Business Acquisitions and Dispositions. During the first nine months of 2012, our investment in business acquisitions was $18.6 billion (including debt assumed of $2.6 billion).

On July 26, 2012, we completed the acquisition of Goodrich Corporation (Goodrich), a global supplier of systems and services to the aerospace and defense industry with 2011 sales of $8.1 billion. Goodrich products include aircraft nacelles, interior, actuation, landing and electronic systems. Under the terms of the agreement, Goodrich shareholders received $127.50 in cash for each share of Goodrich common stock they owned on July 26, 2012. This equated to a total enterprise value of $18.3 billion, including $1.9 billion in net debt assumed. The acquired Goodrich businesses were combined with the legacy Hamilton Sundstrand businesses to form the new UTC Aerospace Systems segment. The acquisition of Goodrich and the formation of UTC Aerospace Systems provide increased scale, financial strength and complementary product offerings, allowing us to significantly strengthen our position in the aerospace and defense industry, create aftermarket efficiencies for our customers, accelerate our ability to drive innovation within the aerospace industry, and enhance our ability to support our customers with more integrated systems. This acquisition, coupled with our acquisition of an additional interest in IAE International Aero Engines AG (IAE) resulting in a controlling interest in IAE, as discussed below, further advances the Company's strategy of focusing on our core businesses.

To finance the cash consideration for the Goodrich acquisition and pay related fees, expenses and other amounts due and payable, we utilized the previously disclosed net proceeds of approximately $9.6 billion from the $9.8 billion of long-term notes issued on June 1, 2012, the net proceeds of approximately $1.1 billion from the Equity Units issued on June 18, 2012, $3.2 billion from the issuance of commercial paper during July 2012, and $2.0 billion of proceeds borrowed under our April 24, 2012 term loan credit agreement in July 2012. For the remainder of the cash consideration, we utilized approximately $0.5 billion of cash and cash equivalents generated from operating activities.

The following amounts represent the preliminary determination of the fair value of identifiable assets acquired and liabilities assumed from our acquisition of Goodrich. The final determination of the fair value of certain assets and liabilities will be completed within the one year measurement period as required by the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 805, “Business Combinations.” The size and breadth of the Goodrich acquisition will necessitate the use of this measurement period to adequately analyze and assess a number of the factors used in establishing the asset and liability fair values as of the acquisition date including the significant contractual and operational factors underlying the customer relationship intangible asset; the final negotiated sales values for businesses that are required to be sold as part of the regulatory approval of the Goodrich acquisition; the assumptions underpinning certain reserves such as those for environmental obligations, and the related tax impacts of any changes made. Any potential adjustments made could be material in relation to the preliminary values presented below:

(Dollars in millions)
Cash and cash equivalents		$	538
Accounts receivable, net			1,182
Inventories and contracts in progress, net			1,729
Future income tax benefits, current			280
Other assets, current			574
Fixed assets			2,342
Intangible assets:
	Customer relationships		8,550
	Trademarks		1,550
Other assets			1,831
Short-term borrowings			(83)
Accounts payable			(443)
Accrued liabilities			(2,242)
Long-term debt			(2,961)
Future pension and postretirement benefit obligations			(1,745)
Other long-term liabilities:
	Customer contractual obligations		(2,050)
	Other long-term liabilities		(3,758)
Non-controlling interests			(41)
	Total identifiable net assets		5,253
Goodwill			11,167
	Total consideration transferred	$	16,420

In order to allocate the consideration transferred for Goodrich, the fair values of all identifiable assets and liabilities needed to be established. For accounting and financial reporting purposes, fair value is defined under ASC Topic 820, “Fair Value Measurement and Disclosure” as the price that would be received upon sale of an asset or the amount paid to transfer a liability in an orderly transaction between market participants at the measurement date. Market participants are assumed to be buyers and sellers in the principal (most advantageous) market for the asset or liability. Additionally, fair value measurements for an asset assume the highest and best use of that asset by market participants. Use of different estimates and judgments could yield different results.

In determining the fair value of identifiable assets acquired and liabilities assumed, a review was conducted for any significant contingent assets or liabilities existing as of the acquisition date. The preliminary assessment did not note any significant legal or governmental action contingencies. Based upon UTC's existing practices and phase II environmental assessments done on a number of Goodrich sites, UTC determined it assumed an obligation of $232 million related to environmental liabilities.

The fair values of the customer relationship intangible assets were determined by using an “income approach” which is the most common valuation approach utilized. Under this approach, the net earnings attributable to the asset or liability being measured are isolated using the discounted projected net cash flows. These projected cash flows are isolated from the projected cash flows of the combined asset group over the remaining economic life of the intangible asset or liability being measured. Both the amount and the duration of the cash flows are considered from a market participant perspective. The Company's estimates of market participant net cash flows considered historical and projected pricing, remaining developmental effort, operational performance including company specific synergies, aftermarket retention, product life cycles, material and labor pricing, and other relevant customer, contractual and market factors. Where appropriate, the net cash flows are probability-adjusted to reflect the uncertainties associated with the underlying assumptions, as well as the risk profile of the net cash flows utilized in the valuation. The probability-adjusted future cash flows are then discounted to present value using an appropriate discount rate. The customer relationship intangible asset is being amortized on a straight-line basis (which approximates the economic pattern of benefits) over the estimated economic life of the underlying programs of 10 to 25 years.

