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, 2002
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 incorporation or organization) |
(I.R.S. Employer 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 value) |
New York Stock Exchange |
(CUSIP 913017 10 9) |
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 __.
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes X . No __.
At January 31, 2003, there were 470,366,023 shares of Common Stock outstanding. The aggregate market value of the voting Common Stock held by non-affiliates at January 31, 2003 was approximately $29,844,016,541, 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 2002 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 2003 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, 2002
PART I | Page |
|
Item 1. | Business | 1 |
Item 2. | Properties | 8 |
Item 3. | Legal Proceedings | 8 |
Item 4. | Submission of Matters to a Vote of Security Holders | 9 |
----- | Executive Officers of the Registrant | 9 |
PART II | ||
Item 5. | Market for Registrant's Common Equity and Related Stockholder Matters | 11 |
Item 6. | Selected Financial Data | 11 |
Item 7. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 11 |
Item 7A. | Quantitative and Qualitative Disclosures About Market Risk | 11 |
Item 8. | Financial Statements and Supplementary Data | 11 |
Item 9. | Changes
in and Disagreements with Accountants on Accounting and Financial Disclosure |
11 |
PART III | ||
Item 10. | Directors and Executive Officers of the Registrant | 11 |
Item 11. | Executive Compensation | 11 |
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 12 |
Item 13. | Certain Relationships and Related Transactions | 12 |
Item 14. | Controls and Procedures | 12 |
PART IV | ||
Item 15. | Exhibits, Financial Statement Schedules, and Reports on Form 8-K | 12 |
Signatures | 15 | |
Certifications | 16 |
UNITED TECHNOLOGIES CORPORATION
Annual Report on Form 10-K for the Year Ended December 31, 2002
Whenever reference is made in this Form 10-K to specific sections or pages of the Corporation's 2002 Annual Report to Shareowners, such sections or pages, as applicable, are incorporated herein by reference. The "Corporation", unless the context requires otherwise, means United Technologies Corporation (or UTC) and its subsidiaries.
Item 1. Business
General
United Technologies Corporation was incorporated in Delaware in 1934. Growth is attributable to acquisitions and the internal development of existing businesses of the Corporation. The following description of the Corporation's business should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations appearing on pages 2 through 13 of the Corporation's 2002 Annual Report to Shareowners, especially the information contained therein under the heading "Business Environment."
The Corporation's operating units include a diverse portfolio of businesses with operations throughout the world. Otis and Carrier primarily serve customers in the commercial and residential property industries worldwide. In 2002, the revenues generated by Otis and Carrier operations were 54 percent of the Corporation's total segment revenues. Pratt & Whitney and the Flight Systems segment, which includes Hamilton Sundstrand and Sikorsky Aircraft, primarily provide aerospace products and services to commercial and government customers. In 2002, commercial aerospace and U.S. Government aerospace revenues were approximately 30 percent and 16 percent, respectively, of the Corporation's total segment revenues. Revenues in 2002 from outside the United States, including U.S. export sales, were 55 percent of the Corporation's total segment revenues.
As worldwide businesses, the Corporation's operations can be affected by a variety of economic and other factors, including those described in Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Corporation's 2002 Annual Report to Shareowners and those described in the "Business" section of this Form 10-K under the heading "Other Matters Relating to the Corporation's Business as a Whole." Each business unit is subject to significant competition from a large number of companies in the United States and other countries, and each competes on the basis of price, delivery schedule, product performance and service.
The Corporation's annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports will be made available free of charge through the Investor Relations section of the Corporation's Internet website (http://www.utc.com) as soon as practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission.
Description of Business by Segment
The Corporation conducts its business through four principal segments. The segments were generally determined based on the management structure of the businesses and the grouping of similar operating companies, where each management organization has general operating autonomy over diversified products and services. The principal products of each segment are as follows:
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, and 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 | --Hamilton Sundstrand aerospace products and aftermarket services include aircraft power generation and management systems, engine and flight controls, auxiliary power units, environmental control systems and propeller systems. Industrial products include air compressors, metering devices, fluid handling equipment and gear drives. |
-- Sikorsky commercial and military helicopters, aftermarket helicopter and aircraft parts and service. |
Segment financial data for the years 2000 through 2002, including financial information about foreign and domestic operations and export sales, is included in Note 17 of Notes to Consolidated Financial Statements on pages 31 through 33 of the Corporation's 2002 Annual Report to Shareowners.
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. Otis also produces a broad line of
escalators and, for horizontal transportation, moving walkways and shuttles. In addition
to new equipment, Otis provides modernization products and services to upgrade elevators
and escalators as well as maintenance services for a substantial portion of the elevators
and escalators that it sells, as well as those of other manufacturers. Otis serves an
international customer base, principally in the commercial and residential property
industries.
Revenues generated by Otis' international operations were 77 and 76 percent of total Otis segment revenues in 2002 and 2001, respectively. At December 31, 2002, Otis' business backlog was $4,177 million as compared to $3,777 million at December 31, 2001. Substantially all of the business backlog at December 31, 2002 is expected to be realized as sales in 2003.
Carrier
Carrier is the world's largest manufacturer of
commercial and residential HVAC 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 in both the HVAC and
refrigeration industries. The products manufactured by Carrier include chillers and air
handling equipment, commercial unitary systems, residential split systems, residential
furnaces, duct-free split systems and window air conditioners, as well as transport
refrigeration, commercial refrigeration and food service equipment. Carrier's products and
services are sold under Carrier and other brand names to building contractors and building
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.
Carrier has grown significantly in recent years as a result of acquisitions. Major acquisitions have included the August 1999 acquisition of International Comfort Products Corporation, a North American residential and light commercial HVAC equipment company; the February 2000 acquisition of the Electrolux Group's commercial refrigeration business in Europe; and the November 2000 acquisition of Specialty Equipment Companies, a manufacturer of commercial refrigeration and food service equipment in the United States and Europe. Carrier participates in a joint venture with Toshiba Corporation in Japan. Carrier and the joint venture company, Toshiba Carrier Corporation, also participate in HVAC joint ventures in the U.K. and Thailand.
Revenues generated by Carrier's international operations, including U.S. export sales, were 48 and 47 percent of total Carrier segment revenues in 2002 and 2001, respectively. At December 31, 2002, Carrier's business backlog was $1,028 million as compared to $1,042 million at December 31, 2001. Substantially all of the business backlog at December 31, 2002 is expected to be realized as sales in 2003.
Pratt & Whitney
Pratt & Whitney is among the world's
leading suppliers 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 and other commercial and military jet and gas turbine
engines. 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 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 The Boeing
Company ("Boeing") and Airbus Industrie ("Airbus") were 11 and 10
percent, respectively, of total Pratt & Whitney revenues in 2002, before taking into
account discounts or financial incentives offered to customers.
Pratt & Whitney currently produces two families of large commercial jet engines: the PW4000 engine series (powering the Airbus A310-300, A300-600 and A330-200/300 series of aircraft; the Boeing 747-400, 767-200/300 and 777-200/300 series of aircraft; and the out-of-production Boeing MD-11 aircraft) and the PW2000 engine series (powering the Boeing 757-200/PF/300 aircraft). Also, Pratt & Whitney has entered into a Memorandum of Understanding with Airbus to develop, market and sell PW6000 series engines for installation on Airbus A318 aircraft, expected to enter service during 2005. The PW6000 was certified by U.S. airworthiness authorities in January 2002.
In view of the risk and cost associated with developing new engines, Pratt & Whitney has entered into certain collaboration arrangements in which costs, revenues and risks are shared. At December 31, 2002, the interests of other participants in Pratt & Whitney's current commercial jet engine production programs ranged from 14 to 29 percent. Pratt & Whitney also has a 33 percent interest in the International Aero Engines collaboration that sells and supports V2500 engines. Applications for the V2500 engine include Airbus' A319, A320 and A321 aircraft and Boeing's out-of-production MD-90. Pratt & Whitney has a 50 percent interest in an alliance with GE Aircraft Engines to develop, market and manufacture the GP7000 engine. At December 31, 2002, other participants held interests totaling 35 percent in Pratt & Whitney's share of this program. The alliance anticipates the first full engine test in 2004. The new engine will power the Airbus A380 aircraft, with first aircraft deliveries scheduled for 2006.
Pratt & Whitney currently produces three military aircraft engines: the F119 (powering the two-engine F/A-22 fighter aircraft), the F100 (powering two-engine F-15 and single-engine F-16 fighter aircraft) and the F117 (powering four-engine C-17 transport aircraft). The F119 and F117 are currently the only sources of propulsion for the F/A-22 fighter aircraft and C-17 transport aircraft, respectively. Pratt & Whitney is under contract with the U.S. Air Force ("USAF") to complete flight-testing and initial production of F119 engines through 2003. All of Pratt & Whitney's F100 sales contracts are with the 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 F135 engine, a derivative of Pratt & Whitney's F119 engine, to power the single-engine F-35 Joint Strike Fighter aircraft being developed by Lockheed Martin. Management cannot predict with certainty whether, when, and in what quantities Pratt & Whitney will produce F135 engines.
Pratt & Whitney Canada ("P&WC") is a world leader in aviation engines powering business, regional, utility and military aircraft and helicopters. P&WC also designs and manufactures engines for auxiliary power units and industrial applications. Its operations and service network span the globe.
Pratt & Whitney Space Propulsion ("SP") produces hydrogen fueled rocket engines for commercial and U.S. Government space applications, advanced turbo pumps for NASA's Space Shuttle program and solid fuel propulsion systems for civil and military applications. SP also has a 50 percent interest in a joint venture with NPO Energomash that provides kerosene fueled RD-180 rocket engines for satellite launch applications.
Pratt & Whitney Power Systems ("PWPS") supplies industrial power generation and mechanical drive equipment in the one megawatt to 50 megawatts range. PWPS also provides gas turbines for marine propulsion applications.
Revenues from Pratt & Whitney's international operations, including U.S. export sales, were 54 percent and 50 percent of total Pratt & Whitney segment revenues in each of 2002 and 2001, respectively. At December 31, 2002, Pratt & Whitney's business backlog was $13,030 million, including $2,001 million of U.S. Government funded contracts and subcontracts, as compared to $11,161 million and $1,949 million, respectively, at December 31, 2001. Of the total Pratt & Whitney backlog at December 31, 2002, approximately $4,365 million is expected to be realized as sales in 2003. Pratt & Whitney's backlog includes certain contracts for which actual costs may ultimately exceed total revenues. See Note 1 to Consolidated Financial Statements on page 21 of the Corporation's 2002 Annual Report to Shareholders for a description of the Corporation's accounting for long-term contracts.
Flight Systems
The Corporation's Flight Systems business
provides global products and services through Hamilton Sundstrand and Sikorsky Aircraft.
The Corporation acquired Sundstrand Corporation in 1999 and combined it with the
operations of the former Hamilton Standard.
Hamilton Sundstrand provides aerospace and industrial products and aftermarket services for diversified industries worldwide. Hamilton Sundstrand's principal aerospace products include aircraft power generation management and distribution systems; environmental, flight, fuel and engine control systems; fuel and special fluid pumps; auxiliary power units; propeller systems; electronic controls and components; and specialized instruments and chemical detection and monitoring equipment. 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 air compressors, metering devices, fluid handling equipment and gear drives.
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, engineering and technical support and fleet maintenance programs. 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, collectively, including sales where the U.S. Government was the ultimate customer, were 12.1 percent of Flight Systems segment sales in 2002.
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; and 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 believes that its research and development, proprietary technology, and product and service reputations have been significant in maintaining its competitive standing.
Sikorsky is one of the world's largest manufacturers of military and commercial helicopters and is 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's aftermarket business, which includes spare parts sales, overhaul and repair and service contracts for helicopters and other aircraft, has become a more significant part of Sikorsky's business in recent years. During 2002, Sikorsky acquired Derco Holding, a supplier of military aircraft logistics and component distribution, component repairs, and aftermarket program management.
Current production programs at Sikorsky include the Black Hawk medium-transport helicopter for the U.S. and foreign governments; the MH-60 Fleet Combat Support helicopter for the U.S. Navy; the International Naval Hawk for multiple naval missions; and the S-76 intermediate-sized helicopter for commercial operations. Under a multi-year contract with the U.S. Government, Sikorsky has delivered 249 Black Hawk helicopters, with the remaining three helicopters scheduled for delivery in 2003. A new multi-year contract was signed in 2002 that provides for additional deliveries of 80 Army and 82 Navy helicopters over the next five years. Under a $238 million research, development and test contract, Sikorsky is performing work to evaluate the potential for upgrading the U.S. Army fleet of Black Hawks.
After receiving type certification from the Federal Aviation Administration in December 2002, Sikorsky is entering into the final stages of development of the S-92 helicopter for the commercial market. An H-92 variant of the helicopter for the military market is also in development. A portion of the development work is being carried out in collaboration with companies in Brazil, the People's Republic of China, Japan, Spain and Taiwan. Marketing efforts for the S-92 and H-92 are in process and several non-binding deposit agreements have been received for S-92 helicopters. Deliveries of the first S-92 helicopters are planned for 2004. Management cannot predict with certainty whether, when, and in what quantities S-92 and H-92 helicopters will be produced.
Sikorsky has a 50 percent interest in a joint venture with Boeing for the development of the RAH-66 Comanche light attack and reconnaissance helicopter. The Sikorsky-Boeing joint venture is performing under a cost reimbursement contract awarded by the U.S. Army in 1991. During November 2002, the U.S. Army awarded the joint venture a revised Engineering and Manufacturing Development contract that increased the contract value by $3.4 billion to $6.6 billion. Under the revised contract, the joint venture is required to deliver nine Comanche helicopters in 2005 and 2006 for test and evaluation purposes and to provide aircraft capability improvements to these helicopters through 2011. Management cannot predict with certainty whether, when, and in what quantities Comanche helicopters will be produced.
Revenues generated by the Flight Systems segment's international operations, including export sales, were 25 percent and 39 percent of total Flight Systems segment revenues in 2002 and 2001, respectively. At December 31, 2002, Flight Systems' business backlog was $3,642 million, including $1,839 million under funded contracts and subcontracts with the U.S. Government, as compared to $3,784 million and $1,743 million, respectively, at December 31, 2001. Of the total Flight Systems segment backlog at December 31, 2002, approximately $2,664 million is expected to be realized as sales in 2003.
Pratt & Whitney and Flight Systems Aerospace and
Defense Products
The Corporation's aerospace and defense
businesses are subject to 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. In particular, Pratt &
Whitney experiences intense competition for new commercial airframe/engine combinations.
Engine suppliers may offer substantial discounts and other financial incentives,
performance and operating cost guarantees, participation in financing arrangements and
maintenance agreements. Customer selections of engines and components can also have a
significant impact on later sales of parts and services. Pratt & Whitney's major
competitors in the sale of engines are 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 15 of Notes to Consolidated Financial Statements on pages 22 through 23 and 30 through
31 of the Corporation's 2002 Annual Report to Shareowners.)
Other factors that can affect the results of the Corporation's aerospace and defense businesses include lengthy and costly development cycles and heavy dependence on a small number of products and programs. Sales of military products are affected by defense budgets in the U.S. and other countries, U.S. foreign policy and the level of activity in military flight operations. Military spare parts sales are affected by policies of the U.S. and other governments of purchasing parts from suppliers other than the original equipment manufacturer. Pratt & Whitney's and Flight Systems' operations can also be affected by a variety of economic and other factors including those described in Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Corporation's 2002 Annual Report to Shareowners and those described in the "Business" section of this Form 10-K under the heading "Other Matters Relating to the Corporation's Business as a Whole".
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 2003, changes in economic conditions may cause customers to request that firm orders be rescheduled or canceled.
Other
UTC Power develops and markets distributed
power generation equipment producing up to one megawatt, including fuel cells and
microturbines, for use in commercial transportation and light industrial businesses,
institutions and office buildings. UTC Fuel Cells, LLC ("UTC Fuel Cells"), a
part of UTC Power, is a world leader in fuel cell production and development for
commercial, transportation, residential and space applications. UTC Fuel Cells 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. Over 250 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. UTC Fuel Cells is working with automakers and bus
manufacturers, as well as the U.S. Department of Energy, on development and demonstration
programs for vehicles. In December 2002, UTC Fuel Cells signed an agreement to license its
PEM technology on a non-exclusive basis to Nissan Motor Company Ltd. ("Nissan")
and to engage in joint development of this technology for automotive applications. In that
same month Nissan unveiled its zero-emission X-TRAIL vehicle powered by a UTC Fuel Cells
power plant. In 2001, UTC Fuel Cells and Shell Hydrogen US formed a joint venture to
develop, manufacture and sell fuel processors and hydrogen generation systems.
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. Government support for fuel cells could also impact the advancement of the technology. There is still significant uncertainty as to whether and when commercially viable PEM fuel cells will be produced. UTC Fuel Cells continues to seek strategic partners to develop sources of supply, as well as marketing and distribution channels. Toshiba Corporation owns a 10 percent equity interest in UTC Fuel Cells.
The results of UTC Power are included in the "Eliminations and other" category in the segment financial data in Note 17 of Notes to Consolidated Financial Statements on pages 31 through 33 of the Corporation's 2002 Annual Report to Shareowners.
Other Matters Relating to the Corporation's Business as a Whole
Research and Development
Since changes in technology can have a
significant impact on the Corporation's operations and competitive position, the
Corporation spends substantial amounts of its own funds on research and development. Such
expenditures, which are charged to expense as incurred, were $1,191 million, or 4.3
percent of total sales in 2002, as compared with $1,254 million or 4.6 percent of total
sales in 2001 and $1,302 million or 5.0 percent of total sales in 2000. 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 $1,189 million in 2002, as compared with $846 million in 2001
and $865 million in 2000.
Contracts, Other Risk Factors, Environmental and Other
Matters
U.S. Government contracts are subject to termination at the
convenience of the U.S. 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 government sales are made under fixed-price type contracts;
approximately $1.6 billion of the Corporation's total sales for 2002 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 condition, 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 8 through 9 of this Form 10-K and Note 16 of Notes to Consolidated Financial Statements on page 31 of the Corporation's 2002 Annual Report to Shareowners for further discussion. If the Corporation or one of its business units were charged with wrongdoing as a result of any of these investigations, it 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 conducts its businesses through subsidiaries and affiliates worldwide, some of which have significant minority interests. Changes in legislation or government policies can have an impact on the Corporation's worldwide operations. For example, governmental regulation of refrigerants is important to Carrier's businesses, while government safety regulations, restrictions on aircraft engine noise and emissions and government procurement practices can impact the Corporation's aerospace and defense businesses. The Corporation's international operations are also subject to changes in local government regulations and policies, including those related to investments, exchange controls and repatriation of earnings. Some foreign customers in the Corporation's aerospace and defense businesses may require counter-purchase or offset arrangements as a condition to a sale, such as requiring the Corporation to purchase supplies in the customer's country or to participate in manufacturing and financial support projects.
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. 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 does not anticipate that compliance with current provisions relating to the protection of the environment or that any payments it may be required to make for these cleanup liabilities will have a material adverse effect upon its cash flows, competitive position, financial condition or results of operations. (Environmental matters are further addressed in Management's Discussion and Analysis of Financial Condition and Results of Operations on page 11 and Notes 1 and 16 of Notes to Consolidated Financial Statements on pages 21 and 31 of the Corporation's 2002 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 ineligible to be used in performing any U.S. Government contract awarded to the Corporation until the Environmental Protection Agency certified that the condition giving rise to the violation had been corrected.
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.
The Corporation has sought cost reductions in its purchases of materials, components and supplies. These cost reductions may be achieved through a number of mechanisms, including consolidating its purchases, reducing the number of suppliers, strategic global sourcing and using online bidding competitions among potential suppliers. In some instances, the Corporation is reliant upon a single source of supply. Greater dependence on global sources of supply requires reliable transportation and import and export processes. A disruption in deliveries from its suppliers, therefore, could have an adverse effect on the Corporation's ability to meet its commitments to customers. 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, Australia and Russia), tantalum (Australia and Asia), chromium (Africa and Kazakhstan) and rhenium (Chile and Kazakhstan). To alleviate this dependence and accompanying risk associated with these particular raw materials, the Corporation has a number of ongoing programs which include 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 near net shape forging. The Corporation believes that its supply management practices in general are based on an appropriate balancing of the associated risks and the additional cost of other practices. The Corporation does not foresee any unavailability of materials, components, or supplies that will have any material adverse effect on its overall business, or on any of its business segments, in the near term.
For a discussion of other risks to which the Corporation's financial condition, results of operations or cash flows may be subject, including the risks of the Corporation's international operations, see the "Business" section of this Form 10-K under the headings "General" and "Description of Business by Segment" and Management's Discussion and Analysis of Financial Condition and Results of Operations appearing on pages 2 through 13 of the Corporation's 2002 Annual Report to Shareowners.
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 and integration into the Corporation's businesses
- Product developments and new business opportunities
- Restructuring costs and savings
- The outcome of contingencies
- Future repurchases of Common Stock
- Future levels of indebtedness and capital spending
- Pension plan assumptions and future contributions.
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 2002 includes important information as to risk factors in the "Business" section under the headings "General", "Description of Business by Segment" and "Other Matters Relating to the Corporation's Business as a Whole" and in the "Legal Proceedings" section. Additional important information as to risk factors is included in the Corporation's 2002 Annual Report to Shareowners in the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations", 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, 2002, the Corporation's total employment was
approximately 155,000. For discussion of the effects of the Corporation's restructuring
actions on employment, see Management's Discussion and Analysis of Financial Condition and
Results of Operations on page 7 and Note 12 of Notes to Consolidated Financial Statements
on page 29 of the Corporation's 2002 Annual Report to Shareowners.
Item 2. Properties
The Corporation's fixed assets as of December 31, 2002 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,
2002 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, 2002, the Corporation operated (a) plants in the U.S. which had 32.5 million square feet, of which 4.4 million square feet were leased; (b) plants outside the U.S. which had 24.7 million square feet, of which 2.4 million square feet were leased; (c) warehouses in the U.S. which had 10.9 million square feet, of which 7.7 million square feet were leased; and (d) warehouses outside the U.S. which had 4.8 million square feet, of which 3.5 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 Financial Condition and Results of Operations on page 7 and Note 12 of Notes to the Consolidated Financial Statements on page 29 of the Corporation's 2002 Annual Report to Shareowners.
Management believes that the fixed assets capitalized and the facilities in operation at December 31, 2002 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 adjust its facilities needs.
