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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
Commission file number 1-812
UNITED TECHNOLOGIES CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 06 0570975
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Financial Plaza, Hartford, Connecticut 06101
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (860) 728-7000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
registered
Medium-Term Notes, Series B, New York Stock Exchange
PEN Notes due September 8, 1997
Common Stock ($5 par value) New York Stock Exchange
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 .
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and is not to be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [ ]
At January 31, 1997, there were 237,346,954 shares of Common Stock outstanding;
the aggregate market value of the voting Common Stock held by non affiliates at
January 31, 1997 was approximately $16,554,950,042.
List hereunder documents incorporated by reference and the Part of the Form 10-K
into which the document is incorporated: (1) United Technologies Corporation
1996 Annual Report to Shareowners, Parts I, II and IV; and (2) United
Technologies Corporation Proxy Statement for the 1997 Annual Meeting of
Shareowners, Part III.
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UNITED TECHNOLOGIES CORPORATION
_______________________________
Index to Annual Report
on Form 10-K
Year Ended December 31, 1996
PART I Page
Item 1. Business .................................. 1
Item 2. Properties ................................ 8
Item 3. Legal Proceedings ......................... 8
Item 4. Submission of Matters to a Vote of Security
Holders.................................... 10
- ----- Executive Officers of the Registrant ...... 10
PART II
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters ........... 12
Item 6. Selected Financial Data ................... 12
Item 7. Management's Discussion and Analysis of
Results of Operations and Financial
Position .................................. 12
Item 8. Financial Statements and Supplementary
Data ...................................... 12
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure ................................ 12
PART III
Item 10. Directors and Executive Officers of the
Registrant ................................ 12
Item 11. Executive Compensation .................... 12
Item 12. Security Ownership of Certain Beneficial
Owners and Management ..................... 13
Item 13. Certain Relationships and Related
Transactions .............................. 13
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K ....................... 13
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Item 1. Business
United Technologies Corporation was incorporated in Delaware in 1934.
Growth has been enhanced by acquisitions and by the internal growth of existing
businesses of the Corporation*.
Management's Discussion and Analysis of the Corporation's Results of
Operations for 1996 compared to 1995, and for 1995 compared to 1994, and its
Financial Position at December 31, 1996 and 1995, and Selected Financial Data
for each year in the five year period ended December 31, 1996 are set forth on
pages 21 through 27 of the Corporation's 1996 Annual Report to Shareowners.
Whenever reference is made in this report to specific pages in the 1996 Annual
Report to Shareowners, such pages are incorporated herein by reference.
Operating Units and Industry Segments
The Corporation conducts its business within five principal industry
segments. The principal products of operating units reported within each
industry segment are as follows:
Industry Segment Principal Products
Otis --Otis elevators, escalators and service
Carrier --Carrier heating, ventilating, air conditioning,
and transport and commercial refrigeration
equipment and service
Automotive --Automotive components and systems
Pratt & Whitney --Pratt & Whitney engines, service and space
propulsion
Flight Systems --Sikorsky helicopters, parts and service
--Hamilton Standard engine controls, environmental
controls, propellers and other flight systems
Business segment financial data for the years 1994 through 1996 is included
in Note 15 of Notes to Consolidated Financial Statements on pages 41 through 43
of the Corporation's 1996 Annual Report to Shareowners.
Description of Business by Industry Segment
The following description of the Corporation's business by industry segment
should be read in conjunction with Management's Discussion and Analysis of
Results of Operations and Financial Position appearing in the Corporation's 1996
Annual Report to Shareowners, especially the information contained therein under
the heading "Business Environment".
Otis
Otis is the world's leader in production, installation and service in the
elevator industry, defined as elevators, escalators and moving sidewalks. Otis
designs, manufactures, sells and installs a wide range of passenger and freight
elevators, including hydraulic and geared elevators for low and medium speed
applications and gearless elevators for high-speed passenger operations in high-
rise buildings. Otis also produces a broad line of escalators, moving sidewalks
and shuttle systems for horizontal transportation. In addition to new
equipment, Otis provides modernization products and services to upgrade
elevators and escalators.
___________
* "Corporation", unless the context otherwise requires, means United
Technologies Corporation and its consolidated subsidiaries.
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Otis provides maintenance services for a substantial portion of the
elevators and escalators which it sells and also services elevators and
escalators of other manufacturers. Otis conducts its business principally
through various affiliated companies worldwide. In some cases, consolidated
affiliates have significant minority interests. In addition, Otis continues to
invest in emerging markets in Central and Eastern Europe (such as Russia and
Ukraine) and Asia (such as the People's Republic of China). These investments
carry a higher level of currency, political and economic risk than investments
in developed markets.
Otis' business is subject to changes in economic, industrial and
international conditions, including possible changes in interest rates, which
could affect the demand for elevators, escalators and services; changes in
legislation and in government regulations; changes in technology; changes in
construction starts; and substantial competition from a large number of
companies including other major domestic and foreign manufacturers and service
providers. The principal methods of competition are price, delivery schedule,
product performance, service and other terms and conditions of sale. Otis'
products and services are sold principally to builders and building contractors
and owners.
Revenues generated by Otis' international operations were approximately 85
percent of total Otis segment revenues in 1996 and 1995. International
operations are subject to local government regulations (including regulations
relating to capital contributions, currency conversion and repatriation of
earnings), as well as to varying currency, political and economic risks.
At December 31, 1996, the Otis business backlog amounted to $3,718 million
as compared to $3,644 million at December 31, 1995. Of the total business
backlog at December 31, 1996, approximately $3,431 million is expected to be
realized as sales in 1997.
Carrier
Carrier is the world's largest manufacturer of heating, ventilating and air
conditioning (HVAC) systems and equipment. Carrier also participates in the
commercial and transport refrigeration businesses.
The products manufactured by Carrier include chillers and airside equipment,
commercial unitary systems, residential split systems (cooling only and heat
pump), duct-free split systems, transport refrigeration equipment, window and
portable room air conditioners and furnaces.
Carrier continues to invest in emerging markets primarily in Asia (such as
the People's Republic of China). These investments carry a higher level of
currency, political and economic risk than investments in developed markets.
Carrier's business is subject to changes in economic, industrial, international
and climate conditions, including possible changes in interest rates, which
could affect the demand for HVAC systems and equipment; changes in legislation
and government regulations, including those relating to refrigerants and their
effect on global environmental conditions; changes in technology; changes in
construction starts; and competition from a large number of companies, including
other major domestic and foreign manufacturers. The principal methods of
competition are delivery schedule, product performance, price, service and other
terms and conditions of sale.
Carrier's products and services are sold principally to builders and
building contractors and owners. Sales are made both directly to the customer
and by or through manufacturers' representatives, distributors, dealers,
individual wholesalers and retail outlets.
Revenues generated by Carrier's international operations, including U.S.
export sales, were approximately 55 percent of total Carrier segment revenues in
1996 and 1995. International operations are subject to local government
regulations (including regulations relating to capital contributions, currency
conversion and repatriation of earnings), as well as to varying currency,
political and economic risks.
At December 31, 1996, the Carrier business backlog amounted to $960 million,
as compared to $926 million at December 31, 1995. Substantially all of the
business backlog at December 31, 1996 is expected to be realized as sales in
1997.
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Automotive
The Corporation's Automotive business is conducted through United
Technologies Automotive, Inc. ("UTA"). UTA is a leading independent supplier of
automotive electrical distribution systems in both North America and Europe.
Also, UTA is a leading independent supplier in North America of modular
headliners, door trim assemblies, vehicle remote entry systems, and fractional
horsepower DC electric motors used in automotive applications. UTA competes
worldwide to sell products to automotive manufacturers.
UTA also produces other products such as interior trim (instrument panels,
sun visors, armrests, package trays and consoles), mirrors, thermal and
acoustical barriers, airbag covers, electronic controls and modules, relays,
interior lighting systems, switches, terminals and connectors, windshield wiper
systems, and electrical starters for commercial applications. In the fourth
quarter of 1996 UTA sold its steering wheels business.
Sales to the major domestic automotive manufacturers are made against
periodic short-term releases issued by the automotive manufacturers under
contracts generally awarded for a particular car or light truck model. To serve
its worldwide customer base, UTA maintains over 120 principal facilities in
North America, Europe, Asia and South America.
In 1996, sales to Ford Motor Company were $1,224 million, or approximately
38 percent of total UTA revenues. In 1995 and 1994, sales to Ford Motor Company
were $1,238 million (approximately 40 percent of total UTA revenues) and $1,004
million (approximately 37 percent of total UTA revenues), respectively.
UTA's business is subject to changes in economic, industrial and
international conditions; changes in interest rates and in the level of
automotive production which could affect the demand for many of its products;
changes in the prices of essential raw materials and petroleum-based
materials; changes in legislation and in government regulations; changes in
technology; and substantial competition from a large number of companies
including other major domestic and foreign manufacturers. The principal
methods of competition are price, delivery schedule, quality and product
performance.
Automotive manufacturers apply significant pricing pressures on their
suppliers such as UTA, requiring continuing cost reductions and value
engineering to maintain and improve profit margins. Suppliers have also been
required to bear an increasing portion of engineering, design, development and
tooling expenditures. While recognizing the increased risks and
responsibilities associated with providing these services, UTA plans to position
itself among the first tier suppliers providing these services. UTA has entered
into long term supply agreements with many of its customers which require price
reductions which anticipate future productivity improvements that must be
realized in order for such arrangements to be profitable.
Revenues generated by UTA's international operations, including U.S. export
sales (excluding revenues from certain non-U.S. operations which manufacture
exclusively for the U.S. market), were approximately 35 percent of total
Automotive segment revenues in 1996 and 1995. International operations are
subject to local government regulations (including regulations relating to
capital contributions, currency conversion and repatriation of earnings), as
well as to varying currency, political and economic risks.
At December 31, 1996, the UTA business backlog amounted to $774 million as
compared to $703 million at December 31, 1995. Substantially all of the
business backlog at December 31, 1996 is expected to be realized as sales in
1997.
Aerospace and Defense Businesses
The Corporation's aerospace and defense businesses are conducted through
its Pratt & Whitney and Flight Systems business segments. These business
segments are subject to rapid changes in technology; lengthy and costly
development cycles; the effects of the continuing consolidation within the
aerospace and defense industry; heavy dependence on a small number of products
and programs; changes in legislation and in government procurement and other
regulations and procurement practices; procurement preferences and policies of
some foreign customers which require in-country manufacture through co-
production, offset programs
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(where in-country purchases and financial support projects are required as a
condition to obtaining orders), joint ventures and production sharing,
licensing or other arrangements; substantial competition from major domestic
manufacturers and from foreign manufacturers whose governments sometimes give
them direct and indirect research and development, marketing subsidies and
other assistance for their commercial products; and changes in economic,
industrial and international conditions.
The principal methods of competition in the Corporation's aerospace and
defense businesses are price, product performance, service, delivery schedule
and other terms and conditions of sale, including fleet introductory allowances
and performance and operating cost guarantees, and the participation by the
Corporation and its finance subsidiaries in customer financing arrangements in
connection with sales of commercial jet engines and helicopters. Fleet
introductory allowances are financial incentives offered by the Corporation to
airline customers in order to make engine sales which lead, in turn, to the sale
of parts and services.
Sales of military products are affected by defense budgets (both in the U.S.
and, to some extent, abroad) and the presence of competitors. Military spare
parts sales have been, and will continue to be, affected by the decline in
overall procurement by the U.S. and foreign governments and, to a lesser extent,
by the U.S. and foreign governments' policy of increasing parts purchases from
suppliers other than the original equipment manufacturers.
Pratt & Whitney
Pratt & Whitney is one of the world's leading producers and service
providers for large turbofan (jet) engines and jet engine parts for commercial
and military aircraft and small gas turbine engines and parts for business and
regional/commuter aircraft. Pratt & Whitney provides overhaul and repair
services and fleet management services for many models of commercial and
military jet and gas turbine engines. In addition, Pratt & Whitney produces
propulsion systems and solid rocket boosters for the United States Air Force
("USAF") and the National Aeronautics and Space Administration ("NASA") and
provides land based power generation equipment.
Pratt & Whitney products are sold principally to aircraft manufacturers,
airlines and other aircraft operators, aircraft leasing companies, and the U.S.
and foreign governments. Pratt & Whitney sales in the U.S. and Canada are made
directly to the customer and, to a limited extent, through independent
distributors. Other export sales are made with the assistance of an overseas
network of independent foreign representatives. Sales to the Boeing Company
("Boeing"), Airbus Industrie ("Airbus") and McDonnell Douglas Corporation
("Douglas"), consisting primarily of commercial aircraft jet engines, amounted
to approximately 23 percent of total Pratt & Whitney revenues in 1996. Pratt &
Whitney's major competitors are the aircraft engine businesses of General
Electric Company ("GE") and Rolls-Royce plc.
Pratt & Whitney currently produces three families of large commercial jet
engines; the JT8D-200, the PW2000 series and the PW4000 series. Pratt &
Whitney's JT8D-200 powers the Douglas MD-80 aircraft. Applications for the
PW2000 series include the Boeing 757-200/PF aircraft. Pratt & Whitney's PW4000
engine family powers the Airbus A310-300, A300-600 and A330-300 series; Boeing's
747-400, 767-200/-300 and 777-200 aircraft; and Douglas' MD-11.
International Aero Engines AG, a Swiss corporation in which Pratt & Whitney
has a 33 percent interest, manufactures the V2500 engine. Applications for the
V2500 engine include Airbus' A319, A320 and A321 aircraft and Douglas' MD-90.
In the case of most commercial aircraft today, aircraft manufacturers offer
their customers a choice of engines, giving rise to substantial competition
among engine manufacturers at the time of the sale of aircraft. This
competition has become increasingly intense particularly where new commercial
airframe/engine combinations are first introduced to the market and into the
fleets of individual airlines. Financial incentives granted by engine
suppliers, and performance and operating cost guarantees on their part, are
frequently important factors in such sales and can be substantial. (For
information regarding customer financing
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commitments, participation in guarantees of customer financing arrangements
and performance and operating cost guarantees, see Notes 1, 3, 13 and 14 of
Notes to Consolidated Financial Statements at pages 32 to 33 and 39 to 41 of
the Corporation's 1996 Annual Report to Shareowners.)
In view of the global nature of the commercial aircraft industry and the
risk and cost associated with launching new engine development programs, Pratt &
Whitney has developed strategic alliances and collaboration arrangements on
commercial engine programs. At December 31, 1996, other participants in these
alliances represented 29 percent of the PW2000 program, 22 percent of the PW4000
program, 31 percent of the PW4084 and PW4090 programs, and 29 percent of the
PW4098 program.
GE-P&W Engine Alliance, LLC, an alliance between GE Aircraft Engines and
Pratt & Whitney where Pratt & Whitney has a 50 percent interest, was formed
during 1996 to develop, market and manufacture a new jet engine that is intended
to power super-jumbo aircraft.
Pratt & Whitney currently produces two military aircraft engines, the F100
(powering F-15 and F-16 fighter aircraft) and the F117 (powering C-17 transport
aircraft). All of Pratt & Whitney's F100 and F117 sales contracts are with the
USAF or with foreign governments.
Pratt & Whitney is under contract with the USAF to develop the F119 engine,
the only anticipated source of propulsion for the two-engine F-22 fighter
aircraft being developed by Lockheed Martin Corporation ("Lockheed Martin") and
Boeing. The F-22 is scheduled for its first flight in May 1997. In addition,
the Department of Defense selected two weapon systems contractors, Boeing and
Lockheed Martin, to proceed into the next phase of the Joint Strike Fighter
program development. Both companies have selected derivatives of Pratt &
Whitney's F119 engine as their engine of choice to provide power for the Joint
Strike Fighter demonstration aircraft. Management cannot predict with certainty
whether, when, and in what quantities Pratt & Whitney will produce F119 engines.
Pratt & Whitney Space Propulsion Division (``SPD'') produces hydrogen fueled
rocket engines and pumps for the U.S. Government and, together with NPO
Energomash, is developing a new RD-180 booster engine for two launch vehicles
being marketed by Lockheed Martin. Chemical Systems, a unit of SPD,
manufactures propulsion systems and booster motors for several U.S. military
launch vehicles and missiles. SPD's USBI unit provides services for the NASA
shuttle solid rocket booster.
Gas turbine engines manufactured by Pratt & Whitney Canada, including
various turbo prop and turbo shaft engines, are used in a variety of aircraft
including six to eighty passenger business and regional airline aircraft and
light and medium helicopters.
Revenues from Pratt & Whitney's international operations, including U.S.
export sales, were approximately 54 percent and 53 percent of total Pratt &
Whitney segment revenues in 1996 and 1995, respectively. Such operations are
subject to local government regulations as well as to varying political and
economic risks.
During 1996, the Corporation revised its method of calculating Pratt &
Whitney's backlog to eliminate collaboration participants' share of engine
program revenues and to reduce firm orders received by the discounts granted
directly to airline and other customers. At December 31, 1996, the business
backlog for Pratt & Whitney amounted to $8,889 million, including $1,927 million
of U.S. Government funded contracts and subcontracts. Of the total Pratt &
Whitney business backlog at December 31, 1996, approximately $4,242 million is
expected to be realized as sales in 1997. Pratt & Whitney's December 31, 1996
backlog calculated under the previous method of presentation would have amounted
to $10,745 million, including $1,974 million of U.S. Government funded contracts
and subcontracts as compared to $9,496 million and $1,563 million, respectively,
at December 31, 1995. Significant elements of Pratt & Whitney's business, such
as spare parts sales for engines in service, generally have short lead times.
Therefore, backlog may not be indicative of future demand. Also, since a
substantial portion of the backlog for commercial customers is scheduled for
delivery beyond 1997, changed economic conditions may cause customers to request
that firm orders be rescheduled or canceled.
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Flight Systems
The Corporation's Flight Systems business is conducted through Sikorsky
Aircraft and Hamilton Standard.
Sikorsky is one of the world's leading manufacturers of military and
commercial helicopters. Sikorsky is the primary supplier of transport
helicopters to the U.S. Army. All branches of the U.S. military operate
Sikorsky helicopters. Sikorsky is also producing helicopters for a variety of
uses including passenger, utility/transport, cargo, anti-submarine warfare,
search and rescue and heavy-lift operations. Sikorsky also supplies helicopters
to foreign governments and the worldwide commercial market. Sikorsky's business
base also encompasses spare parts for past and current helicopters produced by
Sikorsky, and, through its subsidiary, Sikorsky Support Services, Inc., the
repair and retrofit of helicopters in the U.S. military fleet. Other major
helicopter manufacturers include Bell Helicopters, Eurocopter, Boeing
Helicopters, McDonnell Douglas, Agusta, Westland and Mil.
Current production programs at Sikorsky include the BLACK HAWK medium-
transport helicopter for the U.S. Army and derivatives for foreign governments;
the international NAVAL HAWK, a derivative of the SEAHAWK medium-sized
helicopter for multiple naval missions for foreign governments; the CH-53E SUPER
STALLION heavy-lift helicopter for the U.S. Marine Corps; and the S-76
intermediate-sized helicopter for executive transport, offshore oil platform
support, search and rescue, emergency medical service and other utility
operations.
Although Sikorsky is under contract with the U.S. Government to deliver 60
BLACK HAWK helicopters through June 1997 (of which 30 had been delivered through
December 31, 1996), declining Defense Department budgets make Sikorsky
increasingly dependent upon expanding its international market position. Such
sales sometimes require the development of in-country co-production programs
such as the one Sikorsky operates in South Korea.
