10-Q 1 a2015-09x3010xq.htm FORM 10-Q 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
 
____________________________________ 

FORM 10-Q
____________________________________ 
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2015
OR
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                  to                 
Commission file number 1-812
 
____________________________________ 
UNITED TECHNOLOGIES CORPORATION
____________________________________ 
DELAWARE
 
06-0570975
10 Farm Springs Road, Farmington, Connecticut 06032
(860) 728-7000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý.    No  ¨.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý.    No  ¨.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
ý
Accelerated filer
¨
 
 
 
 
Non-accelerated filer
¨ (Do not check if a smaller reporting company)
Smaller reporting company
¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨.    No  ý.
At September 30, 2015 there were 887,020,937 shares of Common Stock outstanding.



UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONTENTS OF QUARTERLY REPORT ON FORM 10-Q
Quarter Ended September 30, 2015
 
 
Page
 
 
 
 
 
 
Condensed Consolidated Statement of Operations for the quarters ended September 30, 2015 and 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

United Technologies Corporation and its subsidiaries' names, abbreviations thereof, logos, and product and service designators are all either the registered or unregistered trademarks or tradenames of United Technologies Corporation and its subsidiaries. Names, abbreviations of names, logos, and products and service designators of other companies are either the registered or unregistered trademarks or tradenames of their respective owners. As used herein, the terms "we," "us," "our," "the Company," or "UTC," unless the context otherwise requires, mean United Technologies Corporation and its subsidiaries. References to internet web sites in this Form 10-Q are provided for convenience only. Information available through these web sites is not incorporated by reference into this Form 10-Q.

2


PART I – FINANCIAL INFORMATION

Item 1.
Financial Statements

UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
 
 
Quarter Ended September 30,
(Dollars in millions, except per share amounts)
2015
 
2014
Net Sales:
 
 
 
Product sales
$
9,642

 
$
10,250

Service sales
4,146

 
4,363

 
13,788

 
14,613

Costs and Expenses:
 
 
 
Cost of products sold
7,114

 
7,342

Cost of services sold
2,686

 
2,823

Research and development
546

 
640

Selling, general and administrative
1,359

 
1,501

 
11,705

 
12,306

Other income, net
219

 
305

Operating profit
2,302

 
2,612

Interest expense, net
184

 
185

Income from continuing operations before income taxes
2,118

 
2,427

Income tax expense
592

 
575

Net income from continuing operations
1,526

 
1,852

Less: Noncontrolling interest in subsidiaries' earnings from continuing operations
100

 
97

Income from continuing operations attributable to common shareowners
1,426

 
1,755

Discontinued operations (Note 2):
 
 
 
Income from operations
27

 
133

Transaction related expenses
(38
)
 

Income tax expense
(54
)
 
(33
)
(Loss) income from discontinued operations
(65
)
 
100

Less: Noncontrolling interest in subsidiaries' earnings from discontinued operations
(1
)
 
1

(Loss) income from discontinued operations attributable to common shareowners
(64
)
 
99

Net income attributable to common shareowners
$
1,362

 
$
1,854

Earnings Per Share of Common Stock - Basic:
 
 
 
Income from continuing operations attributable to common shareowners
$
1.63

 
$
1.96

Net income attributable to common shareowners
$
1.55

 
$
2.07

Earnings Per Share of Common Stock - Diluted:
 
 
 
Income from continuing operations attributable to common shareowners
$
1.61

 
$
1.93

Net income attributable to common shareowners
$
1.54

 
$
2.04

See accompanying Notes to Condensed Consolidated Financial Statements


3


UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
 
 
Nine Months Ended September 30,
(Dollars in millions, except per share amounts)
2015
 
2014
Net Sales:
 
 
 
Product sales
$
29,725

 
$
30,834

Service sales
12,073

 
12,086

 
41,798

 
42,920

Costs and Expenses:
 
 
 
Cost of products sold
21,952

 
22,415

Cost of services sold
7,826

 
7,752

Research and development
1,668

 
1,851

Selling, general and administrative
4,261

 
4,552

 
35,707

 
36,570

Other income, net
808

 
963

Operating profit
6,899

 
7,313

Interest expense, net
618

 
615

Income from continuing operations before income taxes
6,281

 
6,698

Income tax expense
1,748

 
1,610

Net income from continuing operations
4,533

 
5,088

Less: Noncontrolling interest in subsidiaries' earnings from continuing operations
281

 
300

Income from continuing operations attributable to common shareowners
4,252

 
4,788

Discontinued operations (Note 2):
 
 
 
Income (loss) from operations
284

 
(116
)
Transaction related expenses
(66
)
 

Income tax (expense) benefit
(140
)
 
76

Income (loss) from discontinued operations
78

 
(40
)
Less: Noncontrolling interest in subsidiaries' earnings from discontinued operations

 
1

Income (loss) from discontinued operations attributable to common shareowners
78

 
(41
)
Net income attributable to common shareowners
$
4,330

 
$
4,747

Earnings Per Share of Common Stock - Basic:
 
 
 
Income from continuing operations attributable to common shareowners
$
4.82

 
$
5.32

Net income attributable to common shareowners
$
4.91

 
$
5.28

Earnings Per Share of Common Stock - Diluted:
 
 
 
Income from continuing operations attributable to common shareowners
$
4.76

 
$
5.24

Net income attributable to common shareowners
$
4.85

 
$
5.20

See accompanying Notes to Condensed Consolidated Financial Statements

4


UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)

 
Quarter Ended
September 30,
 
Nine Months Ended
September 30,
(Dollars in millions)
2015
 
2014
 
2015
 
2014
Net income from continuing operations
$
1,526

 
$
1,852

 
$
4,533

 
$
5,088

Net (loss) income from discontinued operations
(65
)
 
100

 
78

 
(40
)
Net income
1,461

 
1,952

 
4,611

 
5,048

Other comprehensive income, net of tax
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
 
 
 
 
 
 
Foreign currency translation adjustments arising during period
(936
)
 
(744
)
 
(1,202
)
 
(429
)
Reclassification adjustments for loss (gain) on sale of an investment in a foreign entity recognized in Other income, net

 
1

 
(1
)
 
4

 
(936
)
 
(743
)
 
(1,203
)
 
(425
)
Pension and post-retirement benefit plans
 
 
 
 
 
 
 
Pension and post-retirement benefit plans adjustments during the period
112

 
14

 
157

 
15

Amortization of actuarial loss, prior service cost and transition obligation
216

 
104

 
651

 
312

 
328

 
118

 
808

 
327

Tax expense
(120
)
 
