 
   
28 
Total
$
354,704 
 
$
375,898 
 
$
13,787 
 
$
7,966 
 
$
7,348 
 
$
5,306 
                                   

 
(a)   
During the first quarter of 2009, we transferred Artesia from CLL to Consumer. Prior-period amounts were reclassified to conform to the current-period’s presentation.
 
(b)    
At September 30, 2009, net of credit insurance, approximately 25% of this portfolio comprised loans with introductory, below market rates that are scheduled to adjust at future dates; with high loan-to-value ratios at inception; whose terms permitted interest-only payments; or whose terms resulted in negative amortization. At origination, we underwrite loans with an adjustable rate to the reset value. 83% of these loans are in our U.K. and France portfolios, which comprise mainly loans with interest-only payments and introductory below market rates, have a delinquency rate of 18.4% and have loan-to-value ratio at origination of 74%. At September 30, 2009, 3% (based on dollar values) of these loans in our U.K. and France portfolios have been restructured.
 
(c)    
Financing receivables included $690 million and $731 million of construction loans at September 30, 2009 and December 31, 2008, respectively.
 
(d)    
Consisted of loans and financing leases related to certain consolidated, liquidating securitization entities.
 


 
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Allowance for losses as
 
Allowance for losses as a
 
 
Nonearning receivable as a
 
a percent of nonearnings
 
percent of total financing
 
 
percent of financing receivables
 
receivables
 
receivables
 
 
September 30,
 
December 31,
 
September 30,
 
December 31,
 
September 30,
 
December 31,
 
 
2009 
 
2008 
 
2009 
 
2008 
 
2009 
 
2008 
 
                                     
CLL(a)
                                   
Americas
 
3.8 
%
 
1.9 
%
 
31.5 
%
 
42.4 
%
 
1.2 
%
 
0.8 
%
Europe
 
3.1 
   
0.9 
   
40.3 
   
83.5 
   
1.3 
   
0.8 
 
Asia
 
4.2 
   
1.8 
   
40.7 
   
53.3 
   
1.7 
   
1.0 
 
Other
 
1.8 
   
0.3 
   
42.9 
   
100.0 
   
0.8 
   
0.3 
 
                                     
Consumer(a)
                                   
Non-U.S. residential
                                   
   mortgages
 
7.8 
   
5.5 
   
20.4 
   
11.5 
   
1.6 
   
0.6 
 
Non-U.S. installment and
                                   
   revolving credit
 
 1.8 
   
1.7 
   
247.3 
   
254.5 
   
4.4 
   
4.3 
 
U.S. installment and
                                   
   revolving credit
 
3.4 
   
2.7 
   
209.3 
   
224.3 
   
7.0 
   
6.1 
 
Non-U.S. auto
 
0.5 
   
0.5 
   
401.3 
   
267.5 
   
2.1 
   
1.2 
 
Other
 
3.6 
   
1.5 
   
58.5 
   
129.1 
   
2.1 
   
2.0 
 
                                     
Real Estate
 
2.9 
   
0.4 
   
77.9 
   
155.2 
   
2.3 
   
0.6 
 
                                     
Energy Financial Services
 
4.3 
   
2.9 
   
28.1 
   
24.1 
   
1.2 
   
0.7 
 
                                     
GECAS
 
1.4 
   
1.0 
   
59.7 
   
41.1 
   
0.8 
   
0.4 
 
                                     
Other
 
2.5 
   
0.9 
   
29.5 
   
73.7 
   
0.7 
   
0.7 
 
                                     
Total
 
3.9 
   
2.1 
   
53.3 
   
66.6 
   
2.1 
   
1.4 
 
                                     

 
(a)   
During the first quarter of 2009, we transferred Artesia from CLL to Consumer. Prior-period amounts were reclassified to conform to the current-period’s presentation.
 

 
Further information on the determination of the allowance for losses on financing receivables is provided in the Critical Accounting Estimates section in Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 1 to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2008.
 
The portfolio of financing receivables, before allowance for losses, was $354.7 billion at September 30, 2009, and $375.9 billion at December 31, 2008. Financing receivables, before allowance for losses, decreased $21.2 billion from December 31, 2008, primarily as a result of core declines of $43.0 billion mainly from collections exceeding originations ($36.0 billion) (which includes securitization and sales), partially offset by the weaker U.S. dollar ($16.7 billion) and acquisitions ($11.9 billion).
 
Related nonearning receivables totaled $13.8 billion (3.9% of outstanding receivables) at September 30, 2009, compared with $8.0 billion (2.1% of outstanding receivables) at December 31, 2008. Nonearning receivables increased from December 31, 2008, primarily in connection with the challenging global economic environment, increased deterioration in the real estate markets and rising unemployment.
 
