EXHIBIT 13
Five Year Summary
IN MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS 2000 1999 1998 1997 1996
- ------------------------------------------------------- -------- ------------------------------------------
For the year
Revenues $ 26,583 $ 24,127 $ 22,809 $ 21,288 $ 19,872
Research and development 1,302 1,292 1,168 1,069 1,014
Income from continuing operations 1,808 841 1,157 962 788
Net income 1,808 1,531 1,255 1,072 906
Earnings per share:
Basic:
Continuing operations 3.78 1.74 2.47 1.98 1.57
Net earnings 3.78 3.22 2.68 2.22 1.81
Diluted:
Continuing operations 3.55 1.65 2.33 1.89 1.51
Net earnings 3.55 3.01 2.53 2.10 1.74
Cash dividends per common share .825 .76 .695 .62 .55
Average number of shares of Common Stock outstanding:
Basic 470.1 465.6 455.5 468.9 482.9
Diluted 508.0 506.7 494.8 507.1 517.2
Return on average common shareowners' equity, after tax 24.4% 24.6% 28.6% 24.5% 21.1%
Operating cash flows 2,503 2,310 2,314 1,903 1,886
Acquisitions, including debt assumed 1,340 6,268 1,237 605 335
Share repurchase 800 822 650 849 459
At year end
Working capital, continuing operations $ 1,318 $ 1,412 $ 1,359 $ 1,712 $ 2,168
Total assets 25,364 24,366 17,768 15,697 15,566
Long-term debt, including current portion 3,772 3,419 1,669 1,389 1,506
Total debt 4,811 4,321 2,173 1,567 1,709
Debt to total capitalization 39% 38% 33% 28% 28%
ESOP Preferred Stock, net 432 449 456 450 434
Shareowners' equity 7,662 7,117 4,378 4,073 4,306
- ------------------------------------------------------- -------- ------------------------------------------
Number of employees - continuing operations 153,800 148,300 134,400 130,400 123,800
- ------------------------------------------------------- -------- ------------------------------------------
UNITED TECHNOLOGIES 1
Management's Discussion and Analysis
> Management's Discussion and Analysis of Results of
Operations and Financial Position
The Corporation's operations are classified into four principal operating
segments: Otis, Carrier, Pratt & Whitney and Flight Systems. Otis and Carrier
serve customers in the commercial and residential property industries. Carrier
also serves commercial and transport refrigeration customers. Pratt & Whitney
and the Flight Systems segment, which includes Sikorsky Aircraft ("Sikorsky")
and Hamilton Sundstrand, primarily serve commercial and government customers in
the aerospace industry. The Corporation's segment operating results are
discussed in the Segment Review and Note 15 of the Notes to Consolidated
Financial Statements.
> Business Environment
As worldwide businesses, the Corporation's operations are affected by regional
and industry economic factors. However, the Corporation's geographic and
industry diversity has helped limit the impact of any one industry or the
economy of any single country on the consolidated results.
Revenues from outside the U.S., including U.S. export sales, in dollars and as
a percentage of total segment revenues, are as follows:
IN MILLIONS OF DOLLARS 2000 1999 1998 2000 1999 1998
- ------------------------- ------- ------- ------- ---- ---- ----
Europe $ 4,413 $ 4,433 $ 4,252 17% 18% 18%
Asia Pacific 3,319 2,615 2,487 12% 11% 11%
Other foreign 2,820 2,472 2,517 11% 10% 11%
U.S. Exports 4,134 3,642 4,097 15% 15% 17%
- ------------------------- ------- ------- ------- ---- ---- ----
International
Segment Revenues $14,686 $13,162 $13,353 55% 54% 57%
- ------------------------- ------- ------- ------- ---- ---- ----
The economic recovery in the Asia Pacific region continued during 2000,
however, the recovery has varied by industry. In particular, growth in the
construction and related industries proceeded at a slower pace than overall
growth in the region. Vacancy rates generally remain high and it may take
several years for the market to absorb the excess space. Although substantial
projects have recently been initiated, overall construction spending in the
region remains below the levels experienced immediately before the 1997 economic
downturn. Management believes that the long-term economic growth prospects of
the region remain intact and, consequently, the Corporation's Asia Pacific
investment strategy continues to focus on the long-term infrastructure
requirements of the region.
As part of its globalization strategy, the Corporation has invested in
businesses in other countries, including the People's Republic of China, Russia,
Brazil and South Korea, which carry higher levels of currency, political and
economic risk. At December 31, 2000, the Corporation's net investment in any one
of these countries was less than 5% of consolidated equity.
During 2000, the decline in the euro had a negative impact on the
translation of euro-denominated operating results into U.S. dollars.
OTIS is the world's largest elevator and escalator manufacturing and service
company. It serves an international customer base, principally in commercial
real estate. In 2000, 77% of its revenues were generated outside the U.S. Otis'
results can be impacted by various economic factors, including fluctuations in
commercial construction (which can affect new equipment installations), labor
costs (which can impact service and maintenance margins on installed elevators
and escalators), interest rates and foreign currency exchange rates.
During 2000, U.S. office building construction starts continued to
gradually decline from their 1998 peak, but remained at high levels. In response
to tight market conditions and the resulting demand for space, construction
order activity remained strong but showed some signs of slowing. National office
vacancy rates remained low, but increased slightly as market conditions eased.
CARRIER is the world's largest manufacturer of commercial and residential
heating, ventilating and air conditioning ("HVAC") systems and equipment.
Carrier is also a leading producer of commercial and transport refrigeration
equipment and provides aftermarket service and components for both the HVAC and
refrigeration industries. During 2000, 48% of Carrier's revenues were generated
outside the U.S. and by U.S. exports. Carrier's results can be impacted by a
number of external factors, including commercial and residential construction
activity, production and utilization of transport equipment, weather conditions,
fuel prices, interest rates and foreign currency exchange rates.
During 2000, a cooler summer selling season in many regions of the U.S.
adversely impacted North American residential operations during a portion of the
year. U.S. residential housing and commercial construction starts decreased
slightly in 2000 compared to 1999. Higher fuel prices and interest rates
contributed to a weakness in the North American truck/trailer transport
refrigeration market during 2000 that is expected to continue into 2001.
PRATT & WHITNEY and the FLIGHT SYSTEMS segments comprise the Corporation's
aerospace businesses and produce commercial and government aerospace and defense
products. The financial performance of those segments is directly tied to the
aviation and defense industries. Traffic growth, load factors, worldwide airline
profits and general economic activity have been reliable indicators for new
aircraft and aftermarket orders. Spare part sales and aftermarket service trends
can be impacted by many factors, including usage, pricing, regulatory changes
and retirement of older aircraft. Growth in the general aviation sector has been
closely tied to the overall health of the economy and is positively correlated
to corporate profits.
During 2000, traffic growth and load factors increased. Airlines discussed
potential consolidation as worldwide airline profits decreased, in part due to
rising fuel costs and labor issues. Aircraft manufacturers and airlines
continued to reduce supplier bases and seek lower cost packages. Backlog in the
general aviation and corporate sectors continued to grow. Future growth in those
sectors is expected to slow.
The defense portion of the Corporation's aerospace businesses continues to
respond to a changing global political environment. The U.S. and European
defense industries continue to reduce costs and consolidate in response to
continued pressure on U.S. and global defense spending. Customers have ongoing
efforts to review and reprioritize research and procurement initiatives and
foreign
2 UNITED TECHNOLOGIES
military programs have been delayed. During 2000, the Corporation's total sales
to the U.S. Government were $2,875 million or 11% of total sales, compared with
$3,342 million or 14% of total sales in 1999 and $3,264 million or 14% of total
sales in 1998.
PRATT & WHITNEY is a major supplier of commercial, general aviation and military
aircraft engines, along with spare parts, product support and a full range of
aftermarket and fleet management services. Pratt & Whitney is responding to
market pressures by diversifying its product base for large commercial engines
from the wide-bodied aircraft market to include engines designed specifically
for the narrow-bodied aircraft market. In addition, the aftermarket business is
being impacted by technological improvements to newer generation engines that
increase reliability and by increased competition. In response, Pratt & Whitney
continues to enhance its aftermarket business through acquisitions and
repositioning actions aimed at improving efficiency.
Pratt & Whitney continues to provide engines and aftermarket products and
services to both U.S. and foreign governments. Pratt & Whitney's engines have
been selected to power the Air Force's F22 fighter aircraft and demonstration
aircraft of the Joint Strike Fighter program. The Joint Strike Fighter program
is intended to lead to the development of a single aircraft, with configurations
for conventional and short take off and landing, for the U.S. Navy, Air Force
and Marine Corps and the United Kingdom Royal Navy.
FLIGHT SYSTEMS SEGMENT provides global products and service through Hamilton
Sundstrand and Sikorsky. Hamilton Sundstrand provides aerospace and industrial
products and aftermarket services for diversified industries. Aerospace products
include aircraft power generation management and distribution systems, and
environmental, flight and fuel control systems. Hamilton Sundstrand has been
responding to industry pressures by focusing on the development of new product
and service offerings, acquisitions and actions aimed at improving efficiency.
Sikorsky manufactures commercial and military helicopters, and provides
aftermarket products and services. It has responded to continued overcapacity
among helicopter manufacturers by improving its cost structure, expanding the
capabilities of its existing products and developing new product and service
offerings. Sikorsky is leading an international team in developing the S-92, a
large cabin derivative of the Black Hawk. In its government business, Sikorsky
will continue to supply Black Hawk helicopters and derivatives thereof to the
U.S. and foreign governments extending into 2004. A Sikorsky-Boeing joint
venture is also under contract with the U.S. Army to develop the RAH-66
Comanche, thirteen of which are contracted for delivery in 2004-2005 under the
current phase of the program.
> Results of Continuing Operations
In Millions of Dollars 2000 1999 1998
- ---------------------------------------- ------- ----------------
Sales $26,206 $23,844 $22,787
Financing revenues and other income, net 377 283 22
- ---------------------------------------- ------- ----------------
Revenues $26,583 $24,127 $22,809
- ---------------------------------------- ------- ----------------
Consolidated revenues increased 10% in 2000 and 6% in 1999. Excluding the
unfavorable impact of foreign currency translation, consolidated revenues
increased by 13% in 2000 and 7% in 1999. Revenue growth in 2000 reflects the
impact of acquisitions as well as growth at Otis and Carrier. The 1999 increase
was primarily due to revenue increases at Carrier and Otis and the acquisition
of Sundstrand Corporation ("Sundstrand") in the Flight Systems segment. The
increases in both years more than offset decreases at Pratt & Whitney.
Financing revenues and other income, net, increased $94 million and $261
million in 2000 and 1999. Included in 2000 is interest income on prior period
income tax credits resulting from an industry related court decision. Included
in 1998 were costs associated with Pratt & Whitney's repurchases of participant
interests in commercial engine programs, partially offset by the favorable
settlement of a contract dispute with the U.S. Government.
IN MILLIONS OF DOLLARS 2000 1999 1998
- ---------------------------------------- ------- ----------------
Cost of sales $18,970 $18,185 $16,897
Gross margin percent 27.6% 23.7% 25.8%
- ---------------------------------------- ------- ----------------
Gross margin as a percentage of sales increased 3.9 percentage points in
2000 and decreased 2.1 percentage points in 1999 due primarily to restructuring
and other charges of $865 million recorded in cost of sales in 1999. Modest
benefits in 2000 resulted from restructuring savings that were offset by costs
not originally accruable.
IN MILLIONS OF DOLLARS 2000 1999 1998
- ---------------------------------------- ------- ----------------
Research and development $1,302 $1,292 $1,168
Percent of sales 5.0% 5.4% 5.1%
- ---------------------------------------- ------- ----------------
Research and development spending increased $10 million (1%) in 2000 and
$124 million (11%) in 1999 primarily due to the inclusion of the operations of
Sundstrand in the Flight Systems segment beginning in the second quarter of
1999. The 1999 increase also included costs related to product development and
aircraft systems integration at Pratt & Whitney. Both years include the
Corporation's continued funding of research and development at its fuel cell
unit, with increased funding in 2000. Total research and development expenses
are expected to remain at approximately 5% of sales in 2001.
IN MILLIONS OF DOLLARS 2000 1999 1998
- ---------------------------------------- ------- ----------------
Selling, general and administrative $3,171 $3,133 $2,737
Percent of sales 12.1% 13.1% 12.0%
- ---------------------------------------- ------- ----------------
Selling, general and administrative expenses as a percentage of sales
decreased 1 percentage point in 2000 and increased 1.1 percentage points in 1999
primarily due to 1999 restructuring and other charges of $151 million. The
decrease in 2000 also reflects cost reductions resulting from restructuring
actions, partially offset by the impact of acquisitions.
