<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 March 31, 1998
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 March 31, 1998 there were 229,511,741 shares of Common Stock outstanding.<PAGE>
<PAGE>
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONTENTS OF QUARTERLY REPORT ON FORM 10-Q
Quarter Ended March 31, 1998
Page
Part I - Financial Information
Item 1. Financial Statements:
Condensed Consolidated Statement of
Operations for the quarters ended March
31, 1998 and 1997 1
Condensed Consolidated Balance Sheet at March
31, 1998 and December 31, 1997 2
Condensed Consolidated Statement of Cash
Flows for the quarters ended March 31,
1998 and 1997 3
Notes to Condensed Consolidated Financial
Statements 4
Report of Independent Accountants 7
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Position 8
Part II - Other Information
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
Exhibit Index<PAGE>
<PAGE> 1
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
<TABLE>
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<CAPTION>
Quarter Ended
March 31,
In Millions of Dollars (except per share 1998 1997
amounts)
<S> <C> <C>
Revenues:
Product sales $ 4,725 $ 4,645
Service sales 1,299 1,241
Financing revenues and other income, net 87 48
6,111 5,934
Costs and expenses:
Cost of products sold 3,787 3,760
Cost of services sold 825 776
Research and development 308 271
Selling, general and administrative 731 702
Interest 49 48
5,700 5,557
Income before income taxes and minority 411 377
interests
Income taxes 131 124
Minority interests 20 29
Net Income $ 260 $ 224
Earnings per share of common stock:
Basic $ 1.10 $ .91
Diluted $ 1.04 $ .87
Dividends per share of common stock $ .31 $ .31
Average number of shares outstanding (in
thousands):
Basic 229,416 237,396
Diluted 248,811 256,236
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements<PAGE>
<PAGE> 2
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
<TABLE>
CONDENSED CONSOLIDATED BALANCE SHEET
<CAPTION>
<S> <C> <C>
March 31, December 31,
In Millions of Dollars 1998 1997
(Unaudited)
</TABLE>
Assets
<TABLE><CAPTION>
<S> <C> <C>
Cash and cash equivalents $ 703 $ 755
Accounts receivable, net 4,090 3,789
Inventories and contracts in progress, net 3,307 3,173
Future income tax benefits 1,180 1,111
Other current assets 319 420
Total Current Assets 9,599 9,248
Fixed assets 10,535 10,655
Less - accumulated depreciation (6,406) (6,393)
4,129 4,262
Other assets 3,612 3,209
Total Assets $ 17,340 $ 16,719
</TABLE>
Liabilities and Shareowners' Equity
<TABLE><CAPTION>
<S> <C> <C>
Short-term borrowings $ 224 $ 217
Accounts payable 1,984 1,978
Accrued liabilities 5,400 4,993
Long-term debt currently due 84 123
Total Current Liabilities 7,692 7,311
Long-term debt 1,255 1,275
Future pension and postretirement benefit 1,270 1,267
obligations
Other long-term liabilities 2,435 2,343
Series A ESOP Convertible Preferred Stock 857 865
ESOP deferred compensation (405) (415)
452 450
Shareowners' Equity:
Common Stock 2,569 2,488
Treasury Stock (2,560) (2,472)
Retained earnings 4,725 4,558
Accumulated other non-shareowner
changes in equity (498) (501)
4,236 4,073
Total Liabilities and Shareowners' Equity$ 17,340 $ 16,719
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
<PAGE>
<PAGE> 3
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
<TABLE>
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<CAPTION>
Quarter Ended
March 31,
In Millions of Dollars 1998 1997
<S> <C> <C>
Operating activities:
Net income $ 260 $ 224
Adjustments to reconcile net income
to net cash flows provided by
operating activities:
Depreciation and amortization 214 211
Deferred income tax benefit (87) (49)
Change in:
Accounts receivable (258) 209
Inventories and contracts in (88) (193)
progress
Accounts payable and accrued 368 59
liabilities
Other current assets 78 42
Other, net 71 6
Net cash flows provided by 558 509
operating activities
Investing activities:
Capital expenditures (155) (161)
Acquisitions of business units (235) (46)
Dispositions of business units - 26
(Increase) decrease in customer
financing assets, net (84) 28
Other, net 35 43
Net cash flows used in investing (439) (110)
activities
Financing activities:
Repayments of long-term debt (64) (34)
Increase (decrease) in short-term 8 (6)
borrowings, net
Dividends paid on Common Stock (71) (74)
Common Stock repurchase (89) (145)
Other, net 50 19
Net cash flows used in financing (166) (240)
activities
Effect of foreign exchange rate
changes on Cash and cash equivalents (5) (21)
Net (decrease) increase in cash
and cash equivalents (52) 138
Cash and cash equivalents, beginning 755 1,127
of year
Cash and cash equivalents, end of $ 703 $ 1,265
period
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements<PAGE>
<PAGE> 4
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Condensed Consolidated Financial Statements at March 31, 1998 and for the
quarters ended March 31, 1998 and 1997 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.
