Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549

____________________________________

FORM 10-Q

____________________________________



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

For the quarterly period ended September 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
(State or other jurisdiction of incorporation)		(I.R.S. Employer Identification No.)



10 Farm Springs Road,	Farmington,	Connecticut	06032

(Address of principal executive offices, including zip code)



(860)	728-7000

(Registrant's telephone number, including area code)

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)

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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 ☒. No ☐.

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 ☒. 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	☒	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 ☒.

At September 30, 2019 there were 863,268,940 shares of Common Stock outstanding.

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UNITED TECHNOLOGIES CORPORATION

AND SUBSIDIARIES

CONTENTS OF QUARTERLY REPORT ON FORM 10-Q

Quarter Ended September 30, 2019



	Page

PART I – FINANCIAL INFORMATION	4

Item 1. Unaudited Financial Statements:	4

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

Condensed Consolidated Statement of Operations for the nine months ended September 30, 2019 and 2018	5

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

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

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

Condensed Consolidated Statement of Changes in Equity for the quarters and nine months ended September 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	51

Item 4. Controls and Procedures	52

PART II – OTHER INFORMATION	55

Item 1. Legal Proceedings	55

Item 1A. Risk Factors	55

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	55

Item 6. Exhibits	56

SIGNATURES	57

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 September 30,
(dollars in millions, except per share amounts)	2019			2018
Net Sales:
Product sales	$	13,651		$	11,254
Service sales	5,845			5,256
	19,496			16,510
Costs and Expenses:
Cost of products sold	10,461			9,342
Cost of services sold	3,750			3,194
Research and development	732			586
Selling, general and administrative	2,104			1,681
	17,047			14,803
Other income, net	37			131
Operating profit	2,486			1,838
Non-service pension (benefit)	(303		)	(188		)
Interest expense, net	401			258
Income from operations before income taxes	2,388			1,768
Income tax expense	1,131			419
Net income from operations	1,257			1,349
Less: Noncontrolling interest in subsidiaries' earnings from operations	109			111
Net income attributable to common shareowners	$	1,148		$	1,238
Earnings Per Share of Common Stock - Basic:
Net income attributable to common shareowners	$	1.34		$	1.56
Earnings Per Share of Common Stock - Diluted:
Net income attributable to common shareowners	$	1.33		$	1.54

See accompanying Notes to Condensed Consolidated Financial Statements

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UNITED TECHNOLOGIES CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)



	Nine Months Ended September 30,
(dollars in millions, except per share amounts)	2019			2018
Net Sales:
Product sales	$	40,559		$	33,032
Service sales	16,936			15,425
	57,495			48,457
Costs and Expenses:
Cost of products sold	31,610			26,512
Cost of services sold	10,721			9,726
Research and development	2,203			1,729
Selling, general and administrative	6,207			5,151
	50,741			43,118
Other income, net	361			1,303
Operating profit	7,115			6,642
Non-service pension (benefit)	(727		)	(571		)
Interest expense, net	1,192			721
Income from operations before income taxes	6,650			6,492
Income tax expense	1,969			1,636
Net income from operations	4,681			4,856
Less: Noncontrolling interest in subsidiaries' earnings from operations	287			273
Net income attributable to common shareowners	$	4,394		$	4,583
Earnings Per Share of Common Stock - Basic:
Net income attributable to common shareowners	$	5.14		$	5.80
Earnings Per Share of Common Stock - Diluted:
Net income attributable to common shareowners	$	5.09		$	5.72

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 September 30,						Nine Months Ended September 30,
(dollars in millions)	2019			2018			2019			2018
Net income from operations	$	1,257		$	1,349		$	4,681		$	4,856
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	(489		)	(181		)	(391		)	(321		)
Pension and postretirement benefit plans adjustments	(347		)	54			(290		)	207
ASU 2016-01 adoption impact (Note 12)	—			—			—			(5		)
Change in unrealized cash flow hedging	(107		)	69			(74		)	(103		)
Other comprehensive (loss) income, net of tax	(943		)	(58		)	(755		)	(222		)
Comprehensive income	314			1,291			3,926			4,634
Less: Comprehensive income attributable to noncontrolling interest	(91		)	(92		)	(273		)	(249		)
Comprehensive income attributable to common shareowners	$	223		$	1,199		$	3,653		$	4,385

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)	September 30, 2019			December 31, 2018
Assets
Cash and cash equivalents	$	7,341		$	6,152
Accounts receivable, net	13,607			14,271
Contract assets, current	4,316			3,486
Inventory, net	11,242			10,083
Other assets, current	1,310			1,511
Total Current Assets	37,816			35,503
Customer financing assets	3,372			3,023
Future income tax benefits	1,699			1,646
Fixed assets	24,649			24,084
Less: Accumulated depreciation	(12,449		)	(11,787		)
Fixed assets, net	12,200			12,297
Operating lease right-of-use assets	2,556			—
Goodwill	48,041			48,112
Intangible assets, net	25,686			26,424
Other assets	7,639			7,206
Total Assets	$	139,009		$	134,211
Liabilities and Equity
Short-term borrowings	$	1,327		$	1,469
Accounts payable	10,840			11,080
Accrued liabilities	11,672			10,223
Contract liabilities, current	6,233			5,720
Long-term debt currently due	5,495			2,876
Total Current Liabilities	35,567			31,368
Long-term debt	37,782			41,192
Future pension and postretirement benefit obligations	3,855			4,018
Operating lease liabilities	2,105			—
Other long-term liabilities	16,774			16,914
Total Liabilities	96,083			93,492
Commitments and contingent liabilities (Note 15)
Redeemable noncontrolling interest	107			109
Shareowners' Equity:
Common Stock	22,873			22,514
Treasury Stock	(32,588		)	(32,482		)
Retained earnings	61,069			57,823
Unearned ESOP shares	(67		)	(76		)
Accumulated other comprehensive loss	(10,819		)	(9,333		)
Total Shareowners' Equity	40,468			38,446
Noncontrolling interest	2,351			2,164
Total Equity	42,819			40,610
Total Liabilities and Equity	$	139,009		$	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)



