Good day, ladies and gentlemen, welcome to the General Electric fourth quarter 2012 earnings conference call. At this time, all participants are in listen-only mode. My name is Deanna, and I will be your conference coordinator today. If at any time during the call you require assistance, please press star followed by zero, and a conference coordinator will be happy to assist you. If you experience issues with the slides refreshing or there appears to be delays in the slide advancement, please hit F5 on your keyboard to refresh. As a reminder, this conference is being recorded. I would now like to turn the program over to your host for today's conference, Trevor Schauenberg, Vice President of Investor Communications. Please proceed.
Thank you, Deanna. Good morning and welcome everyone. We're pleased to host today's fourth quarter and total year 2012 earnings webcast. Regarding the materials for this webcast, we issued the press release earlier this morning and the presentation slides are available via the webcast. The slides are available on our website at www.ge.com/investor. As always, elements of this presentation are forward-looking and are based on our best view of the world and our businesses as we see them today. Those elements can change as the world changes. Please interpret them in that light. For today's webcast, we have our Chairman and CEO, Jeff Immelt, and our Vice Chairman and CFO, Keith Sherin. We're excited to get started, we'll turn it over to our Chairman and CEO, Jeff Immelt.
Great, Trevor. Thanks. Good morning, everybody. The GE team had a very strong quarter. We saw real strength in the emerging markets, and the developed region stabilized. Orders grew by 7%, excluding foreign exchange and wind, and organic growth was 4% in the quarter and 8% for the year. Earnings were strong with operating EPS up 13%. Industrial earnings were up 12%, with all segments growing for the second straight quarter. Capital had another good quarter, and for the year, industrial earnings were up 10% and capital up 12%. We delivered on our margin commitments, which grew by 120 basis points in the quarter and 30 basis points for the year. Industrial CFOA was also very strong in the quarter, and for the year, CFOA grew by 48% to $17.8 billion.
We returned substantial cash for investors in 2012 through dividends and buyback, and in the fourth quarter, we announced a 12% increase in our dividend and an expansion of our buyback program. Finally, in December, we announced a strategic acquisition on our aviation business called Avio. This was a very successful quarter for GE. The strength into the quarter continued and builds momentum for the future. Orders grew by 2% in the quarter. This is up 7%, excluding, again, the impact of foreign exchange and wind. We had a solid order growth in five of six businesses. Order pricing grew by 0.5% in the quarter. Equipment book-to-bill ratio was 1.2, and we ended the year with a record high backlog of $210 billion. Many of our businesses had great quarters. For instance, healthcare equipment orders grew by 7%, MR was up 12%, CT up 23%, and ultrasound up 11%.
Importantly, growth market orders expanded by 12%. Our growth initiatives continued to deliver. Growth regions expanded by 9% in the quarter and 11% for the year. Six of nine regions grew by double digits, including Russia, Australia, Latin America, China, Africa, and ASEAN. For the year, China grew by 19%. Services had another good quarter in revenue backlog and margins. Power gen services had a very strong quarter. Service backlog grew to a record of $157 billion. We continued to launch new products and service offerings. We're winning with our Aviation product lineup, which is giving us high share of commercial engines. Oil & Gas had record orders and backlog. Our subsea orders almost doubled versus last year, and distributed power grew by 19% for the year. In November, we announced nine new service offerings for the industrial internet, with 20 more in the pipeline.
We continue to deliver in volatile markets. GE had a great margin performance in the quarter. Margins grew by 120 basis points in the quarter and 30 basis points for the year. Every business grew margins in the quarter, and our performance really was driven by value gap expansion of $330 million, service margins, which grew by 190 basis points, and simplification. For the year, SG&A as a percentage of revenue was down 100 basis points, and we achieved these results in spite of the fact that foreign exchange created a headwind for the year. We entered 2013 with substantial momentum. We expect to hit 70 basis points of improvement in 2013. This is based on very positive value gap, structural cost and service margins, which are really in the run rate. Mix in 2013 should not be a drag.
Really a good job by the GE team. GE had a very strong performance on cash as well. For the year, we hit $17.8 billion, up 48%. Industrial CFOA in the quarter was $6.2 billion, up 12%. We had good performance on working capital, even while we continued to invest in growth. We end the year with a cash balance of $15.5 billion and consolidated cash of $77 billion. Our strong industrial CFOA performance, plus capital dividends, is supporting our plan for balanced capital allocation. We returned $12.4 billion to investors through dividend buyback, and we expect this to continue in the future. We announced the acquisition of Avio in December for $4.3 billion. As you know, we have a significant backlog of engines and shop visits. We've invested in capability, materials, and capacity to improve our new engine margins.
Recently, you've seen several partnership announcements from GE Aviation in our supply chain. In Avio, we're acquiring an existing position in engine development. They bring complementary technologies to GE. We think there's an opportunity to expand this technology beyond aviation. There's substantial synergies, about $200 million or more, and relatively low execution risk. At 8.3 times EBITDA, we believe this will generate a good return for our investors, and we expect to close in the second half of 2013 after regulatory approvals. Now I'm going to turn it back over to Keith to talk about company operations.
Thank you, Jeff. I'm going to start with the fourth quarter summary. Go to the income statement. We had continuing operations revenues of $39.3 billion. That's reported up 4%. Ex FX, revenues were up 5%. Industrial sales of $27.3 billion are up 2%, up 3% ex FX again. Capital revenues of $11.8 billion were up 2%, and operating earnings of $4.7 billion were up 13%. Operating earnings per share of $0.44 were up 13%. Continuing EPS here includes the impact of the non-operating pension, and net earnings per share includes the impact of discontinued operations, which I'm going to cover on the next page. As Jeff said, year-to-date cash is $17.8 billion, was up 48%, including the dividends from GE Capital, a great year on cash.
For taxes, the GE rate of 21% for the quarter, that's up about six points from last year, mostly due to higher pre-tax income. The fourth quarter GE rate's consistent with our rate through the third quarter and the low 20s rate we forecast all through the year. Right now, we'd forecast a similar GE tax rate for 2013. The 6% GE Capital rate is consistent with the mid-single-digit rate we forecasted for the third quarter. As we mentioned in December, our plan for next year for GE Capital includes less tax benefits. Right now, I forecast a rate of approximately 10% for 2013 for GECC. On the right side, you can see the segment results. Total Industrial segment profit's up 12%. It's great to have all seven of the Industrial segments delivering positive earnings growth.
