# RTX Corp: Form 10-Q for the period ended Mar 31, 2016

- Company: [RTX Corp](/companies/rtx.md) (CIK 101829)
- Form: 10-Q
- Filed: 2016-04-29
- Accepted by EDGAR: Apr 29, 2016, 10:52 ET
- Period: 2016-03-31
- Accession: 0000101829-16-000062
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/101829/000010182916000062/a2016-03x3110xq.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/101829/000010182916000062/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2016-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2016-01-01 to 2016-03-31 | $13.36bn | us-gaap:SalesRevenueNet |
| Cost of revenue | 3 months, 2016-01-01 to 2016-03-31 | $7.09bn | us-gaap:CostOfGoodsSold |
| Research and development | 3 months, 2016-01-01 to 2016-03-31 | $541.0m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2016-01-01 to 2016-03-31 | $1.36bn | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2016-01-01 to 2016-03-31 | $1.95bn | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2016-01-01 to 2016-03-31 | $223.0m | us-gaap:InterestExpense |
| Income tax | 3 months, 2016-01-01 to 2016-03-31 | $461.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2016-01-01 to 2016-03-31 | $1.19bn | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2016-01-01 to 2016-03-31 | $1.43 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2016-01-01 to 2016-03-31 | $1.44 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2016-01-01 to 2016-03-31 | 831,200,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2016-01-01 to 2016-03-31 | $795.0m | us-gaap:NetCashProvidedByUsedInOperatingActivitiesContinuingOperations |
| Capital expenditure | 3 months, 2016-01-01 to 2016-03-31 | $286.0m | us-gaap:PaymentsToAcquireProductiveAssets |
| Dividends paid | 3 months, 2016-01-01 to 2016-03-31 | $509.0m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 3 months, 2016-01-01 to 2016-03-31 | $0 | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2016-03-31 | $7.21bn | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2016-03-31 | $27.53bn | us-gaap:AssetsCurrent |
| Total assets | at 2016-03-31 | $88.57bn | us-gaap:Assets |
| Current liabilities | at 2016-03-31 | $20.52bn | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2016-03-31 | $58.54bn | us-gaap:Liabilities |
| Short-term borrowings | at 2016-03-31 | $1.23bn | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2016-03-31 | $28.35bn | us-gaap:StockholdersEquity |
| Shares outstanding | at 2016-03-31 | 836,865,684 shares | dei:EntityCommonStockSharesOutstanding |

## Management's discussion and analysis

As filed, 56,442 characters.

### BUSINESS OVERVIEW

We are a global provider of high technology products and services to the building systems and aerospace industries. Our operations for the periods presented herein are classified into four principal business segments: Otis, UTC Climate, Controls & Security, Pratt & Whitney, and UTC Aerospace Systems. Otis and UTC Climate, Controls & Security are referred to as the "commercial businesses," while Pratt & Whitney, and UTC Aerospace Systems are referred to as the "aerospace businesses." On November 6, 2015, we completed the sale of Sikorsky to Lockheed Martin Corp. for $9,083 million in cash, subject to customary post-closing working capital and net debt adjustments. The results of operations and the related cash flows of Sikorsky have been reclassified to Discontinued Operations in our Consolidated Statements of Operations and Cash Flows for all periods presented.

The current status of significant factors affecting our business environment in 2016 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 2015 Annual Report, which is incorporated by reference in our 2015 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 2016 with world gross domestic product (GDP) growth projected to reach approximately 2.6% reflecting modest growth in the U.S. and Western Europe and a slowing but still growing China economy. U.S. GDP growth is forecasted to be 2.1%, reflecting a mixed outlook with an improving housing market and growth in new jobs, tempered by slower wage growth and slightly declining retail sales. Although emerging markets have historically led global growth relative to advanced and developing countries, slowing growth rates in China and contraction in Russia and Brazil have tempered growth expectations for emerging markets in 2016 to approximately 3.9%.

Our military businesses sales are affected by U.S. Department of Defense budget and spending levels. Total sales to the U.S. Government were $1.4 billion and $1.3 billion, or 10% of total UTC sales, in the quarters ended March 31, 2016 and 2015, 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 2016.

### Discontinued Operations

On November 6, 2015, we completed the sale of Sikorsky to Lockheed Martin Corp. for $9,083 million in cash, subject to customary post-closing working capital and net debt adjustments. As noted above, the results of operations and the related cash flows of Sikorsky have been reclassified to Discontinued Operations in our Condensed Consolidated Statements of Operations, Comprehensive Income and Cash Flows for all periods presented. Proceeds from the sale were used to fund $6.0 billion of share repurchases through accelerated share repurchase (ASR) agreements entered into on November 11, 2015. We expect to make $2.5 billion of tax payments in 2016 related to the gain on the sale of Sikorsky, including $2.2 billion of tax payments which were made during the quarter ended March 31, 2016, subject to resolution of outstanding matters with taxing authorities.

