FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C.
20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period
from____________________________to__________________________
Commission file number 1-812
UNITED TECHNOLOGIES CORPORATION
DELAWARE 06-0570975
One Financial Plaza, Hartford, Connecticut 06101
(203) 728-7000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X . No .
At September 30, 1995 there were 122,007,844 shares of Common Stock outstanding.
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONTENTS OF QUARTERLY REPORT ON FORM 10-Q
Quarter Ended September 30, 1995
Page
Part I - Financial Information
Item 1. Financial Statements:
Condensed Consolidated Statement of
Operations for the three months ended
September 30, 1995 and 1994 1
Condensed Consolidated Statement of
Operations for the nine months ended
September 30, 1995 and 1994 2
Condensed Consolidated Balance Sheet at
September 30, 1995 and December 31, 1994 3
Condensed Consolidated Statement of Cash
Flows for the nine months ended September
30, 1995 and 1994 4
Notes to Condensed Consolidated Financial
Statements 5
Report of Independent Accountants 8
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Position 9
Part II - Other Information
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
Exhibit Index
1
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended
September 30,
In Millions of Dollars (except per share amounts) 1995 1994
Revenues:
Product sales $ 4,420 $ 4,094
Service sales 1,184 1,041
Financing revenues and other income, net 47 115
5,651 5,250
Costs and expenses:
Cost of products sold 3,610 3,359
Cost of services sold 715 652
Research and development 251 229
Selling, general and administrative 642 610
Interest 57 69
5,275 4,919
Income before income taxes and minority interests 376 331
Income taxes 131 114
Minority interests 35 29
Net Income $ 210 $ 188
Preferred Stock Dividend Requirement 7 6
Earnings Applicable to Common Stock $ 203 $ 182
Earnings per share of common stock and common stock
equivalents $ 1.60 $ 1.41
Dividends per share of common stock $ .50 $ .50
Average common and equivalent shares outstanding (in
thousands) 130,813 132,012
See Accompanying Notes
2
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Nine Months Ended
September 30,
In Millions of Dollars (except per share amounts) 1995 1994
Revenues:
Product sales $ 13,285 $ 12,154
Service sales 3,411 3,032
Financing revenues and other income, net 139 336
16,835 15,522
Costs and expenses:
Cost of products sold 10,944 10,056
Cost of services sold 2,050 1,892
Research and development 702 730
Selling, general and administrative 1,943 1,861
Interest 186 208
15,825 14,747
Income before income taxes and minority interests 1,010 775
Income taxes 351 277
Minority interests 96 78
Net Income $ 563 $ 420
Preferred Stock Dividend Requirement 20 16
Earnings Applicable to Common Stock $ 543 $ 404
Earnings per share of common stock and common stock
equivalents $ 4.28 $ 3.14
Dividends per share of common stock $ 1.50 $ 1.40
Average common and equivalent shares outstanding (in
thousands) 130,414 132,571
See Accompanying Notes
3
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
September 30, December 31,
In Millions of Dollars 1995 1994
(Unaudited)
Assets
Cash and cash equivalents $ 904 $ 386
Accounts receivable, net 3,713 3,745
Inventories and contracts in progress, net 2,957 2,955
Future income tax benefits 860 929
Other current assets 202 213
Total Current Assets 8,636 8,228
Fixed assets 10,316 10,193
Less - accumulated depreciation (5,967) (5,661)
4,349 4,532
Other assets 2,756 2,864
Total Assets $ 15,741 $ 15,624
Liabilities and Shareowners' Equity
Short-term borrowings $ 266 $ 402
Accounts payable 1,851 1,924
Accrued liabilities 4,150 4,071
Long-term debt currently due 91 156
Total Current Liabilities 6,358 6,553
Long-term debt 1,707 1,885
Future pension and postretirement benefit obligations 1,438 1,389
Other long-term liabilities 1,900 1,706
Series A ESOP Convertible Preferred Stock 894 905
ESOP deferred compensation (508) (566)
386 339
Shareowners' Equity:
Common Stock 2,225 2,148
Treasury Stock (1,162) (947)
Retained earnings 3,143 2,790
