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,June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period
from__________________to________________from____________________________to__________________________
Commission file number 1-812
UNITED TECHNOLOGIES CORPORATION
DELAWARE 06-0570975
One Financial Plaza, Hartford, Connecticut 06101
(860) 728-7000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X . No .
At March 31,June 30, 1997 there were 236,888,815235,425,353 shares of Common Stock outstanding.
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONTENTS OF QUARTERLY REPORT ON FORM 10-Q
Quarter Ended March 31,June 30, 1997
Page
Part I - Financial Information
Item 1. Financial Statements:
Condensed Consolidated Statement of
Operations for the quarters ended March
31,June 30,
1997 and 1996 1
Condensed Consolidated Statement of
Operations for the six months ended June
30, 1997 and 1996 2
Condensed Consolidated Balance Sheet at March
31,June
30, 1997 and December 31, 1996 23
Condensed Consolidated Statement of Cash
Flows for the quarterssix months ended March 31,June 30,
1997 and 1996 34
Notes to Condensed Consolidated Financial
Statements 45
Report of Independent Accountants 78
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Position 89
Part II - Other Information
Item 1. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of
Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 1517
Signatures 1618
Exhibit Index
1
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Quarter Ended
March 31,June 30,
In Millions of Dollars (except per share amounts) 1997 1996
Revenues:
Product sales $ 4,6455,146 $ 4,1594,773
Service sales 1,241 1,1891,286 1,229
Financing revenues and other income, net 48 44
5,934 5,39251 41
6,483 6,043
Costs and expenses:
Cost of products sold 3,760 3,3794,081 3,818
Cost of services sold 776 729807 740
Research and development 271 250316 274
Selling, general and administrative 702 683727 709
Interest 48 58
5,557 5,09949 56
5,980 5,597
Income before income taxes and minority interests 377 293503 446
Income taxes 124 99162 151
Minority interests 29 3037 36
Net Income $ 224304 $ 164259
Earnings per share of common stock and common stock
equivalents $ .861.17 $ .62.98
Dividends per share of common stock $ .31 $ .275
Average common and equivalent shares outstanding
(in thousands) 259,438 262,596258,343 262,326
See Accompanying Notes to Condensed Consolidated Financial Statements
2
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Six Months Ended
June 30,
In Millions of Dollars (except per share amounts) 1997 1996
Revenues:
Product sales $ 9,791 $ 8,932
Service sales 2,527 2,418
Financing revenues and other income, net 99 85
12,417 11,435
Costs and expenses:
Cost of products sold 7,841 7,197
Cost of services sold 1,583 1,469
Research and development 587 524
Selling, general and administrative 1,429 1,392
Interest 97 114
11,537 10,696
Income before income taxes and minority interests 880 739
Income taxes 286 250
Minority interests 66 66
Net Income $ 528 $ 423
Earnings per share of common stock and common stock
equivalents $ 2.03 $ 1.60
Dividends per share of common stock $ .62 $ .55
Average common and equivalent shares outstanding
(in thousands) 258,644 262,314
See Accompanying Notes to Condensed Consolidated Financial Statements 3
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
March 31,June 30, December 31,
In Millions of Dollars 1997 1996
(Unaudited)
Assets
Cash and cash equivalents $ 1,2651,413 $ 1,127
Accounts receivable, net 3,5323,898 3,717
Inventories and contracts in progress, net 3,5653,327 3,342
Future income tax benefits 9791,078 946
Other current assets 416345 479
Total Current Assets 9,75710,061 9,611
Fixed assets 10,59510,694 10,661
Less - accumulated depreciation (6,340)(6,449) (6,290)
4,2554,245 4,371
Other assets 2,6772,725 2,763
Total Assets $ 16,68917,031 $ 16,745
Liabilities and Shareowners' Equity
Short-term borrowings $ 257261 $ 251
Accounts payable 2,0222,032 2,186
Accrued liabilities 5,0965,260 4,856
Long-term debt currently due 9091 97
Total Current Liabilities 7,4657,644 7,390
Long-term debt 1,3981,381 1,437
Future pension and postretirement benefit obligations 1,2401,248 1,247
Other long-term liabilities 1,9081,984 1,931
