United Technologies 2011 Annual Report Download - page 86

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the credit risk profile by
creditworthiness category for aerospace long-term receivable
balances at December 31, 2011 and 2010:
December 31, 2011 December 31, 2010
(Dollars in millions)
Long-term
trade
accounts
receivable
Notes and
leases
receivable
Long-term
trade
accounts
receivable
Notes
and
leases
receivable
A—(low risk, collateralized /
uncollateralized) $201 $ — $193 $ —
B—(moderate risk, collateralized /
uncollateralized) 3 295 5 336
C—(high risk, collateralized /
uncollateralized) —70 —80
D—(in default, uncollateralized) ————
Total $204 $365 $198 $ 416
NOTE 15: GUARANTEES
We extend a variety of financial guarantees to third parties.
As of December 31, 2011 and 2010 the following financial
guarantees were outstanding:
2011 2010
(Dollars in millions)
Maximum
Potential
Payment
Carrying
Amount
of
Liability
Maximum
Potential
Payment
Carrying
Amount
of
Liability
IAE’s financing arrangements*
(See Note 4) $989 $20 $992 $12
Commercial aerospace financing
arrangements (See Note 4) 323 30 336 12
Credit facilities and debt obligations—
unconsolidated subsidiaries (expire
2012 to 2034) 239 3 225 3
Performance guarantees 33 — 40 —
Commercial customer financing
arrangements —— 191 1
* Represents IAE’s gross obligation; at December 31, 2011 and 2010 our
proportionate share of IAE’s obligations was 33%.
We also have obligations arising from sales of certain
businesses and assets, including from representations and
warranties and related indemnities for environmental, health
and safety, tax and employment matters. The maximum
potential payment related to these obligations is not a
specified amount as a number of the obligations do not
contain financial caps. The carrying amount of liabilities
related to these obligations was $138 million and $139 million
at December 31, 2011 and 2010, respectively. For additional
information regarding the environmental indemnifications,
see Note 17 to the Consolidated Financial Statements.
We accrue for costs associated with guarantees 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, and where no amount within a range of
estimates is more likely, the minimum is accrued. In
accordance with the Guarantees Topic of FASB ASC, we
record a liability for the fair value of such guarantees in the
balance sheet.
We provide service and warranty policies on our products
and extend performance and operating cost guarantees
beyond our normal service and warranty policies on some of
our products, particularly commercial aircraft engines. In
addition, we incur discretionary costs to service our products
in connection with specific product performance issues.
Liabilities for performance and operating cost guarantees are
based upon future product performance and durability, and
are largely estimated based upon historical experience.
Adjustments are made to accruals as claim data and historical
experience warrant. The changes in the carrying amount of
service and product warranties and product performance
guarantees for the years ended December 31, 2011 and 2010
are as follows:
(Dollars in millions) 2011 2010
Balance as of January 1 $ 1,136 $1,072
Warranties and performance guarantees issued 475 440
Settlements made (440) (379)
Other 297 3
Balance as of December 31 $1,468 $ 1,136
For 2011, the increase reflected within “Other” in the above
table primarily related to the finalization of purchase
accounting associated with the December 2010 acquisition of
Clipper.
NOTE 16: COLLABORATIVE ARRANGEMENTS
In view of the risks and costs associated with developing new
engines, Pratt & Whitney has entered into certain
collaboration arrangements in which sales, costs and risks are
shared. Sales generated from engine programs, spare parts,
and aftermarket business under collaboration arrangements
are recorded as earned in our financial statements. Amounts
attributable to our collaborative partners for their share of
sales are recorded as an expense in our financial statements
based upon the terms and nature of the arrangement. Costs
associated with engine programs under collaborative
arrangements are expensed as incurred. Under these
arrangements, collaborators contribute their program share
of engine parts, incur their own production costs and make
certain payments to Pratt & Whitney for shared or joint
program costs. The reimbursement of the collaborators’ share
of program costs is recorded as a reduction of the related
expense item at that time. As of December 31, 2011, the
collaborators’ interests in all commercial engine programs
ranged from 12% to 48%, inclusive of a portion of Pratt &
Whitney’s interests held by other participants. Pratt &
Whitney is the principal participant in all existing
collaborative arrangements. There are no individually
significant collaborative arrangements and none of the
partners exceed a 31% share in an individual program.
In September 2011, Pratt & Whitney announced a new
collaboration with JAEC and MTU to provide the PurePower
PW1100G-JM engine for the Airbus A320neo program. Under
the collaboration agreement, MTU will hold an 18% share and
be responsible for the engine’s low pressure turbine and
84 UNITED TECHNOLOGIES CORPORATION