UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2000 Commission file number 1-812 UNITED TECHNOLOGIES CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 06 0570975 (State or other jurisdiction of (I.R.S. Employer Incorporation or organization) Identification No.) One Financial Plaza, Hartford, Connecticut 06103 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (860) 728-7000 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock ($1 par New York Stock Exchange value) 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 January 31, 2001, there were 470,686,714 shares of Common Stock outstanding. The aggregate market value of the voting Common Stock held by non-affiliates at January 31, 2001 was approximately $35,214,250,453, based on the New York Stock Exchange closing price for such shares on that date. For purposes of this calculation, the Registrant has assumed that its directors and executive officers are affiliates. List hereunder documents incorporated by reference and the Part of the Form 10-K into which the document is incorporated: (1) Portions of the United Technologies Corporation 2000 Annual Report to Shareowners are incorporated by reference in Parts I, II and IV hereof; and (2) Portions of the United Technologies Corporation Proxy Statement for the 2001 Annual Meeting of Shareowners are incorporated by reference in Part III hereof. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and is not to be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. [ ]
UNITED TECHNOLOGIES CORPORATION _______________________________ Index to Annual Report on Form 10-K for Year Ended December 31, 2000 PART I Page Item 1. Business ............................................. 1 Item 2. Properties ............................................ 8 Item 3. Legal Proceedings ..................................... 9 Item 4. Submission of Matters to a Vote of Security Holders ... 10 - ----- Executive Officers of the Registrant .................. 10 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters ................................... 12 Item 6. Selected Financial Data ............................... 12 Item 7. Management's Discussion and Analysis of Results of Operations and Financial Position ..................... 12 Item 7A Quantitative and Qualitative Disclosures About Market Risk .................................................. 12 Item 8. Financial Statements and Supplementary Data ........... 12 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ................... 12 PART III Item 10. Directors and Executive Officers of the Registrant .... 12 Item 11. Executive Compensation ................................ 12 Item 12. Security Ownership of Certain Beneficial Owners and Management ............................................ 13 Item 13. Certain Relationships and Related Transactions ........ 13 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ............................................. 13
Item 1. Business United Technologies Corporation was incorporated in Delaware in 1934. Growth is attributable to acquisitions and the internal development of existing businesses of the Corporation.* Management's Discussion and Analysis of the Corporation's Results of Operations and Financial Position at December 31, 2000, with comparisons of 2000 to 1999 and 1999 to 1998, as well as Selected Financial Data for each year in the five year period ended December 31, 2000 are set forth on pages 1 through 8 of the Corporation's 2000 Annual Report to Shareowners. Whenever reference is made in this Form 10-K to specific pages in the 2000 Annual Report to Shareowners, such pages are incorporated herein by reference. Operating Segments The Corporation conducts its business through four principal operating segments. The 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. The principal products of each segment are as follows: Operating Segment Principal Products Otis --Otis elevators, escalators, automated people movers and service. Carrier --Carrier commercial and residential heating, ventilating and air conditioning ("HVAC") systems and equipment, commercial and transport refrigeration equipment, aftermarket service and components. Pratt & Whitney --Pratt & Whitney commercial, general aviation and military aircraft engines, parts, service, industrial gas turbines and space propulsion. Flight Systems --Sikorsky commercial and military helicopters, parts and service. --Hamilton Sundstrand aerospace and industrial products, including aircraft power generation and management systems, engine and flight controls, auxiliary power units, environmental control systems and propeller systems (aerospace), and air compressors, metering devices, fluid handling equipment and enclosed gear drives (industrial). Segment financial data for the years 1998 through 2000, including financial information about foreign and domestic operations and export sales, is included in Note 15 of Notes to Consolidated Financial Statements on pages 22 through 24 of the Corporation's 2000 Annual Report to Shareowners. Description of Business by Operating Segment The following description of the Corporation's business by operating segment should be read in conjunction with Management's Discussion and Analysis of Results of Operations and Financial Position appearing in the Corporation's 2000 Annual Report to Shareowners, especially the information contained therein under the heading "Business Environment." Otis Otis is the world's largest elevator and escalator manufacturing, installation and service company. Otis designs, manufactures, sells and installs a wide range of passenger and freight elevators, including hydraulic and traction elevators for low- and medium-speed applications and gearless elevators for high-speed passenger operations in high-rise buildings. In February 2000, Otis announced its new Gen2 (trademark symbol) elevator system for low- to mid-rise buildings, the first elevator to use flat, coated steel belts. Installations of this new machine room-less elevator began in February 2000. Otis also produces a broad line of escalators and, for horizontal transportation, moving walks and automated people movers and shuttles. In addition to new equipment, Otis provides modernization products and services to upgrade elevators and escalators. Otis also provides maintenance services for a substantial portion of the elevators and escalators which it sells, as well as those of other manufacturers. Otis' products and services are sold principally to building contractors and owners. _______________________ * "Corporation," unless the context otherwise requires, means United Technologies Corporation or UTC and its subsidiaries. - 1 -
In 1999, LG-Otis Elevator Company was formed in Korea to acquire the Building Facilities Group of LG Industrial Systems Co. Inc. The Corporation has an 80 percent equity interest in LG-Otis Elevator Company. Revenues generated by Otis' international operations were 77 and 78 percent of total Otis segment revenues in 2000 and 1999, respectively. At December 31, 2000, Otis' business backlog was $3,770 million, as compared to $3,782 million at December 31, 1999. Substantially all of the business backlog at December 31, 2000 is expected to be realized as sales in 2001. Carrier Carrier is the world's largest manufacturer of commercial and residential heating, ventilating and air conditioning systems and equipment. Carrier is also a leading producer of commercial and transport refrigeration equipment, and provides aftermarket service and components for its products and those of other manufacturers. The products manufactured by Carrier include chillers and airside equipment, commercial unitary systems, residential split systems (cooling only and heat pump), duct-free split systems, window and portable room air conditioners and furnaces, as well as transport refrigeration and commercial refrigeration equipment. Carrier's products and services are sold under Carrier and other brand names principally to building contractors and owners, homeowners, shipping and trucking companies, supermarkets and food service companies. Sales are made both directly to the customer and through manufacturers' representatives, distributors, dealers, individual wholesalers and retail outlets. In April 1999, Carrier formed an alliance with Toshiba Corporation to combine and coordinate certain air conditioning manufacturing and distribution operations. Toshiba Carrier Corporation is based in Japan and owned 40 percent by Carrier and 60 percent by Toshiba. Carrier and Toshiba Carrier Corporation formed manufacturing joint ventures in the U.K., with Carrier holding a majority interest, and in Thailand with Carrier and Toshiba Carrier owning equal interests. In August 1999, Carrier expanded its North American presence in residential and light commercial heating and air conditioning equipment by acquiring International Comfort Products Corporation. In February 2000, Carrier expanded its European commercial refrigeration operations by acquiring the Electrolux Group's commercial refrigeration business. In November 2000, Carrier acquired Specialty Equipment Companies, a manufacturer of commercial refrigeration and food service equipment in the United States and Europe. Revenues generated by Carrier's international operations, including U.S. export sales, were 48 percent of total Carrier segment revenues in each of 2000 and 1999. At December 31, 2000, Carrier's business backlog was $1,004 million, as compared to $978 million at December 31, 1999. Substantially all of the business backlog at December 31, 2000 is expected to be realized as sales in 2001. Otis and Carrier Worldwide Operations Otis and Carrier conduct their businesses through subsidiaries and affiliates worldwide, some of which have significant minority interests. In addition, their global growth strategies include investments in markets worldwide, including those in Central and Eastern Europe, the People's Republic of China, Russia, Brazil, South Korea and other countries, which involve a higher degree of currency, political and economic risk than investments in more developed markets. The U.S. and worldwide operations of Otis and Carrier can be affected by changes in economic, industrial, political, weather and international conditions, including changes in interest rates (which can affect demand for products and services), changes in technology, changes in legislation and government policies (including those related to investments, exchange controls, repatriation of earnings and, in the case of Carrier, regulation of refrigerants), changes in the level of construction activity, changes in exchange rates, changes in labor costs (which can affect Otis service and maintenance margins) and raw material costs, and competition from a large number of companies in the United States and other countries. Carrier's operations can also be affected by changes in the level of production and utilization of transport equipment, in the level of retail sales of perishable food products, and in fuel prices. The principal methods of competition are price, delivery schedule, product performance and service. - 2 -
