Investor and Analyst Meeting. December 10, 2015

Transcription

1 Investor and Analyst Meeting December 10, 2015

2 This presentation includes statements that constitute forward-looking statements under the securities laws. Forward-looking statements often contain words such as believe, expect, plans, project, target, anticipate, will, should, see, guidance, confident and similar terms. Forward-looking statements may include, among other things, statements relating to the plans, strategies, and objectives of UTC for future operations, including statements relating to future and estimated sales, earnings, cash flow, charges, expenditures and share repurchases; anticipated growth in sales; new products and their entry into service; the future performance of UTC following the sale of Sikorsky; anticipated benefits of organizational changes; and other measures of financial or operational performance. There can be no assurance that any transaction or future events will occur as anticipated, if at all, or that actual results will be as expected. All forward looking statements involve risks, uncertainties and assumptions that may cause actual results to differ materially from those expressed or implied in the forward looking statements. Risks and uncertainties include risks related to the effect of economic conditions in the markets in which we operate, including financial market conditions; fluctuation in commodity prices, interest rates and foreign currency exchange rates; future levels of research and development spending; levels of end market demand in construction and in the aerospace industry; levels of air travel; financial condition of commercial airlines; the impact of government budget and funding decisions on the economy; changes in government procurement priorities and funding; weather conditions and natural disasters; delays and disruption in delivery of materials and services from suppliers; company- and customer- directed cost reduction efforts and restructuring costs and consequences thereof; the impact of acquisitions, dispositions, joint ventures and similar transactions, including the ability to achieve anticipated benefits and savings from the sale of Sikorsky; challenges in the development and production of new products and services; the impact of diversification across product lines, regions and industries; the impact of legal proceedings, investigations and other contingencies; pension plan assumptions and future contributions; the effect of changes in tax, environmental and other laws and regulations and political conditions; and other factors beyond our control. The level of share repurchases depends upon market conditions and the level of other investing activities and uses of cash. The forward-looking statements speak only as of the date of this presentation and we undertake no obligation to update or revise any forward-looking statements as of a later date. For additional information identifying factors that may cause actual results to vary materially from those stated in forward-looking statements, see our reports on Forms 10-K, 10-Q and 8-K filed with or furnished to the SEC from time to time, including, but not limited to, the information included in UTC's Forms 10-K and 10-Q under the headings Business, Risk Factors, Management's Discussion and Analysis of Financial Condition and Results of Operations and Legal Proceedings and in the notes to the financial statements included in UTC's Forms 10-K and 10-Q.

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4 UNITED TECHNOLOGIES Shareholder value creation Focused portfolio of global franchises Resilient business model Innovative products and services Strong performance culture Disciplined capital allocation 4

5 2015 PRIORITIES Shareholder value creation Organic growth and program execution Achieved key program milestones Management continuity and accountability Simplified organization structure Disciplined capital allocation Returned $12B to shareholders* Focused portfolio Closed Sikorsky sale *Includes dividends paid and share repurchases committed to in

6 POSITIONED FOR GROWTH Industry leading, global franchises (2015 estimates) Aerospace Systems Sales: ~$14B Pratt & Whitney Sales: ~$15B Otis Sales: ~$12B Sales: ~$57B Climate, Controls & Security Sales: ~$17B Expected consolidated UTC sales for 2015 of $57B includes eliminations 6

7 POSITIONED FOR GROWTH Continued investment in leading-edge technologies R&D expense Next generation technology Customer funded Company funded ($ billions) Geared Turbofan TM Additive manufacturing E PrimeLINE with EDGE Edwards Vigilant TM fire panel Data analytics and prognostics Attracting and retaining customers with differentiated technology 7

8 POSITIONED FOR GROWTH Mega-trends Urbanization Shanghai 1990 ~25 years later 3.6 Urban population (billions) % Middle class ~6% CAGR 27% Commercial air traffic E 2020E 2025E 2030E Revenue passenger miles (trillions) RPMs ~5% CAGR Daily flight paths E 2020E 2025E 2030E Powerful mega-trends provide significant growth opportunities Source: United Nations: World Urbanization Prospects, 2014 revision; The Brookings Institution ; Airline Monitor 8

