<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C.
20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period
from____________________________to__________________________
Commission file number 1-812
UNITED TECHNOLOGIES CORPORATION
DELAWARE 06-0570975
One Financial Plaza, Hartford, Connecticut 06101
(860) 728-7000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X . No .
At June 30, 1996 there were 120,857,960 shares of Common Stock outstanding.<PAGE>
<PAGE>
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONTENTS OF QUARTERLY REPORT ON FORM 10-Q
Quarter Ended June 30, 1996
Page
Part I - Financial Information
Item 1. Financial Statements:
Condensed Consolidated Statement of
Operations for the three months ended June
30, 1996 and 1995 1
Condensed Consolidated Statement of
Operations for the six months ended June
30, 1996 and 1995 2
Condensed Consolidated Balance Sheet at June
30, 1996 and December 31, 1995 3
Condensed Consolidated Statement of Cash
Flows for the six months ended June 30,
1996 and 1995 4
Notes to Condensed Consolidated Financial
Statements 5
Report of Independent Accountants 7
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Position 8
Part II - Other Information
Item 1. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of
Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
Exhibit Index<PAGE>
<PAGE> 1
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
<TABLE>
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended
June 30,
In Millions of Dollars (except per share amounts) 1996 1995
<S> <C> <C>
Revenues:
Product sales $ 4,773 $ 4,613
Service sales 1,229 1,161
Financing revenues and other income, net 41 66
6,043 5,840
Costs and expenses:
Cost of products sold 3,818 3,806
Cost of services sold 740 680
Research and development 274 233
Selling, general and administrative 709 672
Interest 56 67
5,597 5,458
Income before income taxes and minority interests 446 382
Income taxes 151 132
Minority interests 36 32
Net Income $ 259 $ 218
Earnings per share of common stock and common stock
equivalents $ 1.96 $ 1.65
Dividends per share of common stock $ .55 $ .50
Average common and equivalent shares outstanding
(in thousands) 131,163 130,964
</TABLE>
See Accompanying Notes<PAGE>
<PAGE> 2
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
<TABLE>
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<CAPTION>
Six Months Ended
June 30,
In Millions of Dollars (except per share amounts) 1996 1995
<S> <C> <C>
Revenues:
Product sales $ 8,932 $ 8,865
Service sales 2,418 2,227
Financing revenues and other income, net 85 92
11,435 11,184
Costs and expenses:
Cost of products sold 7,197 7,334
Cost of services sold 1,469 1,335
Research and development 524 451
Selling, general and administrative 1,392 1,301
Interest 114 129
10,696 10,550
Income before income taxes and minority interests 739 634
Income taxes 250 220
Minority interests 66 61
Net Income $ 423 $ 353
Earnings per share of common stock and common stock
equivalents $ 3.20 $ 2.68
Dividends per share of common stock $ 1.10 $ 1.00
Average common and equivalent shares outstanding
(in thousands) 131,157 130,376
</TABLE>
See Accompanying Notes<PAGE>
<PAGE> 3
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
<TABLE>
CONDENSED CONSOLIDATED BALANCE SHEET
<CAPTION>
<S> <C> <C>
June 30, December 31,
In Millions of Dollars 1996 1995
(Unaudited)
</TABLE>
Assets
<TABLE><CAPTION>
<S> <C> <C>
Cash and cash equivalents $ 1,075 $ 900
Accounts receivable, net 3,772 3,682
Inventories and contracts in progress, net 3,164 2,954
Future income tax benefits 917 950
Other current assets 286 466
Total Current Assets 9,214 8,952
Fixed assets 10,457 10,326
Less - accumulated depreciation (6,174) (5,906)
4,283 4,420
Other assets 2,686 2,586
Total Assets $ 16,183 $ 15,958
</TABLE>
Liabilities and Shareowners' Equity
<TABLE><CAPTION>
<S> <C> <C>
Short-term borrowings $ 247 $ 294
Accounts payable 1,986 2,084
Accrued liabilities 4,451 4,183
Long-term debt currently due 92 98
Total Current Liabilities 6,776 6,659
Long-term debt 1,543 1,649
Future pension and postretirement benefit obligations 1,441 1,399
Other long-term liabilities 1,863 1,832
Series A ESOP Convertible Preferred Stock 885 892
ESOP deferred compensation (468) (494)
417 398
Shareowners' Equity:
Common Stock 2,289 2,249
Treasury Stock (1,350) (1,168)
Retained earnings 3,522 3,252
Currency translation and pension liability
adjustments (318) (312)
4,143 4,021
Total Liabilities and Shareowners' Equity $ 16,183 $ 15,958
</TABLE>
See Accompanying Notes<PAGE>
<PAGE> 4
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
<TABLE>
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<CAPTION>
Six Months Ended
June 30,
In Millions of Dollars 1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $ 423 $ 353
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization 424 421
Change in:
Accounts receivable (64) 161
Inventories and contracts in progress (198) (212)
Accounts payable and accrued liabilities 113 (18)
Other, net 340 140
Net Cash Flows from Operating Activities 1,038 845
Cash flows from investing activities:
Capital expenditures (307) (331)
Acquisitions of business units (155) (17)
Dispositions of business units 30 88
Decrease in customer financing assets, net 31 170
Other, net 53 47
Net Cash Flows from Investing Activities (348) (43)
Cash flows from financing activities:
Issuance of long-term debt 27 --
Repayments of long-term debt (141) (145)
Decrease in short-term borrowings, net (69) (87)
Dividends paid on Common Stock (133) (123)
Common Stock repurchase (182) (90)
Other, net (19) (1)
Net Cash Flows from Financing Activities (517) (446)
Effect of foreign exchange rate changes on cash and
cash equivalents 2 13
Net Increase in Cash and Cash Equivalents 175 369
Cash and Cash Equivalents, Beginning of year 900 386
Cash and Cash Equivalents, End of period $ 1,075 $ 755
</TABLE>
See Accompanying Notes<PAGE>
<PAGE> 5
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The condensed consolidated financial statements at June 30, 1996 and for the
three-month and six-month periods ended June 30, 1996 and 1995 are unaudited,
but in the opinion of the Corporation include all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of the
results for the interim periods.
