United Technologies 2012 Annual Report Download - page 54

52 UNITED TECHNOLOGIES CORPORATION
strand violated a separate provision of the AECA and ITAR by failing
timely to notify DTCC of the unlicensed software shipments to
China. P&WC pleaded guilty to violating the AECA and the ITAR
and making false statements as alleged, and was sentenced to
probation and to pay fines and forfeitures totaling $6.9 million.
P&WC, Hamilton Sundstrand and UTC (the UTC Entities) entered
into a Deferred Prosecution Agreement (DPA) regarding the remain-
ing offenses charged with respect to each UTC Entity. The DPA has
a two-year term, and provides that the UTC Entities will: (1) pay an
additional penalty of $13.8 million; (2) appoint, subject to DOJ
approval, an independent monitor (who may be the same person as
the SCO appointed under the CA) to oversee compliance with the
DPA; (3) provide annual senior officer certifications that all known
violations of the AECA and ITAR, Export Administration Regulations
and sanctions regimes implemented under the International Emer-
gency Economic Powers Act occurring after the execution date of
the DPA have been reported by UTC, its subsidiaries, and its
majority-owned or controlled affiliates to the appropriate official(s) of
the U.S. Government; (4) cooperate with law enforcement in
specified areas; and (5) implement specified compliance training
initiatives.
We believe the previously disclosed potential liability
recognized at March 31, 2012 of $55 million will be sufficient to
discharge all amounts due under the CA and DPA.
On June 28, 2012, by reason of P&WC’s guilty plea to a
criminal violation of the AECA and the ITAR, DTCC imposed a
partial statutory debarment on P&WC with respect to obtaining new
or renewed ITAR license privileges. The debarment does not affect
existing ITAR licenses/authorities, nor does it extend to programs
supporting: (1) the U.S. Government; (2) NATO allies; or (3) “major
non-NATO allies” (as defined in the ITAR). P&WC may seek
“transaction exception” approvals on a case-by-case basis for new
or renewed ITAR licensing in other cases during the period of
debarment. P&WC may apply for full reinstatement of ITAR
privileges after one year. On December 20, 2012, UTC entered into
an administrative agreement with the Department of the Army
Suspension and Debarment Official, where Army officials
determined that the UTC Entities are presently responsible and that
further action is not necessary to protect the U.S. Government’s
interests pursuant to the Federal Acquisition Regulation and the
National Defense Appropriations Act. The agreement with the
Department of the Army Suspension and Debarment Official com-
pletes the Department of Defense review of the UTC Entities’ pres-
ent responsibility under the Federal Acquisition Regulation and
P&WC’s eligibility to receive funds appropriated for fiscal year 2012
under the National Defense Appropriations Act.
As previously disclosed, UTC has been involved in admin-
istrative review proceedings with the German Tax Office, which
concerns €203 million (approximately $270 million) of tax benefits
that we have claimed related to a 1998 reorganization of the corpo-
rate structure of Otis operations in Germany. A portion of these tax
benefits were disallowed by the local German Tax Office on July 5,
2012, as a result of the audit of tax years 1999 to 2000. The legal
and factual issues relating to the denial of the tax benefits center on
the interpretation and application of a German tax law. On
August 3, 2012, the Company filed suit in the local German tax
court and intends to litigate vigorously the matter to conclusion. We
do not believe the resolution of this matter will have a material
adverse effect on our results of operations, cash flows or financial
condition.
OTHER MATTERS
Additional discussion of our environmental, U.S. Government con-
tract matters, product performance and other contingent liabilities is
included in “Critical Accounting Estimates” and Notes 1, 16 and 18
to the Consolidated Financial Statements. For additional discussion
of our legal proceedings, see Item 3, “Legal Proceedings,” in our
Annual Report on Form 10-K for 2012 (2012 Form 10-K).