UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 19971998
Commission file number 1-812
UNITED TECHNOLOGIES CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 06 0570975
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Financial Plaza, Hartford, Connecticut 06101
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (860) 728-7000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
registered
Common Stock ($1 par value) New York Stock Exchange
value)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X . No .
At January 31, 1998,29, 1999, there were 229,188,343225,139,866 shares of Common Stock outstanding;
the aggregate market value of the voting Common Stock held by non-affiliates at
January 31, 199829, 1999 was approximately $18,621,552,869.$26,890,142,745.
List hereunder documents incorporated by reference and the Part of the Form 10-K
into which the document is incorporated: (1) United Technologies Corporation
19971998 Annual Report to Shareowners, Parts I, II and IV; and (2) United
Technologies Corporation Proxy Statement for the 19981999 Annual Meeting of
Shareowners, Part III.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and is not to be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [ ]
UNITED TECHNOLOGIES CORPORATION
_______________________________
Index to Annual Report
on Form 10-K for
Year Ended December 31, 19971998
PART I Page
Item 1. Business .................................. 1
Item 2. Properties ................................ 915
Item 3. Legal Proceedings ......................... 1016
Item 4. Submission of Matters to a Vote of Security
11
Holders ................................... 19
- ----- Executive Officers of the Registrant ...... 1119
PART II
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters ........... 1321
Item 6. Selected Financial Data ................... 1321
Item 7. Management's Discussion and Analysis of
13
Results of Operations and Financial Position
.......................................... 21
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk ......................... 21
Item 8. Financial Statements and Supplementary Data
13.......................................... 21
Item 9. Changes in and Disagreements with
13
Accountants on Accounting and Financial
Disclosure ................................ 22
PART III
Item 10. Directors and Executive Officers of the
14
Registrant ................................ 22
Item 11. Executive Compensation .................... 1422
Item 12. Security Ownership of Certain Beneficial
14
Owners and Management ..................... 22
Item 13. Certain Relationships and Related
14
Transactions .............................. 22
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
14
Reports on Form 8-K ....................... 23
1
Item 1. Business
United Technologies Corporation was incorporated in Delaware in 1934.
Growth has been enhanced by acquisitions and by the internal growth of existing
businesses of the Corporation*.Corporation. *
Management's Discussion and Analysis of the Corporation's Results of
Operations for 1998 compared to 1997 and for 1997 compared to 1996, and for 1996 compared to 1995, and its
Financial Position at December 31, 19971998 and 1996,1997, as well as Selected Financial
Data for each year in the five year period ended December 31, 19971998 are set forth
on pages 212 through 279 of the Corporation's 19971998 Annual Report to Shareowners.
Whenever reference is made in this Form 10-K to specific pages in the 19971998
Annual Report to Shareowners, such pages are incorporated herein by reference.
Operating Units and Industry Segments
The Corporation conducts its business withinthrough five principal industryoperating
segments. The Corporation's operating unitssegments are divisions or groups of
the Corporation are grouped based upon the
industry segment in which they participate.operating companies, each with general operating autonomy over diversified
products and services. The business units participating in
each industry segmentoperating segments and their respective principal
products are as follows:
Business SegmentOperating Principal Products
Segment
Otis --Otis elevators, escalators, automated people
movers and serviceservice.
Carrier --Carrier heating, ventilating and air
conditioning (HVAC) systems and equipment,
transport and commercial refrigeration equipment,
aftermarket service and components.
UT Automotive --Automotive systems and componentscomponents.
Pratt & Whitney --Pratt & Whitney engines, parts, service and
space propulsionpropulsion.
Flight Systems --Sikorsky helicopters, parts and serviceservice.
--Hamilton Standard engine controls,
environmental controls,control systems, aircraft
propellers, other flight systems and service.
Business segment__________
* "Corporation", unless the context otherwise requires, means United
Technologies Corporation and its consolidated subsidiaries.
2
Segment financial data for the years 19951996 through 1997,1998, including financial
information about foreign and domestic operations and export sales, is included
in Note 15 of Notes to Consolidated Financial Statements on pages 4123 through 4325
of the Corporation's 19971998 Annual Report to Shareowners.
Description of Business by IndustryOperating Segment
The following description of the Corporation's business by industryoperating segment
should be read in conjunction with Management's Discussion and Analysis of
Results of Operations and Financial Position appearing in the Corporation's 19971998
Annual Report to Shareowners, especially the information contained therein under
the heading ``Business Environment'`.
___________
* "Corporation", unless the context otherwise requires, means
United Technologies Corporation and its consolidated subsidiaries.2"Business Environment."
Otis
Otis is the world's leader in production, installation and service in the
elevator industry, defined as elevators, escalators and moving sidewalks.automated people movers.
Otis designs, manufactures, sells and installs a wide range of passenger and
freight elevators, including hydraulic and geared elevators for lowlow- and mediummedium-
speed applications and gearless elevators for high-speed passenger operations in
high-
risehigh-rise buildings. Otis also produces a broad line of escalators, moving sidewalksautomated
people movers and shuttle systems for horizontal transportation. In addition to
new equipment, Otis provides modernization products and services to upgrade
elevators and escalators.
Otis provides maintenance services for a substantial portion of the
elevators and escalators which it sells and also services elevators and
escalators of other manufacturers. Otis conducts its business principally
through various subsidiaries and affiliated companies worldwide. In some cases,
consolidated subsidiaries and affiliates have significant minority interests.
In addition, as part of its global growth strategies, Otis has made investments
and continues to invest in emerging markets worldwide, including those in
Central and Eastern Europe (such as Russia and Ukraine) and Asia (such as the
People's Republic of China). Otis' investments in emerging markets carry a
higher level of currency, political and economic risk than investments in
developed markets.
3
Otis' business is subject to changes in economic, industrial and
international conditions, including possible changes in interest rates, which
could affect the demand for elevators, escalators and services; changes in
legislation and in government regulations; changes in technology; changes in the
level of construction activity; changes in labor costs which can impact service
and substantialmaintenance margins on installed elevators and escalators; and competition
from a large number of companies, including other major domestic and foreign
manufacturers and service providers. The principal methods of competition are
price, delivery schedule, product performance service and other terms and conditions of sale.service. Otis' products and
services are sold principally to builders and building contractors and owners.
Revenues generated by Otis' international operations were 8381 percent and 8583
percent of total Otis segment revenues in 19971998 and 1996,1997, respectively.
International operations are subject to local government regulations (including
regulations relating to capital contributions, currency conversion and
repatriation of earnings), as well as to varying currency, political and
economic risks.
At December 31, 1997,1998, the Otis business backlog amounted to $3,429$3,459 million
as compared to $3,718$3,429 million at December 31, 1996.1997. Substantially all of the
business backlog at December 31, 19971998 is expected to be realized as sales in
1998.1999.
Carrier
Carrier is the world's largest manufacturer of heating, ventilating and air
conditioning systems and equipment. Carrier also participates in the commercial
and transport refrigeration businesses, and provides aftermarket service and
components for its products. In 1997, Carrier expanded into the U.S. commercial
refrigeration business by acquiring Ardco, Inc. and Tyler Refrigeration
Corporation, two U.S.-based manufacturers of commercial refrigeration equipment.
The products manufactured by Carrier include chillers and airside equipment,
commercial unitary systems, residential split systems (cooling only and heat
pump), duct-free split systems, window and portable room air conditioners and
furnaces, as well as transport refrigeration and commercial refrigeration
equipment.
As part of its global growth strategies, Carrier has made investments and
continues to invest in emerging markets worldwide, including those in Asia (such
as the People's Republic of China) and Latin America. Carrier's investments in
emerging markets carry a higher level of currency, political and economic risk
than investments in developed markets. Carrier's business is subject to changes
in economic, industrial, international and climate conditions, including
possible changes in interest rates, which could affect the demand for its
products; changes in legislation and government regulations, including those
relating to refrigerants and their effect on global environmental conditions;
changes in technology; changes in the level of construction activity;
4
and competition from a large number of companies, including other major
domestic and foreign manufacturers. The principal methods of competition are3
product performance (including quality and reliability), delivery schedule,
price, service and other terms and conditions of sale.
