UTC Reports Third Quarter 2014 Results

- EPS of $2.04, up 32% (up 12% to $1.82 ex. restructuring and one-time items)

- Sales of $16.2 billion, including 5% organic growth

- Segment margins up 60 bps to 17.2%, ex. restructuring and one-time items

- Reaffirms 2014 EPS expectation of $6.75 to $6.85

Oct 21, 2014, 06:59 ET from United Technologies Corp.

HARTFORD, Conn., Oct. 21, 2014 /PRNewswire/ -- United Technologies Corp. (NYSE: UTX) reported third quarter earnings per share of $2.04 and net income attributable to common shareowners of $1.9 billion, up 32 percent and 31 percent respectively over the year ago quarter.  Results for the current quarter include $0.22 per share of favorable one-time items net of restructuring costs.  Earnings per share in the year ago quarter included $0.08 of restructuring costs and one-time items.  Excluding these items in both quarters, earnings per share increased 12 percent year over year.

Sales of $16.2 billion increased 5 percent, all driven by organic growth.  Third quarter segment operating profit increased 16 percent over the prior year, with operating margin of 17.5 percent.  Excluding restructuring costs and net one-time items, segment operating profit grew 8 percent with 60 basis points of operating margin expansion to 17.2 percent.  

"UTC delivered another quarter of solid performance," said Louis Chênevert, UTC Chairman & Chief Executive Officer.  "Along with strong margin expansion and a fifth consecutive quarter of organic sales growth, we've seen increased demand for our integrated building solutions and revenue synergy opportunities for our Building & Industrial Systems businesses.  We also achieved a number of significant program milestones that position UTC for long-term growth. These include supporting the first flight of the Airbus A320neo with Pratt & Whitney's new Geared Turbofan engines and unveiling Sikorsky's next-generation S-97 Raider helicopter."

Otis new equipment orders in the quarter increased 4 percent over the prior year at constant currency.  Equipment orders at UTC Climate, Controls & Security increased 5 percent excluding early order activity ahead of next year's SEER-14 standard change.  Large commercial engine spares orders were up 1 percent at Pratt & Whitney and commercial spares orders increased 11 percent at UTC Aerospace Systems.  Commercial aftermarket sales were up 7 percent and 10 percent at Pratt & Whitney and UTC Aerospace Systems, respectively. 

"With double-digit earnings and 4 percent organic sales growth through the first three quarters, UTC remains on track to deliver on our expectations for the year," said Chênevert. "Our solid backlog and organic growth trends continue to give us confidence in our earnings per share range of $6.75 to $6.85, on sales of about $65 billion."

Cash flow from operations was $1.9 billion and capital expenditures were $415 million in the quarter. Share repurchase was $425 million.  UTC now expects share repurchase of $1.5 billion for the year, up from the previous expectation of $1.35 billion.  As a result of ongoing investment to support the aerospace upcycle, the company continues to anticipate 2014 cash flow from operations less capital expenditures of about 90 percent of net income attributable to common shareowners.

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 impact 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

Contact:

Kate Ruppar, UTC
(860) 728-6515

Investor Relations
(860) 728-7608

www.utc.com

 

United Technologies Corporation
Condensed Consolidated Statement of Operations

 



Quarter Ended September 30,


Nine Months Ended September 30,



(Unaudited)


(Unaudited)

(Millions, except per share amounts)

2014



2013



2014



2013


Net Sales

$

16,168



$

15,462



$

48,104



$

45,867


Costs and Expenses:













Cost of products and services sold

11,466



11,020



35,087



33,037



Research and development

677



630



1,967



1,871



Selling, general and administrative

1,580



1,633



4,799



4,997



Total Costs and Expenses

13,723



13,283



41,853



39,905


Other income, net

301



187



948



917


Operating profit

2,746



2,366



7,199



6,879



Interest expense, net

186



226



617



679


Income from continuing operations before income taxes

2,560



2,140



6,582



6,200



Income tax expense

608



614



1,534



1,677


Income from continuing operations

1,952



1,526



5,048



4,523



Less: Noncontrolling interest in subsidiaries' earnings from continuing operations

