gecc10q93008.htm
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 
WASHINGTON, D.C. 20549
 
     
 
FORM 10-Q
  


(Mark One)
        
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
 
THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2008
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ___________to ___________
_____________________________
 
Commission file number 1-6461
_____________________________
 
GENERAL ELECTRIC CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)

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

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer ¨ 
Accelerated filer ¨
Non-accelerated filer þ
Smaller reporting company ¨

 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
 
At October 29, 2008, 3,985,403 shares of voting common stock, which constitute all of the outstanding common equity, with a par value of $14 per share were outstanding.
 
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM 10-Q WITH THE REDUCED DISCLOSURE FORMAT.
 

 
(1)
 

General Electric Capital Corporation
 
Part I – Financial Information
  
Page
       
Item 1.
Financial Statements
    
 
Condensed Statement of Current and Retained Earnings
  
3
 
Condensed Statement of Financial Position
  
4
 
Condensed Statement of Cash Flows
  
5
 
Notes to Condensed, Consolidated Financial Statements (Unaudited)
  
6
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
  
19
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
  
33
Item 4.
Controls and Procedures
  
33
       
Part II – Other Information
    
       
Item 1.
Legal Proceedings
  
33
Item 1A.
Risk Factors
  
33
Item 6.
Exhibits
  
37
Signatures
  
38

 
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 often contain words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” or “will.” Forward-looking statements by their nature address matters that are, to different degrees, uncertain. For us, particular uncertainties that could adversely or positively affect our future results include: the behavior of financial markets, including fluctuations in interest and exchange rates, commodity and equity prices and the value of financial assets; continued volatility and further deterioration of the capital markets; the commercial and consumer credit environment; the impact of regulation and regulatory, investigative and legal actions; strategic actions, including acquisitions and dispositions; future integration of acquired businesses; future financial performance of major industries which we serve, including, without limitation, the air and rail transportation, energy generation, media, real estate and healthcare industries; and numerous other matters of national, regional and global scale, including those of a political, economic, business and competitive nature. These uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements.
 

 

 
(2)
 

Part I. Financial Information
 
Item 1. Financial Statements
 
General Electric Capital Corporation and consolidated affiliates
Condensed Statement of Current and Retained Earnings
(Unaudited)
 
Three months ended
September 30
  
Nine months ended
September 30
  
(In millions)
2008
  
2007
  
2008
  
2007
  
                         
Revenues
                        
Revenues from services (Note 3)
$
17,045
  
$
16,738
  
$
51,422
  
$
48,387
  
Sales of goods
  
579
    
277
    
1,474
    
337
  
Total revenues
  
17,624
    
17,015
    
52,896
    
48,724
  
                         
Costs and expenses
                        
Interest
  
6,675
    
5,631
    
19,021
    
16,181
  
Operating and administrative
  
4,580
    
4,537
    
13,946
    
13,241
  
Cost of goods sold
  
486
    
236
    
1,264
    
284
  
Investment contracts, insurance losses and insurance
                        
annuity benefits
  
108
    
178
    
373
    
517
  
Provision for losses on financing receivables
  
1,634
    
1,189
    
4,437
    
3,200
  
Depreciation and amortization
  
2,355
    
1,993
    
6,612
    
5,830
  
Minority interest in net earnings of consolidated
                        
affiliates
  
111
    
58
    
210
    
211
  
Total costs and expenses
  
15,949
    
13,822
    
45,863
    
39,464
  
                         
Earnings from continuing operations before
                        
income taxes
  
1,675
    
3,193
    
7,033
    
9,260
  
Benefit (provision) for income taxes
  
413
    
15
    
286
    
(732
)
                         
Earnings from continuing operations
  
2,088
    
3,208
    
7,319
    
8,528
  
Loss from discontinued operations, net of
                        
taxes (Note 2)
  
(169
)
  
(1,367
)
  
(551
)
  
(2,000
)
                         
Net earnings
  
1,919
    
1,841
    
6,768
    
6,528
  
Dividends
  
(273
)
  
(1,225
)
  
(2,292
)
  
(5,131
)
Retained earnings at beginning of period
  
43,343
    
38,332
    
40,513
    
37,551
  
Retained earnings at end of period
$
44,989
  
$
38,948
  
$
44,989
  
$
38,948
  
                         

See accompanying notes.

 
(3)
 

General Electric Capital Corporation and consolidated affiliates
Condensed Statement of Financial Position
(In millions)
September 30,
2008
  
December 31,
2007
 
(Unaudited)
    
Assets
            
Cash and equivalents
$
12,200
  
$
8,607
  
Investment securities
  
20,837
    
20,588
  
Inventories
  
73
    
63
  
Financing receivables – net (Notes 5 and 6)
  
419,442
    
378,467
  
Other receivables
  
25,162
    
28,708
  
Property, plant and equipment, less accumulated amortization of $28,891
            
and $24,443
  
65,718
    
63,685
  
Goodwill (Note 7)
  
26,143
    
25,251
  
Other intangible assets – net (Note 7)
  
3,740
    
4,038
  
Other assets
  
80,660
    
82,502
  
Assets of discontinued operations (Note 2)
  
