<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
Commission file number 1-812
UNITED TECHNOLOGIES CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 06 0570975
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Financial Plaza, Hartford, Connecticut 06101
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (860) 728-7000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
registered
Common Stock ($1 par New York Stock Exchange
value)
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 January 29, 1999, there were 225,139,866 shares of Common Stock outstanding;
the aggregate market value of the voting Common Stock held by non-affiliates at
January 29, 1999 was approximately $26,890,142,745.
List hereunder documents incorporated by reference and the Part of the Form 10-K
into which the document is incorporated: (1) United Technologies Corporation
1998 Annual Report to Shareowners, Parts I, II and IV; and (2) United
Technologies Corporation Proxy Statement for the 1999 Annual Meeting of
Shareowners, Part III.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and is not to be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [ ]
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UNITED TECHNOLOGIES CORPORATION
_______________________________
Index to Annual Report
on Form 10-K for
Year Ended December 31, 1998
PART I Page
Item 1. Business .................................. 1
Item 2. Properties ................................ 15
Item 3. Legal Proceedings ......................... 16
Item 4. Submission of Matters to a Vote of Security
Holders ................................... 19
- ----- Executive Officers of the Registrant ...... 19
PART II
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters ........... 21
Item 6. Selected Financial Data ................... 21
Item 7. Management's Discussion and Analysis of
Results of Operations and Financial Position
.......................................... 21
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk ......................... 21
Item 8. Financial Statements and Supplementary Data
.......................................... 21
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure ................................ 22
PART III
Item 10. Directors and Executive Officers of the
Registrant ................................ 22
Item 11. Executive Compensation .................... 22
Item 12. Security Ownership of Certain Beneficial
Owners and Management ..................... 22
Item 13. Certain Relationships and Related
Transactions .............................. 22
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K ....................... 23
<PAGE>1
Item 1. Business
United Technologies Corporation was incorporated in Delaware in 1934.
Growth has been enhanced by acquisitions and by the internal growth of existing
businesses of the Corporation. *
Management's Discussion and Analysis of the Corporation's Results of
Operations for 1998 compared to 1997 and for 1997 compared to 1996, and its
Financial Position at December 31, 1998 and 1997, as well as Selected Financial
Data for each year in the five year period ended December 31, 1998 are set forth
on pages 2 through 9 of the Corporation's 1998 Annual Report to Shareowners.
Whenever reference is made in this Form 10-K to specific pages in the 1998
Annual Report to Shareowners, such pages are incorporated herein by reference.
Operating Segments
The Corporation conducts its business through five principal operating
segments. The Corporation's operating segments are divisions or groups of
operating companies, each with general operating autonomy over diversified
products and services. The operating segments and their respective principal
products are as follows:
Operating Principal Products
Segment
Otis --Otis elevators, escalators, automated people
movers and service.
Carrier --Carrier heating, ventilating and air
conditioning (HVAC) systems and equipment,
transport and commercial refrigeration equipment,
aftermarket service and components.
UT Automotive --Automotive systems and components.
Pratt & Whitney --Pratt & Whitney engines, parts, service and
space propulsion.
Flight Systems --Sikorsky helicopters, parts and service.
--Hamilton Standard engine controls,
environmental control systems, aircraft
propellers, other flight systems and service.
__________
* "Corporation", unless the context otherwise requires, means United
Technologies Corporation and its consolidated subsidiaries.
<PAGE>2
Segment financial data for the years 1996 through 1998, including financial
information about foreign and domestic operations and export sales, is included
in Note 15 of Notes to Consolidated Financial Statements on pages 23 through 25
of the Corporation's 1998 Annual Report to Shareowners.
Description of Business by Operating Segment
The following description of the Corporation's business by operating segment
should be read in conjunction with Management's Discussion and Analysis of
Results of Operations and Financial Position appearing in the Corporation's 1998
Annual Report to Shareowners, especially the information contained therein under
the heading "Business Environment."
Otis
Otis is the world's leader in production, installation and service in the
elevator industry, defined as elevators, escalators and automated people movers.
Otis designs, manufactures, sells and installs a wide range of passenger and
freight elevators, including hydraulic and geared elevators for low- and medium-
speed applications and gearless elevators for high-speed passenger operations in
high-rise buildings. Otis also produces a broad line of escalators, automated
people movers and shuttle systems for horizontal transportation. In addition to
new equipment, Otis provides modernization products and services to upgrade
elevators and escalators.
Otis provides maintenance services for a substantial portion of the
elevators and escalators which it sells and also services elevators and
escalators of other manufacturers. Otis conducts its business principally
through various subsidiaries and affiliated companies worldwide. In some cases,
consolidated subsidiaries and affiliates have significant minority interests.
In addition, as part of its global growth strategies, Otis has made investments
and continues to invest in emerging markets worldwide, including those in
Central and Eastern Europe (such as Russia and Ukraine) and Asia (such as the
People's Republic of China). Otis' investments in emerging markets carry a
higher level of currency, political and economic risk than investments in
developed markets.
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Otis' business is subject to changes in economic, industrial and
international conditions, including possible changes in interest rates, which
could affect the demand for elevators, escalators and services; changes in
legislation and in government regulations; changes in technology; changes in the
level of construction activity; changes in labor costs which can impact service
and maintenance margins on installed elevators and escalators; and competition
from a large number of companies, including other major domestic and foreign
manufacturers and service providers. The principal methods of competition are
price, delivery schedule, product performance and service. Otis' products and
services are sold principally to builders and building contractors and owners.
Revenues generated by Otis' international operations were 81 percent and 83
percent of total Otis segment revenues in 1998 and 1997, respectively.
International operations are subject to local government regulations (including
regulations relating to capital contributions, currency conversion and
repatriation of earnings), as well as to varying currency, political and
economic risks.
At December 31, 1998, the Otis business backlog amounted to $3,459 million
as compared to $3,429 million at December 31, 1997. Substantially all of the
business backlog at December 31, 1998 is expected to be realized as sales in
1999.
Carrier
Carrier is the world's largest manufacturer of heating, ventilating and air
conditioning systems and equipment. Carrier also participates in the commercial
and transport refrigeration businesses, and provides aftermarket service and
components for its products. In 1997, Carrier expanded into the U.S. commercial
refrigeration business by acquiring Ardco, Inc. and Tyler Refrigeration
Corporation, two U.S.-based manufacturers of commercial refrigeration equipment.
The products manufactured by Carrier include chillers and airside equipment,
commercial unitary systems, residential split systems (cooling only and heat
pump), duct-free split systems, window and portable room air conditioners and
furnaces, as well as transport refrigeration and commercial refrigeration
equipment.
As part of its global growth strategies, Carrier has made investments and
continues to invest in emerging markets worldwide, including those in Asia (such
as the People's Republic of China) and Latin America. Carrier's investments in
emerging markets carry a higher level of currency, political and economic risk
than investments in developed markets. Carrier's business is subject to changes
in economic, industrial, international and climate conditions, including
possible changes in interest rates, which could affect the demand for its
products; changes in legislation and government regulations, including those
relating to refrigerants and their effect on global environmental conditions;
changes in technology; changes in the level of construction activity;
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and competition from a large number of companies, including other major
domestic and foreign manufacturers. The principal methods of competition are
product performance (including quality and reliability), delivery schedule,
price, service and other terms and conditions of sale.
Carrier's products and services are sold principally to builders, building
contractors and owners, residential homeowners, shipping and trucking companies,
supermarkets and food service companies. Sales are made both directly to the
customer and by or through manufacturers' representatives, distributors,
dealers, individual wholesalers and retail outlets.
Revenues generated by Carrier's international operations, including U.S.
export sales, were 52 percent and 58 percent of total Carrier segment revenues
in 1998 and 1997, respectively. International operations are subject to local
government regulations (including regulations relating to capital contributions,
currency conversion and repatriation of earnings), as well as to varying
currency, political and economic risks.
At December 31, 1998, the Carrier business backlog amounted to $1,007
million, as compared to $1,021 million at December 31, 1997. Substantially all
of the business backlog at December 31, 1998 is expected to be realized as sales
in 1999.
UT Automotive
The Corporation's automotive business is conducted through a number of
subsidiaries reporting to UT Automotive, Inc. (collectively "UTA"). UTA is a
large independent supplier of automotive electrical distribution systems and
related components (terminals and connectors, body electronics, junction boxes
and switches). UTA has established administrative, engineering and
manufacturing facilities in the Americas, Europe and Asia to better serve its
worldwide customer base. UTA is also a large independent supplier in North
America of headliners and headliner substrates, instrument panels, door trim
assemblies, vehicle remote entry systems and fractional horsepower DC electric
motors used in automotive, commercial and industrial applications.
UTA also produces other automotive products such as interior trim (armrests,
consoles and sun visors), mirrors, thermal and acoustical barriers, electronic
controls and modules, engine cooling fan modules, interior lighting systems,
windshield wiper systems and electrical starters for commercial applications.
UTA is developing integrated trim modules which combine various electrical and
other products as part of the headliner, instrument panel or door panel.
<PAGE>5
UTA competes worldwide to sell systems and products to automotive
manufacturers. Sales to the major automotive manufacturers are made against
periodic short-term releases issued by the automotive manufacturers under
contracts generally awarded for a particular car or light truck model.
Ford Motor Company is UTA's largest customer. In 1998, sales to Ford Motor
Company were $986 million, or 33 percent of total UTA revenues. In 1997 and
1996, sales to Ford Motor Company were $1,125 million (38 percent of total UTA
revenues) and $1,224 million (38 percent of total UTA revenues), respectively.
UTA's business is subject to changes in economic, industrial and
international conditions; changes in interest rates and in the level of
automotive production and sales which could affect the demand for many of its
products; changes in the prices of essential raw materials and petroleum-based
materials; changes in legislation and in government regulations; changes in
technology; and substantial competition from a large number of companies
including other major domestic and foreign automotive parts suppliers. The
principal methods of competition are price, quality, delivery schedule,
product performance and technology.
UTA is also subject to continuing pressure from automotive manufacturers to
reduce its prices and to assume greater responsibilities. These pressures have
resulted in UTA taking on an increasing portion of automotive manufacturers'
responsibilities, such as supply base management, systems integration and
engineering, design, development and tooling expenditures. UTA is also subject
to significant pressure to share in automotive manufacturers' liabilities
associated with warranty and product liability risks. While recognizing the
increased risks and responsibilities, UTA has positioned itself among the
leading first tier suppliers responding to the automotive manufacturers'
requirements. UTA has entered into long-term supply agreements with many of its
customers which require price reductions. Future productivity improvements and
reductions in the price of its own purchased materials must be realized in order
for such agreements to be profitable.
Revenues generated by UTA's international operations, including U.S. export
sales (excluding revenues from certain non-U.S. operations which manufacture
exclusively for the U.S. market), were 43 percent and 39 percent of total UTA
segment revenues in 1998 and 1997, respectively. International operations are
subject to local government regulations (including regulations relating to
capital contributions, currency conversion and repatriation of earnings), as
well as to varying currency, political and economic risks.
<PAGE>6
UTA's customers issue order releases against production contracts
authorizing UTA to produce, deliver and invoice specific quantities of product
to satisfy short-term vehicle production requirements. These releases are
generally issued and satisfied within a one-to-three week time frame. At
December 31, 1998 and 1997, UTA's backlog amounted to $751 million and $682
million, representing both open releases at those dates and forecasts of
anticipated releases for the following ninety days. Accordingly, substantially
all of UTA's backlog is expected to be realized in sales in 1999.
In view of the recent consolidation in the automotive supply industry, the
Corporation has retained an investment banking firm to study strategic
alternatives for the Corporation's automotive business. The Corporation intends
to consider the available options, including possibly selling all or portions of
the business.
Pratt & Whitney and Flight Systems
The Corporation's Pratt & Whitney and Flight Systems operating segments
produce aerospace and defense products. These businesses are subject to rapid
changes in technology; lengthy and costly development cycles; the effects of the
continuing consolidation within the aerospace and defense industry; heavy
dependence on a small number of products and programs; changes in legislation
and in government procurement and other regulations and procurement practices;
procurement preferences and policies of some foreign customers which require in-
country manufacture through co-production, offset programs (where in-country
purchases and financial support projects are required as a condition to
obtaining orders), joint ventures and production sharing, licensing or other
arrangements; substantial competition from major domestic manufacturers and from
foreign manufacturers whose governments sometimes give them direct and indirect
research and development assistance, marketing subsidies and other assistance
for their commercial products; and changes in economic, industrial and
international conditions. In addition, the financial performance of these two
segments can be affected in a number of respects by the performance of the
commercial airline industry and the aviation industry.
The principal methods of competition in the Corporation's aerospace and
defense businesses are price, product performance, service, delivery schedule
and other terms and conditions of sale, including fleet introductory allowances
and performance and operating cost guarantees, and the participation by the
Corporation and its finance subsidiaries in customer financing arrangements in
connection with sales of commercial jet engines and helicopters. Fleet
introductory allowances are discounts and other financial incentives offered by
the Corporation to encourage airline and other customers to purchase engines.
These engine purchases are expected to lead to the purchase of parts and
services to support the engines.
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Sales of military products are affected by defense budgets (both in the U.S.
and, to some extent, abroad), U.S. foreign policy and the presence of
competition. Military spare parts sales are also affected to some extent by the
policies of the U.S. and certain foreign governments of purchasing certain parts
from suppliers other than the original equipment manufacturers.
Pratt & Whitney
Pratt & Whitney is one of the world's leading producers of large turbofan
(jet) engines for commercial and military aircraft and small gas turbine engines
for business and regional/commuter aircraft. Pratt & Whitney provides overhaul
and repair services and spare and replacement parts for the engines it produces,
as well as overhaul and repair services and fleet management services for many
models of commercial and military jet and gas turbine engines. In addition,
Pratt & Whitney produces propulsion systems and solid rocket boosters for the
United States Air Force ("USAF") and the National Aeronautics and Space
Administration ("NASA").
Pratt & Whitney products are sold principally to aircraft manufacturers,
airlines and other aircraft operators, aircraft leasing companies and the U.S.
and foreign governments. Pratt & Whitney sales in the U.S. and Canada are made
directly to the customer and, to a limited extent, through independent
distributors. Other export sales are made with the assistance of an overseas
network of independent foreign representatives. Sales to the Boeing Company
("Boeing") and Airbus Industrie ("Airbus"), consisting primarily of commercial
aircraft jet engines, amounted to 30 percent of total Pratt & Whitney revenues
in 1998. Pratt & Whitney's major competitors are the aircraft engine businesses
of General Electric Company ("GE") and Rolls-Royce plc.
Pratt & Whitney currently produces three families of large commercial jet
engines; the JT8D-200, the PW2000 series and the PW4000 series. Pratt &
Whitney's JT8D-200 series engines power the Boeing MD-80 aircraft. Applications
for the PW2000 series include the Boeing 757-200/PF aircraft. Pratt & Whitney's
PW4000 engine family powers the Airbus A310-300, A300-600 and A330-200/300
series; the Boeing 747-400, 767-200/300 and 777-200/300 series of aircraft; and
the Boeing MD-11 aircraft. Boeing has announced that its Douglas Products
Division will phase-out the MD-80 aircraft program with final delivery scheduled
for January 2000. Boeing has also announced that MD-11 aircraft production will
be phased-out with the delivery of orders on hand. The last delivery is
scheduled for February 2000.
Pratt & Whitney has entered into a Memorandum of Understanding with Airbus
to develop, certify, market and sell PW6000 series engines for installation on
the Airbus A318 aircraft under development.
<PAGE>8
IAE International Aero Engines AG, a Swiss corporation in which Pratt &
Whitney has a 33 percent interest, markets and supports the V2500 engine.
Applications for the V2500 engine include Airbus' A319, A320 and A321 aircraft
and Boeing's MD-90. Boeing has announced that its Douglas Products Division
will continue to produce MD-90 aircraft until current production commitments end
in 1999. Boeing and the Chinese government agency in charge of the MD-90
production commitments in China have reduced the production program from a
minimum of twenty (20) MD-90 aircraft to two (2) MD-90 aircraft.
In the case of many commercial aircraft today, aircraft manufacturers offer
their customers a choice of engines, giving rise to competition among engine
manufacturers at the time of the sale of aircraft. This competition is intense,
particularly where new commercial airframe/engine combinations are first
introduced to the market and into the fleets of individual airlines. Financial
incentives granted by engine suppliers, and performance and operating cost
guarantees on their part, are frequently important factors in such sales and can
be substantial. (For information regarding customer financing commitments,
participation in guarantees of customer financing arrangements and performance
and operating cost guarantees, see Notes 1, 4, 13 and 14 of Notes to
Consolidated Financial Statements at pages 15 to 17 and 22 to 23 of the
Corporation's 1998 Annual Report to Shareowners.)
In view of the global nature of the commercial aircraft industry and the
risk and cost associated with launching new engine development programs, Pratt &
Whitney has developed strategic alliances and collaboration arrangements on
commercial engine programs in which costs, revenues and risks are shared. At
December 31, 1998, the percentages of these items shared by other participants
in these alliances were approximately as follows: 24 percent of the JT8D-200
series engine program, 29 percent of the PW2000 series engine program, 14
percent of the 94 and 100 inch fan models of the PW4000, 26 percent of the
PW4084 and PW4090 models and 24 percent of the PW4098 model.
GE-P&W Engine Alliance, LLC, an alliance between GE Aircraft Engines and
Pratt & Whitney in which Pratt & Whitney has a 50 percent interest, was formed
during 1996 to develop, market and manufacture a new jet engine that is intended
to power super-jumbo aircraft. Although no aircraft manufacturer has as yet
committed to produce a super-jumbo aircraft, the GE-P&W Engine Alliance has
continued its marketing activities.
In 1997, as part of its plans to increase its overhaul and repair business,
Pratt & Whitney purchased the aero engine repair operations of Howmet
Corporation and N.V. Interturbine. In 1998, Pratt & Whitney and SIA Engineering
Company Private Limited established Eagle Services Asia Private Limited, an
engine overhaul and repair facility in Singapore.
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Pratt & Whitney currently produces two military aircraft engines, the F100
(powering F-15 and F-16 fighter aircraft) and the F117 (powering C-17 transport
aircraft). All of Pratt & Whitney's F100 and F117 sales contracts are with the
USAF or with foreign governments.
Pratt & Whitney is under contract with the USAF to develop the F119 engine,
the only anticipated source of propulsion for the two-engine F-22 fighter
aircraft being developed by Lockheed Martin Corporation ("Lockheed Martin") and
Boeing. The F-22 made its first flight in September 1997, powered by Pratt &
Whitney F119 engines. In addition, the Department of Defense selected two
weapon systems contractors, Boeing and Lockheed Martin, to proceed into the next
phase of the Joint Strike Fighter program development. Both companies have
selected derivatives of Pratt & Whitney's F119 engine as their engine of choice
to provide power for the Joint Strike Fighter demonstration aircraft.
Management cannot predict with certainty whether, when, and in what quantities
Pratt & Whitney will produce F119 engines.
Pratt & Whitney Space Propulsion ("SP") produces hydrogen fueled rocket
engines for the commercial and U.S. Government space markets and advanced turbo
pumps for NASA. SP, together with NPO Energomash, is developing a new Lox-
Kerosene RD-180 booster engine for two launch vehicles being marketed by
Lockheed Martin. Chemical Systems, a unit of SP, manufactures solid fuel
propulsion systems and booster motors for the commercial and civil markets and
several U.S. military launch vehicles and missiles.
Gas turbine engines manufactured by Pratt & Whitney Canada, including
various turbofan, turboprop and turbo shaft engines, are used in a variety of
aircraft including six to eighty passenger business and regional airline
aircraft and light and medium helicopters. Pratt & Whitney Canada also provides
services worldwide.
Revenues from Pratt & Whitney's international operations, including U.S.
export sales, were 52 percent and 51 percent of total Pratt & Whitney segment
revenues in 1998 and 1997, respectively. Such operations are subject to local
government regulations (including regulations relating to capital contributions,
currency conversion and repatriation of earnings) as well as to varying
political and economic risks.
At December 31, 1998, the business backlog for Pratt & Whitney amounted to
$8,415 million, including $1,808 million of U.S. Government funded contracts and
subcontracts, as compared to $8,258 million and $1,852 million, respectively, at
December 31, 1997. Of the total Pratt & Whitney business backlog at December 31,
1998, approximately $4,202 million is expected to be realized as sales in 1999.
Significant elements of Pratt & Whitney's business, such as spare parts sales
for engines in service, generally have short lead times. Therefore, backlog may
not be indicative of future demand. Also, since a substantial portion of the
backlog for commercial customers is scheduled for delivery beyond 1999, changes
in economic conditions may cause customers to request that firm orders be
rescheduled or canceled.
<PAGE>10
Flight Systems
The Corporation's Flight Systems business is conducted through Sikorsky
Aircraft and Hamilton Standard.
Sikorsky is one of the world's leading manufacturers of military and
commercial helicopters and the primary supplier of transport helicopters to the
U.S. Army. All branches of the U.S. military operate Sikorsky helicopters.
Sikorsky also supplies helicopters to foreign governments and the worldwide
commercial market. Sikorsky produces helicopters for a variety of uses,
including passenger, utility/transport, cargo, anti-submarine warfare, search
and rescue and heavy-lift operations. In addition to sales of new helicopters,
Sikorsky's business base encompasses spare parts for past and current
helicopters produced by Sikorsky, the repair and retrofit of helicopters and
service contracts. In 1998, to help increase its presence in the aftermarket
business, Sikorsky acquired Helicopter Support, Inc., a major distributor of
helicopter parts. Other major helicopter manufacturers include Bell Helicopter
Textron, Eurocopter, Boeing Helicopters, Agusta, GKN Westland Helicopters, Kazan
Helicopter and Rost Vertol.
Current production programs at Sikorsky include the Black Hawk medium-
transport helicopter for the U.S. and foreign governments; the international
Naval Hawk, a derivative of the U.S. Navy's Seahawk medium-sized helicopter
for multiple naval missions for foreign governments; the CH-53E Super Stallion
heavy-lift helicopter for the U.S. Marine Corps; and the S-76 intermediate-
sized helicopter for executive transport, offshore oil platform support, search
and rescue, emergency medical service and other utility operations.
In July 1997, Sikorsky signed a multi-year contract with the U.S. Government
to deliver 108 Black Hawk helicopters from July 1997 through June 2002. Under
the contract as it has been amended through December 1998, the firm purchase
commitment has been increased to 127 and the Government currently has the right
to cancel 19 helicopters scheduled for delivery from December 2000 through June
2002. As of December 31, 1998, 76 Black Hawk helicopters have been delivered
under the contract. Declining Defense Department budgets make Sikorsky
increasingly dependent upon expanding its international market position. Such
sales sometimes require the development of in-country co-production programs.
Sikorsky is engaged in full-scale development of the S-92 aircraft, a large
cabin derivative of the Black Hawk helicopter, for commercial and military
markets. A significant portion of the development is being carried out by
companies in Brazil, the People's Republic of China, Japan, Spain and Taiwan
under collaborative arrangements. This aircraft made its first flight in
December 1998. Certification of the first S-92 is expected in the year 2001.
Management cannot predict with certainty whether, when, and in what quantities
the S-92 will be produced.
<PAGE>11
Sikorsky has a 50% interest in a joint venture with Boeing Helicopters for
the development of the U.S. Army's next generation light helicopter, the RAH-66
Comanche. The Boeing Sikorsky Team is performing under a cost reimbursement
contract awarded in 1991. The first prototype aircraft is undergoing flight
testing. Management cannot predict with certainty whether, when, and in what
quantities the Comanche will go into production.
Hamilton Standard is a global producer of a number of flight systems for
both commercial and military aircraft. Major production programs include engine
controls, environmental controls systems and aircraft propellers. Hamilton
Standard also supplies NASA's space suit/life support system and produces
environmental control and thermal control systems for international space
programs. Other Hamilton Standard products include microelectronic circuitry
and advanced optical systems.
In July 1998, the Corporation reorganized its fuel cell business to include
fuel cell systems for the transportation market in addition to the existing
stationary power plant market. While oversight of this business continues to be
provided by Hamilton Standard executives, it is no longer part of the Flight
Systems segment for management reporting. The results are included in the Other
category for financial segment reporting and prior periods have been restated.
Revenues generated by Flight Systems' international operations, including
export sales, were 40 percent and 39 percent of total Flight Systems segment
revenues in 1998 and 1997, respectively. Such operations are subject to local
government regulations (including regulations relating to capital conditions,
currency conversion and repatriation of earnings) as well as to various
political and economic risks.
At December 31, 1998, the Flight Systems business backlog amounted to $2,013
million, including $1,030 million under funded contracts and subcontracts with
the U.S. Government, as compared to $2,353 million and $1,225 million,
respectively, at December 31, 1997. Of the total Flight Systems business
backlog at December 31, 1998, approximately $1,417 million is expected to be
realized as sales in 1999.
<PAGE>12
Other Matters Relating to the Corporation's
Business as a Whole
Research and Development
To maintain its competitive position, the Corporation spends substantial
amounts of its own funds on research and development. Such expenditures, which
are charged to income as incurred, were $1,315 million or 5.1 percent of total
sales in 1998, as compared with $1,187 million or 4.9 percent of total sales in
1997 and $1,122 million or 4.9 percent of total sales in 1996. The Corporation
also performs research and development work under contracts funded by the U.S.
Government and other customers. Such contract research and development, which
is performed principally in the Pratt & Whitney segment and to a lesser extent
in the Flight Systems segment, amounted to $1,065 million in 1998, as compared
with $974 million in 1997 and $870 million in 1996.