Sikorsky is engaged in full scale development of the S-92 aircraft, a large
cabin helicopter for commercial and military markets. Certification of the
first S-92 is expected in the year 2000. A significant portion of the
development will be carried out by companies in Brazil, the People's Republic of
China, Japan, Spain and Taiwan under collaborative arrangements.
Sikorsky is collaborating with Boeing Helicopters for the development of the
U.S. Army's next generation light helicopter, the RAH-66 Comanche. The Boeing
Sikorsky Team is performing under a cost reimbursement contract awarded in 1991.
In December 1996, Sikorsky and Boeing signed a modification to the contract
which includes additional development and testing and the fabrication of six
early operational capability aircraft. The first prototype aircraft performed a
successful flight in January 1996 and is undergoing further flight testing. The
Corporation cannot predict whether the Comanche will go into production or
predict the quantity of aircraft that ultimately may be built.
Hamilton Standard is a global producer of a number of flight systems for
both commercial and military aircraft. Major production programs include engine
controls, environmental controls, flight controls and propellers. Hamilton
Standard also supplies NASA's space suit/life support system and produces
environmental control and thermal control systems for international space
programs. Other Hamilton Standard products include fuel cell power plants,
microelectronic circuitry and advanced optical systems.
At December 31, 1996, the Flight Systems business backlog amounted to $2,606
million, including $1,646 million under funded contracts and subcontracts with
the U.S. Government, as compared to $2,954 million and $1,936 million,
respectively, at December 31, 1995. Of the total Flight Systems business
backlog at December 31, 1996, approximately $1,885 million is expected to be
realized as sales in 1997.
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Other Matters Relating to the Corporation's
Business as a Whole
Research and Development
To maintain its competitive position, the Corporation spends substantial
amounts of its own funds on research and development. Such expenditures, which
are charged to income as incurred, were $1,122 million or 4.8 percent of total
revenues in 1996, as compared with $963 million or 4.2 percent of total revenues
in 1995 and $978 million or 4.6 percent of total revenues in 1994. The
Corporation also performs research and development work under contracts funded
by the U.S. Government and other customers. Such contract research and
development, which is performed principally in the Pratt & Whitney segment and
to a lesser extent in the Flight Systems segment, amounted to $870 million in
1996, as compared with $871 million in 1995 and $838 million in 1994.
Contracts, Environmental and Other Matters
Government contracts are subject to termination for the convenience of the
government, in which event the Corporation normally would be entitled to
reimbursement for its allowable costs incurred plus a reasonable profit. Most
of the Corporation's sales are made under fixed-price type contracts; only 5
percent of the Corporation's total sales for 1996 were made under cost-
reimbursement type contracts.
Like many defense contractors, the Corporation has received allegations from
the U.S. Government that some contract prices should be reduced because cost or
pricing data submitted in negotiation of the contract prices may not have been
in conformance with government regulations. The Corporation has made voluntary
refunds in those cases it believes appropriate, has settled some allegations,
and does not believe that any further price reductions that may be required will
have a material effect upon its financial position or results of operations.
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. See Item 3 Legal Proceedings at page 8 of this Report for
further discussion.
The Corporation does not currently believe that Defense Department budget
cutbacks will have a material adverse effect on the profitability of the
Corporation due in part to the Corporation's long term efforts to reduce its
reliance on defense contracts.
Like other users in the U.S., the Corporation is largely dependent upon
foreign sources for certain of its raw materials requirements such as cobalt
(Africa), and chromium (Africa, Eastern and Central Europe and the countries of
the former U.S.S.R.). To alleviate this dependence and accompanying risk, the
Corporation has a number of on-going programs which include the development of
new vendor sources; the increased use of more readily available materials
through material substitutions and the development of new alloys; and
conservation of materials through scrap reclamation and new manufacturing
processes such as net shape forging.
The Corporation has sought cost reductions in its purchases of certain other
materials, components, and supplies by consolidating its purchases and reducing
the number of suppliers. In some instances the Corporation is reliant upon a
single source of supply. A disruption in deliveries from its suppliers,
therefore, could have an adverse effect on the Corporation's ability to meet its
commitments to customers. The Corporation believes that it has appropriately
balanced the risks against the costs of sustaining a greater number of
suppliers.
The Corporation does not foresee any unavailability of materials,
components, or supplies which will have any material adverse effect on its
overall business, or on any of its business segments, in the near term.
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While the Corporation's patents, trademarks, licenses and franchises are
cumulatively important to its business, the Corporation does not believe that
the loss of any one or group of related patents, trademarks, licenses or
franchises would have a material adverse effect on the overall business of the
Corporation or on any of its business segments.
The Corporation does not anticipate that compliance with federal, state and
local provisions relating to the protection of the environment will have a
material adverse effect upon its capital expenditures, competitive position,
financial position or results of operations. (Environmental matters are the
subject of certain of the Legal Proceedings described in Item 3 below, and are
further addressed in "Management's Discussion and Analysis of Results of
Operations and Financial Position" at page 26 and Note 14 of Notes to
Consolidated Financial Statements at page 41 of the Corporation's 1996 Annual
Report to Shareowners.)
Most of the laws governing environmental matters include criminal
provisions. If the Corporation were convicted of a violation of the federal
Clean Air Act or the Clean Water Act, the facility or facilities involved in the
violation would be listed on the Environmental Protection Agency's (EPA) List of
Violating Facilities. The listing would continue until the EPA concluded that
the cause of the violation had been cured. Any listed facility cannot be used
in performing any U.S. Government contract awarded to the Corporation during any
period of listing by the EPA.
Employees
At December 31, 1996, the Corporation's total employment was approximately
173,800.
Item 2. Properties
The Corporation's fixed assets include the plants and warehouses described
below and a substantial quantity of machinery and equipment, most of which is
general purpose machinery and equipment using special jigs, tools and fixtures
and in many instances having automatic control features and special adaptations.
The Corporation's plants, warehouses, machinery and equipment are in good
operating condition, are well maintained, and substantially all of its
facilities are in regular use. The Corporation considers the present level of
fixed assets capitalized as of December 31, 1996, suitable and adequate for the
respective industry segments' operations in the current business environment.
The following square footage numbers are approximations:
At December 31, 1996, the Corporation operated (a) plants in the U.S. which
had 33.1 million square feet, of which 5 million square feet were leased; (b)
plants outside the U.S. which had 20.1 million square feet, of which 2.4 million
square feet were leased; (c) warehouses in the U.S. which had 4.2 million square
feet, of which 2.7 million square feet were leased; and (d) warehouses outside
the U.S. which had 5.2 million square feet, of which 3.3 million square feet
were leased.
Management believes that the facilities for the production of its products
are suitable and adequate for the business conducted therein, are being
appropriately utilized in line with experience and have sufficient production
capacity for their present intended purposes. Utilization of the facilities
varies based on demand for the products. The Corporation continuously reviews
its anticipated requirements for facilities and, based on that review, may from
time to time acquire additional facilities and/or dispose of existing
facilities.
Item 3. Legal Proceedings
In June 1992, the Department of Justice filed a Civil False Claims Act
complaint in the United States District Court for the District of Connecticut,
No. 592CV375, against Sikorsky Aircraft alleging that the government was
overcharged by nearly $4 million in connection with the pricing of parts
supplied for the reconditioning of the Navy's Sea King helicopter. The
Complaint seeks treble damages plus a $10,000 penalty for each false claim
submitted. Trial is scheduled for July 1997.
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The Corporation's Pratt & Whitney unit was advised that it is no longer the
subject of a Department of Justice investigation relating to its government
contracts accounting practices for aircraft engine parts produced by foreign
companies under certain commercial engine collaboration programs. With respect
to these issues, however, the Department of Defense has issued a contracting
officer's "final decision", which states that the Corporation failed to comply
with various accounting requirements incorporated in its contracts with the
government. The final decision covered years from 1984-95, inclusive, and
claimed contract damages of $260.3 million, of which $102.7 million is interest.
The Corporation believes its accounting practices comply with contract
requirements and has not changed its accounting practices in response to the
government's claim. On December 24, 1996, the Corporation filed a notice of
appeal with the Armed Services Board of Contract Appeals. The government has
reserved its right to file additional claims for 1996 (and later years if the
accounting practices are unchanged) plus additional interest.
In April 1995, the Department of Justice filed a Civil False Claims Act
complaint against the Corporation in the United States District Court for the
Southern District of Florida, No. 95-8251, alleging misuse of $10 million of
foreign military financing funds. The complaint seeks treble damages plus a
$10,000 penalty for each false claim submitted.
The Justice Department continues to investigate alleged violations of law in
connection with marketing and sale of helicopters and related services to the
Government of the Kingdom of Saudi Arabia. The Corporation has responded to a
grand jury subpoena requesting documents in connection with this matter, and
several current and former employees and business associates have been
interviewed.
In November 1996, a jury reached a verdict in Chromalloy Gas Turbine
Corporation v. United Technologies Corporation, No. 95-CI-12541, a Texas state
action which was instituted by Chromalloy in August of 1995. The jury found
that Pratt & Whitney did not monopolize any relevant market but did willfully
attempt to monopolize an unspecified market. It found, however, that Chromalloy
suffered neither monetary damage nor irreparable injury. Chromalloy has
requested an injunction and moved for judgment in its favor notwithstanding the
verdict.
The Corporation does not believe that resolution of any of the matters
listed above will have a material adverse effect upon the Corporation's
competitive position, results of operations, cash flows, or financial position.
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 has incurred and will likely continue to incur liabilities
under various state and federal statutes for the cleanup of pollutants
previously released into the environment. The Corporation believes that any
payments it may be required to make as a result of these claims will not have a
material effect upon the capital expenditures, competitive or financial
position, or results of operations of the Corporation. 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. (For information
regarding the matters discussed in this paragraph, see "Environmental Matters"
in Management's Discussion and Analysis of Results of Operations and Financial
Position at page 26 and Note 14 of the Notes to Consolidated Financial
Statements at page 41 of the Corporation's 1996 Annual Report to Shareowners.)
- 9 -
<PAGE>12
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to security holders for a vote during the fourth
quarter ended December 31, 1996.
- ----- Executive Officers of the Registrant
The executive officers of United Technologies Corporation, together with the
offices in United Technologies Corporation presently held by them, their
business experience since January 1, 1992, and their ages, are as follows:
Other Business Age
Name Title Experience 2/1/97
Since 1/1/92
Jonathan W. Vice President, Principal - Morgan 40
Ayers Strategic Planning Stanley Corporate
(since 1995) Finance
Norman R. Senior Vice President, UT 54
Bodine President Automotive; President,
(since 1997) Electrical Systems &
Components; President,
Automotive Products
Division, UT Automotive
Eugene Buckley President, Sikorsky President, Sikorsky 66
Aircraft Corporation Aircraft Division
(since 1995)
William L. Senior Vice Vice President, Human 54
Bucknall, Jr. President, Human Resources &
Resources & Organization, United
Organization Technologies
(since 1992) Corporation
Kevin G. Conway Vice President, Director of Taxes, 48
Taxes United Technologies
(since 1995) Corporation
Mark S. Coran Executive Vice 53
President, -------
Operations, Pratt &
Whitney (since 1991)
Robert F. Chairman (since Chief Executive Officer; 63
Daniell 1987) President and Chief
Operating Officer
George David President and Chief President and Chief 54
Executive Officer Operating Officer;
(since 1994) Executive Vice President
and President,
Commercial/Industrial
C. Scott Greer President, UT President, Chief 46
Automotive Operating Officer
(since 1997) Echlin, Inc.
Bruno Grob President, European President, Otis France 47
&
Transcontinental
Operations
Otis Elevator (since
1992)
- 10 -
<PAGE>13
Other Business Age
Name Title Experience 2/1/97
Since 1/1/92
Jay L. Vice President- Director, Internal 46
Haberland Controller Audit;
(since 1996) Vice President, Finance,
Commercial & Industrial
Group
The Black & Decker
Corporation
Robert J. Senior Vice ------- 63
Hermann President, Science &
Technology (since
1992)
Karl J. Krapek Executive Vice Chairman, President and 48
President and Chief
President, Pratt & Executive Officer,
Whitney Carrier Corporation
(since 1997)
Raymond P. President, Hamilton Executive Vice 53
Kurlak Standard (since President, Sikorsky
1995)
John R. Lord President, Carrier President, Carrier NAO, 53
Corporation Vice President,
(since 1995) Residential Products
Group, Carrier NAO
Stephen F. Page Executive Vice Executive Vice President 57
President and Chief and Chief Financial
Financial Officer Officer, The Black &
(since 1993) Decker Corporation
William F. Paul Executive Vice Senior Vice President, 60
President Government Affairs
(since 1995)
Gilles A. H. Vice President - Vice President, Finance 50
Renaud Treasurer Carrier Corporation
(since 1996)
William H. Vice President, Vice President and 53
Trachsel Secretary and Deputy Deputy General Counsel
General Counsel
(since 1993)
Jean-Pierre van President, Otis ------- 62
Rooy Elevator
(since 1991)
Robert A. Wolfe Executive Vice Executive Vice 58
President, Pratt & President, Military and
Whitney and Space Aero Propulsion
President, Large
Commercial Engines
(since 1994)
Irving B. Executive Vice ------- 51
Yoskowitz President and
General Counsel
(since 1990)
All of the officers serve at the pleasure of the Board of Directors of United
Technologies Corporation or the subsidiary designated.
- 11 -
<PAGE>14
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
See "Comparative Stock Data" appearing on page 43 of the Corporation's 1996
Annual Report to its Shareowners containing the following data relating to the
Corporation's Common Stock: principal market, quarterly high and low sales
prices, approximate number of shareowners and frequency and amount of dividends.
All such data are incorporated by reference in this Report.
Item 6. Selected Financial Data
See the Five Year Summary appearing on page 21 of the Corporation's 1996
Annual Report to its Shareowners containing the following data: sales, net
income, primary and fully diluted earnings per share, cash dividends on Common
Stock, total assets and long-term debt. All such data are incorporated by
reference in this Report.
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Position
See "Management's Discussion and Analysis of Results of Operations and
Financial Position" appearing on pages 22 through 27 of the Corporation's 1996
Annual Report to its Shareowners; such discussion and analysis is incorporated
by reference in this Report.
Item 8. Financial Statements and Supplementary Data
The 1996 and 1995 Balance Sheets, and other financial statements for the
years 1996, 1995 and 1994, together with the report thereon of Price Waterhouse
LLP dated January 23, 1997, appearing on pages 28 through 43 in the
Corporation's 1996 Annual Report to its Shareowners are incorporated by
reference in this Report.
The 1996 and 1995 Selected Quarterly Financial Data appearing on page 43 in
the Corporation's 1996 Annual Report to its Shareowners are incorporated by
reference in this Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Item 10. Directors and Executive Officers of the Registrant
The information required by Item 10 with respect to directors is
incorporated herein by reference from pages 4 through 7 of the Corporation's
Proxy Statement for the 1997 Annual Meeting of Shareowners. Information
regarding executive officers is contained in Part I of this Report at pages 10
and 11, and the section entitled "Section 16(a) Beneficial Ownership Reporting
Compliance" at page 9 of the 1997 Proxy Statement.
Item 11. Executive Compensation
The information required by Item 11 is incorporated herein by reference from
pages 15 through 22 of the Corporation's Proxy Statement for the 1997 Annual
Meeting of Shareowners. Such incorporation by reference shall not be deemed to
specifically incorporate by reference the information referred to in Item
402(a)(8) of Regulation S-K.
- 12 -
<PAGE>15
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by Item 12 is incorporated herein by reference from
pages 8 and 9 of the Corporation's Proxy Statement for the 1997 Annual Meeting
of Shareowners.
Item 13. Certain Relationships and Related Transactions
The information required by Item 13 is incorporated herein by reference from
page 9 of the Corporation's Proxy Statement for the 1997 Annual Meeting of
Shareowners.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Page Number
in Annual
Report
(a) Financial Statements, Financial Statement
Schedules and Exhibits
(1) Financial Statements (incorporated by
reference from the
1996 Annual Report to Shareowners):
Report of Independent Accountants ......... 28
Consolidated Statement of Operations for the
Three Years 29
ended December 31, 1996 ..............
Consolidated Balance Sheet--December 31, 30
1996 and 1995 ...........................
Consolidated Statement of Cash Flows for the
Three Years 31
ended December 31, 1996 ..............
Notes to Consolidated Financial Statements 32-43
Selected Quarterly Financial Data 43
(Unaudited) ...............................
Page Number
in Form 10-K
(2) Financial Statement Schedule
For the three years ended December 31, 1996:
Report of Independent Accountants on
Financial Statement ..................... S-1
Schedule II Valuation and Qualifying
Accounts ................................ S-2
Consent of Independent Accountants ........ F-1
All other schedules are omitted because they are not applicable or
the required information is shown in the financial statements or
the notes thereto.
(3) Exhibits:
The following list of exhibits includes
exhibits submitted with this Form 10K as
filed with the SEC and those incorporated by
reference to other filings.
Exhibit Number
3.1 Restated Certificate of Incorporation *
3.2 Bylaws**
4 The Corporation hereby agrees to furnish upon
request to the Commission a copy of each
instrument defining the rights of holders of long-
term debt of the Corporation and its consolidated
subsidiaries and any unconsolidated subsidiaries.*
10.1 United Technologies Corporation 1979 Long Term
Incentive Plan. *
- 13 -
<PAGE>16
Exhibit Number
10.2 United Technologies Corporation Annual
Executive Incentive Compensation Plan, as
amended. *****
10.3 United Technologies Corporation Disability
Insurance Benefits for Executive Control
Group. *
10.4 United Technologies Corporation Executive
Estate Preservation Program. *
10.5 United Technologies Corporation Pension
Preservation Plan. *
10.6 United Technologies Corporation Senior
Executive Severance Plan. *
10.7 United Technologies Corporation Deferred
Compensation Plan, as amended. *****
10.8 Otis Elevator Company Incentive Compensation
Plan. *
10.9 United Technologies Corporation Directors
Retirement Plan, as amended. *****
10.10 United Technologies Corporation Deferred
Compensation Plan for Non-Employee Directors.*
10.11 United Technologies Corporation Long Term
Incentive Plan, as amended. *****
10.12 United Technologies Corporation Executive
Disability, Income Protection and Standard
Separation Agreement Plan. *
10.13 United Technologies Corporation Directors'
Restricted Stock/Unit Program. *
10.14 United Technologies Corporation Board of
Directors Deferred Stock Unit Plan. *****
10.15 United Technologies Corporation Pension
Replacement Plan. ***
10.16 United Technologies Corporation Special
Retention and Stock Appreciation Program. ****
10.17 United Technologies Corporation Nonemployee
Director Stock Option Plan. *****
11 Statement re Computation of Per Share
Earnings. #
12 Computation of Ratio of Earnings to Fixed
Charges. #
13 Annual Report to Shareowners for year ended
December 31, 1996 (except for the pages and
information thereof expressly incorporated by
reference in this Form 10-K, the Annual Report
to Shareowners is provided solely for the
information of the Securities and Exchange
Commission and is not to be deemed "filed" as
part of this Form 10-K). #
21 Subsidiaries of the Registrant. #
24 Powers of Attorney of Howard H. Baker, Jr.,
Antonia Handler Chayes, Robert F. Daniell,
Robert F. Dee, Charles W. Duncan, Jr., Jean-
Pierre Garnier, Pehr G. Gyllenhammar, Gerald
D. Hines, Charles R. Lee, Robert H. Malott,
Frank P. Popoff, Harold A. Wagner and
Jacqueline G. Wexler. #
27 Financial Data Schedule. #
Notes to exhibits:
# Submitted electronically herewith.
* Incorporated by reference to Exhibit of the
same number to United Technologies Corporation
Annual Report on Form 10K (Commission file
number 1-812) for fiscal year ended December
31, 1992.
