gecc10q093009.htm
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
(Mark
One)
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þ
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
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THE
SECURITIES EXCHANGE ACT OF 1934
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For
the quarterly period ended September
30, 2009
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OR
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¨
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
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For
the transition period from ___________to ___________
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_____________________________
Commission
file number 001-06461
_____________________________
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GENERAL ELECTRIC CAPITAL
CORPORATION
(Exact
name of registrant as specified in its
charter)
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Delaware
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13-1500700
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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3135
Easton Turnpike, Fairfield, Connecticut
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06828-0001
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(Address
of principal executive offices)
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(Zip
Code)
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(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 ¨
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Accelerated
filer ¨
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Non-accelerated
filer þ
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Smaller
reporting company ¨
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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.
General
Electric Capital Corporation
Part
I – Financial Information
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Page
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Item
1.
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Financial
Statements
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Condensed Statement of Current
and Retained Earnings
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3
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Condensed Statement of Financial
Position
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4
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Condensed Statement of Cash
Flows
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5
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Notes to Condensed, Consolidated
Financial Statements (Unaudited)
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6
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Item
2.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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40
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Item
3.
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Quantitative
and Qualitative Disclosures About Market Risk
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61
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Item
4.
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Controls
and Procedures
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61
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Part
II – Other Information
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Item
1.
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Legal
Proceedings
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61
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Item
5.
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Other
Information
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62
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Item
6.
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Exhibits
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63
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Signatures
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64
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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.
Part
I. Financial Information
Item
1. Financial Statements.
General
Electric Capital Corporation and consolidated affiliates
Condensed
Statement of Current and Retained Earnings
(Unaudited)
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Three
months ended
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Nine
months ended
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September
30
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September
30
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(In
millions)
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2009
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2008
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2009
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2008
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Revenues
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Revenues
from services (Note 9)
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$
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11,652
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$
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17,045
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$
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37,398
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$
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51,422
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Sales
of goods
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213
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579
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691
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1,474
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Total
revenues
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11,865
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17,624
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38,089
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52,896
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Costs
and expenses
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Interest
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4,122
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6,675
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13,648
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19,021
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Operating
and administrative
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3,633
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4,580
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10,945
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13,946
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Cost
of goods sold
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181
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486
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569
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1,264
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Investment
contracts, insurance losses and insurance annuity benefits
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47
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108
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165
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373
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Provision
for losses on financing receivables
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2,860
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1,634
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7,997
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4,437
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Depreciation
and amortization
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2,064
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2,355
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6,176
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6,612
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Total
costs and expenses
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12,907
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15,838
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39,500
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45,653
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Earnings
(loss) from continuing operations before income taxes
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(1,042)
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1,786
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(1,411)
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7,243
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Benefit
for income taxes
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1,145
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413
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2,978
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286
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Earnings
from continuing operations
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103
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2,199
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1,567
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7,529
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Earnings
(Loss) from discontinued operations, net of taxes (Note 2)
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84
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(169)
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(113)
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(551)
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Net
earnings
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187
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2,030
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1,454
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6,978
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Less
net earnings attributable to noncontrolling interests
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16
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111
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95
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210
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Net
earnings attributable to GECC
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171
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1,919
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1,359
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6,768
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Dividends
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–
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(273)
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–
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(2,292)
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Retained
earnings at beginning of period(a)
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46,662
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43,343
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45,474
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40,513
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Retained
earnings at end of period
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$
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46,833
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$
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44,989
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$
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46,833
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$
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44,989
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Amounts
attributable to GECC
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Earnings
from continuing operations
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$
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87
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$
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2,088
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$
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1,472
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$
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7,319
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Earnings
(loss) from discontinued operations, net of taxes
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84
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(169)
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(113)
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(551)
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Net
earnings attributable to GECC
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$
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171
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$
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1,919
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$
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1,359
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$
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6,768
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(a)
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Primarily
included a cumulative effect adjustment to increase retained earnings in
2009.
