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United Technologies (NYSE:UTX)

Q3 2012 Earnings Call

October 23, 2012 8:00 am ET

Executives

Gregory J. Hayes - Chief Financial Officer and Senior Vice President

Jesus Malave

Analysts

Joseph B. Nadol - JP Morgan Chase & Co, Research Division

Jeffrey T. Sprague - Vertical Research Partners Inc.

Carter Copeland - Barclays Capital, Research Division

Douglas S. Harned - Sanford C. Bernstein & Co., LLC., Research Division

Howard A. Rubel - Jefferies & Company, Inc., Research Division

Heidi Rolande Wood - Morgan Stanley, Research Division

Myles A. Walton - Deutsche Bank AG, Research Division

Cai Von Rumohr - Cowen and Company, LLC, Research Division

Ronald J. Epstein - BofA Merrill Lynch, Research Division

George Shapiro

Robert Stallard - RBC Capital Markets, LLC, Research Division

Shannon O'Callaghan - Nomura Securities Co. Ltd., Research Division

Julian Mitchell - Crédit Suisse AG, Research Division

Samuel J. Pearlstein - Wells Fargo Securities, LLC, Research Division

Operator

Good morning, and welcome to the United Technologies Third Quarter Conference Call. On the call today are Greg Hayes, Senior Vice President and Chief Financial Officer; and Jay Malave, Director, Investor Relations.

This call is being carried live on the Internet, and there is a presentation available to download from UTC's website at www.utc.com.

Please note the company will speak to results from continuing operations except where otherwise noted. They will also speak to segment results adjusted for restructuring and onetime items as they usually do.

The company also reminds listeners that the earnings and cash flow expectations and any other forward-looking statements provided in this call are subject to risks and uncertainties.

UTC's SEC filings, including its 10-Q and 10-K reports, provide details on important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements. [Operator Instructions] Please go ahead, Mr. Hayes.

Gregory J. Hayes

Okay, thank you, Stephanie. Good morning, everyone. You saw on the press release this morning, third quarter earnings per share of $1.37 is down 4% versus 2011. The Goodrich acquisition, previously anticipated to be about $0.10 diluted in the quarter, did not have an impact on EPS due to lower onetime deal-related costs, lower amortization and better underlying performance of the business. IAE also had a solid performance in the quarter and contributed $0.03 of EPS.

Restructuring charges were also lower than we expected due to a shift in the timing from the third to the fourth quarter and were completely offset by onetime gains. There was also a $0.04 benefit versus prior year on the tax line in the third quarter, which we talked to you about in our September investor meeting. The year-over-year benefit from restructuring and taxes nearly offset the $0.07 adverse impact from foreign exchange and a 2% decline in organic sales, driven mainly by the slowing global economy and a decline in U.S. defense spending.

Organic sales declined 12% at Sikorsky and were down 1% and 2%, respectively, at Otis and Climate, Controls & Security. Organic sales at Aerospace Systems were up 6% but as you heard from Dave Hess, we've yet to see a recovery in Pratt's large commercial engine aftermarket business. Organically, Pratt & Whitney's large spares sales declined 25% in the quarter, and we now expect the full year to be down high teens.

For UTC, we now expect full year sales of approximately $58 billion at the low end of our previous guidance range, driven by lower organic sales and partially offset by favorable FX compared to our last forecast.

In spite of the top line softening, we continue to expect earnings per share of $5.25 to $5.35 for 2012. With a solid start at Goodrich, better visibility on the amortization and lower-than-expected deal costs, we estimate that Goodrich dilution, excluding the impact of share repurchase, will be approximately $0.10 for 2012 as opposed to our prior expectation of $0.20. That's about $125 million better. And we expect a $50 million pretax benefit from our full year tax rate of 29%. That's 50 basis points lower than our previous guidance.

Against an uncertain macroeconomic environment headed into 2013, we are preemptively increasing restructuring by $100 million in the fourth quarter. We now plan to invest $600 million this year, up from our previous estimate of $500 million. And for the full year, we now expect restructuring to be equal to onetime gains. And as spare order rates have remained depressed at Pratt & Whitney, we're also lowering Pratt's operating profit estimate by $75 million for the year.

So let me sum it all up. There's $175 million of upside; that's Goodrich, $125 million; and the tax rate of $50 million, offset by $100 million of additional restructuring and $75 million of headwind from Pratt commercial spares. There's also some favorability from the weaker dollar versus our previous FX guidance and this should help offset potentially softer top line at some of the commercial units.

Okay, now on to Slide 2, the third quarter. Total sales were up 6%, with acquisitions net of divestitures contributing 11 points of growth. The net acquisition benefit more than offset 3 points of unfavorable FX and 2 points of organic decline. The drop in organic sales is just a reflection of the global economic environment. North America is still struggling to gain traction, a slight recession in Europe and slowing growth in emerging markets.

At the commercial businesses, North American organic sales were flat in the quarter and are only up 1% year-to-date. In Europe, in the commercial businesses, sales are actually down 3% while sales in the BRIC countries grew 2%. That was driven by double-digit growth in Russia and India.

In Aerospace, robust commercial OEM organic growth was more than offset by weakness in the commercial aftermarket and military businesses. Commercial OEM sales were up 14%, led by double-digit growth in Aerospace Systems and Sikorsky. Commercial aftermarket, however, was down 14%, with the mid-teens decline at Pratt & Whitney more than offsetting mid-single digit growth at Aerospace Systems and 20% growth at Sikorsky. Sikorsky continues to feel the impact of reduced DOD spending with military sales down nearly 20% while Pratt & Whitney saw military sales up 20% on the back of F119 spare engine deliveries, which will wrap up later this year.

Excluding Goodrich and the incremental IAE shares, segment operating margin was 16.1%, so actually up 10 basis points versus the prior year. Our focus on cost reduction and productivity more than offset 80 basis points of headwind for pension, E&D and FX.

Free cash flow, very good in the quarter, 105% and that included a $200 million contribution to our domestic pension plan. We've taken the tough actions on our pension plan and we're well positioned with funding ratio of 84% even with the impact of Goodrich at historically low discount rates. And we have no ERISA funding requirements until at least 2015.

Okay, moving now to Slide 3, looking at order trends. Similar to sales, order trends in the quarter were generally in line with the global economy. CCS' North American Residential HVAC orders were up 3%. Otis new equipment orders were up 11% at constant currency, including strength in North America. China new equipment orders contracted 2% at constant currency in the quarter, following a 16% decline in the first half as we steadily regain momentum. I'd also note that the Q3 2% drop in orders is off a very tough compare with Q3 of last year when orders were up 31%.

