Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549

____________________________________

FORM 10-Q

____________________________________



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-812

____________________________________

UNITED TECHNOLOGIES CORPORATION

____________________________________



DELAWARE		06-0570975
10 Farm Springs Road, Farmington, Connecticut 06032 (860) 728-7000

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock ($1 par value)	UTX	New York Stock Exchange
(CUSIP 913017 10 9)
1.125% Notes due 2021	UTX 21D	New York Stock Exchange
(CUSIP 913017 CD9)
1.250% Notes due 2023	UTX 23	New York Stock Exchange
(CUSIP U91301 AD0)
1.150% Notes due 2024	UTX 24A	New York Stock Exchange
(CUSIP 913017 CU1)
1.875% Notes due 2026	UTX 26	New York Stock Exchange
(CUSIP 913017 CE7)
2.150% Notes due 2030	UTX 30	New York Stock Exchange
(CUSIP 913017 CV9)
Floating Rate Notes due 2019	UTX 19C	New York Stock Exchange
(CUSIP 913017 CS6)
Floating Rate Notes due 2020	UTX 20B	New York Stock Exchange
(CUSIP 913017 CT4)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý. No ¨.

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Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý. No ¨.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer	ý	Accelerated filer	¨

Non-accelerated filer	¨	Smaller reporting company	¨

		Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨. No ý.

At June 30, 2019 there were 862,831,280 shares of Common Stock outstanding.

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UNITED TECHNOLOGIES CORPORATION

AND SUBSIDIARIES

CONTENTS OF QUARTERLY REPORT ON FORM 10-Q

Quarter Ended June 30, 2019



	Page

PART I – FINANCIAL INFORMATION	4

Item 1. Unaudited Financial Statements:	4

Condensed Consolidated Statement of Operations for the quarters ended June 30, 2019 and 2018	4

Condensed Consolidated Statement of Operations for the six months ended June 30, 2019 and 2018	5

Condensed Consolidated Statement of Comprehensive Income for the quarters and six months ended June 30, 2019 and 2018	6

Condensed Consolidated Balance Sheet at June 30, 2019 and December 31, 2018	7

Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2019 and 2018	8

Condensed Consolidated Statement of Changes in Equity for the quarters and six months ended June 30, 2019 and 2018	9

Notes to Condensed Consolidated Financial Statements	10

Report of Independent Registered Public Accounting Firm	36

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	37

Item 3. Quantitative and Qualitative Disclosures About Market Risk	52

Item 4. Controls and Procedures	52

PART II – OTHER INFORMATION	56

Item 1. Legal Proceedings	56

Item 1A. Risk Factors	56

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	57

Item 6. Exhibits	58

SIGNATURES	59

United Technologies Corporation and its subsidiaries' names, abbreviations thereof, logos, and product and service designators are all either the registered or unregistered trademarks or tradenames of United Technologies Corporation and its subsidiaries. Names, abbreviations of names, logos, and products and service designators of other companies are either the registered or unregistered trademarks or tradenames of their respective owners. As used herein, the terms "we," "us," "our," "the Company," or "UTC," unless the context otherwise requires, mean United Technologies Corporation and its subsidiaries. References to internet web sites in this Form 10-Q are provided for convenience only. Information available through these web sites is not incorporated by reference into this Form 10-Q.

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PART I – FINANCIAL INFORMATION


Item 1.	Financial Statements

UNITED TECHNOLOGIES CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)



	Quarter Ended June 30,
(dollars in millions, except per share amounts)	2019			2018
Net Sales:
Product sales	$	14,033		$	11,520
Service sales	5,601			5,185
	19,634			16,705
Costs and Expenses:
Cost of products sold	10,863			9,154
Cost of services sold	3,550			3,268
Research and development	743			589
Selling, general and administrative	2,106			1,759
	17,262			14,770
Other income, net	212			941
Operating profit	2,584			2,876
Non-service pension (benefit)	(216		)	(192		)
Interest expense, net	360			234
Income from operations before income taxes	2,440			2,834
Income tax expense	441			695
Net income from operations	1,999			2,139
Less: Noncontrolling interest in subsidiaries' earnings from operations	99			91
Net income attributable to common shareowners	$	1,900		$	2,048
Earnings Per Share of Common Stock - Basic:
Net income attributable to common shareowners	$	2.22		$	2.59
Earnings Per Share of Common Stock - Diluted:
Net income attributable to common shareowners	$	2.20		$	2.56

See accompanying Notes to Condensed Consolidated Financial Statements

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UNITED TECHNOLOGIES CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)



	Six Months Ended June 30,
(dollars in millions, except per share amounts)	2019			2018
Net Sales:
Product sales	$	26,908		$	21,778
Service sales	11,091			10,169
	37,999			31,947
Costs and Expenses:
Cost of products sold	21,149			17,170
Cost of services sold	6,971			6,532
Research and development	1,471			1,143
Selling, general and administrative	4,103			3,470
	33,694			28,315
Other income, net	324			1,172
Operating profit	4,629			4,804
Non-service pension (benefit)	(424		)	(383		)
Interest expense, net	791			463
Income from operations before income taxes	4,262			4,724
Income tax expense	838			1,217
Net income from operations	3,424			3,507
Less: Noncontrolling interest in subsidiaries' earnings from operations	178			162
Net income attributable to common shareowners	$	3,246		$	3,345
Earnings Per Share of Common Stock - Basic:
Net income attributable to common shareowners	$	3.80		$	4.23
Earnings Per Share of Common Stock - Diluted:
Net income attributable to common shareowners	$	3.76		$	4.18