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See Note
3 for other-than-temporary impairment amounts.
See
accompanying notes.
General
Electric Capital Corporation and consolidated affiliates
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September
30,
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December
31,
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(In
millions)
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2009
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2008
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(Unaudited)
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Assets
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Cash
and equivalents
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$
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56,250
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$
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36,430
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Investment
securities (Note 3)
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26,325
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19,318
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Inventories
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79
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77
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Financing
receivables – net (Note 4)
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347,356
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370,592
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Other
receivables
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20,748
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22,175
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Property,
plant and equipment, less accumulated amortization of
$26,458
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|
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and
$29,026
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58,685
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64,043
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Goodwill
(Note 5)
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28,043
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25,204
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Other
intangible assets – net (Note 5)
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3,371
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3,174
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Other
assets
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87,133
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84,201
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Assets
of businesses held for sale
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1,263
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10,556
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Assets
of discontinued operations (Note 2)
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1,533
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|
1,640
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Total
assets
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$
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630,786
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$
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637,410
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Liabilities
and equity
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Short-term
borrowings (Note 6)
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$
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155,722
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$
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188,601
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Accounts
payable
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12,560
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14,863
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Long-term
borrowings (Note 6)
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348,354
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321,755
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Investment
contracts, insurance liabilities and insurance annuity
benefits
|
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|
9,640
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|
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11,403
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Other
liabilities
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20,099
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30,629
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Deferred
income taxes
|
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8,128
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8,112
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Liabilities
of businesses held for sale
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143
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636
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Liabilities
of discontinued operations (Note 2)
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843
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|
799
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Total
liabilities
|
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555,489
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576,798
|
|
|
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|
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Capital
stock
|
|
|
56
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|
|
56
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Accumulated
other comprehensive income – net(a)
|
|
|
|
|
|
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Investment
securities
|
|
|
(1,077)
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|
|
(2,013)
|
Currency
translation adjustments
|
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|
1,266
|
|
|
(1,337)
|
Cash
flow hedges
|
|
|
(1,954)
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|
|
(3,253)
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Benefit
plans
|
|
|
(374)
|
|
|
(367)
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Additional
paid-in capital
|
|
|
28,418
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|
|
19,671
|
Retained
earnings
|
|
|
46,833
|
|
|
45,472
|
Total
GECC shareowner's equity
|
|
|
73,168
|
|
|
58,229
|
Noncontrolling
interests(b)
|
|
|
2,129
|
|
|
2,383
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Total
equity
|
|
|
75,297
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|
|
60,612
|
Total
liabilities and equity
|
|
$
|
630,786
|
|
$
|
637,410
|
|
|
|
|
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|
(a)
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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.
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.
Notes
to Condensed, Consolidated Financial Statements (Unaudited)
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.
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.
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.
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
|
$
|
4
|
|
$
|
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.
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
|
|
|
5
|
|
|
(70)
|
|
|
850
|
Residential
mortgage-backed(a)
|
|
3,200
|
|
|
21
|
|
|
(828)
|
|
|
2,393
|
|
|
4,228
|
|
|
9
|
|
|
(976)
|
|
|
3,261
|
Commercial
mortgage-backed
|
|
1,628
|
|
|
3
|
|
|
(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
|
|
|
-
|
|
|
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.
|
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
|
|
7
|
|
|
-
|
|
|
-
|
|
|
-
|
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.
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.
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.
|
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.
|
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.
|
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
|
|
|
8
|
|
|
(225)
|
|
|
17
|
|
|
500
|
Asia
|
|
163
|
|
|
188
|
|
|
8
|
|
|
(136)
|
|
|
19
|
|
|
242
|
Other
|
|
2
|
|
|
4
|
|
|
1
|
|
|
(1)
|
|
|
–
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
1,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy
Financial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
58
|
|
|
42
|
|
|
1
|
|
|
–
|
|
|
–
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GECAS
|
|
60
|
|
|
69
|
|
|
–
|
|
|
(3)
|
|
|
–
|
|
|
126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
28
|
|
|
16
|
|
|
–
|
|
|
(22)
|
|
|
1
|
|
|
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.
|
|
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)
|
|
|
5
|
|
|
114
|
Other
|
|
3
|
|
|
2
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
4
|
|
|
(10)
|
|
|
1
|
|
|
210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy
Financial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
19
|
|
|
12
|
|
|
2
|
|
|
–
|
|
|
–
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GECAS
|
|
8
|
|
|
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.
|
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.