Across the Aerospace businesses, we continue to see the impact of cash conservation at the airlines. Pratt & Whitney's large commercial spare orders were up 14% in the quarter, including the additional share of IAE. Excluding the incremental share, Pratt's orders were actually down 21% due to weakness, primarily in the wide-body fleet. Legacy Hamilton Sundstrand commercial spare orders were down 6%. So despite some weakness in our end markets, we continue to leverage our global scale and product innovation to strengthen the position of our industry-leading franchises.

Backlog for our base businesses increased by $3 billion so far in 2012. And with the addition of Goodrich and IAE, total backlog now stands at $81 billion.

Let me stop it there and turn over to Jay to take you through the business units, then I'll come back and wrap up '12 and talk a little bit about '13.

Jesus Malave

Thanks, Greg. Turning to Page 4. At Otis, operating profit was down 10% on a 6% decline in sales. Foreign currency translation reduced sales and profit by 6 points. Operating margin was 22.7%, 1 point lower than prior year. At constant currency, new equipment sales were down low-single digit with mid-single digit declines in Europe and China, partially offset by mid-single digit growth in the Americas and the rest of Asia. Service was up slightly with higher contractual maintenance more than offsetting a slight decline in repair. The operating profit decline was driven by pricing pressure and lower volume in Europe and the absence of favorable real estate gains in last year's third quarter, which more than offset the benefit of cost reduction actions this quarter.

At constant currency, new equipment orders were up 11% with over 20% growth in North America and in Europe, which benefited from a major contract award in the U.K. Although orders in China were down 2% in the quarter, the rate of decline improved from the previous 2 quarters, and Otis had solid order growth in September.

Guidance for the full year remains unchanged with profits expected to be down $175 million to $225 million on a mid-single digit sales decline.

On Slide 5. UTC Climate, Controls and Security once again saw a sharp increase in margin, up 270 basis points from prior year at 15.4% as profits increased 5% on 13% lower sales. Organic sales were down 2% as many of our end markets have not rebounded as we had previously expected. While there were pockets of growth such as the Americas Residential HVAC business and China, each up mid-single digit, the balance of the business generally saw low-single digit declines. Transicold was down high teens organically, led by a 60% decline in container sales. Despite the lack of organic sales growth, CCS grew earnings 5% or 8% at constant currency. Profit growth was driven by restructuring and productivity, including savings from the consolidation of Carrier and Fire & Security and favorable net commodity costs. Global commercial HVAC orders were flat with growth in North America offset by a decline in Asia. Transicold orders were down about 25% with container down about 90%, partially offset by over 40% growth in North America truck/trailer.

Orders for global Fire & Security products were up low-single digit. Given current market softness, fourth quarter organic growth could be softer than previously anticipated. The CCS team continues to take preemptive action to offset the impact of lower organic sales, but full year earnings guidance is under pressure. Margin expansion for the year, however, will still be strong given the benefits from productivity, cost reduction and portfolio transformation.

Turning to Aerospace on Slide 6. At Pratt & Whitney, sales were up 16% in the third quarter, driven by the consolidation of IAE and the auxiliary power business transferred from Hamilton Sundstrand. Organically, sales were down 1% year-over-year, as higher military and Power Systems sales were more than offset by lower commercial aftermarket. Lower commercial spares -- large commercial spare sales were down 25% year-over-year. On a reported basis, large commercial spare sales were up 9%, including consolidated IAE sales. Operating profit in the quarter was down 10%. The impact of lower organic sales, including large commercial spares, higher E&D and pension costs, as well as unfavorable currency at Pratt Canada were partially offset by the benefits from the IAE consolidation, restructuring savings and a supplier settlement of about $0.04 per share.

For the full year, we now expect Pratt & Whitney operating profit to be down $175 million to $200 million and sales up mid-single digit.

On Page 7, our new segment, UTC Aerospace Systems, including Hamilton Sundstrand and 2 months of Goodrich, posted sales in the quarter of $2.7 billion with operating profit of $306 million. Organic sales in the quarter were up 6% with OEM sales up high-single digit, commercial aftermarket up mid-single digit and military aftermarket down 10%. Total aftermarket trends at Goodrich business units were slightly below legacy Hamilton Sundstrand. As Greg mentioned, Goodrich had better-than-expected results in the quarter. Organic operating profit at Aerospace Systems was down 5% after a strong first half, which was up 16%. The benefit from higher volume was more than offset by higher E&D and pension costs and lower license fees. With the benefit of approximately $50 million from lower-than-expected amortization, we now expect UTC Aerospace Systems' operating profit for the full year to be up $275 million to $300 million on approximately $4 billion of higher sales.

Turning to Sikorsky on Slide 8. Operating profit decreased 6% on 6% lower sales. During the quarter, Sikorsky shipped a total of 62 aircraft. 54 aircraft were based on military platforms and 8 commercial. Lower sales were driven by fewer international military aircraft deliveries. On profit, the impact from lower international military aircraft and transition to the new multiyear contract more than offset favorable commercial aircraft mix, lower E&D spend and restructuring benefits across the enterprise.

Of note, Sikorsky has received FAA certification for the S-76D. Deliveries will commence in the fourth quarter, and Sikorsky already has a backlog of over $400 million for this aircraft.

For the full year, we continue to expect profit growth of $50 million to $75 million, and mid-single digit sales decline.

With that, let me turn it over to Greg for wrap-up.

Gregory J. Hayes

Okay, thanks, Jay. Businesses are clearly seeing softening on the top line from these tough end market conditions, but we remain focused on program execution and cost reduction, the things that we can control. At CCS, we continue to make very good progress on the integration of legacy Carrier and F&S businesses. We're consolidating locations and back office functions and streamlining customer service processes. We've saved over $50 million year-to-date without an impact on the customer, and CCS continues to stabilize the U.K. Fire & Security business, which grew profits for the second straight quarter. Otis China is also making progress in regaining its leadership position. On the Aerospace side, the Goodrich integration is off to a very good start, and as you heard from Alain Bellemare in September, we are realizing synergy sooner than expected and there will be opportunities for more. Pratt continues to win orders for the GTF and with an additional 546 firm and option orders in the quarter, Pratt now has a backlog of nearly 3,000 engines. And Sikorsky, as you just heard from Jay, achieved a major milestone this month, certifying the S-76D with deliveries starting here in the fourth quarter.

