<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C.
20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period
from____________________________to__________________________
Commission file number 1-812
UNITED TECHNOLOGIES CORPORATION
DELAWARE 06-0570975
One Financial Plaza, Hartford, Connecticut 06101
(860) 728-7000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X . No .
At September 30, 1997 there were 232,977,477 shares of Common Stock outstanding.
<PAGE>
<PAGE>
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONTENTS OF QUARTERLY REPORT ON FORM 10-Q
Quarter Ended September 30, 1997
Page
Part I - Financial Information
Item 1. Financial Statements:
Condensed Consolidated Statement of
Operations for the quarters ended
September 30, 1997 and 1996 1
Condensed Consolidated Statement of
Operations for the nine months ended
September 30, 1997 and 1996 2
Condensed Consolidated Balance Sheet at
September 30, 1997 and December 31, 1996 3
Condensed Consolidated Statement of Cash
Flows for the nine months ended September
30, 1997 and 1996 4
Notes to Condensed Consolidated Financial
Statements 5
Report of Independent Accountants 8
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Position 9
Part II - Other Information
Item 1. Legal Proceedings 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
Exhibit Index<PAGE>
<PAGE> 1
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
<TABLE>
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<CAPTION>
Quarter Ended
September 30,
In Millions of Dollars (except per share amounts) 1997 1996
<S> <C> <C>
Revenues:
Product sales $ 4,675 $ 4,634
Service sales 1,261 1,274
Financing revenues and other income, net 43 31
5,979 5,939
Costs and expenses:
Cost of products sold 3,717 3,685
Cost of services sold 766 791
Research and development 268 270
Selling, general and administrative 690 708
Interest 49 54
5,490 5,508
Income before income taxes and minority interests 489 431
Income taxes 159 144
Minority interests 30 33
Net Income $ 300 $ 254
Earnings per share of common stock and common stock
equivalents $ 1.16 $ .97
Dividends per share of common stock $ .31 $ .275
Average common and equivalent shares outstanding
(in thousands) 257,360 260,730
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements<PAGE>
<PAGE> 2
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
<TABLE>
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
In Millions of Dollars (except per share amounts) 1997 1996
<S> <C> <C>
Revenues:
Product sales $ 14,466 $ 13,566
Service sales 3,788 3,692
Financing revenues and other income, net 142 116
18,396 17,374
Costs and expenses:
Cost of products sold 11,558 10,882
Cost of services sold 2,349 2,260
Research and development 855 794
Selling, general and administrative 2,119 2,100
Interest 146 168
17,027 16,204
Income before income taxes and minority interests 1,369 1,170
Income taxes 445 394
Minority interests 96 99
Net Income $ 828 $ 677
Earnings per share of common stock and common stock
equivalents $ 3.19 $ 2.57
Dividends per share of common stock $ .93 $ .825
Average common and equivalent shares outstanding
(in thousands) 258,034 261,600
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements<PAGE>
<PAGE> 3
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
<TABLE>
CONDENSED CONSOLIDATED BALANCE SHEET
<CAPTION>
<S> <C> <C>
September 30, December 31,
In Millions of Dollars 1997 1996
(Unaudited)
</TABLE>
Assets
<TABLE><CAPTION>
<S> <C> <C>
Cash and cash equivalents $ 1,283 $ 1,127
Accounts receivable, net 3,859 3,717
Inventories and contracts in progress, net 3,346 3,342
Future income tax benefits 1,159 946
Other current assets 235 479
Total Current Assets 9,882 9,611
Fixed assets 10,766 10,661
Less - accumulated depreciation (6,541) (6,290)
4,225 4,371
Other assets 2,814 2,763
Total Assets $ 16,921 $ 16,745
</TABLE>
Liabilities and Shareowners' Equity
<TABLE><CAPTION>
<S> <C> <C>
Short-term borrowings $ 225 $ 251
Accounts payable 1,896 2,186
Accrued liabilities 5,257 4,856
Long-term debt currently due 93 97
Total Current Liabilities 7,471 7,390
Long-term debt 1,363 1,437
Future pension and postretirement benefit obligations 1,252 1,247
Other long-term liabilities 2,093 1,931
Series A ESOP Convertible Preferred Stock 866 880
ESOP deferred compensation (422) (446)
444 434
Shareowners' Equity:
Common Stock 2,461 2,345
Treasury Stock (2,163) (1,626)
Retained earnings 4,398 3,849
Currency translation and pension liability
adjustments (398) (262)
4,298 4,306
Total Liabilities and Shareowners' Equity $ 16,921 $ 16,745
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements<PAGE>
<PAGE> 4
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
<TABLE>
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
In Millions of Dollars 1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $ 828 $ 677
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization 632 635
Change in:
Accounts receivable (65) (134)
Inventories and contracts in progress 64 (176)
Accounts payable and accrued liabilities 69 289
Other, net 102 258
Net cash flows from operating activities 1,630 1,549
Cash flows from investing activities:
Capital expenditures (522) (474)
Acquisitions of business units (269) (193)
Dispositions of business units 37 37
Decrease in customer financing assets, net 18 59
Other, net 142 107
Net cash flows from investing activities (594) (464)
Cash flows from financing activities:
Issuance of long-term debt 10 28
Repayments of long-term debt (79) (224)
Decrease in short-term borrowings, net (49) (43)
Dividends paid on Common Stock (219) (199)
Common Stock repurchase (539) (274)
Other, net 25 (8)
Net cash flows from financing activities (851) (720)
Effect of foreign exchange rate changes on Cash and
cash equivalents (29) (6)
Net increase in cash and cash equivalents 156 359
Cash and cash equivalents, beginning of year 1,127 900
Cash and cash equivalents, end of period $ 1,283 $ 1,259
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements<PAGE>
<PAGE> 5
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Condensed Consolidated Financial Statements at September 30, 1997 and for
the quarters and nine-month periods ended September 30, 1997 and 1996 are
unaudited, but in the opinion of the Corporation include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the results for the interim periods.
Certain reclassifications have been made to prior year amounts to conform to
the current year presentation.
Beginning January 1, 1997, international operating subsidiaries which had
generally been included in the Condensed Consolidated Financial Statements based
on fiscal years ending November 30, are now included based on fiscal years
ending December 31. The change, which primarily affected the commercial and
industrial businesses, was made to present the results of these operations on a
more timely basis. December 1996 results from these international
subsidiaries, which were not significant, are included in retained earnings. As
a result of this change, the pattern of 1997 quarterly results will 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 on quarter ended
September 30, 1996 and full year earnings per share would not have been
significant.
In February of 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share." The
Corporation will adopt this standard, as required, at the end of this year. Had
this standard been adopted at the beginning of 1997, the Corporation would have
reported basic earnings per share of $1.25 and $3.41 for the third quarter and
nine-month period, respectively.
Contingent Liabilities
While there has been no significant change in the Corporation's material
contingencies during 1997, the matters previously described in Note 14 of the
Notes to Consolidated Financial Statements in the Corporation's Annual Report on
Form 10-K for calendar year 1996 are summarized below.
Environmental
The Corporation's operations are subject to environmental regulation by
federal, state, and local authorities in the United States and regulatory
authorities with jurisdiction over its foreign operations.
It is the Corporation's policy to accrue, in accordance with AICPA Statement
of Position 96-1, 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<PAGE>
<PAGE> 6
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
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, product liability, and other litigation and
<PAGE>
<PAGE> 7
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
claims based on management's estimate of the probable outcome of these matters.
While it is possible that the outcome of these matters may differ from the
recorded liability, management believes that resolution of these matters will
not have a material adverse effect upon either results of operations, cash
flows, or financial position of the Corporation.<PAGE>
<PAGE> 8
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
With respect to the unaudited condensed consolidated financial information of
United Technologies Corporation for the quarters and nine-month periods ended
September 30, 1997 and 1996, Price Waterhouse LLP ("Price Waterhouse") reported
that they have applied limited procedures in accordance with professional
standards for a review of such information. However, their separate report
dated October 22, 1997 appearing below, states that they did not audit and they
do not express an opinion on that unaudited condensed consolidated financial
information. Price Waterhouse has not carried out any significant or additional
audit tests beyond those which would have been necessary if their report had not
been included. Accordingly, the degree of reliance on their report on such
information should be restricted in light of the limited nature of the review
procedures applied. Price Waterhouse is not subject to the liability provisions
of section 11 of the Securities Act of 1933 ("the Act") for their report on the
unaudited condensed consolidated financial information because that report is
not a "report" or a "part" of the registration statement prepared or certified
by Price Waterhouse within the meaning of sections 7 and 11 of the Act.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareowners of
United Technologies Corporation
We have reviewed the accompanying condensed consolidated statement of
operations of United Technologies Corporation and consolidated subsidiaries for
the quarters and nine months ended September 30, 1997 and 1996, the condensed
consolidated statement of cash flows for the nine months ended September 30,
1997 and 1996, and the condensed consolidated balance sheet as of September 30,
1997. This financial information is the responsibility of the company's
management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial information for it to be in
conformity with generally accepted accounting principles.