** Incorporated by reference to Exhibit of the
same number to United Technologies Corporation
Annual Report on Form 10K (Commission file
number 1-812) for fiscal year ended December
31, 1994.
*** Incorporated by reference to Exhibit of the
same number to United Technologies Corporation
Annual Report on Form 10K (Commission file
number 1-812) for fiscal year ended December
31, 1993.
- 14 -
<PAGE>17
Notes to exhibits:
**** Incorporated by reference to Exhibit of the
same number to United Technologies Corporation
Form 10Q (Commission file number 1-812) for
the quarter ended September 30, 1995.
***** Incorporated by reference to Exhibit of the
same number to United Technologies Corporation
Annual Report on Form 10K (Commission file
number 1-812) for fiscal year ended December
31, 1995.
(b) No reports on Form 8-K were filed by the Registrant during
the fourth quarter of 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
(Registrant)
By Stephen F. Page,
Date: February 7, 1997 Executive Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated, on the date set forth below.
Signature Title Date
/s/ GEORGE DAVID President and Chief February 7, 1997
(George David) Executive Officer;
Director
/s/ JAY L. HABERLAND Vice President - February 7, 1997
(Jay L. Haberland) Controller
/s/ STEPHEN F. PAGE Executive Vice February 7, 1997
(Stephen F. Page) President
and Chief Financial
Officer
ROBERT F. DANIELL * Chairman, Director)
(Robert F. Daniell)
HOWARD H. BAKER, JR. * Director )
(Howard H. Baker, Jr.)
ANTONIA HANDLER CHAYES * Director )
(Antonia Handler Chayes)
ROBERT F. DEE * Director )
(Robert F. Dee)
CHARLES W. DUNCAN, JR. * Director )
(Charles W. Duncan, Jr.)
JEAN-PIERRE GARNIER * Director )
(Jean-Pierre Garnier)
PEHR G. GYLLENHAMMAR * Director ) *By:/s/William H. Trachsel
(Pehr G. Gyllenhammar) (William H. Trachsel)
Attorney-in Fact
Date: February 7, 1997
- 15 -
<PAGE>18
Signature Title Date
GERALD D. HINES * Director )
(Gerald D. Hines)
CHARLES R. LEE * Director )
(Charles R. Lee)
ROBERT H. MALOTT * Director )
(Robert H. Malott)
FRANK P. POPOFF * Director ) *By:/s/William H.
(Frank P. Popoff) (William H. Trachsel)
Attorney-in Fact
HAROLD A. WAGNER * Director ) Date: February 7, 1997
(Harold A. Wagner)
JACQUELINE G. WEXLER * Director )
(Jacqueline G. Wexler)
/s/ KARL J. KRAPEK Executive Vice February 7, 1997
(Karl J. Krapek) President, Director
- 16 -
<PAGE>19
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of United Technologies Corporation
Our audits of the consolidated financial statements referred to in our
report dated January 23, 1997 appearing on page 28 of the 1996 Annual Report to
Shareowners of United Technologies Corporation (which report and consolidated
financial statements are incorporated by reference in this Annual Report on Form
10-K) also included an audit of the Financial Statement Schedule listed in Item
14(a)(2) of this Form 10-K. In our opinion, the Financial Statement Schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
Price Waterhouse LLP
Hartford, Connecticut
January 23, 1997
S-1
<PAGE>20
<TABLE><CAPTION> SCHEDULE II
UNITED TECHNOLOGIES CORPORATION AND SUBSIDIARIES
Schedule II - Valuation and Qualifying Accounts
Three Years Ended December 31, 1996
(Millions of Dollars)
Allowances for Doubtful Accounts and Other Customer Financing Activity:
<S> <C>
Balance December 31, 1993 $ 466
Provision charged to income 107
Doubtful accounts written off (net) (52)
Other adjustments (12)
Balance December 31, 1994 509
Provision charged to income 1
Doubtful accounts written off (net) (88)
Other adjustments 8
Balance December 31, 1995 430
Provision charged to income 40
Doubtful accounts written off (net) (57)
Other adjustments (1)
Balance December 31, 1996 $ 412
Future Income Tax Benefits - Valuation Allowance:
Balance December 31, 1993 $ 297
Additions charged to income tax expense 109
Reductions credited to income tax expense (51)
Balance December 31, 1994 355
Additions charged to income tax expense 49
Reductions credited to income tax expense (52)
Balance December 31, 1995 352
Additions charged to income tax expense 30
Reductions credited to income tax expense (48)
Balance December 31, 1996 $ 334
</TABLE>
S-2
<PAGE>21
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the 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) of United Technologies
Corporation of our report dated January 23, 1997 appearing on page 28 of the
1996 Annual Report to Shareowners which is incorporated by reference in this
Annual Report on Form 10-K. We also consent to the incorporation by
reference of our report on the Financial Statement Schedule, which appears
on page S-1 of this Form 10-K.
Price Waterhouse LLP
Hartford, Connecticut
February 7, 1997
F-1
<PAGE>
<TABLE><CAPTION> EXHIBIT 11
UNITED TECHNOLOGIES CORPORATION AND SUBSIDIARIES
Computations of Earnings Per Share and Fully Diluted Earnings Per Share
Assuming All Outstanding Dilutive Convertible Securities Had Been Converted
For the Five Years Ended December 31, 1996
(Millions of Dollars, except per share amounts)
1996 (1) 1995 (1) 1994 (1)(2) 1993 (3) 1992 (3)
<S> <C> <C> <C> <C> <C>
Earnings (loss) applicable to Common Stock $ 876 $ 723 $ 563 $ 444 $ (329)
ESOP Convertible Preferred Stock adjustment 24 21 17 - -
Primary net earnings (loss) for period $ 900 $ 744 $ 580 $ 444 $ (329)
Earnings (loss) applicable to Common Stock $ 876 $ 723 $ 563 $ 444 $ (329)
ESOP Convertible Preferred Stock adjustment 24 21 17 16 16
Fully diluted net earnings (loss) for period $ 900 $ 744 $ 580 $ 460 $ (313)
Average number of common shares and common stock
equivalents outstanding during period (thirteen
month-end average) (thousands) (4) 261,123 260,956 263,586 251,994 246,476
Fully diluted average number of common shares
outstanding, assuming all outstanding convertible
securities had been converted on the dates of
issue (thousands) (4) 262,646 262,998 263,810 279,228 274,314
Primary earnings (loss) per common share (4) $ 3.45 $ 2.85 $ 2.20 $ 1.77 $ (1.34)
Fully diluted earnings (loss) per common share (4) $ 3.43 $ 2.83 $ 2.20 $ 1.65 $ (1.34)
(1) Fully diluted earnings per common share is less than 3% dilutive and is not shown separately
on the Consolidated Statement of Operations.
(2) In 1994, the Corporation adopted AICPA Statement of Position (SOP) 93-6, "Employers' Accounting for
Employee Stock Ownership Plans" and conformed its calculations of earnings per common share
to the requirements of this SOP.
(3) During 1992 and 1993, each share of the ESOP Preferred Stock is convertible into one share of Common Stock.
A reduction in earnings applicable to Common Stock is required in the calculation of fully diluted earnings
per share representing the Corporation's additional contribution to the ESOP to enable it to meet its debt
repayment responsibilities were the preferred dividends not available for this purpose. The adjustment
also reflects the adding back of the ESOP Preferred Stock dividend.
(4) Adjusted for two-for-one stock split effective December 10, 1996.
</TABLE>
<PAGE>
<TABLE><CAPTION> EXHIBIT 12
UNITED TECHNOLOGIES CORPORATION AND SUBSIDIARIES
Computation of Ratio of Earnings to Fixed Charges
(Millions of Dollars)
Years Ended December 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Fixed Charges:
Interest on indebtedness $ 221 $ 244 $ 275 $ 251 $ 282
Interest capitalized 16 16 19 29 52
One-third of rents* 87 88 101 115 135
Total Fixed Charges $ 324 $ 348 $ 395 $ 395 $ 469
Earnings:
Income (loss) before income taxes
and minority interests $ 1,560 $ 1,344 $ 1,076 $ 909 $ 200
Fixed charges per above 324 348 395 395 469
Less: interest capitalized (16) (16) (19) (29) (52)
308 332 376 366 417
Amortization of interest capitalized 38 41 43 42 43
Total Earnings $ 1,906 $ 1,717 $ 1,495 $ 1,317 $ 660
Ratio of Earnings to Fixed Charges 5.88 4.93 3.78 3.33 1.41
* Reasonable approximation of the interest factor.
</TABLE>
<PAGE>
EXHIBIT 13
<PAGE>21
<TABLE>
<CAPTION>
FIVE YEAR SUMMARY
In Millions of Dollars (except per share amounts) 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR
Sales $ 23,273 $ 22,624 $ 20,801 $ 20,736 $ 21,641
Research and development 1,122 963 978 1,137 1,221
Income before cumulative effect
of accounting principle changes 906 750 585 487 35
Net income (loss) 906 750 585 487 (287)
Earnings (loss) per share before cumulative effect of
accounting principle changes:
Primary 3.45 2.85 2.20 1.77 (.03)
Fully diluted 3.45 2.85 2.20 1.65 (.03)
Earnings (loss) per share:
Primary 3.45 2.85 2.20 1.77 (1.34)
Fully diluted 3.45 2.85 2.20 1.65 (1.34)
Cash dividends per common share 1.10 1.025 .95 .90 .90
Average number of shares of Common Stock
outstanding (thousands):
Primary 261,123 260,956 263,586 251,994 246,476
Fully diluted 261,123 260,956 263,586 279,228 274,314
Return on average common shareowners'
equity, after tax 21.1% 18.6% 15.4% 13.1% (8.7)%
AT YEAR END
Net working capital $ 2,221 $ 2,293 $ 1,675 $ 786 $ 1,064
Current asset ratio 1.3 to 1 1.3 to 1 1.3 to 1 1.1 to 1 1.2 to 1
Total assets 16,745 15,958 15,624 15,618 15,928
Long-term debt, including current portion 1,534 1,747 2,041 2,179 2,769
Total debt 1,785 2,041 2,443 2,959 3,146
Debt to total capitalization 29% 34% 39% 45% 48%
Net debt (total debt less cash) 658 1,141 2,057 2,538 2,792
Net debt to total capitalization 13% 22% 35% 41% 45%
ESOP Preferred Stock, net 434 398 339 176 151
Shareowners' equity 4,306 4,021 3,752 3,598 3,370
Equity per common share 18.09 16.47 15.24 14.27 13.62
Number of employees:
United States 69,800 70,900 75,900 81,700 91,400
Europe 42,400 40,700 41,500 40,300 40,600
Asia Pacific 27,600 25,600 21,000 15,900 17,300
Other 34,000 33,400 33,100 30,700 28,700
Total 173,800 170,600 171,500 168,600 178,000
<FN>
Equity per common share is based on shares outstanding at each year end.
1992 through 1995 common share and per share amounts are adjusted to give retroactive effect to the 2-for-1 stock split.
</TABLE>
<PAGE>
<PAGE>22
MANAGEMENT'S DISCUSSION AND ANALYSIS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL POSITION
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.
See Note 15 of Notes to Consolidated Financial Statements for the operating
results of the Corporation's business segments.
BUSINESS ENVIRONMENT
A principal strategic objective of the Corporation has been to expand its
business operations overseas to gain market access and extend global market
leadership. Growth has been particularly strong in the Asia Pacific region as
the Corporation continues to benefit from early investment in this area. As
worldwide businesses, the Corporation's operations are affected by global and
regional economic factors. Revenues from outside the U.S., including U.S.
export sales, in dollars and as a percentage of consolidated revenues are as
follows:
In Millions of Dollars 1996 1995 1994 1996 1995 1994
- --------------------------------------------------------------------------------
Europe $ 4,800 $ 4,599 $ 3,975 20% 20% 19%
Asia Pacific 3,042 2,707 2,281 13% 12% 11%
Other 2,238 2,042 1,825 10% 9% 8%
U.S. Exports 3,124 3,267 3,108 13% 14% 15%
-----------------------------------------------------
International
Revenues $13,204 $12,615 $11,189 56% 55% 53%
-----------------------------------------------------
As part of its globalization strategy, the Corporation has increased its
investments in the People's Republic of China (PRC), the former Soviet Union
and other emerging nations which carry higher levels of currency, political and
economic risks. At December 31, 1996, the Corporation's net investment in any
one of these countries was less than 4% of consolidated equity. The
Corporation's combined revenues in the PRC and Hong Kong, including U.S. export
sales, were $1,005 million, $901 million and $742 million in 1996, 1995 and
1994, respectively.
OTIS is the world's largest elevator and escalator manufacturing and service
company. Otis' business is impacted by global and regional economic factors,
particularly fluctuations in commercial construction which affect new equipment
installations, and labor costs which can impact service and maintenance margins
on installed elevators and escalators. The elevator and escalator service market
remains an important aspect of Otis' business. Eighty-five percent of Otis'
revenues were generated outside the U.S. in 1996. Accordingly, changes in
foreign currency rates affect the translation of Otis' operating results into
U.S. dollars for financial reporting purposes.
During 1996, U.S. office building construction starts were higher than the
prior year and commercial vacancy rates continued to improve. In Europe, new
equipment sales remain flat, but a growing base of service business has enabled
Otis to maintain solid performance. Otis continues to benefit from its
investment strategy in the Asia Pacific region where construction activity and
economic growth rates remain strong.
CARRIER is the world's largest manufacturer of commercial and residential
heating, ventilating and air conditioning (HVAC) systems and equipment. Carrier
is also an important supplier of ship container and trailer transportation
cooling equipment. During 1996, 55% of Carrier's revenues were generated by
international operations and U.S. exports. Accordingly, Carrier is impacted by
commercial and residential construction activity worldwide, as well as changes
in foreign currency rates which affect the translation of Carrier's operating
results into U.S. dollars for financial reporting purposes.
U.S. residential housing starts increased approximately 9% over 1995, while
commercial construction starts in the U.S. were lower than in 1995. Construction
activity in Asia remained strong, while Europe remained weak.
UT AUTOMOTIVE (UTA) develops and manufactures a wide variety of electrical and
interior trim systems and components for original equipment manufacturers (OEMs)
in the automotive industry. Sales to Ford Motor Company, UTA's largest customer,
comprised approximately 38% of UTA's revenues in 1996. UTA also has important
relationships with Chrysler Corporation and General Motors Corporation as well
as PSA, Renault, Volvo and Fiat in Europe and the New American Manufacturing
divisions of Japanese automotive OEMs.
North American car and light truck production was essentially flat in 1996,
while European car sales were higher, compared to 1995. UTA's revenues benefited
from higher vehicle content in North America and higher volumes in Europe.
However, the automotive OEMs apply significant pricing pressures on UTA and
their other suppliers and have required suppliers to bear an increasing portion
of engineering, development and tooling expenditures.
COMMERCIAL AEROSPACE
The financial performance of the Corporation's Pratt & Whitney and Flight
Systems segments is directly tied to the aviation industry. Pratt & Whitney is
a major supplier of commercial, general aviation and military aircraft engines,
along with spare parts, product support and a full range of overhaul and repair
services. The Flight Systems segment provides fuel, environmental and flight
control systems and propellers for commercial aircraft through Hamilton Standard
and helicopters through Sikorsky Aircraft.
Worldwide airline profits continue to improve as a result of increased load
factors and lower costs. U.S. airlines remain disciplined with moderate
expansion plans as near term profitability is primarily being 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 resources remain constrained in the near term by
increasing competition, higher cost structures and privatization.
Pratt & Whitney's mix of large commercial engine shipments has shifted to
newer, higher thrust engines for wide-bodied aircraft. This market is very
price and product competitive and the newer engines, through technological
improvements and fewer parts, will require fewer spare parts than older
engines.
<PAGE>
<PAGE>23
The follow-on spare parts sales for Pratt & Whitney engines in service have
traditionally been an important source of profit for the Corporation. The large
investment required for new aircraft, coupled with performance improvements and
hush-kit upgrades to older aircraft and engines, have resulted in lengthened
lives of older aircraft in operation, including those with Pratt & Whitney
engines.
GOVERNMENT BUSINESS
During 1996, the Corporation's sales to the U.S. Government were $3,382 million
or 15% of total sales, a decline from $3,651 million or 16% of total sales in
1995 and $3,809 million or 18% of total sales in 1994.
The defense portion of the Corporation's aerospace businesses continues to
respond to a changing global political environment. The U.S. defense industry
continues to downsize and consolidate in response to continued pressure on U.S.
defense spending. As a result, the Corporation has continued to reduce its
reliance on U.S. defense contracts.
Sikorsky will continue to supply Black Hawk helicopters to the U.S. and
foreign governments under contracts extending through 1998, albeit at lower
volumes than in the past. The program plan for the development of the U.S. Army
Comanche helicopter now supports completion of the prototype development and
flight testing. A commitment to production has not been made.
The significant decrease in the U.S. defense procurement of helicopters in
recent years has placed the U.S. helicopter manufacturers under some of the
same pressures that have led to consolidation in other segments of the U.S.
defense industry. Sikorsky expects to maintain its market position by
improving its products for both its U.S. and foreign government customers. In
addition, an international team led by Sikorsky is developing the S-92, a large
cabin derivative of the Black Hawk family, for commercial and military markets.
Pratt & Whitney continues to deliver F100 engines and military spare parts
to both U.S. and foreign governments. Pratt & Whitney's engines will power two
of the primary U.S. Air Force programs of the future: the C-17 airlifter which
is currently in production, and the F-22 fighter which is currently being
developed. In 1996, derivatives of Pratt & Whitney's F119 engine were chosen to
provide power for the Joint Strike Fighter demonstration aircraft. The Joint
Strike Fighter program is intended to lead to the development of a single
aircraft and engine that, with minor modifications, would satisfy future strike
requirements of the U.S. Navy, Air Force, and Marine Corps and the United
Kingdom Royal Navy.
RESULTS OF OPERATIONS
Revenues:
Increased 3% or $710 million from 1995 to 1996.
Increased 8% or $1,605 million from 1994 to 1995.
In Millions of Dollars 1996 1995 1994
- -------------------------------------------------------------------
Product sales $18,247 $17,972 $16,670
Service sales 5,026 4,652 4,131
Financing revenues
and other 239 178 396
During 1996, UTC's commercial and industrial revenues increased 7% and
aerospace and defense revenues increased 2%, excluding the impact of Pratt &
Whitney's change in classification of sales as described in Note 1 of the Notes
to Consolidated Financial Statements. The Corporation estimates that increases
in selling prices to customers averaged approximately 1% and 2% in 1996 and
1995, respectively. Foreign currency translation had an unfavorable effect on
1996 revenue; excluding this effect, consolidated revenues would have increased
by 4% and 6% in 1996 and 1995, respectively, indicating that the real volume of
revenues increased 3% in 1996 and 4% in 1995.
Financing revenues and other income, less other deductions increased $61
million in 1996 and decreased $218 million in 1995. Financing revenues and
other income, less other deductions increased in 1996 principally due to a gain
on the sale of UT Automotive's steering wheels business in the fourth quarter.