Contracts, Other Risk Factors, Environmental and Other Matters
Government contracts are subject to termination for the convenience of the
Government, in which event the Corporation normally would be entitled to
reimbursement for its allowable costs incurred plus a reasonable profit. Most
of the Corporation's sales are made under fixed-price type contracts; only 5.1
percent of the Corporation's total sales for 1998 were made under cost-
reimbursement type contracts.
Like many defense contractors, the Corporation has received allegations from
the U.S. Government that some contract prices should be reduced because cost or
pricing data submitted in negotiation of the contract prices may not have been
in conformance with Government regulations. The Corporation has made voluntary
refunds in those cases it believes appropriate, has settled some allegations,
and does not believe that any further price reductions that may be required will
have a material effect upon its financial position or results of operations.
The Corporation is now and believes that, in light of the current Government
contracting environment, it will be the subject of one or more Government
investigations. See Item 3 - Legal Proceedings at pages 16 through 18 of this
Form 10-K for further discussion.
<PAGE>13
Management currently believes that the diversification of the Corporation's
businesses across multiple industries and geographically throughout the world
has helped, and should continue to help, limit the effect of adverse conditions
in any one industry or the economy of any country or region on the consolidated
results of the Corporation. There can be no assurance, however, that the effect
of adverse conditions in one or more industries or regions will be limited or
offset in the future.
Like other users in the U.S., the Corporation is largely dependent upon
foreign sources for certain of its raw materials requirements such as cobalt
(Africa) and chromium (Africa, Eastern and Central Europe and the countries of
the former Soviet Union). To alleviate this dependence and accompanying risk,
the Corporation has a number of on-going programs which include the development
of new suppliers; the increased use of more readily available materials through
material substitutions and the development of new alloys; and conservation of
materials through scrap reclamation and new manufacturing processes such as net
shape forging.
The Corporation has sought cost reductions in its purchases of certain other
materials, components, and supplies by consolidating its purchases and reducing
the number of suppliers. In some instances the Corporation is reliant upon a
single source of supply. A disruption in deliveries from its suppliers,
therefore, could have an adverse effect on the Corporation's ability to meet its
commitments to customers. The Corporation believes that it has appropriately
balanced the risks against the costs of sustaining a greater number of
suppliers.
The Corporation does not foresee any unavailability of materials,
components, or supplies which will have any material adverse effect on its
overall business, or on any of its business segments, in the near term.
The Corporation does not anticipate that compliance with current federal,
state and local provisions relating to the protection of the environment will
have a material adverse effect upon its cash flows, competitive position,
financial position or results of operations. (Environmental matters are the
subject of certain of the Legal Proceedings described in Item 3 - Legal
Proceedings at pages 16 through 18 of this Form 10-K, and are further addressed
in Management's Discussion and Analysis of Results of Operations and Financial
Position at page 8 and Notes 1 and 14 of Notes to Consolidated Financial
Statements at pages 16 and 23 of the Corporation's 1998 Annual Report to
Shareowners.)
<PAGE>14
Most of the laws governing environmental matters include criminal
provisions. If the Corporation were convicted of a violation of the federal
Clean Air Act or the Clean Water Act, the facility or facilities involved in the
violation would be listed on the Environmental Protection Agency's (EPA) List of
Violating Facilities. The listing would continue until the EPA concluded that
the cause of the violation had been cured. Any listed facility cannot be used
in performing any U.S. Government contract awarded to the Corporation during any
period of listing by the EPA.
While the Corporation's patents, trademarks, licenses and franchises are
cumulatively important to its business, the Corporation does not believe that
the loss of any one or group of related patents, trademarks, licenses or
franchises would have a material adverse effect on the overall business of the
Corporation or on any of its operating segments.
A discussion of the potential exposure to the Corporation arising from the
need to modify computer systems for the transition to the year 2000, and the
steps being taken by the Corporation to address these matters, is included in
Management's Discussion and Analysis of Results of Operations and Financial
Position under the heading "Year 2000" on page 9 of the Corporation's 1998
Annual Report to Shareowners.
A discussion of the potential impact on the Corporation of the introduction
of the "euro" as a common currency of the member countries of the European
Economic and Monetary Union is included in Management's Discussion and Analysis
of Results of Operations and Financial Position under the heading "Euro
Conversion" on page 9 of the Corporation's 1998 Annual Report to Shareowners.
Cautionary Note Concerning Factors That May Affect Future Results
This report on Form 10-K contains statements which, to the extent they are
not statements of historical or present fact, constitute "forward-looking
statements" under the securities laws. From time to time, oral or written
forward-looking statements may also be included in other materials released to
the public. 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:
<PAGE>15
. Future earnings and other measurements of financial performance
. Future cash flow and uses of cash
. The effect of economic downturns or growth in particular regions
. The effect of changes in the level of activity in particular industries or
markets
. Prospective product developments
. Cost reduction efforts
. The outcome of contingencies
. The impact of Year 2000 conversion efforts
. The transition to the use of the euro as a currency.
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. This Annual Report on Form 10-K for 1998 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 the Corporation's 1998 Annual
Report to Shareowners in the section titled "Management's Discussion and
Analysis of Results of Operations and Financial Position" under the headings
"Business Environment", "Year 2000" and "Euro Conversion", which is incorporated
by reference in this Form 10-K. 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-Q and 8-K
filed with the Securities and Exchange Commission from time to time.
Employees
At December 31, 1998, the Corporation's total employment was approximately
178,800.
Item 2. Properties
The Corporation's fixed assets include the plants and warehouses described
below and a substantial quantity of machinery and equipment, most of which is
general purpose machinery and equipment using special jigs, tools and fixtures
and in many instances having automatic control features and special adaptations.
The Corporation's plants, warehouses, machinery and equipment are in good
operating condition, are well maintained, and substantially all of its
facilities are in regular use. The Corporation considers the present level of
fixed assets capitalized as of December 31, 1998, suitable and adequate for the
operations of each operating segment in the current business environment.
<PAGE>16
The following square footage numbers are approximations. At December 31,
1998, the Corporation operated (a) plants in the U.S. which had 32.7 million
square feet, of which 5.2 million square feet were leased; (b) plants outside
the U.S. which had 21.9 million square feet, of which 3.0 million square feet
were leased; (c) warehouses in the U.S. which had 5.7 million square feet, of
which 3.9 million square feet were leased; and (d) warehouses outside the U.S.
which had 5.8 million square feet, of which 3.8 million square feet were
leased.
Management believes that the facilities for the production of its products
are suitable and adequate for the business conducted therein, are being
appropriately utilized consistent with experience and have sufficient production
capacity for their present intended purposes. Utilization of the facilities
varies based on demand for the products. The Corporation continuously reviews
its anticipated requirements for facilities and, based on that review, may from
time to time acquire additional facilities and/or dispose of existing
facilities.
Item 3. Legal Proceedings
As previously reported, in June 1992, the Department of Justice filed a
civil False Claims Act complaint in the United States District Court for the
District of Connecticut, No. 592CV375, against Sikorsky Aircraft alleging that
the Government was overcharged by nearly $4 million in connection with the
pricing of parts supplied for the reconditioning of the Navy's Sea King
helicopter. The Complaint seeks treble damages plus a $10,000 penalty for each
false claim submitted. The bench trial in this matter concluded in August 1997.
Post-trial papers have been submitted to the judge and the parties are awaiting
the court's decision.
As previously reported, the Department of Defense and the Corporation are
litigating whether Pratt & Whitney's accounting practices for certain engine
parts are acceptable. The litigation, filed with the Armed Services Board of
Contract Appeals (ASBCA), No. 47416 et al., relates to the accounting for engine
parts produced by foreign companies under commercial engine collaboration
programs from 1984 through 1995. The Government initially claimed damages of
$260.3 million, of which $102.7 million was interest. Pratt & Whitney believes
its accounting practices are proper and has not modified them. If the
Government prevails, damages could be larger than initially claimed because
interest continues to accrue and the complaint could be amended to include the
period after 1995. In March and April 1998, the matter was tried before an
ASBCA judge. A decision is not expected for a number of months.
<PAGE>17
As previously reported, a jury in Chromalloy Gas Turbine Corporation v.
United Technologies Corporation, No. 95-CI-12541, a Texas state action, found
that Pratt & Whitney did not monopolize any relevant market but did willfully
attempt to monopolize an unspecified market. In May 1997, the court entered a
Final Judgment denying Chromalloy's request for damages, injunctive relief and
declaratory relief. In October 1998, the Texas Fourth Court of Appeals affirmed
the decision of the trial court, declining to grant injunctive relief to
Chromalloy. Chromalloy has filed motions for rehearing and for rehearing en
banc. The Corporation has filed its responses. The parties are awaiting the
court's decision.
In December 1998, the Corporation was served with a qui tam complaint under
the civil False Claims Act that had been previously filed under seal in the
United States District Court for the District of Connecticut in October, 1996
(U.S. ex rel. Waldron v. UTC, No. 396CV02038). The complaint seeks unspecified
damages (trebled) and penalties arising out of an alleged failure by Pratt &
Whitney to estimate properly the costs of performing a cost-type development
contract. The Government has declined to take over the action which is being
pursued by the qui tam relator.
As previously reported, the Corporation has been served with a number of other
qui tam complaints under the civil False Claims Act in the United States
District Court for the District of Connecticut: U.S. ex rel. Drake v. Norden
Systems, Inc. and UTC, No.394CV00963 (filed July 1997, and involving allegations
of improper accounting for fixed assets); U.S. ex rel. Capella v. UTC and Norden
Systems Inc., No. 394CV02063 (filed December 1994, and involving allegations of
improper accounting for insurance costs); and U.S. ex rel. Maloni v. UTC, No.
395CV02431 (filed in November 1995 and involving allegations of failing to
implement an "Inspection Method Sheet Inspection System"). The qui tam relator
in each case has claimed unspecified damages (trebled) and penalties, and the
Department of Justice in each case has declined to take over the litigation.
The civil False Claims Act provides for penalties in a civil case of up to
$10,000 per false claim submitted. The number of false claims implicated by the
foregoing qui tam complaints cannot currently be ascertained; however, if
determined adversely to the Corporation the number could result in significant
penalties.
As previously reported in the Corporation's Reports on Form 10-K for 1992
and Form 10-Q for the Third Quarter of 1993, the Corporation entered into a
Consent Decree in August of 1993 with the Environmental Protection Agency
("EPA") and the Department of Justice ("DOJ") in Docket Number H-90-715 (JAC) in
the U.S. District Court for the District of Connecticut. Under the Consent
Decree, the Corporation agreed to adopt programs to enhance the effectiveness of
its environmental management systems, conduct an audit of 19 of its
<PAGE>18
facilities, and pay civil penalties for any non-compliance with environmental
laws and regulations discovered during the audit. An independent third party
recently completed this audit and forwarded the results to the EPA. The EPA has
informed the Corporation that it intends to issue a report evaluating the audit
results and that it expects to propose penalties. The Consent Decree
establishes procedures for the EPA and the Corporation to resolve any
disagreements over compliance and the amount of penalties.
The Corporation believes the Department of Justice is contemplating the filing
of a civil False Claims Act complaint against Pratt & Whitney. The contemplated
action is related to the "Fighter Engine Competition" contracts awarded by the
US Air Force between 1984 and 1989. As understood, the Department of Justice
will allege that disclosures in Pratt's best and final offer, submitted in
December 1983, were inaccurate with respect to costs of certain subcontracts.
The Corporation does not believe that resolution of any of the foregoing
legal matters will have a material adverse effect upon the Corporation's
competitive position, results of operations, cash flows, or financial position.
The Corporation is now, and believes that, in light of the current
government contracting environment, it will be the subject of one or more
government investigations. If the Corporation or one of its business units were
charged with wrongdoing as a result of any of these investigations, the
Corporation or one of its business units could be suspended from bidding on or
receiving awards of new government contracts pending the completion of legal
proceedings. If convicted or found liable, the Corporation could be fined and
debarred from new government contracting for a period generally not to exceed
three years. Any contracts found to be tainted by fraud could be voided by the
Government.
The Corporation has incurred and will likely continue to incur liabilities
under various state and federal statutes for the cleanup of pollutants
previously released into the environment. The Corporation believes that any
payments it may be required to make as a result of these claims will not have a
material effect upon the cash flows, competitive or financial position, or
results of operations of the Corporation. The Corporation has had liability and
property insurance in force over its history with a number of insurance
companies, and the Corporation has commenced litigation seeking indemnity and
defense under these insurance policies in relation to its environmental
liabilities. Settlements to date, which have not been material, have been
recorded upon receipt. While the litigation against the Corporation's historic
liability insurers has concluded, the case against the Corporation's property
insurers is continuing. (For information regarding the matters discussed in
this paragraph, see "Environmental Matters" in Management's Discussion and
Analysis of Results of Operations and Financial Position at page 8 and Notes 1
and 14 of the Notes to Consolidated Financial Statements at pages 16 and 23 of
the Corporation's 1998 Annual Report to Shareowners.)
<PAGE>19
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to security holders for a vote during the fourth
quarter ended December 31, 1998.
- ----- Executive Officers of the Registrant
The executive officers of United Technologies Corporation, together with the
offices in United Technologies Corporation presently held by them, their
business experience since January 1, 1994, and their ages, are as follows:
Other Business Age
Name Title Experience 2/1/99
Since 1/1/94
Ari Bousbib Vice President Managing Director, The 37
Strategic Planning Strategic Partners
(since 1997) Group; Partner, Booz,
Allen & Hamilton.
Eugene Buckley Chairman and Chief President, Sikorsky 68
Executive Officer, Aircraft Corporation;
Sikorsky Aircraft President and Chief
(since 1998) Executive Officer,
Sikorsky Aircraft
Division; and President,
Sikorsky Aircraft
Division
William L. Senior Vice 56
Bucknall, Jr. President, Human -------
Resources &
Organization
(since 1992)
John F. Senior Vice Vice President, United 55
Cassidy, Jr. President - Science Technologies Research
and Technology Center
(since 1998)
Kevin Conway Vice President, Director of Taxes, 50
Taxes United Technologies
(since 1995) Corporation
George David Chairman (since President and Chief 56
1997), Operating Officer
President and Chief
Executive Officer
(since 1994)
David J. Senior Vice Vice President and 44
FitzPatrick President and Chief Controller, Eastman
Financial Officer Kodak Co.; Finance
(since 1998) Director-Cadillac Luxury
Car Division, Chief
Accounting Officer,
General Motors Corp.
C. Scott Greer President, UT President, Chief 48
Automotive Operating Officer,
(since 1997) Echlin, Inc.
<PAGE>20
Other Business Age
Name Title Experience 2/1/99
Since 1/1/94
Jay L. Vice President- Acting Chief Financial 48
Haberland Controller Officer, Director of
(since 1996) Internal Auditing,
United Technologies
Corporation; Vice
President, Finance,
Commercial & Industrial
Group, The Black &
Decker Corporation
Ruth R. Harkin Senior Vice President and Chief 54
President, Executive Officer,
International Overseas Private
Affairs and Investment Corporation
Government Relations
(since 1997)
Karl J. Krapek Executive Vice 50
President (since ---------
1997) and President,
Pratt & Whitney
(since 1992)
Raymond P. President, Hamilton Executive Vice 55
Kurlak Standard (since President, Sikorsky
1995) Aircraft Division
John R. Lord President, Carrier President, Carrier NAO 55
Corporation
(since 1995)
Angelo J. Vice President, Director, Financial 45
Messina Financial Planning Planning and Analysis,
and Analysis United Technologies
(since 1998) Corporation; Vice
President, Strategic
Planning, Pratt &
Whitney; Director,
Investor Relations,
United Technologies
Corporation
Stephen F. Page Executive Vice Executive Vice President 59
President and and Chief Financial
President and Chief Officer, United
Executive Officer, Technologies Corporation
Otis Elevator
(since 1997)
Gilles A. H. Vice President _ Vice President and Chief 52
Renaud Treasurer Financial Officer,
(since 1996) Carrier Corporation
William H. Senior Vice Vice President, 55
Trachsel President, General Secretary and Deputy
Counsel and General Counsel
Secretary
(since 1998)
All of the officers serve at the pleasure of the Board of Directors of United
Technologies Corporation or the subsidiary designated.
<PAGE>21
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
See Comparative Stock Data appearing on page 25 of the Corporation's 1998
Annual Report to Shareowners containing the following data relating to the
Corporation's Common Stock: principal market, quarterly high and low sales
prices, approximate number of shareowners and frequency and amount of dividends.
All such data are incorporated by reference in this Report.
Item 6. Selected Financial Data
See the Five Year Summary appearing on page 2 of the Corporation's 1998
Annual Report to Shareowners containing the following data: revenues, net
income, basic and diluted earnings per share, cash dividends on Common Stock,
total assets and long-term debt. All such data are incorporated by reference in
this Report. See Notes to Consolidated Financial Statements appearing on pages
15 through 25 of the Corporation's 1998 Annual Report to Shareowners for a
description of any accounting changes and acquisitions or dispositions of
businesses materially affecting the comparability of the information reflected
in such Five Year Summary.
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Position
See Management's Discussion and Analysis of Results of Operations and
Financial Position appearing on pages 3 through 9 of the Corporation's 1998
Annual Report to Shareowners; such discussion and analysis is incorporated by
reference in this Form 10-K.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
See discussion under the headings "Derivative and Other Financial
Instruments" on page 8 and "Hedging Activity" on pages 15 and 16 and Note 13 on
page 22 of the Corporation's 1998 Annual Report to Shareowners for information
concerning market risk sensitive instruments. Such information is incorporated
by reference in this Form 10-K.
Item 8. Financial Statements and Supplementary Data
The 1998 and 1997 Consolidated Balance Sheet, and other financial statements
for the years 1998, 1997 and 1996, together with the report thereon of
PricewaterhouseCoopers LLP dated January 21, 1999, appearing on pages 10 through
14 in the Corporation's 1998 Annual Report to Shareowners are incorporated by
reference in this Form 10-K.
<PAGE>22
The 1998 and 1997 Selected Quarterly Financial Data appearing on page 25 in
the Corporation's 1998 Annual Report to Shareowners are incorporated by
reference in this Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Item 10. Directors and Executive Officers of the Registrant
The information required by Item 10 with respect to directors is
incorporated herein by reference from pages 7 through 10 of the Corporation's
Proxy Statement for the 1999 Annual Meeting of Shareowners. Information
regarding executive officers is contained in Part I of this Form 10-K at pages
19 through 20. Information concerning Section 16(a) compliance is contained in
the section entitled "Section 16(a) Beneficial Ownership Reporting Compliance"
at page 21 of the 1999 Proxy Statement.
Item 11. Executive Compensation
The information required by Item 11 is incorporated herein by reference from
pages 12 through 13 and 15 through 23 of the Corporation's Proxy Statement for
the 1999 Annual Meeting of Shareowners. Such incorporation by reference shall
not be deemed to specifically incorporate by reference the information referred
to in Item 402(a)(8) of Regulation S-K.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by Item 12 is incorporated herein by reference from
page 5 and pages 14 and 15 of the Corporation's Proxy Statement for the 1999
Annual Meeting of Shareowners.
Item 13. Certain Relationships and Related Transactions
The information required by Item 13 is incorporated herein by reference from
pages 21 and 22 of the Corporation's Proxy Statement for the 1999 Annual Meeting
of Shareowners.
<PAGE>23
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Page Number
(a) Financial Statements, Financial Statement in Annual
Schedules and Exhibits Report
(1) Financial Statements (incorporated by
reference from the 1998 Annual Report to
Shareowners):
Report of Independent Accountants ......... 10
Consolidated Statement of Operations for
the Three Years ended December 31, 1998 ... 11
Consolidated Balance Sheet--December 31,
1998 and 1997 ............................. 12
Consolidated Statement of Cash Flows for
the Three Years ended December 31, 1998 ... 13
Consolidated Statement of Changes in
Shareowners' Equity for the Three Years
ended December 31, 1998 ................... 14
Notes to Consolidated Financial Statements 15
Selected Quarterly Financial Data
(Unaudited) ............................... 25
Page Number
in Form 10-K
(2) Financial Statement Schedule For the
Three Years ended December 31, 1998:
Report of Independent Accountants on S-I
Financial Statement .......................
Schedule II Valuation and Qualifying S-II
Accounts ..................................
Consent of Independent Accountants ........ F-1
All other schedules are omitted because they are not
applicable or the required information is shown in the
financial statements or the notes thereto.
<PAGE>24
(3) Exhibits:
The following list of exhibits includes exhibits
submitted with this Form 10-K as filed with the SEC and
those incorporated by reference to other filings.
Exhibit Number
3(i) Restated Certificate of Incorporation, incorporated
by reference to Exhibit 3(i) to United Technologies
Corporation Quarterly Report on Form 10-Q
(Commission File number 1-812) for quarterly period
ended June 30, 1997.
3(ii) Bylaws as amended and restated effective
February 8, 1999.**
4 The Corporation hereby agrees to furnish to the
Commission upon request a copy of each instrument
defining the rights of holders of long-term debt of
the Corporation and its consolidated subsidiaries
and any unconsolidated subsidiaries.
10.1 United Technologies Corporation 1979 Long Term
Incentive Plan, incorporated by reference to Exhibit
10(i) to United Technologies Corporation Annual
Report on Form 10-K (Commission file number 1-812)
for fiscal year ended December 31, 1992.
10.2 United Technologies Corporation Annual Executive
Incentive Compensation Plan, as amended. *
10.3 United Technologies Corporation Disability Insurance
Benefits for Executive Control Group, incorporated
by reference to Exhibit 10 (iii) to United
Technologies Corporation Annual Report on Form 10-K
(Commission file number 1-812) for fiscal year ended
December 31, 1992.
10.4 United Technologies Corporation Executive Estate
Preservation Program, incorporated by reference to
Exhibit 10(iv) to United Technologies Corporation
Annual Report on Form 10-K (Commission file number
1-812) for fiscal year ended December 31, 1992.
10.5 United Technologies Corporation Pension Preservation
Plan, incorporated by reference to Exhibit 10(v) for
United Technologies Corporation Annual Report on
Form 10-K (Commission file number 1-812) for fiscal
year ended December 31, 1992.
<PAGE>25
Exhibit Number
10.6 United Technologies Corporation Senior Executive
Severance Plan, incorporated by reference to Exhibit
10(vi) to United Technologies Corporation Annual
Report on Form 10-K (Commission file number 1-812)
for fiscal year ended December 31, 1992.
10.7 United Technologies Corporation Deferred
Compensation Plan, as amended. *
10.8 Otis Elevator Company Incentive Compensation Plan,
incorporated by reference to Exhibit 10(viii) to
United Technologies Corporation Annual Report on
Form 10-K (Commission file number 1-812) for fiscal
year ended December 31, 1992.
10.9 United Technologies Corporation Directors Retirement
Plan, as amended. *
10.10 United Technologies Corporation Deferred
Compensation Plan for Non-Employee Directors,
incorporated by reference to Exhibit 10(x) to United
Technologies Corporation Annual Report on Form 10-K
(Commission file number 1-812) for fiscal year ended
December 31, 1992.
10.11 United Technologies Corporation Long Term Incentive
Plan, as amended. *
10.12 United Technologies Corporation Executive
Disability, Income Protection and Standard
Separation Agreement Plan, incorporated by reference
to Exhibit 10(xii) to United Technologies
Corporation Annual Report on Form 10-K (Commission
file number 1-812) for fiscal year ended December
31, 1992.
10.13 United Technologies Corporation Directors'
Restricted Stock/Unit Program, incorporated by
reference to Exhibit 10(xiii) to United Technologies
Corporation Annual Report on Form 10-K (Commission
file number 1-812) for fiscal year ended December
31, 1992.
10.14 United Technologies Corporation Board of Directors
Deferred Stock Unit Plan. *
10.15 United Technologies Corporation Pension Replacement
Plan, incorporated by reference to Exhibit 10(xv) to
United Technologies Corporation Annual Report on
Form 10-K (Commission file number 1-812) for fiscal
year ended December 31, 1993.
10.16 United Technologies Corporation Special Retention
and Stock Appreciation Program, incorporated by
reference to Exhibit 10(xvi) to United Technologies
Corporation Report on Form 10-Q (Commission file
number 1-812) for quarterly period ended September
30, 1995.
10.17 United Technologies Corporation Nonemployee Director
Stock Option Plan. *
<PAGE>26
Exhibit Number
11 Statement re: Computation of Per Share Earnings. **
12 Statement re: Computation of Ratio of Earnings to
Fixed Charges. **
13 Annual Report to Shareowners for year ended December
31, 1998 (except for the pages and information
thereof expressly incorporated by reference in this
Form 10-K, the Annual Report to Shareowners is
provided solely for the information of the
Securities and Exchange Commission and is not to be
deemed "filed" as part of this Form 10-K). **
21 Subsidiaries of the Registrant. **
23 Consent of PricewaterhouseCoopers LLP, included as
page F-1 of this Form 10-K.
24 Powers of Attorney of Antonia Handler Chayes,
Charles W. Duncan, Jr., Jean-Pierre Garnier, Pehr G.
Gyllenhammar, Karl J. Krapek, Charles R. Lee, Robert
H. Malott, William J. Perry, Frank P. Popoff, Andre
Villeneuve, Harold A. Wagner and Jacqueline G.
Wexler. **
27 Financial Data Schedule. **
27.1 Restated Prior Periods' Financial Data Schedule.**
27.2 Restated Prior Periods' Financial Data Schedule.**
Notes to Exhibits List:
* Incorporated by reference to Exhibit of the same
number to United Technologies Corporation Annual
Report on Form 10-K (Commission file number 1-
812) for fiscal year ended December 31, 1995.
