United Technologies Corporation (UTX) Q2 2018 Earnings Conference Call Transcript

United Technologies Corporation (RTX 0.68%)
Q2 2018 Earnings Conference Call
July 24, 2018, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the United Technologies Second Quarter 2018 Conference Call. On the call today are Greg Hayes, Chairman and Chief Executive Officer; Akhil Johri, Executive Vice President and Chief Financial Officer; and Carroll Lane, Vice President, Investor Relations. This call is being carried live on the Internet, and there is a presentation available from UTC's website at www.utc.com.

Please note, except where otherwise noted, the company will speak to results from continuing operations, excluding a restructuring cost and other significant items of a non-reoccurring and/or nonoperational nature, often referred to by management as other significant items. The company also reminds listeners that the earnings in 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 forms 10-Q and 10-K, provide details on important factors that could cause actual results to differ materially from those anticipated in this forward-looking statements.

In addition, in connection with the pending Rockwell Collins acquisition, UTC has filed with the SEC a registration statement that includes a prospectus from UTC and a proxy statement from Rockwell Collins, which is effective, and which contains important information about UTC, Rockwell Collins, the transaction, and related matters.

Once the call becomes open for questions, we ask that you limit your first round to one question per caller to give everyone the opportunity to participate. You may ask further questions by reinserting yourself into the queue as time permits.

Please go ahead, Mr. Hayes.

Greg Hayes -- Chairman and Chief Executive Officer

Okay, thanks, and good morning, everyone. As you saw in the press release for Q2, another solid quarter for UTC. Adjusted EPS was $1.97. That's up 6% versus last year. That's on top of the 20% adjusted EPS growth that we delivered in the first quarter, so a really good start to the year. Sales, they're up 9% organic -- or up 9% with 6% organic growth. That reflects contributions from all four of the businesses, and it also marks four quarters in a row of organic growth of 5% or better. Clearly, we're seeing some positive momentum in these results driven by our investments, specifically investments in innovation.

So, based on the first half performance and our expectation for the second half of the year, we're gonna raise our outlook for the 2018 EPS. So, we now expect earnings of $7.10 to $7.25, and that's up from our previous guidance of $6.95 to $7.15. And just a reminder that that excludes the impact from Rockwell Collins. We're also raising the low end of our sales outlook by a half a billion dollars, and now expect sales of somewhere between $63.5 and $64.5 billion. And that includes an improved organic outlook now to 5% to 6%. That's up from 4% to 6% previously. Again, that's driven primarily by continued strength in our commercial aerospace aftermarket.

You saw in the press release this morning that we highlighted the expected impact to our adjusted EPS regarding the pending acquisition of Rockwell. With regard to the closing of the transaction, let me just say that we're on track with regulatory approvals. We believe we're down to the final stages of the process, and we expect the transaction to close here still in the third quarter.

As we look forward to the integration of Rockwell, we're clearly excited about the future and what Rockwell brings to the UTC portfolio. Collins Aerospace will give us differentiated products and services that are more intelligent and more connected than ever before, and allow us to enhance customer value in the aerospace industry. And of course, we remain confident in our ability to deliver at least $500 million of net cost synergies from the combination.

Bringing it back to our operating results, as I said, we're halfway through the year, and we all remain focused on our customer commitments. There's a lot of good things happening in the business, but a couple of highlights to note. Aerospace Systems, they remain on track with their cost reduction initiatives, offsetting some of the margin impacts from all of these new programs. Pratt & Whitney, they're continuing to ramp new engine deliveries. In fact, it's the first time in several decades this quarter that Pratt delivered more than 200 large commercial engines in a single quarter. And CCS, they have continued strong organic growth, and that's driven by new product introductions. And then Otis, they continue to execute on their service transformation initiatives, which will lead to margin growth in the future.

So, overall, end markets continue to show strength. On the other hand, there are some risks that we need to watch, particularly in terms of tariffs and their impact on product cost. Based on what has been enacted so far -- again, this is just the first round of tariffs -- the near-term impact to UTC appears to be relatively modest. We'll say about $0.05 a share, and that $0.05 is included in our revised EPS guidance. As always, we're gonna stay focused on what we can control, and we're feeling very good about the way the year is shaping up.

With that, let me stop and turn it over to Akhil and Carroll to take you through the results. And I'll come back with a little wrap-up and the Q&A. Akhil?

Akhil Johri -- Executive Vice President and Chief Financial Officer

Thanks, Greg. I'm on slide two. Reported sales for the quarter were $16.7 billion, up 9%, with 6% organic growth and two points of favorable foreign exchange. The remaining one point of sales growth was driven by the adoption of the new revenue standard, with the largest benefit at Pratt & Whitney. You can see the details in the appendix on slide 19. Adjusted EPS was $1.97, up $0.12, or 6% versus prior year. On a GAAP basis, EPS was $2.56, or up 42% versus prior year. This, of course, included a $0.74 gain on the sale of the data company in the quarter. Partially offsetting this gain was $0.07 of restructuring, $0.05 of a non-cash asset value adjustment, and $0.02 of charges related to the Rockwell Collins transaction. Free cash flow was $1.7 billion in the quarter, and there is no change to our full year outlook for $4.5 to $5 billion.

Just as a point of note, we will be absorbing over $200 million of headwind in the 2018 free cash flow from the tax payment associated with the gain on the sale of the data company. As you probably know, cash from the divestiture is reflected as an inflow from investing activities, but the cash taxes we pay on the gain flow to the operating cash. Also, the gain on the transaction increases to reported net income. So, for those of you who are looking at the free cash flow to net income conversion, this transaction will mathematically put some pressure on that metric.

Slide three shows components of our organic growth this quarter. Overall, we continue to see strong fundamentals across our two end markets. Looking at our commercial businesses, in the Americas, sales were up 6% with growth across both Otis and CCS. End market activity levels remain robust as new construction continues at high levels, and consumer sentiment remains strong. Within EMEA, sales were up 3%. In Europe, sales were up mid single-digits with strength again at both Otis and CCS.

At Otis, we continue to see stabilization in maintenance revenue per unit, but did see some pressure on import costs due to the increasingly tight labor market across the region. Middle East remains a watch item. In Asia, sales were down 1%, with Otis China down 6%. The good news is that in Otis China, we once again saw slightly positive price mix in the second quarter orders. The rest of Asia was up mid single-digits at Otis and down 7% at CCS.