The gain was partially offset by lower financing revenues in 1996, associated
with a lower customer financing asset base. In addition, 1995 included gains
realized on the sale of customer financing assets and the sale of a joint
venture interest in Carrier's Arkadelphia scroll compressor plant. Financing
revenues and other income, less other deductions decreased $218 million in 1995
from 1994, in part due to lower financing revenues associated with a lower
customer financing asset base. In addition, 1994 included an $87 million gain
on the sale of the interest in Westland Group plc, the sale of an additional
participation interest in the PW4000 engine program by Pratt & Whitney and
insurance litigation settlements, partially offset by a $51 million charge
relating to the adoption of AICPA Statement of Position 93-6, "Employers'
Accounting for Employee Stock Ownership Plans."
In Millions of Dollars 1996 1995 1994
- -------------------------------------------------------------------
Cost of products
sold $14,625 $14,793 $13,773
Product margin % 19.8% 17.7% 17.4%
Cost of services
sold $ 3,112 $ 2,807 $ 2,559
Service margin % 38.1% 39.7% 38.1%
Product margin as a percentage of sales increased 2.1 percentage points
compared to 1995 primarily as a result of improved margin percentages at Pratt
& Whitney, Carrier, and Flight Systems as a result of the Corporation's
continuing efforts to reduce manufacturing costs and floor space. Service
margin as a percentage of sales decreased 1.6 percentage points compared to
1995 with Otis, Carrier, and Pratt & Whitney all experiencing declines.
In Millions of Dollars 1996 1995 1994
- -------------------------------------------------------------------
Research and
development $1,122 $963 $978
Percent of sales 4.8% 4.3% 4.7%
Research and development expenses increased $159 million (17%) in 1996 while
decreasing $15 million in 1995. The 1996 increase occurred in most segments,
but principally at Pratt & Whitney's general aviation and power generation
businesses. The decrease in 1995 occurred principally in the Flight Systems
segment as several development programs at Hamilton Standard reached
completion. Research and development expenses in 1997 are expected to remain
between 4% and 5% of sales.
[Bar Charts - Page 23]
1992 1993 1994 1995 1996
GLOBAL GROWTH ($ Billions)
International Revenues $11.4 $11.1 $11.2 $12.6 $13.2
Domestic Revenues $10.6 $10.0 $10.0 $10.2 $10.3
GROSS MARGIN (% of Sales)
Product Sales 16.6% 18.0% 17.4% 17.7% 19.8%
Service Sales 36.5% 36.8% 38.1% 39.7% 38.1%
<PAGE>
<PAGE>24
In Millions of Dollars 1996 1995 1994
- -------------------------------------------------------------------
Selling, general and
administrative $2,872 $2,651 $2,536
Percent of sales 12.3% 11.7% 12.2%
Selling, general and administrative expenses increased six-tenths of a
percentage point as a percentage of sales during 1996 and decreased one-half of
a percentage point during 1995. The 1996 increase, although somewhat mitigated
by ongoing cost reduction efforts, was attributable to higher expenses for
incentive based compensation plans and litigation costs. The 1995 decrease
resulted principally from the effects of the Corporation's cost reduction
efforts.
In Millions of Dollars 1996 1995 1994
- -------------------------------------------------------------------
Interest expense $221 $244 $275
Interest expense decreased 9% in 1996 and 11% in 1995 mainly due to reduced
average borrowing levels as the Corporation continued to retire or extinguish
debt with its improved cash flow.
1996 1995 1994
- -------------------------------------------------------------------
Average interest
rate on short-term
borrowings 11.8% 8.8% 6.3%
Average interest
rate on total debt
(including the effect of
interest rate hedges) 8.7% 8.5% 7.6%
The weighted-average rate applicable to debt outstanding at December 31,
1996 was 9.6% for short-term borrowings and 7.9% for total debt, including the
effect of interest rate hedges. The average interest rate on short-term
borrowings increased 3 percentage points in 1996 primarily due to the reduction
in lower rate domestic debt. Short-term borrowing rates exceed those of total
debt due to higher short-term borrowing rates in certain foreign operations.
1996 1995 1994
- -------------------------------------------------------------------
Effective income tax rate 33.5% 34.5% 35.7%
The Corporation has reduced its effective income tax rate over the last
three years by implementing tax reduction strategies.
The future tax benefit arising from net deductible temporary differences is
$1,561 million and relates to expenses recognized for financial reporting
purposes which will result in tax deductions over varying future periods.
Management believes that the Corporation's earnings during the periods when the
temporary differences turn around will be sufficient to realize those future
income tax benefits.
While some tax credit and loss carryforwards have no expiration date,
certain foreign and state tax loss carryforwards arise in a number of different
taxing jurisdictions with expiration dates beginning in 1997. For those
jurisdictions where the expiration date or the projected operating results
indicate that realization is not likely, a valuation allowance has been
provided. U.S. foreign tax credit carryforwards, which require future foreign
source income to be utilized, expire after five years and are reserved through
valuation allowances.
The Corporation believes, based upon a review of prior period income tax
returns, that it is entitled to income tax refunds for prior periods. These
potential refunds will be reviewed as part of the examination of the
Corporation's income tax returns by the Internal Revenue Service and the impact
on the Corporation's liability for income taxes for these years cannot
presently be determined.
Net income:
Increased 21% or $156 million from 1995 to 1996.
Increased 28% or $165 million from 1994 to 1995.
On September 30, 1996, the Corporation announced a two-for-one stock split
which was paid on December 10, 1996 in the form of a stock dividend. All common
share and per share amounts in this report reflect the stock split.
SEGMENT REVIEW
<TABLE>
<CAPTION>
Revenues Operating Profits Operating Profit Margin
In Millions of Dollars 1996 1995 1994 1996 1995 1994 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Otis $5,595 $5,287 $4,644 $524 $511 $421 9.4% 9.7% 9.1%
Carrier 5,958 5,456 4,919 422 354 278 7.1% 6.5% 5.7%
Automotive 3,233 3,061 2,683 196 180 182 6.1% 5.9% 6.8%
Pratt & Whitney 6,201 6,170 5,846 637 530 380 10.3% 8.6% 6.5%
Flight Systems 2,651 2,947 3,218 234 209 282 8.8% 7.1% 8.8%
</TABLE>
1996 COMPARED TO 1995
OTIS segment revenues for 1996 increased $308 million (6%) over 1995. Excluding
the unfavorable impact of foreign currency translation, 1996 revenues would have
increased approximately 9% over 1995 with all geographic regions showing an
increase compared to last year. Acquisitions in 1996 and 1995 had a positive
impact on 1996 revenues.
Segment operating profits for Otis in 1996 increased $13 million (3%)
compared to 1995. Excluding the effect of foreign currency translation, Otis'
operating profits would have increased 6% compared to 1995. North America,
Latin America and Asia Pacific regions showed an increase over 1995. European
operations were flat as a result of 1996 charges related to headcount reductions
and the closure of a manufacturing facility.
CARRIER segment revenues for 1996 increased $502 million (9%) over 1995.
Foreign currency translation had a minimal impact on 1996 revenues. Revenues
increased in all geographic regions led by strong growth in the Asia Pacific
region and a strong summer selling season in North America.
Carrier segment operating profits for 1996 increased $68 million (19%)
compared to 1995, with foreign currency translation having little effect.
Improvements were driven by strong demand for residential and commercial
packaged air conditioning in North America, continued growth in the Asia Pacific
region and strong performance in Latin America, while European operations
remained essentially flat. Carrier Transicold results were lower in 1996 due
to softness in the transport refrigeration business in the second half of the
year.
<PAGE>
<PAGE>25
AUTOMOTIVE segment revenues increased $172 million (6%) in 1996, primarily due
to higher vehicle content in North America, higher industry volumes in Europe
and a fourth quarter gain realized on the sale of the steering wheels business.
Automotive segment operating profits for 1996 increased $16 million (9%)
compared to 1995. The increase is due to the fourth quarter gain of $78
million on the sale of the steering wheels business, which was largely offset
by fourth quarter 1996 charges for cost reduction and other actions, including
the discontinuance of certain product lines and the consolidation of certain
production facilities. These actions were taken in response to changing
industry conditions and to enhance Automotive's cost structure and competitive
position. In addition, the Interiors business continues to experience
manufacturing problems and higher costs to implement turn around strategies.
The 1996 results also include 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. 1995 results also include
a fourth quarter provision for cost reduction actions.
PRATT & WHITNEY segment revenues for 1996 increased $31 million compared to
1995. Revenues for 1996 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 Note 1 of the
Notes to Consolidated Financial Statements. This reclassification did not
affect operating profits or assets. While 1995 amounts were not reclassified,
the impact would have been a reduction of revenues and cost of sales of
approximately $400 million. 1996 benefited from increases in the commercial and
government after-market and general aviation businesses.
Pratt & Whitney segment operating profits increased $107 million (20%)
compared to 1995. The increase reflects continued margin improvements in the
commercial and government after-market and general aviation businesses, more
than offsetting planned increases in research and development spending and
higher selling, general and administrative expenses.
FLIGHT SYSTEMS segment revenues for 1996 decreased $296 million (10%) from 1995
due to fewer helicopter shipments.
Flight Systems operating profits increased $25 million (12%) in 1996. The
1996 results reflect continuing performance improvements 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 and a service and warranty provision
for a Hamilton Standard propeller.
1995 COMPARED TO 1994
OTIS segment revenues for 1995 increased $643 million (14%) over 1994. Excluding
the favorable impact of foreign exchange translation effects, 1995 revenues
increased approximately 8% over 1994 with all geographic regions showing an
increase compared to the prior year, led by the Asia Pacific region.
Segment operating profits for Otis in 1995 increased $90 million (21%)
compared to 1994. Approximately one-third of the increase was due to favorable
foreign exchange translation effects with the balance due to improved
performance, principally in the service businesses. All geographic regions
registered increases over the prior year with the strongest gain coming from
the Asia Pacific region.
CARRIER segment revenues for 1995 increased $537 million (11%) over 1994.
Excluding the favorable impact of foreign exchange translation effects, 1995
revenues increased approximately 8% over 1994. Revenues increased in all
businesses led by strong growth in the Asia Pacific region and a strong summer
selling season in North America.
Carrier segment operating profits for 1995 increased $76 million (27%)
compared to 1994. Approximately one-fourth of the increase was due to favorable
foreign exchange translation effects with the balance due to improved
performance in all businesses compared to 1994. 1995 results also include a
gain from selling a joint venture interest in its Arkadelphia scroll compressor
plant, which was substantially offset by charges for closure and consolidation
of certain facilities and start-up costs of four new joint ventures in the PRC.
AUTOMOTIVE segment revenues increased $378 million (14%) in 1995, on relatively
flat industry volumes, primarily due to higher vehicle content and new vehicle
launches in North America and increased European market penetration.
Automotive segment operating profits for 1995 decreased $2 million from 1994.
The positive effects of higher revenues in Europe and North America were
partially offset by global increases in raw material costs and continuing costs
in support of new vehicle model awards in North America. Segment results are
lower year to year due to a fourth quarter 1995 provision for cost reduction
actions, including consolidation of certain production facilities to enhance
Automotive's cost structure and competitive position.
PRATT & WHITNEY segment revenues for 1995 increased $324 million (6%) from 1994.
The increase reflects higher volumes in Pratt & Whitney's commercial and general
aviation businesses.
Pratt & Whitney segment operating profits increased $150 million (39%) from
1994, $50 million attributable to a 1994 downsizing charge. Excluding the 1994
downsizing charge, the 1995 increase over 1994 was $100 million or 23%,
reflecting higher revenues and improved margins. Improved results were partially
offset by increases to manufacturing cost estimates on commercial engine
contracts, principally higher than anticipated production costs on the PW4084
engine, and the absence of the 1994 sale of a participation interest in the
PW4000 engine program.
FLIGHT SYSTEMS segment revenues for 1995 decreased $271 million (8%) from 1994.
The decrease is the result of lower 1995 revenues at Sikorsky due to lower
helicopter sales as well as the 1994 sale of shares of Westland Group plc, and
the 1994 Norden divestiture.
Flight Systems operating profits decreased $73 million (26%) in 1995. The
1994 results include an $87 million gain realized on the sale of shares of
Westland Group plc and $35 million in downsizing charges at Hamilton Standard.
Operating profits excluding those items decreased $21 million. The 1995 results
reflect improved operating performance at Hamilton Standard, offset by a
service and warranty provision for a Hamilton Standard propeller, costs
associated with selling the wafer fabrication facility of Hamilton Standard's
Microelectronics Center and lower helicopter volumes and workforce reduction
charges at Sikorsky.
[Bar Charts - Page 25]
1992 1993 1994 1995 1996
RESEARCH AND DEVELOPMENT
(% of Sales) 5.6% 5.5% 4.7% 4.3% 4.8%
SELLING, GENERAL AND ADMINISTRATIVE
(% of Sales) 13.9% 12.3% 12.2% 11.7% 12.3%
<PAGE>
<PAGE>26
LIQUIDITY AND FINANCING COMMITMENTS
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 with satisfactory terms.
In Millions of Dollars 1996 1995 1994
- -------------------------------------------------------------------
Net Cash Flows from
Operating Activities $2,095 $2,044 $1,357
Capital expenditures (794) (780) (759)
Decrease in
customer financing
assets, net 48 235 297
Common Stock repurchase (459) (221) (270)
Change in total debt (256) (402) (516)
Change in net debt (483) (916) (481)
Cash flows from operating activities increased $51 million in 1996 compared
to 1995. The improvement resulted primarily from improved operating performance.
Cash flows from investing activities were a net use of funds of $802 million
during 1996 compared to a $654 million net use of funds in 1995. While capital
expenditures in 1996 were comparable to 1995, the Corporation expects 1997
capital spending to be moderately higher than 1996. Customer financing activity
was a net source of funds of $48 million and $235 million in 1996 and 1995,
respectively. 1996 results reflect lower customer financing asset sales than
in 1995. While the Corporation expects that customer financing will be a net
use of funds in 1997, actual funding is subject to usage under existing customer
financing commitments. Acquisitions and dispositions of business units were a
net use of investment funds in 1996 and 1995. The increase in funding for
acquisitions in 1996 is attributable to the acquisition of a UK elevator company
by Otis, UT Automotive's ownership increase in a European subsidiary and the
purchase of a European transportation air conditioning company and a French
commercial refrigeration distribution company by Carrier. Acquisition funding
in 1995 included the acquisition of Boral Building Technologies, an Australian
elevator company. Proceeds from the disposition of business units in 1996
included the sale of UT Automotive's steering wheels business. Proceeds in
1995 included the sale of a joint venture interest in Carrier's Arkadelphia
scroll compressor plant.
Financing cash flows include the Corporation's repurchase of $459 million of
Common Stock during 1996, representing eight million shares, under previously
announced stock repurchase programs. These stock repurchase programs were
undertaken, in part, to counter the dilutive effects of shares issued under
employee compensation and benefit programs.
In Millions of Dollars 1996 1995
- -------------------------------------------------------------------
Cash and cash equivalents $1,127 $ 900
Total debt 1,785 2,041
Net debt (total debt less cash) 658 1,141
Shareowners' equity 4,306 4,021
Debt to total capitalization 29% 34%
Net debt to total capitalization 13% 22%
The Corporation manages its worldwide cash requirements considering
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 when it is cost effective to
do so.
At December 31, 1996, the Corporation had credit commitments from banks
totaling $1.1 billion under a Revolving Credit Agreement. The agreement provides
for borrowings at prevailing interest rates up to the prime rate and expires
September 30, 1999. At December 31, 1996, there were no borrowings under the
Revolving Credit Agreement. Long-term financing will continue to be considered
in the future if conditions are advantageous, and in that regard, under an
effective Registration Statement on file with the Securities and Exchange
Commission at December 31, 1996, up to $871 million of medium-term and
long-term debt of the Corporation could be issued.
During 1995, the Corporation cancelled $600 million of outstanding interest
rate swap contracts to fix interest rates on the Corporation's debt at favorable
rates. As a result of debt reduction and these contract cancellations, the
Corporation's ratio of floating-rate debt to total debt, after taking interest
rate hedges into account, was 18% at December 31, 1996 and 1995.
In addition, at December 31, 1996, the Corporation had commitments to finance
or arrange financing for approximately $1.6 billion of commercial aircraft, of
which as much as $550 million may be required to be disbursed in 1997. The
Corporation cannot currently predict the extent to which these commitments
will be utilized, since certain customers may be able to obtain more favorable
terms from other financing sources. From time to time, the Corporation also
arranges for third party investors to assume a portion of its commitments.
Refer to Note 3 of the Notes to Consolidated Financial Statements for additional
discussion of the Corporation's airline industry and customer financing assets.
The Corporation believes that existing sources of liquidity are adequate to
meet anticipated short-term borrowing needs at comparable risk-based interest
rates for the foreseeable future.
ENVIRONMENTAL MATTERS
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. As a result of this, the
Corporation has established certain policies and continually updates its
policies relating to environmental standards of performance for its operations
worldwide.
The Corporation has identified approximately 360 locations, most of which are
in the United States, at which it may have some liability for remediating
contamination. The Corporation does not believe that any single location's
exposure is individually material to the Corporation. Sites in the investigation
or remediation stage represent approximately 97% of the Corporation's recorded
liability. The remaining 3% of the recorded liability consists of sites
identified where the Corporation may have some liability but investigation is
in the initial stages or has not begun. Expenditures for environmental
remediation activities were $30 million in 1996, $40 million in 1995 and $57
million in 1994. The Corporation estimates that expenditures in each of the
next two years will not exceed $75 million in the aggregate for these sites.
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). The Corporation has been identified as a potentially responsible
party at approximately 90
<PAGE>
<PAGE>27
such federal Superfund sites. The number of Superfund sites in and of itself
does not represent a relevant measure of liability, because the nature and
extent of environmental concerns vary from site to site and the Corporation's
share of responsibility varies from sole responsibility to very little
responsibility. In estimating its liability for remediation, the Corporation
considers its likely proportionate share of the anticipated remediation expense
and the ability of other potentially responsible parties to fulfill their
obligations.
Notwithstanding the uncertainties discussed above, and taking into account
the Corporation's policies, standards of performance and programs related to the
environment, the Corporation believes that expenditures necessary to comply
with the present regulations governing environmental protection will not have
a material effect upon its capital expenditures, competitive position, financial
position or results of operations.
Refer to Note 14 of the Notes to Consolidated Financial Statements for
additional discussion of the Corporation's commitments and contingencies,
including those related to environmental matters.
U.S. GOVERNMENT
The Corporation's contracts with the U.S. Government are 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.
DERIVATIVE FINANCIAL INSTRUMENTS
The Corporation uses derivative financial instruments to manage foreign
currency, interest rate and raw material price exposures in the following five
areas: foreign currency transactions, foreign net assets, customer financing
assets, debt and raw material requirements. Derivative financial instruments
utilized by the Corporation in its hedging activities involve little complexity
and are viewed as risk management tools. The Corporation prohibits the use of
derivative financial instruments for speculative purposes. The Corporation
diversifies the counterparties used and monitors the concentration of risk to
limit its counterparty exposure.
International operations, including U.S. export sales, constitute a
significant portion of the revenues and identifiable assets of the Corporation,
averaging approximately $12 billion and $6 billion, respectively, over the last
three years. These operations result in a large volume of foreign currency
commitment and transaction exposures and significant foreign currency net asset
exposures. Foreign currency commitment and transaction exposures are managed at
the operating unit level as an integral part of the business. To the extent that
foreign currency exposures cannot be offset or managed to an insignificant
amount, it is the Corporation's policy to hedge these residual foreign currency
commitment and transaction exposures. These hedges are scheduled to mature
coincident with the timing of the underlying foreign currency commitments and
transactions.