The allowance for losses at September 30, 2009, totaled $7.3 billion compared with $5.3 billion at December 31, 2008, representing our best estimate of probable losses inherent in the portfolio and reflecting the then current credit and economic environment. Allowance for losses increased $2.0 billion from December 31, 2008, primarily due to increasing delinquencies and nonearning receivables, reflecting the continued weakened economic and credit environment.
 

 
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“Impaired” loans in the table below are defined as larger balance or restructured loans for which it is probable that the lender will be unable to collect all amounts due according to original contractual terms of the loan agreement. The vast majority of our consumer and a portion of our CLL nonearning receivables are excluded from this definition, as they represent smaller balance homogenous loans that we evaluate collectively by portfolio for impairment.
 
Impaired loans include nonearning receivables on larger balance or restructured loans, loans which are currently paying interest under the cash basis (but are excluded from the nonearning category), and loans paying currently but which have been previously restructured.
 
Specific reserves are recorded for individually impaired loans to the extent we judge principal to be uncollectible. Certain loans classified as impaired may not require a reserve. In these circumstances, we believe that we will ultimately collect the unpaid balance (through collection or collateral repossession).
 
Further information pertaining to loans classified as impaired and specific reserves is included in the table below.
 
 
At
 
September 30,
 
December 31,
(In millions)
2009 
 
2008 
           
Loans requiring allowance for losses
$
8,842 
 
$
2,712 
Loans expected to be fully recoverable
 
3,218 
   
871 
   Total impaired loans
$
12,060 
 
$
3,583 
           
Allowance for losses (specific reserves)
$
1,874 
 
$
635 
Average investment during the period
 
7,463 
   
2,064 
Interest income earned while impaired(a)
 
133 
   
48 
           

 
(a)    
Recognized principally on cash basis.
 

 
Impaired loans increased by $8.5 billion from December 31, 2008 to September 30, 2009 primarily relating to increases at Real Estate ($5.4 billion) and CLL ($2.2 billion). Impaired loans increased by $4.0 billion from June 30, 2009 to September 30, 2009, primarily relating to increases at Real Estate ($2.9 billion) and CLL ($0.7 billion). The increase in impaired loans and related specific reserves in Real Estate reflects our current estimate of collateral values of the underlying properties, and our estimate of loans which are not past due, but for which it is probable that we will be unable to collect the full principal balance at maturity due to a decline in the underlying value of the collateral. Of our $6.2 billion impaired loans at Real Estate at September 30, 2009, approximately $4 billion are currently paying in accordance with the contractual terms of the loan. Impaired loans at CLL primarily represent senior secured lending positions.
 
CLL Americas. Nonearning receivables of $3.5 billion represented 25.0% of total nonearning receivables at September 30, 2009. The ratio of allowance for losses as a percent of nonearning receivables declined from 42.4% at December 31, 2008, to 31.5% at September 30, 2009, primarily from an increase in secured exposures requiring relatively lower specific reserve levels, based upon the strength of the underlying collateral values. The ratio of nonearning receivables as a percent of financing receivables increased from 1.9% at December 31, 2008, to 3.8% at September 30, 2009, primarily from an increase in nonearning receivables in our senior secured lending portfolio concentrated in the following industries: media, communications, corporate aircraft, auto, transportation, retail/publishing, inventory finance, and franchise finance.
 
CLL – Europe. Nonearning receivables of $1.2 billion represented 9.0% of total nonearning receivables at September 30, 2009. The ratio of allowance for losses as a percent of nonearning receivables declined from 83.5% at December 31, 2008, to 40.3% at September 30, 2009, primarily from the increase in nonearning receivables related to the acquisition of Interbanca S.p.A. The ratio of nonearning receivables as a percent of financing receivables increased from 0.9% at December 31, 2008, to 3.1% at September 30, 2009, primarily from the increase in nonearning receivables related to the acquisition of Interbanca S.p.A. and an increase in nonearning receivables in secured lending in the automotive industry, partially offset by the effect of the increase in financing receivables from the acquisition of Interbanca S.p.A. in the first quarter of 2009. Excluding the effects of the Interbanca S.p.A. acquisition, the ratio of allowance for losses as a percent of financing receivables would have been 1.5%.
 

 
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CLL – Asia. Nonearning receivables of $0.6 billion represented 4.3% of total nonearning receivables at September 30, 2009. The ratio of allowance for losses as a percent of nonearning receivables declined from 53.3% at December 31, 2008, to 40.7% at September 30, 2009, primarily due to an increase in nonearning receivables in secured exposures which did not require significant specific reserves based upon the strength of the underlying collateral values. The ratio of nonearning receivables as a percent of financing receivables increased from 1.8% at December 31, 2008, to 4.2% at September 30, 2009, primarily from an increase in nonearning receivables at our corporate asset-based, distribution finance and corporate air secured financing businesses in Japan, Australia, New Zealand and India and a lower financing receivables balance.
 
