One of United Technologies' sources of liquidity is its ability to issue short-term debt in the commercial paper market. Commercial paper notes are sold at a discount and have a maturity of no more than 365 days from date of issuance. Borrowings under the commercial paper program are available for general corporate purposes as well as for financing potential acquisitions. United Technologies had $455 million of commercial paper borrowings outstanding at December 31, 2011.
As of December 31, 2011, United Technologies' credit ratings were as follows: (Source: UTC)
S&P A A-1 Negative
Fitch A+ F1 Negative Learn what the ratings mean
Moody's A2 P-1 Negative
Long-Term Debt: A, A+, A2 (S&P, Fitch, Moody's) are upper medium grade credit ratings.
Short-Term Debt: A-1, F1, P-1 are upper medium grade ratings.
With an average rating of A, United Technologies has strong capacity to meet its financial commitments but is somewhat more exposed to the adverse effects of changes in circumstances and economic conditions than companies in higher-rated categories.
At year end December 31, United Technologies had total debt obligations (short term + long term) of $10,260, $10,289 and $9,744 million in 2011, 2010 and 2009, respectively. In 2011, long-term debt obligations amounted to $10,018 million with short-term debt making up the remaining $2,353 million.
assesses its liquidity in terms of the company's ability to generate cash to fund its operating, investing and financing activities.
United Technologies' principal source of liquidity is operating cash flows, which, after netting out capital expenditures,
the company targets to equal or exceed net income attributable to common shareowners. In addition to operating cash flows,
other significant factors that affect United Technologies' overall management of liquidity include: capital expenditures,
customer financing requirements, investments in businesses, dividends, common stock repurchases, pension funding, access
to the commercial paper markets, adequacy of available bank lines of credit,
and the ability to attract long-term capital at satisfactory terms.
According to United Technologies, future operating cash flows will be sufficient to meet the company's future operating cash needs. Further, the company's ability to obtain debt or equity financing, as well as the availability under committed credit lines, provides additional potential sources of liquidity should they be required or appropriate.
The weighted-average interest rate applicable to debt outstanding at December 31, 2011 was 1.5% for short-term borrowings and 5.6% for total debt as compared to 6.3% and 5.9%, respectively, at December 31, 2010. The decline in the weighted-average interest rates for short-term borrowings was due to the $455 million of commercial paper borrowings outstanding at December 31, 2011, which carries favorable interest rates. There were no commercial paper borrowings outstanding at December 31, 2010. The three month LIBOR rate as of December 31, 2011 was 0.6% and 0.3% as of both December 31, 2010 and 2009.
On November 8, 2011, United Technologies entered into a bridge credit agreement with various financial institutions that provides for a $15 billion unsecured bridge loan facility, available to pay a portion of the cash consideration for the Goodrich acquisition, and to finance certain related transactions and pay related fees and expenses. Any funding under the bridge credit agreement would substantially occur concurrently with the consummation of the Goodrich acquisition, subject to customary conditions for acquisition financings of this type. Any loans made pursuant to the bridge credit agreement would mature on the date that is 364 days after the funding date.
At December 31, 2011, United Technologies had revolving credit agreements with various banks permitting aggregate borrowings of up to $4.0 billion pursuant to a $2.0 billion revolving credit agreement and a $2.0 billion multicurrency revolving credit agreement, both of which expire in November 2016. These revolving credit agreements were signed on November 4, 2011 and replaced the previous revolving credit agreements executed in 2010 which had permitted aggregate borrowings of up to $3.0 billion. As of December 31, 2011 and 2010, there were no borrowings under either of these revolving credit agreements. The undrawn portions of the revolving credit agreements are also available to serve as backup facilities for the issuance of commercial paper. In November 2011, United Technologies' maximum commercial paper borrowing authority was increased from $3 billion to $4 billion.
United Technologies' strong financial position has historically enabled the company to issue long-term debt at favorable market rates, including the issuance of $2.25 billion of long-term debt in February 2010. United Technologies' ability to obtain debt financing at comparable risk-based interest rates is partly a function of the company's existing debt-to-total-capitalization level as well as its current credit standing.
The purchase price for United Technologies' acquisition of Goodrich for $127.50 per share in cash equates to a total estimated enterprise value of $18.4 billion, including $1.9 billion in net debt to be assumed. United Technologies expects 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. United Technologies intends to maintain its 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). United Technologies is also evaluating the potential disposition of a number of non-core businesses to generate cash and minimize the level of future debt or equity issuances. To manage the cash flow and liquidity impacts of these actions, United Technologies is suspending future share repurchases until at least September 30, 2012, and will significantly reduce repurchases for two years thereafter. In addition, United Technologies will reduce its budgeted acquisition spending for the next few years, which for 2012 it expects to approximate $500 million excluding spending for the acquisitions of Goodrich and Rolls-Royce's interests in IAE.
The funded status of United Technologies' defined benefit pension plans is dependent upon many factors, including returns on invested assets and the level of market interest rates. United Technologies can contribute cash or company stock to its plans at the company's discretion, subject to applicable regulations. Total cash contributions to United Technologies' global defined benefit pension plans were $551 million and $1.3 billion during 2011 and 2010, respectively. During 2011 and 2010, United Technologies also contributed $450 million and $250 million, respectively, in UTC common stock to the company's defined benefit pension plans. United Technologies expects to make contributions of approximately $100 million to its foreign defined benefit pension plans in 2012.