** Submitted electronically herewith.
Exhibits 10.1 through 10.17 are management contracts
or compensatory plans required to be filed as
exhibits pursuant to Item 14(c) of the requirements
for Form 10-K reports.
(b) A report on Form 8-K dated December 1, 1998 was filed by
the Corporation on December 2, 1998. The Report includes
information under Items 5 and 7 concerning amendments to
the Bylaws of the Corporation.
<PAGE>27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
UNITED TECHNOLOGIES CORPORATION
(Registrant)
By /s/ David J. FitzPatrick
David J. FitzPatrick
Date: February 16, 1999 Senior Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated, on the date set forth below.
Signature Title Date
/s/ George David Chairman, Director, February 16, 1999
George David President and Chief
Executive Officer
/s/ David J. FitzPatrick Senior Vice President February 16, 1999
David J. FitzPatrick and Chief Financial
Officer
/s/ Jay L. Haberland Vice President- February 16, 1999
Jay L. Haberland Controller
ANTONIA HANDLER CHAYES * Director )
(Antonia Handler Chayes)
*By: /s/William H. Trachsel
CHARLES W. DUNCAN, JR. * Director ) William H. Trachsel
(Charles W. Duncan, Jr.) Attorney-in-Fact
Date: February 16, 1999
JEAN-PIERRE GARNIER * Director )
(Jean-Pierre Garnier)
PEHR G. GYLLENHAMMAR * Director )
(Pehr G. Gyllenhammar)
KARL J. KRAPEK * Director )
(Karl J. Krapek)
<PAGE>28
Signature Title Date
CHARLES R. LEE * Director )
(Charles R. Lee)
ROBERT H. MALOTT * Director )
(Robert H. Malott)
WILLIAM J. PERRY* Director )
(William J. Perry)
*By: /s/ William H. Trachsel
FRANK P. POPOFF * Director ) William H. Trachsel
(Frank P. Popoff) Attorney-in-Fact
Date: February 16, 1999
ANDRE VILLENEUVE * Director )
(Andre Villeneuve)
HAROLD A. WAGNER * Director )
(Harold A. Wagner)
JACQUELINE G. WEXLER * Director )
(Jacqueline G. Wexler)
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of United Technologies Corporation
Our audits of the consolidated financial statements referred to in our
report dated January 21, 1999 appearing on page 10 of the 1998 Annual Report to
Shareowners of United Technologies Corporation (which report and consolidated
financial statements are incorporated by reference in this Annual Report on Form
10-K) also included an audit of the Financial Statement Schedule listed in Item
14(a)(2) of this Form 10-K. In our opinion, the Financial Statement Schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Hartford, Connecticut
January 21, 1999
S-I
<PAGE>
<TABLE><CAPTION>
UNITED TECHNOLOGIES CORPORATION AND SUBSIDIARIES
Schedule II - Valuation and Qualifying Accounts
Three Years Ended December 31, 1998
(Millions of Dollars)
Allowances for Doubtful Accounts and Other Customer Financing Activity:
<S> <C>
Balance December 31, 1995 $ 411
Provision charged to income 38
Doubtful accounts written off (net) (57)
Other adjustments (1)
Balance December 31, 1996 391
Provision charged to income 34
Doubtful accounts written off (net) (28)
Other adjustments (14)
Balance December 31, 1997 383
Provision charged to income 71
Doubtful accounts written off (net) (32)
Other adjustments (22)
Balance December 31, 1998 $ 400
Future Income Tax Benefits - Valuation
allowance:
Balance December 31, 1995 $ 349
Additions charged to income tax expense 27
Reductions credited to income tax expense (48)
Balance December 31, 1996 328
Additions charged to income tax expense 52
Reductions credited to income tax expense (92)
Balance December 31, 1997 288
Additions charged to income tax expense 37
Reductions credited to income tax expense (95)
Balance December 31, 1998 $ 230
S-II
</TABLE>
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statements on Form S-3 (Nos. 333-26331
and 33-46916) 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) of United Technologies
Corporation of our report dated January 21, 1999 appearing on page 10 of the
1998 Annual Report to Shareowners which is incorporated by reference in this
Annual Report on Form 10-K. We also consent to the incorporation by
reference of our report on the Financial Statement Schedule, which appears
on page S-I of this Form 10-K.
PricewaterhouseCoopers LLP
Hartford, Connecticut
February 16, 1999
F-1
<PAGE> Exhibit 3(ii)
UNITED TECHNOLOGIES CORPORATION
BYLAWS
As Amended and Restated Effective February 8, 1999
<PAGE>1
BYLAWS
OF
UNITED TECHNOLOGIES CORPORATION
SECTION 1 - Meetings Of Shareholders
SECTION 1.1 Annual Meetings.
Annual meetings of shareholders shall be held on or prior to April 30 in each
year for the purpose of electing directors and transacting such other proper
business as may come before the meeting.
SECTION 1.2 Special Meetings.
Special meetings of shareholders may be called from time to time by the Board of
Directors or by the chief executive officer of the Corporation. Special
meetings shall be held solely for the purpose or purposes specified in the
notice of meeting.
SECTION 1.3 Time and Place of Meetings.
Subject to the provisions of Section 1.1, each meeting of shareholders shall be
held on such date, at such hour and at such place as fixed by the Board of
Directors or in the notice of the meeting or, in the case of an adjourned
meeting, as announced at the meeting at which the adjournment is taken.
SECTION 1.4 Notice of Meetings.
A written notice of each meeting of shareholders, stating the place, date and
hour of the meeting and, in the case of a special meeting, the purpose or
purposes for which the meeting is called, shall be given either personally or by
mail to each shareholder entitled to vote at the meeting. Unless otherwise
provided by statute, the notice shall be given not less than 10 nor more than 60
days before the date of the meeting and, if mailed, shall be deposited in the
United States mail, postage prepaid, directed to the shareholder at his address
as it appears on the records of the Corporation. No notice need be given to any
person with whom communication is unlawful, nor shall there be any duty to apply
for any permit or license to give notice to any such person. If the time and
place of an adjourned meeting of shareholders are announced at the meeting at
which the adjournment is taken, no notice need be given of the adjourned meeting
unless that adjournment is for more than 30 days or unless, after the
adjournment, a new record date is fixed for the adjourned meeting.
<PAGE>2
SECTION 1.5 Waiver of Notice.
Anything herein to the contrary notwithstanding, notice of any meeting of
shareholders need not be given to any shareholder who in person or by proxy
shall have waived in writing notice of the meeting, either before or after such
meeting, or who shall attend the meeting in person or by proxy, unless he
attends for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened.
SECTION 1.6 Quorum and Manner of Acting.
Subject to the provisions of these Bylaws, the certificate of incorporation and
statute as to the vote that is required for a specified action, the presence in
person or by proxy of the holders of a majority of the outstanding shares of the
Corporation entitled to vote at any meeting of shareholders shall constitute a
quorum for the transaction of business, and the vote in person or by proxy of
the holders of a majority of the shares constituting such quorum shall be
binding on all shareholders of the Corporation. A majority of the shares
present in person or by proxy and entitled to vote may, regardless of whether or
not they constitute a quorum, adjourn the meeting to another time and place.
Any business which might have been transacted at the original meeting may be
transacted at any adjourned meeting at which a quorum is present.
SECTION 1.7 Voting.
Shareholders shall be entitled to cumulative voting at all elections of
directors to the extent provided in or pursuant to the certificate of
incorporation. A shareholder may authorize another person or persons to vote
for him as proxy by: (a) executing a writing authorizing such other person or
persons to act for him as proxy, where execution of the writing is accomplished
by the shareholder or his authorized officer, director, employee or agent
signing such writing or causing his signature to be affixed to such writing by
any reasonable means including, but not limited to, by facsimile signature; or
(b) transmitting or authorizing the transmission of a telegram, cablegram, or
other means of electronic transmission to the person who will be the holder of
the proxy or to a proxy solicitation firm, proxy support service organization or
like agent duly authorized by the person who will be the holder of the proxy to
receive such transmission, provided, that any such telegram, cablegram or other
means of electronic transmission must either set forth or be submitted with
information from which it can be determined that the telegram, cablegram or
other electronic transmission was authorized by the shareholder. No proxy shall
be voted or acted upon after three years from its date, unless the proxy
provides for a longer period.
<PAGE>3
SECTION 1.8 Judges.
The votes at each meeting of shareholders shall be supervised by not less than
two judges who shall decide all questions respecting the qualification of
voters, the validity of the proxies and the acceptance or rejection of votes.
The judges shall be appointed by the Board of Directors but if, for any reason,
there are less than two judges present and acting at any meeting, the chairman
of the meeting shall appoint an additional judge or judges so that there shall
always be at least two judges to act at the meeting.
SECTION 1.9 List of Shareholders.
A complete list of the shareholders entitled to vote at each meeting of
shareholders, arranged in alphabetical order, and showing the address and number
of shares registered in the name of each shareholder, shall be prepared and made
available for examination during regular business hours by any shareholder for
any purpose germane to the meeting. The list shall be available for such
examination at the place where the meeting is to be held for a period of not
less than 10 days prior to the meeting and during the whole time of the meeting.
SECTION 1.10 Notice of Shareholder Business and Nominations.
(A) Annual Meetings of Shareholders.
(1) Nominations of persons for election to the Board of Directors of the
Corporation and the proposal of business to be considered by the shareholders
may be made at an annual meeting of shareholders (a) pursuant to the
Corporation's notice of meeting, (b) by or at the direction of the Board of
Directors or (c) by any shareholder of the Corporation who was a shareholder of
record at the time of giving of notice provided for in this Section 1.10, who is
entitled to vote at the meeting and who complied with the notice procedures set
forth in this Section 1.10.
(2) For nominations or other business to be properly brought before an annual
meeting by a shareholder pursuant to clause (c) of paragraph (A)(1) of this
Section 1.10, the shareholder must have given timely notice thereof in writing
to the Secretary of the Corporation and such other business must be a proper
matter for shareholder action. To be timely, a shareholder's notice shall be
delivered to the Secretary at the principal executive offices of the Corporation
not later than the close of business on the 90th day nor earlier than the close
of business on the 120th day prior to the first anniversary of the preceding
year's annual meeting; provided, however, that in the event that the date of the
annual meeting is more than 30 days before or more than 60 days after such
anniversary date, notice by the shareholder to be timely must be so delivered
not earlier than the close of business on the 120th day prior to such annual
meeting and not later than the close of business on the later of the 90th day
prior to such annual meeting or the 10th day following the day on which public
announcement of the date of such meeting is first made. In no event shall the
public announcement of an adjournment of an annual meeting commence a new time
period for the giving of a shareholder's notice as
<PAGE>4
described above. Such shareholder's notice shall set forth (a) as to each
person whom the shareholder proposes to nominate for election or reelection as
a director all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors in an election
contest, or is otherwise required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
Rule 14a-11 thereunder (including such person's written consent to being named
in the proxy statement as a nominee and to serving as a director if elected);
(b) as to any other business that the shareholder proposes to bring before the
meeting, a brief description of the business desired to be brought before the
meeting, the reasons for conducting such business at the meeting and any
material interest in such business of such shareholder and the beneficial
owner, if any, on whose behalf the proposal is made; and (c) as to the
shareholder giving the notice and the beneficial owner, if any, on whose behalf
the nomination or proposal is made, (i) the name and address of such
shareholder, as they appear on the Corporation's books, and of such beneficial
owner and (ii) the class and number of shares of the Corporation which are
owned beneficially and of record by such shareholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph (A)(2) of this
Section 1.10 to the contrary, in the event that the number of directors to be
elected to the Board of Directors of the Corporation is increased and there is
no public announcement naming all of the nominees for director or specifying the
size of the increased Board of Directors made by the Corporation at least 100
days prior to the first anniversary of the preceding year's annual meeting, a
shareholder's notice required by this Section 1.10 shall also be considered
timely, but only with respect to nominees for any new positions created by such
increase, if it shall be delivered to the Secretary at the principal executive
offices of the Corporation not later than the close of business on the 10th day
following the day on which such public announcement is first made by the
Corporation.
(B) Special Meetings of Shareholders.
Only such business shall be conducted at a special meeting of shareholders as
shall have been brought before the meeting pursuant to the Corporation's notice
of meeting. Nominations of persons for election to the Board of Directors may
be made at a special meeting of shareholders at which directors are to be
elected pursuant to the Corporation's notice of meeting (a) by or at the
direction of the Board of Directors or (b) by any shareholder of the Corporation
who is a shareholder of record at the time of giving of notice provided for in
this Section 1.10, who shall be entitled to vote at the meeting and who complies
with the notice procedures set forth in this Section 1.10. In the event the
Corporation calls a special meeting of shareholders for the purpose of electing
one or more directors to the Board of Directors, any such shareholder may
nominate a person or persons (as the case may be) for election to such
position(s) as specified in the Corporation's notice of meeting, if the
shareholder's notice required by paragraph (A)(2) of this Section 1.10 shall be
delivered to the Secretary at the principal executive offices of the Corporation
not earlier than the close of business on the 120th day
<PAGE>5
prior to such special meeting and not later than the close of business on the
later of the 90th day prior to such special meeting or the 10th day following
the day on which public announcement is first made of the date of the special
meeting and of the nominees proposed by the Board of Directors to be elected
at such meeting. In no event shall the public announcement of an adjournment
of a special meeting commence a new time period for the giving of a
shareholder's notice as described above.
(C) General.
(1) Only such persons who are nominated in accordance with the procedures set
forth in this Section 1.10 shall be eligible to serve as directors and only such
business shall be conducted at a meeting of shareholders as shall have been
brought before the meeting in accordance with the procedures set forth in this
Section 1.10. Except as otherwise provided by law, the chairman of the meeting
shall have the power and duty to determine whether a nomination or any business
proposed to be brought before the meeting was made, or proposed, as the case may
be, in accordance with the procedures set forth in this Section 1.10 and, if any
proposed nomination or business is not in compliance with this Section 1.10, to
declare that such defective proposal or nomination shall be disregarded.
(2) For purposes of this Section 1.10, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Section 1.10, a
shareholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this Section 1.10. Nothing in this Section 1.10 shall be deemed to
affect any rights of shareholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act.
SECTION 1.11
(A) Consents to Corporate Action.
Any action which is required to be or may be taken at any annual or special
meeting of shareholders of the Corporation, subject to the provisions of
Subsections (B) and (C) of this Section 1.11, may be taken without a meeting,
without prior notice and without a vote if consents in writing, setting forth
the action so taken, shall have been signed by the holders of the outstanding
stock having not less than the minimum number of votes
<PAGE>6
that would be necessary to authorize or to take such action at a meeting at
which all shares entitled to vote thereon were present and voted; provided,
however, that prompt notice of the taking of the corporate action without a
meeting and by less than unanimous written consent shall be given to those
shareholders who have not consented in writing.
(B) Determination of Record Date of Action by Written Consent.
The record date for determining shareholders entitled to consent to corporate
action in writing without a meeting shall be fixed by the Board of Directors of
the Corporation. Any shareholder of record seeking to have the shareholders
authorize or take corporate action by written consent without a meeting shall,
by written notice to the Secretary, request the Board of Directors to fix a
record date. Upon receipt of such a request, the Secretary shall place such
request before the Board of Directors at its next regularly scheduled meeting,
provided, however, that if the shareholder represents in such request that he
intends, and is prepared, to commence a consent solicitation as soon as is
permitted by the Exchange Act and the regulations thereunder and other
applicable law, the Secretary shall as promptly as practicable, call a special
meeting of the Board of Directors, which meeting shall be held as promptly as
practicable. At such regular or special meeting, the Board of Directors shall
fix a record date as provided in Section 213 (or its successor provision) of the
Delaware General Corporation Law. Should the Board fail to fix a record date as
provided for in this Subsection (B), then the record date shall be the day on
which the first written consent is expressed.
(C) Procedures for Written Consent.
In the event of the delivery to the Corporation of a written consent or consents
purporting to represent the requisite voting power to authorize or take
corporate action and/or related revocations, the Secretary shall provide for the
safekeeping of such consents and revocations and shall, as promptly as
practicable, engage nationally recognized independent judges of election for the
purpose of promptly performing a ministerial review of the validity of the
consents and revocations. No action by written consent and without a meeting
shall be effective until such judges have completed their review, determined
that the requisite number of valid and unrevoked consents has been obtained to
authorize or take the action specified in the consents, and certified such
determination for entry in the records of the Corporation kept for the purpose
of recording the proceedings of meetings of shareholders.
SECTION 2 - Board of Directors
SECTION 2.1 Number and Term of Office.
The number of directors shall be not less than 10 nor more than 19. The exact
number, within those limits, shall be fixed from time to time by the Board of
Directors. Each director shall hold office until a successor is elected and
qualified or until his earlier death, resignation or removal.
<PAGE>7
SECTION 2.2 Election.
The directors shall be elected annually by written ballot and, at each election,
the nominees receiving the greatest number of votes shall be the directors.
SECTION 2.3 Organization Meetings.
As promptly as practicable after each annual meeting of shareholders, an
organization meeting of the Board of Directors shall be held for the purpose of
organization and the transaction of other business.
SECTION 2.4 Stated Meetings.
The Board of Directors may provide for stated meetings of the Board.
SECTION 2.5 Special Meetings.
Special meetings of the Board of Directors may be called from time to time by
any four directors, by the chief executive officer, or by the chief operating
officer of the Corporation in concert with two directors.
SECTION 2.6 Business of Meetings.
Except as otherwise expressly provided in these Bylaws, any and all business may
be transacted at any meeting of the Board of Directors; provided, that if so
stated in the notice of meeting, the business transacted at a special meeting
shall be limited to the purpose or purposes specified in the notice.
SECTION 2.7 Time and Place of Meetings.
Subject to the provisions of Section 2.3, each meeting of the Board of Directors
shall be held on such date, at such hour and in such place as fixed by the Board
or in the notice or waivers of notice of the meeting or, in the case of an
adjourned meeting, as announced at the meeting at which the adjournment is
taken.
SECTION 2.8 Notice of Meetings.
No notice need be given of any organization or stated meeting of the Board of
Directors for which the date, hour and place have been fixed by the Board.
Notice of the date, hour and place of all other organization and stated
meetings, and of all special meetings, shall be given to each director
personally, by telephone or telegraph or by mail. If by mail, the notice shall
be deposited in the United States mail, postage prepaid, directed to the
director at his residence or usual place of business as the same appears on the
books of the Corporation not later than four days before the meeting. If given
by telegraph, the notice shall be directed to the director at his residence or
usual place of business as the same appears on the books of the Corporation not
later than at any time during the day before the meeting. If given personally
or by telephone, the notice shall be given not later than the day before the
meeting.
<PAGE>8
SECTION 2.9 Waiver of Notice.
Anything herein to the contrary notwithstanding, notice of any meeting of the
Board of Directors need not be given to any director who shall have waived in
writing notice of the meeting, either before or after the meeting, or who shall
attend such meeting, unless he attends for the express purpose of objecting, at
the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened.
SECTION 2.10 Attendance by Telephone.
Directors may participate in meetings of the Board of Directors by means of
conference telephone or similar communications equipment by means of which all
directors participating in the meeting can hear one another, and such
participation shall constitute presence in person at the meeting.
SECTION 2.11 Quorum and Manner of Acting.
One-third of the total number of directors at the time provided for pursuant to
Section 2.1 shall constitute a quorum for the transaction of business at any
meeting of the Board of Directors and, except as otherwise provided in these
Bylaws, in the certificate of incorporation or by statute, the act of a majority
of the directors present at any meeting at which a quorum is present shall be
the act of the Board. A majority of the directors present at any meeting,
regardless of whether or not they constitute a quorum, may adjourn the meeting
to another time or place. Any business which might have been transacted at the
original meeting may be transacted at any adjourned meeting at which a quorum is
present.
SECTION 2.12 Action Without a Meeting.
Any action which could be taken at a meeting of the Board of Directors may be
taken without a meeting if all of the directors consent to the action in writing
and the writing or writings are filed with the minutes of the Board.
SECTION 2.13 Compensation of Directors.
Each director of the Corporation who is not a salaried officer or employee of
the Corporation, or of a subsidiary of the Corporation, may receive compensation
for serving as a director and for serving as a member of any Committee of the
Board, and may also receive fees for attendance at any meetings of the Board or
any Committee of the Board, and the Board may from time to time fix the amount
and method of payment of such compensation and fees; provided, that no director
of the Corporation shall receive any bonus or share in the earnings or profits
of the Corporation or any subsidiary of the Corporation except pursuant to a
plan approved by the shareholders at a meeting called for the purpose. The
Board may also, by vote of a majority of disinterested directors, provide for
and pay fair compensation to directors rendering services to the Corporation not
ordinarily rendered by directors as such.
<PAGE>9
SECTION 2.14 Resignation of Directors.
Any director may resign at any time upon written notice to the Corporation. The
resignation shall become effective at the time specified in the notice and,
unless otherwise provided in the notice, acceptance of the resignation shall not
be necessary to make it effective.
SECTION 2.15 Removal of Directors.
Any director may be removed, either for or without cause, at any time, by the
affirmative vote of the holders of record of a majority of the outstanding
shares of stock entitled to vote at a meeting of the shareholders called for the
purpose, and the vacancy in the Board caused by any such removal may be filled
by the shareholders at such meeting or at any subsequent meeting; provided, that
no director elected by a class vote of less than all the outstanding shares of
the Corporation may, so long as the right to such a class vote continues in
effect, be removed pursuant to this Section 2.15, except for cause and by the
affirmative vote of the holders of record of a majority of the outstanding
shares of such class at a meeting called for the purpose, and the vacancy in the
Board caused by the removal of any such director may, so long as the right to
such class vote continues in effect, be filled by the holders of the outstanding
shares of such class at such meeting or at any subsequent meeting; provided,
further, that if less than all the directors then in office are to be removed,
no director may be removed without cause if the votes cast against his removal
would be sufficient to elect him if then cumulatively voted at an election of
the whole Board of Directors or, in the case of directors elected by a class
vote, the right to which class vote is still then in effect, if the votes cast
against his removal would be sufficient to elect him if then cumulatively voted
at an election of the class of directors of which he is a part.
SECTION 2.16 Filling of Vacancies Not Caused by Removal.
Vacancies and newly created directorships resulting from an increase in the
authorized number of directors may be filled by a majority of the directors then
in office, although less than a quorum, or by a sole remaining director;
provided, that if the vacancy to be filled would, at an election of the whole
Board of Directors, be filled by a class vote of less than all of the
outstanding shares of the Corporation, and if any of the directors remaining in
office were elected by the same class, such majority vote of the directors shall
be effective only if it is concurred in by a majority of the remaining directors
elected by such class or by a sole remaining director elected by such class. If
for any reason there shall be no directors in office, any officer, any
shareholder or any executor, administrator, trustee or guardian of a
shareholder, or other fiduciary with like responsibility for the person or
estate of a shareholder, may call a special meeting of shareholders in
accordance with the provisions of these Bylaws for the purpose of electing
directors.
<PAGE>10
SECTION 3 - Committees of the Board of Directors
SECTION 3.1 Executive Committee.
By resolution adopted by an affirmative vote of the majority of the whole Board
of Directors, the Board may appoint an Executive Committee consisting of the
directors who occupy the offices of the Chairman, chief executive and operating
officers of the Corporation, ex officio, and two or more other directors and, if
deemed desirable, one or more directors as alternate members who may replace any
absentee or disqualified member at any meeting of the Executive Committee. If
so appointed, the Executive Committee shall, when the Board is not in session,
have all the power and authority of the Board in the management of the business
and affairs of the Corporation not reserved to the Board by Section 3.3. The
Executive Committee shall keep a record of its acts and proceedings and shall
report the same from time to time to the Board of Directors.
SECTION 3.2 Other Committees.
By resolution adopted by an affirmative vote of the majority of the whole Board
of Directors, the Board may from time to time appoint such other Committees of
the Board, consisting of one or more directors and, if deemed desirable, one or
more directors who shall act as alternate members and who may replace any
absentee or disqualified member at any meeting of the Committee, and may
delegate to each such Committee any of the powers and authority of the Board in
the management of the business and affairs of the Corporation not reserved to
the Board pursuant to Section 3.3. Each such Committee shall keep a record of
its acts and proceedings.
SECTION 3.3 Powers Reserved to the Board.
No Committee of the Board shall take any action to amend the certificate of
incorporation or these Bylaws, adopt any agreement to merge or consolidate the
Corporation, declare any dividend or recommend to the shareholders a sale, lease
or exchange of all or substantially all of the assets and property of the
Corporation, a dissolution of the Corporation or a revocation of a dissolution
of the Corporation. No Committee of the Board shall take any action which is
required in these Bylaws, in the certificate of incorporation or by statute to
be taken by a vote of a specified proportion of the whole Board of Directors.
SECTION 3.4 Election of Committee Members; Vacancies.
So far as practicable, members of the Committees of the Board and their
alternates (if any) shall be appointed at each organization meeting of the Board
of Directors and, unless sooner discharged by an affirmative vote of the
majority of the whole Board, shall hold office until the next organization
meeting of the Board and until their respective successors are appointed. In
the absence or disqualification of any member of a Committee of the Board, the
member or members (including alternates) present at any meeting of the Committee
and not disqualified from voting, whether or not he or they constitute a quorum,
may unanimously appoint another director to act at the meeting in place of any
absent or disqualified member. Vacancies in Committees of the Board
<PAGE>11
created by death, resignation or removal may be filled by an affirmative vote
of a majority of the whole Board of Directors.
SECTION 3.5 Meetings.
Each Committee of the Board may provide for stated meetings of such Committee.