In the first quarter of 1998, the Corporation adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." The Statement
requires disclosure of total non-shareowner changes in equity in interim periods
and additional disclosures of the components of non-shareowner changes in equity
on an annual basis. Total non-shareowner changes in equity includes all changes
in equity during a period except those resulting from investments by and
distributions to shareowners. The specific components include: net income,
deferred gains and losses resulting from foreign currency translation and
minimum pension liability adjustments. For the quarters ended March 31, 1998
and March 31, 1997, total non-shareowner changes in equity were $263 and $125,
respectively.
Contingent Liabilities
While there has been no significant change in the Corporation's material
contingencies during 1998, the matters previously described in Note 14 of the
Notes to Consolidated Financial Statements in the Corporation's Annual Report,
incorporated by reference in the Corporation's Annual Report on Form 10-K for
calendar year 1997, 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.
Environmental investigatory, remediation, operating and maintenance costs are
accrued when it is probable that a liability has been incurred and the amount
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 based on an evaluation of currently available facts with
respect to each individual site including existing technology, current laws and
regulations and prior remediation experience. For sites with multiple
responsible parties, the Corporation considers its likely proportionate share of
the anticipated remediation costs and the ability of the other parties to
fulfill their obligations in establishing a provision for those costs.
Liabilities with fixed or reliably determinable future cash payments are
discounted.
The Corporation has had insurance in force over its history with a number of
insurance companies and has commenced litigation seeking indemnity and defense
under these insurance policies in relation to its environmental liabilities.
The litigation is expected to last several years. Environmental liabilities are
not reduced by potential insurance reimbursements.
As discussed above, the Corporation has accrued for the costs of
environmental remediation activities and periodically reassesses these amounts.
<PAGE>
<PAGE> 5
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
Management believes that losses materially in excess of amounts accrued are not
reasonably possible.
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 investigatory,
remediation, operating and maintenance costs, 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.<PAGE>
<PAGE> 6
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
Earnings Per Share
<TABLE><CAPTION>
Quarter Ended
March 31,
In Millions of Dollars
(except per share 1998 1997
amounts)
<S> <C> <C>
Net Income $ 260 $ 224
ESOP Stock dividends (8) (8)
Basic earnings 252 216
ESOP Stock adjustment 6 6
Diluted earnings $ 258 $ 222
Average shares
(thousands):
Basic 229,416 237,396
Stock awards 5,822 5,806
ESOP Stock 13,573 13,034
Diluted 248,811 256,236
Basic earnings per $ 1.10 $ .91
share
Diluted earnings per $ 1.04 $ .87
share
/TABLE
<PAGE>
<PAGE> 7
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
With respect to the unaudited condensed consolidated financial information of
United Technologies Corporation for the quarters ended March 31, 1998 and 1997,
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 April 22, 1998 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 ended March 31, 1998 and 1997, the condensed consolidated statement
of cash flows for the quarters ended March 31, 1998 and 1997, and the condensed
consolidated balance sheet as of March 31, 1998. 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, 1997, and the
related consolidated statements of operations, of changes in shareowners' equity
and of cash flows for the year then ended (not presented herein), and in our
report dated January 22, 1998 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, 1997,
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
April 22, 1998<PAGE>
<PAGE> 8
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL POSITION
BUSINESS ENVIRONMENT
The Corporation's operations are classified into five principal business
segments. Otis, Carrier and UT Automotive subsidiaries serve customers in the
commercial property, residential housing and automotive industries. Pratt &
Whitney and the Flight Systems segment, which includes Sikorsky and Hamilton
Standard, serve commercial and government customers in the aerospace industry.