Item 3. Legal Proceedings
As previously reported, the Department of Defense (DoD) and the
Corporation are litigating whether Pratt & Whitney's government cost accounting
practices for certain engine parts are acceptable. The litigation, filed in 1994 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. On July 31, 2001, the ASBCA issued a
decision in favor of the Corporation. The DoD appealed this decision to the Court of
Appeals for the Federal Circuit on November 29, 2001. On January 15, 2003, the Court of
Appeals reversed the ASBCA and remanded the case to the ASBCA for further proceedings. The
Corporation intends to seek reconsideration of this decision by the Court. The DoD has
claimed approximately $158 million in damages, and approximately $103 million in interest
through December 31, 1996. Should the DoD ultimately prevail on liability, damages could
be larger than initially claimed because the DoD may amend its claim to include the period
after 1995 to the present, and interest could continue to accrue from January 1, 1997.
As previously reported, the Corporation has pending against it one qui tam complaint 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). 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 this qui tam complaint cannot currently be ascertained; however, if determined adversely to the Corporation, the number could result in significant penalties. The qui tam relator has claimed unspecified damages (trebled) and penalties, and the Department of Justice has declined to take over the litigation. In August 2000 and August 2001, the court dismissed portions of the complaint. In October 2002, the court ordered the parties to address whether the court should dismiss the case entirely. Additional papers were filed in November 2002, and a decision by the court is expected in 2003.
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 relates 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. In mid-2002, the Court denied motions filed by the Corporation that could have resulted in dismissal of all or part of the Government's claims. The Corporation has requested that the Court reconsider this denial. The Government's most recent quantification of its claimed damages in August 2001 includes False Claims Act damages of approximately $76 million (subject to trebling, plus penalties of up to $10,000 per false claim), and damages under the Truth in Negotiations Act of approximately $65 million plus interest of approximately $81 million. Interest could continue to accrue on this portion of the Government's claim.
Like many other companies in recent years, the Corporation or its subsidiaries have been named as a defendant in lawsuits alleging personal injury as a result of exposure to asbestos integrated into certain of the Corporation's products or premises. While the Corporation has never manufactured asbestos and no longer incorporates it in any currently-manufactured products, certain of its historical products, like those of many other manufacturers, have contained components incorporating asbestos. The Corporation has made no payment in a substantial majority of the cases closed to date. The remainder of the resolved cases have settled for amounts that are not material to the Corporation, and have been supported in part by insurance. At present, the Corporation is named in approximately 850 lawsuits involving approximately 16,000 individual claimants. More than 13,000 of these claimants are joined in seven lawsuits in circuit court in various counties in Mississippi that were filed or amended during 2002 to include the Corporation or certain of its subsidiaries. Each of these Mississippi lawsuits names from 200 to more than 400 other companies as defendants along with the Corporation or its subsidiaries. The complaints do not identify any products of the Corporation or its named subsidiaries, or specify the amount of damages claimed. Nor do they allege which claimants, if any, were exposed to asbestos attributable to the Corporation's products or premises, or the extent, if any, to which such claimants have been harmed. No discovery or other pretrial proceedings to develop such information have yet occurred.
The Corporation does not believe that resolution of any of the foregoing or any other legal matters will have a material adverse effect upon the Corporation's competitive position, results of operations, cash flows, or financial condition. A further discussion of government contracts and related investigations, as well as a discussion of the Corporation's environmental liabilities, can be found under the heading "Other Matters Relating to the Corporation's Business as a Whole Contracts, Other Risk Factors, Environmental and Other Matters" in Item 1 Business on pages 6 through 7 of this Form 10-K.
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, 2002.
----- Executive Officers of the Registrant
The following persons are executive officers of United Technologies Corporation:
Name |
Title |
Other Business Experience |
Age |
Tesfaye Aklilu | Vice President, Quality (since 1999) | Vice President, Quality, Pratt & Whitney | 58 |
Dean C. Borgman | President, Sikorsky Aircraft (since 1998) |
Senior Vice President, The Boeing Company | 61 |
Ari Bousbib | President, Otis Elevator (since April 2002) | Executive Vice President and Chief Operating Officer, Otis Elevator; Vice President, Corporate Strategy and Development, United Technologies Corporation | 41 |
Kent L. Brittan | Vice President, Supply Management (since 1997) |
------- |
60 |
William L. Bucknall, Jr. | Senior Vice President, Human
Resources and Organization (since 1992) |
------- |
60 |
John F. Cassidy, Jr. | Senior Vice President Science and Technology (since November 1998) and Vice President, United Technologies Research Center (since 1993) | Vice President, United Technologies Research Center | 59 |
Louis Chenevert | President, Pratt & Whitney (since 1999) | Executive Vice President-Operations, Pratt & Whitney | 45 |
Geraud Darnis | President, Carrier Corporation (since 2001) |
President, UT Power Solutions; President, Carrier Asia Pacific Operations; President, Carrier Europe-Middle East-Africa | 43 |
George David | Chairman (since 1997), President (since February 2002), and Chief Executive Officer (since 1994) | President, United Technologies Corporation (1992-1999) | 60 |
John J. Doucette | Vice President, Chief Information Officer (since 2000) | Vice President & Chief Information Officer, Otis Elevator; Vice President & Chief Information Officer, GE Lighting; Chief Information Officer, GE Silicones | 43 |
Ruth R. Harkin | Senior Vice President, International Affairs and Government Relations, United Technologies Corporation and Chair, United Technologies International (since 1997) | ------- |
58 |
George H. Jamison III | Vice President, Communications (since January 2003) | Vice President, Communications General Motors' Hughes Electronic Corporation; Manager, International Communications, General Electric Company | 46 |
Robert F. Leduc | Executive Vice President and Chief Operating Officer, Pratt & Whitney (since 2000) and President, Large Commercial Engines (since 2001) | Executive Vice President, Pratt & Whitney | 46 |
Ronald F. McKenna | President, Hamilton Sundstrand Corporation (since 1999) | Executive Vice President, Sundstrand Corporation and Chief Operating Officer, Sundstrand Aerospace | 62 |
David G. Nord | Vice President, Controller (since 2000) |
Acting Controller; Assistant Controller, Financial Reporting and Accounting, United Technologies Corporation | 45 |
Stephen F. Page | Vice Chairman (since April 2002) and Chief Financial Officer (since September 2002) | President and Chief Executive Officer, Otis Elevator; Executive Vice President and Chief Financial Officer, United Technologies Corporation | 63 |
Thomas I. Rogan | Vice President, Treasurer (since 2001) |
Vice President-Finance, Hamilton Sundstrand | 50 |
William H. Trachsel | Senior Vice President, General Counsel and Secretary (since 1998) | Vice President, Secretary and Deputy General Counsel, United Technologies Corporation | 59 |
All of the officers serve at the pleasure of the Board of Directors of United Technologies Corporation or the subsidiary designated.
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
The Comparative Stock Data appearing on page 34 of the
Corporation's 2002 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 is hereby
incorporated by reference.
Item 6. Selected Financial Data
The Five Year Summary appearing inside the front cover of the
Corporation's 2002 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 is hereby incorporated by reference. See Notes to Consolidated
Financial Statements appearing on pages 20 to 33 of the Corporation's 2002 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 Financial
Condition and Results of Operations
Management's Discussion and Analysis of Financial Condition and
Results of Operations appearing on pages 2 through 13 of the Corporation's 2002 Annual
Report to Shareowners is hereby incorporated by reference.
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 Financial Condition and Results of Operations on
page 11 of the Corporation's Annual Report to Shareowners and "Hedging Activity"
in Note 1, "Summary of Accounting Principles", Note 13, "Foreign
Exchange" and Note 14, "Financial Instruments" of Notes to Consolidated
Financial Statements on pages 21 and 29 through 30 of the Corporation's 2002 Annual Report
to Shareowners.
Item 8. Financial Statements and Supplementary Data
The 2002 and 2001 Consolidated Balance Sheet, and other
financial statements for the years 2002, 2001, and 2000, together with the report thereon
of PricewaterhouseCoopers LLP dated January 16, 2003 appearing on pages 15 through 19 in
the Corporation's 2002 Annual Report to Shareowners are incorporated by reference in this
Form 10-K. The 2002 and 2001 Selected Quarterly Financial Data appearing on page 34 in the
Corporation's 2002 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 2003 Annual Meeting of Shareowners entitled
"General Information Concerning the Board of DirectorsNominees."
Information regarding executive officers is contained in Part I of this Form 10-K under
the heading "--Executive Officers of the Registrant." Information concerning
Section 16(a) compliance is incorporated by reference to the section of the Corporation's
Proxy Statement for the 2003 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 2003 Annual Meeting
of Shareowners entitled "Report of the Committee on Compensation and Executive
Development" and "Compensation of Named 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.
Item 12. Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters
The information required by Item 12 is incorporated herein by
reference to the sections of the Corporation's Proxy Statement for the 2003 Annual Meeting
of Shareowners entitled "Security Ownership of Directors and Executive Officers"
and "Equity Compensation Plan Information."
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 2003 Annual Meeting
of Shareowners entitled "Certain Transactions and Business Relationships."
Item 14. Controls and Procedures
During the 90-day period prior to the filing date of this
report, management, including the Corporation's Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of the design and operation of the
Corporation's disclosure controls and procedures. Based upon, and as of the date of that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the
disclosure controls and procedures were effective, in all material respects, to ensure
that information required to be disclosed in the reports the Corporation files and submits
under the Exchange Act is recorded, processed, summarized and reported as and when
required.
There have been no significant changes in the Corporation's internal controls or in other factors which could significantly affect internal controls subsequent to the date the Corporation carried out its evaluation. There were no significant deficiencies or material weaknesses identified in the evaluation and, therefore, no corrective actions were taken.
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Financial Statements, Financial Statement Schedules and Exhibits |
|
(1) Financial Statements (incorporated by reference from the 2002 Annual |
Page Number in Annual Report |
|
15 |
|
16 |
|
17 |
|
18 |
|
20 |
|
34 |
(2) Financial Statement Schedule for the three years ended December 31, 2002: | Page Number |
|
S-I |
|
S-II |
|
F-I |
|
|
(3) Exhibits:
|
Exhibit Number | |
3(i) | Restated Certificate of Incorporation, incorporated by reference to Exhibit 3(i) to the Corporation's 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 March 21, 2001, incorporated by reference to Exhibit 3(ii) to the Corporation's Quarterly Report on Form 10-Q (Commission file number 1-812) for quarterly period ended March 31, 2001. |
4.1 | Amended and Restated Indenture, dated as of May 1, 2001, between the Corporation and The Bank of New York, as trustee (incorporated by reference to Exhibit 4(a) to the Corporation's Registration Statement on Form S-3, File No. 333-60276, filed with the SEC on May 4, 2001). 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 Annual Executive Incentive Compensation Plan, as amended.* |
10.2 | United Technologies Corporation Executive Estate Preservation Program, incorporated by reference to Exhibit 10(iv) to the Corporation's Annual Report on Form 10-K (Commission file number 1-812) for fiscal year ended December 31, 1992. |
10.3 | United Technologies Corporation Pension Preservation Plan, as amended.** |
10.4 | United Technologies Corporation Senior Executive Severance Plan, incorporated by reference to Exhibit 10(vi) to the Corporation's Annual Report on Form 10-K (Commission file number 1-812) for fiscal year ended December 31, 1992. |
10.5 | United Technologies Corporation Deferred Compensation Plan, as amended.** |
10.6 | United Technologies Corporation Long Term Incentive Plan, as amended.* |
10.7 | United Technologies Corporation Executive Disability, Income Protection and Standard Separation Agreement Plan, incorporated by reference to Exhibit 10(xii) to the Corporation's Annual Report on Form 10-K (Commission file number 1-812) for fiscal year ended December 31, 1992. |
10.8 | United Technologies Corporation Directors' Restricted Stock/Unit Program, incorporated by reference to Exhibit 10(xiii) to the Corporation's Annual Report on Form 10-K (Commission file number 1-812) for fiscal year ended December 31, 1992. |
10.9 | United Technologies Corporation Board of Directors Deferred Stock Unit Plan*, and Amendment 1 thereto (incorporated by reference to Exhibit (10)(iii)(A)(1) to the Corporation's Report on Form 10-Q (Commission file number 1-812) for quarterly period ended June 30, 2000). |
10.10 | United Technologies Corporation Pension Replacement Plan, as amended and restated effective January 1, 1996.** |
10.11 | United Technologies Corporation Special Retention and Stock Appreciation Program, incorporated by reference to Exhibit 10(xvi) to the Corporation's Report on Form 10-Q (Commission file number 1-812) for quarterly period ended September 30, 1995. |
10.12 | United Technologies Corporation Nonemployee Director Stock Option Plan*, Amendment 1 thereto (incorporated by reference to Exhibit (10)(iii)(A)(2) to the Corporation's Report on Form 10-Q (Commission file number 1-812) for quarterly period ended June 30, 2000), Amendment 2 thereto (incorporated by reference to Exhibit 10(iii)(A)(1) to the Corporation's Report on Form 10-Q (Commission file number 1-812) for quarterly period ended June 30, 2001), Amendment 3 thereto (incorporated by reference to Exhibit 10.17 to the Corporation's Annual Report on Form 10-K (Commission file number 1-812) for fiscal year ending December 31, 2001 and Amendment 4 thereto.** |
10.13 | United Technologies Corporation Employee Stock Option Plan.** |
10.14 | United Technologies Corporation Employee Scholar Program.** |
11 | Statement Re: Computation of Per Share Earnings.** |
12 | Statements Re: Computation of Ratios.** |
13 | Annual Report to Shareowners for the year ended December 31, 2002 (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-I of this Form 10-K. |
24 | Powers of Attorney of Jean-Pierre Garnier, Jamie S. Gorelick, Charles R. Lee, Richard D. McCormick, Frank P. Popoff, H. Patrick Swygert, Andre Villeneuve, H. A. Wagner and Sanford I. Weill.** |
Notes to Exhibits List: | |
*
Incorporated by reference to Exhibit of the same number to the Corporation's 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 10.14 are contracts, arrangements or compensatory plans filed as exhibits pursuant to Item 15(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, 2002. |
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: Stephen F. Page
Vice Chairman and Chief Financial Officer
Date: February 10, 2003
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 |
George David | Chairman, Director, President and Chief Executive Officer | February 10, 2003 |
Stephen F. Page | Vice Chairman, Director and Chief Financial Officer | February 10, 2003 |
David G. Nord | Vice President, Controller | February 10, 2003 |
Jean-Pierre Garnier * | Director ) | *By: William H.
Trachsel Attorney-in-Fact |
Jamie S. Gorelick * | Director ) | Date: February 10, 2003 |
Charles R. Lee * | Director ) | |
Richard D. McCormick * | Director ) | |
Frank P. Popoff * | Director ) | |
H. Patrick Swygert * | Director ) | |
Andre Villeneuve * | Director ) | |
H. A. Wagner * | Director ) | |
Sanford I. Weill * | Director ) | |
CERTIFICATION
I, George David, certify that:
1. I have reviewed this annual report on Form 10-K of United Technologies Corporation;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: February 10, 2003 | George David Chairman and Chief Executive Officer |
CERTIFICATION
I, Stephen F. Page, certify that:
1. I have reviewed this annual report on Form 10-K of United Technologies Corporation;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: February 10, 2003 |
Stephen F. Page Vice Chairman and Chief Financial Officer |
REPORT OF INDEPENDENT AUDITORS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of United Technologies Corporation
Our audits of the consolidated financial statements referred to in our report dated January 16, 2003, appearing in the 2002 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 15(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.
PricewaterhouseCoopers LLP
Hartford, Connecticut
January 16, 2003
S-I
UNITED TECHNOLOGIES CORPORATION AND SUBSIDIARIES
Schedule II - Valuation and Qualifying Accounts
Three Years Ended December 31, 2002
(Millions of Dollars)
Allowances for Doubtful Accounts and Other Customer Financing Activity:
Balance December 31, 1999 | $ | 483 | |
Provision charged to income | 41 | ||
Doubtful accounts written off (net) | (27) | ||
Other adjustments | (6) | ||
Balance December 31, 2000 | 491 | ||
Provision charged to income | 93 | ||
Doubtful accounts written off (net) | (59) | ||
Other adjustments | (33) | ||
Balance December 31, 2001 | 492 | ||
Provision charged to income | 88 | ||
Doubtful accounts written off (net) | (118) | ||
Other adjustments | (41) | ||
Balance December 31, 2002 | $ | 421 |
Future Income Tax Benefits - Valuation allowance:
Balance December 31, 1999 $ 233 Additions charged to income tax expense
24 Reductions credited to income tax expense (49) Balance December 31, 2000 208 Additions charged to income tax expense 66 Reductions credited to income tax expense (94) Balance December 31, 2001 180 Additions charged to income tax expense 82 Reductions credited to income tax expense (26) Balance December 31, 2002 $ 236
S-II
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 (No. 333-60276), 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. 333-100724, 333-100723, 333-100718, 333-21853, 333-18743, 333-21851, 33-57769, 33-11255, 33-26580, 33-26627, 33-51385, 33-58937, 333-77817 and 333-82911) of United Technologies Corporation of our report dated January 16, 2003 relating to the financial statements, which appears in the 2002 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 16, 2003 on the Financial Statement Schedule, which appears on page S-I of this Form 10-K.
PricewaterhouseCoopers LLP
Hartford, Connecticut
February 10, 2003
F-I
Exhibit 10.3
UNITED TECHNOLOGIES CORPORATION
PENSION PRESERVATION PLAN
AS AMENDED AND RESTATED EFFECTIVE JANUARY 1, 1996
1. INTRODUCTION & PURPOSE
The United Technologies Corporation Pension Preservation Plan (the "Preservation Plan") is maintained as an unfunded plan solely for the purpose of providing retirement benefits in excess of the retirement and survivor benefits that may be paid from tax-qualified retirement plans due to (i) benefit limitations imposed by Section 415 of the Internal Revenue Code of 1986, as amended from time to time (the "Code") and (ii) the limitation imposed by Section 401 (a)(17) of the Code on compensation that may be taken into account in computing retirement benefits under tax-qualified retirement plans (referred to collectively as the "Limits"). The Preservation Plan restores the amount of the retirement benefit or survivor benefit that is not paid from the United Technologies Corporation Employee Retirement Plan (or any other tax-qualified defined benefit retirement plan sponsored by the Corporation) (the qualified Retirement Plan") as a result of the Limits so that the total actuarial present value of the Qualified Retirement Plan and Pension Preservation Plan benefits equals the actuarial present value of the retirement benefit or survivor benefit that would be paid from the Qualified Retirement Plan if such Plan were administered without regard to the Limits. The Preservation Plan shall be administered and construed to effectuate the foregoing intent.
The capitalized terms used herein shall have the meanings given to them by the United Technologies Corporation Employee Retirement Plan unless the context clearly indicates otherwise.
2. EFFECTIVE DATE
The Preservation Plan became effective on January 1, 1978. This amendment and restatement of the Preservation Plan shall be effective January 1, 1996, except to the extent otherwise specifically provided herein.
3. ELIGIBILITY
An employee of United Technologies Corporation (the "Corporation") or an affiliate thereof who is a Participant in the Qualified Retirement Plan shall be eligible to participate in the Preservation Plan if and to the extent the Participants Accrued Benefit under the Qualified Retirement Plan is reduced or limited by provisions of the Qualified Retirement Plan that are designed solely to comply with the Limits. In no event shall any person who is not entitled to benefits under the Qualified Retirement Plan be eligible for retirement benefits or survivor benefits under the Preservation Plan. An employee of the Corporation or an affiliate thereof who is eligible for retirement benefits under the Preservation Plan shall be referred to herein as a "Participant."
4. DETERMINATION OF PRESERVATION PLAN BENEFIT
The amount of the retirement benefit or survivor benefit payable from the Preservation Plan to or in respect of a Participant shall equal the excess, if any, of (a) over (b), where
(a) equals the retirement benefit or survivor benefit that would be paid to such Participant (or on his or her behalf to his Contingent Annuitant or Beneficiary) under the Qualified Retirement Plan if the provisions of the Qualified Retirement Plan were administered without regard to the Limits; and
(b) equals the retirement benefit or survivor benefit payable to such Participant (or on his or her behalf to his or her Contingent Annuitant or Beneficiary) under the Qualified Retirement Plan.
5. FORM OF PRESERVATION PLAN BENEFIT
(a) The Plan Administrator shall determine, as of the earlier of the Participants Retirement Date or the Participants date of death, that portion of the Participants total retirement benefit or survivor benefit that is to be paid under the Preservation Plan. The Preservation Plan retirement benefit or survivor benefit shall be paid to the Participant, or on his or her behalf to any Contingent Annuitant or Beneficiary (as designated under the Qualified Retirement Plan), in the form of distribution that applies to the benefit payments made to, or on behalf of, the Participant under the Qualified Retirement Plan unless the Participant has made a timely election to receive his or her Preservation Plan retirement benefit in a single lump-sum payment or in a series of 2 to 10 annual installment payments in accordance with this Section 5.
(b) If
(i) the Participant qualifies for an Early Retirement Annuity or a Normal Retirement Annuity or satisfies the Rule of 65 under Section 5.4 of the United Technologies Corporation Employee Retirement Plan (or dies after qualifying for an Early Retirement Annuity or a Normal Retirement Annuity or satisfying such Rule of 65, but before the date as of which retirement benefits under the Qualified Retirement Plan are scheduled to begin), and
(ii) terminates, or retires from, employment with the Corporation and its affiliates after December 31, 1995,
the Participant may elect, in accordance with Section 5(c) hereof, to have his or her Preservation Plan retirement benefit or survivor benefit paid in a lump sum or in annual installments, payable (or commencing) as of the Participants Retirement Date. Subject to the provisions of Section 5(c) hereof, a Participant may revoke any such election at any time. A Participant shall have no right under the Preservation Plan to have his or her Qualified Retirement Plan benefit paid in a lump sum or in annual installments. Distributions from the Qualified Retirement Plan shall be governed solely by the terms of the Qualified Retirement Plan.
(c) An election to have a lump-sum or installment distribution paid pursuant to Section 5(b) hereof (or a revocation of any such election) shall be disregarded unless it is filed at least one year before the Participants Retirement Date (or, if earlier, the first day of the month next following the Participants date of death), except that
(i) If such an election or revocation is filed on or before October 30, 1996, the election or revocation shall be given effect only if the Participant consents to a distribution (or the commencement of distributions) under the Preservation Plan as of a date occurring on or after January 1, 1997; and
(ii) If such an election or revocation is filed on or after November 1, 1996, and on or before December 31, 1996, the election or revocation shall be given effect only if the Participant consents to a distribution (or the commencement of distributions) under the Preservation Plan as of a date occurring on or after April 1, 1997.
