WHEN: Today, Tuesday, November 14th
WHERE: CNBC's "Squawk on the Street"
Following is the unofficial transcript of an EXCLUSIVE CNBC INTERVIEW with GE Chairman & CEO John Flannery and CNBC's David Faber on CNBC's "Squawk on the Street" (M-F 9AM-11AM) today, Tuesday, November 14th. Following are links to video from the interview on CNBC.com: https://www.cnbc.com/video/2017/11/14/general-electric-ceo-john-flannery-addresses-investor-discontent-in-exclusive-cnbc-interview.html, https://www.cnbc.com/video/2017/11/14/general-electric-ceo-john-flannery-power-business-is-a-challenging-macro-enviroment.html, https://www.cnbc.com/video/2017/11/14/general-electric-ceo-john-flannery-ive-been-completely-transparent-about-companys-isses.html, & https://www.cnbc.com/video/2017/11/14/general-electric-ceo-john-flannery-i-understand-the-gravity-of-our-massive-dividend-cut.html.
All references must be sourced to CNBC.
DAVID FABER: ALL RIGHT, LET'S GET TO OUR MAIN FEATURE THIS MORNING. WE'VE BEEN PROMOTING IT FOR THE LAST 24 HOURS, GE YESTERDAY ANNOUNCED THE RESTRUCTURING PLAN, RESET ON THE COMPANY'S WORDS TO A CERTAIN EXTENT, CUT ITS DIVIDEND AND DID LAYOUT FUTURE BOARD CHANGES. THE STOCK FELL THIS MORNING DOWN ANOTHER 2%. WE'RE JOINED BY CEO AND CHAIRMAN JOHN FLANNERY RIGHT HERE AT THE EXCHANGE. ALSO NICE TO SEE YOU GOT THE DRESS MEMO, VERY WELL DONE THERE.
JOHN FLANNERY: ABSOLUTELY.
FABER: NICE TO HAVE YOU, THANK YOU PARTICULARLY AFTER YESTERDAY. LISTEN THE STOCK IS DOWN YET AGAIN TODAY. I TERMED IT EARLIER AFTER SPEAKING TO SOME OF YOUR INVESTORS AS SAYING THEY ARE UNSETTLED, THAT YESTERDAY THEY DIDNT FEEL AS THOUGH THEY GOT THE COMPLETE PICTURE OR THE REAL SENSE THAT THE PLAN IS IN PLACE. HOW DO YOU RESPOND TO THAT HEARING THAT 24 HOURS AFTER YOU BEGAN YOUR PRESENTATION?
FLANNERY: LISTEN, I THINK WE'RE VERY CLEAR ABOUT WHERE WE'RE HEADED AS A COMPANY. SO WE LAID THAT OUT YESTERDAY. WE'RE GOING TO FOCUS ON THREE BUSINESSES GOING FORWARD. A LOT OF OTHER PORTFOLIO THINGS WE HAVE TO DO OUTSIDE OF THOSE THINGS AND WE DISCUSSED BAKER HUGHES AND OTHER ASSETS, SO IT IS QUITE CLEAR WE'VE GOT STRONG FRANCHISES AT THE CORE OF THIS COMPANY. THE POWER BUSINESS NEEDS FIXING AND WE LAID A LOT OF DETAIL OUT ABOUT THAT YESTERDAY. HEALTH CARE IS STRONG. AVIATION IS STRONG. SO THE DIRECTION OF THE COMPANY IS CLEAR. WE DISAPPOINTED PEOPLE WITH SOME TOUGH NEWS YESTERDAY, SO WE WERE LOW ON 18 OUTLOOK AND WE WERE LOW OBVIOUSLY DIVIDEND CUT AND I THINK, LOWER THAN MOST PEOPLE EXPECTED. I'M NOT SURPRISED THE INVESTOR REACTION BECAUSE WE HAD DISAPPOINTING NEWS BUT I'M VERY CONFIDENT WHERE WE'RE HEADED WITH THE COMPANY AND WHAT WE NEED TO DO AND THE TEAM IS READY TO GO.
FABER: YEAH, I MEAN IT WAS ONLY TWO YEARS AGO THAT PEOPLE WERE ANTICIPATING AS MUCH AS $2 PER SHARE EARNINGS FOR 2018. NOW YOU'RE TALKING ABOUT A NUMBER ROUGHLY HALF OF THAT.
FLANNERY: RIGHT.
FABER: WHAT GIVES YOU THE CONFIDENCE -- YOU'VE MENTIONED THAT A NUMBER OF TIMES, IN OUR PREVIOUS INTERVIEW AS WELL, THAT YOU ARE ON THAT RIGHT TRACK, YOU JUST DESCRIBED?
