<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, 1999
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, 1999 there were 478,740,903 shares of Common Stock outstanding.
<PAGE>
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONTENTS OF QUARTERLY REPORT ON FORM 10-Q
Quarter Ended September 30, 1999
Page
Part I - Financial Information
Item 1. Financial Statements:
Condensed Consolidated Statement of 1
Operations for the quarters ended
September 30, 1999 and 1998
Condensed Consolidated Statement of 2
Operations for the nine months ended
September 30, 1999 and 1998
Condensed Consolidated Balance Sheet at 3
September 30, 1999 and December 31, 1998
Condensed Consolidated Statement of Cash 4
Flows for the nine months ended September
30, 1999 and 1998
Notes to Condensed Consolidated Financial 5
Statements
Report of Independent Accountants 12
Item 2. Management's Discussion and Analysis of 13
Results of Operations and Financial Position
Part II - Other Information
Item 1. Legal Proceedings 21
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 22
Exhibit Index 23
<PAGE>
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
<TABLE>
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<CAPTION>
Quarter Ended
September 30,
In Millions (except per share amounts) 1999 1998
<S> <C> <C>
Revenues:
Product sales $ 4,581 $ 4,360
Service sales 1,487 1,350
Financing revenues and other income
(loss), net 59 (27)
6,127 5,683
Costs and expenses:
Cost of products sold 3,872 3,361
Cost of services sold 985 841
Research and development 306 288
Selling, general and administrative 786 639
Interest 63 48
6,012 5,177
Income from continuing operations before
income taxes and minority interests 115 506
Income taxes 2 159
Minority interests 23 21
Income from continuing operations 90 326
Discontinued operation:
Income from operations of discontinued
UT Automotive unit (net of applicable
income tax provision of $12 in 1998) - 22
Net income $ 90 $ 348
Earnings per share of Common Stock:*
Basic:
Continuing operations $ .17 $ .70
Discontinued operation - .05
Net earnings $ .17 $ .75
Diluted:
Continuing operations $ .16 $ .66
Discontinued operation - .04
Net earnings $ .16 $ .70
Dividends per share of Common Stock:* $ .20 $ .18
Average number of shares outstanding:*
Basic 480 454
Diluted 494 493
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
* Reflects two-for-one stock split effective May 1999 as described in Notes to
Condensed Consolidated Financial Statements.
1
<PAGE> 2
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
<TABLE>
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
In Millions (except per share amounts) 1999 1998
<S> <C> <C>
Revenues:
Product sales $ 13,158 $ 12,802
Service sales 4,276 3,976
Financing revenues and other income,
net 176 44
17,610 16,822
Costs and expenses:
Cost of products sold 10,447 9,973
Cost of services sold 2,734 2,499
Research and development 886 844
Selling, general and administrative 2,180 1,977
Interest 175 140
16,422 15,433
Income from continuing operations before
income taxes and minority interests 1,188 1,389
Income taxes 334 436
Minority interests 69 65
Income from continuing operations 785 888
Discontinued operation:
Income from operations of discontinued
UT Automotive unit (net of applicable
income tax provisions of $28 in 1999
and $42 in 1998) 40 80
Gain on sale of UT Automotive unit (net
ofapplicable income tax provision of
$112) 650 -
Net income $ 1,475 $ 968
Earnings per share of Common Stock:*
Basic:
Continuing operations $ 1.64 $ 1.89
Discontinued operation .09 .18
Gain on sale of discontinued operation 1.40 -
Net earnings $ 3.13 $ 2.07
Diluted:
Continuing operations $ 1.55 $ 1.78
Discontinued operation .08 .16
Gain on sale of discontinued operation 1.29 -
Net earnings $ 2.92 $ 1.94
Dividends per share of Common Stock:* $ .56 $ .515
Average number of shares outstanding:*
Basic 463 457
Diluted 504 496
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
* Reflects two-for-one stock split effective May 1999 as described in Notes to
Condensed Consolidated Financial Statements.