(d) If a Participant elects to have his or her Preservation Plan benefit paid in the form of a single lump-sum or annual installment distribution, the Actuarially Equivalent present value of the Preservation Plan retirement benefit or survivor benefit shall be determined using the 1983 Group Annuity Mortality Table and an interest assumption equal to the average yield for tax-free municipal bonds of 10-year maturities, averaged over the prior 5 calendar years. For purposes of computing this interest assumption, the Actuary shall utilize the Lehman Bros. Municipal Bond Index, averaging the published yield for 10-year maturities (credit quality AA or above) on the last business day of the year over the most recent 5 consecutive full calendar year period. This rate shall be adjusted annually at the beginning of each calendar year.
(e) The payment of a lump sum or annual installment distribution in accordance with this Section 5 shall be in full satisfaction of all of the Corporations obligations with respect to the Participant under the Preservation Plan.
6. DEATH BENEFITS
A Participant who has made an election to receive Pension Preservation Plan benefits in a lump sum or annual installments in accordance with Section 5 herein shall have survivor benefits paid to his or her Pension Preservation Plan beneficiary as follows. If death occurs prior to age 55, the Pension Preservation Plan accrued benefit shall be paid in a lump sum payment as of the date the Participant would have attained his or her 55th birthday. If death occurs after retirement but before all annual installments have been paid, the remaining installments will be paid to his or her Beneficiary as scheduled unless the estate of the Participant is the Beneficiary in which case the commuted value of the remaining payments will be paid in a lump sum.
If no election to receive Pension Preservation Plan benefits in a lump sum or installments is in effect as of the date of death, any survivor benefits will be paid in accordance with the distribution option in effect and to the Beneficiary or Contingent Annuitant designated under the Qualified Retirement Plan.
7. FUNDING
The Preservation Plan shall be maintained as an unfunded Plan that is not intended to meet the qualification requirements of Section 401 of the Code. Except in the event of a Change in Control of the Corporation (as described in Section 7 hereof), all benefits under the Preservation Plan shall be payable solely from the general assets of the Corporation. In this regard, the rights of each Participant, Contingent Annuitant and Beneficiary under the Preservation Plan with respect to his or her Preservation Plan retirement benefit or survivor benefit shall be those of a general unsecured creditor of the Corporation. No Participant, Contingent Annuitant or Beneficiary hereunder shall be entitled to receive any benefits payable under the Preservation Plan from the assets of the Qualified Retirement Plan, nor shall the Corporation undertake to set aside assets in trust or otherwise segregate assets to fund its obligations under the Preservation Plan except as provided in Section 7 hereof.
8. CHANGE OF CONTROL
In the event of a Change of Control of the Corporation, the Corporation shall immediately fully fund the value of all Accrued Benefits under the Preservation Plan, determined by the Actuary as of the date of the Change of Control. The required proceeds will be contributed to the United Technologies Corporation Pension Preservation Plan Retirement Security Trust. In addition, if the United Technologies Corporation Board of Directors Committee on Compensation and Executive Development takes any action under the United Technologies Corporation Long Term Incentive Plan (the "LTIP"), including, without limitation, the accelerated vesting or other adjustment to outstanding LTIP awards in anticipation of (i) a Change of Control (ii) an event, which if consummated, would constitute a Change of Control or (iii) any other significant change pertaining to the ownership of the Corporation, the Corporation shall then also immediately fund the United Technologies Corporation Pension Preservation Plan Retirement Security Trust. For purposes of this Section 7, "Change of Control" shall have the meaning given to that term under the LTIP.
9. NONASSIGNABILITY
No Participant, Contingent Annuitant or Beneficiary or any other person shall have the right to sell, assign, transfer, pledge, or otherwise encumber any interest in the Preservation Plan. All Preservation Plan benefits are unassignable and non-transferable and shall not be subject to attachment or seizure for the payment of any debts, judgments or other obligations. No Preservation Plan interest shall be transferred by operation of law in the event of the bankruptcy or insolvency of a Participant, Contingent Annuitant, or Beneficiary.
10. NO CONTRACT OF EMPLOYMENT
Participation in the Preservation Plan shall not be construed to constitute a direct or indirect contract of employment between the Corporation and the Participant. Nothing in the Preservation Plan shall be deemed to give a Participant the right to be retained in the service of the Corporation for any length of time. Participants, Contingent Annuitants and Beneficiaries shall have no rights against the Corporation resulting from participation in the Preservation Plan other than as specifically provided herein.
11. OPERATION AND ADMINISTRATION
The Preservation Plan shall be administered by the Pension Administration and Investment Committee of United Technologies Corporation (the "Committee"). The Committee shall have the right to delegate its responsibilities hereunder to sub-committees and individuals. Any question of administration or interpretation arising under the Preservation Plan shall be determined by the Committee (or its delegate) in its full discretion, and its decision shall be final and binding upon all parties.
12. TAXES/WITHHOLDING
The Corporation shall have the right to withhold taxes from Preservation Plan benefit payments to the extent it reasonably determines such withholding to be required by law.
13. GOVERNING LAW
The Preservation Plan shall be construed, administered and enforced in accordance with the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and to the extent not preempted thereby, the laws of the State of Connecticut (disregarding its choice-of-law rules).
14. AMENDMENT AND DISCONTINUANCE
The Corporation expects to continue the Preservation Plan indefinitely, but reserves the right, by action of the Committee, to amend or discontinue the Preservation Plan at any time, provided, however, that no such action shall decrease any benefits accrued under the Preservation Plan as of the date of such action. Although the benefits accrued under the Preservation Plan are not subject to the restrictions imposed by Section 204(g) of ERISA, the proviso in the preceding sentence shall be construed in a manner consistent with Section 204(g) of ERISA. As a result, the proviso referred to in the preceding sentence imposes restrictions identical with the restrictions that would be imposed on the Preservation Plan if the Preservation Plan were subject to Section 204(g) of ERISA.
15. SUCCESSORS
The provisions of the Preservation Plan shall bind and inure to the benefit of the Corporation, and its successors and assigns. The term successors shall include any corporate or other business entity that by merger, consolidation, purchase or otherwise acquires all or substantially all of the business and assets of the Corporation, and successors of any such Corporation or other entity.
16. BENEFIT CLAIMS PROCEDURE
(a) The Plan Administrator shall establish and communicate procedures for Participants to obtain forms required to effect elections and designations under the Plan. The Plan Administrator may establish a telephonic communication system to facilitate the administration of the Plan and to provide information to Participants, provided that any estimate of a Participants current or projected accrued benefit shall in no event be binding on the Plan Administrator in the event of any discrepancy between such estimate and a Participants actual Accrued Benefit, which, in all cases, shall control. Upon notification of the death of any Participant while in the employment of the Employer, the Plan Administrator may initiate any claim on behalf of the Spouse, Contingent Annuitant, or Beneficiary.
(b) If a claim is denied, the Plan Administrator or its designated agent shall give the claimant notice in writing of such denial, which notice shall set forth (i) the specific reason(s) for the denial; (ii) specific reference to pertinent Plan provisions on which the denial is based; (iii) a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such materials or information are necessary; and (iv) an explanation of the Plans claim review procedure.
(c) Within 60 days after receipt of the notice of denial described above, the claimant may request a review of such denial by filing a notice of appeal in writing with the Benefit Claims Appeal Committee (the "Benefits Appeal Committee"). Such notice must set forth all relevant factors upon which the appeal is based. The Benefits Appeal Committee shall decide the issues raised by the appeal, either with or without holding a hearing, and shall issue to the claimant a written notice setting forth its decision and the reasons for the decision. The Benefits Appeal Committees decision shall be made not more than 60 days after it has received the claimants request for review, unless the Benefits Appeal Committee determines that special circumstances require an extension of time and so notifies the claimant, in which case a decision shall be made not more than 120 days after it has received the request for review. The Benefits Appeal Committee shall have the greatest discretion permitted by law in making decisions pursuant to this Section 16. All interpretations, determinations, and decisions of the Benefits Appeal Committee in respect of any claim shall be conclusive and binding upon all persons having or claiming to have any interest or right under the Plan.
UNITED TECHNOLOGIES CORPORATION
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Attest: Richard M. Kaplan | By: William L. Bucknall, Jr. |
Assistant Secretary | Title: Senior Vice President |
Human Resources and Organization |
Dated: December 20, 1996
Exhibit 10.5
UNITED TECHNOLOGIES CORPORATION
DEFERRED COMPENSATION PLAN
(As amended and restated effective September 1, 2002)
ARTICLE I - PREAMBLE
United Technologies Corporation established the United Technologies Deferred Compensation Plan effective April 1, 1985. Pursuant to such Plan, certain eligible executives of the Corporation deferred all or a portion of their compensation earned with respect to 1985 and 1986. No compensation earned after 1986 was deferred under the Plan until the Plan was amended and restated effective December 15, 1993 to offer eligible executives the opportunity to defer all or a portion of Compensation earned or otherwise payable in 1994 and subsequent years. The Plan is hereby amended and restated, effective September 1, 2002, to reflect administrative changes and enhancements.
ARTICLE II DEFINITIONS
Beneficiary means the person, persons or entity designated by the Participant to receive the value of his or her Plan Accounts in the event of the Participants death. If the Participant fails to designate a Beneficiary, or the Beneficiary (and any contingent Beneficiary) does not survive the Participant, the value of the Participants Plan Accounts will be paid to the estate of the Participant.
Benefit Reduction means either a reduction in a Participants (or the Participants Beneficiarys) benefit under any of the Corporations defined benefit pension plans or a reduction in the value of employer matching or other contributions under any of the Corporations savings or other tax qualified defined contribution retirement plans as a result of the reduction of such Participants Compensation pursuant to this Plan.
Class Year means each calendar year for which Compensation has been deferred pursuant to the Plan prior to 2003.
Class Year Account means the account established for each Participant for each Class Year for which Compensation has been deferred under the Plan prior to January 1, 2003.
Committee means the United Technologies Corporation Deferred Compensation Committee, which is responsible for the administration of the Plan. The Corporations Pension Administration Committee shall appoint the Committees members.
Compensation means base salary and Incentive Compensation Payments otherwise payable to a Participant and considered to be wages for purposes of federal income tax withholding, but before any deferral of Compensation pursuant to the Plan. Compensation does not include foreign service premiums and allowances, compensation realized from Long Term Incentive Plan awards or other types of awards.
Corporation means United Technologies Corporation, its divisions, affiliates and subsidiaries.
Credited Interest Account means the Investment Fund that is valued in the manner set forth in Section 5.2.
Deferral Period means the period prior to the receipt of Compensation deferred hereunder.
Election Form means the enrollment form provided by the Committee to Participants electronically or in paper form for the purpose of deferring Compensation under the Plan. Each Participants Election Form must specify: the amount to be deferred from base salary and/or from any Incentive Compensation Payment with respect to the following calendar year; the respective amounts to be allocated to the Particpants Retirement Account and/or Special Purpose Account or Accounts; the percentage allocation among the Investment Funds with respect to each such Account; the method of distribution of each such Account; and the Deferral Period for each Special Purpose Account. There will be a separate Election Form for each calendar year.
Incentive Compensation Payment means amounts awarded to a Participant pursuant to the Corporations Annual Executive Incentive Compensation Plan.
Investment Fund means the Credited Interest Account, the S&P 500 Account, the UTC Stock Unit Account or such other investment option as may be established by the Committee from time to time. The value of Participants Accounts shall be adjusted to replicate the performance of the applicable Investment Fund. Amounts allocated to any Investment Fund do not result in any investment in actual assets corresponding to the Investment Fund.
Participant means an executive of the Corporation who is paid from a US payroll, files a U.S. income tax return, and who elects to defer Compensation under the Plan.
Plan means the United Technologies Corporation Deferred Compensation Plan as amended and restated effective September 1, 2002, and as amended from time to time thereafter.
Plan Accounts means the aggregate value of all Class Year Accounts, Special Purpose Accounts, and Retirement Account, but excluding accounts under the Prior Plan. Accounts under the Prior Plan will be valued and administered separately in accordance with the terms and procedures in effect under the Prior Plan.
Prior Plan means the United Technologies Corporation Deferred Compensation Plan, as in effect prior to December 15, 1993. All amounts deferred and credited under the Prior Plan shall continue to be subject to the terms and conditions of the Prior Plan and shall not be affected by this amendment and restatement.
Retirement Account means a Plan Account maintained on behalf of the Participant that will be distributed in the manner elected by the Participant commencing in April of the calendar year following the Participants Retirement Date.
Retirement means attainment of age 65; attainment of at least age 55 and a minimum of 10 or more years of "continuous service" (as defined in one of the Corporations retirement plans); or termination of employment on or after age 50 and before age 55, with a combination of age and years of service equal to at least 65 (the "Rule of 65").
Retirement Date means the date a Participant terminates employment from the Corporation on or after attaining eligibility for Retirement.
S&P 500 Account means an Investment Fund that is valued in the manner set forth in Section 5.4.
Special Purpose Account means a Plan Account maintained on behalf of the Participant that will be distributed in the manner elected by the Participant commencing in April of the calendar year specified by the Participant. The minimum Deferral Period is five (5) calendar years following the end of the calendar year for which the Account is established.
UTC Common Stock means the common stock of United Technologies Corporation.
UTC Stock Unit Account means the Investment Fund that is valued in the manner set forth in Section 5.3.
ARTICLE III - ELIGIBILITY AND PARTICIPATION
Section 3.1 - Eligibility
Each employee of the Corporation who is classified as an eligible Participant as of December 31 will be eligible to elect to defer Compensation under the Plan in respect of the subsequent calendar year in accordance with the terms of the Plan and the rules and procedures established by the Committee.
Section 3.2 - Participation
Each eligible Participant may elect to participate in the Plan with respect to any calendar year for which the Committee offers the opportunity to defer Compensation by timely filing with the Committee an Election Form, properly completed in accordance with Section 4.1. Participation in the Plan is entirely voluntary.
ARTICLE IV - PARTICIPANT ELECTIONS
Section 4.1 - Election
An eligible Participant may participate in the Plan by executing the Election Form provided by the Committee for the subsequent calendar year. The eligible Participant must designate the dollar amount of base salary that will be deferred during such calendar year, and/or the percentage or dollar amount of any Incentive Compensation Payment otherwise payable during such calendar year that will be deferred under the Plan. The minimum dollar amount that a Participant may defer under the Plan for any calendar year is $5,000. Any deferral election made in the Election Form is irrevocable and must be completed and returned to the Committee no later than the December 31 immediately preceding the calendar year to which the election applies, or such earlier date as the Committee may specify. If an eligible executive fails to return a properly completed Election Form by such date, the executive will be ineligible to defer Compensation under the Plan for the following calendar year.
Section 4.2 - Investment Fund Allocations
When completing the Election Form, the Participant must allocate the amounts to be deferred, in whole percentages divisible by 10, among the available Investment Funds.
Participants may reallocate their existing post-1993 Class Year Accounts, Special Purpose Accounts and Retirement Account among the available Investment Funds as permitted by the Committee, generally once per year. Such reallocations shall be in whole percentages divisible by 10 and, unless otherwise specified by the Committee, shall be effective January 1 of the calendar year following the date of the reallocation election.
Section 4.3 - Designation of Beneficiary
Each Participant shall designate a Beneficiary for his or her Plan Accounts on a form provided by the Committee. Such designation may be changed on a form acceptable to the Committee at any time by the Participant. In the event that no Beneficiary designation is filed with the Committee, or if the Beneficiary (and contingent Beneficiary) does not survive the Participant, all amounts deferred hereunder will be paid to the estate of the Participant in a lump sum. If a Participant designates the Participants spouse as the Participants Beneficiary, that designation shall not be revoked or otherwise altered or affected by any: (a) change in the marital status of the Participant; (b) agreement between the Participant and such spouse; or (c) judicial decree (such as a divorce decree) affecting any rights that the Participant and such spouse might have as a result of their marriage, separation, or divorce; it being the intent of the Plan that any change in the designation of a Beneficiary hereunder may be made by the Participant only in accordance with the procedures set forth in this Section 4.3. In the event of the death of a Participant, distributions shall be made in accordance with Section 6.4.
Section 4.4 - Deferral Period
Each Participant shall specify in the Election Form the Deferral Period for amounts to be deferred in the following calendar year. The minimum Deferral Period for a Special Purpose Account is five (5) calendar years following the end of the calendar year in which the Account is established. Participants may defer Compensation into a Retirement Account until April of the calendar year following their Retirement Date.
Section 4.5 - Distribution Schedule
Each Participant shall specify in the Election Form whether the value of the Participants Retirement or Special Purpose Account shall be distributed in a single lump-sum cash payment or in a series of annual cash installment payments for a specified number of years (not to exceed 15 years).
ARTICLE V - PLAN ACCOUNTS
Section 5.1 - Accounts
Prior to 2003, the Committee established a Class Year Account for each Participant with respect to each Class Year for which the Participant elected to defer Compensation under the Plan. Each Class Year Account will be maintained separately.
Amounts deferred in 2003 and subsequent calendar years will be allocated to a Retirement Account and/or one or more Special Purpose Accounts as elected by the Participant. The Committee will establish the maximum number of Special Purpose Accounts.
Participants Plan Accounts shall be allocated or reallocated among Investment Funds in accordance with each Participants instructions in the manner set forth in Section 4.2.
Section 5.2 - Valuation of Credited Interest Account
Deferred amounts allocated to the Credited Interest Account will be credited with a rate of interest equal to the average interest rate on 10-Year Treasury Bonds as of the last business day of each month from January through October in the prior calendar year, plus 1%.
Section 5.3 Valuation of UTC Stock Unit Account
Deferred Compensation allocated to the UTC Stock Unit Account will be converted to Stock Units, or fractional Stock Units. A UTC Stock Unit is equal to the closing price of one share of UTC Common Stock as reported on the composite tape of the New York Stock Exchange. The number of Stock Units will be calculated by dividing the amount of Compensation deferred by the closing price of UTC Common Stock on the date the deferred amounts otherwise would have been paid. Stock Units held in the UTC Stock Unit Account will be credited with a dividend payment equal to the Corporations declared dividend on UTC Common Stock (if any). Such dividend equivalent payments will be converted to additional Stock Units or fractional units using the closing price of UTC Common Stock as of the date such dividends are credited to the Participants UTC Stock Unit Account.
Section 5.4 Valuation of S&P 500 Account
Deferred amounts allocated to the S&P 500 Account will be converted to S&P Account units based on the closing share price of the Vanguard 500 Index Fund as of date the deferred amount is credited to the Participants S&P 500 Account. The value of the S&P 500 Account units will fluctuate on a daily basis based on the performance of the Vanguard 500 Index Fund.
Section 5.5 - Allocation to Accounts
During the year of deferral, deferred amounts will be allocated to the Participants Plan Accounts and Investment Funds as of the date the deferred amounts would otherwise have been paid.
Section 5.6 - Reports to Participants
The Committee will provide or make available detailed information to Participants regarding the value of Plan Accounts, distribution elections, Beneficiary designations, Investment Fund allocations and credited values for Class Year, Retirement and Special Purpose Accounts, not less than once per year. Such information may be provided via electronic media as determined by the Committee.
ARTICLE VI - DISTRIBUTION OF ACCOUNTS
Section 6.1 - Timing of Plan Distributions
The value of a Participants Retirement Account will be distributed (or begin to be distributed) in April of the calendar year following the Retirement Date. The value of a Participants Special Purpose Account will be distributed (or begin to be distributed) in April of the specified year. This means, for example, that if a deferral election specifies a Deferral Period until 2015, distribution will occur in April of 2015.
The value of a Participants Class Year Account will be distributed (or begin to be distributed) in April of the last year of the Deferral Period. Upon Retirement, the value of a Participant's Class Year Account will be distributed (or begin to be distributed) in April next following the Retirement Date, or in April of the calendar year following the Retirement Date, as elected.
Section 6.2 - Method of Distribution
Each Class Year, Retirement and Special Purpose Account will be distributed in a single lump-sum cash payment, or in a series of annual cash installment payments, in accordance with the Participants election with respect to each such Account.
Section 6.3 - Termination of Employment
In the event of termination of employment prior to a Participants Retirement Date, during or after the Deferral Period with respect to any Class Year, Retirement or Special Purpose Account, the full value of the Participants Plan Accounts will be distributed in a lump-sum cash payment in April following the date of termination, regardless of the distribution option elected.
Section 6.4 - Distribution in the Event of Death
In the event of the death of a Participant prior to attaining eligibility for Retirement, and before the end of the Deferral Period with respect to any Plan Account, the full value of such Plan Accounts will be distributed to the designated Beneficiary in a lump sum as soon as administratively feasible.
In the event of the death of a Participant prior to attaining eligibility for Retirement, butafter the end of the Deferral Period with respect to any Plan Account, the full value of such Plan Accounts will be distributed to the designated Beneficiary in accordance with the Participants distribution election on file.
In the event of death of a Participant after attaining eligibility for Retirement, the full value of the Participants Plan Accounts will be distributed to the Beneficiary in accordance with the Participants distribution elections on file.
If the Beneficiary is the Participant's estate, the full value of the Participants Plan Accounts will be paid in a single lump sum as soon as administratively feasible following the Participants date of death.
In the event of the death of the Beneficiary (and any contingent Beneficiary) while receiving distributions from the Plan, the full value of the applicable Plan Accounts will be paid in a single lump sum to such Beneficiarys estate as soon as administratively feasible.
Section 6.5 - Hardship Distribution
The Committee may, in its sole discretion, upon finding that the Participant (or Beneficiary in the event of a Participant's death) has suffered an unforeseen, severe and immediate financial emergency, permit such Participant to withdraw a portion of the value of the Participants Plan Accounts in an amount sufficient to eliminate the hardship. Financial hardship distributions will be made only if the Committee determines that the Participant is unable to resolve the financial emergency through other means reasonably available to the Participant. Financial hardship distributions will be made following the Committees determination of a qualifying financial emergency on the basis of the value of the Participants Plan Accounts as of the most recent date available. The Committee will determine from which Special Purpose, Retirement or Class Year Accounts and associated Investment Funds hardship distributions will be made. Any Participant who is an officer or director of the Corporation within the meaning of Section 16 of the Securities Exchange Act of 1934 is not eligible for financial hardship distributions.