Currency translation and pension liability
adjustments (254) (239)
3,952 3,752
Total Liabilities and Shareowners' Equity $ 15,741 $ 15,624
See Accompanying Notes
4
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
In Millions of Dollars 1995 1994
Cash flows from operating activities:
Net income $ 563 $ 420
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization 621 623
Change in:
Accounts receivable 26 (395)
Inventories and contracts in progress (28) 40
Accounts payable and accrued liabilities 73 (189)
Future income taxes payable and future income
tax benefits 3 95
ESOP deferred compensation 38 106
Other, net 218 168
Net Cash Flows from Operating Activities 1,514 868
Cash flows from investing activities:
Capital expenditures (486) (489)
Acquisitions of business units (151) (106)
Dispositions of business units 103 238
Decrease in customer financing assets, net 276 17
Other, net 50 35
Net Cash Flows from Investing Activities (208) (305)
Cash flows from financing activities:
Issuance of long-term debt 1 31
Repayments of long-term debt (250) (150)
Decrease in short-term borrowings, net (136) (50)
Dividends paid on Common Stock (185) (177)
Common Stock repurchase (215) (164)
Other, net (4) 68
Net Cash Flows from Financing Activities (789) (442)
Effect of foreign exchange rate changes on cash and
cash equivalents 1 2
Net Increase in Cash and Cash Equivalents 518 123
Cash and Cash Equivalents, Beginning of year 386 421
Cash and Cash Equivalents, End of period $ 904 $ 544
See Accompanying Notes
5
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The condensed consolidated financial statements at September 30, 1995 and for
the three-month and nine-month periods ended September 30, 1995 and 1994 are
unaudited, but in the opinion of the Corporation include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the results for the interim periods. Certain 1994 amounts have
been reclassified to conform with the presentation at September 30, 1995.
Accounting and Reporting Changes
In the fourth quarter of 1994 the Corporation adopted, effective January 1,
1994, AICPA Statement of Position (SOP) 93-6, "Employers' Accounting for
Employee Stock Ownership Plans." The principal impact of the accounting change
on ongoing results is to consider as outstanding only those ESOP Convertible
Preferred shares committed to employee accounts, to report as interest expense
all interest on the debt of the ESOP trust and to report preferred stock
dividends only on those shares considered as outstanding.
As this accounting change was adopted in the fourth quarter of 1994,
previously reported 1994 quarterly information has been restated to reflect the
change effective January 1, 1994.
As a result of this change, the Corporation's pretax income was reduced by
$10 million for the three month period and $85 million, including a one-time
charge of $51 million ($31 million after tax or $.23 per share) for the nine-
month period. This one-time charge represents the cumulative difference between
the expense determined under the new accounting method and that previously
recognized from inception of the ESOP through January 1, 1994. The one-time
charge has been recorded in Financing revenues and other income, net in the
Consolidated Statement of Operations.
The 1994 ESOP accounting change, excluding the one-time charge, reduced
pretax income by $10 million and $34 million, reduced net income by $6 million
and $21 million, and reduced reported preferred stock dividends by $4 million
and $16 million for the three-month and nine-month periods ended September 30,
1994, respectively. These reductions in net income and preferred stock dividend
requirements, and the reduction in ESOP shares considered outstanding of 8.4
million and 8.6 million shares, have the combined effect of increasing earnings
per share by $.06 and $.13, excluding the one-time charge, for the three-month
and nine-month periods ended September 30, 1994, respectively. Overall,
earnings per share for the three-month period ended September 30, 1994 were
increased by $.06 and for the nine-month period ended September 30, 1994 were
reduced by $.10 as a result of this accounting change.