Carrier's products and services are sold principally to builders, building
contractors and owners, residential homeowners, shipping and trucking companies,
supermarkets and food service companies. Sales are made both directly to the
customer and by or through manufacturers' representatives, distributors,
dealers, individual wholesalers and retail outlets.
Revenues generated by Carrier's international operations, including U.S.
export sales, were 5852 percent and 5558 percent of total Carrier segment revenues
in 19971998 and 1996,1997, respectively. International operations are subject to local
government regulations (including regulations relating to capital contributions,
currency conversion and repatriation of earnings), as well as to varying
currency, political and economic risks.
At December 31, 1997,1998, the Carrier business backlog amounted to $1,021$1,007
million, as compared to $960$1,021 million at December 31, 1996.1997. Substantially all
of the business backlog at December 31, 19971998 is expected to be realized as sales
in 1998.1999.
UT Automotive
The Corporation's Automotiveautomotive business is conducted through a number of
subsidiaries reporting to UT Automotive, Inc. ("UTA"(collectively "UTA"). UTA is a
large independent supplier of automotive electrical distribution systems and
related components (terminals and connectors, body electronics, junction boxes
and switches). UTA has established administrative, engineering and
manufacturing facilities in the Americas, Europe and Europe.Asia to better serve its
worldwide customer base. UTA is also a large independent supplier in North
America of modular headliners and headliner substrates, instrument panels, door trim
assemblies, vehicle remote entry systems and fractional horsepower DC electric
motors used in automotive, commercial and industrial applications.
UTA also produces other automotive products such as interior trim (sun visors,
armrests,(armrests,
consoles and consoles)sun visors), mirrors, thermal and acoustical barriers, airbag
covers, electronic
controls and modules, engine cooling fan modules, interior lighting systems,
windshield wiper systems and electrical starters for commercial applications.
InUTA is developing integrated trim modules which combine various electrical and
other products as part of the fourth quarter of 1996 UTA sold its steering
wheels business.headliner, instrument panel or door panel.
5
UTA competes worldwide to sell systems and products to automotive
manufacturers. Sales to the major automotive manufacturers are made against
periodic short-term releases issued by the automotive manufacturers under
contracts generally awarded for a particular car or light truck model.
To serve its worldwide
customer base, UTA maintains over 82 principal facilities in the Americas,
Europe and Asia.
Ford Motor Company is UTA's largest customer. In 1998, sales to Ford Motor
Company were $986 million, or 33 percent of total UTA revenues. In 1997 and
1996, sales to Ford Motor Company were $1,125 million or 38 percent of total UTA revenues. In 1996 and
1995, sales to Ford Motor Company were $1,224 million (38 percent of total UTA
revenues) and $1,238$1,224 million (40(38 percent of total UTA revenues), respectively.
UTA's business is subject to changes in economic, industrial and
international conditions; changes in interest rates and in the level of
automotive production and sales which could affect the demand for many of its
products; changes in the prices of essential raw materials and petroleum-based
materials; changes in legislation and in government regulations; changes in
technology; and substantial competition from a large number of companies
including other major domestic and foreign automotive parts suppliers. The
principal methods of competition are technology, price, quality, delivery schedule,
qualityproduct performance and product performance.technology.
UTA is also subject to continuing pressure from automotive manufacturers to
reduce its prices and to assume greater responsibilities. These pressures have
resulted in UTA taking on an increasing portion of automotive manufacturers'
responsibilities, such as supply base management, systems integration and
engineering, design, development and tooling expenditures. UTA is also subject
to significant pressure to share in automotive manufacturers' liabilities
associated with warranty and product liability risks. While recognizing the
increased risks and responsibilities, UTA has positioned itself among the
leading first tier suppliers responding to the automotive manufacturers'
requirements in this regard.requirements. UTA has entered into long termlong-term supply agreements with many of its
customers which require price reductions. Future productivity improvements and
reductions in the price of its own purchased materials must be realized in order
for such arrangementsagreements to be profitable.4
Revenues generated by UTA's international operations, including U.S. export
sales (excluding revenues from certain non-U.S. operations which manufacture
exclusively for the U.S. market), were 3943 percent and 3539 percent of total AutomotiveUTA
segment revenues in 19971998 and 1996,1997, respectively. International operations are
subject to local government regulations (including regulations relating to
capital contributions, currency conversion and repatriation of earnings), as
well as to varying currency, political and economic risks.
6
UTA's customers issue order releases against production contracts
authorizing UTA to produce, deliver and invoice specific quantities of product
to satisfy short-term vehicle production requirements. These releases are
generally issued and satisfied within a one-to-three week time frame. At
December 31, 1998 and 1997, the UTA businessUTA's backlog amounted to $751 million and $682
million, as
compared to $774 millionrepresenting both open releases at December 31, 1996. Substantiallythose dates and forecasts of
anticipated releases for the following ninety days. Accordingly, substantially
all of the
businessUTA's backlog at December 31, 1997 is expected to be realized asin sales in 1998.
Aerospace1999.
In view of the recent consolidation in the automotive supply industry, the
Corporation has retained an investment banking firm to study strategic
alternatives for the Corporation's automotive business. The Corporation intends
to consider the available options, including possibly selling all or portions of
the business.
Pratt & Whitney and Defense BusinessesFlight Systems
The Corporation's Pratt & Whitney and Flight Systems businessoperating segments
produce aerospace and defense products. These businesses are subject to rapid
changes in technology; lengthy and costly development cycles; the effects of the
continuing consolidation within the aerospace and defense industry; heavy
dependence on a small number of products and programs; changes in legislation
and in government procurement and other regulations and procurement practices;
procurement preferences and policies of some foreign customers which require in-
country manufacture through co-production, offset programs (where in-country
purchases and financial support projects are required as a condition to
obtaining orders), joint ventures and production sharing, licensing or other
arrangements; substantial competition from major domestic manufacturers and from
foreign manufacturers whose governments sometimes give them direct and indirect
research and development assistance, marketing subsidies and other assistance
for their commercial products; and changes in economic, industrial and
international conditions. In addition, the financial performance of these two
segments can be affected in a number of respects by the performance of the
commercial airline industry and the aviation industry.
The principal methods of competition in the Corporation's aerospace and
defense businesses are price, product performance, service, delivery schedule
and other terms and conditions of sale, including fleet introductory allowances
and performance and operating cost guarantees, and the participation by the
Corporation and its finance subsidiaries in customer financing arrangements in
connection with sales of commercial jet engines and helicopters. Fleet
introductory allowances are discounts and other financial incentives offered by
the Corporation to encourage airline and other customers in order to makepurchase engines.
These engine sales whichpurchases are expected to lead in turn, to the salepurchase of parts and
services.services to support the engines.
7
Sales of military products are affected by defense budgets (both in the U.S.
and, to some extent, abroad), U.S. foreign policy and the presence of
competition. Military spare parts sales have been, and will continueare also affected to be,
affectedsome extent by the
decline in overall procurement bypolicies of the U.S. and certain foreign governments and, to a lesser extent, by the U.S. and foreign governments' policy
of increasingpurchasing certain parts purchases
from suppliers other than the original equipment manufacturers.
Pratt & Whitney
Pratt & Whitney is one of the world's leading producers of large turbofan
(jet) engines for commercial and military aircraft and small gas turbine engines
for business and regional/commuter aircraft. Pratt & Whitney provides overhaul
and repair services and spare and replacement parts for the engines it produces,
as well as overhaul and repair services and fleet management services for many
models of commercial and military jet and gas turbine engines. In addition,
Pratt & Whitney produces propulsion systems and solid rocket boosters for the
United States Air Force ("USAF") and the National Aeronautics and Space
Administration ("NASA") and provides land based power generation equipment..