Section 6.6 - Disability
In the event of the disability of a Participant, as determined under the Corporations Long Term Disability Plan, the Participants Plan Accounts will be maintained and distributed in accordance with the Participants elections on file.
Section 6.7 - Distribution from Supplemental Account
The Committee will effect distributions from supplemental retirement plans with respect to Benefit Reductions incurred in any of the Corporations defined benefit pension plans at the same time, in the same manner and in the required amounts such that when combined with benefits provided by the defined benefit pension plans in which a Participant incurred a Benefit Reduction, the total amount received by a Participant (or Beneficiary) will equal the amount of pension benefit that would otherwise have been paid had the Participant not participated in this Plan.
At the end of each calendar year, the Committee will determine if any Benefit Reduction has been incurred with respect to any of the Corporations savings plans or other tax qualified defined contribution retirement plans, and will credit the amount of such Benefit Reduction to the affected Participants Plan Accounts as of the last business day of the calendar year. Any such amounts will be allocated on a pro-rata basis to the Participants Plan Accounts and Investment Funds in accordance with the Participants deferral elections on file for that calendar year.
ARTICLE VII - AMENDMENT AND TERMINATION OF PLAN
Section 7.1 - Amendment
The Corporation may, at any time, amend the Plan in whole or in part, provided that no amendment may decrease the value of any Plan Accounts as of the date of such amendment. In the event of any change in law or regulation relating to the Plan and the tax treatment of Plan Accounts, the Plan shall, without further action by the Committee, be deemed to be amended to comply with any such change in law or regulation effective the first date necessary to prevent the taxation, constructive receipt or deemed distribution of Plan Accounts prior to the date Plan Accounts would be distributed under the provisions of Article VI.
Section 7.2 - Plan Suspension and Termination
The Corporations Pension Administration Committee, may, at any time, suspend or terminate the Plan with respect to new or existing Election Forms if, in its sole judgment, the continuance of the Plan, the tax, accounting, or other effects thereof, or potential payments hereunder would not be in the best interest of the Corporation or for any other reason. In the event of the suspension of the Plan, no additional deferral shall be made under the Plan, but all previous deferrals shall accumulate and be distributed in accordance with the otherwise applicable provisions of the Plan and the applicable elections on file. In the event of the termination of the Plan, each Participant will receive, in a lump-sum cash payment, the value of his or her Plan Accounts.
Section 7.3 - No Consent Required
The consent of any Participant, Beneficiary, or other person shall not be required with respect to any amendment, suspension, or termination of the Plan.
ARTICLE VIII - GENERAL PROVISIONS
Section 8.1 - Unsecured General Creditor
The Corporations obligations under the Plan constitute an unfunded and unsecured promise to pay money in the future. Participants and Beneficiaries rights under the Plan are solely those of a general unsecured creditor of the Corporation. No assets will be placed in trust, set aside or otherwise segregated to fund or offset liabilities in respect of the Plan or Participants Plan Accounts.
Section 8.2 - Nonassignability
No Participant or Beneficiary or any other person shall have right to sell, assign, transfer, pledge, or otherwise encumber any interest in the Plan. All Plan Accounts and the rights to all payments are unassignable and non-transferable. Plan Accounts or payment hereunder, prior to actual payment, will not be subject to attachment or seizure for the payment of any debts, judgments or other obligations. Plan Accounts or other Plan benefit will not be transferred by operation of law in the event of a Participants or any Beneficiarys bankruptcy or insolvency.
Section 8.3 - No Contract of Employment
Participation in the Plan shall not be construed to constitute a direct or indirect contract of employment between the Corporation and the Participant. Participants and Beneficiaries will have no rights against the Corporation resulting from participation in the Plan other than as specifically provided herein. Nothing in the Plan shall be deemed to give a Participant the right to be retained in the service of the Corporation for any length of time or to interfere with the right of the Corporation to terminate a Participants employment prior to the end of any Deferral Period.
Section 8.4 - Governing Law
The provisions of the Plan will be construed and interpreted according to the laws of the State of Connecticut, to the extent not preempted by federal law.
Section 8.5 - Validity
If any provision of the Plan is held to be illegal or invalid for any reason, the remaining provisions of the Plan will be construed and enforced as if such illegal and invalid provision had never been inserted herein.
Section 8.6 - Notice
Any notice or filing required or permitted to be given to the Committee under the Plan shall be sufficient if sent by first-class mail, to the United Technologies Corporation Deferred Compensation Committee, 1 Financial Plaza, Hartford, Connecticut 06101, Attn: R. Larry Acorn, Director, Compensation, MS-504. Any notice or filing required or permitted to be given to any Participant or Beneficiary under the Plan shall be sufficient if provided either electronically, hand-delivered, or mailed to the address (or email address, as the case may be) of the Participant or Beneficiary then listed on the records of the Corporation. Any such notice will be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark or email system.
Section 8.7 - Successors
The provisions of the Plan shall bind and inure to the benefit of the Corporation and its successors and assigns. The term successors as used herein shall include any corporate or other business entity, which by merger, consolidation, purchase or otherwise acquires all or substantially all of the business and assets of the Corporation, and successors of any such corporation or other business entity.
Section 8.8 - Incompetence
If the Committee determines, upon evidence satisfactory to the Committee, that any Participant or Beneficiary to whom a benefit is payable under the Plan is unable to care for their affairs because of illness or accident, any payment due (unless prior claim therefore shall have been made by a duly authorized guardian or other legal representative) may be paid, upon appropriate indemnification of the Committee and the Corporation, to the spouse of the Participant or other person deemed by the Committee to have incurred expenses for the benefit of and on behalf of such Participant or Beneficiary. Any such payment from a Participants Plan Accounts shall be a complete discharge of any liability under the Plan with respect to the amount so paid.
ARTICLE IX - ADMINISTRATION AND CLAIMS
Section 9.1 - Plan Administration
The Committee shall be solely responsible for the administration and operation of the Plan. The Committee shall have full and exclusive authority and discretion to interpret the provisions of the Plan and to establish such administrative procedures as it deems necessary and appropriate to carry out the purposes of the Plan.
Any person claiming a benefit, requesting an interpretation or ruling under the Plan, or requesting information under the Plan shall present the request in writing to the Committee which shall respond in writing as soon as practicable.
Section 9.2 - Claim Procedures
If a Participant or Beneficiary requests a benefit or payment under the Plan and such claim or request is denied, the Committee will provide a written notice of denial which will specify (a) the reason for denial, with specific reference to the Plan provisions on which the denial is based and (b) a description of any additional material or information that may be required with respect to the claim and an explanation of why such information is necessary.
If a claim or request is denied or if the Participant or Beneficiary receives no response within 60 days, the Participant or Beneficiary may request review by writing to the Committee. The Committee will review the claim or request, and may request additional information or materials that it deems appropriate to the resolution of any issues presented. The decision on review will normally be made by the Committee within 60 days of its receipt of the request for review but may be extended up to 120 days from such date. The Committees decision will be in writing and will state the basis for its decision and shall be conclusive and binding on all parties.
UNITED TECHNOLOGIES CORPORATION
By: William L. Bucknall, Jr. |
Title: Senior Vice President |
Human Resources and Organization |
Attest: Richard M. Kaplan |
Assistant Secretary |
Exhibit 10.10
UNITED TECHNOLOGIES CORPORATION
PENSION REPLACEMENT PLAN
AS AMENDED AND RESTATED EFFECTIVE JANUARY 1, 1996
1. INTRODUCTION & PURPOSE
The United Technologies Corporation Pension Replacement Plan (the "Replacement Plan") is maintained as an unfunded plan solely for the purpose of providing retirement benefits in excess of the retirement and survivor benefits that may be paid from the United Technologies Corporation Employee Retirement Plan (or any other tax-qualified defined benefit retirement plan sponsored by the Corporation) (the "Qualified Retirement Plan") and the United Technologies Corporation Pension Preservation Plan as a result of any reduction in a Participants compensation that would otherwise be utilized in computing accrued benefits under such Plans where the reduction results from participation in the Corporations Deferred Compensation Plan.
The capitalized terms used herein shall have the meanings given to them by the United Technologies Corporation Employee Retirement Plan unless the context clearly indicates otherwise.
2. EFFECTIVE DATE
The Replacement Plan became effective on April 1, 1985 as the United Technologies Corporation Supplemental Plan, which was subsequently renamed the United Technologies Corporation Pension Replacement Plan. This amendment and restatement of the Replacement Plan shall be effective January 1, 1996, except to the extent otherwise specifically provided herein.
3. ELIGIBILITY
An employee of United Technologies Corporation (the "Corporation") or an affiliate thereof who is a Participant in the Qualified Retirement Plan and the Pension Preservation Plan (if applicable) shall be eligible to participate in the Replacement Plan if and to the extent the Participants Accrued Benefit under the Qualified Retirement Plan or the Pension Preservation Plan is reduced as a result of participation in the United Technologies Corporation Deferred Compensation Plan or other similar deferred compensation arrangement if the Corporation authorizes the replacement of pension benefits in such arrangement (the "Deferred Compensation Plan"). In no event shall any person who is not entitled to benefits under the Qualified Retirement Plan be eligible for retirement benefits or survivor benefits under the Replacement Plan. An employee of the Corporation or an affiliate thereof who is eligible for retirement benefits under the Replacement Plan shall be referred to herein as a "Participant."
4. DETERMINATION OF REPLACEMENT PLAN BENEFIT
The amount of the retirement benefit or survivor benefit payable from the Replacement Plan to or in respect of a Participant shall equal the excess, if any, of (a) over (b), where
(a) equals the retirement benefit or survivor benefit that would be paid to such Participant (or on his or her behalf to his Contingent Annuitant or Beneficiary) under the Qualified Retirement Plan and the Pension Preservation Plan if the provisions of such Plans were administered by taking into account any compensation that was deferred under the Deferred Compensation Plan; and
(b) equals the retirement benefit or survivor benefit payable to such Participant (or on his or her behalf to his or her Contingent Annuitant or Beneficiary) under the Qualified Retirement Plan and the Pension Preservation Plan.
5. FORM OF PRESERVATION PLAN BENEFIT
(a) The Plan Administrator shall determine, as of the earlier of the Participants Retirement Date or the Participants date of death, that portion of the Participants total retirement benefit or survivor benefit that is to be paid under the Replacement Plan. The Replacement Plan retirement benefit or survivor benefit shall be paid to the Participant, or on his or her behalf to any Contingent Annuitant or Beneficiary (as designated under the Qualified Retirement Plan), in the form of distribution that applies to the benefit payments made to, or on behalf of, the Participant under the Qualified Retirement Plan unless the Participant has made a timely election to receive his or her Replacement Plan retirement benefit in a single lump-sum payment or in a series of 2 to 10 annual installment payments in accordance with this Section 5.
(b) If
(i) the Participant qualifies for an Early Retirement Annuity or a Normal Retirement Annuity or satisfies the Rule of 65 under Section 5.4 of the United Technologies Corporation Employee Retirement Plan (or dies after qualifying for an Early Retirement Annuity or a Normal Retirement Annuity or satisfying such Rule of 65, but before the date as of which retirement benefits under the Qualified Retirement Plan are scheduled to begin), and
(ii) terminates, or retires from, employment with the Corporation and its affiliates after December 31, 1995,
the Participant may elect, in accordance with Section 5(c) hereof, to have his or her Replacement Plan retirement benefit or survivor benefit paid in a lump sum or in annual installments, payable (or commencing) as of the Participants Retirement Date. Subject to the provisions of Section 5(c) hereof, a Participant may revoke any such election at any time. A Participant shall have no right under the Replacement Plan to have his or her Qualified Retirement Plan benefit paid in a lump sum or in annual installments. Distributions from the Qualified Retirement Plan shall be governed solely by the terms of the Qualified Retirement Plan.
(c) An election to have a lump-sum or installment distribution paid pursuant to Section 5(b) hereof (or a revocation of any such election) shall be disregarded unless it is filed at least one year before the Participants Retirement Date (or, if earlier, the first day of the month next following the Participants date of death), except that
(i) If such an election or revocation is filed on or before October 30, 1996, the election or revocation shall be given effect only if the Participant consents to a distribution (or the commencement of distributions) under the Replacement Plan as of a date occurring on or after January 1,1997; and
(ii) If such an election or revocation is filed on or after November 1, 1996, and on or before December 31, 1996, the election or revocation shall be given effect only if the Participant consents to a distribution (or the commencement of distributions) under the Replacement Plan as of a date occurring on or after April 1,1997.
(d) If a Participant elects to have his or her Replacement Plan benefit paid in the form of a single lump-sum or annual installment distribution, the Actuarially Equivalent present value of the Replacement Plan retirement benefit or survivor benefit shall be determined using the 1983 Group Annuity Mortality Table and an interest assumption equal to the average yield for tax-free municipal bonds of 10-year maturities, averaged over the prior 5 calendar years. For purposes of computing this interest assumption, the Actuary shall utilize the Lehman Bros. Municipal Bond Index, averaging the published yield for 10-year maturities (credit quality AA or above) on the last business day of the year over the most recent 5 consecutive full calendar year period. This rate shall be adjusted annually at the beginning of each calendar year.
(e) The payment of a lump sum or annual installment distribution in accordance with this Section 5 shall be in full satisfaction of all of the Corporations obligations with respect to the Participant under the Replacement Plan.
6. DEATH BENEFITS
A Participant who has made an election to receive Replacement Plan benefits in a lump sum or annual installments in accordance with Section 5 herein and such election is effective as of the date of the Participants death shall have survivor benefits paid to his or her Replacement Plan Beneficiary as follows. If death occurs prior to age 55, the Replacement Plan benefits shall be paid in a lump sum payment as of the date the Participant would have attained his or her 55th birthday. If death occurs after retirement but before all annual installments have been paid, the remaining installments will be paid to his or her Beneficiary as scheduled unless the estate of the Participant is the Beneficiary in which case the commuted value of the remaining payments will be paid in a lump sum.
If no election to receive Replacement Plan benefits in a lump sum or installments is in effect as of the date of death, any survivor benefits will be paid in accordance with the distribution option in effect and to the Beneficiary or Contingent Annuitant designated under the Qualified Retirement Plan.
7. FUNDING
The Replacement Plan shall be maintained as an unfunded Plan that is not intended to meet the qualification requirements of Section 401 of the Code. Except in the event of a Change in Control of the Corporation (as described in Section 7 hereof), all benefits under the Replacement Plan shall be payable solely from the general assets of the Corporation. In this regard, the rights of each Participant, Contingent Annuitant and Beneficiary under the Replacement Plan with respect to his or her Preservation Plan retirement benefit or survivor benefit shall be those of a general unsecured creditor of the Corporation. No Participant, Contingent Annuitant or Beneficiary hereunder shall be entitled to receive any benefits payable under the Replacement Plan from the assets of the Qualified Retirement Plan, nor shall the Corporation undertake to set aside assets in trust or otherwise segregate assets to fund its obligations under the Replacement Plan except as provided in Section 7 hereof.
8. CHANGE OF CONTROL
In the event of a Change of Control of the Corporation, the Corporation shall immediately fully fund the value of all Accrued Benefits under the Replacement Plan, determined by the Actuary as of the date of the Change of Control. The required proceeds will be contributed to the United Technologies Corporation Pension Replacement Plan Retirement Security Trust. In addition, if the United Technologies Corporation Board of Directors Committee on Compensation and Executive Development takes any action under the United Technologies Corporation Long Term Incentive Plan (the "LTIP") including, without limitation, the accelerated vesting or other adjustment to outstanding LTIP awards in anticipation of (i) a Change of Control (ii) an event, which if consummated, would constitute a Change of Control or (iii) any other significant change pertaining to the ownership of the Corporation, the Corporation shall then also immediately fund the United Technologies Corporation Pension Replacement Plan Retirement Security Trust. For purposes of this Section 7, "Change of Control" shall have the meaning given to that term under the LTIP.
9. NONASSIGNABILITY
No Participant, Contingent Annuitant or Beneficiary or any other person shall have the right to sell, assign, transfer, pledge, or otherwise encumber any interest in the Replacement Plan. All Replacement Plan benefits are unassignable and non-transferable and shall not be subject to attachment or seizure for the payment of any debts, judgments or other obligations. No Replacement Plan interest shall be transferred by operation of law in the event of the bankruptcy or insolvency of a Participant, Contingent Annuitant, or Beneficiary.
10. NO CONTRACT OF EMPLOYMENT
Participation in the Replacement Plan shall not be construed to constitute a direct or indirect contract of employment between the Corporation and the Participant. Nothing in the Replacement Plan shall be deemed to give a Participant the right to be retained in the service of the Corporation for any length of time. Participants, Contingent Annuitants and Beneficiaries shall have no rights against the Corporation resulting from participation in the Replacement Plan other than as specifically provided herein.
11. OPERATION AND ADMINISTRATION
The Replacement Plan shall be administered by the Pension Administration and Investment Committee of United Technologies Corporation (the "Committee"). The Committee shall have the right to delegate its responsibilities hereunder to sub-committees and individuals. Any question of administration or interpretation arising under the Replacement Plan shall be determined by the Committee (or its delegate) in its full discretion, and its decision shall be final and binding upon all parties.
12. TAXES/WITHHOLDING
The Corporation shall have the right to withhold taxes from Replacement Plan benefit payments to the extent it reasonably determines such withholding to be required by law.
13. GOVERNING LAW
The Replacement Plan shall be construed, administered and enforced in accordance with the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and to the extent not preempted thereby, the laws of the State of Connecticut (disregarding its choice-of-law rules).
14. AMENDMENT AND DISCONTINUANCE
The Corporation expects to continue the Replacement Plan indefinitely, but reserves the right, by action of the Committee, to amend or discontinue the Replacement Plan at any time, provided, however, that no such action shall decrease any benefits accrued under the Replacement Plan as of the date of such action. Although the benefits accrued under the Replacement Plan are not subject to the restrictions imposed by Section 204(g) of ERISA, the proviso in the preceding sentence shall be construed in a manner consistent with Section 204(g) of ERISA. As a result, the proviso referred to in the preceding sentence imposes restrictions identical with the restrictions that would be imposed on the Replacement Plan if the Replacement Plan were subject to Section 204(g) of ERISA.
15. SUCCESSORS
The provisions of the Replacement Plan shall bind and inure to the benefit of the Corporation, and its successors and assigns. The term successors shall include any corporate or other business entity that by merger, consolidation, purchase or otherwise acquires all or substantially all of the business and assets of the Corporation, and successors of any such Corporation or other entity.
16. BENEFIT CLAIMS PROCEDURE
(a) The Plan Administrator shall establish and communicate procedures for Participants to obtain forms required to effect elections and designations under the Plan. The Plan Administrator may establish a telephonic communication system to facilitate the administration of the Plan and to provide information to Participants, provided that any estimate of a Participants current or projected accrued benefit shall in no event be binding on the Plan Administrator in the event of any discrepancy between such estimate and a Participants actual Accrued Benefit, which, in all cases, shall control. Upon notification of the death of any Participant while in the employment of the Employer, the Plan Administrator may initiate any claim on behalf of the Spouse, Contingent Annuitant, or Beneficiary.
(b) If a claim is denied, the Plan Administrator or its designated agent shall give the claimant notice in writing of such denial, which notice shall set forth (i) the specific reason(s) for the denial; (ii) specific reference to pertinent Plan provisions on which the denial is based; (iii) a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such materials or information are necessary; and (iv) an explanation of the Plans claim review procedure.
(c) Within 60 days after receipt of the notice of denial described above, the claimant may request a review of such denial by filing a notice of appeal in writing with the Benefit Claims Appeal Committee (the "Benefits Appeal Committee"). Such notice must set forth all relevant factors upon which the appeal is based. The Benefits Appeal Committee shall decide the issues raised by the appeal, either with or without holding a hearing, and shall issue to the claimant a written notice setting forth its decision and the reasons for the decision. The Benefits Appeal Committees decision shall be made not more than 60 days after it has received the claimants request for review, unless the Benefits Appeal Committee determines that special circumstances require an extension of time and so notifies the claimant, in which case a decision shall be made not more than 120 days after it has received the request for review. The Benefits Appeal Committee shall have the greatest discretion permitted by law in making decisions pursuant to this Section 16. All interpretations, determinations, and decisions of the Benefits Appeal Committee in respect of any claim shall be conclusive and binding upon all persons having or claiming to have any interest or right under the Plan.
UNITED TECHNOLOGIES CORPORATION
William L. Bucknall, Jr.
Sr. Vice President Human Resources
And Organization
Dated: December 20, 1996
Attest:
Richard M. Kaplan
Associate General Counsel
Exhibit 10.12
UNITED TECHNOLOGIES CORPORATION
Nonemployee Director Stock Option Plan
Amendment 4
Whereas, Amendment 2 to the United Technologies Corporation Nonemployee Director Stock Option Plan (the "Plan") provides for an annual grant of non-qualified stock options with a value of $70,000 as determined by the Black Scholes Valuation Model; and
Whereas, the Board wishes to amend the Plan to restore the provisions that called for an annual grant of a fixed number of non-qualified stock options and to clarify the date awards vest under the Plan;
Now therefore, the Plan is hereby amended, effective February 4, 2003, as follows:
1. Section 5 of the Plan is amended and restated as follows:
5. Grant of Stock Options
On the date of the Corporations annual meeting of shareowners in each year for so long as the Plan remains in effect (the "Grant Date"), each nonemployee who is elected a director at such meeting, or whose term of office shall continue after the date of such meeting, automatically shall be granted an option to purchase 4,000 shares of Common Stock (an "Option"). The number of Options to be granted annually shall be subject to adjustment pursuant to Section 8 of the Plan.
2. Section 6(b) of the Plan is amended by adding the following sentence at the end thereof:
For purposes of this Section, anniversary shall mean the date of each Annual Meeting of Shareowners that coincides with the anniversary of the Grant Date.
UNITED TECHNOLOGIES CORPORATION
William L. Bucknall, Jr.
Sr. Vice President Human Resources
and Organization
Attest:
Richard M. Kaplan
Date: February 6, 2003
Exhibit 10.13
UNITED TECHNOLOGIES CORPORATION
EMPLOYEE STOCK OPTION PLAN
1. INTRODUCTION AND PURPOSE. The purpose of this Plan is to benefit the shareowners of the Corporation by (i) encouraging high levels of performance by employees of the Corporation by increasing the proprietary interests of such individuals in the Corporations growth and success; and (ii) recognizing those employees who demonstrate outstanding performance and potential through Awards designed to strengthen the relationship between the Corporation and such employees. To accomplish these objectives, the Plan authorizes the Award of non-qualified stock options to employees of the Corporation below the executive level whose efforts, responsibilities and long-term potential enable these individuals to contribute to the long term success of the Corporation. Stock Option Awards serve to recognize the performance and potential of such employees, foster commitment to the Corporation and its long term goals and to reward such individuals by sharing in any increase in the value of the Corporations Common Stock.
