UTC Reports Third Quarter EPS Growth of 14 Percent, Expects 2010 EPS of $4.70, up 14 Percent, and Increases Expected 2010 Net Restructuring by $100 Million

Oct 20, 2010, 07:00 ET from United Technologies Corp.

HARTFORD, Conn., Oct. 20 /PRNewswire-FirstCall/ -- United Technologies Corp. (NYSE: UTX) today reported third quarter 2010 earnings per share of $1.30 and net income attributable to common shareowners of $1.2 billion, up 14 percent and 13 percent, respectively, over the year ago third quarter.  Results for the current and prior year quarters included net charges for restructuring and one time items of $0.09 and $0.13 per share, respectively.  Before these charges, earnings per share increased 9 percent year over year.  Currency hedges at Pratt & Whitney Canada, net of foreign exchange translation, contributed $0.02 to the earnings per share increase.

Revenues of $13.5 billion for the quarter were 1 percent above prior year with 3 points of organic growth and 1 point of adverse foreign currency translation.   Segment operating margin at 16.1 percent was 160 basis points higher than prior year.  Adjusted for restructuring and one time items, segment operating margin of 16.3 percent was 90 basis points higher than prior year.  Cash flow from operations was $1.7 billion and, after capital expenditures of $177 million, substantially exceeded net income attributable to common shareowners.

"UTC's results this quarter reflect solid operating leverage with strong conversion on organic revenue growth," said Louis Chenevert, UTC Chairman & Chief Executive Officer.  "Sustained and structural cost reduction actions drove record segment operating margin, while we increased our investment in new game changing technologies.  Cash generation continued to be exceptional, and we made additional contributions of $350 million to our domestic pension plans.

"Based on the strong year to date performance, we are raising 2010 earnings per share guidance to $4.70, the high end of our prior range of $4.60 to $4.70, while increasing restructuring, net of one time items, by $100 million," Chenevert added. "As expected, commercial aerospace aftermarket orders have rebounded nicely but the commercial construction markets remain weak.  Additional restructuring will further position us for solid earnings growth in the years ahead."

New equipment orders at Otis were down 1 percent over the year ago third quarter.  Commercial HVAC new equipment orders at Carrier grew 3 percent including unfavorable foreign exchange of 1 point.  Commercial spares orders at Pratt & Whitney's large engine business grew 35 percent and at Hamilton Sundstrand were up 13 percent over the year ago third quarter.

"We expect 2010 earnings per share will grow 14 percent over 2009 on revenues of $54 billion, up 2 percent," Chenevert continued.  "We now expect full year cash flow from operations less capital expenditures to exceed 100 percent of net income attributable to common shareowners.  UTC's leadership team remains focused on maximizing the potential of our world class franchises and achieving industry leading margins in all of our operating segments."  

Share repurchase was $494 million in the quarter and $1.6 billion year to date.  Acquisition spend was $183 million in the quarter and $2.6 billion year to date.  For the year, UTC expects that share repurchase and acquisition spend will be at least $2 billion and around $3 billion, respectively.

United Technologies Corp., based in Hartford, Connecticut, is a diversified company providing 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.

This release includes "forward looking statements" concerning expected revenue, earnings, cash flow, share repurchases, restructuring; anticipated benefits of UTC's diversification, cost reduction efforts and business model; and other matters that are subject to risks and uncertainties. These statements often contain words such as "expect", "anticipate", "plan", "estimate", "believe", "will", "should", "see", "guidance" and similar terms. Important uncertainties that could cause actual results to differ materially from those anticipated or implied in forward looking statements include the severity and duration of global recessionary conditions, including limited availability of credit; the impact of volatility and deterioration in financial markets on overall levels of economic activity; declines in end market demand in construction and in both the commercial and defense segments of the aerospace industry; fluctuation in foreign currency exchange rates, commodity prices, interest rates, and the impact of weather conditions; and company specific items including the impact of further deterioration or extended weakness in global economic conditions on demand for our products and services, the financial strength of customers and suppliers and on levels of air travel; financial difficulties, including bankruptcy, of commercial airlines; the availability and impact of acquisitions; the rate and ability to effectively integrate these acquired businesses; the ability to achieve cost reductions at planned levels; challenges in the design, development, production and support of advanced technologies and new products and services; delays and disruption in delivery of materials and services from suppliers; labor disputes; and the outcome of legal proceedings. The level of share repurchase may vary depending on the level of other investing activities. For information identifying other important economic, political, regulatory, legal, technological, competitive and other uncertainties, see UTC's SEC filings as submitted from time to time, including but not limited to, the information included in UTC's 10-K and 10-Q Reports under the headings "Business", "Risk Factors", "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Cautionary Note Concerning Factors that May Affect Future Results", as well as the information included in UTC's Current Reports on Form 8-K.

