# RTX Corp: Form 10-Q for the period ended Mar 31, 2017

- Company: [RTX Corp](/companies/rtx.md) (CIK 101829)
- Form: 10-Q
- Filed: 2017-04-28
- Accepted by EDGAR: Apr 28, 2017, 10:50 ET
- Period: 2017-03-31
- Accession: 0000101829-17-000016
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/101829/000010182917000016/a2017-03x3110xq.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/101829/000010182917000016/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2017-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Cost of revenue | 3 months, 2017-01-01 to 2017-03-31 | $7.26bn | us-gaap:CostOfGoodsSold |
| Research and development | 3 months, 2017-01-01 to 2017-03-31 | $577.0m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2017-01-01 to 2017-03-31 | $1.48bn | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2017-01-01 to 2017-03-31 | $2.27bn | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2017-01-01 to 2017-03-31 | $213.0m | us-gaap:InterestExpense |
| Income tax | 3 months, 2017-01-01 to 2017-03-31 | $586.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2017-01-01 to 2017-03-31 | $1.39bn | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2017-01-01 to 2017-03-31 | $1.73 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2017-01-01 to 2017-03-31 | $1.75 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2017-01-01 to 2017-03-31 | 802,300,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2017-01-01 to 2017-03-31 | $993.0m | us-gaap:NetCashProvidedByUsedInOperatingActivitiesContinuingOperations |
| Capital expenditure | 3 months, 2017-01-01 to 2017-03-31 | $325.0m | us-gaap:PaymentsToAcquireProductiveAssets |
| Dividends paid | 3 months, 2017-01-01 to 2017-03-31 | $505.0m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 3 months, 2017-01-01 to 2017-03-31 | $933.0m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2017-03-31 | $7.16bn | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2017-03-31 | $29.30bn | us-gaap:AssetsCurrent |
| Total assets | at 2017-03-31 | $90.37bn | us-gaap:Assets |
| Current liabilities | at 2017-03-31 | $23.73bn | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2017-03-31 | $60.79bn | us-gaap:Liabilities |
| Short-term borrowings | at 2017-03-31 | $1.20bn | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2017-03-31 | $27.59bn | us-gaap:StockholdersEquity |
| Shares outstanding | at 2017-03-31 | 801,227,504 shares | dei:EntityCommonStockSharesOutstanding |

## Management's discussion and analysis

As filed, 48,165 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."

The current status of significant factors affecting our business environment in 2017 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 2016 Annual Report, which is incorporated by reference in our 2016 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 spares businesses, and longer cycles at Otis and in our aerospace OEM and aftermarket maintenance 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.

Our military businesses sales are affected by U.S. Department of Defense budget and spending levels. Total sales to the U.S. Government were $1.3 billion and $1.4 billion, or 9% and 10% of total UTC sales, in the quarters ended March 31, 2017 and 2016, 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 2017.

### Discontinued Operations

In 2015, we completed the sale of Sikorsky to Lockheed Martin Corp. In the quarter ended March 31, 2016, we recognized approximately $18 million of additional Gain on disposal of discontinued operations including settlement of working capital adjustments, and net cash outflows from discontinued operations of approximately $2.2 billion, primarily related to the payment of Federal taxes related to the 2015 gain realized on the sale of Sikorsky.

### 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, 2017, our investment in business acquisitions was $95 million, which includes a number of small acquisitions primarily in our commercial businesses. We expect cash investment in acquisitions to be approximately $1 billion to $2 billion in 2017. 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 2017. See Part I, Item 1A, "Risk Factors" in our 2016 Form 10-K for further discussion.

### 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 2016 Annual Report, incorporated by reference in our 2016 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, 2017.

