General Electric Company
Q2 2007 Earnings Call Transcript

Published: 13 Jul 2007

[Operator:]

Good day, ladies and gentlemen, and welcome to the General Electric second quarter 2007 earnings conference call. (Operator Instructions) I would now like to turn the program over to your host for today's conference, Dan Janki, Vice President of Investor Communications. Please proceed, sir.

[Dan Janki:]

Thank you. I'd like to welcome everyone. Joanne and I are pleased to host today's conference call. Today, our press release went out at 6

[Jeff Immelt:]

Great, Dan. Good morning, everyone. We think the second quarter was another strong quarter for GE. Just going through some of the highlights for 2007 that we've talked about with investors, we will deliver a solid, low risk 2007. The EPS was up 13%. We think we've got great visibility looking at the future. We did have gain in the quarter that was more than offset by restructuring. Really high visibility in organic growth and margin expansion. The second quarter orders were a record, up 32%; we grew our backlog. We've got very strong global demand, up 21% in revenue. We continue our focus on margin expansion. Year-to-date we're up 120 basis points; we're up 70 basis points for the quarter. This is a big initiative inside the company, and one that we're committed to. We've been disciplined on capital allocation. The Vetco Gray and Smiths acquisition, we love. The results were ahead of planned. The disposition of plastics looks good and on track for a third quarter close. We upped the buyback to $14 billion. And we'll do $12 billion of buyback in the second half of 2007. Keith will talk a little bit more about that. Just this week we announced a mutually agreed-to separation on Abbott. This was a complex transaction that both sides worked very hard to close. We just in the end couldn't reach agreement. I want to put that in some context. We've invested more than $20 billion in health care over the last ten years in more than 100 transactions. We love this business, we plan to continue to invest in it. We just think we have got a great health care business that's well positioned for the future. If you go to the next page and look at the environment. This was very similar to what we talked about in May. I'd say on the upside all the big themes we're really focused on are working very well right now. Globalization and emerging markets, GE is very advantaged in these markets and these are just booming right now. Infrastructure continues to be a real solid point for the company. Demographics as it pertains to both global growth and some of the action in GE Money is great. All of our focus on ecomagination, energy and investment/reinvestment is very solid. If you look at what's the same, we still see high liquidity in the marketplace. The U.S. consumer seems fine. Unemployment is at low levels, and we're not seeing really any warning signs with the U.S. consumer. The pressure comes from the places that we have talked about in the past. I'd say in the Deficit Reduction Act and health care is probably a little bit worse in the second quarter than the first quarter. In sub-prime, our decision to exit WMC did go through but has remained a challenge. On balance, we think we're well-positioned in this environment. There's no big surprises, and we feel like we're in good shape as we look at the rest of the year. Key performance metrics that you're going to hear about in the presentation all look pretty positive for us. Growth is just very strong, whether it's orders, or assets, or revenues. Organic growth up 8%, very solid. EPS up 13%, in line with expectations, with industrial earnings growth greater than financial earnings growth in the quarter. Returns are up 30 basis points, again in line with expectations. We think the buyback is going to help us accelerate ROTC expansion during the year. I've already talked about margins and how important they are, up 70 basis points in the quarter, up 120 basis points for the year. Keith will go through that. We're just generating a lot of cash as a company and we feel like CFOA will be a good story as we go throughout the year. So very solid performance. We've always talked about four points in a long term strategy that are important to the company. The first one is to invest in leadership businesses. We think both infrastructure and commercial finance, about 55% of our earnings, are just in phenomenal shape. Keith will go through NBCU in more detail, but we really are very positive about NBCU in the second half of the year and as we look forward in the future, we think NBCU is in great shape. On execution and financial discipline, something you've always expected in GE, again, very solid segment profit growth rate, expanding both margin rates and return, high industrial CFOA. I'd say two challenging spots for us that we've talked about and we'll go through in more detail has been health care and the sub-prime area, both of which we're working through in the second half of the year. On the buyback, I would just remind people that in the beginning of 2005 we announced a four-year buyback that was worth $25 billion. What we've basically done is accelerated that by one year and increased it from $25 billion to $27 billion with the announcement we made this morning. Then we'll probably be back at you at the end of the year to announce another buyback going into 2008 and beyond. So that's the way to put this in context. Growth is just clicking, across the company. Organic growth up 8%, services up 12%, CSA backlog growing, global growth up 21%, developing markets up 29%, all the base growth initiatives we've announced over the last few years are just really hitting on all cylinders. Lastly, Keith will go through the union agreement, but we feel like we had a good, solid union agreement. It's good for both sides and take that as a potential risk off the table. With that I'll turn it over to Keith to take us through the rest of the operations.

