Annual report pursuant to Section 13 and 15(d)

ACQUISITIONS

v3.20.4
ACQUISITIONS
 12 Months Ended
Dec. 31, 2020
Business Combinations [Abstract]  
Acquisitions
NOTE 20. ACQUISITIONS
Acquisitions for the years ended December 31, 2019 and 2018, were as follows:
Entity Acquired (Dollars in millions) Date of Acquisition  Percent Interest Acquired Payments to Former Owners Acquisition Related Debt Retirements
Total Purchase Consideration(1)
Goodwill Recognized
Intangibles Recognized(2)
Net Sales Previous Fiscal Year Ended
2019
Hydrogenics Corporation 9/09/19 81% $ 235  $ —  $ 235  $ 161  $ 161  $ 34 
2018
Efficient Drivetrains, Inc. 8/15/18 100% $ 62  $ 2  $ 64  $ 49  $ 15  $ 3 
(1) All results from acquired entities were included in segment results subsequent to the acquisition date. Newly consolidated entities were accounted for as business combinations and were included in the New Power segment on the date of acquisition.
(2) Intangible assets acquired in business combinations were mostly customer and technology related, the majority of which will be amortized over a period of up to 20 years from the date of the acquisition.
Hydrogenics Corporation
On September 9, 2019, we acquired an 81 percent interest in Hydrogenics Corporation for total consideration of $235 million. The Hydrogen Company, a wholly-owned subsidiary of L’Air Liquide, S.A., maintains a 19 percent noncontrolling interest in Hydrogenics Corporation of $56 million, based on the publicly traded share price of Hydrogenics at the acquisition date, which was representative of its fair value. We accounted for the transaction as a business combination and included it in the New Power segment in the third quarter of 2019. We assigned this business to our New Power reporting unit, which included our electrified power, fuel cell and hydrogen technologies businesses, for goodwill impairment purposes. As of December 31, 2019, our purchase accounting was complete. The intangible assets will be amortized over periods ranging from 3 to 20 years. The purchase price allocation was as follows:
In millions
Inventory $ 21 
Other current assets 25 
Intangible assets
Technology assets 96 
Customer relationships 29 
In-process research and development 35 
Other intangible assets 1 
Goodwill 161 
Other assets 18 
Current liabilities (53)
Other liabilities (42)
Total business valuation 291 
Less: Noncontrolling interest 56 
Total purchase consideration $ 235 
Technology assets represent the value of both the existing fuel cells and generation equipment. These assets were valued using the relief-from-royalty method, which is a combination of the income approach and market approach that values a subject asset based on an estimate of the relief from the royalty expense that would be incurred if the subject asset were licensed from a third-party. Key assumptions are expected revenue, the royalty rate, the estimated remaining useful life and the discount rate. This value is considered a level 3 measurement under the fair value hierarchy. 
Customer relationship assets represent the value of the long-term strategic relationship the business has with its significant customers. The assets were valued using an income approach, specifically the multi-period excess earnings method, which identifies an estimated stream of revenues and expenses for a particular group of assets from which deductions of portions of the projected economic benefits, attributable to assets other than the subject asset (contributory assets), are deducted in order to isolate the prospective earnings of the subject asset. Key assumptions are expected revenue, related expenses, the estimated remaining useful life and the discount rate. These assets are each being amortized over 15 to 20 years. As of December 31, 2019, annual amortization of the intangible assets for the next five years was expected to approximate $8 million.
In-process research and development assets represent acquired research and development assets that have been initiated, achieved material progress, but have not yet resulted in a technologically feasible or commercially viable project. These assets were valued using the relief-from-royalty method, as described above. These assets will not be amortized until they have been completed, but will be tested annually for impairment until that time. Approximately $10 million of this amount began to be amortized in 2020, and the remainder will begin amortization once the related projects are completed.
Goodwill was determined based on the residual difference between the fair value of consideration transferred and the value assigned to tangible and intangible assets and liabilities. The goodwill amount will not be deductible for tax purposes. Among the factors contributing to a purchase price resulting in the recognition of goodwill are the acquisition of engineering talent in the fuel cell space, the ability to be one of the forerunners in the development of clean fuel cell energy and the continued opportunity to expand our position as a global power leader.