The end market challenges are putting pressure on the business unit expectations for 2012, but with lower dilution from Goodrich, we're confident in our guidance range of $5.25 to $5.35. We continue to negotiate towards a win-win solution with the Canadian government for the Sikorsky Maritime Helicopter and we expect to provide you with an update at our December meeting. And with strong cash generation you come to expect from us, we now anticipate free cash flow will exceed net income for the year.

Okay. Slide 10. Let's talk a little bit about 2013. Various [ph] framework for next year. This is the same that we laid out in September with the exception of the Goodrich amortization. With about $100 million of lower full year amortization, we now expect nearly $0.60 of accretion next year from Goodrich compared with the $0.10 of dilution in 2012, and we continue to expect an incremental $0.05 benefit from a full year of IAE.

Turning to the base businesses. We've got great products and we're well positioned in the right markets for long-term growth. In addition to continuing growth from emerging markets, we should see solid growth in 2013 in the commercial aerospace OEM and aftermarket, in the U.S. residential HVAC business and in the U.S. commercial construction businesses.

We expect Europe to be essentially flat next year, and we expect the declines in the U.S. Defense spending to continue even without the impact of a potential sequestration.

Bottom line is that we're confident in our cost reduction and program execution and we have significant operating leverage should we see better-than-expected end market conditions.

Of course, we still face some other significant headwinds in 2013. As you heard from Mick Maurer back in September, Sikorsky expects lower sales next year and 100 to 200 basis points of margin headwind before CMHP. Now that's primarily due to the new Multi-Year 8 and the lower DOD spending that we've been talking about. And of course, we'll have about $300 million of pension headwind at the current discount rate of 3.8%. We won't actually set the rate, of course, until year end, but you know the math. Every 10 basis points change in the rate costs us $28 billion.

To sum it up. We've taken proactive, aggressive restructuring actions this year. Savings from these actions, combined with lower engineering and development, will drive earnings growth in 4 out of the 5 business units before pension and we will see about $0.75 of accretion from Goodrich and IAE year-over-year. We feel well calibrated for this year. The large deals are done, and we're focused on integration and execution. With our transformational deals, the new organizational structure, global industry-leading franchises and sustained structural cost reduction, we're well positioned for long-term earnings growth and strong cash generation. With that, let's open up the call for questions. Stephanie?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Joe Nadol from JPMorgan.

Joseph B. Nadol - JP Morgan Chase & Co, Research Division

Let's start out over at Pratt. And Greg, I'm just wondering you had your meeting September 27, obviously very late in the quarter, and you're lowering here by $75 million, I think, all due to spares. So is it really -- I mean, can we infer from that, that really 2 weeks at the end of the quarter was responsible for the change in guidance, or is it maybe just looking more to the fourth quarter? And also at Pratt, if you could quantify that supplier payment?

Gregory J. Hayes

Yes, so -- yes, I think Dave laid it out pretty well back in September. He said that we are not seeing the order rates to actually support the spares, only down 10%. So I think Dave was pretty forthright with everybody in saying that we're not seeing it. And clearly, in the last couple of weeks of September we did not see any recovery in spares and we haven't seen it as we sit here today. So the takedown is all spares. I think, again, it's unfortunate to take down the guidance late in the year, but it is what it is on commercial spares. I think the good news as we dissect the data, the narrow-body platforms, the V2500s and the 757s, are actually -- have been recovering for a couple of quarters and where we see the weaknesses is primarily on the wide-body fleet and also in Europe. So again, not a surprise, I think. But it's clearly a tough market right now. As far as the supplier payment, that was about $45 million, $46 million, I think. It's actually a settlement. There was a legacy claim between Pratt and Goodrich, which relates to the -- from the sale on the CSeries. This had been in arbitration. We had an independent arbiter come in and we settled the claim and that was actually recorded on Goodrich's balance sheet as of the close, and Pratt recognized the benefit in this quarter.

Joseph B. Nadol - JP Morgan Chase & Co, Research Division

Okay. And then secondly, on Goodrich, you mentioned that Goodrich earnings were better than expected. Is that due to less amortization or is that real underlying performance? And what was -- I don't know if I missed it, but what was the organic aftermarket growth at Goodrich during the quarter?

Jesus Malave

Joe, organic aftermarket for sales was slightly below HS. HS had about mid-single digit growth in commercial aftermarket and Goodrich is a little bit below that. As far as military aftermarket, HS was down around 10% and Goodrich was down a little bit below that, close to mid-teens. And while we have the chance, I just want to correct the statement that I made before related to Sikorsky on Slide 8. I just want to clarify that operating profit decreased 6% on 12% lower sales.

Gregory J. Hayes

Regarding the first part of your question, as far as the underlying business, Goodrich did do a little bit better than what we had expected. Again, there it was primarily Aero structures at the end of the quarter. Things actually looked better. But the amortization is clearly better. The big piece in the quarter that was really these transaction-related costs, which were better than what we had expected. We took, I'd say, a very conservative view as we were looking at all of these costs and we had expected to expense some things that ended up on Goodrich's balance sheet, so that helped by about $100 million and then you had better performance and a little bit better amortization.

Operator

Our next question comes from Jeff Sprague from Vertical Research Partners.

Jeffrey T. Sprague - Vertical Research Partners Inc.

I'm just wondering if you could elaborate a little bit on the Otis order strength in North America. It sounds like Europe may be driven by the big metro project. Maybe there's something else there, elaborate on that also. But what was going on in North America? Is it more than a one-off?

Gregory J. Hayes

No, I think it's a trend that we have seen as a recovery in North America. And we've seen the ABI or Architectural Billing Index be above 50 for the last couple of months here and actually seeing good traction in quarters there. We got, of course, some new product introductions also that's helping on the -- in North America. It's attacking some of the hydro [ph] markets. So, yes, I think it's product introduction and a recovery there. So that actually feels pretty good. Europe, well, Europe is Europe. We did get good traction out of the Crossrail project. I think that's over 107 escalators for that London Crossrail. But the rest of Europe is not a great story. We saw down markets in France and Spain and Italy, a little bit better in Germany. But on the whole, a pretty tough Europe market outside of the U.K.

Jeffrey T. Sprague - Vertical Research Partners Inc.

And then when you look at China down 2%, are you in position given kind of the comps and the trajectory to actually look positive on orders in Q4, or when do you see that happening, if you can, in fact, crystallize a view?

Gregory J. Hayes

Yes, my crystal ball is not terribly clear, but I would tell you we should be seeing order growth resume in Q4. As I said it earlier, orders were down 2% but that was off of a very tough compare last year where orders were up 31% at constant currency. So we are seeing a recovery. Last year, you'll recall China only grew 7% in the fourth quarter. So again, I think the trajectory that we saw in the -- coming out of the third quarter should continue into the fourth quarter. I think Pedro and team feel very confident we're getting share back and they're on track for a full recovery there.