Borrowings and Lines of Credit
In July, the Corporation executed an in-substance defeasance of $30 million
of its 8.26% medium term notes due June 3, 1996, bringing the total of in-
substance defeasances to $130 million for the nine-month period. The
Corporation deposited U.S. Government securities into irrevocable trusts to
cover the interest and principal payments on this debt. For financial reporting
purposes, the debt has been considered extinguished and the loss on these
transactions, which was immaterial, is included in Financing revenues and other
income, net. In addition, during the third quarter the Corporation retired $55
million of long-term debt.
6
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
During the nine-month period of 1995, the Corporation canceled $600 million
of outstanding interest rate hedges. As a result of debt reduction and these
contract cancellations, the percentage of total debt at floating interest rates,
after taking effect of the remaining outstanding interest rate contracts, is 15%
at September 30, 1995, versus 42% at December 31, 1994.
Contingent Liabilities
While there has been no significant change in the Corporation's material
contingencies during 1995, the matters previously described in Note 14 of Notes
to Financial Statements in the Corporation's Annual Report on Form 10K for
calendar year 1994 are summarized below.
Environmental
The Corporation's operations are subject to environmental regulation by
federal, state, and local authorities in the United States and regulatory
authorities with jurisdiction over its foreign operations.
It is the Corporation's policy to accrue environmental investigatory and
remediation costs when it is probable that a liability has been incurred by the
Corporation for known sites and the amount of loss can be reasonably estimated.
Where no amount within a range of estimates is more likely, the minimum is
accrued. Otherwise, the most likely cost to be incurred is accrued. The
measurement of the liability is based on an evaluation of currently available
facts with respect to each individual site and takes into account factors such
as existing technology, presently enacted laws and regulations, and prior
experience in remediation of contaminated sites.
Where the Corporation is not the only party responsible for the remediation
of a site, the Corporation considers its likely proportionate share of the
anticipated remediation expense in establishing a provision for those costs.
Included within the sites known to the Corporation are those sites at which the
Corporation has been identified as a potentially responsible party under the
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"
or Superfund). Under the provisions of this statute, the Corporation may be
held liable for all costs of environmental remediation without regard to the
legality of the Corporation's actions resulting in the contamination. In
estimating its liability for remediation, the Corporation considers its likely
proportionate share of the anticipated remediation expense and the ability of
the other potentially responsible parties to fulfill their obligations.
Some of the Corporation's liabilities, including certain Superfund
liabilities, relate to facilities that were acquired by the Corporation with
indemnities from the sellers or former owners. In estimating the potential
liability at these sites, the Corporation has considered the indemnification
separately from the liability.
The Corporation has instituted legal proceedings against its insurers seeking
insurance coverage for remediation costs, defense costs, physical loss or damage
to the property of the Corporation and others, and for related costs.
Settlements to date, which have not been material, have been recorded upon
receipt. It is expected that one or more of these cases will last several
years. Environmental liabilities are not reduced by potential insurance
reimbursements.
7
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
U.S. Government
The Corporation is now and believes that, in light of the current government
contracting environment, it will be the subject of one or more government
investigations. If the Corporation or one of its business units were charged
with wrongdoing as a result of any of these investigations, the Corporation or
one of its business units could be suspended from bidding on or receiving awards
of new government contracts pending the completion of legal proceedings. If
convicted or found liable, the Corporation could be fined and debarred from new
government contracting for a period generally not to exceed three years. Any
contracts found to be tainted by fraud could be voided by the Government.
The Corporation's contracts with the U.S. Government are also subject to
audits. Like many defense contractors, the Corporation has received audit
reports which recommend that certain contract prices should be reduced to comply
with various government regulations. Some of these audit reports involve
substantial amounts. The Corporation has made voluntary refunds in those cases
it believes appropriate.
