# RTX Corp: Form 10-Q for the period ended Jun 30, 2015 - Company: [RTX Corp](/companies/rtx.md) (CIK 101829) - Form: 10-Q - Filed: 2015-07-24 - Accepted by EDGAR: Jul 24, 2015, 11:14 ET - Period: 2015-06-30 - Accession: 0000101829-15-000035 - Inline XBRL: yes - Main document: https://www.sec.gov/Archives/edgar/data/101829/000010182915000035/a2015-06x3010xq.htm - All documents and exhibits: https://www.sec.gov/Archives/edgar/data/101829/000010182915000035/ ## Figures reported in this filing Standardized XBRL line items for the period ended 2015-06-30. | Line item | Period | Value | XBRL concept | | --- | --- | ---: | --- | | Revenue | 3 months, 2015-04-01 to 2015-06-30 | $16.33bn | us-gaap:SalesRevenueNet | | Revenue | 6 months, 2015-01-01 to 2015-06-30 | $30.87bn | us-gaap:SalesRevenueNet | | Cost of revenue | 3 months, 2015-04-01 to 2015-06-30 | $9.02bn | us-gaap:CostOfGoodsSold | | Cost of revenue | 6 months, 2015-01-01 to 2015-06-30 | $16.85bn | us-gaap:CostOfGoodsSold | | Research and development | 3 months, 2015-04-01 to 2015-06-30 | $606.0m | us-gaap:ResearchAndDevelopmentExpense | | Research and development | 6 months, 2015-01-01 to 2015-06-30 | $1.21bn | us-gaap:ResearchAndDevelopmentExpense | | Selling, general and administrative | 3 months, 2015-04-01 to 2015-06-30 | $1.54bn | us-gaap:SellingGeneralAndAdministrativeExpense | | Selling, general and administrative | 6 months, 2015-01-01 to 2015-06-30 | $3.11bn | us-gaap:SellingGeneralAndAdministrativeExpense | | Operating income | 3 months, 2015-04-01 to 2015-06-30 | $2.55bn | us-gaap:OperatingIncomeLoss | | Operating income | 6 months, 2015-01-01 to 2015-06-30 | $4.83bn | us-gaap:OperatingIncomeLoss | | Interest expense | 3 months, 2015-04-01 to 2015-06-30 | $216.0m | us-gaap:InterestExpense | | Interest expense | 6 months, 2015-01-01 to 2015-06-30 | $434.0m | us-gaap:InterestExpense | | Income tax | 3 months, 2015-04-01 to 2015-06-30 | $684.0m | us-gaap:IncomeTaxExpenseBenefit | | Income tax | 6 months, 2015-01-01 to 2015-06-30 | $1.24bn | us-gaap:IncomeTaxExpenseBenefit | | Net income | 3 months, 2015-04-01 to 2015-06-30 | $1.54bn | us-gaap:NetIncomeLoss | | Net income | 6 months, 2015-01-01 to 2015-06-30 | $2.97bn | us-gaap:NetIncomeLoss | | Diluted EPS | 3 months, 2015-04-01 to 2015-06-30 | $1.73 | us-gaap:EarningsPerShareDiluted | | Diluted EPS | 6 months, 2015-01-01 to 2015-06-30 | $3.31 | us-gaap:EarningsPerShareDiluted | | Basic EPS | 3 months, 2015-04-01 to 2015-06-30 | $1.76 | us-gaap:EarningsPerShareBasic | | Basic EPS | 6 months, 2015-01-01 to 2015-06-30 | $3.35 | us-gaap:EarningsPerShareBasic | | Diluted shares (weighted) | 3 months, 2015-04-01 to 2015-06-30 | 889,400,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding | | Diluted shares (weighted) | 6 months, 2015-01-01 to 2015-06-30 | 897,800,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding | | Operating cash flow | 6 months, 2015-01-01 to 2015-06-30 | $2.85bn | us-gaap:NetCashProvidedByUsedInOperatingActivitiesContinuingOperations | | Capital expenditure | 6 months, 2015-01-01 to 2015-06-30 | $706.0m | us-gaap:PaymentsToAcquireProductiveAssets | | Dividends paid | 6 months, 2015-01-01 to 2015-06-30 | $1.10bn | us-gaap:PaymentsOfDividendsCommonStock | | Share repurchases | 6 months, 2015-01-01 to 2015-06-30 | $3.00bn | us-gaap:PaymentsForRepurchaseOfCommonStock | | Cash and equivalents | at 2015-06-30 | $5.93bn | us-gaap:CashAndCashEquivalentsAtCarryingValue | | Current assets | at 2015-06-30 | $30.67bn | us-gaap:AssetsCurrent | | Total assets | at 2015-06-30 | $92.77bn | us-gaap:Assets | | Current liabilities | at 2015-06-30 | $23.73bn | us-gaap:LiabilitiesCurrent | | Total liabilities | at 2015-06-30 | $60.70bn | us-gaap:Liabilities | | Short-term borrowings | at 2015-06-30 | $2.78bn | us-gaap:ShortTermBorrowings | | Shareholders' equity | at 2015-06-30 | $30.38bn | us-gaap:StockholdersEquity | | Shares outstanding | at 2015-06-30 | 890,597,745 shares | dei:EntityCommonStockSharesOutstanding | ## Management's discussion and analysis As filed, 77,360 characters. ### BUSINESS OVERVIEW We are a global provider of high technology products and services to the building systems and aerospace industries. Our operations are classified into five principal business segments: Otis, UTC Climate, Controls & Security, Pratt & Whitney, UTC Aerospace Systems and Sikorsky. Otis and UTC Climate, Controls & Security are referred to as the "commercial businesses," while Pratt & Whitney, UTC Aerospace Systems and Sikorsky are collectively referred to as the "aerospace businesses." UTC Building & Industrial Systems is an organizational structure consisting of our commercial businesses. Otis and UTC Climate, Controls & Security each continue to report their financial and operational results as separate segments, which is consistent with how we allocate resources and measure the financial performance of these businesses. On July 20, 2015, we announced an agreement to sell our Sikorsky Aircraft business (Sikorsky) to Lockheed Martin Corp. for $9 billion in cash, subject to a working capital and net indebtedness adjustment. The sale is expected to close by the end of 2015 or in the first quarter of 2016, and is subject to customary closing conditions, including regulatory approvals. As a result, Sikorsky will be reported in discontinued operations beginning in the third quarter of 2015. Proceeds from the sale are expected to be used to fund additional share repurchase of UTC stock. The current status of significant factors affecting our business environment in 2015 is discussed below. For additional discussion, refer to the "Business Overview" section in Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2014 Annual Report, which is incorporated by reference in our 2014 Form 10-K. ### General Our worldwide operations can be affected by industrial, economic and political factors on both a regional and global level. To limit the impact of any one industry, or the economy of any single country on our consolidated operating results, our strategy has been, and continues to be, the maintenance of a balanced and diversified portfolio of businesses. Our operations include original equipment manufacturing (OEM) and extensive related aftermarket parts and services in both our commercial and aerospace businesses. Our business mix also reflects the combination of shorter cycles at UTC Climate, Controls & Security and in our commercial aerospace aftermarket businesses, and longer cycles at Otis and in our aerospace OEM businesses. Our customers include companies in the private sector and governments, and our businesses reflect an extensive geographic diversification that has evolved with the continued globalization of world economies. The global economy continues to expand in 2015 with world gross domestic product (GDP) growth projected to reach 2.6% with moderating growth in the U.S. and modest improvements in Western Europe. U.S. GDP is forecasted to be 2.2%, with harsh winter weather in early 2015 and port closures appearing to be a temporary setback for U.S. growth. Although emerging markets have historically led global growth relative to advanced and developing countries, slowing growth rates in China and forecasted contraction in Russia and Brazil have tempered growth expectations for emerging markets in 2015 to approximately 3.9%. In China, with lower manufacturing growth and a decline in the real estate sector, China GDP is forecasted to slow to approximately 6.5% in 2015 as China continues to use fiscal policy to support growth. Our military businesses sales are affected by U.S. Department of Defense budget and spending levels. Total sales to the U.S. Government were $2.4 billion and $2.2 billion, or 15% and 13% of total UTC sales in the quarters ended June 30, 2015 and 2014, respectively. The defense portion of our aerospace business is affected by changes in market demand and the global political environment. Our participation in long-term production and development programs for the U.S. Government has, and is expected to contribute positively to our results in 2015. ### Acquisition Activity Our growth strategy contemplates acquisitions. Our operations and results can be affected by the rate and extent to which appropriate acquisition opportunities are available, acquired businesses are effectively integrated, and anticipated synergies or cost savings are achieved. During the six months ended June 30, 2015, our investment in business acquisitions was approximately $273 million, including debt assumed of $17 million, which includes the acquisition of a majority interest in a UTC Climate, Controls & Security business and a number of other small acquisitions primarily in our commercial businesses. We expect cash investment in businesses to be approximately $1 billion in 2015. However, actual acquisition spending may vary depending upon the timing, availability and value of acquisition opportunities. ### Other Government legislation, policies and regulations can have a negative impact on our worldwide operations. Government regulation of refrigerants and energy efficiency standards, elevator safety codes and fire protection regulations are important to our commercial businesses. Government and market-driven safety and performance regulations, restrictions on aircraft engine noise and emissions, and government procurement practices can impact our aerospace and defense businesses. Global economic and political conditions, changes in raw material and commodity prices, interest rates, foreign currency exchange rates, energy costs, levels of end market demand in construction, levels of air travel, the financial condition of commercial airlines, and the impact from natural disasters and weather conditions create uncertainties that could impact our earnings outlook for the remainder of 2015. See Part I, Item 1A, "Risk Factors" in our 2014 Form 10-K for further discussion. Sikorsky is developing the CH-148 derivative of the H-92 helicopter (the Cyclone), a military variant of the S-92 helicopter, for the Canadian Government. The Cyclone is being developed under a fixed-price acquisition contract (the Acquisition Contract) that provides for a program to develop and produce 28 helicopters, and a related contract to provide in-service support (collectively, the Arrangements). Delivery of the final configuration aircraft, which was originally scheduled to begin in 2012, did not occur due to a number of disputes between the Canadian Government and Sikorsky related to contractual requirements and contract performance. On June 18, 2014, Sikorsky and the Canadian Government signed amendments to the Arrangements (the Amended Arrangements). The Amended Arrangements finalized the scope of the aircraft, changed the governance of the program, and established a phased approach to the delivery of interim and final configuration helicopters starting in 2015. The Amended Arrangements also extend the in-service support contract through approximately 2038. The