As world-wide businesses, these operations are affected by global and regional
economic factors. However, the diversity of the Corporation's businesses and
global market presence has helped limit the impact of any one industry or the
economy of any single country on the consolidated results.
Economic growth rates in the Asia Pacific region slowed during the latter
part of 1997. Tightening of credit in Asia has restricted available financing
for new construction and slowed the completion of projects currently underway,
resulting in less activity compared to recent years. While recognizing that the
Asian economic downturn may continue beyond 1998, management believes the long-
term economic growth prospects of the region remain intact. Therefore, the
Corporation's Asian investment strategy continues to focus on the long-term
infrastructure requirements of the region.
U.S. residential housing starts and commercial construction activity
increased in the first quarter of 1998 compared to the same period in 1997.
U.S. commercial property vacancy rates continue to improve.
North American car and light truck production was essentially flat, while
European car sales were higher in the first quarter of 1998 compared to the same
period in 1997.
Worldwide airline profits, traffic growth and load factors have been a
reliable indicator for new aircraft and after-market orders. U.S. and European
airlines are experiencing strong levels of profitability driven primarily by
higher traffic growth, improved yields and major cost reduction programs.
Airlines in the Asia Pacific region have suffered erosion in operating results
reflecting weaker local economies. This erosion in earnings has resulted in a
decrease in new orders for aerospace products and cancelations or deferrals of
existing orders throughout the industry.
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.<PAGE>
<PAGE> 9
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
RESULTS OF OPERATIONS
Consolidated revenues and margin percentages were as follows:
<TABLE><CAPTION>
Quarter Ended
March 31,
In Millions of Dollars 1998 1997
<S> <C> <C>
Sales $ 6,024 $ 5,886
Financing revenues and
other income, net 87 48
Revenues $ 6,111 $ 5,934
Gross margin % 23.4% 22.9%
</TABLE>
Consolidated revenues for the first quarter of 1998 were 3% higher than the
comparable period of 1997. Excluding the unfavorable impact of foreign currency
translation, revenues would have increased 6%, primarily driven by growth at
Pratt & Whitney and Carrier.
Financing revenues and other income, net, increased $39 million in the first
quarter of 1998 compared to the same period of 1997 primarily due to the
settlement of a contract dispute with the U.S. Government.
Gross margin as a percentage of sales increased five-tenths of a percentage
point in the first quarter of 1998 compared to the same period of 1997 due to
improvements at Pratt & Whitney, UT Automotive and Flight Systems.
Research and development expenses increased $37 million (14%) in the first
quarter of 1998 compared to 1997. The increase was due to higher expenses in
all segments, but principally at Pratt & Whitney. As a percentage of sales,
research and development was 5.1% in the first quarter of 1998 compared to 4.6%
in the same period of 1997. Research and development expenses in 1998 are
expected to increase from 1997, but are expected to be approximately 5% of
sales.
Selling, general and administrative expenses increased $29 million (4%) in
the first quarter of 1998 compared to 1997 due to increases in most segments.
As a percent of sales, these expenses increased to 12.1% in the first quarter of
1998 from 11.9% in the same period of 1997, due to increases at Otis, UT
Automotive and Flight Systems.