(42
)
 
(296
)
 
(111
)
 
208

 
76

 
512

 
216

Unrealized (loss) gain on available-for-sale securities
 
 
 
 
 
 
 
Unrealized holding (loss) gain arising during period
(69
)
 
(59
)
 
18

 
(71
)
Reclassification adjustments for gain included in Other income, net
(2
)
 

 
(56
)
 
(30
)
 
(71
)
 
(59
)
 
(38
)
 
(101
)
Tax benefit
28

 
22

 
17

 
40

 
(43
)
 
(37
)
 
(21
)
 
(61
)
Change in unrealized cash flow hedging
 
 
 
 
 
 
 
Unrealized cash flow hedging loss arising during period
(152
)
 
(142
)
 
(274
)
 
(120
)
Loss reclassified into Product sales
64

 
24

 
164

 
55

 
(88
)
 
(118
)
 
(110
)
 
(65
)
Tax benefit
25

 
29

 
32

 
12

 
(63
)
 
(89
)
 
(78
)
 
(53
)
Other comprehensive income, net of tax
(834
)
 
(793
)
 
(790
)
 
(323
)
Comprehensive income
627

 
1,159

 
3,821

 
4,725

Comprehensive income attributable to noncontrolling interest
(76
)
 
(71
)
 
(218
)
 
(267
)
Comprehensive income attributable to common shareowners
$
551

 
$
1,088

 
$
3,603

 
$
4,458

See accompanying Notes to Condensed Consolidated Financial Statements

5


UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
 
(Dollars in millions)
September 30, 2015
 
December 31, 2014
Assets
 
 
 
Cash and cash equivalents
$
5,477

 
$
5,229

Accounts receivable, net
10,647

 
10,448

Inventories and contracts in progress, net
8,453

 
7,642

Future income tax benefits, current
1,997

 
1,923

Assets held for sale
4,836

 
4,868

Other assets, current
949

 
1,373

Total Current Assets
32,359

 
31,483

Customer financing assets
1,008

 
958

Future income tax benefits
1,341

 
1,491

Fixed assets
18,244

 
18,069

Less: Accumulated depreciation
(9,729
)
 
(9,477
)
Fixed assets, net
8,515

 
8,592

Goodwill
27,354

 
27,448

Intangible assets, net
15,572

 
15,528

Other assets
5,986

 
5,789

Total Assets
$
92,135

 
$
91,289

Liabilities and Equity
 
 
 
Short-term borrowings
$
3,024

 
$
126

Accounts payable
6,333

 
6,250

Accrued liabilities
11,875

 
12,527

Liabilities held for sale
2,242

 
2,781

Long-term debt currently due
215

 
1,791

Total Current Liabilities
23,689

 
23,475

Long-term debt
19,428

 
17,867

Future pension and postretirement benefit obligations
6,235

 
6,681

Other long-term liabilities
10,600

 
10,562

Total Liabilities
59,952

 
58,585

Commitments and contingent liabilities (Note 14)

 

Redeemable noncontrolling interest
132

 
140

Shareowners' Equity:
 
 
 
Common Stock
16,731

 
15,300

Treasury Stock
(25,946
)
 
(21,922
)
Retained earnings
47,236

 
44,611

Unearned ESOP shares
(108
)
 
(115
)
Accumulated other comprehensive loss
(7,388
)
 
(6,661
)
Total Shareowners' Equity
30,525

 
31,213

Noncontrolling interest
1,526

 
1,351

Total Equity
32,051

 
32,564

Total Liabilities and Equity
$
92,135

 
$
91,289

See accompanying Notes to Condensed Consolidated Financial Statements

6


UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
 
Nine Months Ended September 30,
(Dollars in millions)
2015
 
2014
Operating Activities of Continuing Operations:
 
 
 
Income from continuing operations
$
4,533

 
$
5,088

Adjustments to reconcile income from continuing operations to net cash flows provided by operating activities of continuing operations:
 
 
 
Depreciation and amortization
1,401

 
1,352

Deferred income tax provision
444

 
231

Stock compensation cost
108

 
187

Change in:
 
 
 
Accounts receivable
(430
)
 
48

Inventories and contracts in progress
(1,070
)
 
(843
)
Other current assets
(100
)
 
(117
)
Accounts payable and accrued liabilities
(88
)
 
43

Global pension contributions
(93
)
 
(204
)
Other operating activities, net
(661
)
 
(763
)
Net cash flows provided by operating activities of continuing operations
4,044

 
5,022

Investing Activities of Continuing Operations:
 
 
 
Capital expenditures
(1,044
)
 
(1,063
)
Investments in businesses
(329
)
 
(378
)
Dispositions of businesses
172

 
244

(Increase) decrease in customer financing assets, net
(128
)
 
72

Increase in collaboration intangible assets
(331
)
 
(459
)
Receipts from settlements of derivative contracts
147

 
153

Other investing activities, net
97

 
39

Net cash flows used in investing activities of continuing operations
(1,416
)
 
(1,392
)
Financing Activities of Continuing Operations:
 
 
 
Issuance (repayment) of long-term debt, net
4

 
(221
)
Increase (decrease) in short-term borrowings, net
2,891

 
(137
)
Proceeds from Common Stock issuance - equity unit remarketing
1,100

 

Proceeds from Common Stock issued under employee stock plans
39

 
131

Dividends paid on Common Stock
(1,643
)
 
(1,538
)
Repurchase of Common Stock
(4,000
)
 
(1,095
)
Other financing activities, net
(252
)
 
(213
)
Net cash flows used in financing activities of continuing operations
(1,861
)
 
(3,073
)
Discontinued Operations:
 
 
 
Net cash (used in) provided by operating activities
(299
)
 
3

Net cash used in investing activities
(66
)
 
(85
)
Net cash used in financing activities
(1
)
 

Net cash flows used in discontinued operations
(366
)
 
(82
)
Effect of foreign exchange rate changes on cash and cash equivalents
(143
)
 
