Analysts: Brenna Koch, Christoffer Landqvist and Boone Plager

Applied Portfolio Management

UTX

United Technologies Corp.

Sector:

HOLD

Industrials Report Date:

Market Cap (mm) Return on Capital EPS (ttm) Current Price 12-mo. Target Price

$74,078 32.6% $5.58 $81.39 $90.00

Annual Dividend Dividend Yield Price/Earnings (ttm) Economic Value-Added (ttm) Free Cash Flow Margin

$1.87 2.3% 14.6 $4,205 10.2%

Business Description United Technologies Corporation provides technology products and services to the building systems and aerospace industries worldwide. The company’s Otis segment designs, manufactures, sells, and installs passenger and freight elevators, escalators, and moving walkways, as well as provides maintenance and repair services. Its Carrier segment offers heating, ventilating, air conditioning, and refrigeration systems, controls, services, and energy-efficient products for residential, commercial, industrial, and transportation applications. The company’s UTC Fire and Security segment provides electronic security products comprising intruder alarms, and access control and video surveillance systems; fire Investment Thesis UTX has increased efficiency within their operations to grow NOPAT, EBIT and MVA at a faster rate than revenues. With an ROIC to WACC spread of 23.4%, UTX can still create value, even in a slow-growth environment. In addition, UTX is committed to increasing dividends annually. About 60% of sales come from overseas markets. The economic downturn in these areas remains a concern. The strength of the company’s portfolio and brand names reduces a portion of that risk. In comparison to industry competitors, UTX maintains a solid performance and relative valuation. Based on this, it is our recommendation to HOLD this position.

ANNUALIZED 3-YEAR CAGR Total Revenue EBIT NOPAT Earnings Per Share Dividends Per Share

-0.5% 3.4% 2.4% 3.7% 11.4%

Margins and Yields

2007

Operating Margin Free Cash Flow Margin Earnings Yield Dividend Yield

12.4% 8.5% 6.4% 1.7%

Per Share Metrics

2007

Earnings Dividends NOPAT Free Cash Flow

4.38 1.17 5.09 2.42

Free Cash Flow Total Invested Capital Total Assets Economic Value-Added Market Value-Added

2008 12.7% 9.3% 13.0% 3.5% 2008 5.00 1.35 5.83 4.44

Economic Value-Added

2009 12.1% 8.9% 5.9% 2.2% 2009 4.17 1.54 5.02 5.14

-0.5% 1.9% 2.6% 2.6% 14.0%

2010

14.3% 10.2% 6.9% 2.3%

2010

2011

4.82 1.70 6.11 6.86

5.58 1.87 6.57 4.60

$50,000 $40,000 $30,000 $20,000 $10,000 $0

Datasource: Capital IQ

2007

2008

2009

2010

2011

3/27/2012

Compared With: Honeywell International Inc. The Boeing Company and the S&P 500 Index

HON

BA

UTX

^SPX

10% 5% 0% -5% -10% -15% -20% -25%

ROA

ROE

ROIC

40% 35% 30% 25% 20% 15% 10% 5% 0% 2006

2007

2008

EBIT

2009

2010

2011

Net Operating Profit After Tax

$9,000 $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 2006

Market Valued-Added $60,000

1.22 -0.9% 8.0% 1.3% 2.5

UTX

15% 10% 5% 0% -5% -10% -15% -20% -25% -30%

2011

14.2% 9.5% 5.8% 2.1%

$4,500 $4,000 $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $0 2006

Beta (S&P 500 Index) Annualized Alpha Institutional Ownership Short Interest (% of Shares) Days to Cover Short

