<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 September 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 September 30, 1996 there were 120,204,799 shares of Common Stock outstanding,
which does not reflect a two-for-one stock split of the Registrant's Common
Stock payable on December 10, 1996 in the form of a stock dividend to
shareholders of record at the close of business on November 22, 1996.<PAGE>
<PAGE>
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONTENTS OF QUARTERLY REPORT ON FORM 10-Q
Quarter Ended September 30, 1996
Page
Part I - Financial Information
Item 1. Financial Statements:
Condensed Consolidated Statement of
Operations for the quarter ended September
30, 1996 and 1995 1
Condensed Consolidated Statement of
Operations for the nine months ended
September 30, 1996 and 1995 2
Condensed Consolidated Balance Sheet at
September 30, 1996 and December 31, 1995 3
Condensed Consolidated Statement of Cash
Flows for the nine months ended September
30, 1996 and 1995 4
Notes to Condensed Consolidated Financial
Statements 5
Report of Independent Accountants 8
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Position 9
Part II - Other Information
Item 1. Legal Proceedings 16
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
Exhibit Index<PAGE>
<PAGE> 1
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
<TABLE>
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<CAPTION>
Quarter Ended
September 30,
In Millions of Dollars (except per share amounts) 1996 1995
<S> <C> <C>
Revenues:
Product sales $ 4,634 $ 4,420
Service sales 1,274 1,184
Financing revenues and other income, net 31 47
5,939 5,651
Costs and expenses:
Cost of products sold 3,685 3,610
Cost of services sold 791 715
Research and development 270 251
Selling, general and administrative 708 642
Interest 54 57
5,508 5,275
Income before income taxes and minority interests 431 376
Income taxes 144 131
Minority interests 33 35
Net Income $ 254 $ 210
Earnings per share of common stock and common stock
equivalents* $ .97 $ .80
Dividends per share of common stock* $ .275 $ .25
Average common and equivalent shares outstanding
(in thousands) * 260,730 261,626
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements
*Reflects two-for-one stock split as described in Notes to Condensed
Consolidated Financial Statements.<PAGE>
<PAGE> 2
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
<TABLE>
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
In Millions of Dollars (except per share amounts) 1996 1995
<S> <C> <C>
Revenues:
Product sales $ 13,566 $ 13,285
Service sales 3,692 3,411
Financing revenues and other income, net 116 139
17,374 16,835
Costs and expenses:
Cost of products sold 10,882 10,944
Cost of services sold 2,260 2,050
Research and development 794 702
Selling, general and administrative 2,100 1,943
Interest 168 186
16,204 15,825
Income before income taxes and minority interests 1,170 1,010
Income taxes 394 351
Minority interests 99 96
Net Income $ 677 $ 563
Earnings per share of common stock and common stock
equivalents* $ 2.57 $ 2.14
Dividends per share of common stock* $ .825 $ .75
Average common and equivalent shares outstanding*
(in thousands) 261,600 260,828
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements
*Reflects two-for-one stock split as described in Notes to Condensed
Consolidated Financial Statements.<PAGE>
<PAGE> 3
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
<TABLE>
CONDENSED CONSOLIDATED BALANCE SHEET
<CAPTION>
<S> <C> <C>
September 30, December 31,
In Millions of Dollars 1996 1995
(Unaudited)
</TABLE>
Assets
<TABLE><CAPTION>
<S> <C> <C>
Cash and cash equivalents $ 1,259 $ 900
Accounts receivable, net 3,853 3,682
Inventories and contracts in progress, net 3,154 2,954
Future income tax benefits 830 950
Other current assets 222 466
Total Current Assets 9,318 8,952
Fixed assets 10,603 10,326
Less - accumulated depreciation (6,323) (5,906)
4,280 4,420
Other assets 2,816 2,586
Total Assets $ 16,414 $ 15,958
</TABLE>
Liabilities and Shareowners' Equity
<TABLE><CAPTION>
<S> <C> <C>
Short-term borrowings $ 283 $ 294
Accounts payable 1,991 2,084
Accrued liabilities 4,639 4,183
Long-term debt currently due 91 98
Total Current Liabilities 7,004 6,659
Long-term debt 1,469 1,649
Future pension and postretirement benefit obligations 1,393 1,399
Other long-term liabilities 1,862 1,832
Series A ESOP Convertible Preferred Stock 883 892
ESOP deferred compensation (457) (494)
426 398
Shareowners' Equity:
Common Stock 2,307 2,249
Treasury Stock (1,440) (1,168)
Retained earnings 3,699 3,252
Currency translation and pension liability
adjustments (306) (312)
4,260 4,021
Total Liabilities and Shareowners' Equity $ 16,414 $ 15,958