### RESULTS OF OPERATIONS

### Net Sales

*(Dollars in millions)*

|  | Quarter Ended March 31, 2017 | 2016 |
| --- | ---: | ---: |
| Net Sales | $13,815 | $13,357 |

The factors contributing to the total percentage change year-over-year in total net sales for the quarter ended March 31, 2017 are as follows:

|  | Quarter Ended March 31, 2017 |
| --- | ---: |
| Organic change | 3% |
| Foreign currency translation | (1)% |
| Acquisitions and divestitures, net | 1% |
| Total % Change | 3% |

All four segments experienced organic sales growth during the quarter ended March 31, 2017. UTC Aerospace Systems sales grew 5% organically driven by strong commercial aerospace aftermarket sales volume. Pratt & Whitney sales were up 4% organically, driven by higher commercial and military aftermarket sales. Otis experienced organic sales growth of 3% during the quarter driven by service sales growth in North America and Asia, and higher new equipment sales in Europe and North America. UTC Climate, Controls & Security sales grew 2% organically driven by growth in the U.S. residential HVAC, global commercial HVAC, and commercial refrigeration businesses.

### Cost of Products and Services Sold

*(Dollars in millions)*

|  | Quarter Ended March 31, 2017 | 2016 |
| --- | ---: | ---: |
| Cost of products sold | $7,263 | $7,087 |
| Percentage of product sales | 75.4% | 75.2% |
| Cost of services sold | $2,814 | $2,567 |
| Percentage of service sales | 67.4% | 65.2% |
| Total cost of products and services sold | $10,077 | $9,654 |

The factors contributing to the percentage change year-over-year for the quarter ended March 31, 2017 in total cost of products and services sold are as follows:

|  | Quarter Ended March 31, 2017 |
| --- | ---: |
| Organic change | 4% |
| Foreign currency translation | (1)% |
| Acquisitions and divestitures, net | 1% |
| Total % Change | 4% |

25

The organic increase in total cost of products and services sold in the quarter ended March 31, 2017 was primarily driven by the organic sales increase across all segments noted above, higher negative engine margin at Pratt & Whitney, and an unfavorable contract adjustment related to a large commercial project at UTC Climate, Controls & Security. The year-over-year increase in cost of services sold as a percentage of service sales (220 basis points) was primarily driven by the absence of a prior year favorable contract settlement at Pratt & Whitney and the unfavorable contract adjustment at UTC Climate, Controls & Security noted above.

### Gross Margin

*(Dollars in millions)*

|  | Quarter Ended March 31, 2017 | 2016 |
| --- | ---: | ---: |
| Gross margin | $3,738 | $3,703 |
| Percentage of net sales | 27.1% | 27.7% |

The 60 basis point decline in gross margin as a percentage of sales for the quarter ended March 31, 2017 primarily reflects lower gross margin at Pratt & Whitney (30 basis points) driven by the absence of a prior year favorable contract settlement and higher negative engine margin; and lower gross margin at UTC Climate, Controls & Security (30 basis points) driven largely by an unfavorable contract adjustment related to a large commercial project. Gross margin improvement at UTC Aerospace Systems resulting from higher commercial aftermarket sales volumes was offset by lower gross margin at Otis driven by pricing pressure, primarily in China.

### Research and Development

*(Dollars in millions)*

|  | Quarter Ended March 31, 2017 | 2016 |
| --- | ---: | ---: |
| Company-funded | $577 | $541 |
| Percentage of net sales | 4.2% | 4.1% |
| Customer-funded | $332 | $356 |
| Percentage of net sales | 2.4% | 2.7% |

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 increase in company-funded research and development (7%) for the quarter ended March 31, 2017 is primarily driven by higher research and development spending across various programs at UTC Aerospace Systems (3%), continued investment in new products at UTC Climate, Controls & Security (2%), and increased spending on strategic initiatives at Otis (2%). Customer-funded research and development declined 7% versus the prior year, primarily driven by lower spending across several commercial aerospace programs at UTC Aerospace Systems (15%), partially offset by an increase at Pratt & Whitney (8%) driven by higher spending on military development programs.

### Selling, General and Administrative

*(Dollars in millions)*

|  | Quarter Ended March 31, 2017 | 2016 |
| --- | ---: | ---: |
| Selling, general and administrative expenses | $1,482 | $1,363 |
| Percentage of net sales | 10.7% | 10.2% |

Selling, general and administrative expenses increased 9% in the quarter ended March 31, 2017, including a 2% increase in expenses resulting from recent acquisitions. The increase also reflects higher expenses at Pratt & Whitney (1%) and UTC Aerospace Systems (1%), primarily driven by increased headcount; higher spending at Otis (1%) resulting from higher labor and information technology costs; and an increase in general corporate expenses (1%) primarily driven by employee compensation related expenses.

