GE Aerospace (GE) Q1 2015 Earnings Report, Transcript and Summary

Okay, welcome everybody. Thanks for coming to our Annual Industrials Conference. We’re excited to have you all here, we’re excited for what I think we’re going to deliver in the next two days. I believe we have 62 companies in attendance, well over trillion dollars of market cap, this is an unusual -- those who've been to this conference in the past, it's an unusual mix of folks, I’ve been running conferences for 15 plus years and this is the highest percentage of portfolio managers and generalist of any conference that I’ve been around, it's plus 50%. So, we generally tend to get a really good healthy mix of different styles along not only different market caps and hedge funds as well and it really helps. So couple of things that we do that’s a little different at this conference versus maybe some of the others that this a Q&A conference and we would love to get as much audience participation as possible, we'll have mic runners and such and you can ask your questions, we also have the audience response system which is a -- which is something we started with few years ago experimenting with and now we have a time series of data really interesting. And so, there will be six questions that we ask in all the sessions over the next two days and try to come up with some conclusions as for where the sentiment is on the Group and individual stocks and such to ask that we publish the data and we make it available to you. We have an analyst round table at the end of each day which is an opportunity since many of you might be sitting in one-on-ones or certainly with four tracks can’t attend every session, it gives you an opportunity to come and listen to us for an hour we serve [indiscernible] and snacks and come listen to us for an hour and here is some of our takeaways from maybe sessions you weren’t able to sit in on and we try to come up with some macro takeaways for sure and then the audience responds to some questions we can read out the answers too and all that stuff is anonymous by the way, we’re not tracking who is doing it, so we'd love you to participate, the more people, the better quality of the data. So look, we’re kicking off this conference with GE, we’re thrilled to have Jeff Bornstein here, who is the relatively new CFO of GE. Jeff has been in this role about 18 months. He was here at this conference a year ago, and so I think one of his first big public events and the feedback has been exceptionally positive I think across the board of the energy level that Jeff has brought into the role, the cost cutting initiatives which are really starting to bear fruit and the messaging, I think GE has been a frustrating stock for many people, we find it to be incredibly interesting particularly here at when you're closing on a 4% dividend yield it's out of favor, oil and gas is the flavor of the day, that one of the reasons why I [got to] favor, but I think we can -- I think that’s in numbers at this point, so hopefully and that’s like I don't think oil and gas for GE is proportionally that much worse than every other company we cover it's about the same really and runs through the math, when you think about second derivative impacts GE is just a little bit more direct. So with that we’re going to kick-off with Jeff, Jeff has been with GE about 25 years and again I have -- we beat up on him a little bit last year because he was new in the role, but I think he has earned the right to really kick it off here and give us a state of the union, maybe one of the things we can start with Jeff if you don’t mind is just a update of what you're seeing in the world, maybe update us on what you -- summarize what you told us on the quarter or anything that you think is relevant to the GE store and we’ll go into the more proper questions.