98



111



301



286


Income from continuing operations attributable to common shareowners

1,854



1,415



4,747



4,237


Discontinued Operations:













Income from operations







63



Gain (loss) on disposal



10





(30)



Income tax benefit (expense)



7





(12)


Income from discontinued operations attributable to common shareowners



17





21


Net income attributable to common shareowners

$

1,854



$

1,432



$

4,747



$

4,258


Earnings Per Share of Common Stock - Basic:













From continuing operations attributable to common shareowners

$

2.07



$

1.57



$

5.28



$

4.70



From discontinued operations attributable to common shareowners



0.02





0.02


Earnings Per Share of Common Stock - Diluted:













From continuing operations attributable to common shareowners

$

2.04



$

1.55



$

5.20



$

4.64



From discontinued operations attributable to common shareowners



0.02





0.02


Weighted Average Number of Shares Outstanding:













Basic shares

898



901



899



901



Diluted shares

910



916



913



914


 

As described on the following pages, consolidated results for the quarters and nine months ended September 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 September 30,


Nine Months Ended September 30,


(Unaudited)


(Unaudited)

(Millions)

2014



2013



2014



2013


Net Sales












Otis

$

3,326



$

3,188



$

9,646



$

9,140


UTC Climate, Controls & Security

4,351



4,237



12,631



12,617


Pratt & Whitney

3,564



3,386



10,485



10,412


UTC Aerospace Systems

3,535



3,312



10,621



9,896


Sikorsky

1,620



1,541



5,365



4,356


Segment Sales

16,396



15,664



48,748



46,421


Eliminations and other

(228)



(202)



(644)



(554)


Consolidated Net Sales

$

16,168



$

15,462



$

48,104



$

45,867














Operating Profit












Otis

$

703



$

681



$

1,966



$

1,906


UTC Climate, Controls & Security

807



696



2,159



1,968


Pratt & Whitney

633



439



1,453



1,412


UTC Aerospace Systems

575



501



1,767



1,501


Sikorsky

152



159



(79)



405


Segment Operating Profit

2,870



2,476



7,266



7,192


Eliminations and other



7



288



32


General corporate expenses

(124)



(117)



(355)



(345)


Consolidated Operating Profit

$

2,746



$

2,366



$

7,199



$

6,879


















Segment Operating Profit Margin
















Otis


21.1

%



21.4

%



20.4

%



20.9

%

UTC Climate, Controls & Security


18.5

%



16.4

%



17.1

%



15.6

%

Pratt & Whitney


17.8

%



13.0

%



13.9

%



13.6

%

UTC Aerospace Systems


16.3

%



15.1

%



16.6

%



15.2

%

Sikorsky


9.4

%



10.3

%



(1.5)

%



9.3

%

Segment Operating Profit Margin


17.5

%



15.8

%



14.9

%



15.5

%

 

As described on the following pages, consolidated results for the quarters and nine months ended September 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 September 30,


Nine Months Ended September 30,


(Unaudited)


(Unaudited)

In Millions - Income (Expense)

2014



2013



2014



2013


Non-Recurring items included in Net Sales:












Sikorsky

$



$



$

830



$














Restructuring Costs included in Operating Profit:












Otis

$

(15)



$

(19)



$

(53)



$

(68)


UTC Climate, Controls & Security

(14)



(28)



(82)



(66)


Pratt & Whitney

(8)



(22)



(55)



(122)


UTC Aerospace Systems

(26)



(24)



(36)



(65)


Sikorsky



(11)



(17)



(25)


Eliminations and other



1





1



(63)



(103)



(243)



(345)


Non-Recurring items included in Operating Profit:












UTC Climate, Controls & Security

30





30



38


Pratt & Whitney

83



(25)



1



168


Sikorsky





(466)




Eliminations and other





220





113



(25)



(215)



