Good day, ladies and gentlemen, and welcome to the General Electric 4th Quarter 2010 Earnings Conference Call. At this time, all participants are in a listen only mode. My name is Michael, and I will be your conference coordinator today. If at any time during the call, you require assistance, please press star followed by 0 and a conference coordinator will be happy to assist you. If you experience issues with the slides refreshing 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 Schonberg, Vice President of Investor Communications. Please proceed.
Thank you, Michael. Good morning, and welcome, everyone. We are pleased to host today's Q4 and total year 20 10 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. Slides are available for download and printing on our website at www.g.com/investor.
As always, we'll have time for Q and A at the end. 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, so 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 Scharen. Now I'd like to turn it over to our Chairman and CEO, Jeff Immelt.
Great, Trevor. Thanks. Good morning, everyone. I want to give you on the first page an overview of a really good quarter for the company and confirm a strong outlook as we think about 2011. The environment continues to improve really it's broader and deeper as we look across the portfolio.
Good strength in orders, losses are down, credit demand is up, across the rail and aircraft market very strong. So as I've said in the past, we just think the economy can get a little bit stronger every day. We had good top line performance, the best in a while, 6% industrial organic growth and then infrastructure orders up 12%, equipment up 20%, services up 5%. We end the year with a very strong backlog. Earnings growth continues to improve, continuing EPS up 33%.
Capital had another very strong quarter. And total Industrial segment profit, including NBC, was up 8%. We did do a lot of restructuring in the quarter. We had $0.10 industrial tax benefits offset by $0.10 restructuring and other charges, including the Hudson remediation. And so I think what we've been able to do is significantly risk reduced 2011.
Our execution was strong CFOA on the high end. We end with a lot of cash on the balance sheet. Operating profit rates at 17.5%. The capital portfolio transformation is advancing. We had a very good value gap in 20 10.
We built our operating plans in 2011 expecting a lower value gap. And we're executing, I think, a balanced and disciplined capital allocation plan. We've bought back $1,800,000,000 of stock. We've had 2 dividend increases. The Q1 'eleven dividend will be 40% higher than the Q1 of 'ten.
And we're executing on valuable infrastructure acquisitions. So again, I think a good overview for the company. On the next page, orders grew at 12%. This is the highest order intake since 2007. We end 2010 with a record backlog and it's very broad based.
I think if you look across the energy segments, oil and gas was very strong, service is growing. We still expect energy equipment to turn positive in 2011, but a lot of good signs. Aviation, again, very strong. Healthcare growth continues. And transportation recovery, there's fewer locomotives parked.
We had 240 North American Locos. So again, we feel very good about the backlog and how we're positioned going forward just given the overall strength of our order base. On the next page on execution, our segment operating profit rate was up 10 basis points. Again, as I said, a positive value gap, Healthcare volume leverage. Aviation was impacted by some one time costs in the Q4 and we think that improves going into 2011.
And then R and D was a full point of impact and we grew our operating profit rate despite the fact we've increased R and D investment by 21%. And so we entered 2011 with a full backlog of products. Really, the R and D spend is in our run rate. And we just see 50 new NPIs in healthcare, significant global investment in country for country. So we really have a great foundation for organic growth and we were able to deliver on operations while investing for future growth.
On the next page on cash, our cash flow ended up at the high end of our range at 14,700,000,000 dollars We improved our working capital turns by one full turn. And if you look at the right hand side of the page, our consolidated cash is $79,000,000 Cash at the parent is a record in my history at $19,000,000,000 And you can just see the way we executed this year on CFOA dispositions. And so we really entered 2011 with a lot of financial flexibility and just a lot of cash available cash at the parent. So we feel good about that. Lastly, before I turn it over to Keith, really a lot's happened visavis NBCU since the December meeting.
I think when we were together in December, we thought we would close the NBCU transaction. That slipped into January. We should close the transaction next Friday. As we said, this is a high pretax gain, a small after tax gain. We'll have about $3,000,000,000 tax charge that will impact the GE tax rate in 2011.
So we were booking at that higher rate through the Q3. Keith will go through this in a little bit more detail. We reversed that in the Q4. We'll have a higher tax rate in the Q1 of 'eleven and for the total year. We still expect about a nickel EPS impact from the NBCU going from 80% to 49% in 2011.
And we'll use the gain to fund additional restructuring in 2011. There's no change to the overall outlook of how we think about 2011 or 2010 from this because any gain will be used against restructuring, but it does change the tax rate.
Tax rate, as you said, we're going to have a pretax gain plus high tax charge. It doesn't change the EPS.
Exactly. Yes, not at all. And then on from a parent cash standpoint, we ended the year at $19,000,000,000 Once we close next Friday, we'll have about $22,000,000,000 of cash. And we plan to continue to execute a balanced and disciplined capital allocation program. You've seen what we've done with the dividends.
We've relaunched the buyback and then we've announced 4 transactions that are really right over the plate for us in our sweet spot in energy and healthcare, really the right size deals are going to help us grow. So this is really, I think, a good news page for investors. So with that, let me turn it over to Keith to go through the Q4 financials.
Okay, Jeff. Thanks a lot. I'm going to start with the Q4 summary. We had continuing operations revenues of $41,400,000,000 which were up 1%. Industrial sales at $28,700,000,000 grew 1% and financial services revenue of $12,800,000,000 was down 2%.
We earned $3,900,000,000 in net income, that's up 31 percent. And for earnings per share, we earned $0.36 including the cost of the preferred dividend. So earnings per share were up 33%. As Jeff covered, the total cash flow from operating activities was $14,700,000,000 for the year at the high end of our original range. And let me spend a minute on taxes.
I think it was one of the more complicated quarters for taxes. We had several large moving parts affecting the Q4. The largest was whether NBC would close. Obviously, that didn't and that had an impact. We also had a potential IRS settlement as they were completing the audit of the 2,003 to 2,005 tax year and we didn't know exactly what the amount of the settlement would be and whether it would have been completed entirely in the 4th quarter.
And then finally, we had to estimate how much restructuring we were going to have in the 4th quarter, while we were in open negotiations with the EPA over the Hudson. So, here are the details of how those items came out. As we said in the 3rd quarter call on earnings, we expected a lower than usual tax rate for the Q4 due to potential favorable tax settlements with the IRS. Those settlements were finalized in the quarter and which basically with the tax settlements that led to a very low consolidated rate with the other items of negative 17% in the quarter. Absent NBC closing, we expected a GE rate below our Q3 year to date rate of 26% mostly from those settlements and we ended with a total year rate of 17%.
So I tried to do a little walk on the box here just to take you from the 26% Q3 year to date rate down to what we actually realized. About 4 points of the decrease is due to the favorable audit resolutions. We also had anticipated NBC closing and since it didn't close, we had a lower rate in the Q4 by about 3 points. And finally, the rate is about 2 points lower because of the charges including the Hudson that we took in the 4th quarter, which are at very high tax rates and other 4th quarter charges. So I'm going to cover more on taxes on the next page, but that's the breakout of how we got from a 26% Q3 year to date rate down to 17%.
For GE Capital, the JECS rate for the Q4 goes from a large positive in 2,009 to a negative in 2010. That's actually good news. We had $1,800,000,000 in higher pretax income at GE Capital year over year. Obviously, that resulted in a lower tax benefit. And for the year, the JECS tax benefits compared to a normal 35% rate came in at about $1,700,000,000 line with the tax benefits we outlined that we expected for the year.
For 2011, for GE, we expect a rate somewhere in the mid-20s, again excluding the NBCU gain and the tax on that gain, I'll cover that. For GE Capital, we expect tax benefits similar to 2010. The total year credit was somewhere around $1,700,000,000 and that would be adjusted for whatever the impact of higher pretax income is at a 35% rate. So a pretty similar profile in GE Capital in terms of benefits globally in 2011 versus 2010. And on the right side, you can see the segment results.
Industrial Businesses, ex media had $4,200,000,000 of segment profit, up 4%. That was led by Tech Infra and HMBS. NBCUniversal had a very strong quarter. And GE Capital continues to rebound. Net income of $1,056,000,000 it's up over 10 times from the Q4 last year, strong performance.
Overall segment profit up 28% and with corporate and taxes about flat year over year, the total earnings were up 31%. So it's great to have the top line growth resume. It's great to have the operating segment profit improving and the tax benefits that we realized in the 4th quarter funded restructuring and other charges. And the next page takes you through that in more detail. Basically, we had taxes and restructuring and other charges in the quarter.
