Note 2. Business Acquisitions, Goodwill and Intangible Assets
Pending Business Acquisition
On December 26, 2013, we entered into an agreement and plan of merger pursuant to which we will acquire all outstanding equity interests in Beech Holdings, LLC (“Beech”), the parent of Beechcraft Corporation, for approximately $1.4 billion in cash. Beech designs, builds and supports aircraft, including the King Air turboprops, piston-engine Baron and Bonanza, and the T-6 trainer and AT-6 light attack military aircraft. Beech also has a global network of both factory-owned and authorized service centers. We plan to finance the purchase of the equity in Beech and the repayment of Beech’s outstanding debt, which is required at closing, through a combination of available cash at Beech and Textron and up to $1.1 billion in new debt. The transaction is expected to close during the first half of 2014, subject to customary closing conditions, including regulatory approvals.
2013 Business Acquisitions
In 2013, we acquired the following businesses for an aggregate cash payment of $196 million:
Textron Systems
· Mechtronix, Inc. and OPINICUS Corporation, both acquired on December 6, 2013, design, develop, install and provide maintenance of advanced full flight simulators for both rotary- and fixed-wing aircraft.
Industrial
· Sherman & Reilly, Inc., a manufacturer of underground and aerial transmission and distribution products was acquired by our Greenlee business on May 1, 2013.
· HD Electric Company, a designer and manufacturer of power utility products that test, measure and control electric power was also acquired by our Greenlee business on December 18, 2013.
Cessna
· Two service centers located in Zurich, Switzerland and Düsseldorf, Germany were acquired on December 31, 2012.
The consideration paid for each of these businesses was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. We assigned $75 million to identifiable intangible assets, which primarily include platform technology and trade names. For the three acquisitions that were closed in December 2013, we made preliminary estimates of the fair value of certain assets and we expect to complete the valuation of the assets in the first quarter of 2014. The acquired intangible assets will be amortized over their estimate lives, which range from 7 to 11 years, primarily using accelerated amortization methods based on the cash flow streams used to value those assets. The excess of the purchase price over the estimated fair value of the net assets acquired totaled $82 million, which was recorded as goodwill, and reflects the expected revenue, assembled workforce and going concern nature of the businesses. Approximately $52 million of the goodwill is deductible for tax purposes.
The operating results for these acquisitions have been included in the Consolidated Statement of Operations since their respective closing dates. Pro forma information has not been included for these business acquisitions as the results would not be materially different from our consolidated results.
The changes in the carrying amount of goodwill by segment are as follows:
|
(In millions) |
|
Cessna |
|
Bell |
|
Textron |
|
Industrial |
|
Total |
| |||||
|
Balance at January 1, 2011 |
|
$ |
322 |
|
$ |
31 |
|
$ |
974 |
|
$ |
305 |
|
$ |
1,632 |
|
|
Acquisitions |
|
— |
|
— |
|
— |
|
5 |
|
5 |
| |||||
|
Foreign currency translation |
|
— |
|
— |
|
— |
|
(2 |
) |
(2 |
) | |||||
|
Balance at December 31, 2011 |
|
322 |
|
31 |
|
974 |
|
308 |
|
1,635 |
| |||||
|
Acquisitions |
|
4 |
|
— |
|
— |
|
6 |
|
10 |
| |||||
|
Foreign currency translation |
|
— |
|
— |
|
— |
|
4 |
|
4 |
| |||||
|
Balance at December 29, 2012 |
|
326 |
|
31 |
|
974 |
|
318 |
|
1,649 |
| |||||
|
Acquisitions |
|
— |
|
— |
|
52 |
|
30 |
|
82 |
| |||||
|
Foreign currency translation |
|
— |
|
— |
|
— |
|
4 |
|
4 |
| |||||
|
Balance at December 28, 2013 |
|
$ |
326 |
|
$ |
31 |
|
$ |
1,026 |
|
$ |
352 |
|
$ |
1,735 |
|
Our intangible assets are summarized below:
|
|
|
|
|
|
December 28, 2013 |
|
|
December 29, 2012 |
| ||||||||||||||
|
(Dollars in millions) |
|
Weighted-Average |
|
|
Gross |
|
Accumulated |
|
Net |
|
|
Gross |
|
Accumulated |
|
Net |
| ||||||
|
Customer agreements and contractual relationships |
|
15 |
|
|
$ |
331 |
|
$ |
(165) |
|
$ |
166 |
|
|
$ |
330 |
|
$ |
(139) |
|
$ |
191 |
|
|
Patents and technology |
|
10 |
|
|
142 |
|
(63) |
|
79 |
|
|
84 |
|
(55) |
|
29 |
| ||||||
|
Trademarks |
|
15 |
|
|
49 |
|
(24) |
|
25 |
|
|
36 |
|
(22) |
|
14 |
| ||||||
|
Other |
|
9 |
|
|
23 |
|
(17) |
|
6 |
|
|
20 |
|
(16) |
|
4 |
| ||||||
|
Total |
|
|
|
|
$ |
545 |
|
$ |
(269) |
|
$ |
276 |
|
|
$ |
470 |
|
$ |
(232) |
|
$ |
238 |
|
Amortization expense totaled $37 million, $40 million and $51 million in 2013, 2012 and 2011, respectively. Amortization expense is estimated to be approximately $43 million, $42 million, $36 million, $32 million and $25 million in 2014, 2015, 2016, 2017 and 2018, respectively.