Other
The Corporation extends performance and operating cost guarantees, which are
beyond its normal warranty and service policies, for extended periods on some of
its products, particularly commercial aircraft engines. Liability under such
guarantees is contingent upon future product performance and durability. The
Corporation has accrued its estimated liability that may result under these
guarantees.
The Corporation also has other commitments and contingent liabilities related
to legal proceedings and matters arising out of the normal course of business.
The Corporation has accrued its liability for environmental investigation and
remediation, performance guarantees, 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 adverse effect upon either results of operations, cash flows, or
financial position of the Corporation.
8
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
With respect to the unaudited condensed consolidated financial information of
United Technologies Corporation for the three and nine-month periods ended
September 30, 1995 and 1994, Price Waterhouse LLP ("Price Waterhouse") reported
that they have applied limited procedures in accordance with professional
standards for a review of such information. However, their separate report
dated October 25, 1995 appearing below, states that they did not audit and they
do not express an opinion on that unaudited condensed consolidated financial
information. Price Waterhouse has not carried out any significant or additional
audit tests beyond those which would have been necessary if their report had not
been included. Accordingly, the degree of reliance on their report on such
information should be restricted in light of the limited nature of the review
procedures applied. Price Waterhouse is not subject to the liability provisions
of section 11 of the Securities Act of 1933 for their report on the unaudited
condensed consolidated financial information because that report is not a
"report" or a "part" of the registration statement prepared or certified by
Price Waterhouse within the meaning of sections 7 and 11 of the Act.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
United Technologies Corporation
We have reviewed the accompanying condensed consolidated statement of
operations of United Technologies Corporation and consolidated subsidiaries for
the three and nine-month periods ended September 30, 1995 and 1994, the
condensed consolidated statement of cash flows for the nine months ended
September 30, 1995 and 1994, and the condensed consolidated balance sheet as of
September 30, 1995. This financial information is the responsibility of the
company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial information for it to be in
conformity with generally accepted accounting principles.
We previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1994, and the
related consolidated statements of operations, of cash flows and of changes in
shareowners' equity for the year then ended (not presented herein), and in our
report dated January 26, 1995, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying condensed consolidated balance sheet as of December 31, 1994,
when read in conjunction with the consolidated financial statements from which
it has been derived, is fairly stated in all material respects in relation
thereto.
PRICE WATERHOUSE LLP
Hartford, Connecticut
October 25, 1995
9
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL POSITION
BUSINESS ENVIRONMENT
The Corporation's Otis, Carrier and UT Automotive subsidiaries serve
customers in the commercial property, residential housing and automotive
businesses. Additionally, the Corporation's Pratt & Whitney, Sikorsky and
Hamilton Standard businesses serve commercial and government customers in the
aerospace industry. As world-wide businesses, these operations are affected by
global as well as regional economic factors.
U.S. residential housing starts in the first nine months decreased
approximately 7% over the same period in 1994. While commercial construction
starts in the U.S. are higher than last year they remain weak. U.S. commercial
vacancy rates have improved only marginally from the 1992 peak.
North American car and light truck production and European car sales were
down in the Third Quarter and essentially flat for the first nine months of 1995
versus the comparable period in 1994.
Worldwide airline profits in 1994 were nominal despite load factors at
historically high levels. Reported airline results in the first nine months of
1995 have shown improvement through higher revenues and relatively flat costs.
However, competitive pricing strategies and disparate cost structures continue
to make it difficult for the U.S. airlines to achieve the financial condition
necessary to make significant investments in new aircraft. For many
international airlines, increasing competition, high cost structures and
privatization initiatives will strain financial results and resources in the
near term. While airlines have historically begun ordering new equipment
approximately 18 months after returning to profitability, management believes
the current recovery may be slower. It is too early to determine what impact,
if any, the labor strike at Boeing may have on Pratt & Whitney's operating
profits or cash flow or on negotiations of its labor contract, which expires in
December.