Well, there is no question that volatility continues to be pretty dramatic in the world whether you are talking about, Central Bank policy and the impact on exchange rates, what’s going on in the commodity markets particularly around oil. It’s I think for the most part it’s the new norm and so for us we’ve got to figure out a way to grow and proposer no matter what the environment is. And I think that’s one of the strengths, when we look back at 2014 despite all that volatility we still managed to grow organically above 7% which I think we felt quite positive about and that’s partly driven by lot of new product introductions, investments we’ve made over the last number of years that are really differentiating a number of our businesses and the investment we made in global growth four or five years ago which was no small investment to grow in the growth markets and expand the GE footprint across about more than 180 countries and so we need to win where the growth is happening where investment's happening, so I think 2014 was a testament to some of those early investments. And I think it’s interesting I am not an economist but there is no question at least in my mind that the cut in the oil prices is going to be a stimulate of dividend if you will to consumers globally when you think about places like the U.S., Europe, China, Japan, India which are big energy importers, I think this could meaningful from a simulative effect. And maybe we’re going through a little bit of a change here as the growth over the last five to seven years has all been about growth markets, emerging markets and we maybe pivoting a little bit here to where the developed markets are more interested than they’ve been in the last five or seven years. And as fast as we've grown outside those developed markets over the last five to seven years, they’re still our biggest markets in terms of revenues. So I think there is an interesting change going on today and hopefully it play to our strength. 2014 we made a number of commitments I talked about them I think when I was here last year we said we take $1 billion of structural SG&A out, we took $1.2 billion I told we paid 500 million of corporate cost out, we took closer to 950 million of corporate cost out, we said we grow organically 4 to 7 we grew 7, we said we expand margins, we expanded margins 50 basis points, we said we’d be above middle of the range on [indiscernible] and we’re above the middle lower range on CFO guidance. So generally speaking I think from an execution standpoint we delivered most of what we committed to in 2014 but maybe more importantly is how the portfolio changes we made last year. So we’ve tried to be circumspect about where we’re putting our money to work and how we’re allocating our capital and making sure we’re putting that capital to work in places where we really have sustainable long term competitive advantage and where we can grow importantly not just the OEM side but the service franchise of that install base. So a couple of big decisions last year we did the initial public offering of Synchrony our U.S. credit card business I think that’s gone phenomenally well hopefully you all participated in that. I think the stock today is trading at $20 billion market cap roughly, pretty amazing, a great franchise. We finally bit the bullet on our GE Appliances, an iconic GE company for the better part of a 100 years but the truth of the matter is Appliances didn’t leverage what we call the GE Store so our corporate research, our software COE, shared services, all those things that the GE business has leveraged to create value and contribute to in terms of technology et cetera, Appliances really didn’t leverage any of those assets, so we made the decision to sell Appliances and we hope to close that transaction mid this year with Electrolux. And then lastly we committed to buy Ostrom and we kind of looked at Ostrom as a game changer long term, it’s probably the only meaningful transaction that will probably happen in that space [and our right progress]. We think it’s extraordinarily compelling and helps a lot if the price is right. And we’re about nine months into the process here and I think that we are as excited if not more excited today about the transaction as we were last April when we first talked to investors about it, the synergy list gets longer and longer we didn’t talk much about revenue synergies purposefully when we talked about the transaction, I know that list is growing enormously. And I think we’re quite excited about where we’re going also. So all of this is part and parcel of the commitment we made 18 months ago roughly two years ago on remixing the company 75% industrial technology, 25% financial services. So we continue to shrink GE Capital and continue to deemphasize the non-strategic elements of GE Capital and gets smaller as we grow and invest in the industrial business. So if you look at industrial plus corporate, earnings last year were up 10% ex-restructuring and the effects of MBC we expect this year to grow significantly faster than that and we expect to grow again in 2016 on industrial earnings. So I don’t know that’s a little bit of...

Yes, that’s a great summary. I was reading with by the market share data to our power gen as we’re getting the core data on the airplane that we had done yesterday and it’s amazing you guys have won 52% market share in the last year, our forecast is 35% and I believe your market share over the last five years was something in the neighbourhood of 45% or 46% if my math is right. Which again is our long term forecast has been more around 40%. So you won share in power gen, I think it’s pretty clear you won share in medical so what’s going on with Siemens itself through that data you are winning 100% market share on locomotives, this cap has prompt experts to shut out of the market right now, till like mid-2016, I am sure I am forgetting other businesses -- aircraft engines, you have done great on a commercial side, defenses a little tough, commercial has been trying to uptick. But the skepticism I get from folks many in the audiences is did you price those contracts when that share was in that margin to make shareholders happy?