IN MILLIONS OF DOLLARS 2000 1999 1998
- ---------------------------------------- ------- ----------------
Interest expense $382 $260 $197
- ---------------------------------------- ------- ----------------
UNITED TECHNOLOGIES 3
Interest expense increased 47% in 2000 and 32% in 1999 primarily related
to the impact of the issuance of $500 million of 7.125% notes in November 2000,
$325 million of 6.625% notes in November 1999, $1 billion of 6.4% notes in
September 1999 and $400 million of 6.5% notes in May 1999 and an increased level
of foreign borrowing, partially offset by debt repayments of $435 million in
2000 and $557 million in 1999. Interest expense is expected to increase in 2001
as a result of the full year impact of the 2000 debt issuances.
2000 1999 1998
- ---------------------------------------- ------- ----------------
Average interest rate:
Short-term borrowings 9.9% 8.7% 10.4%
Total debt 8.1% 7.7% 8.3%
- ---------------------------------------- ------- ----------------
The average interest rate for the year on short-term borrowings exceeded
that of total debt due to higher short-term borrowing rates in certain foreign
operations. The weighted-average interest rate applicable to debt outstanding at
December 31, 2000 was 7.6% for short-term borrowings and 7.5% for total debt.
2000 1999 1998
- ---------------------------------------- ------- ----------------
Effective income tax rate 30.9% 25.9% 31.4%
- ---------------------------------------- ------- ----------------
The 2000 effective tax rate includes the impact of two discrete items: the
revaluation of the Corporation's state deferred tax asset resulting from the
enactment of Connecticut tax law changes and the benefits of income tax credits
for prior periods associated with an industry related court decision. The
Internal Revenue Service is reviewing all of the Corporation's claims for prior
periods' benefits as part of the routine examination of the Corporation's income
tax returns and any additional impact on the Corporation's liability for income
taxes cannot presently be determined.
Excluding the discrete tax items in 2000 discussed above and the 1999
restructuring actions, the effective tax rate for 2000 decreased to 30.5% from
30.9% for 1999. The Corporation has continued to lower its effective tax rate by
implementing tax reduction strategies.
The future tax benefit arising from net deductible temporary differences
and tax carryforwards is $2,504 million. The net deductible temporary
differences relate to expenses recognized for financial reporting purposes which
will result in tax deductions over varying future periods. Management believes
that the Corporation's earnings during the periods when the temporary
differences become deductible will be sufficient to realize the related future
income tax benefits. While some tax credit and loss carryforwards have no
expiration date, certain foreign and state tax loss carryforwards arise in a
number of different tax jurisdictions with expiration dates beginning in 2001.
For those jurisdictions where the expiration date or the projected operating
results indicate that realization is not likely, a valuation allowance has been
provided.
For additional discussion of income taxes, see Note 9 of the Notes to
Consolidated Financial Statements.
> Business Acquisitions
During 2000, the Corporation invested $1,340 million, including debt assumed, in
the acquisition of more than 30 businesses. The largest acquisition was
Carrier's purchase of Specialty Equipment Companies, a North American based
company that designs, manufactures and markets a broad array of refrigeration
and food service products globally, for $708 million.
During 1999, the Corporation invested $6,268 million, including debt
assumed, in business acquisitions. That amount includes the acquisition of
Sundstrand for approximately $4.3 billion.
For additional discussion of 2000 acquisitions, see Liquidity and
Financing Commitments and Note 2 of the Notes to Consolidated Financial
Statements.
> Dispositions of Businesses
In May 1999, the Corporation sold its UT Automotive unit to Lear Corporation for
$2.3 billion, which resulted in an after-tax gain of $650 million. UT Automotive
results, through the date of disposition, appear as income from operations of
the discontinued UT Automotive unit in the Consolidated Statement of Operations.
> Restructuring and Other Costs
As described in Note 11 of the Notes to Consolidated Financial Statements, the
Corporation's operating segments initiated a variety of actions in 1999 aimed at
further strengthening their future profitability and competitive position. The
1999 actions totaled $1,120 million, before income taxes and minority interests,
and included accrued restructuring charges of $842 million, related charges of
$141 million that were not accruable when initiated, and charges associated with
product development and aircraft systems integration and non-product purchasing.
Those amounts were recorded at each of the Corporation's operating segments as
follows:
IN MILLIONS OF DOLLARS
- --------------------------------------------
Otis $ 186
Carrier 196
Pratt & Whitney 534
Flight Systems 161
Other 43
- ------------------------------------ ------
$1,120
- ------------------------------------ ------
In February 2000, a Federal District Court issued an injunction relative
to certain restructuring actions planned by Pratt & Whitney that would move work
from Connecticut to Arkansas, Texas and Oklahoma. After a subsequent ruling by
the Second Circuit Court of Appeals, the injunction remains in place until the
end of the Collective Bargaining Agreement in December 2001. The Corporation
does not believe that this resolution of the litigation will materially impact
the Corporation's restructuring program.
During 2000, the Corporation incurred and recognized $317 million of
additional costs that were not accruable or contemplated when the 1999 actions
were initiated. Those additional costs have been more than offset by savings
relating to this program and adjustments to the 1999 restructuring liability,
resulting in a modest benefit at the end of 2000. Net restructuring savings are
expected to increase in 2001. Recurring savings, associated primarily with a net
reduction in workforce and facility closures, are expected to increase over the
next two years to approximately $750 million pre-tax annually, primarily
benefitting cost of sales.
The Corporation had pre-tax cash outflows related to these programs of
$537 million, including $302 million of additional costs that were not accruable
or contemplated when the actions were initiated. The Corporation expects to
incur as much as $100 million in non-accruable costs in the next year associated
with finalization of the 1999 restructuring and other actions.
For additional discussion of restructuring, see Note 11 of the Notes to
Consolidated Financial Statements.
4 UNITED TECHNOLOGIES
> Segment Review
Revenues Operating Profits Operating Profit Margin
IN MILLIONS OF DOLLARS 2000 1999 1998 2000 1999 1998 2000 1999 1998
- -------------------------------- ------ -------------- ------- ------------ ------- --------------
Otis $6,153 $5,654 $5,572 $ 798 $493 $ 533 13.0% 8.7% 9.6%
Carrier 8,430 7,353 6,922 795 459 495 9.4% 6.2% 7.2%
Pratt & Whitney 7,366 7,674 7,876 1,200 634 1,024 16.3% 8.3% 13.0%
Flight Systems 4,992 3,810 2,891 614 247 287 12.3% 6.5% 9.9%
- -------------------------------- ------ -------------- ------- ------------ ------- --------------
Operating segment and geographic data of the Corporation's principal operating
segments include the results of all majority-owned subsidiaries, consistent with
the management of these businesses. For certain of these subsidiaries, minority
shareholders have rights which overcome the presumption of consolidation. In the
Corporation's consolidated results, these subsidiaries are accounted for using
the equity method of accounting.
> 2000 Compared to 1999
OTIS revenues increased $499 million (9%) in 2000. Excluding the unfavorable
impact of foreign currency translation, 2000 revenues increased 14%, reflecting
the impact of the acquisition of LG Industrial Systems' Building Facilities
Group in the fourth quarter of 1999 and increased sales in all regions, led by
North America where construction activity remained strong.
Otis operating profits increased $305 million (62%) in 2000 largely due to
restructuring charges of $186 million recorded during 1999. Excluding
restructuring charges and the unfavorable impact of foreign currency
translation, operating profits increased 27%, reflecting profit improvements in
all regions resulting from cost reduction actions as well as the impact of the
acquisition of LG Industrial Systems' Building Facilities Group.
CARRIER revenues increased $1,077 million (15%) in 2000. Excluding the
unfavorable impact of foreign currency translation, 2000 revenues increased 17%,
reflecting the impact of the acquisitions of International Comfort Products
("ICP") during the third quarter of 1999 and the commercial refrigeration
business of Electrolux AB early in 2000 as well as growth in the North American
commercial businesses. A decline in the North American truck/trailer transport
refrigeration operation associated with higher fuel prices and interest rates
partially offset the increase.
Carrier operating profits increased $336 million (73%) compared to 1999 in
part due to 1999 restructuring charges of $196 million. Excluding restructuring
charges and the unfavorable impact of foreign currency translation, operating
profits increased 24%. That increase is primarily due to the impact of the
acquisition of ICP and improved operating performance in the North American
commercial and residential HVAC businesses. The increase was partially offset by
a decrease in the North American truck/trailer transport refrigeration operation
associated with higher fuel prices and interest rates and by the transaction
impact of a weaker euro.
PRATT & WHITNEY revenues decreased $308 million (4%) in 2000. The decrease
was due primarily to fewer commercial and large military engine shipments and
lower revenues in government funded development programs, partially offset by
higher sales in the small engine business at Pratt & Whitney Canada.
Pratt & Whitney operating profits increased $566 million (89%) in 2000,
primarily due to 1999 restructuring and other charges of $534 million. Excluding
restructuring and other charges, operating profit increased 3%, reflecting
improved performance and lower costs in the commercial engine business,
favorable volume at Pratt & Whitney Canada and a slight increase in the
aftermarket businesses, due primarily to military spares. Those increases were
partially offset by lower military engine volume.
FLIGHT SYSTEMS revenues increased $1,182 million (31%) and operating profits
increased $367 million in 2000. Both increases are largely the result of
including the full year results of Sundstrand, acquired in the second quarter of
1999. Revenues also include growth at Sikorsky associated with increased
helicopter shipments. Operating profit also increased due to 1999 restructuring
and other charges of $161 million.
> 1999 Compared to 1998
OTIS revenues increased $82 million (1%) in 1999. Excluding the unfavorable
impact of foreign currency translation, 1999 revenues increased 3%, reflecting
increases in North American and European operations, partially offset by a
decrease in Asia Pacific operations.
Otis operating profits decreased $40 million (8%) in 1999. Excluding the
unfavorable impact of foreign currency translation, 1999 operating profits
decreased 6%, due primarily to 1999 restructuring and other charges of $186
million that were in excess of 1998 restructuring charges. Restructuring charges
were associated with facility consolidations and workforce reductions. The 1999
charges were partially offset by improved operating performance, particularly in
North American operations, which benefited from increased orders and an increase
in construction activity, and in Asia Pacific and European operations. Operating
profits suffered in Latin American operations, which continued to face pressure
from the devaluation of the Real in Brazil. Excluding restructuring in 1999 and
1998, operating profits increased.
CARRIER revenues increased $431 million (6%) in 1999. Excluding the unfavorable
impact of foreign currency translation, 1999 revenues increased 8%. The 1999
increase reflects the positive impact of acquisitions, as well as increases in
the North American, European and Refrigeration operations, partially offset by
declines in Asia Pacific and Latin American operations.
Carrier operating profits decreased $36 million (7%) in 1999. Excluding
the unfavorable impact of foreign currency translation, 1999 operating profits
decreased 1% due to 1999 restructuring and other charges of $196 million, which
surpassed those in 1998. The 1999 charges were partially offset by the impact of
acquisitions and increased operating performance in most segments, with
particularly strong performance in the North American, European and
Refrigeration operations. Restructuring charges related to worldwide facility
closures and workforce reductions. Excluding restructuring in 1999 and 1998,
operating profits increased.
UNITED TECHNOLOGIES 5
PRATT & WHITNEY revenues decreased $202 million (3%) in 1999. The decrease
reflects fewer military and commercial engine shipments and lower commercial
spare parts volumes, partially offset by increases in the commercial overhaul
and repair business, military aftermarket and Pratt & Whitney Canada. In
addition, the 1998 revenues included a favorable settlement of a contract
dispute with the U.S. Government and costs to repurchase interests from
participants in commercial engine programs.
Pratt & Whitney operating profits decreased $390 million (38%), primarily
reflecting 1999 restructuring and other charges of $534 million that exceeded
those in 1998. Lower military and commercial engine and commercial spare parts
volumes and the absence of a nonrecurring 1998 gain were partially offset by
higher overhaul and repair and military aftermarket volume, improved operating
profits at Pratt & Whitney Canada and the absence of 1998 costs to repurchase
interests from participants in commercial engine programs. The 1999
restructuring and other charges were associated with workforce reductions,
consolidation of facilities and costs associated with product development and
aircraft systems integration. The 1998 restructuring charges related to
workforce reductions in the U.S. and Canada.
FLIGHT SYSTEMS revenues increased $919 million (32%) in 1999, reflecting the
inclusion of Sundstrand's operations for the second half of 1999, partially
offset by the effects of fewer helicopter deliveries at Sikorsky.
Flight Systems operating profits decreased $40 million (14%) in 1999, due
primarily to 1999 restructuring and other charges of $161 million, which were in
excess of charges recorded in 1998, and fewer helicopter deliveries at Sikorsky.
Those items were partially offset by the inclusion of Sundstrand results for the
second half of 1999. The 1999 restructuring charges related to closing
facilities, consolidating functions, reducing workforce and rationalizing
customer support.