### 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 quarter ended March 31, 2016, our investment in business acquisitions was approximately $79 million, which includes a number of small acquisitions primarily in our commercial businesses. We expect cash investment in acquisitions to be between $1 billion and $2 billion in 2016. 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 2016. See Part I, Item 1A, "Risk Factors" in our 2015 Form 10-K for further discussion.

UTC Aerospace Systems has determined that Goodrich Actuation Systems SAS, a UTC Aerospace Systems company in France, engaged in activities enumerated in Sections 13(r)(1)(D)(i) and (iii) of the Securities and Exchange Act (15 U.S.C. Section 78(m)(r)) during the period required for reporting. Specifically, Goodrich Actuation Systems SAS sent documents containing general service information about components on older commercial aircraft by electronic mail to a distribution list provided by aircraft manufacturers. The list included operators Iran Aseman Airlines, Mahan Air, and Meraj Airlines based in Iran. UTC Aerospace Systems understands that Iran Aseman Airlines is owned or controlled by the Government of Iran and that the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) has blocked the property and interests in property of Mahan Air and Meraj Air pursuant to Executive Order No. 13224. UTC Aerospace Systems did not identify any revenues or profits attributable to the distribution of these documents. UTC Aerospace Systems has instructed Goodrich Actuation Systems not to send any additional information or participate in any further communications with entities in embargoed countries and OFAC specially designated parties. UTC Aerospace Systems has 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 2015 Annual Report, incorporated by reference in our 2015 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 quarter ended March 31, 2016.

### RESULTS OF OPERATIONS

### Net Sales

*(Dollars in millions)*

|  | Quarter Ended March 31, 2016 | 2015 |
| --- | ---: | ---: |
| Net Sales | $13,357 | $13,320 |

The factors contributing to the total percentage change year-over-year in total net sales for the quarter ended March 31, 2016 are as follows:

|  | Quarter Ended March 31, 2016 |
| --- | ---: |
| Organic change | 2% |
| Foreign currency translation | (2)% |
| Total % Change | — |

During the quarter ended March 31, 2016, organic sales growth at Pratt & Whitney (8%) and Otis (3%) was partially offset by declines at UTC Climate, Controls & Security (1%) and UTC Aerospace Systems (1%). The organic sales growth at Pratt & Whitney was driven by higher commercial aftermarket sales and higher military engine sales. The organic sales growth at Otis was driven by higher new equipment sales in North America and Asia outside of China, and service sales growth in the Americas and Asia. The decline in sales at UTC Climate, Controls & Security was primarily driven by lower sales in the global fire products and commercial refrigeration businesses, while the decline in sales at UTC Aerospace Systems was primarily due to lower military OEM sales volume.

### Cost of Products and Services Sold

*(Dollars in millions)*

|  | Quarter Ended March 31, 2016 | 2015 |
| --- | ---: | ---: |
| Cost of products sold | $7,087 | $6,999 |
| Percentage of product sales | 75.2% | 74.3% |
| Cost of services sold | $2,567 | $2,507 |
| Percentage of service sales | 65.2% | 64.3% |
| Total cost of products and services sold | $9,654 | $9,506 |

The factors contributing to the percentage change year-over-year for the quarter ended March 31, 2016 in total cost of products and services sold are as follows:

|  | Quarter Ended March 31, 2016 |
| --- | ---: |
| Organic change | 3% |
| Foreign currency translation | (1)% |
| Total % Change | 2% |

The organic increase in total cost of products and services sold in the quarter ended March 31, 2016 was driven by the organic sales increase noted above, as well as a higher proportion of OEM sales mix and the related negative engine margin in 2016 relative to 2015, within Pratt & Whitney. Foreign exchange fluctuations provided a benefit through lower cost of sales of approximately 2% driven by Otis and UTC Climate, Controls & Security.

### Gross Margin

*(Dollars in millions)*

|  | Quarter Ended March 31, 2016 | 2015 |
| --- | ---: | ---: |
| Gross margin | $3,703 | $3,814 |
| Percentage of net sales | 27.7% | 28.6% |

The 90 basis point decline in gross margin as a percentage of sales for the quarter ended March 31, 2016 was driven by lower gross margin at UTC Aerospace Systems (40 basis points) driven by unfavorable mix in commercial OEM sales, lower gross margin at Pratt & Whitney (40 basis points) driven by an increase in negative engine margin, and lower gross margin at Otis (30 basis points) driven by pricing pressure. These declines were offset by higher gross margin at UTC Climate, Controls & Security (20 basis points) primarily driven by lower commodities cost.

