SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

þ QUARTERLY REPORT FOR THE PERIOD ENDED ~~JUNE~~ SEPTEMBER 30, 2001

PURSUANT TO SECTION 13 OR 15(D)

OF THE SECURITIES EXCHANGE ACT OF 1934

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE

SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-6157

Heller Financial, Inc.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization) 500 W. Monroe Street, Chicago, Illinois (Address of principal executive offices) 36-1208070 (I.R.S. Employer Identification No.) 60661 (Zip Code)

Delaware		36-1208070
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

500 W. Monroe Street, Chicago, Illinois		60661
(Address of principal executive offices)		(Zip Code)

(312) 441-7000

(Registrant’s telephone number, including area code)

None

(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 ü No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

47,065,362 shares of Class A Common Stock, $.25 par value, outstanding at October 19, 2001.

51,050,000 shares of Class B Common Stock, $.25 par value, outstanding at October 19, 2001.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

HELLER FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

(in millions, except for information on shares)

ASSETS	June 30, 2001			December 31, 2000
	September 30, 2001					December 31, 2000
	(unaudited)			~~(audited)~~		(audited)
Cash and cash equivalents	$ 587			$ 732
ASSETS
Receivables (Note 2)
Cash and cash equivalents		$ 718					$ 732
Commercial loans
Receivables (Note 2)
Term loans	4,515			4,973
Commercial loans
Revolving loans	2,038			2,052
Term loans		4,570					4,973
Real estate loans	2,878			2,686
Revolving loans		2,200					2,052
Factored accounts receivable	2,231			2,615
Real estate loans		3,326					2,686
Equipment loans and leases	3,643			3,640
Factored accounts receivable		2,240					2,615
Total receivables	15,305			15,966
Equipment loans and leases		3,884					3,640
Less: Allowance for losses of receivables (Note 2)	341			342
Total receivables		16,220					15,966
Net receivables	14,964			15,624
Less: Allowance for losses of receivables (Note 2)		351					342
Equity and real estate investments	782			795
Net receivables		15,869					15,624
Debt securities	847			755
Equity and real estate investments		756					795
Operating leases	661			695
Debt securities		806					755
Investments in international joint ventures	211			216
Operating leases		614					695
Lending partnerships	404			267
Investments in international joint ventures		221					216
Goodwill	443			458
Lending partnerships		367					267
Other assets	599			519
Goodwill		441					458
Total assets	$19,498			$20,061
Other assets		826					519
LIABILITIES AND STOCKHOLDERS’ EQUITY
Total assets		$20,618					$20,061
Senior debt
LIABILITIES AND STOCKHOLDERS’ EQUITY
Commercial paper and short-term borrowings	$ 3,677			$ 5,127
Senior debt
Notes and debentures (Note 3)	11,449			10,525
Commercial paper and short-term borrowings		$ 4,655					$ 5,127
Total senior debt	15,126			15,652
Notes and debentures (Note 3)		11,487					10,525
Credit balances of factoring clients	789			982
Total senior debt		16,142					15,652
Other payables and accruals	863			840
Credit balances of factoring clients		818					982
Total liabilities	16,778			17,474
Other payables and accruals		872					840
Company obligated Mandatory Redeemable Preferred Securities of a Subsidiary Trust (Note 10)	175			—
Total liabilities		17,832					17,474
Minority interest	12			12
Company obligated mandatory redeemable preferred securities of a subsidiary trust (Note 10)…		175					—
Stockholders’ equity
Minority interest.		13					12
Preferred stock (Note 10)	275			400
Stockholders’ equity
Class A common stock ($.25 par; 500,000,000 shares authorized; 47,111,721 shares issued and 45,989,724 shares outstanding)	12			12
Preferred stock (Note 10)		275					400
Class B common stock ($.25 par; 300,000,000 shares authorized; 51,050,000 shares issued and outstanding)	13			13
Class A common stock ($.25 par; 500,000,000 shares authorized; 47,784,551 shares issued and 46,653,134 shares outstanding)		12					12
Additional paid in capital	1,641			1,631
Class B common stock ($.25 par; 300,000,000 shares authorized; 51,050,000 shares issued and outstanding)		13					13
Retained earnings	668			554
Additional paid in capital		1,661					1,631
Treasury stock (1,121,997 shares) (Note 5)	(26	)		(19	)
Retained earnings		734					554
Accumulated other comprehensive income	(50	)		(16	)
Treasury stock (1,131,417 shares) (Note 5)		(27	)				(19	)
Total stockholders’ equity	2,533			2,575
Accumulated other comprehensive income		(70	)				(16	)
Total liabilities and stockholders’ equity	$19,498			$20,061
Total stockholders’ equity		2,598					2,575
Total liabilities and stockholders’ equity		$20,618					$20,061

The accompanying Notes to Consolidated Condensed Financial Statements ~~are an integral part of these statements.~~

are an integral part of these statements.

HELLER FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

(in millions, except for per share information)

	For the Three Months Ended June 30,		For the Six Months Ended June 30,
	For the Three Months Ended September 30,		For the Nine Months Ended September 30,
	2001	2000	2001		2000
	(unaudited)		(unaudited)
Interest income	$~~384~~ 371	$~~404~~ 429	$~~787~~1,158		$~~765~~1,194
Interest expense	~~217~~192	~~247~~266	~~466~~658		~~462~~728
Net interest income	~~167~~179	~~157~~163	~~321~~500		~~303~~466
Fees and other income	7974	7871	~~150~~224		~~166~~238
Factoring commissions	1815	1917	3449		3653
Income of international joint ventures	89	810	2029		1828
Operating revenues	~~272~~277	~~262~~261	~~525~~802		~~523~~785
Operating expenses	~~116~~100	116	~~227~~327		~~233~~349
Provision for losses	3852	4136	69121		71108
GE Capital merger expenses	5	—	5		—
Small Business Finance charge (Note 9)	—	—	12		—
Income before taxes, minority interest, and cumulative effect of change in accounting for derivatives	~~118~~120	~~105~~109	~~217~~337		~~219~~328
Income tax provision	3635	3536	67102		73108
Minority interest (Note 10)	34	—1	37		12
Income before cumulative effect of change in accounting for derivatives	79$ 81	70$ 72	~~147~~$ 228		~~145~~$ 218
Cumulative effect of change in accounting for derivatives (net of taxes)	—	—	(4	)	—
Net income	$ 7981	$ 7072	$~~143~~ 224		$~~145~~ 218
Dividends on preferred stock	$ 75	$ 7	$ 1419		$ 1421
Net income applicable to common stock	$ 7276	$ 6365	$~~129~~ 205		$~~131~~ 197
Basic net income applicable to common stock per share (Note 6)	$0.7478	$0.6567	$1 2.3311		$1 2.3604
Diluted net income applicable to common stock per share (Note 6)	$0.7376	$0.6567	$1 2.3107		$1 2.3503

The accompanying Notes to Consolidated Condensed Financial Statements ~~are an integral part of these statements.~~

are an integral part of these statements.

HELLER FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF

CHANGES IN STOCKHOLDERS’ EQUITY

(in millions)

(unaudited)

	Preferred Stock (Note 10)		~~Class A Common Stock~~	~~Class B Common Stock~~	Class A Common Stock	~~Treasury Stock (Note 5)~~		~~Add’l~~Class ~~Paid~~B InCommon ~~Capital~~Stock		~~Accum. Other Compre- hensive Income~~	Treasury Stock (Note 5)		~~Retained Earnings~~		~~Total~~Add’l Paid In Capital			~~Compre- hensive Income~~		Accum. Other Compre- hensive Income			Retained Earnings			Total		Compre-hensive Income
BALANCE AT DECEMBER 31, 1999	~~$400~~	$400	~~$12~~	~~$13~~		$ (912	)	~~$1,626~~	$ 13	~~$(27~~	)	$ (9	~~$332~~)		~~$2,347~~	$1,626					$ (27	)		$332		$2,347
Comprehensive Income:
Net income	—	—	—	—		—		—	—	—		—	~~145~~		~~145~~	—		~~$145~~			—			218		218			$218
Other comprehensive income, net of tax:
Unrealized gain on securities, net of tax of $2	—		—	—		—		—		—			—		3			3
Unrealized gain on securities, net of tax of $17		—				—			—			—				—					—			—		29			29
Foreign currency translation adjustments, net of tax of $21	—		—	—		—		—		—			—		(2	)		(2)
Foreign currency translation adjustments, net of tax of $(43)		—				—			—			—				—					—			—		(12	)		(12	)
Other comprehensive income	—	—	—	—		—		—	—	1		—	—		—	—		1			17			—		—			17
Comprehensive income	—	—	—	—		—		—	—	—		—	—		—	—		~~$146~~			—			—		—			$235
Repurchase of class A common stock	—		—	—		(13	)	—		—			—		(13	)
Repurchase of Class A Common Stock		—				—			—			(11	)			—					—			—		(11	)
Vesting of restricted shares	—	—	—	—		—		2	—	—		—	—		2	3					—			—		3
Preferred stock dividends	—	—	—	—		—		—	—	—		—	~~(14~~	)	~~(14~~	)—					—			(21	)	(21	)
Common stock dividends	—	—	—	—		—		—	—	—		—	~~(19~~	)	~~(19~~	)—					—			(29	)	(29	)
BALANCE AT JUNE 30, 2000	$400		$12	$13		$ (22	)	$1,628		$(26	)		$444		$2,449
BALANCE AT SEPTEMBER 30, 2000		$400				$ 12			$ 13			$ (20	)			$1,629					$ (10	)		$500		$2,524
BALANCE AT DECEMBER 31, 2000	~~$400~~	$400	~~$12~~	~~$13~~		$ ~~(19~~12	)	~~$1,631~~	$ 13	~~$(16~~	)	$ (19	~~$554~~)		~~$2,575~~	$1,631					$ (16	)		$554		$2,575
Comprehensive Income:
Income before cumulative effect of change in accounting for derivatives	—	—	—	—		—		—	—	—		—	~~147~~		~~147~~	—		~~$147~~			—			228		228			$228
Other comprehensive income, net of tax:
Transition adjustment related to change in accounting for derivatives, net of tax of $(2)	—	—	—	—		—		—	—	—		—	—		(4	)—		~~$ (4~~	)		—			—		(4	)		(4	)
Unrealized loss on qualifying cash flow hedges, net of tax of $(1)	—		—	—		—		—		—			—		(2	)		$ (2	)
Unrealized loss on qualifying cash flow hedges, net of tax of $(2)		—				—			—			—				—					—			—		(4	)		(4	)
Unrealized loss on securities, net of tax of $(1)	—		—	—		—		—		—			—		(2	)		(2	)
Reclassification into earnings of realized losses on cash flow hedges, net of tax of $1		—				—			—			—				—					—			—		2			2
Foreign currency translation adjustments, net of tax of $(15)	—		—	—		—		—		—			—		(26	)		(26	)
Unrealized loss on securities, net of tax of $(15)		—				—			—			—				—					—			—		(26	)		(26	)
Other comprehensive income	—		—	—		—		—		(34	)		—		—			(34	)
Foreign currency translation adjustments, net of tax of $(2)		—				—			—			—				—					—			—		(22	)		(22	)
Comprehensive income	—		—	—		—		—		—			—		—			$113
Other comprehensive income		—				—			—			—				—					(54	)		—		—			(54	)
Issuance of class A common stock	—		—	—		—		12		—			—		12
Comprehensive income		—				—			—			—				—					—			—		—			$174
Repurchase of class A common stock	—		—	—		(7	)	—		—			—		(7	)
Issuance of Class A common stock		—				—			—			—				30					—			—		30
Redemption of cumulative perpetual preferred stock, series A	(125)		—	—		—		—		—			—		(125)
Repurchase of Class A common stock		—				—			—			(8	)			—					—			—		(8	)
Vesting of restricted shares	—		—	—		—		3		—			—		3
Redemption of cumulative perpetual preferred stock, series A		(125	)			—			—			—				—					—			—		(125	)
Preferred stock dividends	—		—	—		—		—		—			(14	)	(14	)
Vesting of restricted shares		—				—			—			—				5					—			—		5
Common stock dividends	—		—	—		—		—		—			(19	)	(19	)
Preferred stock dividends		—				—			—			—				—					—			(19	)	(19	)
Other	—		—	—		—		(5	)	—			—		(5	)
Common stock dividends		—				—			—			—				—					—			(29	)	(29	)
BALANCE AT JUNE 30, 2001	$275		$12	$13		$ (26	)	$1,641		$(50	)		$668		$2,533
Other		—				—			—			—				(5	)				—			—		(5	)
BALANCE AT SEPTEMBER 30, 2001		$275				$ 12			$ 13			$ (27	)			$1,661					$ (70	)		$734		$2,598

The accumulated other comprehensive income balance included an unrealized loss of $~~(1)~~28 million and unrealized gains of $1036 million, net of tax, on securities available for sale at ~~June~~September 30, 2001 and ~~June~~September 30, 2000, respectively, and unrealized losses, net of tax, on qualifying cash flow hedges of $~~(1)~~4 million and $0 at ~~June~~September 30, 2001 and ~~June~~September 30, 2000, respectively. Accumulated other comprehensive income also included deferred foreign currency translation adjustments, net of tax, of $(5147) million and $(3646) million at ~~June~~September 30, 2001 and ~~June~~September 30, 2000, respectively, and a $4 million loss, net of tax, for the transition adjustment related to the change in accounting for derivatives at ~~June~~September 30, 2001.

