<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C.
20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30,1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period
from____________________________to__________________________
Commission file number 1-812
UNITED TECHNOLOGIES CORPORATION
DELAWARE 06-0570975
One Financial Plaza, Hartford, Connecticut 06101
(860) 728-7000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X . No .
At June 30,1999 there were 481,353,843 shares of Common Stock outstanding.
<PAGE>
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONTENTS OF QUARTERLY REPORT ON FORM 10-Q
Quarter Ended June 30,1999
Page
Part I - Financial Information
Item 1. Financial Statements:
Condensed Consolidated Statement of 1
Operations for the quarters ended June 30,
1999 and 1998
Condensed Consolidated Statement of 2
Operations for the six months ended June
30, 1999 and 1998
Condensed Consolidated Balance Sheet at June 3
30, 1999 and December 31, 1998
Condensed Consolidated Statement of Cash 4
Flows for the six months ended June 30,
1999 and 1998
Notes to Condensed Consolidated Financial 5
Statements
Report of Independent Accountants 10
Item 2. Management's Discussion and Analysis of 11
Results of Operations and Financial Position
Part II - Other Information
Item 1. Legal Proceedings 20
Item 2. Changes in Securities 20
Item 4. Submission of Matters to a Vote of 20
Security Holders
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 23
Exhibit Index
<PAGE> 1
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
<TABLE>
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<CAPTION>
Quarter Ended
June 30,
In Millions (except per share amounts) 1999 1998
<S> <C> <C>
Revenues:
Product sales $ 4,597 $ 4,511
Service sales 1,387 1,337
Financing revenues and other income,
net 57 (17)
6,041 5,831
Costs and expenses:
Cost of products sold 3,465 3,467
Cost of services sold 882 842
Research and development 306 279
Selling, general and administrative 693 677
Interest 57 45
5,403 5,310
Income from continuing operations before
income taxes and minority interests 638 521
Income taxes 196 163
Minority interests 25 25
Income from continuing operations 417 333
Discontinued operation:
Income from operations of discontinued
UT Automotive subsidiary (net of
applicable income tax provisions of $13
in 1999 and $15 in 1998) 10 27
Gain on sale of UT Automotive
subsidiary (net of applicable income
tax provision of $112) 650 -
Net income $ 1,077 $ 360
Earnings per share of Common Stock:*
Basic:
Continuing operations $ .89 $ .71
Discontinued operation .02 .06
Gain on sale of discontinued operation 1.42 -
Net earnings $ 2.33 $ .77
Diluted:
Continuing operations $ .83 $ .67
Discontinued operation .02 .05
Gain on sale of discontinued operation 1.30 -
Net earnings $ 2.15 $ .72
Dividends per share of Common Stock:* $ .18 $ .18
Average number of shares outstanding:*
Basic 459 458
Diluted 501 498
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
* Reflects two-for-one stock split as described in Notes to Condensed
Consolidated Financial Statements.
<PAGE> 2
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
<TABLE>
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<CAPTION>
Six Months Ended
June 30,
In Millions (except per share amounts) 1999 1998
<S> <C> <C>
Revenues:
Product sales $ 8,577 $ 8,442
Service sales 2,789 2,626
Financing revenues and other income,
net 117 71
11,483 11,139
Costs and expenses:
Cost of products sold 6,575 6,612
Cost of services sold 1,749 1,658
Research and development 580 556
Selling, general and administrative 1,394 1,338
Interest 112 92
10,410 10,256
Income from continuing operations before
income taxes and minority interests 1,073 883
Income taxes 332 277
Minority interests 46 44
Income from continuing operations 695 562
Discontinued operation:
Income from operations of discontinued
UT Automotive subsidiary (net of
applicable income tax provisions of $28
in 1999 and $30 in 1998) 40 58
Gain on sale of UT Automotive
subsidiary (net of applicable income
tax provision of $112) 650 -
Net income $ 1,385 $ 620
Earnings per share of Common Stock:*
Basic:
Continuing operations $ 1.49 $ 1.19
Discontinued operation .09 .13
Gain on sale of discontinued operation 1.43 -
Net earnings $ 3.01 $ 1.32
Diluted:
Continuing operations $ 1.39 $ 1.12
Discontinued operation .08 .12
Gain on sale of discontinued operation 1.31 -
Net earnings $ 2.78 $ 1.24
Dividends per share of Common Stock:* $ .36 $ .335
Average number of shares outstanding:*
Basic 455 459
Diluted 497 498
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
* Reflects two-for-one stock split as described in Notes to Condensed
Consolidated Financial Statements.
<PAGE> 3
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
<TABLE>
CONDENSED CONSOLIDATED BALANCE SHEET
<CAPTION>
<S> <C> <C>
June 30, December 31,
In Millions of Dollars 1999 1998
(Unaudited)
</TABLE>
Assets
<TABLE><CAPTION>
<S> <C> <C>
Cash and cash equivalents $ 885 $ 550
Accounts receivable, net 4,142 3,417
Inventories and contracts in progress, net 3,490 3,191
Future income tax benefits 1,256 1,222
Other current assets 216 161
Net investment in discontinued operation - 1,287
Total Current Assets 9,989 9,828
Fixed assets 10,097 9,549
Less - accumulated depreciation (5,952) (5,994)
4,145 3,555
Goodwill 4,839 1,417
Other assets 3,054 2,968
Total Assets $ 22,027 $ 17,768
</TABLE>
Liabilities and Shareowners' Equity
<TABLE><CAPTION>
<S> <C> <C>
Long-term debt currently due $ 85 $ 99
Short-term borrowings 314 504
Accounts payable 1,827 1,860
Accrued liabilities 5,472 4,719
Total Current Liabilities 7,698 7,182
Long-term debt 2,110 1,570
Future pension and postretirement benefit
obligations 1,919 1,682
Other long-term liabilities 2,532 2,500
Series A ESOP Convertible Preferred Stock 818 836
ESOP deferred compensation (367) (380)
451 456
Shareowners' Equity:
Common Stock 4,097 2,708
Treasury Stock (2,638) (3,117)
Retained earnings 6,553 5,411
Accumulated other non-shareowner
changes in equity (695) (624)
7,317 4,378
Total Liabilities and Shareowners' Equity $ 22,027 $ 17,768
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
<PAGE> 4
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
<TABLE>
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<CAPTION>
Six Months Ended
June 30,
In Millions of Dollars 1999 1998
<S> <C> <C>
Operating activities:
Income from continuing operations $ 695 $ 562
Adjustments to reconcile income from
continuing operations to net cash
flows provided by operating
activities:
Depreciation and amortization 380 360
Deferred income tax provision
(benefit) 64 (150)
Change in:
Accounts receivable (365) (343)
Inventories and contracts in
progress 105 119
Accounts payable and accrued
liabilities 96 398
Other current assets (34) 121
Other, net 62 137
Net cash flows provided by
operating activities 1,003 1,204
Investing activities:
Capital expenditures (292) (232)
Acquisitions of business units (2,069) (434)
Disposition of business unit 43 -
Increase in customer financing
assets, net (130) (125)
Other, net 90 25
Net cash flows used in investing
activities (2,358) (766)
Financing activities:
Issuance of long-term debt 400 2
Repayment of long-term debt (199) (80)
Decrease in short-term borrowings, net (335) (6)
Dividends paid on Common Stock (162) (154)
Common Stock repurchase (267) (277)
Other, net 126 50
Net cash flows used in financing
activities (437) (465)
Net cash flows provided by
discontinued operation 2,159 28
Effect of foreign exchange rate changes
on Cash and cash equivalents (32) (15)
Net increase (decrease) in Cash
and cash equivalents 335 (14)
Cash and cash equivalents, beginning of
year 550 655
Cash and cash equivalents, end of $ 885 $ 641
period
Supplemental Disclosure of Cash Flow
Information:
Non-cash investing activities:
The Corporation issued $1.9 billion of Treasury Stock in
connection with the acquisition of Sundstrand Corporation.
