<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C.
20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
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 06103
(860) 728-7000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X . No .
At March 31, 2000 there were 470,520,367 shares of Common Stock outstanding.
1
<PAGE>
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONTENTS OF QUARTERLY REPORT ON FORM 10-Q
Quarter Ended March 31, 2000
Page
Part I - Financial Information
Item 1. Financial Statements:
Condensed Consolidated Statement of 1
Operations for the quarters ended March
31, 2000 and 1999
Condensed Consolidated Balance Sheet at March 2
31, 2000 and December 31, 1999
Condensed Consolidated Statement of Cash 3
Flows for the quarters ended March 31,
2000 and 1999
Notes to Condensed Consolidated Financial 4
Statements
Report of Independent Accountants 9
Item 2. Management's Discussion and Analysis of 10
Results of Operations and Financial Position
Item 3. Quantitative and Qualitative 14
Disclosures About Market Risk
Part II - Other Information
Item 1. Legal Proceedings 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
Exhibit Index 18
<PAGE>
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
Part 1 - Financial Information
Item 1. Financial Statements
<TABLE>
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<CAPTION>
Quarter Ended
March 31,
In Millions (except per share amounts) 2000 1999
<S> <C> <C>
Revenues:
Product sales $ 4,824 $ 3,980
Service sales 1,483 1,402
Financing revenues and other income,
net 83 60
6,390 5,442
Costs and expenses:
Cost of products sold 3,717 3,110
Cost of services sold 911 867
Research and development 314 274
Selling, general and administrative 781 701
Interest 86 55
5,809 5,007
Income from continuing operations before
income taxes and minority interests 581 435
Income taxes 177 136
Minority interests 27 21
Income from continuing operations 377 278
Discontinued operation:
Income from operations of discontinued
UT Automotive unit (net of applicable
income tax provision of $15 in 1999) - 30
Net income $ 377 $ 308
Earnings per share of Common Stock:
Basic:
Continuing operations $ .78 $ .60
Discontinued operation - .07
Net earnings $ .78 $ .67
Diluted:
Continuing operations $ .74 $ .57
Discontinued operation - .06
Net earnings $ .74 $ .63
Dividends per share of Common Stock: $ .20 $ .18
Average number of shares outstanding:
Basic 473 451
Diluted 511 492
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
1
<PAGE> 2
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
<TABLE>
CONDENSED CONSOLIDATED BALANCE SHEET
<CAPTION>
<S> <C> <C>
March 31, December 31,
In Millions 2000 1999
(Unaudited)
</TABLE>
Assets
<TABLE><CAPTION>
<S> <C> <C>
Cash and cash equivalents $ 657 $ 957
Accounts receivable, net 4,298 4,337
Inventories and contracts in progress, net 3,641 3,504
Future income tax benefits 1,505 1,563
Other current assets 268 266
Total Current Assets 10,369 10,627
Fixed assets 10,238 10,455
Less: Accumulated depreciation 5,895 5,995
4,343 4,460
Goodwill 5,752 5,641
Other assets 3,737 3,638
Total Assets $ 24,201 $ 24,366
</TABLE>
Liabilities and Shareowners' Equity
<TABLE><CAPTION>
<S> <C> <C>
Short-term borrowings $ 790 $ 902
Accounts payable 2,080 1,957
Accrued liabilities 5,859 6,023
Long-term debt currently due 229 333
Total Current Liabilities 8,958 9,215
Long-term debt 3,246 3,086
Future pension and postretirement benefit
obligations 1,623 1,601
Other long-term liabilities 2,895 2,898
Series A ESOP Convertible Preferred Stock 795 808
ESOP deferred compensation (352) (359)
443 449
Shareowners' Equity:
Common Stock 4,301 4,227
Treasury Stock (3,478) (3,182)
Retained earnings 6,707 6,463
Accumulated other non-shareowners'
changes in equity (494) (391)
7,036 7,117
Total Liabilities and Shareowners' Equity $ 24,201 $ 24,366
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
2
<PAGE> 3
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
<TABLE>
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<CAPTION>
Quarter Ended
March 31,
In Millions 2000 1999
<S> <C> <C>
Operating Activities:
Income from continuing operations $ 377 $ 278
Adjustments to reconcile income from
continuing operations to net cash