UTC-IR

United Technologies Corporation

Condensed Consolidated Statement of Operations

Quarter Ended

September 30,

Nine Months Ended

September 30,

(Unaudited)

(Unaudited)

(Millions, except per share amounts)

2010

2009

2010

2009

Revenues

$

13,527

$

13,375

$

39,508

$

38,820

Costs and Expenses:

Cost of products and services sold

9,667

9,836

28,414

28,544

Research and development

433

344

1,289

1,137

Selling, general and administrative

1,478

1,424

4,393

4,481

Operating Profit

1,949

1,771

5,412

4,658

Interest expense

182

170

560

522

Income before income taxes

1,767

1,601

4,852

4,136

Income tax expense

468

456

1,394

1,126

Net income

1,299

1,145

3,458

3,010

Less: Noncontrolling interest in subsidiaries' earnings

101

87

284

254

Net income attributable to common shareowners

$

1,198

$

1,058

$

3,174

$

2,756

Earnings Per Share of Common Stock:

Basic

$

1.32

$

1.15

$

3.49

$

3.00

Diluted

$

1.30

$

1.14

$

3.43

$

2.97

Weighted average number of shares outstanding:

Basic shares

906

917

910

918

Diluted shares

919

929

925

928

As described on the following pages, consolidated results for the quarters and nine months ended September 30, 2010 and 2009 include non-recurring items, restructuring and other costs.

See accompanying Notes to Condensed Consolidated Financial Statements.

United Technologies Corporation

Segment Revenues and Operating Profit

Quarter Ended

September 30,

Nine Months Ended

September 30,

(Unaudited)

(Unaudited)

(Millions)

2010

2009

2010

2009

Revenues

Otis

$

2,914

$

2,962

$

8,483

$

8,579

Carrier

2,964

3,007

8,528

8,594

UTC Fire & Security

1,657

1,383

4,695

3,999

Pratt & Whitney

3,250

3,031

9,440

9,322

Hamilton Sundstrand

1,419

1,400

4,147

4,183

Sikorsky

1,548

1,648

4,605

4,371

Segment Revenues

13,752

13,431

39,898

39,048

Eliminations and other

(225)

(56)

(390)

(228)

Consolidated Revenues

$

13,527

$

13,375

$

39,508

$

38,820

Operating Profit

Otis

$

678

$

633

$

1,915

$

1,770

Carrier

380

312

852

594

UTC Fire & Security

187

149

478

297

Pratt & Whitney

547

444

1,505

1,347

Hamilton Sundstrand

255

247

680

626

Sikorsky

163

157

477

406

Segment Operating Profit

2,210

1,942

5,907

5,040

Eliminations and other

(178)

(98)

(242)

(142)

General corporate expenses

(83)

(73)

(253)

(240)

Consolidated Operating Profit

$

1,949

$

1,771

$

5,412

$

4,658

Segment Operating Profit Margin

Otis

23.3%

21.4%

22.6%

20.6%

Carrier

12.8%

10.4%

10.0%

6.9%

UTC Fire & Security

11.3%

10.8%

10.2%

7.4%

Pratt & Whitney

16.8%

14.6%

15.9%

14.4%

Hamilton Sundstrand

18.0%

17.6%

16.4%

15.0%

Sikorsky

10.5%

9.5%

10.4%

9.3%

Segment Operating Profit Margin

16.1%

14.5%

14.8%

12.9%

As described on the following pages, consolidated results for the quarters and nine months ended September 30, 2010 and 2009 include non-recurring items, restructuring and other costs.

