ý
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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DELAWARE
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06-0570975
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10 Farm Springs Road, Farmington, Connecticut 06032
(860) 728-7000
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Large accelerated filer
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ý
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Accelerated filer
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¨
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Non-accelerated filer
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¨
(Do not check if a smaller reporting company)
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Smaller reporting company
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¨
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Emerging growth company
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¨
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Page
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Condensed Consolidated Statement of Comprehensive Income for the quarter
s ended June 30, 2018 and 2017
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Condensed Consolidated Balance Sheet at
June 30, 2018 and December 31, 2017
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Condensed Consolidated Statement of Cash Flows for the
quarters ended June 30, 2018 and 2017
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Item 1.
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Financial Statements
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Quarter Ended June 30,
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||||||
(dollars in millions, except per share amounts)
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2018
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2017
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||||
Net Sales:
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|
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||||
Product sales
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$
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11,520
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$
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10,661
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Service sales
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5,185
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4,619
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16,705
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15,280
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Costs and Expenses:
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Cost of products sold
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9,154
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7,957
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Cost of services sold
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3,268
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3,207
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Research and development
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589
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619
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Selling, general and administrative
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1,759
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1,590
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14,770
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13,373
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Other income, net
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941
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257
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Operating profit
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2,876
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2,164
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Non-service pension (benefit)
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(192
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)
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(126
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)
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Interest expense, net
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234
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226
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Income from operations before income taxes
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2,834
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2,064
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Income tax expense
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695
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532
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Net income from operations
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2,139
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1,532
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Less: Noncontrolling interest in subsidiaries' earnings from operations
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91
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93
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Net income attributable to common shareowners
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$
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2,048
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$
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1,439
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Earnings Per Share of Common Stock - Basic:
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Net income attributable to common shareowners
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$
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2.59
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$
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1.83
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Earnings Per Share of Common Stock - Diluted:
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Net income attributable to common shareowners
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$
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2.56
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$
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1.80
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Six Months Ended June 30,
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(dollars in millions, except per share amounts)
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2018
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2017
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Net Sales:
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Product sales
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$
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21,778
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$
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20,298
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Service sales
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10,169
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8,797
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31,947
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29,095
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Costs and Expenses:
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||||
Cost of products sold
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17,170
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15,268
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Cost of services sold
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6,532
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6,032
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Research and development
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1,143
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1,205
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Selling, general and administrative
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3,470
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3,127
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28,315
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25,632
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Other income, net
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1,172
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845
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Operating profit
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4,804
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4,308
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Non-service pension (benefit)
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(383
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)
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(249
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)
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Interest expense, net
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463
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439
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Income from operations before income taxes
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4,724
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4,118
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Income tax expense
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1,217
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1,118
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Net income from operations
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3,507
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3,000
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Less: Noncontrolling interest in subsidiaries' earnings from operations
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162
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175
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Net income attributable to common shareowners
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$
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3,345
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$
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2,825
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Earnings Per Share of Common Stock - Basic:
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Net income attributable to common shareowners
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$
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4.23
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$
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3.57
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Earnings Per Share of Common Stock - Diluted:
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Net income attributable to common shareowners
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$
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4.18
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$
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3.53
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Quarter Ended
June 30,
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Six Months Ended
June 30,
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||||||||||||
(dollars in millions)
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2018
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2017
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2018
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2017
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||||||||
Net income
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$
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2,139
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$
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1,532
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$
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3,507
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$
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3,000
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Other comprehensive income (loss), net of tax (expense) benefit:
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||||||||
Foreign currency translation adjustments
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||||||||
Foreign currency translation adjustments arising during period
|
(602
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)
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249
