Good day, ladies and gentlemen, and welcome to the General Electric Fourth Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. My name is Ellen, 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.

Hello everyone and welcome GE’s fourth quarter 2016 earnings call. Presenting first today is our Chairman and CEO, Jeff Immelt followed by our CFO, Jeff Bornstein. Before we get started, I would like to remind you that our earnings release, presentation, and supplemental have been available since earlier today on our Investor website at www.ge.com/investor. Also some of the statements we are making today are forward-looking and are based on our best view of the world and our businesses as we see them today. As described in our SEC filings and on our website, those elements can change as the world changes. And now, I would like to turn the call over to Jeff Immelt.

Thanks, Matt. GE executed well in a slow growth and volatile environment. We see optimism in the United States, and here orders grew by 23%. In addition, Europe is strengthening and we see positive momentum. Meanwhile the resource sector and related markets continue to have headwind. As you know, we closed Alstom on November 1 of 2015. As a result, the fourth quarter of 2016 was the first quarter where Alstom was organic. So, I’ll give a few ways to look at the quarter. On a reported basis, orders were up 4% and revenue was flat. On an organic basis, in other words including Alstom in November and December in the organic calculation, orders were up 2% and revenue was up 4%. We also show the calculation that excludes Alstom results from the organic calculation, and segment operating profit grew by 6% in the quarter. For the quarter, we had some pluses and minuses. Orders were strong ahead of our expectations. Service growth was very strong for both, revenue and orders. Alstom synergies are ahead of plan. Some businesses had very strong years, aviation, healthcare and renewable. On the negative side, we failed to close a couple of big power deals in tough markets. And in addition, restructuring exceeded gains for the year. We are active in the portfolio in the fourth quarter. We announced the acquisition of LM renewables, strengthening our wind supply chain. We further simplified GE, announcing the disposition of our water and industrial solutions businesses. The GE capital team has done a great job. We closed $86 billion of asset sales in 2016 and the move to become an industrial finance company is very positive for GE. I am particularly excited about the Baker Hughes merger which creates a strong full stream competitor in the industry.…

Thanks, Jeff. I’ll start with the fourth quarter summary. Revenues were $33.1 billion, down 2% in the quarter; industrial revenues were down 3% to $30.4 billion. As you can see on the right side of the page, the industrial segment was flat on a reported basis. Organically, industrial segment revenue was down 1% excluding Alstom and up 4% including Alstom for the months of November and December for both 2015 and 2016. Industrial operating plus vertical EPS was $0.46, down 12%; excluding gains and restructuring which were a net $0.04 of a headwind in the quarter, EPS was up 6%. The operating EPS number of $0.43 includes other continuing GE Capital activity including headquarter run-off and other exit related items that I’ll cover on the GE Capital page. Continuing EPS of $0.39 includes the impact of non-operating payment; the net EPS of $0.39 includes discontinued operations. The total disc ops impact was immaterial in the quarter and down significantly from last year, which included the gain associated with the Synchrony exit. As Jeff said, we generated $30 billion of CFOA in 2016, up from $16.4 billion last year, driven by increased dividends from GE Capital. Industrial CFOA was $11.6 billion, down 5% excluding deal taxes and pension contributions. We generated $8.2 billion of industrial CFOA in the fourth quarter which was up 34% versus last year; this was driven primarily by $5 billion of working capital with an improvement across all buckets including receivables and inventory, accounts payable and progress collections. Industrial free cash flow was up 39% and free cash flow conversion was 212% in the quarter. On a full year basis, industrial free cash flow conversion was 84% excluding deal taxes, pension and Alstom. Adjusting free cash flow conversion for gains, free cash flow conversion was 106% for…

Thanks Jeff. We have no change to our 2017 framework. Let me take you through the pieces. Orders grew by 2% in the quarter organically; oil and gas seems to have bottomed; and services are very strong. Alstom is generating orders growth. So, we see a line of sight for the 3% to 5% organic growth for the year. We’re executing on $1 billion incremental cost outplay with plenty of restructuring to support it. So, we see our way to a 100 basis points of margin enhancement. Alstom is executing well and should have EPS at the high-end of our range, and we end the year with good momentum and working capital. Meanwhile, GE Capital continues to execute on their transition to an industrial finance company. So to confirm on 2017, we see EPS of a $1.60 to $1.70; operating cash flow of $16 billion to $20 billion; and cash to investors of $19 billion to $21 billion in buyback and dividends. So, a good outlook for the Company, a solid year in 2016, and now Matt, let me turn it back over to you.