(59
)
Net increase in cash and cash equivalents
258

 
416

Cash and cash equivalents, beginning of year
5,235

 
4,619

Cash and cash equivalents, end of period
5,493

 
5,035

Less: Cash and cash equivalents of businesses held for sale
16

 
5

Cash and cash equivalents, end of period
$
5,477

 
$
5,030

See accompanying Notes to Condensed Consolidated Financial Statements

7


UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Condensed Consolidated Financial Statements at September 30, 2015 and for the quarters and nine months ended September 30, 2015 and 2014 are unaudited, but in the opinion of management include all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of the results for the interim periods. The results reported in these Condensed Consolidated Financial Statements should not necessarily be taken as indicative of results that may be expected for the entire year. The financial information included herein should be read in conjunction with the financial statements and notes in our Annual Report to Shareowners (2014 Annual Report) incorporated by reference to our Annual Report on Form 10-K for calendar year 2014 (2014 Form 10-K).
Certain reclassifications have been made to the prior year amounts to conform to the current year presentation. On July 20, 2015, we announced an agreement to sell our Sikorsky Aircraft (Sikorsky) business to Lockheed Martin Corp. for $9 billion in cash, subject to a working capital and net indebtedness adjustment. As a result, Sikorsky met "held for sale" criteria in the quarter ended September 30, 2015. Sikorsky's results of operations and the related cash flows which result from this business have been reclassified to Discontinued Operations in our Condensed Consolidated Statement of Operations and Condensed Consolidated Statement of Cash Flows for all periods presented. The assets and liabilities of Sikorsky have been reclassified to Assets held for sale and Liabilities held for sale, respectively, in our Condensed Consolidated Balance Sheet as of September 30, 2015 and December 31, 2014. The sale is expected to close during the fourth quarter of 2015, subject to customary closing conditions, including regulatory approval. See Note 2 to the Condensed Consolidated Financial Statements for further discussion.
Note 1: Acquisitions, Dispositions, Goodwill and Other Intangible Assets
Business Acquisitions and Dispositions. During the nine months ended September 30, 2015, our investment in business acquisitions was $347 million, including debt assumed of $18 million, and consisted of the acquisition of the majority interest in a UTC Climate, Controls & Security business and a number of small acquisitions, primarily in our commercial businesses.
As a result of the 2012 transactions related to IAE International Aero Engines AG (IAE), Pratt & Whitney holds a 61% net interest in the collaboration and a 49.5% ownership interest in IAE. IAE's business purpose is to coordinate the design, development, manufacturing and product support of the V2500 jet engine program through involvement with the collaborators. IAE retains limited equity with the primary economics of the V2500 program passed to the participants in the separate collaboration arrangement. As such, we have determined that IAE is a variable interest entity with Pratt & Whitney its primary beneficiary, and IAE has, therefore, been consolidated. The carrying amounts and classification of assets and liabilities for IAE in our Condensed Consolidated Balance Sheet as of September 30, 2015 are as follows:
(Dollars in millions)
 
Current assets
$
1,719

Noncurrent assets
1,073

Total assets
$
2,792

 
 
Current liabilities
$
1,738

Noncurrent liabilities
1,457

Total liabilities
$
3,195


8


Goodwill. Changes in our goodwill balances for the nine months ended September 30, 2015 were as follows:
(Dollars in millions)
Balance as of
January 1, 2015
 
Goodwill 
Resulting from Business Combinations
 
Foreign Currency Translation and Other
 
Balance as of
September 30, 2015
Otis
$
1,664

 
$
6

 
$
(121
)
 
$
1,549

UTC Climate, Controls & Security
9,408

 
386

 
(267
)
 
9,527

Pratt & Whitney
1,481

 
36

 

 
1,517

UTC Aerospace Systems
14,892

 

 
(135
)
 
14,757

Total Segments
27,445

 
428

 
(523
)
 
27,350

Eliminations and other
3

 
1

 

 
4

Total
$
27,448

 
$
429

 
$
(523
)
 
$
27,354

Intangible Assets. Identifiable intangible assets are comprised of the following:
 
September 30, 2015
 
December 31, 2014
(Dollars in millions)
Gross Amount
 
Accumulated
Amortization
 
Gross Amount
 
Accumulated
Amortization
Amortized:
 
 
 
 
 
 
 
Service portfolios
$
1,976

 
$
(1,291
)
 
$
2,103

 
$
(1,309
)
Patents and trademarks
360

 
(186
)
 
337

 
(177
)
IAE collaboration
3,231

 
(68
)
 
2,872

 
(20
)
Customer relationships and other
12,350

 
(2,883
)
 
12,134

 
(2,589
)
 
17,917

 
(4,428
)
 
17,446

 
(4,095
)
Unamortized:
 
 
 
 
 
 
 
Trademarks and other
2,083

 

 
2,177

 

Total
$
20,000

 
$
(4,428
)
 
$
19,623

 
$
(4,095
)
Customer relationship intangible assets include payments made to our customers to secure certain contractual rights. We amortize these intangible assets based on the underlying pattern of economic benefit, which may result in an amortization method other than straight-line. We classify amortization of such payments as a reduction of sales. The IAE collaboration intangible asset is amortized based upon the pattern of economic benefits as represented by the underlying cash flows.
Amortization of intangible assets for the quarter and nine months ended September 30, 2015 was $183 million and $537 million, respectively, compared with $182 million and $536 million for the same periods of 2014. The following is the expected amortization of intangible assets for the years 2015 through 2020, which reflects an increase in expected amortization expense due to the pattern of economic benefit on certain aerospace intangible assets. 
(Dollars in millions)
 
Remaining 2015
 
2016
 
2017
 
2018
 
2019
 
2020
Amortization expense
 
$
176

 
$
709

 
$
747

 
$
775

 
$
769

 
$
783

Note 2: Discontinued Operations
On July 20, 2015, we announced an agreement to sell our Sikorsky business to Lockheed Martin Corp. for $9 billion in cash, subject to a working capital and net indebtedness adjustment. The sale is expected to close during the fourth quarter of 2015, and is subject to customary closing conditions, including regulatory approval. The sale is expected to generate approximately $6 billion in net cash, on an after-tax basis.
In the quarter ended September 30, 2015, Sikorsky met "held for sale" criteria. Sikorsky's results of operations and the related cash flows which result from this business have been reclassified to Discontinued Operations in our Condensed Consolidated Statement of Operations and Condensed Consolidated Statement of Cash Flows for all periods presented. The assets and liabilities of Sikorsky have been reclassified to Assets held for sale and Liabilities held for sale, respectively, in our Condensed Consolidated Balance Sheet as of September 30, 2015 and December 31, 2014. Cash flows from the operation of Sikorsky will continue to be included in our results until completion of the sale to Lockheed Martin Corp.

