Good day ladies and gentlemen than you very much for your patience and welcome to the General Electric Fourth Quarter 2007 Earnings Conference Call. [Operator Instructions] I would now like to turn the program over to your host for today’s conference call Dan Janki, Vice President of Investor Communications.
First of all I’d like to welcome everyone, Joanne and I are pleased to host today’s earnings conference call. Today the press release went out at 6:30 this morning, that along with today’s presentation material and supplemental financials are available at our website at www.GE.com/Investor. You can download and print those items or follow along via the webcast.
Today’s presentation does contain forward looking statements based on the world economic environment as we see it today and that is subject to change. Today we will cover fourth quarter results for 2007 and total year and give you an update on first quarter outlook. We will then also take your questions, to do that we have our Chairman and CEO, Jeff Immelt and our Vice Chairman and CFO, Keith Sherin.
At this time I’d like to turn it over to Jeff to get us started.
Good morning everyone. I want to start with the chart that we kind of ended with at our December meeting and really use this to frame I think very good performance by the company. If you just kind of track down we said we were going to deliver a good EPS of $0.68 up 17% and that’s what we’ve done. The revenues were up 18%, segment profit up 13% and we were led by really terrific infrastructure performance.
We continue to drive a more valuable company through portfolio moves. I think if you look at the moves we’ve made over the last five years in the company by exiting some businesses like Insurance and Plastics, investing in Infrastructure, we are well set to have a great company in the environment we see today. We talked about 2008 where we will have high quality earnings, EPS up at least 10%, strong dividend and buy back and we’ll refresh that and talk more about that today but we are reconfirming that outlook as we think about 2008.
A lot about the initiatives, on organic growth margins and returns that we think are going to frame the company and will continue to drive upside for our investors and well positioned in a lot of the big themes of our era. We think we had an excellent quarter and moreover we think we are very well positioned in the world that we see today.
The next page is just talking about fourth quarter, how we view the environment and how we are running the company. First, as I said in December, there are three big themes I think in the environment today. The first one is that global and infrastructure markets remain strong. I want to reiterate that, this continues to be true, early in the year right after our kickoff meeting a lot of the senior leadership team including myself traveled around the world in the emerging markets just because we wanted to get a sense for the economic activity in these regions and every place we went there’s a need for power, there’s a need for planes, there’s lots of capital being a test in infrastructure and there’s just no signs that this global infrastructure boom is slowing at all. There are big projects, they are well financed and they keep going.
The financial markets clearly are experiencing volatility right now. We think liquidity still exists but it is being reprised, but the financial markets remain volatile. The US economy has slowed, housing has been tough, the consumer’s feeling some strain right now. I will remind people that unemployment is still low and there’s still good opportunities for export and we see that in our own businesses as we look inside GE. The environment overall I’d say broadly is mixed but the GE environment remains exactly the same as the one we saw in the fourth quarter and exactly the same as what we prepared for in 2008.
I think execution is what counts and it’s why we are winning right now and I think it’s why investors should have faith in GE. I just want to go down this list, for five years we’ve been developing an organic growth process and the fourth quarter of ’07 organic growth rate is 10% and total year organic growth rate of 9%. Very strong global position that we’ve been investing in and in the fourth quarter our global growth was up 27% and emerging markets were up 39%.
We’ve built, I think, the worlds best infrastructure business. This gives investors high visibility, huge backlogs in both products and CSA’s and tremendous competitive advantage. We put a real focus on margins and what we call the value gap of pricing versus inflation. We’ve been aggressive about pricing, we have a positive value gap and that continues in 2008. We’ve been tough minded on our own costs, we used games to fund restructuring last year with headcount reduction globally and so we’ve lowered our cost base and we got great productivity in place for 2008.
We’ve taken risk off the table for investors by exiting US Mortgage last year and Japan Consumer Finance. We sustained a Triple A which gives us a big advantage because there’s lots of attractively priced assets in the marketplace today. We’ve always adhered to great risk management principles, we’ve got no SIV/CDO exposures, no write offs in those areas and very strong balance sheet and risk management. Great cash flow generation, cash above planned, industrial cash flow up 15% for the year, our free cash flow in 2007 was $18 billion. We’ve been very disciplined about returning capital to investors with more than $25 billion returned to investors last year and a very healthy dividend increase going into 2008.
The point is, in this environment we are very well positioned to outperform and continue to execute for you. On the next page are just some of the key performance metrics that we use to grade ourselves and then we talk about externally. First on growth, with 18% orders growth, 18% revenue growth, 20% asset growth, 10% organic growth we feel great about where we stand from a growth standpoint. EPS on our targets on consensus, 17% continuing EPS growth in the quarter, 18% for the year.
Our returns are approaching the 20% level that we set for ourselves. We’re on a pathway to hit 20% in 2008 so we feel good about our progress there. Our margins are as we described in the December meeting of 70 basis points for the year. Less than our 100 basis goal but still good progress and as I said the cash flow was just excellent with industrial cash flow very strong. We’ve delivered on commitments and we continue to make progress as we look at the company.
How we’ve executed on the long term strategy, just a couple highlights on the quarter itself in terms of leadership businesses, I talked about a boomer in infrastructure, I think a boomer is what it was. We had great revenue, great earnings, great orders, very solid. I believe our Financial Services teams have done a great job in the environment to having segment profit between GE Money and Commercial Finance up 8%. NBC had a great quarter, it’s got great momentum, our enterprise solutions business is very strong. The acquisitions that we did last year, things like Vetco Grey and some of the other acquisitions are all performing above DEO case. We think the acquisitions of Merrill Lynch Capital is exactly the types of opportunities we thought we’d see when we get into this year.
From an execution standpoint we had good segment profit growth. The industrial businesses operating profit for the quarter represented 21%, one of the best industrial earnings performances we’ve had in the last few years. Strong cash, buy back we’ve talked about. One of the things I thought I’d highlight for people was that if just look at our principle retention plans we had almost a 14% ’07 return, we’ve got a $17 billion surplus in our pension plan. The balance sheet, the cash flow, the margins, the returns are all accelerating in this environment. The headwinds really are the US consumer pressure although the company doesn’t have that much exposure there and the debts and reduction act is one that we continue to watch and health care.
Growth as a process, 10% organic growth, good growth in services and CSAs, good global growth and ecomagination, which is an initiative we talked about, hit the $14 billion mark up 17% so great progress there. Great people on the team, our retention is good, deep bench and some nice awards for the team in the quarter. I’m proud of the team for the work they did in the fourth quarter and I think gives us a good foundation looking forward.
