27-Jul-2016 11:43 AM

UTC Reports Second Quarter 2016 Results

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26-Jul-2016 UTC Reports Second Quarter 2016 Results

GAAP EPS of $1.71, up 4 percent versus the prior year
Adjusted EPS of $1.82, up 9 percent versus the prior year
Sales of $14.9 billion were up 1 percent versus the prior year including 1 percent organic sales growth
Increases 2016 full year sales and adjusted EPS outlook*

United Technologies Corp. (NYSE: UTX) today reported second quarter 2016 results. All results in this release reflect continuing operations unless otherwise noted.

Second quarter GAAP EPS of $1.71 was up 4 percent versus the prior year and included 11 cents of net restructuring and other significant non-operational items. Adjusted EPS of $1.82 was up 9 percent versus the prior year. Net income in the quarter was $1.4 billion, down 3 percent versus the prior year. Sales of $14.9 billion were up 1 percent, with 1 point of organic and 1 point of net acquisition growth offset by 1 point of unfavorable foreign exchange.

"United Technologies had a solid first half of the year with 2 percent organic sales growth, and we remain on track to meet our growth targets for 2020," UTC President and Chief Executive Officer Gregory Hayes said. "We delivered strong cash flow, led by exceptional cash generation in the commercial businesses, even while we continued to invest in the aerospace ramp. As a result of our solid financial performance through the second quarter, we are raising the low end of our 2016 adjusted EPS outlook by 15 cents to $6.45 to $6.60 per share*, on increased sales of $57 to $58 billion."

*Note: Expectations for EPS and organic sales are provided on an adjusted basis as the corresponding GAAP measures are not reasonably available due to uncertainty as to potentially significant items of a non-recurring and/or non-operational nature. See "Use of Non-GAAP Financial Measures" below for additional information.

Cash flow from operations for the quarter was $1.8 billion (125 percent of net income attributable to common shareowners) and capital expenditures were $363 million. Free cash flow of $1.4 billion in the quarter was 100 percent of net income attributable to common shareowners.

Otis new equipment orders in the quarter decreased 4 percent over the prior year at constant currency, and grew 3 percent excluding China. Equipment orders at UTC Climate, Controls & Security decreased by 4 percent, primarily driven by a difficult compare in the transport refrigeration business. Commercial aftermarket sales were up 20 percent at Pratt & Whitney, and up 5 percent at UTC Aerospace Systems.

"We continue to focus on our key priorities. This includes achieving critical aerospace program milestones and successfully meeting the production ramp to support our large and growing order book. We now have orders for 8,200 Geared Turbofan engines, including announced and unannounced firm and option engines," Hayes added. "In our commercial businesses, we continue to invest in innovation and position ourselves to benefit from growing urbanization trends. With our focused portfolio of industry leading franchises, we are confident in our ability to create significant long-term value for our shareholders."

UTC updates its 2016 outlook and now anticipates:

Adjusted EPS of $6.45 to $6.60 up from $6.30 to $6.60**;
Sales of $57 billion to $58 billion, up from $56 billion to $58 billion (year over year growth of 2% to 3%, including organic sales growth of 1% to 3%**);
There is no change in the Company's previously provided 2016 expectations for free cash flow, share repurchases, and the placeholder for acquisitions.
**Note: Expectations for EPS and organic sales are provided on an adjusted basis as the corresponding GAAP measures are not reasonably available due to uncertainty as to potentially significant items of a non-recurring and/or non-operational nature. See "Use of Non-GAAP Financial Measures" below for additional information.

