Note 2: Discontinued Operations

9 Months Ended

Sep. 30, 2012

Notes to Condensed Consolidated Financial Statements [Abstract]

Note 2: Discontinued Operations

Note 2: Discontinued Operations

In 2012, the Company approved plans for the divestiture of a number of non-core businesses. Cash generated from these divestitures is intended to be used to repay debt incurredto finance the acquisition of Goodrich. These divestitures are expected to generate approximately $3 billion in net cash, on an after-tax basis.

In the first quarter of 2012, the legacy Hamilton Sundstrand Industrial businesses, Pratt & Whitney Rocketdyne (Rocketdyne), and Clipper Windpower (Clipper) all met the “held-for-sale” criteria. On June 29, 2012, management approved a plan for the divestiture of UTC Power. The operating results of Clipper and UTC Power had previously been reported within “Eliminations & other” in our segment disclosure. The results of operations, including the net losses realized orexpected on disposition, and the related cash flows which result from these non-core businesses have been reclassified to Discontinued Operations in our Condensed Consolidated Statement of Comprehensive Income and Condensed Consolidated Statement of Cash Flows for all periods presented. The assets and liabilities of these non-core businesses have been reclassified to Assets of discontinued operations and Liabilities of discontinued operations in our Condensed Consolidated Balance Sheet as ofSeptember30, 2012. Cash flows from the operation of these discontinued businesses will continue until their disposals,which are expected to occur before the end of the first half of 2013.

As a result of the decision to dispose of these businesses, the Company has recorded pre-tax goodwill impairment charges of approximately $360 million and $590 million related to Rocketdyne and Clipper, respectively, in discontinued operations during the first quarter of 2012, and pre-tax net asset impairment charges of approximately $179 million related to UTC Power in discontinued operations during the second quarter of 2012. The goodwill impairment charges result from thedecision to dispose of both Rocketdyne and Clipper within a relatively short period after acquiring the businesses. 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. The impairment charge at UTC Power results from adjusting the net assets of the business to the estimated fair value expected to be realized upon sale,less costs to sell the business, and further reflects the loss in value from the disposition of the business before the benefits of the technology investments were fully realized. The fair value of these businesses has been estimated using information available in the marketplace as we market these businesses for sale. There could be gains or additional losses recorded upon final disposition of these businesses based upon the values, terms and conditions that are ultimately negotiated.

On August 7, 2012, we completed the disposition of Clipper to a private equity acquirer. The disposition resulted in payments totaling approximately $367 million, which included capitalization of the business prior to sale, transaction fees, and funding of operationsas the acquirer took control of a business with significant net liabilities. These payments are largely reflected in Net cash flows used in investing activities within the discontinued operations section of the Condensed Consolidated Statement of Cash Flows. There was no significant additional loss on disposition beyond the impairment charge recorded in the first quarter of 2012. We have no continuing involvement with the Clipper business post disposition.

The following summarized financial information related to these non-core businesseshas been segregated from continuing operations and will be reported as discontinued operations through the dates of disposition:

			Quarter Ended September 30,				Nine Months Ended September 30,
(Dollars in millions)			2012		2011		2012		2011
Discontinued Operations:
	Net sales		$	522	$	570	$	1,607	$	1,847
	Income from operations		$	91	$	52	$	118	$	201
	Income tax expense			(30)		(15)		(38)		(90)
		Income from operations, net of income taxes		61		37		80		111
	Loss on disposal			(26)		-		(1,197)		-
	Income tax benefit			135		-		294		-
	Net income (loss) on discontinued operations		$	170	$	37	$	(823)	$	111

The income tax benefit for the nine months ended September30, 2012 includes approximately $113million of net unfavorable income tax adjustments related to the recognition of a deferred tax liability on the existing difference between the accounting versus tax gain on the planned disposition of the legacy Hamilton Sundstrand Industrial businesses. During the first half of 2012, unfavorable income tax adjustments of approximately $240 million were recognized based on the anticipated structure of the sale. However, during the third quarter of 2012, as a result of the structure of the transaction,approximately $127million of those adjustments were reversed and cannot be recorded until the sale is complete.

The assets and liabilities of discontinued operations on the Condensed Consolidated Balance Sheet as of September 30, 2012are as follows:

(Dollars in millions)
Assets
Cash and cash equivalents		$	55
Accounts receivable, net			332
Inventories and contracts in progress, net			172
Future income tax benefits, current			7
Other assets, current			3
Future income tax benefits			2
Fixed assets, net			300
Goodwill			909
Intangible assets, net			60
Other assets			44
	Assets of discontinued operations	$	1,884
Liabilities
Short-term borrowings		$	1
Accounts payable			128
Accrued liabilities			229
Future pension and postretirement benefit obligations			1
Other long-term liabilities			46
	Liabilities of discontinued operations	$	405