Special meetings of each Committee may be called by any two members of the
Committee (or, if there is only one member, by that member in concert with the
chief executive officer) or by the chief executive and chief operating officers
of the Corporation. The provisions of Section 2 regarding the business, time
and place, notice and waivers of notice of meetings, attendance at meetings and
action without a meeting shall apply to each Committee of the Board, except that
the references in such provisions to the directors and the Board of Directors
shall be deemed, respectively, to be references to the members of the Committee
and to the Committee.
SECTION 3.6 Quorum and Manner of Acting.
A majority of the members of any Committee of the Board shall constitute a
quorum for the transaction of business at meetings of the Committee, and the act
of a majority of the members present at any meeting at which a quorum is present
shall be the act of the Committee. A majority of the members present at any
meeting, regardless of whether or not they constitute a quorum, may adjourn the
meeting to another time or place. Any business which might have been transacted
at the original meeting may be transacted at any adjourned meeting at which a
quorum is present.
SECTION 4 - Officers
SECTION 4.1 Election and Appointment.
The elected officers of the Corporation shall consist of a Chairman, a
President, one or more Vice Presidents, a Controller, a Treasurer, a Secretary
and such other elected officers as shall from time to time be designated by the
Board of Directors. The Board shall designate from among such elected officers
a chief executive officer, a chief operating officer, a chief financial officer
and a chief accounting officer of the Corporation, and may from time to time
make, or provide for, other designations it deems appropriate. The Board may
also appoint, or provide for the appointment of, such other officers and agents
as may from time to time appear necessary or advisable in the conduct of the
affairs of the Corporation. Any number of offices may be held by the same
person, except no person may at the same time be both the chief executive and
the chief financial officer.
SECTION 4.2 Duties of the Chairman.
The Chairman shall preside, when present, at each meeting of shareholders and at
all meetings of the Board of Directors and the Executive Committee. He shall
have general supervision of the affairs of the Corporation and over the chief
executive officer in the discharge of his duties, and shall have such other
powers and duties as may from time to time be committed to him by the Board of
Directors.
<PAGE>12
SECTION 4.3 Duties of the Chief Executive Officer.
Under the general supervision of the Chairman, the chief executive officer of
the Corporation shall, in the absence of the Chairman, preside at all meetings
of shareholders and at all meetings of the Board of Directors, the Executive
Committee and, except to the extent otherwise provided in these Bylaws or by the
Board, shall have general authority to execute any and all documents in the name
of the Corporation and general and active supervision and control of all of the
business and affairs of the Corporation. In the absence of the chief executive
officer, his duties shall be performed and his powers may be exercised by the
chief operating officer or by such other officer as shall be designated either
by the chief executive officer in writing or (failing such designation) by the
Executive Committee or Board of Directors.
SECTION 4.4 Duties of Other Officers.
The other officers of the Corporation shall have such powers and duties not
inconsistent with these Bylaws as may from time to time be conferred upon them
in or pursuant to resolutions of the Board of Directors, and shall have such
additional powers and duties not inconsistent with such resolutions as may from
time to time be assigned to them by any competent superior officer. The Board
shall assign to one or more of the officers of the Corporation the duty to
record the proceedings of the meetings of the shareholders and the Board of
Directors in a book to be kept for that purpose.
SECTION 4.5 Term of Office and Vacancy.
So far as practicable, the elected officers shall be elected at each
organization meeting of the Board, and shall hold office until the next
organization meeting of the Board and until their respective successors are
elected and qualified. If a vacancy shall occur in any elected office, the
Board of Directors may elect a successor for the remainder of the term.
Appointed officers shall hold office at the pleasure of the Board or of the
officer or officers authorized by the Board to make such appointments. Any
officer may resign by written notice to the Corporation.
SECTION 4.6 Removal of Elected Officers.
Elected officers may be removed at any time, either for or without cause, by the
affirmative vote of a majority of the whole Board of Directors at a meeting
called for that purpose.
SECTION 4.7 Compensation of Elected Officers.
The compensation of all elected officers of the Corporation shall be fixed from
time to time by the Board of Directors; provided, that no elected officer of the
Corporation shall receive any bonus or share in the earnings or profits of the
Corporation or any subsidiary of the Corporation except pursuant to a plan
approved by the shareholders at a meeting called for the purpose.
<PAGE>13
SECTION 5 - Shares and Transfer of Shares
SECTION 5.1 Certificates.
The shares of the Corporation shall be represented by certificates or, if and to
the extent the Board of Directors determines, shall be uncertificated shares.
Notwithstanding any such determination by the Board of Directors, every
shareholder shall be entitled to a certificate signed by the Chairman or the
President or a Vice President and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary, certifying the class and number of
shares owned by him in the Corporation; provided, that, where such certificate
is countersigned by a Transfer Agent or a Registrar, the signature of any such
Chairman, President, Vice President, Treasurer, Assistant Treasurer, Secretary
or Assistant Secretary may be a facsimile. In case any officer or officers who
shall have signed or whose facsimile signature or signatures shall have been
used on any such certificate or certificates shall cease to be such officer or
officers, whether because of death, resignation or otherwise, before such
certificate or certificates shall have been issued by the Corporation, such
certificate or certificates may be issued by the Corporation with the same
effect as if he or they were such officer or officers at the date of issue.
SECTION 5.2 Transfer Agents and Registrars.
The Board of Directors may, in its discretion, appoint one or more responsible
banks or trust companies in the City of New York and in such other city or
cities (if any) as the Board may deem advisable, from time to time, to act as
Transfer Agents and Registrars of shares of the Corporation; and, when such
appointments shall have been made, no certificate for shares of the Corporation
shall be valid until countersigned by one of such Transfer Agents and registered
by one of such Registrars.
SECTION 5.3 Transfers of Shares.
Shares of the Corporation may be transferred upon authorization by the record
holder thereof, or by an attorney thereunto authorized by power of attorney duly
executed and filed with the Secretary or with a Transfer Agent and Registrar,
and by the delivery of the certificates therefor, provided such shares are
represented by certificates, accompanied either by an assignment in writing on
the back of the certificates or by written power of attorney to sell, assign or
transfer the same, signed by the record holder thereof, but no transfer shall
affect the right of the Corporation to pay any dividend upon the shares to the
holder of record thereof, or to treat the holder of record as the holder in fact
thereof for all purposes; and no transfer shall be valid, except between the
parties thereto, until such transfer shall have been made upon the books of the
Corporation.
<PAGE>14
SECTION 5.4 Lost Certificates.
In case any certificate for shares of the Corporation shall be lost, stolen or
destroyed, the Board of Directors, in its discretion, or any Transfer Agent
thereunto duly authorized by the Board, may authorize the issuance of a
substitute certificate in place of the certificate so lost, stolen or destroyed,
and may cause such substitute certificate to be countersigned by the appropriate
Transfer Agent (if any) and registered by the appropriate Registrar (if any);
provided, that in each such case, the applicant for a substitute certificate
shall furnish to the Corporation and to such of its Transfer Agents and
Registrars as may require same, evidence to their satisfaction, in their
discretion, of the loss, theft or destruction of such certificate and of the
ownership thereof, and such security or indemnity as may be required by them.
SECTION 5.5 Record Dates.
In order that the Corporation may determine the shareholders entitled to notice
of or to vote at any meeting of shareholders, or any adjournment thereof, or to
consent to action in writing without a meeting, or entitled to receive payment
of any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of shares
or for the purpose of any other lawful action, the Board of Directors may fix,
in advance, a record date which shall be not more than 60 nor less than 10 days
before the date of any meeting of shareholders, and not more than 60 days prior
to any other action. In such case, those shareholders, and only those
shareholders, who are shareholders of record on the date fixed by the Board of
Directors shall, notwithstanding any subsequent transfer of shares on the books
of the Corporation, be entitled to notice of and to vote at such meeting of
shareholders, or any adjournment thereof, or to consent to such corporate action
in writing without a meeting, or be entitled to receive payment of such dividend
or other distribution or allotment of rights, or be entitled to exercise rights
in respect of any such change, conversion or exchange of shares or to
participate in any such other lawful action.
SECTION 6 - Miscellaneous
SECTION 6.1 Fiscal Year.
The fiscal year of the Corporation shall be the calendar year.
SECTION 6.2 Surety Bonds.
The chief financial officer, the Controller, the Treasurer, each Assistant
Treasurer, and such other officers and agents of the Corporation as the Board of
Directors may from time to time direct shall be bonded at the expense of the
Corporation for the faithful performance of their duties in such amounts and by
such surety companies as the Board may from time to time determine.
<PAGE>15
SECTION 6.3 Signature of Negotiable Instruments.
All bills, notes, checks or other instruments for the payment of money shall be
signed or countersigned in such manner as from time to time may be prescribed by
resolution of the Board of Directors.
SECTION 6.4 General Auditor.
At each annual meeting, the shareholders shall appoint an independent public
accountant or firm of independent public accountants to act as the General
Auditor of the Corporation until the next annual meeting. Among other duties,
it shall be the duty of the General Auditor so appointed to make periodic audits
of the books and accounts of the Corporation. As soon as reasonably practicable
after the close of the fiscal year, the shareholders shall be furnished with
consolidated financial statements of the Corporation and its consolidated
subsidiaries, as at the end of such fiscal year, duly certified by such General
Auditor, subject to such notes or comments as the General Auditor shall deem
necessary or desirable for the information of the shareholders. In case the
shareholders shall at any time fail to appoint a General Auditor or in case the
General Auditor appointed by the shareholders shall decline to act or shall
resign or otherwise become incapable of acting, the Board of Directors shall
appoint a General Auditor to discharge the duties provided for herein. Any
General Auditor appointed pursuant to any of the provisions hereof shall be
directly responsible to the shareholders, and the fees and expenses of any such
General Auditor shall be paid by the Corporation.
SECTION 6.5 Indemnification of Officers, Directors, Employees, Agents and
Fiduciaries; Insurance.
(A) The Corporation may indemnify, in accordance with and to the full extent
permitted by the laws of the State of Delaware as in effect at the time of the
adoption of this Section 6.5 or as such laws may be amended from time to time,
and shall so indemnify to the full extent permitted by such laws, any person
(and the heirs and legal representatives of any such person) made or threatened
to be made a party to any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative, or investigative, by reason
of the fact that such person is or was a director, officer, employee, agent or
fiduciary of the Corporation or any constituent corporation absorbed in a
consolidation or merger, or serves as such with another corporation,
partnership, joint venture, trust or other enterprise at the request of the
Corporation or any such constituent corporation.
(B) By action of the Board of Directors notwithstanding any interest of the
directors in such action, the Corporation may purchase and maintain insurance in
such amounts as the Board of Directors deems appropriate on behalf of any person
who is or was a director, officer, employee, agent or fiduciary of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee, agent or fiduciary of another corporation,
partnership, joint venture, trust or other enterprise against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the Corporation shall have
the power to indemnify him against such liability under the provisions of this
Section 6.5.
SECTION 7 - Bylaws Amendments
SECTION 7.1 By the Shareholders.
These Bylaws may be amended by the shareholders at a meeting called for such
purpose in any manner not inconsistent with any provision of law or of the
certificate of incorporation.
SECTION 7.2 By the Directors.
These Bylaws may be amended by the affirmative vote of a majority of the whole
Board of Directors in any manner not inconsistent with any provision of law or
of the certificate of incorporation; provided, that the Board may not amend this
Section 7.2, or the bonus proviso of Section 2.13 (Compensation of Directors),
or Section 2.15 (Removal of Directors), Section 4.6 (Removal of Elected
Officers) or Section 4.7 (Compensation of Elected Officers).
<PAGE>
<TABLE><CAPTION> EXHIBIT 11
UNITED TECHNOLOGIES CORPORATION AND SUBSIDIARIES
Computations of Basic Earnings Per Share and Diluted Earnings Per Share
For the Five Years Ended December 31, 1998
(Millions of Dollars, except per share amounts)
1998 1997 1996 1995 1994 (1)
<S> <C> <C> <C> <C> <C>
Net Income $ 1,255 $ 1,072 $ 906 $ 750 $ 585
ESOP Convertible Preferred Stock dividend (33) (32) (30) (27) (22)
Basic earnings for period $ 1,222 $ 1,040 $ 876 $ 723 $ 563
ESOP Convertible Preferred Stock adjustment 28 27 24 21 17
Diluted earnings for period $ 1,250 $ 1,067 $ 900 $ 744 $ 580
Basic average number of shares outstanding during the
period (thousands) 227,767 234,443 241,454 245,642 251,077
Stock awards (thousands) 5,972 5,878 4,877 2,975 2,630
ESOP Convertible Preferred Stock (thousands) 13,641 13,234 12,275 10,889 9,285
Diluted average number of shares outstanding during the
period (thousands) 247,380 253,555 258,606 259,506 262,992
Basic earnings per common share $ 5.36 $ 4.44 $ 3.63 $ 2.94 $ 2.24
Diluted earnings per common share $ 5.05 $ 4.21 $ 3.48 $ 2.87 $ 2.20
(1)In 1994, the Corporation adopted AICPA Statement of Position (SOP) 93-6, "Employers' Accounting for
Employee Stock Ownership Plans" and conformed its calculations of earnings per common share to the
requirements of this SOP.
</TABLE>
<PAGE>
<TABLE><CAPTION> EXHIBIT 12
UNITED TECHNOLOGIES CORPORATION AND SUBSIDIARIES
Computation of Ratio of Earnings to Fixed Charges
(Millions of Dollars)
Years Ended December 31,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Fixed Charges:
Interest on indebtedness $ 204 $ 191 $ 217 $ 244 $ 275
Interest capitalized 13 11 16 16 19
One-third of rents* 84 87 87 88 101
Total Fixed Charges $ 301 $ 289 $ 320 $ 348 $ 395
Earnings:
Income (loss) before income taxes
and minority interests $ 1,963 $ 1,736 $ 1,501 $ 1,344 $ 1,076
Fixed charges per above 301 289 320 348 395
Less: interest capitalized (13) (11) (16) (16) (19)
288 278 304 332 376
Amortization of interest capitalized 34 37 38 41 43
Total Earnings $ 2,285 $ 2,051 $ 1,843 $ 1,717 $ 1,495
Ratio of Earnings to Fixed Charges 7.59 7.10 5.76 4.93 3.78
* Reasonable approximation of the interest factor.
</TABLE>
<PAGE>
EXHIBIT 13
<TABLE>
<CAPTION>
FIVE-YEAR SUMMARY
IN MILLIONS OF DOLLARS (EXCEPT PER SHARE AMOUNTS) 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR
Revenues $ 25,715 $ 24,222 $ 23,051 $ 22,428 $ 20,934
Research and development 1,315 1,187 1,122 963 978
Segment operating profit margin 9.6% 8.9% 8.6% 7.8% 7.3%
Net income 1,255 1,072 906 750 585
Earnings per share:
Basic 5.36 4.44 3.63 2.94 2.24
Diluted 5.05 4.21 3.48 2.87 2.20
Cash dividends per common share 1.39 1.24 1.10 1.025 .95
Average number of shares of Common Stock outstanding (thousands):
Basic 227,767 234,443 241,454 245,642 251,077
Diluted 247,380 253,555 258,606 259,506 262,992
Return on average common shareowners' equity, after tax 28.6% 24.5% 21.1% 18.6% 15.4%
AT YEAR END
Working capital $ 1,620 $ 1,905 $ 2,287 $ 2,282 $ 1,701
Total assets 18,375 16,440 16,412 15,596 15,403
Long-term debt, including current portion 1,675 1,398 1,534 1,747 2,041
Total debt 2,187 1,587 1,750 2,012 2,439
Debt to total capitalization 33% 28% 29% 33% 39%
Net debt (total debt less cash) 1,637 932 752 1,273 2,167
Net debt to total capitalization 27% 19% 15% 24% 37%
ESOP Preferred Stock, net 456 450 434 398 339
Shareowners' equity 4,378 4,073 4,306 4,021 3,752
Equity per common share 19.45 17.78 18.08 16.47 15.24
Number of employees 178,800 168,900 163,000 160,600 161,500
</TABLE>
2
<PAGE>
MANAGEMENT'S DISCUSSION
AND ANALYSIS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL POSITION
The Corporation's operations are classified into five principal operating
segments. Otis, Carrier and UT Automotive serve customers in the commercial
property, residential housing and automotive industries. Pratt & Whitney and the
Flight Systems segment, which includes Sikorsky Aircraft and Hamilton Standard,
serve commercial and government customers in the aerospace industry. The
Corporation's segment operating results are discussed in the Segment Review and
Note 15 of Notes to Consolidated Financial Statements.
BUSINESS ENVIRONMENT
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.
Revenues from outside the U.S., including U.S. export sales, in dollars and as a
percentage of total segment revenues, are as follows:
in millions of dollars 1998 1997 1996 1998 1997 1996
- -------------------------------------------------------------------------------
Europe $ 5,240 $ 4,788 $ 4,800 20% 19% 20%
Asia Pacific 2,508 2,952 3,042 10% 12% 13%
Other 2,559 2,380 2,238 10% 10% 10%
U.S. Exports 4,310 4,022 3,124 16% 16% 13%
------------------------------------------------------
International
Revenues $14,617 $14,142 $13,204 56% 57% 56%
------------------------------------------------------
As part of its globalization strategy, the Corporation has invested in
businesses in emerging markets, including the People's Republic of China (PRC),
the former Soviet Union and other emerging nations, which carry higher levels of
currency, political and economic risks than investments in developed markets. At
December 31, 1998, the Corporation's net investment in any one of these
countries was less than 3% of consolidated equity.
The Asian economic crisis 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 compared to recent years. While recognizing
that the Asian economic downturn will 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.
OTIS is the world's largest elevator and escalator manufacturing and service
company. The elevator and escalator service market is an important aspect of
Otis' business. Otis is impacted by global and regional economic factors,
particularly fluctuations in commercial construction which affect new equipment
installations, and labor costs which can impact service and maintenance margins
on installed elevators and escalators. In 1998, 81% of Otis' revenues were
generated outside the U.S. Accordingly, changes in foreign currency exchange
rates can significantly affect the translation of Otis' operating results into
U.S. dollars for financial reporting purposes.
During 1998, U.S. office building construction starts were higher than the
prior year and commercial vacancy rates continued to improve. In Europe, Otis'
new equipment activity increased along with a growing base of service business.
Otis maintains a significant presence in the Asia Pacific region where economies
remained weak.
CARRIER is the world's largest manufacturer of commercial and residential
heating, ventilating and air conditioning (HVAC) systems and equipment. Carrier
also produces transport and commercial refrigeration equipment, and provides
after-market service and component sales. In late 1997, Carrier formed the
Refrigeration Operations group from the former Carrier Transicold business and
the newly acquired Commercial Refrigeration Operations. During 1998, 52% of
Carrier's revenues were generated by international operations and U.S. exports.
Accordingly, Carrier's results are impacted by a number of external factors
including commercial and residential construction activity worldwide, regional
economic and weather conditions and changes in foreign currency exchange rates.
U.S. residential housing and commercial construction starts increased in 1998,
compared to 1997. Asian economies remained weak in 1998 while European economies
strengthened.
UT AUTOMOTIVE (UTA) develops and manufactures a wide variety of electrical and
interior trim systems and components for original equipment manufacturers (OEMs)
in the automotive industry. Sales to Ford Motor Company, UTA's largest customer,
were 33% of UTA's revenues in 1998. UTA also has important relationships with
DaimlerChrysler and General Motors as well as European manufacturers PSA,
Renault, Volvo, Austin Rover/BMW, SAAB and Fiat and the U.S. manufacturing
divisions of Japanese automotive OEMs.
North American car and light truck production was lower while European car
sales were higher in 1998, compared to 1997. UTA was unfavorably impacted by a
strike at General Motors, during 1998, while benefiting from higher volumes in
Europe. The automotive OEMs require significant cost reduction and performance
improvements from suppliers and require suppliers to bear an increasing portion
of engineering, design, development, tooling and warranty expenditures.
During 1998, 43% of UTA's revenues were generated by international operations
and U.S. exports. Accordingly, UTA's results can be impacted by changes in
foreign currency exchange rates.
"Earnings per share has grown 20% or more for the past five years"
[Quotation at the bottom of the page]
3
<PAGE>
"Declining effective tax rate contributes to improved bottom line"
[Quotation at the top of the page]
In response to the rapid consolidation of OEM suppliers, the Corporation has
engaged an investment banking firm to explore various strategic alternatives for
UT Automotive, including possible divestiture of all or part of the business.
COMMERCIAL AEROSPACE
The financial performance of the Corporation's Pratt & Whitney and Flight
Systems segments is directly tied to the aviation industry. Pratt & Whitney is a
major supplier of commercial, general aviation and military aircraft engines,
along with spare parts, product support and a full range of overhaul, repair and
fleet management services. The Flight Systems segment provides environmental,
flight and fuel control systems and propellers for commercial and military
aircraft through Hamilton Standard, and commercial and military helicopters,
along with after-market products and services, through Sikorsky Aircraft.
Worldwide airline profits, traffic growth and load factors have been reliable
indicators for new aircraft and after-market orders. During 1998, U.S. and
European airlines experienced continued profitability driven primarily by low
fuel prices and the effect of cost reduction programs. Airlines in the Asia
Pacific region have suffered declines 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 impact of the Asian economic downturn or a slowdown
in the aviation industry, as a whole, will result in lower manufacturing volumes
in the near term.
Over the past several years, Pratt & Whitney's mix of large commercial engine
shipments has shifted to newer, higher thrust engines for wide-bodied aircraft
in a market which is very price and product competitive. In order to update and
further diversify its product base, Pratt & Whitney began development of the
PW6000, a 16,000 to 23,000 pound-thrust engine designed specifically for the
short-to-medium haul, 100 to 120 passenger, narrow-bodied aircraft market. The
PW6000 is expected to enter service in 2002, with delivery to the first of two
major customers.
The follow-on spare parts sales for Pratt & Whitney engines in service have
traditionally been an important source of profit for the Corporation. The large
investment required for new aircraft, coupled with performance improvements and
hush-kit upgrades to older aircraft and engines, have resulted in lengthened
lives of older aircraft in operation, including those with Pratt & Whitney
engines.
Technological improvements to newer generation engines that increase
reliability, as well as vertical integration of engine manufacturers in the
overhaul and maintenance business, may change the market environment in the
after-market business.
GOVERNMENT BUSINESS
During 1998, the Corporation's sales to the U.S. Government were $3,264 million
or 13% of total sales, compared with $3,311 million or 14% of total sales in
1997 and $3,382 million or 15% of total sales in 1996.
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.
Sikorsky will continue to supply Black Hawk helicopters and derivatives
thereof to the U.S. and foreign governments under contracts extending into 2002
at lower volumes than in the past. The U.S. Army Comanche helicopter contract,
awarded to a Sikorsky/Boeing joint venture, supports completion of prototype
development, flight testing and aircraft for initial field tests.
The significant decrease in the U.S. defense procurement of helicopters in
recent years and the resulting overcapacity has led to some consolidation of
U.S. helicopter manufacturers. Sikorsky is responding to these continued
consolidation pressures by improving its products and concentrating on
increasing its after-market and foreign government sales. In addition, an
international team led by Sikorsky is developing the S-92, a large cabin
derivative of the Black Hawk family, for commercial and military markets. This
aircraft made its first flight in December 1998.
Pratt & Whitney continues to deliver F100 engines and military spare parts to
both U.S. and foreign governments. Pratt & Whitney engines have been selected to
power two of the primary U.S. Air Force programs of the future: the C-17
airlifter which is currently in production and the F-22 fighter (F119 engine)
which is currently being developed. Derivatives of Pratt & Whitney's F119 engine
were chosen to provide power for the Joint Strike Fighter demonstration
aircraft. The Joint Strike Fighter program is intended to lead to the
development of a single aircraft, with two configurations, to satisfy future
requirements of the U.S. Navy, Air Force and Marine Corps and the United Kingdom
Royal Navy.
RESULTS OF OPERATIONS
IN MILLIONS OF DOLLARS 1998 1997 1996
- ------------------------------------------------------------------
Sales $25,687 $23,989 $22,788
Financing revenues and
other income, net 28 233 263
--------- --------- ---------
Revenues $25,715 $24,222 $23,051
--------- --------- ---------
Consolidated revenues increased 6% in 1998 and 5% in 1997. Excluding the
unfavorable impact of foreign currency translation, consolidated revenues
increased by 8% in both years. The Corporation estimates that increases in
selling prices to customers averaged approximately 1% each year.
Financing revenues and other income, net, decreased $205 million in 1998 and
$30 million in 1997. The 1998 decrease is primarily due to the costs of Pratt &
Whitney's repurchases of participant interests in commercial engine programs,
partially offset by the favorable settlement of a contract dispute with the U.S.
Government.
IN MILLIONS OF DOLLARS 1998 1997 1996
- ------------------------------------------------------------------
Cost of sales $19,276 $18,288 $17,415
Gross margin % 25.0% 23.8% 23.6%
Gross margin as a percentage of sales increased 1.2 percentage points in 1998
and two-tenths of a percentage point in 1997. The 1998 increase is primarily due
to improved margin percentages at Pratt & Whitney. Gross margin in both years
benefited from the Corporation's continuing cost reduction efforts.
IN MILLIONS OF DOLLARS 1998 1997 1996
- ------------------------------------------------------------------
Research and development $1,315 $1,187 $1,122
Percent of sales 5.1% 4.9% 4.9%
Research and development spending increased $128 million (11%) and $65
4
<PAGE>
million (6%) in 1998 and 1997. The increases were primarily due to increases at
Pratt & Whitney and UT Automotive. Research and development expenses in 1999 are
expected to remain at approximately 5% of sales.