Great. Thanks, Jeff. With that, operator, let’s open up the call for questions.

[Operator Instructions] The first question is from Scott Davis with Barclays.

I know we’ve talked in December about the election, but now that you’ve had a couple of months, I mean what are your customers -- I understand healthcare could get pushed out a little bit, but what are your customers in power and renewables and in some of these other areas where you could have some regulatory uncertainty; is there a risk that they push back orders or delay projects, things like that; I mean clearly just the U.S., but how do you think about that, Jeff?

Scott, I’ll take a crack. I would say, we haven’t really seen much change so far. I think if I took it by segment, the Affordable Care Act is getting the most, I would say both attention and the media and by our customers. I think you could see some caution around the Affordable Care Act as you go forward. We haven’t really seen that much, but that could happen. I think on the renewables side, really with the PTC over the next few years, I think that’s pretty much locked in place. And then, I still think the basic thesis around gas power in the U.S. remains intact as it pertains to being a base-load technology in the future. But then, I think outside the U.S., I really haven’t seen much change in interplay, post the election in terms of what our customers are saying and how to think. I don’t know, Jeff, would you add anything to that?

I think that’s the lay of the land, Scott.

The next question is from Julian Mitchell with Credit Suisse.

I just wanted to focus on aviation. So, I guess you had a very good EBIT number in Q4, helped by the gain and the high-teens growth in commercial spare sales. Should we think that that profit growth levels out in the first half of 2017? You don’t get the same growth rate in spares presumably LEAP shipments catch up after a light Q4. And then, also longer term, your commercial engine orders were down about 940 units in 2016 overall. How are you thinking about the cycle and your commercial OE revenues?

Well, let me start with the few things, and I’ll let Jeff weigh in. The gain was not recorded in aviation, okay? That was recorded at corporate; it was offset in restructuring. So, none of the gains results are reflected in the segment performance at aviation. We had a strong spares year this year; we’re up double-digits. Our expectation is the spares sales rate, the ADOR will not be up that strongly next year; we’re thinking high single-digits. And I think our expectations are as Jeff shared with you in December is that we’re going to continue to grow the operating profit in aviation actually notwithstanding the LEAP shipments. So, right now, our estimate is we’ll ship something close to 500 million -- 500 LEAP engines next year, and that’s factored into that outlook. And we expect the services business partly with the spares growth I just talked about to continue to grow smartly in 2017.

Yes. I think just to echo, Julian, what Jeff said, I think the two things I think about aviation is the business model as it pertains to services and revenue, cash flow models and things like that. I think investors should feel great about that. And then execution on the LEAP, and I think Jeff laid out the LEAP shipments; we’re kind of on learning curve. And those two elements I think really are the ones that dictate aviation growth. But we feel -- we think the aviation team did a good job in 2016, and they’re well-positioned to do another good job in 2017.

And their commercial equipment backlog is very strong. We took fewer orders on new commercial equipment engines in 2016, but the backlog is very strong.

The next question is from Steven Winoker with Bernstein.

Since I only have one question, I’d love to focus on cash here. And within that, Jeff, is there any factoring this quarter from GE Capital into GE industrial? And then also, while it’s the strongest cash flow quarter in a while, still a little bit below what we thought you guys implied when we talked about it before, and then as you think about it progressing through 2017 and beyond, maybe just talk a little more about kind of the cash flow initiatives comp that really can give investors confidence that the cash flow part of the story is improving.

Okay. There is a lot in that. So, let me start with the fourth quarter, Steve. So, we improved working capital in fourth quarter about $5.2 billion, which best we can tell is the strongest working capital quarter the Company’s ever had. And I want to just give you some of the thesis on that. So, within working capital, accounts receivable generated about $0.5 billion; $1.2 billion generation in inventory; $1.8 billion generation in AP, a lot of that being renegotiated terms. We talked about realigning or aligning suppliers with customers in terms of the time sync between build and collect. And then, $1.7 billion on progress, orders were a bit better; as a result, progress is a bit better. And that’s how you get the $5.2 billion. So within that, accounts receivable performance, you asked about factoring. For the total year, practically with GE Capital was at $1.6 billion change for the year. It was $1.7 billion last year. So, actually year-to-year, it was $100 million less of a benefit in the year between what we did with GE Capital around factoring. And in the fourth quarter importantly and you see it because our receivables improved $500 million is from the third to fourth quarter of 2015, the benefit was $2.3 billion, the benefit going from this past third quarter to this quarter was $700 million. So, it was actually down $1.6 billion year-to-year between third and fourth quarter each in those years. So, this very good underlying performance here, it’s not just about -- it’s actually very little to do with GE Capital factoring.

