雷神技術公司 (RTX) 2002 Q1 法說會逐字稿

Good morning.

My name is

and I will be your conference facilitator today.

At this time I would like to welcome everyone to the United Technologies first quarter conference call.

All lines have been placed on mute to prevent any background noise.

After the speaker's remarks, there will be a question-and-answer period.

If you would like to ask a question during this time, simply press star then the number one your telephone keypad, and questions will be taken in the order they are received.

If you would like to withdraw your question, press the pound key.

Thank you.

Mr.

, you may begin your conference.

Thanks very much,

.

And I also welcome everyone to today's call.

Welcome to United Technologies first quarter conference call.

I'm here with Dave FitzPatrick and Rick

.

I also want to introduce a new member of the investor relations team here,

who joined us earlier this month with Carrier.

For today's call I will review UTC's first quarter results, and then provide some additional color on business unit performance.

Dave is then going to pick up and discuss available cash flow, provide guidance for the balance of the year, and as always, following that conversation we'll take your questions.

Reminder this call is being carried live on the Internet, and is available on UTC's homepage at www.utc.com.

And I also want to remind you before discussing the quarter and expectations for future periods, that the earnings and cash flow expectations and any other forward-looking statements provided in this call are subject to risks and uncertainties.

In our SEC filings, including our 10-Q and 10-K reports, we provide details on important factors that could cause actual results to differ materially from those we anticipate in our forward-looking statements.

Let's begin.

UTC's first quarter diluted earnings per share were 92 cents, compared with first quarter 2001 earnings per share of 86 cents.

On a comparable basis, excluding goodwill amortization in accord with FAS142, first quarter 2001 earnings per share were 96 cents.

Net income was $467 million for the quarter, versus $440 million reported in the first quarter of last year.

And available cash flow this first quarter was $358 million.

Consolidated revenues were four percent lower in the first quarter.

We're expecting continued weakness in the commercial aviation and HVAC industries.

Foreign currency translation was responsible for nearly half of this decline.

segment performance - as previously announced, UTC entered into a settlement of environmental claims providing for UTC to receive approximately $100 million over two years.

The company also recorded $102 million of restructuring and related charges in the first quarter.

The restructuring was largely in Carrier, and that is in concert with the margin improvements plan as described by Geraud Darnis, Carrier's President in February.

The following discussion of segment results excludes the first quarter restructuring and related charges, and also adjusts 2001 for the impact of the new goodwill accounting so we can give you a better comparison of operational performance.

Otis turned in another quarter of double-digit operating profit improvement, up 10 percent on essentially level revenues for the quarter.

Excluding the impact of foreign currency translation, operating profit grew in all regions.

Otis' operating margin was 16.3 percent in the quarter, up 1.6 points from a year ago.

A quick update on

.

The product continues to do well, and Otis has received almost 10,000 orders since introduction.

We had 1,500 orders in the first quarter.

Otis continues to plan on introducing

in the United States later this year.

At Carrier, revenues declined nine percent in the first quarter as a result of industry weakness.

North American Commercial Refrigeration and Latin America operations experienced double-digit declines with nearly all other business segments down in revenues as compared to a strong first quarter in 2001.

Carrier's operating profit in the quarter was nine percent lower than current year, resulting in an operating margin up 7.1 percent, which was level with last year.

Aggressive cost reductions led by the restructuring actions that we talked to you about in 2001, largely offset the profit impact of the volume decline.

As part of Carrier's continuing efforts to realign engineering, manufacturing and product strategy, they recently announced that they would cease production in the Lewisburg, Tennessee manufacturing facility, one of many steps we are taking to improve margins.

The Lewisburg facility manufactures HVAC equipment for both residential and commercial applications.

The manufacturing of these products will be consolidated into other Carrier plants over the next year.

Also

, one of the commercial refrigeration units in North America, Carrier divests a flat glass manufacturing business, and announced that it's ceased production of bent glass.