So, listen I think that are you going to be in the game to start, right, if you're not taking orders, the margin discussion is [worthless]. So that’s a pretty good run down, I think we if you don’t mind spending just a minute -- so you think about PowerGen, I don’t love the timing in the Mccoy data or reports, I'd rather this to be a European process, nonetheless the -- a year ago I was at this conference and was having lunch with a bunch of investors and they were all over me about how another gas serving competition that's not German was suggesting that they were going to absolutely eat our lunch and they have [indiscernible] serving space et cetera et cetera. And at the point in time I wasn’t ready to really talk in detail about, we had officially launched it, and I said just hold the thought. So, we’ve launched the H-turbine in the first quarter of last year, we take -- we’ve got 15 years in backlog, we’ve been with one technical selection on 30 and we’re bidding another 60 to 70 as we speak, this is by far within the gas serve and PowerGen space the most successful launch of a product we’ve ever had. And it really has been a leap front in technology build around efficiency. So, we’re very excited about it. Same-store transportation in Tier 4 we invested when everybody else was not, when customers were telling us they didn’t seek demand for locomotives, we ploughed ahead and so we’ve got this now [indiscernible] is a very good company, they have great technology, they are going to have a product. But we’ve got this window, we got to take advantage of it and our equipment business it's all about growing the install base, we make most of our money as most of you know servicing the stuff longer-term and adding value afterwards. So it's a big deal for us to get this locomotive, we have more than 20 locomotives today on a Tier 4 running on the rails, so we’re -- I think we are in excellent shape there and then you mentioned Aviation, I think we’re -- our narrow bodies were 79% of share I think when we were head-to-head in this [turbo fan] or about 54% share on the Airbus A320 that we have the GEnx we have a bunch of launches there. I think what’s interesting about all of those investments is, those investment decisions many of them particularly in the case of Aviation to some degree transportation et cetera were made when those businesses were not doing well, where their markets were in very rough shape, but the balance of the GE portfolio was strong enough for growing and allowed us to invest when the market was going the other direction, we made the decision around a lot of these platforms in Aviation in 2001, 2002 right after 9/11 with the advent of SAARS, revenue [indiscernible] was in Asia at the time were down 30%, it was absolute carnage and we made multi-billion dollar decisions to make sure that we were there for the next generation and that’s what you see playing out today. So that strength is a big deal for us in terms of our ability to invest in down cycles and I am sure we’ll talk about oil and gas, but that’s a way -- incarnation of that in how we manage and through that will be [almost] important. We are absolutely inequitably focused on margins and not just because -- and when I say margins I mean both gross margins and operating profit margins, not just because of all the good things that come with more profitable [indiscernible] collect more money, you can now [look at it little bit] but as important as technology and value of our product is to winning, you got to be the real value for customers is when you deliver that technology of that solution at the right price point and from a competitive perspective and that right price point is going to be built off low class cost and we got some work to do there in a number of our businesses. So, I can tell you we are grinding like crazy on the gross margin commitments that we made, we said we grow gross margin this year about 50 basis points at the segment level, I spent the last 10 days take two, three four hour reviews with Dan Heintzelman with each of our businesses grinding through every single dollar, making sure every single dollar and product and service cost [indiscernible], there is a game plan, there is an action deck, so we are absolutely all over this. I’d say the last thing is the speed with which we get the mature cost and some of these technology introductions is critically important. So, when you think about the H-turbine, we’re going to get through to across in H-turbine in probably half the time it took us on the [indiscernible] in the LEAP Engine, we’re going to get there much quicker than we got there on the GEnx. So that’s a big part of this gross margin story is you can’t spend three, four, five years getting down the cost curve as volume rent, you got to find a way to get there on the floors of the first few units out the door. And so, we are absolutely focused on that as well, with all these new introductions.

Okay, good answer. Let's go to the audience response question, I just don’t want to forget, so you all have this fancy handheld device in front you, you currently own the stock yes over weight is number one, number two is yes equal weight, number three is yes underweight and four is no. Please vote, yes you can vote now, you’ve got about 10 seconds in a couple of sessions we'll have this all figured out. Okay, all right. Only 15% of the audience is overweight the stock and there is a fair amount of non-owners. Let’s look at last year’s data and compare if we have the same thing. Okay, so we have with last year’s data then we’ve got the two year average we have a larger proportion we’ve got a smaller proportion of over weights now than we’ve had in quite some time. Okay, so that leads me to the next question of what is it that investors are struggling we’ll get to this in a sec, but what is it that investors you’ve been out in the road now for meeting with people you’ve been in job for 18 months what is it that people are missing. Or flip that upside down and say what is it that the GE management team is missing that isn’t capturing the attention of investors and getting people to own the stock.

