2.0.0.10 false Contingencies 0215 - Disclosure - Contingencies true false false false 1 usd $ false false USD Standard http://www.xbrl.org/2003/iso4217 USD iso4217 0 USDEPS Divide http://www.xbrl.org/2003/iso4217 USD iso4217 http://www.xbrl.org/2003/instance shares xbrli 0 2 Contingencies [Abstract] 0 gr_ContingenciesAbstract gr false na duration string Contingencies. false false false false false true false false false false false false 1 false false false false 0 0 false false false Contingencies. false 3 Contingencies 1 us-gaap_CommitmentsAndContingenciesDisclosureTextBlock us-gaap true na duration string No definition available. false false false false false false false false false false false verboselabel false 1 false false false false 0 0   <div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Note 15. Contingencies</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt"><b>General</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">There are various pending or threatened claims, lawsuits and administrative proceedings against the Company or its subsidiaries, arising from the ordinary course of business which seek remedies or damages. Although no assurance can be given with respect to the ultimate outcome of these matters, the Company believes that any liability that may finally be determined with respect to commercial and non-asbestos product liability claims should not have a material effect on its consolidated financial position, results of operations or cash flows. Legal costs are expensed as incurred. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt"><b>Environmental</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">The Company is subject to environmental laws and regulations which may require that the Company investigate and remediate the effects of the release or disposal of materials at sites associated with past and present operations. At certain sites, the Company has been identified as a potentially responsible party under the federal Superfund laws and comparable state laws. The Company is currently involved in the investigation and remediation of a number of sites under applicable laws. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">Estimates of the Company’s environmental liabilities are based on current facts, laws, regulations and technology. These estimates take into consideration the Company’s prior experience and professional judgment of the Company’s environmental specialists. Estimates of the Company’s environmental liabilities are further subject to uncertainties regarding the nature and extent of site contamination, the range of remediation alternatives available, evolving remediation standards, imprecise engineering evaluations and cost estimates, the extent of corrective actions that may be required and the number and financial condition of other potentially responsible parties, as well as the extent of their responsibility for the remediation. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">Accordingly, as investigation and remediation proceed, it is likely that adjustments in the Company’s accruals will be necessary to reflect new information. The amounts of any such adjustments could have a material adverse effect on the Company’s results of operations or cash flows in a given period. Based on currently available information, however, the Company does not believe that future environmental costs in excess of those accrued with respect to sites for which the Company has been identified as a potentially responsible party are likely to have a material adverse effect on the Company’s financial condition. </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 6pt">Environmental liabilities are recorded when the liability is probable and the costs are reasonably estimable, which generally is not later than at completion of a feasibility study or when the Company has recommended a remedy or has committed to an appropriate plan of action. The liabilities are reviewed periodically and, as investigation and remediation proceed, adjustments are made as necessary. Liabilities for losses from environmental remediation obligations do not consider the effects of inflation and anticipated expenditures are not discounted to their present value. The liabilities are not reduced by possible recoveries from insurance carriers or other third parties, but do reflect anticipated allocations among potentially responsible parties at federal Superfund sites or similar state-managed sites, third party indemnity obligations, and an assessment of the likelihood that such parties will fulfill their obligations at such sites. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">The Company’s condensed consolidated balance sheet included an accrued liability for environmental remediation obligations of $66.8 million and $66.1 million at March 31, 2010 and December 31, 2009, respectively. At March 31, 2010 and December 31, 2009, $14.2 million and $11.3 million, respectively, of the accrued liability for environmental remediation were included in current liabilities as accrued expenses. At March 31, 2010 and December 31, 2009, $26.3 million and $25.3 million, respectively, was associated with ongoing operations and $40.5 million and $40.8 million, respectively, was associated with previously owned businesses. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">The Company expects that it will expend present accruals over many years, and will generally complete remediation in less than 30 years at sites for which it has been identified as a potentially responsible party. This period includes operation and monitoring costs that are generally incurred over 15 to 25 years. Recently, certain states in the U.S. and countries globally are promulgating or proposing new or more demanding regulations or legislation impacting the use of various chemical substances by all companies. The Company is currently evaluating the potential impact, if any, of complying with such regulations and legislation. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt"><b>Asbestos</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">The Company and some of its subsidiaries have been named as defendants in various actions by plaintiffs alleging damages as a result of exposure to asbestos fibers in products or at its facilities. A number of these cases involve maritime claims, which have been and are expected to continue to be administratively dismissed by the court. The Company believes that pending and reasonably anticipated future actions are not likely to have a material adverse effect on the Company’s financial condition, results of operations or cash flows. There can be no assurance, however, that future legislative or other developments will not have a material adverse effect on the Company’s results of operations and cash flows in a given period. </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Insurance Coverage</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">The Company maintains a comprehensive portfolio of insurance policies, including aviation products liability insurance which covers most of its products. The aviation products liability insurance typically provides first dollar coverage for defense and indemnity of third party claims. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">A portion of the Company’s primary and excess layers of pre-1986 insurance coverage for third party claims was provided by certain insurance carriers who are either insolvent, undergoing solvent schemes of arrangement or in run-off. The Company has entered into settlement agreements with a number of these insurers pursuant to which the Company agreed to give up its rights with respect to certain insurance policies in exchange for negotiated payments. These settlements represent negotiated payments for the Company’s loss of insurance coverage, as it no longer has this insurance available for claims that may have qualified for coverage. A portion of these settlements was recorded as income for reimbursement of past claim payments under the settled insurance policies and a portion was recorded as a deferred settlement credit for future claim payments. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">At March 31, 2010 and December 31, 2009, the deferred settlement credit was $47.5 million and $45 million, respectively, for which $5.9 million and $6.1 million, respectively, was reported in accrued expenses and $41.6 million and $38.9 million, respectively, was reported in other non-current liabilities. The proceeds from such insurance settlements were reported as a component of net cash provided by operating activities in the period payments were received. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt"><b>Liabilities of Divested Businesses</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">In connection with the divestitures of the Company’s tire, vinyl, engineered industrial products and other businesses, the Company has received contractual rights of indemnification from third parties for environmental, asbestos and other claims arising out of the divested businesses. Failure of these third parties to honor their indemnification obligations could have a material adverse effect on the Company’s results of operations and cash flows. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt"><b>Aerostructures Long-term Contracts</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">The Company’s aerostructures business in the Nacelles and Interior Systems segment has several long-term contracts in the pre-production phase including the Boeing 787, Airbus A350 XWB and the Pratt and Whitney PurePower™ PW 1000G engine contracts. These contracts are accounted for in accordance with long-term construction contract accounting. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">The pre-production phase includes design of the product to meet customer specifications as well as design of the processes to manufacture the product. Also involved in this phase is securing the supply of material and subcomponents produced by third party suppliers that are generally accomplished through long-term supply agreements. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">Contracts in the early production phase include excess-over-average inventories, which represent the excess of current manufactured cost over the estimated average manufactured cost during the life of the contract. </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 6pt">Cost estimates over the lives of contracts are affected by estimates of future cost reductions including learning curve efficiencies. Because these contracts cover manufacturing periods of up to 20 years or more, there is risk associated with the estimates of future costs made during the <font style="white-space: nowrap">pre-production</font> and early production phases. These estimates may be different from actual costs due to various factors, including the following: </div> <div style="margin-top: 6pt"> <table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left"> <tr valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <td width="2%" style="background: transparent"> </td> <td width="3%" nowrap="nowrap" align="left"><b>•</b></td> <td width="1%"> </td> <td>Ability to recover costs incurred for change orders and claims;</td> </tr> </table> </div> <div style="margin-top: 6pt"> <table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left"> <tr valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <td width="2%" style="background: transparent"> </td> <td width="3%" nowrap="nowrap" align="left"><b>•</b></td> <td width="1%"> </td> <td>Costs, including material and labor costs and related escalation;</td> </tr> </table> </div> <div style="margin-top: 6pt"> <table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left"> <tr valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <td width="2%" style="background: transparent"> </td> <td