### Research and Development

*(Dollars in millions)*

|  | Quarter Ended March 31, 2016 | 2015 |
| --- | ---: | ---: |
| Company-funded | $541 | $564 |
| Percentage of net sales | 4.1% | 4.2% |
| Customer-funded | $356 | $405 |
| Percentage of net sales | 2.7% | 3.0% |

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 (4%) for the quarter ended March 31, 2016 is primarily driven by lower research and development within UTC Aerospace Systems related to several commercial aerospace programs (5%), partially offset by higher spending at Pratt & Whitney (1%), related to several commercial engine programs. Customer-funded research and development declined 12%, primarily at Pratt & Whitney (12%), due principally to lower spending on U.S. Government programs.

We expect company-funded research and development for the full year 2016 to decline up to $25 million from 2015 levels.

### Selling, General and Administrative

*(Dollars in millions)*

|  | Quarter Ended March 31, 2016 | 2015 |
| --- | ---: | ---: |
| Selling, general and administrative expenses | $1,363 | $1,476 |
| Percentage of net sales | 10.2% | 11.1% |

Selling, general and administrative expenses declined 8% in the quarter ended March 31, 2016 due to lower pension costs (6%), lower restructuring costs (3%), and the benefit of foreign exchange (2%), partially offset by higher selling, general and administrative expenses at Otis (2%), primarily driven by higher labor costs.

### Other Income, Net

*(Dollars in millions)*

|  | Quarter Ended March 31, 2016 | 2015 |
| --- | ---: | ---: |
| Other income, net | $146 | $408 |

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 (64%) in the quarter ended March 31, 2016 reflects the absence of: a gain on the remeasurement to fair value of previously held equity interests in UTC Climate, Controls & Security joint venture investments (38%); a gain on a UTC Climate, Controls & Security property sale (2%); and a benefit from a favorable contract termination at Pratt & Whitney (9%). The remaining change is primarily due to normal recurring operational activity.

### Interest Expense, Net

*(Dollars in millions)*

|  | Quarter Ended March 31, 2016 | 2015 |
| --- | ---: | ---: |
| Interest expense | $241 | $239 |
| Interest income | (18) | (22) |
| Interest expense, net | $223 | $217 |
| Average interest expense rate | 4.2% | 4.3% |

The increase in interest expense during in the quarter ended March 31, 2016 relative to the prior year is due to additional interest expense on non-U.S. long term debt ($10 million), which we issued in May, 2015 and in February, 2016, partially offset by lower average outstanding U.S. long-term debt balances and related interest expense ($7 million).

### Income Taxes

|  | Quarter Ended March 31, 2016 | 2015 |
| --- | ---: | ---: |
| Effective tax rate | 26.8% | 27.0% |

The decrease in the effective tax rate for the quarter ended March 31, 2016 is primarily due to the impact of a lower annualized effective tax rate for 2016 and reflects the absence of the 2015 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.

We estimate our full year continuing operations annual effective income tax rate to be approximately 28%, excluding restructuring and nonrecurring items.

### Net Income from Continuing Operations Attributable to Common Shareowners

*(Dollars in millions, except per share amounts)*

|  | Quarter Ended March 31, 2016 | 2015 |
| --- | ---: | ---: |
| Net income from continuing operations attributable to common shareowners | $1,180 | $1,364 |
| Diluted earnings per share from continuing operations | $1.42 | $1.51 |

Net income from continuing operations attributable to common shareowners for the quarter ended March 31, 2016 includes restructuring charges, net of tax benefit, of $42 million. The effect of restructuring charges on diluted earnings per share for the quarter ended March 31, 2016 was $0.05 per share while the effect of foreign currency translation and hedging generated an unfavorable effect of $0.01 per diluted share.

### Net Income from Discontinued Operations Attributable to Common Shareowners

*(Dollars in millions, except per share amounts)*

|  | Quarter Ended March 31, 2016 | 2015 |
| --- | ---: | ---: |
| Net income from discontinued operations attributable to common shareowners | $11 | $62 |
| Diluted earnings per share from discontinued operations | $0.01 | $0.07 |

Net income from discontinued operations attributable to common shareowners for the quarter ended March 31, 2016 reflects the final purchase price adjustment for the sale of Sikorsky, which was completed in 2015. Net income from discontinued operations attributable to common shareowners for the quarter ended March 31, 2015 reflects income from Sikorsky's operations of $91 million, and tax expense of $28 million.

### Restructuring Costs

*(Dollars in millions)*

|  | Quarter Ended March 31, 2016 | 2015 |
| --- | ---: | ---: |
| Restructuring costs | $62 | $93 |

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 and facility exit and lease termination costs associated with the consolidation of field and manufacturing operations. We expect to incur restructuring costs within continuing operations in 2016 of approximately $500 million, including trailing costs related to prior actions associated with our continuing cost reduction efforts and the integration of acquisitions. 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 quarter ended March 31, 2016 primarily relate to actions initiated during 2016 and 2015, while the charges incurred in the quarter ended March 31, 2015 primarily relate to actions initiated during 2015 and 2014.