Jeffrey T. Sprague - Vertical Research Partners Inc.

And just can you give us a little more granularity on China? Is it high-rise resi? Is it bigger projects, central country? Just any other detail on what's going on would be helpful.

Gregory J. Hayes

Yes, I think it's actually really across the business we are seeing a recovery there. The commercial HVAC business remains soft there. I think some of the slowdowns that we've seen are actually playing out on the CCS side. On the flip side, residential's getting a little bit better. We saw that at CCS on their GST business, getting us some traction on order rates. For Otis, again, I think the property market has started to stabilize and come back a little bit. Still seeing good growth in the Tier 2 and 3 cities. Tier 1 is still pretty challenged. But again, that's not a surprise. It's a very uneven recovery in China.

Jeffrey T. Sprague - Vertical Research Partners Inc.

Right. And just finally, just flipping over to Carrier. It looks like your resi business underperformed from what I can see from a couple others who reported in the quarter. Can you just give us some color on how you thought you did relative to the broader market and what's going on in the channels?

Gregory J. Hayes

Yes, underperformance is a relative term, Jeff. I think, and again, we saw -- I think, one of the competitors reported the other day that they had what looked like kind of mid-teens growth in the resi business. But I think that was off of a very tough -- or very easy compare from 2011. Carrier thinks they have held share hear this year. They've done pretty well. Channel inventories are very, very light. I think nobody wants to get stuck with inventory this time of year given all the uncertainty and the global economic situation and the fiscal cliff coming up, so channel inventories are probably at some of the lowest levels we've seen.

Operator

Our next question comes from Carter Copeland from Barclays.

Carter Copeland - Barclays Capital, Research Division

Just one quick one -- actually a couple of quick ones. On the transport refrigeration on the container side, you said sort of down 90%, which is sort of where you were at your Analyst Meeting. Did you see any incremental order activity besides that little blip you called out in the meeting, or are we still kind of bouncing along the bottom in that business?

Gregory J. Hayes

Well, actually, bouncing along the bottom is a relative term. Yes, I think we saw a little bit of good news post the Investor Meeting and we've seen some good news here in the fourth quarter. We're almost 50% booked in the fourth quarter. So orders, and again they're very lumpy as we know in this business, but yes, I think it's -- it looks achievable in terms of the forecast we've got out there right now for this year.

Carter Copeland - Barclays Capital, Research Division

Okay. And on the spare side, I wondered if you might elaborate on a couple of other points. In terms of the wide-bodies, what you're seeing in terms of shop visits kind of year-over-year and also what you're seeing at Pratt Canada.

Gregory J. Hayes

Yes, so shop visits are a little soft on the wide-body fleet, and this is again the PW4000 fleet. I think the biggest impact is on the 747 fleet and probably a lesser impact on the 777 and A330 fleet out there. But clearly, we've seen lower shop visits. But I think more importantly, the average cost per shop is down substantially, like 25% down. So that's just gotten worse and not better from what we had seen earlier this year. We're getting good traction, as I said, on the narrow-body fleet. The Vs are up very strong, the spares in the quarter and even the 2000s had a nice recovery for the last couple of quarters.

Jesus Malave

Pratt Canada spares were down low-single digit in the quarter, Carter.

Carter Copeland - Barclays Capital, Research Division

Okay, great. And one final one. You said Europe flat for next year is your kind of base case assumption. Does that assume anything different in terms of FX for next year than what's baked into this year's guidance?

Gregory J. Hayes

No, I think again -- FX, I think, is around $1.30 today. We've actually put our plan together to $1.25 kind of euro right now as we're looking at guidance for the last couple of months. So FX could actually be a bit of a tailwind next year versus what we've seen this year. I think, we're going to average $1.26 or something year-to-date, I think so. It could actually be a little bit of tailwind out of FX but who the heck knows?

Operator

Our next question comes from Doug Harned from Sanford Bernstein.

Douglas S. Harned - Sanford C. Bernstein & Co., LLC., Research Division

On CC&S, you had good margins there for the quarter. Could you talk about where -- what the puts and takes were with respect to margin? You didn't change guidance for the year and I was also wondering if the margins, were those above your expectations but being offset by weakness in the top line for the year?

Gregory J. Hayes

I guess, that's exactly -- I mean, margins were very strong. We got about 1/3 of that came from the portfolio transformation, but the rest of it really came from cost reduction -- product cost reduction and restructuring and cost takeout in the base business. So I think again, it's -- it looks like the margins for this year will be at least 14% or so. So well on their way to the 15% goal that we've got out there.

Douglas S. Harned - Sanford C. Bernstein & Co., LLC., Research Division

And if you look across the business, the Fire & Security businesses and the individual parts within Carrier, are there some that you would point to where you saw more improvement than others?

Jesus Malave

In the field, Doug, both Europe and Asia were relatively flat from a sales perspective. Orders for products were actually up low-single digit this quarter.

Gregory J. Hayes

I think what you're seeing, though, Doug, is really broad-based cost reduction. I think, again, the structural cost takeout that we talked about is helping, but we're also seeing good news out of the factories. We're seeing good cost reduction out of the factories and that's both legacy F&S, as well as legacy Carrier businesses. I think our margins are holding up quite well on the commercial side, as well as on the resi side here in the U.S. Obviously, margin's under a little pressure at Transicold with volumes down as much as they are.

Douglas S. Harned - Sanford C. Bernstein & Co., LLC., Research Division

And then on the restructuring, the increase in restructuring cost for the year, can you talk about where that's focused, Aero versus the commercial businesses?

Gregory J. Hayes

We've got a lot of programs lined up here. I think the biggest piece you'll probably see is going to be related to what we see is kind of this decline in Defense spending, so Sikorsky will have a good share of that. Pratt will pick up a big piece, as well as UTAS or our Aerospace Systems business. But again, I would tell you, there is restructuring appetite across all the businesses. Otis continues to find ways to take costs out. CCS, again, they're just starting on their journey from the structural cost reduction. So you will see additional restructuring from each of the businesses. And I would tell you when we started the year, I didn't see the appetite for $300 million, let alone $600 million for restructuring. And today, there's appetite for more than $600 million. So, again, I think that's -- just tells you how focused these guys are on cost reduction.

Operator

Our next question comes from Howard Rubel from Jefferies.

