CNBC Excerpts: GE Chairman and CEO John Flannery Speaks with CNBC's David Faber Today

Following are excerpts from the unofficial transcript of a CNBC EXCLUSIVE interview with GE Chairman and CEO John Flannery and CNBC's David Faber on CNBC's "Squawk on the Street" (M-F 9-11AM) today, Tuesday, June 26th, following the company's announcement that it will spin off its health-care unit and exit its stake in Baker Hughes as part of its new strategy. Watch video of the full interview on CNBC.com here.

FLANNERY ON SURPLUS

WE LAID OUT A PACKAGE OF ABOUT $60BILLION OF POTENTIAL VALUESOURCES. 25 OF THAT GOES TO THEDELEVERAGING OF THE COMPANY.THAT LEAVES AN IMMENSE AMOUNT OFSURPLUS, IF YOU WILL, TO DEALWITH LEVERAGE AND RISK GOINGFORWARD OR -- SO I LOOKEDCAREFULLY AT THE BALANCE SHEETITS CLEAR WE KNOW HOW TO GET TOTHE END POINT AND HOW WEREGOING TO DO ITAND WE HAVE SURPLUS.SO, YOU KNOW, WHEN WE SPEND SOME TIME WITH PEOPLE, THEYLL SEE THAT.

FLANNERY ON SHARING THE PAIN

I SHARE, IN EVERY SENSE, THE PAIN, IF YOU WILL MY LIFE SAVINGS IS IN THE STOCK. I HAVE THE SAME SORT OF CONNECTION TO THE ISSUE. THE SECOND THING I WOULD SAY IS WE'VE GONE THROUGH A TOUGH PATCH. WE FACED INTO THE ISSUES WE ARE DEALING WITH THE ISSUES WE HAVE A PLAN WE KNOW WHERE WE ARE WE'RE REALISTIC ABOUT THAT WE KNOW EXACTLY WHERE WE WANT TO GO WITH THE PORTFOLIO, BALANCE SHEET, WITH HOW WE RUN THE COMPANY AND WE KNOW EXACTLY HOW TO GET THERE AND STAY TUNED FOR THE RIDE HERE.

FLANNERY ON BAKER HUGHES

WE OWN62.5% OF THE PUBLIC COMPANYWE HAVE NOT DETAILED HOW WE WILLTRANSFER OUT OF THAT OWNERSHIP POSITION WE HAVE A RANGE OF OPTIONS YOU HAVE LAID OUT SOME WE COULD SPIN.WE COULD SPLIT THERES A RANGE OF OPTIONS.IMPORTANT ON BAKER HUGHES, ANDHEALTH CARE, TOO, THESE AREGOOD, GOOD BUSINESSES.SO, WE LIKE THEMWE JUST THINK THEYRE IN ABETTER POSITION OUTSIDE OF THECOMPANY.

FLANNERY ON THE BALANCE SHEET

FLANNERY: I FOCUS A TON OF MY TIME ON THEOPERATIONS OF THE COMPANY.THATS ULTIMATELY OUR MISSION,IS TO MAKE THE OPERATIONS OF THECOMPANY BETTER, MORE CASH,BETTER RETURN, BETTER CAPITAL ALLOCATION, LESS COST, LESSBUREAUCRACY, ALL OF THAT STUFFTHATS KEYI SPENT AN EQUAL AMOUNT OF TIMELOOKING AT THE BALANCE SHEET I GREW UP IN FINANCIAL SERVICES IHAVE TOTAL RESPECT FOR WHAT IT MEANS TO HAVE A STRONG BALANCESHEET OR WHAT IT MEANS TO BEENCUMBERED BY A WEAK ONEWHEN PEOPLE HAVE TIME TO PROCESSWHAT WE TALKED ABOUT TODAY THEYLL SEE A DRAMATIC CHANGE INTHE LEVERAGE CAPABILITY OF THECOMPANY A REDUCTION IN OUR LEVERAGE DOWN TO A MUCH MUCH LOWERLEVEL.

FABER: SO THAT LESS THAN 2.5 TIMES BY 2020,YOU FEEL CONFIDENT YOU CANACHIEVE THAT

FLANNERY: ABSOLUTELY.

FLANNERY ON EACH LEVEL

EACH LEVEL, IF YOU LOOK AT THESE COMPANIES GOING FORWARD - HEALTH CARE WILL BE WELL CAPITALIZED, BAKER WILL BE WELL CAPITALIZED, THESE ACTIONS TAKEN TOGTHER WILL DROP OUR LEVERAGE AT THE CORE GE COMPANY TO BELOW 2.5X DEBT TO EBITDA - THAT'S STRONG. WITHIN PEER LINES SO THEY'RE GOING TO HAVE THE FIREPOWER AND INVESTMENT POWER THEY NEED TO KEEP GROWING THAT BUSINESS. THAT WAS REALLY AT THE END OF DAY THE OBJECTIVE.

FLANNERY ON BEING FINISHED

FABER: ARE YOU DONE? IS THIS IT? IS THIS THE GE YOU AND I ARE GOING TO BE TALKING ABOUT IN TWO YEARS FROM NOW?