9


The following summarized financial information related to Sikorsky has been segregated from continuing operations and reported as Discontinued Operations:
 
Quarter Ended September 30,
 
Nine Months Ended September 30,
(Dollars in millions)
2015
 
2014
 
2015
 
2014
Discontinued Operations:
 
 
 
 
 
 
 
Net sales
$
1,421

 
$
1,620

 
$
4,379

 
$
5,365

Cost of sales
1,163

 
1,366

 
3,628

 
5,101

Research and development
47

 
37

 
133

 
116

Selling, general and administrative
88

 
79

 
264

 
247

Pension curtailment
110

 

 
110

 

Other (income) expenses, net
(14
)
 
5

 
(40
)
 
17

Income (loss) from operations
27

 
133

 
284

 
(116
)
Transaction related expenses
(38
)
 

 
(66
)
 

Income tax (expense) benefit
(54
)
 
(33
)
 
(140
)
 
76

(Loss) income from discontinued operations
$
(65
)
 
$
100

 
$
78

 
$
(40
)
The table above includes an income tax provision of approximately $68 million in the quarter and nine months ended September 30, 2015, as the undistributed earnings of Sikorsky's international subsidiaries will no longer be permanently reinvested, as a result of the sale of Sikorsky.
The assets and liabilities held for sale on the Condensed Consolidated Balance Sheet as of September 30, 2015 and December 31, 2014 are as follows:
(Dollars in millions)
September 30, 2015
 
December 31, 2014
Assets
 
 
 
Cash and cash equivalents
$
16

 
$
6

Accounts receivable, net
732

 
869

Inventories and contracts in progress, net
2,225

 
2,223

Other assets, current
76

 
63

Fixed assets, net
692

 
684

Goodwill
344

 
347

Intangible assets, net
29

 
32

Other assets
722

 
644

Assets held for sale
$
4,836

 
$
4,868

Liabilities
 
 
 
Short-term borrowing and long-term debt currently due
$
10

 
$
6

Accounts payable
567

 
717

Accrued liabilities
1,118

 
1,478

Long-term debt
7

 
5

Other long-term liabilities
540

 
575

Liabilities held for sale
$
2,242

 
$
2,781


10


Note 3: Earnings Per Share
 
Quarter Ended September 30,
 
Nine Months Ended September 30,
(Dollars in millions, except per share amounts; shares in millions)
2015
 
2014
 
2015
 
2014
Net income attributable to common shareowners:
 
 
 
 
 
 
 
Net income from continuing operations
$
1,426

 
$
1,755

 
$
4,252

 
$
4,788

Net (loss) income from discontinued operations
(64
)
 
99

 
78

 
(41
)
Net income attributable to common shareowners
$
1,362

 
$
1,854

 
$
4,330

 
$
4,747

Basic weighted average number of shares outstanding
876.4

 
897.7

 
882.1

 
899.3

Stock awards and equity units
8.6

 
12.5

 
11.5

 
13.8

Diluted weighted average number of shares outstanding
885.0

 
910.2

 
893.6

 
913.1

Earnings Per Share of Common Stock - Basic:
 
 
 
 
 
 
 
Net income from continuing operations
$
1.63

 
$
1.96

 
$
4.82

 
$
5.32

Net (loss) income from discontinued operations
(0.07
)
 
0.11

 
0.09

 
(0.05
)
Net income attributable to common shareowners
1.55

 
2.07

 
4.91

 
5.28

Earnings Per Share of Common Stock - Diluted:
 
 
 
 
 
 
 
Net income from continuing operations
$
1.61

 
$
1.93

 
$
4.76

 
$
5.24

Net (loss) income from discontinued operations
(0.07
)
 
0.11

 
0.09

 
(0.04
)
Net income attributable to common shareowners
1.54

 
2.04

 
4.85

 
5.20

The computation of diluted earnings per share excludes the effect of the potential exercise of stock awards, including stock appreciation rights and stock options, when the average market price of the common stock is lower than the exercise price of the related stock awards during the period. These outstanding stock awards are not included in the computation of diluted earnings per share because the effect would be anti-dilutive.  For the quarters ended September 30, 2015 and 2014, the number of stock awards excluded from the computation was approximately 10.3 million and 3.6 million, respectively. For the nine months ended September 30, 2015, the number of stock awards excluded from the computation was approximately 8.8 million. There were no anti-dilutive stock awards excluded from the computation for the nine months ended September 30, 2014.
Note 4: Inventories and Contracts in Progress
(Dollars in millions)
September 30, 2015
 
December 31, 2014
Raw materials
$
1,695

 
$
1,683

Work-in-process
2,519

 
2,099

Finished goods
3,654

 
3,234

Contracts in progress
8,685

 
8,189

 
16,553

 
15,205

Less:
 
 
 
Progress payments, secured by lien, on U.S. Government contracts
(270
)
 
(117
)
Billings on contracts in progress
(7,830
)
 
(7,446
)
 
$
8,453

 
$
7,642

Inventory also includes capitalized contract development costs related to certain aerospace programs at UTC Aerospace Systems. As of September 30, 2015 and December 31, 2014, these capitalized costs were $183 million and $141 million, respectively, which will be liquidated as production units are delivered to the customer.

11


Note 5: Borrowings and Lines of Credit
(Dollars in millions)
September 30, 2015
 
December 31, 2014
Commercial paper
$
2,860

 
$

Other borrowings
164

 
126

Total short-term borrowings
$
3,024

 
$
126

At September 30, 2015, we had revolving credit agreements with various banks permitting aggregate borrowings of up to $4.35 billion pursuant to a $2.20 billion revolving credit agreement and a $2.15 billion multicurrency revolving credit agreement, both of which expire in May 2019. As of September 30, 2015, there were no borrowings under these revolving credit agreements. The undrawn portions of these revolving credit agreements are also available to serve as backup facilities for the issuance of commercial paper. As of September 30, 2015, our maximum commercial paper borrowing limit was $4.35 billion. We use our commercial paper borrowings for general corporate purposes, including the funding of potential acquisitions, debt refinancing, and repurchases of our common stock. The need for commercial paper borrowings arises when the use of domestic cash for acquisitions, dividends, and share repurchases exceeds the sum of domestic cash generation and foreign cash repatriated to the U.S.