When we think about 2008 we are in the type of environment we thought we’d be in when we went out with guidance for 2008. What I want to do today is just reconfirm what we said in December that revenues still look to be on track for 10% to 15% growth, EPS is at least 10% or more, CFOA will continue to be strong, ROTC will hit 20% and how I think about each one of the major businesses that we’ve got inside the company. Infrastructure which is 40% of our earnings just has high visibility, great backlogs, we’ve got the supply chain capacity and we just have tremendous confidence in this segment.
Financial services is looking to be exactly what we thought it was going to be. The US consumer is going to be tough, we are going to have lower gains during the year but we are still seeing great global growth in assets and margins. The margins on the new business that we are putting on the books is very attractive. We feel solid about the Financial service positioning.
Health Care we are going to manage the DRA, we are not assuming tremendous growth in the US diagnostic imaging market but globally in the quarter and throughout 2007 and 2008 we’ve got very strong growth. We’ve hit all the milestones on OEC, we expect to have that shipping in the first quarter so everything that we’ve described to you about when we’ll be up and going we are meeting those commitments so we feel good that Healthcare is going to have positive earnings growth in each quarter of next year and hit the 10% target for the year.
NBC had a great quarter, they’ve got good momentum on all fronts. I think this is going to be a tremendously solid business for us in 2008. From an industrial standpoint we are assuming a very tough appliance market throughout the year but Enterprise Solutions, this new business that we put together is doing very well and will continue to have good growth for the year. I think our 2008 guidance is solid, we think we’ve got the right opportunities and risks well balanced and I feel very confident about the company looking forward.
With that I’ll turn it over to Keith to give you details about how we’re doing.
Let me start with orders, we had another great orders quarter. If you looked at the pieces on the left side is our Major Equipment, for the fourth quarter we had $14 billion of major equipment orders, that’s up 33%. You can see the strength in the large infrastructure business is Aviation, $3.6 billion up 66%, great winds in the Triple seven with the GE90. We added 180 Genx engines in the quarter so the team is doing a great job winning with that engine as well.
Energy, $5.1 billion up over 50%, oil and gas up over 90%, transportation has some timing issues, we had a big huge order last year, one large order that we are comparing to from a US customer that didn’t repeat. If you look at the total year orders here, 29% in major equipment, I think over a 12 month period of time, if you look at the rolling average down below from the end of ’05 we are running on a four quarter rolling average of $6.9 billion up to four quarter rolling average of $12.5 billion with the orders still growing this is talking about what we are winning in the global economy that Jeff described. Overall infrastructure orders were up 54% even without Smith and Vetco they are up 40% the infrastructure backlog is at an all time high of $44 billion up 65%.
In the middle if you look at our Service Orders of $9.7 billion and they are up 5% that was driven by oil and gas and healthcare. Energy services had some growth in power services and nuclear fuels but tough comps in the aero derivatives business so they were up two in the quarter, aviation a very strong commercial of 8% offset by the Military which was down 20% so we’re dealing with some of the mix in Aviation on Military Services.
Healthcare a solid DI performance up 7%. Oil and Gas up 29%, just a great core services growth and then Transportation down 12% due to some tough fourth quarter comparisons on orders and some slowing parts volume in the locomotive business.
If you look at the right side the Flow ADOR of $4 billion is up 2% pretty consistent with what we saw during the year. Appliances basically flat, we continue to have very strong success in the retail channel and that’s offset by the slowdown in the Contract and Builder channels. Globally Lighting continues to be very strong driven by eco growth and compact fluorescents are just booming. Overall a strong orders performance the fourth quarter of $27 billion up 18%. If you look at the total year almost $62 billion of orders also up 18%, we feel great about how that positions us as we go forward.
I’m going to talk about margins. First is margins and delinquencies from Financial Services, the left side is Margin basically the blue bars are our net revenue which are contributive value as a percent of average assets and then the green bars are adjusted for losses. If you can see that the risk adjusted margins are down about 40 basis point in the fourth quarter year over year and we’ve been able to offset that compression with tremendous asset growth over the year, it’s up 20%, that’s from productivity and restructuring.
The good news I’d say its about half the compression is coming from yields running through the portfolio over time and the other half from the provisions that we continue to strengthen as we see volume growth plus some of the slow down in the US consumer, which I’ll talk about in a minute. The good news is we are benefiting from the tight liquidity and higher prices. If you look in the fourth quarter in the Commercial Finance new business, so the business we put on in the quarter the margins are up 50 basis points. We are looking forward to the new business delivering future earnings growth for our Financial Services business.
On the right side you can see the 30 plus day delinquency. I know this is something everyone is watching. If you look at the Commercial Finance business the equipment financing delinquencies are basically flat and continue to be at historic lows. The quality of the portfolio is tremendous and if you look at GE Money the delinquencies are up slightly overall driven by the US. If you look at the US the 30 plus day delinquencies are up to 5.52% up 59 basis points and I’ll cover the financial impact on that on the GE Money page. With the exception of the pressure on US delinquencies, the Global Consumer Finance business outside the US delinquencies are flat and the portfolio on the commercial side is in great shape.
Next is industrial margins and we are happy to have delivered the 70 basis points margin growth for the year. In the fourth quarter we grew the margins 10 basis points which helps us to deliver that 70 basis points for the year. On the positive side you can see some of the drivers of the margin growth, great productivity and we continue to have price greater than inflation. We call it the value gap, we’ve got a very focused initiative on making sure that we are covering any inflation we get and you can see that grew our margins.
On the drags, two out of three of these are positive stories, number one we continue to build a tremendous install base. Our equipment Services in the fourth quarter, equipment grew three times faster than services overall for GE and you can see that the 60 basis point drag on margins. Again, building that install base enables us to build the future service business.
The second one is the infrastructure acquisitions, the Smith and Vetco acquisitions are contributing to both above deal plan Vetco has done a great job above the deal plan, Smith is slightly above the deal plan. They are at lower margins than our existing business and that’s also an opportunity as we work to improve the productivity and the cost structure of those enterprises to get them up to our margins that we have in our existing business.
Finally, Heathcare with its high margins is a drag on the total given its performance for the quarter and for the year. If you look down below we grew our margins 70 basis points for the dynamics are pretty similar and as we told you in December Jeff is leading an operating council, we are totally focused on margins across the company, our goal is to get 30 to 50 basis point improvement in margins in 2008.
The next page I just want to do a recap of the restructuring activity that we completed in 2007, we funded significant restructuring as you know with the $2.6 billion of after tax gains, mostly from the Plastic sale but also from the sale of our Swiss Re shares and the Nuclear Joint Venture. Half of the restructuring was in continuing operations, these are ongoing programs where we are reducing our cost footprint and lowering our infrastructure. The other half was in discontinued operations for moving risk out of GE Money, you know we’ve got GE Money Japan and discontinued operations and the WMC business went into discontinued operations.