> Liquidity and Financing Commitments
IN MILLIONS OF DOLLARS 2000 1999
- ---------------------------------------- ------ ------
Cash and cash equivalents $ 748 $ 957
Total debt 4,811 4,321
Net debt (total debt less cash) 4,063 3,364
Shareowners' equity 7,662 7,117
Debt to total capitalization 39% 38%
Net debt to total capitalization 35% 32%
- ---------------------------------------- ------ ------
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,
acquisitions, dividends, Common Stock repurchases, adequate bank lines of credit
and the ability to attract long-term capital with satisfactory terms.
Net cash provided by operating activities in 2000 was $2,503 million
compared to $2,310 million in 1999. The increase resulted primarily from
improved operating performance, in part due to lower restructuring charges in
2000. Pre-tax cash outflows associated with the 1999 restructuring and other
actions, including costs not accruable or contemplated when the actions were
initiated, were $537 million in 2000 and $366 million in 1999.
Cash used in investing activities was $2,101 million in 2000 compared to
$4,411 million in 1999. The most significant component of investing cash flows
related to business acquisitions. In 2000, the Corporation invested $1,340
million in the acquisition of businesses, consisting of $1,168 million of cash
and $172 million of assumed debt. The most significant acquisition was Carrier's
acquisition of Specialty Equipment Companies for $601 million of cash and $107
million of debt assumed. The Corporation invested $6.3 billion in the
acquisition of businesses in 1999, consisting of approximately $3.5 billion of
cash, $900 million of assumed debt and $1.9 billion of common stock issued from
Treasury. That amount includes the acquisition of Sundstrand for approximately
$4.3 billion. Capital expenditures increased $175 million to $937 million in
2000. The Corporation expects 2001 capital spending to remain comparable to
2000. Customer financing activities used cash of $40 million in 2000, compared
to $188 million in 1999, and reflect decreased demands for customer financing.
While the Corporation expects that customer financing will be a use of cash in
2001, actual funding is subject to usage under existing customer financing
requirements. At December 31, 2000, the Corporation had financing and rental
commitments of $1,218 million related to commercial aircraft, of which as much
as $268 million may be required to be disbursed in 2001. The Corporation may
also arrange for third-party investors to assume a portion of its commitments.
Refer to Note 4 of the Notes to Consolidated Financial Statements for additional
discussion of the Corporation's commercial airline industry assets and
commitments.
Financing cash outflows include the Corporation's repurchase of $800
million and $822 million of Common Stock during 2000 and 1999, representing 13.6
million and 13.2 million shares, under previously announced share repurchase
programs. Share repurchase continues to be a significant use of the
Corporation's strong cash flows and has more than offset the dilutive effect
resulting from the issuance of stock under stock-based employee benefit
programs. At December 31, 2000, 11.3 million shares remained available for
repurchase under the announced program.
As described in Note 2 of the Notes to Consolidated Financial Statements,
on May 4, 1999, the Corporation sold its UT Automotive unit to Lear Corporation.
The discontinued UT Automotive operation and its subsequent sale provided $2,159
million of cash in 1999.
At December 31, 2000, the Corporation had credit commitments from banks
totaling $1.5 billion under a Revolving Credit Agreement, which serves as a
back-up facility for issuance of commercial paper. At December 31, 2000, there
were no borrowings under the Revolving Credit Agreement. In addition, at
December 31, 2000, approximately $1.2 billion was available under short-term
lines of credit with local banks at the Corporation's various international
subsidiaries.
As described in Note 8 of the Notes to Consolidated Financial Statements,
the Corporation issued $500 million of notes in 2000 and $1,725 million in 1999.
The proceeds of those issuances were used to finance acquisitions, including
Specialty Equipment Companies in 2000 and Sundstrand in 1999, and for general
corporate purposes, including repurchases of the Corporation's Common Stock. At
December 31, 2000, up to $1 billion of additional medium-term and long-term debt
could be issued under a shelf registration statement on file with the Securities
and Exchange Commission.
The Corporation's shareowners' equity is impacted by a variety of factors,
including those items that are not reported in earnings but are reported
directly in equity, such as foreign currency translation, minimum pension
liability adjustments and unrealized holding
6 UNITED TECHNOLOGIES
gains and losses on available-for-sale securities. See the Consolidated
Statement of Changes in Shareowners' Equity for information on such
non-shareowners' changes.
The Corporation believes that existing sources of liquidity are adequate
to meet anticipated borrowing needs at comparable risk-based interest rates for
the foreseeable future. Although uncertainties in acquisition spending could
cause modest variations at times, management anticipates that the level of debt
to capital will remain generally consistent with recent levels. The anticipated
level of debt to capital is expected to be sufficient to satisfy the
Corporation's various cash flow requirements, including acquisition spending and
continued share repurchases.
> Market Risk and Risk Management
The Corporation is exposed to fluctuations in foreign currency exchange rates,
interest rates and commodity prices. To manage certain of those exposures, the
Corporation uses derivative instruments, including swaps, forward contracts and
options. Derivative instruments utilized by the Corporation in its hedging
activities are viewed as risk management tools, involve little complexity and
are not used for trading or speculative purposes. The Corporation diversifies
the counterparties used and monitors the concentration of risk to limit its
counterparty exposure.
The Corporation has evaluated its exposure to changes in foreign currency
exchange, interest rates and commodity prices in its market risk sensitive
instruments, which are primarily cash, debt and derivative instruments, using a
value at risk analysis. Based on a 95% confidence level and a one-day holding
period, at December 31, 2000, the potential loss in fair value of the
Corporation's market risk sensitive instruments was not material in relation to
the Corporation's financial position, results of operations or cash flows. The
Corporation's calculated value at risk exposure represents an estimate of
reasonably possible net losses based on historical market rates, volatilities
and correlations and is not necessarily indicative of actual results. Refer to
Notes 1, 12 and 13 of the Notes to Consolidated Financial Statements for
additional discussion of foreign exchange and financial instruments.
FOREIGN CURRENCY EXPOSURES. The Corporation has a large volume of foreign
currency exposures that result from its international sales, purchases,
investments, borrowings and other international transactions. International
segment revenues from continuing operations, including U.S. export sales,
averaged approximately $14 billion over the last three years. The Corporation
actively manages foreign currency exposures that are associated with committed
foreign currency purchases and sales and other assets and liabilities created in
the normal course of business at the operating unit level. Exposures that cannot
be naturally offset within an operating unit to an insignificant amount are
hedged with foreign currency derivatives. The Corporation also has a significant
amount of foreign currency net asset exposures. Currently, the Corporation does
not hold any derivative contracts that hedge its foreign currency net asset
exposures but may consider such strategies in the future.
The Corporation's cash position includes amounts denominated in foreign
currencies. The Corporation manages its worldwide cash requirements considering
available funds among its many subsidiaries and the cost effectiveness with
which these funds can be accessed. The repatriation of cash balances from
certain of the Corporation's subsidiaries could have adverse tax consequences.
However, those balances are generally available without legal restrictions to
fund ordinary business operations. The Corporation has and will continue to
transfer cash from those subsidiaries to the parent and to other international
subsidiaries when it is cost effective to do so.
INTEREST RATE EXPOSURES. The Corporation's long-term debt portfolio consists
mostly of fixed-rate instruments in order to minimize earnings volatility
related to interest expense. From time to time the Corporation issues commercial
paper, which exposes the Corporation to changes in interest rates. The
Corporation currently does not hold interest rate derivative contracts.
COMMODITY PRICE EXPOSURES. The Corporation is exposed to volatility in the
prices of raw materials used in some of its products and uses forward contracts
in limited circumstances to manage some of those exposures.
> Environmental Matters
The Corporation's operations are subject to environmental regulation by federal,
state and local authorities in the United States and regulatory authorities with
jurisdiction over its foreign operations. As a result, the Corporation has
established, and continually updates, policies relating to environmental
standards of performance for its operations worldwide. The Corporation believes
that expenditures necessary to comply with the present regulations governing
environmental protection will not have a material effect upon its competitive
position, financial position, results of operations or cash flows.
The Corporation has identified approximately 450 locations, mostly in the
United States, at which it may have some liability for remediating
contamination. The Corporation does not believe that any individual location's
exposure will have a material effect on the results of operations of the
Corporation. Sites in the investigation or remediation stage represent
approximately 98% of the Corporation's recorded liability. The remaining 2% of
the recorded liability consists of sites where the Corporation may have some
liability but investigation is in the initial stages or has not begun.
The Corporation has been identified as a potentially responsible party
under the Comprehensive Environmental Response Compensation and Liability Act
("CERCLA" or Superfund) at approximately 100 sites. The number of Superfund
sites, in and of itself, does not represent a relevant measure of liability
because the nature and extent of environmental concerns vary from site to site
and the Corporation's share of responsibility varies from sole responsibility to
very little responsibility. In estimating its liability for remediation, the
Corporation considers its likely proportionate share of the anticipated
remediation expense and the ability of other potentially responsible parties to
fulfill their obligations.
At December 31, 2000, the Corporation had $459 million reserved for
environmental remediation. Cash outflows for environmental remediation were $54
million in 2000, $36 million in 1999 and $36 million in 1998. The Corporation
estimates that ongoing environmental remediation expenditures in each of the
next two years will not exceed $65 million.
Additional discussion of the Corporation's environmental matters is
included in Notes 1 and 14 of the Notes to Consolidated Financial Statements.
UNITED TECHNOLOGIES 7
> U.S. Government
The Corporation's contracts with the U.S. Government are subject to audits. Like
many defense contractors, the Corporation has received audit reports which
recommend that certain contract prices should be reduced to comply with various
government regulations. Some of these audit reports involve substantial amounts.
The Corporation has made voluntary refunds in those cases it believes
appropriate.
> New Accounting Pronouncements
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended, is currently
effective January 1, 2001 for the Corporation. The standard requires that all
derivative instruments be recorded on the balance sheet at fair value. Gains and
losses on derivatives used to hedge foreign-currency-denominated balance sheet
items will be reported directly in earnings along with the offsetting
transaction gains and losses on the item being hedged. Derivatives used to hedge
forecasted cash flows associated with committed foreign currency transactions or
forecasted commodity purchases will be accounted for as cash flow hedges. Gains
and losses on derivatives designated as cash flow hedges will be recorded in
other comprehensive income. Those gains and losses will be reclassified to
earnings in a manner that matches the timing of the earnings impact of the
hedged transactions. The ineffective portion of all hedges will be recognized
currently in earnings.
Management believes adoption of this standard and related transition
adjustments will not have a material impact on the Corporation's consolidated
financial position, results of operations or cash flows.
> Euro Conversion
On January 1, 1999, the European Economic and Monetary Union entered a
three-year transition phase during which the euro was introduced as a common
currency in participating countries. The euro is currently used for wholesale
financial transactions and will replace the legacy currencies that will be
withdrawn between January 1, 2002 and July 1, 2002. The Corporation began
preparing for the euro in December 1996 and plans to complete its transition to
the euro by the end of 2001.
Based on its evaluation to date, management believes that the introduction
of the euro, including the total costs for the conversion, will not have a
material adverse impact on the Corporation's financial position, results of
operations or cash flows. However, uncertainty exists as to the effects the euro
will have on the marketplace and there is no guarantee that all issues will be
foreseen and corrected or that third parties will address the conversion
successfully.
> Cautionary Note Concerning Factors
That May Affect Future Results
This Annual Report contains statements which, to the extent they are not
statements of historical or present fact, constitute "forward-looking
statements" under the securities laws. From time to time, oral or written
forward-looking statements may also be included in other materials released to
the public. These forward-looking statements are intended to provide
management's current expectations or plans for the future operating and
financial performance of the Corporation, based on assumptions currently
believed to be valid. Forward-looking statements can be identified by the use of
words such as: "believe," "expect," "plans," "strategy," "prospects,"
"estimate," "project," "anticipate" and other words of similar meaning in
connection with a discussion of future operating or financial performance. These
include, among others, statements relating to:
o Future earnings and other measurements of financial performance
o Future cash flow and uses of cash
o The effect of economic downturns or growth in particular regions
o The effect of changes in the level of activity in particular industries
or markets
o The scope, nature or impact of acquisition activity
o Product developments and new business opportunities
o Restructuring costs and savings
o The outcome of contingencies
o The transition to the use of the euro as a currency.
All forward-looking statements involve risks and uncertainties that may
cause actual results to differ materially from those expressed or implied in the
forward-looking statements. For additional information identifying factors that
may cause actual results to vary materially from those stated in the
forward-looking statements, see the Corporation's reports on Forms 10-K, 10-Q
and 8-K filed with the Securities and Exchange Commission from time to time. The
Corporation's Annual Report on Form 10-K for 2000 includes important information
as to risk factors in the "Business" section under the headings "Description of
Business by Operating Segment" and "Other Matters Relating to the Corporation's
Business as a Whole."
8 UNITED TECHNOLOGIES
Management's Responsibility
for Financial Statements
The financial statements of United Technologies Corporation and its subsidiaries
are the responsibility of the Corporation's management and have been prepared in
accordance with generally accepted accounting principles.
