Acquisitions, Dispositions, Goodwill and Other Intangible Assets
 9 Months Ended
Sep. 30, 2017
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 and Dispositions. During the nine months ended September 30, 2017, our investment in business acquisitions was $196 million, and consisted of a number of small acquisitions, primarily in our commercial businesses.
On September 4, 2017, we announced that we had entered into a merger agreement with Rockwell Collins, Inc. (Rockwell Collins), under which we agreed to acquire Rockwell Collins. Under the terms of the merger agreement, each Rockwell Collins shareowner will receive $93.33 per share in cash and a fraction of a share of UTC common stock equal to the quotient obtained by dividing $46.67 by the average of the volume-weighted average prices per share of UTC common stock on the NYSE on each of the 20 consecutive trading days ending with the trading day immediately prior to the closing date, (the “UTC Stock Price”), subject to adjustment based on a two-way collar mechanism as described below (the “Stock Consideration”). The cash and UTC stock payable in exchange for each such share of Rockwell Collins common stock are collectively the “Merger Consideration.” The fraction of a share of UTC common stock into which each such share of Rockwell Collins common stock will be converted is the “Exchange Ratio.” The Exchange Ratio will be determined based upon the UTC Stock Price. If the UTC Stock Price is greater than $107.01 but less than $124.37, the Exchange Ratio will be equal to the quotient of (i) $46.67 divided by (ii) the UTC Stock Price, which, in each case, will result in the Stock Consideration having a value equal to $46.67. If the UTC Stock Price is less than or equal to $107.01 or greater than or equal to $124.37, then a two-way collar mechanism will apply, pursuant to which, (x) if the UTC Stock Price is greater than or equal to $124.37, the Exchange Ratio will be fixed at 0.37525 and the value of the Stock Consideration will be greater than $46.67, and (y) if the UTC Stock Price is less than or equal to $107.01, the Exchange Ratio will be fixed at 0.43613 and the value of the Stock Consideration will be less than $46.67. We currently expect that the merger will be completed in the third quarter of 2018, subject to approval by Rockwell Collins’ shareowners, as well as other customary closing conditions, including the receipt of required regulatory approvals.
We anticipate that approximately $15 billion will be required to pay the aggregate cash portion of the Merger Consideration. We expect to fund the cash portion of the Merger Consideration through debt issuances and cash on hand. Additionally, we have entered into a $6.5 billion 364-day unsecured bridge loan credit agreement that would be funded only to the extent certain anticipated debt issuances are not completed prior to the completion of the merger. We expect to assume approximately $7 billion of existing Rockwell Collins long-term debt upon completion of the merger.
Goodwill. Changes in our goodwill balances for the nine months ended September 30, 2017 were as follows:
(Dollars in millions)
Balance as of
January 1, 2017
 
Goodwill 
Resulting from Business Combinations
 
Foreign Currency Translation and Other
 
Balance as of September 30, 2017
Otis
$
1,575

 
$
3

 
$
114

 
$
1,692

UTC Climate, Controls & Security
9,487

 
110

 
443

 
10,040

Pratt & Whitney
1,511

 
—

 
—

 
1,511

UTC Aerospace Systems
14,483

 
—

 
187

 
14,670

Total Segments
27,056

 
113

 
744

 
27,913

Eliminations and other
3

 
—

 
—

 
3

Total
$
27,059

 
$
113

 
$
744

 
$
27,916


Intangible Assets. Identifiable intangible assets are comprised of the following:
 
September 30, 2017
 
December 31, 2016
(Dollars in millions)
Gross Amount
 
Accumulated
Amortization
 
Gross Amount
 
Accumulated
Amortization
Amortized:
 
 
 
 
 
 
 
Service portfolios
$
2,197

 
$
(1,531
)
 
$
1,995

 
$
(1,344
)
Patents and trademarks
401

 
(228
)
 
378

 
(201
)
Collaboration intangible assets
4,023

 
(342
)
 
3,724

 
(211
)
Customer relationships and other
13,323

 
(3,999
)
 
12,798

 
(3,480
)
 
19,944

 
(6,100
)
 
18,895

 
(5,236
)
Unamortized:
 
 
 
 
 
 
 
Trademarks and other
2,111

 
—

 
2,025

 
—

Total
$
22,055

 
$
(6,100
)
 
$
20,920

 
$
(5,236
)

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 are 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.
Amortization of intangible assets for the quarter and nine months ended September 30, 2017 was $211 million and $626 million, respectively, compared with $197 million and $578 million for the same periods of 2016. The following is the expected amortization of intangible assets for the years 2017 through 2022, which reflects the pattern of expected economic benefit on certain aerospace intangible assets. 
(Dollars in millions)
 
Remaining 2017
 
2018
 
2019
 
2020
 
2021
 
2022
Amortization expense
 
$
210

 
$
879

 
$
866

 
$
888

 
$
898

 
$
893