These results also contributed to Industrial segment profit of $15.5 billion, up 10% for the total year. GE Capital also had a strong quarter. Earnings were up 9%. If you include the impact of the preferred dividends, GE Capital represented 36% total company earnings in the fourth quarter. Overall, a strong segment growth quarter, I'm going to cover each of the segments in more detail in a minute. Before I get to the businesses, though, I'll start with other items in the quarter, the fourth quarter. First, on the one-time benefits, we had $0.01 of after-tax gains from two non-core dispositions that occurred in the fourth quarter in the segments. We sold the Thomas Medical business in Healthcare. That business sells disposable medical devices for cardiology, and we realized a $24 million after-tax gain.
In Aviation, we sold the Smiths business in California, Duarte, which makes thrust reverser actuation equipment, and we realized a $67 million after-tax gain. In total, $0.01 on the benefits. We also had $0.02 of after-tax restructuring and other charges in the quarter. These charges related principally to continued cost structure improvements at GE Capital, at Healthcare, Power and Water, and Energy Management, as well as some business development costs. On the bottom of the page, we had $305 million of charges in discontinued operations. We booked $286 million of additional reserves on GrayZone this quarter. While we watched the claims decline 28% in the third quarter, the claims in the fourth quarter were above our model expectations. We revised our assumptions this quarter.
Right now, we're reflecting a further slowing in the overall claims reduction rate than we had previously modeled, and that brought our year-end reserve to $700 million. We'll continue to update you as events and facts change on the GrayZone rate. Right now, I'll switch to the business results. First, I'll start with Power and Water. As you know, this is the first quarter reporting the three separate businesses. Power and Water, the business continued to be impacted by wind. However, the overall execution delivered positive operating results. Orders of $7.2 billion were down 16%, down 6% ex wind. Equipment orders of $3.5 billion were down 26%, driven by thermal and renewables. The thermal orders of $974 million were down 49%, as we had orders for 26 gas turbines versus 50 last year. We also had orders for two steam turbines versus 20 last year.
In addition, there were $500 million of thermal order slips that went out of the fourth quarter into 2013. For the total year, we had orders for 108 gas turbines versus 134 in 2011, and the total year thermal orders in dollars were down about 7%. Total thermal order pricing was up 1% in the fourth quarter and up a half a percent for the total year. On renewables, fourth quarter renewable orders of $987 million were down 15%. We had orders for 412 wind turbines versus 1,023 last year. Renewable order pricing was positive, four-tenths of a percent, and service orders of $3.6 billion were down 3%. Power Gen Services was up 7%, and you'll see that's important in terms of profit, but that was offset by nuclear, which was down 15%, in line with lower activity in Japan. For revenues to $7.7 billion, they were up 2%.
That's driven by services. Equipment revenues of $3.9 billion were down 2%, driven by thermal down 14%, partially offset by wind up 10%. We shipped 32 gas turbines versus 33 last year, and we shipped 722 wind turbines versus 688 last year. Service revenues of $3.7 billion were up 5%, driven by Power Gen Services, which was up 8%, and Power Gen Services op profit was up double digit in the quarter. Total segment profit of $1.7 billion was up 5%, as the benefits of the higher services and lower product costs more than offset lower prices. In the quarter, margins expanded by 80 basis points. On the right side, Oil and Gas had another strong quarter, closed out a great year. Orders of $5.6 billion were up 18%. Equipment orders of $3.1 billion were up 31%, driven by the strong subsea systems and drilling and surface orders.
Year-to-date equipment orders were up 21%. Service orders of $2.4 billion were up 4% on, again, strong subsea systems orders. Total orders pricing was up 1.3%. We finished the year with a backlog of over $14.8 billion, up $2.6 billion from last year, and our seventh consecutive quarter of positive orders pricing. Revenue of $4.5 billion was up 11%, driven by equipment. Equipment revenues at $2.4 billion were up 27%, driven by subsea systems up 34%. Measurement and Controls were up 63%. Turbomachinery was up 16%. Service revenue, $2.1 billion, was down 2%. Segment profit of $649 million was up 14%. That's driven by the strong volume and positive pricing. Our acquisitions continue to perform. For the year, they're up significantly and above pro forma. Overall, another strong growth quarter for Oil and Gas. Next is Aviation.
The aviation team had another solid quarter in fourth quarter. Orders of $7.4 billion were up 8%. The commercial engine orders of $3.6 billion were up 9%, driven by CFM LEAP and GEnx. Military engine orders of $632 million were up 57%, driven by U.S. orders for F414 and T700, as well as foreign military orders for F110 engines. We ended the quarter with a backlog of $22.9 billion, up 6% versus the third quarter. Service orders in the quarter of $2.7 billion were up 1%. Commercial services were flat. The fourth quarter spares order rate was $22.3 million, which was flat with last year. As you know, we did see spares orders stabilize in the fourth quarter. As you know, spares were down double digit all year long, so flat was an improvement. The total year rate was $22 million, down 11% from 2011.
Total orders pricing was up 2.3% for the business. Revenue in the quarter, $5.5 billion, was up 11%. That's driven by equipment, which was up 19%. Services were up 3%. We shipped 589 commercial engines in the fourth quarter, which was up 71 engines from last year, and we shipped 48 GEnx units in the fourth quarter. Commercial service revenues of $1.8 billion were flat in the quarter, and segment profit of $1,039 million was up 22%. It's up 8% ex the deal that I covered on the other items page. Ex the deal, segment profit growth was driven by positive price, lower base costs, partially offset by negative engine mix. On the right side, healthcare, we had a good orders quarter. Fourth quarter for healthcare, orders of $5.4 billion were up 4%. Equipment orders of $3.4 billion were up 7%.
Developed markets were flat, but there was a big shift here. The U.S. was up 8%. Europe was down 8%. Emerging markets were up 24%, continued strength in the business. The Middle East was up over 100%. Russia was up one, partially offset by India, down 12. By modality, CT was up 23, MR was up 12, ultrasound was up 11, molecular imaging was down eight, life sciences was up five, and MDX was down three. Service orders in the quarter of $2.1 billion were down 1%, and total orders price was down 1.8% for the business. Revenue of $5.2 billion was flat, driven by the growth markets up 13%, offset by the developed markets down three. Segment profit of $1,021 million was up 7%, as the benefits of cost productivity and other income more than offset the negative price and foreign exchange.
Organic segment profit growth for the business, if you look in the fourth quarter, it was up 1%, and for the year, it was up 3%. Next is transportation. Transportation team delivered another solid quarter, despite a slowing top line. Orders of $1.3 billion were up 7%. Equipment orders of $600 million were up 20%, driven by the strong international locomotive orders. We had orders for 100 locomotives versus 74 last year. We had strong mining orders. In mining, it was down a little bit, actually. $151 million was down 7%. Service orders of $720 million were down 3% as fewer signaling orders offset strong locomotive service orders, which were up 14%. Revenues were down 7% on, as expected, lower locomotive shipments. We had 117 locomotives this year versus 258 last year. That was the way we planned the year.