2
<PAGE> 3
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
<TABLE>
CONDENSED CONSOLIDATED BALANCE SHEET
<CAPTION>
<S> <C> <C>
September 30, December 31,
In Millions 1999 1998
(Unaudited)
</TABLE>
Assets
<TABLE>
<CAPTION>
<S> <C> <C>
Cash and cash equivalents $ 1,115 $ 550
Accounts receivable, net 4,170 3,417
Inventories and contracts in progress, net 3,504 3,191
Future income tax benefits 1,295 1,222
Other current assets 232 161
Net investment in discontinued operation - 1,287
Total Current Assets 10,316 9,828
Fixed assets 10,178 9,549
Less accumulated depreciation (6,009) (5,994)
4,169 3,555
Goodwill 5,338 1,417
Other assets 3,257 2,968
Total Assets $ 23,080 $ 17,768
</TABLE>
Liabilities and Shareowners' Equity
<TABLE>
<S> <C> <C>
Long-term debt currently due $ 267 $ 99
Short-term borrowings 411 504
Accounts payable 1,788 1,860
Accrued liabilities 5,675 4,719
Total Current Liabilities 8,141 7,182
Long-term debt 2,844 1,570
Future pension and postretirement benefit
obligations 1,959 1,682
Other long-term liabilities 2,585 2,500
Series A ESOP Convertible Preferred Stock 811 836
ESOP deferred compensation (362) (380)
449 456
Shareowners' Equity:
Common Stock 4,184 2,708
Treasury Stock (2,914) (3,117)
Retained earnings 6,516 5,411
Accumulated other non-shareowner
changes in equity (684) (624)
7,102 4,378
Total Liabilities and Shareowners' Equity $ 23,080 $ 17,768
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
3
<PAGE> 4
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
<TABLE>
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
In Millions 1999 1998
<S> <C> <C>
Operating activities:
Income from continuing operations $ 785 $ 888
Adjustments to reconcile income from
continuing operations to net cash
flows provided by operating
activities:
Depreciation and amortization 589 544
Deferred income tax benefit (199) (255)
Change in:
Accounts receivable (259) (265)
Inventories and contracts in
progress 211 162
Accounts payable and accrued
liabilities 270 536
Other current assets (42) 196
Other, net 239 67
Net cash flows provided by
operating activities 1,594 1,873
Investing activities:
Capital expenditures (485) (403)
Acquisitions of business units (2,612) (1,104)
Disposition of business unit 43 -
Increase in customer financing
assets, net (132) (183)
Other, net 67 28
Net cash flows used in investing
activities (3,119) (1,662)
Financing activities:
Issuance of long-term debt 1,399 402
Repayment of long-term debt (527) (98)
Increase (decrease) in short-term
borrowings, net (275) 159
Dividends paid on Common Stock (258) (235)
Common Stock repurchase (549) (502)
Other, net 165 63
Net cash flows used in financing
activities (45) (211)
Net cash flows provided (used) by
discontinued operation 2,159 (91)
Effect of foreign exchange rate changes
on Cash and cash equivalents (24) (6)
Net increase (decrease) in Cash
and cash equivalents 565 (97)
Cash and cash equivalents, beginning of
year 550 655
Cash and cash equivalents, end of
period $ 1,115 $ 558
Supplemental Disclosure of Cash Flow
Information:
Non-cash investing activities:
The Corporation issued $1.9 billion of Treasury Stock in
connection with the acquisition of Sundstrand Corporation.
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
4
<PAGE> 5
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Condensed Consolidated Financial Statements at September 30, 1999 and for
the quarters and nine-month periods ended September 30, 1999 and 1998 are
unaudited, but in the opinion of management 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.
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. Total non-shareowner changes in equity were $101 million and
$1,415 million in the third quarter and nine-month period of 1999, compared to
$367 million and $940 million in the same periods of 1998. The nine-month
period in 1999 includes the gain recognized on the sale of UT Automotive
discussed below.
Recent Developments
Dispositions
On May 4, 1999, the Corporation sold its UT Automotive unit to Lear
Corporation for $2.3 billion, which resulted in a source of cash of $2.159
billion and an after-tax gain of $650 million during the nine-month period. UT
Automotive net assets appear in the Condensed Consolidated Balance Sheet at
December 31, 1998 as a net investment in a discontinued operation and related
results, through the date of disposition, as income from operations of the
discontinued UT Automotive unit in the Condensed Consolidated Statement of
Operations for the nine-month periods ended September 30, 1999 and 1998.
Acquisitions
On June 10, 1999, the Corporation completed the acquisition of Sundstrand
Corporation ("Sundstrand") for approximately $4.3 billion, including debt
assumed of approximately $500 million. Under the terms of the merger
agreement, each outstanding share of Sundstrand Common Stock was exchanged for
$35 in cash and .5580 shares of the Corporation's Common Stock, 30 million
shares in aggregate. The merger has been accounted for as a purchase. The
Corporation financed the cash portion of the purchase price with the after-tax
cash proceeds from the sale of its UT Automotive unit discussed above and
through the issuance of debt discussed below. In 1998, Sundstrand had $2.0
billion in revenues and $226 million in net income.
Sundstrand was merged with a wholly-owned subsidiary of United Technologies
Corporation and was renamed Hamilton Sundstrand Corporation, which is part of
the Flight segment. In connection with the merger, the Corporation has
undertaken actions to combine the operations of the newly merged companies,
including consolidating headquarters, closing facilities, relocating employees
and reducing workforce. The costs associated with those actions that directly
impact Sundstrand facilities and employees are being accounted for as an
adjustment to the purchase price.
5
<PAGE> 6
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
In addition to acquiring Sundstrand, the Corporation completed acquisitions
during the first nine months of 1999 for cash consideration of approximately
$740 million. Acquisition spending for the third quarter of 1999 totaled
approximately $540 million, excluding debt assumed, most of which relates to
Carrier's purchase of International Comfort Products ("ICP"). ICP is a
manufacturer and marketer of heating and air conditioning equipment primarily
for North American customers.
The assets and liabilities of the acquired businesses were accounted for
under the purchase method and, including Sundstrand, resulted in $4 billion of
goodwill. Goodwill is being amortized over estimated useful lives that range
from 10 to 40 years. The results of operations of all acquired businesses have
been included in the Consolidated Statements of Operations beginning on the
effective date of each acquisition. The pro forma results for the nine-months
ended September 30, 1999 and 1998, assuming these acquisitions had been made at
the beginning of the year, would not be materially different from reported
results.
Issuance of Long-term Debt
In May 1999, the Corporation issued $400 million of 6.5% unsubordinated,
unsecured, nonconvertible notes (the "$400 million Notes") under a shelf
registration statement filed with the Securities and Exchange Commission in
April 1999. The $400 million Notes are due June 1, 2009, with interest payable
semiannually commencing December 1, 1999. The Corporation may redeem all or any
portion of the $400 million Notes, at any time, at a formula-based price
determined at the time of redemption. Proceeds from this issuance were used for
general corporate purposes and to finance a portion of the acquisition of
Sundstrand Corporation.
