01—Abstract
Summary
Summary of the 10-K filed February 11, 2010. Cited figures are marked; the original filing is the authoritative source.
This 10-K is United Technologies Corporation's (UTC, NYSE: UTX) annual report for fiscal 2009, filed February 11, 2010.
UTC later became RTX Corp, so this is the same company's predecessor filing. The year was difficult: revenue fell 11% to $52.9 billiona, including a 7% organic decline, as recession hit commercial construction, residential housing, business jets, and commercial aerospace aftermarket. Net income attributable to common shareowners dropped 18% to $3.83 billion, and diluted EPS fell to $4.12 from $4.90.
Management responded with a $830 millionb restructuring program targeting about 14,600 job reductions and roughly $700 million in annual savings. Segment operating margin slipped only 30 basis points to 13.1%, and the company generated $5.35 billion in operating cash flow despite a $1.3 billion pension contribution. Balance sheet strength improved markedly: total debt fell about $1.7 billion, debt-to-capitalization dropped from 41% to 32%, and the company kept its A/A2/A+ credit ratings.
The mix of businesses offers some resilience. Sikorsky's military helicopter demand grew, with segment revenue up 18% and operating profit up 27%, and military OEM volume rose 20% company-wide. Aerospace backlog remained large, with Pratt & Whitney at $22.6 billionc and Sikorsky at $10.3 billion.
Management guided to only flat to slightly positive organic revenue growth in 2010, with earnings growth driven by lower restructuring costs and savings. Capital deployment is expected to be substantial: about $3 billiond in 2010 acquisitions, including the roughly $1.8 billion purchase of GE Security, plus roughly $1.5 billion in share repurchases. Key risks include government contract exposure, a 1999 Department of Justice False Claims Act suit against Pratt & Whitney (the government's claimed liability was $624 million, and the court awarded a $7.09 million civil penalty, now on appeal), an $83 million Defense Department claim against Sikorsky, and a European Commission fine of about $300 million against Otis that is under appeal.
A February 2010 court ruling also barred Pratt & Whitney from closing two Connecticut facilities during the current labor contract, which expires December 2010. Emerging-market exposure, currency swings (notably the Euro and Canadian dollar), and a cyclical commercial aerospace and construction base remain central considerations.
02—Key points
Key Highlights
- Revenue declined 11% to $52.9 billion (organic -7%, FX -3%, net divestitures -1%), with Carrier revenue down 24% and Otis down 9%, while Sikorsky grew 18%.
- Net income attributable to common shareowners fell 18% to $3.83 billion; diluted EPS was $4.12 versus $4.90 in 2008, and the 2009 result absorbed $830 million of restructuring charges.
- Operating cash flow was $5.35 billion, down from $6.16 billion, after a $1.3 billion pension contribution; working capital released $1.1 billion, and capex was reduced to $826 million.
- Total debt fell to $9.74 billion from $11.48 billion, and debt-to-total-capitalization improved to 32% from 41%; credit ratings were affirmed at A (S&P), A2 (Moody's), and A+ (Fitch).
- Aerospace backlog stayed large: Pratt & Whitney $22.6 billion, Sikorsky $10.3 billion, and Hamilton Sundstrand $5.1 billion; Sikorsky's military helicopter demand and U.S. government sales ($9.3 billion, 18% of revenue) grew.
- 2010 guidance calls for flat to slight organic revenue growth, expected earnings growth from lower restructuring costs, roughly $3 billion of acquisition spending (including the $1.8 billion GE Security deal), and about $1.5 billion of share repurchases.
- Legal and contract risks include the DOJ False Claims Act case against Pratt & Whitney (government claim of $624 million, now on appeal), an $83 million Sikorsky overhead-rate claim, and a €225 million EU fine against Otis under appeal.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2009, RTX kept $0.07.
- Revenue$52.92B100.0%
- Cost of revenue−$28.91B54.6%
- Gross profit$24.02B45.4%
- Operating costs−$17.64B33.3%
- Operating income$6.38B12.1%
- Interest, other & tax−$2.55B4.8%
- Net income$3.83B7.2%
Where FY2009 revenue went
$52.92B- Cost of revenue: $28.91B, 55% of revenue
- Other operating costs: $10.04B, 19% of revenue
- Net income: $3.83B, 7.2% of revenue
- R&D: $1.56B, 2.9% of revenue
- SG&A: $6.04B, 11% of revenue
- Interest, other & tax: $2.55B, 4.8% of revenue
Kept 7.2% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2009filed February 11, 2010Financial Statements
FY2009 against FY2008
| Line item | FY2009FY2008 | Change |
|---|---|---|
| Revenue | $52.92B$59.76B | −11.4% |
| Cost of Revenue | $28.91B$32.83B | −12.0% |
| Gross Profit | $24.02B$26.92B | −10.8% |
| R&D Expenses | $1.56B$1.77B | −12.0% |
| SG&A Expenses | $6.04B$6.72B | −10.2% |
| Operating Expenses | $46.45B— | — |
| Operating Income | $6.38B$7.51B | −15.1% |
| Interest Expense | $705.00M$689.00M | +2.3% |
| Net Income | $3.83B$4.69B | −18.3% |
| EPS (Basic) | $4.17$5.00 | −16.6% |
| EPS (Diluted) | $4.12$4.90 | −15.9% |
| Shares Outstanding (Basic) | 917.40M937.80M | −2.2% |
| Shares Outstanding (Diluted) | 928.80M956.40M | −2.9% |
05—Questions
Frequently Asked Questions
Why did UTC's earnings decline so sharply in 2009?
Revenue fell 11% on weak volumes across nearly all businesses. Carrier's residential and commercial construction markets collapsed, Pratt & Whitney aftermarket spares fell about 25%, and business jet demand dried up. Restructuring charges of $830 million, a stronger U.S. dollar, and lower other income (fewer divestiture gains) further reduced diluted EPS to $4.12 from $4.90.
What is the outlook for 2010?
Management expects only flat to slight organic revenue growth, weighted toward the second half and dependent on order recovery. Earnings growth is expected to resume because restructuring costs fall (about $350 million expected in 2010) and savings from 2009 actions build toward roughly $700 million annually. The effective tax rate is guided to about 29%, and company-funded R&D is expected to rise about $100 million.
How strong is the balance sheet and how is cash being deployed?
Net debt fell to $5.3 billion from $7.1 billion, and cash rose to $4.4 billion. The company repurchased $1.1 billion of stock in 2009, paid $1.36 billion in dividends ($1.54 per share), and plans about $1.5 billion of buybacks and roughly $3 billion of acquisitions in 2010. The GE Security purchase (about $1.8 billion) is expected to close in early Q2 2010 and will be integrated into UTC Fire & Security.
What are the most material legal and regulatory risks?
The most significant is the 1999 DOJ False Claims Act suit against Pratt & Whitney over F100 engine pricing; the trial court found liability but awarded only a $7.09 million penalty, and both sides have appealed, with a potentially material outcome if the government prevails. Other items include an $83 million Defense Department claim against Sikorsky (under appeal), a €225 million EU competition fine against Otis (under appeal), and a court injunction that bars Pratt & Whitney from closing two Connecticut facilities through the current union contract, which expires December 2010. Management does not expect these to be materially adverse unless the DOJ case succeeds.
06—Continue