During the quarter Carrier unveiled

, which is a new technology that combines non-ozone depleting refrigerant with a high-efficiency variable speed compressor.

This technology will provide energy savings up to 48 percent better as the new energy standards, those are the

standards for comparable

, another example of Carrier's technology leadership.

Also in the quarter, Germany shipping company,

became the launch customer for Carrier

new

container refrigeration units, was a $24 million order.

At

operating profit was six percent below prior year on two percent lower revenues.

Reduced profit at Pratt, Canada costs associated with the PWC6000 program, and the impact of lower large commercial engine spares were partially offset by higher overhaul and repair, military profit, and the benefit from certain commercial contract changes.

As anticipated, though, Pratt & Whitney's large commercial spares orders were down about 20 percent year-over-year.

however, was a double-digit sequential improvement from the fourth quarter of 2001, and consistent with gradually improving airline traffic.

Military revenues were also up double-digit year-over-year due to the

program, and shipments of engines for the F-22.

spare parts, Pratt & Whitney had a good - a strong order intake - excuse me - in the first quarter, with a 20-year fleet management agreement from Hawaiian Airlines.

New engine orders from

, Vietnam Airlines and Boeing Capital, and an order for 98 GP7000 engines from Emirates.

The GP7000, as you know, is being developed in collaboration with GE.

In the Flight segment, the operating profit for the first quarter was 16 percent lower than last year, on four percent lower revenues.

Sikorsky accounted for most of this operating profit decline due to increased spending for the

program as it nears certification later this year.

Sikorsky also incurred additional costs on an international

program.

Hamilton Sundstran's operating profit declined slightly due to lower commercial spare parts and industrial profit.

Substantially, however, offset by productivity improvement in higher engine and control systems shipments.

Hamilton Sundstran commercial aerospace spare parts were down about 20 percent from the first quarter of last year, again consistent with internal expectations.

Turning to UTC Fuel Cells for a moment.

UTC Fuel Cells announced in February that it had signed development agreements with Nissan Motor Company.

UTC Fuel Cells will provide fuel cell power plants to Nissan for evaluation, and work with Nissan and Renault, Nissan's alliance partner, to develop components for vehicles.

Also, UTC Fuel Cells recently announced the sale of seven

to Verizon to provide primary power for critical co-routing center.

This installation will be one of the largest in the world, providing 1.4 megawatts of electrical power.

A few items below the segment operating profit line that I'd like to cover, and I'll cover them briefly.

Eliminations and other was favorable versus last year due to the settlement of environmental claims that I mentioned earlier.

Corporate expense was higher than last year due to the appreciation of the stock price and its impact on stock-based compensation.

The first quarter effective tax rate was 28.4 percent.

And you'll recall as we mentioned in February, you'll want to adjust your models to reflect a lower tax rate as a result of the change in goodwill accounting.

And then lastly - well you probably noted in the income statement that total R&D increased $41 million for the quarter.

With a spending increases were in the aerospace companies, primary at Pratt & Whitney and Sikorsky.

Carrier's spending decreased in accord with their efforts to realign engineering and product strategy.

So with that I'll turn it over to Dave.

Thanks,

, and good morning, everyone.

I'd like to walk you through our cash flow and provide some comments on expected performance for the balance of the year.

Available cash flow, $358 million for the quarter.

As we look a bit deeper at the elements of cash flow, working capital was a use of cash of approximately $200 million, consisting of seasonal inventory build at Carrier, as well as some delayed shipments at Sikorsky, along with an increase in receivables for the environmental claims settlement, and lower advances at Pratt Power Systems, the industrial turbines in that business.

Capital expenditures were $156 million, 25 percent lower than the prior year period, and equal to depreciation expense.

As we look forward, we remain confident in our ability to generate available cash flow of $2 billion during the year.