We previously audited in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1996, and the
related consolidated statements of operations and cash flows for the year then
ended (not presented herein), and in our report dated January 23, 1997 we
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 1996, is fairly stated in all
material respects in relation to the consolidated balance sheet from which it
has been derived.
Price Waterhouse LLP
Hartford, Connecticut
October 22, 1997<PAGE>
<PAGE> 9
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL POSITION
BUSINESS ENVIRONMENT
The Corporation's Otis, Carrier and UT Automotive subsidiaries serve
customers in the commercial property, residential housing and automotive
businesses. Additionally, the Corporation's Pratt & Whitney, Sikorsky and
Hamilton Standard businesses serve commercial and government customers in the
aerospace industry. As world-wide businesses, these operations are affected by
global as well as regional economic factors.
U.S. residential housing starts declined in the 1997 third quarter and nine-
month period compared to the same periods in 1996, while commercial construction
starts in the U.S. improved over the same periods in 1996. U.S. commercial
vacancy rates continue to improve.
North American car and light truck production was essentially flat in the
1997 third quarter and nine-month period compared to the same periods in 1996,
while European car sales were higher in both the third quarter and nine-month
period of 1997.
Worldwide airline profits continue to improve as a result of increased load
factors and lower costs. Strong traffic growth continues to drive new aircraft
orders from the U.S. and Asia Pacific regions, while European airline financial
resources remain constrained in the near term by increasing competition, higher
cost structures and privatization.
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.
The Corporation continues to reduce manufacturing costs and floor space to
remain competitive.<PAGE>
<PAGE> 10
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
RESULTS OF OPERATIONS
Consolidated revenues and margin percentages were as follows:
<TABLE><CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
In Millions of Dollars 1997 1996 1997 1996
<S> <C> <C> <C> <C>
Product sales $ 4,675 $ 4,634 $ 14,466 $ 13,566
Service sales 1,261 1,274 3,788 3,692
Financing revenues and
other income, net 43 31 142 116
Product margin % 20.5% 20.5% 20.1% 19.8%
Service margin % 39.3% 37.9% 38.0% 38.8%
</TABLE>
Consolidated revenues for the third quarter and nine-month period of 1997
were 1% and 6% higher than the respective reported periods of 1996. Foreign
currency translation reduced 1997 revenues by 4% and 3% in the third quarter and
nine-month period. Excluding the impact of foreign currency translation, the
1997 third quarter increase was primarily driven by Pratt & Whitney and Otis.
The increase in the nine-month period of 1997 was primarily driven by Pratt &
Whitney, Otis and Flight Systems.
Product margin as a percentage of sales was flat in the third quarter and
increased three-tenths of a percentage point in the nine-month period of 1997
compared to the same periods of 1996. Service margin as a percentage of sales
increased 1.4 percentage points in the third quarter and decreased eight-tenths
of a percentage point in the nine-month period of 1997 compared to the
respective reported periods of 1996. The third quarter increase was due to
improvements in most segments and the impact of the change in reporting period
described in the Notes to Condensed Consolidated Financial Statements.
Research and development expenses decreased $2 million (1%) in the third
quarter and increased $61 million (8%) in the nine-month period of 1997 compared
to 1996. The third quarter decrease was due to the timing of research and
development spending at Pratt & Whitney partially offset by higher expenses in
the other segments. The increase in the nine-month period was due to higher
expenses in all segments. As a percentage of sales, research and development
was 4.5% and 4.7% in the third quarter and nine-month period of 1997 compared to
4.6% in both periods of 1996.