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(193
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)
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395
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Less: Reclassification adjustments for gain on sale of an investment in a foreign entity recognized in Other income, net
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(3
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)
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—
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(3
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)
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—
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||||
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(605
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)
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249
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|
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(196
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)
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395
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|
||||
Tax (expense) benefit
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(74
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)
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—
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56
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—
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||||
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(679
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)
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249
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(140
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)
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395
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||||
Pension and postretirement benefit plans
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Pension and postretirement benefit plans adjustments during the period
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18
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(5
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)
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26
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(4
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)
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Amortization of actuarial loss and prior service credit
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88
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132
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176
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263
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||||
|
106
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127
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202
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259
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|
||||
Tax expense
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(26
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)
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(47
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)
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(49
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)
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(96
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)
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||||
|
80
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80
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|
153
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163
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|
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Unrealized loss on available-for-sale securities
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Unrealized holding gain (loss) arising during period
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—
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30
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—
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(2
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)
|
||||
Reclassification adjustments for loss included in Other income, net
|
—
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(24
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)
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—
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(407
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)
|
||||
ASU 2016-01 adoption impact
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—
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—
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(5
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)
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—
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—
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6
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(5
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)
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(409
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)
|
||||
Tax (expense) benefit
|
—
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|
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(2
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)
|
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—
|
|
|
156
|
|
||||
|
—
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|
|
4
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(5
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)
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(253
|
)
|
||||
Change in unrealized cash flow hedging
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|
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|
||||||||
Unrealized cash flow hedging (loss) gain arising during period
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(245
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)
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66
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(200
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)
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|
130
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|
||||
(Gain) loss reclassified into Product sales
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(1
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)
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|
5
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(28
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)
|
|
10
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|
||||
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(246
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)
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71
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|
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(228
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)
|
|
140
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|
||||
Tax benefit (expense)
|
60
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|
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(17
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)
|
|
56
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|
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(32
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)
|
||||
|
(186
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)
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54
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|
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(172
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)
|
|
108
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|
||||
Other comprehensive (loss) income, net of tax
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(785
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)
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|
387
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|
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(164
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)
|
|
413
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|
||||
Comprehensive income
|
1,354
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|
|
1,919
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|
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3,343
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|
|
3,413
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|
||||
Less: Comprehensive income attributable to noncontrolling interest
|
(53
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)
|
|
(111
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)
|
|
(157
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)
|
|
(218
|
)
|
||||
Comprehensive income attributable to common shareowners
|
$
|
1,301
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|
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$
|
1,808
|
|
|
$
|
3,186
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|
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$
|
3,195
|
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(dollars in millions)
|
June 30, 2018
|
|
December 31, 2017
|
||||
Assets
|
|
|
|
||||
Cash and cash equivalents
|
$
|
11,068
|
|
|
$
|
8,985
|
|
Accounts receivable, net
|
11,973
|
|
|
12,595
|
|
||
Contract assets, current
|
3,273
|
|
|
—
|
|
||
Inventories and contracts in progress, net
|
8,979
|
|
|
9,881
|
|
||
Other assets, current
|
1,263
|
|
|
1,397
|
|
||
Total Current Assets
|
36,556
|
|
|
32,858
|
|
||
Customer financing assets
|
2,763
|
|
|
2,372
|
|
||
Future income tax benefits
|
1,626
|
|
|
1,723
|
|
||
Fixed assets
|
21,597
|
|
|
21,364
|
|
||
Less: Accumulated depreciation
|
(11,482
|
)
|
|
(11,178
|
)
|
||
Fixed assets, net
|
10,115
|
|
|
10,186
|
|
||
Goodwill
|
27,699
|
|
|
27,910
|
|
||
Intangible assets, net
|
15,739
|
|
|
15,883
|
|
||
Other assets
|
7,071
|
|
|
5,988
|
|
||
Total Assets
|
$
|
101,569
|
|
|
$
|
96,920
|
|
Liabilities and Equity
|
|
|
|
||||
Short-term borrowings
|
$
|
985
|
|
|
$
|
392
|
|
Accounts payable
|
9,623
|
|
|
9,579
|
|
||
Accrued liabilities
|
8,730
|
|
|
12,316
|
|
||
Contract liabilities, current
|
5,652
|
|
|
—
|
|
||
Long-term debt currently due
|
78
|
|
|
2,104
|
|
||
Total Current Liabilities
|
25,068
|
|
|
24,391
|
|
||
Long-term debt
|
27,246
|
|
|
24,989
|
|
||
Future pension and postretirement benefit obligations
|
2,589
|
|
|
3,036
|
|
||
Other long-term liabilities
|
13,190
|
|
|
12,952
|
|
||
Total Liabilities
|
68,093
|
|
|
65,368
|
|
||
Commitments and contingent liabilities (Note 15)
|
|
|
|
||||
Redeemable noncontrolling interest
|
130
|
|
|
131
|
|
||
Shareowners' Equity:
|
|
|
|
||||
Common Stock
|
17,747
|
|
|
17,574
|
|
||
Treasury Stock
|
(35,645
|
)
|
|
(35,596
|
)
|
||
Retained earnings
|
57,027
|
|
|
55,242
|
|
||
Unearned ESOP shares
|
(81
|
)
|
|
(85
|
)
|
||
Accumulated other comprehensive loss
|
(7,684
|
)
|
|
(7,525
|
)
|
||
Total Shareowners' Equity
|
31,364
|
|
|
29,610
|
|
||
Noncontrolling interest
|
1,982
|
|
|
1,811
|
|
||
Total Equity
|
33,346
|
|
|
31,421
|
|
||
Total Liabilities and Equity
|
$
|
101,569
|
|
|
$
|
96,920
|
|
|
Six Months Ended June 30,
|
||||||
(dollars in millions)
|
2018
|
|
2017
|
||||
Operating Activities:
|
|
|
|
||||
Net income from operations
|
$
|
3,507
|
|
|
$
|
3,000
|
|
Adjustments to reconcile net income from operations to net cash flows provided by operating activities:
|
|
|
|
||||
Depreciation and amortization
|
1,173
|
|
|
1,039
|
|
||
Deferred income tax provision
|
45
|
|
|
502
|
|
||
Stock compensation cost
|
117
|
|
|
96
|
|
||
Gain on sale of Taylor Company
|
(795
|
)
|
|
—
|
|
||
Change in:
|
|
|
|
||||
Accounts receivable
|
(1,661
|
)
|
|
(951
|
)
|
||
Contract assets, current
|
(617
|
)
|
|
—
|
|
||
Inventories and contracts in progress
|
(962
|
)
|
|
(1,066
|
)
|
||
Other current assets
|
301
|
|
|
27
|
|
||
Accounts payable and accrued liabilities
|
2,010
|
|
|
1,436
|
|
||
Contract liabilities, current
|
440
|
|
|
—
|
|
||
Global pension contributions
|
(59
|
)
|
|
(79
|
)
|
||
Canadian government settlement
|
(221
|
)
|
|
(246
|
)
|
||
Other operating activities, net
|
(723
|
)
|
|
(619
|
)
|
||
Net cash flows provided by operating activities
|
2,555
|
|
|
3,139
|
|
||
Investing Activities:
|
|
|
|
||||
Capital expenditures
|
(709
|
)
|
|
(771
|
)
|
||
Investments in businesses
|
(134
|
)
|
|
(168
|
)
|
||
Dispositions of businesses
|
1,094
|
|
|
19
|
|
||
Proceeds from sale of investments in Watsco, Inc.