This was partially offset by the stronger service, which was up 26%, and mining revenues, which were up 57%. Our profit was up 12% on higher service and positive value gap. This is the first quarter we're presenting Energy Management separately. The businesses here are Converteam, which is now Power Conversion, Digital Energy, Industrial Solutions, and Intelligent Platforms. Orders of $2.2 billion were up 12%, driven by the strong growth in Power Conversion, oil and gas marine orders. Revenues of $1.9 billion were down 1% as lower Intelligent Platform sales offset the growth in Power Conversion, which was up 6%. Segment profit of $64 million was up 36%, with 90 basis points of margin expansion driven by a positive value gap, more than offsetting lower volume. On the bottom, Home and Business Solutions had a very positive quarter.
With Intelligent Platforms now reported in Energy Management, this segment is just appliances and lighting going forward. Revenues of $2.1 billion were up 2%, driven by appliances. We did see some strength in the contract channel from new housing starts. Segment profit of $115 million was more than double last year's fourth quarter, driven by higher pricing and lower product costs. I'm going to wrap up with GE Capital. Mike Neal and the capital team delivered another solid quarter. Revenues of $11.8 billion were up 2%. Higher core income, strong retail revenues, real estate sales, more than offset the impact of lower assets. We ended the year with $419 billion of ending net investment. That's down $26 billion from 2011, driven by the shrinkage of non-core platforms, and over $20 billion lower than our $440 billion goal that we set back in 2009.
GE Capital earned $1.8 billion in net income, which was up 9%. That's driven by great results in real estate, growth in consumer, and that more than offset the $200 million lower income from lower assets. On the right side, asset quality metrics showed continued improvement across the board, driven largely by improved portfolio performance. Our net interest margin was 4.9%, up 49 basis points, and we had strong volume of $54 billion in the quarter, up 11% from last year. Commercial volume was up 18%, consumer volume was up 8%. New business volume averaged 3% returns. One other point that's not on the page, in the supplemental deck that we posted this morning, you're going to see reserves at GE Capital decline by $400 million versus the prior quarter.
This decline is driven by a modification to our write-off policy in line with regulatory guidance, where we now write off loans against specific reserves that we were carrying for more than 12 months. The change had primarily impacted real estate and CLL. It has no impact on our income statement, and the net impact on the balance sheet is zero. We had higher write-offs and lower reserves at the end of the quarter because of that, about $400 million. If I go highlights by business here, first I'll start with CLL. Net income of $544 million was down 30%, driven by lower assets and prior year dispositions, and also the non-repeat of last year's IRS settlement. In the Americas, net income of $455 million was down 20%. That's driven by the non-repeat of the tax item in the fourth quarter, as well as lower assets.
We did see strong volume growth in the Americas. In the fourth quarter, volume was up 31% at 2.4% returns. In Europe, European CLL earned $83 million, was flat with last year. Our consumer business had another positive earnings quarter. We ended the year with assets of $139 billion, flat with last year. Net income of $755 million was up 22%. That's driven by growth across the board in U.S. retail, in Europe, and in Asia. U.S. retail finance earned $477 million, which was up 3%. That's driven by higher assets and better margins, partially offset by higher credit costs as we continued our reserve segmentation that we talked about in the fourth quarter. U.S. retail finance volume was up 9% over last year, core Europe earned $154 million in the quarter. For real estate, commercial real estate had another quarter with significant improvements over last year.
Assets of $46 billion were down $15 billion. That's down 24% from last year. It's down $9 billion or 16% from the end of Q3, so we do a good job of reducing our exposure to real estate. The business earned $309 million in net income, which was $460 million better than last year. That's driven by lower losses and impairments, higher tax benefits, higher gains. During the quarter, we sold 282 properties for $2.6 billion, realizing $136 million in after-tax gains. We also closed on the sale of the business properties book to EverBank, resulting in $82 million of gains and $5.4 billion less real estate. Our unrealized loss on the equity portfolio is down to $1.1 billion at the end of the year, and the outlook is that real estate is going to continue to deliver improved performance in 2013. Next is GECAS.
They had a solid fourth quarter. Net income of $343 million was up 9%. That's driven by higher gains and lower losses and impairments. Asset quality remained strong. We ended the year with two aircraft on the ground. Finally, Energy Financial Services also had a solid quarter with earnings of $107 million, down 3%. Overall, a great year. $6.4 billion of dividends paid back to the parent. With that, let me turn it back to Jeff.
Great, Keith. Thanks. Just to wrap up on 2012 investor commitments, one last time on 2012. We really hit all the major goals that we set out with you a year ago. We targeted strong industrial growth, we hit 12% in the fourth quarter and 10% for the year. We said we would grow margins, we hit 120 basis points in the fourth quarter, 30 basis points for 2012, and we're on track for 70 basis points in 2013. We said we wanted to get cash out of GE Capital, we received a $6.4 billion dividend to the parent. We said we would make GE Capital smaller, our ENI ended the year at $419 billion, down 6%, even while we grew income by 12%.
We said capital allocation would be disciplined and balanced, we returned more than $12 billion in dividends and buyback and announced the $4.3 billion Avio acquisition. 2012 was the year where we really hit all of our financial commitments to investors. Looking forward to 2013, there's no change to our 2013 operating framework that we talked about in December. If anything, we start the year with a higher backlog and more cash. Our commitments are similar to 2012. We plan to achieve double-digit industrial earnings growth. We plan to receive a substantial dividend from GE Capital. We plan to grow margins while driving solid organic growth, and our fourth quarter orders support this growth. We plan to return substantial cash to investors through dividend and buyback. Our fourth quarter performance gives us confidence for 2013.
I think the GE team has done a great job of execution. Trevor, back to you for some questions.
Great. Thanks, Jeff and Keith. Deanna, let's open up the phone lines for questions.
Ladies and gentlemen, if you wish to ask a question, please press *1 on your telephone. If your question has been answered or you wish to withdraw your question, please press *2. Our first question comes from the line of Scott Davis, Barclays.
Hi, good morning, guys.
Hey, Scott.
Good morning.
It looks like most of the full year margin expansion came from value gap. Can you talk more specifically about 4Q? The 120 basis points is a pretty big number. If there's a way to think of that in terms of value gap versus maybe mix or cost.
