Good day ladies and gentlemen and welcome to the General Electric Second Quarter 2014 Earnings Conference Call. At this time all participants are in a listen-only mode. My name is Christine and I will be your conference coordinator today. (Operator Instructions). As a reminder this conference is being recorded. I would now like to turn the program over to your host for today’s conference, Matt Cribbins, Vice President of Investor Communications. Please proceed.

Thank you, Christine. Good morning, and welcome, everyone. We are pleased to host today second quarter webcast. Regarding the materials for this webcast, we issued the press release, presentation and GE supplemental earlier this morning on our website at www.ge.com/investor. As always, elements of this presentation are forward-looking and are based on our best view of the world and our businesses as we see them today. Those elements can change as the world changes. Please interpret them in that light. For today’s webcast, we have our Chairman and CEO, Jeff Immelt; our Senior Vice President and CFO, Jeff Bornstein, and our Vice President Power and Water Steve Bolze. We’ve asked Steve to join today to talk about the Alstom deal. Now I’d like to turn it over to our Chairman and CEO, Jeff Immelt.

Great, Matt, thanks, good morning everyone. GE had a good quarter in a generally improving environment. We saw a solid economic growth across most of our segments. Some economic indicators are really quite strong like rail loadings, revenue passenger miles, demand for commercial credit and appliance market strengthened during the quarter. Global markets were also generally positive. GE ended the quarter with a record backlog of $246 billion. A particular highlight was the payback of our investments in technology. We recorded $36 billion of wins at the Farnborough Airshow, transportation is prospering because of our commitments to push ahead with the Tier 4 locomotives, healthcare is gaining share behind several big product launches, in oil and gas the same broad interest to new subsea innovations. There are still a few tough markets like U.S. healthcare and mining but the economic trend is positive. At the half execution is in line with our key goals, industrial segment growth is up 10% with 6% organic revenue growth and margin expansion of 30 basis points. We're on track for $7 billion of capital earnings with the $3 billion dividend, capital allocation remains balanced and discipline, we've returned $5.9 billion to investors through dividends and buyback, we're improving the GE portfolio as well. The Alstom acquisition will generate attractive growth and returns while helping GE to accelerate our achievement of 75% industrial earnings. Retail finance remains on track for an IPO by the end of July. The GE team is executing both operationally and strategically. Orders grew by 4% with slightly positive pricing, backlog is at a record high as I said of $246 billion, up $23 billion from last year. This was the strongest service performance in several years with growth of 14%, aviation spares grew by 16% and power gen services grew…

Thanks Jeff. We've had a lot going on with respect to the Alstom transaction. And I wanted to update you on the deal, our revised structure and our execution plans. As you recall from our initial announcement on April 30th, the acquisition of Alstom's power and grid businesses would represent a largest single acquisition in GE's history. At the time we said it was subject to several reviews including our discussions with the French government. Those discussions have led now to our revised offer. We are happy with the outcome and have the unanimous recommendation of the Alstom Board and the endorsement of the French government. A key point that I would like to stress is the deal economics remain the same and the price did not go up. Our deal is $13.5 billion of enterprise value at 7.9 times EBITDA and Alstom still retains its transport business. We have however revised the initial deal structure in payment terms. We will be selling our signaling business to Alstom transport and creating three joint ventures. GE will have operational control in these joint ventures and Alstom will be investing about $3.5 billion for its stakes. I will give further details on the ventures in a moment. Although the structure has been modified our strategic rationale has not changed. The power sector is core to GE’s future and it has excellent long-term growth prospects. Alstom Power and Grid are businesses we know and like and are being acquired at a good time in the cycle. What we like the most about Alstom is it complements us in technology, geography and they have great talent. It brings us broader scope and power, a larger installed base for services growth and larger presence in emerging markets. Together with GE this creates opportunities to improve…