Consumer − Non-U.S. residential mortgages. Nonearning receivables of $4.8 billion represented 34.6% of total nonearning receivables at September 30, 2009. The ratio of allowance for losses as a percent of nonearning receivables increased from 11.5% at December 31, 2008, to 20.4% at September 30, 2009. In the first nine months of 2009, our nonearning receivables increased primarily as a result of the continued decline in the U.K. housing market, partially offset by increased foreclosures. Our non-U.S. mortgage portfolio has a loan-to-value ratio of approximately 75% at origination and the vast majority are first lien positions. Our U.K. and France portfolios, which comprise a majority of our total mortgage portfolio, have reindexed loan-to-value ratios of 85% and 67%, respectively. Less than 5% of these loans are without mortgage insurance and have a reindexed loan-to-value equal to or greater than 100%. Loan-to-value information is updated on a quarterly basis for a majority of our loans and considers economic factors such as the housing price index. At September 30, 2009, we had in repossession stock approximately 2,000 houses in the U.K. which had a value of approximately $0.3 billion.
 
Consumer Non-U.S. installment and revolving credit. Nonearning receivables of $0.5 billion represented 3.3% of total nonearning receivables at September 30, 2009. The ratio of allowance for losses as a percent of nonearning receivables declined from 254.5% at December 31, 2008, to 247.3% at September 30, 2009, reflecting the effects of loan repayments and reduced originations. Allowance for losses as a percent of financing receivables increased from 4.3% at December 31, 2008, to 4.4% at September 30, 2009, as increases in allowance for losses, driven by the effects of increased delinquencies in Western Europe and Australia, were partially offset by the effects of reclassifying assets into held for sale.
 
Consumer U.S. installment and revolving credit. Nonearning receivables of $0.7 billion represented 5.4% of total nonearning receivables at September 30, 2009. The ratio of allowance for losses as a percent of nonearning receivables declined from 224.3% at December 31, 2008, to 209.3% at September 30, 2009, as increases in the allowance due to the effects of the continued deterioration in our U.S. portfolio in connection with rising unemployment were more than offset by the effects of better entry rates and improved late stage collection effectiveness.
 
Real Estate. Nonearning receivables of $1.3 billion represented 9.6% of total nonearning receivables at September 30, 2009. The $1.1 billion increase in nonearning receivables from December 31, 2008 was driven primarily by increased delinquencies in the U.S. apartment and office loan portfolios, which have been adversely affected by rent and occupancy declines. The ratio of allowance for losses as a percent of total financing receivables increased from 0.6% at December 31, 2008, to 2.3% at September 30, 2009, driven primarily by continued economic deterioration in the U.S. and the U.K. markets which resulted in an increase in specific provisions. The ratio of allowance for losses as a percent of nonearning receivables declined from 155.2% at December 31, 2008, to 77.9% at September 30, 2009, reflecting a higher proportion of the allowance being attributable to specific reserves and our estimate of underlying collateral values. At September 30, 2009, real estate held for investment included $0.7 billion representing 68 foreclosed commercial real estate properties.
 
Delinquency rates on managed equipment financing loans and leases and managed consumer financing receivables follow.
 

 
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Delinquency rates at
   
 
September 30,
 
December 31,
 
September 30,
 
 
2009(a)
 
2008 
 
2008 
 
                   
Equipment Financing
3.01
%
 
2.17 
%
 
1.61 
%
 
Consumer
8.80
   
7.43 
   
6.38 
   
     U.S.
7.31
   
7.14 
   
6.17 
   
     Non-U.S.
9.42
   
7.57 
   
6.47 
   
                   

(a)    
Subject to update.
 

 
Delinquency rates on equipment financing loans and leases increased from December 31, 2008 and September 30, 2008, to September 30, 2009, as a result of the continuing weakness in the global economic and credit environment. In addition, delinquency rates on equipment financing loans and leases increased six basis points from September 30, 2008 to September 30, 2009, as a result of the inclusion of the CitiCapital acquisition. The challenging credit environment may continue to lead to a higher level of commercial delinquencies and provisions for financing receivables and could adversely affect results of operations at CLL.
 
Delinquency rates on consumer financing receivables increased from December 31, 2008 and September 30, 2008, to September 30, 2009, primarily because of rising unemployment, a challenging economic environment and lower volume. In response, we continued to tighten underwriting standards globally, increased focus on collection effectiveness and will continue the process of regularly reviewing and adjusting reserve levels. We expect the global environment, along with U.S. unemployment levels, to continue to deteriorate in 2009, which may result in higher provisions for loan losses and could adversely affect results of operations at Consumer. At September 30, 2009, roughly 43% of our U.S.-managed portfolio, which consisted of credit cards, installment and revolving loans, was receivable from subprime borrowers. We had no U.S. subprime residential mortgage loans at September 30, 2009. See Note 4 to the condensed, consolidated financial statements.
 