On the right side the only update I really have for the fourth quarter is that we did add $0.02 of restructuring in the fourth quarter mostly in industrial bringing the total for the year to $2.8 billion it was previously $2.6 billion at the end of the third quarter. The continuing ops restructuring we are counting on a three year payback, we’ve been able to reinvest in the company to lower our future costs and we’ve also reduced the future risk in GE Money.
Before I get into the fourth quarter numbers I want to give you an accounting update, as we mentioned in our press release this morning we did file an 8-K to update prior period financials for additional accounting corrections that our control teams have identified. You know the status, our ongoing review is continuing, we are looking at revenue, recognition policies and practices across the company. We’ve engaged significant third party resources to help us to make sure we get this right. We’ve committed to timely and transparent disclosure of anything we find that’s in error. Our internal review identified two additional items in the fourth quarter that I’ll take you through on the right side.
The first one involves spare parts profit, in 2002 we changed our accounting for spare parts in two ways that virtually offset. As we reviewed back today the 2002 activity we determined that we measured one component of this change incorrectly. We left historic costs in our contractual customer service agreement models at transfer price at catalog list price and the determination today as we look back is we should have gone back prior to 2002 and had those costs in our CSA model at the actual cost. The result of that error is that we overestimated at the time the percent completion of the remaining contract life and we underestimated the total contract margin. Those two errors offset basically but the larger area is the overestimated the percent of completion.
If you look at that correction, that represents the vast majority of the financial impact that I’ve outlined below in the box. The second item involves long term contracts prior to 2004 we did not apply or describe appropriate revenue measurement principles in certain infrastructure businesses that should have been accounted for under 81-1 long term performance of construction of production contracts, specifically its Oil and Gas and Nuclear fuel. The impact of this correction is very minor in 2002 included in the $570 million numbers of $15 million positive adjustment and in 2004 included the $88 million positive adjustment an $8 million negative. The second item is a minor financial impact but again it’s something we’ve got to disclose it and make sure we get it right.
The impact of the error in 2002 is to reduce our reported earnings by $570 million and then you can see that from 2002 forward we re-earned all that back and so from 2008 forward the balance here will be re-earned in our long term service agreements over the remaining life of those contracts. It had an insignificant impact for the quarters and the total year ’06 and ’07. As I said the accumulated impact over the life here is zero and it’s a positive impact in ’08 and beyond. There’s no cash impact at all and the details are in the 8-K filings. These are all the items that we found to date and we are committed to timely and transparent resolution.
Let me move on to the fourth quarter. I’m going to cover the consolidated results on the left side it’s a summary of operations. You can see we had great revenue, $48.6 billion up 18%. I think the strength is if you look at our performance through 2007 the industrial sales really are continuing to strengthen at a greater rate to the portion of the total company up $29.1 billion up 19%. Earnings at $6.8 billion up 15% and then with the benefit of the buyback EPS on a continuing basis up 17%. Net earnings at $0.66 up 6% includes the impact of the discontinued operations.
That’s in the financial schedule you can see we had a small loss in discontinued ops in the fourth quarter from the final exited WMC were down under $100 million of assets in WMC, we sold the intellectual property in the IT infrastructure that went with that business. We will be winding down the remaining, it’s about $90 million of assets through the rest of the year and will not have a big impact on us.
Cash flow was very strong $23.3 billion overall, I’ll show you the details on the cash page in a minute. As Jeff said Industrial cash flow at $16 billion up 15% ahead of what our plan was, up about 10%. On the tax rate if you look at the consolidated tax rate for the year came in a 16%, that one point below our total year forecast of 17%. The Industrial rate came in at 22% which was exactly what we included in our 17% estimate and the difference between the 17% and 16% came from Financial Services. The Financial Services rate for the year came in at 10% that’s about two points lower than we had forecast. You can see that impact was from the low rate in the fourth quarter.
The GECS rate came in lower than we expected because of the mix of global earnings. We measure our Financial Services on net income, the earnings that we achieved in the fourth quarter in the US were lower than what we forecast and those are obviously higher tax rates and the earnings that we achieved outside the US were much higher than we forecast significantly lower rates and that’s what drove the 16% consolidated rates. The tax rate calculation it’s an output not an input, our business has delivered the earnings and the mix turned out to give us a 16% rate for the year.
On the right side you can see the business results, Infrastructure has just had a fantastic quarter, I’ll take you through it. Commercial Finance was up 9% with a very strong quarter and great year in total. Healthcare consistent with the third quarter year to date performance, NBC Universal up 10%, that’s great to see double digit there, great job by the team, then GE Money and Industrial were both up 7%. Total segment profit of $8.6 billion up 13%.
Next is cash, Q4 cash continued the great performance we had all year. The left side you can see we delivered $23.3 billion of CFOA its down 2% from last year but ahead of plan. If you look at the Industrial CFOA of $16 billion its up 15% that’s ahead of plan. That’s driven by great performance in our initiatives. On working capital we had significant improvement and a lot of great progress collections from all these orders in infrastructure that helps us to achieve this result.
In GECS we keep the dividend from Financial Services business is at 40% and that was up 19% and then we had less proceeds from special dividends from the final exit of the assets associated with our Insurance sale. Overall a great cash performance. On the right side it’s just to give you the cash balance $4.5 billion starting cash balance we add the cash flow from the left side we take out the dividends paid. We repurchased $13.9 billion of stock during the year and we bought $5.8 billion back in the fourth quarter. P&E was $3 billion and then we completed the Plastics disposition which was partially offset by the Smith and Vetco acquisitions a net positive.
Finally in the fourth quarter we did a $4 billion GE bond offering, we ended the year with higher debt and higher cash and we are going to use that to refinance both maturing debt in 2008 and pay down commercial paper in 2008. It ended at $6.7 billion and a great cash performance for 2007.
Before I turn to the first quarter and the individual businesses just a recap of the total year, revenue $173 billion up 13% which is great global growth, net income of $22.5 billion up 16% great cash performance as I said the returns 18.9 on track to achieve the 20%. Total reported EPS including discontinued ops of 9% and what a great year for gains funding restructuring. We had tremendous activity here to reinvest not only in the company but also reduced risk going forward and we feel great about the additions that we were able to make in Financial Services with new leasing platforms in Germany and Japan. In Infrastructure with a terrific acquisitions of Vetco and Smith and building out our global cable portfolio at NBC. Just a great year for portfolio investments.