This Plan shall be effective January 1, 1997.
2. DEFINITIONS.
"Affiliate" means a corporation, partnership, joint venture or other entity in which the Corporation has an ownership or other financial interest.
"Award" means a grant of non-qualified stock options made in accordance with the terms hereof.
"Award Date" means the date an Award is granted.
"Board" means the Board of Directors of United Technologies Corporation.
"Business Unit" means an operating division, subsidiary or affiliate of the Corporation.
"Committee" means the Committee on Compensation and Executive Development of the Board.
"Common Stock" means the common stock of the Corporation and shall include both treasury shares and authorized but unissued shares and shall also include any security of the Corporation issued in substitution, exchange or in lieu thereof.
"Corporation" means United Technologies Corporation.
"Expiration Date" means the last date a Stock Option Award may be exercised. An unexercised Stock Option Award shall be cancelled without value following the Expiration Date.
"Fair Market Value" means the closing price of Common Stock, as reported by the composite tape of New York Stock Exchange issues (or such other reporting system as shall be selected by the Committee) on the relevant date, or if no sale of Common Stock is reported for such date, the next following day for which there is a reported sale.
"Participant" means an individual who has been granted an Award pursuant to this Plan.
"Plan" means the United Technologies Corporation Employee Stock Option Plan, as set forth herein and as it may be amended from time to time.
"Stock Option" means the right to purchase a specified number of shares of Common Stock at a fixed option price equal to the Fair Market Value of Common Stock on the date the stock option is granted.
"Vesting Date" means the date a Stock Option first becomes exercisable.
3. ELIGIBILITY. Participants under this Plan shall consist of those non-executive employees of the Corporation whose responsibilities, efforts, initiative and long-term potential enable them to contribute to the success of the Corporation and the Business Units. Individuals who are employed in organizations which are affiliated with the Corporation through partnership, joint venture, or other arrangements involving financial and/or strategic collaboration whose efforts benefit the Corporation are also eligible to participate herein. Individual Participants shall be recommended by the Business Units, subject to the approval of the Chief Executive Officer. Executives of the Corporation and any individual who is a reporting person of the Corporation for purposes of Section 16 of the Securities Exchange Act of 1934 are not eligible to participate in the Plan.
4. EXERCISE AND PAYMENT OF OPTIONS. A Participant may acquire shares of Common Stock by exercising his or her Stock Option Award, or portion thereof, during a period beginning on the third anniversary of the Award Date and ending on the tenth anniversary of the Award Date, unless the Expiration Date is accelerated as a result of termination, death or retirement as set forth in Section 5 hereof. The Vesting Date and Expiration Date are each set forth in the Statement of Award. The option to purchase shares will expire without value with respect to any Stock Option that is not exercised on or before the Expiration Date. It is the sole responsibility of the Participant, or the Participants representative, to exercise the Stock Option in a timely manner. The Corporation assumes no responsibility for, and will make no adjustments with respect to Stock Options that expire without value.
Stock Options may be exercised through a security brokerage firm with whom the Corporation has established an arrangement to facilitate Stock Option exercises. After the Participant establishes a relationship with one of the pre-approved security brokerage firms, the Participant may exercise Stock Options by notifying such broker of the options to be exercised. On the exercise date the broker will sell shares of Common Stock sufficient to cover the exercise price of the option plus any required tax withholding amounts. The broker will then wire transfer funds back to the Corporation equal to the exercise price and the required tax withholding amount. The Corporation will then immediately deliver to the broker a number of shares of Common Stock equal to the number of options exercised. The shares remaining after payment of the exercise price and tax withholding will at the Participants election either: (i) be placed in the Participants account; or (ii) sold on the market with net cash proceeds delivered to the Participant by the broker. No cash payment will be required to be paid to the broker or to the Corporation by the Participant at any time during the Stock Option exercise process.
5. TERMINATION OF EMPLOYMENT. A Stock Option that is vested as of the date of a Participants termination of employment may be exercised for a period of 90 calendar days following the date of termination, but in no event beyond the Expiration Date of the Stock Option. Stock Options which are not vested as of the termination date will be canceled without value except as specifically provided for below.
If a Participants employment terminates by reason of retirement, Stock Options that have been held at least one year as of the retirement date will become exercisable on the original scheduled Vesting Date and may be exercised thereafter until the third anniversary of the retirement date. Stock Options which are exercisable as of the retirement date may continue to be exercised for a period up to the third anniversary of the retirement date, but in no event beyond the Expiration Date of the Stock Option. For purposes of this Plan, retirement shall have the same meaning as defined in the United Technologies Corporation Retirement Plan and requires either: (i) attainment of age 65; (ii) retirement on or after age 55 with at least 10 years of service; or (iii) termination of employment between age 50 and 55 with a combination of age and service of at least 65 (i.e., the "rule of 65").
In the event of permanent and total disability, the Participant shall not be considered to have terminated employment for purposes of the Stock Option Award which shall become vested and exercisable in accordance with the terms of the Award without regard to the disability. An authorized leave of absence shall not be treated as a termination of employment if the Participant resumes active employment following such leave of absence.
In the event of the death of the Participant, the legal representative of the estate of the Participant may exercise all Stock Options outstanding as of the date of death, whether or not vested, for a period of one year following the date of death, regardless of the Expiration Date of the Stock Option.
If the Participant terminates employment for any reason other than death, disability or retirement, all non-vested Stock Options will be forfeited effective as of the termination date.
6. LIMITATION ON NUMBER OF SHARES. The number of shares with respect to which Stock Option Awards may be issued for any calendar year shall not exceed one million shares of Common Stock. This limitation shall be subject to adjustment as provided for in Section 10 hereof.
7. AMENDMENT AND TERMINATION. The Committee reserves the right to amend, suspend or discontinue the Plan at any time or to alter or to amend any Award under the Plan to the extent permitted by law.
8. ADMINISTRATION. Awards under this Plan shall be granted subject to the review and approval of the Chief Executive Officer. All questions of interpretation and administration with respect to the Plan and Awards thereunder shall be determined by the Senior Vice President, Human Resources and Organization or his successor, and his determination shall be final and conclusive upon all parties and interest.
9. ADJUSTMENT PROVISIONS. If the Corporation effects a subdivision or consolidation of shares of Common Stock or other capital adjustment, the payment of a stock dividend or other increase or reduction of the number of shares of Common Stock outstanding without receiving consideration therefore in money, services or property, the number of shares of Common Stock then remaining subject to this Plan and outstanding Awards and the maximum number of shares that may be issued under this Plan shall: (a) in the event of an increase in the number of outstanding shares, the number of shares subject to an Award shall be proportionately increased and the exercise price for each share then covered by an outstanding Award shall be proportionately reduced, and (b) in the event of a reduction in the number of outstanding shares, be proportionately reduced and the price for each share then covered by an outstanding Award shall be proportionately increased. The maximum number of shares that may be subject to an Award in any given year shall be increased or decreased to reflect the subdivision, consolidation or other capital adjustment. In addition, in such circumstances, the Committee shall make such adjustments to Awards under the Plan as the Committee deems appropriate.
10. CHANGE OF CONTROL. In the event of a change of control of the Corporation, or if the Board reaches agreement to merge or consolidate with another company and the Corporation is not the surviving Corporation or if all, or substantially all of the assets of the Corporation are sold, or if the Corporation shall make a distribution to shareowners that is non-taxable under the Internal Revenue Code, or if the Corporation shall dissolve or liquidate (a "Restructuring Event"), then the Committee may, in its discretion, recommend that the Board take any of the following actions as a result of, or in anticipation of, any such Restructuring Event to assure fair and equitable treatment of Plan Participants:
(a) accelerate time periods for purposes of vesting in, or realizing gain from, any outstanding Award made pursuant to this Plan;
(b) offer to purchase any outstanding Award made pursuant to this Plan from the holder for its equivalent cash value, as determined by the Committee, as of the date of the Restructuring Event; and
(c) make adjustments or modifications to outstanding Awards as the Committee deems appropriate to maintain and protect the rights and interests of Plan Participants following such Restructuring Event. Any such action by the Board shall be conclusive and binding on the Corporation and all Plan Participants.
For purposes of this Section, "Change of Control" shall mean: (i) the acquisition by any person of voting shares of the Corporation if, as a result of the acquisition, such person, or any "group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934 of which such person is a part, owns at least 20% of the outstanding voting shares of the Corporation; or (ii) a change in the composition of the Board such that within any period of two consecutive years, persons who (a) at the beginning of such period constitute the Board or (b) become directors after the beginning of such period and whose election, or nomination for election by the shareowners of the Corporation, was approved by a vote of at least two-thirds of the persons who were either directors at the beginning of such period or whose subsequent election or nomination was previously approved in accordance with this clause (b), cease to constitute at least a majority of the Board.
11. NON-ASSIGNABILITY. No assignment or transfer of any interest of the Participant in any of the rights represented by any Award hereunder whether voluntary or involuntary, by operation of law or otherwise shall be permitted except by will or by the laws of descent and distribution. Any attempt to assign such interests shall be void and shall be without force or effect.
12. AWARDS NOT TO AFFECT OR BE AFFECTED BY CERTAIN TRANSACTIONS. Neither the Plan nor the Awards hereunder shall affect in any way the right or power of the Corporation or its shareowners to make or authorize: (a) any or all adjustments, recapitalizations, reorganizations or other changes in the Corporation's capital structure or its business; (b) any merger or consolidation of the Corporation; (c) any issue of bonds, debentures, preferred or prior preference stocks holding any priority or preferred to, or otherwise affecting in any respect the Common Stock of the Corporation or the rights of the holders of such Common Stock; (d) the dissolution or liquidation of the Corporation; (e) any sale or transfer of all or any part of its assets or business; or (f) any other corporate act or proceeding.
13. NOTICES. Every notice or other communication relating to this Plan and any Award hereunder shall be in writing, and shall be mailed to or delivered to the party for whom it is intended at such address as may from time to time be designated by such party or through electronic delivery at the Participants internal electronic mail address. Unless and until some other address has been so designated, all notices by the Participant to the Corporation shall be mailed to or delivered to the Corporations Director, Compensation at United Technologies Building, MS 504, Hartford, Connecticut 06101, and all notices by the Corporation to the Participant shall be given to the Participant personally or be mailed to the Participant at his or her address as shown on the records of the Corporation.
14. TAXES/WITHHOLDING. The Participant shall be responsible for any income or other tax liability attributable to amounts realized from Awards. The Corporation shall take such steps as are appropriate to assure compliance with applicable federal, state and local tax withholding requirements. The Corporation shall, to the extent required by law, have the right to withhold shares from a Stock Option exercise or to deduct directly from any payment due the Participant or from the Participant's regular compensation, all federal, state and local taxes of any kind (including taxes imposed by international tax authorities with requisite jurisdiction) required by law to be withheld with respect to value realized upon the exercise of a Stock Option.
15. RIGHT OF DISCHARGE RESERVED. Nothing in this Plan or in any Award granted hereunder shall confer upon any Participant the right to continue in the employment or service of the Corporation or any Business Unit for any period of time or affect any right that the Corporation or a Business Unit may have to terminate the employment or service of such Participant at any time for any reason.
16. RIGHT OF CORPORATION TO REVOKE AWARDS. Notwithstanding any other provision herein, the Corporation reserves the right, prior to a Change of Control of the Corporation, to cancel any Award, whether or not vested, if the Senior Vice President, Human Resources and Organization determines that the Participant has engaged in any act or practice with respect to the affairs of the Corporation or the Business Units, whether or not employed by the Corporation at the time, that is materially detrimental to the Corporation or the Business Units, provided, however that the Corporation shall not take any such action in an arbitrary or capricious manner.
17. NATURE OF PAYMENTS. All Awards made pursuant to this Plan are in consideration of services performed for the Corporation or the Business Units. Any gains realized pursuant to such Awards constitute a special award payment to the Participant and shall not be taken into account as compensation for purposes of any of the employee benefit plans of the Corporation.
18. UNFUNDED PLAN. The Plan is unfunded. Neither the Corporation nor the Board shall separate assets or establish a trust for the purpose of funding the obligations represented by Awards hereunder. The Corporations liability to Participants with respect to the Plan is based solely upon its contractual obligations created by the Awards granted hereunder. No such obligation shall be deemed to be secured by any pledge or encumbrance of any property of the Corporation.
19. NO RIGHTS AS A SHAREOWNER. No Participant shall have the rights of a Shareowner with respect to any Stock Option Award under the Plan until the Participant acquires shares of Common Stock pursuant to the exercise of a Stock Option Award.
20. GOVERNMENT CONTRACT COMPLIANCE. The "UTC Policy Statement on Business Ethics and Conduct in Contracting with the United States Government" calls for compliance with the letter and spirit of Government Contracting Laws and Regulations. In the event of a violation of Government Contracting Law or Regulation, the Corporation reserves the right to revoke any Awards made under this Plan.
21. GOVERNING LAW. The Program shall be governed by and construed in accordance with the laws of the State of Connecticut.
22. INTERPRETATIONS. Any materials provided to Participants, including descriptive brochures and Statements of Award are subject in all respects to the terms of the Plan. In the event that any provision of a descriptive brochure, Statement of Award or other Plan communication is inconsistent with the terms of the Plan, the terms of the Plan shall control. Any question of administration or interpretation arising under this Plan shall be determined by the Senior Vice President, Human Resources and Organization, such determination to be final and conclusive upon all parties in interest.
UNITED TECHNOLOGIES CORPORATION
Attest: Richard M. Kaplan | By: William L. Bucknall, Jr. |
Assistant Secretary | Title: Senior Vice President |
Human Resources and Organization |
Exhibit 10.14
UNITED TECHNOLOGIES CORPORATION
EMPLOYEE SCHOLAR PROGRAM
United Technologies Corporation ("UTC"), through its Employee Scholar Program (the "Program"), encourages eligible employees to develop additional skills and engage in studies at accredited colleges and universities. Under the Program, UTC pays for covered tuition and textbook expenses for participating employees and provides certain awards of UTC Common Stock, options and stock units upon completion of associates, bachelors, masters and doctorate degrees.
Active employees of UTC and its participating affiliated companies in the United States and other countries are eligible to participate. Extended benefits are provided to certain employees whose positions are eliminated due to restructuring or layoff.
In recognition of the accomplishments of eligible employees who are awarded degrees from accredited educational institutions while participating in the program, shares of UTC Common Stock, stock options or stock units are awarded. U.S.-based employees who satisfy Program requirements will be awarded a number of shares of UTC Common Stock valued at $5,000 for those completing an associates degree and $10,000 for those completing a bachelors, masters or doctorate degree. Alternatively, participants may elect to receive 250 UTC Common Stock options for those completing an associates degree, or 500 UTC Common Stock options for those completing a bachelors, masters or doctorate degree. Employees based outside the U.S. who satisfy Program requirements will be awarded a number of shares of UTC Common Stock valued at 9% of the average UTC salary in that country for participants completing the equivalent of an associates degree and 18% of the average salary in that country for participants completing the equivalent of a bachelors, masters, or doctorate degree. The number of shares awarded in each case is determined using the closing price of UTC Common Stock on the New York Stock Exchange ("NYSE") on the first trading day of the month following submission of a qualifying award request.
A maximum of 400,000 shares of UTC Common Stock may be awarded annually under the Program. UTC reserves the right to suspend, terminate or modify the terms of the Program at any time. This summary of the Program is qualified in its entirety by reference to UTCs detailed policies and procedures implementing the Program, as amended from time to time. The sole purpose of the Program is to facilitate and encourage educational development and achievement and it is not intended to and shall not be construed to constitute an employee benefit plan or compensatory arrangement.
EXHIBIT 11
UNITED TECHNOLOGIES CORPORATION AND
SUBSIDIARIES
Statement Re: Computation of Per Share Earnings
For the Five Years Ended December 31, 2002
(Millions of Dollars, except per share amounts)
2002 | 2001 | 2000 | 1999 | 1998 | ||||||
Net Income | $ | 2,236 | $ | 1,938 | $ | 1,808 | $ | 1,531 | $ | 1,255 |
|
||||||||||
ESOP Convertible Preferred Stock dividend | (31) | (31) | (32) | (33) | (33) | |||||
Basic earnings per period | $ | 2,205 | $ | 1,907 | $ | 1,776 | $ | 1,498 | $ | 1,222 |
ESOP Convertible Preferred Stock adjustment | 29 | 28 | 28 | 28 | 28 | |||||
Diluted earnings for period | $ | 2,234 | $ | 1,935 | $ | 1,804 | $ | 1,526 | $ | 1,250 |
Basic average number of shares
outstanding during the period (thousands) |
472,441 | 470,252 | 470,124 | 465,611 | 455,534 | |||||
Stock awards (thousands) | 7,067 | 9,156 | 11,256 | 13,806 | 11,944 | |||||
ESOP Convertible Preferred Stock (thousands) | 26,071 | 25,978 | 26,630 | 27,287 | 27,282 | |||||
Diluted average number of shares
outstanding during the period (thousands) |
505,579 | 505,386 | 508,010 |
506,704 |
494,760 | |||||
Basic earnings per common share | $ | 4.67 | $ | 4.06 | $ | 3.78 |
$ | 3.22 |
$ | 2.68 |
Diluted earnings per common share | $ | 4.42 | $ | 3.83 | $ | 3.55 |
$ | 3.01 |
$ | 2.53 |
EXHIBIT 12
UNITED TECHNOLOGIES CORPORATION AND SUBSIDIARIES
Statement Re: Computation of Ratios
(Millions of Dollars)
2002 | 2001 | 2000 | 1999 | 1998 | ||||||
Fixed Charges: | ||||||||||
Interest expense | $ | 381 | $ | 426 | $ | 382 | $ | 260 | $ | 197 |
Interest capitalized | 16 | 22 | 18 | 15 | 12 | |||||
One-third rents* | 71 | 68 | 65 | 65 | 77 | |||||
$ | 468 | $ | 516 | $ | 465 | $ | 340 | $ | 286 | |
Earnings: | ||||||||||
Income from continuing
operations before minority interests |
$ | 3,276 | $ | 2,807 | $ | 2,758 | $ | 1,257 | $ | 1,810 |
Fixed charges per above | 468 | 516 | 465 |
340 |
286 | |||||
Less: interest capitalized | (16) | (22) | (18) |
(15) |
(12) | |||||
452 | 494 | 447 |
325 | 274 | ||||||
Amortization of interest capitalized | 4 | 18 | 21 |
25 |
31 |
|||||
Total Earnings | $ | 3,732 | $ | 3,319 | $ | 3,226 | $ | 1,607 | $ | 2,115 |
Ratio of Earnings to Fixed Charges | 7.97 | 6.43 |
6.94 | 4.73 | 7.40 | |||||
* Reasonable approximation of the interest factor.
EXHIBIT 13
Five Year Summary
IN MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS | 2002 | 2001 | 2000 | 1999 | 1998 | ||||||
For the year | |||||||||||
Revenues | $ | 28,212 | $ | 27,897 | $ | 26,583 | $ | 24,127 | $ | 22,809 | |
Research and development | 1,191 | 1,254 | 1,302 | 1,292 | 1,168 | ||||||
Income from continuing operations(1) | 2,236 | 1,938 | 1,808 | 841 | 1,157 | ||||||
Net income | 2,236 | 1,938 | 1,808 | 1,531 | 1,255 | ||||||
Earnings per share: | |||||||||||
Basic: | |||||||||||
Continuing operations | 4.67 | 4.06 | 3.78 | 1.74 | 2.47 | ||||||
Net earnings | 4.67 | 4.06 | 3.78 | 3.22 | 2.68 | ||||||
Net earnings adjusted for SFAS No. 142 | 4.51 | 4.18 | 3.51 | 2.84 | |||||||
Diluted: | |||||||||||
Continuing operations | 4.42 | 3.83 | 3.55 | 1.65 | 2.33 | ||||||
Net earnings | 4.42 | 3.83 | 3.55 | 3.01 | 2.53 | ||||||
Net earnings adjusted for SFAS No. 142 | 4.25 | 3.92 | 3.27 | 2.67 | |||||||
Cash dividends per common share | .98 | .90 | .825 | .76 | .695 | ||||||
Average number of shares of Common Stock outstanding: | |||||||||||
Basic | 472.4 | 470.2 | 470.1 | 465.6 | 455.5 | ||||||
Diluted | 505.6 | 505.4 | 508.0 | 506.7 | 494.8 | ||||||
Return on average common shareowners' equity, after tax | 26.8% | 23.6% | 24.4% | 24.6% | 28.6% | ||||||
Operating cash flows | 2,853 | 2,976 | 2,631 | 2,401 | 2,376 | ||||||
Capital expenditures | 586 | 793 | 937 | 762 | 673 | ||||||
Acquisitions, including debt assumed | 424 | 525 | 1,340 | 6,268 | 1,237 | ||||||
Share repurchase | 700 | 599 | 800 | 822 | 650 | ||||||
At year end | |||||||||||
Working capital, continuing operations | $ | 3,848 | $ | 2,892 | $ | 1,318 | $ | 1,412 | $ | 1,359 | |
Total assets | 29,090 | 27,010 | 25,364 | 24,366 | 17,768 | ||||||
Long-term debt, including current portion | 4,676 | 4,371 | 3,772 | 3,419 | 1,669 | ||||||
Total debt | 4,873 | 4,959 | 4,811 | 4,321 | 2,173 | ||||||
Debt to total capitalization | 37% | 37% | 39% | 38% | 33% | ||||||
ESOP Preferred Stock, net | 428 | 429 | 432 | 449 | 456 | ||||||
Shareowners' equity | 8,355 | 8,369 | 7,662 | 7,117 | 4,378 | ||||||
Number of employees - continuing operations | 155,000 | 152,000 | 153,800 | 148,300 | 134,400 | ||||||
|
(1) 1999 and 1998 Income from continuing operations excludes the results
of UT Automotive which was sold in 1999
and reflected in discontinued
operations.
The 1999 amount reflects restructuring and related charges
of $1.1 billion.
Management's Discussion and Analysis
Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Corporation's operations are classified into four principal 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 Hamilton Sundstrand and
Sikorsky Aircraft ("Sikorsky"), primarily serve commercial and government
customers in the aerospace industry. The Corporation's segment operating
results are discussed in the Segment Review and Note 17 of the Notes
to Consolidated Financial Statements.