The Corporation manages the relative proportions of its fixed rate and
floating rate debt in the context of the interest rate environment, expected
cash flow and anticipated debt retirements. While the hedging strategies on
both debt and customer financing assets are an integral portion of the
Corporation's risk management, the impact on earnings during the periods was
not material.
Refer to Notes 12 and 13 of the Notes to Consolidated Financial Statements
for additional discussion of the Corporation's foreign exchange and financial
instruments risks.
FUTURE ACCOUNTING CHANGES
In June 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities." The Corporation will
adopt the new standard in 1997. The most significant aspect of this standard
affecting the Corporation will be the elimination of in-substance defeasances
as a tool to extinguish debt in future periods.
In October 1996, the American Institute of Certified Public Accountants
issued Statement of Position 96-1, "Environmental Remediation Liabilities." The
Corporation will adopt this new statement in 1997. The most significant aspect
of this statement affecting the Corporation will be the accrual of incremental
operating and maintenance costs for environmental remediation activities.
Management does not believe this change will have a material effect on the
Corporation as a whole.
SAFE HARBOR STATEMENT
This annual report 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
opportunities. The forward looking statements in this document are intended to
be subject to the safe harbor protection provided by Section 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.
[Bar Charts - Page 27]
1992 1993 1994 1995 1996
CAPITAL EXPENDITURES
AND DEPRECIATION ($ Millions)
Capital Expenditures $920 $846 $759 $780 $794
Depreciation $777 $777 $793 $792 $786
OPERATING CASH FLOWS
($ Billions) $1.2 $1.5 $1.4 $2.0 $2.1
<PAGE>
<PAGE>28
MANAGEMENT'S RESPONSIBILITY
FOR FINANCIAL STATEMENTS
The financial statements of United Technologies Corporation and its subsidiaries
are the responsibility of the Corporation's management and have been prepared
in accordance with generally accepted accounting principles.
Management is responsible for the integrity and objectivity of the financial
statements, including estimates and judgments reflected in them. It fulfills
this responsibility primarily by establishing and maintaining accounting systems
and practices adequately supported by internal accounting controls. These
controls are designed to provide reasonable assurance that the Corporation's
assets are safeguarded, that transactions are executed in accordance with
management's authorizations, and that the financial records are reliable for
the purpose of preparing financial statements. Self-monitoring mechanisms are
also a part of the control environment whereby, as deficiencies are identified,
corrective actions are taken. Even an effective internal control system, no
matter how well designed, has inherent limitations - including the possibility
of the circumvention or overriding of controls - and, therefore, can provide
only reasonable assurance with respect to financial statement preparation and
such safeguarding of assets. Further, because of changes in conditions,
internal control system effectiveness may vary over time.
The Corporation assessed its internal control system as of December 31, 1996.
Based on this assessment, management believes the internal accounting controls
in use provide reasonable assurance that the Corporation's assets are
safeguarded, that transactions are executed in accordance with management's
authorizations, and that the financial records are reliable for the purpose of
preparing financial statements.
Independent accountants are appointed annually by the Corporation's
shareowners to audit the financial statements in accordance with generally
accepted auditing standards. Their report appears in this Annual Report. Their
audits, as well as those of the Corporation's internal audit department,
include a review of internal accounting controls and selective tests of
transactions.
The Audit Review Committee of the Board of Directors, consisting of seven
directors who are not officers or employees of the Corporation, meets regularly
with management, the independent accountants, and the internal auditors, to
review matters relating to financial reporting, internal accounting controls
and auditing.
/s/ GEORGE DAVID
George David
President and Chief Executive Officer
/s/ STEPHEN F. PAGE
Stephen F. Page
Executive Vice President and Chief Financial Officer
REPORT OF INDEPENDENT
ACCOUNTANTS
To the Shareowners of
United Technologies Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations and of cash flows present fairly, in all
material respects, the financial position of United Technologies Corporation
and its subsidiaries at December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Corporation's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
One Financial Plaza
Hartford, Connecticut
January 23, 1997
<PAGE>
<PAGE>29
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF OPERATIONS
In Millions of Dollars (except per share amounts) Years Ended December 31 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Product sales $18,247 $17,972 $16,670
Service sales 5,026 4,652 4,131
Financing revenues and other income, less other deductions 239 178 396
-------------------------------------------
23,512 22,802 21,197
COSTS AND EXPENSES
Cost of products sold 14,625 14,793 13,773
Cost of services sold 3,112 2,807 2,559
Research and development 1,122 963 978
Selling, general and administrative 2,872 2,651 2,536
Interest 221 244 275
-------------------------------------------
21,952 21,458 20,121
Income before income taxes and minority interests 1,560 1,344 1,076
Income taxes 523 464 384
Minority interests in subsidiaries' earnings 131 130 107
-------------------------------------------
NET INCOME $ 906 $ 750 $ 585
-------------------------------------------
EARNINGS PER SHARE OF COMMON STOCK $ 3.45 $ 2.85 $ 2.20
See accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
<PAGE>30
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
In Millions of Dollars December 31 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,127 $ 900
Accounts receivable (net of allowance for doubtful accounts of $331 and $347) 3,717 3,682
Inventories and contracts in progress (net of progress payments and billings) 3,342 2,954
Future income tax benefits 946 950
Other current assets 479 466
---------------------------
Total Current Assets 9,611 8,952
Customer financing assets 296 321
Future income tax benefits 615 552
Fixed assets 4,371 4,420
Other assets 1,852 1,713
---------------------------
TOTAL ASSETS $16,745 $15,958
---------------------------
LIABILITIES AND SHAREOWNERS' EQUITY
Short-term borrowings $ 251 $ 294
Accounts payable 2,186 2,084
Accrued liabilities 4,856 4,183
Long-term debt currently due 97 98
---------------------------
Total Current Liabilities 7,390 6,659
Long-term debt 1,437 1,649
Future pension and postretirement benefit obligations 1,247 1,399
Future income taxes payable 155 130
Other long-term liabilities 1,298 1,233
Commitments and contingent liabilities (Notes 3 and 14)
Minority interests in subsidiary companies 478 469
Series A ESOP Convertible Preferred Stock, $1 par value (Authorized-20,000,000 shares)
Outstanding-13,259,750 and 13,407,056 shares 880 892
ESOP deferred compensation (446) (494)
---------------------------
434 398
Shareowners' Equity:
Capital Stock:
Preferred Stock, $1 par value (Authorized-230,000,000 shares; none issued or outstanding) -- --
Common Stock, $5 par value (Authorized-500,000,000 shares)
Issued-285,624,723 and 283,839,480 shares 2,345 2,249
Treasury Stock (47,650,110 and 39,696,974 common shares at cost) (1,626) (1,168)
Retained earnings 3,849 3,252
Currency translation and minimum pension liability (262) (312)
---------------------------
TOTAL SHAREOWNERS' EQUITY 4,306 4,021
---------------------------
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY $16,745 $15,958
---------------------------
See accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
<PAGE>31
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
In Millions of Dollars Years Ended December 31 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 906 $ 750 $ 585
Adjustments to reconcile net income
to net cash flows from operating activities:
Depreciation and amortization 853 844 840
Minority interests in subsidiaries' earnings 131 130 107
Change in:
Accounts receivable 1 149 (756)
Inventories and contracts (364) 2 290
Other current assets (23) (179) 161
Accounts payable and accrued liabilities 618 177 6
ESOP deferred compensation 18 45 119
Other, net (45) 126 5
-------------------------------------------
NET CASH FLOWS FROM OPERATING ACTIVITIES $ 2,095 $ 2,044 $ 1,357
-------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (794) (780) (759)
Increase in customer financing assets (137) (138) (248)
Decrease in customer financing assets 185 373 545
Acquisitions of business units (317) (204) (125)
Dispositions of business units 177 103 282
Other, net 84 (8) 16
-------------------------------------------
NET CASH FLOWS FROM INVESTING ACTIVITIES $ (802) $ (654) $ (289)
-------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of long-term debt 30 -- 25
Repayment of long-term debt (273) (299) (207)
Decrease in short-term borrowings (93) (92) (379)
Common Stock issued for employee stock plans and other 96 101 73
Dividends paid on Common Stock (265) (252) (238)
Common Stock repurchase (459) (221) (270)
Dividends to minority interests and other (91) (111) (102)
-------------------------------------------
NET CASH FLOWS FROM FINANCING ACTIVITIES $(1,055) $ (874) $(1,098)
-------------------------------------------
Effect of foreign exchange rate changes on Cash and cash equivalents (11) (2) (5)
Net increase (decrease) in Cash and cash equivalents 227 514 (35)
Cash and cash equivalents, beginning of year 900 386 421
-------------------------------------------
Cash and cash equivalents, end of year $ 1,127 $ 900 $ 386
-------------------------------------------
Supplemental Disclosure of Cash Flow Information:
Interest paid, net of amounts capitalized $ 187 $ 220 $ 237
Income taxes paid, net of refunds 480 461 248
See accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
<PAGE>32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF ACCOUNTING PRINCIPLES
The consolidated financial statements include the accounts of the Corporation
and its subsidiaries. International operating subsidiaries are included
generally on the basis of fiscal years ending November 30. Intercompany
transactions have been eliminated. Certain reclassifications have been made to
prior year amounts to conform to the current year presentation. The preparation
of financial statements requires management to make estimates and assumptions
that affect the reported amounts of assets, liabilities, revenues and expenses.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash on hand, demand deposits and short-term
cash investments which are highly liquid in nature and have original maturities
of three months or less.
INVENTORIES AND CONTRACTS IN PROGRESS
Inventories and contracts in progress are stated at the lower of cost or
estimated realizable value and are primarily based on first-in, first-out (FIFO)
cost or average cost methods; however, certain subsidiaries use the last-in,
first-out (LIFO) method. Costs accumulated against specific contracts or orders
are at actual costs. Materials in excess of requirements for contracts and
orders currently in effect or anticipated have been written off.
Manufacturing tooling costs are charged to inventories or to fixed assets
depending upon their nature, general applicability and useful lives. Tooling
costs included in inventory are charged to cost of sales based on usage,
generally within two years after they enter productive use.
Manufacturing costs are allocated to current production and firm contracts.
General and administrative expenses are charged to expense as incurred.
FIXED ASSETS
Fixed assets are stated at cost. Depreciation is computed over the assets'
useful lives generally using accelerated methods for aerospace operations and
the straight-line method for other operations.
GOODWILL
Costs in excess of values assigned to the underlying net assets of acquired
companies are included in other assets and are generally being amortized over
periods ranging up to 40 years. On a periodic basis, the Corporation estimates
the future undiscounted cash flows of the businesses to which goodwill relates
to ensure that the carrying value of such goodwill has not been impaired.
REVENUE RECOGNITION
Sales under government and commercial fixed-price contracts and government
fixed-price-incentive contracts are recorded at the time deliveries are made or,
in some cases, on a percentage of completion basis. Sales under
cost-reimbursement contracts are recorded as work is performed and billed.
Sales of commercial aircraft engines sometimes require significant participation
by the Corporation in aircraft financing arrangements; when appropriate, such
sales are accounted for as operating leases. Sales under elevator and escalator
installation and modernization contracts are accounted for under the percentage
of completion method.
Prospective losses, if any, on contracts are provided for when the losses are
anticipated. Loss provisions are based upon any excess of inventoriable
manufacturing or engineering costs and estimated warranty and product guarantee
costs over the net revenue from the products contemplated by the specific order.
Contract accounting requires estimates of future costs over the performance
period of the contract. These estimates are subject to change, which can result
in adjustments to margins on contracts in progress.
Service sales, representing after-market repair and maintenance activities,
are recognized over the contractual period or as services are performed.
In 1996, 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
Consolidated Statement of Operations for the year ended December 31, 1996. This
reclassification was made to more clearly present Pratt & Whitney's production
costs and operating activities. This reclassification did not affect net income
or assets. While 1995 and 1994 amounts were not reclassified, the impact would
have been a reduction of revenues and cost of sales of approximately $400
million and $300 million, respectively.
RESEARCH AND DEVELOPMENT
Research and development costs not specifically covered by contracts and those
related to the Corporation-sponsored share of research and development activity
in connection with cost-sharing arrangements are charged to operations as
incurred.
HEDGING ACTIVITY
The Corporation uses derivative financial instruments, including swaps, forward
contracts, and options, to manage foreign currency, interest rate, and raw
material price exposures in the following five areas: foreign currency
transactions (Note 12), foreign net assets (Note 12), customer financing assets
(Note 3), debt (Note 8), and raw material requirements (Note 4). These
derivative financial instruments are accounted for on an accrual basis and
income and expense is generally recorded in the same category as that arising
from the related asset or liability. Derivative financial instruments are viewed
by the Corporation as risk management tools and are not used for speculative
purposes.
Gains and losses on hedges of foreign currency exposure of net investments
in subsidiaries are recorded in the currency translation account in Shareowners'
equity.
For derivatives that hedge firm commitments, gains and losses are deferred
and recognized when the associated hedged transaction occurs. For derivative
instruments that hedge foreign currency denominated receivables and payables,
gains and losses offset the effects of foreign exchange gains and losses from
the associated hedged receivables and payables.
<PAGE>
<PAGE>33
EARNINGS PER SHARE
Earnings per share computations are based on the average number of shares of
Common Stock and common stock equivalents outstanding during the year. Shares
of ESOP Convertible Preferred Stock are considered common stock equivalents when
committed to employees' savings plan accounts.
STOCK SPLIT
On September 30, 1996, the Corporation announced a two-for-one stock split which
was paid on December 10, 1996 in the form of a stock dividend to shareowners of
record at the close of business on November 22, 1996. All common share and per
share amounts in this report reflect the stock split.
2. BUSINESS DISPOSITIONS
During the fourth quarter of 1996, the Corporation sold UT Automotive's steering
wheels business for proceeds of approximately $140 million. The Corporation
recorded a pretax gain of approximately $78 million which is included in
Financing revenues and other income, less other deductions in the Consolidated
Statement of Operations.
During the second quarter of 1994, the Corporation sold its equity share
holdings in Westland Group plc and the net operating assets (excluding real
property) of its Norden subsidiary for proceeds totaling approximately $227
million. The Corporation recorded a pretax gain of $87 million on the Westland
sale which is included in Financing revenues and other income, less other
deductions in the Consolidated Statement of Operations. The impact of the
Norden sale on the Corporation's results was not significant.
3. AIRLINE INDUSTRY AND CUSTOMER FINANCING ASSETS
The Corporation has significant receivables and other financing assets, which
result from its business activities with commercial airline industry customers,
totaling $1,669 million and $1,637 million at December 31, 1996 and 1995,
respectively. These amounts primarily relate to Pratt & Whitney, UT Finance
Corporation and Hamilton Standard.
Customer financing assets consist of the following:
In Millions of Dollars 1996 1995
- -------------------------------------------------------------------
Notes receivable $136 $193
Leases receivable, less unearned
income of $3 and $42 16 63
Products under lease 214 150
----------------------
366 406
Less: receivables due within one year 70 85
----------------------
$296 $321
----------------------
Scheduled maturities of notes and leases receivable due after one year are
as follows: $20 million in 1998, $20 million in 1999, $20 million in 2000, $13
million in 2001 and $9 million in 2002 and thereafter.
Customer aircraft financing activities are conducted principally through UT
Finance Corporation, its consolidated subsidiaries and certain other customer
financing operations. The Corporation may sell customer financing assets from
time to time based on current market conditions and other factors.
The competitive commercial aircraft engine market often requires customer
financing commitments. These commitments may be in the form of guarantees,
secured debt or lease financing. At December 31, 1996, the Corporation had
commitments to finance or arrange financing for approximately $1.6 billion of
commercial aircraft and related equipment. The Corporation cannot currently
predict the extent to which these commitments will be utilized, since certain
customers may be able to obtain more favorable terms from other financing
sources. From time to time, the Corporation also arranges for third party
investors to assume a portion of its commitments. However, should all current
commitments be exercised as scheduled, the maximum amounts that will be
disbursed are as follows: $550 million in 1997, $367 million in 1998, $193
million in 1999, $43 million in 2000, $50 million in 2001, and $350 million in
2002 and thereafter. If exercised, any such financing arrangements contemplating
debt financing will be secured by assets with fair market values equal to or
exceeding the financed amounts. The interest rates on the financing commitments
are established at the time they are funded.
The Corporation's customer financing activities also include leasing aircraft
and subleasing the aircraft to customers. At December 31, 1996, the
Corporation's rental commitments under long-term noncancelable operating leases
aggregated $123 million ($10 million in each of the years 1997 through 2001, and
$73 million through 2008) and $133 million at December 31, 1995. In some
instances, customers may have minimum lease terms which result in sublease
periods shorter than the Corporation's lease obligation.
At December 31, 1996, the Corporation also had approximately $127 million
($176 million at December 31, 1995) of residual value and other guarantees
related to various commercial aircraft engine customer financing arrangements.
Where applicable, the estimated fair market values of the assets against which
such guarantees have been provided, equal or exceed the value of the related
guarantees, after considering existing reserves.
The Corporation has a 33% interest in International Aero Engines AG (IAE),
an international consortium of five shareholders for the V2500 commercial
aircraft engine program. IAE may offer customer financing in support of V2500
engine sales. As of December 31, 1996, IAE has lease obligations under long-term
noncancelable leases of approximately $370 million through 2021. These lease
obligations relate to aircraft which are subleased to customers under long-term
leases, with short-term cancellation provisions, and whose fair market values
exceed the financed amounts. IAE has remaining commitments to provide
approximately $280 million of similar lease financing. In addition, IAE has
commitments to provide secured debt financing or guarantees for approximately
$400 million of commercial aircraft. The shareholders of IAE have guaranteed
IAE's lease obligations and other financing commitments to the extent of their
respective ownership interests. In the event any shareholder were to default on
certain of these guarantees and other financing commitments, the other
shareholders would be proportionately responsible. The Corporation's share of
IAE lease commitments, guarantees and other financing commitments was
approximately $350 million and $250 million at December 31, 1996 and 1995,
respectively.
Allowances for possible losses relating to financing activities with
commercial airline customers decreased to $254 million at December 31, 1996,
from $274 million at December 31, 1995.
<PAGE>
<PAGE>34
4. INVENTORIES AND CONTRACTS IN PROGRESS
Inventories and contracts in progress consist of the following:
In Millions of Dollars 1996 1995
- -------------------------------------------------------------------
Inventories $ 3,701 $ 3,278
Elevator and escalator
contracts in progress 1,434 1,203
-------------------------
5,135 4,481
Less:
Progress payments, secured
by lien, on United States
Government contracts (230) (154)
Billings on contracts in progress (1,563) (1,373)
-------------------------
$ 3,342 $ 2,954
-------------------------
The methods of accounting followed by the Corporation do not permit
classification of inventories by categories; however, inventories consist
primarily of raw materials and work in process. Contracts in progress relate to
elevator and escalator contracts and include costs of manufactured components,
accumulated installation costs and estimated earnings on incomplete contracts.
The Corporation's sales contracts in many cases are long-term contracts
expected to be performed over periods exceeding twelve months. Approximately
58% and 55% of total inventories and contracts in progress have been acquired
or manufactured under such long-term contracts at December 31, 1996 and 1995,
respectively. It is impracticable for the Corporation to determine the amounts
of inventory scheduled for delivery under long-term contracts within the next
twelve months.
If inventories which were valued using the LIFO method had been valued under
the FIFO method, they would have been higher by $140 million at December 31,
1996 ($135 million at December 31, 1995).