flows provided by operating
activities:
Depreciation and amortization 212 183
Deferred income tax provision 27 50
Change in:
Accounts receivable 23 (108)
Inventories and contracts in
progress (99) (138)
Accounts payable and accrued
liabilities 21 201
Other current assets (4) (71)
Other, net (31) (19)
Net cash flows provided by
operating activities 526 376
Investing Activities:
Capital expenditures (149) (129)
Investments in businesses (269) (95)
Dispositions of businesses - 43
Increase in customer financing
assets, net (15) (11)
Other, net 40 6
Net cash flows used in investing
activities (393) (186)
Financing Activities:
Issuance of long-term debt 216 -
Repayment of long-term debt (145) (14)
(Decrease) increase in short-term
borrowings, net (122) 53
Dividends paid on Common Stock (94) (81)
Repurchase of Common Stock (300) (97)
Other, net 13 55
Net cash flows used in financing
activities (432) (84)
Net cash flows provided by
discontinued operation - 30
Effect of foreign exchange rate changes
on Cash and cash equivalents (1) (29)
Net (decrease) increase in Cash
and cash equivalents (300) 107
Cash and cash equivalents, beginning of
year 957 550
Cash and cash equivalents, end of
period $ 657 $ 657
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
3
<PAGE> 4
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Condensed Consolidated Financial Statements at March 31, 2000 and for the
quarters ended March 31, 2000 and 1999 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. The results reported in these condensed consolidated financial
statements should not necessarily be taken as indicative of results that may be
expected for the entire year. The financial information included herein should
be read in conjunction with the financial statements and notes in the
Corporation's Annual Report incorporated by reference in Form 10-K for calendar
year 1999.
Non-Shareowners' Changes in Equity
Non-shareowners' changes in equity includes all changes in equity during a
period except changes resulting from investments by and distributions to
shareowners. A summary of the non-shareowners' changes in equity is provided
below.
<TABLE>
<CAPTION>
Quarter Ended
March 31,
2000 1999
<S> <C> <C>
Net Income $ 377 $ 308
Foreign currency translation, net (29) (78)
Unrealized holding loss on
marketable equity securities, net (74) -
$ 274 $ 230
</TABLE>
Investments in Businesses
During the first quarter of 2000, the Corporation invested $269 million in
businesses, including Carrier's purchase of the commercial refrigeration
business of Electrolux AB. The assets and liabilities of the acquired
businesses accounted for under the purchase method were 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 has been recorded as goodwill
and is being amortized over its estimated useful life. The results of
operations of all acquired businesses have been included in the Condensed
Consolidated Statements of Operations beginning on the effective date of each
acquisition. The pro forma results, assuming these acquisitions had been made
at the beginning of the year, would not be materially different from reported
results.
4
<PAGE> 5
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
Inventories and Contracts in Progress
<TABLE>
March 31, December 31,
In Millions 2000 1999
<S> <C> <C>
Inventories consist of
the following:
Raw material $ 713 $ 702
Work-in-process 1,001 1,158
Finished goods 2,171 1,871
Contracts in progress 1,667 1,561
5,552 5,292
Less:
Progress payments, secured by
lien, on U.S. Government
contracts (145) (87)
Billings on contracts
in progress (1,766) (1,701)
$ 3,641 $ 3,504
</TABLE>
Restructuring
During 1999, the Corporation's operating segments initiated a variety of
actions aimed at further strengthening their future profitability and
competitive position. Those actions focused principally on rationalizing
manufacturing processes and improving the overall level of organizational
efficiency, including the removal of management layers. Restructuring charges
accrued in 1999 were $842 million before income taxes and minority interests and
will result in net reductions of approximately 15,000 salary and hourly
employees and approximately 8 million square feet of facilities.
