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Acquisitions, Goodwill and Other Intangibles Assets
6 Months Ended
Jun. 30, 2016
Acquisitions, Goodwill and Intangible Assets Disclosure [Abstract]  
Acquisitions, Goodwill and Other Intangible Assets

NOTE 7. ACQUISITIONS, GOODWILL AND OTHER INTANGIBLE ASSETS

Acquisitions

On November 2, 2015, we acquired the Thermal, Renewables and Grid businesses from Alstom. The purchase price was €9,200 million ($10,124 million), net of cash acquired of approximately €1,600 million ($1,765 million). In order to obtain approval by the European Commission and the Department of Justice, GE pledged to sell certain of Alstom's gas-turbine assets and its Power Systems Manufacturing subsidiary to Ansaldo Energia SpA (Ansaldo) after the close of the transaction for approximately €120 million. The purchase price will be paid by Ansaldo over a period of five years. The transaction closed on February 25, 2016.

We formed three consolidated joint ventures with Alstom in grid technology, renewable energy, and global nuclear and French steam power. In addition, GE contributed its Digital Energy business to the grid technology joint venture.

Alstom holds redemption rights with respect to its interest in the grid technology and renewable energy joint ventures, which, if exercised, would require us to purchase all of their interest during September 2018 or September 2019. Alstom also holds similar redemption rights for the global nuclear and French steam power joint venture that are exercisable during the first full calendar quarter immediately following the fifth or sixth anniversary of the acquisition date. The redemption price would generally be equal to Alstom's initial investment plus annual accretion of 3% for the grid technology and renewable energy joint ventures and plus annual accretion of 2% for the nuclear and French steam power joint venture, with potential upside sharing based on an EBITDA multiple. Alstom also holds additional redemption rights in other limited circumstances as well as a call option to require GE to sell all of its interests in the renewable energy joint venture at the higher of fair value or Alstom's initial investment plus annual accretion of 3% during the month of May in the years 2016 through 2019 and also upon a decision to IPO the joint venture.

GE holds a call option on Alstom's interest in the global nuclear and French steam power joint venture at the same amount as Alstom's redemption price in the event that Alstom exercises its put option in the grid technology or renewable energy joint ventures. GE also has call options on Alstom's interest in the three joint ventures in other limited circumstances. In addition, the French Government holds a preferred interest in the global nuclear and French steam power joint venture, giving it certain protective rights.

The acquisition and alliances with Alstom will have a significant effect on our Power, Energy Connections and Renewable Energy segments, and to a lesser extent our Oil & Gas segment. The financial impact of acquired businesses on individual segments will be affected by a number of variables, including operating performance, purchase accounting effects and realized synergies. In addition, due to the amount of time that elapsed between signing and closing, the commercial operations of the businesses were negatively affected primarily as a result of uncertainty among Alstom customers regarding the execution of the transaction. This affected the overall valuation of the acquired businesses at the time of close and, accordingly, is reflected in the initial and adjusted amounts assigned to the assets and liabilities recorded in purchase accounting. In addition, the amount of goodwill recognized compared with identifiable intangible assets is affected by estimated GE-specific synergies, which are not permitted to be included in the measurement of identifiable intangibles. Such synergies include additional revenue from cross-selling complementary product lines.

ALSTOM ACQUISITION ACCOUNTING UPDATE

The total consideration for the acquired businesses, at the time of close included our purchase price of $10,124 million (net of cash acquired) and a preliminary valuation of noncontrolling interests, of approximately $3,600 million for a total of approximately $13,700 million. In the fourth quarter of 2015, the preliminary allocation of purchase price resulted in goodwill, intangible assets and unfavorable customer contract liabilities of approximately $13,500 million, $5,200 million, and $1,100 million respectively. The preliminary fair value of the associated noncontrolling interests consisted of approximately $2,900 million for Alstom's redeemable noncontrolling interests in the three joint ventures (presented separately from total equity in the consolidated balance sheet) and $700 million for all other noncontrolling interests.

Through the second quarter of 2016, we adjusted the preliminary allocation of purchase price which resulted in goodwill, intangible assets, and unfavorable customer contract liabilities, of approximately $14,750 million, $4,500 million, and $1,200 million respectively. These adjustments, which are necessary to reflect acquired assets and liabilities of the acquired businesses at fair value, reflected revisions in estimates in the first and second quarters of 2016, primarily related to updated revenue and cost assumptions for customer contracts, and other fair value adjustments related to acquired assets and liabilities. The approximate amounts of other significant purchase accounting adjustments recorded since the date of acquisition include a reduction in the book value of assets sold to Ansaldo of $400 million, adjustments to the fair value of derivative contracts of $350 million, decreases in inventory balances of $350 million, increase to legal reserves of $300 million, increases to property, plant and equipment of approximately $200 million and a reduction in the book value of aged accounts receivable of approximately $150 million. In addition, the preliminary fair value of Alstom's redeemable noncontrolling interests was increased by approximately $100 million to approximately $3,000 million and all other noncontrolling interests decreased by $100 million to approximately $600 million.