### Other Income, Net

*(Dollars in millions)*

|  | Quarter Ended March 31, 2017 | 2016 |
| --- | ---: | ---: |
| Other income, net | $588 | $146 |

26

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 increase in other income, net (303%) in the quarter ended March 31, 2017 is primarily driven by $379 million of gains resulting from the sale of UTC Climate, Controls & Security's investments in Watsco, Inc.

### Interest Expense, Net

*(Dollars in millions)*

|  | Quarter Ended March 31, 2017 | 2016 |
| --- | ---: | ---: |
| Interest expense | $236 | $241 |
| Interest income | (23) | (18) |
| Interest expense, net | $213 | $223 |
| Average interest expense rate | 3.5% | 4.2% |

The decrease in interest expense during the quarter ended March 31, 2017 relative to the prior year is due to the net impact resulting from the December 1, 2016 redemption of 5.375% and 6.125% notes representing $2.25 billion in aggregate principal, partially offset by the November 1, 2016 issuance of notes representing $4 billion in aggregate principal bearing interest rates significantly lower than those of the notes redeemed. The average maturity of our long-term debt at March 31, 2017 is approximately twelve years.

### Income Taxes

|  | Quarter Ended March 31, 2017 | 2016 |
| --- | ---: | ---: |
| Effective tax rate | 28.5% | 27.2% |

The increase in the effective tax rate for the quarter ended March 31, 2017 primarily reflects the unfavorable impact related to the gain on the sale of UTC Climate, Controls & Security's investments in Watsco, Inc.

As shown in the table above, the effective tax rate for the quarter ended March 31, 2017 is 28.5%. We estimate our full year 2017 annual effective income tax rate to be approximately 27%, excluding restructuring and non-operational nonrecurring items.

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

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

|  | Quarter Ended March 31, 2017 | 2016 |
| --- | ---: | ---: |
| Net income from continuing operations attributable to common shareowners | $1,386 | $1,172 |
| Diluted earnings per share from continuing operations | $1.73 | $1.41 |

Net income from continuing operations attributable to common shareowners for the quarter ended March 31, 2017 includes restructuring charges, net of tax benefit, of $34 million as well as gains from the sale of available-for-sale securities, net of tax, of $238 million. The effect of restructuring charges and nonrecurring items on diluted earnings per share for the quarter ended March 31, 2017 was $0.25 per share while the effect of foreign currency translation and Pratt &Whitney Canada hedging generated a favorable impact of $0.03 per diluted share.

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 Pratt &Whitney Canada 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, 2017 | 2016 |
| --- | ---: | ---: |
| Net income from discontinued operations attributable to common shareowners | $— | $11 |
| Diluted earnings per share from discontinued operations | $— | $0.01 |

27

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.

### Restructuring Costs

*(Dollars in millions)*

|  | Quarter Ended March 31, 2017 | 2016 |
| --- | ---: | ---: |
| Restructuring costs | $52 | $62 |

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, facility exit and lease termination costs associated with the consolidation of field and manufacturing operations and costs to exit legacy programs. We expect to incur restructuring costs in 2017 of approximately $300 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.

**2017 Actions.** During the quarter ended March 31, 2017, we recorded net pre-tax restructuring charges of $24 million relating to ongoing cost reduction actions initiated in 2017. We are targeting to complete in 2017 and 2018 the majority of the remaining workforce and facility related cost reduction actions initiated in 2017. Approximately 88% 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, 2017, we had cash outflows of approximately $6 million related to the 2017 actions. We expect to incur additional restructuring charges of $18 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 $32 million annually.

**2016 Actions.** During the quarter ended March 31, 2017 and 2016, we recorded net pre-tax restructuring charges of $22 million and $28 million, respectively, for actions initiated in 2016. We are targeting to complete in 2017 the majority of the remaining workforce and facility related cost reduction actions initiated in 2016. Approximately 65% 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, 2017, we had cash outflows of approximately $29 million related to the 2016 actions. We expect to incur additional restructuring charges of $82 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 $180 million annually, of which, approximately $21 million was realized during the quarter ended March 31, 2017.