|
—
|
|
|
596
|
|
||
Increase in customer financing assets, net
|
(344
|
)
|
|
(240
|
)
|
||
Increase in collaboration intangible assets
|
(181
|
)
|
|
(195
|
)
|
||
Receipts (payments) from settlements of derivative contracts
|
82
|
|
|
(294
|
)
|
||
Other investing activities, net
|
(46
|
)
|
|
63
|
|
||
Net cash flows used in investing activities
|
(238
|
)
|
|
(990
|
)
|
||
Financing Activities:
|
|
|
|
||||
Issuance of long-term debt
|
2,429
|
|
|
4,013
|
|
||
Repayment of long-term debt
|
(2,092
|
)
|
|
(1,611
|
)
|
||
Increase in short-term borrowings, net
|
642
|
|
|
32
|
|
||
Proceeds from Common Stock issued under employee stock plans
|
6
|
|
|
22
|
|
||
Dividends paid on Common Stock
|
(1,070
|
)
|
|
(1,008
|
)
|
||
Repurchase of Common Stock
|
(52
|
)
|
|
(1,370
|
)
|
||
Other financing activities, net
|
(74
|
)
|
|
(130
|
)
|
||
Net cash flows used in financing activities
|
(211
|
)
|
|
(52
|
)
|
||
Effect of foreign exchange rate changes on cash and cash equivalents
|
(18
|
)
|
|
95
|
|
||
Net increase in cash, cash equivalents and restricted cash
|
2,088
|
|
|
2,192
|
|
||
Cash, cash equivalents and restricted cash, beginning of year
|
9,018
|
|
|
7,189
|
|
||
Cash, cash equivalents and restricted cash, end of period
|
11,106
|
|
|
9,381
|
|
||
Less: Restricted cash, included in Other assets
|
38
|
|
|
36
|
|
||
Cash and cash equivalents, end of period
|
$
|
11,068
|
|
|
$
|
9,345
|
|
(dollars in millions)
|
Balance as of
January 1, 2018 |
|
Goodwill
Resulting from Business Combinations
|
|
Foreign Currency Translation and Other
|
|
Balance as of
June 30, 2018 |
||||||||
Otis
|
$
|
1,737
|
|
|
$
|
5
|
|
|
$
|
(34
|
)
|
|
$
|
1,708
|
|
UTC Climate, Controls & Security
|
10,009
|
|
|
1
|
|
|
(211
|
)
|
|
9,799
|
|
||||
Pratt & Whitney
|
1,511
|
|
|
57
|
|
|
(3
|
)
|
|
1,565
|
|
||||
UTC Aerospace Systems
|
14,650
|
|
|
—
|
|
|
(26
|
)
|
|
14,624
|
|
||||
Total Segments
|
27,907
|
|
|
63
|
|
|
(274
|
)
|
|
27,696
|
|
||||
Eliminations and other
|
3
|
|
|
—
|
|
|
—
|
|
|
3
|
|
||||
Total
|
$
|
27,910
|
|
|
$
|
63
|
|
|
$
|
(274
|
)
|
|
$
|
27,699
|
|
|
June 30, 2018
|
|
December 31, 2017
|
||||||||||||
(dollars in millions)
|
Gross Amount
|
|
Accumulated
Amortization
|
|
Gross Amount
|
|
Accumulated
Amortization
|
||||||||
Amortized:
|
|
|
|
|
|
|
|
||||||||
Service portfolios
|
$
|
2,187
|
|
|
$
|
(1,588
|
)
|
|
$
|
2,178
|
|
|
$
|
(1,534
|
)
|
Patents and trademarks
|
364
|
|
|
(226
|
)
|
|
399
|
|
|
(233
|
)
|
||||
Collaboration intangible assets
|
4,294
|
|
|
(510
|
)
|
|
4,109
|
|
|
(384
|
)
|
||||
Customer relationships and other
|
13,425
|
|
|
(4,281
|
)
|
|
13,352
|
|
|
(4,100
|
)
|
||||
|
20,270
|
|
|
(6,605
|
)
|
|
20,038
|
|
|
(6,251
|
)
|
||||
Unamortized:
|
|
|
|
|
|
|
|
||||||||
Trademarks and other
|
2,074
|
|
|
—
|
|
|
2,096
|
|
|
—
|
|
||||
Total
|
$
|
22,344
|
|
|
$
|
(6,605
|
)
|
|
$
|
22,134
|
|
|
$
|
(6,251
|