United Technologies Corporation

Restructuring and Other Costs

Consolidated operating profit for the quarters and nine months ended September 30, 2010 and 2009 includes restructuring and other costs as follows:

Quarter Ended

September 30,

Nine Months Ended

September 30,

(Unaudited)

(Unaudited)

(Millions)

2010

2009

2010

2009

Otis

$

12

$

52

$

40

$

131

Carrier

(1)

43

32

139

UTC Fire & Security

24

7

53

107

Pratt & Whitney

13

57

48

177

Hamilton Sundstrand

2

13

11

69

Sikorsky

7

-

14

7

Eliminations and other

1

59

12

62

General corporate expenses

-

-

-

3

Total Restructuring and Other Costs

$

58

$

231

$

210

$

695

1 Approximately $1 million, $4 million and $12 million of the total amount of restructuring and other costs incurred in the quarters ended March 31, 2010, September 30, 2009 and June 30, 2009, respectively, resides in other income, net which is reflected within revenues.

2 Restructuring and other costs recorded in the quarter ended September 30, 2009 at Pratt & Whitney primarily reflect reserves established in connection with Pratt's announced plans to close its Connecticut Airfoil Repair Operations facility in East Hartford, Connecticut and its engine overhaul facility in Cheshire, Connecticut.

3 Total restructuring and other costs within Eliminations and other incurred in the quarters and nine months ended September 30, 2010 and 2009 primarily reflects the impact of curtailments of our domestic pension plans.  

Non-Recurring Items

Consolidated results for the quarters and nine months ended September 30, 2010 and 2009 include the following non-recurring items:

Q3-2010

Carrier: Approximately $24 million net gain resulting from dispositions associated with Carrier's ongoing portfolio transformation.

Eliminations and other: Approximately $159 million other-than-temporary impairment charge of our equity investment in Clipper Windpower Plc, a California-based wind turbine manufacturer.

Income tax expense: Approximately $102 million favorable net tax benefit associated with management's intention to repatriate additional foreign cash to the U.S. in 2010.

Q2-2010

Carrier: Approximately $47 million net charge resulting from dispositions associated with Carrier's ongoing portfolio transformation.  Included in this net charge is an approximately $58 million asset impairment charge associated with the expected disposition of a business, partially offset by an approximately $11 million gain on the sale of another business.

Hamilton Sundstrand: Approximately $28 million of asset impairment charges.  These charges relate primarily to the expected disposition of an aerospace business as part of Hamilton Sundstrand's ongoing low cost sourcing initiatives.

Eliminations and other: Favorable pretax interest adjustment of approximately $24 million associated with the resolution of an uncertain temporary tax item in the quarter.

Q3-2009

Carrier:  Approximately $57 million gain recognized from the contribution of the majority of Carrier's U.S. residential sales and distribution business into a new venture formed with Watsco, Inc.

Eliminations and other: Approximately $17 million of favorable pretax interest adjustments related to global tax examination activity in the quarter, primarily reflecting the completion of our review of the 2004 to 2005 Internal Revenue Service (IRS) audit report.

Income tax expense: Favorable income tax adjustments of approximately $38 million based on global examination activity in the quarter, including completion of our review of the 2004 to 2005 IRS audit report.

Income tax expense: Approximately $32 million adverse tax impact associated with a foreign reorganization.

Q2-2009

Otis:  Approximately $52 million non-cash, non-taxable gain recognized on the remeasurement to fair value of a previously held equity interest in a joint venture resulting from the purchase of a controlling interest.

Q1-2009

Income tax expense:  Favorable tax impact of approximately $25 million related to the formation of a commercial venture.

The following page provides segment revenues, operating profits and operating profit margins as adjusted for restructuring and other costs, and the aforementioned non-recurring items.  Management believes these adjusted results more accurately portray the ongoing operational performance and fundamentals of the underlying businesses.  The amount and timing of restructuring and other costs and non-recurring activity can vary substantially from period to period with no assurances of comparable activity or amounts being incurred in future periods.  The amount of restructuring and other costs in 2009 was significantly in excess of that incurred in prior years as well as the levels expected to be incurred in 2010 and reflected the severity of the global recession.  These amounts have therefore been adjusted out in the following schedule in order to provide a more representative comparison of current year operating performance to prior year performance.