**2016 Actions.** During the quarter ended March 31, 2016, we recorded net pre-tax restructuring charges of $28 million relating to ongoing cost reduction actions initiated in 2016. We are targeting to complete in 2016 and 2017 the majority of the remaining workforce and facility related cost reduction actions initiated in 2016. Approximately 95% 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 quarter ended March 31, 2016, we had cash outflows of approximately $2 million related to the 2016 actions. We expect to incur additional restructuring charges of $80 million to complete these actions. We expect recurring pre-tax savings in continuing operations to increase over the two-year period subsequent to initiating the actions to approximately $60 million annually.

**2015 Actions.** During the three months ended March 31, 2016 and 2015, we recorded net pre-tax restructuring charges of $29 million and $64 million, respectively, for actions initiated in 2015. We are targeting to complete in 2016 the majority of the remaining workforce and facility related cost reduction actions initiated in 2015. Approximately 75% 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 quarter ended March 31, 2016, we had cash outflows of approximately $69 million related to the 2015 actions. We expect to incur additional restructuring charges of $172 million to complete these actions. We expect recurring pre-tax savings in continuing operations to increase over the two-year period subsequent to initiating the actions to approximately $440 million annually, of which, approximately $57 million was realized during the quarter ended March 31, 2016.

For additional discussion of restructuring, see Note 8 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. We have previously reported the results of Sikorsky within our Aerospace Businesses as a separate reporting segment, but have reclassified Sikorsky's results to discontinued operations for all periods presented, as noted in the “Discontinued Operations” section of our Business Overview in Management’s Discussion and Analysis of Financial Condition and Results of Operations. Adjustments to reconcile segment reporting to the consolidated results for the quarters ended March 31, 2016 and 2015 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, UTC Climate, Controls & Security equipment orders declined (8%) driven by the Transport Refrigeration business (4%), fire and security (2%) and commercial HVAC (2%). Within the Otis segment, new equipment orders increased (1%) in the quarter ended March 31, 2016 with continued strong order growth in North America (5%) and Asia outside of China (2%), offset by declines in orders in Europe and the Middle East (4%) and China (3%).

Summary performance for each of the commercial businesses for the quarters ended March 31, 2016 and 2015 was as follows:

*(Dollars in millions)*

|  | Otis 2016 | 2015 | Change | UTC Climate, Controls & Security 2016 | 2015 | Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net Sales | $2,715 | $2,745 | (1)% | $3,728 | $3,852 | (3)% |
| Cost of Sales | 1,862 | 1,840 | 1% | 2,601 | 2,713 | (4)% |
|  | 853 | 905 | (6)% | 1,127 | 1,139 | (1)% |
| Operating Expenses and Other | 387 | 378 | 2% | 521 | 410 | 27% |
| Operating Profits | $466 | $527 | (12)% | $606 | $729 | (17)% |

Operating Profit Margins 17.2 % 19.2 % 16.3 % 18.9 %

30

### Otis –

### Quarter Ended March 31, 2016 Compared with Quarter Ended March 31, 2015

|  | Factors Contributing to Total % Change Organic / Operational | FX Translation | Acquisitions / Divestitures, net | Restructuring Costs | Other |
| --- | ---: | ---: | ---: | ---: | ---: |
| Net Sales | 3% | (5)% | 1% | — | — |
| Cost of Sales | 5% | (5)% | — | — | 1% |
| Operating Profits | (5)% | (5)% | — | (2)% | — |

Organic sales increased 3% primarily due to higher new equipment sales (2%), with growth in North America (2%) and Asia outside of China (1%), partially offset by a decline in China (1%). Service sales growth in the Americas (1%) and Asia (1%) was partially offset by a decline in Europe.

The decrease in operational profit (5%) reflects unfavorable price and mix (6%) primarily in Europe and China, and increased investment in infrastructure (2%), partially offset by volume increases (3%) primarily driven by the Americas.

### UTC Climate, Controls & Security –

### Quarter Ended March 31, 2016 Compared with Quarter Ended March 31, 2015

|  | Factors Contributing to Total % Change Organic / Operational | FX Translation | Acquisitions / Divestitures, net | Restructuring Costs | Other |
| --- | ---: | ---: | ---: | ---: | ---: |
| Net Sales | (1)% | (3)% | 1% | — | — |
| Cost of Sales | (2)% | (3)% | 1% | — | — |
| Operating Profits | 4% | (2)% | (1)% | (1)% | (17)% |

Organic sales decreased by 1% primarily driven by a decline in global fire product sales (1%) as the prior year benefited from fire extinguisher legislative changes in France and Canada. Current year weaknesses in petroleum, oil and gas markets, and a decline in the refrigeration business (1%) due to lower Container volume, which was up sharply in 2015, further impacted organic sales. These organic sales decreases were partly offset by North America HVAC sales growth (1%).