In the 1996 second quarter, the Corporation changed its classification of
sales associated with Pratt & Whitney's strategic alliances and related
collaborative arrangements on its engine programs. Collaboration participants'
share of revenue, previously included in cost of sales, has been reclassified as
a reduction of sales in the accompanying income statements for the three-month
and six-month periods ended June 30, 1996. This reclassification was made to
more clearly present Pratt & Whitney's production costs and operating
activities.
The effect of this reclassification was to reduce revenues and cost of sales
for the 1996 second quarter and six-month period by approximately $100 million
and $200 million, respectively. This reclassification does not affect net
income or assets. While 1995 amounts have not been reclassified, the impact on
prior years would be comparable to that of 1996.
Contingent Liabilities
While there has been no significant change in the Corporation's material
contingencies during 1996, the matters previously described in Note 15 of Notes
to Financial Statements in the Corporation's Annual Report on Form 10-K for
calendar year 1995 are summarized below.
Environmental
The Corporation's operations are subject to environmental regulation by
federal, state, and local authorities in the United States and regulatory
authorities with jurisdiction over its foreign operations.
It is the Corporation's policy to accrue environmental investigatory and
remediation costs when it is probable that a liability has been incurred by the
Corporation for known sites and the amount of loss can be reasonably estimated.
Where no amount within a range of estimates is more likely, the minimum is
accrued. Otherwise, the most likely cost to be incurred is accrued. The
measurement of the liability is based on an evaluation of currently available
facts with respect to each individual site and takes into account factors such
as existing technology, presently enacted laws and regulations, and prior
experience in remediation of contaminated sites.
Where the Corporation is not the only party responsible for the remediation
of a site, the Corporation considers its likely proportionate share of the
anticipated remediation expense in establishing a provision for those costs.
Included within the sites known to the Corporation are those sites at which the
Corporation has been identified as a potentially responsible party under the
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"
or Superfund). Under the provisions of this statute, the Corporation may be
held liable for all costs of environmental remediation without regard to the
legality of the Corporation's actions resulting in the contamination. In
estimating its liability for remediation, the Corporation considers its likely<PAGE>
<PAGE> 6
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
proportionate share of the anticipated remediation expense and the ability of
the other potentially responsible parties to fulfill their obligations.
Some of the Corporation's liabilities, including certain Superfund
liabilities, relate to facilities that were acquired by the Corporation with
indemnities from the sellers or former owners. In estimating the potential
liability at these sites, the Corporation has considered the indemnification
separately from the liability.
The Corporation has had liability and property insurance in force over its
history with a number of insurance companies, and the Corporation has commenced
litigation seeking indemnity and defense under these insurance policies in
relation to its environmental liabilities. Settlements to date, which have not
been material, have been recorded upon receipt. While the litigation against
the Corporation's historic liability insurers has concluded, it is expected that
the case against the Corporation's property insurers will last several years.
Environmental liabilities are not reduced by potential insurance reimbursements.
U.S. Government
The Corporation is now and believes that, in light of the current government
contracting environment, it will be the subject of one or more government
investigations. If the Corporation or one of its business units were charged
with wrongdoing as a result of any of these investigations, the Corporation or
one of its business units could be suspended from bidding on or receiving awards
of new government contracts pending the completion of legal proceedings. If
convicted or found liable, the Corporation could be fined and debarred from new
government contracting for a period generally not to exceed three years. Any
contracts found to be tainted by fraud could be voided by the Government.
