UTC Reports Second Quarter 2014 Results

-- EPS of $1.84, up 8% (up 12% ex. restructuring and one-time items)

-- Sales of $17.2 billion, including 3% organic growth

-- Increases lower end of 2014 EPS range, now expects EPS of $6.75 to $6.85

Jul 22, 2014, 06:59 ET from United Technologies Corp.

HARTFORD, Conn., July 22, 2014 /PRNewswire/ -- United Technologies Corp. (NYSE: UTX) reported second quarter earnings per share of $1.84 and net income attributable to common shareowners of $1.7 billion, both up 8 percent over the year ago quarter.  Restructuring costs were offset by other net favorable one-time items, which include the Canadian Maritime Helicopter Program (CMHP) charge in the current quarter.  Earnings per share in the year ago quarter included $0.05 of favorable one-time items net of restructuring costs.  Excluding these items in both quarters, earnings per share increased 12 percent year over year. 

Sales of $17.2 billion increased 7 percent, reflecting the benefit of organic growth (3 points) and a cumulative adjustment for the CMHP (5 points) partially offset by net divestitures (1 point).  Second quarter segment operating profit decreased 15 percent over the prior year quarter, including the CMHP adjustment.  Excluding restructuring costs and net one-time items, segment operating profit grew 8 percent with 90 basis points of operating margin expansion.  

"Our focus on growth opportunities and execution in our core markets resulted in another solid quarter," said Louis Chenevert, UTC Chairman & Chief Executive Officer.  "We saw a fourth consecutive quarter of organic sales growth, along with strong margin expansion."

Otis new equipment orders increased 3 percent over the year ago second quarter at constant currency, led by 44 percent growth in North America.  Equipment orders at UTC Climate, Controls & Security increased 2 percent organically.  Large commercial engine spares orders were down 6 percent at Pratt & Whitney and commercial spares orders increased 28 percent at UTC Aerospace Systems.  

"With earnings up 11 percent, excluding the impact of restructuring and one-time items, UTC delivered a strong first half of the year," said Chenevert. "Our solid backlogs, organic growth trends, and focus on execution give us confidence to increase the lower end of our earnings per share range.  We now expect earnings per share of $6.75 to $6.85, up from $6.65 to $6.85 previously."

Cash flow from operations was $1.7 billion and capital expenditures were $406 million in the quarter.  Share repurchase was $335 million.  As a result of increased working capital investment to support the aerospace upcycle, the company now anticipates 2014 cash flow from operations less capital expenditures to range from 90 to 100 percent of net income attributable to common shareowners.  In addition, UTC now expects share repurchase of $1.25 billion and acquisitions of less than $1 billion for the year, from the previous expectation of $1 billion each.    

United Technologies Corp., based in Hartford, Connecticut, provides high technology products and services to the building and aerospace industries. Additional information, including a webcast, is available on the Internet at http://www.utc.com. To learn more about UTC, visit the website or follow the company on Twitter: @UTC

All financial results and projections reflect continuing operations unless otherwise noted. The accompanying tables include information integral to assessing the company's financial position, operating performance, and cash flow, including a reconciliation of differences between non-GAAP measures used in this release and the comparable financial measures calculated in accordance with generally accepted accounting principles in the United States.

This press release includes statements that constitute "forward-looking statements" under the securities laws. Forward-looking statements often contain words such as "believe," "expect," "plans," "project," "target," "anticipate," "will," "should," "see," "guidance," "confident" and similar terms. Forward-looking statements may include, among other things, statements relating to future and estimated sales, earnings, cash flow, charges, expenditures, share repurchases and other measures of financial performance. All forward-looking statements involve risks, uncertainties and assumptions that may cause actual results to differ materially from those expressed or implied in the forward-looking statements. Risks and uncertainties include, without limitation, the effect of economic conditions in the markets in which we operate, including financial market conditions, fluctuation in commodity prices, interest rates and foreign currency exchange rates; future levels of research and development spending; levels of end market demand in construction and in the aerospace industry; levels of air travel; financial difficulties of commercial airlines; the impact of government budget and funding decisions on the economy; changes in government procurement priorities and funding; weather conditions and natural disasters; delays and disruption in delivery of materials and services from suppliers; company and customer directed cost reduction efforts and restructuring costs and consequences thereof; the impact of acquisitions, dispositions, joint ventures and similar transactions; the development and production of new products and services; the impact of diversification across product lines, regions and industries; the outcome of legal proceedings, investigations and other contingencies; pension plan assumptions and future contributions; the effect of changes in tax, environmental and other laws and regulations and political conditions; and other factors beyond our control. The level of share repurchases depends upon market conditions and the level of other investing activities and uses of cash. The forward-looking statements speak only as of the date of this press release and we undertake no obligation to update or revise any forward-looking statements as of a later date. For additional information identifying factors that may cause actual results to vary materially from those stated in forward-looking statements, see our reports on Forms 10-K, 10-Q and 8-K filed with the SEC from time to time, including, but not limited to, the information included in UTC's Forms 10-K and 10-Q under the headings "Business," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Legal Proceedings" and in the notes to the financial statements included in UTC's Forms 10-K and 10-Q.

