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Business Combinations | 12 Months Ended
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Dec. 31, 2022
Business Combinations [Abstract] |
Business Combination Disclosure | NOTE 2: BUSINESS ACQUISITIONS, DISPOSITIONS, GOODWILL AND INTANGIBLE ASSETS Business Acquisitions. Our investments in businesses, net of cash acquired, in 2022, 2021 and 2020 totaled $66 million, $1.1 billion and $35.1 billion, respectively. Our investments in business in 2022 consisted of immaterial acquisitions. Our investments in business in 2021 and 2020 primarily consisted of the acquisitions discussed below. In November 2021, we completed the acquisitions of FlightAware and SEAKR Engineering Inc., for a total of approximately $1.1 billion, net of cash received. FlightAware is a leading digital aviation company providing global flight tracking solutions, predictive technology, analytics and decision-making tools, and is reported in the Collins segment. SEAKR Engineering Inc. is a leading supplier of advanced space electronics and is reported in the RIS segment. In connection with these acquisitions, we recorded $0.8 billion of goodwill and $0.3 billion of intangible assets. In December 2020, we completed the acquisition of Blue Canyon Technologies, a leading provider of small satellites and spacecraft systems components for $425 million, net of cash received. Blue Canyon Technologies is reported in the RIS segment. In connection with this acquisition, we recorded $281 million of goodwill and $149 million of intangible assets. Pro forma financial information and revenue from the date of acquisition have not been provided for these acquisitions as they are not material either individually or in the aggregate. Raytheon Merger. As discussed in “Note 1: Basis of Presentation and Summary of Accounting Principles”, on April 3, 2020, UTC and Raytheon Company completed an all-stock merger of equals, following the completion by UTC of the Separation Transactions and Distributions. Raytheon Company (previously New York Stock Exchange (NYSE): RTN) shares ceased trading prior to the market open on April 3, 2020, and each share of Raytheon common stock was converted in the merger into the right to receive 2.3348 shares of UTC common stock, previously traded on the NYSE under the ticker symbol “UTX.” Upon closing of the Raytheon merger, UTC’s name was 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.” Total consideration is calculated as follows:
(dollars in millions) | Amount
Fair value of RTC common stock issued for Raytheon Company outstanding common stock and vested equity awards | $ | 33,067 |
Fair value attributable to pre-merger service for replacement equity awards | 99 |
Total merger consideration | $ | 33,166 |
The fair value of RTC common stock issued for Raytheon Company outstanding common stock and vested equity awards is calculated as follows:
(dollars and shares in millions, except per share amounts and exchange ratio) | Amount
Number of Raytheon Company common shares outstanding as of April 3, 2020 | 277.3
Number of Raytheon Company stock awards vested as a result of the Raytheon merger (1) | 0.4
Total outstanding shares of Raytheon Company common stock and equity awards entitled to merger consideration | 277.7
Exchange ratio (2) | 2.3348
Shares of RTC common stock issued for Raytheon Company outstanding common stock and vested equity awards | 648.4
Price per share of RTC common stock (3) | $ | 51.00 |
Fair value of RTC common stock issued for Raytheon Company outstanding common stock and vested equity awards | $ | 33,067 |
(1) Represents Raytheon Company stock awards that vested as a result of the Raytheon merger, which is considered a “change in control” for purposes of the Raytheon 2010 Stock Plan. Certain Raytheon Company restricted stock awards and Raytheon Company restricted stock unit (RSU) awards, issued under the Raytheon 2010 Stock Plan vested on an accelerated basis as a result of the Raytheon merger. Such vested awards were converted into the right to receive RTC common stock determined as the product of (1) the number of vested awards, and (2) the exchange ratio. (2) The exchange ratio is equal to 2.3348 shares of UTC common stock for each share of Raytheon Company common stock in accordance with the Raytheon merger agreement. (3) The price per share of RTC common stock is based on the RTC opening stock price as of April 3, 2020. Allocation of Consideration Transferred to Net Assets Acquired. We accounted for the Raytheon merger under the acquisition method and are required to measure identifiable assets acquired and liabilities assumed of the acquiree (Raytheon Company) at the fair values on the closing date. During the first quarter of 2021, based on the finalization of our valuation and internal reviews, we completed the purchase price allocation which resulted in a net increase to goodwill of $61 million. The final purchase price allocation, net of cash acquired, for the acquisition was as follows:
(dollars in millions) |
Cash and cash equivalents | $ | 3,208 |
Accounts receivable | 1,997 |
Contract assets | 6,023 |
Inventory | 705 |
Other assets, current | 940 |
Fixed assets | 4,745 |
Operating lease right-of-use assets | 950 |
Intangible assets | 19,130 |
Other assets | 1,218 |
Total identifiable assets acquired | 38,916 |
Accounts payable | 1,477 |
Accrued employee compensation | 1,492 |
Other accrued liabilities | 1,921 |
Contract liabilities | 3,002 |
Long-term debt, including current portion | 4,700 |
Operating lease liabilities, non-current | 738 |
Future pension and postretirement benefit obligations | 11,607 |
Other long-term liabilities | 2,368 |
Total liabilities acquired | 27,305 |
Total identifiable net assets | 11,611 |
