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ACQUISITIONS | 6 Months Ended
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Jun. 30, 2024
Business Combination, Asset Acquisition, and Joint Venture Formation [Abstract] |
ACQUISITIONS | ACQUISITIONS Acquisitions are recorded using the acquisition method of accounting in accordance with ASC 805, Business Combinations. As a result, the aggregate purchase price has been allocated to assets acquired and liabilities assumed based on the estimate of fair market value of such assets and liabilities at the date of acquisition. Viessmann Climate Solutions On January 2, 2024, the Company completed the acquisition of the VCS Business from Viessmann for total consideration of $14.2 billion. The purchase price consisted of (i) $11.2 billion in cash and (ii) 58,608,959 shares of the Company's common stock, subject to certain lock-up provisions and anti-dilution protection. The Company funded the cash portion of the purchase price with a combination of cash on hand, net proceeds from the USD Notes and Euro Notes and borrowings under the Delayed Draw Facility and the 60-day Loan. The VCS Business develops intelligent, integrated and sustainable technologies, including heat pumps, boilers, photovoltaic systems, home battery storage and digital solutions, primarily for residential customers in Europe. The Company believes that secular trends in these areas will drive significant, sustained future growth. In addition, the Company anticipates realizing significant operational synergies including savings through supplier rationalization and leverage, reduced manufacturing costs and lower general and administrative costs. Longer term, the Company expects to benefit from synergies related to service revenue expansion, leverage of distribution channels and cross-selling opportunities. The components of the purchase price are as follows:
(In millions) |  | January 2, 2024
Cash |  | $ | 11,156 |
Common shares (58,608,959 shares at $51.20 per share) |  | 3,001 |
Total consideration |  | $ | 14,157 |
The preliminary allocation of the purchase price is as follows:
(In millions) |  | Preliminary January 2, 2024 |  | Measurement Period Adjustments |  | As Adjusted January 2, 2024
Cash and cash equivalents |  | $ | 394 |  |  | (1) |  |  | $ | 393 |
Accounts receivable |  | 408 |  |  | 5 |  |  | 413 |
Inventories |  | 948 |  |  | — |  |  | 948 |
Other current assets |  | 17 |  |  | — |  |  | 17 |
Fixed assets |  | 913 |  |  | 11 |  |  | 924 |
Intangible assets |  | 6,640 |  |  | — |  |  | 6,640 |
Other assets |  | 284 |  |  | 2 |  |  | 286 |
Accounts payable |  | (288) |  |  | (2) |  |  | (290) |
Other liabilities, current |  | (626) |  |  | (4) |  |  | (630) |
Future income tax obligations |  | (1,825) |  |  | 5 |  |  | (1,820) |
Other liabilities |  | (284) |  |  | (12) |  |  | (296) |
Total identifiable net assets |  | 6,581 |  |  | 4 |  |  | 6,585 |
Goodwill |  | 7,576 |  |  | (4) |  |  | 7,572 |
Total consideration |  | $ | 14,157 |  |  | $ | — |  |  | $ | 14,157 |
The excess purchase price over the estimated fair value of the net identifiable assets acquired was recognized as goodwill and totaled $7.6 billion, which is not deductible for tax purposes. Accounts receivable and current liabilities were stated at their historical carrying value, which approximates fair value given the short-term nature of these assets and liabilities. The estimate of fair value for inventory and fixed assets was based on an assessment of the acquired assets' condition as well as an evaluation of the current market value of such assets. The Company recorded intangible assets based on its estimate of fair value which consisted of the following:
(In millions) |  | Estimated Useful Life (in years) |  | Intangible Assets Acquired
Customer relationships |  | 17 |  | $ | 4,787 |
Technology |  | 10 - 20 |  | 1,051 |
Trademark |  | 40 |  | 679 |
Backlog |  | 1 |  | 123 |
Total intangible assets acquired |  |  |  | $ | 6,640 |
The valuation of intangible assets was determined using an income approach methodology including the multi-period excess earnings method and the relief from royalty method. Key assumptions used in estimating future cash flows included projected revenue growth rates, EBITDA margins, discount rates, customer attrition rates and royalty rates among others. The projected future cash flows are discounted to present value using an appropriate discount rate. As of June 30, 2024, the Company is substantially complete with the process of allocating the purchase price and valuing the acquired assets and liabilities assumed except for certain amounts associated with tax-related assets. During the three and six months ended June 30, 2024, the Company incurred $7 million and $37 million of acquisition-related costs, respectively. During 2023, $80 million of acquisition-related costs were incurred, of which $8 million and $20 million was recognized during the three and six months ended June 30, 2023, respectively. These acquisition costs are reflected within Selling, general and administrative in the Unaudited Condensed Consolidated Statement of Operations. The assets, liabilities and results of operations of the VCS Business are consolidated in the accompanying Unaudited Condensed Consolidated Financial Statements as of the date of acquisition and reported within the Company's HVAC segment. The following table summarizes the results of the VCS Business since the date of acquisition:
(In millions) | Three Months Ended June 30, 2024 |  | Six Months Ended June 30, 2024
Net sales | $ | 743 |  |  | $ | 1,618 |
Net income (loss) | (109) |  |  | (233) |
The financial results of the VCS Business includes amortization of the step-up to fair value of inventory and backlog as well as intangible amortization totaling $247 million and $497 million for the three and six months ended June 30, 2024, respectively. Unaudited Pro Forma Financial Information The following unaudited pro forma financial information is presented to illustrate the estimated effects of the acquisition of the VCS Business as if the business combination had occurred on January 1, 2023:
| Three Months Ended June 30, |  | Six Months Ended June 30,
(In millions) | 2024 |  | 2023 |  | 2024 |  | 2023
Net sales | $ | 6,689 |  |  | $ | 7,227 |  |  | $ | 12,871 |  |  | $ | 13,505 |
Net income (loss) | 2,421 |  |  | 250 |  |  | 2,764 |  |  | 329 |
The pro forma amounts include the historical operating results of the Company and the VCS Business prior to the acquisition, with adjustments directly attributable to the acquisition including amortization of the step-up to fair value of inventory and amortization expense of acquired intangible assets. The unaudited pro forma financial information is not necessarily indicative of the results of operations that actually would have been achieved had the acquisition of the VCS Business been consummated as of the dates indicated, nor is it indicative of any future results. In addition, the unaudited pro forma financial information does not reflect the expected realization of any synergies or cost savings associated with the acquisition.

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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://www.xbrl.org/2003/role/disclosureRef -Topic 805 -SubTopic 20 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org/1943274/2147479907/805-20-50-5 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 805 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org/805/tableOfContent + Details
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