contract value of the Amended Arrangements is estimated to be approximately $6.4 billion. Prior to the amendments, sales and losses under the Acquisition Contract were recognized using an output-based method, consistent with the practices and policies the Company applies to other comparable production contracts. In light of the significant changes in program scope, governance and delivery, we re-assessed the method we utilize in estimating the extent of progress under the Acquisition Contract. The Acquisition Contract, as amended, now reflects the significant developmental nature of the program that has evolved over time. Under the Company's practices and policies, contracts that are comparable to the Amended Arrangements are accounted for utilizing a cost-to-cost percentage of completion method, as this best reflects the efforts expended and more appropriately aligns the sales and loss recognition with these efforts. Employing the cost-to-cost percentage of completion method, we recorded a cumulative adjustment to reflect the percentage of completion under the Amended Arrangements in the second quarter of 2014 as a change in estimate. This adjustment along with changes in the in-service support contract resulted in the recognition in the second quarter of 2014 of $830 million in sales and $438 million in losses. Remaining losses under the Amended Arrangements of approximately $220 million will be recognized as the costs are incurred. These losses will be partially offset by the in-service support aftermarket contract with the expectation of generating positive annual margin beginning in 2019. The following activities are disclosed as required by Section 13(r)(1)(D) of the Securities Exchange Act of 1934, as amended, as transactions or dealings with the government of Iran that have not been specifically authorized by a U.S. federal department or agency: As part of UTC Building & Industrial System’s on-going efforts to identify and terminate transactions with the government of Iran, it recently determined that in 2012, 2013, 2014 and 2015, Chubb Hong Kong Limited (Chubb Hong Kong) sold security alarm and monitoring equipment and services to the Hong Kong office of Melli Bank PLC (Melli Bank). Chubb Hong Kong is a non-U.S. subsidiary operating through the UTC Climate, Controls & Security financial reporting segment. Melli Bank has been designated by the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) as an entity owned or controlled by the Government of Iran and as blocked pursuant to Executive Order No. 13382. A portion of the 2012 transactions and all of the 2013, 2014 and 2015 transactions took place after the President issued Executive Order 13628 on October 9, 2012, which implemented Section 218 of the Iran Threat Reduction and Syria Human Rights Act by prohibiting any entity owned or controlled by a U.S. person and established or maintained outside the U.S. from knowingly engaging in any transaction, directly or indirectly, with the Government of Iran. Accordingly, UTC Building & Industrial Systems has filed an appropriate disclosure with OFAC. In 2012, Chubb Hong Kong sold approximately $1,548 in the aggregate in security alarm and monitoring equipment and services to Melli Bank, with a net profit of approximately $697. Approximately $1,161 of the 2012 payments were received before October 9, 2012 and were not prohibited by applicable law when received. In 2013, Chubb Hong Kong sold approximately $1,761 in the aggregate in security alarm and monitoring equipment and services to Melli Bank, with a net profit of approximately $792. In 2014, Chubb Hong Kong sold approximately $1,559 in the aggregate in security alarm and monitoring equipment and services to Melli Bank, with a net profit of approximately $702. In 2015, Chubb Hong Kong sold approximately $796 in the aggregate in security alarm and monitoring equipment and services to Melli Bank, with a net profit of approximately $358. Chubb Hong Kong has informed Melli Bank that it has terminated the relationship and will not provide further security alarm and monitoring equipment or services. As previously disclosed under Part II. Item 9A of our 2014 Form 10-K, Chubb Fire & Security Limited (Chubb UK), a company organized under the laws of the United Kingdom, sold fire safety products and provided related maintenance inspection services to Petrochemical Commercial Company (U.K.) Limited (Petrochemical) in 2012, 2013, and 2014. Also as previously disclosed, Chubb UK informed Petrochemical that it terminated the relationship and will not provide further fire safety equipment or maintenance inspection services. As part of the process of terminating such relationship, in 2015 Chubb UK sent a second termination notice to Petrochemical and, with respect to $1,367.23 of maintenance inspection services provided in December 2014, UK Chubb issued to Petrochemical a credit note for the amount of the services provided, thereby excusing Petrochemical from payment for those services. Chubb UK has received no payments or profit for the December 2014 services and has had no further contact with Petrochemical in 2015. UTC Aerospace Systems discovered that Iran Air accessed a limited number of maintenance documents in a legacy Goodrich technical publications database during the period required for reporting by Section 13(r) of the Securities Exchange Act (15 U.S.C. Section 78m(r)). These documents are used by maintenance mechanics pertaining to parts manufactured by Goodrich Corporation for older commercial aircraft operated by Iran Air (mostly interior and exterior lighting components). OFAC has designated Iran Air as an entity owned or controlled by the Government of Iran and blocked pursuant to Executive Order No. 13382. No documents were accessed after December 2013 and UTC Aerospace Systems has taken appropriate action to prevent further access. Based on its preliminary review of this matter, UTC Aerospace Systems has not identified any revenues or profits attributable to Iran Air’s access to these documents. UTC Aerospace Systems has also filed the relevant disclosure with OFAC. ### CRITICAL ACCOUNTING ESTIMATES Preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, sales and expenses. We believe the most complex and sensitive judgments, because of their significance to the Consolidated Financial Statements, result primarily from the need to make estimates about the effects of matters that are inherently uncertain. Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 1 to the Consolidated Financial Statements in our 2014 Annual Report, incorporated by reference in our 2014 Form 10-K, describe the significant accounting estimates and policies used in preparation of the Consolidated Financial Statements. Actual results in these areas could differ from management's estimates. There have been no significant changes in our critical accounting estimates during the six months ended June 30, 2015. ### RESULTS OF OPERATIONS ### Net Sales *(Dollars in millions)* | | Quarter Ended June 30, 2015 | 2014 | Six Months Ended June 30, 2015 | 2014 | | --- | ---: | ---: | ---: | ---: | | Net Sales | $16,333 | $17,191 | $30,874 | $31,936 | The factors contributing to the total percentage change year-over-year in total net sales for the quarter and six months ended June 30, 2015 are as follows: | | Quarter Ended June 30, 2015 | Six Months Ended June 30, 2015 | | --- | ---: | ---: | | Organic change | 3% | 3% | | Foreign currency translation | (4)% | (4)% | | Acquisitions and divestitures, net | 1% | 1% | | Other | (5)% | (3)% | | Total % Change | (5)% | (3)% | During the quarter ended June 30, 2015, all five segments experienced organic sales growth led by Sikorsky (6%), UTC Climate, Controls & Security (5%), along with growth at Pratt & Whitney and UTC Aerospace Systems (each 2%) and Otis (1%). Organic sales growth at Sikorsky was driven by development programs, U.S. Government aircraft sales volumes and commercial aircraft sales volume, driven by aircraft completion services. Organic sales growth at UTC Climate, Controls & Security was driven by the U.S. commercial heating, ventilation, and air conditioning (HVAC) and transport refrigeration businesses. All five segments also experienced organic sales growth during the six months ended June 30, 2015, led by UTC Climate, Controls & Security (6%) and UTC Aerospace Systems (4%), along with growth Otis (2%) and at Pratt & Whitney and Sikorsky (each 1%). Organic sales growth at UTC Climate, Controls & Security was driven by the U.S. commercial HVAC and transport refrigeration businesses, while organic growth at UTC Aerospace Systems was due to growth in commercial OEM sales. The sales increase from net acquisitions and divestitures for the quarter and six months ended June 30, 2015 was primarily a result of the acquisition of majority interests in a UTC Climate, Controls & Security business and joint venture. The decline in "Other" in the quarter and six months ended June 30, 2015 is attributable to the absence of the cumulative adjustment to record sales of $830 million based upon the change in estimate arising out of the Amended Arrangements signed with the Canadian Government for the Cyclone helicopter program in the second quarter of 2014. ### Cost of Products and Services Sold *(Dollars in millions)* | | Quarter Ended June 30, 2015 | 2014 | Six Months Ended June 30, 2015 | 2014 | | --- | ---: | ---: | ---: | ---: | | Cost of products sold | $9,020 | $10,182 | $16,850 | $18,263 | | Percentage of product sales | 74.9% | 78.2% | 75.2% | 77.0% | | Cost of services sold | $2,805 | $2,749 | $5,498 | $5,358 | | Percentage of service sales | 65.4% | 65.9% | 65.0% | 65.1% | | Total cost of products and services sold | $11,825 | $12,931 | $22,348 | $23,621 | The factors contributing to the percentage change year-over-year for the quarter and six months ended June 30, 2015 in total cost of products and services sold are as follows: | | Quarter Ended June 30, 2015 | Six Months Ended June 30, 2015 | | --- | ---: | ---: | | Organic change | 5% | 4% | | Foreign currency translation | (5)% | (5)% | | Acquisitions and divestitures, net | 1% | 1% | | Other | (10)% | (5)% | | Total % Change | (9)% | (5)% | The organic increase in total cost of products and services sold in the quarter and six months ended June 30, 2015 was driven by the organic sales increase noted above as well as by a higher proportion of OEM sales mix and the related negative engine margin in 2015 relative to 2014, within Pratt & Whitney. Foreign exchange fluctuations provided a benefit through lower cost of sales of approximately 5% driven by Otis and UTC Climate, Controls & Security. The decrease in "Other" in the quarter and six months ended June 30, 2015 is attributable to the absence of the cumulative adjustment to record costs of $1,268 million based upon the change in estimate arising out of the Amended Arrangements signed with the Canadian Government for the Cyclone helicopter program in the second quarter