| Notes to Condensed Consolidated Financial Statements | |
| 9 Months Ended
Sep. 30, 2009
USD / shares
|
| Notes to Condensed Consolidated Financial Statements | |
| Introduction of Notes to Condensed Consolidated Financial Statements |
The Condensed Consolidated Financial Statements at September 30, 2009 and for the quarters and nine months ended September 30, 2009 and 2008 are unaudited, but in the opinion of management include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the results for the interim periods. We have evaluated for disclosure subsequent events that have occurred up to October 23, 2009, the date of issuance of our financial statements. The results reported in these Condensed Consolidated Financial Statements should not necessarily be taken as indicative of results that may be expected for the entire year. The financial information included herein should be read in conjunction with the financial statements and notes in our Annual Report to Shareowners (2008 Annual Report) incorporated by reference to our Annual Report on Form 10-K for calendar year 2008 (2008 Form 10-K). Certain reclassifications have been made herein to 2008 amounts to conform to the current year presentation of noncontrolling interests and collaborative arrangements as required by the Consolidation Topic and Collaborative Arrangements Topic, respectively, of the FASB Accounting Standards Codification (FASB ASC). For further information, see discussion in Notes 9 and 11, respectively, to the Condensed Consolidated Financial Statements. |
| Acquisitions, Dispositions, Goodwill and Other Intangible Assets |
Note 1: Acquisitions, Dispositions, Goodwill and Other Intangible AssetsBusiness Acquisitions. We account for business combinations as required by the provisions of the Business Combinations Topic of the FASB ASC, which includes provisions that we adopted effective January 1, 2009. The accounting for business combinations retains the underlying concepts of the previously issued standard in that all business combinations are still required to be accounted for at fair value, but changes the method of applying the acquisition method in a number of significant aspects. Acquisition costs are generally expensed as incurred; noncontrolling interests are valued at fair value at the acquisition date; in-process research and development is recorded at fair value as an indefinite-lived intangible asset at the acquisition date; restructuring costs associated with a business combination are generally expensed subsequent to the acquisition date; and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally affect income tax expense. These changes are effective on a prospective basis for all of our business combinations for which the acquisition date is on or after January 1, 2009, with the exception of the accounting for valuation allowances on deferred taxes and acquired tax contingencies. Adjustments for valuation allowances on deferred taxes and acquired tax contingencies associated with acquisitions that closed prior to January 1, 2009 would also apply the revised accounting for business combination provisions. During the first nine months of 2009, our investment in businesses was approximately $557 million. Investments in the third quarter of 2009 amounted to $360 million, primarily reflecting the acquisition of additional shares in GST Holdings Limited (GST), a fire alarm system provider in China. The acquisition of these additional shares in GST increased our share ownership from 29% to 99% and further strengthens UTC Fire Securitys presence in the Chinese fire safety industry. The remainder of our investment in businesses for the first nine months of the year consisted of a number of small acquisitions in both our commercial and aerospace businesses. For acquisitions completed prior to January 1, 2009, the final purchase price allocation of all acquired businesses is subject to the completion of the valuation of certain assets and liabilities, as well as plans for consolidation of facilities, relocation or reduction of employees and other restructuring activities. For acquisitions occurring on or after January 1, 2009, during the measurement period we will recognize additional assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of those assets and liabilities as of that date. The measurement period shall not exceed one year from the acquisition date. Further, any associated restructuring activities will be expensed in future periods and not recorded through purchase accounting as previously done for acquisitions occurring prior to January 1, 2009. There was no si |
| Earnings Per Share |
Note 2: Earnings Per Share
Quarter Ended September 30, Nine Months Ended September 30,
(in millions of dollars, except per share amounts) 2009 2008 2009 2008
Net income attributable to common shareowners $ 1,058 $ 1,269 $ 2,756 $ 3,544
Average shares:
Basic 917 933 918 943
Stock awards 12 18 10 21
Diluted 929 951 928 964
Earnings per share of Common Stock:
Basic $ 1.15 $ 1.36 $ 3.00 $ 3.76
Diluted $ 1.14 $ 1.33 $ 2.97 $ 3.68
