10-Q 1 form10q.htm FORM 10Q form10q.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, 2011
 
OR
 
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ____ to ____
 
Commission file number 001-00035
 
GENERAL ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)

 
New York
 
14-0689340
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
     
3135 Easton Turnpike, Fairfield, CT
 
06828-0001
(Address of principal executive offices)
 
(Zip Code)
 
(Registrant’s telephone number, including area code) (203) 373-2211
 
_______________________________________________
(Former name, former address and former fiscal year,
if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes 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 þ
Accelerated filer ¨
Non-accelerated filer ¨
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
 
There were 10,557,351,000 shares of common stock with a par value of $0.06 per share outstanding at September 30, 2011.

 
(1)

 
 
General Electric Company
 

 
   
Page
Part I - Financial Information
   
     
Item 1. Financial Statements
   
Condensed Statement of Earnings
   
Three months Ended September 30, 2011
 
3
Nine months Ended September 30, 2011
 
4
 
5
 
6
 
7
 
8
 
63
 
90
 
90
     
Part II - Other Information
   
     
Item 1. Legal Proceedings
Item 5. Other Information
 
91
92
93
 
94
 
95
 
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: current economic and financial conditions, including volatility in interest and exchange rates, commodity and equity prices and the value of financial assets; potential market disruptions or other impacts arising in the United States or Europe from developments in the European sovereign debt situation; the impact of conditions in the financial and credit markets on the availability and cost of General Electric Capital Corporation’s (GECC) funding and on our ability to reduce GECC’s asset levels as planned; the impact of conditions in the housing market and unemployment rates on the level of commercial and consumer credit defaults; changes in Japanese consumer behavior that may affect our estimates of liability for excess interest refund claims (Grey Zone); potential financial implications from the Japanese natural disaster; 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 adequacy of our cash flow and earnings and other conditions which may affect our ability to pay our quarterly dividend at the planned level; the level of demand and financial performance of the major industries we serve, including, without limitation, air and rail transportation, energy generation, real estate and healthcare; the impact of regulation and regulatory, investigative and legal proceedings and legal compliance risks, including the impact of financial services regulation; strategic actions, including acquisitions, joint ventures and dispositions and our success in completing announced transactions and integrating acquired businesses; and numerous other matters of national, regional and global scale, including those of a political, economic, business and competitive nature. These uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements.
 
(2)

 

Part I. Financial Information
 
Item 1. Financial Statements.
 
General Electric Company and consolidated affiliates
 
Condensed Statement of Earnings
 
 
Three months ended September 30 (Unaudited)
 
Consolidated
   
GE(a)
 
Financial Services (GECS)
(In millions, except share amounts)
2011 
 
2010 
   
2011 
 
2010 
 
2011 
 
2010 
                                     
Revenues
                                   
Sales of goods
$
 16,859 
 
$
 14,525 
   
$
 16,869 
 
$
 14,485 
 
$
 32 
 
$
 40 
Sales of services
 
 6,279 
   
 9,076 
     
 6,361 
   
 9,108 
   
– 
   
– 
Other income
 
 556 
   
 187 
     
 621 
   
 223 
   
– 
   
– 
GECS earnings from continuing operations
 
– 
   
– 
     
 1,453 
   
 780 
   
– 
   
– 
GECS revenues from services
 
 11,673 
   
 11,585 
     
– 
   
– 
   
 11,986 
   
 11,914 
   Total revenues
 
 35,367 
   
 35,373 
     
 25,304 
   
 24,596 
   
 12,018 
   
 11,954 
                                     
Costs and expenses
                                   
Cost of goods sold
 
 13,003 
   
 10,558 
     
 13,015 
   
 10,518 
   
 30 
   
 39 
Cost of services sold
 
 3,612 
   
 6,069 
     
 3,695 
   
 6,102 
   
– 
   
– 
Interest and other financial charges
 
 3,735 
   
 3,822 
     
 356 
   
 393 
   
 3,560 
   
 3,573 
Investment contracts, insurance losses and
                                   
   insurance annuity benefits
 
 719 
   
 741 
     
– 
   
– 
   
 755 
   
 796 
Provision for losses on financing receivables
 
 1,020 
   
 1,637 
     
– 
   
– 
   
 1,020 
   
 1,637 
Other costs and expenses
 
 9,579 
   
 8,963 
     
 4,634 
   
 3,632 
   
 5,105 
   
 5,497 
   Total costs and expenses
 
 31,668 
   
 31,790 
     
 21,700 
   
 20,645 
   
 10,470 
   
 11,542 
                                     
Earnings from continuing operations
                                   
   before income taxes
 
 3,699 
   
 3,583 
     
 3,604 
   
 3,951 
   
 1,548 
   
 412 
Benefit (provision) for income taxes
 
 (435)
   
 (319)
     
 (378)
   
 (705)
   
 (57)
   
 386 
Earnings from continuing operations
 
 3,264 
   
 3,264 
     
 3,226 
   
 3,246 
   
 1,491 
   
 798 
Earnings (loss) from discontinued operations,
                                   
   net of taxes
 
 1 
   
 (1,052)
     
 1 
   
 (1,052)
   
 2 
   
 (1,052)
Net earnings (loss)
 
 3,265 
   
 2,212 
     
 3,227 
   
 2,194 
   
 1,493 
   
 (254)
Less net earnings (loss) attributable to
                                   
   noncontrolling interests
 
 41 
   
 157 
     
 3 
   
 139 
   
 38 
   
 18 
Net earnings (loss) attributable to the Company
 
 3,224 
   
 2,055 
     
 3,224 
   
 2,055 
   
 1,455 
   
 (272)
Preferred stock dividends declared
 
 (881)
   
 (75)
     
 (881)
   
 (75)
   
– 
   
– 
Net earnings (loss) attributable to GE common
                                   
   shareowners
$
 2,343 
 
$
 1,980 
   
$
 2,343 
 
$
 1,980 
 
$
 1,455 
 
$
 (272)
                                     
                                     
Amounts attributable to the Company
                                   
   Earnings from continuing operations
$
 3,223 
 
$
 3,107 
   
$
 3,223 
 
$
 3,107 
 
$
 1,453 
 
$
 780 
   Earnings (loss) from discontinued operations,
                                   
      net of taxes
 
 1 
   
 (1,052)
     
 1 
   
 (1,052)
   
 2 
   
 (1,052)
   Net earnings (loss) attributable to the Company
$
 3,224 
 
$
 2,055 
   
$
 3,224 
 
$
 2,055 
 
$
 1,455 
 
$
 (272)
                                     
Per-share amounts
                                   
   Earnings from continuing operations
                                   
      Diluted earnings per share
$
 0.22 
 
$
 0.28 
                         
      Basic earnings per share
$
 0.22 
 
$
 0.28 
                         
                                     
   Net earnings
                                   
      Diluted earnings per share
$
 0.22 
 
$
 0.18 
                         
      Basic earnings per share
$
 0.22 
 
$
 0.18 
                         
                                     
Dividends declared per common share
$
 0.15 
 
$
 0.12 
                         
                                     
                                     
(a)
Represents the adding together of all affiliated companies except General Electric Capital Services, Inc. (GECS or financial services), which is presented on a one-line basis.
 
 
 
See Note 3 for other-than-temporary impairment amounts.
 
 
See accompanying notes. Separate information is shown for "GE" and "Financial Services (GECS)." Transactions between GE and GECS have been eliminated from the "Consolidated" columns.
 

 
(3)

 

General Electric Company and consolidated affiliates
 
Condensed Statement of Earnings
 
 
Nine months ended September 30 (Unaudited)
 
Consolidated
   
GE(a)
 
Financial Services (GECS)
(In millions, except share amounts)
2011 
 
2010 
   
2011 
 
2010 
 
2011 
 
2010 
                                     
Revenues
                                   
Sales of goods
$
 47,571 
 
$
 43,195 
   
$
 47,539 
 
$
 42,710 
 
$
 116 
 
$
 489 
Sales of services
 
 20,466 
   
 28,583 
     
 20,754 
   
 28,795 
   
– 
   
– 
Other income
 
 4,805 
   
 815 
     
 4,962 
   
 903 
   
– 
   
– 
GECS earnings from continuing operations
 
– 
   
– 
     
 4,814 
   
 2,016 
   
– 
   
– 
GECS revenues from services
 
 36,485 
   
 35,775 
     
– 
   
– 
   
 37,386 
   
 36,730 
   Total revenues
 
 109,327 
   
 108,368 
     
 78,069 
   
 74,424 
   
 37,502 
   
 37,219 
                                     
Costs and expenses
                                   
Cost of goods sold
 
 37,914 
   
 32,258 
     
 37,890 
   
 31,803 
   
 108 
   
 458 
Cost of services sold
 
 12,901 
   
 19,076 
     
 13,189 
   
 19,288 
   
– 
   
– 
Interest and other financial charges
 
 11,309 
   
 11,689 
     
 1,032 
   
 1,166 
   
 10,750 
   
 10,916 
Investment contracts, insurance losses and
                                   
   insurance annuity benefits
 
 2,201 
   
 2,210 
     
– 
   
– 
   
 2,314 
   
 2,353 
Provision for losses on financing receivables
 
 2,988 
   
 5,824 
     
– 
   
– 
   
 2,988 
   
 5,824 
Other costs and expenses
 
 26,392 
   
 26,766 
     
 11,254 
   
 10,758 
   
 15,610 
   
 16,516 
   Total costs and expenses
 
 93,705 
   
 97,823 
     
 63,365 
   
 63,015 
   
 31,770 
   
 36,067 
                                     
Earnings (loss) from continuing operations
                                   
   before income taxes
 
 15,622 
   
 10,545 
     
 14,704 
   
 11,409 
   
 5,732 
   
 1,152 
Benefit (provision) for income taxes
 
 (5,266)
   
 (1,624)
     
 (4,437)
   
 (2,479)
   
 (829)
   
 855 
Earnings from continuing operations
 
 10,356 
   
 8,921 
     
 10,267 
   
 8,930 
   
 4,903 
   
 2,007 
Earnings (loss) from discontinued operations,
                                   
   net of taxes
 
 274 
   
 (1,506)
     
 274 
   
 (1,506)
   
 276 
   
 (1,502)
Net earnings (loss)
 
 10,630 
   
 7,415 
     
 10,541 
   
 7,424 
   
 5,179 
   
 505 
Less net earnings (loss) attributable to
                                   
   noncontrolling interests
 
 209 
   
 306 
     
 120 
   
 315 
   
 89 
   
 (9)
Net earnings (loss) attributable to the Company
 
 10,421 
   
 7,109 
     
 10,421 
   
 7,109 
   
 5,090 
   
 514 
Preferred stock dividends declared
 
 (1,031)
   
 (225)
     
 (1,031)
   
 (225)
   
– 
   
– 
Net earnings (loss) attributable to GE common
                                   
   shareowners
$
 9,390 
 
$
 6,884 
   
$
 9,390 
 
$
 6,884 
 
$
 5,090 
 
$
 514 
                                     
                                     
Amounts attributable to the Company
                                   
   Earnings from continuing operations
$
 10,147 
 
$
 8,615 
   
$
 10,147 
 
$
 8,615 
 
$
 4,814 
 
$
 2,016 
   Earnings (loss) from discontinued operations,
                                   
      net of taxes
 
 274 
   
 (1,506)
     
 274 
   
 (1,506)
   
 276 
   
 (1,502)
   Net earnings (loss) attributable to the Company
$
 10,421 
 
$
 7,109 
   
$
 10,421 
 
$
 7,109 
 
$
 5,090 
 
$
 514 
                                     
Per-share amounts
                                   
   Earnings from continuing operations
                                   
      Diluted earnings per share
$
 0.86 
 
$
 0.78 
                         
      Basic earnings per share
$
 0.86 
 
$
 0.78 
                         
                                     
   Net earnings
                                   
      Diluted earnings per share
$
 0.88 
 
$
 0.64 
                         
      Basic earnings per share
$
 0.88 
 
$
 0.64 
                         
                                     
Dividends declared per common share
$
 0.44 
 
$
 0.32 
                         
                                     
                                     

(a)
Represents the adding together of all affiliated companies except General Electric Capital Services, Inc. (GECS or financial services), which is presented on a one-line basis.
 
See Note 3 for other-than-temporary impairment amounts.
 
See accompanying notes. Separate information is shown for “GE” and “Financial Services (GECS).” Transactions between GE and GECS have been eliminated from the “Consolidated” columns.
 

 
(4)

 

General Electric Company and consolidated affiliates
Condensed Statement of Financial Position
 
Consolidated
   
GE(a)
 
Financial Services (GECS)
 
September 30,
 
December 31,
   
September 30,
 
December 31,
 
September 30,
 
December 31,
(In millions, except share amounts)
2011 
 
2010 
   
2011 
 
2010 
 
2011 
 
2010 
 
(Unaudited)
          
(Unaudited)
     
(Unaudited)
   
Assets
                                   
Cash and equivalents
$
 91,368 
 
$
 78,943 
   
$
 8,692 
 
$
 19,241 
 
$
 83,278 
 
$
 60,257 
Investment securities
 
 46,458 
   
 43,938 
     
 18 
   
 19 
   
 46,442 
   
 43,921 
Current receivables
 
 18,689 
   
 18,621 
     
 11,893 
   
 10,383 
   
– 
   
– 
Inventories
 
 15,021 
   
 11,526 
     
 14,977 
   
 11,460 
   
 44 
   
 66 
Financing receivables – net
 
 285,844 
   
 303,012 
     
– 
   
– 
   
 293,737 
   
 312,234 
Other GECS receivables
 
 8,492 
   
 8,956 
     
– 
   
– 
   
 13,689 
   
 14,304 
Property, plant and equipment – net
 
 66,094 
   
 66,212 
     
 13,728 
   
 12,444 
   
 52,328 
   
 53,768 
Investment in GECS
 
– 
   
– 
     
 75,959 
   
 68,984 
   
– 
   
– 
Goodwill
 
 73,291 
   
 64,388 
     
 45,565 
   
 36,880 
   
 27,726 
   
 27,508 
Other intangible assets – net
 
 12,433 
   
 9,971 
     
 10,723 
   
 8,088 
   
 1,710 
   
 1,883 
All other assets
 
 115,271 
   
 96,342 
     
 36,589 
   
 17,454 
   
 79,542 
   
 79,240 
Assets of businesses held for sale
 
 3,173 
   
 36,887 
     
 123 
   
 33,760 
   
 3,050 
   
 3,127 
Assets of discontinued operations
 
 1,566 
   
 12,425 
     
 50 
   
 50 
   
 1,516 
   
 12,375 
Total assets(b)
$
 737,700 
 
$
 751,221 
   
$
 218,317 
 
$
 218,763 
 
$
 603,062 
 
$
 608,683 
                                     
Liabilities and equity
                                   
Short-term borrowings
$
 127,327 
 
$
 117,959 
   
$
 1,179 
 
$
 456 
 
$
 126,866 
 
$
 118,797 
Accounts payable, principally trade accounts
 
 16,150 
   
 14,656 
     
 13,204 
   
 11,620 
   
 7,995 
   
 7,035 
Progress collections and price adjustments accrued
 
 11,114 
   
 11,142 
     
 11,903 
   
 11,841 
   
– 
   
– 
Other GE current liabilities
 
 19,997 
   
 12,959 
     
 19,997 
   
 12,959 
   
– 
   
– 
Non-recourse borrowings of consolidated
                                   
   securitization entities
 
 29,022 
   
 30,018 
     
– 
   
– 
   
 29,022 
   
 30,018 
Bank deposits
 
 41,515 
   
 37,298 
     
– 
   
– 
   
 41,515 
   
 37,298 
Long-term borrowings
 
 268,270 
   
 293,323 
     
 9,485 
   
 9,656 
   
 259,404 
   
 284,407 
Investment contracts, insurance liabilities
                                         
   and insurance annuity benefits
 
 29,925 
   
 29,582 
     
– 
   
– 
   
 30,405 
   
 29,993 
All other liabilities
 
 62,057 
   
 58,699 
     
 39,241 
   
 37,815 
   
 22,881 
   
 20,982 
Deferred income taxes
 
 1,980 
   
 2,753 
     
 (2,460)
   
 (4,237)
   
 4,440 
   
 6,990 
Liabilities of businesses held for sale
 
 1,855 
   
 16,047 
     
 42 
   
 15,455 
   
 1,813 
   
 592 
Liabilities of discontinued operations
 
 1,715 
   
 2,587 
     
 158 
   
 164 
   
 1,557 
   
 2,423 
Total liabilities(b)
 
 610,927 
   
 627,023 
     
 92,749 
   
 95,729 
   
 525,898 
   
 538,535 
                                     
Preferred stock (30,000 shares outstanding at
                                   
   both September 30, 2011 and December 31, 2010)
 
– 
   
– 
     
– 
   
– 
   
– 
   
– 
Common stock (10,557,351,000 and 10,615,376,000
                                   
   shares outstanding at September 30, 2011 and
                                   
   December 31, 2010, respectively)
 
 702 
   
 702 
     
 702 
   
 702 
   
 1 
   
 1 
Accumulated other comprehensive income – net(c)
                                   
   Investment securities
 
 (182)
   
 (636)
     
 (182)
   
 (636)
   
 (188)
   
 (639)
   Currency translation adjustments
 
 2,390 
   
 (86)
     
 2,390 
   
 (86)
   
 303 
   
 (1,411)
   Cash flow hedges
 
 (1,619)
   
 (1,280)
     
 (1,619)
   
 (1,280)
   
 (1,588)
   
 (1,281)
   Benefit plans
 
 (14,253)
   
 (15,853)
     
 (14,253)
   
 (15,853)
   
 (353)
   
 (380)
Other capital
 
 33,830 
   
 36,890 
     
 33,830 
   
 36,890 
   
 27,626 
   
 27,626 
Retained earnings
 
 135,857 
   
 131,137 
     
 135,857 
   
 131,137 
   
 50,158 
   
 45,068 
Less common stock held in treasury
 
 (32,264)
   
 (31,938)
     
 (32,264)
   
 (31,938)
   
– 
   
– 
                                     
Total GE shareowners’ equity
 
 124,461 
   
 118,936 
     
 124,461 
   
 118,936 
   
 75,959 
   
 68,984 
Noncontrolling interests(d)
 
 2,312 
   
 5,262 
     
 1,107 
   
 4,098 
   
 1,205 
   
 1,164 
Total equity
 
 126,773 
   
 124,198 
     
 125,568 
   
 123,034 
   
 77,164 
   
 70,148 
                                     
Total liabilities and equity
$
 737,700 
 
$
 751,221 
   
$
 218,317 
 
$
 218,763 
 
$
 603,062 
 
$
 608,683 
                                     
                                     
(a)
Represents the adding together of all affiliated companies except General Electric Capital Services, Inc. (GECS or financial services), which is presented on a one-line basis.
 
(b)
Our consolidated assets at September 30, 2011 include total assets of $45,038 million of certain variable interest entities (VIEs) that can only be used to settle the liabilities of those VIEs. These assets include net financing receivables of $36,170 million and investment securities of $5,638 million. Our consolidated liabilities at September 30, 2011 include liabilities of certain VIEs for which the VIE creditors do not have recourse to GE. These liabilities include non-recourse borrowings of consolidated securitization entities (CSEs) of $28,522 million. See Note 18.
 
(c)
The sum of accumulated other comprehensive income - net was $(13,664) million and $(17,855) million at September 30, 2011 and December 31, 2010, respectively.
 
(d)
Included accumulated other comprehensive income - net attributable to noncontrolling interests of $(175) million and $(153) million at September 30, 2011 and December 31, 2010, respectively.
 
See accompanying notes. Separate information is shown for "GE" and "Financial Services (GECS)." Transactions between GE and GECS have been eliminated from the "Consolidated" columns.
 

 
(5)

 

General Electric Company and consolidated affiliates
Condensed Statement of Cash Flows
 
Nine months ended September 30 (Unaudited)
 
Consolidated
   
GE(a)
 
Financial Services (GECS)
(In millions)
2011 
 
2010 
   
2011 
 
2010 
 
2011 
 
2010 
                                     
Cash flows – operating activities
                                   
Net earnings
$
 10,630 
 
$
 7,415 
   
$
 10,541 
 
$
 7,424 
 
$
 5,179 
 
$
 505 
Less net earnings (loss) attributable to noncontrolling interests
 
 209 
   
 306 
     
 120 
   
 315 
   
 89 
   
 (9)
Net earnings attributable to the Company
 
 10,421 
   
 7,109 
     
 10,421 
   
 7,109 
   
 5,090 
   
 514 
(Earnings) loss from discontinued operations
 
 (274)
   
 1,506 
     
 (274)
   
 1,506 
   
 (276)
   
 1,502 
Adjustments to reconcile net earnings attributable to the
                                   
   Company to cash provided from operating activities
                                   
      Depreciation and amortization of property,
                                   
         plant and equipment
 
 6,944 
   
 7,449 
     
 1,539 
   
 1,668 
   
 5,405 
   
 5,781 
      Earnings from continuing operations retained by GECS
 
– 
   
– 
     
 (4,814)
   
 (2,016)
   
– 
   
– 
      Deferred income taxes
 
 (2,213)
   
 (1,825)
     
 (61)
   
 (198)
   
 (2,152)
   
 (1,627)
      Decrease (increase) in GE current receivables
 
 340 
   
 689 
     
 (449)
   
 307 
   
– 
   
– 
      Decrease (increase) in inventories
 
 (2,408)
   
 (118)
     
 (2,384)
   
 (82)
   
 22 
   
 9 
      Increase (decrease) in accounts payable
 
 1,314 
   
 1,092 
     
 1,459 
   
 639 
   
 1,103 
   
 664 
      Increase (decrease) in GE progress collections
 
 (679)
   
 (1,291)
     
 (588)
   
 (1,366)
   
– 
   
– 
      Provision for losses on GECS financing receivables
 
 2,988 
   
 5,824 
     
– 
   
– 
   
 2,988 
   
 5,824 
      All other operating activities
 
 6,956 
   
 5,190 
     
 1,695 
   
 2,575 
   
 4,460 
   
 2,818 
Cash from (used for) operating activities – continuing
                                   
   operations
 
 23,389 
   
 25,625 
     
 6,544 
   
 10,142 
   
 16,640 
   
 15,485 
Cash from (used for) operating activities – discontinued
                                   
   operations
 
 834 
   
 850 
     
– 
   
– 
   
 834 
   
 850 
Cash from (used for) operating activities
 
 24,223 
   
 26,475 
     
 6,544 
   
 10,142 
   
 17,474 
   
 16,335 
                                     
Cash flows – investing activities
                                   
Additions to property, plant and equipment
 
 (9,051)
   
 (4,390)
     
 (2,067)
   
 (1,484)
   
 (7,149)
   
 (3,113)
Dispositions of property, plant and equipment
 
 4,637 
   
 3,097 
     
– 
   
– 
   
 4,637 
   
 3,097 
Net decrease (increase) in GECS financing receivables
 
 17,668 
   
 22,888 
     
– 
   
– 
   
 18,530 
   
 23,633 
Proceeds from sale of discontinued operations
 
 8,951 
   
– 
     
– 
   
– 
   
 8,951 
   
– 
Proceeds from principal business dispositions
 
 8,265 
   
 2,787 
     
 6,148 
   
 1,712 
   
 2,117 
   
 905 
Payments for principal businesses purchased
 
 (10,839)
   
 (576)
     
 (10,789)
   
 (15)
   
 (50)
   
 (561)
Capital contribution from GE to GECS
 
– 
   
– 
     
– 
   
– 
   
– 
   
– 
All other investing activities
 
 3,588 
   
 10,970 
     
 (233)
   
 (270)
   
 4,226 
   
 11,084 
Cash from (used for) investing activities – continuing
                                   
   operations
 
 23,219 
   
 34,776 
     
 (6,941)
   
 (57)
   
 31,262 
   
 35,045 
Cash from (used for) investing activities – discontinued
                                   
   operations
 
 (802)
   
 (234)
     
– 
   
– 
   
 (802)
   
 (234)
Cash from (used for) investing activities
 
 22,417 
   
 34,542 
     
 (6,941)
   
 (57)
   
 30,460 
   
 34,811 
                                     
Cash flows – financing activities
                                   
Net increase (decrease) in borrowings (maturities of
                                   
   90 days or less)
 
 (770)
   
 (1,986)
     
 393 
   
 (1,288)
   
 (1,893)
   
 (823)
Net increase (decrease) in bank deposits
 
 3,746 
   
 3,982 
     
– 
   
– 
   
 3,746 
   
 3,982 
Newly issued debt (maturities longer than 90 days)
 
 34,074 
   
 31,349 
     
 146 
   
 4,133 
   
 33,808 
   
 27,000 
Repayments and other reductions (maturities longer
                                   
   than 90 days)
 
 (60,191)
   
 (77,802)
     
 57 
   
 (2,251)
   
 (60,248)
   
 (75,551)
Net dispositions (purchases) of GE shares for treasury
 
 (1,581)
   
 (438)
     
 (1,581)
   
 (438)
   
– 
   
– 
Dividends paid to shareowners
 
 (4,796)
   
 (3,434)
     
 (4,796)
   
 (3,434)
   
– 
   
– 
Purchase of subsidiary shares from
                                   
   noncontrolling interest
 
 (4,298)
   
 (2,000)
     
 (4,298)
   
 (2,000)
   
– 
   
– 
All other financing activities
 
 (1,428)
   
 (2,678)
     
 (92)
   
 (274)
   
 (1,336)
   
 (2,404)
Cash from (used for) financing activities – continuing
                                   
   operations
 
 (35,244)
   
 (53,007)
     
 (10,171)
   
 (5,552)
   
 (25,923)
   
 (47,796)
Cash from (used for) financing activities – discontinued
                                   
   operations
 
 (42)
   
 (719)
     
– 
   
– 
   
 (42)
   
 (719)
Cash from (used for) financing activities
 
 (35,286)
   
 (53,726)
     
 (10,171)
   
 (5,552)
   
 (25,965)
   
 (48,515)
Effect of currency exchange rate changes on cash
                                   
   and equivalents
 
 1,061 
   
 (1,225)
     
 19 
   
 (188)
   
 1,042 
   
 (1,037)
Increase (decrease) in cash and equivalents
 
 12,415 
   
 6,066 
     
 (10,549)
   
 4,345 
   
 23,011 
   
 1,594 
Cash and equivalents at beginning of year
 
 79,084 
   
 72,444 
     
 19,241 
   
 8,654 
   
 60,398 
   
 64,540 
Cash and equivalents at September 30
 
 91,499 
   
 78,510 
     
 8,692 
   
 12,999 
   
 83,409 
   
 66,134 
Less cash and equivalents of discontinued operations
                                   
   at September 30
 
 131 
   
 1,865 
     
– 
   
– 
   
 131 
   
 1,865 
Cash and equivalents of continuing operations
                                   
   at September 30
$
 91,368 
 
$
 76,645 
   
$
 8,692 
 
$
 12,999 
 
$
 83,278 
 
$
 64,269 
                                     
                                     
(a)
Represents the adding together of all affiliated companies except General Electric Capital Services, Inc. (GECS or financial services), which is presented on a one-line basis.
 
See accompanying notes. Separate information is shown for "GE" and "Financial Services (GECS)." Transactions between GE and GECS have been eliminated from the "Consolidated" columns and are discussed in Note 19.
 

 
(6)

 

Summary of Operating Segments
General Electric Company and consolidated affiliates
 
 
Three months ended September 30
 
Nine months ended September 30
 
(Unaudited)
 
(Unaudited)
(In millions)
2011 
 
2010 
 
2011 
 
2010 
                       
Revenues
                     
   Energy Infrastructure
$
 10,855 
 
$
 8,359 
 
$
 30,706 
 
$
 26,554 
   Aviation(a)
 
 4,835 
   
 4,391 
   
 13,935 
   
 12,815 
   Healthcare(a)
 
 4,332 
   
 3,958 
   
 12,920 
   
 11,793 
   Transportation(a)
 
 1,287 
   
 869 
   
 3,421 
   
 2,344 
   Home & Business Solutions
 
 2,094 
   
 2,125 
   
 6,236 
   
 6,315 
   GE Capital
 
 11,148 
   
 11,101 
   
 34,985 
   
 34,676 
      Total segment revenues
 
 34,551 
   
 30,803 
   
 102,203 
   
 94,497 
Corporate items and eliminations(a)
 
 816 
   
 4,570 
   
 7,124 
   
 13,871 
Consolidated revenues
$
 35,367 
 
$
 35,373 
 
$
 109,327 
 
$
 108,368 
                       
Segment profit(a)
                     
   Energy Infrastructure
$
 1,503 
 
$
 1,656 
 
$
 4,436 
 
$
 5,047 
   Aviation(a)
 
 862 
   
 805 
   
 2,662 
   
 2,483 
   Healthcare(a)
 
 608 
   
 581 
   
 1,850 
   
 1,739 
   Transportation(a)
 
 196 
   
 101 
   
 531 
   
 242 
   Home & Business Solutions
 
 38 
   
 104 
   
 218 
   
 318 
   GE Capital
 
 1,467 
   
 818 
   
 4,927 
   
 2,131 
      Total segment profit
 
 4,674 
   
 4,065 
   
 14,624 
   
 11,960 
Corporate items and eliminations(a)
 
 (717)
   
 140 
   
 992 
   
 300 
GE interest and other financial charges
 
 (356)
   
 (393)
   
 (1,032)
   
 (1,166)
GE provision for income taxes
 
 (378)
   
 (705)
   
 (4,437)
   
 (2,479)
Earnings from continuing operations attributable
                     
  to the Company
 
 3,223 
   
 3,107 
   
 10,147 
   
 8,615 
Earnings (loss) from discontinued operations,
                     
  net of taxes, attributable to the Company
 
 1 
   
 (1,052)
   
 274 
   
 (1,506)
Consolidated net earnings attributable to
                     
   the Company
$
 3,224 
 
$
 2,055 
 
$
 10,421 
 
$
 7,109 
                       
                       
(a)
Effective January 1, 2011, we reorganized our segments. We have reclassified prior-period amounts to conform to the current-period presentation. See Note 1 for a description of the reorganization. Segment profit excludes results reported as discontinued operations, earnings attributable to noncontrolling interests of consolidated subsidiaries and accounting changes. Segment profit excludes or includes interest and other financial charges and income taxes according to how a particular segment’s management is measured – excluded in determining segment profit, which we sometimes refer to as “operating profit,” for Energy Infrastructure, Aviation, Healthcare, Transportation and Home & Business Solutions; included in determining segment profit, which we sometimes refer to as “net earnings,” for GE Capital. Results of our formerly consolidated subsidiary, NBC Universal, are reported in the Corporate items and eliminations line. See Note 2. Prior to January 1, 2011, segment profit excluded the effects of principal pension plans. Beginning January 1, 2011, we allocate service costs related to our principal pension plans and we no longer allocate the retiree costs of our postretirement healthcare benefits to our segments. This revised allocation methodology better aligns segment operating costs to the active employee costs, which are managed by the segments.
 
See accompanying notes.

 
(7)

 


 
Notes to Condensed, Consolidated Financial Statements (Unaudited)
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
The accompanying condensed, consolidated financial statements represent the consolidation of General Electric Company and all companies that we directly or indirectly control, either through majority ownership or otherwise. See Note 1 to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2010 (2010 consolidated financial statements), which discusses our consolidation and financial statement presentation. As used in this report on Form 10-Q (Report) and in our 2010 consolidated financial statements, “GE” represents the adding together of all affiliated companies except General Electric Capital Services, Inc. (GECS or financial services), which is presented on a one-line basis; GECS consists of General Electric Capital Services, Inc. and all of its affiliates; and “Consolidated” represents the adding together of GE and GECS with the effects of transactions between the two eliminated.

Effective January 1, 2011, we reorganized the Technology Infrastructure segment into three segments – Aviation, Healthcare and Transportation. The prior-period results of the Aviation, Healthcare and Transportation businesses are unaffected by this reorganization. Also, beginning January 1, 2011, we allocate service costs related to our principal pension plans and we no longer allocate the retiree costs of our postretirement healthcare benefits to our segments. This revised allocation methodology better aligns segment operating costs to active employee costs that are managed by the segments. This change did not significantly affect our reported segment results.

On January 28, 2011, we sold the assets of our NBC Universal (NBCU) business in exchange for cash and a 49% interest in a new entity, NBCUniversal LLC (see Note 2). Results of our formerly consolidated subsidiary, NBCU, and our current equity method investment in NBCUniversal LLC are reported in the Corporate items and eliminations line on the Summary of Operating Segments.

We have reclassified certain prior-period amounts to conform to the current-period presentation. Unless otherwise indicated, information in these notes to the condensed, consolidated financial statements relates to continuing operations.

Accounting Changes
 
On January 1, 2011, we adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2009-13 and ASU 2009-14, amendments to Accounting Standards Codification (ASC) 605, Revenue Recognition and ASC 985, Software, respectively, (ASU 2009-13 &14). ASU 2009-13 requires the allocation of consideration to separate components of an arrangement based on the relative selling price of each component. ASU 2009-14 requires certain software-enabled products to be accounted for under the general accounting standards for multiple component arrangements. These amendments are effective for new revenue arrangements entered into or materially modified on or subsequent to January 1, 2011.

Although the adoption of these amendments eliminated the allocation of consideration using residual values, which was applied primarily in our Healthcare segment, the overall impact of adoption was insignificant to our financial statements. In addition, there are no significant changes to the number of components or the pattern and timing of revenue recognition following adoption.

Our accounting policy for sales of goods and services is included below and has been updated for the additional disclosure requirements of these amendments.

 
(8)

 
On July 1, 2011, we adopted FASB ASU 2011-02, an amendment to ASC 310, Receivables.  ASU 2011-02 provides guidance for determining whether a restructuring of a debt constitutes a troubled debt restructuring (TDR). ASU 2011-02 requires that a restructuring be classified as a TDR when it is both a concession and the debtor is experiencing financial difficulties. The amendment also clarifies the guidance on a creditor’s evaluation of whether it has granted a concession. The amendment applies to restructurings that have occurred subsequent to January 1, 2011.  As a result of adopting these amendments on July 1, 2011, we have classified an additional $271 million of financing receivables as TDRs and have recorded an increase of $77 million to our allowance for losses on financing receivables.  See Note 17.

See Note 1 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2010 for a summary of the remainder of our significant accounting policies.

Sales of Goods and Services
 
We record all sales of goods and services only when a firm sales agreement is in place, delivery has occurred or services have been rendered and collectibility of the fixed or determinable sales price is reasonably assured.

Arrangements for the sale of goods and services sometimes include multiple components. Most of our multiple component arrangements involve the sale of goods and services in the Healthcare segment. Our arrangements with multiple components usually involve an upfront deliverable of large machinery or equipment and future service deliverables such as installation, commissioning, training or the future delivery of ancillary products. In most cases, the relative values of the undelivered components are not significant to the overall arrangement and are typically delivered within three to six months after the core product has been delivered. In such agreements, selling price is determined for each component and any difference between the total of the separate selling prices and total contract consideration (i.e. discount) is allocated pro rata across each of the components in the arrangement. The value assigned to each component is objectively determined and obtained primarily from sources such as the separate selling price for that or a similar item or from competitor prices for similar items. If such evidence is not available, we use our best estimate of selling price, which is established consistent with the pricing strategy of the business and considers product configuration, geography, customer type, and other market specific factors.