The Corporation's contracts with the U.S. Government are also subject to
audits. Like many defense contractors, the Corporation has received audit
reports which recommend that certain contract prices should be reduced to comply
with various government regulations. Some of these audit reports involve
substantial amounts. The Corporation has made voluntary refunds in those cases
it believes appropriate.
Other
The Corporation extends performance and operating cost guarantees, which are
beyond its normal warranty and service policies, for extended periods on some of
its products, particularly commercial aircraft engines. Liability under such
guarantees is contingent upon future product performance and durability. The
Corporation has accrued its estimated liability that may result under these
guarantees.
The Corporation also has other commitments and contingent liabilities related
to legal proceedings and matters arising out of the normal course of business.
The Corporation has accrued its liability for environmental investigation and
remediation, performance guarantees, product liability, and other litigation and
claims based on management's estimate of the probable outcome of these matters.
While it is possible that the outcome of these matters may differ from the
recorded liability, management believes that resolution of these matters will
not have a material adverse effect upon either results of operations, cash
flows, or financial position of the Corporation.<PAGE>
<PAGE> 7
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
With respect to the unaudited condensed consolidated financial information of
United Technologies Corporation for the three and six-month periods ended June
30, 1996 and 1995, Price Waterhouse LLP ("Price Waterhouse") reported that they
have applied limited procedures in accordance with professional standards for a
review of such information. However, their separate report dated July 24, 1996
appearing below, states that they did not audit and they do not express an
opinion on that unaudited condensed consolidated financial information. Price
Waterhouse has not carried out any significant or additional audit tests beyond
those which would have been necessary if their report had not been included.
Accordingly, the degree of reliance on their report on such information should
be restricted in light of the limited nature of the review procedures applied.
Price Waterhouse is not subject to the liability provisions of section 11 of the
Securities Act of 1933 for their report on the unaudited condensed consolidated
financial information because that report is not a "report" or a "part" of the
registration statement prepared or certified by Price Waterhouse within the
meaning of sections 7 and 11 of the Act.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
United Technologies Corporation
We have reviewed the accompanying condensed consolidated statement of
operations of United Technologies Corporation and consolidated subsidiaries for
the three and six-month periods ended June 30, 1996 and 1995, the condensed
consolidated statement of cash flows for the six months ended June 30, 1996 and
1995, and the condensed consolidated balance sheet as of June 30, 1996. This
financial information is the responsibility of the company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial information for it to be in
conformity with generally accepted accounting principles.
We previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1995, and the
related consolidated statements of operations and cash flows for the year then
ended (not presented herein), and in our report dated January 24, 1996, we
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 1995, is fairly stated in all
material respects in relation to the consolidated balance sheet from which it
has been derived.
Price Waterhouse LLP
Hartford, Connecticut
July 24, 1996<PAGE>
<PAGE> 8
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL POSITION
BUSINESS ENVIRONMENT
The Corporation's Otis, Carrier and UT Automotive subsidiaries serve
customers in the commercial property, residential housing and automotive
businesses. Additionally, the Corporation's Pratt & Whitney, Sikorsky and
Hamilton Standard businesses serve commercial and government customers in the
aerospace industry. As world-wide businesses, these operations are affected by
global as well as regional economic factors.
U.S. residential housing starts increased in the 1996 second quarter and six-
month period compared to the same periods last year, while commercial
construction starts in the U.S. decreased for the 1996 second quarter and six-
month period compared to the same periods last year. U.S. commercial vacancy
rates have made modest improvements from the 1992 peak.
North American car and light truck production was higher in the 1996 second
quarter but was lower for the six-month period as compared to the 1995 periods,
while European car sales in 1996 were higher in both the second quarter and the
six-month period.
Worldwide airline profits improved during 1995 as a result of increased load
factors. However, near term profitability at most U.S. airlines is being used
to improve their financial condition and they have yet to achieve the financial
condition necessary to make significant investments in new aircraft. For many
European airlines, increasing competition, higher cost structures and
privatization initiatives will strain financial results and resources in the
near term. Strong economic growth in the Asia Pacific region has contributed to
an increase in new aircraft orders from that market that began in 1994 and has
continued into 1996.
The defense portion of the Corporation's aerospace businesses continues to
respond to a changing global political environment. The U.S. defense industry
is continuing its downsizing in response to the reductions in the U.S. defense
budget. International orders for defense programs have also declined and some
important foreign orders have been delayed. As a result, the Corporation has
continued to reduce its reliance on U.S. defense contracts.