Management is responsible for the integrity and objectivity of the
financial statements, including estimates and judgments reflected in them and
fulfills this responsibility primarily by establishing and maintaining
accounting systems and practices adequately supported by internal accounting
controls. These controls are designed to provide reasonable assurance that the
Corporation's assets are safeguarded, that transactions are executed in
accordance with management's authorizations and that the financial records are
reliable for the purpose of preparing financial statements. Self-monitoring
mechanisms are also a part of the control environment whereby, as deficiencies
are identified, corrective actions are taken. Even an effective internal control
system, no matter how well designed, has inherent limitations including the
possibility of the circumvention or overriding of controls and, therefore, can
provide only reasonable assurance with respect to financial statement
preparation and such safeguarding of assets. Further, because of changes in
conditions, internal control system effectiveness may vary over time.
The Corporation assessed its internal control system as of December 31,
2000. Based on this assessment, management believes the internal accounting
controls in use provide reasonable assurance that the Corporation's assets are
safeguarded, that transactions are executed in accordance with management's
authorizations, and that the financial records are reliable for the purpose of
preparing financial statements.
Independent accountants are appointed annually by the Corporation's
shareowners to audit the financial statements in accordance with generally
accepted auditing standards. Their report appears below. Their audits, as well
as those of the Corporation's internal audit department, include a review of
internal accounting controls and selective tests of transactions.
The Audit Committee of the Board of Directors, consisting of directors who
are not officers or employees of the Corporation, meets regularly with
management, the independent accountants and the internal auditors, to review
matters relating to financial reporting, internal accounting controls and
auditing.
/s/ George David
George David
Chairman and Chief Executive Officer
/s/ Karl Krapek
Karl Krapek
President and Chief Operating Officer
/s/ David J. FitzPatrick
David J. FitzPatrick
Senior Vice President,
Chief Financial Officer and Treasurer
Report of Independent Accountants
To the Shareowners of United Technologies Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of changes in shareowners' equity and of
cash flows present fairly, in all material respects, the financial position of
United Technologies Corporation and its subsidiaries at December 31, 2000 and
1999, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of the Corporation's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Hartford, Connecticut
January 18, 2001
UNITED TECHNOLOGIES 9
Consolidated Statement of Operations
IN MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS 2000 1999 1998
- -------------------------------------------------------------- ------- ----------------
Revenues
Product sales $20,174 $18,021 $17,348
Service sales 6,032 5,823 5,439
Financing revenues and other income, net 377 283 22
- -------------------------------------------------------------- ------- ------- -------
26,583 24,127 22,809
Costs and Expenses
Cost of products sold 15,227 14,500 13,436
Cost of services sold 3,743 3,685 3,461
Research and development 1,302 1,292 1,168
Selling, general and administrative 3,171 3,133 2,737
Interest 382 260 197
- -------------------------------------------------------------- ------- ------- -------
23,825 22,870 20,999
Income from continuing operations
before income taxes and minority interests 2,758 1,257 1,810
Income taxes 853 325 568
Minority interests in subsidiaries' earnings 97 91 85
- -------------------------------------------------------------- ------- ------- -------
Income from continuing operations 1,808 841 1,157
Discontinued operation:
Income from operations of discontinued UT Automotive
unit (net of applicable income tax provisions
of $28 and $55 in 1999 and 1998) -- 40 98
Gain on sale of UT Automotive unit (net of applicable income
tax provision of $112) -- 650 --
- -------------------------------------------------------------- ------- ------- -------
Net Income $ 1,808 $ 1,531 $ 1,255
- -------------------------------------------------------------- ------- ------- -------
Earnings per Share of Common Stock
Basic:
Continuing operations $ 3.78 $ 1.74 $ 2.47
Discontinued operation -- .08 .21
Gain on sale of discontinued operation -- 1.40 --
- -------------------------------------------------------------- ------- ------- -------
Net Earnings $ 3.78 $ 3.22 $ 2.68
- -------------------------------------------------------------- ------- ------- -------
Diluted:
Continuing operations $ 3.55 $ 1.65 $ 2.33
Discontinued operation -- .08 .20
Gain on sale of discontinued operation -- 1.28 --
- -------------------------------------------------------------- ------- ------- -------
Net Earnings $ 3.55 $ 3.01 $ 2.53
- -------------------------------------------------------------- ------- ----------------
See accompanying Notes to Consolidated Financial Statements
10 UNITED TECHNOLOGIES
Consolidated Balance Sheet
IN MILLIONS OF DOLLARS, EXCEPT PER SHARE (shares in thousands) 2000 1999
- ---------------------------------------------------------------------------------------------- ------- -------
Assets
Cash and cash equivalents $ 748 $ 957
Accounts receivable (net of allowance for doubtful accounts of $412 and $406) 4,445 4,337
Inventories and contracts in progress 3,756 3,504
Future income tax benefits 1,439 1,563
Other current assets 274 266
- ---------------------------------------------------------------------------------------------- ------- -------
Total Current Assets 10,662 10,627
Customer financing assets 550 553
Future income tax benefits 1,065 873
Fixed assets 4,487 4,460
Goodwill (net of accumulated amortization of $681 and $507) 6,771 5,641
Other assets 1,829 2,212
- ---------------------------------------------------------------------------------------------- ------- -------
Total Assets $25,364 $24,366
- ---------------------------------------------------------------------------------------------- ------- -------
Liabilities and Shareowners' Equity
Short-term borrowings $ 1,039 $ 902
Accounts payable 2,261 1,957
Accrued liabilities 5,748 6,023
Long-term debt currently due 296 333
- ---------------------------------------------------------------------------------------------- ------- -------
Total Current Liabilities 9,344 9,215
Long-term debt 3,476 3,086
Future pension and postretirement benefit obligations 1,636 1,601
Future income taxes payable 112 126
Other long-term liabilities 2,205 2,245
Commitments and contingent liabilities (Notes 4 and 14)
Minority interests in subsidiary companies 497 527
Series A ESOP Convertible Preferred Stock, $1 par value
Authorized-20,000 shares
Outstanding-11,642 and 12,237 shares 767 808
ESOP deferred compensation (335) (359)
- ---------------------------------------------------------------------------------------------- ------- -------
432 449
Shareowners' Equity:
Capital Stock:
Preferred Stock, $1 par value; Authorized-230,000 shares; None issued or outstanding -- --
Common Stock, $1 par value; Authorized-1,000,000 shares; Issued 597,213 and 588,737 shares 4,665 4,227
Treasury Stock-126,907 and 114,191 common shares at cost (3,955) (3,182)
Retained earnings 7,743 6,463
Accumulated other non-shareowners' changes in equity:
Foreign currency translation (747) (563)
Minimum pension liability (44) (41)
Unrealized holding gain on marketable equity securities -- 213
- ---------------------------------------------------------------------------------------------- ------- -------
(791) (391)
- ---------------------------------------------------------------------------------------------- ------- -------
Total Shareowners' Equity 7,662 7,117
- ---------------------------------------------------------------------------------------------- ------- -------
Total Liabilities and Shareowners' Equity $25,364 $24,366
- ---------------------------------------------------------------------------------------------- ------- -------
See accompanying Notes to Consolidated Financial Statements
UNITED TECHNOLOGIES 11
Consolidated Statement of Cash Flows
IN MILLIONS OF DOLLARS 2000 1999 1998
- ------------------------------------------------------------------------------ ------- -----------------
Operating Activities
Income from continuing operations $ 1,808 $ 841 $ 1,157
Adjustments to reconcile income from continuing operations
to net cash flows provided by operating activities:
Depreciation and amortization 859 819 730
Deferred income tax provision (benefit) 108 4 (264)
Minority interests in subsidiaries' earnings 97 91 85
Change in:
Accounts receivable (69) (256) 44
Inventories and contracts in progress (184) 331 (113)
Other current assets 19 (66) 213
Accounts payable and accrued liabilities (184) 595 135
Other, net 49 (49) 327
- ------------------------------------------------------------------------------ ------- ------- -------
Net Cash Provided by Operating Activities 2,503 2,310 2,314
Investing Activities
Capital expenditures (937) (762) (673)
Increase in customer financing assets (339) (383) (356)
Decrease in customer financing assets 299 195 143
Business acquisitions (1,168) (3,547) (1,228)
Dispositions of businesses -- 43 --
Other, net 44 43 43
- ------------------------------------------------------------------------------ ------- ------- -------
Net Cash Used in Investing Activities (2,101) (4,411) (2,071)
Financing Activities
Issuance of long-term debt 712 1,727 402
Repayment of long-term debt (435) (557) (146)
Increase in short-term borrowings 83 185 293
Common Stock issued under employee stock plans 438 354 220
Dividends paid on Common Stock (387) (353) (316)
Repurchase of Common Stock (800) (822) (650)
Dividends to minority interests and other (193) (159) (138)
- ------------------------------------------------------------------------------ ------- ------- -------
Net Cash (Used in) Provided by Financing Activities (582) 375 (335)
Net Cash Provided by (Used in) Discontinued Operation -- 2,159 (9)
Effect of foreign exchange rate changes on Cash and cash equivalents (29) (26) (4)
Net (decrease) increase in Cash and cash equivalents (209) 407 (105)
Cash and cash equivalents, beginning of year 957 550 655
- ------------------------------------------------------------------------------ ------- ------- -------
Cash and cash equivalents, end of year $ 748 $ 957 $ 550
- ------------------------------------------------------------------------------ ------- ------- -------
Supplemental Disclosure of Cash Flow Information:
Interest paid, net of amounts capitalized $ 432 $ 217 $ 170
Income taxes paid, net of refunds 496 368 888
Non-cash investing activities:
The Corporation issued $1.9 billion of Treasury Stock in connection with the
acquisition of Sundstrand Corporation in 1999
- ------------------------------------------------------------------------------ ------- -----------------
See accompanying Notes to Consolidated Financial Statements
12 UNITED TECHNOLOGIES
Consolidated Statement of Changes in Shareowners' Equity
Accumulated Non-
Other Non- Shareowners'
Shareowners' Changes in
Common Treasury Retained Changes Equity for
IN MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS Stock Stock Earnings in Equity the Period
- --------------------------------------------------------------- ---------------------------------------------------------
December 31, 1997 $2,488 $(2,472) $4,558 $(501)
Common Stock issued under employee plans (6.6 million shares) 220 5 (53)
Common Stock repurchased (14.8 million shares) (650)
Dividends on Common Stock ($.695 per share) (316)
Dividends on ESOP Stock ($4.80 per share) (33)
Non-Shareowners' Changes in Equity:
Net income 1,255 $1,255
Foreign currency translation:
Foreign currency translation adjustments 4 4
Income taxes (7) (7)
Minimum pension liability:
Pension adjustment (187) (187)
Income tax benefits 67 67
- --------------------------------------------------------------- ----------------------------------------- ------
December 31, 1998 2,708 (3,117) 5,411 (624) $1,132
- --------------------------------------------------------------- ------
Common Stock issued under employee plans (7.2 million shares) 354 16 (93)
Common Stock issued in conjunction with
a business combination (30.4 million shares) 1,165 741
Common Stock repurchased (13.2 million shares) (822)
Dividends on Common Stock ($.76 per share) (353)
Dividends on ESOP Stock ($4.80 per share) (33)
Non-Shareowners' Changes in Equity:
Net income 1,531 $1,531
Foreign currency translation:
Foreign currency translation adjustments (92) (92)
Income tax benefits 16 16
Minimum pension liability:
Pension adjustment 150 150
Income taxes (54) (54)
Unrealized holding gain on marketable equity securities:
Unrealized holding gain 328 328
Income taxes (115) (115)
- --------------------------------------------------------------- ----------------------------------------- ------
December 31, 1999 4,227 (3,182) 6,463 (391) $1,764
- ---------------------------------------------------------------
Common Stock issued under employee plans (9.4 million shares) 438 27 (109)
Common Stock repurchased (13.6 million shares) (800)
Dividends on Common Stock ($.825 per share) (387)
Dividends on ESOP Stock ($4.80 per share) (32)
Non-Shareowners' Changes in Equity:
Net income 1,808 $1,808
Foreign currency translation:
Foreign currency translation adjustments (202) (202)
Income tax benefits 18 18
Minimum pension liability:
Pension adjustment (8) (8)
Income tax benefits 5 5
Unrealized holding loss on marketable equity securities:
Unrealized holding loss (328) (328)
Income tax benefits 115 115
- --------------------------------------------------------------- ----------------------------------------- ------
December 31, 2000 $4,665 $(3,955) $7,743 $(791) $1,408
- --------------------------------------------------------------- --------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements
UNITED TECHNOLOGIES 13
Notes to Consolidated Financial Statements
Note 1 Summary of Accounting Principles
The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses. Actual results could differ from those estimates.
Certain reclassifications have been made to prior year amounts to conform
to the current year presentation.
CONSOLIDATION. The consolidated financial statements include the accounts of the
Corporation and its controlled subsidiaries. Intercompany transactions have been
eliminated.