)
|
(dollars in millions)
|
|
Remaining 2018
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
||||||||||||
Amortization expense
|
|
$
|
457
|
|
|
$
|
873
|
|
|
$
|
874
|
|
|
$
|
899
|
|
|
$
|
896
|
|
|
$
|
918
|
|
(dollars in millions)
|
Quarter Ended June 30, 2018, under previous standard
|
|
Effect of the New Revenue Standard
|
|
Quarter Ended June 30, 2018 as reported
|
||||||
Net Sales:
|
|
|
|
|
|
||||||
Product sales
|
$
|
11,406
|
|
|
$
|
114
|
|
|
$
|
11,520
|
|
Service sales
|
5,115
|
|
|
70
|
|
|
5,185
|
|
|||
|
16,521
|
|
|
184
|
|
|
16,705
|
|
|||
Costs and Expenses:
|
|
|
|
|
|
||||||
Cost of products sold
|
8,975
|
|
|
179
|
|
|
9,154
|
|
|||
Cost of services sold
|
3,228
|
|
|
40
|
|
|
3,268
|
|
|||
Research and development
|
607
|
|
|
(18
|
)
|
|
589
|
|
|||
Selling, general and administrative
|
1,759
|
|
|
—
|
|
|
1,759
|
|
|||
|
14,569
|
|
|
201
|
|
|
14,770
|
|
|||
Other income, net
|
943
|
|
|
(2
|
)
|
|
941
|
|
|||
Operating profit
|
2,895
|
|
|
(19
|
)
|
|
2,876
|
|
|||
Non-service pension (benefit)
|
(192
|
)
|
|
—
|
|
|
(192
|
)
|
|||
Interest expense, net
|
234
|
|
|
—
|
|
|
234
|
|
|||
Income from operations before income taxes
|
2,853
|
|
|
(19
|
)
|
|
2,834
|
|
|||
Income tax expense
|
700
|
|
|
(5
|
)
|
|
695
|
|
|||
Net income from operations
|
2,153
|
|
|
(14
|
)
|
|
2,139
|
|
|||
Less: Noncontrolling interest in subsidiaries' earnings from operations
|
87
|
|
|
4
|
|
|
91
|
|
|||
Net income attributable to common shareowners
|
$
|
2,066
|
|
|
$
|
(18
|
)
|
|
$
|
2,048
|
|
(dollars in millions)
|
Six Months Ended June 30, 2018, under previous standard
|
|
Effect of the New Revenue Standard
|
|
Six Months Ended June 30, 2018 as reported
|
||||||
Net Sales:
|
|
|
|
|
|
||||||
Product sales
|
$
|
21,573
|
|
|
$
|
205
|
|
|
$
|
21,778
|
|
Service sales
|
9,968
|
|
|
201
|
|
|
10,169
|
|
|||
|
31,541
|
|
|
406
|
|
|
31,947
|
|
|||
Costs and Expenses:
|
|
|
|
|
|
||||||
Cost of products sold
|
16,861
|
|
|
309
|
|
|
17,170
|
|
|||
Cost of services sold
|
6,396
|
|
|
136
|
|
|
6,532
|
|
|||
Research and development
|
1,180
|
|
|
(37
|
)
|
|
1,143
|
|
|||
Selling, general and administrative
|
3,470
|
|
|
—
|
|
|
3,470
|
|
|||
|
27,907
|
|
|
408
|
|
|
28,315
|
|
|||
Other income, net
|
1,175
|
|
|
(3
|
)
|
|
1,172
|
|
|||
Operating profit
|
4,809
|
|
|
(5
|
)
|
|
4,804
|
|
|||
Non-service pension (benefit)
|
(383
|
)
|
|
—
|
|
|
(383
|
)
|
|||
Interest expense, net
|
463
|
|
|
—
|
|
|
463
|
|
|||
Income from operations before income taxes
|
4,729
|
|
|
(5
|
)
|
|
4,724
|
|
|||
Income tax expense
|
1,218
|
|
|
(1
|
)
|
|
1,217
|
|
|||
Net income from operations
|
3,511
|
|
|
(4
|
)
|
|
3,507
|
|
|||
Less: Noncontrolling interest in subsidiaries' earnings from operations
|
156
|
|
|
6
|
|
|
162
|
|
|||
Net income attributable to common shareowners
|
$
|
3,355
|
|
|
$
|
(10
|
)
|
|
$
|
3,345
|
|
(dollars in millions)
|
