United Technologies 2015 Annual Report Download

Download and view the complete annual report

Please find the complete 2015 United Technologies annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 84

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84

2015 Annual Report
Financial and Corporate
Responsibility Performance
MOVING
THE WORLD
FORWARD

Table of contents

  • Page 1
    2015 Annual Report Financial and Corporate Responsibility Performance MOVING THE WORLD FORWARD

  • Page 2
    ...conditioning, refrigeration, fire and security systems, and building automation and controls. Our aerospace businesses include Pratt & Whitney aircraft engines and UTC Aerospace Systems. UTC also operates a central research organization that pursues technologies for improving the performance, energy...

  • Page 3
    ... game-changing engines and sophisticated aerospace systems. We do the big things that others cannot. Pratt & Whitney's game-changing PurePower Geared Turbofan engine officially went into service early in 2016, ushering in a new era in aviation. Lufthansa German Airlines became the first company to...

  • Page 4
    ... engine for the Airbus A320neo. We also took decisive actions to position United Technologies for long-term growth and shareowner value creation. Our board of directors and management continually review our strategic direction. Last year, following a comprehensive analysis, we divested Sikorsky...

  • Page 5
    Products from Otis, Carrier, Edwards, Kidde and Automated Logic have been chosen for New York City's landmark Hudson Yards project, the largest private real estate development in U.S. history. We are well-positioned to benefit from three megatrends that are shaping the world - urbanization, an ...

  • Page 6
    ..., science and technology; Elizabeth B. Amato, executive vice president and chief human resources officer; Robert J. McDonough, president, UTC Climate, Controls & Security; Timothy J. McBride, senior vice president, government relations; Robert F. Leduc, president, Pratt & Whitney; Gregory J. Hayes...

  • Page 7
    .... In 2015 Otis proved once again why it is synonymous with landmark buildings when it was chosen to provide products for the Hudson Yards project in New York City, the largest private real estate development in U.S. history. MOVING SUSTAINABILITY FORWARD Industry-Leading Leadership Our company has...

  • Page 8
    ... Center, where they will operate 12 Otis SkyRise double-deck elevators. UTC Climate, Controls & Security brands, including Carrier, also are providing products and services to the Ping'An, which will be China's second-tallest building when completed in 2016. 6 United Technologies Corporation

  • Page 9
    ... of extraordinary growth as it ushers in a wave of next-generation aircraft. The Mitsubishi Regional Jet took its first flight in late 2015 powered by Pratt & Whitney's revolutionary PurePower Geared Turbofan engine and outfitted with advanced technologies from UTC Aerospace Systems. Our company is...

  • Page 10
    ... New York City's landmark Hudson Yards project. In Saudi Arabia, Otis is supplying 370 elevators and 104 escalators for the Abraj Kudai hotel in Mecca. It will be the world's largest hotel when it opens in 2017 with 10,000 rooms. Otis continues to increase capacity to meet growing demand. Otis India...

  • Page 11
    ... 73 in this Annual Report. Soaring above Abu Dhabi, capital of the United Arab Emirates, are the towers of the World Trade Center Abu Dhabi, a mixed-use development that includes state-of-the-art products from Carrier and Lenel, both part of UTC Climate, Controls & Security. The development, which...

  • Page 12
    ...most technologically advanced fighter jet in history. Pratt & Whitney Employees: 33,401 Adjusted Net Sales: $14.2 billion* Adjusted Operating Profit: $1.9 billion* Pratt & Whitney is a world leader in the design, manufacture and service of aircraft engines and auxiliary power units. Pratt & Whitney...

  • Page 13
    ... and computer systems that gather critical in-flight information that can be shared with flight crews and ground-based teams for improved operational efficiency. The Federal Aviation Administration selected UTC Aerospace Systems to develop new enabling nacelle technologies to reduce engine fuel burn...