The 1999 accrued costs were recorded across each of the Corporation's
operating segments as follows:
<TABLE>
<S> <C>
In Millions
Otis $ 178
Carrier 182
Pratt & Whitney 345
Flight Systems 131
Other 6
$ 842
</TABLE>
5
<PAGE> 6
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
The following table summarizes the accrued costs associated with the 1999
restructuring actions by type and related activity through March 31, 2000:
<TABLE>
Accrued Accrued Exit &
Severance Lease Accrued Site
and Related Asset Write- Termination Restoration &
In Millions Costs downs Costs Other Costs Total
<S> <C> <C> <C> <C> <C>
1999 Charges:
Staff reductions $ 433 $ - $ - $ - $ 433
Facility closures 149 160 44 56 409
Total accrued charges 582 160 44 56 842
Adjustments 2 - - - 2
1999 Adjusted 584 160 44 56 844
Utilized to date:
Cash (199) - (3) (16) (218)
Non-cash (48) (160) - - (208)
Balance at
March 31, 2000 $ 337 $ - $ 41 $ 40 $ 418
</TABLE>
The 1999 accrued costs were recorded in cost of sales (87%) and selling,
general and administrative expenses (13%) and related to:
. Workforce reductions of approximately 15,000 employees, primarily at Pratt &
Whitney (5,200 employees), Otis (4,000 employees) and Carrier (3,200
employees)
. Plant closings that will result in the reduction of approximately 8 million
square feet of facilities, primarily at Pratt & Whitney (3 million square
feet) and Carrier (2.9 million square feet), and charges associated with the
write-down of property, plant and equipment to fair value, where fair value
is based on appraised value, primarily at Pratt & Whitney ($70 million) and
Carrier ($41 million).
As of March 31, 2000, workforce reductions of approximately 7,600 employees
were completed and approximately 1.4 million square feet were eliminated. The
remaining workforce reductions and plant closings are planned to be
substantially completed by December of this year.
In the first quarter of 2000, the Corporation incurred additional costs of
$43 million associated with the restructuring actions that were not accruable
when the actions were initiated.
Contingent Liabilities
There has been no significant change in the Corporation's material
contingencies during 2000. Summarized below, however, are the matters previously
described in Notes 1 and 14 of the Notes to Consolidated Financial Statements in
the Corporation's Annual Report, contained in the Corporation's Annual Report
incorporated by reference in Form 10-K for calendar year 1999.
6
<PAGE> 7
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
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
resonably 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 was charged
with wrongdoing as a result of any of these investigations, the Corporation or
one of its business units could be suspended from bidding on or receiving awards
of new government contracts pending the completion of legal proceedings. If
convicted or found liable, the Corporation could be fined and debarred from new
government contracting for a period generally not to exceed three years. Any
contracts found to be tainted by fraud could be voided by the Government.
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.
7
<PAGE> 8
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
<TABLE>
<CAPTION>
Earnings Per Share
Quarter Ended
March 31,
In Millions (except per 2000 1999
share amounts)
<S> <C> <C>
Income from continuing operations $ 377 $ 278
Less: ESOP Stock dividends (8) (8)
Basic earnings from continuing operations 369 270
ESOP Stock adjustment 7 7
Diluted earnings from continuing operations $ 376 $ 277
Income from discontinued operation,
net of tax $ - $ 30
Net income $ 377 $ 308
Less: ESOP Stock dividends (8) (8)
Basic earnings 369 300
ESOP Stock adjustment 7 7
Diluted earnings $ 376 $ 307
Average shares:
Basic 473 451
Stock awards 11 14
ESOP Stock 27 27
Diluted 511 492
Earnings per share of
Common Stock:
Basic:
Continuing operations $ .78 $ .60
Discontinued operation - .07
Net earnings $ .78 $ .67
Diluted:
Continuing operations $ .74 $ .57
Discontinued operation - .06
Net earnings $ .74 $ .63
</TABLE>
8
<PAGE> 9
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
With respect to the unaudited condensed consolidated financial information of
United Technologies Corporation for the quarter ended March 31, 2000 and 1999,
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 April 19, 2000
appearing below, states that they did not audit and they do not express an
opinion on that unaudited condensed consolidated financial information.