Pratt & Whitney and Flight Systems Aerospace and Defense Products Pratt & Whitney and Flight Systems produce aerospace and defense products. Sales of these products are subject to changes in technology; lengthy and costly development cycles; the effects of consolidation in the aerospace and defense industry; heavy dependence on a small number of products and programs; changes in legislation (including restrictions on aircraft engine noise and emissions) and in government procurement practices; policies of some foreign customers which require offset programs (in-country purchases, manufacturing and financial support projects required as a condition to obtaining orders) or other arrangements; substantial competition from domestic manufacturers, foreign manufacturers (whose governments sometimes provide research and development assistance, marketing subsidies and other assistance for their commercial products) and companies that obtain regulatory agency approval to manufacture spare parts; and changes in economic, industrial and international conditions. In addition, the financial performance of these two segments can be affected in a number of respects by the general level of activity and performance of the commercial airline industry and the aviation industry and by changes in fuel prices. The international operations of these segments are subject to local government regulations (including regulations relating to investments, exchange controls and repatriation of earnings) as well as to varying currency, political and economic risks. Sales of military products are affected by defense budgets (both in the U.S. and abroad) and U.S. foreign policy. Military spare parts sales are also affected by policies of the U.S. and foreign governments of purchasing parts from suppliers other than the original equipment manufacturers. The principal methods of competition in the Corporation's aerospace and defense businesses are price, product performance, service, delivery schedule and other terms and conditions of sale, including discounts and other financial incentives, performance and operating cost guarantees, maintenance agreements and participation in financing arrangements for commercial jet engines and helicopters. Engine selections by airlines, airframe manufacturers and operators can have a significant impact on sales of spare parts and maintenance services. Significant elements of Pratt & Whitney's and Flight Systems' business, such as spare parts sales for engines and aircraft in service, have short lead times. Therefore, backlog information may not be indicative of future demand. Also, since a substantial portion of the backlog for commercial customers is scheduled for delivery beyond 2001, changes in economic conditions may cause customers to request that firm orders be rescheduled or canceled. In 2000, the Corporation announced its participation in the formation of MyAircraft, a joint venture to develop a business-to-business e-commerce marketplace for aerospace aftermarket products and services. E-commerce business models are subject to significant risks due to rapid changes in technology, business practices and customer acceptance, as well as substantial competition from other e-commerce initiatives. These e-commerce exchanges can also have a significant impact on the manner in which the Corporation sells parts and services. Pratt & Whitney Pratt & Whitney is one of the world's leading producers of commercial, general aviation and military aircraft engines. Pratt & Whitney provides overhaul and repair services, spare parts, and fleet management services for the engines it produces, as well as for many other models of commercial and military jet and gas turbine engines. Pratt & Whitney also produces power generation equipment, liquid rocket propulsion systems and solid rocket motors. Pratt & Whitney currently produces three families of large commercial jet engines: the JT8D-200 series, the PW2000 series and the PW4000 series. JT8D- 200 series engines power the Boeing MD-80 aircraft. Applications for the PW2000 series include the Boeing 757-200/PF aircraft and the Iluyshin IL-96 aircraft. The PW4000 engine family powers the Airbus A310-300, A300-600 and A330-200/300 series; the Boeing 747-400, 767-200/300 and 777-200/300 series of aircraft; and the Boeing MD-11 aircraft. (The Boeing Company ("Boeing") phased out production of MD-80 aircraft in December 1999 and has announced that MD-11 production would be phased out in 2001.) Pratt & Whitney has entered into a Memorandum of Understanding with Airbus Industrie ("Airbus") to develop, market and sell PW6000 series engines for installation on Airbus A318 aircraft, currently expected to enter service in the fourth quarter of 2002. - 3 -
In view of the risk and cost associated with developing new engines, Pratt & Whitney has entered into commercial engine collaboration arrangements in which costs, revenues and risks are shared. At December 31, 2000, the interests of other participants in these items were approximately as follows: 24 percent of the JT8D-200 series engine program, 29 percent of the PW2000 series engine program, 14 percent of the 94 and 100 inch fan models of the PW4000, 26 percent of the PW4084 and PW4090 models and 24 percent of the PW4098 model. IAE International Aero Engines AG, a collaboration in which Pratt & Whitney has a 33 percent interest, markets and supports the V2500 engine. Applications for the V2500 engine include Airbus' A319, A320 and A321 aircraft and Boeing's MD-90. (Boeing phased out production of MD-90 aircraft in 2000.) Pratt & Whitney also has a 50 percent interest in GE-P&W Engine Alliance, LLC, an alliance formed in 1996 with GE Aircraft Engines to develop, market and manufacture a new jet engine known as the GP7000. The new engine is intended to power Boeing 767- 400ERX, Boeing 747X and Airbus A380 aircraft. In December 2000, Airbus announced the launch of the A380 aircraft (formerly known as the A3XX), with first deliveries scheduled for 2006. Manufacturers of many commercial aircraft offer their customers a choice of engines, giving rise to competition among engine manufacturers at the time of sale of aircraft. This competition is intense, particularly for new commercial airframe/engine combinations, and can result in offers by engine suppliers of substantial financial incentives, performance and operating cost guarantees and maintenance agreements. Pratt & Whitney's major competitors in the sale of engines are the aircraft engine businesses of General Electric Company and Rolls Royce plc. (For information regarding customer financing commitments, participation in guarantees of customer financing arrangements and performance and operating cost guarantees, see Notes 4 and 13 of Notes to Consolidated Financial Statements on pages 16 and 21 to 22 of the Corporation's 2000 Annual Report to Shareowners.) Pratt & Whitney products are sold principally to aircraft manufacturers, airlines and other aircraft operators, aircraft leasing companies and the U.S. and foreign governments. Pratt & Whitney sales in the U.S. and Canada are also made directly to the customer and, to a limited extent, through independent distributors. Other export sales are made with the assistance of independent sales representatives. Sales to Boeing and Airbus were each 15 percent of total Pratt & Whitney revenues in 2000, before taking into account discounts or financial incentives offered to customers. Pratt & Whitney currently produces two military aircraft engines, the F100 (powering F-15 and F-16 fighter aircraft) and the F117 (powering C-17 transport aircraft). All of Pratt & Whitney's F100 sales contracts are with the United States Air Force ("USAF") or with foreign governments. All of Pratt & Whitney's F117 sales contracts are with either the USAF or Boeing. Pratt & Whitney is also under contract with the USAF to develop the F119 engine, the only anticipated source of propulsion for the two-engine F-22 fighter aircraft being developed by Lockheed Martin Corporation ("Lockheed Martin") and Boeing. In addition, both contractors (Boeing and Lockheed Martin) that were selected to proceed into the next phase of the Joint Strike Fighter development program have selected derivatives of Pratt & Whitney's F119 engine to power their competing demonstration aircraft. Management cannot predict with certainty whether, when, and in what quantities Pratt & Whitney will produce F119 engines. Pratt & Whitney Canada ("PWC") is one of the world's leading manufacturers of turbofan, turboprop and turboshaft engines used in a variety of aircraft, including up to seventy passenger business and regional/commuter airline aircraft, general aviation aircraft and light and medium helicopters. PWC also provides auxiliary power units for large commercial aircraft, advanced gas turbine engines for industrial and power generation applications and worldwide engine maintenance services. Pratt & Whitney Space Propulsion ("SP") produces hydrogen fueled rocket engines for commercial and U.S. Government space applications and advanced turbo pumps for NASA's Space Shuttle program. SP, together with NPO Energomash, is providing a new Lox-Kerosene RD-180 booster engine for two launch vehicles being marketed by Lockheed Martin. Chemical Systems, a unit of SP, manufactures solid fuel propulsion systems and booster motors for commercial and civil applications and several U.S. military launch vehicles and missiles. Pratt & Whitney Power Systems ("PWPS") supplies industrial power generation and mechanical drive equipment in the 300 kilowatts to 50 megawatts range. In October 2000, PWPS established a service agreement with Power Industry Consultants of Atlanta, Georgia to provide operations, maintenance, field services and turnkey services for PWPS industrial gas turbine products. - 4 -