  • Page 14
    ... Financials United Technologies provides hightechnology products and services for the aerospace and commercial building industries worldwide. In 2015 UTC adjusted net sales were $56.5 billion.1 Adjusted net sales1, 2 Dollars in billions Adjusted diluted earnings per common share from continuing...

  • Page 15
    ...Goal The increases in our 2013 results reflect the addition of 100 former Goodrich sites to our EH&S management system. 2020 Sustainability Goals Every five years we set aggressive new sustainability goals for our environment, health and safety performance. We then track and report our progress on...

  • Page 16
    ... We have instituted a number of programs to identify and develop our next generation of leaders. The programs vary by function to include Finance, Operations, Human Resources and Information Technology. Our four businesses also offer engineering and general management leadership programs specific to...

  • Page 17
    ... Report on Internal Control Over Financial Reporting Report of Independent Registered Public Accounting Firm Consolidated Statement of Operations Consolidated Statement of Comprehensive Income Consolidated Balance Sheet Consolidated Statement of Cash Flows Consolidated Statement of Changes in Equity...

  • Page 18
    ... $3 billion in long-term debt in connection with the acquisition of Goodrich. Note 7 The decrease in total equity in 2015, as compared with 2014, reï¬,ects the sale of Sikorsky and the share repurchase program. The decrease in total equity in 2014, as compared with 2013, reï¬,ects unrealized losses...

  • Page 19
    ...technology products and services to the building systems and aerospace industries. Our operations for the periods presented herein are classified into four principal business segments: Otis, UTC Climate, Controls & Security, Pratt & Whitney, and UTC Aerospace Systems. Otis and UTC Climate, Controls...

  • Page 20
    ... contract negotiations at UTC Aerospace Systems. All four segments experienced organic sales growth during 2014, led by Otis and UTC Aerospace Systems, each at 6%, along with organic sales growth at UTC Climate, Controls & Security (3%) and Pratt & Whitney (2%). The organic sales growth at Otis...

  • Page 21
    ... in 2013 of the Pratt & Whitney Power Systems business and the portfolio transformation initiatives at UTC Climate, Controls & Security. See the Segment Review section of Management's Discussion and Analysis for further discussion of segment organic sales. Cost of Products and Services Sold...

  • Page 22
    ... and royalty income Charge related to a Canadian government settlement Charge for pending and future asbestos claims Impairment of certain UTC Aerospace System assets held for sale Gain on re-measurement to fair value of previously held equity interest in UTC Climate, Controls & Security joint...

  • Page 23
    ...million income tax accrual related to the ongoing dispute with German tax authorities concerning a 1998 reorganization of the corporate structure of Otis operations in Germany, offset by the benefit from repatriation of highly taxed earnings. See Note 17 to the Consolidated Financial Statements for...

  • Page 24
    ... to the Consolidated Financial Statements. Operating Profits 2013 2015 2014 2013 Operating Profit Margin 2015 2014 2013 2015 2014 Otis UTC Climate, Controls & Security Pratt & Whitney UTC Aerospace Systems Total segment Eliminations and other General corporate expenses Consolidated $ 11,980...

  • Page 25
    ... applications. These products and services are sold under the Carrier name and other brand names to building contractors and owners, homeowners, transportation companies, retail stores and food service companies. UTC Climate, Controls & Security is also a global provider of security and fire safety...

  • Page 26
    ...a gain from UTC Climate, Controls & Security's portfolio transformation in 2014 (1%). 2014 Compared with 2013 The organic sales increase (3%) for the year primarily reï¬,ects growth in Americas (2%) driven by the U.S. residential HVAC and fire safety products businesses, and growth in refrigeration...

  • Page 27
    ...-term production and development programs for the U.S. Government has contributed positively to our results in 2015 and is expected to continue to benefit results in 2016. As previously disclosed, Pratt & Whitney's PurePower PW1500G engine models have been selected by Bombardier to power the new...