The right side you can see the segment results by the business and by the year exactly what we said in December. So $2.20, 18% on EPS and let me get into the first quarter.
Our outlook for the first quarter infrastructure continues to be very strong, you can see, up 15% to 20%. Industrial up 5% to 10% driven by the strength and enterprise solutions. Commercial Finance and GE Money both up against tougher comps but GE Money has the tougher job, last year we had the securitization offset to WMC’s losses in the first quarter and first half and I’ll cover further the impact of that on the Money page. We are anticipating that to be down about 20% in the quarter. Healthcare up about 5% and NBC Universal up 5% to 10%.
On the right side the consolidated numbers for the forecast for the first quarter we expect to continue to have very strong top line growth. It’s going to be driven by Infrastructure and also the great financial services growth that we had in assets last year so $44 billion up around 10% plus and then our earnings forecast of $5 to $5.3 billion up 2% to 8% and with the benefit of the buyback up 4% to 10% on EPS and total reported including discounted ops will be up 11% to 18%. The first quarter guidance of $0.50 to $0.53 up 4% to 10% in line with what we expect to do during the year to deliver the 10% plus for the total year.
Let me jump into the businesses. I’ll start with Infrastructure, John Rice and the team just had a terrific quarter and they had an outstanding year. You can see that revenues of $17.3 million up 30%, segment profit up $3.4 million up 26%. The key business results are down the left side you can see we had nice operating levels. If you look at the box at the bottom Ex Verticals, revenue up 31% and segment profit up 37% for the Industrial business. I think a way to think about Infrastructure in the quarter they had 90 basis point of margin growth on 30% revenue and for the year the revenue was up 23% and we increased on the margins 50 basis points. This is a tremendous business doing really well.
On the right side you can see some of the dynamics, I thought I’d go into more details on Aviation and Energy so let me start with Aviation. Revenue up 41%, segment profit up 27%, orders are extremely strong, total order of $6 billion were up 31%. Commercial engine orders, $2.5 billion up 63% driven by the GE90 and Genx engine I talked about, that’s with military orders down 20%. Though a great Commercial performance the produce backlog continues to grow significantly. Our Commercial engine orders for the fourth quarter were 185% of the quarter sales, the major equipment backlog was ended the fourth quarter $19 billion up 80% from a year ago.
The team also delivered in the performance of revenue $5 billion up 41%, the Commercial engine revenues were up 66%. We delivered 118 more commercial engines from the prior year. Commercial spares were up very strong the AVO was 19.8 a day versus 16.8. On revenues military it was also down. This performance in Commercial is more than offsetting some softness in Military which we saw all year. Op profit up 27%, we got nine points of that from Smiths and 18 points of op profit from the core lever, a great performance in Aviation.
On the Energy side just a fantastic quarter, revenues up 24%, segment profit up 38%. The orders in energy continue to be excellent. The total orders of over $5 billion were up 56%, major equipment orders were up over 100%, thermal orders $2.1 billion up 23%. The thermal backlog is at $6.5 billion up 89% from a year ago, this business is really performing and wind is just doing amazingly well. Wind orders of $1.9 billion were up 137%, the wind backlog is $11 billion is up two and a half times from year end ’06.
Finally Nuclear is up 10 times, we received our third large order over $200 million for long lead items for new plant, this one from Exelon and in addition to the orders overall the power gen orders price is up 6% for the year. Revenue in the quarter up 24% at $6.8 billion, power gen revenue was up 38%, we shipped 56 gas turbines in the quarter up from 40 last year. We shipped 820 wind units up from 476 last year and energy services was up 9% partially offset by some slower nuclear services, overall services were up 4%. They delivered the top line and the op profit leverage at 38% driven by the volume and the price of power gen and the total energy op profit rate for the quarter was up 200 basis points to 21%. Just a great quarter.
If you look at the rest of the businesses, Oil and Gas had a tremendous quarter, transportation had a great quarter and a great year, the Verticals were down 18% in the quarter but up 4% for the year so both GCAS and Energy Financial Services had a good year. When we look forward to the first quarter we expect continued strong results up 15% to 20% and it’s going to be terrific year in Infrastructure, it will start right out in the first quarter.
Next is Commercial Finance, Mike Neal and his Commercial Finance team had another terrific quarter and also a great year. Revenues up 9% and segment profit up 9%, strong asset growth $310 billion we ended the year 23% you can see that we continue to have a great origination environment we added $56 billion of assets over last year and $15 billion from the third quarter through the fourth quarter. That’s driving our revenue growth up 9%, it’d be up 18% if you adjust for the disposition we had last year in the fourth quarter of Access Graphics. Revenues adjusted in line with asset growth and the segment profit up 9% really driven by strong growth in capital solutions.
If you look at the numbers on the bottom left, real estate for the quarter earnings were down 3% however I think there is some timing here in terms of actually how the business operates for the year the real estate team had a great year. Their earnings were up 24%, global originations were very strong, assets were up 47% the portfolio quality is excellent. We ended the year with less than $40 million of non earnings on a $79 million portfolio. In the fourth quarter we sold $123 properties for around $2 billion, we added $9 billion of assets so the net assets are up about $7 billion over Q3 and most in the debt business with better spreads than we’ve seen in a long time.
On the Capital Solutions side they had a great quarter up 24% that was driven by strong core growth plus the benefit of acquisitions. The new leasing platforms in both Germany and Japan are performing very well, we grew assets by 22% driven by core volume, acquisitions and we also did get some benefits in assets and financial Services for foreign exchange. Asset quality is very strong in the Capital Solutions business with flat delinquencies and flat write offs.
If you look at the first quarter as we go forward we are forecasting segment profit growth at about 5%. We are expecting great asset quality to continue and not be an issue at all in our Commercial Finance book and we are anticipating lower Q1 gains year over year and that’s why we are calling 5% in Commercial Finance.
Next is GE Money, Dave Nissen and the team delivered 7% earnings growth, revenues were up 22%, assets were up 18%, good global growth. If you look seven points of this growth in assets was coming from FX so core growth at 11%. You can see that in terms of delivering that 7% segment profit Europe and Asia were both up double digits and as we said in December we were anticipating higher losses in the Americas, we said there could be offsetting gains. As the delinquencies rose we added $190 million to the Americas loss provisions and that was partially offset by $150 million gain we had from the sale of some of our common stock.
We’ve had tremendous appreciation in the value of our investment there and we decided to monetize a piece of that to help fund growth in other markets. If you look, the Americas was down 59% because of the strengthening and overall in GE Money we increased our provision $330 million globally. In the first quarter the outlook is for segment profit to be down 20%, we have really tough comparisons here in GE Money.
