United Technologies 2012 Annual Report Download - page 65

Notes to Consolidated Financial Statements 2012 ANNUAL REPORT 63
Consequently, there has not been sufficient opportunity for the
long-term operations to recover the value implicit in goodwill at the
initial date of acquisition. During 2011 and 2010, we did not record
any significant impairments to the carrying value of goodwill or
indefinite-lived intangible assets.
Intangible assets consist of service portfolios, patents,
trademarks/tradenames, customer relationships and other intangible
assets including a collaboration asset established in connection with
the restructuring of IAE International Aero Engines AG (IAE) as dis-
cussed further in Note 2. Also included within other intangible assets
are commercial aerospace payments made to secure certain con-
tractual rights to provide product on new aircraft platforms. Pay-
ments made on these contractual commitments are to be amortized
as the related OEM and Aftermarket units are delivered.
Useful lives of finite-lived intangible assets are estimated
based upon the nature of the intangible asset and the industry in
which the intangible asset is used. These intangible assets are amor-
tized based on the pattern in which the economic benefits of the
intangible assets are consumed. For both our commercial aero-
space collaboration assets and exclusivity arrangements, the pattern
of economic benefit generally results in lower amortization during the
development period with increasing amortization as programs enter
full rate production and aftermarket cycles. If a pattern of economic
benefit cannot be reliably determined, a straight-line amortization
method is used. The range of estimated useful lives is as follows:
Collaboration asset 30 years
Customer relationships and related programs 2 to 32 years
Purchased service contracts 5 to 30 years
Patents & trademarks 3 to 40 years
Exclusivity assets 3 to 25 years
Other Long-Lived Assets. We evaluate the potential
impairment of other long-lived assets when appropriate. If the carry-
ing value of other long-lived assets exceeds the sum of the undis-
counted expected future cash flows, the carrying value is written
down to fair value. During the years ended December 31, 2012 and
2011, we had certain non-recurring fair value measurements result-
ing in impairment charges of $168 million and $66 million,
respectively. See Note 14. Additionally, in 2012 we recorded pre-
tax net asset impairment charges of approximately $179 million
related to UTC Power in discontinued operations. The impairment
charge at UTC Power results from the disposition of the business
before the benefits of technology investments were fully realized.
Income Taxes. In the ordinary course of business there is
inherent uncertainty in quantifying our income tax positions. We
assess our income tax positions and record tax benefits for all years
subject to examination based upon management’s evaluation of the
facts, circumstances, and information available at the reporting
date. For those tax positions where it is more-likely-than-not that a
tax benefit will be sustained, we have recorded the largest amount
of tax benefit with a greater than 50% likelihood of being realized
upon ultimate settlement with a taxing authority that has full knowl-
edge of all relevant information. For those income tax positions
where it is not more-likely-than-not that a tax benefit will be sus-
tained, no tax benefit has been recognized in the financial state-
ments. Where applicable, associated interest expense has also
been recognized. We recognize accrued interest related to
unrecognized tax benefits in interest expense. Penalties, if incurred,
would be recognized as a component of income tax expense.
Revenue Recognition. Sales under government and
commercial fixed-price contracts and government fixed-price-
incentive contracts are recorded at the time deliveries are made or,
in some cases, on a percentage-of-completion basis. Sales under
cost-reimbursement contracts are recorded as work is performed.
Sales for elevators, escalators, installation and modernization con-
tracts are accounted for under the percentage-of-completion
method.
Losses, if any, on long-term contracts are provided for
when anticipated. Loss provisions on original equipment contracts
are recognized to the extent that estimated inventoriable manu-
facturing, engineering, product warranty and product performance
guarantee costs, as appropriate, exceed the projected revenue
from the products contemplated under the contractual arrange-
ment. For new commitments, we generally record loss provisions at
the earlier of contract announcement or contract signing except for
certain requirements contracts under which losses are recorded
upon receipt of the purchase order. For existing commitments,
anticipated losses on contracts are recognized in the period in
which losses become evident. Products contemplated under con-
tractual arrangement include products purchased under contract
and, in the large commercial engine and wheels and brakes busi-
nesses, future highly probable sales of replacement parts required
by regulation that are expected to be purchased subsequently for
incorporation into the original equipment. Revenue projections used
in determining contract loss provisions are based upon estimates of
the quantity, pricing and timing of future product deliveries. Losses
are generally recognized on shipment to the extent that
inventoriable manufacturing costs, estimated warranty costs and
product performance guarantee costs, as appropriate, exceed
revenue realized. Contract accounting requires estimates of future
costs over the performance period of the contract as well as esti-
mates of award fees and other sources of revenue. These estimates
are subject to change and result in adjustments to margins on con-
tracts in progress. The extent of progress toward completion on our
long-term commercial aerospace equipment and helicopter con-
tracts is measured using units of delivery. In addition, we use the
cost-to-cost method for elevator and escalator sales, installation
and modernization contracts in the commercial businesses. For
long-term aftermarket contracts, revenue is recognized over the
contract period in proportion to the costs expected to be incurred
in performing services under the contract. We review our cost esti-