A couple of thoughts, I think when there is no question that this remix of 75-25 the commitment we made was as we do that and make GE Capital small [indiscernible] but we committed that in that process we were going to continue to grow earnings for investors over that period of time, so far we’ve done that. I think that there has been a lot of uncertainty around GE Capital and what’s the right size, what options do we have, what’s it mean to be a -- subject your dividend and capital allocation policy in GE Capital is subject to ultimately in 2017 to a formal CCARs process publicly et cetera. I think that’s -- I get a lot of questions around what the optionality or what’s the right -- and we are absolutely laser focused on monetizing the entirety of $130 billion red portfolio and we will continue to look at the balance of the portfolio and make sure it is we are staying in platforms that had real value. There is no question in mind the verticals in our financial service business are, aviation leasing business, our energy finance business, our healthcare finance business, are massively informed and add enormous amounts of value to our industrial businesses. The middle market are great platforms particularly domestically they are very-very good platforms and we just got to be laser like focused on those things that and the regulatory world we live in today that we can stay in and generate a return on capital that makes sense for you all and to the extent we can that’s stuff needs to get monetizing add capital returns to the company. So a lot of this is going to play out in the next couple of years, we are focused on being smaller and we’re focused on that remix. In terms of things that I am not sure investors appreciate yet we did do a mines and machines reading last fall around the industrial M&A and we are absolutely unequivocally convinced that this is in the next generation of service. I think it’s not going to be enough to be the [Whirlpool man and show items at whirlpool] to show up in the service contract people more and more customers want outcomes they want to variabilize what historically has been fixed cost. They want it. That’s putting a very different onus on companies like ours in terms of how we create and deliver value to customers. And we have been investing significantly in our own industrial internet capability including as we talked about last fall Predix which is the operating system that we’ve developed and we’re building out for the industrial M&A. Now I think there is an enormous optionality around Predix itself is the product. I don’t know if it’s going to be the Android or mobile telephony but there is enormous optionality there. On top of that we’re building what we call productivity apps that sit on top of that operating system that drive value for customers and I’ve got a million examples but if you just think about aviation our ability to use both applications on condition maintenance is hugely valuable to us and for our customers. So today in large part when we decided to pull a jet engine out of a Southwest plane we’re doing that on lean data so large -- it's not that serial number. But now we have the ability to do it the conditions of that serial number on that engine today those does or does not need to come off of 500 cycles to the extent that it can fly another couple of 1,000 cycles that’s real value to Southwest Airlines and its enormous value to us in terms of our service contractor Southwest Airlines. So our ability to deliver outcomes and value like this is really where the growth and services long term is going to come from. And we’re enormously excited about it. I think we’re in the early innings but its gaining momentum and I think over time people are going to come to realize this is really where the value creation going forward is. We can’t ever in our business model we can’t ever allow somebody different to mediate us from our install base that can never-never happen.

Yes. Let’s do the next question. There used to be clock in here too and I think when I repainted the place I forgot to put the clock back up. Okay, what's your general bias towards the stock right now positive, negative or neutral, let’s vote. Okay, it's not bad, let's compare to prior years and see what this means, all right substantially more positive than last year. Okay, is that two year average number right, could that be possible? It doesn't look accurate. I am not very good at math though.

That would say the 2013 was absolutely remarkable.

Well, you should fire the analyst who's in charge of that, I don't know who that guy is. Let's go to next question. In your opinion through cycle EPS growth for GE will be above peers in line, with peers or below peers? Let's do it, I think we should be more specific on industrial EPS, total EPS, but okay everybody vote, above peers about 60%, so clearly folks have been -- it's interesting they are more bullish on the peer group than which maybe they are more bullish in macro than…

Listen, I think part of the discussion here is and I think I was very clear with you and investors November ’13, I said we were going to invest in restructuring to make this pivot work into make our industrial businesses more competitive. So, we were in a $1.65 a share in 2014 including the $0.11 making charge associated with that investment, now I think you want us doing that and they are roughly 18 months' paybacks, it's hard to allocate capital on returns much better than that, so I think they make all the sense in the world, but if does have the effect of reducing headline EPS…

Also maybe speak to some of the skepticism asked and I’ve been amazed when I picked up GE back start doing the work in 2001, I read everything I could read dating back about 20 years, I was amazed how many people dislike the RCA deal in 1986 and it was every analyst on the street and I got a copy of I think every research report that I could find, every analyst on the street hated the RCA deal and that’s probably be one of the best M&A transaction in the industry of mankind, right, I mean we think about the value that was creating essentially got NBC for free. I went on record a year ago or wasn’t quite a year -- maybe it was year ago and said I thought the Alstom deal was one of the five best deals I’ve seen in my career and I’ve been laughed at, mocked many a times, what is that the people don’t get about Alstom?