9 POSITIONED FOR GROWTH Pratt & Whitney (# of large commercial engines) 25,000 Installed base ,000 A320neo certification 15,000 GTF 10,000 5,000 V2500 P&W legacy E 2030E Advantage of the Geared Turbofan 16%+ fuel efficiency 50%+ emissions reduction 75%+ noise reduction 6 fewer stages 2,000 fewer airfoils 9

10 POSITIONED FOR GROWTH Pratt & Whitney Engine cost per unit Engine cost F135 learning curve Aftermarket FMP fleet coverage* 60% 75% 80% 40% PW4000 V2500 GP7000 GTF 49% Average time on wing (Hours) 20% 89% learning curve Engines Non-FMP FMP *Represents current Fleet Management Program (FMP) fleet coverage and GTF orders to date 10

11 POSITIONED FOR GROWTH Aerospace Systems Shipset values (Major programs, indexed to 2000 shipset value) Cost reduction (Nacelle build hours per unit) A320neo Embraer E-Jet E Hamilton Sundstrand UTAS 11

12 POSITIONED FOR GROWTH Otis 5 Year CAGR Elevator service base ~5% (94-99) ~7% (00-04) ~3% (05-09) (Units, millions) ~3% (10-14) Strong fundamentals Solid installed base 1.9 Recurring aftermarket 1.7 Strong cash flow 1.5 Working capital velocity Focused on growth Product strategy / innovation Service differentiation / productivity 25% increase in R&D

13 POSITIONED FOR GROWTH Climate, Controls & Security Markets served Operational excellence Focused on innovation new product introductions Home comfort, safety & security 28% Footprint reduction YTD 23% 15% AquaEdge 19XR7 chiller Carrier Côr thermostat Nonresidential efficiency, safety & security R&D centers Factories Branches (Hours) Low-cost manufacturing Edwards Vigilant fire panel Infinity 18VS / 19VS variable speed unit US & Canada China Mexico Food safety Monterrey A, Mexico Monterrey B, Mexico Monterrey C, Mexico Velando compact space freezer Vector 1350 trailer refrigeration unit 13

14 2016 EXPECTATIONS Economic environment E 2016E North America 15E GDP = $19.5T 1.1 (0.4) Western Europe 15E GDP = $16.1T China 15E GDP = $10.8T 14 15E 16E World GDP Currency 14 15YTD 16 Plan $/Euro CNY/$ $/Pound $/CAD Real/$ Latin America 15E GDP = $5.6T Asia Pacific (ex-china) 15E GDP = $13.0T Source: Global Insight November 2015 forecast. Growth% = real GDP growth, dollars = nominal GDP 14

15 2016 EXPECTATIONS Organic sales (% VPY) Commercial* 2015E 2016E Americas ~6% 4 6% EMEA ~(2%) 1 3% Asia (ex-china) ~6% 5 7% China ~(5%) (7) (10%) Aerospace Commercial OE ~1% 4 6% Commercial Aftermarket ~3% 0 2% Military ~0% (1) 1% *Excludes refrigeration See appendix for definition of organic sales 1% 3% organic growth expected in

16 2016 EXPECTATIONS Productivity (% indexed to 1996) Segment profit Segment sales Headcount E Excludes restructuring and certain other items Excludes Sikorsky; includes other discontinued operations Restructuring 2015E 2018E Cumulative cost ~$1.5B Annualized savings ~$900M 16

17 2016 EXPECTATIONS Segment outlook Organic sales change Reported sales change Operating profit change* (Ex FX) Operating profit change* Climate, Controls & Security up low single digit flat $ M $ M Otis up low single digit down low single digit ($125) (75M) ($250) (200M) Pratt & Whitney flat up slightly ($125) (75M) ($50) 0M Aerospace Systems up low single digit up low single digit ($50) 0M ($50) 0M *Excludes restructuring & certain other items 17