Reviewing the use of cash in the quarter, we repurchased 1.4 shares of common stock for $100 million, and we expect to repurchase $400 million or more of common stock in total during the year.

Acquisition spending totaled $138 million for the quarter.

Most significant piece was Pratt & Whitney's investment in

, a low-cost Poland-based aerospace manufacturing company.

Also we had some smaller investments across UTC.

Last month we announced Sikorsky's agreement to purchase Derco, an aerospace and repair services business based in Wisconsin.

This acquisition closed earlier this week.

Debt-to-capital in the quarter was 35 percent, two points lower than position at year-end, a full four points lower than a year ago.

Net debt-to-capital, 28 percent, seven points lower than a year ago.

Our capital structure and overall balance sheet are sources of considerable strength and opportunity for United Technologies.

Let me conclude by giving you some segment and overall UTC guidance.

In summary, our outlook has not changed since February, either by business unit or in the aggregate.

All the businesses are on track with their plans, and we remain comfortable with an earnings per share outlook of $4.32 for the year.

All the guidance I will provide is adjusted for FAS142, but remains unchanged from our February outlook.

Otis first quarter results were on track, and Otis is in good position to achieve the plan

laid out in February, namely a one point improvement in operating margin.

And with the FAS142 change, margin of just above 16 percent.

Carrier's progress is also in line with the plan that was communicated to you in February.

As a result of restructuring actions taken last year and very disciplined cost control, Carrier held margins this quarter, despite a nine percent decline in volume.

The North American HVAC industry is expected to decline again this year, with double-digit declines expected in the first half, recovering somewhat to a flattish second half outlook.

Geraud Darnis and his team have a clear focus on margin improvement, accompanied by detailed plans, and continue to project 2002 operating margins just above 10.5 percent before restructuring.

The trends in large commercial after market, we look at our aerospace businesses are about what we expected coming into the year.

And Pratt & Whitney as well as Hamilton Sundstrand, Pratt was prepared for a drop in demand for large commercial spares.

Pratt also remains quite well positioned to capture growth in the military business.

As you see what other companies demand is weak in the industrial turbine power market.

And the market is likely to remain sluggish throughout the year.

In sum, Louis Chenevert and the Pratt team remain confident that Pratt revenues and operating profit will be about level with 2001 results.

Finally, Flight Systems we anticipate operating profit to be flat to slightly higher than 2001, consistent with our previous outlook.

Although Sikorsky shipped fewer aircraft in the quarter, and R&D spending was considerably higher than a year ago in the quarter, they remain committed to increasing revenues and operating profit by 10 percent this year.

Hamilton Sundstran is also on track in executing to say quite well against previous expectations, despite the current environment.

Hamilton Sundstrand continues to expect operating profit flat to down slightly for the year.

As we look forward, there has been considerable talk of overall economic improvement.

However, some of the sectors we participate in will likely be sluggish, particularly commercial aviation.

Our restructuring supply and management programs, geographic diversity, and after market content, and increased focus on acquisition integration all give us a reason to be confident in our ability to deliver on our commitments to all of you.

I'll stop here and ask

to open up the call for questions.

At this time I would like to remind everyone in order to ask a question please press star then the number one on the telephone keypad.

We'll pause for just a moment to compile the Q&A roster.

, can we have our first question?

Hello?

Yes, I'm calling ...

Your first question will come from

.

Hi,

.

are you there?

?

Yes, sir.

We will take your next question from

of Credit Suisse First Boston.

Thanks, Dave.

Can you give us some perspective on how to think of how the restructuring program at Carrier will roll out and when we should think about seeing a year-over-year improvement in margins?

I know the first half of the year is tough because it compares

and show weakness in end markets.

But you guys have plowed a lot of restructuring money into the business, and I'm just wondering how to think about when we'll see the benefits.

I think,

, we should see some benefits in the second quarter, and continued benefit in terms of improving quarter-over-quarter margin performance throughout the remainder of the year.