The U.S. Defense industry continues to experience significant downsizing, and
further consolidation within the industry is expected. As a result, the
Corporation has continued to reduce its reliance on U.S. Defense contracts.
RESULTS OF OPERATIONS
Consolidated revenues and margin percentages were as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
In Millions of Dollars 1995 1994 1995 1994
Product sales $ 4,420 $ 4,094 $ 13,285 $ 12,154
Service sales 1,184 1,041 3,411 3,032
Financing revenues and
other income, net 47 115 139 336
Product margin % 18.3% 18.0% 17.6% 17.3%
Service margin % 39.6% 37.4% 39.9% 37.6%
/TABLE
10
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
Consolidated revenues increased 8% for the three-month and nine-month periods
ended September 30, 1995, over the comparable periods of 1994. Excluding the
favorable effect of foreign exchange translation, consolidated revenues
increased approximately 6% for the same periods. All segments, excluding Flight
Systems, reported increased revenues in the third quarter. UTC's commercial and
industrial segments increased 11% and 14% for the three-month and nine-month
periods, respectively. The aerospace segments, excluding the impacts of the
second quarter 1994 sale of the equity share holding in Westland Group plc and
Norden divestiture, increased 3% and 4% for the three-month and nine-month
periods, respectively.
Financing revenues and other income decreased in the third quarter, from the
comparable period in the prior year, principally due to lower financing revenues
in 1995 on a lower customer financing asset base and the absence of
miscellaneous asset sales and insurance litigation settlements. Financing
revenues and other income for the 1994 nine-month period includes a $51 million
charge relating to the adoption of SOP 93-6, "Employers' Accounting for Employee
Stock Ownership Plans" and an $87 million gain realized on the sale of the
equity share holding in Westland Group plc. Excluding these effects, financing
revenues and other income for the nine-month period decreased due to the same
effects as in the third quarter.
Product margin percentage for the nine months ended September 30, 1994 was
18.0% before the impact of 1994 charges for downsizing and other actions. The
product margin percentage for the comparable 1995 period of 17.6% is down
slightly as improved product margins at Pratt & Whitney and Hamilton Standard
were offset by decreases at Sikorsky and Otis, and by the first quarter 1995
charges for the wafer fabrication facility of Hamilton Standard and a workforce
reduction at Sikorsky. Service margins as a percentage of sales improved in all
of the Corporation's businesses.
Research and development expenses increased $22 million (10%) for the third
quarter and decreased $28 million (4%) in the nine-month period as compared to
1994. As a percentage of revenue, research and development was 4.4% in the
third quarter and 4.2% in the nine-month period compared to 4.4% and 4.7% in the
corresponding 1994 periods last year. The decrease for the nine-month period
occurred principally in the Flight Systems Segment as several development
programs at Hamilton Standard reached completion. Research and development
expenses in 1995 are expected to be essentially flat with the spending level of
1994 and lower as a percentage of revenues.
Selling, general and administrative expenses in the 1995 third quarter and
nine-month period increased by $32 million (5%) and $82 million (4%) over the
1994 comparable periods. However, as a percentage of revenues, these expenses
decreased from 11.6% to 11.4% for the three-month period and from 12.0% to 11.5%
for the nine-month period as the Corporation achieved increased sales while
continuing to control expenses.