Thanks Steve. I’ll start with the second quarter summary here. We had revenues of $36.2 billion, up 3% from the second quarter of 2013. Industrial sales of $26.2 billion were up 7% and GE Capital revenues of $10.2 billion were down 6%. Operating earnings of $3.9 billion were up 7% and operating earnings per share of $0.39 were up 8%. Continuing the EPS of $0.35 includes the impact of non-operating pension and net EPS includes the impact of discontinued operations. We had $41 million charge in the quarter in discops, primarily $30 million from WMC. WMC pending claims were down $700 million in the quarter and litigation claims were $1.3 billion higher. Reserves of $550 million are essentially flat versus the prior quarter with the slightly higher coverage of potential losses. As Jeff said, CFOA year-to-date was $3.4 billion. We added industrial CFOA of $2 billion and received $1.4 billion of dividends from GE Capital. Industrial CFOA was up 12% reported and down 41% excluding the impact of 2013 MBCU tax payments. This is driven by timing of orders and inventory build and was still on track for the $14 billion to $17 billion CFOA range that we guided for the year. The GE tax rate for the quarter was 19%, up from 17% last year bringing the year-to-date rate to 21%. As previously communicated, we expect the full year industrial rate to be above 20%. The GE Capital tax rate of a negative 13% was principally driven by the announced consumer Nordics disposition. The tax benefits from this transaction are anticipated to be higher than what we had planned for and with that we now expect a low single-digit tax rate for the full year. We recorded roughly $260 million of tax benefits in the second quarter to bring…

We have no change for the operating frame work for 2014, we expect double digit industrial operating profit growth behind solid organic growth and margin expansion. GE Capital earnings were on track for $7 billion excluding the impact of the preferred dividend. We will hit our simplification goals including a $500 million reduction in corporate expense we plan for restructuring to exceed gains which is a drag on 2014 -- benefit 2015 and beyond. Our CFOA and revenue remain on track. In fact I would say organic growth in probably closer to the high end of the range. We continue to move the company forward strategically. Our long-term investments in technology are really paying off with solid share gains and with the retail finance IPO and Alstom acquisition we are broadly reshaping the company. I am proud of the GE team’s ability to execute so well strategic and operationally on so many fronts and we're well-positioned for the future. So Matt, now back to you and let's take some questions.

Thanks. Christine, let's open it up for questions.

Thank you. (Operator Instructions). Our first question comes from Scott Davis of Barclays. Please go ahead.

Hi, good morning guys.

Hey Scott.

Thorough presentation, so I appreciate that. I guess since we've got Steve there, I think just some logistical questions on Alstom. I mean did they still, I mean how do you keep the price from falling apart, I guess from now until you close it? I mean did they still bid on projects and compete against you till your close? Do you have some any control or oversight of how operations -- how things are run between now and then, because it's going to be a little while till everything gets approved?

Scott, listen we are two separate companies and we'll be through closing. As we said we have an integration planning effort that we have now kicked off, but we have a process that we have to go through works council approval to have a shareholder review and we have all the various regulatory steps to go through. So at this point, Scott they are separate, in some areas we do compete. But as I mentioned earlier these companies are largely complementary, complementary towards the geography, technology and it's a company we obviously know. And as you know Scott back in 1999 we bought the packaging business that was EGT that came to us and some of our best leaders came from that. But in the short term we are separate and they are under their control.

Okay, understood. And then couple of a niche here. I mean is there - when you think about Synchrony, is there and this is for Jeff and Jeff. But are there any structural or tax reasons why this business can’t be sold in the process or post the IPO versus spun?

Yes, Scott. I mean the reason we focus and we’re heading down the path on the split is that it’s very tax efficient for shareholders. So there is real value creation in doing the split offer, shares versus selling the business outright.

Okay. Fair enough. And then just lastly, there is a lot of chatter on M&A in the space. I mean there is pressure points out there on Siemens and Dresser, does Alstom really cut you guys out at being able to go after some of the stuff if it becomes optimistic and you have white knight type scenario with Dresser? I mean it’s a fairly unique asset. I mean could you -- I don’t think I am asking you to comment just specifically on Dresser but on an overall basis, does Alstom really keep you out of the market or do you feel like you could still go in there and if need be issue equity or be creative about how to finance it?

Yes, Scott. What I would say is on -- in our oil and gas business, we feel like we’ve got a great coverage in terms of where we are right now. We really don’t have any changes today on how we think about capital allocation and things like that. But look, we’re always looking at the portfolio in terms of additional divestitures and things that we can do progressively inside the company. We’re not done with that yet. And that can open up new capital allocation options. But we’re really not -- we really today -- our focus is on -- our near-term focus is on the Alstom integration and doing a great job with that.

Okay, good answer. Thanks guys and good luck.

Thanks.

Thanks.

Thank you. Our next question is from Julian Mitchell of Credit Suisse. Please go ahead.

Hi, thanks.

Hey Julian.