18 2016 EXPECTATIONS EPS $ $6.30 ($0.02) ($0.10) $0.32 $0.12 ($0.12) $ $6.60 ($ EPS*) Range ($0.10) $ LE Segments (Ex. FX) FX 1.00) Shares, net of interest Sales $56 $58B Corporate, other Contingency 2016E Adjusted EPS range $6.30 $6.60 Adjusted EPS VPY 1% 6% *Excludes restructuring and certain other items **See free cash flow definition in appendix Free cash flow** 90% - 100% of net income attributable to common shareowners 18

19 2016 EXPECTATIONS Capital allocation ($ billions) Capital deployment Return to shareholders Dividends Acquisitions Dividends Share repurchase Share repurchase ~$70 billion '00-02 '03-05 '06-08 '09-11 '12-14 '15E - 17E Total capital returns ~$59 billion Includes discontinued operations Disciplined capital deployment 19

20 2016 EXPECTATIONS Priorities Flawless execution Innovation for growth Structural cost reduction Disciplined capital allocation 20

21 UNITED TECHNOLOGIES Shareholder value creation Focused portfolio of global franchises Resilient business model Innovative products and services Strong performance culture Disciplined capital allocation 21

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23 Appendix

24 2016 EXPECTATIONS Commercial sales (% organic sales change) Americas EMEA Asia Total Elevator new equipment ~10% up low single digit down high single digit flat Elevator service up mid single digit flat up high single digit up low single digit Total Otis up high single digit up slightly down low single digit up low single digit Americas EMEA Asia Total Residential HVAC up mid single digit up mid single digit Commercial HVAC up mid single digit up low single digit up slightly up mid single digit Fire & security product up low single digit up low single digit up low single digit up low single digit Fire & security field up slightly up low single digit up low single digit Transport refrigeration Commercial refrigeration flat up slightly Total CCS up mid single digit up low single digit up low single digit up low single digit 24

25 2016 EXPECTATIONS Climate, Controls & Security ($ millions) Volume / mix Net productivity / restructuring Pension Commodities / price Other 2016 expectations (@ constant FX) FX Excludes restructuring & certain other items 2016 expectations Sales Flat organic up low single digit Operating profit Up $ M ~ 75 + ~ 50 + ~ 50 ~ 50 $ M ~ 75 $ M 25

26 2016 EXPECTATIONS Otis ($ millions) Volume Net productivity / restructuring Pension Price / mix R&D / other 2016 expectations (@ constant FX) FX Excludes restructuring & certain other items Sales Down low single digit organic up low single digit 2016 expectations Operating profit Down $ M ~ ~ 25 ~ 250 ~ 50 ($125) (75M) ~ 125 ($250) (200M) 26

27 2016 EXPECTATIONS Pratt & Whitney ($ millions) Sales Operating profit Up slightly organic flat Down $0 50M Pension + ~175 Commercial OE* up low single digit R&D Commercial AM* flat Commercial aftermarket Commercial OE mix ~225 Military OE Military AM down double digits up double digits Military ~ expectations (@ constant FX) ($125) (75M) FX + ~75 *Includes large commercial and P&W Canada Excludes restructuring and certain other items 2016 expectations ($50) (0M) 27

28 2016 EXPECTATIONS Aerospace Systems ($ millions) Sales Operating profit Up low single digit organic up low single digit Down $0 50M Commercial OE up mid single digit Volume / mix Product cost reduction Commercial AM Military OE up low single digit down low single digit 2015 contract / license agreements R&D / cost actions ~150 + ~125 Military AM down high single digit Pension + ~125 Excludes restructuring and certain other items 28

