01—Abstract
Summary
Summary of the 10-K filed February 10, 2011. Cited figures are marked; the original filing is the authoritative source.
United Technologies (UTC) reported a solid 2010, with net sales up 3.6% to $54.3 billiona (2% organic growth, 1% FX, 1% net acquisitions) and operating profit rising 12.7% to $7.2 billion.
Segment operating margin expanded 140 basis points to 14.6%, driven by higher volumes, lower restructuring charges, and cost reductions. Diluted EPS was $4.74b, up from $4.12 in 2009, and net income attributable to common shareowners was $4.37 billion. Cash flow from operations rose to $5.9 billion, and the company returned capital through $2.2 billion of share repurchases and $1.5 billion of dividends.
The balance sheet absorbed the $1.8 billionc GE Security acquisition and the Clipper Windpower purchase, with total investments in businesses of $2.8 billion. Total debt rose to $10.3 billion, and the debt-to-capitalization ratio held at 32%. Management guided to 3% to 5% organic sales growth in 2011, with commercial aerospace aftermarket and short-cycle orders improving, but flagged roughly $150 million of commodity cost headwinds, $175 million of incremental R&D, and a higher expected 2011 tax rate of about 30.5%.
Key risks for investors include legal and contract exposures: the DOJ False Claims Act case against Pratt & Whitney, which the Sixth Circuit affirmed on liability in November 2010 with damages still pending; the Rolls-Royce fan blade patent litigation; a DOD $88 milliond claim against Sikorsky; and ongoing U.S. government contracting risk. Sikorsky's Canadian CH-148 fixed-price development program and Pratt & Whitney's PurePower PW1000G investment also carry execution and cost-overrun risk.
02—Key points
Key Highlights
- Net sales grew 3.6% to $54.3 billion, with 2% organic growth led by Carrier, Sikorsky and Pratt & Whitney, offset by declines at Otis and UTC Fire & Security.
- Segment operating margin rose 140 bps to 14.6%; operating profit increased 12.7% to $7.2 billion, aided by lower restructuring charges ($443M vs. $830M in 2009).
- Diluted EPS of $4.74 was up 15% from $4.12, supported by higher volumes, cost reductions and a $140M net tax benefit from repatriation.
- Cash flow from operations reached $5.9 billion; the company repurchased $2.2 billion of stock and paid $1.5 billion in dividends.
- Acquired GE Security ($1.8B) and completed the Clipper Windpower purchase, adding about $1.7B of goodwill and a new entry into wind power.
- 2011 guidance calls for 3%-5% organic sales growth, with a ~$150M commodity headwind, ~$175M of incremental R&D, and a ~30.5% effective tax rate.
- Legal exposure remains material: the Pratt & Whitney False Claims Act judgment (liability affirmed, damages pending) and the Rolls-Royce patent suits could hurt results if decided against the company.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2010, RTX kept $0.08.
- Revenue$52.27B100.0%
- Cost of revenue−$27.51B52.6%
- Gross profit$24.76B47.4%
- Operating costs−$17.86B34.2%
- Operating income$6.90B13.2%
- Interest, other & tax−$2.52B4.8%
- Net income$4.37B8.4%
Where FY2010 revenue went
$52.27B- Cost of revenue: $27.51B, 53% of revenue
- Other operating costs: $10.41B, 20% of revenue
- Net income: $4.37B, 8.4% of revenue
- R&D: $1.66B, 3.2% of revenue
- SG&A: $5.80B, 11% of revenue
- Interest, other & tax: $2.52B, 4.8% of revenue
Kept 8.4% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2010filed February 10, 2011Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Revenue | $52.27B$52.92B | −1.2% |
| Cost of Revenue | $27.51B$28.91B | −4.8% |
| Gross Profit | $24.76B$24.02B | +3.1% |
| R&D Expenses | $1.66B$1.56B | +6.3% |
| SG&A Expenses | $5.80B$6.04B | −3.9% |
| Operating Expenses | $45.41B$46.45B | −2.3% |
| Operating Income | $6.90B$6.38B | +8.2% |
| Net Income | $4.37B$3.83B | +14.2% |
| EPS (Basic) | $4.82$4.17 | +15.6% |
| EPS (Diluted) | $4.74$4.12 | +15.0% |
| Shares Outstanding (Basic) | 907.90M917.40M | −1.0% |
| Shares Outstanding (Diluted) | 922.70M928.80M | −0.7% |
05—Questions
Frequently Asked Questions
How did UTC perform financially in 2010?
Net sales increased 3.6% to $54.3 billion and operating profit rose 12.7% to $7.2 billion. Diluted EPS improved to $4.74 from $4.12, and operating margin expanded as volumes recovered and restructuring charges fell.
What drove the margin improvement?
Segment operating margin increased 140 bps to 14.6%. The main drivers were higher volumes, cost reduction and restructuring savings, a stronger aerospace aftermarket mix, and lower restructuring costs year over year, partly offset by R&D spending and asset impairments.
What are the biggest legal and contract risks?
The DOJ False Claims Act case against Pratt & Whitney has liability affirmed by the Sixth Circuit but damages remain open, with the government's claim cited at $624 million. Rolls-Royce has sued over fan blade patents, and the DOD seeks about $88 million from Sikorsky. Sikorsky's fixed-price Canadian CH-148 program also carries cost-overrun risk.
How is UTC deploying its capital?
UTC invested $2.8 billion in acquisitions, including GE Security and Clipper, and repurchased $2.2 billion of stock under a 60 million share program. It paid $1.5 billion in dividends ($1.70 per share) and expects roughly $2.5 billion of buybacks and about $1.5 billion of acquisitions in 2011.
What is the outlook for 2011?
Management expects 3%-5% organic sales growth, supported by rising commercial aerospace aftermarket demand and improving short-cycle orders. Headwinds include about $150 million of commodity costs, roughly $175 million of added R&D, higher pension expense of about $150 million, and a tax rate near 30.5%.
06—Continue