GEGE Aerospace

We note that your qualitative review of reporting units in the BHGE segment did not identify any reporting units that required an interim impairment test. However, your disclosure here and in Note 15 on page 60 discusses sustained declines in BHGE’s share price, which remains below your current carrying value.

Rest of the question

Please tell us how you considered the factors outlined in ASC 350-20-35-3 in determining that no further impairment testing was necessary.

In our most recent annual goodwill impairment test, as of July 1, 2018, the Company opted to bypass the qualitative assessment and, instead, proceeded directly to the first step of the impairment test for each of our Oil & Gas (“BHGE”) reporting units (the “Step 1 Test”), in accordance with ASC 350-20-35-3B. The Step 1 Test incorporates a combination of the income and market approaches to estimate fair value.

Rest of the answer

In performing the Step 1 Test, the Company utilized a third-party valuation specialist to support management in developing the estimated fair values for each of the BHGE reporting units, including the development of market inputs (e.g. weighted-average cost of capital, market multiples, etc.). The goodwill in each of BHGE’s reporting units was deemed to be recoverable, with fair values in excess of carrying values ranging from 18% to 112%. After assessing the results of the annual impairment test for our BHGE reporting units, we determined that we would perform enhanced quarterly procedures for each of BHGE’s reporting units to evaluate the qualitative factors described in ASC 350-20-35-3C. These procedures included updating the quantitative assessment for changes in valuation inputs, such as weighted-average cost of capital, to assess the impact on the Step 1 Test and determine if the Company would perform an interim goodwill impairment test.

The Company has performed these procedures on a quarterly basis since the annual goodwill impairment test was completed as of July 1, 2018. These procedures included consideration of the nature and magnitude of any significant developments since July 1, 2018 as well as performing sensitivity analyses on key assumptions, where appropriate. In performing our quarterly procedures, the Company focused on the changes that were most likely to meaningfully impact the determination of fair value or carrying value of the BHGE reporting units. From July 1, 2018 to March 31, 2019, the most significant developments considered are summarized below:

Volatility in oil prices (industry and market considerations): While the Company has observed volatility in oil prices, it has not experienced significant order cancellations or delays due to this volatility that would indicate that the projections included in the Step 1 Test would need to be revised.

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