UTC-IR

 

United Technologies Corporation

Condensed Consolidated Statement of Operations

Quarter Ended June 30,

Six Months Ended June 30,

(Unaudited)

(Unaudited)

(Millions, except per share amounts)

2014

2013

2014

2013

Net Sales

$

17,191

$

16,006

$

31,936

$

30,405

Costs and Expenses:

Cost of products and services sold

12,931

11,552

23,621

22,017

Research and development

666

631

1,290

1,241

Selling, general and administrative

1,623

1,737

3,219

3,364

Total Costs and Expenses

15,220

13,920

28,130

26,622

Other income, net

384

421

647

730

Operating profit

2,355

2,507

4,453

4,513

Interest expense, net

206

217

431

453

Income from continuing operations before income taxes

2,149

2,290

4,022

4,060

Income tax expense

359

645

926

1,063

Income from continuing operations

1,790

1,645

3,096

2,997

Less: Noncontrolling interest in subsidiaries' earnings from continuing operations

110

93

203

175

Income from continuing operations attributable to common shareowners

1,680

1,552

2,893

2,822

Discontinued Operations:

Income from operations

43

63

Loss on disposal

(25)

(40)

Income tax expense

(10)

(19)

Income from discontinued operations attributable to common shareowners

8

4

Net income attributable to common shareowners

$

1,680

$

1,560

$

2,893

$

2,826

Earnings Per Share of Common Stock - Basic:

From continuing operations attributable to common shareowners

$

1.87

$

1.72

$

3.21

$

3.13

From discontinued operations attributable to common shareowners

0.01

0.01

Earnings Per Share of Common Stock - Diluted:

From continuing operations attributable to common shareowners

$

1.84

$

1.70

$

3.16

$

3.09

From discontinued operations attributable to common shareowners

0.01

0.01

Weighted Average Number of Shares Outstanding:

Basic shares

900

901

900

901

Diluted shares

915

914

915

914

As described on the following pages, consolidated results for the quarters and six months ended June 30, 2014 and 2013 include restructuring costs and non-recurring items that management believes should be considered when evaluating the underlying financial performance.

See accompanying Notes to Condensed Consolidated Financial Statements.

 

United Technologies Corporation

Segment Net Sales and Operating Profit

Quarter Ended June 30,

Six Months Ended June 30,

(Unaudited)

(Unaudited)

(Millions)

2014

2013

2014

2013

Net Sales

Otis

$

3,365

$

3,138

$

6,320

$

5,952

UTC Climate, Controls & Security

4,429

4,543

8,280

8,380

Pratt & Whitney

3,592

3,624

6,921

7,026

UTC Aerospace Systems

3,636

3,321

7,086

6,584

Sikorsky

2,384

1,566

3,745

2,815

Segment Sales

17,406

16,192

32,352

30,757

Eliminations and other

(215)

(186)

(416)

(352)

Consolidated Net Sales

$

17,191

$

16,006

$

31,936

$

30,405

Operating Profit

Otis

$

693

$

650

$

1,263

$

1,225

UTC Climate, Controls & Security

815

752

1,352

1,272

Pratt & Whitney

432

567

820

973

UTC Aerospace Systems

602

499

1,192

1,000

Sikorsky

(317)

156

(231)

246

Segment Operating Profit

2,225

2,624

4,396

4,716

Eliminations and other

249

4

288

25

General corporate expenses

(119)

(121)

(231)

(228)