The computation of diluted earnings per share excludes the effect of the potential exercise of stock awards, including stock appreciation rights (SARs) and stock options when the average market price of the common stock is lower than the exercise price of the related SARs and options during the period. These outstanding stock awards are not included in the computation of diluted earnings per share because the effect would have been antidilutive. For the quarter and nine months ended September 30, 2009, the number of stock awards excluded from the computation was 15.2 million and 35.7 million, respectively. For the quarter and nine months ended September 30, 2008, the number of stock awards excluded from the computation was 10.2 million and 10.1 million, respectively. |
| Inventories and Contracts in Progress |
Note 3: Inventories and Contracts in Progress
(in millions of dollars) September 30, 2009 December 31, 2008
Raw materials $ 1,239 $ 1,271
Work-in-process 3,325 3,295
Finished goods 3,286 3,634
Contracts in progress 6,792 6,113
14,642 14,313
Less:
Progress payments, secured by lien, on U.S. Government contracts (361) (476)
Billings on contracts in progress (6,195) (5,497)
$ 8,086 $ 8,340
As of September 30, 2009 and December 31, 2008, inventory also includes capitalized research and development costs of $873 million and $833 million, respectively, related to certain aerospace programs. These capitalized costs are liquidated as production units are delivered to the customer. The capitalized contract research and development costs within inventory principally relate to capitalized costs on Sikorskys CH-148 contract with the Canadian government. The CH-148 is a derivative of the H-92, a military variant of the S-92.Certain reclassifications have been made to the 2008 inventory components presented above in order to conform to the current year presentation. |
| Borrowings and Lines of Credit |
Note 4: Borrowings and Lines of Credit Our borrowings consist of the following:
September 30, December 31,
(in millions of dollars) 2009 2008
Short-term borrowings:
Commercial paper $ 592 $ 150
Revolving credit borrowings - 461
Other borrowings 351 412
Total short-term borrowings $ 943 $ 1,023
At September 30, 2009, we had committed credit agreements from banks permitting aggregate borrowings of up to $2.5 billion under a $1.5 billion revolving credit agreement and a $1.0 billion multicurrency revolving credit agreement, both of which are available for general funding purposes, including acquisitions. As of September 30, 2009, there were no borrowings under either of these revolving credit agreements, which expire in October 2011 and November 2011, respectively. The undrawn portions under both of these agreements are also available to serve as backup facilities for the issuance of commercial paper. We generally use our commercial paper borrowings for general corporate purposes, including the funding of potential acquisitions and repurchases of our common stock.
September 30, December 31,
(in millions of dollars) 2009 2008
Long-term debt:
LIBOR+.07% floating rate notes due 2009 $ - $ 500
6.500% notes due 2009 - 400
7.675% ESOP debt due 2009 33 33
4.375% notes due 2010 600 600
7.125% notes due 2010 500 500
6.350% notes due 2011 500 500
6.100% notes due 2012 500 500
4.875% notes due 2015 1,200 1,200
5.375% notes due 2017 1,000 1,000
6.125% notes due 2019 1,250 1,250
8.875% notes due 2019 272 272
8.750% notes due 2021 250 250
6.700% notes due 2028 400 400
7.500% notes due 2029 550 550
5.400% notes due 2035 600 600
6.050% notes due 2036 600 600
6.125% notes due 2038 1,000 1,000
Project financing obligations 125 193
Other (including capitalized leases) 109 105
Total long-term debt 9,489 10,453
Less current portion (760) (1,116)
Long-term portion $ 8,729 $ 9,337
In February 2009, we redeemed the entire $500 million outstanding principal amount of our LIBOR+.07% floating rate notes that were due June1, 2009 at a redemption price in U.S. dollars equal to 100% of the principal amount, plus interest accrued.On June1, 2009, we repaid our $400 million of 6.500 % notes due 2009 which matured on the same date. We have an existing universal shelf registration statement filed with the Securities and Exchange Commission (SEC) for an indeterminate amount of securities for future issuance, subject to our internal limitations on the amount of debt to be issued under this shelf registration statement. |
| Income Taxes |