FLANNERY: YES IT IS, ABSOLUTELY. AND I THINK AS WE LOOKED AT THAT PART OF THE ANALYSIS WAS INSIDE OUTSIDE AND PART IF IT IS THAT THESE BUSINESSES HAVE A LOT OF COMMONALITY THAT THE OTHER TWO BUSINESSES HAVE LIKE HEAVYSHARING OF TECHNOLOGY.IF YOU LOOK AT ENGINE TECHNOLOGY JET ENGINE COMES FROM GASTURBINE, CERAMICS AND MATERIALSWE USE ACROSS RENEWABLES.THERE IS GOOD TECHNOLOGYSHARING, VERY COMMON BUSINESSMODEL DEEP TECHNOLOGY INSTALLED BASE, LONG TERM SERVICE ANNUITYAND DEEPLY GLOBAL INFRASTRUCTUREBUSINESSES. I LIKE THAT COMBINATION OFBUSINESSES ESPECIALLY WITH THERIGHT CAPITAL STRUCTURE SO THEYCAN CONTINUE TO INVEST.

FLANNERY ON JOB CUTS

FLANNERY: THERE'S A PHILOSOPHY CHANGE HERE THAT I THINK IS IMPORTANT, IS REDUCING THE SIZE OF CORPORATE CENTER AND EMPOWERING BUSINESS TO BE THE CENTER OF GRAVITY AND THAT'S A MAJOR CHANGE IN THE WAY WE RUN THE COMPANY. I'M A DEEP BELIEVER IN UNLEASHING THE POWER OF THE BUSINESSED AND UNLEASHING THEIR ACCOUNTABILITY

EISEN: SO THEY WILL DETERMINELAYOFFS.?

FLANNERY: WE ARE TRANSFERRING CERTAIN THINGSBACK TO THE BUSINESS ELIMINATING CERTAIN THINGS OUTRIGHT AND NET NET AT THEEND OF THE DAY THE CENTER OF THECOMPANY WILL BE THE FRACTION OFWHAT IT IS NOW. SOME WILL BE IN OTHER PIECES. SOME WILL BE ELIMINATED

FLANNERY ON THE INSURANCE BUSINESS

THE INSURANCE BUSINESS WE AREATTACKING EVERY WAY POSSIBLE TOGET THE LIABILITY DOWN.THERE IS OPERATIONAL THINGS ANDNEGOTIATIONS WITH OUR PRIMARYINSURERS THERE IS TRANSACTIONAL THINGS. WE ARE LOOKING AT EVERYTHING WE ARE HIGHLY MOTIVATED TO DOTHAT.IF THERE IS SOMETHING SENSIBLETHERE WE WOULD ABSOLUTELY BE MOTIVATED TOPURSUE THAT.

FLANNERY ON PENSIONS

WE LOOKED AT THATHOLISTICALLY.I TREAT THAT THE SAME AS ANYOTHER LIABILITY.IT IS SOMETHING WE HAVE TOSATISFY. IT IS SOMETHING WE HAVE TO FUND. WE ARE MOVING SOME OF THE PENSION WITH THEHEALTH CARE BUSINESS.I THINK YOU WILL SEE OVER THENEXT TWO YEARS THE UNFUNDED PENSION LIABILITYCOMING DOWN PRETTY DRAMATICALLY.

FLANNERY ON TRADE WARS

FINANCIALLY AS WE LOOKAT SOME OF THE PROPOSALS AND WHAT THEY MIGHTDO ITS NOT A HUGE FINANCIALIMPACT. THAT SAID, WE ARE A GLOBALCOMPANY SET UP FOR GLOBAL TRADE.CHINA IS AN IMPORTANT MARKET FORUS IN BOTH DIRECTIONS.WE ARE CONCERNED ABOUT WHERE ITCOULD GO.WE ARE WATCHING THAT CAREFULLY.OUR VOICE IS LOUD AND CLEAR INGOVERNMENTS AROUND THE WORLDABOUT OUR POSITION ON THAT.AND MY EXPECTATION IS THAT OVERTIME PEOPLE DO THINGS IN THEIROWN LONG TERM SELF INTEREST ANDTHINGS WILL SETTLE DOWN.THERE IS A LOT OF NOISE RIGHT NOW.

FLANNERY ON AVIATION

AT THE END OF THE DAY IT IS AGREAT BUSINESS.I COME BACK TO THE COMMONALITYWE SEE IN THE PORTFOLIO THAT WEARE KEEPING GOING FORWARD.WE LOOKED AS WE SAID TO EVERYONE IN TH OUTSET.WE ARE OPEN TO EVERYTHING.I HAVE NO PRECONCEPTIONS, NOTIES TO THE PAST.I HAVE EXAMINED EVERY POSSIBLECOMBINATION YOU CAN IMAGINE WITHTHIS WE CAME AND THE BOARD CAME TO A UNANYMOUS CONCLUSION THAT THIS IS CLEARLYTHE BEST PATH FOR THE COMPANY AND FOR THE VALUE CREATION OF THE COMPANY.

FLANNERY ON POWER

RENEWABLES IS A HIGH GROWTH BUSINESS HIGH GROWTH INDUSTRY. WE ARE MAKING A LOT OF PROGRESS THERE ON OUR WIND BUSINESS THAT'S GOING TO QUINTUPLE AS A PERCENT OF ENERGY IN THE NEXT COUPLE OF DECADES. AND THEN THE POWER BUSINESS, WE SAID THIS MORNING ON THE CALL ITS GOING THROUGH A TURN AROUND RIGHT NOW. ITS CHOPPY RIGHT NOW BUT THE BUSINESS AND THE INDUSTRY IS NOT GOING AWAY. THE POWER GENERATION FROM GAS PRODUCTION IS GOING TO BE HIGHER 20 OR 30 YEARS FROM NOW.

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