Sure. I'll give you both actually, because I think it's helpful to look at the pieces. You said it in the fourth quarter, value gap was big. It was 80 basis points of the growth came from value gap. We had very strong pricing. We saw material deflation. You can see that the changes in order pricing are flowing through into revenue. Equipment service mix was a drag. As you know, that's been a drag all year long. It was 50 basis points, the same as what we had for the total year, as we had higher revenues on equipment growth than on services. Also, you know the wind story. Higher wind revenues at the lower margins has been a drag all year long. We offset that with two things. One, we did have the dispositions. That was about 60 basis points in the quarter.
We had strong productivity, which was 30 basis points in the quarter as we offset the impact of the negative mix. Overall, 120 basis points. For the year, it's really a similar story. Value gap was 20 basis points of that 30 basis points growth. We had a real drag on mix and other that was, in total, 60 basis points. We offset that with strong productivity. A lot of that is simplification. Our SG&A as a % of revenue went down a full point. We have done a good job with costs. We've got great programs in place that'll help us as we go forward into 2013, as you know. The gains in total for the total year were about seven basis points on the impact for the margin. Pretty good performance.
The strength really value gap and productivity, driving margin improvement, both in the quarter and for the total year.
Okay, helpful. Keith, thanks.
Yep.
kind of stepping back to a little bit of a bigger picture question. The Avio deal seemed pretty interesting for many reasons. When you think about taking a step backwards, is this part of a bigger trend and opportunity to start to buy in some of the supply partners that you have? There's multiple positives that can come out of that, I guess, in risk reduction and controlling intellectual property and things like that. Is there other things out there that you can do that are similar to this type of transaction?
Scott, we did a couple other joint ventures that you probably saw last year that enhanced our position in controls and fuel nozzles and additive manufacturing and things like that. We think Avio made a ton of sense, just given the amount of GE content and things like that. I would say we don't have a bunch more on the drawing board. What I would say is, we've got an incredible backlog and skyline of aircraft engines coming at us for the next 5 to 10 years. We believe that actually being able to drive real productivity in the supply chain and innovation in the supply chain will likely be one of the real margin enhancers as we look at the aviation business in the next three, four, five, 10 years. It is part of a bigger productivity play.
I don't think there's necessarily things like Avio on the drawing board per se, we continue to look at productive manufacturing of a well-identified backlog as being a major source of margin benefit for our investors going forward.
Helpful. Thanks, Jeff. Thanks, guys. I'll pass it on.
Thanks, guys.
Your next question comes from the line of Steve Tusa, JPMorgan.
Hey, good morning.
Hey, Steve.
Good morning, Steve.
The China growth of close to 20% remains pretty strong. Could you maybe talk about what was above and below that average and how you see that playing out in 2013? You guys have skated through the weakness there pretty nicely.
Steve, I'd say we definitely saw China strengthen again at the end of the year. The big drivers of China continue to be healthcare and aviation, and we believe that the China momentum will likely continue into 2013. Steve, I don't know, Keith, do you want to add to that?
Well, some of these I'll give you. For the quarter, Power & Water had a big quarter. They were up over 30%. Healthcare had a big quarter, up 15% for the year. They were up over 20%. Aviation continues to be very important to us for the year. They're up 18%. There were some orders that we had pushed out of the third quarter, still pushed out of the fourth quarter. We expect some more orders in aviation in China in the first quarter. Those three are really the strength, and we continue to see investments by the government in those industries, and we're benefiting from the move to gas in China a bit, the great emphasis on healthcare, and certainly on transportation with the aviation position we have.
There's a knock on, Steve, as well as China grows. You see more activity in Africa and Brazil and places like that as well. It has a knock-on effect that's also positive.
How big is your China business going to be year-end now?
The revenue for the year was just a little under $6 billion in 2012.
Got you. Okay. Great. One last question just on margins. I guess, the value gap obviously is ramping here. That doesn't seem like that's lumpy. You had your biggest quarter, obviously, in the fourth quarter, which means you should probably start the year with a pretty decent value gap in the first half. Maybe just talk about how those other swing factors like mix, the other things you talked about in the bridge progress as we move through first half 2013. If there's anything lumpy that you need to call out that may impact the 70 basis points, first half to second half type of thing.
Steve, again, if I look at margins, I think value gap is pretty well dialed in. Structural cost, what Keith talked about, SGA as percentage of revenue, that should continue to get better. Those two aren't necessarily lumpy. Service margins aren't really lumpy. We continue to get good progress there. My view is wind will be lumpy, right? As you think about how it plays through the balance of 2013. The one that we don't really control so much is how mix goes through. I'd say a lot of the levers should continue with pretty good progress. The one that we'll manage as the year goes on is just the impact of. There will be a 3% headwind in wind. We don't see that necessarily changing. That's another thing to play through. We feel confident in the 70 basis points for the year.
We're not really giving quarterly margin guidance, as Jeff said, for the year, based on those factors, we feel pretty confident. We have internal plan that's above the 70. We don't have any gains that are in the plan to get to that 70. We've got some good momentum as we come out of the fourth quarter on the margin improvement.
Great. Thanks a lot.
Thanks, Steve.
Your next question comes from the line of Jeff Sprague, Vertical Research Partners.
Thank you. Good morning, everyone.
Hey, Jeff.
Jeff.
Hey, just looking for a little more color around orders. Just first, at a high level, you're calling the quarter flat at $11.8, I see $12.5 last year in the quarter. What's going on there?
I think it's the energy recast and eliminations.
Yeah, I'm talking about service in particular, actually.
Yeah, that's what we have. We have a recast from some of services went into equipment, I believe.
Okay.
Some came up to corporate. We'll get you the split. It's a little bit of a decoder ring. I don't have the details with me, Jeff.
Okay. Just on the Power-related stuff. Power and Water and aggregate price was down 20 basis points, but I think you said, Keith, just trying to keep up with you, thermal was up one. Is that thermal number just equipment, or is that service, and can you provide any color on service pricing in the business?
Yeah, the number I gave was the total business, thermal and PGS, up one in the quarter. I don't have a separate breakout for services for the fourth quarter. I have thermal and total.
Okay.
If you look, all year long, in thermal, it was positive in the first and second quarter, it was a little negative in the third quarter, it was positive. Total year is up a half a point for thermal equipment and service.
Just finally, flipping over to Aero. The ADR stabilized. Do you have visibility, you think, that the aftermarket's kind of found a bottom and inflecting, or is it early to determine that?
I think, the way the team has talked to us about it in the market, you've continued to see pretty good revenue passenger miles. Freight declines were lumpy in 2012, but recovered a little bit at the end of the year. For us to have flat ADs, given that there was an awful lot of working capital management in the supply chain and some mix for us with the old CF6s on freight, was a positive sign. Right now, the team is forecasting a little bit of improvement off of that fourth quarter rate in the first quarter. We're going to have to see as we go through the quarter. It's too early in the quarter right now to know and 2 weeks in. They're forecasting it will be improving over the first quarter levels.