But we do expect to see some benefit in the second quarter.

OK, and then accelerating through the rest of the year?

Correct.

But I mean it's a little wacky because of FAS142.

But can second quarter margins surpass last year's second quarter?

I think as we look at even adjusting last year for FAS142, yes.

OK.

Terrific, thanks.

OK, thank you.

Your next question will come from

of Goldman Sachs.

Morning,

.

Hi, Dave.

Two questions, first is you had some product development problems in a couple of the aerospace units.

What are you doing to prevent sort of recurrence of these issues?

Well let's start with first, you know, looking at Pratt & Whitney, you know, with the delays we've announced on the PW6000 engine.

We remain quite excited about the opportunity and the potential for that engine.

As you know,

, we were making some quite significant technological leaps.

And as we look back, maybe going a little too far, you know thinking of a five-stage high compressor for that.

Now as we're - you know, we're finding, you know, the products who we are confident today, you know, in the work that's going on with

in the compressor, you know, development arena.

So I think one thing we need to fully gauge is technology readiness.

We want to continue to make good leaps in technology, but I think the readiness aspect is something that we need to assess more fully.

You know, in terms of Sikorsky, I'll admit Sikorsky had a tough quarter.

The complexity that Sikorsky took on in terms of integration of electronics and other content in these

, again a technology reach.

But this is something frankly those aircraft in my view should have delivered, you know, during the quarter.

And, you know, to maybe set away from your question to an impact in the quarter, we had pretty good cash flow from my perspective in the quarter.

Had we delivered those aircraft, we would have had very good cash flow in the quarter.

So I think the technology readiness in the integration work are two areas of focus,

.

I mean so going forward on an operating basis, because you know, the 6000 was trumpeted as sort of, you know, revolution and all this.

And you know, a lot of really positive things, and frankly you've missed the boat, and if this continues to be a delay, you're going to have an engine without an airplane on it.

And so I'm sort of concerned that as we sort of see your initiatives here, you need to - you know, what are you doing in sort of assuring that you don't get ahead of your customer again?

No I think that's certainly fair, something we're all over.

I mean not to dwell on organizational changes, but to - we have new leadership in engineering at Pratt & Whitney, and Dean Borgman has made some organizational changes at Sikorsky to deal with the programs issues.

And then - yes, thank you.

And then the second thing is the military business does appear to be very strong.

Have you seen any impact from the increased operating tempo of US military in the recent past?

, we really haven't seen the pick up yet in the spares revenue.

But we do believe that we're going to start to see that as we go further into the year, both at Hamilton Sundstrand and at Pratt & Whitney.

But no impact in the current quarter.

Thank you very much,

>

Thanks,

.

Your next question will come from

of Lehman Brothers.

Good morning all.

Could you give us a little more color on the, you know, how the Pratt & Whitney margins you've, you know, developed, you said that the spares were down, Pratt - well Canada was down, I'm not sure, maybe we could get a little more color on that.

And then the military was up.

And then certain contractual changes are - I mean did you get penalties from delays or - I mean the question I guess is how do we think about what's going on to sort of roll them out over the year looking at the profit performance at Pratt & Whitney?

OK, just to -

, thank you for the question.

Just to make sure we're on the same page relative to what happened in the quarter.

As we said, Pratt Canada volume as well as

increased R&D expense.

That was part of what happened in the quarter.

We had lower large commercial engine spares, and that was offset for the most - that was offset by higher overall repair.

We actually had more

in the shops, and the military business.

We indicated that on the PW6000 we have some additional costs related to the program delay, and that was a factor in Q1.

About the same level as these contract changes, we had some customers that came to us and we look for negotiation of the volumes, and we were able to do some favorable terms.

Those two items roughly equal.

But those were the issues inside of Pratt's performance.

So it's most, if you will, just the volume Pratt Canada, and commercial spares.