And to look at it during our Q3 earnings webcast and at the December meeting, we tried to outline this. We said that we expected with all the open items we had that overall any charges in the Q4 would exceed any positive items. But the biggest change we had in the Q4 was that NBC deal didn't close. And that resulted in higher tax benefits than we were planning on. And so the charges in the Q4 ended up equaling the gains.
And let me go through the details. First is taxes. Overall, we had $0.10 of after tax favorability from the tax settlements and the NBCU deal delay. We settled 2,003 to 2,005 year with the IRS, resulting in about $0.05 of benefits at corporate. And the second item for NBC, as you know, under the accounting for taxes, APB 28, we have to book our tax rate all year to a full year expectation.
And we expected NBCU to close at a high tax rate in December. When NBC didn't close, we had to reverse the adjustments for the 1st three quarters. In total, that was also about $0.05 of tax benefits in the 4th quarter. The offset to the tax benefits was mostly in corporate. We had $0.06 of after tax environmental reserves.
We added to our existing reserves for the Phase 2 on Hudson Dredging. That was an incremental $0.05 and we had a $0.01 increase for other brownfield site remediations across the company. We also booked $0.03 in corporate for industrial cost and footprint reductions. We had about $0.01 in appliance and lighting for ongoing manufacturing rationalization. We continue to see the benefits of the cost out in those businesses.
We also had about a penny each in Healthcare and Energy for other cost reductions. And we had $0.01 in Capital Corporate, mostly for equipment services downsizing. So the tax benefits in the 4th quarter, dollars 0.10 were offset by additional restructuring and other charges and the majority of that was also in corporate
with $0.01 over in capital corporate.
Now down the bottom, we also had 3 items going to discontinued operations in the Q4. We sold our Central American Bank to Grupo Evol from Colombia resulting in an $0.08 after tax gain in disc ops And we announced the sale of RV Marine and our Mexican mortgage business to Santander in the 4th quarter. That resulted in a $0.02 loss in disc ops and those transactions also result in $13,000,000,000 of ending net investment reduction. So a nice exit for GE Capital team, some non strategic parts of the portfolio. Overall, a good quarter when you look at the continued restructuring and the long tail risk reduction.
So let me shift now and I'll start with the businesses. I'm going to start with GE Capital. Mike, Neil and the team continue to demonstrate that capital is getting stronger and stronger. Revenue of $11,900,000,000 was down 4%, that's driven by lower assets and dispositions year over year. Pretax earnings of $959,000,000 that was up $1,800,000,000 over last year's 4th quarter and the net income of over $1,000,000,000 was up over $950,000,000 versus last year.
That's driven by lower credit costs. We see that across the portfolio, higher margins and that's partially offset by lower assets and higher impairments that we had in the quarter. We ended the year with $477,000,000,000 of ending net investment. That's down 9% from January 1. If you remember, we added a bunch of assets as part of the consolidation from FAS 167 and the details of that are in the supplemental schedules that we published this morning.
We're ahead of our ending plan to get to $440,000,000,000 by 2012. The team has done a great job executing that. And another highlight would be new volume in the quarter. Commercial volume was up over 50% over last year to $17,000,000,000 mostly driven by our CLL business at good strong margins. You can see the details here.
And overall, we did $49,000,000,000 of volume with Consumer up 3%. I'm going to cover the asset quality metrics in a few pages, so here are some of the comments by business. First is Consumer. Consumer business finished the year with continued strong performance. They delivered $574,000,000 in net.
It's up $350,000,000 over last year's Q4, 156 percent up. And the earnings growth came from lower credit losses and higher margins, partially offset by lower tax benefits. If you look at the main driver was the U. S. Retail business, we earned $362,000,000 It's up over 700% from last year, driven by the portfolio quality improvements, which led to both lower credit costs and better margins.
Our Global Banking business had a good quarter. They earned $283,000,000 That's up 85%, driven by lower credit costs again. And even in U. K, the U. K.
Home lending business continued to be positive. It earned $62,000,000 in the quarter. And our owned real estate portfolio was the lowest since the Q1 of 'eight. We're down to 733 properties and we continue to do better than our marks on properties when we sell them. Our realization was 115% in the Q4.
Commercial Real Estate, the next business continues to be challenging. As we expected, the business lost $409,000,000 of net income. That's $183,000,000 better though than last year and the income improvement was driven by lower credit losses on our debt book. That includes $99,000,000 of recoveries we had on previously reserved accounts. Excluding those recoveries during the Q4, we had about $60,000,000 of after tax credit losses.
That's down $119,000,000 from the 3rd quarter. So we saw improvement in the debt book. While the credit costs on our debt book were better, the margin impairments on our equity book were $473,000,000 after tax in the quarter and that was up about 158,000,000 dollars from Q3, principally driven by some lower valuations we saw in Japan on some owned properties. While the total losses in the business are still too high, we have seen some improvements here. Delinquencies and non earnings and credit losses were down from Q3.
We reduced our assets by $13,600,000,000 or 16 percent since January 1, and the unrealized loss on our equity book flowing from about $7,000,000,000 a year ago to about $5,000,000,000 in the 4th quarter. Next is commercial lending and leasing. The team also had a strong quarter with earnings of $567,000,000 They're up $216,000,000 or 60 percent versus last year. The results were driven by lower losses. Earnings growth was very broad based.
The Americas were up 39%, Europe and the Middle East and Africa was up 60% and Asia was up 22%. GECAS had a good quarter, earnings of $432,000,000 They were up 50% over last year, driven principally by lower taxes. That was partially offset by about $20,000,000 of higher impairments for some 7 37 and A318 Classics. The portfolio remains in great shape. We ended the quarter ended the year with 1 aircraft on the ground and that's in the process of being re leased.
And finally, Energy Financial Services also had a positive quarter with earnings of $33,000,000 up 8%. So overall, a lot of strong execution by business and now I'm going to cover asset quality. On portfolio quality, as you can see in these charts, the measurements continue to improve and in the interest of time, I'm just going to summarize a couple of points. For both CLL and consumer, our delinquencies and our non earning balances continue to get better. And the one thing I want to point out on the page on the left side, we've expanded our commercial delinquency reporting.
We used to report delinquency for a subset of CLL. We called it equipment. And now for simplicity and clarity, we're now reporting delinquency for all of CLL and the trends are the same on the old basis or this for all of CLL and the trends are the same on the old basis or this basis. So there's no difference in the lines really and where we're going, but it's a more complete reporting. So on the left side, our commercial delinquencies, you can see the percents of delinquency are down.
The actual dollars were down over $400,000,000 from Q3 and our non earning dollars were down $100,000,000 from Q3. The one piece of news here on the left is on the bottom left, our real estate delinquencies declined by 133 basis points in the quarter. That's the first decline in real estate delinquencies in 9 quarters. On the right side, you can see the improvements in our consumer metrics. Consumer delinquencies were down $385,000,000 from the 3rd quarter and non earnings were down $185,000,000 from the 3rd quarter.
So overall, strong improvements in the asset quality continue. Next is a little bit on the reserves. That asset quality improvement that we're seeing is impacting our reserve balance. The reserve balance declined by $800,000,000 You can see from Q3 to Q4. We put the reasons for the decline in the box at the top center of this page.
The majority of the decline comes from write offs exceeding our new loss provision. So we wrote off $2,200,000,000 of receivables and we added $1,600,000,000 of new provisions for losses for a net reduction of $600,000,000 We also had $200,000,000 of transaction recoveries against previously reserved accounts and reserve releases. You can see that split between consumer and commercial real estate. So in answer to the question how much of GE Capital income comes from reserve releases, it's about $200,000,000 pretax in the 4th quarter. As you can see in the chart, we had about $500,000,000 of the reserve reductions were in commercial and about $300,000,000 in consumer.
And overall coverage was down slightly driven by the improvements we have in delinquencies and non earnings. So next I'll shift to the industrial businesses. I'll start with NBCUniversal. Jeff Zucker and the team had a great 4th quarter. Revenues of $4,800,000,000 were up 12%.
Segment profit, dollars 830,000,000 is up 38%. Even if you adjust for the impact of the increased GE ownership in our agreement with Vivendi, we purchased an additional 8% at the end of September. Excluding that impact, profit was still up 30%. And the results were broad based. Cable continues to deliver terrific performance.
