United Technologies 2011 Annual Report Download - page 67

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Also, on October 12, 2011, Pratt & Whitney and Rolls-Royce
announced an agreement to form a new joint venture, in
which each will hold an equal share, to develop new engines
to power the next generation of 120 to 230 passenger
mid-size aircraft that will replace the existing fleet of mid-size
aircraft currently in service or in development. With this new
joint venture, Pratt & Whitney and Rolls-Royce will focus on
high-bypass ratio geared turbofan technology as well as
collaborate on future studies of next generation propulsion
systems. Pursuant to the agreement, the formation of this
new venture is subject to regulatory approvals and other
closing conditions, including completion of the restructuring
of the parties’ interests in IAE. We expect the restructuring of
the parties’ interests in IAE to be completed in mid-2012. The
closing of the new joint venture may take a substantially
longer period of time to complete.
On September 21, 2011, we announced an agreement to
acquire Goodrich Corporation (Goodrich), a global supplier of
systems and services to the aerospace and defense industry
with 2010 sales of $7 billion. Under the terms of the
agreement, Goodrich shareholders will receive $127.50 in cash
for each share of Goodrich common stock they own at the
time of the closing of the transaction. This equates to a total
estimated enterprise value of $18.4 billion, including $1.9
billion in net debt to be assumed. We expect to finance the
total $16.5 billion to be paid to Goodrich shareholders at the
closing of the acquisition through a combination of short and
long term debt, equity issuance and cash. We intend to
maintain our strong existing credit rating and minimize future
share count dilution on earnings per share by targeting the
equity component to comprise no more than 25% of the total
financing (excluding the amount of Goodrich net debt to be
assumed). We are also evaluating the potential disposition of
a number of our non-core businesses to generate cash and
minimize the level of future debt or equity issuances. The
transaction is subject to customary closing conditions,
including regulatory approvals and Goodrich shareholder
approval. We expect that this acquisition will close in
mid-2012. Goodrich products include aircraft nacelles and
interior systems, actuation and landing systems, and
electronic systems. Once the acquisition is complete,
Goodrich and Hamilton Sundstrand will be combined to form
a new segment named UTC Aerospace Systems. This
segment and our Pratt & Whitney segment will be separately
reportable segments although they will both be included
within the UTC Propulsion & Aerospace Systems
organizational structure. We expect the increased scale,
financial strength and complementary products of the new
combined business will strengthen our position in the
aerospace and defense industry. Further, we expect that this
acquisition will enhance our ability to support our customers
with more integrated systems.
During 2011, we recorded other-than-temporary impairment
charges totaling $66 million on an equity investment held by
UTC Fire & Security, in order to write-down our investment to
market value as of December 31, 2011. This impairment is
recorded within “Other income, net” on our Consolidated
Statement of Operations.
On March 1, 2010, we completed the acquisition of the GE
Security business for approximately $1.8 billion, including
debt assumed of $32 million. The GE Security business
supplies security and fire safety technologies for commercial
and residential applications through a broad product
portfolio that includes fire detection and life safety systems,
intrusion alarms, and video surveillance and access control
systems. This business, which has been integrated into our
UTC Fire & Security segment, enhanced UTC Fire & Security’s
geographic diversity through GE Security’s strong North
American presence, while increasing total product and
technology offerings. In connection with the acquisition of GE
Security, we recorded approximately $600 million of
identifiable intangible assets and $1.1 billion of goodwill. The
goodwill recorded reflects synergies expected to be realized
through the combination of GE Security’s products, resources
and management talent with those of the existing UTC Fire &
Security business to enhance competitiveness, accelerate the
development of certain product offerings, drive improved
operational performance and secure additional service
channels. Additionally, the combined business has provided
the opportunity for significant improvements to the cost
structure through the rationalization of general and
administrative expenditures as well as research and
development efforts.
During 2010, we completed the acquisition of Clipper
Windpower Plc (Clipper), a publicly-held California-based
wind turbine manufacturer. This investment is intended to
expand our power generation portfolio and allow us to enter
the wind power market by leveraging our expertise in blade
technology, turbines and gearbox design. In the first half of
2010, we acquired a 49.9% equity stake in Clipper. In
December 2010, we completed the acquisition of all the
remaining shares of Clipper. The total cost of our investment
in Clipper is approximately $385 million. In connection with
this transaction, we recorded approximately $650 million of
goodwill and identifiable intangible assets. Prior to the
December 2010 purchase of the remaining shares of Clipper,
we accounted for this investment under the equity method of
accounting. During the quarter ended September 30, 2010,
we recorded a $159 million other-than-temporary impairment
charge on our investment in Clipper, in order to write-down
our investment to market value as of September 30, 2010.
This impairment is recorded within “Other income, net” on
our Consolidated Statement of Operations. In December
2010, as a result of the acquisition of a controlling interest
and the remaining shares of Clipper, we recorded a $21 million
gain from the re-measurement to fair value of our previously
held equity interest. The financial results of Clipper are
included within the “Eliminations and other” category in the
segment financial data in Note 18 to the Consolidated
Financial Statements.
During 2010, we recorded approximately $86 million of asset
impairment charges, for assets that have met the
“held-for-sale” criteria, related to disposition activity within
both Carrier and Hamilton Sundstrand. These asset
impairment charges are recorded within Cost of products
sold on our Consolidated Statement of Operations. The asset
2011 ANNUAL REPORT 65