FLANNERY: A COUPLE OF THINGS, YOU KNOW AS WE SAID, I'VE SPENT 100 DAYS JUST EXHAUSTIVELY CRAWLING THROUGH THE COMPANY. WE LOOKED AT EVERY SINGLE BUSINESS, WE'VE LOOKED AT HOW THE COMPANY WORKS HORIZONTALLY OUR CORPORATE SPENDING, OUR RESEARCH SPENDING. SO I HAVE A VERY STRONG COMMAND OF WHAT'S GOING ON INSIDE THE COMPANY. BEYOND THAT I LOOK AT MY TRACK RECORD, DAVID. IF YOU GO BACK AND LOOK, THIS IS VERY, VERY SIMILAR TO WHAT I EXPERIENCED IN HEALTH CARE. I WALKED IN, I HAD A LOOK AND SAID THIS FUNDAMENTALLY A VERY GOOD BUSINESS AND THERE'S SO,E BASIC THINGS AROUND OPERATING RIGOR AND CAPITAL ALLOCATION AND HOW WE WORK AS A TEAM THAT MAKE A DIFFERENCE. SO, I'M FEELING VERY MUCH THE SAME WAY AGAIN. AND – BUT I RECOGNIZE AS I SAID YESTERDAY, IT'S SHOWMAN TIME. I CAN SAY WHAT I CAN SAY BUT THE REALITY IS INVESTORS DESERVE AND EXPECT AND WILL WAIT FOR RESULTS.
FABER: AND WHEN IT COMES TO POWER IN PARTICULAR, WHICH YOU POINTED A SPOTLIGHT ON, I THINK AGAIN SPEAKING TO PEOPLE AFTER YESTERDAY, THEY KNEW POWER WAS IN TROUBLE OR HAD SOME TROUBLES, BUT I THINK THEY WERE PERHAPS A LITTLE MORE ALARMED BY JUST HOW WEAK THINGS ARE AND HOW LONG IT MAY TAKE TO GET IT BACK ON TRACK.
FLANNERY: SO, I THINK THE RUSSELL STOKES, NEW LEADER THERE, CHANGED LEADERSHIP IN POWER SUBSTANTIALLY AT EVERY LEVEL OFTHE COMPANY, SENIOR LEVEL INSIDE THE SERVICES BUSINESS, NEW TEAM IN THERE. IT IS A HEAVY LIFT THAT'S A CHALLENGING MACRO ENVIRONMENT RIGHT NOW. BUT WE HAVE A REALLY STRONG FRANCHISE, KEEP COMING BACK TO THAT WE GENERATE 30% OF THE WORLDS ELECTRICITY. WE'VE GOT LEADING TECHNOLOGY WE HAVE TO MANAGE THAT ASSET AND RUN THAT ASSET BETTER. SO THE POSITION OF THE COMPANY, TECHNOLOGY IS NOT THE ISSUE. THE INDUSTRY IS CHALLENGING BUT WE REALLY EXACERBATED THAT WITH OUR PERFORMANCE, I'M FOCUSED ON OUR PERFORMANCE GOING FORWARD.
JIM CRAMER: THANK YOU FOR COMING ON, IT MEANS A LOT TO US AND OUR VIEWERS. WE'RE ALL TRYING TO FIGURE HOW WE COULD HAVE BEEN SO WRONG ABOUT HOW THE COMPANY WAS DOING, IN FEBRUARY WHEN THE STOCK WAS AT 30, WE DID BELIEVE THAT 160 FOR NEXT YEAR WAS REASONABLE THAT'S DOWN FROM 2 AND DID BELIEVE THAT POWER WAS VERY STRONG. OKAY. WE DID BELIEVE THERE WERE VERY BIG SYNERGIES IN POWER, WE DID BELIEVE THAT IT WAS A DEMONSTRATION OF YOUR EARNINGS POWER THAT YOU COULD GIVE BACK $30 BILLION. IN RETROSPECT, WHAT HAPPENS AT THE BOARD LEVEL, SAY WHERE THEY DO DECIDE ABOUT CAPITAL ALLOCATION AND DIVIDEND, THAT PEOPLE COULD HAVE BEEN SO WRONG ABOUT HOW YOU WERE REALLY DOING?
FLANNERY: LET ME DECONSTRUCT THE 2017 NUMBER FIRST, THE 1 .60 NUMBER, WE'RE DOWN AROUND 1.05, 1.10 FROM $1.60, 15 TO 20 CENTS OF THAT REALLY IS DECLINE IN THE POWER IN OIL AND GAS SEGMENTS THAT I WOULD SAY WAS NOT FORESEEN AT THE TIME POINTS YOU REFERENCED. WE'VE GOT ABOUT ANOTHER 20 TO 25 CENTS CHANGE IN OUR RESTRUCTURING. WE'VE TAKEN A LOT OF COST ACTIONS IN THE COMPANY THIS YEAR THAT WERE NOT CONTEMPLATED THEN, MOVING VERY AGGRESSIVELY ON THAT WE'VE GOT RESTRUCTURING CHARGES THAT WERENT ANTICIPATED AND WRITE-DOWN OF THE POWER CONVERSION BUSINESS. THERE'S CHARGES THERE AND THEN A LITTLE BIT AROUND TAX AND SOME THINGS ABOUT SHARE BUYBACK THE BULK OF THIS IS POWER AND OIL AND GAS ISSUE, WEAKER MARKETS AND OTHER THINGS WE'VE TAKEN SINCE THEN WITH RESPECT TO THE DISCUSSION, WE CONSTANTLY ARE GOING BACK AND FORTH ABOUT THE BUSINESSES AND HOW THEY ARE DOING AND THAT WAS -- I'D SAY NOT FORESEEN SOME OF THE THINGS THAT HAPPENED HERE WE HAVE NOT MANAGED THE POWER BUSINESS AS WELL AS WE SHOULD HAVE THAT IS TOTALLY ON US. WELL DO THAT GOING FORWARD.