The operational profit increase (4%) was driven by lower commodities cost (5%), and the benefits of cost productivity and previous restructuring actions (4%). These operational profit increases were partly offset by unfavorable volume and pricing (combined 3%). The remaining offset was primarily driven by lower joint venture income. The decrease in "Other" (17%) is driven by a prior year gain resulting from a fair value adjustment related to the acquisition of a controlling interest in a joint venture investment (17%). "Other" also includes current year gains related to the acquisition of a controlling interest in a joint venture investment in the Middle East and from the sale of an investment in Australia (combined 5%), which were offset by a prior year gain from an acquisition of a controlling interest in another joint venture investment and a prior year gain on a property sale.

### 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 a strong commercial airline industry which is benefiting from traffic growth and lower fuel costs. Airline traffic, as measured by RPMs, grew 8% in the first two months of 2016, while jet fuel costs have declined approximately 39% 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 (FMPs). FMPs are comprehensive long-term spare part and service agreements with our customers. We expect a continued shift to FMPs in lieu of transactional spare part sales as new engines enter our customers' fleets on FMPs and legacy fleets are retired. In 2016, as compared with 2015, commercial aerospace aftermarket sales increased 19% at Pratt & Whitney and 1% at UTC Aerospace Systems.

We record changes in contract estimates using the cumulative catch-up method in accordance with the Revenue Recognition Topic of the FASB ASC. The net effect of significant changes in aerospace contract estimates did not impact operating profit in the quarter ended March 31, 2016. Operating profit in the quarter ended March 31, 2015 included significant net favorable changes in aerospace contract estimates of $61 million, primarily representing favorable contract adjustments recorded at Pratt & Whitney.

As previously disclosed, Pratt & Whitney's PurePower PW1500G engine models have been selected by Bombardier to power the new CSeries passenger aircraft, which is scheduled to enter service in 2016. There have been multi-year delays in the development of the CSeries aircraft. Notwithstanding these delays, Bombardier reports that they have received over 300 orders for the aircraft including the recently announced Delta Airlines, Inc. order, and has certified the initial aircraft model and will close the certification process for all aircraft models in 2016. We have made various investments in support of the production and delivery of our PW1500G engines and systems for the CSeries program, which we currently expect to recover through future deliveries of PW1500G powered CSeries aircraft. We will continue to monitor the progress of the program and our ability to recover our investments.

Summary performance for each of the aerospace businesses for the quarters ended March 31, 2016 and 2015 was as follows:

*(Dollars in millions)*

|  | Pratt & Whitney 2016 | 2015 | Change | UTC Aerospace Systems 2016 | 2015 | Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net Sales | $3,588 | $3,332 | 8% | $3,505 | $3,548 | (1)% |
| Cost of Sales | 2,795 | 2,564 | 9% | 2,571 | 2,551 | 1% |
|  | 793 | 768 | 3% | 934 | 997 | (6)% |
| Operating Expenses & Other | 383 | 349 | 10% | 396 | 428 | (7)% |
| Operating Profits | $410 | $419 | (2)% | $538 | $569 | (5)% |

Operating Profit Margins 11.4 % 12.6 % 15.3 % 16.0 %

### Pratt & Whitney –

### Quarter Ended March 31, 2016 Compared with Quarter Ended March 31, 2015

|  | Factors Contributing to Total % Change Organic / Operational | FX Translation\* | Acquisitions / Divestitures, net | Restructuring Costs | Other |
| --- | ---: | ---: | ---: | ---: | ---: |
| Net Sales | 8% | — | — | — | — |
| Cost of Sales | 10% | (1)% | — | — | — |
| Operating Profits | (7)% | 4% | — | 2% | (1)% |

\* *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 (8%) primarily reflects higher commercial aftermarket sales (9%) and higher military engine sales (3%), partially offset by lower commercial engine sales (4%).

Pratt & Whitney's operating profit includes lower pension cost and restructuring savings across its business. The operational profit decrease (7%) was primarily due to higher negative engine margin due to unfavorable mix within the Large Commercial Engine business, and lower engine volume partially offset by favorable mix at Pratt & Whitney Canada (13%), a decline in the amount of favorable contract performance adjustments within the military aftermarket business (5%), and unfavorable military engine mix (4%). The absence of a prior year favorable contract termination benefit at Pratt & Whitney Canada was partially offset by the benefit of a favorable contract settlement at Pratt & Whitney Canada in the current year (1%). These decreases were partially offset by higher commercial aftermarket profits despite unfavorable contract performance adjustments (14%), and the favorable net impact of prior year amendments to research and development support arrangements at Pratt & Whitney Canada (3%).

### UTC Aerospace Systems –

### Quarter Ended March 31, 2016 Compared with Quarter Ended March 31, 2015

|  | Factors Contributing to Total % Change Organic / Operational | FX Translation | Acquisitions / Divestitures, net | Restructuring Costs | Other |
| --- | ---: | ---: | ---: | ---: | ---: |
| Net Sales | (1)% | — | — | — | — |
| Cost of Sales | 2% | (1)% | — | — | — |
| Operating Profits | (12)% | 2% | — | 7% | (2)% |

The organic sales decrease (1%) primarily reflects lower military OEM sales volume (2%), partially offset by an increase in commercial aerospace OEM sales volume (1%).