United Technologies Corporation

Segment Revenues and Operating Profit Adjusted for Restructuring and Other Costs and Non-Recurring Items (as reflected on the previous page)

Quarter Ended

September 30,

Nine Months Ended

September 30,

(Unaudited)

(Unaudited)

(Millions)

2010

2009

2010

2009

Adjusted Revenues

Otis

$

2,914

$

2,962

$

8,483

$

8,527

Carrier

2,940

2,954

8,494

8,553

UTC Fire & Security

1,657

1,383

4,695

3,999

Pratt & Whitney

3,250

3,031

9,440

9,322

Hamilton Sundstrand

1,419

1,400

4,147

4,183

Sikorsky

1,548

1,648

4,605

4,371

Adjusted Segment Revenues

13,728

13,378

39,864

38,955

Eliminations and other

(66)

(73)

(255)

(245)

Adjusted Consolidated Revenues

$

13,662

$

13,305

$

39,609

$

38,710

Adjusted Operating Profit

Otis

$

690

$

685

$

1,955

$

1,849

Carrier

355

298

907

676

UTC Fire & Security

211

156

531

404

Pratt & Whitney

560

501

1,553

1,524

Hamilton Sundstrand

257

260

719

695

Sikorsky

170

157

491

413

Adjusted Segment Operating Profit

2,243

2,057

6,156

5,561

Eliminations and other

(18)

(56)

(95)

(97)

General corporate expenses

(83)

(73)

(253)

(237)

Adjusted Consolidated Operating Profit

$

2,142

$

1,928

$

5,808

$

5,227

Adjusted Segment Operating Profit Margin

Otis

23.7%

23.1%

23.0%

21.7%

Carrier

12.1%

10.1%

10.7%

7.9%

UTC Fire & Security

12.7%

11.3%

11.3%

10.1%

Pratt & Whitney

17.2%

16.5%

16.5%

16.3%

Hamilton Sundstrand

18.1%

18.6%

17.3%

16.6%

Sikorsky

11.0%

9.5%

10.7%

9.4%

Adjusted Segment Operating Profit Margin

16.3%

15.4%

15.4%

14.3%

United Technologies Corporation

Condensed Consolidated Balance Sheet

September 30,

December 31,

2010

2009

(Millions)

(Unaudited)

(Unaudited)

Assets

Cash and cash equivalents

$

5,731

$

4,449

Accounts receivable, net

8,731

8,469

Inventories and contracts in progress, net

8,430

7,509

Other assets, current

2,445

2,767

Total Current Assets

25,337

23,194

Fixed assets, net

6,148

6,364

Goodwill

17,422

16,298

Intangible assets, net

4,070

3,538

Other assets

7,672

6,368

Total Assets

$

60,649

$

55,762

Liabilities and Equity

Short-term debt

$

2,231

$

1,487

Accounts payable

4,964

4,634

Accrued liabilities

12,425

11,792

Total Current Liabilities

19,620

17,913

Long-term debt

10,071

8,257

Other long-term liabilities

8,387

8,204

Total Liabilities

38,078

34,374

Redeemable noncontrolling interest

318

389

Shareowners' Equity:

Common Stock

12,147

11,565

Treasury Stock

(16,920)

(15,408)

Retained earnings

29,384

27,396

Accumulated other comprehensive loss

(3,357)

(3,487)

Total Shareowners' Equity

21,254

20,066

Noncontrolling interest

999

933

Total Equity

22,253

20,999

Total Liabilities and Equity

$

60,649

$

55,762

Debt Ratios:

Debt to total capitalization

36%

32%

Net debt to net capitalization

23%

20%

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)

2010

2009

2010

2009

Operating Activities:

Net income attributable to common shareowners

$

1,198

$

1,058

$

3,174

$

2,756

Noncontrolling interest in subsidiaries' earnings

101

87

284

254

Net income

1,299

1,145

3,458

3,010

Adjustments to reconcile net income to net cash flows

   provided by operating activities:

Depreciation and amortization

342

316

1,008

925

Deferred income tax (benefit) provision

(251)

13

(123)

36

Stock compensation cost

24

32

112

110

Change in working capital

428

480

31

284

Global pension contributions *

(438)

(182)

(699)

(633)

Other operating activities, net

272

49

443

146

Net cash flows provided by operating activities

1,676

1,853

4,230

3,878

Investing Activities:

Capital expenditures

(177)

(161)

(479)

(501)

Acquisitions and dispositions of businesses, net

(115)

(297)

(2,351)

(450)

Other investing activities, net

(35)