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
<PAGE> 5
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Condensed Consolidated Financial Statements at June 30, 1999 and for the
quarters and six-month periods ended June 30,1999 and 1998 are unaudited, but in
the opinion of management include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results for the
interim periods. Certain reclassifications have been made to prior year amounts
to conform to the current year presentation.
Total non-shareowner changes in equity includes all changes in equity during
a period except those resulting from investments by and distributions to
shareowners. The specific components include: net income, deferred gains and
losses resulting from foreign currency translation and minimum pension liability
adjustments. Total non-shareowner changes in equity were $1,084 million and
$1,314 million in the second quarter and six-month period of 1999, compared to
$310 million and $573 million in the same periods of 1998. Both periods in 1999
include the gain recognized on the sale of UT Automotive discussed below.
Recent Developments
Disposition of UT Automotive
On May 4, 1999, the Corporation sold its UT Automotive unit to Lear
Corporation for $2.3 billion, which resulted in a source of cash of $2.159
billion during the six-month period. An after-tax gain of $650 million was
recognized in the second quarter of 1999 along with approximately one month of
UT Automotive earnings. UT Automotive net assets appear in the Condensed
Consolidated Balance Sheet at December 31, 1998 as a net investment in a
discontinued operation and related results as income from operations of the
discontinued UT Automotive subsidiary in the Condensed Consolidated Statement of
Operations for both periods presented.
Acquisition of Sundstrand Corporation
On June 10, 1999, the Corporation completed the acquisition of Sundstrand
Corporation for approximately $4.3 billion, including assumed debt. The assets
acquired and results of Sundstrand's operations subsequent to the closing date
are included in the Corporation's Condensed Consolidated Financial Statements at
June 30, 1999.
Under terms of the merger agreement, each outstanding share of Sundstrand
Common Stock was exchanged for $35 in cash and .5580 shares of the Corporation's
Common Stock. The merger has been accounted for as a purchase.
In 1998, Sundstrand had $2.0 billion in revenues and $226 million in net
income.
The Corporation financed the cash portion of the purchase price with the
after-tax cash proceeds from the sale of its UT Automotive unit discussed above
and through the issuance of debt discussed below.
<PAGE> 6
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
Issuance of Long-term Debt
In May 1999, the Corporation issued $400 million of 6.5% unsubordinated,
unsecured, nonconvertible notes (the "Notes") under a shelf registration
statement filed with the Securities and Exchange Commission in April. The Notes
are due June 1, 2009, with interest payable semiannually commencing December 1,
1999. The Corporation may redeem all or any portion of the Notes, at any time,
at a formula-based price determined at the time of redemption. Proceeds from
this issuance were used for general corporate purposes and to finance a portion
of the acquisition of Sundstrand Corporation.
Shelf Registration Statement
In July 1999, the Corporation filed a registration statement with the
Securities and Exchange Commission concerning the issuance of up to $400 million
in debt securities. The registration statement became effective on July 23,
1999. The total amount of medium-term and long-term debt that could be issued
by the Corporation under this and previous registration statements is $1.0
billion. The proceeds from the potential issuance of debt securities will be
used for general corporate purposes, which may include acquisitions and
repurchases of the Corporation's common stock, and will result in additional
interest expense and higher levels of debt to capital in future periods.
Stock Split
On April 30, 1999, the Corporation announced a two-for-one stock split which
was paid on May 17, 1999 in the form of a stock dividend to shareowners of
record at the close of business on May 7, 1999. All common share and per share
information in the Condensed Consolidated Financial Statements reflect the stock
split.
Cost Reduction Efforts
During 1998, the Corporation recorded pre-tax charges totaling $320 million
related to ongoing efforts to reduce costs of its continuing operations in
response to an increasingly competitive business environment. Charges were
recorded in each of the Corporation's operating segments with the majority
relating to the Pratt & Whitney, Otis and Carrier operations. The amounts were
primarily recorded in cost of sales and relate to workforce reductions of
approximately 7,500 employees, plant closings and charges associated with asset
impairments. Approximately 5,800 employees were terminated as of June 30,1999.
The remaining terminations and plant closings are planned to be completed by
December of this year.
The following table summarizes the costs associated with these actions.
<TABLE><CAPTION>
Severance
and Other Asset
Related Exit Write-
In Millions of Dollars Costs Costs Downs Total
<S> <C> <C> <C> <C>
1998 Charges $ 266 $ 5 $ 49 $ 320
Utilized through
6/30/99 213 3 49 265
Remaining $ 53 $ 2 $ - $ 55
</TABLE>
<PAGE> 7
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
The Corporation expects to record additional cost reduction charges
throughout the remainder of 1999 across all operating segments in order to
further reduce costs and streamline the operations.
Contingent Liabilities
There has been no significant change in the Corporation's material
contingencies during 1999. Summarized below, however, are the matters previously
described in Note 14 of the Notes to Consolidated Financial Statements in the
Corporation's Annual Report, incorporated by reference in the Corporation's
Annual Report on Form 10-K for calendar year 1998, as amended to reflect UT
Automotive as a discontinued operation (see the Corporation's Current Report on
Form 8-K filed on June 11, 1999).
Environmental
The Corporation's operations are subject to environmental regulation by
federal, state and local authorities in the United States and regulatory
authorities with jurisdiction over its foreign operations.
Environmental investigatory, remediation, operating and maintenance costs are
accrued when it is probable that a liability has been incurred and the amount
can be reasonably estimated. The most likely cost to be incurred is accrued
based on an evaluation of currently available facts with respect to each
individual site, including existing technology, current laws and regulations and
prior remediation experience. Where no amount within a range of estimates is
more likely, the minimum is accrued. For sites with multiple responsible
parties, the Corporation considers its likely proportionate share of the
anticipated remediation costs and the ability of the other parties to fulfill
their obligations in establishing a provision for those costs. Liabilities with
fixed or reliably determinable future cash payments are discounted.
The Corporation maintains property insurance with a number of insurance
companies. Litigation is continuing against one of the Corporation's historical
property insurers seeking coverage for environmental costs incurred at certain
facilities. The litigation is expected to last several years. Environmental
liabilities are not reduced by potential insurance reimbursements.
As discussed above, the Corporation has accrued for the costs of
environmental remediation activities and periodically reassesses these amounts.
Management believes that losses materially in excess of amounts accrued are not
reasonably possible.
U.S. Government
The Corporation is now and 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.