June 30, 2018 under previous standard
|
|
Effect of the New Revenue Standard
|
|
June 30, 2018 as reported
|
||||||
Assets
|
|
|
|
|
|
||||||
Accounts receivable, net
|
$
|
13,432
|
|
|
$
|
(1,459
|
)
|
|
$
|
11,973
|
|
Inventories
|
11,093
|
|
|
(2,114
|
)
|
|
8,979
|
|
|||
Contract assets, current
|
—
|
|
|
3,273
|
|
|
3,273
|
|
|||
Other assets, current
|
1,276
|
|
|
(13
|
)
|
|
1,263
|
|
|||
Future income tax benefits
|
1,600
|
|
|
26
|
|
|
1,626
|
|
|||
Intangible assets, net
|
15,807
|
|
|
(68
|
)
|
|
15,739
|
|
|||
Other assets
|
6,098
|
|
|
973
|
|
|
7,071
|
|
|||
|
|
|
|
|
|
||||||
Liabilities and Equity
|
|
|
|
|
|
||||||
Accrued liabilities
|
$
|
14,287
|
|
|
$
|
(5,557
|
)
|
|
$
|
8,730
|
|
Contract liabilities, current
|
—
|
|
|
5,652
|
|
|
5,652
|
|
|||
Other long term liabilities
|
12,180
|
|
|
1,010
|
|
|
13,190
|
|
|||
Noncontrolling interest
|
1,977
|
|
|
5
|
|
|
1,982
|
|
|||
|
|
|
|
|
|
||||||
Retained earnings
|
57,517
|
|
|
(490
|
)
|
|
57,027
|
|
(dollars in millions)
|
June 30, 2018
|
||
Contract assets, current
|
$
|
3,273
|
|
Contract assets, noncurrent (included within Other assets)
|
1,015
|
|
|
Total contract assets
|
4,288
|
|
|
Contract liabilities, current
|
(5,652
|
)
|
|
Contract liabilities, noncurrent (included within Other long-term liabilities)
|
(4,838
|
)
|
|
Total contract liabilities
|
(10,490
|
)
|
|
Net contract liabilities
|
$
|
(6,202
|
)
|
|
Quarter Ended June 30,
|
Six Months Ended June 30,
|
||||||||||||
(dollars in millions, except per share amounts; shares in millions)
|
2018
|
|
2017
|
2018
|
|
2017
|
||||||||
Net income attributable to common shareowners
|
$
|
2,048
|
|
|
$
|
1,439
|
|
$
|
3,345
|
|
|
$
|
2,825
|
|
Basic weighted average number of shares outstanding
|
790.5
|
|
|
788.7
|
|
790.2
|
|
|
791.1
|
|
||||
Stock awards and equity units
|
9.1
|
|
|
9.5
|
|
9.8
|
|
|
9.3
|
|
||||
Diluted weighted average number of shares outstanding
|
799.6
|
|
|
798.2
|
|
800.0
|
|
|
800.4
|
|
||||
Earnings Per Share of Common Stock:
|
|
|
|
|
|
|
||||||||
Basic
|
$
|
2.59
|
|
|
$
|
1.83
|
|
$
|
4.23
|
|
|
$
|
3.57
|
|
Diluted
|
$
|
2.56
|
|
|
$
|
1.80
|
|
$
|
4.18
|
|
|
$
|
3.53
|
|
(dollars in millions)
|
June 30, 2018
|
|
December 31, 2017
|
||||
Raw materials
|
$
|
2,298
|
|
|
$
|
2,038
|
|
Work-in-process
|
2,306
|
|
|
3,366
|
|
||
Finished goods
|
4,375
|
|
|
3,845
|
|
||
Contracts in progress
|
—
|
|
|
10,205
|
|
||
|
8,979
|
|
|
19,454
|
|
||
Less:
|
|
|
|
||||
Progress payments, secured by lien, on U.S. Government contracts
|
—
|
|
|
(236
|
)
|
||
Billings on contracts in progress
|
—
|
|
|
(9,337
|
)
|
||
|
$
|
8,979
|
|
|
$
|
9,881
|
|
(dollars in millions)
|
June 30, 2018
|
|
December 31, 2017
|
||||
Commercial paper
|
$
|
876
|
|
|
$
|
300
|
|
Other borrowings
|
109
|
|
|
92
|
|
||
Total short-term borrowings
|
$
|
985
|
|
|
$
|
392
|
|
(dollars in millions)
|
June 30, 2018
|
|