of 2014. ### Gross Margin *(Dollars in millions)* | | Quarter Ended June 30, 2015 | 2014 | Six Months Ended June 30, 2015 | 2014 | | --- | ---: | ---: | ---: | ---: | | Gross margin | $4,508 | $4,260 | $8,526 | $8,315 | | Percentage of net sales | 27.6% | 24.8% | 27.6% | 26.0% | The 280 basis point increase in gross margin as a percentage of sales for the quarter ended June 30, 2015 is primarily due to the absence of the cumulative adjustment to record $830 million in sales and $1,268 million in cost of sales based upon the change in estimate arising out of the Amended Arrangements signed with the Canadian Government for the Cyclone helicopter program (390 basis points). This was partially offset by higher negative engine margin at Pratt & Whitney (50 basis points) and higher restructuring costs (20 basis points). The remaining decline is primarily driven by higher pension expense in 2015. The 160 basis point increase in gross margin as a percentage of sales for six months ended June 30, 2015 is primarily due to the absence of the cumulative adjustment to record $830 million in sales and $1,268 million in cost of sales based upon the change in estimate arising out of the Amended Arrangements signed with the Canadian Government for the Cyclone helicopter program (210 basis points). This was partially offset by higher negative engine margin at Pratt & Whitney (50 basis points). Lower restructuring costs (10 basis points) were offset by higher pension expense in 2015. ### Research and Development *(Dollars in millions)* | | Quarter Ended June 30, 2015 | 2014 | Six Months Ended June 30, 2015 | 2014 | | --- | ---: | ---: | ---: | ---: | | Company-funded | $606 | $666 | $1,208 | $1,290 | | Percentage of net sales | 3.7% | 3.9% | 3.9% | 4.0% | | Customer-funded | $585 | $641 | $1,124 | $1,164 | | Percentage of net sales | 3.6% | 3.7% | 3.6% | 3.6% | Research and development spending is subject to the variable nature of program development schedules, and, therefore, year-over-year fluctuations in spending levels are expected. The majority of the company-funded spending is incurred by the aerospace businesses. The year-over-year decrease in company-funded research and development (9%) for the quarter ended June 30, 2015 is primarily related to lower research and development within UTC Aerospace Systems and Pratt & Whitney resulting principally from the wind down of development activities on certain key programs such as the A320neo. Customer-funded research and development declined 9%, led principally by Pratt & Whitney (17%) and UTC Aerospace Systems (6%). These declines reflect the latter stages of development on various U.S. Government and commercial programs, and were partially offset by higher spending on U.S. Government development programs at Sikorsky (15%). The year-over-year decrease in company-funded research and development (6%) for the six months ended June 30, 2015 is primarily due to lower research and development within Pratt & Whitney related to the development of multiple geared turbo-fan platforms (3%) and within UTC Aerospace Systems related to several commercial aerospace programs (4%). Customer-funded research and development declined (3%) due primarily to lower spending on U.S. Government and commercial engine programs at Pratt & Whitney (16%), partially offset by higher spending on U.S. Government development programs at Sikorsky (13%). We expect company-funded research and development for the full year 2015 to decline more than $100 million from 2014 levels. ### Selling, General and Administrative *(Dollars in millions)* | | Quarter Ended June 30, 2015 | 2014 | Six Months Ended June 30, 2015 | 2014 | | --- | ---: | ---: | ---: | ---: | | Selling, general and administrative expenses | $1,543 | $1,623 | $3,106 | $3,219 | | Percentage of net sales | 9.4% | 9.4% | 10.1% | 10.1% | Selling, general and administrative expenses declined 5% in the quarter ended June 30, 2015 due to the benefit of foreign exchange (6%), particularly within the commercial businesses, and lower restructuring costs (2%), partially offset by transaction and separation costs related to the planned sale of Sikorsky (2%) and higher pension costs (1%). Selling, general and administrative expenses declined 4% in the six months ended June 30, 2015 due to the benefit of foreign exchange (5%), particularly within the commercial businesses, partially offset by transaction and separation costs related to the planned sale of Sikorsky (1%) and higher pension costs (1%). ### Other Income, Net *(Dollars in millions)* | | Quarter Ended June 30, 2015 | 2014 | Six Months Ended June 30, 2015 | 2014 | | --- | ---: | ---: | ---: | ---: | | Other income, net | $193 | $384 | $614 | $647 | Other income, net includes equity earnings in unconsolidated entities, royalty income, foreign exchange gains and losses as well as other ongoing and nonrecurring items. The year-over-year decrease in other income, net (50%) in the quarter ended June 30, 2015 reflects the absence of a prior year gain on an agreement with a state taxing authority for the monetization of tax credits (58%) and lower joint venture income (5%), offset by the absence of a prior year charge to adjust the fair value of a Pratt & Whitney joint venture (16%) and the absence of an impairment loss on a Sikorsky joint venture investment (7%). The remaining difference is attributable to miscellaneous asset sales at Pratt & Whitney and UTC Climate, Controls & Security and other normal recurring operational activity. The year-over-year decrease in other income, net (5%) in the six months ended June 30, 2015 reflects the absence of a prior year gain on an agreement with a state taxing authority for the monetization of tax credits (34%) and lower joint venture income (5%), offset by gain on the re-measurement to fair value of previously held equity interests in UTC Climate, Controls & Security joint venture investments (24%) by obtaining controlling interests in the ventures, the absence of a prior year charge to adjust the fair value of a Pratt & Whitney joint venture (9%) and the absence of an impairment loss on a Sikorsky joint venture investment (4%). The remaining difference is attributable to miscellaneous asset sales at Pratt & Whitney and UTC Climate, Controls & Security and other normal recurring operational activity. ### Interest Expense, Net *(Dollars in millions)* | | Quarter Ended June 30, 2015 | 2014 | Six Months Ended June 30, 2015 | 2014 | | --- | ---: | ---: | ---: | ---: | | Interest expense | $244 | $245 | $484 | $488 | | Interest income | (28) | (39) | (50) | (57) | | Interest expense, net | $216 | $206 | $434 | $431 | | Average interest expense rate | 4.2% | 4.3% | 4.2% | 4.3% | The decline in interest income in the quarter and six months ended June 30, 2015 is primarily due to the absence of $21 million of favorable pre-tax interest adjustments, primarily related to the conclusion of the IRS's examination of the Company's 2009 and 2010 tax years, recorded during the quarter ended June 30, 2014. ### Income Taxes | | Quarter Ended June 30, 2015 | 2014 | Six Months Ended June 30, 2015 | 2014 | | --- | ---: | ---: | ---: | ---: | | Effective tax rate | 29.3% | 16.7% | 28.3% | 23.0% | The increase in the effective tax rate for the quarter ended June 30, 2015, primarily reflects the absence of the favorable non-cash income tax impacts recorded in the second quarter of 2014, comprised of $213 million related to the conclusion of the IRS examination of the Company’s 2009 - 2010 tax years and $40 million related to the conclusion of the State of Connecticut's review of the Company’s 2010 - 2012 tax years. The increase in the effective tax rate for the six months ended June 30, 2015 reflects the absence of the items noted above, partially offset by the non-taxable gain recognized on the re-measurement to fair value of a previously held equity interest in a UTC Climate, Controls & Security joint venture that was recorded in the first quarter of 2015. We estimate our full year annual effective income tax rate in 2015 to be approximately 29%, absent nonrecurring items and unadjusted for the impacts of the planned sale of Sikorsky. ### Net Income Attributable to Common Shareowners *(Dollars in millions, except per share amounts)* | | Quarter Ended June 30, 2015 | 2014 | Six Months Ended June 30, 2015 | 2014 | | --- | ---: | ---: | ---: | ---: | | Income attributable to common shareowners | $1,542 | $1,680 | $2,968 | $2,893 | | Diluted earnings per share attributable to common shareowners | $1.73 | $1.84 | $3.31 | $3.16 | Net income attributable to common shareowners for the quarter ended June 30, 2015 includes restructuring charges, net of tax benefit, of $40 million as well as costs, net of tax benefit, related to the planned sale of Sikorsky of $27 million. The effect of nonrecurring items and restructuring charges on diluted earnings per share for the quarter ended June 30, 2015 was $0.08 per share. The impact of foreign currency translation and hedging generated an unfavorable effect of $0.06 per diluted share on our operational performance in the quarter ended June 30, 2015. Net income attributable to common shareowners for the quarter ended June 30, 2014 includes restructuring charges, net of tax benefit, of $38 million as well as a net benefit from non-recurring items, net of tax expense of $37 million. The effect on diluted earnings per share for the quarter ended June 30, 2014 of restructuring charges was $0.04 per share, offset by a net $0.04 benefit from non-recurring items. The impact of foreign currency translation and hedging generated a favorable effect of $0.03 per diluted share on our operational performance in the quarter ended June 30, 2014. Net income attributable to common shareowners for the six months ended June 30, 2015 includes restructuring charges, net of tax benefit, of $105 million as well as a net benefit from nonrecurring items, net of tax expense of $100 million. The effect of nonrecurring items on diluted earnings per share for the six months ended June 30, 2015 was a net benefit of $0.12, which was offset by $0.12 of restructuring charges. The impact of foreign currency translation and hedging generated an unfavorable effect of $0.13 per diluted share on our operational performance in the six months ended June 30, 2015. Net income attributable to common shareowners for the six months ended June 30, 2014 includes restructuring charges, net of tax benefit, of $121 million as well as a net benefit from non-recurring items, net of tax expense of $37 million. The effect on diluted earnings per share for the six months ended June 30, 2014 of restructuring charges was $0.13 per share, offset by a net $0.04 benefit from non-recurring items. The impact of foreign currency translation and hedging generated a favorable effect of $0.03 per diluted share on our operational performance in the six months ended June 30, 2014. ### Restructuring Costs *(Dollars in millions)* | | Six Months Ended June 30, 2015 | 2014 | | --- | ---: | ---: | | Restructuring costs | $155 | $180 | Restructuring actions are an essential component of our operating margin improvement efforts and relate to both existing operations and those recently acquired. Charges generally arise from severance related to workforce reductions, accelerated depreciation on assets and facility exit and lease termination costs associated with the consolidation of field and manufacturing operations. We expect to incur restructuring costs in 2015 of approximately $300 million, including trailing costs related to prior actions associated with our continuing cost reduction efforts and the integration of acquisitions. The expected adverse impact on earnings in 2015 from anticipated additional restructuring costs is expected to be offset by the beneficial impact from gains and other items that are outside the normal operating activities of the business. Although no specific plans for significant actions have been finalized at this time, we continue to closely monitor the economic environment and may undertake further restructuring actions to keep our cost structure aligned with the demands of the prevailing market conditions. As described below, the charges incurred in the six months ended June 30, 2015 primarily relate to actions initiated during 2015 and 2014, while the charges incurred in the six months ended June 30, 2014 primarily relate to actions initiated during 2014 and 2013. **2015 Actions.