Series A ESOP Convertible Preferred Stock 878871 880
ESOP deferred compensation (439)(430) (446)
439441 434
Shareowners' Equity:
Common Stock 2,3832,432 2,345
Treasury Stock (1,770)(1,926) (1,626)
Retained earnings 3,9734,187 3,849
Currency translation and pension liability
adjustments (347)(360) (262)
4,2394,333 4,306
Total Liabilities and Shareowners' Equity $ 16,68917,031 $ 16,745
See Accompanying Notes to Condensed Consolidated Financial Statements
34
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
QuarterSix Months Ended
March 31,June 30,
In Millions of Dollars 1997 1996
Cash flows from operating activities:
Net income $ 224528 $ 164423
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization 211 209430 424
Change in:
Accounts receivable 209 193(179) (64)
Inventories and contracts in progress (193) (316)41 (198)
Accounts payable and accrued liabilities 42 (89)230 113
Other, net 16 17242 340
Net Cash Flowscash flows from Operating Activities 509 333operating activities 1,092 1,038
Cash flows from investing activities:
Capital expenditures (161) (129)(350) (307)
Acquisitions of business units (46) (26)(101) (155)
Dispositions of business units 2635 30
Decrease in customer financing assets, net 28 10225 31
Other, net 43 1691 53
Net Cash Flowscash flows from Investing Activities (110) (7)investing activities (300) (348)
Cash flows from financing activities:
Issuance of long-term debt 1 27
Repayments of long-term debt (34) (20)
Increase/(decrease)(56) (141)
Decrease in short-term borrowings, net (6) 2(8) (69)
Dividends paid on Common Stock (74) (67)(147) (133)
Common Stock repurchase (145) (62)(302) (182)
Other, net 19 1129 (19)
Net Cash Flowscash flows from Financing Activities (240) (136)financing activities (483) (517)
Effect of foreign exchange rate changes on Cash and
cash equivalents (21) (2)(23) 2
Net increase in cash and cash equivalents 138 188286 175
Cash and cash equivalents, beginning of year 1,127 900
Cash and cash equivalents, end of period $ 1,2651,413 $ 1,0881,075
See Accompanying Notes to Condensed Consolidated Financial Statements
45
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The condensed consolidated financial statementsCondensed Consolidated Financial Statements at March 31,June 30, 1997 and for the
quarters and six-month periods ended March 31,June 30, 1997 and 1996 are unaudited, but
in the opinion of the Corporation include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the results
for the interim periods.
Certain reclassifications have been made to prior year amounts to conform to
the current year presentation.
Beginning January 1, 1997, international operating subsidiaries which had
generally been included in the Condensed Consolidated Financial Statements based
on fiscal years ending November 30, are now included based on fiscal years
ending December 31. The change, which primarily affected the commercial and
industrial businesses, was made to present the results of these operations on a
more timely basis. December 1996 results from these international
subsidiaries, which were not significant, are included in retained earnings. As
a result of this change, the pattern of 1997 quarterly results will differ from
the past due in part to seasonality in some business segments. If this change
had been made effective January 1, 1996, the estimated impact would have been an
increase inon quarter ended
June 30, 1996 first quarterand full year earnings per share of $.10, with no significant
impact on the full year.would not have been significant.
In February of 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share." The
Corporation will adopt this standard, as required, at the end of this year. Had
this standard been adopted inat the first quarterbeginning of 1997, the Corporation would have
reported basic earnings per share of $.91.$1.26 and $2.17 for the second quarter and
six-month period, respectively.
Contingent Liabilities
While there has been no significant change in the Corporation's material
contingencies during 1997, the matters previously described in Note 14 of the
Notes to Consolidated Financial Statements in the Corporation's Annual Report on
Form 10-K for calendar year 1996 are summarized below.
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.