December 31, 2017
|
||||
6.800% notes due 2018
|
$
|
—
|
|
|
$
|
99
|
|
EURIBOR plus 0.800% floating rate notes due 2018 (€750 million principal value)
2
|
—
|
|
|
890
|
|
||
1.778% junior subordinated notes due 2018
|
—
|
|
|
1,100
|
|
||
LIBOR plus 0.350% floating rate notes due 2019
3
|
350
|
|
|
350
|
|
||
1.500% notes due 2019
1
|
650
|
|
|
650
|
|
||
EURIBOR plus 0.15% floating rate notes due 2019 (€750 million principal value)
2
|
876
|
|
|
890
|
|
||
8.875% notes due 2019
|
271
|
|
|
271
|
|
||
4.875% notes due 2020
1
|
171
|
|
|
171
|
|
||
4.500% notes due 2020
1
|
1,250
|
|
|
1,250
|
|
||
1.900% notes due 2020
1
|
1,000
|
|
|
1,000
|
|
||
EURIBOR plus 0.20% floating rate notes due 2020 (€750 million principal value)
2
|
876
|
|
|
—
|
|
||
8.750% notes due 2021
|
250
|
|
|
250
|
|
||
1.950% notes due 2021
1
|
750
|
|
|
750
|
|
||
1.125% notes due 2021 (€950 million principal value)
1
|
1,110
|
|
|
1,127
|
|
||
2.300% notes due 2022
1
|
500
|
|
|
500
|
|
||
3.100% notes due 2022
1
|
2,300
|
|
|
2,300
|
|
||
1.250% notes due 2023 (€750 million principal value)
1
|
876
|
|
|
890
|
|
||
2.800% notes due 2024
1
|
800
|
|
|
800
|
|
||
1.150% notes due 2024 (€750 million principal value)
1
|
876
|
|
|
—
|
|
||
1.875% notes due 2026 (€500 million principal value)
1
|
584
|
|
|
593
|
|
||
2.650% notes due 2026
1
|
1,150
|
|
|
1,150
|
|
||
3.125% notes due 2027
1
|
1,100
|
|
|
1,100
|
|
||
7.100% notes due 2027
|
141
|
|
|
141
|
|
||
6.700% notes due 2028
|
400
|
|
|
400
|
|
||
7.500% notes due 2029
1
|
550
|
|
|
550
|
|
||
2.150% notes due 2030 (€500 million principal value)
1
|
584
|
|
|
—
|
|
||
5.400% notes due 2035
1
|
600
|
|
|
600
|
|
||
6.050% notes due 2036
1
|
600
|
|
|
600
|
|
||
6.800% notes due 2036
1
|
134
|
|
|
134
|
|
||
7.000% notes due 2038
|
159
|
|
|
159
|
|
||
6.125% notes due 2038
1
|
1,000
|
|
|
1,000
|
|
||
5.700% notes due 2040
1
|
1,000
|
|
|
1,000
|
|
||
4.500% notes due 2042
1
|
3,500
|
|
|
3,500
|
|
||
4.150% notes due 2045
1
|
850
|
|
|
850
|
|
||
3.750% notes due 2046
1
|
1,100
|
|
|
1,100
|
|
||
4.050% notes due 2047
1
|
600
|
|
|
600
|
|
||
Project financing obligations
|
206
|
|
|
158
|
|
||
Other (including capitalized leases)
|
197
|
|
|
195
|
|
||
Total principal long-term debt
|
27,361
|
|
|
27,118
|
|
||
Other (fair market value adjustments and discounts)
|
(37
|
)
|
|
(25
|
)
|
||
Total long-term debt
|
27,324
|
|
|
27,093
|
|
||
Less: current portion
|
78
|
|
|
2,104
|
|
||
Long-term debt, net of current portion
|
$
|
27,246
|
|
|
$
|
24,989
|
|
1
|
We may redeem these notes at our option pursuant to their terms.
|
2
|
The three-month EURIBOR rate as of
June 30, 2018
was approximately -0.321%. The notes may be redeemed at our option in whole, but not in part, at any time in the event of certain developments affecting U.S. taxation.
|
3
|
The three-month LIBOR rate as of
June 30, 2018
was approximately 2.336%.