On the aerospace side, commercial aerospace sales were up 11% organically in the quarter, driven by strong GDF shipments, as well as ramping up of next generation products at Aerospace Systems. And on the aftermarket side, we see continued high traffic demand and strong utilization of in service products, which translated to 11% organic growth in the quarter. Military sales were up 10% at Pratt & Whitney and up 5% at Aerospace Systems organically, driven by continued strong aftermarket demand and ramping production programs.

Lastly, just a few comments on our 2018 outlook before I hand it over to Carroll. Within our improved outlook, you will see a few moving pieces. At the operating level, strength at Aerospace Systems offset the reduced outlook at Otis versus our prior expectations. The change in outlook at CCS primarily reflects the removal of the profitable Taylor business from the second half, and is offset by favorable items below the segment operating profit line. Additionally, we now expect the adjusted tax rate in 2018 to be 24.5% compared with the prior 25.5%, and this is based on certain recent clarifications to the U.S. tax reform, and higher than expected benefit from stock compensation-related taxes. At the midpoint of our improved adjusted EPS range, we still have approximately $70 million of contingency. As Greg said, we expect Rockwell Collins to close in the third quarter. This will likely result in $0.10 to $0.15 dilution in 2018 to the adjusted EPS. Bottom line, we feel really good about our improved EPS range of $7.10 to $7.25, excluding the dilution from the pending acquisition of Rockwell Collins.

With that, I'll turn it over to Carroll to take us to business unit details.

Carroll Lane -- Vice President, Investor Relations

Okay, thanks, Akhil. I'm on slide four. I'll be speaking to the segments in constant currency, as we usually do. And with the exception of organic data points, all results include the impact of the new revenue recognition accounting standard. And as a reminder, there's an appendix on slide 12 with additional segment data as a reference.

Otis sales of $3.3 billion in the quarter were up 3% organically. On a constant currency basis, new equipment sales grew 2%. High teens growth in Europe and high single digit growth in Asia, excluding China, were partially offset by a 10% decline in China, where 2017 backlog, with its embedded price headwinds, continued to convert into sales. New equipment orders were up 10% organically in the quarter, with growth in all regions. In China, unit orders grew 2%, with their corresponding value growing 8%. That's the first quarter since 2014 in which order growth in dollars has outpaced the growth in units. Service sales were up 4% in the quarter.

Otis saw strong growth in modernization and mid single-digit growth in maintenance, while repair was down slightly in the quarter after being up 13% in Q2 2017. Otis operating profit declined 11%. Pricing pressure and adverse mix in new equipment, largely from the backlog in China, coupled with higher input costs, more than offset contribution from higher volume. Additionally, one-time legal charges and adverse transactional mark-to-market currency adjustments accounted for approximately $30 million of headwind. As discussed in Q1, transactional currency adjustments can fluctuate through the year. Foreign exchange translation was a four-point tailwind to sales and earnings.

For the full year, we now expect Otis operating profit in the range of down $25 million to up $25 million at actual currency. This largely reflects the one-time charges in Q2, the outlook for higher input costs we discussed last quarter, and our updated view on foreign exchange, which is less likely to provide a favorable offset to these increased costs. The full year outlook for organic sales at Otis continues to be low single-digit growth.

Turning to slide five, climate controls and security sales were up 4% organically. Transport refrigeration sales were up 11%, driven by strong container sales, up 45%. Residential HVAC was up 5%, in spite of trucking shortages that impacted shipments. Global commercial HVAC grew 3% in the quarter, and fire and security sales were up slightly. In the first half, total CCS sales were up 5% organically. Equipment orders at CCS were strong again in Q2, up 8%, and that follows 11% growth in Q2 of 2017. Transport refrigeration orders grew 27% on top of 38% growth last year. Residential HVAC orders were up high single digits, and global commercial HVAC orders grew 6%. At actual currency, CCS operating profit grew 2% in the quarter, as the benefits of higher volumes, improved pricing in North America, and foreign currency translation were mostly offset by higher commodity and logistics costs, and continued investment in new products.

Looking ahead, we can expect continued volume growth in the second half of the year, and pricing initiatives are expected to more than mitigate rising input costs. For the full year, we now expect CCS operating profit to grow by $75 to $125 million at actual FX. The revision from the prior outlook of $125 to $175 million in growth reflects the completion of the divestiture of the Taylor business, as announced in June, and our current view that foreign exchange is less likely to offset higher input costs.

Shifting to Pratt & Whitney on slide six, sales of $4.7 billion were up 12% organically. Including the previously discussed impact of the new revenue recognition standard, reported sales were up 16%. Commercial OEM sales were up 20%, driven by 48% growth in large commercial engines. Total Geared Turbofan shipments, including those to the spare engine pool, more than doubled from Q1 2018 and more than tripled from Q2 2017. Pratt & Whitney is on track to meet its full year GTF customer delivery commitments. Pratt & Whitney Canada shipments were up modestly, and that marks the second quarter in a row of growth. Pratt Canada OEM sales were down 3% due to mix.

Military OEM sales were up 42%, driven by F135 and Tanker. Commercial aftermarket sales were up 12%, as the large engine aftermarket continues to benefit from strength in V2500 and higher content on PW4000 models. Military aftermarket was up 3% on a tough compare and grew 9% sequentially. That was driven by F135 and F119 programs. Operating profit of $400 million was up 8%. Headwind from higher negative engine margin was more than offset by drop-through from higher commercial aftermarket and military sales. Based on first half results and in anticipation of negative engine margin increasing the GTF deliveries in the second half of the year, we continue to expect Pratt & Whitney to grow operating profit $25 to $75 million.

Turning to slide seven, Aerospace Systems delivered another strong quarter, with 17% profit growth on 8% higher organic sales. Sales growth was driven by the commercial aftermarket, which was up 12%. Parts and repair were up 4% and 12% respectively, and provisioning grew by 20%. Provisioning included 15 points of growth related to the Pratt & Whitney spare engine pool, and these intercompany sales are expected to be a headwind for Aerospace Systems in the back half of this year, given the significant shipments made to Pratt's spare pool in the second half of 2017.