  • Page 28
    ... commercial engine aftermarket sales (2%). "Other" reï¬,ects a sales reduction in connection with customer contract negotiations (1%). Pratt & Whitney's operating profit includes higher pension cost partially offset by restructuring savings across its business. The operational profit decrease...

  • Page 29
    ... the sale of Pratt & Whitney Power Systems (10%), offset by fair value adjustments related to the acquisition of a majority interest in a joint venture (4%) and higher intellectual property sales (2%). UTC Aerospace Systems is a leading global provider of technologically advanced aerospace products...

  • Page 30
    ..., fixed income, asset-backed receivables and structured products. The balance of these domestic pension plans (13%) is invested in less-liquid but market-valued investments, including real estate and private equity. Across our global pension plans, the impact of higher discount rates for pension...

  • Page 31
    ... general corporate purposes, including the funding of potential acquisitions and repurchases of our common stock. At December 31, 2015, over 85% of our cash was held by UTC's foreign subsidiaries, due to our extensive international operations. We manage our worldwide cash requirements by reviewing...

  • Page 32
    ... dispositions. Cash investments in businesses in 2015 consisted of the acquisition of the majority interest in a UTC Climate, Controls & Security business, the acquisition of an imaging technology company by UTC Aerospace Systems and a number of small acquisitions, primarily in our commercial...

  • Page 33
    ...in a Pratt & Whitney joint venture and a number of small acquisitions, primarily in our commercial businesses. Capital expenditures in 2014 were consistent with 2013 and related primarily to investments in new programs at Pratt & Whitney and UTC Aerospace Systems, as well as continuation of Goodrich...

  • Page 34
    ... by Sikorsky operating income of approximately $150 million and noncash charges, including $438 million of charges related to the change in estimate for the contract amendments signed with the Canadian government for the Cyclone Helicopter program, partially offset by working capital investments...

  • Page 35
    ... original equipment. Revenue projections used in determining contract loss provisions are based upon estimates of the quantity, pricing and timing of future product deliveries. We measure the extent of progress toward completion on our long-term commercial aerospace equipment contracts using units...

  • Page 36
    ... bond indices for reasonableness. Global market interest rates have increased in 2015 as compared with 2014 and, as a result, the weighted-average discount rate used to measure pension liabilities increased from 3.8% in 2014 to 4.1% in 2015. In December 2009, we amended the salaried retirement plans...

  • Page 37
    ... Rolls-Royce contingent upon each hour ï¬,own by the V2500-powered aircraft in service as of June 29, 2012 during the fifteen-year period following closing of the purchase. These ï¬,ight hour payments, included in "Other commercial aerospace commitments" in the table above, are being capitalized as...

  • Page 38
    ... U.S. export sales, averaged approximately $36 billion over the last three years. We actively manage foreign currency exposures that are associated with committed foreign currency purchases and sales, and other assets and liabilities created in the normal course of business at the operating unit...

  • Page 39
    ... Government with respect to government contract matters. See "Legal Proceedings" in Item 1 to this Form 10-K and Note 11 "Income Taxes" and Note 17 "Commitments & Contingencies" of our Consolidated Financial Statements for further discussion of these and other government matters. 2015 Annual Report...

  • Page 40
    ..."Other Matters Relating to Our Business as a Whole," and in the "Legal Proceedings" section. Additional important information as to these factors is included in this 2015 Annual Report in the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" under...

  • Page 41
    This page intentionally left blank. 2015 Annual Report 35

  • Page 42
    ... accepted in the United States of America. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Management has assessed the effectiveness of UTC's internal control over financial reporting as of December 31, 2015. In making its...

  • Page 43
    ... sheets and the related consolidated statement of operations, of comprehensive income, of cash ï¬,ows and of changes in equity present fairly, in all material respects, the financial position of United Technologies Corporation and its subsidiaries at December 31, 2015 and December 31, 2014, and the...

  • Page 44
    ... Statement of Operations (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS; SHARES IN MILLIONS) 2015 2014 2013 Net Sales: Product sales Service sales Costs and Expenses: Cost of products sold Cost of services sold Research and development Selling, general and administrative Other (expense) income...