And just lastly, David read some guidance just to make sure we were all clear on it.

When we talk about, for example, Pratt being flat, do we mean if we assume that FAS142 had been implemented in 2001?

Or do we mean as reported or - I think there were several comments

...

Yeah.

... about ...

I mean it's not a big factor at Pratt, but to be clear,

, the guidance is on a consistent basis with respect to FAS142, as well as adjusting a year ago's results for the restructuring incurred in the businesses.

So we think that's the best analytical compare apples to apples.

Thank you.

And then just lastly the development cost in the

are going up.

What is the outlook for

I guess we - there were a couple that sold, four sold in Ireland.

I don't if that contract really has stayed glued together or not.

Where do you think the prospects for, you know, actually getting this thing into production are?

Well,

, on the

, we do have other launch customers besides the Ireland deal, so we do have customers for the product.

We're actually very hopeful that we'll be able to see some military application of the

as we go forward.

OK, thank you very much.

Yeah, thanks,

.

Your next question will come from

of Morgan Stanley.

Good morning.

Dave, can you talk a little bit about the shape of the cash flow for the rest of the year, give us a little bit of a sense as to, you know, is the cash flow going to be heavily back end loaded?

And also, kind of concurrent with that, talk a little bit about how you see the acquisition pipeline.

And can you explain, just so I'm clear, you talk in the release about the 100 million environmental claims and then 102 million in restructuring charges.

And then in the footnotes you talk about restructuring charges of 85.

Does the remaining

happen in the second quarter or how does that - how does that spread out?

OK.

I mean first, as we look at cash flow, the cash flow - I wouldn't say is terribly heavy, at most slightly back end loaded.

I mean one of the things we do experience in the first quarter seasonal inventory build at Carrier.

A year ago our performance was quite good as we experienced that, but we actually saw some working capital improvements at Pratt & Whitney, in part driven by advances in the industrial turbine business that didn't happen this year.

So we faced maybe more normal working capital headwind on a - on a seasonal basis.

But we should see solid cash flows throughout the remaining three quarters of the year, and we are committed to continued improvement in working capital.

So we see this $200 million increase in the quarter, you know, in part driven by the delay of the Sikorsky shipments, in part Carrier seasonal.

But we do continue to expect to see improvement in working capital this year.

After the acquisition pipeline taking your question in that regard, I think not a lot of activity - I mean there are things that are going on.

But you know, beyond Derco, nothing that I would say is in the

stages of anything of magnitude, you know, for the second quarter.

We continue to look at opportunities in both aerospace, particularly after market services within aerospace, where might there also be some nice opportunities for Hamilton Sundstrand in terms of additional content.

Geraud's team is largely focused on margin expansion and executing the plans that Geraud has laid out there.

So not a lot of acquisition activity at Carrier.

In terms of the $85 million versus the 102, is - that is the cost of goods sold portion, the other 17 million,

, is in SG&A.

So that puts to the 102 million.

Got you - got you.

And when do those - when are those

delivered?

Do they deliver in the second quarter?

We're looking at a number of them delivering in the second quarter.

OK, great.

Thanks very much.

Your next question will come from

of JP Morgan.

Good morning, everyone.

Hi,

.

Question I guess on Carrier first.

The outlook for revenues - you did say double-digit decline in the first half, which implies that you're looking at a - at a more challenging second quarter.

The flattish kind of performance that you talked about in the second half of the year, where does that visibility come from?

Well I think,

, as we look at Geraud's plans as he outlined, I mean we're still looking at five percent kind of overall, you know, revenue declines at Carrier.

And as we look at the second half of the year, the compares are considerably easier, you know, in the second half of the year.

So and do we have order visibility out that far?

No, but we have easier compares in the second half of the year.

You would have some visibility in the commercial business, I assume

...

We do - we do.

In commercial back log - I mean overall Carrier back log is up in the first quarter, which we view as an encouraging side.

OK.