Consolidated Operating Profit

$

2,355

$

2,507

$

4,453

$

4,513

Segment Operating Profit Margin

Otis

20.6

%

20.7

%

20.0

%

20.6

%

UTC Climate, Controls & Security

18.4

%

16.6

%

16.3

%

15.2

%

Pratt & Whitney

12.0

%

15.6

%

11.8

%

13.8

%

UTC Aerospace Systems

16.6

%

15.0

%

16.8

%

15.2

%

Sikorsky

(13.3)

%

10.0

%

(6.2)

%

8.7

%

Segment Operating Profit Margin

12.8

%

16.2

%

13.6

%

15.3

%

As described on the following pages, consolidated results for the quarters and six months ended June 30, 2014 and 2013 include restructuring costs and non-recurring items that management believes should be considered when evaluating the underlying financial performance.

 

United Technologies Corporation

Restructuring Costs and Non-Recurring Items Included in Consolidated Results

Quarter Ended June 30,

Six Months Ended June 30,

(Unaudited)

(Unaudited)

In Millions - Income (Expense)

2014

2013

2014

2013

Non-Recurring items included in Net Sales:

Sikorsky

$

830

$

$

830

$

Restructuring Costs included in Operating Profit:

Otis

$

(21)

$

(39)

$

(38)

$

(49)

UTC Climate, Controls & Security

(25)

(16)

(68)

(38)

Pratt & Whitney

(5)

(93)

(47)

(100)

UTC Aerospace Systems

(4)

(33)

(10)

(41)

Sikorsky

(9)

(17)

(14)

Eliminations and other

(55)

(190)

(180)

(242)

Non-Recurring items included in Operating Profit:

UTC Climate, Controls & Security

38

Pratt & Whitney

(82)

193

(82)

193

Sikorsky

(466)

(466)

Eliminations and other

220

220

(328)

193

(328)

231

Total impact on Consolidated Operating Profit

(383)

3

(508)

(11)

Non-Recurring items included in Interest Expense, Net

21

36

21

36

Tax effect of restructuring and non-recurring items above

108

(11)

150

5

Non-Recurring items included in Income Tax Expense

253

22

253

117

Impact on Net Income from Continuing Operations Attributable to Common Shareowners

$

(1)

$

50

$

(84)

$

147

Impact on Diluted Earnings Per Share from Continuing Operations

$

$

0.05

$

(0.09)

$

0.16

 

Details of the non-recurring items for the quarters and six months ended June 30, 2014 and 2013 above are as follows:

Quarter Ended June 30, 2014

Pratt & Whitney:

  • Approximately $60 million charge to adjust the fair value of a Pratt & Whitney joint venture investment.
  • Approximately $22 million charge for impairment of assets related to a joint venture.

Sikorsky: 

  • A cumulative adjustment to record $830 million in sales and $438 million in losses based upon the change in estimate required for the contractual amendments signed with the Canadian Government on the Maritime Helicopter program.
  • Approximately $28 million charge for the impairment of a Sikorsky joint venture investment.

Eliminations & Other:  Approximately $220 million gain on an agreement with a state taxing authority for the monetization of tax credits.

Interest Expense, Net: Approximately $21 million of favorable pre-tax interest adjustments, primarily related to the conclusion of the IRS's examination of the Company's 2009 and 2010 tax years.

Income Tax Expense: Approximately $253 million of favorable income tax adjustments related to the conclusion of the IRS's examination of the Company's 2009 and 2010 tax years, as well as the settlement of state income taxes related to the disposition of the Hamilton Sundstrand Industrials businesses.

Quarter Ended June 30, 2013

Pratt & Whitney:  Approximately $193 million gain from the sale of the Pratt & Whitney Power Systems business.  This gain was not reclassified to "Discontinued Operations" due to our expected level of continuing involvement in the business post disposition.

Interest Expense, Net: Approximately $36 million of favorable pre-tax interest adjustments related to settlements for the Company's tax years prior to 2006, as well as the conclusion of certain IRS examinations of 2009 and 2010 tax years.

Income Tax Expense: Approximately $22 million of favorable income tax adjustments related to the conclusion of certain IRS examinations of 2009 and 2010 tax years.

Quarter Ended March 31, 2013

UTC Climate, Controls & Security:  Approximately $38 million net gain from UTC Climate, Controls & Security's ongoing portfolio transformation, primarily due to a gain on the sale of a business in Hong Kong.