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements<PAGE>
<PAGE> 4
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
<TABLE>
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
In Millions of Dollars 1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $ 677 $ 563
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization 635 621
Change in:
Accounts receivable (134) 26
Inventories and contracts in progress (176) (28)
Accounts payable and accrued liabilities 289 73
Other, net 258 259
Net Cash Flows from Operating Activities 1,549 1,514
Cash flows from investing activities:
Capital expenditures (474) (486)
Acquisitions of business units (193) (151)
Dispositions of business units 37 103
Decrease in customer financing assets, net 59 276
Other, net 107 50
Net Cash Flows from Investing Activities (464) (208)
Cash flows from financing activities:
Issuance of long-term debt 28 1
Repayments of long-term debt (224) (250)
Decrease in short-term borrowings, net (43) (136)
Dividends paid on Common Stock (199) (185)
Common Stock repurchase (274) (215)
Other, net (8) (4)
Net Cash Flows from Financing Activities (720) (789)
Effect of foreign exchange rate changes on cash and
cash equivalents (6) 1
Net Increase in Cash and Cash Equivalents 359 518
Cash and Cash Equivalents, Beginning of year 900 386
Cash and Cash Equivalents, End of period $ 1,259 $ 904
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements<PAGE>
<PAGE> 5
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The condensed consolidated financial statements at September 30, 1996 and for
the quarter and nine-month period ended September 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 quarter and
nine-month period ended September 30, 1996. This reclassification was made to
more clearly present Pratt & Whitney's production costs and operating
activities.
This reclassification does not affect net income or assets. While 1995
amounts have not been reclassified, the impact would have been a reduction of
revenues and cost of sales for the third quarter and nine-month period of 1995
of approximately $100 million and $300 million, respectively.
On September 30, 1996, the Corporation announced a two-for-one stock split
payable on December 10, 1996 in the form of a stock dividend to Shareowners of
record at the close of business on November 22, 1996. The average number of
common shares outstanding and all per share information in the Condensed
Consolidated Financial Statements reflect the stock split.
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"<PAGE>
<PAGE> 6
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
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
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<PAGE>
<PAGE> 7
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
not have a material adverse effect upon either results of operations, cash
flows, or financial position of the Corporation.<PAGE>
<PAGE> 8
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
With respect to the unaudited condensed consolidated financial information of
United Technologies Corporation for the three and nine-month periods ended
September 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 October 25, 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 nine-month periods ended September 30, 1996 and 1995, the
condensed consolidated statement of cash flows for the nine months ended
September 30, 1996 and 1995, and the condensed consolidated balance sheet as of
September 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
October 25, 1996<PAGE>
<PAGE> 9
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 third quarter and nine-month
period of 1996 compared to the same periods in 1995, while commercial
construction starts in the U.S. decreased in the 1996 third quarter and nine-
month period compared to the same periods in 1995. 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 third
quarter but was lower for the nine-month period as compared to the 1995 periods,
while European car sales were higher in the third quarter and the nine-month
period of 1996.
Worldwide airline profits continue to improve as a result of increased load
factors. U.S. airlines remain disciplined with moderate expansion plans as near
term profitability is used to improve financial condition from historically weak
levels. Strong economic growth continues to drive new aircraft orders from the
Asia Pacific region while European airline financial results and resources
remain constrained near term by increasing competition, higher cost structures
and privatization initiatives.
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.