The next question would be on Otis, if you could give us a rundown of the order trends by geography in the quarter.

Sure,

, let me give you some of that.

Overall orders for Otis were low single-digit numbers for the - for the quarter.

About three percent or so across all of the businesses.

New equipment orders, North America soared about six, seven percent growth of new equipment orders.

Asia was very good, although that was held by an acquisition that we made in the latter part of 2001.

Europe was where - we saw some declines in Europe in the new equipment order space.

So there was still some economic weakness I think flowing through there.

But overall, Otis' orders were up for the quarter, low single-digit numbers.

OK.

Next question would be on Pratt & Whitney, I guess also Flight Systems.

On the commercial after market piece, you said you were down 20 percent I think in both cases.

The traffic was down, you know, probably close to half of that amount.

So would assume that there is still some kind of inventory draw down going on.

Could you comment on your outlook for - how long the disconnect between traffic growth or - traffic performance and after market volumes will persist?

Well remember, a big piece of what we are seeing is the impact on some of the older aircraft that have been acquired.

So we've always said that the implications for us of traffic decline are a bit more pronounced because you're taking some of the older aircraft out of the population

some of the newer aircraft.

Nonetheless, I think we are encouraged by the fact that Q1 was sequentially better than Q4, that's a good sign.

I'm not ready to say we're - we have a turn yet.

We do think part to aircraft has plateaued in terms of new additions to the parked aircraft.

But nonetheless, I don't think we're ready to call it a turn overall in the business.

We hope to see some better performance as we get to the latter part of the year.

Final question would just be on the R&D outlook for the aerospace businesses on a full year.

I would say,

, as you look at R&D, the first quarter is a little bit of a bubble.

I mean the

situation at Sikorsky, we won't see as much spent in the remaining quarters of the year.

And I would look for overall R&D to be more or less level, you know, with a year ago, and about five percent of revenues are kind of the figures of merit.

OK.

So five percent being a company statement, not an aerospace statement with respect to R&D as a percentage of sales.

Thank you.

Thank you,

.

Our next question comes from

of Bear Stearns.

Good morning.

A couple of things.

Number one was, you know, American Standard reported yesterday, you know - you know, revenues in North America being actually up about a percent.

I'm just wondering, you know, given your compare is being down double-digit, I understand there's differences in, you know, in just one quarter.

But, you know, clearly you under performed in North American HVAC.

I'm just wondering how much of that do you think is related to the restructuring effort going on right now, maybe you can comment on that.

, I guess I would put a small piece of decline, you know, related to the restructure.

And I think as we look in compares, you know, particularly, you know, with Trane, and we had a very good first quarter.

You know, you'll recall the eight percent organic growth a year ago.

So I would submit our compare, you know, was considerably tougher as we, you know, grew organically in an environment of market weakness a year ago.

Our declines this year were more or less in line than with market declines.

But I certainly don't want to have you think that market position and share will suffer unnecessarily at the expense of margin focus.

So I'd put a small piece of the decline on the margin side of things.

Dave, is the higher

prices, is that effecting Carrier at all this year relative to your plan?

We'll see - yeah, some.

I mean when you look at, you know, cost inputs, some.

But not significantly.

All right.

And then with respect to the contract changes with Pratt and the 6000 offset, I'm just wondering if you look at, you know, with the penalty payments to your customers for the 6000 including R&D expense, and was that significant relative to the total, you know - because it sounds like what you're - or you're articulating if I'm not mistaken, is the 6000 expense in general is higher than you originally planned for the year for the first quarter if I'm not mistaken.

Partly because of the penalty payments, is that correct?

And maybe you can touch on the bulk of the deviation, do the penalty payments.

Yeah,

that point the penalty payment was really to Airbus, that's in R&D.

And there's also some additional costs that we're going to incur obviously as we work to improve the fuel efficiency of that engine.

OK.

