10-Q 1 a2016-09x3010xq.htm 10-Q Document

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, 2016
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, 2016 there were 823,405,687 shares of Common Stock outstanding.


UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONTENTS OF QUARTERLY REPORT ON FORM 10-Q
Quarter Ended September 30, 2016
 
 
Page
 
 
 
 
 
 
Condensed Consolidated Statement of Operations for the quarters ended September 30, 2016 and 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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)
2016
 
2015
Net Sales:
 
 
 
Product sales
$
10,194

 
$
9,642

Service sales
4,160

 
4,146

 
14,354

 
13,788

Costs and Expenses:
 
 
 
Cost of products sold
7,522

 
7,114

Cost of services sold
2,820

 
2,686

Research and development
582

 
546

Selling, general and administrative
1,390

 
1,359

 
12,314

 
11,705

Other income, net
211

 
219

Operating profit
2,251

 
2,302

Interest expense, net
225

 
184

Income from continuing operations before income taxes
2,026

 
2,118

Income tax expense
492

 
592

Net income from continuing operations
1,534

 
1,526

Less: Noncontrolling interest in subsidiaries' earnings from continuing operations
91

 
99

Income from continuing operations attributable to common shareowners
1,443

 
1,427

Discontinued operations (Note 2):
 
 
 
Income from operations
1

 
27

Loss on disposal
(4
)
 
(38
)
Income tax benefit (expense)
40

 
(54
)
Income (loss) from discontinued operations attributable to common shareowners
37

 
(65
)
Net income attributable to common shareowners
$
1,480

 
$
1,362

Earnings Per Share of Common Stock - Basic:
 
 
 
Income from continuing operations attributable to common shareowners
$
1.76

 
$
1.63

Net income attributable to common shareowners
$
1.80

 
$
1.55

Earnings Per Share of Common Stock - Diluted:
 
 
 
Income from continuing operations attributable to common shareowners
$
1.74

 
$
1.61

Net income attributable to common shareowners
$
1.78

 
$
1.54

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)
2016
 
2015
Net Sales:
 
 
 
Product sales
$
30,247

 
$
29,725

Service sales
12,338

 
12,073

 
42,585

 
41,798

Costs and Expenses:
 
 
 
Cost of products sold
22,542

 
21,952

Cost of services sold
8,195

 
7,826

Research and development
1,711

 
1,668

Selling, general and administrative
4,204

 
4,261

 
36,652

 
35,707

Other income, net
600

 
808

Operating profit
6,533

 
6,899

Interest expense, net
673

 
618

Income from continuing operations before income taxes
5,860

 
6,281

Income tax expense
1,548

 
1,748

Net income from continuing operations
4,312

 
4,533

Less: Noncontrolling interest in subsidiaries' earnings from continuing operations
271

 
281

Income from continuing operations attributable to common shareowners
4,041

 
4,252

Discontinued operations (Note 2):
 
 
 
Income from operations
2

 
284

Gain (loss) on disposal
11

 
(66
)
Income tax expense
(12
)
 
(140
)
Income from discontinued operations attributable to common shareowners
1

 
78

Net income attributable to common shareowners
$
4,042

 
$
4,330

Earnings Per Share of Common Stock - Basic:
 
 
 
Income from continuing operations attributable to common shareowners
$
4.90

 
$
4.82

Net income attributable to common shareowners
$
4.91

 
$
4.91

Earnings Per Share of Common Stock - Diluted:
 
 
 
Income from continuing operations attributable to common shareowners
$
4.86

 
$
4.76

Net income attributable to common shareowners
$
4.86

 
$
4.85

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)
2016
 
2015
 
2016
 
2015
Net income from continuing operations
$
1,534

 
$
1,526

 
$
4,312

 
$
4,533

Income (loss) from discontinued operations
37

 
(65
)
 
1

 
78

Net income
1,571

 
1,461

 
4,313

 
4,611

Other comprehensive (loss) income, net of tax (expense) benefit:
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
 
 
 
 
 
 
Foreign currency translation adjustments arising during period
(359
)
 
(936
)
 
(596
)
 
(1,202
)
Less: Reclassification adjustments for gain on sale of an investment in a foreign entity recognized in Other income, net
(1
)
 
—

 
—

 
(1
)
 
(360
)
 
(936
)
 
(596
)
 
(1,203
)
Pension and post-retirement benefit plans
 
 
 
 
 
 
 
Pension and post-retirement benefit plans adjustments during the period
7

 
112

 
(30
)
 
157

Amortization of actuarial loss, prior service cost and transition obligation
127

 
216

 
381

 
651

 
134

 
328

 
351

 
808

Tax expense
(50
)
 
(120
)
 
(131
)
 
(296
)
 
84

 
208

 
220

 
512

Unrealized gain (loss) on available-for-sale securities
 
 
 
 
 
 
 
Unrealized holding gain (loss) arising during period
49

 
(69
)
 
139

 
18

Reclassification adjustments for gain included in Other income, net
(20
)
 
(2
)
 
(72
)
 
(56
)
 
29

 
(71
)
 
67

 
(38
)
Tax (expense) benefit
(11
)
 
28

 
(25
)
 
17

 
18

 
(43
)
 
42

 
(21
)
Change in unrealized cash flow hedging
 
 
 
 
 
 
 
Unrealized cash flow hedging (loss) gain arising during period
(7
)
 
(152
)
 
188

 
(274
)
Loss reclassified into Product sales
32

 
64

 
139

 
164

 
25

 
(88
)
 