[Keith Sherin:]

Jeff, thanks. I'm going to start with an update on capital allocation. Our framework for 2007, which we gave you last year end and also updated at EPG. On the left side, as of today we have $42 billion of available capital. You're familiar with the dispositions, they are nearly complete. GE/Hitachi JV, completed in the quarter. Insurance was done in the first quarter. Plastics is on track to close in early September. We'll generate $23 billion of net income. That's after our investments in R&D and programming and capital expenditures. We also had available cash carryover from last year. So $42 billion plus going forward we can create additional capital through additional portfolio actions. We're going to focus on opportunistic value creation through dispositions that will primarily be in the financial services area. As Jeff said at EPG, the difference for us going forward is these are going to be on our terms and they are going to be investor-friendly. So a lot of capital flexibility. On the right side is our allocation framework. The new news today is that without Abbott we've lowered the industrial acquisitions and increased the buyback. You're familiar with our dividend growth strategy to grow our dividends in line with earnings, pay about $12 billion this year. On financial reinvestment in financial services there's no change. On industrial acquisitions, we've completed Smiths and Vetco and the announcement on Abbott. This year we'll buyback $14 billion of stock, that's up from our previous plan of $7 billion to $8 billion and since we only did about $1.8 billion through the first half, we'll be doing $12 billion of buyback in the second half. So in total, we'll be returning $26 billion to shareholders this year. With the portfolio changes we've made exiting plastics, adding great businesses, and infrastructure, we've improved the company growth rate and we're increasing the return on total capital. So a nice capital allocation story. Next page is a brief update on our recent labor agreement. As Jeff mentioned, we're pleased to have reached a new four-year contract with our unions and their teams. We think this it's a fair agreement. It's a similar profile to our previous four-year agreement which we reached in 2003. There's reasonable wage increases, we've got targeted pension increase in for retirees. We agreed to higher per capita costs on health care, so we'll have higher health care costs in the future, and at the same time we also increased the cost sharing. We also brought the benefit structure for new hires more in line with the current programs we have for our new salary hires. It's great to report that the national agreements have been negotiated with both the larger unions -- the IUE and the UE -- and agreements have been reached with our other unions around the company. The GE Board approval and finalization with the unions is pending for the end of July. We're happy to have a good contract for GE employees and for GE shareholders. Next is orders. We just had a tremendous orders quarter. If you look at the left side, major equipment, $13.1 billion, up 54%. You can see the growth by business in the box on the left

[Jeff Immelt:]

Great, Keith, thanks. Just to wrap up again with the ways we've described the year. First delivering a solid, low risk 2007. We feel great about our position right now. Infrastructure in really, full flight. NBCU very solid turnaround in place and financial services looking strong. As Keith mentioned, we'll have about $2 billion of gains and that gives us a chance to really restructure the company effectively for long-term profit growth. I think the second point I'd make is just on operating excellence. Really the company now, I think, is executing on 2X to 3X GDP growth with 100 basis points margin expansion. That's a very powerful one-two punch. We think in many ways the best days of margin expansion are ahead, given the very strong equipment growth we've had in infrastructure turning in the service revenue. On capital allocation, I think we've just dramatically improved the portfolio. We like the way the company looks right now and feel like the company that we've got can deliver on all the commitments we've made to investors, so that gives us just a tremendous amount of flexibility in this high liquidity time period to be tough-minded and investor friendly. As Keith mentioned earlier, we're going to review some dispositions in Q3 and be very opportunistic about it. Bottom line is the company's on track for the year for 218 to 223 from continuing operations. That's up 15% to 17%. We feel like this was a very strong quarter for the company. Dan, I'll turn it back over to you for questions.