Note 5: Income Taxes We conduct business globally and, as a result, UTC or one or more of our subsidiaries files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business we are subject to examination by taxing authorities throughout the world, including such major jurisdictions as Australia, Canada, China, France, Germany, Hong Kong, Italy, Japan, South Korea, Singapore, Spain, the United Kingdom and the United States. With few exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations for years before 1998.In the ordinary course of business there is inherent uncertainty in quantifying our income tax positions. We assess our income tax positions and record tax benefits for all years subject to examination based upon managements evaluation of the facts, circumstances and information available at the reporting date. For those tax positions where it is more likely than not that a tax benefit will be sustained, we have recorded the largest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where it is not more likely than not that a tax benefit will be sustained, no tax benefit has been recognized in the financial statements. We recognize interest accrued related to unrecognized tax benefits in interest expense. Penalties, if incurred, would be recognized as a component of income tax expense. It is reasonably possible that over the next twelve months the amount of unrecognized tax benefits may change within a range of a net decrease of $125 million to a net increase of $50 million resulting from additional worldwide uncertain tax positions; from the reevaluation of current uncertain tax positions arising from developments in examinations, in appeals, or in the courts; or from the closure of tax statutes. Not included in the range is 182 million (approximately $267 million) of tax benefits that we have claimed related to a 1998 German reorganization. These tax benefits are currently being reviewed by the German Tax Office in the course of an audit of tax years 1999 to 2000. In 2008 the German Federal Tax Court denied benefits to another taxpayer in a case involving a German tax law relevant to our reorganization. The determination of the German Federal Tax Court on this other matter was appealed to the European Court of Justice (ECJ) to determine if the underlying German tax law is violative of European Union (EU) principles. On September 17, 2009 the ECJ issued an opinion in this case that is generally favorable to the other taxpayer and referred the case back to the German Federal Tax Court for further consideration of certain related issues. After consideration of the ECJ decision, we continue to believe that it is more likely than not that the relevant German tax law is violative of EU principles and we have not accrued tax expense for this matter. As developments in the other taxpayers case in the German courts warrant, it may become necessary for us to accrue for th |
| Employee Benefit Plans |
Note 6: Employee Benefit Plans Pension and Postretirement Plans. We sponsor both funded and unfunded domestic and foreign defined pension and postretirement plans. Contributions to these plans during the quarters and nine months ended September 30, 2009 and 2008 were as follows:
Quarter Ended Nine Months Ended
September 30, September 30,
(in millions of dollars) 2009 2008 2009 2008
Defined Benefit Plans $ 182 $ 13 $ 633 $ 58
Defined Contribution Plans $ 43 $ 50 $ 144 $ 168
In the first nine months of 2009, we contributed $551 million in cash to our domestic defined benefit pension plans, including $150 million which was contributed in the third quarter of 2009. There were no contributions to our domestic defined benefit pension plans in the first nine months of 2008.The following tables illustrate the components of net periodic benefit cost for our pension and other postretirement benefits:
Pension Benefits Other Postretirement Benefits
Quarter Ended Quarter Ended
September 30, September 30,
(in millions of dollars) 2009 2008 2009 2008
Service cost $ 108 $ 112 $ - $ 1
Interest cost 324 317 12 13
Expected return on plan assets (416) (418) (1) (1)
Amortization 14 13 - (1)
Recognized actuarial net loss 56 30 - -
86 54 11 12
Net settlement and curtailment loss 84 - - -
Total net periodic benefit cost $ 170 $ 54 $ 11 $ 12
Pension Benefits Other Postretirement Benefits
Nine Months Ended Nine Months Ended
September 30, September 30,
(in millions of dollars) 2009 2008 2009 2008
Service cost $ 322 $ 339 $ 2 $ 3
Interest cost 959 957 37 40
Expected return on plan assets (1,218) (1,259) (1) (2)
Amortization 42 38 (2) (5)
Recognized actuarial net loss (gain) 168 91 (2) -
273 166 34 36
Net settlement and curtailment loss (gain) 101 (2) - -
Total net periodic benefit cost $ 374 $ 164 $ 34 $ 36 |
| Restructuring and Related Costs |
Note 7: Restructuring and Related Costs During the first nine months of 2009, we recorded net pre-tax restructuring and related charges in our business segments totaling $695 million for new and ongoing restructuring actions as follows:
(in millions of dollars)
Otis $ 131
Carrier 139
UTC Fire Security 107
Pratt Whitney 177
Hamilton Sundstrand 69
Sikorsky 7
Eliminations and other 62
General corporate expenses 3
Total $ 695
