Goodwill and Other Intangibles Assets

9 Months Ended

Sep. 30, 2014

Goodwill and Intangible Assets Disclosure [Abstract]

7. ACQUISITIONS, GOODWILL AND OTHER INTANGIBLE ASSETS

Acquisitions

On June 20, 2014, GE’s offer to acquire the Thermal, Renewables and Grid businesses of Alstom for $13.5 billion, net of $3.4 billion of assumed net cash in the businesses to be acquired, was positively recommended by Alstom’s board of directors. In addition, GE, Alstom and the French Government signed a memorandum of understanding for the formation of three joint ventures in grid technology, renewable energy, and global nuclear and French steam power. Alstom will invest $3.5 billion of cash in these joint ventures. The proposed transaction is subject to further reviews and approvals, including Alstom’s works councils and shareholder approval, as well as regulatory approvals. The transaction is targeted to close in 2015.

On June 2, 2014, we acquired Cameron’s Reciprocating Compression division for $550 million. The division provides reciprocating compression equipment and aftermarket services for oil and gas production, gas processing, gas distribution and independent power industries. The division is included in our Oil & Gas segment. The preliminary purchase price allocation resulted in goodwill of approximately $240 million and amortizable intangible assets of approximately $100 million. The allocation of the purchase price will be finalized upon completion of post-closing procedures.

In the first quarter of 2014, we acquired several businesses in our Healthcare segment. On February 12, 2014, we acquired API Healthcare (API) for $340 million in cash. API is a healthcare workforce management software and analytics solutions provider. The preliminary purchase price allocation resulted in goodwill of approximately $280 million and amortizable intangible assets of approximately $125 million. On March 21, 2014, we acquired certain Thermo Fisher Scientific Inc. life-science businesses for $1,065 million in cash. The primary business acquired, Hyclone, is a leading manufacturer of products used to support biopharmaceutical research and production. The preliminary purchase price allocation resulted in goodwill of approximately $700 million and amortizable intangible assets of approximately $320 million. The allocation of purchase prices will be finalized upon completion of post-closing procedures.

Goodwill
					Dispositions,
					currency
	Balance at				exchange		Balance at
(In millions)	January 1, 2014		Acquisitions		and other		September 30, 2014

Power & Water	$	8,822	$	21	$	(26)	$	8,817
Oil & Gas		10,516		261		(32)		10,745
Energy Management		4,748		-		(34)		4,714
Aviation		9,103		-		(19)		9,084
Healthcare		16,643		1,008		(61)		17,590
Transportation		1,012		1		(34)		979
Appliances & Lighting		606		-		(376)		230
GE Capital		26,195		-		(529)		25,666
Corporate		3		31		-		34
Total	$	77,648	$	1,322	$	(1,111)	$	77,859

Goodwill balances increased by $211 million in the nine months ended September 30, 2014, primarily as a result of acquisitions at Healthcare and Oil & Gas, partially offset by the result of currency exchange effects of a stronger U.S. dollar, the reclassification of goodwill associated with Appliances and GEMB-Nordic to assets of businesses held for sale and dispositions.

We test goodwill for impairment annually in the third quarter of each year using data as of July 1 of that year. The impairment test consists of two steps: in step one, the carrying value of the reporting unit is compared with its fair value; in step two, which is applied when the carrying value is more than its fair value, the amount of goodwill impairment, if any, is derived by deducting the fair value of the reporting unit’s assets and liabilities from the fair value of its equity, and comparing that amount with the carrying amount of goodwill. We determined fair values for each of the reporting units using the market approach, when available and appropriate, or the income approach, or a combination of both. We assess the valuation methodology based upon the relevance and availability of the data at the time we perform the valuation. If multiple valuation methodologies are used, the results are weighted appropriately.

Valuations using the market approach are derived from metrics of publicly traded companies or historically completed transactions of comparable businesses. The selection of comparable businesses is based on the markets in which the reporting units operate giving consideration to risk profiles, size, geography, and diversity of products and services. A market approach is limited to reporting units for which there are publicly traded companies that have the characteristics similar to our businesses.