The revenues of $1,500,000,000 were up 15% and segment profit of $740,000,000 was up 16%, driven by great strength in the entertainment properties. Broadcast revenue of $1,800,000,000 that was up 11% and the segment profit was also positive driven by a strong performance in local media, great performance in the NFL and news, partially offset by continued investments that the team is making in prime time programming. And film and parks had another strong quarter with revenues up 9%, our profit up over 80%. The DVD units were up 15% driven by the success of Despicable Me and the parks continued their strong performance driven by both Potter and King Kong. As you know, we received regulatory approval this week and the deal is scheduled to close next Friday.
And as we go forward, when we start in the Q1, we're going to begin reporting our 49% stake in the new company on a one line equity contribution basis. So next is Energy Infrastructure. John Krennicki and the Energy team delivered revenues of $10,900,000,000 They were down 3 percent. Segment profit of $2,200,000,000 down 2% in line with our expectations. You can see the business results on the bottom left and I'll start with more details on Energy.
Energy had orders of $9,800,000,000 They were up 1%. Equipment orders of $4,700,000,000 were down 8%. If you go to the big pieces, thermal orders of $1,000,000,000 were down about 41% driven by some tough comparisons. We had orders for 29 gas turbines in the Q4 of 20 10 versus 40 in the Q4 of 20 9. On the wind side, we had orders of $1,300,000,000 They were down 17%.
We had orders for 4 77 units versus 7 29 units last year in the Q4. On the positive side, orders for digital energy and industrial controls at $1,000,000,000 They were up 10% and aero orders at $900,000,000 were more than double last year. Service orders of $5,100,000,000 were up 10% driven by the strong growth in power gen services up 17%. Our overall equipment backlog at $11,600,000,000 is up 6% versus the 3rd quarter and the services backlog of $7,400,000,000 was up 3% versus the 3rd quarter. So a pretty good orders quarter.
We're seeing a change in the pace of decline and that's positive and you can see that on a rolling orders basis. If you look at orders price for the quarter, it's down 3% across energy driven by power and water, which was down about 6% and services was flat. In the quarter, revenues at $8,800,000,000 down 5% driven by the lower volume. We shipped 18 gas turbines versus 34 last year in Q4 and we also had fewer steam turbines and generators. We also had $400,000,000 lower balance of plant revenue, which as you know doesn't come with a lot of margin.
It's mostly a pass through, so that was down. And service revenues of $4,200,000,000 were up 4% driven by the outage and upgrade activity that we saw in the quarter. Segment profit of $1,800,000,000 down 3% as the positive pricing and deflation was more than offset by the lower volume and higher investments in new products. For oil and gas, Claudia Santiago and the team ended the year with strong orders. Orders of $2,900,000,000 were up 15%, a quarterly record for the business.
Equipment orders of $1,700,000,000 were up 23%. That was driven by strong natural gas production orders in Saudi Arabia and Qatar. Service orders of $1,200,000,000 were up 4%, driven by spares growth and the orders price index was down 1% in the quarter. Revenues of $2,400,000,000 were up 5%. Equipment revenues of $1,400,000,000 were strong.
They were up 10% driven by growth in natural gas, LNG and drilling and production, pretty broad based. And service revenues of $1,000,000,000 were down 2%, up 5% ex FX, so a little impact to the stronger dollar. Segment profit of $435,000,000 was up 3%. That's driven by the higher volumes, which was partially offset by the stronger dollar and some investments in new products and service support as we opened 2 new service centers in Algeria and Qatar. So for the year, the team delivered $7,300,000,000 of segment profit, up 2% with segment margins 19.4%, up 1.9 points.
Next is Tech Infrastructure. John Rice and his team delivered strong results in the Q4 and we entered 2011 with some pretty good momentum. Revenues of $10,900,000,000 were up 9% and segment profit of $1,900,000,000 was up 11%. If you start with aviation, the aviation marketplace continues to improve. In 2010, revenue passenger miles were up 9%, freight was up 22%, parked aircraft declined by 5% to about 2,300 units at the end of the year and the team had very good orders.
Orders of $5,800,000,000 were up 32%. The growth was pretty broad based. Commercial engine orders of $2,000,000,000 were up 117% driven by CFM and small commercial and military orders of $300,000,000 were up 2 times over last year's Q4. The equipment orders price index was up 6.5%. We ended the quarter with our major equipment backlog at $20,000,000,000 up 1% versus Q4 'nine.
Service orders were down 4%. Commercial spare parts orders were $25,000,000 per day, which was reported up 2%. But again, if you adjust for the 2,009 ABL order, it would have been up about 28% similar to the Q3 growth. Revenues of $4,800,000,000 in the quarter were up 1% driven by the higher commercial engine revenues up 8%, partially offset by lower service revenues down 4%. And segment profit in the quarter $821,000,000 was down 14%.
It's slightly better than the Q3 year to date run rate and results in the quarter were driven by the pressure from Gen X units. We shipped about 26 Gen X units in the quarter and accruals for cost overruns from some customer driven engineering changes on a few systems contracts for the new products we're introducing. Those costs were partially offset by positive value gap with positive pricing and deflation. And if you excluded the cost overruns, the results would have been approximately flat for Aviation. Healthcare had another great quarter.
Orders of $5,200,000,000 were up 2%, equipment orders were up 1%, up 3% ex the impact of FX. If you go by region, the Americas were up 3 EMEA, Europe, Middle East, Africa was down 5%, up 1% if you adjust for FX. Asia Pacific was up 3%, China was up 18%, India was up 14%. Service orders were up 2%. And overall orders faced basically tougher comparison.
So the Q4 'nine orders were up 11%. We ended the year equipment backlog of $3,900,000,000 up 6% versus the Q4 'nine, so it come into the year with a strong backlog. The team really converted well. The revenue of $5,100,000,000 was up 8%. We saw very broad based growth.
MR was up 25%, ultrasound was up 17%, CT was up 5%, life sciences was up 2%, MDX was down 4%. And it's also nice to see growth in the HCS business in the U. S, which was up 18%. Segment profit of $1,000,000,000 was up 10% and that was driven by the strong equipment volume growth. Transportation continues to see improvements in the market.
As Jeff said, they've got a very good outlook. The rail volume in the quarter for the industry was up 11%. Park locomotives continued to decline. We had $1,400,000,000 of orders, up 55%. Equipment orders were up 65% and service orders were up 41%, driven by both North American locomotives and mining equipment.
We ended the
year with backlog of $3,700,000,000 up 50 percent over last year, so a strong year in orders. Revenues of $1,000,000,000 were up 66 percent driven by the equipment. We shipped to 116 locomotives in the quarter versus 92 last year. We also shipped 186 locomotive kits internationally versus 78 last year. And service revenues of $515,000,000 were up 106%.
Segment profit of $73,000,000 was a positive versus a loss in the Q4 of 'nine driven by the higher volumes and also easier comparisons in the service operations. So as we enter 2011, we continue to see strength in healthcare. The transportation environment was tough in 'ten, but it's clearly improving. And aviation is in line with expectations and we have expectations for about flat performance and profit for 2011. So the other thing in 2011 with we'll be reporting these 3 businesses separately now with the direct connected Jeff.
There's no recast involved. It'd just be completely reported separately as they exist today. So there's no recast. As John Rice is now leading our global growth and operations team in Hong Kong. So we're excited to see John in that new role and we'll just keep this reporting directly connected and simple as we have been.
Finally, from a business perspective, Charlene, Begley and the Home and Business Solutions team had a good quarter in the 4th quarter. Revenues of $2,300,000,000 were up 5% and segment profit of $139,000,000 was up 6%. Appliance market in the quarter was up 6%. Retail was up 9% and contract channel continues to be tough down 12%. We saw strong retail volume driven by Black Friday promotions.
Lighting continues to realize savings from the restructuring and rationalization. Intelligent platforms had a good quarter and the profit was up driven by the volume and productivity, partially offset by lower pricing in appliances. With housing where it is, the market remains challenging outside of big sales events. We continue to see the shift in the business to more energy efficient products and we're spending a lot more on new products. We're investing across the entire product line.
And for the year, we received over $200,000,000 of Energy Star tax credits, which more than offset the higher product costs that reduced the segment profit to make the appliances qualify for Energy Star and those credits will continue in 2011. So for the year Home and Business Solutions segment profit was up about 24%. And finally, before I turn it back to Jeff, I just want to update one page from the December Analyst Meeting on pension and operating earnings. On the left side, we just updated this for our 20 10 results. The pension team delivered 13.5%, which is good earnings performance in the pension fund.