Selling, general and administrative expenses decreased $18 million (3%) in
the third quarter and increased $19 million (1%) in the nine-month period of
1997 compared to the same periods of 1996. The decline in third quarter 1997
expenses was the result of reductions at most of the businesses. The increase
in the nine-month period of 1997 was due to higher expenses at Carrier,
Automotive and Flight Systems. As a percent of sales, these expenses decreased
to 11.6% in the third quarter and nine-month period of 1997 from 12.0% and 12.2%
in the same periods of 1996, due to decreases at Otis and Pratt & Whitney.
Interest expense decreased $5 million and $22 million in the third quarter
and nine-month period of 1997 to $49 million and $146 million, respectively.
This decrease is mainly due to a reduced average borrowing level during the
first nine months compared to last year.<PAGE>
<PAGE> 11
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
The effective tax rate for the nine-month period of 1997 was 32.5%, compared
to an effective tax rate of 33.7% for the nine-month period of 1996. The
Corporation has continued to reduce its effective income tax rate by
implementing tax reduction strategies.
Revenues and operating profits of the Corporation's principal business
segments for the quarters and nine-month periods ended September 30, 1997 and
1996 are as follows (in millions of dollars):
<TABLE><CAPTION>
Operating
Revenues Operating Profits Profit Margin
1997 1996 1997 1996 1997 1996
<S> <C> <C> <C> <C> <C> <C>
Quarter Ended
September 30,
Otis $ 1,342 $ 1,382 $ 131 $ 132 9.8% 9.6%
Carrier 1,513 1,588 157 159 10.4% 10.0%
Automotive 659 738 42 42 6.4% 5.7%
Pratt & Whitney 1,838 1,582 208 164 11.3% 10.4%
Flight Systems 669 682 70 51 10.5% 7.5%
Nine Months Ended
September 30,
Otis $ 4,107 $ 4,086 $ 395 $ 378 9.6% 9.3%
Carrier 4,591 4,547 394 369 8.6% 8.1%
Automotive 2,182 2,343 106 143 4.9% 6.1%
Pratt & Whitney 5,501 4,531 600 464 10.9% 10.2%
Flight Systems 2,122 1,966 207 161 9.8% 8.2%
</TABLE>
Otis segment revenues decreased 3% in the third quarter and increased 1% in
the nine-month period of 1997 compared to the respective reported periods of
1996. Foreign currency translation reduced 1997 revenues by 9% and 7% for the
third quarter and nine-month period. Excluding the unfavorable impact of
foreign currency translation, the increase in 1997 third quarter revenues was
primarily due to increases in the North American, Asia Pacific and European
regions. The year to date increase was due to increases in all geographic
regions.
Operating profits at Otis decreased $1 million (1%) in the third quarter and
increased $17 million (4%) in the nine-month period of 1997 compared to the
respective reported periods of 1996. Foreign currency translation reduced 1997
operating profit by 12% and 9% for the third quarter and nine-month period. The
unfavorable impact of foreign currency translation was offset by the change in
reporting period and improvements in North and South America during the third
quarter. The increase in 1997 nine-month results reflects improvements at
European, North American and South American operations and the change in the
reporting period partially offset by declines in Asia Pacific operations.
Carrier segment revenues decreased 5% in the third quarter and increased 1%
in the nine-month period of 1997 compared to the respective reported periods of
1996. Foreign currency translation reduced 1997 revenues by 4% and 3% for the
third quarter and nine-month period. The decrease in revenue in the third
quarter was due to the change in the reporting period and declines in North
America and Europe due to unseasonably cool weather. These decreases were
offset by improvement at Carrier Transicold and the impact of acquisitions.<PAGE>
<PAGE> 12
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
The nine-month period of 1997 reflects declines primarily in North America and
Europe due to unseasonably cool weather which are more than offset by
improvement at Carrier Transicold and the impact of acquisitions.
Operating profits at Carrier decreased $2 million (1%) in the third quarter
and increased $25 million (7%) in the nine-month period of 1997 compared to the
respective reported periods of 1996. Foreign currency translation reduced 1997
operating profits by 3% for the third quarter and nine-month period. Excluding
the unfavorable impact of foreign currency translation, the third quarter of
1997 reflects improvements at Carrier Transicold and the impact of acquisitions,
which offset the impact of the change in the reporting period and the weather
related weaknesses discussed above. The year to date 1997 increase was due to
the impact of acquisitions, the change in the reporting period and increases at
Carrier Transicold operations, partially offset by declines at European
operations.
