Business context and reporting period
This is United Technologies Corporation’s (UTC) unaudited Form 10-Q for the quarter and nine months ended September 30, 2009. UTC reported six segments: Otis, Carrier, UTC Fire & Security, Pratt & Whitney, Hamilton Sundstrand, and Sikorsky. The filing identifies UTC, not RTX Corp; investors should verify the requested company and filing identity.
Financial results and liquidity
| Metric | Q3 2009 | Q3 2008 | 9M 2009 | 9M 2008 |
|---|---|---|---|---|
| Total revenue | $13.375B | $15.085B | $38.820B | $44.987B |
| Operating profit | $1.771B | $2.049B | $4.658B | $5.822B |
| Operating margin | 13.2% | 13.6% | 12.0% | 12.9% |
| Net income attributable to common shareowners | $1.058B | $1.269B | $2.756B | $3.544B |
| Diluted EPS | $1.14 | $1.33 | $2.97 | $3.68 |
| Gross margin as % of sales | 25.4% | 27.0% | 25.8% | 26.5% |
- Cash flow: Nine-month operating cash flow was $3.878B versus $4.141B. Investing used $731M and financing used $2.908B. Capital expenditures were $501M. Cash increased $305M from year-end 2008 to $4.632B.
- Balance sheet: At September 30, cash was $4.632B; total debt was $10.432B and net debt $5.800B. Total equity was $19.646B. Net debt to net capitalization was 23%, versus 30% at year-end 2008. Current assets were $23.729B and current liabilities $18.200B.
- Returns to shareholders: Nine-month common dividends paid were $1.018B; share repurchases were $780M. The quarterly dividend was $0.385 per share.
Material changes versus prior comparable period
- Q3 revenue declined 11.3% and nine-month revenue declined 13.7%; management attributed the declines mainly to lower organic activity and a stronger U.S. dollar. Nine-month sales fell across most businesses, particularly Carrier, while Sikorsky grew.
- Q3 operating profit fell 13.6%; nine-month operating profit fell 20.0%. Consolidated margins narrowed, reflecting lower volumes and higher restructuring costs. Restructuring charges were $231M in Q3 and $695M for nine months, versus $93M and $221M, respectively, in 2008.
- Carrier was especially weak: nine-month revenue declined 26% and operating profit 49%. Sikorsky provided a partial offset, with nine-month revenue up 16% and operating profit up 25%, supported by military deliveries.
- Nine-month operating cash flow declined, but working capital was a $284M source of cash versus a $690M use in 2008. The filing attributes much of the improvement to inventory reduction and collections, partly offset by lower customer advances at Sikorsky.
- Comparative 2008 revenue and cost figures were retrospectively grossed up for collaborative arrangements; the change did not affect operating profit. Noncontrolling interests were also reclassified into equity.
Outlook, management commentary, risks, and unusual items
- Management described markets as showing signs of stabilization but said recovery remained uncertain and conditions difficult. It cited weak construction, housing, transport refrigeration, airline traffic, business aviation, and aerospace aftermarket demand.
- Management expected approximately $800M of 2009 restructuring costs, including charges already recorded, and approximately $640M in annual recurring pretax savings from 2009 actions as they mature. Those actions target about 13,000 workforce reductions and 4.3 million net square feet of facility exits; most remaining actions were targeted for 2010–2011.
- Management expected full-year company-funded R&D to decline approximately $175M from 2008, capital expenditures to fall approximately 30% from 2008, pension contributions of at least $750M, and 2009 acquisitions investment of approximately $2B. It expected an approximately 28% effective tax rate for the balance of 2009 before discrete items and adverse P&WC foreign-exchange effects of approximately $125M for full-year 2009.
- UTC reported $4.632B cash and access to $2.5B of committed revolving credit facilities, with no borrowings under those facilities at quarter-end. Management stated it believed liquidity and operating flexibility were adequate; commercial paper outstanding was $592M, scheduled to mature within one month.
- Unusual items included a $57M Q3 pretax gain on Carrier’s contribution of distribution businesses to a Watsco venture; a $52M Q2 noncash, nontaxable Otis gain on remeasurement of a prior joint-venture interest; and Q3 tax re-evaluation benefits, including a $38M tax expense reduction and approximately $17M pretax interest income adjustments.
- Risks include ongoing economic and market weakness, foreign exchange and maturing hedges, airline and construction-sector exposure, government-contract investigations and audits, uncertain tax positions, supplier disruption, and acquisition integration. A union lawsuit challenges planned Pratt & Whitney facility closures; the company said it believed the claims lacked merit. The filing also describes a DOJ False Claims Act appeal and a DOD claim against Sikorsky of approximately $80M, which UTC disputed.
- PwC conducted a review of the interim financial information, not a full audit, and expressed no audit opinion.
Important facts for investors to verify
- Confirm that this UTC 2009 filing—not a filing by RTX Corp—is the intended company and reporting period.
- Review segment trends, especially Carrier’s steep declines and Sikorsky’s military-driven growth, and assess whether the market stabilization described by management translated into later results.
- Track restructuring execution, remaining charges, workforce and facility actions, and whether projected recurring savings were achieved.
- Check cash generation against pension contributions, acquisition spending, dividends, and repurchases; monitor near-term commercial paper maturities and credit access.
- Assess resolution and potential financial effects of the disclosed tax matters, government-contract claims, and Pratt & Whitney labor litigation.
- Account for the retrospective gross presentation of collaborative-arrangement revenue when comparing periods; it increased reported revenue and costs without changing operating profit.