PricewaterhouseCoopers has not carried out any significant or additional audit
tests beyond those which would have been necessary if their report had not been
included. Accordingly, the degree of reliance on their report on such
information should be restricted in light of the limited nature of the review
procedures applied. PricewaterhouseCoopers is not subject to the liability
provisions of section 11 of the Securities Act of 1933 ("the Act") for their
report on the unaudited condensed consolidated financial information because
that report is not a "report" or a "part" of a registration statement prepared
or certified by PricewaterhouseCoopers within the meaning of sections 7 and 11
of the Act.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareowners of
United Technologies Corporation
We have reviewed the accompanying condensed consolidated statement of
operations of United Technologies Corporation and consolidated subsidiaries for
the quarters ended March 31, 2000, and 1999, the condensed consolidated
statement of cash flows for the three months ended March 31, 2000 and 1999, and
the condensed consolidated balance sheet as of March 31, 2000. This financial
information is the responsibility of the company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with auditing standards generally accepted in the United States,
the objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial information for it to be in
conformity with accounting principles generally accepted in the United States.
We previously audited in accordance with auditing standards generally
accepted in the United States, the consolidated balance sheet as of December 31,
1999, 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 19, 2000, 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, 1999, is fairly stated in all material respects in relation
to the consolidated balance sheet from which it has been derived.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Hartford, Connecticut
April 19, 2000
9
<PAGE> 10
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Position
BUSINESS ENVIRONMENT
The Corporation's operations are classified into four 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.
There has been no significant change in the Corporation's business
environment during the first quarter of 2000. For discussion of the
Corporation's business environment, refer to the discussions of "Business
Environment," "Commercial Aerospace," and "Government Business" in the
Management's Discussion and Analysis of Results of Operations and Financial
Position in the Corporation's Annual Report incorporated by reference in Form
10-K for calendar year 1999.
RESULTS OF CONTINUING OPERATIONS
Consolidated revenues increased 17% to $6.39 billion in the first quarter of
2000 compared to $5.44 billion in the same period in 1999. Excluding the
unfavorable impact of foreign currency translation, consolidated revenues
increased 19% in the first quarter of 2000, 7% of which was attributable to the
ongoing businesses of Otis and Carrier exclusive of recent acquisitions. The
remaining increase was primarily due to the impact of acquisitions, including
the acquisition of Sundstrand in the second quarter of 1999, International
Comfort Products in the third quarter of 1999, LG Industrial Systems' Building
Facilities Group ("LG Elevator") in the fourth quarter of 1999 and the
refrigeration business of Electrolux AB during the first quarter of 2000. The
revenue increase was partially offset by a decline at Pratt & Whitney.
Gross margin as a percentage of sales increased 0.5 percentage points to 26.6%
in the first quarter of 2000 compared to 26.1% in the same period of 1999
principally as a result of previous cost reduction actions.
Research and development spending increased $40 million (15%) in the first
quarter of 2000 compared to 1999, principally due to the inclusion of Sundstrand
operations in the Flight Systems segment in the first quarter of 2000. As a
percentage of sales, research and development was 5.0% in the first quarter of
2000 as compared to 5.1% in the same period of 1999. Research and development
is expected to remain at approximately 5% of sales in 2000.
Selling, general and administrative expenses increased $80 million (11%) in
the first quarter of 2000 compared to 1999. The increase relates primarily to
the impact of 1999 and 2000 acquisitions not reflected in the first quarter of
1999, including Sundstrand Corporation, International Comfort Products, and
Electrolux, partially offset by benefits associated with previous cost reduction
actions. As a percent of sales, these expenses were 12.4% in the first quarter
of 2000 as compared to 13% in the same period of 1999.
10
<PAGE> 11
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
The effective income tax rate for the first quarter of 2000 was 30.5%
compared to 31.3% for the first quarter of 1999. The Corporation has continued
to lower its effective income tax rate by implementing tax reduction strategies.
Restructuring and Other Costs
As described in the Notes to the Condensed Consolidated Financial Statements,
the Corporation's operating segments initiated a variety of actions in 1999
aimed at further strengthening their future profitability and competitive
position. The 1999 actions totaled $1,120 million, before income taxes and
minority interest, and included accrued restructuring charges of $842 million,
related charges of $141 million that were not accruable when initiated, and
charges associated with product development and aircraft systems integration and
non-product purchasing.
