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2014 ANNUAL REPORT
Financial and Corporate
Responsibility Performance

Table of contents

  • Page 1
    2014 ANNUAL REPORT Financial and Corporate Responsibility Performance

  • Page 2
    ...and Sikorsky helicopters. UTC is the world's largest provider of building technologies. Our commercial businesses include Otis elevators and escalators; Carrier heating, air-conditioning and refrigeration systems; and fire and security solutions from brands such as Kidde and Chubb. The company also...

  • Page 3
    ... cities and urban areas. Projected growth in commercial aircraft deliveries and revenue passenger miles present a tremendous opportunity for our Pratt & Whitney and UTC Aerospace Systems businesses. With more than 6,200 orders to date, including options, for the Geared Turbofan (GTF) engine, Pratt...

  • Page 4
    AT A GLANCE FINANCIALS United Technologies Corporation provides high-technology products and services for the aerospace and commercial building industries worldwide. In 2014, UTC net sales were $65.1 billion. NET SALES Dollars in billions DILUTED EARNINGS PER COMMON SHARE Dollars per share 65.1 ...

  • Page 5
    ... may change between annual reporting periods, and UTC may include any prior-year data revisions in current reporting. Learn more about our progress in protecting the environment and the health and safety of our employees at www.utc.com/Corporate-Responsibility. 10 11 12 13 14 2014 ANNUAL REPORT 3

  • Page 6
    ... here are UTC Building & Industrial Systems employees from Farmington, Connecticut. 01 03 02 CITIZENSHIP As a responsible corporate citizen, we are committed to minimizing the environmental impact of our products, our operations and our supply chain. We provide a safe work environment and support...

  • Page 7
    ... a developer's purchasing team. When the developer's general manager discovered Jian's principled response, he awarded UTC the job. "We do not achieve our sales targets by engaging in illegal behavior or by violating our ethical standards." Thomas Rogers, Engineer PRATT & WHITNEY During a meeting...

  • Page 8
    ... share of major projects. In Hong Kong, the iconic iSQUARE shopping complex, already equipped with Otis elevators, Carrier chillers and Chubb security solutions, chose UTC Building & Industrial Systems to provide intelligent systems, including video analytics, remote monitoring and energy management...

  • Page 9
    ...reduce global food waste. 04 Hong Kong's iconic iSQUARE shopping complex is being equipped with intelligent systems from UTC Building & Industrial Systems, designed to reduce the building's energy consumption, predict maintenance needs and manage people ï¬,ow. 05 Ben Dixon is a CCTV agent for Chubb...

  • Page 10
    ..., Florida. In its aftermarket business, Pratt & Whitney continues its move to Fleet Management Programs, which benefit customers by improving reliability and keeping engines on wing longer. 33,591 EMPLOYEES $14.5 BILLION NET SALES $2.0 BILLION OPERATING PROFIT 8 UNITED TECHNOLOGIES CORPORATION

  • Page 11
    ... UTC Aerospace Systems joint venture with AVIC EM began operations to develop and manufacture the electric power system for the new C919 jetliner, built by the Commercial Aircraft Corporation of China. 42,550 EMPLOYEES $14.2 BILLION NET SALES $2.4 BILLION OPERATING PROFIT 2014 ANNUAL REPORT 9

  • Page 12
    ..., excellence and safety, serving commercial and military markets worldwide. In 2014, Sikorsky secured every strategic competition it entered - a string of wins that contributed to a record backlog and sets the stage for long-term organic growth. The company won contracts to develop the next...

  • Page 13
    ... Income Consolidated Balance Sheet Consolidated Statement of Cash Flows Consolidated Statement of Changes in Equity Notes to Consolidated Financial Statements Selected Quarterly Financial Data Board of Directors Permanent Committees Leadership Shareowner Information 2014 ANNUAL REPORT 11

  • Page 14
    ... related to the Goodrich businesses that were acquired during 2012, and approximately $65 million at Pratt & Whitney to further advance development of multiple geared turbofan platforms. Note 5 In connection with the acquisition of Goodrich, repurchases of common stock under our share repurchase...