[Dan Janki:]

Thank you, Jeff. We'd like to open up now for questions.

[Operator:]

(Operator Instructions) Our first question comes from Jeff Sprague -Citigroup.

[Jeff Sprague:]

Thank you, good morning, everyone. Jeff and Keith, I'm wondering if you can elaborate a little bit more on the review that's going on with the portfolio and possible dispositions. I obviously don't expect you to name names, but give us a little color on what the process is. What are you trying to identify, the thresholds you're looking at to make these sorts of decisions?

[Jeff Immelt:]

Jeff, I'll take you back to the chart I showed at EPG that's kind of the four blocker. If you start at the top right hand, which is really the GE power alley. We always like investing in the businesses that we think are rapid growth, high return. We're always going to keep our eye out for that as we look at going forward in the future. What I would say, Jeff, is we feel no time emergency on that. In other words, we've got such a hot hand right now in the businesses we're in, we can be investor friendly and focused on what we've got to do there. Then I track you to bottom right, which is kind of the hot, the good industries where we've underperformed. Deals like the Hitachi-GE nuclear JV. We've got a number of those that are underway, and we think could be positives looking out in the future. I think in the lower left in plastics would be a business that we don't think fits our investor framework anymore. We think there's a lot of liquidity out there, and this is a great time to do it. Probably the most interesting choices are in the top left hand box, which we think are the businesses that have been growing earnings at a rapid clip in line with investor expectations; have returns in line with investor expectations, but that for whatever reason we think should go under strategic review. I would say you'll see in the third quarter some dispositions in that area probably in financial services. Just assets that we think might be able to be run better someplace else. But I would say, Jeff, all within the context of the kind of EPS that people are looking at for next year and the kind of returns that you expect us to do. As you know, we're going through the growth play book process right now and so this was always the time when we reflect on strategy for the company and again, I think we just have lots of strategic options right now.

[Jeff Sprague:]

As a follow-on to that, how do we think about financially dealing with the gains there? I guess my point is, we could be a little critical in the quarter that the WMC hit is more of an operating hit, more along the lines of kind of how SCS was an operating gain when you exited there. If you pull some levers in the financial services side and move some things out, how do we treat that? How do we think about it in the context of the current restructuring plan?

[Jeff Immelt:]

Jeff, I think the underlying principle of gains offset restructuring is the right way to think about the company. We've always, we think, had good opportunities to change the cost base of the company and improve future profitability and that's the number one objective. Again, I think if I go back to just the basic company we have today, I think if you think about our investor commitments of high single-digit revenue, double-digit earnings and 20% ROTC, we don't have to change a thing to deliver on that, with high visibility into the future. I'd say anything we do is going to be tremendously investor friendly.

[Keith Sherin:]

I don't want to be defensive, so I'll caveat my response with that, Jeff. But if you look at WMC, we made a proactive decision to sell those assets and take a discount to move them out to reduce the risk of the company. It wasn't a consensus decision. Some people think that holding those mortgages over time we're going to earn more money by it. I think that was a restructuring. I think it was something that we recognized reduced risk for the company. It was a choice decision we made as opposed to something we had to do. I think it was a very smart decision from a timing perspective and an investor-friendly decision. We think of that as a proactive decision to do restructuring and make the company better going forward.

[Operator:]

Our next question comes from Deane Dray - Goldman Sachs.

[Deane Dray:]

Thank you, good morning. First question is just a clarification, Jeff, when you said that in the third quarter you could see some financial service dispositions. This is beyond the WMC potential divestiture, correct?

[Jeff Immelt:]

Yes.