1,220
    
8,823
  
Total assets
$
655,195
  
$
620,732
  
             
Liabilities and equity
            
Short-term borrowings (Note 8)
$
209,835
  
$
186,769
  
Accounts payable
  
14,875
    
14,515
  
Long-term borrowings (Note 8)
  
321,912
    
309,231
  
Investment contracts, insurance liabilities and insurance annuity benefits
  
12,088
    
12,311
  
Other liabilities
  
23,100
    
25,580
  
Deferred income taxes
  
9,910
    
7,983
  
Liabilities of discontinued operations (Note 2)
  
351
    
1,506
  
Total liabilities
  
592,071
    
557,895
  
             
Minority interest in equity of consolidated affiliates
  
2,504
    
1,607
  
             
Capital stock
  
56
    
56
  
Accumulated gains (losses) – net
            
Investment securities
  
(1,133
)
  
(25
)
Currency translation adjustments
  
4,768
    
7,368
  
Cash flow hedges
  
(2,148
)
  
(749
)
Benefit plans
  
(84
)
  
(105
)
Additional paid-in capital
  
14,172
    
14,172
  
Retained earnings
  
44,989
    
40,513
  
Total shareowner’s equity
  
60,620
    
61,230
  
Total liabilities and equity
$
655,195
  
$
620,732
  
             

The sum of accumulated gains (losses) on investment securities, currency translation adjustments, cash flow hedges and benefit plans constitutes “Accumulated nonowner changes other than earnings,” and was $1,403 million and $6,489 million at September 30, 2008, and December 31, 2007, respectively.
 
See accompanying notes.

 

 
(4)
 

General Electric Capital Corporation and consolidated affiliates
Condensed Statement of Cash Flows
(Unaudited)
 
Nine months ended
September 30
  
(In millions)
2008
  
2007
  
             
Cash flows – operating activities
            
Net earnings
$
6,768
  
$
6,528
  
Loss from discontinued operations
  
551
    
2,000
  
Adjustments to reconcile net earnings to cash provided from operating activities
            
Depreciation and amortization of property, plant and equipment
  
6,612
    
5,830
  
Decrease in accounts payable
  
(62
)
  
(536
)
Provision for losses on financing receivables
  
4,437
    
3,200
  
All other operating activities
  
(462
)
  
(2,789
)
Cash from operating activities – continuing operations
  
17,844
    
14,233
  
Cash from operating activities – discontinued operations
  
512
    
4,761
  
Cash from operating activities
  
18,356
    
18,994
  
             
Cash flows – investing activities
            
Additions to property, plant and equipment
  
(9,348
)
  
(10,169
)
Dispositions of property, plant and equipment
  
7,055
    
7,082
  
Increase in loans to customers
  
(290,958
)
  
(251,013
)
Principal collections from customers – loans
  
263,839
    
224,341
  
Investment in equipment for financing leases
  
(18,477
)
  
(19,598
)
Principal collections from customers – financing leases
  
17,850
    
18,492
  
Net change in credit card receivables
  
(2,852
)
  
3,281
  
Payments for principal businesses purchased
  
(24,989
)
  
(7,522
)
Proceeds from sale of discontinued operations
  
5,220
    
–
  
Proceeds from principal business dispositions
  
4,422
    
1,102
  
All other investing activities
  
(969
)
  
(4,014
)
Cash used for investing activities – continuing operations
  
(49,207
)
  
(38,018
)
Cash used for investing activities – discontinued operations
  
(631
)
  
(4,781
)
Cash used for investing activities
  
(49,838
)
  
(42,799
)
             
Cash flows – financing activities
            
Net decrease in borrowings (maturities of 90 days or less)
  
(16,888
)
  
(9,934
)
Newly issued debt
            
Short-term (91 to 365 days)
  
26,982
    
815
  
Long-term (longer than one year)
  
72,175
    
77,914
  
Non-recourse, leveraged lease
  
113
    
24
  
Repayments and other debt reductions
            
Short-term (91 to 365 days)
  
(41,778
)
  
(32,251
)
Long-term (longer than one year)
  
(2,471
)
  
(4,518
)
Non-recourse, leveraged lease
  
(524
)
  
(681
)
Dividends paid to shareowner
  
(2,291
)
  
(4,973
)
All other financing activities
  
(362
)
  
(455
)
Cash from financing activities – continuing operations
  
34,956
    
25,941
  
Cash used for financing activities – discontinued operations
  
(4
)
  
(5
)
Cash from financing activities
  
34,952
    
25,936
  
             
Increase in cash and equivalents
  
3,470
    
2,131
  
Cash and equivalents at beginning of year
  
8,907
    
9,849
  
Cash and equivalents at September 30
  
12,377
    
11,980
  
Less cash and equivalents of discontinued operations at September 30
  
177
    
165
  
Cash and equivalents of continuing operations at September 30
$
12,200
  
$
11,815
  
             

See accompanying notes.
 


 
(5)
 

Notes to Condensed, Consolidated Financial Statements (Unaudited)
 
1.  Summary of Significant Accounting Policies
 
Our financial statements are prepared in conformity with the U.S. generally accepted accounting principles (GAAP). Preparing financial statements in conformity with GAAP requires us to make estimates and assumptions that affect reported amounts and related disclosures. Actual results could differ from those estimates. 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. 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 Form 8-K dated October 8, 2008. See Note 1 to the consolidated financial statements for the year ended December 31, 2007, included in our Form 8-K dated October 8, 2008, which discusses our consolidation and financial statement presentation. We have reclassified certain prior-period amounts to conform to the current-period’s presentation.
 
