United Technologies 2012 Annual Report Download - page 69

Notes to Consolidated Financial Statements 2012 ANNUAL REPORT 67
liabilities will be liquidated in accordance with the underlying eco-
nomic pattern of obligations, as reflected by the net cash outflows
incurred on the OEM contracts. Total consumption of the con-
tractual obligation for the next five years is expected to be as fol-
lows: $283 million in 2013, $292 million in 2014, $221 million in
2015, $236 million in 2016, and $220 million in 2017.
Goodrich had not recorded an income tax liability on the
unremitted earnings of its non-U.S. subsidiaries, which were
approximately $853 million as of December 31, 2011. In connection
with the Goodrich acquisition, UTC has made a determination to
repatriate certain of these unremitted earnings, making such
amounts subject to both U.S. and non-U.S. income taxes. Accord-
ingly, an income tax liability of $219 million was recorded in pur-
chase accounting for the unremitted earnings no longer considered
permanently reinvested.
In accordance with conditions imposed for regulatory
approval the Goodrich acquisition, UTC must dispose of the electric
power systems and pumps and engine controls businesses of
Goodrich. These businesses have been held separate from UTC’s
and Goodrich’s ongoing businesses pursuant to regulatory obliga-
tions. On October 16, 2012, we announced an agreement to sell
the electric power systems business for $400 million to Safran S.A.,
and on January 18, 2013, we announced an agreement to sell the
pumps and engine controls business to Triumph Group, Inc. The
closings of both sales are expected by the end of the first quarter of
2013 and are subject to regulatory approvals and other customary
closing conditions.
Pre-Existing Relationships:
Our Pratt & Whitney division entered into a preferred
supplier contract in 2010 with Goodrich for the development and
subsequent production of nacelles for the PW1500G (Bombardier
C Series) and PW1200G (Mitsubishi Regional Jet). That preferred
supplier contract replaced previous contracts and preliminary
Memorandum of Understandings entered into in 2006 and 2008.
Under the 2010 agreement, Pratt & Whitney agreed to fund Good-
rich’s non-recurring development effort and established a recurring
price for the production nacelles. Prior to the date of the Goodrich
acquisition, Pratt & Whitney and Goodrich had asserted claims
against each other in a contractual dispute and would have ulti-
mately arbitrated the matter were it not for the acquisition. In
accordance with FASB ASC Topic 805, “Business Combinations”,
pre-existing relationships must be effectively settled at acquisition
as the relationships become intercompany relationships upon
acquisition and are eliminated in the post-combination financial
statements. Any resulting settlement gains or losses should be
measured at fair value and recorded on the acquisition date.
Accordingly, a $46 million gain was recorded in other income by
Pratt & Whitney in 2012 based upon a third party determination
of the probability-weighted outcome had the matter gone to
arbitration.
Acquisition-Related Costs:
Acquisition-related costs have been expensed as incurred.
In 2012 and 2011, approximately $95 million and $84 million,
respectively, of transaction costs (including integration costs) have
been incurred in addition to approximately $67 million of restructur-
ing costs, including exit costs in connection with the acquisition
(see additional discussion in Note 13). In connection with the financ-
ing of the Goodrich acquisition, approximately $199 million in inter-
est costs have been recorded in 2012.
Under Goodrich’s pre-existing management continuity
arrangements (MCAs), we assumed change-in-control obligations
related to certain executives at Goodrich. We evaluated the
change-in-control provisions governed by the MCAs and for certain
of the executives, we determined that we had assumed liabilities of
approximately $74 million as the benefit payments were effectively
single trigger arrangements in substance. We measured the
assumed liability based on fair value concepts of FASB ASC Topic
820, “Fair Value Measurements”, using weighted average tech-
niques of possible outcomes of the employees electing to receive
such benefits. We expensed approximately $12 million for MCAs
whereweamendedthetermoftheMCAsbeyondtheoriginal
expiration date for certain executives.
Supplemental Pro-Forma Data:
Goodrich’s results of operations have been included in
UTC’s financial statements for the period subsequent to the com-
pletion of the acquisition on July 26, 2012. Goodrich contributed
sales of approximately $3.6 billion and operating profit of approx-
imately $245 million for the period from the completion of the
acquisition through December 31, 2012. The following unaudited
supplemental pro-forma data presents consolidated information as
if the acquisition had been completed on January 1, 2011. The pro-
forma results were calculated by combining the results of UTC with
the stand-alone results of Goodrich for the pre-acquisition periods,
which were adjusted to account for certain costs which would have
been incurred during this pre-acquisition period:
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) 2012 2011
Net sales $ 62,173 $ 63,233
Net income attributable to common shareowners
from continuing operations 5,095 4,969
Basic earnings per share of common stock from
continuing operations 5.69 5.57
Diluted earnings per share of common stock from
continuing operations 5.62 5.48