11
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
Segment revenues and operating profits in the Corporation's principal
business segments for the three-month and nine-month periods ended September 30,
1995 and 1994 are as follows (in millions of dollars):
Operating
Revenues Operating Profits Profit Margin
1995 1994 1995 1994 1995 1994
Three Months Ended
September 30,
Otis $ 1,323 $ 1,158 $ 130 $ 111 9.8% 9.6%
Carrier 1,462 1,363 144 127 9.8% 9.3%
Automotive 687 606 35 31 5.1% 5.1%
Pratt & Whitney 1,521 1,376 131 110 8.6% 8.0%
Flight Systems 688 768 40 57 5.8% 7.4%
Nine Months Ended
September 30,
Otis $ 3,858 $ 3,348 $ 364 $ 309 9.4% 9.2%
Carrier 4,122 3,721 303 252 7.4% 6.8%
Automotive 2,234 1,914 148 131 6.6% 6.8%
Pratt & Whitney 4,507 4,214 383 247 8.5% 5.9%
Flight Systems 2,204 2,428 144 203 6.5% 8.4%
Otis segment revenues for the three-month and nine-month periods ended
September 30, 1995 were 14% and 15% higher than the comparable periods of 1994,
respectively. Excluding the favorable impact of foreign exchange translation
effects, 1995 revenues increased approximately 8% for the third quarter and
nine-month periods over 1994 with all geographic regions showing an increase
compared to last year.
Operating profits at Otis increased $19 million and $55 million in the third
quarter and nine-month period of 1995 compared to 1994. Approximately one-half
of the increase in the third quarter and nine-month period was due to favorable
foreign exchange translation effects with the balance due to improved
performance in all geographic regions compared to last year.
Carrier 1995 third quarter and nine-month period revenues increased 7% and
11% from 1994, respectively. Excluding the favorable impact of foreign exchange
translation effects, 1995 revenues increased approximately 5% and 8% over the
three-month and nine-month periods of 1994, respectively. The increased
revenues in both periods were led by continued strong growth in the Asia Pacific
region and the recovery in Europe.
Operating profits at Carrier increased $17 million and $51 million in the
third quarter and nine-month period of 1995 compared to 1994 with approximately
one-third of the increases in both periods due to favorable foreign exchange
translation effects. Higher volumes and continued cost reductions more than
offset cost increases in raw materials such as copper and aluminum. Nine-month
results include improved Brazilian profits, particularly in the first quarter on
a strong summer selling season and a gain from selling a joint venture interest
in its Arkadelphia scroll compressor plant, which was substantially offset by
charges for closure and consolidation of certain facilities, inventory reserves,
and start-up costs of four new joint ventures in China.
Automotive segment revenues increased 13% and 17% in the 1995 third quarter
and nine-month period, respectively, as compared to 1994. Revenue increases in
12
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
both periods were a result of higher vehicle content, and favorable product mix
in North America and increased market penetration in Europe.
Operating profits at the Automotive segment increased $4 million and $17
million in the 1995 third quarter and nine-month period compared to the same
periods in 1994, while margins as a percentage of revenues were flat in the
third quarter and decreased slightly for the nine-month period as compared to
1994. The positive effects of higher revenues in Europe and North America were
partially offset by global increases in raw material costs and continuing costs
in support of new vehicle model awards in North America. UT Automotive
management is considering cost reduction actions to be taken, including
consolidation of certain production facilities as a part of its ongoing cost and
productivity improvement. This should help mitigate price reductions under
long-term agreements with OEM customers. Appropriate provisions will be charged
to the Automotive segment results as decisions are made and actions taken.
Pratt & Whitney revenue during the third quarter and nine-month period ended
September 30, 1995 increased 11% and 7%, respectively, as compared to 1994;
however, revenues for the full year are expected to be essentially the same as
last year. The increase in the third quarter and nine-month period over the
prior year is due to increases in Pratt & Whitney's commercial, government, and
general aviation businesses.
Operating profits for Pratt & Whitney for the third quarter and nine-month
period ended September 30, 1995 increased $21 million and $136 million,
respectively, over the comparable periods of 1994. The increases reflect higher
revenues and improved margins arising from cost reduction initiatives. While
research and development expenses were lower in the first six months of 1995
they were moderately higher in the third quarter. Improved 1995 third quarter
results were partially offset by increases to manufacturing cost estimates on
commercial engine contracts, principally higher production costs on the PW4084
engine. In addition, the nine-month period results reflect the absence of a $50
million downsizing charge partially offset by the sale of a participation
interest in the PW4000 engine program, both of which occurred in the second
quarter of 1994.