2007

2008

Price/Earnings

2009

2010

2011

Price/Free Cash Flow

20 15 10 5 0 2006

2007

2008

2009

2010

2011

20

28

PRVit® -- the Performance Risk Valuation investment technology

PRVit® is powered by EVA® and EVA Momentum®,

from EVA Dimensions LLC

UNITED TECHNOLOGIES CORP

registered marks of EVA Dimensions LLC

Aerospace & Defense

UTX

United Technologies Corporation provides technology products and services to the building systems and aerospace industries worldwide. The company's Otis segment designs, manufactures, sells, and installs passenger and freight elevators, escalators, and moving walkways, as well as provides maintenance and repair services. Its Carrier segment offers heating, ventilating, air conditioning, and refrigeration systems, controls, services, and energy-efficient products for residential, commercial, industrial, and transportation applications. The company's UTC Fire and Security segment provides electronic security products comprising intruder alarms, and access control and video surveillance systems; fire safety products, such as specialty hazard detection and fixed suppression products, fire extinguishers, fire detection and life safety systems, and other firefighting equipment; systems integration, video surveillance, installation, maintenance, and inspection services; and monitoring, response, and security personnel services. Its Pratt and Whitney segment supplies aircraft engines for the commercial, military, business jet, and general aviation markets; industrial gas turbines; geo thermal power systems; and space propulsion systems, as well as provides fleet management, maintenance, repair, and overhaul services. The company's Hamilton Sundstrand segment supplies aerospace products, such as power generation, management and distribution, flight control, engine control, environmental control, auxiliary power units, and propeller systems; and industrial products, including air compressors, metering pumps, and fluid handling equipment under the Sullair, Sundyne, and Milton Roy names. Its Sikorsky segment manufactures military and commercial helicopters, as well as offers aftermarket helicopter and aircraft parts and services. United Technologies Corporation was founded in 1934 and is based in Hartford, Connecticut.

Performance Score (P) P1 Profitability

UTX

25th

50th

75th

% Russell

5.6% 8.8%

-5.6% -3.5%

0.6% 0.7%

4.5% 4.8%

79 86

UTX

25th

50th

75th

% Russell

1.5% 1.0% 1.2%

-1.0% -0.5% -2.2%

0.7% 0.5% 0.5%

2.5% 2.0% 2.6%

63 61 60

The growth rate in the firm's economic profit (its EVA)

Risk Score (R) 21

R1

Lower is better

Volatility

Variability in stock price and the EVA profit margin

Stock Price Volatility EVA Margin g Variabilityy 20

R2

UTX

25th

50th

75th

% Russell

28% 0.7%

36% 2.1%

45% 4.5%

57% 12.0%

11 4

Vulnerability 25th

50th

75th

% Russell

Free Cash Flow Rate Op Cash Gen Return

9% 42%

6% 52%

0% 22%

-10% 11%

18 31

Total Debt/Total Capital Total Debt/EBITDAR

38% 1.5

8% 0.7

26% 1.8

45% 3.4

67 43

Valuation Score (V)

46

73

V1

Wealth Ratios 25th

50th

75th

% Russell

82% 131%

-3% -3%

43% 35%

139% 124%

63 76

UTX

25th

50th

75th

% Russell

7.4 16.1 -22%

5.8 15.4 -7%

7.8 20.3 24%

10.6 28.3 64%

46 29 16

Valuation multiples to cash flow, earnings, EVA

EBITDAR Multiple NOPAT Multiple Future Growth Reliance

100

Sales vs. Capital

ROC vs. COC 16%

$60,000

14%

$50,000

12%

$40,000 $30,000 $20,000

80

60

40

20

0 100

80

2%

$0

0% 12/06

12/07

12/08

Sales

12/09

Capital

12/10

12/11

60

40

20

0 100

80

$50,000

$3,000 $2,500 $2,000 $1,500 $1,000 $500 $0

$0 12/08

ROC

12/09

40 20 0 Actual Valuation Vs. Industry (V=68th Percentile)

12/10

COC

12/11

PRVit Scores $3,500

$10,000

12/07

60

$60,000

$20,000

12/06

40 20 0 Actual Valuation Vs. Russell 3000 (V=46th Percentile)

80

4%

$10,000

60

UTX PRVit Score Vs Industry 63

$30,000

6%

Buy 80-100

UTX PRVit Score Vs Market 86

$40,000

8%

Overweight 60-79

Hold 40-59

Market Value Added (MVA) vs. EVA

10%

63

76

UTX

The PRVit Matrix: depicts a company’s PRVit score by plotting its “intrinsic” value score – what PRVit rates the firm is truly worth based on its risk-adjusted performance, i.e., its comparative P-R score – against its actual valuation score – which reflects the company’s current trading multiples. Companies rated “Hold” plot along the diagonal, which is where the firms’ actual valuation multiples align with their intrinsic values. “Buys” plot in the upper right green zone, which is where PRVit rates the firms as worth more than their current share values, and “Sells” appear in the lower left red zone, where the firms’ P-R scores fall short of their V scores. The top grid rates the firms against the entire market, and the lower one ranks them against industry peers (which is the basis for the official “PRVit” score).