12


Long-term debt consisted of the following:
(Dollars in millions)
September 30, 2015
 
December 31, 2014
LIBOR plus 0.500% floating rate notes due 2015
$

 
$
500

4.875% notes due 2015

 
1,200

5.375% notes due 2017 1
1,000

 
1,000

1.800% notes due 2017 1
1,500

 
1,500

1.778% junior subordinated notes due 2018
1,100

 

6.800% notes due 2018 4
99

 
99

6.125% notes due 2019 1
1,250

 
1,250

8.875% notes due 2019
271

 
271

4.500% notes due 2020 1
1,250

 
1,250

4.875% notes due 2020 4
171

 
171

8.750% notes due 2021
250

 
250

3.100% notes due 2022 1
2,300

 
2,300

1.550% junior subordinated notes due 2022

 
1,100

1.250% notes due 2023 (€750 million principal value) 2
837

 

7.100% notes due 2027 4
141

 
141

6.700% notes due 2028
400

 
400

7.500% notes due 2029 1
550

 
550

5.400% notes due 2035 1
600

 
600

6.050% notes due 2036 1
600

 
600

6.800% notes due 2036 4
134

 
134

7.000% notes due 2038 4
159

 
159

6.125% notes due 2038 1
1,000

 
1,000

5.700% notes due 2040 1
1,000

 
1,000

4.500% notes due 2042 1
3,500

 
3,500

4.150% notes due 2045 3
850

 

Project financing obligations
210

 
147

Other (including capitalized leases) 4
319

 
368

Total principal long-term debt
19,491

 
19,490

Other (fair market value adjustments and discounts) 4
152

 
168

Total long-term debt
19,643

 
19,658

Less: current portion
215

 
1,791

Long-term debt, net of current portion
$
19,428

 
$
17,867

1
We may redeem the above notes, in whole or in part, at our option at any time at a redemption price in U.S. Dollars equal to the greater of 100% of the principal amount of the notes to be redeemed or the sum of the present values of the remaining scheduled payments of principal and interest on the notes to be redeemed, discounted to the redemption date on a semiannual basis at the adjusted treasury rate plus 10-50 basis points. The redemption price will also include interest accrued to the date of redemption on the principal balance of the notes being redeemed.
2
We may redeem these notes, in whole or in part, at our option at any time. If redeemed prior to February 22, 2023, the redemption price in Euro shall equal the greater of 100% of the principal amount of the notes to be redeemed or the sum of the present values of the remaining scheduled payments of principal and interest on the notes to be redeemed, discounted to the redemption date on an annual basis at a rate based upon a comparable German federal government bond whose maturity is closest to the maturity of the notes plus 15 basis points. In addition, the notes may be redeemed at our option in whole, but not in part, at any time in the event of certain developments affecting U.S. taxation.
3
We may redeem these notes, in whole or in part, at our option at any time. If redeemed prior to November 16, 2044, the redemption price in U.S. Dollars shall equal the greater of 100% of the principal amount of the notes to be redeemed or the sum of the present values of the remaining scheduled payments of principal and interest on the notes to be redeemed, discounted to the redemption date on a semiannual basis at the adjusted treasury rate plus 25 basis points.
4
Includes notes and remaining fair market value adjustments that were assumed as a part of the Goodrich acquisition on July 26, 2012.


13


On May 4, 2015, we completed the previously announced optional remarketing of the 1.550% junior subordinated notes, which were originally issued as part of our equity units on June 18, 2012. As a result of the remarketing, these notes were redesignated as our 1.778% junior subordinated notes due May 4, 2018. The 1.778% junior subordinated notes are effectively subordinated to existing or future preferred stock and indebtedness, guarantees and other liabilities, and are not redeemable prior to maturity. On August 3, 2015, we received approximately $1.1 billion from the proceeds of the remarketing, and issued approximately 11.3 million shares of Common Stock to settle the purchase obligation of the holders of the equity units under the purchase contract entered into at the time of the original issuance of the equity units.
On May 1, 2015, we repaid all 4.875% notes due in 2015, representing $1.2 billion in aggregate principal. On June 1, 2015, we repaid all floating rate notes due in 2015, representing $500 million in aggregate principal. On May 4, 2015, we issued $850 million aggregate principal amount of 4.150% notes due May 15, 2045. On May 22, 2015 we issued €750 million aggregate principal amount of 1.250% notes due May 22, 2023. The net proceeds from these debt issuances were used primarily to repay the notes that matured during the quarter ended June 30, 2015.
We have an existing universal shelf registration statement filed with the Securities and Exchange Commission (SEC) for an indeterminate amount of equity and debt securities for future issuance, subject to our internal limitations on the amount of equity and debt to be issued under this shelf registration statement.
Note 6: Income Taxes
We conduct business globally and, as a result, UTC or one or more of our subsidiaries files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business we are subject to examination by taxing authorities throughout the world, including such major jurisdictions as Australia, Belgium, Canada, China, France, Germany, Hong Kong, Italy, Japan, Singapore, South Korea, Spain, the United Kingdom and the United States. With few exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations for years before 2003.
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. It is reasonably possible that a net reduction within a range of $25 million to $540 million of unrecognized tax benefits may occur within the next twelve months as a result of additional worldwide uncertain tax positions, the revaluation of current uncertain tax positions arising from developments in examinations, in appeals, or in the courts, or the closure of tax statutes. See Note 14, Contingent Liabilities, for discussion regarding uncertain tax positions, included in the above range, related to pending litigation with respect to certain deductions claimed in Germany.
UTC tax years 2011 and 2012 are currently under review by the Examination Division of the Internal Revenue Service (IRS), which is expected to continue beyond the next 12 months. Goodrich Corporation tax years 2011 and 2012 through the date of acquisition by UTC are currently under review by the Examination Division of the IRS, which is also expected to continue beyond the next 12 months.
Note 7: Employee Benefit Plans
Pension and Postretirement Plans. We sponsor both funded and unfunded domestic and foreign defined pension and other postretirement benefit plans, and defined contribution plans. Contributions to our plans were as follows:
 
Quarter Ended September 30,
 
Nine Months Ended September 30,
(Dollars in millions)
2015
 
2014
 
2015
 
2014
Defined benefit plans
$
23

 
$
60

 
$
93

 
$
204

Defined contribution plans
82

 
79

 
264

 
249

There were no significant contributions to our domestic defined benefit pension plans in the quarters and nine months ended September 30, 2015 and 2014. The following table illustrates the components of net periodic benefit cost for our defined pension and other postretirement benefit plans:

14


 
Pension Benefits
Quarter Ended September 30,
 
Other Postretirement Benefits
Quarter Ended September 30,
(Dollars in millions)
2015
 
2014
 
2015
 
2014
Service cost
$
124

 
$
122

 
$
1

 
$
1

Interest cost
350

 
381

 
8

 
10

Expected return on plan assets
(566
)
 
(555
)
 

 

Amortization
(3
)
 