327

 
(110
)
Tax (expense) benefit
(7
)
 
25

 
(87
)
 
32

 
18

 
(63
)
 
240

 
(78
)
Other comprehensive loss, net of tax
(240
)
 
(834
)
 
(94
)
 
(790
)
Comprehensive income
1,331

 
627

 
4,219

 
3,821

Less: Comprehensive income attributable to noncontrolling interest
(96
)
 
(76
)
 
(287
)
 
(218
)
Comprehensive income attributable to common shareowners
$
1,235

 
$
551

 
$
3,932

 
$
3,603

See accompanying Notes to Condensed Consolidated Financial Statements

5

UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
 
(Dollars in millions)
September 30, 2016
 
December 31, 2015
Assets
 
 
 
Cash and cash equivalents
$
7,107

 
$
7,075

Accounts receivable, net
11,500

 
10,653

Inventories and contracts in progress, net
9,081

 
8,135

Other assets, current
860

 
843

Total Current Assets
28,548

 
26,706

Customer financing assets
1,077

 
1,018

Future income tax benefits
1,765

 
1,961

Fixed assets
19,384

 
18,494

Less: Accumulated depreciation
(10,395
)
 
(9,762
)
Fixed assets, net
8,989

 
8,732

Goodwill
27,422

 
27,301

Intangible assets, net
15,800

 
15,603

Other assets
6,461

 
6,163

Total Assets
$
90,062

 
$
87,484

Liabilities and Equity
 
 
 
Short-term borrowings
$
871

 
$
926

Accounts payable
7,432

 
6,875

Accrued liabilities
12,634

 
14,638

Long-term debt currently due
1,604

 
179

Total Current Liabilities
22,541

 
22,618

Long-term debt
20,190

 
19,320

Future pension and postretirement benefit obligations
5,552

 
6,022

Other long-term liabilities
10,700

 
10,558

Total Liabilities
58,983

 
58,518

Commitments and contingent liabilities (Note 15)

 

Redeemable noncontrolling interest
315

 
122

Shareowners' Equity:
 
 
 
Common Stock
17,213

 
16,033

Treasury Stock
(32,584
)
 
(30,907
)
Retained earnings
52,384

 
49,956

Unearned ESOP shares
(97
)
 
(105
)
Accumulated other comprehensive loss
(7,729
)
 
(7,619
)
Total Shareowners' Equity
29,187

 
27,358

Noncontrolling interest
1,577

 
1,486

Total Equity
30,764

 
28,844

Total Liabilities and Equity
$
90,062

 
$
87,484

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)
2016
 
2015
Operating Activities of Continuing Operations:
 
 
 
Net income from continuing operations
$
4,312

 
$
4,533

Adjustments to reconcile net income from continuing operations to net cash flows provided by operating activities of continuing operations:
 
 
 
Depreciation and amortization
1,456

 
1,401

Deferred income tax provision
273

 
444

Stock compensation cost
112

 
108

Change in:
 
 
 
Accounts receivable
(636
)
 
(430
)
Inventories and contracts in progress
(864
)
 
(1,070
)
Other current assets
(27
)
 
(100
)
Accounts payable and accrued liabilities
774

 
(88
)
Global pension contributions
(125
)
 
(93
)
Canadian government settlement
(237
)
 
—

Other operating activities, net
(502
)
 
(661
)
Net cash flows provided by operating activities of continuing operations
4,536

 
4,044

Investing Activities of Continuing Operations:
 
 
 
Capital expenditures
(1,043
)
 
(1,044
)
Investments in businesses
(535
)
 
(329
)
Dispositions of businesses
148

 
172

Increase in customer financing assets, net
(74
)
 
(128
)
Increase in collaboration intangible assets
(301
)
 
(331
)
(Payments) receipts from settlements of derivative contracts
(29
)
 
147

Other investing activities, net
(15
)
 
97

Net cash flows used in investing activities of continuing operations
(1,849
)
 
(1,416
)
Financing Activities of Continuing Operations:
 
 
 
Issuance of long-term debt, net
2,281

 
4

(Decrease) increase in short-term borrowings, net
(63
)
 
2,891

Proceeds from Common Stock issuance - equity unit remarketing
—

 
1,100

Proceeds from Common Stock issued under employee stock plans
6

 
39

Dividends paid on Common Stock
(1,561
)
 
(1,643
)
Repurchase of Common Stock
(528
)
 
(4,000
)
Other financing activities, net
(338
)
 
(252
)
Net cash flows used in financing activities of continuing operations
(203
)
 
(1,861
)
Discontinued Operations:
 
 
 
Net cash used in operating activities
(2,486
)
 
(299
)
Net cash provided by (used in) investing activities
6

 
(66
)
Net cash used in financing activities
—

 
(1
)
Net cash flows used in discontinued operations
(2,480
)
 