In addition to purchase price allocation based on the fair value of acquired assets and liabilities, other adjustments are necessary to reflect differences between IFRS and US GAAP, as applied to differences in facts and circumstances between those businesses as part of Alstom and as part of GE post acquisition. The table below presents approximate consideration paid, amounts of assets acquired and liabilities assumed as of the acquisition date, inclusive of the purchase accounting adjustments and IFRS to US GAAP adjustments recorded as of June 30, 2016, and the fair value of the non-controlling interest.

ASSETS ACQUIRED AND LIABILITIES ASSUMED AT THE ACQUISITION DATE
Approximate
balance at
(in millions)June 30, 2016
Assets
Cash and equivalents$1,750
Current receivables4,050
Inventories4,750
Property, plant and equipment2,900
Goodwill14,750
Other intangible assets4,500
All other assets, net(a)3,950
Total Assets$36,650
Liabilities
Accounts payable$1,900
Progress collections2,950
Accrued contract liabilities8,600
All other liabilities(b)7,700
Total Liabilities21,150
Redeemable noncontrolling interests3,000
Noncontrolling interest600
Total purchase price11,900
Cash acquired1,750
Total purchase price, net of cash acquired$10,100

(a) Includes approximately $450 million of net deferred tax assets, including approximately $50 million of non-U.S. loss carry forwards net of valuation allowances and offsetting liabilities for unrecognized benefits. Also includes approximately $150 million of indemnification receivables for liabilities for unrecognized income tax benefits and other tax uncertainties.

(b) Includes approximately $750 million of liabilities for unrecognized income tax benefits and other uncertain taxes and approximately $750 million of pension and other employee related costs.

Given the timing and complexity of the acquisition, the presentation of these businesses in our financial statements including the allocation of the purchase price is not yet final. Although we believe we have recorded a substantial majority of the purchase accounting adjustments as of the end of the second quarter of 2016, our review is continuing on a number of customer contracts, valuation of acquired property, plant and equipment, and evaluation of litigation claims and legacy compliance actions related to Alstom, among other areas. We are seeking to ascertain and substantiate the nature of potential adjustments to the acquisition date balance sheet, which include, but are not limited to, the aforementioned differences between IFRS and US GAAP. We expect to record additional purchase accounting adjustments in the third quarter and will complete our post-closing procedures and purchase price allocation no later than the fourth quarter of 2016.

CHANGES IN GOODWILL BALANCES
Dispositions,
currency
Balance atexchangeBalance at
(In millions)January 1, 2016Acquisitions (a)and otherJune 30, 2016
Power$16,736$1,147$(24)$17,859
Renewable Energy2,58028(11)2,596
Oil & Gas10,594-710,601
Energy Connections6,227156306,412
Aviation8,567-678,635
Healthcare17,35398(15)17,436
Transportation851-7858
Appliances & Lighting2146417295
Capital2,370-12,370
Corporate34-(1)34
Total$65,526$1,492$79$67,097

(a) Goodwill balances associated with Alstom and their allocations to segments are preliminary.

Goodwill balances increased by $1,571 million in 2016, primarily as a result of the Alstom acquisition purchase accounting adjustments.

oTHER INTANGIBLE ASSETS

OTHER INTANGIBLE ASSETS - NET
(In millions)June 30, 2016December 31, 2015
Intangible assets subject to amortization$16,550$17,688
Indefinite-lived intangible assets(a)100109
Total$16,650$17,797

(a) Indefinite-lived intangible assets principally comprise trademarks and in-process research and development.

INTANGIBLE ASSETS SUBJECT TO AMORTIZATION
June 30, 2016December 31, 2015
GrossGross
carryingAccumulatedcarryingAccumulated
(In millions)amountamortizationNetamountamortizationNet
Customer-related$9,321$(2,297)$7,024$9,758$(2,113)$7,645
Patents and technology8,497(3,358)5,1398,543(3,096)5,447
Capitalized software7,529(4,339)3,1907,375(4,136)3,239
Trademarks1,257(314)9441,337(282)1,055
Lease valuations125(47)78167(22)145
Present value of future profits(a)668(668)-651(651)-
All other330(155)175267(108)159
Total$27,728$(11,177)$16,550$28,098$(10,408)$17,688

(a) Balances at June 30, 2016 and December 31, 2015 reflect adjustments of $253 million and $266 million, respectively, to the present value of future profits in our run-off insurance operation to reflect the effects that would have been recognized had the related unrealized investment securities holding gains and losses actually been realized.

Intangible assets subject to amortization decreased by $1,138 million in the six months ended June 30, 2016, primarily as a result of changes in the fair value of the acquired Alstom intangible assets and amortization.

GE amortization expense related to intangible assets subject to amortization was $450 million and $314 million in the three months ended June 30, 2016 and 2015, respectively, and $896 million and $643 million for the six months ended June 30, 2016 and 2015, respectively. GE Capital amortization expense related to intangible assets subject to amortization was $37 million and $31 million in the three months ended June 30, 2016 and 2015, respectively, and $70 million and $26 million for the six months ended June 30, 2016 and 2015, respectively.