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

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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