In February 2000, a Federal District Court issued an injunction relative to
certain restructuring actions planned by Pratt & Whitney that would move work
from Connecticut to Arkansas, Texas and Oklahoma. Pratt & Whitney appealed this
injunction and expects a decision later in 2000. The accruable portion of the
cost of these actions was recorded during 1999. The Corporation does not
believe that resolution of the litigation will materially impact the
Corporation's restructuring program.
In the current year, the Corporation expects to have pre-tax cash outflows
related to the 1999 programs of approximately $750 million, to be paid out of
normal operations, including up to $300 million of additional costs that were
not accruable when the actions were initiated. Through March 31, 2000,
approximately $43 million of additional costs have been incurred. The 1999
restructuring and other actions taken by the Corporation are expected to result
in savings that should offset the additional costs expected to be incurred,
resulting in a modest benefit in 2000. Recurring savings, associated primarily
with net reduction in workforce and facility closures, are expected to increase
over a three-year period to approximately $750 million pre-tax annually.
Segment Review
Revenues, operating profits and operating profit margins of the Corporation's
principal operating segments for the quarter ended March 31, 2000 and 1999 are
as follows:
<TABLE>
<CAPTION>
In Millions of Dollars Operating
Revenues Operating Profits Profit Margin
Quarter Ended March 31, 2000 1999 2000 1999 2000 1999
<S> <C> <C> <C> <C> <C> <C>
Otis $ 1,543 $ 1,363 $ 192 $ 155 12.4% 11.4%
Carrier 1,846 1,510 123 91 6.7% 6.0%
Pratt & Whitney 1,824 2,019 282 280 15.5% 13.9%
Flight Systems 1,257 606 138 40 11.0% 6.6%
Total segment 6,470 5,498 735 566 11.4% 10.3%
Eliminations and other (80) (56) (11) (11)
General corporate
expenses - - (57) (65)
Consolidated $ 6,390 $ 5,442 667 490
Interest expense (86) (55)
Consolidated income from
continuing operations
before income taxes and
minority interests $ 581 $ 435
</TABLE>
11
<PAGE> 12
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
Otis revenues increased 13% in the first quarter of 2000 compared to 1999.
Excluding the unfavorable impact of foreign currency translation, revenues in
the quarter increased 17% reflecting the impact of the fourth quarter 1999
acquisition of LG Elevator and growth in North American and European operations.
Weaker European currencies generated most of the unfavorable foreign currency
translation impact.
Otis operating profits increased $37 million (24%) in the first quarter of
2000 compared to 1999. Excluding the unfavorable impact of foreign currency
translation, operating profits in the quarter increased 32%, reflecting
increases at most operations. The majority of the operating profit increase was
associated with margin expansion in European operations.
Carrier revenues increased 22% in the first quarter of 2000 compared to 1999.
Excluding the unfavorable impact of foreign currency translation, revenues in
the quarter increased 24%, with improvement in all operations. The majority of
the improvement was in North American and Refrigeration operations and includes
the impact of the recently acquired refrigeration business of Electrolux AB and
the third quarter 1999 acquisition of International Comfort Products.
Carrier operating profits increased $32 million (35%) in the first quarter of
2000 compared to 1999. Excluding the impact of foreign currency translation,
operating profits increased 37%, largely reflecting expansion in margin and
volume in North American operations, which includes the impact of the third
quarter 1999 acquisition of International Comfort Products.
Pratt & Whitney revenues decreased 10% in the first quarter of 2000 compared
to 1999. The decrease is associated with the previously anticipated decline in
the aerospace cycle and reflects fewer military and commercial large engine
shipments, partially offset by growth at Pratt & Whitney Canada.
Pratt & Whitney operating profits increased $2 million (1%) in the first
quarter of 2000 compared to 1999, primarily due to improvements at Pratt &
Whitney Canada and continued cost reductions, largely offset by the impact of
fewer military engine shipments.
Flight Systems revenues increased $651 million (107%) in the first quarter of
2000 compared to 1999. The increase in revenues reflects the inclusion of
Sundstrand's operations for the first quarter of 2000 and delivery of several
higher value helicopters at Sikorsky.