The accompanying Notes to Consolidated Condensed Financial Statements

are an integral part of these statements.

HELLER FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(in millions)

	For the Six Months Ended June 30,
	For the Nine Months EndedSeptember 30,
	2001		2000
	(unaudited)
OPERATING ACTIVITIES
Income before cumulative effect of change in accounting for derivatives	$ ~~147~~228		$ ~~145~~218
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for losses	69121		71108
Amortization and depreciation	2742		2540
Losses from equity investments	1735		25
Provision for deferred taxes	1021		3551
Increase in accounts payable and accrued liabilities	3		54
(Decrease) increase in accounts payable and accrued liabilities	(34	)	195
Undistributed income of international joint ventures	(1512	)	(1221	)
(Decrease) increase in interest payable	(314	)	2570
Net increase in other assets	(2918	)	(48175	)
Other	~~(34~~24	)	244
Net cash provided by operating activities	~~192~~393		~~321~~495
INVESTING ACTIVITIES
Longer-term loans funded	(24,~~745~~384	)	(35,~~488~~192	)
Collections of principal	~~977~~1,334		1,~~220~~230
Securitizations, participations, syndications and loan sales	1,~~399~~543		12,~~180~~344
Net decrease (increase) in short-term loans and advances to factoring clients	860		(263	)
Net decrease in short-term loans and advances to factoring clients	1,243		495
Investment in operating leases	(3549	)	(~~344~~398	)
Investment in equity interests and other investments	(~~362~~512	)	(~~122~~182	)
Sales of investments and equipment on lease	~~123~~208		~~140~~175
Other	3		(55	)
Net cash used for investing activities	(617	)	(1,528	)
Net cash provided by (used for) investing activities	220		(1,732	)
FINANCING ACTIVITIES
Senior note issuances	2,~~695~~975		34,~~023~~316
Retirement of notes and debentures	(12,~~821~~315	)	(12,~~168~~462	)
Decrease in commercial paper and other short-term borrowings	(~~1,450~~472	)	(~~135~~778	)
Net increase in advances from affiliates	2		—
Issuance of class A common stock	12		—
Issuance of Class A common stock	30		—
Repurchase of class A common stock	(7	)	(13	)
Repurchase of Class A common stock	(8	)	(11	)
Redemption of cumulative perpetual preferred stock series A	(125	)	—
Issuance of mandatory redeemable preferred trust securities	175		—
Cash dividends paid on preferred and common stock	(3348	)	(3350	)
Other	(54	)	(1—	)
Net cash (used for) provided by financing activities	(557	)	1,673
Net cash provided by financing activities	210		1,015
(Decrease) increase in cash and cash equivalents	(145	)	262
Decrease in cash and cash equivalents	(14	)	(18	)
Cash and cash equivalents at the beginning of the period	732		516
Cash and cash equivalents at the end of the period	$ ~~587~~718		$ ~~778~~498

The accompanying Notes to Consolidated Condensed Financial Statements

are an integral part of these statements.

HELLER FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(unaudited)

(1) Basis of Presentation

These consolidated condensed financial statements should be read in conjunction with the financial statements and notes included in the annual report on Form 10-K of Heller Financial, Inc. (including its consolidated subsidiaries, Heller or the Company, which may be referred to as we, us or our) for the year ended December 31, 2000. In management’s opinion, all adjustments considered necessary for a fair presentation are included in these financial statements. Certain prior year amounts have been reclassified to conform to the current year’s presentation.

(2) Impaired Receivables and Repossessed Assets

We do not recognize interest and fee income on impaired receivables or repossessed assets, both of which are classified as nonearning, as set forth in the following table:

	June 30, 2001			December 31, 2000
	September 30, 2001					December 31, 2000
	(in millions)
Impaired receivables	~~$331~~	$348		~~$285~~			$285
Repossessed assets	16	16		22			22
Total nonearning assets	~~$347~~	$364		~~$307~~			$307
Ratio of total nonearning assets to total lending assets	~~2.3~~	%2.2	%	~~1.9~~	%		1.9	%

Nonearning assets included $2627 million and $37 million at ~~June~~September 30, 2001 and December 31, 2000, respectively, for our International Factoring and Asset Based Finance Segment.

The average investment in nonearning impaired receivables was $~~298~~309 million for the ~~six~~nine months ended ~~June~~September 30, 2001 and $~~221~~ 235 million for the ~~six~~nine months ended ~~June~~September 30, 2000.

Loan Modifications—

At ~~June~~September 30, 2001 and December 31, 2000, we did not have any loans that are considered troubled debt restructures. At ~~June~~September 30, 2001 there were no loans that were restructured and returned to earning status.

Allowance for Losses—

The changes in the allowance for losses of receivables and repossessed assets were as follows:

	June 30, 2001			December 31, 2000
	September 30, 2001					December 31, 2000
	(in millions)
Balance at the beginning of the period	~~$342~~	$342		~~$316~~			$316
Provision for losses	69	121		~~148~~			148
Writedowns	~~(85~~	)(135	)	~~(140~~	)		(140	)
Recoveries	19	24		25			25
Other	(4	)(1	)	(7	)		(7	)
Balance at the end of the period	~~$341~~	$351		~~$342~~			$342

~~HELLER~~ Impaired receivables ~~FINANCIAL~~with identified reserve requirements totaled $264 million at September 30, ~~INC.~~2001 ~~AND~~and ~~SUBSIDIARIES~~$260 million at December 31, 2000.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

	September 30, 2001			December 31, 2000
	(in millions)
Identified reserve requirement for impaired receivables		$ 78			$ 78
Additional allowance for losses of receivables		273			264

Total allowance for losses of receivables		$351			$342

Ratio of allowance for losses of receivables to nonearning impaired receivables		101	%		120	%

Impaired receivables with identified reserve requirements totaled $286 million at June 30, 2001 and $260 million at December 31, 2000.

	June 30, 2001		December 31, 2000
	(in millions)
Identified reserve requirement for impaired receivables	$ 79		$ 78
Additional allowance for losses of receivables	262		264
Total allowance for losses of receivables	$341		$342
Ratio of allowance for losses of receivables to nonearning impaired receivables	103	%	120	%

(3) Senior Debt—Notes and Debentures

We issued and retired the following notes and debentures during the ~~six~~nine months ended ~~June~~September 30, 2001 (excluding unamortized premium and discount):

	Principal Amount
	(in millions)
Issuances:
Variable rate notes due on various dates ranging from July 17, 2001 to June 20, 2004	~~$ 694~~	$ 955
Fixed rate notes with interest rates ranging from 5.50% to 6.40% due on various dates ranging from December 11, 2001 to March 15, 2006	2,001
Fixed rate notes with interest rates ranging from 4.10% to 7.00% due on various dates ranging from December 11, 2001 to March 15, 2006		2,020
	$2,695
		$2,975
Retirements:
Variable rate notes due on various dates ranging from January 12, 2001 to June 25, 2001	$1,305
Variable rate notes due on various dates ranging from January 12, 2001 to August 20, 2001		$1,595
Fixed rate notes with interest rates ranging from 5.25% to 8.00% due on various dates ranging from January 16, 2001 to June 1, 2001	516
Fixed rate notes with interest rates ranging from 5.25% to 8.00% due on various dates ranging from January 16, 2001 to September 25, 2001		720
	$1,821
		$2,315

At September ~~June~~ 30, 2001, we have total committed credit and available asset sale facilities totaling $5.89 billion, of which $5.78 billion was available for use at ~~June~~September 30, 2001.

We have approximately $4.3 billion in available liquidity support, split equally between two bank credit facilities. One of these is a 5-year facility expiring in April 2005 and the other is a 364-day facility expiring in April 2002.

Also included in committed facilities are foreign bank credit facilities totaling $~~924~~835 million (U.S. dollar equivalent) for our consolidated international subsidiaries and $15 million under foreign currency revolving credit facilities. As of ~~June~~September 30, 2001, there was approximately $~~800~~782 million available under these facilities. Included in foreign bank credit facilities is approximately $~~230~~118 million of additional alternative liquidity. This is available by discounting eligible French receivables with the French Central Bank since Factofrance, our wholly-owned subsidiary, is a registered financial institution in France. At ~~June~~September 30, 2001, ~~$157~~all ~~million~~of this facility was available for use.

~~HELLER~~ In ~~FINANCIAL~~addition to the above facilities, ~~INC~~Factofrance has two factored accounts receivable sale facilities. ~~AND~~These ~~SUBSIDIARIES~~facilities allow us to sell an undivided interest of up to FRF 1.7 billion (approximately $240 million) in a designated pool of our factored accounts receivable to two bank-sponsored conduits on a limited recourse basis. As of September 30, 2001, these facilities were fully utilized.

~~NOTES~~ We TOhave ~~CONSOLIDATED~~an ~~FINANCIAL~~asset ~~STATEMENTS—(Continued)~~backed commercial paper conduit facility that allows us to sell participations in a designated pool of Corporate Finance cash-flow loans to bank-sponsored conduits on a limited recourse basis. Liquidity support under this facility totals $1.2 billion, of which $790 million was utilized at September 30, 2001. The commitment period of the liquidity support is 364 days and may be renewed annually by the banks at their discretion.

In We ~~addition~~have toa ~~the~~364-day ~~above facilities~~facility, expiring ~~Factofrance~~May ~~has~~1, ~~two~~2002, ~~factored~~which ~~accounts~~allows ~~receivable sale facilities. These facilities allow~~ us to sell ~~an undivided interest of~~ up to ~~FRF 1.7 billion (approximately~~ $~~225~~500 million) ~~in a designated pool~~ of our ~~factored~~equipment ~~accounts~~receivables ~~receivable~~ to two bank-sponsored conduits on a limited recourse basis. As of ~~June~~September 30, 2001~~, these~~ ~~facilities~~we ~~were~~had ~~fully~~approximately ~~utilized~~$80 million available under this facility.

We have ana ~~asset~~shelf ~~backed~~registration ~~commercial~~statement, ~~paper~~filed ~~conduit~~with the ~~facility~~Securities ~~that~~and ~~allows~~Exchange usCommission, tocovering ~~sell~~the ~~participations~~sale inof ~~a designated~~up ~~pool~~to of$10 ~~Corporate~~billion ~~Finance~~in ~~cash-flow~~debt ~~loans~~securities to(including ~~bank~~medium-~~sponsored~~term ~~conduits~~notes), onsenior apreferred ~~limited~~stock ~~recourse~~and ~~basis.~~Class ~~Liquidity~~A ~~support~~Common ~~under this facility totals $1~~Stock.4 ~~billion,~~As of ~~which~~September ~~$900 million was utilized at June~~ 30, 2001., ~~The~~we ~~commitment~~had ~~period~~approximately of$3.4 ~~the~~billion available ~~liquidity~~under ~~support~~this isshelf ~~364 days and may be renewed annually by the banks at their discretion~~registration.

We have a ~~364~~Euro Medium-~~day~~Term ~~facility,~~Note ~~expiring~~Program ~~May~~for 1,the ~~2002,~~issuance ~~which~~of ~~allows us to sell~~ up to $~~500~~2 ~~million~~billion of(U.S. ~~our equipment~~dollar ~~receivables~~equivalent) toin ~~two~~notes ~~bank-sponsored~~to ~~conduits~~be onissued afrom ~~limited~~time ~~recourse~~to ~~basis~~time. As of ~~June~~September 30, 2001, ~~we had~~ approximately $301.2 ~~million~~billion (U.S. dollar equivalent) was available under this ~~facility~~program.

We have a ~~shelf~~Euro ~~registration~~commercial ~~statement,~~paper ~~filed~~program ~~with~~and ~~the~~a Canadian ~~Securities~~commercial ~~and~~paper ~~Exchange~~program ~~Commission,~~for ~~covering~~ the ~~sale~~ issuance of notes up to $101.5 billion inand ~~debt~~$250 ~~securities~~million (~~including~~U.S. ~~medium-term~~dollar ~~notes~~equivalent), ~~senior preferred stock and Class A Common Stock~~respectively. As of ~~June~~September 30, 2001, wethere ~~had~~was ~~approximately~~$664 million and $~~3.7~~194 ~~billion~~million, respectively, available under ~~this~~these ~~shelf registration~~programs.

We have a Euro Medium-Term Note Program for the issuance of up to $2 billion (U.S. dollar equivalent) in notes to be issued from time to time. As of June 30, 2001, approximately $1.2 billion (U.S. dollar equivalent) was available under this program.

