United Technologies 2012 Annual Report Download - page 81

Notes to Consolidated Financial Statements 2012 ANNUAL REPORT 79
timing of deductions, which litigation is also expected to continue
through 2013. Goodrich tax years 2007 and 2008 are currently
before the Appeals Division of the IRS for resolution discussions
regarding certain proposed adjustments with which UTC does not
agree, which are expected to continue through 2013. Goodrich tax
years 2009 and 2010 are currently under review by the Examination
Division of the IRS, which is expected to continue through mid-
2013. We expect the IRS to commence examination activity for
Goodrich tax years 2011 and 2012 during the second half of 2013.
During 2011, we reached final resolution with the IRS on
two refund claims that had been pending with respect to pre-2004
tax years and refunds were received in accordance with the reso-
lutions. A reduction in tax expense in the amount of $63 million and
pretax interest income in the amount of $89 million was recognized
during 2011 associated with the resolution of these claims.
It is reasonably possible that over the next twelve months
the amount of unrecognized tax benefits may change within a range
of a net increase of $40 million to a net decrease of $275 million as
a result of additional worldwide uncertain tax positions, the revalua-
tion 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 €176 million (approximately
$234 million) related to certain deductions claimed in France for tax
years 2008 through 2010 that the French Revenue Authority has
proposed to disallow. Resolution discussions with the French
Revenue Authority have been unsuccessful to date and UTC may
be required to pursue the defense of this matter through litigation,
which could be commenced within the next twelve months. UTC
intends to assert a vigorous defense and believes it should prevail
on the issue. Accordingly, no tax expense has been accrued for this
matter.
Also not included in the above range is €203 million
(approximately $270 million) of tax benefits that we have claimed
related to a 1998 German reorganization. Upon audit, these tax
benefits were disallowed by the German Tax Office. In 2012, we
filed suit in the local German Tax Court. In 2008 the German
Federal Tax Court (FTC) denied benefits to another taxpayer in a
case involving a German tax law relevant to our reorganization. The
determination of the FTC 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 FTC for further consideration of certain related issues. In May
2010, the FTC released its decision, in which it resolved certain tax
issues that may be relevant to our suit and remanded the case to a
lower court for further development. In 2012, the lower court
decided in favor of the taxpayer and the government appealed the
findings to the FTC. After consideration of the ECJ decision, the
latest FTC decision and the lower 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.
NOTE 12: 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 $256 million, $218 million and $200 million
for 2012, 2011 and 2010, respectively. Included in the current year
contributions to employer sponsored defined contribution plans is
$26 million of contributions to Goodrich defined contribution plans.
Effective January 1, 2010, newly hired non-union domestic employ-
ees receive all of their retirement benefits through the defined con-
tribution savings plan.
Our non-union domestic employee savings plan uses an
Employee Stock Ownership Plan (ESOP) for employer con-
tributions. External borrowings were used by the ESOP to fund a
portion of its purchase of ESOP stock from us. The external borrow-
ings have been extinguished and only re-amortized loans remain
between UTC and the ESOP Trust. As ESOP debt service pay-
ments 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 pay-
ments. Participants receive additional shares in lieu of cash divi-
dends. 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, 2012, 32.8 million
common shares had been allocated to employees, leaving
17.1 million unallocated common shares in the ESOP Trust, with an
approximate fair value of $1.4 billion.