29 SEGMENT DATA SEGMENT DATA - Reported ($ Millions except per share amounts) st 2nd 3rd st 2nd 3rd 4th 2014 Qtr. Qtr. Qtr. Total YTD Qtr. Qtr. Qtr. Qtr. Total Otis Net Sales 2,745 3,098 3,043 8,886 2,955 3,365 3,326 3,336 12,982 Operating Profit (a) , ,640 Operating Profit % 19.2% 20.2% 21.1% 20.2% 19.3% 20.6% 21.1% 20.2% 20.3% UTC Climate, Controls & Security Net Sales 3,852 4,454 4,279 12,585 3,851 4,429 4,351 4,192 16,823 Operating Profit (a), (i), (q) , ,782 Operating Profit % 18.9% 18.5% 18.0% 18.5% 13.9% 18.4% 18.5% 14.9% 16.5% Pratt & Whitney Net Sales 3,332 3,677 3,234 10,243 3,329 3,592 3,564 4,023 14,508 Operating Profit (a), (b), (c), (j) , ,000 Operating Profit % 12.6% 13.2% 13.0% 12.9% 11.7% 12.0% 17.8% 13.6% 13.8% UTC Aerospace Systems Net Sales 3,548 3,632 3,457 10,637 3,450 3,636 3,535 3,594 14,215 Operating Profit (a) , ,355 Operating Profit % 16.0% 16.0% 16.5% 16.2% 17.1% 16.6% 16.3% 16.4% 16.6% Total Segments Net Sales 13,477 14,861 14,013 42,351 13,585 15,022 14,776 15,145 58,528 Operating Profit 2,244 2,517 2,404 7,165 2,085 2,542 2,718 2,432 9,777 Operating Profit % 16.7% 16.9% 17.2% 16.9% 15.3% 16.9% 18.4% 16.1% 16.7% Corporate, Eliminations, and Other Net Sales: Other (157) (171) (225) (553) (146) (154) (163) (165) (628) Operating Profit: General corporate expenses (110) (120) (101) (331) (112) (119) (124) (133) (488) Eliminations and other (a), (f) (1) (19) 304 Consolidated Net Sales 13,320 14,690 13,788 41,798 13,439 14,868 14,613 14,980 57,900 Operating Profit 2,182 2,415 2,302 6,899 2,021 2,680 2,612 2,280 9,593 Operating Profit % 16.4% 16.4% 16.7% 16.5% 15.0% 18.0% 17.9% 15.2% 16.6% Interest expense, net (g), (k), (m), (n) (217) (217) (184) (618) (224) (206) (185) (266) (881) Income from continuing operations before income taxes 1,965 2,198 2,118 6,281 1,797 2,474 2,427 2,014 8,712 Income tax expense (h), (l), (o), (p) (530) (626) (592) (1,748) (549) (486) (575) (634) (2,244) Income from continuing operations 1,435 1,572 1,526 4,533 1,248 1,988 1,852 1,380 6,468 Income (loss) from discontinued operations (d), (e), (r), (s) (65) (198) Net income 1,498 1,652 1,461 4,611 1,306 1,790 1,952 1,575 6,623 Less: Noncontrolling interest in subsidiaries' earnings (72) (110) (99) (281) (93) (110) (98) (102) (403) Net income attributable to common shareowners 1,426 1,542 1,362 4,330 1,213 1,680 1,854 1,473 6,220 Net income attributable to common shareowners: Income from continuing operations 1,364 1,461 1,426 4,252 1,155 1,878 1,755 1,278 6,066 Income (loss) from discontinued operations (64) (198) Continuing Operations 1st 2nd 3rd st 2nd 3rd 4th 2014 Qtr. Qtr. Qtr. Total YTD Qtr. Qtr. Qtr. Qtr. Total YTD Earnings per share - basic 1.53 $ 1.66 $ Earnings per share - diluted Discontinued Operations Earnings (loss) per share - basic $ 0.07 $ 0.09 $ (0.07) (0.22) Earnings (loss) per share - diluted (0.07) (0.22) Weighted average number of shares outstanding: (In Millions) Basic shares Diluted shares Q1 Q2 Q3 Total YTD Q1 Q2 Q3 Q4 Total YTD Effective Tax Rate - continuing ops 27.0% 28.5% 28.0% 27.8% 30.6% 19.6% 23.7% 31.5% 25.8% 29