254

144

220

Net cash flows used in investing activities

(327)

(204)

(2,686)

(731)

Financing Activities:

Increase (decrease) in borrowings, net

212

(409)

2,492

(1,037)

Dividends paid on Common Stock

(370)

(339)

(1,114)

(1,018)

Repurchase of Common Stock

(494)

(430)

(1,644)

(780)

Other financing activities, net

(61)

55

(42)

(73)

Net cash flows used in financing activities

(713)

(1,123)

(308)

(2,908)

Effect of foreign exchange rate changes on cash and cash equivalents

98

90

46

66

Net increase in cash and cash equivalents

734

616

1,282

305

Cash and cash equivalents, beginning of period

4,997

4,016

4,449

4,327

Cash and cash equivalents, end of period

$

5,731

$

4,632

$

5,731

$

4,632

* Non-cash activities include contributions of UTC Common Stock of $250 million to domestic defined benefit pension plans in the second quarter of 2010.

See accompanying Notes to Condensed Consolidated Financial Statements.

United Technologies Corporation

Free Cash Flow Reconciliation

Quarter Ended September 30,

(Unaudited)

(Millions)

2010 

2009 

Net income attributable to common shareowners

$

1,198 

$

1,058 

Noncontrolling interest in subsidiaries' earnings

101 

87 

Net income

1,299 

1,145 

Depreciation and amortization

342 

316 

Change in working capital

428 

480 

Other operating activities, net

(393)

(88)

Net cash flows provided by operating activities

1,676 

1,853 

Net cash flows provided by operating activities as a percentage

    of net income attributable to common shareowners

140 

%

175 

%

Capital expenditures

(177)

(161)

Capital expenditures as a percentage of net income

    attributable to common shareowners

(15)

%

(15)

%

Free cash flow

$

1,499 

$

1,692 

Free cash flow as a percentage of net income

    attributable to common shareowners

125 

%

160 

%

Nine Months Ended September 30,

(Unaudited)

(Millions)

2010 

2009 

Net income attributable to common shareowners

$

3,174 

$

2,756 

Noncontrolling interest in subsidiaries' earnings

284 

254 

Net income

3,458 

3,010 

Depreciation and amortization

1,008 

925 

Change in working capital

31 

284 

Other operating activities, net

(267)

(341)

Net cash flows provided by operating activities

4,230 

3,878 

Net cash flows provided by operating activities as a percentage

    of net income attributable to common shareowners

133 

%

141 

%

Capital expenditures

(479)

(501)

Capital expenditures as a percentage of net income

    attributable to common shareowners

(15)

%

(18)

%

Free cash flow

$

3,751 

$

3,377 

Free cash flow as a percentage of net income

    attributable to common shareowners

118 

%

123 

%

Free cash flow, which represents cash flow from operations less capital expenditures, is the principal cash performance measure used by the Corporation. Management believes free cash flow provides a relevant measure of liquidity and a useful basis for assessing the Corporation's ability to fund its activities, including the financing of acquisitions, debt service, repurchases of the Corporation's Common Stock and distribution of earnings to shareholders.  Others 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 above.

United Technologies Corporation

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 revenue 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.  Non-recurring items that are not included within organic revenue growth in 2010 include an approximately $24 million net gain resulting from dispositions associated with Carrier's ongoing portfolio transformation, an approximately $159 million other-than-temporary impairment charge of our equity investment in Clipper Windpower Plc, a California-based wind turbine manufacturer, an approximately $11 million gain on the sale of a business associated with Carrier's ongoing portfolio transformation and a favorable pretax interest adjustment of approximately $24 million associated with the resolution of an uncertain temporary tax item.  Non-recurring items that are not included in organic revenue growth in 2009 include an approximately $57 million gain recognized from the contribution of the majority of Carrier's U.S. residential sales and distribution business into a new venture formed with Watsco, Inc., approximately $52 million related to a non-cash, non-taxable gain recognized on the remeasurement to fair value of a previously held equity interest in a joint venture as a result of the purchase of a controlling interest and approximately $17 million of favorable pretax interest adjustments related to global tax examination activity, primarily reflecting the completion of our review of the 2004 to 2005 Internal Revenue Service (IRS) audit report.

Contact:

John Moran

(860) 728-7062

www.utc.com

SOURCE United Technologies Corp.



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