|
|
Quarter Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||
Average interest expense rate
|
3.5
|
%
|
|
3.6
|
%
|
|
3.5
|
%
|
|
3.6
|
%
|
|
Quarter Ended June 30, 2017
|
||||||||||
(dollars in millions)
|
Previously Reported
|
|
Effect of Change Higher/(Lower)
|
|
As Revised
|
||||||
Cost of product sold
|
$
|
7,907
|
|
|
$
|
50
|
|
|
$
|
7,957
|
|
Cost of services sold
|
3,193
|
|
|
14
|
|
|
3,207
|
|
|||
Research and development
|
609
|
|
|
10
|
|
|
619
|
|
|||
Selling, general and administrative
|
1,538
|
|
|
52
|
|
|
1,590
|
|
|||
Non-service pension (benefit)
|
—
|
|
|
(126
|
)
|
|
(126
|
)
|
|
Six Months Ended June 30, 2017
|
|||||||
(dollars in millions)
|
Previously Reported
|
|
Effect of Change Higher/(Lower)
|
|
As Revised
|
|||
Cost of product sold
|
15,170
|
|
|
98
|
|
|
15,268
|
|
Cost of services sold
|
6,007
|
|
|
25
|
|
|
6,032
|
|
Research and development
|
1,186
|
|
|
19
|
|
|
1,205
|
|
Selling, general and administrative
|
3,020
|
|
|
107
|
|
|
3,127
|
|
Non-service pension (benefit)
|
—
|
|
|
(249
|
)
|
|
(249
|
)
|
|
Quarter Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
(dollars in millions)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Defined benefit plans
|
$
|
22
|
|
|
$
|
33
|
|
|
$
|
59
|
|
|
$
|
79
|
|
Defined contribution plans
|
105
|
|
|
86
|
|
|
199
|
|
|
176
|
|
|
Pension Benefits
Quarter Ended June 30, |
|
Other Postretirement Benefits
Quarter Ended June 30, |
||||||||||||
(dollars in millions)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Service cost
|
$
|
93
|
|
|
$
|
93
|
|
|
$
|
—
|
|
|
$
|
1
|
|
Interest cost
|
278
|
|
|
279
|
|
|
6
|
|
|
6
|
|
||||
Expected return on plan assets
|
(562
|
)
|
|
(541
|
)
|
|
—
|
|
|
—
|
|
||||
Amortization of prior service credit
|
(10
|
)
|
|
(9
|
)
|
|
(1
|
)
|
|
—
|
|
||||
Recognized actuarial net loss (gain)
|
101
|
|
|
143
|
|
|
(2
|
)
|
|
(2
|
)
|
||||
Net settlement and curtailment gain
|
(2
|
)
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
||||
Total net periodic benefit (income) cost
|
$
|
(102
|
)
|
|
$
|
(37
|
)
|
|
$
|
3
|
|
|
$
|
5
|
|
|
Pension Benefits
Six Months Ended June 30,
|
|
Other Postretirement Benefits
Six Months Ended June 30,
|
||||||||||||
(dollars in millions)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Service cost
|
$
|
186
|
|
|
$
|
186
|
|
|
$
|
1
|
|
|
$
|
2
|
|
Interest cost
|
557
|
|
|
557
|
|
|
12
|
|
|
13
|
|
||||
Expected return on plan assets
|
(1,125
|
)
|
|
(1,081
|
)
|
|
—
|
|
|
—
|
|
||||
Amortization of prior service credit
|
(20
|
)
|
|
(18
|
)
|
|
(2
|
)
|
|
—
|
|
||||
Recognized actuarial net loss (gain)
|
202
|
|
|
286
|
|
|
(4
|
)
|
|
(5
|
)
|
||||
Net settlement and curtailment gain
|
(3
|
)
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
||||
Total net periodic benefit (income) cost
|
$
|
(203
|
)
|
|
$
|
(71
|
)
|
|
$
|
7
|
|
|
$
|
10
|
|
(dollars in millions)
|
Severance
|
|
Facility Exit, Lease Termination and Other Costs
|
|
Total
|
||||||
Quarter Ended June 30, 2018
|
|
|
|
|
|
||||||
Restructuring accruals at March 31, 2018
|
$
|
8
|
|
|
$
|
—
|
|
|
$
|
8
|
|
Net pre-tax restructuring costs
|
60
|
|
|
1
|
|
|
61
|
|
|||
Utilization and foreign exchange
|
(20
|
)
|
|
(1
|
)
|
|
(21
|
)
|
|||
Balance at June 30, 2018
|
$
|
48
|
|
|
$
|
—
|
|
|
$
|
48
|
|
|
|
|
|
|
|
||||||
Six Months Ended June 30, 2018
|
|
|
|
|
|
||||||
Net pre-tax restructuring costs
|
$
|
71
|
|
|
$
|
2
|
|
|
$
|
73
|
|
Utilization and foreign exchange
|
(23
|
)
|
|
(2
|
)
|
|
(25
|
)
|
|||
Balance at June 30, 2018
|
$
|
48
|
|
|
$
|
—
|
|
|
$
|
48
|
|
(dollars in millions)
|
Expected
Costs
|
|
Costs Incurred Quarter Ended
March 31, 2018
|
|
Costs Incurred Quarter Ended
June 30, 2018
|
|
Remaining Costs at
June 30, 2018
|
||||||||
Otis
|
$
|
31
|
|
|
$
|
(9
|
)
|
|
$
|
(18
|
)
|
|
$
|
4
|
|
UTC Climate, Controls & Security
|
77
|
|
|
(1
|
)
|
|
(23
|
)
|
|
53
|
|
||||
Pratt & Whitney
|
3
|
|
|
—
|
|
|
(3
|
)
|
|
—
|
|
||||
UTC Aerospace Systems
|
20
|
|
|
—
|
|
|
(15
|
)
|
|
5
|
|
||||