$70,000

(vs Industry)

UTX

Valuation multiples to book capital (as adjusted) UTX

V2 Wealth Multiples

Underweight 20-39

100

Lower is better

MVA Margin MVA Spread 17

Sell 0-19

Leveraged, negative cash flow firms are suspect UTX

86

PRVit Score

UTX's PRVit score is at the 63rd percentile of all firms in its industry, which leads to a recommendation to Overweight. UTX is more attractively priced in relation to its true value than well over half of the stocks in its industry.

Higher is better

P2 Trend EVA Momentum (vs Cap) 3 Year Trend (∆EVA/Cap) Last Quarter (∆EVA/Cap)

32

$81.92

Financial strength in generating a return on capital over the full cost

EVA Margin (EVA/Sales) EVA Spread (EVA/Capital) 63

4-Apr-12

PRVit Score Industry (vs Market) Median

UTX's outstanding performance (81st percentile vs. Russell 3000 companies), coupled with its low risk (32nd percentile), indicates a very high intrinsic valuation is warranted (86th percentile), which compared to its actual market valuation (46th percentile at its $81.92 share price) makes for a PRVit score of 86th percentile vs. the market.

Intrinsic Value Vs. Russell 3000 (P(81)-R(32)=86th Percentile)

83

Share Price

Intrinsic Value Vs. Industry (P(87)-R(49)=79th Percentile)

81

Date

12/06

12/07

12/08

12/09

MVA

12/10

100 90 80 70 60 50 40 30 20 10 0

12/11

EVA

EVA Dimensions LLC l 15 Watersedge Court l Locust Valley, NY 11560 l Support Hot Line 1.888.500.3560 l [email protected] No part of this report may be reproduced or distributed in any form except to authorized licensees of EVA Dimensions LLC

Copyright 2010 All Rights Reserved

12/06

12/07

12/08

Vs Market

12/09

12/10

Vs Industry

12/11

United Technologies Corp.

UTX

Sector

Industrials

Stock Price

$81.39

Historical Income Statements

Report Date

3/27/2012

Historical Balance Sheets

2006

2007

2008

2009

2010

2011

Total Revenue Cost of Goods Sold Gross Profit

47,829 34,740 13,089

55,553 40,879 14,674

59,119 43,637 15,482

52,425 38,861 13,564

54,326 39,045 15,281

58,190 41,973 16,217

Cash and Equivalents Short-Term Investments Total Cash & ST Invest.

ASSETS

2006

2007

2008

2009

2010

2011

2,546 0 2,546

2,904 0 2,904

4,327 0 4,327

4,449 0 4,449

4,083 0 4,083

5,960 0 5,960

SG&A Expense R&D Expense Dep. & Amort. Other Oper. Exp.