While compares will be tougher in the back half, leading indicators remain positive, and we now expect full year commercial aftermarket sales to be up mid to high single digits. Commercial OEM sales grew 8%, driven by new production programs, primarily the A320-neo, which was partially offset by declines in legacy programs. Military sales were up 5%, driven by continued F35 volume growth and strong spares. Operating profit growth of 17% was driven by drop-through on higher commercial aftermarket and military sales, lower EMB, and continued product cost reduction. These benefits were partially offset by OE mix headwind, higher SG&A spend, and adverse foreign exchange impact.

Based on our first half results, we now expect full year sales to be up low to mid single-digits, versus our prior outlook of low single-digit growth. It's driven by strength in commercial aftermarket. Predicted drop-through from these sales allows us to raise full year outlook for operating profit growth to $175 to $225 million, and likely toward the high end of the range. That's up from our prior expectation of $150 to $200 million.

With that, I'll hand it back over to Greg.

Greg Hayes -- Chairman and Chief Executive Officer

Thanks, Carroll. So, look, it's a lot of moving pieces in the quarter, as it's difficult. But I think there's some really key things to highlight. And I would start out with the organic growth that we saw at 6%. But I think maybe most importantly, each of the businesses saw growth in orders. You take a look at the 12% aftermarket growth on the aerospace side, new equipment orders up 10% at Otis, the end markets are delivering, and we're very confident about the -- not just 2018, but as we move into the future. I think the one point, again, worth repeating from what Carroll said, if you think about the GTF and the ramp, all the issues that we've had, I will tell you that the Pratt team has done a tremendous job. If you look at the deliveries in the second quarter, doubling what we did in the first quarter and tripling what we did just a year ago. Phenomenal, phenomenal results for the Pratt team. And again, keeping pace with what is a growing aerospace market across the world. So, again, very, very confident about the future of the portfolio of UTC.

Regarding the question on the portfolio -- I know it's on everybody's mind everywhere -- let me just say that there's nothing more to report today. We continue to do the work with our board of directors. We continue to believe that we will have a decision here in the fourth quarter that we'll share with everybody. But nothing new to report other than the fact that we continue to do the analysis and continue to work through that process.

So, with that, happy to answer whatever other questions you have, so let's open up the call for questions, if we could.

Questions and Answers:

Operator

Ladies and gentlemen, if you have a question at this time, please press * then 1 on your touchtone telephone. If at any time, your question has been answered or you wish to remove yourself from the queue, please press the # key. As a reminder, we ask that you please limit yourself to one question an rejoin the queue if you have any additional questions.

Our first question is from Julian Mitchell with Barclays. Your line is now open.

Julian Mitchell -- Barclays -- Analyst

Thank you. Good morning. Just wanted to circle back to Otis. I understand that there's a legal charge weighing on the second quarter profits. But one of your competitors last week was talking about a prolonged headwind from price cost into next year. Obviously, looking at your medium-term guide implies decent profit recovery in Otis, so I just wondered how you were assessing the likelihood of that today, and if the business is really progressing as you thought, or every quarter, we get sort of an extra headwind or two?

Akhil Johri -- Executive Vice President and Chief Financial Officer

Great question, Julian. The 230 basis points margin drop at Otis is a startling number, and everybody's probably focused on that. Let me just break it down for you quickly. As you said, about 90 basis points of the 230 essentially is the $90 million that Carroll talked about, which are one-time exceptional charges. We didn't pull them out of the segment, as is the normal practice, since they were not large enough. But they are all one-time type of things, and it doesn't happen very often. So, hopefully that's just behind us.

The second items is the cost price mix issue that you talked about, and that's largely driven by the backlog in China. That was another 90 basis points in the quarter. So, if you take that -- the trend there that is encouraging is for three quarters in a row now, we have seen price mix being positive, slightly positive in the China orders. So, as we run through the backlog of 2017 badness, when I look at 2019, hopefully that number starts to become a little bit better as opposed to the continuing headwind that we have.

The final piece is obviously the increase in inflation, increase in the cost that we have seen. Some of it, in the case of Otis, is a little more difficult to pass on as price increases right away because there is a backlog that is there. You've got to take the cost increase and adjust it against the backlog margins, unfortunately. But that again, the intent on the Otis team is to try and increase prices going forward so that they can offset some of these input cost inflations.

Greg Hayes -- Chairman and Chief Executive Officer

You know, Julian, let me just pile in there. So, I think this whole issue of input costs is a recurring theme that we'll be talking about as it relates to the commercial businesses. And the input costs are related to a couple of things. Obviously, commodities, we see a little bit of headwind, although not that much this year. But you know, steel is up 25% in the last year. Aluminum's up, and copper's up about 14%, 15%, so input costs are up. And the other place that costs are up is our labor cost. There really is a labor shortage here in the U.S. and in Europe. And as a result of that, we're seeing some cost pressure that we need to deal with. I'm not gonna just say we're gonna surrender and the margins are where they're gonna be. We're obviously taking actions to reduce costs, to look for ways to resource products. But input cost inflation is a real issue that I think is something new for us. And again, tariffs don't help. Again, another $50 million in the cost input on top of what's happening with the basic commodities and labor cost.

 But look, the future of Otis is about selling equipment. And I think if you look at the quarter, where you saw 10% growth in new equipment at Otis, that's solid, right? And that will deliver, in the long-term -- it takes a couple of years to play out, obviously, before we install all those elevators and start servicing them. But it's that growth in new equipment that people should be focused on as it relates to Otis, and growth in the service portfolio. And again, as I highlighted before, the service initiatives, what we can do from a productivity standpoint, will also help drive Otis profit growth over the long-term. So, look, the headwinds that we have are the same as everybody else, and the way you deal with them is the same as everybody else. Obviously, we need to be more aggressive about pricing, which we will do. Easier on CCS than it is at Otis, obviously, because of the short-term versus long-term nature of the contracts. But folks are on top of it.

Julian Mitchell -- Barclays -- Analyst

Great. Thank you.

Greg Hayes -- Chairman and Chief Executive Officer

Thanks, Julian.

Operator

Our next question is from Ron Epstein with Bank of America. Your line is now open.

Ron Epstein -- Bank of America -- Analyst

Hey, good morning. If we could just maybe dig in more into the aerospace aftermarket. I mean, the growth there was really good, I mean, above global air traffic, maybe 2x global air traffic. What's underlying that? Is it -- one of your smaller competitors mentioned that they're seeing the pool of serviceable use spare parts really kind of fading away, and that's driving some aftermarket growth. But just in your case, I mean, what's driving that aftermarket growth?