Flight Systems revenues decreased 10% and 9% in the third quarter and nine-
month period ended September 30, 1995, respectively, compared to 1994. Revenue
decreases in the third quarter of 1995 were the result of lower helicopter
shipments as compared to 1994. Revenue decreases for the nine-month period were
a result of the sale of the equity share holding in Westland Group plc and the
Norden divestiture, both in the second quarter of 1994, and lower 1995 revenues
at Sikorsky. Revenues at Sikorsky are expected to decrease versus last year due
to fewer scheduled deliveries of helicopters.
Operating profits for Flight Systems decreased $17 million and $59 million in
the third quarter and nine-month period ended September 30, 1995, respectively,
as compared to 1994. Nine-month period 1994 results include an $87 million gain
realized on the sale of the equity share holding in Westland Group plc and $35
million in downsizing charges. Operating profits excluding those items
decreased $7 million in the nine-month period ended September 30, 1995. The
third quarter decrease reflects continuing operating improvement at Hamilton
Standard, offset by lower helicopter volume at Sikorsky and a service and
warranty provision for a Hamilton Standard propeller, including estimated costs
for inspections, repairs and replacements. The nine-month period results reflect
improved performance at Hamilton Standard, offset by costs associated with
selling the wafer fabrication facility of Hamilton Standard's Microelectronics
Center and lower volumes and charges in the first quarter of 1995 for a
workforce reduction at Sikorsky.
13
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
Interest expense decreased $12 million and $22 million in the three-month and
nine-month periods ended September 30, 1995 to $57 million and $186 million,
respectively. This decrease is mainly due to a reduced average borrowing level
during the third quarter and nine-month period compared to last year as the
Corporation continues to retire or extinguish debt with its improved cash flow,
partially offset by increased interest rates.
The effective tax rate for the first nine months of 1995 was 34.8%, compared
to an effective tax rate of 35.7% for the corresponding period of 1994. The
Corporation has reduced its effective income tax rate by implementing tax
reduction strategies.
FINANCIAL POSITION AND LIQUIDITY
Management assesses the Corporation's liquidity in terms of its overall
ability to generate cash to fund its operating and investing activities. Of
particular importance in the management of liquidity are cash flows generated
from operating activities, capital expenditure levels, customer financing
requirements, adequate bank lines of credit, and financial flexibility to
attract long-term capital on satisfactory terms.
Set forth below is selected key cash flow data:
Nine Months Ended
September 30,
In Millions of Dollars 1995 1994
Operating Activities
Net Cash Flows from Operating Activities $ 1,514 $ 868
Investing Activities
Capital expenditures (486) (489)
Acquisitions of business units (151) (106)
Dispositions of business units 103 238
Decrease in customer financing assets, net 276 17
Financing Activities
Common Stock repurchase (215) (164)
Decrease in total debt (379) (151)
Decrease in net debt (897) (274)
Cash flows from operating activities were $1,514 million during the first
nine months of 1995 compared to $868 million for the corresponding period of
1994. The improvement resulted primarily from improved operating performance
and working capital management, and the absence of a $150 million payment to the
U.S. Government made in the second quarter of 1994 for a previously reported
settlement by Sikorsky Aircraft.
Cash flows from investing activities were a use of funds of $208 million
during the first nine months of 1995 compared to a $305 million use in the
corresponding period of 1994. During the nine-month period ended September 30,
1995, the Corporation received proceeds of $103 million from dispositions of
business units, the largest item being proceeds received in the second quarter
of 1995 from the sale of a joint venture interest in Carrier's Arkadelphia
scroll compressor plant. During the nine-month period ended September 30, 1995,
14
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
the Corporation invested $151 million for the acquisition of business units, the
largest item being the purchase of an Australian elevator company in the third
quarter. Capital expenditures in the nine-month period of 1995 were $486
million, a $3 million decrease over the corresponding period of 1994. The
Corporation expects 1995 full year capital spending to be slightly higher than
1994. The decrease in customer financing assets in the 1995 period includes
loan repayments and asset sales. While the Corporation now believes that
changes in customer financing assets in 1995 will be a net source of funds,
actual funding is subject to usage under existing customer financing commitments
during the remainder of the year.