I think that the push back idea when I get push back -- I would say now maybe not everybody is honest with me in meetings…

They are scared of you.

They are not, I don’t know why they would be scared, they own the company, I don’t know why they'd be -- most people I have met have been generally pretty supportive. Occasionally and when I've gotten push back here, it's mostly been around are you buying an asset a no growth asset, are you buying something that’s got less than GDP kind of growth over the long-term. I don’t get a lot of push back on the fact that there are synergies in this value creation opportunity, I haven’t got a while there, it's been more on the growth side about whether you can really drive growth across those asset base when you put the two of these together. Now we feel like we -- obviously we can’t and otherwise we wouldn't have done the transaction. And I think over the long-term I think Alstom does a number of things for us beyond solidify our position in the power generation space and particularly gas revenue and renewables and gives us the world’s best in turbine technology. It also meaningfully increases the install base of the company about 30% or 40% increase to our install base and we have demonstrated I think over time that we know how to build a very compelling service franchise around installed assets, say 30 plus percent margins are growing year in and year out and we can -- we think we can overlay that capability on Alstom's install base which is pretty substantive and although they have a decent service business, they don’t have all the tools and have not invested in all the technology that we have over time. So, I think there are compelling reasons to think that we can grow these assets over time in combination with our own and create enormous amount of value, but that’s the biggest push back I get.

Those deals not about growth are they?

No, it was not underweight non-growth.

Okay, let's go to the next question, I am sure we get through all these. In your opinion what you do with excess cash, bolt-on M&A, larger M&A, share repurchases, dividends, pay down debt, internal investments, so lots of options here, a highly varied group of companies at this conference, sorry we have to keep this fairly general, but why don’t we all vote on that and see folks think. Okay, share repurchases 56%, let's compared that to prior year, it'd be interesting to see what people say in other companies…

Yes, that will be helpful.

So hopefully this data is accurate just like it's higher level of the purchases, so that segways into my next question, which is one of the conversations I have with investors on GE is around the industrial balance sheet and as you take risk off of the capital side of the balance sheet and we re-risk industrial and also some of that dilution and I think that the general consensus we released that people aren’t asking GE to be less risky of a company, they’re just asking GE to be less geared towards businesses that lack competitive advantage specific competitive advantage, the certain bank assets.

Within GE Capital.

Within GE Capital, that’s right. So what is the push back? I mean I know we have to pay for Alstom, so that’s an issue right now but what is the problem? Is the regulatory challenges with the Fed is it the rating agency pushback I mean what’s -- I mean from what we can gather at least you could take on a of debt and buyback shares and it would have a meaningful offset to some of the dilution from the…

So we have both implicit and explicit support of GE Capital through the IMA and otherwise. We borrowed $300 billion of debt last year we had it some levers last year, we’ll be in the markets this year as well, we do have a maturity this year and we may do -- it’s the markets are incredibly attractive. So we may do a bit more than the maturity that we have this year in the fixed income markets. I think what you have to think about in balance is doing a substantial leveraging of the GE balance sheet to buy shares back we can’t today anyway we have a 360 billion E&I $500 billion asset financial service company that at synchrony is largely wholesale funded. So we have to be careful about the fact that although they’re much smaller in the capital markets today than they were in the go-go days by a long shot and the demand for debt from GE Capital whether that’s term debt or CPE is extraordinarily high. That support on the back of a AA company is extraordinarily important to that financial service business. And so I am a little bit reluctant to as what you described as risk is at the moment now as we continue to shrink GE Capital we’ll have more and more flexibility. But at the point in time we are today, I wouldn’t want to put the rating, the ratings impact on GE Capital I don’t think is a risk that we ought to be biting off at this point. I think we need to continue to stay focused on what we’ve told you we’re going to do and which is shrink GE Capital and as we shrink GE Capital our optionality and our flexibility will continue to increase.