CASH AND CASH EQUIVALENTS. Cash and cash equivalents includes cash on hand,
demand deposits and short-term cash investments which are highly liquid in
nature and have original maturities of three months or less.
ACCOUNTS RECEIVABLE. Current and long-term accounts receivable include retainage
and unbilled costs of approximately $169 million and $149 million at December
31, 2000 and 1999. Retainage represents amounts which, pursuant to the contract,
are not due until project completion and acceptance by the customer. Unbilled
costs represent revenues that are not currently billable to the customer under
the terms of the contract. These items are expected to be collected in the
normal course of business. Long-term accounts receivable are included in Other
assets in the Consolidated Balance Sheet.
MARKETABLE EQUITY SECURITIES. Equity securities that have a readily determinable
fair value and management does not intend to hold are classified as available
for sale and carried at fair value. Unrealized holding gains and losses are
recorded as a separate component of shareowners' equity, net of the deferred
income tax effect.
INVENTORIES AND CONTRACTS IN PROGRESS. Inventories and contracts in progress are
stated at the lower of cost or estimated realizable value and are primarily
based on first-in, first-out ("FIFO") or average cost methods; however, certain
subsidiaries use the last-in, first-out ("LIFO") method. Costs accumulated
against specific contracts or orders are at actual cost. Materials in excess of
requirements for contracts and current or anticipated orders have been reserved
and written-off when appropriate.
Manufacturing tooling costs are charged to inventories or to fixed assets
depending upon their nature, general applicability and useful lives. Tooling
costs included in inventory are charged to cost of sales based on usage,
generally within two years after they enter productive use.
Manufacturing costs are allocated to current production and firm
contracts. General and administrative expenses are charged to expense as
incurred.
FIXED ASSETS. Fixed assets are stated at cost. Depreciation is computed over the
assets' useful lives generally using the straight-line method, except for
aerospace assets acquired prior to January 1, 1999, which are depreciated using
accelerated methods. The change to straight-line depreciation for aerospace
assets did not have a material impact on the Corporation's financial position,
results of operations or cash flows.
GOODWILL AND OTHER LONG-LIVED ASSETS. Goodwill represents costs in excess of
fair values assigned to the underlying net assets of acquired companies and is
generally amortized using the straight-line method over periods ranging from 10
to 40 years.
The Corporation evaluates potential impairment of goodwill on an ongoing
basis and of other long-lived assets when appropriate. If the carrying amount of
an asset exceeds the sum of its undiscounted expected future cash flows, the
asset's carrying value is written down to fair value.
REVENUE RECOGNITION. Sales under government and commercial fixed-price contracts
and government fixed-price-incentive contracts are recorded at the time
deliveries are made or, in some cases, on a percentage-of-completion basis.
Sales under cost-reimbursement contracts are recorded as work is performed and
billed. Sales of commercial aircraft engines sometimes require participation by
the Corporation in aircraft financing arrangements; when appropriate, such sales
are accounted for as operating leases. Sales under elevator and escalator
installation and modernization contracts are accounted for under the
percentage-of-completion method.
Losses, if any, on contracts are provided for when anticipated. Loss
provisions are based upon excess inventoriable manufacturing, engineering,
estimated warranty and product guarantee costs over the net revenue from the
products contemplated by the specific order. Contract accounting requires
estimates of future costs over the performance period of the contract. These
estimates are subject to change and result in adjustments to margins on
contracts in progress.
Service sales, representing aftermarket repair and maintenance activities,
are recognized over the contractual period or as services are performed.
RESEARCH AND DEVELOPMENT. Research and development costs, not specifically
covered by contracts and those related to the Corporation-sponsored share of
research and development activity in connection with cost-sharing arrangements,
are charged to expense as incurred.
HEDGING ACTIVITY. The Corporation uses derivative instruments, including swaps,
forward contracts and options, to manage certain foreign currency and commodity
price exposures. Derivative instruments are viewed by the Corporation as risk
management tools and are not used for trading or speculative purposes.
Derivatives used for hedging purposes must be designated as, and effective as,
a hedge of the identified risk exposure at the inception of the contract.
Accordingly, changes in the fair value of the derivative contract must be highly
correlated with changes in the fair value of the underlying hedged item at
inception of the hedge and over the life of the hedge contract.
Gains and losses from instruments that are effective hedges of foreign
currency firm commitments or anticipated commodity transactions are deferred and
recognized as part of the economic basis of the transactions underlying the
commitments when the
14 UNITED TECHNOLOGIES
associated hedged transaction occurs. Gains and losses from instruments that
hedge foreign-currency-denominated assets or liabilities are reported in
earnings and offset the effects of foreign exchange transaction gains and losses
from the associated hedged assets or liabilities. Cash flows from derivative
instruments designated as hedges are classified consistent with the items being
hedged. Gains and losses on derivatives no longer effective as a hedge are
recognized in earnings.
Carrying amounts of foreign exchange contracts are included in accounts
receivable, other current assets, other assets, accrued liabilities and other
long-term liabilities.
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities," as amended, is currently
effective January 1, 2001 for the Corporation. The standard requires that all
derivative instruments be recorded on the balance sheet at fair value. Gains and
losses on derivatives used to hedge foreign-currency-denominated assets or
liabilities will be reported directly in earnings along with the offsetting
transaction gains and losses on the item being hedged. Derivatives used to hedge
forecasted cash flows associated with foreign currency commitments or forecasted
commodity purchases will be accounted for as cash flow hedges. Gains and losses
on derivatives designated as cash flow hedges will be recorded in other
comprehensive income and will be reclassified to earnings in a manner that
matches the timing of the earnings impact of the hedged transactions. The
ineffective portion of all hedges will be recognized currently in earnings.
Management believes adoption of this standard and related transition
adjustments will not have a material impact on the Corporation's consolidated
financial position, results of operations or cash flows.
ENVIRONMENTAL. Environmental investigatory, remediation, operating and
maintenance costs are accrued when it is probable that a liability has been
incurred and the amount can be reasonably estimated. The most likely cost to be
incurred is accrued based on an evaluation of currently available facts with
respect to each individual site, including existing technology, current laws and
regulations and prior remediation experience. Where no amount within a range of
estimates is more likely, the minimum is accrued. For sites with multiple
responsible parties, the Corporation considers its likely proportionate share of
the anticipated remediation costs and the ability of the other parties to
fulfill their obligations in establishing a provision for those costs.
Liabilities with fixed or reliably determinable future cash payments are
discounted. Accrued environmental liabilities are not reduced by potential
insurance reimbursements.
Note 2 Business Acquisitions and Dispositions
ACQUISITIONS. The Corporation completed acquisitions in 2000, 1999, and 1998 for
$1,340 million, $6,268 million, and $1,237 million, including debt assumed of
$172 million, $900 million, and $9 million. The 2000 amount includes the
acquisition of Specialty Equipment Companies for $708 million, including debt
assumed. The 1999 amounts include the acquisition of Sundstrand Corporation for
approximately $4.3 billion, including debt assumed.
In connection with the acquisition of Sundstrand, the Corporation has
undertaken actions to combine the operations of Sundstrand and Hamilton
Standard, including consolidating headquarters, closing facilities, relocating
salary and hourly employees and reducing workforce. Costs relating to those
actions that directly impact Sundstrand facilities and employees amounted to
approximately $53 million, including $28 million recorded in 2000, and were
accounted for as a purchase price adjustment.
The Corporation's unaudited consolidated results of operations on a pro
forma basis for the Sundstrand transaction, assuming it had occurred at the
beginning of 1999 and 1998, respectively, are: revenues of $24,996 million and
$24,799 million, net income of $1,558 million and $1,363 million, net income per
basic common share of $3.18 and $2.74 and net income per diluted common share of
$2.99 and $2.58. The pro forma results are for information purposes only and are
not necessarily indicative of the operating results that would have occurred had
the Sundstrand acquisition been consummated at the beginning of the year or of
future operating results. The 2000, 1999 and 1998 pro forma results for
acquisitions other than Sundstrand, assuming those acquisitions had been made at
the beginning of the year, would not be materially different from reported
results.
The assets and liabilities of the acquired businesses accounted for under
the purchase method are recorded at their fair values at the dates of
acquisition. The excess of the purchase price over the estimated fair values of
the net assets acquired was recorded as an increase in goodwill of $1,412
million in 2000, $4,396 million in 1999, and $855 million in 1998, and is being
amortized over estimated useful lives that range from 10 to 40 years. The
results of operations of acquired businesses have been included in the
Consolidated Statement of Operations beginning on the effective date of
acquisition.
The cost of 2000 acquisitions and allocations of cost may require
adjustment based upon information that may come to the attention of the
Corporation which is not currently available.
DISPOSITIONS. In May 1999, the Corporation sold its UT Automotive unit to Lear
Corporation for $2.3 billion, resulting in a $2.2 billion source of cash and a
$650 million after tax gain. Related results, through the date of disposition,
appear as income from operations of the discontinued UT Automotive unit in the
Consolidated Statement of Operations for 1999 and 1998. UT Automotive revenues
prior to the disposition were $1,115 million and $2,962 million in 1999 and
1998.
UNITED TECHNOLOGIES 15
Note 3 Earnings Per Share
Average
Income Shares Per Share
(MILLIONS) (THOUSANDS) Amount
- --------------------------------------------- ----------------------------------
December 31, 2000
Income from continuing operations
and net income $1,808
Less: ESOP Stock dividends (32)
- --------------------------------------------- ------
Basic earnings from
continuing operations and net earnings 1,776 470.1 $3.78
Stock awards -- 11.3
ESOP Stock adjustment 28 26.6
- --------------------------------------------- ------ -----
Diluted earnings from
continuing operations and net earnings $1,804 508.0 $3.55
- --------------------------------------------- ----------------------------------
December 31, 1999
Income from continuing operations $ 841
Less: ESOP Stock dividends (33)
- --------------------------------------------- ------
Basic earnings from
continuing operations 808 465.6 $1.74
Stock awards -- 13.8
ESOP Stock adjustment 28 27.3
- --------------------------------------------- ------ -----
Diluted earnings from
continuing operations $ 836 506.7 $1.65
- --------------------------------------------- ------ -----
Net income $1,531
Less: ESOP Stock dividends (33)
- --------------------------------------------- ------
Basic earnings 1,498 465.6 $3.22
Stock awards -- 13.8
ESOP Stock adjustment 28 27.3
- --------------------------------------------- ------ -----
Diluted earnings $1,526 506.7 $3.01
- --------------------------------------------- ----------------------------------
December 31, 1998
Income from continuing operations $1,157
Less: ESOP Stock dividends (33)
- --------------------------------------------- ------
Basic earnings from
continuing operations 1,124 455.5 $2.47
Stock awards -- 12.0
ESOP Stock adjustment 28 27.3
- --------------------------------------------- ------ -----
Diluted earnings from
continuing operations $1,152 494.8 $2.33
- --------------------------------------------- ------ -----
Net income $1,255
Less: ESOP Stock dividends (33)
- --------------------------------------------- ------
Basic earnings 1,222 455.5 $2.68
Stock awards -- 12.0
ESOP Stock adjustment 28 27.3
- --------------------------------------------- ------ -----
Diluted earnings $1,250 494.8 $2.53
- --------------------------------------------- ----------------------------------
Note 4 Commercial Airline Industry Assets
and Commitments
The Corporation has receivables and other financing assets with commercial
airline industry customers totaling $1,614 million and $1,598 million at
December 31, 2000 and 1999, net of allowances of $226 million and $243 million.
Customer financing assets consist of products under lease of $333 million
and notes and leases receivable of $385 million. The notes and leases receivable
are scheduled to mature as follows: $168 million in 2001, $45 million in 2002,
$52 million in 2003, $37 million in 2004, $28 million in 2005 and $55 million
thereafter.
Financing commitments, in the form of secured debt, guarantees or lease
financing, are provided to commercial aircraft engine customers. The extent to
which the financing commitments will be utilized cannot currently be predicted,
since customers may be able to obtain more favorable terms from other financing
sources. The Corporation may also arrange for third-party investors to assume a
portion of its commitments. If financing commitments are exercised, debt
financing is generally secured by assets with fair market values equal to or
exceeding the financed amounts with interest rates established at the time of
funding. The Corporation also may lease aircraft and subsequently sublease the
aircraft to customers under long-term noncancelable operating leases. In some
instances, customers may have minimum lease terms which result in sublease
periods shorter than the Corporation's lease obligation. Lastly, the Corporation
has residual value and other guarantees related to various commercial aircraft
engine customer financing arrangements. The estimated fair market values of the
guaranteed assets equal or exceed the value of the related guarantees, net of
existing reserves.
The Corporation's financing and rental commitments as of December 31, 2000
were $804 million and are exercisable as follows: $229 million in 2001, $42
million in 2002, $97 million in 2003, $93 million in 2004, $75 million in 2005
and $268 million thereafter. The Corporation's financing obligations with
customers are contingent upon maintenance of certain levels of financial
condition by the customers.