The net charges included $361 million in cost of sales, $311 million in selling, general and administrative expenses and $23 million in other income and, as described below, primarily relate to actions initiated during 2009 and 2008. Restructuring costs reflected in Eliminations and other primarily reflect the costs associated with the curtailment of our domestic pension plans. 2009 Actions. During the first nine months of 2009, we initiated restructuring actions relating to ongoing cost reduction efforts, including workforce reductions, the consolidation of field operations and the consolidation of repair and overhaul operations. We recorded net pre-tax restructuring and related charges totaling $667 million, including $335 million in cost of sales, $310 million in selling, general and administrative expenses and $22 million in other income. We expect the 2009 actions that were initiated in the first nine months to result in net workforce reductions of approximately 13,000 hourly and salaried employees, the exiting of approximately 4.3 million net square feet of facilities and the disposal of assets associated with the exited facilities. As of September 30, 2009, net workforce reductions of approximately 9,200 employees have been completed. The majority of the remaining workforce and all facility related cost reduction actions are targeted for completion during 2010 and 2011. No specific plans for significant other actions have been finalized at this time.On September 21, 2009, Pratt Whitney announced plans to close its Connecticut Airfoil Repair Operations facility in East Hartford, Connecticut by the second quarter of 2010 and its engine overhaul facility in Cheshire, Connecticut by early 2011. On September 22, 2009, the International Association of Machinists (IAM) filed a lawsuit in U.S. District Court in Hartford, Connecticut alleging that Pratt Whitneys decision to close these facilities and transfer certain work to facilities outside Connecticut breached the terms of its collective bargaining agreement with the IAM, and seeking to enjoin Pratt Whitney from moving the work for the duration of the current collective bargaining agreement. Pratt Whitney believes that it has fully complied with the collective bargaining agreement and that the IAMs contentions are without merit. Trial is currently scheduled to begin December 14, 2009, and a decision is anticipated by early 2010. Pratt Whitney has recorded $51 million of restructuring costs associated with these planned closures.The following table summarizes the accrual balances and utilization by cost type for the 2009 restructuring actions:
(in millions of dollars) Severance Asset Write-Downs Facility Exit and Lease |
| Financial Instruments |
Note 8: Financial InstrumentsWe enter into derivative instruments for risk management purposes only, including derivatives designated as hedging instruments under the Derivatives and Hedging Topic of the FASB ASC and those utilized as economic hedges. We operate internationally and, in the normal course of business, are exposed to fluctuations in interest rates, foreign exchange rates and commodity prices. These fluctuations can increase the costs of financing, investing and operating the business. We have used derivative instruments, including swaps, forward contracts and options to manage certain foreign currency, interest rate and commodity price exposures. By nature, all financial instruments involve market and credit risks. We enter into derivative and other financial instruments with major investment grade financial institutions and have policies to monitor the credit risk of those counterparties. We limit counterparty exposure and concentration of risk by diversifying counterparties. While there can be no assurance, we do not anticipate any material non-performance by any of these counterparties. Foreign Currency Forward Contracts. We manage our foreign currency transaction risks to acceptable limits through the use of derivatives to hedge forecasted cash flows associated with foreign currency transaction exposures which are accounted for as cash flow hedges, as deemed appropriate. To the extent these derivatives are effective in offsetting the variability of the hedged cash flows, and otherwise meet the hedge accounting criteria of the Derivatives and Hedging Topic of the FASB ASC, changes in the derivatives fair value are not included in current earnings but are included in Accumulated other comprehensive loss. These changes in fair value will subsequently be reclassified into earnings as a component of product sales or expenses, as applicable, when the forecasted transaction occurs. To the extent that a previously designated hedging transaction is no longer an effective hedge, any ineffectiveness measured in the hedging relationship is recorded currently in earnings in the period it occurs.To the extent the hedge accounting criteria are not met, the foreign currency forward contracts are utilized as economic hedges and changes in the fair value of these contracts are recorded currently in earnings in the period in which they occur. These include hedges that are used to reduce exchange rate risks arising from the change in fair value of certain foreign currency denominated assets and liabilities (i.e. payables, receivables) and other economic hedges where the hedge accounting criteria were not met. The four quarter rolling average of the notional amount of foreign exchange contracts hedging foreign currency transactions was $8.6 billion and $11.2 billion at September 30, 2009 and December 31, 2008, respectively.Commodity Forward Contracts. We enter into commodity forward contracts to reduce the risk of fluctuations in the price we pay for certain commodities (for example, nickel) which are used directly in the production of our products, or are components of the products we procure to use in the production of our products. These h |