  • Page 15
    ...technology products and services to the building systems and aerospace industries. Our operations for the periods presented herein are classified into five principal business segments: Otis, UTC Climate, Controls & Security, Pratt & Whitney, UTC Aerospace Systems and Sikorsky. Otis and UTC Climate...

  • Page 16
    ... in our Consolidated Statements of Operations and Cash Flows. On May 17, 2013, we completed the sale of the Pratt & Whitney Power Systems business to Mitsubishi Heavy Industries (MHI) and entered into a long-term engineering and manufacturing agreement with MHI. Pratt & Whitney Power Systems was not...

  • Page 17
    ... sales growth during 2014, led by Otis, UTC Aerospace Systems, and Sikorsky, each at 6%, along with organic sales growth at UTC Climate, Controls & Security (3%) and Pratt & Whitney (2%). The organic sales growth at Otis was primarily due to higher new equipment sales in China, the U.S., Europe...

  • Page 18
    ...UTC Aerospace Systems, and various programs at Sikorsky. The year-overyear increase in company-funded research and development (4%) in 2014, compared with 2013, primarily reï¬,ects increases at Pratt & Whitney (3%) related to the development of multiple geared turbofan platforms and at UTC Aerospace...

  • Page 19
    ... earnings per share from discontinued operations for 2012 includes $0.82 per share of goodwill and net asset impairment charges related to Rocketdyne, Clipper and UTC Power, and $1.01 per share gain on the disposition of the legacy Hamilton Sundstrand Industrial businesses. A $0.16 per share bene...

  • Page 20
    ... 13 to the Consolidated Financial Statements. SEGMENT REVIEW Net Sales (DOLLARS IN MILLIONS) Operating Profits 2012 2014 2013 2012 Operating Profit Margin 2014 2013 2012 2014 2013 Otis UTC Climate, Controls & Security Pratt & Whitney UTC Aerospace Systems Sikorsky Total segment Eliminations...

  • Page 21
    ...re consultants, homeowners and other end-users requiring a high level of security and fire protection for their businesses and residences. UTC Climate, Controls & Security provides its security and fire safety products and services under Chubb, Kidde and other brand names, and sells 2014 ANNUAL...

  • Page 22
    ... businesses in Hong Kong and Australia, as compared to a net gain of $157 million in 2012. Aerospace Businesses The financial performance of Pratt & Whitney, UTC Aerospace Systems and Sikorsky is directly tied to the economic conditions of the commercial aerospace and defense aerospace industries...

  • Page 23
    .... Pratt & Whitney continues to develop five separate geared turbofan platforms and is building capacity to meet demand for new engines which are fuel efficient and have reduced noise levels and exhaust emissions. Falling oil prices may reduce demand for commercial helicopters by deep-water oil and...

  • Page 24
    ... sales (1%), and higher industrial engine sales and related development contracts (1%), partially offset by lower military engine sales volume (4%). Sales increased (2%) as a result of the consolidation of IAE and the transfer of the AeroPower business to Pratt & Whitney from UTC Aerospace Systems...

  • Page 25
    ..., business and general aviation markets, military, space and undersea operations. UTC Aerospace Systems' product portfolio includes electric power (DOLLARS IN MILLIONS) generation, power management and distribution systems, air data and ï¬,ight sensing and management systems, engine control systems...

  • Page 26
    ... funded development programs (4%); lower international military aircraft volume (8%); higher export compliance (5%); other selling, general and administrative costs including pension and salaries (3%); and research and development (1%) costs. The decline in profitability on U.S. Government programs...

  • Page 27
    ... systems business and the sale of Pratt & Whitney Power Systems. Cash generated from these divestitures was used to repay debt incurred to finance the Goodrich acquisition. Tax payments related to discontinued operations, primarily the December 2012 sale of the legacy Hamilton Sundstrand Industrial...

