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Acquisitions, Dispositions, Goodwill and Other Intangible Assets | 9 Months Ended
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Sep. 30, 2018
Business Combination, Recognized Identifiable Assets Acquired, Goodwill, and Liabilities Assumed, Net [Abstract] |
Acquisitions, Dispositions, Goodwill and Other Intangible Assets [Text Block] | Acquisitions, Dispositions, Goodwill and Other Intangible Assets Business Acquisitions and Dispositions. During the nine months ended September 30, 2018, our investment in business acquisitions was $177 million, and primarily consisted of an acquisition at Pratt & Whitney. On June 21, 2018, UTC Climate, Controls & Security completed its sale of Taylor Company for proceeds of $1.0 billion resulting in a pre-tax gain of $799 million ($591 million after tax). On September 4, 2017, we announced that we had entered into a merger agreement with Rockwell Collins, Inc. (Rockwell Collins), under which we agreed to acquire Rockwell Collins. Under the terms of the merger agreement, each Rockwell Collins shareowner will receive $93.33 per share in cash and a fraction of a share of UTC common stock equal to the quotient obtained by dividing $46.67 by the average of the volume-weighted average prices per share of UTC common stock on the NYSE on each of the 20 consecutive trading days ending with the trading day immediately prior to the closing date, (the “UTC Stock Price”), subject to adjustment based on a two-way collar mechanism as described below (the “Stock Consideration”). The cash and UTC stock payable in exchange for each such share of Rockwell Collins common stock are collectively the “Merger Consideration.” The fraction of a share of UTC common stock into which each such share of Rockwell Collins common stock will be converted is the “Exchange Ratio.” The Exchange Ratio will be determined based upon the UTC Stock Price. If the UTC Stock Price is greater than $107.01 but less than $124.37, the Exchange Ratio will be equal to the quotient of (i) $46.67 divided by (ii) the UTC Stock Price, which, in each case, will result in the Stock Consideration having a value equal to $46.67. If the UTC Stock Price is less than or equal to $107.01 or greater than or equal to $124.37, then a two-way collar mechanism will apply, pursuant to which, (x) if the UTC Stock Price is greater than or equal to $124.37, the Exchange Ratio will be fixed at 0.37525 and the value of the Stock Consideration will be greater than $46.67, and (y) if the UTC Stock Price is less than or equal to $107.01, the Exchange Ratio will be fixed at 0.43613 and the value of the Stock Consideration will be less than $46.67. On January 11, 2018, the merger was approved by Rockwell Collins' shareowners. We currently expect that the merger will be completed in the fourth quarter of 2018, subject to customary closing conditions, including the receipt of required regulatory approvals. We anticipate that approximately $15 billion will be required to pay the aggregate cash portion of the Merger Consideration which will be funded by cash on hand. On August 16, 2018 we issued $11 billion of aggregate principal notes (refer to Note 5) for net proceeds of $10.9 billion of which $9.2 billion is specifically designated to fund the cash portion of the Merger Consideration and related fees, expenses and other amounts. Therefore, $9.2 billion of the net proceeds from the issuance have been classified as restricted cash as of September 30, 2018. In connection with the merger agreement with Rockwell Collins announced on September 4, 2017, we entered into a $6.5 billion 364-day unsecured bridge loan credit agreement that would have been funded only to the extent certain anticipated debt issuances were not completed prior to the completion of the merger. The unsecured bridge loan credit agreement was terminated on August 16, 2018 upon issuance of the $11 billion of aggregate principal notes described above. We expect to assume approximately $7 billion of Rockwell Collins' outstanding debt upon completion of the merger. As has been previously disclosed, the Company is continuing a strategic review of its portfolio of businesses. There can be no assurance as to the outcome of any such process or that any such process will result in a transaction, or if a transaction is undertaken, as to its terms or timing.
Goodwill. Changes in our goodwill balances for the nine months ended September 30, 2018 were as follows:
(dollars in millions) | Balance as of January 1, 2018 |  | Goodwill Resulting from Business Combinations |  | Foreign Currency Translation and Other |  | Balance as of September 30, 2018
Otis | $ | 1,737 |  |  | $ | 6 |  |  | $ | (42 | ) |  | $ | 1,701 |
UTC Climate, Controls & Security | 10,009 |  |  | 1 |  |  | (237 | ) |  | 9,773 |
Pratt & Whitney | 1,511 |  |  | 58 |  |  | (2 | ) |  | 1,567 |
UTC Aerospace Systems | 14,650 |  |  | — |  |  | (35 | ) |  | 14,615 |
Total Segments | 27,907 |  |  | 65 |  |  | (316 | ) |  | 27,656 |
Eliminations and other | 3 |  |  | 20 |  |  | — |  |  | 23 |
Total | $ | 27,910 |  |  | $ | 85 |  |  | $ | (316 | ) |  | $ | 27,679 |
The $316 million net reduction in goodwill within Foreign Currency Translation and Other includes a $151 million reduction of goodwill attributable to UTC Climate, Controls & Security's sale of Taylor Company. The $20 million increase in goodwill within Eliminations and other is due to an acquisition of a digital analytics company. Intangible Assets. Identifiable intangible assets are comprised of the following:
| September 30, 2018 |  | December 31, 2017
(dollars in millions) | Gross Amount |  | Accumulated Amortization |  | Gross Amount |  | Accumulated Amortization
Amortized: |  |  |  |  |  |  |
Service portfolios | $ | 2,181 |  |  | $ | (1,604 | ) |  | $ | 2,178 |  |  | $ | (1,534 | )
Patents and trademarks | 362 |  |  | (232 | ) |  | 399 |  |  | (233 | )
Collaboration intangible assets | 4,413 |  |  | (573 | ) |  | 4,109 |  |  | (384 | )
Customer relationships and other | 13,493 |  |  | (4,413 | ) |  | 13,352 |  |  | (4,100 | )
| 20,449 |  |  | (6,822 | ) |  | 20,038 |  |  | (6,251 | )
Unamortized: |  |  |  |  |  |  |
Trademarks and other | 2,074 |  |  | — |  |  | 2,096 |  |  | — |
Total | $ | 22,523 |  |  | $ | (6,822 | ) |  | $ | 22,134 |  |  | $ | (6,251 | )
Customer relationship intangible assets include payments made to our customers to secure certain contractual rights. Such payments are capitalized when distinct rights are obtained and sufficient incremental cash flows to support the recoverability of the assets have been established. Otherwise, the applicable portion of the payments is expensed. We amortize these intangible assets based on the underlying pattern of economic benefit, which may result in an amortization method other than straight-line. In the aerospace industry, amortization based on the pattern of economic benefit generally results in lower amortization expense during the development period with amortization expense increasing as programs enter full production and aftermarket cycles. If a pattern of economic benefit cannot be reliably determined, a straight-line amortization method is used. We classify amortization of such payments as a reduction of sales. The collaboration intangible assets are amortized based upon the pattern of economic benefits as represented by the underlying cash flows. Amortization of intangible assets for the quarter and nine months ended September 30, 2018 was $225 million and $680 million, respectively, compared with $211 million and $626 million for the same periods of 2017. The following is the expected amortization of intangible assets for the years 2018 through 2023, which reflects the pattern of expected economic benefit on certain aerospace intangible assets.
(dollars in millions) |  | Remaining 2018 |  | 2019 |  | 2020 |  | 2021 |  | 2022 |  | 2023
Amortization expense |  | $ | 222 |  |  | $ | 877 |  |  | $ | 875 |  |  | $ | 904 |  |  | $ | 924 |  |  | $ | 920 |

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