Business Environment
As worldwide businesses, the Corporation's operations are affected by
global, regional and industry economic and political factors. However,
the Corporation's geographic and industry diversity, as well as the
diversity of its product sales and service, has helped limit the impact
of any one industry or the economy of any single country on the consolidated
results. Current economic conditions in the commercial airline industry,
global refrigeration industry, and commercial heating, ventilating
and air conditioning markets had a negative impact on the Corporation's
consolidated results and are expected to continue to present challenges
to its businesses.
The Corporation's growth strategy contemplates
acquisitions in its core businesses. The rate and extent to which appropriate
acquisition opportunities are available and to which acquired businesses are
integrated and anticipated synergies or cost savings are achieved can affect
the Corporation's operations and 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 | 2002 | 2001 | 2000 | 2002 | 2001 | 2000 | |||
Europe | $ 5,573 | $ 4,716 | $ 4,413 | 19% | 17% | 17% | |||
Asia Pacific | 3,647 | 3,420 | 3,319 | 13% | 12% | 12% | |||
Other Foreign | 2,581 | 2,785 | 2,820 | 9% | 10% | 11% | |||
U.S. Exports | 4,053 | 3,947 | 4,134 | 14% | 14% | 15% | |||
International Segment Revenues |
$15,854 | $14,868 | $14,686 | 55% | 53% | 55% |
As part of its globalization strategy,
the Corporation has invested in businesses in certain countries, including
Argentina, Brazil, the People's Republic of China, Russia and South Korea,
which carry higher levels of currency, political and economic risk. At
December 31, 2002, the Corporation's net investment in any one of these
countries was less than 6% of consolidated equity.
During 2002, the strengthening of the euro had
a favorable impact on the translation of foreign currency-denominated operating
results into U.S. dollars. The favorable impact of the euro was partially offset
by weakening Latin America currencies.
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, and produces a broad line
of escalators. In addition to new equipment, Otis provides modernization
products and services to upgrade elevators and escalators as well as
maintenance services for a substantial portion of the products it sells,
and those of other manufacturers. It serves an international customer
base, principally in the commercial and residential property industries.
In 2002, 77% of its revenues were generated outside the U.S. Otis' results
can be impacted by various economic factors, including fluctuations in
commercial construction, labor costs, interest rates, foreign currency
exchange rates and raw material costs.
During 2002, construction activity in Europe was
mixed but declined overall, and in Asia, activity was strong in both China and
South Korea, but remained weak in Japan. U.S. office building construction starts
continued to decline. Construction order activity slowed and national office
vacancy rates increased as market conditions softened.
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 services and components for its products
and those of other manufacturers in both the HVAC and refrigeration industries.
During 2002, 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, foreign currency exchange rates, raw material
costs and industry capacity.
During 2002, U.S. commercial construction starts
decreased and investment in replacement refrigeration and HVAC equipment declined
compared to 2001. The global transport refrigeration market improved in 2002,
due in part to stabilizing fuel prices and favorable trends in interest rates.
A warmer summer selling season in many regions of the U.S. and strength in housing
starts favorably impacted North American residential HVAC operations, while international
construction markets weakened. Slow economic growth and global pricing trends
are expected to continue to present challenges to the North American and international
HVAC and commercial refrigeration markets in 2003.
Management's Discussion and Analysis
PRATT & WHITNEY and the FLIGHT SYSTEMS segments comprise the Corporation's
aerospace businesses and produce and service commercial and government
aerospace and defense products. The financial performance of these segments
is directly tied to the aerospace and defense industries. Traffic growth,
load factors, worldwide airline profits, influenced in part by fuel prices
and labor issues, and general economic activity have been reliable indicators
for new aircraft and aftermarket orders in the aerospace industry. Spare
part sales and aftermarket service trends are impacted by many factors
including usage, pricing, regulatory changes, and retirement of older
aircraft. Performance in the general aviation sector is closely tied
to the overall health of the economy and is positively correlated to
corporate profits.
Current conditions in the airline industry include
reduced flight schedules, an increased number of idle aircraft, workforce reductions,
and declining financial performance, including recent airline bankruptcies. Airlines
and aircraft manufacturers continue to reduce supplier bases and seek lower cost
packages. These conditions have resulted in decreased aerospace volume and orders
in the Corporation's commercial aerospace businesses and are expected to continue
in 2003.
The Corporation's total sales to the U.S. Government
increased in 2002 to $4,554 million or 16% of total sales, compared with $3,798
million or 14% of total sales in 2001 and $2,875 million or 11% of total sales
in 2000. The defense portion of the Corporation's aerospace businesses is affected
by changes in market demand and the global political environment. The Corporation's
participation in long-term production and development programs for the U.S. Government
has contributed positively to the Corporation's results in 2002 and is expected
to remain at high levels in 2003.
PRATT & WHITNEY is among the world's leading suppliers of commercial,
general aviation and military aircraft engines. Pratt & Whitney provides
spare parts and aftermarket and fleet management services for the engines
it produces, along with power generation systems. These products and
services are regulated by strict safety and performance standards which
can create uncertainty regarding the profitability of commercial engine
programs. 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. Pratt & Whitney continues to
enhance its aftermarket business through repositioning actions aimed
at improving efficiency and through selective acquisitions and ventures.
Pratt & Whitney provides engines and aftermarket
products and services to both the U.S. and foreign governments. Pratt & Whitney's
engines have been selected to power the Air Force's F/A-22 and F-35 Joint Strike
Fighter aircraft. In 2002, the F119 engine that powers the F/A-22 was approved
for operational use by the U.S. Air Force. The F-35 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, the United Kingdom Royal Navy and other international customers.
FLIGHT SYSTEMS SEGMENT provides global products and services through
Hamilton Sundstrand and Sikorsky. Hamilton Sundstrand provides aerospace
and industrial products and aftermarket services for diversified industries
worldwide. Aerospace products include aircraft power generation management
and distribution systems, and environmental, flight and fuel control
systems. Industrial products include air compressors, metering devices,
fluid handling equipment and gear drives. Hamilton Sundstrand is responding
to industry conditions by focusing on development of new product and
service offerings, acquisitions and actions aimed at improving efficiency
and aftermarket growth opportunities.
Sikorsky is one of the world's largest manufacturers
of military and commercial helicopters, and provides aftermarket helicopter and
aircraft 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. During
2002, Sikorsky expanded its aftermarket business base by acquiring Derco Holding,
a supplier of military aircraft logistics, component distribution and repairs
and aftermarket program management. In its government business, Sikorsky will
continue to supply Black Hawk helicopters and their derivatives to the U.S. and
foreign governments under contracts extending into 2006. A Sikorsky-Boeing joint
venture is under contract with the U.S. Army to develop the RAH-66 Comanche,
nine of which are contracted for delivery in 2005-2006. Sikorsky is also leading
an international team in developing the S/H-92, a large cabin derivative of the
Black Hawk, for the commercial and military markets. Type certification of the
S-92 was obtained from the Federal Aviation Administration in December 2002.
Management's Discussion and Analysis
Critical Accounting Estimates
Preparation of the Corporation's financial statements requires management
to make estimates and assumptions that affect the reported amounts
of assets, liabilities, revenues and expenses. Note 1 to the Consolidated
Financial Statements describes the significant accounting policies
used in preparation of the Consolidated Financial Statements. Management
believes the most complex and sensitive judgments, because of their
significance to the Consolidated Financial Statements, result primarily
from the need to make estimates about the effects of matters that are
inherently uncertain. The most significant areas involving management
judgments and estimates are described below. Actual results in these
areas could differ from management's estimates.
LONG-TERM CONTRACT ACCOUNTING. The Corporation utilizes percentage of
completion accounting on certain of its long-term contracts. The percentage
of completion method requires estimates of future revenues and costs
over the full term of product delivery.
Losses, if any, on long-term contracts are provided
for when anticipated. Loss provisions are based upon excess inventoriable manufacturing,
engineering, estimated product warranty and product performance guarantee costs
in excess of the revenue from the products contemplated under the contractual
arrangement. Revenue used in determining contract loss provisions is based upon
an estimate of the quantity, pricing and timing of future product deliveries.
The extent of progress toward completion on the Corporation's long-term commercial
aerospace and helicopter contracts is measured using units of delivery. In addition,
the Corporation uses the cost-to-cost method for long-term aftermarket and development
contracts in the aerospace businesses and for elevator and escalator installation
and modernization contracts. Contract accounting also requires estimates of future
costs over the performance period of the contract as well as an estimate of award
fees and other sources of revenue.
Contract costs are incurred over a period of several
years, and the estimation of these costs requires management's judgment. The
long-term nature of these contracts, the complexity of the products, and the
strict safety and performance standards under which they are regulated can affect
the Corporation's ability to estimate costs precisely. As a result, the Corporation
reviews and updates its cost estimates on significant contracts on a quarterly
basis, and no less than annually for all others, or when circumstances change
and warrant a modification to a previous estimate. Adjustments to contract loss
provisions are recorded in earnings upon identification.
INCOME TAXES. The future tax benefit arising from net deductible temporary
differences and tax carryforwards is $3.1 billion at December 31, 2002
and $2.6 billion at December 31, 2001. 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.
For those jurisdictions where the expiration date of tax carryforwards
or the projected operating results indicate that realization is not likely,
a valuation allowance is provided.
In assessing the need for a valuation allowance,
the Corporation estimates future taxable income, considering the feasibility
of ongoing tax planning strategies and the realizability of tax loss carryforwards.
Valuation allowances related to deferred tax assets can be impacted by changes
to tax laws, changes to statutory tax rates and future taxable income levels.
In the event the Corporation were to determine that it would not be able to realize
all or a portion of its deferred tax assets in the future, the Corporation would
reduce such amounts through a charge to income in the period that such determination
was made. Conversely, if the Corporation were to determine that it would be able
to realize its deferred tax assets in the future in excess of the net carrying
amounts, the Corporation would decrease the recorded valuation allowance through
an increase to income in the period that such determination was made. See Note
10 to the Consolidated Financial Statements for further discussion.
BUSINESS ACQUISITIONS. The Corporation completed acquisitions in 2002
of $424 million, including $22 million of debt assumed in the acquisition
of businesses. The assets and liabilities of acquired businesses are
recorded under the purchase method at their estimated fair values at
the dates of acquisition. Goodwill represents costs in excess of fair
values assigned to the underlying net assets of acquired businesses.
The Corporation has recorded goodwill of $7 billion at December 31, 2002
and $6.8 billion at December 31, 2001.
In accordance with Statement of Financial Accounting
Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets," goodwill
and intangible assets deemed to have indefinite lives are not amortized, but
are subject to annual impairment testing. The identification and measurement
of goodwill impairment involves the estimation of the fair value of reporting
units. The estimates of fair value of reporting units are based on the best information
available as of the date of the assessment, which primarily incorporate management
assumptions about expected future cash flows and contemplate other valuation
techniques. Future cash flows can be affected by changes in industry or market
conditions or the rate and extent to which anticipated synergies or cost savings
are realized with newly acquired entities. Although no goodwill impairment has
been recorded to date, there can be no assurances that future goodwill impairments
will not occur. See Note 7 to the Consolidated Financial Statements for further
discussion.
PRODUCT PERFORMANCE. The Corporation extends performance and operating
cost guarantees beyond its normal service and warranty policies for extended
periods on some of its products, particularly commercial aircraft engines.
Liability under such guarantees is based upon future product performance
and durability. In addition, the Corporation incurs discretionary costs
to service its products in connection with product performance issues.
The Corporation accrues for such costs that are probable and can be reasonably
estimated. The costs associated with these product performance and operating
cost guarantees require estimates over the full terms of the agreements,
and require management to consider factors such as the extent of future
maintenance requirements and the future cost of material and labor to
perform the services. These cost estimates are largely based upon historical
experience. See Note 15 to the Consolidated Financial Statements for
further discussion.
Management's Discussion and Analysis
CONTRACTING WITH THE U.S. GOVERNMENT. The Corporation's contracts with the U.S. Government are subject to government investigations and 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. In addition, the Corporation accrues for liabilities associated with those government contracting matters that are probable and can be reasonably estimated. The inherent uncertainty related to the outcome of these matters can result in amounts materially different from any provisions made with respect to their resolution. The Corporation recorded sales to the U.S. Government of $4.6 billion in 2002 and $3.8 billion in 2001.
EMPLOYEE BENEFIT PLANS. The Corporation and its subsidiaries sponsor
domestic and foreign defined benefit pension and other postretirement
plans. Major assumptions used in the accounting for these employee benefit
plans include the discount rate, expected return on plan assets, rate
of increase in employee compensation levels and health care cost increase
projections. Assumptions are determined based on Company data and appropriate
market indicators, and are evaluated each year as of the plans' measurement
date. A change in any of these assumptions would have an effect on net
periodic pension and postretirement benefit costs reported in the Consolidated
Financial Statements.
Lower market interest rates and plan asset returns
have resulted in declines in pension plan asset performance and funded status.
As a result, the discount rate was lowered to 6.75% and expected return on plan
assets was lowered to 8.50%, reflecting current economic conditions. Pension
expense in 2003 is expected to be negatively impacted by these changes. See Note
11 to the Consolidated Financial Statements for further discussion.
Results of Operations
IN MILLIONS OF DOLLARS | 2002 | 2001
|
2000
|
||
Sales
|
$27,980 |
$27,486
|
$26,206
|
||
Financing revenues and other income, net |
232 |
411
|
377
|
||
Revenues | $28,212 |
$27,897
|
$26,583
|
Consolidated revenues increased 1% in
2002 and 5% in 2001. Foreign currency translation had a minimal favorable
impact in 2002 and decreased revenues 2% in 2001.
Sales in 2002 reflect growth at Otis and Sikorsky,
largely offset by lower volume at Carrier and Pratt & Whitney. Sales growth in
2001 reflects growth in base businesses at Pratt & Whitney, Flight Systems and
Otis, and growth from acquisitions, primarily at Carrier.
Financing revenues and other income, net, decreased
$179 million and increased $34 million in 2002 and 2001, respectively. The 2002
decrease reflects interest income associated with the settlement of prior year
tax audits recorded in 2001. The 2001 increase reflects the settlement of prior
year tax audits recorded in 2001, largely offset by interest income on prior
year income tax credits resulting from an industry-related court decision and
modification of a product support agreement recorded in 2000.
IN MILLIONS OF DOLLARS | 2002 | 2001
|
2000
|
||
Cost of sales
|
$20,161 |
$20,087
|
$18,970
|
||
Gross margin percent | 27.9% |
26.9%
|
27.6%
|
Gross margin increased in 2002 to 27.9% from 26.9% in 2001 due primarily to $230 million of goodwill amortization in 2001 which was discontinued in 2002 and the approximate $100 million settlement of environmental claims in 2002. These items contributed 1.2 percentage points to gross margin in 2002. Gross margin decreased in 2001 to 26.9% from 27.6% due primarily to restructuring and related charges of $224 million recorded in cost of sales in 2001.
IN MILLIONS OF DOLLARS | 2002 | 2001
|
2000
|
Research and development —
company funded |
$1,191 |
$1,254
|
$1,302
|
Percent of sales | 4.3% |
4.6%
|
5.0%
|
Research and development spending decreased
$63 million (5%) in 2002 and decreased $48 million (4%) in 2001. The
2002 decrease is primarily associated with the variable nature of engineering
development program schedules at Pratt & Whitney and cost reduction actions
at Carrier partially offset by increased spending on Sikorsky's S/H-92
program. The 2001 decrease is due primarily to decreased spending at
Pratt & Whitney associated with the timing of development schedules.
The above years include the Corporation's continued funding of research
and development at its fuel cell unit. Total research and development
expenses are expected to approximate 4% to 5% of sales in 2003.
In addition to company funded programs, customer
funded research and development was $1,189 million in 2002, $846 million in 2001,
and $865 million in 2000. The 2002 increase of $343 million is primarily attributable
to increases in Pratt & Whitney's military business. Customer funded research
and development decreased $19 million (2%) in 2001.
IN MILLIONS OF DOLLARS | 2002 | 2001
|
2000
|
|
Selling, general and administrative
|
$ 3,203 |
$ 3,323
|
$ 3,171
|
|
Percent of sales | 11.4% |
12.1%
|
12.1%
|
Management's Discussion and Analysis
Selling, general and administrative expenses as a percentage of sales decreased seven-tenths of a percent in 2002 and were flat in 2001. The 2002 decrease reflects the benefits of cost reduction actions, primarily at Carrier, and $43 million lower restructuring charges in 2002. The 2001 amount reflects $124 million of charges associated with 2001 restructuring actions and the impact of acquisitions, primarily at Carrier. These increases were offset by savings from prior cost reduction actions across the business.
IN MILLIONS OF DOLLARS | 2002 | 2001
|
2000
|
|||
Interest expense
|
$381 |
$426
|
$382
|
Interest expense decreased 11% in 2002 and increased 12% in 2001. The 2002 decrease is due primarily to lower short-term borrowings partially offset by the issuance of $500 million of 6.10% notes in April 2002. The 2001 increase is primarily related to the October 2001 issuance of $400 million of 4.875% notes, the February 2001 issuance of $500 million of 6.35% notes, and the November 2000 issuance of $500 million of 7.125% notes.
2002 | 2001
|
2000
|
|||
Average interest rate during the year: |
|||||
Short-term borrowings | 9.4% | 7.0%
|
9.9%
|
||
Total debt | 6.9% | 7.3%
|
8.1%
|
The average interest rate during the year on short-term borrowings exceeded that of total debt due to lower commercial paper balances and higher short-term borrowing rates in certain foreign operations. The weighted-average interest rate applicable to debt outstanding at December 31, 2002 was 7.0% for short-term borrowings and 6.5% for total debt.
2002 | 2001
|
2000
|
||
Effective income tax rate
|
27.1% |
26.9%
|
30.9%
|
The effective tax rate in 2002 reflects
the benefit of increased use of certain tax planning strategies, including
utilization of a capital loss carryback, and reflects the increase in
pre-tax income from discontinuing amortization of non-deductible goodwill
in accordance with SFAS No. 142. The 2001 effective tax rate reflects
the impact of the favorable settlement of certain prior year tax audits.
Excluding this settlement the effective rate was 30.0%. The effective
income tax rate for 2001, adjusted for the impact of SFAS No. 142 and
excluding the favorable settlement of prior year tax audits in 2001,
was 28.2%. 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
from income tax credits for prior periods associated with an industry
related court decision. Excluding discrete items and adjusting for the
impact of SFAS No. 142, the 2000 effective income tax rate was 28.8%.
The Corporation has continued to lower its effective tax rate by implementing
tax reduction strategies. The Corporation expects its effective tax rate
to increase in 2003 to a rate that is more consistent with the prior
year effective tax rate before discrete items and the impact of SFAS
No. 142.
In the normal course, the Corporation and its subsidiaries
are examined by various tax authorities, including the Internal Revenue Service
("IRS"). The IRS is reviewing the Corporation's claims for prior periods'
benefits as part of its routine examinations of the Corporation's income tax
returns. Any additional impact on the Corporation's liability for income taxes
cannot presently be determined, but the Corporation believes adequate provision
has been made for any adjustments arising from these examinations.
For additional discussion of income taxes, see "Critical
Accounting Estimates – Income Taxes" and Note 10 to the Consolidated
Financial Statements.
Effective January 1, 2002, the Corporation
ceased the amortization of goodwill in accordance with SFAS No. 142.
As more fully described in Note 7 to the Consolidated Financial Statements,
net income in 2001 and 2000 adjusted to exclude amounts no longer being
amortized was $2,150 and $1,998, respectively. On that basis, diluted
earnings per share were $4.25 in 2001 and $3.92 in 2000.
The impact of goodwill amortization recorded in
the Corporation's segments, and the effect that discontinuing amortization would
have had on certain income statement line item amounts is as follows:
IN MILLIONS OF DOLLARS | 2001
|
2000
|
||
Otis
|
$ 30
|
$ 29
|
||
Carrier
|
74
|
57
|
||
Pratt & Whitney
|
23
|
21
|
||
Flight Systems
|
103
|
99
|
||
Total segment goodwill amortization
|
230
|
206
|
||
Income taxes
|
(16)
|
(14)
|
||
Minority interest in subsidiaries'
earnings |
(2)
|
(2)
|
||
Net income impact
|
$212
|
$190
|
||
Diluted earnings per share
|
$
.42
|
$ .37
|
For additional discussion, see Notes
1, 2 and 7 to the Consolidated Financial Statements.
Management's Discussion and Analysis
Business Acquisitions
During 2002, the Corporation invested $424 million, including debt assumed,
in business acquisitions. That amount includes Sikorsky's second quarter
purchase of Derco Holding and acquisitions at Pratt & Whitney. During
2001, the Corporation invested $525 million, including debt assumed,
in the acquisition of more than 30 businesses. Those investments included
Pratt & Whitney and Hamilton Sundstrand's acquisitions of aftermarket
businesses and a number of small acquisitions in the commercial businesses.
For additional discussion of acquisitions, see "Liquidity and
Financing Commitments" and Note 2 to the Consolidated Financial
Statements.
Under SFAS No. 142, intangible assets deemed to
have indefinite lives and goodwill are no longer subject to amortization. All
other intangible assets are to be amortized over their estimated useful lives.
Intangible assets and goodwill are subject to annual impairment testing using
the guidance and criteria described in the standard.
Restructuring and Other Costs
2002 Actions As described in Note 12 to the Consolidated Financial Statements,
during 2002, the Corporation recorded pre-tax restructuring and related
charges totaling $321 million. These charges relate to ongoing cost
reduction efforts, including workforce reductions and consolidation
of manufacturing, sales and service facilities, and include $237 million
recorded in cost of sales and $81 million in selling, general and administrative
expenses.
The charges were recorded in the Corporation's
segments as follows: Otis $73 million, Carrier $114 million, Pratt & Whitney
$80 million and Flight Systems $55 million. The charges included accruals of
$203 million for severance and related employee termination costs, $48 million
for asset write-downs, largely related to the disposal of manufacturing assets
and facilities that will no longer be utilized, and $19 million for facility
exit and lease termination costs. Additional charges associated with these restructuring
actions totaling $51 million that were not accruable at the time were also recorded
in 2002, primarily in the Carrier segment.