[Deane Dray:]

So can you expand any more on that, are we looking at real estate downsizing or any further color there?

[Jeff Immelt:]

Deane, I'd like to just leave it where it is. Again, what I would say is we've got good opportunities to review assets right now. We're going to go through the strategic review and you'll hear about it as we make our final decisions.

[Deane Dray:]

Sure. The question would be, given the kind of operating metrics you're seeing on order growth, 32% equipment up 54%, it begs the question about potential capacity constraints and lead times and component shortages. So just take us through where it stands today and project out the next couple of quarters. Where do you think the bottlenecks might be? Do you need to outsource capacity? How are you set up to handle this sort of big order flow coming through?

[Jeff Immelt:]

Deane, I think if you go back to the power bubble in the late 90s for us, the thing that GE did better than anybody else in the industry was we managed supply chain and availability. I would view this as a core competency in the company. So I think whether it's gas turbines or jet engines or wind, we've already gone out and I would say secured supply. Really, I think we are in great shape to continue to not only take the orders but deliver on the expansion as time goes on and do it in a way that optimizes margins. I feel pretty good about our ability to meet this demand over time.

[Deane Dray:]

Is there additional capacity that needs to be put in place, or do you think you'll be outsourcing a portion of this?

[Jeff Immelt:]

We'd always rather outsource. I think if you look at what's available today, if you look at a site like Greenville, Greenville is now a multi-business site. It does gas turbines, it does wind gearboxes, it does foils for the aircraft engines business. That's a very attractive thing. Then we just did took an equity investment in a gear manufacturer in China. That's the kind of things that GE can do that not only helps our supply chain, but also gives us an opportunity to earn more profit through that stream. Those are the things I think we are particularly good at in a broad context.

[Operator:]

Our next question comes from Robert McCarthy - Banc of America Securities.

[Robert McCarthy:]

Good morning, everyone. If you could talk about Abbott Labs, to the extent you can. Did your increased awareness of being investor-friendly impact in some ways your focus or the prism through which you saw that deal?

[Jeff Immelt:]

Rob, not at all. In other words, this was an acquisition that when we announced we intended to close, just as it played out, we just weren't able to get it done. I think when I look today and look at having increased capital and then we as a management team sit there and look at our own game board and say what's on the table strategically that makes sense, and if there's not favorable acquisitions out there, we return it back to investors. We like returning capital to investors, we like making strategic acquisitions in the company. That's how we went through the decision.

[Robert McCarthy:]

When you look at the diagnostics space, obviously there's a lot of activity going on right now with Ventana and Roche. But you're still, if you're looking for growth there through acquisition, you're talking about very high multiples there. How do you think about growing or extending your exposure there? Would you think about JVs? Would you think about other, more novel, ways to expand your presence in the space?

[Jeff Immelt:]

Rob, I would say that in normal years the health care business is set up to grow revenue high single-digits and operating profit mid double-digits if we didn't do a gosh darn thing, and so we're well set up to grow. And then over time, strategically, we will always look for ways to continue to grow the platform. I would say that I'm patient. I'd say we've been in the business 80 years, we're going to be in the business another period of time. We've got a chance to make smart choices that make sense for the business in the future.

[Robert McCarthy:]

Switching gears to materials pricing and costs. Could you talk a little bit about the flavor you're seeing across the portfolio in terms of incremental headwind there or incremental pressure?

[Jeff Immelt:]

We saw a little material inflation in the quarter, it was about 0.6%, about $140 million. It's really in precious metals today, I would say. So that's the place that you see it and that's the demand driven by aerospace and energy. It's manageable. Our pricing and our productivity more than offset that inflation and we're going to continue with those programs to make sure we can achieve that in the future.

[Robert McCarthy:]

Finally, Jeff, I know you love talking about lighting. You had great orders in the quarter up 17%, 29% from retail. Could you talk about maybe the energy retrofit opportunity there? What's going on there? What's driving the growth there?

