TEXT-S&P revises United Technologies outlook to stable

Overview
-- United Technologies Corp. has completed its acquisition of Goodrich
Corp. and announced agreements to sell certain previously identified
businesses and that it intends to use expected proceeds of more than $3
billion to reduce debt.
-- We believe that the divestiture agreements and UTC's re-affirmed
commitment to debt reduction and curtailed share repurchases support the
increased likelihood of credit measures returning to levels that will be
consistent with our expectations for the 'A' rating, despite slowing revenue
and profit growth arising from the weaker global economic environment.
-- We are affirming our 'A' rating on UTC and revising the outlook to
stable from negative.
-- The stable outlook also reflects our expectation UTC will improve its
balance sheet profile and adjusted funds from operations to total debt will
reach 35%-40% in 2013.

Rating Action
On July 27, 2012, Standard & Poor's Ratings Services affirmed its ratings on
United Technologies Corp. (UTC), including the 'A' corporate credit rating. We
revised our outlook to stable from negative.

Rationale
The affirmation and outlook revision to stable reflect the reduced likelihood
of a downgrade following the company's entry into definitive agreements to
sell its Hamilton Sundstrand industrial product businesses for $3.46 billion
and its Rocketdyne businesses for $550 million. UTC expects to complete these
transactions in late 2012 and early 2013, respectively. The company yesterday
closed its $18.4 billion acquisition of Goodrich Corp. We view UTC's business
risk profile as "excellent" and its financial profile as "intermediate."

The slowing global economy is curtailing revenue and profit growth (organic
revenues were up just 1% in the second quarter), and uncertain macroeconomic
conditions are tempering operating prospects for 2013. However, we believe
that agreed divestitures, a re-affirmed commitment to debt reduction,
effective cost control to mitigate the effects of the weaker environment, and
consistent cash flow generation (of more than $4 billion after dividends) will
lead to pro forma financial leverage improving below 2.5x by year end and
toward 2.0x during 2013. We expect funds from operation (FFO) to total debt
will be 35%-40%. These metrics would be consistent with our expectations for
the 'A' rating.

UTC's excellent business risk profile reflects the company's substantial
operating and global diversity, strong positions in its key markets, and its
portfolio of technologically advanced products--all characteristics that the
acquisition of Goodrich Corp. has recently strengthened. UTC also has a good
track record of operational execution, in our view. Although the company's
markets will remain cyclical and competitive, UTC's portfolio is well-balanced
among businesses tied to different stages of the economic cycle. The company
services a large installed base of equipment that should continue to generate
high-margin aftermarket revenues, contributing to stability.

We believe the acquisition of Goodrich has enhanced UTC's overall business
profile by consolidating and expanding UTC's Hamilton Sundstrand subsidiary
market position in various aerospace systems. Goodrich will be combined with
Hamilton Sundstrand to create the new UTC Aerospace Systems business unit.
Together with Pratt & Whitney and Sikorsky, commercial aerospace and
defense-related business will account for about 30% and 20%, respectively, of
UTC's total revenues. UTC will derive the remaining 50% of revenues from its
building technologies businesses, Otis and UTC Climate Control & Security.

Although we consider UTC's businesses to have favorable overall long-term
growth prospects, performance will remain correlated with global GDP trends
and business conditions in the construction, aerospace, and defense markets.
We expect UTC's operating performance to remain solid and fairly steady and
for the company to have EBITDA margins of about 15% and return on capital of
about 20%, with some modest variability over the cycle. These measures compare
well both with most peers in specific segments in which UTC competes (for
example, Rolls-Royce PLC and Ingersoll-Rand PLC) and with those of diversified industrial peers such as
Honeywell International Inc. (A/Stable/A-1), General Electric Co.
(AA+/Stable/A-1+), and Siemens AG (A+/Positive/A-1+). We expect the addition
of Goodrich will enhance UTC's overall profitability and further support its
cash flow generation.