In September 1999, the Corporation issued $1 billion of debt under shelf
registrations filed with the Securities and Exchange Commission in April and
July 1999, fully utilizing the capacity of the shelf. Proceeds from the
issuances were used for general corporate purposes. Details of the debt issued
in September 1999 follow:
. $200 million of 6.4% unsubordinated, unsecured, nonconvertible notes (the
"$200 million Notes") due September 15, 2001, with interest payable
semiannually commencing March 15, 2000.
. $250 million of 7.0%, unsubordinated, unsecured, nonconvertible notes (the
"$250 million Notes") due September 15, 2006, with interest payable
semiannually commencing March 15, 2000.
. $550 million of 7.5%, unsubordinated, unsecured, nonconvertible notes (the
"$550 million Notes") due September 15, 2029, with interest payable
semiannually commencing March 15, 2000.
The Corporation may redeem all or any portion of the $250 million Notes and
$550 million Notes, at any time, at formula-based prices determined at the time
of redemption.
Shelf Registration Statement
On October 14, 1999, the Corporation filed a shelf registration statement
with the Securities and Exchange Commission, which upon effectiveness will allow
the issuance of up to $1 billion of debt securities. Proceeds from the
potential issuance of debt securities would be used for general corporate
purposes, which may include acquisitions and repurchases of the Corporation's
common stock, and could result in additional interest expense and higher levels
of debt to capital in future periods.
Stock Split
On April 30, 1999, the Corporation announced a two-for-one stock split which
was paid on May 17, 1999 in the form of a stock dividend to shareowners of
record at the close of business on May 7, 1999. All common share and per share
6
<PAGE> 7
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
information in the Condensed Consolidated Financial Statements reflect the stock
split.
Cost Reduction Actions
1999 Actions
During 1999, the Corporation's operating segments initiated a variety of
actions aimed at rationalizing manufacturing processes and improving the overall
level of organizational efficiency, including the removal of management layers.
Total 1999 restructuring charges and other costs are targeted to approximate
$1.15 billion (pre-tax) and would result in net reductions of more than 14,500
employees and more than 8 million square feet of facilities. The charges and
other costs would be largely offset by the $650 million after-tax gain
associated with the sale of UT Automotive in May 1999. Savings are expected to
build over a three-year period to recurring pre-tax savings of approximately
$750 million annually. Significant 1999 actions by operating segment include:
. Otis-Facility closures and workforce reductions worldwide.
. Carrier-Consolidation of North American and World headquarters; worldwide
facility closures and workforce reductions.
. Pratt & Whitney-Workforce reductions; consolidation of military engine
operations, turbine manufacturing operations and engine repair business.
. Flight Systems-Facility closures and concentration of functions in
Connecticut; workforce reductions; rationalization of customer support.
Through September 30, 1999, the Corporation spent $95 million after tax on
restructuring and other actions and recorded pretax charges totaling $634
million, $550 million of which was recorded in the third quarter. The charges
were recorded across each of the Corporation's operating segments as follows:
<TABLE>
Quarter Ended Nine-Months Ended
In Millions September 30, 1999 September 30, 1999
<S> <C> <C>
Otis $ 73 $ 74
Carrier 123 124
Pratt & Whitney 265 333
Flight Systems 92 106
Other (3) (3)
$ 550 $ 634
</TABLE>
7
<PAGE> 8
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
The following table summarizes the costs associated with the 1999
restructuring actions:
<TABLE>
Severance Exit & Lease Restructuring
and Related Asset Termination Environmental Related Period
In Millions Costs Write-downs Costs & Other Costs Sub-total Charges Total
<S> <C> <C> <C> <C> <C> <C> <C>
1999 Charges
Staff reductions $ 285 - - - $ 285 $ 44 $ 329
Facility closures 84 $ 121 $ 31 $ 58 294 11 305
Total Charges 369 121 31 58 579 55 634
Utilized through
9/30/99 104 121 - 1 226 55 281
Remaining $ 265 $ 0 $ 31 $ 57 $ 353 $ 0 $ 353
</TABLE>
The year-to-date 1999 charges were recorded in cost of sales (93%) and
selling, general, and administrative expenses (7%), and relate to, but do not
fully cover:
. Workforce reductions of approximately 11,200 employees, primarily at Pratt &
Whitney, Carrier, and Otis.
. Plant closings that will result in the reduction of approximately 7 million
square feet of facilities, primarily at Pratt & Whitney and Carrier.
. Charges associated with the write down of property, plant, and equipment to
fair value, primarily at Pratt & Whitney and Carrier, where fair value is
based on appraised value.
Approximately 3,100 employees were terminated as of September 30, 1999. The
remaining terminations and plant closings are planned to be substantially
completed within the next twelve months.
Over the next twelve months, the Corporation expects to incur over $300
million of additional period charges that are not currently accruable,
associated with the restructuring actions undertaken through the third quarter
of 1999. The 1999 actions are expected to result in savings in the next year
that will offset additional costs incurred, resulting in little net benefit in
2000. As described above, additional savings are expected in later years.
1998 Actions
During 1998, the Corporation recorded pre-tax charges totaling $320 million
related to ongoing efforts to reduce costs of its continuing operations in
response to an increasingly competitive business environment. Charges were
recorded in each of the Corporation's operating segments with the majority
relating to the Pratt & Whitney, Otis and Carrier operations. The amounts were
primarily recorded in cost of sales and relate to workforce reductions of
approximately 7,500 employees, plant closings and charges associated with asset
impairments. Approximately 6,400 employees were terminated as of September 30,
1999. The remaining terminations and plant closings are planned to be completed
by December of this year.