Automotive segment revenues for the third quarter and nine-month period of
1997 decreased 11% and 7% compared to the reported third quarter and nine-month
period of 1996. Foreign currency translation reduced 1997 revenues by 4% and 3%
for the third quarter and nine-month period. The decrease in 1997 revenues is
the result of the sale of the Steering Wheels business in the fourth quarter of
1996 and lower volumes at most businesses.
Reported operating profits at the Automotive segment were flat in the third
quarter and decreased $37 million (26%) in the nine-month period of 1997
compared to the respective reported periods of 1996. Foreign currency
translation reduced 1997 operating profits by 8% for the third quarter and nine-
month period. Excluding the unfavorable impact of foreign currency translation,
the third quarter of 1997 reflects improvements in the Interiors business which
more than offset the impact of the fourth quarter 1996 sale of the Steering
Wheels business. Year to date 1997 was impacted by performance issues,
primarily at the Interiors business, lower volumes, domestic administrative
workforce reductions, a provision for a European plant closure and the fourth
quarter 1996 sale of the Steering Wheels Business.
Pratt & Whitney revenues increased 16% and 21% in the third quarter and nine-
month period of 1997 compared to 1996. The 1997 increase reflects higher
volumes in both the after-market and new engine businesses.
Operating profits for Pratt & Whitney increased $44 million (27%) and $136
million (29%) in the third quarter and nine-month period of 1997 compared to the
respective periods of 1996, reflecting strong after-market results partially
offset by higher research and development spending in the nine-month period.
Flight Systems revenues decreased 2% in the third quarter and increased 8% in
the nine-month period of 1997 compared to 1996. Revenue increases at Hamilton
Standard in the third quarter of 1997 were more than offset by lower volumes at
Sikorsky due to the timing of helicopter shipments. Revenues increased at
Hamilton Standard and Sikorsky in the nine-month period of 1997.
Operating profits for Flight Systems increased $19 million (37%) and $46
million (29%) in the third quarter and nine-month period of 1997 compared to
1996 as a result of continuing operating performance improvement at Hamilton
Standard and Sikorsky partially offset by higher research and development
spending.<PAGE>
<PAGE> 13
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
FINANCIAL POSITION AND LIQUIDITY
Management assesses the Corporation's liquidity in terms of its overall
ability to generate cash to fund its operating and investing activities.
Significant factors affecting the management of liquidity are cash flows
generated from operating activities, capital expenditures, customer financing
requirements, adequate bank lines of credit, and financial flexibility to
attract long-term capital on satisfactory terms.
Set forth below is selected key cash flow data:
<TABLE><CAPTION>
Nine Months Ended
September 30,
In Millions of Dollars 1997 1996
<S> <C> <C>
Operating Activities
Net Cash Flows from Operating Activities $ 1,630 $ 1,549
Investing Activities
Capital expenditures (522) (474)
Acquisitions of business units (269) (193)
Dispositions of business units 37 37
Decrease in customer financing assets, net 18 59
Financing Activities
Common Stock repurchase (539) (274)
Decrease in total debt (104) (198)
Decrease in net debt (260) (557)
</TABLE>
Cash flows from operating activities were $1,630 million during the first
nine months of 1997 compared to $1,549 million for the reported first nine
months of 1996. The improvement resulted primarily from improved operating
performance.
Cash flows from investing activities were a use of funds of $594 million
during the first nine months of 1997 compared to a use of $464 million in the
first nine months of 1996. Capital expenditures in the nine-month period of
1997 were $522 million, a $48 million increase from the corresponding period of
1996. The Corporation expects 1997 full year capital spending to be moderately
higher than 1996. Cash inflows from customer financing activities were lower in
the nine-month period of 1997, compared to 1996. While the Corporation expects
that changes in customer financing assets in 1997 will have a minimal net impact
on cash flows, actual funding is subject to usage under existing customer
financing commitments during the remainder of the year. The Corporation's total
commitments to finance or arrange financing of commercial aircraft and related
equipment at September 30, 1997 were approximately $1 billion.<PAGE>
<PAGE> 14
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
The Corporation repurchased $539 million of common stock, representing 7.0
million shares, in the first nine months of 1997 under previously announced
stock repurchase programs. Share repurchase continues to be a significant use of
the Corporation's strong cash flows and serves, in part, to offset the dilutive
effect resulting from the issuance of stock under stock-based employee benefit
programs.