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. Adjustments to reconcile segment reporting to the consolidated results for the quarters ended March 31, 2017 and 2016 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 in the quarter ended March 31, 2017 increased 7% in comparison to the same period of the prior year driven by increases in transport refrigeration (30%), commercial HVAC (6%) and residential HVAC orders (3%). At constant currency, within the Otis segment, new equipment orders in the quarter increased 4% in comparison to the prior year driven by order growth in the Americas (29%) and Europe (28%), partially offset by order declines in the Asia region including China (10%) and the Middle East (46%).

Summary performance for each of the commercial businesses for the quarters ended March 31, 2017 and 2016 was as follows:

*(Dollars in millions)*

|  | Otis 2017 | 2016 | Change | UTC Climate, Controls & Security 2017 | 2016 | Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net Sales | $2,804 | $2,715 | 3% | $3,892 | $3,728 | 4% |
| Cost of Sales | 1,940 | 1,862 | 4% | 2,755 | 2,601 | 6% |
|  | 864 | 853 | 1% | 1,137 | 1,127 | 1% |
| Operating Expenses and Other | 412 | 387 | 6% | 174 | 521 | (67)% |
| Operating Profits | $452 | $466 | (3)% | $963 | $606 | 59% |

Operating Profit Margins 16.1 % 17.2 % 24.7 % 16.3 %

### Otis –

### Quarter Ended March 31, 2017 Compared with Quarter Ended March 31, 2016

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

The organic sales increase of 3% primarily reflects higher service sales (2%), driven by growth in North America and Asia. New equipment sales growth in Europe (2%) and North America (1%) was partially offset by declines in China (1%) and the Middle East (1%).

The operational profit decrease of 5% was driven by:

- unfavorable price and mix (10%), primarily driven by pricing pressure in China
- higher selling, general and administrative expenses (4%), driven by higher labor and information technology costs
- higher research and development spending (2%), net of
- profit contribution from the higher sales volumes noted above (5%)
- and favorable productivity (4%)

29

### UTC Climate, Controls & Security –

### Quarter Ended March 31, 2017 Compared with Quarter Ended March 31, 2016

|  | Factors Contributing to Total % Change Organic / Operational | FX Translation | Acquisitions / Divestitures, net | Restructuring Costs | Other |
| --- | ---: | ---: | ---: | ---: | ---: |
| Net Sales | 2% | (2)% | 4% | — | — |
| Cost of Sales | 3% | (2)% | 5% | — | — |
| Operating Profits | (5)% | (2)% | 2% | 1% | 63% |

Organic sales grew 2% in the quarter, driven by growth in U.S. residential HVAC and global commercial HVAC (combined 2%) and commercial refrigeration (1%), offset by a decline in transport refrigeration (1%) driven by lower container volume.

The 63% increase in “other” primarily reflects a gain on the sale of investments in Watsco, Inc.

The 5% operational profit decrease was primarily driven by:

- an unfavorable contract adjustment related to a large commercial project (4%)
- unfavorable mix and pricing partially offset by the profit contribution from the organic sales growth noted above (net 2%) driven by margin pressure from lower transport refrigeration sales and unfavorable mix within fire and security and commercial refrigeration, net of
- the beneficial impact from productivity and restructuring savings (combined 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 a strong commercial airline industry which is benefiting from traffic growth, lower airfares, and stronger economic conditions. Airline traffic, as measured by RPMs, grew approximately 7% in the first two months of 2017.

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. For the first three months of 2017, as compared with 2016, commercial aerospace aftermarket sales increased 12% at UTC Aerospace Systems and 7% at Pratt & Whitney.

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 in the quarter ended March 31, 2017 included significant net unfavorable changes in aerospace contract estimates of $29 million, primarily representing unfavorable contract adjustments recorded at Pratt & Whitney. The net effect of significant changes in aerospace contract estimates did not impact operating profit in the quarter ended March 31, 2016.