  • Page 45
    ... in net income Pension and post-retirement benefit plans Net actuarial (loss) gain arising during period Prior service cost arising during period Other Amortization of actuarial loss and prior service cost Tax (expense) benefit Unrealized (loss) gain on available-for-sale securities Unrealized...

  • Page 46
    ...Treasury Stock - 600,153 and 514,309 common shares at average cost Retained earnings Unearned ESOP shares Total Accumulated other comprehensive loss Total Shareowners' Equity Noncontrolling interest Total Equity Total Liabilities and Equity See accompanying Notes to Consolidated Financial Statements...

  • Page 47
    ... Operations: Issuance of long-term debt Repayment of long-term debt Increase (decrease) in short-term borrowings, net Proceeds from Common Stock issuance - equity unit settlement Proceeds from Common Stock issued under employee stock plans Dividends paid on Common Stock Repurchase of Common Stock...

  • Page 48
    ...income (loss), net of tax Common Stock issued under employee plans (6.2 million shares), net of tax benefit of $103 Common Stock repurchased (13.5 million shares) Dividends on Common Stock Dividends on ESOP Common Stock Dividends attributable to noncontrolling interest Purchase of subsidiary shares...

  • Page 49
    Consolidated Statement of Changes in Equity Shareowners' Equity Accumulated Other Comprehensive (Loss) Income Noncontrolling Interest Redeemable Noncontrolling Interest Treasury Stock Retained Earnings Unearned ESOP Shares Total Equity $ (19,251) $ 36,776 5,721 $ (139) $ (5,448) $ 1,155 ...

  • Page 50
    ... the operation of Sikorsky are included in our results through the date of sale to Lockheed Martin Corp. See Note 3 for further discussion. Consolidation. The Consolidated Financial Statements include the accounts of United Technologies Corporation (UTC) and its controlled subsidiaries. Intercompany...

  • Page 51
    ... related to operating leases, and are recognized as "Customer financing assets" in our Consolidated Balance Sheet. The following table summarizes the balance by class of aerospace business-related long-term receivables as of December 31, 2015 and 2014: (DOLLARS IN MILLIONS) 2015 2014 Long-term...

  • Page 52
    ... largely at the Pratt & Whitney segment. Collaborations: Sales generated from engine programs, spare parts sales, and aftermarket business under collaboration arrangements are recorded consistent with our revenue recognition policies in our consolidated financial statements. Amounts attributable to...

  • Page 53
    ... concluded in December 2015 between Pratt & Whitney Canada and the Canadian government. Research and development costs incurred under contracts with customers are included as a contract cost and reported as a component of cost of products sold when revenue from such contracts is recognized. Research...

  • Page 54
    ... a UTC Climate, Controls & Security business, the acquisition of an imaging technology company by UTC Aerospace Systems, and a number of small acquisitions, primarily in our commercial businesses. Our investments in businesses in 2014 consisted of the acquisition of the majority interest in a Pratt...

  • Page 55
    ... Sheet as of December 31, 2014. Cash ï¬,ows from the operation of Sikorsky are included in our results through the date of sale to Lockheed Martin Corp. On December 13, 2012, we completed the sale of the legacy Hamilton Sundstrand Industrial businesses. On June 14, 2013 we 2015 Annual Report 49

  • Page 56
    ... proceeds from the sale of Rocketdyne offset by tax payments related to the 2012 sale of the legacy Hamilton Sundstrand Industrial businesses. The following summarized financial information has been segregated from continuing operations and reported as Discontinued Operations: (DOLLARS IN MILLIONS...

  • Page 57
    ..., accumulated installation costs and estimated earnings on incomplete contracts. Inventory also includes capitalized contract development costs related to certain aerospace programs at UTC Aerospace Systems. As of December 31, 2015 and 2014, these capitalized costs were 2015 Annual Report 51

  • Page 58
    ... royalties, conditioned upon the achievement of certain financial targets including specific aircraft engine sales, total aircraft engine sales volume and total year-over-year sales growth of the entity receiving the government funding. On December 30, 2015, Pratt & Whitney Canada and federal and...

