Canadian Manufacturing

United Technologies warns of possible impact from US court order to pay $473M on fraud charges

With damages, penalties and interest, penalty would rise to about $660-million, company said



HARTFORD, Conn.—A federal court order that United Technologies Corp. pay $473-million plus interest to compensate for alleged fraud in its sale of fighter jet engines could cut into revenue and profit, the aerospace giant said in a regulatory filing.

Judge Thomas M. Rose of the U.S. Southern District Court of Ohio issued the order June 17.

The Department of Justice had accused United Technologies subsidiary Pratt & Whitney of violating the False Claims Act, resulting in alleged overpayments for F100 jet engines from 1985 to 1990.

“The government should not have paid the amounts that the government proved it paid as a direct result of United Technologies’ fraud,” Rose said in his decision.

The Hartford, Conn., aerospace company said in a regulatory filing that with damages, penalties and interest, the penalty would rise to about $660-million.

United Technologies posted a profit of $5.13-billion last year.

“UTC strongly disagrees with the court’s analysis and conclusions,” the company said in a filing with the Securities and Exchange Commission. “UTC will appeal the decision as we remain confident in our legal position.”

If the government prevails, “the outcome of this matter could result in a material adverse effect” on results of operations when a liability would be recognized or cash flow for the period when damages would be paid, it said.

At issue is a dispute between United Technologies and the U.S. government over jet engine pricing.

Rose cited a U.S. Supreme Court decision that said in a government-regulated market such as buying and selling between the Pentagon and defence contractors, the regulated process “represented not only the market value but in fact the only value that could be realized.”

The court said Pratt and Whitney violated the False Claims Act by fraudulently asserting that prices it submitted were substantiated by the most recent data and also fraudulently saying it applied a predicted rate of inflation.

United Technologies said that what the government paid is what it should have paid, Rose said.

The company proposed that historical prices, comparable sales, independent price appraisals and market prices establish fair market value, he said.

But those factors come from data that are older and more out of date than what the U.S. uses to calculate damages, the judge said.

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