To mitigate the exposure to certain raw material price changes, the
Corporation has entered into raw material swap and option contracts of $162
million at December 31, 1996 ($136 million at December 31, 1995), that mature
in 1997 and 1998.
5. FIXED ASSETS
Fixed assets consist of the following:
In Millions of Dollars 1996 1995
- -------------------------------------------------------------------
Land $ 175 $ 180
Buildings and improvements 3,157 3,075
Machinery, tools and equipment 7,011 6,753
Under construction 318 318
-------------------------
10,661 10,326
Accumulated depreciation (6,290) (5,906)
-------------------------
$ 4,371 $ 4,420
-------------------------
Depreciation expense was $786 million in 1996, $792 million in 1995 and $793
million in 1994.
6. OTHER ASSETS
Other assets consist of the following:
In Millions of Dollars 1996 1995
- -------------------------------------------------------------------
Goodwill (net of accumulated
amortization of $381 and $337) $ 682 $ 587
Receivables due after one year 210 220
Investments 310 261
Prepaid pension costs and other 650 645
------------------------
$1,852 $1,713
------------------------
Current and long-term accounts receivable at December 31, 1996 and 1995
include approximately $117 million and $103 million, respectively, representing
retainage under contract provisions and amounts which are not presently
billable because of lack of funding, final prices or contractual documents under
government contracts or for other reasons. These items are expected to be
collected in the normal course of business.
7. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
In Millions of Dollars 1996 1995
- -------------------------------------------------------------------
Accrued salaries, wages and
employee benefits $ 956 $ 994
Service and warranty accruals 594 510
Advances on sales contracts 694 611
Income taxes payable 526 435
Other 2,086 1,633
------------------------
$4,856 $4,183
------------------------
8. BORROWINGS AND LINES OF CREDIT
Short-term borrowings consist of the following:
In Millions of Dollars 1996 1995
- -------------------------------------------------------------------
Foreign bank borrowings $219 $219
Notes payable 32 75
----------------------
$251 $294
----------------------
The weighted-average interest rates applicable to short-term borrowings
outstanding at December 31, 1996 and 1995 were 9.6% and 10.5%, respectively,
including the effect of interest rate hedges.
At December 31, 1996, the Corporation had credit commitments from banks
totaling $1.1 billion under a Revolving Credit Agreement. The agreement provides
for borrowings at prevailing interest rates up to the prime rate. The expiration
date for the agreement is September 30, 1999 with a facility fee of .1% per year
on the aggregate commitment. There were no borrowings under the Revolving
Credit Agreement during the two years ended December 31, 1996.
<PAGE>
<PAGE>35
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1996 Debt
--------------------------------------
Weighted Average
In Millions of Dollars Interest Rate Maturity 1996 1995
- ---------------------------------------- -------------------------------------- ----------------------
<S> <C> <C> <C> <C>
Notes and other debt:
Denominated in U.S. dollars 8.4% 1997-2021 $ 642 $ 828
Denominated in foreign currency 7.2% 1997-2030 82 28
Capital lease obligations 7.3% 1997-2013 365 409
ESOP debt 7.7% 1997-2009 445 482
----------------------
1,534 1,747
Less: long-term debt currently due 97 98
----------------------
$1,437 $1,649
----------------------
</TABLE>
Principal payments required on long-term debt for the next five years are
$97 million in 1997, $98 million in 1998, $112 million in 1999, $202 million in
2000, and $92 million in 2001.
During 1996 and 1995 the Corporation executed in-substance defeasances of
$166 million and $130 million, respectively. The Corporation deposited U.S.
Government Securities into irrevocable trusts to cover the interest and
principal payments on this 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, less other
deductions in the Consolidated Statement of Operations.
The Corporation enters into interest rate contracts to decrease funding costs
by managing the relative proportion of fixed and floating rate debt, to
diversify sources of funding and to manage the scheduled maturities of debt.
The Corporation had $16 million and $18 million of interest rate contracts which
swap fixed interest rates for floating rates at December 31, 1996 and 1995,
respectively. The expiration dates of the various contracts are tied to
scheduled debt and capital lease obligation payment dates and extend to 2002.
In 1991, the Corporation entered into a $75 million structured financing
arrangement. Under this arrangement, noteholders are entitled to receive the
original principal plus an amount based on the appreciation in the Standard &
Poors Pharmaceutical Index. The Corporation has hedged the appreciation portion
of this obligation through an option and a swap which effectively converts the
payments to floating short-term interest rates at a discount to that of
commercial paper. During 1996, the Corporation repurchased $48 million of the
principal of these notes and cancelled an equivalent amount of the option and
swap which hedged the appreciation portion of the obligation. The Corporation
is obligated to repurchase these notes from time to time, until maturity in
1997.
The percentage of total debt at floating interest rates after taking effect
of the interest rate hedges was 18% at December 31, 1996 and 1995. The
weighted-average interest rates on long-term debt presented in the table
include the effect of interest rate swap agreements.
CAPITALIZED INTEREST
During 1996, the Corporation capitalized $16 million ($16 million in 1995 and
$19 million in 1994) of interest, to be depreciated over the lives of the
related fixed assets.
9. TAXES ON INCOME
Significant components of income taxes (benefits) for each year are as follows:
In Millions of Dollars 1996 1995 1994
- -------------------------------------------------------------------
Current:
United States:
Federal $174 $105 $ 112
State 19 21 25
Foreign 371 360 351
------------------------------------
564 486 488
Future:
United States:
Federal (12) (78) (133)
State 5 (6) 2
Foreign (13) 5 1
------------------------------------
(20) (79) (130)
------------------------------------
544 407 358
Attributable to items
credited (charged) to
equity and goodwill (21) 57 26
------------------------------------
$523 $464 $ 384
------------------------------------
Future income taxes represent the tax effects of transactions which are
reported in different periods for tax and financial reporting purposes. These
amounts consist of the tax effects of temporary differences between the tax and
financial reporting balance sheets, and tax carryforwards. The tax effects of
temporary differences and tax carryforwards which gave rise to future income
tax benefits and payables at December 31, 1996 and 1995 are as follows:
In Millions of Dollars 1996 1995
- -------------------------------------------------------------------
Future income tax benefits:
Inventories and contracts $ 340 $ 393
Fixed assets (162) (221)
Insurance and employee benefits 569 596
Warranty liability 265 191
Environmental and restructuring
liabilities 233 238
Other items, net 348 308
Tax loss carryforwards 142 125
Tax credit carryforwards 160 224
Valuation allowance (334) (352)
------------------------
$1,561 $1,502
------------------------
Future income taxes payable:
Insurance and employee benefits $ 11 $ 7
Fixed assets 109 99
Other items, net 48 36
------------------------
$ 168 $ 142
------------------------
<PAGE>
<PAGE>36
Current and non-current future income tax benefits and payables within the
same tax jurisdiction are generally offset for presentation in the Consolidated
Balance Sheet. Valuation allowances have been established primarily for tax
credit and tax loss carryforwards to reduce the future income tax benefits
to amounts expected to be realized.
The sources of income before income taxes and minority interests were:
In Millions of Dollars 1996 1995 1994
- -------------------------------------------------------------------
United States $ 488 $ 346 $ 244
Foreign 1,072 998 832
--------------------------------------
$1,560 $1,344 $1,076
--------------------------------------
United States income taxes have not been provided on undistributed earnings
of international subsidiaries. The Corporation's intention is to reinvest these
earnings permanently or to repatriate the earnings only when it is tax effective
to do so. Accordingly, the Corporation believes that any United States tax on
repatriated earnings would be substantially offset by U.S. foreign tax credits.
Differences between effective income tax rates and the statutory U.S.
federal income tax rates are as follows:
1996 1995 1994
- -------------------------------------------------------------------
Statutory U.S. federal
income tax rate 35.0% 35.0% 35.0%
State and local income
taxes, net of federal
tax benefit 0.9 1.3 1.8
Varying tax rates of
consolidated subsidiaries
(including Foreign Sales
Corporation) (3.9) (3.7) (4.7)
Amortization of goodwill,
without tax effect 0.7 0.5 0.6
Foreign tax credits (1.6) (1.7) 1.3
Other 2.4 3.1 1.7
--------------------------------------
Effective income tax rate 33.5% 34.5% 35.7%
--------------------------------------
Tax credit carryforwards at December 31, 1996 are $160 million and expire
as follows: $1 million in 1999, $1 million in 2000, $1 million in 2001 and
$157 million over an indefinite carry-forward period. Tax loss carryforwards at
December 31, 1996 are $790 million and expire as follows:
In Millions of Dollars Federal State Foreign
- -------------------------------------------------------------------
1997-2001 $27 $260 $106
2002-2006 4 94 11
2007-2011 23 159 --
Indefinite -- -- 106
10. EMPLOYEE BENEFIT PLANS
EMPLOYEE PENSION BENEFITS
The Corporation and its domestic subsidiaries have a number of defined benefit
pension plans covering substantially all U.S. employees. Plan benefits are
generally based on years of service and the employee's compensation during the
last several years of employment. The Corporation's funding policy is based on
an actuarially determined cost method allowable under Internal Revenue Service
regulations. The funds are invested either in various securities by trustees or
in insurance annuity contracts. Certain foreign subsidiaries have defined
benefit pension plans or severance indemnity plans covering their employees.
In addition to the defined benefit plans covering U.S. and foreign employees
discussed above, the Corporation makes contributions to multiemployer plans
(predominantly defined benefit plans) covering certain employees in some of its
U.S. operations.
Summarized below are the components of pension expense for defined benefit
plans and multiemployer plans:
In Millions of Dollars 1996 1995 1994
- -------------------------------------------------------------------
Defined benefit plans:
Service expense $ 213 $ 181 $ 192
Interest expense 648 621 586
Actual return on assets (1,130) (1,279) (193)
Net amortization and
deferral of actuarial
gains (losses) 399 576 (506)
--------------------------------------
Pension expense $ 130 $ 99 $ 79
--------------------------------------
Pension expense of
multiemployer plans $ 24 $ 25 $ 21
The following table summarizes the funded status of the defined benefit pension
plans:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
--------------------------------- ---------------------------------
Assets Exceed Accumulated Assets Exceed Accumulated
Accumulated Benefits Accumulated Benefits
In Millions of Dollars Benefits Exceed Assets Benefits Exceed Assets
- ------------------------------------------------------ --------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested $7,199 $ 227 $5,311 $1,851
Nonvested 569 37 467 157
--------------------------------- ---------------------------------
Accumulated benefit obligation 7,768 264 5,778 2,008
Effect of projected future salary increases 1,057 106 930 128
--------------------------------- ---------------------------------
Projected benefit obligation for services
rendered to date 8,825 370 6,708 2,136
Plan assets available for benefits 8,952 4 6,537 1,584
--------------------------------- ---------------------------------
Projected benefit obligation in excess of plan assets 127 (366) (171) (552)
Unrecognized net loss 104 78 416 226
Unrecognized prior service cost 173 40 43 141
Unrecognized net (asset)/obligation at transition (98) 22 (78) (16)
Additional minimum liability recognized -- (48) -- (245)
--------------------------------- ---------------------------------
Pension asset (liability) included in the Consolidated
Balance Sheet $ 306 $ (274) $ 210 $ (446)
--------------------------------- ---------------------------------
</TABLE>
<PAGE>
<PAGE>37
The pension funds are valued at September 30 of the respective years in the
table above. Major assumptions used in the accounting for the defined benefit
pension plans are shown in the following table as weighted averages.
December 31 1996 1995 1994
- -------------------------------------------------------------------
Discount rate 7.5% 7.6% 8.3%
Salary scale 5.0% 5.0% 4.9%
Expected return on assets 9.7% 9.7% 9.7%
EMPLOYEE HEALTH CARE AND INSURANCE BENEFITS
Substantially all domestic full-time employees who retire from the Corporation
between age 55 and age 65, and certain foreign employees, are eligible to
receive postretirement health care and life insurance benefits under various
plans. Certain of these plans call for defined dollar benefits. Other plans are
contributory defined benefit plans and include certain cost sharing features
such as deductibles and co-payments. These benefits are generally funded on a
pay-as-you-go basis. Certain retired employees of businesses acquired by the
Corporation are covered under other health care plans that differ from current
plans in coverage, deductibles, and retiree contributions.
Summary information on the Corporation's plans is as follows:
In Millions of Dollars December 31 1996 1995
- -------------------------------------------------------------------
Accumulated postretirement
benefit obligation (APBO):
Retirees $476 $461
Fully eligible, active participants 9 11
Other active participants 218 216
----------------------
703 688
Less: plan assets at fair value 83 85
----------------------
Postretirement benefit obligation in
excess of plan assets 620 603
Unrecognized net gain 53 57
Unrecognized net reduction
in prior service expense 229 244
----------------------
Accrued postretirement
benefit liability $902 $904
----------------------
The components of postretirement benefit expense are as follows:
In Millions of Dollars 1996 1995 1994
- -------------------------------------------------------------------
Service expense $ 10 $ 9 $ 12
Interest expense 52 57 60
Actual return on
plan assets (6) (6) (7)
Net amortization and
deferral of actuarial
gains (20) (17) (17)
------------------------------------
Net postretirement
benefit expense $ 36 $ 43 $ 48
------------------------------------
Discount rates of 7.6%, 7.7% and 8.4% were used to calculate the accumulated
postretirement benefit obligation at December 31, 1996, 1995 and 1994,
respectively. The assumed health care cost trend rate used in measuring the
accumulated postretirement benefit obligation was 12.25% in 1996, declining by
.75% per year to an ultimate rate of 7.50%. If the health care cost trend rate
assumptions were increased by 1% per year, the APBO as of December 31, 1996
would be increased by approximately 4%. The effect of this change on the service
expense and interest expense components of the postretirement benefit expense
for 1996 would be an increase of 10%.
EMPLOYEE SAVINGS PLANS
In 1989, the Corporation established an Employee Stock Ownership Plan (ESOP) to
fund the Corporation's match of employee contributions within its savings plan
covering substantially all nonunion domestic employees. At that time, the
Corporation's Board of Directors authorized 20,000,000 shares of Series A ESOP
Convertible Preferred Stock (ESOP Preferred Stock), par value $1.00 per share,
having a $4.80 dividend per year. Each share is convertible into two shares of
Common Stock and has a guaranteed value of $65. Because of the guaranteed value,
the ESOP Preferred Stock is classified outside of permanent equity in the
Consolidated Balance Sheet. The ESOP Preferred Stock is redeemable, by the
Corporation, at a price of $66.44 per share. Upon notice of redemption, the ESOP
Trustee has the right to convert each share of ESOP Preferred Stock into two
shares of Common Stock.
Since its inception, the ESOP has purchased approximately 14.5 million shares
of Preferred Stock to fulfill the Corporation's current and estimated future
matching requirements. External borrowing, guaranteed by the Corporation, was
obtained for a portion of the share purchases and is reported as debt on the
Consolidated Balance Sheet. Shares of ESOP Preferred Stock are committed to
each employee based upon fair value at the date earned. To the extent that
shares are not sufficient to fulfill the matching commitment, the Corporation
must contribute additional ESOP Preferred Stock, Common Stock or cash. At
December 31, 1996, 6.5 million shares had been committed to employees, leaving
6.8 million uncommitted shares in the ESOP trust, with an approximate fair value
of $900 million.
Shares committed to employees generally may not be withdrawn until the
employee's termination, disability, retirement or death. Upon withdrawal, shares
of the ESOP Preferred Stock must be converted into the Corporation's Common
Stock or, if the value of the Common Stock is less than the guaranteed value of
the ESOP Preferred Stock, the Corporation must repurchase the shares at their
guaranteed value.
The Corporation and a number of its subsidiaries have additional savings
plans in which a portion of employee contributions is matched in cash by the
employer. The amount expensed relating to contributions for all savings plans
totaled $75 million, $72 million and $84 million for 1996, 1995 and 1994,
respectively.
LONG-TERM INCENTIVE PLANS
The Corporation has a Long-Term Incentive Plan (1989 Plan) under which shares
of Common Stock may be sold or awarded to officers and key employees.
The 1989 Plan authorizes various types of market-based incentive and
performance-based awards. The exercise price of a stock option, as set at the
time of the grant, will not be less than the fair market value of the shares on
the date of grant. The maximum number of shares which may be utilized for
awards granted during a given calendar year may not exceed 2% of the aggregate
shares of Common Stock, common stock equivalents and treasury shares for the
preceding year.
In 1995, the Board of Directors established the Special Retention and Stock
Appreciation Program (1995 Plan) for certain key employees whose continued
performance and retention is deemed to be important to the Corporation. Up to
2,000,000 award units can be granted under the 1995 Plan in any calendar year.
In June 1995, the Corporation granted a key group of senior executives
1,200,000 stock appreciation units under the 1995 Plan and 1,200,000
market-based incentive awards under the 1989 Plan, with a ten year term. The
grant price of $39.125 represented the market value per share at the date of
grant. These awards became exercisable in September, 1996 when the closing
price of the Corporation's Common
<PAGE>
<PAGE>38
Stock averaged more than $57.00 for thirty consecutive days.
A summary of the transactions under all Plans for the three years ended
December 31, 1996 follows:
Stock Options
--------------------------- Other
Average Incentive
Shares Price Awards
- ------------------------------- -------------- ----------- -------------
OUTSTANDING AT:
DECEMBER 31, 1993 15,110,114 $23.46 1,232,984
Granted 4,374,500 32.97 --
Exercised/earned (3,118,170) 22.59 (986,776)
Cancelled (174,172) 29.02 (98,058)
-------------- -------------
DECEMBER 31, 1994 16,192,272 26.14 148,150
Granted 4,387,000 33.47 1,969,000
Exercised/earned (4,123,180) 23.65 (84,650)
Cancelled (387,420) 31.49 (22,000)
-------------- -------------
DECEMBER 31, 1995 16,068,672 28.65 2,010,500
Granted 4,392,350 51.10 12,800
Exercised/earned (2,139,178) 24.09 (236,000)
Cancelled (242,166) 39.56 --
-------------- -------------
DECEMBER 31, 1996 18,079,678 $34.49 1,787,300
-------------- -------------
The Corporation applies APB Opinion 25, "Accounting for Stock Issued to
Employees," and related interpretations in accounting for its Plans.
Accordingly, no compensation cost has been recognized for its fixed stock
option plans. The compensation cost that has been charged against income for
stock-based performance awards was $45 million, $22 million and $4 million for
1996, 1995 and 1994, respectively.
The following table summarizes information about stock options outstanding
at December 31, 1996:
Options Outstanding Options Exercisable
--------------------------------- ------------------------
Exercise Average Average
Price Shares Price Term Shares Price
- --------------- --------------------------------- ------------------------
$15.01-$30.00 5,802,278 $23.88 4.44 5,742,278 $23.82
$30.01-$45.00 7,997,850 33.27 7.68 751,350 36.95
$45.01-$60.00 4,199,550 50.99 9.11 -- --
$60.01-$75.00 80,000 60.13 9.74 -- --
Had compensation cost for the Corporation's stock-based compensation plans
been determined based on the fair value at the grant date for awards under those
plans consistent with the requirements of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation," the Corporation's
net income and earnings per share would have been reduced to the pro forma
amounts indicated below:
In Millions of Dollars (except per share amounts) 1996 1995
- ----------------------------------------------------------------------------
Net income As reported $ 906 $ 750
Pro forma 894 746
Earnings per share As reported $3.45 $2.85
Pro forma 3.40 2.84
The fair value of each stock option grant has been estimated on the date of
grant using the Black-Scholes option pricing model with the following
weighted-average assumptions:
1996 1995
- ----------------------------------------------------------------------------
Risk-free interest rate 5.3% 7.5%
Expected life 6 years 6 years
Expected volatility 17% 21%
Expected dividend yield 2% 3%
The weighted-average grant date fair values of options granted during 1996
and 1995 were $11.91 and $8.80, respectively.