Pratt & Whitney products are sold principally to aircraft manufacturers,
airlines and other aircraft operators, aircraft leasing companies and the U.S.
and foreign governments. Pratt & Whitney sales in the U.S. and Canada are made
directly to the customer and, to a limited extent, through independent
distributors. Other export sales are made with the assistance of an overseas
network of independent foreign representatives. Sales to the Boeing Company
("Boeing"), and Airbus Industrie ("Airbus") and McDonnell Douglas Corporation
("McDonnell Douglas"), including sales to the Douglas Products Division of
Boeing after Boeing's 1997 acquisition of McDonnell Douglas, consisting primarily of commercial
aircraft jet engines, amounted to 3330 percent of total Pratt & Whitney revenues
in 1997.1998. Pratt & Whitney's major competitors are the aircraft engine businesses
of General Electric Company ("GE") and Rolls-Royce plc.5
Pratt & Whitney currently produces three families of large commercial jet
engines; the JT8D-200, the PW2000 series and the PW4000 series. Pratt &
Whitney's JT8D-200 powersseries engines power the Boeing MD-80 aircraft. Applications
for the PW2000 series include the Boeing 757-200/PF aircraft. Pratt & Whitney's
PW4000 engine family powers the Airbus A310-300, A300-600 and A330-200/300
series; the Boeing 747-400, 767-200/300 and 777-200/300 series of aircraft; and
the Boeing MD-11 aircraft. Boeing has announced that its Douglas Products
Division will continue to producephase-out the MD-80 aircraft until current production commitments end
in 1999 andprogram with final delivery scheduled
for January 2000. Boeing has also announced that it will continue to offer MD-11 aircraft although primarily
as freight aircraft.production will
be phased-out with the delivery of orders on hand. The last delivery is
scheduled for February 2000.
Pratt & Whitney has entered into a Memorandum of Understanding with Airbus
to develop, certify, market and sell PW6000 series engines for installation on
the Airbus A318 aircraft under development.
8
IAE International Aero Engines AG, a Swiss corporation in which Pratt &
Whitney has a 33 percent interest, markets and supports the V2500 engine.
Applications for the V2500 engine include Airbus' A319, A320 and A321 aircraft
and Boeing's MD-90. Boeing has announced that its Douglas Products Division
will continue to produce MD-90 aircraft until current production commitments end
in 19991999. Boeing and that Boeing will support existingthe Chinese government agency in charge of the MD-90
production commitments in China throughhave reduced the production program from a
minimum of twenty (20) MD-90 Trunkliner program.aircraft to two (2) MD-90 aircraft.
In the case of many commercial aircraft today, aircraft manufacturers offer
their customers a choice of engines, giving rise to substantial competition among engine
manufacturers at the time of the sale of aircraft. This competition continues to be increasinglyis intense,
particularly where new commercial airframe/engine combinations are first
introduced to the market and into the fleets of individual airlines. Financial
incentives granted by engine suppliers, and performance and operating cost
guarantees on their part, are frequently important factors in such sales and can
be substantial. (For information regarding customer financing commitments,
participation in guarantees of customer financing arrangements and performance
and operating cost guarantees, see Notes 1, 4, 13 and 14 of Notes to
Consolidated Financial Statements at pages 3315 to 3517 and 4022 to 4123 of the
Corporation's 19971998 Annual Report to Shareowners.)
In view of the global nature of the commercial aircraft industry and the
risk and cost associated with launching new engine development programs, Pratt &
Whitney has developed strategic alliances and collaboration arrangements on
commercial engine programs in which costs, revenues and risks are shared. At
December 31, 1997,1998, the percentages of these items shared by other participants
in these alliances were approximately as follows: 2524 percent of the JT8D-200
series engine program, 29 percent of the PW2000 series engine program, 2214
percent of the 94 and 100 inch fan models of the PW4000, 3126 percent of the
PW4084 and PW4090 models and 2924 percent of the PW4098 model.
GE-P&W Engine Alliance, LLC, an alliance between GE Aircraft Engines and
Pratt & Whitney in which Pratt & Whitney has a 50 percent interest, was formed
during 1996 to develop, market and manufacture a new jet engine that is intended
to power super-jumbo aircraft. Although no aircraft manufacturer has as yet
committed to produce a super-jumbo aircraft, the GE-P&W Engine Alliance has
continued its marketing activities.
In 1997, as part of its plans to increase its overhaul and repair business,
Pratt & Whitney purchased the aero engine repair operations of Howmet
Corporation and N.V. Interturbine. In 1998, Pratt & Whitney and SIA Engineering
Company Private Limited established Eagle Services Asia Private Limited, an
engine overhaul and repair facility in Singapore.
9
Pratt & Whitney currently produces two military aircraft engines, the F100
(powering F-15 and F-16 fighter aircraft) and the F117 (powering C-17 transport
aircraft). All of Pratt & Whitney's F100 and F117 sales contracts are with the
USAF or with foreign governments.6
Pratt & Whitney is under contract with the USAF to develop the F119 engine,
the only anticipated source of propulsion for the two-engine F-22 fighter
aircraft being developed by Lockheed Martin Corporation ("Lockheed Martin") and
Boeing. The F-22 made its first flight in September 1997, powered by Pratt &
Whitney F119 engines. In addition, the Department of Defense selected two
weapon systems contractors, Boeing and Lockheed Martin, to proceed into the next
phase of the Joint Strike Fighter program development. Both companies have
selected derivatives of Pratt & Whitney's F119 engine as their engine of choice
to provide power for the Joint Strike Fighter demonstration aircraft.
Management cannot predict with certainty whether, when, and in what quantities
Pratt & Whitney will produce F119 engines.
Pratt & Whitney Space Propulsion ("SP") produces hydrogen fueled rocket
engines for the commercial and U.S. Government space markets and advanced turbo
pumps for NASA. SP, together with NPO Energomash, is developing a new Lox-
Kerosene RD-180 booster engine for two launch vehicles being marketed by
Lockheed Martin. Chemical Systems, a unit of SP, manufactures solid fuel
propulsion systems and booster motors for the commercial and civil markets and
several U.S. military launch vehicles and missiles.
Gas turbine engines manufactured by Pratt & Whitney Canada, including
various turbofan, turboprop and turbo shaft engines, are used in a variety of
aircraft including six to eighty passenger business and regional airline
aircraft and light and medium helicopters. Pratt & Whitney Canada also provides
services worldwide.
Revenues from Pratt & Whitney's international operations, including U.S.
export sales, were 5152 percent and 5451 percent of total Pratt & Whitney segment
revenues in 19971998 and 1996,1997, respectively. Such operations are subject to local
government regulations (including regulations relating to capital contributions,
currency conversion and repatriation of earnings) as well as to varying
political and economic risks.
At December 31, 1997,1998, the business backlog for Pratt & Whitney amounted to
$8,258$8,415 million, including $1,852$1,808 million of U.S. Government funded contracts and
subcontracts, as compared to $8,889$8,258 million and $1,927$1,852 million, respectively, at
December 31, 1996.1997. Of the total Pratt & Whitney business backlog at December 31,
1997,1998, approximately $4,325$4,202 million is expected to be realized as sales in 1998.1999.
Significant elements of Pratt & Whitney's business, such as spare parts sales
for engines in service, generally have short lead times. Therefore, backlog may
not be indicative of future demand. Also, since a substantial portion of the
backlog for commercial customers is scheduled for delivery beyond 1998,1999, changes
in economic conditions may cause customers to request that firm orders be
rescheduled or canceled.10
Flight Systems
The Corporation's Flight Systems business is conducted through Sikorsky
Aircraft and Hamilton Standard.
Sikorsky is one of the world's leading manufacturers of military and
commercial helicopters and the primary supplier of transport helicopters to the
U.S. Army. All branches of the U.S. military operate Sikorsky helicopters.
Sikorsky also supplies helicopters to foreign governments and the worldwide
commercial market. Sikorsky produces helicopters for a variety of uses,
including passenger, utility/transport, cargo, anti-submarine warfare, search
and rescue and heavy-
liftheavy-lift operations. Sikorsky also supplies helicopters to foreign governments and
the worldwide commercial market. In addition to sales of new helicopters,
Sikorsky's business base encompasses spare parts for past and current
helicopters produced by Sikorsky, and, through its subsidiary, Sikorsky Support
Services, Inc., the repair and retrofit of helicopters and
service contracts. In 1998, to help increase its presence in the U.S. military
fleet.aftermarket
business, Sikorsky acquired Helicopter Support, Inc., a major distributor of
helicopter parts. Other major helicopter manufacturers include Bell Helicopter
Textron, Eurocopter, Boeing Helicopters, (including the recently acquired helicopter
business of McDonnell Douglas), Agusta, GKN Westland Helicopters, Kazan
Helicopter and Mil.Rost Vertol.