If you remember the year over year securitization comparison last year we had securitization activity that exceeded normal plans to offset the losses we had WMC losses have gone into discontinued operations so we are comparing to last year with higher than normal securitization. Year over year is about $300 million so we expect to have continued pressure in the Americas and partially offset that with great global growth so segment profit down 20%.
On the right side is Industrial, one change to note in Industrial is equipment services now reports to Commercial Finance so the segment is Consumer and Industrial and Enterprise Solutions and no Financial Services business I think this makes it easier for analysis and comparison and understanding and its done effective with the fourth quarter. Revenues of $4.7 billion up 9%, segment profit up 7%, C&I had a very strong top line quarter it’s up 9%, it’s really driven by global, our global industrial business, our global lighting business had very strong growth and Appliances revenue was up 2% as I said got great growth in retail of 5% in this environment but contract offset that down 8%.
Enterprise Solutions continues to deliver very strong growth and businesses are in good shape. You can see the broad based growth down in the business, Digital Energy up 22%, Sensing up 20%, Intelligent Platforms was formerly GE Fanic up 17% and Security up 8%. In the first quarter we are expecting a similar outlook segment profit up 5% to 10% for the Industrial business.
Next is Healthcare, fourth quarter Joe Hogan and the team came in line with the results that we had all year, revenues up 6% and segment profit down 4%. Basically it’s the same dynamics we’ve seen during the year. We get good global growth and the rest of the business which more than offset by the DRA impact in the OEC shutdown. Orders were down 1% and service was strong but the equipment globally was down 7%, the US was down about 15%, global was up about 3%. There were some bright spots by modality I’d say that MR overall was up 7%, Ultrasound was up 6%, MR was up 8% in the Americas and it had been negative all year so that’s a nice turning point.
Globally CT was down 18% and X-ray was flat and that’s what put pressure on us. Revenue is a similar story strong global diagnostic imaging but overall DI down 1% because of the US DRA impact. Good Life Sciences, good Clinical Systems, good Service growth. If you look in total DRA and the OEC had about 12 point impact on segment profit growth. We’ve given you the framework on the right side to try to outline the dynamics of how the business is performing for 2007 the DRA impact in the US offset the growth and rest of the business and then the drag from not shipping out of OEC hurt us by three points. For Q1 we do plan to ship about $50 million of OEC products that gives us a lift of about one point in op profit and we see a continued drag from the DRA that does lessen through the year as we get to normalized comparisons.
What I mean by that is in the first quarter last year we were impacted by the DRA but we were still shipping out of backlog and of ’06. OEC we are looking forward to shipping for the first quarter, the DRA drag does continue and the rest of the business outside the US and the rest of the platform portfolio will continue to perform and we expect that Q1 segment profit up about 5%.
Finally NBCU, Jeff Zucker and the team delivered their fifth quarter in a row of positive earnings growth. As we said in the press release that first double digit quarter in more than two years, we are thrilled about that. Revenues of $4.5 billion were up 8%, double digit op profit growth. In terms of the dynamics as you go around the network results were up in the fourth quarter and that’s because our TV content revenue from monetizing our programming more than made up for the ratings pressure. There is a lot of good news here, season to date here we are tied for number one in prime, Today, Nightly News, Meet the Press all strong number one.
A lot of discussion about the writers strike, there was no noticeable impact in the fourth quarter. We do have fewer new shows but we’ve also got a lot lower costs and I’m sure some of you saw that studios did agree to a three year deal last night with the directors guild and we’ll see what happens next in the negotiation with the writers. That’s allowed us to basically introduce new reality shows and they are all off to a good start.
On the entertainment and information cable side they continue to deliver, revenue was up 14%, op profit was up 23% in the quarter, USA is number one in every demo, SciFi went up to the number four cable network in the fourth quarter, Bravo’s got record rating in all the demos and high upscale demos is fantastic. MSNBC and CNBC up double digit, MSNBC was the fastest growing cable channel and ratings up 26% and the Oxygen integration is on track, very strong performance in Entertainment and Information Cable.
Film team had a great quarter, their best year ever. Revenues were up 16%, non profit was up 21% the movies performed in the box office and also the DVD’s had a great quarter powered by the Bourne Ultimatum.
Finally we continue to make progress in digital hulu beta launch with very positive feedback and our other online activity continues to grow. When you look at the first quarter we continue to see a strong top line quarter driven by both Film and Entertainment Cable. We expect to see the continued strong performance growth in network and we are forecasting segment profit 5% to 10% because we have some heavy advertising promotion in Q1 for the films that are going to release in April. Overall it’s just a continued strengthening story at NBC.
Let me turn it back to Jeff.
Just to summarize then we’ll take some questions. We ended 2007 I think with great performance in a tough environment and I feel great about how the team did. We are very well positioned to grow earnings at 10% plus in 2008. All of the notations around the softer consumer have been factored into our forecast. We really expect that the environment that we see today. Infrastructure is very strong, I think NBCU has got great momentum, Healthcare this is a key turnaround year but I’m confident in our ability to execute.
International Services we’ve got great risk management and we think we can capitalize on the opportunities that the market give us. Our capital redeployment we plan to continue with our Financial Services dispositions, we continue to drive the buyback and the dividend and we feel great about the overall positioning around the portfolios.
Good performance in 2007, we know what the environment that we are in in 2008 and we expect solid growth in 2008 as well. With that Dan let me turn it back to you.
We’d like to open it up for questions now.
Question & Answer Session
[Operator Instructions] Our first question comes from the line of Nicole Parent of Credit Suisse.
Nicole Parent – Credit Suisse
Could you give us a sense of what your message was to the leadership team down at Boca and what you articulated to them as the company’s biggest challenges and opportunities for 2008?
We had two days, the first day we spent really on the environment and what we think the operating keys would be for 2008. We had presentations on pricing, material productivity on working capital, on risk management, detailed conversations about all the operating keys in 2008 the way it worked out is kind of key shapes the day and its all about what we need to execute in 2008.
The second day we spent the whole day on globalization, we talked about all presenters from outside the US how do we capitalize on opportunities faster, better, more profitably and that was kind of frames the two days.
Nicole Parent – Credit Suisse
With respect to Healthcare can we get an update on the handoff? Did you handoff OEC to the FDA and late December as planned?
All the dates we talked about we met, the consultant finished their evaluation then we notified the FDA and we are in the middle of that process now scheduling their audit. Basically we are on kind of the flow chart that we showed you at RS&A and this has been a much reviewed process, let’s put it that way and feel like we are on track to execute on what we committed to at OEC.