Income Tax Expense:  Approximately $95 million of favorable income tax adjustments as a result of the enactment of the American Taxpayer Relief Act of 2012 in January 2013.  The $95 million is primarily related to the retroactive extension of the research and development credit to 2012.

 

United Technologies Corporation

Segment Net Sales and Operating Profit Adjusted for Restructuring Costs and Non-Recurring Items (as reflected on the previous pages)

Quarter Ended June 30,

Six Months Ended June 30,

(Unaudited)

(Unaudited)

(Millions)

2014

2013

2014

2013

Net Sales

Otis

$

3,365

$

3,138

$

6,320

$

5,952

UTC Climate, Controls & Security

4,429

4,543

8,280

8,380

Pratt & Whitney

3,592

3,624

6,921

7,026

UTC Aerospace Systems

3,636

3,321

7,086

6,584

Sikorsky

1,554

1,566

2,915

2,815

Segment Sales

16,576

16,192

31,522

30,757

Eliminations and other

(215)

(186)

(416)

(352)

Consolidated Net Sales

$

16,361

$

16,006

$

31,106

$

30,405

Adjusted Operating Profit

Otis

$

714

$

689

$

1,301

$

1,274

UTC Climate, Controls & Security

840

768

1,420

1,272

Pratt & Whitney

519

467

949

880

UTC Aerospace Systems

606

532

1,202

1,041

Sikorsky

149

165

252

260

Segment Operating Profit

2,828

2,621

5,124

4,727

Eliminations and other

29

4

68

25

General corporate expenses

(119)

(121)

(231)

(228)

Adjusted Consolidated Operating Profit

$

2,738

$

2,504

$

4,961

$

4,524

Adjusted Segment Operating Profit Margin

Otis

21.2

%

22.0

%

20.6

%

21.4

%

UTC Climate, Controls & Security

19.0

%

16.9

%

17.1

%

15.2

%

Pratt & Whitney

14.4

%

12.9

%

13.7

%

12.5

%

UTC Aerospace Systems

16.7

%

16.0

%

17.0

%

15.8

%

Sikorsky

9.6

%

10.5

%

8.6

%

9.2

%

Adjusted Segment Operating Profit Margin

17.1

%

16.2

%

16.3

%

15.4

%

 

United Technologies Corporation

Condensed Consolidated Balance Sheet

June 30,

December 31,

2014

2013

(Millions)

(Unaudited)

(Unaudited)

Assets

Cash and cash equivalents

$

4,962

$

4,619

Accounts receivable, net

11,795

11,458

Inventories and contracts in progress, net

9,896

10,330

Other assets, current

2,988

3,035

Total Current Assets

29,641

29,442

Fixed assets, net

9,026

8,866

Goodwill

28,378

28,168

Intangible assets, net

15,715

15,521

Other assets

9,382

8,597

Total Assets

$

92,142

$

90,594

Liabilities and Equity

Short-term debt

$

2,235

$

500

Accounts payable

7,297

6,965

Accrued liabilities

14,798

15,335

Total Current Liabilities

24,330

22,800

Long-term debt

17,837

19,741

Other long-term liabilities

14,636

14,723

Total Liabilities

56,803

57,264

Redeemable noncontrolling interest

146

111

Shareowners' Equity:

Common Stock

14,939

14,638

Treasury Stock

(21,094)

(20,431)

Retained earnings

42,343

40,539

Accumulated other comprehensive loss

(2,403)

(2,880)

Total Shareowners' Equity

33,785

31,866

Noncontrolling interest

1,408

1,353

Total Equity

35,193

33,219

Total Liabilities and Equity

$

92,142

$

90,594

Debt Ratios:

Debt to total capitalization

36

%

38

%

Net debt to net capitalization

30

%

32

%

See accompanying Notes to Condensed Consolidated Financial Statements.