<PAGE> 8
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
The Corporation's contracts with the U.S. Government are also subject to
audits. Like many defense contractors, the Corporation has received audit
reports which recommend that certain contract prices should be reduced to comply
with various government regulations. Some of these audit reports involve
substantial amounts. The Corporation has made voluntary refunds in those cases
it believes appropriate.
Other
The Corporation extends performance and operating cost guarantees beyond its
normal warranty and service policies for extended periods on some of its
products, particularly commercial aircraft engines. Liability under such
guarantees is contingent upon future product performance and durability. The
Corporation has accrued its estimated liability that may result under these
guarantees.
The Corporation also has other commitments and contingent liabilities related
to legal proceedings and matters arising out of the normal course of business.
The Corporation has accrued for environmental investigatory, remediation,
operating and maintenance costs, performance guarantees and other litigation and
claims based on management's estimate of the probable outcome of these matters.
While it is possible that the outcome of these matters may differ from the
recorded liability, management believes that resolution of these matters will
not have a material impact on the Corporation's financial position, results of
operations or cash flows.
<PAGE> 9
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
<TABLE><CAPTION>
Earnings Per Share
Quarter Ended Six Months Ended
June 30, June 30,
In Millions of Dollars 1999 1998 1999 1998
(except per share
amounts)
<S> <C> <C> <C> <C>
Income from continuing $ 417 $ 333 $ 695 $ 562
operations
Less: ESOP Stock
dividends (8) (8) (16) (16)
Basic earnings from
continuing operations 409 325 679 546
ESOP Stock adjustment 7 7 14 13
Diluted earnings from
continuing operations $ 416 $ 332 $ 693 $ 559
Income from
discontinued
operation, net of tax $ 10 $ 27 $ 40 $ 58
Gain on sale of
discontinued
operation, net of tax 650 - 650 -
$ 660 $ 27 $ 690 $ 58
Net income $ 1,077 $ 360 $ 1,385 $ 620
Less: ESOP Stock
dividends (8) (8) (16) (16)
Basic earnings 1,069 352 1,369 604
ESOP Stock adjustment 7 7 14 13
Diluted earnings $ 1,076 $ 359 $ 1,383 $ 617
Average shares:*
Basic 459 458 455 459
Stock awards 15 13 15 12
ESOP Stock 27 27 27 27
Diluted 501 498 497 498
Earnings per share of
Common Stock:*
Basic:
Continuing operations $ .89 $ .71 $ 1.49 $ 1.19
Discontinued
operation .02 .06 .09 .13
Gain on sale of
discontinued
operation 1.42 - 1.43 -
Net earnings $ 2.33 $ .77 $ 3.01 $ 1.32
Diluted:
Continuing operations $ .83 $ .67 $ 1.39 $ 1.12
Discontinued
operation .02 .05 .08 .12
Gain on sale of
discontinued
operation 1.30 - 1.31 -
Net earnings $ 2.15 $ .72 $ 2.78 $ 1.24
</TABLE>
*Reflects two-for-one stock split as described in Notes to Condensed
Consolidated Financial Statements.
<PAGE> 10
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
With respect to the unaudited condensed consolidated financial information of
United Technologies Corporation for the quarters and six-month periods ended
June 30, 1999 and 1998, PricewaterhouseCoopers LLP ("PricewaterhouseCoopers")
reported that they have applied limited procedures in accordance with
professional standards for a review of such information. However, their
separate report dated July 20, 1999 appearing below, states that they did not
audit and they do not express an opinion on that unaudited condensed
consolidated financial information. PricewaterhouseCoopers has not carried out
any significant or additional audit tests beyond those which would have been
necessary if their report had not been included. Accordingly, the degree of
reliance on their report on such information should be restricted in light of
the limited nature of the review procedures applied. PricewaterhouseCoopers is
not subject to the liability provisions of section 11 of the Securities Act of
1933 ("the Act") for their report on the unaudited condensed consolidated
financial information because that report is not a "report" or a "part" of the
registration statement prepared or certified by PricewaterhouseCoopers within
the meaning of sections 7 and 11 of the Act.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareowners of
United Technologies Corporation
We have reviewed the accompanying condensed consolidated statement of
operations of United Technologies Corporation and consolidated subsidiaries for
the quarters and six months ended June 30,1999 and 1998, the condensed
consolidated statement of cash flows for the six months ended June 30,1999 and
1998, and the condensed consolidated balance sheet as of June 30,1999. This
financial information is the responsibility of the company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial information for it to be in
conformity with generally accepted accounting principles.
We previously audited in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1998, and the
related consolidated statements of operations, of changes in shareowners' equity
and of cash flows for the year then ended (not presented herein), and in our
report dated January 21, 1999, except for Note 16, which is as of May 20, 1999,
we expressed an unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 1998, is fairly stated in all
material respects in relation to the consolidated balance sheet from which it
has been derived.
PricewaterhouseCoopers LLP
Hartford, Connecticut
July 20, 1999
<PAGE> 11
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL POSITION
BUSINESS ENVIRONMENT
The Corporation's operations are classified into four principal operating
segments. Carrier and Otis serve customers in the commercial property and
residential housing industries. Pratt & Whitney and the Flight Systems segment,
which includes Sikorsky Aircraft and Hamilton Sundstrand, serve commercial and
government customers in the aerospace industry. As worldwide businesses, the
Corporation's operations are affected by global and regional economic factors.
However, the diversity of the Corporation's businesses and global market
presence has helped limit the impact of any one industry or the economy of any
single country on the consolidated results.
The Asian economic 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 pre-crisis years. While
recognizing that the Asian economic weakness is continuing, management believes
the long-term economic growth prospects of the region remain intact. Therefore,
the Corporation's Asian investment strategy continues to focus on the long-term
infrastructure requirements of the region.
In early 1999, the Brazilian Real devalued significantly. This devaluation
had a destabilizing effect throughout Latin America and increased the likelihood
of slower near-term growth in the region.
Worldwide airline profits, traffic growth and load factors have been reliable
indicators for new aircraft and after-market orders. U.S. and European airlines
are experiencing continued profitability driven primarily by low fuel prices and
the effect of cost reduction programs. Airlines in the Asia Pacific and Latin
American regions 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 and Latin American economic
downturn or a slowdown in the aviation industry, as a whole, will likely result
in lower manufacturing volumes in the near term.
The defense portion of the Corporation's aerospace businesses continues to
respond to a changing global political environment. The U.S. defense industry
continues to downsize and consolidate in response to continued pressure on U.S.
and global defense spending. U.S. and global customers continually review and
reprioritize research and procurement initiatives.
<PAGE> 12
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
RESULTS OF CONTINUING OPERATIONS
Consolidated revenues and margin percentages were as follows:
<TABLE><CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
In Millions of Dollars 1999 1998 1999 1998
<S> <C> <C> <C> <C>
Sales $ 5,984 $ 5,848 $ 11,366 $ 11,068
Financing revenues and
other income, net 57 (17) 117 71
Revenues $ 6,041 $ 5,831 $ 11,483 $ 11,139
Gross margin % 27.4% 26.3% 26.8% 25.3%
</TABLE>
Consolidated revenues increased 4% and 3% in the second quarter and six-month
period of 1999 compared to 1998, primarily due to growth at Pratt & Whitney,
Carrier and Otis.
