United Technologies 2008 Annual Report Download - page 54

Hamilton Sundstrand’s operating profits increased $132 million (14%) in 2008 as compared
with 2007, primarily due to growth in the aerospace (6%) and industrial businesses (2%). The
favorable impact of gains related to divestiture activity (3%), the favorable impact of foreign
currency translation (1%), and lower year-over-year restructuring costs (1%) contributed the
majority of the remaining year-over-year operating profit growth. Operating profits increased
$135 million (16%) in 2007 as compared with 2006 due principally to volume growth in both
the commercial aftermarket (13%) and industrial businesses (2%) and the favorable impact of
foreign currency translation (2%). Operating profits from commercial OEM revenue growth
(8%) and the impact of lower restructuring costs (2%) were mostly offset by increased
company funded research and development costs (9%), principally related to the Boeing 787
program.
Sikorsky is one of the world’s largest manufacturers of military and commercial helicopters
and also provides aftermarket helicopter and aircraft parts and services. Current major
production programs at Sikorsky include the UH-60M Black Hawk medium-transport
helicopters and HH-60M Medevac helicopters for the U.S. and foreign governments, the S-70
Black Hawk for foreign governments, the MH-60S and MH-60R helicopters for the U.S. Navy,
the International Naval Hawk for multiple naval missions, and the S-76 and the S-92
helicopters for commercial operations. The UH-60M helicopter is the latest and most modern
in a series of Black Hawk variants that Sikorsky has been delivering to the U.S. Army since 1978
and requires significant additional assembly hours relative to the previous variants. In
December 2007, the U.S. government and Sikorsky signed a five-year, multi-service contract
for 537 H-60 helicopters to be delivered to the U.S. Army and U.S. Navy, which include the
UH-60M, HH-60M, MH-60S and MH-60R aircraft. The contract value for expected deliveries
over the five year term is approximately $7.4 billion and includes options for an additional 263
aircraft, spares, and kits, with the total contract value potentially reaching $11.6 billion making
it the largest contract in UTC and Sikorsky history. Actual production quantities will be
determined year by year over the life of the program based on funding allocations set by
Congress and Pentagon acquisition priorities. The deliveries of the aircraft are scheduled to be
made through 2012. Sikorsky also is developing the CH-53K next generation heavy lift
helicopter for the U.S. Marine Corps and the CH-148, a derivative of the H-92, a military
variant of the S-92, for the Canadian government. The latter is being developed under an
approximately $3 billion firm, fixed-price contract that provides for the development,
production, and 20-year logistical support of 28 helicopters. This is the largest and most
expansive fixed-price development contract in Sikorsky’s history. In December 2008, Sikorsky
and the Canadian government executed amendments to the contract that revised the delivery
schedule and contract specifications. The first test flight was successfully conducted in
November 2008 and delivery of the first helicopter is scheduled for the fourth quarter of 2010.
Sikorsky’s aftermarket business includes spare parts sales, overhaul and repair services,
maintenance contracts, and logistics support programs for helicopters and other aircraft. Sales
are made directly by Sikorsky and by its subsidiaries and joint ventures. Sikorsky is increasingly
engaging in logistics support programs and partnering with its government and commercial
customers to manage and provide maintenance and repair services.
Sikorsky’s revenues increased $579 million (12%) in 2008, as compared with 2007, due to the
higher volume of military aircraft deliveries and a favorable aircraft mix between military and
commercial programs. Revenues increased $1,559 million (48%) in 2007, as compared with
2006, due to higher business volume and full production in 2007 as compared to 2006, which
was adversely impacted by the six week strike of Sikorsky’s union workforce. Increases in
military aircraft deliveries and program support (22%), commercial aircraft revenues
(13%) and aftermarket operations (13%) comprised the majority of the year-over-year
revenue increase.
Sikorsky’s operating profits increased $105 million (28%) in 2008 as compared with 2007. This
improvement was primarily attributable to increased military aircraft deliveries and favorable
aircraft mix for both military and commercial programs (combined 42%). These
improvements were partially offset by increased selling, general, and administrative expenses
(7%) and research and development (6%). Sikorsky’s operating profits increased $200 million
(116%) in 2007 as compared with 2006. A 58% increase in the number of large aircraft
deliveries as a result of strong commercial and military demand and the absence of the strike
related impact in 2006 generated the majority of the increase in operating profit in 2007. Lower
year-over-year restructuring charges (14%), partially offset by the absence of recoveries from
the Comanche program termination (7%), contributed to the remaining operating profit
increase.
Liquidity and Financing Commitments
(in millions of dollars) 2008 2007
Cash and cash equivalents $ 4,327 $ 2,904
Total debt 11,476 9,148
Net debt (total debt less cash and cash equivalents) 7,149 6,244
Shareowners’ equity 15,917 21,355
Total capitalization (debt plus equity) 27,393 30,503
Net capitalization (debt plus equity less cash and
cash equivalents) 23,066 27,599
Debt to total capitalization 42% 30%
Net debt to net capitalization 31% 23%
52 United Technologies Corporation