Cost reduction continues to be a corporate-wide imperative, implemented by
each business unit. Manufacturing costs and floor space must continue to be
reduced to remain competitive in all of our businesses, but particularly in the
aerospace segments where these cost reductions are needed to offset the effects
of lower volumes.<PAGE>
<PAGE> 9
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
RESULTS OF OPERATIONS
Consolidated revenues and margin percentages were as follows:
<TABLE><CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
In Millions of Dollars 1996 1995 1996 1995
<S> <C> <C> <C> <C>
Product sales $ 4,773 $ 4,613 $ 8,932 $ 8,865
Service sales 1,229 1,161 2,418 2,227
Financing revenues and
other income, net 41 66 85 92
Product margin % 20.0% 17.5% 19.4% 17.3%
Service margin % 39.8% 41.4% 39.2% 40.1%
</TABLE>
Consolidated revenues increased 3% and 2% for the second quarter and six-
month period of 1996, respectively, over the comparable periods of 1995.
Foreign exchange translation had an unfavorable effect on revenue; excluding
this effect, consolidated revenues increased 5% and 3% for the second quarter
and six-month period of 1996 over the comparable 1995 periods. All segments,
excluding Flight Systems, reported increased revenues in the second quarter,
while in the six-month period increases at Otis, Carrier and Automotive were
partially offset by decreases in Flight Systems. UTC's commercial and
industrial segments increased 6% and 8% for the second quarter and six-month
period of 1996. The aerospace segments decreased 1% and 6% for the second
quarter and six-month period of 1996.
Financing revenues and other income decreased in the second quarter, from the
comparable period in the prior year, as a result of the absence of a gain
realized by Carrier in the second quarter of 1995 on the sale of a 49% joint
venture interest in its Arkadelphia scroll compressor plant and lower financing
revenues in 1996. Financing revenues and other income for the six-month period
decreased principally due to the same effects as in the second quarter,
partially offset by higher interest income and gains from miscellaneous asset
sales.
Product margin as a percentage of sales increased 2.1 percentage points in
the six-month period compared to last year primarily as a result of improved
margin percentages at Pratt & Whitney, Carrier, and Flight Systems. Service
margins as a percentage of sales decreased nine-tenths of a percentage point in
the six-month period compared to last year with Otis, Carrier, and Pratt &
Whitney all experiencing declines.
Research and development expenses increased $41 million (18%) and $73 million
(16%) in the second quarter and six-month period of 1996, respectively, as
compared to 1995. As a percentage of sales, research and development was 4.6%
in the second quarter and six-month period of 1996 compared to 4.0% and 4.1% in
the corresponding periods last year. The increase occurred in all segments, but
principally at Pratt & Whitney's general aviation, government, and power
generation businesses. Research and development expenses in 1996 are expected
to increase from the spending level of 1995, but will remain between 4% and 5%
of sales.
Selling, general and administrative expenses in the second quarter and six-
month period of 1996 increased by $37 million (6%) and $91 million (7%) over the
<PAGE>
<PAGE> 10
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
1995 comparable periods. As a percentage of sales, these expenses increased
two-tenths of a percentage point to 11.8% from 11.6% for the second quarter
primarily due to higher expenses at Pratt & Whitney and lower sales at Flight
Systems. For the six-month period these expenses increased six-tenths of a
percentage point to 12.3% from 11.7% due to the same effects as in the second
quarter and higher expenses for incentive based compensation plans in the first
quarter.
Revenues and operating profits of the Corporation's principal business
segments for the three-month and six-month periods ended June 30, 1996 and 1995
are as follows (in millions of dollars):
<TABLE><CAPTION>
Operating
Revenues Operating Profits Profit Margin
1996 1995 1996 1995 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Three Months Ended
June 30,
Otis $ 1,401 $ 1,350 $ 129 $ 124 9.2% 9.2%
Carrier 1,634 1,529 155 130 9.5% 8.5%
Automotive 861 797 51 62 5.9% 7.8%
Pratt & Whitney 1,533 1,495 160 127 10.4% 8.5%
Flight Systems 646 703 61 59 9.4% 8.4%
Six Months Ended
June 30,
Otis $ 2,704 $ 2,535 $ 246 $ 234 9.1% 9.2%
Carrier 2,959 2,660 210 159 7.1% 6.0%
Automotive 1,605 1,547 101 113 6.3% 7.3%
Pratt & Whitney 2,949 2,986 300 252 10.2% 8.4%
Flight Systems 1,284 1,516 110 104 8.6% 6.9%
</TABLE>
Otis segment revenues for the second quarter and six-month period of 1996
were 4% and 7% higher than the comparable periods of 1995. Excluding the
unfavorable impact of foreign exchange translation effects, 1996 revenues
increased 9% for the second quarter and six-month period of 1996 over 1995 with
all geographic regions showing an increase compared to last year.
Operating profits at Otis increased $5 million and $12 million in the second
quarter and six-month period of 1996 compared to 1995. Excluding the effect of
foreign currency translation, Otis' increase in operating profits would have
been more than double the reported second quarter amount and the increase for
the six-month period would have been fifty percent higher. Also included in the
second quarter was a provision for the closure of a European manufacturing
operation. All geographic regions showed an increase compared to last year.