It is the Corporation's policy to accrue, in accordance with AICPA Statement
of Position 96-1, environmental investigatory and remediation costs when it is
probable that a liability has been incurred by the Corporation for known sites
and the amount of loss can be reasonably estimated. Where no amount within a
range of estimates is more likely, the minimum is accrued. Otherwise, the most
likely cost to be incurred is accrued. The measurement of the liability is
based on an evaluation of currently available facts with respect to each
individual site and takes into account factors such as existing technology,
presently enacted laws and regulations, and prior experience in remediation of
contaminated sites.
Where the Corporation is not the only party responsible for the remediation
of a site, the Corporation considers its likely proportionate share of the
anticipated remediation expense in establishing a provision for those costs.
56
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
Included within the sites known to the Corporation are those sites at which the
Corporation has been identified as a potentially responsible party under the
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"
or Superfund). Under the provisions of this statute, the Corporation may be
held liable for all costs of environmental remediation without regard to the
legality of the Corporation's actions resulting in the contamination. In
estimating its liability for remediation, the Corporation considers its likely
proportionate share of the anticipated remediation expense and the ability of
the other potentially responsible parties to fulfill their obligations.
Some of the Corporation's liabilities, including certain Superfund
liabilities, relate to facilities that were acquired by the Corporation with
indemnities from the sellers or former owners. In estimating the potential
liability at these sites, the Corporation has considered the indemnification
separately from the liability.
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.
Environmental liabilities are not reduced by potential insurance reimbursements.
U.S. Government
The Corporation is now and believes that, in light of the current government
contracting environment, it will be the subject of one or more government
investigations. If the Corporation or one of its business units were charged
with wrongdoing as a result of any of these investigations, the Corporation or
one of its business units could be suspended from bidding on or receiving awards
of new government contracts pending the completion of legal proceedings. If
convicted or found liable, the Corporation could be fined and debarred from new
government contracting for a period generally not to exceed three years. Any
contracts found to be tainted by fraud could be voided by the Government.
The Corporation's contracts with the U.S. Government are also subject to
audits. Like many defense contractors, the Corporation has received audit
reports which recommend that certain contract prices should be reduced to comply
with various government regulations. Some of these audit reports involve
substantial amounts. The Corporation has made voluntary refunds in those cases
it believes appropriate.
Other
The Corporation extends performance and operating cost guarantees, which are
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 its liability for environmental investigation and
remediation, performance guarantees, product liability, and other litigation and
claims based on management's estimate of the probable outcome of these matters.
67
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
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 adverse effect upon either results of operations, cash
flows, or financial position of the Corporation.
78
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
With respect to the unaudited condensed consolidated financial information of
United Technologies Corporation for the quarters and six-month periods ended
March 31,June 30, 1997 and 1996, Price Waterhouse LLP ("Price Waterhouse") reported that
they have applied limited procedures in accordance with professional standards
for a review of such information. However, their separate report dated AprilJuly 23,
1997 appearing below, states that they did not audit and they do not express an
opinion on that unaudited condensed consolidated financial information. Price
Waterhouse 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.
Price Waterhouse is not subject to the liability provisions of section 11 of the
Securities Act of 1933 ("the Act") for their report on the unaudited condensed
consolidated financial information because that report is not a "report" or a
"part" of the registration statement prepared or certified by Price Waterhouse
within the meaning of sections 7 and 11 of the Act.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of DirectorsShareowners of
United Technologies Corporation
We have reviewed the accompanying condensed consolidated statement of
operations of United Technologies Corporation and consolidated subsidiaries for
the quarters and six months ended March 31,June 30, 1997 and 1996, the condensed
consolidated statement of cash flows for the quarterssix months ended March 31,June 30, 1997 and
1996, and the condensed consolidated balance sheet as of March 31,June 30, 1997. This
financial information is the responsibility of the company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial information for it to be in
conformity with generally accepted accounting principles.
We previously audited in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1996, and the
related consolidated statements of operations and cash flows for the year then
ended (not presented herein), and in our report dated January 23, 1997 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, 1996, is fairly stated in all
material respects in relation to the consolidated balance sheet from which it
has been derived.