As we said in December, we lowered our long term pension return from 8.5% down to 8. The discount rate ended 2010 at 5.28 percent, a 50 basis point reduction and new salaried employees are going to join a new defined contribution plan. We've closed the pension plan for salaried employees going forward. And going forward for GE Financial Reporting, we're going to report operating EPS, which means that we're going to include the service cost for our pension and operating results and it excludes the non operating retirement related costs like the amortization of prior gains and losses. We'll not make a pension cash contribution in 2011.
And on the right side is the financial impact. The blue bars are the total pension expense and the green bars are the operating costs for pension, the annual service costs for employees that will be in operating results. So for 2011 on an operating basis, the pension expense will be about flat at 1,400,000,000 dollars And versus our original plan, that would be a $0.06 improvement to the 2011 outlook. So as you update your models, Joanna and Trevor will work with you to answer or clarify any questions on this. We think this change provides better clarity to operating results and our measurement framework will be on the operating basis going forward.
So with that, let me turn
it back to Jeff. Thanks, Keith. I just want to close with a couple of charts I went through at the December meeting. First on the operating framework, I think 2011 will look a lot like the 4th quarter, positive growth in industrial, GE Capital earnings snapback. We'll have the NBCU dilution, less restructuring and pension, as Keith said, will be flat.
So we have a good outlook for 2011. Total operating earnings should be up nicely in 2011 as we look forward. So I think what you saw in the Q4 is a pretty good precursor to what you're going to see in 2011. CFOA, we talked about between $12,000,000,000 $13,000,000,000 We'll continue to work on working capital improvements. And then from a revenue standpoint, industrial about 5% organic, acquisitions will be on top of that, GE Capital will be down about 5% with continued management of any net investment and NBCU will be accounted for as an equity investment corporate.
So again, this outlook, I think, just was fortified as we closed Q4, but no real change versus where we were in December. Kind of the way we think about operating EPS going forward in 2011 and 2012, we've got a set of headwinds in 2011 as we ship fewer energy equipment units, the NBCU dilution and the higher R and D spending, but a lot more tailwinds as we go into 2011, transportation, healthcare, strong GE Capital M and A, and those will be the drivers to strong earnings improvement in 2011. And then as we shift gears and look forward in 2012, we'll have, I think, fewer headwinds. We see the backlog for heavy duty gas turbines and wind continuing to improve, but that will play out over time. We'll be spending at the higher run rate in R and D, but we should have earnings growth in both Aviation and Energy Infrastructure in 2012, GE Capital continuing to move forward, Aviation and Transportation, retire the preferred stock.
So we'll have more tailwinds as you look at 2012 versus 2011. And again, this just confirms what we talked about in the December meeting. And the last page, just a point of view on kind of how we think about ourselves from an operating goal standpoint. We want to continue to grow operating earnings in excess of the S and P 500, have organic growth in services and in growth markets between 5% 10%, keep GE Capital between 30% 40% of total operating earnings, grow cash more than net income and as we restore the GE Capital dividend, that's still something that we're focused on to be prepared for in 2012. Continue to increase our RoTC and maintain an industrial RoTC greater than 15% and just continue to drive an attractive dividend payout ratio.
These are the things that we have as key internal operating goals that we want our investors to believe in. And then just to conclude from an outlook standpoint, the best most focused portfolio in memory, committed to balanced and disciplined capital allocation, I think really well positioned for long term organic growth. You saw some of that in the Q4. I think a very valuable GE Capital business and our performance is accelerating and I think our financial results show that. So Trevor, with that, let me turn it over to you and now let's take some questions.
Great. Thanks, Jeff. Thanks, Keith. Michael, why don't we open the lines and go into the questions now?
And our first question comes from Scott Davis of Morgan Stanley. You may proceed.
Hi, good morning everyone. Hey Scott. Obviously, some high quality issues here as far as your cash balance. It looks like you're going to have about $22,000,000,000 of cash on next Friday. I mean what's the new normal, if you will?
I mean you used to keep about a $10,000,000,000 cash balance, if memory serves me right. But clearly there's you have a fair amount of debt coming due in the next couple years. But what do you kind of think of as the new normal?
Scott, I think the $10,000,000,000 historically would have included a balance of capital. So this balance we're talking about is just at the parent as you know. Right. So I think when you look with the forecast going forward, we're probably going to keep somewhere between $8,000,000,000 $10,000,000,000 of cash for the near term anyway. I think over the longer term as you reduce some of the longer tail risk, you may be able to even reduce that below that.
But probably somewhere around there would be a place where we
would have
the flexibility that if we ever needed for whatever unforeseen risk that we could think of to have some more cash, to be a little safer, more secure, to maybe be opportunistic. Those are the kind of amounts that we would think of today and from our enterprise risk perspective at the parent for the near term.
Okay, makes sense.
Guys, and maybe
this is for you, Jeff. I mean, it sounds to me like your commentary a month after the December 14 meeting is substantially more positive. And I think results across the board on an operating basis, at least according to our models, came in pretty solid. I mean, what's changed, if you will? I mean, are you seeing impact from maybe accelerated depreciation?
Are your customers finally seeing some blue skies out there and opening up the checkbooks? I mean, what's kind of changed over the last or towards the end of December in the last month?
Scott, I was pretty positive in December, you know me. But I would say, look, I take great I'd say comfort in 2 things. One is very strong orders momentum, which that in the types of businesses we're in, that always is what starts the momentum. So I think that's a real positive. And then I would say just the across the board improvement in GE Capital.
I think Keith went through the operating results, but there's just more liquidity out there. That's going to help commercial real estate. Losses are lower, origination is strengthening. So there's just lots of clues along the way. Now on the other side, what I want our investors to know is that we are running the place with intensity.
I still want to make sure that we are focused on things like value gap, working capital turns, because I think we want to make sure we run the place with great intensity at the same time. But we do see things that are continue to be encouraging as we look at the broad economy.
I'll pass it on
in one sec, but is there a change in geographic mix? Is it still mostly emerging markets? Or is there some is it expanded beyond really EM?
A lot of the orders a lot of the long stock orders are still outside the U. S, are still kind of emerging markets and stuff like that. But I think the number Keith showed that gives me the amount of volume in GE Capital in the quarter, I think was above what we had expected and that's a good sign, I think for the activity that's going on in the U. S.
The next question comes from the line of Steve Kusa with JPMorgan. You may proceed.
Hi, good morning.
Hey, Steve.
Just on the gas turbines, did I hear the order number for gas turbines in the Q4, 28, did you say, for the Q4? Yes. So what would that bring the year to around 95%, 96%?
I don't know what
the total number was. I can tell you for 11% what we're basically thinking, we delivered 114% in 10%, Steve. For 11, we're planning somewhere around 103.
Okay. I guess if we just add up the numbers we have, we get to about 95, 96. So you guys should be obviously very well sold out.
We've got a pretty good feel for the backlog relative to the estimated conversion.
So how
They have commitments that aren't in orders that we think will fill out the rest of the units for 'eleven.
Sure, sure. So how much you sold out for 2012? And obviously, if this year is kind of like ground 0 for turbine orders or maybe it's not, then maybe just clarify that for next year, how far you how much you sold out for 2012 at this stage of the game?
I think, Steve, we still have excess capacity in 2012. And what we do, I think you and you've been through this before, we have a pretty good like commitments to order pipeline. And so our commitment pipeline is building. Those convert to orders over time. So we have a pretty good line of sight for where the industry is going to go.
Do you think book to bill in 2011 is going to be above 1?
Yes. Our estimate is that the energy equipment orders will turn in 2020. That's positive. That's not right. That's quite much in 2011, Steve.
Okay. And then just one more on GE Capital. The portfolio margin, I guess, you said it was around 5% this year. That's actually come down a little bit from what you were saying in the beginning of the year. Are you already starting to see a little bit of that margin compression?
Or should we continue to see high return business being written? How fast is kind of competition coming back there at GE Capital?
The margins in the capital business were pretty good in the quarter. In the 3rd quarter, we had about 5.04 percent and in the 4th quarter, we're at 5.3%. So for the year, we ended Jeff Bornstein said at the December Analyst Meeting, he thought it would be around 5%. We ended at 5.1% on margins for GE Capital for the total year. So you see the volumes of pretty good returns across the portfolio.