And lastly, with respect to restructuring costs in the quarter, what were the outflows as far as payments?

Well in terms of cash as we look at kind of the Q3/Q4 as well as Q1 program, it's 56 million of cash went out - we're restructuring.

And there's no inflow from the environmental settlement then, right?

Less than that amount came in ...

OK.

... with just the remainder over the coming several quarters.

Right.

What

end up with Pratt in the quarter?

About one, same at Hamilton.

Right, OK.

You know I think for the year - for 2002, you made comments

the corporate's managing through a different number than Pratt is with respect to the decline in spares this year.

You know, based on the 20 percent decline in Q1, are we tracking closer now to corporate, or to Pratt?

At this level close to Pratt's plan.

Yeah, OK.

Thank you.

OK, thanks,

.

Your next question comes from

of Salomon Smith Barney.

Good morning.

I want to pursue a little bit more at Pratt, the contract benefits that you got.

Now did this have anything to do with the industrial gas turbine cancellations that we saw was a big benefit to GE?

And if you can kind of give us an order of magnitude.

No,

, it didn't relate to that.

It was - there were no cancellation penalty in our income for this quarter.

That was - the contract changes - there were no penalties on industrial turbines in our quarter.

OK, so - what do they relate to?

And what kind of order of magnitude?

They relate to really commercial engine customers, in some cases asking for changes in the contract for lower volume, as well as the ability to get favorable terms on those renegotiated contracts.

And can you disclose kind of the order of magnitude?

Not terribly significant.

OK.

And then, Dave, if you'd split, there's about a 40 million increase in R&D.

I know you've talked about where it is.

Do you just split - how much of that 40 million was at Pratt and how much was at Sikorsky?

About half and half.

About half and half.

OK.

And then with

declaring bankruptcy here, I think your engine's on their

plane or something.

How's that affect Pratt Canada going forward?

Not very significantly,

.

There were a couple of engines that were - a hand full of engines really for this year.

The - their were some more engines for 2003, but we obviously have some time to work on that plan.

So not a big impact on Pratt as a result of

bankruptcy at

.

OK.

And the lower Pratt Canada profit, I mean is - that's just beginning to reflect the weakness that we're seeing in the business jet market, and a little bit in the regional jet market.

Or was there something unique at Pratt Canada's

?

I wouldn't say there's anything unique, I'd say it's lower engines across the board, you know, fixed wing and helicopter we saw, you know, both on the shaft side and the fixed wing side volume decline.

So say across the board volume declines.

OK, and then you used to give at least the total number of engines shipped out of military commercial in Pratt Canada.

And unless I didn't read it right, I didn't see it this quarter.

You going to - can you provide it, or are you going to stop providing it, or what?

No, I have it right here, I'd be glad to read it to you,

...

... but total commercial shipments in the first quarter were 101.

Industrial turbines were 10, we had 25 military engines, 382 Pratt Canada, and 12 helicopter shipments.

The 12 from Sikorsky.

OK, that's good - very good.

Thanks.

Thank you,

.

Your next question comes from

of SG Cowen.

Yes, thanks a lot.

Could you update us on the

industrial turbine?

You delivered 10 in the first quarter, but obviously that market's been weak.

What should we look for for the remainder of the year?

Have you seen any pressures to cancel or slip?

What should we look for for next year?

I wouldn't say,

, we've seen pressure to cancel or slip, but the backlog is quite weak, and I think it will be a challenge for revenues in that segment to equal revenues of a year ago.

So I would characterize our position as backlog weakness.

OK, great.

And on the PW6000, you know, I guess the - you know, you're supposedly some four to five percent off on fuel burn.

You know, how major a redesign is it going to take to get you there?

And when can you actually deliver an engine to customers?

And are you seeing more pressures for your customers

the bend in the engine, given the delivery slip we're seeing?

What I think,

, as we - as we look at the 6000, going back we did have a successful first flight in mid January.