As previously disclosed, Pratt & Whitney's PurePower PW1500G engine models have been selected by Bombardier to power the new CSeries passenger aircraft, which entered into service on July 15, 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 and that both the CS100 and CS300 aircraft models have been certified and have entered into revenue service. 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, 2017 and 2016 was as follows:

*(Dollars in millions)*

|  | Pratt & Whitney 2017 | 2016 | Change | UTC Aerospace Systems 2017 | 2016 | Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net Sales | $3,758 | $3,588 | 5% | $3,611 | $3,505 | 3% |
| Cost of Sales | 2,961 | 2,795 | 6% | 2,641 | 2,571 | 3% |
|  | 797 | 793 | 1% | 970 | 934 | 4% |
| Operating Expenses & Other | 404 | 383 | 5% | 394 | 396 | (1)% |
| Operating Profits | $393 | $410 | (4)% | $576 | $538 | 7% |

Operating Profit Margins 10.5 % 11.4 % 16.0 % 15.3 %

### Pratt & Whitney –

### Quarter Ended March 31, 2017 Compared with Quarter Ended March 31, 2016

|  | Factors Contributing to Total % Change Organic / Operational | FX Translation\* | Acquisitions / Divestitures, net | Restructuring Costs | Other |
| --- | ---: | ---: | ---: | ---: | ---: |
| Net Sales | 4% | 1% | — | — | — |
| Cost of Sales | 6% | — | — | — | — |
| Operating Profits | (15)% | 10% | — | 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 of 4% primarily reflects higher commercial aftermarket sales (5%) and higher military aftermarket sales and military development revenues (3%) partially offset by lower commercial engines volume at Pratt & Whitney Canada (1%), lower military engines volume (2%), and the unfavorable impact of year-over-year contract settlements (1%).

Pratt & Whitney's operating profit includes lower pension cost and restructuring savings across its businesses. The operational profit decrease of 15% was primarily driven by:

- unfavorable year-over-year contract settlements (13%)
- lower profit contribution from commercial engines at Pratt & Whitney Canada (8%) driven by the volume decrease noted above
- higher negative engine margin (6%)
- lower profit contribution from military engines (4%) driven by lower sales

These decreases were partially offset by:

- higher profit contribution from the commercial aftermarket sales increase noted above (13%)
- profit contribution from higher military development revenues (3%)
- lower research and development spending (1%)

31

### UTC Aerospace Systems –

### Quarter Ended March 31, 2017 Compared with Quarter Ended March 31, 2016

|  | Factors Contributing to Total % Change Organic / Operational | FX Translation | Acquisitions / Divestitures, net | Restructuring Costs | Other |
| --- | ---: | ---: | ---: | ---: | ---: |
| Net Sales | 5% | (1)% | (1)% | — | — |
| Cost of Sales | 4% | — | (1)% | — | — |
| Operating Profits | 7% | 2% | — | (2)% | — |

The organic sales growth of 5% was primarily driven by an increase in commercial aerospace aftermarket sales volume (4%). The remaining increase reflects higher commercial aerospace OEM sales partially offset by a decline in military sales (net 1%).

The increase in organic operating profit of 7% primarily reflects:

- higher commercial aerospace profit contribution (14%) driven by the commercial aftermarket sales growth noted above, partially offset by adverse commercial aerospace OEM mix, net of
- higher selling, general and administrative expenses (4%)
- higher research and development costs (3%)

### Eliminations and other –

*(Dollars in millions)*

|  | Net Sales Quarter Ended March 31, 2017 | 2016 | Operating Profits Quarter Ended March 31, 2017 | 2016 |
| --- | ---: | ---: | ---: | ---: |
| Eliminations and other | $(250) | $(179) | $(13) | $16 |
| General corporate expenses | — | — | (104) | (91) |

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 decrease in sales and operating profits for the quarter ended March 31, 2017, as compared with the same period of 2016, reflects an increase in the amount of inter-segment eliminations, principally between our aerospace businesses, and the unfavorable impact of a reallocation of pension benefit to the business segments. The year-over-year increase in general corporate expenses for the quarter ended March 31, 2017, as compared with the same period of 2016, primarily reflects an increase in employee compensation related expenses.