(3
)
 

 

Recognized actuarial net loss (gain)
220

 
108

 
(1
)
 
(1
)
Net settlement and curtailment loss
128

 
2

 

 

Total net periodic benefit cost
$
253

 
$
55

 
$
8

 
$
10

 
Pension Benefits
Nine Months Ended September 30,
 
Other Postretirement Benefits
Nine Months Ended September 30,
(Dollars in millions)
2015
 
2014
 
2015
 
2014
Service cost
$
373

 
$
366

 
$
3

 
$
3

Interest cost
1,051

 
1,141

 
24

 
30

Expected return on plan assets
(1,700
)
 
(1,663
)
 

 

Amortization
(8
)
 
(7
)
 

 

Recognized actuarial net loss (gain)
662

 
322

 
(3
)
 
(3
)
Net settlement and curtailment loss
137

 
8

 

 

Total net periodic benefit cost
$
515

 
$
167

 
$
24

 
$
30

Net settlements and curtailment losses for pension benefits include curtailment losses of approximately $110 million related to, and recorded in, discontinued operations for the quarter and nine months ended September 30, 2015. There were no curtailment losses related to discontinued operations for the quarter and nine months ended September 30, 2014. In addition, total net periodic benefit cost includes approximately $25 million and $74 million related to, and recorded in, discontinued operations for the quarter and nine months, respectively, ended September 30, 2015. Total net periodic benefit cost includes approximately $24 million and $72 million related to, and recorded in, discontinued operations for the quarter and nine months, respectively, ended September 30, 2014.
Note 8: Restructuring Costs
During the nine months ended September 30, 2015, we recorded net pre-tax restructuring costs totaling $344 million for new and ongoing restructuring actions. We recorded charges in the segments as follows:
(Dollars in millions)
 
Otis
$
32

UTC Climate, Controls & Security
67

Pratt & Whitney
37

UTC Aerospace Systems
64

Eliminations and other
5

Restructuring costs recorded within continuing operations
205

Restructuring costs recorded within discontinued operations
139

Total
$
344


15


During the nine months ended September 30, 2015, we incurred restructuring costs that were recorded within discontinued operations of $139 million, which includes approximately $110 million of net settlements and curtailment losses for pension benefits. There were no curtailment losses related to discontinued operations for the quarter and nine months ended September 30, 2014. Restructuring charges incurred during the nine months ended September 30, 2015 primarily relate to actions initiated during 2015 and 2014, and were recorded as follows:
(Dollars in millions)
 
Cost of sales
$
106

Selling, general and administrative
99

Restructuring costs recorded within continuing operations
205

Restructuring costs recorded within discontinued operations
139

Total
$
344

2015 Actions. During the nine months ended September 30, 2015, we recorded net pre-tax restructuring costs totaling $271 million, including $61 million in cost of sales, $68 million in selling, general and administrative expenses, and $142 million in discontinued operations. The 2015 actions relate to ongoing cost reduction efforts, including workforce reductions and the consolidation of field operations.
We are targeting the majority of the remaining workforce and all facility related cost reduction actions for completion during 2015 and 2016. No specific plans for significant other actions have been finalized at this time. The following table summarizes the accrual balance and utilization by cost type for the 2015 restructuring actions:
(Dollars in millions)
Severance
 
Facility Exit,
Lease
Termination and
Other Costs
 
Total
Restructuring accruals at July 1, 2015
$
89

 
$

 
$
89

Net pre-tax restructuring costs
157

 
9

 
166

Utilization and foreign exchange
(157
)
 
(7
)
 
(164
)
Balance at September 30, 2015
$
89

 
$
2

 
$
91

The following table summarizes expected, incurred and remaining costs for the 2015 restructuring actions by segment:
(Dollars in millions)
Expected
Costs
 
Costs Incurred Quarter Ended
March 31, 2015
 
Costs Incurred Quarter Ended
June 30, 2015
 
Costs Incurred Quarter Ended
September 30, 2015
 
Remaining Costs at
September 30,
2015
Otis
$
26

 
$

 
$
(4
)
 
$
(12
)
 
$
10

UTC Climate, Controls & Security
49

 
(16
)
 
(12
)
 
(11
)
 
10

Pratt & Whitney
19

 
(1
)
 
(2
)
 
(10
)
 
6

UTC Aerospace Systems
68

 
(47
)
 
4

 
(13
)
 
12

Eliminations and other
5

 

 
(1
)
 
(4
)
 

Discontinued operations
164

 

 
(26
)
 
(116
)
 
22

Total
$
331

 
$
(64
)
 
$
(41
)
 
$
(166
)
 
$
60

2014 Actions. During the nine months ended September 30, 2015, we recorded net pre-tax restructuring costs totaling $73 million for restructuring actions initiated in 2014, including $44 million in cost of sales and $29 million in selling, general and administrative expenses. The 2014 actions relate to ongoing cost reduction efforts, including workforce reductions and the consolidation of field operations. The following table summarizes the accrual balances and utilization by cost type for the 2014 restructuring actions:

16


(Dollars in millions)
Severance
 
Facility Exit,
Lease
Termination and
Other Costs
 
Total
Restructuring accruals at July 1, 2015
$
123

 
$
6

 
$
129

Net pre-tax restructuring costs
19

 
6

 
25

Utilization and foreign exchange
(24
)
 
(9
)
 
(33
)
Balance at September 30, 2015
$
118

 
$
3

 
$
121

The following table summarizes expected, incurred and remaining costs for the 2014 restructuring actions by segment:
(Dollars in millions)
Expected
Costs
 
Costs Incurred in 2014
 
Costs Incurred Quarter Ended
March 31, 2015
 
Costs Incurred Quarter Ended
June 30, 2015
 
Costs Incurred Quarter Ended
September 30, 2015
 
Remaining Costs at
September 30, 
2015
Otis
$
129

 
$
(98
)
 
$
(6
)
 
$
(4
)
 
$
(6
)
 
$
15

UTC Climate,
Controls & Security
127

 
(86
)
 
(7
)
 
(18
)
 
(5
)
 
11

Pratt & Whitney
118

 
(64
)
 
(10
)
 
(2
)
 
(13
)
 
29

UTC Aerospace Systems
83

 
(72
)
 

 
(1
)
 
(1
)
 
9

Eliminations and other
5

 
(5
)
 

 

 

 

Discontinued operations
20

 
(20
)
 

 

 

 

Total
$
482

 
$
(345
)
 
$
(23
)
 
$
(25
)
 
$
(25
)
 