| Equity |
Note 9: Equity A summary of the changes in equity for the quarters and nine months ended September 30, 2009 and 2008 is provided below:
Quarter Ended September 30,
(in millions of dollars) 2009 2008
Shareowners' Equity Noncontrolling Interest Total Equity Shareowners' Equity Noncontrolling Interest Total Equity
Equity, beginning of period $ 17,379 $ 1,027 $ 18,406 $ 21,912 $ 957 $ 22,869
Comprehensive income for the period
Net income 1,058 87 1,145 1,269 101 1,370
Other comprehensive income (loss):
Foreign currency translation, net 485 25 510 (965) (17) (982)
Increases (decreases) in unrealized gains from available-for-sale investments, net 63 - 63 (19) - (19)
Cash flow hedging gains (losses) 136 - 136 (38) - (38)
Change in pension and post-retirement benefit plans, net 11 - 11 34 - 34
Total other comprehensive income (loss) 695 25 720 (988) (17) (1,005)
Total comprehensive income for the period 1,753 112 1,865 281 84 365
Common Stock issued under employee plans 177 177 113 113
Common Stock repurchased (430) (430) (925) (925)
Dividends on Common Stock (339) (339) (286) (286)
Dividends on ESOP Common Stock (14) (14) (12) (12)
Dividends attributable to noncontrolling interest - (59) (59) - (81) (81)
Purchase of subsidiary shares from noncontrolling interest (37) (14) (51) - - -
Acquired noncontrolling interest - 91 91 - 2 2
Equity, end of period $ 18,489 $ 1,157 $ 19,646 $ 21,083 $ 962 $ 22,045
Nine Months Ended September 30,
(in millions of dollars) 2009 2008
Shareowners' Equity Noncontrolling Interest Total Equity Shareowners' Equity Noncontrolling Interest Total Equity
Equity, beginning of period $ 15,917 $ 1,009 $ 16,926 $ 21,355 $ 912 $ 22,267
Comprehensive income for the period
Net income 2,756 254 3,010 3,544 280 3,824
Other comprehensive income (loss):
Foreign currency translation, net 937 11 948 (800) 15 (785)
Increases (decreases) in unrealized gains from available-for-sale investments, net 93 - 93 (34) - (34)
Cash flow hedging gains (losses) 208 - 208 (73) - (73)
Change in pension and post-retirement benefit plans, net 87 - 87 81 - 81
Total other comprehensive income (loss) 1,325 11 1,336 (826) 15 (811)
Total comprehensive income for the period 4,081 265 4,346 2,718 295 3,013
Common Stock issued under employee plans 397 397 408 408
Common Stock repurchased (780) (780) (2,492) (2,492)
Dividends on Common Stock (1,018) (1,018) (869) (869)
Dividends on ESOP Common Stock (44) (44) (37) (37)
Dividends attributable to noncontrolling interest - (259) (259) - (270) (270)
Purchase of subsidiary shares from noncontrolling interest (64) (24) (88) - (51) (51)
Sale of subsidiary shares in noncontrolling interest - - - - 40 40
Acquired noncontrolling interest - 166 166 - |
| Guarantees |
Note 10: Guarantees We extend a variety of financial, market value and product performance guarantees to third parties. There have been no material changes to guarantees outstanding since December 31, 2008. The changes in the carrying amount of service and product warranties and product performance guarantees for the nine months ended September 30, 2009 and 2008 are as follows:
(in millions of dollars) 2009 2008
Balance as of January 1 $ 1,136 $ 1,252
Warranties and performance guarantees issued 275 363
Settlements made (312) (457)
Other (24) 1
Balance as of September 30 $ 1,075 $ 1,159 |
| Collaborative Arrangements |
Note 11: Collaborative ArrangementsIn view of the risks and costs associated with developing new engines, Pratt Whitney has entered into certain collaboration arrangements in which costs, revenues and risks are shared. Revenues generated from engine programs, spare parts sales, and aftermarket business under collaboration arrangements are recorded as earned in our financial statements. Amounts attributable to our collaborative partners for their share of revenues are recorded as an expense in our financial statements based upon the terms and nature of the arrangement. Costs associated with engine programs under collaborative arrangements are expensed as incurred. Under these arrangements, collaborators contribute their program share of engine parts, incur their own production costs and make certain payments to Pratt Whitney for shared or joint program costs. The reimbursement of the collaborators share of program costs is recorded as a reduction of the related expense item at that time. As of September 30, 2009, the collaborators interests in existing engine production programs ranged from 1 percent to 29 percent. Pratt Whitney directs those programs and is the principal participant in all existing collaborative arrangements. There are no individually significant collaborative arrangements and none of the partners exceed 25 percent share in an individual program. The following table illustrates the income statement classification and amounts attributable to transactions arising from the collaborative arrangements between participants for each period presented:
Quarter Ended Nine Months Ended
September 30, September 30,
(in millions of dollars) 2009 2008 2009 2008
Collaborator share of revenues:
Cost of products sold $ 167 $ 267 $ 567 $ 794
Cost of services sold 7 4 21 11
Collaborator share of program costs
(reimbursement of expenses incurred):
Cost of products sold (14) (20) (47) (63)
Research and development (14) (11) (46) (34)
Selling, general and administrative (1) (3) (4) (8)
The Collaborative Arrangements Topic of the FASB ASC requires that participants in a collaborative arrangement report costs incurred and revenues generated from such transactions on a gross basis and in the appropriate line items in each companys financial statements. This is pursuant to the guidance in the Revenue Recognition Topic of the FASB ASC that addresses whether an entity should report revenue gross or net depending on whether the entity functions as a principal or agent. The Collaborative Arrangements Topic also requires disclosure of the nature and purpose of the participants collaborative arrangements, the participants rights and obligations under these arrangements, the accounting policy for collaborative arrangements, the income statement classification and amounts attributable to transactions arising from collaboration arrangements between participants, and the disclosure related to individually significant collaborative arrangements. These requirements were effective for financial statements issued for fiscal years beginning after December15, 2008, and interim |
| Contingent Liabilities |
Note 12: Contingent Liabilities Summarized below are the matters previously described in Note 15 of the Notes to the Consolidated Financial Statements in our 2008 Annual Report, incorporated by reference in our 2008 Form 10-K. Environmental. Our operations are subject to environmental regulation by federal, state and local authorities in the United States and regulatory authorities with jurisdiction over our foreign operations. We accrue for environmental investigatory, remediation, operating and maintenance costs when it is probable that a liability has been incurred and the amount can be reasonably estimated. The most likely cost to be incurred is accrued based on an evaluation of currently available facts with respect to each individual site, including existing technology, current laws and regulations and prior remediation experience. Where no amount within a range of estimates is more likely, we accrue the minimum. For sites with multiple responsible parties, we consider our likely proportionate share of the anticipated remediation costs and the ability of the other parties to fulfill their obligations in establishing a provision for those costs. We discount liabilities with fixed or reliably determinable future cash payments. We do not reduce accrued environmental liabilities by potential insurance reimbursements. We periodically reassess these accrued amounts. We believe that the likelihood of incurring losses materially in excess of amounts accrued is remote. Government. We are now, and believe that in light of the current U.S. government contracting environment we will continue to be, the subject of one or more U.S. government investigations. If we or one of our business units were charged with wrongdoing as a result of any of these investigations or other government investigations (including violations of certain environmental or export laws) the U.S. government could suspend us from bidding on or receiving awards of new U.S. government contracts pending the completion of legal proceedings. If convicted or found liable, the U.S. government could fine and debar us from new U.S. government contracting for a period generally not to exceed three years. The U.S. government could void any contracts found to be tainted by fraud. Our contracts with the U.S. government are also subject to audits. Like many defense contractors, we have received audit reports, which recommend that certain contract prices should be reduced to comply with various government regulations. Some of these audit reports involve substantial amounts. We have made voluntary refunds in those cases we believe appropriate and continue to litigate certain other cases. In addition, we accrue for liabilities associated with those matters that are probable and can be reasonably estimated. The most likely settlement amount to be incurred is accrued based upon a range of estimates. Where no amount within a range of estimates is more likely, then we accrue the minimum amount.As previously disclosed, the Department of Justice (DOJ) sued us in 1999 in the U.S. District Court for the Southern District of Ohio, claiming that Pratt Whitney violated the civil False Claims Act and comm |
| Segment Financial Data |