Steve, I would add. I think the one piece that we’re still not happy with in terms of Q4’s inventory, and I think we generated -- we reduced working capital by $3 billion for the year and still didn’t do, what I think either Jeff or I want to see on inventory. We expect inventory to go down by $2 billion next year, and we think that’s going to give us a momentum as it pertains to CFOA and working capital in 2017.

So, let me just follow-up and answer that part of your question. So, we came in $11.6 billion of industrial CFOA. We were shooting to be something closer to $12 billion of CFOA in the latest update we gave you. When you subtract CapEx and industrial free cash flow, we ended up at $8.9 billion, and that was actually right in the middle of the range we gave you coming into the year on industrial free cash flow. But the 400 light is really all about inventory, and it’s essentially the $1 billion roughly, the $1 billion sales miss left more in inventory than we expected, not all of that would have converted to receivables and then from receivables would have converted to cash, but a significant piece of it would have been. So, I would say on industrial free cash flow basis, a couple of hundred million lighter; on industrial CFOA, closer to $400 million lighter; and most of it’s about at volume not going out to door, not being rev rec.

And this is all in people’s incentive plans for 2016 and 2017.

The next question is from Steve Tusa with JP Morgan.

So, we are getting a lot of obviously questions around tax policy, and we’ve gotten a lot of questions from investors on you guys have a relatively low tax rate as it is, but there is some conversation we’ve had with investors that say you can go substantially lower, something like almost to like a zero to 5% type of range. I can’t quite get there just doing the high level math. So, maybe if you could just give us some color on how your tax guys are looking at what’s out there from a tax policy perspective?

So, at this point, see, this is all speculation. Right? I mean, the only point of reference you have is a little bit of what’s coming out of new the administration and then what exists in the form of the Brady bill in House Ways and Means. And I think what GE wants and what we think is most important to competitiveness for U.S. companies is essentially a competitive tax rate, something that looks more like the OECD averages, which is just roughly 21%, 22%. And this notion of territoriality that you pay the tax in the jurisdiction that you actually earn it and then from there those earnings are fungible and can move cross border. Those are the essential things. And then, as a transition item on historical foreign earnings, the companies left offshore, we want a reasonable transition tax if one is necessary in order to true up the historical performance. The real delta between that is a minimum to make U.S. companies more competitive, put them on an equal footing with most of the people we compete with, countries we compete with, is question about border adjustability. And as I am sure you understand and it’s the way border adjustability has been described, there is an incentive for exporters to export more, because there is essentially no tax on exports, and that’s about trying to drive more production and manufacturing into the U.S. So, if a company is net exporter, you could envision on the border adjustability, they pay a lot lower tax rate against those export against U.S. But you’re going to remember in the case of General Electric, 55%, 60% of what we do, we do outside the U.S. Order adjustability doesn’t impact at all what we pay for taxes in Sweden, Switzerland, or the UK, Japan and China. And so, although you may -- companies may find themselves in place with a relatively lower U.S. tax liability, I don’t think it changes in anyway how they think about what their foreign tax liabilities are.

The next question is from Andrew Kaplowitz with Citi.

Jeff, can you give us a little more color on your power business? It’s understandable that you would see some delays in shipments; it’s a pretty difficult market. But, did you see any incremental delays in closing deals toward the end of the year; and was it a result of GE being more careful around financing or customers just wanting to delay delivery? And then, you mentioned you still expect double-digit earnings growth in power, but how dependent are you on some of these delayed turbine shipments to reach your 2017 forecast?

Yes. So, maybe I’ll start, Jeff. So, a couple of things happened in the fourth quarter. We had six, arguably seven, but I would say six gas turbines that we absolutely thought were going to ship. Four of those were 13E2 class turbines that were going into Bahrain and Iraq. And these are enormously difficult geographies to get stuff done. And right up to the end of the year, we thought those transactions were going to go; they didn’t end up going. I think we are confident they will go in the first half of 2017. The fact with two 9Es that were going to West Africa, and as it turns out, in the end the customer came back and we thought whether they wanted 9Es which we had made an inventory and whether they actually might want to go with an H class turbine instead. So that likely will book as an order in 2017, not clearly yet whether if it converts to an H, whether we’ll ship in 2017. And then I’d say, the last piece is although for the year we did pretty good on aero turbines, we were up about 10 units for the year, we were down 10 units year-over-year in the fourth quarter, and we missed about seven trailer mounts in the fourth quarter. And again, we are talking about places like Libya, Iraq, really, really difficult geographies where we just didn’t get those short cycle convertible TMs across the finish line. I think our outlook for TMs and aero derivatives largely remains intact for 2017. They are just really difficult, difficult transactions to get across the line. And I’d say the last thing is, although we had a good AGP quarter, we did 145 for the year, very close to -- right in…