5,462 1,529 0 41,731

6,109 1,678 0 48,666

6,724 1,771 0 51,610

6,036 1,558 0 46,100

5,865 1,746 0 46,626

6,310 2,058 0 49,888

Total Receivables Inventory Prepaid Expenses Total Current Assets

7,679 6,657 0 18,844

8,844 8,101 0 22,071

9,480 8,340 0 24,467

8,469 7,509 0 23,194

8,925 7,766 0 23,510

9,546 7,797 0 25,758

Operating Income Interest Expense Other Non-Oper. Exp. EBT ex-Unusuals

6,098 (606) 0 5,492

6,887 (666) 0 6,221

7,509 (689) 0 6,936

6,325 (684) (21) 5,708

7,700 (723) 150 7,205

8,302 (650) (62) 7,680

Gross PPE Accumulated Depr. Net PPE Long-Term Investments

13,738 (8,013) 5,725 0

14,877 (8,581) 6,296 0

15,106 (8,758) 6,348 0

15,677 (9,313) 6,364 0

15,914 (9,634) 6,280 0

15,980 (9,779) 6,201 0

Total Unusual Exp. Earnings Before Tax

0 5,492

163 6,384

0 6,936

52 5,760

(667) 6,538

(75) 7,605

Goodwill Total Assets

14,146 47,141

16,120 54,575

15,363 56,837

16,298 55,762

17,721 58,493

17,943 61,452

Income Tax Expense Net Income

1,494 3,732

1,836 4,224

1,883 4,689

1,581 3,829

1,827 4,373

2,231 4,979

LIABILITIES AND EQUITY Accounts Payable

4,263

5,059

5,594

4,634

5,206

5,570

5,191 857 15,208 7,037

5,355 1,085 17,469 8,015

5,865 1,023 19,802 9,337

5,233 254 17,913 8,257

5,605 116 17,732 10,010

5,929 630 18,616 9,501

Diluted EPS Total Diluted Shares Dividends Per Share

3.71 1,006 1.02

4.27 989 1.17

4.90 956 1.35

4.12 929 1.54

4.74 923 1.70

5.49 907 1.87

Accrued Expenses Short-Term Debt Total Current Liab. Long-Term Debt

Effective Tax Rate

27.2%

28.8%

27.1%

27.1%

27.9%

29.3%

Pension Benefits Total Liabilities

2,926 29,008

2,562 32,308

6,574 39,911

4,150 34,374

3,592 35,844

5,007 38,274

3.81 980 7,131 6,098 7,504 4.31 $64.18

4.38 964 8,060 6,887 8,497 4.88 $68.83

5.00 938 8,830 7,509 9,334 5.87 $38.54

4.17 917 7,583 6,325 8,046 5.07 $71.25

4.82 908 9,056 7,700 9,501 5.68 $82.86

5.58 892 9,649 8,302 10,102 6.67 $81.39

Preferred Equity Common Stock & APIC Retained Earnings Treasury Stock Total Common Equity Total Equity Total Liab. and Equity

0 9,622 18,754 (9,413) 17,297 18,133 47,141

0 10,572 21,751 (11,338) 21,355 22,267 54,575

0 11,179 25,034 (14,316) 15,763 16,926 56,837

0 11,746 27,396 (15,408) 20,066 21,388 55,762

0 12,597 30,191 (17,468) 21,385 22,649 58,493

0 13,445 33,487 (19,410) 21,880 23,178 61,452

Earnings Per Share Total Common Shares EBITDA EBIT EBITDAR Free Cash Flow/Share Year-end Stock Price

Total Revenue

Net Income

Earnings Per Share

Dividends Per Share

EBITDA

$70,000

$6.00

$12,000

$60,000

$5.00

$10,000

$4.00

$8,000

$3.00

$6,000

$20,000

$2.00

$4,000

$10,000

$1.00

$2,000

$50,000 $40,000 $30,000

$0

$0.00 2006

2007

2008

2009

UTX Performance Analysis. Datasource: CapitalIQ

2010

2011

EBIT

$0 2006

2007

2008

2009

2010

2011

Historical Performance, Page 1 of 4

2006

2007

2008

2009

2010

2011

Analysts: Brenna Koch, Christoffer Landqvist and Boone Plager

Margins

2006

Gross Profit Margin Operating Profit Margin Net Profit Margin Free Cash Flow Margin