[Jeff Immelt:]

The first thing I was going to say, Rob, it's been six weeks since I've looked at benzene to go back to your materials question. I can tell you that's a relief. What I would say is that I'm a believer that the energy retrofit business and the environmental business is great business. I've been on record of that. I believe in lighting that as standards continue to get better, it gives the opportunity for new technologies whether they're CFLs, whether they are high efficient incandescent, different technologies, to have a good profile out there. But again, I think what you're seeing to a certain extent today is not only emerging market growth, but with higher energy costs, the interest in both customers and consumers to buy more energy-efficient products whether it's wind turbines or light bulbs, that's really driving a lot of substantial growth around GE. I would say that, I think, is going to continue into the future.

[Keith Sherin:]

CFL sales were up over 2X so we're definitely seeing the energy efficiency impact across the country and in Europe, as well.

[Operator:]

Our next question comes from Bob Cornell - Lehman Brothers.

[Bob Cornell:]

With regard to WMC. You announced your plan to sell it. Is that going to be a third quarter event? Or is it an evaluation that takes place over time? In the third quarter GE Money guidance, what is in there for WMC?

[Jeff Immelt:]

If you look at the process right now, we've already announced it that we're exiting and we're working on getting a buyer. So this isn't an evaluation, this is an active exit process. In our guidance for third quarter for the Money range we've included what we think the impacts are from any exit and the ongoing operations of WMC as we get out of the business.

[Bob Cornell:]

So that would be in the operating result? It wouldn’t be reflected down in the disc-op as an offset to them in the plastics gain?

[Keith Sherin:]

Right now, if you look at the platform and everything and you look at the assets, the loans we have left, we think the platform has a lot of value to someone. There are a lot of people making money in the space and our estimate is any exit based on where we are today is not going to have a material effect on the results that we forecast for GE Money.

[Bob Cornell:]

Well, you know that calls up another question. Typically GE is a company that would take advantage of this kind of a weakness -- same thing with the personal loan business in Japan. When the business is bad like this, you could argue, especially with industrial contributing 60% of earnings, that you would be one of the guys who would double up both here. What’s the thought in that context?

[Keith Sherin:]

I think we are opportunistic and we do have staying power. I think in this case, we decided this isn’t a place that we’re going to do that. We’ve got other opportunities where we can do that and we are doubling down in other places where we think we can take advantage of the current market but we’ve looked at this and decided that based on the dynamics we see here today, this isn’t a place in the U.S. that investors really wanted us to continue to participate today. I don’t know, Jeff, if you have some other thoughts.

[Jeff Immelt:]

I think that’s a great question. We have over the decades been good at this, at distress situations, but I think when Keith and I looked across the company at all the different opportunities we had, we just had too many other better choices. I just think we wanted to get this off the table vis-à-vis of the things that investors have to think about with GE.

[Bob Cornell:]

Got it, thanks.

[Operator:]

Thank you very much, sir. Ladies and gentlemen, your next question comes from the line of Scott Davis of Morgan Stanley. Please proceed.

[Scott Davis:]

Thanks and good morning, guys. I know this is kind of a hard question to answer but should we be reading into the increased buy-back as an indication that there will be no sizable acquisitions for the rest of ’07? I’m thinking over $2 billion.

[Jeff Immelt:]

I think that’s a pretty safe bet, Scott.

[Scott Davis:]

Okay, great. Moving to the operations a little bit, I asked this question the last quarter. I am still a little bit surprised that private label credit cards has held up so nicely. Is there any concerns or indication that credit quality there is showing any deterioration?

[Keith Sherin:]

The U.S. consumer is really hanging in there. If you look at just the U.S. 30-day delinquency rates, I’ll give those to you, Scott. In the second quarter, on that portfolio it’s 4.72%. In the first quarter, it was 4.88%, so it’s 16 basis points down from the first quarter. Last year in the second quarter it was 4.53%, so it’s a little up over last year in the second quarter. So it’s hanging in there. I’d say that we’ve added more collectors. People are paying the minimum balance. We do have some impact from the kind of levelization, the normalization of the new bankruptcy laws today that happened at the end of last year but we’re watching it. We’ve being very diligent on it and so far the delinquencies haven’t really shown anything that is any type of impact spillover from sub-prime for sure.