30 SEGMENT DATA - NOTES The earnings release and conference-call discussion adjust 2015 and 2014 segment results for restructuring costs as well as certain other items as described below The following items are included in current and prior year results: (a) Restructuring costs as included in 2015 and 2014 results: Restructuring Costs Restructuring Costs Q1 Q2 Q3 Total YTD Q1 Q2 Q3 Q4 Total YTD Operating Profit: Otis UTC Climate, Controls & Security Pratt & Whitney UTC Aerospace Systems Total Segments General corporate expenses Eliminations and other Total within continuing operations Total within discontinued operations (3) 14 Total UTC (b) Q2 2014: Approximately $60 million charge to adjust the fair value of a Pratt & Whitney joint venture investment. (c) Q2 2014: Approximately $22 million charge for impairment of assets related to a joint venture. (d) Q2 2014: A cumulative adjustment to record $830 million in sales and $438 million in losses based upon the change in estimate required for the contractual amendments signed with the Canadian Government on the Maritime Helicopter program. (e) Q2 1014: Approximately $28 million charge for the impairment of a Sikorsky joint venture investment. (f) Q2 2014: Approximately $220 million gain on an agreement with a state taxing authority for the monetization of tax credits. (g) Q2 2014: Approximately $21 million of favorable pre-tax interest adjustments, primarily related to the conclusion of the IRS's examination of the Company's 2009 and 2010 tax years. (h) Q2 2014: Approximately $253 million of favorable income tax adjustments related to the conclusion of the IRS's examination of the Company's 2009 and 2010 tax years, as well as the settlement of state taxes related to the disposition of the Hamilton Sundstrand Industrials businesses. (i) Q3 2014: Approximately $30 million net gain from UTC Climate, Controls & Security's ongoing portfolio transformation, primarily due to a gain on the sale of an interest in a joint venture in North America. (j) Q3 2014: Approximately $83 million net gain, primarily as a result of fair value adjustments related to a business acquisition. (k) Q3 2014: Approximately $23 million of favorable pre-tax interest adjustments, primarily related to the resolution of disputes with the Appeals Division of the IRS for the Company's tax years. (l) Q3 2014: Approximately $118 million of favorable income tax adjustments, primarily related to the resolution of disputes with the Appeals Division of the IRS for the Company's tax years. (m) Q4 2014: Approximately $143 million of unfavorable pre-tax interest accruals related to the ongoing dispute with German tax authorities concerning a 1998 reorganization of the corporate structure of Otis operations in Germany. (n) Q4 2014: Approximately $88 million of favorable pre-tax interest adjustments, primarily related to conclusion of litigation and the resolution of disputes with the Appeals Division of the IRS regarding Goodrich Corporation s 2000 to 2010 tax years. (o) Q4 2014: Approximately $267 million of unfavorable income tax accruals related to the ongoing dispute with German tax authorities concerning a 1998 reorganization of the corporate structure of Otis operations in Germany. (p) Q4 2014: Approximately $180 million favorable tax adjustment primarily associated with management s decision to repatriate additional high taxed dividends in (q) Q1 2015: Approximately $126 million gain as a result of a fair value adjustment related to the acquisition of a controlling interest in a UTC Climate, Controls & Security joint venture investment. (r) Q2 2015: Approximately $28 million of transaction and separation costs related to the planned sale or spin-off of Sikorsky. (s) Q3 2015: Approximately $68 million of tax provision related to the undistributed earnings of Sikorsky's foreign subsidiaries, which will no longer be permanently reinvested as a result of the announced sale of Sikorsky to Lockheed Martin Corp. 30

31 UTC ADJUSTED RESULTS Reconciliation ($ millions) Segment Sales 1 51,932 44,586 46,004 48,772 51,443 57,141 58,528 Other certain charges (gains) Segment sales - adjusted 51,932 44,586 46,004 48,772 51,443 57,141 58,528 Segment operating profit 1 7,230 6,074 6,890 7,653 7,470 9,074 9,777 Other certain charges (gains) 2 (129) (136) 33 (84) (157) (223) (31) Restructuring Segment operating profit - adjusted 7,428 6,656 7,282 7,831 7,831 9,282 10,095 Segment operating margin 13.9% 13.6% 15.0% 15.7% 14.5% 15.9% 16.7% Segment operating margin - adjusted 14.3% 14.9% 15.8% 16.1% 15.2% 16.2% 17.2% 1 Segment sales for periods prior to 2009 reflect the retrospective adoption of Accounting for Collaborative Arrangements. 2 Details of other certain charges (gains): See Segment Data - Notes for additional information. 31