8
<PAGE> 9
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
The following table summarizes the costs associated with these actions:
<TABLE>
Severance
and Related Other Exit Asset
In Millions Costs Costs Write-downs Total
<S> <C> <C> <C> <C>
1998 Charges $ 266 $ 5 $ 49 $ 320
Utilized through 9/30/99 233 4 49 286
Remaining $ 33 $ 1 $ 0 $ 34
</TABLE>
Contingent Liabilities
There has been no significant change in the Corporation's material
contingencies during 1999. Summarized below, however, are 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 1998, as amended to reflect UT
Automotive as a discontinued operation (see the Corporation's Current Report on
Form 8-K filed on June 11, 1999).
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. 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. Where no amount within a range of estimates is
more likely, the minimum is accrued. 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 maintains property insurance with a number of insurance
companies. Litigation is continuing against one of the Corporation's historical
property insurers seeking coverage for environmental costs incurred at certain
facilities. 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.
Management believes that losses materially in excess of amounts accrued are not
reasonably possible.
U.S. Government
The Corporation is now, and in light of the current government contracting
environment believes that it will be, the subject of one or more government
investigations. If the Corporation or one of its business units was 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.
9
<PAGE> 10
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
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 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 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 impact on the Corporation's financial position, results of
operations or cash flows.
10
<PAGE> 11
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
<TABLE>
<CAPTION>
Earnings Per Share
Quarter Ended Nine Months Ended
September 30, September 30,
<S> <C> <C> <C> <C>
In Millions (except per share amounts) 1999 1998 1999 1998
Income from continuing operations $ 90 $ 326 $ 785 $ 888
Less: ESOP Stock dividends (9) (8) (25) (24)
Basic earnings from continuing
operations 81 318 760 864
ESOP Stock adjustment 0** 7 21 20
Diluted earnings from continuing
operations $ 81 $ 325 $ 781 $ 884
Income from discontinued operation,
net of tax $ - $ 22 $ 40 $ 80
Gain on sale of discontinued
operation, net of tax - - 650 -
$ - $ 22 $ 690 $ 80
Net income $ 90 $ 348 $ 1,475 $ 968
Less: ESOP Stock dividends (9) (8) (25) (24)
Basic earnings 81 340 1,450 944
ESOP Stock adjustment 0** 7 21 20
Diluted earnings $ 81 $ 347 $ 1,471 $ 964
Average shares:*
Basic 480 454 463 457
Stock awards 14 12 14 12
ESOP Stock 0** 27 27 27
Diluted 494 493 504 496
Earnings per share of Common
Stock:*
Basic:
Continuing operations $ .17 $ .70 $ 1.64 $ 1.89
Discontinued operaton - .05 .09 .18
Gain on sale of discontinued
operation - - 1.40 -
Net earnings $ .17 $ .75 $ 3.13 $ 2.07
Diluted:
Continuing operations $ .16 $ .66 $ 1.55 $ 1.78
Discontinued operation - .04 .08 .16
Gain on sale of discontinued
operation - - 1.29 -
Net earnings $ .16 $ .70 $ 2.92 $ 1.94
</TABLE>
*Reflects two-for-one stock split effective May 1999 as described in Notes
to Condensed Consolidated Financial Statements.
**ESOP stock adjustment is antidilutive and is not considered in the Earnings
per share calculation for the quarter ended September 30, 1999.
11
<PAGE> 12
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, 1999 and 1998, PricewaterhouseCoopers LLP
("PricewaterhouseCoopers") reported that they have applied limited procedures in
accordance with professional standards for a review of such information.
However, their separate report dated October 19, 1999 appearing below, states
that they did not audit and they do not express an opinion on that unaudited
condensed consolidated financial information. PricewaterhouseCoopers 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.
PricewaterhouseCoopers 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 a registration statement prepared or certified by
PricewaterhouseCoopers 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, 1999 and 1998, the condensed
consolidated statement of cash flows for the nine months ended September 30,
1999 and 1998, and the condensed consolidated balance sheet as of September 30,
1999. 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 auditing standards generally accepted in the United States,
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 accounting principles generally accepted in the United States.
We previously audited in accordance with auditing standards generally
accepted in the United States, the consolidated balance sheet as of December 31,
1998, 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 21, 1999, except for Note 16, which is
as of May 20, 1999, 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, 1998, is
fairly stated in all material respects in relation to the consolidated balance
sheet from which it has been derived.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Hartford, Connecticut
October 19, 1999
12
<PAGE> 13
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 four principal operating
segments. Carrier and Otis serve customers in the commercial property and
residential housing industries. Pratt & Whitney and the Flight Systems segment,
which includes Sikorsky Aircraft and Hamilton Sundstrand, serve commercial and
government customers in the aerospace industry. As worldwide businesses, the
Corporation's 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.
The Asian economic downturn has significantly slowed growth in the region
since 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 than in the years prior to the
downturn. While recognizing that the Asian economic weakness is continuing,
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.
In early 1999, the Brazilian Real devalued significantly. This devaluation
had a destabilizing effect throughout the economies of Latin America and
contributed to a slowing of regional economic activity that is likely to
continue in the near term.
Worldwide airline profits, traffic growth and load factors have been reliable
indicators for new aircraft and after-market orders. Airline earnings have
recently been adversely impacted by rising fuel prices and lower ticket prices.
This erosion in earnings has resulted in a decrease in new orders for aerospace
products and cancellations or deferrals of existing orders throughout the
industry. The impact of a slowdown in the aviation industry will likely result
in lower manufacturing volume and after-market orders in the near term.