  • Page 28
    ...as well as lower global pension contributions. Included in income from continuing operations in 2013 were approximately $248 million of net gains from the sale of the Pratt & Whitney Power Systems business and portfolio transformation activities at UTC Climate, Controls & Security, approximately $95...

  • Page 29
    ... provide product on new aircraft platforms of approximately $930 million. Business dispositions in 2013 included the sale of the legacy Goodrich pumps and engine controls business, the sale of the legacy Goodrich electric power systems business and the sale of Pratt & Whitney Power Systems. In 2014...

  • Page 30
    ... of UTC Power and of Clipper, which was divested in 2012. Cash ï¬,ows provided by discontinued operations in 2012 primarily relate to the completed divestitures of the legacy Hamilton Sundstrand Industrial businesses for $3.4 billion, and the disposition of Clipper to a private equity acquirer which...

  • Page 31
    .... Our operating units include businesses which sell products and services and conduct operations throughout the world. As described in Note 17 to the Consolidated Financial Statements, contractual, regulatory and other matters in the normal course of business may arise that subject us to claims or...

  • Page 32
    ... will instead receive an enhanced benefit under the UTC Savings Plan. As of July 26, 2012 the same amendment was applied to legacy Goodrich salaried employees. Across our global pension plans, the impact of lower discount rates and the adoption of new mortality $ 59,808 $ 15,081 $ 12,246 $ 5,421...

  • Page 33
    ... in relation to the economic benefits received over the projected remaining thirty-year life of the V2500 program. The estimated ï¬,ight hour payments are included in Other commercial aerospace commitments in the table above. Refer to Notes 1, 5 and 16 to the Consolidated Financial Statements for...

  • Page 34
    ...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. 32 UNITED TECHNOLOGIES CORPORATION

  • Page 35
    ..."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 2014 Annual Report in the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" under...

  • Page 36
    ... of financial statements for external reporting purposes in accordance with accounting principles generally 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...

  • Page 37
    ... PUBLIC ACCOUNTING FIRM TO THE BOARD OF DIRECTORS AND SHAREOWNERS OF UNITED TECHNOLOGIES CORPORATION: In our opinion, the accompanying consolidated balance sheet and the related consolidated statement of operations, of comprehensive income, of cash ï¬,ows and of changes in equity present fairly...

  • Page 38
    CONSOLIDATED STATEMENT OF OPERATIONS (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS; SHARES IN MILLIONS) 2014 2013 2012 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 ...

  • Page 39
    ...period Reclassification adjustments for loss (gain) on sale of an investment in a foreign entity recognized in net income Pension and post-retirement benefit plans Net actuarial (loss) gain arising during period Prior service (cost) credit arising during period Other Amortization of actuarial loss...

  • Page 40
    ...Treasury Stock - 514,309 and 501,038 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 41
    ... equivalents of businesses held for sale Cash and cash equivalents of continuing operations, end of year Supplemental Disclosure of Cash Flow Information: Interest paid, net of amounts capitalized Income taxes paid, net of refunds See accompanying Notes to Consolidated Financial Statements $ 6,220...

  • Page 42
    ... income (loss), net of tax Common Stock issued under employee plans (8 million shares), net of tax benefit of $67 Treasury Stock reissued under employee plans (3.6 million shares) Equity Units issuance Dividends on Common Stock Dividends on ESOP Common Stock Dividends attributable to noncontrolling...

  • Page 43
    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 $ (19,410) $ 33,487 5,130 $ (152) $ (5,490) $ 940 360...

  • Page 44
    ...at fair value in purchase accounting and then amortized to cost of sales and selling, general & administrative expenses over the applicable useful lives. Also included within other intangible assets are commercial aerospace payments made to secure certain contractual rights to provide product on new...

  • Page 45
    ..., as applicable. Products and services included within the scope of this SAB Topic include heating, ventilating, air-conditioning and refrigeration systems, non-complex alarm and fire detection and suppression systems, commercially funded research and development contracts and non-complex aerospace...

  • Page 46
    ... production costs and make certain payments to Pratt & Whitney for shared or joint program costs. The reimbursement of a collaborator's share of program costs is recorded as a reduction of the related expense item at that time. Cash Payments to Customers: UTC Climate, Controls & Security customarily...