** During the six months ended June 30, 2015, we recorded net pre-tax restructuring charges of $105 million relating to ongoing cost reduction actions initiated in 2015. We are targeting to complete in 2015 and 2016 the majority of the remaining workforce and facility related cost reduction actions initiated in 2015. Approximately 90% of the total pre-tax charge will require cash payments, which we have funded and expect to continue to fund with cash generated from operations. During the six months ended June 30, 2015, we had cash outflows of approximately $15 million related to the 2015 actions. We expect to incur additional restructuring charges of $46 million to complete these actions. We expect recurring pre-tax savings to increase over the two-year period subsequent to initiating the actions to approximately $200 million annually. **2014 Actions.** During the six months ended June 30, 2015 and 2014, we recorded net pre-tax restructuring charges of $48 million and $151 million, respectively, for actions initiated in 2014. The 2014 actions relate to ongoing cost reduction efforts, including severance related to workforce reductions and facility exit and lease termination costs related to the consolidation of field and manufacturing operations. We are targeting to complete in 2015 the majority of the remaining workforce and facility related cost reduction actions initiated in 2014. Approximately 90% of the total pre-tax charge will require cash payments, which we have and expect to continue to fund with cash generated from operations. During the six months ended June 30, 2015, we had cash outflows of approximately $78 million related to the 2014 actions. We expect to incur additional restructuring charges of $56 million to complete these actions. We expect recurring pre-tax savings to increase over the two-year period subsequent to initiating the actions to approximately $310 million annually, of which, approximately $112 million was realized during the six months ended June 30, 2015. For additional discussion of restructuring, see Note 7 to the Condensed Consolidated Financial Statements. ### Segment Review Segments are generally based on the management structure of the businesses and the grouping of similar operating companies, where each management organization has general operating autonomy over diversified products and services. Adjustments to reconcile segment reporting to the consolidated results for the quarters and six months ended June 30, 2015 and 2014 are included in "Eliminations and other" below, which also includes certain smaller subsidiaries. We attempt to quantify material cited factors within our discussion of the results of each segment whenever those factors are determinable. However, in some instances, the factors we cite within our segment discussion are based upon input measures or qualitative information that does not lend itself to quantification when discussed in the context of the financial results measured on an output basis and are not, therefore, quantified in the below discussions. ### Commercial Businesses Our commercial businesses generally serve customers in the worldwide commercial and residential property industries, and UTC Climate, Controls & Security also serves customers in the commercial and transport refrigeration industries. Sales in the commercial businesses are influenced by a number of external factors, including fluctuations in residential and commercial construction activity, regulatory changes, interest rates, labor costs, foreign currency exchange rates, customer attrition, raw material and energy costs, credit markets and other global and political factors. UTC Climate, Controls & Security's financial performance can also be influenced by production and utilization of transport equipment, and, in the case of its residential business, weather conditions. To ensure adequate supply of products in the distribution channel, UTC Climate, Controls & Security customarily offers its customers incentives to purchase products. The principal incentive program provides reimbursements to distributors for offering promotional pricing on UTC Climate, Controls & Security products. We account for incentive payments made as a reduction to sales. At constant currency and excluding the effect of acquisitions and divestitures, orders within the UTC Climate, Controls & Security segment increased (29%) within transport refrigeration on order strength within Europe and North American truck and trailer businesses and within the container business. Global commercial HVAC orders declined (5%) as HVAC equipment order growth in the Americas (10%) was more than offset by a decline in Asia (23%). Within the Otis segment, new equipment orders increased (5%) in the quarter ended June 30, 2015 with growth in Europe and the Middle East (32%) led by a landmark project in the Middle East. New equipment order growth in North America (10%) was offset by a decline in China (10%) in the quarter ended June 30, 2015. Summary performance for each of the commercial businesses for the quarters ended June 30, 2015 and 2014 was as follows: *(Dollars in millions)* | | Otis 2015 | 2014 | Change | UTC Climate, Controls & Security 2015 | 2014 | Change | | --- | ---: | ---: | ---: | ---: | ---: | ---: | | Net Sales | $3,098 | $3,365 | (8)% | $4,454 | $4,429 | 1% | | Cost of Sales | 2,091 | 2,248 | (7)% | 3,059 | 3,041 | 1% | | | 1,007 | 1,117 | (10)% | 1,395 | 1,388 | 1% | | Operating Expenses and Other | 380 | 424 | (10)% | 572 | 573 | — | | Operating Profits | $627 | $693 | (10)% | $823 | $815 | 1% | Operating Profit Margins 20.2 % 20.6 % 18.5 % 18.4 % Summary performance for each of the commercial businesses for the six months ended June 30, 2015 and 2014 was as follows: *(Dollars in millions)* | | Otis 2015 | 2014 | Change | UTC Climate, Controls & Security 2015 | 2014 | Change | | --- | ---: | ---: | ---: | ---: | ---: | ---: | | Net Sales | $5,843 | $6,320 | (8)% | $8,306 | $8,280 | — | | Cost of Sales | 3,931 | 4,256 | (8)% | 5,772 | 5,767 | — | | | 1,912 | 2,064 | (7)% | 2,534 | 2,513 | 1% | | Operating Expenses and Other | 758 | 801 | (5)% | 982 | 1,161 | (15)% | | Operating Profits | $1,154 | $1,263 | (9)% | $1,552 | $1,352 | 15% | Operating Profit Margins 19.8 % 20.0 % 18.7 % 16.3 % ### Otis – ### Quarter Ended June 30, 2015 Compared with Quarter Ended June 30, 2014 | | Factors contributing to total % Change Organic / Operational | FX Translation | Acquisitions / Divestitures, net | Restructuring Costs | Other | | --- | ---: | ---: | ---: | ---: | ---: | | Net Sales | 1% | (9)% | — | — | — | | Cost of Sales | 3% | (10)% | — | — | — | | Operating Profits | (2)% | (11)% | — | 2% | 1% | Organic sales increased (1%) due to higher new equipment sales primarily in North America (2%) offset by lower service sales in Europe (1%), which are expected to continue for the remainder of 2015. Lower new equipment sales in China (1%) were offset by higher new equipment sales in other areas of Asia (1%). Operational profit decreased (2%) due to lower service contribution (2%) primarily in Europe and higher selling, general and administrative expenses (2%), partially offset by higher new equipment contribution (2%). ### Six Months Ended June 30, 2015 Compared with Six Months Ended June 30, 2014 | | Factors contributing to total % Change Organic / Operational | FX Translation | Acquisitions / Divestitures, net | Restructuring Costs | Other | | --- | ---: | ---: | ---: | ---: | ---: | | Net Sales | 2% | (10)% | — | — | — | | Cost of Sales | 2% | (10)% | — | — | — | | Operating Profits | — | (11)% | — | 2% | — | Organic sales increased (2%) due to higher new equipment sales primarily in North America (1%) and Asia (1%). Lower service sales in Europe (1%) were offset by higher service sales in Asia (1%). Operational profit remained unchanged in the first six months of 2015 as higher new equipment contribution (6%) was offset by lower service contribution (3%) due to continued pricing pressure, and higher selling, general and administrative expenses (2%). ### UTC Climate, Controls & Security – ### Quarter Ended June 30, 2015 Compared with Quarter Ended June 30, 2014 | | Factors contributing to total % Change Organic / Operational | FX Translation | Acquisitions / Divestitures, net | Restructuring Costs | Other | | --- | ---: | ---: | ---: | ---: | ---: | | Net Sales | 5% | (7)% | 3% | — | — | | Cost of Sales | 5% | (7)% | 3% | — | — | | Operating Profits | 6% | (5)% | — | — | — | Organic sales increased by 5% primarily reflecting growth in Americas (3%) driven by the U.S. commercial and residential HVAC businesses, and growth in refrigeration (2%) driven by the transport refrigeration businesses. The 6% operational profit increase was driven by favorable volume and price (combined 5%) and lower commodity costs (1%). ### Six Months Ended June 30, 2015 Compared with Six Months Ended June 30, 2014 | | Factors contributing to total % Change Organic / Operational | FX Translation | Acquisitions / Divestitures, net | Restructuring Costs | Other | | --- | ---: | ---: | ---: | ---: | ---: | | Net Sales | 6% | (7)% | 1% | — | — | | Cost of Sales | 5% | (7)% | 2% | — | — | | Operating Profits | 7% | (5)% | — | 1% | 12% | 34 Organic sales increased by 6% primarily reflecting growth in Americas (3%) driven by the U.S. commercial and residential HVAC businesses, and growth in refrigeration (2%) driven by the transport refrigeration businesses. The 7% operational profit increase was primarily driven by favorable volume and price (combined 6%) and lower commodity costs (1%). The 12% increase in "Other" is driven by a gain as a result of a fair value adjustment related to the acquisition of a controlling interest in a joint venture investment (9%), a gain as a result of a fair value adjustment related to a separate acquisition of a controlling interest in another joint venture investment (1%), and a gain on a property sale (1%). ### Aerospace Businesses The aerospace businesses serve both commercial and government aerospace customers. Revenue passenger miles (RPMs), U.S. Government military and space spending, and the general economic health of airline carriers are all barometers for our aerospace businesses. Performance in the general aviation sector is closely tied to the overall health of the economy and is positively correlated to corporate profits. We continue to see growth in our commercial OEM business based on a strong airline industry which is benefiting from traffic growth and lower fuel costs. Airline traffic, as measured by RPMs, grew over 6% in the first five months of 2015, while jet fuel costs have declined approximately 40% relative to prices one year ago in all geographic regions. Our commercial aftermarket businesses continue to evolve as an increasing proportion of our aerospace businesses' customers are covered under Fleet Management Programs (FMP). FMP are comprehensive long-term spare part and service agreements with our customers. We expect a continued shift to FMP in lieu of transactional spare part sales as new engines enter our customers' fleets on FMP, and legacy fleets are retired. Overall shop visits for engines under FMP were lower in the quarter reflecting our ongoing efforts to improve the engine time on wing. Other aftermarket activity was mixed with engine transactional services up at Pratt & Whitney, including Pratt & Whitney Canada, provisioning and repair down at UTC Aerospace Systems, while part sales continued to be strong at UTC Aerospace Systems. The UTC Aerospace Systems provisioning, repair and part sales volumes are expected to remain relatively consistent through the remainder of 2015. Military aftermarket across the aerospace businesses was generally flat. We record changes in contract estimates using the cumulative catch-up method in accordance with the Revenue Recognition Topic of the FASB ASC. Operating profit included significant net favorable changes in aerospace contract estimates of $91 million and $145 million in the quarter and six months ended June 30, 2015, respectively, primarily representing favorable contract adjustments recorded at Pratt & Whitney. Summary performance for each of the aerospace businesses for the quarters ended June 30, 2015 and 2014 was as follows: *(Dollars in millions)* | | Pratt & Whitney 2015 | 2014 | Change | UTC Aerospace Systems 2015 | 2014 | Change | Sikorsky 2015 | 2014 | Change | | --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | | Net Sales | $3,677 | $3,592 | 2% | $3,632 | $3,636 | — | $1,691 | $2,384 | (29)% | | Cost of Sales | 2,845 | 2,717 | 5% | 2,648 | 2,585 | 2% | 1,403 | 2,560 | (45)% | | | 832 | 875 | (5)% | 984 | 1,051 | (6)% | 288 | (176) | 264% | | Operating Expenses & Other | 345 | 443 | (22)% | 404 | 449 | (10)% | 123 | 141 | (13)% | | Operating Profits | $487 | $432 | 13% | $580 | $602 | (4)% | $165 | $(317) | 152% | Operating Profit Margins 13.2 % 12.0 % 16.0 % 16.6 % 9.8 % (13.3 )% Summary performance for each of the aerospace businesses for the six months ended June 30, 2015 and 2014 was as follows: *(Dollars in millions)* | | Pratt & Whitney 2015 | 2014 | Change | UTC Aerospace Systems 2015 | 2014 | Change | Sikorsky 2015 | 2014 | Change | | --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | | Net Sales | $7,009 | $6,921 | 1% | $7,180 | $7,086 | 1% | $2,958 | $3,745 | (21)% | | Cost of Sales | 5,409 | 5,263 | 3% | 5,199 | 5,049 | 3% | 2,465 | 3,715 | (34)% | | | 1,600 | 1,658 | (3)% | 1,981 | 2,037 | (3)% | 493 | 30 | 1,543% | | Operating Expenses & Other | 694 | 838 | (17)% | 832 | 845 | (2)% | 236 | 261 | (10)% | | Operating Profits | $906 | $820 | 10% | $1,149 | $1,192 | (4)% | $257 | $(231) | 211% | Operating Profit Margins 12.9 % 11.8 % 16.0 % 16.8 % 8.7 % (6.2 )% ### Pratt & Whitney – ### Quarter Ended June 30, 2015 Compared with Quarter Ended June 30, 2014 | | Factors contributing to total % Change Organic / Operational | FX Translation\* | Acquisitions / Divestitures, net | Restructuring Costs | Other | | --- | ---: | ---: | ---: | ---: | ---: | | Net Sales | 2% | (1)% | 1% | — | — | | Cost of Sales | 6% | (1)% | 1% | — | (1)% | | Operating Profits | (19)% | 2% | 4% | 1% | 25% | The organic sales increase (2%) primarily reflects higher military engine sales (4%), offset by lower commercial engine sales (2%). Sales increased 1% as a result of the acquisition of a majority interest in a joint venture in July 2014. Pratt & Whitney's operating profit reflects higher pension costs partially offset by restructuring savings across its businesses. The operational profit decrease (19%) was due to unfavorable aftermarket volume and mix (25%), higher negative engine margin (19%), and repayments of government research and development support in the form of royalties at Pratt & Whitney Canada (2%), offset by an increase in favorable contract performance (17%), favorable military engine margin and volume mix (6%) and lower research and development spending (5%). Operating profit increased (4%) as a result of the acquisition of a majority interest in a joint venture in July 2014. "Other" reflects the absence of a loss to adjust the fair value of a joint venture investment (14%), the absence of an impairment of assets related to a joint venture (5%), a favorable fair value adjustment of contingent consideration related to a 2013 Pratt & Whitney divestiture (3%), higher gains from intellectual property sales (2%) and non-core product lines sales (2%). ### Six Months Ended June 30, 2015 Compared with Six Months Ended June 30, 2014 | | Factors contributing to total % Change Organic / Operational | FX Translation\* | Acquisitions / Divestitures, net | Restructuring Costs | Other | | --- | ---: | ---: | ---: | ---: | ---: | | Net Sales | 1% | (1)% | 1% | — | — | | Cost of Sales | 4% | (1)% | — | — | — | | Operating Profits | (12)% | 2% | 3% | 4% | 13% | \* *For Pratt & Whitney only, the transactional impact of foreign exchange hedging at Pratt & Whitney Canada has been netted against the translational foreign exchange impact for presentation purposes in the above tables. For all other segments, these foreign exchange transactional impacts are included within the organic/operational caption in their respective tables. Due to its potential significance to Pratt & Whitney's overall operating results, we believe it is useful to segregate the foreign exchange transactional impact in order to clearly identify the underlying financial performance.* The organic sales increase (1%) primarily reflects higher military engine sales (2%) offset by lower commercial engine sales (1%). Sales increased 1% as a result of the acquisition of a majority interest in a joint venture in July 2014. Pratt & Whitney's operating profit includes higher pension cost partially offset by restructuring savings across its business. The operational profit decrease (12%) was due to higher negative engine margin (20%), lower aftermarket profits (4%), repayments of government research and development support in the form of royalties at Pratt & Whitney Canada (3%), and lower industrial engines development sales (2%), offset by favorable contract performance (8%), lower research and development spending (5%), favorable military engine volume and mix (3%), and favorable contract termination benefits (2%). Operating profit increased (3%) as a result of the acquisition of a majority interest in a joint venture in July 2014. "Other" reflects the absence of a loss to adjust the fair value of a joint venture investment (7%), the absence of an impairment of assets related to a joint venture (3%), favorable fair value adjustment of contingent consideration related to a 2013 Pratt & Whitney divestiture (2%), higher gains from intellectual property sales (1%) and non-core product lines sales (1%). ### UTC Aerospace Systems – ### Quarter Ended June 30, 2015 Compared with Quarter Ended June 30, 2014 | | Factors contributing to total % Change Organic / Operational | FX Translation | Acquisitions / Divestitures, net | Restructuring Costs | Other | | --- | ---: | ---: | ---: | ---: | ---: | | Net Sales | 2% | (2)% | — | — | — | | Cost of Sales | 6% | (4)% | (1)% | 1% | — | | Operating Profits | (8)% | 3% | — | 1% | — | The organic sales growth (2%) primarily reflects an increase in commercial aerospace OEM sales volume (3%) and a benefit from a change in a customer arrangement (2%), partially offset by the absence of the favorable impact of a prior year customer contract settlement (2%) and lower military OEM sales volume (1%). The organic decrease in operational profit (8%) reflects lower commercial aerospace OEM profit contribution (9%) primarily due to adverse mix, the absence of the favorable impact of a prior year customer contract settlement (6%), higher warranty costs (3%), higher pension costs (3%), and lower military profit contribution (2%), partially offset by lower research and development costs (7%), benefits from customer contract dispute resolutions and other settlements (5%), and lower selling, general and administrative expenses (4%) partially driven by lower employee related costs. ### Six Months Ended June 30, 2015 Compared with Six Months Ended June 30, 2014 | | Factors contributing to total % Change Organic / Operational | FX Translation | Acquisitions / Divestitures, net | Restructuring Costs | Other | | --- | ---: | ---: | ---: | ---: | ---: | | Net Sales | 4% | (2)% | (1)% | — | — | | Cost of Sales | 7% | (4)% | — | — | — | | Operating Profits | (2)% | — | — | (3)% | 1% | The organic sales growth (4%) primarily reflects an increase in commercial aerospace OEM sales volume (4%) and a benefit from a change in a customer arrangement (2%), partially offset by the absence of the favorable impact of a prior year customer contract settlement (1%) and lower military OEM sales volume (1%). The organic decrease in operational profit (2%) reflects higher warranty costs (4%), lower commercial aerospace OEM profit contribution (3%) primarily due to adverse mix, the absence of the favorable impact of a prior year customer contract settlement (3%), higher pension costs (3%), and lower military profit contribution (3%), partially offset by benefits from favorable customer contract negotiations, dispute resolutions and other settlements (5%), lower research and development costs (4%), lower selling, general and administrative expenses (3%) partially driven by lower employee related costs, and higher commercial aerospace aftermarket profit contribution (1%). ### Sikorsky – ### Quarter Ended June 30, 2015 Compared