Hey. Just had a question on the healthcare business. You talked back in December about how you might get close to 10% profit growth this year in healthcare, first half I think profits are down. So just maybe a quick update on your thoughts there?

Yes, Julian. I think what we talked about was healthcare profit growth of high-single-digits, low-double-digits. I think given how we’ve started the year, particularly in the U.S. and particularly in HCS, our expectations as of now are that we’re going to grow operating profit in healthcare single-digit a share.

I would say Julian the U.S. market continues to be tough. Outside the U.S., I think the team’s executing pretty well overall. I would agree with Jeff’s assessment on where healthcare are coming on the year. And I think the good part about GE is we have other segments that will be higher than our original expectations, so in total we still feel good about the overall framework of double-digit operating profit growth, industrial operating profit growth.

And within healthcare, I mean we still expect that we have expectations that growth markets will continue to grow for us, most of them double-digits, life sciences will have a great year, but the U.S. is going to be real headwind.

Thanks. And then just on the kind of GE-wide EBIT margin bridge I think in the first half, you had a value gap benefit to EBIT of about 200 million, I think in January you talked about a 200 million benefit for the year as a whole. So what should we expect for value gap in the second half as a EBIT driver?

Yes. So I think the guidance we gave is a couple of hundred million for the year; we’re in very good shape through the first half. We still expect value gap to contract a bit in the second half as it relates to prices, we ship backlog particularly in power and water. But there is a chance, we could be a little bit better for the year on value gap but I wouldn’t expect it to be markedly different than what we have shared with you previously.

I think [simplification] [ph] still on track for $1 billion plus for the year.

Great. And then just lastly for Steve on the grid business, Chinese competitors have made very big inroads there, even on areas like HVDC is the last decade. How confident are you about the ability to bring up the grid margins given the competitive landscape is so different now?

I think what you saw from the results in the quarter is that team is making progress. And one of the thing that business also needs long-term is scale. And that’s one of the things we talked about with Alstom in our integration planning. One of the joint ventures we have is right in that space. We will be putting our digital energy business with the Alstom grid business to have more scale globally and be able to compete with the people like ABB and Siemens. So I think we are on the right track.

Julian, if you look in the industry ABB is 15 plus, Siemens is double digits, our combined business will be 5% to 6%. If we can get from 5%-6% to 10%, we are going to create a bunch of shareholder value here in terms of where we need to go. And I think that’s our game plan in terms of how do you be a more competitive enterprise on a combined basis.

Great, thank you.

Thanks.

Thank you. Our next question is from Nigel Coe of Morgan Stanley. Please go ahead.

Thanks. Good morning.

Hey, Nigel.

Yes, just a quick question on Synchrony. Obviously you are pushing the button today on the road show but once that IPOs what happens to the accounting for the retail funds business; does that move as an investment or does it qualify for discontinuation?

No, will continue accounting for it and continue our operations and we'll account for the public ownership, roughly 15% as minority interest.

Okay. No, that's very clear. And then just switching to the H; you’ve got nine units in your order book. And I'm just wondering Jeff, you mentioned that EPG that's I think roughly 35% on the proposal, I'm just wondering how that number’s changed?

The H, just to follow up on your question there Nigel, as we said we have nine now in the process and our first one ship next year and the demand is around the world and you see demand also in this high efficiency segment continuing to move forward, a lot of focus on area; there are multiple people in the space, but we are happy with our progress. And as you heard from Jeff Bornstein, if you look at our gas turbine orders through the first half, we're 41 versus 32 last year. We're making headway towards the framework that we put out earlier this year of about 125 for the year.

How many in the bid cycle?

In the bid cycle, H probably north of 45, 50. So there is a lot of activity around the world.

Thank you. Our next question is from Jeff Sprague of Vertical Research. Please go ahead.

Thank you. Good morning.

Hey Jeff.

Hey. Just a couple of kind of deal related questions. First just Steve or perhaps Jeff Bornstein, but the JV structure and the put structure as it relates to that at Alstom, can you give us a little more color on how that works and how this floor mechanism works?

Absolutely Jeff I, the mechanics, two different structures but it's clear on how Alstom gets liquidity. And in each case, Alstom would have the right to sell all of its shares in the JVs to GE at a price that would return Alstom’s investment plus an annual accretion in line approximately to our borrowing costs. Additionally there is an opportunity for Alstom to share and some potential upside based on a predetermined EBITDA multiple. The timing of those outputs are slightly different grid and renewables more in the three to four year timeframe for the [nuclear] and French steam JV more in the year 5, 6, 7 timeframe but it’s clear we know how it works and pretty straight forward.