Greg Hayes -- Chairman and Chief Executive Officer

Yeah, there's -- as always, there's no one simple answer here. I think -- if you think about the Aerospace Systems business, where we have really seen growth beyond our expectation, just on the repair side of the business, is the repair shops have done a much better job. And I think we've got about 74 repair operations around the world. And they've really focused over the last couple of years on improving churn time, improving customer responsiveness. And we're starting to see that market share gain. So, that's very positive. I think on the Pratt side, we continue to see very, very strong growth with the V2500. That's not unusual. We're also still seeing some of the PW40000 after market being a little bit stronger than what we expected. But this trend line won't continue at 12%. I think we all recognize that.

But right now, as you pointed out, there has been a consumption of spares out there and spare part. Airlines have to reorder. You can't continue to take things off the shelf. And so, we're benefiting a little bit from this. And so, our traffic will probably be up 5.5%, 6% again this year. And think that's kind of the long-term trends that we're looking at, which is where aftermarket should grow. But clearly, there's a little bit of catch-up this year, but we feel pretty good about it.

Carroll Lane -- Vice President, Investor Relations

Yeah, Ron. And Pratt, it's really a continuation of what we talked about in Q1. So, we've got strong content on V2500. We expect V2500 profit. There's demand for 1,000 of those worldwide this year. No change to that view. And then on the 4000s, while shop visits will be down, the mix is favorable. The PW4000 112-inch triple 7 piece, we're setting operators recapitalize some of those engines. It just speaks to the demand for lift out there in the marketplace, so really just a continuation of what we saw in Q1, and we'll take it.

Ron Epstein -- Bank of America -- Analyst

Okay, great.

Akhil Johri -- Executive Vice President and Chief Financial Officer

Yeah, the fundamentals are just strong. Ron, fundamentals really, I mean, strong. I think the promise of the aerospace industry is if you get on new platforms, you have good content on them, aftermarket follows. And that's what we are starting to see with the V2500 engine, with the continuation in the PW4000, and the Aerospace Systems side. So, I think we are in a good spot given the OEM growth, which will again translate to aftermarket for many, many decades to come.

Ron Epstein -- Bank of America -- Analyst

Okay, great. And then maybe just a follow on, why wouldn't you expect maybe not 12% ,but continued growth kind of at the higher end of a range, something above global air traffic growth?

Akhil Johri -- Executive Vice President and Chief Financial Officer

Yeah, no. I think we should expect that, and I know what's been -- Greg said you shouldn't expect 12% every quarter -- maybe high single-digit in some cases, or it could be mid to high single-digit as we have upgraded the -- or increased the Aerospace Systems guidance, as you've noticed in our outlook change. So, could it be higher than traffic growth? There will be three days when it could be, but over the long-term, it's probably closer to approximate the traffic growth than double-digit growth forever.

Greg Hayes -- Chairman and Chief Executive Officer

You also gotta keep in mind, Ron, Pratt, again, with its reentry into the commercial business with the GTF. They should see outsized growth in the aftermarket in the next 10 years. And just like the V2500's kind of in that sweet spot that Carroll's talking about for repairs and demand for overall visits. Because what we think about is Pratt delivers what is now -- what did we say, 10,000 orders we've had for GTF engines now. Those 10,000 orders will play out over the next 10 years and generate a huge increase in the aftermarket of Pratt.

Ron Epstein -- Bank of America -- Analyst

Okay, great. Thank you.

Greg Hayes -- Chairman and Chief Executive Officer

Thanks, Ron.

Operator

Our next question is from Rajeev Lalwani with Morgan Stanley. Your line is now open.

Rajeev Lalwani -- Morgan Stanley -- Analyst

Good morning. Thanks for the time.

Rajeev Lalwani -- Morgan Stanley -- Analyst

Greg, if I could ask you a question on the strategic review. I appreciate that there isn't a whole lot to add, and the process is under way. But I guess I just wanted to clarify some of the comments you've made publicly already. I think previously, you've highlighted sort of looking at splitting the company into three pieces. Does that preclude any other sort of alternatives that you would maybe pursue? I mean, I'd imagine there's lots of permutations in there. Taking a look at what you did with Taylor, I think that was well received. Why can't you do more or valuate more than just a simple breakup or staying together, if that makes sense?

Greg Hayes -- Chairman and Chief Executive Officer

Yeah. Rajeev, let me just say there's nothing simple about a breakup. But as you think about what's gonna create the most value for shareowners long-term, I think all options around the table with the board. And that's, I think, the key message if you want to take one away here, is that it's not just about splitting the company up three ways. We're evaluating other potential options that could create value, be it acquisitions or be it divestitures, as part of this strategic portfolio review. So, again, like we did with Sikorsky, initially it was going to be a spin. We ended up finding a great home for Sikorsky in Lockheed Martin. We'll look for ways to maximize value long-term, whether that's together as the entire UTC portfolio or apart. I think all options are on the table. And clearly, there are alternatives that may be attractive in the long-term, and we're going to continue to pursue those.

Rajeev Lalwani -- Morgan Stanley -- Analyst

Thank you.

Operator

Our next question is from Jeffrey Sprague with Vertical Research Partners. Your line is now open.

Jeffrey Sprague -- Vertical Research Partners -- Analyst

Thank you. Good day, everyone. Hey, just on Collins. The fact that you're giving us a sense of the dilution here today, A, does reflect your confidence, I guess in closing; but, B, would also seem to suggest you do have a little bit of certainty now on just some of the accounting machinations of conforming accounting, and what the amortization may look like and such. If that's the case, could you give us your early thought on what the accretion dilution picture looks like for 2019 based on Q3 --

Greg Hayes -- Chairman and Chief Executive Officer

Jeff, I mean, really, that was a nice soliloquy leading to guidance on '19, but we're not going to do that.

Akhil Johri -- Executive Vice President and Chief Financial Officer

Hey, no. The reality, Jeff, is that we are still working through the intangible amortization calculation we have now. Again, I have not seen the data because we cannot see it legally. But we have an accounting firm which has got the data on Collins and is evaluating the cash flow streams of the future, which, as you know, is the basis of determining the intangibles amortization. So, that work is going on. I think the preliminary estimates are that we are probably not too far off from the number that you've seen in the X4 on that. But there is still a lot more work to be done. I think the next couple of weeks is probably what is needed to get to a formal answer. Obviously, as you know, assuming we closed in third quarter, we will have to book something in the quarter with regard to those intangibles. And so, we are working very hard to make sure we get a number which we don't have to change or update in the future.