IN MILLIONS OF DOLLARS 1998 1997 1996
- -------------------------------------------------------------------
Selling, general and
administrative $ 2,957 $ 2,820 $ 2,796
Percent of sales 11.5% 11.8% 12.3%
Selling, general and administrative expenses, as a percentage of sales,
decreased three-tenths of a percentage point in 1998 and five-tenths of a
percentage point in 1997. The 1998 decrease was primarily due to Otis, while the
1997 decrease was due to Pratt &Whitney and Flight Systems.
IN MILLIONS OF DOLLARS 1998 1997 1996
- -------------------------------------------------------------------
Interest expense $ 204 $ 191 $ 217
Interest expense increased 7% in 1998, due to increased short-term borrowing
needs and the issuance of $400 million of 6.7% notes in August. Interest expense
decreased 12% in 1997 due to reduced average borrowing levels.
YEARS ENDED DECEMBER 31 1998 1997 1996
- --------------------------------------------------------------------
Average interest rate for the year:
Short-term borrowings 10.3% 11.7% 11.8%
Total debt 8.3% 8.3% 8.7%
The average interest rate, for the year, on short-term borrowings exceed those
of total debt due to higher short-term borrowing rates in certain foreign
operations.
The weighted-average interest rate applicable to debt outstanding at December
31, 1998 was 6.7% for short-term borrowings and 7.3% for total debt.
Weighted-average short-term borrowing rates are lower than those of total debt
at December 31, 1998, due to the addition of commercial paper borrowings in the
latter part of the year.
1998 1997 1996
- --------------------------------------------------------------------
Effective income tax rate 31.7% 32.5% 32.9%
The Corporation has reduced its effective income tax rate by implementing tax
reduction strategies.
The future tax benefit arising from net deductible temporary differences is
$2,352 million and relates to expenses recognized for financial reporting
purposes which will result in tax deductions over varying future periods.
Management believes that the Corporation's earnings during the periods when the
temporary differences become deductible will be sufficient to realize those
future income tax benefits.
While some tax credit and loss carryforwards have no expiration date, certain
foreign and state tax loss carryforwards arise in a number of different tax
jurisdictions with expiration dates beginning in 1999. For those jurisdictions
where the expiration date or the projected operating results indicate that
realization is not likely, a valuation allowance has been provided.
The Corporation believes, based upon a review of prior period income tax
returns, it is entitled to income tax refunds for prior periods. The Internal
Revenue Service reviews these potential refunds as part of the examination of
the Corporation's income tax returns and the impact on the Corporation's
liability for income taxes for these years cannot presently
be determined.
Minority interest expense decreased $14 million (14%) in 1998 and $2 million
(2%) in 1997. The 1998 decrease is due to the level of the Corporation's
earnings in less than wholly-owned subsidiaries, principally in Asia, and recent
purchases of minority-shareholder interests.
Net income:
Increased 17% or $183 million from 1997 to 1998.
Increased 18% or $166 million from 1996 to 1997.
[GRAPHIC OMITTED: Bar Chart Showing
Effective Tax Rate (%) from 1994-1998]
Data Points as follows:
1994 35.7%
1995 34.5%
1996 32.9%
1997 32.5%
1998 31.7%
SEGMENT REVIEW
Operating segment and geographic data include the results of all majority-owned
subsidiaries, consistent with the management of these businesses. For certain of
these subsidiaries, minority shareholders have rights which, under the
provisions of Emerging Issues Task Force Issue No. 96-16, "Investor's Accounting
for an Investee When the Investor Has a Majority of the Voting Interest but the
Minority Shareholder or Shareholders Have Certain Approval or Veto Rights" (EITF
96-16), overcome the presumption of consolidation. In the Corporation's
consolidated results, these subsidiaries are accounted for using the equity
method of accounting.
<TABLE>
<CAPTION>
Revenues Operating Profits Operating Profit Margin
IN MILLIONS OF DOLLARS 1998 1997 1996 1998 1997 1996 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Otis $5,572 $5,548 $5,595 $ 533 $ 465 $ 524 9.6% 8.4% 9.4%
Carrier 6,922 6,056 5,958 495 458 422 7.2% 7.6% 7.1%
UT Automotive 2,962 2,987 3,233 169 173 196 5.7% 5.8% 6.1%
Pratt & Whitney 7,876 7,402 6,201 1,024 816 637 13.0% 11.0% 10.3%
Flight Systems 2,891 2,804 2,596 287 301 244 9.9% 10.7% 9.4%
</TABLE>
"Operating cash flows remained strong"
[Quotation at the bottom of the page]
5
<PAGE>
"Segment opertaing profit continued to improve despite the Asian economic
crisis and cost reduction charges"
[Quotation at the top of the page]
1998 COMPARED TO 1997
OTIS revenues increased $24 million in 1998. Excluding the unfavorable impact of
foreign currency translation, 1998 revenues increased 3% with increases in
Europe, North America and Latin America, partially offset by declines in Asia.
Otis operating profits increased $68 million (15%) in 1998. Excluding the
unfavorable impact of foreign currency translation, 1998 operating profits
increased 17%. European, North American and Latin American operations improved
in 1998, partially offset by declines in Asian operations and higher charges
related to workforce reductions and the consolidation of manufacturing and
engineering facilities.
CARRIER revenues increased $866 million (14%) in 1998. Excluding the unfavorable
impact of foreign currency translation, 1998 revenues increased 17% due to the
impact of acquisitions, as well as, increases in the Refrigeration Operations,
North America, Europe and Latin America, partially offset by declines in Asia.
Carrier operating profits increased $37 million (8%) in 1998. Excluding the
unfavorable impact of foreign currency translation, 1998 operating profits
increased 11%. The 1998 increase reflects improvements in the Refrigeration
Operations, North America, Latin America and Europe and the impact of
acquisitions which more than offset declines in Asia. The 1998 results include
charges related to workforce reductions and plant closures.
UT AUTOMOTIVE revenues decreased $25 million (1%) in 1998, reflecting declines
in the electrical and interiors businesses, which were primarily due to lower
selling prices and a strike at General Motors. These declines were partially
offset by increases in Europe.
UT Automotive operating profits decreased $4 million (2%) in 1998 due to
higher research and development spending in connection with new programs, higher
selling, general and administrative expenses, lower selling prices and a strike
at General Motors. The 1997 results include charges related to administrative
workforce reductions and a provision for a plant closure.
PRATT & WHITNEY revenues increased $474 million (6%) in 1998, reflecting higher
after-market revenues, resulting primarily from acquisitions, as well as,
increased commercial engine shipments and U.S. military development revenues.
The 1998 results also reflect the favorable settlement of a contract dispute
with the U.S. Government and costs to repurchase interests from participants in
commercial engine programs.
Pratt & Whitney operating profits increased $208 million (25%), reflecting
higher engine margins, increased U.S. military development volumes, higher
after-market volumes and productivity improvements. These items were partially
offset by costs to repurchase interests from participants in commercial engine
programs, charges related to workforce reduction efforts in the U.S. and Canada,
higher research and development spending and selling, general and administrative
expenses. The 1998 results also reflect the favorable settlement of a contract
dispute with the U.S. Government and favorable resolution of customer contract
issues.
FLIGHT SYSTEMS revenues increased $87 million (3%) in 1998 primarily due to
increased revenues at Hamilton Standard, which were favorably impacted by the
first quarter 1998 acquisition of a French aerospace components manufacturer,
partly offset by lower volumes at Sikorsky.
Flight Systems operating profits decreased $14 million (5%) in 1998 due to
lower volumes at Sikorsky and cost reduction charges taken at both units. The
1998 decline was partly offset by improvements at Hamilton Standard, mostly due
to the first quarter acquisition of a French aerospace components manufacturer.
[GRAPHIC OMITTED: Bar Chart showing
Segment Operating Profits ($ Billions)
from 1994-1998]
Data Points as follows:
1994 $1.554
1995 1.795
1996 2.023
1997 2.213
1998 2.508
[GRAPHIC OMITTED: Bar Chart showing
Operating Cash Flows ($ Billions) from
1994-1998]
Data Points as follows:
1994 $1.357
1995 2.044
1996 2.079
1997 2.090
1998 2.509
1997 COMPARED TO 1996
OTIS revenues decreased $47 million (1%) in 1997. Excluding the unfavorable
impact of foreign currency translation, 1997 revenues increased 7% with all
regions showing growth.
Otis operating profits decreased $59 million (11%) in 1997. Excluding
the unfavorable impact of foreign currency translation, 1997 operating profits
decreased 2%. The 1997 results include the impact of salaried workforce
reductions designed to lower costs and streamline the organization. North
American, Latin American and European operations improved in 1997, while Asian
operations declined.
CARRIER revenues increased $98 million (2%) in 1997. Excluding the unfavorable
impact of foreign currency translation, 1997 revenues increased 5%, primarily
due to the impact of European acquisitions and increases at Carrier Transicold.
Revenue increases were partially offset by declines due to sluggish economic
conditions in Europe, unseasonably cool summer selling seasons in Europe and
North America and an economic downturn in the Asia Pacific region, particularly
Southeast Asia.
Carrier operating profits increased $36 million (9%) in 1997. Excluding the
unfavorable impact of foreign currency translation, 1997 operating profits
increased 12%. The 1997 increase reflects improvements at Carrier Transicold and
the impact of acquisitions which more than offset declines in the Asian and
European operations and the weather related weakness noted above.
UT AUTOMOTIVE revenues decreased $246 million (8%) in 1997. Foreign currency
translation reduced 1997 revenues by 3%. The comparative decrease in 1997
revenues is also the result of the sale of the steering wheels business in the
fourth quarter of 1996 and lower volumes at most businesses.
UT Automotive operating profits decreased $23 million (12%) in 1997. For-
6
<PAGE>
eign currency translation reduced 1997 operating profits by 7%. The comparative
results were also impacted by lower volumes, domestic administrative workforce
reductions, a provision for a European plant closure in 1997 and the fourth
quarter 1996 sale of the steering wheels business, which more than offset
improvements at the interiors business and in Europe.
PRATT & WHITNEY revenues increased $1,201 million (19%) in 1997, reflecting
higher volumes in both the after-market and new engine businesses.
Pratt & Whitney operating profits increased $179 million (28%), reflecting
strong after-market results partially offset by higher research and development
spending. Operating results in 1997 also benefited from continued cost reduction
efforts which more than offset raw material price increases and costs associated
with staff reductions.
FLIGHT SYSTEMS revenues increased $208 million (8%) in 1997 due to increases at
both Hamilton Standard and Sikorsky.
Flight Systems operating profits increased $57 million (23%) in 1997 as a
result of continuing operating performance improvement at both Hamilton Standard
and Sikorsky, partially offset by higher research and development spending.
LIQUIDITY AND FINANCING COMMITMENTS
Management assesses the Corporation's liquidity in terms of its overall ability
to generate cash to fund its operating and investing activities. Significant
factors affecting the management of liquidity are cash flows generated from
operating activities, capital expenditures, customer financing requirements,
adequate bank lines of credit and the ability to attract long-term capital with
satisfactory terms.
IN MILLIONS OF DOLLARS 1998 1997 1996
- -------------------------------------------------------------------
Net cash flows provided by
operating activities $ 2,509 $ 2,090 $ 2,079
Capital expenditures (866) (819) (770)
(Increase) decrease in customer
financing assets, net (213) 39 48
Acquisition funding (1,241) (584) (317)
Common Stock repurchase (650) (849) (459)
Change in total debt 600 (163) (262)
Change in net debt 705 180 (521)
Cash flows provided by operating activities were $2,509 million during 1998
compared to $2,090 million in 1997. The increase resulted from improved
operating and working capital performance. Cash flows used in investing
activities were $2,269 million during 1998 compared to $1,167 million in 1997.
Capital expenditures in 1998 were $866 million, a $47 million increase over
1997. The Corporation expects 1999 capital spending to approximate that of 1998.
Customer financing activity was a net use of cash of $213 million in 1998
compared to a net source of cash of $39 million in 1997, primarily as a result
of first quarter 1998 funding for an airline customer. While the Corporation
expects that customer financing activity will be a net use of cash in 1999,
actual funding is subject to usage under existing customer financing
commitments. In 1998, the Corporation invested $1,241 million in the acquisition
of businesses including Pratt & Whitney's investment in an overhaul and repair
joint venture in Singapore, Hamilton Standard's acquisition of a French
aerospace components manufacturer, Carrier's investment in a United States based
distributor of HVAC equipment and Otis' purchase of the outstanding minority
shares of a European subsidiary. The Corporation repurchased $650 million and
$849 million of Common Stock during 1998 and 1997, representing 7.4 million and
11.2 million shares, under previously announced share repurchase programs. Share
repurchase continues to be a significant use of the Corporation's strong cash
flows and has more than offset the dilutive effect resulting from the issuance
of stock under stock-based employee benefit programs. In October 1998, the
Corporation's Board of Directors authorized the acquisition of an additional 15
million shares under the Corporation's share repurchase program.
[GRAPHIC OMITTED: Bar Chart showing
Acquisitions ($ Millions) from 1994-1998]
Data Points as follows:
1994 $ 125
1995 204
1996 317
1997 584
1998 1,241
[GRAPHIC OMITTED: Bar Chart showing Share
Repurchase ($ Millions) from 1994-1998]
Data Points as follows:
1994 $270
1995 221
1996 459
1997 849
1998 650
IN MILLIONS OF DOLLARS 1998 1997
- -------------------------------------------------------
Cash and cash equivalents $ 550 $ 655
Total debt 2,187 1,587
Net debt (total debt less cash) 1,637 932
Shareowners' equity 4,378 4,073
Debt to total capitalization 33% 28%
Net debt to total capitalization 27% 19%
At December 31, 1998, the Corporation had credit commitments from banks
totaling $1.5 billion under a Revolving Credit Agreement, which serves as
back-up for a commercial paper facility. At December 31, 1998, there were no
borrowings under the Revolving Credit Agreement. In addition, at December 31,
1998, approximately $1.1 billion was available under short-term lines of credit
with local banks at the Corporation's various international subsidiaries.
As described in Note 8 of Notes to Consolidated Financial Statements, the
Corporation issued $400 million of unsubordinated, unsecured, nonconvertible
notes in August 1998. The proceeds were used for general corporate purposes,
including acquisitions and repurchases of the Corporation's Common Stock. At
December 31, 1998, up to $471 million of additional medium-term and long-term
debt could be issued under a registration statement on file with the Securities
and Exchange Commission.
At December 31, 1998, the Corporation had commitments of $1,420 million to
finance or arrange financing related to commercial aircraft, of which as much as
$600 million may be required to be disbursed in 1999. The Corporation cannot
currently predict the extent to which these commitments will be utilized, since
certain customers may be able to obtain more favorable terms from other
financing sources. The Corporation may also arrange for third-
"Acquisitions exceeded $1.2 billion for the year"
[Quotation at the bottom of the page]
7
<PAGE>
"Share repurchase contributes to increased shareholder value"
[Quotation at the top of the page]
party investors to assume a portion of its commitments. Refer to Note 4 of Notes
to Consolidated Financial Statements for additional discussion of the
Corporation's commercial airline industry assets and commitments.
The Corporation believes that existing sources of liquidity are adequate to
meet anticipated borrowing needs at comparable risk-based interest rates for the
foreseeable future. Management anticipates the level of debt to capital will
increase moderately in order to satisfy its various cash flow requirements,
including acquisition spending and continued share repurchases.
DERIVATIVE AND OTHER FINANCIAL INSTRUMENTS
The Corporation is exposed to changes in foreign currency exchange and interest
rates primarily in its cash, debt and foreign currency transactions. The
Corporation uses derivative instruments, including swaps, forward contracts and
options, to manage certain foreign currency exposures. Derivative instruments
utilized by the Corporation in its hedging activities are viewed as risk
management tools, involve little complexity and are not used for trading or
speculative purposes. The Corporation diversifies the counterparties used and
monitors the concentration of risk to limit its counterparty exposure.
International revenues, including U.S. export sales, averaged approximately
$14 billion over the last three years, resulting in a large volume of foreign
currency commitment and transaction exposures and significant foreign currency
net asset exposures. Foreign currency commitment and transaction exposures are
managed at the operating unit level as an integral part of the business and
residual exposures that cannot be offset to an insignificant amount are hedged.
These hedges are initiated by the operating units, with execution coordinated on
a corporate-wide basis, and are scheduled to mature coincident with the timing
of the underlying foreign currency commitments and transactions. Currently, the
Corporation does not hold any derivative contracts that hedge its foreign
currency net asset exposures.
The Corporation's cash position includes amounts denominated in foreign
currencies. The Corporation manages its worldwide cash requirements considering
available funds among its many subsidiaries and the cost effectiveness with
which these 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.
The Corporation's long-term debt portfolio consists mostly of fixed-rate
instruments in order to minimize earnings volatility related to interest
expense. The Corporation currently does not hold interest rate derivative
contracts.
The Corporation has evaluated its exposure to changes in foreign currency
exchange and interest rates in its market risk sensitive instruments, primarily
cash, debt and derivative instruments, using a value at risk analysis. Based on
a 95% confidence level and a one-day holding period, at December 31, 1998 and
1997, the potential loss in fair value of the Corporation's market risk
sensitive instruments was not material in relation to the Corporation's
financial position, results of operations or cash flows. The Corporation's
calculated value at risk exposure represents an estimate of reasonably possible
net losses based on historical market rates, volatilities and correlations and
is not necessarily indicative of actual results.
Refer to Notes 1, 12 and 13 of Notes to Consolidated Financial Statements for
additional discussion of the Corporation's foreign exchange and financial
instruments.
ENVIRONMENTAL MATTERS
The Corporation's operations are subject to environmental regulation by federal,
state and local authorities in the United States and regulatory authorities with
jurisdiction over its foreign operations. As a result, the Corporation has
established, and continually updates, policies relating to environmental
standards of performance for its operations worldwide. The Corporation believes
that expenditures necessary to comply with the present regulations governing
environmental protection will not have a material effect upon its cash flows,
competitive position, financial position or results of operations.
The Corporation has identified approximately 380 locations, mostly in the
United States, at which it may have some liability for remediating
contamination. The Corporation does not believe that any individual location's
exposure is material to the Corporation. Sites in the investigation or
remediation stage represent approximately 98% of the Corporation's recorded
liability. The remaining 2% of the recorded liability consists of sites where
the Corporation may have some liability but investigation is in the initial
stages or has not begun.
The Corporation has been identified as a potentially responsible party under
the Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA" or Superfund) at approximately 90 sites. The number of Superfund
sites, in and of itself, does not represent a relevant measure of liability
because the nature and extent of environmental concerns vary from site to site
and the Corporation's share of responsibility varies from sole responsibility to
very little responsibility. In estimating its liability for remediation, the
Corporation considers its likely proportionate share of the anticipated
remediation expense and the ability of other potentially responsible parties to
fulfill their obligations.
Environmental remediation expenditures were $37 million in 1998, $35
million in 1997 and $30 million in 1996. The Corporation estimates that
environmental remediation expenditures in each of the next two years will not
exceed $50 million in the aggregate.
Additional discussion of the Corporation's environmental matters is included
in Notes 1 and 14 of Notes to Consolidated Financial Statements.
U.S. GOVERNMENT
The Corporation's contracts with the U.S. Government are subject to audits. Like
many defense contractors, the Corporation has received audit reports which
recommend that certain contract prices should be reduced to comply with various
government regulations. Some of these audit reports involve substantial amounts.
The Corporation has made voluntary refunds in those cases it believes
appropriate.
FUTURE ACCOUNTING CHANGES
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" which is effective January 1, 2000. Also in
8
<PAGE>
June 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use", which the Corporation will
adopt in 1999. Management believes adoption of these requirements will not have
a material impact on the Corporation's financial position, results of operations
or cash flows.
YEAR 2000
The Corporation has developed a project plan to address the impact of the Year
2000 on its internal systems, products and facilities, as well as, its key
suppliers and customers. The project has strong executive sponsorship and has
been reviewed by an independent third party. The project consists of the
following phases: awareness, assessment, remediation, testing and contingency
planning.
The Corporation has substantially completed the awareness and assessment
phases, with respect to its internal systems, products and facilities. The
Corporation is in the process of carrying out the remediation and testing
phases, which are expected to be substantially completed by September 1999.
The Corporation has been assessing its Year 2000 risks related to significant
relationships with third parties via ongoing communication with its critical
suppliers and customers. As part of the process, the Corporation has requested
written assurances from these suppliers and customers that they have Year 2000
readiness programs in place, as well as an affirmation that they will be
compliant when necessary. Responses to these inquiries are currently being
gathered and reviewed. Further analysis, including site visits, will be
conducted as necessary. Activities related to third parties are scheduled to be
completed by September 1999. Despite these efforts, the Corporation can provide
no assurance that supplier and customer Year 2000 compliance plans will be
successfully completed in a timely manner.
The Corporation is taking 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 $140 million. Internal costs, which are
primarily payroll related, are expected to be approximately $55 million. These
costs are being funded through operating cash flows with amounts that would
normally be budgeted for the Corporation's information systems and production
and facilities equipment. As of December 31, 1998, total costs of external and
internal resources incurred amounted to approximately $75 million and relate
primarily to internal systems, products and facilities. 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.
The schedule for completion and the estimated associated costs are based on
management's estimates, which include assumptions of future events. 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.
Accordingly, the Corporation has begun developing contingency plans to address
potential issues which include, among other actions, development of backup
procedures and identification of alternate suppliers. Contingency planning is
expected to be substantially completed by September 1999. 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 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.
EURO CONVERSION
On January 1, 1999, the European Economic and Monetary Union (EMU) entered a
three-year transition phase during which a common currency, the "euro", was
introduced in participating countries. Initially, the euro is being used for
wholesale financial transactions and it will replace the legacy currencies that
will be withdrawn between January 1, 2002 and July 1, 2002. The Corporation has
been preparing for the euro since December of 1996 and has identified issues and
developed implementation plans associated with the conversion, including
technical adaptation of information technology and other systems, continuity of
long-term contracts, foreign currency considerations, long-term competitive
implications of the conversions and the effect on the market risk inherent in
financial instruments. These implementation plans are expected to be completed
within a timetable that is consistent with the transition phases of the euro.
Based on its evaluation to date, management believes that the introduction of
the euro, including the total costs for the conversion, will not have a material
adverse impact on the Corporation's financial position, results of operations or
cash flows. However, uncertainty exists as to the effects the euro will have on
the marketplace and there is no guarantee that all issues will be foreseen and
corrected or that other third parties will address the conversion successfully.
CAUTIONARY NOTE CONCERNING FACTORS THAT MAY AFFECT FUTURE RESULTS
This Annual Report 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:
o the effect of economic downturns or growth in particular regions
o the effect of changes in the level of activity in particular industries or
markets
o the anticipated uses of cash
o the scope or nature of acquisition activity
o prospective product developments
o cost reduction efforts
o the outcome of contingencies
o the impact of Year 2000 conversion efforts and
o the transition to the use of the euro as a currency.
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 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".
9
<PAGE>
MANAGEMENT'S RESPONSIBILITY
FOR FINANCIAL STATEMENTS
The financial statements of United Technologies Corporation and its subsidiaries
are the responsibility of the Corporation's management and have been prepared in
accordance with generally accepted accounting principles.
Management is responsible for the integrity and objectivity of the financial
statements, including estimates and judgments reflected in them and fulfills
this responsibility primarily by establishing and maintaining accounting systems
and practices adequately supported by internal accounting controls. These
controls are designed to provide reasonable assurance that the Corporation's
assets are safeguarded, that transactions are executed in accordance with
management's authorizations and that the financial records are reliable for the
purpose of preparing financial statements. Self-monitoring mechanisms are also a
part of the control environment whereby, as deficiencies are identified,
corrective actions are taken. Even an effective internal control system, no
matter how well designed, has inherent limitations -- including the possibility
of the circumvention or overriding of controls -- and, therefore, can provide
only reasonable assurance with respect to financial statement preparation and
such safeguarding of assets. Further, because of changes in conditions, internal
control system effectiveness may vary over time.
The Corporation assessed its internal control system as of December 31, 1998.
Based on this assessment, management believes the internal accounting controls
in use provide reasonable assurance that the Corporation's assets are
safeguarded, that transactions are executed in accordance with management's
authorizations, and that the financial records are reliable for the purpose of
preparing financial statements.
Independent accountants are appointed annually by the Corporation's
shareowners to audit the financial statements in accordance with generally
accepted auditing standards. Their report appears below. Their audits, as well
as those of the Corporation's internal audit department, include a review of
internal accounting controls and selective tests of transactions.
The Audit Review Committee of the Board of Directors, consisting of directors
who are not officers or employees of the Corporation, meets regularly with
management, the independent accountants and the internal auditors, to review
matters relating to financial reporting, internal accounting controls and
auditing.