206


Total impact on Consolidated Operating Profit

50



(128)



(458)



(139)


Non-Recurring items included in Interest Expense, Net

23





44



36


Tax effect of restructuring and non-recurring items above

5



34



155



39


Non-Recurring items included in Income Tax Expense

118



24



371



141


Impact on Net Income from Continuing Operations Attributable to Common Shareowners

$

196



$

(70)



$

112



$

77


Impact on Diluted Earnings Per Share from Continuing Operations

$

0.22



$

(0.08)



$

0.12



$

0.08


 

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

Quarter Ended September 30, 2014

UTC Climate, Controls & Security:  Approximately $30 million net gain from UTC Climate, Controls & Security's ongoing portfolio transformation, primarily due to a gain on the sale of an interest in a joint venture in North America.

Pratt & Whitney:  Approximately $83 million net gain, primarily as a result of fair value adjustments related to a business acquisition.

Interest Expense, Net: Approximately $23 million of favorable pre-tax interest adjustments, primarily related to the resolution of disputes with the Appeals Division of the IRS for the Company's 2006 - 2008 tax years.

Income Tax Expense: Approximately $118 million of favorable income tax adjustments, primarily related to the resolution of disputes with the Appeals Division of the IRS for the Company's 2006 - 2008 tax years.

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 September 30, 2013

Pratt & Whitney: Approximately $25 million charge to adjust the fair value of a Pratt & Whitney joint venture investment.

Income Tax Expense: Favorable tax benefit of approximately $24 million as a result of a U.K. tax rate reduction enacted in July 2013.

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 September 30,


Nine Months Ended September 30,


(Unaudited)


(Unaudited)

(Millions)

2014



2013



2014



2013


Net Sales












Otis

$

3,326



$

3,188



$

9,646



$

9,140


UTC Climate, Controls & Security

4,351



4,237



12,631



12,617


Pratt & Whitney

3,564



3,386



10,485



10,412


UTC Aerospace Systems

3,535



3,312



10,621



9,896


Sikorsky

1,620



1,541



4,535



4,356


Segment Sales

16,396



15,664



47,918



46,421


Eliminations and other

(228)



(202)



(644)



(554)


Consolidated Net Sales

$

16,168



$

15,462



$

47,274



$

45,867














Adjusted Operating Profit












Otis

$

718



$

700



$

2,019



$

1,974


UTC Climate, Controls & Security

791



724



2,211



1,996


Pratt & Whitney

558



486



1,507



1,366


UTC Aerospace Systems

601



525



1,803



1,566


Sikorsky

152



170



404



430


Segment Operating Profit

2,820



2,605



7,944



7,332


Eliminations and other



6



68



31


General corporate expenses

(124)



(117)



(355)



(345)


Adjusted Consolidated Operating Profit

$

2,696



$

2,494



$

7,657



$

7,018



















Adjusted Segment Operating Profit Margin

















Otis


21.6

%



22.0

%



20.9

%



21.6

%


UTC Climate, Controls & Security


18.2

%



17.1

%



17.5

%



15.8

%


Pratt & Whitney


15.7

%



14.4

%



14.4

%



13.1

%


UTC Aerospace Systems


17.0

%



15.9

%



17.0

%



15.8

%


Sikorsky


9.4

%



11.0

%



8.9

%



9.9

%


Adjusted Segment Operating Profit Margin


17.2

%



16.6

%



16.6

%



15.8

%


 

 

United Technologies Corporation
Condensed Consolidated Balance Sheet


September 30,


December 31,


2014



2013


(Millions)

(Unaudited)


(Unaudited)