Current production programs at Sikorsky include the Black Hawk medium-
transport helicopter for the U.S. and foreign governments; the international
Naval Hawk, a derivative of the U.S. Navy's Seahawk medium-sized helicopter
for multiple naval missions for foreign governments; the CH-53E Super Stallion
heavy-lift helicopter for the U.S. Marine Corps; and the S-76 intermediate-sizedintermediate-
sized helicopter for executive transport, offshore oil platform support, search
and rescue, emergency medical service and other utility operations.7
In July 1997, Sikorsky signed a multi-year contract with the U.S. Government
to deliver 108 Black Hawk helicopters from July 1997 through June 2002. Under
the contract as it has been amended through December 1998, the firm purchase
commitment has been increased to 127 and the Government currently has the right
to cancel 5419 helicopters scheduled for delivery from July 1999December 2000 through June
2002. As of December 31, 1998, 76 Black Hawk helicopters have been delivered
under the contract. Declining Defense Department budgets make Sikorsky
increasingly dependent upon expanding its international market position. Such
sales sometimes require the development of in-country co-production programs, such as the program in which Sikorsky
participates in South Korea.programs.
Sikorsky is engaged in full scalefull-scale development of the S-92 aircraft, a large
cabin derivative of the Black Hawk helicopter, for commercial and military
markets. Certification of the first S-92 is expected in the year 2000. A significant portion of the development is being carried out by
companies in Brazil, the People's Republic of China, Japan, Spain and Taiwan
under collaborative arrangements. This aircraft made its first flight in
December 1998. Certification of the first S-92 is expected in the year 2001.
Management cannot predict with certainty whether, when, and in what quantities
the S-92 will be produced.
11
Sikorsky has a 50% interest in a joint venture with Boeing Helicopters for
the development of the U.S. Army's next generation light helicopter, the RAH-66
Comanche. The Boeing Sikorsky Team is performing under a cost reimbursement
contract awarded in 1991. The first prototype aircraft performed a successful
first flight in January 1996 and is undergoing further flight
testing. In
December 1996, Sikorsky and Boeing signed a modification to the contract which
includes additional development and testing and the fabrication of six early
operational capability aircraft. Management cannot predict with certainty whether, when, and in what
quantities the Comanche will go into production.
Hamilton Standard is a global producer of a number of flight systems for
both commercial and military aircraft. Major production programs include engine
controls, environmental controls flight controlssystems and aircraft propellers. Hamilton
Standard also supplies NASA's space suit/life support system and produces
environmental control and thermal control systems for international space
programs. Other Hamilton Standard products include fuel cell power plants,
microelectronic circuitry
and advanced optical systems.
In July 1998, the Corporation reorganized its fuel cell business to include
fuel cell systems for the transportation market in addition to the existing
stationary power plant market. While oversight of this business continues to be
provided by Hamilton Standard executives, it is no longer part of the Flight
Systems segment for management reporting. The results are included in the Other
category for financial segment reporting and prior periods have been restated.
Revenues generated by Flight Systems' international operations, including
export sales, were 3840 percent and 2739 percent of total Flight Systems segment
revenues in 19971998 and 1996,1997, respectively. Such operations are subject to local
government regulations (including regulations relating to capital conditions,
currency conversion and repatriation of earnings) as well as to various
political and economic risks.
At December 31, 1997,1998, the Flight Systems business backlog amounted to $2,373$2,013
million, including $1,238$1,030 million under funded contracts and subcontracts with
the U.S. Government, as compared to $2,606$2,353 million and $1,646$1,225 million,
respectively, at December 31, 1996.1997. Of the total Flight Systems business
backlog at December 31, 1997,1998, approximately $1,728$1,417 million is expected to be
realized as sales in 1998.1999.
12
Other Matters Relating to the Corporation's
Business as a Whole
Research and Development
To maintain its competitive position, the Corporation spends substantial
amounts of its own funds on research and development. Such expenditures, which
are charged to income as incurred, were $1,315 million or 5.1 percent of total
sales in 1998, as compared with $1,187 million or 4.84.9 percent of total sales in
1997 as compared withand $1,122 million or 4.84.9 percent of total sales in 1996 and $963 million or 4.3 percent of total sales in 1995.1996. The Corporation
also performs research and development work under contracts funded by the U.S.
Government and other customers. Such contract research and development, which
is performed principally in the Pratt & Whitney segment and to a lesser extent
in the Flight Systems segment, amounted to $1,065 million in 1998, as compared
with $974 million in 1997 as compared
withand $870 million in 1996 and $871 million in 1995.81996.
Contracts, Other Risk Factors, Environmental and Other Matters
Government contracts are subject to termination for the convenience of the
Government, in which event the Corporation normally would be entitled to
reimbursement for its allowable costs incurred plus a reasonable profit. Most
of the Corporation's sales are made under fixed-price type contracts; only 4.95.1
percent of the Corporation's total sales for 19971998 were made under cost-
reimbursement type contracts.
Like many defense contractors, the Corporation has received allegations from
the U.S. Government that some contract prices should be reduced because cost or
pricing data submitted in negotiation of the contract prices may not have been
in conformance with Government regulations. The Corporation has made voluntary
refunds in those cases it believes appropriate, has settled some allegations,
and does not believe that any further price reductions that may be required will
have a material effect upon its financial position or results of operations.
The Corporation is now and believes that, in light of the current Government
contracting environment, it will be the subject of one or more Government
investigations. See Item 3 - Legal Proceedings at pages 10 and 1116 through 18 of this
Form 10-K for further discussion.
The Corporation does not currently believe that Defense Department budget
cutbacks will have a material adverse effect on the profitability of the
Corporation due in part to the growth in the Corporation's commercial
businesses.13
Management currently believes that the diversification of the Corporation's
businesses across multiple industries and geographically throughout the world
has helped, and should continue to help, limit the effect of adverse conditions
in any one industry or the economy of any country or region on the consolidated
results of the Corporation. There can be no assurance, however, that the effect
of adverse conditions in one or more industries or regions will be limited or
offset in the future.
Like other users in the U.S., the Corporation is largely dependent upon
foreign sources for certain of its raw materials requirements such as cobalt
(Africa), and chromium (Africa, Eastern and Central Europe and the countries of
the former Soviet Union). To alleviate this dependence and accompanying risk,
the Corporation has a number of on-going programs which include the development
of new vendor sources;suppliers; the increased use of more readily available materials through
material substitutions and the development of new alloys; and conservation of
materials through scrap reclamation and new manufacturing processes such as net
shape forging.
The Corporation has sought cost reductions in its purchases of certain other
materials, components, and supplies by consolidating its purchases and reducing
the number of suppliers. In some instances the Corporation is reliant upon a
single source of supply. A disruption in deliveries from its suppliers,
therefore, could have an adverse effect on the Corporation's ability to meet its
commitments to customers. The Corporation believes that it has appropriately
balanced the risks against the costs of sustaining a greater number of
suppliers.
The Corporation does not foresee any unavailability of materials,
components, or supplies which will have any material adverse effect on its
overall business, or on any of its business segments, in the near term.
The Corporation does not anticipate that compliance with current federal,
state and local provisions relating to the protection of the environment will
have a material adverse effect upon its cash flows, competitive position,
financial position or results of operations. (Environmental matters are the
subject of certain of the Legal Proceedings described in Item 3 - Legal
Proceedings at pages 10 and 1116 through 18 of this Form 10-K, and are further addressed
in Management's Discussion and Analysis of Results of Operations and Financial
Position at page 278 and Notes 1 and 14 of Notes to Consolidated Financial
Statements at page 34pages 16 and 4123 of the Corporation's 19971998 Annual Report to
Shareowners.)914
Most of the laws governing environmental matters include criminal
provisions. If the Corporation were convicted of a violation of the federal
Clean Air Act or the Clean Water Act, the facility or facilities involved in the
violation would be listed on the Environmental Protection Agency's (EPA) List of
Violating Facilities. The listing would continue until the EPA concluded that
the cause of the violation had been cured. Any listed facility cannot be used
in performing any U.S. Government contract awarded to the Corporation during any
period of listing by the EPA.
While the Corporation's patents, trademarks, licenses and franchises are
cumulatively important to its business, the Corporation does not believe that
the loss of any one or group of related patents, trademarks, licenses or
franchises would have a material adverse effect on the overall business of the
Corporation or on any of its businessoperating segments.