11. CHANGES IN SHAREOWNERS' EQUITY
In Millions of Dollars 1996 1995 1994
- ----------------------------------------------------------------------
COMMON STOCK
Balance at January 1 $ 2,249 $ 2,148 $ 2,075
Issued under employee
plans (a) 96 101 73
---------------------------------------
BALANCE AT DECEMBER 31 $ 2,345 $ 2,249 $ 2,148
---------------------------------------
TREASURY STOCK
Balance at January 1 $(1,168) $ (947) $ (677)
Purchase of shares (b) (458) (221) (270)
---------------------------------------
BALANCE AT DECEMBER 31 $(1,626) $(1,168) $ (947)
---------------------------------------
RETAINED EARNINGS
Balance at January 1 $ 3,252 $ 2,790 $ 2,466
Net income 906 750 585
Dividends on Common
Stock (c) (265) (252) (238)
Dividends on ESOP
Preferred Stock (d) (30) (27) (22)
Other (14) (9) (1)
---------------------------------------
BALANCE AT DECEMBER 31 $ 3,849 $ 3,252 $ 2,790
---------------------------------------
CURRENCY TRANSLATION
Balance at January 1 $ (246) $ (219) $ (227)
Deferred foreign currency
translation and hedging
adjustments 2 (36) (17)
Income (taxes) benefits (9) 9 25
---------------------------------------
BALANCE AT DECEMBER 31 $ (253) $ (246) $ (219)
---------------------------------------
MINIMUM PENSION LIABILITY
Balance at January 1 $ (66) $ (20) $ (39)
Pension adjustment 94 (76) 32
Income (taxes) benefits (37) 30 (13)
---------------------------------------
BALANCE AT DECEMBER 31 $ (9) $ (66) $ (20)
---------------------------------------
(a) 1.8 million, 3.5 million and 2.9 million shares issued, net of shares
purchased and reissued in 1996, 1995 and 1994, respectively.
(b) 8 million, 5.7 million and 8.7 million shares of Common Stock purchased,
net of shares reissued in 1996, 1995 and 1994, respectively.
(c) $1.10, $1.025 and $.95 per share in 1996, 1995 and 1994, respectively.
(d) $4.80 per share.
<PAGE>
<PAGE>39
12. FOREIGN EXCHANGE
The Corporation conducts business in many different currencies and, accordingly,
is subject to the inherent risks associated with foreign exchange rate
movements. The financial position and results of operations of substantially
all of the Corporation's significant foreign subsidiaries are measured using
the local currency as the functional currency. The aggregate effects of
translating the financial statements of these subsidiaries are deferred as a
separate component of Shareowners' equity. The Corporation had foreign currency
net assets in more than forty currencies, aggregating $1.8 billion and $1.5
billion at December 31, 1996 and 1995, respectively. The primary foreign
currency net assets, each five percent or more of the Corporation's Shareowners'
equity, are set forth below:
In Millions of Dollars 1996 1995
- -------------------------------------------------------------------
Currency:
Canadian dollar $460 $299
Spanish peseta 209 240
In addition, the Corporation had net assets in the People's Republic of China
and Hong Kong combined of $158 million and $156 million at December 31, 1996
and 1995, respectively.
At December 31, 1996 and 1995, the Corporation had $139 million and $244
million notional principal amount of outstanding currency swap contracts to
hedge its foreign net assets. These foreign currency hedges mature ratably over
the period 1997 - 2001.
Foreign currency commitment and transaction exposures are managed at the
operating unit level as an integral part of the business. To the extent that
foreign currency exposures cannot be offset or managed to an insignificant
amount, it is the Corporation's policy that these residual foreign currency
commitment and transaction exposures be hedged. These hedges are executed by
authorized management at the operating units and are scheduled to mature
coincident with the timing of the underlying foreign currency commitments and
transactions. Certain of these hedges involve the exchange of two foreign
currencies according to local needs at foreign operations. Transactions that
are hedged include foreign currency denominated receivables and payables on the
balance sheet, firm purchase orders and firm sales commitments.
At December 31, 1996 and 1995, the Corporation had the following amounts
related to forward foreign exchange contracts hedging foreign currency
transactions and firm commitments:
In Millions of Dollars 1996 1995
- -------------------------------------------------------------------
Notional amount:
Buy contracts $1,928 $2,011
Sell contracts 780 495
Gains and losses explicitly deferred
as a result of hedging firm
commitments:
Gains deferred $ 14 $ 24
Losses deferred (14) (9)
------------------------
$ -- $ 15
------------------------
The deferred gains and losses are expected to be recognized in income over
the next two years as these transactions are realized.
13. FINANCIAL INSTRUMENTS
The Corporation operates internationally and, in the normal course of business,
is exposed to continuous fluctuations in interest rates, currency values and
raw material prices. These fluctuations can increase the costs of financing,
investing, and operating the business. The Corporation manages this risk to
acceptable limits through the use of derivatives to create offsetting positions
in foreign currency, interest rate and raw materials markets. The Corporation
views derivative financial instruments as risk management tools and is not party
to any leveraged derivatives. The Corporation's policies prohibit speculation
in derivatives.
The notional amounts of derivative contracts are presented in the applicable
note to which the derivatives relate. The notional amounts do not represent the
amounts exchanged by the parties, and thus are not a measure of the exposure of
the Corporation through its use of derivatives. The amounts exchanged by the
parties are normally based on the notional amounts and other terms of the
derivatives, which relate to exchange rates, interest rates or raw material
prices. The value of derivatives is derived from those underlying parameters
and changes in the relevant rates or prices.
By nature, all financial instruments involve market risk and credit risk.
The Corporation enters into derivative financial instruments with major
investment grade financial institutions. The credit exposure is represented by
the fair value of contracts in the table below.
The Corporation has policies to monitor its credit risks of counterparties
to derivative financial instruments. Pursuant to these policies the Corporation
periodically performs mark-to-market valuations of its derivative instruments.
The Corporation diversifies the counterparties used as a means to limit
counterparty exposure and concentration of risk. Credit risk is assessed prior
to entering into transactions and periodically thereafter. The Corporation does
not anticipate nonperformance by any of these counterparties.
The following table presents the carrying amounts and fair values of the
Corporation's financial instruments at December 31, 1996 and 1995. The fair
value of a financial instrument is the amount at which the instrument could be
exchanged in a current transaction between willing parties, other than in a
forced or liquidation sale. Significant differences can arise between the fair
value and carrying amount of financial instruments at historic cost.
<PAGE>
<PAGE>40
The carrying amount and fair value of financial instruments is as follows:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
------------------------ ------------------------
Carrying Fair Carrying Fair
In Millions of Dollars Amount Value Amount Value
- ---------------------------------------- ------------------------ ------------------------
<S> <C> <C> <C> <C>
Financial assets:
Long-term receivables $ 118 $ 118 $ 126 $ 121
Customer financing assets 136 133 154 153
Financial liabilities:
Short-term borrowings 251 250 294 288
Long-term debt 1,169 1,339 1,338 1,588
Derivative Financial Instruments:
Raw Materials Hedges (Note 4):
In a receivable position 10 2 11 (1)
In a payable position 6 5 4 3
Debt Interest Rate Hedges (Note 8):
In a receivable position 16 18 23 30
In a payable position 16 17 23 29
Forward Exchange Contracts (Note 12):
In a receivable position 24 29 45 65
In a payable position 29 (1) 18 14
Currency Swaps (Note 12):
In a payable position 30 30 89 81
</TABLE>
The following methods and assumptions were used to estimate the fair value
of those financial instruments included in the following categories:
CASH AND CASH EQUIVALENTS
The carrying amount approximates fair value because of the short maturity of
those instruments.
LONG-TERM RECEIVABLES AND CUSTOMER FINANCING ASSETS
The fair values are based on quoted market prices for those or similar
instruments. When quoted market prices are not available, an approximation of
fair value is based upon projected cash flows discounted at an estimated
current market rate of interest.
DEBT
The fair value of the Corporation's debt is estimated based on the quoted
market prices for the same or similar issues or on the current rates offered to
the Corporation for debt of the same remaining maturities.
INTEREST RATE HEDGES, FOREIGN CURRENCY CONTRACTS
AND RAW MATERIALS HEDGE AGREEMENTS
The fair value is the estimated amount that the Corporation would receive or
pay to terminate the agreements at the reporting date.
FINANCING COMMITMENTS
The Corporation had outstanding financing commitments totaling approximately
$1.6 billion and $1.0 billion at December 31, 1996 and 1995, respectively.
Risks associated with changes in interest rates are negated by the fact that
interest rates are variable during the commitment term and are set at the date
of funding based on current market conditions, the fair value of the underlying
collateral and the credit worthiness of the customers. As a result, the fair
value of these financings is expected to equal the amounts funded. The fair
value of the commitment itself is not readily determinable and is not considered
significant. Additional information pertaining to these commitments is included
in Note 3.
<PAGE>
<PAGE>41
14. COMMITMENTS AND CONTINGENT LIABILITIES
LEASES
The Corporation occupies space and uses certain equipment under lease
arrangements. Rent expense in 1996, 1995 and 1994 under such arrangements was
$262 million, $265 million and $302 million, respectively. Rental commitments
at December 31, 1996 under long-term noncancelable operating leases are as
follows (see Note 3 for lease commitments associated with customer financing
arrangements):
In Millions of Dollars
- ------------------------------------------------------
1997 $176
1998 129
1999 91
2000 68
2001 60
After 2001 186
--------
$710
--------
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
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, 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.
15. BUSINESS SEGMENT FINANCIAL DATA
The Corporation and its subsidiaries design, develop, manufacture and sell
high-technology products, classified in five principal business segments.
Otis products include elevators and escalators, substantial service,
maintenance and spare parts sold to a diversified international customer base
in commercial real estate development.
Carrier products include heating, ventilating and air conditioning equipment,
and transport and commercial refrigeration equipment and service for a
diversified international customer base in commercial and residential real
estate development.
Automotive products include electrical distribution systems,
electromechanical and hydraulic devices, electric motors, car and truck
interior trim components, steering wheels (through October 1996), instrument
panels and other products for the automotive industry principally in North
America and Europe.
Pratt & Whitney products are principally aircraft engines and substantial
spare parts sold to a diversified customer base including international and
domestic commercial airlines and aircraft leasing companies, aircraft
manufacturers, regional and commuter airlines, and U.S. and non-U.S.
governments. Pratt & Whitney also produces modified aircraft engines which are
used for electrical power generation and other applications.
<PAGE>
<PAGE>42
The Flight Systems segment includes Sikorsky Aircraft and Hamilton Standard,
as well as Norden Systems through May 31, 1994. Sikorsky Aircraft products
include helicopters and spare parts sold primarily to U.S. and non-U.S.
governments. Hamilton Standard products include fuel, environmental and flight
control systems and propellers sold primarily to U.S. and non-U.S. governments,
aerospace and defense prime contractors, and airframe and jet engine
manufacturers. Hamilton Standard products also include fuel cells sold primarily
to commercial manufacturers. Norden Systems products included cockpit and
integrated display systems sold primarily to the U.S. Government.
Business segment information for the three years ended December 31, 1996
follows:
BUSINESS SEGMENTS
<TABLE>
<CAPTION>
Total Revenues Operating Profits
In Millions of Dollars 1996 1995 1994 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Otis $ 5,595 $ 5,287 $ 4,644 $ 524 $ 511 $ 421
Carrier 5,958 5,456 4,919 422 354 278
Automotive 3,233 3,061 2,683 196 180 182
Pratt & Whitney 6,201 6,170 5,846 637 530 380
Flight Systems 2,651 2,947 3,218 234 209 282
Corporate items and eliminations (126) (119) (113) (21) 2 1
-----------------------------------------------------------------------------------
Total $23,512 $22,802 $21,197 1,992 1,786 1,544
-----------------------------------------
Financing revenues and other income, net (23) (23) (17)
Interest expense (221) (244) (275)
General corporate expenses (188) (175) (176)
--------------------------------------
Consolidated income before income taxes and
minority interests $1,560 $1,344 $1,076
--------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Identifiable Assets Capital Expenditures Depreciation and Amortization
In Millions of Dollars 1996 1995 1994 1996 1995 1994 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Otis $ 2,712 $ 2,613 $ 2,068 $132 $115 $101 $116 $108 $103
Carrier 3,387 2,959 2,776 169 151 134 145 134 136
Automotive 1,856 1,875 1,818 138 140 151 128 122 106
Pratt & Whitney 4,261 4,215 4,221 248 240 226 296 314 323
Flight Systems 1,416 1,425 1,720 86 106 130 123 127 140
Corporate items
and eliminations 3,113 2,871 3,021 21 28 17 45 39 32
-----------------------------------------------------------------------------------------------------------
Consolidated total $16,745 $15,958 $15,624 $794 $780 $759 $853 $844 $840
-----------------------------------------------------------------------------------------------------------
</TABLE>
GEOGRAPHIC AREAS
<TABLE>
<CAPTION>
Total Revenues Intergeographic Revenues External Revenues
In Millions of Dollars 1996 1995 1994 1996 1995 1994 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
United States operations $14,007 $13,968 $13,545 $ 592 $ 534 $ 457 $13,415 $13,434 $13,088
International operations:
Europe 4,977 4,769 4,119 177 170 144 4,800 4,599 3,975
Asia Pacific 3,395 3,024 2,461 353 317 180 3,042 2,707 2,281
Other 2,668 2,463 2,210 430 421 385 2,238 2,042 1,825
Corporate items
and eliminations (1,535) (1,422) (1,138) (1,552) (1,442) (1,166) 17 20 28
----------------------------------------------------------------------------------------------------------
Total $23,512 $22,802 $21,197 $ -- $ -- $ -- $23,512 $22,802 $21,197
----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Operating Profits Identifiable Assets
In Millions of Dollars 1996 1995 1994 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
United States operations $ 965 $ 773 $ 746 $ 7,252 $ 7,110 $ 7,912
International operations:
Europe 461 457 399 2,749 2,540 2,199
Asia Pacific 272 235 200 2,171 2,078 1,524
Other 310 321 204 1,454 1,357 1,022
Corporate items
and eliminations (16) -- (5) 3,119 2,873 2,967
----------------------------------------------------------------------------------
Total $1,992 $1,786 $1,544 $16,745 $15,958 $15,624
----------------------------------------------------------------------------------
</TABLE>
<PAGE>
<PAGE>43
REVENUES
Total revenues by business segment and geographic area include intersegment and
intergeographic sales and transfers between geographic areas. Generally, such
sales and transfers are made at prices approximating those which the selling or
transferring entity is able to obtain on sales of similar products to
unaffiliated customers.
Revenues include sales under prime contracts and subcontracts to the U.S.
Government, for the most part Pratt & Whitney and Flight Systems products, as
follows:
In Millions of Dollars 1996 1995 1994
- ----------------------------------------------------------------------
Pratt & Whitney $1,857 $1,841 $1,830
Flight Systems 1,498 1,780 1,948
Sales to Ford Motor Company, Automotive's largest customer, comprised
approximately 38%, 40% and 37% of Automotive's revenues in 1996, 1995 and 1994,
respectively.
Revenues from United States operations include export sales as follows:
In Millions of Dollars 1996 1995 1994
- ----------------------------------------------------------------------
Europe $ 854 $ 869 $ 737
Asia Pacific 1,478 1,686 1,772
Other 792 712 599
--------------------------------------
$3,124 $3,267 $3,108
--------------------------------------
Export sales include direct sales to commercial customers outside the United
States and sales to the U.S. Government, commercial and affiliated customers
which are known to be for resale to customers outside the United States.
IDENTIFIABLE ASSETS
Identifiable assets are those which are specifically identified with the
business segments and geographic areas in which operations are conducted.
General corporate assets consist principally of customer financing subsidiaries,
future income tax benefits, and investments in other companies.
ELIMINATIONS
Eliminations made in reconciling business and geographic area data with the
related consolidated amounts include intersegment sales and transfers between
geographic areas, unrealized profits in inventory and similar items.
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
In Millions of Dollars (except per share amounts) Quarter Ended March 31 June 30 September 30 December 31
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996
Sales $5,348 $6,002 $5,908 $6,015
Gross Profit 1,240 1,444 1,432 1,420
Net income 164 259 254 229
Earnings per share of Common Stock and
common stock equivalents .62 .98 .97 .87
1995
Sales $5,318 $5,774 $5,604 $5,928
Gross Profit 1,135 1,288 1,279 1,322
Net income 135 218 210 187
Earnings per share of Common Stock and
common stock equivalents .51 .82 .80 .71
<FN>
Beginning January 1, 1997, international operating subsidiaries which have generally been included in the consolidated financial
statements based on fiscal years ending November 30, will be included in the consolidated financial statements based on fiscal years
ending December 31. The pattern of future quarterly results may differ from the past due in part to seasonality in some business
segments. If this change had been made effective January 1, 1996, the estimated impact would have been an increase in first quarter
results and a decrease in fourth quarter results, with no significant impact on the full year.
</TABLE>
COMPARATIVE STOCK DATA
<TABLE>
<CAPTION>
1996 1995
------------------------------------- -------------------------------------
Common Stock High Low Dividend High Low Dividend
- --------------------------------------------- ------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First Quarter 59 45 1/4 $.275 34 3/4 31 1/8 $.25
Second Quarter 58 1/8 50 3/16 $.275 39 11/16 33 3/4 $.25
Third Quarter 60 13/16 50 3/4 $.275 44 5/16 39 $.25
Fourth Quarter 70 7/16 59 3/4 $.275 48 7/8 41 7/16 $.275
<FN>
The Corporation's Common Stock is listed on the New York Stock Exchange. The high and low prices are based on the Composite Tape
of the New York Stock Exchange. There were approximately 23,000 common shareowners of record at December 31, 1996.
Amounts are adjusted to give retroactive effect to the 2-for-1 stock split in 1996.
</TABLE>
<PAGE>
Exhibit (21)
SUBSIDIARIES OF THE REGISTRANT
The companies listed below are direct or indirect subsidiaries of the
Registrant. Their names and jurisdictions of incorporation are as follows:
United Technologies Automotive Holdings, Delaware
Inc. ...............................
Carrier Corporation ................ Delaware
Otis Elevator Company .............. New Jersey
Otis Europe S.A. .............. France
Pratt & Whitney Canada Inc. ........ Canada
Sikorsky Aircraft Corporation ...... Delaware
Other subsidiaries of the Registrant have been omitted from this listing
since, considered in the aggregate or as a single subsidiary, they would not
constitute a significant subsidiary.<PAGE>
<PAGE> Exhibit (24)
UNITED TECHNOLOGIES CORPORATION
Power of Attorney
The undersigned, as a member of the Board of Directors, or as
an officer of UNITED TECHNOLOGIES CORPORATION, a Delaware corporation
(the "Corporation"), or as a member of a committee of said Board, or in
all of said capacities, hereby constitutes and appoints STEPHEN F. PAGE,
IRVING B. YOSKOWITZ, WILLIAM H. TRACHSEL, AND JAY L. HABERLAND, or any
one of them, his true and lawful attorneys and agents to do any and all
acts and things and execute any and all instruments which the said
attorneys and agents may deem necessary or advisable to enable the
Corporation to comply with the Securities Exchange Act of 1934 and any
rules and regulations and requirements of the Securities and Exchange
Commission in respect thereof in connection with the filing of the Annual
Report of the Corporation on Form 10-K, including specifically, but
without limiting the generality of the foregoing, the power and authority
to sign the name of the undersigned, in the capacities aforesaid or in
any other capacity, to the Corporation's Form 10-K Annual Report filed or
to be filed with the Securities and Exchange Commission, and any and all
amendments to the said Form 10-K Annual Report, and any and all
instruments and documents filed as a part of or in connection with the
said Form 10-K Annual Report or any amendments thereto; hereby ratifying
and confirming all that the said attorneys and agents, or any one of
them, have done, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed this Power of
Attorney this 3rd day of February, 1997.