General aviation growth is closely tied to the overall health of the economy
and is correlated to corporate profits. The backlog in the general aviation
market continues to be strong. Prospects for growth in this market will be
contingent on future corporate earnings strength.
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.
and global defense spending. Customers, both U.S. and global, have ongoing
efforts to review and reprioritize research and procurement initiatives.
13
<PAGE> 14
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
RESULTS OF CONTINUING OPERATIONS
Consolidated revenues and margin percentages were as follows:
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
<S> <C> <C> <C> <C>
In Millions of Dollars 1999 1998 1999 1998
Sales $ 6,068 $ 5,710 $ 17,434 $ 16,778
Financing revenues and
other income (expense),
net 59 (27) 176 44
Revenues $ 6,127 $ 5,683 $ 17,610 $ 16,822
Gross margin % 20.0% 26.4% 24.4% 25.7%
</TABLE>
Consolidated revenues increased 8% and 5% in the third quarter and nine-month
period of 1999 compared to 1998, primarily due to growth at Carrier and Otis and
the acquisition of Sundstrand at Flight Systems.
Financing revenues and other income, net, increased $86 million and $132
million in the third quarter and nine-month period of 1999 compared to 1998. The
year-to-date 1998 results include the cost of Pratt & Whitney's repurchase of a
participant's interest in a commercial engine program and the settlement of a
contract dispute with the U.S. Government.
Gross margin as a percentage of sales decreased 6.4 percentage points and 1.3
percentage points in the third quarter and nine-month period of 1999 compared to
the same periods of 1998 due to restructuring charges recorded in cost of sales
in the third quarter of 1999. Excluding restructuring charges, gross margin as
a percentage of sales increased .9 percentage points and 1.1 percentage points
in the third quarter and nine-month period of 1999 compared to 1998.
Research and development spending increased $18 million (6%) and $42 million
(5%) in the third quarter and nine-month period of 1999 compared to 1998. The
increases relate principally to the inclusion of Sundstrand operations in the
Flight Systems segment in the third quarter of 1999. As a percentage of sales,
research and development was 5.0% and 5.1% in the third quarter and nine-month
period of 1999 and is expected to remain at approximately 5% of sales in 1999.
Selling, general and administrative expenses increased $147 million (23%) and
$203 million (10%) in the third quarter and nine-month period of 1999 compared
to 1998 due to increases at most operating segments. A portion of the increases
relate to third quarter 1999 restructuring. Excluding restructuring, selling,
general and administrative expenses increased 17% and 8% for the third quarter
and nine-month period of 1999 compared to 1998, due primarily to the impact of
acquisitons and related activity.
The effective income tax rate for the nine-month period of 1999 was 28.1%
compared to 31.4% for the nine-month period of 1998. Excluding the impact of
restructuring, which carries a combined effective rate of 37.1%, the 1999 tax
rate was 30.9%. The Corporation has continued to lower its effective income tax
rate by implementing tax reduction strategies.
14
<PAGE> 15
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
As described in the Notes to Condensed Consolidated Financial Statements, the
Corporation sold its UT Automotive unit to Lear Corporation in the second
quarter of 1999 for $2.3 billion and realized an after-tax gain of $650 million.
To utilize that gain in a manner that strengthens its core businesses, the
Corporation initiated significant restructuring and other cost reduction actions
in the second half of 1999.
The 1999 third and fourth quarter restructuring and other cost reduction
actions are aimed at further strengthening the competitive position of the
Corporation's businesses and focus on rationalizing manufacturing processes and
improving the overall level of organizational efficiency, including the removal
of management layers. The actions impact each of the Corporation's operating
segments and, combined with actions undertaken in the first half of the year,
are targeted to result in net reductions of more than 14,500 employees and over
8 million square feet of facilities. The associated restructuring charges
relate to severance and related costs, exit and lease termination costs, asset
write-downs, and environmental and other costs. Total 1999 restructuring charges
and other costs are targeted to approximate $1.15 billion (pre-tax), which is
more than the equivalent pre-tax gain recorded by the Corporation on the
divestiture ofits UT Automotive unit. The Corporation also expects to incur
additional related costs, that are not currently accruable, in 2000. The 1999
actions are expected to result in savings in the next year that will offset
additional costs incurred, resulting in little net benefit in 2000. Savings
are expected to build over a three-year period to recurring pre-tax savings of
approximately $750 million annually.
During 1999, the Corporation recorded pre-tax restructuring related charges
of $634 million, of which $550 million were recorded in the third quarter
related to actions discussed above. The 1999 charges have been recorded across
each of the Corporation's operating segments as follows: Otis - $74 million,
Carrier - $124 million, Pratt & Whitney - $333 million, Flight Systems - $106
million, and other - ($3) million. See the Notes to the Condensed Consolidated
Financial Statements for additional information on the Corporation's
restructuring programs.