A discussion of the potential exposure to the Corporation arising from the
need to modify computer systems for the transition to the year 2000, and the
steps being taken by the Corporation to address these matters, is included in
Management's Discussion and Analysis of Results of Operations and Financial
Position under the heading "Year 2000" on page 279 of the Corporation's 19971998
Annual Report to Shareowners.
A discussion of the potential impact on the Corporation of the introduction
of the "euro" as a common currency of the member countries of the European
Economic and Monetary Union is included in Management's Discussion and Analysis
of Results of Operations and Financial Position under the heading "Euro
Conversion" on page 9 of the Corporation's 1998 Annual Report to Shareowners.
Cautionary Note Concerning Factors That May Affect Future Results
This Reportreport on Form 10-K contains statements which, to the Corporation's Annual Report to Shareowners and
the Corporation's Quarterly Reports on Form 10-Q containextent they are
not statements of historical or present fact, constitute "forward-looking
statements", as defined under the securities laws. From time to time, oral or written
forward-looking statements may also be included in other materials released to
the Private Securities Litigation Reform Act of 1995,
which reflectpublic. These forward-looking statements are intended to provide
Management's current expectations or plans for the Corporation's current view (asfuture operating and
financial performance of the dateCorporation, based on assumptions currently
believed to be valid. Forward-looking statements can be identified by the use
of words such forward-
looking statement is made)as "believe", "expect", "plans", "strategy", "prospects",
"estimate", "project", "anticipate" and other words of similar meaning in
connection with respect toa discussion of future events, prospects,
projectionsoperating or financial performance.
Other writtenThese include, among others, statements relating to:
15
. Future earnings and other measurements of financial performance
. Future cash flow and uses of cash
. The effect of economic downturns or oral statements made
bygrowth in particular regions
. The effect of changes in the level of activity in particular industries or
on behalfmarkets
. Prospective product developments
. Cost reduction efforts
. The outcome of contingencies
. The impact of Year 2000 conversion efforts
. The transition to the use of the Corporation including, but not limited to, press
releases and Reports on Form 8-K, may also include forward-looking statements.euro as a currency.
All such forward-looking statements are subject to uncertainties,involve risks and other factorsuncertainties that could affect the Corporation's operations, products and
markets andmay
cause actual results to differ materially from those made,expressed or implied projected, forecasted or estimated in suchthe
forward-looking statements. ForThis Annual Report on Form 10-K for 1998 includes
important information identifying some of these uncertainties, risks and otheras to risk factors seein the discussion included in Item 1 - Business of this Form 10-K"Business" section under the
headings "Description of Business by IndustryOperating Segment" and "Other Matters
Relating to the Corporation's Business as a Whole". Additional important
information as to risk factors is included in the Corporation's 1998 Annual
Report to Shareowners in the section titled "Management's Discussion and
Analysis of Results of Operations and Financial Position" under the headings
"Business Environment", "Year 2000" and "Euro Conversion", which is incorporated
by reference in Item 3 -
Legal Proceedings of this Form 10-K. For additional information identifying factors
that may cause actual results to vary materially from those stated in the
forward-looking statements, see the Corporation's reports on Forms 10-Q and 8-K
filed with the Securities and Exchange Commission from time to time.
Employees
At December 31, 1997,1998, the Corporation's total employment was approximately
180,100.178,800.
Item 2. Properties
The Corporation's fixed assets include the plants and warehouses described
below and a substantial quantity of machinery and equipment, most of which is
general purpose machinery and equipment using special jigs, tools and fixtures
and in many instances having automatic control features and special adaptations.
The Corporation's plants, warehouses, machinery and equipment are in good
operating condition, are well maintained, and substantially all of its
facilities are in regular use. The Corporation considers the present level of
fixed assets capitalized as of December 31, 1997,1998, suitable and adequate for the
respective industry segments' operations of each operating segment in the current business environment.16
The following square footage numbers are approximations. At December 31,
1997,1998, the Corporation operated (a) plants in the U.S. which had 33.332.7 million
square feet, of which 5.05.2 million square feet were leased; (b) plants outside
the U.S. which had 21.021.9 million square feet, of which 2.53.0 million square feet
were leased; (c) warehouses in the U.S. which had 4.75.7 million square feet, of
which 2.83.9 million square feet were leased; and (d) warehouses outside the U.S.
which had 6.15.8 million square feet, of which 3.8 million square feet were
leased.10
Management believes that the facilities for the production of its products
are suitable and adequate for the business conducted therein, are being
appropriately utilized consistent with experience and have sufficient production
capacity for their present intended purposes. Utilization of the facilities
varies based on demand for the products. The Corporation continuously reviews
its anticipated requirements for facilities and, based on that review, may from
time to time acquire additional facilities and/or dispose of existing
facilities.
Item 3. Legal Proceedings
As previously reported, in June 1992, the Department of Justice filed a
civil False Claims Act complaint in the United States District Court for the
District of Connecticut, No. 592CV375, against Sikorsky Aircraft alleging that
the Government was overcharged by nearly $4 million in connection with the
pricing of parts supplied for the reconditioning of the Navy's Sea King
helicopter. The Complaint seeks treble damages plus a $10,000 penalty for each
false claim submitted. The bench trial in this matter concluded in August 1997.
Post-trial papers have been submitted to the judge and the parties are awaiting
the court's decision.
In December, 1996,As previously reported, the Department of Defense issued a contracting officer's
"final decision" with respect toand the Corporation are
litigating whether Pratt & Whitney's Government contracts
accounting practices for aircraftcertain engine
parts are acceptable. The litigation, filed with the Armed Services Board of
Contract Appeals (ASBCA), No. 47416 et al., relates to the accounting for engine
parts produced by foreign companies under certain commercial engine collaboration
programs.programs from 1984 through 1995. The final decision
states that the Corporation failed to comply with various accounting
requirements incorporated in its contracts with the government. The final
decision covered the years 1984-95, inclusive, andGovernment initially claimed contract damages of
$260.3 million, of which $102.7 million iswas interest. This matter was initially
investigated by the U.S. Department of Justice, which closed its investigation
in 1996. The CorporationPratt & Whitney believes
its accounting practices comply with contract
requirementsare proper and has not changed its accounting practices in response to the
government's claim. On December 24, 1996, the Corporation filed a notice of
appeal with the Armed Services Board of Contract Appeals. A hearing in this
matter is scheduled for March 1998. The Government has reserved its right to
file additional claims for 1996 (and later years if the accounting practices are
unchanged) plus additional interest. The Corporation has filed a counterclaim
againstmodified them. If the
Government inprevails, damages could be larger than initially claimed because
interest continues to accrue and the amountcomplaint could be amended to include the
period after 1995. In March and April 1998, the matter was tried before an
ASBCA judge. A decision is not expected for a number of $42 million.months.
17
As previously reported, a jury in Chromalloy Gas Turbine Corporation v.
United Technologies Corporation, No. 95-CI-12541, a Texas state action, found
that Pratt & Whitney did not monopolize any relevant market but did willfully
attempt to monopolize an unspecified market. In May 1997, the Courtcourt entered a
Final Judgment denying Chromalloy's request for damages, injunctive relief and
declaratory relief. In October 1998, the Texas Fourth Court of Appeals affirmed
the decision of the trial court, declining to grant injunctive relief to
Chromalloy. Chromalloy has appealedfiled motions for rehearing and for rehearing en
banc. The Corporation has filed its responses. The parties are awaiting the
Court'scourt's decision.
In July 1997, the Corporation was served 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 June 1994 (No. 394CV00963).
The Complaint seeks treble damages and penalties arising out of an alleged
failure by Norden Systems, Inc., a subsidiary of the Corporation, to account
properly for its fixed assets in billings on government contracts. (The assets
of Norden Systems, Inc. were sold to Westinghouse in 1994). The Government has
declined to take over the action which is being pursued by the relator.
In July 1997, the Corporation was served 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 December 1994 (No.
394CV02063). The Complaint seeks treble damages and penalties arising out of an
alleged failure by Norden Systems, Inc., a subsidiary of the Corporation, and
the Corporation to account properly for insurance costs in billings on
government contracts. (The assets of Norden Systems, Inc. were sold to
Westinghouse in 1994). The Government has declined to take over the action
which is being pursued by the relator.