Consumer obviously continues to drive its returns up. Real estate by having less losses has helped us improve returns and we'll continue to do that obviously as they turn around going forward. So I think we're still seeing good volume at good returns. We're being very disciplined on the pricing in GE Capital.
And you think the real estate turn is sustainable?
I think that losses in impairments peaked in 2010 and now we got to see what kind of pace of recovery we would have. We obviously have some good indicators early on delinquencies and the fact that credit losses on the debt book improved. We still had some impairments obviously in the equity book. So we got to see what the pace of that is in terms of occupancy, rental growth and overall GDP. But I think it's pretty it seems to us like the losses have certainly peaked in 2010 and we expect a strong improvement in real estate in 2011 and 2012.
Great. Thank you. Thanks, Steve.
The next question comes from Julian Mitchell with Credit Suisse. You may proceed.
Yes, thanks. Hi,
Julian. Hi, Julian. Hi.
The first question just on the pricing in your energy business. You mentioned overall orders price are down about 3%. So could you talk a little bit about what you're seeing differently in wind as well as in gas? And I guess if you're seeing any kind of stabilization yet in wind pricing?
Sure. If you look I said the total in Energy was down 3%. If you look at the pieces of equipment, which were down 6%, thermal was down 11%, renewables were down 14%. So those are the 2 biggest. And I think we're still seeing globally a lot of competition.
We've got strong competitors and we've got to compete with our products to win in the marketplace. And that's what we've kind of factored into our 2011 planning in terms of the value gap, as Jeff said. So it's a tough competitive market out there, but I like the unit orders that we had in the Q4 and they're in line with what our expectations were for the 11 planning.
Great. Thanks. And then a follow-up. In terms of the overall Industrial business, could you talk a little bit about the headwinds from R and D and also what you're expecting on the value gap? So if you think about the net of R and D and the value gap shift in 2011, how big of an effect do you think that will be on your earnings?
Julien, what I would say is that the R and D is pretty much built into the run rate. It will be up a little bit year over year 11% to 10%. And then I would say that we're counting on a value gap that's probably slightly negative in 2011. Percent, and I'll probably hold the internal teams to try to keep that flat. And it'll be positive in Aviation and Healthcare and businesses like that and with a little bit more headwind in Energy.
Great. Thanks.
The next question comes from Terry Darling with Goldman Sachs. You may proceed.
Thanks. Hi, Terry. Just a follow-up on GE Capital. First, the loss rates continue to detract better than what we've been looking for. And a year ago, I think you guys were a little more specific about what you were expecting for a range in 2010.
And as we come out of the woods here, I'm wondering if we might put a finer point on that specific number outlook for 2011?
We haven't really given that out in terms of forecast for loss rates. I think you have to say though, if you look at 2010, we're probably $1,500,000,000 below what we had expected in terms of loss rates, mostly driven by the credit side, the improvements in consumer, the improvements in CLL. We had higher impairments than we thought in 2010, but hopefully those are going to abate a little bit. I think clearly the performance we're expecting in GE Capital when we look at 2011 is going to be driven by improved credit conditions as you see these delinquencies and non earnings roll over. So I would expect that write offs will exceed our provisioning by several $100,000,000 during the year.
And over time, the provisions have to come down. We're at 2.5% coverage today. I don't know where they're going to get to over a normal cycle, but clearly we're still at too high versus normal on both the consumer side and the commercial side. So we are expecting G Capital and G Capital team is even forecasting much improved performance driven a lot by the credit side, but also the margin side. The new business volumes that we're putting on versus the business that's rolling off continues to be attractive.
And as we shrink places and red assets like mortgage or as real estate goes from a loss to a positive, that's going to be part of the earnings growth driver in 2011 as well. So we don't have a specific forecast that we've given for losses, but clearly they're going to be better, Terry.
Okay, thanks. And then focus of restructuring in 2011, which businesses will see the majority of that restructuring?
Right now what we have is we're probably going to have somewhere around a penny a quarter is our normal run rate. You can see that in the core industrial. I think you see that we continue to do plant rationalization in HMBS, both in lighting and appliances. We've done a lot of service rationalization in the energy business. We'll continue that.
We'll continue some service rationalization in the Aviation business. And we've had a lot of in the past total headcount and downsizing in GE Capital that will continue in some of the red asset businesses. But we're investing a lot in growth on the other side on the green asset businesses in GE Capital. So I think right now it's pretty much going to be in the legacy industrial businesses where we continue to rationalize our footprint. The legacy service business where we can be more efficient would be probably the main places.
And then, Perry, just to add to that, we see the volumes coming back and our footprint is pretty lean right now. So I think we've done a lot of good work on restructuring over the last 2 or 3 years. So it gives us more flexibility, I think, when we look out for 2011.
Plus we're looking at other things. Obviously, when we get NBC closed, we do expect a small after tax gain that will we're looking for opportunities there and that could continue to have more restructuring as well. Okay.
And then just one quick last one. I'm wondering if you could talk a little bit about the strategy behind the recent acquisition, the Power Quality acquisition. Obviously, it wasn't a large one and the valuation appeared reasonable. But when you look at the and the secular growth trends look great there as well. But also if you look at the competitive landscape, 3 pretty big players that are all global talking about customers increasingly going global, doesn't look like a business you want to just stay small and if you get into it at all, which you've just done.
Maybe talk about that strategy a little bit more.
Terry, we've got inside our energy business, we've got a very big industrial footprint, both in terms of smart grid and kind of the core GE Industrial business. We play around data centers for a long time around the fringes. This puts us more in a central position there. It's actually quite good technology. And so I think inorganically, now that we've got this base inorganically, we know all the customers.
And I think this just gives us a great platform for good inorganic growth. And getting in at somewhere between 7.5x 8x EBITDA is a pretty good place. In its day, this was one of the world class platforms 5 or 10 years ago, and it's got great it's primarily North America today. We got a lot of opportunities to globalize it. So I would count on us using this like we did with wind as kind of it gets some seed planted and now we can scale it organically using our technology and distribution.
Okay. Just to clarify, so you're focusing it will from here be more organic than additional inorganic. Exactly.
Got it. Exactly. Yes.
Thank you
very much. Yes. You're welcome.
The next question comes from Jeff Sprague of Vertical Research Partners. You may proceed.
Just a couple items. Just back on thermal and what's or maybe power overall and getting into price. Where are you at now on price on revenues? Is that now inflected negative?
No, we had positive price in energy in the Q4.
How positive? Can you give us some color on thermal and renewables?
I have the total is $90,000,000 of positive price in energy. I don't have the split between thermal and renewables.
Jeff, I think we when Keith said like the order pricing is down, what, 3% or something like that? Total, including service. Yes. I mean, I think it's I think the pricing is going to be slightly negative when you look at 2011, and that's kind of how we built the plan for next year. So I think it's kind of into the expectations of
the core run rate.
But you
still got a pretty we still have a good margin, strong price in the backlog especially in the wind backlog that we're still delivering on. So that's going to continue to mitigate some of this here, Jeff, for a period.
Yes. But with what you're doing on value gap, you think even as these down price orders convert 12, 18 months from now, there's upward room in the margins in Power.
In Energy, look, I would say that from an equipment standpoint, the margins will probably be under a little bit of pressure. From a service standpoint, I think there's upward momentum on service margins.
We said overall for 11%, we expect margins to be flat to down. I think we expect the value gap to be pressure on margins.
And I just want to understand to the extent that you can help us a little more, Keith, on tax, just kind of a twofold question. So I understand the dynamic of NBC, but what is really the base we should be working off for industrial as we think about what the tax rate is for 2011?
Sure. I would say, let's take a look at the last 2 years. So if you do 2,009, our industrial our GE ex check rate was 22%. If you do 2010 and you exclude the impact of the settlements, which we do not anticipate repeating, and you exclude the impact of the incremental restructuring we did, high tax restructuring, which most of that was obviously the Hudson reserve, which we again don't anticipate repeating, you're probably around a 23% rate for 2010, Jeff. And I don't see anything going forward in 2011 that would change that ex the NBC thing, which is going to raise the tax rate somewhere between 15 20 points for the year.
So I would model on a core somewhere in the low to mid-20s for the industrial tax rates.
And just to take that to the capital side also, the $1,700,000,000 structural benefit you talk about, should we think of that as solely a benefit through deductions or is there an element of credit there? And so maybe I just I'll leave it at that. Is it just deduction based benefits or is there direct credits that come in?