Goodwill | 21,589 |
Redeemable noncontrolling interest | (34) |
Total consideration transferred | $ | 33,166 |
Fair value adjustments to Raytheon Company’s identified assets and liabilities included an increase in fixed assets of $1.1 billion and an increase to future pension and postretirement benefit obligations of $3.6 billion, primarily related to remeasurement of the liability based on market conditions on the Raytheon merger closing date. In determining the fair value of identifiable assets acquired and liabilities assumed, a review was conducted for any significant contingent assets or liabilities existing as of the closing date. The assessment did not note any material contingencies related to existing legal or government action. The Separation Transactions included the transfer of certain defined benefit plans from UTC to Carrier and Otis. The plans transferred were primarily international plans with the majority of the UTC defined benefit liability remaining with Raytheon Technologies. Upon separation, the pension participants within Carrier and Otis were effectively terminated from Raytheon Technologies. The terminations triggered a mid-year remeasurement of the UTC domestic plans. The remeasurement, which was calculated using discount rates and asset values as of April 3, 2020 (using March 31, 2020 as a practical expedient), resulted in a $2.4 billion increase to our pension liability, primarily due to a decrease in the fair market value of the plans’ assets since December 31, 2019. All service cost previously associated with Carrier and Otis was reclassified to discontinued operations. For non-service pension (income) expense and pension liabilities, generally only the portions related to the defined benefit plans transferred to Carrier and Otis as part of the Separation Transactions were reclassified to discontinued operations. The fair values of the customer relationship intangible assets were determined by using a discounted cash flow valuation method, which is a form of the income approach. Under this approach, the estimated future cash flows attributable to the asset are adjusted to exclude the future cash flows that can be attributed to supporting assets, such as tradenames or fixed assets. Both the amount and the duration of the cash flows are considered from a market participant perspective. Our estimates of market participant future cash flows, which required significant management judgment, included forecasted revenue growth rates, remaining developmental effort, operational performance including company specific synergies, program life cycles, material and labor pricing, and other relevant customer, contractual and market factors. Where appropriate, the net cash flows were probability-adjusted to reflect the uncertainties associated with the underlying assumptions, including cancellation rates related to backlog, government demand for sole-source and recompete contracts and win rates for recompete contracts, as well as the risk profile of the net cash flows utilized in the valuation. The probability-adjusted future cash flows were then discounted to present value, using an appropriate discount rate that required significant judgment by management. The customer relationship intangible assets are being amortized based on the pattern of economic benefits we expect to realize over the estimated economic life of the underlying programs. The fair value of the tradename intangible assets were determined utilizing the relief from royalty method, which is a form of the income approach. Under this method, a royalty rate based on observed market royalties is applied to projected revenue supporting the tradename and discounted to present value, using forecasted revenue growth rate projections and a discount rate, respectively, that required significant judgment by management. The tradename intangible assets were determined to have an indefinite life. The developed technology intangible assets are being amortized based on the pattern of economic benefits. The intangible assets included above consist of the following:
(dollars in millions) | Fair Value | Useful Life
Acquired customer relationships | $ | 12,900 |  | 25 years
Acquired tradenames | 5,430 |  | Indefinite
Acquired developed technology | 800 |  | 5 to 7 years
Total identifiable intangible assets | $ | 19,130 |  |
We also identified customer contractual obligations on loss making programs and recorded liabilities of $222 million related to these programs based on the difference between the actual expected operating loss and a normalized operating profit. These liabilities are being liquidated based on the expected pattern of expenses incurred on these contracts. We recorded $21.6 billion of goodwill as a result of the Raytheon merger which primarily relates to expected synergies from combining operations and the value of the existing workforce. The goodwill generated as a result of the Raytheon merger is nondeductible for tax purposes. Merger-Related Costs. Merger-related costs have been expensed as incurred. In 2021 and 2020, we recorded $17 million and $142 million, respectively, of Raytheon merger transaction and integration costs. These costs were recorded in Selling, general and administrative expenses within the Consolidated Statement of Operations. Supplemental Pro-Forma Data. Raytheon Company’s results of operations have been included in RTC’s financial statements for the period subsequent to the completion of the Raytheon merger 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 on a continuing operations basis, in order to more accurately represent the structure of Raytheon Technologies after completion of the Separation Transactions, the Distributions and the Raytheon merger.