The effective income tax rate for the first quarter of 1998 was 31.9%,
compared to 33% for the first quarter of 1997. The Corporation has continued
to reduce its effective income tax rate by implementing tax reduction
strategies.<PAGE>
<PAGE> 10
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
Revenues and operating profits of the Corporation's principal business
segments for the quarters ended March 31, 1998 and 1997 are as follows (in
millions of dollars):
<TABLE><CAPTION>
Operating
Revenues Operating Profits Profit Margin
1998 1997 1998 1997 1998 1997
<S> <C> <C> <C> <C> <C> <C>
Quarter Ended
March 31,
Otis $ 1,322 $ 1,368 $ 98 $ 131 7.4% 9.6%
Carrier 1,498 1,387 18 70 1.2% 5.0%
UT Automotive 729 741 49 31 6.7% 4.2%
Pratt & Whitney 1,916 1,719 293 182 15.3% 10.6%
Flight Systems 676 735 65 71 9.6% 9.7%
</TABLE>
Otis revenues decreased 3% in the first quarter of 1998 compared to the first
quarter of 1997. Excluding the unfavorable impact of foreign currency
translation, revenues would have increased 2% due to increases in Europe and
North America largely offset by declines in the Asia Pacific region.
Otis operating profits decreased $33 million (25%) in the first quarter of
1998 compared to the first quarter of 1997, largely due to charges related to
salaried workforce reductions and the consolidation of manufacturing and
engineering facilities. Excluding these charges, 1998 operating profits
increased, reflecting improvement in Europe and North America partially offset
by declines in the Asia Pacific region and the unfavorable impact of foreign
currency translation.
Carrier revenues increased 8% in the first quarter of 1998 compared to the
first quarter of 1997. Excluding the unfavorable impact of foreign currency
translation, revenues would have increased 13%. The increase in revenues was
due to the impact of 1997 acquisitions and increases in North America, Europe
and transport refrigeration operations, partially offset by declines in the Asia
Pacific region.
Carrier operating profits decreased $52 million (74%) in the first quarter of
1998 compared to the first quarter of 1997 due to charges related to workforce
reductions, plant closures and implementation of a new manufacturing strategy in
the rotary chiller business. Excluding these charges, 1998 operating profits
increased, reflecting improvements in transport refrigeration operations, Europe
and the impact of 1997 acquisitions which were partially offset by declines in
the Asia Pacific region and the unfavorable impact of foreign currency
translation.
UT Automotive revenues for the first quarter of 1998 decreased 2% compared to
the first quarter of 1997 due to the unfavorable impact of foreign currency
translation, which was mostly offset by an increase in Europe. Revenues in the
interiors and North American electrical businesses were essentially flat.
UT Automotive operating profits increased $18 million (58%) in the first
quarter of 1998 compared to the first quarter of 1997 reflecting improvements in
all businesses.<PAGE>
<PAGE> 11
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
Pratt & Whitney revenues increased 11% the first quarter of 1998 compared to
the first quarter of 1997. The 1998 increase reflects the settlement of a
contract dispute with the U.S. Government and higher volumes in the government
business and the commercial engine overhaul and repair business. Excluding the
favorable impact of the contract dispute settlement with the U.S. Government,
revenues increased 7%.
Pratt & Whitney operating profits increased $111 million (61%) in the first
quarter of 1998 compared to the first quarter of 1997, reflecting the settlement
of a contract dispute with the U.S. Government and strong results in the
government business partially offset by higher research and development
spending. Excluding the favorable impact of the contract dispute settlement
with the U.S. Government, operating profits increased 22%.
Flight Systems revenues decreased 8% in the first quarter of 1998 compared to
the first quarter of 1997. Revenue increases at Hamilton Standard in the first
quarter of 1998 were more than offset by lower revenues at Sikorsky due to the
timing of helicopter deliveries.
Flight Systems operating profits decreased $6 million (8%) in the first
quarter of 1998 compared to the first quarter of 1997 as improvements at
Hamilton Standard were more than offset by lower volumes at Sikorsky, due to the
timing of helicopter deliveries, and higher research and development spending at
both businesses.<PAGE>
<PAGE> 12
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
FINANCIAL POSITION AND LIQUIDITY
Management assesses the Corporation's liquidity in terms of its overall
ability to generate cash to fund its operating and investing activities.