Other assets comprise mainly real estate equity investments, equity and cost method investments, derivative instruments and assets held for sale. Other assets totaled $87.1 billion at September 30, 2009, including a $6.0 billion equity method investment in PTL following our partial sale during the first quarter of 2009, compared with $84.2 billion at December 31, 2008. During the first nine months of 2009, we recognized other-than-temporary impairments of cost and equity method investments of $0.5 billion. Of the amount at September 30, 2009, we had cost method investments totaling $2.2 billion. The fair value of and unrealized loss on cost method investments in a continuous unrealized loss position for less than 12 months at September 30, 2009, were $0.6 billion and $0.1 billion, respectively. The fair value of and unrealized loss on cost method investments in a continuous unrealized loss position for 12 months or more at September 30, 2009, were $0.1 billion and insignificant, respectively.
 
Included in other assets are Real Estate equity investments of $32.9 billion and $32.8 billion at September 30, 2009 and December 31, 2008, respectively. Our portfolio is diversified, both geographically and by asset type.  However, the global real estate market is subject to periodic cycles that can cause significant fluctuations in market value.  Over the past several months, these markets have been increasingly affected by rising unemployment, a slowdown in general business activity and continued challenging conditions in the credit markets. We expect these markets will continue to be affected while the economic environment remains challenging.
 

 
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We review the estimated values of our real estate investments semi-annually. At December 31, 2008, the carrying value of our Real Estate investments exceeded the estimated value by about $4 billion. For additional information, see page 38 of Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2008 Form 10-K. During the second quarter, we updated our review and determined that the carrying value of our Real Estate investments exceeded estimated value by about $5 billion at June 30, 2009 due to a decline in the Eurozone macroeconomic forecast. Given the current and expected challenging market conditions, there continues to be risk and uncertainty surrounding commercial real estate values and our unrealized loss on real estate equity properties may continue to increase. Declines in estimated value of real estate below carrying amount result in impairment losses when the aggregate undiscounted cash flow estimates used in the estimated value measurement are below the carrying amount. As such, estimated losses in the portfolio will not necessarily result in recognized impairment losses. When we recognize an impairment, the impairment is measured based upon the fair value of the underlying asset which is based upon current market data, including current capitalization rates. During the first nine months of 2009, Real Estate recognized pre-tax impairments of $0.5 billion on its real estate investments, compared with $0.1 billion for the comparable period in 2008. Continued deterioration in economic and market conditions may result in further impairments being recognized.
 
D. Liquidity and Borrowings
 
We manage our liquidity to help ensure access to sufficient funding at acceptable costs to meet our business needs and financial obligations throughout business cycles. Our obligations include principal payments on outstanding borrowings, interest on borrowings, purchase obligations for equipment and general obligations such as collateral deposits held or collateral required to be posted to counterparties, payroll and general expenses. We rely on cash generated through our operating activities as well as unsecured and secured funding sources, including commercial paper, term debt, bank deposits, bank borrowings, securitization and other retail funding products.
 
Sources for payment of our obligations are determined through our annual financial and strategic planning processes. GECS 2009 funding plan anticipates repayment of principal on outstanding short-term borrowings ($194 billion at December 31, 2008) through commercial paper issuances; long-term debt issuances; collections of financing receivables exceeding originations; cash on hand; and deposit funding and alternative sources of funding.
 
Interest on borrowings is primarily funded through interest earned on existing financing receivables. During the first nine months of 2009, GECS earned interest income on financing receivables of $17.6 billion, which more than offset interest expense of $13.7 billion. Purchase obligations and other general obligations are funded through collection of principal on our existing portfolio of loans and leases, cash on hand and operating cash flow.
 
Over the past 18 months, the global credit markets have experienced significant volatility, which has affected both the availability and cost of our funding sources. Throughout this period of volatility, we have been able to continue to meet our funding needs at acceptable costs and we continue to access the commercial paper markets without interruption.
 
Recent Liquidity Actions
 
GE, our ultimate parent, GECS and GECC maintain a strong focus on their liquidity. Recent actions to strengthen and maintain liquidity included:
 
·  
GE’s cash and equivalents were $61.4 billion at September 30, 2009 and committed credit lines were $52.3 billion. GECS intends to maintain committed credit lines and cash in excess of GECS commercial paper borrowings going forward;
 
·  
GECS commercial paper borrowings were $50 billion at September 30, 2009, compared to $72 billion at December 31, 2008;
 
·  
GECS completed its funding related to its long-term debt funding target of $45 billion for 2009 and have issued $35 billion of its targeted long-term debt funding for 2010;
 
·  
During the first nine months of 2009, GECS issued an aggregate of $20.0 billion of long-term debt (including $10.9 billion in the third quarter) that is not guaranteed under the Federal Deposit Insurance Corporation’s (FDIC) Temporary Liquidity Guarantee Program (TLGP);
 