CRAMER: WHAT WILL YOU DO IN TERMS OF RESTORING THE COMPANY'S CREDIBILITY? YOU'RE SHRINKING THE BOARD, OBVIOUSLY THE BOARD WAS TOO BIG. ADDING THREE BOARD MEMBERS WHOSE NAMES WE DON'T KNOW. WE DON'T KNOW WHOSE GOING TO STAY AND WHOSE GOING TO GO. I UNDERSTAND WHAT YOU SAY ABOUT HEALTH CARE, BUT I THINK HEALTH CARE HAD VERY HONEST ACCOUNTING, I'M NOT SAYING THE OTHER ACCOUNTING WAS DISHONEST, I'M SAYING IT WAS OPAQUE. WHAT DO YOU TELL THE BOARD ABOUT WHAT THE COMPANY IS REALLY GOING TO EARN, AND WHAT DOES THE BOARD TELL YOU – YOU NEED TO REPLACE MANY MEMBERS OF THE BOARD, WHO EITHER REALLY GOT HAD AND THAT'S OKAY BECAUSE SOMETIMES WE JUST GET HAD. OR SIMPLY BELIEVED FAR TOO MUCH AND THEY STILL BELIEVE AND DON'T BELONG ON THE BOARD OF AN ESTEEMED COMPANY THAT REALLY REPRESENTS EVERYTHING GOOD ABOUT AMERICA?
FLANNERY: FIRST I WOULD SAY THERE'S NO ACCOUNTING ISSUE SECOND NO ONE HAS BEEN HAD. I TAKE ISSUE WITH THOSE COMMENTS OUT OF THE GATE.
CRAMER: WELL I'VE BEEN HAD IN FEBRUARY OF THIS YEAR, JEFF IMMELT CAME ON MY SHOW.
FLANNERY: JIM, LISTEN I'M FOCUSED ON THE COMPANY GOING FORWARD.
CRAMER: JOHN, I ABSOLUTELY BELIEVE THAT, I'M SORRY TO INTERRUPT AND THAT'S RUDE BUT I THINK THE NOTION WE WEREN'T HAD WITH THE STOCK AT 30 AND THE STOCK AT 17, JUST KIND OF SAYS WHAT I MOST FEAR, WHICH IS THAT IT'S OKAY. I WOULD HAVE PREFERRED YOU TO SAY "JIM, YOU KNOW WHAT, WE DIDN'T GET THE STRAIGHT STORY AND STRAIGHT STORY IS BAD," BECAUSE THAT'S HONOR.
FLANNERY: JIM, I'VE BEEN COMPLETELY TRANSPARENT IN THE TIME I'VE BEEN IN THE JOB OF WHAT THE ISSUES ARE WITH THE COMPANY AND WHAT I'M DOING TO FIX THEM THAT IS MY PERSPECTIVE THATS WHERE I AM RIGHT NOW. THAT'S HOW I'M GOING FORWARD THAT'S WHAT YOU WOULD EXPECT OF ME AND I THINK I'VE BEEN QUITE CLEAR ABOUT WHERE WE HAVE UNDERPERFORMED AND HOW WE FIX THAT SO GOING BACK TO THE PAST IS NOT PRODUCTIVE FOR ME. I'M FOCUSED ON GOING FORWARD AND YOU WOULD EXPECT THAT RIGHT NOW.
CARL QUINTANILLA: JOHN, YOU MENTION 100 DAYS. YOU'VE BEEN AT WORK ON THIS.
FLANNERY: YEAH.
QUINTANILLA: CAN YOU DESCRIBE HOW CLOSE YOU CAME TO CONSIDERING A MORE AGGRESSIVE BREAK-UP OF THE PORTFOLIO. BECAUSE SOME OF THE COMMENTARY THIS MORNING SAYS WE'VE WAITED THIS LONG AND IT WASN'T AS AGGRESSIVE AS SOME PEOPLE HOPED. HOW CLOSE DID YOU GET TO THAT?