Revenues, operating profits and operating profit margins of the Corporation's
principal operating segments for the quarters and nine-month periods ended
September 30, 1999 and 1998 are as follows (dollars in millions):
<TABLE>
<CAPTION>
Operating
Revenues Operating Profits Profit Margin
Quarter Ended September 30, 1999 1998 1999 1998 1999 1998
<S> <C> <C> <C> <C> <C> <C>
Otis $ 1,404 $ 1,375 $ 104 $ 147 7.4% 10.7%
Carrier 1,939 1,788 100 189 5.2% 10.6%
Pratt & Whitney 1,749 2,009 (4) 232 (0.2)% 11.5%
Flight Systems 1,129 654 40 73 3.5% 11.2%
Total segment 6,221 5,826 240 641 3.9% 11.0%
Eliminations and other (94) (143) (10) (31)
General corporate expenses - - (52) (56)
Consolidated $ 6,127 $ 5,683 178 554
Interest expense (63) (48)
Consolidated income from
continuing operations
before income taxes and
minority interests $ 115 $ 506
</TABLE>
15
<PAGE> 16
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
<TABLE>
Operating
Revenues Operating Profits Profit Margin
Nine Months Ended September 30,
1999 1998 1999 1998 1999 1998
<S> <C> <C> <C> <C> <C> <C>
Otis $ 4,146 $ 4,034 $ 420 $ 385 10.1% 9.5%
Carrier 5,478 5,164 425 402 7.8% 7.8%
Pratt & Whitney 5,753 5,899 560 773 9.7% 13.1%
Flight Systems 2,499 2,086 161 211 6.4% 10.1%
Total segment 17,876 17,183 1,566 1,771 8.8% 10.3%
Eliminations and other (266) (361) (26) (72)
General corporate expenses - - (177) (170)
Consolidated $ 17,610 $ 16,822 1,363 1,529
Interest expense (175) (140)
Consolidated income from
continuing operations
before income taxes and
minority interests $ 1,188 $ 1,389
</TABLE>
Otis revenues increased 2% and 3% in the third quarter and nine-month period
of 1999 compared to 1998. The increase in revenues was mostly due to increases
in North American operations. Foreign currency translation reduced revenues by
1% in the third quarter and nine-month period of 1999 compared to 1998.
Otis operating profits decreased $43 million (29%) in the third quarter and
increased $35 million (9%) in the nine-month period of 1999 compared to 1998.
The third quarter decrease was due to restructuring charges in the third quarter
of 1999 associated with worldwide facility closures and workforce reductions.
Excluding restructuring, operating profits increased in the third quarter and
nine-month period, reflecting improvement in all operations except Latin
American operations, which continue to face pressure from the devaluation of the
Real in Brazil and corresponding economic weakness. Excluding restructuring,
foreign currency translation reduced operating profits by 3% and 2% in the third
quarter and nine-month period of 1999.
Carrier revenues increased 8% and 6% in the third quarter and nine-month
period of 1999 compared to 1998. The increase in revenues was due primarily to
increases in North American and European operations, including the impact of the
recently acquired International Comfort Products and other acquisitions, partly
offset by declines in the Latin American operations. Foreign currency
translation reduced revenues by 2% in the third quarter and nine-month period of
1999 compared to 1998.
Carrier operating profits decreased $89 million (47%) in the third quarter
and increased $23 million (6%) in the nine-month period of 1999 compared to
1998. The third quarter decrease was due to restructuring charges in the third
quarter of 1999 related to consolidation of North American and World
headquarters, worldwide facility closures and worldwide workforce reductions.
Excluding restructuring, operating profits increased in the third quarter and
nine-month period of 1999 compared to 1998. The increases reflect improvement
in North American, European and Asia Pacific operations, including the impact of
the recently acquired International Comfort Products and other acquisitions.
Improvements for the quarter were offset by declines in the Latin American
operations, which remain weak as a result of the earlier devaluation of the Real
and pricing pressures. Excluding restructuring, foreign currency translation
reduced operating profits by 3% in the third quarter and nine-month period of
1999 compared to 1998.
16
<PAGE> 17
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
Pratt & Whitney revenues decreased 13% and 2% in the third quarter and nine-
month period of 1999 compared to 1998. The decreases reflect fewer military and
commercial engine shipments and lower commercial spare parts sales, partially
offset by an increase in the commercial overhaul and repair business. In
addition, year-to-date revenues in 1998 benefited from the settlement of a
contract dispute with the U.S. Government.
Pratt & Whitney operating profits decreased $236 million (102%) and $213
million (28%) in the third quarter and nine-month period of 1999 compared to
1998, primarily due to 1999 restructuring charges and a 1998 benefit from the
settlement of a contract dispute with the U.S. Government. 1999 restructuring
charges were $265 million in the third quarter and $333 million in the nine-
month period and related to workforce reductions, consolidation of military
engine operations, turbine manufacturing operations and the engine repair
business. 1998 restructuring charges related primarily to the elimination of
positions at Pratt & Whitney Canada. Excluding restructuring, operating profit
decreased in the third quarter and increased in the nine-month period of 1999.
Flight Systems revenues increased $475 million (73%) and $413 million (20%)
in the third quarter and nine-month period of 1999 compared to 1998. The
increase in revenues reflects the inclusion of Sundstrand's operations for the
entire third quarter of 1999, partially offset by the effect of lower helicopter
deliveries at Sikorsky.
Flight Systems operating profits decreased $33 million (45%) and $50 million
(24%) in the third quarter and nine-month period of 1999 compared to 1998, due
to restructuring charges of $92 million and $106 million in the third quarter
and nine-month period of 1999. The restructuring charges related to exiting
facilities and concentrating functions in Connecticut, reducing workforce, and
rationalizing customer support. Excluding restructuring, operating profits
increased $59 million and $48 million in the third quarter and nine-month period
of 1999 compared to 1998. The increases reflect inclusion of Sundstrand's
results in Hamilton Sundstrand, which more than offset declines at Sikorsky due
to lower helicopter deliveries.
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, acquisitions,
customer financing requirements, Common Stock repurchases, adequate bank lines
of credit and financial flexibility to attract long-term capital with
satisfactory terms.