We have a Euro commercial paper program and a Canadian commercial paper program for the issuance of notes up to $1 billion and $250 million (U.S. dollar equivalent), respectively. As of June 30, 2001, there was $747 million and $168 million, respectively, available under these programs. Effective August 10, 2001, we increased the availability under the Euro commercial paper program to $1.5 billion.

(4) Derivative Financial Instruments Used for Risk Management Purposes

We utilize derivatives, primarily interest rate swaps, to match more closely the interest rate and maturity characteristics of our assets and liabilities. Derivatives that qualify as fair value hedges include interest rate swaps that change the interest rate characteristics of fixed rate debt to that of variable rate debt and interest rate swaps that alter the interest rate characteristics of specific fixed rate asset pools to more closely match the interest rate terms of the underlying financing. Derivatives that qualify as cash flow hedges include interest rate swaps that change the interest rate characteristics of variable rate debt to that of fixed rate debt. We also use interest rate swaps to modify the variable rate basis of a liability to more closely match the variable rate basis used for variable rate receivables.

During the ~~six~~nine months ended ~~June~~September 30, 2001, we entered into $5.59 billion of interest rate swaps. These instruments had the effect of converting $3.15 billion of fixed rate debt to a variable rate, $2.1 billion of variable rate debt to another variable rate index, $34 million of variable rate debt to a fixed rate and $304 million of fixed rate assets to a variable rate. During the same period, $2.15 billion of our interest rate swaps were terminated or matured. At ~~June~~September 30, 2001, we had approximately $7.0 billion and $32.09 billion in notional amount of interest rate swaps and basis swap agreements, respectively.

We also utilize interest rate futures, as fair value hedges, to hedge the interest rate risk of a portion of our fixed rate receivables portfolio and certain investment securities. At ~~June~~September 30, 2001 we held 10-year, 5-year and 2-year interest rate futures contracts with equivalent notional amounts of $163 million, $15 million and $3157 million, respectively.

~~HELLER~~ To ~~FINANCIAL~~minimize the effect of fluctuations in foreign currency exchange rates on our financial results, ~~INC~~we periodically enter into forward currency exchange contracts, cross currency swap agreements or currency options. ~~AND~~These ~~SUBSIDIARIES~~financial instruments serve as hedges of our foreign investment in international subsidiaries and joint ventures or effectively hedge the translation of the related foreign currency income. We held $1.3 billion in notional amount of forward currency exchange contracts and $1 billion in notional amount of cross currency swap agreements at September 30, 2001. Included in the cross currency interest rate swap agreements were $851 million used to hedge debt instruments issued in foreign currencies as of September 30, 2001. The remaining cross currency interest rate swap agreements were primarily used to hedge foreign currency denominated intercompany receivables. Through these contracts, we effectively sell the local currency and buy U.S. dollars. We also periodically enter into forward contracts to hedge receivables denominated in foreign currencies or purchase foreign currencies in the spot market to settle a foreign currency denominated liability. For the quarter ended September 30, 2001, the combined effect of a net gain of approximately $1 million from fair value hedges and other derivative activity is classified as Other Income on the Consolidated Condensed Statements of Income.

~~NOTES~~ For TOforward ~~CONSOLIDATED~~contracts ~~FINANCIAL~~that ~~STATEMENTS—(Continued)~~qualify as hedges of the foreign currency exposure of our net investments in foreign operations, a loss of $17 million and $49 million is included in the cumulative translation adjustment for the nine months and quarter ended September 30, 2001, respectively. This is partially offset by increases in investments in foreign operations.

To minimize the effect of fluctuations in foreign currency exchange rates on our financial results, we periodically enter into forward currency exchange contracts, cross currency swap agreements or currency options. These financial instruments serve as hedges of our foreign investment in international subsidiaries and joint ventures or effectively hedge the translation of the related foreign currency income. We held $1.2 billion in notional amount of forward currency exchange contracts and $1 billion in notional amount of cross currency swap agreements at June 30, 2001. Included in the cross currency interest rate swap agreements were $798 million used to hedge debt instruments issued in foreign currencies as of June 30, 2001. The remaining cross currency interest rate swap agreements were primarily used to hedge foreign currency denominated intercompany receivables. Through these contracts, we effectively sell the local currency and buy U.S. dollars. We also periodically enter into forward contracts to hedge receivables denominated in foreign currencies or purchase foreign currencies in the spot market to settle a foreign currency denominated liability. For the quarter ended June 30, 2001, the combined effect of a net gain of approximately $2 million from fair value hedges and other derivative activity is classified as Other Income on the Consolidated Condensed Statements of Income.

For forward contracts that qualify as hedges of the foreign currency exposure of our net investments in foreign operations, a gain of $32 million and $25.5 million is included in the cumulative translation adjustment for the six months and quarter ended June 30, 2001, respectively.

(5) Treasury Stock

We have an executive deferred compensation plan (the Plan) in which certain of our employees may elect to defer a portion of their annual compensation on a pre-tax basis. The amount deferred remains an asset of Heller and is invested in several mutual funds and in Class A Common Stock of Heller. Investments in our Class A Common Stock under this Plan are reported as treasury stock and are included in the calculation of basic and diluted earnings per share. At ~~June~~September 30, 2001, we held ~~361~~362,~~849~~640 shares of treasury stock through the Plan.

In addition, we held ~~760~~768,~~148~~777 shares of our Class A Common Stock for use in meeting the requirements of our current stock incentive compensation plans and for other corporate purposes.

(6) Basic and Diluted Net Income Per Share

The following table shows the calculation of net income applicable to common stock per share on a basic and diluted basis for the periods indicated:

	Six Months Ended June 30,
	Nine Months Ended September 30,
	Basic		Diluted
	2001	2000	2001	2000
Net income applicable to common stock (in millions)	$ ~~129~~205	$ ~~131~~197	$ ~~129~~205	$ ~~131~~197
Average equivalent shares of common stock outstanding (in thousands)	97,~~152~~379	96,~~631~~624	97,~~152~~379	96,~~631~~624
Stock options	—	—	~~960~~1,279	88183
Total average equivalent shares	97,152	96,631	98,112	96,719
MEDS Units	—	—	303	—
Net income per share	$ 1.33	$ 1.36	$ 1.31	$ 1.35
Total average equivalent shares	97,379	96,624	98,961	96,807
Net income per share	$ 2.11	$ 2.04	$ 2.07	$ 2.03

HELLER FINANCIAL, INC. AND SUBSIDIARIES

	Quarter Ended September 30,
	Basic		Diluted
	2001	2000	2001	2000
Net income applicable to common stock (in millions)	$ 76	$ 65	$ 76	$ 65

Average equivalent shares of common stock outstanding (in thousands)	97,825	96,611	97,825	96,611
Stock options	—	—	1,907	369
MEDS Units	—	—	899	—

Total average equivalent shares	97,825	96,611	100,631	96,980

Net income per share	$ 0.78	$ 0.67	$ 0.76	$ 0.67

~~NOTES~~ The TOtable below ~~CONSOLIDATED~~presents ~~FINANCIAL~~net ~~STATEMENTS—~~income applicable to common stock per share on a basic and diluted basis, excluding the after-tax charge related to the discontinuation of the origination of Small Business Administration (~~Continued~~SBA) loans through our Small Business Finance unit, a one-time charge for the cumulative effect of a change in accounting for derivatives, and costs incurred to date, net of tax, related the merger agreement with General Electric Capital Corporation (“GE Capital”) (see Note 11):

	Quarter Ended June 30,
	Nine Months Ended September 30,
	Basic		Diluted
	2001	2000	2001	2000
Net income applicable to common stock (in millions)	$ 72	$ 63	$ 72	$ 63
Net income applicable to common stock, net of Small Business Finance charge, cumulative effect of a change in accounting for derivatives, and GE Capital merger related expenses (in millions)	$ 221	$ 197	$ 221	$ 197
Average equivalent shares of common stock outstanding (in thousands)	97,~~302~~379	96,~~584~~624	97,~~302~~379	96,~~584~~624
Stock options	—	—	~~949~~1,279	82183
Total average equivalent shares	97,302	96,584	98,251	96,666
MEDS Units	—	—	303	—
Net income per share	$ 0.74	$ 0.65	$ 0.73	$ 0.65
Total average equivalent shares	97,379	96,624	98,961	96,807
Net income per share	$ 2.27	$ 2.04	$ 2.23	$ 2.03
	Quarter Ended September 30,
	Basic		Diluted
	2001	2000	2001	2000
Net income applicable to common stock, net of Small Business Finance charge, cumulative effect of a change in accounting for derivatives, and GE Capital merger related expenses (in millions)	$ 79	$ 65	$ 79	$ 65
Average equivalent shares of common stock outstanding (in thousands)	97,825	96,611	97,825	96,611
Stock options	—	—	1,907	369
MEDS Units	—	—	899	—
Total average equivalent shares	97,825	96,611	100,631	96,980
Net income per share	$ 0.81	$ 0.67	$ 0.79	$ 0.67

The table below presents net income applicable to common stock per share on a basic and diluted basis, excluding the after-tax charge related to the discontinuation of the origination of Small Business Administration (SBA) loans through our Small Business Finance unit, and a one-time charge for the cumulative effect of a change in accounting for derivatives:

	Six Months Ended June 30,
	Basic		Diluted
	2001	2000	2001	2000
Net income applicable to common stock, net of Small Business Finance charge and cumulative effect of a change in accounting for derivatives (in millions)	$ 141	$ 131	$ 141	$ 131
Average equivalent shares of common stock outstanding (in thousands)	97,152	96,631	97,152	96,631
Stock options	—	—	960	88
Total average equivalent shares	97,152	96,631	98,112	96,719
Net income per share	$ 1.45	$ 1.36	$ 1.44	$ 1.35

	Quarter Ended June 30,
	Basic		Diluted
	2001	2000	2001	2000
Net income applicable to common stock, net of Small Business Finance charge and cumulative effect of a change in accounting for derivatives (in millions)	$ 72	$ 63	$ 72	$ 63
Average equivalent shares of common stock outstanding (in thousands)	97,302	96,584	97,302	96,584
Stock options	—	—	949	82
Total average equivalent shares	97,302	96,584	98,251	96,666
Net income per share	$ 0.74	$ 0.65	$ 0.73	$ 0.65

(7) Statement of Cash Flows

Noncash investing activities that occurred during the ~~six~~nine month period ended ~~June~~September 30, 2001 included $3 9 million of receivables classified as repossessed assets. We paid income taxes of $4359 million and $6466 million during the ~~six~~nine month periods ended ~~June~~September 30, 2001 and 2000, respectively.

HELLER FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(8) Operating Segments

The following table summarizes financial information concerning our reportable segments:

	Domestic Commercial Finance			~~International Factoring and Asset Based Finance~~		International Factoring and Asset Based Finance	~~Consolidated Company~~		Consolidated Company
Total assets:
June 30, 2001	$16,710			$2,788			$19,498
September 30, 2001		$17,791					$2,827			$20,618
December 31, 2000	~~16,792~~	16,792		~~3,269~~			203,~~061~~269			20,061
Total revenues:
June 30, 2001	$ 843			$ 148			$ 991
September 30, 2001		$ 1,245					$ 215			$ 1,460
June 30, 2000	826			159			985
September 30, 2000		1,286					227			1,513
Net income:
June 30, 2001	$ 115	(1)		$ 28			$ 143
September 30, 2001		$ 186	(1)				$ 38			$ 224
June 30, 2000	111			34	(2)		145
September 30, 2000		166					52	(2)		218

(1) includes a net after-tax charge of $8 million for the discontinuation of the origination of SBA loans, ~~and~~ a net after-tax charge of $4 million for the cumulative effect of a change in accounting for derivatives, and net after-tax expenses of $3 million incurred in connection with the merger with GE Capital.

(2)

includes a net after-tax gain of $7 million relating to the sale of one international investment and the liquidation of another.

(9) Small Business Finance Charge

In connection with the decision to discontinue the origination of SBA loans through the Small Business Finance unit, we incurred a one time pre-tax charge of approximately $12 million (approximately $8 million after-tax). This amount primarily relates to severance benefits and facility-related costs.

Of the total costs incurred related to this transaction, approximately $42 million remains a liability as of ~~June~~ September 30, 2001.

(10) Preferred Stock and MEDS Units

On May 15, 2001 we redeemed all of the 5,000,000 outstanding shares of our 8 -1 /8% Cumulative Perpetual Senior Preferred Stock, Series A. The shares were redeemed at the redemption price of $25.00 per share, plus accrued and unpaid dividends to the date of redemption, payable to holders of record thereof on May 1, 2001.