Howard A. Rubel - Jefferies & Company, Inc., Research Division

Greg, I realize how challenged it's been to forecast earnings and still stay within the range. And so the harder question is could you help us a little bit with cash and sort of give us a walk as to where you are with the debt paydown plans, please?

Gregory J. Hayes

Sure. Yes, so cash actually came in about what we expected. We got about 105% of net income. We're at 100% of net income year-to-date. The cash machine continues to chug right along. And I think for the year, we have solid visibility. We will nicely exceed net income and cash flow for the year. As far as the debt paydown, I think we're still on track. We expect to close on the Hamilton industrial businesses kind of early December time frame. We got a $2 billion term loan that we'll pay down. We've got about $4 billion of commercial paper, and then we'll pay down probably another $1 billion of other debt this year, so -- and most of that -- the rest of that cash will come from overseas. So, again, we've got a line of sight to, I'll say, about $7 billion of debt paydown by the end of the year. And something might slip into the first quarter, but I think clearly line of sight for the $7 billion.

Howard A. Rubel - Jefferies & Company, Inc., Research Division

And related to that, I mean, looks like you did -- I mean, you had a terrific number on, well, you haven't closed yet on electrical products, but based on sort of the filing, it would seem to me that you're going to more than exceed your forecast on some of the other divestitures. Is that a fair way to think about it?

Gregory J. Hayes

Yes, I think the market for these businesses is much stronger than was originally anticipated. And it's not -- I guess it shouldn't be surprising because they're really good franchises and franchises like the EPS business -- Electric Power Business at Goodrich don't come on the market very often. So we had a very robust bidding process for that business, as well as for the Engine and Controls business, that's located here in West Hartford. That bidding process is also robust. It's moving right along. So I'd say we'll be at the high end of our expectation range for both of those businesses. But again, good solid businesses, great products and technology. I hate to lose them, but, again, part of the regulatory process.

Howard A. Rubel - Jefferies & Company, Inc., Research Division

And then related to corporate overhead, I mean, it looks as if you've been able to put together United Technologies and Goodrich and not really increase the overhead a whole heck of a lot. Have I -- are there some other gains or anything in there, or what should we think about that in terms of going forward?

Gregory J. Hayes

Oh yes, clearly, as we put the Goodrich business together with Hamilton, we have seen or will see about $50 million of cost synergies this year. A big piece of that is public company costs. So I think Alain, as you would expect, is focused on a lean organization. We're not having a lot of overhead. And you're going to see that, I think, play out next year, as well as we continue to see solid cost reduction out of the Goodrich business.

Howard A. Rubel - Jefferies & Company, Inc., Research Division

And then finally, you talked about avoiding a lot of transaction costs in the quarter and that was pretty helpful and then you're talking about increasing restructuring. Did those 2 items sort of in the end offset each other?

Gregory J. Hayes

Yes, I think if you think about it, we picked up about $0.10 on the Goodrich dilution this year and we picked up about $0.04 on the tax rate. You can offset that. We lost about $0.08 on restructuring, and we lost about $0.06 on the Pratt guidance reduction, so $75 million. So $14 million good, $14 million bad. It just kind of offset just naturally, if you will.

Operator

Our next question comes from Heidi Wood from Morgan Stanley.

Heidi Rolande Wood - Morgan Stanley, Research Division

I want to go back to CC&S for a minute, Greg, and again put a little finer point on it. It looks like you were saying to an earlier question that you anticipate maintaining profitability going forward, but then you have some of the more profitable businesses, which have been rather weak. So wouldn't that intimate that you could do, even on potentially very slow revenue upside next year, better margins?

Gregory J. Hayes

Yes, I think you will see better margins next year at CCS. Again, it's a little early to call the markets next year. But generally, I think, Geraud and team feel pretty confident we should see a recovery at Transicold next year, especially on the container side. I think the U.S. resi business, again with housing starts up should recover next year. Commercial side and the U.S. ought to do better. So I think we're well on track. Again, I said 14% this year. 15% is the goal by '15. They're well on their way to getting there.

Heidi Rolande Wood - Morgan Stanley, Research Division

Well, that's what I'm trying to drive to. I mean you could get there quite a bit earlier. I mean, again, just given that you had some of the more profitable stuff down and you've been doing the restructuring on an ongoing basis, so you'll start to get those benefits as early as next year, or is there some part of that I'm not getting right?

Gregory J. Hayes

No, I think you're right on it. Again, I'm hesitant to say we're going to get to 15% next year because again, who knows what happens in the end markets. I think Geraud and team have done a great job this year managing in what is a very, very tough macro environment. They've taken out costs, they've driven up margins, they've done their portfolio rationalization and they're going to hit that 14% this year. Can they hit 15% next year? Maybe. But I think, again, that's a great question maybe for Louis in December or better yet for Geraud next March.

Heidi Rolande Wood - Morgan Stanley, Research Division

All right. And then on -- turning on to Sikorsky, I just want to tease those businesses out a little bit better to understand the kind of puts and takes you're seeing there, Greg. Can you give us a little color on your aftermarket expectations in military and sort of your outlook for international military orders looking ahead?

Jesus Malave

International military...

Gregory J. Hayes

Let's just talk about military spares. Military spares, obviously, it's a tough market right now down at Sikorsky. And we expect that, that will be headwind again next year. Again, not a surprise with the optempo coming down in Afghanistan. And the uncertainty down at DOD, I think we've seen a reluctance of the procurement officers to go out and make advanced buys with all the uncertainty out there coming to a head in January. So those spares have been under pressure and they will remain under pressure next year.

Jesus Malave

As far as military aircraft, you'll recall that Mick, during September, said that part of the international military deliveries got pushed into 2014 because of the finalization -- delay in finalization of Multi-Year 8 contract signing.

Heidi Rolande Wood - Morgan Stanley, Research Division

Jay, what I meant was orders. You guys have a number of campaigns out there. Can you bring us up to speed on the campaigns?

Gregory J. Hayes

Yes, I would tell you that there is a robust process there on the international side. I think we're seeing good traction in South America. We're seeing good traction in the Middle East. We're seeing good traction in India. I think, again, you'll see international Blackhawk, the S-70i, out of Mielec should start to pick up next year. And the deliveries really -- I think Mick has clear line of sight to 2014 to see a large increase in these international Blackhawk deliveries.

Operator

Our next question comes from Myles Walton from Deutsche Bank.

Myles A. Walton - Deutsche Bank AG, Research Division

Greg, I was hoping you could make it a little simpler for me in terms of into 2013 with Goodrich and IAE. You increased or lowered the dilution for Goodrich for 2012 and you previously talked about a $0.75 EPS swing '12 into '13. Is that $0.75 still intact, or are we now talking about a lower swing because 2012 showed up better?