(366
)
Effect of foreign exchange rate changes on cash and cash equivalents
28

 
(143
)
Net increase in cash and cash equivalents
32

 
258

Cash and cash equivalents, beginning of year
7,075

 
5,235

Cash and cash equivalents, end of period
7,107

 
5,493

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

 
16

Cash and cash equivalents, end of period
$
7,107

 
$
5,477

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, 2016 and for the quarters and nine months ended September 30, 2016 and 2015 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 (2015 Annual Report) incorporated by reference to our Annual Report on Form 10-K for calendar year 2015 (2015 Form 10-K).
In March 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which amends the accounting for employee share-based payment transactions to require recognition of the tax effects resulting from the settlement of stock-based awards as income tax expense or benefit in the income statement in the reporting period in which they occur. The ASU also requires that all tax-related cash flows resulting from share-based payments, including the excess tax benefits related to the settlement of stock-based awards, be classified as cash flows from operating activities, and that cash paid by directly withholding shares for tax withholding purposes be classified as a financing activity in the statement of cash flows. In addition, the ASU also allows companies to make an accounting policy election to either estimate the number of awards that are expected to vest, consistent with current U.S. GAAP, or account for forfeitures when they occur. The new standard is effective for annual reporting periods beginning after December 15, 2016 with early adoption permitted. We have elected to early adopt the requirements of the amended standard in the third quarter of 2016 and are therefore required to report the impacts as though adopted on January 1, 2016. Accordingly, we recognized additional income tax benefits of approximately $13 million and $11 million for the quarter and nine months ended September 30, 2016, respectively. In addition, we recognized the additional income tax benefits and cash paid by directly withholding shares for tax withholding purposes of $29 million for the nine months ended September 30, 2016 as an increase in net cash flows provided by operating activities of continuing operations, and an increase in net cash flows used in financing activities of continuing operations. There is no change to our accounting policy with respect to estimation of forfeitures.
Certain reclassifications have been made to the prior year amounts to conform to the current year presentation. On November 6, 2015, we completed the sale of the Sikorsky Aircraft business (Sikorsky) to Lockheed Martin Corp. Accordingly, the results of operations and the related cash flows of Sikorsky have been reclassified to Discontinued Operations in our Condensed Consolidated Statements of Operations for the quarter and nine months ended September 30, 2015 and in our Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2015. See Note 2 for further discussion.
Note 1: Acquisitions, Dispositions, Goodwill and Other Intangible Assets
Business Acquisitions and Dispositions. During the nine months ended September 30, 2016, our investment in business acquisitions was $537 million, including debt assumed of $2 million, and consisted of the acquisition of a majority interest in an Italian heating products and services company by UTC Climate, Controls & Security and a number of small acquisitions, primarily in our commercial businesses.
Goodwill. Changes in our goodwill balances for the nine months ended September 30, 2016 were as follows:
(Dollars in millions)
Balance as of
January 1, 2016
 
Goodwill 
Resulting from Business Combinations
 
Foreign Currency Translation and Other
 
Balance as of
September 30, 2016
Otis
$
1,566

 
$
19

 
$
49

 
$
1,634

UTC Climate, Controls & Security
9,458

 
450

 
(208
)
 
9,700

Pratt & Whitney
1,515

 
—

 
(4
)
 
1,511

UTC Aerospace Systems
14,759

 
25

 
(210
)
 
14,574

Total Segments
27,298

 
494

 
(373
)
 
27,419

Eliminations and other
3

 
—

 
—

 
3

Total
$
27,301

 
$
494

 
$
(373
)
 
$
27,422


8

Intangible Assets. Identifiable intangible assets are comprised of the following:
 
September 30, 2016
 
December 31, 2015
(Dollars in millions)
Gross Amount
 
Accumulated
Amortization
 
Gross Amount
 
Accumulated
Amortization
Amortized:
 
 
 
 
 
 
 
Service portfolios
$
2,068

 
$
(1,404
)
 
$
1,977

 
$
(1,307
)
Patents and trademarks
379

 
(202
)
 
361

 
(189
)
Collaboration intangible assets
3,637

 
(176
)
 
3,336

 
(86
)
Customer relationships and other
12,840

 
(3,410
)
 
12,430

 
(2,988
)
 
18,924

 
(5,192
)
 
18,104

 
(4,570
)
Unamortized:
 
 
 
 
 
 
 
Trademarks and other
2,068

 
—

 
2,069

 
—

Total
$
20,992

 
$
(5,192
)
 
$
20,173

 
$
(4,570
)
Customer relationship intangible assets include payments made to our customers to secure certain contractual rights. Such payments are capitalized when there are distinct rights obtained and there are sufficient incremental cash flows to support the recoverability of the assets established. Otherwise, the applicable portion of the payments are expensed. We amortize these intangible assets based on the underlying pattern of economic benefit, which may result in an amortization method other than straight-line. In the aerospace industry, amortization based on the pattern of economic benefit generally results in lower amortization expense during the development period with increasing amortization expense as programs enter full production and aftermarket cycles. If a pattern of economic benefit cannot be reliably determined, a straight-line amortization method is used. We classify amortization of such payments as a reduction of sales. The collaboration intangible assets are 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, 2016 was $197 million and $578 million, respectively, compared with $183 million and $537 million for the same periods of 2015. The following is the expected amortization of intangible assets for the years 2016 through 2021, which reflects the pattern of expected economic benefit on certain aerospace intangible assets. 
(Dollars in millions)
 
Remaining 2016
 
2017
 
2018
 
2019
 
2020
 
2021
Amortization expense
 
$
197

 
$
817

 
$
874

 
$
879

 
$
865

 
$
827

Note 2: Discontinued Operations
On November 6, 2015, we completed the sale of Sikorsky to Lockheed Martin Corp. Accordingly, the results of operations and the cash flows related to Sikorsky have been reclassified to Discontinued Operations in our Condensed Consolidated Statements of Operations and Comprehensive Income for the quarters and nine months ended September 30, 2015, and in our Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2015. In the nine months ended September 30, 2016, we recognized approximately $11 million of additional gain on the disposal, primarily resulting from the settlement of working capital adjustments. In the quarter and nine months ended September 30, 2016, we recognized approximately $40 million of income tax benefit and $12 million of income tax expense, respectively, including the impacts related to filing Sikorsky's 2015 tax returns. Net cash outflows from discontinued operations of approximately $2.5 billion for the nine months ended September 30, 2016 were primarily due to the payment of taxes related to the 2015 gain realized on the sale of Sikorsky.