Your next question comes from the line of Bob Cornell of Lehman Brothers.
Bob Cornell – Lehman Brothers
You mentioned in the last comment you are continuing the Financial Services dispositions, I wonder if you could give us some sensitivity around private low credit cards? In the guidance if you do sell that business mid year is that something that will go in to discomp at that point like Plastics did with the restatement and if that’s the case is that included in the $2.42 guidance or will we make an adjustment at that point?
On the first part of the question I would say we are going to continue with that process, it’s going to take months to get audited financials. We’ve had some expression of interest and I believe that that and other platforms will basically be consummating along the same lines of what we did in Plastics. It’s going to take six to nine months to do anything and that’s how that process will work but we are committed strategically to that process. I don’t expect it to be completed until towards the end of the year. The way I would have you think about it for now is that the $2.42 won’t change in terms of how we frame the year regardless of what happens with PLCC but we want to review that as we get closer and as we execute on that plan.
We are looking at different alternatives that may include partnerships or joint venture structures and we’ll have to understand how that works before we can finally tell you what it is going to be and what the impact will be.
Bob Cornell – Lehman Brothers
A second question, certainly someone is going to ask it. Is it more of a detailed look in GE Money domestically what you really see in that environment? You gave the first quarter guidance, how do you see the GE Money business rolling out over the balance of the year in the US?
Basically we’ve got a forecast that recognizes where we are on the delinquencies. You can see that the delinquencies in the US were up in the fourth quarter they were up in the third quarter as a result of that we put up provisions basically $200 million for the increased delinquencies on both the credit card and the sales finance book in the US in the fourth quarter and we’ve made a plan for 2008 that’s about a 90 basis point increase in 2007 in our loss provisions relative to any.
In 2008 our plan anticipates about 140 basis point increase in those and that’s somewhere around $500 to $600 million for 2008. I think we’ve been prudent about it and we’ve obviously looked at what everyone else has reported in their credit card operations from delinquency and I think we are prepared for it and we plan to abhor it. We also added a tremendous number of collectors to make sure that we are doing the best job that we can in managing our portfolio. I think we’ve anticipated it we are thinking about it and we are taking actions to make it the best it can be in 2008.
Your next question comes from the line of Nigel Coe, Deutsche Bank.
Nigel Coe – Deutsche Bank
You talked about tax being up as an input but certainly in my model it’s an input. What’s the appropriate level for 2008? You talked about the global mix of earnings in capital, favoring the tax rate in the year but that’s going to continue in 2008. I’m just wondering what the rate you are looking at for next year?
When we looked at 2007 all year we said we were going to have a consolidated rate of 17%. In December we told you we thought that the 2008 impact of taxes would be a rate increase of about two points in terms of the tax rate and our forecast today would be about that. We ended the year at 16% we are still anticipating a two point rate increase off of that for 2008 on a consolidated basis my best forecast right now is about at 18% consolidated tax rate for 2008.
Nigel Coe – Deutsche Bank
On delinquencies in GE Money you did a great job on the on balance sheet but the off balance sheet there was quite a spike in Q4 I think about a one point differential number between on balance sheet and off balance sheet, can you talk about that please?
I think you are referring to the data in the supplemental schedules. Basically if you look at the supplemental schedules if you don’t have them for everybody we put out in the supplemental schedule that GE Capital Services delinquency for GE Money the on book delinquency represents our total global portfolio is about $200 billion of assets and the delinquency is basically flat year over year and then we have off book delinquency that is primarily the Americas is about $22 billion at the end of the fourth quarter of managed receivables, the delinquencies up a full point.
If you go back a year it was only about $12 billion off book so half of the increase in that delinquency is from the mix of the type of portfolio that is in there and the other half is from the rise in delinquencies just like what I said for the US consumer book.
Nigel Coe – Deutsche Bank
So it’s more the US flavor?
It’s US and mix, I think it’s half US which is the delinquencies I talked about in the US book and the other half is just a mix of different assets like Care Credit Receivables instead of just private label credit card receivables.
Your next question comes from the line of Stephen Tusa, JP Morgan.
Stephen Tusa – JP Morgan
A question on the first quarter guidance, the range looks just a tad bit wider than normal and maybe the numbers are getting larger here. Is there anything to read into there, is there a little bit more uncertainty that you are trying to account for there in that range?
I don’t think so, I think the basic surrounded businesses remain, the way we described them both in December and today and I wouldn’t really read much into that. I think we planned to have a good first quarter.
If you look at the 2008 guidance by going to 10% plus for the year we’ve also had to look at what we do with the quarters. I think this is just kind of an appropriate way to think about a quarter for us now under the umbrella of 10% plus for the year.
Stephen Tusa – JP Morgan
On infrastructure I think there’s a lot of fear out there that this imminent US weakening will have an impact on the global infrastructure story. Have your guys done any analysis on how bad the US has to get before it starts to impact some of these long tail projects that are out there or are you just, you sound 100% confident that there is some sort of decoupling when it comes down to that stuff. I’m just curious as to any analysis you guys have done around that?
What we try to do, it’s never totally decoupled but it’s becoming increasingly decoupled. What we try to do is right after our kickoff meeting John Rice, Mike Neal, I went to Latin America, we sent a lot of our senior leadership team, Krenicki, people like that out to go to these counties, India, China, Latin America places like that to see what is the sense of the economy what do we see in these projects. Talking to people that are financing and things like that and the fact of the matter is there is tremendous energy issues in all these countries, they have real gaps in terms of how much power they need, revenue pass for miles are still growing 12% or 14%.
I had a roundtable with a bunch of airlines in Latin America all of them needed more aircraft. John traveled to India, South Africa, places like that, power shortages everywhere. I think both in terms of financing and terms of what they need for the domestic consumption as well as exports there’s just no sign of any slow down in infrastructure projects and there is continuing investment in new infrastructure projects like oil and gas and things like that. That’s what we are seeing.
Stephen Tusa – JP Morgan
You talked about the reserve adjustments in Consumer and obviously most of that comes in Americas but have you guys accounted for or thought about potential weakening in the UK or more broadly in Europe with regard to the reserve strengthening there?
Sure if you look, our total provisions are up $400 million for the business. All of Financial Services in the quarter about half of that as I said was in the US book the other half is really to split between GE Money Global and Commercial. It’s related to our asset volume. I think we have a very detailed process to make sure our risk teams are on top of what’s going on in each of the markets and what’s happening with delinquencies because it determines our formulas and we’ve added collectors to work on our mortgage book in the UK in advance of any issues and as you’ve seen over the last 24 months our mortgage delinquencies actually in the UK have come down.