[Scott Davis:]

Okay, good. Last question, I just don’t know a lot about the Smiths business and it diluted margins a little this quarter. I know there’s some purchasing accounting issues that always impact deals the first year but how fast can you get those margins up in Smiths, maybe up a little bit closer to your segment average?

[Keith Sherin:]

That’s what the whole synergy effort is going to be. You know, Smiths came in about 10.5% margin in the quarter and the aviation margin overall is about 22%, so it’s a great opportunity for us. We’re going to have several hundred million dollars that will be in the run-rate by the end of ’08 of both revenue synergies and cost synergies and the teams are all over it and it’s going really well. It’s a big opportunity for us. It’s part of the plan and the teams are really doing a good job of getting effort.

[Scott Davis:]

Okay, great. Thanks, guys. I applaud your increased buy-back, so keep it up. Thanks.

[Operator:]

Thank you very much, sir. Ladies and gentlemen, your next question comes from the line of David Bluestein of UBS . Please proceed.

[David Bluestein:]

Good morning. Just a couple of quick ones. What did you originally pay for WMC and have you now written it down to what you expect is net realizable value?

[Keith Sherin:]

We never released the terms of that transaction and it is down to net realizable value today.

[David Bluestein:]

How many steam turbines were shipped in the quarter?

[Jeff Immelt:]

Joanne will have to get you that.

[David Bluestein:]

How many of the 64 gas turbines were ordered by U.S. customers?

[Jeff Immelt:]

We’ll look that up. I know there were no shipments in the quarter. I think it was zero on the -- the orders in the quarter were global, zero in the U.S.

[Keith Sherin:]

Zero were shipped. I think zero were ordered as well, David, on the gas turbines.

[David Bluestein:]

Then the question becomes have you seen any shift in the U.S. customers thought processes toward gas turbines? Are they still completely focused on steam? Can you walk through any desire you have to change your positioning on steam turbines?

[Keith Sherin:]

We’re obviously globally seeing great demand for gas turbines. If you look at the dynamics, and you know it well, of the U.S. energy market, when you look at replacement capacity and new growth that’s going to happen in the energy markets here in the U.S., I mean if you say you are going to need new capacity, nuclear is going to take 10 years before you are going to get a plant started. There are a lot of issues environmentally with coal and you are going to come back to gas turbines. So we are having a lot of discussions with our customers about it. I think it’s clearly the capacity that’s going to be added in the next several years. For us, while we’re getting this great global demand, I look forward and say that’s going to be another boost to demand that’s going to happen here. It’s just inevitable based on the supply demand dynamics and the environment characteristics of energy capacity addition.

[Jeff Immelt:]

Dave, what I would say is if you talk to the U.S. utility executives, I think gas and wind are the favored technologies. Actually, the arrow market is starting to take off, which tends to be a precursor vis-à-vis future gas turbine shipments. I think the FP&L not getting permitted for their coal plant is a big signal in the industry. Again, I think gas and wind are going to be the prevalent technologies in the U.S. I think interest is picking up.

[David Bluestein:]

Terrific. Thanks a bunch.

[Operator:]

Thank you very much, sir. Ladies and gentlemen, your next question comes from the line of Chris Kotowicz of A.G. Edward. Please proceed.

[Chris Kotowicz:]

Good morning, gentlemen. I have a question on overall GE capital, I guess. Contributed value was fairly flat on a higher revenue base and it looks like the contribution margin was down about 500 basis points year over year. Could you add any color on the drivers there? Clearly interest rates would be something we think about but could you talk a little bit more about that?