No, it's basically the fact that our global organization allows us to have very low taxed overseas earnings. So when I say a credit, I think you're going to be basically dealing with income that results in less than a 35% rate that gives you the equivalent of around somewhere between $1,500,000,000 to $2,000,000,000 of credit. And then the tax rate will depend upon how much pre tax income we have. So take the pre tax and grow it next year for the fact that you're going to have lower losses, lower credit losses, lower impairments and better margins. You offset a little bit for the volume.
We're going to continue to shrink the book And you put the 35% rate on that and then the $1,500,000,000 to $2,000,000,000 somewhere around $1,700,000,000 is a good estimate for just planning. It gives you an estimate of what the G Capital tax rate would be. I mean, the tax rate is a lot of volatility. I think the fact that we're saying for guidance, keep the benefits somewhere around $1,700,000,000 is the best guidepost for you. And it's split pretty evenly around the quarter.
If you look in the Q4, we had about $450,000,000,000 $450,000,000 of credits, tax benefits from the global financing structures.
Thank you. And just one last comment if I could. Sure. What are you planning on NBC in terms of reporting? I mean, will we see that as a separate line or is it going to just be kind of glommed into corporate and
Well, it's going to be in corporate. It will be a one line reporting, but it's going to be we've moved it into corporate for next year and it'll be a minority interest net income. And we'll tell you what it is every quarter. But right now, we've basically said we expect about $0.05 of dilution versus this year. And if you look at the total year results that we have, which we published today on pretax and you work that into about $0.05 dilution, you can get the estimate for what, 2011 Just because
our plan is to show it
one line.
But show it as an item, right?
It will be incorporated and we'll tell what the item is, yes.
So you'll know what it is, Jeff.
Yes. Right. Great.
Thank you very much.
Thanks, Tom.
Okay.
The next question comes from Bob Cornell with Barclays Capital. You may proceed.
Hey, Bob. Thanks, everybody.
You covered a lot
of ground. Keith, you just go
back over the reserve reduction and talk about the reserves of the write off freely reserve accounts. So the whole reduction reserve and the implications for your view of credit quality going forward?
Well, sure. Basically, as we continue to see delinquencies and non earnings improve, Bob, basically, we're not going to be required to continue to put up as much new provision as the book improves. So in 2,009, we had about $10,600,000,000 of credit costs related to the debt portfolio. In 2010, we had $7,200,000,000 dollars of credit costs losses. So I don't know what the exact pace of acceleration of continued improvement is.
We've seen an awful lot of improvement in the consumer book. I think there's more improvement to come in the commercial book and certainly more improvement to come in the real estate book. But we expect to continue to see that provision go down and we expect to have write offs greater than the new provision, which will result in lower reserves going forward. And we expect to have very good solid earnings growth in GE Capital obviously in 2011.
Yes, clearly. You've been asked this question a couple of times and you just alluded to it earlier. I mean in terms of reserve coverage, I mean obviously you guys used to use the 2.63 metric for years years and now you're at 2.47, I mean, and you alluded to that going down. I mean, where is a normal run rate for GE? Where should we expect that to go in the next couple of years?
As I said, I don't have a specific number on it. I think the 2.63% was a long time ago and was a number that doesn't reflect the current mix of our business at all today. And when Yes,
I know, but in terms of the I understand that, but in terms of a range of where the 2.47% could go? It's going to be lower, Bob.
Thanks. I think you got to we can model out the commercial losses. They're less than 1% today. I think that's going to continue to improve. I think on the consumer side, it's going to depend upon what unemployment does as to how low it goes and how quickly it goes.
And I think you've got a sticky unemployment situation, so we've got to watch that. We've got not a great housing situation, but we have definite improvements in our book based on the underwriting changes we made and the performance of the retail portfolio we have. So I think it's going to be lower. I think you're going to have to take your own stab at how far to go with it.
And that in line, you mentioned earlier, you said real estate going from a loss to a profit.
I think that was No, it's going from a big loss to a lower loss. Right.
One other question. In the Aviation business, you talked about the quarter impacted by R and D and sort of product development costs. I mean, are some of the headwinds that we were previously anticipating for 11, did that come into the 4th quarter?
Yes. I mean, I would say, Bob, we talked about the G and X and I think some of the things Keith talked about were one time impacts in the Q4. And kind of what we said at the December meeting, which was Aviation segment profit should be about flat in 11 versus 10. I think that's still a good outlook for the business.
Okay. Thanks you guys. All right,
Bob. Thanks.
The next question comes from Deane Dray with Citi Investment Research. You may proceed.
Thank you. Good morning, everyone. Good morning, Deane. We covered a lot of ground about the quarter and the outlook, but I'd be very interested, Jeff, hearing about your new role in Washington. You've been pretty outspoken and my guess is you're coming in with a little bit of a couple of agenda items, maybe tax and energy policy.
But just give us a sense of what the role is, what expectations are and how we see that playing out?
Yes. The first thing I'd say, Dean, is that all you guys know my commitment to GE and my leadership at GE and that doesn't change. This is my passion. I'm committed. I'm a hard worker.
So I am focused on the company. But at the same time, I'm honored to be able to work on something that I think has importance in a broader economic context. And I think, Dean, the focus is going to be exactly what it said, competitiveness and jobs and a focus exports, global tax policy, regulatory, manufacturing jobs, energy, things like that. And so I just think it's a broader context and I'm honored to serve.
Just given the reach of GE's businesses across the economy, it's hard to fathom that there's going to be any topic that comes up that doesn't have a direct impact on GE. And just how do you expect to manage those conflicts?
Look, again, with great transparency. In other words, I'd say, on one hand, I know a lot because I see a lot and that's the strength of GE. But at the same time, I think both as a company and individually, I've always understood context and where we fit. And I think I'll manage that with great transparency.
Sure. And congratulations on that. And a quick question for Keith. It didn't sound like Shinsegae came up at all. And so how
did that play out the quarter in terms of expectations?
Sure. When you take a look at Shinsei, we made no adjustments in the quarter. As you know, we ended the Q3 with about $1,700,000,000 of reserves. The end of the Q4, the reserve balance is down to $1,500,000,000 So we settled a number of claims through the quarter, about $200,000,000 in the last 3 months. And we continue to see as new claims come in, they were higher in September, October, November.
They've started to turn back over and go down again. But the bankruptcy clearly, the Takafuji bankruptcy has clearly created a bubble of claims here. We believe that the court is not going to complete its work with Takafuji claimants until sometime in Q1 and we're going to just have to watch those claims as they go down. So we're we've got a senior leader dedicated to this task with a big team in Japan. We're continuing to work with Shinsei on all the process around claim management, litigation management.
And at the end of the day, we think we're still adequately reserved for the liability that we have in Japan.
Great. Thank you.
All right. Thanks, Dave.
The next question comes from Jason Feldman with UBS. You may proceed.
Good morning. Hi, Jason. So could you give us a little bit more color maybe on what you're seeing in the aerospace aftermarket? In prior quarters, you've mentioned deferrals of overhauls and it was a little bit tough to interpret the decline in service orders this quarter given the comps that you mentioned, the big order a year ago?
Yes. I think couple of dynamics going on there. It's a good question. We did see good spare parts orders, ex the Avial. So we had the one time big order with Avial last year.
But ex that, we're seeing a lot of good incoming orders. Again, we have a price increase that we put in at the end of the year that's effective for this year. So some of that is orders before that takes effect. That was about 5% for 2011. But with the average daily order rate coming in at 25%, up that $25,000,000 a day and up significantly, that felt pretty good.
If you look at overhauls, we saw overhauls, trying to just find the number for you here. They were up about 8% in the quarter. They had a little lower job scope, so there wasn't a big revenue increase there. And then in terms of total service margins, we had some pressure in utilization from some of our customers that affected that offset some of those order rates in the spare parts. We had some people find the planes a lot less than what they had originally that what we had originally anticipated.
So some of that offset some of the spares orders. But in terms of the outlook, we feel pretty good about the ADOR, the order rate.
And the spares orders in the 1st couple of weeks of January are also very strong. So I think the year is starting off in a good way.
Okay. So it sounds like the activity is kind of catching up a little bit to the underlying flight hour growth. I saw a
little bit in the 3rd quarter, you saw a little more in the 4th quarter. We're feeling pretty good about that outlook, yes.