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. GECC includes Commercial Lending and Leasing (CLL), Real Estate, GE Money, GECAS and Energy Financial Services. Details of total revenues and segment profit by operating segment can be found on page 21 of this report.
 
Unless otherwise indicated, information in these notes to condensed, consolidated financial statements relates to continuing operations.
 
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.
 
Accounting changes
 
On January 1, 2008, we adopted Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) 157, Fair Value Measurements, and SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities, which are more fully discussed in Note 9 to the condensed, consolidated financial statements.
 
2.  Discontinued Operations
 
Discontinued operations is comprised of our Japanese personal loan business (Lake) and our Japanese mortgage and card businesses, excluding our minority ownership in GE Nissen Credit Co., Ltd. (GE Money Japan), 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.
 

 
(6)
 

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 second quarter of 2008, we committed to sell GE Money Japan, resulting in the addition of our Japanese mortgage and card businesses to discontinued operations. Subsequent to the end of the second quarter, we reached an agreement to sell these businesses and completed the sale during the third quarter of 2008. In connection with this agreement, and primarily related to our Japanese mortgage and card businesses, we recorded an incremental $247 million impairment loss in the first nine months of 2008. Under this agreement, the sale proceeds will be increased or reduced to reflect our portion of actual interest refund claims based on terms specified in the agreement. GE Money Japan revenues from discontinued operations were $209 million and $298 million in the third quarters of 2008 and 2007, respectively, and $760 million and $1,017 million in the first nine months of 2008 and 2007, respectively. In total, GE Money Japan losses from discontinued operations, net of taxes, were $160 million and $1,030 million in the third quarters of 2008 and 2007, respectively, and $508 million and $1,077 million in the first nine months of 2008 and 2007, 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 $224 million at September 30, 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 $(7) million and $(431) million in the third quarters of 2008 and 2007, respectively, and $(64) million and $(1,291) million in the first nine months of 2008 and 2007, respectively. In total, WMC’s losses from discontinued operations, net of taxes, were $8 million and $332 million in the third quarters of 2008 and 2007, respectively, and $35 million and $916 million in the first nine months of 2008 and 2007, respectively.
 
Insurance
 
In total, losses from insurance-related discontinued operations, net of taxes, were $1 million and $5 million in the third quarters of 2008 and 2007, respectively, and $8 million and $7 million in the first nine months of 2008 and 2007, respectively.
 

 
(7)
 

Summarized financial information for discontinued operations is shown below.
 
 
Three months ended
September 30
  
Nine months ended
September 30
  
(In millions)
2008
  
2007
  
2008
  
2007
  
                         
Operations
                        
Total revenues
$
202
  
$
(133
)
$
696
  
$
(274
)
                         
Loss from discontinued operations
                        
before income taxes
$
(206
)
$
(615
)
$
(488
)
$
(1,927
)
Income tax benefit
  
51
    
185
    
184
    
863
  
Loss from discontinued operations,
                        
net of taxes
$
(155
)
$
(430
)
$
(304
)
$
(1,064
)
                         

Disposal
                        
Loss on disposal before income taxes
$
(1,278
)
$
(1,516
)
$
(1,502
)
$
(1,527
)
Income tax benefit
  
1,264
    
579
    
1,255
    
591
  
Loss on disposal, net of taxes
$
(14
)
$
(937
)
$
(247
)
$
(936
)
                         
Loss from discontinued operations, net of taxes
$
(169
)
$
(1,367
)
$
(551
)
$
(2,000
)
                         

 
 
At
(In millions)
September 30,
2008
  
December 31,
2007
             
Assets
            
Cash and equivalents
$
177
  
$
300
  
Financing receivables – net
  
–
    
6,675
  
Other
  
1,043
    
1,848
  
Assets of discontinued operations
$
1,220
  
$
8,823
  
             

 
 
At
(In millions)
September 30,
2008
  
December 31,
2007
             
Liabilities
            
Liabilities of discontinued operations
$
351
  
$
1,506
  
             

 

 
(8)
 

3.  Revenues From Services
 
Revenues from services are summarized in the following table.
 
 
Three months ended
September 30
  
Nine months ended
September 30
  
(In millions)
2008
  
2007
  
2008
  
2007
  
                         
Interest on loans
$
7,153
  
$
6,024
  
$
20,258
  
$
17,231
  
Equipment leased to others
  
3,953
    
3,739
    
11,644
    
11,152
  
Fees
  
1,985
    
1,543
    
4,716
    
4,494
  
Investment income
  
373
    
579
    
1,620
    
1,826
  
Financing leases
  
1,099
    
1,139
    
3,438
    
3,449
  
Real estate investments
  
798
    
1,361
    
3,088
    
3,408
  
Associated companies
  
560
    
663
    
1,676
    
1,671
  
Gross securitization gains
  
223
    
367
    
734
    
1,478
  
Other items
  
901
    
1,323
    
4,248
    
3,678
  
Total
$
17,045
  
$
16,738
  
$
51,422
  
$
48,387
  
                         

 
4.  Income Taxes
 
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
(In millions)
September 30,
2008
  
December 31,
2007
             
Unrecognized tax benefits
$
3,216
  
$
2,964
  
Portion that, if recognized, would reduce tax expense and
            
effective tax rate(a)
  
1,489
    
1,540
  
Accrued interest on unrecognized tax benefits
  
698
    
548
  
Accrued penalties on unrecognized tax benefits
  
71
    
55
  
Reasonably possible reduction to the balance of unrecognized
            
tax benefits in succeeding 12 months
  
0-350
    
0-350
  
Portion that, if recognized, would reduce tax expense
  
0-50
    
0-100
  
and effective tax rate(a)
            
             

(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.
 

