United Technologies 2012 Annual Report Download - page 89

Notes to Consolidated Financial Statements 2012 ANNUAL REPORT 87
Expected volatilities are based on the returns of our stock,
including implied volatilities from traded options on our stock for the
binomial lattice model. We use historical data to estimate equity
award exercise and employee termination behavior within the valu-
ation model. Separate employee groups and equity award charac-
teristics are considered separately for valuation purposes. The
expected term represents an estimate of the period of time equity
awards are expected to remain outstanding. The risk-free rate is
based on the term structure of interest rates at the time of equity
award grant.
NOTE 13: RESTRUCTURING COSTS
During 2012, we recorded net pre-tax restructuring costs totaling
$614 million for new and ongoing restructuring actions. We
recorded charges in the segments as follows:
(DOLLARS IN MILLIONS)
Otis $ 164
UTC Climate, Controls & Security 143
Pratt & Whitney 96
UTC Aerospace Systems 115
Sikorsky 53
Eliminations and other 19
Restructuring costs recorded within continuing operations 590
Restructuring costs recorded within discontinued operations 24
Total $ 614
The net costs consist of $340 million recorded in cost of
sales, $249 million in selling, general and administrative expenses,
$1 million in other income, net, and $24 million in discontinued
operations. As described below, these charges primarily relate to
actions initiated during 2012 and 2011.
2012 Actions. During 2012, we initiated restructuring
actions relating to ongoing cost reduction efforts, including work-
force reductions and consolidation of manufacturing operations.
We recorded net pre-tax restructuring costs totaling $576 million for
restructuring actions initiated in 2012, consisting of $313 million in
cost of sales, $236 million in selling, general and administrative
expenses, $1 million in other income, net, and $26 million in dis-
continued operations. Additionally, due to the Goodrich acquisition,
we assumed restructuring accruals totaling $19 million.
We expect the actions that were initiated in 2012 to result
in net workforce reductions of approximately 7,000 hourly and sal-
aried employees, the exiting of approximately 2.6 million net square
feet of facilities and the disposal of assets associated with exited
facilities. As of December 31, 2012, we have completed, with
respect to the actions initiated in 2012, net workforce reductions of
approximately 4,000 employees and 750,000 net square feet of
facilities have been exited. We are targeting to complete in 2013
the majority of the remaining workforce and all facility related cost
reduction actions initiated in 2012. No specific plans for significant
other actions have been finalized at this time.
The following table summarizes the accrual balances and
utilization by cost type for the 2012 restructuring actions:
(DOLLARS IN MILLIONS) Severance
Asset
Write-
Downs
Facility Exit,
Lease
Termination
and Other
Costs Total
Net pre-tax restructuring charges $ 452 $ 14 $ 110 $ 576
Restructuring accruals assumed
from Goodrich 19 – – 19
Utilization and foreign exchange (182) (14) (60) (256)
Balance at December 31, 2012 $ 289 $ – $ 50 $ 339
The following table summarizes expected, incurred and
remaining costs for the 2012 restructuring actions by type:
(DOLLARS IN MILLIONS) Severance
Asset
Write-
Downs
Facility Exit,
Lease
Termination
and Other
Costs Total
Expected costs $ 475 $ 14 $ 192 $ 681
Costs incurred during 2012 (452) (14) (110) (576)
Remaining costs at
December 31, 2012 $ 23 $ – $ 82 $ 105
The following table summarizes expected, incurred and
remaining costs for the 2012 restructuring actions by segment:
(DOLLARS IN MILLIONS)
Expected
Costs
Costs
Incurred
During
2012
Remaining
Costs at
December 31,
2012
Otis $ 164 $ (146) $ 18
UTC Climate, Controls & Security 164 (123) 41
Pratt & Whitney 103 (94) 9
UTC Aerospace Systems 155 (121) 34
Sikorsky 50 (47) 3
Eliminations and other 19 (19) –
Discontinued operations 26 (26) –
Total $ 681 $ (576) $ 105
2011 Actions. During 2012, we recorded net pre-tax
restructuring costs totaling $53 million for restructuring actions ini-
tiated in 2011, consisting of $33 million in cost of sales, $19 million
in selling, general and administrative expenses, and $1 million in
discontinued operations. The 2011 actions relate to ongoing cost
reduction efforts, including workforce reductions and the con-
solidation of field operations.