United Technologies 2011 Annual Report Download - page 34

MANAGEMENT’S DISCUSSION AND ANALYSIS
Other Income, Net
(Dollars in millions) 2011 2010 2009
Other income, net $584 $44 $407
Other income, net includes the operational impact of equity
earnings in unconsolidated entities, royalty income, foreign
exchange gains and losses as well as other ongoing and
non-recurring items. The year-over-year change in other
income, net in 2011, as compared with 2010, largely reflects an
approximately $55 million net year-over-year increased gain
resulting from Carrier’s ongoing portfolio transformation, $41
million gain from the sale of an equity investment at Pratt &
Whitney, a $73 million gain on the contribution of a Sikorsky
business into a new venture in the United Arab Emirates, a
$123 million increase in income from joint ventures, $79
million in other, net gains from divestitures, as well as the
absence of the $159 million other-than-temporary impairment
charge of our equity investment in Clipper, all of which was
partially offset by $66 million other-than-temporary
impairment charge on an equity investment at UTC Fire &
Security, and $45 million of reserves established for legal
matters.
The year-over-year change in other income, net in 2010, as
compared with 2009 largely reflects a $159 million other-
than-temporary impairment charge recorded in 2010 on our
then equity investment in Clipper in order to bring the
investment to market value, the absence of an approximately
$60 million gain recognized in 2009 from the contribution of
the majority of Carrier’s U.S. Residential Sales and Distribution
business into a new venture, the absence of a $52 million gain
recognized in 2009 at Otis on the re-measurement to fair
value of an interest in a joint venture as well as the absence of
gains from 2009 related to business divestiture activity
across the company. The decline in other income, net year-
over-year also reflects the adverse impact from an
approximately $30 million valuation allowance charge
recorded in 2010 related to an unconsolidated foreign
venture at Carrier, equity losses associated with our recently
acquired Clipper business, and costs associated with the early
extinguishment of debt in 2010. These adverse impacts were
partially offset by a $21 million non-taxable gain recognized in
the fourth quarter of 2010 on the re-measurement to fair
value of our previously held equity interest in Clipper
resulting from the purchase of a controlling interest.
Interest Expense, Net
(Dollars in millions) 2011 2010 2009
Interest expense $ 673 $750 $705
Interest income (179) (102) (88)
Interest expense, net $494 $ 648 $ 617
Average interest expense rate during the year on:
Short-term borrowings 2.0% 1.8% 3.1%
Total debt 5.6% 5.6% 5.8%
Interest expense decreased in 2011, as compared with 2010,
primarily as a result of the full year absence of interest
associated with the repayment and early redemptions of
long-term debt in 2010 and the absence of interest expense
on long-term debt that was redeemed early in 2011, partially
offset by the full year interest incurred on long-term debt
issued in 2010. Interest expense on our long-term debt
decreased as a result of the repayment at maturity in May
2010 of our $600 million of 4.375% notes due 2010, the early
redemption in June 2010 of the entire $500 million
outstanding principal amount of our 7.125% notes that would
have otherwise been due November 2010, and the early
redemption in September 2010 of the entire $500 million
outstanding principal amount of our 6.350% notes that would
have otherwise been due March 2011, and as a result of the
early redemption in December 2011 of the entire $500 million
outstanding principal amount of our 6.100% notes that would
otherwise have been due May 15, 2012. This impact was
partially offset by the full year impact from the issuance of
two series of fixed rate long-term notes totaling $2.25 billion
in February 2010. Lower interest charges related to our
deferred compensation plan and lower interest accrued on
unrecognized tax benefits also contributed to the overall
interest expense decline. Interest income increased in 2011, as
compared with 2010, as a result of favorable pre-tax interest
adjustments of approximately $89 million related to the
settlement of U.S. federal income tax refund claims for years
prior to 2004, partially offset by the absence of a favorable
pre-tax interest adjustment of approximately $24 million
associated with the resolution of an uncertain temporary tax
item in the second quarter of 2010.
The increase in interest expense in 2010, as compared with
2009, largely reflects the impact of long-term debt issuances
during the course of the year, partially offset by the absence
of interest associated with the early redemption and
repayment of long-term debt in 2010. Interest expense on our
long-term debt increased as a result of the issuance of two
series of fixed rate long-term notes totaling $2.25 billion in
February 2010 (see further discussion in the “Liquidity and
Financial Condition” section). This impact was partially offset
by the absence of interest associated with the repayment at
maturity in May 2010 of our $600 million of 4.375% notes due
2010, the early redemption in June 2010 of the entire $500
million outstanding principal amount of our 7.125% notes that
would have otherwise been due November 2010, and the
early redemption in September 2010 of the entire $500
million outstanding principal amount of our 6.350% notes that
would have otherwise been due March 2011. Aside from the
impact of debt repayments and redemptions noted above,
the additional interest associated with the issuance of the
long-term debt in February 2010 was also partially offset by
the absence of interest related to the repayment in June
2009 of our $400 million 6.500% notes due 2009. Interest
expense also reflects the lower cost associated with our
commercial paper borrowings. Interest income in 2010
includes a favorable pre-tax interest adjustment of
approximately $24 million associated with the resolution of
an uncertain temporary tax item in the second quarter.
32 UNITED TECHNOLOGIES CORPORATION