Financing revenues and other income, net, increased $74 million and $46
million in the second quarter and six-month period of 1999 compared to 1998. The
second quarter 1998 results include the cost of Pratt & Whitney's repurchase of
a participant's interest in a commercial engine program. The year-to-date 1998
results also reflect the settlement of a contract dispute with the U.S.
Government.
Gross margin as a percentage of sales increased 1.1 percentage points and 1.5
percentage points in the second quarter and six-month period of 1999 compared to
the same periods of 1998 due to improvements at all operating segments.
Research and development spending increased $27 million (10%) and $24 million
(4%) in the second quarter and six-month period of 1999 compared to 1998. The
increases relate principally to Pratt & Whitney's spending on the PW6000 and
PW4173 programs. As a percentage of sales, research and development was 5.1% in
the second quarter and six-month period of 1999 compared to 4.8% and 5.0% in the
second quarter and six-month period of 1998. Research and development spending
in 1999 is expected to remain at approximately 5% of sales.
Selling, general and administrative expenses increased $16 million (2%) and
$56 million (4%) in the second quarter and six-month period of 1999 compared to
1998 due to increases in most operating segments. As a percent of sales, these
expenses increased to 12.3% in the six-month period of 1999 from 12.1% in the
same period of 1998, due to increases at Flight Systems and Pratt & Whitney.
The effective income tax rate for the six-month period of 1999 was 30.9%
compared to 31.4% for the six-month period of 1998. The Corporation has
continued to lower its effective income tax rate by implementing tax reduction
strategies.
As described in Notes to Condensed Consolidated Financial Statements, the
Corporation sold its UT Automotive unit to Lear Corporation for $2.3 billion and
realized an after-tax gain of $650 million.
The Corporation expects to record pre-tax cost reduction charges in the third
quarter of this year of approximately $1.0 billion ($650 million after-tax), to
<PAGE> 13
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
further strengthen the competitive position of its businesses. The cost
reduction actions will focus on rationalizing the Corporation's manufacturing
footprint and under performing product lines and improving the overall level of
organizational efficiency.
<PAGE> 14
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
Revenues, operating profits and operating profit margins of the Corporation's
principal operating segments for the quarters and six-month periods ended June
30,1999 and 1998 are as follows (dollars in millions):
<TABLE><CAPTION>
Operating
Revenues Operating Profits Profit Margin
Quarter Ended June 30, 1999 1998 1999 1998 1999 1998
<S> <C> <C> <C> <C> <C> <C>
Otis $ 1,379 $ 1,337 $ 161 $ 140 11.7% 10.5%
Carrier 2,029 1,878 234 195 11.5% 10.4%
Pratt & Whitney 1,985 1,974 284 248 14.3% 12.6%
Flight Systems 764 756 81 73 10.6% 9.7%
Total segment 6,157 5,945 760 656 12.3% 11.0%
Eliminations and
other (116) (114) (5) (31)
General corporate
expenses - - (60) (59)
Consolidated $ 6,041 $ 5,831 695 566
Interest expense (57) (45)
Consolidated income from
continuing operations
before income taxes and
minority interests $ 638 $ 521
Operating
Six Months Ended Revenues Operating Profits Profit Margin
June 30, 1999 1998 1999 1998 1999 1998
<S> <C> <C> <C> <C> <C> <C>
Otis $ 2,742 $ 2,659 $ 316 $ 238 11.5% 9.0%
Carrier 3,539 3,376 325 213 9.2% 6.3%
Pratt & Whitney 4,004 3,890 564 541 14.1% 13.9%
Flight Systems 1,370 1,432 121 138 8.8% 9.6%
Total segment 11,655 11,357 1,326 1,130 11.4% 9.9%
Eliminations and
other (172) (218) (16) (41)
General corporate
expenses - - (125) (114)
Consolidated $ 11,483 $ 11,139 1,185 975
Interest expense (112) (92)
Consolidated income from
continuing operations
before income taxes and
minority interests $ 1,073 $ 883
</TABLE>
<PAGE> 15
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
Otis revenues increased 3% in the second quarter and six-month period of 1999
compared to 1998. The increase in revenues was mostly due to increases in North
America partially offset by declines in the Latin American operations.
Excluding the unfavorable impact of foreign currency translation, revenues
increased by 5% and 4% in the second quarter and six-month period of 1999
compared to 1998.
Otis operating profits increased $21 million (15%) and $78 million (33%) in
the second quarter and six-month period of 1999 compared to 1998, reflecting
improvement in all operations except Latin America which continues to face
pressure from the Real devaluation and the corresponding economic weakness. The
1998 year-to-date results include charges related to salaried workforce
reductions and the consolidation of manufacturing and engineering facilities.
Carrier revenues increased 8% and 5% in the second quarter and six-month
period of 1999 compared to 1998. The increase in revenues was due to increases
in North America, Refrigeration Operations and Europe and the impact of
acquisitions, partly offset by declines in the Latin American and Asia Pacific
operations.
Carrier operating profits increased $39 million (20%) and $112 million (53%)
in the second quarter and six-month period compared to 1998. The second quarter
1999 increase reflects improvement in North America, Europe and Commercial
Refrigeration Operations and the impact of acquisitions. The 1998 year-to-date
results include charges related to workforce reductions, plant closures and
implementation of a new manufacturing strategy in the rotary chiller business.
Pratt & Whitney revenues increased 1% and 3% in the second quarter and six-
month period of 1999 compared to 1998. The 1999 second quarter increase reflects
higher overhaul and repair revenues due to the 1998 investment in an overhaul
and repair operation in Singapore, offset by lower commercial spare parts sales.
The second quarter 1998 results include the cost to repurchase a participant's
interest in a commercial engine program. The six-month increase reflects
increased commercial and military engine shipments and higher overhaul and
repair revenues, offset by lower commercial spare parts sales. In addition,
year-to-date revenues in 1998 benefited from the settlement of a contract
dispute with the U.S. Government.
Pratt & Whitney operating profits increased $36 million (15%) and $23 million
(4%) in the second quarter and six-month period of 1999 compared 1998. The
second quarter increase reflects improvement in the commercial engine, Pratt &
Whitney Canada and overhaul and repair businesses, partially offset by higher
research and development spending and lower commercial spare parts sales
discussed above. The second quarter 1998 results include the cost to repurchase
a participant's interest in a commercial engine program. In addition, year-to-
date 1998 results benefited from the settlement of a contract dispute with the
U.S. Government.
Flight Systems revenues increased 1% in the second quarter and decreased 4%
in the six-month period of 1999 compared to 1998. The inclusion of Sundstrand's
operations, subsequent to the June 10, 1999 closing date, more than offset the
effect of lower helicopter deliveries at Sikorsky. The year-to-date comparison
reflects increases at Hamilton Sundstrand, which were more than offset by lower
revenues at Sikorsky.
