United Technologies Announces Intention to Separate Into Three Independent Companies; Completes Acquisition of Rockwell Collins

November 26, 2018

Upon separation, each company will have the strategic focus and financial flexibility to deliver innovative customer solutions and drive long-term value

Completion of Rockwell Collins acquisition creates an industry-leading aerospace systems supplier, Collins Aerospace Systems

Anticipates acquisition to be $0.15 to $0.20 accretive to adjusted earnings per share in 2019

Announces intention to separate United Technologies ("UTC") into three independent companies

Following portfolio separation, UTC to operate as a leading aerospace company comprised of Collins Aerospace Systems and Pratt & Whitney businesses

Otis and Climate, Controls & Security ("CCS") businesses to become independent companies; CCS will be renamed Carrier

Tax-free separation to UTC shareowners for U.S. federal income tax purposes expected to be completed in 2020

Investor conference call at 8:00 a.m. ET, Tuesday, November 27, listen live at www.utc.com

FARMINGTON, Conn., Nov. 26, 2018 /PRNewswire/ -- United Technologies Corp. (NYSE: UTX) today announced the completion of its acquisition of Rockwell Collins (NYSE: COL) and the company's intention to separate its commercial businesses, Otis and Carrier (formerly CCS), into independent entities. The separation will result in three global, industry-leading companies: 

United Technologies, comprised of Collins Aerospace Systems and Pratt & Whitney, will be the preeminent systems supplier to the aerospace and defense industry; Collins Aerospace was formed through the combination of UTC Aerospace Systems and Rockwell Collins;

Otis, the world's leading manufacturer of elevators, escalators and moving walkways; and

Carrier, a global provider of HVAC, refrigeration, building automation, fire safety and security products with leadership positions across its portfolio.

"Our decision to separate United Technologies is a pivotal moment in our history and will best position each independent company to drive sustained growth, lead its industry in innovation and customer focus, and maximize value creation," said United Technologies Chairman and Chief Executive Officer Gregory Hayes. "Our products make modern life possible for billions of people.  I'm confident that each company will continue our proud history of performance, excellence and innovation while building an even brighter future.  As standalone companies, United Technologies, Otis and Carrier will be ready to solve our customers' biggest challenges, provide rewarding career opportunities, and contribute positively to communities around the world."

Overview of Three Leading Companies:

United Technologies (UTC)

United Technologies (NYSE: UTX), comprising Collins Aerospace and Pratt & Whitney, will be the preeminent systems supplier to the high-growth commercial aerospace and defense industry, with a unique portfolio of technologies and scale to invest through economic cycles.  Combined sales of the two businesses totaled $39.0 billion in 2017 on a pro forma basis.  Collins Aerospace supplies electrical, mechanical and software solutions across all major segments of the aerospace industry and serves commercial and military customers.  Pratt & Whitney is a global leader in aircraft propulsion with a growing number of engine programs including the revolutionary Geared TurbofanTM commercial engine and the F135 military engine for the F-35 Joint Strike Fighter program.

Otis Elevator Company (Otis)

Otis Elevator Company is the world's leading manufacturer of people-moving products, including elevators, escalators and moving walkways, with significant recurring revenue from long-term maintenance contracts and $12.3 billion in 2017 sales.  Founded 165 years ago, Otis has a history of global leadership with products and services offered in nearly every country in the world.  Otis, with more than two million elevators under maintenance, has the largest aftermarket service portfolio of any elevator manufacturer.  Recent investments include digitally-enabled field service capabilities, positioning Otis for continued growth.  

Carrier

Carrier is a leading global provider of innovative HVAC, refrigeration, fire, security and building automation technologies with 2017 sales of $17.8 billion.  Supported by the iconic Carrier name, the company's portfolio includes industry-leading brands such as Carrier, Kidde, Edwards, LenelS2 and Automated Logic.  Carrier's businesses enable modern life, delivering efficiency, safety, security, comfort, productivity and sustainability across a wide range of residential, commercial and industrial applications.  Through accelerated innovation, the company has released more than 200 new products over the last two years.

Separation Transaction Details

The proposed separation is expected to be effected through spin-offs of Otis and Carrier that will be tax-free for UTC shareowners for U.S. federal income tax purposes.  Each spin-off is subject to the satisfaction of customary conditions, including final approval by UTC's Board of Directors, receipt of a tax opinion from counsel, the filing and effectiveness of a Form 10 registration statement with the U.S. Securities and Exchange Commission and satisfactory completion of financing.

Gregory Hayes will oversee the transition and will continue in his current role as UTC Chairman and CEO following the separation.

The three independent companies will be appropriately capitalized with the financial flexibility to take advantage of future growth opportunities.  Each business will be better positioned to pursue a capital allocation strategy more suitable to its respective industry and risk and return profile, and enjoy greater flexibility with an independent equity currency and more appropriately aligned management and employee incentives.  UTC's commitment to strengthening its credit metrics remains unchanged.  Each independent company is expected to have a strong balance sheet and to maintain an investment grade credit rating.  Any existing or potential liabilities that are not associated with a particular entity will be allocated appropriately to each of the businesses. 

Following separation, the three companies together are initially expected to pay a quarterly dividend that is in sum no less than 73.5 cents per share, although each company's dividend policy will be determined by its respective Board of Directors following the completion of the separation.  Until the planned transactions are completed, UTC expects to continue to pay a quarterly dividend of no less than 73.5 cents per share.

One-time transaction costs are expected to include non-U.S. tax expense, debt financing, operational separation activities and other customary items.

The separation is expected to be completed in 2020, with separation activities occurring within the next 18-24 months.  There can be no assurances regarding the ultimate timing of the separation or that the separation will be completed.

Creating Collins Aerospace

UTC's acquisition of Rockwell Collins is one of the largest in aerospace history.  It brings together Rockwell Collins and UTC Aerospace Systems to create Collins Aerospace Systems, an industry leader with a global presence of 70,000 employees in 300 sites and $23 billion in annual sales on a 2017 pro forma basis.

United Technologies expects the deal to be accretive to adjusted earnings per share in 2019 and to generate more than $500 million in run-rate pre-tax cost synergies by year four.

"Collins Aerospace brings together two great companies with unmatched expertise in developing electrical, mechanical and software solutions," said Hayes.  "We will have a laser focus on developing innovative solutions for customers and generating strong returns for shareowners."

Financial Outlook

UTC updates its 2018 outlook to include the acquisition of Rockwell Collins and now anticipates:

Sales of $64.5 to $65.0 billion, up from $64.0 to $64.5 billion;

Adjusted EPS dilution of approximately $0.10 from the acquisition, resulting in adjusted EPS of $7.10 to $7.20, down from $7.20 to $7.30*;

Free cash flow of $4.25 to $4.5 billion, down from $4.5 to $5.0 billion*;

All outlook changes are related to the acquisition of Rockwell Collins. There is no change in the Company's previously provided 2018 expectations for organic sales growth of approximately 6 percent.* 

For 2019, UTC anticipates the acquisition to be $0.15 to $0.20 accretive to adjusted EPS, including the estimated impact of approximately $650 million of incremental intangible amortization associated with the transaction.  UTC also expects $500 to $750 million of accretion to free cash flow in 2019 from Rockwell Collins. The weighted average diluted shares outstanding for 2019 is expected to be approximately 872 million shares.

*Note: When we provide expectations for adjusted EPS, organic sales and free cash flow on a forward-looking basis, a reconciliation of the differences between the non-GAAP expectations and the corresponding GAAP measures generally is not available without unreasonable effort.  See "Use and Definitions of Non-GAAP Financial Measures" below for additional information.

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