/S/GEORGE DAVID
George David
Chairman and Chief Executive Officer
/S/DAVID J. FITZPATRICK
David J. FitzPatrick
Senior Vice President and Chief Financial Officer
REPORT OF INDEPENDENT
ACCOUNTANTS
To the Shareowners of
United Technologies Corporation
[PwC Logo]
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of changes in shareowners' equity and of
cash flows present fairly, in all material respects, the financial position of
United Technologies Corporation and its subsidiaries at December 31, 1998 and
1997, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Corporation's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/S/PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
One Financial Plaza
Hartford, Connecticut
January 21, 1999
10
<PAGE>
CONSOLIDATED STATEMENT
OF OPERATIONS
YEARS ENDED DECEMBER 31
IN MILLIONS OF DOLLARS (EXCEPT PER SHARE AMOUNTS) 1998 1997 1996
- --------------------------------------------------------------------------------
REVENUES
Product sales $20,248 $18,873 $17,799
Service sales 5,439 5,116 4,989
Financing revenues and other income, net 28 233 263
------------------------------
25,715 24,222 23,051
COSTS AND EXPENSES
Cost of products sold 15,815 15,080 14,327
Cost of services sold 3,461 3,208 3,088
Research and development 1,315 1,187 1,122
Selling, general and administrative 2,957 2,820 2,796
Interest 204 191 217
------------------------------
23,752 22,486 21,550
Income before income taxes and minority interests 1,963 1,736 1,501
Income taxes 623 565 494
Minority interests in subsidiaries' earnings 85 99 101
------------------------------
NET INCOME $ 1,255 $ 1,072 $ 906
------------------------------
EARNINGS PER SHARE OF COMMON STOCK:
Basic $ 5.36 $ 4.44 $ 3.63
Diluted 5.05 4.21 3.48
See accompanying Notes to Consolidated Financial Statements
11
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE
SHEET
DECEMBER 31
IN MILLIONS OF DOLLARS, SHARES IN THOUSANDS 1998 1997
- --------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 550 $ 655
Accounts receivable (net of allowance for doubtful
accounts of $321 and $304) 3,993 3,742
Inventories and contracts in progress 3,362 3,113
Future income tax benefits 1,276 1,098
Other current assets 174 410
-------------------------
Total Current Assets 9,355 9,018
Customer financing assets 498 216
Future income tax benefits 1,076 963
Fixed assets 4,265 4,127
Goodwill (net of accumulated amortization of $503 and $398) 1,750 982
Other assets 1,431 1,134
-------------------------
TOTAL ASSETS $ 18,375 $ 16,440
LIABILITIES AND SHAREOWNERS' EQUITY
Short-term borrowings $ 512 $ 189
Accounts payable 2,237 1,889
Accrued liabilities 4,886 4,912
Long-term debt currently due 100 123
-------------------------
Total Current Liabilities 7,735 7,113
Long-term debt 1,575 1,275
Future pension and postretirement benefit obligations 1,685 1,266
Future income taxes payable 162 133
Other long-term liabilities 1,961 1,779
Commitments and contingent liabilities (Notes 4 and 14)
Minority interests in subsidiary companies 423 351
Series A ESOP Convertible Preferred Stock, $1 par value
(Authorized-20,000 shares)
Outstanding-12,629 and 13,042 shares 836 865
ESOP deferred compensation (380) (415)
-------------------------
456 450
Shareowners' Equity:
Capital Stock:
Preferred Stock, $1 par value (Authorized-230,000 shares;
none issued or outstanding) -- --
Common Stock, $1 par value (Authorized-1,000,000 shares)
Issued--291,080 and 287,837 shares 2,708 2,488
Treasury Stock (66,028 and 58,766 common shares at cost) (3,117) (2,472)
Retained earnings 5,411 4,558
Accumulated other non-shareowner changes in equity:
Foreign currency translation adjustments (487) (484)
Minimum pension liability (137) (17)
-------------------------
(624) (501)
-------------------------
TOTAL SHAREOWNERS' EQUITY 4,378 4,073
-------------------------
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY $ 18,375 $ 16,440
-------------------------
<FN>
See accompanying Notes to Consolidated Financial Statements
</FN>
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT
OF CASH FLOWS
YEARS ENDED DECEMBER 31
IN MILLIONS OF DOLLARS 1998 1997 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,255 $ 1,072 $ 906
Adjustments to reconcile net income
to net cash flows provided by operating activities:
Depreciation and amortization 854 834 841
Deferred income tax benefit (252) (521) (11)
Minority interests in subsidiaries' earnings 85 99 101
Change in:
Accounts receivable 14 (217) (46)
Inventories and contracts in progress (99) 121 (341)
Other current assets 208 (17) (21)
Accounts payable and accrued liabilities 162 297 584
Other, net 282 422 66
---------------------------------
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES 2,509 2,090 2,079
---------------------------------
INVESTING ACTIVITIES
Capital expenditures (866) (819) (770)
Increase in customer financing assets (356) (132) (137)
Decrease in customer financing assets 143 171 185
Acquisitions of businesses (1,241) (584) (317)
Dispositions of businesses -- 37 177
Other, net 51 160 83
---------------------------------
NET CASH FLOWS USED IN INVESTING ACTIVITIES (2,269) (1,167) (779)
---------------------------------
FINANCING ACTIVITIES
Issuance of long-term debt 402 12 30
Repayment of long-term debt (149) (148) (273)
Increase (decrease) in short-term borrowings 289 11 (98)
Common Stock issued under employee stock plans 220 143 96
Dividends paid on Common Stock (316) (291) (265)
Common Stock repurchase (650) (849) (459)
Dividends to minority interests and other (137) (95) (61)
---------------------------------
NET CASH FLOWS USED IN FINANCING ACTIVITIES (341) (1,217) (1,030)
---------------------------------
Effect of foreign exchange rate changes on
Cash and cash equivalents (4) (49) (11)
Net (decrease) increase in cash and cash equivalents (105) (343) 259
Cash and cash equivalents, beginning of year 655 998 739
---------------------------------
Cash and cash equivalents, end of year $ 550 $ 655 $ 998
---------------------------------
Supplemental Disclosure of Cash Flow Information:
Interest paid, net of amounts capitalized $ 177 $ 166 $ 184
Income taxes paid, net of refunds 959 910 453
<FN>
See accompanying Notes to Consolidated Financial Statements
</FN>
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT
OF CHANGES IN SHAREOWNERS'
EQUITY
Accumulated Non-
Other Non- Shareowner
Shareowner Changes in
Common Treasury Retained Changes in Equity for
IN MILLIONS OF DOLLARS (EXCEPT PER SHARE AMOUNTS) Stock Stock Earnings Equity the Period
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1995 $ 2,249 $(1,168) $ 3,252 $ (312)
Common Stock issued under employee plans (1.8 million shares) 96 1 (14)
Common Stock repurchased (8.0 million shares) (459)
Dividends on Common Stock ($1.10 per share) (265)
Dividends on ESOP Stock ($4.80 per share) (30)
NON-SHAREOWNER CHANGES IN EQUITY:
Net income 906 $ 906
Foreign currency translation:
Foreign currency translation adjustments 2 2
Income taxes (9) (9)
Minimum pension liability:
Pension adjustment 94 94
Income taxes (37) (37)
------------------------------------------------------
DECEMBER 31, 1996 2,345 (1,626) 3,849 (262) $ 956
-----------
Common Stock issued under employee plans (2.2 million shares) 143 3 (26)
Common Stock repurchased (11.2 million shares) (849)
Dividends on Common Stock ($1.24 per share) (291)
Dividends on ESOP Stock ($4.80 per share) (32)
NON-SHAREOWNER CHANGES IN EQUITY:
Net income 1,072 $ 1,072
Foreign currency translation:
Foreign currency translation adjustments (225) (225)
Income taxes (6) (6)
Minimum pension liability:
Pension adjustment (12) (12)
Income tax benefits 4 4
Other (14) (14)
------------------------------------------------------
DECEMBER 31, 1997 2,488 (2,472) 4,558 (501) $ 819
-----------
Common Stock issued under employee plans (3.3 million shares) 220 5 (53)
Common Stock repurchased (7.4 million shares) (650)
Dividends on Common Stock ($1.39 per share) (316)
Dividends on ESOP Stock ($4.80 per share) (33)
NON-SHAREOWNER CHANGES IN EQUITY:
Net income 1,255 $ 1,255
Foreign currency translation:
Foreign currency translation adjustments 4 4
Income taxes (7) (7)
Minimum pension liability:
Pension adjustment (187) (187)
Income tax benefits 67 67
------------------------------------------------------
DECEMBER 31, 1998 $ 2,708 $(3,117) $ 5,411 $ (624) $ 1,132
------------------------------------------------------
<FN>
See accompanying Notes to Consolidated Financial Statements
</FN>
</TABLE>
14
<PAGE>
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 1
SUMMARY OF ACCOUNTING PRINCIPLES
The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses. Actual results could differ from those estimates.
Certain reclassifications have been made to prior year amounts to conform to
the current year presentation.
CONSOLIDATION
The consolidated financial statements include the accounts of the Corporation
and its controlled subsidiaries. Intercompany transactions have been eliminated.
In the fourth quarter of 1998, the Corporation adopted the provisions of EITF
96-16. Accordingly, majority-owned subsidiaries in which the minority
shareowners have rights that overcome the presumption for consolidation are
accounted for on the equity method. Adoption of EITF 96-16 resulted in the
restatement of certain prior period amounts.
Beginning January 1, 1997, international operating subsidiaries, which had
generally been included in the consolidated financial statements based on fiscal
years ending November 30, are included in the consolidated financial statements
based on fiscal years ending December 31. December 1996 results from these
international subsidiaries, which were not significant, are included in retained
earnings.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash on hand, demand deposits and short-term
cash investments which are highly liquid in nature and have original maturities
of three months or less.
ACCOUNTS RECEIVABLE
Current and long-term accounts receivable include retainage and unbilled costs
of approximately $103 million and $142 million at December 31, 1998 and 1997.
Retainage represents amounts which, pursuant to the contract, are due upon
project completion and acceptance by the customer. Unbilled costs represent
revenues that are not currently billable to the customer under the terms of the
contract. These items are expected to be collected in the normal course of
business. Long-term accounts receivable are included in Other Assets on the
Consolidated Balance Sheet.
INVENTORIES AND CONTRACTS IN PROGRESS
Inventories and contracts in progress are stated at the lower of cost or
estimated realizable value and are primarily based on first-in, first-out (FIFO)
or average cost methods; however, certain subsidiaries use the last-in,
first-out (LIFO) method. Costs accumulated against specific contracts or orders
are at actual cost. Materials in excess of requirements for contracts and orders
currently in effect or anticipated have been reserved and written-off when
appropriate.
Manufacturing tooling costs are charged to inventories or to fixed assets
depending upon their nature, general applicability and useful lives. Tooling
costs included in inventory are charged to cost of sales based on usage,
generally within two years after they enter productive use.
Manufacturing costs are allocated to current production and firm contracts.
General and administrative expenses are charged to expense as incurred.
FIXED ASSETS
Fixed assets are stated at cost. Depreciation is computed over the assets'
useful lives generally using accelerated methods for aerospace operations and
the straight-line method for other operations.
GOODWILL AND OTHER LONG-LIVED ASSETS
Goodwill represents costs in excess of fair values assigned to the underlying
net assets of acquired companies and is generally being amortized using the
straight-line method over periods ranging from 10 to 40 years.
The Corporation evaluates potential impairment of goodwill on an ongoing basis
and other long-lived assets when appropriate. If the carrying amount of an asset
exceeds the sum of its undiscounted expected future cash flows, the asset's
carrying value is written down to fair value.
REVENUE RECOGNITION
Sales under government and commercial fixed-price contracts and government
fixed-price-incentive contracts are recorded at the time deliveries are made or,
in some cases, on a percentage-of-completion basis. Sales under
cost-reimbursement contracts are recorded as work is performed and billed. Sales
of commercial aircraft engines sometimes require participation by the
Corporation in aircraft financing arrangements; when appropriate, such sales are
accounted for as operating leases. Sales under elevator and escalator
installation and modernization contracts are accounted for under the
percentage-of-completion method.
Losses, if any, on contracts are provided for when anticipated. Loss
provisions are based upon excess inventoriable manufacturing, engineering,
estimated warranty and product guarantee costs over the net revenue from the
products contemplated by the specific order. Contract accounting requires
estimates of future costs over the performance period of the contract. These
estimates are subject to change and result in adjustments to margins on
contracts in progress.
Service sales, representing after-market repair and maintenance activities,
are recognized over the contractual period or as services are performed.
RESEARCH AND DEVELOPMENT
Research and development costs, not specifically covered by contracts and those
related to the Corporation-sponsored share of research and development activity
in connection with cost-sharing arrangements, are charged to expense as
incurred.
HEDGING ACTIVITY
The Corporation uses derivative instruments, including swaps, forward contracts
and options, to manage certain foreign currency exposures. Derivative
instruments are viewed by the Corporation as risk management tools and are not
used for trading or speculative purposes. Derivatives used for hedging pur-
15
<PAGE>
poses must be designated as, and effective as, a hedge of the identified risk
exposure at the inception of the contract. Accordingly, changes in the market
value of the derivative contract must be highly correlated with changes in the
market value of the underlying hedged item at inception of the hedge and over
the life of the hedge contract.
Gains and losses from instruments that are effective hedges of firm
commitments are deferred and recognized as part of the economic basis of the
transactions underlying the commitments when the associated hedged transaction
occurs. Gains and losses from instruments that are effective hedges of
foreign-currency-denominated transactions are reported in earnings and offset
the effects of foreign exchange gains and losses from the associated hedged
transactions. Gains and losses on the excess of foreign currency hedge amounts
over the related hedged commitment or transaction would be recognized in
earnings. Cash flows from derivative instruments designated as hedges are
classified consistent with the items being hedged.
Derivative instruments designated but no longer effective as a hedge would be
reported at market value and the related gains and losses would be recognized in
earnings.
Gains and losses on terminations of foreign exchange contracts are deferred
and amortized over the remaining period of the original contract to the extent
the underlying hedged commitment or transaction is still likely to occur. Gains
and losses on terminations of foreign exchange contracts are recognized in
earnings when terminated in conjunction with the cancelation of the related
commitment or transaction.
Carrying amounts of foreign exchange contracts are included in accounts
receivable, other assets and accrued liabilities.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" which is effective January 1, 2000. Management believes
adoption of this standard will not have a material impact on the Corporation's
financial position, results of operations or cash flows.
ENVIRONMENTAL
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.
Environmental liabilities are not reduced by potential insurance reimbursements.
NOTE 2
ACQUISITIONS AND DISPOSITIONS
The Corporation completed acquisitions in 1998, 1997 and 1996 for cash
consideration of $1,241 million, $584 million and $317 million. The assets and
liabilities of the acquired businesses accounted for under the purchase method
are recorded at their fair values at the dates of acquisition. The excess of the
purchase price over the estimated fair values of the net assets acquired, of
$856 million in 1998, $372 million in 1997 and $141 million in 1996, has been
recorded as goodwill and is being amortized over its estimated useful life.
The results of operations of acquired businesses have been included in the
Consolidated Statement of Operations beginning on the effective date of
acquisition. The pro forma results for 1998, 1997 and 1996, assuming these
acquisitions had been made at the beginning of the year, would not be materially
different from reported results.
During the fourth quarter of 1996, the Corporation sold UT Automotive's
steering wheels business for proceeds of approximately $140 million. The
Corporation recorded a pretax gain of approximately $78 million which is
included in Financing revenues and other income, net.
NOTE 3
EARNINGS PER SHARE
Average
Income Shares Per Share
(MILLIONS) (THOUSANDS) Amount
- --------------------------------------------------------------------------------
DECEMBER 31, 1998
Net Income $ 1,255
Less: ESOP Stock dividends (33)
--------
BASIC EARNINGS PER SHARE $ 1,222 227,767 $ 5.36
Stock awards 5,972
ESOP Stock adjustment 28 13,641
--------------------------
DILUTED EARNINGS PER SHARE $ 1,250 247,380 $ 5.05
--------------------------
DECEMBER 31, 1997
Net Income $ 1,072
Less: ESOP Stock dividends (32)
--------
BASIC EARNINGS PER SHARE $ 1,040 234,443 $ 4.44
Stock awards 5,878
ESOP Stock adjustment 27 13,234
--------------------------
DILUTED EARNINGS PER SHARE $ 1,067 253,555 $ 4.21
--------------------------
DECEMBER 31, 1996
Net Income $ 906
Less: ESOP Stock dividends (30)
--------
BASIC EARNINGS PER SHARE $ 876 241,454 $ 3.63
Stock awards 4,877
ESOP Stock adjustment 24 12,275
--------------------------
DILUTED EARNINGS PER SHARE $ 900 258,606 $ 3.48
--------------------------
NOTE 4
COMMERCIAL AIRLINE INDUSTRY ASSETS AND COMMITMENTS
The Corporation has receivables and other financing assets with commercial
airline industry customers totaling $1,361 million and $1,235 million at
December 31, 1998 and 1997, net of allowances of $237 million and $257 million,
respectively.
Customer financing assets consist of the following:
IN MILLIONS OF DOLLARS 1998 1997
- -------------------------------------------------------------------
Notes and leases receivable $337 $139
Products under lease 248 129
----------------------
585 268
Less: receivables due within one year 87 52
----------------------
$498 $216
----------------------
16
<PAGE>
Scheduled maturities of notes and leases receivable due after one year are as
follows: $110 million in 2000, $85 million in 2001, $5 million in 2002, $3
million in 2003 and $47 million in 2004 and thereafter.
Financing commitments, in the form of secured debt, guarantees or lease
financing, are provided to commercial aircraft engine customers. The extent to
which the financing commitments will be utilized cannot currently be predicted,
since customers may be able to obtain more favorable terms from other financing
sources. The Corporation may also arrange for third-party investors to assume a
portion of its commitments. If financing commitments are exercised, debt
financing is generally secured by assets with fair market values equal to or
exceeding the financed amounts with interest rates established at the time of
funding. The Corporation also may lease aircraft and subsequently sublease the
aircraft to customers under long-term noncancelable operating leases. In some
instances, customers may have minimum lease terms which result in sublease
periods shorter than the Corporation's lease obligation. Lastly, the Corporation
has residual value and other guarantees related to various commercial aircraft
engine customer financing arrangements. The estimated fair market values of the
guaranteed assets equal or exceed the value of the related guarantees, net of
existing reserves.
The following table summarizes the airline industry commitments and related
maturities of the Corporation's financing and rental commitments as of December
31, 1998 should all commitments be exercised as scheduled:
Maturities
IN MILLIONS OF DOLLARS Financing Rental
- --------------------------------------------------------------
1999 $545 $ 9
2000 50 9
2001 36 9
2002 3 9
2003 90 9
Thereafter 236 50
------------------------------
Total commitments $960 $95
------------------------------
In addition, the Corporation has residual value and other guarantees of $159
million as of December 31, 1998.
The Corporation has a 33% interest in International Aero Engines (IAE), an
international consortium of four shareholders organized to support the V2500
commercial aircraft engine program. IAE may offer customer financing in the form
of guarantees, secured debt or lease financing in connection with V2500 engine
sales. At December 31, 1998, IAE has financing commitments of $1,390 million. In
addition, IAE has lease obligations under long-term noncancelable leases of
approximately $360 million through 2021 related to aircraft which are subleased
to customers under long-term leases. These aircraft have fair market values
which exceed the financed amounts. The shareholders of IAE have guaranteed IAE's
financing arrangements to the extent of their respective ownership interests. In
the event any shareholder was to default on certain of these financing
arrangements, the other shareholders would be proportionately responsible. The
Corporation's share of IAE's financing commitments was approximately $460
million at December 31, 1998.
NOTE 5
INVENTORIES AND CONTRACTS IN PROGRESS
IN MILLIONS OF DOLLARS 1998 1997
- --------------------------------------------------------------------------
Inventories $ 3,624 $ 3,399
Contracts in progress 1,411 1,275
-----------------------------
5,035 4,674
Less:
Progress payments, secured by lien,
on U.S. Government contracts (124) (144)
Billings on contracts in progress (1,549) (1,417)
-----------------------------
$ 3,362 $ 3,113
-----------------------------
The methods of accounting followed by the Corporation do not permit
classification of inventories by category. Contracts in progress principally
relate to elevator and escalator contracts and include costs of manufactured
components, accumulated installation costs and estimated earnings on incomplete
contracts.
The Corporation's sales contracts in many cases are long-term contracts
expected to be performed over periods exceeding twelve months. Approximately 57%
of total inventories and contracts in progress have been acquired or
manufactured under such long-term contracts at December 31, 1998 and 1997. It is
impracticable for the Corporation to determine the amounts of inventory
scheduled for delivery under long-term contracts within the next twelve months.
If inventories which were valued using the LIFO method had been valued under
the FIFO method, they would have been higher by $133 million at December 31,
1998 ($132 million at December 31, 1997).
NOTE 6
FIXED ASSETS
Estimated
IN MILLIONS OF DOLLARS Useful Lives 1998 1997
- ----------------------------------------------------------------------------
Land -- $ 166 $ 157
Buildings and improvements 20-40 years 3,202 3,039
Machinery, tools and equipment 3-12 years 7,215 7,009
Other, including under
construction -- 317 267
---------------------------
10,900 10,472
Accumulated depreciation (6,635) (6,345)
---------------------------
$ 4,265 $ 4,127
---------------------------
Depreciation expense was $724 million in 1998, $740 million in 1997 and $774
million in 1996.
17
<PAGE>
NOTE 7
ACCRUED LIABILITIES
IN MILLIONS OF DOLLARS 1998 1997
- ---------------------------------------------------------------
Accrued salaries, wages and
employee benefits $ 913 $ 900
Service and warranty accruals 463 429
Advances on sales contracts 638 699
Income taxes payable 421 644
Other 2,451 2,240
--------------------------
$4,886 $4,912
--------------------------
NOTE 8
BORROWINGS AND LINES OF CREDIT
Short-term borrowings consist of the following:
IN MILLIONS OF DOLLARS 1998 1997
- ---------------------------------------------------------------
Foreign bank borrowings $191 $189
Commercial paper 321 --
--------------------------
$512 $189
--------------------------
The weighted-average interest rates applicable to short-term borrowings
outstanding at December 31, 1998 and 1997 were 6.7% and 9.6%, reflecting the
addition of commercial paper borrowings in the latter part of 1998. At December
31, 1998, approximately $1.1 billion was available under short-term lines of
credit with local banks at the Corporation's various international subsidiaries.
At December 31, 1998, the Corporation had credit commitments from banks
totaling $1.5 billion under a Revolving Credit Agreement, which serves as
back-up for a commercial paper facility. There were no borrowings under the
Revolving Credit Agreement.
Long-term debt consists of the following:
1998 Debt
Weighted
Average
IN MILLIONS OF DOLLARS Interest Rate Maturity 1998 1997
- -------------------------------------------------------------------------------
Notes and other debt
denominated in:
U.S. dollars 7.7% 1999-2028 $1,013 $ 641
Foreign currency 6.9% 1999-2012 39 37
Capital lease obligations 6.6% 1999-2017 250 311
ESOP debt 7.7% 1999-2009 373 409
-------------------------
$1,675 $1,398
Less: Long-term debt
currently due 100 123
-------------------------
$1,575 $1,275
-------------------------
Principal payments required on long-term debt for the next five years are $100
million in 1999, $193 million in 2000, $98 million in 2001, $42 million in 2002
and $43 million in 2003.
In August 1998, the Corporation issued $400 million of 6.7% unsubordinated,
unsecured, nonconvertible notes (the "Notes") under a shelf registration
statement previously filed with the Securities and Exchange Commission. The
Notes are due August 1, 2028, with interest payable semiannually commencing
February 1, 1999. The Notes are not redeemable at the option of the Corporation
or repayable at the option of the holder prior to maturity, and do not provide
for any sinking fund payments. At December 31, 1998, up to $471 million of
additional medium-term and long-term debt could be issued under this
registration statement.
Prior to 1997, the Corporation executed in-substance defeasances by depositing
U.S. Government Securities into irrevocable trusts to cover the interest and
principal payments on $296 million of its debt. For financial reporting
purposes, the debt has been considered extinguished. As of December 31, 1998,
the amount outstanding on these debt instruments was $68 million, which matures
in 1999.
The percentage of total debt at floating interest rates was 26% and 15% at
December 31, 1998 and 1997, respectively.
NOTE 9
TAXES ON INCOME
Significant components of income taxes (benefits) for each year are as follows:
IN MILLIONS OF DOLLARS 1998 1997 1996
- ------------------------------------------------------------------------------
Current:
United States:
Federal $ 357 $ 598 $ 171
State 24 41 19
Foreign 369 412 336
----------------------------------------------
750 1,051 526
Future:
United States:
Federal (211) (406) (12)
State (25) (82) 5
Foreign (16) (33) (4)
----------------------------------------------
(252) (521) (11)
----------------------------------------------
498 530 515
Attributable to items
credited (charged) to
equity 125 35 (21)
----------------------------------------------
$ 623 $ 565 $ 494
----------------------------------------------
Future income taxes represent the tax effects of transactions which are
reported in different periods for tax and financial reporting purposes. These
amounts consist of the tax effects of temporary differences between the tax and
18
<PAGE>
financial reporting balance sheets and tax carryforwards. The tax effects of
temporary differences and tax carryforwards which gave rise to future income tax
benefits and payables at December 31, 1998 and 1997 are as follows:
IN MILLIONS OF DOLLARS 1998 1997
- ------------------------------------------------------------------------
Future income tax benefits:
Insurance and employee benefits $ 706 $ 565
Other asset basis differences 634 558
Other liability basis differences 1,017 997
Tax loss carryforwards 113 117
Tax credit carryforwards 112 112
Valuation allowance (230) (288)
-----------------------------
$ 2,352 $ 2,061
-----------------------------
Future income taxes payable:
Fixed assets $ 62 $ 95
Other items, net 122 50
-----------------------------
$ 184 $ 145
-----------------------------
Current and non-current future income tax benefits and payables within the
same tax jurisdiction are generally offset for presentation in the Consolidated
Balance Sheet. Valuation allowances have been established primarily for tax
credit and tax loss carryforwards to reduce the future income tax benefits to
amounts expected to be realized.
