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 June 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from____________________________to__________________________ Commission file number 1-812 UNITED TECHNOLOGIES CORPORATION DELAWARE 06-0570975 One Financial Plaza, Hartford, Connecticut 06101 (860) 728-7000 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . At June 30, 1997 there were 235,425,353 shares of Common Stock outstanding. UNITED TECHNOLOGIES CORPORATION AND SUBSIDIARIES CONTENTS OF QUARTERLY REPORT ON FORM 10-Q Quarter Ended June 30, 1997 Page Part I - Financial Information Item 1. Financial Statements: Condensed Consolidated Statement of Operations for the quarters ended June 30, 1997 and 1996 1 Condensed Consolidated Statement of Operations for the six months ended June 30, 1997 and 1996 2 Condensed Consolidated Balance Sheet at June 30, 1997 and December 31, 1996 3 Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 1997 and 1996 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 4. Submission of Matters to a Vote of Security Holders 16 Item 6. Exhibits and Reports on Form 8-K 17 Signatures 18 Exhibit Index 1 UNITED TECHNOLOGIES CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited) Quarter Ended June 30, In Millions of Dollars (except per share amounts) 1997 1996 Revenues: Product sales $ 5,146 $ 4,773 Service sales 1,286 1,229 Financing revenues and other income, net 51 41 6,483 6,043 Costs and expenses: Cost of products sold 4,081 3,818 Cost of services sold 807 740 Research and development 316 274 Selling, general and administrative 727 709 Interest 49 56 5,980 5,597 Income before income taxes and minority interests 503 446 Income taxes 162 151 Minority interests 37 36 Net Income $ 304 $ 259 Earnings per share of common stock and common stock equivalents $ 1.17 $ .98 Dividends per share of common stock $ .31 $ .275 Average common and equivalent shares outstanding (in thousands) 258,343 262,326 See Accompanying Notes to Condensed Consolidated Financial Statements 2 UNITED TECHNOLOGIES CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited) Six Months Ended June 30, In Millions of Dollars (except per share amounts) 1997 1996 Revenues: Product sales $ 9,791 $ 8,932 Service sales 2,527 2,418 Financing revenues and other income, net 99 85 12,417 11,435 Costs and expenses: Cost of products sold 7,841 7,197 Cost of services sold 1,583 1,469 Research and development 587 524 Selling, general and administrative 1,429 1,392 Interest 97 114 11,537 10,696 Income before income taxes and minority interests 880 739 Income taxes 286 250 Minority interests 66 66 Net Income $ 528 $ 423 Earnings per share of common stock and common stock equivalents $ 2.03 $ 1.60 Dividends per share of common stock $ .62 $ .55 Average common and equivalent shares outstanding (in thousands) 258,644 262,314 See Accompanying Notes to Condensed Consolidated Financial Statements 3 UNITED TECHNOLOGIES CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET June 30, December 31, In Millions of Dollars 1997 1996 (Unaudited) Assets Cash and cash equivalents $ 1,413 $ 1,127 Accounts receivable, net 3,898 3,717 Inventories and contracts in progress, net 3,327 3,342 Future income tax benefits 1,078 946 Other current assets 345 479 Total Current Assets 10,061 9,611 Fixed assets 10,694 10,661 Less - accumulated depreciation (6,449) (6,290) 4,245 4,371 Other assets 2,725 2,763 Total Assets $ 17,031 $ 16,745 Liabilities and Shareowners' Equity Short-term borrowings $ 261 $ 251 Accounts payable 2,032 2,186 Accrued liabilities 5,260 4,856 Long-term debt currently due 91 97 Total Current Liabilities 7,644 7,390 Long-term debt 1,381 1,437 Future pension and postretirement benefit obligations 1,248 1,247 Other long-term liabilities 1,984 1,931 Series A ESOP Convertible Preferred Stock 871 880 ESOP deferred compensation (430) (446) 441 434 Shareowners' Equity: Common Stock 2,432 2,345 Treasury Stock (1,926) (1,626) Retained earnings 4,187 3,849 Currency translation and pension liability adjustments (360) (262) 4,333 4,306 Total Liabilities and Shareowners' Equity $ 17,031 $ 16,745 See Accompanying Notes to Condensed Consolidated Financial Statements 4 UNITED TECHNOLOGIES CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) Six Months Ended June 30, In Millions of Dollars 1997 1996 Cash flows from operating activities: Net income $ 528 $ 423 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 430 424 Change in: Accounts receivable (179) (64) Inventories