Carrier segment revenues for the second quarter and six-month period of 1996
were 7% and 11% higher than the comparable periods of 1995, with foreign
exchange translation effects having little impact. Revenues for the second
quarter and six-month period increased in all geographic regions with particular
strength in the North American and Asia Pacific regions.
Operating profits at Carrier increased $25 million and $51 million in the
second quarter and six-month period of 1996 compared to 1995, with foreign
exchange translation having little effect. Improvements were driven by
continued growth in the Asia Pacific region, plus strong demand for residential
and commercial air conditioning in North America.<PAGE>
<PAGE> 11
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
Automotive segment revenues increased 8% and 4% in the second quarter and
six-month period of 1996 as compared to 1995. The increase in revenues was a
result of higher UTA vehicle content.
Operating profits at the Automotive segment decreased $11 million and $12
million in the second quarter and six-month period of 1996 compared to the same
periods in 1995. UTA's results for the second quarter 1996 include effects of
the agreement reached with Ford Motor Company, described in Item 1. Legal
Proceedings appearing on page 14 of this Form 10Q, regarding UTA's participation
in the costs of a Ford vehicle recall program. Excluding the costs associated
with the recall, Automotive operating profits for the second quarter and six-
month period of 1996 would have been higher as compared to 1995.
Pratt & Whitney revenues during the second quarter increased 3%, while
decreasing 1% for the six-month period of 1996 as compared to 1995. Revenues
for the 1996 second quarter and six-month periods reflect the impact of the
change in classification of sales associated with Pratt & Whitney's strategic
alliances and related collaborative arrangements on its engine programs as
described in the accompanying Notes to Financial Statements. The effect of this
reclassification was to reduce revenues and cost of sales for the 1996 second
quarter and six-month period by approximately $100 million and $200 million,
respectively. This reclassification does not affect operating profits or
assets. While 1995 amounts have not been reclassified, the impact on prior
years would be comparable to that of 1996. The second quarter benefited from
increases in the commercial after-market, general aviation and government
businesses.
Operating profits for Pratt & Whitney for the second quarter and six-month
period of 1996 increased $33 million and $48 million over the comparable periods
of 1995. The increase reflects continued margin improvements in the commercial,
general aviation and government businesses, more than offsetting planned
increases in research and development spending and higher selling, general and
administrative expenses.
Flight Systems revenues decreased 8% and 15% in the second quarter and six-
month period of 1996 compared to 1995. Revenue decline in the second quarter
and six-month period of 1996 was the result of fewer helicopter shipments as
compared to 1995.
Operating profits for Flight Systems increased $2 million and $6 million in
the second quarter and six-month period of 1996 as compared to 1995. Second
quarter results reflect improved operating profit at Hamilton Standard partially
offset by lower helicopter volume at Sikorsky. Six-month results reflect
continuing operating profit at Hamilton Standard and the absence of 1995 costs
associated with selling the wafer fabrication facility of Hamilton Standard's
Microelectronics Center, partially offset by lower 1996 helicopter volume at
Sikorsky.
Interest expense decreased $11 million and $15 million in the second quarter
and six-month period of 1996, to $56 million and $114 million, respectively.
This decrease is mainly due to a reduced average borrowing level during the six-
month period compared to last year as the Corporation continues to retire or
extinguish debt with its improved cash flow.
The effective tax rate for the six month period of 1996 was 33.8%, compared
to an effective tax rate of 34.8% for the six-month period of 1995. The
Corporation has continued to reduce its effective income tax rate by
implementing tax reduction strategies.<PAGE>
<PAGE> 12
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
FINANCIAL POSITION AND LIQUIDITY
Management assesses the Corporation's liquidity in terms of its overall
ability to generate cash to fund its operating and investing activities. Of
particular importance in the management of liquidity are cash flows generated
from operating activities, capital expenditure levels, customer financing
requirements, adequate bank lines of credit, and financial flexibility to
attract long-term capital on satisfactory terms.
Set forth below is selected key cash flow data:
<TABLE><CAPTION>
Six Months Ended
June 30,
In Millions of Dollars 1996 1995
<S> <C> <C>
Operating Activities
Net Cash Flows from Operating Activities $ 1,038 $ 845
Investing Activities
Capital expenditures (307) (331)
Acquisitions of business units (155) (17)
Dispositions of business units 30 88
Decrease in customer financing assets, net 31 170
Financing Activities
Common Stock repurchase (182) (90)
Decrease in total debt (159) (204)
Decrease in net debt (334) (573)
</TABLE>
Cash flows from operating activities were $1,038 million during the first six
months of 1996 compared to $845 million for the corresponding period of 1995.
The improvement resulted primarily from improved operating performance and
working capital management.