$
64

2013 Actions. As of September 30, 2015, we have approximately $42 million of accrual balances remaining related to 2013 actions.
Note 9: Financial Instruments
We enter into derivative instruments for risk management purposes only, including derivatives designated as hedging instruments under the Derivatives and Hedging Topic of the FASB ASC and those utilized as economic hedges. We operate internationally and, in the normal course of business, are exposed to fluctuations in interest rates, foreign exchange rates and commodity prices. These fluctuations can increase the costs of financing, investing and operating the business. We have used derivative instruments, including swaps, forward contracts and options to manage certain foreign currency, interest rate and commodity price exposures.
The four quarter rolling average of the notional amount of foreign exchange contracts hedging foreign currency transactions was $15.4 billion and $13.9 billion at September 30, 2015 and December 31, 2014, respectively.
The following table summarizes the fair value of derivative instruments as of September 30, 2015 and December 31, 2014 which consist solely of foreign exchange contracts:
 
Asset Derivatives
 
Liability Derivatives
(Dollars in millions)
September 30, 2015
 
December 31, 2014
 
September 30, 2015
 
December 31, 2014
Derivatives designated as hedging instruments
$
7

 
$
3

 
$
377

 
$
248

Derivatives not designated as hedging instruments
119

 
139

 
73

 
71

As discussed in Note 5, on May 22, 2015 we issued approximately €750 million of Euro-denominated debt, which qualifies as a net investment hedge against our investments in European businesses under ASC 815, Derivatives and Hedging. As of September 30, 2015, the net investment hedge is deemed to be effective as defined under ASC 815.
The amount of gains and losses related to the Company's derivative financial instruments was as follows:
 
Quarter Ended September 30,
 
Nine Months Ended September 30,
(Dollars in millions)
2015
 
2014
 
2015
 
2014
Loss recorded in Accumulated other comprehensive loss
$
(152
)
 
$
(142
)
 
$
(274
)
 
$
(120
)
Loss reclassified from Accumulated other comprehensive loss into Product sales (effective portion)
64

 
24

 
164

 
55


17


Assuming current market conditions continue, a $211 million pre-tax loss is expected to be reclassified from Accumulated other comprehensive loss into Product sales to reflect the fixed prices obtained from foreign exchange hedging within the next 12 months. At September 30, 2015, all derivative contracts accounted for as cash flow hedges will mature by October 2017.
The effect on the Condensed Consolidated Statement of Operations of foreign exchange contracts not designated as hedging instruments was as follows:
 
Quarter Ended September 30,
 
Nine Months Ended September 30,
(Dollars in millions)
2015
 
2014
 
2015
 
2014
Gain recognized in Other income, net
$
35

 
$
10

 
$
65

 
$
22

We received $147 million and $153 million from settlements of derivative contracts during the nine months ended September 30, 2015 and 2014, respectively.
Note 10: Fair Value Measurements
The Fair Value Measurements and Disclosure Topic of the FASB ASC establishes a valuation hierarchy for disclosure of the inputs to the valuations used to measure fair value. A financial asset or liability's classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. This hierarchy prioritizes the inputs into three broad levels as follows:
Level 1 - quoted prices in active markets for identical assets or liabilities;
Level 2 - inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly or indirectly; and
Level 3 - unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value.
The following tables provide the valuation hierarchy classification of assets and liabilities that are carried at fair value and measured on a recurring and nonrecurring basis in our Condensed Consolidated Balance Sheet as of September 30, 2015 and December 31, 2014: 
September 30, 2015 (Dollars in millions)
Total
 
Level 1
 
Level 2
 
Level 3
Recurring fair value measurements:
 
 
 
 
 
 
 
Available-for-sale securities
$
849

 
$
849

 
$

 
$

Derivative assets
126

 

 
126

 

Derivative liabilities
(450
)
 
(1
)
 
(449
)
 

December 31, 2014 (Dollars in millions)
Total
 
Level 1
 
Level 2
 
Level 3
Recurring fair value measurements:
 
 
 
 
 
 
 
Available-for-sale securities
$
961

 
$
961

 
$

 
$

Derivative assets
142

 

 
142

 

Derivative liabilities
(319
)
 

 
(319
)
 

Nonrecurring fair value measurements:
 
 
 
 
 
 
 
Business dispositions
3

 

 
3

 

We have recorded net gains of approximately $126 million during the nine months ended September 30, 2015, as a result of a fair value adjustment related to the acquisition of a controlling interest in a UTC Climate, Controls & Security joint venture investment.
We recorded net gains of approximately $23 million, including a $48 million net gain during the nine months ended September 30, 2014, as a result of fair value adjustments related to the acquisitions of the majority interest in a Pratt & Whitney joint venture. During the nine months ended September 30, 2014, we also recorded a net gain of approximately $30 million from UTC Climate, Controls & Security's ongoing portfolio transformation, primarily due to a gain on the sale of an interest in a joint venture in North America, and a charge of approximately $28 million, included in discontinued operations, to adjust the fair value of a Sikorsky joint venture investment.
Valuation Techniques. Our available-for-sale securities include equity investments that are traded in active markets, either domestically or internationally, and are measured at fair value using closing stock prices from active markets. Our derivative assets and liabilities include foreign exchange contracts and commodity derivatives that are measured at fair value using internal models based on observable market inputs such as forward rates, interest rates, our own credit risk and our counterparties' credit risks. As of September 30, 2015, there were no significant transfers in and out of Level 1 and Level 2.

18


As of September 30, 2015, there has not been any significant impact to the fair value of our derivative liabilities due to our own credit risk. Similarly, there has not been any significant adverse impact to our derivative assets based on our evaluation of our counterparties' credit risks.
The following table provides carrying amounts and fair values of financial instruments that are not carried at fair value in our Condensed Consolidated Balance Sheet at September 30, 2015 and December 31, 2014:
 
September 30, 2015
 
December 31, 2014
(Dollars in millions)
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
Long-term receivables
$
126

 
$
110

 
$
214

 
$
204

Customer financing notes receivable
370

 
369

 
262

 
260

Short-term borrowings
(3,024
)
 
(3,024
)
 
(126
)
 
(126
)
Long-term debt (excluding capitalized leases)
(19,617
)
 
(21,265
)
 
(19,623
)
 
(22,244
)
Long-term liabilities
(280
)
 
(298
)
 
(80
)
 
(74
)
The following table provides the valuation hierarchy classification of assets and liabilities that are not carried at fair value in our Condensed Consolidated Balance Sheet as of September 30, 2015:
(Dollars in millions)
Total
 