17
<PAGE> 18
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
Set forth below are selected key cash flow data:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
In Millions 1999 1998
<S> <C> <C>
Operating Activities
Net cash flows provided by operating
activities $ 1,594 $ 1,873
Investing Activities
Capital expenditures (485) (403)
Acquisitions of business units (2,612) (1,104)
Increase in customer financing assets, net (132) (183)
Financing Activities
Common Stock repurchase (549) (502)
Increase in total debt 1,349 483
Increase in net debt 784 580
Net cash flows provided by (used in)
discontinued operation 2,159 (91)
</TABLE>
Cash flows provided by operating activities were $1,594 million during the
first nine months of 1999 compared to $1,873 million during the first nine
months of 1998. The decrease resulted from higher levels of working capital,
related to restructuring accruals, partly offset by improved operating
performance.
Cash flows used in investing activities were $3,119 million during the first
nine months of 1999 compared to a use of $1,662 million in the first nine months
of 1998. Capital expenditures in the nine-month period of 1999 were $485
million, an $82 million increase from the corresponding period of 1998. The
Corporation invested approximately $740 million in the acquisition of
businesses, in addition to the investment in Sundstrand Corporation. 1999
acquistion cash spending, excluding Sundstrand, is expected to exceed $1 billion
for the year and could be in the range of $1.5 billion. Customer financing
activity was a net use of cash of $132 million in the nine-month period of 1999,
compared to a $183 million net use of cash in 1998. While the Corporation
expects that 1999 customer financing activity will be a net use of funds,
actual funding is subject to usage under existing customer financing
commitments during the remainder of the year. The Corporation's total
commitments to finance or arrange financing of commercial aircraft and related
equipment at September 30, 1999 were approximately $1.3 billion.
As described in Notes to Condensed Consolidated Financial Statements, on
October 14, 1999 the Corporation filed a shelf registration statement with the
Securities and Exchange Commission, which upon effectiveness will allow the
issuance of up to $1.0 billion of debt securities.
Also described in Notes to Condensed Consolidated Financial Statements, the
Corporation issued $1.4 billion of unsubordinated, unsecured, nonconvertible
notes in the first 9 months of 1999. The proceeds were used for general
corporate purposes and to finance a portion of the acquisition of Sundstrand
Corporation.
The Corporation repurchased $549 million of Common Stock, representing 8.3
million shares, in the first nine months of 1999 under previously announced
share repurchase programs. The share repurchase program continues to be a use of
the Corporation's cash flows and has more than offset the dilutive effect
resulting from the issuance of stock under stock-based employee benefit
programs.
18
<PAGE> 19
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
As described in Notes to Condensed Consolidated Financial Statements, on May
4, 1999, the Corporation sold its UT Automotive unit to Lear Corporation. The
UT Automotive operation and subsequent sale generated a $2,159 million source of
cash in the nine-month period.
Other selected financial data are as follows:
<TABLE><CAPTION>
September 30, December 31, September 30,
In Millions of Dollars 1999 1998 1998
<S> <C> <C> <C>
Cash and cash equivalents $ 1,115 $ 550 $ 558
Total debt 3,522 2,173 2,050
Net debt (total debt less cash) 2,407 1,623 1,492
Shareowners' equity 7,102 4,378 4,377
Debt-to-total capitalization 33% 33% 32%
Net debt-to-total capitalization 25% 27% 25%
</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. Management anticipates the level of debt-to-capital
will increase during the remainder of the year in order to satisfy its various
cash flow requirements, including acquisition spending and continued share
repurchases.
Year 2000
The Corporation's program to address the Year 2000 issue has consisted of the
following phases: awareness, assessment, remediation, testing and contingency
planning.
The Corporation has completed the awareness and assessment phases and has
substantially completed the remediation and testing phases. Contingency
planning is substantially complete and the Corporation is continuing to prepare
for those scenarios identified in the contingency planning process.
The Corporation has completed its assessment of its Year 2000 risks related
to significant relationships with its critical third party suppliers and
customers. Corrective actions are substantially complete, however risk
mitigation activities continue through supplier and customer relationships.
Despite these efforts, the Corporation can provide no assurance that all
supplier and customer Year 2000 compliance plans will be successfully completed
in a timely manner.
The Corporation has taken steps to prevent major interruptions in the
business due to Year 2000 problems using both internal and external resources to
identify and correct problems and to test for readiness. The estimated
external costs of the project, including equipment costs and consultant and
software licensing fees, are expected to be approximately $100 million. The
Corporation has reduced its previous estimate of external costs of the project
by $25 million because actual costs incurred are lower than previously
anticipated. Internal costs, which are primarily payroll related, are expected
to be approximately $50 million. These costs are being funded through
19
<PAGE> 20
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
operating cash flows with amounts that would normally be budgeted for the
Corporation's information systems and production and facilities equipment. As
of September 30, 1999, total costs incurred for external and internal resources
by the Corporation's continuing operations amounted to approximately $120
million and relate primarily to internal systems, products and facilities. The
remainder of the estimate is for the finalization of the program and for
addressing unplanned Year 2000 issues as they arise. Although the Corporation
has been working on its Year 2000 readiness efforts for several years, costs
incurred prior to 1997 have not been separately tracked and are generally not
included in the estimate of total costs.
There can be no assurance that the Corporation, its suppliers and customers
will be fully Year 2000 compliant by January 1, 2000. The Corporation,
therefore, could be adversely impacted by such things as loss of revenue,
production delays, product failures, lack of third party readiness and other
business interruptions. The ultimate effects on the Corporation or its
suppliers or customers of not being fully Year 2000 compliant are not reasonably
estimable. However, the Corporation believes its Year 2000 remediation and
contingency planning efforts, together with the diverse nature of its
businesses, help reduce the potential impact of non-compliance to levels which
will not have a material adverse impact on its financial position, results of
operations or cash flows.