Except for goods sold under long-term agreements, we recognize sales of goods under the provisions of U.S. Securities and Exchange Commission (SEC) Staff Accounting Bulletin (SAB) 104, Revenue Recognition. We often sell consumer products and computer hardware and software products with a right of return. We use our accumulated experience to estimate and provide for such returns when we record the sale. In situations where arrangements include customer acceptance provisions based on seller or customer-specified objective criteria, we recognize revenue when we have reliably demonstrated that all specified acceptance criteria have been met or when formal acceptance occurs, respectively. In arrangements where we provide goods for trial and evaluation purposes, we only recognize revenue after customer acceptance occurs. Unless otherwise noted, we do not provide for anticipated losses before we record sales.

We recognize revenue on agreements for sales of goods and services under power generation unit and uprate contracts; nuclear fuel assemblies; larger oil drilling equipment projects; aeroderivative unit contracts; military development contracts; and long-term construction projects, using long-term construction and production contract accounting. We estimate total long-term contract revenue net of price concessions as well as total contract costs. For goods sold under power generation unit and uprate contracts, nuclear fuel assemblies, aeroderivative unit contracts and military development contracts, we recognize sales as we complete major contract-specified deliverables, most often when customers receive title to the goods or accept the services as performed. For larger oil drilling equipment projects and long-term construction projects, we recognize sales based on our progress towards contract completion measured by actual costs incurred in relation to our estimate of total expected costs. We measure long-term contract revenues by applying our contract-specific estimated margin rates to incurred costs. We routinely update our estimates of future costs for agreements in process and report any cumulative effects of such adjustments in current operations. We provide for any loss that we expect to incur on these agreements when that loss is probable.

 
(9)

 
We recognize revenue upon delivery for sales of aircraft engines, military propulsion equipment and related spare parts not sold under long-term product services agreements. Delivery of commercial engines, non-U.S. military equipment and all related spare parts occurs on shipment; delivery of military propulsion equipment sold to the U.S. Government or agencies thereof occurs upon receipt of a Material Inspection and Receiving Report, DD Form 250 or Memorandum of Shipment. Commercial aircraft engines are complex aerospace equipment manufactured to customer order under a variety of sometimes complex, long-term agreements. We measure sales of commercial aircraft engines by applying our contract-specific estimated margin rates to incurred costs. We routinely update our estimates of future revenues and costs for commercial aircraft engine agreements in process and report any cumulative effects of such adjustments in current operations. Significant components of our revenue and cost estimates include price concessions, performance-related guarantees as well as material, labor and overhead costs. We measure revenue for military propulsion equipment and spare parts not subject to long-term product services agreements based on the specific contract on a specifically measured output basis. We provide for any loss that we expect to incur on these agreements when that loss is probable; consistent with industry practice, for commercial aircraft engines, we make such provision only if such losses are not recoverable from future highly probable sales of spare parts for those engines.

We sell product services under long-term product maintenance or extended warranty agreements in our Aviation, Transportation and Energy Infrastructure segments, where costs of performing services are incurred on other than a straight-line basis. We also sell product services in our Healthcare segment, where such costs generally are expected to be on a straight-line basis. For the Aviation, Energy and Transportation agreements, we recognize related sales based on the extent of our progress towards completion measured by actual costs incurred in relation to total expected costs. We routinely update our estimates of future costs for agreements in process and report any cumulative effects of such adjustments in current operations. For the Healthcare agreements, we recognize revenues on a straight-line basis and expense related costs as incurred. We provide for any loss that we expect to incur on any of these agreements when that loss is probable.

NBC Universal, which we deconsolidated on January 28, 2011, records broadcast and cable television and Internet advertising sales when advertisements are aired, net of provision for any viewer shortfalls (make goods). Sales from theatrical distribution of films are recorded as the films are exhibited; sales of home videos, net of a return provision, when the videos are delivered to and available for sale by retailers; fees from cable/satellite operators when services are provided; and licensing of film and television programming when the material is available for airing.

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. 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 2010 consolidated financial statements. 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.

 
(10)

 

2. ASSETS AND LIABILITIES OF BUSINESSES HELD FOR SALE AND DISCONTINUED OPERATIONS
 
Assets and Liabilities of Businesses Held for Sale
 
NBC Universal
 
In December 2009, we entered into an agreement with Comcast Corporation (Comcast) to transfer the assets of the NBCU business to a newly formed entity, comprising our NBCU business and Comcast’s cable networks, regional sports networks, certain digital properties and certain unconsolidated investments, in exchange for cash and a 49% interest in the newly-formed entity.

On March 19, 2010, NBCU entered into a three-year credit agreement and a 364-day bridge loan agreement. On April 30, 2010, NBCU issued $4,000 million of senior, unsecured notes with maturities ranging from 2015 to 2040 (interest rates ranging from 3.65% to 6.40%). On October 4, 2010, NBCU issued $5,100 million of senior, unsecured notes with maturities ranging from 2014 to 2041 (interest rates ranging from 2.10% to 5.95%). Subsequent to these issuances, the credit agreement and bridge loan agreements were terminated, with a $750 million revolving credit agreement remaining in effect. Proceeds from these issuances were used to repay $1,678 million of existing debt and pay a dividend of $7,394 million to GE.

On September 26, 2010, we acquired approximately 38% of Vivendi S.A.’s (Vivendi) 20% interest in NBCU (7.7% of NBCU’s outstanding shares) for $2,000 million. In January 2011 and prior to the transaction with Comcast, we acquired the remaining Vivendi interest in NBCU (12.3% of NBCU’s outstanding shares) for $3,673 million and made an additional payment of $222 million related to the previously purchased shares.

On January 28, 2011, we transferred the assets of the NBCU business and Comcast transferred certain of its assets to a newly formed entity, NBCUniversal LLC (NBCU LLC). In connection with the transaction, we received $6,176 million in cash from Comcast (which included $49 million of transaction-related cost reimbursements) and a 49% interest in NBCU LLC. Comcast holds the remaining 51% interest in NBCU LLC.

With respect to our 49% interest in NBCU LLC, we hold redemption rights, which, if exercised, would require NBCU LLC or Comcast to purchase (either directly or indirectly by GE transferring common stock of our holding company that owns 49% of NBCU LLC) half of our ownership interest after three and a half years and the remaining half after seven years, subject to certain exceptions, conditions and limitations. Our interest in NBCU LLC also is subject to call provisions, which, if exercised, allow Comcast to purchase our interest (either directly or indirectly) at specified times subject to certain exceptions. The redemption prices for such transactions are determined based on a contractually specified formula.

In connection with the transaction, we also entered into a number of agreements with Comcast governing the operation of the venture and transitional services, employee, tax and other matters. Under the operating agreement, excess cash generated by the operations of NBCU LLC will be used to reduce borrowings, except for distributions in amounts necessary to pay taxes on NBCU LLC’s profits. In addition, Comcast is obligated to share with us potential tax savings associated with Comcast’s purchase of its NBCU LLC member interest, if realized. We have not recognized these potential future payments as consideration for the sale, but will record such payments in income as they are received.

As part of the transfer, we provided guarantees and indemnifications related to certain pre-existing contractual arrangements entered into by NBCU. We have provided guarantees, on behalf of NBCU LLC, for the acquisition of sports programming in the amount of $3,258 million, triggered only in the event NBCU LLC fails to meet its payment commitments. We also have agreed to indemnify Comcast against any loss (after giving consideration to underlying collateral) related to pre-existing debt plus accrued interest owed by a joint venture of NBCU LLC and have recorded a liability of $446 million for this guarantee.

 
(11)

 
Following the transaction, we deconsolidated NBCU and we account for our investment in NBCU LLC under the equity method.  We recognized a pre-tax gain on the sale of $3,557 million ($400 million after tax).  In the third quarter of 2011, we recorded an adjustment to the pre-tax gain of $157 million ($131 million after tax) related to the finalization of the estimated fair value of our initial equity investment. In connection with the sale, we recorded income tax expense of $3,181 million, reflecting the low tax basis in our investment in the NBCU business and the recognition of deferred tax liabilities related to our 49% investment in NBCU LLC. As our investment in NBCU LLC is structured as a partnership for U.S. tax purposes, U.S. taxes are recorded separately from the equity investment.

At September 30, 2011, the carrying amount of our equity investment in NBCU LLC was $17,674 million, reported in the “All other assets” caption in our Condensed Statement of Financial Position. Deferred tax liabilities related to our NBCU LLC investment were $4,933 million at September 30, 2011 and were reported in the “Deferred income taxes” caption in our Condensed Statement of Financial Position.

We valued the initial carrying value of our investment in NBCU LLC based on a combination of income and market approaches. An income approach was used to determine the fair values of NBCU LLC’s underlying businesses and, when available and appropriate, an analysis of comparative market multiples was also undertaken. The resulting fair values were weighted equally between the two approaches. For purposes of the income approach, fair value was determined based on the present values of estimated future cash flows discounted at appropriate risk-adjusted rates. We used NBCU LLC management projections to estimate future cash flows and included an estimate of long-term future growth rates based on management’s most recent views of the long-term outlook for its businesses. We believe that these assumptions are consistent with market participant assumptions. We derived discount rates using a weighted average cost of capital. The cost of equity was determined using the capital asset pricing model and the cost of debt financing was based on published rates for industries relevant to NBCU LLC. Under the market approach, the most significant assumption was the price multiple, which was selected based on the operating performance and financial condition of comparable publicly traded companies in industries similar to those of the NBCU LLC businesses. As NBCU LLC is a partnership, the fair value of our investment in NBCU LLC was determined based upon the amount a market participant would pay for the partnership interest taking into consideration the tax benefit associated with such a purchase. The value of our investment also incorporates the fair value of the redemption features described above, which was determined based on an option pricing framework that incorporates the specific contractual terms of the redemption features.

At December 31, 2010, we classified the NBCU assets and liabilities of $33,758 million and $15,455 million, respectively, as held for sale. The major classes of assets at December 31, 2010 were current receivables ($2,572 million), property, plant and equipment – net ($2,082 million), goodwill and other intangible assets – net ($22,263 million) and all other assets ($6,841 million), including film and television production costs of $4,423 million. The major classes of liabilities at December 31, 2010 were accounts payable ($492 million), other GE current liabilities ($3,983 million), long-term debt ($9,906 million) and all other liabilities ($1,073 million).

Other
 
In the third quarter of 2011, we committed to sell our GE Capital Commercial Lending and Leasing (CLL) marine container leasing business, which consists of our controlling interests in the GE SeaCo joint venture along with other owned marine container assets, and our CLL trailer fleet services business in Mexico.

In the second quarter of 2011, we committed to sell our GE Capital Consumer business banking operations in Latvia.

In 2010, we committed to sell our GE Capital Consumer businesses in Argentina, Brazil, and Canada, a CLL business in South Korea, and our Interpark business in Real Estate. The GE Capital Consumer Canada disposition was completed during the first quarter of 2011. The GE Capital Consumer Brazil and our Interpark business in Real Estate dispositions were completed during the second quarter of 2011 for proceeds of $22 million and $704 million, respectively.  The GE Capital Consumer Argentina disposition was completed during the third quarter of 2011 for proceeds of $41 million.

Summarized financial information for businesses held for sale is shown below.
 
 
(12)

 

 
At
 
September 30,
 
December 31,
(In millions)
2011
 
2010
   
           
     
Assets
 
           
     
Cash and equivalents
$
218 
 
$
63 
Current receivables
 
– 
   
2,572 
Financing receivables – net
 
483 
   
1,917 
Property, plant and equipment – net
 
2,054 
   
2,185 
Goodwill
 
135 
   
19,606 
Other intangible assets – net
 
37 
   
2,844 
All other assets
 
153 
   
7,560 
Other
 
93 
   
140 
Assets of businesses held for sale
$
3,173 
 
$
36,887 
         
           
Liabilities
         
Short-term borrowings
$
474 
 
$
146 
Accounts payable
 
82 
   
538 
Other GE current liabilities
 
– 
   
3,994 
Long-term borrowings
 
1,144 
   
10,134 
All other liabilities
 
155 
   
1,235 
Liabilities of businesses held for sale
$
1,855 
 
$
16,047 


Discontinued Operations
 
Discontinued operations primarily comprised BAC Credomatic GECF Inc. (BAC) (our Central American bank and card business), 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), our U.S. recreational vehicle and marine equipment financing business (Consumer RV Marine), Consumer Mexico, Consumer Singapore and our Consumer home lending operations in Australia and New Zealand (Australian Home Lending). Associated results of operations, financial position and cash flows are separately reported as discontinued operations for all periods presented.

 
(13)

 
Summarized financial information for discontinued operations is shown below.
 
 
Three months ended September 30
 
Nine months ended September 30
(In millions)
 
2011
   
2010 
   
2011
   
2010 
                       
Operations
                     
Total revenues
$
12 
 
$
515 
 
$
336 
 
$
1,565 
                       
Earnings (loss) from discontinued operations
                     
   before income taxes
$
(8)
 
$
45 
 
$
– 
 
$
163 
Benefit (provision) for income taxes
 
21 
   
   
51 
   
(3)
Earnings (loss) from discontinued operations,
                     
   net of taxes
$
13 
 
$
48 
 
$
51 
 
$
160 
                       
Disposal
                     
Gain (loss) on disposal before income taxes
$
(45)
 
$
(1,100)
 
$
(86)
 
$
(1,666)
Benefit (provision) for income taxes
 
33 
   
– 
   
309 
   
– 
Gain (loss) on disposal, net of taxes
$
(12)
 
$
(1,100)
 
$
223 
 
$
(1,666)
                       
Earnings (loss) from discontinued operations,
                     
   net of taxes(a)
$
 
$
(1,052)
 
$
274 
 
$
(1,506)
                       
                       
(a)
The sum of GE industrial earnings (loss) from discontinued operations, net of taxes, and GECS earnings (loss) from discontinued operations, net of taxes, is reported as GE industrial earnings (loss) from discontinued operations, net of taxes, on the Condensed Statement of Earnings.
 


 
At
 
September 30,
 
December 31,
(In millions)
2011 
 
2010 
           
Assets
         
Cash and equivalents
$
131 
 
$
142 
Financing receivables – net
 
98 
   
10,589 
All other assets
 
   
168 
Other
 
1,336 
   
1,526 
Assets of discontinued operations
$
1,566 
 
$
12,425 
           
Liabilities
         
Accounts payable, principally trade accounts
$
 
$
110 
Deferred income taxes
 
204 
   
230 
All other liabilities
 
1,502 
   
2,205 
Other
 
   
42 
Liabilities of discontinued operations
$
1,715 
 
$
2,587 


Assets at September 30, 2011 and December 31, 2010, primarily comprised cash, financing receivables and a deferred tax asset for a loss carryforward, which expires principally in 2015 and in part in 2017, related to the sale of our GE Money Japan business.

BAC Credomatic GECF Inc. (BAC)
 
During the fourth quarter of 2010, we classified BAC as discontinued operations and completed the sale of BAC for $1,920 million. Immediately prior to the sale, and in accordance with terms of a previous agreement, we increased our ownership interest in BAC from 75% to 100% for a purchase price of $633 million. As a result of the sale of our interest in BAC, we recognized an after-tax gain of $780 million in 2010.

BAC revenues from discontinued operations were $264 million and $772 million in the three and nine months ended September 30, 2010, respectively. In total, BAC earnings from discontinued operations, net of taxes, were $19 million and $56 million in the three and nine months ended September 30, 2010, respectively.

 
(14)

 
GE Money Japan
 
During the third quarter of 2007, we committed to a plan to sell our Japanese personal loan business, 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. In connection with the sale, we reduced the proceeds from the sale for estimated interest refund claims in excess of the statutory interest rate. Proceeds from the sale were to be increased or decreased based on the actual claims experienced in accordance with loss-sharing terms specified in the sale agreement, with all claims in excess of 258 billion Japanese Yen (approximately $3,000 million) remaining our responsibility. The underlying portfolio to which this obligation relates is in runoff and interest rates were capped for all designated accounts by mid-2009. In the third quarter of 2010, we began making reimbursements under this arrangement.

Our overall claims experience developed unfavorably through 2010. We believe that the level of excess interest refund claims has been impacted by the challenging global economic conditions, in addition to Japanese legislative and regulatory changes. In September 2010, a large independent personal loan company in Japan filed for bankruptcy, which precipitated a significant amount of publicity surrounding excess interest refund claims in the Japanese marketplace, along with substantial legal advertising. We observed an increase in claims during September 2010 and higher average daily claims in the fourth quarter of 2010 and the first two months of 2011. Since February and through August 2011, we have experienced substantial declines in the rate of incoming claims, though claims severity has been higher than expected and we experienced an increase in claims in September 2011. As of September 30, 2011, our reserve for reimbursement of claims in excess of the statutory interest rate was $739 million.

The amount of these reserves is based on analyses of recent and historical claims experience, pending and estimated future excess interest refund requests, the estimated percentage of customers who present valid requests, and our estimated payments related to those requests. Our estimated liability for excess interest refund claims at September 30, 2011 assumes the pace of incoming claims will continue to decelerate, although at a lower pace than recently experienced, average exposure per claim remains consistent with historical experience, and we continue to see the impact of our loss mitigation efforts. Estimating the pace of decline in incoming claims can have a significant effect on the total amount of our liability. Holding all other assumptions constant, if claims declined at a rate of one percent higher or lower than our assumed long-term average, our liability estimate would change by approximately $250 million.

Uncertainties around the impact of laws and regulations, challenging economic conditions, the runoff status of the underlying book of business, the financial status of other personal lending companies in Japan and the effects of our mitigation efforts make it difficult to develop a meaningful estimate of the aggregate possible claims exposure. Recent trends, including the effect of governmental actions, market activity regarding other personal loan companies, higher claims severity and consumer activity, may continue to have an adverse effect on claims development.

GE Money Japan earnings (loss) from discontinued operations, net of taxes, were $2 million and $(1,101) million in the three months ended September 30, 2011 and 2010, respectively, and $2 million and $(1,673) million in the nine months ended September 30, 2011 and 2010, respectively.

WMC
 
During the fourth quarter of 2007, we completed the sale of WMC, our U.S. mortgage business. WMC substantially discontinued all new loan originations by the second quarter of 2007, and is not a loan servicer. In connection with the sale, 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. All claims received for early payment default have either been resolved or are no longer being pursued.

 
(15)

 
Pending claims for unmet representations and warranties were $783 million at December 31, 2009, $347 million at December 31, 2010 and $568 million at September 30, 2011. Reserves related to these contractual representations and warranties were $122 million and $101 million at September 30, 2011 and December 31, 2010, respectively.  We recorded an adjustment to our reserve of $21 million in the third quarter of 2011 to reflect the higher amount of pending claims and an increase in our reserve for unidentified claims.  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. A ten percent adverse change in these key assumptions would result in an increase to our reserves of approximately $35 million. Based on our historical experience, we estimate that a small percentage of the total loans WMC 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.  Uncertainties surrounding economic conditions, the ability and propensity of mortgage holders to present valid claims and governmental actions make it difficult to develop a meaningful estimate of aggregate possible claim exposure.  Actual losses could exceed the reserve amount if actual claim rates, investigative or litigation activity, valid tenders or losses WMC incurs on repurchased loans are higher than we have historically observed with respect to WMC.

WMC revenues (loss) from discontinued operations were $(21) million and $(1) million in the three months ended September 30, 2011 and 2010, respectively, and $(21) million and $(4) million in the nine months ended September 30, 2011 and 2010, respectively. In total, WMC’s earnings (loss) from discontinued operations, net of taxes, were $(15) million and $(2) million in the three months ended September 30, 2011 and 2010, respectively, and $(18) million and $(5) million in the nine months ended September 30, 2011 and 2010, respectively.

Other Financial Services
 
In the second quarter of 2011, we entered into an agreement to sell our Australian Home Lending operations and classified it as discontinued operations.  As a result, we recognized an after-tax loss of $148 million in 2011.  We completed the sale in the third quarter of 2011 for proceeds of approximately $4,577 million.  Australian Home Lending revenues from discontinued operations were $33 million and $118 million in the three months ended September 30, 2011 and 2010, respectively, and $248 million and $386 million in the nine months ended September 30, 2011 and 2010, respectively. Australian Home Lending earnings (loss) from discontinued operations, net of taxes, were $15 million and $14 million in the three months ended September 30, 2011 and 2010, respectively, and $(65) million and $51 million in the nine months ended September 30, 2011 and 2010, respectively.

In the first quarter of 2011, we entered into an agreement to sell our Consumer Singapore business for $692 million. The sale was completed in the second quarter of 2011 and resulted in the recognition of a gain on disposal, net of taxes, of $319 million. Consumer Singapore revenues from discontinued operations were $(1) million and $27 million in the three months ended September 30, 2011 and 2010, respectively, and $30 million and $79 million in the nine months ended September 30, 2011 and 2010, respectively. Consumer Singapore earnings from discontinued operations, net of taxes, were $7 million and $11 million in the three months ended September 30, 2011 and 2010, respectively, and $333 million and $27 million in the nine months ended September 30, 2011 and 2010, respectively.

In the fourth quarter of 2010, we entered into agreements to sell our Consumer RV Marine portfolio and Consumer Mexico business. The Consumer RV Marine and Consumer Mexico dispositions were completed during the first quarter and the second quarter of 2011, respectively, for proceeds of $2,365 million and $1,943 million, respectively. Consumer RV Marine revenues from discontinued operations were $0 million and $52 million in the three months ended September 30, 2011 and 2010, respectively, and $11 million and $160 million in the nine months ended September 30, 2011 and 2010, respectively. Consumer RV Marine earnings (loss) from discontinued operations, net of taxes, were $(1) million and $(8) million in the three months ended September 30, 2011 and 2010, respectively, and $1 million and $(9) million in the nine months ended September 30, 2011 and 2010, respectively. Consumer Mexico revenues from discontinued operations were $1 million and $55 million in the three months ended September 30, 2011 and 2010, respectively, and $68 million and $172 million in the nine months ended September 30, 2011 and 2010, respectively. Consumer Mexico earnings from discontinued operations, net of taxes, were $1 million and $18 million in the three months ended September 30, 2011 and 2010, respectively, and $34 million and $53 million in the nine months ended September 30, 2011 and 2010, respectively.

 
(16)

 
GE Industrial
 
GE industrial earnings (loss) from discontinued operations, net of taxes, were $(1) million and $0 million in the three months ended September 30, 2011 and 2010, respectively, and $(2) million and $(4) million in the nine months ended September 30, 2011 and 2010, respectively. The sum of GE industrial earnings (loss) from discontinued operations, net of taxes, and GECS earnings (loss) from discontinued operations, net of taxes, is reported as GE industrial earnings (loss) from discontinued operations, net of taxes, on the Condensed Statement of Earnings.

Assets of GE industrial discontinued operations were $50 million at both September 30, 2011 and December 31, 2010. Liabilities of GE industrial discontinued operations were $158 million and $164 million at September 30, 2011, and December 31, 2010, respectively, and primarily represent taxes payable and pension liabilities related to the sale of our Plastics business in 2007.


3. INVESTMENT SECURITIES
 
Substantially all of our investment securities are classified as available-for-sale. These comprise mainly investment grade debt securities supporting obligations to annuitants, policyholders and holders of guaranteed investment contracts (GICs) in our run-off insurance operations and Trinity, and investment securities at our treasury operations. We do not have any securities classified as held to maturity.
 
 
At
 
September 30, 2011
 
December 31, 2010
     
Gross
 
Gross
         
Gross
 
Gross
   
 
Amortized
 
unrealized
 
unrealized
 
Estimated
 
Amortized
 
unrealized
 
unrealized
 
Estimated
(In millions)
cost
 
gains
 
losses
 
fair value
 
cost
 
gains
 
losses
 
fair value
                                               
GE
                                             
   Debt – U.S. corporate
$
 
$
– 
 
$
– 
 
$
 
$
 
$
– 
 
$
– 
 
$
   Equity – available-for-sale
 
17 
   
– 
   
– 
   
17 
   
18 
   
– 
   
– 
   
18 
   
18 
   
– 
   
– 
   
18 
   
19 
   
– 
   
– 
   
19 
GECS
                                             
   Debt
                                             
      U.S. corporate
 
21,633 
   
3,076 
   
(276)
   
24,433 
   
21,233 
   
1,576 
   
(237)
   
22,572 
      State and municipal
 
2,970 
   
317 
   
(144)
   
3,143 
   
2,961 
   
45 
   
(282)
   
2,724 
      Residential mortgage-
                                             
         backed(a)
 
2,794 
   
191 
   
(303)
   
2,682 
   
3,092 
   
95 
   
(378)
   
2,809 
      Commercial mortgage-backed
 
2,887 
   
137 
   
(269)
   
2,755 
   
3,009 
   
145 
   
(230)
   
2,924 
      Asset-backed
 
4,060 
   
10 
   
(216)
   
3,854 
   
3,407 
   
16 
   
(193)
   
3,230 
      Corporate – non-U.S.
 
2,703 
   
135 
   
(142)
   
2,696 
   
2,883 
   
116 
   
(132)
   
2,867 
      Government – non-U.S.
 
2,282 
   
116 
   
(133)
   
2,265 
   
2,242 
   
82 
   
(58)
   
2,266 
      U.S. government and federal
                                             
         agency
 
3,220 
   
91 
   
– 
   
3,311 
   
3,358 
   
57 
   
(47)
   
3,368 
   Retained interests
 
29 
   
14 
   
(6)
   
37 
   
55 
   
10 
   
(26)
   
39 
   Equity
                                             
      Available-for-sale
 
828 
   
134 
   
(83)
   
879 
   
500 
   
213 
   
(8)
   
705 
      Trading
 
387 
   
– 
   
– 
   
387 
   
417 
   
– 
   
– 
   
417 
   
43,793 
   
4,221 
   
(1,572)
   
46,442 
   
43,157 
   
2,355 
   
(1,591)
   
43,921 
Eliminations
 
(2)
   
– 
   
– 
   
(2)
   
(2)
   
– 
   
– 
   
(2)
Total
$
43,809 
 
$
4,221 
 
$
(1,572)
 
$
46,458 
 
$
43,174 
 
$
2,355 
 
$
(1,591)
 
$
43,938 
                                               
                                               
(a)
Substantially collateralized by U.S. mortgages. Of our total residential mortgage-backed securities (RMBS) portfolio at September 30, 2011, $1,696 million relates to securities issued by government sponsored entities and $986 million relates to securities of private label issuers. Securities issued by private label issuers are collateralized primarily by pools of individual direct mortgage loans of individual financial institutions.
 
 
(17)

 
 
The fair value of investment securities increased to $46,458 million at September 30, 2011, from $43,938 million at December 31, 2010, primarily due to the impact of lower interest rates and purchases in our financial services businesses.

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
(a)
fair value
 
losses
(a)
                         
September 30, 2011
                       
Debt
                       
   U.S. corporate
$
1,387 
 
$
(104)
 
$
961 
 
$
(172)
 
   State and municipal
 
62 
   
(29)
   
321 
   
(115)
 
   Residential mortgage-backed
 
179 
   
(6)
   
970 
   
(297)
 
   Commercial mortgage-backed
 
366 
   
(36)
   
1,382 
   
(233)
 
   Asset-backed
 
2,836 
   
(48)
   
856 
   
(168)
 
   Corporate – non-U.S.
 
284 
   
(8)
   
773 
   
(134)
 
   Government – non-U.S.
 
597 
   
(25)
   
161 
   
(108)
 
   U.S. government and federal agency
 
– 
   
– 
   
   
– 
 
Retained interests
 
– 
   
– 
   
   
(6)
 
Equity
 
187 
   
(83)
   
– 
   
– 
 
Total
$
5,898 
 
$
(339)
 
$
5,429 
 
$
(1,233)
 
                         
December 31, 2010
                       
Debt
                       
   U.S. corporate
$
2,375 
 
$
(81)
 
$
1,519 
 
$
(156)
 
   State and municipal
 
949 
   
(43)
   
570 
   
(239)
 
   Residential mortgage-backed
 
188 
   
(4)
   
1,024 
   
(374)
 
   Commercial mortgage-backed
 
831 
   
(104)
   
817 
   
(126)
 
   Asset-backed
 
113 
   
(5)
   
910 
   
(188)
 
   Corporate – non-U.S.
 
448 
   
(12)
   
804 
   
(120)
 
   Government – non-U.S.
 
661 
   
(6)
   
107 
   
(52)
 
   U.S. government and federal agency
 
1,822 
   
(47)
   
– 
   
– 
 
Retained interests
 
– 
   
– 
   
34 
   
(26)
 
Equity
 
49 
   
(8)
   
– 
   
– 
 
Total
$
7,436 
 
$
(310)
 
$
5,785 
 
$
(1,281)
 
                         
                         
(a)
At September 30, 2011, other-than-temporary impairments previously recognized through other comprehensive income (OCI) on securities still held amounted to $(500) million, of which $(385) million related to RMBS. Gross unrealized losses related to those securities at September 30, 2011 amounted to $(617) million, of which $(497) million related to RMBS.
 


We regularly review investment securities for impairment using both qualitative and quantitative criteria. We presently do not intend to sell the vast majority of 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 methodologies and significant inputs used to measure the amount of credit loss for our investment securities during the three and nine months ended September 30, 2011 have not changed from those described in our 2010 consolidated financial statements. See Note 3 in our 2010 consolidated financial statements for additional information regarding these methodologies and inputs.
 
 
 
(18)

 
During the third quarter of 2011, we recorded other-than-temporary impairments of $86 million, of which $68 million was recorded through earnings ($6 million relates to equity securities) and $18 million was recorded in accumulated other comprehensive income (AOCI). At July 1, 2011, cumulative impairments recognized in earnings associated with debt securities still held were $561 million. During the third quarter, we recognized first time impairments of $37 million and incremental charges on previously impaired securities of $23 million. These amounts included $1 million related to securities that were subsequently sold.

During the third quarter of 2010, we recorded other-than-temporary impairments of $38 million, of which $31 million was recorded through earnings ($23 million relates to equity securities) and $7 million was recorded in AOCI. At July 1, 2010, cumulative impairments recognized in earnings associated with debt securities still held were $428 million. During the third quarter of 2010, we recognized first time impairments of $2 million and incremental charges on previously impaired securities of $1 million. These amounts included $1 million related to securities that were subsequently sold.

During the nine months ended September 30, 2011, we recorded other-than-temporary impairments of $270 million, of which $186 million was recorded through earnings ($16 million relates to equity securities) and $84 million was recorded in AOCI. At January 1, 2011, cumulative impairments recognized in earnings associated with debt securities still held were $500 million. During the nine months ended September 30, 2011, we recognized first time impairments of $57 million and incremental charges on previously impaired securities of $104 million. These amounts included $42 million related to securities that were subsequently sold.

During the nine months ended September 30, 2010, we recorded other-than-temporary impairments of $297 million, of which $166 million was recorded through earnings ($24 million relates to equity securities) and $131 million was recorded in AOCI. At January 1, 2010, cumulative impairments recognized in earnings associated with debt securities still held were $340 million. During the nine months ended September 30, 2010, we recognized first time impairments of $94 million and incremental charges on previously impaired securities of $37 million. These amounts included $40 million related to securities that were subsequently sold.

Contractual Maturities of GECS Investment in Available-for-Sale Debt Securities (Excluding Mortgage-
Backed and Asset-Backed Securities)
 
Amortized
 
Estimated
(In millions)
cost
 
fair value
           
Due in
         
   2011
$
 2,865 
 
$
 2,887 
   2012-2015
 
 7,327 
   
 7,537 
   2016-2020
 
 4,759 
   
 4,972 
   2021 and later
 
 17,843 
   
 20,439 
           


We expect actual maturities to differ from contractual maturities because borrowers have the right to call or prepay certain obligations.

 
(19)

 
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)
2011 
 
2010 
 
2011 
 
2010 
                       
GE
                     
Gains
$
– 
 
$
– 
 
$
– 
 
$
– 
Losses, including impairments
 
– 
   
– 
   
– 
   
– 
Net
 
– 
   
– 
   
– 
   
– 
                       
GECS
                     
Gains
 
 28 
   
 34 
   
 189 
   
 160 
Losses, including impairments
 
 (70)
   
 (46)
   
 (197)
   
 (191)
Net
 
 (42)
   
 (12)
   
 (8)
   
 (31)
Total
$
 (42)
 
$
 (12)
 
$
 (8)
 
$
 (31)


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. In some of our bank subsidiaries, we maintain a certain level of purchases and sales volume principally of non-U.S. government debt securities. In these situations, fair value approximates carrying value for these securities.

Proceeds from investment securities sales and early redemptions by the issuer totaled $3,466 million and $4,754 million in the three months ended September 30, 2011 and 2010, respectively, and $13,438 million and $12,070 million in the nine months ended September 30, 2011 and 2010, respectively, principally from the sales of short-term securities in our bank subsidiaries and treasury operations.

We recognized net pre-tax gains (losses) on trading securities of $(29) million and $33 million in the three months ended September 30, 2011 and 2010, respectively, and $26 million and $52 million in the nine months ended September 30, 2011 and 2010, respectively.


4. INVENTORIES
 
Inventories consisted of the following.
 
 
At
 
September 30,
 
December 31,
(In millions)
2011 
 
2010 
           
Raw materials and work in process
$
9,200 
 
$
6,973 
Finished goods
 
5,571 
   
4,501 
Unbilled shipments
 
644 
   
456 
   
15,415 
   
11,930 
Less revaluation to LIFO
 
(394)
   
(404)
Total
$
15,021 
 
$
11,526 

 
(20)

 

5. GECS FINANCING RECEIVABLES AND ALLOWANCE FOR LOSSES ON FINANCING RECEIVABLES
 
GECS financing receivables – net, consisted of the following.
 
 
At
 
September 30,
 
December 31,
(In millions)
2011
 
2010 
           
Loans, net of deferred income(a)
$
260,552 
 
$
275,877 
Investment in financing leases, net of deferred income
 
39,854 
   
44,390 
   
300,406 
   
320,267 
Less allowance for losses
 
(6,669)
   
(8,033)
Financing receivables – net(b)
$
293,737 
 
$
312,234 
           
           
(a)  
Deferred income was $2,313 million and $2,351 million at September 30, 2011 and December 31, 2010, respectively.
 
(b)  
Financing receivables at September 30, 2011 and December 31, 2010 included $1,221 million and $1,503 million, respectively, relating to loans that had been acquired in a transfer but have been subject to credit deterioration since origination per Accounting Standards Codification (ASC) 310, Receivables.
 


 
(21)

 
The following tables provide additional information about our financing receivables and related activity in the allowance for losses for our Commercial, Real Estate and Consumer portfolios.

Financing Receivables – net
 
The following table displays our financing receivables balances.
 