With slower global economic growth, we expect overall revenue growth at a low-
to mid-single-digit rate over the next two to three years, reflecting
double-digit growth in demand for original equipment (OE) for the commercial
aerospace businesses, modestly negative revenue performance in the
defense-related businesses, and global GDP-like growth for the building
technologies businesses and the aftermarket aerospace businesses. In addition,
we expect that the company will retain steady profit margins, reflecting
continued focus on productivity improvement across the portfolio to offset
cost inflation and competitive pressures. Initial integration costs could
partly offset the higher profitability of the Goodrich business and benefits
from overall higher business volumes.

We view UTC's financial risk profile as intermediate. To fund the Goodrich
acquisition, the company increased debt significantly. We estimate that total
funded debt at closing was about $27 billion, (including $2.3 billion of
Goodrich debt and about $3 billion of commercial paper, which we expect will
be repaid with repatriated excess cash in the next six months, and excluding
mandatory convertible notes) with an additional $5 billion of debt adjustment
for pension and lease obligations. We assume funded debt will fall to less
than $22 billion by year-end 2012 with proceeds from divestitures and internal
cash flows, which should translate in pro forma debt to EBITDA below 2.5x. We
also assume UTC will return to more active share repurchases in 2013 but that
these--and acquisition spending--will be calibrated to cash flow generation
and allow for up to $2 billion in additional debt reduction in 2013, leading
to further leverage and cash flow coverage improvement.

Liquidity
Our short-term rating on UTC is 'A-1'. We expect the company will maintain
"strong" liquidity. In addition to commercial paper borrowings, UTC has about
$3 billion of term debt maturing in the next two years. Although this is
substantial, the company's internal and external liquidity sources are
significant. Because the company has announced definitive agreements with
respect to certain divestitures, we have included expected net proceeds in our
liquidity sources.

We have assumed the following liquidity sources:
-- About $6 billion of annual free cash flow;
-- Cash balances of about $4.5 billion after the closing of the
International Aero Engine transaction;
-- Expected net divestiture proceeds of about $3.5 billion; and
-- Full availability of $4 billion in committed credit facilities that
expire in 2016. The facilities are available as backup for UTC's commercial
paper program and do not include maintenance financial covenants.

In addition, we believe the company has demonstrated good access to the
capital markets to roll over debt maturities.

Primary uses of liquidity include:
-- Debt maturities, including outstanding commercial paper of about $3
billion after the closing of Goodrich, a $2 billion term loan due in December
2012, and $1 billion notes due in December 2013;
-- Annual dividends of $1.7 billion; and
-- Acquisitions and share buybacks, which we expect the company to resume
at a measured pace in 2013, although these are more discretionary and would
likely be curtailed to preserve liquidity if needed.

Outlook
The outlook is stable. We expect the company will use divestiture proceeds and
its cash flow generation to reduce debt and restore its balance sheet profile,
such that credit measures will, by the end of 2013, be in line with our
expectations for the 'A' rating. These would include, among others, adjusted
FFO to total debt of 35% to 40%.

We could consider a lower rating if UTC departs from its debt reduction
commitments, or engages in acquisitions or shareholder initiatives that
meaningfully delay or compromise the improvement we expect. Although we
believe the rating can accommodate a weaker economy, a global recession that
would result in a double-digit EBITDA decline--and cause FFO to debt to
stagnate around 30%--with limited prospect for subsequent improvements could
also lead to a downgrade.

We could raise the rating if FFO to debt improves to more than 45% for a
sustained period as a result of positive operating and cash flow performance,
and if management commits to pursuing financial policies that are more
conservative than recently demonstrated, including in its financing of
acquisitions.

Related Criteria And Research
-- Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011
-- Business Risk/Financial Risk Matrix Expanded, May 27, 2009
-- Hybrid Capital Handbook: September 2008 Edition, Sept. 15, 2008
-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008

Ratings List
Ratings Affirmed; Outlook Action
To From
United Technologies Corp.
Corporate Credit Rating A/Stable/A-1 A/Negative/A-1

Ratings Affirmed

United Technologies Corp.
Senior Unsecured A
Junior Subordinated BBB+
Commercial Paper A-1