Gregory J. Hayes

No, no, it's well -- I think, the math is, I would say, it's complicated. But the fact is we have $0.10 of dilution now and Goodrich this year and $0.60 of accretion. So net-net year-over-year you ought to get a $0.70 benefit because of Goodrich plus 5% on IAE. We previously had talked about $0.20 of dilution this year and $0.50 of accretion next year. The fact is next year it gets better because of lower amortization costs, lower than expected. So that gives you -- it takes you from the $0.50 to the $0.60 and that benefit also helps this year.

Myles A. Walton - Deutsche Bank AG, Research Division

Okay. And then on spares, Greg, I think you said high teens organic declines. Could you separate -- create the differential on the organic declines between for the full year what you're seeing on the 2500s versus the wide-bodies? And then also, the wide-bodies, can you parse out what's just been retired and taken out of the fleet that never comes back?

Gregory J. Hayes

Yes, I can't give you the kind of granularity in terms of what may have been retired. I think it clearly is, as we were talking earlier, the 747-400s, the PW4000s, those have been probably the hardest hit. Now whether some of those have been retired or not, I couldn't tell you. Clearly, flying hours are down on that fleet. On the other hand, you see 777s, again the 4000, those are 112 inch. Those, the flying hours are actually up. We just have seen the airlines be very reticent to spend a lot of money at repairing the engines as they've come back. So again, I think 747-400s are probably the hardest hit and then 777s less so. And then again real solid recovery on the Vs as we had expected when we bought IAE.

Myles A. Walton - Deutsche Bank AG, Research Division

So it's full year '12 though for the Vs, mid-single digit declines?

Gregory J. Hayes

Say that one more time.

Myles A. Walton - Deutsche Bank AG, Research Division

If you just separated out the V2500 organic spares for 2012, what did that look like?

Gregory J. Hayes

I think you actually see an increase.

Jesus Malave

Yes, for the full year, Myles, you should probably see an increase anywhere between low- to mid-single digit. And really, we're benefiting again from the higher cycles, as you know, on narrow-bodies.

Myles A. Walton - Deutsche Bank AG, Research Division

And then the last one, was the Pratt settlement previously in the guidance, or was it kind of concluded post the guidance?

Gregory J. Hayes

No, I think we had known about this for some time, so that was contemplated in the numbers.

Operator

Our next question comes from Cai Von Rumohr from Cowen and Company.

Cai Von Rumohr - Cowen and Company, LLC, Research Division

So this year, the Goodrich, yes, maybe you could walk us through. So you said $50 million kind of lower intangibles. Maybe -- and what you had -- R&D was $101 million. So presumably, that was an accounting conformity negative. So maybe walk us through kind of what are the step-up in intangibles this year for Goodrich? What should we think about for next year? You said $100 million lower, but from what to what? What should the accounting conformity be this year and next year? And you mentioned synergies, $50 million. What is it next year? And what is the restructuring? Is any of the incremental restructuring there at Goodrich?

Gregory J. Hayes

Okay. Let's start out with the amortization for this year. I think we have seen lower amortization. So I think there was $140 million of amortization we now expect for the year. I think -- I'm sorry, that's for the quarter, the $140 million?

Jesus Malave

$140 million was the absolute number of amortization in the third quarter.

Gregory J. Hayes

In the third quarter, $130 million of that was from inventory step-up. About $10 million of that was the net of inventory intangible amortization. So again, you should see that inventory will repeat again in fourth quarter, as well as the intangible amortization. Next year, there's no inventory amortization. I think that's all behind us. So what you're down to is about $50 million of intangible amortizations net next year.

Jesus Malave

Yes. Cai, the best way to look at it, if you recall the charts that we've shown, we've lumped amortization and accounting conformity together, it's $500 million previously. The best way to look at it is that now goes to $400 million, the combination of those 2 items.

Cai Von Rumohr - Cowen and Company, LLC, Research Division

So let's just stick with this course. So we have $100 million this quarter of accounting conformity because, I guess, I'm a little confused. If you had $140 million of accounting intangibles and step up $100 million of accounting conformity and synergies, a little tough for me to see how you got to breakeven?

Gregory J. Hayes

Well, again, I think the $100 million is really the run rate for the accounting conformity.

Jesus Malave

Yes. Cai, $100 million is the total E&D at Goodrich. Part of that E&D always went to the P&L. It was just put into SG&A in their form of reporting. So the piece -- I can't tell you -- I don't know what that piece is just on an accounting-conformity basis.

Cai Von Rumohr - Cowen and Company, LLC, Research Division

Got it. Okay, that's helpful. And then -- so we're really going to get like a $280 million swing next year because you're going to lose the inventory step-up is all this year, correct?

Gregory J. Hayes

That's right.

Cai Von Rumohr - Cowen and Company, LLC, Research Division

And then on the restructuring. You said $100 million given you've taken your total restructuring up. Is Goodrich still $100 million, and what should we think about for next year?

Jesus Malave

The Goodrich restructuring this year is closer to about $150 million. We said, I think, next year in a range of $100 million. As far as amortization, though, Cai, we just have to recall that next year is 12 months versus 5 months this year on amortization.

Cai Von Rumohr - Cowen and Company, LLC, Research Division

So what is the number? I think Greg said, what was...

Jesus Malave

Yes, $50 million of amortization next year.

Cai Von Rumohr - Cowen and Company, LLC, Research Division

For the whole year?

Gregory J. Hayes

For the whole year.

Operator

Our next question comes from Ron Epstein from Bank of America.

Ronald J. Epstein - BofA Merrill Lynch, Research Division

When we think about going into the fourth quarter and we think about what you guys are implying about where fourth quarter -- the fourth quarter numbers will be compared year-over-year, I think they kind of really decelerate into the fourth quarter. Is that how we should be thinking about it, or you're just being conservative? Or how should we think about the fourth quarter number?

Gregory J. Hayes

So I think what you're going to see is you see pretty good acceleration in the base businesses. The segment results should be better. I think you'll see solid growth at CCS. You'd see over $100 million of earnings growth there. You should see a little bit of growth come back at Otis. I guess Sikorsky should have a very big fourth quarter. They've got almost 100 helicopters to deliver. So base business is actually going to do very, very well here in the fourth quarter. I think we got confidence that we're going to hit that number. The downside, I think, as you think about fourth quarter actual EPS is you got about $0.25 of headwind in the fourth quarter from restructuring. And not surprising. We've got about $270 million of restructuring to go. We've spent $330 million so far. So you're going to see a big $0.25 or so of net restructuring in the quarter.

