01—Abstract
Summary
Summary of the 10-K/A filed March 3, 2003. Cited figures are marked; the original filing is the authoritative source.
This filing is Amendment No. 1 (Form 10-K/A) to United Technologies Corporation's (UTC, now RTX Corp) 2002 Annual Report.
It was filed to correct typographical errors in Exhibit 13 (the Annual Report to Shareowners), including tabular errors in Notes 10 and 17 and some director and leadership titles, and to fix errors in the Exhibit 21 subsidiary list. The company states these changes are not material and that the printed annual report and original 10-K are correct. Substantive financials are the same as the original February 10, 2003 filing.
For investors, the 2002 results show modest top-line growth with stronger profitability. Revenues rose 1% to $28.2 billiona, operating profit rose 13% to $3.66 billion, and net income rose 15% to $2.24 billion, or $4.42 per diluted share versus $3.83 in 2001. Gross margin improved to 27.9% from 26.9%, helped by the end of goodwill amortization ($230 million in 2001) and a roughly $100 million environmental settlement gain in 2002.
Growth was uneven across segments. Otis (elevators and escalators) and Sikorsky led on revenue and profit, while Carrier faced weak North American and European HVAC and commercial refrigeration markets, with revenue down 1%b. Pratt & Whitney and Hamilton Sundstrand were pressured by the commercial airline downturn, with commercial spare parts orders down about 10%.
Management expects these commercial aerospace conditions to persist in 2003. Balance sheet items to watch include a $2.4 billionc increase in the minimum pension liability (a $1.6 billion after-tax charge to equity), pension funded status that fell to a $3.9 billion underfunding, a $500 million cash pension contribution in 2002 and another $500 million in January 2003, and $1.6 billion of commercial aircraft financing and rental commitments. Debt to total capitalization held at 37%, and net debt to capitalization improved to 25% from 29%.
02—Key points
Key Highlights
- Revenue rose 1% to $28,212 million in 2002 from $27,897 million in 2001. Otis (+7%) and Flight Systems (+5%) grew, while Carrier (-1%) and Pratt & Whitney (flat) were weaker.
- Net income rose 15% to $2,236 million. Diluted EPS was $4.42, up from $3.83, supported by the discontinuation of goodwill amortization under SFAS No. 142.
- Operating profit increased 13% to $3,657 million. Otis operating profit rose 25% to $1,057 million, while Pratt & Whitney's declined 2% to $1,282 million.
- Gross margin improved to 27.9% from 26.9%. The gain included about $230 million of 2001 goodwill amortization that no longer applies and an approximately $100 million environmental claim settlement in 2002.
- Pension pressure increased. Funded status fell to a $3.9 billion deficit, the minimum pension liability charge reached a $1.6 billion after-tax hit to equity, and the company made $1.0 billion in 2002 contributions, including a $500 million cash payment in January 2003.
- Capital returns and leverage were steady. The company repurchased $700 million of stock, paid $462 million in common dividends, and ended 2002 with $2.1 billion of cash and debt to capitalization of 37%, down to 25% on a net debt basis from 29%.
- The 10-K/A corrects typographical errors in Exhibit 13 and Exhibit 21 only. The company states the changes are not material and that the printed annual report and original filing are correct.
03—Questions
Frequently Asked Questions
Why was this 10-K/A filed, and does it change the company's financial results?
The amendment corrects typographical errors in Exhibit 13 (the Annual Report to Shareowners), including tabular errors in Notes 10 and 17 and some director and leadership titles, and fixes errors in the Exhibit 21 subsidiary list. The company says the changes are not material to financial condition, results of operations, or cash flows, and that the printed annual report and original 10-K are correct. The reported financial results are unchanged from the February 10, 2003 filing.
How did the company's segments perform in 2002?
Otis revenue grew 7% to $6.8 billion, with operating profit up 25% to $1.06 billion, the strongest segment performance. Carrier revenue fell 1% to $8.8 billion, and operating profit rose 32% to $779 million, though excluding restructuring charges the increase was 17%. Pratt & Whitney revenue was flat at $7.6 billion, and operating profit fell 2% to $1.28 billion as commercial spare parts weakened. Flight Systems revenue rose 5% to $5.6 billion, and operating profit rose 11% to $741 million, partly because of the goodwill amortization change. Sikorsky's acquisition of Derco Holding contributed to growth.
What are the main risks investors should consider from this filing?
Key risks include: continued weakness in commercial aerospace, which management expects to persist into 2003 as airlines cut flight schedules and suppliers face pricing pressure; a pension deficit of about $3.9 billion, with the expected return on plan assets lowered to 8.5% and a $500 million cash contribution made in January 2003; a $1.6 billion commercial aircraft financing and rental commitment exposure, with up to $434 million possibly disbursed in 2003; U.S. government contract audits that could lead to price reductions; $438 million in environmental remediation reserves; and an increase in the effective tax rate expected in 2003. Goodwill of about $7.0 billion also carries impairment risk if business conditions deteriorate.
How did the company generate and use cash in 2002?
Operating cash flow was $2.85 billion, down from $2.98 billion, mainly because of a $500 million cash contribution to domestic pension plans. Capital expenditures fell to $586 million from $793 million. Acquisitions totaled $424 million, and management expects 2003 acquisition spending of about $1.5 billion. The company returned cash through $700 million of share repurchases and $462 million of common dividends. Cash and equivalents ended the year at $2.08 billion, and net debt was $2.79 billion.
What are the 2003 expectations and restructuring plans?
Management expects capital expenditures to rise in 2003 to roughly match depreciation, and it expects total R&D to be 4% to 5% of sales. The company expects pension expense to rise in 2003 because of the lower discount rate of 6.75% and the lower expected return on assets. The 2002 restructuring program, with $321 million of charges, targets about 7,000 net workforce reductions and about $285 million of annual pre-tax savings, with remaining actions to be completed in 2003. The company also said it may take additional restructuring actions in 2003, but none had been approved as of the filing.
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