2007

27.4% 12.7% 7.8% 8.8%

Gross Profit Margin

2008

26.4% 12.4% 7.6% 8.5%

26.2% 12.7% 7.9% 9.3%

2009 25.9% 12.1% 7.3% 8.9%

2010

2011

28.1% 14.2% 8.0% 9.5%

Operating Profit Margin

Relative Valuation

27.9% 14.3% 8.6% 10.2%

Price/Earnings

30%

2006

Price/Earnings Price/Book Price/Free Cash Flow Earnings Yield Dividend Yield

2007

16.9 1.3 14.9 5.9% 1.6%

2008

15.7 1.2 14.1 6.4% 1.7%

Price/Free Cash Flow

2009

7.7 0.6 6.6 13.0% 3.5%

17.1 1.2 14.1 5.9% 2.2%

Earnings Yield

20

2010

2011

17.2 1.3 14.6 5.8% 2.1%

14.6 1.2 12.2 6.9% 2.3%

Dividend Yield

14% 12%

25%

15

20% 15%

10% 8%

10

10%

6% 4%

5

5%

2%

0%

0 2006

2007

2008

Liquidity and Debt

2009

2006

Current Ratio Quick Ratio Days Sales Outstanding Inventory Turnover Long-Term Debt to Equity Total Debt to Assets Times Interest Earned

2010

2011

2007

1.24 0.80 58.60 7.18 38.8% 16.7% 10.06

2008

1.26 0.80 58.11 6.86 36.0% 16.7% 10.34

0% 2006

2009

2007

2010

2008

2009

2011

2011

2006

Profitability

1.4

1.2

61

8

60%

1.4

1.0

60

7

50%

0.8

60 59

7

40%

59 58

7

30%

7

20%

7

10%

6

0%

Days Sales Outstanding

Quick Ratio

1.3

0.6 1.3

0.4

1.2 1.2 2007

2008

Net Profit Margin

2009

2010

Net Profit Margin Total Asset Turnover Equity Multiplier Return on Assets Return on Equity Return on Invested Capital

2007

1.29 0.88 58.96 6.98 38.6% 15.3% 9.25

2006

1.38 0.96 59.88 7.46 41.0% 16.5% 12.77

2006

1.24 0.81 58.53 7.09 55.2% 18.2% 10.90

Current Ratio

1.33 0.89 59.96 7.00 44.2% 17.3% 10.65

2010

0.2

58

0.0

57

2011

2006

Free Cash Flow Margin

12%

2007

2008

2009

Total Asset Turnover

2010

8%

6% 4% 2% 0% 2006

2007

2008

2009

UTX Performance Analysis. Datasource: CapitalIQ

2010

2011

2007

2008

2006

2010

2009

7.9% 1.04 3.36 8.2% 27.7% 32.1%

7.3% 0.94 2.61 6.9% 17.9% 27.2%

2007

2011

Historical Performance, Page 2 of 4

2010

2011

2010

2011

8.0% 0.93 2.58 7.5% 19.3% 34.2%

8.6% 0.95 2.65 8.1% 21.5% 32.6%

Long-Term Debt to Equity

2008

ROA

Equity Multiplier

2009

2009

Total Debt to Assets

2011

4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2006

2008

2008

7.6% 1.02 2.45 7.7% 19.0% 31.2%

Inventory Turnover

1.06 1.04 1.02 1.00 0.98 0.96 0.94 0.92 0.90 0.88 0.86

10%

7.8% 1.01 2.60 7.9% 20.6% 33.8%

2007

2009

ROE

2010

2011

ROIC

40% 35% 30% 25% 20% 15% 10% 5% 0% 2006

2007

2008

2009

2010

2011

Analysts: Brenna Koch, Christoffer Landqvist and Boone Plager

Net Fixed Assets

Capital, NOPAT & FCF

Total Invested Capital

Net Oper. Working Capital Net Fixed Assets Total Invested Capital Net Oper. Profit After Tax Free Cash Flow Compared With: NOPAT Per Share Honeywell International Inc. Free Cash Flow Per Share The Boeing Company Return on Invested Capital

$20,000 $15,000 $10,000

$5,000 $0 2006

2007

2008

2009

Net Oper. Profit After Tax

2010

2011

$6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 2008

Cost of Capital Equity Capitalization Total Debt Preferred Stock Value of All Securities Effective Tax Rate Risk-Free Rate Beta Market Risk Premium CAPM Cost of Equity