 
At
 
September 30,
 
December 31,
(In millions)
2011
 
2010 
           
Commercial
         
CLL
         
Americas(a)
$
81,072 
 
$
88,558 
Europe
 
37,130 
   
37,498 
Asia
 
11,914 
   
11,943 
Other(a)
 
469 
   
664 
Total CLL
 
130,585 
   
138,663 
           
Energy Financial Services
 
5,977 
   
7,011 
           
GECAS
 
11,841 
   
12,615 
           
Other
 
1,388 
   
1,788 
Total Commercial financing receivables
 
149,791 
   
160,077 
           
Real Estate
         
Debt
 
25,748 
   
30,249 
Business Properties
 
8,630 
   
9,962 
Total Real Estate financing receivables
 
34,378 
   
40,211 
           
Consumer
         
Non-U.S. residential mortgages
 
38,708 
   
40,011 
Non-U.S. installment and revolving credit
 
19,801 
   
20,132 
U.S. installment and revolving credit
 
43,249 
   
43,974 
Non-U.S. auto
 
6,462 
   
7,558 
Other
 
8,017 
   
8,304 
Total Consumer financing receivables
 
116,237 
   
119,979 
           
Total financing receivables
 
300,406 
   
320,267 
           
Less allowance for losses
 
(6,669)
   
(8,033)
Total financing receivables – net
$
293,737 
 
$
312,234 
           
           
(a)  
During the third quarter of 2011, we transferred our Railcar lending and leasing portfolio from CLL Other to CLL Americas.  Prior-period amounts were reclassified to conform to the current-period presentation.
 
 

 
(22)

 

Allowance for Losses on Financing Receivables
 
The following tables provide a roll-forward of our allowance for losses on financing receivables.
 
 
Balance at
 
Provision
             
Balance at
 
January 1,
 
charged to
     
Gross
     
September 30,
(In millions)
2011 
 
operations
(a)
Other
(b)
write-offs
(c)
Recoveries
(c)
2011 
                                   
Commercial
                                 
CLL
                                 
Americas
$
1,288 
 
$
250 
 
$
(79)
 
$
(544)
 
$
80 
 
$
995 
Europe
 
429 
   
126 
   
17 
   
(218)
   
49 
   
403 
Asia
 
222 
   
81 
   
16 
   
(194)
   
25 
   
150 
Other
 
   
   
(4)
   
– 
   
– 
   
Total CLL
 
1,945 
   
460 
   
(50)
   
(956)
   
154 
   
1,553 
                                   
                                   
Energy Financial
                                 
    Services
 
22 
   
10 
   
– 
   
(4)
   
   
36 
                                   
GECAS
 
20 
   
(4)
   
– 
   
(2)
   
– 
   
14 
                                   
Other
 
58 
   
13 
   
– 
   
(31)
   
   
43 
Total Commercial
 
2,045 
   
479 
   
(50)
   
(993)
   
165 
   
1,646 
                                   
Real Estate
                                 
Debt
 
1,292 
   
155 
   
13 
   
(494)
   
12 
   
978 
Business Properties
 
196 
   
70 
   
– 
   
(107)
   
   
163 
Total Real Estate
 
1,488 
   
225 
   
13 
   
(601)
   
16 
   
1,141 
                                   
Consumer
                                 
Non-U.S. residential
                                 
   mortgages
 
803 
   
151 
   
11 
   
(229)
   
43 
   
779 
Non-U.S. installment
                                 
   and revolving
                                 
   credit
 
937 
   
413 
   
16 
   
(980)
   
430 
   
816 
U.S. installment and
                                 
   revolving credit
 
2,333 
   
1,587 
   
(1)
   
(2,365)
   
399 
   
1,953 
Non-U.S. auto
 
168 
   
26 
   
   
(176)
   
98 
   
123 
Other
 
259 
   
107 
   
(6)
   
(215)
   
66 
   
211 
Total Consumer
 
4,500 
   
2,284 
   
27 
   
(3,965)
   
1,036 
   
3,882 
Total
$
8,033 
 
$
2,988 
 
$
(10)
 
$
(5,559)
 
$
1,217 
 
$
6,669 
                                   
                                   
(a)  
Included a provision of $77 million at Consumer related to the July 1, 2011 adoption of ASU 2011-02. See Note 17.
(b)  
Other primarily included transfers to held for sale and the effects of currency exchange.
(c)  
Net write-offs (write-offs less recoveries) in certain portfolios may exceed the beginning allowance for losses as our revolving credit portfolios turn over more than once per year or, in all portfolios, can reflect losses that are incurred subsequent to the beginning of the fiscal year due to information becoming available during the current year, which may identify further deterioration on existing financing receivables.
 
 
(23)

 

 
Balance at
 
Adoption of
 
Balance at
 
Provision
             
Balance at
 
December 31,
 
ASU 2009
 
January 1,
 
charged to
     
Gross
     
September 30,
(In millions)
2009
 
16 & 17(a)
 
2010
 
operations
 
Other(b)
 
write-offs(c)
 
Recoveries(c)
 
2010
                                               
Commercial
                                             
CLL
                                             
Americas
$
1,180 
 
$
66 
 
$
1,246 
 
$
823 
 
$
(20)
 
$
(787)
 
$
95 
 
$
1,357 
Europe
 
575 
   
– 
   
575 
   
190 
   
(47)
   
(348)
   
41 
   
411 
Asia
 
244 
   
(10)
   
234 
   
131 
   
(10)
   
(118)
   
15 
   
252 
Other
 
10 
   
– 
   
10 
   
(3)
   
– 
   
– 
   
– 
   
Total CLL
 
2,009 
   
56 
   
2,065 
   
1,141 
   
(77)
   
(1,253)
   
151 
   
2,027 
                                               
                                               
Energy Financial
                                             
    Services
 
28 
   
– 
   
28 
   
56 
   
   
– 
   
– 
   
85 
                                               
GECAS
 
104 
   
– 
   
104 
   
17 
   
– 
   
(96)
   
– 
   
25 
                                               
Other
 
34 
   
– 
   
34 
   
23 
   
(2)
   
(3)
   
   
53 
Total Commercial
 
2,175 
   
56 
   
2,231 
   
1,237 
   
(78)
   
(1,352)
   
152 
   
2,190 
                                               
Real Estate
                                             
Debt
 
1,358 
   
(3)
   
1,355 
   
794 
   
   
(505)
   
– 
   
1,649 
Business Properties
 
136 
   
45 
   
181 
   
124 
   
(7)
   
(92)
   
   
208 
Total Real Estate
 
1,494 
   
42 
   
1,536 
   
918 
   
(2)
   
(597)
   
   
1,857 
                                               
Consumer
                                             
Non-U.S. residential
                                             
   mortgages
 
892 
   
– 
   
892 
   
224 
   
(57)
   
(259)
   
67 
   
867 
Non-U.S. installment
                                             
   and revolving credit
 
1,106 
   
– 
   
1,106 
   
810 
   
(46)
   
(1,318)
   
422 
   
974 
U.S. installment and
                                             
   revolving credit
 
1,551 
   
1,602 
   
3,153 
   
2,342 
   
(3)
   
(3,285)
   
344 
   
2,551 
Non-U.S. auto
 
292 
   
– 
   
292 
   
83 
   
(36)
   
(269)
   
128 
   
198 
Other
 
292 
   
– 
   
292 
   
210 
   
(24)
   
(298)
   
64 
   
244 
Total Consumer
 
4,133 
   
1,602 
   
5,735 
   
3,669 
   
(166)
   
(5,429)
   
1,025 
   
4,834 
Total
$
7,802 
 
$
1,700 
 
$
9,502 
 
$
5,824 
 
$
(246)
 
$
(7,378)
 
$
1,179 
 
$
8,881 
                                               
                                               
(a)  
Reflects the effects of our adoption of ASU 2009-16 & 17 on January 1, 2010.
 
(b)  
Other primarily included the effects of currency exchange.
 
(c)  
Net write-offs (write-offs less recoveries) in certain portfolios may exceed the beginning allowance for losses as our revolving credit portfolios turn over more than once per year or, in all portfolios, can reflect losses that are incurred subsequent to the beginning of the fiscal year due to information becoming available during the current year, which may identify further deterioration on existing financing receivables.
 

See Note 17 for supplemental information about the credit quality of financing receivables and allowance for losses on financing receivables.

 
(24)

 

6. PROPERTY, PLANT AND EQUIPMENT
 
Property, plant and equipment – net, consisted of the following.
 
 
At
 
September 30,
 
December 31,
(In millions)
2011 
 
2010 
           
Original cost
$
 109,757 
 
$
 110,032 
Less accumulated depreciation and amortization
 
 (43,663)
   
 (43,820)
Property, plant and equipment – net
$
 66,094 
 
$
 66,212 


Consolidated depreciation and amortization related to property, plant and equipment was $2,350 million and $2,611 million in the three months ended September 30, 2011 and 2010, respectively, and $6,944 million and $7,449 million in the nine months ended September 30, 2011 and 2010, respectively.


7. GOODWILL AND OTHER INTANGIBLE ASSETS
 
Goodwill and other intangible assets – net, consisted of the following.
 
 
At
 
September 30,
 
December 31,
(In millions)
2011 
 
2010 
           
Goodwill
$
 73,291 
 
$
 64,388 
           
Other intangible assets
         
   Intangible assets subject to amortization
$
 12,219 
 
$
 9,867 
   Indefinite-lived intangible assets(a)
 
 214 
   
 104 
Total
$
 12,433 
 
$
 9,971 
           
           
(a)
Indefinite-lived intangible assets principally comprised in-process research and development, trademarks and tradenames.
 

Changes in goodwill balances follow.
 
           
Dispositions,
   
 
Balance at
     
currency
 
Balance at
 
January 1,
     
exchange
 
September 30,
(In millions)
2011 
 
Acquisitions
 
and other
 
2011 
                       
Energy Infrastructure
$
12,893 
 
$
8,506 
 
$
(50)
 
$
21,349 
Aviation
 
6,073 
   
– 
   
(77)
   
5,996 
Healthcare
 
16,338 
   
162 
   
26 
   
16,526 
Transportation
 
554 
   
– 
   
(3)
   
551 
Home & Business Solutions
 
1,022 
   
116 
   
   
1,143 
GE Capital
 
27,508 
   
   
210 
   
27,726 
Total
$
64,388 
 
$
8,792 
 
$
111 
 
$
73,291 


Goodwill balances increased $8,903 million during the nine months ended September 30, 2011, primarily as a result of the acquisitions of Converteam ($3,528 million), the Well Support division of John Wood Group PLC ($2,016 million), Dresser, Inc. ($1,859 million), Wellstream PLC ($817 million) and Lineage Power Holdings, Inc. ($247 million) at Energy Infrastructure, and the weaker U.S. dollar ($409 million).

 
(25)

 
During the third quarter of 2011, we purchased a 90% interest in Converteam for $3,586 million.  In connection with the transaction, we entered into an arrangement to purchase the remaining 10% at the two year anniversary of the acquisition date for 343 million Euros (approximately $470 million). This amount was recorded as a liability at the date of acquisition.

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 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 using a capital asset pricing model and analyzing published rates for industries relevant to our reporting units to estimate the cost of equity financing. We use discount rates that are commensurate with the risks and uncertainty inherent in the respective businesses and in our internally developed forecasts. Discount rates used in our reporting unit valuations ranged from 9.0% to 13.75%. 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 each reporting unit valuation to our business profile, including geographic markets served and product offerings. 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 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 certain market conditions, to identify orderly transactions between market participants in similar businesses. We assess the valuation methodology based upon the relevance and availability of the data at the time we perform the valuation and weight the methodologies appropriately.

We performed our annual impairment test of goodwill for all of our reporting units in the third quarter using data as of July 1, 2011. The impairment test consists of two steps: in step one, the carrying value of the reporting unit is compared with its fair value; in step two, which is applied when the carrying value is more than its fair value, the amount of goodwill impairment, if any, is derived by deducting the fair value of the reporting unit’s assets and liabilities from the fair value of its equity, and comparing that amount with the carrying amount of goodwill. In performing the valuations, we used cash flows that reflected management’s forecasts and discount rates that included risk adjustments consistent with the current market conditions. Based on the results of our step one testing, the fair values of each of the GE Industrial reporting units and the CLL, Consumer, Energy Financial Services and GECAS reporting units exceeded their carrying values; therefore, the second step of the impairment test was not required to be performed and no goodwill impairment was recognized.

 
(26)

 
Our Real Estate reporting unit had a goodwill balance of $1,087 million at June 30, 2011. As of July 1, 2011, the carrying amount exceeded the estimated fair value of our Real Estate reporting unit by approximately $0.7 billion. The estimated fair value of the Real Estate reporting unit is based on a number of assumptions about future business performance and investment, including loss estimates for the existing finance receivable and investment portfolio, new debt origination volume and margins, and anticipated stabilization of the real estate market allowing for sales of real estate investments at normalized margins. Our assumed discount rate was 11.25% and was derived by applying a capital asset pricing model and corroborated using equity analyst research reports and implied cost of equity based on forecasted price to earnings per share multiples for similar companies. Given the volatility and uncertainty in the current commercial real estate environment, there is uncertainty about a number of assumptions upon which the estimated fair value is based. Different loss estimates for the existing portfolio, changes in the new debt origination volume and margin assumptions, changes in the expected pace of the commercial real estate market recovery, or changes in the equity return expectation of market participants may result in changes in the estimated fair value of the Real Estate reporting unit.

Based on the results of the step one testing, we performed the second step of the impairment test described above as of July 1, 2011. Based on the results of the second step analysis for the Real Estate reporting unit, the estimated implied fair value of goodwill exceeded the carrying value of goodwill by approximately $3.9 billion. Accordingly, no goodwill impairment was required. In the second step, unrealized losses in an entity’s assets have the effect of increasing the estimated implied fair value of goodwill. The results of the second step analysis were attributable to several factors. The primary driver was the excess of the carrying value over the estimated fair value of our Real Estate Equity Investments, which approximated $4.1 billion at that time. Other drivers for the favorable outcome include the unrealized losses in the Real Estate finance receivable portfolio and the fair value premium on the Real Estate reporting unit allocated debt. The results of the second step analysis are highly sensitive to these measurements, as well as the key assumptions used in determining the estimated fair value of the Real Estate reporting unit.

Estimating the fair value of reporting units requires 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.

 
(27)

 


Intangible Assets Subject to Amortization
 
At
 
September 30, 2011
 
December 31, 2010
 
Gross
         
Gross
       
 
carrying
 
Accumulated
     
carrying
 
Accumulated
   
(In millions)
amount
 
amortization
 
Net
 
amount
 
amortization
 
Net
                                   
                                   
Customer-related
$
6,993 
 
$
(1,797)
 
$
5,196 
 
$
5,498 
 
$
(1,490)
 
$
4,008 
Patents, licenses and trademarks
 
6,099 
   
(2,215)
   
3,884 
   
5,377 
   
(2,595)
   
2,782 
Capitalized software
 
6,930 
   
(4,487)
   
2,443 
   
6,256 
   
(3,977)
   
2,279 
Lease valuations
 
1,565 
   
(969)
   
596 
   
1,646 
   
(917)
   
729 
Present value of future profits(a)
 
485 
   
(485)
   
– 
   
461 
   
(461)
   
– 
All other
 
502 
   
(402)
   
100 
   
378 
   
(309)
   
69 
Total
$
22,574 
 
$
(10,355)
 
$
12,219 
 
$
19,616 
 
$
(9,749)
 
$
9,867 
                                   
                                   
 (a)
Balances at September 30, 2011 and December 31, 2010, reflect adjustments of $397 million and $423 million, respectively, to the present value of future profits in our run-off insurance operation to reflect the effects that would have been recognized had the related unrealized investment securities holding gains and losses actually been realized in accordance with ASC 320-10-S99-2.
 

Intangible assets subject to amortization increased $2,352 million in the nine months ended September 30, 2011, primarily as a result of the acquisitions of Converteam ($911 million), Dresser, Inc. ($904 million), the Well Support division of John Wood Group PLC ($573 million), Wellstream PLC ($259 million) and Lineage Power Holdings, Inc. ($130 million) at Energy Infrastructure.

Consolidated amortization related to intangible assets subject to amortization was $436 million and $427 million in the three months ended September 30, 2011 and 2010, respectively, and $1,266 million and $1,270 million in the nine months ended September 30, 2011 and 2010, respectively.


 
(28)

 
8. GECS BORROWINGS AND BANK DEPOSITS
 
GECS borrowings are summarized in the following table.
 
 
At
(In millions)
September 30,
 
December 31,
 
2011 
 
2010 
           
Short-term borrowings
         
Commercial paper
         
   U.S.
$
 30,773 
 
$
 32,547 
   Non-U.S.
 
 9,922 
   
 9,497 
Current portion of long-term borrowings(a)(b)(c)(e)
 
 76,442 
   
 65,612 
GE Interest Plus notes(d)
 
 8,533 
   
 9,058 
Other(c)
 
 1,196 
   
 2,083 
GECS short-term borrowings
$
 126,866 
 
$
 118,797 
           
Long-term borrowings
         
Senior unsecured notes(a)(b)
$
 234,699 
 
$
 262,789 
Subordinated notes(e)
 
 4,895 
   
 2,575 
Subordinated debentures(f)
 
 7,430 
   
 7,298 
Other(c)(g)
 
 12,380 
   
 11,745 
GECS long-term borrowings
$
 259,404 
 
$
 284,407 
           
Non-recourse borrowings of consolidated securitization entities(h)
$
 29,022 
 
$
 30,018 
           
Bank deposits(i)
$
 41,515 
 
$
 37,298 
           
Total borrowings and bank deposits
$
 456,807 
 
$
 470,520 
           
           
(a)
GECC had issued and outstanding $45,045 million and $53,495 million of senior, unsecured debt that was guaranteed by the Federal Deposit Insurance Corporation (FDIC) under the Temporary Liquidity Guarantee Program at September 30, 2011 and December 31, 2010, respectively. Of the above amounts, $32,495 million and $18,455 million is included in current portion of long-term borrowings at September 30, 2011 and December 31, 2010, respectively.
 
(b)
Included in total long-term borrowings were $2,047 million and $2,395 million of obligations to holders of guaranteed investment contracts at September 30, 2011 and December 31, 2010, respectively. If the long-term credit rating of GECC were to fall below AA–/Aa3 or its short-term credit rating were to fall below A–1+/P–1, GECC could be required to provide up to $1,916 million as of September 30, 2011, to repay holders of GICs.
 
(c)
Included $9,428 million and $11,135 million of funding secured by real estate, aircraft and other collateral at September 30, 2011 and December 31, 2010, respectively, of which $3,510 million and $4,671 million is non-recourse to GECS at September 30, 2011 and December 31, 2010, respectively.
 
(d)
Entirely variable denomination floating rate demand notes.
 
(e)
Included $417 million of subordinated notes guaranteed by GE at both September 30, 2011 and December 31, 2010, of which $117 million is included in current portion of long-term borrowings at September 30, 2011.
 
(f)
Subordinated debentures receive rating agency equity credit and were hedged at issuance to the U.S. dollar equivalent of $7,725 million.
 
(g)
Included $2,066 million and $1,984 million of covered bonds at September 30, 2011 and December 31, 2010, respectively. If the short-term credit rating of GECC were reduced below A–1/P–1, GECC would be required to partially cash collateralize these bonds in an amount up to $790 million at September 30, 2011.
 
(h)
Included at September 30, 2011 and December 31, 2010, were $11,670 million and $10,499 million of current portion of long-term borrowings, respectively, and $17,352 million and $19,519 million of long-term borrowings, respectively. See Note 18.
 
(i)
Included $18,786 million and $18,781 million of deposits in non-U.S. banks at September 30, 2011 and December 31, 2010, respectively, and $14,755 million and $11,606 million of certificates of deposits with maturities greater than one year at September 30, 2011 and December 31, 2010, respectively.
 


 
(29)

 
9. POSTRETIREMENT BENEFIT PLANS
 
We sponsor a number of pension and retiree health and life insurance benefit plans. Principal pension plans include the GE Pension Plan and the GE Supplementary Pension Plan. Principal retiree benefit plans generally provide health and life insurance benefits to employees who retire under the GE Pension Plan with 10 or more years of service. Salaried employees who commence service on or after January 1, 2011 and production employees who commence service on or after January 1, 2012 will not be eligible to participate in the GE Pension Plan, but will participate in a defined contribution retirement plan. Other pension plans include the U.S. and non-U.S. pension plans with pension assets or obligations greater than $50 million. Smaller pension plans and other retiree benefit plans are not material individually or in the aggregate. The effect on operations of the pension plans follows.
 
 
Principal Pension Plans
 
Three months ended September 30
 
Nine months ended September 30
(In millions)
2011 
 
2010 
 
2011 
 
2010 
                       
Service cost for benefits earned
$
296 
 
$
275 
 
$
857 
 
$
844 
Prior service cost amortization
 
49 
   
59 
   
144 
   
178 
Expected return on plan assets
 
(984)
   
(1,084)
   
(2,953)
   
(3,254)
Interest cost on benefit obligation
 
665 
   
678 
   
1,995 
   
2,020 
Net actuarial loss amortization
 
584 
   
331 
   
1,752 
   
993 
Pension plans cost
$
610 
 
$
259 
 
$
1,795 
 
$
781 


 
Other Pension Plans
 
Three months ended September 30
 
Nine months ended September 30
(In millions)
2011 
 
2010 
 
2011 
 
2010 
                       
Service cost for benefits earned
$
70 
 
$
65 
 
$
210 
 
$
209 
Prior service cost amortization
 
   
   
12 
   
11 
Expected return on plan assets
 
(151)
   
(126)
   
(451)
   
(380)
Interest cost on benefit obligation
 
131 
   
116 
   
387 
   
360 
Net actuarial loss amortization
 
34 
   
48 
   
103 
   
159 
Pension plans cost
$
88 
 
$
106 
 
$
261 
 
$
359 


The effect on operations of principal retiree health and life insurance plans follows.
 
 
Principal Retiree Health
 
and Life Insurance Plans
 
Three months ended September 30
 
Nine months ended September 30
(In millions)
2011 
 
2010 
 
2011 
 
2010 
                       
Service cost for benefits earned
$
 48 
 
$
 50 
 
$
 140 
 
$
 162 
Prior service cost amortization
 
 163 
   
 158 
   
 482 
   
 474 
Expected return on plan assets
 
 (24)
   
 (29)
   
 (72)
   
 (87)
Interest cost on benefit obligation
 
 151 
   
 175 
   
 452 
   
 525 
Net actuarial gain amortization
 
 (27)
   
 (6)
   
 (83)
   
 (18)
Retiree benefit plans cost
$
 311 
 
$
 348 
 
$
 919 
 
$
 1,056 

10. OTHER LIABILITIES
 
We are involved in numerous remediation actions to clean up hazardous wastes as required by federal and state laws. Liabilities for remediation costs exclude possible insurance recoveries and, when dates and amounts of such costs are not known, are not discounted. It is reasonably possible that our environmental remediation exposure will exceed amounts accrued. However, due to uncertainties about the status of laws, regulations, technology and information related to individual sites, such amounts are not reasonably estimable.


 
(30)

 
11. 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
 
September 30,
 
December 31,
(In millions)
2011 
 
2010 
           
Unrecognized tax benefits
$
 6,233 
 
$
 6,139 
      Portion that, if recognized, would reduce tax expense and effective tax rate(a)
 
 4,104 
   
 4,114 
Accrued interest on unrecognized tax benefits
 
 1,237 
   
 1,200 
Accrued penalties on unrecognized tax benefits
 
 112 
   
 109 
Reasonably possible reduction to the balance of unrecognized tax benefits
         
   in succeeding 12 months
 
0-1,900
   
0-1,600
      Portion that, if recognized, would reduce tax expense and effective tax rate(a)
 
0-650
   
0-650
           
           
(a)
Some portion of such reduction may be reported as discontinued operations.
 


The IRS is currently auditing our consolidated income tax returns for 2006-2009. In addition, certain other U.S. tax deficiency issues and refund claims for previous years were unresolved. The IRS has disallowed the tax loss on our 2003 disposition of ERC Life Reinsurance Corporation. We are contesting the disallowance of this loss. It is reasonably possible that the 2006-2007 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” – that is, the aggregate tax effect of differences between tax return positions and the benefits recognized in our financial statements. 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 GECS file a consolidated U.S. federal income tax return. This enables GE to use GECS tax deductions and credits to reduce the tax that otherwise would have been payable by GE. The GECS effective tax rate for each period reflects the benefit of these tax reductions in the consolidated return. GE makes cash payments to GECS for these tax reductions at the time GE’s tax payments are due. The effect of GECS on the amount of the consolidated tax liability from the formation of the NBCU joint venture will be settled in cash when it otherwise would have reduced the liability of the group absent the tax on formation.


 
(31)

 
12. SHAREOWNERS’ EQUITY
 
A summary of increases (decreases) in GE shareowners’ equity that did not result directly from transactions with shareowners, net of income taxes, follows.
 
 
Three months ended September 30
 
Nine months ended September 30
(In millions)
2011 
 
2010 
 
2011 
 
2010 
                       
Net earnings attributable to the Company
$
3,224 
 
$
2,055 
 
$
10,421 
 
$
7,109 
Investment securities – net(a)
 
248 
   
(906)
   
454 
   
(180)
Currency translation adjustments – net
 
(1,870)
   
2,356 
   
2,476 
   
(4,799)
Cash flow hedges – net
 
(82)
   
(239)
   
(339)
   
205 
Benefit plans – net
 
495 
   
351 
   
1,600 
   
1,275 
Total
$
2,015 
 
$
3,617 
 
$
14,612 
 
$
3,610 
                       
                       
(a)
Includes adjustments as of September 30, 2011 to deferred acquisition costs, present value of future profits, and investment contracts, insurance liabilities and insurance annuity benefits in our run-off insurance operation to reflect the effects that would have been recognized had the related unrealized investment securities holding gains and losses actually been realized in accordance with ASC 320-10-S99-2.
 

Changes to noncontrolling interests are as follows.
 
 
 
Three months ended September 30
 
Nine months ended September 30
(In millions)
2011 
 
2010 
 
2011 
 
2010 
                       
Beginning balance
$
2,323 
 
$
6,791 
 
$
5,262 
 
$
7,845 
Net earnings
 
41 
   
157 
   
209 
   
306 
Dividends
 
(17)
   
(23)
   
(32)
   
(291)
Repurchase of NBCU shares(a)
 
– 
   
(1,876)
   
(3,070)
   
(1,876)
Dispositions(b)
 
– 
   
– 
   
(23)
   
(979)
AOCI and other(c)
 
(35)
   
25 
   
(34)
   
69 
Ending balance
$
2,312 
 
$
5,074 
 
$
2,312 
 
$
5,074 
                       
                       
(a)  
In January 2011 and prior to the transaction with Comcast, we acquired 12.3% of NBCU’s outstanding shares from Vivendi for $3,673 million and made an additional payment of $222 million related to previously purchased shares. Of these amounts, $3,070 million reflects a reduction in carrying value of noncontrolling interests. The remaining amount of $825 million represents the amount paid in excess of our carrying value, which was recorded as an increase in our basis in NBCU (and a reduction in our pre-tax gain on the disposition).
 
(b)  
Includes the effects of deconsolidating Regency Energy Partners L.P. (Regency) $(979) million during the second quarter of 2010.
 
(c)  
The amount of change related to AOCI and other for the nine months ended September 30, 2010 includes the impact of our adoption of ASC 810, Consolidations, of $28 million. Changes to other individual components of AOCI attributable to noncontrolling interests were insignificant.
 

 
 
(32)

 
Preferred Stock

On October 16, 2008, we issued 30,000 shares of 10% cumulative perpetual preferred stock (par value $1.00 per share) having an aggregate liquidation value of $3,000 million, and warrants to purchase 134,831,460 shares of common stock (par value $0.06 per share) to Berkshire Hathaway Inc. (Berkshire Hathaway) for net proceeds of $2,965 million in cash. The proceeds were allocated to the preferred shares ($2,494 million) and the warrants ($471 million) on a relative fair value basis and recorded in other capital.  The warrants are exercisable for five years at an exercise price of $22.25 per share of common stock and settled through physical share issuance.

The preferred stock was redeemable at our option three years after issuance at a price of 110% of liquidation value plus accrued and unpaid dividends. On September 13, 2011, we provided notice to Berkshire Hathaway that we would redeem the shares for the stated redemption price of $3,300 million, plus accrued and unpaid dividends. In connection with this notice, we recognized a preferred dividend of $806 million (calculated as the difference between the carrying value and redemption value of the preferred stock), which was recorded as a reduction to our third quarter earnings attributable to common shareowners and common shareowners’ equity. The preferred shares were redeemed on October 17, 2011.


13. GECS REVENUES FROM SERVICES
 
GECS revenues from services are summarized in the following table.
 
 
Three months ended September 30
 
Nine months ended September 30
(In millions)
2011
 
2010 
 
2011
 
2010 
                       
Interest on loans
$
5,042 
 
$
4,971 
 
$
15,207 
 
$
15,492 
Equipment leased to others
 
2,855 
   
2,799 
   
8,529 
   
8,329 
Fees
 
1,227 
   
1,180 
   
3,531 
   
3,555 
Associated companies(a)
 
389 
   
491 
   
1,997 
   
1,548 
Investment income(b)
 
583 
   
595 
   
2,004 
   
1,668 
Financing leases
 
554 
   
678 
   
1,837 
   
2,105 
Premiums earned by insurance activities
 
465 
   
511 
   
1,437 
   
1,490 
Real estate investments
 
379 
   
330 
   
1,211 
   
961 
Other items
 
492 
   
359 
   
1,633 
   
1,582 
Total
$
11,986 
 
$
11,914 
 
$
37,386 
 
$
36,730 
                       
                       
(a)
During the first quarter of 2011, we sold an 18.6% equity interest in Garanti Bank and recorded a pre-tax gain of $690 million. Following the sale, we hold a 2.25% equity ownership interest which is classified as an available-for-sale security.
 
(b)
Included net other-than-temporary impairments on investment securities of $68 million and $31 million in the three months ended September 30, 2011 and 2010, respectively, and $186 million and $166 million in the nine months ended September 30, 2011 and 2010, respectively.
 


 
(33)

 
14. EARNINGS PER SHARE INFORMATION
 
GE’s authorized common stock consists of 13,200,000,000 shares having a par value of $0.06 each. Information related to the calculation of earnings per share follows.
 
 
Three months ended September 30
 
2011
 
2010 
(In millions; per-share amounts in dollars)
Diluted
 
Basic
 
Diluted
 
Basic
                       
Amounts attributable to the Company:
                     
Consolidated
                     
Earnings from continuing operations for
                     
   per-share calculation(a)(b)
$
 3,221 
 
$
 3,221 
 
$
 3,101 
 
$
 3,101 
Preferred stock dividends declared(c)
 
 (881)
   
 (881)
   
 (75)
   
 (75)
Earnings from continuing operations attributable
                     
   to common shareowners for per-share
                     
   calculation(a)(b)
 
 2,339 
   
 2,339 
   
 3,026 
   
 3,026 
Earnings (loss) from discontinued operations
                     
   for per-share calculation(a)(b)
 
 2 
   
 1 
   
 (1,055)
   
 (1,055)
Net earnings attributable to GE common
                     
   shareowners for per-share calculation(a)(b)
$
 2,341 
 
$
 2,340 
 
$
 1,971 
 
$
 1,970 
                       
Average equivalent shares
                     
Shares of GE common stock outstanding
 
 10,580 
   
 10,580 
   
 10,674 
   
 10,674 
Employee compensation-related shares,
                     
   including stock options
 
 27 
   
– 
   
 17 
   
– 
Total average equivalent shares
 
 10,607 
   
 10,580 
   
 10,691 
   
 10,674 
                       
Per-share amounts
                     
Earnings from continuing operations
$
 0.22 
 
$
 0.22 
 
$
 0.28 
 
$
 0.28 
Earnings (loss) from discontinued operations
 
– 
   
– 
   
 (0.10)
   
 (0.10)
Net earnings
 
 0.22 
   
 0.22 
   
 0.18 
   
 0.18 
                       
                       


 
(34)

 
 
Nine months ended September 30
 
2011
 
2010 
(In millions; per-share amounts in dollars)
Diluted
 
Basic
 
Diluted
 
Basic
                       
Amounts attributable to the Company:
                     
Consolidated
                     
Earnings from continuing operations for
                     
   per-share calculation(a)(b)
$
 10,133 
 
$
 10,133 
 
$
 8,598 
 
$
 8,598 
Preferred stock dividends declared(c)
 
 (1,031)
   
 (1,031)
   
 (225)
   
 (225)
Earnings from continuing operations attributable to
                     
   common shareowners for per-share
                     
   calculation(a)(b)
 
 9,102 
   
 9,101 
   
 8,373 
   
 8,373 
Earnings (loss) from discontinued operations
                     
   for per-share calculation(a)(b)
 
 275 
   
 274 
   
 (1,538)
   
 (1,539)
Net earnings attributable to GE common
                     
   shareowners for per-share calculation(a)(b)
$
 9,375 
 
$
 9,375 
 
$
 6,834 
 
$
 6,834 
                       
Average equivalent shares
                     
Shares of GE common stock outstanding
 
 10,595 
   
 10,595 
   
 10,672 
   
 10,672 
Employee compensation-related shares,
                     
   including stock options
 
 31 
   
– 
   
 17 
   
– 
Total average equivalent shares
 
 10,626 
   
 10,595 
   
 10,689 
   
 10,672 
                       
Per-share amounts
                     
Earnings from continuing operations
$
 0.86 
 
$
 0.86 
 
$
 0.78 
 
$
 0.78 
Earnings (loss) from discontinued operations
 
 0.03 
   
 0.03 
   
 (0.14)
   
 (0.14)
Net earnings
 
 0.88 
   
 0.88 
   
 0.64 
   
 0.64 
                       
                       
(a)
Included an insignificant amount of dividend equivalents in each of the periods presented.
 
(b)
Included an insignificant amount related to accretion of redeemable securities in both the three and nine months ended September 30, 2010.
 
(c)
Included $806 million related to the redemption of our 10% cumulative preferred stock in both the three and nine months ended September 30, 2011.  See Note 12.
 

For the three and nine months ended September 30, 2011 and 2010, there were approximately 327 million and 310 million, respectively, and 354 million and 331 million, respectively, of outstanding stock awards that were not included in the computation of diluted earnings per share because their effect was anti-dilutive.

Earnings-per-share amounts are computed independently for earnings from continuing operations, earnings (loss) from discontinued operations and net earnings. As a result, the sum of per-share amounts from continuing operations and discontinued operations may not equal the total per-share amounts for net earnings.


15. FAIR VALUE MEASUREMENTS
 
For a description on how we estimate fair value, see Note 1 in our 2010 consolidated financial statements.

The following tables present our assets and liabilities measured at fair value on a recurring basis. Included in the tables are investment securities of $29,522 million and $27,141 million at September 30, 2011 and December 31, 2010, respectively, primarily supporting obligations to annuitants and policyholders in our run-off insurance operations, and $4,624 million and $5,706 million at September 30, 2011 and December 31, 2010, respectively, supporting obligations to holders of GICs in Trinity (which ceased issuing new investment contracts beginning in the first quarter of 2010), and investment securities held at our treasury operations. Such securities are mainly investment grade.
 
