01—Abstract
Summary
Summary of the 10-K filed February 6, 2014. Cited figures are marked; the original filing is the authoritative source.
United Technologies Corporation (UTC) closed 2013 with record results: net sales rose 8.5% to $62.6 billion, operating profit climbed to $9.2 billiona (14.7% margin, up from 13.3%), and diluted EPS from continuing operations reached $6.21, up from $5.35.
Growth was driven mainly by acquisitions, chiefly the July 2012 Goodrich deal, which lifted UTC Aerospace Systems sales 60% to $13.3 billionb. Organic sales growth was a modest 1%, with commercial aerospace strength offset by weak U.S. military demand, and management guides 2014 organic growth of 3% to 4%. Operating cash flow from continuing operations increased to $7.5 billion, and capital expenditures rose to $1.7 billion as UTC builds capacity for next-generation engine programs.
Balance sheet deleveraging continued: total debt fell to $20.2 billionc from $23.2 billion, and the debt-to-capitalization ratio improved to 38% from 46%. UTC resumed share repurchases, buying back $1.2 billion of stock, and raised its quarterly dividend to $0.59 in Q4 2013. Pratt & Whitney's operating profit rose 18% on higher aftermarket volume and lower R&D, while Sikorsky's profit fell 17% on U.S. Government volume declines and the Canadian CH-148 contract losses.
Key risks for investors include a $664 milliond judgment against Pratt & Whitney in the F100 False Claims Act case (under appeal, with a reasonably possible additional loss of up to $657 million), the fixed-price CH-148 helicopter program with ongoing restructuring talks with the Canadian government, U.S. defense budget pressure, and the export-control consent agreement and deferred prosecution agreement stemming from 2012 violations. Aerospace-related customer financing commitments, which total about $11 billion, and roughly 62% of sales from international operations add further exposure.
02—Key points
Key Highlights
- Record 2013 net sales of $62.6 billion (+8.5% year over year), with organic growth of only 1%; the rest came from acquisitions, mainly Goodrich.
- Operating profit rose 20% to $9.2 billion, and operating margin expanded to 14.7% from 13.3%, helped by divestiture gains and restructuring savings.
- Diluted EPS from continuing operations increased 16% to $6.21, while total net income attributable to common shareowners was $5.7 billion.
- Total debt fell by about $3 billion to $20.2 billion, and debt-to-total-capitalization improved to 38% from 46%.
- Management guides 2014 organic sales growth of 3% to 4%, company-funded R&D flat with 2013, and capital expenditures of about $2 billion.
- Pratt & Whitney's operating profit rose 18% to $1.9 billion; UTC Aerospace Systems' profit more than doubled to $2.0 billion on the Goodrich acquisition.
- Material legal exposure: a $664 million F100 engine False Claims Act judgment is under appeal, with reasonably possible additional losses up to $657 million; Sikorsky's CH-148 contract remains a loss-making fixed-price program.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2013, RTX kept $0.10.
- Revenue$56.60B100.0%
- Cost of revenue−$30.05B53.1%
- Gross profit$26.55B46.9%
- Operating costs−$18.00B31.8%
- Operating income$8.55B15.1%
- Interest, other & tax−$2.83B5.0%
- Net income$5.72B10.1%
Where FY2013 revenue went
$56.60B- Cost of revenue: $30.05B, 53% of revenue
- Other operating costs: $9.29B, 16% of revenue
- Net income: $5.72B, 10% of revenue
- R&D: $2.34B, 4.1% of revenue
- SG&A: $6.36B, 11% of revenue
- Interest, other & tax: $2.83B, 5.0% of revenue
Kept 10% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2013filed February 6, 2014Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $56.60B$57.71B | −1.9% |
| Cost of Revenue | $30.05B$31.09B | −3.4% |
| Gross Profit | $26.55B$26.61B | −0.2% |
| R&D Expenses | $2.34B$2.37B | −1.2% |
| SG&A Expenses | $6.36B$6.45B | −1.4% |
| Operating Expenses | $49.17B$50.98B | −3.5% |
| Operating Income | $8.55B$7.68B | +11.3% |
| Net Income | $5.72B$5.13B | +11.5% |
| EPS (Basic) | $6.35$5.73 | +10.8% |
| EPS (Diluted) | $6.25$5.66 | +10.4% |
| Shares Outstanding (Basic) | 901.00M895.20M | +0.6% |
| Shares Outstanding (Diluted) | 915.10M906.60M | +0.9% |
05—Questions
Frequently Asked Questions
How did UTC perform financially in 2013?
UTC grew net sales 8.5% to $62.6 billion and operating profit 20% to $9.2 billion, with the operating margin rising to 14.7%. Diluted EPS from continuing operations rose to $6.21 from $5.35. Most of the sales growth came from acquisitions, since organic growth was only 1%.
How much did UTC's debt and leverage change?
Total debt declared at year-end 2013 was $20.2 billion, down from $23.2 billion, as the company repaid about $2.9 billion of long-term debt, mostly used to finance Goodrich. Net debt fell to $15.6 billion, and the debt-to-capitalization ratio dropped to 38% from 46%.
What are the biggest legal and program risks disclosed?
The largest is the F100 engine False Claims Act litigation, where a judgment of about $664 million against Pratt & Whitney is under appeal, with a possible additional loss of up to $657 million. Sikorsky's CH-148 Canadian helicopter contract faces ongoing restructuring and further potential loss provisions, and the export-control consent agreement and deferred prosecution agreement impose continuing compliance obligations.
What is UTC's outlook and capital allocation plan for 2014?
Management expects 2014 organic sales growth of 3% to 4%, about $300 million of restructuring charges, roughly $2 billion in capital expenditures, about $1 billion of acquisition spending, and about $1 billion of debt repayment. Pension expense is expected to fall by about $500 million. The company also resumed share repurchases in 2013 with $1.2 billion of buybacks and raised its quarterly dividend to $0.59.
06—Continue