Ronald J. Epstein - BofA Merrill Lynch, Research Division

Okay, great. And then maybe over to Sikorsky real quick. Any more color on what's going on with the Canadian Maritime Helicopter and where that negotiation with the Canadian government is?

Gregory J. Hayes

I'd like to say we're making good progress. What we want here, and I said it before, we need a win-win on this with the Canadian government. Obviously, we're disappointed we haven't been able to deliver the helicopters. We're building them right now down at West Palm. We'd expected to build 5 -- build and deliver 5 this year, build and deliver 19 next year. We're well on our way for all those helicopters. But until we have an agreement with the Canadian government in terms of the final configuration and an interim configuration, we really can't ship anything. So as I sit here today, I tell you we don't have a solution. I certainly hope by the time Louis stands up in early December, we can give you guys some more clarity on it. But right now, all I know is that we need to continue to work with the Canadians to find a win-win here.

Jesus Malave

We're ready to deliver the 5 aircraft. It's just a matter of letting this negotiation play out.

Ronald J. Epstein - BofA Merrill Lynch, Research Division

Okay, okay. Then maybe just one last quick one on Aero aftermarket. Do you have a sense for what impact cargo has had versus passenger? Meaning, is your cargo business much more off than your passenger business?

Gregory J. Hayes

Yes, Ron, I really don't have a lot of granularity between cargo versus regular. I would tell you that cargo's not a big piece of the fleet. And the hours on cargo are much lower than the hours that we see on the regular commercial flight, so the overhaul cycle is much, much longer. So haven't really seen a pronounced impact from cargo versus commercial.

Ronald J. Epstein - BofA Merrill Lynch, Research Division

The reason I ask is if you go back a couple of years after '08, Goodrich had a couple of rough quarters largely due to cargo, so I'm just trying to get a sense for what impact it's having now.

Gregory J. Hayes

I have not heard that either from the Pratt team or the Aerospace Systems team. We'll check it out and we'll get back to you.

Operator

Our next question comes from George Shapiro from Shapiro Research.

George Shapiro

Greg, I just wanted to get to this Goodrich dilution a little differently. In the 8-K, you said the pro forma for '11 was $0.50 a share accretion and now you've upped it to $0.60 in '13. So what are the variables that go into that added $0.10 from '11 to '13? Obviously, there's cost saves and whatever, there's some growth in the business, but if you could spell out the differences?

Gregory J. Hayes

I think, again, if you think about that $0.50 versus the $0.60, really, the only difference is lower net amortization for next year. I mean, this year, we had deal costs and we had little better performance in the business as well as lower amortization. But next year, we're really we're getting about -- we're getting north of $100 million of lower amortization, more like about -- well, almost $0.10, I guess, of lower amortization costs, probably $120 million, $130 million of lower amortization costs.

George Shapiro

Now that's relative to 2011, I'm asking, not '12. Because you've provided the pro forma numbers in the 8-K that you disclosed a couple of weeks ago and that showed $0.50 accretion in '11 on the pro forma, so I was asking for the comparison '11 to '13?

Gregory J. Hayes

Yes, we're just looking at it here.

Jesus Malave

Yes.

Gregory J. Hayes

George, I think we're going to have to get back to you on that. I have not gone back into these pro formas. I haven't really focused on 2011 very much since, well, since last year. But we can go back and took a look and get an answer for you.

George Shapiro

Okay. And then the other one is you said IAE will be accretive $0.05 next year, but it was accretive $0.03 this quarter, so why is it only $0.05 next year?

Gregory J. Hayes

Because you get another 1/2 a year. So you're going to get $0.05 of accretion this year and another $0.05 next year. So $0.10 in total next year, $0.05 incrementally.

Operator

Our next question comes from Robert Stallard from Royal Bank of Canada.

Robert Stallard - RBC Capital Markets, LLC, Research Division

Greg, just on the 2013 outlook, you've put the commercial aerospace aftermarket as a positive. Is that looking on a reported basis because of the inclusion of IAE, or is this looking at it on organic basis?

Gregory J. Hayes

No, that's on an organic basis, Rob. I mean, again, if you think about Pratt spares being down high teens, we've seen Hamilton Sundstrand legacy down, we've seen Goodrich down a little bit. I think just based on what we're seeing from a flying hours perspective, we know that we're going to see the spares come back, and I think it's just a matter of timing. And I don't know if that's first quarter, second quarter or third quarter of next year or even fourth quarter of this year, but spares will come back. So we've got high confidence we're going to see good news on the commercial aero aftermarket organically next year, not just the addition of the acquisitions.

Robert Stallard - RBC Capital Markets, LLC, Research Division

Okay. And just follow-up on the aftermarket. You've given us quite a lot of detail on what you're seeing at Pratt with the wide-bodies. I was wondering if you could explain maybe what's going on in Hamilton Sundstrand and Goodrich and why the orders there and the spares there are a bit soft relative to flight hours maybe.

Gregory J. Hayes

Yes, I think that's the $64,000 question at Aerospace. Again, Pratt, we've got much better visibility because it's all time-based overhauls primarily. So we know the schedule when these engines are supposed to come back. And for the most part, they're coming back as we had expected because they're putting the flying hours on. On the Goodrich and the Hamilton legacy, that is all condition-based. They're on-condition repairs. So in other words, if you have a failure in the field, you're going to see the units come back in. And quite frankly, these LRUs, the Line Replaceable Units, the airlines do have inventory of these various parts that Hamilton and Goodrich make and they're bringing down inventory, we believe, and not sending everything back for repair. So again, I think we will see, just based upon flying hours, a recovery there to a more normal kind of 5% to 7% growth year-over-year starting next year on the Aerospace Systems side. But this year, I think it's just all about airline cash conservation.

Operator

Our next question comes from Shannon O'Callaghan from Nomura.

Shannon O'Callaghan - Nomura Securities Co. Ltd., Research Division

Greg, in terms of next year, when you think about the noncash and the cash items, I mean, you're going to have a fair amount of noncash stuff running through with the pension and the amortization. Are there any big kind of cash offsets in terms of pension contributions or working capital dynamics in the businesses?

Gregory J. Hayes

I think there's 2 offsets that we have to keep in mind and we still have to manage. One is there's an appetite for additional inventory to support the build on the commercial OE side. So again, I think we see pressure at Pratt & Whitney. We see pressure at the Aerospace Systems side for inventory. And we also see an appetite for those businesses for CapEx. And I think that's, again, something we need to meter out effectively. We need to make sure that we take full advantage of all the facilities that we now have between Pratt and legacy Hamilton and Goodrich. So like I think -- initially, everybody wants to build everything new, buy everything new. We just need to think about that and we'll come back with a specific guidance. But I'll tell you, there's pressure on CapEx and there's pressure on working capital, specifically inventory.