In May 2001, HFI Trust I (the “Trust”), a wholly owned subsidiary of the Company, issued 7 million units of 7% mandatory redeemable preferred securities (the “MEDS Units”) at $25 per unit. Each MEDS ~~Units~~unit consists of a trust preferred security and a forward purchase ~~contract~~contact under which the holder may acquire a variable number of shares in the Company’s Class A Common Stock for a fixed purchase price at the end of a three-year period, absent specified circumstances that may entitle the holder to exercise that right at an earlier time (such as the proposed transaction with ~~General~~ ~~Electric~~GE Capital ~~Corporation~~). The sole assets of the Trust are subordinated deferrable notes (the “Notes”) issued by the Trust. These Notes will mature on May 2, 2006 and have a liquidation value of $25. The obligations with respect to the Trust constitute a full and unconditional guarantee by the Company. The MEDS Units are classified in the Company’s balance sheet as Company ~~obligated~~Obligated Mandatory Redeemable Preferred Securities of a Subsidiary Trust (representing a minority interest in the Trust) at their face and redemption amount of $175 million. Distributions on the Notes of 7% per year, or $1.75 per unit, are paid quarterly and ~~are~~ classified as minority ~~Minority~~interest ~~Interest~~ on the Consolidated Condensed Statements of Income. During the ~~quarter~~nine month period ended ~~June~~September 30, 2001, the Company distributed $25 million to the holders of ~~the~~ MEDS Units. Net proceeds from the issuance of the MEDS Units ~~was~~were used for general and working capital purposes.

~~HELLER~~(11) Merger ~~FINANCIAL, INC. AND SUBSIDIARIES~~Agreement

~~NOTES~~ On TOJuly ~~CONSOLIDATED~~30, ~~FINANCIAL~~2001, ~~STATEMENTS—(Continued)~~the Company and GE Capital entered into a definitive merger agreement under which GE Capital will acquire the Company for approximately $5.3 billion in cash, or $53.75 per share. For further information regarding this transaction, which is subject to regulatory approval and other customary conditions, please refer to the Form 8-K and the Solicitation/Recommendation Statement on Schedule 14D-9 filed by the Company with the SEC on August 3, 2001.

(1112) Subsequent Events

Merger Agreement—

On July 30, 2001, the Company and General Electric Capital Corporation (GE Capital) entered into a definitive merger agreement under which GE Capital will acquire all of the outstanding shares of the common stock of the Company for approximately $5.3 billion in cash, or $53.75 per share. The transaction, which is subject to regulatory approval and other customary conditions, is expected to close before the end of the year.

Declaration of Dividends—

Stock	~~Declaration Date~~DeclarationDate	Dividend per Share	Record Date	Payable Date
Class A Common	July 17, 2001	$ 0.10	July 31, 2001	August 15, 2001
Fixed Rate Noncumulative Perpetual Senior Preferred Stock, Series C	Oct. 18, 2001	$1.67175	Nov. 1, 2001	Nov. 15, 2001
Class B Common	July 17, 2001	$ 0.10	July 31, 2001	August 15, 2001
Fixed Rate Noncumulative Perpetual Senior Preferred Stock, Series D	Oct. 18, 2001	$ 1.7375	Nov. 1, 2001	Nov. 15, 2001
Fixed Rate Noncumulative Perpetual Senior Preferred Stock, Series C	July 17, 2001	$1.67175	July 31, 2001	August 15, 2001
Fixed Rate Noncumulative Perpetual Senior Preferred Stock, Series D	July 17, 2001	$ 1.7375	July 31, 2001	August 15, 2001

(1213) Accounting Developments

Statement of Financial Accounting Standards No. 133

Effective January 1, 2001, the Company adopted the provisions of the Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by Statement of Financial Accounting Standards No. 137, Deferral of the Effective Date of FASB Statement No. 133 and Statement of Financial Accounting Standards No. 138, Accounting for Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133 (collectively referred to as SFAS No. 133). This Statement establishes accounting and reporting standards requiring all derivative instruments (including certain derivative instruments embedded in other contracts) to be recorded in the balance sheet as either an asset or liability measured at its fair value. Changes in the fair value of the derivative are to be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows gains and losses on derivatives to offset related results on the hedged items in the income statement and requires that a company must document, designate, and assess the effectiveness of transactions that receive hedge accounting.

Adoption of this new accounting standard resulted in:

Ÿ• cumulative before-tax reductions in net income of approximately $6 million (approximately $4 million after-tax) recorded in the first quarter of 2001; and

Ÿ• after-tax reductions through other comprehensive income, a component of stockholders’ equity, of approximately $1 million in the first quarter of 2001.

The adjustment to net income relates primarily to certain economic hedging relationships that do not qualify for hedge accounting treatment under the new standard as well as ineffectiveness arising from other hedging relationships. The one-time impact of implementing SFAS No. 133 is the effect of an accounting change and should, therefore, not be considered as part of our results of operations for 2001.

HELLER FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Statement of Financial Accounting Standards No. 141

The FASB has issued Statement 141 “, Business Combinations”, (“SFAS No. 141”) which applies to all business combinations initiated after June 30, 2001. The statement also applies to all business combinations accounted for under the purchase method of accounting for which the date of acquisition is July 1, 2001 or later. ~~Statement~~SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Use of the pooling-of-interests method will be prohibited.

Statement of Financial Accounting Standards No. 142

The FASB has issued Statement 142, Goodwill and Other Intangible Assets (“SFAS No. 142”), which changes the accounting for goodwill from an amortization method to an impairment-only approach. Amortization of goodwill, including goodwill recorded from prior business combinations, will cease. This statement is effective for fiscal years beginning after December 15, 2001. The adoption of this statement will eliminate amortization of goodwill which will have an approximate $18 million after-tax positive impact on annual earnings.

Statement of Financial Accounting Standards No. 143

The FASB issued Statement 143, Accounting for Asset Retirement Obligations (“SFAS No. 143”), in June 2001. SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This Statement is effective for fiscal years beginning after June 15, 2002 and is not expected to have a significant impact on the Company.

Statement of Financial Accounting Standards No. 144

In August 2001, the FASB issued Statement 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS No. 144”). The Statement supercedes Statement 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of and APB Opinion No. 30, Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for segments of a business to be disposed of. SFAS No. 144 retains the requirements of Statement 121 relating to recognition and measurement of an impairment loss and resolves certain implementation issues resulting from Statement 121. This Statement is effective for fiscal years beginning after December 15, 2001. We are currently assessing the impact of this statement on the Company.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Overview. Net income for the ~~six~~nine months ended ~~June~~September 30, 2001 ~~increased~~was ~~7% to~~ $~~155~~224 million, excluding the effect of a one-time charge of $8 million, net of tax, related to the discontinuation of the origination of SBA loans through our Small Business Finance unit, ~~and~~ a one-time charge of $4 million, net of tax, related to the adoption of the new accounting standard for derivatives., ~~These~~and ~~charges~~a ~~were~~net ~~recorded~~after-tax expense of $3 million incurred in connection with the ~~first~~merger ~~quarter~~with ofGE Capital. Net income for the nine months ended September 30, 2001 increased 10% to $240 million. This compares to $~~145~~218 million for the same prior year period. Net income applicable to common stock including the ~~two~~ one-time charges was $~~129~~205 million for the ~~six~~nine months ended ~~June~~September 30, 2001. Net income for the quarter ended ~~June~~September 30, 2001 was $81 million. Net income for the quarter ended September 30, 2001, excluding the $3 million of merger related expenses totaled $7985 million, compared to $7072 million for the same prior year period, an increase of 1318%. Net income applicable to common stock, excluding the $3 million of merger related expenses, totaled $7279 million for ~~the~~ ~~second~~the third quarter of 2001, an increase of $914 million, or 1422%, over the ~~second~~third quarter of 2000.

~~Operating~~Fully ~~Revenues.~~diluted ~~The~~earnings ~~following~~per ~~table~~share, ~~summarizes~~excluding ~~our~~the ~~operating~~Small ~~revenues~~Business ~~for~~Finance charge, the ~~six~~cumulative effect of a change in accounting for derivatives and ~~three~~the GE Capital merger related expenses, totaled $2.23 and $0.79 for the nine months and quarter ended ~~June~~September 30, 2001, respectively, compared to $2.03 and $0.67 for the nine months and quarter ended September 30, 2000:, respectively. The improvement is a result of increased net interest income, driven by improved net interest margins and growth in funds employed, and decreased operating expenses.

	For the Six Months Ended June 30,
	2001 Amount	Percent of AFE		2000 Amount	Percent of AFE
		(annualized)			(annualized)
	(dollars in millions)
Net interest income	$321	3.7	%	$303	3.7	%
Non-interest income:
Fees and other income	150	1.8		166	2.0
Factoring commissions	34	0.4		36	0.4
Income of international joint ventures	20	0.2		18	0.2
Total operating revenues	$525	6.1	%	$523	6.4	%
	For the Three Months Ended June 30,
	2001 Amount	Percent of AFE		2000 Amount	Percent of AFE
		(annualized)			(annualized)
	(dollars in millions)
Net interest income	$167	3.9	%	$157	3.7	%
Non-interest income:
Fees and other income	79	1.8		78	1.8
Factoring commissions	18	0.4		19	0.4
Income of international joint ventures	8	0.2		8	0.2
Total operating revenues	$272	6.3	%	$262	6.2	%

Operating Revenues. The following table summarizes our operating revenues for the nine and three months ended September 30, 2001 and 2000:

Net Interest Income: Net interest income increased by $18 million or 6% for the first six months of 2001 versus 2000. The increase is driven by a higher level of average funds employed for the six month period. Net interest margin as a percentage of AFE was 3.7% for the six months ended June 30, 2001 and is unchanged from the prior year period.

	For the Nine Months Ended September 30,
	2001 Amount		Percent of AFE			2000 Amount		Percent of AFE
			(annualized)					(annualized)
	(dollars in millions)
Net interest income		$500		3.8	%		$466		3.7	%
Non-interest income:
Fees and other income		224		1.7			238		1.9
Factoring commissions		49		0.4			53		0.4
Income of international joint ventures		29		0.3			28		0.3

Total operating revenues		$802		6.2	%		$785		6.3	%

Net interest income for the second quarter of 2001 increased $10 million, or 6% as compared to the second quarter of 2000. The increase was due to growth in average funds employed and improvements in net interest margin. Net interest margin increased to 3.9% for the quarter from 3.7% for the same prior year period. The improvement in the net interest margin for the quarter is primarily due to the impact of off-balance sheet financing achieved through conduit sale activity coupled with increased margins particularly in the Corporate Finance and Healthcare Finance business units.

	For the Three Months Ended September 30,
	2001 Amount		Percent of AFE			2000 Amount		Percent of AFE
			(annualized)					(annualized)
	(dollars in millions)
Net interest income		$179		4.1	%		$163		3.7	%
Non-interest income:
Fees and other income		74		1.7			71		1.6
Factoring commissions		15		0.3			17		0.4
Income of international joint ventures		9		0.2			10		0.3

Total operating revenues		$277		6.3	%		$261		6.0	%

~~Non-Interest~~ Net Interest Income: Net interest income increased by $34 million or 7% for the first nine months of 2001 versus 2000. The ~~following~~increase ~~table~~is ~~summarizes~~driven ~~our~~by ~~non-interest~~a ~~income~~higher level of average funds employed for the ~~six~~nine ~~and~~month ~~three~~period. Net interest margin as a percentage of AFE was 3.8% for the nine months ended ~~June~~September 30, 2001, ~~and~~a ~~2000:~~slight increase from the same prior year period.

	For the Six Months Ended June 30,				Increase/(Decrease)
	2001		2000		Amount		Percent
	(dollars in millions)
Factoring commissions	$ 34		$ 36		$ (2	)	(6	)%
Income of international joint ventures	20		18		2		11
Fees and other income:
Investment and asset sale income (1)	95		123		(28	)	(23	)
Fee income and other (2)	55		43		12		28
Total fees and other income	$150		$166		$ (16	)	10	%
Total non-interest income	$204		$220		$ (16	)	7	%
Non-interest income as a percentage of AFE (annualized)	2.4	%	2.7	%
	For the Three Months Ended June 30,				Increase/(Decrease)
	2001		2000		Amount		Percent
	(dollars in millions)
Factoring commissions	$ 18		$ 19		$ (1	)	(5	)%
Income of international joint ventures	8		8		—		—
Fees and other income:
Investment and asset sale income (1)	32		59		(27	)	(46	)
Fee income and other (2)	47		19		28		147
Total fees and other income	$ 79		$ 78		$ 1		1	%
Total non-interest income	$105		$105		$—		—	%
Non-interest income as a percentage of AFE (annualized)	2.4	%	2.5	%

Net interest income for the third quarter of 2001 increased $16 million, or 10% as compared to the third quarter of 2000. The increase was due to growth in average funds employed and improvements in net interest margin. Net interest margin increased to 4.1% for the quarter from 3.7% for the same prior year period. The improvement in the net interest margin for the quarter is primarily due to lower net funding costs, increased margins in several business units, and the impact of off balance sheet financing achieved through conduit sales activity.