But with fairly considerable fuel efficiency issues, the work I would characterize as being fairly extensive, you know, to meet the commitments to the customer, hence the slippage a couple of years.

And could indeed, that, you know, impact deliveries to customers, yes.

So we're working through the situation with Airbus, and we are committed to having a quality engine for the

.

OK.

I don't want to push this too far, but when you say fairly extensive, I mean, what are we talking about in terms of the incremental, you know, task that could be required to kind of bring this into line to a fuel spec requirement?

And approximately what should we think in terms of incremental dollars?

Well I mean as we look at the 6000 program overall, it's fair to say that the overall investment in the engine is considerably above or aggressive targets of several years ago.

So in terms of investment, considerably above our original quite aggressive targets.

In terms of incremental spending, the incremental spending is fully comprehended in Pratt's plans for 2002 and beyond.

So I don't want to have you and others think,

, that this is incremental impacted.

It is baked into Louie's plans for the year.

OK.

Last question in terms of cash redeployment.

Obviously balance sheet remains strong, you mentioned that you don't have a very full acquisition pipeline.

Is that just because there's nothing out there of interest or because you're not pushing strategically when you look at kind of using the cash for stock repurchase, for acquisition?

Where are you putting your emphasis?

Well I'd say the emphasis between - again as we look at redeploying our very strong cash flow, you know, first and foremost investing internally, you know, in programs clearly plenty of cash for that.

Number two on the list is value created acquisitions.

We continue to look at least a billion dollars of acquisitions for the year, but as we look at the second quarter, in addition to Derco's closing, you know, there's not a lot that we see closing.

So we continue to look - there are a number of opportunities, and areas of focus we continue to scour the world, if you will, for our most concentrated industry, i.e. elevators.

We continue to look for acquisitions of component and systems interest for Hamilton Sundstran.

And across aerospace we look at after market services opportunities.

So I would highlight those as the areas of focus.

And I guess lastly I should state that, you know, Carrier's not out of business counts to acquisitions, there is some selective looking there.

But the primary focus is on operational improvement.

Excellent, thanks a lot, guys.

Thanks,

.

Your next question comes from

of

.

Good morning.

Can you tell me what was your depreciation amortization for the quarter on the cash flow statement?

One, five seven versus cap ex of 156, and that's ...

I guess what I'm trying to just figure out is if I just look at what your net income was, the depreciation amortization, you said working capital used about 200 million.

You had some $50 million for restructuring.

I guess it - was cap ex very low or is there something else that was a source of cash because it's not really clear.

Yeah, there was

there's a little bit more amortization ...

Right.

... $175 billion in total.

You know, we have some leads portfolios and, so there's some amortization that gets added back.

And then we did see some tax refund.

There was some, you know, positions that came in as well, you know,

, in the quarter in terms of sources of cash.

Well was capital spending about 170 million or so?

Hundred and 56

57.

I mean I would consider cap ex to depreciation 1.0 for the quarter.

OK.

And then there's been a lot of talk in terms of the PW4000 surge.

I'm wondering if you can just kind of help in terms of looking at first quarter of last year to first quarter of this year, either costs that were incurred last year that you didn't have this year, or any benefit in the spares this year compared to last year.

Can you just kind of help in terms of the magnitude of that benefit?

I mean in terms of a thumbnail, I would say there are some incremental costs overall, but fully comprehended in the plans that believe

shared with you in February.

OK.

And anything change in terms of the financing at Pratt & Whitney in terms of the assumption of 250 million for the year?

No, that remains our target for the year, and very little activity in Q1.

OK, thank you very much.

Thanks,

.

At this time, Mr.

, there are no further questions.

OK, thank you very much,

, and thank you all for participating.

As always, Rick,

and I will be available for the remainder of the day to answer any questions you might have.

, please terminate the call.

At this time, this has concluded the United Technologies first quarter conference call.

You may now disconnect.