[Keith Sherin:]

I think a couple of things on total capital off the financial statements. You probably got to adjust for GE Access, which was a distribution business in the commercial finance business that we sold last year in the fourth quarter. That had quite a bit of revenue and no margin. I think if you adjust for that, which is the way I’ve done on the financial services margin page, you can see that that set of numbers takes that impact out. Even with that out, if you look at our margin results that I showed you on the page of 6.72 on risk adjusted contributed value, some of that is impacted by WMC. I guess what I would say is we are seeing continued margin compression from the liquidity, some of it in the commercial finance space. We’ve seen some rising interest rates which impacted us a little bit on net margins, certainly in the consumer space, and we’ve seen it basically flatten out through the second quarter here and we think today, we are kind of at margin rates that people can make a good return on and they’ve kind of leveled off, which is good news going forward.

[Chris Kotowicz:]

So should we think of a 67%, 68% contributed value margin as something to model going forward?

[Keith Sherin:]

I think today’s rates could continue to have a little bit of pressure as you have roll-off of older assets and the addition of current assets, so we are not at a steady state yet from a total portfolio. We’re a steady state from a new additions. I don’t know exactly the percent that would turn into. We can work with you on that.

[Chris Kotowicz:]

And then provision for losses up year over year -- how much of that is -- is WMC in that or is that already expensed and that’s a whole different issue?

[Keith Sherin:]

No, WMC is not in that. That pretty much is driven by both volume and the levelization of the U.S. bankruptcies, so we’ve gone from a change in bankruptcy code which accelerated bankruptcies if you remember in the end of the year last year and now we’ve kind of got more normalization of losses from those bankruptcies coming in in 2007 in the second quarter and that’s mainly the driver, those two things.

[Chris Kotowicz:]

Jeff, did I understand you correctly that basically the gas turbine boom in the U.S. is entirely in front of you?

[Jeff Immelt:]

That’s my view. I think a lot of interest in it right now and I think we’re starting to get to the point where reserve margins are such that incremental new investment I think -- that consideration is underway for the next few years.

[Chris Kotowicz:]

Great. Thanks, guys.

[Dan Janki:]

We’d like to take just one more question.

[Operator:]

Certainly, sir. Your next question comes from the line of Nicole Parent of Credit Suisse. Please proceed, Madam.

[Nicole Parent:]

Good morning. Thanks for letting me get in under the wire. Just one question on the portfolio; I guess in the old days we used to think about GE capital as a percentage of net income as 40% industrial 60%. We’ve gone to the 50-50 and as we think about the portfolio, does that thought process come back in? If so, could you give us a sense of where you think you might be comfortable seeing capital as a percentage of total net income?

[Keith Sherin:]

I would not say today we have any set percentage, other than keeping around the 50-50 in the short-term. Again, I just think what we're trying to be is -- in the portfolio is look to see, particularly in places that maybe our position is good but may not be quite as highly valued by investors, where somebody might be able to step in and create value. We just want to be really thoughtful and tough-minded about that right now but we have no specific percentage in mind.

[Nicole Parent:]

Okay, great, and then just one last one, big picture; you have a new crop of corporate officers. Could you give us your perspective, Jeff, on the depth and breadth of the organization, just given all the acquisitions you’ve done and where you think you are in terms of organizational capacity?

[Jeff Immelt:]

What I would say is that we just are kind of finishing session C and we will present it to the board in a week or two. If you look across the company at maybe the big 50 P&Ls we have inside the company, we have 250 back-fills ready on the bench and ready to go. We just have a very deep, broad leadership team. I think that continues to be something that we invest probably $1 billion here in training and we just remain committed to it. I like the look of the company right now from a people standpoint. I would say since 2002, we have named probably 110 or 115 officers and we have a team that really reflects the mission and the message of what we want to get done in the company.

[Nicole Parent:]

Great. Thank you.

[Dan Janki:]

We’d like to thank everybody for their time. The material from today’s earnings call will be available at our website and also Joanne and I will be available all day, so thank you very much.

[Operator:]

Thank you very much, sir. Thank you, ladies and gentlemen, for your participation in today’s conference call. This concludes your presentation and you may now disconnect. Have a good day.