 
(9)
 

5.  Financing Receivables
 
Financing receivables – net, consisted of the following.
 
 
At
(In millions)
September 30,
2008
  
December 31,
2007
             
Loans, net of deferred income
$
351,178
  
$
308,601
  
Investment in financing leases, net of deferred income
  
72,891
    
74,082
  
   
424,069
    
382,683
  
Less allowance for losses (Note 6)
  
(4,627
)
  
(4,216
)
Financing receivables – net(a)
$
419,442
  
$
378,467
  
             

(a)
Included $7,172 million and $9,708 million related to consolidated, liquidating securitization entities at September 30, 2008, and December 31, 2007, respectively.
  

 
Details of financing receivables – net follow.
 
 
At
(In millions)
September 30,
2008
  
December 31,
2007
               
CLL
              
Equipment and leasing and other
$
108,420
  
$
94,970
    
Commercial and industrial
  
68,370
    
55,219
    
   
176,790
    
150,189
    
               
Real Estate
  
48,090
    
32,228
    
               
GE Money
              
Non-U.S. residential mortgages(a)
  
72,117
    
73,042
    
Non-U.S. installment and revolving credit
  
33,554
    
34,669
    
U.S. installment and revolving credit
  
29,058
    
27,914
    
Non-U.S. auto
  
24,281
    
27,368
    
Other
  
12,009
    
10,198
    
   
171,019
    
173,191
    
               
GECAS(b)
  
15,381
    
14,097
    
               
Energy Financial Services
  
8,597
    
7,867
    
               
Other(c)
  
4,192
    
5,111
    
   
424,069
    
382,683
    
Less allowance for losses
  
(4,627
)
  
(4,216
)
  
Total
$
419,442
  
$
378,467
    
               

(a)
At September 30, 2008, net of credit insurance, approximately 26% 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 the origination date, all of these loans were underwritten to the reset value.
  
(b)
Included loans and financing leases of $13,101 million and $11,685 million at September 30, 2008, and December 31, 2007, respectively, related to commercial aircraft at Aviation Financial Services.
  
(c)
Included loans and financing leases of $4,192 million and $5,106 million at September 30, 2008, and December 31, 2007, respectively, related to certain consolidated, liquidating securitization entities.
  

 
(10)
 

6.  Allowance for Losses on Financing Receivables
 
 (In millions)
Balance
January 1,
2008
  
Provision
charged to
operations
  
Currency
exchange
  
Other(a)
  
Gross
write-offs
  
Recoveries
  
Balance
September 30,
2008
                                           
CLL
                                          
Equipment and
                                          
leasing and other
$
641
  
$
373
  
$
4
  
$
89
  
$
(517
)
$
66
  
$
656
  
Commercial and
                                          
industrial
  
274
    
235
    
(10
)
  
6
    
(164
)
  
12
    
353
  
                                           
Real Estate
  
168
    
47
    
(4
)
  
8
    
(10
)
  
1
    
210
  
                                           
GE Money
                                          
Non-U.S. residential
                                          
mortgages
  
246
    
147
    
(20
)
  
5
    
(135
)
  
52
    
295
  
Non-U.S. installment
                                          
and revolving credit
  
1,371
    
1,259
    
(51
)
  
(6
)
  
(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
    
(19
)
  
(40
)
  
(479
)
  
225
    
271
  
Other
  
162
    
131
    
(3
)
  
31
    
(182
)
  
54
    
193
  
                                           
GECAS
  
8
    
47
    
–
    
–
    
(1
)
  
–
    
54
  
                                           
Energy Financial
                                          
Services
  
19
    
12
    
–
    
2
    
–
    
–
    
33
  
                                           
Other
  
18
    
18
    
–
    
(1
)
  
(15
)
  
–
    
20
  
                                           
Total
$
4,216
  
$
4,437
  
$
(103
)
$
(322
)
$
(4,948
)
$
1,347
  
$
4,627
  
                                           

(a)
Other primarily included the effects of acquisitions and securitization activity.

 
7.  Goodwill and Other Intangible Assets
 
Goodwill and other intangible assets – net, consisted of the following.
 
 
At
(In millions)
September 30,
2008
  
December 31,
2007
             
Goodwill
$
26,143
  
$
25,251
  
Intangible assets subject to amortization
  
3,740
    
4,038
  
Total
$
29,883
  
$
29,289
  
             

 

 
(11)
 

Changes in goodwill balances follow.
 