with Quarter Ended June 30, 2014 | | Factors contributing to total % Change Organic / Operational | FX Translation | Acquisitions / Divestitures, net | Restructuring Costs | Other | | --- | ---: | ---: | ---: | ---: | ---: | | Net Sales | 6% | — | — | — | (35)% | | Cost of Sales | 4% | — | — | 1% | (50)% | | Operating Profits | 12% | — | — | (7)% | 147% | The organic sales increase (6%) reflects increased development program sales volume (5%), commercial aircraft volume (4%) driven by aircraft completion services, and U.S. Government aircraft sales volume (3%). These increases were partially offset by decreases in international military sales (4%) and aftermarket sales (3%). "Other" reflects the absence of a cumulative adjustment to record $830 million in sales and $1,268 million in cost of sales in 2014 based upon the change in estimate for the Amended Arrangements signed with the Canadian Government for the Cyclone Helicopter program. The operational profit increase (12%) is driven by increased profitability in U.S. Government aircraft (11%) due to increased volume and the absence of prior year unfavorable contract performance adjustments, increased development programs volume (5%) inclusive of year-over-year favorable contract performance adjustments, increased commercial profitability (3%) due to aircraft completion services volume, and increased profitability from international military aircraft (1%). These increases were partially offset by lower aftermarket profitability (8%). "Other" reflects the absence of a cumulative adjustment to record losses of $438 million in 2014 based upon the change in estimate for the Amended Arrangements signed with the Canadian Government for the Cyclone Helicopter program and the absence of an approximately $28 million charge for the impairment of a Sikorsky joint venture investment in 2014. ### Six Months Ended June 30, 2015 Compared with Six Months Ended June 30, 2014 | | Factors contributing to total % Change Organic / Operational | FX Translation | Acquisitions / Divestitures, net | Restructuring Costs | Other | | --- | ---: | ---: | ---: | ---: | ---: | | Net Sales | 1% | — | — | — | (22)% | | Cost of Sales | — | — | — | — | (34)% | | Operating Profits | 11% | 1% | — | (3)% | 202% | The organic sales increase (1%) reflects increased development program sales volume (6%) and U.S. Government aircraft sales volume (1%). These increases were partially offset by decreases in aftermarket sales (4%) and international military sales (2%). "Other" reflects a cumulative adjustment to record $830 million in sales and $1,268 million in cost of sales in 2014 based upon the change in estimate for the Amended Arrangements signed with the Canadian Government for the Cyclone Helicopter program. The operational profit increase (11%) is driven by increased profitability in U.S. Government aircraft (23%) due to increased sales volume and the absence of unfavorable contract performance adjustments, increased development programs volume (5%) inclusive of year-over-year favorable contract performance adjustments, increased profitability from international aircraft (5%), and additional joint venture income (4%). These increases were partially offset by lower aftermarket profitability (26%) primarily due to a decline in year-over-year favorable military contract performance adjustments. "Other" reflects the absence of a cumulative adjustment to record losses of $438 million in 2014 based upon the change in estimate for the Amended Arrangements signed with the Canadian Government for the Cyclone Helicopter program and the absence of an approximately $28 million charge for the impairment of a Sikorsky joint venture investment in 2014. ### Eliminations and other – *(Dollars in millions)* | | Net Sales Quarter Ended June 30, 2015 | 2014 | Operating Profits Quarter Ended June 30, 2015 | 2014 | | --- | ---: | ---: | ---: | ---: | | Eliminations and other | $(219) | $(215) | $(10) | $249 | | General corporate expenses | — | — | (120) | (119) | *(Dollars in millions)* | | Net Sales Six Months Ended June 30, 2015 | 2014 | Operating Profits Six Months Ended June 30, 2015 | 2014 | | --- | ---: | ---: | ---: | ---: | | Eliminations and other | $(422) | $(416) | $38 | $288 | | General corporate expenses | — | — | (230) | (231) | Eliminations and other reflects the elimination of sales, other income and operating profit transacted between segments, as well as the operating results of certain smaller businesses. The year-over-year decline in operating profit for the quarter and six months ended June 30, 2015, as compared with the same period of 2014, reflects the absence of an approximately $220 million gain on an agreement with a state taxing authority for the monetization of tax credits that was recorded in the second quarter of 2014. ### LIQUIDITY AND FINANCIAL CONDITION *(Dollars in millions)* | | June 30, 2015 | December 31, 2014 | June 30, 2014 | | --- | ---: | ---: | ---: | | Cash and cash equivalents | $5,933 | $5,235 | $4,962 | | Total debt | 22,443 | 19,794 | 20,072 | | Net debt (total debt less cash and cash equivalents) | 16,510 | 14,559 | 15,110 | | Total equity | 31,938 | 32,564 | 35,193 | | Total capitalization (debt plus equity) | 54,381 | 52,358 | 55,265 | | Net capitalization (debt plus equity less cash and cash equivalents) | 48,448 | 47,123 | 50,303 | | Debt to total capitalization | 41% | 38% | 36% | | Net debt to net capitalization | 34% | 31% | 30% | We assess our liquidity in terms of our ability to generate cash to fund our operating, investing and financing activities. Our principal source of liquidity is operating cash flows, which, after netting out capital expenditures, we generally target to approximate net income attributable to common shareowners. For 2015, we expect this to approximate 90% to 100% of net income attributable to common shareowners. In addition to operating cash flows, other significant factors that affect our overall management of liquidity include: capital expenditures, customer financing requirements, investments in businesses, dividends, common stock repurchases, pension funding, access to the commercial paper markets, adequacy of available bank lines of credit, redemptions of debt, and the ability to attract long-term capital at satisfactory terms. As a matter of practice, we continually assess our current business and closely monitor the impact on our customers and suppliers, and have determined that overall there was not a significant adverse impact on our financial position, results of operations or liquidity during the first six months of 2015. Our domestic pension funds experienced a positive return on assets of 1.31% during the first six months of 2015. Approximately 88% of these domestic pension plans' funds are invested in readily-liquid investments, including equity, fixed income, asset-backed receivables and structured products. The balance of these domestic pension plans' funds (12%) is invested in less-liquid but market-valued investments, including real estate and private equity. Across our global pension plans, the impact of lower discount rates and the adoption of new mortality tables in the U.S. and Canada, partially offset by the positive asset experience from 2010 - 2013 and positive returns experienced during 2014, are expected to result in increased pension expense in 2015 of approximately $300 million as compared to 2014. Our strong debt ratings and financial position have historically enabled us to issue long-term debt at favorable market rates. Our ability to obtain debt financing at comparable risk-based interest rates is partly a function of our existing debt-to-total-capitalization level as well as our credit standing. Our debt-to-total-capitalization increased 3 points from 38% at December 31, 2014 to 41% at June 30, 2015 due to the use of short-term borrowings to initially fund the accelerated share repurchase executed during the quarter ended March 31, 2015. On May 4, 2015, we completed the previously announced optional remarketing of the 1.550% junior subordinated notes, which were originally issued as part of our equity units on June 18, 2012. As a result of the remarketing, these notes were redesignated as our 1.778% junior subordinated notes due May 4, 2018. To date, we have not directly received any proceeds from the optional remarketing of the 1.550% junior subordinated notes. On August 3, 2015, we expect to receive approximately $1.1 billion from the proceeds of the remarketing, and issue approximately 11.3 million shares of Common Stock to settle the purchase obligation of the holders of the equity units under the purchase contract entered into at the time of the original issuance of the equity units. In the quarter ended June 30, 2015, we repaid at maturity all 4.875% notes due in 2015 and all floating rate notes due in 2015, representing $1.7 billion in aggregate principal. On May 4, 2015, we issued $850 million aggregate principal amount of 4.150% notes due May 15, 2045. On May 22, 2015 we issued €750 million aggregate principal amount of 1.250% notes due May 22, 2023. The net proceeds from these debt issuances were used primarily to repay the notes maturing during the quarter ended June 30, 2015. On April 1, 2014, we redeemed all remaining outstanding 2016 Goodrich 6.290% notes, representing approximately $188 million in aggregate principal, under our redemption notice issued on February 28, 2014. At June 30, 2015, we had revolving credit agreements with various banks permitting aggregate borrowings of up to $4.35 billion pursuant to a $2.20 billion revolving credit agreement and a $2.15 billion multicurrency revolving credit agreement, both of which expire in May 2019. Effective June 30, 2015 we terminated a $1.5 billion revolving credit agreement, which had been entered into on March 11, 2015. As of June 30, 2015, there were no borrowings under these revolving credit agreements. The undrawn portions of these revolving credit agreements are also available to serve as backup facilities for the issuance of commercial paper. As of June 30, 2015, our maximum commercial paper borrowing limit was $4.35 billion. We use our commercial paper borrowings for general corporate purposes, including the funding of potential acquisitions, debt refinancing, and repurchases of our common stock. Commercial paper borrowings as of June 30, 2015 were largely used to finance the accelerated share repurchase agreements entered into on March 13, 2015. See Note 11 for further discussion of these accelerated share repurchase agreements. We continue to have access to the commercial paper markets and our existing credit facilities, and continue to expect strong generation of operating cash flows. While the impact of market volatility cannot be predicted, we believe we have sufficient operating flexibility, cash reserves and funding sources to maintain adequate amounts of liquidity and to meet our future operating cash needs. At June 30, 2015, approximately 97% of our cash was