FLANNERY: LISTEN, I HAVE LOOKED AT AND WILL LOOK AT ALWAYS WILL LOOK AT EVERY SCENARIO FROM AN ANALYTICAL MARKET BACKED QUANTITATIVE WAY. I'VE LOOKED AT ALL OF THE SCENARIOS AND I'LL CONTINUE TO DO THAT. SECOND, IT'S A BIG THING THAT KEEPS GETTING LOST IN THIS WHOLE CONTEXT HERE, THE STRENGTH OF THE FRANCHISES, WE HAVE AN ISSUE IN OUR POWER BUSINESS AND SOFTNESS IN THE OIL AND GAS MARKET THE BROAD CONTOURS OF THE BUSINESS HAVE STRENGTH AND WE SHOULDN'T DISCARD THOSE LIGHTLY. SO AS I LOOK AT THIS, KEEP COMING BACK TO RUN THE BUSINESSES BETTER AND IMPROVE THE PERFORMANCE, FIRST PORT OF CALL THAT PEOPLE WANTED US TO GET OUT OF AVIATION IN 2003. PEOPLE WANTED US TO GET OUT OF HEALTHCARE IN 2014 WE'VE DRAMATICALLY IMPROVED THE HEALTHCARE BUSINESS ON GROWTH AND ON MARGINS AND CASH. WE STILL HAVE EVERY STRATEGIC OPTION AVAILABLE IN THAT BUSINESS THAT WE HAD THREE YEARS AGO WHEN PEOPLE WANTED TO DISPOSE OF IT. MY TASK REALLY IS TO RUN THE ASSETS BETTER, KEEP AN OPEN MIND TO THE ALTERNATIVES AND THAT'S WHAT WERE DOING THERES A RUSH IN A -- TO SAY LETS JUST DISCARD EVERYTHING AND REALITY IS, INCREDIBLE FRANCHISES BUILT UP OVER DECADES AND I THINK WE SHOULD BE THOUGHTFUL AND DELIBERATE ABOUT MANAGING BETTER AND WHAT WE DO WITH THEM GOING FORWARD.
QUINTANILLA: IT'S MORE THAT THAN TACTICAL OBSTACLES LIKE TAX IMPLICATIONS?
FLANNERY: IT'S ABOUT THE BUSINESSES THEMSELVES AND WHAT MAKES SENSE AND WHAT FORM WE OWN THEM WHAT THEIR ACHIEVABLE OUTPUT CAN BE THAT'S THE FIRST CALL.
FABER: JOHN, THE BOARD ITSELF, WE'VE MENTIONED OF COURSE GOING FROM 18 TO 12.
FLANNERY: RIGHT.
FABER: WHEN ARE YOU GOING TO MAKE THE DECISIONS ABOUT WHO IS OFF AND WHO IS ON?
FLANNERY: THE 18 TO 12 IS PART OF THE SLATE FOR THE APRIL SHAREHOLDERS MEETING AND WE'LL BE DOING THAT BETWEEN NOW AND FILING OF THE PROXY STATEMENT OR GOING THROUGH THE GE GOVERNANCE PROCESS OF THE BOARD ON BOTH WHO WILL EXIT AND WHO THE NEW DIRECTORS WILL BE. IT WILL BE OUR STANDARD GOVERNANCE PROCESS AND DO THAT ON A DELIBERATE BASIS.
FABER: AS WELL MR. BRENNAN PERHAPS NO LONGER GOING TO BE THE LEAD DIRECTOR, IS THAT A POSSIBILITY?
FLANNERY: NO, THAT'S NOT A POSSIBILITY.
FABER: HE WILL REMAIN?
FLANNERY: YES, JACK HAS A TREMENDOUS TRACK RECORD AND TREMENDOUS LEADER AND BEEN INCREDIBLY SUPPORTIVE WITH ME AND I DON'T SEE ANY CHANGE THERE
FABER: BAKER HUGHES, YOU'VE MENTIONED THAT YOU DO INTEND TO POTENTIALLY SELL DOWN WHAT IS ROUGHLY 63% STAKE --
FLANNERY: LOOKING AT THAT NOW, YES.
FABER: YOU'VE GOT RESTRICTIONS ON THAT ID LIKE TO GET A LITTLE BIT MORE SPECIFICS IN TERMS OF WHAT THE EXPECTATIONS ARE FOR ACTUALLY LOWERING THAT STAKE OVER TIME. YOU CAN'T DO IT RIGHT AWAY, CORRECT?
FLANNERY: LET ME GO BACK TO THE BEGINNING OF THE BAKER HUGHES TRANSACTION, WE HAD AN UPSTREAM OIL EQUIPMENT BUSINESS THAT WE MERGED WITH THEIR SERVICE BUSINESS, CREATED A MUCH BROADER PLATFORM, STRONGER ASSET BUT PART OF THE ORIGINAL THOUGHT PROCESS OF THAT TRANSACTION, IT DOES CREATE OPTIONALTY FOR US GOING FORWARD. THIS IS NOT NEW NEWS IN THAT SENSE. IT WAS EMBEDDED IN THE ORIGINAL TRANSACTION, FIRST POINT SECOND POINT, WE CLOSED IN JULY OF 2017, THERE'S A TWO-YEAR ESSENTIALLY WINDOW WHERE THE DIRECTORS OF THE BAKER HUGHES DIRECTORS WHO ARE ON THE BHGE BOARD HAVE ESSENTIALLY A CONSENT DISCUSSION TO HAVE IF WE WANT TO DO SOMETHING DIFFERENT WITH OUR HOLDINGS THATS THE TECHNICAL THING THE THIRD, WE'RE EXPLORING, I SAID YESTERDAY WE'VE ESTABLISHED A NEW COMMITTEE ON OUR BOARD FINANCE AND CAPITAL ALLOCATION COMMITTEE AND THE FIRST THING I'VE ASKED THEM TO WORK ON, EVALUATE WHAT THE OPTIONS AND WHAT THE FORMS OF EXIT MIGHT BE FOR BAKER HUGHES ASSET AND WE'LL COME BACK WHEN WE'VE DETERMINED THAT.
