United Technologies 4Q16 Earnings Call Notes

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United Technologies’ (UTX) CEO Greg Hayes Q4 2016 Results

Tax reform is biggest item we’re focused on this year

“Okay, thanks Carroll. So overall 2016 no drama, at the end of the day. Lot of challenges throughout the year but good execution by the entire team as a result we were able to meet all the commitments that we laid out for the year, so that’s 2016. Let’s focus now on 2017 for just a second. Lot of challenges ahead of us. I think all of us recognized we’ve got a new administration in Washington which has an agenda to be friendly to business and I think, we’re anxious to see how all of that will play out certainly tax reform is the biggest single item that we’re focused on this year.”

FX continues to be an issue

“On top of that, however there is always the issue of FX. We recall we’ve pegged the Euro at 1.05 to the $1, we’re little bit better than that today. I think it’s 107 but FX remains a watch item for the year especially with the impacts of tax reform potentially impacting the exchange rates. We are also of course closely watching the economic environments on both China and Europe our second and third largest markets. Also of course what happens with BREXIT and also the elections in France and Germany will create some uncertainty as we move through the year.”

Looks like we’re going to be following the Brady blueprint for tax reform

“Sure, Lucy. Well first of all, we obviously have been following the Trump administration closely in terms of what you’re talking about on tax reform and it looks like we’re going to be following the Chairman Brady blueprint out of Ways of Means which would lower the top rate to somewhere around 20% eliminate the deductibility of interest but also provide for immediate expensing of capital, also provide for a territorial system which is really good news for us because as you know we’ve got about $6 billion of cash sitting overseas that we can’t bring back to the US, very cost effectively, so we look at this as a huge opportunity to again drive growth in the business and growth here in the US by being able to bring cash back. There is still some question mark around border adjustability and we are net exporter, so if that were to remain in place probably a positive for us, but again there is a lot of moving pieces in tax reform and we will be actively involved in the debate. Again the good news is, if it does happen this year it’s going to be a net positive for the US economy.”

Expect tax reform to be a net positive

“Well I would like to say it’s going to be a net positive but as you know Lucy, the devil is always in the detail around taxes. Our reflective tax rate is about 28%, if they drop the rate to 20% or even 15% obviously that would be helpful. Lose the deductibility on interest which you know we’ve got about $1 billion of interest expense a year so that would hurt. Again it will all be what happens in the transition rules too and how do you transition in the lower rate, how do you transition in the border adjustability. But net-net I think it’s positive even if our effective tax rate doesn’t drop all the way down to 20% just having access to foreign in cash to territorial system is a very, very positive net for the US economy.”