We also identified customer contractual obligations on certain original equipment manufacturing (OEM) development programs where the expected costs exceed the expected revenue under contract. We measured these liabilities under the measurement provisions of ASC Topic 820, “Fair Value Measurement,” which is based on the price to transfer the obligation to a market participant at the measurement date, assuming that the liability will remain outstanding in the marketplace. Based on the estimated net cash outflows of the OEM developmental programs plus a reasonable contracting profit margin required to transfer the contracts to market participants, we recorded assumed liabilities of approximately $2.0 billion. These liabilities will be liquidated in accordance with the underlying economic pattern of obligations, as reflected by the net cash outflows incurred on the OEM contracts.

Goodrich had not recorded an income tax liability on the unremitted earnings of its non-U.S. subsidiaries, which was approximately $853 million as of December 31, 2011. In connection with the acquisition, the Company 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. Accordingly, a deferred income tax liability of $218 million has been recorded in purchase accounting for the unremitted earnings no longer considered permanently reinvested.

In accordance with conditions imposed for regulatory approval of UTC's acquisition of Goodrich, UTC must dispose of two Goodrich businesses, which are the electric power systems business and the pumps and engine controls business. These businesses have been held separate from UTC's and Goodrich's ongoing businesses pursuant to regulatory obligations. On October 16, 2012, we announced an agreement to sell the electric power systems business for $400 million to Safran. Closing is expected by the end of the first quarter of 2013 and is subject to regulatory approvals and other customary closing conditions.

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 Goodrich's non-recurring development effort and established a recurring price for the production nacelles. Prior to the date of UTC's acquisition of Goodrich, Pratt & Whitney and Goodrich had asserted claims against each other in a contractual dispute and would have ultimately arbitrated the matter were it not for the acquisition. In accordance with 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 the third quarter of 2012 based upon a third party determination of the probability-weighted outcome had the matter gone to arbitration.

Acquisition-related costs are being expensed as incurred. For the nine months ended September 30, 2012, approximately $84 million of transaction costs (including integration costs) have been incurred in addition to approximately $29 million of restructuring costs, including exit costs in connection with the acquisition (see additional discussion in Note 8). In connection with the financing of the Goodrich acquisition, approximately $130 million in interest costs have been recorded through the nine months ended September 30, 2012.

Under Goodrich's pre-existing management continuity arrangements (MCA), we assumed potential change-in-control obligations related to certain executives at Goodrich. We evaluated the change-in-control provisions governed by the MCA and for certain of the executives we determined that we had assumed liabilities of approximately $73 million as the benefit payments were effectively single trigger in substance. We measured the assumed liability based on fair value concepts of ASC Topic 820, “Fair Value Measurements,” using weighted average techniques of possible outcomes of the employees electing to receive such benefits. We expensed approximately $12 million for MCA arrangements where we amended the term of the MCA arrangement beyond the original expiration date for certain executives.

Goodrich's results of operations have been included in UTC's financial statements for the period subsequent to the completion of the acquisition on July 26, 2012. Goodrich contributed sales of approximately $1.5 billion and operating profit of approximately $100 million for the period from the completion of the acquisition through September 30, 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:

		Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in millions, except per share amounts)			2012		2011		2012		2011
Net sales		$	15,512	$	16,103	$	45,730	$	46,854
Net income attributable to common shareowners
	from continuing operations		1,266		1,403		4,096		3,483
Basic earnings per share of common stock
	from continuing operations		1.41		1.58		4.58		3.90
Diluted earnings per share of common stock
	from continuing operations		1.40		1.56		4.52		3.83

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 our acquisition of Goodrich was completed on July 26, 2012, the pro-forma adjustments for the three and nine months ended September 30, 2012 in the table below only include the required adjustments through July 26, 2012:

		Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in millions)			2012		2011		2012		2011
Amortization of inventory fair value adjustment ¹		$	-	$	-	$	-	$	103
Amortization of acquired Goodrich intangible assets, net ²			15		46		107		138
Utilization of contractual customer obligation ³			(10)		(46)		(103)		(154)
UTC/Goodrich fees for advisory, legal, accounting services ⁴			-		-		-		196
Interest expense incurred on acquisition financing, net ⁵			(3)		44		63		133

	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.

	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.

	³Added 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 during the first quarter of 2011.

	⁵ Added the additional interest expense for the debt incurred to finance our acquisition 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 consummated on January 1, 2011, nor are they indicative of future results.

In 2012, the Company approved plans for the divestiture of a number of non-core businesses. Cash generated from these divestitures is intended to be used to repay debt incurred to finance the acquisition of Goodrich. See Note 2 for further discussion.