 
(35)

 
             
Netting
   
(In millions)
Level 1
(a)
Level 2
(a)
Level 3
(b)
adjustment
(c)
Net balance
                             
September 30, 2011
                           
Assets
                           
Investment securities
                           
   Debt
                           
      U.S. corporate
$
– 
 
$
 20,766 
 
$
 3,668 
 
$
– 
 
$
 24,434 
      State and municipal
 
– 
   
 3,054 
   
 89 
   
– 
   
 3,143 
      Residential mortgage-backed
 
– 
   
 2,638 
   
 44 
   
– 
   
 2,682 
      Commercial mortgage-backed
 
– 
   
 2,747 
   
 8 
   
– 
   
 2,755 
      Asset-backed
 
– 
   
 949 
   
 2,905 
   
– 
   
 3,854 
      Corporate – non-U.S.
 
 75 
   
 1,182 
   
 1,439 
   
– 
   
 2,696 
      Government – non-U.S.
 
 755 
   
 1,398 
   
 112 
   
– 
   
 2,265 
      U.S. government and federal agency
 
– 
   
 3,055 
   
 256 
   
– 
   
 3,311 
   Retained interests
 
– 
   
– 
   
 37 
   
– 
   
 37 
   Equity
                           
      Available-for-sale
 
 850 
   
 20 
   
 24 
   
– 
   
 894 
      Trading
 
 387 
   
– 
   
– 
   
– 
   
 387 
Derivatives(d)
 
– 
   
 16,153 
   
 334 
   
 (3,398)
   
 13,089 
Other(e)
 
– 
   
– 
   
 1,024 
   
– 
   
 1,024 
Total
$
 2,067 
 
$
 51,962 
 
$
 9,940 
 
$
 (3,398)
 
$
 60,571 
                             
Liabilities
                           
Derivatives
$
– 
 
$
 5,226 
 
$
 41 
 
$
 (3,385)
 
$
 1,882 
Other(f)
 
– 
   
 910 
   
– 
   
– 
   
 910 
Total
$
– 
 
$
 6,136 
 
$
 41 
 
$
 (3,385)
 
$
 2,792 
                             
December 31, 2010
                           
Assets
                           
Investment securities
                           
   Debt
                           
      U.S. corporate
$
– 
 
$
 19,374 
 
$
 3,199 
 
$
– 
 
$
 22,573 
      State and municipal
 
– 
   
 2,499 
   
 225 
   
– 
   
 2,724 
      Residential mortgage-backed
 
 47 
   
 2,696 
   
 66 
   
– 
   
 2,809 
      Commercial mortgage-backed
 
– 
   
 2,875 
   
 49 
   
– 
   
 2,924 
      Asset-backed
 
– 
   
 690 
   
 2,540 
   
– 
   
 3,230 
      Corporate – non-U.S.
 
 89 
   
 1,292 
   
 1,486 
   
– 
   
 2,867 
      Government – non-U.S.
 
 777 
   
 1,333 
   
 156 
   
– 
   
 2,266 
       U.S. government and federal agency
 
– 
   
 3,158 
   
 210 
   
– 
   
 3,368 
   Retained interests
 
– 
   
– 
   
 39 
   
– 
   
 39 
   Equity
                           
      Available-for-sale
 
 677 
   
 20 
   
 24 
   
– 
   
 721 
      Trading
 
 417 
   
– 
   
– 
   
– 
   
 417 
Derivatives(d)
 
– 
   
 10,997 
   
 359 
   
 (3,867)
   
 7,489 
Other(e)
 
– 
   
– 
   
 906 
   
– 
   
 906 
Total
$
 2,007 
 
$
 44,934 
 
$
 9,259 
 
$
 (3,867)
 
$
 52,333 
                             
Liabilities
                           
Derivatives
$
– 
 
$
 6,553 
 
$
 103 
 
$
 (3,857)
 
$
 2,799 
Other(f)
 
– 
   
 920 
   
– 
   
– 
   
 920 
Total
$
– 
 
$
 7,473 
 
$
 103 
 
$
 (3,857)
 
$
 3,719 
                             
                             
(a)
The fair value of securities transferred between Level 1 and Level 2 was $67 million during the nine months ended September 30, 2011.
 
(b)
Level 3 investment securities valued using non-binding broker quotes totaled $2,364 million and $1,054 million at September 30, 2011 and December 31, 2010, respectively, and were classified as available-for-sale securities.
 
(c)
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.
 
(d)
The fair value of derivatives included an adjustment for non-performance risk. At September 30, 2011 and December 31, 2010, the cumulative adjustment for non-performance risk was a loss of $13 million and $10 million, respectively. See Note 16 for additional information on the composition of our derivative portfolio.
 
(e)
Included private equity investments and loans designated under the fair value option.
 
(f)
Primarily represented the liability associated with certain of our deferred incentive compensation plans.
 


 
(36)

 
The following tables present the changes in Level 3 instruments measured on a recurring basis for the three and nine months ended September 30, 2011 and 2010. The majority of our Level 3 balances consist of investment securities classified as available-for-sale with changes in fair value recorded in shareowners’ equity.

 
Changes in Level 3 Instruments for the Three Months Ended September 30, 2011
 
(In millions)
                                     
Net
 
                                         
change in
 
         
Net realized/
                             
unrealized
 
       
Net
 
unrealized
                                       
gains
 
     
realized/
 
gains (losses)
                             
(losses)
 
     
unrealized
 
included in
                             
relating to
 
 
Balance
 
gains
 
accumulated
                       
Balance
   
instruments
 
 
at
 
(losses)
 
other
             
Transfers
 
Transfers
 
at
   
still held at
 
 
July 1,
 
included
 
comprehensive
               
into
 
out of
 
September 30,
   
September 30,
 
 
2011 
 
in earnings
(a)
income
 
Purchases
 
Sales
 
Settlements
 
Level 3
(b)
Level 3
(b)
2011 
   
2011
(c)
                                                               
Investment securities   
                                                             
   Debt
                                                             
      U.S. corporate
$
3,097 
 
$
(22)
 
$
(32)
 
$
530 
 
$
(25)
 
$
 
$
120 
 
$
(2)
 
$
3,668 
   
$
– 
 
      State and municipal
 
209 
   
– 
   
   
– 
   
– 
   
(4)
   
– 
   
(120)
   
89 
     
– 
 
      Residential
                                                             
          mortgage-backed
 
45 
   
– 
   
(1)
   
– 
   
– 
   
– 
   
– 
   
– 
   
44 
     
– 
 
      Commercial
                                                             
          mortgage-backed
 
   
– 
   
   
– 
   
– 
   
– 
   
– 
   
– 
   
     
– 
 
      Asset-backed
 
3,132 
   
– 
   
(65)
   
269 
   
(14)
   
– 
   
– 
   
(417)
   
2,905 
     
– 
 
      Corporate – non-U.S.
 
1,537 
   
   
(55)
   
– 
   
(26)
   
(14)
   
– 
   
(4)
   
1,439 
     
– 
 
      Government
                                                             
         – non-U.S.
 
274 
   
(1)
   
(22)
   
14 
   
– 
   
(13)
   
– 
   
(140)
   
112 
     
– 
 
     U.S. government and
                                                             
         federal agency
 
224 
   
– 
   
32 
   
– 
   
– 
   
– 
   
– 
   
– 
   
256 
     
– 
 
   Retained interests
 
45 
   
(1)
   
(6)
   
   
(1)
   
(1)
   
– 
   
– 
   
37 
     
– 
 
   Equity
                                                             
      Available-for-sale
 
22 
   
– 
   
(1)
   
– 
   
– 
   
– 
   
   
– 
   
24 
     
– 
 
      Trading
 
– 
   
– 
   
– 
   
– 
   
– 
   
– 
   
– 
   
– 
   
– 
     
– 
 
Derivatives(d)(e)
 
297 
   
13 
   
– 
   
(3)
   
– 
   
(7)
   
– 
   
(1)
   
299 
     
18 
 
Other
 
1,149 
   
(21)
   
(14)
   
27 
   
(116)
   
(1)
   
– 
   
– 
   
1,024 
     
(22)
 
Total
$
10,038 
 
$
(31)
 
$
(159)
 
$
838 
 
$
(182)
 
$
(38)
 
$
123 
 
$
(684)
 
$
9,905 
   
$
(4)
 
                                                               
                                                               
(a)
Earnings effects are primarily included in the “GECS revenues from services” and “Interest and other financial charges” captions in the Condensed Statement of 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 $6 million not reflected in the fair value hierarchy table.
 
(e)
Gains (losses) included in net realized/unrealized gains (losses) included in earnings were offset by the earnings effects from the underlying items that were economically hedged. See Note 16.
 

 
(37)

 


Changes in Level 3 Instruments for the Three Months Ended September 30, 2010
 
(In millions)
       
Net realized/
               
Net change
 
         
unrealized
               
in unrealized
 
         
gains (losses)
               
gains (losses)
 
     
Net realized/
 
included in
                 
relating to
 
 
Balance
 
unrealized
 
accumulated
       
Transfers
 
Balance
   
instruments
 
 
at
 
gains(losses)
 
other
 
Purchases,
 
in and/or
 
at
   
still held at
 
 
July 1,
 
included in
 
comprehensive
 
sales and
 
out of
 
September 30,
   
September 30,
 
 
2010 
 
earnings
(a)
income
 
settlements
 
Level 3
(b)
2010 
   
2010 
(c)
                                             
Investment securities   
                                           
   Debt
                                           
      U.S. corporate
$
3,124 
 
$
16 
 
$
127 
 
$
38 
 
$
(22)
 
$
3,283 
   
$
– 
 
      State and municipal
 
270 
   
– 
   
(48)
   
(9)
   
– 
   
213 
     
– 
 
      Residential
                                           
          mortgage-backed
 
131 
   
(1)
   
   
   
(9)
   
131 
     
– 
 
      Commercial
                                           
          mortgage-backed
 
55 
   
– 
   
– 
   
(3)
   
– 
   
52 
     
– 
 
      Asset-backed
 
1,885 
   
   
13 
   
506 
   
(7)
   
2,403 
     
– 
 
      Corporate – non-U.S.
 
1,227 
   
   
32 
   
(24)
   
(30)
   
1,214 
     
– 
 
      Government
                                           
         – non-U.S.
 
116 
   
– 
   
   
– 
   
26 
   
149 
     
– 
 
     U.S. government and
                                           
         federal agency
 
228 
   
– 
   
18 
   
– 
   
– 
   
246 
     
– 
 
   Retained interests
 
41 
   
   
   
(2)
   
– 
   
41 
     
– 
 
   Equity
                                           
      Available-for-sale
 
17 
   
– 
   
   
– 
   
   
22 
     
– 
 
      Trading
 
– 
   
– 
   
– 
   
– 
   
– 
   
– 
     
– 
 
Derivatives(d) (e)
 
266 
   
51 
   
12 
   
(40)
   
149 
   
438 
     
46 
 
Other
 
830 
   
(10)
   
22 
   
(9)
   
– 
   
833 
     
(20)
 
Total
$
8,190 
 
$
72 
 
$
193 
 
$
460 
 
$
110 
 
$
9,025 
   
$
26 
 
                                             
                                             
(a)  
Earnings effects are primarily included in the “GECS revenues from services” and “Interest and other financial charges” captions in the Condensed Statement of 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 $48 million not reflected in the fair value hierarchy table
 
(e)  
Gains included in net realized/unrealized gains (losses) included in earnings were offset by the earnings effects from the underlying items that were economically hedged. See Note 16.
 
 
 
 
(38)

 
 
 
 Changes in Level 3 Instruments for the Nine Months Ended September 30, 2011  
         
Net
                           
Net
 
(In millions)
       
 realized/
                             
change in
 
     
Net
 
unrealized
                             
unrealized
 
       
realized/
 
gains
                                       
gains
 
     
unrealized
   
(losses)
                             
(losses)
 
     
gains
 
included in
                             
relating to
 
 
Balance
 
(losses)
 
accumulated
                       
Balance
   
instruments
 
 
at
 
included
 
other
               
Transfers
 
Transfers
 
at
   
still held at
 
 
January 1,
   
in
 
comprehensive
               
into
 
out of
 
September 30,
   
September 30,
 
 
2011 
 
earnings
(a)
income
 
Purchases
 
Sales
 
Settlements
 
Level 3
(b)
Level 3
(b)
2011 
   
2011
(c)
                                                               
Investment securities   
                                                             
   Debt
                                                             
      U.S. corporate
$
3,199 
 
$
79 
 
$
(52)
 
$
605 
 
$
(180)
 
$
(101)
 
$
120 
 
$
(2)
 
$
3,668 
   
$
– 
 
      State and municipal
 
225 
   
– 
   
(1)
   
   
– 
   
(8)
   
– 
   
(131)
   
89 
     
– 
 
      Residential
                                                             
          mortgage-backed
 
66 
   
– 
   
– 
   
   
(4)
   
(1)
   
71 
   
(90)
   
44 
     
– 
 
      Commercial
                                                             
          mortgage-backed
 
49 
   
– 
   
   
   
– 
   
– 
   
   
(52)
   
     
– 
 
      Asset-backed
 
2,540 
   
– 
   
(10)
   
1,049 
   
(166)
   
(11)
   
   
(498)
   
2,905 
     
– 
 
      Corporate
 
1,486 
   
(27)
   
27 
   
12 
   
(54)
   
(74)
   
73 
   
(4)
   
1,439 
     
– 
 
         – non-U.S.
                                                             
      Government
                                                             
         – non-U.S.
 
156 
   
(17)
   
(8)
   
27 
   
– 
   
(13)
   
107 
   
(140)
   
112 
     
– 
 
     U.S. government and
                                                             
         federal agency
 
210 
   
– 
   
46 
   
– 
   
– 
   
– 
   
– 
   
– 
   
256 
     
– 
 
   Retained interests
 
39 
   
(19)
   
24 
   
   
(4)
   
(4)
   
– 
   
– 
   
37 
     
– 
 
   Equity
                                                             
      Available-for-sale
 
24 
   
– 
   
(1)
   
– 
   
– 
   
– 
   
   
(3)
   
24 
     
– 
 
      Trading
 
– 
   
– 
   
– 
   
– 
   
– 
   
– 
   
– 
   
– 
   
– 
     
– 
 
Derivatives(d)(e)
 
265 
   
70 
   
   
   
– 
   
(197)
   
150 
   
   
299 
     
54 
 
Other
 
906 
   
81 
   
14 
   
145 
   
(116)
   
(6)
   
– 
   
– 
   
1,024 
     
74 
 
Total
$
9,165 
 
$
167 
 
$
45 
 
$
1,853 
 
$
(524)
 
$
(415)
 
$
529 
 
$
(915)
 
$
9,905 
   
$
128 
 
                                                               
                                                               
(a)  
Earnings effects are primarily included in the “GECS revenues from services” and “Interest and other financial charges” captions in the Condensed Statement of 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 $6 million not reflected in the fair value hierarchy table.
 
(e)  
Gains (losses) included in net realized/unrealized gains (losses) included in earnings were offset by the earnings effects from the underlying items that were economically hedged. See Note 16.
 
 


 
(39)

 
Changes in Level 3 Instruments for the Nine Months Ended September 30, 2010
 
(In millions)
       
Net realized/
               
Net change
 
         
unrealized
               
in unrealized
 
         
gains (losses)
               
gains (losses)
 
     
Net realized/
 
included in
                 
relating to
 
 
Balance
 
unrealized
 
accumulated
       
Transfers
 
Balance
   
instruments
 
 
at
 
gains(losses)
 
other
 
Purchases,
 
in and/or
 
at
   
still held at
 
 
January 1,
 
included in
 
comprehensive
 
sales and
 
out of
 
September 30,
   
September 30,
 
 
2010
(a)
earnings
(b)
income
 
settlements
 
Level 3
(c)
2010
   
2010
(d)
                                             
Investment securities   
                                           
   Debt
                                           
      U.S. corporate
$
3,068 
 
$
48 
 
$
208 
 
$
(13)
 
$
(28)
 
$
3,283 
   
$
– 
 
      State and municipal
 
205 
   
– 
   
21 
   
(13)
   
– 
   
213 
     
– 
 
      Residential
                                           
          mortgage-backed
 
123 
   
(1)
   
17 
   
   
(10)
   
131 
     
– 
 
      Commercial
                                           
          mortgage-backed
 
1,041 
   
30 
   
(3)
   
(1,016)
   
– 
   
52 
     
– 
 
      Asset-backed
 
1,872 
   
27 
   
40 
   
568 
   
(104)
   
2,403 
     
– 
 
      Corporate – non-U.S.
 
1,331 
   
   
(44)
   
145 
   
(225)
   
1,214 
     
– 
 
      Government
                                           
         – non-U.S.
 
163 
   
– 
   
(15)
   
– 
   
   
149 
     
– 
 
     U.S. government and
                                           
         federal agency
 
256 
   
– 
   
(9)
   
(1)
   
– 
   
246 
     
– 
 
   Retained interests
 
45 
   
– 
   
   
(7)
   
– 
   
41 
     
– 
 
   Equity
                                           
      Available-for-sale
 
19 
   
– 
   
   
– 
   
   
22 
     
 
      Trading
 
– 
   
– 
   
– 
   
– 
   
– 
   
– 
     
– 
 
Derivatives(e)(f)
 
236 
   
194 
   
10 
   
(91)
   
89 
   
438 
     
119 
 
Other
 
891 
   
(35)
   
(44)
   
21 
   
– 
   
833 
     
(34)
 
Total
$
9,250 
 
$
270 
 
$
185 
 
$
(405)
 
$
(275)
 
$
9,025 
   
$
86 
 
                                             
                                             
(a)
Included an increase of $1,015 million in debt securities, a reduction in retained interests of $8,782 million and a reduction in derivatives of $365 million related to adoption of ASU 2009-16 & 17.
 
(b)
Earnings effects are primarily included in the “GECS revenues from services” and “Interest and other financial charges” captions in the Condensed Statement of Earnings.
 
(c)
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.
 
(d)
Represented the amount of unrealized gains or losses for the period included in earnings.
 
(e)
Represented derivative assets net of derivative liabilities and included cash accruals of $48 million not reflected in the fair value hierarchy table.
 
(f)
Gains included in net realized/unrealized gains (losses) included in earnings were offset by the earnings effects from the underlying items that were economically hedged. See Note 16.
 


 
(40)

 
Non-Recurring Fair Value Measurements
 
The following table represents non-recurring fair value amounts (as measured at the time of the adjustment) for those assets remeasured to fair value on a non-recurring basis during the fiscal year and still held at September 30, 2011 and December 31, 2010. These assets can include loans and long-lived assets that have been reduced to fair value when they are held for sale, impaired loans that have been reduced based on the fair value of the underlying collateral, cost and equity method investments and long-lived assets that are written down to fair value when they are impaired and the remeasurement of retained investments in formerly consolidated subsidiaries upon a change in control that results in deconsolidation of a subsidiary, if we sell a controlling interest and retain a noncontrolling stake in the entity. Assets that are written down to fair value when impaired and retained investments are not subsequently adjusted to fair value unless further impairment occurs.
 
 
Remeasured during
 
Remeasured during
 
the nine months ended
 
the year ended
 
September 30, 2011
 
December 31, 2010
(In millions)
Level 2
 
Level 3
 
Level 2
 
Level 3
                       
Financing receivables and loans held for sale
$
20 
 
$
6,278 
 
$
54 
 
$
6,833 
Cost and equity method investments(a)
 
– 
   
442 
   
– 
   
510 
Long-lived assets, including real estate
 
1,124 
   
3,252 
   
1,025 
   
5,811 
Retained investments in formerly
                     
   consolidated subsidiaries(b)
 
– 
   
– 
   
– 
   
113 
Total
$
1,144 
 
$
9,972 
 
$
1,079 
 
$
13,267 
                       
                       
(a)
Includes the fair value of private equity and real estate funds included in Level 3 of $82 million and $296 million at September 30, 2011 and December 31, 2010, respectively.
 
(b)
During 2010, our retained investment in Regency, a formerly consolidated subsidiary, was remeasured to a Level 1 fair value of $549 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, 2011 and 2010.
 
 
Three months ended September 30
 
Nine months ended September 30
(In millions)
2011 
 
2010 
 
2011 
 
2010 
                       
Financing receivables and loans held for sale
$
 (268)
 
$
 (512)
 
$
 (761)
 
$
 (1,521)
Cost and equity method investments(a)
 
 (84)
   
 (44)
   
 (257)
   
 (117)
Long-lived assets, including real estate(b)
 
 (368)
   
 (867)
   
 (1,268)
   
 (2,184)
Retained investments in formerly consolidated
                     
   subsidiaries
 
– 
   
 1 
   
– 
   
 184 
Total
$
 (720)
 
$
 (1,422)
 
$
 (2,286)
 
$
 (3,638)
                       
                       
(a)
Includes fair value adjustments associated with private equity and real estate funds of $(3) million and $(14) million in the three months ended September 30, 2011 and 2010, respectively, and $(16) million and $(40) million in the nine months ended September 30, 2011 and 2010, respectively.
 
(b)
Includes impairments related to real estate equity properties and investments recorded in other costs and expenses of $223 million and $492 million in the three months ended September 30, 2011 and 2010, respectively, and $999 million and $1,595 million in the nine months ended September 30, 2011 and 2010, respectively.
 


 
(41)

 
16. FINANCIAL INSTRUMENTS
 
The following table provides information about the assets and liabilities not carried at fair value in our Condensed Statement of Financial Position. Consistent with ASC 825, Financial Instruments, the table excludes finance leases and non-financial assets and liabilities. Apart from certain of our borrowings and certain marketable securities, few of the instruments discussed 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 22 in our 2010 consolidated financial statements.
 
 
At
 
September 30, 2011
 
December 31, 2010
     
Assets (liabilities)
     
Assets (liabilities)
     
Carrying
         
Carrying
   
 
Notional
 
amount
 
Estimated
 
Notional
 
amount
 
Estimated
(In millions)
amount
 
(net)
 
fair value
 
amount
 
(net)
 
fair value
                                   
                                   
GE
                                 
Assets
                                 
   Investments and notes
                                 
       receivable
$
(a)
 
$
258 
 
$
258 
 
$
(a)
 
$
414 
 
$
414 
Liabilities
                                 
   Borrowings
 
(a)
   
(10,664)
   
(11,442)
   
(a)
   
(10,112)
   
(10,953)
GECS
                                 
Assets
                                 
   Loans
 
(a)
   
254,217 
   
253,404 
   
(a)
   
268,239 
   
264,550 
   Other commercial mortgages
 
(a)
   
1,042 
   
1,058 
   
(a)
   
1,041 
   
1,103 
   Loans held for sale
 
(a)
   
262 
   
262 
   
(a)
   
287 
   
287 
   Other financial instruments(c)
 
(a)
   
2,045 
   
2,543 
   
(a)
   
2,103 
   
2,511 
Liabilities
                                 
   Borrowings and bank
                                 
      deposits(b)(d)
 
(a)
   
(456,807)
   
(458,290)
   
(a)
   
(470,520)
   
(482,724)
   Investment contract benefits
 
(a)
   
(3,549)
   
(4,317)
   
(a)
   
(3,726)
   
(4,264)
   Guaranteed investment
                                 
      contracts
 
(a)
   
(4,624)
   
(4,637)
   
(a)
   
(5,502)
   
(5,524)
   Insurance – credit life(e)
 
1,942 
   
(106)
   
(89)
   
1,825 
   
(103)
   
(69)
                                   
                                   
(a)
These financial instruments do not have notional amounts.
 
(b)
See Note 8.
 
(c)
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, 2011 and December 31, 2010 would have been reduced by $9,540 million and $4,298 million, respectively.
 
(e)
Net of reinsurance of $2,800 million at both September 30, 2011 and December 31, 2010.
 


 
(42)

 
Loan Commitments
         
 
Notional amount at
 
September 30,
 
December 31,
(In millions)
2011
 
2010
         
Ordinary course of business lending commitments(a)
$
 2,872 
 
$
 3,584 
Unused revolving credit lines(b)
         
   Commercial(c)
 
 17,858 
   
 21,338 
   Consumer – principally credit cards
 
 254,891 
   
 227,006 
           
           
(a)
Excluded investment commitments of $1,941 million and $1,990 million as of September 30, 2011 and December 31, 2010, respectively.
 
(b)
Excluded inventory financing arrangements, which may be withdrawn at our option, of $11,856 million and $11,840 million as of September 30, 2011 and December 31, 2010, respectively.
 
(c)
Included commitments of $13,114 million and $16,243 million as of September 30, 2011 and December 31, 2010, respectively, associated with secured financing arrangements that could have increased to a maximum of $16,623 million and $20,268 million at September 30, 2011 and December 31, 2010, respectively, based on asset volume under the arrangement.
 


Derivatives and hedging
 
As a matter of policy, we use derivatives for risk management purposes, and 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 funding to meet this objective. The determination of whether we enter into a derivative transaction or issue debt directly to achieve this objective depends on a number of factors, including market related factors that affect the type of debt we can issue.
 
The notional amounts of derivative contracts represent the basis upon which interest and other payments are calculated and are reported gross, except for offsetting foreign currency forward contracts that are executed in order to manage our currency risk of net investment in foreign subsidiaries. Of the outstanding notional amount of $331,000 million, approximately 88% or $292,000 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 derivative activities primarily relate to hedging against adverse changes in currency exchange rates and commodity prices related to anticipated sales and purchases and contracts containing certain clauses which meet the accounting definition of a derivative. The instruments used in these activities are designated as hedges when practicable. When we are not able to apply hedge accounting, or when the derivative and the hedged item are both recorded in earnings concurrently, the derivatives are deemed 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 transaction, the economic hedge does not require hedge accounting.
 
 
(43)

 
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, 2011
 
 December 31, 2010
 
Fair value
 
Fair value
(In millions)
 
Assets
   
Liabilities
   
Assets
   
Liabilities
                       
Derivatives accounted for as hedges
                     
   Interest rate contracts
$
9,362 
   
1,134 
 
$
5,959 
 
$
2,675 
   Currency exchange contracts
 
4,470 
   
2,950 
   
2,965 
   
2,533 
   Other contracts
 
   
   
   
– 
   
13,833 
   
4,086 
   
8,929 
   
5,208 
                       
Derivatives not accounted for as hedges
                     
   Interest rate contracts
 
344 
   
284 
   
294 
   
552 
   Currency exchange contracts
 
1,989 
   
771 
   
1,602 
   
846 
   Other contracts
 
321 
   
126 
   
531 
   
50 
   
2,654 
   
1,181 
   
2,427 
   
1,448 
                       
Netting adjustments(a)
 
(3,398)
   
(3,385)
   
(3,867)
   
(3,857)
                       
Total
$
13,089 
   
1,882 
 
$
7,489 
 
$
2,799 
                       
                       
Derivatives are classified in the captions “All other assets” and “All 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 non-performance risk. At September 30, 2011 and December 31, 2010, the cumulative adjustment for non-performance risk was a loss of $13 million and $10 million, respectively.
 


Fair value hedges
 
We use interest rate and currency exchange derivatives to hedge the fair value effects of interest rate and currency exchange rate changes on local and non-functional currency denominated fixed-rate debt. For relationships designated as fair value hedges, changes in fair value of the derivatives are recorded in earnings within interest and other financial charges, along with offsetting adjustments to the carrying amount of the hedged debt. The following tables provide information about the earnings effects of our fair value hedging relationships for the three and nine months ended September 30, 2011 and 2010, respectively.
 
 
Three months ended
 
September 30, 2011
 
September 30, 2010
(In millions)
Gain (loss)
 
Gain (loss)
 
Gain (loss)
 
Gain (loss)
 
on hedging
 
on hedged
 
on hedging
 
on hedged
 
derivatives
 
items
 
derivatives
 
items
                       
Interest rate contracts
$
5,708 
 
$
(5,829)
 
$
1,862 
 
$
(2,048)
Currency exchange contracts
 
64 
   
(74)
   
57 
   
(60)
                       
                       
Fair value hedges resulted in $(131) million and $(189) million of ineffectiveness in the three months ended September 30, 2011 and 2010, respectively. In both the three months ended September 30, 2011 and 2010, there were insignificant amounts excluded from the assessment of effectiveness. 


 
(44)

 
 
Nine months ended
 
September 30, 2011
 
September 30, 2010
(In millions)
Gain (loss)
 
Gain (loss)
 
Gain (loss)
 
Gain (loss)
 
on hedging
 
on hedged
 
on hedging
 
on hedged
 
derivatives
 
items
 
derivatives
 
items
                       
Interest rate contracts
$
5,318 
 
$
(5,634)
 
$
5,673 
 
$
(6,178)
Currency exchange contracts
 
103 
   
(121)
   
48 
   
(59)
                       
                       
Fair value hedges resulted in $(334) million and $(516) million of ineffectiveness in the nine months ended September 30, 2011 and 2010, respectively. In both the nine months ended September 30, 2011 and 2010, there were insignificant amounts excluded from the assessment of effectiveness.
 


Cash flow hedges
 
We use interest rate, currency exchange and commodity derivatives to reduce the variability of expected future cash flows associated with variable rate borrowings and commercial purchase and sale transactions, including commodities. 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 as a component of AOCI and reclassified into earnings contemporaneously and in the same caption with the earnings effects of the hedged transaction.
 
 
The following tables provide information about the amounts recorded in AOCI, as well as the gain (loss) recorded in earnings, primarily in interest and other financial charges, when reclassified out of AOCI, for the three and nine months ended September 30, 2011 and 2010.
 
           
             
Gain (loss) reclassified
 
Gain (loss) recognized in AOCI
 
from AOCI into earnings
(In millions)
for the three months ended
 
for the three months ended
 
September 30,
 
September 30,
 
September 30,
 
September 30,
 
2011 
 
2010 
 
2011 
 
2010 
                       
Cash flow hedges
                     
Interest rate contracts
$
(170)
 
$
(221)
 
$
(182)
 
$
(296)
Currency exchange contracts
 
(639)
   
661 
   
(575)
   
952 
Commodity contracts
 
(4)
   
   
   
– 
Total
$
(813)
 
$
445 
 
$
(756)
 
$
656 


           
             
Gain (loss) reclassified
 
Gain (loss) recognized in AOCI
 
from AOCI into earnings
(In millions)
for the nine months ended
 
for the nine months ended
 
September 30,
 
September 30,
 
September 30,
 
September 30,
 
2011 
 
2010 
 
2011 
 
2010 
                       
                       
Cash flow hedges
                     
Interest rate contracts
$
(287)
 
$
(665)
 
$
(660)
 
$
(1,067)
Currency exchange contracts
 
125 
   
(943)
   
377 
   
(733)
Commodity contracts
 
(2)
   
14 
   
   
– 
Total
$
(164)
 
$
(1,594)
 
$
(274)
 
$
(1,800)
                       
                       
The total pre-tax amount in AOCI related to cash flow hedges of forecasted transactions was $1,906 million at September 30, 2011. We expect to transfer $679 million to earnings as an expense in the next 12 months contemporaneously with the earnings effects of the related forecasted transactions. In both the three and nine months ended September 30, 2011 and 2010, we recognized insignificant gains and losses, respectively, related to hedged forecasted transactions and firm commitments that did not occur by the end of the originally specified period. At September 30, 2011 and 2010, the maximum term of derivative instruments that hedge forecasted transactions was 21 years and 22 years, respectively.
 


 
(45)

 
For cash flow hedges, the amount of ineffectiveness in the hedging relationship and amount of the changes in fair value of the derivatives that are not included in the measurement of ineffectiveness are both reflected in earnings each reporting period. These amounts are primarily reported in GECS revenues from services and totaled $53 million and $14 million in the three months ended September 30, 2011 and 2010, respectively, and $65 million and $(13) million in the nine months ended September 30, 2011 and 2010, respectively.

Net investment hedges in foreign operations
 
We use currency exchange derivatives to protect our net investments in global operations conducted in non-U.S. dollar currencies. 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 as a component 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, is excluded from the effectiveness assessment.

The following tables provide information about the amounts recorded in AOCI for the three and nine months ended September 30, 2011 and 2010, as well as the gain (loss) recorded in GECS revenues from services when reclassified out of AOCI.
 
 
Gain (loss) recognized in CTA
 
Gain (loss) reclassified from CTA
(In millions)
for the three months ended
 
for the three months ended
 
September 30,
 
September 30,
 
September 30,
 
September 30,
 
2011 
 
2010 
 
2011 
 
2010 
Net investment hedges
                     
Currency exchange contracts
$
1,948 
 
$
(3,183)
 
$
(15)
 
$
18 
                       
                       
 
Gain (loss) recognized in CTA
 
Gain (loss) reclassified from CTA
(In millions)
for the nine months ended
 
for the nine months ended
 
September 30,
 
September 30,
 
September 30,
 
September 30,
 
2011 
 
2010 
 
2011 
 
2010 
Net investment hedges
                     
Currency exchange contracts
$
(1,458)
 
$
(966)
 
$
(713)
 
$
(12)


The amounts related to the change in the fair value of the forward points that are excluded from the measure of effectiveness were $(386) million and $(204) million for the three months ended September 30, 2011 and 2010, respectively, and $(1,041) million and $(616) million for the nine months ended September 30, 2011 and 2010, respectively, and are recorded in interest and other financial charges.

Free-standing derivatives
 
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 typically entered into as economic hedges of changes in interest rates, currency exchange rates, commodity prices and other risks. Gains or losses related to the derivative are typically recorded in GECS revenues from services or other income, based on our accounting policy. In general, the earnings effects of the item that represent the economic risk exposure are recorded in the same caption as the derivative. Gains for the nine months ended September 30, 2011 on derivatives not designated as hedges were $68 million comprised of amounts related to interest rate contracts of $59 million, currency exchange contracts of $100 million, and other derivatives of $(91) million. These gains more than offset the earnings effects from the underlying items that were economically hedged.  Losses for the nine months ended September 30, 2010 on derivatives not designated as hedges, without considering the offsetting earnings effects from the item representing the economic risk exposure, were $(718) million comprised of amounts related to interest rate contracts of $185 million, currency exchange contracts of $(946) million, and other derivatives of $43 million.

 
(46)

 
Counterparty credit risk
 
Fair values of our derivatives can change significantly from period to period based on, among other factors, market movements and changes in our positions. Accordingly, we actively monitor these exposures and take appropriate actions in response. We manage counterparty credit risk (the risk that counterparties will default and not make payments to us according to the terms of our standard master agreements) on an individual counterparty basis. Where we have agreed to netting of derivative exposures with a counterparty, we offset our exposures with that counterparty and apply the value of collateral posted to us to determine the exposure. When net exposure to a counterparty, based on the current market values of agreements and collateral, exceeds credit exposure limits, we typically take action to reduce such exposures. These actions may include prohibiting additional transactions with the counterparty, requiring additional collateral from the counterparty (as described below) and terminating or restructuring transactions.

As discussed above, we have provisions in certain of our master agreements that require counterparties to post collateral (typically, cash or U.S. Treasuries) when our receivable due from the counterparty, measured at current market value, exceeds a specified limit. At September 30, 2011, our exposure to counterparties, including interest due, net of collateral we hold, was $1,347 million. The fair value of such collateral was $16,226 million, of which $3,504 million was cash and $12,722 million was in the form of securities held by a custodian for our benefit. Under certain of these same agreements, we post collateral to our counterparties for our derivative obligations, the fair value of which was $1,184 million at September 30, 2011.

