United Technologies 2011 Annual Report Download - page 66

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
balance sheets of these subsidiaries are deferred as a
separate component of shareowners’ equity.
We have used derivative instruments, including swaps,
forward contracts and options, to help manage certain
foreign currency, interest rate and commodity price
exposures. Derivative instruments are viewed as risk
management tools by us and are not used for trading or
speculative purposes. Derivatives used for hedging purposes
may be designated and effective as a hedge of the identified
risk exposure at the inception of the contract.
All derivative instruments are recorded on the balance sheet
at fair value. Derivatives used to hedge foreign-currency-
denominated balance sheet items are reported directly in
earnings along with offsetting transaction gains and losses on
the items being hedged. Derivatives used to hedge
forecasted cash flows associated with foreign currency
commitments or forecasted commodity purchases may be
accounted for as cash flow hedges, as deemed appropriate.
Gains and losses on derivatives designated as cash flow
hedges are recorded in other comprehensive income and
reclassified to earnings in a manner that matches the timing
of the earnings impact of the hedged transactions. The
ineffective portion of all hedges, if any, is recognized
currently in earnings.
Additional information pertaining to foreign currency forward
contracts is included in Note 13 to the Consolidated Financial
Statements.
Environmental. Environmental investigatory, remediation,
operating and maintenance costs are accrued 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, the minimum is accrued. 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. Liabilities with fixed
or reliably determinable future cash payments are
discounted. Accrued environmental liabilities are not reduced
by potential insurance reimbursements.
Asset Retirement Obligations. We record the fair value of
legal obligations associated with the retirement of tangible
long-lived assets in the period in which it is determined to
exist, if a reasonable estimate of fair value can be made. Upon
initial recognition of a liability, we capitalize the cost of the
asset retirement obligation by increasing the carrying amount
of the related long-lived asset. Over time, the liability is
increased for changes in its present value and the capitalized
cost is depreciated over the useful life of the related asset.
We have determined that conditional legal obligations exist
for certain of our worldwide owned and leased facilities
related primarily to building materials. As of December 31,
2011 and 2010, the outstanding liability for asset retirement
obligations was $164 million and $189 million, respectively.
Pension and Postretirement Obligations. Guidance under the
Compensation—Retirement Benefits Topic of the FASB ASC
requires balance sheet recognition of the overfunded or
underfunded status of pension and postretirement benefit
plans. Under this guidance, actuarial gains and losses, prior
service costs or credits, and any remaining transition assets
or obligations that have not been recognized under previous
accounting standards must be recognized in other
comprehensive income, net of tax effects, until they are
amortized as a component of net periodic benefit cost.
NOTE 2: BUSINESS ACQUISITIONS, DISPOSITIONS, GOODWILL
AND INTANGIBLE ASSETS
Business Acquisitions and Dispositions. Our investments in
businesses in 2011, 2010 and 2009 totaled $372 million
(including debt assumed of $15 million), $2.8 billion (including
debt assumed of $39 million) and $703 million, respectively.
Our 2011 investments consisted of a number of smaller
acquisitions in both the aerospace and commercial
businesses. As a result of Sikorsky’s contribution of a business
into a new venture in the United Arab Emirates, we
recognized a gain of approximately $73 million in the second
quarter of 2011.
In November 2011, Carrier formed a venture controlled by
Midea Group of China (Midea) for the manufacture and
distribution of heating, ventilating, and air-conditioning
(HVAC) products in Brazil, Argentina, and Chile. The venture
is comprised of Carrier’s existing HVAC operations in the
three countries and Midea’s distribution entity. Midea owns
51% of the venture and Carrier 49%. This joint venture
strengthens Carrier’s global strategic relationship with Midea
and expands the manufacturing and distribution of residential
and light commercial HVAC systems in Brazil, Argentina, and
Chile. Carrier recognized a gain of approximately $80 million
in 2011 as a result of this transaction.
On October 12, 2011, Pratt & Whitney and Rolls-Royce plc
(Rolls-Royce), a participant in the IAE collaboration,
announced an agreement to restructure their interests in IAE.
Under the terms of the agreement, Rolls-Royce will sell its
interests in IAE and license its V2500 intellectual property in
IAE to Pratt & Whitney for $1.5 billion plus an agreed payment
contingent on each hour flown by V2500-powered aircraft in
service at the closing date during the fifteen year period
following closing of the transaction. Consummation of this
restructuring is subject to regulatory approvals and other
closing conditions. The acquisition of the additional interests
in IAE will give Pratt & Whitney a controlling interest with
approximately 66% ownership. Upon closing, we anticipate
Pratt & Whitney will begin consolidating IAE. The acquisition
of the additional interests in IAE and the intellectual property
licenses will be reflected as intangible assets and amortized in
relation to the economic benefits received over the projected
remaining life of the V2500 program.
64 UNITED TECHNOLOGIES CORPORATION