The 2002 actions are expected to result in net
workforce reductions of approximately 7,000 salaried and hourly employees, the
elimination of approximately 2.0 million square feet of facilities and the disposal
of assets associated with exited facilities. Approximately 75% of the total pre-tax
charge will require cash payments, which will be funded by cash generated from
operations. During the year, the Corporation made pre-tax cash outflows of approximately
$104 million related to the 2002 programs. Savings are expected to increase over
a two-year period resulting in recurring pre-tax savings of approximately $285
million annually. As of December 31, 2002, approximately 4,900 employees and
200,000 square feet of facilities have been eliminated. The balance of the remaining
workforce and facility related cost reduction actions are targeted to be completed
in 2003. A significant portion of the remaining square footage to be eliminated
under the 2002 actions relates to one domestic manufacturing facility. Operations
were ceased at this facility late in 2002, and activities to ready the facility
for sale are expected to be completed in early 2003. As of December 31, 2002,
approximately $133 million of severance and related costs and $11 million of
facility exit and lease termination accruals remain.
2001 Actions As described in Note 12 to the Consolidated Financial Statements,
during the second half of 2001, the Corporation recorded pre-tax restructuring
and related charges of $348 million associated with ongoing efforts to
reduce costs in its segments in a continually challenging business environment
and to address current conditions in the commercial airline industry.
The restructuring actions focus principally on improving the overall
level of organizational efficiency and consolidation of manufacturing,
sales and service facilities. These charges were recorded in the Corporation's
segments as follows: Otis $83 million, Carrier $172 million, Pratt & Whitney
$63 million and Flight Systems $30 million. The charges included accruals
of $256 million for severance and related employment termination costs,
$53 million for asset write-downs and $19 million for facility exit and
lease termination costs.
The amounts included $224 million recorded in cost
of sales and $124 million in selling, general and administrative expenses, and
relate to net workforce reductions of approximately 8,700 salaried and hourly
employees, the elimination of approximately 2.3 million square feet of facilities
and the disposal of assets associated with exited facilities. Savings are expected
to build over a two-year period resulting in recurring pre-tax savings of approximately
$300 million annually.
Approximately 70% of the total pre-tax charge will
require cash payments, which will be funded by cash generated from operations.
During 2002, the Corporation made pre-tax cash outflows of approximately $122
million associated with this program. As of December 31, 2002, workforce reductions
of approximately 7,900 employees were completed and approximately 2.1 million
square feet of facilities were eliminated. The balance of the workforce and facility
related cost reduction actions are expected to be substantially complete in early
2003. As of December 31, 2002, approximately $37 million of severance and related
costs and $1 million of facility exit and lease termination accruals remain.
The Corporation may initiate additional restructuring
actions in 2003 in its ongoing efforts to reduce costs. No significant actions
have been approved at this time.
Segment Review
Revenues | Operating Profits | Operating Profit Margin | ||||||||||
IN MILLIONS OF DOLLARS | 2002 | 2001
|
2000
|
2002 | 2001
|
2000
|
2002 | 2001
|
2000
|
|||
Otis
|
$6,811 |
$6,338
|
$6,153
|
$1,057 |
$ 847
|
$ 798
|
15.5% |
13.4%
|
13.0% |
|||
Carrier | 8,773 |
8,895
|
8,430
|
779 |
590
|
795
|
8.9% |
6.6%
|
9.4%
|
|||
Pratt & Whitney | 7,645 |
7,679
|
7,366
|
1,282 |
1,308
|
1,200
|
16.8% |
17.0%
|
16.3%
|
|||
Flight Systems | 5,571 |
5,292
|
4,992
|
741 |
670
|
614
|
13.3% |
12.7%
|
12.3%
|
Revenues, operating profits and operating profit margins of the Corporation's principal segments include the results of all majority-owned subsidiaries, consistent with the management reporting of these businesses. For certain of these subsidiaries, minority shareholders have rights which overcome the presumption of control as described in Note 17 to the Consolidated Financial Statements. In the Corporation's consolidated results, these subsidiaries are accounted for using the equity method of accounting.
2002 Compared to 2001
OTIS revenues increased $473 million (7%) in 2002 reflecting increases
in all geographic regions and growth in both new equipment and service
sales. Foreign currency translation increased revenues 2% in 2002,
largely reflecting the strength of the euro in relation to the U.S.
dollar. The 2002 increase also includes approximately two percentage
points of organic growth, as well as the impact of acquisitions.
Otis operating profits increased $210 million (25%)
in 2002. The operating profit increase reflects profit improvement in all geographic
regions, primarily in Asia and Europe. The increase was due primarily to the
profit impact of increased revenues, including those from recent acquisitions,
productivity improvements and the absence of goodwill amortization in 2002. Foreign
currency translation increased operating profits by 3% in 2002.
CARRIER revenues decreased $122 million (1%) in 2002. The decrease reflects
continued weakness in the North American and European commercial HVAC
markets, the commercial refrigeration business, and in Latin America,
partially offset by increased volume in the transport refrigeration business.
Foreign currency translation had a minimal impact in 2002, reflecting
the strength of the U.S. dollar in relation to Latin American currencies,
largely offset by the strengthening of the euro.
Carrier's operating profits increased $189 million
(32%) in 2002. Excluding 2002 and 2001 restructuring charges, operating profit
increased $131 million (17%) reflecting the benefit of cost reduction actions
and the absence of goodwill amortization, partially offset by the profit impact
of decreased volume, competitive pricing and continued performance issues in
some of the acquired entities.
PRATT & WHITNEY revenues decreased $34 million, less than one percentage
point, in 2002. The decrease was due primarily to lower volume at Pratt & Whitney
Power Systems, declines in commercial spare parts sales, reflecting current
conditions in the commercial airline industry, and lower engine volume
at Pratt & Whitney Canada. These decreases were partially offset by increases
in military engine and commercial overhaul and repair revenue. Consistent
with the Corporation's expectations, commercial spare parts orders declined
approximately 10% in 2002.
Pratt & Whitney operating profits decreased $26
million (2%) in 2002, reflecting lower profits from Pratt & Whitney Canada, commercial
spare parts and Pratt & Whitney Power Systems. The decreases were partially offset
by higher military engine and commercial overhaul and repair profits. The results
also reflect the favorable impact of commercial engine contract changes offset
by estimated costs to support product warranties to certain customers and costs
associated with the PW6000 program.
FLIGHT SYSTEMS revenues increased $279 million (5%) in 2002. The increase
was due to higher value helicopter shipments and increased aftermarket
revenues at Sikorsky, resulting in part from the acquisition of Derco
Holding in the second quarter of 2002. These increases were partially
offset by lower commercial aerospace aftermarket and industrial volume
at Hamilton Sundstrand.
Flight Systems operating profits increased $71
million (11%) in 2002. The increase was due primarily to the discontinuance of
goodwill amortization. Excluding goodwill amortization, operating profits decreased
$32 million (4%) due primarily to lower commercial aerospace aftermarket and
industrial volume at Hamilton Sundstrand and increased research and development
spending at Sikorsky related to S-92 certification.
2001 Compared to 2000
OTIS revenues increased $185 million (3%) in 2001, reflecting increases
in all regions and growth in both new equipment and service sales.
The strengthening of the U.S. dollar in relation to European and Asian
currencies during the year had the effect of reducing reported revenues
by 4%.
Otis operating profits increased $49 million (6%)
in 2001 reflecting profit improvements in all regions which resulted from volume
increases and cost reduction actions. The 2001 restructuring charges and foreign
currency translation reduced reported operating profits by 14% during the year.
CARRIER revenues increased $465 million (6%) in 2001, almost entirely
due to acquisitions, including the acquisition of Specialty Equipment
Companies during the fourth quarter of 2000, and growth in the European
and Asian HVAC markets. The improvements were largely offset by continued
weakness in several of the global refrigeration businesses and the negative
foreign currency impact due primarily to the strength of the U.S. dollar
in relation to Asian and European currencies, which reduced revenues
by 2%.
Carrier operating profits decreased $205 million
(26%) compared to 2000 in part due to 2001 restructuring charges of $172 million
and the unfavorable impact of foreign currency translation. The decrease is primarily
due to poor market conditions in refrigeration, North American commercial HVAC
and Latin America, as well as performance issues in some of the acquired entities,
particularly global refrigeration businesses. The 2001 operating profit decrease
was partially offset by the acquisition of Specialty Equipment Companies in the
fourth quarter of 2000 and improved performance in Carrier's European and Asian
HVAC businesses.
PRATT & WHITNEY revenues increased $313 million (4%) in 2001. The increase
was due primarily to increased shipments at Pratt & Whitney Power Systems
and higher volume at Pratt & Whitney Canada, partially offset by lower
commercial aerospace aftermarket volume in the fourth quarter of 2001.
Pratt & Whitney operating profits increased $108
million (9%) in 2001, reflecting favorable volume at Pratt & Whitney Canada and
Pratt & Whitney Power Systems and cost reduction actions throughout the segment.
These increases were partially offset by restructuring charges and lower commercial
aerospace aftermarket volume in the fourth quarter.
FLIGHT SYSTEMS revenues increased $300 million (6%) in 2001. The increase
was due primarily to increased original equipment sales and aftermarket
revenues at Hamilton Sundstrand's aerospace business and increased helicopter
shipments at Sikorsky. Flight Systems operating profits increased $56
million (9%) in 2001, reflecting growth in Hamilton Sundstrand's aerospace
business and increased helicopter shipments at Sikorsky. Operating profits
in 2001 included restructuring charges of $30 million.
Segment Review
Liquidity and Financing Commitments
IN MILLIONS OF DOLLARS | 2002
|
2001
|
|
Cash and cash equivalents
|
$
2,080
|
$ 1,558
|
|
Total debt
|
4,873
|
4,959
|
|
Net debt (total debt less cash)
|
2,793
|
3,401
|
|
Shareowners' equity
|
8,355
|
8,369
|
|
Total capitalization (debt
plus equity)
|
13,228
|
13,328
|
|
Debt to total capitalization
|
37%
|
37%
|
|
Net debt to total capitalization
|
25%
|
29%
|
Management assesses the Corporation's liquidity in terms of its ability
to generate cash to fund its operating, investing and financing activities.
Significant factors affecting the management of liquidity are: cash flows
generated from operating activities, capital expenditures, customer financing
requirements, investments in businesses, dividends, Common Stock repurchases,
adequacy of available bank lines of credit and the ability to attract
long-term capital with satisfactory terms.
Net cash provided by operating activities in 2002
was $2,853 million compared to $2,976 million in 2001. The decrease reflects
a $500 million cash contribution to the Corporation's domestic pension plans
partially offset by improved operating and working capital performance. Pre-tax
cash outflows associated with restructuring and other actions, including costs
not accruable or contemplated when the actions were initiated, were $226 million
in 2002 and $303 million in 2001.
Cash used in investing activities was $1,088 million
in 2002 compared to $1,277 million in 2001. The most significant components of
investing cash flows are capital expenditures and business acquisitions. Capital
expenditures decreased $207 million to $586 million in 2002, reflecting a reprioritization
of capital projects. Capital expenditures are expected to increase in 2003 to
approximate anticipated depreciation levels. In 2002, the Corporation invested
$424 million in the acquisition of businesses, consisting of $402 million of
cash and $22 million of assumed debt. In 2001 acquisitions totaled $525 million,
consisting of $439 million of cash and $86 million of assumed debt. Cash spending
for investments in 2002 includes Sikorsky's acquisition of Derco Holding and
acquisitions at Pratt & Whitney. Acquisition activity in 2003 is expected to
approximate $1.5 billion and is dependent upon the availability of appropriate
acquisition opportunities.
Customer financing activities used net cash of
$164 million in 2002, compared to $123 million in 2001, reflecting increased
customer requirements for financing. While the Corporation expects that customer
financing will be a net use of cash in 2003, actual funding is subject to usage
under existing customer financing arrangements. At December 31, 2002, the Corporation
had financing and rental commitments of $1.6 billion related to commercial aircraft,
of which as much as $434 million may be required to be disbursed in 2003. The
Corporation may also arrange for third-party investors to assume a portion of
its commitments. Refer to Note 4 to the Consolidated Financial Statements for
additional discussion of the Corporation's commercial aerospace industry assets
and commitments.
Financing cash outflows for 2002 and 2001 include
the Corporation's repurchase of 10.9 million and 8.5 million shares of Common
Stock for $700 million and $599 million, respectively. Share repurchase continues
to be a use of the Corporation's cash flows and has more than offset the dilutive
effect resulting from the issuance of stock under stock-based employee benefit
programs in each of the last three years. In October 2002, the Corporation announced
that the Board of Directors authorized the repurchase of up to 30 million shares.
The new authorization replaces the previous share repurchase authority. At December
31, 2002, 25.3 million shares remained available for repurchase under the authorized
program.
Segment Review
At December 31, 2002, 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, 2002, there were no borrowings under
the Revolving Credit Agreement. In addition, at December 31, 2002, approximately
$800 million was available under short-term lines of credit with local
banks at the Corporation's various international subsidiaries.
As described in Note 9 to the Consolidated Financial
Statements, the Corporation issued $500 million and $900 million of long-term
notes payable in 2002 and 2001, respectively. The proceeds of those issuances
were used for the repayment of commercial paper, to support investment activities,
and for general corporate purposes, including repurchases of the Corporation's
Common Stock. At December 31, 2002, up to $1.1 billion of additional debt and
equity securities could be issued under a shelf registration statement on file
with the Securities and Exchange Commission.
The funded status of the Corporation's pension
plans is dependent upon many factors, including returns on invested assets and
the level of market interest rates. Recent declines in the value of securities
traded in equity markets coupled with declines in long-term interest rates have
had a negative impact on the funded status of the plans. During 2002, the Corporation
contributed $753 million to its domestic pension plans, including $253 million
of Treasury Stock in August and a $500 million voluntary cash contribution in
October. During 2001, the Corporation contributed $247 million of Treasury Stock
to its domestic pension plans. These contributions are reported as an increase
in other assets in the Consolidated Balance Sheet. An independent manager has
been appointed to hold and dispose of the shares from time to time in the open
markets or otherwise. The Corporation can contribute cash to these plans at its
discretion and made a $500 million cash contribution in January 2003. As of December
31, 2002, the total investment by the defined benefit pension plans in the Corporation's
securities, including the Treasury Stock transactions described above, is approximately
6% of total plan assets.
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, unrealized holding gains and losses on available-for-sale
securities and cash flow hedging transactions. The Corporation recorded a $1.6
billion after-tax charge to equity, reflecting the increase in the additional
minimum liability under its pension plans of $2.4 billion, which is included
in future pension and postretirement benefit obligations in the December 31,
2002 Consolidated Balance Sheet. 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,
continued Common Stock repurchases and pension funding as needed.
A summary of the Corporation's contractual obligations
and commitments as of December 31, 2002 is as follows:
Payments Due by Period | ||||||||||
IN MILLIONS OF DOLLARS Contractual Obligations |
Total | Less than 1 Year |
1-3 Years | 4-5 Years | After 5 Years |
|||||
Long-term debt
|
$4,676 | $ 44 | $421 | $740 | $3,471 | |||||
Operating leases | 766 | 212 | 274 | 146 | 134 | |||||
Total contractual obligations | $5,442 | $256 | $695 | $886 | $3,605 |
See Notes 9 and 16 for additional information on contractual obligations.
Amount of Commitment Expiration per Period | |||||||||
IN MILLIONS OF DOLLARS Commercial Commitments |
Committed | Less than 1 Year |
1-3 Years | 4-5 Years | After 5 Years |
||||
Commercial aerospace financing and
rental commitments |
$1,365 | $314 | $286 | $629 | $136 | ||||
IAE financing arrangements | 1,232 | 388 | 268 | 85 | 491 | ||||
Unconsolidated subsidiary debt guarantees | 259 | 97 | 90 | — | 72 | ||||
Commercial aerospace financing arrangements | 164 | 7 | 39 | 8 | 110 | ||||
Commercial customer financing arrangements | 62 | 46 | 16 | — | — | ||||
Total commercial commitments | $3,082 | $852 | $699 | $722 | $809 |
See Notes 4, 15 and 16 for additional information on commercial commitments.
Segment Review
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 rates, 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, 2002, 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, 9, 13 and 14 to the Consolidated Financial Statements for additional
discussion of foreign exchange, interest rates 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, including U.S. export sales, averaged approximately
$15 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. Due to recent declines in market interest rates, a portion of that portfolio is hedged with fixed for floating interest rate swaps. The hedges are designated as fair value hedges and the gains and losses on the swaps are reported in interest expense, reflecting that portion of interest expense at a variable rate. From time to time the Corporation issues commercial paper, which exposes the Corporation to changes in interest rates.
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. The forward contracts are designated as hedges of the cash flow variability that results from the forecasted purchases. Gains and losses on those derivatives are deferred in other comprehensive income to the extent they are effective as hedges and reclassified into cost of products sold in the period in which the hedged transaction impacts earnings.
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, consolidated
financial position, results of operations or cash flows.
The Corporation has identified approximately 470
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 95% of the Corporation's accrued environmental liability. The remaining
5% 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, 2002, the Corporation had $438
million reserved for environmental remediation. Cash outflows for environmental
remediation were $42 million in 2002, $61 million in 2001 and $54 million in
2000. The Corporation estimates that ongoing environmental remediation expenditures
in each of the next two years will not exceed $50 million.
The Corporation has had insurance in force over
its history with a number of insurance companies and has pursued litigation seeking
indemnity and defense under these insurance policies in relation to its environmental
liabilities. In January 2002, the Corporation settled the last of these lawsuits
under an agreement providing for the Corporation to receive payments totaling
approximately $100 million.
Segment Review
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. In addition, the Corporation accrues
for liabilities associated with those government contracting matters
that are probable and can be reasonably estimated.
Additional discussion of the Corporation's environmental
and U.S. Government contract matters is included in "Critical Accounting
Estimates – Contracting with the Federal Government" and Notes 1 and
16 to the Consolidated Financial Statements.
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. In addition, the Corporation incurs discretionary costs
to service its products in connection with product performance issues.
The Corporation has accrued its estimated liability that may result
under these guarantees and for service costs which are probable and
can be reasonably estimated.
New Accounting Pronouncements
In June 2001, SFAS No. 143, "Accounting for Asset Retirement Obligations" was
issued. The standard requires that legal obligations associated with
the retirement of tangible long-lived assets be recorded at fair value
when incurred and is effective for the Corporation on January 1, 2003.
Adoption of this standard will not have a material impact on the Corporation's
consolidated financial position, results of operations or cash flows.
In September 2002, SFAS No. 146, "Accounting
for Costs Associated with Exit or Disposal Activities" was issued. This
statement provides guidance on the recognition and measurement of liabilities
associated with exit or disposal activities and requires that such liabilities
be recognized when incurred. This statement is effective for exit or disposal
activities initiated on or after January 1, 2003 and does not impact recognition
of costs under the Corporation's existing programs. Adoption of this standard
may impact the timing of recognition of costs associated with future exit and
disposal activities, depending upon the nature of the actions initiated.
In November 2002, FASB Interpretation ("FIN")
No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others" was issued. The
interpretation provides guidance on the guarantor's accounting and disclosure
requirements for guarantees, including indirect guarantees of indebtedness of
others. The Corporation has adopted the disclosure requirements of the interpretation
as of December 31, 2002. The accounting guidelines are applicable to guarantees
issued after December 31, 2002 and require that the Corporation record a liability
for the fair value of such guarantees in the balance sheet.
In January 2003, FIN No. 46, "Consolidation
of Variable Interest Entities" was issued. The interpretation provides guidance
on consolidating variable interest entities and applies immediately to variable
interests created after January 31, 2003. The guidelines of the interpretation
will become applicable for the Corporation in its third quarter 2003 financial
statements for variable interest entities created before February 1, 2003. The
interpretation requires variable interest entities to be consolidated if the
equity investment at risk is not sufficient to permit an entity to finance its
activities without support from other parties or the equity investors lack certain
specified characteristics. The Corporation is reviewing FIN No. 46 to determine
its impact, if any, on future reporting periods, and does not currently anticipate
any material accounting or disclosure requirement under the provisions of the
interpretation.
Segment Review
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:
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 2002 includes important information as to risk factors in the "Business" section under the headings "Description of Business by Segment" and "Other Matters Relating to the Corporation's Business as a Whole," and in the "Legal Proceedings" section.
Management's Responsibility
for Financial Statements and Controls
We believe it is critical to provide investors and other users of our financial statements with information that is relevant, objective, understandable and timely, so that they can make informed decisions. As a result, we have established and we maintain accounting systems and practices and internal control processes designed to provide reasonable assurance that transactions are properly executed and recorded and that our policies and procedures are carried out appropriately.
Core Values
We are committed to performance and improving shareowner value. We communicate
honestly to investors and strive to deliver what we promise. We conduct
our business in accordance with the Corporation's Code of Ethics, which
is distributed to employees across the Corporation and is published
in 16 languages. Through our Business Practices Office, we have long-standing
programs in place that allow employees, customers, suppliers and others
to identify situations, on a confidential or anonymous basis, that
may be in violation of the Corporation's Code of Ethics.
Financial Controls and Transparency
Our internal controls are designed to ensure that assets are safeguarded,
transactions are executed according to management authorization and
that our financial systems and records can be relied upon for preparing
our financial statements and related disclosures. Our system of internal
controls includes continuous review of our financial policies and procedures
to ensure accounting and regulatory issues have been appropriately
addressed, recorded and disclosed. We execute periodic on-site accounting
control and compliance reviews in each of our businesses to ensure
policies and procedures are being followed. Our internal auditors test
the adequacy of internal controls and compliance with policies, as
well as perform a number of financial audits across the businesses
throughout the year. The independent auditors perform audits of our
financial statements, in which they examine evidence supporting the
amounts and disclosures in our financial statements, and also consider
our system of internal controls and procedures in planning and performing
their audits. Their report appears on page 15.
Management Controls
Our management team is committed to providing high-quality, relevant
and timely information about our businesses. Management performs reviews
of each of our businesses throughout the year, addressing issues ranging
from financial performance and strategy to personnel and compliance.
We require that each business unit president, chief financial officer
and controller certify the accuracy of that business unit's financial
information and its system of internal accounting and disclosure controls
and procedures on a quarterly and annual basis. We also require each
finance executive worldwide to acknowledge adherence to a series of
principles and responsibilities governing the professional and ethical
conduct expected within the UTC finance organization, as modeled after
the Financial Executives International code of conduct.
Our Board of Directors normally meets seven times
per year to provide oversight, to review corporate strategies and operations,
and to assess management's conduct of the business. The Audit Committee of our
Board of Directors is comprised of five individuals who are not employees or
officers of the company and normally meets eight times per year. The Audit Committee
is responsible for the appointment and oversight of the audit work performed
by the independent auditors, as well as overseeing our financial reporting practices
and internal control systems. The Audit Committee meets regularly with our internal
auditors and independent auditors, as well as management. Both the internal auditors
and independent auditors have full, unlimited access to the Audit Committee.
