United Technologies 2012 Annual Report Download - page 93

Notes to Consolidated Financial Statements 2012 ANNUAL REPORT 91
eign long-term notes are measured at fair value based on com-
parable transactions and rates calculated from the respective coun-
tries’ yield curves. Based on these inputs, foreign borrowings and
foreign long-term notes are classified within Level 3 of the valuation
hierarchy. The fair values of Accounts receivable and Accounts
payable approximate the carrying amounts due to the short-term
maturities of these instruments.
We had commercial aerospace financing and other con-
tractual commitments totaling approximately $10.9 billion at
December 31, 2012, which now include approximately $5.8 billion
of IAE commitments, related to commercial aircraft and certain
contractual rights to provide product on new aircraft platforms. We
had commercial aerospace financing and other contractual
commitments of approximately $3.0 billion at December 31, 2011.
Risks associated with changes in interest rates on these commit-
ments are mitigated by the fact that interest rates are variable dur-
ing the commitment term, and are set at the date of funding based
on current market conditions, the fair value of the underlying collat-
eral and the credit worthiness of the customers. As a result, the fair
value of these financings is expected to equal the amounts funded.
The fair value of the commitment itself is not readily determinable
and is not considered significant.
NOTE 15: CREDIT QUALITY OF LONG-TERM RECEIVABLES
A long-term or financing receivable represents a contractual right to
receive money on demand or on fixed and determinable dates,
including trade receivable balances with maturity dates greater than
one year. Our long-term and financing receivables primarily repre-
sent balances related to the aerospace businesses such as long-
term trade accounts receivable, leases, and notes receivable. We
also have other long-term receivables in our commercial busi-
nesses; however, both the individual and aggregate amounts are
not significant.
Long-term trade accounts receivable represent amounts
arising from the sale of goods and services with a contractual
maturity date of greater than one year and are recognized as “Other
assets” in our Consolidated Balance Sheet. Notes and leases
receivable represent notes and lease receivables other than receiv-
ables related to operating leases, and are recognized as “Customer
financing assets” in our Consolidated Balance Sheet. The following
table summarizes the balance by class of aerospace long-term
receivables as of December 31, 2012 and 2011:
(DOLLARS IN MILLIONS)
December 31,
2012
December 31,
2011
Long-term trade accounts receivable $ 593 $ 204
Notes and leases receivable 584 365
Total long-term receivables $ 1,177 $ 569
The increases reflected above as of December 31, 2012,
as compared to December 31, 2011, primarily reflect the impacts of
the Goodrich acquisition and our consolidation of IAE. See Note 2
for further discussion related to acquisitions.
Economic conditions and air travel influence the operating
environment for most airlines, and the financial performance of our
aerospace businesses is directly tied to the economic conditions of
the commercial aerospace and defense industries. Additionally, the
value of the collateral is also closely tied to commercial airline per-
formance and may be subject to exposure of reduced valuation as
a result of market declines. We determine a receivable is impaired
when, based on current information and events, it is probable that
we will be unable to collect amounts due according to the con-
tractual terms of the receivable agreement. Factors considered in
assessing collectability and risk include, but are not limited to,
examination of credit quality indicators and other evaluation meas-
ures, underlying value of any collateral or security interests, sig-
nificant past due balances, historical losses, and existing economic
conditions.
Long-term receivables can be considered delinquent if
payment has not been received in accordance with the underlying
agreement. If determined delinquent, long-term trade accounts
receivable and notes and leases receivable balances accruing
interest may be placed on nonaccrual status. We record potential
losses related to long-term receivables when identified. The reserve
for credit losses on these receivables relates to specifically identified
receivables that are evaluated individually for impairment. For notes
and leases receivable we determine a specific reserve for exposure
based on the difference between the carrying value of the receiv-
able and the estimated fair value of the related collateral in con-
nection with the evaluation of credit risk and collectability. For long-
term trade accounts receivable we evaluate credit risk and
collectability individually to determine if an allowance is necessary.
Uncollectible long-term receivables are written-off when collection
of the indebtedness has been pursued for a reasonable period of
time without collection; the customer is no longer in operation; or
judgment has been levied, but the underlying assets are not
adequate to satisfy the indebtedness. At both December 31, 2012
and 2011, we do not have any significant balances that are consid-
ered to be delinquent, on non-accrual status, past due 90 days or
more, or considered to be impaired.