The Corporation repurchased $215 million of common stock, representing 2.76
million shares, in the first nine months of 1995 under previously announced
stock repurchase programs.
Other selected financial data is as follows:
September 30, December 31, September 30,
In Millions of Dollars 1995 1994 1994
Cash and cash equivalents $ 904 $ 386 $ 544
Total debt 2,064 2,443 2,808
Net debt (total debt less cash) 1,160 2,057 2,264
Shareowners' equity 3,952 3,752 3,734
Debt-to-total capitalization 34.3% 39.4% 42.9%
Net debt-to-total capitalization 22.7% 35.4% 37.7%
In July, the Corporation executed an in-substance defeasance of $30 million
of its 8.26% medium term notes due June 3, 1996, bringing the total of in-
substance defeasances to $130 million for the nine-month period. The
Corporation deposited U.S. Government securities into irrevocable trusts to
cover the interest and principal payments on this debt. For financial reporting
purposes, the debt has been considered extinguished and the loss on these
transactions, which was immaterial, is included in Financing revenues and other
income, net. In addition, during the third quarter the Corporation retired $55
million of long-term debt.
During the nine-month period of 1995, the Corporation canceled $600 million
of outstanding interest rate hedges. As a result of debt reduction and these
contract cancellations, the percentage of total debt at floating interest rates,
after taking effect of the remaining outstanding interest rate contracts, is 15%
at September 30, 1995, versus 42% at December 31, 1994.
Management believes that its existing cash position and other available
sources of liquidity are sufficient to meet current and anticipated requirements
for the foreseeable future.
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UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
Part II - Other Information
Item 1. Legal Proceedings
On October 12, 1995 following discussions with the United States
Environmental Agency, Region V, UT Automotive paid a fine of $125,000 to settle
certain allegations of violations of water discharge permits issued under the
Clean Water Act at a facility formerly owned by UT Automotive in Columbia City,
Indiana. This matter which was previously reported in the Corporation's Annual
Report on Form 10K for calendar year 1994 is now concluded.
Other than the matter described above, there has been no material change in
legal proceedings during the third quarter of 1995. (For a description of
previously reported legal proceedings, refer to Part 1, Item 3 - Legal
Proceedings of the Corporation's Annual Report on Form 10K for calendar year
1994, and to Part II, Item 1 - Legal Proceedings of the Corporation's Report on
Form 10Q for the first and second quarters of calendar year 1995.)
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
(10) (xvi) United Technologies Corporation Special Retention and Stock
Appreciation Program
(11) Computation of per share earnings
(12) Computation of ratio of earnings to fixed charges
(15) Letter re unaudited interim financial information
(27) Financial data schedule (submitted electronically herewith)
(b) No reports on Form 8-K were filed during the quarter ended September 30,
1995.
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UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED TECHNOLOGIES CORPORATION
Dated: October 30, 1995 By: Stephen F. Page
Stephen F. Page
Executive Vice President and
Chief Financial Officer
Dated: October 30, 1995 By: George E. Minnich
George E. Minnich
Vice President and Controller
Dated: October 30, 1995 By: William H. Trachsel
William H. Trachsel
Vice President and Secretary
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit 10 (xvi) - United Technologies Corporation Special Retention and Stock
Appreciation Program
Exhibit 11 - Computation of per share earnings
Exhibit 12 - Computation of ratio of earnings to fixed charges
Exhibit 15 - Letter re unaudited interim financial information
Exhibit 27 - Financial data schedule (submitted electronically herewith)