So, that work is still going on, which is why you see the range you do. We do feel we are in the closing stages of the approvals, and therefore feel a lot more confident about being able to do that this quarter. And we'll tell you more as that transaction closes.

Greg Hayes -- Chairman and Chief Executive Officer

Yeah, I think the best thing to say is no surprises here. As we look at the amortization, where we had expected it to be, there's no real surprises from what we had originally estimated. So, look, we'll talk about this in September probably ,in terms of what we think 2019 looks like. But obviously, it's gonna be accretive to earnings. We just need to work through what that number is.

Jeffrey Sprague

Just one other one, and I appreciate the compliment on the articulate soliloquy, by the way. I haven't gotten that often. Just could you give us a little bit of an update in general on aero supply chain, and then in particular, looking at this NORDAM bankruptcy? Anything to be concerned about here in the near-term and kind of managing your way through all that sort of thing?

Greg Hayes -- Chairman and Chief Executive Officer

Yeah, I would tell you -- let's take NORDAM as a separate issue, because I think that's kind of a one-off. But as far as the aero supply chain goes, I think we've got pretty good visibility -- in fact, we've got very good visibility into the supply chain for all of the key components on the GTF engines, and we're working through that same process on the Aerospace Systems side. So, I don't see any big bottlenecks other than the continuing challenge that we have with the ramp. Look, and it's always gonna be castings and forgings and things like that, that are difficult to do. But again, no shortage per se that would say that we can't meet the contractual commitments that we have.

I think I said this earlier -- this was just last week in Farnborough -- we continue to work with Airbus and continue to work with the supply chain to see if we can ramp up even more quickly. But that will take additional capital and additional time. But we'll work through that. So, today, I don't see an issue. I think if there's another big ramp up in production beyond what we see today, it will be a challenge, but we'll work through that as the year progresses.

As it relates to NORDAM, NORDAM, for those of you that are familiar with it, is a small supplier out of Tulsa that does nacelles, primarily. They took on a contract with us back in 2010 to do the nacelle for the Pratt & Whitney 815, which is the engine that goes on the new Gulfstream aircraft. We've had some challenges. They've had some challenges in terms of getting their products certified, and the cost has been a challenge for them as well. Unfortunately, they had to enter bankruptcy proceedings this week. We're continuing to work closely with the bankruptcy court, with the lenders, and with the folks at NORDAM to try and find a solution here. And I think there will ultimately be a solution that ensures continued production of the nacelles, as well as a good resolution, I would say, for all the parties involved here.

So, it's not great any time you see one of your key suppliers go into bankruptcy, but it didn't come as a surprise. We've been working with them very closely for the last six months, and I think it will be a pretty -- not easily managed, but at least a good outcome here in the not too distant future.

Jeffrey Sprague

Thanks for the color.

Greg Hayes -- Chairman and Chief Executive Officer

Thank you.

Operator

Our next question is from Carter Copeland with Melius Research. Your line is now open.

Carter Copeland -- Melius Research -- Analyst

Good morning, gentlemen.

Greg Hayes -- Chairman and Chief Executive Officer

Hi, Carter.

Carter Copeland -- Melius Research -- Analyst

Hey, just a quick question on CCS. I mean, I know for the remainder of the year, Akhil, you highlighted the Taylor impact. But when you just look at the order flow you had in Q1, and you guys had talked about having some pricing tailwinds that you expected to come through. When you look at the conversion of orders into sales, and maybe the potential pricing tailwind just didn't seem to come through in Q2, I wondered if there was something in there that we were -- that we're missing, or it just takes time for that to get in? Any color would be helpful.

Akhil Johri -- Executive Vice President and Chief Financial Officer

Sure, Carter. So, I think the good news in Q2 was that the price cost, and I talk about price cost -- it's commodities cost versus the price increases that we have -- it was slightly positive in Q2. As you recall in Q1, it was still slightly negative. We have had additional price increases go into effect in early July, which are in the market now and seem to be having traction. So, we feel good about our ability at CCS to continue to see improvement in the price cost dynamic as we go forward. So, that's certainly the encouraging thing.

The other encouraging part is the strength in the orders that they have had, but those orders are certainly going to translate. I mean, if you look at the residential business in North America by itself, both in Q1 and Q,2 the orders that we booked were greater than the shipments that we made in those quarters. So, backlog is pretty healthy coming into the third quarter. We feel, again, good about the ability of CCS to convert that. And as the price cost mix continues to -- price cost equation continues to improve, we should see better conversion later in this year.

Carter Copeland -- Melius Research -- Analyst

Okay, thanks. And then a quick just clarification on the comment you made around provisioning. Can you guys quantify what sort of pressure you expect in the back half on the intersegment sales on UTAS?

Akhil Johri -- Executive Vice President and Chief Financial Officer

Sure. So, I think the backend, you'll probably see if you go back to look at the numbers for last year, very strong aftermarket at UTAS, and some of that had to do with the data -- the engine build units that UTAS provides to Pratt and that goes into the lease pool engines. In the second half, you'll probably see reductions to the tune of about $10 to $80 million across the two quarters, so somewhere between $50 to $100 million in the second half versus what they saw last year. So, that still is all factored into our thinking when we said that UTAS will grow aftermarket by mid to high single-digit. So, that's all been factored into -- in our thinking about the guidance.

Carter Copeland -- Melius Research -- Analyst

Okay, great. Thanks for the color.

Operator

Our next question is from Sheila Kahyaoglu with Jefferies. Your line is now open.

Sheila Kahyaoglu -- Jefferies -- Analyst

Hi. Good morning, everyone. Just going back to Otis, can you talk a little bit about the service portfolio in particular and just price increases? Is it a matter of time where pricing should start to improve, or is it something structural within the industry itself? And if you could just comment on maybe what you saw on a regional basis for pricing within the service portfolio? Thank you.