We peaked a couple of years ago actually so I think we are very cognizant of it and we are working it hard with the risk teams and we’ve taken into account what we think the economic environment is going to be for the forecast we gave you for GE Money Globally.
[Operator Instructions] Our next question comes from the line of Jeff Sprague, Citigroup.
Jeff Sprague – Citigroup
Just a quick follow up on Money and then switch over to the Services. Could you just give us a sense, I think you said the provision for ’08 will go up another 140 basis points. I believe that is lower that it has been historically obviously the mix has changed. Give us some thought on where you think that provision goes in a normal credit cycle? I’m also just wondering you did use some gains to fund the provision in the quarter is that part of your expectation when you look at that $500 to $600 million increase for ’08?
In terms of the absolute number for the provision this is going to be a pretty high level for us in the first quarter our total loss ante, in the fourth quarter I’ll start with was about 6.6% for GE Money North America. Those are pretty high levels and we expect as I said to add to that over 2008 by about 140 basis points in total it will be for the year 6.5% on all of 2008 and that’s a big increase 140 basis points. I think that’s an appropriate increase given the risk we’ve seen and given the delinquencies. It’s pretty formulaic as we get 30 day delinquencies and 90 day delinquencies its just turns right into reserves in our model.
In terms of the other point on funding of some of this it depends upon the magnitude. We do have a lot of different strategic assets that we can look at to help us to continue to fund growth in other parts of the world. I would anticipate we will have some things in GE Money over the year.
Jeff Sprague – Citigroup
A big picture question on Services, I think we all understand the mix issue that OE Equipment is growing much stronger than Services so you’ve got kind of this mix in margin tension but it kind of strikes me that Services aren’t really growing that fast in and of themselves which given the high demand for equipment and the resulting high utilization that you would think that you would have for existing equipment that perhaps Services would be stronger. I know Energy Service order is down 1% for ’07 for example. Can you just address that I know there’s a lot of puts and takes it sounds like the ADOR and Aviation was actually quite solid but still when you kind of step back and look at the whole thing?
I think the Equipment growth is overwhelming a great Services story for the fourth quarter our Services revenue and total for the company was up 10% and as I said the Equipment growth was three times that. If you look at Infrastructure alone the Equipment revenue was up six times for the Services revenue. I think that what we are seeing is the 10% growth in Services and Infrastructure in the quarter 59% growth in Equipment.
The other point I say I say you’ve got a good point on the orders chart it shows that the orders for something like Energy was down 1% for the year. Basically we have not recast for the disposition of the Rentals business and we also had some kind of lumpy order in Nuclear Services. The core business year over year is up about 8%. I think what’s happening is Equipment monsoon it’s just incredible the amount of equipment we are shipping is overwhelming. I’m thrilled to have Services revenue growing 10% at these margins and I think it’s a tremendous performance.
I would add two points to that. I would say the way this will likely transpire over the next three, four, five years is that if Services continues to grow year in and year out 10% to 12% even as equipment slows down at some point. Just a way the CSA’s work and the way the customers use it I think you look at this as a five year, ten year run of 10% revenue new growth in Services. The CSA backlog is $109 billion up 17%. We’ve got a tremendous backlog of services already in backlog that may not all show up as new orders and things like that so tremendous visibility I think.
Your next question comes from the line of Robert McCarthy, Banc of America Securities.
Robert McCarthy – Banc of America Securities
One place I would focus the flow ADOR order on an organic basis really below trend line in the fourth quarter obviously given some of the near term short term cyclical pressures we are seeing? Any kind of color around what you are seeing there, have you seen a progression through the quarter or any indications for December or January that show you a greater than expected kind of slow down in that area?
I think the quarter was as we expected, I don’t have a specific number by month. I know retail appliances and certainly in the housing sector appliances were really slow after Thanksgiving. It was a tough December for the Appliance business. To have Appliances flat that’s pretty much what we saw for the year and it was a mix issue for us as we saw very good strength in the retail business, we are gaining share with the big do it yourself retailers and then we are just going to suffer through the housing issues with the rest of the market.
I think December was definitely slow but I think it was pretty consistent in terms of how the whole fourth quarter came with what we saw for the year and we are planning on that for 2008.
Robert McCarthy – Banc of America Securities
It’s not a surprise.
The surprise I’d say is the Lighting strength really if you look at it the CFL’s are just selling everywhere like crazy I mean to have lighting order up 8.25%, 13% for the year its really driven by contact fluorescents globally and also incandescent. The lighting business is really probably the surprise I’d say, strong globally and it’s strong in the US.
Robert McCarthy – Banc of America Securities
With respect to US commercial construction could you comment on what your facing businesses are with respect to commercial construction and perhaps any comments from GE Real Estate what you are hearing there in terms of what you are seeing and start to see any kind of contage and roll over from kind of light commercial or capital formation there. Could you give some comments around this area of US commercial construction?
We don’t do a lot quite honestly with US commercial construction. Probably a little bit in the industrial business and most of what I would be able to reflect on would not be what we see at GE but more what I hear from other people and I think that’s definitely slowing in commercial construction but one of the things I always look at is are Capital Solutions business because these are thousands of guys that are crawling around mid market companies and GE Capital and they are still seeing a reasonably decent activity right now. I think there’s a lot of export activities still underway and they are still seeing decent organic growth.
Robert McCarthy – Banc of America Securities
What about US Office for GE Real Estate is that an area focused for growth are they selling properties there. What are the trends you are seeing there in terms of risk management for GE Real Estate with respect to the US office market?
The US office they’ve sold some portfolios in the fourth quarter of the year and again I think there are still pockets of liquidity it just depends on the geography and where you are. It’s really supply and demand for us. We invest based on the supply and demand dynamics and whether or not rents are going to be growing or not and where we have opportunities to take advantage of the liquidity in the property we have either fixed up or leased up we will do that. I think the biggest thing we are seeing today is we are seeing an opportunity to invest in US Office at senior secure debt levels with high spreads and that’s what we are finding really attractive. We are not really in the construction business we are in the finding opportunities in the market place business and right now senior secured debt at high spread levels is what that team is really investing in.
Robert McCarthy – Banc of America Securities
On the writers strike obviously you’ve had an agreement last night you could have an agreement with the producers really soon. Have you kind of ring sensed the volatility that you could see if this writers strike extends? I’m under the impression that there is potentially an actors strike in the back half of the year. How are you war gaming the volatility you could be seeing across NBCU for this year given the fact that it could take investors unaware?