Additionally, our standard master agreements typically contain mutual downgrade provisions that provide the ability of each party to require 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 termination if the short-term rating of the counterparty were to fall below A-1/P-1. The net amount relating to our derivative liability of $1,882 million subject to these provisions, after consideration of collateral posted by us and outstanding interest payments, was $997 million at September 30, 2011.

 
(47)

 
17. SUPPLEMENTAL INFORMATION ABOUT THE CREDIT QUALITY OF FINANCING RECEIVABLES AND ALLOWANCE FOR LOSSES ON FINANCING RECEIVABLES
 
Pursuant to new disclosures required by ASC 310-10, effective December 31, 2010, we provide further detailed information about the credit quality of our Commercial, Real Estate and Consumer financing receivables portfolios. For each portfolio, we describe the characteristics of the financing receivables and provide information about collateral, payment performance, credit quality indicators, and impairment. While we provide data on selected credit quality indicators in accordance with the new disclosure requirements of ASC 310-10, we manage these portfolios using delinquency and nonearning data as key performance indicators. The categories used within this section such as impaired loans, troubled debt restructuring and nonaccrual financing receivables are defined by the authoritative guidance and we base our categorization on the related scope and definitions contained in the related standards. The categories of nonearning and delinquent are defined by us and are used in our process for managing our financing receivables. Definitions of these categories are provided below:

Impaired loans are 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.

Troubled debt restructurings (TDRs) are those loans for which we have granted a concession to a borrower experiencing financial difficulties where we do not receive adequate compensation. Such loans are classified as impaired, and are individually reviewed for specific reserves.

Nonaccrual financing receivables are those on which we have stopped accruing interest. We stop accruing interest at the earlier of the time at which collection of an account becomes doubtful or the account becomes 90 days past due. Although we stop accruing interest in advance of payments, we recognize interest income as cash is collected when appropriate provided the amount does not exceed that which would have been earned at the historical effective interest rate.

Nonearning financing receivables are a subset of nonaccrual financing receivables for which cash payments are not being received or for which we are on the cost recovery method of accounting (i.e., any payments are accounted for as a reduction of principal). This category excludes loans purchased at a discount (unless they have deteriorated post acquisition).

Delinquent financing receivables are those that are 30 days or more past due based on their contractual terms.
The same financing receivable may meet more than one of the definitions above. Accordingly, these categories are not mutually exclusive and it is possible for a particular loan to meet the definitions of a TDR, impaired loan, nonaccrual loan and nonearning loan and be included in each of these categories in the tables that follow. The categorization of a particular loan also may not be indicative of the potential for loss.

On July 1, 2011, we adopted FASB ASU 2011-02, an amendment to ASC 310, Receivables.  ASU 2011-02 provides guidance for determining whether a restructuring of a debt constitutes a TDR. ASU 2011-02 requires that a restructuring be classified as a TDR when it is both a concession and the debtor is experiencing financial difficulties. The amendment also clarifies the guidance on a creditor’s evaluation of whether it has granted a concession. The amendment applies to restructurings that have occurred subsequent to January 1, 2011.  As a result of adopting these amendments on July 1, 2011, we have classified an additional $271 million of financing receivables as TDRs and have recorded an increase of $77 million to our allowance for losses on financing receivables.
 
Our loss mitigation strategy intends to minimize economic loss and, at times, can result in rate reductions, principal forgiveness, extensions, forbearance or other actions, which may cause the related loan to be classified as a TDR.

 
(48)

 
We utilize certain loan modification programs for borrowers experiencing financial difficulties in our Consumer loan portfolio. These loan modification programs are primarily concentrated in our non-U.S. residential mortgage and non-U.S. installment and revolving portfolios and include short-term (three months or less) interest rate reductions and payment deferrals, which were not part of the terms of the original contract and are not classified as TDRs. We sold our U.S. residential mortgage business in 2007 and as such, do not participate in the U.S. government-sponsored mortgage modification programs.
 

Our allowance for losses on financing receivables on these modified consumer loans is determined based upon a formulaic approach that estimates the probable losses inherent in the portfolio based upon statistical analyses of the portfolio. Data related to redefault experience is also considered in our overall reserve adequacy review. Once the loan has been modified, it returns to current status (re-aged) only after receipt of at least three consecutive minimum monthly payments or the equivalent cumulative amount, subject to a re-aging limitation of once a year, or twice in a five-year period in accordance with the Federal Financial Institutions Examination Council guidelines on Uniform Retail Credit Classification and Account Management policy issued in June 2000. We believe that the allowance for losses would not be materially different had we not re-aged these accounts.

For commercial loans, we evaluate changes in terms and conditions to determine whether those changes meet the criteria for classification as a TDR on a loan-by-loan basis. In CLL, these changes primarily include: changes to covenants, short-term payment deferrals and maturity extensions. For these changes, we receive economic consideration, including additional fees and/or increased interest rates, and evaluate them under our normal underwriting standards and criteria. Changes to Real Estates loans primarily include maturity extensions, principal payment acceleration, changes to collateral terms, and cash sweeps, which are in addition to, or sometimes in lieu of, fees and rate increases. The determination of whether these changes to the terms and conditions of our commercial loans meet the TDR criteria includes our consideration of all of the relevant facts and circumstances. When the borrower is experiencing financial difficulty, we carefully evaluate these changes to determine whether they meet the form of a concession. In these circumstances, if the change is deemed to be a concession, we classify the loan as a TDR.

COMMERCIAL
 
Substantially all of our commercial portfolio comprises secured collateral positions. CLL products include loans and leases collateralized by a wide variety of equipment types, cash flow loans, asset-backed loans and factoring arrangements. Our loans and leases are secured by assets such as heavy machinery, vehicles, medical equipment, corporate aircraft, and office imaging equipment. Cash flow financing is secured by our ability to liquidate the underlying assets of the borrower and the asset-backed loans and factoring arrangements are secured by customer accounts receivable, inventory, and/or machinery and equipment. The portfolios in our Energy Financial Services and GECAS businesses are primarily collateralized by energy generating assets and commercial aircraft, respectively. Our senior secured position and risk management expertise provide loss mitigation against borrowers with weak credit characteristics.

 
(49)

 
Financing Receivables and Allowance for Losses
 
The following table provides further information about general and specific reserves related to Commercial financing receivables.
 
Commercial
Financing receivables at
 
 
September 30,
 
December 31,
 
(In millions)
2011 
 
2010 
 
             
CLL
           
   Americas(a)
$
81,072 
 
$
88,558 
 
   Europe
 
37,130 
   
37,498 
 
   Asia
 
11,914 
   
11,943 
 
   Other(a)
 
469 
   
664 
 
Total CLL
 
130,585 
   
138,663 
 
             
Energy Financial Services
 
5,977 
   
7,011 
 
             
GECAS
 
11,841 
   
12,615 
 
             
Other
 
1,388 
   
1,788 
 
             
Total Commercial financing receivables, before allowance for losses
$
149,791 
 
$
160,077 
 
             
Non-impaired financing receivables
$
143,974 
 
$
154,257 
 
General reserves
 
817 
   
1,014 
 
             
Impaired loans
 
5,817 
   
5,820 
 
Specific reserves
 
829 
   
1,031 
 
             
             
(a)  
During the third quarter of 2011, we transferred our Railcar lending and leasing portfolio from CLL Other to CLL Americas.  Prior-period amounts were reclassified to conform to the current-period presentation.
 
 
Past Due Financing Receivables
 
The following table displays payment performance of Commercial financing receivables.
 
 
At
 
Commercial
September 30, 2011
 
December 31, 2010
 
 
Over 30 days
 
Over 90 days
 
Over 30 days
 
Over 90 days
 
 
past due
 
past due
 
past due
 
past due
 
                 
CLL
               
   Americas
1.1 
%
0.7 
%
1.2 
%
0.8 
%
   Europe
4.0 
 
2.3 
 
4.2 
 
2.3 
 
   Asia
1.7 
 
1.1 
 
2.2 
 
1.4 
 
   Other
0.6 
 
0.6 
 
2.4 
 
1.2 
 
Total CLL
2.0 
 
1.2 
 
2.1 
 
1.3 
 
                 
Energy Financial Services
0.3 
 
0.3 
 
0.9 
 
0.8 
 
                 
GECAS
0.4 
 
– 
 
 –
 
 –
 
                 
Other
4.3 
 
4.0 
 
5.8 
 
5.5 
 
                 
Total
1.8 
 
1.1 
 
2.0 
 
1.2 
 


 
(50)

 
Nonaccrual Financing Receivables
 
The following table provides further information about Commercial financing receivables that are classified as nonaccrual. Of our $4,867 million and $5,463 million of nonaccrual financing receivables at September 30, 2011 and December 31, 2010, respectively, $1,243 million and $1,016 million are currently paying in accordance with their contractual terms, respectively.
 
Commercial
Nonaccrual financing
 
Nonearning financing
 
 
receivables at
 
receivables at
 
 
September 30,
 
December 31,
 
September, 30,
 
December 31,
 
(Dollars in millions)
2011 
 
2010 
 
2011 
 
2010 
 
                         
CLL
                       
   Americas
$
2,553 
 
$
3,208 
 
$
1,967 
 
$
2,573 
 
   Europe
 
1,599 
   
1,415 
   
1,086 
   
1,241 
 
   Asia
 
379 
   
616 
   
230 
   
406 
 
   Other
 
16 
   
   
16 
   
 
Total CLL
 
4,547 
   
5,246 
   
3,299 
   
4,226 
 
                         
Energy Financial Services
 
135 
   
78 
   
135 
   
62 
 
                         
GECAS
 
62 
   
– 
   
62 
   
– 
 
                         
Other
 
123 
   
139 
   
71 
   
102 
 
Total
$
4,867 
 
$
5,463 
 
$
3,567 
 
$
4,390 
 
                         
Allowance for losses percentage
 
33.8 
%
 
37.4 
%
 
46.1 
%
 
46.6 
%


 
(51)

 
Impaired Loans
 
The following table provides information about loans classified as impaired and specific reserves related to Commercial.
 
Commercial(a)
With no specific allowance
 
With a specific allowance
 
Recorded
 
Unpaid
 
Average
 
Recorded
 
Unpaid
     
Average
 
investment
 
principal
 
investment in
 
investment
 
principal
 
Associated
 
investment
(In millions)
in loans
 
balance
 
loans
 
in loans
 
balance
 
allowance
 
in loans
                                         
September 30, 2011
                                       
                                         
CLL
                                       
   Americas
$
2,136 
 
$
2,104 
 
$
2,126 
 
$
1,433 
 
$
1,571 
 
$
439 
 
$
1,494 
   Europe
 
1,103 
   
1,036 
   
1,016 
   
561 
   
539 
   
260 
   
570 
   Asia
 
59 
   
50 
   
97 
   
139 
   
107 
   
71 
   
228 
   Other
 
– 
   
– 
   
   
12 
   
12 
   
   
Total CLL
 
3,298 
   
3,190 
   
3,242 
   
2,145 
   
2,229 
   
773 
   
2,295 
Energy Financial Services
 
   
   
24 
   
131 
   
132 
   
19 
   
104 
GECAS
 
88 
   
88 
   
67 
   
   
   
   
14 
Other
 
63 
   
63 
   
68 
   
85 
   
84 
   
35 
   
103 
Total
$
3,453 
 
$
3,345 
 
$
3,401 
 
$
2,364 
 
$
2,448 
 
$
829 
 
$
2,516 
                                         
December 31, 2010
                                       
                                         
CLL
                                       
   Americas
$
2,030 
 
$
2,127 
 
$
1,547 
 
$
1,699 
 
$
1,744 
 
$
589 
 
$
1,754 
   Europe
 
802 
   
674 
   
629 
   
566 
   
566 
   
267 
   
563 
   Asia
 
119 
   
117 
   
117 
   
338 
   
303 
   
132 
   
334 
   Other
 
– 
   
– 
   
   
– 
   
– 
   
– 
   
– 
Total CLL
 
2,951 
   
2,918 
   
2,302 
   
2,603 
   
2,613 
   
988 
   
2,651 
Energy Financial Services
 
54 
   
61 
   
76 
   
24 
   
24 
   
   
70 
GECAS
 
24 
   
24 
   
50 
   
– 
   
– 
   
– 
   
31 
Other
 
58 
   
57 
   
30 
   
106 
   
99 
   
37 
   
82 
Total
$
3,087 
 
$
3,060 
 
$
2,458 
 
$
2,733 
 
$
2,736 
 
$
1,031 
 
$
2,834 
                                         
                                         
(a)  
We recognized $133 million, $88 million and $49 million of interest income for the nine months ended September 30, 2011, the year ended December 31, 2010 and the nine months ended September 30, 2010, respectively, principally on a cash basis. A substantial majority of this amount was related to income recognized in our CLL Americas business. The total average investment in impaired loans for the nine months ended September 30, 2010, was $5,172 million.

 
(52)

 
Impaired loans classified as TDRs in our CLL business were $3,620 million and $2,911 million at September 30, 2011, and December 31, 2010, respectively, and were primarily attributable to CLL Americas ($2,691 million and $2,347 million, respectively).  For the nine months ended September 30, 2011, we modified $1,408 million of loans classified as TDRs primarily in CLL Americas ($810 million) and CLL EMEA ($521 million).  Changes to these loans primarily included debt to equity exchange, extensions, interest only payment periods and forbearance or other actions, which are in addition to, or sometimes in lieu of, fees and rate increases. Of our modifications classified as TDRs in the last nine months, $41 million have subsequently experienced a payment default.
 
Credit Quality Indicators
 
Substantially all of our Commercial financing receivables portfolio is secured lending and we assess the overall quality of the portfolio based on the potential risk of loss measure. The metric incorporates both the borrower’s credit quality along with any related collateral protection.

Our internal risk ratings process is an important source of information in determining our allowance for losses and represents a comprehensive, statistically validated approach to evaluate risk in our financing receivables portfolios. In deriving our internal risk ratings, we stratify our Commercial portfolios into twenty-one categories of default risk and/or six categories of loss given default to group into three categories: A, B and C. Our process starts by developing an internal risk rating for our borrowers, which are based upon our proprietary models using data derived from borrower financial statements, agency ratings, payment history information, equity prices and other commercial borrower characteristics. We then evaluate the potential risk of loss for the specific lending transaction in the event of borrower default, which takes into account such factors as applicable collateral value, historical loss and recovery rates for similar transactions, and our collection capabilities. Our internal risk ratings process and the models we use are subject to regular monitoring and validation controls. The frequency of rating updates is set by our credit risk policy, which requires annual Audit Committee approval. The models are updated on a regular basis and statistically validated annually, or more frequently as circumstances warrant.

The table below summarizes our Commercial financing receivables by risk category. As described above, financing receivables are assigned one of twenty-one risk ratings based on our process and then these are grouped by similar characteristics into three categories in the table below. Category A is characterized by either high credit quality borrowers or transactions with significant collateral coverage which substantially reduces or eliminates the risk of loss in the event of borrower default. Category B is characterized by borrowers with weaker credit quality than those in Category A, or transactions with moderately strong collateral coverage which minimizes but may not fully mitigate the risk of loss in the event of default. Category C is characterized by borrowers with higher levels of default risk relative to our overall portfolio or transactions where collateral coverage may not fully mitigate a loss in the event of default.

 
(53)

 
Commercial
Secured
(In millions)
A
 
B
 
C
 
Total
                       
September 30, 2011
                     
                       
CLL
                     
   Americas(a)
$
73,994 
 
$
2,688 
 
$
4,390 
 
$
81,072 
   Europe
 
33,731 
   
734 
   
1,323 
   
35,788 
   Asia
 
10,851 
   
159 
   
711 
   
11,721 
   Other(a)
 
371 
   
25 
   
73 
   
469 
Total CLL
 
118,947 
   
3,606 
   
6,497 
   
129,050 
                       
Energy Financial Services
 
5,763 
   
196 
   
18 
   
5,977 
                       
GECAS
 
11,360 
   
439 
   
42 
   
11,841 
                       
Other
 
1,388 
   
– 
   
– 
   
1,388 
Total
$
137,458 
 
$
4,241 
 
$
6,557 
 
$
148,256 
                       
December 31, 2010
                     
                       
CLL
                     
   Americas(a)
$
78,939 
 
$
4,103 
 
$
5,516 
 
$
88,558 
   Europe
 
33,642 
   
840 
   
1,262 
   
35,744 
   Asia
 
10,777 
   
199 
   
766 
   
11,742 
   Other(a)
 
544 
   
66 
   
54 
   
664 
Total CLL
 
123,902 
   
5,208 
   
7,598 
   
136,708 
                       
Energy Financial Services
 
6,775 
   
183 
   
53 
   
7,011 
                       
GECAS
 
11,034 
   
1,193 
   
388 
   
12,615 
                       
Other
 
1,788 
   
– 
   
– 
   
1,788 
Total
$
143,499 
 
$
6,584 
 
$
8,039 
 
$
158,122 
                       


(a)  
During the third quarter of 2011, we transferred our Railcar lending and leasing portfolio from CLL Other to CLL Americas.  Prior-period amounts were reclassified to conform to the current-period presentation.

For our secured financing receivables portfolio, our collateral position and ability to work out problem accounts mitigates our losses. Our asset managers have deep industry expertise that enables us to identify the optimum approach to default situations. We price risk premiums for weaker credits at origination, closely monitor changes in creditworthiness through our risk ratings and watch list process, and are engaged early with deteriorating credits to minimize economic loss. Secured financing receivables within risk Category C are predominantly in our CLL businesses and are primarily comprised of senior term lending facilities and factoring programs secured by various asset types including inventory, accounts receivable, cash, equipment and related business facilities as well as franchise finance activities secured by underlying equipment.

Loans within Category C are reviewed and monitored regularly, and classified as impaired when it is probable that they will not pay in accordance with contractual terms. Our internal risk rating process identifies credits warranting closer monitoring; and as such, these loans are not necessarily classified as nonearning or impaired.

Substantially all of our unsecured Commercial financing receivables portfolio is attributable to our Interbanca S.p.A. and GE Sanyo Credit acquisitions in Europe and Asia, respectively. At September 30, 2011 and December 31, 2010, these financing receivables included $258 million and $208 million rated A, $680 million and $964 million rated B, and $597 million and $783 million rated C, respectively.

 
(54)

 
REAL ESTATE
 
Our real estate portfolio primarily comprises fixed and floating loans secured by commercial real estate. Our Debt portfolio is underwritten based on the cash flows generated by underlying income-producing commercial properties and secured by first mortgages. Our Business Properties portfolio is underwritten primarily by the credit quality of the borrower and secured by tenant and owner-occupied commercial properties.

Financing Receivables and Allowance for Losses
 
The following table provides further information about general and specific reserves related to Real Estate financing receivables.
 
Real Estate
Financing receivables at
 
 
September 30,
 
December 31,
 
(In millions)
2011 
 
2010 
 
             
Debt
$
25,748 
 
$
30,249 
 
Business Properties
 
8,630 
   
9,962 
 
             
Total Real Estate financing receivables, before allowance for losses
$
34,378 
 
$
40,211 
 
             
Non-impaired financing receivables
$
25,021 
 
$
30,394 
 
General reserves
 
281 
   
338 
 
             
Impaired loans
 
9,357 
   
9,817 
 
Specific reserves
 
860 
   
1,150 
 


Past Due Financing Receivables
 
The following table displays payment performance of Real Estate financing receivables.
 
 
At
 
Real Estate
September 30, 2011
 
December 31, 2010
 
 
Over 30 days
 
Over 90 days
 
Over 30 days
 
Over 90 days
 
 
past due
 
past due
 
past due
 
past due
 
                         
Debt
 
4.3 
%
 
3.6 
%
 
4.3 
%
 
4.1 
%
Business Properties
 
3.8 
   
3.6 
   
4.6 
   
3.9 
 
Total
 
4.2 
   
3.6 
   
4.4 
   
4.0 
 


Nonaccrual Financing Receivables
 
The following table provides further information about Real Estate financing receivables that are classified as nonaccrual. Of our $7,285 million and $9,719 million of nonaccrual financing receivables at September 30, 2011 and December 31, 2010, respectively, $5,821 million and $7,888 million are currently paying in accordance with their contractual terms, respectively.
 
Real Estate
Nonaccrual financing
 
Nonearning financing
 
 
receivables at
 
receivables at
 
 
September 30,
 
December 31,
 
September 30,
 
December 31,
 
(Dollars in millions)
2011 
 
2010 
 
2011 
 
2010 
 
                         
Debt
$
6,648 
 
$
9,039 
 
$
714 
 
$
961 
 
Business Properties
 
637 
   
680 
   
314 
   
386 
 
Total
$
7,285 
 
$
9,719 
 
$
1,028 
 
$
1,347 
 
                         
Allowance for losses percentage
 
15.7 
%
 
15.3 
%
 
111.0 
%
 
110.5 
%


 
(55)

 
Impaired Loans
 
The following table provides information about loans classified as impaired and specific reserves related to Real Estate.
 
Real Estate(a)
With no specific allowance
 
With a specific allowance
 
Recorded
 
Unpaid
 
Average
 
Recorded
 
Unpaid
     
Average
 
investment
 
principal
 
investment
 
investment
 
principal
 
Associated
 
investment
(In millions)
in loans
 
balance
 
in loans
 
in loans
 
balance
 
allowance
 
in loans
                                         
September 30, 2011
                                       
                                         
Debt
$
3,759 
 
$
3,822 
 
$
3,571 
 
$
4,922 
 
$
4,918 
 
$
737 
 
$
5,654 
Business Properties
 
237 
   
237 
   
211 
   
439 
   
525 
   
123 
   
475 
Total
$
3,996 
 
$
4,059 
 
$
3,782 
 
$
5,361 
 
$
5,443 
 
$
860 
 
$
6,129 
                                         
December 31, 2010
                                       
                                         
Debt
$
2,814 
 
$
2,873 
 
$
1,598 
 
$
6,323 
 
$
6,498 
 
$
1,007 
 
$
6,116 
Business Properties
 
191 
   
213 
   
141 
   
489 
   
476 
   
143 
   
382 
Total
$
3,005 
 
$
3,086 
 
$
1,739 
 
$
6,812 
 
$
6,974 
 
$
1,150 
 
$
6,498 
                                         
                                         
(a)  
We recognized $309 million, $189 million and $200 million of interest income for the nine months ended September 30, 2011, the year ended December 31, 2010 and the nine months ended September 30, 2010, respectively, principally on a cash basis. A substantial majority of this amount was related to our Real Estate-Debt portfolio. The total average investment in impaired loans for the nine months ended September 30, 2010 was $7,842 million.

 
(56)

 
Real Estate TDRs increased from $4,866 million at December 31, 2010 to $6,730 million at September 30, 2011, primarily driven by loans scheduled to mature during 2011, some of which were modified during 2011 and classified as TDRs upon modification. We deem loan modifications to be TDRs when we have granted a concession to a borrower experiencing financial difficulty and we do not receive adequate compensation in the form of an effective interest rate that is at current market rates of interest given the risk characteristics of the loan or other consideration that compensates us for the value of the concession. The limited liquidity and higher return requirements in the real estate market for loans with higher loan-to-value (LTV) ratios has typically resulted in the conclusion that the modified terms are not at current market rates of interest, even if the modified loans are expected to be fully recoverable.  For the nine months ended September 30, 2011, we modified $2,978 million of loans classified as TDRs, substantially all in our Debt portfolio. Changes to these loans primarily included maturity extensions, principal payment acceleration, changes to collateral or covenant terms and cash sweeps, which are in addition to, or sometimes in lieu of, fees and rate increases. Of our modifications classified as TDRs in the last nine months, $196 million have subsequently experienced a payment default.
 
Credit Quality Indicators
 
Due to the primarily non-recourse nature of our Debt portfolio, loan-to-value ratios provide the best indicators of the credit quality of the portfolio. By contrast, the credit quality of the Business Properties portfolio is primarily influenced by the strength of the borrower’s general credit quality, which is reflected in our internal risk rating process, consistent with the process we use for our Commercial portfolio.
 
                                   
 
Loan-to-value ratio at
 
September 30, 2011
 
December 31, 2010
   
Less than
   
80% to
   
Greater than
   
Less than
   
80% to
   
Greater than
(In millions)
80%
 
95%
 
95%
 
80%
 
95%
 
95%
                                   
Debt
$
14,588 
 
$
5,053 
 
$
6,107 
 
$
12,362 
 
$
9,392 
 
$
8,495 
                                   
                                   
                                   
                                   
 
Internal Risk Rating at
 
September 30, 2011
 
December 31, 2010
(In millions)
A
 
B
 
C
 
A
 
B
 
C
                                   
Business
                                 
   Properties
$
8,048 
 
$
103 
 
$
479 
 
$
8,746 
 
$
437 
 
$
779 


Within Real Estate, these financing receivables are primarily concentrated in our North American and European Lending platforms and are secured by various property types. Collateral values for Real Estate-Debt financing receivables are updated at least semi-annually, or more frequently for higher risk loans. A substantial majority of the Real Estate-Debt financing receivables with loan-to-value ratios greater than 95% are paying in accordance with contractual terms. Substantially all of these loans and substantially all of the Real Estate-Business Properties financing receivables included in Category C are impaired loans which are subject to the specific reserve evaluation process described in Note 1 in our 2010 consolidated financial statements. The ultimate recoverability of impaired loans is driven by collection strategies that do not necessarily depend on the sale of the underlying collateral and include full or partial repayments through third-party refinancing and restructurings.

 
(57)

 
CONSUMER
 
Our Consumer portfolio is largely non-U.S. and primarily comprises residential mortgage, sales finance, and auto and personal loans in various European and Asian countries. At September 30, 2011, our U.S. consumer financing receivables included private-label credit card and sales financing for approximately 51 million customers across the U.S. with no metropolitan area accounting for more than 6% of the portfolio. Of the total U.S. consumer financing receivables, approximately 63% relate to credit card loans, which are often subject to profit and loss sharing arrangements with the retailer (which are recorded in revenues), and the remaining 37% are sales finance receivables, which provide financing to customers in areas such as electronics, recreation, medical and home improvement.

Financing Receivables and Allowance for Losses
 
The following table provides further information about general and specific reserves related to Consumer financing receivables.
 
Consumer
Financing receivables at
 
 
September 30,
 
December 31,
 
(In millions)
2011 
 
2010 
 
             
Non-U.S. residential mortgages
$
38,708 
 
$
40,011 
 
Non-U.S. installment and revolving credit
 
19,801 
   
20,132 
 
U.S. installment and revolving credit
 
43,249 
   
43,974 
 
Non-U.S. auto
 
6,462 
   
7,558 
 
Other
 
8,017 
   
8,304 
 
Total Consumer financing receivables, before allowance for losses
$
116,237 
 
$
119,979 
 
             
Non-impaired financing receivables
$
113,144 
 
$
117,431 
 
General reserves
 
3,161 
   
3,945 
 
             
Impaired loans
 
3,093 
   
2,548 
 
Specific reserves
 
721 
   
555 
 


Past Due Financing Receivables
 
The following table displays payment performance of Consumer financing receivables.
 
 
At
 
Consumer
September 30, 2011
 
December 31, 2010
 
 
Over 30 days
 
Over 90 days
 
Over 30 days
 
Over 90 days
 
 
past due
 
past due(a)
 
past due
 
past due(a)
 
                         
Non-U.S. residential mortgages
 
13.6 
%
 
8.9 
%
 
13.7 
%
 
8.8 
%
Non-U.S. installment and revolving credit
 
4.2 
   
1.3 
   
4.5 
   
1.3 
 
U.S. installment and revolving credit
 
5.1 
   
2.1 
   
6.2 
   
2.8 
 
Non-U.S. auto
 
3.2 
   
0.5 
   
3.3 
   
0.6 
 
Other
 
3.7 
   
2.0 
   
4.2 
   
2.3 
 
Total
 
7.6 
   
4.1 
   
8.1 
   
4.4 
 
                         
                         
(a)  
Included $42 million and $65 million of loans at September 30, 2011 and December 31, 2010, respectively, which are over 90 days past due and accruing interest.
 


 
(58)

 
Nonaccrual Financing Receivables
 
The following table provides further information about Consumer financing receivables that are classified as nonaccrual.
 
Consumer
Nonaccrual financing
 
Nonearning financing
 
 
receivables at
 
receivables at
 
 
September 30,
 
December 31,
 
September 30,
 
December 31,
 
(Dollars in millions)
2011
 
2010 
 
2011
 
2010 
 
                         
Non-U.S. residential mortgages
$
3,753 
 
$
3,986 
 
$
3,619 
 
$
3,738 
 
Non-U.S. installment and revolving credit
 
347 
   
302 
   
299 
   
289 
 
U.S. installment and revolving credit
 
882 
   
1,201 
   
882 
   
1,201 
 
Non-U.S. auto
 
35 
   
46 
   
35 
   
46 
 
Other
 
491 
   
600 
   
441 
   
478 
 
Total
$
5,508 
 
$
6,135 
 
$
5,276 
 
$
5,752 
 
                         
Allowance for losses percentage
 
70.5 
%
 
73.3 
%
 
73.6 
%
 
78.2 
%


Impaired Loans
 
The vast majority of our Consumer nonaccrual financing receivables are smaller balance homogeneous loans evaluated collectively, by portfolio, for impairment and therefore are outside the scope of the disclosure requirement for impaired loans. Accordingly, impaired loans in our Consumer business represent restructured smaller balance homogeneous loans meeting the definition of a TDR, and therefore subject to the disclosure requirement for impaired loans, and commercial loans in our Consumer–Other portfolio. The recorded investment of these impaired loans totaled $3,093 million (with an unpaid principal balance of $2,662 million) and comprised $50 million with no specific allowance, primarily all in our Consumer–Other portfolio, and $3,043 million with a specific allowance of $721 million at September 30, 2011. The impaired loans with a specific allowance included $370 million with a specific allowance of $95 million in our Consumer–Other portfolio and $2,673 million with a specific allowance of $626 million across the remaining Consumer business and had an unpaid principal balance and average investment of $2,246 million and $2,262 million, respectively, at September 30, 2011. We recognized $101 million, $114 million and $79 million of interest income for the nine months ended September 30, 2011, the year ended December 31, 2010 and the nine months ended September 30, 2010, respectively, principally on a cash basis. A substantial majority of this amount related to income recognized in our Consumer–U.S. installment and revolving credit portfolio. The total average investment in impaired loans for the nine months ended September 30, 2010 was $1,874 million.

Impaired loans classified as TDRs in our Consumer business were $2,914 million and $2,256 million at September 30, 2011, and December 31, 2010, respectively.  We utilize certain loan modification programs for borrowers experiencing financial difficulties in our Consumer loan portfolio. These loan modification programs primarily include interest rate reductions and payment deferrals in excess of three months, which were not part of the terms of the original contract, and are primarily concentrated in our non-U.S. residential mortgage and U.S. credit card portfolios.  For the nine months ended September 30, 2011, we modified $1,510 million of consumer loans for borrowers experiencing financial difficulties, which are classified as TDRs, and included $730 million of non-U.S. consumer loans, primarily residential mortgages, credit cards and personal loans and approximately $780 million of credit card loans in the U.S. We expect borrowers whose loans have been modified under these programs to continue to be able to meet their contractual obligations upon the conclusion of the modification.  For loans modified as TDRs in the last nine months, $184 million have subsequently experienced a payment default, primarily in our U.S. credit card and non-U.S. residential mortgage portfolios.

 
(59)

 
Credit Quality Indicators
 
Our Consumer financing receivables portfolio comprises both secured and unsecured lending. Secured financing receivables comprise residential loans and lending to small and medium-sized enterprises predominantly secured by auto and equipment, inventory finance, and cash flow loans. Unsecured financing receivables include private-label credit card financing. A substantial majority of these cards are not for general use and are limited to the products and services sold by the retailer. The private label portfolio is diverse with no metropolitan area accounting for more than 6% of the related portfolio.

Non-U.S. residential mortgages
 
For our secured non-U.S. residential mortgage book, we assess the overall credit quality of the portfolio through loan-to-value ratios (the ratio of the outstanding debt on a property to the value of that property at origination). In the event of default and repossession of the underlying collateral, we have the ability to remarket and sell the properties to eliminate or mitigate the potential risk of loss. The table below provides additional information about our non-U.S. residential mortgages based on loan-to-value ratios.
 
                                   
 
Loan-to-value ratio at
 
September 30, 2011
   
December 31, 2010
 
80% or
 
Greater than
 
Greater than
 
80% or
 
Greater than
 
Greater than
(In millions)
less
 
80% to 90%
 
90%
 
less
 
80% to 90%
 
90%
                                   
Non-U.S.
                                 
   residential
                                 
   mortgages
$
21,921 
 
$
6,580 
 
$
10,207 
 
$
22,403 
 
$
7,023 
 
$
10,585 


The majority of these financing receivables are in our U.K. and France portfolios and have re-indexed loan-to-value ratios of 85% and 57%, respectively. We have third-party mortgage insurance for approximately 67% of the balance of Consumer non-U.S. residential mortgage loans with loan-to-value ratios greater than 90% at September 30, 2011. Such loans were primarily originated in the U.K. and France.

Installment and Revolving Credit
 
For our unsecured lending products, including the non-U.S. and U.S. installment and revolving credit and non-U.S. auto portfolios, we assess overall credit quality using internal and external credit scores. Our internal credit scores imply a probability of default which we consistently translate into three approximate credit bureau equivalent credit score categories, including (a) 681 or higher which are considered the strongest credits; (b) 615 to 680, considered moderate credit risk; and (c) 614 or less, which are considered weaker credits.
 
 
Internal ratings translated to approximate credit bureau equivalent score at
 
September 30, 2011
 
December 31, 2010
 
681 or
 
615 to
 
614 or
 
681 or
 
615 to
 
614 or
(In millions)
higher
 
680 
 
less
 
higher
 
680 
 
less
                                   
Non-U.S.
                                 
   installment and
                                 
   revolving credit
$
10,429 
 
$
5,185 
 
$
4,187 
 
$
10,192 
 
$
5,749 
 
$
4,191 
U.S. installment
                                 
   and revolving
                                 
   credit
 
26,912 
   
8,743 
   
7,594 
   
25,940 
   
8,846 
   
9,188 
Non-U.S. auto
 
4,425 
   
1,256 
   
781 
   
5,379 
   
1,330 
   
849 


 
(60)

 
Of those financing receivable accounts with credit bureau equivalent scores of 614 or less at September 30, 2011, 94% relate to installment and revolving credit accounts. These smaller balance accounts have an average outstanding balance less than one thousand U.S. dollars and are primarily concentrated in our retail card and sales finance receivables in the U.S. (which are often subject to profit and loss sharing arrangements), and closed-end loans outside the U.S., which minimizes the potential for loss in the event of default. For lower credit scores, we adequately price for the incremental risk at origination and monitor credit migration through our risk ratings process. We continuously adjust our credit line underwriting management and collection strategies based on customer behavior and risk profile changes.

Consumer – Other
 
Secured lending in Consumer – Other comprises loans to small and medium-sized enterprises predominantly secured by auto and equipment, inventory finance, and cash flow loans. We develop our internal risk ratings for this portfolio in a manner consistent with the process used to develop our Commercial credit quality indicators, described above. We use the borrower’s credit quality and underlying collateral strength to determine the potential risk of loss from these activities.