Any concern about your GEnx productivity ramp with maybe things backing up at Boeing? If you've got any thought on how things might play there as it relates to you.
Well, we're going to have to see. Right now, we haven't had any schedule changes from them. Actually, as you know, if there are a few less engine shipments, that's not a bad thing in terms of margins, based on the margins on the initial GEnx shipments. We had a great year on GEnx, Jeff. We came down the learning curve. Obviously, some of the pricing that you're seeing in aviation is coming through on GEnx. There was an improvement on margins per units in those shipments. We don't anticipate it to be a big deal, but again, we got to see Boeing work their way through the problem. Just a little number on our engines. On the 1B, we've had 35,000 flight hours with 99.97% dispatch reliability, and on the 2B, on the 747, we have 310,000 flight hours with 99.94% dispatch reliability.
I mean, the engine is performing very well in the fleet, and customers love it. We got to work through Boeing, and we're trying to help them with whatever they're working through, and we will. So far for us, we're very pleased and our customers are very pleased with the GEnx.
Great. Thank you very much.
Thanks, Jeff.
Your next question comes from the line of Andrew Obin, Bank of America Merrill Lynch.
Yes, good morning.
Good morning.
Question, a broader question. Given the partial resolution of the fiscal cliff, are you seeing any improvements in sentiment from your customers in the U.S.?
I think there's certain tangible things like the Production Tax Credit, Andrew Obin. That basically opens up a two-year window. I would say on balance, that's more positive, and we hear more positive comments coming out of the renewable energy sector. Other than that, Andrew Obin, I wouldn't say that we're necessarily picking up whether or not that's been liberating or not. The shorter cycle business in GE is our appliance business. We get appliance market data every week, and the industry itself was about flat in December, and the industry itself was about flat through the first couple of weeks of January. If that's helpful.
Just a question on GE Capital. Do you think these ROIs are sustainable? Are you seeing more competition reentering the space, and any more color by segment on ROIs on new business? Thank you.
It does vary, I think, on some things. Like asset-backed lending, we've seen some more competition. But in other places, we've had less competitors. Overall for Commercial Lending and Leasing to do $14.5 billion in the Americas at a 2.4% in the quarter, that's pretty good volume. At a pretty good rate. So the team is being very disciplined on pricing and margin hurdles. So far, we've been able to get the volume we wanted at the return hurdles that we've set. We expect to see that continue in 2013. I think we saw a little bit of a bubble in the fourth quarter from some of the fiscal cliff activity as people did a lot of refinancing and tried to get gains done, sales of their properties out in the quarter.
But other than that, we've been pretty disciplined on pricing, and we expect it to continue to be reasonably good. Jeff, any comments on it?
No. All I would add is exactly what Keith said, is that some of this is our own discipline about where we're going to write business, and we've been exceptionally disciplined. I think the fact that volume was pretty good in the quarter lets us get the sense that we're in the market and that our disciplines are appropriate.
On asset quality, we've seen changes to consumer, we've seen changes to Commercial Lending and Leasing. Any more policy changes down the line?
Those are the two that we're working through. I think we're significantly through the consumer as far as the segmentation. There may be a little more in the first quarter. On the write-offs, there is regulatory guidance, and we are complying with it. I'm not aware of any others besides those two right now.
Thank you very much.
Yep.
Thanks.
Your next question comes from the line of Deane Dray, Citi Research.
Thank you. Good morning, everyone.
Hey, Deane.
Hey, sticking with GE Capital, a question on provisions. It looked like you absorbed at least a penny more than what we were looking for. Now that I look at the consumer delinquencies, they're at an 18-year low. It raises the question, I know this is completely formulaic, and it's out of your discretion, but when might we start seeing some releases of reserves?
Well, I don't anticipate that. I can tell you right now I think a simple rule of thumb to look at on the consumer is you're probably going to be looking at 12 months of reserves or provisions for losses in that book. While we've seen delinquencies come down, and you're right, we have a tremendous asset quality there. It's the best we've seen, as you said. We have increased the segmentation of the portfolio to be more granular on different loss types, and that's added through provisions. You can see in the fourth quarter, provisions are up. Some of that's volume, and about $50 million, $60 million after tax of that is additional segmentation on the reserves to get to the 12-month proxy here for loss levels.
Great. Then can you comment on the MetLife Bank integration? Any changes to the business model there? A related question is, as you start increasing this alternative funding, you're expected to issue less commercial paper, and maybe the aggregate amount of commercial paper coming down might actually give you better spreads, better financing. Maybe if you can comment on that as well.
We're thrilled with getting MetLife closed. Obviously we've put it in the consumer bank. The objective here is to grow our deposits online, and they give us a franchise and a capability to be able to do that. Our expectation is that we're not only going to do that in the consumer bank, but we're going to migrate that over to the commercial bank, and we're going to do more online deposits. As you said, our objective is to get the CP down in the 30s this year and continue to reduce CP, and we've been very successful at doing that, and we'll continue. I think you look at the trade-off of cost of deposits versus CP, plus the bank lines and whatever backup cash you carry. I think that this can be a good trade-off over time for us as we continue to diversify our funding.
Is it too early to quantify what the better spreads might be?
I think you're not going to see that from CP is at 20 basis points, Deane. You're not going to see a big number on that in 2013 for GE Capital. I think you will get a benefit from having less negative carry on the cash. If you look at last year, we took the cash from $70-plus billion. We'll have it carry around somewhere between $50 billion and $60 billion this year. That'll probably be the biggest increase in the financing margins. Last year, we had net maturities of $48 billion reduction in GE Capital. It was a fantastic year for capital on a balance sheet basis to lower the amount of debt and improve their future debt maturity profile. As you know, we go down to $30 million-$35 million of long-term debt issuance a year now from a significantly higher level.
I think the capital team's done a great job, and the biggest benefit you'll see will probably be on a little less negative carry on the cash.
Great. Thank you.
All right.
Your next question comes from the line of Steven Winoker, Sanford Bernstein.
Thanks. Good morning.
Morning, Steve.
First follow-up question to an earlier one. The question was around the order report today versus a year ago in the Q4 2011 press release, and you talked about moving from services to equipment. If you look at the total, I'm still just trying to understand it. The total, I guess, a year ago was $28.6 billion in the press release, and this year it's $28.5 billion, and you talked about just 2% increase. When you look at the overall level, how much is it? Or how should I understand that? What's the gap?
On the recast, the orders are basically flat. They're up $56 million ex wind and FX. They're up 5% ex wind and FX. The recast, we put a little bit more in corporate out of the energy infrastructure recast, but I think it's insignificant.