Non-Interest Income: The following table summarizes our non-interest income for the nine and three months ended September 30, 2001 and 2000:

	For the Nine Months Ended September 30,				Increase/(Decrease)
	2001		2000		Amount			Percent
	(dollars in millions)
Factoring commissions	$ 49		$ 53			$ (4	)	(8	)%
Income of international joint ventures	29		28			1		4
Fees and other income:
Investment and asset sale income (1)	145		168			(23	)	(14	)
Fee income and other (2)	79		70			9		13

Total fees and other income	$224		$238			$ (14	)	(6	)%

Total non-interest income	$302		$319			$ (17	)	(5	)%

Non-interest income as a percentage of AFE (annualized)	2.3	%	2.5	%

	For the Three Months Ended September 30,				Increase/(Decrease)
	2001		2000		Amount			Percent
	(dollars in millions)
Factoring commissions	$ 15		$ 17			$ (2	)	(12	)%
Income of international joint ventures	9		10			(1	)	(10	)
Fees and other income:
Investment and asset sale income (1)	52		44			8		18
Fee income and other (2)	22		27			(5	)	(19	)

Total fees and other income	$ 74		$ 71			$ 3		4	%

Total non-interest income	$ 98		$ 98			$—		—	%

Non-interest income as a percentage of AFE (annualized)	2.2	%	2.3	%

(1)

Investment and asset sale income includes gains on securitizations, syndications and loan sales, net investment income and gains, equipment residual gains and participation income.

(2)

Fee income and other consists primarily of loan servicing income, late fees, prepayment fees, early termination fees, residual rental income and other miscellaneous income.

Factoring commissions decreased $24 million and $12 million for the ~~six~~nine months and quarter ended ~~June~~September 30, 2001 compared to the same prior year period. The decrease isfor ~~primarily~~the nine month period is due to amovements ~~slight~~in ~~decline~~foreign exchange rates as increases in factoring volume were offset by decreases in commission rates ~~for~~compared ~~our~~to ~~consolidated~~the ~~subsidiaries’~~prior ~~factoring~~year ~~commissions.~~at Factofrance’s. ~~factoring~~The ~~volume~~decrease ~~remained~~in ~~consistent~~factoring ~~with~~commissions for the ~~prior~~quarter ~~year~~ended September 30, 2001 is due to a decline in commission rates at Factofrance due to competitive ~~periods~~pressure in the French factoring market.

Income of international joint ventures increased $21 million, or 114% for the ~~six~~nine months ended ~~June~~September 30, 2001 as compared to the prior year. This increase is primarily due to higher income from our Latin American joint ventures. Income of international joint ventures for the ~~second~~third quarter of 2001 ofdecreased by $81 million ~~was~~compared ~~unchanged~~to ~~from~~ the prior year period.

Fees and other income totaled $~~150~~224 million and decreased $1614 million, or 106% for the first ~~six~~nine months of 2001 as compared to the prior year period due to lower investment and asset sale income. For the second quarter of 2001, fees and other income totaled $79 million, representing an increase of $1 million, or 1% over the prior year period. Fee income and other increased for the six month period and quarter ended June 30, 2001 due to higher residual income from our leasing activities. Investment and asset sale income for the ~~quarter~~nine ~~and six~~ month period ended ~~June~~September 30, 2001 decreased as increased gains from asset sales were offset by significantly lower investment income from our equity investments in limited partnership funds. In addition, the ~~six~~nine months ended ~~June~~September 30, 2000 included a net gain from the sale of one international investment and the liquidation of another. Fee income and other increased for nine month period and quarter ended September 30, 2001 due to higher residual income from our leasing activities.

~~Operating~~ For ~~Expenses.~~the ~~The~~third ~~following~~quarter ~~table~~of ~~summarizes~~2001, ~~our~~fees ~~operating~~and ~~expenses~~other ~~for~~income totaled $74 million, representing an increase of $3 million, or 4% over the ~~six~~prior year period as investment and ~~three~~asset sale ~~months~~increases more than offset the decrease in fee income and other. Investment and asset sale income for the quarter ended ~~June~~September 30, 2001 increased due to Real Estate participation income and ~~2000:~~equity gains.

	For the Six Months Ended June 30,				(Decrease)
	2001		2000		Amount		Percent
	(dollars in millions)
Salaries and other compensation	$122		$126		$ (4	)	(3	)%
General and administrative expenses	93		95		(2	)	(2	)
Goodwill and non-compete amortization	12		12		—		—
Total operating expenses	$227		$233		$ (6	)	(3	)%
Total operating expenses as a percentage of average managed assets (annualized)	2.4	%	2.8	%
Ratio of operating expenses to operating revenues	43	%	45	%
Ratio of operating expenses, excluding goodwill and non- compete amortization, as a percentage of operating revenues	41	%	42	%

Operating Expenses. The following table summarizes our operating expenses for the nine and three months ended September 30, 2001 and 2000:

	For the Three Months Ended June 30,				Increase/(Decrease)
	For the Nine Months Ended September 30,				(Decrease)
	2001		2000		Amount			~~Percent~~		Percent
	(dollars in millions)
Salaries and other compensation	$ 66173		$ 64188		~~$ 2~~	$ (15	)	3	%		(8	)%
General and administrative expenses	44136		46143		(2	)(7	)	(4	)		(5	)
Goodwill and non-compete amortization	618		618		—	—		—			—
Total operating expenses	$~~116~~327		$~~116~~349		$—	$ (22	)	—	%		(6	)%
Total operating expenses as a percentage of average managed assets (annualized)	2.53	%	2.76	%
Ratio of operating expenses to operating revenues	4341	%	44	%
Ratio of operating expenses, excluding goodwill and non- compete amortization, as a percentage of operating revenues	4039	%	42	%
	For the Three Months Ended September 30,				(Decrease)
	2001		2000		Amount					Percent
	(dollars in millions)
Salaries and other compensation	$ 51		$ 63			$ (12	)				(19	)%
General and administrative expenses	43		47			(4	)				(9	)
Goodwill and non-compete amortization	6		6			—					—
Total operating expenses	$100		$116			$ (16	)				(14	)%
Total operating expenses as a percentage of average managed assets (annualized)	2.0	%	2.5	%
Ratio of operating expenses to operating revenues	36	%	44	%
Ratio of operating expenses, excluding goodwill and non- compete amortization, as a percentage of operating revenues	34	%	42	%

~~Operating~~Included ~~expenses~~in salary ~~totaled~~and ~~$227~~other ~~million~~compensation ~~for~~are the ~~first~~losses ~~six~~on ~~months~~the ofinvestments ~~2001,~~in athe ~~decrease~~executive deferred compensation plan of $610 million, orfor ~~3% over~~ the ~~prior~~nine ~~year~~months ~~period.~~and ~~Second~~ quarter ~~operating~~ended ~~expenses~~September ~~totaled $116 million~~30, ~~consistent with the second quarter of 2000~~2001. The ~~decrease~~impact ~~in expenses~~ for the ~~six~~nine ~~month~~months ~~period~~ended isSeptember ~~primarily~~30, ~~due~~2000 towas ~~staff~~an increase ~~reductions~~in ~~related~~compensation toexpense ~~our~~of ~~decision~~$1 tomillion ~~stop originating SBA loans~~ and ~~our~~there ~~continuing~~was ~~focus~~no onimpact ~~controlling expense growth. Operating expenses~~ for the quarter ~~remained~~ended ~~flat~~September to30, the prior year period as lower compensation costs related to our decision to stop originating SBA loans was offset by an increase in compensation expense associated with our executive deferred compensation plan2000. The ~~increase~~impact inon compensation expense for the executive deferred compensation plan is completely offset by an increase in fees and other income. As a result, there is no net impact on our consolidated results of operations related to this item.

~~Heller’s~~Excluding ~~efficiency~~the ~~ratio~~impact ~~improved~~of tothe ~~43%~~investments ~~for~~in the executive ~~six~~deferred ~~months~~compensation ~~and second quarter ended June 30~~plan, ~~2001 from~~operating ~~45%~~expenses ~~and~~totaled ~~44%~~$337 million for the ~~six~~first nine months ~~and second quarter~~ of ~~2000~~2001, ~~respectively.~~a ~~This~~decrease ~~improvement is reflective~~ of ~~our~~$11 ~~focus~~million, onor ~~increasing~~3% ~~revenues~~over ~~and~~the ~~controlling~~prior ~~expense~~year ~~growth~~period. ~~Operating~~Third quarter operating expenses astotaled $110 million, a ~~percentage~~decrease of ~~average~~$6 million, ~~managed~~or ~~assets~~5% ~~also improved~~from tothe ~~2.4%~~prior ~~and~~year 2period.5% The decrease in expenses for the ~~first~~nine ~~six~~ months and quarter ended ~~June~~September 30, 2001 ~~down~~is ~~from~~primarily ~~2.8%~~due ~~and~~to ~~2.7%~~staff ~~for~~reductions ~~the~~related ~~same~~to ~~prior~~our ~~year~~decision ~~periods,~~to ~~respectively~~stop originating SBA loans and our continuing focus on controlling expense growth.

Heller’s efficiency ratio improved to 41% and 36% for the nine months and third quarter ended September 30, 2001 from 44% for the nine months and third quarter of 2000. This improvement is reflective of our focus on increasing revenues and controlling expense growth. Operating expenses as a percentage of average managed assets also improved to 2.3% and 2.0% for the first nine months and quarter ended September 30, 2001 down from 2.6% and 2.5% for the same prior year periods, respectively.

GE Capital Merger Expenses. During the third quarter of 2001, Heller incurred $5 million pre-tax in expenses primarily for legal, consulting, and professional fees in relation to the GE Capital merger agreement. See Note 11 of our Consolidated Financial Statements.

Small Business Finance Charge. In the first quarter of 2001 we incurred a one time pre-tax charge of approximately $12 million (approximately $8 million after-tax) in connection with the decision to discontinue the origination of SBA loans through our Small Business Finance unit. This charge is primarily related to employee severance and facility related-costs. See Note 9 of our Consolidated Financial Statements.

Allowance for Losses. The following table summarizes the changes in our allowance for losses of receivables, including our provision for losses of receivables and repossessed assets, for the ~~six~~nine and three months ended ~~June~~September 30, 2001 and 2000:

	For the Six Months Ended June 30,				Increase/(Decrease)
	For the Nine Months Ended September 30,				Increase/(Decrease)
	2001		2000		Amount			~~Percent~~		Percent
	(dollars in millions)
Balance at beginning of period	$342		$316		~~$26~~	$26		8	%		8	%
Provision for losses	69121		71108		(2	)13		(3	)		12
Writedowns	(85135	)	(5499	)	~~(31~~	)(36	)	~~(57~~	)		(36	)
Recoveries	1924		521		14	3		~~280~~			14
Other	(41	)	(15	)	(3	)4		~~(300~~	)		80
Balance at end of period	$~~341~~351		$~~337~~341		~~$ 4~~	$10		1	%		3	%
Allowance as a % of receivables	2.2	%	2.12	%
	For the Three Months Ended September 30,				Increase/(Decrease)
	2001		2000		Amount					Percent
	(dollars in millions)
Balance at beginning of period	$341		$337			$ 4					1	%
Provision for losses	52		36			16					44
Writedowns	(50	)	(45	)		(5	)				(11	)
Recoveries	5		16			(11	)				(69	)
Other	3		(3	)		6					200
Balance at end of period	$351		$341			$10					3	%
Allowance as a % of receivables	2.2	%	2.2	%

	For the Three Months Ended June 30,				Increase/(Decrease)
	2001		2000		Amount		Percent
	(dollars in millions)
Balance at beginning of period	$339		$321		$18		6	%
Provision for losses	37		41		(4	)	(10	)
Writedowns	(41	)	(28	)	(13	)	(46	)
Recoveries	6		3		3		100
Other	—		—		—		—
Balance at end of period	$341		$337		$ 4		1	%
Allowance as a % of receivables	2.2	%	2.1	%

Net writedowns totaled $111 million, or 0.95% of average lending assets for the nine months ended September 30, 2001 and $45 million or 1.13% for the quarter ended September 30, 2001. Net writedowns totaled $78 million, or 0.68% of average lending assets for the nine months ended September 30, 2000 and $29 million or 0.73% for the quarter ended September 30, 2000. The increase in net writedowns for the nine months and quarter ended September 30, 2001 relative to the same prior year period is due to the considerably slower growth in the U.S. economy in 2001, which resulted in higher writedowns primarily in cash-flow financings within the Corporate Finance portfolio and also in the Leasing Services portfolio and Small Business Finance portfolio. Net writedowns as a percentage of average managed lending assets totaled 0.87% and 1.03% for the nine months and quarter ended September 30, 2001, respectively compared to 0.67% and 0.71% for the nine months and quarter ended September 30, 2000, respectively. At September 30, 2001 the allowance for losses of receivables represented 2.2% of receivables, in line with the prior year.