and contracts in progress 41 (198) Accounts payable and accrued liabilities 230 113 Other, net 42 340 Net cash flows from operating activities 1,092 1,038 Cash flows from investing activities: Capital expenditures (350) (307) Acquisitions of business units (101) (155) Dispositions of business units 35 30 Decrease in customer financing assets, net 25 31 Other, net 91 53 Net cash flows from investing activities (300) (348) Cash flows from financing activities: Issuance of long-term debt 1 27 Repayments of long-term debt (56) (141) Decrease in short-term borrowings, net (8) (69) Dividends paid on Common Stock (147) (133) Common Stock repurchase (302) (182) Other, net 29 (19) Net cash flows from financing activities (483) (517) Effect of foreign exchange rate changes on Cash and cash equivalents (23) 2 Net increase in cash and cash equivalents 286 175 Cash and cash equivalents, beginning of year 1,127 900 Cash and cash equivalents, end of period $ 1,413 $ 1,075 See Accompanying Notes to Condensed Consolidated Financial Statements 5 UNITED TECHNOLOGIES CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) The Condensed Consolidated Financial Statements at June 30, 1997 and for the quarters and six-month periods ended June 30, 1997 and 1996 are unaudited, but in the opinion of the Corporation include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods. Certain reclassifications have been made to prior year amounts to conform to the current year presentation. Beginning January 1, 1997, international operating subsidiaries which had generally been included in the Condensed Consolidated Financial Statements based on fiscal years ending November 30, are now included based on fiscal years ending December 31. The change, which primarily affected the commercial and industrial businesses, was made to present the results of these operations on a more timely basis. December 1996 results from these international subsidiaries, which were not significant, are included in retained earnings. As a result of this change, the pattern of 1997 quarterly results will differ from the past due in part to seasonality in some business segments. If this change had been made effective January 1, 1996, the estimated impact on quarter ended June 30, 1996 and full year earnings per share would not have been significant. In February of 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share." The Corporation will adopt this standard, as required, at the end of this year. Had this standard been adopted at the beginning of 1997, the Corporation would have reported basic earnings per share of $1.26 and $2.17 for the second quarter and six-month period, respectively. Contingent Liabilities While there has been no significant change in the Corporation's material contingencies during 1997, the matters previously described in Note 14 of the Notes to Consolidated Financial Statements in the Corporation's Annual Report on Form 10-K for calendar year 1996 are summarized below. Environmental The Corporation's operations are subject to environmental regulation by federal, state, and local authorities in the United States and regulatory authorities with jurisdiction over its foreign operations. It is the Corporation's policy to accrue, in accordance with AICPA Statement of Position 96-1, environmental investigatory and remediation costs when it is probable that a liability has been incurred by the Corporation for known sites and the amount of loss can be reasonably estimated. Where no amount within a range of estimates is more likely, the minimum is accrued. Otherwise, the most likely cost to be incurred is accrued. The measurement of the liability is based on an evaluation of currently available facts with respect to each individual site and takes into account factors such as existing technology, presently enacted laws and regulations, and prior experience in remediation of contaminated sites. Where the Corporation is not the only party responsible for the remediation of a site, the Corporation considers its likely proportionate share of the anticipated remediation expense in establishing a provision for those costs. 6 UNITED TECHNOLOGIES CORPORATION AND SUBSIDIARIES Included within the sites known to the Corporation are those sites at which the Corporation has been identified as a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA" or Superfund). Under the provisions of this statute, the Corporation may be held liable for all costs of environmental remediation without regard to the legality of the Corporation's actions resulting in the contamination. In estimating its liability for remediation, the Corporation considers its likely proportionate share of the anticipated remediation expense and the ability of the other potentially responsible parties to fulfill their obligations. Some of the Corporation's liabilities, including certain Superfund liabilities, relate to facilities that were acquired by the Corporation with indemnities from the sellers or former owners. In estimating the potential liability at these sites, the Corporation has considered the indemnification separately from the liability. The Corporation has had liability and property insurance in force over its history with a number of insurance companies, and the Corporation has commenced litigation seeking indemnity and defense under these insurance policies in relation to its environmental liabilities. Settlements to date, which have not been material, have been recorded upon receipt. While the litigation against the Corporation's historic liability insurers has concluded, it is expected that the case against the Corporation's property insurers will last several years. Environmental liabilities are not reduced by potential insurance reimbursements. U.S. Government The Corporation is now and believes that, in light of the current government contracting environment, it will be the subject of one or more government investigations. If the Corporation or one of its business units were charged with wrongdoing as a result of any of these investigations, the Corporation or one of its business units could be suspended from bidding on or receiving awards of new government contracts pending the completion of legal proceedings. If convicted or found liable, the Corporation could be fined and debarred from new government contracting for a period generally not to exceed three years. Any contracts found to be tainted by fraud could be voided by the Government. The Corporation's contracts with the U.S. Government are also subject to audits. Like many defense contractors, the Corporation has received audit reports which recommend that certain contract prices should be reduced to comply with various government regulations. Some of these audit reports involve substantial amounts. The Corporation has made voluntary refunds in those cases it believes appropriate. Other The Corporation extends performance and operating cost guarantees, which are beyond its normal warranty and service policies, for extended periods on some of its products, particularly commercial aircraft engines. Liability under such guarantees is contingent upon future product performance and durability. The Corporation has accrued its estimated liability that may result under these guarantees. The Corporation also has other commitments and contingent liabilities related to legal proceedings and matters arising out of the normal course of business. The Corporation has accrued its liability for environmental investigation and remediation, performance guarantees, product liability, and other litigation and claims based on management's estimate of the probable outcome of these matters. 7 UNITED TECHNOLOGIES CORPORATION AND SUBSIDIARIES While it is possible that the outcome of these matters may differ from the recorded liability, management believes that resolution of these matters will not have a material adverse effect upon either results of operations, cash flows, or financial position of the Corporation. 8 UNITED TECHNOLOGIES CORPORATION AND SUBSIDIARIES With respect to the unaudited condensed consolidated financial information of United Technologies Corporation for the quarters and six-month periods ended June 30, 1997 and 1996, Price Waterhouse LLP ("Price Waterhouse") reported that they have applied limited procedures in accordance with professional standards for a review of such information. However, their separate report dated July 23, 1997 appearing below, states that they did not audit and they do not express an opinion on that unaudited condensed consolidated financial information. Price Waterhouse has not carried out any significant or additional audit tests beyond those which would have been necessary if their report had not been included. Accordingly, the degree of reliance on their report on such information should be restricted in light of the limited nature of the review procedures applied. Price Waterhouse is not subject to the liability provisions of section 11 of the Securities Act of 1933 ("the Act") for their report on the unaudited condensed consolidated financial information because that report is not a "report" or a "part" of the registration statement prepared or certified by Price Waterhouse within the meaning of sections 7 and 11 of the Act. REPORT OF INDEPENDENT ACCOUNTANTS To the Shareowners of United Technologies Corporation We have reviewed the accompanying condensed consolidated statement of operations of United Technologies Corporation and consolidated subsidiaries for the quarters and six months ended June 30, 1997 and 1996, the condensed consolidated statement of cash flows for the six months ended June 30, 1997 and 1996, and the condensed consolidated balance sheet as of June 30, 1997. This financial information is the responsibility of the company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying financial information for it to be in conformity with generally accepted accounting principles. We previously audited in accordance with generally accepted auditing standards, the consolidated balance sheet as of December 31, 1996, and the related consolidated statements of operations and cash flows for the year then ended (not presented herein), and in our report dated January 23, 1997 we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 1996, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived. Price Waterhouse LLP Hartford, Connecticut July 23, 1997 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 decreased in the 1997 second quarter and six- month period compared to the same periods in 1996, while commercial construction starts in the U.S. improved over the same periods in 1996. U.S. commercial vacancy rates continue to improve. North American car and light truck production was lower in the 1997 second quarter but was higher for the six-month period compared to the 1996 periods, while European car sales were higher in both the second quarter and six-month period of 1997. Worldwide airline profits continue to improve as a result of increased load factors and lower costs. Strong traffic growth continues to drive new aircraft orders from the U.S. and Asia Pacific regions, while European airline financial resources remain constrained in the near term by increasing competition, higher cost structures and privatization. The defense portion of the Corporation's aerospace businesses continues to respond to a changing global political environment. The U.S. defense industry continues to downsize and consolidate in response to continued pressure on U.S. defense spending. As a result, the Corporation has continued to reduce its reliance on U.S. defense contracts. The Corporation continues to reduce manufacturing costs and floor space to remain competitive. 10 UNITED TECHNOLOGIES CORPORATION AND SUBSIDIARIES RESULTS OF OPERATIONS Consolidated revenues and margin percentages were as follows: Quarter Ended Six Months Ended June 30, June 30, In Millions of Dollars 1997 1996 1997 1996 Product sales $ 5,146 $ 4,773 $ 9,791 $ 8,932 Service sales 1,286 1,229 2,527 2,418 Financing revenues and other income, net 51 41 99 85 Product margin % 20.7% 20.0% 19.9% 19.4% Service margin % 37.2% 39.8% 37.4% 39.2% Consolidated revenues for the second quarter and six-month period of 1997 were 7% and 9% higher than the respective reported periods of 1996. The 1997 second quarter and six-month period increases were primarily driven by Pratt & Whitney and Flight Systems. Foreign currency translation, which reduced 1997 revenues in the second quarter and six-month period by 2%, more than offset the impact of the change in reporting period described in the Notes to Condensed Consolidated Financial Statements. Product margin as a percentage of sales increased seven tenths and five tenths of a percentage point in the second quarter and six-month period of 1997, compared to the same periods of 1996, primarily as a result of improved margins at Otis and Flight Systems partially offset by declines at Pratt & Whitney and Automotive during the six-month period. Service margins as a percentage of sales decreased 2.6 and 1.8 percentage points in the second quarter and six- month period of 1997, compared to the same periods of 1996, principally due to declines at Otis and Pratt & Whitney. Research and development expenses increased $42 million (15%) and $63 million (12%) in the second quarter and six-month period of 1997 compared to 1996, with higher expenses in most segments, but principally Pratt & Whitney. As a percentage of sales, research and development was 4.9% and 4.8% in the second quarter and six-month period of 1997 compared to 4.6% in both the second quarter and six-month period of 1996. Research and development expenses in 1997 are expected to increase from 1996, but should remain between 4% and 5% of sales. Selling, general and administrative expenses in the second quarter and six- month period of 1997 increased $18 million (3%) and $37 million (3%), respectively, over the same periods of 1996 due to higher expenses at Carrier, Automotive and Flight Systems. However, these expenses decreased as a percentage of sales, to 11.3% and 11.6% in the second quarter and six-month period of 1997 from 11.8% and 12.3% in the same periods of 1996, due to decreases at Otis, Pratt & Whitney and Flight Systems. Interest expense decreased $7 million and $17 million in the second quarter and six-month period of 1997 to $49 million and $97 million, respectively. This decrease is mainly due to a reduced average borrowing level during the first six months compared to last year as the Corporation continued to reduce its borrowings. 11 UNITED TECHNOLOGIES CORPORATION AND SUBSIDIARIES The effective tax rate for the six-month period of 1997 was 32.5%, compared to an effective tax rate of 33.8% for the six-month period of 1996. The Corporation has continued to reduce its effective income tax rate by implementing tax reduction strategies. Revenues and operating profits of the Corporation's principal business segments for the quarters and six-month periods ended June 30, 1997 and 1996 are as follows (in millions of dollars): Operating Revenues Operating Profits Profit Margin 1997 1996 1997 1996 1997 1996 Quarter Ended June 30, Otis $ 1,397 $ 1,401 $ 133 $ 129 9.5% 9.2% Carrier 1,691 1,634 167 155 9.9% 9.5% Automotive 782 861 33 51 4.2% 5.9% Pratt & Whitney 1,944 1,533 210 160 10.8% 10.4% Flight Systems 702 646 68 61 9.7% 9.4% Six Months Ended June 30, Otis $ 2,765 $ 2,704 $ 264 $ 246 9.5% 9.1% Carrier 3,078 2,959 237 210 7.7% 7.1% Automotive 1,523 1,605 64 101 4.2% 6.3% Pratt & Whitney 3,663 2,949 392 300 10.7% 10.2% Flight Systems 1,453 1,284 137 110 9.4% 8.6% Otis segment revenues for the second quarter and six-month period of 1997 were flat and 2% higher than the respective reported periods of 1996. Foreign currency translation reduced 1997 revenues by 5% and 6% for the second quarter and six-month period of 1997. The increase in 1997 revenues was due to increases in all geographic regions, including the impact of acquisitions made in Europe during 1996. The second quarter increase was partially offset by the impact of the change in the reporting period. Operating profits at Otis increased $4 million (3%) and $18 million (7%) in the second quarter and six-month period of 1997 compared to the respective reported periods of 1996 due to improvements at European, North American and South American operations. The increase in the second quarter was partially offset by the impact of the change in the reporting period. Foreign currency translation reduced 1997 operating profit by 7% and 8% for the second quarter and six-month period of 1997. In addition, the 1996 second quarter results included a provision for the closure of a European manufacturing facility. Carrier segment revenues for the second quarter and six-month period of 1997 were 3% and 4% higher compared to the reported second quarter and six-month period of 1996. Foreign currency translation reduced 1997 revenues by 2% for the second quarter and six-month period of 1997. The increase in revenues resulted from the change in the reporting period and acquisitions made mostly in Europe during 1996, partially offset by declines in Europe due to slower economic growth and unseasonably cool weather and in North America due to unseasonably cool weather and a strike at a commercial products facility. Operating profits at Carrier increased $12 million (8%) and $27 million (13%) in the second quarter and six-month period of 1997 compared to the reported 12 UNITED TECHNOLOGIES CORPORATION AND SUBSIDIARIES second quarter and six-month period of 1996. Foreign currency translation reduced 1997 operating profits by 4% and 3% for the second quarter and six-month period. The year to date 1997 increase was due to profit improvement in North America and the change in the reporting period, partially offset by declines at European and Carrier Transicold operations. Automotive segment revenues for the second quarter and six-month period of 1997 decreased 9% and 5% compared to the reported second quarter and six-month period of 1996. Foreign currency translation reduced 1997 revenues by 3% for the second quarter and six-month period. 