 
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·  
GECS is managing collections versus originations to help support liquidity needs. In the first nine months of 2009, collections have exceeded originations by approximately $37 billion;
 
·  
As of September 30, 2009, we had issued notes from our securitization platforms in an aggregate amount of $10.7 billion. $3.8 billion of these notes were eligible collateral under the Federal Reserve Bank of New York’s Term Asset-Backed Securities Loan Facility (TALF). Depending on market conditions and terms, we may securitize additional credit card assets, floorplan and equipment receivables, and commercial mortgage loans, including transactions for which investors can access TALF;
 
·  
In February 2009, GE announced the reduction of its quarterly stock dividend by 68% from $0.31 per share to $0.10 per share, effective with the second quarter dividend, which was payable in the third quarter. This reduction has the effect of saving GE approximately $4 billion in the second half of 2009 and will save approximately $9 billion annually thereafter;
 
·  
In September 2008, GECS reduced its dividend to GE and GE suspended its stock repurchase program. Effective January 2009, GECS fully suspended its dividend to GE;
 
·  
In October 2008, GE raised $15 billion in cash through common and preferred stock offerings and contributed $15 billion to GECS, including $9.5 billion in the first quarter of 2009 (of which $8.8 billion was further contributed to GE Capital through capital contribution and share issuance), in order to improve tangible capital and reduce leverage. We do not anticipate additional contributions in 2009; and
 
·  
GECS registered in October 2008 to use the Federal Reserve’s Commercial Paper Funding Facility (CPFF) for up to $83 billion. Although we do not anticipate further utilization of the CPFF, it remains available until February 1, 2010.
 
Cash and Equivalents
 
GE’s cash and equivalents were $61.4 billion at September 30, 2009. GE anticipates that it will continue to generate cash from operating activities in the future, which is available to help meet our liquidity needs. We also generate substantial cash from the principal collections of loans and rentals from leased assets, which historically has been invested in asset growth.
 
GE has committed, unused credit lines totaling $52.3 billion that had been extended to us by 59 financial institutions at September 30, 2009. These lines include $36.6 billion of revolving credit agreements under which we can borrow funds for periods exceeding one year. Additionally, $14.1 billion are 364-day lines that contain a term-out feature that allows us to extend borrowings for one year from the date of expiration of the lending agreement.
 
Funding Plan
 
Our 2009 funding plan anticipates approximately $45 billion of senior, unsecured long-term debt issuance, $13.4 billion of which was pre-funded in December 2008. In the first nine months of 2009, we completed issuances of $42.0 billion of long-term debt under the TLGP and $20.0 billion in non-guaranteed senior, unsecured debt with maturities up to 30 years. Subsequent to the end of the third quarter, we issued an additional $4.6 billion of long-term debt under the TLGP. We have completed our anticipated 2009 long-term debt funding plan and have pre-funded $35 billion of our 2010 long-term debt funding target of $35 to $40 billion.
 
Under the TLGP, the FDIC guaranteed certain senior, unsecured debt issued on or before October 31, 2009. Our total senior, unsecured long-term debt issuance under the program was $60 billion (including $4.6 billion issued in October 2009).
 
During the fourth quarter of 2008, GECS issued commercial paper into the CPFF. The last tranche of this commercial paper matured in February 2009.
 
GECS has incurred $2.3 billion of fees for participation in the TLGP and CPFF programs through September 30, 2009. These fees are amortized over the terms of the related borrowings.
 

 
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We maintain securitization capability in most of the asset classes we have traditionally securitized. However, in 2008 and 2009 these capabilities have been, and continue to be, more limited than in 2007. We have continued to execute new securitizations throughout this period using bank administered commercial paper conduits, and more recently have executed new securitizations in both the public term markets and in the private markets. In the nine months ending September 30, 2009, we have completed issuances from these platforms in an aggregate amount of $10.7 billion. $3.8 billion of these issuances were eligible collateral under TALF. Depending on market conditions and terms, we may securitize additional credit card assets, floorplan and equipment receivables, and commercial mortgage loans, including transactions for which investors can access TALF. GECS total proceeds, including sales to revolving facilities, from our securitizations were $18.5 billion and $52.7 billion during the three months and nine months ended September 30, 2009, respectively. GECS comparable amounts for 2008 were $18.8 billion and $61.5 billion, for the three months and nine months, respectively.
 