The Corporation continues to reduce manufacturing costs and floor space to
remain competitive.<PAGE>
<PAGE> 10
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
RESULTS OF OPERATIONS
Consolidated revenues and margin percentages were as follows:
<TABLE><CAPTION>
Third Quarter Ended Nine Months Ended
September 30, September 30,
In Millions of Dollars 1996 1995 1996 1995
<S> <C> <C> <C> <C>
Product sales $ 4,634 $ 4,420 $ 13,566 $ 13,285
Service sales 1,274 1,184 3,692 3,411
Financing revenues and
other income, net 31 47 116 139
Product margin % 20.5% 18.3% 19.8% 17.6%
Service margin % 37.9% 39.6% 38.8% 39.9%
</TABLE>
Consolidated revenues increased 5% and 3% for the third quarter and nine-
month period of 1996, respectively, over the comparable periods of 1995.
Foreign currency translation had an unfavorable effect on revenue; excluding
this effect, consolidated revenues would have increased 7% and 4% for the third
quarter and nine-month period of 1996 over the comparable 1995 periods. All
segments, excluding Flight Systems, reported increased revenues in the third
quarter and the nine-month period of 1996. UTC's commercial and industrial
revenues increased 7% for the third quarter and nine-month period of 1996. The
aerospace revenues increased 2% in the third quarter and decreased 3% for the
nine-month period of 1996.
Financing revenues and other income decreased in the third quarter of 1996
from the comparable period in the prior year, in part due to lower royalties in
1996. In addition, a gain was realized in the third quarter of 1995 on the sale
of customer financing assets. Financing revenues and other income for the nine-
month period of 1996 decreased from 1995 as a result of lower financing revenues
in 1996 partially offset by higher interest income and joint venture income. In
addition, during the second quarter of 1995, Carrier realized a gain on the sale
of a 49% joint venture interest in its Arkadelphia scroll compressor plant.
Product margin as a percentage of sales increased 2.2 percentage points in
the third quarter of 1996, compared to the same period of 1995, with all
segments experiencing improvements. Service margins as a percentage of sales
decreased 1.7 percentage points in the third quarter of 1996, compared to the
same period of 1995, with Otis, Carrier, Pratt & Whitney and Flight Systems
experiencing declines. Product margin as a percentage of sales increased 2.2
percentage points in the nine-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 1.1 percentage
points in the nine-month period compared to last year with Otis, Carrier, Pratt
& Whitney and Flight Systems all experiencing declines.
Research and development expenses increased $19 million (8%) and $92 million
(13%) in the third quarter and nine-month period of 1996, respectively, compared
to 1995. The increase for the nine-month period occurred in all segments, but
principally in Pratt & Whitney's general aviation, government, and power
generation businesses. As a percentage of sales, research and development was
4.6% in the third quarter and nine-month period of 1996 compared to 4.5% and
4.2% in the corresponding periods of 1995. Research and development expenses in<PAGE>
<PAGE> 11
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
1996 are expected to increase from the spending level of 1995, but should remain
between 4% and 5% of sales.
Selling, general and administrative expenses in the third quarter and nine-
month period of 1996 increased $66 million (10%) and $157 million (8%) over the
1995 comparable periods. As a percentage of sales, these expenses increased to
12.0% from 11.5% in the third quarter primarily due to higher expenses in all
segments and higher expenses for incentive based compensation plans. For the
nine-month period these expenses increased to 12.2% from 11.6% for the same
reasons as in the third quarter as well as lower sales at Flight Systems.
Revenues and operating profits of the Corporation's principal business
segments for the third quarter and nine-month period ended September 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>
Third Quarter Ended
September 30,
Otis $ 1,382 $ 1,323 $ 132 $ 130 9.6% 9.8%
Carrier 1,588 1,462 159 144 10.0% 9.8%
Automotive 738 687 42 35 5.7% 5.1%
Pratt & Whitney 1,582 1,521 164 131 10.4% 8.6%
Flight Systems 682 688 51 40 7.5% 5.8%
Nine Months Ended
September 30,
Otis $ 4,086 $ 3,858 $ 378 $ 364 9.3% 9.4%
Carrier 4,547 4,122 369 303 8.1% 7.4%
Automotive 2,343 2,234 143 148 6.1% 6.6%
Pratt & Whitney 4,531 4,507 464 383 10.2% 8.5%
Flight Systems 1,966 2,204 161 144 8.2% 6.5%
</TABLE>
Otis segment revenues for the third quarter and nine-month period of 1996
were 4% and 6% higher than the comparable periods of 1995. Excluding the
unfavorable impact of foreign currency translation, 1996 revenues would have
increased 9% for the third quarter and nine-month period of 1996 over 1995 with
all geographic regions showing an increase.