(dollars in millions, except per share amounts) | 2020
Net sales | $ | 64,087 |
Loss from continuing operations attributable to common shareowners | (2,167) |
Basic loss per share of common stock from continuing operations | $ | (1.43) |
Diluted loss per share of common stock from continuing operations | (1.43) |
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. As the merger was completed on April 3, 2020, the pro-forma adjustments in the table below only include the required adjustments through April 3, 2020.
(dollars in millions) | 2020
Amortization of acquired Raytheon Company intangible assets, net (1) | $ | (270) |
Amortization of fixed asset fair value adjustment (2) | (9) |
Utilization of contractual customer obligation (3) | 8 |
Deferred revenue fair value adjustment (4) | (4) |
Adjustment to non-service pension (income) expense (5) | 239 |
RTC/Raytheon fees for advisory, legal, accounting services (6) | 134 |
Adjustment to interest expense related to the Raytheon merger, net (7) | 9 |
Elimination of deferred commission amortization (8) | 5 |
| $ | 112 |
(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 certain acquired loss making contracts as of the acquisition date. (4) Reflects the difference between prepayments related to extended arrangements and the fair value of the assumed performance obligations as they are satisfied. (5) Represents the elimination of unamortized prior service costs and actuarial losses, as a result of fair value purchase accounting. (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 the amortization of the fair market value adjustment related to Raytheon Company. (8) Reflects the elimination of amortization recognized on deferred commissions that are eliminated in purchase accounting. The unaudited supplemental pro-forma financial information 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. In 2022, 2021 and 2020 cash inflows related to dispositions were $94 million, $1.9 billion and $2.6 billion, respectively. Our dispositions of businesses in 2022 were immaterial. Our dispositions of businesses in 2021 and 2020 consisted of the dispositions discussed below and other immaterial dispositions. In December 2021, we divested our global training and services business within our RIS segment for approximately $0.9 billion in cash and other consideration, resulting in an aggregate pre-tax gain, net of transaction costs, of $251 million ($135 million after tax), which includes a $12 million pre-tax gain recognized in Non-service pension income within the Consolidated Statement of Operations. In January 2021, we sold our Forcepoint business for proceeds of $1.1 billion, net of cash transferred. We did not recognize a pre-tax gain or loss within the Consolidated Statement of Operations related to the sale of Forcepoint. The results of Forcepoint were included in Eliminations and other in our segment results. In the third quarter of 2020, in accordance with conditions imposed for regulatory approval of the Raytheon merger, we completed the sale of our Collins military Global Positioning System (GPS) and space-based precision optics businesses for $2.3 billion in cash, resulting in an aggregate pre-tax gain, net of transaction costs, of $580 million ($253 million after tax), of which $608 million was included in Other income, net partially offset by $20 million of aggregate transaction costs included in Selling, general and administrative costs and an $8 million expense included in Non-service pension income within our Consolidated Statement of Operations. In May 2020, in order to meet the requirements for regulatory approval of the Raytheon merger, we completed the sale of our airborne tactical radios business within our RIS segment for $231 million in cash, net of transaction-related costs. As the transaction occurred subsequent to the Raytheon merger, the gain of $199 million was not recorded in the Consolidated Statement of Operations, but rather was recorded as an adjustment to the fair value of net assets acquired in the allocation of consideration transferred to net assets acquired in the Raytheon merger. Goodwill. Changes in our goodwill balances for the year ended in 2022 were as follows:
(dollars in millions) | Balance as of January 1, 2022 |  | Acquisitions and Divestitures |  | Foreign currency translation and other |  | Balance as of December 31, 2022 |  |
Collins Aerospace | $ | 31,384 |  |  | $ | (36) |  |  | $ | (629) |  |  | $ | 30,719 |  |  |
Pratt & Whitney | 1,563 |  |  | — |  |  | — |  |  | 1,563 |  |  |
Raytheon Intelligence & Space | 9,813 |  |  | 26 |  |  | 2 |  |  | 9,841 |  |  |
Raytheon Missiles & Defense | 11,659 |  |  | 41 |  |  | — |  |  | 11,700 |  |  |
Total Segment | 54,419 |  |  | 31 |  |  | (627) |  |  | 53,823 |  |  |
Eliminations and other | 17 |  |  | — |  |  | — |  |  | 17 |  |  |
Total | $ | 54,436 |  |  | $ | 31 |  |  | $ | (627) |  |  | $ | 53,840 |  |  |