9

The following summarized financial information related to Sikorsky has been segregated from continuing operations and reported as Discontinued Operations:
Income (Expense)
Quarter Ended September 30,
 
Nine Months Ended September 30,
(Dollars in millions)
2016
 
2015
 
2016
 
2015
Discontinued Operations:
 
 
 
 
 
 
 
Net sales
$
—

 
$
1,421

 
$
—

 
$
4,379

Cost of sales
—

 
(1,163
)
 
—

 
(3,628
)
Research and development
—

 
(47
)
 
—

 
(133
)
Selling, general and administrative
1

 
(88
)
 
2

 
(264
)
Pension curtailment
—

 
(110
)
 
—

 
(110
)
Other income, net
—

 
14

 
—

 
40

Income from operations
1

 
27

 
2

 
284

(Loss) gain on disposal
(4
)
 
(38
)
 
11

 
(66
)
Income tax benefit (expense)
40

 
(54
)
 
(12
)
 
(140
)
Income (loss) from discontinued operations
$
37

 
$
(65
)
 
$
1

 
$
78

Note 3: Earnings Per Share
 
Quarter Ended September 30,
 
Nine Months Ended September 30,
(Dollars in millions, except per share amounts; shares in millions)
2016
 
2015
 
2016
 
2015
Net income attributable to common shareowners:
 
 
 
 
 
 
 
Net income from continuing operations
$
1,443

 
$
1,427

 
$
4,041

 
$
4,252

Income (loss) from discontinued operations
37

 
(65
)
 
1

 
78

Net income attributable to common shareowners
$
1,480

 
$
1,362

 
$
4,042

 
$
4,330

Basic weighted average number of shares outstanding
822.4

 
876.4

 
824.0

 
882.1

Stock awards and equity units
8.8

 
8.6

 
7.8

 
11.5

Diluted weighted average number of shares outstanding
831.2

 
885.0

 
831.8

 
893.6

Earnings (Loss) Per Share of Common Stock - Basic:
 
 
 
 
 
 
 
Net income from continuing operations
$
1.76

 
$
1.63

 
$
4.90

 
$
4.82

Income (loss) from discontinued operations
0.04

 
(0.07
)
 
—

 
0.09

Net income attributable to common shareowners
1.80

 
1.55

 
4.91

 
4.91

Earnings (Loss) Per Share of Common Stock - Diluted:
 
 
 
 
 
 
 
Net income from continuing operations
$
1.74

 
$
1.61

 
$
4.86

 
$
4.76

Income (loss) from discontinued operations
0.04

 
(0.07
)
 
—

 
0.09

Net income attributable to common shareowners
1.78

 
1.54

 
4.86

 
4.85

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 because the effect would be anti-dilutive. For the quarter and nine months ended September 30, 2016, the number of stock awards excluded from the computation was approximately 12.2 million and 15.0 million, respectively. For the quarter and nine months ended September 30, 2015, the number of stock awards excluded from the computation was approximately 10.3 million and 8.8 million, respectively.

10

Note 4: Inventories and Contracts in Progress
(Dollars in millions)
September 30, 2016
 
December 31, 2015
Raw materials
$
2,209

 
$
2,037

Work-in-process
2,807

 
2,422

Finished goods
3,438

 
3,183

Contracts in progress
9,580

 
8,668

 
18,034

 
16,310

Less:
 
 
 
Progress payments, secured by lien, on U.S. Government contracts
(157
)
 
(239
)
Billings on contracts in progress
(8,796
)
 
(7,936
)
 
$
9,081

 
$
8,135

Included within inventory are capitalized contract development costs related to certain aerospace programs at UTC Aerospace Systems. As of September 30, 2016 and December 31, 2015, these capitalized costs were $148 million and $152 million, respectively, which will be liquidated as production units are delivered to the customer. Within commercial aerospace, inventory costs attributable to new engine offerings are recognized based on the average cost per unit expected over the life of each contract using the units-of-delivery method of percentage of completion accounting. Under this method, costs of initial engine deliveries in excess of the projected contract per unit average cost are capitalized, and these capitalized amounts are subsequently expensed as additional engine deliveries occur for engines with costs below the projected contract per unit average cost over the life of the contract. As of September 30, 2016 and December 31, 2015, inventory included $144 million and $13 million, respectively, of such capitalized amounts.
Note 5: Borrowings and Lines of Credit
(Dollars in millions)
September 30, 2016
 
December 31, 2015
Commercial paper
$
780

 
$
727

Other borrowings
91

 
199

Total short-term borrowings
$
871

 
$
926

At September 30, 2016, 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 August 2021. As of September 30, 2016, 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, 2016, 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.
On February 22, 2016, we issued €950 million aggregate principal amount of 1.125% notes due 2021, €500 million aggregate principal amount of 1.875% notes due 2026 and €750 million aggregate principal amount of floating rate notes due 2018. The net proceeds from these debt issuances were used for general corporate purposes.