Okay. GECAS on a sequential basis was actually one of the strongest areas of growth within capital finance. Is that just because of the timing of the annual impairment review? Or is there something else going on there?
Sure. As you know, we do the impairments in the 3rd quarter. That was one of the biggest events. The other thing, they also had some tax benefits in the 4th quarter that don't repeat that were offset in capital corporate with some tax charges. But at the end of the day, it was part of the increase in GECAS results.
Okay. It would have been closer to flat with last year without some of the lower taxes, I would say.
Got it. And then last thing real quick, a couple of quarters ago, you mentioned a couple of supply constraints in various areas, I think particularly in healthcare. Has there been any issues anywhere across the business with respect to the
No, that's actually improved.
That's actually improved. And I think that's good for healthcare because we've got a nice big backlog going into this year and supply chain seems to have worked its way out.
Thank you very much.
All right.
The next question comes from Nigel Coe with Deutsche Bank. You may proceed.
Thanks very much. Hey, Nigel. Yes. Good morning. I hate to return to the energy pricing, but I'd be interested to know, if you look at it on a Q over Q basis, is pricing starting to stabilize or we still see some pressure from 3Q to 4Q?
Yes. I think pricing on both thermal and wind was a little worse in Q4 than Q3. I don't remember exactly what the numbers are. We can go back to the script. We said it in the Q3 and we can get it to you through Trevor and Joanna, but it's a little worse on the equipment side.
Okay. And then looking at 2012, you still have gas and also wind as it drags to the 2012 earnings growth. And I'm just trying to reconcile that with some of the positive commentary we're hearing from some of your peers like Alstom, etcetera. Do you think there's upside to that outlook? I mean, I know it's 2012, but you are seeing commitments coming through.
And do you think that maybe there's room for that to impose this in 2012?
Look, I think you've got volume getting better. So volume, I think we've seen interest, commitments and volume getting better. Volume is going to continue to get better during 2011. So it's a long cycle business. And I think it's all about productivity and things like that in terms of how will we execute on those sides.
But you're going to see volume improvements as you go from 2011 to 2012. Now what I would say Nigel is, again, just as a backdrop, when you think about our energy business, it's a very big business. So I would divide it into kind of 4 parts. You've got heavy duty gas turbines and wind. Then you've got all of the distributed energy products, aeroderivatives, Gehenbacher, things like that.
You've got service and then you've got oil and gas. So you've got a lot of the components of energy that are going to be positive in 2011 and positive in 2012. And that's why we like the business is that it's a diversified portfolio. So could there be upside? Gosh, I hope so.
But I think it's kind of the ebb and flow of the market. And look, we have half the heavy duty gas turbine market, and our share is very strong and will remain strong. And our wind market share and we had just put out the results yesterday. Our wind market share in the U. S.
Is up 10 points. So we're going to have as good an outlook as any of our competitors as we go through the next couple of years.
Okay, got it. And then a quick one for Keith on the reserves. Now we've seen the divergence between non earners and delinquencies to CLL. And I'm assuming that we're going to start to see the nonearners start to bend down towards the delinquencies curve. Would that be a trigger for further reserve leases?
Or does the do the reserves reflect more delinquencies rather than non owners right now?
It's more on the delinquencies has been generally, but I think the other factor that may come in is if we continue to have recoveries that exceed what our position was. I mean, we had $100,000,000 of recoveries on things that we fully reserved in the real estate business. And that results just like that comes into the P and L just like a reserve release. So the fact that we reserved it 100%, someone paid us off, we may continue to see some more of that in the real estate business and maybe some of that in
The next question comes from Christopher Glynn with Oppenheimer.
Just wondering about the total CRE impairments in 2010. It seems like it might have come in a little bit above the forecasted 2.2 ish that we've talked about and if maybe got aggressive to end the year there and help out in 2011?
Well, we booked what we thought we had to, obviously. I think that 2010, you're right, came in at $2,300,000,000 on the impairments line in real estate. And we have seen some improvements. If you look, the declines in rental have abated, increases in occupancy have improved in many markets. I think these were a little bit unusual because most a lot of them were concentrated in Japan and some in Europe.
But in many parts of the equity book, we've seen the pressure from impairments abate and we have some early positive signs. I just how good will it get and how fast will it get? I hope you're right, but 2010 was a little higher. It was higher than we thought. It's probably about $1,000,000,000 of impairments higher than we originally anticipated.
Okay. And then just following up on Nigel's track on the gas turbines
and heavy duty.
With maybe some signs of significant cycle and extraction of natural gas and I think your power bubble supply glut is now absorbed, Could we see a pretty strong U. S. Cycle start to emerge, do you think, which we really haven't had for a decade or so? No, look, it's a great question. I think if you I just looked at this a little while ago, but I think you look at the U.
S. In the last decade, let's say between 2000, 2010, we sold somewhere between 40 50 heavy duty gas turbines in the whole decade. So we still think the U. S. Is going to be a gas and wind market with the price of natural gas where it is.
When we talk to our utility customers, it's the prevalent commentary in terms of what they're interested in. So I think that's out there somewhere. We're not counting on it for 2011. We don't but that is that has a very high likelihood of happening at some point based on reserve margins and
And the reality, the environmental constraints around coal, the challenges around nuclear, the timing, the approvals, the costs, I think that ultimately when we have the demand generation here, we're going to be sitting in a pretty spot.
I'll give you a factoid. Keith talked about it earlier, but kind of before people buy heavy duty gas turbines, they buy arrows because they're quick to sight and they fit in around the edges. I think our aero orders were 2x in Q4 or something like that. So that's not a bad sign. Yes.
Great. Thanks for the color.
The next question comes from Steven Whittaker with Sanford Bernstein. You may proceed.
Good morning.
Thanks for taking the call. First question, just to follow-up on Chris' question around gas in the U. S. If you were to believe that utilities have to meet this 2015 deadline for gas coal to gas conversion, would you likely to be start seeing those orders assuming you win them in share in sort of the 2012 timeframe? Or do you think it would be later?
I think it's 2012, Steve. Great. Yes. Okay.
That's right. And just so I have clarification without harping on the pricing thing there, but if you look at the breakout geographically a little bit and I sort of look at the Virginia loss to Mitsubishi, is pricing are you seeing it worse in the U. S. Than you are elsewhere?
Not necessarily. Okay. No. I think it's not necessarily.
Okay. All right. And then just on the dividend discussion, you're planning for 2012 for GE Capital again to GE and I keep thinking my numbers that it should be earlier. And I'm just trying to understand, is it still the Fed that you're waiting on there or you're just something different?
We're obviously making great progress in GE Capital. If you look at you see the Tier 1 ratios for GE Capital Corp, GE Capital Services, the fact that we're shrinking the book faster, the fact that we've continued to pay down our debt and prepay or pre issue debt so that we're ready to pay down future maturities. Everything in the place feels better to us. I think the change that we've got to get to is we are committed to being well capitalized under whatever regulatory regime and whatever the measurements are that people are going to have and be accountable to. We have an idea of that, but we don't have a formal agreement on that with the Fed.
The Fed is going to become our regulator sometime in the first half of this year as part of the Dodd Frank. We're going to transition from the OTS. We've got to engage in those discussions, Steve. I think we're well prepared for it. I think we've been planning on it for 18 months now.
I think Mike and the team have staffed up. We've changed processes. We've got better policies, rigor, reporting, everything in place, but we've got to go through that process. I feel great about the progress in GE Capital. And with the discussions that you read about that are going on with the banks about dividends relative to different capital ratios, we're going to have to see.
Our plan doesn't assume anything in 'eleven. Our plan assumes that in 'twelve, we'll get a dividend as part of the earnings. And going forward past 12, our plan assumes that we're going to get some excess capital out of capital as we shrink the book and have additional capital in excess of even being well capitalized under any metric that we can see today.
And Keith, there was nothing on WMC this quarter, correct?
WMC in the quarter, we didn't change anything in our reserves. We had about $250,000,000 of backlog or claims at the end of Q3 with $100,000,000 of reserves. At the end of the year, we end the year with about $350,000,000 of claims. We left the reserves at $100,000,000 because we had very favorable experience against claims settlement rates versus what we had anticipated. So we feel like we've got a very solid reserve against the claims that are out there and we feel very good about the business position on the ability for people to make claims based on the strength of the work the team did in WMC.
So we ended the year at 3.50 of claims, 100 of reserves and we feel very good about it.