CAUTIONARY NOTE CONCERNING FACTORS THAT MAY AFFECT FUTURE RESULTS
This report on Form 10-Q contains statements which, to the extent they are
not statements of historical or present fact, constitute "forward-looking
statements" under the securities laws. These forward-looking statements are
intended to provide Management's current expectations or plans for the future
operating and financial performance of the Corporation, based on assumptions
currently believed to be valid. Forward-looking statements can be identified by
the use of words such as "believe", "expect", "plans", "strategy", "prospects",
"estimate", "project", "anticipate" and other words of similar meaning in
connection with a discussion of future operating or financial performance.
These include, among others, statements relating to:
. the effect of economic downturns or growth in particular regions
. the effect of changes in the level of activity in particular industries or
markets
. the anticipated uses of cash
. the scope or nature of acquisition activity
. prospective product developments
. cost reduction efforts
. the outcome of contingencies
. the impact of Year 2000 compliance problems.
From time to time, oral or written forward-looking statements may also be
included in other materials released to the public.
All forward-looking statements involve risks and uncertainties that may cause
actual results to differ materially from those expressed or implied in the
forward-looking statements. For additional information identifying factors that
may cause actual results to vary materially from those stated in the forward-
looking statements, see the Corporation's reports on forms 10-K, 10-Q and 8-K
filed with the Securities and Exchange Commission from time to time. The
Corporation's Annual Report on Form 10-K for 1998, as amended to reflect UT
Automotive as a discontinued operation (see the Corporation's Current Report on
Form 8-K filed on June 11, 1999), includes important information as to risk
factors in the "Business" section under the headings "Description of Business by
Operating Segment" and "Other Matters Relating to the Corporation's Business as
a Whole". Additional important information as to risk factors is included in
this report in the section titled "Management's Discussion and Analysis of
Results of Operations and Financial Position" under the headings "Business
Environment" and "Year 2000".
20
<PAGE> 21
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
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 sought treble damages plus a $10,000 penalty for each false claim
submitted. The bench trial in this matter was concluded in August 1997. On
June 3, 1999, the court entered judgment on all counts for Sikorsky. Prior to
commencement of this case, Sikorsky conceded liability for certain undisclosed
quotes received from a supplier, and the judge awarded the Government
approximately $305,000 (including interest) directly associated with this issue.
The period within which the Government could file an appeal in this matter
expired on August 6, 1999 and this matter is therefore considered terminated.
Except as noted above, there have been no material developments in legal
proceedings during the quarter ended September 30, 1999. 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
1998 and Part II, Item 1 - Legal Proceedings of the Corporation's Reports on
Form 10-Q for the quarters ended March 31 and June 30, 1999.
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 September 30,
1999.
21
<PAGE> 22
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 27, 1999 By: /s/ David J. FitzPatrick
David J. FitzPatrick
Senior Vice President and
Chief Financial Officer
Dated: October 27, 1999 By: /s/ Jay L. Haberland
Jay L. Haberland
Vice President and Controller
Dated: October 27, 1999 By: /s/ William H. Trachsel
William H. Trachsel
Senior Vice President, General Counsel and
Secretary
22
<PAGE> 23
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>
<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 1999 1998
<S> <C> <C>
Fixed Charges:
Interest expense $ 175 $ 140
Interest capitalized 11 9
One-third of rents* 57 58
Total Fixed Charges $ 243 $ 207
Earnings:
Income from continuing operations before income
taxes and minority interests $ 1,188 $ 1,389
Fixed charges per above 243 207
Less: interest capitalized (11) (9)
232 198
Amortization of interest capitalized 19 22
Total Earnings $ 1,439 $ 1,609
Ratio of Earnings to Fixed Charges 5.92 7.77
* Reasonable approximation of the interest factor.
</TABLE>
<PAGE>
Exhibit 15
October 27, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
We are aware that United Technologies Corporation has included our report dated
October 19, 1999 (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. 333-89041, 333-26331, 33-46916 and 333-74195), in
the Registration Statement on Form S-4 (No. 333-77991) 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, 2-87322, 333-
77817, 333-77991 and 333-82911). We are also aware of our responsibilities
under the Securities Act of 1933.
Yours very truly,
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers, LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Balance Sheet at September 30, 1999 (Unaudited) and the
Condensed Consolidated Statement of Operations for the nine months ended
September 30, 1999 (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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,115
<SECURITIES> 0
<RECEIVABLES> 4,500
<ALLOWANCES> 330
<INVENTORY> 3,504
<CURRENT-ASSETS> 10,316
<PP&E> 10,178
<DEPRECIATION> 6,009
<TOTAL-ASSETS> 23,080
<CURRENT-LIABILITIES> 8,141
<BONDS> 2,844
449
0
<COMMON> 4,184
<OTHER-SE> 2,918
<TOTAL-LIABILITY-AND-EQUITY> 23,080
<SALES> 13,158
<TOTAL-REVENUES> 17,610
<CGS> 10,447
<TOTAL-COSTS> 13,181
<OTHER-EXPENSES> 886
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 175
<INCOME-PRETAX> 1,188
<INCOME-TAX> 334
<INCOME-CONTINUING> 785
<DISCONTINUED> 690
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,475
<EPS-BASIC> 3.13
<EPS-DILUTED> 2.92
</TABLE>