  • Page 59
    ... 100% of the principal amount of the notes to be redeemed or the sum of the present values of the remaining scheduled payments of principal and interest on the notes to be redeemed, discounted to the redemption date on an annual basis at a rate based upon a comparable German federal government bond...

  • Page 60
    ...the holders of the equity units under the purchase contract entered into at the time of the original issuance of the equity units. A summary of the changes in each component of accumulated other comprehensive (loss) income, net of tax for the years ended December 31, 2015 and 2014 is provided below...

  • Page 61
    ... U.S. federal income tax rate are as follows: 2015 2014 2013 additional high taxed dividends from the current year. These are partially offset by an unfavorable tax adjustment of approximately $265 million related to the 1998 reorganization of the corporate structure of Otis operations in Germany...

  • Page 62
    ... and $335 million for 2015, 2014 and 2013, respectively. Our non-union domestic employee savings plan uses an Employee Stock Ownership Plan (ESOP) for employer matching contributions. External borrowings were used by the ESOP to fund a portion of its purchase of ESOP stock from us. The external...

  • Page 63
    ... voluntary lump sum program, the Company settled $147 million and $311 million of its projected benefit obligation in 2015 and 2014, respectively. Qualified domestic pension plan benefits comprise approximately 76% of the projected benefit obligation. Benefits for union employees are generally...

  • Page 64
    ... in private equity are primarily via limited partnership interests in buy-out strategies with smaller allocations to distressed debt funds. The real estate strategy is principally concentrated in directly held U.S. core investments with some smaller investments in international, value-added...

  • Page 65
    ...7 Total at December 31, 2015 Public Equities Global Equities Global Equity Commingled Funds 1 Enhanced Global Equities 2 Global Equities Funds at net asset value 8 Private Equities 3,8 Fixed Income Securities Governments Corporate Bonds Fixed Income Securities 8 Real Estate 4,8 Other 5,8 Cash & Cash...

  • Page 66
    ...appraisals on an annual basis. Private equity limited partnerships are valued quarterly using discounted cash ï¬,ows, earnings multiples and market multiples. Valuation adjustments reï¬,ect changes in operating results, financial condition, or prospects of the applicable portfolio company. Over-the...

  • Page 67
    ... Protection Act Zone Status EIN/Pension Plan Number FIP/ RP Status Pending/ Implemented Contributions Surcharge Imposed Expiration Date of Collective-Bargaining Agreement Pension Fund 2015 2014 2015 2014 2013 National Elevator Industry Pension Plan 23-2694291 Other funds Green Green No...

  • Page 68
    ... historically repurchased shares of our common stock in an amount at least equal to the number of shares issued under our equity compensation arrangements and will continue to evaluate this policy in conjunction with our overall share repurchase program. On November 6, 2015, the sale of Sikorsky to...

  • Page 69
    ... table summarizes the accrual balances and utilization by cost type for the 2015 restructuring actions: Facility Exit, Lease Termination & Other Costs Otis UTC Climate, Controls & Security Pratt & Whitney UTC Aerospace Systems Eliminations and other Restructuring costs recorded within continuing...

  • Page 70
    ... and remaining costs for the 2014 programs by segment: Costs Incurred During 2014 Costs Incurred During 2015 Remaining Costs at December 31, 2015 (DOLLARS IN MILLIONS) Expected Costs Otis UTC Climate, Controls & Security Pratt & Whitney UTC Aerospace Systems Eliminations and other Total $ 121...

  • Page 71
    ... as a result of a fair value adjustment related to the acquisition of a controlling interest in a UTC Climate, Controls & Security joint venture investment, and an impairment charge of $61 million related to certain assets held for sale by UTC Aerospace Systems. During 2014, we recorded net gains of...