We have deposit-taking capability at 17 banks outside of the U.S. and two banks in the U.S. – GE Money Bank, Inc., a Federal Savings Bank (FSB), and GE Capital Financial Inc., an industrial bank (IB). The FSB and IB currently issue certificates of deposit (CDs) distributed by brokers in maturity terms from three months to ten years. Bank deposits, which are a large component of our alternative funding, were $36.8 billion at September 30, 2009, including CDs of $15.2 billion. Total alternative funding decreased from $54.9 billion to $51.9 billion during the first nine months of 2009, primarily resulting from a reduction in bank borrowings and CD balances due to the timing of asset origination at the banks. This decline was more than offset by collections on financing receivables exceeding originations by approximately $37 billion in the first nine months of 2009.
 
As we have been able to continue to successfully access the non-guaranteed debt markets and have completed our anticipated 2009 long-term debt funding plan and have pre-funded $35 billion of our 2010 long-term debt funding target of $35 to $40 billion, we currently expect that the expiration of the TLGP will not have a significant effect on our liquidity. If, however, the recent disruption in the credit markets were to return or if the challenging market conditions continue, our ability to issue unsecured long-term debt may be affected. In the event we cannot sufficiently access our normal sources of funding as a result of the ongoing credit market turmoil, we have a number of alternative means to enhance liquidity, including:
 
·  
Controlling new originations in GE Capital to reduce capital and funding requirements;
 
·  
Using part of our available cash balance;
 
·  
Pursuing alternative funding sources, including deposits and asset-backed fundings;
 
·  
Using our bank credit lines which, with our cash, we intend to maintain in excess of our outstanding commercial paper; and
 
·  
Obtaining additional capital from GE, including from funds retained as a result of the reduction in GE’s dividend announced in February 2009 or future dividend reductions.
 
We believe that our existing funds, combined with our alternative means to enhance liquidity, provide us with adequate liquidity to manage through the current credit cycle.
 
Credit Ratings
 
The major debt rating agencies routinely evaluate GE’s and our debt. This evaluation is based on a number of factors, which include financial strength as well as transparency with rating agencies and timeliness of financial reporting. On March 12, 2009, Standard & Poor’s (S&P) downgraded GE and GE Capital’s long-term rating by one notch from “AAA” to “AA+” and, at the same time, revised the outlook from negative to stable. Under S&P’s definitions, an obligation rated “AAA” has the highest rating assigned by S&P. The obligor's capacity to meet its financial commitment on the obligation is extremely strong. An obligation rated “AA” differs from an obligation rated “AAA” only to a small degree in that the obligor's capacity to meet its financial commitment on the obligation is very strong. An S&P rating outlook assesses the potential direction of a long-term credit rating over the intermediate term. In determining a rating outlook, consideration is given to any changes in the economic and/or fundamental business conditions. Stable means that a rating is not likely to change in the next six months to two years.
 

 
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On March 23, 2009, Moody’s Investors Service (Moody’s) downgraded GE and GE Capital’s long-term rating by two notches from “Aaa” to “Aa2” with a stable outlook and removed GE and GE Capital from review for possible downgrade. Under Moody’s definitions, obligations rated “Aaa” are judged to be of the highest quality, with minimal credit risk. Obligations rated “Aa” are judged to be of high quality and are subject to very low credit risk.
 
The short-term ratings of “A-1+/P-1” were affirmed by both rating agencies at the same time with respect to GE, GE Capital Services and GE Capital.
 
We do not believe that the downgrades by S&P and Moody’s have had, or will have, a material impact on our cost of funding or liquidity as the downgrades had been widely anticipated in the market and were already reflected in the spreads on our debt.
 
Ratio of Earnings to Fixed Charges
 
As set forth in Exhibit 12 hereto, GE Capital’s ratio of earnings to fixed charges declined to 0.88:1 in the first nine months of 2009 due to lower pre-tax earnings at GE Capital which were primarily driven by higher provisions for losses on financing receivables in connection with the challenging economic environment.
 
Income Maintenance Agreement
 
On March 28, 1991, GE entered into an agreement with GE Capital to make payments to GE Capital, constituting additions to pre-tax income under the agreement, to the extent necessary to cause the ratio of earnings to fixed charges of GE Capital and consolidated affiliates (determined on a consolidated basis) to be not less than 1.10 for the period, as a single aggregation, of each GE Capital fiscal year commencing with fiscal year 1991. On October 29, 2009, GE and GE Capital amended this agreement (which is filed as Exhibit 99(b) hereto) to extend the notice period for termination from three years to five years. It was further amended to provide that any future amendments to the agreement that could adversely affect GE Capital require the consent of the majority of the holders of the aggregate outstanding principal amount of senior unsecured debt securities issued or guaranteed by GE Capital (with an original stated maturity in excess of 270 days), unless the amendment does not trigger a downgrade of GE Capital’s long-term ratings.
 