Revenues from Pratt & Whitney's international operations, including U.S. export sales, were 50 percent and 48 percent of total Pratt & Whitney segment revenues in 2000 and 1999, respectively. At December 31, 2000, Pratt & Whitney's business backlog was $9,866 million, including $1,434 million of U.S. Government funded contracts and subcontracts, as compared to $8,256 million and $1,394 million, respectively, at December 31, 1999. Of the total Pratt & Whitney backlog at December 31, 2000, approximately $4,055 million is expected to be realized as sales in 2001. Flight Systems The Corporation's Flight Systems business is conducted through Sikorsky Aircraft and Hamilton Sundstrand. The Corporation acquired Sundstrand Corporation in 1999 and combined it with the operations of the former Hamilton Standard. Sikorsky is one of the world's largest manufacturers of military and commercial helicopters and the primary supplier of transport helicopters to the U.S. Army and Navy. Sikorsky also supplies helicopters to foreign governments and the worldwide commercial market. Sikorsky produces helicopters for passenger, utility/transport, cargo, anti-submarine warfare, and search and rescue operations. Sikorsky's business base also includes remanufacturing of used aircraft, spare parts sales, overhaul and repair, and service contracts. Current production programs at Sikorsky include the Black Hawk medium- transport helicopter for the U.S. and foreign governments; the CH-60 Fleet Combat Support helicopter for the U.S. Navy; the International Naval Hawk, a derivative of the U.S. Navy's Seahawk medium-sized helicopter for multiple naval missions; and the S-76 intermediate-sized helicopter for executive transport, offshore oil platform support, search and rescue, emergency medical service and other utility operations. In July 1997, Sikorsky signed a multi-year contract with the U.S. Government to deliver 108 Black Hawk family helicopters from July 1997 through June 2002. Under the contract as it has been amended through December 2000, the purchase commitment has been increased to 207 helicopters. As of December 31, 2000, 141 helicopters have been delivered under the contract. While Sikorsky is pursuing opportunities for additional sales to the U.S. Government, Sikorsky's production of Black Hawk family helicopters is increasingly dependent upon obtaining foreign sales. In 2000, Sikorsky signed contracts to sell 47 Black Hawks and variants to several foreign government customers for delivery from 2000 through 2004. Sikorsky is engaged in development of the S-92 aircraft, a large cabin derivative of the Black Hawk helicopter, for commercial and military markets. A significant portion of the development is being carried out by companies in Brazil, the People's Republic of China, Japan, Spain and Taiwan under collaborative arrangements. Regulatory certification of the S-92 is expected in 2002. While marketing efforts for the S-92 have commenced, management cannot predict with certainty whether, when, and in what quantities the S-92 will be produced. Sikorsky has a 50 percent interest in a joint venture with Boeing for the development of the U.S. Army's next generation light attack and reconnaissance helicopter, the RAH-66 Comanche. The Sikorsky-Boeing joint venture is performing under a cost reimbursement contract awarded in 1991. The first two prototype aircraft are undergoing flight testing, and the Sikorsky-Boeing joint venture has entered into a $3.1 billion Engineering and Manufacturing Development program with the U.S. Army to deliver thirteen Comanche helicopters in 2004 and 2005 for test and evaluation purposes. The first U.S. Army Comanche unit is scheduled to be operationally equipped in 2006. Management cannot predict with certainty whether, when, and in what quantities any additional Comanche aircraft will be produced. Hamilton Sundstrand primarily sells products and services for use by aerospace customers worldwide. Industrial products are also sold to a diversified group of basic industries. Hamilton Sundstrand's principal aerospace systems, subsystems and components include electric power generating, distribution, management and control systems; fuel and special fluid pumps; engine control systems; gearboxes; actuation systems; ram air turbine emergency systems; auxiliary power units; environmental control systems; propeller systems; launch vehicle hydraulic power units; and electronic controls and components. Hamilton Sundstrand is also the prime contractor for NASA's space suit/life support system and produces environmental control, life support, mechanical systems and thermal control systems for international space programs. Hamilton Sundstrand's principal industrial products include enclosed gear drives; flexible shaft couplings; large ring gears; metering and specialty pumps; rotary screw industrial and portable air compressors; pneumatic tools; dryers and filters; high-speed centrifugal pumps and compressors and leak proof pumps. - 5 -
Hamilton Sundstrand's aerospace businesses serve commercial, military, regional, business and general aviation, as well as space and undersea applications. Aftermarket services include spare parts, overhaul and repair and engineering and technical support. Hamilton Sundstrand aerospace products are sold directly to airframe manufacturers, the U.S. Government, aircraft operators and independent distributors. Hamilton Sundstrand sales of aerospace products to Boeing, Pratt & Whitney and Airbus, including sales where the U.S. Government was the ultimate customer, were 11 percent of Flight Systems segment sales in 2000. Hamilton Sundstrand's industrial products serve industries involved with raw material processing, bulk material handling and construction (including mining; metal and other material processing; hydrocarbon and chemical processing; water and waste water treatment). These industrial products are sold directly to end- users, through manufacturer representatives and distributors and through engineering contractors. Demand for Hamilton Sundstrand's industrial products is tied closely to the level of general economic activity. Hamilton Sundstrand has competitors or potential competitors in both its aerospace and industrial businesses. Hamilton Sundstrand believes that its research and development, proprietary technology, and product and service reputations have been significant in maintaining its competitive standing. Revenues generated by the Flight Systems segment's international operations, including export sales, were 44 percent and 41 percent of total Flight Systems segment revenues in 2000 and 1999, respectively. At December 31, 2000, Flight Systems' business backlog was $4,593 million, including $2,532 million under funded contracts and subcontracts with the U.S. Government, as compared to $3,930 million and $1,011 million, respectively, at December 31, 1999. Of the total Flight Systems segment backlog at December 31, 2000, approximately $2,985 million is expected to be realized as sales in 2001. Other The Corporation's International Fuel Cells unit ("IFC") is a world leader in fuel cell production and development for commercial, transportation, residential and space applications. IFC is the sole supplier of fuel cells for U.S. space missions and also offers a commercially available fuel cell power plant, known as the PC25 (trademark symbol). The PC25 is a 200 kilowatt stationary fuel cell power plant with a phosphoric acid cell stack. Over 200 PC25 units have been delivered around the world. Fuel cell power plants using proton exchange membrane technology (PEM) are currently in development for transportation, commercial stationary, and residential applications. IFC is working with five automakers and two bus manufacturers, as well as the U.S. Department of Energy, on development and demonstration programs for automobiles. Although fuel cells are believed to be superior to conventional power generators in terms of efficiency and environmental characteristics, current production rates remain low across the industry. Continued technology advancement and wider market acceptance are required to reduce the production cost of fuel cell components and power plants. There is still significant uncertainty as to whether and when commercially viable PEM fuel cells will be produced. IFC continues to seek strategic partners to develop sources of supply, as well as marketing and distribution channels. Toshiba Corporation owns a 13 percent equity interest in IFC. The results of IFC are included in the "Eliminations and other" category in the segment financial data in Note 15 of Notes to Consolidated Financial Statements on pages 22 to 24 of the Corporation's 2000 Annual Report to Shareowners. Other Matters Relating to the Corporation's Business as a Whole Research and Development To maintain its competitive position, the Corporation spends substantial amounts of its own funds on research and development. Such expenditures, which are charged to income as incurred, were $1,302 million or 5.0 percent of total sales in 2000, as compared with $1,292 million or 5.4 percent of total sales in 1999 and $1,168 million or 5.1 percent of total sales in 1998. The Corporation also performs research and development work under contracts funded by the U.S. Government and other customers. Such contract research and development, which is performed principally in the Pratt & Whitney segment and to a lesser extent in the Flight Systems segment, amounted to $1,004 million in 2000, as compared with $1,044 million in 1999 and $1,065 million in 1998. - 6 -
Contracts, Other Risk Factors, Environmental and Other Matters Government contracts are subject to termination at the convenience of the Government, in which event the Corporation normally would be entitled to reimbursement for its allowable costs incurred plus a reasonable profit. Most of the Corporation's sales are made under fixed-price type contracts; only 4 percent of the Corporation's total sales for 2000 were made under cost- reimbursement type contracts. Like many defense contractors, the Corporation has received allegations from the U.S. Government that some contract prices should be reduced because cost or pricing data submitted in negotiation of the contract prices may not have been in conformance with government regulations. The Corporation has made voluntary refunds in those cases it believes appropriate, has settled some allegations, and does not believe that any further price reductions that may be required will have a material effect upon its financial position, results of operations or cash flows. 