Cash flows from investing activities were a use of funds of $348 million
during the first six months of 1996 compared to a use of $43 million in the
corresponding period of 1995. Capital expenditures in the six-month period of
1996 were $307 million, a $24 million decrease over the corresponding period of
1995. The Corporation expects 1996 full year capital spending to be comparable
to 1995. During the first six months of 1996, the Corporation invested $155
million for the acquisition of business units, the largest two items being the
purchase of a United Kingdom elevator company by Otis and UT Automotive's
ownership increase in a European subsidiary, both in the second quarter. While
the Corporation expects that changes in customer financing assets in 1996 will
be a net use of funds, actual funding is subject to usage under existing
customer financing commitments during the remainder of the year. The
Corporation's total commitments to finance or arrange financing of commerical
aircraft at June 30, 1996 was $1.3 billion.
The Corporation repurchased $182 million of common stock, representing 1.7
million shares, in the first six months of 1996 under previously announced stock
repurchase programs. Share repurchase continues to be a significant use of our
strong cash flows and serves to offset the dilutive effect resulting from the
issuance of stock under stock-based employee benefit programs.<PAGE>
<PAGE> 13
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
In June, the Corporation executed an in-substance defeasance of $88 million
of its 9.5% Medium-Term Notes due in October 1997. In addition, the Corporation
repurchased $48 million principal amount of its Medium-Term, Series B,
Pharmaceutical Exchange Notes (PEN Notes) and cancelled an equivalent amount of
the option and swap which hedged the appreciation portion of the obligation and
effectively converted the payments to floating short-term interest rates. The
Corporation is obligated to repurchase PEN Notes from time to time. The losses
on these transactions, which were immaterial, are included in Financing revenues
and other income.
Other selected financial data is as follows:
<TABLE><CAPTION>
June 30, December 31, June 30,
In Millions of Dollars 1996 1995 1995
<S> <C> <C> <C>
Cash and cash equivalents $ 1,075 $ 900 $ 755
Total debt 1,882 2,041 2,239
Net debt (total debt less cash) 807 1,141 1,484
Shareowners' equity 4,143 4,021 3,928
Debt-to-total capitalization 31.2% 33.7% 36.3%
Net debt-to-total capitalization 16.3% 22.1% 27.4%
</TABLE>
The Corporation manages its worldwide cash requirements with consideration of
available funds among the many subsidiaries through which it conducts its
business and the cost effectiveness with which those funds can be accessed. The
repatriation of cash balances from certain of the Corporation's subsidiaries
could have adverse tax consequences; however, those balances are generally
available without legal restrictions to fund ordinary business operations. The
Corporation has and will continue to transfer cash from those subsidiaries to
the parent and to other international subsidiaries as it is cost effective to do
so.
Management believes that its existing cash position and other available
sources of liquidity are sufficient to meet current and anticipated requirements
for the foreseeable future.
SAFE HARBOR STATEMENT
This Report on Form 10-Q contains statements which, to the extent they are
not historical fact, constitute "forward looking statements" within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. All forward looking statements involve risks and
uncertainties. The forward looking statements in this document are intended to
be subject to the safe harbor protection provided by Sections 27A and 21E.
For a discussion identifying some important factors that could cause actual
results to vary materially from those anticipated in the forward looking
statements, such as the economic, political, climatic, currency, regulatory,
technological and competitive changes which may affect the Corporation's
operations, products, and markets, see the Corporation's Securities and Exchange
Commission filings, including, but not limited to, the Corporation's 1995 Annual
Report on Form 10-K. See particularly Form 10-K Item I - Business, the sections
entitled "Description of Business by Industry Segment" and "Other Matters
Relating to the Corporation's Business as a Whole," and Form 10-K Item 7 -
Management's Discussion and Analysis of Results of Operations and Financial
Position, which also may be found at pages 20 through 27 of the Corporation's
1995 Annual Report to Shareowners.<PAGE>
<PAGE> 14
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
Part II - Other Information
Item 1. Legal Proceedings
The Corporations's Report on 10Q for the quarter ended March 31, 1996
disclosed (i) that lawsuits had been filed against Ford Motor Company ("Ford")
and United Technologies Automotive ("UTA") alleging that certain ignition
switches supplied by UTA to Ford were defective and (ii) that Ford had recalled
certain vehicles to replace the ignition switch. In June, 1996, UTA reached
agreement with Ford regarding UTA's participation in the costs of this recall.
Ford has agreed to accept responsibility for all litigation and any resulting
exposure relating to the subject ignition switches.
In July, 1995, the Corporation filed a multi-count complaint in the United
States District Court in Delaware against Chromalloy Gas Turbine Corporation
("Chromalloy") alleging breach of contract and patent infringement by Chromalloy
(United Technologies Corporation v. Chromalloy Gas Turbine Corporation, Civil
action 95-444). In August, 1995, Chromalloy filed a four-count Original
Petition against the Corporation in state court in Bexar County, Texas
(Chromalloy Gas Turbine Corporation v. United Technologies Corporation, 95 CI-
12541). In its Amended Petition, Chromalloy alleges that the Corporation
violated the Texas Free Enterprise and Antitrust Act, engaged in unfair
competition and tortiously interfered with Chromalloy's contractual relations.
