United Technologies 2011 Annual Report Download - page 73

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We expect that certain adjustments proposed by the IRS in
the course of its examination of tax years 2006 – 2008 and
with which we do not agree will further proceed to the
Appeals Division of the IRS for resolution discussions. Any
discussions with the IRS Appeals Division related to the 2006
– 2008 tax years is likely to continue beyond 2012.
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, Belgium,
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.
It is reasonably possible that a net reduction within a range of
$160 million to $260 million of unrecognized tax benefits may
occur over the course of 2012 as a result of additional
worldwide uncertain tax positions, the revaluation of current
uncertain tax positions arising from developments in
examinations, in appeals, or in the courts, or the closure of tax
statutes. Not included in the range is €198 million
(approximately $258 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. In May 2010,
the German Federal Tax Court released its decision, in which it
resolved certain tax issues that may be relevant to our audit
and remanded the case to a lower court for further
development. After consideration of the ECJ decision and the
latest German Federal Tax Court 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 we continue to monitor
developments related to this matter, it may become necessary
for us to accrue tax expense and related interest.
As a result of expected tax examination activity and
associated re-evaluation of tax related liabilities and
contingencies, it is possible that we may recognize non-cash
gains, principally tax, in the range of $225 million to $350
million within the first half of 2012.
NOTE 11: EMPLOYEE BENEFIT PLANS
We sponsor numerous domestic and foreign employee
benefit plans, which are discussed below.
Employee Savings Plans. We sponsor various employee
savings plans. Our contributions to employer sponsored
defined contribution plans were $218 million, $200 million and
$192 million for 2011, 2010 and 2009, respectively. Effective
January 1, 2010, newly hired non-union domestic employees
receive all of their retirement benefits through the defined
contribution savings plan.
Our non-union domestic employee savings plan uses an
Employee Stock Ownership Plan (ESOP) for employer
contributions. External borrowings were used by the ESOP to
fund a portion of its purchase of ESOP stock from us. The
external borrowings have been extinguished and only
re-amortized loans remain between the company and the
ESOP Trust. As ESOP debt service payments are made,
common stock is released from an unreleased shares
account. ESOP debt may be prepaid or re-amortized to either
increase or decrease the number of shares released so that
the value of released shares equals the value of plan benefit.
We may also, at our option, contribute additional common
stock or cash to the ESOP.
Shares of common stock are allocated to employees’ ESOP
accounts at fair value on the date earned. Cash dividends on
common stock held by the ESOP are used for debt service
payments. Participants receive additional shares in lieu of
cash dividends. Common stock allocated to ESOP
participants is included in the average number of common
shares outstanding for both basic and diluted earnings per
share. At December 31, 2011, 33.6 million common shares had
been allocated to employees, leaving 18.8 million unallocated
common shares in the ESOP Trust, with an approximate fair
value of $1.4 billion.
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