Acquisitions and divestitures

6 Months Ended

Dec. 31, 2022

Business Combination and Asset Acquisition [Abstract]

Acquisitions

On September 12, 2022, we completed the Acquisition of all 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. During the current-year quarter and six months ended December 31, 2022, these revisions did not have a material impact on the Consolidated Statement of Income.


	September 12, 2022 (previously reported)		Measurement Period Adjustments		September 12, 2022 (revised)
Assets:
Cash and cash equivalents	$	89,704	$	—	$	89,704
Accounts receivable	427,255		(4,530)		422,725
Inventories	833,602		(20,008)		813,594
Prepaid expenses and other	125,763		—		125,763
Property, plant and equipment	675,232		—		675,232
Deferred income taxes	5,720		—		5,720
Other assets	219,472		18,652		238,124
Intangible assets	5,418,795		—		5,418,795
Goodwill	2,830,845		60,374		2,891,219
Total assets acquired	$	10,626,388	$	54,488	$	10,680,876
Liabilities:
Notes payable and long-term debt payable within one year	$	306,266	$	3,052	$	309,318
Accounts payable, trade	219,780		—		219,780
Accrued payrolls and other compensation	89,226		—		89,226

Other accrued liabilities	367,605		(222)		367,383
Long-term debt	669,321		38,483		707,804
Pensions and other postretirement benefits	85,899		12,116		98,015
Deferred income taxes	1,274,726		685		1,275,411
Other liabilities	377,751		374		378,125

Total liabilities assumed	3,390,574		54,488		3,445,062
Net assets acquired	$	7,235,814	$	—	$	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 pursuant to an offer to noteholders according to change in control provisions. These notes carried fixed interest rates of 2.78 percent and 3.00 percent and had maturity dates of November 2023 and November 2025, respectively. Upon acquiring Meggitt, we also assumed $113 million of liabilities associated with environmental matters.

Our consolidated financial statements for the three and six months ended December 31, 2022 include the results of operations of Meggitt from the date of acquisition through December 31, 2022. Net sales and segment operating loss attributable to Meggitt during the three months ended December 31, 2022 was $629 million and $89 million, respectively. Net sales and segment operating loss attributable to Meggitt during the six months ended December 31, 2022 was $772 million and $116 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 $111 million for the six months ended December 31, 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, for proceeds of $441 million. The resulting pre-tax gain of $373 million 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 December 31, 2022.