 
2008
  
 
CLL
  
Real
Estate
  
GE
Money
  
GECAS
  
Energy
Financial
Services
  
Total
  
                                     
Balance January 1
$
11,871
  
$
1,055
  
$
10,273
  
$
162
  
$
1,890
  
$
25,251
  
Acquisitions/purchase accounting
                                    
adjustments
  
849
    
151
    
400
    
2
    
327
    
1,729
  
Dispositions, currency exchange
                                    
and other
  
(132
)
  
(20
)
  
(621
)
  
(5
)
  
(59
)
  
(837
)
Balance September 30
$
12,588
  
$
1,186
  
$
10,052
  
$
159
  
$
2,158
  
$
26,143
  

 
Goodwill balances increased $1,244 million from new acquisitions. The most significant increases related to acquisitions of Merrill Lynch Capital ($608 million at CLL, Energy Financial Services and GECAS), Bank BPH ($399 million at GE Money) and CDM Resource Management, Ltd. ($229 million at Energy Financial Services). During 2008, the goodwill balance increased by $485 million related to purchase accounting adjustments to prior-year acquisitions. The most significant of these adjustments were increases of $176 million and $150 million associated with the 2007 acquisitions of Sanyo Electric Credit Co., Ltd. by CLL and Dundee REIT by Real Estate, respectively. In 2008, goodwill balances decreased $550 million as a result of the stronger U.S. dollar.
 
Intangible Assets Subject to Amortization
 
 
At
 
September 30, 2008
  
December 31, 2007
(In millions)
Gross
carrying
amount
  
Accumulated
amortization
  
Net
  
Gross
carrying
amount
  
Accumulated
amortization
  
Net
                                   
Customer-related
$
2,144
  
$
(718
)
$
1,426
  
$
2,389
  
$
(866
)
$
1,523
Patents, licenses and trademarks
  
779
    
(577
)
  
202
    
427
    
(308
)
  
119
Capitalized software
  
2,109
    
(1,352
)
  
757
    
1,806
    
(1,076
)
  
730
Lease valuations
  
1,771
    
(521
)
  
1,250
    
1,841
    
(360
)
  
1,481
All other
  
260
    
(155
)
  
105
    
330
    
(145
)
  
185
Total
$
7,063
  
$
(3,323
)
$
3,740
  
$
6,793
  
$
(2,755
)
$
4,038

 
Amortization expense related to intangible assets subject to amortization was $273 million and $185 million for the quarters ended September 30, 2008 and 2007, respectively. Amortization expense related to intangible assets subject to amortization for the nine months ended September 30, 2008 and 2007, was $675 million and $543 million, respectively.
 

 
(12)
 

8.  Borrowings
 
Borrowings are summarized in the following table.
 
 
At
(In millions)
September 30,
2008
  
December 31,
2007
             
Short-term borrowings
            
             
Commercial paper
            
U.S.
            
Unsecured
$
56,530
  
$
66,717
  
Asset-backed(a)
  
3,864
    
4,775
  
Non-U.S.
  
25,681
    
28,711
  
Current portion of long-term debt(b)
  
68,151
    
56,301
  
Bank deposits(c)(d)
  
31,781
    
11,486
  
Bank borrowings(e)
  
13,353
    
6,915
  
GE Interest Plus notes(f)
  
8,348
    
9,590
  
Other
  
2,127
    
2,274
  
Total
  
209,835
    
186,769
  
             
Long-term borrowings
            
             
Senior notes
            
Unsecured(g)(h)
  
303,881
    
284,125
  
Asset-backed(i)
  
5,279
    
5,528
  
Extendible notes
  
2,197
    
8,500
  
Subordinated notes(j)(k)
  
10,555
    
11,078
  
Total
  
321,912
    
309,231
  
Total borrowings
$
531,747
  
$
496,000
  
             

(a)
Consists entirely of obligations of consolidated, liquidating securitization entities.
(b)
Included $397 million and $1,106 million of asset-backed senior notes, issued by consolidated, liquidating securitization entities at September 30, 2008, and December 31, 2007, respectively.
(c)
Included $16,305 million and $10,789 million of deposits in non-U.S. banks at September 30, 2008, and December 31, 2007, respectively.
(d)
Included certificates of deposits distributed by brokers of $15,476 million and $697 million at September 30, 2008, and December 31, 2007, respectively.
(e)
Term borrowings from banks with a remaining term to maturity of less than 12 months.
(f)
Entirely variable denomination floating rate demand notes.
(g)
Included $1,684 million of certificates of deposits with maturities greater than one year at September 30, 2008, and no such certificates of deposits at December 31, 2007.
(h)
Included borrowings from GECS affiliates of $996 million and $874 million at September 30, 2008, and December 31, 2007, respectively.
(i)
Included $2,421 million and $3,410 million of asset-backed senior notes, issued by consolidated, liquidating securitization entities at September 30, 2008, and December 31, 2007, respectively.
(j)
Included $450 million of subordinated notes guaranteed by GE at September 30, 2008, and December 31, 2007.
(k)
Included $7,741 million and $8,064 million of subordinated debentures receiving rating agency equity credit at September 30, 2008, and December 31, 2007, respectively.