The sources of income before income taxes and minority interests were:
IN MILLIONS OF DOLLARS 1998 1997 1996
- -----------------------------------------------------------------------------
United States $ 965 $ 702 $ 483
Foreign 998 1,034 1,018
------------------------------------------
$1,963 $1,736 $1,501
------------------------------------------
United States income taxes have not been provided on undistributed earnings of
international subsidiaries. The Corporation's intention is to reinvest these
earnings permanently or to repatriate the earnings only when it is tax effective
to do so. Accordingly, the Corporation believes that any U.S. tax on repatriated
earnings would be substantially offset by U.S. foreign tax credits.
Differences between effective income tax rates and the statutory U.S. federal
income tax rates are as follows:
1998 1997 1996
- -----------------------------------------------------------------------------
Statutory U.S. federal
income tax rate 35.0% 35.0% 35.0%
Varying tax rates of
consolidated subsidiaries
(including Foreign Sales
Corporation) (4.5) (4.4) (6.2)
Other 1.2 1.9 4.1
------------------------------------------
Effective income tax rate 31.7% 32.5% 32.9%
------------------------------------------
Tax credit carryforwards at December 31, 1998 are $112 million of which $1
million expires annually in each of the next three years.
Tax loss carryforwards, principally state and foreign, at December 31, 1998
are $553 million of which $438 million expire as follows: $194 million from
1999-2003, $124 million from 2004-2008, $120 million from 2009-2018.
NOTE 10
EMPLOYEE BENEFIT PLANS
The Corporation and its subsidiaries sponsor many domestic and foreign defined
benefit pension and other postretirement plans whose balances are as follows:
Other
Pension Benefits Postretirement Benefits
IN MILLIONS OF DOLLARS 1998 1997 1998 1997
- --------------------------------------------------------------------------------
CHANGE IN BENEFIT
OBLIGATION:
Beginning balance $ 9,666 $ 9,195 $ 700 $ 703
Service cost 222 228 10 10
Interest cost 695 664 51 52
Actuarial loss (gain) 978 218 21 (23)
Total benefits paid (601) (570) (57) (65)
Other 115 (69) 46 23
------------------------------------------------
Ending balance $ 11,075 $ 9,666 $ 771 $ 700
------------------------------------------------
CHANGE IN PLAN ASSETS:
Beginning balance $ 10,570 $ 8,956 $ 82 $ 83
Actual return on plan assets (143) 2,073 5 6
Employer contributions 139 85 -- --
Benefits paid from plan assets (572) (549) (10) (11)
Other (49) 5 4 4
------------------------------------------------
Ending balance $ 9,945 $ 10,570 $ 81 $ 82
------------------------------------------------
Funded status $ (1,130) $ 904 $ (690) $ (618)
Unrecognized net actuarial
loss (gain) 999 (973) (26) (67)
Unrecognized prior service cost 235 196 (181) (204)
Unrecognized net asset
at transition (35) (57) -- --
------------------------------------------------
Net amount recognized $ 69 $ 70 $ (897) $ (889)
------------------------------------------------
AMOUNTS RECOGNIZED IN
THE CONSOLIDATED
BALANCE SHEET CONSIST OF:
Prepaid benefit cost $ 360 $ 310 $ -- $ --
Accrued benefit liability (712) (295) (897) (889)
Intangible asset 207 28 -- --
Accumulated other
non-shareowner changes
in equity 214 27 -- --
------------------------------------------------
Net amount recognized $ 69 $ 70 $ (897) $ (889)
------------------------------------------------
19
<PAGE>
The pension funds are valued at September 30 of the respective years in the
preceding table. Major assumptions used in the accounting for the employee
benefit plans are shown in the following table as weighted-averages:
1998 1997 1996
- --------------------------------------------------------------------
Pension Benefits:
Discount rate 6.6% 7.4% 7.5%
Expected return on plan assets 9.6% 9.7% 9.7%
Salary scale 4.8% 4.9% 5.0%
Other Postretirement Benefits:
Discount rate 6.7% 7.5% 7.6%
Expected return on plan assets 9.6% 7.0% 7.0%
Salary scale -- -- --
For measurement purposes, a 10% annual rate of increase in the per capita cost
of covered health care benefits was assumed for 1999. The rate was assumed to
decrease gradually to 6.75% for 2001 and remain at that level thereafter.
IN MILLIONS OF DOLLARS 1998 1997 1996
- ----------------------------------------------------------------
COMPONENTS OF NET
PERIODIC BENEFIT COST:
Pension Benefits:
Service cost $ 222 $ 228 $ 213
Interest cost 695 664 648
Expected return on plan assets (856) (783) (737)
Amortization of prior service cost 26 26 24
Amortization of unrecognized net
transition asset (23) (23) (23)
Recognized actuarial net loss 8 7 5
Net settlement and curtailment
loss 73 6 10
---------------------------
Net periodic benefit cost $ 145 $ 125 $ 140
---------------------------
Net periodic benefit cost
of multiemployer plans $ 25 $ 26 $ 24
---------------------------
Other Postretirement Benefits:
Service cost $ 10 $ 10 $ 10
Interest cost 51 52 52
Expected return on plan assets (6) (6) (6)
Amortization of prior service cost (18) (18) (19)
Recognized actuarial net gain -- -- (1)
Net settlement and
curtailment loss 10 -- 1
---------------------------
Net periodic benefit cost $ 47 $ 38 $ 37
---------------------------
The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for the pension plans with accumulated benefit obligations
in excess of plan assets were $2,826 million, $2,688 million and $2,194 million,
respectively as of December 31, 1998, and $391 million, $278 million and $3
million, respectively as of December 31, 1997.
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plan. A one-percentage-point change in assumed
health care cost trend rates would change the accumulated postretirement benefit
obligation as of December 31, 1998 by approximately 2%. The effects of this
change on the service expense and the interest expense components of the net
postretirement benefit expense for 1998 would be 3%.
EMPLOYEE SAVINGS PLANS
The Corporation and certain subsidiaries sponsor various employee savings plans.
Total contribution expenses were $85 million, $80 million and $75 million for
1998, 1997 and 1996.
The Corporation's nonunion domestic employee savings plan uses an Employee
Stock Ownership Plan ("ESOP") for employer contributions. External borrowings,
guaranteed by the Corporation and reported as debt on the Consolidated Balance
Sheet, were used by the ESOP to fund a portion of its purchase of ESOP Stock
from the Corporation. Each share of ESOP Stock is convertible into two shares of
Common Stock, has a guaranteed value of $65, a $4.80 annual dividend and is
redeemable at any time for $65.48 per share. Upon notice of redemption by the
Corporation, the Trustee has the right to convert the ESOP Stock into Common
Stock. Because of its guaranteed value, the ESOP Stock is classified outside of
permanent equity.
Shares of ESOP Stock are committed to employees at fair value on the date
earned. The ESOP Stock's cash dividends are used for debt service payments.
Participants receive shares in lieu of the cash dividends. As debt service
payments are made, ESOP Stock is released from an unreleased shares account. If
share releases do not meet share commitments, the Corporation will contribute
additional ESOP Stock, Common Stock or cash. At December 31, 1998, 6.9 million
shares had been committed to employees, leaving 5.7 million shares in the ESOP
Trust, with an approximate fair value of $1,256 million based on equivalent
common shares.
Upon withdrawal, shares of the ESOP Stock must be converted into the
Corporation's Common Stock or, if the value of the Common Stock is less than the
guaranteed value of the ESOP Stock, the Corporation must repurchase the shares
at their guaranteed value.
LONG-TERM INCENTIVE PLANS
The Corporation has long-term incentive plans authorizing various types of
market and performance based incentive awards, which may be granted to officers
and employees. The 1989 Long-Term Incentive Plan provides for the annual grant
of awards in an amount not to exceed 2% of the aggregate shares of Common Stock,
treasury shares and potentially dilutive common shares for the preceding year.
The 1995 Special Retention and Stock Appreciation Program Plan permits up to 2
million award units to be granted in any calendar year. In addition, up to 1
million options on Common Stock may be granted annually under the Corporation's
Employee Stock Option Plan. The exercise price of stock options, set at the time
of the grant, is not less than the fair market value per share at the date of
grant. Options have a term of ten years and generally vest after three years.
In February 1997, the Corporation granted a key group of senior executives
850,000 stock options under the 1989 Plan. The grant price of $75.875 represents
the market value per share at the date of grant. The options become exercisable
at the earlier of the closing stock price of the Corporation's Common Stock
averaging $125 or higher for thirty consecutive trading days or nine years.
20
<PAGE>
A summary of the transactions under all plans for the three years ended
December 31, 1998 follows:
Stock Options
-------------------------- Other
Average Incentive
SHARES AND UNITS IN THOUSANDS Shares Price Shares/Units
- --------------------------------------------------------------------------------
OUTSTANDING AT:
DECEMBER 31, 1995 16,069 $ 28.65 2,010
Granted 4,392 51.10 13
Exercised/earned (2,139) 24.09 (236)
Canceled (242) 39.56 --
----------- --------------
DECEMBER 31, 1996 18,080 34.49 1,787
Granted 4,723 71.38 87
Exercised/earned (2,211) 26.70 (578)
Canceled (565) 59.04 (33)
----------- --------------
DECEMBER 31, 1997 20,027 43.36 1,263
Granted 4,324 77.85 26
Exercised/earned (3,354) 29.88 (275)
Canceled (386) 64.68 (4)
----------- --------------
DECEMBER 31, 1998 20,611 $ 52.40 1,010
The Corporation applies APB Opinion 25, "Accounting for Stock Issued to
Employees," and related interpretations in accounting for its long-term
incentive plans. Accordingly, no compensation cost has been recognized for its
fixed stock options. The compensation cost that has been recorded for
stock-based performance awards was $31 million, $22 million and $45 million for
1998, 1997 and 1996.
The following table summarizes information about stock options outstanding (in
thousands) at December 31, 1998:
Options Outstanding Options Exercisable
- ---------------------------------------------------------------------------
Exercise Average Remaining Average
Price Shares Price Term Shares Price
- ---------------------------------------------------------------------------
$20.01-$ 40.00 8,380 $ 30.50 4.85 8,380 $ 30.50
$40.01-$ 60.00 3,691 50.96 7.11 518 51.92
$60.01-$ 80.00 7,532 72.01 8.49 185 71.85
$80.01-$100.00 1,008 93.27 9.42 -- --
Had compensation cost for the Corporation's stock-based compensation plans
been determined based on the fair value at the grant date for awards under those
plans consistent with the requirements of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation," the Corporation's
net income and earnings per share would have been reduced to the following pro
forma amounts:
<TABLE>
<CAPTION>
IN MILLIONS OF DOLLARS (EXCEPT PER SHARE AMOUNTS) 1998 1997 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income:
As reported $ 1,255 $ 1,072 $ 906
Pro forma 1,208 1,042 894
Basic earnings per share:
As reported $ 5.36 $ 4.44 $ 3.63
Pro forma 5.16 4.31 3.58
Diluted earnings per share:
As reported $ 5.05 $ 4.21 $ 3.48
Pro forma 4.87 4.09 3.43
</TABLE>
The fair value of each stock option grant has been estimated on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
1998 1997 1996
- -------------------------------------------------------------------
Risk-free interest rate 5.4% 6.3% 5.3%
Expected life 6 years 6 years 6 years
Expected volatility 23% 18% 17%
Expected dividend yield 1.5% 1.8% 2.1%
The weighted-average grant date fair values of options granted during 1998,
1997 and 1996 were $22.65, $18.56 and $11.91.
NOTE 11
1998 COST REDUCTION EFFORTS
During 1998, the Corporation recorded pre-tax charges totaling $330 million
related to ongoing efforts to reduce costs in response to an increasingly
competitive business environment. Charges were recorded in each of the
Corporation's business 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 8,000
employees, plant closings and charges associated with asset impairments.
Approximately 3,900 employees were terminated by the end of 1998. The remaining
terminations and plant closings are planned to be completed by December 31,
1999.
The following table summarizes the costs associated with these actions:
Severance Other Asset
and Related Exit Write-
IN MILLIONS OF DOLLARS Costs Costs Downs Total
- ------------------------------------------------------------------------
1998 Charges $ 271 $ 7 $52 $ 330
Utilized in 1998 146 1 52 199
----------------------------------------------
Remaining $ 125 $ 6 $-- $ 131
----------------------------------------------
In 1997 and 1996, the Corporation recorded charges which were similar in
nature to those noted above. However, the amounts were not material and the
related actions have been substantially completed.
21
<PAGE>
NOTE 12
FOREIGN EXCHANGE
The Corporation conducts business in many different currencies and, accordingly,
is subject to the inherent risks associated with foreign exchange rate
movements. The financial position and results of operations of substantially all
of the Corporation's foreign subsidiaries are measured using the local currency
as the functional currency. The aggregate effects of translating the balance
sheets of these subsidiaries are deferred as a separate component of
shareowners' equity. The Corporation had foreign currency net assets in more
than forty currencies, aggregating $1.7 billion and $1.4 billion at December 31,
1998 and 1997, including Canadian dollar net assets of $259 million and $420
million, respectively. The Corporation's net assets in the Asia Pacific region
were $499 million and $441 million at December 31, 1998 and 1997.
Foreign currency commitment and transaction exposures are managed at the
operating unit level as an integral part of the business. Residual exposures
that cannot be offset to an insignificant amount are hedged. These hedges are
initiated by the operating units, with execution coordinated on a corporate-wide
basis, and are scheduled to mature coincident with the timing of the underlying
foreign currency commitments and transactions. Hedged items include
foreign-currency-denominated receivables and payables on the balance sheet, and
commitments for purchases and sales.
At December 31, the Corporation had the following amounts related to foreign
exchange contracts hedging foreign currency transactions and firm commitments:
IN MILLIONS OF DOLLARS 1998 1997
- ----------------------------------------------------------
Notional amount:
Buy contracts $1,694 $1,710
Sell contracts 1,042 1,062
---------------------
Gains and losses explicitly deferred
as a result of hedging firm
commitments:
Gains deferred $ 6 $ 12
Losses deferred (83) (68)
---------------------
$ (77) $ (56)
---------------------
The deferred gains and losses are expected to be recognized in earnings over
the next three years along with the offsetting gains and losses on the
underlying commitments.
NOTE 13
FINANCIAL INSTRUMENTS
The Corporation operates internationally and, in the normal course of business,
is exposed to fluctuations in interest rates and currency values. These
fluctuations can increase the costs of financing, investing and operating the
business. The Corporation manages its transaction risks to acceptable limits
through the use of derivatives to create offsetting positions in foreign
currency markets. The Corporation views derivative financial instruments as risk
management tools and is not party to any leveraged derivatives.
The notional amounts of derivative contracts do not represent the amounts
exchanged by the parties, and thus are not a measure of the exposure of the
Corporation through its use of derivatives. The amounts exchanged by the parties
are normally based on the notional amounts and other terms of the derivatives,
which relate to exchange rates. The value of derivatives is derived from those
underlying parameters and changes in the relevant rates.
By nature, all financial instruments involve market and credit risk. The
Corporation enters into derivative financial instruments with major investment
grade financial institutions. The Corporation has policies to monitor its credit
risks of counterparties to derivative financial instruments. Pursuant to these
policies, the Corporation periodically determines the fair value of its
derivative instruments in order to identify its credit exposure. The Corporation
diversifies the counterparties used as a means to limit counterparty exposure
and concentration of risk. Credit risk is assessed prior to entering into
transactions and periodically thereafter. The Corporation does not anticipate
nonperformance by any of these counterparties.
The fair value of a financial instrument is the amount at which the instrument
could be exchanged in a current transaction between willing parties, other than
in a forced or liquidation sale. Significant differences can arise between the
fair value and carrying amount of financial instruments at historic cost.
The carrying amounts and fair values of financial instruments are as follows:
DECEMBER 31, 1998 DECEMBER 31, 1997
Carrying Fair Carrying Fair
IN MILLIONS OF DOLLARS Amount Value Amount Value
- ------------------------------------------------------------------------
Financial assets:
Long-term receivables $ 60 $ 59 $ 86 $ 84
Customer financing notes 311 304 117 117
Financial liabilities:
Short-term borrowings 512 512 189 189
Long-term debt 1,425 1,676 1,087 1,260
Foreign exchange contracts:
In a receivable position 16 21 18 17
In a payable position 105 96 96 68
The following methods and assumptions were used to estimate the fair value of
financial instruments:
CASH, CASH EQUIVALENTS AND SHORT-TERM BORROWINGS
The carrying amount approximates fair value because of the short maturity of
those instruments.
LONG-TERM RECEIVABLES AND CUSTOMER FINANCING NOTES
The fair values are based on quoted market prices for those or similar
instruments. When quoted market prices are not available, an approximation of
fair value is based upon projected cash flows discounted at an estimated current
market rate of interest.
DEBT
The fair values are estimated based on the quoted market prices for the same or
similar issues or on the current rates offered to the Corporation for debt of
the same remaining maturities.
FOREIGN EXCHANGE CONTRACTS
The fair values are estimated based on the amount that the Corporation would
receive or pay to terminate the agreements at the reporting date.
22
<PAGE>
FINANCING COMMITMENTS
The Corporation had outstanding financing commitments totaling $1,420 million at
December 31, 1998. Risks associated with changes in interest rates are negated
by the fact that interest rates are variable during the commitment term and are
set at the date of funding based on current market conditions, the fair value of
the underlying collateral and the credit worthiness of the customers. As a
result, the fair value of these financings is expected to equal the amounts
funded. The fair value of the commitment itself is not readily determinable and
is not considered significant. Additional information pertaining to these
commitments is included in Note 4.
NOTE 14
COMMITMENTS AND CONTINGENT LIABILITIES
LEASES
The Corporation occupies space and uses certain equipment under lease
arrangements. Rental commitments at December 31, 1998 under long-term
noncancelable operating leases are as follows:
IN MILLIONS OF DOLLARS
- ------------------------------------------
1999 $ 179
2000 128
2001 92
2002 74
2003 62
Thereafter 195
---------
$ 730
---------
Rent expense in 1998, 1997 and 1996 was $252 million, $260 million and $260
million.
See Note 4 for lease commitments associated with customer financing
arrangements.
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 local operations. As described in Note 1, 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.
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.
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 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.
NOTE 15
SEGMENT FINANCIAL DATA
The Corporation and its subsidiaries design, develop, manufacture, sell and
provide service on products, classified in five principal operating segments.
The Corporation's operating segments were generally determined on the basis of
separate operating companies, each with general operating autonomy over
diversified products and services.
Otis products include elevators and escalators, service, maintenance and spare
parts sold to a diversified international customer base in commercial real
estate development.
Carrier products include heating, ventilating and air conditioning systems and
equipment, transport and commercial refrigeration equipment and service for a
diversified international customer base principally in commercial and
residential real estate development.
UT Automotive products include electrical distribution systems,
electromechanical and hydraulic devices, electric motors, car and truck interior
trim components, steering wheels (through October 1996), instrument panels and
other products for the automotive industry principally in North America and
Europe.
Pratt & Whitney products include aircraft engines and spare parts sold to a
diversified customer base including international and domestic commercial
airlines and aircraft leasing companies, aircraft manufacturers, regional and
commuter airlines, and U.S. and non-U.S. governments. Pratt & Whitney also
provides product support and a full range of overhaul, repair and fleet
management services and produces land based power generation equipment which is
used for electrical power generation and other applications.
The Flight Systems segment includes Sikorsky Aircraft and Hamilton Standard.
Sikorsky Aircraft products include helicopters and spare parts sold
23
<PAGE>
primarily to U.S. and non-U.S. governments. Hamilton Standard products include
environmental, flight and fuel control systems and propellers sold primarily to
U.S. and non-U.S. governments, aerospace and defense prime contractors, and
airframe and jet engine manufacturers.
Operating segment and geographic data include the results of all
majority-owned subsidiaries, consistent with the management reporting of these
businesses. For certain of these subsidiaries, minority shareholders have rights
which, under the provisions of EITF 96-16, overcome the presumption of
consolidation. In the Corporation's consolidated results, these subsidiaries are
accounted for using the equity method of accounting. Adjustments to reconcile
segment reporting to consolidated results are included in "Eliminations and
other", which also includes certain small subsidiaries.
Operating segment information for the years ended December 31 follows:
<TABLE>
<CAPTION>
OPERATING SEGMENTS
Total Revenues Operating Profits
IN MILLIONS OF DOLLARS 1998 1997 1996 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Otis $ 5,572 $ 5,548 $ 5,595 $ 533 $ 465 $ 524
Carrier 6,922 6,056 5,958 495 458 422
UT Automotive 2,962 2,987 3,233 169 173 196
Pratt & Whitney 7,876 7,402 6,201 1,024 816 637
Flight Systems 2,891 2,804 2,596 287 301 244
--------------------------------------------------------------------
Total segment $ 26,223 $ 24,797 $ 23,583 $ 2,508 $ 2,213 $ 2,023
Eliminations and other (508) (575) (532) (98) (64) (117)
General corporate expenses -- -- -- (243) (222) (188)
--------------------------------------------------------------------
Consolidated $ 25,715 $ 24,222 $ 23,051 $ 2,167 $ 1,927 $ 1,718
---------------------------------
Interest expense (204) (191) (217)
-----------------------------------
Consolidated income before income taxes and minority interests $ 1,963 $ 1,736 $ 1,501
-----------------------------------
</TABLE>
<TABLE>
<CAPTION>
Depreciation and
Capital Expenditures Amortization
IN MILLIONS OF DOLLARS 1998 1997 1996 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Otis $ 93 $ 143 $ 132 $ 139 $ 134 $ 116
Carrier 190 143 169 184 148 145
UT Automotive 195 163 138 126 128 128
Pratt & Whitney 254 285 248 278 286 296
Flight Systems 105 91 84 118 118 121
------------------------------------------------------------------
Total segment $ 837 $ 825 $ 771 $ 845 $ 814 $ 806
Eliminations and other 29 (6) (1) 9 20 35
------------------------------------------------------------------
Consolidated $ 866 $ 819 $ 770 $ 854 $ 834 $ 841
-------------------------------------------------------------------
</TABLE>
SEGMENT REVENUES AND OPERATING PROFIT
Total revenues by operating segment include intersegment sales, which are
generally made at prices approximating those that the selling entity is able to
obtain on external sales. Operating profits by segment includes income before
interest expense, income taxes and minority interest.
<TABLE>
<CAPTION>
GEOGRAPHIC AREAS
External Revenues Operating Profits Long-Lived Assets
IN MILLIONS OF DOLLARS 1998 1997 1996 1998 1997 1996 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
United States operations $ 15,763 $ 14,510 $ 13,360 $ 1,396 $ 1,192 $ 980 $ 3,688 $ 3,120 $ 2,911
International operations:
Europe 5,240 4,788 4,800 607 453 461 993 913 950
Asia Pacific 2,508 2,952 3,042 150 225 272 778 511 573
Other 2,559 2,380 2,238 355 343 310 561 593 495
Eliminations and other (355) (408) (389) (341) (286) (305) (5) (27) (3)
----------------------------------------------------------------------------------------------------------
Consolidated $ 25,715 $ 24,222 $ 23,051 $ 2,167 $ 1,927 $ 1,718 $ 6,015 $ 5,110 $ 4,926
----------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE>
GEOGRAPHIC EXTERNAL REVENUES AND OPERATING PROFIT
Geographic external revenues and operating profits are attributed to the
geographic regions based on their location of origin. United States external
revenues include export sales to commercial customers outside the U.S. and sales
to the U.S. Government, commercial and affiliated customers, which are known to
be for resale to customers outside the U.S.
Revenues from United States operations include export sales as follows:
IN MILLIONS OF DOLLARS 1998 1997 1996
- -------------------------------------------------------------------
Europe $ 1,030 $ 944 $ 854
Asia Pacific 1,916 1,862 1,478
Other 1,364 1,216 792
-----------------------------------
$ 4,310 $4,022 $3,124
-----------------------------------
GEOGRAPHIC LONG-LIVED ASSETS
Long-lived assets include net fixed assets and net goodwill, which can be
attributed to the specific geographic regions.
MAJOR CUSTOMERS
Revenues include sales under prime contracts and subcontracts to the U.S.
Government, primarily related to Pratt & Whitney and Flight Systems products, as
follows:
IN MILLIONS OF DOLLARS 1998 1997 1996
- -------------------------------------------------------------------
Pratt & Whitney $1,941 $1,935 $1,857
Flight Systems 1,273 1,317 1,471
Sales to Ford Motor Company, UT Automotive's largest customer, comprised
approximately 33%, 38% and 38% of UT Automotive's revenues in 1998, 1997 and
1996, respectively.
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
IN MILLIONS OF DOLLARS (EXCEPT PER SHARE AMOUNTS) March 31 June 30 September 30 December 31
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998
Sales $5,936 $6,587 $6,341 $6,823
Gross margin 1,393 1,674 1,632 1,712
Net income 260 360 348 287
Earnings per share of Common Stock:
Basic $ 1.10 $ 1.54 $ 1.50 $ 1.23
Diluted $ 1.04 $ 1.44 $ 1.41 $ 1.16
1997
Sales $5,768 $6,264 $5,825 $6,132
Gross margin 1,320 1,492 1,420 1,469
Net income 224 304 300 244
Earnings per share of Common Stock:
Basic $ .91 $ 1.26 $ 1.25 $ 1.02
Diluted $ .87 $ 1.19 $ 1.18 $ .97
Restated to reflect application of EITF 96-16.