Operating profits at Otis increased $2 million (2%) and $14 million (4%) in
the third quarter and nine-month period of 1996 compared to 1995. Excluding the
effect of foreign currency translation, Otis' operating profits would have
increased 6% and 7% for the third quarter and nine-month period of 1996. North
American, Latin American and Asian regions showed an increase in the third
quarter and nine-month period of 1996 compared to last year.
Carrier segment revenues for the third quarter and nine-month period of 1996
were 9% and 10% higher than the comparable periods of 1995. There was minimal
foreign currency translation impact in either period. Revenues for the third
quarter and nine-month period increased in all geographic regions with
particular strength in the North American and Asia Pacific regions. Carrier
Transicold revenues declined in the third quarter of 1996 compared to 1995 due
to softness in the transport refrigeration market.<PAGE>
<PAGE> 12
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
Operating profits at Carrier increased $15 million and $66 million in the
third quarter and nine-month period of 1996 compared to 1995, with foreign
currency translation having little effect. Improvements were driven by strong
demand for residential and commercial air conditioning in North America and
continued growth in the Asia Pacific region. Carrier Transicold operating
profit declined in the third quarter of 1996 compared to 1995.
Automotive segment revenues increased 7% and 5% in the third quarter and
nine-month period of 1996 as compared to 1995. The increase in revenues was
principally the result of higher UTA vehicle content in North America and higher
volumes in Europe.
Operating profits at the Automotive segment increased $7 million in the third
quarter, despite a weakness in the Interiors business due to continuing
manufacturing problems and higher costs to implement turn around actions.
Operating profits decreased $5 million for the nine-month period of 1996
compared to the same period in 1995. Excluding the costs associated with the
agreement reached with Ford Motor Company regarding UT Automotive's
participation in the costs of a Ford recall program in the second quarter of
1996, operating profits for the nine-month period of 1996 would have been higher
as compared to 1995.
Pratt & Whitney revenues increased 4%, and 1% in the third quarter and nine-
month period of 1996 as compared to 1995. Revenues for the 1996 third quarter
and nine-month period 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 Condensed Consolidated Financial Statements. This
reclassification does not affect operating profits or assets. While 1995
amounts have not been reclassified, the impact would have been a reduction of
revenues and cost of sales for the third quarter and nine-month period of 1995
of approximately $100 million and $300 million, respectively. The third quarter
and nine-month period of 1996 benefited from increases in the commercial after-
market, general aviation and government businesses.
Operating profits for Pratt & Whitney for the third quarter and nine-month
period of 1996 increased $33 million and $81 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 1% and 11% in the third quarter and nine-
month period of 1996 compared to 1995. Revenue decline in the nine-month period
of 1996 was the result of fewer helicopter shipments as compared to 1995.
Operating profits for Flight Systems increased $11 million and $17 million in
the third quarter and nine-month period of 1996 compared to 1995. Third quarter
results reflect improved operating profit at both Hamilton Standard and
Sikorsky. Nine-month results reflect continuing operating profit at Hamilton
Standard partially offset by lower 1996 helicopter volume at Sikorsky. In
addition, 1995 results include costs associated with selling the wafer
fabrication facility of Hamilton Standard's Microelectronics Center.
Interest expense decreased $3 million and $18 million in the third quarter
and nine-month period of 1996, to $54 million and $168 million, respectively.
This decrease is mainly due to a reduced average borrowing level during the
nine-month period compared to last year as the Corporation continues to retire
or extinguish debt with its improved cash flow.<PAGE>
<PAGE> 13
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
The effective tax rate for the nine month period of 1996 was 33.7%, compared
to an effective tax rate of 34.8% for the nine-month period of 1995. The
Corporation has continued to reduce its effective income tax rate by
implementing tax reduction strategies.