In January, 1998, the Corporation was served with a qui tam complaint under
the civil False Claims Act that had been previously filed under seal in the
United States District Court for the District of Connecticut in November, 1995 (No. 395CV02431
(DJS))October, 1996
(U.S. ex rel. Waldron v. UTC, No. 396CV02038). The Complaintcomplaint seeks trebleunspecified
damages (trebled) and penalties arising out of an alleged failure by Pratt &
Whitney to estimate properly the costs of Hamilton Standard to implement an "Inspection Method Sheet
Inspection System".performing a cost-type development
contract. The Government has declined to take over the action which is being
pursued by the qui tam relator.
As previously reported, the Corporation has been served with a number of other
qui tam complaints under the civil False Claims Act in the United States
District Court for the District of Connecticut: U.S. ex rel. Drake v. Norden
Systems, Inc. and UTC, No.394CV00963 (filed July 1997, and involving allegations
of improper accounting for fixed assets); U.S. ex rel. Capella v. UTC and Norden
Systems Inc., No. 394CV02063 (filed December 1994, and involving allegations of
improper accounting for insurance costs); and U.S. ex rel. Maloni v. UTC, No.
395CV02431 (filed in November 1995 and involving allegations of failing to
implement an "Inspection Method Sheet Inspection System"). The qui tam relator
in each case has claimed unspecified damages (trebled) and penalties, and the
Department of Justice in each case has declined to take over the litigation.
The civil False Claims Act provides for penalties in a civil case of up to
$10,000 per false claim submitted. The number of false claims implicated by the
foregoing qui tam complaints cannot currently be ascertained; however, if
determined adversely to the Corporation the number could result in significant
penalties.
As previously reported in the Corporation's Reports on Form 10-K for 1992
and Form 10-Q for the Third Quarter of 1993, the Corporation entered into a
Consent Decree in August of 1993 with the Environmental Protection Agency
("EPA") and the Department of Justice ("DOJ") in Docket Number H-90-715 (JAC) in
the U.S. District Court for the District of Connecticut. Under the Consent
Decree, the Corporation agreed to adopt programs to enhance the effectiveness of
its environmental management systems, conduct an audit of 19 of its
1118
facilities, and pay civil penalties for any non-compliance with environmental
laws and regulations discovered during the audit. An independent third party
recently completed this audit and forwarded the results to the EPA. The EPA has
informed the Corporation that it intends to issue a report evaluating the audit
results and that it expects to propose penalties. The Consent Decree
establishes procedures for the EPA and the Corporation to resolve any
disagreements over compliance and the amount of penalties.
The Corporation believes the Department of Justice is contemplating the filing
of a civil False Claims Act complaint against Pratt & Whitney. The contemplated
action is related to the "Fighter Engine Competition" contracts awarded by the
US Air Force between 1984 and 1989. As understood, the Department of Justice
will allege that disclosures in Pratt's best and final offer, submitted in
December 1983, were inaccurate with respect to costs of certain subcontracts.
The Corporation does not believe that resolution of any of the foregoing
legal matters will have a material adverse effect upon the Corporation's
competitive position, results of operations, cash flows, or financial position.
The Corporation is now, and believes that, in light of the current
government contracting environment, it will be the subject of one or more
government investigations. If the Corporation or one of its business units were
charged with wrongdoing as a result of any of these investigations, the
Corporation or one of its business units could be suspended from bidding on or
receiving awards of new government contracts pending the completion of legal
proceedings. If convicted or found liable, the Corporation could be fined and
debarred from new government contracting for a period generally not to exceed
three years. Any contracts found to be tainted by fraud could be voided by the
Government.
The Corporation has incurred and will likely continue to incur liabilities
under various state and federal statutes for the cleanup of pollutants
previously released into the environment. The Corporation believes that any
payments it may be required to make as a result of these claims will not have a
material effect upon the cash flows, competitive or financial position, or
results of operations of the Corporation. The Corporation has had liability and
property insurance in force over its history with a number of insurance
companies, and the Corporation has commenced litigation seeking indemnity and
defense under these insurance policies in relation to its environmental
liabilities. Settlements to date, which have not been material, have been
recorded upon receipt. While the litigation against the Corporation's historic
liability insurers has concluded, it is expected that the case against the Corporation's property
insurers will last several years.is continuing. (For information regarding the matters discussed in
this paragraph, see "Environmental Matters" in Management's Discussion and
Analysis of Results of Operations and Financial Position at page 278 and Notes 1
and 14 of the Notes to Consolidated Financial Statements at pages 3416 and 4123 of
the Corporation's 19971998 Annual Report to Shareowners.)19
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to security holders for a vote during the fourth
quarter ended December 31, 1997.1998.
- ----- Executive Officers of the Registrant
The executive officers of United Technologies Corporation, together with the
offices in United Technologies Corporation presently held by them, their
business experience since January 1, 1993,1994, and their ages, are as follows:
Other Business Age
Name Title Experience 2/1/9899
Since 1/1/9394
Ari Bousbib Vice President Managing Director, The 3637
Strategic Planning Strategic Partners
(since 1997) Group; Partner, Booz,
Allen & Hamilton.
Eugene Buckley Chairman and Chief President, Sikorsky 68
Executive Officer, Aircraft Corporation;
Sikorsky Aircraft President and Chief
(since 1998) Executive Officer,
Sikorsky Aircraft
Division; and President,
Sikorsky 67
Aircraft Corporation Aircraft
Division
(since 1995)
William L. Senior Vice 5556
Bucknall, Jr. President, Human -------
Resources &
Organization
(since 1992)12
Other Business Age
Name Title Experience 2/1/98
Since 1/1/93
John F. Senior Vice Vice President, United 55
Cassidy, Jr. President - Science Technologies Research
and Technology Center
(since 1998)
Kevin Conway Vice President, Director of Taxes, 4950
Taxes United Technologies
(since 1995) Corporation
George David Chairman (since President and Chief 5556
1997), Operating Officer
President and Chief
Executive Officer
(since 1994)
David J. Senior Vice Vice President and 44
FitzPatrick President and Chief Controller, Eastman
Financial Officer Kodak Co.; Finance
(since 1998) Director-Cadillac Luxury
Car Division, Chief
Accounting Officer,
General Motors Corp.
C. Scott Greer President, UT President, Chief 4748
Automotive Operating Officer,
(since 1997) Echlin, Inc.
20
Other Business Age
Name Title Experience 2/1/99
Since 1/1/94
Jay L. Vice President- Acting Chief Financial 48
Haberland Controller Officer, Director of
(since 1996) Internal 47
Haberland Financial Officer Audit;
(since 1997), andAuditing,
United Technologies
Corporation; Vice
President, Finance,
Vice President- Commercial & Industrial
Controller (since Group,
1996) The Black &
Decker Corporation
Ruth R. Harkin Senior Vice President and Chief 5354
President, Executive Officer,
International Overseas Private
Affairs and Investment Corporation;Corporation
Government Relations
Partner, Akin, Gump,
(since 1997) Strauss, Hauer & Field
Robert J. Senior Vice ------- 64
Hermann President, Science &
Technology (since
1992)
Karl J. Krapek Executive Vice ------- 4950
President (since ---------
1997) and President,
Pratt & Whitney
(since 1992)
Raymond P. President, Hamilton Executive Vice 5455
Kurlak Standard (since President, Sikorsky
1995) Aircraft Division
John R. Lord President, Carrier President, Carrier NAO 5455
Corporation
(since 1995)
Angelo J. Vice President, Director, Financial 45
Messina Financial Planning Planning and Analysis,
and Analysis United Technologies
(since 1998) Corporation; Vice
President, Strategic
Planning, Pratt &
Whitney; Director,
Investor Relations,
United Technologies
Corporation
Stephen F. Page Executive Vice Executive Vice President 59
President and and Chief Financial
President and Chief Executive Vice President 58Officer, United
Executive Officer, and Chief FinancialTechnologies Corporation
Otis Elevator
(since Officer, United
1997) Technologies
Corporation; Executive
Vice President and Chief
Financial Officer, The
Black & Decker
Corporation
Gilles A. H. Vice President - Vice President, Finance 51
Renaud Treasurer Carrier Corporation
(since 1996)
William H. Vice President,_ Vice President and 54Chief 52
Renaud Treasurer Financial Officer,
(since 1996) Carrier Corporation
William H. Senior Vice Vice President, 55
Trachsel President, General Secretary and Deputy
Deputy General Counsel
General Counsel
(since 1993)
Jean-Pierre van Chairman, Otis President, Otis Elevator 63
Rooy Elevator
(since 1997)13
Other Business Age
Name Title Experience 2/1/98
Since 1/1/93
Irving B. Executive Vice ------- 52
Yoskowitz President and General Counsel
Secretary
(since 1990)1998)
All of the officers serve at the pleasure of the Board of Directors of United
Technologies Corporation or the subsidiary designated.
