01—Abstract
Summary
Summary of the 10-K filed February 7, 2008. Cited figures are marked; the original filing is the authoritative source.
United Technologies Corporation (UTC), now RTX Corporation, reported 2007 revenues of $54.76 billiona, up from $47.83 billion in 2006, and net income of $4.22 billion, or $4.27 per diluted share, compared with $3.73 billion, or $3.71 per diluted share, in 2006.
The filing attributes the growth to strong global economic conditions and commercial aerospace markets, with organic growth of 9%, acquisition growth of 2% and favorable currency translation of 3%. Operating profit rose to $7.05 billionb from $6.10 billion. Results were partly offset by a civil fine of approximately $300 million assessed by the European Commission against Otis, a $290 million net adverse impact from higher commodity and energy costs, and the continued weakness of the U.S. residential HVAC market at Carrier.
The company operates six segments: Otis, Carrier, UTC Fire & Security, Pratt & Whitney, Hamilton Sundstrand and Sikorsky. Commercial and industrial revenues were about 63% of consolidated revenues in 2007, with commercial aerospace at 21% and military aerospace at 16%. Backlog grew across most segments, including Pratt & Whitney at $23.61 billionc and Sikorsky at $11.45 billion at year-end 2007.
Operating cash flow was $5.33 billiond, capital expenditures were $1.15 billion, and the company returned value through $2.00 billion in share repurchases and $1.08 billion in dividends. Total debt was $9.15 billion at December 31, 2007, and debt to total capitalization was 30%.
Management expects mid-single-digit organic revenue growth in 2008, an effective tax rate of approximately 28.5%, about $2.0 billion in share repurchases and roughly $2.0 billion in business investments. The filing also discloses material contingencies, principally a U.S. Department of Justice False Claims Act suit against Pratt & Whitney in which the government claims liability of $624 million, and the pending appeal of the EU fine.
02—Key points
Key Highlights
- Revenues rose 14% to $54.76 billion in 2007, with organic growth of 9%, acquisitions contributing 2% and favorable currency translation contributing 3%.
- Net income increased to $4.22 billion, or $4.27 per diluted share, from $3.73 billion, or $3.71 per diluted share, in 2006.
- Operating profit increased to $7.05 billion from $6.10 billion, and gross margin was 26.0% of sales versus 26.3% in 2006.
- Otis faced an EU competition fine of approximately $300 million, paid in 2007 and under appeal, which reduced Otis' 2007 operating profit by a net $216 million after existing reserves.
- Pratt & Whitney backlog reached $23.61 billion and Sikorsky backlog reached $11.45 billion at December 31, 2007, and Sikorsky signed a five-year contract for 537 H-60 helicopters with an expected value of approximately $7.4 billion.
- Operating cash flow was $5.33 billion, against capital expenditures of $1.15 billion, and the company repurchased $2.00 billion of common stock and paid $1.08 billion in dividends.
- The Department of Justice False Claims Act suit against Pratt & Whitney, in which the government claims $624 million, remains pending a decision.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2007, RTX kept $0.08.
- Revenue$55.72B100.0%
- Cost of revenue−$30.87B55.4%
- Gross profit$24.85B44.6%
- Operating costs−$17.80B31.9%
- Operating income$7.05B12.7%
- Interest, other & tax−$2.83B5.1%
- Net income$4.22B7.6%
Where FY2007 revenue went
$55.72B- Cost of revenue: $30.87B, 55% of revenue
- Other operating costs: $10.01B, 18% of revenue
- Net income: $4.22B, 7.6% of revenue
- R&D: $1.68B, 3.0% of revenue
- SG&A: $6.11B, 11% of revenue
- Interest, other & tax: $2.83B, 5.1% of revenue
Kept 7.6% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2007filed February 7, 2008Financial Statements
| Revenue | $55.72B |
| Cost of Revenue | $30.87B |
| Gross Profit | $24.85B |
| R&D Expenses | $1.68B |
| SG&A Expenses | $6.11B |
| Operating Income | $7.05B |
| Interest Expense | $666.00M |
| Net Income | $4.22B |
| EPS (Basic) | $4.38 |
| EPS (Diluted) | $4.27 |
| Shares Outstanding (Basic) | 964.00M |
| Shares Outstanding (Diluted) | 989.00M |
05—Questions
Frequently Asked Questions
How did UTC perform financially in 2007?
UTC reported revenues of $54.76 billion, up from $47.83 billion in 2006, and net income of $4.22 billion, or $4.27 per diluted share, up from $3.73 billion, or $3.71 per diluted share. Growth was led by the aerospace businesses and by strong commercial markets, with organic growth of 9%.
What are the main risks to UTC's results?
The filing cites cyclical aerospace and construction markets, U.S. government contracting risks including investigations and audits, foreign currency and international regulatory exposure, supplier and raw material availability and cost, acquisition integration, and new technology development. It also highlights the decline in the U.S. residential HVAC market and the pending DOJ suit and EU competition fine.
What was the impact of the EU fine on Otis?
The European Commission assessed a civil fine of €225 million, approximately $300 million, against Otis, its local entities and UTC for competition violations in Belgium, Luxembourg, the Netherlands and part of Germany. The fine was paid during 2007, and UTC appealed in May 2007. The filing says the fine reduced 2007 operating profit by approximately $216 million, net of existing reserves.
What does UTC expect for 2008?
UTC expects mid-single-digit organic revenue growth in 2008, a 2008 effective income tax rate of approximately 28.5% before discrete events, company-funded research and development spending increased by about $200 million, investments in businesses of approximately $2 billion, and share repurchases of approximately $2.0 billion.
What is the status of the Pratt & Whitney Department of Justice lawsuit?
The DOJ sued Pratt & Whitney in 1999 under the civil False Claims Act over F100 engine contracts awarded from fiscal 1985 to 1990. Trial was completed in December 2004, and the government claimed liability of $624 million. The company denies liability and says the estimate is substantially overstated. A decision is pending, and the filing says an adverse outcome could have a material effect on results.
06—Continue