### LIQUIDITY AND FINANCIAL CONDITION

*(Dollars in millions)*

|  | March 31, 2017 | December 31, 2016 | March 31, 2016 |
| --- | ---: | ---: | ---: |
| Cash and cash equivalents | $7,156 | $7,157 | $7,215 |
| Total debt | 24,582 | 23,901 | 23,051 |
| Net debt (total debt less cash and cash equivalents) | 17,426 | 16,744 | 15,836 |
| Total equity | 29,272 | 29,169 | 29,903 |
| Total capitalization (debt plus equity) | 53,854 | 53,070 | 52,954 |
| Net capitalization (debt plus equity less cash and cash equivalents) | 46,698 | 45,913 | 45,739 |

|  |  |  |  |
| --- | ---: | ---: | ---: |
| Debt to total capitalization | 46% | 45% | 44% |
| Net debt to net capitalization | 37% | 36% | 35% |

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 2017, 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 4.25% during the first three months of 2017. 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 the continued recognition of prior pension investment gains, 2016 actual returns on plan assets and lower discount rates for interest costs, offset by the lower discount rates for pension obligations, will result in a net periodic pension benefit in 2017 that is slightly favorable to 2016 amounts.

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. The average maturity of our long-term debt at March 31, 2017 is approximately twelve years. 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.

At March 31, 2017, 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 August 2021. As of March 31, 2017, 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, 2017, our maximum commercial paper borrowing limit was $4.35 billion.

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 November 6, 2015, we completed the sale of Sikorsky to Lockheed Martin Corp. for approximately $9.1 billion in cash. In connection with the sale of Sikorsky, we made 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. 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. 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 were settled upon final delivery to us of approximately 2.1 million additional shares of common stock in the quarter ended March 31, 2016 and approximately 8.0 million additional shares of common stock in the quarter ended September 30, 2016.

At March 31, 2017, approximately 96% 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 do not expect to make significant additional tax or interest payments pending final resolution of this matter. See Note 15 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, 2017 and December 31, 2016, the amount of such restricted cash was approximately $27 million and $32 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, 2017 | 2016 |
| --- | ---: | ---: |
| Net cash flows provided by operating activities of continuing operations | $993 | $798 |

Cash generated from operating activities of continuing operations in the quarter ended March 31, 2017 was $195 million higher than the same period in 2016. Cash outflows for working capital improved by $156 million in the quarter ended March 31, 2017 over the prior year period. In the quarter ended March 31, 2017, inventories increased $654 million, primarily in our aerospace businesses supporting an increase in forecasted OEM deliveries and related aftermarket demand, and at UTC Climate, Controls & Security primarily driven by seasonal demand in our North American HVAC and refrigeration businesses. Accounts receivable increased primarily in our aerospace businesses, and were partially offset by increased customer advances at Pratt & Whitney and Otis. Factoring activity provided an increase of approximately $500 million in cash generated from operating activities of continuing operations in the quarter ended March 31, 2017, as compared to the prior year period. This increase in factoring was driven largely by Pratt & Whitney's temporary extension of contractual payment terms with certain commercial aerospace customers. Increases in accrued liabilities were driven primarily by higher accruals for taxes and interest due to the timing of payments.

For the quarter ended March 31, 2016, cash outflows for working capital were primarily driven by increases in inventories, primarily in our aerospace businesses, supporting an increase in forecasted OEM 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. 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.

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 quarter ended March 31, 2017 and 2016 were $46 million and $75 million, respectively. Although our domestic pension plans are approximately 92% funded on a projected benefit obligation basis as of March 31, 2017, and we are not required to make additional contributions through the end of 2021, we may elect to make discretionary contributions in 2017. We expect to make total contributions of approximately $300 million to our global defined benefit pension plans in 2017, including discretionary contributions of approximately $150 million to our domestic defined benefit pension plans. Contributions to our global defined benefit pension plans in 2017 are expected to meet or exceed the current funding requirements.

### Cash Flow - Investing Activities of Continuing Operations

*(Dollars in millions)*

|  | Quarter Ended March 31, 2017 | 2016 |
| --- | ---: | ---: |
| Net cash flows used in investing activities of continuing operations | $(139) | $(493) |

Cash flows used in investing activities of continuing operations for the quarter ended March 31, 2017 and 2016 primarily reflect capital expenditures, cash investments in businesses, and payments related to our collaboration intangible assets and contractual rights to provide product on new aircraft platforms. In the quarter ended March 31, 2017, we realized net proceeds of $596 million from the sale of UTC Climate, Controls & Security's investments in Watsco, Inc.