Other selected financial data is as follows:
<TABLE><CAPTION>
September 30, December 31, September 30,
In Millions of Dollars 1997 1996 1996
<S> <C> <C> <C>
Cash and cash equivalents $ 1,283 $ 1,127 $ 1,259
Total debt 1,681 1,785 1,843
Net debt (total debt less cash) 398 658 584
Shareowners' equity 4,298 4,306 4,260
Debt-to-total capitalization 28% 29% 30%
Net debt-to-total capitalization 8% 13% 12%
</TABLE>
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.
Management believes that its existing cash position and other available
sources of liquidity are sufficient to meet current and anticipated requirements
for the foreseeable future.<PAGE>
<PAGE> 15
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
SAFE HARBOR STATEMENT
This Report on Form 10-Q contains statements which, to the extent they are
not historical fact, constitute "forward looking statements" within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. All forward looking statements involve risks and
uncertainties. The forward looking statements in this document are intended to
be subject to the safe harbor protection provided by Sections 27A and 21E.
For a discussion identifying some important factors that could cause actual
results to vary materially from those anticipated in the forward looking
statements, such as the economic, political, climatic, currency, regulatory,
technological and competitive changes which may affect the Corporation's
operations, products, and markets, see the Corporation's Securities and Exchange
Commission filings, including, but not limited to, the Corporation's 1996 Annual
Report on Form 10-K. See particularly Form 10-K Item 1 - Business, the sections
entitled "Description of Business by Industry Segment" and "Other Matters
Relating to the Corporation's Business as a Whole," and Form 10-K Item 7 -
Management's Discussion and Analysis of Results of Operations and Financial
Position, which incorporates by reference the information found at pages 22
through 27 of the Corporation's 1996 Annual Report to Shareowners.<PAGE>
<PAGE> 16
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
Part II - Other Information
Item 1 - Legal Proceedings
As previously reported, 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. Bench trial in this matter began in July 1997 and concluded in
August 1997. Post-trial papers with proposed findings of fact and conclusions
of law have been exchanged by the parties. These papers will be submitted to
the judge with comments in November 1997.
The Corporation does not believe that resolution of the litigation discussed
above will have a material adverse effect upon the Corporation's competitive
position, results of operations, cash flows, or financial position.
Except as noted above, there have been no material changes in legal proceedings
during the third quarter of 1997. (For a description of previously reported
legal proceedings, refer to Part I, Item 3 - Legal Proceedings of the
Corporation's Annual Report on Form 10-K for calendar year 1996 and to Part II,
Item 1 - Legal Proceedings of the Corporation's Reports on Form 10-Q for the
first and second quarters of calendar year 1997.)
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits:
(11) Statement re computation of per share earnings.
(12) Statement re computation of ratio of earnings to fixed charges.
(15) Letter re unaudited interim financial information.
(27) Financial data schedule (submitted electronically herewith).
(b) No Reports on Form 8-K were filed during the quarter
ended September 30, 1997.<PAGE>
<PAGE> 17
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED TECHNOLOGIES CORPORATION
Dated: October 24, 1997 By: /s/ JAY L. HABERLAND
Jay L. Haberland
Vice President and Controller
Dated: October 24, 1997 By: /s/ WILLIAM H. TRACHSEL
William H. Trachsel
Vice President and Secretary<PAGE>
<PAGE>
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit 11 - Statement re computation of per share earnings
Exhibit 12 - Statement re computation of ratio of earnings to fixed charges
Exhibit 15 - Letter re unaudited interim financial information
Exhibit 27 - Financial data schedule (submitted electronically herewith)<PAGE>
<PAGE>
<PAGE>
<TABLE>
Exhibit 11
<CAPTION>
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
Quarter Ended
September 30,
In Millions of Dollars (except per share amounts) 1997 1996
<S> <C> <C>
Net Income $ 300 $ 254
ESOP Convertible Preferred Stock Dividend requirement (8) (7)
Earnings applicable to Common Stock 292 247
ESOP Convertible Preferred Stock adjustment 7 5
Net earnings for calculation of primary and fully
diluted earnings per share $ 299 $ 252
Average number of common shares and common stock
equivalents outstanding during the period (in 257,360 260,730
thousands)
Fully diluted average number of common shares and
common stock equivalents outstanding during the
period (in thousands) 257,360 261,344
Primary earnings per common share $ 1.16 $ .97
Fully diluted earnings per common share (Note 1) $ 1.16 $ .97
Note 1 - Fully diluted earnings per common share is less than 3% dilutive and is
not shown separately on the Condensed Consolidated Statement of
Operations.