See accompanying Notes to Condensed Consolidated Financial Statements

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UNITED TECHNOLOGIES CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(Unaudited)



	Quarter Ended June 30,						Six Months Ended June 30,
(dollars in millions)	2019			2018			2019			2018
Net income from operations	$	1,999		$	2,139		$	3,424		$	3,507
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	(423		)	(679		)	98			(140		)
Pension and postretirement benefit plans adjustments	24			80			57			153
ASU 2016-01 adoption impact (Note 12)	—			—			—			(5		)
Change in unrealized cash flow hedging	25			(186		)	33			(172		)
Other comprehensive (loss) income, net of tax	(374		)	(785		)	188			(164		)
Comprehensive income	1,625			1,354			3,612			3,343
Less: Comprehensive income attributable to noncontrolling interest	(100		)	(53		)	(182		)	(157		)
Comprehensive income attributable to common shareowners	$	1,525		$	1,301		$	3,430		$	3,186

See accompanying Notes to Condensed Consolidated Financial Statements

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UNITED TECHNOLOGIES CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET

(Unaudited)



(dollars in millions)	June 30, 2019			December 31, 2018
Assets
Cash and cash equivalents	$	6,819		$	6,152
Accounts receivable, net	13,695			14,271
Contract assets, current	4,334			3,486
Inventory, net	10,934			10,083
Other assets, current	1,276			1,511
Total Current Assets	37,058			35,503
Customer financing assets	3,293			3,023
Future income tax benefits	1,712			1,646
Fixed assets	24,689			24,084
Less: Accumulated depreciation	(12,397		)	(11,787		)
Fixed assets, net	12,292			12,297
Operating lease right-of-use assets	2,740			—
Goodwill	48,358			48,112
Intangible assets, net	25,963			26,424
Other assets	7,574			7,206
Total Assets	$	138,990		$	134,211
Liabilities and Equity
Short-term borrowings	$	1,139		$	1,469
Accounts payable	11,109			11,080
Accrued liabilities	10,753			10,223
Contract liabilities, current	6,219			5,720
Long-term debt currently due	6,202			2,876
Total Current Liabilities	35,422			31,368
Long-term debt	37,910			41,192
Future pension and postretirement benefit obligations	3,663			4,018
Operating lease liabilities	2,258			—
Other long-term liabilities	16,651			16,914
Total Liabilities	95,904			93,492
Commitments and contingent liabilities (Note 15)
Redeemable noncontrolling interest	109			109
Shareowners' Equity:
Common Stock	22,718			22,514
Treasury Stock	(32,549		)	(32,482		)
Retained earnings	60,548			57,823
Unearned ESOP shares	(71		)	(76		)
Accumulated other comprehensive loss	(9,892		)	(9,333		)
Total Shareowners' Equity	40,754			38,446
Noncontrolling interest	2,223			2,164
Total Equity	42,977			40,610
Total Liabilities and Equity	$	138,990		$	134,211

See accompanying Notes to Condensed Consolidated Financial Statements

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UNITED TECHNOLOGIES CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)



	Six Months Ended June 30,
(dollars in millions)	2019			2018
Operating Activities:
Net income from operations	$	3,424		$	3,507
Adjustments to reconcile net income from operations to net cash flows provided by operating activities:
Depreciation and amortization	1,864			1,173
Deferred income tax provision	6			45
Stock compensation cost	156			117
Gain on sale of Taylor Company	—			(795		)
Change in:
Accounts receivable	769			(1,661		)
Contract assets, current	(491		)	(617		)
Inventory	(1,108		)	(962		)
Other current assets	51			301
Accounts payable and accrued liabilities	(58		)	2,010
Contract liabilities, current	381			440
Global pension contributions	(79		)	(59		)
Canadian government settlement	(38		)	(221		)
Other operating activities, net	(1,266		)	(723		)
Net cash flows provided by operating activities	3,611			2,555
Investing Activities:
Capital expenditures	(830		)	(709		)
Investments in businesses (Note 1)	(32		)	(134		)
Dispositions of businesses (Note 1)	133			1,094
Increase in customer financing assets, net	(331		)	(344		)
Increase in collaboration intangible assets	(169		)	(181		)
Receipts from settlements of derivative contracts	61			82
Other investing activities, net	(49		)	(46		)
Net cash flows used in investing activities	(1,217		)	(238		)
Financing Activities:
Issuance of long-term debt	56			2,429
Repayment of long-term debt	(65		)	(2,092		)
(Decrease) increase in short-term borrowings, net	(327		)	642
Proceeds from Common Stock issued under employee stock plans	11			6
Dividends paid on Common Stock	(1,219		)	(1,070		)
Repurchase of Common Stock	(69		)	(52		)
Other financing activities, net	(153		)	(74		)
Net cash flows used in financing activities	(1,766		)	(211		)
Effect of foreign exchange rate changes on cash and cash equivalents	16			(18		)
Net increase in cash, cash equivalents and restricted cash	644			2,088
Cash, cash equivalents and restricted cash, beginning of year	6,212			9,018
Cash, cash equivalents and restricted cash, end of period	6,856			11,106
Less: Restricted cash	37			38
Cash and cash equivalents, end of period	$	6,819		$	11,068