The next question is from Shannon O’Callaghan with UBS. Shannon O’Callaghan: Hey, just a follow-up on the power and also in renewables, as you think about ramping the development programs; both those segments on a core basis had margins down, power 150, renewables 160 this quarter. How do they turn around in 2017; I mean, do both of those still, do you envision the core piece having up margins and how much of this swing in the development programs is part of that versus other factors?

Maybe, I’ll start, Shannon. I think the development programs explain a ton of turnaround year-over-year. I think in the case of the power business, the H investment was -- I don’t know, $300 million or $400 million of headwind in 2016 versus 2015. We think most of that turns around. In the case of the onshore wind business, were going through a big product conversion process in 2016 as well. So, I think we feel like on both those cases, we should see core margin enhancement going into 2017, and that’s both on what I would say, both on the development side and also on the product cost side.

Yes. I think on the H, we just talked about that, both price and unit cost, and less development cost. I don’t think it’s more complicated than that. On renewables, you don’t have the price element; price is a real challenge in onshore wind turbine. Some of it’s the competitiveness around giving the repower -- I’m sorry, the PTC Safe Harbor orders. So, in renewables, it’s a little bit of program cost around the 2.X turbines and 3.X turbines, it’s a lot our about product unit cost and volume. So, we’re going to ship order of magnitudes a number similar to what we did this year, roughly 3,000 wind turbines. But in addition to that, we’re likely going to do more than 800 million -- 800 repower units in 2017. So, we expect the volume to be up materially and that also to contribute with volume leverage to the margin improvement year-to-year.

Our final question comes from Andrew Obin with Bank of America.

Just going back to the question overall revenue, as we look at your revenues versus consensus, it just seems that revenues are relatively weak relative consensus across the board. And usually, you guys hit the numbers pretty close. And it’s not just power, it seems to be across the board. And just has anything happened broadly in the last two weeks of the year after the analyst meeting to drive this slowdown; is there sort of a broader development that explains it? Thank you.

I mean, I think Andrew, I would say the fourth quarter organic revenue was power up 15, renewables up 26, oil and gas down 21, aviation up 6, transportation down 22, healthcare up 3, and energy connections up 16. So, the total organic revenue growth was up 4% for the quarter. I think clearly power is explainable. I think clearly oil and gas, even though I like the orders performance in oil & gas, it’s a harder segment to call. I think other than that, Andrew, it’s really just noise. It’s $31 billion or $30 billion to $35 billion a quarter. There is going to be puts and takes on a revenue line. But I think if you go down, if you think about 2017 as being an organic guide of up 3 to 5, and you’ve got 4% organic in Q4 in revenue, I feel pretty secure about the 3 to 5 guide for 2017. I just think you’ve got to look at it that way. Look, power didn’t do as much revenue as we would have liked. It was still substantially up organically, up 5% organically without Alstom and up 15% with Alstom. So, that’s not bad.

I would just add to that, Andrew. So, power is like no question; oil and gas is like mostly transaction of convertible volume less than the team was forecasting. Everything else is actually better. When you add up the rest of the portfolio against our framework, they came in higher on revenue.

Oka, great. Couple of quick announcements before we wrap. The replay of today’s call will be available this afternoon on our investor website and our first quarter 2017 earnings call will on April 21st. We’ll also be holding our annual shareholders’ meeting on April 26th in Asheville, North Carolina. Jeff, back to you.

Yes. So, Matt, just to wrap up, again, I think the team’s focused on 2017. Here is the ways that the GE team is compensated as they look forward into next year, 3% to 5% organic growth, we just kind of went through the pieces of that; 100 basis points of margin enhancement, I think combination of run rate and incremental cost out actions already in play; and strong free cash flow and dispositions. I think good momentum in Q4, more work to do, but I feel like the momentum around the Company is very good. So, we are aligned with what we showed you in December and off and executing. Thanks, Matt.

Thank you.

Thank you. Ladies and gentlemen, this concludes today’s conference. Thank you for participating and you may now disconnect.