held by UTC's foreign subsidiaries, due to our extensive international operations. We manage our worldwide cash requirements by reviewing available funds among the many subsidiaries through which we conduct our business and the cost effectiveness with which those funds can be accessed. The repatriation of cash balances from certain of our subsidiaries could have adverse tax consequences or be subject to capital controls; however, those balances are generally available without legal restrictions to fund ordinary business operations. With few exceptions, U.S. income taxes have not been provided on undistributed earnings of international subsidiaries. Our intention is to reinvest these earnings permanently or to repatriate the earnings only when it is tax effective to do so. We continue to be involved in litigation with the German Tax Office in the German Tax Court with respect to certain tax benefits that we have claimed related to a 1998 reorganization of the corporate structure of Otis operations in Germany. We expect to make tax and interest payments of approximately $305 million in 2015, including approximately $258 million paid during the six months ended June 30, 2015, to avoid additional interest accruals while we continue to litigate this matter. See Note 13 for a further discussion of this German tax litigation. On occasion, we are required to maintain cash deposits with certain banks with respect to contractual obligations related to acquisitions or divestitures or other legal obligations. As of June 30, 2015 and December 31, 2014, the amount of such restricted cash was approximately $35 million and $255 million, respectively. We believe our future operating cash flows will be sufficient to meet our future operating cash needs. Further, our ability to obtain debt or equity financing, as well as the availability under committed credit lines, provides additional potential sources of liquidity should they be required or appropriate. ### Cash Flow - Operating Activities *(Dollars in millions)* | | Six Months Ended June 30, 2015 | 2014 | | --- | ---: | ---: | | Net cash flows provided by operating activities | $2,848 | $3,077 | Cash generated from operating activities in the six months ended June 30, 2015 was $229 million lower than the same period in 2014. Higher net income of $54 million and noncash deferred income tax provision, stock compensation cost and depreciation and amortization charges of $296 million were more than offset by an increase in cash outflow for working capital investments of $45 million in the six months ended June 30, 2015 over the prior year period, noncash earnings on investments of $265 million, including an approximately $126 million net gain 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 increase in other net operating assets of approximately $300 million. The cash outflows in the six months ended June 30, 2015 for working capital were driven by increases in inventories and accounts receivable, as well as net liquidations of customer advances primarily in Pratt & Whitney's military programs and Sikorsky's commercial programs, partially offset by increases in accounts payable. Inventories increased at UTC Climate, Controls & Security, primarily supporting demand for the peak cooling season and to meet other contractual deliveries, and at Pratt & Whitney and UTC Aerospace Systems supporting an increase in customers' platform deliveries and related aftermarket demand. Accounts receivable increased approximately $359 million, primarily in our commercial businesses, driven by the U.S. commercial and residential HVAC business at UTC Climate, Controls & Security and Otis new equipment sales primarily in North America. Factoring activity in the quarter ended June 30, 2015 was consistent with the prior quarter, excluding approximately $500 million of customer funded factoring at Pratt & Whitney related to certain extensions of contractual payment terms. Increases in accounts payable and accrued liabilities primarily relate to seasonal volumes and program activities in our commercial businesses, and were partially offset by payments of approximately $258 million related to tax and interest accruals on the German tax matter discussed further in Note 13 to the Condensed Consolidated Financial Statements. For the six months ended June 30, 2014, cash outflows for working capital were primarily driven by increases in inventory to support deliveries and other contractual commitments across all businesses. Reductions in accounts receivable in our aerospace businesses, driven primarily by accelerated customer collections and selected factoring primarily at Pratt & Whitney, were partially offset by increases in accounts receivable in our commercial businesses. Increases in accounts payable and accrued liabilities were more than offset by liquidations of customer advances, primarily in Pratt & Whitney's military business. The funded status of our defined benefit pension plans is dependent upon many factors, including returns on invested assets, the level of market interest rates and actuarial mortality assumptions. We can contribute cash or UTC shares to our plans at our discretion, subject to applicable regulations. Total cash contributions to our global defined benefit pension plans during the six months ended June 30, 2015 and 2014 were $70 million and $144 million, respectively. Although our domestic pension plans are approximately 92% funded on a projected benefit obligation basis as of June 30, 2015, and we are not required to make additional contributions through the end of 2019, we may elect to make discretionary contributions in 2015. We expect to make total cash contributions of approximately $150 million to our global defined benefit pension plans in 2015. Contributions to our global defined benefit pension plans in 2015 are expected to meet or exceed the current funding requirements. ### Cash Flow - Investing Activities *(Dollars in millions)* | | Six Months Ended June 30, 2015 | 2014 | | --- | ---: | ---: | | Net cash flows used in investing activities | $(556) | $(873) | Cash flows used in investing activities for the six months ended June 30, 2015 primarily reflect capital expenditures of approximately $706 million and payments related to our collaboration intangible assets and contractual rights to provide product on new aircraft platforms of approximately $377 million, partially offset by net cash proceeds of approximately $415 million from the settlement of derivative instruments and $166 million from business dispositions. Cash flows used in investing activities for the six months ended June 30, 2014 primarily reflect capital expenditures of approximately $739 million and payments related to our collaboration intangible assets and contractual rights to provide product on new aircraft platforms of approximately $421 million. During the six months ended June 30, 2015, we increased our collaboration intangible assets by approximately $247 million, of which $155 million represented payments made under our 2012 agreement to acquire Rolls-Royce's collaboration interest in IAE. Capital expenditures for the six months ended June 30, 2015 primarily relate to investments in new programs at Pratt & Whitney and UTC Aerospace Systems. Cash investments in businesses in the six months ended June 30, 2015 were approximately $256 million, and consisted of the acquisition of the majority interest in a UTC Climate, Controls & Security business and a number of small acquisitions, primarily in our commercial businesses. Approximately $210 million of our restricted cash balance as of December 31, 2014 was utilized in the cash investments in businesses in the six months ended June 30, 2015. We expect total cash investments for acquisitions in 2015 to be approximately $1 billion, including acquisitions completed during the six months ended June 30, 2015. However, actual acquisition spending may vary depending upon the timing, availability and appropriate value of acquisition opportunities. As discussed in Note 8 to the Condensed Consolidated Financial Statements, we enter into derivative instruments for risk management purposes only, including derivatives designated as hedging instruments under the Derivatives and Hedging Topic of the FASB ASC and those utilized as economic hedges. We operate internationally and, in the normal course of business, are exposed to fluctuations in interest rates, foreign exchange rates and commodity prices. These fluctuations can increase the costs of financing, investing and operating the business. We have used derivative instruments, including swaps, forward contracts and options to manage certain foreign currency, interest rate and commodity price exposures. During the six months ended June 30, 2015 and 2014, we had net cash receipts of approximately $415 million and $37 million, respectively, from the settlement of these derivative instruments, primarily related to the strengthening of the U.S. Dollar. Customer financing activities were a net use of cash of $95 million for the six months ended June 30, 2015 and a source of cash of $73 million for the six months ended June 30, 2014. While we expect that 2015 customer financing activity will be a net use of funds, actual funding is subject to usage under existing customer financing commitments during the remainder of the year. We may also arrange for third-party investors to assume a portion of our commitments. We had commercial aerospace financing and other contractual commitments of approximately $10.5 billion at June 30, 2015 related to commercial aircraft and certain contractual rights to provide product on new aircraft platforms, of which up to $0.7 billion may be required to be disbursed during the remainder of 2015. We had commercial aerospace financing and other contractual commitments of approximately $11.3 billion at December 31, 2014. ### Cash Flow - Financing Activities *(Dollars in millions)* | | Six Months Ended June 30, 2015 | 2014 | | --- | ---: | ---: | | Net cash flows used in financing activities | $(1,546) | $(1,843) | The timing and levels of certain cash flow activities, such as acquisitions and repurchases of our stock, have resulted in the issuance of both long-term and short-term debt. Commercial paper borrowings and revolving credit facilities provide short-term liquidity to supplement operating cash flows and are used for general corporate purposes, including the funding of potential acquisitions and repurchases of our stock. We had approximately $2.5 billion of outstanding commercial paper at June 30, 2015. On May 4, 2015, we completed the previously announced optional remarketing of the 1.550% junior subordinated notes, which were originally issued as part of our equity units on June 18, 2012. As a result of the remarketing, these notes were redesignated as our 1.778% junior subordinated notes due May 4, 2018. To date, we have not directly received any proceeds from the optional remarketing of the 1.550% junior subordinated