Akhil Johri -- Executive Vice President and Chief Financial Officer

Sure. So, the good news on the service side at Otis is -- I kind of look at it in two ways. One is the portfolio growing by itself, and I think that the good news is the portfolio at Otis did grow in terms of the number of units under maintenance in the second quarter compared to the first quarter or compared to the last year, so that's a positive sign. The biggest element from a regional perspective, Sheila, as you know, is Europe. And after several years of decline in the revenue per unit line item which drives -- which is an indication of the pricing, we have seen now in the first half revenue per unit stabilized for the maintenance portfolio in Europe. So, it's been flattish, which is, again, a good sign.

As you know, we are working on all these service transformation initiatives. So, right now, because of the investments we are making, we have this dynamic of costs, costs growing, not being fully offset by productivity. But as these initiatives take traction and the new tools become prevalent all across the world, you will see productivity gains starting to offset some of the cost inflation that is there in that line. So, looking forward, feel a lot more positive about the trends that are there. Other places, North America service still doing well, and in China, we continue to make progress with regard to growth in the service business as a percentage of the total.

Sheila Kahyaoglu

Great. Thank you for the color. And then just one more, if you don't mind, on Pratt. Military continues to be very strong. How long do you think that growth is sustainable?

Akhil Johri -- Executive Vice President and Chief Financial Officer

Pratt seems to be -- Joint Strike Fighter is continuing to grow, as you know, right? The number of engines, the number of aircraft required will continue to grow. The engines that we are supplying and all the components that you guys are supplying to them also continue to grow. The Joint Strike Fighter is the big driver of the growth in military engine business. We also have great strength in the aftermarket side of the business, as these assets continue to fly a lot. So, I think overall, we do expect to see -- our guidance for this year is 20% OE growth in the military engine side, and that == we feel very good about our ability to hit that. Aftermarket growth is expected to be around 10% for the year, and that also feels very doable. So, it's a pretty good story, and I think there is several years of legs on that.

Greg Hayes -- Chairman and Chief Executive Officer

Yeah. Sheila, if you think about the fleets, I mean F100 fleet, still massive out there, flying a lot hours. F119 fleet generally a lot flying hours. And the F135 not just delivering at the trail, so equipping the fleets worldwide to sustain themselves. So, you start to see the aftermarket in that program as well as we progress out here in the next few years.

Operator

Just a reminder, ladies and gentlemen, we do ask that you limit yourself to one question. Our next question is from Steve Tusa with JPMorgan. Your line is now open.

Greg Hayes -- Chairman and Chief Executive Officer

Steve?

Operator

Our next question is from Sam Pearlstein with Wells Fargo. Your line is now open.

Samuel Pearlstein -- Wells Fargo -- Analyst

Good morning. And I know you just need one question. Bust just, quick, just the first one is just on NORDAM, is there any sort of impact receivables, was just a quick question. But then I was wondering if you could talk a little bit more about just the Rockwell Collins dilution and help us just understand what's in and what's out. And I'm thinking about the cost to extract the synergies versus the synergy savings, kind of the one-time closing cost around that transaction. Just trying to see what's in and what's out of that in terms of the adjusted earnings?

Akhil Johri -- Executive Vice President and Chief Financial Officer

Sure. So, on NORDAM, there is no receivables impact. They were a supplier to us, so there is no impact from that side. There is obviously going to be some impact on the cost side, which we'll talk about that as things progress there and as we have a better understanding of the solution to that outcome. On the Rockwell Collins number, as we've already said, I think the number that we talk about on adjusted EPS is consistent with our definition of adjusted EPS, which means we exclude any restructuring costs. We exclude any one-time step-up inventory amortization or any integration costs for the first six months to a year, if you will, which are exceptional in nature. But going forward, any intangibles amortization of a normal recurring nature on customer relationships, trade names, etc., that will be part of the adjusted EPS.

For the reference to those who care, we will provide an extra data point which is on the cash accretion, if you will. We will provide that so you can see on a cash basis, clearly the transaction is going to be greatly accretive, and our commitment was that even with taking into account our large significant intangibles amortization, the transaction will be accretive in 2019, and we still believe that will be the case.

Samuel Pearlstein -- Wells Fargo -- Analyst

That's great. Thank you.

Operator

Our next question is from Peter Arment with Robert Baird. Your line is now open.

Peter Arment -- Robert Baird -- Analyst

Thanks. Good morning, Greg, Akhil. Akhil, just -- you mentioned I believe that the China pricing and backlog at Otis that lingers into '19? Can you clarify like how -- does it go throughout 2019? How should we be thinking about that? And then just Greg, just related to this, you mentioned $0.05 of risk from tariffs. Maybe you could just walk us through how you're thinking about that just in general? Thanks.

Akhil Johri -- Executive Vice President and Chief Financial Officer

Sure. So, the price mix point I was making is that Otis is starting to see improvement in that, Peter. The last three quarters now, price mix has been slightly positive in Otis China orders, and as you know, it takes about nine months to 12 months for the orders to convert into sales. So, what you're seeing in our P&L this year is in effect the margin that was booked in the backlog in 2017, which had pretty high negative price mix. So, as we get into 2019 we should start to see an improvement in that metric, not lingering impacts. There will be some impact of that, but not by a large amount. So, I expect that to see -- to get a little bit better.

With regard to the tariffs, roughly $50 million, or $0.05, as Greg mentioned, that's included in our outlook. About half of that is at CCS. Another $10 million or so would be at Otis, and then the rest is between the aerospace companies. And that's got to do with the -- not just the steel and aluminum; it is also the List 1 of the tariffs that came from the $50 billion list that --

Greg Hayes -- Chairman and Chief Executive Officer

Right. The Section 301.

Akhil Johri -- Executive Vice President and Chief Financial Officer

Yes.

Greg Hayes -- Chairman and Chief Executive Officer

I think one thing to keep in mind is, as is our normal practice, we'll in those steel and aluminum. Most of the commodities are for six to nine months. So, we're actually not seeing the full impact in 2018 of what the steel and aluminum tariffs are, and it's anybody's guess how long those stay in place. I think if you think about next year, obviously you could see a much bigger impact from all of these tariffs. I mean, right now, we're only got a half-year impact on 301, but a full-year impact there, plus potentially, some higher steel and aluminum tariffs is -- as well as copper input cost, higher still. We've got a lot of work to do to try and offset that. And I think the key will be our ability to continue to push prices in the marketplace as these input costs go up. Of course, that's gonna lead to a little bit of inflation, and hopefully not so much that it's gonna curtail demand. But we are always mindful of that trade-off. So, again, it's -- these tariffs aren't helpful to anybody. But we're gonna have to deal with them.