32 CCS ADJUSTED RESULTS Reconciliation ($ millions) Segment Sales 21,263 16,838 17,876 18,864 17,090 16,809 16,823 Other certain charges (gains) Segment sales - adjusted 21,263 16,838 17,876 18,864 17,090 16,809 16,823 Segment operating profit 1,858 1,233 1,776 2,212 2,425 2,590 2,782 Other certain charges (gains) 1 (67) (84) 5 (43) (157) (55) (30) Restructuring Segment operating profit - adjusted 1,994 1,471 1,934 2,295 2,411 2,632 2,868 Segment operating margin 8.7% 7.3% 9.9% 11.7% 14.2% 15.4% 16.5% Segment operating margin - adjusted 9.4% 8.7% 10.8% 12.2% 14.1% 15.7% 17.0% 1 Details of other certain charges (gains): 2008: Approximately $67 million gain from the contribution of a business into a new venture operating in the Middle East and the Commonwealth of Independent States. 2009: Approximately $57 million gain recognized from the contribution of the majority of Carrier s U.S. residential sales and distribution business into a new venture formed with Watsco, Inc. and approximately $27 million of gains related to divesiture activity. 2010: Approximately $47 million net charge resulting from dispositions associated with Carrier s ongoing portfolio transformation. Included in this net charge is an approximately $58 million asset impairment charge associated with the expected disposition of a business, partially offset by an approximately $11 million gain on the sale of another business. Approximately $42 million net gain resulting from dispositions associated with Carrier s ongoing portfolio transformation. 2011: Approximately $28 million net gain resulting from dispositions associated with Carrier s ongoing portfolio transformation. Approximately $81 million net gain resulting from Carrier s ongoing portfolio transformation primarily as a result of the contribution by Carrier's heating, air-conditioning and ventilation operations in Brazil, Argentina and Chile into a new joint venture controlled by Midea Group of China. Approximately $20 million other-than-temporary impairment charge on an equity investment. Approximately $46 million other-than-temporary impairment charge on an equity investment. 2012: Approximately $112 million net gain from UTC Climate, Controls & Security s ongoing portfolio transformation. This net gain includes approximately $215 million from the sale of a majority interest in a manufacturing and distribution joint venture in Asia, partially offset by $103 million of impairment charges related to planned business dispositions. Approximately $110 million net gain from UTC Climate, Controls & Security s ongoing portfolio transformation. This net gain includes approximately $142 million from the sale of a controlling interest in its Canadian distribution business, partially offset by $32 million loss on the disposition of its U.S. fire and security branch operations. Approximately $65 million net charge from UTC Climate, Controls & Security s ongoing portfolio transformation. This net charge includes approximately $24 million of pension settlement charges. 2013: Approximately $38 million net gain from UTC Climate, Controls & Security's ongoing portfolio transformation. This net gain primarily relates to the sale of a business in Hong Kong. Approximately $17 million net gain from UTC Climate, Controls & Security's ongoing portfolio transformation, primarily due to a gain on the sale of a business in Australia. 2014: Approximately $30 million net gain from UTC Climate, Controls & Security's ongoing portfolio transformation, primarily due to a gain on the sale of an interest in a joint venture in North America. 32