Let’s do audience Q&A because I am sure there is a couple of questions out there, at least let’s get your questions ready and let’s do the next question on the ARS first and then we’ll go into whoever must raise their hand after that, let’s go to question five please. Do we have a question five? I think we do. Okay. In Europe what multiple of 2015 earnings should GE trade? This is PE, okay. And the answers are pretty explicit on there. So let’s vote on this. Okay, so let`s compare this to last year, it seems somewhat similar to other companies, I don’t think it’s that similar. Let’s do the last question so we get this out of the way. What do you see the most significant investment issue for GE core growth margins, capital deployment or execution strategy, this is from the eyes of the investors. So significant investment issue for GE would you care about core growth margins, capital deployment or execution/strategy? Let’s vote on this and then we’ll go to the audience. That’s interesting, okay. So I thought I would have expected margins to be the most important because that’s…

Well I think we’ve made a lot of progress and the one thing I would ask you to do is if you look at the individual business and the margin rates and compare them to their competitive set, so compare our aviation business against rolls and prior compare our translation -- our margins in most cases are best in class in the individual. So having said that there is more we can do.

Let’s look at prior years. Yes, it’s strange, so core growth had a huge step up. Let’s see what that trend is the next couple of days because your core growth has been excellent.

It’s been good.

Yes, it’s been excellent. Okay. So let’s go to the audience and if the audience involves some questions, anybody wants to kick it off at the back I can’t see who it is, the lights are in my eyes, but go, please go right ahead.

Actually I have a couple of questions, if you can help me. First question is on oil and gas maybe your view on at least the next year or two within your business and then separately as you’ve shrinked GE Capital to the tax rate of GE Capital's preferential relative to GE Industrial, just maybe your thoughts on how that shakes out from the earnings standpoint? And also the tax rate for overall GE as you kind of give up some of the advantages of being a lot larger, so both tax rate and also capital deployment GE Capital allows you to lever up a little bit more, your leverage GE Capital is an all-time low, I think just maybe some thoughts about that?

I didn’t get all of that, what was the first part?

So the first question was your outlook for the next year to the tune of oil and gas?

Oil and gas. Okay, I will come back and take that one. So what we said at year-end was we initially had a plan and that were for oil and gas going into the fourth quarter that was kind of 7% and 9% revenue growth and double-digit on profit growth and that obviously changed pretty dramatically as we got into the fourth quarter and what we shared with investors coming in out of the outlook meeting was that we expected the oil and gas business to be flat to down 5%. Now I didn’t need that, we obviously evaluated a lot of other much more severe scenarios and we have the team, Lorenzo and the team executing a plan that assumes a tougher market than down 5%. And what we’ve said is that even in those much tougher scenarios we still think we’re within the framework of EPS guidance that we gave at year-end for $1.10 to $1.20 of industrial earnings, before GE Capital. Now they are executing like crazy on everything they need to get done around cost, we will be -- our employment levels will be going down not just similar to what you see in the balance of the industry, we’re reducing the number of P&Ls, simplifying the organization structure, driving like crazy on material cost and conversion cost productivity, consolidating plans, everything you would expect us to do we’re doing to deal with this. Now what I think is important is through that process coming out the other side, we’ve got to be a much better stronger, more competitive business than we were going into this cycle that was true in the past, PowerGen, Aviation, when we came up the backside of the power bubble and power and water, we have one product it was a [indiscernible], you look at it say, we were more PowerGen today with a much broader diversification of distributed power, renewables, gas turbines, generators et cetera. So, when we come out of the outside, we’ve got to make sure that our oil and gas position is more competitively positioned to win long-term and take advantage of this volatility that’s happening now. It's also a huge opportunity for us to work with customers, I mean this is not -- from an execution standpoint this is the tallest industry in the world, I mean you got a competitor out here in an industry that has really struggled to deliver on time, on cost, on performance. It's not the Aviation industry for sure in that regard, at least the OEMs or Airbus and the engine [indiscernible]. This is an opportunity for us and we’ve been pushing us for a period of time to actually get it done is this industry needs much more, a much higher level of standardization and modularization, these bespoke solutions for every subsea, every LNG plant makes no sense whatsoever and we actually make less money as part of that because the engineering effort is enormous, we don’t make more. Now intuitively we might think we make more with every change that’s not the way it works, we’re in a much better position if we move up that competency curve like modularizing, standardizing design et cetera. So, we are spending an enormous amount of time for customers, we had the whole oil and gas industry in Florence at our facility a few weeks ago we spent, we’re very much aligned where we think our customers are going and we’re going to use this cycle as an opportunity to improve the business and get a position to even more compatibly than it was going in. What was the next question?

