XML 46 R10.htm IDEA: XBRL DOCUMENT
v3.20.1

Acquisitions, Dispositions, Goodwill and Other Intangible Assets | 3 Months Ended
--- | ---
Mar. 31, 2020
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. During the quarter ended March 31, 2020, our investment in business acquisitions was $5 million. As noted above, on April 3, 2020, pursuant to the agreement dated June 9, 2019, United Technologies and Raytheon Company completed their previously announced merger in an all-stock merger of equals, following the completion by United Technologies of the Separation Transactions and Distributions. Raytheon Company (NYSE:RTN) shares ceased trading prior to the market open on April 3, 2020, and each share of Raytheon common stock has been converted in the merger into the right to receive 2.3348 shares of United Technologies common stock previously traded on the NYSE under the ticker symbol “UTX." Upon closing of the Raytheon Merger, United Technologies’ name has changed to “Raytheon Technologies Corporation,” and its shares of common stock began trading as of April 3, 2020 on the NYSE under the ticker symbol “RTX.” Supplemental Pro-Forma Data: Raytheon Company's results of operations have not been included in our financial statements for the quarter ended March 31, 2020 as the Raytheon Merger was completed on April 3, 2020. The following unaudited supplemental pro-forma data presents consolidated information as if the Raytheon Merger had been completed on January 1, 2019. The pro-forma results were calculated by combining the results of Raytheon Technologies with the stand-alone results of Raytheon Company for the pre-acquisition periods, which were adjusted to account for certain costs that would have been incurred during this pre-acquisition period. The results below reflect Raytheon Technologies excluding the results of Carrier and Otis, in order to more accurately represent the structure of Raytheon Technologies after completion of the Raytheon Merger.
| Quarter Ended March 31, |  |
(dollars in millions, except per share amounts; shares in millions) | 2020 |  | 2019
Net sales | $ | 18,451 |  |  | $ | 17,623 |
Net income attributable to common shareowners | $ | 1,760 |  |  | $ | 1,599 |
Basic earnings per share of common stock | $ | 1.17 |  |  | $ | 1.06 |
Diluted earnings per share of common stock | $ | 1.16 |  |  | $ | 1.06 |
The unaudited supplemental pro-forma data above includes the following significant adjustments made to account for certain costs which would have been incurred if the acquisition had been completed on January 1, 2019, as adjusted for the applicable tax impact.
| Quarter Ended March 31, |  |
(dollars in millions) | 2020 |  | 2019
Amortization of acquired Raytheon Company intangible assets, net 1 | $ | (273) |  |  | $ | (266) |
Amortization of fixed asset fair value adjustment 2 | (9) |  |  | (10) |
Utilization of contractual customer obligation 3 | 8 |  |  | 15 |
Deferred revenue fair value adjustment 4 | (4) |  |  | (9) |
Adjustment to net periodic pension cost 5 | 239 |  |  | 241 |
RTC/Raytheon fees for advisory, legal, accounting services 6 | 34 |  |  | — |
Adjustment to interest expense related to debt distributions and Raytheon Merger, net 7 | 106 |  |  | 131 |
Elimination of deferred commission amortization 8 | 5 |  |  | 3 |
Otis and Carrier separation9 | 949 |  |  | (634) |
| $ | 1,055 |  |  | $ | (529) |
1 Reflects the additional amortization of the acquired Raytheon Company's intangible assets recognized at fair value in purchase accounting and eliminates the historical Raytheon Company intangible asset amortization expense. 2 Reflects the amortization of the fixed asset fair value adjustment as of the acquisition date. 3 Reflects the additional amortization of liabilities recognized for acquired contracts with terms less favorable than could be realized in market transactions as of the acquisition date. 4 Reflects the difference between prepayments related to extended arrangements and the preliminary fair value of the assumed performance obligations as they are satisfied. 5 Represents the impact of the pension and postretirement service cost expense as determined under RTC’s plan assumptions. 6 Reflects the elimination of transaction-related fees incurred by RTC and Raytheon Company in connection with the Raytheon Merger and assumes all of the fees were incurred during the first quarter of 2019. 7 Reflects a reduction in interest expense as result of RTC's paydown of debt to meet its targeted indebtedness, in connection with the Raytheon Merger. 8 Reflects the elimination of amortization recognized on deferred commissions that are eliminated in purchase accounting. 9 Reflects the impact of the Separation Transactions and Distributions. Pro Forma Information Including the Results of Otis and Carrier: The following unaudited supplemental pro-forma data presents consolidated information as if the Raytheon Merger had been completed on January 1, 2019. The pro-forma results were calculated by combining the results of Raytheon Technologies, including the results of Carrier and Otis, with the stand-alone results of Raytheon Company for the pre-acquisition periods, which were adjusted to account for certain costs that would have been incurred during this pre-acquisition period. Significant adjustments made to account for certain costs which would have been incurred if the acquisition had been completed on January 1, 2019 were consistent with the adjustments presented in the table above.