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.
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.
|
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
|
|
2
|
|
|
3
|
|
|
(7)
|
|
|
21
|
Total
|
$
|
1,472
|
|
$
|
(3,347)
|
|
$
|
6,190
|
|
$
|
1,682
|
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.
|
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.
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.
(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
|
|
8
|
|
|
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
|
|
5
|
|
|
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
|
$
|
2
|
|
$
|
10,810
|
|
$
|
162
|
|
$
|
(7,218)
|
|
$
|
3,756
|
Derivatives
|
|
–
|
|
|
323
|
|
|
–
|
|
|
–
|
|
|
323
|
Other
|
$
|
2
|
|
$
|
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.
|
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
|
|
|
–
|
|
|
6
|
|
|
73
|
|
|
11
|
|
|
247
|
|
|
|
–
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
mortgage-backed
|
|
51
|
|
|
–
|
|
|
3
|
|
|
–
|
|
|
(9)
|
|
|
45
|
|
|
|
–
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
mortgage-backed
|
|
50
|
|
|
–
|
|
|
3
|
|
|
–
|
|
|
–
|
|
|
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
|
|
|
–
|
|
|
2
|
|
|
–
|
|
|
–
|
|
|
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.
|
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)
|
|
|
7
|
|
|
709
|
|
|
|
268
|
|
Other
|
|
715
|
|
|
(34)
|
|
|
(37)
|
|
|
1
|
|
|
–
|
|
|
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.
|
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
|
|
|
–
|
|
|
6
|
|
|
17
|
|
|
(275)
|
|
|
166
|
|
|
|
–
|
|
U.S.
government and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
federal
agency
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
|
–
|
|
Retained
interests
|
|
5,081
|
|
|
856
|
|
|
244
|
|
|
905
|
|
|
–
|
|
|
7,086
|
|
|
|
167
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
17
|
|
|
–
|
|
|
2
|
|
|
(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.
|
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)
|
|
|
7
|
|
|
709
|
|
|
|
464
|
|
Other
|
|
689
|
|
|
(42)
|
|
|
(9)
|
|
|
(44)
|
|
|
51
|
|
|
645
|
|
|
|
9
|
|
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.
|
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.
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.
|
(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.
|
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
|
|
|
2
|
|
|
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.
|
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.
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.
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.
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.
|
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.
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.
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)
|
|
8
|
|
|
76
|
|
|
10
|
|
|
2
|
|
Net
credit losses for the quarter
|
$
|
–
|
|
$
|
14
|
|
$
|
1,333
|
|
$
|
−
|
|
Delinquencies
|
|
–
|
|
|
6
|
|
|
1,561
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
3
|
|
Net
credit losses for the year
|
$
|
4
|
|
$
|
7
|
|
$
|
1,512
|
|
$
|
−
|
|
Delinquencies
|
|
27
|
|
|
58
|
|
|
1,833
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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).
|
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.
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.
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.
Summary
of Operating Segments
|
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.
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).
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.
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
|
|
|
|
|
4
|
|
|
(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
|
|
|
|
|
8
|
|
|
(2)
|
|
|
7
|
|
|
4
|
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.
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
|
|
|
|
|
1
|
|
|
(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.
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
|
|
|
(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.
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.
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.
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.
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
|
|
|
2
|
|
|
6
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
|
|
|
|
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.
“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%.
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.
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
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);
|
·
|
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.
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.
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.
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.
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.
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.
|
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
|
|
|
|