33 OTIS ADJUSTED RESULTS Reconciliation ($ millions) Segment Sales 12,884 11,723 11,579 12,437 12,056 12,484 12,982 Other certain charges (gains) Segment sales - adjusted 12,884 11,723 11,579 12,437 12,056 12,484 12,982 Segment operating profit 2,477 2,447 2,575 2,815 2,512 2,590 2,640 Other certain charges (gains) 1 - (52) Restructuring Segment operating profit - adjusted 2,498 2,553 2,658 2,888 2,676 2,678 2,727 Segment operating margin 19.2% 20.9% 22.2% 22.6% 20.8% 20.7% 20.3% Segment operating margin - adjusted 19.4% 21.8% 23.0% 23.2% 22.2% 21.5% 21.0% 1 Details of other certain charges (gains): 2009: Approximately $52 million non-cash, non-taxable gain recognized on the remeasurement to fair value of a previously held equity interest in a joint venture resulting from the purchase of a controlling interest. 33

34 PRATT & WHITNEY ADJUSTED RESULTS Reconciliation ($ millions) Segment Sales 1 13,053 11,584 12,150 12,711 13,964 14,501 14,508 Other certain charges (gains) Segment sales - adjusted 13,053 11,584 12,150 12,711 13,964 14,501 14,508 Segment operating profit 1 2,047 1,735 1,885 1,867 1,589 1,876 2,000 Other certain charges (gains) 2 (37) - - (41) - (168) (1) Restructuring Segment operating profit - adjusted 2,104 1,916 1,984 1,878 1,685 1,862 2,063 Segment operating margin 15.7% 15.0% 15.5% 14.7% 11.4% 12.9% 13.8% Segment operating margin - adjusted 16.1% 16.5% 16.3% 14.8% 12.1% 12.8% 14.2% 1 Segment sales for periods prior to 2009 reflect the retrospective adoption of Accounting for Collaborative Arrangements. 2 Details of other certain charges (gains): 2008: Approximately $37 million non-cash gain on a partial sale of an investment. 2011: Approximately $41 million gain recognized from the sale of an equity investment. 2013: Approximately $193 million gain from the sale of the Pratt & Whitney Power Systems business. This gain was not reclassified to "Discontinued Operations" due to our expected level of continuing involvement in the business post disposition. 2014: Approximately $83 million net gain, primarily as a result of fair value adjustments related to a business acquisition. Approximately $60 million charge to adjust the fair value of a Pratt & Whitney joint venture investment. Approximately $22 million charge for impairment of assets related to a joint venture. 34

35 UTAS ADJUSTED OPERATING RESULTS Reconciliation ($ millions) Segment Sales 4,732 4,441 4,399 4,760 8,334 13,347 14,215 Other certain charges (gains) Segment sales - adjusted 4,732 4,441 4,399 4,760 8,334 13,347 14,215 Segment operating profit ,018 2,355 Other certain charges (gains) 1 (25) Restructuring Segment operating profit - adjusted ,059 2,110 2,437 Segment operating margin 17.9% 14.8% 14.9% 15.9% 11.3% 15.1% 16.6% Segment operating margin - adjusted 17.6% 16.1% 16.0% 16.2% 12.7% 15.8% 17.1% 2 Details of other certain charges (gains): 2008: Approximately $25 million gain on the completion of a divestiture of a business. 2010: Approximately $28 million of asset impairment charges related primarily to the expected disposition of an aerospace business as part of Hamilton Sundstrand s ongoing low cost sourcing initiatives. 35

36 DEFINITIONS Adjusted EPS The Adjusted EPS measure included in discussion of UTC s results and projections reflects continuing operations and excludes restructuring costs and other significant items of a non-recurring and/or non-operational nature, unless otherwise noted. See management s comments and the schedules included in UTC s earnings press releases for additional information as to the items that have been excluded from Adjusted EPS. Free Cash Flow Free cash flow, which represents cash flow from operations less capital expenditures, is the principal cash performance measure used by the company. Management believes free cash flow provides a relevant measure of liquidity and a useful basis for assessing the Corporation s ability to fund its activities, including the financing of acquisitions, debt service, repurchases of the Corporation s Common Stock and distribution of earnings to shareholders. Others that use the term free cash flow may calculate it differently. Organic Sales Organic sales growth represents the total reported increase within the Corporation s ongoing businesses less the impact of foreign currency translation, and acquisitions and divestitures completed in the preceding twelve months and certain other significant items. Organic growth includes the net impact of transactional foreign exchange hedging. 36