During the quarter ended March 31, 2017, our collaboration intangible assets increased by approximately $101 million, of which $81 million resulted from payments made under our 2012 agreement to acquire Rolls-Royce's collaboration interest in IAE. Capital expenditures for the quarter ended March 31, 2017 ($325 million) primarily relate to investments in production capacity at Pratt & Whitney and UTC Aerospace Systems, as well as new facilities at Pratt & Whitney and UTC Climate, Controls & Security.

Cash investments in businesses in the quarter ended March 31, 2017 ($95 million) consisted of a number of small acquisitions, primarily in our commercial businesses. We expect total cash investments for acquisitions in 2017 to be approximately $1 billion to $2 billion, including acquisitions completed during the quarter ended March 31, 2017. 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 quarter ended March 31, 2017 and 2016, we had net cash payments of approximately $113 million and net cash receipts of approximately $42 million, respectively, from the settlement of these derivative instruments.

Customer financing activities were a net use of cash of $147 million, primarily driven by additional Geared Turbofan engines to support customer fleets, and a net source of cash of $13 million for the quarter ended March 31, 2017 and 2016, respectively. While we expect that 2017 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 $14.2 billion at March 31, 2017 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 2017. We had commercial aerospace financing and other contractual commitments of approximately $14.4 billion at December 31, 2016.

### Cash Flow - Financing Activities of Continuing Operations

*(Dollars in millions)*

|  | Quarter Ended March 31, 2017 | 2016 |
| --- | ---: | ---: |
| Net cash flows (used in) provided by financing activities of continuing operations | $(929) | $2,030 |

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 long-term debt issuances in the three months 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, 2017.

At March 31, 2017, management had remaining authority to repurchase approximately $2.8 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. We made cash payments of approximately $933 million to repurchase approximately 8.4 million shares of our common stock during the quarter ended March 31, 2017. We expect 2017 full year share repurchases to be approximately $3.5 billion, which we expect to fund with cash generated from operating activities of continuing operations as well as additional borrowings. Our share repurchase levels are influenced by various factors, including the level of other investing activities.

We paid dividends on common stock of $0.66 per share totaling approximately $505 million in the aggregate for the quarter ended March 31, 2017. On April 24, 2017, the Board of Directors declared a dividend of $0.66 per share payable June 10, 2017 to shareowners of record at the close of business on May 19, 2017.

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.

### Cash Flow - Discontinued Operations

*(Dollars in millions)*

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

Cash flows used in discontinued operations for the quarter ended March 31, 2016 primarily reflect the payment of taxes associated with the net gain realized on the sale of Sikorsky to Lockheed Martin Corp. in November 2015.

### Off-Balance Sheet Arrangements and Contractual Obligations

In our 2016 Annual Report, incorporated by reference in our 2016 Form 10-K, we disclosed our off-balance sheet arrangements and contractual obligations. As of March 31, 2017, 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, 2017. For discussion of our exposure to market risk, refer to Part II, Item 7A, "Quantitative and Qualitative Disclosures About Market Risk," contained in our 2016 Form 10-K.

## Controls and procedures

As filed, 7,612 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 Chairman, 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, 2017. 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, 2017, 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, 2017, 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;
- the timing and scope of future repurchases of our common stock, which may be suspended at any time due to various factors, including market conditions and the level of other investing activities and uses of cash;
- delays and disruption in delivery of materials and services from suppliers;
- company and customer-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 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, including the effect of changes in U.S. trade policies or the U.K.'s pending withdrawal from the EU, on general market conditions, global trade policies and currency exchange rates in the near term and beyond; 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 Condensed Consolidated Financial Statements" under the heading "Note 15: 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 2016 Annual Report and 2016 Form 10-K. Additional important information as to these factors is included in our 2016 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 2016 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 2016 Form 10-K.

Filed Apr 28, 2017.
Source: SEC EDGAR, the filing index for accession 0000101829-17-000016. Last ingested by Listed: Nov 3, 2026, 21:25 ET. No prices; not investment advice.