In addition, the Corporation had net residual value and other guarantees
of $133 million as of December 31, 2000.
The Corporation has a 33% interest in International Aero Engines AG
("IAE"), an international consortium of four shareholders organized to support
the V2500 commercial aircraft engine program. IAE may offer customer financing
in the form of guarantees, secured debt or lease financing in connection with
V2500 engine sales. At December 31, 2000, IAE had financing commitments of
$1,205 million. The Corporation's share of IAE's financing commitments was
approximately $414 million at December 31, 2000. In addition, IAE had lease
obligations under long-term noncancelable leases of approximately $352 million
through 2021 related to aircraft which are subleased to customers under long-
term leases. These aircraft have fair market values which approximate the
financed amounts. The shareholders of IAE have guaranteed IAE's financing
arrangements to the extent of their respective ownership interests. In the
event any shareholder was to default on certain of these financing arrangements,
the other shareholders would be proportionately responsible.
16 UNITED TECHNOLOGIES
Note 5 Inventories and Contracts in Progress
IN MILLIONS OF DOLLARS 2000 1999
- ----------------------------------------------- ------- -------
Inventories consist of the following:
Raw material $ 738 $ 702
Work-in-process 1,179 1,158
Finished goods 2,099 1,871
Contracts in progress 1,849 1,561
- ----------------------------------------------- ------- -------
5,865 5,292
Less:
Progress payments, secured by lien,
on U.S. Government contracts (137) (87)
Billings on contracts in progress (1,972) (1,701)
- ----------------------------------------------- ------- -------
$ 3,756 $ 3,504
- ----------------------------------------------- ------- -------
Contracts in progress principally relate to elevator and escalator contracts and
include costs of manufactured components, accumulated installation costs and
estimated earnings on incomplete contracts.
The Corporation's sales contracts in many cases are long-term contracts
expected to be performed over periods exceeding twelve months. Approximately 54%
and 51% of total inventories and contracts in progress have been acquired or
manufactured under such long-term contracts at December 31, 2000 and 1999, a
portion of which is not scheduled for delivery under long-term contracts within
the next twelve months.
If inventories which were valued using the LIFO method had been valued
under the FIFO method, they would have been higher by $106 million and $111
million at December 31, 2000 and 1999.
Note 6 Fixed Assets
Estimated
IN MILLIONS OF DOLLARS Useful Lives 2000 1999
- -------------------------------------------------------- ------ ------
Land -- $ 193 $ 218
Buildings and improvements 20-40 years 3,403 3,225
Machinery, tools and equipment 3-12 years 6,292 6,645
Other, including under construction -- 467 367
- -------------------------------------------------------- ------ ------
10,355 10,455
Accumulated depreciation (5,868) (5,995)
- -------------------------------------------------------- ------ ------
$4,487 $4,460
- -------------------------------------------------------- ------ ------
Depreciation expense was $608 million in 2000, $633 million in 1999 and $613
million in 1998.
Note 7 Accrued Liabilities
IN MILLIONS OF DOLLARS 2000 1999
- --------------------------------------------- ------ ------
Accrued salaries, wages and employee benefits $ 923 $ 861
Accrued restructuring costs 145 525
Service and warranty accruals 453 480
Advances on sales contracts 959 964
Income taxes payable 659 602
Other 2,609 2,591
- --------------------------------------------- ------ ------
$5,748 $6,023
- --------------------------------------------- ------ ------
Note 8 Borrowings and Lines of Credit
Short-term borrowings consist of the following:
IN MILLIONS OF DOLLARS 2000 1999
- --------------------------------------------- ------ ------
Domestic borrowings $ 65 $ --
Foreign bank borrowings 361 629
Commercial paper 613 273
- --------------------------------------------- ------ ------
$1,039 $902
- --------------------------------------------- ------ ------
The weighted-average interest rates applicable to short-term borrowings
outstanding at December 31, 2000 and 1999 were 7.6% and 7.5%. At December 31,
2000, approximately $1.2 billion was available under short-term lines of credit
with local banks at the Corporation's various international subsidiaries.
At December 31, 2000, the Corporation had credit commitments from banks
totaling $1.5 billion under a Revolving Credit Agreement, which serves as a
back-up facility for issuance of commercial paper. There were no borrowings
under the Revolving Credit Agreement at December 31, 2000.
Long-term debt consists of the following:
Weighted-
Average
IN MILLIONS OF DOLLARS Interest Rate Maturity 2000 1999
- ---------------------------------------------------------------- ------ ------
Notes and other debt denominated in:
U.S. dollars 7.3% 2001-2029 $3,195 $2,844
Foreign currency 10.6% 2001-2018 212 15
Capital lease obligations 7.1% 2001-2015 64 223
ESOP debt 7.7% 2001-2009 301 337
- ---------------------------------------------------------------- ------ ------
3,772 3,419
Less: Long-term debt
currently due 296 333
- ---------------------------------------------------------------- ------ ------
$3,476 $3,086
- ---------------------------------------------------------------- ------ ------
Principal payments required on long-term debt for the next five years are:
$296 million in 2001, $141 million in 2002, $140 million in 2003, $364 million
in 2004, and $35 million in 2005.
The Corporation issued a total of $500 million and $1,725 million of notes
under shelf registration statements previously filed with the Securities and
Exchange Commission in 2000 and 1999. The 2000 notes carry an interest rate of
7.125%. The weighted-average interest rate on the 1999 notes is 6.9%. Proceeds
from the debt issuances were used for general corporate purposes, including
financing a portion of the 2000 acquisition of Specialty Equipment Companies and
the 1999 acquisition of Sundstrand, funding other acquisitions and repurchasing
the Corporation's Common Stock.
At December 31, 2000, up to $1 billion of additional medium-term and
long-term debt could be issued under a shelf registration statement on file with
the Securities and Exchange Commission. The percentage of total debt at floating
interest rates was 22% and 24% at December 31, 2000 and 1999.
UNITED TECHNOLOGIES 17
Note 9 Taxes on Income
Significant components of income tax provision (benefit) for each year are as
follows:
IN MILLIONS OF DOLLARS 2000 1999 1998
- ----------------------------- ----- ---- ----
Current:
United States:
Federal $ 55 $ 32 $347
State 37 26 23
Foreign 387 323 337
- ----------------------------- ----- ---- ----
479 381 707
Future:
United States:
Federal 8 67 (214)
State 73 (61) (25)
Foreign 27 (2) (25)
- ----------------------------- ----- ---- ----
108 4 (264)
- ----------------------------- ----- ---- ----
587 385 443
Attributable to items
credited (charged) to equity 266 (60) 125
- ----------------------------- ----- ---- ----
$ 853 $325 $568
- ----------------------------- ----- ---- ----
Future income taxes represent the tax effects of transactions which are
reported in different periods for tax and financial reporting purposes. These
amounts consist of the tax effects of temporary differences between the tax and
financial reporting balance sheets and tax carryforwards. The tax effects of
temporary differences and tax carryforwards which gave rise to future income tax
benefits and payables at December 31, 2000 and 1999 are as follows:
IN MILLIONS OF DOLLARS 2000 1999
- ---------------------------------------- ------ ------
Future income tax benefits:
Insurance and employee benefits $ 685 $ 669
Other asset basis differences 313 263
Other liability basis differences 1,332 1,413
Tax loss carryforwards 165 169
Tax credit carryforwards 217 155
Valuation allowance (208) (233)
- ---------------------------------------- ------ ------
$2,504 $2,436
- ---------------------------------------- ------ ------
Future income taxes payable:
Fixed assets $ 67 $ 94
Other items, net 81 55
- ---------------------------------------- ------ ------
$ 148 $ 149
- ---------------------------------------- ------ ------
Current and non-current future income tax benefits and payables within the
same tax jurisdiction are generally offset for presentation in the Consolidated
Balance Sheet. Valuation allowances have been established primarily for tax
credit and tax loss carryforwards to reduce the future income tax benefits to
amounts expected to be realized.
The sources of income from continuing operations before income taxes and
minority interests are:
IN MILLIONS OF DOLLARS 2000 1999 1998
- ----------------------------------- ------ ------ ------
United States $1,511 $ 352 $ 924
Foreign 1,247 905 886
- ----------------------------------- ------ ------ ------
$2,758 $1,257 $1,810
- ----------------------------------- ------ ------ ------
United States income taxes have not been provided on undistributed
earnings of international subsidiaries. The Corporation's intention is to
reinvest these earnings permanently or to repatriate the earnings only when it
is tax effective to do so. Accordingly, the Corporation believes that any U.S.
tax on repatriated earnings would be substantially offset by U.S. foreign tax
credits.
Differences between effective income tax rates and the statutory U.S.
federal income tax rates are as follows:
2000 1999 1998
- ----------------------------------------- ----- -------------
Statutory U.S. federal income tax rate 35.0% 35.0% 35.0%
Varying tax rates of consolidated
subsidiaries (including Foreign
Sales Corporation) (6.0) (7.5) (4.9)
Goodwill 1.7 2.5 .4
Enacted tax law changes 1.9 (.3) .1
Other (1.7) (3.8) .8
- ----------------------------------------- ----- ----- -----
Effective income tax rate 30.9% 25.9% 31.4%
- ----------------------------------------- ----- -------------
The 2000 effective tax rate includes the impact of two discrete items: the
revaluation of the Corporation's state deferred tax asset resulting from the
enactment of the Connecticut tax law changes and the benefits of income tax
credits for prior periods associated with an industry related court decision.
Excluding the discrete items, the 2000 effective tax rate was 30.5%.
The 1999 effective tax rate includes the impact of the Corporation's 1999
restructuring actions. Excluding restructuring, the 1999 effective tax rate was
30.9%.
Tax credit carryforwards at December 31, 2000 were $217 million of which
$24 million expires as follows: $16 million from 2001-2005 and $8 million in
2015.
Tax loss carryforwards, principally state and foreign, at December 31,
2000 were $818 million of which $548 million expire as follows: $206 million
from 2001-2005, $175 million from 2006-2010, $167 million from 2011-2020.
Note 10 Employee Benefit Plans
The Corporation and its subsidiaries sponsor numerous domestic and foreign
employee benefit plans. Those plans are discussed below.
EMPLOYEE SAVINGS PLANS. The Corporation and certain subsidiaries sponsor various
employee savings plans. Total contribution expenses were $90 million, $87
million and $81 million for 2000, 1999 and 1998.
The Corporation's nonunion domestic employee savings plan uses an Employee
Stock Ownership Plan ("ESOP") for employer contributions. External borrowings,
guaranteed by the Corporation and reported as debt in the Consolidated Balance
Sheet, were used by the ESOP to fund a portion of its purchase of ESOP Stock
from the Corporation. Each share of ESOP Stock is convertible into four shares
of Common Stock, has a guaranteed value of $65, a $4.80 annual dividend and is
redeemable at any time for $65 per share. Upon notice of redemption by the
Corporation, the Trustee has the right to convert the ESOP Stock into Common
Stock. Because of its guaranteed value, the ESOP Stock is classified outside of
permanent equity.
Shares of ESOP Stock are committed to employees at fair value on the date
earned. The ESOP Stock's cash dividends are used for debt service payments.
Participants receive shares in lieu of the cash
18 UNITED TECHNOLOGIES
dividends. As debt service payments are made, ESOP Stock is released from an
unreleased shares account. If share releases do not meet share commitments, the
Corporation will contribute additional ESOP Stock, Common Stock or cash. At
December 31, 2000, 6.5 million shares had been committed to employees, leaving
5.1 million shares in the ESOP Trust, with an approximate fair value of $1,602
million based on equivalent common shares.
Upon withdrawal, shares of the ESOP Stock must be converted into the
Corporation's Common Stock or, if the value of the Common Stock is less than the
guaranteed value of the ESOP Stock, the Corporation must repurchase the shares
at their guaranteed value.