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. See Item 3 - Legal Proceedings on pages 9 and 10 of this Form 10-K and Note 14 of Notes to Consolidated Financial Statements on page 22 of the Corporation's 2000 Annual Report to Shareowners for further discussion. The diversification of the Corporation's businesses across industries and geographically throughout the world has helped to limit in varying degrees the effect of adverse conditions in any one industry or the economy of any country or region on the consolidated results of the Corporation. There can be no assurance, however, that the effect of adverse conditions in one or more industries or regions will be limited or offset in the future. Like other users in the U.S., the Corporation is largely dependent upon foreign sources for certain of its raw materials requirements such as cobalt (Africa) and chromium (Africa, Eastern and Central Europe and the countries of the former Soviet Union). To alleviate this dependence and accompanying risk, the Corporation has a number of on-going programs which include the development of new suppliers; the increased use of more readily available materials through material substitutions and the development of new alloys; and the conservation of materials through scrap reclamation and new manufacturing processes such as net shape forging. The Corporation has sought cost reductions in its purchases of certain other materials, components, and supplies by consolidating its purchases, reducing the number of suppliers and using online bidding competitions among potential suppliers. In some instances, the Corporation is reliant upon a single source of supply. A disruption in deliveries from its suppliers, therefore, could have an adverse effect on the Corporation's ability to meet its commitments to customers. The Corporation believes that it has appropriately balanced the risks against the costs of sustaining a greater number of suppliers. The Corporation does not foresee any unavailability of materials, components, or supplies which will have any material adverse effect on its overall business, or on any of its business segments, in the near term. The Corporation does not anticipate that compliance with current federal, state and local provisions relating to the protection of the environment will have a material adverse effect upon its cash flows, competitive position, financial position or results of operations. (Environmental matters are the subject of certain of the legal matters described in Item 3 - Legal Proceedings on pages 9 and 10 of this Form 10-K, and are further addressed in Management's Discussion and Analysis of Results of Operations and Financial Position on page 7 and Notes 1 and 14 of Notes to Consolidated Financial Statements on pages 15 and 22 of the Corporation's 2000 Annual Report to Shareowners.) Most of the laws governing environmental matters include criminal provisions. If the Corporation were convicted of a violation of the federal Clean Air Act or the Clean Water Act, the facility or facilities involved in the violation would be listed on the Environmental Protection Agency's ("EPA") List of Violating Facilities. The listing would continue until the EPA concluded that the cause of the violation had been cured. Listed facilities cannot be used in performing any U.S. Government contract awarded to the Corporation during any period of listing by the EPA. While the Corporation's patents, trademarks, licenses and franchises are cumulatively important to its business, the Corporation does not believe that the loss of any one or group of related patents, trademarks, licenses or franchises would have a material adverse effect on the overall business of the Corporation or on any of its operating segments. - 7 -
Cautionary Note Concerning Factors That May Affect Future Results This Form 10-K 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: . Future earnings and other measurements of financial performance . Future cash flow and uses of cash . The effect of economic downturns or growth in particular regions . The effect of changes in the level of activity in particular industries or markets . The scope, nature or impact of acquisition activity . Product developments and new business opportunities, including e-business . Restructuring costs and savings . The outcome of contingencies . 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. This 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," "Other Matters Relating to the Corporation's Business as a Whole" and "Legal Proceedings." Additional important information as to risk factors is included in the Corporation's 2000 Annual Report to Shareowners in the section titled "Management's Discussion and Analysis of Results of Operations and Financial Position" under the headings "Business Environment," "Results of Continuing Operations," "Business Acquisitions," "Restructuring and Other Costs," "Liquidity and Financing Commitments," "Market Risk and Risk Management," "Environmental Matters," "U.S. Government," "New Accounting Pronouncements," and "Euro Conversion," which is incorporated by reference in this Form 10-K. 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-Q and 8-K filed with the Securities and Exchange Commission from time to time. Employees At December 31, 2000, the Corporation's total employment was approximately 153,800. For discussion of the effects of the Corporation's restructuring actions on employment, see Management's Discussion and Analysis of Results of Operations and Financial Position on page 4 and Note 11 of Notes to Consolidated Financial Statements on pages 20 to 21 of the Corporation's 2000 Annual Report to Shareowners. Item 2. Properties The Corporation's fixed assets as of December 31, 2000 include the plants and warehouses described below and a substantial quantity of machinery and equipment, most of which is general purpose machinery and equipment using special jigs, tools and fixtures and in many instances having automatic control features and special adaptations. The plants, warehouses, machinery and equipment in use as of December 31, 2000 are in good operating condition, are well maintained, and substantially all are in regular use. The following square footage numbers are approximations. At December 31, 2000, the Corporation operated (a) plants in the U.S. which had 30.6 million square feet, of which 3.3 million square feet were leased; (b) plants outside the U.S. which had 18.8 million square feet, of which 1.8 million square feet were leased; (c) warehouses in the U.S. which had 8.9 million square feet, of which 5.5 million square feet were leased; and (d) warehouses outside the U.S. which had 8.5 million square feet, of which 6.1 million square feet were leased. For discussion of the effect of the Corporation's restructuring actions on production facilities, see Management's Discussion and Analysis of Results of Operations and Financial Position on page 4 and Note 11 of Notes to the Consolidated Financial Statements on pages 20 to 21 of the Corporation's 2000 Annual Report to Shareowners. - 8 -
Management believes that the fixed assets capitalized and the facilities in operation at December 31, 2000 for the production of the Corporation's products are suitable and adequate for the business conducted therein in the current business environment, are being appropriately utilized consistent with experience and have sufficient production capacity for their present intended purposes. Utilization of the facilities varies based on demand for the products. The Corporation continuously reviews its anticipated requirements for facilities and, based on that review, may from time to time acquire additional facilities and/or dispose of existing facilities. Item 3. Legal Proceedings As previously reported, the Department of Defense and the Corporation are litigating whether Pratt & Whitney's accounting practices for certain engine parts are acceptable. The litigation, filed with the Armed Services Board of Contract Appeals ("ASBCA"), No. 47416 et al., relates to the accounting for engine parts produced by foreign companies under commercial engine collaboration programs from 1984 through 1995. In December 1996 the Government claimed damages of $157.6 million, plus $102.7 million in interest through 1996. Pratt & Whitney believes its accounting practices are proper and has not modified them. In March and April 1998, the matter was tried before an ASBCA judge. A decision is anticipated in 2001. Should the Government prevail on liability, damages could be larger than initially claimed because the Government may amend its claim to include the period after 1995 and interest continues to accrue on the claim asserted in 1996. As previously reported, a jury in Chromalloy Gas Turbine Corporation v. United Technologies Corporation, No. 95-CI-12541, a Texas state action, found 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. In October 1998, the Texas Fourth Court of Appeals affirmed the decision of the trial court, declining to grant injunctive relief to Chromalloy. In November 1999, the appellate court denied Chromalloy's motions for rehearing and rehearing en banc. In March 2000, Chromalloy filed a petition for review with the Texas Supreme Court. In December 2000, the Texas Supreme Court denied Chromalloy's petition for review. In January 2001, Chromalloy filed a motion for rehearing with the Texas Supreme Court. As previously reported, the Corporation has been served with two qui tam complaints under the civil False Claims Act in United States District Court for the District of Connecticut: U.S. ex rel. Drake v. Norden Systems, Inc. and UTC, No.394CV00963 (filed July 1997, and involving allegations of improper accounting for fixed assets) and U.S. ex rel. Capella v. UTC and Norden Systems Inc., No. 394CV02063 (filed December 1994, and involving allegations of improper accounting for insurance costs). The civil False Claims Act provides for penalties in a civil case of up to $10,000 per false claim submitted. The number of false claims implicated by the foregoing qui tam complaints cannot currently be ascertained; however, if determined adversely to the Corporation, the number could result in significant penalties. The qui tam relator in each case has claimed unspecified damages (trebled) and penalties, and the Department of Justice in each case has declined to take over the litigation. In August 2000, the court dismissed portions of the complaints. In March 1999, the Department of Justice filed a civil False Claims Act complaint against the Corporation in United States District Court for the Southern District of Ohio (Western Division), No. C-3-99-093. This lawsuit is related to the "Fighter Engine Competition" between Pratt & Whitney's F100 engine and GE's F110 engine, for contracts awarded by the U.S. Air Force between fiscal years 1985 and 1990, inclusive. The Government alleges that Pratt & Whitney inflated its estimated costs for purchased parts and withheld data that would have revealed the overstatements. The Government seeks damages of at least $95 million (some portion of which would be trebled plus penalties of up to $10,000 per claim submitted). The Corporation does not believe that resolution of any of the foregoing legal matters will have a material adverse effect upon the Corporation's competitive position, results of operations, cash flows, or financial position. 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. - 9 -