The organic decrease in operational profit (12%) reflects lower commercial aerospace OEM and commercial aftermarket profit contribution (11%) primarily due to adverse mix, lower military OEM profit contribution (6%) driven by lower sales volumes and adverse mix, the absence of the favorable impact of prior year customer contract negotiations and other settlements (6%), and lower income from licensing agreements (3%), partially offset by lower pension costs (7%), lower research and development costs (5%), and lower selling, general and administrative expenses (2%).

### Eliminations and other –

*(Dollars in millions)*

|  | Net Sales Quarter Ended March 31, 2016 | 2015 | Operating Profits Quarter Ended March 31, 2016 | 2015 |
| --- | ---: | ---: | ---: | ---: |
| Eliminations and other | $(179) | $(157) | $16 | $48 |
| General corporate expenses | — | — | (91) | (110) |

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 increase in the amount of sales eliminations for the quarter ended March 31, 2016, as compared with the same period of 2015, reflects an increase in the amount of inter-segment sales eliminations, principally between our aerospace businesses. The year-over-year decline in operating profit for the quarter ended March 31, 2016, as compared with the same period of 2015, reflects a decrease in royalty income in 2016. The year-over-year decline in general corporate expenses for the quarter ended March 31, 2016, as compared with the same period in 2015, reflects lower salaries and wages expense.

### LIQUIDITY AND FINANCIAL CONDITION

*(Dollars in millions)*

|  | March 31, 2016 | December 31, 2015 | March 31, 2015 |
| --- | ---: | ---: | ---: |
| Cash and cash equivalents | $7,215 | $7,075 | $5,274 |
| Total debt | 23,051 | 20,425 | 21,981 |
| Net debt (total debt less cash and cash equivalents) | 15,836 | 13,350 | 16,707 |
| Total equity | 29,903 | 28,844 | 30,167 |
| Total capitalization (debt plus equity) | 52,954 | 49,269 | 52,148 |
| Net capitalization (debt plus equity less cash and cash equivalents) | 45,739 | 42,194 | 46,874 |

|  |  |  |  |
| --- | ---: | ---: | ---: |
| Debt to total capitalization | 44% | 41% | 42% |
| Net debt to net capitalization | 35% | 32% | 36% |

33

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 of continuing operations, which, after netting out capital expenditures, we generally target to approximate net income from continuing operations attributable to common shareowners. For 2016, we expect this to approximate 90% to 100% of net income from continuing operations 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.

Our domestic pension funds experienced a positive return on assets of 2.47% during the first three months of 2016. 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 higher discount rates for pension obligations, a change in the manner of estimating discount rates for service cost and interest cost and the continued recognition of prior pension investment gains, partially offset by a reduction in the expected return on plan assets and 2015 actual returns on plan assets, will result in decreased pension expense in 2016 of approximately $500 million as compared to 2015, including a $215 million decrease in 2016 pension expense as a result of the change in approach to estimating the service and interest components of net periodic pension cost for our significant pension plans, as more fully discussed in Note 7.

Historically, our strong debt ratings and financial position have 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 to 44% at March 31, 2016, primarily reflecting additional borrowings in 2015 and 2016 to fund share repurchases. We use our commercial paper borrowings for general corporate purposes, including the funding of potential acquisitions, debt refinancing, and repurchases of our common stock. The need for commercial paper borrowings arises when the use of domestic cash for acquisitions, dividends, and share repurchases exceeds the sum of domestic cash generation and foreign cash repatriated to the U.S.

On February 22, 2016 we issued €950 million aggregate principal amount of 1.125% notes due 2021, €500 million aggregate principal amount of 1.875% notes due 2026 and €750 million aggregate principal amount of floating rate notes due 2018. The net proceeds from these debt issuances were used for general corporate purposes.

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. On August 3, 2015, we received approximately $1.1 billion from the proceeds of the remarketing, and issued 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.

During 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.

At March 31, 2016, 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. As of March 31, 2016, 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 March 31, 2016, our maximum commercial paper borrowing limit was $4.35 billion.

On March 13, 2015, we entered into ASR agreements to repurchase an aggregate of $2.65 billion of our common stock, which was largely funded 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. On July 31, 2015, the shares associated with the remaining portion of the aggregate purchase were settled upon final delivery of approximately 4.2 million additional shares of common stock.

On November 6, 2015, we completed the sale of Sikorsky to Lockheed Martin Corp. for approximately $9,083 million in cash, subject to customary post-closing working capital and net debt adjustments. In connection with the sale of Sikorsky, we expect to make tax payments of approximately $2.5 billion in 2016, including approximately $2.2 billion of tax payments made during the quarter ended March 31, 2016, subject to resolution of outstanding matters with taxing authorities.

