8-KMaterial Agreements

RTX Corp 8-K Report, Material Agreement (Jun 9, 2006)

Filed June 9, 2006For Securities:RTX

Summary

United Technologies Corporation (UTC) announced a significant settlement with the U.S. Department of Defense (DoD) to resolve a protracted dispute over government cost accounting practices related to engine parts. The company will pay $283 million to settle claims stemming from a lawsuit initiated in 1996 by its Pratt & Whitney division, concerning overhead cost allocation for foreign-produced parts used in commercial engine collaboration programs. This settlement, which originated from a complex legal battle that reached the U.S. Court of Appeals, concludes a dispute covering the years 1984 through 2004. While the settlement amount is substantial, UTC's existing reserves for this litigation exceeded the payment by approximately $0.05 per share. The company anticipates incurring restructuring charges in 2006 that will equal or exceed this excess reserve. Investors should note that the DoD is a key customer for UTC, and the company has since January 1, 2005, implemented an approved alternative method for overhead cost allocation. This filing also includes forward-looking statements regarding potential restructuring charges, which are subject to various risks and uncertainties.

Key Highlights

  • 1United Technologies Corporation (UTC) entered into a $283 million settlement agreement with the U.S. Department of Defense (DoD) on June 5, 2006.
  • 2The settlement resolves a longstanding dispute over government cost accounting practices for engine parts produced by foreign companies under commercial collaboration programs at UTC's Pratt & Whitney division.
  • 3The litigation, initiated in 1996, involved claims for the years 1984 through 2004 regarding the allocation of overhead costs.
  • 4UTC's reserves for this litigation exceeded the settlement amount by approximately $0.05 per share.
  • 5The company expects to incur restructuring charges in 2006 that will equal or exceed the difference between reserves and the settlement payment.
  • 6Pratt & Whitney has been using an alternative, government-approved overhead cost allocation method since January 1, 2005.
  • 7The DoD is an important customer for UTC's Pratt & Whitney division and other business units.

Frequently Asked Questions

UTC will pay $283 million to settle the litigation. The company's existing reserves for this matter exceeded the settlement amount by approximately $0.05 per share. UTC also anticipates incurring restructuring charges in 2006 that are expected to equal or exceed this excess reserve amount. The exact timing and nature of these restructuring charges are not yet determined.

The dispute centered on the acceptability of government cost accounting practices concerning overhead cost allocation for engine parts produced by foreign companies under commercial engine collaboration programs. The Pratt & Whitney division of UTC was involved in a legal battle over how these costs were allocated between commercial and government programs.

Yes, the filing states that since January 1, 2005, Pratt & Whitney has been using an alternative method of allocating overhead costs, which is based on the value added by Pratt & Whitney in the manufacturing process. This methodology has been approved by the government.

The filing notes that the forward-looking statement regarding restructuring charges is subject to risks and uncertainties. Actual restructuring activities will depend on factors such as the level of acquisition activity and the availability of other restructuring and cost reduction opportunities. Investors should consult UTC's other SEC filings for detailed risk factors.