notes. On August 3, 2015, we expect to receive approximately $1.1 billion from the proceeds of the remarketing, and issue approximately 11.3 million shares of Common Stock to settle the purchase obligation of the holders of the equity units under the purchase contract entered into at the time of the original issuance of the equity units. On March 13, 2015, as part of our previously disclosed share repurchase target of $3 billion for 2015, we entered into accelerated share repurchase (ASR) agreements to repurchase an aggregate of $2.65 billion of our common stock, which was largely funded initially by our commercial paper borrowings. Under the terms of the ASR agreements, we made the aggregate payments and received an initial delivery of approximately 18.6 million shares of our common stock, representing approximately 85% of the shares expected to be repurchased. As of June 30, 2015, the shares associated with the remaining portion of the aggregate purchase price have not yet been settled. We anticipate that all repurchases under the ASR agreements will be completed no later than the fourth quarter of 2015, at which time we may be entitled to receive additional common shares or, under certain limited circumstances, be required to deliver shares or make additional payments to the counterparties. See Note 11 to the Condensed Consolidated Financial Statements for further discussion. In addition to transactions under the ASR agreements discussed above, we repurchased approximately 3 million shares of our common stock for approximately $350 million during the six months ended June 30, 2015. At June 30, 2015, management had authority to repurchase approximately 16.2 million shares under the share repurchase program announced on February 4, 2013. Under this program, shares may be purchased on the open market, in privately negotiated transactions, under accelerated share repurchase programs, and under plans complying with Rules 10b5-1 and 10b-18 under the Securities Exchange Act of 1934, as amended. We may also reacquire shares outside of the program from time to time in connection with the surrender of shares to cover taxes on vesting of restricted stock. On July 19, 2015, our Board of Directors authorized a share repurchase program for up to 75 million shares of our common stock, replacing the program announced on February 4, 2013. Our share repurchase levels are influenced by various factors, including the level of other investing activities. We paid dividends on common stock of $0.64 per share in the first quarter of 2015 totaling $553 million in the aggregate and $0.64 per share in the second quarter of 2015 totaling $543 million in the aggregate. On June 10, 2015, the Board of Directors declared, effective as of July 6, 2015, a dividend of $0.64 per share payable September 10, 2015 to shareowners of record at the close of business on August 14, 2015. We have an existing universal shelf registration statement filed with the SEC for an indeterminate amount of debt and equity securities for future issuance, subject to our internal limitations on the amount of debt to be issued under this shelf registration statement. ### Off-Balance Sheet Arrangements and Contractual Obligations In our 2014 Annual Report, incorporated by reference in our 2014 Form 10-K, we disclosed our off-balance sheet arrangements and contractual obligations. As of June 30, 2015, there have been no material changes to these off-balance sheet arrangements and contractual obligations outside the ordinary course of business. ## Market risk As filed, 279 characters. There has been no significant change in our exposure to market risk during the six months ended June 30, 2015. For discussion of our exposure to market risk, refer to Part II, Item 7A, "Quantitative and Qualitative Disclosures About Market Risk," contained in our 2014 Form 10-K. ## Controls and procedures As filed, 7,756 characters. As required by Rule 13a-15 under the Exchange Act, we carried out an evaluation under the supervision and with the participation of our management, including the President and Chief Executive Officer (CEO), the Senior Vice President and Chief Financial Officer (CFO) and the Vice President and Controller (Controller), of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2015. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon our evaluation, our CEO, our CFO and our Controller have concluded that, as of June 30, 2015, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including our CEO, our CFO and our Controller, as appropriate, to allow timely decisions regarding required disclosure. There has been no change in our internal control over financial reporting during the quarter or six months ended June 30, 2015, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. ### Cautionary Note Concerning Factors That May Affect Future Results This Form 10-Q contains statements which, to the extent they are not statements of historical or present fact, constitute "forward-looking statements" under the securities laws. From time to time, oral or written forward-looking statements may also be included in other information released to the public. These forward-looking statements are intended to provide management's current expectations or plans for our future operating and financial performance, based on assumptions currently believed to be valid. Forward-looking statements can be identified by the use of words such as "believe," "expect," "expectations," "plans," "strategy," "prospects," "estimate," "project," "target," "anticipate," "will," "should," "see," "guidance," "confident" and other words of similar meaning in connection with a discussion of future operating or financial performance. Forward-looking statements may include, among other things, statements relating to future sales, earnings, cash flow, results of operations, uses of cash, share repurchases, and other measures of financial performance or potential future plans, strategies or transactions. All forward-looking statements involve risks, uncertainties and other factors that may cause actual results to differ materially from those expressed or implied in the forward-looking statements. For those statements, we claim the protection of the safe harbor for forward-looking statements contained in the U.S. Private Securities Litigation Reform Act of 1995. Such risks, uncertainties and other factors include, without limitation: - the effect of economic conditions in the industries and markets in which we operate in the U.S. and globally and any changes therein, including financial market conditions, fluctuations in commodity prices, interest rates and foreign currency exchange rates, levels of end market demand in construction and in both the commercial and defense segments of the aerospace industry, levels of air travel, financial condition of commercial airlines, the impact of weather conditions and natural disasters and the financial condition of our customers and suppliers; - the scope, nature, impact or timing of acquisition and divestiture activity, including among other things integration of acquired businesses into our existing businesses and realization of synergies and opportunities for growth and innovation; - the ability of the parties to satisfy the conditions precedent and consummate the recently announced agreement to sell Sikorsky to Lockheed Martin, the timing of consummation of the transaction, the ability of the parties to secure regulatory approvals in a timely manner or on the terms desired or anticipated, and the ability to implement the anticipated business plans following closing and achieve anticipated benefits and savings; - challenges in the development, production, delivery, support, performance and realization of the anticipated benefits of advanced technologies and new products and services; - future levels of indebtedness and capital spending and research and development spending; - future availability of credit and factors that may affect such availability, including credit market conditions and our capital structure; - delays and disruption in delivery of materials and services from suppliers; - customer- and Company- directed cost reduction efforts and restructuring costs and savings and other consequences thereof; - new business opportunities; - our ability to realize the intended benefits of organizational changes; - the anticipated benefits of diversification and balance of operations across product lines, regions and industries; - the timing and scope of future repurchases of our common stock; - the outcome of legal proceedings, investigations and other contingencies; - pension plan assumptions and future contributions; - the impact of the negotiation of collective bargaining agreements and labor disputes; - the effect of changes in political conditions in the U.S. and other countries in which we operate; and - the effect of changes in tax, environmental, regulatory (including among other things import/export) and other laws and regulations in the U.S. and other countries in which we operate. In addition, this Form 10-Q includes important information as to risks, uncertainties and other factors that may cause actual results to differ materially from those expressed or implied in the forward-looking statements. See the "Notes to Consolidated Financial Statements" under the heading "Contingent Liabilities," the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" under the headings "Business Overview," "Results of Operations," "Liquidity and Financial Condition," and "Critical Accounting Estimates," and the sections titled "Legal Proceedings" and "Risk Factors" in this Form 10-Q and in our 2014 Annual Report. This Form 10-Q also includes important information as to these factors in the "Legal Proceedings" section. Additional important information as to these factors is included in our 2014 Annual Report in the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" under the headings "Restructuring Costs," "Environmental Matters" and "Governmental Matters" and in our 2014 Form 10-K in the "Business" section under the headings "General," "Description of Business by Segment" and "Other Matters Relating to Our Business as a Whole." The forward-looking statements speak only as of the date of this report or, in the case of any document incorporated by reference, the date of that document. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. Additional information as to factors that may cause actual results to differ materially from those expressed or implied in the forward-looking statements is disclosed from time to time in our other filings with the SEC. ## Risk factors As filed, 143 characters. There have been no material changes in the Company's risk factors from those disclosed in Part I, Item 1A, Risk Factors, in our 2014 Form 10-K. Filed Jul 24, 2015. Source: SEC EDGAR, the filing index for accession 0000101829-15-000035. Last ingested by Listed: Nov 3, 2026, 21:25 ET. No prices; not investment advice.