11

Long-term debt consisted of the following:
(Dollars in millions)
September 30, 2016
 
December 31, 2015
5.375% notes due 2017 1
$
1,000

 
$
1,000

1.800% notes due 2017 1
1,500

 
1,500

Floating rate notes due 2018 (€750 million principal value) 2
841

 
—

1.778% junior subordinated notes due 2018
1,100

 
1,100

6.800% notes due 2018
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
171

 
171

1.125% notes due 2021 (€950 million principal value) 3
1,066

 
—

8.750% notes due 2021
250

 
250

3.100% notes due 2022 1
2,300

 
2,300

1.250% notes due 2023 (€750 million principal value) 3
841

 
817

1.875% notes due 2026 (€500 million principal value) 3
561

 
—

7.100% notes due 2027
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
134

 
134

7.000% notes due 2038
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 4
850

 
850

Project financing obligations
135

 
191

Other (including capitalized leases)
192

 
306

Total principal long-term debt
21,761

 
19,439

Other (fair market value adjustments and discounts)
33

 
60

Total long-term debt
21,794

 
19,499

Less: current portion
1,604

 
179

Long-term debt, net of current portion
$
20,190

 
$
19,320

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
These notes bear interest at the three-month EURIBOR rate plus 0.800%, established quarterly. The interest rate in effect at September 30, 2016 was 0.501%. 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 earlier than three months prior to the stated maturity date, 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 15-30 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.
4
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.

12


On April 29, 2016, we renewed our 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 $100 million to $685 million of unrecognized tax benefits may occur within the next 12 months as a result of additional worldwide uncertain tax positions, the revaluation of current uncertain tax positions arising from developments in examinations, in appeals, in the courts, or the closure of tax statutes. See Note 15, 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.
During the quarter, the Company recognized a non-cash benefit of approximately $58 million, primarily tax, as a result of the closure of the audit by the Examination Division of the Internal Revenue Service of Goodrich Corporation tax years 2011 and 2012 through the date of acquisition by UTC. UTC tax years 2011 and 2012 are currently under review by the Examination Division of the Internal Revenue Service. Completion of that examination is possible within the next 3 to 6 months and could result in related non-cash gains, primarily tax, in the range of $150 million to $275 million.
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)
2016
 
2015
 
2016
 
2015
Defined benefit plans
$
18

 
$
23

 
$
125

 
$
93

Defined contribution plans
79

 
82

 
235

 
264

There were no contributions to our domestic defined benefit pension plans in the quarters and nine months ended September 30, 2016 and 2015. The following table illustrates the components of net periodic benefit cost for our defined pension and other postretirement benefit plans:
 
Pension Benefits
Quarter Ended September 30,
 
Other Postretirement Benefits
Quarter Ended September 30,
(Dollars in millions)
2016
 
2015
 
2016
 
2015
Service cost
$
96

 
$
124

 
$
1

 
$
1

Interest cost
302

 
350

 
9

 
8

Expected return on plan assets
(554
)
 
(566
)
 
—

 
—

Amortization of prior service credit
(7
)
 
(3
)
 
—

 
—

Recognized actuarial net loss (gain)
135

 
220

 
(1
)
 
(1
)
Net settlement and curtailment loss
3

 
128

 
—

 
—

Total net periodic benefit (income) cost
$
(25
)
 
$
253

 
$
9

 
$
8


13

 
Pension Benefits
Nine Months Ended September 30,
 
Other Postretirement Benefits
Nine Months Ended September 30,
(Dollars in millions)
2016
 
2015
 
2016
 
2015
Service cost
$
287

 
$
373

 
$
3

 
$
3

Interest cost
908

 
1,051

 
25

 
24

Expected return on plan assets
(1,669
)
 
(1,700
)
 
—

 
—

Amortization of prior service credit
(22
)
 
(8
)
 
—

 
—

Recognized actuarial net loss (gain)
406

 
662

 
(3
)
 
(3
)
Net settlement and curtailment loss
18

 
137

 
—

 
—

Total net periodic benefit (income) cost
$
(72
)
 
$
515

 
$
25

 
$
24

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. Total net periodic benefit cost in the table above includes approximately $25 million and $74 million related to, and recorded in, discontinued operations for the quarter and nine months ended September 30, 2015, respectively.
In 2015, we changed the approach we use to estimate the service and interest components of net periodic pension cost for our significant pension plans. Historically, we estimated the service and interest cost components utilizing a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. We elected to utilize a full yield curve approach in the estimation of these components by applying the specific spot rates along the yield curve used in determination of the benefit obligation to the relevant projected cash flows. We made this change to provide a more precise measurement of service and interest costs by improving the correlation between projected benefit cash flows to the corresponding spot yield curve rates. This change does not affect the measurement of our total benefit obligations. The discount rates used to measure service cost and interest cost during 2016 are 3.9% and 3.5%, respectively. The previous method would have used a discount rate for both service and interest costs of 4.1%. This change decreases the service and interest cost components of our annual net periodic pension cost by approximately $215 million for 2016. We have accounted for this change as a change in accounting estimate and, accordingly, have accounted for it prospectively, effective January 1, 2016.
As part of our long-term strategy to de-risk our defined benefit pension plans, we entered into an agreement to purchase a group annuity contract to transfer approximately $775 million of our outstanding pension benefit obligations related to certain U.S. retirees or beneficiaries, which was finalized on October 12, 2016. We have also offered certain former U.S. employees or beneficiaries with a vested pension benefit an option to take a one-time lump sum distribution in lieu of future monthly pension payments, which is expected to reduce our pension benefit obligations by approximately $995 million by the end of 2016. These transactions are expected to reduce the assets of our defined benefit pension plans by approximately $1.5 billion. As a result of these transactions, we expect to recognize a one-time pre-tax pension settlement charge in the range of $400 million to $530 million in the fourth quarter of 2016.
Note 8: Restructuring Costs
During the nine months ended September 30, 2016, we recorded net pre-tax restructuring costs totaling $201 million for new and ongoing restructuring actions. We recorded charges in the segments as follows:
(Dollars in millions)
 