Note 13: Segment Financial Data Our operations are classified into six principal segments: Otis, Carrier, UTC Fire Security, Pratt Whitney, Hamilton Sundstrand and Sikorsky. The segments are generally based on the management structure of the businesses and the grouping of similar operating companies, where each management organization has general operating autonomy over diversified products and services. As discussed more fully in Note 11 to the Condensed Consolidated Financial Statements, as of January 1, 2009 the collaborators share of revenues, which were previously reported on a net basis, are now reported on a gross basis as required under the Collaborative Arrangements Topic of the FASB ASC. Prior period amounts include retrospective application of the accounting for Collaborative Arrangements.Results for the quarters and nine months ended September 30, 2009 and 2008 are as follows:
Quarter Ended September 30, Revenues Operating Profits Operating Profit Margins
(in millions of dollars) 2009 2008 2009 2008 2009 2008
Otis $ 2,962 $ 3,245 $ 633 $ 648 21.4% 20.0%
Carrier 3,007 3,917 312 421 10.4% 10.7%
UTC Fire Security 1,383 1,624 149 154 10.8% 9.5%
Pratt Whitney 3,031 3,421 444 530 14.6% 15.5%
Hamilton Sundstrand 1,400 1,532 247 286 17.6% 18.7%
Sikorsky 1,648 1,438 157 133 9.5% 9.2%
Total segments 13,431 15,177 1,942 2,172 14.5% 14.3%
Eliminations and other (56) (92) (98) (33)
General corporate expenses - - (73) (90)
Consolidated $ 13,375 $ 15,085 $ 1,771 $ 2,049 13.2% 13.6%
Nine Months Ended September 30, Revenues Operating Profits Operating Profit Margins
(in millions of dollars) 2009 2008 2009 2008 2009 2008
Otis $ 8,579 $ 9,706 $ 1,770 $ 1,899 20.6% 19.6%
Carrier 8,594 11,682 594 1,156 6.9% 9.9%
UTC Fire Security 3,999 4,960 297 395 7.4% 8.0%
Pratt Whitney 9,322 10,454 1,347 1,602 14.4% 15.3%
Hamilton Sundstrand 4,183 4,643 626 795 15.0% 17.1%
Sikorsky 4,371 3,768 406 326 9.3% 8.7%
Total segments 39,048 45,213 5,040 6,173 12.9% 13.7%
Eliminations and other (228) (226) (142) (55)
General corporate expenses - - (240) (296)
Consolidated $ 38,820 $ 44,987 $ 4,658 $ 5,822 12.0% 12.9%
See Note 7 to the Condensed Consolidated Financial Statements for a discussion of restructuring charges included in segment operating results. |
| Accounting Pronouncements |
Note 14: Accounting PronouncementsIn December 2008, the FASB issued additional guidance, which resides under the Compensation Retirement Benefits Topic of the FASB ASC, on an employers disclosures about plan assets of a defined benefit pension or other postretirement plan on investment policies and strategies, major categories of plan assets, inputs and valuation techniques used to measure the fair value of plan assets and significant concentrations of risk within plan assets. This guidance will be effective for fiscal years ending after December 15, 2009, with earlier application permitted. Upon initial application, the provisions of this guidance are not required for earlier periods that are presented for comparative purposes. We are currently evaluating the disclosure requirements of this guidance and anticipate that it will not have a significant impact on the reporting of our results of operations.In June 2009, the FASB issued SFAS No. 166, Accounting for Transfers of Financial Assets an amendment of FASB Statement No. 140 (SFAS 166). As of September 30, 2009, SFAS 166 has not been incorporated within the FASB ASC. SFAS 166 removes the concept of a qualifying special-purpose entity and establishes a new participating interest definition that must be met for transfers of portions of financial assets to be eligible for sale accounting, clarifies and amends the derecognition criteria for a transfer to be accounted for as a sale, and changes the amount that can be recognized as a gain or loss on a transfer accounted for as a sale when beneficial interests are received by the transferor. Enhanced disclosures are also required to provide information about transfers of financial assets and a transferors continuing involvement with transferred financial assets. This statement must be applied as of the beginning of an entitys first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. Earlier application is prohibited. We are currently evaluating this new statement.In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R) (SFAS 167). As of September 30, 2009, SFAS 167 has not been incorporated within the FASB ASC. SFAS 167 amends previous accounting related to the Consolidation of Variable Interest Entities to require an enterprise to qualitatively assess the determination of the primary beneficiary of a variable interest entity (VIE) based on whether the entity (1) has the power to direct the activities of a VIE that most significantly impact the entitys economic performance and (2) has the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. Also, SFAS 167 requires an ongoing reconsideration of the primary beneficiary, and amends the events that trigger a reassessment of whether an entity is a VIE. Enhanced disclosures are also required to provide information about an enterprises involvement in a VIE. This statement will be effective as of the beginning of each reporting entitys first annual reporti |