 

 
(13)
 

9.  Fair Value Measurements
 
Effective January 1, 2008, we adopted SFAS 157, Fair Value Measurements, for all financial instruments and non-financial instruments accounted for at fair value on a recurring basis. SFAS 157 establishes a new framework for measuring fair value and expands related disclosures. Broadly, the SFAS 157 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. SFAS 157 establishes market or observable inputs as the preferred source of values, followed by assumptions based on hypothetical transactions in the absence of market inputs.
 
The valuation techniques required by SFAS 157 are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. 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.
 
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.
 
When quoted market prices are unobservable, we use quotes from independent pricing vendors based on recent trading activity and other relevant information including market interest rate curves, referenced credit spreads and estimated prepayment rates where applicable. 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.
 
As part of our adoption of SFAS 157 in the first quarter of 2008, we conducted a review 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. More specifically, we used a combination of approaches to validate that the process used by the pricing vendor is consistent with the requirements of the standard and that the levels assigned to these valuations are reasonable. While we were not provided access to proprietary models of the vendor, our review included on-site walk-throughs of the pricing process, methodologies and control procedures for each asset class for which prices are provided. Our review also included an examination of the underlying inputs and assumptions for a sample of individual securities, a process we have continued to perform for each reporting period.
 

 
(14)
 

Based on this examination, and the ongoing review performed, we believe that the valuations used in our financial statements are reasonable and are appropriately classified in the fair value hierarchy. As of September 30, 2008, the valuation provided by pricing services was $8,524 million and was classified in Level 2. The valuations provided by pricing services based on significant unobservable inputs was insignificant and those investment securities are classified as Level 3.
 
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. Investment securities priced using non-binding broker quotes and retained interests are included in Level 3. 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. Level 3 investment securities valued using non-binding broker quotes totaled $62 million at September 30, 2008, and were classified as available-for-sale securities.
 
We receive one quote for Level 2 and Level 3 securities where third party quotes are used as our basis for fair value measurement. As is the case with our primary pricing vendor, third party providers of quotes 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 at least quarterly to ensure reasonability 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. We also follow established routines for reviewing and reconfirming valuations with the pricing provider, if deemed appropriate. 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. Based on the information available, we believe that the fair values provided by the brokers are consistent with the principles of SFAS 157.
 
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. Our valuation methodology for private equity investments is applied consistently and 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 remainder of the derivatives portfolio is valued using internal models, most of which are primarily based on 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.
 
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
 

 
(15)
 

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.
 
Effective January 1, 2008, we adopted SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities. Upon adoption, we elected to report $172 million of commercial mortgage loans at fair value in order to have them on the same accounting basis (measured at fair value through earnings) as the derivatives economically hedging these loans.
 
The following table presents our assets and liabilities measured at fair value on a recurring basis at September 30, 2008. Included in the table are investment securities of $9,953 million supporting obligations to holders of guaranteed investment contracts. Such securities are primarily investment grade. In addition, the table includes $5,646 million and $2,659 million of derivative assets and liabilities, respectively, with highly rated counterparties, primarily used for risk management purposes. Also included are retained interests in securitizations totaling $4,709 million.
 
September 30, 2008
(In millions)
  
Level 1
    
Level 2
    
Level 3
    
FIN 39
netting(a)
    
Net
balance
                             
Assets
                            
Investment securities
$
1,277
  
$
10,246
  
$
9,314
  
$
–
  
$
20,837
Derivatives
  
–
    
8,628
    
889
    
(3,871
)
  
5,646
Other(b)
  
–
    
1,121
    
645
    
–
    
1,766
Total
$
1,277
  
$
19,995
  
$
10,848
  
$
(3,871
)
$
28,249
                             
Liabilities
                            
Derivatives
$
7
  
$
6,390
  
$
199
  
$
(3,937
)
$
2,659
Other
  
–
    
611
    
–
    
–
    
611
Total
$
7
  
$
7,001
  
$
199
  
$
(3,937
)
$
3,270
                             

(a)
FASB Interpretation (FIN) 39, Offsetting of Amounts Related to Certain Contracts, permits the netting of derivative receivables and derivative payables when a legally enforceable master netting agreement exists. Includes fair value adjustments related to our own and counterparty credit risk.
(b)
Includes 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 and nine months ended September 30, 2008. The majority of our Level 3 balances consist of investment securities classified as available-for-sale with changes in fair value recorded in equity.
 

 
(16)
 

Changes in Level 3 instruments for the three months ended September 30, 2008
 
(In millions)
July 1, 2008
  
Net
realized/
unrealized
gains
(losses)
included in
earnings(a)
  
Net realized/
unrealized
gains (losses)
included in
accumulated
nonowner
changes
other than
earnings
  
Purchases,
issuances
and
settlements
  
Transfers
in and/or
out of
Level 3(b)
  
September 30, 2008
  
Net
change in
unrealized
gains
(losses)
relating to
instruments
still held
at September 30, 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 “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)
Represents the amount of total gains or losses for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets and liabilities classified as Level 3 that are still held at September 30, 2008.
(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)
Represents derivative assets net of derivative liabilities and includes 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, 2008
 
(In millions)
January 1, 2008
  
Net
realized/
unrealized
gains
(losses)
included in
earnings(a)
  
Net realized/
unrealized
gains (losses)
included in
accumulated
nonowner
changes
other than
earnings
  
Purchases,
issuances
and
settlements
  
Transfers
in and/or
out of
Level 3(b)
  
September 30, 2008
  
Net
change in
unrealized
gains
(losses)
relating to
instruments
still held
at September 30, 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 “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)
Represents the amount of total gains or losses for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets and liabilities classified as Level 3 that are still held at September 30, 2008.
(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)
Represents derivative assets net of derivative liabilities and includes cash accruals of $19 million not reflected in the fair value hierarchy table.