2009

2011 74,078

2010

Weight 88.0%

50,000 40,000 30,000 20,000 10,000 0 2008

2009

2010

UTX Performance Analysis. Datasource: CapitalIQ

2010

2011

10,560 6,364 16,924 4,608 4,720 5.02 5.14 27.2%

9,963 6,280 16,243 5,548 6,229 6.11 6.86 34.2%

11,804 6,201 18,005 5,867 4,105 6.57 4.60 32.6%

UTX

BA

^SPX

10% 5%

0% -5% -10% -15% -20% -25%

0.4% 0.0%

9.2%

Market Valued-Added 60,000

2007

HON

% Cost Wgt Cost 10.1% 8.8%

4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 2006

2009

10,688 6,348 17,036 5,470 4,165 5.83 4.44 32.1%

2011

10,131 12.0% 4.5% 0 0.0% 0.0% 84,209 100.0% 29.3% Long-Term Growth Rate: 2.01% 2.0% 1.04 Alternative Beta: 7.0% 1.15 10.1% Weighted Average Cost of Capital:

Economic Value-Added

2008

9,435 6,296 15,731 4,906 2,328 5.09 2.42 31.2%

15% 10% 5% 0% -5% -10% -15% -20% -25% -30%

$7,000

2007

2007

7,428 5,725 13,153 4,439 N/A 4.53 N/A 33.8%

S&P 500 Index

UTX

Free Cash Flow

2006

2011

Value Creation Economic Value-Added

2006 3,225

2007 3,454

2008 3,898

2009 3,046

2010 4,049

2011 4,205

Market Valued-Added PV of Future FCFs Value of Non-Oper. Assets Total Intrinsic Firm Value Intrinsic Value of Equity Per Share Intrinsic Value Year-End Stock Price Over (Under) Valuation/Sh % Over (Under) Valued

45,451 53,503 2,546 56,049 48,155 $47.88 $64.18 $16.30 25.4%

54,305 56,113 2,904 59,017 49,917 $50.48 $68.83 $18.35 26.7%

35,190 57,127 4,327 61,454 51,094 $53.42 $38.54 ($14.88) -38.6%

45,009 57,679 4,449 62,128 53,617 $57.73 $71.25 $13.52 19.0%

51,306 56,774 4,083 60,857 50,731 $54.98 $82.86 $27.88 33.6%

52,198 57,909 5,960 63,869 53,738 $59.26 $81.39 $22.13 27.2%

24.5%

22.0%

22.9%

18.0%

24.9%

23.4%

Year-End Stock Price

Over (Under) Valuation/Sh

Per Share Intrinsic Value

% Over (Under) Valued

$40

$90 $80 $70 $60 $50 $40 $30 $20 $10 $0

40% 30% 20% 10% 0% -10% -20% -30% -40% -50%

$30 $20 $10 $0 ($10) ($20) 2006

2007

2008

2009

2010

2011

Historical Performance, Page 3 of 4

2006

2007

2008

2009

2010

2011

Analysts: Brenna Koch, Christoffer Landqvist and Boone Plager

Historical Performance Diffusion Index Revenues, Profits and Dividends Total Revenue EBITDA EPS DPS Gross, Operating and Net Margins Gross Profit Margin Operating Profit Margin Net Profit Margin Free Cash Flow Margin Relative Valuation Price/Earnings Price/Free Cash Flow Earnings Yield Dividend Yield Profitability ROA ROE ROIC

20.0% -1 1 1 1 15.0% 0 0 0 0 15.0% 0 0 0 0 10.0% 0 1 1

Liquidity and Debt Current Ratio Quick Ratio Days Sales Outstanding Inventory Turnover Total Debt/Assets Long-Term Debt/Equity NOPAT, Total Invested Capital, FCF NOPAT Total Invested Capital Free Cash Flow Value Creation Economic Value-Added Market Value-Added Intrinsic Value Score (max = 100%)

21.7%

Weights

UTX Performance Analysis. Datasource: CapitalIQ

10.0% 0 0 0 0 0 0 15.0% 0 0 0 15.0% 0 1 0

100.0%

Historical Performance, Page 4 of 4

Analysts: Brenna Koch, Christoffer Landqvist and Boone Plager