Level 1
 
Level 2
 
Level 3
Long-term receivables
$
110

 
$

 
$
110

 
$

Customer financing notes receivable
369

 

 
369

 

Short-term borrowings
(3,024
)
 

 
(2,877
)
 
(147
)
Long-term debt (excluding capitalized leases)
(21,265
)
 

 
(20,886
)
 
(379
)
Long-term liabilities
(298
)
 

 
(298
)
 

We had commercial aerospace financing and other contractual commitments totaling approximately $10.3 billion and $11.3 billion as of September 30, 2015 and December 31, 2014, respectively, related to commercial aircraft and certain contractual rights to provide product on new aircraft platforms. Risks associated with changes in interest rates on these commitments are mitigated by the fact that interest rates are variable during the commitment term, and are set at the date of funding based on current market conditions, the fair value of the underlying collateral 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 these commitments is not readily determinable.
Note 11: Long-Term Financing Receivables
Our long-term financing receivables primarily represent balances related to our aerospace businesses, such as long-term trade accounts receivable, leases receivable, and notes receivable. We also have other long-term receivables related to our commercial businesses; however, both the individual and aggregate amounts of those other receivables are not significant.
Long-term trade accounts receivable, including unbilled receivables primarily related to long-term aftermarket contracts, are principally amounts arising from the sale of goods and delivery of services with a contractual maturity date or realization period of greater than one year, and are recognized as Other assets in our Condensed Consolidated Balance Sheet. Notes and leases receivable represent notes and lease receivables other than receivables related to operating leases, and are recognized as Customer financing assets in our Condensed Consolidated Balance Sheet. The following table summarizes the balance by class of aerospace business-related long-term receivables as of September 30, 2015 and December 31, 2014.
(Dollars in millions)
September 30, 2015
 
December 31, 2014
Long-term trade accounts receivable
$
794

 
$
651

Notes and leases receivable
460

 
381

Total long-term receivables
$
1,254

 
$
1,032

Customer credit ratings range from customers with an extremely strong capacity to meet financial obligations, to customers whose uncollateralized receivable is in default. There can be no assurance that actual results will not differ from estimates or that consideration of these factors in the future will not result in an increase or decrease to the allowance for credit losses on long-term receivables. Based upon the customer credit ratings, approximately 12% and 9% of our total long-term receivables were considered to bear high credit risk as of September 30, 2015 and December 31, 2014, respectively.

19


For long-term trade accounts receivable, we evaluate credit risk and collectability individually to determine if an allowance is necessary. Our long-term receivables included in the table above are individually evaluated for recoverability, and we had valuation reserves of $19 million as of September 30, 2015 and $10 million as of December 31, 2014. At September 30, 2015 and December 31, 2014, we did not have any significant balances that are considered to be delinquent, on non-accrual status, past due 90 days or more, or considered to be not recoverable.
Note 12: Shareowners' Equity and Noncontrolling Interest
A summary of the changes in shareowners' equity and noncontrolling interest comprising total equity for the quarters and nine months ended September 30, 2015 and 2014 is provided below:
 
Quarter Ended September 30,
 
2015
 
2014
(Dollars in millions)
Share-owners'
Equity
 
Non-controlling Interest
 
Total
Equity
 
Share-owners'
Equity
 
Non-controlling Interest
 
Total
Equity
Equity, beginning of period
$
30,377

 
$
1,561

 
$
31,938

 
$
33,785

 
$
1,408

 
$
35,193

Comprehensive income for the period:
 
 
 
 
 
 
 
 
 
 
 
Net income
1,362

 
99

 
1,461

 
1,854

 
98

 
1,952

Total other comprehensive loss
(811
)
 
(23
)
 
(834
)
 
(766
)
 
(27
)
 
(793
)
Total comprehensive income for the period
551

 
76

 
627

 
1,088

 
71

 
1,159

Common Stock issued - equity unit remarketing
1,100

 

 
1,100

 

 

 

Common Stock issued under employee plans
65

 

 
65

 
154

 

 
154

Common Stock repurchased
(1,000
)
 

 
(1,000
)
 
(425
)
 

 
(425
)
Dividends on Common Stock
(547
)
 

 
(547
)
 
(512
)
 

 
(512
)
Dividends on ESOP Common Stock
(19
)
 

 
(19
)
 
(17
)
 

 
(17
)
Dividends attributable to noncontrolling interest

 
(113
)
 
(113
)
 

 
(145
)
 
(145
)
Sale (purchase) of subsidiary shares from noncontrolling interest
1

 

 
1

 
(24
)
 
6

 
(18
)
Redeemable noncontrolling interest

 
1

 
1

 

 

 

Other
(3
)
 
1

 
(2
)
 

 

 

Equity, end of period
$
30,525

 
$
1,526

 
$
32,051

 
$
34,049

 
$
1,340

 
$
35,389


20


 
Nine Months Ended September 30,
 
2015
 
2014
(Dollars in millions)
Share-owners'
Equity
 
Non-controlling
Interest
 
Total
Equity
 
Share-owners'
Equity
 
Non-controlling
Interest
 
Total
Equity
Equity, beginning of period
$
31,213

 
$
1,351

 
$
32,564

 
$
31,866

 
$
1,353

 
$
33,219

Comprehensive income for the period:
 
 
 
 
 
 
 
 
 
 
 
Net income
4,330

 
281

 
4,611

 
4,747

 
301

 
5,048

Total other comprehensive loss
(727
)
 
(63
)
 
(790
)
 
(289
)
 
(34
)
 
(323
)
Total comprehensive income for the period
3,603

 
218

 
3,821

 
4,458

 
267

 
4,725

Common Stock issued - equity unit remarketing
1,100

 

 
1,100

 

 

 

Common Stock issued under employee plans
302

 

 
302

 
444

 

 
444

Common Stock repurchased
(4,000
)
 

 
(4,000
)
 
(1,095
)
 

 
(1,095
)
Dividends on Common Stock
(1,643
)
 

 
(1,643
)
 
(1,538
)
 

 
(1,538
)
Dividends on ESOP Common Stock
(56
)
 

 
(56
)
 
(53
)
 

 
(53
)
Dividends attributable to noncontrolling interest

 
(229
)
 
(229
)
 

 
(245
)
 
(245
)
Sale (purchase) of subsidiary shares from noncontrolling interest
12

 
10

 
22

 
(33
)
 

 
(33
)
Acquisition of noncontrolling interest

 
173

 
173