| Quarter Ended March 31, |  |
(dollars in millions, except per share amounts; shares in millions) | 2020 |  | 2019
Net sales | $ | 25,301 |  |  | $ | 25,035 |
Net income attributable to common shareowners | $ | 709 |  |  | $ | 1,942 |
Basic earnings per share of common stock | $ | 0.47 |  |  | $ | 1.29 |
Diluted earnings per share of common stock | $ | 0.47 |  |  | $ | 1.28 |
The unaudited supplemental pro-forma financial data does not reflect the potential realization of cost savings related to the integration of the two companies. Further, the pro-forma data should not be considered indicative of the results that would have occurred if the acquisition had been consummated on January 1, 2019, nor are they indicative of future results. Dispositions. During the quarter ended March 31, 2020 there were no dispositions. As previously disclosed, on April 2, 2020, Carrier and Otis entered into a Separation and Distribution Agreement with UTC (since renamed Raytheon Technologies Corporation), pursuant to which, among other things, UTC agreed to separate into three independent, publicly traded companies – UTC, Otis Worldwide Corporation and Carrier Global Corporation and distribute all of the outstanding common stock of Carrier and Otis to UTC shareowners who held shares of UTC common stock as of the close of business on March 19, 2020. UTC distributed 866,158,910 and 433,079,455 shares of common stock of Carrier and Otis, respectively in the Distributions. As a result of the Distributions, Carrier and Otis are now independent publicly traded companies. The historical results of Otis and Carrier will be presented as discontinued operations in our second quarter financial statements. In the quarter ended March 31, 2020, a total of $1,437 million of costs have been incurred related to the Separation Transactions and recorded in the following financial statement line items: $271 million of Selling, general and administrative costs, $660 million of Debt extinguishment costs, $6 million of Interest expense, and $500 million of Income tax expense. In accordance with conditions imposed for regulatory approval of the Raytheon Merger, Collins Aerospace Systems is required to dispose of certain businesses. The proposed sale of these businesses was subject to the completion of the Raytheon Merger as well as the satisfaction of other closing conditions, including receipt of regulatory approvals. Due to these closing conditions, the criteria for held for sale accounting treatment was not met until the completion of the Raytheon Merger on April 3, 2020. Goodwill. Changes in our goodwill balances for the quarter ended March 31, 2020 were as follows:
(dollars in millions) | Balance as of January 1, 2020 |  | Goodwill Resulting from Business Combinations |  | Foreign Currency Translation and Other |  | Balance as of March 31, 2020
Otis | $ | 1,647 |  |  | $ | — |  |  | $ | (39) |  |  | $ | 1,608 |
Carrier | 9,807 |  |  | — |  |  | (208) |  |  | 9,599 |
Pratt & Whitney | 1,563 |  |  | — |  |  | — |  |  | 1,563 |
Collins Aerospace Systems | 35,025 |  |  | — |  |  | (335) |  |  | 34,690 |
Total Segments | 48,042 |  |  | — |  |  | (582) |  |  | 47,460 |
Eliminations and other | 21 |  |  | — |  |  | — |  |  | 21 |
Total | $ | 48,063 |  |  | $ | — |  |  | $ | (582) |  |  | $ | 47,481 |
The Company reviews goodwill for impairment annually or more frequently if events or changes in circumstances indicate the asset might be impaired. The Company considered the deterioration in general economic and market conditions due to the COVID-19 pandemic to be a triggering event requiring us to reassess our goodwill and intangibles valuations as well as significant assumptions of future income from our underlying assets and potential changes in our liabilities. The extent of the pandemic’s impact depends on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the scope, severity and duration of the COVID-19 pandemic, actions to contain its spread or treat its impact, and governmental, business and individuals’ actions taken in response to the pandemic (including restrictions and limitations on travel and transportation) among