Otis
$
41

UTC Climate, Controls & Security
71

Pratt & Whitney
50

UTC Aerospace Systems
32

Eliminations and other
7

Total
$
201


14

Restructuring charges incurred during the nine months ended September 30, 2016 primarily relate to actions initiated during 2016 and 2015, and were recorded as follows:
(Dollars in millions)
 
Cost of sales
$
110

Selling, general and administrative
65

Other expense
26

Total
$
201

2016 Actions. During the nine months ended September 30, 2016, we recorded net pre-tax restructuring costs totaling $143 million, including $71 million in cost of sales, $46 million in selling, general and administrative expenses and $26 million in other expense. The 2016 actions relate to ongoing cost reduction efforts, including workforce reductions, consolidation of field operations, and costs to exit legacy programs.
We are targeting the majority of the remaining workforce and all facility related cost reduction actions for completion during 2016 and 2017. No specific plans for significant other actions have been finalized at this time. The following table summarizes the accrual balance and utilization for the 2016 restructuring actions for the quarter and nine months ended September 30, 2016:
(Dollars in millions)
Severance
 
Facility Exit, Lease Termination and Other Costs
 
Total
Quarter Ended September 30, 2016
 
 
 
 
 
Restructuring accruals at June 30, 2016
$
27

 
$
60

 
$
87

Net pre-tax restructuring costs
22

 
8

 
30

Utilization and foreign exchange
(12
)
 
(6
)
 
(18
)
Balance at September 30, 2016
$
37

 
$
62

 
$
99

 
 
 
 
 
 
Nine Months Ended September 30, 2016
 
 
 
 
 
Net pre-tax restructuring costs
$
71

 
$
72

 
$
143

Utilization and foreign exchange
(34
)
 
(10
)
 
(44
)
Balance at September 30, 2016
$
37

 
$
62

 
$
99

The following table summarizes expected, incurred and remaining costs for the 2016 restructuring actions by segment:
(Dollars in millions)
Expected
Costs
 
Costs Incurred Quarter Ended
March 31, 2016
 
Costs Incurred Quarter Ended
June 30, 2016
 
Costs Incurred Quarter Ended
September 30, 2016
 
Remaining Costs at
September 30, 2016
Otis
$
38

 
$
(10
)
 
$
(13
)
 
$
(9
)
 
$
6

UTC Climate, Controls & Security
53

 
(13
)
 
(8
)
 
(13
)
 
19

Pratt & Whitney
61

 
—

 
(61
)
 
—

 
—

UTC Aerospace Systems
90

 
(5
)
 
(3
)
 
(8
)
 
74

Total
$
242

 
$
(28
)
 
$
(85
)
 
$
(30
)
 
$
99

2015 Actions. During the nine months ended September 30, 2016, we recorded net pre-tax restructuring costs totaling $44 million for restructuring actions initiated in 2015, including $35 million in cost of sales and $9 million in selling, general and administrative expenses. The 2015 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 for the 2015 restructuring actions for the quarter and nine months ended September 30, 2016:

15

(Dollars in millions)
Severance
 
Facility Exit,
Lease
Termination and
Other Costs
 
Total
Quarter Ended September 30, 2016
 
 
 
 
 
Restructuring accruals at June 30, 2016
$
113

 
$
25

 
$
138

Net pre-tax restructuring costs
(14
)
 
5

 
(9
)
Utilization and foreign exchange
(36
)
 
(2
)
 
(38
)
Balance at September 30, 2016
$
63

 
$
28

 
$
91

 
 
 
 
 
 
Nine Months Ended September 30, 2016
 
 
 
 
 
Restructuring accruals at December 31, 2015
$
183

 
$
23

 
$
206

Net pre-tax restructuring costs
23

 
21

 
44

Utilization and foreign exchange
(143
)
 
(16
)
 
(159
)
Balance at September 30, 2016
$
63

 
$
28

 
$
91

The following table summarizes expected, incurred and remaining costs for the 2015 restructuring actions by segment:
(Dollars in millions)
Expected
Costs
 
Costs Incurred in 2015
 
Costs Incurred Quarter Ended
March 31, 2016
 
Costs Incurred Quarter Ended
June 30, 2016
 
(Costs Incurred) Reversals Quarter Ended
September 30, 2016
 
Remaining Costs at
September 30, 2016
Otis
$
51

 
$
(35
)
 
$
(5
)
 
$
(5
)
 
$
(2
)
 
$
4

UTC Climate, Controls & Security
195

 
(83
)
 
(14
)
 
(14
)
 
(5
)
 
79

Pratt & Whitney
59

 
(82
)
 
(1
)
 
—

 
24

 
—

UTC Aerospace Systems
140

 
(105
)
 
(8
)
 
(4
)
 
(3
)
 
20

Eliminations and other
28

 
(21
)
 
(1
)
 
(1
)
 
(5
)
 
—

Total
$
473

 
$
(326
)
 
$
(29
)
 
$
(24
)
 
$
9

 
$
103


During the quarter ended September 30, 2016, we had reversals of previously accrued restructuring reserves of approximately $32 million, the majority of which related to a Pratt & Whitney business that was sold in the third quarter of 2016 after originally being scheduled for closure.
2014 and Prior Actions. As of September 30, 2016, we have approximately $42 million of accrual balances remaining related to 2014 and prior 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 $18.0 billion and $15.6 billion at September 30, 2016 and December 31, 2015, respectively.