FABER: ON ALSTOM -- YOU WERE INTIMATELY INVOLVED IN THE PURCHASE OF THAT ASSET. ANY REGRETS THERE? DO YOU FEEL THAT WAS WELL PURCHASED AT THE TIME, GIVEN SOME OF THE HEADWINDS YOU'RE SEEING?
FLANNERY: SO I WOULD SAY THAT DEAL IN TOTAL HAS BEEN A DISAPPOINTMENT. SO I'D START WITH THAT. WE BOUGHT THE ALSTON ASSET REALLY FOR THREE STRATEGIC REASONS, ONE WAS THE INSTALLED BASE VERY LARGE, THAT'S THE CORNERSTONE OF OUR BUSINESS MODEL AND MULTIPLE INDUSTRIES THAT WE'RE IN. LONG-TERM ASSET, PRODUCTIVITY, CHANCE TO REPLACE SOCKETS AS THEY AGE OVER TIME, SO THAT WAS THE FIRST ONE. SECOND WAS A BROADER PRODUCT LINE. THEY MADE THINGS YOU KNOW, IN STEAM AND GENERATORS AND THINGS WE DON'T DO THAT WE COULD SELL WITH OUR GAS TURBINES. AND LASTLY, A SIGNIFICANT AMOUNT OF COST SYNERGIES. SO WE START WITH A TARGET OF $1.3 BILLION FOR COST SYNERGIES, WE'VE UPPED THAT TO $3 BILLION. THOSE THINGS LARGELY HAVE PLAYED OUT. WHAT HAS NOT PLAYED OUT AND HAS REALLY OVER TAKEN THOSE THINGS – THE MARKET CLEARLY HAS BEEN SUBSTANTIALLY WORSE THAN WHAT WE FORECAST. THE COMPANY WENT THROUGH A VERY EXTENDED CLOSING PROCESS, ANTITRUST REVIEW, ET CETERA, I'VE BEEN RUNNING HEALTH CARE FOR A YEAR BY THE TIME THAT CLOSED, THAT WAS A TOUGH PERIOD FOR THE COMPANY IN TERMS OF ORDERS AND DOWNPAYMENTS AND THINGS. AND THEN LASTLY, SOME OF PROJECTS, AS WE TALKED LAST TIME, WE'VE HAD SOME LOSSES THERE. SO WE WERE LOOKING AT A HIGH TEENS RETURN, I'D SAY WE'RE IN A SINGLE DIGIT RETURN. IT'S NOT AN ACCEPTABLE DEAL FROM A FINANCIAL FRAMEWORK RIGHT NOW. THE LAST THING I WOULD SAY, THESE ARE 20, 30, 40-YEAR ASSETS AND OUR TASK IS TO KEEP WORKING THESE INCREDIBLY HARD. BUT, IF WE CAN GO BACK IN A TIME MACHINE TODAY, WE WOULD PAY A SUBSTANTIALLY LOWER PRICE THAN WE PAID, THERE'S NO DOUBT ABOUT THAT.
CRAMER: LET'S GO OVER, JOHN, THE ASSET SALES, GOING TO RELY ON MR. TUSA'S RESEARCH BECAUSE HE TURNED OUT TO BE RIGHT: $17 WAS HIS PREDICTION WHEN IT WAS AT $30. AND HE SAID HOW MUCH CASH IN EARNINGS WILL YOU BE LOSING WITH THE ASSET SALES, AND THAT'S IMPORTANT, THESE BUSINESSES DO GENERATE A RETURN.
FLANNERY: YEAH, THERE'S A WHOLE MIX IN HERE OF ASSETS THAT WE HAVE IDENTIFIED IN A $20 BILLION POOL AND WE HAVE A SLIGHTLY LARGER POOL THAN THAT. SO THERE'S A FINAL DETERMINATION OF WHAT GETS INCLUDED IN THAT I WILL SAY IN GENERAL, THESE ARE MUCH SMALLER ASSETS WITH THE EXCEPTION MAYBE OF TRANSPORTATION, THESE ARE SMALLER ASSETS, MANY OF THEM HAVE VERY SMALL CASH FLOWS, SOME HAD NEGATIVE CASH FLOWS, SO I EXPECT THE PACKAGE OF THE WHOLE TRANSACTION AS WE COMPLETE IT TO BASICALLY BE ACCRETIVE TO THE OVERALL ECONOMICS AND CASH FLOW OF THE COMPANY. SO IN OTHER WORDS, THE PROCEEDS WILL BE IN EXCESS OF THE MULTIPLE, IF YOU WILL.
CRAMER: WHAT'S THE BEST USE OF THOSE PROCEEDS?