Flight Systems operating profits increased $98 million (245%) in the first
quarter of 2000 compared to 1999, due to the inclusion of Sundstrand's results
for the first quarter of 2000 in Hamilton Sundstrand and higher value shipments
at Sikorsky.
FINANCIAL POSITION
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, investments in
businesses, customer financing requirements, Common Stock repurchases, adequate
bank lines of credit and financial flexibility to attract long-term capital with
satisfactory terms.
12
<PAGE> 13
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
Set forth below are selected key cash flow data:
<TABLE><CAPTION>
Quarter Ended
March 31,
In Millions 2000 1999
<S> <C> <C>
Operating Activities
Net cash flows provided by operating
activities $ 526 $ 376
Investing Activities
Capital expenditures (149) (129)
Investments in businesses (269) (95)
Increase in customer financing assets, net (15) (11)
Financing Activities
Repurchase of Common Stock (300) (97)
(Decrease) increase in total debt (56) 21
Increase (decrease) in net debt 244 (86)
Net cash flows provided by discontinued
operation - 30
</TABLE>
Cash flows provided by operating activities increased $150 million in the
first quarter of 2000 compared to the corresponding period in 1999. The
increase resulted from improved operating and working capital performance.
Cash flows used in investing activities increased $207 million in the first
quarter of 2000 compared to the first quarter in 1999. The increase is
primarily associated with an additional $174 million invested in businesses in
2000, including Carrier's purchase of the refrigeration business of Electrolux
AB. Cash spending for investments in businesses in 2000 should exceed $1
billion. Customer financing activity was a net use of cash of $15 million in
the first quarter of 2000, consistent with an $11 million net use of cash in the
first quarter of 1999. While the Corporation expects that 2000 customer
financing activity will be a net use of funds, actual funding is subject to
usage under existing customer financing commitments during the remainder of the
year. The Corporation's total commitments to finance or arrange financing of
commercial aircraft and related equipment at March 31, 2000 were approximately
$1.1 billion compared to $1.3 billion for the same period in 1999.
The Corporation repurchased $300 million of Common Stock, representing 5.7
million shares, in the first quarter of 2000 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. At
March 31, 2000, the Corporation is authorized to repurchase an additional 19.3
million shares.
Other selected financial data are as follows:
<TABLE><CAPTION>
March 31, December 31, March 31,
In Millions of Dollars 2000 1999 1999
<S> <C> <C> <C>
Cash and cash equivalents $ 657 $ 957 $ 657
Total debt 4,265 4,321 2,194
Net debt (total debt less cash) 3,608 3,364 1,537
Shareowners' equity 7,036 7,117 4,499
Debt-to-total capitalization 38% 38% 33%
Net debt-to-total capitalization 34% 32% 25%
</TABLE>
13
<PAGE> 14
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
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. Although uncertainties in acquisition spending
could cause modest variations at times, management anticipates that the level of
debt-to-capital will remain consistent with the prior year.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There has been no significant change in the Corporation's exposure to market
risk during the first quarter of 2000. For discussion of the Corporation's
exposure to market risk, refer to Item 7A, Quantitative and Qualitative
Disclosures about Market Risk, contained in the Corporation's Annual Report
incorporated by reference in Form 10-K for the calendar year 1999.
14
<PAGE> 15
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. 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:
. 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
. The scope, nature or impact of acquisition activity
. Product developments and new business opportunities
. Restructuring costs and cost reduction efforts
. The outcome of contingencies.
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 Report on Form 10-Q includes important
information as to risk factors in the "Notes to Condensed Consolidated Financial
Statements" under the heading "Contingent Liabilities" and in the section titled
"Management's Discussion and Analysis of Results of Operations and Financial
Position" under the headings "Business Environment" and "Restructuring." The
Corporation's Annual Report on Form 10-K for 1999 also includes important
information as to risk factors in the "Business" section under the headings
"Description of Business by Operating Segment," "Other Matters Relating to the
Corporation's Business as a Whole" and "Legal Proceedings." Additional
important information as to risk factors is included in the Corporation's 1999
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" and "Restructuring and Other Costs." 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.