21
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
See Comparative Stock Data appearing on page 4325 of the Corporation's 19971998
Annual Report to Shareowners containing the following data relating to the
Corporation's Common Stock: principal market, quarterly high and low sales
prices, approximate number of shareowners and frequency and amount of dividends.
All such data are incorporated by reference in this Report.
Item 6. Selected Financial Data
See the Five Year Summary appearing on page 212 of the Corporation's 19971998
Annual Report to Shareowners containing the following data: revenues, net
income, basic and diluted earnings per share, cash dividends on Common Stock,
total assets and long-term debt. All such data are incorporated by reference in
this Report. See Notes to Consolidated Financial Statements appearing on pages
3315 through 4325 of the Corporation's 19971998 Annual Report to Shareowners for a
description of any accounting changes and acquisitions or dispositions of
businesses materially affecting the comparability of the information reflected
in such Five Year Summary.
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Position
See Management's Discussion and Analysis of Results of Operations and
Financial Position appearing on pages 223 through 279 of the Corporation's 19971998
Annual Report to Shareowners; such discussion and analysis is incorporated by
reference in this Form 10-K.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
See discussion appearing at pages 26 through 27 and 33 through 34 of the
Corporation's 1997 Annual Report to Shareowners under the headings "Derivative and Other Financial
Instruments" on page 8 and "Hedging Activity" on pages 15 and 16 and Note 13 on
page 22 of the Corporation's 1998 Annual Report to Shareowners for information
concerning market risk sensitive instruments. Such information is incorporated
by reference in this Form 10-K.
Item 8. Financial Statements and Supplementary Data
The 1998 and 1997 and 1996Consolidated Balance Sheets,Sheet, and other financial statements
for the years 1998, 1997 1996 and 1995,1996, together with the report thereon of
Price WaterhousePricewaterhouseCoopers LLP dated January 22, 1998,21, 1999, appearing on pages 2810 through
3214 in the Corporation's 19971998 Annual Report to Shareowners are incorporated by
reference in this Form 10-K.
22
The 19971998 and 19961997 Selected Quarterly Financial Data appearing on page 4325 in
the Corporation's 19971998 Annual Report to Shareowners are incorporated by
reference in this Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.14
Item 10. Directors and Executive Officers of the Registrant
The information required by Item 10 with respect to directors is
incorporated herein by reference from pages 47 through 710 of the Corporation's
Proxy Statement for the 19981999 Annual Meeting of Shareowners. Information
regarding executive officers is contained in Part I of this Form 10-K at pages
1119 through 13.20. Information concerning Section 16(a) compliance is contained in
the section entitled "Section 16(a) Beneficial Ownership Reporting Compliance"
at page 921 of the 19981999 Proxy Statement.
Item 11. Executive Compensation
The information required by Item 11 is incorporated herein by reference from
pages 912 through 1013 and 1815 through 2223 of the Corporation's Proxy Statement for
the 19981999 Annual Meeting of Shareowners. Such incorporation by reference shall
not be deemed to specifically incorporate by reference the information referred
to in Item 402(a)(8) of Regulation S-K.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by Item 12 is incorporated herein by reference from
page 5 and pages 814 and 915 of the Corporation's Proxy Statement for the 19981999
Annual Meeting of Shareowners.
Item 13. Certain Relationships and Related Transactions
The information required by Item 13 is incorporated herein by reference from
page 9pages 21 and 22 of the Corporation's Proxy Statement for the 19981999 Annual Meeting
of Shareowners.23
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Page Number
(a) Financial Statements, Financial Statement in Annual
Schedules and Exhibits Report
(1) Financial Statements (incorporated by
reference from the 19971998 Annual Report to
Shareowners):
Report of Independent Accountants ......... 2810
Consolidated Statement of Operations for
the Three Years ended December 31, 19971998 ... 2911
Consolidated Balance Sheet--December 31,
301998 and 1997 and 1996 ............................. 12
Consolidated Statement of Cash Flows for
31
the Three Years ended December 31, 19971998 ... 13
Consolidated Statement of Changes in
32
Shareowners' Equity .......................for the Three Years
ended December 31, 1998 ................... 14
Notes to Consolidated Financial Statements 3315
Selected Quarterly Financial Data
43
(Unaudited) ............................... 25
Page Number
in Form 10-K
(2) Financial Statement Schedule For the
three yearsThree Years ended December 31, 1997:1998:
Report of Independent Accountants on S-I
Financial Statement .......................
Schedule II Valuation and Qualifying S-II
Accounts ..................................
Consent of Independent Accountants ........ F-115
All other schedules are omitted because they are not
applicable or the required information is shown in the
financial statements or the notes thereto.24
(3) Exhibits:
The following list of exhibits includes exhibits
submitted with this Form 10-K as filed with the SEC and
those incorporated by reference to other filings.
Exhibit Number
3.13(i) Restated Certificate of Incorporation, incorporated
by reference to Exhibit 3(i) to United Technologies
Corporation Quarterly Report on Form 10-Q
(Commission File number 1-812) for quarterly period
ended June 30, 1997.
3.23(ii) Bylaws incorporated by reference to Exhibit 3.2
to United Technologies Corporation Annual Report
on Form 10-K (Commission file number 1-812) for
fiscal year ended December 31, 1994.as amended and restated effective
February 8, 1999.**
4 The Corporation hereby agrees to furnish upon
request to the
Commission upon request a copy of each instrument
defining the rights of holders of long-
termlong-term debt of
the Corporation and its consolidated subsidiaries
and any unconsolidated subsidiaries.
10.1 United Technologies Corporation 1979 Long Term
Incentive Plan, incorporated by reference to Exhibit
10(i) to United Technologies Corporation Annual
Report on Form 10-K (Commission file number 1-812)
for fiscal year ended December 31, 1992.
10.2 United Technologies Corporation Annual Executive
Incentive Compensation Plan, as amended. *
10.3 United Technologies Corporation Disability Insurance
Benefits for Executive Control Group, incorporated
by reference to Exhibit 10 (iii) to United
Technologies Corporation Annual Report on Form 10-K
(Commission file number 1-812) for fiscal year ended
December 31, 1992.
10.4 United Technologies Corporation Executive Estate
Preservation Program, incorporated by reference to
Exhibit 10(iv) to United Technologies Corporation
Annual Report on Form 10-K (Commission file number
1-812) for fiscal year ended December 31, 1992.
10.5 United Technologies Corporation Pension Preservation
Plan, incorporated by reference to Exhibit 10(v) for
United Technologies Corporation Annual Report on
Form 10-K (Commission file number 1-812) for fiscal
year ended December 31, 1992.
25
Exhibit Number
10.6 United Technologies Corporation Senior Executive
Severance Plan, incorporated by reference to Exhibit
10(vi) to United Technologies Corporation Annual
Report on Form 10-K (Commission file number 1-812)
for fiscal year ended December 31, 1992.
10.7 United Technologies Corporation Deferred
Compensation Plan, as amended. *
10.8 Otis Elevator Company Incentive Compensation Plan,
incorporated by reference to Exhibit 10(viii) to
United Technologies Corporation Annual Report on
Form 10-K (Commission file number 1-812) for fiscal
year ended December 31, 1992.
10.9 United Technologies Corporation Directors Retirement
Plan, as amended. *
10.10 United Technologies Corporation Deferred
Compensation Plan for Non-Employee Directors,
incorporated by reference to Exhibit 10(x) to United
Technologies Corporation Annual Report on Form 10-K
(Commission file number 1-812) for fiscal year ended
December 31, 1992.
10.11 United Technologies Corporation Long Term Incentive
Plan, as amended. *16
Exhibit Number
10.12 United Technologies Corporation Executive
Disability, Income Protection and Standard
Separation Agreement Plan, incorporated by reference
to Exhibit 10(xii) to United Technologies
Corporation Annual Report on Form 10-K (Commission
file number 1-812) for fiscal year ended December
31, 1992.
10.13 United Technologies Corporation Directors'
Restricted Stock/Unit Program, incorporated by
reference to Exhibit 10(xiii) to United Technologies
Corporation Annual Report on Form 10-K (Commission
file number 1-812) for fiscal year ended December
31, 1992.
10.14 United Technologies Corporation Board of Directors
Deferred Stock Unit Plan. *
10.15 United Technologies Corporation Pension Replacement
Plan, incorporated by reference to Exhibit 10(xv) to
United Technologies Corporation Annual Report on
Form 10-K (Commission file number 1-812) for fiscal
year ended December 31, 1993.
10.16 United Technologies Corporation Special Retention
and Stock Appreciation Program, incorporated by
reference to Exhibit 10(xvi) to United Technologies
Corporation Report on Form 10-Q (Commission file
number 1-812) for quarterly period ended September
30, 1995.
10.17 United Technologies Corporation Nonemployee Director
Stock Option Plan. *
26
Exhibit Number
11 Statement re: Computation of Per Share Earnings.** **
12 Statement re: Computation of Ratio of Earnings to
Fixed Charges. **
13 Annual Report to Shareowners for year ended December
31, 19971998 (except for the pages and information
thereof expressly incorporated by reference in this
Form 10-K, the Annual Report to Shareowners is
provided solely for the information of the
Securities and Exchange Commission and is not to be
deemed ``filed'`"filed" as part of this Form 10-K). **
21 Subsidiaries of the Registrant. **
23 Consent of Price Waterhouse,PricewaterhouseCoopers LLP, included as
page F-1 of this Form 10-K.
24 Powers of Attorney of Howard H. Baker, Jr., Antonia Handler Chayes,
Charles W. Duncan, Jr., Jean-Pierre Garnier, Pehr G.
Gyllenhammar, Karl J. Krapek, Charles R. Lee, Robert
H. Malott, William J. Perry, Frank P. Popoff, Andre
Villeneuve, Harold A. Wagner and Jacqueline G.
Wexler. **
27 Financial Data Schedule. **
27.1 Restated Prior Periods' Financial Data Schedule.**
27.2 Restated Prior Periods' Financial Data Schedule.**
Notes to Exhibits List:
* Incorporated by reference to Exhibit of the same
number to United Technologies Corporation Annual
Report on Form 10-K (Commission file number 1-812)1-
812) for fiscal year ended December 31, 1995.
** Submitted electronically herewith.
Exhibits 10.1 through 10.17 are management contracts
or compensatory plans required to be filed as
exhibits pursuant to Item 14(c) of the requirements
for Form 10-K reports.
(b) No reportsA report on Form 8-K weredated December 1, 1998 was filed by
the Registrant duringCorporation on December 2, 1998. The Report includes
information under Items 5 and 7 concerning amendments to
the fourth quarterBylaws of 1997.the Corporation.
1727
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
UNITED TECHNOLOGIES CORPORATION
(Registrant)
By /s/ Jay L. Haberland
Jay L. Haberland
ActingDavid J. FitzPatrick
David J. FitzPatrick
Date: February 16, 1999 Senior Vice President and
Chief Financial Officer
Date: February 16, 1998 and Vice President, Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated, on the date set forth below.
Signature Title Date
/s/ George David Chairman, Director, and February 16, 19981999
George David President and Chief
Executive Officer
/s/ David J. FitzPatrick Senior Vice President February 16, 1999
David J. FitzPatrick and Chief Financial
Officer
/s/ Jay L. Haberland Acting Chief FinancialVice President- February 16, 19981999
Jay L. Haberland Officer and Vice
President - Controller
HOWARD H. BAKER, JR. * Director )
(Howard H. Baker, Jr.)
ANTONIA HANDLER CHAYES * Director )
(Antonia Handler Chayes)
*By: /s/William H. Trachsel
CHARLES W. DUNCAN, JR. * Director ) William H. Trachsel
(Charles W. Duncan, Jr.) Attorney-in-Fact
Date: February 16, 1999
JEAN-PIERRE GARNIER * Director )
(Jean-Pierre Garnier)
PEHR G. GYLLENHAMMAR * Director )
*By:/s/ William H. Trachsel
(Pehr G. Gyllenhammar)
William H. Trachsel
Attorney-in Fact
Date: February 16, 1998
KARL J. KRAPEK*KRAPEK * Director )
(Karl J. Krapek)28
Signature Title Date
CHARLES R. LEE * Director )
(Charles R. Lee)
ROBERT H. MALOTT * Director )
(Robert H. Malott)18
Signature Title Date
WILLIAM J. PERRY* Director )
(William J. Perry)
*By: /s/ William H. Trachsel
FRANK P. POPOFF * Director ) *By: /s/ William H. Trachsel
(Frank P. Popoff) William H. Trachsel
Attorney-in FactAttorney-in-Fact
Date: February 16, 19981999
ANDRE VILLENEUVE * Director )
(Andre Villeneuve)
HAROLD A. WAGNER * Director )
(Harold A. Wagner)
JACQUELINE G. WEXLER * Director )
(Jacqueline G. Wexler)S-I SCHEDULE I
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of United Technologies Corporation
Our audits of the consolidated financial statements referred to in our
report dated January 22, 199821, 1999 appearing on page 2810 of the 19971998 Annual Report to
Shareowners of United Technologies Corporation (which report and consolidated
financial statements are incorporated by reference in this Annual Report on Form
10-K) also included an audit of the Financial Statement Schedule listed in Item
14(a)(2) of this Form 10-K. In our opinion, the Financial Statement Schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
/s/ Price WaterhousePricewaterhouseCoopers LLP
Price WaterhousePricewaterhouseCoopers LLP
Hartford, Connecticut
January 22, 199821, 1999
S-I
S-II
SCHEDULE II
UNITED TECHNOLOGIES CORPORATION AND SUBSIDIARIES
Schedule II - Valuation and Qualifying Accounts
Three Years Ended December 31, 19971998
(Millions of Dollars)
Allowances for Doubtful Accounts and Other Customer Financing Activity:
Balance December 31, 19941995 $ 509411
Provision charged to income 1
Doubtful accounts written off (net) (88)
Other adjustments 8
Balance December 31, 1995 430
Provision charged to income 4038
Doubtful accounts written off (net) (57)
Other adjustments (1)
Balance December 31, 1996 412391
Provision charged to income 5934
Doubtful accounts written off (net) (29)(28)
Other adjustments (16)(14)
Balance December 31, 1997 383
Provision charged to income 71
Doubtful accounts written off (net) (32)
Other adjustments (22)
Balance December 31, 1998 $ 426400
Future Income Tax Benefits - Valuation
allowance:
Balance December 31, 19941995 $ 355349
Additions charged to income tax expense 49
Reductions credited to income tax expense (52)
Balance December 31, 1995 352
Additions charged to income tax expense 3027
Reductions credited to income tax expense (48)
Balance December 31, 1996 334328
Additions charged to income tax expense 5552
Reductions credited to income tax expense (92)
Balance December 31, 1997 288
Additions charged to income tax expense 37
Reductions credited to income tax expense (95)
Balance December 31, 19971998 $ 294230
S-II
F-1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statements on Form S-3 (Nos. 333-
26331, 33-46916, 33-40163, 33-34320, 33-31514, 33-29687333-26331
and 33-6452)33-46916) and in the Registration Statements on Form S-8 (Nos. 333-21853,333-
21853, 333-18743, 333-
21851,333-21851, 33-57769, 33-45440, 33-11255, 33-26580, 33-26627,33-
26627, 33-28974, 33-51385, 33-58937, and 2-87322) of United Technologies
Corporation of our report dated January 22, 199821, 1999 appearing on page 2810 of the
19971998 Annual Report to Shareowners which is incorporated by reference in this
Annual Report on Form 10-K. We also consent to the incorporation by
reference of our report on the Financial Statement Schedule, which appears
on page S-I of this Form 10-K.
/s/ Price Waterhouse LLP
Price WaterhousePricewaterhouseCoopers LLP
Hartford, Connecticut
February 16, 19981999
F-1