I think our numbers reflect what we see today so we are not counting on the first quarter or even the total year necessarily fast resolution of the writers strike. We hope it gets resolved, I think the fact that the directors came back is a positive sign but I think we are pleasantly surprised by how well the reality programming has done and the consumer appeal from Apprentice and American Gladiators and stuff like that. I think it gives us more confidence in terms of the financial strength of NBCU and what we can do in this environment.
Robert McCarthy – Banc of America Securities
So you think your guidance takes into account that volatility?
I do Jeff and the team did a great job of preparing for this. We got the programming in line that we needed to as I said there was no impact in the fourth quarter from the writers strike, there’s minimal impact in the first quarter and there is an actors negotiation that will happen in the second half of the year and the film business has been preparing for that if it were to be a strike they are preparing for that and they’ve got it set up in 2008 guidance to anticipate that.
I think we are preparing for the worst and hopefully it will be better than that and we are in good shape on that. The team did a great job getting ready.
Your next question comes from the line of Deane Dray, Goldman Sachs
Deane Dray – Goldman Sachs
In December we talked about this where GE Capital’s playbook of operating and tough credit market potentially a recession gets dusted off here and you said that you would start looking for potentially distressed portfolios that has happened before but it looks like that came through with the Merrill deal. Just take us through what the dynamics and how they’ve changed in the past month or so in terms of distress portfolios for sale, really playing offence here.
The second question you mentioned that the Capital business is writing business in better spread today specifically Commercial Finance is that coming from a quality of the book that you are writing or is it a funding advantage. Can you quantify what those better spreads are?
I would say first of all I think you’ve seen us do some transactions already around at better pricing than what we’ve seen in the past and so what I would say is there is probably $100 billion plus of assets that would be in our suite spot that are in the process of being re-priced in some way and so from Mike Neal’s standpoint it’s just a question of doing it at the highest margins we possibly can making sure that we do the right diligence and get the right deals but this is definitely a great time to think through, particularly on a Commercial Finance side what we can do and we are trying to create a lot of capacity in order to do that in I would say a prudent but aggressive way. Like we have done in the early ‘90’s and the late ‘90’s and stuff like that.
The price increases on the new business is just a classic economic response to supply and demand. There’s a liquidity issue in the marketplace as Jeff talked about you all know it. When you have capital you should be paid appropriately for the risk you are taking. We have re-priced risk so it’s raising prices and in corporate finance our lending business in the fourth quarter the originations are up 49 basis points and the leasing business in the fourth quarter originations spreads were up 52 basis points and in Real Estate lending fourth quarter originations were up 39 basis points.
Again its part of the execution that Jeff talked about up front. Mike Neal and the Commercial team and both Dave and his Global team knew what was coming and got ahead of it and we’ve been raising prices and demanding better returns for the risk we take and I think that’s going to flow through the portfolio over the next 18 months.
Deane Dray – Goldman Sachs
Just one quick follow up on that point in terms of funding expectations near term for GE Capital, it looks like this year that wider spreads in tough markets but it still looks like that’s a funding advantage versus your competitors?
We did a lot debt in the first piece of the year. We have about $20 billion of debt that matures in the first quarter we actually saw that the banks were going to do a lot of funding after they did their earnings release and we got out ahead of that a little bit and I would anticipate over the year we’ve got to do a similar level of debt that we did last year somewhere around $80 to $90 billion plus. Our Global team is working with a lot of great underwriters and trying to find the right places where investors want Triple A paper and we are going to be prudent about it and make sure that investors get what they pay for when they invest in our debt and we do have a funding advantage obviously it’s a Triple A. Spreads have widened for us, spreads have widened for everybody in this market and that’s another reason why we’ve got to go out and get those yields in the marketplace.
We’d like to take one more question.
We’ll take a question from Scott Davis, Morgan Stanley.
Scott Davis – Morgan Stanley
I’m just wondering about your leverage ratios it looks like it went up a bit in the quarter year over year do you still have wiggle room in the agencies or is this just temporary?
I think it’s a great question, basically we’ve worked with both Moody’s and S&P to develop a capital model that’s based on product line leverage by business. It’s a business by business what’s the appropriate leverage for the risk you are taking at a Triple A level of loss and what you are seeing is the mix impact of the GE Money at much higher leverages because you are dealing with like mortgage business for example gets very high leverages to it versus an equity investment that gets low leverage so you are basically dealing in total at GE Capital with a mix issue in Commercial Finance so leverage actually went down in the quarter based on the mix of businesses they had and then for total GE Capital it went up a little bit based on the global mix principally driven by mortgage and auto.
Scott Davis – Morgan Stanley
Also I did notice that GCAS and AFS had a pretty tough quarter but you didn’t really give any color on that. I know it’s a little lumpy but I would think given a shortage of planes that GCAS would be doing quite well right now. Is there anything timing wise there to explain it?
I think it is timing, we had an expectation for GCAS for the total year and if you remember that plan included selling some assets well most of those were done with Genesis IPO early in the year. From a comparison perspective they were comparing against some asset sales in the fourth quarter last year when actually we got it done in the first quarter, fourth quarter ’06 versus first quarter ’07. I think it’s a timing issue for the total year both EFS and GCAS were up about 4% and those businesses are going to be a little lumpy and I think on a rolling 12% that’s how we ought to look at them, they both had a very good year.
GCAS we just can’t get enough planes today, we wish we had doubled down on the order book post 9-11 and right now if you want to get planes you can see we placed some order with Boeing and Airbus recently you are talking about 2010, 2011, 2012 slots. The secondary market is very challenging because the airlines are doing better globally and there is a lot of competition for that paper. The business is in great shape I think we ended it with five aircraft on the ground and we just wish we had more planes as Jeff said.
EFS has a great portfolio and there’s lot of opportunities to get gains in that portfolio as time goes on. It’s the sector like aviation that’s still doing well.
Scott Davis – Morgan Stanley
What does it mean, does it put pressure on your balance sheet when securitizations decline the way they’ve declined, does it change things for you guys per se?
We do use Capital Markets, we got great origination we have been able to continue to do transactions in the Capital Markets, we did about $3 billion in the Cap Solutions business in the fourth quarter. There have been some credit card deals that have been down here in the first quarter we would like to be able to access Capital Markets but we’ve built our plan based on the fact that we think capital Markets are going to be tough in the first quarter.
You can do it it’s just a question of what the pricing is on what you sell. There is liquidity out there and it’s just whether the investors sells to the yield they want. Right now we are anticipating Capital Markets to be okay but not as good as they have been for the first quarter.
Thank you everybody for today. Joanne and I are available all day to take your questions and also today’s material and transcripts will be available at our website.
Thank you very much sir and thank you ladies and gentlemen for your participation in today’s conference call. This concludes your presentation for today.
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