01—Abstract
Summary
Summary of the 10-K filed February 9, 2012. Cited figures are marked; the original filing is the authoritative source.
United Technologies Corporation (UTC) reported 2011 net sales of $58.2 billiona (up 7.1%), operating profit of $8.1 billion (up 13%), and diluted EPS of $5.49 (up 16%), with 6% organic sales growth.
Growth was led by Sikorsky, Hamilton Sundstrand and Carrier, and segment operating margin expanded 80 basis points to 15.4%. Net income attributable to common shareowners was $4.98 billion, and operating cash flow rose to $6.59 billionb. Management guided to 2012 organic growth of 2% to 4%, with higher R&D (about $150 million more) and commodity cost headwinds.
The dominant strategic item is the pending $18.4 billionc enterprise-value acquisition of Goodrich Corporation at $127.50 per share in cash, expected to close in mid-2012. It will be financed with about $16.5 billion of new debt, equity and cash, with equity capped at 25% of financing, and is backed by a $15 billion bridge facility. UTC suspended share repurchases until at least September 30, 2012, and plans to significantly reduce them for two years afterward.
Pratt & Whitney is also restructuring its IAE interest with Rolls-Royce for $1.5 billiond and forming a new mid-size engine joint venture. Total debt was $10.3 billion at year-end, and net debt fell to $4.3 billion.
Key risks include U.S. government contract exposure (a 1999 DOJ False Claims Act case against Pratt & Whitney, where the Sixth Circuit affirmed liability in 2010 and damages remain open), an unresolved ITAR export compliance matter with a $45 million reserve, the Sikorsky Canadian CH-148 fixed-price development contract, and European exposure, since about 26% of sales come from Europe. Execution risk on Goodrich integration and financing is also significant.
02—Key points
Key Highlights
- Net sales rose 7.1% to $58.2 billion, with 6% organic growth led by Sikorsky (10%), Hamilton Sundstrand (9%) and Carrier (9%).
- Diluted EPS increased to $5.49 from $4.74, and net income attributable to common shareowners rose to $4.98 billion.
- Segment operating margin expanded 80 basis points to 15.4%, helped by restructuring savings; restructuring costs were $336 million.
- The pending $18.4 billion Goodrich acquisition (expected close mid-2012) is financed with about $16.5 billion of new capital, with equity capped at 25% of total financing.
- Share repurchases were suspended until at least September 30, 2012, after $2.2 billion of buybacks in 2011.
- Operating cash flow grew to $6.59 billion, and net debt fell to $4.3 billion from $6.2 billion as cash rose to $5.96 billion.
- 2012 guidance calls for 2% to 4% organic sales growth, with about $150 million of incremental R&D and $50 million of net commodity cost headwinds.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2011, RTX kept $0.09.
- Revenue$55.75B100.0%
- Cost of revenue−$29.25B52.5%
- Gross profit$26.50B47.5%
- Operating costs−$18.66B33.5%
- Operating income$7.85B14.1%
- Interest, other & tax−$2.87B5.1%
- Net income$4.98B8.9%
Where FY2011 revenue went
$55.75B- Cost of revenue: $29.25B, 52% of revenue
- Other operating costs: $10.54B, 19% of revenue
- Net income: $4.98B, 8.9% of revenue
- R&D: $1.95B, 3.5% of revenue
- SG&A: $6.16B, 11% of revenue
- Interest, other & tax: $2.87B, 5.1% of revenue
Kept 8.9% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2011filed February 9, 2012Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Revenue | $55.75B$52.27B | +6.7% |
| Cost of Revenue | $29.25B$27.51B | +6.3% |
| Gross Profit | $26.50B$24.76B | +7.0% |
| R&D Expenses | $1.95B$1.66B | +17.8% |
| SG&A Expenses | $6.16B$5.80B | +6.3% |
| Operating Expenses | $48.48B$45.41B | +6.8% |
| Operating Income | $7.85B$6.90B | +13.7% |
| Net Income | $4.98B$4.37B | +13.9% |
| EPS (Basic) | $5.58$4.82 | +15.8% |
| EPS (Diluted) | $5.49$4.74 | +15.8% |
| Shares Outstanding (Basic) | 892.30M907.90M | −1.7% |
| Shares Outstanding (Diluted) | 906.80M922.70M | −1.7% |
05—Questions
Frequently Asked Questions
Why did UTC suspend share repurchases, and when might they resume?
UTC suspended repurchases on September 30, 2011, to preserve cash and debt capacity for the pending Goodrich acquisition. Buybacks are suspended until at least September 30, 2012, and will be significantly reduced for two years after that. About 6.9 million shares remain authorized under the current program.
How will UTC finance the Goodrich acquisition?
The $16.5 billion cash payment to Goodrich shareholders will be funded through a mix of short- and long-term debt, equity and cash. UTC targets equity at no more than 25% of total financing, excluding the roughly $1.9 billion of Goodrich net debt assumed. A $15 billion unsecured bridge loan facility is available, and UTC is also evaluating dispositions of non-core businesses.
What are the largest legal and regulatory risks disclosed?
The most significant is a 1999 DOJ False Claims Act suit against Pratt & Whitney over F100 engine pricing. The Sixth Circuit affirmed liability in November 2010 and remanded for damages, and the government's original claim was $624 million. Other matters include a $92 million DOD overhead-rate claim against Sikorsky, a $45 million reserve for ITAR export compliance disclosures, and a 2007 EU fine of about $300 million that UTC is appealing.
How exposed is UTC to Europe and currency movements?
About 61% of 2011 segment sales came from outside the U.S., including export sales, and roughly 26% of net sales came from Europe. Management says it has no significant direct exposure to European sovereign debt, but further euro weakness or a slowdown in Europe could hurt results. Pratt & Whitney Canada hedges up to 32 months of U.S. dollar sales against Canadian dollar costs, and the 2012 net impact is expected to be about $50 million adverse.
What is the outlook for Pratt & Whitney and the aerospace businesses?
Commercial aerospace markets are improving, with airline traffic growth expected at 4% to 6% in 2012 and record airframe deliveries forecast. Pratt & Whitney is investing heavily in the PurePower PW1000G geared turbofan, with launch customers including Bombardier, Mitsubishi and Airbus. The IAE restructuring with Rolls-Royce, for $1.5 billion plus per-hour payments, is expected to close in mid-2012 and would give P&W about 66% control of IAE.
06—Continue