Okay. All right, fine. Secondly, on Avio, just so I understand this, they produce the gear system, obviously, for the GTF on the A320neo and the CSeries. I think they're pretty deeply involved in the development program, and you're also calling out $200 million of synergies. How do you handle that going forward?
Well, look, there are a ton of different developmental programs inside the industry that people work on together. We do engines for Sikorsky. We buy from Goodrich and Hamilton Sundstrand. There's always, I'd say, a certain amount of developmental work that goes on inside the industry. I think what was most appealing about Avio for us was really the amount of content they had of GE engines. I think getting more control over our own supply chain, building capability, more reliability, leveraging sourcing and manufacturing skills, things like that's really where we see Avio paying off for our investors.
Maybe just lastly, I guess aviation is now up to about half of the backlog. As Boeing and Airbus orders start to decelerate at this point, is the thought that that backlog, that oil and gas, do you see that backlog maintaining or now starting to come down as you start running it off a little bit and getting it into revenues?
Well, obviously, you're right. You're going to see, and we've talked about it the last six months, that with the aviation backlogs of three to four to five years of equipment, you're going to see lumpiness in those orders. We feel great about the position, and obviously, as the Airbus and Boeing airframers increase their production run rates, we're going to continue to see volume growth, as you see in 2011 to 2012, and 2012 to 2013, we expect more commercial volume growth. I'd expect the orders to be lumpy. The one offset to that is you're starting to see the LEAP MAX orders come in, that'll be an offset. As you know, there's been pretty good success in the marketplace from the 737 MAX.
Look, I think it's a great question. I don't think either Keith or I ever thought we'd have $210 billion of backlog in GE. I would say in the kind of volatile environment we live in today, having that kind of visibility is actually quite a strong aspect. Maybe aviation tails off a little bit, but in oil and gas, our orders in oil and gas are half a billion or a billion at a crack. It's easy to see how that order rate might continue at the rate it's on today and add to the backlog.
Okay. Jeff, you mentioned that you still expected $0.03 impact on when the Production Tax Credit extension obviously got moved into through 2013. That's not changing your thinking about the end of the year?
Really, not yet. It really opens up a two-year window. I think in aggregate over the next two years, it's going to increase the number of wind shipments we're going to have, exactly which quarters and stuff like that is hard to predict.
As you know, the PTC extension's a little different this time, Steve. The units will have to be in production by the end of the year, that's yet to be defined.
Yeah.
It's not the same as last year where they had to be actually operating. I think it's all good for 2013 and 2014.
Okay, great. Thanks.
Thanks, Steve.
The next question comes from the line of Shannon O'Callaghan, Nomura.
Good morning, guys.
Hey, Shannon, how are you?
Hey, Shannon.
Good. Just in terms of the Back to the orders, FX and ex wind being up seven, I mean, at the December meeting, I think you had said up a smidge, and this sounds better than a smidge. What finished stronger, I guess, in December than you thought at the meeting?
Shannon, look, I think there is a little bit of volatility going on out there, we always try to give you guys a range of outcomes. One of our biggest industrial businesses went from having orders down 24% in October to having orders up 27% in December, the total being up 7% for the quarter. That's a big swing. That's a big swing. I would say, Shannon, on balance, we closed the quarter very strong. I would say all the businesses had good order books as we closed the quarter, probably above even what our expectations were. I think that's good news. What that means, or is it lumpy or things like that, I think it's too soon to call victory. Clearly, the momentum built during the quarter.
Okay. Healthcare was probably the biggest swing.
Yeah.
Power and water margins, you're saying ex wind, they were up 300 basis points. I mean, the wind mix should be actually favorable from here. That seems like an awfully high year-over-year run rate. Are there things that prevent us from continuing to track at that kind of a rate?
Well, the services business had a great quarter. A lot of what we've talked about in terms of services, I'd say fourth quarter was fantastic and the mix for the business ought to be great for 2000 or better for 2013. We'll just see how the shipments work and all that stuff.
You look at 2012, I mean, wind revenue was up close to 50%, and the margins are down a couple points, and they're already below average for the company. This had a 20 basis point impact on the total year on the total company. I think as you go into 2013, you're going to have $2 billion less of wind revenue. We do expect that to be a positive. I don't know if we get the full 20 basis points, and we'll have to see how the PTC impacts that, but it will be a net positive versus what we certainly saw in 2012, Shannon.
Okay. Just your M&A plans have been fairly modest, but if you get NBCU proceeds sort of sooner than the base plan, are there enough things out there that you see opportunities to redeploy very quickly into industrial deals, or would you look for something else to do with the cash?
Shannon, I just don't even want to speculate on how that plays out. We've talked about balance and discipline, capital allocation. I think that's really the way I feel. We like having a good yield. We like the fact that we returned more than $12 billion of cash to shareholders last year. We like having kind of a focused approach to acquisitions. If our world changes, we'll come back and talk more about it, but for right now, you shouldn't assume any change.
Okay. All right. Thanks a lot.
Good. Yep.
Your next question comes from the line of Julian Mitchell, Credit Suisse.
Hi. Thanks a lot.
Hey, Julian.
Hey, Julian.
Hey. My first question is really just on the value gap. You mentioned it's not really lumpy, but if I look at your mid-December presentation, you had a double plus from value gap as a margin driver in 2013. Today, it's a single plus. I just wondered if that was because of something like healthcare pricing in the quarter being worse than you thought in orders, or what drove that?
No, there's really no change in how I feel about value gap for next year. It's good, solid 330 this year. It'll be better than that next year.
I think if you look at orders pricing overall, you look at our total orders price index for the company, it's been positive all year long. In 2012, in total, it was a positive half a point, 50 basis points in the fourth quarter, for the total year, it's positive 60 basis points. I think pricing has not been a change in our view.
Yeah.
We continue to see strong pricing.
Julian, we think it's going to be above 12.
Okay. Got it. Secondly, in mid-December, you talked about 5% services revenue growth in 2013. If I just look at the orders in services, they were down two year-on-year in Q2, down four year-on-year in Q3, flat in Q4. Are you still comfortable with that 5% services revenue growth for 2013, just given that the orders haven't been that strong for nine months or so?
Julian, these are lumpy. The orders here are probably lumpier than others, particularly with the CSAs. I would say we have a huge backlog.
Our estimate of 5% organic revenue growth in services really assumes that Aviation Spares has a better 2013. The combination of the fact that you've got $157 billion backlog, sometimes what goes into orders are 10 or 15 years of commitments, right? Those go based on shop visits and stuff like that we can model, that makes us feel good about it. Some pieces really, we're expecting Aviation Spares to bounce back, and those two things, I think, really lead you to the 5% service organic growth.