The Company reviews goodwill for impairment annually or more frequently if events or changes in circumstances indicate the asset might be impaired. We completed our annual goodwill impairment testing as of October 1, 2022 and determined that no adjustments to the carrying value of goodwill were necessary. For those reporting units where we performed a quantitative test, we estimated the fair value of our reporting units using a combination of discounted cash flows and market-based valuation methodologies. As noted above, these methodologies involve significant assumptions that are subject to variability. The key assumptions used in our quantitative analysis include our business projections, including revenue growth rates and operating profit margins, the long-term growth rate used to calculate the terminal value of the reporting unit, the discount rate, and comparable multiples from publicly traded companies in our industry. We consider both internal and external factors and refresh key assumptions annually or as considered necessary. Material changes in these estimates could occur and result in impairments in future periods. Based on our annual impairment analysis as of October 1, 2022, the reporting units that were closest to impairment were two previously combined Collins reporting units with fair values in excess of book values, including goodwill, of 15% and 17%. The combined value of goodwill allocated to these two reporting units is approximately $9.5 billion as of the date testing was performed. All other reporting units had a fair value substantially in excess of book value. We considered the deterioration in general economic and market conditions primarily due to the COVID-19 pandemic to be a triggering event in the first and second quarters of 2020, requiring an impairment evaluation of goodwill, intangible assets, net and other assets in our commercial aerospace businesses, Collins and Pratt & Whitney. Beginning in the second quarter of 2020, we observed several airline customer bankruptcies, delays and cancellations of aircraft purchases by airlines, fleet retirements and repositioning of OEM production schedules and we experienced significant unfavorable EAC adjustments at our Collins and Pratt & Whitney businesses due to a decline in flight hours, aircraft fleet utilization, shop visits and commercial OEM deliveries. These factors contributed to a deterioration of our expectations regarding the timing of a return to pre-COVID-19 commercial flight activity, which further reduced our future sales and cash flows expectations. In the second quarter of 2020, we evaluated the Collins and Pratt & Whitney reporting units for goodwill impairment and determined that the carrying values of two of the six Collins reporting units exceeded the sum of discounted future cash flows, resulting in goodwill impairments of $3.2 billion. Goodwill impairment was not indicated for any of the other reporting units evaluated for impairment in any of these scenarios. The Company continuously monitors and evaluates relevant events and circumstances that could unfavorably impact the significant assumptions noted above, including changes to U.S. treasury rates and equity risk premiums, tax 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 or in the inputs and assumptions used in estimating the fair value of our reporting units, could require the Company to record a non-cash impairment charge. Intangible Assets. Identifiable intangible assets are comprised of the following:
| 2022 |  | 2021
(dollars in millions) | Gross Amount |  | Accumulated Amortization |  | Gross Amount |  | Accumulated Amortization
Amortized: |  |  |  |  |  |  |
Collaboration assets | $ | 5,536 |  |  | $ | (1,408) |  |  | $ | 5,319 |  |  | $ | (1,173) |
Exclusivity assets | 2,911 |  |  | (323) |  |  | 2,673 |  |  | (318) |
Developed technology and other | 1,202 |  |  | (544) |  |  | 1,214 |  |  | (466) |
Customer relationships | 29,775 |  |  | (8,967) |  |  | 29,982 |  |  | (7,411) |
| 39,424 |  |  | (11,242) |  |  | 39,188 |  |  | (9,368) |
Indefinite-lived: |  |  |  |  |  |  |
Trademarks and other | 8,641 |  |  | — |  |  | 8,696 |  |  | — |
Total | $ | 48,065 |  |  | $ | (11,242) |  |  | $ | 47,884 |  |  | $ | (9,368) |
We also completed our annual indefinite-lived intangible assets impairment testing as of October 1, 2022 and determined that no adjustments to the carrying value of these assets were necessary. In 2020, given the deterioration in general economic and market conditions primarily due to the COVID-19 pandemic, we performed an assessment of our indefinite-lived intangible assets and recorded charges of $57 million related to the impairment of an indefinite-lived tradename intangible assets at Collins. Amortization of intangible assets was $1,957 million, $2,439 million and $2,125 million in 2022, 2021 and 2020, respectively. The following is the expected amortization of total intangible assets for 2023 through 2027:
(dollars in millions) | 2023 |  | 2024 |  | 2025 |  | 2026 |  | 2027
Amortization expense | $2,082 |  | $2,203 |  | $2,086 |  | $2,002 |  | $1,882

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- 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 https://asc.fasb.org/topic&trid=2303972 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 5 -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=128092470&loc=d3e4946-128472 + Details
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