/TABLE
<PAGE>
<PAGE>
<TABLE>
Exhibit 11
<CAPTION>
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
Nine Months Ended
September 30,
In Millions of Dollars (except per share amounts) 1997 1996
<S> <C> <C>
Net Income $ 828 $ 677
ESOP Convertible Preferred Stock Dividend requirement (24) (22)
Earnings applicable to Common Stock 804 655
ESOP Convertible Preferred Stock adjustment 20 17
Net earnings for calculation of primary and fully
diluted earnings per share $ 824 $ 672
Average number of common shares and common stock
equivalents outstanding during the period (in 258,034 261,600
thousands)
Fully diluted average number of common shares and
common stock equivalents outstanding during the
period (in thousands) 258,504 262,677
Primary earnings per common share $ 3.19 $ 2.57
Fully diluted earnings per common share (Note 1) $ 3.19 $ 2.56
Note 1 - Fully diluted earnings per common share is less than 3% dilutive and is
not shown separately on the Condensed Consolidated Statement of
Operations.
/TABLE
<PAGE>
<PAGE>
<TABLE>
Exhibit 12
<CAPTION>
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Nine Months Ended
September 30,
In Millions of Dollars 1997 1996
<S> <C> <C>
Fixed Charges:
Interest on indebtedness $ 146 $ 168
Interest capitalized 8 13
One-third of rents* 65 64
Total Fixed Charges $ 219 $ 245
Earnings:
Income before income taxes and minority interests $ 1,369 $ 1,170
Fixed charges per above 219 245
Less: interest capitalized (8) (13)
211 232
Amortization of interest capitalized 28 29
Total Earnings $ 1,608 $ 1,431
Ratio of Earnings to Fixed Charges 7.34 5.84
* Reasonable approximation of the interest factor.
/TABLE
<PAGE>
<PAGE>
Exhibit 15
October 24, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Ladies and Gentlemen:
We are aware that United Technologies Corporation has included our report dated
October 22, 1997 (issued pursuant to the provisions of Statement on Auditing
Standards No. 71) in the Prospectus constituting part of its Registration
Statements on Form S-3 (Nos. 333-26331, 33-46916, 33-40163, 33-34320, 33-31514,
33-29687, and 33-6452) and in the Registration Statements on Form S-8 (Nos. 333-
21853, 333-18743, 333-21851, 33-57769, 33-45440, 33-11255, 33-26580, 33-26627,
33-28974, 33-51385, 33-58937 and 2-87322). We are also aware of our
responsibilities under the Securities Act of 1933.
Yours very truly,
Price Waterhouse LLP<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the Condensed
Consolidated Balance Sheet at September 30, 1997 (Unaudited) and the Condensed
Consolidated Statement of Operations for the nine months ended September 30,
1997 (Unaudited) and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,283
<SECURITIES> 0
<RECEIVABLES> 4,203
<ALLOWANCES> 344
<INVENTORY> 3,346
<CURRENT-ASSETS> 9,882
<PP&E> 10,766
<DEPRECIATION> 6,541
<TOTAL-ASSETS> 16,921
<CURRENT-LIABILITIES> 7,471
<BONDS> 1,363
444
0
<COMMON> 2,461
<OTHER-SE> 1,837
<TOTAL-LIABILITY-AND-EQUITY> 16,921
<SALES> 14,466
<TOTAL-REVENUES> 18,396
<CGS> 11,558
<TOTAL-COSTS> 13,907
<OTHER-EXPENSES> 855
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 146
<INCOME-PRETAX> 1,369
<INCOME-TAX> 445
<INCOME-CONTINUING> 828
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 828
<EPS-PRIMARY> 3.19
<EPS-DILUTED> 3.19
</TABLE>