	Nine Months Ended September 30,
(dollars in millions)	2019			2018
Operating Activities:
Net income from operations	$	4,681		$	4,856
Adjustments to reconcile net income from operations to net cash flows provided by operating activities:
Depreciation and amortization	2,831			1,766
Deferred income tax provision	(19		)	70
Stock compensation cost	261			181
Portfolio separation tax cost	618			—
Gain on sale of Taylor Company	—			(799		)
Change in:
Accounts receivable	59			(2,379		)
Contract assets, current	(499		)	(892		)
Inventory	(1,503		)	(991		)
Other current assets	(111		)	262
Accounts payable and accrued liabilities	1,089			3,044
Contract liabilities, current	394			313
Global pension contributions	(89		)	(72		)
Canadian government settlement	(38		)	(221		)
Other operating activities, net	(1,573		)	(821		)
Net cash flows provided by operating activities	6,101			4,317
Investing Activities:
Capital expenditures	(1,359		)	(1,122		)
Investments in businesses (Note 1)	(39		)	(177		)
Dispositions of businesses (Note 1)	134			1,099
Increase in customer financing assets, net	(444		)	(453		)
Increase in collaboration intangible assets	(259		)	(302		)
Receipts from settlements of derivative contracts	158			71
Other investing activities, net	(164		)	(135		)
Net cash flows used in investing activities	(1,973		)	(1,019		)
Financing Activities:
Issuance of long-term debt	73			13,409
Repayment of long-term debt	(711		)	(2,093		)
(Decrease) increase in short-term borrowings, net	(104		)	1,228
Proceeds from Common Stock issued under employee stock plans	14			33
Dividends paid on Common Stock	(1,830		)	(1,606		)
Repurchase of Common Stock	(111		)	(72		)
Other financing activities, net	(225		)	(60		)
Net cash flows (used in) provided by financing activities	(2,894		)	10,839
Effect of foreign exchange rate changes on cash and cash equivalents	(65		)	(111		)
Net increase in cash, cash equivalents and restricted cash	1,169			14,026
Cash, cash equivalents and restricted cash, beginning of year	6,212			9,018
Cash, cash equivalents and restricted cash, end of period	7,381			23,044
Less: Restricted cash	40			9,245
Cash and cash equivalents, end of period	$	7,341		$	13,799

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 September 30,						Nine Months Ended September 30,
(dollars in millions, except per share amounts; shares in thousands)	2019			2018			2019			2018
Equity beginning balance	$	42,977		$	33,346		$	40,610		$	31,421
Common Stock
Beginning balance	22,718			17,747			22,514			17,574
Common Stock issued under employee plans	161			122			372			296
Purchase of subsidiary shares from noncontrolling interest, net	(1		)	—			(1		)	(1		)
Redeemable noncontrolling interest fair value adjustment	(5		)	—			(12		)	—
Ending balance	22,873			17,869			22,873			17,869
Treasury Stock
Beginning balance	(32,549		)	(35,645		)	(32,482		)	(35,596		)
Common Stock issued under employee plans	1			1			5			4
Common Stock repurchased	(40		)	(23		)	(111		)	(75		)
Ending balance	(32,588		)	(35,667		)	(32,588		)	(35,667		)
Retained Earnings
Beginning balance	60,548			57,027			57,823			55,242
Net Income	1,148			1,238			4,394			4,583
Dividends on Common Stock	(611		)	(536		)	(1,830		)	(1,606		)
Dividends on ESOP Common Stock	(17		)	(18		)	(53		)	(53		)
Redeemable noncontrolling interest fair value adjustment	14			(6		)	7			(8		)
New Revenue Standard adoption impact	—			—			—			(480		)
ASU 2018-02 adoption impact (Note 12)	—			—			745			—
Other	(13		)	1			(17		)	28
Ending balance	61,069			57,706			61,069			57,706
Unearned ESOP Shares
Beginning balance	(71		)	(81		)	(76		)	(85		)
Common Stock issued under employee plans	4			2			9			6
Ending balance	(67		)	(79		)	(67		)	(79		)
Accumulated Other Comprehensive (Loss) Income
Beginning balance	(9,892		)	(7,684		)	(9,333		)	(7,525		)
Other comprehensive loss, net of tax	(927		)	(39		)	(741		)	(198		)
ASU 2018-02 adoption impact (Note 12)	—			—			(745		)	—
Ending balance	(10,819		)	(7,723		)	(10,819		)	(7,723		)
Noncontrolling Interest
Beginning balance	2,223			1,982			2,164			1,811
Net Income	109			111			287			273
Redeemable noncontrolling interest in subsidiaries' earnings	2			—			7			(5		)
Other comprehensive loss, net of tax	(18		)	(19		)	(14		)	(24		)
Dividends attributable to noncontrolling interest	(39		)	(73		)	(184		)	(212		)
Purchase of subsidiary shares from noncontrolling interest, net	(2		)	—			(3		)	(1		)
Acquisition of noncontrolling interest, net	3			—			3			(8		)
Capital contributions	73			138			91			300
Other	—			5			—			10
Ending balance	2,351			2,144			2,351			2,144
Equity at September 30	$