Assets






Cash and cash equivalents

$

5,035



$

4,619


Accounts receivable, net

11,080



11,458


Inventories and contracts in progress, net

10,341



10,330


Other assets, current

2,955



3,035


Total Current Assets

29,411



29,442


Fixed assets, net

9,182



8,866


Goodwill

28,169



28,168


Intangible assets, net

15,684



15,521


Other assets

9,328



8,597


Total Assets

$

91,774



$

90,594








Liabilities and Equity






Short-term debt

$

2,141



$

500


Accounts payable

7,046



6,965


Accrued liabilities

14,721



15,335


Total Current Liabilities

23,908



22,800


Long-term debt

17,857



19,741


Other long-term liabilities

14,479



14,723


Total Liabilities

56,244



57,264


Redeemable noncontrolling interest

141



111


Shareowners' Equity:






Common Stock

15,069



14,638


Treasury Stock

(21,519)



(20,431)


Retained earnings

43,668



40,539


Accumulated other comprehensive loss

(3,169)



(2,880)


Total Shareowners' Equity

34,049



31,866


Noncontrolling interest

1,340



1,353


Total Equity

35,389



33,219


Total Liabilities and Equity

$

91,774



$

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 September 30,


Nine Months Ended September 30,


(Unaudited)


(Unaudited)

(Millions)

2014



2013



2014



2013


Operating Activities of Continuing Operations:












Income from continuing operations

$

1,952



$

1,526



$

5,048



$

4,523


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












Depreciation and amortization

483



452



1,418



1,335


Deferred income tax provision

82



4



118



13


Stock compensation cost

85



83



203



216


Change in working capital

(398)



(200)



(1,396)



(464)


Global pension contributions

(60)



(21)



(204)



(72)


Other operating activities, net

(196)



(301)



(162)



(660)


Net cash flows provided by operating activities of continuing operations

1,948



1,543



5,025



4,891


Investing Activities of Continuing Operations:












Capital expenditures

(415)



(383)



(1,154)



(1,047)


Acquisitions and dispositions of businesses, net

(207)



112



(134)



1,345


Increase in collaboration intangible assets

(152)



(247)



(459)



(547)


Other investing activities, net

170



(190)



271



(350)


Net cash flows used in investing activities of continuing operations

(604)



(708)



(1,476)



(599)


Financing Activities of Continuing Operations:












Repayment of long-term debt, net

(50)



(571)



(222)



(1,795)


(Decrease) increase in short-term borrowings, net

(147)



98



(128)



(204)


Dividends paid on Common Stock

(511)



(465)



(1,538)



(1,395)


Repurchase of Common Stock

(425)



(330)



(1,095)



(1,000)


Other financing activities, net

(97)



30



(91)



168


Net cash flows used in financing activities of continuing operations

(1,230)



(1,238)



(3,074)



(4,226)


Discontinued Operations:












Net cash provided by (used in) operating activities



91





(603)


Net cash provided by investing activities







351


Net cash flows provided by (used in) discontinued operations



91





(252)


Effect of foreign exchange rate changes on cash and cash equivalents

(41)



24



(59)



(29)


Net increase (decrease) in cash and cash equivalents

73



(288)



416



(215)


Cash and cash equivalents, beginning of period

4,962



4,909



4,619



4,836


Cash and cash equivalents of continuing operations, end of period

$

5,035



$

4,621



$

5,035



$

4,621


 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

United Technologies Corporation
Free Cash Flow Reconciliation

 


Quarter Ended September 30,


(Unaudited)

(Millions)

2014


2013











Net income from continuing operations attributable to common shareowners

$

1,854





$

1,415




Net cash flows provided by operating activities of continuing operations

$

1,948





$

1,543




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



105

%




109

%

Capital expenditures

(415)





(383)




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



(22)

%




(27)

%

Free cash flow from continuing operations

$

1,533





$

1,160




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



83

%




82

%












Nine Months Ended September 30,


(Unaudited)

(Millions)

2014


2013











Net income attributable to common shareowners from continuing operations

$

4,747





$

4,237




Net cash flows provided by operating activities of continuing operations

$

5,025





$

4,891




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



106

%




115

%

Capital expenditures

(1,154)





(1,047)




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



(24)

%




(25)

%

Free cash flow from continuing operations

$

3,871





$

3,844




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



82

%




91

%

 

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.

 

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SOURCE United Technologies Corp.



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