Under the income approach, fair value is determined based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. We use our internal forecasts to estimate future cash flows and include an estimate of long-term future growth rates based on our most recent views of the long-term outlook for each business. Actual results may differ from those assumed in our forecasts. We derive our discount rates using a capital asset pricing model and analyzing published rates for industries relevant to our reporting units to estimate the cost of equity financing. We use discount rates that are commensurate with the risks and uncertainty inherent in the respective businesses and in our internally developed forecasts. Discount rates used in our reporting unit valuations ranged from 9.0% to 16.0%.

During the third quarter of 2014, we performed our annual impairment test of goodwill for all of our reporting units. Based on the results of our step one testing, the fair values of each of the GE reporting units exceeded their carrying values; therefore, the second step of the impairment test was not required to be performed for any of our reporting units and no goodwill impairment was recognized.

While all of our reporting units passed step one of our annual impairment testing, we identified one reporting unit for which the fair value was not substantially in excess of its carry value. Within our Energy Management operating segment, the Power Conversion reporting unit was determined to have a fair value in excess of its carry value by approximately 10%. The goodwill associated with the Power Conversion reporting unit was $1.6 billion at September 30, 2014, representing approximately 2% of our total goodwill. While the reporting unit is not currently impaired, there may be an increased likelihood of impairment if certain estimates and assumptions are adversely affected. For example, the reporting unit’s fair value could be adversely affected and lead to a goodwill impairment if its actual results are below forecasted estimates, there is an increase in the discount rate used to discount these estimates or there is a decrease in market multiples.

As of September 30, 2014, we believe the goodwill is recoverable for all of the reporting units; however, there can be no assurances that the goodwill will not be impaired in future periods.

In 2013, while the Real Estate reporting unit’s book value was within the range of its fair value, we further substantiated our Real Estate goodwill balance by performing the second step analysis in which the implied fair value of goodwill exceeded its carrying value by approximately $3.7 billion. In the current year, it was determined that the second step was not required, as the results of step one indicated that the fair value of the Real Estate reporting unit exceeded its book value.

Estimating the fair value of reporting units requires the use of estimates and significant judgments that are based on a number of factors including actual operating results. It is reasonably possible that the judgments and estimates described above could change in future periods.

Other Intangible Assets - Net

(In millions)	September 30, 2014		December 31, 2013

Intangible assets subject to amortization	$	14,249	$	14,150
Indefinite-lived intangible assets(a)		108		160
Total	$	14,357	$	14,310

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

Intangible Assets Subject to Amortization
	September 30, 2014						December 31, 2013
	Gross						Gross
	carrying		Accumulated				carrying		Accumulated
(In millions)	amount		amortization		Net		amount		amortization		Net

Customer-related	$	8,508	$	(2,575)	$	5,933	$	7,938	$	(2,312)	$	5,626
Patents and technology		6,894		(2,918)		3,976		6,602		(2,621)		3,981
Capitalized software		8,500		(5,301)		3,199		8,256		(5,252)		3,004
Trademarks		1,167		(243)		924		1,356		(295)		1,061
Lease valuations		594		(444)		150		703		(498)		205
Present value of future profits(a)		605		(605)		-		574		(574)		-
All other		456		(389)		67		632		(359)		273
Total	$	26,724	$	(12,475)	$	14,249	$	26,061	$	(11,911)	$	14,150

(a) Balances at September 30, 2014 and December 31, 2013 reflect adjustments of $300 million and $322 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 increased $663 million in the nine months ended September 30, 2014, primarily as a result of acquisitions at Healthcare and Oil & Gas, as well as the capitalization of new software across several business platforms.

Consolidated amortization expense related to intangible assets subject to amortization was $465 million and $429 million in the three months ended September 30, 2014 and 2013, respectively, and $1,316 million and $1,257 million in the nine months ended September 30, 2014 and 2013, respectively.

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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