United Technologies Corporation Condensed Consolidated Statement of Operations

		Quarter Ended June 30,				Six Months Ended June 30,
		(Unaudited)				(Unaudited)
(Millions, except per share amounts)		2016		2015		2016		2015
Net Sales		$	14,874	$	14,690	$	28,231	$	28,010
Costs and Expenses:
	Cost of products and services sold	10,741		10,472		20,395		19,978
	Research and development	588		558		1,129		1,122
	Selling, general and administrative	1,451		1,426		2,814		2,902
	Total Costs and Expenses	12,780		12,456		24,338		24,002
Other income, net		243		181		389		589
Operating profit		2,337		2,415		4,282		4,597
	Interest expense, net	225		217		448		434
Income from continuing operations before income taxes		2,112		2,198		3,834		4,163
	Income tax expense	593		626		1,054		1,156
Income from continuing operations		1,519		1,572		2,780		3,007
	Less: Noncontrolling interest in subsidiaries' earnings from continuing operations	99		111		180		182
Income from continuing operations attributable to common shareowners		1,420		1,461		2,600		2,825
Discontinued operations:
	Income from operations	1		166		1		257
	(Loss) gain on disposal	(3)		(28)		15		(28)
	Income tax expense	(45)		(58)		(52)		(86)
	(Loss) income from discontinued operations	(47)		80		(36)		143
	Less: Noncontrolling interest in subsidiaries' earnings from discontinued operations	-		(1)		-		-
(Loss) income from discontinued operations attributable to common shareowners		(47)		81		(36)		143
Net income attributable to common shareowners		$	1,373	$	1,542	$	2,564	$	2,968
Earnings (Loss) Per Share of Common Stock - Basic:
	From continuing operations attributable to common shareowners	$	1.72	$	1.67	$	3.15	$	3.19
	From discontinued operations attributable to common shareowners	(0.06)		0.09		(0.04)		0.16
Earnings (Loss) Per Share of Common Stock - Diluted:
	From continuing operations attributable to common shareowners	$	1.71	$	1.64	$	3.13	$	3.15
	From discontinued operations attributable to common shareowners	(0.06)		0.09		(0.04)		0.16
Weighted Average Number of Shares Outstanding:
	Basic shares	825		877		825		885
	Diluted shares	833		889		832		898

As described on the following pages, consolidated results for the quarters and six months ended June 30, 2016 and 2015 include restructuring costs and significant non-recurring and non-operational 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)	2016			2015			2016			2015
Net Sales
Otis	$	3,097		$	3,098		$	5,812		$	5,843
UTC Climate, Controls & Security	4,459			4,454			8,187			8,306
Pratt & Whitney	3,813			3,677			7,401			7,009
UTC Aerospace Systems	3,716			3,632			7,221			7,180
Segment Sales	15,085			14,861			28,621			28,338
Eliminations and other	(211)			(171)			(390)			(328)
Consolidated Net Sales	$	14,874		$	14,690		$	28,231		$	28,010

Operating Profit
Otis	$	581		$	627		$	1,047		$	1,154
UTC Climate, Controls & Security	872			823			1,478			1,552
Pratt & Whitney	386			487			796			906
UTC Aerospace Systems	582			580			1,120			1,149
Segment Operating Profit	2,421			2,517			4,441			4,761
Eliminations and other	13			18			29			66
General corporate expenses	(97)			(120)			(188)			(230)
Consolidated Operating Profit	$	2,337		$	2,415		$	4,282		$	4,597

Segment Operating Profit Margin
Otis		18.8	%		20.2	%		18.0	%		19.8	%
UTC Climate, Controls & Security		19.6	%		18.5	%		18.1	%		18.7	%
Pratt & Whitney		10.1	%		13.2	%		10.8	%		12.9	%
UTC Aerospace Systems		15.7	%		16.0	%		15.5	%		16.0	%
Segment Operating Profit Margin		16.0	%		16.9	%		15.5	%		16.8	%

As described on the following pages, consolidated results for the quarters and six months ended June 30, 2016 and 2015 include restructuring costs and significant non-recurring and non-operational items that management believes should be considered when evaluating the underlying financial performance.