If those things go [south part] you still own that making them hold at their investment plus some accretion?

That’s correct. In terms of their whole and some slightly return as we talked about. But at this point we maintain operational control. We named the CEO and we know how to get after the synergies.

And then I was also just wondering shifting gears on Synchrony. I was a little surprised to hear late 2015 is kind of the split-off target given that looks like you’re getting this done mid ‘14 I would have thought maybe six, nine months of seasoning would have been enough and this would be kind of an early ‘15 split. Can you share any thought or philosophy on that?

Yes. So we’re on the timeline we talked about for the IPO. We’re talking in the second half of ‘15 now. I think just based on the amount of work to get the standalone ready and to get to where we need to be with regulators and get to the approval process. We think that’s probably closer to the second half of ‘15.

Yes, Jeff, we’re not going to keep it a day longer than when we get approval to do the split. So it’s just really letting it season as all we’re trying to just allow for a little timeframe for that.

Thank you. Our next question is from John Inch of Deutsche Bank. Please go ahead.

Thank you, good morning everyone.

Hey John.

Good morning. So Alstom, back to Alstom. When do we get a full handle on the EPC liability risks that project death and life? And as the crawlery just to wait until the deal closes to communicate that if there is something that could be material that you might have to true up or top-up with GE Funding?

Why don’t I step in on that one John. Listen, there is nothing new to report here today, you're talking I think about turnkey projects that they have. We get public company due diligence, so there is a certain amount of detail that we have got the exposure to. And with that, we've accounted for that in our financial model, but there is always going to be things we find as we go through the process. But I say at this point, this is a business we know well, we factored that in and we have some synergies to offset as we go forward. So at this point, we just got, we think we got to come.

John I would just add that and say really a business in an industry that we've been in for 100 years. We've done at once with Alstom, so we knew a little bit from 1999. Deals like this come around infrequently particularly at this kind of valuation, so 4.5 times EBITDA after synergies and synergy pipeline that adds up to more than 1.2 billion. So there is always a lot of discussion around deals like this, but the overall economics are extremely compelling for investors in light in our sweet spot vis-à-vis the ability to execute.

Thank you. Our next question is from Steve Tusa of JPMorgan. Please go ahead.

Good morning.

Hey Steve.

So just at a high level first and I have a follow up on power and water mix, what offsets the healthcare revision in framework?

Well we generally expect the businesses within the framework I just shared with you in December to be within that framework and.

I think Steve aviation is certainly doing better and oil and gas is off to a good start for the year and we expect energy management to deliver…

Across the portfolio we think we are still within framework we have shared with you.

Okay and then just on power and water I guess this kind of goes to the next question. When you look out to the second half I think you have the thermal deliveries are going to be up, it looks like distributed power faces pretty much tougher comps and the orders aren’t holding up there so maybe that’s a little bit lower. How much better or against Advanced Gas Paths going to be in the second half and is that enough to offset what would seem like ongoing negative mix when you look at thermal being up and distributed power being down?

Steve as we look at Advanced Gas Paths we have got 19 shifts in the quarter, 36 year-to-date versus 14 last year. So we are clearly on a better path this year on Advanced Gas Paths. My guess is as we look at the second half of the year we are going to see the second half kind of more level loaded with the first half so therefore it might be 70ish maybe a little more. So that’s why when Jeff Bornstein talked about Advanced Gas Paths we feel little better but we do have some probably some softness in the distributed power area. So that’s how we, kind of how we look at that.

Thank you. Our next question is from Joe Ritchie of Goldman Sachs. Please go ahead.

Hi, good morning everyone.

Hey Joe.

So to-date, I think you've announced dispositions of roughly a little over $1 billion; you think you've got a targeted number of $4 billion. I was just wondering, if you could give us any update on the timing there? And Jeff, you made a comment earlier that you like where your portfolio is today on oil and gas, so I was wondering what areas you would be looking at specifically to add across your industrial portfolio?