PENSION AND POSTRETIREMENT PLANS. The Corporation and its subsidiaries sponsor
many domestic and foreign defined benefit pension and other postretirement plans
with balances as follows:
Other
Postretirement
Pension Benefits Benefits
IN MILLIONS OF DOLLARS 2000 1999 2000 1999
- ------------------------------- ------- ------- ------- -------
Change in Benefit
Obligation:
Beginning balance $11,830 $11,075 $ 1,118 $ 771
Service cost 238 264 13 13
Interest cost 839 727 82 56
Actuarial loss (gain) 133 (495) 8 (75)
Total benefits paid (830) (687) (100) (73)
Net settlement and
curtailment (gain) loss (6) 73 -- 106
Acquisitions 84 800 39 312
Other (56) 73 15 8
- ------------------------------- ------- ------- ------- -------
Ending balance $12,232 $11,830 $ 1,175 $ 1,118
- ------------------------------- ------- ------- ------- -------
Change in Plan Assets:
Beginning balance $12,196 $ 9,945 $ 78 $ 81
Actual return on plan assets 1,669 1,989 4 5
Employer contributions 47 46 1 1
Benefits paid from plan assets (798) (657) (11) (11)
Acquisitions 52 965 -- --
Other (47) (92) 4 2
- ------------------------------- ------- ------- ------- -------
Ending balance $13,119 $12,196 $ 76 $ 78
- ------------------------------- ------- ------- ------- -------
Funded status $ 887 $ 366 $(1,099) $(1,040)
Unrecognized net actuarial
(gain) (1,035) (529) (9) (19)
Unrecognized prior
service cost 284 292 (111) (127)
Unrecognized net liability
(asset) at transition 6 (12) -- --
- ------------------------------- ------- ------- ------- -------
Net amount recognized $ 142 $ 117 $(1,219) $(1,186)
- ------------------------------- ------- ------- ------- -------
Amounts Recognized in
the Consolidated
Balance Sheet
Consist of:
Prepaid benefit cost $ 482 $422 $ -- $ --
Accrued benefit liability (449) (398) (1,219) (1,186)
Intangible asset 37 29 -- --
Accumulated other
non-shareowners'
changes in equity 72 64 -- --
- ------------------------------- ------- ------- ------- -------
Net amount recognized $ 142 $ 117 $(1,219) $(1,186)
- ------------------------------- ------- ------- ------- -------
The pension funds are valued at September 30 of the respective years in
the preceding table. Major assumptions used in the accounting for the employee
benefit plans are shown in the following table as weighted-averages:
2000 1999 1998
- ---------------------------------- ----- ----------
Pension Benefits:
Discount rate 7.4% 7.3% 6.6%
Expected return on plan assets 9.7% 9.6% 9.6%
Salary scale 4.9% 4.8% 4.8%
Other Postretirement Benefits:
Discount rate 7.5% 7.5% 6.7%
Expected return on plan assets 9.6% 9.6% 9.6%
- ---------------------------------- ----- ----------
For measurement purposes, a 7.5% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 2001. The rate is assumed
to remain at that level thereafter.
IN MILLIONS OF DOLLARS 2000 1999 1998
- ---------------------------------------- ------- -------------
Components of Net
Periodic Benefit Cost:
Pension Benefits:
Service cost $ 238 $ 264 $ 222
Interest cost 839 727 695
Expected return on plan assets (1,060) (926) (856)
Amortization of prior service cost 34 33 26
Amortization of unrecognized net
transition asset (20) (23) (23)
Recognized actuarial net loss 11 16 8
Net settlement and curtailment
(gain) loss (2) 82 73
Discontinued operation benefit (cost) -- 16 (4)
- ---------------------------------------- ------- ----- -----
Net periodic pension benefit cost -
continuing operations $ 40 $ 189 $ 141
- ---------------------------------------- ------- ----- -----
Net periodic pension benefit cost
of multiemployer plans $ 30 $ 33 $ 25
- ---------------------------------------- ------- ----- -----
Other Postretirement Benefits:
Service cost $ 13 $ 13 $ 10
Interest cost 82 56 51
Expected return on plan assets (7) (7) (6)
Amortization of prior service cost (16) (18) (18)
Net settlement and curtailment
(gain) loss -- (13) 10
Discontinued operation benefit (cost) -- 5 (2)
- ---------------------------------------- ------- ----- -----
Net periodic other postretirement
benefit cost - continuing operations $ 72 $ 36 $ 45
- ---------------------------------------- ------- -------------
The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for the pension plans with accumulated benefit obligations
in excess of plan assets were $810 million, $653 million and $236 million, as of
December 31, 2000 and $699 million, $556 million and $173 million, as of
December 31, 1999.
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plan. A one-percentage-point change in
assumed health care cost trend rates would change the accumulated postretirement
benefit obligation as of December 31, 2000 by approximately 6%. The effects of
this change on the service expense and the interest expense components of the
net postretirement benefit expense for 2000 would be 8%.
UNITED TECHNOLOGIES 19
LONG-TERM INCENTIVE PLANS. The Corporation has long-term incentive plans
authorizing various types of market and performance based incentive awards,
which may be granted to officers and employees. The 1989 Long-Term Incentive
Plan provides for the annual grant of awards in an amount not to exceed 2% of
the aggregate shares of Common Stock, treasury shares and potentially dilutive
common shares for the preceding year. In addition, up to 3 million options on
Common Stock may be granted annually under the Corporation's Employee Stock
Option Plan. The exercise price of stock options, set at the time of the grant,
is not less than the fair market value per share at the date of grant. Options
have a term of ten years and generally vest after three years.
A summary of the transactions under all plans for the three years ended
December 31, 2000 follows:
Stock Options
--------------- Other
Average Incentive
SHARES AND UNITS IN THOUSANDS Shares Price Shares/Units
- --------------------------------- -------------------------------
Outstanding at:
December 31, 1997 40,054 $21.68 2,526
Granted 8,648 38.93 52
Exercised/earned (6,708) 14.94 (550)
Canceled (772) 32.34 (8)
- --------------------------------- ------ ----- -----
December 31, 1998 41,222 26.20 2,020
Granted 12,259 52.49 139
Exercised/earned (7,385) 21.59 (880)
Canceled (1,428) 47.51 (29)
- --------------------------------- ------ ----- -----
December 31, 1999 44,668 33.49 1,250
Granted 8,167 64.55 86
Exercised/earned (9,412) 24.99 (840)
Canceled (1,031) 51.55 (13)
- --------------------------------- ------ ----- -----
December 31, 2000 42,392 $40.93 483
- --------------------------------- -------------------------------
Granted options in the above table include options issued in connection
with business combinations. The 1999 grant amount includes the issuance of 2.6
million options associated with the purchase of Sundstrand in exchange for
vested Sundstrand options.
The Corporation applies APB Opinion 25, "Accounting for Stock Issued to
Employees," and related interpretations in accounting for its long-term
incentive plans. Accordingly, no compensation cost has been recognized for its
fixed stock options. The compensation cost that has been recorded for
stock-based performance awards was $10 million, $26 million and $31 million for
2000, 1999 and 1998.
The following table summarizes information about stock options outstanding
(in thousands) at December 31, 2000:
Options Outstanding Options Exercisable
--------------------------------------------------
Average Remaining Average
Exercise Price Shares Price Term Shares Price
- ------------------------ -------------------------------------------------
$10.01-$25.00 11,677 $18.50 3.81 11,675 $18.50
$25.01-$40.00 12,146 35.31 6.40 7,486 34.51
$40.01-$55.00 8,284 51.58 7.78 1,396 48.58
$55.01-$70.00 7,057 61.51 8.73 309 60.15
$70.01-$85.00 3,228 70.92 9.55 -- --
- ------------------------ -------------------------------------------------
Had compensation cost for the Corporation's stock-based compensation plans
been determined based on the fair value at the grant date for awards under those
plans consistent with the requirements of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation," the Corporation's
net income and earnings per share would have been reduced as follows:
IN MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS 2000 1999 1998
- ------------------------------------------------------- ------ ---------------
Net income:
As reported $1,808 $1,531 $1,255
Pro forma 1,734 1,470 1,208
Basic earnings per share:
As reported $ 3.78 $ 3.22 $ 2.68
Pro forma 3.62 3.09 2.58
Diluted earnings per share:
As reported $ 3.55 $ 3.01 $ 2.53
Pro forma 3.41 2.89 2.44
- ------------------------------------------------------- ------ ---------------
The fair value of each stock option grant has been estimated on the date
of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
2000 1999 1998
- ------------------------------------------------------- ------ ---------------
Risk-free interest rate 6.1% 4.8% 5.4%
Expected life 5 years 6 years 6 years
Expected volatility 30% 25% 23%
Expected dividend yield 1.0% 1.2% 1.5%
- ------------------------------------------------------- ------ ---------------
The weighted-average grant date fair values of options granted during
2000, 1999 and 1998 were $21.33, $17.20 and $11.33.
Note 11 Restructuring
1999 ACTIONS. During 1999, the Corporation's operating segments initiated a
variety of actions aimed at further strengthening their future profitability and
competitive position. Those actions focused principally on rationalizing
manufacturing processes and improving the overall level of organizational
efficiency, including the removal of management layers. Restructuring charges
accrued in 1999 were $842 million before income taxes and minority interests and
were planned to result in net reductions of approximately 15,000 salary and
hourly employees and approximately 8 million square feet of facilities.
Significant 1999 actions by operating segment included:
o Otis: Worldwide facility consolidations and workforce reductions
o Carrier: Worldwide facility closures and workforce reductions
o Pratt & Whitney: Workforce reductions; consolidation of military
engine operations, manufacturing operations and the component repair
business
o Flight Systems: Facility closures and consolidation of functions in
Connecticut; workforce reductions; rationalization of customer
support.
20 UNITED TECHNOLOGIES
The 1999 accrued costs were recorded at each of the Corporation's
operating segments as follows:
IN MILLIONS OF DOLLARS
- --------------------------------------------
Otis $ 178
Carrier 182
Pratt & Whitney 345
Flight Systems 131
Other 6
- ---------------------------------- ------
$ 842
- ---------------------------------- ------
The following table summarizes the accrued costs associated with the 1999
restructuring actions by type and related activity through December 31, 2000:
Accrued
Accrued Accrued Exit Site
Severance Asset & Lease Restoration
and Related Write- Termination & Other
IN MILLIONS OF DOLLARS Costs downs Costs Costs Total
- ----------------------- ---------------------------------------------------------
1999 Charges:
Staff reductions $ 433 $ -- $ -- $ -- $ 433
Facility closures 149 160 44 56 409
- ----------------------- ----- ----- ---- ---- -----
Total accrued
charges 582 160 44 56 842
Adjustments (49) -- (10) 1 (58)
Utilized to date:
Cash (348) -- (15) (23) (386)
Non-cash (111) (160) (8) -- (279)
- ----------------------- ----------------------------------------------------
Balance at
December 31, 2000 $ 74 $ -- $ 11 $ 34 $ 119
- ----------------------- ----------------------------------------------------
The 1999 accrued costs were recorded in cost of sales (87%) and selling,
general and administrative expenses (13%) and related to:
o Workforce reductions of approximately 15,000 employees, primarily at
Pratt & Whitney (5,200 employees), Otis (4,000 employees) and
Carrier (3,200 employees)
o Plant closings that were planned to result in the reduction of
approximately 8 million square feet of facilities, primarily at
Pratt & Whitney (3 million square feet) and Carrier (2.9 million
square feet) and charges associated with the write-down of property,
plant and equipment to fair value, where fair value is based on
appraised value, primarily at Pratt & Whitney ($70 million) and
Carrier ($41 million).
The adjustments to the 1999 restructuring liability result from completion
of actions for amounts lower than originally estimated and revision of several
of the original programs. These adjustments were more than offset by additional
restructuring charges in 2000 associated with the 1999 actions that were not
accruable or contemplated when the actions were initiated.
As of December 31, 2000, workforce reductions of approximately 12,200
employees were completed and approximately 4.4 million square feet were
eliminated. The remaining actions are expected to be substantially complete in
early 2001.
In total the Corporation incurred and recognized costs of $317 million and
$141 million in 2000 and 1999 associated with the restructuring actions that
were not accruable or contemplated when the actions were initiated.
1998 ACTIONS. During 1998, the Corporation accrued pre-tax charges totaling $320
million related to ongoing efforts to reduce the costs of its continuing
operations in response to an increasingly competitive business environment.
Charges were recorded in each of the Corporation's operating segments with the
majority relating to the Pratt & Whitney, Otis and Carrier operations. The
amounts were primarily recorded in cost of sales and related to workforce
reductions of approximately 7,500 employees, plant closings and charges
associated with asset impairments. As of December 31, 2000 these actions have
been completed, substantially as planned.
Note 12 Foreign Exchange
The Corporation conducts business in many different currencies and, accordingly,
is subject to the inherent risks associated with foreign exchange rate
movements. The financial position and results of operations of substantially all
of the Corporation's foreign subsidiaries are measured using the local currency
as the functional currency. The aggregate effects of translating the balance
sheets of these subsidiaries are deferred as a separate component of
shareowners' equity. The Corporation had foreign currency net assets in more
than forty currencies, aggregating $2.5 billion and $2.1 billion at December 31,
2000 and 1999. The Corporation's net assets in the Asia Pacific region were $1
billion at December 31, 2000 and 1999.
At December 31, the Corporation had the following amounts related to
foreign exchange contracts hedging foreign currency transactions:
IN MILLIONS OF DOLLARS 2000 1999
- ---------------------------------------- ------ ------
Notional amount $2,709 $2,569
Gains and losses explicitly deferred
as a result of hedging firm commitments:
Gains deferred $ 32 $ 15
Losses deferred (55) (26)
- ---------------------------------------- ------ ------
$ (23) $ (11)
- ---------------------------------------- ------ ------
Note 13 Financial Instruments
The Corporation operates internationally and, in the normal course of business,
is exposed to fluctuations in interest rates, foreign exchange rates and
commodity prices. These fluctuations can increase the costs of financing,
investing and operating the business. The Corporation manages its foreign
currency transaction risks and some commodity exposures to acceptable limits
through the use of derivatives designated as hedges.