If you look, we had 4% revenue this year with Aviation flat.
Yeah
Jeff's point is really one of the key differences what we expect in 2013.
Yeah
In Aviation.
Got it. Thanks. Just lastly, on gas turbine shipments for 2013. I'm thinking they should be down maybe around 10% or so year-on-year. Does that sound about right?
Basically, right now, if you look, we had 108 orders for the year. We're forecasting somewhere around 100 gas turbines for 2013, and we'll see how the market plays out. They're going to be down versus 2012. I think the factors to think about, the thermal business itself on the equipment side is about 9% of the op profit for the energy business. Really, the dynamic for us is going to be, how do services perform? We got a big growth forecast in for services. How does distributed energy perform? We've got a nice orders performance in the quarter, and we've got a good outlook for 2013. How do they do on controlling their costs? Those are going to be really the dynamics that the energy team is going to be working their way through.
The megawatts will be bigger.
Megawatts are bigger.
The unit mix is higher on that.
Great. Thank you.
Thanks, Julian.
Yep.
Your next question comes from the line of Christopher Glynn, Oppenheimer.
Thanks. Good morning.
Hey, Christopher.
With backlog building nicely and orders better than expected as of December, I guess, sort of the lowering of the organic growth in December, and that played out as you predicted, it was maybe a bit of an abrupt deferral of backlog conversion. Can you characterize how you see that unfolding from here? Does that tend to favor the first half, and where does that focus your bias in the 2%-6% organic range?
Well, look, I don't want to change necessarily the 2%-6%, Chris. What I would say is that the way we finish the year, the building of the backlog, I'd say the strength of orders makes us feel good about next year and makes us feel good about the momentum we have going into next year. The only thing I'd add to that vis-à-vis organic growth and how it splits, again, we don't do.
single point estimates. It's just wind is lumpy, and wind is going to continue to be lumpy in the future. If you take that out, the rest of the company, I'd say you feel pretty good about where we're positioned going into next year, and that you had pretty good data. Really, you had five of six businesses with what I would call robust order growth in the quarter from an industrial standpoint.
Okay. Just one on GE Capital regarding the systemically important financial institution and the buffer needed for capital. Can you give any updates on the limitations on capital payout and with respect, if you're shrinking the balance sheet, is there any reason GE Capital would need to retain any earnings at some point in the future?
Well, that's a good question. I think for us, what we have to make sure is that we're meeting what we need to have to be, from a regulatory perspective and from a rating agency perspective and from a management perspective, safe and secure. We expect to be well-capitalized in any scenario under Basel I or Basel III. We're going to meet the liquidity requirements that regulators have. Our objective is to be able to release capital as we continue to shrink the book, as you say, and continue to generate profitability. For us, we think we're in pretty good shape on that. You saw our success in 2012. We've got, number one, strong earnings. Number two, we have strong liquidity with over $60 billion of cash. Less than $35 billion in long-term debt we're going to issue this year, and we already completed nine of that.
We have strong capital ratios. You saw we ended the year with a Tier 1 common of 10.2 on Basel I. We reduced our overall debt by over $45 billion last year. We've got strong portfolio quality. Delinquencies are down, non-earnings are down. We continue to make strategic progress on running off the red assets and reinvesting in the green assets. I think, when we look at what's going on from a regulatory perspective, we have not been designated as a systemically important institution yet. We are in discussions. The main issue that happens when you are designated is that you're going to be supervised by the Federal Reserve, and we're already supervised by the Federal Reserve.
We'll see how that plays out, but we believe that we have a pretty good framework against the regulatory guideposts, and we're continuing to operate in a way that runs the company from a safe and secure perspective, while also being able to be mindful of returning cash back to the parent and get that back to investors. I think we're doing a pretty good job of this. I think Mike Neal and his team had a great year against those objectives, and we'll have to see how that continues to play out.
Thanks, Keith.
Yep.
Next question comes from the line of John Inch Deutsche Bank.
Thank you. Good morning, everyone.
Hey, John. Good morning, John.
Morning, guys. Lots of moving parts between the segments and the results versus the outlook in orders and pricing. Is there any way to do a little bit of a quick recap in terms of pricing, particularly in thermal, but maybe you could parse that between gas turbine or just some of the other segments, Keith or Jeff, that are noteworthy. Just what's different about fourth quarter pricing in backlog, specifically on orders versus what you saw last quarter?
Well, if you look in third quarter, power and water pricing in total was down 1.9%.
Yep.
In the fourth quarter, it's down 0.2%. I said thermal, including services, went from a negative 2.7% in third quarter to a positive 1% in fourth quarter.
Yep.
Wind was down 3.6% in the third quarter. It's up 0.4% in the fourth quarter on fewer orders, obviously. Those are some of the bigger pieces. Oil and Gas, third quarter, 1.6% positive pricing. Fourth quarter, 1.3% on high orders. Aviation continued positive pricing, 2.3% positive in both third and fourth quarter. Healthcare continues to have the negative pricing, 1.7% in third, 1.8% in the fourth quarter. Overall, we went from a tenth of a point positive price in the third quarter to half a percent, 0.5%, 50 basis points positive in the fourth quarter. It's a big area, focus area, obviously, as the whole team is working on improving margins. I think they've got some pretty good traction here.
I think the supply-demand characteristics are what they are by business, overall, for the portfolio to have a half a point of positive price is a good place for us to be as we leave fourth quarter.
Yeah, no, Keith, I agree. Is the thermal price that you're getting, is that mix, or are you actively trying to raise pricing? What's going on there?
I think thermal pricing is lumpy. I would take it for the whole year. A half a percent up with equipment and services. That's kind of the way we look. We were expecting it to be flat to slightly positive for the year. Steve Bolze said it was going to be a little lumpy.
Yeah
I think that's about where we are. Obviously, with the market where it is, the supply-demand characteristics are tougher in thermal. On the other hand, you look at oil and gas and the supply chain tightening where they're better in there, and they're better in aviation. I think it varies by business, but overall, we hit what Steve said, a little better for the total year on thermal and a half a point up.
Hey, Jeff. With the eventual monetization of NBC and Capital's equity investments and redline assets that are going to come off, your company, between that and operating cash, is going to throw off an awful lot of cash flow over the coming years. Would you be able to reaffirm your commitment, sort of not to be doing big deals or anything beyond one to three? Avio is a little bit bigger, but it's still in the zone. Are you thinking about perhaps in a year or so, perhaps stepping that up? How should we think about that at this juncture?
Steve, again.
John. It's John.