~~Net~~Income ~~writedowns~~Taxes. Our ~~totaled~~effective ~~$66~~tax ~~million,~~rate ortotaled ~~0.86~~30% ofand ~~average~~29% ~~lending assets~~ for the ~~six~~nine months ~~ended June 30, 2001~~ and ~~$35 million or 0.92% for the~~ quarter ended ~~June~~September 30, 2001~~. Net write-downs totaled $49 million and $25 million for the six months and second quarter of 2000~~, respectively, orcompared ~~0.65~~to 33% ~~of average lending assets~~ for ~~both~~the prior year periods. The ~~increase~~ ineffective ~~net~~rates ~~writedowns~~ for ~~the~~2001 ~~six months~~ and ~~quarter~~2000 ~~ended~~remained ~~June~~below ~~30,~~federal ~~2001~~and ~~relative~~state tocombined ~~the~~statutory ~~same~~rates ~~prior year period is~~ due to the ~~considerably~~effect ~~slower~~of ~~growth~~earnings infrom ~~the~~international ~~U.S.~~joint ~~economy in 2001~~ventures, ~~which resulted in higher writedowns in our cash-flow financings within~~ the ~~Corporate~~use ~~Finance portfolio. Net writedowns as a percentage~~ of ~~average~~tax ~~managed~~credits ~~lending assets totaled 0.79%~~ and ~~0.84% for~~ the ~~six months and quarter ended June 30, 2001, respectively, in line with our targeted range. At June~~ ~~30,~~impact ~~2001 the allowance for losses~~ of ~~receivables~~international ~~represented~~and ~~2.2%~~state oftax ~~receivables,~~planning ~~a slight increase from the prior year~~activities.

Income Taxes. Our effective tax rate totaled 31% for the six months and quarter ended June 30, 2001, compared to 33% for the prior year periods. The effective rates for 2001 and 2000 remained below federal and state combined statutory rates due to the effect of earnings from international joint ventures, the use of tax credits and the impact of international and state tax planning activities.

LENDING ASSETS AND INVESTMENTS

Lending assets and investments were $1819.2 0 billion, ~~down~~up 32% from the December 31, 2000 level. ~~This~~The ~~decrease~~ increase is a result of ~~sales~~solid ofnew ~~domestic~~business ~~receivables~~volume ~~into~~from ~~asset~~our ~~backed~~domestic ~~commercial~~businesses ~~paper~~offset ~~conduit~~by ~~facilities~~paydowns asand agreater ~~more~~use ~~effective cost~~ of ~~funding,~~off ~~discontinuance~~balance ofsheet ~~originations~~conduit ~~of SBA loans, and a decline in receivables from our International Factoring and Asset Based Finance unit~~financing. Domestic new business volume, including ~~portfolio~~ portfolio purchases, of $34.07 billion for the ~~six~~nine months ended ~~June~~September 30, 2001 was ~~more~~partially ~~than~~ offset by portfolio runoff, syndications and loan sales of approximately $34.10 billion, the discontinuance of originations of SBA loans, and a decline in receivables from our International Factoring and Asset Based Finance unit. International Factoring and Asset Based Finance experienced a decrease in lending assets and investments from the prior year-end as a result of cyclical declines and the negative effect of foreign currency exchange rate movements.

~~Second~~Third quarter new business volume totaled $1.98 billion, down ~~$200~~slightly ~~million~~ from the prior year. Increased volume from ~~our~~Healthcare ~~leasing~~Finance ~~services~~and ~~group,~~Real ~~including~~Estate ~~portfolio~~Finance ~~purchases,~~ was offset by lower new business volume from cash flow lending in Corporate Finance, coupled with the impact of our discontinuance of originations of SBA loans.

The following tables present our lending assets and investments by business segment and asset type as of ~~June~~ September 30, 2001 and December 31, 2000:

	Lending Assets and Investments
	Lending Assets and Investments as of
	as of June 30,				December 31,
	September 30,					December 31,
	2001	Percent			~~2000~~	~~Percent~~2000		Percent
	(dollars in millions)
By Business Category:
Domestic Commercial Finance Segment
Corporate Finance (1)	$ 5,~~088~~347	29	%28	%	~~$ 5,225~~	28$ 5,225	%		28	%
Leasing Services (1)	4,~~439~~562	24	24		~~4,434~~	244,434			24
Real Estate Finance	23,~~966~~248	16	17		~~2,766~~	152,766			15
Healthcare Finance	1,~~690~~848	9	10		~~1,563~~	81,563			8
Small Business Finance	1,~~168~~119	6	6		~~1,440~~	81,440			8
Other	~~361~~337	2	2		~~387~~	2387			2
Total Domestic Commercial Finance Segment	1516,~~712~~461	86	87		~~15,815~~	8515,815			85
International Factoring and Asset Based Finance Segment	2,~~514~~539	14	13		~~2,901~~	152,901			15
Total lending assets and investments	$1819,~~226~~000	~~100~~	%100	%	~~$18,716~~	~~100~~$18,716	%		100	%

	June 30,				December 31,
	September 30,					December 31,
	2001	Percent			~~2000~~	~~Percent~~2000		Percent
	(dollars in millions)
By Asset Type:
Receivables	$1516,~~305~~220	84	%85	%	~~$15,966~~	85$15,966	%		85	%
Repossessed assets	16	—	—		22	—22			—
Total lending assets	1516,~~321~~236	84	85		~~15,988~~	8515,988			85
Debt securities	~~847~~806	5	4		~~755~~	4755			4
Equity and real estate investments	~~782~~756	4	4		~~795~~	4795			4
Operating leases	~~661~~614	4	4		~~695~~	4695			4
Lending partnerships	~~404~~367	2	2		~~267~~	2267			2
International joint ventures	~~211~~221	1	1		~~216~~	1216			1
Total lending assets and investments	$1819,~~226~~000	~~100~~	%100	%	~~$18,716~~	~~100~~$18,716	%		100	%
Average lending assets	$15,~~508~~690				~~$15,456~~	$15,456
Total managed assets (2)	$19,~~086~~688				~~$18,877~~	$18,877
Average managed assets (2)	$1819,~~865~~071				~~$17,516~~	$17,516
Funds employed (3)	$1718,~~437~~182				~~$17,734~~	$17,734
Average funds employed (3)	$17,~~337~~420				~~$16,978~~	$16,978

(1) Lending assets and investments at ~~June~~September 30, 2001 and December 31, 2000 were reduced by approximately $1.42 billion and $800 million, respectively, of commercial cash flow and equipment loans sold to asset backed commercial paper conduit facilities.

(2)

Total managed assets include funds employed, plus receivables previously securitized or sold, for which we hold securities giving us an economic interest in the performance of these assets.

(3)

Funds employed include lending assets and investments, less credit balances of factoring clients.

Corporate Finance lending assets and investments have ~~declined~~increased by $~~137~~122 million, or 32%, during the first ~~six~~ nine months of 2001. ~~due~~Total ~~to lower~~ new business volume infor ~~cash~~the ~~flow~~nine ~~lending~~months ~~and~~ended ~~increased~~September ~~asset~~30, ~~sales~~2001 ~~under~~of anover ~~asset~~$1.5 ~~backed~~billion ~~commercial~~was ~~paper~~down ~~conduit~~26% ~~facility~~versus ofthe ~~over~~prior ~~$200~~year ~~million~~due to lower cash flow lending volume. ~~Total~~The ~~new~~decrease ~~business~~in cash flow lending volume ~~for~~is ~~the~~due ~~six~~to significantly ~~months~~slower ~~ended~~growth ~~June~~in ~~30,~~the U.S. economy in 2001 ofas ~~over~~compared ~~$1 billion~~to 2000. This new business volume was partially offset by syndications, loan sales, write downs and payoffs during the period of ~~nearly~~ $1.14 billion.

Leasing Services lending assets and investments ~~remained~~increased ~~stable~~by ~~with~~$128 ~~year~~million, or ~~end~~3%, asduring the first nine months of 2001 due to new business volume of $1.2 8 billion, including the acquisition of a $400 million small ticket leasing portfolio which was offset by syndications, loan sales and payoffs during the ~~first~~period ~~six~~of ~~months~~nearly $1.2 ofbillion ~~2001~~and ~~was~~sales ~~offset~~of byreceivables ~~runoff,~~under ~~utilization,~~an ~~syndications~~asset ~~and~~backed ~~loan~~commercial ~~sales~~paper facility. Lending assets and investment increased 810% during the year excluding the impact of the sales of receivables to anthe asset backed commercial paper facility ~~to finance the portfolio purchase~~. Year to date new business volume declined from the prior year by 1310% due to stronger originations in operating lease transactions of our Capital Finance unit during the first quarter of 2000. Leasing Services investments in lending partnerships increased approximately $8571 million due to increased fundings through the Capital Finance unit.

Real Estate Finance lending assets and investments increased by nearly $~~200~~500 million since the prior year-end as year to date new business volume of $1 billion and borrowings under existing lines of approximately $~~600~~100 million ~~was~~were offset by nearly $~~400~~600 million in payoffs, syndications and loan sales. Included in new business volume is the acquisition of a golf course lending portfolio of nearly $200 million.

Healthcare Finance lending assets and investments increased by nearly $~~127~~300 million or 818% from the prior year-end driven by new business volume ~~and~~of ~~increased~~nearly ~~borrowings~~$500 ~~under~~million ~~existing~~offset ~~lines~~by ofnearly ~~over~~ $~~240~~200 million in pay-offs.

Lending assets and investments of Small Business Finance decreased $~~272~~321 million from the prior year end primarily due to the decision to discontinue the origination of SBA loans. New business volume of $7584 million was more than offset by ~~over~~nearly $~~300~~400 million of loan sales and runoff. During the second quarter of 2001, we sold approximately $110 million of SBA 504 loans. See Note 9 of our Consolidated Financial Statements.

Lending assets and investments of our International Factoring and Asset Based Finance Segment decreased $~~387~~ 362 million from the prior year end due to seasonal declines and the negative effect of foreign currency exchange rate movements.

At ~~June~~September 30, 2001, we had contractually committed to finance approximately $2.9 billion to new and existing borrowers. Our obligation to fund commitments is generally contingent upon the maintenance of specific credit standards by our borrowers. Since we expect many of the commitments to remain unused, the total commitment amount does not necessarily represent future cash requirements. We do not have any significant commitments to provide additional financing related to nonearning assets.

Revenues

Total revenues include:

Ÿ• interest income, including rental income from operating leases;

Ÿ• fees and other income from domestic and consolidated international operations;

Ÿ• factoring commissions; and

Ÿ• our share of the net income of our international joint ventures.

The following table shows our total revenues for the ~~six~~nine months ended ~~June~~September 30, 2001 and 2000:

	Total Revenues For the Six Months Ended June 30,
	Total RevenuesFor the Nine Months Ended September 30,
	2001	Percent			~~2000~~	~~Percent~~2000		Percent
	(dollars in millions)
Domestic Commercial Finance Segment
Corporate Finance	$~~250~~ 389	25	%27	%	~~$326~~	33$ 497	%		33	%
Leasing Services	~~239~~356	24	24		~~191~~	19292			19
Real Estate Finance	~~145~~227	15	16		~~129~~	13213			14
Healthcare Finance	97147	10	10		75	8122			8
Small Business Finance	7093	7	6		74	8108			7
Other	4233	4	2		31	354			4
Total Domestic Commercial Finance Segment	~~843~~1,245	85	85		~~826~~	841,286			85
International Factoring and Asset Based Finance Segment	~~148~~215	15	15		~~159~~	16227			15
Total revenues	$~~991~~1,460	~~100~~	%100	%	~~$985~~	~~100~~$1,513	%		100	%

Total revenues ~~increased~~decreased $653 million or 03.65% from the prior year period asprimarily ~~increases~~due to decreases of $2236 million in interest income ~~offset~~and ~~a decline of~~ $1614 million in fees and other income. ~~Corporate~~The ~~Finance experienced a $76 million~~ decrease in ~~revenues due to lower investment and asset sale income generated from our limited partnership equity investments and a decline in~~ interest income ~~resulting from a lower level of AFE. The reduction of AFE~~ is ~~due~~driven toby the ~~sale~~interest ofrate ~~$900~~reductions ~~million~~made by ofthe ~~cash~~Federal ~~flow~~Reserve ~~receivables~~Bank tothroughout an2001, ~~asset~~as ~~backed commercial paper conduit facility in~~ the ~~fourth~~majority ~~quarter~~ of ~~2000~~our ~~and~~portfolio ~~the~~is ~~first~~comprised ~~six months~~ of ~~2001.~~variable ~~Leasing~~rate ~~Services~~assets. ~~revenues~~Since ~~increased~~our ~~$48~~cost ~~million primarily as a result~~ of anfunding ~~increase~~for invariable ~~interest~~rate ~~income~~has ~~from~~decreased acorrespondingly, ~~higher~~this ~~level~~situation ofhas ~~AFE~~not ~~coupled~~had ~~with~~any ~~increased~~negative ~~fee~~impact ~~income~~on ~~from residuals~~the Company. ~~Real~~The ~~Estate~~decrease ~~Finance revenues increased $16 million due to an increase~~ in ~~interest~~fees ~~income~~and ~~resulting~~other ~~from a higher level of AFE along with increased fee~~ income ~~and~~is ~~equity~~primarily ~~gains. Healthcare Finance revenues increased $22 million~~ due to anlower ~~increase~~investment inand ~~interest~~asset sale income ~~resulting from a higher level of AFE. Small Business Finance revenues decreased $4 million from the prior year period~~ due to adecreased ~~decrease~~limited inpartnership ~~interest~~fund income ~~from~~and ahigher ~~lower~~equity ~~level~~write-offs, ofpartially ~~AFE~~offset ~~resulting~~by ~~from~~higher ~~our~~equity ~~decision to discontinue the origination of SBA loans~~gains.