Peter Arment -- Robert Baird -- Analyst

Appreciate the color. Thanks.

Operator

Our next question is from Steven Winoker with UBS. Your line is now open.

Steven Winoker -- UBS -- Analyst

Thanks. Good morning, guys.

Greg Hayes -- Chairman and Chief Executive Officer

Hi, Steve.

Steven Winoker -- UBS -- Analyst

Hey, could you just maybe give us a little more color on that strong working capital number in the quarter as sort of a liquidation of deliveries, despite ramps on the GTF, or what are some of the dynamics back and forth there? And can we expect that to continue?

Akhil Johri -- Executive Vice President and Chief Financial Officer

Well, some of it was the bad Q1 we had, Steve, right? I mean, I think you saw we had that shortfall in our cash in our cash in Q1, and as a result, there were significantly higher receivables that came into Q2, which we were able to collect upon, and that's helped the working capital number. The area in which we still have work to do, which is the long-term opportunity for our cash flow metric, is inventory. We've seen continued growth in inventory to support the ramp that is there; the supply chain stability that will come in that area over the next few years as production rates start to stabilize as the supply chain gets more stable. I think all that is the upside that is still ahead of UTC with regard to the cash flow metric and the working capital returns.

As I've said before, I think our aerospace businesses have seen inventory turns decline over the last several years. This year, I expect returns to start to improve, and then cash flow benefit start to come in, in the forthcoming years. But a lot of opportunity ahead of us.

Steven Winoker -- UBS -- Analyst

Okay, so that -- you expect it to basically normalize, stabilize in the back half of the year?

Akhil Johri -- Executive Vice President and Chief Financial Officer

Back half and going forward. I think the supply chain stability will probably take longer than just the next six months, Steve. These are not easy things to do. By the time we are able to get some of the safety stock reductions in our inventories, it will probably be a few more years. But I think the good news is that it's a multiyear, good news self-help story that is ahead of us that we can take advantage of.

Steven Winoker -- UBS -- Analyst

Okay. And Akhil, just a point of clarification, the $70 million of contingency that you mentioned, that's at the midpoint of guidance?

Akhil Johri -- Executive Vice President and Chief Financial Officer

Yes, it is. In the updated guidance, which is at $7.18, effectively $70 million.

Steven Winoker -- UBS -- Analyst

Okay, great. Thank you.

Akhil Johri -- Executive Vice President and Chief Financial Officer

Okay.

Operator

Our next question is from Steve Tusa with JPMorgan. Your line is now open.

Stephen Tusa -- JPMorgan -- Analyst

Hey, guys. Good morning.

Greg Hayes -- Chairman and Chief Executive Officer

Found you.

Stephen Tusa -- JPMorgan -- Analyst

Sorry about that. Some technical difficulties. Just on CCS, can you maybe just more specifically update us on that profit bridge and what kind of the moving pieces are now with the reduction in the guidance that you gave earlier in the year on March?

Akhil Johri -- Executive Vice President and Chief Financial Officer

Sure. So, if you look at that specific profit bridge, in the other line, there was a negative $50 million. That is where we've got the Taylor divestiture impact. So ,in an updated bridge, that number would be closer to about somewhere between $75 to $100, let's say, maybe closer to $100, as Taylor comes out of the second half, and it's a profitable business. And the other pieces, I would say we had $50 million of good news between price cost. That number looks more like $25 positive now. We still believe it's $25. For the first half, we were pretty much neutral. All that goodness is going to come in the second half, and we have price increases in there.

The offset to those sort of negatives is on the higher volume. So, organic growth has been doing reasonably well. So, to the extent that there is any offset needed to those specific numbers, it will come through the volume line. So, overall, we feel very good. The FX number is now -- it was looking stronger, Steve, at the end of the first quarter, but it's probably back to the $25 million bridge that we stated in the agenda guidance.

Stephen Tusa -- JPMorgan -- Analyst

Okay. And then just on -- to follow up on Steve's question on free cash flow. So, can your actual cash generation at Pratt be up next year in 2019?

Akhil Johri -- Executive Vice President and Chief Financial Officer

I would certainly hope so. Pratt should continue to grow cash going forward. The other element is capex, Steve, where we have been spending a lot of money in standing up the production facilities to support the ramp. The OE side of the ramp related to capex is going to be pretty much behind us or become de minimis, but there is still aftermarket ramp-related capital expenditure, which is still ahead of us at Pratt, and to some extent at UTAS. But those numbers are probably going to start, I think, after '19. You will start to see capex at Pratt and UTAS start to decline a little bit, and that should help overall cash flow for both those businesses, as well as UTC overall.

Stephen Tusa -- JPMorgan -- Analyst

And are they up this year at Pratt?

Akhil Johri -- Executive Vice President and Chief Financial Officer

Yes. Pratt, the capex is flat to slightly up this year. Overall for UTC, as you know, we've talked about capex being flattish, and that's probably effective across the businesses.

Stephen Tusa -- JPMorgan -- Analyst

But the cash, free cash flow is what I meant, at Pratt?

Akhil Johri -- Executive Vice President and Chief Financial Officer

Yeah, free cash flow for Pratt is slightly down this year compared to last year at this point.

Stephen Tusa -- JPMorgan -- Analyst

That make sense. Okay. Thanks a lot, guys. Appreciate the detail, as always.

Akhil Johri -- Executive Vice President and Chief Financial Officer

Take care, Steve.

Operator

Our next question is from Nigel Coe with Wolfe Research. Your line is now open.

Nigel Coe -- Wolfe Research -- Analyst

Thanks. Good morning, guys.

Greg Hayes -- Chairman and Chief Executive Officer

Hi, Nigel.

Nigel Coe -- Wolfe Research -- Analyst

Just wanted to pick up on the Otis China pricing commentary, the backlog kind of conversion in nine to 12 months. That implies -- have we now seen peak pressure from the pricing in the first half of the year, and therefore we'll start seeing a moderation of that pinch? And then maybe just out to Europe, what are you seeing in European sales pricing?

