GE 2011 Annual Report Download - page 99

GE 2011 ANNUAL REPORT 97
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Changes in goodwill balances follow.
2011 2010
(In millions)
Balance at
January 1 Acquisitions
Dispositions,
currency
exchange
and other
Balance at
December 31
Balance at
January 1 Acquisitions
Dispositions,
currency
exchange
and other
Balance at
December 31
Energy Infrastructure $12,893 $8,730 $(533) $21,090 $12,777 $ 53 $ 63 $12,893
Aviation 6,073 — (77) 5,996 6,099 — (26) 6,073
Healthcare 16,338 305 (12) 16,631 15,998 434 (94) 16,338
Transportation 554 — (3) 551 551 1 2 554
Home & Business Solutions 1,022 114 (9) 1,127 1,188 — (166) 1,022
GE Capital 27,508 6 (284) 27,230 28,382 19 (893) 27,508
Total $64,388 $9,155 $(918) $72,625 $64,995 $507 $(1,114) $64,388
Upon closing an acquisition, we estimate the fair values of assets
and liabilities acquired and consolidate the acquisition as quickly as
possible. Given the time it takes to obtain pertinent information to
fi nalize the acquired company’s balance sheet, then to adjust the
acquired company’s accounting policies, procedures, and books
and records to our standards, it is often several quarters before we
are able to fi nalize those initial fair value estimates. Accordingly, it is
not uncommon for our initial estimates to be subsequently revised.
Goodwill balances increased $8,237 million in 2011, primarily as
a result of the acquisitions of Converteam ($3,411 million), Dresser,
Inc. ($2,178 million), the Well Support division of John Wood Group
PLC ($2,036 million), Wellstream PLC ($810 million) and Lineage
Power Holdings, Inc. ($256 million) at Energy Infrastructure, partially
offset by the stronger U.S. dollar ($650 million).
Goodwill related to new acquisitions in 2010 was $507 mil-
lion and included the acquisition of Clarient, Inc. ($425 million) at
Healthcare. Goodwill balances decreased $603 million during 2010,
primarily as a result of the deconsolidation of Regency Energy
Partners L.P. (Regency) at GE Capital ($557 million) and the stronger
U.S. dollar ($260 million).
On September 2, 2011, we purchased a 90% interest in
Converteam for $3,586 million. In connection with the transaction,
we entered into an arrangement to purchase the remaining 10%
at the two-year anniversary of the acquisition date for 343 million
euros (approximately $470 million). This amount was recorded as a
liability at the date of acquisition.
On May 26, 2010, we sold our general partnership interest in
Regency, a midstream natural gas services provider, and retained
a 21% limited partnership interest. This resulted in the decon-
solidation of Regency and the remeasurement of our limited
partnership interest to fair value. We recorded a pre-tax gain of
$119 million, which is reported in GECS revenues from services.
On June 25, 2009, we increased our ownership in BAC from
49.99% to 75% for a purchase price of $623 million following
the terms of our 2006 investment agreement (BAC Investment
Agreement) with the then controlling shareholder. At that time,
we remeasured our previously held equity investment to fair
value, resulting in a pre-tax gain of $343 million. This transaction
required us to consolidate BAC, which was previously accounted
for under the equity method.
We test goodwill for impairment annually and more frequently
if circumstances warrant. We determine fair values for each of
the reporting units using an income approach. When available
and appropriate, we use comparative market multiples to cor-
roborate discounted cash fl ow results. For purposes of the income
approach, fair value is determined based on the present value of
estimated future cash fl ows, discounted at an appropriate risk-
adjusted rate. We use our internal forecasts to estimate future cash
fl ows 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 fore-
casts. 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 fi nancing. We use dis-
count rates that are commensurate with the risks and uncertainty
inherent in the respective businesses and in our internally devel-
oped forecasts. Discount rates used in our reporting unit valuations
ranged from 9.0% to 13.75%. Valuations using the market approach
refl ect prices and other relevant observable information generated
by market transactions involving comparable businesses.
Compared to the market approach, the income approach
more closely aligns each reporting unit valuation to our business
profi le, including geographic markets served and product offer-
ings. Required rates of return, along with uncertainty inherent