FLANNERY: WELL LISTEN, THERE'S A WIDE RANGE OF THINGS TO LOOK AT. SO CAPITAL ALLOCATION TO ME IS A FLUID PROCESS. SO WE OUTLINED YESTERDAY OUR TOTAL SHAREHOLDER RETURN APPROACH, A DIVIDEND, SHARE BUYBACK WHERE IT MAKES SENSE, M&A WHERE IT MAKES SENSE, ORGANIC INVESTMENT WHERE IT MAKES SENSE, FUNDING OUR PENSION WHERE IT MAKES SENSE – WE HAD AN ANNOUNCEMENT ABOUT FUNDING THAT. SO I'M GOING TO SEE THE OUTCOMES FIRST OF WHAT THE PROCEEDS ARE AND WHAT YOU HAVE BEFORE US. BUT I THINK THE, AGAIN, YOU KNOW WHEN, WE TALK ABOUT CAPITAL ALLOCATION, IT HAPPENS INSIDE THE BUSINESS DAY IN AND DAY OUT, THAT'S WHAT I'M HEAVILY FOCUSED ON. AND THEN AS WE HAVE PROCEEDS FROM DISPOSITION, WE'LL SEE. IT DEPENDS ON WHAT, FOR EXAMPLE, OUR SHARE PRICE IS OR WHAT OTHER ALTERNATIVES WE HAVE. SO I LOOK AT THE DEPLOYMENT OF CAPITAL IN A HIGHLY ANALYTICAL CLINICAL WAY AROUND RISK ADJUSTED RETURN FOR THE MONEY THAT WE HAVE. AND THAT COULD BE A RANGE OF THINGS.
CRAMER: I KNOW YOU WANT SOME NEW BOARD MEMBERS. CAN YOU DESCRIBE TO US WHAT THOSE THREE NEW BOARD MEMBERS QUALIFICATIONS WILL BE, AND WHETHER THEY WILL SHARE AN ORIENTATION PERHAPS OF MR. GARDEN FROM TRIAN, WHICH IS TO BE AN INSURGENT INSIDE, TO REALLY PUSH TO MAKE SURE THAT CAPITAL ALLOCATION IS RIGHT IN THE, LET'S JUST SAY, - AS YOU TALK ABOUT IT THIS WAY.
FLANNERY: SO A COUPLE OF THINGS ON THAT, JIM. I THINK WE DETAILED YESTERDAY, LOOKING FOR INDUSTRY EXPERTISE IN THE THREE NEW DIRECTORS, SO IN POWER AND AVAITION AND HEALTHCARE, SOME COMBINATION OF THAT, AND MORE DIGITAL AND TECHNOLOGY ORIENTATION GOING FORWARD. WITH RESPECT TO THE PUSH AND THE DEBATE AND EVERYTHING, I TOTALLY WELCOME THAT. I WANT BOARD MEMBERS AND WE HAVE BOARD MEMBERS WHO PUSH BACK. I'M MORE THAN COMFORTABLE WITH THAT – I THINK THAT'S A HEALTHY DYNAMIC. ED GARDEN HAS JOINED US LAST MONTH. I EXPECT THAT FROM HIM. I EXPECT IT FROM EVERYBODY, INCLUDING THE NEW BOARD MEMBERS.
QUINTANILLA: YOU MENTIONED THE DIVIDEND CUT. WAS THERE WAS A CAMP INSIDE THE BOARD WHO WANTED TO NOT CUT IT? JEFF IMMELT ALWAYS SAID CUTTING BACK IN THE DAY WAS ONE OF THE WORST DAYS OF HIS CAREER. I WONDER IF YOU THINK YOU'LL SAY THE SAME EVENTUALLY?
FLANNERY: AS I SAID BEFORE, WE WENT THROUGH JUST AN ANALYTICAL EXERCISE THE CONSTRUCT OF HOW WE HAD A 96 CENT DIVIDEND IS TIED TO SELLING GE CAPITAL, WHAT WE EXPECTED TO GROW THE INDUSTRIAL EARNINGS. THAT TURNED OUT NOT TO UNFOLD THE WAY WE HAD UNDERWRITTEN AT THE TIME WE HAD A VERY BALANCED ANALYTICAL DISCUSSION AROUND THE DIVIDEND RELATIVE TO OUR FREE CASH FLOW AND THE PROSPECTS FOR OUR FREE CASH FLOW, AND WE CAME TO A DETERMINATION COLLECTIVELY, VERY SOLIDLY, THAT IT WAS TOO HIGH A DIVIDEND TO SUSTAIN GOING FORWARD. IT WAS IN THE BEST INTEREST OF THE SHAREHOLDERS AND COMPANY TO REDUCE THAT TO A LEVEL THAT'S IN LINE WITH OUR PEERS, IN TERMS OF PAYOUT RATIO IN LINE WITH OUR PEERS IN TERMS OF DIVIDEND YIELD. WITH RESPECT TO THE COMMENTS ABOUT THE WORST DAY EVER, I DON'T UNDERESTIMATE IN ANY SENSE, AND I FEEL THIS DEEPLY, THE GRAVITY OF WHAT WE HAVE HAD TO DO, AND THE PEOPLE THAT RELY ON THAT DIVIDEND, ESPECIALLY THE PEOPLE RELYING ON THIS FOR CURRENT INCOME. THIS IS A VERY, VERY TOUGH MEASURE. AND SO IT'S NOT ANYTHING WE TOOK LIGHTLY. I LOOKED AT THIS IN VERY GREAT DETAIL. AND I JUST FELT IN THE END IT WAS SOMETHING WE HAD TO DO. SO IT'S NOT SOMETHING THAT'S EASY TO GO THROUGH, AND I'M FULLY COGNIZANT OF THE SHAREHOLDER IMPACT ON THAT.
