United Technologies to take $870 million charge in fourth quarter

Wed Jan 6, 2016 12:48pm EST
 
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By Ankit Ajmera

(Reuters) - United Technologies Corp UTX.N said on Wednesday it would take a pretax charge of about $870 million in the fourth quarter to buy out some royalty payments to Canada.

The surprise announcement came a month after the diversified manufacturer of Pratt & Whitney engines and Otis elevators updated its investor outlook. Shares were down 1.8 percent at $93.97 in early afternoon trading.

Agreements signed on Dec. 30 buy out royalty payments UTC was required to make in anticipation of future aircraft engine sales, UTC said. The payments to Canada's federal government and Quebec's provincial government were in exchange for research and development funds.

Pratt & Whitney Canada makes turbofan, turboprop and turboshaft engines for business jets, other small aircraft and helicopters.

The Canadian unit does not make the Geared Turbofan engine used in jetliners such as the Airbus Group's AIR.PA A320neo, Bombardier Inc's BBDb.TO CSeries or Embraer SA's EMBR3.SA E-Jet. It also does not make the Pratt F135 engine used in the F-35 Joint Strike Fighter.

UTC said Pratt & Whitney Canada will make four annual payments in the form of royalties, beginning this month, to "fully settle and terminate" its contractual obligations.

The four payments total about $965 million, including amounts UTC had already accounted for, UTC said.

The impact on 2015 results was not immediately clear. UTC is due to report earnings on Jan. 27 and the company declined to comment, citing a pre-results quiet period.   Continued...

 
The ticker symbol for United Technologies is displayed on a screen on the floor of the New York Stock Exchange July 20, 2015. REUTERS/Brendan McDermid