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GE [NYSE:GE] announced today acquisition-related charges of $0.02 per share associated with its previously announced acquisition of Avio Aero, which closed August 1, 2013. These charges will be taken in GE’s corporate segment.
The charges include the impact of effectively settling Avio’s contractual relationships with GE, which prior to the acquisition was more than 50% of Avio’s aviation sector revenue. Avio has been a supplier to GE Aviation for many years and had a number of pre-existing contractual arrangements with GE. US GAAP requires GE to record the fair value impact of effectively settling the pre-existing contracts.
GE will subsequently benefit from assuming these lower manufacturing costs which have been generated by efficiencies that Avio has achieved over time. There is no incremental cash outlay related to this one-time charge. The third quarter charges also include standard acquisition-related adjustments, primarily for the fair valuation of inventory, as required by US GAAP.
Avio Aero is an Italy-based manufacturer of aviation propulsion equipment and was purchased for $4.3 billion, a multiple of 8.5x based on 2012 earnings before interest, taxes, depreciation and amortization. Avio has supplied components to GE Aviation since 1984 and has content on engines, components and systems for civil and military aircraft. The acquisition furthers GE’s participation in jet propulsion, one of the most attractive sectors of the aviation industry, and strengthens GE’s global supply chain capabilities as its engine production rates continue to rise to meet growing customer demand.
GE’s total-year framework remains unchanged. GE is ahead of plan in its simplification efforts and expects to exceed $1 billion in cost reductions this year.
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