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.
Significant factors affecting the management of liquidity are cash flows
generated from operating activities, capital expenditures, 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>
Nine Months Ended
September 30,
In Millions of Dollars 1996 1995
<S> <C> <C>
Operating Activities
Net Cash Flows from Operating Activities $ 1,549 $ 1,514
Investing Activities
Capital expenditures (474) (486)
Acquisitions of business units (193) (151)
Dispositions of business units 37 103
Decrease in customer financing assets, net 59 276
Financing Activities
Common Stock repurchase (274) (215)
Decrease in total debt (198) (379)
Decrease in net debt (557) (897)
</TABLE>
Cash flows from operating activities were $1,549 million during the first
nine months of 1996 compared to $1,514 million for the corresponding period of
1995. The improvement resulted primarily from improved operating performance.
Cash flows from investing activities were a use of funds of $464 million
during the first nine months of 1996 compared to a use of $208 million in the
corresponding period of 1995. Capital expenditures in the nine-month period of
1996 were $474 million, a $12 million decrease from the corresponding period of
1995. The Corporation expects 1996 full year capital spending to be comparable
to 1995. During the first nine months of 1996, the Corporation invested $193
million for the acquisition of business units, including the purchase of a
United Kingdom elevator company by Otis and UT Automotive's ownership increase
in a European subsidiary in the second quarter and the purchase of a European
transportation air conditioning company by Carrier in the third quarter. Cash
flows from customer financing activities are lower in the nine-month period of
1996, compared to 1995, due to the sale of customer financing assets which
occurred in 1995. While the Corporation expects that changes in customer
financing assets in 1996 will be a net source 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 commercial aircraft at September 30, 1996 was $1.3 billion.
<PAGE>
<PAGE> 14
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
The Corporation repurchased $274 million of common stock, representing 2.6
million shares, in the first nine months of 1996 under previously announced
stock repurchase programs. Share repurchase continues to be a significant use of
the Corporation's strong cash flows and serves to offset the dilutive effect
resulting from the issuance of stock under stock-based employee benefit
programs.
In September, the Corporation executed an in-substance defeasance of $67
million of its 8.25% and 8.3% Medium-Term Notes due in December 1999. The
Corporation deposited U.S. Government securities into an irrevocable trust to
cover the interest and principal payments on the debt. For financial reporting
purposes, the debt has been considered extinguished and the loss on these
transactions, which was immaterial, is included in Financing revenues and other
income, net. The total of in-substance defeasances and repurchases of debt is
$214 million for the nine-month period.
Other selected financial data is as follows:
<TABLE><CAPTION>
September 30, December 31, September 30,
In Millions of Dollars 1996 1995 1995
<S> <C> <C> <C>
Cash and cash equivalents $ 1,259 $ 900 $ 904
Total debt 1,843 2,041 2,064
Net debt (total debt less cash) 584 1,141 1,160
Shareowners' equity 4,260 4,021 3,952
Debt-to-total capitalization 30.2% 33.7% 34.3%
Net debt-to-total capitalization 12.1% 22.1% 22.7%
</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.
On October, 25 1996, the Corporation sold UT Automotive's steering wheels
business for $140.5 million. A pre-tax gain of approximately $78 million will
be recognized in the fourth quarter of this year.
Management is currently evaluating a number of cost reduction and other
actions which are intended to enhance the competitiveness and profitability of
the company. These actions may include the consolidation of certain production
facilities and other fourth quarter charges.<PAGE>
<PAGE> 15
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
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> 16
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
Part II - Other Information
Item 1. Legal Proceedings
The Corporation's Report on Form 10Q for the quarter ended June 30, 1996
disclosed Texas state court litigation (Chromalloy Gas Turbine Corporation v.
United Technologies Corporation, 95 CI-12541), which case was then in expert
discovery and scheduled for jury trial. The jury trial in this matter commenced
on August 26, 1996 and remains in progress.