Flight Systems operating profits increased $8 million (11%) in the second
quarter and decreased $17 million (12%) in the six-month period of 1999 compared
to 1998. The second quarter increase reflects improvements at Hamilton
Sundstrand and the inclusion of Sundstrand's results, which more than offset
<PAGE> 16
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
declines at Sikorsky due to lower helicopter deliveries. The year-to-date
comparison reflects improvements at Hamilton Sundstrand and the inclusion of
Sundstrand's results, which were more than offset by declines at Sikorsky.
FINANCIAL POSITION AND LIQUIDITY
Management assesses the Corporation's liquidity in terms of its overall
ability to generate cash to fund its operating and investing activities.
Significant factors affecting the management of liquidity are cash flows
generated from operating activities, capital expenditures, acquisitions,
customer financing requirements, Common Stock repurchases, adequate bank lines
of credit and financial flexibility to attract long-term capital with
satisfactory terms.
Set forth below are selected key cash flow data:
<TABLE><CAPTION>
Six Months Ended
June 30,
In Millions of Dollars 1999 1998
<S> <C> <C>
Operating Activities
Net cash flows provided by operating
activities $ 1,003 $ 1,204
Investing Activities
Capital expenditures (292) (232)
Acquisitions of business units (2,069) (434)
Disposition of business unit 43 -
Increase in customer financing assets, net (130) (125)
Financing Activities
Common Stock repurchase (267) (277)
Increase (decrease) in total debt 336 (67)
Decrease in net debt 1 (53)
Net cash flows provided by discontinued
operation 2,159 28
</TABLE>
Cash flows provided by operating activities were $1,003 million during the
first six months of 1999 compared to $1,204 million during the first six months
of 1998. The decrease resulted from lower working capital performance partly
offset by improved operating performance.
Cash flows used in investing activities were a use of funds of $2,358 million
during the first six months of 1999 compared to a use of $766 million in the
first six months of 1998. Capital expenditures in the six-month period of 1999
were $292 million, a $60 million increase from the corresponding period of 1998.
The Corporation invested $2,069 million in the acquisition of businesses,
including the investment in Sundstrand Corporation. Current year proceeds from
the disposition of business unit represents Hamilton Sundstrand's sale of a
microelectronic controls business. Customer financing activity was a net use of
cash of $130 million in the six-month period of 1999, compared to a $125
million net use of cash in 1998. While the Corporation expects 1999 customer
financing activity will be a net use of funds, actual funding is subject to
usage under existing customer financing commitments during the remainder of the
year. The Corporation's total commitments to finance or arrange financing of
<PAGE> 17
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
commercial aircraft and related equipment at June 30,1999 were approximately
$1.3 billion.
As described in Notes to Condensed Consolidated Financial Statements, the
Corporation filed a registration statement with the Securities and Exchange
Commission concerning the issuance of up to $400 million in debt securities. The
registration statement became effective on July 23, 1999 bringing the total
amount of medium-term and long-term debt that could be issued by the Corporation
under this and previous registration statements to $1.0 billion.
Also described in Notes to Condensed Consolidated Financial Statements, in
May 1999, the Corporation issued $400 million of unsubordinated, unsecured,
nonconvertible notes. The proceeds were used for general corporate purposes and
to finance a portion of the acquisition of Sundstrand Corporation.
The Corporation repurchased $267 million of Common Stock, representing 4.1
million shares, in the first six months of 1999 under previously announced share
repurchase programs. The share repurchase program continues to be a use of the
Corporation's cash flows and has more than offset the dilutive effect resulting
from the issuance of stock under stock-based employee benefit programs.
As described in Notes to Condensed Consolidated Financial Statements, on May
4, 1999, the Corporation sold its UT Automotive unit to Lear Corporation. The
UT Automotive operation and subsequent sale generated a $2,159 million source of
cash in the six-month period.
Other selected financial data are as follows:
<TABLE><CAPTION>
June 30, December 31, June 30,
In Millions of Dollars 1999 1998 1998
<S> <C> <C> <C>
Cash and cash equivalents $ 885 $ 550 $ 641
Total debt 2,509 2,173 1,500
Net debt (total debt less cash) 1,624 1,623 859
Shareowners' equity 7,317 4,378 4,291
Debt-to-total capitalization 26% 33% 26%
Net debt-to-total capitalization 18% 27% 17%
</TABLE>
The Corporation manages its worldwide cash requirements considering available
funds among the many subsidiaries through which it conducts its business and the
cost effectiveness with which those funds can be accessed. The repatriation of
cash balances from certain of the Corporation's subsidiaries could have adverse
tax consequences; however, those balances are generally available without legal
restrictions to fund ordinary business operations. The Corporation has and will
continue to transfer cash from those subsidiaries to the parent and to other
international subsidiaries when it is cost effective to do so.
Management believes that its existing cash position and other available
sources of liquidity are sufficient to meet current and anticipated requirements
for the foreseeable future. Management anticipates the level of debt-to-capital
will increase during the remainder of the year in order to satisfy its various
cash flow requirements, including acquisition spending and continued share
repurchases.
<PAGE> 18
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
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 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, is being
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 $125 million. Internal
costs, which are primarily payroll related, are expected to be approximately $50
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 June 30, 1999, total costs for
continuing operations of external and internal resources incurred amounted to
approximately $110 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.
<PAGE> 19
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CAUTIONARY NOTE CONCERNING FACTORS THAT MAY AFFECT FUTURE RESULTS
This report on Form 10-Q contains statements which, to the extent they are
not statements of historical or present fact, constitute "forward-looking
statements" under the securities laws. These forward-looking statements are
intended to provide Management's current expectations or plans for the future
operating and financial performance of the Corporation, based on assumptions
currently believed to be valid. Forward-looking statements can be identified by
the use of words such as "believe", "expect", "plans", "strategy", "prospects",
"estimate", "project", "anticipate" and other words of similar meaning in
connection with a discussion of future operating or financial performance.
These include, among others, statements relating to:
. the effect of economic downturns or growth in particular regions
. the effect of changes in the level of activity in particular industries or
markets
. the anticipated uses of cash
. the scope or nature of acquisition activity
. prospective product developments
. cost reduction efforts
. the outcome of contingencies
. the impact of Year 2000 conversion efforts
From time to time, oral or written forward-looking statements may also be
included in other materials released to the public.
All forward-looking statements involve risks and uncertainties that may cause
actual results to differ materially from those expressed or implied in the
forward-looking statements. For additional information identifying factors that
may cause actual results to vary materially from those stated in the forward-
looking statements, see the Corporation's reports on forms 10-K, 10-Q and 8-K
filed with the Securities and Exchange Commission from time to time. The
Corporation's Annual Report on Form 10-K for 1998, as amended to reflect UT
Automotive as a discontinued operation (see the Corporation's Current Report on
Form 8-K filed on June 11, 1999), includes important information as to risk
factors in the "Business" section under the headings "Description of Business by
Operating Segment" and "Other Matters Relating to the Corporation's Business as
a Whole". Additional important information as to risk factors is included in
this report in the section titled "Management's Discussion and Analysis of
Results of Operations and Financial Position" under the headings "Business
Environment" and "Year 2000".