Yes, there was a couple of parts of that, and one was that GE Capital is under levered.

Yes, I think we feel like we have more, we have excess capital in GE Capital. Today we’re the way on an adjusted leverage basis where lever is roughly three-to-one we might be actually slightly below three-to-one and overtime we planned on giving that capital out and we go through CCAR process et cetera and we get to where we need to be with the regulators on a [indiscernible] we hope to get that excess capital out, there was something on tax rate.

And yes, that GE Capital has structurally lower tax rate.

It does, it has a structurally low tax rate, but it was a quite…

As you shrink perhaps the overall tax rate.

In GE Capital or for the total company?

For total company.

As we -- I don’t know everything else being equal, as we shrink GE Capital I don’t think that company’s tax rate might move a few 100 basis points, I don’t think it's a dramatic change, I think when you’ll see dramatic changes if we get a change in tax policy and tax rules, if we do get comprehensive tax reform which we absolutely support you will get a meaningful change in the company’s tax rate but even if GE Capital shrinks the proportion of our international earnings is changed and when it’s not changing the total mix of earnings and so I don’t expect that the company’s tax rate is going to markedly change in the next year or two.

Okay, let’s go to questions on the floor.

Just a little bit more on oil and gas please if you don’t mind. How much of your exposure is upstream versus downstream and [indiscernible] obviously was onshore but how much is offshore because arguably there is going to be a paradigm shift more shale, less offshore over the rig count offshore drop. So maybe speak to long term outlook of your offshore business.

So about 25% to 30% of our oil and gas business is what I would describe as kind of offshore, so subsea some of what we sell that’s above the platform on top, we look at our subsea business today, most of the revenue we expect to generate in 2015 is in backlog, these are much long -- as you know much longer cycle projects, the idea that you would stop or pause and in process the demobilization cost are absolutely enormous on these projects. So I think that projects that are in motion that we’re participating on are going to continue to be in motion. Having said that on new projects, new investment I think you should expect that a lot of these are going to get delayed or pushed to the right. Having said that we just got back from Africa and West Africa is going poor we are bidding some big-big multibillion dollar transactions in West Africa and subsea. But I think in 2015 subsea maybe and may end up being less of a revenue story and might be more of an order story looking beyond 2015. Then you get another 20% which is upstream which is onshore U.S. conventional little bit of you mentioned [indiscernible] and that business I think is definitely going to get impacted. I think that will we’ll probably see there is drilling where we make deal piece. I think as we’re going to see and are beginning to see the biggest deterioration we expect those businesses to be down year-over-year kind of double digits that’s the way we plan them, that’s the way we think they’re going to play out. And then when you get to downstream in M&C, measurement and control business, we think that going to be significantly less impacted, in total we’ve got slightly less than 60% of 2015 expected revenue in backlog so we’re not starting at a zero point here we’ve got ability to underwrite to some degree how we think 2015 revenue is going to come out. Obviously you’ve got 30%-40% at play but I don’t think downstream in M&C, M&C is 50% of that business is completely oil and gas unrelated it’s got very much an industrial focus. So that’s kind of the split on the business. So onshore upstream U.S. non-conventional and drilling BOPs I think are where we’re going to see the biggest impact.

Okay. We have 30 seconds left any final questions? Okay, look I want to thank Jeff. I want to thank the audience here for participation and patience and working through the first round of the ARS and thank you. Good luck.

Thanks for having me. I appreciate it. Good seeing you.

Yes. Thank you.