 

 
(17)
 

Certain assets measured at fair value on a non-recurring basis, and therefore not included in the preceding tables, were $257 million identified as Level 2 and $1,913 million identified as Level 3. We recognized $121 million and $379 million of losses related to non-recurring fair value measurements of loans, and $199 million and $275 million of other-than-temporary impairments of cost and equity method investments during the third quarter and first nine months of 2008, respectively.
 
10.  Shareowner’s Equity
 
A summary of increases (decreases) in 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)
2008
  
2007
  
2008
  
2007
  
                         
Net earnings
$
1,919
  
$
1,841
  
$
6,768
  
$
6,528
  
Investment securities – net
  
(367
)
  
(225
)
  
(1,108
)
  
(240
)
Currency translation adjustments – net
  
(3,389
)
  
1,316
    
(2,600
)
  
2,339
  
Cash flow hedges – net
  
(1,513
)
  
(842
)
  
(1,399
)
  
(78
)
Benefit plans – net
  
3
    
2
    
21
    
16
  
Total
$
(3,347
)
$
2,092
  
$
1,682
  
$
8,565
  

 
11.  Off-Balance Sheet Arrangements
 
The following table represents assets in off-balance sheet securitization entities.
 
 
At
(In millions)
September 30,
2008
  
December 31,
2007
             
Receivables secured by
            
Equipment
$
6,169
  
$
6,552
  
Commercial real estate
  
7,183
    
7,721
  
Other assets
  
11,085
    
12,880
  
Credit card receivables
  
21,910
    
22,793
  
Trade receivables
  
154
    
320
  
Total securitized assets(a)(b)
$
46,501
  
$
50,266
  
             

 (a)
At September 30, 2008, and December 31, 2007, liquidity support amounted to $1,134 million and $1,266 million, respectively. Credit support amounted to $1,152 million and $1,214 million at September 30, 2008, and December 31, 2007, respectively.
(b)
Liabilities for recourse obligations related to off-balance sheet assets were $2 million at both September 30, 2008, and December 31, 2007.

 

 
(18)
 

12.  Subsequent Event
 
On October 7, 2008, General Electric Company (“GE”), our ultimate parent, completed an offering of 547,825,000 shares of common stock at a price of $22.25 per share. The underwriters of the offering have an option expiring November 1, 2008 to purchase from GE up to an additional 82,173,750 shares.
 
On October 16, 2008, GE issued 30,000 shares of GE’s 10% cumulative perpetual preferred stock, par value $1.00 per share, having an aggregate liquidation value of $3.0 billion, and warrants to purchase 134,831,460 shares of GE’s common stock, par value $0.06 per share, for an aggregate purchase price of $3.0 billion in cash. The preferred stock is redeemable at GE’s option after three years, in whole or in part, at a price of 110% of liquidation value plus accrued and unpaid dividends. The warrants are exercisable at the holder’s option at any time and from time to time, in whole or in part, for five years at an exercise price of $22.25 per share of common stock and are settled through physical share issuance.
 
 
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 report on Form 10-Q.
 
Unless otherwise indicated, we refer to captions such as revenues and earnings from continuing operations 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 2008 were $17.6 billion, a $0.6 billion (4%) increase over the third quarter of 2007. Revenues for the third quarters of 2008 and 2007 included $1.4 billion and $0.3 billion of revenue from acquisitions, respectively, and in 2008 were reduced by $0.1 billion as a result of dispositions. Revenues for the quarter also decreased $0.4 billion compared with the third quarter of 2007 as a result of organic revenue declines, partially offset by the weaker 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 $2.1 billion, down 35% from $3.2 billion in the third quarter of 2007.
 
Revenues for the first nine months of 2008 were $52.9 billion, a $4.2 billion (9%) increase over the first nine months of 2007. Revenues for the first nine months of 2008 and 2007 included $3.6 billion and $0.5 billion of revenue from acquisitions, respectively, and in 2008 were increased by $0.2 billion as a result of dispositions. Revenues for the first nine months also increased $0.9 billion compared with the first nine months of 2007 as a result of the weaker U.S. dollar, partially offset by organic revenue declines. Earnings were $7.3 billion, down 14% from $8.5 billion in the first nine months of 2007.
 
Overall, acquisitions contributed $1.4 billion and $1.0 billion to total revenues in the third quarters of 2008 and 2007, respectively. Our earnings in the third quarters of 2008 and 2007 included approximately $0.1 billion and an insignificant amount, respectively, from acquired businesses. We integrate acquisitions as quickly as possible. Only
 

 
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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 $0.1 billion and $0.6 billion in the third quarters of 2008 and 2007, respectively. The effect of dispositions on earnings was insignificant in the third quarters of 2008 and 2007.
 