16

The following table summarizes the fair value of derivative instruments as of September 30, 2016 and December 31, 2015 which consist solely of foreign exchange contracts:
 
Asset Derivatives
 
Liability Derivatives
(Dollars in millions)
September 30, 2016
 
December 31, 2015
 
September 30, 2016
 
December 31, 2015
Derivatives designated as hedging instruments
$
30

 
$
4

 
$
130

 
$
428

Derivatives not designated as hedging instruments
71

 
97

 
51

 
105

As discussed in Note 5, we have issued approximately €2.95 billion of Euro-denominated debt, which qualifies as a net investment hedge against our investments in European businesses. As of September 30, 2016, the net investment hedge is deemed to be effective.
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)
2016
 
2015
 
2016
 
2015
(Loss) gain recorded in Accumulated other comprehensive loss
$
(7
)
 
$
(152
)
 
$
188

 
$
(274
)
Loss reclassified from Accumulated other comprehensive loss into Product sales (effective portion)
32

 
64

 
139

 
164

Assuming current market conditions continue, a $53 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, 2016, all derivative contracts accounted for as cash flow hedges will mature by November 2022.
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)
2016
 
2015
 
2016
 
2015
Gain recognized in Other income, net
$
19

 
$
35

 
$
49

 
$
65

We paid $29 million and received $147 million from settlements of derivative contracts during the nine months ended September 30, 2016 and 2015, respectively.
Note 10: Fair Value Measurements
In accordance with the provisions of ASC 820, 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, 2016 and December 31, 2015: 
September 30, 2016 (Dollars in millions)
Total
 
Level 1
 
Level 2
 
Level 3
Recurring fair value measurements:
 
 
 
 
 
 
 
Available-for-sale securities
$
1,005

 
$
1,005

 
$
—

 
$
—

Derivative assets
101

 
—

 
101

 
—

Derivative liabilities
(181
)
 
—

 
(181
)
 
—

December 31, 2015 (Dollars in millions)
Total
 
Level 1
 
Level 2
 
Level 3
Recurring fair value measurements:
 
 
 
 
 
 
 
Available-for-sale securities
$
951

 
$
951

 
$
—

 
$
—

Derivative assets
101

 
—

 
101

 
—

Derivative liabilities
(533
)
 
—

 
(533
)
 
—

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, 2016, there were no significant transfers in and out of Level 1 and Level 2.

17

As of September 30, 2016, 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, 2016 and December 31, 2015:
 
September 30, 2016
 
December 31, 2015
(Dollars in millions)
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
Long-term receivables
$
136

 
$
129

 
$
122

 
$
107

Customer financing notes receivable
459

 
430

 
403

 
403

Short-term borrowings
(871
)
 
(871
)
 
(926
)
 
(926
)
Long-term debt (excluding capitalized leases)
(21,774
)
 
(24,938
)
 
(19,476
)
 
(21,198
)
Long-term liabilities
(427
)
 
(397
)
 
(458
)
 
(419
)
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, 2016:
(Dollars in millions)
Total
 
Level 1
 
Level 2
 
Level 3
Long-term receivables
$
129

 
$
—

 
$
129

 
$
—

Customer financing notes receivable
430

 
—

 
430

 
—

Short-term borrowings
(871
)
 
—

 
(780
)
 
(91
)
Long-term debt (excluding capitalized leases)
(24,938
)
 
—

 
(24,752
)
 
(186
)
Long-term liabilities
(397
)
 
—

 
(397
)
 
—

We had commercial aerospace financing and other contractual commitments totaling approximately $14.5 billion and $14.6 billion as of September 30, 2016 and December 31, 2015, 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.
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 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, 2016 and December 31, 2015.
(Dollars in millions)
September 30, 2016
 
December 31, 2015
Long-term trade accounts receivable
$
1,079

 
$
903

Notes and leases receivable
336

 
451

Total long-term receivables
$
1,415

 
$
1,354

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 11% and 13% of our total long-term receivables were considered to bear high credit risk as of September 30, 2016 and December 31, 2015, respectively.

18

For long-term trade accounts receivable, we evaluate credit risk and collectability individually to determine if an allowance is necessary. Our long-term receivables reflected in the table above, which include reserves of $17 million and $18 million as of September 30, 2016 and December 31, 2015, respectively, are individually evaluated for impairment. At September 30, 2016 and December 31, 2015, 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, 2016 and 2015 is provided below:
 
Quarter Ended September 30,
 
2016
 
2015
(Dollars in millions)
Share-owners'
Equity
 
Non-controlling Interest
 
Total
Equity
 
Share-owners'
Equity
 
Non-controlling Interest
 
Total
Equity
Equity, beginning of period
$
29,090

 
$
1,558

 
$
30,648

 
$
30,377

 
$
1,561

 
$
31,938

Comprehensive income for the period:
 
 
 
 
 
 
 
 
 
 
 
Net income
1,480

 
91

 
1,571

 
1,362

 
99

 
1,461

Total other comprehensive (loss) income
(245
)
 
5

 
(240
)
 
(811
)
 
(23
)
 
(834
)
Total comprehensive income for the period
1,235

 
96

 
1,331

 
551

 
76

 
627

Common Stock issued - equity unit remarketing
—

 

 
—

 
1,100

 

 
1,100

Common Stock issued under employee plans
54

 