United Technologies Corporation Reconciliation of Reported to Adjusted Results

	Quarter Ended June 30,				Six Months Ended June 30,
	(Unaudited)				(Unaudited)
In Millions - Income (Expense)	2016		2015		2016		2015
Income from continuing operations attributable to common shareowners	$	1,420	$	1,461	$	2,600	$	2,825
Restructuring Costs included in Operating Profit:
Otis	(16)		(8)		(31)		(14)
UTC Climate, Controls & Security	(25)		(28)		(53)		(52)
Pratt & Whitney	(66)		(2)		(71)		(15)
UTC Aerospace Systems	(8)		-		(21)		(50)
Eliminations and other	(1)		(1)		(2)		(1)
	(116)		(39)		(178)		(132)
Significant non-recurring and non-operational items included in Operating Profit:
UTC Climate, Controls & Security:
Gain on fair value adjustment on acquisition of controlling interest in a joint venture	-		-		-		126
Acquisition and integration costs related to current period acquisitions	(12)		-		(12)		-
	(12)		-		(12)		126
Total impact on Consolidated Operating Profit	(128)		(39)		(190)		(6)
Tax effect of restructuring and significant non- recurring and non-operational items above	40		15		60		45
Less: Impact on Net Income from Continuing Operations Attributable to Common Shareowners	(88)		(24)		(130)		39
Adjusted income from continuing operations attributable to common shareowners	$	1,508	$	1,485	$	2,730	$	2,786

Diluted Earnings Per Share from Continuing Operations	$	1.71	$	1.64	$	3.13	$	3.15
Impact on Diluted Earnings Per Share from Continuing Operations	(0.11)		(0.03)		(0.16)		0.04
Adjusted Diluted Earnings Per Share from Continuing Operations	$	1.82	$	1.67	$	3.29	$	3.11

United Technologies Corporation Segment Net Sales and Operating Profit Adjusted for Restructuring Costs and Significant Non-recurring and Non-operational Items (as reflected on the previous page)

	Quarter Ended June 30,						Six Months Ended June 30,
	(Unaudited)						(Unaudited)
(Millions)	2016			2015			2016			2015
Net Sales
Otis	$	3,097		$	3,098		$	5,812		$	5,843
UTC Climate, Controls & Security	4,459			4,454			8,187			8,306
Pratt & Whitney	3,813			3,677			7,401			7,009
UTC Aerospace Systems	3,716			3,632			7,221			7,180
Segment Sales	15,085			14,861			28,621			28,338
Eliminations and other	(211)			(171)			(390)			(328)
Consolidated Net Sales	$	14,874		$	14,690		$	28,231		$	28,010

Adjusted Operating Profit
Otis	$	597		$	635		$	1,078		$	1,168
UTC Climate, Controls & Security	909			851			1,543			1,478
Pratt & Whitney	452			489			867			921
UTC Aerospace Systems	590			580			1,141			1,199
Segment Operating Profit	2,548			2,555			4,629			4,766
Eliminations and other	14			19			31			67
General corporate expenses	(97)			(120)			(188)			(230)
Adjusted Consolidated Operating Profit	$	2,465		$	2,454		$	4,472		$	4,603

Adjusted Segment Operating Profit Margin
Otis		19.3	%		20.5	%		18.5	%		20.0	%
UTC Climate, Controls & Security		20.4	%		19.1	%		18.8	%		17.8	%
Pratt & Whitney		11.9	%		13.3	%		11.7	%		13.1	%
UTC Aerospace Systems		15.9	%		16.0	%		15.8	%		16.7	%
Adjusted Segment Operating Profit Margin		16.9	%		17.2	%		16.2	%		16.8	%

United Technologies Corporation Components of Changes in Net Sales

*Quarter Ended June 30, 2016 Compared with Quarter Ended June 30, 2015*

	Factors Contributing to Total % Change in Net Sales
	Organic	FX Translation	Acquisitions / Divestitures, net	Total
Otis	2%	(2)%	-	-
UTC Climate, Controls & Security	(1)%	(1)%	2%	-
Pratt & Whitney	4%	-	-	4%
UTC Aerospace Systems	2%	-	-	2%

Consolidated	1%	(1)%	1%	1%


*Six Months Ended June 30, 2016 Compared with Six Months Ended June 30, 2015*

	Factors Contributing to Total % Change in Net Sales
	Organic	FX Translation	Acquisitions / Divestitures, net	Total
Otis	3%	(4)%	-	(1)%
UTC Climate, Controls & Security	(1)%	(1)%	1%	(1)%
Pratt & Whitney	6%	-	-	6%
UTC Aerospace Systems	1%	-	-	1%

Consolidated	2%	(1)%	-	1%

United Technologies Corporation Condensed Consolidated Balance Sheet

	June 30,			December 31,
	2016			2015
(Millions)	(Unaudited)			(Unaudited)
Assets
Cash and cash equivalents	$	6,785		$	7,075
Accounts receivable, net	11,544			10,653
Inventories and contracts in progress, net	8,747			8,135
Other assets, current	894			843
Total Current Assets	27,970			26,706
Fixed assets, net	8,911			8,732
Goodwill	27,535			27,301
Intangible assets, net	15,842			15,603
Other assets	9,222			9,142
Total Assets	$	89,480		$	87,484

Liabilities and Equity
Short-term debt	$	2,407		$	1,105
Accounts payable	7,242			6,875
Accrued liabilities	12,534			14,638
Total Current Liabilities	22,183			22,618
Long-term debt	20,130			19,320
Other long-term liabilities	16,205			16,580
Total Liabilities	58,518			58,518
Redeemable noncontrolling interest	314			122
Shareowners' Equity:
Common Stock	16,241			15,928
Treasury Stock	(31,118)			(30,907)
Retained earnings	51,451			49,956
Accumulated other comprehensive loss	(7,484)			(7,619)
Total Shareowners' Equity	29,090			27,358
Noncontrolling interest	1,558			1,486
Total Equity	30,648			28,844
Total Liabilities and Equity	$	89,480		$	87,484

Debt Ratios:
Debt to total capitalization		42	%		41	%
Net debt to net capitalization		34	%		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)	2016		2015		2016		2015
Operating Activities of Continuing Operations:
Net income from continuing operations	$	1,519	$	1,572	$	2,780	$	3,007
Adjustments to reconcile net income from continuing operations to net cash flows provided by operating activities of continuing operations:
Depreciation and amortization	494		457		960		915
Deferred income tax provision	74		182		208		335
Stock compensation cost	48		46		96		92
Change in working capital	3		(450)		(637)		(723)
Global pension contributions	(32)		(26)		(107)		(70)
Canadian government settlement	-		-		(237)		-
Other operating activities, net	(330)		(406)		(492)		(534)
Net cash flows provided by operating activities of continuing operations	1,776		1,375		2,571		3,022
Investing Activities of Continuing Operations:
Capital expenditures	(363)		(332)		(649)		(654)
Acquisitions and dispositions of businesses, net	(425)		(19)		(488)		(90)
Increase in collaboration intangible assets	(101)		(115)		(199)		(247)
Receipts (payments) from settlements of derivative contracts	44		(154)		86		414
Other investing activities, net	(14)		(84)		(92)		81
Net cash flows used in investing activities of continuing operations	(859)		(704)		(1,342)		(496)
Financing Activities of Continuing Operations:
(Repayment) issuance of long-term debt, net	(2)		(8)		2,322		2
(Decrease) increase in short-term borrowings, net	(484)		468		(178)		2,645
Dividends paid on Common Stock	(526)		(543)		(1,035)		(1,096)
Repurchase of Common Stock	(36)		-		(36)		(3,000)
Other financing activities, net	(62)		(73)		(145)		(92)
Net cash flows (used in) provided by financing activities of continuing operations	(1,110)		(156)		928		(1,541)
Discontinued Operations:
Net cash (used in) provided by operating activities	(236)		161		(2,463)		(174)
Net cash provided by (used in) investing activities	6		(25)		6		(60)
Net cash used in financing activities	-		(4)		-		(5)
Net cash flows (used in) provided by discontinued operations	(230)		132		(2,457)		(239)
Effect of foreign exchange rate changes on cash and cash equivalents	(7)		5		10		(48)
Net (decrease) increase in cash and cash equivalents	(430)		652		(290)		698
Cash and cash equivalents, beginning of period	7,215		5,281		7,075		5,235
Cash and cash equivalents of continuing operations, end of period	6,785		5,933		6,785		5,933
Less: Cash and cash equivalents of assets held for sale	-		115		-		115
Cash and cash equivalents of continuing operations, end of period	$	6,785	$	5,818	$	6,785	$	5,818

See accompanying Notes to Condensed Consolidated Financial Statements.

United Technologies Corporation Free Cash Flow Reconciliation

	Quarter Ended June 30,
	(Unaudited)
(Millions)	2016				2015

Net income attributable to common shareowners from continuing operations	$	1,420			$	1,461
Net cash flows provided by operating activities of continuing operations	$	1,776			$	1,375
Net cash flows provided by operating activities of continuing operations as a percentage of net income attributable to common shareowners from continuing operations			125	%			94	%
Capital expenditures	(363)				(332)
Capital expenditures as a percentage of net income attributable to common shareowners from continuing operations			(26)	%			(23)	%
Free cash flow from continuing operations	$	1,413			$	1,043
Free cash flow from continuing operations as a percentage of net income attributable to common shareowners from continuing operations			100	%			71	%

	Six Months Ended June 30,
	(Unaudited)
(Millions)	2016				2015

Net income attributable to common shareowners from continuing operations	$	2,600			$	2,825
Net cash flows provided by operating activities of continuing operations	$	2,571			$	3,022
Net cash flows provided by operating activities of continuing operations as a percentage of net income attributable to common shareowners from continuing operations			99	%			107	%
Capital expenditures	(649)				(654)
Capital expenditures as a percentage of net income attributable to common shareowners from continuing operations			(25)	%			(23)	%
Free cash flow from continuing operations	$	1,922			$	2,368
Free cash flow from continuing operations as a percentage of net income attributable to common shareowners from continuing operations			74	%			84	%

Notes to Condensed Consolidated Financial Statements

(1)	Adjusted net sales, organic sales, adjusted operating profit and adjusted EPS are non-GAAP financial measures. Adjusted net sales represents consolidated net sales from continuing operations (a GAAP measure), excluding significant items of a non-recurring and non-operational nature (hereinafter referred to as "other significant items"). Organic sales represents consolidated net sales (a GAAP measure), excluding the impact of foreign currency translation, acquisitions and divestitures completed in the preceding twelve months and other significant items. Adjusted operating profit represents income from continuing operations (a GAAP measure), excluding restructuring costs and other significant items. Adjusted EPS represents diluted earnings per share from continuing operations (a GAAP measure), excluding restructuring costs and other significant items. For the business segments, adjustments of net sales, operating profit and margins similarly reflect continuing operations, excluding restructuring and other significant items. Management believes that these non-GAAP measures are useful in providing period to period comparisons of the results of the Company's ongoing operational performance. A reconciliation of these non-GAAP measures to the corresponding amounts prepared in accordance with generally accepted accounting principles is included in the tables above.

(2)	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.

(3)	Free cash flow is a non-GAAP financial measure that represents cash flow from operations (a GAAP measure) less capital expenditures. Management believes free cash flow is a useful measure of liquidity and an additional 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. A reconciliation of net cash flow provided by operating activities, prepared in accordance with generally accepted accounting principles, to free cash flow is provided above.

(4)	Adjusted net sales, organic sales, adjusted operating profit, adjusted EPS and free cash flow should not be considered in isolation or as substitutes for the related GAAP measures. Moreover, other companies may define these non-GAAP measures differently, which limits the usefulness of those measures for comparisons with such other companies.