John, I'm sorry. John, I would make two comments. I just think I don't really want to make any other pronouncements other than kind of disciplined and balanced capital allocation. We'll go over the other bridges as we get there, but let's start with that. The second thing I'd reaffirm, your first point, I think, is one that's good for all investors to remember is, this company is going to have a ton of cash over the next three years. Between whatever happens with NBCUniversal, between kind of as we look at where we think GE Capital is versus the guideposts Keith talked about, there is going to be a lot of cash. Let's leave it at that. Let's leave it with those two comments for right now, John.
That's okay. I'm often confused with Steve, no worries. Thank you.
Okay.
The next question comes from the line of Nigel Coe, Morgan Stanley.
Thanks. Good morning.
Hey, Nigel.
Speaking of the ton of cash you just mentioned, Jeff, when do you expect to have sign-off for the capital allocation plan for GE Capital? Are you on the same schedule as the banks? Which I think they stress test results are out in March.
Nigel, we're not one of the major banks that goes through that systemic process every year. We do go through our own process. I would say the best outlook would be to think of it as a mirror of 2012. We will go through a lot of the exact same steps, with forecasts and stress tests and capital plans and all that. Last year, we had final decisions on that in the second quarter, and I would anticipate it'd be the same in 2013 right now.
That's helpful. Switching back to December, it seems that December came in stronger than maybe your initial thoughts back in the annual meeting. Anything stand out in terms of regions, U.S. versus growth markets versus Europe? Any one region stand out in terms of that ramp-up in December?
We saw a little bit of strength in the U.S., I'd say in healthcare and appliances. We saw a ton of strength elsewhere, I'd say, Nigel, and we saw that in oil and gas and aviation.
Aviation
energy-
Yep
Really across the board. Again, I think it fits the broader, I'd say, dialogue and that we kind of think the growth markets will continue to grow in 2013. When I think about the U.S., you've got a slow and steady housing recovery that I think is very positive. There's still a lot of fiscal uncertainty and how those blend through into a U.S. GDP in 2013, we'll see.
Okay. Just finally on getting the MetLife deal done. How did that deposit base impact your flexibility and optionality with regard to PLCC?
Well, we'll see. I think a diversified funding base is good in that regard. Right now, in that business, as you know, a lot of it is already financed by deposits, alternative funding, and securitization. Now we've got a different kind of deposits, more internet bank deposits. At the end of the day, having more diversified funding, I think, does give more flexibility for future activity. We don't have any of that going on right now, but I think, just from having a more diversified funding base, you would have more optionality.
Okay. Very helpful. Thanks, Jeff.
Thanks.
Your next question comes from the line of Brian Langenberg, Langenberg & Company
Good morning.
Hey, guys. Good morning.
Morning, Jeff. Just a couple of things. I'll do a bunch of follow-ups later. Just review for us briefly your total exposure to 787. Obviously, this is transitional or transitory. Secondly, in terms of the power cycle, I think we're pretty much looking for a 2014 overall upturn, but how are you thinking about potentially what the impact is on that cycle from what I would call demand management, either companies making their buildings 20% more efficient or using your grid to make your existing generation capacity, let's call it an ops management for utilities, if you will. Just if you could address those two things.
I'll take a shot at the aviation first. You can talk about energy, maybe. If you think about 787 exposure, we obviously have inventory. Our plan for 2013, we shipped 113 GEnx engines in 2012. Our plan would be to ship 200 engines. We'll see where Boeing goes with that. As I said, we haven't had any changes to the demand production schedule from Boeing on that yet. A bunch of those engines are on the 747 as well. For us, I think, if there's a push out of some engines in the first quarter, we may have a little more inventory, and having less engines in rev rec may be a slight positive for margins.
I don't really know the difference between what we're going to do this year versus what we did in the first quarter last year until we get finalized with Boeing. I don't see a material impact on this on us at all. As I said, the engines are performing extremely well. We feel good. The customers love this plane. They've had a ton of positive feedback, Boeing has to work through this issue. They will work through it, we're confident of that.
I would echo what Keith said. I think this is an immensely
Popular airplane, fuel efficient, passengers like it, airlines like it. We're here to support Boeing wherever it goes on the Dreamliner. On energy, I think, Brian, we already factor in the fact that there's going to be an impact on demand side management, on demand for electricity, and you factor that into, I think, an overall health of the gas portfolio vis-a-vis what happens with nuclear, what happens with the EPA, and then demand growth in places like Saudi Arabia, Algeria, places like that. That still remains, I think, intact. We try to factor that all in, but we also do factor in energy management. We also benefit from that in our energy management business.
Fair. Okay. Thank you.
Great.
It looks like your final question will come from the line of Daniel Holland, Morningstar.
Hi there. Good morning.
Hey there.
Hey, Dan.
Just curious, what was pushing the industrial CFOA number down, I guess about 2% year-over-year, just considering the profit growth and the overall business this year?
Yeah. Really the biggest dynamic for us, Daniel, was in the wind business. The wind business had significant progress collections in prior periods, and in total, the wind business was a drag on working capital in 2012 of about a billion and a half dollars. The rest of the businesses with their earnings growth and the management of working capital were able to overcome that. As you know, we had about $400 million of pension funding that we did that we didn't have any in 2011. That $400 million was also part of the V. The biggest driver for us on working capital as a drag in the year was wind, and the businesses overcame that.
Yeah. One last one. Just thinking about margins for next year and kind of simplification strategies you guys have identified. If you think about on a segment-by-segment basis, where are the biggest opportunities that you guys see, and kind of which ones might have already had the biggest benefit from simplification so far?
It's pretty broadly across the company, Daniel. We have every one of our teams working on lowering their structure. Having more consolidated higher-level P&Ls. We have everybody participating and putting their back offices into centers of excellence and more shared services across the company. We have a common IT initiative across the company to reduce our general ledger and enterprise resource planning systems that is pretty much across the portfolio. Everybody's participating. Everybody has cost targets, and it's pretty broadly based.
We've got a lot of good restructuring projects that are a year, or a year and a half, or two-year paybacks.
Yep
We're lined up, and we think we can keep the structural costs going down as a percentage of revenue. Our target is to really accelerate that.
Great. Thanks.
All right.
Trevor, thanks to everybody. I think the team feels really good about how we did on delivering our commitments in 2012. We've identified very clearly our 2013 commitments, which we believe are very competitive against our peers, we're going to be off executing against that going forward.
Great. Thanks, Jeff. Just to wrap up for everyone, the replay of today's webcast will be available this afternoon on our website. We'll be distributing our quarterly supplemental data schedule for GE Capital shortly after this call. Just the one announcement, our first quarter 2013 earnings webcast will be on Friday, April 19th for your calendars. As always, we'll be available today for questions. Thank you, everyone.
This concludes your conference call. Thank you for your participation today. You may now disconnect.