Price Waterhouse LLP
Hartford, Connecticut
AprilJuly 23, 1997
89
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL POSITION
BUSINESS ENVIRONMENT
The Corporation's Otis, Carrier and UT Automotive subsidiaries serve
customers in the commercial property, residential housing and automotive
businesses. Additionally, the Corporation's Pratt & Whitney, Sikorsky and
Hamilton Standard businesses serve commercial and government customers in the
aerospace industry. As world-wide businesses, these operations are affected by
global as well as regional economic factors.
U.S. residential housing starts decreased in the first1997 second quarter of 1997and six-
month period compared to the same periodperiods in 1996, while commercial construction
starts in the U.S. improved over the same periodperiods in 1996. U.S. commercial
vacancy rates continue to improve.
North American car and light truck production was higherlower in the first1997 second
quarter of 1997 asbut was higher for the six-month period compared to the first quarter of 1996 periods,
while European car sales were flat compared tohigher in both the firstsecond quarter and six-month
period of 1996.1997.
Worldwide airline profits continue to improve as a result of increased load
factors and lower costs. Strong traffic growth continues to drive new aircraft
orders from the U.S. and Asia Pacific regions, while European airline financial
resources remain constrained in the near term by increasing competition, higher
cost structures and privatization.
The defense portion of the Corporation's aerospace businesses continues to
respond to a changing global political environment. The U.S. defense industry
continues to downsize and consolidate in response to continued pressure on U.S.
defense spending. As a result, the Corporation has continued to reduce its
reliance on U.S. defense contracts.
The Corporation continues to reduce manufacturing costs and floor space to
remain competitive.
910
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
RESULTS OF OPERATIONS
Consolidated revenues and margin percentages were as follows:
Quarter Ended March 31,Six Months Ended
June 30, June 30,
In Millions of Dollars 1997 1996 1997 1996
Product sales $ 4,6455,146 $ 4,1594,773 $ 9,791 $ 8,932
Service sales 1,241 1,1891,286 1,229 2,527 2,418
Financing revenues and
other income, net 48 4451 41 99 85
Product margin % 19.1% 18.8%20.7% 20.0% 19.9% 19.4%
Service margin % 37.5% 38.7%37.2% 39.8% 37.4% 39.2%
Consolidated revenues for the firstsecond quarter and six-month period of 1997
were 10%7% and 9% higher than the respective reported first quarterperiods of 1996 with all segments, excluding Automotive,
reporting increases.1996. The 1997
firstsecond quarter increase wasand six-month period increases were primarily driven by Pratt &
Whitney and Flight Systems. Foreign currency translation, which reduced 1997
revenues in the second quarter and six-month period by 2% essentially, more than offset the
impact of the change in reporting period described in the Notes to Condensed
Consolidated Financial Statements.
Product margin as a percentage of sales increased three-tenthsseven tenths and five
tenths of a percentage point in the firstsecond quarter and six-month period of 1997,
compared to the first quartersame periods of 1996.1996, primarily as a result of improved margins
at Otis and Flight Systems partially offset by declines at Pratt & Whitney and
Automotive during the six-month period. Service margins as a percentage of
sales decreased 1.22.6 and 1.8 percentage points in the firstsecond quarter and six-
month period of 1997, compared to the first quartersame periods of 1996, withprincipally due to
declines at Otis Carrier,and Pratt & Whitney and Flight Systems experiencing declines.Whitney.
Research and development expenses increased $21$42 million (8%(15%) and $63 million
(12%) in the firstsecond quarter and six-month period of 1997 compared to 1996, with
higher expenses in allmost segments, but principally Pratt & Whitney. As a
percentage of sales, research and development was 4.6%4.9% and 4.8% in the firstsecond
quarter and six-month period of 1997 compared to 4.7%4.6% in both the firstsecond quarter
and six-month period of 1996. Research and development expenses in 1997 are
expected to increase from 1996, but should remain between 4% and 5% of sales.
Selling, general and administrative expenses in the firstsecond quarter and six-
month period of 1997 increased $19$18 million (3%) and $37 million (3%),
respectively, over the first quartersame periods of 1996 due to higher expenses in most segments.at Carrier,
Automotive and Flight Systems. However, these expenses decreased as a
percentage of sales, to 11.9%11.3% and 11.6% in the firstsecond quarter and six-month
period of 1997 from 12.8%11.8% and 12.3% in the first quartersame periods of 1996.1996, due to
decreases at Otis, Pratt & Whitney and Flight Systems.
Interest expense decreased $10$7 million and $17 million in the firstsecond quarter
and six-month period of 1997 to $48
million.$49 million and $97 million, respectively. This
decrease is mainly due to a reduced average borrowing level during the first quartersix
months compared to last year as the Corporation continuescontinued to retire or extinguish debt.reduce its
borrowings. 11
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
The effective tax rate for the first quartersix-month period of 1997 was 33%32.5%, compared
to an effective tax rate of 33.8% for the first quartersix-month period of 1996. The
Corporation has continued to reduce its effective income tax rate by
implementing tax reduction strategies. 10
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
Revenues and operating profits of the Corporation's principal business
segments for the quarters and six-month periods ended March 31,June 30, 1997 and 1996 are
as follows (in millions of dollars):
Operating
Revenues Operating Profits Profit Margin
1997 1996 1997 1996 1997 1996
Quarter Ended March 31,June 30,
Otis $ 1,3681,397 $ 1,3031,401 $ 131133 $ 117 9.6% 9.0%129 9.5% 9.2%
Carrier 1,387 1,325 70 55 5.0%1,691 1,634 167 155 9.9% 9.5%
Automotive 782 861 33 51 4.2% Automotive 741 744 31 50 4.2% 6.7%5.9%
Pratt & Whitney 1,719 1,416 182 140 10.6% 9.9%1,944 1,533 210 160 10.8% 10.4%
Flight Systems 751 638 69 49 9.2%702 646 68 61 9.7% 9.4%
Six Months Ended June
30,
Otis $ 2,765 $ 2,704 $ 264 $ 246 9.5% 9.1%
Carrier 3,078 2,959 237 210 7.7% 7.1%
Automotive 1,523 1,605 64 101 4.2% 6.3%
Pratt & Whitney 3,663 2,949 392 300 10.7% 10.2%
Flight Systems 1,453 1,284 137 110 9.4% 8.6%
Otis segment revenues for the firstsecond quarter and six-month period of 1997
were 5%flat and 2% higher than the respective reported first quarterperiods of 1996. Foreign
currency translation reduced 1997 revenues by 5% and 6%. for the second quarter
and six-month period of 1997. The increase in 1997 revenues was due to
increases in all geographic regions, including the impact of acquisitions made
in Europe during 1996 and1996. The second quarter increase was partially offset by the
impact of the change in the reporting period.
Operating profits at Otis increased $14$4 million (12%(3%) and $18 million (7%) in
the firstsecond quarter and six-month period of 1997 compared to the respective
reported first quarterperiods of 1996 due to improvements at European, North American and
South American operationsoperations. The increase in 1997 compared to 1996.
Thethe second quarter was partially
offset by the impact of the change in the reporting period was largely offset by the effect of
foreignperiod. Foreign currency
translation which reduced 1997 operating profit by 9%.7% and 8% for the second quarter
and six-month period of 1997. In addition, the 1996 second quarter results
included a provision for the closure of a European manufacturing facility.
Carrier segment revenues for the firstsecond quarter and six-month period of 1997
were 5%3% and 4% higher compared to the reported firstsecond quarter and six-month
period of 1996. Foreign currency translation reduced 1997 revenues by 2%. for
the second quarter and six-month period of 1997. The increase in revenues
resulted from the change in the reporting period and acquisitions made primarilymostly in
Europe and Latin
America during 1996, partially offset by revenue declines in Europe due to slower
economic growth and unseasonably cool weather and in North America due to
softness in the largeunseasonably cool weather and a strike at a commercial chiller market, and lower revenues at
Carrier Transicold.products facility.
Operating profits at Carrier increased $15$12 million (27%(8%) and $27 million (13%)
in the firstsecond quarter and six-month period of 1997 compared to the reported first 12
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
second quarter and six-month period of 1996. Foreign currency translation
reduced 1997 operating profits by 4% and 3%. for the second quarter and six-month
period. The year to date 1997 increase was primarily due to profit improvement in North
America and the change in the reporting period. In addition, profits in
North America improved while decliningperiod, partially offset by declines at
European and Carrier Transicold operations.
Automotive segment revenues for the firstsecond quarter and six-month period of
1997 were essentially
flatdecreased 9% and 5% compared to the reported firstsecond quarter and six-month
period of 1996. Foreign currency translation reduced 1997 revenues by 3%. The impact of for
the changesecond quarter and six-month period. 1997 was impacted by revenue declines
in the
reporting period was offset bymost businesses, in part due to customer plant strikes, and the reduction in
revenues resulting from the fourth quarter 1996 sale of the Steering Wheels
business.
Reported operating profits at the Automotive segment decreased $19$18 million
(38%(35%) and $37 million (37%) from the reported firstsecond quarter and six-month
period of 1996, reflecting continued performance issues at the Interiors
business and ongoinglower volumes, including the impact of strikes at customer pricing pressures.plants.
1997 was also impacted by domestic administrative workforce reductions and a
provision for a European plant closure. Foreign currency translation reduced
1997 operating profits by 6%. 11
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES8% and 7% for the second quarter and six-month period.
In addition, the 1996 second quarter included a provision related to
participation in the costs of a customer recall program.
Pratt & Whitney revenues increased 21%27% and 24% in the firstsecond quarter and six-
month period of 1997 compared to 1996. The 1997 increase reflects higher
volumes in both the after-market and new engine businesses.
Operating profits for Pratt & Whitney increased $42$50 million (30%(31%) and $92
million (31%) in the firstsecond quarter and six-month period of 1997 compared to the
first quarterrespective periods of 1996, reflecting continued productivity improvements, higherstrong after-market sales, and increased
military and commercial engine shipments,results partially
offset by higher research and development spending.
Flight Systems revenues increased 18%9% and 13% in the firstsecond quarter of 1997 compared
to 1996. 1997 benefited from an increase in helicopter shipments at Sikorsky
and increased revenues at Hamilton Standard.
Operating profits for Flight Systems increased $20 million (41%) in the first
quartersix-
month period of 1997 compared to 1996 as a result of increased helicopter shipmentsrevenues at
SikorskyHamilton Standard and Sikorsky.
Operating profits for Flight Systems increased $7 million (11%) and $27
million (25%) in the second quarter and six-month period of 1997 compared to
1996 as a result of continuing operating performance improvement at Hamilton
Standard.
1213
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
FINANCIAL POSITION AND LIQUIDITY
Management assesses the Corporation's liquidity in terms of its overall
ability to generate cash to fund its operating and investing activities.
Significant factors affecting the management of liquidity are cash flows
generated from operating activities, capital expenditures, customer financing
requirements, adequate bank lines of credit, and financial flexibility to
attract long-term capital on satisfactory terms.
Set forth below is selected key cash flow data:
QuarterSix Months Ended
March 31,June 30,
In Millions of Dollars 1997 1996
Operating Activities
Net Cash Flows from Operating Activities $ 5091,092 $ 3331,038
Investing Activities
Capital expenditures (161) (129)(350) (307)
Acquisitions of business units (46) (26)(101) (155)
Dispositions of business units 2635 30
Decrease in customer financing assets, net 28 10225 31
Financing Activities
Common Stock repurchase (145) (62)
Increase/(decrease)(302) (182)
Decrease in total debt (40) 11(52) (159)
Decrease in net debt (178) (177)(338) (334)
Cash flows from operating activities were $509$1,092 million during the first quartersix
months of 1997 compared to $333$1,038 million for the reported first quartersix months of
1996. The improvement resulted primarily from improved operating performance.
Cash flows from investing activities were a use of funds of $110$300 million
during the first quartersix months of 1997 compared to a use of $7$348 million in the
first quartersix months of 1996. Capital expenditures in the first quartersix-month period of 1997
were $161$350 million, a $32$43 million increase from the first quartercorresponding period of 1996.
The Corporation expects 1997 full year capital spending to be moderately higher
than 1996. Cash inflows from customer financing activities arewere lower in the
first quartersix-month period of 1997, compared to 1996. The 1996 decrease in customer financing assets includes
loan repayments and asset sales. While the Corporation expects that
changes in customer financing assets in 1997 will be a modest 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,June 30, 1997 waswere approximately $1.0$1 billion.
The Corporation repurchased $145$302 million of common stock, representing 2.04.1
million shares, in the first quartersix months of 1997 under previously announced stock
repurchase programs. Share repurchase continues to be a significant use of the
Corporation's strong cash flows and serves, in part, to offset the dilutive
effect resulting from the issuance of stock under stock-based employee benefit
programs.
1314
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
Other selected financial data is as follows:
March 31,June 30, December 31, March 31,June 30,
In Millions of Dollars 1997 1996 1996
Cash and cash equivalents $ 1,2651,413 $ 1,127 $ 1,0881,075
Total debt 1,7451,733 1,785 2,0521,882
Net debt (total debt less cash) 480320 658 964807
Shareowners' equity 4,2394,333 4,306 4,0734,143
Debt-to-total capitalization 29% 29% 34%31%
Net debt-to-total capitalization 10%7% 13% 19%16%
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. 14
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
SAFE HARBOR STATEMENT
This Report on Form 10-Q contains statements which, to the extent they are
not historical fact, constitute "forward looking statements" within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. All forward looking statements involve risks and
uncertainties. The forward looking statements in this document are intended to
be subject to the safe harbor protection provided by Sections 27A and 21E.
For a discussion identifying some important factors that could cause actual
results to vary materially from those anticipated in the forward looking
statements, such as the economic, political, climatic, currency, regulatory,
technological and competitive changes which may affect the Corporation's
operations, products, and markets, see the Corporation's Securities and Exchange
Commission filings, including, but not limited to, the Corporation's 1996 Annual
Report on Form 10-K. See particularly Form 10-K Item I - Business, the sections
entitled "Description of Business by Industry Segment" and "Other Matters
Relating to the Corporation's Business as a Whole," and Form 10-K Item 7 -
Management's Discussion and Analysis of Results of Operations and Financial
Position, which also may beincorporates by reference the information found at pages 22
through 27 of the Corporation's 1996 Annual Report to Shareowners.
15
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
Part II - Other Information
Item 1.1 - Legal Proceedings
As previously reported, the Department of Justice filed a civil False Claims Act
complaint against the Corporation in April 1995 in the United States District
Court for the Southern District of Florida, No. 95-8251, alleging misuse of $10
million of foreign military financing funds. The Complaint sought treble
damages plus a $10,000 penalty for each false claim submitted. In May 1997, the
Corporation settled this matter with the Department of Justice for $14.8
million.
As previously reported, a jury in Chromalloy Gas Turbine Corporation v. United
Technologies Corporation, No. 95-CI-12541, a Texas state action, found in
November 1996 that Pratt & Whitney did not monopolize any relevant market but
did willfully attempt to monopolize an unspecified market. The jury found that
Chromalloy suffered neither monetary damage nor irreparable injury. The court
has rejectedIn May 1997, the
Court entered a Final Judgment denying Chromalloy's request for damages,
injunctive relief and askeddeclaratory relief. Chromalloy has announced its
intention to appeal.
Also as previously reported, in June 1992, the parties to
provideDepartment of Justice filed a
civil False Claims Act complaint in the courtUnited 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. Trial in this matter began in July 1997.
In July 1997, the Corporation was served with a formqui tam complaint under the
civil False Claims Act that had been filed under seal in the United States
District Court for the District of judgment.Connecticut in June 1994 (No. 394CV00963).
The Complaint seeks treble damages and penalties arising out of an alleged
failure by Norden Systems, Inc. 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.
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. and the Corporation to account properly
for its 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.
The Corporation does not believe that resolution of any of the matters discussed
above will have a material adverse effect upon the Corporation's competitive
position, results of operations, cash flows, or financial position.
Other than the matter describedmatters discussed above, there hashave been no material changechanges in
legal proceedings during the firstsecond quarter of 1997. (For a description of
previously reported legal proceedings, refer to Part 1, Item 3 - Legal
Proceedings of the Corporation's Annual Report on Form 10K10-K for calendar year
1996.)1996 and to Part II, Item 6.1 - Legal Proceedings of the Corporation's Report on
Form 10-Q for the first quarter of calendar year 1997). 16
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
Item 4 - Submission of Matters to a Vote of Security Holders
(a) The Corporation held its Annual Meeting of Shareowners on April 29, 1997.
(b) The following individuals were nominated and elected to serve as directors:
Howard H. Baker, Jr., Antonia H. Chayes, George David, 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, Harold A. Wagner, and
Jacqueline G. Wexler.
(c) The Shareowners voted as follows on the following matters:
1. Election of directors. The voting result for each nominee is as
follows:
NAME VOTES FOR VOTES WITHHELD
Howard H. Baker, Jr. 219,857,441 5,621,936
Antonia Handler Chayes 224,444,968 1,034,409
George David 224,474,175 1,005,202
Charles W. Duncan, Jr. 224,441,512 1,037,865
Jean-Pierre Garnier 224,425,760 1,053,617
Pehr G. Gyllenhammar 219,872,987 5,606,390
Karl J. Krapek 224,365,347 1,114,030
Charles R. Lee 224,540,679 938,698
Robert H. Malott 224,440,562 1,038,815
William J. Perry 224,405,605 1,073,772
Frank P. Popoff 224,517,432 961,945
Harold A. Wagner 224,521,496 957,881
Jacqueline G. Wexler 224,401,326 1,078,051
2. A management proposal to amend the Corporation's Restated Certificate
of Incorporation to increase the number of authorized shares of common stock and
reduce the par value of common stock was approved by a count of 195,650,812
votes for, 28,902,001 votes against, and 926,654 votes abstaining.
3. The reappointment of the Corporation's independent public accountants
was approved by a count of 224,454,131 votes for, 408,518 votes against, and
616,728 votes abstaining.
4. A shareowner proposal recommending that the Corporation provide to
shareowners a list of all executives contractually entitled to receive a base
salary in excess of $100,000 annually was rejected by a count of 8,433,122 votes
for, 197,427,819 votes against, with 3,023,009 votes abstaining, and 16,595,427
broker non-votes. 17
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits:
(3)(i) Restated Articles of Incorporation, effective June 12, 1997.
(11) ComputationStatement re computation of per share earningsearnings.
(12) ComputationStatement re computation of ratio of earnings to fixed chargescharges.
(15) Letter re unaudited interim financial informationinformation.
(b) No reportsReports on Form 8-K were filed during the quarter
ended March 31,June 30, 1997.
1618
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 25,July 28, 1997 By: /s/ STEPHENStephen F. PAGEPage
Stephen F. Page
Executive Vice President and
Chief Financial Officer
Dated: April 25,July 28, 1997 By: /s/ JAYJay L. HABERLANDHaberland
Jay L. Haberland
Vice President and Controller
Dated: April 25,July 28, 1997 By: /s/ WILLIAMWilliam H. TRACHSELTrachsel
William H. Trachsel
Vice President and Secretary
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit 3(i) - Restated Articles of Incorporation, effective June 12, 1997
(submitted electronically herewith)
Exhibit 11 - ComputationStatement re computation of per share earnings
Exhibit 12 - ComputationStatement 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)