 

United Technologies Corporation

Condensed Consolidated Statement of Cash Flows

Quarter Ended June 30,

Six Months Ended June 30,

(Unaudited)

(Unaudited)

(Millions)

2014

2013

2014

2013

Operating Activities of Continuing Operations:

Income from continuing operations

$

1,790

$

1,645

$

3,096

$

2,997

Adjustments to reconcile net income from continuing operations to net cash flows provided by operating activities of continuing operations:

Depreciation and amortization

468

439

935

883

Deferred income tax (benefit) provision

(8)

50

36

10

Stock compensation cost

58

63

118

133

Change in working capital

(478)

(66)

(999)

(264)

Global pension contributions

(60)

(22)

(144)

(51)

Other operating activities, net

(28)

(170)

35

(360)

Net cash flows provided by operating activities of continuing operations

1,742

1,939

3,077

3,348

Investing Activities of Continuing Operations:

Capital expenditures

(406)

(369)

(739)

(664)

Acquisitions and dispositions of businesses, net

(34)

511

72

1,233

Increase in collaboration intangible assets

(165)

(143)

(308)

(300)

Other investing activities, net

176

(230)

102

(161)

Net cash flows (used in) provided by investing activities of continuing operations

(429)

(231)

(873)

108

Financing Activities of Continuing Operations:

Repayment of long-term debt, net

(179)

(1,178)

(173)

(1,224)

Increase (decrease) in short-term borrowings, net

219

27

19

(302)

Dividends paid on Common Stock

(513)

(465)

(1,026)

(930)

Repurchase of Common Stock

(335)

(335)

(670)

(670)

Other financing activities, net

(41)

(17)

7

139

Net cash flows used in financing activities of continuing operations

(849)

(1,968)

(1,843)

(2,987)

Discontinued Operations:

Net cash provided by (used in) operating activities

21

(694)

Net cash provided by investing activities

402

351

Net cash flows provided by (used in) discontinued operations

423

(343)

Effect of foreign exchange rate changes on cash and cash equivalents

21

(35)

(18)

(53)

Net increase in cash and cash equivalents

485

128

343

73

Cash and cash equivalents, beginning of period

4,477

4,781

4,619

4,836

Cash and cash equivalents of continuing operations, end of period

$

4,962

$

4,909

$

4,962

$

4,909

See accompanying Notes to Condensed Consolidated Financial Statements.

 

United Technologies Corporation

Free Cash Flow Reconciliation

Quarter Ended June 30,

(Unaudited)

(Millions)

2014

2013

Net income from continuing operations attributable to common shareowners

$

1,680

$

1,552

Net cash flows provided by operating activities of continuing operations

$

1,742

$

1,939

Net cash flows provided by operating activities of continuing operations as a percentage of net income from continuing operations attributable to common shareowners

104

%

125

%

Capital expenditures

(406)

(369)

Capital expenditures as a percentage of net income from continuing operations attributable to common shareowners

(24)%

(24)%

Free cash flow from continuing operations

$

1,336

$

1,570

Free cash flow from continuing operations as a percentage of net income from continuing operations attributable to common shareowners

80

%

101

%

Six Months Ended June 30,

(Unaudited)

(Millions)

2014

2013

Net income attributable to common shareowners from continuing operations

$

2,893

$

2,822

Net cash flows provided by operating activities of continuing operations

$

3,077

$

3,348

Net cash flows provided by operating activities of continuing operations as a percentage of net income attributable to common shareowners from continuing operations

106

%

119

%

Capital expenditures

(739)

(664)

Capital expenditures as a percentage of net income attributable to common shareowners from continuing operations

(26)%

(24)%

Free cash flow from continuing operations

$

2,338

$

2,684

Free cash flow from continuing operations as a percentage of net income attributable to common shareowners from continuing operations

81

%

95

%

 

Notes to Condensed Consolidated Financial Statements

(1)

Debt to total capitalization equals total debt divided by total debt plus equity.  Net debt to net capitalization equals total debt less cash and cash equivalents divided by total debt plus equity less cash and cash equivalents.

(2)

Organic sales growth represents the total reported increase within the Corporation's ongoing businesses less the impact of foreign currency translation, acquisitions and divestitures completed in the preceding twelve months and significant non-recurring items.

(3)

Free cash flow, which represents cash flow from operations less capital expenditures, is the principal cash performance measure used by UTC. Management believes free cash flow provides a relevant measure of liquidity and a useful basis for assessing UTC's ability to fund its activities, including the financing of acquisitions, debt service, repurchases of UTC's common stock and distribution of earnings to shareholders.  Other companies that use the term free cash flow may calculate it differently.  The reconciliation of net cash flow provided by operating activities, prepared in accordance with generally accepted accounting principles, to free cash flow is shown above.

 

Contact:

John Moran, UTC (860) 728-7062

Investor Relations (860) 728-7608

Logo- http://photos.prnewswire.com/prnh/20140122/NE50390LOGO

 

SOURCE United Technologies Corp.



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