Well Joe, again, I think we never like to talk about dispositions and so we actually see them, but I would say we are on track for the $4 billion and we would expect additional announcements as you look at how the year unfolds, but those things happen as they happen. And on the buy side, look we always have a list of stuff that we do. I think the question that Scott asked earlier was really a more along the lines of Turbomachinery and packaging and things like that. We feel like in oil and gas, we feel like we've got a great portfolio in that particular segment of oil and gas. And I would just circle back to the big priority of the team really is the Alstom integration and that's where the main focus is right now.

Thank you. Our next question is from Deane Dray of Citi Research. Please go ahead.

Thank you. Good morning everyone.

Hey Deane.

Hey. Jeff, in your opening remarks, you touched on there were some push outs and you said wind, oil and gas, and subsea. And I was hoping you could quantify a bit as to what the size of those or maybe by geographies any reasons and is this project timing or customer confidence?

Yes Deane, I’ll give you a few pieces of it. So within power and water and wind, we had 400, 500 wind units that moved out of the quarter really just awaiting clarification from the treasury department on what constitutes start of construction to be eligible for PTC and these are projects that evolve bank financing and tax equity investors. So, very tough to move those projects along until we’re absolutely certain that they’re going to qualify for the PTC. We expect that clarification to come from the treasury in the next week or two. And we’ve seen that clarification and we think it’s helpful. So, that’s one example, that’s over a $1 billion of orders. And then in subsea, we have a couple of big projects. Of course that we’re hopeful that we’ll see here certainly in the second half as soon as possible would be great, that’s well over a $1 billion as well.

Deane, on this, there is I think three big subsea deals, two of them have been awarded us, so it’s just a function of getting the kind of project approval and stuff like that.

We’re waiting for financial close…

We’re just waiting for financial close to put the order.

Thank you. Our next question is from Andrew Obin of Bank of America. Please go ahead.

Yes, good morning.

Hey Andrew.

Good morning, yes. Just with Alstom and with Synchrony, and also you guys are going to do divestitures. What is the rest that some of the restructuring actions get pushed back with active portfolio reshaping going on, just thinking about management bandwidth this year?

Zero.

Andrew I just think zero. Our intent is to get to the 75-25 by ‘16 and still do the simplification that we’ve got going right now and the teams are executing along that track.

I would just add Andrew, as long as we’ve got a project list it looks like year and half pay backs, those returns on investment are incredible and we will do every one of them.

Thank you. Our final question is from Steven Winoker of Sanford Bernstein. Please go ahead.

Thanks.

Hey Steve.

Hey, good morning. Thanks for putting me in. I appreciate the transparency and speed that which you are moving through this. Couple of questions here, the first one, just clarification on GE Capital. The $3 billion of dividend; how much specials in there?

We're estimating a $2 billion income dividend and about a $1 billion special.

Okay. And is there any room for movement around that special in your view, up or down?

Not likely.

Okay, alright. And then Steve, and so I’ve got you on power gen. What -- we look at the thermal rate which is also lumpy and down again this quarter but what headwinds are you starting to see or anticipate in the future on the distributed generation and roof top solar front versus the impact on power gen and you've got energy efficiency, you've got solar finally making inroads? Are you guys thinking about that as a headwind at all to growth in the core area?

Steve?

I think it's a great question. I'd say you are seeing the impact of less load growth, electricity load growth, because of the distributed generation technology, solar energy storage et cetera. But what I would say is in aggregate though there is still electricity load growth. And again, a lot of those technologies still are less than 1% or 2% of the total load on the system and still 70% of all new power generation, new equipment purchases in the world are in developing regions. So this is something we got to look at on a global scale. So overall, I'd say we play in pieces of that. And I think you'll see us over time build out the portfolio in spaces but…

In the DP businesses, Algeria, Brazil, Thailand, those aren’t solar places, that’s where the DP business really goes.

Right. So, I would say overall it’s an opportunity for us and we go from there.

Okay, great. We’re bumping up against 09:30. The replay of today’s webcast will be available this afternoon on our website. We’ll also be distributing our quarterly supplemental data for GE Capital later today. A couple of announcements regarding upcoming investor events: First, on Wednesday, September 10th, we will hold our Oil and Gas Investor Meeting in New York City; on Thursday October 9th, we will hold our Services and Industrial Internet Investor Meeting in conjunction with the Mines Machines 2014 Conference in New York City. We hope to see you at these events. Finally, our third quarter 2014 earnings webcast will be on Friday, October 17th. And as always, we’ll be available today to take questions. Thank you.

Thank you. This concludes your conference call. Thank you for your participation today. You may now disconnect.