QUINTANILLA: ARE YOU THINKING AT ALL AT THIS POINT ABOUT A PATH TO RESTORING THE DIVIDEND, EVEN IF IT'S NOT TO WHERE IT ONCE WAS?
FLANNERY: LISTEN, I COME BACK TO THE MOST IMPORTANT THING FOR US TO DO NOW IS IMPROVE THE RESULTS OF THE COMPANY, IMPROVE THE CASH FLOW OF THE COMPANY, BE INCREDIBLY DISCIPLINED ABOUT HOW WE INVEST THE CAPITAL OF THE COMPANY TO THE END OF GROWING THE EARNINGS AND CASH. AND AS WE GROW THE EARNINGS AND CASH, JOB ONE, WE'LL MOVE THE DIVIDEND FORWARD, TOO. SO IT ALL COMES BACK TO, I THINK, THIS WHOLE DISCUSSION, HOW ARE WE RUNNING THE COMPANY? HOW ARE WE ALLOCATING THE CAPITAL? HOW IS THE OPERATING RIGOR? AND THAT'S WHAT WE HAVE TO FOCUS.
FABER: AS WE LOOK AT THE STOCK PRICE OF $18.59, YOU'RE GOING TO HAVE A LARGER PORTION OF EQUITY COMPRISED OVERALL COMPENSATION, I BELIEVE OR AT LEAST—
FLANNERY: FOR SENIOR LEADERS OF THE COMPANY.
FABER: FOR SENIOR LEADERS. BUT WHAT ABOUT MORALE OVERALL? YOU KNOW, SOMETIMES IT CAN BE A REFLECTION OF A STOCK PRICE, IF YOU'RE TALKING ABOUT ONE THAT'S DOWN 41% FOR THE COURSE OF THIS YEAR. JOHN, IS MORALE A CONCERN FOR YOU AT THE COMPANY?
FLANNERY: I MEAN, OF COURSE IT IS BUT IT'S ALSO A CHALLENGE AND AN OPPORTUNITY IN A LEADERSHIP SENSE. SO A COUPLE THINGS I WOULD SAY ON THAT. ONE IS, I'M NOT TRYING TO RUN THE COMPANY FOR THE REACTION ON MONDAY OR TUESDAY OR WEDNESDAY OF THIS WEEK. WE HAVE A LONG-TERM PLAN. WE HAVE A LOT OF WORK TO DO. WE HAVE INCREDIBLY GREAT FRANCHISES THAT WE'RE FOCUSED ON AND I'M CONFIDENT IN THE FUTURE OF THE COMPANY. SO I THINK PERSONALLY, GETTING EQUITY COMPENSATION AT THIS POINT IN THE CYCLE IS SOMETHING I EXPECT TO BE A POSITIVE AS WE MOVE FORWARD. THE OTHER THING I'D SAY ON THE MORALE AND CULTURE OF THE COMPANY, THIS IS A COMPANY THAT HAS INCREDIBLE PASSION FOR EMPLOYEES. INCREDIBLE PRIDE. AND YOU CAN DEBATE CERTAIN PARTS OF OUR CULTURE, YOU CAN NEVER DEBATE THAT ONE. AND PEOPLE WANT TO CHANGE. THEY WANT TO MOVE FORWARD. THERE'S A -- MY TASK IS TO STOKE THE COMPETITIVE SPIRIT IN THE COMPANY. AND SO IT'S A CHALLENGE. NO ONE LIKES TO SEE THIS. NO ONE LIKES TO LOOK AT THEIR STOCK PRICE GO DOWN AND SAY, "I FEEL GOOD ABOUT THAT," THAT'S OBVIOUSLY, IT GOES WITHOUT SAYING. BUT THERE'S A LOT OF PENT UP ENERGY AND DESIRE FOR REDEMPTION AND IMPROVEMENT, SO MY JOB IS TO CHANNEL THAT AS A LEADER, AND OBVIOUSLY, PEOPLE LOOK AT HOW I FEEL ABOUT THE PROSPECTS AHEAD, AND I RECOGNIZE THE HEAVY LIFT, BUT I FEEL GREAT ABOUT THE PROSPECTS.
FABER: AND YOU THINK YOU'LL CONTINUE TO ATTRACT QUALITY PEOPLE AS WELL? I MEAN I CAN REMEMBER AN AD CAMPAIGN NOT TOO LONG AGO, "GE IS A TECHNOLOGY COMPANY."
FLANNERY: STILL ARE.
FABER: THE YOUNG PEOPLE. RIGHT – CAN YOU GET THAT KIND OF A PERSON TO COME WORK AT GE, GIVEN THE DIFFICULTIES THE COMPANY HAS GONE THROUGH?