By nature, all financial instruments involve market and credit risks. The
Corporation enters into derivative and other financial instruments with major
investment grade financial institutions and has policies to monitor the credit
risk of those counterparties. The Corporation limits counterparty exposure and
concentration of risk by diversifying counterparties. The Corporation does not
anticipate nonperformance by any of these counterparties.
UNITED TECHNOLOGIES 21
The carrying amounts and fair values of financial instruments are as
follows:
DECEMBER 31, 2000 DECEMBER 31, 1999
Carrying Fair Carrying Fair
IN MILLIONS OF DOLLARS Amount Value Amount Value
- ----------------------------- ----------------------------------------------
Financial assets:
Marketable equity securities $ 48 $ 48 $ 355 $ 355
Long-term receivables 58 54 54 53
Customer financing notes 343 340 270 267
Financial liabilities:
Short-term borrowings (1,039) (1,039) (902) (902)
Long-term debt (3,708) (3,879) (3,196) (3,163)
Foreign exchange contracts:
Receivables 40 40 38 45
Payables (77) (70) (38) (32)
Commodity forward contracts:
Receivables 2 2 8 11
Payables (3) (3) -- --
- ----------------------------- ----------------------------------------------
The above fair values were computed based on comparable transactions,
quoted market prices, discounted future cash flows or an estimate of the amount
to be received or paid to terminate or settle the agreement, as applicable.
The values of marketable equity securities represent the Corporation's
investment in common stock that is classified as available for sale and is
accounted for at fair value.
The Corporation had outstanding financing and rental commitments totaling
$1,218 million at December 31, 2000. Risks associated with changes in interest
rates on these commitments are negated by the fact that interest rates are
variable during the commitment term and are set at the date of funding based on
current market conditions, the fair value of the underlying collateral and the
credit worthiness of the customers. As a result, the fair value of these
financings is expected to equal the amounts funded. The fair value of the
commitment itself is not readily determinable and is not considered significant.
Additional information pertaining to these commitments is included in Note 4.
Note 14 Commitments and Contingent Liabilities
LEASES. The Corporation occupies space and uses certain equipment under lease
arrangements. Rental commitments of $690 million at December 31, 2000 under
long-term noncancelable operating leases are as follows: $169 million in 2001,
$133 million in 2002, $101 million in 2003, $76 million in 2004, $56 million in
2005 and $155 million thereafter.
Rent expense was $193 million in 2000, $193 million in 1999 and $230
million in 1998.
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. As
described in Note 1, the Corporation has accrued for the costs of environmental
remediation activities and periodically reassesses these amounts. Management
believes that losses materially in excess of amounts accrued are not reasonably
possible.
The Corporation has had insurance in force over its history with a number
of insurance companies and has commenced litigation seeking indemnity and
defense under these insurance policies in relation to its environmental
liabilities. The litigation is expected to last several years. Accrued
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, they
could be suspended from bidding on or receiving awards of new government
contracts pending the completion of legal proceedings. If convicted or found
liable, the Corporation could be fined and debarred from new government
contracting for a period generally not to exceed three years. Any contracts
found to be tainted by fraud could be voided by the Government.
The Corporation's contracts with the U.S. Government are also subject to
audits. Like many defense contractors, the Corporation has received audit
reports which recommend that certain contract prices should be reduced to comply
with various government regulations. Some of these audit reports involve
substantial amounts. The Corporation has made voluntary refunds in those cases
it believes appropriate.
OTHER. The Corporation extends performance and operating cost guarantees beyond
its normal warranty and service policies for extended periods on some of its
products, particularly commercial aircraft engines. Liability under such
guarantees is contingent upon future product performance and durability. The
Corporation has accrued its estimated liability that may result under these
guarantees.
The Corporation also has other commitments and contingent liabilities
related to legal proceedings and matters arising out of the normal course of
business.
The Corporation has accrued for environmental investigatory, remediation,
operating and maintenance costs, performance guarantees and other litigation and
claims based on management's estimate of the probable outcome of these matters.
While it is possible that the outcome of these matters may differ from the
recorded liability, management believes that resolution of these matters will
not have a material impact on the Corporation's financial position, results of
operations or cash flows.
Note 15 Segment Financial Data
The Corporation's operations are classified in four principal operating
segments. Those segments were generally determined based on the management of
the businesses and on the basis of separate groups of operating companies, each
with general operating autonomy over diversified products and services.
OTIS products include elevators, escalators, service, automated people
movers and spare parts sold to a diversified international customer base in
commercial real estate development.
CARRIER products include heating, ventilating and air conditioning systems
and equipment, commercial and transport refrigeration equipment and service for
a diversified international customer base principally in commercial and
residential real estate development.
22 UNITED TECHNOLOGIES
PRATT & WHITNEY products include aircraft engines and spare parts sold to
a diversified customer base, including international and domestic commercial
airlines and aircraft leasing companies, aircraft manufacturers, regional and
commuter airlines, and U.S. and non-U.S. governments. Pratt & Whitney also
provides product support and a full range of overhaul, repair and fleet
management services and produces land-based power generation equipment which is
used for electrical power generation and other applications.
FLIGHT SYSTEMS SEGMENT provides global aerospace and industrial products
and services through Hamilton Sundstrand and Sikorsky Aircraft. Hamilton
Sundstrand provides aerospace and industrial products for diversified
industries. Aerospace products include aircraft power generation management and
distribution systems, and environmental, flight and fuel control systems.
Sikorsky Aircraft products include commercial and military helicopters,
aftermarket products and service.
Operating segment and geographic data include the results of all
majority-owned businesses, consistent with the management reporting of these
businesses. For certain of these subsidiaries, minority shareholders have rights
which, under the provisions of EITF 96-16, overcome the presumption of control.
In the Corporation's consolidated results, these subsidiaries are accounted for
using the equity method of accounting. Adjustments to reconcile segment
reporting to consolidated results are included in "Eliminations and other,"
which also includes certain small subsidiaries.
Operating segment information for the years ended December 31 follows:
> Operating Segments
Total Revenues Operating Profits
IN MILLIONS OF DOLLARS 2000 1999 1998 2000 1999 1998
- ----------------------------------- ------- ------------------ ------- ------------------
Otis $ 6,153 $ 5,654 $ 5,572 $ 798 $ 493 $ 533
Carrier 8,430 7,353 6,922 795 459 495
Pratt & Whitney 7,366 7,674 7,876 1,200 634 1,024
Flight Systems 4,992 3,810 2,891 614 247 287
- ----------------------------------- ------- ------- ------- ------- -------- -------
Total segment $26,941 $24,491 $23,261 $ 3,407 $ 1,833 $ 2,339
Eliminations and other (358) (364) (452) (39) (85) (89)
General corporate expenses -- -- -- (228) (231) (243)
- ----------------------------------- ------- ------- ------- ------- -------- -------
Consolidated $26,583 $24,127 $22,809 $ 3,140 $ 1,517 $ 2,007
- ----------------------------------- ------- ------- ------- ------- -------- -------
Interest expense (382) (260) (197)
- ------------------------------------------------------------------ ------- -------- -------
Income from continuing operations
before income taxes and
minority interests $ 2,758 $ 1,257 $ 1,810
- ------------------------------------------------------------------ ------- ------------------
Total Assets Capital Expenditures Depreciation & Amortization
IN MILLIONS OF DOLLARS 2000 1999 1998 2000 1999 1998 2000 1999 1998
- ----------------------- ------- ----------------- ------- ----------------- ------- -----------------
Otis $ 3,753 $ 4,036 $ 3,049 $ 108 $ 84 $ 93 $ 165 $ 145 $ 139
Carrier 6,907 5,592 4,556 231 237 190 206 195 184
Pratt & Whitney 5,951 5,660 5,863 369 243 254 217 250 278
Flight Systems 7,750 7,677 2,154 195 166 105 261 216 118
- ----------------------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total segment $24,361 $22,965 $15,622 $ 903 $ 730 $ 642 $ 849 $ 806 $ 719
Eliminations and other 1,003 1,401 2,146 34 32 31 10 13 11
- ----------------------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Consolidated $25,364 $24,366 $17,768 $ 937 $ 762 $ 673 $ 859 $ 819 $ 730
- ----------------------- ------- ----------------- ------- ----------------- ------- -----------------
SEGMENT REVENUES AND OPERATING PROFIT. Total revenues by operating segment
include intersegment sales, which are generally made at prices approximating
those that the selling entity is able to obtain on external sales. Operating
profits by segment includes income before interest expense, income taxes and
minority interest.
> Geographic Areas
External Revenues Operating Profits Long-Lived Assets
IN MILLIONS OF DOLLARS 2000 1999 1998 2000 1999 1998 2000 1999 1998
- -------------------------- ------- ------------------ ------- ------------------ ------- -----------------
United States operations $16,231 $14,814 $13,852 $ 1,950 $ 757 $ 1,340 $ 8,535 $ 7,465 $ 3,026
International operations:
Europe 4,413 4,433 4,252 606 473 516 1,030 1,028 842
Asia Pacific 3,319 2,615 2,487 368 206 130 1,418 1,464 812
Other 2,820 2,472 2,517 483 396 353 534 514 501
Eliminations and other (200) (207) (299) (267) (315) (332) 71 28 --
- -------------------------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Consolidated $26,583 $24,127 $22,809 $ 3,140 $ 1,517 $ 2,007 $11,588 $10,499 $ 5,181
- -------------------------- ------- ------------------ ------- ------------------ ------- -----------------
UNITED TECHNOLOGIES 23
GEOGRAPHIC EXTERNAL REVENUES AND OPERATING PROFIT. Geographic external revenues
and operating profits are attributed to the geographic regions based on their
location of origin. United States external revenues include export sales to
commercial customers outside the U.S. and sales to the U.S. Government,
commercial and affiliated customers, which are known to be for resale to
customers outside the U.S.
Revenues from United States operations include export sales as follows:
IN MILLIONS OF DOLLARS 2000 1999 1998
- ----------------------- ------ ---------------
Europe $1,606 $1,303 $ 967
Asia Pacific 1,632 1,389 1,910
Other 896 950 1,220
- ----------------------- ------ ------ ------
$4,134 $3,642 $4,097
- ----------------------- ------ ---------------
GEOGRAPHIC LONG-LIVED ASSETS. Long-lived assets include net fixed assets and
intangibles which can be attributed to the specific geographic regions.
MAJOR CUSTOMERS. Revenues include sales under prime contracts and subcontracts
to the U.S. Government, primarily related to Pratt & Whitney and Flight Systems
products, as follows:
IN MILLIONS OF DOLLARS 2000 1999 1998
- ----------------------- ------ ---------------
Pratt & Whitney $1,616 $2,116 $1,941
Flight Systems 1,207 1,174 1,273
- ----------------------- ------ ---------------
> Selected Quarterly Financial Data (Unaudited)
2000 Quarters 1999 Quarters
IN MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS First Second Third Fourth First Second Third Fourth
- ------------------------------------------------ --------------------------------- ---------------------------------
Sales $6,307 $6,871 $6,339 $6,689 $5,382 $5,984 $6,068 $6,410
Gross margin 1,679 1,884 1,814 1,859 1,405 1,637 1,211 1,406
Income from continuing operations 377 509 496 426 278 417 90 56
Net income 377 509 496 426 308 1,077 90 56
Earnings per share of Common Stock:
Basic:
Continuing operations $ .78 $ 1.07 $ 1.04 $ .89 $ .60 $ .89 $ .17 $ .10
Net earnings $ .78 $ 1.07 $ 1.04 $ .89 $ .67 $ 2.33 $ .17 $ .10
Diluted:
Continuing operations $ .74 $ 1.00 $ .98 $ .84 $ .57 $ .83 $ .16 $ .10
Net earnings $ .74 $ 1.00 $ .98 $ .84 $ .63 $ 2.15 $ .16 $ .10
- ------------------------------------------------ --------------------------------- ---------------------------------
> Comparative Stock Data
2000 1999
- -------------------- --------------------------- ---------------------------
Common Stock High Low Dividend High Low Dividend
First quarter 65 1/4 48 1/16 $.20 67 13/16 54 $.18
Second quarter 66 3/16 54 1/2 $.20 74 11/16 61 3/4 $.18
Third quarter 71 1/2 56 11/16 $.20 71 3/16 56 $.20
Fourth quarter 79 3/4 63 1/2 $.225 65 52 5/16 $.20
- -------------------- --------------------------- ---------------------------
The Corporation's Common Stock is listed on the New York Stock Exchange. The
high and low prices are based on the Composite Tape of the New York Stock
Exchange. There were approximately 24,000 common shareowners of record at
December 31, 2000.
24 UNITED TECHNOLOGIES