  • Page 47
    ... developing new engines, Pratt & Whitney has entered into certain collaboration arrangements in which sales, costs and risks are shared. Sales generated from engine programs, spare parts, and aftermarket business under collaboration arrangements are recorded as earned in our financial statements...

  • Page 48
    ... Goodrich acquisition, regulatory authorities required UTC to dispose of the Goodrich electric power systems and the Goodrich pumps and engine controls businesses. We completed the sales of these businesses in 2013. In 2012, UTC approved plans for the divestiture of a number of non-core businesses...

  • Page 49
    ... Windpower (Clipper) and have no continuing involvement with the Clipper business following disposition. The legacy Hamilton Sundstrand Industrial businesses, as well as Clipper, Rocketdyne and UTC Power all met the "held-for-sale" criteria in 2012. The results of operations, including the net...

  • Page 50
    ... AEROSPACE INDUSTRY ASSETS AND COMMITMENTS 2014 2013 2012 Net income attributable to common shareowners: Net income from continuing operations Net income from discontinued operations Net income attributable to common shareowners Basic weighted average number of shares outstanding Stock awards...

  • Page 51
    ...to this program. Inventory also includes capitalized contract development costs related to certain aerospace programs at UTC Aerospace Systems. As of December 31, 2014 and 2013, these capitalized costs were $141 million and $159 million, respectively, which will be liquidated as production units are...

  • Page 52
    ...Goodrich acquisition on July 26, 2012. § The three-month LIBOR rate as of December 31, 2014 was approximately 0.2%. The project financing obligations noted above are associated with the sale of rights to unbilled revenues related to the ongoing activity of an entity owned by UTC Climate, Controls...

  • Page 53
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The schedule of principal payments required on long-term debt for the next five years and thereafter is: (DOLLARS IN MILLIONS) 2015 2016 2017 2018 2019 Thereafter Total $ 1,796 110 2,518 118 1,570 13,388 $ 19,500 We have an existing universal shelf ...

  • Page 54
    ...'s review of UTC's 2010-2012 tax years and a favorable tax impact of $34 million related to the conclusion of the Canada Revenue Agency's examination of the company's research credits claimed in 2006 - 2012. Also included is a favorable tax adjustment of $175 million associated with management...

  • Page 55
    ... ended December 31, 2014, the Company resolved certain litigation and Internal Revenue Service (IRS) Appeals proceedings related to an issue involving the proper timing of deductions taken by Goodrich Corporation in its tax years 2005 through 2010, prior to its acquisition by UTC. As a result, the...

  • Page 56
    ... our obligation to those participants accepting the offer. The program provides participants with a one-time choice of electing to receive a lump-sum settlement in lieu of receiving a future monthly pension benefit. Payments to participants who accepted the 54 UNITED TECHNOLOGIES CORPORATION

  • Page 57
    ... STATEMENTS offer began in 2014 and will be completed in early 2015. In 2014, as part of this voluntary lump sum program, the Company settled $311 million of its projected benefit obligation, and expects to settle approximately another $147 million in early 2015. Qualified domestic pension plan...

  • Page 58
    ... Assets & Liabilities 8 Total at December 31, 2014 Public Equities Global Equities Global Equity Commingled Funds 1 Enhanced Global Equities 2 Private Equities 3 Fixed Income Securities Governments Corporate Bonds Structured Products 4 Real Estate 5 Other 6 Cash & Cash Equivalents 7 Subtotal Other...

  • Page 59
    ...sector, industry and number of investment managers. The fair value measurement of plan assets using significant unobservable inputs (Level 3) changed due to the following: Enhanced Global Equities Private Equities Corporate Bonds Real Estate (DOLLARS IN MILLIONS) Total Balance, December 31, 2012...

  • Page 60
    ... benefits provided to legacy Goodrich salaried employees by eliminating any company subsidy for retirements that occur after January 31, 2014. This resulted in a $16 million reduction in the projected benefit obligation as of July 26, 2012. The components of net periodic benefit cost are as...