At September 30, 2011, Consumer – Other financing receivables of $6,027 million, $759 million and $1,231 million were rated A, B, and C, respectively. At December 31, 2010, Consumer – Other financing receivables of $6,415 million, $822 million and $1,067 million were rated A, B, and C, respectively.


18. VARIABLE INTEREST ENTITIES
 
We securitize financial assets and arrange other forms of asset-backed financing in the ordinary course of business. The securitization transactions we engage in are similar to those used by many financial institutions. Beyond improving returns, these securitization transactions serve as alternative funding sources for a variety of diversified lending and securities transactions. Historically, we have used both GE-supported and third-party VIEs to execute off-balance sheet securitization transactions funded in the commercial paper and term markets. The largest group of VIEs that we are involved with are former Qualified Special Purpose Entities (QSPEs), which under guidance in effect through December 31, 2009 were excluded from the scope of consolidation standards based on their characteristics. Except as noted below, investors in these entities only have recourse to the assets owned by the entity and not to our general credit. We do not have implicit support arrangements with any VIE. We did not provide non-contractual support for previously transferred financing receivables to any VIE in 2011 or 2010.

In evaluating whether we have the power to direct the activities of a VIE that most significantly impact its economic performance, we consider the purpose for which the VIE was created, the importance of each of the activities in which it is engaged and our decision-making role, if any, in those activities that significantly determine the entity’s economic performance as compared to other economic interest holders. This evaluation requires consideration of all facts and circumstances relevant to decision-making that affects the entity’s future performance and the exercise of professional judgment in deciding which decision-making rights are most important.

In determining whether we have the right to receive benefits or the obligation to absorb losses that could potentially be significant to the VIE, we evaluate all of our economic interests in the entity, regardless of form (debt, equity, management and servicing fees, and other contractual arrangements). This evaluation considers all relevant factors of the entity’s design, including: the entity’s capital structure, contractual rights to earnings (losses), subordination of our interests relative to those of other investors, contingent payments, as well as other contractual arrangements that have potential to be economically significant. The evaluation of each of these factors in reaching a conclusion about the potential significance of our economic interests is a matter that requires the exercise of professional judgment.

 
(61)

 
Consolidated Variable Interest Entities
 
We consolidate VIEs because we have the power to direct the activities that significantly affect the VIE’s economic performance, typically because of our role as either servicer or manager for the VIE. As more fully described in Note 24 in our 2010 consolidated financial statements, our consolidated VIEs fall into three main groups: (1) Trinity, a group of sponsored special purpose entities that holds investment securities funded by the issuance of GICs; (2) Consolidated Securitization Entities, primarily former QSPEs that were created to facilitate securitization of financial assets and other forms of asset-backed financing; and (3) Other consolidated VIEs, primarily asset-backed financing entities where we are the collateral manager, joint ventures and insurance entities. The table below summarizes the assets and liabilities of these entities.
 
     
Consolidated Securitization Entities(a)
       
     
Credit
     
Real
 
Trade
       
(In millions)
Trinity
(b)
Cards
(c)
Equipment
(d)
Estate
 
Receivables
 
Other
(d)
Total
                                         
September 30, 2011
                                       
Assets(e)
                                       
Financing
                                       
   receivables, net
$
– 
 
$
 17,272 
 
$
 10,217 
 
$
 3,764 
 
$
 2,722 
 
$
 3,006 
 
$
 36,981 
Investment securities
 
 4,624 
   
– 
   
– 
   
– 
   
– 
   
 1,014 
   
 5,638 
Other assets
 
 352 
   
 18 
   
 251 
   
 213 
   
– 
   
 2,856 
   
 3,690 
Total
$
 4,976 
 
$
 17,290 
 
$
 10,468 
 
$
 3,977 
 
$
 2,722 
 
$
 6,876 
 
$
 46,309 
                                         
Liabilities(e)
                                       
Borrowings
$
– 
 
$
– 
 
$
 137 
 
$
 25 
 
$
– 
 
$
 840 
 
$
 1,002 
Non-recourse
                                       
   borrowings
 
– 
   
 12,934 
   
 8,236 
   
 3,882 
   
 2,449 
   
 1,021 
   
 28,522 
Other liabilities
 
 4,920 
   
 54 
   
 30 
   
 3 
   
 360 
   
 1,103 
   
 6,470 
Total
$
 4,920 
 
$
 12,988 
 
$
 8,403 
 
$
 3,910 
 
$
 2,809 
 
$
 2,964 
 
$
 35,994 
                                         
December 31, 2010
                                       
Assets(e)
                                       
Financing
                                       
   receivables, net
$
– 
 
$
 20,570 
 
$
 9,431 
 
$
 4,233 
 
$
 1,882 
 
$
 3,356 
 
$
 39,472 
Investment securities
 
 5,706 
   
– 
   
– 
   
– 
   
– 
   
 964 
   
 6,670 
Other assets
 
 283 
   
 17 
   
 234 
   
 209 
   
 99 
   
 3,672 
   
 4,514 
Total
$
 5,989 
 
$
 20,587 
 
$
 9,665 
 
$
 4,442 
 
$
 1,981 
 
$
 7,992 
 
$
 50,656 
                                         
Liabilities(e)
                                       
Borrowings
$
– 
 
$
– 
 
$
 184 
 
$
 25 
 
$
– 
 
$
 949 
 
$
 1,158 
Non-recourse
                                       
   borrowings
 
– 
   
 12,824 
   
 8,091 
   
 4,294 
   
 2,970 
   
 1,265 
   
 29,444 
Other liabilities
 
 5,690 
   
 132 
   
 8 
   
 4 
   
– 
   
 1,861 
   
 7,695 
Total
$
 5,690 
 
$
 12,956 
 
$
 8,283 
 
$
 4,323 
 
$
 2,970 
 
$
 4,075 
 
$
 38,297 
                                         
                                         
(a)
Includes entities consolidated on January 1, 2010 by the initial application of ASU 2009-16 & 17. On January 1, 2010, we consolidated financing receivables of $39,463 million and investment securities of $1,015 million and non-recourse borrowings of $36,112 million. At September 30, 2011, financing receivables of $29,155 million and non-recourse borrowings of $23,850 million remained outstanding in respect of those entities.
 
(b)
Contractual credit and liquidity support provided to those entities was $1,363 million at September 30, 2011 and $1,508 million at December 31, 2010.
 
(c)
In February 2011, the capital structure of one of our consolidated credit card securitization entities changed and it is now consolidated under the voting interest model and accordingly is no longer reported in the table above. The entity’s assets and liabilities at December 31, 2010 were $2,875 million and $525 million, respectively.
 
(d)
In certain transactions entered into prior to December 31, 2004, we provided contractual credit and liquidity support to third parties who funded the purchase of securitized or participated interests in assets. We have not entered into additional arrangements since that date. Liquidity and credit support was $907 million at September 30, 2011 and $936 million at December 31, 2010.
 
(e)
Asset amounts exclude intercompany receivables for cash collected on behalf of the entities by GE as servicer, which are eliminated in consolidation. Such receivables provide the cash to repay the entities’ liabilities. If these intercompany receivables were included in the table above, assets would be higher. In addition other assets, borrowings and other liabilities exclude intercompany balances that are eliminated in consolidation.
 

 

 
 
(62)

 
Total revenues from our consolidated VIEs were $1,528 million and $1,628 million in the three months ended September 30, 2011 and 2010, respectively, and $4,736 million and $5,355 million in the nine months ended September 30, 2011 and 2010, respectively. Related expenses consisted primarily of provisions for losses of $332 million and $460 million in the three months ended September 30, 2011 and 2010, respectively, and $882 million and $1,207 million in the nine months ended September 30, 2011 and 2010, respectively, and interest and other financial charges of $144 million and $176 million in the three months ended September 30, 2011 and 2010, respectively, and $451 million and $592 million in the nine months ended September 30, 2011 and 2010, respectively. These amounts do not include intercompany revenues and costs, principally fees and interest between GE and the VIEs, which are eliminated in consolidation.

Investments in Unconsolidated Variable Interest Entities
 
Our involvement with unconsolidated VIEs consists of the following activities: assisting in the formation and financing of the entity, providing recourse and/or liquidity support, servicing the assets and receiving variable fees for services provided. We are not required to consolidate these entities because the nature of our involvement with the activities of the VIEs does not give us power over decisions that significantly affect their economic performance.

The largest unconsolidated VIE with which we are involved is Penske Truck Leasing (PTL), a joint venture and limited partnership formed in 1988 between Penske Truck Leasing Corporation (PTLC) and GE. PTLC is the sole general partner of PTL and an indirect wholly-owned subsidiary of Penske Corporation. PTL is engaged in truck leasing and support services, including full-service leasing, dedicated logistics support and contract maintenance programs, as well as rental operations serving commercial and consumer customers. At September 30, 2011, our investment of $6,717 million primarily comprised a 49.9% partnership interest of $864 million and loans and advances of $5,817 million. GECC continues to provide loans under long-term revolving credit and letter of credit facilities to PTL.

Other significant exposures to unconsolidated VIEs at September 30, 2011 include investments in real estate entities ($1,920 million), which generally consist of passive limited partnership investments in tax-advantaged, multi-family real estate and investments in various European real estate entities; debt investment fund ($2,715 million); and exposures to joint ventures that purchase factored receivables ($2,617 million). The vast majority of our other unconsolidated entities consist of passive investments in various asset-backed financing entities.

The classification of our variable interests in these entities in our financial statements is based on the nature of the entity and the type of investment we hold. Variable interests in partnerships and corporate entities are classified as either equity method or cost method investments. In the ordinary course of business, we also make investments in entities in which we are not the primary beneficiary but may hold a variable interest such as limited partner interests or mezzanine debt investments. These investments are classified in two captions in our financial statements: “All other assets” for investments accounted for under the equity method, and “Financing receivables – net” for debt financing provided to these entities. Our investments in unconsolidated VIEs at September 30, 2011 and December 31, 2010 follow.
 
 
At
 
 September 30, 2011
 
 December 31, 2010
(In millions)
 
PTL
   
All other
   
Total
   
PTL
 
All other
 
Total
                                   
                                   
Other assets and investment
                                 
   securities
$
6,717 
 
$
5,524 
 
$
12,241 
 
$
5,790 
 
$
4,585 
 
$
10,375 
Financing receivables – net
 
– 
   
1,905 
   
1,905 
   
– 
   
2,240 
   
2,240 
Total investments
 
6,717 
   
7,429 
   
14,146 
   
5,790 
   
6,825 
   
12,615 
Contractual obligations to fund
                                 
   investments or guarantees
 
600 
   
3,789 
   
4,389 
   
600 
   
1,990 
   
2,590 
Revolving lines of credit
 
1,615 
   
110 
   
1,725 
   
2,431 
   
– 
   
2,431 
Total
$
8,932 
 
$
11,328 
 
$
20,260 
 
$
8,821 
 
$
8,815 
 
$
17,636 


 
(63)

 
In addition to the entities included in the table above, we also hold passive investments in RMBS, commercial mortgage-backed securities (CMBS) and asset-backed securities (ABS) issued by VIEs. Such investments were, by design, investment grade at issuance and held by a diverse group of investors. Further information about such investments is provided in Note 3.


19. INTERCOMPANY TRANSACTIONS
 
Transactions between related companies are made on an arms-length basis, are eliminated and consist primarily of GE customer receivables sold to GECS; GECS services for trade receivables management and material procurement; buildings and equipment (including automobiles) leased between GE and GECS; information technology (IT) and other services sold to GECS by GE; aircraft engines manufactured by GE that are installed on aircraft purchased by GECS from third-party producers for lease to others; and various investments, loans and allocations of GE corporate overhead costs.

These intercompany transactions are reported in the GE and GECS columns of our financial statements, but are eliminated in deriving our consolidated financial statements. Effects of these eliminations on our consolidated cash flows from operating, investing and financing activities include the following. Net decrease (increase) in GE customer receivables sold to GECS of $570 million and $54 million have been eliminated from consolidated cash from operating and investing activities for the nine months ended September 30, 2011 and 2010, respectively. Eliminations of intercompany borrowings (includes GE investment in GECS short-term borrowings, such as commercial paper) of $850 million and $341 million have been eliminated from financing activities for the nine months ended September 30, 2011 and 2010, respectively. Other reclassifications and eliminations of $(365) million and $(56) million have been eliminated from consolidated cash from operating activities and $(532) million and $(158) million have been eliminated from consolidated cash from investing activities for the nine months ended September 30, 2011 and 2010, respectively.


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
A. Results of Operations
 
General Electric Company’s consolidated financial statements represent the combination of the industrial manufacturing and product services businesses of General Electric Company (GE) and the financial services businesses of General Electric Capital Services, Inc. (GECS or financial services).

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(a) to this Form 10-Q Report.

Unless otherwise indicated, we refer to captions such as revenues and earnings from continuing operations attributable to the Company 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.

 
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Overview
 
Earnings from continuing operations attributable to the Company increased 4% to $3.223 billion in the third quarter of 2011 compared with $3.107 billion in the third quarter of 2010. Earnings per share (EPS) from continuing operations were $0.22 in the third quarter of 2011, down 21% compared with $0.28 in the third quarter of 2010. Excluding non-operating pension costs, operating earnings increased 11% to $3.395 billion in the third quarter of 2011 compared with $3.057 billion in the third quarter of 2010. Operating earnings per share (non-GAAP measure) decreased 14% to $0.24 in the third quarter of 2011 compared with $0.28 in the third quarter of 2010. Operating earnings per share excluding the effects of our preferred stock redemption increased 11% to $0.31 in the third quarter of 2011 compared with $0.28 in the third quarter of 2010.

Earnings from continuing operations attributable to the Company increased 18% to $10.147 billion in the nine months ended September 30, 2011, compared with $8.615 billion in the same period of 2010. EPS from continuing operations were $0.86 in the nine months ended September 30, 2011, up 10% compared with $0.78 in the same period of 2010. Excluding non-operating pension costs, operating earnings increased 26% to $10.663 billion in the nine months ended September 30, 2011 compared with $8.458 in the same period of 2010. Operating earnings per share (non-GAAP measure) increased 18% to $0.91 in the nine months ended September 30, 2011 compared with $0.77 in the same period of 2010. Operating earnings per share excluding the effects of our preferred stock redemption increased 27% to $0.98 in the nine months ended September 30, 2011 compared with $0.77 in the comparable period of 2010.

Earnings (loss) from discontinued operations, net of taxes, was $0.0 billion in the third quarter of 2011 compared with $(1.1) billion in the third quarter of 2010. The third quarter of 2010 included $1.1 billion of incremental reserves for excess interest claims related to our loss-sharing arrangement on the 2008 sale of 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.). For additional information related to discontinued operations, see Note 2 to the condensed, consolidated financial statements.

Earnings (loss) from discontinued operations, net of taxes, was $0.3 billion in the nine months ended September 30, 2011 compared with $(1.5) billion in the same period of 2010. The first nine months of 2011 included a $0.3 billion gain related to the sale of Consumer Singapore, partially offset by the loss on the sale of Australian Home Lending. The first nine months of 2010 included $1.7 billion of incremental reserves for excess interest claims related to our loss-sharing arrangement on the 2008 sale of GE Money Japan.

Net earnings attributable to GE common shareowners increased 18% to $2.343 billion and EPS increased 22% to $0.22 in the third quarter of 2011 compared with $1.980 billion and $0.18, respectively, in the third quarter of 2010.

Net earnings attributable to GE common shareowners increased 36% to $9.390 billion and EPS increased 38% to $0.88 in the nine months ended September 30, 2011 compared with $6.884 billion and $0.64, respectively, in the same period of 2010.

Revenues of $35.4 billion in the third quarter of 2011 were flat compared with the third quarter of 2010, reflecting the net effects of acquisitions and dispositions, offset by organic revenue growth and the weaker U.S. dollar. Revenues excluding the impact of NBC Universal (NBCU) were 12% higher compared with the third quarter of 2010. Industrial sales decreased 2% to $23.2 billion, primarily reflecting the net effects of acquisitions and dispositions, partially offset by organic revenue growth and the effects of the weaker U.S. dollar. Industrial sales excluding the impact of NBCU were 18% higher compared with the third quarter of 2010.  Sales of product services (including sales of spare parts and related services) of $10.2 billion in the third quarter of 2011 increased 16% compared with the third quarter of 2010. Financial services revenues increased 1% over the comparable period of last year to $12.0 billion as a result of the weaker U.S. dollar and higher gains, partially offset by reduced revenues from lower asset balances and the net effects of acquisitions and dispositions. Other income increased to $0.6 billion in the three months ended September 30, 2011 from $0.2 billion in the same period of 2010 mainly attributable to equity income and a gain related to NBCU.

 
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Revenues of $109.3 billion in the nine months ended September 30, 2011 were 1% higher compared with the same period of 2010, reflecting organic revenue growth and the weaker U.S. dollar, partially offset by the net effects of acquisitions and dispositions, primarily the NBCU disposition.  Revenues excluding the impact of NBCU were 8% higher compared with the nine months ended September 30, 2010. Industrial sales decreased 4% to $68.3 billion, primarily reflecting the net effects of acquisitions and dispositions, partially offset by organic revenue growth and the effects of the weaker U.S. dollar. Industrial sales excluding the impact of NBCU were 13% higher compared with the nine months ended September 30, 2010.  Sales of product services (including sales of spare parts and related services) of $30.2 billion in the nine months ended September 30, 2011 increased 15% compared with the same period of 2010. Financial services revenues increased 1% over the comparable period of last year to $37.5 billion, reflecting the effects of the weaker U.S. dollar, organic revenue growth and higher gains and investment income, partially offset by reduced revenues from lower asset balances and the net effects of acquisitions and dispositions. Other income increased to $4.8 billion in the nine months ended September 30, 2011 from $0.8 billion in the same period of 2010 mainly attributable to the gain on disposition and equity income related to NBCU.

Overall, acquisitions contributed $1.3 billion and an insignificant amount to consolidated revenues in the third quarters of 2011 and 2010, respectively. Our consolidated earnings in both the third quarters of 2011 and 2010 included insignificant amounts 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 $3.6 billion and $0.8 billion in the third quarters of 2011 and 2010, respectively. The lower revenues in the third quarter of 2011 due to dispositions were primarily driven by the disposition of NBCU. The effects of dispositions on earnings were insignificant amounts in both the third quarters of 2011 and 2010.

Overall, acquisitions contributed $2.9 billion and $0.7 billion to consolidated revenues in the nine months ended September 30, 2011 and 2010, respectively. Our consolidated earnings in the nine months ended September 30, 2011 and 2010 included an insignificant amount and $0.1 billion from acquired businesses, respectively. Dispositions also affected our operations through lower revenues of $7.7 billion and $2.3 billion in the nine months ended September 30, 2011 and 2010, respectively. The lower revenues due to dispositions in the nine months ended September 30, 2011 were primarily driven by the disposition of NBCU. The effects of dispositions on earnings were a decrease of $0.1 billion and an increase of $0.2 billion in the nine months ended September 30, 2011 and 2010, respectively.

The most significant acquisitions affecting results for the three and nine months ended September 30, 2011 were Dresser Inc., Wellstream PLC, the Well Support division of John Wood Group PLC and Lineage Power Holding, Inc. at Energy Infrastructure.

Segment Operations
 
Effective January 1, 2011, we reorganized the Technology Infrastructure segment into three segments – Aviation, Healthcare and Transportation. The prior-period results of the Aviation, Healthcare and Transportation businesses are unaffected by this reorganization. Results of our formerly consolidated subsidiary, NBCU, and our current equity method investment in NBCUniversal LLC (NBCU LLC) are reported in the Corporate items and eliminations line on the Summary of Operating Segments.

Segment profit is determined based on internal performance measures used by the Chief Executive Officer to assess the performance of each business in a given period. In connection with that assessment, the Chief Executive Officer may exclude matters such as charges for restructuring; rationalization and other similar expenses; acquisition costs and other related charges; 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.

 
(66)

 
Segment profit excludes results reported as discontinued operations, earnings attributable to noncontrolling interests of consolidated subsidiaries and accounting changes. Prior to January 1, 2011, segment profit also excluded the effects of principal pension plans. Beginning January 1, 2011, we allocate service costs related to our principal pension plans and no longer allocate the retiree costs of our postretirement healthcare benefits to our segments. This revised allocation methodology better aligns segment operating costs to the active employee costs, which are managed by the segments. This change did not significantly affect our reported segment results. Segment profit excludes or includes interest and other financial charges and income taxes according to how a particular segment’s management is measured – excluded in determining segment profit, which we sometimes refer to as “operating profit,” for Energy Infrastructure, Aviation, Healthcare, Transportation and Home & Business Solutions; included in determining segment profit, which we sometimes refer to as “net earnings,” for GE Capital.

We have reclassified certain prior-period amounts to conform to the current-period presentation. In addition to providing information on segments in their entirety, we have also provided supplemental information for certain operations within the segments. Refer to the Summary of Operating Segments on page 7 for a reconciliation of the total reportable segments’ profit to the consolidated net earnings attributable to the Company.
 
Energy Infrastructure
           
 
Three months ended September 30
 
Nine months ended September 30
(In millions)
2011
 
2010 
 
2011
 
2010 
                       
Revenues
$
10,855 
 
$
8,359 
 
$
30,706 
 
$
26,554 
                       
Segment profit
$
1,503 
 
$
1,656 
 
$
4,436 
 
$
5,047 
                       
Revenues
                     
   Energy
$
8,522 
 
$
6,812 
 
$
24,508 
 
$
22,044 
   Oil & Gas
 
2,526 
   
1,778 
   
6,781 
   
5,145 
                       
Segment profit
                     
   Energy
$
1,221 
 
$
1,393 
 
$
3,710 
 
$
4,393 
   Oil & Gas
 
319 
   
287 
   
851 
   
770 


Energy Infrastructure revenues increased 30% or $2.5 billion (including $1.2 billion from acquisitions) in the third quarter of 2011 as higher volume ($2.1 billion) and the effects of the weaker U.S. dollar ($0.5 billion) were partially offset by lower prices ($0.1 billion).  Higher volume, the effects of the weaker U.S. dollar and lower prices were at both Energy and Oil & Gas. Segment profit decreased 9%, or $0.2 billion, as lower productivity ($0.5 billion) and lower prices ($0.1 billion) were partially offset by higher volume ($0.4 billion), including the effects of acquisitions, and the effects of the weaker U.S. dollar ($0.1 billion).  Higher volume, the effects of the weaker U.S. dollar and lower prices were at both Energy and Oil & Gas. Lower productivity was primarily at Energy.

Energy Infrastructure revenues increased 16% or $4.2 billion (including $2.6 billion from acquisitions) in the nine months ended September 30, 2011 as higher volume ($3.5 billion), the effects of the weaker U.S. dollar ($0.9 billion) and increased other income ($0.1 billion) were partially offset by lower prices ($0.4 billion). Higher volume, the effects of the weaker U.S. dollar, increased other income and lower prices were at both Energy and Oil & Gas. Segment profit decreased 12%, or $0.6 billion, as lower productivity ($1.1 billion) and lower prices ($0.4 billion) were partially offset by higher volume ($0.7 billion), including the effects of acquisitions, the effects of the weaker U.S. dollar ($0.1 billion) and increased other income ($0.1 billion). Lower productivity, lower prices, higher volume, the effects of the weaker U.S. dollar and increased other income were at both Energy and Oil & Gas. Lower productivity was primarily at Energy.

 
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Aviation revenues of $4.8 billion in the third quarter of 2011 increased $0.4 billion, or 10%, due primarily to higher volume ($0.3 billion) and higher other income ($0.1 billion), which in 2011 included a gain on the disposition of Unison Rings ($0.2 billion), partially offset by the effects of supplier contract terminations ($0.1 billion).  Higher volume was driven by increased equipment sales ($0.2 billion) and services ($0.2 billion). Segment profit of $0.9 billion in the third quarter of 2011 increased 7%, or $0.1 billion, due primarily to higher volume ($0.1 billion) and higher other income ($0.1 billion), partially offset by lower productivity ($0.1 billion).

Aviation revenues of $13.9 billion in the nine months ended September 30, 2011 increased $1.1 billion, or 9%, due primarily to higher volume ($1.0 billion) and higher prices ($0.2 billion), partially offset by lower other income ($0.1 billion). Higher volume and higher prices were driven by increased services ($0.8 billion) and equipment sales ($0.3 billion). Lower other income reflects the absence of a franchise fee and a gain on a partial sale of a materials business in 2010. Segment profit of $2.7 billion in the nine months ended September 30, 2011 increased 7%, or $0.2 billion, due primarily to higher volume ($0.2 billion) and higher prices ($0.2 billion), partially offset by higher inflation ($0.1 billion), primarily non-material related, and lower other income ($0.1 billion).

Healthcare revenues of $4.3 billion in the third quarter of 2011 increased $0.4 billion, or 9%, due to higher volume ($0.2 billion) and the weaker U.S. dollar ($0.2 billion), partially offset by lower prices ($0.1 billion). The revenue increase was split between equipment sales ($0.3 billion) and services ($0.1 billion). Segment profit of $0.6 billion in the third quarter of 2011 increased 5% compared with the third quarter of 2010, reflecting increased productivity and higher volume, partially offset by lower prices ($0.1 billion).

Healthcare revenues of $12.9 billion in the nine months ended September 30, 2011 increased $1.1 billion, or 10%, due to higher volume ($0.9 billion) and the weaker U.S. dollar ($0.4 billion), partially offset by lower prices ($0.2 billion). The revenue increase was split between equipment sales ($0.7 billion) and services ($0.4 billion). Segment profit of $1.9 billion in the nine months ended September 30, 2011 increased 6%, or $0.1 billion, reflecting increased productivity ($0.2 billion), higher volume ($0.1 billion) and the weaker U.S. dollar ($0.1 billion), partially offset by lower prices ($0.2 billion) and higher inflation ($0.1 billion), primarily non-material related.

Transportation revenues of $1.3 billion in the third quarter of 2011 increased $0.4 billion, or 48%, due to higher volume ($0.4 billion) related to increased equipment sales ($0.3 billion) and services ($0.1 billion). Segment profit of $0.2 billion in the third quarter of 2011 increased $0.1 billion, or 94%, as a result of increased productivity ($0.1 billion), reflecting improved service margins.

Transportation revenues of $3.4 billion in the nine months ended September 30, 2011 increased $1.1 billion, or 46%, due to higher volume ($1.1 billion) related to increased equipment sales ($0.6 billion) and services ($0.5 billion). Segment profit of $0.5 billion in the nine months ended September 30, 2011 increased $0.3 billion, or over 100%, as a result of increased productivity ($0.3 billion), reflecting improved service margins, and higher volume ($0.1 billion), partially offset by higher inflation ($0.1 billion).

Home & Business Solutions revenues of $2.1 billion in the third quarter of 2011 decreased 1% compared with the third quarter of 2010, reflecting a decrease in Appliances partially offset by higher revenues at Lighting and Intelligent Platforms. Overall, revenues decreased primarily as a result of lower volume ($0.1 billion), principally in our appliances business, partially offset by the weaker U.S. dollar and increased prices. Segment profit decreased 63% in the third quarter of 2011 as the effects of inflation ($0.1 billion), decreased productivity and lower other income were partially offset by increased prices.

Home & Business Solutions revenues of $6.2 billion decreased $0.1 billion, or 1%, in the nine months ended September 30, 2011 reflecting a decrease in Appliances partially offset by higher revenues at Lighting and Intelligent Platforms. Overall, revenues decreased primarily as a result of lower volume ($0.2 billion) and lower prices, both decreases occurring principally in our appliances business, partially offset by the weaker U.S. ($0.1 billion) dollar and increased other income. Segment profit of $0.2 billion in the nine months ended September 30, 2011 decreased 31%, or 0.1 billion, as the effects of inflation ($0.1 billion), lower volume and lower prices were partially offset by the effects of the weaker U.S. dollar, and increased other income.

 
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GE Capital
 
Three months ended September 30
 
Nine months ended September 30
(In millions)
2011 
 
2010 
 
2011 
 
2010 
                       
Revenues
$
 11,148 
 
$
 11,101 
 
$
 34,985 
 
$
 34,676 
                       
Segment profit
$
 1,467 
 
$
 818 
 
$
 4,927 
 
$
 2,131 


 
At
 
September 30,
 
December 31,
 
September 30,
(In millions)
2011 
 
2010 
 
2010 
                 
Total assets
$
571,275 
 
$
568,765 
 
$
574,436 


 
Three months ended September 30
 
Nine months ended September 30
(In millions)
2011 
 
2010 
 
2011 
 
2010 
                       
Revenues
                     
   CLL
$
4,512 
 
$
4,551 
 
$
13,786 
 
$
13,651 
   Consumer
 
4,032 
   
4,097 
   
13,035 
   
12,840 
   Real Estate
 
935 
   
953 
   
2,834 
   
2,888 
   Energy Financial Services
 
221 
   
291 
   
931 
   
1,677 
   GECAS
 
1,265 
   
1,321 
   
3,917 
   
3,819 
                       
Segment profit
                     
   CLL
$
688 
 
$
443 
 
$
1,943 
 
$
987 
   Consumer
 
737 
   
773 
   
2,976 
   
1,977 
   Real Estate
 
(82)
   
(405)
   
(775)
   
(1,332)
   Energy Financial Services
 
79 
   
55 
   
330 
   
334 
   GECAS
 
208 
   
158 
   
835 
   
763 


 
At
 
September 30,
 
December 31,
 
September 30,
(In millions)
2011 
 
2010 
 
2010 
                 
Assets
               
   CLL
$
195,257 
 
$
202,650 
 
$
203,634 
   Consumer
 
141,074 
   
147,327 
   
146,140 
   Real Estate
 
64,449 
   
72,630 
   
75,227 
   Energy Financial Services
 
18,199 
   
19,549 
   
19,847 
   GECAS
 
48,613 
   
49,106 
   
48,696 


GE Capital revenues increased slightly and net earnings increased 79% in the third quarter of 2011. Revenues included $0.1 billion from acquisitions and were reduced by $0.1 billion as a result of dispositions. Revenues also increased as a result of the weaker U.S. dollar and higher gains, partially offset by reduced revenues from lower asset balances. Net earnings increased by $0.6 billion in the third quarter of 2011 primarily due to lower provisions for losses on financing receivables, reflecting improved delinquencies, and lower impairments.

 
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GE Capital revenues increased 1% and net earnings were favorable in the first nine months of 2011. Revenues for the nine months ended September 30, 2011 and 2010 included $0.2 billion and an insignificant amount, respectively, from acquisitions and were increased by an insignificant amount and reduced by $0.9 billion, respectively, as a result of dispositions. Revenues also increased as a result of the weaker U.S. dollar, organic revenue growth, including the gain on sale of a substantial portion of our Garanti Bank equity investment (the Garanti Bank transaction), and higher gains and investment income, partially offset by reduced revenues from lower asset balances. Net earnings increased by $2.8 billion in the first nine months of 2011, primarily due to lower provisions for losses on financing receivables, the gain on the Garanti Bank transaction and lower impairments.

During the first nine months of 2011, GE Capital provided approximately $76 billion of new financings in the U.S. to various companies, infrastructure projects and municipalities. Additionally, we extended approximately $62 billion of credit to approximately 51 million U.S. consumers. GE Capital provided credit to approximately 12,500 new commercial customers and 27,600 new small businesses in the U.S. during the first nine months of 2011 and ended the period with outstanding credit to more than 288,000 commercial customers and 188,000 small businesses through retail programs in the U.S.

Additional information about certain GE Capital businesses follows.

CLL revenues decreased 1% and net earnings increased 55% in the third quarter of 2011. Revenues for the quarter decreased as a result of organic revenue declines ($0.2 billion), primarily due to lower assets, partially offset by the weaker U.S. dollar ($0.2 billion). Net earnings increased in the third quarter of 2011, reflecting lower provisions for losses on financing receivables ($0.1 billion).

CLL revenues increased 1% and net earnings increased 97% in the first nine months of 2011. Revenues increased as a result of higher gains and investment income ($0.5 billion) and the weaker U.S. dollar ($0.4 billion), partially offset by organic revenue declines ($0.8 billion), primarily due to lower assets. Net earnings increased in the first nine months of 2011, reflecting lower provisions for losses on financing receivables ($0.5 billion), higher gains and investment income ($0.3 billion) and lower impairments ($0.1 billion).

Consumer revenues decreased 2% and net earnings decreased 5% in the third quarter of 2011. Revenues included $0.1 billion from acquisitions and were reduced by $0.1 billion as a result of dispositions. Revenues for the third quarter also decreased $0.1 billion as a result of organic revenue declines ($0.3 billion), primarily due to lower assets, partially offset by the weaker U.S. dollar ($0.3 billion). The decrease in net earnings resulted primarily from lower Garanti results ($0.1 billion), and core decreases ($0.1 billion), partially offset by lower provisions for losses on financing receivables ($0.1 billion).

Consumer revenues increased 2% and net earnings increased 51% in the first nine months of 2011. Revenues included $0.2 billion from acquisitions and were reduced by $0.2 billion as a result of dispositions. Revenues for the first nine months also increased $0.2 billion as a result of the gain on the Garanti Bank transaction ($0.7 billion), the weaker U.S. dollar ($0.5 billion) and higher gains ($0.1 billion), partially offset by organic revenue declines ($1.0 billion), primarily due to lower assets. The increase in net earnings resulted primarily from lower provisions for losses on financing receivables ($0.9 billion) and the gain on the Garanti Bank transaction ($0.3 billion), partially offset by lower Garanti results ($0.2 billion), and core decreases ($0.2 billion).

Real Estate revenues decreased 2% and net earnings increased 80% in the third quarter of 2011. Real Estate net earnings increased as a result of lower impairments ($0.2 billion) and a decrease in provisions for losses on financing receivables ($0.2 billion). Depreciation expense on real estate equity investments totaled $0.2 billion and $0.3 billion in the third quarters of 2011 and 2010, respectively.

Real Estate revenues decreased 2% and net earnings increased 42% in the first nine months of 2011. Revenues decreased as a result of organic revenue declines. Real Estate net earnings increased compared with the first nine months of 2010, as a decrease in provisions for losses on financing receivables ($0.5 billion) and lower impairments ($0.4 billion) were partially offset by core declines ($0.3 billion). Depreciation expense on real estate equity investments totaled $0.7 billion and $0.8 billion in the first nine months of 2011 and 2010, respectively.

 
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Energy Financial Services revenues decreased 24% and net earnings increased 44% in the third quarter of 2011. Revenues decreased primarily as a result of organic revenue declines and lower gains. The increase in net earnings resulted primarily from core increases, partially offset by lower gains.

Energy Financial Services revenues decreased 44% and net earnings decreased 1% in the first nine months of 2011. Revenues decreased primarily as a result of the deconsolidation of Regency ($0.7 billion) and organic revenue declines ($0.3 billion), primarily from an asset sale in 2010 by an investee. These decreases were partially offset by higher gains ($0.2 billion). The decrease in net earnings resulted primarily from core decreases ($0.1 billion), primarily from an asset sale in 2010 by an investee and the deconsolidation of Regency ($0.1 billion), partially offset by higher gains ($0.1 billion).