<PAGE> 20
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
Item 1 - Legal Proceedings
As previously reported, in June 1992 the Department of Justice filed a civil
False Claims Act complaint in the United States District Court for the District
of Connecticut, No. 592CV375, against Sikorsky Aircraft alleging that the
Government was overcharged by nearly $4 million in connection with the pricing
of parts supplied for the reconditioning of the Navy's Sea King helicopter. The
complaint sought treble damages plus a $10,000 penalty for each false claim
submitted. The bench trial in this matter was concluded in August 1997. On
June 3, 1999, the court entered judgment on all counts for Sikorsky. Prior to
commencement of this case, Sikorsky conceded liability for certain undisclosed
quotes received from a supplier, and the judge awarded the Government
approximately $305,000 (including interest) directly associated with this issue.
The period within which the Government may file an appeal in this matter has not
yet elapsed and the Corporation has been advised that the Government is
considering an appeal.
The Corporation does not believe that resolution of the litigation described
above will have a material adverse effect upon the Corporation's competitive
position, results of operations, cash flow or financial position.
Except as noted above, there have been no material developments in legal
proceedings during the quarter ended June 30, 1999. For a description of
previously reported legal proceedings, refer to Part I, Item 3 - Legal
Proceedings of the Corporation's Annual Report on Form 10-K for calendar year
1998 and Part II, Item 1 - Legal Proceedings of the Corporation's Report on Form
10-Q for the quarter ended March 31, 1999.
Item 2 - Changes in Securities
In connection with the merger on June 10,1999 of Sundstrand Corporation into
a wholly owned subsidiary of the Corporation ("the Merger"), the Corporation
assumed, effective as of the effective time of the Merger, all covenants,
agreements and obligations of Sundstrand Corporation with respect to any
securities issued under the Indenture dated as of December 1, 1998 between
Sundstrand Corporation and The First National Bank of Chicago ("the Indenture").
This assumption was confirmed by a First Supplemental Indenture dated as of June
9, 1999 among Sundstrand Corporation, the Corporation and The First National
Bank of Chicago. Under a Second Supplemental Indenture dated as of June 10,
1999 among Hamilton Sundstrand Corporation, the Corporation and The First
National Bank of Chicago, Hamilton Sundstrand Corporation, as the surviving
entity in the Merger, confirmed its assumption, as co-obligor with the
Corporation, of all covenants, agreements and obligations of Sundstrand
Corporation with respect to any securities issued under the Indenture.
Approximately $250 million aggregate principal amount of Medium-Term Notes due
from nine months to 30 years from date of issuance is outstanding under the
Indenture. Copies of the instruments defining the rights of holders of these
securities are available upon request addressed to the Secretary of the
Corporation.
Item 4 - Submission of Matters to a Vote of Security Holders
(a) The Corporation held its Annual Meeting of Shareowners on April 30, 1999.
(b) The following individuals were nominated and elected to serve as directors:
<PAGE> 21
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
Antonia H. Chayes, George David, Jean-Pierre Garnier, Pehr G. Gyllenhammar, Karl
J. Krapek, Charles R. Lee, Richard D. McCormick, William J. Perry, Frank P.
Popoff, Andre Villeneuve, and Harold A. Wagner.
(c) The Shareowners voted as follows on the following matters:
1. Election of directors. The voting result for each nominee is as
follows:
NAME VOTES FOR VOTES WITHHELD
Antonia Handler Chayes 226,765,769 954,239
George David 226,822,878 897,130
Jean-Pierre Garnier 226,875,081 844,927
Pehr G. Gyllenhammar 226,818,926 901,082
Karl J. Krapek 226,745,774 974,234
Charles R. Lee 226,894,191 825,817
Richard D. McCormick 226,910,848 809,160
William J. Perry 226,824,181 895,827
Frank P. Popoff 226,873,916 846,092
Andre Villeneuve 226,884,055 835,953
Harold A. Wagner 226,889,469 830,539
2. The reappointment of the Corporation's independent public accountants
was approved by a count of 227,014,640 votes for, 297,079 votes against,
and 408,289 votes abstaining.
3. A shareowner proposal recommending that the Corporation adopt term
limits for future outside directors was rejected by a count of
5,129,604 votes for and 192,398,234 votes against, with 9,469,383 votes
abstaining and 20,722,787 broker non-votes.
4. A shareowner proposal recommending that the Board of Directors conduct
a study and adopt criteria for the bidding, acceptance and implementa-
tion of military contracts was rejected by a count of 6,538,416 votes
for and 183,315,714 votes against, with 17,143,091 votes abstaining
and 20,722,787 broker non-votes.
5. A shareowner proposal recommending that the Board of Directors make all
possible lawful efforts to implement and/or increase activity on each of
the nine MacBride Principles concerning employment practices in Northern
Ireland was rejected by a count of 16,639,871 votes for and 167,003,479
votes against, with 23,353,871 votes abstaining and 20,722,787 broker
non-votes.
<PAGE> 22
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits:
(10.1) Incentive compensation letter agreement dated December 21, 1998 and
signed April 1, 1999 between the Corporation and C. Scott Greer,
President of UT Automotive.*
(12) Statement re: computation of ratio of earnings to fixed charges.*
(15) Letter re: unaudited interim financial information.*
(27) Financial data schedule.*
(27.1) Restated financial data schedule.*
(27.2) Restated financial data schedule.*
(27.3) Restated financial data schedule.*
*Submitted electronically herewith.
(b) Reports on Form 8-K
A Report on Form 8-K dated April 14, 1999 was filed with the Commission on
April 14, 1999. The Report includes information under Item 5 concerning
the Agreement between a wholly owned subsidiary of the Corporation and Lear
Corporation with respect to the disposition of UT Automotive to Lear
Corporation and the agreement between the Corporation and Sundstrand
Corporation with respect to the merger of Sundstrand Corporation into a
wholly owned subsidiary of the Corporation. The Report also includes under
Item 7 unaudited pro forma condensed financial statements of the
Corporation related to the merger and the disposition, which were
superseded by the unaudited pro forma condensed financial statements of the
Corporation included in the Report on Form 8-K filed with the Commission on
June 18, 1999, as discussed below.
A Report on Form 8-K dated April 30, 1999 was filed with the Commission on
May 4, 1999. The Report includes information under Item 5 concerning the
two-for-one split of the Corporation's common stock paid on May 17, 1999 to
shareholders of record on May 7, 1999.
A Report on Form 8-K dated June 10, 1999 was filed with the Commission on
June 18, 1999. The Report includes information under Item 2 concerning the
consummation of the merger of Sundstrand Corporation into a wholly owned
subsidiary of the Corporation. The Report also includes under Item 7
unaudited pro forma condensed financial statements related to the merger
and to the disposition of UT Automotive, financial statements of Sundstrand
Corporation for the fiscal year ended December 31, 1998 and unaudited
consolidated condensed financial statements of Sundstrand Corporation for
the quarter ended March 31, 1999.
A Report on Form 8-K dated June 11, 1999 was filed with the Commission on
June 11, 1999. The Report includes under Item 7 financial statements for
the Corporation for the three years in the period ended December 31, 1998
which have been restated to reflect the UT Automotive unit as a
discontinued operation. UT Automotive was sold to Lear Corporation on May
4, 1999.
<PAGE> 23
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED TECHNOLOGIES CORPORATION
Dated: July 29, 1999 By: /s/ David J. FitzPatrick
David J. FitzPatrick
Senior Vice President and
Chief Financial Officer
Dated: July 29, 1999 By: /s/ Jay L. Haberland
Jay L. Haberland
Vice President and Controller
Dated: July 29, 1999 By: /s/ William H. Trachsel
William H. Trachsel
Senior Vice President, General Counsel and
Secretary
<PAGE>
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit 10.1- Incentive compensation letter agreement dated December 21, 1998
and signed April 1, 1999 between the Corporation and C. Scott
Greer, President of UT Automotive.*
Exhibit 12- Statement re: computation of ratio of earnings to fixed charges.*
Exhibit 15- Letter re: unaudited interim financial information.*
Exhibit 27- Financial data schedule.*
Exhibit 27.1- Restated financial data schedule.*
Exhibit 27.2- Restated financial data schedule.*
Exhibit 27.3- Restated financial data schedule.*
*Submitted electronically herewith.
<PAGE>
<PAGE>
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
Exhibit 10.1
December 21, 1998
C. Scott Greer
160 Chesterfield Road
Bloomfield Hills, MI 48304
Re: Special Incentive Arrangement
Dear Scott:
As you know, over the next several months, we will be exploring the potential
sale of UTA, either in its entirety or in segments. Your support will be
critical to the success of this divestiture initiative. In addition, marketing
UTA without disruption to the ongoing, successful operation of the business
presents special challenges for you. In recognition of the additional
responsibilities you will assume in connection with UTC's efforts to divest UTA,
UTC is prepared to offer you certain special financial incentives in
consideration of certain commitments from you. The incentives consist of a
special award of restricted stock and a special cash payment, to be described in
full detail below. Your commitments to UTC pertain to: (i) your efforts and
conduct in support of the marketing of the business; (ii) your ability to
maintain UTA's successful financial and operational performance throughout the
entire marketing phase, regardless of ultimate outcome; and (iii) in the event
of a divestiture, achieving a transaction that provides UTC with sufficient
value for the sale of UTA.
Incentives
If you agree to the terms and conditions set forth in this letter, UTC will
award you 10,000 shares of restricted stock. These shares will be subject to a
vesting period of three years. If, however, the business is sold prior to that
date, the vesting will be accelerated to the date that is six months following
the closing date, if the transaction is deemed to be "successful" from UTC's
perspective. The criteria for a successful transaction are described below. In
the event that the business is sold in segments, your vesting will occur six
months following the completion of the sale of the last business segment. If
the purchaser of the business terminates your employment prior to the expiration
of the six month period, vesting will be accelerated to the termination date.
Otherwise, you are required to remain with the business for the six month period
following the closing. Prior to vesting, you will receive dividends and all
other rights of share ownership, except that you will not be able to sell,
pledge, or assign any interest in the shares. If your employment with UTA is
terminated for any reason (other than death or disability) prior to the complete
divestiture of UTA or the end of the three-year vesting period, the shares will
be forfeited without value.
In addition to the restricted stock award, UTC will make a special incentive
payment to you in an amount up to $2,000,000, subject to certain conditions,
payable six months after the closing date of the sale of UTA (or the last
segment thereof) (the "Special Incentive Payment"). The actual amount of such
payment will be based upon the degree to which the divestiture constitutes a
"successful" sale, as determined by UTC in its sole discretion, and the degree
to which certain other performance criteria have been met. The criteria for a
successful divestiture and the other performance criteria are described below.
Outstanding overall performance will result in full payment.
1
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
Terms and Conditions
For purposes of this Agreement, a "successful" sale will be determined on the
basis of several financial and subjective factors. Exact dollar thresholds,
formulas or percentage weightings for different factors will not be utilized.
However, as UTC evaluates the sale of UTA with its outside advisors, you will be
kept informed of targets, objectives and ranges of acceptable outcomes as they
are developed. The factors that will determine a successful divestiture from
UTC's perspective include, without limitation, the ultimate purchase price net
of any retained liabilities, the structure of the transaction (and its tax
impacts), the allocation of tax, environmental and other liabilities and
contingencies between buyer and seller, the timing to completion, post closing
risks retained by UTC, and such other factors as may be determined during the
sale process. All of these factors are relevant to determining if the
transaction, on a net basis, provides adequate value to UTC relative to the long
term value of UTA. UTC will evaluate these factors in its sole discretion to
determine to what extent the overall transaction may be deemed to be
"successful".
In addition to achieving a successful divestiture, accelerated vesting of
your restricted shares and eligibility for the Special Incentive Payment are
both also subject to you (i) maintaining certain individual performance
standards during the marketing phase of the business; and, (ii) maintaining
UTA's performance during this period of time to avoid deterioration of financial
and operating performance.
During the marketing phase, you will be expected to represent and further the
best interests of UTC at all times. You will be expected to represent the
business in its best light in a consistent manner to all prospective purchasers,
regardless of your opinion as to the quality or desirability of any prospective
purchaser. In addition, it will be imperative that you not engage in any
independent efforts relative to marketing UTA. All potential purchasers and any
other related inquiries or contacts and other information relevant to the
marketing effort must be directed to the office of UTC's Vice President for
Strategic Planning. During this period of time, you will also be expected to
maintain absolute confidentiality with respect to UTC's efforts and the status
of the divestiture efforts. You must refrain from any conduct that in any way
conflicts with the best interests of UTC in this transaction. Failure to
observe completely the provisions of this paragraph may result in forfeiture of
your shares and your rights to the special incentive payment.
Maintaining the successful operation of UTA amid the distraction of a
potential sale of the business presents special challenges. Nonetheless, it is
critical to UTC that UTA's achievements and momentum in several key areas not be
sacrificed as a result of UTC's decision to market the company for potential
divestiture. We expect that all financial and operating plans and objectives
will be met during this period. Manufacturing quality, productivity, customer
relationships, employee retention, engineering and marketing initiatives and
other key facets of the business must also not be compromised in any way.
It is critical that overall business performance and the value of the
business be maintained, regardless of the outcome of divestiture efforts. If
UTC, in its sole discretion, determines that the quality of the business, either
financially or operationally, materially deteriorates during the divestiture
2
<PAGE 3>
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
process, the restricted share awards and your rights to the Special Incentive
Payment will be forfeited.
The restricted share award and the Special Incentive Payment are subject to
approval by the Compensation and Executive Development Committee of UTC's Board.
The benefits provided under this Agreement are separate and independent from
your eligibility for the Executive Leadership Group (the "ELG") separation
benefit which will be payable to you subject to the terms of the ELG program,
without reduction or offset for amounts provided herein.
Notwithstanding your participation in this arrangement, UTC reserves the
right to terminate your employment for cause, in which case your rights to the
restricted stock and the Special Incentive Payment will be forfeited. Examples
of a termination "for cause" include failure to perform your responsibilities,
ethical or legal violations or breach of this Agreement.
In consideration of the benefits provided under this Agreement, you also
agree that you will not voluntarily terminate your employment for any reason
(other than death or permanent disability) during the period of this Agreement
(i.e. the earlier of 6 months following complete divestiture or December 31,
2001). In the event of death or permanent long term disability (as defined in
UTA's Long Term Disability Plan), vesting in the restricted stock award will be
accelerated and the Special Incentive Payment will be cancelled. Resignation or
termination for any other reason will result in forfeiture of the restricted
shares and the Special Incentive Payment.