FLANNERY: DAVID, THE COMPANY HAS BEEN AROUND FOR 125 YEARS. WE HAVE REINVENTED OURSELVES MANY TIMES WERE IN THAT PROCESS AGAIN. WE'RE CONSTANTLY LEVERAGING OUR TECHNOLOGY TO REINVENT AND MOVE THE COMPANY DIFFERENT DIRECTIONS PEOPLE. SO PEOPLE WHO WANT AN EXCITING NEW DIRECTION, I'LL RECRUIT ANYBODY AND TALK TO ANYBODY, BUT PEOPLE ARE GOING TO HAVE TO WANT TO BATTLE, WANT TO CHANGE, WANT TO MOVE THE COMPANY FORWARD. PEOPLE WHO WANT AN EASY TASK, YOU KNOW, I DON'T WANT TOO MUCH CHALLENGE, THAT'S NOT FOR US AND THAT'S NOT FOR THEM.
CRAMER: MASSIVE HEAVY LIFTING. I KEEP HEARING THAT. WHY WOULD I OWN A STOCK – WHY WOULD I WANT TO OWN A STOCK, IF I KNOW 2018 IS A YEAR OF MASSIVE HEAVY LIFTING?
FLANNERY: LOOK AT THE -- AGAIN, I GO BACK TO, FIRST OF ALL, DEPENDS ON YOUR TIME HORIZON, SO I DON'T –
CRAMER: YEAH. BUT TIME HORIZON IS NOT MADE UP BY 30 DOWN TO 17.
FLANNERY: I UNDERSTAND, YOU'RE ASKING RIGHT NOW, WHY WOULD SOMEONE BUY THE SHARES NOW? I WOULD SAY THE OUTLOOK FOR THE COMPANY OVER THREE TO FIVE YEARS, WHAT WE LAID OUT, GROWING CASH AND EARNINGS IN THREE TO FIVE YEARS, THAT'S WHAT SOMEONE SHOULD BUY. SO IS IT GOING TO BE IMMEDIATE, IS IT GOING TO HAPPEN IN TWO MONTHS, FOUR MONTHS, SIX MONTHS? NO, THERE ARE OPERATIONAL THINGS WE NEED TO CHANGE IN THE COMPANY. IF YOURE INVESTING FOR A BALANCED RETURN, A DIVIDEND CAPITAL GAIN OVER AN EXTENDED TIME PERIOD. I KEEP COMING BACK TO, JIM, THE OTHER THING, I KEEP COMING BACK TO THE POWER OF THE FRANCHISES AND THE POWER OF THE COMPANY. AND THE— YOU KNOW, AGAIN, WE HAVE A BIG ISSUE IN OUR POWER BUSINESS. OTHER ASSETS IN THE COMPANY ARE VERY STRONG. YOU LOOK AT OUR AVIATION BUSINESS, I'D STACK THAT UP AGAINST ANY BUSINESS, YOU KNOW, ON THE PLANET. YOU LOOK AT OUR HEALTH CARE BUSINESS WITH THE GLOBAL GROWTH IN THAT, THE POWER OF OUR LIFE SCIENCE BUSINESS IN THAT WE HAVE A WHOLE OTHER SELF THERAPY BUSINESS IN THAT. I KNOW THE HEADLINE IS THE MACRO PICTURE, AND IT MUST BE, BUT THERE'S SOMETHING UNDER THE HOOD THAT IS WORTH CONSIDERING AS WELL.
FABER: WELL, JOHN, WE CERTAINLY APPRECIATE YOUR WILLINGNESS TO COME ON, SPEND TIME WITH US.
FLANNERY: NO – IT'S GOOD.
FABER: AND WE LOOK FORWARD TO FUTURE CONVERSATIONS AS WELL AS WE MONITOR THE PROGRESS YOU HAVE BEEN TALKING ABOUT. THANK YOU.
FLANNERY: OKAY. THANK YOU, GUYS. SEE YOU AGAIN.
FABER: JOHN FLANNERY, CHAIRMAN AND CEO OF GE.
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Jennifer Dauble
CNBC
t: 201.735.4721
m: 201.615.2787
e: jennifer.dauble@nbcuni.com
Emma Martin
CNBC
t: 201.735.4713
e: emma.martin@nbcuni.com
About CNBC:
With CNBC in the U.S., CNBC in Asia Pacific, CNBC in Europe, Middle East and Africa, and CNBC World, CNBC is the recognized world leader in business news and provides real-time financial market coverage and business information to more than 409 million homes worldwide, including more than 91 million households in the United States and Canada. CNBC also provides daily business updates to 400 million households across China. The network's 15 live hours a day of business programming in North America (weekdays from 4:00 a.m. - 7:00 p.m. ET) is produced at CNBC's global headquarters in Englewood Cliffs, N.J., and includes reports from CNBC News bureaus worldwide. CNBC at night features a mix of new reality programming, CNBC's highly successful series produced exclusively for CNBC and a number of distinctive in-house documentaries.
CNBC also has a vast portfolio of digital products which deliver real-time financial market news and information across a variety of platforms including: CNBC.com; CNBC PRO, the premium, integrated desktop/mobile service that provides live access to CNBC programming, exclusive video content and global market data and analysis; a suite of CNBC mobile products including the CNBC Apps for iOS, Android and Windows devices; and additional products such as the CNBC App for the Apple Watch and Apple TV.
Members of the media can receive more information about CNBC and its programming on the NBCUniversal Media Village Web site at http://www.nbcumv.com/programming/cnbc.
For more information about NBCUniversal, please visit http://www.NBCUniversal.com.