GE made a $9.5 billion capital contribution to GECS in the first quarter of 2009 (of which $8.8 billion was further contributed to GE Capital through capital contribution and share issuance) to improve tangible capital and reduce leverage. This payment constitutes an addition to pre-tax income under the agreement and therefore will increase the ratio of earnings to fixed charges of GE Capital for the fiscal year 2009 for purposes of the agreement. The payment will not affect the ratio of earnings to fixed charges as determined in accordance with current SEC rules because it does not constitute an addition to pre-tax income under current U.S. GAAP. We do not anticipate additional capital contributions in 2009.
 
Variable Interest Entities and Off-Balance Sheet Arrangements
 
In the first quarter of 2009, we further reduced our investment in PTL by selling a 1% limited partnership interest in PTL, a previously consolidated variable interest entity, to Penske Truck Leasing Corporation, the general partner of PTL, whose majority shareowner is a member of GE’s Board of Directors.
 
The disposition of the shares, coupled with our resulting minority position on the PTL advisory committee and related changes in our contractual rights, resulted in the deconsolidation of PTL. We recognized a pre-tax gain on the sale of $296 million, including a gain on the remeasurement of our retained investment of $189 million. The measurement of the fair value of our retained investment in PTL was based on a methodology that incorporated both discounted cash flow information and market data. In applying this methodology, we utilized different sources of information, including actual operating results, future business plans, economic projections and market observable pricing multiples of similar businesses. The resulting fair value reflected our position as a noncontrolling shareowner at the conclusion of the transaction. As of September 30, 2009, our remaining equity investment in PTL was 49.9% and is accounted for under the equity method.
 

 
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E. New Accounting Standards
 
On June 12, 2009, the FASB issued amendments to existing standards on accounting for securitizations and consolidation of variable interest entities (VIEs), which will be effective for us on January 1, 2010. The amendment to securitization accounting will eliminate the qualifying special purpose entity (QSPE) concept, and a corresponding amendment to the consolidation standard will require that all such entities be evaluated for consolidation as VIEs, which will likely result in our consolidating substantially all of our former QSPEs. Upon adoption, we will record assets and liabilities of these entities at carrying amounts consistent with what they would have been if they had always been consolidated, which will require the reversal of a portion of previously recognized securitization gains as a cumulative effect adjustment to retained earnings. Alternatively, we may elect to record all qualifying financial assets and liabilities of a VIE at fair value both on the date of adoption, as an adjustment to retained earnings, and subsequently, through net earnings. Under the revised guidance and assuming consolidation at carrying amount, at September 30, 2009, we would have recognized an increase in assets of approximately $25 billion and a reduction in equity of approximately $2 billion.
 
The amended guidance on securitizations also modifies existing derecognition criteria in a manner that will significantly narrow the types of transactions that will qualify as sales. The revised criteria will apply prospectively to transfers of financial assets occurring after December 31, 2009.
 
The amended consolidation guidance for VIEs will also replace the existing quantitative approach for identifying who should consolidate a VIE, which was based on who is exposed to a majority of the risks and rewards, with a qualitative approach, based on who has the power to direct the economically significant activities of the entity. Under the revised guidance, more entities may meet the definition of a VIE, and the determination about who should consolidate a VIE is required to be evaluated continuously. Upon adoption, assets and liabilities of consolidated VIEs will be recorded in the manner described above for QSPEs. If it is not practicable to determine such carrying amounts, assets and liabilities will be measured at their fair values on the date of adoption. We are evaluating all entities that fall within the scope of the amended guidance to determine whether we may be required to consolidate or deconsolidate additional entities on January 1, 2010.
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
 
There have been no significant changes to our market risk since December 31, 2008. For a discussion of our exposure to market risk, refer to Part II, Item 7A. “Quantitative and Qualitative Disclosures about Market Risk,” contained in our Annual Report on Form 10-K for the year ended December 31, 2008.
 
Item 4. Controls and Procedures.
 
Under the direction of our Chief Executive Officer and Chief Financial Officer, we evaluated our disclosure controls and procedures and internal control over financial reporting and concluded that (i) our disclosure controls and procedures were effective as of September 30, 2009, and (ii) no change in internal control over financial reporting occurred during the quarter ended September 30, 2009, that has materially affected, or is reasonably likely to materially affect, such internal control over financial reporting.
 
Part II. Other Information
 
Item 1. Legal Proceedings
 
The following information supplements and amends our discussion set forth under Part I, Item 3. "Legal Proceedings" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008.
 
As previously reported, in July and September 2008, shareholders filed two purported class actions under the federal securities laws in the United States District Court for the District of Connecticut naming as defendant GE (our ultimate parent), as well as its chief executive officer and chief financial officer. These two actions have been consolidated and in January 2009, a consolidated complaint was filed alleging that GE and its chief executive officer made false and misleading statements that artificially inflated GE's stock price between March 12, 2008 and April 10, 2008, when GE announced that its results for the first quarter of 2008 would not meet its previous guidance, and GE also lowered its full year guidance for 2008. The case seeks unspecified damages. GE's motion to dismiss the consolidated complaint was filed in March 2009 and is currently under consideration by the court. GE intends to defend itself vigorously.
 