Acquisitions contributed $3.6 billion to total revenues and $0.4 billion to earnings in the first nine months of 2008, compared with $2.4 billion and $0.1 billion, respectively, in the first nine months of 2007. Dispositions also affected our operations through lower revenues of $0.3 billion and $2.0 billion in the first nine months of 2008 and 2007, respectively. The effects of dispositions on earnings was an increase of $0.3 billion during the first nine months of 2008 compared with a decrease of $0.1 billion in the first nine months of 2007.
 
The most significant acquisitions affecting results in 2008 were Merrill Lynch Capital (primarily at CLL); Sanyo Electric Credit Co., Ltd. (Sanyo); CitiCapital; Diskont und Kredit AG and Disko Leasing GmbH (DISKO) and ASL Auto Service-Leasing GmbH (ASL), the leasing businesses of KG Allgemeine Leasing GmbH & Co. at Commercial Lending and Leasing (CLL); Regency Energy Partners LP at Energy Financial Services; and Bank BPH at GE Money.
 
The provision for income taxes was a benefit of $0.4 billion for the third quarter of 2008 (effective tax rate of negative 24.7%), compared with an insignificant benefit for the third quarter of 2007 (effective tax rate of negative 0.5%). The tax rate decreased primarily as a result of lower pre-tax income from jurisdictions (primarily the U.S.) that are taxed at higher than our average rate, partially offset by a higher provision in the third quarter 2008 as compared to the third quarter 2007 to bring our nine-month tax rate in line with the projected full year tax rate, and by the absence of the tax benefit related to the 2007 sale of our investment in SES.
 
The provision for income taxes was a benefit of $0.3 billion for the first nine months of 2008 (effective tax rate of negative 4.1%), compared with an expense of $0.7 billion for the first nine months of 2007 (effective tax rate of 7.9%). The tax rate decreased primarily as a result of lower pre-tax income from jurisdictions (primarily the U.S.) that are taxed at higher than our average rate, increased lower-taxed global operations, and the tax benefit related to the mark-to-market of our Genpact investment, partially offset by the absence of the tax benefit related to the 2007 sale of our investment in SES.
 
Segment Operations
 
Operating segments comprise our five businesses focused on the broad markets they serve: CLL, Real Estate, GE Money, GECAS and Energy Financial Services. 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 GECS. In addition to providing information on GECS segments in their entirety, we have also provided supplemental information for the Capital Solutions business within the CLL segment for greater clarity. Our Chairman does not separately assess the performance of, or allocate resources to, this business.
 
GECC corporate items and eliminations include the effects of eliminating transactions between operating segments; results of our insurance activities remaining in continuing operations; 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
 

 
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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 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 and accounting changes. Segment profit includes interest and other financial charges and income taxes, which we sometimes refer to as “net earnings”.
 
We have reclassified certain prior-period amounts to conform to the current period’s presentation.
 
Summary of Operating Segments
 
 
Three months ended
September 30
(Unaudited)
  
Nine months ended
September 30
(Unaudited)
  
(In millions)
2008
  
2007
  
2008
  
2007
  
Revenues
                        
CLL
$
6,547
  
$
6,862
  
$
20,525
  
$
19,859
  
Real Estate
  
1,679
    
1,937
    
5,526
    
5,109
  
GE Money
  
6,540
    
6,153
    
19,481
    
18,246
  
GECAS
  
1,265
    
1,195
    
3,690
    
3,660
  
Energy Financial Services
  
1,261
    
832
    
3,020
    
1,573
  
Total segment revenues
  
17,292
    
16,979
    
52,242
    
48,447
  
GECC corporate items and eliminations
  
501
    
271
    
1,011
    
1,061
  
Total revenues
  
17,793
    
17,250
    
53,253
    
49,508
  
Less portion of GECS revenues not included in GECC
  
(169
)
  
(235
)
  
(357
)
  
(784
)
Total revenues in GECC
$
17,624
  
$
17,015
  
$
52,896
  
$
48,724
  
                         
Segment profit
                        
CLL
$
394
  
$
905
  
$
2,005
  
$
2,633
  
Real Estate
  
244
    
640
    
1,204
    
1,680
  
GE Money
  
791
    
947
    
2,832
    
3,306
  
GECAS
  
285
    
274
    
955
    
960
  
Energy Financial Services
  
306
    
255
    
606
    
501
  
Total segment profit
  
2,020
    
3,021
    
7,602
    
9,080
  
GECC corporate items and eliminations(a)
  
121
    
269
    
(146
)
  
(120
)
Less portion of GECS segment profit not
                        
included in GECC
  
(53
)
  
(82
)
  
(137
)
  
(432
)
Earnings in GECC from continuing operations
  
2,088
    
3,208
    
7,319
    
8,528
  
Loss in GECC from discontinued operations,
                        
net of taxes
  
(169
)
  
(1,367
)
  
(551
)
  
(2,000
)
Total net earnings in GECC
$
1,919
  
$
1,841
  
$
6,768
  
$
6,528
  
                         

(a)
Included restructuring and other charges of $0.1 billion and $0.2 billion for the first nine months of 2008 and 2007, respectively, primarily related to CLL and GE Money.
  

See accompanying notes to consolidated financial statements.
  

 

 
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CLL
 
 
Three months ended
September 30
  
Nine months ended
September 30
  
(In millions)
2008
  
2007
  
2008