On July 23, 2012, we announced an agreement to sell Rocketdyne to GenCorp Inc. for $550 million. The transaction is expected to close in the first half of 2013. Proceeds from the sale are expected to be used to repay debt incurred to finance the acquisition of Goodrich. The sale is subject to customary closing conditions, including receipt of regulatory approvals.

On July 25, 2012, we announced an agreement to sell the legacy Hamilton Sundstrand Industrial businesses to BC Partners and The Carlyle Group for $3.46 billion. The sale is expected to close before the end of the year and the proceeds from the sale are expected to be used to repay a portion of the short-term debt incurred to finance the acquisition of Goodrich. The sale is subject to customary closing conditions, including regulatory approvals.

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 interests 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 conditional upon each hour flown by V2500-powered aircraft in service at the closing date of the purchase from Rolls-Royce during the fifteen year period following closing of the purchase. 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. Based on the criteria set forth in the Consolidation Topic of the FASB ASC, we have determined that IAE is a variable interest entity (VIE). IAE's business purpose is to coordinate the design, development, manufacturing 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 participants in the separate collaboration arrangement. As such, UTC is determined to be the primary beneficiary of IAE as it absorbs the significant economics of IAE and has the power to direct the activities that are considered most significant to IAE. 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 on obtaining control of IAE. The carrying amounts and classification of assets and liabilities for IAE in our condensed consolidated balance sheet as of September 30, 2012 are as follows:

Goodwill. Changes in our goodwill balances for the first nine months of 2012 were as follows:

(Dollars in millions)		Balance as of January 1, 2012		Goodwill resulting from business combinations		Foreign currency translation and other		Balance as of September 30, 2012
Otis		$	1,516	$	23	$	9	$	1,548
UTC Climate, Controls & Security			9,758		88		(25)		9,821
Pratt & Whitney			1,223		272		(174)		1,321
UTC Aerospace Systems			4,475		11,167		(1,053)		14,589
Sikorsky			348		-		3		351

Total Segments			17,320		11,550		(1,240)		27,630
Eliminations and other			623		-		(623)		-

	Total	$	17,943	$	11,550	$	(1,863)	$	27,630

The $11.2 billion increase to UTC Aerospace Systems goodwill resulting from business combinations in the nine months ended September 30, 2012 pertains to the previously discussed acquisition of Goodrich. The goodwill results from the workforce acquired with the business as well as the significant synergies that are expected to be realized through the consolidation of manufacturing facilities and overhead functions. No amount of this goodwill is deductible for tax purposes. The goodwill acquired has been allocated to the two reporting units within the UTC Aerospace Systems segment.

The $272 million increase to Pratt & Whitney goodwill resulting from business combinations in the nine months ended September 30, 2012 pertains to tax-deductible goodwill resulting from its increased ownership interest and consolidation of IAE.

The approximately $1.9 billion decrease reflected under “Foreign currency translation and other” in the table above primarily reflects the decision to divest a number of non-core businesses and the resulting reclassification to Assets of discontinued operations. See Note 2 for further discussion. In addition, approximately $360 million of goodwill was transferred from UTC Aerospace Systems to Pratt & Whitney in connection with the transfer of the auxiliary power unit (APU) business from UTC Aerospace Systems to Pratt & Whitney. See Note 14 for further discussion of the transfer of the APU business.

We early adopted the FASB Accounting Standards Update (ASU) No. 2012-02, “Testing Indefinite-Lived Intangible Assets for Impairment” in connection with the performance of our annual goodwill and indefinite lived intangible assets impairment test. This ASU intends to align impairment testing guidance among long-lived asset categories. This ASU allows the assessment based on qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired prior to determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles—Goodwill and Other—General Intangibles Other than Goodwill. We completed our annual impairment testing in the third quarter of 2012 and determined that no significant adjustments to the carrying amount of goodwill or indefinite lived intangible assets were necessary based on the results of the impairment tests.

Intangible Assets. Identifiable intangible assets are comprised of the following:

			September 30, 2012				December 31, 2011
(Dollars in millions)			Gross Amount		Accumulated Amortization		Gross Amount		Accumulated Amortization
Amortized:
	Service portfolios		$	2,120	$	(1,165)	$	2,036	$	(1,060)
	Patents and trademarks			398		(164)		463		(183)
	IAE collaboration			1,376		-		-		-
	Customer relationships and other			11,836		(1,574)		3,329		(1,429)

				15,730		(2,903)		5,828		(2,672)

Unamortized:
	Trademarks and other			2,319				762

		Total	$	18,049	$	(2,903)	$	6,590	$	(2,672)

The increase to amortized and unamortized intangible assets pertains to the previously discussed acquisition of Goodrich. Acquired intangible assets are recognized at fair value in purchase accounting and then amortized to cost of sales and selling general & administrative expenses over the applicable useful lives. The customer relationship intangible assets are being amortized on a straight line basis as it approximates the underlying economic pattern of benefit. Amortization of intangible assets for the quarter and nine months ended September 30, 2012 was $166 million and $360 million respectively, compared with $102 million and $304 million for the same periods of 2011.

The following is the expected amortization of intangible assets for the fourth quarter of 2012 through 2017 as of September 30, 2012: