01—Abstract
Summary
Summary of the 10-K filed March 28, 1996. Cited figures are marked; the original filing is the authoritative source.
United Technologies Corporation (RTX's predecessor, NYSE: UTX) closed 1995 with its strongest year in the period reviewed: sales rose 8% to $22.6 billiona (total revenues $22.8 billion), net income grew 28% to $750 million, and primary EPS reached $5.70 versus $4.40 in 1994.
Growth was broad-based across Otis, Carrier and UT Automotive, which together posted roughly 13%b revenue growth, while Pratt & Whitney's operating profit rose 39% on higher commercial volumes and the absence of a 1994 downsizing charge. Flight Systems was the laggard, with revenues down 8% and operating profit down 26% on weaker helicopter volumes and a Hamilton Standard propeller provision. Balance sheet and cash generation improved markedly.
Operating cash flow rose to $2.04 billionc from $1.36 billion, net debt fell to $1.14 billion from $2.06 billion, and the debt-to-capitalization ratio dropped to about 34% from 39%. Management expects 1996 capital spending to be similar to 1995 and customer financing to become a net use of funds. The company also repurchased $221 million of stock and raised its dividend to $2.05 per share for the year.
Key risks remain concentrated in the aerospace and defense franchises. U.S. Government sales were $3.65 billiond (16% of sales), defense budgets are declining, and the company faces multiple open government investigations (Pratt & Whitney accounting, Israeli and Saudi matters, and a False Claims Act complaint), though management does not expect them to be material.
Commercial aerospace remains tied to airline health, and Pratt & Whitney's backlog of $9.5 billion is a meaningful positive. The UTA ignition-switch lawsuits filed in early 1996 are an emerging exposure that management currently views as not material.
02—Key points
Key Highlights
- Sales increased 8% to $22.6 billion in 1995, with Otis, Carrier and Automotive revenues up about 13% combined.
- Net income rose 28% to $750 million; primary EPS was $5.70 versus $4.40 in 1994 (fully diluted EPS also $5.70).
- Pratt & Whitney operating profit rose 39% to $530 million, with margin expanding to 8.6% from 6.5%.
- Flight Systems weakened: revenues fell 8% and operating profit fell 26%, driven by lower helicopter volumes and a propeller service provision.
- Operating cash flow nearly doubled? No: rose 51% to $2.04 billion, and net debt was reduced by $916 million to $1.14 billion.
- Total backlog was $17.7 billion at year end, down from $18.3 billion, with Pratt & Whitney at $9.5 billion.
- U.S. Government sales were $3.65 billion (16% of revenue), a declining share amid defense budget reductions and ongoing government investigations.
03—Questions
Frequently Asked Questions
How did RTX's (UTC's) 1995 earnings compare with 1994?
Net income rose 28% to $750 million from $585 million, and primary EPS increased to $5.70 from $4.40. Results were helped by improved margins in service businesses, the absence of 1994 one-time charges, and strong growth at Otis, Carrier and Pratt & Whitney.
Is the balance sheet getting stronger?
Yes. Net debt fell to $1.14 billion from $2.06 billion, debt-to-total-capitalization dropped to about 34% from 39%, and cash rose to $900 million. Operating cash flow of $2.04 billion funded debt reduction, $221 million of share repurchases and dividends.
What are the main risks to investors?
Concentration in defense and commercial aerospace is the principal risk: declining U.S. defense budgets, airline industry financial strain, and pending government investigations at Pratt & Whitney, Sikorsky and elsewhere. Management believes none is material, but outcomes could include suspension or debarment from government contracting. The new UTA ignition-switch lawsuits are also a watch item.
Which business segments drove growth in 1995?
Otis (revenue up 14%, operating profit up 21%), Carrier (revenue up 11%, operating profit up 27%) and Pratt & Whitney (operating profit up 39%) led growth. Automotive revenue rose 14% but its profit was flat due to raw material costs and new-model launch expenses. Flight Systems declined on weaker helicopter volumes.
What is the outlook for 1996 spending and financing?
Management expects 1996 capital expenditures to be comparable to 1995 (about $780 million), R&D to remain between 4% and 5% of sales, and customer financing to become a net use of funds. Committed aircraft financing of about $990 million could require up to $342 million of disbursements in 1996.
04—Continue