Acquisitions and divestitures

3 Months Ended

Sep. 30, 2022

Business Combination and Asset Acquisition [Abstract]

Acquisitions

On September 12, 2022, we completed the acquisition (the “Acquisition”) of all of the outstanding ordinary shares of Meggitt for 800 pence per share, resulting in an aggregate cash purchase price of $7.2 billion, including the assumption of debt.

Meggitt is a leader in design, manufacturing and aftermarket support of technologically differentiated systems and equipment in aerospace, defense and selected energy markets with annual sales of approximately $2.1 billion for the year ended December 31, 2021. For segment reporting purposes, approximately 82 percent of Meggitt's sales are included in the Aerospace Systems Segment, while the remaining 18 percent are included in the Diversified Industrial Segment.

Assets acquired and liabilities assumed are recognized at their respective fair values as of the Acquisition date. The process of estimating the fair values of certain tangible assets, identifiable intangible assets and assumed liabilities requires the use of judgment in determining the appropriate assumptions and estimates. The following table presents the preliminary estimated fair values of Meggitt's assets acquired and liabilities assumed on the Acquisition date. These preliminary estimates are based on available information and will be revised during the measurement period, not to exceed 12 months from the Acquisition date, as third-party valuations are finalized, additional information becomes available and as additional analysis is performed. Such revisions may have a material impact on our results of operations and financial position within the measurement period.


	September 12, 2022
Assets:
Cash and cash equivalents	$	89,704
Accounts receivable	427,255
Inventories	833,602
Prepaid expenses and other	125,763
Plant and equipment	675,232
Deferred income taxes	5,720
Other assets	219,472
Intangible assets	5,418,795
Goodwill	2,830,845
Total assets acquired	$	10,626,388
Liabilities:
Notes payable and long-term debt payable within one year	$	306,266
Accounts payable, trade	219,780
Accrued payrolls and other compensation	89,226

Other accrued liabilities	367,605
Long-term debt	669,321
Pensions and other postretirement benefits	85,899
Deferred income taxes	1,274,726
Other liabilities	377,751

Total liabilities assumed	3,390,574
Net assets acquired	$	7,235,814

Goodwill is calculated as the excess of the purchase price over the net assets acquired and represents cost synergies and enhancements to our existing technologies. For tax purposes, Meggitt's goodwill is not deductible. Based upon a preliminary acquisition valuation, we acquired $3.2 billion of customer-related intangible assets, $1.7 billion of patents and technology and $490 million of trademarks, each with estimated useful lives of 20 years.

The fair value of the assets acquired includes $161 million and $76 million of operating lease right-of-use assets and finance lease right-of-use assets, respectively. The fair value of liabilities assumed includes $150 million and $87 million of operating lease liabilities and finance lease liabilities, respectively, of which, $17 million and $2 million of operating lease liabilities and finance lease liabilities, respectively, are current liabilities.

Long-term debt assumed includes $900 million aggregate principal amount of private placement notes with fixed interest rates ranging from 2.78 percent to 3.60 percent, and maturity dates ranging from July 2023 to July 2026. In October 2022, we paid off $300 million aggregate principal amount of private placement notes in two tranches, with fixed interest rates of 2.78 percent and 3.00 percent and maturity dates of November 2023 and November 2025, respectively, pursuant to an offer to noteholders according to change in control provisions. Upon acquiring Meggitt, we also assumed $113 million of liabilities associated with environmental matters.

Our consolidated financial statements for the three months ended September 30, 2022 include the results of operations of Meggitt from the date of acquisition through September 30, 2022. Net sales and segment operating loss attributable to Meggitt during this period was $143 million and $27 million, respectively. Segment operating loss attributable to Meggitt includes estimated amortization and depreciation expense associated with the preliminary fair value estimates of intangible assets, plant and equipment, and inventory, as well as acquisition integration charges. Refer to Note 10 for further discussion of acquisition integration charges.

Acquisition-related transaction costs totaled $109 million for the three months ended September 30, 2022. These costs are included in SG&A in the Consolidated Statement of Income.

Divestitures

During September 2022, we divested our aircraft wheel and brake business, which was part of the Aerospace Systems Segment, resulting in a pre-tax gain of $373 million. The gain is included in other (income) expense, net in the Consolidated Statement of Income. The operating results and net assets of the aircraft wheel and brake business were immaterial to the Company's consolidated results of operations and financial position. As of June 30, 2022, the aggregate carrying amount of aircraft wheel and brake assets held for sale was $66 million. These assets primarily included goodwill and inventory and were recorded within prepaid expenses and other assets in the Consolidated Balance Sheet. Goodwill was allocated to the aircraft wheel and brake business using the relative fair value method.

Restricted Cash

At June 30, 2022, prepaid expenses and other in the Consolidated Balance Sheet included a $6.1 billion balance in an escrow account restricted to payments for the Acquisition. These funds were used to finance a portion of the Acquisition, and there was no restricted cash at September 30, 2022.