~~International~~Corporate ~~Factoring~~Finance experienced a $108 million decrease in revenues due to lower investment and ~~Asset~~asset ~~Based~~sale ~~Finance~~income generated from our limited partnership equity investments and a decline in interest income resulting from a lower level of AFE and lower variable lending rates. The reduction of AFE is due to the sale of cash flow receivables to an asset backed commercial paper conduit facility which averaged approximately $900 million for the first nine months of 2001. Leasing Services revenues ~~decreased~~increased $1164 million primarily as a result of an increase in interest income from a higher level of AFE ~~and~~coupled ~~higher~~with increased fee income from ~~international~~residuals. ~~joint~~Real Estate ~~ventures~~Finance ~~were~~revenues ~~more~~increased ~~than~~$14 ~~offset~~million byprimarily ~~lower~~due ~~investment~~to ~~and~~increased ~~asset~~participation ~~sale~~ income and equity gains. ~~The~~Healthcare ~~decline~~Finance inrevenues ~~investment~~increased ~~and~~$25 ~~asset~~million ~~sale~~due to an increase in interest income isresulting ~~the~~from ~~result~~a higher level of aAFE. ~~net~~Small ~~gain~~Business onFinance revenues decreased $15 million from the ~~sale~~prior ofyear ~~one international~~period ~~investment~~due ~~and~~to ~~the~~a ~~liquidation~~decrease in interest income from a lower level of ~~another~~AFE inresulting ~~the~~from ~~first~~our ~~quarter~~decision to discontinue the origination of ~~2000~~SBA loans.

International Factoring and Asset Based Finance revenues decreased $12 million as an increase in interest income was more than offset by lower investment and asset sale income. The decline in investment and asset sale income is the result of a net gain on the sale of one international investment and the liquidation of another in the first quarter of 2000.

PORTFOLIO QUALITY

The credit quality of our portfolio continues to reflect the effectiveness of our credit strategies, underwriting and portfolio management and disciplined credit approval process. As of ~~June~~September 30, 2001, nonearning assets were $~~347~~364 million or 2.32% of lending assets, toward the low end of our targeted range of nonearning assets of 2–-4% of lending assets. The following tables present certain information with respect to the credit quality of our portfolio:

	June 30, 2001			December 31, 2000
	September 30, 2001					December 31, 2000
	(dollars in millions)
Lending Assets and Investments:
Receivables	~~$15,305~~	$16,220		~~$15,966~~			$15,966
Repossessed assets	16	16		22			22
Total lending assets	~~15,321~~	16,236		~~15,988~~			15,988
Equity and real estate investments	~~782~~	756		~~795~~			795
Debt securities	~~847~~	806		~~755~~			755
Operating leases	~~661~~	614		~~695~~			695
Lending partnerships	~~404~~	367		~~267~~			267
Investments in international joint ventures	~~211~~	221		~~216~~			216
Total lending assets and investments	~~$18,226~~	$19,000		~~$18,716~~			$18,716
Nonearning Assets:
Impaired receivables	~~$ 331~~	$ 348		~~$ 285~~			$ 285
Repossessed assets	16	16		22			22
Total nonearning assets	~~$ 347~~	$ 364		~~$ 307~~			$ 307
Ratio of nonearning impaired receivables to receivables	~~2.2~~	%2.1	%	~~1.8~~	%		1.8	%
Ratio of total nonearning assets to total lending assets	~~2.3~~	%2.2	%	~~1.9~~	%		1.9	%
Ratio of total nonearning assets to total managed lending assets	~~2.0~~	%2.1	%	~~1.8~~	%		1.8	%
Allowances for Losses:
Allowance for losses of receivables	~~$ 341~~	$ 351		~~$ 342~~			$ 342
Ratio of allowance for losses of receivables to:
Receivables	~~2.2~~	%2.2	%	~~2.1~~	%		2.1	%
Net writedowns (annualized)	~~2.6~~	x2.4x		~~3.0~~	x		3.0x
Nonearning impaired receivables	~~103~~	%101	%	~~120~~	%		120	%
Delinquencies:
Earning loans delinquent 60 days or more	~~$ 311~~	$ 342		~~$ 267~~			$ 267
Ratio of earning loans delinquent 60 days or more to receivables	~~2.0~~	%2.1	%	~~1.7~~	%		1.7	%
	For the Six Months Ended June 30,
	2001			2000
	(dollars in millions)
Net writedowns of lending assets:
Total net writedowns	$ 66			$ 49
Ratio of net writedowns to average lending assets (annualized)	0.86	%		0.65	%
Ratio of net writedowns to average managed lending assets (annualized)	0.79	%		0.63	%

Nonearning Assets. Our nonearning assets were $347 million or 2.3% of lending assets and 2.0% of total managed lending assets at June 30, 2001. Nonearning assets remain toward the low end of our targeted range of 2-4% of lending assets. Included in nonearning assets are repossessed assets of $16 million at June 30, 2001 and $22 million at December 31, 2000.

	For The Nine Months Ended September 30,
	2001		2000
	(dollars in millions)
Net writedowns of lending assets:
Total net writedowns	$111		$ 78

Ratio of net writedowns to average lending assets (annualized)	0.95	%	0.68	%

Ratio of net writedowns to average managed lending assets (annualized)	0.87	%	0.67	%

~~Allowance~~Nonearning ~~for Losses~~Assets. Our ~~The~~nonearning ~~allowance~~assets ~~for~~were ~~losses~~$364 ofmillion ~~receivables~~or ~~totaled~~2.2% ~~$341~~of ~~million~~lending ~~representing~~assets and 2.21% of ~~receivables~~total managed lending assets at ~~June~~September 30, 2001. ~~The~~Nonearning assets ~~Company~~remain ~~considers~~toward ~~this~~the ~~level~~low end of ~~allowance~~our ~~for~~targeted ~~loan~~range ~~losses~~of to2-4% beof ~~adequate~~lending toassets. ~~cover~~Included ~~losses~~in ~~inherent~~nonearning inassets ~~our~~are ~~loan~~repossessed ~~portfolio~~assets of $16 million at ~~June~~September 30, 2001 and $22 million at December 31, 2000.

~~Loan~~Allowance ~~Modifications~~for Losses. The Weallowance ~~did~~for ~~not~~losses ~~have~~of receivables ~~any~~totaled ~~loans~~$351 ~~that~~million ~~are~~representing ~~considered~~2.2% ~~troubled~~of ~~debt~~receivables ~~restructures~~ at ~~June~~ September 30, 2001. orThe ~~December~~Company ~~31,~~considers ~~2000.~~this Atlevel ~~June~~of ~~30,~~allowance ~~2001,~~for ~~there~~loan ~~were~~losses noto ~~loans~~be ~~that~~adequate ~~were~~to ~~restructured~~cover ~~and~~losses ~~returned~~inherent toin ~~earning~~our ~~status~~loan portfolio at September 30, 2001.

~~Writedowns~~Loan Modifications. We ~~Net~~did ~~writedowns~~not have ~~totaled~~any ~~$66~~loans ~~million,~~that orare ~~0.86%~~considered oftroubled ~~average~~debt ~~lending~~restructures ~~assets~~at ~~for~~September ~~the six months ended June~~ 30, 2001, ~~an increase from $49 million~~ or ~~0.65%~~December of31, ~~average lending assets for the prior year period~~2000. ~~This~~At isSeptember in30, ~~line~~2001, ~~with~~there ~~our~~were ~~stated~~no ~~target~~loans ~~range~~that ofwere ~~average~~restructured ~~annual~~and ~~writedowns~~returned ~~of 0.60%~~ to ~~0.90%~~earning ~~over a business cycle~~status.

Writedowns. Net writedowns totaled $111 million, or 0.95% of average lending assets for the ~~second~~nine months ended September 30, 2001, an increase from $78 million or 0.68% of average lending assets for the prior year period. Net writedowns for the third quarter of 2001 totaled $3545 million, or 01.9213% of average lending assets, as compared to $2529 million or 0.6573% of average lending assets for the prior year period. The increase in net writedowns for the nine months and quarter ended September 30, 2001 relative to the same prior year period is due to the considerably slower growth in the U.S. economy in 2001, which resulted in higher writedowns primarily in ~~our~~ cash-flow financings within the Corporate Finance portfolio, and also in the Leasing Services portfolio, and Small Business Finance portfolio.

Net writedowns as a percentage of average managed lending assets totaled 0.7987% and 01.8401% for the ~~six~~nine months and quarter ended ~~June~~September 30, 2001, respectively~~, in line with our targeted range~~. This compares to 0.6367% and 0.6471% for the ~~six~~nine months and quarter ended ~~June~~September 30, 2000, respectively. Gross writedowns totaled $85135 million during the first ~~six~~nine months of 2001 versus $5499 million for the prior year period while recoveries were $1924 million in 2001 versus $521 million in 2000.

LIQUIDITY AND CAPITAL RESOURCES

The following table presents information regarding our capital structure:

	June 30, 2001			December 31, 2000
	September 30, 2001					December 31, 2000
	(in millions)
Commercial paper and short-term borrowings	~~$ 3,677~~	$ 4,655		~~$ 5,127~~			$ 5,127
Notes and debentures	~~11,449~~	11,487		~~10,525~~			10,525
Total senior debt	~~15,126~~	16,142		~~15,652~~			15,652
Company Obligated Mandatory Redeemable Preferred Security of a Subsidiary Trust	~~175~~	175		—			—
Minority interest	12	13		12			12
Stockholders’ equity	~~2,533~~	2,598		~~2,575~~			2,575
Total capitalization	~~$17,846~~	$18,928		~~$18,239~~			$18,239
Leverage (net of short-term investments)	~~5.5~~	x5.7	x	~~5.9~~	x		5.9	x
Commercial paper and short-term borrowings to total senior debt	24	%29	%	33	%		33	%

During the first ~~six~~nine months of 2001, our major funding requirements included:

Ÿ• approximately $34.19 billion of longer-term loans, leases and investments funded;

Ÿ• the retirement of approximately $12.83 billion of senior notes;

Ÿ• the decrease in short-term debt of $~~1.5~~500 ~~billion~~million;

Ÿ• common and preferred dividends of $3348 million; and

Ÿ• the redemption of Cumulative Perpetual Senior Preferred Stock, Series A of $125 million.

Our major sources of funding these requirements included:

Ÿ• cash flows from operations of $~~192~~393 million;

Ÿ• loan repayments and proceeds from the sale of investments and equipment on lease of approximately $1.15 billion;

Ÿ• the syndication, securitization or sale of approximately $1.45 billion of loans;

Ÿ• the issuance of Company obligated Mandatory Redeemable Preferred Securities of $175 million;

Ÿ• the issuance of ~~over~~ $23.70 billion of senior debt; and

Ÿ• a net decrease in short-term loans and advances to factoring clients of $~~860~~1.2 ~~million~~billion.

Our ratio of commercial paper and short-term borrowings to total debt was 2429% at ~~June~~September 30, 2001 and 33% at December 31, 2000. The lower ratio at ~~June~~September 30, 2001 compared to the prior year-end is primarily a result of our decision to fund maturing commercial paper obligations through the issuance of term debt due to the volatility of the commercial paper market. Leverage (based on debt net of short-term investments) was 5.5x7x at ~~June~~September 30, 2001 down from 5.9x at December 31, 2000. The decrease in leverage was due to the impact of the issuance of the MEDS Units ~~and reduced asset levels~~. Our leverage ~~and~~ and the level of commercial paper and short-term borrowings continued to remain within targeted ranges.

Our committed bank credit and available asset sale facilities totaled approximately $5.89 billion at ~~June~~September 30, 2001 and included $4.3 billion in available liquidity support under two bank credit facilities. One of these is a 5-year facility expiring in April 2005 and the other is a 364-day facility expiring in April 2002.

Also included in our total committed facilities at ~~June~~September 30, 2001 are foreign bank credit facilities of $~~924~~ 835 million (U.S. dollar equivalent) for our international subsidiaries and $15 million under foreign currency revolving credit facilities. Committed credit and sale facilities from unaffiliated financial institutions represent ~~160~~127% of outstanding commercial paper and short-term borrowings at ~~June~~ September 30, 2001. Included in foreign bank credit facilities is approximately $~~230~~118 million of additional alternative liquidity, which is available by discounting eligible French receivables with the French Central Bank since Factofrance is a registered financial institution in France. At ~~June~~September 30, 2001, ~~$157~~all ~~million~~of this facility was available for use.

We have an asset backed commercial paper conduit facility that allows us to sell participations in a designated pool of Corporate Finance cash-flow loans to bank-sponsored conduits, on a limited recourse basis. Liquidity support under this facility totals $1.42 billion, of which $~~900~~790 million was utilized at ~~June~~September 30, 2001. The commitment period of this liquidity support is 364 days and may be renewed annually by the banks, at their discretion.

