United Technologies 2012 Annual Report Download - page 70

68 UNITED TECHNOLOGIES CORPORATION
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, 2011, as adjusted for the applicable
tax impact. As the Goodrich acquisition was completed on July 26,
2012, the pro-forma adjustments for 2012 and 2011 in the table
below only include the required adjustments through July 26, 2012:
(DOLLARS IN MILLIONS) 2012 2011
Amortization of inventory fair value adjustment1$ (103) $ 103
Amortization of acquired Goodrich intangible assets, net2108 184
Utilization of contractual customer obligation3(96) (200)
UTC/Goodrich fees for advisory, legal, accounting
services4–196
Interest expense incurred on acquisition financing, net563 175
1 Added the expense for inventory fair value adjustments which would have been
amortized as the corresponding inventory would have been completely sold during
the first two quarters of 2011, and removed the corresponding expense recognized
during the last two quarters of 2012.
2 Added the additional amortization of the acquired Goodrich intangible assets
recognized at fair value in purchase accounting and eliminated the historical
Goodrich intangible asset amortization expense.
3 Added the additional utilization of the Goodrich contractual customer obligation
recognized in purchase accounting.
4 Added the UTC/Goodrich fees that were incurred in connection with the acquisition
of Goodrich to the first quarter of 2011.
5 Added the additional interest expense for the debt incurred to finance our acquis-
ition of Goodrich and reduced interest expense for the debt fair value adjustment
which would have been amortized.
The unaudited supplemental pro-forma financial information
does not reflect the potential realization of cost savings relating 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 and related financing been con-
summated on January 1, 2011, nor are they indicative of future
results.
Other Acquisition and Disposition Activity:
In 2012, UTC approved plans for the divestiture of a num-
ber of non-core businesses. Cash generated from these divest-
itures is intended to be used to repay debt incurred to finance the
Goodrich acquisition. See Note 3 for further discussion.
On June 29, 2012, Pratt & Whitney, Rolls-Royce plc (Rolls-
Royce), MTU Aero Engines AG (MTU), and Japanese Aero Engines
Corporation (JAEC), participants in the IAE collaboration, completed
a restructuring of their interests in IAE. Under the terms of the
agreement, Rolls-Royce sold its ownership and collaboration inter-
ests in IAE to Pratt & Whitney, while also entering into an agreement
to license its V2500 intellectual property to Pratt & Whitney. In
exchange for the increased ownership and collaboration interests
and intellectual property license, Pratt & Whitney paid Rolls-Royce
$1.5 billion at closing with additional payments due to Rolls-Royce
during the fifteen year period following closing of the purchase,
conditional upon each hour flown by V2500-powered aircraft in
service at the closing. The collaboration interest and intellectual
property licenses are reflected as intangible assets and will be
amortized in relation to the economic benefits received over the
remaining estimated 30 year life of the V2500 program. Rolls-Royce
will continue to support the program as a strategic supplier for the
V2500 engine and continue to manufacture parts and assemble
engines. Pratt & Whitney entered into a collaboration arrangement
with MTU with respect to a portion of the acquired collaboration
interest in IAE for consideration of approximately $233 million with
additional payments due to Pratt & Whitney in the future. As a result
of these transactions, Pratt & Whitney holds a 61% net interest in
the collaboration and a 49.5% ownership interest in IAE. IAE’s
business purpose is to coordinate the design, development, manu-
facturing and product support of the V2500 program through
involvement with the collaborators. IAE retains limited equity with
the primary economics of the V2500 program passed to the partic-
ipants in the separate collaboration arrangement. As such, IAE was
determined to be a variable interest entity (VIE), and Pratt & Whitney
its primary beneficiary under the criteria established in the FASB
ASC Topic “Consolidations” and has, therefore, been consolidated
post-transaction. The consolidation of IAE resulted in a gain of $21
million recognized during the second quarter of 2012 on the re-
measurement to fair value of our previously held equity interest. The
carrying amounts and classification of assets and liabilities for IAE in
our Consolidated Balance Sheet as of December 31, 2012 are as
follows:
(DOLLARS IN MILLIONS)
Current assets $ 1,308
Noncurrent assets 899
Total assets $ 2,207
Current liabilities $ 1,468
Noncurrent liabilities 781
Total liabilities $ 2,249
UTC Climate, Controls & Security continued its portfolio
transformation efforts in 2012 with the completed and pending
disposition of a number of businesses resulting in impairment and
other charges totaling approximately $180 million. UTC Climate,
Controls & Security also sold a controlling interest in a manufactur-
ing and distribution joint venture in Asia generating a gain of approx-
imately $215 million, and a controlling interest in a Canadian
distribution business generating a gain of approximately $120
million.
In November 2011, UTC Climate, Controls & Security
formed a venture controlled by Midea Group of China (Midea) for
the manufacture and distribution of heating, ventilating, and air-
conditioning (HVAC) products in Brazil, Argentina, and Chile. The
venture is comprised of UTC Climate, Controls & Security’s existing
HVAC operations in the three countries and Midea’s distribution