All of the claims relate to alleged actions of Pratt & Whitney ("P&W") relating
to the repair of parts for commercial jet engines manufactured by P&W. In
December, 1995, the Corporation filed counterclaims against Chromalloy in the
Texas action for breach of contract, unfair competition and injunctive relief.
Fact discovery generally closed in June, 1996. The case is currently in expert
discovery, and a jury trial is scheduled to begin in August, 1996.
The Amended Petition did not specify the amount of damages allegedly suffered
or being sought by Chromalloy. Various theories of Chromalloy's alleged damages
were contained in their experts' damages reports which were first submitted in
June and supplemented in July. Although the analysis set forth in the reports
is somewhat unclear, the Corporation believes they indicate that Chromalloy is
seeking up to $400 million in compensatory damages. If liability is found on
the antitrust claim, damages could be trebled under Texas law. In addition,
Chromalloy seeks punitive damages of an unspecified amount and an injunction
against future P&W practices relating to the repair of P&W jet engine parts that
Chromalloy claims are unlawful. The Corporation believes that its claims
against Chromalloy are valid, Chromalloy's claims are without merit and
resolution of this matter will not have a material adverse effect upon either
results of operations, cash flows, or financial position of the Corporation. In
view of the uncertainties inherent in litigation, however, no assurance can be
given that the Corporation will not incur future liability in respect of this
lawsuit.
Other than the matters discussed above, there has been no material change
in legal proceedings during the second quarter of 1996. For a description of
previously reported legal proceedings, refer to Part I, Item 3 - Legal
Proceedings of the Corporation's Annual Report on Form 10K for calendar year
1995 and to Part II, Item 1 - Legal Proceedings of the Corporation's Report on
Form 10Q for the quarter ended March 31, 1996.<PAGE>
<PAGE> 15
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Corporation held its Annual Meeting of Shareowners on April 23, 1996.
(b) The following individuals were nominated and elected to serve as directors:
Howard H. Baker, Jr., Antonia H. Chayes, Robert F. Daniell, George David,
Robert F. Dee, Charles W. Duncan, Jr., Pehr G. Gyllenhammar, Gerald D. Hines,
Charles R. Lee, Robert H. Malott, Harold A. Wagner, and Jacqueline G. Wexler.
(c) The shareowners voted as follows on the following matters:
1. Election of directors. The voting result for each nominee is as
follows:
<TABLE><CAPTION>
NAME VOTES FOR VOTES WITHHELD
<S> <C> <C>
Howard H. Baker, Jr. 118,708,674 1,162,548
Antonia Handler Chayes 119,406,812 464,410
Robert F. Daniell 119,408,676 462,546
George David 119,361,819 509,403
Robert F. Dee 119,378,927 492,295
Charles W. Duncan, Jr. 119,409,944 461,278
Pehr G. Gyllenhammar 119,050,084 821,138
Gerald D. Hines 119,389,210 482,012
Charles R. Lee 119,427,613 443,609
Robert H. Malott 119,408,400 462,822
Harold A. Wagner 119,433,082 438,140
Jaqueline G. Wexler 119,377,523 493,699
</TABLE>
2. Appointment of auditors. The proposal was approved by a count of
119,403,069 votes for, 312,600 votes against, and 155,553 votes abstaining.
3. A management proposal to approve the Non-employee Director Stock Option
Plan was approved by a count of 92,385,855 votes for, 24,962,312 votes against,
and 2,523,055 votes abstaining.