Other than the matter discussed above, there have been no material changes in
legal proceedings during the third 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 Reports on
Form 10Q for the quarters ended March 31, 1996 and June 30, 1996.)<PAGE>
<PAGE> 17
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
(b) No reports on Form 8-K were filed during the quarter ended September 30,
1996.<PAGE>
<PAGE> 18
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: November 8, 1996 By: /s/ STEPHEN F. PAGE
Stephen F. Page
Executive Vice President and
Chief Financial Officer
Dated: November 8, 1996 By: /s/ JAY L. HABERLAND
Jay L. Haberland
Vice President and Controller
Dated: November 8, 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
Quarter Ended
September 30,
In Millions of Dollars (except per share amounts) 1996 1995
<S> <C> <C>
Net Income $ 254 $ 210
ESOP Convertible Preferred Stock Dividend requirement 7 7
Earnings applicable to Common Stock 247 203
ESOP Convertible Preferred Stock adjustment 5 6
Net earnings for calculation of primary and fully
diluted earnings per share $ 252 $ 209
Average number of common shares and common stock
equivalents outstanding during the period (four
month-end average) (Note 1) 260,729,812 261,626,278
Fully diluted average number of common shares and
common stock equivalents outstanding during the
period (four month-end average) (Note 1) 261,343,976 262,378,352
Primary earnings per common share (Note 1) $ .97 $ .80
Fully diluted earnings per common share (Note 1 and 2) $ .97 $ .80
Note 1 - Reflects two-for-one stock split as described in Notes to Condensed
Consolidated Financial Statements.
Note 2 - 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
Nine Months Ended
September 30,
In Millions of Dollars (except per share amounts) 1996 1995
<S> <C> <C>
Net Income $ 677 $ 563
ESOP Convertible Preferred Stock Dividend requirement 22 20
Earnings applicable to Common Stock 655 543
ESOP Convertible Preferred Stock adjustment 17 16
Net earnings for calculation of primary and fully
diluted earnings per share $ 672 $ 559
Average number of common shares and common stock
equivalents outstanding during the period (ten
month-end average) (Note 1) 261,600,184 260,827,618
Fully diluted average number of common shares and
common stock equivalents outstanding during the
period (ten month-end average) (Note 1) 262,677,450 262,837,616
Primary earnings per common share (Note 1) $ 2.57 $ 2.14
Fully diluted earnings per common share (Note 1 and 2) $ 2.56 $ 2.12
Note 1 - Reflects two-for-one stock split as described in Notes to Condensed
Consolidated Financial Statements.
Note 2 - 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
Nine Months Ended
September 30,
In Millions of Dollars 1996 1995
<S> <C> <C>
Fixed Charges:
Interest on indebtedness $ 168 $ 186
Interest capitalized 13 15
One-third of rents* 64 57
Total Fixed Charges $ 245 $ 258
Earnings:
Income before income taxes and minority interests $ 1,170 $ 1,010
Fixed charges per above 245 258
Less: interest capitalized (13) (15)
232 243
Amortization of interest capitalized 29 31
Total Earnings $ 1,431 $ 1,284
Ratio of Earnings to Fixed Charges 5.84 4.98
* Reasonable approximation of the interest factor.
/TABLE
<PAGE>
<PAGE>
Exhibit 15
November 8, 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 October 23, 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 September 30, 1996 (Unaudited) and the Condensed
Consolidated Statement of Operations for the nine months ended September 30,
1996 (Unaudited) and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,259
<SECURITIES> 0
<RECEIVABLES> 4,170
<ALLOWANCES> 317
<INVENTORY> 3,154
<CURRENT-ASSETS> 9,318
<PP&E> 10,603
<DEPRECIATION> 6,323
<TOTAL-ASSETS> 16,414
<CURRENT-LIABILITIES> 7,004
<BONDS> 1,469
426
0
<COMMON> 2,307
<OTHER-SE> 1,953
<TOTAL-LIABILITY-AND-EQUITY> 16,414
<SALES> 13,566
<TOTAL-REVENUES> 17,374
<CGS> 10,882
<TOTAL-COSTS> 13,142
<OTHER-EXPENSES> 794
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 168
<INCOME-PRETAX> 1,170
<INCOME-TAX> 394
<INCOME-CONTINUING> 677
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 677
<EPS-PRIMARY> 2.57
<EPS-DILUTED> 2.57
</TABLE>
