United Technologies 2011 Annual Report Download - page 85

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A long-term or financing receivable represents a contractual
right to receive money on demand or on fixed and
determinable dates, including trade receivable balances with
maturity dates greater than one year. Our long-term and
financing receivables primarily represent balances related to
the aerospace businesses such as long-term trade accounts
receivable, leases, and notes receivable. We also have other
long-term receivables in our commercial businesses; however,
both the individual and aggregate amounts are not
significant.
Our classes within aerospace long-term receivables are
comprised of long-term trade accounts receivable and notes
and leases receivable. Long-term trade accounts receivable
represent amounts arising from the sale of goods and
services with a contractual maturity date of greater than one
year and are recognized as “Other assets” in our
Consolidated Balance Sheet. Notes and leases receivable
represent notes and lease receivables other than receivables
related to operating leases, and are recognized as “Customer
financing assets” in our Consolidated Balance Sheet. The
following table summarizes the balance by class of aerospace
long-term receivables as of December 31, 2011 and 2010:
(Dollars in millions) December 31, 2011 December 31, 2010
Long-term trade accounts receivable $204 $198
Notes and leases receivable 365 416
Total long-term receivables $569 $614
Economic conditions and air travel influence the operating
environment for most airlines, and the financial performance
of our aerospace businesses is directly tied to the economic
conditions of the commercial aerospace and defense
industries. Additionally, the value of the collateral is also
closely tied to commercial airline performance and may be
subject to exposure of reduced valuation as a result of
market declines. We determine a receivable is impaired when,
based on current information and events, it is probable that
we will be unable to collect amounts due according to the
contractual terms of the receivable agreement. Factors
considered in assessing collectability and risk include, but are
not limited to, examination of credit quality indicators and
other evaluation measures, underlying value of any collateral
or security interests, significant past due balances, historical
losses, and existing economic conditions.
Long-term receivables can be considered delinquent if
payment has not been received in accordance with the
underlying agreement. If determined delinquent, long-term
trade accounts receivable and notes and leases receivable
balances accruing interest may be placed on nonaccrual
status. We record potential losses related to long-term
receivables when identified. The reserve for credit losses on
these receivables relates to specifically identified receivables
that are evaluated individually for impairment. For notes and
leases receivable we determine a specific reserve for
exposure based on the difference between the carrying value
of the receivable and the estimated fair value of the related
collateral in connection with the evaluation of credit risk and
collectability. For long-term trade accounts receivable we
evaluate credit risk and collectability individually to determine
if an allowance is necessary. Uncollectible long-term
receivables are written-off when collection of the
indebtedness has been pursued for a reasonable period of
time without collection; the customer is no longer in
operation; or judgment has been levied, but the underlying
assets are not adequate to satisfy the indebtedness. At both
December 31, 2011 and 2010, we do not have any significant
balances that are considered to be delinquent, on non-accrual
status, past due 90 days or more, or considered to be
impaired.
The following table provides the balance of aerospace long-
term receivables at December 31, 2011 and 2010 and
summarizes the associated reserve for estimated credit
losses and exposures at December 31, 2011 and 2010, and the
changes in the reserve for the year ended December 31, 2011:
(Dollars in millions)
Beginning balance of the reserve for credit losses and exposure as
of January 1, 2011 $42
Provision 25
Charge-offs —
Recoveries (9)
Other 12
Ending balance of the reserve for credit losses and exposure:
individually evaluated for impairment as of December 31, 2011 $70
Ending balance of long-term receivables: individually evaluated for
impairment as of December 31, 2011 $569
Ending balance of the reserve for credit losses and exposure:
individually evaluated for impairment as of December 31, 2010 $ 42
Ending balance of long-term receivables: individually evaluated for
impairment as of December 31, 2010 $ 614
We determine credit ratings for each customer in the
portfolio based upon public information and information
obtained directly from our customers. We conduct a review
of customer credit ratings, published historical credit default
rates for different rating categories, and multiple third party
aircraft value publications as a basis to validate the
reasonableness of the allowance for losses on these balances
quarterly or when events and circumstances warrant. The
credit ratings listed below range from “A” which indicates an
extremely strong capacity to meet financial obligations and
the receivable is either collateralized or uncollateralized, to
“D” which indicates that payment is in default and the
receivable is uncollateralized. There can be no assurance that
actual results will not differ from estimates or that
consideration of these factors in the future will not result in
an increase or decrease to the allowance for credit losses on
long-term receivables.
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