  • Page 72
    ...386 million in 2015, $434 million in 2014 and $429 million in 2013. Additional information pertaining to commercial aerospace rental commitments is included in Note 5 to the Consolidated Financial Statements. Environmental. Our operations are subject to environmental regulation by federal, state and...

  • Page 73
    ... 18, 2014, Pratt & Whitney filed an appeal to the Armed Services Board of Contract Appeals. Pratt & Whitney's appeal is still pending and we continue to believe the government's claim is without merit. German Tax Litigation: As previously disclosed, UTC has been involved in administrative review...

  • Page 74
    ... in Ohio on behalf of Goodrich Corporation and the other in New York on behalf of Carrier Corporation. The level of activity in the insurance coverage lawsuits increased significantly in 2015, causing us to intensify our on-going review of our history and experience with asbestos-related claims. In...

  • Page 75
    ... ended December 31 is as follows: Net Sales (DOLLARS IN MILLIONS) Operating Profits 2013 2015 2014 2013 2015 2014 Otis UTC Climate, Controls & Security Pratt & Whitney UTC Aerospace Systems Total segment Eliminations and other General corporate expenses Consolidated $ 11,980 16,707 14,082 14...

  • Page 76
    ..., 2014 and 2013, respectively. Net sales to Airbus, primarily related to Pratt & Whitney and UTC Aerospace Systems products, were approximately $7,624 million, $7,757 million and $6,171 million for the years ended December 31, 2015, 2014 and 2013, respectively. 70 United Technologies Corporation

  • Page 77
    ... 2010 2011 2012 2013 2014 2015 United Technologies Corporation S&P 500 Index Dow Jones Industrial Average $ 100.00 $ 100.00 $ 100.00 $ 95.03 $ 109.38 $ 118.45 $ 119.48 $ 155.18 $ 156.82 $ 154.91 $ 160.13 $ 178.29 $ 170.46 $ 137.06 $ 180.75 $ 170.83 $ 102.11 $ 108.38 2015 Annual Report 71

  • Page 78
    This page intentionally left blank. 72 United Technologies Corporation

  • Page 79
    ... UTC Climate, Controls & Security Pratt & Whitney UTC Aerospace Systems (DOLLARS IN MILLIONS) Otis 2015 Segment sales Adjustments to segment sales: Charges resulting from customer contract negotiations Adjusted 2015 segment sales 2015 Segment operating profit Adjustments to segment operating pro...

  • Page 80
    ...fied Manufacturer) Edward A. Kangas Non-executive Chairman of the Board United Technologies Corporation Former Chairman and CEO Deloitte, Touche, Tohmatsu (Audit, Tax Services and Consulting) Ellen J. Kullman Retired Chair of the Board and Chief Executive Officer DuPont (Diversified Chemicals and...

  • Page 81
    ... Relations Robert J. McDonough* President, UTC Climate, Controls & Security J. Michael McQuade Senior Vice President, Science and Technology Neil G. Mitchill Jr.* Corporate Vice President, Controller David R. Whitehouse* Corporate Vice President, Treasurer *Executive Officer 2015 Annual Report...

  • Page 82
    ...New York Stock Exchange TICKER SYMBOL Shareowners may obtain, without charge, a copy of the UTC Annual Report on Form 10-K for fiscal year 2015 filed with the Securities and Exchange Commission by writing to: Corporate Secretary United Technologies Corporation 10 Farm Springs Road Farmington, CT...

  • Page 83
    ... (2014, INDUSTRY WEEK ) 91st largest company in the world (2015, FORBES Global 2000) 149th largest global corporation (2015, FORTUNE Global 500) No. 2 most admired aerospace and defense company (2015, FORTUNE ) Among world's greenest companies (2015, NEWSWEEK ) Among Climate A List (2015, Carbon...

  • Page 84
    10 Farm Springs Road Farmington, CT 06032 USA www.utc.com