XML 33 R8.htm IDEA: XBRL DOCUMENT v2.4.0.8
Business Acquisitions
6 Months Ended
Jun. 28, 2014
Business Acquisitions  
Business Acquisitions

Note 2.  Business Acquisitions

 

2014 Beechcraft Acquisition

 

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 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 complete the purchase accounting, primarily related to the fair values of certain assets and liabilities.  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 current preliminary allocation of the purchase price is presented below.

 

(In millions)

 

 

 

Accounts receivable

 

$

116

 

Inventories

 

770

 

Other current assets

 

179

 

Property, plant and equipment

 

260

 

Intangible assets

 

594

 

Goodwill

 

208

 

Other assets

 

185

 

Accounts payable

 

(143

)

Accrued liabilities

 

(293

)

Other liabilities

 

(398

)

Total net assets acquired

 

$

1,478

 

 

Goodwill of $208 million was primarily related to expected synergies from combining operations and the value of the existing workforce, and intangible assets of $594 million primarily included 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.

 

We acquired tax-deductible goodwill of approximately $260 million in this transaction. We also recorded unrecognized tax benefits of approximately $90 million at the acquisition date.

 

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 second quarter and first half of 2014, we recorded charges of $20 million and $25 million, respectively, related to restructuring activities that were included in the Acquisition and restructuring costs line on the Consolidated Statements of Operations.  In addition, we incurred transaction costs related to the acquisition of $11 million during the first quarter of 2014 that were also included in the Acquisition and restructuring costs line.

 

Other 2014 Acquisitions

 

During the first half of 2014, we made aggregate cash payments of $71 million for the following acquisitions within our Industrial segment:

 

·         Tug Technologies Corporation, a manufacturer of ground support equipment in the aviation industry, acquired on May 2, 2014.

·         The assets of Dixie Chopper, a manufacturer of zero-turn radius mowers for the commercial and residential markets, acquired on February 6, 2014.

 

Actual and Pro-Forma Impact from 2014 Acquisitions

 

The operating results for the 2014 acquisitions are included in the Consolidated Statement of Operations since their respective closing dates.  From the closing dates through June 28, 2014, revenues related to these acquisitions totaled $452 million and $558 million for the three- and six-month periods, respectively.  The cost structures of Beechcraft and Cessna have been significantly integrated since the acquisition of Beechcraft, therefore, it is not possible to separately report earnings for this acquisition.  The earnings related to the other 2014 acquisitions were not significant.

 

The unaudited supplemental pro-forma data included in the table below presents consolidated information as if our 2014 acquisitions had been completed on December 30, 2012.  This pro-forma information should not be considered indicative of the results that would have occurred if the acquisition and related financing had been consummated on December 30, 2012, nor are they necessarily indicative of future results as they do not reflect the potential realization of cost savings and synergies associated with the acquisition.

 

 

 

Three Months Ended

 

Six Months Ended

 

(In millions, except per share amounts)

 

June 28,
2014

 

June 29,
2013

 

June 28,
2014

 

June 29,
2013

 

Revenues

 

$    3,513

 

$    3,296

 

$    6,715

 

$    6,599

 

Income from continuing operations, net of income taxes

 

181

 

102

 

293

 

201

 

Diluted earnings per share from continuing operations

 

$0.64

 

$0.36

 

$1.04

 

$0.70

 

 

Certain pro-forma adjustments were made to reflect the allocation of the preliminary purchase price to the acquired net assets including depreciation and intangible amortization expense, resulting from the valuation of tangible and intangible assets, and amortization of inventory fair value step-up adjustments, along with the related tax effects.  The pro-forma results for 2013 were also adjusted to include transaction and restructuring costs of $20 million and $36 million for the three- and six-month periods, respectively, related to the Beechcraft acquisition; these costs were excluded from the 2014 pro-forma results. In addition, the pro- forma results exclude the financial impact related to Beechcraft’s emergence from bankruptcy in 2013.