 
54

 
65

 

 
65

Common Stock repurchased
(649
)
 

 
(649
)
 
(1,000
)
 

 
(1,000
)
Dividends on Common Stock
(526
)
 

 
(526
)
 
(547
)
 

 
(547
)
Dividends on ESOP Common Stock
(19
)
 

 
(19
)
 
(19
)
 

 
(19
)
Dividends attributable to noncontrolling interest


 
(129
)
 
(129
)
 


 
(113
)
 
(113
)
Sale of subsidiary shares from noncontrolling interest
2

 
22

 
24

 
1

 
—

 
1

Acquisition of noncontrolling interest

 
29

 
29

 

 
—

 
—

Other
—

 
1

 
1

 
(3
)
 
2

 
(1
)
Equity, end of period
$
29,187

 
$
1,577

 
$
30,764

 
$
30,525

 
$
1,526

 
$
32,051


19

 
Nine Months Ended September 30,
 
2016
 
2015
(Dollars in millions)
Share-owners'
Equity
 
Non-controlling
Interest
 
Total
Equity
 
Share-owners'
Equity
 
Non-controlling
Interest
 
Total
Equity
Equity, beginning of period
$
27,358

 
$
1,486

 
$
28,844

 
$
31,213

 
$
1,351

 
$
32,564

Comprehensive income for the period:
 
 
 
 
 
 
 
 
 
 
 
Net income
4,042

 
271

 
4,313

 
4,330

 
281

 
4,611

Total other comprehensive (loss) income
(110
)
 
16

 
(94
)
 
(727
)
 
(63
)
 
(790
)
Total comprehensive income for the period
3,932

 
287

 
4,219

 
3,603

 
218

 
3,821

Common Stock issued - equity unit remarketing
—

 

 
—

 
1,100

 

 
1,100

Common Stock issued under employee plans
200

 

 
200

 
302

 

 
302

Common Stock repurchased
(685
)
 


 
(685
)
 
(4,000
)
 

 
(4,000
)
Dividends on Common Stock
(1,561
)
 


 
(1,561
)
 
(1,643
)
 

 
(1,643
)
Dividends on ESOP Common Stock
(56
)
 

 
(56
)
 
(56
)
 

 
(56
)
Dividends attributable to noncontrolling interest


 
(270
)
 
(270
)
 

 
(229
)
 
(229
)
(Purchase) sale of subsidiary shares from noncontrolling interest
(4
)
 
21

 
17

 
12

 
10

 
22

Acquisition of noncontrolling interest

 
63

 
63

 

 
173

 
173

Disposition of noncontrolling interest

 
—

 
—

 

 
(3
)
 
(3
)
Other
3

 
(10
)
 
(7
)
 
(6
)
 
6

 
—

Equity, end of period
$
29,187

 
$
1,577

 
$
30,764

 
$
30,525

 
$
1,526

 
$
32,051

On March 13, 2015, we entered into accelerated share repurchase (ASR) agreements to repurchase an aggregate of $2.65 billion of our common stock. Under the terms of the ASR agreements, we made the aggregate payments and received an initial delivery of 18.6 million shares of common stock, representing approximately 85% of the shares expected to be repurchased. On July 31, 2015, the shares associated with the remaining portion of the aggregate purchase were settled upon final delivery to us of approximately 4.2 million additional shares of common stock. Including the remaining shares settled on July 31, 2015, the final price under the ASR was $116.11 per share.
On August 3, 2015, we received approximately $1.1 billion from the proceeds of the previously disclosed remarketing of our 1.550% junior subordinated notes, which were originally issued as part of our equity units on June 18, 2012, 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 November 11, 2015, we entered into ASR agreements to repurchase an aggregate of $6 billion of our common stock utilizing the net after-tax proceeds from the sale of Sikorsky. The ASR agreements provide for the repurchase of our common stock based on the average of the daily volume-weighted average prices of our common stock during the term of such ASR agreements, less a discount and subject to adjustments pursuant to the terms and conditions of the ASR agreements. Under the terms of the ASR agreements, we made the aggregate payments and received an initial delivery of approximately 51.9 million shares of our common stock, representing approximately 85% of the shares expected to be repurchased. The shares associated with the remaining portion of the aggregate purchase price have been settled over six tranches. On January 19, 2016, the shares associated with the remaining portion of the first tranche of the aggregate purchase were settled upon final delivery to us of approximately 2.1 million shares of common stock. On September 14 and 15, 2016, the shares associated with the remaining portion of the remaining five tranches of the aggregate purchase were settled upon final delivery to us of approximately 8 million additional shares of common stock. Including the remaining shares associated with the six tranches settled in 2016, the final price under the November 11, 2015 ASR was $96.74 per share.
A summary of the changes in each component of accumulated other comprehensive (loss) income, net of tax for the quarters and nine months ended September 30, 2016 and 2015 is provided below:

20

(Dollars in millions)
Foreign
Currency
Translation
 
Defined
Benefit
Pension and
Post-
retirement
Plans
 
Unrealized Gains
(Losses) on
Available-for-Sale
Securities
 
Unrealized
Hedging
(Losses)
Gains
 
Accumulated
Other
Comprehensive
(Loss) Income
Quarter Ended September 30, 2016
 
 
 
 
 
 
 
 
 
Balance at June 30, 2016
$
(2,685
)
 
$
(4,999
)
 
$
317

 
$
(117
)
 
$
(7,484
)
Other comprehensive (loss) income before
reclassifications, net
(364
)
 
4