others. Based upon the dynamic environment, we will continue to evaluate in future periods whether these assumptions continue to be reasonable and will update the forecasts and impairment analysis as needed. Based upon our analysis, we have determined that none of our goodwill has been impaired as of March 31, 2020. The reporting unit that was closest to impairment was a reporting unit at Collins Aerospace Systems with a fair value in excess of net book value, including goodwill, of approximately $1.5 billion or 15%. As noted below, our assessment did result in a $40 million impairment of an indefinite-lived intangible asset at Collins Aerospace Systems. The Company continuously monitors for events and circumstances that could negatively impact the key assumptions in determining fair value, including long-term revenue growth projections, profitability, discount rates, recent market valuations from transactions by comparable companies, volatility in the Company's market capitalization, and general industry, market and macro-economic conditions. It is possible that future changes in such circumstances, including a more prolonged and/or severe COVID-19 pandemic than originally anticipated, or future changes in the variables associated with the judgments, assumptions and estimates used in assessing the fair value of our reporting units, would require the Company to record a non-cash impairment charge. Intangible Assets. Identifiable intangible assets are comprised of the following:
| March 31, 2020 |  |  |  | December 31, 2019 |  |
(dollars in millions) | Gross Amount |  | Accumulated Amortization |  | Gross Amount |  | Accumulated Amortization
Amortized: |  |  |  |  |  |  |
Service portfolios | $ | 2,052 |  |  | $ | (1,600) |  |  | $ | 2,105 |  |  | $ | (1,626) |
Patents and trademarks | 350 |  |  | (249) |  |  | 356 |  |  | (250) |
Collaboration intangible assets | 4,940 |  |  | (990) |  |  | 4,862 |  |  | (920) |
Customer relationships and other | 23,084 |  |  | (5,795) |  |  | 23,210 |  |  | (5,607) |
| 30,426 |  |  | (8,634) |  |  | 30,533 |  |  | (8,403) |
Unamortized: |  |  |  |  |  |  |
Trademarks and other1 | 3,808 |  |  | — |  |  | 3,916 |  |  | — |
Total | $ | 34,234 |  |  | $ | (8,634) |  |  | $ | 34,449 |  |  | $ | (8,403) |
1The reduction in Trademarks and other includes a $40 million impairment charge related to a tradename at Collins Aerospace resulting from an assessment of the impact of the COVID-19 pandemic performed during the quarter ended March 31, 2020. In addition to customer relationship intangible assets obtained through business combinations, 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. Amortizable intangible assets are tested for impairment when events occur that indicate that the net book value will not be recovered over future cash flows. Based on our assessments performed related to COVID-19, no impairment of our amortizable intangible assets was identified as of March 31, 2020; however, we will continue to evaluate the impact on our customers and our business in future periods which may result in a different conclusion. Amortization of intangible assets for the quarters ended March 31, 2020 and 2019 were $354 million and $374 million, respectively. The following is the expected amortization of intangible assets for the years 2020 through 2025, which reflects the pattern of expected economic benefit on certain aerospace intangible assets. The table below includes the expected amortization of the intangible assets of Otis and Carrier as of March 31, 2020.
(dollars in millions) |  | Remaining 2020 |  | 2021 |  | 2022 |  | 2023 |  | 2024 |  | 2025
Amortization expense |  | $ | 1,036 |  |  | $ | 1,401 |  |  | $ | 1,385 |  |  | $ | 1,377 |  |  | $ | 1,347 |  |  | $ | 1,327 |

X
- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
Name: | us-gaap_BusinessCombinationDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration

X
- References No definition available. + Details
Name: | us-gaap_BusinessCombinationRecognizedIdentifiableAssetsAcquiredGoodwillAndLiabilitiesAssumedNetAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration