EXHIBIT 99.2
INTRODUCTION TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma condensed financial information has been
prepared from the historical financial statements of United Technologies
Corporation, a Delaware corporation ("United Technologies"), and Sundstrand
Corporation, a Delaware corporation ("Sundstrand"), adjusted to reflect the sale
of the UT Automotive division of United Technologies ("UT Automotive"), which
occurred on May 4, 1999, and the merger (the "Merger") of Sundstrand with and
into a wholly owned subsidiary of United Technologies using the purchase method
of accounting. The pro forma condensed balance sheet adjustment to reflect the
sale of UT Automotive, as though it had occurred on March 31, 1999, is based
upon net cash proceeds of approximately $2.1 billion, after payment of taxes and
the estimated $600 million gain on the sale after the accrual of other
transaction-related expenses. The pro forma condensed statements of operations
reflect UT Automotive as a discontinued operation and do not reflect the effects
of the gain.
The unaudited pro forma condensed balance sheet has been prepared to
reflect the Merger and the issuance of 0.558 shares of United Technologies
common stock and $35 in cash for each outstanding share of Sundstrand common
stock, as if the Merger occurred on March 31, 1999, and the issuance of United
Technologies stock options to Sundstrand stock option holders in exchange for
Sundstrand stock options. Based on the price per share of United Technologies
common stock of $62.71875 on February 19, 1999, the last trading day prior to
entering into the Agreement and Plan of Merger, dated as of February 21, 1999,
among United Technologies, HSSail Inc., a Delaware corporation and a wholly
owned subsidiary of United Technologies, and Sundstrand, total consideration
would be $70 per share resulting in an aggregate purchase price of approximately
$3.9 billion including related transaction costs of approximately $40 million.
The purchase price of Sundstrand common stock has been preliminarily allocated
to tangible and intangible assets and liabilities of Sundstrand based upon
estimates of their respective values. These allocations will be subsequently
adjusted based upon appraisals, valuations and other studies, which will be
conducted over the next several months. Final values may differ substantially
from those shown herein. The unaudited pro forma condensed statements of
operations combine the results of operations of United Technologies and
Sundstrand as if the Merger occurred on January 1, 1998.
The pro forma condensed financial statements should be read in conjunction
with United Technologies' and Sundstrand's historical financial statements. The
pro forma information presented is for informational purposes only and it is not
necessarily indicative of future earnings or financial position or of what the
earnings or financial position would have been had the Merger been completed on
January 1, 1998 or as of March 31, 1999. Historical financial statements of
United Technologies can be found in United Technologies' Annual Report on Form
10-K for the fiscal year ended December 31, 1998, as amended to reflect UT
Automotive as a discontinued operation by United Technologies' Current Report on
Form 8-K filed on June 11, 1999, and in United Technologies' Form 10-Q for the
quarter ended March 31, 1999, which are incorporated herein by reference.
Sundstrand's historical financial statements can be found in its Annual Report
on Form 10-K, filed on March 31, 1999, and Sundstrand's Quarterly Report on Form
10-Q,
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filed on May 13, 1999, for the quarter ended March 31, 1999, both of which are
incorporated herein by reference insofar as they relate to the periods ended
December 31, 1998 and March 31, 1999.
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Unaudited Pro Forma Condensed Balance Sheet
As of March 31, 1999
(In millions of dollars)
Historical UT Adjusted Merger United
United Automotive United Historical Pro Forma Technologies
Technologies Adjustment Technologies Sundstrand Adjustments Pro Forma
------------ ---------- ------------ ---------- ----------- ------------
ASSETS
Cash and cash equivalents $ 657 $ 2,100 $ 2,757 $ 17 $ (906) 1 $ 1,868
Accounts receivable, net 3,418 - 3,418 376 - 3,794
Inventories and contracts in
progress 3,302 - 3,302 409 24 3 3,735
Other current assets 1,426 - 1,426 68 - 1,494
Net investment in discontinued
operation 1,255 (1,255) - - - -
------------ ------------- ------------ ----------- ---------- -------------
Total Current Assets 10,058 845 10,903 870 (882) 10,891
Fixed assets, net 3,461 - 3,461 525 263 3 4,249
Goodwill 1,404 - 1,404 327 3,097 5 4,828
Other assets 2,989 - 2,989 98 - 3,087
------------ ------------- ------------ ----------- ---------- -------------
Total Assets $ 17,912 $ 845 $ 18,757 $ 1,820 $ 2,478 $ 23,055
============ ============= ============ =========== ========== =============
LIABILITIES AND
SHAREOWNERS' EQUITY
Long-term debt currently due $ 100 $ - $ 100 $ 136 $ - $ 236
Short-term borrowings 541 - 541 118 - 659
Accounts payable 1,648 - 1,648 114 40 1 1,802
Accrued liabilities 5,092 245 5,337 197 - 5,534
------------ ------------- ------------ ----------- ---------- -------------
Total Current Liabilities 7,381 245 7,626 565 40 8,231
Long-term debt 1,553 - 1,553 215 1,031 1,3 2,799
Other long-term liabilities 4,025 - 4,025 469 6 3,4 4,500
Series A ESOP Convertible
Preferred Stock 827 - 827 - - 827
ESOP deferred compensation (373) - (373) - - (373)
------------ ------------- ------------ ----------- ---------- -------------
454 - 454 - - 454
Shareowners' Equity:
Common Stock 2,818 - 2,818 204 1,037 1,2 4,059
Unamortized value restricted
stock issued - - - (6) 6 2 -
Treasury Stock (3,212) - (3,212) (665) 1,396 1,2 (2,481)
Retained earnings 5,595 600 6,195 1,054 (1,054) 2 6,195
Accumulated other non-
shareowner
changes in equity (702) - (702) (16) 16 2 (702)
------------ ------------- ------------ ----------- ---------- -------------
4,499 600 5,099 571 1,401 7,071
------------ ------------- ------------ ----------- ---------- -------------
Total Liabilities and
Shareowners' Equity $ 17,912 $ 845 $ 18,757 $ 1,820 $ 2,478 $ 23,055
============ ============= ============ =========== ========== =============
See accompanying Notes to Unaudited Pro Forma Condensed Financial Statements.
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NOTES TO UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
AS OF MARCH 31, 1999
The unaudited pro forma condensed balance sheet includes the pro forma
adjustments to reflect the sale of UT Automotive and the Merger as if both took
place on March 31, 1999.
UT AUTOMOTIVE PRO FORMA ADJUSTMENT:
Reflects the sale of UT Automotive for net cash proceeds of approximately
$2.1 billion after payment of taxes and the estimated $600 million gain on
the sale after the accrual of other transaction-related expenses.
Merger Pro Forma Adjustments:
1. Adjustment to reflect the issuance of 30 million shares of
United Technologies Common Stock based on an exchange ratio of 0.558
in the Merger, the payment of $1.906 billion for the cash
consideration paid to Sundstrand stockholders, the accrual of the
cash transaction costs and the issuance of United Technologies stock
options to Sundstrand stock option holders. The adjustment assumes
that the cash consideration was funded by the issuance of
approximately $1.0 billion of medium-term and long-term debt and $906
million of cash from the sale of UT Automotive which occurred on May
4, 1999.
2. Adjustment to eliminate Sundstrand equity pursuant to the Merger.
3. Adjustment to record Sundstrand assets and liabilities at
their estimated fair market value.
4. Adjustment to record the tax effects related to the pro
forma adjustments.
5. Adjustment to reflect the incremental goodwill resulting from the
Merger.
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UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED MARCH 31, 1999
(In millions, except per share amounts)
HISTORICAL MERGER UNITED
UNITED HISTORICAL PRO FORMA TECHNOLOGIES
TECHNOLOGIES SUNDSTRAND ADJUSTMENTS PRO FORMA
------------ ---------- ----------- ------------
Revenues:
Product sales $ 3,980 $ 504 $ (6) D $ 4,478
Service sales 1,402 - - 1,402
Financing revenues and other income, net 60 3 - 63
------------- ----------- ------------ -------------
5,442 507 (6) 5,943
Costs and Expenses:
Cost of products sold 3,110 310 14 A,C,D 3,434
Cost of services sold 867 - - 867
Research and development 274 32 - 306
Selling, general and administrative 701 71 - 772
Interest 55 9 16 B 80
------------- ----------- ------------ -------------
5,007 422 30 5,459
Income from continuing operations before in-
come taxes and minority interests 435 85 (36) 484
Income taxes 136 29 (8) E 157
Minority interests 21 - - 21
------------- ----------- ------------ -------------
Income from continuing operations $ 278 $ 56 $ (28) $ 306
Discontinued Operation:
Income from operations of discontinued UT
Automotive subsidiary (net of applicable
income tax provision of $15 million) 30 - - 30
------------- ----------- ------------ -------------
Net Income $ 308 $ 56 $ (28) $ 336
============= =========== ============ =============
Earnings per share of Common Stock
Continuing operations:
Basic $ .60 $ .62
Diluted $ .57 $ .58
Discontinued operation:
Basic $ .07 $ .06
Diluted $ .06 $ .06
Net earnings per share:
Basic $ .67 $ .68
Diluted $ .63 $ .64
Average number of shares outstanding
(millions):
Basic 451 30 481
Diluted 492 32 524
See accompanying Notes to Unaudited Pro Forma Condensed Financial Statements.
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Unaudited Pro Forma Condensed Statement of Operations
For the Year Ended December 31, 1998
(In millions, except per share amounts)
HISTORICAL MERGER UNITED
UNITED HISTORICAL PRO FORMA TECHNOLOGIES
TECHNOLOGIES SUNDSTRAND ADJUSTMENTS PRO FORMA
------------ ---------- ----------- ------------
Revenues:
Product sales $ 17,348 $ 2,005 $ (25)D $ 19,328
Service sales 5,439 - - 5,439
Financing revenues and other income, net 22 10 - 32
-------------- ------------ ------------ --------------
22,809 2,015 (25) 24,799
Costs and Expenses:
Cost of products sold 13,436 1,266 60 A,C,D 14,762
Cost of services sold 3,461 - - 3,461
Research and development 1,168 92 - 1,260
Selling, general and administrative 2,737 275 - 3,012
Interest 197 35 65 B 297
-------------- ------------ ------------ --------------
20,999 1,668 125 22,792
Income from continuing operations before in- 1,810 347 (150) 2,007
come taxes and minority interests
Income taxes 568 121 (32) E 657
Minority interests 85 - - 85
-------------- ------------ ------------ --------------
Income from continuing operations $ 1,157 $ 226 $ (118) $ 1,265
Discontinued Operation:
Income from operations of discontinued UT
Automotive subsidiary (net of applicable
income tax provision of $55 million) 98 - - 98
-------------- ------------ ------------ --------------
Net Income $ 1,255 $ 226 $ (118) $ 1,363
============== ============ ============ ==============
Earnings Per Share of Common Stock
Continuing operations:
Basic $ 2.47 $ 2.54
Diluted $ 2.33 $ 2.39
Discontinued operation:
Basic $ .21 $ .20
Diluted $ .20 $ .19
Net earnings per share:
Basic $ 2.68 $ 2.74
Diluted $ 2.53 $ 2.58
Average number of shares outstanding (millions):
Basic 456 30 486
Diluted 495 32 527
See accompanying Notes to Unaudited Pro Forma Condensed Financial Statements.
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NOTES TO UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
FOR THE PERIODS ENDED MARCH 31, 1999 AND DECEMBER 31, 1998
The unaudited pro forma condensed statements of operations include the pro
forma adjustments to reflect the Merger as if it took place on January 1, 1998.
A. Adjustment to reflect goodwill amortization from the Merger over an
estimated useful life of 40 years.
B. Reflects the interest expense incurred by United Technologies in connection
with the Merger. Interest expense was calculated (360-day basis) on a pro
forma basis using an interest rate of 6.5% on medium-term and long-term debt
of $1.0 billion. A 50 basis-point change in interest rates would have a $5
million annual impact on interest expense.
C. Adjustment reflects the additional depreciation on the write-up of fixed
assets to fair value over a 10 year useful life.
D. Adjustment to eliminate sales and cost of sales between Sundstrand and United
Technologies.
E. Adjustment to record the tax effects related to the pro forma adjustments.
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