15
<PAGE> 16
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
Part II - Other Information
Item 1. Legal Proceedings
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. In November 1999, the appellate court denied Chromalloy's motions
for rehearing and rehearing en banc. In March 2000, Chromalloy filed a petition
for review with the Texas Supreme Court.
As previously reported, the Corporation was served in December 1998, with a
qui tam complaint under the Civil False Claims Act that had been 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
sought unspecified damages (trebled) with penalties arising out of an alleged
failure by Pratt & Whitney to estimate properly the costs of performing a cost-
type development contract. The complainant sought and received court approval
on March 12, 2000 to dismiss the lawsuit, and cannot reopen this matter.
Although the U.S. Government retains the right to reopen the case on its own
behalf, it concurred in the dismissal and previously has not intervened in this
matter.
Except as noted above, there have been no material developments in legal
proceedings during the quarter ended March 31, 2000. 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
1999.
The Corporation does not believe that resolution 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.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(12) Statement re: computation of ratio of earnings to fixed charges.*
(15) Letter re: unaudited interim financial information.*
(27) Financial data schedule.*
*Submitted electronically herewith.
(b) No reports on Form 8-K were filed during the quarter ended March 31, 2000.
16
<PAGE> 17
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED TECHNOLOGIES CORPORATION
Dated: April 28, 2000 By: /s/ David J. FitzPatrick
David J. FitzPatrick
Senior Vice President and
Chief Financial Officer
Dated: April 28, 2000 By: /s/ David G. Nord
David G. Nord
Acting Controller
Dated: April 28, 2000 By: /s/ William H. Trachsel
William H. Trachsel
Senior Vice President, General Counsel and
Secretary
17
<PAGE> 18
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit 12- Statement re: computation of ratio of earnings to fixed charges. *
Exhibit 15- Letter re: unaudited interim financial information. *
Exhibit 27- Financial data schedule.*
*Submitted electronically herewith.
18
<PAGE>
<TABLE>
Exhibit 12
<CAPTION>
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Quarter Ended
March 31,
In Millions of Dollars 2000 1999
<S> <C> <C>
Fixed Charges:
Interest expense $ 86 $ 55
Interest capitalized 4 4
One-third of rents* 17 20
Total Fixed Charges $ 107 $ 79
Earnings:
Income from continuing operations before income
taxes and minority interests $ 581 $ 435
Fixed charges per above 107 79
Less: interest capitalized (4) (4)
103 75
Amortization of interest capitalized 4 7
Total Earnings $ 688 $ 517
Ratio of Earnings to Fixed Charges 6.43 6.54
* Reasonable approximation of the interest factor.
</TABLE>
<PAGE>
Exhibit 15
April 28, 2000
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
We are aware that our report dated April 19, 2000 on our review of interim
financial information of United Technologies Corporation as of and for the
period ended March 31, 2000 and included in the Company's quarterly report on
Form 10-Q for the quarter then ended is incorporated by reference in the
Prospectus constituting part of its Registration Statements on Form S-3 (Nos.
333-89041 and 333-91959), 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).
Yours very truly,
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Hartford, Connecticut
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Balance Sheet at March 31, 2000 (Unaudited) and the
Condensed Consolidated Statement of Operations for the three months ended March
31, 2000 (Unaudited) and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 657
<SECURITIES> 0
<RECEIVABLES> 4,729
<ALLOWANCES> 431
<INVENTORY> 3,641
<CURRENT-ASSETS> 10,369
<PP&E> 10,238
<DEPRECIATION> 5,895
<TOTAL-ASSETS> 24,201
<CURRENT-LIABILITIES> 8,958
<BONDS> 3,246
443
0
<COMMON> 4,301
<OTHER-SE> 2,735
<TOTAL-LIABILITY-AND-EQUITY> 24,201
<SALES> 4,824
<TOTAL-REVENUES> 6,390
<CGS> 3,717
<TOTAL-COSTS> 4,628
<OTHER-EXPENSES> 314
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 86
<INCOME-PRETAX> 581
<INCOME-TAX> 177
<INCOME-CONTINUING> 377
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 377
<EPS-BASIC> 0.78
<EPS-DILUTED> 0.74
</TABLE>