Shannon O'Callaghan - Nomura Securities Co. Ltd., Research Division

Okay. And pension contributions?

Gregory J. Hayes

Again, we made $200 million of pension contributions this year because cash, as I said, has been very strong. It's actually a good place to put our money. We get an 8% return on it in the pension plan. But we have no funding requirements under the ERISA rules until at least 2015. And quite frankly, we're 84% funded at the pension plan today and if I get to a discount rate of 5.5%, which is where we were 2 years ago, we'd be fully funded. So the last thing we want to do is throw more cash into the pension plan.

Shannon O'Callaghan - Nomura Securities Co. Ltd., Research Division

And then just can you explain a little more why the Goodrich amortization went down? I mean, did you assign a lower value to something that would have been amortized? Could you just explain that a little more?

Gregory J. Hayes

Yes, I think what we found is there were some several contracts in the legacy Goodrich business, which were in loss-making positions. And as we've changed the accounting to our accounting conformity, we were -- we had to recognize those losses upfront. So we actually provided for that as a liability, if you will, going forward. That's now getting amortized and offsetting some of the other intangibles. Again, we initially had not expected to set up this liability, if you will, for these loss-making contracts. If you remember, the Goodrich accounting, they took a look at the contract over its life and had a very, very long-term view. We've got, let's say, like an 8-year life for looking at these contracts that are loss-making. So we amortize the intangibles on these loss-making contracts over that 8-year period.

Operator

Our next question comes from Julian Mitchell from Crédit Suisse.

Julian Mitchell - Crédit Suisse AG, Research Division

Yes, my first question was just on the Otis operating profit progression so I guess you had pretty high decrementals in the sort of mid-high 30% range in Q2 and Q3. You're saying that profit should grow though year-on-year in Q4 even though your revenues are probably down. So I guess I'm trying to figure out what's going on in the cost base. Is it to do with mix that you think European aftermarket maybe is now stabilizing in Q4, or is it that you've added a lot of costs in places like China and that kind of hiring is now coming to an end, so you get a natural lift on incrementals or something?

Gregory J. Hayes

Really there's 2 things that impacted first half of the decrease in margins. Part of that was pricing, we've talked about that. I think we've probably seen $75 million year-to-date of pricing impacts, about 1/2 of that in Europe. We also had commodity headwind in the first half of the year related to the rare earth. Again, that was something that probably started playing out last year and really, by the middle of this year, by third quarter, had gone away but certainly hurt first half margins. We've added a little bit of cost on the SG&A line. But again, that's just positioning Otis to take advantage of what's going on over in China. We've moved the businesses' strategy development to Shanghai. We've opened up the high-rise CLC in Shanghai. So there are a little bit of investment, but really the story is in the first half has been pricing and it's been commodities.

Julian Mitchell - Crédit Suisse AG, Research Division

Okay. And then just lastly, switching to your 2013 outlook. I just wondered the commercial Aero OEM side, that comes up in sort of a plus and a minus. Is that just the difference between regions or wide-body versus narrow-body or...

Gregory J. Hayes

No, the reason we put commercial Aero OEM up there is a positive. Certainly, on the revenue line it will be a positive. There will be some headwind from negative margins and some of the -- especially on the engine side, I think, especially probably on the -- there will be the A380, the GP7000 engine. They basically ramped up production at Airbus, we'll see some headwind there. So good news on the top line, not as much on the bottom line.

Operator

Our final question comes from Sam Pearlstein from Wells Fargo.

Samuel J. Pearlstein - Wells Fargo Securities, LLC, Research Division

Just a clarification once again on Goodrich. You had said in your prepared remarks that it's $125 million better. But then the, I guess, Aerospace Systems business, you're saying is only $50 million better for the year. What's the gap in there did you bring down for Hamilton?

Jesus Malave

The other piece, Sam, is related to the deal cost that Greg mentioned and that is in corporate elims. So the $125 million, a piece of it is in the segment and a piece of it is in UTC corporate elims.

Samuel J. Pearlstein - Wells Fargo Securities, LLC, Research Division

Okay. And then the growth in the receivables of about $1 billion in inventories, almost $2 billion, how much of that would be the core business versus just layering in Goodrich, and I guess, IAE as well?

Gregory J. Hayes

Yes, most of that build is actually Goodrich and IAE. I don't know if I've got the exact numbers down here, but actually, let us get back to you, Sam, on that. Because again, I think, the large majority of those additional AR and inventory, all that working capital is really related to the acquisitions.

Samuel J. Pearlstein - Wells Fargo Securities, LLC, Research Division

Okay. And then just the last thing is on the order rates as we look into the fourth quarter. You've already mentioned North American or just CCS easy comps. It looks like Pratt large commercial also has pretty easy comps. And even Otis new equipment isn't that bad. I mean should we be seeing positive bookings across all the segments in the fourth quarter?

Gregory J. Hayes

I would think so with the exception, perhaps, at Transicold. Again, I think last year fourth quarter was still pretty strong at Transicold. So that's a pretty lumpy business, as I said. So that would be the one caveat I would say to order rates. Everything else, again, I think we had seen a pretty slow fourth quarter last year on the order intake side, so should be pretty easy compares both at Otis and the Aero businesses.

Samuel J. Pearlstein - Wells Fargo Securities, LLC, Research Division

And Pratt commercial spares, if you have the same dollar amount in this third quarter versus the easy compare in fourth quarter, would we actually see bookings up next year -- I mean, next quarter?

Gregory J. Hayes

I'm sorry, if we had orders in the...

Samuel J. Pearlstein - Wells Fargo Securities, LLC, Research Division

Similar dollars. If it was just sequentially flat in the December quarter from the September quarter, do we end up with a positive comparison?

Jesus Malave

No, Sam. You would be down. Last year was pretty flat throughout the year.

Gregory J. Hayes

Okay. I want to thank everybody for listening. I know it's, again, a lot of stuff going on in UTC here. We'll see you guys all in December next for Louis' annual guidance. We're going to continue to focus on what we do best. We're going to focus on integration, we're going to make sure we're accelerating on cost reduction and we're going to focus on outperforming the peers. And that's what we do every day here. So thanks, everybody, and have a great day.

Operator

Ladies and gentlemen, that does conclude today's conference. You may all disconnect, and have a wonderful day.

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