Business Acquisitions

3 Months Ended

Mar. 29, 2014

Business Acquisitions

Business Acquisitions

Note 2. Business Acquisitions

On March 14, 2014, we acquired Beechcraft for an aggregate cash payment of $1.5 billion that included a repayment of a portion of Beechcraft’s working capital credit facility at closing. We financed a portion of the purchase price with the issuance of $600 million in senior notes on January 30, 2014 and by drawing $500 million under the five-year term loan agreement entered into on January 24, 2014.  The balance was paid from cash on hand.

Beechcraft is a leading manufacturer of business, special mission, light attack and trainer aircraft, including the King Air turboprops, piston-engine Baron and Bonanza, and the T-6 trainer and AT-6 light attack military aircraft. Beechcraft also has a global network of both factory-owned and authorized service centers.  The acquisition of Beechcraft and the formation of the new Textron Aviation segment provide increased scale and complementary product offerings, allowing us to strengthen our position across the aviation industry and enhance our ability to support our customers.

The consideration paid for this business was allocated on a preliminary basis to the assets acquired and liabilities assumed based on their estimated fair values at the acquisition date.  Due to the size and breadth of this acquisition, additional time is necessary to adequately analyze and assess the factors used in establishing the asset and liability fair values as of the acquisition date including the significant contractual and operational factors used in determining the fair values of certain assets, the assumptions made for certain liabilities and the related tax impacts of any changes made.  We will finalize the purchase accounting as soon as reasonably possible during the one-year-measurement period allowed under generally accepted accounting principles. Any potential adjustments to the preliminary fair values could be material.  Our preliminary allocation of the purchase price is presented below.

(In millions)	March 14, 2014
Accounts receivable	$	112
Inventories	771
Other current assets	168
Property, plant and equipment	260
Intangible assets	594
Goodwill	214
Other assets	187
Accounts payable	(144		)
Accrued liabilities	(301		)
Other liabilities	(383		)
Total net assets acquired	$	1,478

On a preliminary basis, we recorded $214 million of goodwill, primarily related to expected synergies from combining operations and the value of the existing workforce, and $594 million in intangible assets, which primarily include unpatented technology related to original equipment manufactured parts and designs and customer relationships valued at $386 million and trade names valued at $208 million.  The unpatented technology and customer relationships assets have a life of 15 years, resulting in amortization expense in the range of approximately $18 million to $32 million annually.  Substantially all of the trade names intangible asset has an indefinite life and therefore is not subject to amortization.  Approximately $265 million of tax-deductible goodwill was acquired in this transaction.

During the first quarter of 2014, we incurred transaction costs related to the acquisition of $11 million, which were recorded within Acquisition and restructuring costs on the Consolidated Statements of Operations.

In connection with the integration of Beechcraft, we initiated a restructuring program in our Textron Aviation segment in the first quarter of 2014 to align the Cessna and Beechcraft businesses, reduce operating redundancies and maximize efficiencies. We expect to incur costs for this program related to employee terminations, facility consolidations, contract terminations and other transition-related costs, and estimate that this program will result in charges of approximately $35 million in 2014.  We expect to incur additional costs in 2015, but do not expect these costs to be material.   In the first quarter of 2014, we recorded $5 million of charges related to restructuring activities that are included in the Acquisition and restructuring costs line on the Consolidated Statements of Operations.  On April 23, 2014, we announced a reduction of approximately 750 positions and expect to record a charge of $12 million related to this action in the second quarter of 2014.

The results of Beechcraft have been included in our consolidated financial statements only for the period subsequent to the completion of the acquisition. From the closing date through March 29, 2014, Beechcraft’s revenues totaled $101 million.  Presentation of pro-forma financial results for the Beechcraft acquisition will be included in our Form 10-Q for the period ending June 28, 2014, as it is impracticable to include in the first quarter filing without undue cost and effort due to the close proximity of the transaction closing date to the end of our first quarter.