4. A shareowner proposal recommending that the Corporation provide to
shareowners a list of all executives contractually entitled to receive a base
salary in excess of $100,000 annually was rejected by a count of 20,873,614
votes for, 89,518,909 votes against, with 2,070,193 votes abstaining, and
7,408,506 broker non-votes.<PAGE>
<PAGE> 16
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
(11) Computation of per share earnings
(12) Computation of ratio of earnings to fixed charges
(15) Letter re unaudited interim financial information
(27) Financial data schedule (submitted electronically herewith)
(b) No reports on Form 8-K were filed during the quarter ended June 30, 1996.<PAGE>
<PAGE> 17
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED TECHNOLOGIES CORPORATION
Dated: August 13, 1996 By: /s/ STEPHEN F. PAGE
Stephen F. Page
Executive Vice President and
Chief Financial Officer
Dated: August 13, 1996 By: /s/ WILLIAM H.TRACHSEL
William H. Trachsel
Vice President and Secretary<PAGE>
<PAGE>
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit 11 - Computation of per share earnings
Exhibit 12 - Computation of ratio of earnings to fixed charges
Exhibit 15 - Letter re unaudited interim financial information
Exhibit 27 - Financial data schedule (submitted electronically herewith)<PAGE>
<PAGE>
<TABLE>
Exhibit 11
<CAPTION>
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
Three Months Ended
June 30,
In Millions of Dollars (except per share amounts) 1996 1995
<S> <C> <C>
Net Income $ 259 $ 218
Preferred Stock Dividend Requirement 8 7
Earnings applicable to Common Stock 251 211
ESOP Convertible Preferred Stock adjustment 6 5
Net earnings for calculation of primary and fully
diluted earnings per share $ 257 $ 216
Average number of common shares and common stock
equivalents outstanding during period (four month-
end average) 131,162,539 130,964,343
Fully diluted average number of common shares and
common stock equivalents outstanding during period
(four month-end average) 131,408,573 131,294,781
Primary earnings per common share $ 1.96 $ 1.65
Fully diluted earnings per common share (Note 1) $ 1.96 $ 1.64
Note 1 - Fully diluted earnings per common share is less than 3% dilutive and is
not shown separately on the Condensed Consolidated Statement of
Operations.
/TABLE
<PAGE>
<PAGE>
<TABLE>
Exhibit 11
<CAPTION>
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
Six Months Ended
June 30,
In Millions of Dollars (except per share amounts) 1996 1995
<S> <C> <C>
Net Income $ 423 $ 353
Preferred Stock Dividend Requirement 15 13
Earnings applicable to Common Stock 408 340
ESOP Convertible Preferred Stock adjustment 12 10
Net earnings for calculation of primary and fully
diluted earnings per share $ 420 $ 350
Average number of common shares and common stock
equivalents outstanding during period (seven month-
end average) 131,156,935 130,376,338
Fully diluted average number of common shares and
common stock equivalents outstanding during period
(seven month-end average) 131,581,328 131,125,451
Primary earnings per common share $ 3.20 $ 2.68
Fully diluted earnings per common share (Note 1) $ 3.19 $ 2.67
Note 1 - Fully diluted earnings per common share is less than 3% dilutive and is
not shown separately on the Condensed Consolidated Statement of
Operations.
/TABLE
<PAGE>
<PAGE>
<TABLE>
Exhibit 12
<CAPTION>
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Six Months Ended
June 30,
In Millions of Dollars 1996 1995
<S> <C> <C>
Fixed Charges:
Interest on indebtedness $ 114 $ 129
Interest capitalized 9 10
One-third of rents* 42 46
Total Fixed Charges $ 165 $ 185
Earnings:
Income before income taxes and minority interests $ 739 $ 634
Fixed charges per above 165 185
Less: interest capitalized (9) (10)
156 175
Amortization of interest capitalized 20 19
Total Earnings $ 915 $ 828
Ratio of Earnings to Fixed Charges 5.55 4.48
* Reasonable approximation of the interest factor.
/TABLE
<PAGE>
<PAGE>
Exhibit 15
August 13, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Dear Sirs:
We are aware that United Technologies Corporation has incorporated by reference
our report dated July 24, 1996 (issued pursuant to the provisions of Statement
on Auditing Standards No. 71) in the Prospectus constituting part of its
Registration Statements on Form S-3 (Nos. 33-46916, 33-40163, 33-34320, 33-
31514, 33-29687, and 33-6452) and in the Registration Statements on Form S-8
(Nos. 33-57769, 33-45440, 33-11255, 33-26580, 33-26627, 33-28974, 33-51385, 33-
58937 and 2-87322). We are also aware of our responsibilities under the
Securities Act of 1933.
Yours very truly,
Price Waterhouse LLP<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the Condensed
Consolidated Balance Sheet at June 30, 1996 (Unaudited) and the Condensed
Consolidated Statement of Operations for the six months ended June 30, 1996
(Unaudited) and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,075
<SECURITIES> 0
<RECEIVABLES> 4,162
<ALLOWANCES> 390
<INVENTORY> 3,164
<CURRENT-ASSETS> 9,214
<PP&E> 10,457
<DEPRECIATION> 6,174
<TOTAL-ASSETS> 16,183
<CURRENT-LIABILITIES> 6,776
<BONDS> 1,543
417
0
<COMMON> 2,289
<OTHER-SE> 1,854
<TOTAL-LIABILITY-AND-EQUITY> 16,183
<SALES> 8,932
<TOTAL-REVENUES> 11,435
<CGS> 7,197
<TOTAL-COSTS> 8,666
<OTHER-EXPENSES> 524
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 114
<INCOME-PRETAX> 739
<INCOME-TAX> 250
<INCOME-CONTINUING> 423
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 423
<EPS-PRIMARY> 3.20
<EPS-DILUTED> 3.20
</TABLE>