/s/ HOWARD H. BAKER, JR.
Howard H. Baker, Jr.<PAGE>
<PAGE>
UNITED TECHNOLOGIES CORPORATION
Power of Attorney
The undersigned, as a member of the Board of Directors, or as
an officer of UNITED TECHNOLOGIES CORPORATION, a Delaware corporation
(the "Corporation"), or as a member of a committee of said Board, or in
all of said capacities, hereby constitutes and appoints STEPHEN F. PAGE,
IRVING B. YOSKOWITZ, WILLIAM H. TRACHSEL, AND JAY L. HABERLAND, or any
one of them, her true and lawful attorneys and agents to do any and all
acts and things and execute any and all instruments which the said
attorneys and agents may deem necessary or advisable to enable the
Corporation to comply with the Securities Exchange Act of 1934 and any
rules and regulations and requirements of the Securities and Exchange
Commission in respect thereof in connection with the filing of the Annual
Report of the Corporation on Form 10-K, including specifically, but
without limiting the generality of the foregoing, the power and authority
to sign the name of the undersigned, in the capacities aforesaid or in
any other capacity, to the Corporation's Form 10-K Annual Report filed or
to be filed with the Securities and Exchange Commission, and any and all
amendments to the said Form 10-K Annual Report, and any and all
instruments and documents filed as a part of or in connection with the
said Form 10-K Annual Report or any amendments thereto; hereby ratifying
and confirming all that the said attorneys and agents, or any one of
them, have done, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed this Power of
Attorney this 3rd day of February, 1997.
/s/ ANTONIA HANDLER CHAYES
Antonia Handler Chayes<PAGE>
<PAGE>
UNITED TECHNOLOGIES CORPORATION
Power of Attorney
The undersigned, as a member of the Board of Directors, or as
an officer of UNITED TECHNOLOGIES CORPORATION, a Delaware corporation
(the "Corporation"), or as a member of a committee of said Board, or in
all of said capacities, hereby constitutes and appoints STEPHEN F. PAGE,
IRVING B. YOSKOWITZ, WILLIAM H. TRACHSEL, AND JAY L. HABERLAND, or any
one of them, his true and lawful attorneys and agents to do any and all
acts and things and execute any and all instruments which the said
attorneys and agents may deem necessary or advisable to enable the
Corporation to comply with the Securities Exchange Act of 1934 and any
rules and regulations and requirements of the Securities and Exchange
Commission in respect thereof in connection with the filing of the Annual
Report of the Corporation on Form 10-K, including specifically, but
without limiting the generality of the foregoing, the power and authority
to sign the name of the undersigned, in the capacities aforesaid or in
any other capacity, to the Corporation's Form 10-K Annual Report filed or
to be filed with the Securities and Exchange Commission, and any and all
amendments to the said Form 10-K Annual Report, and any and all
instruments and documents filed as a part of or in connection with the
said Form 10-K Annual Report or any amendments thereto; hereby ratifying
and confirming all that the said attorneys and agents, or any one of
them, have done, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed this Power of
Attorney this 3rd day of February, 1997.
/s/ ROBERT F. DANIELL
Robert F. Daniell<PAGE>
<PAGE>
UNITED TECHNOLOGIES CORPORATION
Power of Attorney
The undersigned, as a member of the Board of Directors, or as
an officer of UNITED TECHNOLOGIES CORPORATION, a Delaware corporation
(the "Corporation"), or as a member of a committee of said Board, or in
all of said capacities, hereby constitutes and appoints STEPHEN F. PAGE,
IRVING B. YOSKOWITZ, WILLIAM H. TRACHSEL, AND JAY L. HABERLAND, or any
one of them, his true and lawful attorneys and agents to do any and all
acts and things and execute any and all instruments which the said
attorneys and agents may deem necessary or advisable to enable the
Corporation to comply with the Securities Exchange Act of 1934 and any
rules and regulations and requirements of the Securities and Exchange
Commission in respect thereof in connection with the filing of the Annual
Report of the Corporation on Form 10-K, including specifically, but
without limiting the generality of the foregoing, the power and authority
to sign the name of the undersigned, in the capacities aforesaid or in
any other capacity, to the Corporation's Form 10-K Annual Report filed or
to be filed with the Securities and Exchange Commission, and any and all
amendments to the said Form 10-K Annual Report, and any and all
instruments and documents filed as a part of or in connection with the
said Form 10-K Annual Report or any amendments thereto; hereby ratifying
and confirming all that the said attorneys and agents, or any one of
them, have done, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed this Power of
Attorney this 3rd day of February, 1997.
/s/ ROBERT F. DEE
Robert F. Dee<PAGE>
<PAGE>
UNITED TECHNOLOGIES CORPORATION
Power of Attorney
The undersigned, as a member of the Board of Directors, or as
an officer of UNITED TECHNOLOGIES CORPORATION, a Delaware corporation
(the "Corporation"), or as a member of a committee of said Board, or in
all of said capacities, hereby constitutes and appoints STEPHEN F. PAGE,
IRVING B. YOSKOWITZ, WILLIAM H. TRACHSEL, AND JAY L. HABERLAND, or any
one of them, his true and lawful attorneys and agents to do any and all
acts and things and execute any and all instruments which the said
attorneys and agents may deem necessary or advisable to enable the
Corporation to comply with the Securities Exchange Act of 1934 and any
rules and regulations and requirements of the Securities and Exchange
Commission in respect thereof in connection with the filing of the Annual
Report of the Corporation on Form 10-K, including specifically, but
without limiting the generality of the foregoing, the power and authority
to sign the name of the undersigned, in the capacities aforesaid or in
any other capacity, to the Corporation's Form 10-K Annual Report filed or
to be filed with the Securities and Exchange Commission, and any and all
amendments to the said Form 10-K Annual Report, and any and all
instruments and documents filed as a part of or in connection with the
said Form 10-K Annual Report or any amendments thereto; hereby ratifying
and confirming all that the said attorneys and agents, or any one of
them, have done, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed this Power of
Attorney this 3rd day of February, 1997.
/s/ CHARLES W. DUNCAN, JR.
Charles W. Duncan, Jr.<PAGE>
<PAGE>
UNITED TECHNOLOGIES CORPORATION
Power of Attorney
The undersigned, as a member of the Board of Directors, or as
an officer of UNITED TECHNOLOGIES CORPORATION, a Delaware corporation
(the "Corporation"), or as a member of a committee of said Board, or in
all of said capacities, hereby constitutes and appoints STEPHEN F. PAGE,
IRVING B. YOSKOWITZ, WILLIAM H. TRACHSEL, AND JAY L. HABERLAND, or any
one of them, his true and lawful attorneys and agents to do any and all
acts and things and execute any and all instruments which the said
attorneys and agents may deem necessary or advisable to enable the
Corporation to comply with the Securities Exchange Act of 1934 and any
rules and regulations and requirements of the Securities and Exchange
Commission in respect thereof in connection with the filing of the Annual
Report of the Corporation on Form 10-K, including specifically, but
without limiting the generality of the foregoing, the power and authority
to sign the name of the undersigned, in the capacities aforesaid or in
any other capacity, to the Corporation's Form 10-K Annual Report filed or
to be filed with the Securities and Exchange Commission, and any and all
amendments to the said Form 10-K Annual Report, and any and all
instruments and documents filed as a part of or in connection with the
said Form 10-K Annual Report or any amendments thereto; hereby ratifying
and confirming all that the said attorneys and agents, or any one of
them, have done, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed this Power of
Attorney this 3rd day of February, 1997.
/s/ JEAN-PIERRE GARNIER
Jean-Pierre Garnier<PAGE>
<PAGE>
UNITED TECHNOLOGIES CORPORATION
Power of Attorney
The undersigned, as a member of the Board of Directors, or as
an officer of UNITED TECHNOLOGIES CORPORATION, a Delaware corporation
(the "Corporation"), or as a member of a committee of said Board, or in
all of said capacities, hereby constitutes and appoints STEPHEN F. PAGE,
IRVING B. YOSKOWITZ, WILLIAM H. TRACHSEL, AND JAY L. HABERLAND, or any
one of them, his true and lawful attorneys and agents to do any and all
acts and things and execute any and all instruments which the said
attorneys and agents may deem necessary or advisable to enable the
Corporation to comply with the Securities Exchange Act of 1934 and any
rules and regulations and requirements of the Securities and Exchange
Commission in respect thereof in connection with the filing of the Annual
Report of the Corporation on Form 10-K, including specifically, but
without limiting the generality of the foregoing, the power and authority
to sign the name of the undersigned, in the capacities aforesaid or in
any other capacity, to the Corporation's Form 10-K Annual Report filed or
to be filed with the Securities and Exchange Commission, and any and all
amendments to the said Form 10-K Annual Report, and any and all
instruments and documents filed as a part of or in connection with the
said Form 10-K Annual Report or any amendments thereto; hereby ratifying
and confirming all that the said attorneys and agents, or any one of
them, have done, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed this Power of
Attorney this 3rd day of February, 1997.
/s/ PEHR G. GYLLENHAMMAR
Pehr G. Gyllenhammar<PAGE>
<PAGE>
UNITED TECHNOLOGIES CORPORATION
Power of Attorney
The undersigned, as a member of the Board of Directors, or as
an officer of UNITED TECHNOLOGIES CORPORATION, a Delaware corporation
(the "Corporation"), or as a member of a committee of said Board, or in
all of said capacities, hereby constitutes and appoints STEPHEN F. PAGE,
IRVING B. YOSKOWITZ, WILLIAM H. TRACHSEL, AND JAY L. HABERLAND, or any
one of them, his true and lawful attorneys and agents to do any and all
acts and things and execute any and all instruments which the said
attorneys and agents may deem necessary or advisable to enable the
Corporation to comply with the Securities Exchange Act of 1934 and any
rules and regulations and requirements of the Securities and Exchange
Commission in respect thereof in connection with the filing of the Annual
Report of the Corporation on Form 10-K, including specifically, but
without limiting the generality of the foregoing, the power and authority
to sign the name of the undersigned, in the capacities aforesaid or in
any other capacity, to the Corporation's Form 10-K Annual Report filed or
to be filed with the Securities and Exchange Commission, and any and all
amendments to the said Form 10-K Annual Report, and any and all
instruments and documents filed as a part of or in connection with the
said Form 10-K Annual Report or any amendments thereto; hereby ratifying
and confirming all that the said attorneys and agents, or any one of
them, have done, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed this Power of
Attorney this 3rd day of February, 1997.
/s/ GERALD D. HINES
Gerald D. Hines<PAGE>
<PAGE>
UNITED TECHNOLOGIES CORPORATION
Power of Attorney
The undersigned, as a member of the Board of Directors, or as
an officer of UNITED TECHNOLOGIES CORPORATION, a Delaware corporation
(the "Corporation"), or as a member of a committee of said Board, or in
all of said capacities, hereby constitutes and appoints STEPHEN F. PAGE,
IRVING B. YOSKOWITZ, WILLIAM H. TRACHSEL, AND JAY L. HABERLAND, or any
one of them, his true and lawful attorneys and agents to do any and all
acts and things and execute any and all instruments which the said
attorneys and agents may deem necessary or advisable to enable the
Corporation to comply with the Securities Exchange Act of 1934 and any
rules and regulations and requirements of the Securities and Exchange
Commission in respect thereof in connection with the filing of the Annual
Report of the Corporation on Form 10-K, including specifically, but
without limiting the generality of the foregoing, the power and authority
to sign the name of the undersigned, in the capacities aforesaid or in
any other capacity, to the Corporation's Form 10-K Annual Report filed or
to be filed with the Securities and Exchange Commission, and any and all
amendments to the said Form 10-K Annual Report, and any and all
instruments and documents filed as a part of or in connection with the
said Form 10-K Annual Report or any amendments thereto; hereby ratifying
and confirming all that the said attorneys and agents, or any one of
them, have done, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed this Power of
Attorney this 3rd day of February, 1997.
/s/ CHARLES R. LEE
Charles R. Lee<PAGE>
<PAGE>
UNITED TECHNOLOGIES CORPORATION
Power of Attorney
The undersigned, as a member of the Board of Directors, or as
an officer of UNITED TECHNOLOGIES CORPORATION, a Delaware corporation
(the "Corporation"), or as a member of a committee of said Board, or in
all of said capacities, hereby constitutes and appoints STEPHEN F. PAGE,
IRVING B. YOSKOWITZ, WILLIAM H. TRACHSEL, AND JAY L. HABERLAND, or any
one of them, his true and lawful attorneys and agents to do any and all
acts and things and execute any and all instruments which the said
attorneys and agents may deem necessary or advisable to enable the
Corporation to comply with the Securities Exchange Act of 1934 and any
rules and regulations and requirements of the Securities and Exchange
Commission in respect thereof in connection with the filing of the Annual
Report of the Corporation on Form 10-K, including specifically, but
without limiting the generality of the foregoing, the power and authority
to sign the name of the undersigned, in the capacities aforesaid or in
any other capacity, to the Corporation's Form 10-K Annual Report filed or
to be filed with the Securities and Exchange Commission, and any and all
amendments to the said Form 10-K Annual Report, and any and all
instruments and documents filed as a part of or in connection with the
said Form 10-K Annual Report or any amendments thereto; hereby ratifying
and confirming all that the said attorneys and agents, or any one of
them, have done, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed this Power of
Attorney this 3rd day of February, 1997.
/s/ ROBERT H. MALOTT
Robert H. Malott<PAGE>
<PAGE>
UNITED TECHNOLOGIES CORPORATION
Power of Attorney
The undersigned, as a member of the Board of Directors, or as
an officer of UNITED TECHNOLOGIES CORPORATION, a Delaware corporation
(the "Corporation"), or as a member of a committee of said Board, or in
all of said capacities, hereby constitutes and appoints STEPHEN F. PAGE,
IRVING B. YOSKOWITZ, WILLIAM H. TRACHSEL, AND JAY L. HABERLAND, or any
one of them, his true and lawful attorneys and agents to do any and all
acts and things and execute any and all instruments which the said
attorneys and agents may deem necessary or advisable to enable the
Corporation to comply with the Securities Exchange Act of 1934 and any
rules and regulations and requirements of the Securities and Exchange
Commission in respect thereof in connection with the filing of the Annual
Report of the Corporation on Form 10-K, including specifically, but
without limiting the generality of the foregoing, the power and authority
to sign the name of the undersigned, in the capacities aforesaid or in
any other capacity, to the Corporation's Form 10-K Annual Report filed or
to be filed with the Securities and Exchange Commission, and any and all
amendments to the said Form 10-K Annual Report, and any and all
instruments and documents filed as a part of or in connection with the
said Form 10-K Annual Report or any amendments thereto; hereby ratifying
and confirming all that the said attorneys and agents, or any one of
them, have done, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed this Power of
Attorney this 3rd day of February, 1997.
/s/ FRANK P. POPOFF
Frank P. Popoff<PAGE>
<PAGE>
UNITED TECHNOLOGIES CORPORATION
Power of Attorney
The undersigned, as a member of the Board of Directors, or as
an officer of UNITED TECHNOLOGIES CORPORATION, a Delaware corporation
(the "Corporation"), or as a member of a committee of said Board, or in
all of said capacities, hereby constitutes and appoints STEPHEN F. PAGE,
IRVING B. YOSKOWITZ, WILLIAM H. TRACHSEL, AND JAY L. HABERLAND, or any
one of them, his true and lawful attorneys and agents to do any and all
acts and things and execute any and all instruments which the said
attorneys and agents may deem necessary or advisable to enable the
Corporation to comply with the Securities Exchange Act of 1934 and any
rules and regulations and requirements of the Securities and Exchange
Commission in respect thereof in connection with the filing of the Annual
Report of the Corporation on Form 10-K, including specifically, but
without limiting the generality of the foregoing, the power and authority
to sign the name of the undersigned, in the capacities aforesaid or in
any other capacity, to the Corporation's Form 10-K Annual Report filed or
to be filed with the Securities and Exchange Commission, and any and all
amendments to the said Form 10-K Annual Report, and any and all
instruments and documents filed as a part of or in connection with the
said Form 10-K Annual Report or any amendments thereto; hereby ratifying
and confirming all that the said attorneys and agents, or any one of
them, have done, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed this Power of
Attorney this 3rd day of February, 1997.
/s/ H. A. WAGNER
H. A. Wagner<PAGE>
<PAGE>
UNITED TECHNOLOGIES CORPORATION
Power of Attorney
The undersigned, as a member of the Board of Directors, or as
an officer of UNITED TECHNOLOGIES CORPORATION, a Delaware corporation
(the "Corporation"), or as a member of a committee of said Board, or in
all of said capacities, hereby constitutes and appoints STEPHEN F. PAGE,
IRVING B. YOSKOWITZ, WILLIAM H. TRACHSEL, AND JAY L. HABERLAND, or any
one of them, her true and lawful attorneys and agents to do any and all
acts and things and execute any and all instruments which the said
attorneys and agents may deem necessary or advisable to enable the
Corporation to comply with the Securities Exchange Act of 1934 and any
rules and regulations and requirements of the Securities and Exchange
Commission in respect thereof in connection with the filing of the Annual
Report of the Corporation on Form 10-K, including specifically, but
without limiting the generality of the foregoing, the power and authority
to sign the name of the undersigned, in the capacities aforesaid or in
any other capacity, to the Corporation's Form 10-K Annual Report filed or
to be filed with the Securities and Exchange Commission, and any and all
amendments to the said Form 10-K Annual Report, and any and all
instruments and documents filed as a part of or in connection with the
said Form 10-K Annual Report or any amendments thereto; hereby ratifying
and confirming all that the said attorneys and agents, or any one of
them, have done, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed this Power of
Attorney this 3rd day of February, 1997.
/s/ JACQUELINE G. WEXLER
Jacqueline G. Wexler<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
Consolidated Balance Sheet at December 31, 1996 and the Consolidated Statement
of Operations for the year ended December 31, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,127
<SECURITIES> 0
<RECEIVABLES> 4,048
<ALLOWANCES> 331
<INVENTORY> 3,342
<CURRENT-ASSETS> 9,611
<PP&E> 10,661
<DEPRECIATION> 6,290
<TOTAL-ASSETS> 16,745
<CURRENT-LIABILITIES> 7,390
<BONDS> 1,437
434
0
<COMMON> 2,345
<OTHER-SE> 1,961
<TOTAL-LIABILITY-AND-EQUITY> 16,745
<SALES> 18,247
<TOTAL-REVENUES> 23,512
<CGS> 14,625
<TOTAL-COSTS> 17,737
<OTHER-EXPENSES> 1,122
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 221
<INCOME-PRETAX> 1,560
<INCOME-TAX> 523
<INCOME-CONTINUING> 906
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 906
<EPS-PRIMARY> 3.45
<EPS-DILUTED> 3.45
</TABLE>