See accompanying Notes to Condensed Consolidated Financial Statements

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UNITED TECHNOLOGIES CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(Unaudited)



	Quarter Ended June 30,						Six Months Ended June 30,
(dollars in millions, except per share amounts; shares in thousands)	2019			2018			2019			2018
Equity beginning balance	$	41,946		$	32,492		$	40,610		$	31,421
Common Stock
Beginning balance	22,564			17,641			22,514			17,574
Common Stock issued under employee plans	154			106			211			174
Purchase of subsidiary shares from noncontrolling interest, net	—			—			—			(1		)
Redeemable noncontrolling interest fair value adjustment	—			—			(7		)	—
Ending balance	22,718			17,747			22,718			17,747
Treasury Stock
Beginning balance	(32,511		)	(35,619		)	(32,482		)	(35,596		)
Common Stock issued under employee plans	1			1			4			3
Common Stock repurchased	(39		)	(27		)	(71		)	(52		)
Ending balance	(32,549		)	(35,645		)	(32,549		)	(35,645		)
Retained Earnings
Beginning balance	59,279			55,533			57,823			55,242
Net Income	1,900			2,048			3,246			3,345
Dividends on Common Stock	(610		)	(535		)	(1,219		)	(1,070		)
Dividends on ESOP Common Stock	(18		)	(17		)	(36		)	(35		)
Redeemable noncontrolling interest fair value adjustment	(11		)	—			(7		)	(2		)
New Revenue Standard adoption impact	—			—			—			(480		)
ASU 2018-02 adoption impact (Note 12)	—			—			745			—
Other	8			(2		)	(4		)	27
Ending balance	60,548			57,027			60,548			57,027
Unearned ESOP Shares
Beginning balance	(75		)	(84		)	(76		)	(85		)
Common Stock issued under employee plans	4			3			5			4
Ending balance	(71		)	(81		)	(71		)	(81		)
Accumulated Other Comprehensive (Loss) Income
Beginning balance	(9,519		)	(6,937		)	(9,333		)	(7,525		)
Other comprehensive (loss) income, net of tax	(373		)	(747		)	186			(159		)
ASU 2018-02 adoption impact (Note 12)	—			—			(745		)	—
Ending balance	(9,892		)	(7,684		)	(9,892		)	(7,684		)
Noncontrolling Interest
Beginning balance	2,208			1,958			2,164			1,811
Net Income	99			91			178			162
Redeemable noncontrolling interest in subsidiaries' earnings	2			(3		)	5			(5		)
Other comprehensive income (loss), net of tax	1			(38		)	4			(5		)
Dividends attributable to noncontrolling interest	(101		)	(73		)	(145		)	(139		)
Purchase of subsidiary shares from noncontrolling interest, net	(1		)	—			(1		)	(1		)
Disposition of noncontrolling interest, net	—			—			—			(8		)
Capital contributions	18			42			18			162
Other	(3		)	5			—			5
Ending balance	2,223			1,982			2,223			1,982
Equity at June 30	$	42,977		$	33,346		$	42,977		$	33,346

Supplemental share information
Shares of Common Stock issued under employee plans	799			235			1,827			1,310
Shares of Common Stock repurchased	297			214			553			402
Dividends per share of Common Stock	$	0.740		$	0.700		$	1.470		$	1.400

See accompanying Notes to Condensed Consolidated Financial Statements

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UNITED TECHNOLOGIES CORPORATION

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The Condensed Consolidated Financial Statements at June 30, 2019 and for the quarters and six months ended June 30, 2019 and 2018 are unaudited, but in the opinion of management include all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of the results for the interim periods. The results reported in these Condensed Consolidated Financial Statements should not necessarily be taken as indicative of results that may be expected for the entire year. The financial information included herein should be read in conjunction with the financial statements and notes in our Annual Report to Shareowners (2018 Annual Report) incorporated by reference in our Annual Report on Form 10-K for calendar year 2018 (2018 Form 10-K).

Note 1: Acquisitions, Dispositions, Goodwill and Other Intangible Assets

Business Acquisitions. During the six months ended June 30, 2019, our investment in business acquisitions was $32 million, which consisted of small acquisitions at Otis.

On June 9, 2019, UTC entered into a merger agreement with Raytheon Company (“Raytheon”) providing for an all-stock merger of equals transaction. The Raytheon merger agreement provides, among other things, that each share of Raytheon common stock issued and outstanding immediately prior to the closing of the Raytheon merger (except for shares held by Raytheon as treasury stock) will be converted into the right to receive