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>
Quarter Ended
March 31,
In Millions of Dollars 1998 1997
<S> <C> <C>
Operating Activities
Net cash flows provided by operating $ 558 $ 509
activities
Investing Activities
Capital expenditures (155) (161)
Acquisitions of business units (235) (46)
Dispositions of business units - 26
(Increase) decrease in customer financing (84) 28
assets, net
Financing Activities
Common Stock repurchase (89) (145)
Decrease in total debt (52) (40)
Decrease in net debt - (178)
</TABLE>
Cash flows provided by operating activities were $558 million during the
first quarter of 1998 compared to $509 million for the first quarter of 1997.
The improvement resulted primarily from improved operating performance.
Cash flows used in investing activities were a use of funds of $439 million
during the first quarter of 1998 compared to a use of $110 million in the first
quarter of 1997. Capital expenditures in first quarter of 1998 were $155
million, a $6 million decrease from the corresponding period of 1997. The
Corporation expects 1998 full year capital spending to be moderately higher than
1997. The Corporation invested $235 million in the acquisition of businesses,
including Hamilton Standard's acquisition of a French aerospace components
manufacturer and Carrier's investment in an air conditioning manufacturer in the
Philippines. Customer financing activity was a net use of cash of $84 million
in the first quarter of 1998 compared to a net source of cash of $28 million in
the first quarter of 1997 as a result of first quarter 1998 funding for an
Asian airline customer. While the Corporation expects that customer financing
activity will be a net use of cash in 1998, 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 March 31, 1998 were approximately
$1.1 billion.<PAGE>
<PAGE> 13
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
The Corporation repurchased $89 million of common stock, representing one
million shares, in the first quarter of 1998 under previously announced stock
repurchase programs. Share repurchase continues to be a significant use of the
Corporation's strong cash flows and serves to offset the dilutive effect
resulting from the issuance of stock under stock-based employee benefit
programs.
Other selected financial data is as follows:
<TABLE><CAPTION>
March 31, December 31, March 31,
In Millions of Dollars 1998 1997 1997
<S> <C> <C> <C>
Cash and cash equivalents $ 703 $ 755 $ 1,265
Total debt 1,563 1,615 1,745
Net debt (total debt less cash) 860 860 480
Shareowners' equity 4,236 4,073 4,239
Debt-to-total capitalization 27% 28% 29%
Net debt-to-total capitalization 17% 17% 10%
</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> 14
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
YEAR 2000
The Corporation continues to assess its exposure related to the impact of the
Year 2000 date issue which is attributable to the fact that many computer
programs use only two digits to identify a year in a date field. The
Corporation's products and key financial and operational systems are being
reviewed and, where required, detailed plans have been, or are being, developed
and implemented on a schedule intended to permit the Corporation's computer
systems and products to continue to function properly. The Year 2000 date
conversion effort is expected to increase costs in 1998, 1999 and 2000. Based
on the information obtained to date, management does not expect these conversion
costs will have a material adverse impact on the Corporation's financial
position, results of operations or cash flows. The schedule for completion and
the estimated conversion costs are based on management's estimates, which
include assumptions of future events, including items such as availability of
qualified resources. The Corporation could be adversely impacted by the Year
2000 date issue if the conversion schedule and cost estimates for its internal
systems are not met or if suppliers, customers and other businesses do not
address this issue successfully. Management continues to assess these risks in
order to reduce the impact on the Corporation.
SAFE HARBOR STATEMENT
This report on Form 10-Q contains statements which, to the extent they are
not historical fact, constitute "forward looking statements" under the
securities laws. All forward looking statements involve risks, uncertainties
and other factors that may cause the actual results, performance and
achievements of the Corporation to differ materially from those contemplated or
projected, forecasted, estimated, budgeted, expressed or implied by or in such
forward looking statements. The forward looking statements in this document are
intended to be subject to the safe harbor protection provided under the
securities laws.