We believe that with your efforts, we can achieve a successful divestiture of
UTA while maintaining the financial value and operational integrity of the
business. Please acknowledge your acceptance by signing and returning one
original copy of this letter to my office. If you have any questions, please
feel to call me at 860-728-7655.
Very truly yours,
/s/William L. Bucknall, Jr.
William L. Bucknall, Jr.
Acknowledged and Accepted:
/s/ C. Scott Greer April 1,1999
C. Scott Greer Date
3
<PAGE>
<TABLE>
Exhibit 12
<CAPTION>
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Six Months Ended
June 30,
In Millions of Dollars 1999 1998
<S> <C> <C>
Fixed Charges:
Interest expense $ 112 $ 92
Interest capitalized 7 6
One-third of rents* 37 37
Total Fixed Charges $ 156 $ 135
Earnings:
Income from continuing operations before income
taxes and minority interests $ 1,073 $ 883
Fixed charges per above 156 135
Less: interest capitalized (7) (6)
149 129
Amortization of interest capitalized 13 15
Total Earnings $ 1,235 $ 1,027
Ratio of Earnings to Fixed Charges 7.92 7.61
* Reasonable approximation of the interest factor.
</TABLE>
<PAGE>
Exhibit 15
July 29, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Ladies and Gentlemen:
We are aware that United Technologies Corporation has included our report dated
July 20, 1999 (issued pursuant to the provisions of Statement on Auditing
Standards No. 71) in the Prospectus constituting part of its Registration
Statements on Form S-3 (Nos. 333-26331, 33-46916 and 333-74195), in the
Registration Statement on Form S-4 (No. 333-77991) and in the Registration
Statements on Form S-8 (Nos. 333-21853, 333-18743, 333-21851, 33-57769, 33-
45440, 33-11255, 33-26580, 33-26627, 33-28974, 33-51385, 33-58937, 2-87322,
333-77817, 333-77991 and 333-82911). We are also aware of our responsibilities
under the Securities Act of 1933.
Yours very truly,
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Balance Sheet at June 30,1999 (Unaudited) and the
Condensed Consolidated Statement of Operations for the six months ended June 30,
1999 (Unaudited) and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 885
<SECURITIES> 0
<RECEIVABLES> 4,462
<ALLOWANCES> 320
<INVENTORY> 3,490
<CURRENT-ASSETS> 9,989
<PP&E> 10,097
<DEPRECIATION> 5,952
<TOTAL-ASSETS> 22,027
<CURRENT-LIABILITIES> 7,698
<BONDS> 2,110
451
0
<COMMON> 4,097
<OTHER-SE> 3,220
<TOTAL-LIABILITY-AND-EQUITY> 22,027
<SALES> 8,577
<TOTAL-REVENUES> 11,483
<CGS> 6,575
<TOTAL-COSTS> 8,324
<OTHER-EXPENSES> 580
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 112
<INCOME-PRETAX> 1,073
<INCOME-TAX> 332
<INCOME-CONTINUING> 695
<DISCONTINUED> 650
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,385
<EPS-BASIC> 3.01<F1>
<EPS-DILUTED> 2.78<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 restated 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 qualfied
in its entirety by reference to such financial statements. Referenced as
Exhibit 27.1 in 10-Q.
</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> 3,733
<ALLOWANCES> 316
<INVENTORY> 3,191
<CURRENT-ASSETS> 9,828
<PP&E> 9,549
<DEPRECIATION> 5,994
<TOTAL-ASSETS> 17,768
<CURRENT-LIABILITIES> 7,182
<BONDS> 1,570
456
0
<COMMON> 2,708
<OTHER-SE> 1,670
<TOTAL-LIABILITY-AND-EQUITY> 17,768
<SALES> 17,348
<TOTAL-REVENUES> 22,809
<CGS> 13,436
<TOTAL-COSTS> 16,897
<OTHER-EXPENSES> 1,168
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 197
<INCOME-PRETAX> 1,810
<INCOME-TAX> 568
<INCOME-CONTINUING> 1,157
<DISCONTINUED> 98
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,255
<EPS-BASIC> 2.68<F1>
<EPS-DILUTED> 2.53<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 restated 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 its entirety by
reference to such financial statements. Referenced as Exhibit 27.2 in 10-Q.
</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-31-1999 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> 4,029 3,941 3,812 3,517
<ALLOWANCES> 341 334 316 302
<INVENTORY> 2,901 2,880 3,075 2,934
<CURRENT-ASSETS> 9,959 9,787 9,761 9,415
<PP&E> 9,387 9,176 9,121 9,257
<DEPRECIATION> 6,004 5,835 5,771 5,766
<TOTAL-ASSETS> 17,279 16,444 16,329 15,697
<CURRENT-LIABILITIES> 7,329 6,930 6,948 6,563
<BONDS> 1,600 1,216 1,249 1,268
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> 17,279 16,444 16,329 15,697
<SALES> 12,802 8,442 3,931 15,946
<TOTAL-REVENUES> 16,822 11,139 5,308 21,288
<CGS> 9,973 6,612 3,145 12,638
<TOTAL-COSTS> 12,472 8,270 3,961 15,846
<OTHER-EXPENSES> 844 556 277 1,069
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 140 92 47 188
<INCOME-PRETAX> 1,389 883 362 1,574
<INCOME-TAX> 436 277 114 514
<INCOME-CONTINUING> 888 562 229 962
<DISCONTINUED> 80 58 31 110
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 968 620 260 1,072
<EPS-BASIC> .75<F1> .77<F1> .55<F1> 2.22<F1>
<EPS-DILUTED> .70<F1> .72<F1> .52<F1> 2.10<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
Staement of 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
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 27.3 in 10-Q.
</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> 3,535 3,568 3,196 3,435
<ALLOWANCES> 319 310 301 307
<INVENTORY> 3,099 3,062 3,257 3,038
<CURRENT-ASSETS> 10,014 10,082 9,741 9,573
<PP&E> 9,369 9,302 9,236 9,310
<DEPRECIATION> 5,913 5,828 5,733 5,697
<TOTAL-ASSETS> 15,882 15,897 15,536 15,566
<CURRENT-LIABILITIES> 6,570 6,656 6,488 6,373
<BONDS> 1,356 1,374 1,374 1,412
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> 15,882 15,897 15,536 15,566
<SALES> 11,962 8,035 3,811 14,713
<TOTAL-REVENUES> 15,874 10,649 5,090 19,872
<CGS> 9,495 6,386 3,059 11,653
<TOTAL-COSTS> 11,824 7,956 3,829 14,741
<OTHER-EXPENSES> 768 527 243 1,014
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 140 92 45 213
<INCOME-PRETAX> 1,236 797 340 1,317
<INCOME-TAX> 403 260 111 430
<INCOME-CONTINUING> 762 488 204 788
<DISCONTINUED> 66 40 20 118
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 828 528 224 906
<EPS-BASIC> .62<F1> .63<F1> .45<F1> 1.81<F1>
<EPS-DILUTED> .58<F1> .59<F1> .43<F1> 1.74<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>