Great. And finally, Jeff, in light of your comments continuing to be very, very substantially more positive as I think Scott led off with also over time. In light of that, when you think about your M and A strategy and the comments you made in December and the sort of $5,500,000,000 or so that we've heard about in sort of the larger acquisitions, that kind of $3,000,000,000 and under number still stands as far as you're concerned? Are you starting to think in light of things moving much more positively that you consider more current?
Look, I think, Steve, what I said in December and what I really believe is that we should be investing in our core franchise in a way that our investors get the benefits of our ability to assemble acquisitions. And so if you think about what we've done in energy, if you think about what we've done in oil and gas, we create value for you by staying disciplined in that range and giving our investors the benefits of the accumulation value. And so I like what we've done. I think they've been well indicative of the kinds of deal if you look at the 4 deals we've done, I think they're very indicative of the kinds of deals we're going to do. And we want to be balanced and disciplined.
I think we like the dividend. We think buybacks are going to be important. And I think this notion of balance and discipline is important for GE.
Okay. Thank you.
You're welcome.
The next question comes from Shannon O'Callaghan with Nomura. You may proceed.
Good morning. Hi, Shannon.
Hey, first on real estate, I mean, how do we think about I mean, can you first talk about what the other than the Japan issue, what the underlying valuation declines are, what the liquidity is like in the market? And how do we think about how the unrealized loss could move forward from here? I mean, can it go away in an accelerated way either through asset sales or improving valuation assumptions? Or how could that evolve?
Well, we're going to continue to have depreciation of around $1,000,000,000 a year. We'll have to see what happens with valuation in the portfolio. In real estate, in the total portfolio in the Q4, we went from 5% to 6% type of valuation declines 3rd quarter year to date down to 0.1% in the Q4. So that was an improvement. And for our properties where we have a specific reserve, we were in the teens in the Q3 year to date, we went to down 3% to 4% on specific properties.
So we do continue to see improvements. We had improvements in occupancy in our own properties. We went up to a little over 80%, I think the number was. And we've seen obviously an abatement of declines associated with rental growth in many of the regions. So if you got a valuation turn here, you're going to have an ability to eat into that unrealized loss much quicker.
But right now, we would plan on eating into it in an orderly way. We think we'd get down somewhere around 0 at the end of 2013 something like that.
But as you I mean, let's say the market continues to improve in that fashion. I mean, the next time you do your sort of update, is there an adjustment for current market conditions that could significantly change that faster than 2013?
Well, sure. It's not on the books, obviously. It's an unrealized loss in the equity portfolio. So that could get better, we'll obviously communicate the changes in that as we go forward. We're doing that kind of twice a year now.
Okay. And then just on the consumer piece, I mean, the write offs still were up sequentially. It seems like that should be turning pretty soon. I mean, can you just talk about a little bit about the different maybe pieces of dynamics of why write offs are still going up there?
I got to take a look at that for you. If I look at consumer in the quarter on write offs?
Yes.
Yes. We'll continue to clean out delinquent accounts. We have a formula. I mean basically at 180 days on a closed open end, we write that thing off. On a closed end, it's written off by I think it's $360,000,000 It's completely written off.
So it's all formulaic based on delinquency.
Right. I guess just what I meant is sort of looking at the U. S. Business versus other pieces, I mean Majority of the consumer Even on that formula, you should see some of that stuff having gone down already. I don't know if there's one piece that's still keeping it up.
No, it's mostly U. S, right? There's the credit card and then there's the retail sales support that we have. And I think they both are performing about the same pace.
Okay.
Yes.
And just lastly, just a quick clarification. I mean the provision, right, was like $1,350,000,000 or something. Did you mention $1,600,000,000 Could you just reconcile what the difference is?
Provision in the Q4 is $1,355,500,000 What I said was we had the total would have been $200,000,000 higher except for those
Exactly. The
original provision was higher, but it was declined by $200,000,000 for those two events. I had the recoveries in real estate as well as the release of the reserve in the consumer business.
Right. So that gets netted in the That's
the difference. Exactly, Shannon.
Okay, great. Thanks.
Great. Michael, we're running against our time limit here. Why don't we take one more question?
Thank you. Our final question comes from John Inch with Merrill Lynch. You may proceed.
Yes. Thank you.
Good morning, John.
Good morning.
Let me start with the corporate items. So the $0.10 of restructuring and other charges, why was the corporate items sequentially up $1,750,000 Could you maybe Keith or Jeff give a little color as to what was in that number?
Well, the corporate items year over year were $1,000,000,000 worse, right?
$1,000,000,000 what, yes.
Yes. And about $400,000,000 of that is the incremental restructuring versus last year. So we had more restructuring in the Q4 of 20 10 than we had in 20 9. That was about 400 pretax. Last year, we had a gain in corporate and we also had the operations of security, the earnings in security while it was held for sale.
The total that was about $300,000,000 of credits in corporate that didn't repeat. And then we had about $100,000,000 of higher R and D this year and the pension plan was a couple of $100,000,000 higher as you know. So those four pieces I think would account for the delta year over year in corporate.
And the full $0.10 is in corporate, right, favor sorry?
Well, there's a $0.01 is in corporate capital. The other $0.09 after tax is in corporate corporate, yes.
So your thoughts, Keith, I know it's hard to predict, but your thoughts about how to think about the corporate line for 2011?
Yes. We have in the framework, as Jeff said, we think it's going to be a little bit negative versus 2010. I think obviously there'll be less restructuring, but we're going to have the dilution of NBC included in that line. We're going to have some restructuring and we'll have whatever restructuring we do offsetting the MVC gain in that line. And overall, when you put those pieces together, we think it'll probably still be just slightly negative.
The $200,000,000 The
biggest piece is the
dilution of MVC, obviously, John.
Right.
No, I understand. The $200,000,000 of reserve releases, I kind of had the impression coming out of the capital meeting that you guys did not expect really reserve releases. Is there something that really changed? And does that imply, if you look at the trend, that there could be more reserve releases in 2011? I'm just trying to understand sort of
Yes. I think I'm trying to walk a world where we think of our reserves, provisions and write offs a little differently than banks, but people report the banks as a complete release of reserves and we're trying to make sure the distinction. Most of our decline in reserves comes from writing off actual receivables, but then we wanted just for clarity to say, okay, we had $100,000,000 of recoveries against previously reserved items. Is that a reserve release or is that that we were favorable in our collections activity versus what we ultimately thought the loss was going to be? We're just giving you transparency on it.
We didn't plan on having reserve releases, but we did have benefits versus our positions. On the consumer side, we had a subjective reserve as delinquencies got worse. We put up some additional reserves in 2,009 and 2000, early 'ten. And obviously, as the delinquencies have improved, we just couldn't justify keeping them there. So that was about $100,000,000 So we don't have big numbers like that.
I think we could have some. 200 out of the whole quarter is probably not a lot, but we could have some more in 2011 as we go forward. If we can get recoveries in excess of previously reserved accounts, that'd be great. But I think the main thing that's going to happen is our provisions are going to have to be less going forward as the delinquencies and the non earnings improve. That's going to be the main driver as we go into 2011, John.
Yes. Just lastly, I think you even said the year to date industrial tax rate around sort of the 23% ex settlements. I think we calculated that for the Q4. What do you think the industrial tax rate is for the Q1? In the comments, Jeff, you suggested it was going to be higher.
It's going to be really high. I think if you look at that NBC page that Jeff showed you, we're going to have a pre tax gain of somewhere around $3,000,000,000 and we're going to have a tax charge of somewhere less than that around $3,000,000,000 resulting in a net gain in the quarter. But that $3,000,000,000 of taxes is kind of locked in and it's going to just it's going to create 15 to 20 points for the year. I do not know what it's going to do for the Q1. It's going to be a lot.
We're going to have a very high rate in the
quarter driven by that event. But again, John, it doesn't impact the framework, the EPS. In other words,
that's Changes the rate, but
not It changes rate, but not the EPS.
Yes. Right.
All right.
Thanks guys.
Thanks guys.
Great. Well, thank you everyone for joining our webcast today. The replay of today's webcast will be available this afternoon. We'll also be distributing our quarterly supplemental data schedule for GE Capital later today. So take a look for that.
Our Q1 2011 earnings webcast is scheduled for April 21. And finally, as always, Joanna and I will be here and available for questions today. Thank you, everyone, for joining.