Eliminations and other
|
4
|
|
|
(2
|
)
|
|
(2
|
)
|
|
—
|
|
||||
Total
|
$
|
135
|
|
|
$
|
(12
|
)
|
|
$
|
(61
|
)
|
|
$
|
62
|
|
(dollars in millions)
|
Severance
|
|
Facility Exit,
Lease
Termination and
Other Costs
|
|
Total
|
||||||
Quarter Ended June 30, 2018
|
|
|
|
|
|
||||||
Restructuring accruals at March 31, 2018
|
$
|
88
|
|
|
$
|
(2
|
)
|
|
$
|
86
|
|
Net pre-tax restructuring costs
|
8
|
|
|
8
|
|
|
16
|
|
|||
Utilization and foreign exchange
|
(23
|
)
|
|
(9
|
)
|
|
(32
|
)
|
|||
Balance at June 30, 2018
|
$
|
73
|
|
|
$
|
(3
|
)
|
|
$
|
70
|
|
|
|
|
|
|
|
||||||
Six Months Ended June 30, 2018
|
|
|
|
|
|
||||||
Restructuring accruals at December 31, 2017
|
$
|
84
|
|
|
$
|
1
|
|
|
$
|
85
|
|
Net pre-tax restructuring costs
|
47
|
|
|
20
|
|
|
67
|
|
|||
Utilization and foreign exchange
|
(58
|
)
|
|
(24
|
)
|
|
(82
|
)
|
|||
Balance at June 30, 2018
|
$
|
73
|
|
|
$
|
(3
|
)
|
|
$
|
70
|
|
(dollars in millions)
|
Expected
Costs
|
|
Costs Incurred in 2017
|
|
Costs Incurred Quarter Ended
March 31, 2018
|
|
Costs Incurred Quarter Ended
June 30, 2018
|
|
Remaining Costs at
June 30, 2018
|
||||||||||
Otis
|
$
|
73
|
|
|
$
|
(43
|
)
|
|
$
|
(15
|
)
|
|
$
|
(4
|
)
|
|
$
|
11
|
|
UTC Climate, Controls & Security
|
81
|
|
|
(76
|
)
|
|
(7
|
)
|
|
5
|
|
|
3
|
|
|||||
Pratt & Whitney
|
7
|
|
|
(7
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
UTC Aerospace Systems
|
157
|
|
|
(43
|
)
|
|
(29
|
)
|
|
(17
|
)
|
|
68
|
|
|||||
Eliminations and other
|
7
|
|
|
(7
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Total
|
$
|
325
|
|
|
$
|
(176
|
)
|
|
$
|
(51
|
)
|
|
$
|
(16
|
)
|
|
$
|
82
|
|
(dollars in millions)
|
Balance Sheet Location
|
June 30, 2018
|
|
December 31, 2017
|
||||
Derivatives designated as hedging instruments:
|
|
|
|
|
||||
Foreign exchange contracts
|
Asset Derivatives:
|
|
|
|
||||
|
Other assets, current
|
$
|
23
|
|
|
$
|
77
|
|
|
Other assets
|
27
|
|
|
101
|
|
||
|
Total asset derivatives
|
$
|
50
|
|
|
$
|
178
|
|
|
Liability Derivatives:
|
|
|
|
||||
|
Accrued liabilities
|
(43
|
)
|
|
(10
|
)
|
||
|
Other long-term liabilities
|
(75
|
)
|
|
(8
|
)
|
||
|
Total liability derivatives
|
$
|
(118
|
)
|
|
$
|
(18
|
)
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
||||
Foreign exchange contracts
|
Asset Derivatives:
|
|
|
|
||||
|
Other assets, current
|
39
|
|
|
70
|
|
||
|
Other assets
|
22
|
|
|
5
|
|
||
|
Total asset derivatives
|
$
|
61
|
|
|
$
|
75
|
|
|
Liability Derivatives:
|
|
|
|
||||
|
Accrued liabilities
|
(93
|
)
|
|
(57
|
)
|
||
|
Other long-term liabilities
|
(3
|
)
|
|
(3
|
)
|
||
|
Total liability derivatives
|
$
|
(96
|
)
|
|
$
|
(60
|
)
|
|
Quarter Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
(dollars in millions)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Gain (loss) recorded in Accumulated other comprehensive loss
|
$
|
(245
|
)
|
|
$
|
66
|
|
|
$
|
(200
|
)
|
|
$
|
130
|
|
(Gain) loss reclassified from Accumulated other comprehensive loss into Product sales
|
(1
|
)
|
|
5
|
|
|
(28
|
)
|
|
10
|
|
|
Quarter Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
(dollars in millions)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Foreign exchange contracts
|
$
|
19
|
|
|
$
|
28
|
|
|
$
|
70
|
|
|
$
|
40
|
|
June 30, 2018 (dollars in millions)
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
||||||||
Recurring fair value measurements:
|
|
|
|
|
|
|
|
||||||||
Available-for-sale securities
|
$
|
42
|
|
|
$
|
42
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Derivative assets
|
111
|
|
|
—
|
|
|
111
|
|
|
—
|
|
||||
Derivative liabilities
|
(214
|
)
|
|
—
|
|
|
(214
|
)
|
|
—
|
|
December 31, 2017 (dollars in millions)
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
||||||||
Recurring fair value measurements:
|
|
|
|
|
|
|
|
||||||||
Available-for-sale securities
|
$
|
64
|
|
|
$
|
64
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Derivative assets
|
253
|
|
|
—
|
|
|
253
|
|
|
—
|
|
||||
Derivative liabilities
|
(78
|
)
|
|
—
|
|
|