We have a 364-day facility, expiring May 1, 2002, which allows us to sell up to $500 million of our equipment leasing receivables to two bank-sponsored conduits, on a limited recourse basis. As of ~~June~~September 30, 2001 we had approximately $3080 million available under this facility.

Risk Management—Asset/Liability Management

During the nine months ended September 30, 2001, we entered into $5.9 billion of interest rate swaps. ~~that~~These ~~change~~instruments had the ~~interest~~effect of converting $3.5 billion of fixed rate ~~characteristics~~debt to a variable rate, $2.1 billion of variable rate debt to ~~that~~another variable rate index, $34 million of ~~fixed~~variable rate debt. Weto ~~also~~a ~~use~~fixed ~~interest~~rate and $304 million of fixed rate ~~swaps~~assets to ~~modify~~a variable rate. During the ~~variable~~same period, $2.5 billion of our interest rate ~~basis~~swaps were terminated or matured. At September 30, 2001, we had approximately $7.0 ofbillion aand ~~liability~~$2.9 tobillion ~~more~~in ~~closely~~notional ~~match~~amount ~~the~~of ~~variable~~interest rate ~~basis~~swaps ~~used~~and ~~for~~basis ~~variable~~swap ~~rate~~agreements, ~~receivables~~respectively.

~~During~~We ~~the~~also ~~six~~utilize ~~months~~interest ~~ended~~rate ~~June 30~~futures, ~~2001,~~as wefair ~~entered~~value ~~into~~hedges, ~~$5.5~~to ~~billion~~hedge ofthe interest rate ~~swaps.~~risk ~~These instruments had the effect~~ of ~~converting~~a ~~$3.1~~portion ~~billion~~ of our fixed rate ~~debt~~receivables toportfolio aand ~~variable~~certain ~~rate,~~investment $2securities.1 At ~~billion~~September of30, ~~variable~~2001 ~~rate~~we ~~debt~~held ~~to another variable rate index~~10-year, ~~$34~~5-year ~~million of variable rate debt to a fixed rate~~ and ~~$304 million of fixed rate assets to a variable rate. During the same period, $~~2.1-year ~~billion of our~~ interest rate ~~swaps~~futures ~~were~~contracts ~~terminated~~with orequivalent ~~matured.~~notional Atamounts ~~June~~of ~~30,~~$3 ~~2001~~million, ~~we had approximately~~ $~~7.0~~15 ~~billion~~million and $~~3.0~~57 ~~billion in notional amount of interest rate swaps and basis swap agreements~~million, respectively.

WeTo ~~also~~minimize ~~utilize~~the ~~interest~~effect ~~rate~~of ~~futures~~fluctuations in foreign currency exchange rates on our financial results, aswe ~~fair~~periodically ~~value~~enter ~~hedges~~into forward currency exchange contracts, tocross currency swap agreements or currency options. These financial instruments serve as hedges of our foreign investment in international subsidiaries and joint ventures or effectively hedge the ~~interest~~translation ~~rate~~of ~~risk~~the related foreign currency income. We held $1.3 billion in notional amount of aforward ~~portion~~currency exchange contracts, and $1.0 billion in notional amount of cross currency swap agreements at September 30, 2001. ~~our~~Included ~~fixed~~in the cross currency interest rate ~~receivables~~swap ~~portfolio~~agreements ~~and~~were ~~certain~~$851 ~~investment~~million ~~securities.~~used Atto ~~June~~hedge debt instruments issued in foreign currencies as of September 30, 2001. The remaining cross currency interest rate swap agreements were primarily used to hedge foreign currency denominated intercompany receivables. Through these contracts, we ~~held~~effectively ~~5-year~~sell the local currency and ~~2-year~~buy ~~interest~~U.S. ~~rate~~dollars. ~~futures~~We also periodically enter into forward contracts ~~with~~to ~~equivalent~~hedge ~~notional~~receivables ~~amounts~~denominated in foreign currencies or purchase foreign currencies in the spot market to settle a foreign currency denominated liability. For the quarter ended September 30, 2001, the combined effect of a net gain of approximately $161 million from fair value hedges and ~~$31~~other derivative ~~million,~~activity ~~respectively~~is classified as Other Income on the Consolidated Condensed Statements of Income.

ToFor ~~minimize the effect of fluctuations in foreign currency exchange rates on our financial results, we periodically enter into~~ forward ~~currency exchange~~ contracts, that ~~cross~~qualify ~~currency swap agreements or currency options. These financial instruments serve~~ as hedges of ~~our foreign investment in international subsidiaries and joint ventures or effectively hedge~~ the ~~translation of the related~~ foreign currency ~~income.~~exposure Weof ~~held~~our ~~$1.2~~net ~~billion~~investments in ~~notional~~foreign ~~amount of forward currency exchange contracts~~operations, ~~and~~a $1loss ~~billion in notional amount~~ of ~~cross~~$17 ~~currency~~million ~~swap~~and ~~agreements at June 30, 2001. Included in the cross currency interest rate swap agreements were~~ $~~798~~49 million ~~used~~is toincluded ~~hedge debt instruments issued~~ in ~~foreign~~the ~~currencies~~cumulative astranslation ofadjustment ~~June~~for ~~30, 2001. The remaining cross currency interest rate swap agreements were primarily used to hedge foreign currency denominated intercompany receivables. Through these contracts, we effectively sell~~ the ~~local~~nine ~~currency~~months and buy U.S. dollars. We also periodically enter into forward contracts to hedge receivables denominated in foreign currencies or purchase foreign currencies in the spot market to settle a foreign currency denominated liability. For the quarter ended ~~June~~September 30, 2001, ~~the~~respectively. ~~combined~~This ~~effect of a net gain of approximately $2 million from fair value hedges and other derivative activity~~ is ~~classified as~~partially ~~Other~~offset ~~Income~~by onincreases ~~the~~in ~~Consolidated~~investments ~~Condensed~~in ~~Statements~~foreign ~~of Income~~operations.

~~For forward contracts that qualify as hedges of the foreign currency exposure of our net investments in~~MERGER ~~foreign operations, a gain of $32 million and $25.5 million is included in the cumulative translation adjustment for the six months and quarter ended June 30, 2001, respectively.~~AGREEMENT

~~Accounting~~ On ~~Developments~~July 30, 2001, the Company and GE Capital entered into a definitive merger agreement under which GE Capital will acquire the Company for approximately $5.3 billion in cash, or $53.75 per share. The transaction, which is subject to regulatory approval and other customary conditions, is expected to close before the end of the year. For further information regarding this transaction, which is subject to regulatory approval and other customary conditions, please refer to the Form 8-K and the Solicitation/Recommendation Statement on Schedule 14D-9 fixed by the Company with the SEC on August 3, 2001.

SUBSEQUENT EVENTS

Declaration of Dividends—

Stock	Declaration Date	Dividend per Share	Record Date	Payable Date
Fixed Rate Noncumulative Perpetual Senior Preferred Stock, Series C	Oct. 18, 2001	$1.67175	Nov. 1, 2001	Nov. 15, 2001
Fixed Rate Noncumulative Perpetual Senior Preferred Stock, Series D	Oct. 18, 2001	$ 1.7375	Nov. 1, 2001	Nov. 15, 2001

ACCOUNTING DEVELOPMENTS

Statement of Financial Accounting Standards No. 133

Effective January 1, 2001, the Company adopted the provisions of the Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by Statement of Financial Accounting Standards No. 137, Deferral of the Effective Date of FASB Statement No. 133 and Statement of Financial Accounting Standards No. 138, Accounting for Derivative Instruments and Hedging Activities— – an amendment of FASB Statement No. 133 (collectively referred to as SFAS No. 133). This Statement establishes accounting and reporting standards requiring all derivative instruments (including certain derivative instruments embedded in other contracts) to be recorded in the balance sheet as either an asset or liability measured at its fair value. Changes in the fair value of the derivative are to be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows gains and losses on derivatives to offset related results on the hedged items in the income statement and requires that a company must document, designate, and assess the effectiveness of transactions that receive hedge accounting.

Adoption of this new accounting standard resulted in:

Ÿ• cumulative before-tax reductions in net income of approximately $6 million (approximately $4 million after-tax) recorded in the first quarter of 2001; and

Ÿ• after-tax reductions through other comprehensive income, a component of stockholders’ equity, of approximately $1 million in the first quarter of 2001.

Statement of Financial Accounting Standards No. 141

The FASB has issued Statement 141, “Business Combinations”, (“SFAS No. 141”) which applies to all business combinations initiated after June 30, 2001. The statement also applies to all business combinations accounted for under the purchase method of accounting for which the date of acquisition is July 1, 2001 or later. ~~Statement~~SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Use of the pooling-of-interests method will be prohibited.

Statement of Financial Accounting Standards No. 142

~~Subsequent~~Statement ~~Events~~of Financial Accounting Standards No. 143

~~Merger~~ The ~~Agreement—~~FASB issued Statement 143, Accounting for Asset Retirement Obligations (“SFAS No. 143”), in June 2001. SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This Statement is effective for fiscal years beginning after June 15, 2002 and is not expected to have a significant impact on the Company.

OnStatement ~~July 30, 2001, the Company and General Electric Capital Corporation (GE Capital) entered into a definitive merger agreement under which GE Capital will acquire all~~ of ~~the~~Financial ~~outstanding~~Accounting ~~shares~~Standards ~~of the common stock of the Company for approximately $5~~No.3 ~~billion in cash, or $53.75 per share. The transaction, which is subject to regulatory approval and other customary conditions, is expected to close before the end of the year.~~144

~~Declaration~~ In August 2001, the FASB issued Statement 144, Accounting for the Impairment or Disposal of ~~Dividends~~Long-Lived Assets (“SFAS No. 144”). The Statement supercedes Statement 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of and APB Opinion No. 30, Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for segments of a business to be disposed of. SFAS No. 144 retains the requirements of Statement 121 relating to recognition and measurement of an impairment loss and resolves certain implementation issues resulting from Statement 121. This Statement is effective for fiscal years beginning after December 15, 2001. We are currently assessing the impact of this statement on the Company.

Stock	Declaration Date	Dividend per Share	Record Date	Payable Date
Class A Common	July 17, 2001	$0.10	July 31, 2001	August 15, 2001
Class B Common	July 17, 2001	$0.10	July 31, 2001	August 15, 2001
Fixed Rate Noncumulative Perpetual Senior Preferred Stock, Series C	July 17, 2001	$1.67175	July 31, 2001	August 15, 2001
Fixed Rate Noncumulative Perpetual Senior Preferred Stock, Series D	July 17, 2001	$1.7375	July 31, 2001	August 15, 2001

PART II. OTHER INFORMATION

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

(10a)		2001—2003 Long-Term Incentive Plan
(10b)		Amendment to the Amended and Restated Change in Control Agreement
(12)		Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends

(10a) Second Amendment to the Heller Financial, Inc. Executive Deferred Compensation Plan

(10b) Amendment to Employment Agreement with Richard J. Almeida

(12) Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends

(b) Current Reports on Form 8-K:

Date of Report	Item		~~Description~~	Description
July 17, 2001	~~5, 7~~	5,7	~~A report filing a press release announcing the declaration of dividends on the Company’s common and preferred stocks.~~	A report filing a press release announcing the declaration of dividends on the Company’s common and preferred stocks.
July 19, 2001	~~5, 7~~	5,7	~~A report filing a press release announcing the Company’s earnings for the quarter ended June 30, 2001.~~	A report filing a press release announcing the Company’s earnings for the quarter ended June 30, 2001.
July 30, 2001	~~5, 7~~	5,7	~~A report filing a press release announcing that the Company and General Electric Capital Corporation (GE Capital) have entered into a definitive merger agreement for GE Capital to acquire the Company.~~	A report filing a press release announcing that the Company and General Electric Capital Corporation (GE Capital) have entered into a definitive merger agreement for GE Capital to acquire the Company.
July 30, 2001	~~5, 7~~	5,7	A report filing the Plan of Merger by and among GE Capital, Hawk Acquisition Corp. and the Company and the Letter Agreement among the Company, The Fuji Bank Limited, acting by and through its New York Branch, and GE Capital.	A report filing the Plan of Merger by and among GE Capital, Hawk Acquisition Corp. and the Company and the Letter Agreement among the Company, The Fuji Bank Limited, acting by and through its New York Branch, and GE Capital.
October 18, 2001		5,7		A report filing a press release announcing the declaration of dividends on the Company’s preferred stocks.

SIGNATURES

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

~~HELLER~~HE LLER FINANCIAL, INC.

/S s/ LAURALEE E. MARTIN

By:

Lauralee E. Martin

Executive Vice President and Chief Financial Officer

~~Chief~~/s/ ~~Financial~~LAWRENCE ~~Officer~~G. HUND

/S / LAWRENCE G. HUND

By:

Lawrence G. Hund

Executive Vice President, Controller and

Chief Accounting Officer

Date: ~~August~~October 1423, 2001

Filing Compare · HELLER FINANCIAL INC