GECAS revenues decreased 4% and net earnings increased 31% in the third quarter of 2011. Revenues for the quarter decreased compared with the third quarter of 2010 as a result of organic revenue declines ($0.1 billion). The increase in net earnings resulted primarily from lower impairments ($0.1 billion), partially offset by core declines.

GECAS revenues increased 3% and net earnings increased 9% in the first nine months of 2011. Revenues for the first nine months increased compared with the first nine months of 2010 as a result of organic revenue growth ($0.1 billion). The increase in net earnings resulted primarily from lower impairments ($0.1 billion).

Corporate Items and Eliminations
 
Three months ended September 30
 
Nine months ended September 30
(In millions)
 
2011
   
2010 
   
2011
   
2010 
                       
Revenues
                     
NBCU
$
394 
 
$
4,069 
 
$
5,475 
 
$
12,139 
Other disposed businesses
 
– 
   
14 
   
   
443 
Insurance activities
 
845 
   
886 
   
2,589 
   
2,646 
Eliminations and other
 
(423)
   
(399)
   
(941)
   
(1,357)
Total
$
816 
 
$
4,570 
 
$
7,124 
 
$
13,871 
                       
Operating Profit (Cost)
                     
NBCU
$
394 
 
$
625 
 
$
4,323 
 
$
1,431 
Other disposed businesses
 
– 
   
– 
   
– 
   
110 
Insurance activities
 
(28)
   
(20)
   
(64)
   
(58)
Principal retirement plans
 
(491)
   
(158)
   
(1,436)
   
(363)
Underabsorbed corporate overhead
 
(413)
   
(265)
   
(1,245)
   
(707)
Other
 
(179)
   
(42)
   
(586)
   
(113)
Total
$
(717)
 
$
140 
 
$
992 
 
$
300 


Corporate items and eliminations revenues of $0.8 billion in the third quarter of 2011 decreased $3.8 billion primarily due to a $3.7 billion reduction in revenues from NBCU operations resulting from the deconsolidation of NBCU effective January 28, 2011. Corporate items and eliminations costs increased by $0.9 billion as $0.3 billion of higher costs of our principal retirement plans, $0.4 billion of lower earnings from NBCU and a $0.2 billion increase in research and development spending and global corporate costs were partially offset by $0.2 billion of pre-tax gain related to the NBCU transaction.

 
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Corporate items and eliminations revenues of $7.1 billion in the nine months ended September 30, 2011 decreased $6.7 billion as a $10.4 billion reduction in revenues from NBCU operations resulting from the deconsolidation of NBCU effective January 28, 2011 and $0.4 billion of lower revenues from other disposed businesses were partially offset by a $3.7 billion pre-tax gain related to the NBCU transaction. Corporate items and eliminations costs decreased by $0.7 billion as $3.6 billion of higher gains from disposed businesses, primarily the NBCU transaction, and $0.1 billion of higher commercial and insurance settlements were partially offset by $1.1 billion of higher costs of our principal retirement plans, $0.8 billion of lower earnings from NBCU operations, a $0.4 billion increase in restructuring, rationalization, acquisition-related and other charges and a $0.5 billion increase in research and development spending and global corporate costs.

Certain amounts included in Corporate items and eliminations cost are not allocated to GE operating segments because they are excluded from the measurement of their operating performance for internal purposes. For the third quarter of 2011, these included $0.1 billion at Energy Infrastructure, primarily acquisition-related costs and technology and product development costs and $0.1 billion at Healthcare, primarily technology and product development costs. For the nine months ended September 30, 2011, these included $0.5 billion at Energy Infrastructure, primarily acquisition-related costs and technology and product development costs, $0.3 billion at Healthcare, $0.2 billion at Aviation and $0.1 billion at both Home & Business Solutions and Transportation, primarily technology and product development costs and restructuring, rationalization and other charges.

Income Taxes
 
The consolidated provision for income taxes was an expense of $0.4 billion in the third quarter of 2011 (an effective tax rate of 11.8%), compared with $0.3 billion for the same period of 2010 (an effective tax rate of 8.9%). Our consolidated income tax rate increased from the third quarter of 2010 to the third quarter of 2011, primarily because of the increased expense to adjust the third quarter year-to-date tax rate to the projected full year rate.

The consolidated provision for income taxes was an expense of $5.3 billion in the nine months ended September 30, 2011 (an effective tax rate of 33.7%), compared with $1.6 billion for the same period of 2010 (an effective tax rate of 15.4%). Our consolidated income tax rate increased from the nine months ended September 30, 2010 to the nine months ended September 30, 2011, primarily because of the gain on the disposition of NBCU and the increase in income in higher-taxed jurisdictions at GE Capital.

Approximately 16 percentage points of the 18 percentage point increase in the consolidated effective tax rate from nine months ended September 30, 2010 to the nine months ended September 30, 2011 was due to the disposition of NBCU. In connection with the transaction, we recognized income tax expense of $3.2 billion on a pretax gain of $3.7 billion, reflecting the low tax basis in our investment in the NBCU business, and the recognition of deferred tax liabilities related to our 49% investment in NBCU LLC. As our investment in NBCU LLC is structured as a partnership for U.S. tax purposes, U.S. taxes are recorded separately from the equity investment.

Our effective income tax rate, excluding the NBCU disposition, is lower than the U.S. statutory rate primarily because of benefits from lower-taxed global operations, including the use of global funding structures. There is a benefit from global operations as non-U.S. income is subject to local country tax rates that are significantly below the 35% U.S. statutory rate. These non-U.S. earnings have been indefinitely reinvested outside the U.S. and are not subject to current U.S. income tax. The rate of tax on our indefinitely reinvested non-U.S. earnings is below the 35% U.S. statutory rate because we have significant business operations subject to tax in countries where the tax on that income is lower than the U.S. statutory rate and because GECS funds the majority of its non-U.S. operations through foreign companies that are subject to low foreign taxes.

We expect our ability to benefit from non-U.S. income taxed at less than the U.S. rate to continue subject to changes of U.S. or foreign law, including the possible expiration of the U.S. tax law provision deferring tax on active financial services income. In addition, since this benefit depends on management’s intention to indefinitely reinvest amounts outside the U.S., our tax provision will increase to the extent we no longer indefinitely reinvest foreign earnings.

 
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Discontinued Operations
 
Three months ended September 30,
 
Nine months ended September 30,
(In millions)
2011 
 
2010 
 
2011 
 
2010 
                       
Earnings (loss) from discontinued operations,
                     
   net of taxes
$
 
$
(1,052)
 
$
274 
 
$
(1,506)


Discontinued operations primarily comprised BAC Credomatic GECF Inc. (BAC) (our Central American bank and card business), 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), our U.S. recreational vehicle and marine equipment financing business (Consumer RV Marine), Consumer Mexico, Consumer Singapore and our Consumer home lending operations in Australia and New Zealand (Australian Home Lending). Results of these businesses are reported as discontinued operations for all periods presented.

Earnings from discontinued operations, net of taxes, for the third quarter and the first nine months of 2011, primarily reflected a $0.3 billion gain related to the sale of Consumer Singapore, partially offset by the loss on the sale of Australian Home Lending.

Loss from discontinued operations, net of taxes, for the third quarter and the first nine months of 2010, primarily reflected $1.1 billion and $1.7 billion, respectively, of incremental reserves for excess interest claims related to our loss-sharing arrangement on the 2008 disposal of GE Money Japan.

For additional information related to discontinued operations, see Note 2 to the condensed, consolidated financial statements.

Employee Relations
 
In June 2011, we negotiated tentative labor agreements with most of our U.S. unions. These agreements were subsequently accepted by the respective unions and were approved by the GE Board of Directors on July 29, 2011. These four-year agreements modestly increase ongoing costs over the term of the contracts on an aggregate basis. However, the agreements also implement new features that focus on cost containment for the health and pension plans. Beginning January 1, 2012, all production employees will participate in a new consumer-directed health plan. In addition, production employees who commence service on or after that date will not be eligible to participate in the GE Pension Plan, but will participate in a defined contribution retirement plan.

 
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B. Statement of Financial Position
 
Overview of Financial Position
 
Major changes in our financial position for the nine months ended September 30, 2011 resulted from the following:

·  
At GECS, repayments exceeded new issuances of total borrowings by $28.3 billion and collections on financing receivables exceeded originations by $18.5 billion. Proceeds from sales of businesses, including the sale of a significant portion of our investment in Garanti Bank, were $14.9 billion;

·  
On September 13, 2011, we provided notice that we would redeem our 10% cumulative perpetual preferred stock, which resulted in a decrease in shareowners’ equity of $3.3 billion and an increase in GE current liabilities of $3.3 billion. On October 17, 2011, we redeemed our preferred stock for $3.3 billion.

·  
On February 1, 2011, February 3, 2011, April 26, 2011 and September 2, 2011, we completed the acquisitions of Dresser Inc. ($3.2 billion), Wellstream PLC ($1.3 billion), the Well Support division of John Wood Group PLC ($2.8 billion) and Converteam ($4.1 billion), respectively;
 
 
·  
On January 28, 2011, we completed the disposition of NBCU for $6.2 billion of cash and a 49% interest in NBCU LLC, a newly formed entity comprising our former NBCU business and Comcast’s cable networks, regional sports networks, certain digital properties and certain unconsolidated investments;
 
 
·  
The U.S. dollar was weaker for most major currencies at September 30, 2011 than at December 31, 2010, increasing the translated levels of our non-U.S. dollar assets and liabilities.

Consolidated assets were $737.7 billion at September 30, 2011, a decrease of $13.5 billion from December 31, 2010. GE assets decreased $0.4 billion, and financial services assets decreased $5.6 billion.

GE assets were $218.3 billion at September 30, 2011, a $0.4 billion decrease from December 31, 2010 and reflect a net reduction of $14.3 billion related to the NBCU disposition, partially offset by an increase in our investment in GECS of $7.0 billion, mainly related to GECS earnings and the weaker U.S. dollar, an increase in current receivables and inventories of $2.8 billion and the impact from acquisitions of $3.8 billion.

Financial Services assets were $603.1 billion at September 30, 2011, a $5.6 billion decrease from December 31, 2010, and reflect a reduction of net financing receivables of $18.5 billion, primarily through collections exceeding originations ($12.5 billion), sales ($6.4 billion) and net write-offs ($4.3 billion), partially offset by the weaker U.S. dollar and an increase in derivative assets ($5.5 billion).

Consolidated liabilities were $610.9 billion at September 30, 2011, a $16.1 billion decrease from December 31, 2010. GE liabilities decreased $3.0 billion and financial services liabilities decreased $12.6 billion.

GE liabilities were $92.7 billion at September 30, 2011. The $3.0 billion decrease from December 31, 2010 was primarily attributable to a decrease in liabilities of businesses held for sale of $15.4 billion, mainly related to the NBCU transaction. This decrease is partially offset by an increase in current and all other liabilities of $8.5 billion, primarily due to a $3.3 billion liability associated with the redemption of the preferred stock held by Berkshire Hathaway, Inc., an increase in tax liabilities, mainly related to taxes recorded in connection with the NBCU disposition, and a $1.6 billion increase in accounts payable mainly to support increases in inventory for anticipated equipment sales in the fourth quarter. The ratio of borrowings to total capital invested for GE at September 30, 2011 was 7.8% compared with 7.6% at December 31, 2010 and 8.0% at September 30, 2010.

Financial Services liabilities decreased $12.6 billion from December 31, 2010 to $525.9 billion at September 30, 2011, and reflect a $28.3 billion net reduction in borrowings, primarily in long-term borrowings and commercial paper, consistent with our overall reduction in assets, partially offset by an increase in deposits and the effects of the weaker U.S. dollar.

 
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During the nine months ended September 30, 2011, we completed acquisitions with a total cash consideration of $11.8 billion. These acquisitions were primarily in our Energy Infrastructure segment, consistent with our strategy to increase our competitiveness in the key industries in which we operate. The most significant acquisitions were Converteam ($3.5 billion), a provider of electrification and automation equipment and systems, Dresser, Inc. ($3.2 billion), which broadens the Energy product portfolio with technologies for gas engines, control and relief valves, measurement, regulation and control solutions for gas and fuel distributions; the Well Support division of John Wood Group PLC ($2.8 billion), adding equipment that helps extract more oil and gas from mature fields; and Wellstream, PLC ($1.3 billion, including $0.4 billion for the purchase of acquired noncontrolling interests), which expands the Oil & Gas portfolio with subsea flexible risers and flow lines.

Cash Flows
 
Consolidated cash and equivalents were $91.4 billion at September 30, 2011, an increase of $12.4 billion during the nine months ended September 30, 2011. Cash and equivalents totaled $76.6 billion at September 30, 2010, an increase of $6.1 billion during the nine months ended September 30, 2010.

We evaluate our cash flow performance by reviewing our industrial (non-financial services) businesses and financial services businesses separately. Cash from operating activities (CFOA) is the principal source of cash generation for our industrial businesses. The industrial businesses also have liquidity available via the public capital markets. Our financial services businesses use a variety of financial resources to meet our capital needs. Cash for financial services businesses is primarily provided from the issuance of term debt and commercial paper in the public and private markets, time deposits, as well as financing receivables, collections, sales and securitizations.

GE Cash Flow
 
GE cash and equivalents were $8.7 billion at September 30, 2011, compared with $13.0 billion at September 30, 2010. GE CFOA totaled $6.5 billion for the nine months ended September 30, 2011 compared with $10.1 billion for the nine months ended September 30, 2010. With respect to GE CFOA, we believe that it is useful to supplement our GE Condensed Statement of Cash Flows and to examine in a broader context the business activities that provide and require cash.

 
Nine months ended September 30
(In billions)
2011 
 
2010 
           
Operating cash collections(a)
$
67.7 
 
$
70.2 
Operating cash payments
 
(61.2)
   
(60.1)
GE cash from operating activities (GE CFOA)(a)
$
6.5 
 
$
10.1 
           
           
(a)  
GE sells customer receivables to GECS in part to fund the growth of our industrial businesses. These transactions can result in cash generation or cash use. During any given period, GE receives cash from the sale of receivables to GECS. It also foregoes collection of cash on receivables sold. The incremental amount of cash received from sale of receivables in excess of the cash GE would have otherwise collected had those receivables not been sold, represents the cash generated or used in the period relating to this activity. The incremental impact to GE CFOA from selling these receivables to GECS was an increase in GE CFOA of $0.4 billion for the nine months ended September 30, 2011 and a decrease to GE CFOA of $0.7 billion for the nine months ended September 30, 2010. See Note 19 to the condensed, consolidated financial statements for additional information about the elimination of intercompany transactions between GE and GECS.


The most significant source of cash in GE CFOA is customer-related activities, the largest of which is collecting cash following a product or services sale. GE operating cash collections decreased by $2.5 billion during the nine months ended September 30, 2011. This decrease is consistent with the comparable changes in sales.

The most significant operating use of cash is to pay our suppliers, employees, tax authorities and others for a wide range of material and services. GE operating cash payments increased by $1.1 billion for the nine months ended September 30, 2011, consistent with the increase in GE inventory levels.

 
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GE CFOA decreased $3.6 billion compared with the nine months ended September 30, 2010, primarily reflecting an overall increase in working capital balances to support equipment sales through the year and the impact from the disposition of NBCU, partially offset by an increase in taxes payable.

GECS Cash Flow
 
GECS cash and equivalents were $83.3 billion at September 30, 2011, compared with $64.3 billion at September 30, 2010. GECS cash from operating activities totaled $16.6 billion for the nine months ended September 30, 2011, compared with cash from operating activities of $15.5 billion for the same period of 2010. This was primarily due to an increase in accounts payable due to higher volume at CLL.

Consistent with our plan to reduce GECS asset levels, cash from investing activities was $31.3 billion during the nine months ended September 30, 2011, resulting from an $18.5 billion reduction in financing receivables due to collections exceeding originations. We received proceeds of $4.4 billion from the sale of our equity method investments in Garanti Bank ($3.8 billion) and Banco Colpatria ($0.6 billion). Additionally, we received proceeds of $11.1 billion from sales of GE Capital’s Australian Home Lending operations ($4.6 billion), Consumer businesses in Mexico ($1.9 billion), Canada ($1.4 billion) and Singapore ($0.7 billion), Consumer RV Marine ($1.8 billion) and our Interpark business in Real Estate ($0.7 billion). These increases are partially offset by an increase in equipment purchases, mainly at our GECAS and CLL businesses.

GECS cash used for financing activities for the nine months ended September 30, 2011 of $25.9 billion related primarily to a $28.3 billion reduction in total borrowings, consisting primarily of reductions in long-term borrowings and commercial paper, partially offset by an increase in deposits at our consumer banks.

Intercompany Eliminations
 
Effects of transactions between related companies are made on an arms-length basis, are eliminated and consist primarily of GE customer receivables sold to GECS; GECS services for trade receivables management and material procurement; buildings and equipment (including automobiles) leased between GE and GECS; information technology (IT) and other services sold to GECS by GE; aircraft engines manufactured by GE that are installed on aircraft purchased by GECS from third-party producers for lease to others; and various investments, loans and allocations of GE corporate overhead costs. See Note 19 to the condensed, consolidated financial statements for further information related to intercompany eliminations.

Fair Value Measurements
 
See Note 1 to our 2010 consolidated financial statements for disclosures related to our methodology for fair value measurements. Additional information about fair value measurements is provided in Note 15 to the condensed, consolidated financial statements.

At September 30, 2011, the aggregate amount of investments that are measured at fair value through earnings totaled $7.7 billion and consisted primarily of various assets held for sale in the ordinary course of business, as well as equity investments.

C. Financial Services Portfolio Quality
 
Investment securities comprise mainly investment grade debt securities supporting obligations to annuitants, policyholders and holders of guaranteed investment contracts (GICs) in our run-off insurance operations and Trinity, and investment securities at our treasury operations. The fair value of investment securities increased to $46.5 billion at September 30, 2011 from $43.9 billion at December 31, 2010. Of the amount at September 30, 2011, we held debt securities with an estimated fair value of $45.1 billion, which included corporate debt securities, asset-backed securities (ABS), residential mortgage-backed securities (RMBS) and commercial mortgage-backed securities (CMBS) with estimated fair values of $27.1 billion, $3.9 billion, $2.7 billion and $2.8 billion, respectively. Unrealized losses on debt securities were $1.5 billion and $1.6 billion at September 30, 2011 and December 31, 2010, respectively. This amount included unrealized losses on corporate debt securities, ABS, RMBS and CMBS of $0.4 billion, $0.2 billion, $0.3 billion and $0.3 billion, respectively, at September 30, 2011, as compared with $0.4 billion, $0.2 billion, $0.4 billion and $0.2 billion, respectively, at December 31, 2010.

 
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We regularly review investment securities for impairment using both qualitative and quantitative criteria. We presently do not intend to sell the vast majority of 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.

Our RMBS portfolio is 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. Substantially all of our RMBS securities are in a senior position in the capital structure of the deals and more than 70% are agency bonds or insured by Monoline insurers (on which we continue to place reliance). Of our total RMBS portfolio at September 30, 2011 and December 31, 2010, approximately $0.6 billion and $0.7 billion, respectively, relate to residential subprime credit, primarily supporting our guaranteed investment contracts. A majority of exposure to residential subprime credit related to investment securities backed by mortgage loans originated in 2006 and 2005. Substantially all of the subprime RMBS were investment grade at the time of purchase and approximately 70% have been subsequently downgraded to below investment grade.

Our CMBS portfolio is 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 2007 and 2006. Substantially all of the securities in our CMBS portfolio have investment grade credit ratings and the vast majority of the securities are in a senior position in the capital structure.

Our ABS portfolio is collateralized by a variety of diversified pools of assets such as student loans and credit cards, as well as large senior secured loans of high-quality, middle-market companies in a variety of industries. The vast majority of our ABS are in a senior position in the capital structure of the deals. In addition, substantially all of the securities that are below investment grade are in an unrealized gain position.

For ABS and 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 deals. 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 creditworthiness of the Monoline insurer (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.

Monolines provide credit enhancement for certain of our investment securities, primarily RMBS and municipal 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. The Monoline industry continues to experience financial stress from increasing delinquencies and defaults on the individual loans underlying insured securities. We continue to rely on Monolines with adequate capital and claims paying resources. We have reduced our reliance on Monolines that do not have adequate capital or have experienced regulator intervention. At September 30, 2011, our investment securities insured by Monolines on which we continue to place reliance were $1.6 billion, including $0.3 billion of our $0.6 billion investment in subprime RMBS. At September 30, 2011, the unrealized loss associated with securities subject to Monoline credit enhancement for which there is an expected credit loss was $0.3 billion.

Total other-than-temporary impairment losses during the third quarter of 2011 were $0.1 billion which was recognized in earnings and primarily relates to credit losses on non-U.S. corporate securities, non-U.S. government securities and RMBS.

 
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Total other-than-temporary impairment losses during the nine months ended September 30, 2011 were $0.3 billion, of which $0.2 billion was recognized in earnings and primarily relates to credit losses on non-U.S. corporate securities, retained interests, non-U.S. government securities and RMBS.

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 non-U.S. corporate debt securities across a broad range of industries. The amount of associated unrealized loss on these securities at September 30, 2011, is $0.6 billion. Credit losses that would be recognized in earnings are calculated when we determine the security to be other-than-temporarily impaired. Uncertainty in the capital markets may cause increased levels of other-than-temporary impairments.

At both September 30, 2011 and December 31, 2010, unrealized losses on investment securities totaled $1.6 billion, including $1.2 billion and $1.3 billion aged 12 months or longer at September 30, 2011 and December 31, 2010, respectively. Of the amount aged 12 months or longer at September 30, 2011, more than 65% 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, $0.7 billion and $0.3 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, 2011, the vast majority relate to debt securities held to support obligations to holders of GICs and annuitants and policyholders in our run-off insurance operations. We presently do not intend to sell the vast majority of 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. 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. Our portfolio of financing receivables is diverse and not directly comparable to major U.S. banks. A discussion of the quality of certain elements of the financing receivables portfolio follows.

Our consumer portfolio 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 15% of our total portfolio. Of those, approximately 63% 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 revenues), and have a smaller average balance and lower loss severity as compared to bank cards. The remaining 37% 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, which for our CLL business primarily include: industrial-related facilities and equipment, vehicles, corporate aircraft, and equipment used in many industries, including the construction, manufacturing, transportation, media, communications, entertainment, and healthcare industries. The portfolios in our Real Estate, GECAS and Energy Financial Services businesses are collateralized by commercial real estate, commercial aircraft and operating assets in the global energy and water industries, respectively. We are in a secured position for substantially all of our commercial portfolio.

Financing receivables in Europe comprise commercial and consumer loans and leases and are well-diversified across European geographies and customers.  At September 30, 2011, we had financing receivables, net of the related allowance for loan losses, in the United Kingdom ($30.4 billion), France ($19.6 billion), Eastern Europe ($18.7 billion), Switzerland ($5.0 billion), Germany ($4.7 billion), the Netherlands ($2.1 billion) and other countries ($5.1 billion) (excluding the focus countries of Portugal, Italy, Ireland, Greece and Spain).  Financing receivables in these focus countries totaled $10.6 billion at September 30, 2011.  Delinquency experience has been improving in our European commercial and consumer platforms in the aggregate, and we actively monitor and take action to reduce
 
 
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exposures where appropriate. In addition to these financing receivables, we have $33.3 billion in GECS other related financial assets in Europe.  Approximately 85% of the financing receivables and other assets are secured by collateral and represent over 700,000 commercial customers.

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. The method for calculating the best estimate of losses depends on the size, type and risk characteristics of the related financing receivable. Such an 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. The underlying assumptions, estimates and assessments we use to provide for losses are updated periodically to reflect our view of current conditions. Changes in such estimates can significantly affect the allowance and provision for losses. It is possible to experience credit losses that are different from our current estimates.

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.

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 losses is not carried over at acquisition. This may have the effect of causing lower reserve coverage ratios for those portfolios.

For purposes of the discussion that follows, “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 is otherwise doubtful). Nonearning receivables exclude loans purchased at a discount (unless they have deteriorated post acquisition). Under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 310, Receivables, 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 that are paying on a cash accounting basis but classified as nonaccrual and impaired. “Nonaccrual” financing receivables include all nonearning receivables and are those on which we have stopped accruing interest. We stop accruing interest at the earlier of the time at which collection of an account becomes doubtful or the account becomes 90 days past due. Recently restructured financing receivables are not considered delinquent when payments are brought current according to the restructured terms, but may remain classified as nonaccrual until there has been a period of satisfactory payment performance by the borrower and future payments are reasonably assured of collection.

Further information on the determination of the allowance for losses on financing receivables and the credit quality and categorization of our financing receivables is provided in Notes 5 and 17.
 
 
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Financing receivables at
 
Nonearning receivables at
 
Allowance for losses at
 
September 30,
 
December 31,
 
September 30,
 
December 31,
 
September 30,
 
December 31,
(In millions)
2011 
 
2010 
 
2011 
 
2010 
 
2011 
 
2010 
                                   
Commercial
                                 
CLL
                                 
Americas(a)
$
81,072 
 
$
88,558 
 
$
1,967 
 
$
2,573 
 
$
995 
 
$
1,288 
Europe
 
37,130 
   
37,498 
   
1,086 
   
1,241 
   
403 
   
429 
Asia
 
11,914 
   
11,943 
   
230 
   
406 
   
150 
   
222 
Other(a)
 
469 
   
664 
   
16 
   
   
   
Total CLL
 
130,585 
   
138,663 
   
3,299 
   
4,226 
   
1,553 
   
1,945 
                                   
Energy
                                 
  Financial
                                 
  Services
 
5,977 
   
7,011 
   
135 
   
62 
   
36 
   
22 
                                   
GECAS
 
11,841 
   
12,615 
   
62 
   
– 
   
14 
   
20 
                                   
Other
 
1,388 
   
1,788 
   
71 
   
102 
   
43 
   
58 
Total
                                 
  Commercial
 
149,791 
   
160,077 
   
3,567 
   
4,390 
   
1,646 
   
2,045 
                                   
Real Estate
                                 
Debt(b)
 
25,748 
   
30,249 
   
714 
   
961 
   
978 
   
1,292 
Business
                                 
  Properties(c)
 
8,630 
   
9,962 
   
314 
   
386 
   
163 
   
196 
Total Real Estate
 
34,378 
   
40,211 
   
1,028 
   
1,347 
   
1,141 
   
1,488 
                                   
Consumer
                                 
Non-U.S.
                                 
  residential
                                 
    mortgages(d)
 
38,708 
   
40,011 
   
3,619 
   
3,738 
   
779 
   
803 
Non-U.S.
                                 
    installment
                                 
    and revolving
                                 
    credit
 
19,801 
   
20,132 
   
299 
   
289 
   
816 
   
937 
U.S. installment
                                 
  and revolving
                                 
  credit
 
43,249 
   
43,974 
   
882 
   
1,201 
   
1,953 
   
2,333 
Non-U.S. auto
 
6,462 
   
7,558 
   
35 
   
46 
   
123 
   
168 
Other
 
8,017 
   
8,304 
   
441 
   
478 
   
211 
   
259 
Total Consumer
 
116,237 
   
119,979 
   
5,276 
   
5,752 
   
3,882 
   
4,500 
Total
$
300,406 
 
$
320,267 
 
$
9,871 
 
$
11,489 
 
$
6,669 
 
$
8,033 
                                   
                                   

(a)  
During the third quarter of 2011, we transferred our Railcar lending and leasing portfolio from CLL Other to CLL Americas. Prior-period amounts were reclassified to conform to the current-period presentation.
 
(b)  
Financing receivables included $119 million and $218 million of construction loans at September 30, 2011 and December 31, 2010, respectively.
 
(c)  
Our Business Properties portfolio is underwritten primarily by the credit quality of the borrower and secured by tenant and owner-occupied commercial properties.
 
(d)  
At September 30, 2011, net of credit insurance, approximately 25% of our secured Consumer non-U.S. residential mortgage portfolio comprised loans with introductory, below market rates that are scheduled to adjust at future dates; with high loan-to-value ratios at inception (greater than 90%); 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. Of these loans, 79% 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 14%, have a loan-to-value ratio at origination of 76% and have re-indexed loan-to-value ratios of 85% and 57%, respectively. At September 30, 2011, 6% (based on dollar values) of these loans in our U.K. and France portfolios have been restructured.
 
 
 
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The portfolio of financing receivables, before allowance for losses, was $300.4 billion at September 30, 2011, and $320.3 billion at December 31, 2010. Financing receivables, before allowance for losses, decreased $19.9 billion from December 31, 2010, primarily as a result of collections exceeding originations ($18.5 billion) (which includes sales) and write-offs ($5.6 billion), partially offset by the weaker U.S. dollar ($4.9 billion) and acquisitions ($3.0 billion).

Related nonearning receivables totaled $9.9 billion (3.3% of outstanding receivables) at September 30, 2011, compared with $11.5 billion (3.6% of outstanding receivables) at December 31, 2010. Nonearning receivables decreased from December 31, 2010, primarily due to write-offs and discounted payoffs in Real Estate, improved performance in Commercial and improvements in our entry rates in Consumer.

The allowance for losses at September 30, 2011 totaled $6.7 billion compared with $8.0 billion at December 31, 2010, representing our best estimate of probable losses inherent in the portfolio. Allowance for losses decreased $1.4 billion from December 31, 2010, primarily because provisions were lower than write-offs, net of recoveries by $1.4 billion, which is attributable to a reduction in the overall financing receivables balance and an improvement in the overall credit environment. The allowance for losses as a percent of total financing receivables decreased from 2.5% at December 31, 2010 to 2.2% at September 30, 2011 primarily due to a decrease in the allowance for losses as discussed above, partially offset by a decline in the overall financing receivables balance as collections exceeded originations. Further information surrounding the allowance for losses related to each of our portfolios is detailed below.

 
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The following table provides information surrounding selected ratios related to nonearning financing receivables and the allowance for losses.
 
 
Nonearning financing
 
Allowance for losses as a
 
Allowance for losses
 
 
receivables as a percent of
 
percent of nonearning
 
as a percent of total
 
 
financing receivables at
 
financing receivables at
 
financing receivables at
 
 
September 30,
 
December 31,
 
September 30,
 
December 31,
 
September 30,
 
December 31,
 
 
2011 
 
2010 
 
2011 
 
2010 
 
2011 
 
2010 
 
                                   
Commercial
                                 
CLL
                                 
Americas
 2.4 
%
 
 2.9 
%
 50.6 
%
 50.1 
%
 1.2 
%
 
 1.5 
%
Europe
 2.9 
   
 3.3 
   
 37.1 
   
 34.6 
   
 1.1 
   
 1.1 
 
Asia
 1.9 
   
 3.4 
   
 65.2 
   
 54.7 
   
 1.3 
   
 1.9 
 
Other
 3.4 
   
 0.9 
   
 31.3 
   
 100.0 
   
 1.1 
   
 0.9 
 
Total CLL
 2.5 
   
 3.0 
   
 47.1 
   
 46.0 
   
 1.2 
   
 1.4 
 
                                   
Energy
                                 
  Financial
                                 
 Services
 2.3 
   
 0.9 
   
 26.7 
   
 35.5 
   
 0.6 
   
 0.3 
 
                                   
GECAS
 0.5 
   
 - 
   
 22.6 
   
 - 
   
 0.1 
   
 0.2 
 
                                   
Other
 5.1 
   
 5.7 
   
 60.6 
   
 56.9 
   
 3.1 
   
 3.2 
 
                                   
Total
                                 
  Commercial
 2.4 
   
 2.7 
   
 46.1 
   
 46.6 
   
 1.1 
   
 1.3 
 
                                   
Real Estate
                                 
Debt
 2.8 
   
 3.2 
   
 137.0 
   
 134.4 
   
 3.8 
   
 4.3 
 
Business
                                 
  Properties
 3.6 
   
 3.9 
   
 51.9 
   
 50.8 
   
 1.9 
   
 2.0 
 
                                   
Total Real Estate
 3.0 
   
 3.3 
   
 111.0 
   
 110.5 
   
 3.3 
   
 3.7 
 
                                   
Consumer
                                 
Non-U.S.
                                 
  residential
                                 
  mortgages
 9.3 
   
 9.3 
   
 21.5 
   
 21.5 
   
 2.0 
   
 2.0 
 
Non-U.S.
                                 
  installment and
                                 
  revolving
                                 
  credit
 1.5 
   
 1.4 
   
 272.9 
   
 324.2 
   
 4.1 
   
 4.7 
 
U.S. installment
                                 
 and revolving
                                 
 credit
 2.0 
   
 2.7 
   
 221.4 
   
 194.3 
   
 4.5 
   
 5.3 
 
Non-U.S. auto
 0.5 
   
 0.6 
   
 351.4 
   
 365.2 
   
 1.9 
   
 2.2 
 
Other
 5.5 
   
 5.8 
   
 47.8 
   
 54.2 
   
 2.6 
   
 3.1 
 
                                   
Total Consumer
 4.5 
   
 4.8 
   
 73.6 
   
 78.2 
   
 3.3 
   
 3.8 
 
                                   
Total
 3.3 
   
 3.6 
   
 67.6 
   
 69.9 
   
 2.2 
   
 2.5 
 

Included below is a discussion of financing receivables, allowance for losses, nonearning receivables and related metrics for each of our significant portfolios.

CLL − Americas. Nonearning receivables of $2.0 billion represented 19.9% of total nonearning receivables at September 30, 2011. The ratio of allowance for losses as a percent of nonearning receivables increased slightly from 50.1% at December 31, 2010, to 50.6% at September 30, 2011, reflecting an overall decrease in nonearning receivables. The ratio of nonearning receivables as a percent of financing receivables decreased from 2.9% at December 31, 2010, to 2.4% at September 30, 2011, primarily due to reduced nonearning exposures in our healthcare, media, franchise and inventory financing portfolios, which more than offset deterioration in our corporate aircraft portfolio. Collateral supporting these nonearning financing receivables primarily includes corporate aircraft and assets in the restaurant and hospitality, trucking and industrial equipment industries, and for our leveraged finance business, equity of the underlying businesses.

 
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CLL – Europe. Nonearning receivables of $1.1 billion represented 11.0% of total nonearning receivables at September 30, 2011. The ratio of allowance for losses as a percent of nonearning receivables increased from 34.6% at December 31, 2010, to 37.1% at September 30, 2011, due primarily to a reduction in nonearning receivables related to account restructuring in our senior secured and asset-backed lending portfolios and improved delinquency in our equipment finance portfolio. The majority of nonearning receivables are attributable to the Interbanca S.p.A. portfolio, which was acquired in 2009. The loans acquired with Interbanca S.p.A were recorded at fair value, which incorporates an estimate at the acquisition date of credit losses over their remaining life. Accordingly, these loans generally have a lower ratio of allowance for losses as a percent of nonearning receivables compared to the remaining portfolio. Excluding the nonearning loans attributable to the 2009 acquisition of Interbanca S.p.A., the ratio of allowance for losses as a percent of nonearning receivables increased from 65.7% at December 31, 2010, to 75.4% at September 30, 2011, for the reasons described above. The ratio of nonearning receivables as a percent of financing receivables decreased from 3.3% at December 31, 2010, to 2.9% at September 30, 2011, as a result of a decrease in nonearning receivables across our equipment finance and asset backed lending portfolios for the reasons described above. Collateral supporting these secured nonearning financing receivables are primarily equity of the underlying businesses for our senior secured lending and Interbanca S.p.A businesses, and equipment for our equipment finance portfolio.