  • Page 61
    ... with our overall share repurchase program. We measure the cost of all share-based payments, including stock options, at fair value on the grant date and recognize this cost in the Consolidated Statement of Operations. For the years ended December 31, 2014, 2013 and 2012, $240 million, $275...

  • Page 62
    ... TO CONSOLIDATED FINANCIAL STATEMENTS A summary of the transactions under all long-term incentive plans for the year ended December 31, 2014 follows: Stock Options (SHARES AND UNITS IN THOUSANDS) Stock Appreciation Rights Average Price* Shares Average Price* Performance Share Units Units Average...

  • Page 63
    ... actions initiated in 2012. As of December 31, 2014, there are no remaining costs to complete the 2012 actions. NOTE 14: FINANCIAL INSTRUMENTS (DOLLARS IN MILLIONS) Expected Costs Otis UTC Climate, Controls & Security Pratt & Whitney UTC Aerospace Systems Sikorsky Eliminations and other...

  • Page 64
    ... $55 million net gain from UTC Climate, Controls & Security's portfolio transformation, primarily due to a gain on the sale of businesses in Hong Kong and Australia. In addition, we recorded an approximately $193 million gain from the sale of Pratt & Whitney Power Systems business (see Note...

  • Page 65
    ... Rent expense was $464 million in 2014, $456 million in 2013 and $457 million in 2012. 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...

  • Page 66
    ...the United States District Court for the Southern District of Ohio, claiming that Pratt & Whitney violated the civil False Claims Act and common law. The claims relate to the "Fighter Engine Competition" between Pratt & Whitney's F100 engine and General Electric's F110 engine. The government alleged...

  • Page 67
    ... management services. UTC Aerospace Systems provides aerospace products and aftermarket services for commercial, military, business jet and general aviation customers worldwide. Products include electric power generation, management and distribution systems, ï¬,ight control systems, engine control...

  • Page 68
    ... to obtain on external sales. Segment information for the years ended December 31 is as follows: Net Sales (DOLLARS IN MILLIONS) Operating Profits 2012 2014 2013 2012 2014 2013 Otis UTC Climate, Controls & Security Pratt & Whitney UTC Aerospace Systems Sikorsky Total segment Eliminations and...

  • Page 69
    ... stock was $100.00 on December 31, 2009. COMPARISON OF CUMULATIVE FIVE YEAR TOTAL RETURN $250 United Technologies Corporation S&P 500 Index Dow Jones Industrial Average $200 $150 $100 $50 $0 2009 2010 2011 2012 2013 2014 December 2009 2010 2011 2012 2013 2014 United Technologies Corporation...

  • Page 70
    ...Biopharmaceutical Company) Operating Partner Advent International (Global Private Equity Firm) Retired Chief Executive Officer GlaxoSmithKIine Gregory J. Hayes President and Chief Executive Officer United Technologies Corporation (Diversified Manufacturer) Edward A. Kangas Former Chairman and CEO...

  • Page 71
    LEADERSHIP Paul R. Adams President, Pratt & Whitney Elizabeth B. Amato Senior Vice President, Human Resources and Organization David G. Appel President, Carrier Transicold & Refrigeration Systems, UTC Building & Industrial Systems Richard H. Bennett, Jr. Vice President, Environment, Health & Safety...

  • Page 72
    ... ACCESS United Technologies Corporation United Technologies Building Hartford, CT 06101 Telephone: 860.728.7000 This report is made available to shareowners in advance of the annual meeting of shareowners to be held at 2 p.m., April 27, 2015, in Palm Beach Gardens, Florida. The proxy statement...

  • Page 73
    ... and tell us what you think of our financial and corporate responsibility performance and reporting. United Technologies Corporation and its subsidiaries' names, abbreviations thereof, logos, and product and service designators are either the registered or unregistered trademarks or trade names...

  • Page 74
    United Technologies Building Hartford, CT 06101 USA www.utc.com