Akhil Johri -- Executive Vice President and Chief Financial Officer

So, the price mix in China should -- I think your assertion is right, Nigel. We should probably start to see a pinch improvement, and pinch is probably the right word, improvement in the second half in the price mix going to the backlog. The backlog still has some negative pricing in there. With regard to Europe service, the revenue per unit is starting to stabilize. As I said earlier, I think the first half of this year is the first time in many years that Otis business has seen revenue per unit for maintenance contracts in Europe be flat to slightly positive. And we do expect to see that turn. Now again, it's not broad-based at this time, Nigel. So, within Europe, there are different countries you will see pressures continuing still in cases like France and Spain, where we have a pretty high installed base. But there are also, on the other hand, improvements in other markets within Europe. So, it's a mixed story there, but overall, at least for the first time in many years, we're seeing flattish revenue per unit year-over-year.

Nigel Coe -- Wolfe Research -- Analyst

Great. And then just quickly on the 301s. I think you said the $50 million is solely List 1. Have you done any work in terms of trying to quantify List 2 and List 3 impact?

Akhil Johri -- Executive Vice President and Chief Financial Officer

No. There is still a lot more to be done there, Nigel. I think it is not till those things get firmed up and we know exactly what -- I mean, the good thing is it's not a finished product issue, because we generally make product for the local market. So, most of the China production in China is for that market. We don't export too much out of it to the U.S. specifically, but there are components. There are drives, there are motors, there are all kinds of small components that we do buy, which get -- probably get impacted by these tariffs. So, the ultimate solution, as Greg said, is unfortunately going to result in higher inflation, where we and others will attempt to pass all of that to the consumers. So, over the long-term, you and I pay for this stuff, but that's the way business works.

Nigel Coe -- Wolfe Research -- Analyst

Okay, great color. Thanks again.

Operator

Our next question is from Doug Harned with Bernstein. Your line is now open.

Douglas Harned -- Bernstein Research -- Analyst

Thank you. Good morning. I wanted to see if you could give us a little more of an update on the GTF. I mean, you've had some very good delivery ramp so far this year now. How are you looking at the rest of the year in terms of the number of deliveries, the kind of cadence, and really, when do you see production proceeding in a way that it's more stable, that we're not dealing with the kinds of backend loading that we had last year?

Greg Hayes -- Chairman and Chief Executive Officer

Yeah. So, if you think about the total production of GTF, this year will be a little bit more than double what we saw last year. Obviously, the cadence of deliveries in the second quarter was making up for a little bit of the first quarter issues that we had with the seal. But having said that, we're back on track. We're meeting all of the delivery milestones. The engine itself -- and I'll speak to the neo specifically -- has got about 800,000 hours on it right now. So, we're approaching that point where -- we always say about a million hours, most of the teething problems have at least been identified. So, we'll clearly get there before year-end.

I think the good news is, in the last year, we've had over 2,000 orders for the GTF. And as you think about all the issues that everybody has been concerned about, the fact is, this motor really works and a really delivers on the fuel burn, on the emissions, and on the noise signature. So, the airlines are confident. We've got the hours. We continue to build hours every single day. We're still dealing with some of the issues you recall. We had the combustor issue on the -- some of the early units, but we continue to see those come off wing about on schedule. So, it creates a bit of a challenge for some of the operators. But for the most part, there's enough spares now out there to deal with that. And I think everybody is pretty happy with the performance. I think on time, or I think we're 99.89% on time right now in terms of availability of the engine.

So again, we're not causing delays with the operators, and people are generally very, very happy with this. And I think you could say the same thing at Bombardier, or now I guess Airbus, with the A220. That engine continues to perform very well, and we're just starting to see some early introductions of the E2. So, again, all very, very positive, and I think it's really a tribute to the Pratt -- both the production team and the engineering team for getting some of these issues dealt with very, very quickly and effectively.

Douglas Harned -- Bernstein Research -- Analyst

So, is it fair to say that since you resolved the seal problem earlier and you're continuing to make progress on the combustor, do you see any other issues that are out there that appear to be any significant hurdle to getting this ramp continuing to go up?

Greg Hayes -- Chairman and Chief Executive Officer

Well, I don't see any issues today. But like I said, we're still -- we haven't hit that million hour mark yet. Keep in mind, with these engines, even on the V2500, which has been out there for 25 years and has delivered over 7,000, we continue to find ways to improve the performance and improve durability. And we will continue to find ways to do that on the GTF. As you know, we still have a long way to go on the cost reduction curve and GTFs, and we'll be introducing some cost reduced components. But as we do that, we'll also be looking to improve the durability of the components that we're putting on wing. So, this is -- you never done in the engine business, right? This is a constant evolution of the engine to try to get the best possible configuration you can. And we're continuing to work to that. But today, I don't see -- there's no showstopper out there. There's no new drama that I'm aware of today that would cause us any concerns.

Douglas Harned -- Bernstein Research -- Analyst

Okay, great. Thank you.

Operator

And I'm showing no further questions. I would now like to turn the call back to Mr. Hayes for any further remarks.

Greg Hayes -- Chairman and Chief Executive Officer

Okay. I just want to thank everyone for listening in today. A really solid quarter again, and I think more importantly, a really solid outlook for 2017 -- or 2018, that's what year this is -- and beyond. As always, Carroll and the team are available to take your calls, and look forward to seeing you all in the coming weeks and months. Take care.

Operator

Ladies and gentlemen, thanks for participating in today's conference. You may now disconnect. Everyone have a great day.

Duration: 60 minutes

Call participants:

Greg Hayes -- Chairman and Chief Executive Officer

Akhil Johri -- Executive Vice President and Chief Financial Officer

Carroll Lane -- Vice President, Investor Relations

Julian Mitchell -- Barclays -- Analyst

Ron Epstein -- Bank of America -- Analyst

Rajeev Lalwani -- Morgan Stanley -- Analyst

Jeffrey Sprague -- Vertical Research Partners -- Analyst

Carter Copeland -- Melius Research -- Analyst

Sheila Kahyaoglu -- Jefferies -- Analyst

Samuel Pearlstein -- Wells Fargo -- Analyst

Peter Arment -- Robert Baird -- Analyst

Steven Winoker -- UBS -- Analyst

Stephen Tusa -- JPMorgan -- Analyst

Nigel Coe -- Wolfe Research -- Analyst

Douglas Harned -- Bernstein Research -- Analyst

More UTX analysis

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.