United Technologies 2011 Annual Report Download - page 69

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
commercial aerospace industry customers consist of
products under lease of $665 million and notes and leases
receivable of $365 million. The notes and leases receivable
are scheduled to mature as follows: $37 million in 2012, $57
million in 2013, $26 million in 2014, $30 million in 2015, $30
million in 2016, and $185 million thereafter.
Financing commitments, in the form of secured debt,
guarantees or lease financing, are provided to commercial
aerospace customers. The extent to which the financing
commitments will be utilized is not currently known, since
customers may be able to obtain more favorable terms from
other financing sources. We may also arrange for third-party
investors to assume a portion of these commitments. If
financing commitments are exercised, debt financing is
generally secured by assets with fair market values equal to
or exceeding the financed amounts with interest rates
established at the time of funding. We may also lease aircraft
and subsequently sublease the aircraft to customers under
long-term non-cancelable operating leases. In some
instances, customers may have minimum lease terms that
result in sublease periods shorter than our lease obligation.
Lastly, we have made residual value and other guarantees
related to various commercial aerospace customer financing
arrangements. The estimated fair market values of the
guaranteed assets equal or exceed the value of the related
guarantees, net of existing reserves. We also have other
contractual commitments, including commitments to secure
certain contractual rights to provide product on new aircraft
platforms. Payments made on these contractual
commitments are included within other intangible assets and
are to be amortized as the related units are delivered.
Our commercial aerospace financing and other contractual
commitments as of December 31, 2011 were $2,270 million
and are exercisable as follows: $131 million in 2012, $252
million in 2013, $427 million in 2014, $206 million in 2015, $368
million in 2016, and $886 million thereafter. Our financing
obligations with customers are contingent upon maintenance
of certain levels of financial condition by the customers. In
addition, we have residual value and other guarantees of
$323 million as of December 31, 2011.
We have long-term aftermarket maintenance contracts with
commercial aerospace industry customers for which revenue
is recognized in proportion to actual costs incurred relative to
total expected costs to be incurred over the respective
contract periods. Billings, however, are typically based on
factors such as engine flight hours. The timing differences
between the billings and the maintenance costs incurred
generates both deferred assets and deferred revenues.
Deferred assets under these long-term aftermarket contracts
totaled $235 million and $290 million at December 31, 2011
and 2010, respectively, and are included in Other assets in the
accompanying Consolidated Balance Sheets. Deferred
revenues generated totaled $1,708 million and $1,474 million
at December 31, 2011 and 2010, respectively, and are included
in Accrued liabilities and Other long-term liabilities in the
accompanying Consolidated Balance Sheet.
As of December 31, 2011, we held a 33% interest in IAE, an
international consortium of four shareholders organized to
support the V2500 commercial aircraft engine program. Our
interest in IAE is accounted for under the equity method of
accounting. IAE may offer customer financing in the form of
guarantees, secured debt or lease financing in connection
with V2500 engine sales. At December 31, 2011, IAE had
financing commitments of $728 million and asset value
guarantees of $50 million. Our share of IAE’s financing
commitments and asset value guarantees was approximately
$252 million at December 31, 2011. In addition, IAE had lease
obligations under long-term non-cancelable leases of
approximately $211 million, on an undiscounted basis, through
2020 related to aircraft, which are subleased to customers
under long-term leases. These aircraft have fair market
values, which approximate the financed amounts, net of
reserves. The shareholders of IAE have guaranteed IAE’s
financing arrangements to the extent of their respective
ownership interests. In the event of default by a shareholder
on certain of these financing arrangements, the other
shareholders would be proportionately responsible.
Reserves related to aerospace receivables and financing
assets were $169 million and $133 million at December 31, 2011
and 2010, respectively. Reserves related to financing
commitments and guarantees were $73 million and $38
million at December 31, 2011 and 2010, respectively.
NOTE 5: INVENTORIES & CONTRACTS IN PROGRESS
(Dollars in millions) 2011 2010
Raw materials $1,321 $ 1,221
Work-in-process 3,175 3,259
Finished goods 3,078 3,026
Contracts in progress 6,899 6,340
14,473 13,846
Less:
Progress payments, secured by lien, on U.S.
Government contracts (422) (275)
Billings on contracts in progress (6,254) (5,805)
$7,797 $ 7,766
Raw materials, work-in-process and finished goods are net of
valuation reserves of $884 million and $799 million as of
December 31, 2011 and 2010, respectively. As of December 31,
2011 and 2010, inventory also includes capitalized contract
development costs of $776 million and $804 million,
respectively, related to certain aerospace programs. These
capitalized costs will be liquidated as production units are
delivered to the customer. The capitalized contract
development costs within inventory principally relate to
capitalized costs on Sikorsky’s CH-148 contract with the
Canadian government. The CH-148 is a derivative of the H-92,
a military variant of the S-92.
Contracts in progress principally relate to elevator and
escalator contracts and include costs of manufactured
components, accumulated installation costs and estimated
earnings on incomplete contracts.
2011 ANNUAL REPORT 67