On November 11, 2015, we entered into ASR agreements to repurchase an aggregate of $6 billion of our common stock utilizing the net after-tax proceeds from the sale of Sikorsky. The ASR agreements provide for the repurchase of our common stock based on the average of the daily volume-weighted average prices of our common stock during the term of such ASR agreements, less a discount and subject to adjustments pursuant to the terms and conditions of the ASR agreements. Under the terms of the ASR agreements, we made the aggregate payments and received an initial delivery of approximately 51.9 million shares of our common stock, representing approximately 85% of the shares expected to be repurchased. The shares associated with the remaining portion of the aggregate purchase price are to be settled over six tranches. Upon settlement of each tranche, we may be entitled to receive additional shares of our common stock or, under certain limited circumstances, be required to deliver shares or make additional payments to the counterparties, at our election.

On January 19, 2016, the shares associated with the remaining portion of the first tranche of the aggregate purchase were settled upon final delivery of approximately 2.1 million shares of common stock. The final settlement of the transactions under the remaining five tranches is expected to occur no later than the third quarter of 2016.

At March 31, 2016, approximately 89% 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. In the quarter ended December 31, 2015, we recognized an income tax provision of approximately $274 million related to the intended repatriation of foreign cash, the majority of which was from 2015 earnings of certain international subsidiaries. With few other 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 made tax and interest payments of approximately $300 million during 2015, including approximately $22 million paid during the quarter ended March 31, 2015, to avoid additional interest accruals while we continue to litigate this matter. We do not expect to make significant additional tax or interest payments pending final resolution of this matter. See Note 14 to the Condensed Consolidated Financial Statements 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 March 31, 2016 and December 31, 2015, the amount of such restricted cash was approximately $31 million and $45 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 of Continuing Operations

*(Dollars in millions)*

|  | Quarter Ended March 31, 2016 | 2015 |
| --- | ---: | ---: |
| Net cash flows provided by operating activities of continuing operations | $795 | $1,646 |

Cash generated from operating activities of continuing operations in the quarter ended March 31, 2016 was approximately $851 million lower than the same period in 2015, driven by lower net income and noncash deferred income tax provision, stock compensation cost and depreciation and amortization charges of approximately $183 million, an increase in cash outflows for working capital of approximately $367 million in the quarter ended March 31, 2016 over the prior year period, and the first of four annual payments of approximately $327 million Canadian (approximately $237 million) under the 2015 agreement with federal and provincial Canadian government agencies resulting from amendments to research and development support arrangements previously entered into.

In the quarter ended March 31, 2016, inventories increased primarily in our aerospace businesses, supporting an increase in customers' platform deliveries and related aftermarket demand. Accounts receivable similarly increased in our aerospace businesses, partially offset by reductions at UTC Climate, Controls & Security, primarily in its fire and security, refrigeration and international businesses. Factoring activity in the quarter ended March 31, 2016 was consistent with the prior year, excluding customer-funded factoring at Pratt & Whitney related to certain extensions of contractual payment terms. Reductions in accounts payable and accrued liabilities across all businesses were partially offset by increased customer advances and deferred revenues, primarily at Pratt &Whitney and Otis.

For the quarter ended March 31, 2015, cash outflows for working capital were primarily driven by increases in inventories and accounts receivable, partially offset by increases in accounts payable and accrued liabilities. Inventories increased at UTC Climate, Controls & Security, supporting contractual deliveries, and at Pratt & Whitney and UTC Aerospace Systems supporting customers' platform deliveries and expected related aftermarket demand. Accounts receivable increased across all of our business segments, partially offset by approximately $285 million of incremental factoring activity in the quarter ended March 31, 2015, primarily at Pratt & Whitney and UTC Climate, Controls & Security. The increase in accounts receivable in our commercial businesses was largely driven by seasonal service billings and project completions, while the increases in our aerospace businesses were largely driven by the timing of billings under aftermarket flight hour agreements and development contracts, as well as the timing of commercial aerospace product deliveries. Increases in accounts payable and accrued liabilities primarily relate to the timing of U.S. federal and foreign tax payments and refunds.

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 three months ended March 31, 2016 and 2015 were $75 million and $45 million, respectively. Although our domestic pension plans are approximately 85% funded on a projected benefit obligation basis as of March 31, 2016, and we are not required to make additional contributions through the end of 2020, we may elect to make discretionary contributions in 2016. We expect to make total cash contributions of approximately $175 million to our global defined benefit pension plans in 2016. Contributions to our global defined benefit pension plans in 2016 are expected to meet or exceed the current funding requirements.