width="3%" nowrap="nowrap" align="left"><b>•</b></td> <td width="1%"> </td> <td>Labor improvements due to the learning curve experience;</td> </tr> </table> </div> <div style="margin-top: 6pt"> <table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left"> <tr valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <td width="2%" style="background: transparent"> </td> <td width="3%" nowrap="nowrap" align="left"><b>•</b></td> <td width="1%"> </td> <td>Anticipated cost productivity improvements related to new manufacturing methods and processes;</td> </tr> </table> </div> <div style="margin-top: 6pt"> <table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left"> <tr valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <td width="2%" style="background: transparent"> </td> <td width="3%" nowrap="nowrap" align="left"><b>•</b></td> <td width="1%"> </td> <td>Supplier pricing, including escalation where applicable, potential supplier claims, the supplier’s financial viability and the supplier’s ability to perform;</td> </tr> </table> </div> <div style="margin-top: 6pt"> <table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left"> <tr valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <td width="2%" style="background: transparent"> </td> <td width="3%" nowrap="nowrap" align="left"><b>•</b></td> <td width="1%"> </td> <td>The cost impact of product design changes that frequently occur during the flight test and certification phases of a program; and</td> </tr> </table> </div> <div style="margin-top: 6pt"> <table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left"> <tr valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <td width="2%" style="background: transparent"> </td> <td width="3%" nowrap="nowrap" align="left"><b>•</b></td> <td width="1%"> </td> <td>Effect of foreign currency exchange fluctuations.</td> </tr> </table> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">Additionally, total contract revenue is based on estimates of future units to be delivered to the customer, the ability to recover costs incurred for change orders and claims and sales price escalation, where applicable. There is a risk that there could be differences between the actual units delivered and the estimated total units to be delivered under the contract and differences in actual revenues compared to estimates. Changes in estimates could have a material impact on the Company’s results of operations and cash flows. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">Provisions for estimated losses on uncompleted contracts are recorded in the period such losses are determined to the extent total estimated costs exceed total estimated contract revenues. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt"><b><i>Boeing 787 Contract</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">During 2004, the Company’s aerostructures business entered into a long-term supply contract with Boeing on the 787 program. The Company’s latest outlook projects approximately $5 billion of original equipment sales for this contract. At March 31, 2010, the Company had $670.4 million recorded as in-process inventory related to this contract. Aftermarket sales associated with this program are not accounted for using the percentage-of-completion method of accounting. </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 6pt">The Boeing 787 program has experienced delays in its development schedule and Boeing has requested numerous changes in the design of the Company’s product and scope of its work. Under the terms of the Company’s contract, it is entitled to reimbursement of certain costs and equitable price adjustments under certain circumstances. The Company has asserted changes to its pricing that are material. Discussions with Boeing are ongoing. In its evaluation of the contract, the Company has included an estimate of the probable revenues related to these assertions. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">If the Company is unable to reach a fair and equitable resolution with Boeing, if any key suppliers on the 787 program fail to comply with the material terms of their supply contracts, or if any of the actual costs or revenues differ from the estimates, it could have a material adverse effect on the Company’s financial position, results of operations and/or cash flows in a given period. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt"><b><i>JSTARS Program</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">In 2002, Seven Q Seven, Ltd. (7Q7) was selected by Northrop Grumman Corporation to provide propulsion pods for the re-engine program for the JT3D engines used by the U.S. Air Force. The Company was selected by 7Q7 as a supplier for the inlet, thrust reverser, exhaust, EBU, strut systems and wing interface systems. As of March 31, 2010, the Company has $26.9 million of pre-production costs reported as in-process inventory related to this program. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">Funding for the JSTARS program for the 2010 budget cycle was approved. Future funding remains uncertain. While the Company believes that program funding will continue and is included in the preliminary fiscal 2011 budget submitted, there can be no assurances of such funding. If the program were to be cancelled, the Company would need to write-off its pre-production costs. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt"><b>U.S. Health Care Reform Legislation</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">In March 2010, the Patient Protection and Affordable Care Act and the Health Care and Education Affordability Act of 2010 (the Act) was enacted. The primary focus of the Act is to significantly reform health care in the U.S. The most immediate financial impact on the Company is the elimination of a portion of the tax deduction available to companies that provide prescription drug coverage to retirees as discussed in Note 14, “Income Taxes”. The Company is currently evaluating other prospective effects of the Act. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt"><b>Tax</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">The Company is continuously undergoing examination by the IRS as well as various state and foreign jurisdictions. The IRS and other taxing authorities routinely challenge certain deductions and credits reported by the Company on its income tax returns. See Note 14 “Income Taxes”, for additional detail. </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b><i>Tax Years 2005 and 2006</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">During 2009, the IRS issued a Revenue Agent’s Report for the tax years 2005 and 2006. In July 2009, the Company submitted a protest to the Appeals Division of the IRS with respect to certain unresolved issues which involve the proper timing of deductions. Although it is reasonably possible that these matters could be resolved during the next 12 months, the timing or ultimate outcome is uncertain. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt"><b><i>Tax Years 2000 to 2004</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">During 2007, the IRS and the Company reached agreement on substantially all of the issues raised with respect to the examination of taxable years 2000 to 2004. The Company submitted a protest to the Appeals Division of the IRS with respect to the remaining unresolved issues which involve the proper timing of certain deductions. The Company and the IRS were unable to reach agreement on the remaining issues. In December 2009, the Company filed a petition to the U.S. Tax Court and in March 2010 the Company also filed a complaint in District Court. The Company believes the amount of the estimated tax liability if the IRS were to prevail is fully reserved. The Company cannot predict the timing or ultimate outcome of a final resolution of the remaining unresolved issues. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt"><b><i>Tax Years Prior to 2000</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">The previous examination cycle included the consolidated income tax groups for the audit periods identified below: </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="42%"> </td> <td width="3%"> </td> <td width="55%"> </td> </tr>   <tr valign="bottom"> <td valign="top"> <div style="margin-left:0px; text-indent:-0px">Coltec Industries Inc. and Subsidiaries </div></td> <td> </td> <td align="left" valign="bottom">December, 1997 — July, 1999 (through date of acquisition)</td> </tr> <tr valign="bottom"> <td valign="top"> <div style="margin-left:0px; text-indent:-0px">Goodrich Corporation and Subsidiaries </div></td> <td> </td> <td align="left" valign="bottom">1998 — 1999 (including Rohr, Inc. (Rohr) and Coltec)</td> </tr>  </table> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">The IRS and the Company previously reached final settlement on all but one of the issues raised in this examination cycle. The Company received statutory notices of deficiency dated June 14, 2007 related to the remaining unresolved issue which involves the proper timing of certain deductions. The Company filed a petition with the U.S. Tax Court in September 2007 to contest the notices of deficiency. The Company believes the amount of the estimated tax liability if the IRS were to prevail is fully reserved. Although it is reasonably possible that this matter could be resolved during the next 12 months, the timing or ultimate outcome is uncertain. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">Rohr was examined by the State of California for the tax years ended July 31, 1985, 1986 and 1987. The State of California disallowed certain expenses incurred by one of Rohr’s subsidiaries in connection with the lease of certain tangible property. California’s Franchise Tax Board held that the deductions associated with the leased equipment were non-business deductions. The additional tax associated with the Franchise Tax Board’s position is $4.5 million. The amount of accrued interest associated with the additional tax is approximately $29 million at March 31, 2010. In addition, the State of California enacted an amnesty provision that imposes nondeductible penalty interest equal to 50% of the unpaid interest amounts relating to taxable years ended before 2003. The penalty interest is approximately $14.5 million at March 31, 2010. The tax and interest amounts continue to be contested by Rohr. No payment has been made for the $29 million of interest or $14.5 million of penalty interest. In April 2009, the Superior Court of California issued a ruling granting the Company’s motion for summary judgment. In August 2009 the State of California appealed the ruling. Once the State’s appeals have been exhausted and if the Superior Court’s decision is not overturned, the Company will be entitled to a refund of the $4.5 million of tax, together with interest from the date of payment. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">Following settlement of the U.S. Tax Court for Rohr’s tax years 1986 to 1997, California audited the Company’s amended tax returns and issued an assessment based on numerous issues including proper timing of deductions and allowance of tax credits. The Company submitted a protest of the assessment to the California Franchise Tax Board in November 2008. The Company believes that it is adequately reserved for this contingency. Although it is reasonably possible that this matter could be resolved during the next 12 months, the timing or ultimate outcome is uncertain. </div> </div>  <!-- Begin Block Tagged Note false false false Includes disclosure of commitments and contingencies. This element may be used as a single block of text to encapsulate the entire disclosure including data and tables. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name FASB Interpretation (FIN) -Number 14 -Paragraph 3 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 5 -Paragraph 9, 10, 11, 12 false false 1 2 false UnKnown UnKnown UnKnown false true