1997 was impacted by revenue declines in most businesses, in part due to customer plant strikes, and the reduction in revenues resulting from the fourth quarter 1996 sale of the Steering Wheels business. Reported operating profits at the Automotive segment decreased $18 million (35%) and $37 million (37%) from the reported second quarter and six-month period of 1996, reflecting continued performance issues at the Interiors business and lower volumes, including the impact of strikes at customer plants. 1997 was also impacted by domestic administrative workforce reductions and a provision for a European plant closure. Foreign currency translation reduced 1997 operating profits by 8% and 7% for the second quarter and six-month period. In addition, the 1996 second quarter included a provision related to participation in the costs of a customer recall program. Pratt & Whitney revenues increased 27% and 24% in the second quarter and six- month period of 1997 compared to 1996. The 1997 increase reflects higher volumes in both the after-market and new engine businesses. Operating profits for Pratt & Whitney increased $50 million (31%) and $92 million (31%) in the second quarter and six-month period of 1997 compared to the respective periods of 1996, reflecting strong after-market results partially offset by higher research and development spending. Flight Systems revenues increased 9% and 13% in the second quarter and six- month period of 1997 compared to 1996 as a result of increased revenues at Hamilton Standard and Sikorsky. Operating profits for Flight Systems increased $7 million (11%) and $27 million (25%) in the second quarter and six-month period of 1997 compared to 1996 as a result of continuing operating performance improvement at Hamilton Standard. 13 UNITED TECHNOLOGIES CORPORATION AND SUBSIDIARIES FINANCIAL POSITION AND LIQUIDITY Management assesses the Corporation's liquidity in terms of its overall ability to generate cash to fund its operating and investing activities. Significant factors affecting the management of liquidity are cash flows generated from operating activities, capital expenditures, customer financing requirements, adequate bank lines of credit, and financial flexibility to attract long-term capital on satisfactory terms. Set forth below is selected key cash flow data: Six Months Ended June 30, In Millions of Dollars 1997 1996 Operating Activities Net Cash Flows from Operating Activities $ 1,092 $ 1,038 Investing Activities Capital expenditures (350) (307) Acquisitions of business units (101) (155) Dispositions of business units 35 30 Decrease in customer financing assets, net 25 31 Financing Activities Common Stock repurchase (302) (182) Decrease in total debt (52) (159) Decrease in net debt (338) (334) Cash flows from operating activities were $1,092 million during the first six months of 1997 compared to $1,038 million for the reported first six months of 1996. The improvement resulted primarily from improved operating performance. Cash flows from investing activities were a use of funds of $300 million during the first six months of 1997 compared to a use of $348 million in the first six months of 1996. Capital expenditures in the six-month period of 1997 were $350 million, a $43 million increase from the corresponding period of 1996. The Corporation expects 1997 full year capital spending to be moderately higher than 1996. Cash inflows from customer financing activities were lower in the six-month period of 1997, compared to 1996. While the Corporation expects that changes in customer financing assets in 1997 will be a modest net use of funds, actual funding is subject to usage under existing customer financing commitments during the remainder of the year. The Corporation's total commitments to finance or arrange financing of commercial aircraft and related equipment at June 30, 1997 were approximately $1 billion. The Corporation repurchased $302 million of common stock, representing 4.1 million shares, in the first six months of 1997 under previously announced stock repurchase programs. Share repurchase continues to be a significant use of the Corporation's strong cash flows and serves, in part, to offset the dilutive effect resulting from the issuance of stock under stock-based employee benefit programs. 