### Cash Flow - Investing Activities of Continuing Operations

*(Dollars in millions)*

|  | Quarter Ended March 31, 2016 | 2015 |
| --- | ---: | ---: |
| Net cash flows (used in) provided by investing activities of continuing operations | $(483) | $206 |

Cash flows used in investing activities of continuing operations for the quarter ended March 31, 2016 primarily reflect capital expenditures of approximately $286 million and payments related to our collaboration intangible assets and contractual rights to provide product on new aircraft platforms of approximately $172 million. Cash flows provided by investing activities of continuing operations for the quarter ended March 31, 2015 primarily reflect net cash receipts of approximately $569 million from the settlement of derivative instruments and $158 million from business dispositions, partially offset by capital expenditures of approximately $323 million and payments related to our collaboration intangible assets and contractual rights to provide product on new aircraft platforms of approximately $235 million.

During the quarter ended March 31, 2016, we increased our collaboration intangible assets by approximately $98 million, of which $82 million represented payments made under our 2012 agreement to acquire Rolls-Royce's collaboration interest in IAE. Capital expenditures for the quarter ended March 31, 2016 primarily relate to investments in new programs at Pratt & Whitney and UTC Aerospace Systems.

Cash investments in businesses in the quarter ended March 31, 2016 were approximately $79 million, and consisted of a number of small acquisitions, primarily in our commercial businesses. We expect total cash investments for acquisitions in 2016 to be approximately $1 billion to $2 billion, including acquisitions completed during the quarter ended March 31, 2016. However, actual acquisition spending may vary depending upon the timing, availability and appropriate value of acquisition opportunities.

As discussed in Note 9 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 three months ended March 31, 2016 and 2015, we had net cash receipts of approximately $42 million and $569 million, respectively, from the settlement of these derivative instruments.

Customer financing activities were a net source of cash of $22 million for the quarter ended March 31, 2016 and a net use of cash of $14 million for the quarter ended March 31, 2015. While we expect that 2016 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 $14.0 billion at March 31, 2016 related to commercial aircraft and certain contractual rights to provide product on new aircraft platforms, of which up to $0.9 billion may be required to be disbursed during the remainder of 2016. We had commercial aerospace financing and other contractual commitments of approximately $14.6 billion at December 31, 2015.

### Cash Flow - Financing Activities of Continuing Operations

*(Dollars in millions)*

|  | Quarter Ended March 31, 2016 | 2015 |
| --- | ---: | ---: |
| Net cash flows provided by (used in) financing activities of continuing operations | $2,038 | $(1,383) |

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, including approximately $2.3 billion of net debt issuances in the quarter ended March 31, 2016. 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 $1.1 billion of outstanding commercial paper at March 31, 2016.

At March 31, 2016, management had remaining authority to repurchase approximately $6 billion of our common stock under the October 14, 2015 share repurchase program. 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. Other than the transactions under the ASR agreements discussed above, we did not repurchase any shares of our common stock during the quarter ended March 31, 2016. During the quarter ended March 31, 2015, we repurchased approximately 3 million shares of our common stock for approximately $350 million, in addition to the shares repurchased under the $2.65 billion ASR discussed above. 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 totaling approximately $509 million in the aggregate for the quarter ended March 31, 2016. On April 25, 2016, the Board of Directors declared a dividend of $0.66 per share payable June 10, 2015 to shareowners of record at the close of business on May 20, 2016.

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. We plan to renew the shelf registration prior to its expiration on May 29, 2016.

### Cash Flow - Discontinued Operations

*(Dollars in millions)*

|  | Quarter Ended March 31, 2016 | 2015 |
| --- | ---: | ---: |
| Net cash flows used in discontinued operations | $(2,227) | $(370) |

Cash flows used in discontinued operations primarily represent cash flows related to Sikorsky. For the quarter ended March 31, 2016, cash flows used in operating activities of discontinued operations primarily reflect the payment of taxes associated with the net gain realized on the sale of Sikorsky to Lockheed Martin Corp. in November 2015. For the quarter ended March 31, 2015, the net cash flows used in discontinued operations were driven by liquidation of customer advances and an increase in accounts receivable related to certain development programs at Sikorsky.

### Off-Balance Sheet Arrangements and Contractual Obligations

In our 2015 Annual Report, incorporated by reference in our 2015 Form 10-K, we disclosed our off-balance sheet arrangements and contractual obligations. As of March 31, 2016, 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, 277 characters.

There has been no significant change in our exposure to market risk during the quarter ended March 31, 2016. For discussion of our exposure to market risk, refer to Part II, Item 7A, "Quantitative and Qualitative Disclosures About Market Risk," contained in our 2015 Form 10-K.

## Controls and procedures

As filed, 7,216 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 Executive Vice President & Chief Financial Officer (CFO) and the Corporate Vice President, Controller (Controller), of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2016. 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 March 31, 2016, 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 ended March 31, 2016, 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;
- 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;
- 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;
- 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 "Note 14: 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 2015 Annual Report. Additional important information as to these factors is included in our 2015 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 2015 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 2015 Form 10-K.

Filed Apr 29, 2016.
Source: SEC EDGAR, the filing index for accession 0000101829-16-000062. Last ingested by Listed: Nov 3, 2026, 21:25 ET. No prices; not investment advice.