 
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As previously reported, in October 2008, shareholders filed a purported class action under the federal securities laws in the United States District Court for the Southern District of New York naming as defendant GE, as well as its chief executive officer and chief financial officer. The complaint alleges that during a conference call with analysts on September 25, 2008, defendants made false and misleading statements concerning (i) the state of GE’s funding, cash flows, and liquidity and (ii) the question of issuing additional equity, which caused economic loss to those shareholders who purchased GE stock between September 25, 2008 and October 2, 2008, when GE announced the pricing of a common stock offering. The case seeks unspecified damages. GE's motion to dismiss the complaint was filed in April 2009 and is currently under consideration by the court. GE intends to defend itself vigorously.
 
As previously reported, in March and April 2009, shareholders filed purported class actions under the federal securities laws in the United States District Court for the Southern District of New York naming as defendants GE, a number of GE officers (including its chief executive officer and chief financial officer) and GE directors. The complaints, which have now been consolidated, seek unspecified damages based on allegations related to statements regarding the dividend and projected losses and earnings for GE Capital in 2009.  A shareholder derivative action has been filed in federal court in Connecticut in May 2009 making essentially the same allegations as the New York class actions. GE has moved to consolidate the Connecticut derivative action with the recently consolidated New York class actions.
 
As previously reported by GE, on August 4, 2009, GE announced that it had reached a settlement with the Securities and Exchange Commission (SEC) in connection with an SEC investigation previously disclosed in GE's and our SEC reports. Consistent with standard SEC practice, GE neither admitted nor denied the allegations in the SEC’s complaint.  Under the terms of the settlement, GE consented to the entry of a judgment requiring it to pay a civil penalty of $50 million and to comply with the federal securities laws.  This settlement, which brought the SEC investigation of GE to a close, relates to four accounting matters arising in 2002 - 2003: the application of SFAS 133 to GE’s since-discontinued commercial paper hedging program and, separately, to certain swap derivatives where fees were paid or received at inception; a change in accounting for profits on spare parts in the commercial aviation engine business; and certain year-end transactions in GE’s Rail business.  All of these items were reviewed or discussed with KPMG, which audited the Company’s financial statements throughout the periods in question.  GE previously corrected its prior period financial statements for the effect of each of these accounting matters in SEC filings made between May 2005 and February 2008, and no further corrections were required.
 
GE cooperated with the SEC over the course of its investigation, and GE and its Audit Committee conducted their own comprehensive review in conjunction with the SEC investigation.  GE reviewed and produced approximately 2.9 million pages of e-mails and other documents to the SEC and incurred approximately $200 million in external legal and accounting expenses to ensure that all issues were addressed appropriately.  GE concluded that it was in the best interests of GE and its shareholders to resolve this matter and put it behind GE on the basis described above.
 
We and GE implemented a number of remedial actions and internal control enhancements, as previously described in our SEC reports, including measures to strengthen our controllership and technical accounting resources and capabilities.
 
Item 5.  Other Information.
 
 
On October 29, 2009, General Electric Company (GE) entered into an amendment to a 1991 agreement between GE and General Electric Capital Corporation (GE Capital), which requires GE to make payments to GE Capital, constituting additions to pre-tax income under the agreement, to the extent necessary to cause the ratio of earnings to fixed charges of GE Capital and consolidated affiliates (determined on a consolidated basis) to be not less than 1.10 for the period, as a single aggregation, of each GE Capital fiscal year commencing with fiscal year 1991. The amended agreement (which is filed as Exhibit 10 hereto) extends the notice period for termination from three years to five years. It further provides that any future amendments to the agreement that could adversely affect GE Capital require the consent of the majority of the holders of the aggregate outstanding principal amount of senior unsecured debt securities issued or guaranteed by GE Capital (with an original stated maturity in excess of 270 days), unless the amendment does not trigger a downgrade of GE Capital’s long-term ratings.
 

 
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Item 6. Exhibits
 
 
Exhibit 10
Amended and Restated Income Maintenance Agreement, dated October 29, 2009, between General Electric Company and General Electric Capital Corporation.*
 
Exhibit 12
Computation of Ratio of Earnings to Fixed Charges.*
 
Exhibit 31(a)
Certification Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Amended.*
 
Exhibit 31(b)
Certification Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Amended.*
 
Exhibit 32
Certification Pursuant to 18 U.S.C. Section 1350.*
 
Exhibit 99
Financial Measures That Supplement Generally Accepted Accounting Principles.*
   
* Filed electronically herewith.

 
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Signatures
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
General Electric Capital Corporation
(Registrant)
 
 
November 2, 2009
 
/s/Michael A. Neal
 
Date
 
Michael A. Neal
Chief Executive Officer
     

 
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