14 UNITED TECHNOLOGIES CORPORATION AND SUBSIDIARIES Other selected financial data is as follows: June 30, December 31, June 30, In Millions of Dollars 1997 1996 1996 Cash and cash equivalents $ 1,413 $ 1,127 $ 1,075 Total debt 1,733 1,785 1,882 Net debt (total debt less cash) 320 658 807 Shareowners' equity 4,333 4,306 4,143 Debt-to-total capitalization 29% 29% 31% Net debt-to-total capitalization 7% 13% 16% The Corporation manages its worldwide cash requirements considering available funds among the many subsidiaries through which it conducts its business and the cost effectiveness with which those funds can be accessed. The repatriation of cash balances from certain of the Corporation's subsidiaries could have adverse tax consequences; however, those balances are generally available without legal restrictions to fund ordinary business operations. The Corporation has and will continue to transfer cash from those subsidiaries to the parent and to other international subsidiaries when it is cost effective to do so. Management believes that its existing cash position and other available sources of liquidity are sufficient to meet current and anticipated requirements for the foreseeable future. SAFE HARBOR STATEMENT This Report on Form 10-Q contains statements which, to the extent they are not historical fact, constitute "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All forward looking statements involve risks and uncertainties. The forward looking statements in this document are intended to be subject to the safe harbor protection provided by Sections 27A and 21E. For a discussion identifying some important factors that could cause actual results to vary materially from those anticipated in the forward looking statements, such as the economic, political, climatic, currency, regulatory, technological and competitive changes which may affect the Corporation's operations, products, and markets, see the Corporation's Securities and Exchange Commission filings, including, but not limited to, the Corporation's 1996 Annual Report on Form 10-K. See particularly Form 10-K Item I - Business, the sections entitled "Description of Business by Industry Segment" and "Other Matters Relating to the Corporation's Business as a Whole," and Form 10-K Item 7 - Management's Discussion and Analysis of Results of Operations and Financial Position, which incorporates by reference the information found at pages 22 through 27 of the Corporation's 1996 Annual Report to Shareowners. 15 UNITED TECHNOLOGIES CORPORATION AND SUBSIDIARIES Part II - Other Information Item 1 - Legal Proceedings As previously reported, the Department of Justice filed a civil False Claims Act complaint against the Corporation in April 1995 in the United States District Court for the Southern District of Florida, No. 95-8251, alleging misuse of $10 million of foreign military financing funds. The Complaint sought treble damages plus a $10,000 penalty for each false claim submitted. In May 1997, the Corporation settled this matter with the Department of Justice for $14.8 million. As previously reported, a jury in Chromalloy Gas Turbine Corporation v. United Technologies Corporation, No. 95-CI-12541, a Texas state action, found in November 1996 that Pratt & Whitney did not monopolize any relevant market but did willfully attempt to monopolize an unspecified market. In May 1997, the Court entered a Final Judgment denying Chromalloy's request for damages, injunctive relief and declaratory relief. Chromalloy has announced its intention to appeal. Also as previously reported, in June 1992, the Department of Justice filed a civil False Claims Act complaint in the United States District Court for the District of Connecticut, No. 592CV375, against Sikorsky Aircraft alleging that the Government was overcharged by nearly $4 million in connection with the pricing of parts supplied for the reconditioning of the Navy's Sea King helicopter. The Complaint seeks treble damages plus a $10,000 penalty for each false claim submitted. Trial in this matter began in July 1997. In July 1997, the Corporation was served with a qui tam complaint under the civil False Claims Act that had been filed under seal in the United States District Court for the District of Connecticut in June 1994 (No. 394CV00963). The Complaint seeks treble damages and penalties arising out of an alleged failure by Norden Systems, Inc. to account properly for its fixed assets in billings on government contracts. (The assets of Norden Systems, Inc. were sold to Westinghouse in 