For additional information identifying economic, political, climatic,
currency, regulatory, technological, competitive and some other important
factors which may affect the Corporation's operations, products and markets and
could cause actual results to vary materially from those anticipated in the
forward looking statements, see the Corporation's Securities and Exchange
Commission filings, including, but not limited to, the discussion included in
the Business section of the Corporation's 1997 Annual Report on Form 10-K under
the headings "Description of Business by Industry Segment" and "Other Matters
Relating to the Corporation's Business as a Whole".<PAGE>
<PAGE> 15
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
Part II - Other Information
Item 1 - Legal Proceedings
As previously reported, the Department of Defense issued a contracting officer's
"final decision" in December 1996 with respect to Pratt & Whitney's government
contracts accounting practices for aircraft engine parts produced by foreign
companies under certain commercial engine collaboration programs. The final
decision states that the Corporation failed to comply with various accounting
requirements incorporated in its contracts with the government. The final
decision covered the years 1984-95, inclusive, and claimed contract damages of
$260.3 million, of which $102.7 million is interest. This matter was initially
investigated by the U.S. Department of Justice, which closed its investigation
in 1996. 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 ("ASBCA"). In March
1998, the matter was tried before an ASBCA judge. The parties are currently
scheduled to complete post-trial briefing in October, 1998. An ASBCA decision
is not expected for some months thereafter. The Corporation filed a
counterclaim against the government in the amount of $42 million. The
government has reserved its rights to file additional claims for 1996 (and later
years if the accounting practices are unchanged) plus additional interest.
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 first quarter of 1998. For a description of previously reported
legal proceedings, refer to Part 1, Item 3 - Legal Proceedings of the
Corporation's Annual Report on Form 10-K for calendar year 1997.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits:
(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 March 31, 1998.<PAGE>
<PAGE> 16
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: April 28, 1998 By: /s/ Jay L. Haberland
Jay L. Haberland
Vice President, Controller and
Acting Chief Financial Officer
Dated: April 28, 1998 By: /s/ William H. Trachsel
William H. Trachsel
Vice President and Secretary<PAGE>
<PAGE>
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
EXHIBIT INDEX
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>
<TABLE>
Exhibit 12
<CAPTION>
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Quarter Ended
March 31,
In Millions of Dollars 1998 1997
<S> <C> <C>
Fixed Charges:
Interest on indebtedness $ 49 $ 48
Interest capitalized 3 3
One-third of rents* 21 22
Total Fixed Charges $ 73 $ 73
Earnings:
Income before income taxes and minority $ 411 $ 377
interests
Fixed charges per above 73 73
Less: interest capitalized (3) (3)
70 70
Amortization of interest capitalized 8 10
Total Earnings $ 489 $ 457
Ratio of Earnings to Fixed Charges 6.70 6.26
* Reasonable approximation of the interest factor.
/TABLE
<PAGE>
<PAGE>
Exhibit 15
April 28, 1998
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
April 22, 1998 (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>
This schedule contains summary financial information extracted from the
Condensed Consolidated Balance Sheet at March 31, 1998 (Unaudited) and the
Condensed Consolidated Statement of Operations for the quarter ended March 31,
1998 (Unaudited) and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 703
<SECURITIES> 0
<RECEIVABLES> 4,453
<ALLOWANCES> 363
<INVENTORY> 3,307
<CURRENT-ASSETS> 9,599
<PP&E> 10,535
<DEPRECIATION> 6,406
<TOTAL-ASSETS> 17,340
<CURRENT-LIABILITIES> 7,692
<BONDS> 1,255
452
0
<COMMON> 2,569
<OTHER-SE> 1,667
<TOTAL-LIABILITY-AND-EQUITY> 17,340
<SALES> 4,725
<TOTAL-REVENUES> 6,111
<CGS> 3,787
<TOTAL-COSTS> 4,612
<OTHER-EXPENSES> 308
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 49
<INCOME-PRETAX> 411
<INCOME-TAX> 131
<INCOME-CONTINUING> 260
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 260
<EPS-PRIMARY> 1.10<F1>
<EPS-DILUTED> 1.04<F1>
<FN>
<F1>The [EPS-PRIMARY] amount represents BASIC earnings per share and the
[EPS-DILUTED] amount represents DILUTED earnings per share in accordance
with Statement of Financial Accounting Standards No. 128, Earnings Per
Share.
</FN>
</TABLE>