The Corporation has incurred and will likely continue to incur liabilities under various state and federal statutes for the cleanup of pollutants previously released into the environment. The Corporation believes that any payments it may be required to make as a result of these claims will not have a material effect upon the cash flows, competitive or financial position, or results of operations of the Corporation. (For information regarding the matters discussed in this paragraph, see "Environmental Matters" in Management's Discussion and Analysis of Results of Operations and Financial Position on page 7 and Notes 1 and 14 of Notes to Consolidated Financial Statements on pages 15 and 22 of the Corporation's 2000 Annual Report to Shareowners.) Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted to security holders for a vote during the fourth quarter ended December 31, 2000. - ----- Executive Officers of the Registrant The executive officers of United Technologies Corporation, together with the offices presently held by them, their business experience since January 1, 1996, and their ages, are as follows: Other Business Experience Age Name Title Since 1/1/96 2/1/01 Jonathan W. President, President, Carrier 44 Ayers Carrier Asia Pacific Corporation Operations; Vice (since 2000) President-Strategic Planning, United Technologies Corporation Dean C. President, Senior Vice President, 59 Borgman Sikorsky Aircraft The Boeing Company; (since 1998) President, McDonnell Douglas Helicopter Company Ari Bousbib Executive Vice Vice President, 39 President and Corporate Strategy and Chief Operating Development; Vice Officer, Otis President, Strategic (since January Planning, United 2001) Technologies Corporation; Managing Director, The Strategic Partners Group William L. Senior Vice 58 Bucknall, Jr. President, Human ------- Resources and Organization (since 1992) John F. Senior Vice Vice President, United 57 Cassidy, Jr. President - Technologies Research Science and Center Technology (since 1998) and Vice President, United Technologies Research Center Louis President, Pratt Executive Vice 43 Chenevert & Whitney (since President-Operations, 1999) Pratt & Whitney; Vice President - Operations, Pratt & Whitney Canada George David Chairman (since President (1992-1999) 58 1997) and Chief Executive Officer (since 1994) John E. Vice President, Senior Vice President 54 Evard, Jr. Taxes Corporate Development (since August & General Tax Counsel, 2000) Senior Vice President & General Tax Counsel, CNH Global N.V.; Vice President & General Tax Counsel, Case Corporation - 10 -
Other Business Experience Age Name Title Since 1/1/96 2/1/01 David J. Senior Vice Senior Vice President 46 FitzPatrick President, Chief & Chief Financial Financial Officer Officer, United and Treasurer Technologies (since June 2000) Corporation; Vice President and Controller, Eastman Kodak Co. Ruth R. Senior Vice President and Chief 56 Harkin President, Executive Officer, International Overseas Private Affairs and Investment Corporation Government Relations, United Technologies Corporation and Chair, United Technologies International (since 1997) Karl J. President and Executive Vice 52 Krapek Chief Operating President, United Officer (since Technologies 1999) Corporation (1997- 1999) and President, Pratt & Whitney (1992-1999) Robert F. Executive Vice Executive Vice 44 Leduc President and President, Pratt & Chief Operating Whitney Officer, Pratt & Whitney (since September 2000) Ronald F. President, Executive Vice 60 McKenna Hamilton President, Sundstrand Sundstrand Corporation and Chief Corporation Operating Officer, (since 1999) Sundstrand Aerospace Angelo J. Vice President, Vice President, 47 Messina Corporate Financial Planning and Strategy and Analysis; Director, Development Financial Planning and (since January Analysis, United 2001) Technologies Corporation; Vice President, Group Strategic Planning, Pratt & Whitney; Director, Investor Relations, United Technologies Corporation David G. Nord Vice President, Acting Controller; 43 Controller Assistant Controller, (since October Financial Reporting 2000) and Accounting, United Technologies Corporation; Corporate Controller, Pittston Co. Stephen F. Executive Vice Executive Vice 61 Page President, United President and Chief Technologies Financial Officer, Corporation and United Technologies President and Corporation Chief Executive Officer, Otis (since 1997) William H. Senior Vice Vice President, 57 Trachsel President, Secretary and Deputy General Counsel General Counsel and Secretary (since 1998) All of the officers serve at the pleasure of the Board of Directors of United Technologies Corporation or the subsidiary designated. - 11 -
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters See Comparative Stock Data appearing on page 24 of the Corporation's 2000 Annual Report to Shareowners containing the following data relating to the Corporation's Common Stock: principal market, quarterly high and low sales prices, approximate number of shareowners and frequency and amount of dividends. All such data are incorporated by reference in this Form 10-K. Item 6. Selected Financial Data See the Five Year Summary appearing on page 1 of the Corporation's 2000 Annual Report to Shareowners containing the following data: revenues, net income, basic and diluted earnings per share, cash dividends per common share, total assets and long-term debt. All such data are incorporated by reference in this Form 10-K. See Notes to Consolidated Financial Statements appearing on pages 14 to 24 of the Corporation's 2000 Annual Report to Shareowners for a description of any accounting changes and acquisitions or dispositions of businesses materially affecting the comparability of the information reflected in such Five Year Summary. Item 7. Management's Discussion and Analysis of Results of Operations and Financial Position See Management's Discussion and Analysis of Results of Operations and Financial Position appearing on pages 2 through 8 of the Corporation's 2000 Annual Report to Shareowners; such discussion and analysis is incorporated by reference in this Form 10-K. Item 7A. Quantitative and Qualitative Disclosures About Market Risk For information concerning market risk sensitive instruments, see discussion under the headings "Market Risk and Risk Management" in Management's Discussion and Analysis of Results of Operations and Financial Position on page 7 and "Hedging Activity" at Note 1 and Notes 12 and 13 on pages 14 to 15 and 21 to 22 of the Corporation's 2000 Annual Report to Shareowners. Such information is incorporated by reference in this Form 10-K. Item 8. Financial Statements and Supplementary Data The 2000 and 1999 Consolidated Balance Sheet, and other financial statements for the years 2000, 1999 and 1998, together with the report thereon of PricewaterhouseCoopers LLP dated January 18, 2001, appearing on pages 9 through 13 in the Corporation's 2000 Annual Report to Shareowners are incorporated by reference in this Form 10-K. The 2000 and 1999 Selected Quarterly Financial Data appearing on page 24 in the Corporation's 2000 Annual Report to Shareowners are incorporated by reference in this Form 10-K. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. Item 10. Directors and Executive Officers of the Registrant The information required by Item 10 with respect to directors is incorporated herein by reference to the section of the Corporation's Proxy Statement for the 2001 Annual Meeting of Shareowners entitled "General Information Concerning the Board of Directors Nominees." Information regarding executive officers is contained in Part I of this Form 10-K under the heading "Executive Officers." Information concerning Section 16(a) compliance is contained in the section of the Corporation's Proxy Statement for the 2001 Annual Meeting of Shareowners entitled "Section 16(a) Beneficial Ownership Reporting Compliance." Item 11. Executive Compensation The information required by Item 11 is incorporated herein by reference to the sections of the Corporation's Proxy Statement for the 2001 Annual Meeting of Shareowners entitled "Report of Committee on Compensation and Executive Development" and "Compensation of Executive Officers." Such incorporation by reference shall not be deemed to specifically incorporate by reference the information referred to in Item 402(a)(8) of Regulation S-K. - 12 -
Item 12. Security Ownership of Certain Beneficial Owners and Management The information required by Item 12 is incorporated herein by reference to the section of the Corporation's Proxy Statement for the 2001 Annual Meeting of Shareowners entitled "Security Ownership of Directors, Nominees and Executive Officers." Item 13. Certain Relationships and Related Transactions The information required by Item 13 is incorporated herein by reference to the section of the Corporation's Proxy Statement for the 2001 Annual Meeting of Shareowners entitled "Compensation of Executive Officers--Certain Business Relationships." Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) Financial Statements, Financial Statement Schedules and Exhibits (1) Financial Statements (incorporated by Page Number reference from the 2000 Annual Report to in Annual Shareowners): Report Report of Independent Accountants ................. 9 Consolidated Statement of Operations for the three years ended December 31, 2000 ............... 10 Consolidated Balance Sheet-December 31, 2000 and 1999 .......................................... 11 Consolidated Statement of Cash Flows for the three years ended December 31, 2000 ............... 12 Notes to Consolidated Financial Statements ........ 14 Selected Quarterly Financial Data (Unaudited) ..... 24 Page Number (2) Financial Statement Schedule for the three in Form years ended December 31, 2000: 10-K Report of Independent Accountants on Financial Statement Schedule .......................................... S-I Schedule II Valuation and Qualifying Accounts ..... S-II Consent of Independent Accountants ................ F-1 All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or the notes thereto. (3)Exhibits: The following list of exhibits includes exhibits submitted with this Form 10-K as filed with the SEC and those incorporated by reference to other filings. Exhibit Number 3(i) Restated Certificate of Incorporation, incorporated by reference to Exhibit 3(i) to United Technologies Corporation Quarterly Report on Form 10-Q (Commission File number 1-812) for quarterly period ended June 30, 2000. 3(ii) Bylaws as amended and restated effective February 8, 1999, incorporated by reference to Exhibit 3(ii) to United Technologies Corporation Annual Report on Form 10-K (Commission file number 1-812) for fiscal year ended December 31, 1999. - 13 -
Exhibit Number 4(a) Indenture, dated as of April 1, 1990, between the Corporation and State Street Bank and Trust Company (as successor to The Connecticut National Bank), as trustee (incorporated by reference to Exhibit 4(a) to the Corporation's Registration Statement on Form S-3, File No. 333-74195, filed with the SEC on March 10, 1999). The Corporation hereby agrees to furnish to the Commission upon request a copy of each other instrument defining the rights of holders of long- term debt of the Corporation and its consolidated subsidiaries and any unconsolidated subsidiaries. 10.1 United Technologies Corporation 1979 Long Term Incentive Plan, incorporated by reference to Exhibit 10(i) to United Technologies Corporation Annual Report on Form 10-K (Commission file number 1-812) for fiscal year ended December 31, 1992. 10.2 United Technologies Corporation Annual Executive Incentive Compensation Plan, as amended.* 10.3 United Technologies Corporation Disability Insurance Benefits for Executive Control Group, incorporated by reference to Exhibit 10 (iii) to United Technologies Corporation Annual Report on Form 10-K (Commission file number 1-812) for fiscal year ended December 31, 1992. 10.4 United Technologies Corporation Executive Estate Preservation Program, incorporated by reference to Exhibit 10(iv) to United Technologies Corporation Annual Report on Form 10-K (Commission file number 1- 812) for fiscal year ended December 31, 1992. 10.5 United Technologies Corporation Pension Preservation Plan, incorporated by reference to Exhibit 10(v) for United Technologies Corporation Annual Report on Form 10-K (Commission file number 1-812) for fiscal year ended December 31, 1992. 10.6 United Technologies Corporation Senior Executive Severance Plan, incorporated by reference to Exhibit 10(vi) to United Technologies Corporation Annual Report on Form 10-K (Commission file number 1-812) for fiscal year ended December 31, 1992. 10.7 United Technologies Corporation Deferred Compensation Plan, as amended.* 10.8 Otis Elevator Company Incentive Compensation Plan, incorporated by reference to Exhibit 10(viii) to United Technologies Corporation Annual Report on Form 10-K (Commission file number 1-812) for fiscal year ended December 31, 1992. 10.9 United Technologies Corporation Directors Retirement Plan, as amended.* 10.10 United Technologies Corporation Deferred Compensation Plan for Non-Employee Directors, incorporated by reference to Exhibit 10(x) to United Technologies Corporation Annual Report on Form 10-K (Commission file number 1-812) for fiscal year ended December 31, 1992. 10.11 United Technologies Corporation Long Term Incentive Plan, as amended.* 10.12 United Technologies Corporation Executive Disability, Income Protection and Standard Separation Agreement Plan, incorporated by reference to Exhibit 10(xii) to United Technologies Corporation Annual Report on Form 10-K (Commission file number 1-812) for fiscal year ended December 31, 1992. 10.13 United Technologies Corporation Directors' Restricted Stock/Unit Program, incorporated by reference to Exhibit 10(xiii) to United Technologies Corporation Annual Report on Form 10-K (Commission file number 1-812) for fiscal year ended December 31, 1992. 10.14 United Technologies Corporation Board of Directors Deferred Stock Unit Plan*, and Amendment 1 thereto (incorporated by reference to Exhibit (10)(iii)(A)(1) to United Technologies Corporation Report on Form 10-Q (Commission file number 1-812) for quarterly period ended June 30, 2000). - 14 -
Exhibit Number 10.15 United Technologies Corporation Pension Replacement Plan, incorporated by reference to Exhibit 10(xv) to United Technologies Corporation Annual Report on Form 10-K (Commission file number 1-812) for fiscal year ended December 31, 1993. 10.16 United Technologies Corporation Special Retention and Stock Appreciation Program, incorporated by reference to Exhibit 10(xvi) to United Technologies Corporation Report on Form 10-Q (Commission file number 1-812) for quarterly period ended September 30, 1995. 10.17 United Technologies Corporation Nonemployee Director Stock Option Plan*, and Amendment 1 thereto (incorporated by reference to Exhibit (10)(iii)(A)(2) to United Technologies Corporation Report on Form 10-Q (Commission file number 1-812) for quarterly period ended June 30, 2000). 10.18 Merger Agreement, dated as of February 21, 1999, among United Technologies Corporation, HSSail Inc. and Sundstrand Corporation, incorporated by reference to Exhibit 2.1 to United Technologies Corporation Report on Form 8-K (Commission file number 1-812) dated February 21, 1999 and filed with the SEC on February 23, 1999. 10.19 Stock Purchase Agreement, dated as of March 16, 1999, by and between Nevada Bond Investment Corp. II and Lear Corporation, incorporated by reference to Exhibit 99.1 to United Technologies Corporation Report on Form 8-K (Commission file number 1-812) dated March 16, 1999 and filed with the SEC on March 19, 1999. 10.20 Incentive compensation letter agreement dated December 21, 1998 and signed April 1, 1999 between the Corporation and C. Scott Greer, President of UT Automotive, incorporated by reference to Exhibit 10.1 to United Technologies Corporation Report on Form 10-Q (Commission file number 1-812) for the Quarter ended June 30, 1999. 11 Statement re: Computation of Per Share Earnings.** 12 Statement re: Computation of Ratio of Earnings to Fixed Charges.** 13 Annual Report to Shareowners for year ended December 31, 2000 (except for the pages and information thereof expressly incorporated by reference in this Form 10-K, the Annual Report to Shareowners is provided solely for the information of the Securities and Exchange Commission and is not to be deemed "filed" as part of this Form 10-K).** 21 Subsidiaries of the Registrant.** 23 Consent of PricewaterhouseCoopers LLP, included as page F-1 of this Form 10-K. 24 Powers of Attorney of Antonia Handler Chayes, Jean- Pierre Garnier, Jamie S. Gorelick, Charles R. Lee, Richard D. McCormick, Frank P. Popoff, Andre Villeneuve, Harold A. Wagner and Sanford I. Weill.** Notes to Exhibits List: * Incorporated by reference to Exhibit of the same number to United Technologies Corporation Annual Report on Form 10-K (Commission file number 1-812) for fiscal year ended December 31, 1995. ** Submitted electronically herewith. Exhibits 10.1 through 10.20 are contracts or compensatory plans required to be filed as exhibits pursuant to Item 14(c) of the requirements for Form 10-K reports. (b) No reports on Form 8-K were filed by the Corporation during the quarter ended December 31, 2000. - 15 -
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 (Registrant) By /s/ David J. FitzPatrick David J. FitzPatrick Date: February 12, 2001 Senior Vice President, Chief Financial Officer and Treasurer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated, on the date set forth below. Signature Title Date /s/ George David Chairman, Director February 12, 2001 George David and Chief Executive Officer /s/ Karl J. Krapek Director, President February 12, 2001 Karl J. Krapek and Chief Operating Officer /s/ David J. Fitzpatrick Senior Vice February 12, 2001 David J. Fitzpatrick President, Chief Financial Officer and Treasurer /s/ David G. Nord Vice President, February 12, 2001 David G. Nord Controller ANTONIA HANDLER CHAYES* Director ) (Antonia Handler Chayes) *By:/s/William H. Trachsel JEAN-PIERRE GARNIER* Director ) William H. Trachsel (Jean-Pierre Garnier) Attorney-in-Fact Date: February 12, 2001 JAMIE S. GORELICK* (Jamie S. Gorelick) Director ) CHARLES R. LEE* Director ) (Charles R. Lee) RICHARD D. MCCORMICK* Director ) (Richard D. McCormick) FRANK P. POPOFF* Director ) (Frank P. Popoff) ANDRE VILLENEUVE* Director ) (Andre Villeneuve) HAROLD A. WAGNER* Director ) (Harold A. Wagner) SANFORD I. WEILL* (Sanford I. Weill) Director ) - 16 -
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Shareowners of United Technologies Corporation Our audits of the consolidated financial statements referred to in our report dated January 18, 2001 appearing on page 9 of the 2000 Annual Report to Shareowners of United Technologies Corporation (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion, the Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Hartford, Connecticut January 18, 2001 S-I
UNITED TECHNOLOGIES CORPORATION AND SUBSIDIARIES Schedule II - Valuation and Qualifying Accounts Three Years Ended December 31, 2000 (Millions of Dollars) Allowances for Doubtful Accounts and Other Customer Financing Activity: Balance December 31, 1997 $ 381 Provision charged to income 67 Doubtful accounts written off (net) (32) Other adjustments (21) Balance December 31, 1998 395 Provision charged to income 46 Doubtful accounts written off (net) (14) Other adjustments 56 Balance December 31, 1999 483 Provision charged to income 41 Doubtful accounts written off (net) (27) Other adjustments (6) Balance December 31, 2000 $ 491 Future Income Tax Benefits - Valuation allowance: Balance December 31, 1997 $ 277 Additions charged to income tax expense 35 Reductions credited to income tax expense (93) Balance December 31, 1998 219 Additions charged to income tax expense 70 Reductions credited to income tax expense (56) Balance December 31, 1999 233 Additions charged to income tax expense 24 Reductions credited to income tax expense (49) Balance December 31, 2000 $ 208 S-II
CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus constituting part of the Registration Statements on Form S-3 (Nos. 333- 51830, 333-89041 and 333-91959), in the Registration Statement on Form S-4 (No. 333-77991) as amended by Post-Effective Amendment No. 1 on Form S-8 (No. 333-77991-01) and in the Registration Statements on Form S-8 (Nos. 333- 21853, 333-18743, 333-21851, 33-57769, 33-45440, 33-11255, 33-26580, 33- 26627, 33-28974, 33-51385, 33-58937, 2-87322, 333-77817 and 333-82911) of United Technologies Corporation of our report dated January 18, 2001 relating to the financial statements, which appears on page 9 of the 2000 Annual Report to Shareowners, which is incorporated by reference in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report dated January 18, 2001 on the Financial Statement Schedule, which appears on page S-I of this Form 10-K. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Hartford, Connecticut February 12, 2001 F-1
EXHIBIT 11 UNITED TECHNOLOGIES CORPORATION AND SUBSIDIARIES Computations of Basic Earnings Per Share and Diluted Earnings Per Share For the Five Years Ended December 31, 2000 (Millions of Dollars, except per share amounts) 2000 1999 1998 1997 1996 Net Income $ 1,808 $ 1,531 $ 1,255 $ 1,072 $ 906 ESOP Convertible Preferred Stock dividend (32) (33) (33) (32) (30) Basic earnings for period $ 1,776 $ 1,498 $ 1,222 $ 1,040 $ 876 ESOP Convertible Preferred Stock adjustment 28 28 28 27 24 Diluted earnings for period $ 1,804 $ 1,526 $ 1,250 $ 1,067 $ 900 Basic average number of shares outstanding during the period (thousands) 470,124 465,611 455,534 468,886 482,908 Stock awards (thousands) 11,256 13,806 11,944 11,756 9,754 ESOP Convertible Preferred Stock (thousands) 26,630 27,287 27,282 26,468 24,550 Diluted average number of shares outstanding during the period (thousands) 508,010 506,704 494,760 507,110 517,212 Basic earnings per common share $ 3.78 $ 3.22 $ 2.68 $ 2.22 $ 1.81 Diluted earnings per common share $ 3.55 $ 3.01 $ 2.53 $ 2.10 $ 1.74
EXHIBIT 12 UNITED TECHNOLOGIES CORPORATION AND SUBSIDIARIES Statement RE Computation of Ratio of Earnings to Fixed Charges (Millions of Dollars) 2000 1999 1998 1997 1996 Fixed Charges: Interest expense $ 382 $ 260 $ 197 $ 188 $ 213 Interest capitalized 18 15 12 10 16 One-third of rents* 64 64 77 80 80 Total Fixed Charges $ 464 $ 339 $ 286 $ 278 $ 309 Earnings: Income from continuing operations before income taxes and minority interests $ 2,758 $ 1,257 $ 1,810 $ 1,574 $ 1,317 Fixed charges per above 464 339 286 278 309 Less: interest capitalized (18) (15) (12) (10) (16) 446 324 274 268 293 Amortization of interest capitalized 21 25 31 34 35 Total Earnings $ 3,225 $ 1,606 $ 2,115 $ 1,876 $ 1,645 Ratio of Earnings to Fixed Charges 6.95 4.74 7.40 6.75 5.32 * Reasonable approximation of the interest factor.
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
Exhibit 21 SUBSIDIARIES OF THE REGISTRANT The companies listed below are direct or indirect subsidiaries of the Registrant. Their names and jurisdictions of incorporation are as follows: State/Country Entity Name of Incorporation Ardco, Inc. Illinois Cade Industries, Inc. Wisconsin Carrier Air Conditioning Pty. Limited Australia Carrier Corporation Delaware Carrier Ltd. South Korea Carrier Mexico S.A. de C.V. Mexico Carrier S.A. France Carrier S.p.A. Italy Carrier Singapore (PTE) Limited Singapore Carrier-Espana, SA Spain CEAM Srl Italy China Tianjin Otis Elevator Company, Ltd. China Eagle Services Asia Private Limited Singapore Elevadores Otis Ltda. Brazil Empresas Carrier, S.A. De C.V. Mexico Evans Lifts Limited United Kingdom Generale Frigorifique France Hamilton Sundstrand Corporation Delaware Hamilton Sundstrand Pacific Aerospace, Inc. Singapore Hamilton Sundstrand Power Systems, Inc. Delaware Helicopter Support, Inc. Connecticut Homogenous Metals Inc. New York ICP International Holdings Inc. Cayman Islands Johns Perry Lifts Holdings Cayman Islands LG-Otis Elevator Company South Korea Microtecnica SRL Italy Milton Roy Company Pennsylvania Miraco Development Services & Trading Company, S.A.E. Egypt Nevada Bond Investment Corp II Nevada Nippon Otis Elevator Company Japan Otis France Otis Elevator Company (H.K.) Limited Hong Kong Otis Elevator Company [New Jersey] New Jersey Otis Elevator Company Pty. Ltd. Australia Otis G.m.b.H. & Co. OHG Germany Otis Investments Plc United Kingdom Otis S.p.A. Italy Pratt & Whitney Canada Corp. Canada Pratt & Whitney Component Solutions, Inc. Michigan Pratt & Whitney Compressor Airfoil Holdings, Inc. Delaware Pratt & Whitney Engine Services, Inc. Delaware Pratt & Whitney Export, Inc Delaware Pratt & Whitney Holdings LLC Cayman Islands Pratt & Whitney Power Systems, Inc. Delaware Pratt & Whitney Services, Inc. Delaware Profroid Industries S.A. France Ratier Figeac S.A. France Sikorsky Aircraft Corporation Delaware Sikorsky Export Corporation Delaware Sikorsky International Operations, Inc. Delaware Sirius (Korea) Ltd. United Kingdom Springer Carrier S.A. Brazil Sullair Corporation Indiana Sundstrand Pacific Acquiring PTE Ltd. Singapore Sundyne Corporation Delaware The Carmel Forge Limited Israel The Express Lift Company Limited United Kingdom The Falk Corporation Delaware Turbine Overhaul Services PTE LTD Singapore Tyler Refrigeration Corporation Delaware United Technologies Electronic Controls, Inc. Delaware United Technologies International Operations, Inc. Delaware Zardoya Otis, S.A. Spain Other subsidiaries of the Registrant have been omitted from this listing since, considered in the aggregate as a single subsidiary, they would not constitute a significant subsidiary.
Exhibit 24 UNITED TECHNOLOGIES CORPORATION Power of Attorney The undersigned, as a member of the Board of Directors, or as an officer of UNITED TECHNOLOGIES CORPORATION, a Delaware corporation (the "Corporation"), or as a member of a committee of said Board, or in all of said capacities, hereby constitutes and appoints WILLIAM H. TRACHSEL, DAVID J. FITZPATRICK and DAVID G. NORD, or any one of them, his or her true and lawful attorneys and agents to do any and all acts and things and execute any and all instruments which the said attorneys and agents may deem necessary or advisable to enable the Corporation to comply with the Securities Exchange Act of 1934 and any rules and regulations and requirements of the Securities and Exchange Commission in respect thereof in connection with the filing of the Annual Report of the Corporation on Form 10-K for the fiscal year ended December 31, 2000, including specifically, but without limiting the generality of the foregoing, the power and authority to sign the name of the undersigned, in the capacities aforesaid or in any other capacity, to such Form 10-K Annual Report filed or to be filed with the Securities and Exchange Commission, and any and all amendments to the said Form 10-K Annual Report, and any and all instruments and documents filed as a part of or in connection with the said Form 10-K Annual Report or any amendments thereto; hereby ratifying and confirming all that the said attorneys and agents, or any one of them, have done, shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has signed this Power of Attorney this 5th day of February, 2001. /s/ Antonia Handler Chayes Antonia Handler Chayes
UNITED TECHNOLOGIES CORPORATION Power of Attorney The undersigned, as a member of the Board of Directors, or as an officer of UNITED TECHNOLOGIES CORPORATION, a Delaware corporation (the "Corporation"), or as a member of a committee of said Board, or in all of said capacities, hereby constitutes and appoints WILLIAM H. TRACHSEL, DAVID J. FITZPATRICK and DAVID G. NORD, or any one of them, his or her true and lawful attorneys and agents to do any and all acts and things and execute any and all instruments which the said attorneys and agents may deem necessary or advisable to enable the Corporation to comply with the Securities Exchange Act of 1934 and any rules and regulations and requirements of the Securities and Exchange Commission in respect thereof in connection with the filing of the Annual Report of the Corporation on Form 10-K for the fiscal year ended December 31, 2000, including specifically, but without limiting the generality of the foregoing, the power and authority to sign the name of the undersigned, in the capacities aforesaid or in any other capacity, to such Form 10-K Annual Report filed or to be filed with the Securities and Exchange Commission, and any and all amendments to the said Form 10-K Annual Report, and any and all instruments and documents filed as a part of or in connection with the said Form 10-K Annual Report or any amendments thereto; hereby ratifying and confirming all that the said attorneys and agents, or any one of them, have done, shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has signed this Power of Attorney this 5th day of February, 2001. /s/ George David George David
UNITED TECHNOLOGIES CORPORATION Power of Attorney The undersigned, as a member of the Board of Directors, or as an officer of UNITED TECHNOLOGIES CORPORATION, a Delaware corporation (the "Corporation"), or as a member of a committee of said Board, or in all of said capacities, hereby constitutes and appoints WILLIAM H. TRACHSEL, DAVID J. FITZPATRICK and DAVID G. NORD, or any one of them, his or her true and lawful attorneys and agents to do any and all acts and things and execute any and all instruments which the said attorneys and agents may deem necessary or advisable to enable the Corporation to comply with the Securities Exchange Act of 1934 and any rules and regulations and requirements of the Securities and Exchange Commission in respect thereof in connection with the filing of the Annual Report of the Corporation on Form 10-K for the fiscal year ended December 31, 2000, including specifically, but without limiting the generality of the foregoing, the power and authority to sign the name of the undersigned, in the capacities aforesaid or in any other capacity, to such Form 10-K Annual Report filed or to be filed with the Securities and Exchange Commission, and any and all amendments to the said Form 10-K Annual Report, and any and all instruments and documents filed as a part of or in connection with the said Form 10-K Annual Report or any amendments thereto; hereby ratifying and confirming all that the said attorneys and agents, or any one of them, have done, shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has signed this Power of Attorney this 5th day of February, 2001. /s/ Jean-Pierre Garnier Jean-Pierre Garnier
UNITED TECHNOLOGIES CORPORATION Power of Attorney The undersigned, as a member of the Board of Directors, or as an officer of UNITED TECHNOLOGIES CORPORATION, a Delaware corporation (the "Corporation"), or as a member of a committee of said Board, or in all of said capacities, hereby constitutes and appoints WILLIAM H. TRACHSEL, DAVID J. FITZPATRICK and DAVID G. NORD, or any one of them, his or her true and lawful attorneys and agents to do any and all acts and things and execute any and all instruments which the said attorneys and agents may deem necessary or advisable to enable the Corporation to comply with the Securities Exchange Act of 1934 and any rules and regulations and requirements of the Securities and Exchange Commission in respect thereof in connection with the filing of the Annual Report of the Corporation on Form 10-K for the fiscal year ended December 31, 2000, including specifically, but without limiting the generality of the foregoing, the power and authority to sign the name of the undersigned, in the capacities aforesaid or in any other capacity, to such Form 10-K Annual Report filed or to be filed with the Securities and Exchange Commission, and any and all amendments to the said Form 10-K Annual Report, and any and all instruments and documents filed as a part of or in connection with the said Form 10-K Annual Report or any amendments thereto; hereby ratifying and confirming all that the said attorneys and agents, or any one of them, have done, shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has signed this Power of Attorney this 5th day of February, 2001. /s/ Karl J. Krapek Karl J. Krapek
UNITED TECHNOLOGIES CORPORATION Power of Attorney The undersigned, as a member of the Board of Directors, or as an officer of UNITED TECHNOLOGIES CORPORATION, a Delaware corporation (the "Corporation"), or as a member of a committee of said Board, or in all of said capacities, hereby constitutes and appoints WILLIAM H. TRACHSEL, DAVID J. FITZPATRICK and DAVID G. NORD, or any one of them, his or her true and lawful attorneys and agents to do any and all acts and things and execute any and all instruments which the said attorneys and agents may deem necessary or advisable to enable the Corporation to comply with the Securities Exchange Act of 1934 and any rules and regulations and requirements of the Securities and Exchange Commission in respect thereof in connection with the filing of the Annual Report of the Corporation on Form 10-K for the fiscal year ended December 31, 2000, including specifically, but without limiting the generality of the foregoing, the power and authority to sign the name of the undersigned, in the capacities aforesaid or in any other capacity, to such Form 10-K Annual Report filed or to be filed with the Securities and Exchange Commission, and any and all amendments to the said Form 10-K Annual Report, and any and all instruments and documents filed as a part of or in connection with the said Form 10-K Annual Report or any amendments thereto; hereby ratifying and confirming all that the said attorneys and agents, or any one of them, have done, shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has signed this Power of Attorney this 5th day of February, 2001. /s/ Charles R. Lee Charles R. Lee
UNITED TECHNOLOGIES CORPORATION Power of Attorney The undersigned, as a member of the Board of Directors, or as an officer of UNITED TECHNOLOGIES CORPORATION, a Delaware corporation (the "Corporation"), or as a member of a committee of said Board, or in all of said capacities, hereby constitutes and appoints WILLIAM H. TRACHSEL, DAVID J. FITZPATRICK and DAVID G. NORD, or any one of them, his or her true and lawful attorneys and agents to do any and all acts and things and execute any and all instruments which the said attorneys and agents may deem necessary or advisable to enable the Corporation to comply with the Securities Exchange Act of 1934 and any rules and regulations and requirements of the Securities and Exchange Commission in respect thereof in connection with the filing of the Annual Report of the Corporation on Form 10-K for the fiscal year ended December 31, 2000, including specifically, but without limiting the generality of the foregoing, the power and authority to sign the name of the undersigned, in the capacities aforesaid or in any other capacity, to such Form 10-K Annual Report filed or to be filed with the Securities and Exchange Commission, and any and all amendments to the said Form 10-K Annual Report, and any and all instruments and documents filed as a part of or in connection with the said Form 10-K Annual Report or any amendments thereto; hereby ratifying and confirming all that the said attorneys and agents, or any one of them, have done, shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has signed this Power of Attorney this 5th day of February, 2001. /s/ Richard D. McCormick Richard D. McCormick
UNITED TECHNOLOGIES CORPORATION Power of Attorney The undersigned, as a member of the Board of Directors, or as an officer of UNITED TECHNOLOGIES CORPORATION, a Delaware corporation (the "Corporation"), or as a member of a committee of said Board, or in all of said capacities, hereby constitutes and appoints WILLIAM H. TRACHSEL, DAVID J. FITZPATRICK and DAVID G. NORD, or any one of them, his or her true and lawful attorneys and agents to do any and all acts and things and execute any and all instruments which the said attorneys and agents may deem necessary or advisable to enable the Corporation to comply with the Securities Exchange Act of 1934 and any rules and regulations and requirements of the Securities and Exchange Commission in respect thereof in connection with the filing of the Annual Report of the Corporation on Form 10-K for the fiscal year ended December 31, 2000, including specifically, but without limiting the generality of the foregoing, the power and authority to sign the name of the undersigned, in the capacities aforesaid or in any other capacity, to such Form 10-K Annual Report filed or to be filed with the Securities and Exchange Commission, and any and all amendments to the said Form 10-K Annual Report, and any and all instruments and documents filed as a part of or in connection with the said Form 10-K Annual Report or any amendments thereto; hereby ratifying and confirming all that the said attorneys and agents, or any one of them, have done, shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has signed this Power of Attorney this 5th day of February, 2001. /s/ Jamie S. Gorelick Jamie S. Gorelick
UNITED TECHNOLOGIES CORPORATION Power of Attorney The undersigned, as a member of the Board of Directors, or as an officer of UNITED TECHNOLOGIES CORPORATION, a Delaware corporation (the "Corporation"), or as a member of a committee of said Board, or in all of said capacities, hereby constitutes and appoints WILLIAM H. TRACHSEL, DAVID J. FITZPATRICK and DAVID G. NORD, or any one of them, his or her true and lawful attorneys and agents to do any and all acts and things and execute any and all instruments which the said attorneys and agents may deem necessary or advisable to enable the Corporation to comply with the Securities Exchange Act of 1934 and any rules and regulations and requirements of the Securities and Exchange Commission in respect thereof in connection with the filing of the Annual Report of the Corporation on Form 10-K for the fiscal year ended December 31, 2000, including specifically, but without limiting the generality of the foregoing, the power and authority to sign the name of the undersigned, in the capacities aforesaid or in any other capacity, to such Form 10-K Annual Report filed or to be filed with the Securities and Exchange Commission, and any and all amendments to the said Form 10-K Annual Report, and any and all instruments and documents filed as a part of or in connection with the said Form 10-K Annual Report or any amendments thereto; hereby ratifying and confirming all that the said attorneys and agents, or any one of them, have done, shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has signed this Power of Attorney this 5th day of February, 2001. /s/ Frank P. Popoff Frank P. Popoff
UNITED TECHNOLOGIES CORPORATION Power of Attorney The undersigned, as a member of the Board of Directors, or as an officer of UNITED TECHNOLOGIES CORPORATION, a Delaware corporation (the "Corporation"), or as a member of a committee of said Board, or in all of said capacities, hereby constitutes and appoints WILLIAM H. TRACHSEL, DAVID J. FITZPATRICK and DAVID G. NORD, or any one of them, his or her true and lawful attorneys and agents to do any and all acts and things and execute any and all instruments which the said attorneys and agents may deem necessary or advisable to enable the Corporation to comply with the Securities Exchange Act of 1934 and any rules and regulations and requirements of the Securities and Exchange Commission in respect thereof in connection with the filing of the Annual Report of the Corporation on Form 10-K for the fiscal year ended December 31, 2000, including specifically, but without limiting the generality of the foregoing, the power and authority to sign the name of the undersigned, in the capacities aforesaid or in any other capacity, to such Form 10-K Annual Report filed or to be filed with the Securities and Exchange Commission, and any and all amendments to the said Form 10-K Annual Report, and any and all instruments and documents filed as a part of or in connection with the said Form 10-K Annual Report or any amendments thereto; hereby ratifying and confirming all that the said attorneys and agents, or any one of them, have done, shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has signed this Power of Attorney this 5th day of February, 2001. /s/ Andre Villeneuve Andre Villeneuve
UNITED TECHNOLOGIES CORPORATION Power of Attorney The undersigned, as a member of the Board of Directors, or as an officer of UNITED TECHNOLOGIES CORPORATION, a Delaware corporation (the "Corporation"), or as a member of a committee of said Board, or in all of said capacities, hereby constitutes and appoints WILLIAM H. TRACHSEL, DAVID J. FITZPATRICK and DAVID G. NORD, or any one of them, his or her true and lawful attorneys and agents to do any and all acts and things and execute any and all instruments which the said attorneys and agents may deem necessary or advisable to enable the Corporation to comply with the Securities Exchange Act of 1934 and any rules and regulations and requirements of the Securities and Exchange Commission in respect thereof in connection with the filing of the Annual Report of the Corporation on Form 10-K for the fiscal year ended December 31, 2000, including specifically, but without limiting the generality of the foregoing, the power and authority to sign the name of the undersigned, in the capacities aforesaid or in any other capacity, to such Form 10-K Annual Report filed or to be filed with the Securities and Exchange Commission, and any and all amendments to the said Form 10-K Annual Report, and any and all instruments and documents filed as a part of or in connection with the said Form 10-K Annual Report or any amendments thereto; hereby ratifying and confirming all that the said attorneys and agents, or any one of them, have done, shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has signed this Power of Attorney this 5th day of February, 2001. /s/ Harold A. Wagner Harold A. Wagner
UNITED TECHNOLOGIES CORPORATION Power of Attorney The undersigned, as a member of the Board of Directors, or as an officer of UNITED TECHNOLOGIES CORPORATION, a Delaware corporation (the "Corporation"), or as a member of a committee of said Board, or in all of said capacities, hereby constitutes and appoints WILLIAM H. TRACHSEL, DAVID J. FITZPATRICK and DAVID G. NORD, or any one of them, his or her true and lawful attorneys and agents to do any and all acts and things and execute any and all instruments which the said attorneys and agents may deem necessary or advisable to enable the Corporation to comply with the Securities Exchange Act of 1934 and any rules and regulations and requirements of the Securities and Exchange Commission in respect thereof in connection with the filing of the Annual Report of the Corporation on Form 10-K for the fiscal year ended December 31, 2000, including specifically, but without limiting the generality of the foregoing, the power and authority to sign the name of the undersigned, in the capacities aforesaid or in any other capacity, to such Form 10-K Annual Report filed or to be filed with the Securities and Exchange Commission, and any and all amendments to the said Form 10-K Annual Report, and any and all instruments and documents filed as a part of or in connection with the said Form 10-K Annual Report or any amendments thereto; hereby ratifying and confirming all that the said attorneys and agents, or any one of them, have done, shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has signed this Power of Attorney this 5th day of February, 2001. /s/ Sanford I. Weill Sanford I. Weill