CLL – Asia. Nonearning receivables of $0.2 billion represented 2.3% of total nonearning receivables at September 30, 2011. The ratio of allowance for losses as a percent of nonearning receivables increased from 54.7% at December 31, 2010, to 65.2% at September 30, 2011, primarily as a result of collections and write-offs of nonearning receivables in our asset-based financing businesses in Japan, Australia and New Zealand. The ratio of nonearning receivables as a percent of financing receivables decreased from 3.4% at December 31, 2010, to 1.9% at September 30, 2011, primarily due to the decline in nonearning receivables related to our asset-based financing businesses in Japan, Australia and New Zealand partially offset by a lower financing receivables balance. Collateral supporting these nonearning financing receivables is primarily commercial real estate, manufacturing equipment, corporate aircraft, and assets in the auto industry.

Real Estate – Debt. Nonearning receivables of $0.7 billion represented 7.2% of total nonearning receivables at September 30, 2011. The decrease in nonearning receivables from December 31, 2010, was driven primarily by the resolution of U.S. multi-family and office nonearning loans, as well as European hotel loans, through restructurings, payoffs and foreclosures, partially offset by new European multi-family delinquencies. The ratio of allowance for losses as a percent of nonearning receivables increased from 134.4% to 137.0% reflecting resolution of nonearning loans as mentioned above. The ratio of allowance for losses as a percent of total financing receivables decreased from 4.3% at December 31, 2010 to 3.8% at September 30, 2011, driven primarily by write-offs related to settlements and payoffs from impaired loan borrowers and improvement in collateral values.

The Real Estate financing receivables portfolio is collateralized by income-producing or owner-occupied commercial properties across a variety of asset classes and markets. At September 30, 2011, total Real Estate financing receivables of $34.4 billion were primarily collateralized by owner-occupied properties ($8.6 billion), office buildings ($7.3 billion), apartment buildings ($4.8 billion) and hotel properties ($3.9 billion). In the third quarter of 2011, commercial real estate markets showed signs of improved stability; however, the pace of improvement varies significantly by asset class and market and the long term outlook remains uncertain. We have and continue to maintain an intense focus on operations and risk management. Loan loss reserves related to our Real Estate–Debt financing receivables are particularly sensitive to declines in underlying property values. Assuming global property values decline an incremental 1% or 5%, and that decline occurs evenly across geographies and asset classes, we estimate incremental loan loss reserves would be required of less than $0.1 billion and approximately $0.3 billion, respectively. Estimating the impact of global property values on loss performance across our portfolio depends on a number of factors, including macroeconomic conditions, property level operating performance, local market dynamics and individual borrower behavior. As a result, any sensitivity analyses or attempts to forecast potential losses carry a high degree of imprecision and are subject to change. At September 30, 2011, we had 128 foreclosed commercial real estate properties which had a value of approximately $0.7 billion.

 
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Consumer − Non-U.S. residential mortgages. Nonearning receivables of $3.6 billion represented 36.7% of total nonearning receivables at September 30, 2011. The ratio of allowance for losses as a percent of nonearning receivables was 21.5% at both December 31, 2010 and September 30, 2011. In the first nine months of 2011, our nonearning receivables decreased primarily due to improving portfolio quality in the U.K. 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 57%, respectively. About 4% of these loans are without mortgage insurance and have a reindexed loan-to-value ratio 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, 2011, we had in repossession stock 540 houses in the U.K., which had a value of approximately $0.1 billion. The ratio of nonearning receivables as a percent of financing receivables remained constant at 9.3% at September 30, 2011.

Consumer − Non-U.S. installment and revolving credit. Nonearning receivables of $0.3 billion represented 3.0% of total nonearning receivables at September 30, 2011. The ratio of allowance for losses as a percent of nonearning receivables decreased from 324.2% at December 31, 2010 to 272.9% at September 30, 2011, reflecting the effects of loan repayments and reduced originations primarily in our European platforms.

Consumer − U.S. installment and revolving credit. Nonearning receivables of $0.9 billion represented 8.9% of total nonearning receivables at September 30, 2011. The ratio of allowance for losses as a percent of nonearning receivables increased from 194.3% at December 31, 2010, to 221.4% at September 30, 2011, as a result of lower entry rates and improved collections resulting in reductions in our nonearning receivables balance. The ratio of nonearning receivables as a percentage of financing receivables decreased from 2.7% at December 31, 2010 to 2.0% at September 30, 2011, primarily due to lower delinquencies reflecting an improvement in the overall credit environment.

Nonaccrual Financing Receivables
 
The following table provides details related to our nonaccrual and nonearning financing receivables. Nonaccrual financing receivables include all nonearning receivables and are those on which we have stopped accruing interest. We stop accruing interest at the earlier of the time at which collection becomes doubtful or the account becomes 90 days past due. Substantially all of the differences between nonearning and nonaccrual financing receivables relate to loans which are classified as nonaccrual financing receivables but are paying on a cash accounting basis, and therefore excluded from nonearning receivables. Of our $17.7 billion nonaccrual loans at September 30, 2011, $7.3 billion are currently paying in accordance with their contractual terms.
 
 
Nonaccrual
 
Nonearning
 
financing
 
financing
(In millions)
receivables
 
receivables
           
September 30, 2011
         
           
Commercial
         
CLL
$
4,547 
 
$
3,299 
Energy Financial Services
 
135 
   
135 
GECAS
 
62 
   
62 
Other
 
123 
   
71 
Total Commercial
 
4,867 
   
3,567 
           
Real Estate
 
7,285 
   
1,028 
           
Consumer
 
5,508 
   
5,276 
Total
$
17,660 
 
$
9,871 
           

 
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Impaired Loans
 
“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 nonaccrual receivables are excluded from this definition, as they represent smaller balance homogeneous loans that we evaluate collectively by portfolio for impairment.

Impaired loans include nonearning receivables on larger balance or restructured loans, loans that 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 have determined that it is probable that we will be unable to collect all amounts due according to original contractual terms of the loan agreement. Certain loans classified as impaired may not require a reserve because 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.
 
(In millions)
At
 
September 30,
 
December 31,
 
2011 
 
2010 
Loans requiring allowance for losses
         
   Commercial(a)
$
2,364 
 
$
2,733 
   Real Estate
 
5,361 
   
6,812 
   Consumer
 
3,043 
   
2,446 
Total loans requiring allowance for losses
 
10,768 
   
11,991 
           
Loans expected to be fully recoverable
         
   Commercial(a)
 
3,453 
   
3,087 
   Real Estate
 
3,996 
   
3,005 
   Consumer
 
50 
   
102 
Total loans expected to be fully recoverable
 
7,499 
   
6,194 
Total impaired loans
$
18,267 
 
$
18,185 
           
Allowance for losses (specific reserves)
         
   Commercial(a)
$
829 
 
$
1,031 
   Real Estate
 
860 
   
1,150 
   Consumer
 
721 
   
555 
Total allowance for losses (specific reserves)
$
2,410 
 
$
2,736 
           
Average investment during the period
$
18,602 
 
$
15,538 
Interest income earned while impaired(b)
 
543 
   
391 
           
           

(a)
Includes CLL, Energy Financial Services, GECAS and Other.
 
(b)
Recognized principally on a cash basis. Interest income earned while impaired for the nine months ended September 30, 2011, the year ended December 31, 2010 and the nine months ended September 30, 2010, were $543 million, $391 million and $328 million, respectively. The total average investment in impaired loans for the nine months ended September 30, 2010, was $14,888 million.
 
 
We regularly review our Real Estate loans for impairment using both quantitative and qualitative factors, such as debt service coverage and loan-to-value ratios. We classify Real Estate loans as impaired when the most recent valuation reflects a projected loan-to-value ratio at maturity in excess of 100%, even if the loan is currently paying in accordance with contractual terms.

 
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Real Estate TDRs increased from $4.9 billion at December 31, 2010 to $6.7 billion at September 30, 2011, primarily driven by loans scheduled to mature during 2011, some of which were modified during 2011 and classified as TDRs upon modification. For borrowers with demonstrated operating capabilities, we work to restructure loans when the cash flow and projected value of the underlying collateral support repayment over the modified term. We deem loan modifications to be TDRs when we have granted a concession to a borrower experiencing financial difficulty and we do not receive adequate compensation in the form of an effective interest rate that is at current market rates of interest given the risk characteristics of the loan or other consideration that compensates us for the value of the concession. The limited liquidity and higher return requirements in the real estate market for loans with higher loan-to-value (LTV) ratios has typically resulted in the conclusion that the modified terms are not at current market rates of interest, even if the modified loans are expected to be fully recoverable. For the nine months ended September 30, 2011, we modified $3.0 billion of loans classified as TDRs substantially all in our Debt portfolio. Changes to these loans primarily included maturity extensions, principal payment acceleration, changes to collateral or covenant terms and cash sweeps, which are in addition to, or sometimes in lieu of, fees and rate increases. We received the same or additional compensation in the form of rate increases and fees for the majority of these TDRs. Of our modifications classified as TDRs in the last nine months, $0.2 billion have subsequently experienced a payment default.

The substantial majority of the Real Estate TDRs have reserves determined based upon collateral value. Our specific reserves on Real Estate TDRs were $0.4 billion at December 31, 2010 and $0.5 billion at September 30, 2011, and were 9.0% and 7.8%, respectively, of Real Estate TDRs. Although we experienced an increase in TDRs over this period, in many situations these loans did not require a specific reserve as collateral value adequately covered our recorded investment in the loan. While these modified loans had adequate collateral coverage, we were still required to complete our TDR classification evaluation on each of the modifications without regard to collateral adequacy.

Of our $9.4 billion impaired loans at Real Estate at September 30, 2011, $7.9 billion are currently paying in accordance with the contractual terms of the loan and are typically loans where the borrower has adequate debt service coverage to meet contractual interest obligations. Impaired loans at CLL primarily represent senior secured lending positions.

Our impaired loan balance at September 30, 2011 and December 31, 2010, classified by the method used to measure impairment was as follows.
           
 
At
 
September 30,
 
December 31,
(In millions)
2011 
 
2010 
           
Method used to measure impairment
         
Discounted cash flow
$
9,262 
 
$
7,644 
Collateral value
 
9,005 
   
10,541 
Total
$
18,267 
 
$
18,185 

See Note 1 to our 2010 consolidated financial statements for further information on collateral dependent loans and our valuation process.

Our loss mitigation strategy is intended to minimize economic loss and, at times, can result in rate reductions, principal forgiveness, extensions, forbearance or other actions, which may cause the related loan to be classified as a TDR, and also as impaired. Changes to Real Estate’s loans primarily include maturity extensions, principal payment acceleration, changes to collateral terms and cash sweeps, which are in addition to, or sometimes in lieu of, fees and rate increases. The determination of whether these changes to the terms and conditions of our commercial loans meet the TDR criteria includes our consideration of all relevant facts and circumstances. At September 30, 2011, TDRs included in impaired loans were $13.3 billion, primarily relating to Real Estate ($6.7 billion), CLL ($3.6 billion) and Consumer ($2.9 billion).

 
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We utilize certain short-term (three months or less) loan modification programs for borrowers experiencing temporary financial difficulties in our Consumer loan portfolio. These loan modification programs are primarily concentrated in our non-U.S. residential mortgage and non-U.S. installment and revolving portfolios. We sold our U.S. residential mortgage business in 2007 and as such, do not participate in the U.S. government-sponsored mortgage modification programs. For the nine months ended September 30, 2011, we provided short-term modifications of approximately $0.8 billion of consumer loans for borrowers experiencing financial difficulties, substantially all in our non-U.S. residential mortgage, credit card and personal loan portfolios, and are not classified as TDRs. For these modified loans, we provided insignificant interest rate reductions and payment deferrals, which were not part of the terms of the original contract. We expect borrowers whose loans have been modified under these short-term programs to continue to be able to meet their contractual obligations upon the conclusion of the short-term modification. In addition, we have modified $1.5 billion of Consumer loans for the nine months ended September 30, 2011, which are classified as TDRs. Further information on Consumer impaired loans is provided in Note 17 to the condensed, consolidated financial statements.

Delinquencies
 
Additional information on delinquency rates at each of our major portfolios follows:
 
 
At
 
 
September 30,
 
December 31,
 
 
2011 
 
2010 
 
             
CLL
2.0 
%
 
2.1 
%
 
             
Consumer
7.6 
   
8.1 
   
             
Real Estate
4.2 
   
4.4 
   

Delinquency rates on commercial loans and leases decreased from December 31, 2010 to September 30, 2011, as a result of improvements in the economic and credit environment; however, the credit environment continues to be uncertain and may impact future levels of commercial delinquencies and provisions for losses on financing receivables.

Delinquency rates on consumer financing receivables decreased from December 31, 2010 to September 30, 2011, primarily due to improved collections and lower delinquency entry rates in our U.S. markets; however, the uncertain economic environment may result in higher provisions for loan losses. At September 30, 2011, approximately 38% of our U.S. portfolio, which consisted of credit cards, installment and revolving loans, were receivable from subprime borrowers. We had no U.S. subprime residential mortgage loans at September 30, 2011. See Notes 5 and 17.

Delinquency rates on Real Estate loans and leases decreased from December 31, 2010 to September 30, 2011, reflecting market improvements and collections, including discounted payoffs, restructurings and foreclosures, partially offset by newly maturing loans for which resolution efforts are on-going. Despite indications of some market improvement, real estate liquidity remains limited in certain markets. Slow economic recovery could result in a continuation of elevated delinquency levels and provisions for losses on financing receivables.

 
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All other assets comprise mainly real estate equity properties and investments, equity and cost method investments, derivative instruments and assets held for sale, and totaled $79.5 billion at September 30, 2011, an increase of $0.3 billion, primarily related to increases in the fair value of derivative instruments ($5.5 billion) and our investment in PTL ($0.9 billion), partially offset by the sale of a substantial portion of our equity investment in Garanti Bank ($3.0 billion) and the sale of certain held for sale real estate and aircraft ($2.5 billion). During the nine months ended September 30, 2011, we recognized an insignificant amount of other-than-temporary impairments of cost and equity method investments, excluding those related to real estate.

Included in other assets are Real Estate equity investments of $25.3 billion and $27.2 billion at September 30, 2011 and December 31, 2010, respectively. Our portfolio is diversified, both geographically and by asset type. We review the estimated values of our commercial real estate investments semi-annually. As of our most recent estimate performed in the second quarter of 2011, the carrying value of our Real Estate investments exceeded their estimated value by approximately $4.1 billion. The estimated value of the portfolio continues to reflect deterioration in real estate values and market fundamentals, including reduced market occupancy rates and market rents as well as the effects of limited real estate market liquidity. Given the current market conditions, there continues to be risk and uncertainty surrounding commercial real estate values. 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. During the three and nine months ended September 30, 2011, Real Estate recognized pre-tax impairments of $0.2 billion and $1.0 billion, respectively, in its real estate held for investment, which were driven by declining cash flow projections for properties in certain markets, most notably Japan and Spain, as well as properties we have identified for short-term disposition based upon our updated outlook of local market conditions. Real Estate investments with undiscounted cash flows in excess of carrying value of 0% to 5% at September 30, 2011 had a carrying value of $1.4 billion and an associated unrealized loss of approximately $0.1 billion. Continued deterioration in economic conditions or prolonged market illiquidity may result in further impairments being recognized.

D. Liquidity and Borrowings
 
We maintain a strong focus on liquidity. At both GE and GECS 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 liquidity and borrowing plans for GE and GECS are established within the context of our annual financial and strategic planning processes. At GE, our liquidity and funding plans take into account the liquidity necessary to fund our operating commitments, which include primarily purchase obligations for inventory and equipment, payroll and general expenses. We also take into account our capital allocation and growth objectives, including paying dividends, repurchasing shares, investing in research and development and acquiring industrial businesses. At GE, we rely primarily on cash generated through our operating activities and also have historically maintained a commercial paper program that we regularly use to fund operations in the U.S., principally within fiscal quarters.

GECS liquidity and funding plans are designed to meet GECS’ funding requirements under normal and stress scenarios, which include primarily extensions of credit, payroll, principal payments on outstanding borrowings, interest on borrowings, dividends to GE, and general obligations such as operating expenses, collateral deposits held or collateral posted to counterparties. GECS’ funding plan also has been developed in connection with our strategy to reduce our ending net investment in GE Capital. GECS relies on cash generated through collection of principal, interest and other payments on our existing portfolio of loans and leases, sales of assets, and unsecured and secured funding sources, including commercial paper, term debt, bank borrowings, securitization and other retail funding products.

 
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Our 2011 GECS funding plan anticipates repayment of principal on outstanding short-term borrowings, including the current portion of its long-term debt ($118.8 billion at December 31, 2010), through issuance of commercial paper and long-term debt, cash on hand, collections of financing receivables exceeding originations, dispositions, asset sales, and deposits and alternative sources of funding. Interest on borrowings is primarily repaid through interest earned on existing financing receivables. During the nine months ended September 30, 2011, GECS earned interest income on financing receivables of $17.0 billion, which more than offset interest expense of $10.8 billion.

Both the GECS Board of Directors and the GE Audit Committee have approved a detailed liquidity policy for GECS which includes a requirement to maintain a contingency funding plan. The liquidity policy defines GECS’ liquidity risk tolerance under different scenarios based on its liquidity sources and also establishes procedures to escalate potential issues. We actively monitor GECS’ access to funding markets and its liquidity profile through tracking external indicators and testing various stress scenarios. The contingency funding plan provides a framework for handling market disruptions and establishes escalation procedures in the event that such events or circumstances arise.

GECS is a savings and loan holding company under U.S. law and became subject to Federal Reserve Board (FRB) supervision on July 21, 2011, the one-year anniversary of the Dodd-Frank Wall Street Reform and Consumer Protection Act.  The FRB has recently proposed a regulation that would require certain organizations it supervises to submit annual capital plans for review, including institutions’ plans to make capital distributions, such as dividend payments. The applicability and timing of this proposed regulation to GECS is not yet determined; however, the FRB has indicated that it expects to extend these requirements to large savings and loan holding companies through separate rulemaking or by order.

Actions taken to strengthen and maintain our liquidity are described in the following section.

Liquidity Sources
 
We maintain liquidity sources that consist of cash and equivalents and a portfolio of high-quality, liquid investments (Liquidity Portfolio) and committed unused credit lines.

We have consolidated cash and equivalents of $91.4 billion at September 30, 2011, which is available to meet our needs. See Condensed Statement of Financial Position. About $10 billion is in regulated bank and insurance entities and is subject to regulatory restrictions or is in restricted countries. About $7 billion is held outside the U.S. and is available to fund operations and other growth of non-U.S. subsidiaries; it is also available to fund our needs in the U.S. on a short-term basis without being subject to U.S. tax. Under current tax laws, should GE or GECS determine to repatriate cash and equivalents held outside the U.S., we may be subject to additional U.S. income taxes and foreign withholding taxes.

In addition to our $91.4 billion of cash and equivalents, we have a centrally-managed portfolio of high-quality, liquid investments with a fair value of $3.0 billion at September 30, 2011. The Liquidity Portfolio is used to manage liquidity and meet the operating needs of GECS under both normal and stress scenarios. The investments consist of unencumbered U.S. government securities, U.S. agency securities, securities guaranteed by the government, supranational securities, and a select group of non-U.S. government securities. We believe that we can readily obtain cash for these securities, even in stressed market conditions.

We have committed, unused credit lines totaling $53.6 billion that have been extended to us by 59 financial institutions at September 30, 2011. These lines include $35.6 billion of revolving credit agreements under which we can borrow funds for periods exceeding one year. Additionally, $17.4 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.

At September 30, 2011, our aggregate cash and equivalents and committed credit lines were more than twice GECS’ commercial paper borrowings balance.

 
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Funding Plan
 
Our strategy has been to reduce our ending net investment in GE Capital. In the first nine months of 2011, we reduced our GE Capital ending net investment, excluding cash and equivalents, from $471 billion at December 31, 2010 to $452 billion at September 30, 2011.

In the first nine months of 2011, we completed issuances of $18.9 billion of senior unsecured debt and $2.0 billion of subordinated notes with maturities up to 25 years (and subsequent to September 30, 2011, an additional $3.3 billion).  Average commercial paper borrowings for GECS and GE during the third quarter were $40.6 billion and $12.9 billion, respectively, and the maximum amount of commercial paper borrowings outstanding for GECS and GE during the third quarter was $41.6 billion and $14.8 billion, respectively. GECS commercial paper maturities are funded principally through new issuances and at GE are typically repaid by quarter-end using overseas cash which is available for use in the U.S. on a short-term basis without being subject to U.S. tax.

Under the Federal Deposit Insurance Corporation’s (FDIC) Temporary Liquidity Guarantee Program (TLGP), the FDIC guaranteed certain senior, unsecured debt issued by GECC on or before October 31, 2009 for which we incurred $2.3 billion of fees for our participation. Our TLGP-guaranteed debt has remaining maturities of $10 billion in 2011 and $35 billion in 2012. We anticipate funding these and our other long-term debt maturities through a combination of existing cash, new debt issuances, collections exceeding originations, dispositions, asset sales, deposits and alternative sources of funding. GECC and GE are parties to an Eligible Entity Designation Agreement and GECC 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 GECC reimburse the FDIC for any amounts that the FDIC pays to holders of GECC debt that is guaranteed by the FDIC.

We securitize financial assets as an alternative source of funding. During the first nine months of 2011, we completed $9.1 billion of non-recourse issuances and had maturities of $9.6 billion. At September 30, 2011, consolidated non-recourse borrowings were $29.0 billion. We anticipate that securitization will remain a part of our overall funding capabilities notwithstanding the changes in consolidation rules described in Notes 1 and 24 of the 2010 consolidated financial statements.

Our issuances of securities repurchase agreements are insignificant and are limited to activities at certain of our foreign banks. At September 30, 2011 and December 31, 2010, we were party to repurchase agreements totaling $0.3 billion and $0.2 billion, respectively, which were accounted for as on-book financings. We have had no repurchase agreements which were not accounted for as financings and we do not engage in securities lending transactions.

We have deposit-taking capability at 11 banks outside of the U.S. and two banks in the U.S. – GE Capital Retail Bank (formerly GE Money Bank), a Federal Savings Bank (FSB), and GE Capital Financial Inc., an industrial bank (IB). The FSB and IB currently issue certificates of deposit (CDs) in maturity terms from three months to ten years.

Total alternative funding at September 30, 2011 was $64 billion, composed mainly of $42 billion bank deposits, $9 billion of funding secured by real estate, aircraft and other collateral and $9 billion GE Interest Plus notes. The comparable amount at December 31, 2010 was $60 billion.

Preferred Share Redemption
 
On October 16, 2008, we issued 30,000 shares of 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 common stock (par value $0.06 per share) to Berkshire Hathaway Inc. (Berkshire Hathaway) for net proceeds of $3.0 billion in cash. The proceeds were allocated to the preferred shares ($2.5 billion) and the warrants ($0.5 billion) on a relative fair value basis and recorded in other capital.  The warrants are exercisable for five years at an exercise price of $22.25 per share of common stock and settled through physical share issuance.

 
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The preferred stock was redeemable at our option three years after issuance at a price of 110% of liquidation value plus accrued and unpaid dividends. On September 13, 2011, we provided notice to Berkshire Hathaway that we would redeem the shares for the stated redemption price of $3.3 billion, plus accrued and unpaid dividends. In connection with this notice, we recognized a preferred dividend of $0.8 billion (calculated as the difference between the carrying value and redemption value of the preferred stock), which was recorded as a reduction to our third quarter earnings attributable to common shareowners and common shareowners’ equity and a related EPS charge of $0.08.  As a result and beginning in 2012, we will no longer be required to pay the preferred share dividends of $0.3 billion annually. The preferred shares were redeemed on October 17, 2011.

Income Maintenance Agreement
 
As set forth in Exhibit 99(b) hereto, GECC’s ratio of earnings to fixed charges was 1.51:1 during the nine months ended September 30, 2011 due to higher pre-tax earnings at GECC, which were primarily driven by lower losses and delinquencies. For additional information, see the Income Maintenance Agreement section in the Management’s Discussion and Analysis of Financial Condition and Results of Operations of our 2010 consolidated financial statements.

E. New Accounting Standards
 
In May 2011, the FASB issued amendments to existing standards for fair value measurement and disclosure, which are effective in the first quarter of 2012. The amendments clarify or change the application of existing fair value measurements, including; that the highest and best use and valuation premise in a fair value measurement are relevant only when measuring the fair value of nonfinancial assets; that a reporting entity should measure the fair value of its own equity instrument from the perspective of a market participant that holds that instrument as an asset; to permit an entity to measure the fair value of certain financial instruments on a net basis rather than based on its gross exposure when the reporting entity manages its financial instruments on the basis of such net exposure; that in the absence of a Level 1 input, a reporting entity should apply premiums and discounts when market participants would do so when pricing the asset or liability consistent with the unit of account; and that premiums and discounts related to size as a characteristic of the reporting entity’s holding are not permitted in a fair value measurement. The impact of adopting these amendments is expected to be immaterial to the financial statements.


Item 3. Quantitative and Qualitative Disclosures About Market Risk.
 
There have been no significant changes to our market risk since December 31, 2010. 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, 2010.


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, 2011, and (ii) no change in internal control over financial reporting occurred during the quarter ended September 30, 2011, that has materially affected, or is reasonably likely to materially affect, such internal control over financial reporting.

 
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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, 2010.

As previously reported, the Antitrust Division of the Department of Justice (DOJ), the Securities and Exchange Commission (SEC), and the Internal Revenue Service (IRS) are conducting an industry-wide investigation of marketing and sales of guaranteed investment contracts, and other financial instruments, to municipalities. In connection with this investigation, three subsidiaries of General Electric Capital Corporation (GECC) have received subpoenas, summonses and/or requests for information in connection with the investigation: GE Funding CMS (Trinity Funding Co.), GE Funding Capital Market Services, Inc. (GE FCMS) and Trinity Plus Funding Co., LLC. (Trinity Plus), GECC has cooperated and continues to cooperate fully with the SEC, DOJ and IRS in this matter. In July 2008, GE FCMS received a “Wells notice” advising that the SEC staff was considering recommending that the SEC bring a civil injunctive action or institute an administrative proceeding in connection with the bidding for various financial instruments associated with municipal securities by certain former employees of GE FCMS. GE FCMS is one of several industry participants that received Wells notices. GE FCMS disagrees with the SEC staff regarding this recommendation and has had discussions with the staff, including discussions concerning a potential resolution of the matter. GE FCMS intends to continue those discussions and parallel discussions with the other agencies and understands that it will have the opportunity to address any disagreements with the SEC staff with respect to its recommendation through the Wells process with the full Commission. Separately, GE FCMS and Trinity Funding Co. have also received subpoenas from the Attorneys General of the State of Connecticut and Florida on behalf of a working group of State Attorneys General, and a Civil Investigative Demand from the Attorney General of the Commonwealth of Massachusetts. GE FCMS and Trinity Funding Co. are cooperating with those investigations.

As previously reported, in January 2011, an action was brought in Utah Federal court, and subsequently transferred to the United States District Court for the Southern District of New York, against Trinity Plus and FGIC Capital Market Services, Inc. (the predecessor of GE FCMS) asserting antitrust violations. In April 2011, a third-party action was brought against Trinity Plus in the Massachusetts Superior Court, Suffolk County alleging violations of Massachusetts statutory and common laws. Additionally, in 2011, a number of additional actions were brought (or transferred to or amended) in the United States District Court for the Southern District of New York against GECC, Trinity Funding, GE FCMS and Trinity Plus alleging antitrust violations, all of which were dismissed in September 2011, except for one action where our motion to dismiss was denied.  These actions seek unspecified damages, and we intend to defend ourselves vigorously.

As previously reported, in July 2010, the United States District Court for the District of Connecticut granted our motion to dismiss in their entirety two purported class actions under the federal securities laws naming GE, our chief executive officer, and our chief financial officer as defendants. These two actions, which we previously reported, alleged that we and our chief executive officer made false and misleading statements that artificially inflated our stock price between March 12, 2008 and April 10, 2008, when we announced that our results for the first quarter of 2008 would not meet our previous guidance and also lowered our full year guidance for 2008.  In September 2011, the United States Court of Appeals for the Second Circuit affirmed the dismissal of the class actions.

As previously reported, in March 2010, a shareholder derivative action was filed in the United States District Court for the Southern District of New York naming as defendants GE, a number of GE officers (including our chief executive officer and chief financial officer) and our directors. The complaint principally alleges breaches of fiduciary duty and other causes of action related to the GE dividend and SEC matter which GE resolved in August 2009 and alleged mismanagement of our financial services businesses. In May 2010, an additional derivative action also claiming mismanagement of our financial services businesses was filed in the United States District Court of New York naming as defendants GE and a number of present and former GE officers (including our chief executive officer and chief financial officer).  Our motions to dismiss the complaints in these two derivative actions were granted in September 2011.
 
 
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As previously reported, and in compliance with SEC requirements to disclose environmental proceedings potentially involving monetary sanctions of $100,000 or greater, in June 2008, the Environmental Protection Agency (EPA) issued a notice of violation and in January 2011 filed a complaint alleging non-compliance with the Clean Air Act at a power cogeneration plant in Homer City, PA. The Pennsylvania Department of Environmental Protection, the New York Attorney General’s Office and the New Jersey Department of Environmental Protection have intervened in the EPA case. The plant is operated exclusively by EME Homer City Generation L.P., and is owned and leased to EME Homer City Generation L.P. by subsidiaries of GECC and one other entity. The complaints did not indicate a specific penalty amount but make reference to statutory fines. In October 2011, the U.S District Court for the Western District of Pennsylvania granted a motion to dismiss the matter with prejudice with regard to all federal counts, and with leave to re-file in state court for the non-federal counts.

The company is reporting the following matter in compliance with SEC requirements to disclose environmental proceedings potentially involving monetary sanctions of $100,000 or greater: In July 2011, the EPA informed the company that it would be seeking a penalty for the company’s alleged failure to accurately report releases of certain materials under the Emergency Planning and Community Right to Know Act at its Hydril Oil & Gas facility in Houston, Texas.  The EPA has offered to settle the matter for $123,832.  The company believes that there are meritorious defenses to certain of the allegations that should result in further penalty reductions, and is continuing to discuss the matter with the EPA.

Item 2. Purchases of Equity Securities by the Issuer and Affiliated Purchasers.
 
               
Approximate
               
dollar value
           
Total number
 
of shares that
           
of shares
 
may yet be
           
purchased
 
purchased
           
as part of
 
under our
   
Total number
 
Average
 
our share
 
share
   
of shares
 
price paid
 
repurchase
 
repurchase
Period(a)
 
purchased
(a)(b)
per share
 
program
(a)(c)
program
(Shares in thousands)
                       
                         
2011 
                       
July
   
23,735 
 
$
 17.51 
   
23,429 
     
August
   
32,376 
 
$
 15.54 
   
32,193 
     
September
   
7,878 
 
$
 15.52 
   
7,612 
     
Total
   
63,989 
 
$
 16.27 
   
63,234 
 
$8.0  
billion
                         
                         
(a)
Information is presented on a fiscal calendar basis, consistent with our quarterly financial reporting.
 
(b)
This category includes 755 thousand shares repurchased from our various benefit plans, primarily the GE Savings and Security Program (the S&SP). Through the S&SP, a defined contribution plan with Internal Revenue Service Code 401(k) features, we repurchase shares resulting from changes in investment options by plan participants.
 
(c)
This balance represents the number of shares that were repurchased from the GE Stock Direct Plan, a direct stock purchase plan that is available to the public. Repurchases from GE Stock Direct are part of the 2007 GE Share Repurchase Program (the Program) under which we are authorized to repurchase up to $15 billion of our common stock through 2010. The Program is flexible and shares are acquired with a combination of borrowings and free cash flow from the public markets and other sources, including GE Stock Direct. Effective September 25, 2008, we suspended the Program for purchases other than from GE Stock Direct. Effective July 23, 2010, we extended the Program, which would have otherwise expired on December 31, 2010, through 2013 and we resumed repurchases under the Program in the third quarter of 2010.
 

 
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Item 5. Other Information.
 
On November 4, 2011, the Board of Directors of GE authorized an amendment of the company’s Certificate of Incorporation to eliminate the preferred stock that was issued to Berkshire Hathaway (the “Series A Preferred Stock”).  All of the outstanding shares of the Series A Preferred Stock were redeemed on October 17, 2011.  The amendment of the Certificate of Incorporation was effective upon filing with the Secretary of State of the State of New York on November 4, 2011.  A copy of the Certificate of Incorporation of GE incorporating the amendment is included as an exhibit to this Quarterly Report on Form 10-Q as Exhibit 3(a).

The GE Management Development & Compensation Committee (the “MDCC”) governs the payment of annual incentive compensation to our executives based on a rigorous assessment of financial and strategic performance each year as described in our annual proxy statement.  As part of their normal operating review, the MDCC, and our Board of Directors, determined that the Company’s Incentive Compensation Plan (the “Plan”), originally adopted in 1951, and as subsequently amended most recently in 1991, had become outdated as the Company and its business operations evolved.  Our Board of Directors has therefore terminated the Plan effective November 4, 2011 to eliminate redundant internal administration.  The MDCC and Company will continue to evaluate, review and approve annual incentive compensation awards to executives in accordance with our historic performance standards and executive compensation policies.
 
 
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Item 6. Exhibits.
 
Exhibit 3(a)
The Certificate of Incorporation, as amended, of General Electric Company.
Exhibit 11 
Computation of Per Share Earnings*.
Exhibit 12(a)
Computation of Ratio of Earnings to Fixed Charges.
Exhibit 12(b)
Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends.
Exhibit 31(a)
Certification Pursuant to Rules 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as Amended.
Exhibit 31(b)
Certification Pursuant to Rules 13a-14(a) or 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(a)
Financial Measures That Supplement Generally Accepted Accounting Principles.
Exhibit 99(b)
Computation of Ratio of Earnings to Fixed Charges (Incorporated by reference to Exhibit 12 to General Electric Capital Corporation’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2011 (Commission file number 001-06461)).
Exhibit 101
The following materials from General Electric Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, formatted in XBRL (eXtensible Business Reporting Language); (i) Condensed Statement of Earnings for the three and nine months ended September 30, 2011 and 2010, (ii) Condensed Statement of Financial Position at September 30, 2011 and December 31, 2010, (iii) Condensed Statement of Cash Flows for the nine months ended September 30, 2011 and 2010, and (iv) Notes to Condensed, Consolidated Financial Statements.
 
*
Data required by Financial Accounting Standards Board Accounting Standards Codification 260, Earnings Per Share, is provided in Note 14 to the Condensed, Consolidated Financial Statements in this Report.
     


 
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Signatures
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 

 
   
General Electric Company
(Registrant)
 
November 7, 2011
 
/s/ Jamie S. Miller
 
Date
 
Jamie S. Miller
Vice President and Controller
Duly Authorized Officer and Principal Accounting Officer
 

 
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