1994). The Government has declined to take over the action. In July 1997, the Corporation was served with a qui tam complaint under the civil False Claims Act that had been filed under seal in the United States District Court for the District of Connecticut in December 1994 (No. 394CV02063). The Complaint seeks treble damages and penalties arising out of an alleged failure by Norden Systems, Inc. and the Corporation to account properly for its insurance costs in billings on government contracts. (The assets of Norden Systems, Inc. were sold to Westinghouse in 1994). The Government has declined to take over the action. The Corporation does not believe that resolution of any of the matters discussed above will have a material adverse effect upon the Corporation's competitive position, results of operations, cash flows, or financial position. Other than the matters discussed above, there have been no material changes in legal proceedings during the second quarter of 1997. (For a description of previously reported legal proceedings, refer to Part 1, Item 3 - Legal Proceedings of the Corporation's Annual Report on Form 10-K for calendar year 1996 and to Part II, Item 1 - Legal Proceedings of the Corporation's Report on Form 10-Q for the first quarter of calendar year 1997). 16 UNITED TECHNOLOGIES CORPORATION AND SUBSIDIARIES Item 4 - Submission of Matters to a Vote of Security Holders (a) The Corporation held its Annual Meeting of Shareowners on April 29, 1997. (b) The following individuals were nominated and elected to serve as directors: Howard H. Baker, Jr., Antonia H. Chayes, George David, Charles W. Duncan, Jr., Jean-Pierre Garnier, Pehr G. Gyllenhammar, Karl J. Krapek, Charles R. Lee, Robert H. Malott, William J. Perry, Frank P. Popoff, Harold A. Wagner, and Jacqueline G. Wexler. (c) The Shareowners voted as follows on the following matters: 1. Election of directors. The voting result for each nominee is as follows: NAME VOTES FOR VOTES WITHHELD Howard H. Baker, Jr. 219,857,441 5,621,936 Antonia Handler Chayes 224,444,968 1,034,409 George David 224,474,175 1,005,202 Charles W. Duncan, Jr. 224,441,512 1,037,865 Jean-Pierre Garnier 224,425,760 1,053,617 Pehr G. Gyllenhammar 219,872,987 5,606,390 Karl J. Krapek 224,365,347 1,114,030 Charles R. Lee 224,540,679 938,698 Robert H. Malott 224,440,562 1,038,815 William J. Perry 224,405,605 1,073,772 Frank P. Popoff 224,517,432 961,945 Harold A. Wagner 224,521,496 957,881 Jacqueline G. Wexler 224,401,326 1,078,051 2. A management proposal to amend the Corporation's Restated Certificate of Incorporation to increase the number of authorized shares of common stock and reduce the par value of common stock was approved by a count of 195,650,812 votes for, 28,902,001 votes against, and 926,654 votes abstaining. 3. The reappointment of the Corporation's independent public accountants was approved by a count of 224,454,131 votes for, 408,518 votes against, and 616,728 votes abstaining. 4. A shareowner proposal recommending that the Corporation provide to shareowners a list of all executives contractually entitled to receive a base salary in excess of $100,000 annually was rejected by a count of 8,433,122 votes for, 197,427,819 votes against, with 3,023,009 votes abstaining, and 16,595,427 broker non-votes. 17 UNITED TECHNOLOGIES CORPORATION AND SUBSIDIARIES Item 6 - Exhibits and Reports on Form 8-K (a) Exhibits: (3)(i) Restated Articles of Incorporation, effective June 12, 1997. (11) Statement re computation of per share earnings. (12) Statement re computation of ratio of earnings to fixed charges. (15) Letter re unaudited interim financial information. (b) No Reports on Form 8-K were filed during the quarter ended June 30, 1997. 18 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: July 28, 1997 By: /s/ Stephen F. Page Stephen F. Page Executive Vice President and Chief Financial Officer Dated: July 28, 1997 By: /s/ Jay L. Haberland Jay L. Haberland Vice President and Controller Dated: July 28, 1997 By: /s/ William H. Trachsel William H. Trachsel Vice President and Secretary UNITED TECHNOLOGIES CORPORATION AND SUBSIDIARIES EXHIBIT INDEX Exhibit 3(i) - Restated Articles of Incorporation, effective June 12, 1997 (submitted electronically herewith) Exhibit 11 - Statement re computation of per share earnings Exhibit 12 - Statement re computation of ratio of earnings to fixed charges Exhibit 15 - Letter re unaudited interim financial information Exhibit 27 - Financial data schedule (submitted electronically herewith)