</TABLE>
<TABLE>
<CAPTION>
COMPARATIVE STOCK DATA
1998 1997
COMMON STOCK High Low Dividend High Low Dividend
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First Quarter 93 15/16 67 $.31 79 1/2 65 1/8 $.31
Second Quarter 100 1/8 84 1/16 $.36 87 3/4 70 1/4 $.31
Third Quarter 99 1/8 71 3/4 $.36 88 15/16 76 3/4 $.31
Fourth Quarter 112 1/2 72 $.36 81 13/16 66 3/4 $.31
</TABLE>
The Corporation's Common Stock is listed on the New York Stock Exchange. The
high and low prices are based on the Composite Tape of the New York Stock
Exchange. There were approximately 22,000 common shareowners of record at
December 31, 1998.
25
<PAGE>1 Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
The companies listed below are direct or indirect subsidiaries of the
Registrant. Their names and jurisdictions of incorporation are as follows:
State/Country
Entity Name of Incorporation
Ardco, Inc. Illinois
Carrier Air Conditioning Pty. Limited Australia
Carrier Argentina S.A. Argentina
Carrier Corporation Delaware
Carrier Mexico S.A. de C.V. Mexico
Carrier S.A. France
Carrier S.p.A. Italy
Carrier-Espana, SA Spain
CEAM Srl Italy
China Tianjin Otis Elevator Company, Ltd. China
Daewoo Carrier Corporation South Korea
Eagle Services Asia Private Ltd. Delaware
Elevadores Otis Ltda. Brazil
Gate S.p.A. Italy
Generale Frigorifique S.A.S. France
Helicopter Support, Inc. Connecticut
Johns Perry Lifts Holdings Cayman Islands
Microtecnica S.P.A. Italy
Miraco Development Services & Trading Company, S.A.E. Egypt
Nippon Otis Elevator Company Japan
OTH Aufzuge GmbH Germany
Otis [France] France
Otis Elevator Company [New Jersey] New Jersey
Otis Elevator Company Pty. Ltd. Australia
Otis Europe France
Otis Far East Holdings Limited Hong Kong
Otis G.m.b.H. Germany
Otis Plc United Kingdom
Otis S.p.A. Italy
Pratt & Whitney Canada Inc. Canada
Pratt & Whitney Engine Services, Inc. Delaware
Pratt & Whitney Holdings LLC Cayman Islands
Pratt & Whitney Export, Inc Delaware
Ratier Figeac S.A. France
SGC Holding Company, Inc. Delaware
Sikorsky Aircraft Corporation Delaware
Sikorsky Export Corporation Delaware
Societe Offranvillaise de Technologie, S.A. France
(Technoffra)
Springer Carrier S.A. Brazil
Sutrak Transportkalte GmbH Germany
The Express Lift Company Limited United Kingdom
Toyo Carrier Engineering Co., LTD. Japan
Turbine Airfoil Refurbishment Services, Inc. Delaware
Turbo Power and Marine Systems, Inc. Delaware
Tyler Refrigeration Corporation Delaware
United Technologies Automotive (Hungary) Kft Hungary
United Technologies Automotive (Portugal), LDA Portugal
<PAGE>
United Technologies Automotive Electrical Mexico
Systems de Mexico, S.A. de C.V.
United Technologies Automotive, Inc. Delaware
United Technologies Canada, Ltd. Canada
United Technologies Holding Plc United Kingdom
UT Finance Corporation Delaware
UT Insurance (Vermont), Inc. Vermont
UTMC Microelectronic Systems Inc. Delaware
Zardoya Otis, S.A. Spain
Other subsidiaries of the Registrant have been omitted from this listing since,
considered in the aggregate as a single subsidiary, they would not constitute a
significant subsidiary.
<PAGE> Exhibit 24
UNITED TECHNOLOGIES CORPORATION
Power of Attorney
The undersigned, as a member of the Board of Directors, or as
an officer of UNITED TECHNOLOGIES CORPORATION, a Delaware corporation
(the "Corporation"), or as a member of a committee of said Board, or in
all of said capacities, hereby constitutes and appoints DAVID J.
FITZPATRICK and WILLIAM H. TRACHSEL, or either of them, her true and
lawful attorneys and agents to do any and all acts and things and execute
any and all instruments which the said attorneys and agents may deem
necessary or advisable to enable the Corporation to comply with the
Securities Exchange Act of 1934 and any rules and regulations and
requirements of the Securities and Exchange Commission in respect thereof
in connection with the filing of the Annual Report of the Corporation on
Form 10-K for the fiscal year ended December 31, 1998, including
specifically, but without limiting the generality of the foregoing, the
power and authority to sign the name of the undersigned, in the
capacities aforesaid or in any other capacity, to such Form 10-K Annual
Report filed or to be filed with the Securities and Exchange Commission,
and any and all amendments to the said Form 10-K Annual Report, and any
and all instruments and documents filed as a part of or in connection
with the said Form 10-K Annual Report or any amendments thereto; hereby
ratifying and confirming all that the said attorneys and agents, or any
one of them, have done, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed this Power of
Attorney this 8th day of February, 1999.
/s/ Antonia Handler Chayes
Antonia Handler Chayes
<PAGE>
UNITED TECHNOLOGIES CORPORATION
Power of Attorney
The undersigned, as a member of the Board of Directors, or as
an officer of UNITED TECHNOLOGIES CORPORATION, a Delaware corporation
(the "Corporation"), or as a member of a committee of said Board, or in
all of said capacities, hereby constitutes and appoints DAVID J.
FITZPATRICK and WILLIAM H. TRACHSEL, or either of them, his true and
lawful attorneys and agents to do any and all acts and things and execute
any and all instruments which the said attorneys and agents may deem
necessary or advisable to enable the Corporation to comply with the
Securities Exchange Act of 1934 and any rules and regulations and
requirements of the Securities and Exchange Commission in respect thereof
in connection with the filing of the Annual Report of the Corporation on
Form 10-K for the fiscal year ended December 31, 1998, including
specifically, but without limiting the generality of the foregoing, the
power and authority to sign the name of the undersigned, in the
capacities aforesaid or in any other capacity, to such Form 10-K Annual
Report filed or to be filed with the Securities and Exchange Commission,
and any and all amendments to the said Form 10-K Annual Report, and any
and all instruments and documents filed as a part of or in connection
with the said Form 10-K Annual Report or any amendments thereto; hereby
ratifying and confirming all that the said attorneys and agents, or any
one of them, have done, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed this Power of
Attorney this 8th day of February, 1999.
/s/ Charles W. Duncan, Jr.
Charles W. Duncan, Jr.
<PAGE>
UNITED TECHNOLOGIES CORPORATION
Power of Attorney
The undersigned, as a member of the Board of Directors, or as
an officer of UNITED TECHNOLOGIES CORPORATION, a Delaware corporation
(the "Corporation"), or as a member of a committee of said Board, or in
all of said capacities, hereby constitutes and appoints DAVID J.
FITZPATRICK and WILLIAM H. TRACHSEL, or either of them, his true and
lawful attorneys and agents to do any and all acts and things and execute
any and all instruments which the said attorneys and agents may deem
necessary or advisable to enable the Corporation to comply with the
Securities Exchange Act of 1934 and any rules and regulations and
requirements of the Securities and Exchange Commission in respect thereof
in connection with the filing of the Annual Report of the Corporation on
Form 10-K for the fiscal year ended December 31, 1998, including
specifically, but without limiting the generality of the foregoing, the
power and authority to sign the name of the undersigned, in the
capacities aforesaid or in any other capacity, to such Form 10-K Annual
Report filed or to be filed with the Securities and Exchange Commission,
and any and all amendments to the said Form 10-K Annual Report, and any
and all instruments and documents filed as a part of or in connection
with the said Form 10-K Annual Report or any amendments thereto; hereby
ratifying and confirming all that the said attorneys and agents, or any
one of them, have done, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed this Power of
Attorney this 8th day of February, 1999.
/s/ Jean-Pierre Garnier
Jean-Pierre Garnier
<PAGE>
UNITED TECHNOLOGIES CORPORATION
Power of Attorney
The undersigned, as a member of the Board of Directors, or as
an officer of UNITED TECHNOLOGIES CORPORATION, a Delaware corporation
(the "Corporation"), or as a member of a committee of said Board, or in
all of said capacities, hereby constitutes and appoints DAVID J.
FITZPATRICK and WILLIAM H. TRACHSEL, or either of them, his true and
lawful attorneys and agents to do any and all acts and things and execute
any and all instruments which the said attorneys and agents may deem
necessary or advisable to enable the Corporation to comply with the
Securities Exchange Act of 1934 and any rules and regulations and
requirements of the Securities and Exchange Commission in respect thereof
in connection with the filing of the Annual Report of the Corporation on
Form 10-K for the fiscal year ended December 31, 1998, including
specifically, but without limiting the generality of the foregoing, the
power and authority to sign the name of the undersigned, in the
capacities aforesaid or in any other capacity, to such Form 10-K Annual
Report filed or to be filed with the Securities and Exchange Commission,
and any and all amendments to the said Form 10-K Annual Report, and any
and all instruments and documents filed as a part of or in connection
with the said Form 10-K Annual Report or any amendments thereto; hereby
ratifying and confirming all that the said attorneys and agents, or any
one of them, have done, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed this Power of
Attorney this 8th day of February, 1999.
/s/ Pehr G. Gyllenhammar
Pehr G. Gyllenhammar
<PAGE>
UNITED TECHNOLOGIES CORPORATION
Power of Attorney
The undersigned, as a member of the Board of Directors, or as
an officer of UNITED TECHNOLOGIES CORPORATION, a Delaware corporation
(the "Corporation"), or as a member of a committee of said Board, or in
all of said capacities, hereby constitutes and appoints DAVID J.
FITZPATRICK and WILLIAM H. TRACHSEL, or either of them, his true and
lawful attorneys and agents to do any and all acts and things and execute
any and all instruments which the said attorneys and agents may deem
necessary or advisable to enable the Corporation to comply with the
Securities Exchange Act of 1934 and any rules and regulations and
requirements of the Securities and Exchange Commission in respect thereof
in connection with the filing of the Annual Report of the Corporation on
Form 10-K for the fiscal year ended December 31, 1998, including
specifically, but without limiting the generality of the foregoing, the
power and authority to sign the name of the undersigned, in the
capacities aforesaid or in any other capacity, to such Form 10-K Annual
Report filed or to be filed with the Securities and Exchange Commission,
and any and all amendments to the said Form 10-K Annual Report, and any
and all instruments and documents filed as a part of or in connection
with the said Form 10-K Annual Report or any amendments thereto; hereby
ratifying and confirming all that the said attorneys and agents, or any
one of them, have done, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed this Power of
Attorney this 8th day of February, 1999.
/s/ Karl J. Krapek
Karl J. Krapek
<PAGE>
UNITED TECHNOLOGIES CORPORATION
Power of Attorney
The undersigned, as a member of the Board of Directors, or as
an officer of UNITED TECHNOLOGIES CORPORATION, a Delaware corporation
(the "Corporation"), or as a member of a committee of said Board, or in
all of said capacities, hereby constitutes and appoints DAVID J.
FITZPATRICK and WILLIAM H. TRACHSEL, or either of them, his true and
lawful attorneys and agents to do any and all acts and things and execute
any and all instruments which the said attorneys and agents may deem
necessary or advisable to enable the Corporation to comply with the
Securities Exchange Act of 1934 and any rules and regulations and
requirements of the Securities and Exchange Commission in respect thereof
in connection with the filing of the Annual Report of the Corporation on
Form 10-K for the fiscal year ended December 31, 1998, including
specifically, but without limiting the generality of the foregoing, the
power and authority to sign the name of the undersigned, in the
capacities aforesaid or in any other capacity, to such Form 10-K Annual
Report filed or to be filed with the Securities and Exchange Commission,
and any and all amendments to the said Form 10-K Annual Report, and any
and all instruments and documents filed as a part of or in connection
with the said Form 10-K Annual Report or any amendments thereto; hereby
ratifying and confirming all that the said attorneys and agents, or any
one of them, have done, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed this Power of
Attorney this 8th day of February, 1999.
/s/ Charles R. Lee
Charles R. Lee
<PAGE>
UNITED TECHNOLOGIES CORPORATION
Power of Attorney
The undersigned, as a member of the Board of Directors, or as
an officer of UNITED TECHNOLOGIES CORPORATION, a Delaware corporation
(the "Corporation"), or as a member of a committee of said Board, or in
all of said capacities, hereby constitutes and appoints DAVID J.
FITZPATRICK and WILLIAM H. TRACHSEL, or either of them, his true and
lawful attorneys and agents to do any and all acts and things and execute
any and all instruments which the said attorneys and agents may deem
necessary or advisable to enable the Corporation to comply with the
Securities Exchange Act of 1934 and any rules and regulations and
requirements of the Securities and Exchange Commission in respect thereof
in connection with the filing of the Annual Report of the Corporation on
Form 10-K for the fiscal year ended December 31, 1998, including
specifically, but without limiting the generality of the foregoing, the
power and authority to sign the name of the undersigned, in the
capacities aforesaid or in any other capacity, to such Form 10-K Annual
Report filed or to be filed with the Securities and Exchange Commission,
and any and all amendments to the said Form 10-K Annual Report, and any
and all instruments and documents filed as a part of or in connection
with the said Form 10-K Annual Report or any amendments thereto; hereby
ratifying and confirming all that the said attorneys and agents, or any
one of them, have done, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed this Power of
Attorney this 8th day of February, 1999.
/s/ Robert H. Malott
Robert H. Malott
<PAGE>
UNITED TECHNOLOGIES CORPORATION
Power of Attorney
The undersigned, as a member of the Board of Directors, or as
an officer of UNITED TECHNOLOGIES CORPORATION, a Delaware corporation
(the "Corporation"), or as a member of a committee of said Board, or in
all of said capacities, hereby constitutes and appoints DAVID J.
FITZPATRICK and WILLIAM H. TRACHSEL, or either of them, his true and
lawful attorneys and agents to do any and all acts and things and execute
any and all instruments which the said attorneys and agents may deem
necessary or advisable to enable the Corporation to comply with the
Securities Exchange Act of 1934 and any rules and regulations and
requirements of the Securities and Exchange Commission in respect thereof
in connection with the filing of the Annual Report of the Corporation on
Form 10-K for the fiscal year ended December 31, 1998, including
specifically, but without limiting the generality of the foregoing, the
power and authority to sign the name of the undersigned, in the
capacities aforesaid or in any other capacity, to such Form 10-K Annual
Report filed or to be filed with the Securities and Exchange Commission,
and any and all amendments to the said Form 10-K Annual Report, and any
and all instruments and documents filed as a part of or in connection
with the said Form 10-K Annual Report or any amendments thereto; hereby
ratifying and confirming all that the said attorneys and agents, or any
one of them, have done, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed this Power of
Attorney this 8th day of February, 1999.
/s/ William J. Perry
William J. Perry
<PAGE>
UNITED TECHNOLOGIES CORPORATION
Power of Attorney
The undersigned, as a member of the Board of Directors, or as
an officer of UNITED TECHNOLOGIES CORPORATION, a Delaware corporation
(the "Corporation"), or as a member of a committee of said Board, or in
all of said capacities, hereby constitutes and appoints DAVID J.
FITZPATRICK and WILLIAM H. TRACHSEL, or either of them, his true and
lawful attorneys and agents to do any and all acts and things and execute
any and all instruments which the said attorneys and agents may deem
necessary or advisable to enable the Corporation to comply with the
Securities Exchange Act of 1934 and any rules and regulations and
requirements of the Securities and Exchange Commission in respect thereof
in connection with the filing of the Annual Report of the Corporation on
Form 10-K for the fiscal year ended December 31, 1998, including
specifically, but without limiting the generality of the foregoing, the
power and authority to sign the name of the undersigned, in the
capacities aforesaid or in any other capacity, to such Form 10-K Annual
Report filed or to be filed with the Securities and Exchange Commission,
and any and all amendments to the said Form 10-K Annual Report, and any
and all instruments and documents filed as a part of or in connection
with the said Form 10-K Annual Report or any amendments thereto; hereby
ratifying and confirming all that the said attorneys and agents, or any
one of them, have done, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed this Power of
Attorney this 8th day of February, 1999.
/s/ Frank P. Popoff
Frank P. Popoff
<PAGE>
UNITED TECHNOLOGIES CORPORATION
Power of Attorney
The undersigned, as a member of the Board of Directors, or as
an officer of UNITED TECHNOLOGIES CORPORATION, a Delaware corporation
(the "Corporation"), or as a member of a committee of said Board, or in
all of said capacities, hereby constitutes and appoints DAVID J.
FITZPATRICK and WILLIAM H. TRACHSEL, or either of them, his true and
lawful attorneys and agents to do any and all acts and things and execute
any and all instruments which the said attorneys and agents may deem
necessary or advisable to enable the Corporation to comply with the
Securities Exchange Act of 1934 and any rules and regulations and
requirements of the Securities and Exchange Commission in respect thereof
in connection with the filing of the Annual Report of the Corporation on
Form 10-K for the fiscal year ended December 31, 1998, including
specifically, but without limiting the generality of the foregoing, the
power and authority to sign the name of the undersigned, in the
capacities aforesaid or in any other capacity, to such Form 10-K Annual
Report filed or to be filed with the Securities and Exchange Commission,
and any and all amendments to the said Form 10-K Annual Report, and any
and all instruments and documents filed as a part of or in connection
with the said Form 10-K Annual Report or any amendments thereto; hereby
ratifying and confirming all that the said attorneys and agents, or any
one of them, have done, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed this Power of
Attorney this 8th day of February, 1999.
/s/ Andre Villeneuve
Andre Villeneuve
<PAGE>
UNITED TECHNOLOGIES CORPORATION
Power of Attorney
The undersigned, as a member of the Board of Directors, or as
an officer of UNITED TECHNOLOGIES CORPORATION, a Delaware corporation
(the "Corporation"), or as a member of a committee of said Board, or in
all of said capacities, hereby constitutes and appoints DAVID J.
FITZPATRICK and WILLIAM H. TRACHSEL, or either of them, his true and
lawful attorneys and agents to do any and all acts and things and execute
any and all instruments which the said attorneys and agents may deem
necessary or advisable to enable the Corporation to comply with the
Securities Exchange Act of 1934 and any rules and regulations and
requirements of the Securities and Exchange Commission in respect thereof
in connection with the filing of the Annual Report of the Corporation on
Form 10-K for the fiscal year ended December 31, 1998, including
specifically, but without limiting the generality of the foregoing, the
power and authority to sign the name of the undersigned, in the
capacities aforesaid or in any other capacity, to such Form 10-K Annual
Report filed or to be filed with the Securities and Exchange Commission,
and any and all amendments to the said Form 10-K Annual Report, and any
and all instruments and documents filed as a part of or in connection
with the said Form 10-K Annual Report or any amendments thereto; hereby
ratifying and confirming all that the said attorneys and agents, or any
one of them, have done, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed this Power of
Attorney this 8th day of February, 1999.
/s/ Harold A. Wagner
Harold A. Wagner
<PAGE>
UNITED TECHNOLOGIES CORPORATION
Power of Attorney
The undersigned, as a member of the Board of Directors, or as
an officer of UNITED TECHNOLOGIES CORPORATION, a Delaware corporation
(the "Corporation"), or as a member of a committee of said Board, or in
all of said capacities, hereby constitutes and appoints DAVID J.
FITZPATRICK and WILLIAM H. TRACHSEL, or either of them, her true and
lawful attorneys and agents to do any and all acts and things and execute
any and all instruments which the said attorneys and agents may deem
necessary or advisable to enable the Corporation to comply with the
Securities Exchange Act of 1934 and any rules and regulations and
requirements of the Securities and Exchange Commission in respect thereof
in connection with the filing of the Annual Report of the Corporation on
Form 10-K for the fiscal year ended December 31, 1998, including
specifically, but without limiting the generality of the foregoing, the
power and authority to sign the name of the undersigned, in the
capacities aforesaid or in any other capacity, to such Form 10-K Annual
Report filed or to be filed with the Securities and Exchange Commission,
and any and all amendments to the said Form 10-K Annual Report, and any
and all instruments and documents filed as a part of or in connection
with the said Form 10-K Annual Report or any amendments thereto; hereby
ratifying and confirming all that the said attorneys and agents, or any
one of them, have done, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed this Power of
Attorney this 8th day of February, 1999.
/s/ Jacqueline G. Wexler
Jacqueline G. Wexler
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at December 31, 1998 and the Consolidated Statement
of Operations for the year ended December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 550
<SECURITIES> 0
<RECEIVABLES> 4,314
<ALLOWANCES> 321
<INVENTORY> 3,362
<CURRENT-ASSETS> 9,355
<PP&E> 10,900
<DEPRECIATION> 6,635
<TOTAL-ASSETS> 18,375
<CURRENT-LIABILITIES> 7,735
<BONDS> 1,575
456
0
<COMMON> 2,708
<OTHER-SE> 1,670
<TOTAL-LIABILITY-AND-EQUITY> 18,375
<SALES> 20,248
<TOTAL-REVENUES> 25,715
<CGS> 15,815
<TOTAL-COSTS> 19,276
<OTHER-EXPENSES> 1,315
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 204
<INCOME-PRETAX> 1,963
<INCOME-TAX> 623
<INCOME-CONTINUING> 1,255
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,255
<EPS-PRIMARY> 5.36<F1>
<EPS-DILUTED> 5.05<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>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains restate financial information extracted from the
Condensed Consolidated Balance Sheet and the Condensed Consolidated Statement of
Operations for the periods indicated below, and is qualified in it entirety by
reference to such financial statements. Referenced as Exhibit 27.1 in 10-K.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998 DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1998 JAN-01-1998 JAN-01-1997
<PERIOD-END> SEP-30-1998 JUN-30-1998 MAR-31-1998 DEC-31-1997
<CASH> 558 641 619 655
<SECURITIES> 0 0 0 0
<RECEIVABLES> 4,624 4,514 4,348 4,046
<ALLOWANCES> 345 338 318 304
<INVENTORY> 3,093 3,038 3,249 3,113
<CURRENT-ASSETS> 9,482 9,394 9,374 9,018
<PP&E> 10,711 10,434 10,348 10,472
<DEPRECIATION> 6,633 6,435 6,353 6,345
<TOTAL-ASSETS> 18,005 17,188 17,070 16,440
<CURRENT-LIABILITIES> 7,867 7,487 7,502 7,113
<BONDS> 1,605 1,221 1,255 1,275
455 452 452 450
0 0 0 0
<COMMON> 2,647 2,604 2,569 2,488
<OTHER-SE> 1,730 1,687 1,667 1,585
<TOTAL-LIABILITY-AND-EQUITY> 18,005 17,188 17,070 16,440
<SALES> 14,888 9,897 4,647 18,873
<TOTAL-REVENUES> 18,913 12,597 6,022 24,222
<CGS> 11,666 7,798 3,727 15,080
<TOTAL-COSTS> 14,165 9,456 4,543 18,288
<OTHER-EXPENSES> 952 628 308 1,187
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 143 94 48 191
<INCOME-PRETAX> 1,512 971 408 1,736
<INCOME-TAX> 479 308 129 565
<INCOME-CONTINUING> 968 620 260 1,072
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 968 620 260 1,072
<EPS-PRIMARY> 4.13<F1> 2.63<F1> 1.10<F1> 4.44<F1>
<EPS-DILUTED> 3.89<F1> 2.48<F1> 1.04<F1> 4.21<F1>
<FN>
<F1>The [EDS-PRIMARY] amount represents BASIC earnings per share and the
[EPS-DILUTED] amount represents DILUTED earnings per share in accordance with
Statement Financial Accounting Standards No. 128, Earnings Per Share.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains restated financial information extracted from the
Consdensed Consolidated Balance Sheet and the Condensed Consolidated Balance
Sheet and the Condensed Statement of Operations for the periods indicated
below, and is qualified in its entirety by reference to such financial
statements. Referenced as Exhibit 27.2 in 10-K.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997 JAN-01-1996
<PERIOD-END> SEP-30-1997 JUN-30-1997 MAR-31-1997 DEC-31-1996
<CASH> 1,164 1,283 1,158 998
<SECURITIES> 0 0 0 0
<RECEIVABLES> 4,085 4,135 3,748 3,963
<ALLOWANCES> 320 311 303 309
<INVENTORY> 3,282 3,235 3,447 3,541
<CURRENT-ASSETS> 9,586 9,741 9,421 9,284
<PP&E> 10,586 10,516 10,424 10,498
<DEPRECIATION> 6,495 6,404 6,299 6,252
<TOTAL-ASSETS> 16,601 16,694 16,344 16,412
<CURRENT-LIABILITIES> 7,101 7,257 7,078 6,997
<BONDS> 1,363 1,381 1,398 1,437
444 441 439 434
0 0 0 0
<COMMON> 2,461 2,432 2,383 2,345
<OTHER-SE> 1,837 1,901 1,856 1,961
<TOTAL-LIABILITY-AND-EQUITY> 16,601 16,694 16,344 16,412
<SALES> 14,099 9,525 4,536 17,799
<TOTAL-REVENUES> 18,020 12,146 5,819 23,051
<CGS> 11,296 7,650 3,678 14,327
<TOTAL-COSTS> 13,625 9,220 4,448 17,415
<OTHER-EXPENSES> 855 587 271 1,122
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 144 95 47 217
<INCOME-PRETAX> 1,334 855 369 1,501
<INCOME-TAX> 435 278 120 494
<INCOME-CONTINUING> 828 528 224 906
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 828 528 224 906
<EPS-PRIMARY> 3.41<F1> 2.17<F1> .91<F1> 3.63<F1>
<EPS-DILUTED> 3.23<F1> 2.05<F1> .87<F1> 3.48<F1>
<FN>
<F1>The [EDS-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>
