United Technologies 2011 Annual Report Download - page 48

MANAGEMENT’S DISCUSSION AND ANALYSIS
usage under existing customer financing commitments
during the year. We may also arrange for third-party
investors to assume a portion of our commitments. We had
commercial aerospace financing and other contractual
commitments of approximately $2.3 billion and $2.0 billion
related to commercial aircraft and certain contractual rights
to provide product on new aircraft platforms at December 31,
2011 and 2010, respectively, of which as much as $131 million
may be required to be disbursed during 2012. Refer to Note 4
to the Consolidated Financial Statements for additional
discussion of our commercial aerospace industry assets and
commitments.
Cash Flow from Financing Activities
(Dollars in millions) 2011 2010
Net cash flows used in financing activities $(4,005) $(3,153)
The timing and levels of certain cash flow activities, such as
acquisitions and repurchases of our stock, have resulted in
the issuance of both long-term and short-term debt.
Commercial paper borrowings and revolving credit facilities
provide short-term liquidity to supplement operating cash
flows and are used for general corporate purposes, including
the funding of potential acquisitions and repurchases of our
stock. We had $455 million of commercial paper outstanding
at December 31, 2011. During the fourth quarter of 2010, the
cash that management decided to repatriate to the U.S., as a
result of U.S. tax law changes, was largely used to repay all
commercial paper outstanding. As a result, we had no
commercial paper outstanding at December 31, 2010.
In December 2011, we redeemed the entire $500 million
outstanding principal amount of our 6.100% notes that would
otherwise have been due May 15, 2012. In February 2010, we
issued $2.25 billion of long-term debt. We used the net
proceeds from these issuances primarily to fund a portion of
the acquisition of the GE Security business and to repay
commercial paper borrowings. In May 2010, we repaid the
entire $600 million outstanding principal amount of our
4.375% notes at maturity. In June 2010, we redeemed the
entire $500 million outstanding principal amount of our
7.125% notes that would otherwise have been due
November 15, 2010 and in September 2010, we redeemed the
entire $500 million outstanding principal amount of our
6.350% notes that would otherwise have been due March 1,
2011.
Financing cash outflows for 2011 and 2010 included the
repurchase of 26.9 million and 31.0 million shares of our
common stock, respectively, for approximately $2.2 billion
during each year under a 60 million share repurchase
program. On March 10, 2010, the Board of Directors
authorized a new 60 million common share repurchase
program that replaced the previous program, approved in
June 2008, which was nearing completion. Approximately
4.9 million of the shares repurchased during 2010 were
repurchased under the previous program and approximately
26.1 million under the new program. In addition to
management’s view that the repurchase of our common
stock is a beneficial investment, we also repurchase to offset
the dilutive effect of the issuance of stock and options under
the stock-based employee benefit programs. At December 31,
2011, management had authority to repurchase approximately
7 million shares under the previously announced share
repurchase program. Our share repurchases vary depending
upon various factors including the level of other investing
activities. As a result of our pending acquisition of Goodrich,
on September 30, 2011 we suspended additional share
repurchases until at least September 30, 2012, and will
significantly reduce repurchases for two years thereafter.
We paid aggregate dividends on Common Stock for 2011 of
approximately $1.6 billion, comprised of dividends of $0.425
per share in the first quarter of 2011 totaling $368 million,
$0.48 per share in the second quarter of 2011 totaling $413
million, $0.48 per share in the third quarter of 2011 totaling
$411 million, and $0.48 per share in the fourth quarter of 2011
totaling $410 million. During 2010, an aggregate $1.5 billion of
cash dividends were paid to Common Stock shareowners.
CRITICAL ACCOUNTING ESTIMATES
Preparation of our financial statements requires management
to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues and expenses. Note 1
to the Consolidated Financial Statements describes the
significant accounting policies used in preparation of the
Consolidated Financial Statements. Management believes the
most complex and sensitive judgments, because of their
significance to the Consolidated Financial Statements, result
primarily from the need to make estimates about the effects
of matters that are inherently uncertain. The most significant
areas involving management judgments and estimates are
described below. Actual results in these areas could differ
from management’s estimates.
Long-term Contract Accounting. We utilize percentage of
completion accounting on certain of our long-term contracts.
The percentage of completion method requires estimates of
future revenues and costs over the full term of product and/
or service delivery. We also utilize the completed-contract
method of accounting on certain lesser value commercial
contracts. Under the completed-contract method, sales and
cost of sales are recognized when a contract is completed.
Losses, if any, on long-term contracts are provided for when
anticipated. We recognize loss provisions on original
equipment contracts to the extent that estimated
inventoriable manufacturing, engineering, product warranty
and product performance guarantee costs, as appropriate,
exceed the projected revenue from the products
contemplated under the contractual arrangement. For new
commitments, we generally record loss provisions at the
earlier of contract announcement or contract signing except
for certain requirements contracts under which losses are
recorded based upon receipt of the purchase order. For
existing commitments, anticipated losses on contracts are
recognized in the period in which losses become evident.
Products contemplated under the contractual arrangement
46 UNITED TECHNOLOGIES CORPORATION