Management is responsible for implementing and
maintaining adequate systems of internal and disclosure controls and procedures
and for monitoring their effectiveness. We strive to recruit, train and retain
high performance individuals to ensure that our controls are designed, implemented
and maintained in a high-quality, reliable manner. We evaluated the systems of
internal and disclosure controls and procedures as of December 31, 2002. Based
on that evaluation, management believes the internal accounting controls provide
reasonable assurance that the Corporation's assets are safeguarded, transactions
are executed in accordance with management's authorizations, and the financial
records are reliable for the purpose of preparing financial statements.
/s/ George David | /s/ Stephen F. Page | |
George David Chairman and Chief Executive Officer |
Stephen F. Page Vice Chairman and Chief Financial Officer
|
Report of Independent Auditors
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, 2002 and 2001, and the results of their operations and
their cash flows for each of the three years in the period ended December
31, 2002, 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.
As discussed in Note 7 to the Consolidated Financial
Statements, effective January 1, 2002, the Corporation adopted Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets".
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Hartford, Connecticut
January 16, 2003
Consolidated Statement of Operations
IN MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS | 2002 | 2001 | 2000 | |||
Revenues | ||||||
Product sales | $ | 21,189 | $ | 20,907 | $ | 20,174 |
Service sales | 6,791 | 6,579 | 6,032 | |||
Financing revenues and other income, net | 232 | 411 | 377 | |||
28,212 | 27,897 | 26,583 | ||||
Costs and Expenses | ||||||
Cost of products sold | 15,717 | 15,826 | 15,146 | |||
Cost of services sold | 4,444 | 4,261 | 3,824 | |||
Research and development | 1,191 | 1,254 | 1,302 | |||
Selling, general and administrative | 3,203 | 3,323 | 3,171 | |||
Interest | 381 | 426 | 382 | |||
24,936 | 25,090 | 23,825 | ||||
Income before income taxes and minority interests | 3,276 | 2,807 | 2,758 | |||
Income taxes |
887 |
755 |
853 | |||
Minority interests in subsidiaries' earnings | 153 | 114 | 97 | |||
Net Income | $ | 2,236 | $ | 1,938 | $ | 1,808 |
Earnings per Share of Common Stock | ||||||
Basic | $ | 4.67 | $ | 4.06 | $ | 3.78 |
Diluted | $ | 4.42 | $ | 3.83 | $ | 3.55 |
See accompanying Notes to Consolidated Financial Statements
Consolidated Balance Sheet
IN MILLIONS OF DOLLARS, EXCEPT PER SHARE (SHARES IN THOUSANDS) | 2002 | 2001 | |||
Assets | |||||
Cash and cash equivalents | $ | 2,080 | $ | 1,558 | |
Accounts receivable (net of allowance for doubtful accounts of $380 and $404) | 4,277 | 4,141 | |||
Inventories and contracts in progress | 3,719 | 3,966 | |||
Future income tax benefits | 1,431 | 1,378 | |||
Other current assets | 244 | 261 | |||
Total Current Assets | 11,751 | 11,304 | |||
Customer financing assets | 771 | 665 | |||
Future income tax benefits | 1,658 | 1,205 | |||
Fixed assets | 4,587 | 4,549 | |||
Goodwill | 6,981 | 6,802 | |||
Other assets | 3,342 | 2,485 | |||
Total Assets | $ | 29,090 | $ | 27,010 | |
Liabilities and Shareowners' Equity | |||||
Short-term borrowings | $ | 197 | $ | 588 | |
Accounts payable | 2,095 | 2,156 | |||
Accrued liabilities | 5,567 | 5,534 | |||
Long-term debt currently due | 44 | 134 | |||
Total Current Liabilities | 7,903 | 8,412 | |||
Long-term debt | 4,632 | 4,237 | |||
Future pension and postretirement benefit obligations | 5,088 | 2,703 | |||
Other long-term liabilities | 2,095 | 2,310 | |||
Commitments and contingent liabilities (Notes 4 and 16) | |||||
Minority interests in subsidiary companies | 589 | 550 | |||
Series A ESOP Convertible Preferred Stock, $1 par value | |||||
Authorized-20,000 shares | |||||
Outstanding-10,945 and 11,307 shares | 718 | 743 | |||
ESOP deferred compensation | (290) | (314) | |||
428 | 429 | ||||
Shareowners' Equity: | |||||
Capital Stock: | |||||
Preferred Stock, $1 par value; Authorized-250,000 shares; None issued or outstanding | | | |||
Common
Stock, $1 par value; Authorized-2,000,000 shares; Issued 607,038
and 603,076 shares |
5,447 | 5,090 | |||
Treasury Stock-137,418 and 130,917 common shares at cost | (4,951) | (4,404) | |||
Retained earnings | 10,836 | 9,149 | |||
Accumulated other non-shareowners' changes in equity: | |||||
Foreign currency translation | (832) | (889) | |||
Minimum pension liability | (2,151) | (563) | |||
Other | 6 | (14) | |||
(2,977) | (1,466) | ||||
Total Shareowners' Equity | 8,355 | 8,369 | |||
Total Liabilities and Shareowners' Equity | $ | 29,090 | $ | 27,010 |
See accompanying Notes to Consolidated Financial Statements
Consolidated Statement of Cash Flows
IN MILLIONS OF DOLLARS | 2002 | 2001 | 2000 | ||||
Operating Activities | |||||||
Net income | $ | 2,236 | $ | 1,938 | $ | 1,808 | |
Adjustments to reconcile net income to net cash | |||||||
flows provided by operating activities: | |||||||
Depreciation and amortization | 727 | 905 | 859 | ||||
Deferred income tax provision | 318 | 297 | 246 | ||||
Minority interests in subsidiaries' earnings | 153 | 114 | 97 | ||||
Change in: | |||||||
Accounts receivable | 80 | 289 | (69) | ||||
Inventories and contracts in progress | 327 | (147) | (184) | ||||
Other current assets | 10 | 46 | 19 | ||||
Accounts payable and accrued liabilities | (301) | (406) | (184) | ||||
Contribution to domestic pension plans | (500) | | | ||||
Other, net | (197) | (60) | 39 | ||||
Net Cash Provided by Operating Activities | 2,853 | 2,976 | 2,631 | ||||
Investing Activities | |||||||
Capital expenditures | (586) | (793) | (937) | ||||
Increase in customer financing assets | (386) | (360) | (339) | ||||
Decrease in customer financing assets | 222 | 237 | 299 | ||||
Business acquisitions | (402) | (439) | (1,168) | ||||
Dispositions of businesses | 26 | 17 | | ||||
Other, net | 38 | 61 | 44 | ||||
Net Cash Used in Investing Activities | (1,088) | (1,277) | (2,101) | ||||
Financing Activities | |||||||
Issuance of long-term debt | 500 | 904 | 712 | ||||
Repayment of long-term debt | (231) | (354) | (435) | ||||
(Decrease) increase in short-term borrowings | (357) | (465) | 83 | ||||
Common Stock issued under employee stock plans | 183 | 224 | 310 | ||||
Dividends paid on Common Stock | (462) | (423) | (387) | ||||
Repurchase of Common Stock | (700) | (599) | (800) | ||||
Dividends to minority interests and other | (184) | (147) | (193) | ||||
Net Cash Used in Financing Activities | (1,251) | (860) | (710) | ||||
Effect of foreign exchange rate changes on Cash and cash equivalents | 8 | (29) | (29) | ||||
Net increase (decrease) in Cash and cash equivalents | 522 | 810 | (209) | ||||
Cash and cash equivalents, beginning of year | 1,558 | 748 | 957 | ||||
Cash and cash equivalents, end of year | $ | 2,080 | $ | 1,558 | $ | 748 | |
Supplemental Disclosure of Cash Flow Information: | |||||||
Interest paid, net of amounts capitalized | $ | 368 | $ | 420 | $ | 381 | |
Income taxes paid, net of refunds | $ | 396 | $ | 497 | $ | 496 | |
Non-cash investing and financing activities include: | |||||||
The 2002 and 2001 Treasury Stock contributions of $253 million and | |||||||
$247 million, respectively, to domestic defined benefit pension plans |
See accompanying Notes to Consolidated Financial Statements
Consolidated Statement of Changes
in Shareowners' Equity
IN MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS | Common Stock |
Treasury Stock |
Retained Earnings |
Accumulated Other Non- Shareowners' Changes In Equity |
Non- |
||
December 31, 1999 | $4,227 | $(3,182) | $6,463 | $ (391) | |||
Common Stock issued under employee plans | |||||||
(9.4 million shares), including tax benefit of $128 | 438 | 27 | (109) | ||||
Common Stock repurchased (13.6 million shares) | (800) | ||||||
Dividends on Common Stock ($.825 per share) | (387) | ||||||
Dividends on ESOP Preferred Stock ($4.80 per share) | (32) | ||||||
Non-Shareowners' Changes in Equity: | |||||||
Net income | 1,808 | $1,808 | |||||
Foreign currency translation adjustments | (184) | (184) | |||||
Minimum pension liability adjustments, net of | |||||||
income tax benefits of $5 | (3) | (3) | |||||
Unrealized holding loss on marketable equity securities, | |||||||
net of income tax benefits of $115 | (213) | (213) | |||||
December 31, 2000 | $4,665 | $(3,955) | $7,743 | $ (791) | $1,408 | ||
Common Stock issued under employee plans | |||||||
(6.2 million shares), including tax benefit of $91 | 315 | 13 | (78) | ||||
Common Stock contributed to defined benefit | |||||||
pension plans (4.1 million shares) | 110 | 137 | |||||
Common Stock repurchased (8.5 million shares) | (599) | ||||||
Dividends on Common Stock ($.90 per share) | (423) | ||||||
Dividends on ESOP Preferred Stock ($4.80 per share) | (31) | ||||||
Non-Shareowners' Changes in Equity: | |||||||
Net income | 1,938 | $1,938 | |||||
Foreign currency translation adjustments | (142) | (142) | |||||
Minimum pension liability adjustments, net of | |||||||
income tax benefits of $303 | (519) | (519) | |||||
Unrealized holding gain on marketable equity | |||||||
securities, net of income taxes of $5 | 9 | 9 | |||||
Unrealized cash flow hedging loss, net of | |||||||
income tax benefits of $12 | (23) | (23) | |||||
December 31, 2001 | $5,090 | $(4,404) | $9,149 | $(1,466) | $1,263 | ||
Common Stock issued under employee plans | |||||||
(4.2 million shares), including tax benefit of $45 | 247 | 10 | (56) | ||||
Common Stock contributed to defined benefit | |||||||
pension plans (4.1 million shares) | 110 | 143 | |||||
Common Stock repurchased (10.9 million shares) | (700) | ||||||
Dividends on Common Stock ($.98 per share) | (462) | ||||||
Dividends on ESOP Preferred Stock ($4.80 per share) | (31) | ||||||
Non-Shareowners' Changes in Equity: | |||||||
Net income | 2,236 | $2,236 | |||||
Foreign currency translation adjustments | 57 | 57 | |||||
Minimum pension liability adjustments, net of | |||||||
income tax benefits of $927 | (1,588) | (1,588) | |||||
Unrealized holding loss on marketable equity securities, | |||||||
net of income tax benefits of $4 | (7) | (7) | |||||
Unrealized cash flow hedging gain, net of | |||||||
income taxes of $14 | 27 | 27 | |||||
December 31, 2002 | $5,447 | $(4,951) | $10,836 | $(2,977) | $ 725 |
See accompanying Notes to Consolidated Financial Statements
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:
IN MILLIONS OF DOLLARS | 2002 | 2001 | |
Retainage
|
$ 40 | $ 26 | |
Unbilled receivables
|
$180 | $150 |
Retainage represents amounts which, pursuant
to the contract, are not due until project completion and acceptance
by the customer. Unbilled receivables 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.
In 2002, the Corporation reclassified $48 million
of prior year amounts provided for aerospace customer financing exposures from
the allowance for doubtful accounts primarily to accrued liabilities.
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 deferred income taxes.
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. If inventories which were valued
using the LIFO method had been valued under the FIFO method, they would
have been $103 million higher at December 31, 2002 and 2001.
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 as appropriate.
Manufacturing costs are allocated to current production
and firm contracts.
FIXED ASSETS. Fixed assets are stated at cost. Depreciation is computed over the assets' useful lives using the straight-line method, except for aerospace assets acquired prior to January 1, 1999, which are depreciated using accelerated methods.
GOODWILL AND OTHER INTANGIBLE ASSETS. Goodwill represents costs in excess
of fair values assigned to the underlying net assets of acquired businesses
and was historically amortized using the straight-line method of amortization
over periods that ranged from 10 to 40 years. Effective July 1, 2001,
the Corporation adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets," applicable
to business combinations completed after June 30, 2001. In accordance
with these standards, goodwill acquired after June 30, 2001 is not amortized.
As of January 1, 2002, the remaining provisions
of SFAS No. 141 and No. 142 were effective for the Corporation. These standards
require the use of the purchase method of accounting for business combinations,
set forth the accounting for the initial recognition of acquired intangible assets
and goodwill, and describe the accounting for intangible assets and goodwill
subsequent to initial recognition. Under the provisions of these standards, goodwill
and intangible assets deemed to have indefinite lives are no longer subject to
amortization. All other intangible assets are amortized over their estimated
useful lives. Goodwill and intangible assets are subject to annual impairment
testing using the guidance and criteria described in the standards. This testing
compares carrying values to fair values and when appropriate, the carrying value
of these assets is required to be reduced to fair value.
Prior to the adoption of SFAS No. 142, the Corporation
evaluated potential impairment of goodwill on an ongoing basis and of other intangible
assets when appropriate. This evaluation compared the carrying value of assets
to the sum of the undiscounted expected future cash flows. If an asset's carrying
value exceeded the expected cash flows, the asset was written down to fair value.
OTHER LONG-LIVED ASSETS. The Corporation evaluates the potential impairment of other long-lived assets when appropriate. If the carrying value of assets exceeds the sum of the undiscounted expected future cash flows, the carrying value of the asset 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.
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 product warranty and product performance guarantee costs
in excess of the revenue from products contemplated under the contractual arrangement.
Contract accounting requires estimates of future costs over the performance period
of the contract as well as estimates of award fees and other sources of revenue.
These estimates are subject to change and result in adjustments to margins on
contracts in progress. The extent of progress toward completion on the Corporation's
long-term commercial aerospace and helicopter contracts is measured using units
of delivery. In addition, the Corporation uses the cost-to-cost method for long-term
aftermarket and development contracts in the aerospace businesses and for elevator
and escalator installation and modernization contracts. The Corporation reviews
its cost estimates on significant contracts on a quarterly basis, and for others,
no less frequently than annually, or when circumstances change and warrant a
modification to a previous estimate. Adjustments to contract loss provisions
are recorded in earnings upon identification.
Service sales, representing aftermarket repair
and maintenance activities, are recognized over the contractual period or as
services are performed.
Revenues from engine programs under collaboration
agreements are recorded as earned and the collaborator share of revenue is recorded
as a reduction of revenue at that time. Costs associated with engine programs
under collaboration agreements are expensed as incurred. The collaborator share
of program costs is recorded as a reduction of the related expense item at that
time.
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.
Research and development costs incurred under contracts
with customers are reported as a component of cost of products sold. Revenue
from such contracts is recognized as product sales when earned.
HEDGING ACTIVITY. The Corporation uses derivative instruments, including
swaps, forward contracts and options, to manage certain foreign currency,
interest rate and commodity price exposures. Derivative instruments are
viewed as risk management tools by the Corporation and are not used for
trading or speculative purposes. Derivatives used for hedging purposes
must be designated and effective as a hedge of the identified risk exposure
at the inception of the contract. Accordingly, changes in 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.
Effective January 1, 2001, the Corporation adopted
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as
amended. The standard requires that all derivative instruments be recorded on
the balance sheet at fair value. Derivatives used to hedge foreign-currency-denominated
balance sheet items are reported directly in earnings along with offsetting transaction
gains and losses on the items being hedged. Derivatives used to hedge forecasted
cash flows associated with foreign currency commitments or forecasted commodity
purchases are accounted for as cash flow hedges. Gains and losses on derivatives
designated as cash flow hedges are recorded in other comprehensive income and
reclassified to earnings in a manner that matches the timing of the earnings
impact of the hedged transactions. The ineffective portion of all hedges, if
any, is recognized currently in earnings.
The adoption of SFAS No. 133 did not have a material
impact on the Corporation's consolidated results of operations, financial position
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.
LONG-TERM INCENTIVE PLANS. As more fully described in Note 11, the Corporation
has long-term incentive plans authorizing various types of market and
performance based incentive awards that may be granted to officers and
employees. The Corporation applies APB Opinion 25, "Accounting for
Stock Issued to Employees," and related interpretations in accounting
for its long-term incentive plans. 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.
The following table illustrates the effect on net
income and earnings per share as if the Black-Scholes fair value method described
in SFAS No. 123, "Accounting for Stock-Based Compensation" had been
applied to the Corporation's long-term incentive plans.
Year Ended December 31 | |||||
IN MILLIONS OF DOLLARS EXCEPT PER SHARE AMOUNTS |
2002 | 2001 | 2000 | ||
Net income, as reported | $2,236 | $1,938 | $1,808 | ||
Add: Stock-based employee compensation expense (benefit) included in net income, net of related tax effects |
3 | (1) | 6 | ||
Less: Total stock-based employee compensation expense deter- mined under Black-Scholes option pricing model, net of related tax effects |
(121) | (101) | (80) | ||
Pro forma net income | $2,118 | $1,836 | $1,734 | ||
Earnings per share: | |||||
Basic – as reported | $ 4.67 | $ 4.06 | $ 3.78 | ||
Basic – pro forma | $ 4.42 | $ 3.84 | $ 3.62 | ||
Diluted – as reported | $ 4.42 | $ 3.83 | $ 3.55 | ||
Diluted – pro forma | $ 4.19 | $ 3.64 | $ 3.41 |
Notes to Consolidated Financial Statements
[note 2] Business Acquisitions
ACQUISITIONS. The Corporation completed acquisitions in 2002, 2001, and
2000 for $424 million, $525 million, and $1,340 million, including
debt assumed of $22 million, $86 million, and $172 million, respectively.
The 2002 amount includes Sikorsky's acquisition of Derco Holding and
acquisitions at Pratt & Whitney. The 2001 amount includes Hamilton
Sundstrand's acquisition of Claverham Group LTD, Hamilton Sundstrand's
and Pratt & Whitney's acquisitions of aftermarket businesses and a
number of small acquisitions in the commercial businesses. The 2000
amount includes the acquisition of Specialty Equipment Companies for
$708 million, including debt assumed.
The assets and liabilities of the acquired businesses
are accounted for under the purchase method and 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 $156 million in 2002, $307 million in 2001, and $1,412 million in 2000. The
results of operations of acquired businesses have been included in the Consolidated
Statement of Operations beginning as of the effective date of acquisition.
The cost of acquisitions, including finalization
of restructuring plans, and allocations of cost may require adjustment based
upon information that may come to the attention of the Corporation which is not
currently available.
Notes to Consolidated Financial Statements
[note 3] Earnings Per Share
IN MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS |
Income | Average Shares |
Per Share Amount |
||
December 31, 2002 | |||||
Net income | $ 2,236 | ||||
Less: ESOP Stock dividends | (31) | ||||
Net income - basic | 2,205 | 472.4 | $ 4.67 | ||
Stock awards | – | 7.1 | |||
ESOP Stock adjustment | 29 | 26.1 | |||
Net income - diluted | $ 2,234 | 505.6 | $ 4.42 | ||
December 31, 2001 | |||||
Net income | $ 1,938 | ||||
Less: ESOP Stock dividends | (31) | ||||
Net income - basic | 1,907 | 470.2 | $ 4.06 | ||
Stock awards | – | 9.2 | |||
ESOP Stock adjustment | 28 | 26.0 | |||
Net income - diluted | $ 1,935 | 505.4 | $ 3.83 | ||
December 31, 2000 | |||||
Net income | $ 1,808 | ||||
Less: ESOP Stock dividends | (32) | ||||
Net income - basic | 1,776 | 470.1 | $ 3.78 | ||
Stock awards | – | 11.3 | |||
ESOP Stock adjustment | 28 | 26.6 | |||
Net income - diluted | $ 1,804 | 508.0 | $ 3.55 |
Notes to Consolidated Financial Statements
[note 4] Commercial Aerospace Industry Assets and Commitments
The Corporation has receivables and other financing assets with commercial
aerospace industry customers totaling $1,974 million and $1,630 million
at December 31, 2002 and 2001, respectively.
Customer financing assets related to commercial
aerospace industry customers consist of products under lease of $357 million
and notes and leases receivable of $317 million. The notes and leases receivable
are scheduled to mature as follows: $110 million in 2003, $47 million in 2004,
$26 million in 2005, $19 million in 2006, $14 million in 2007 and $101 million
thereafter.
Financing commitments, in the form of secured debt,
guarantees or lease financing, are provided to commercial aerospace customers.
The extent to which the financing commitments will be utilized is not currently
known, 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 commercial aerospace financing
and rental commitments as of December 31, 2002 were $1,365 million and are exercisable
as follows: $314 million in 2003, $137 million in 2004, $149 million in 2005,
$158 million in 2006, $471 million in 2007 and $136 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 residual value
and other guarantees of $164 million as of December 31, 2002.
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. The Corporation's
interest in IAE is accounted for under the equity method of accounting. IAE may
offer customer financing in the form of guarantees, secured debt or lease financing
in connection with V2500 engine sales. At December 31, 2002, IAE had financing
commitments of $736 million and asset value guarantees of $55 million. The Corporation's
share of IAE's financing commitments and asset value guarantees was approximately
$257 million at December 31, 2002. In addition, IAE had lease obligations under
long-term noncancelable leases of approximately $441 million, on an undiscounted
basis, 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, net of reserves. The shareholders of IAE have guaranteed IAE's
financing arrangements to the extent of their respective ownership interests.
In the event of default by a shareholder on certain of these financing arrangements,
the other shareholders would be proportionately responsible.
Total reserves related to receivables and financing
assets, financing commitments and guarantees were $241 million and $228 million
at December 31, 2002 and 2001, respectively.
Notes to Consolidated Financial Statements
[note 5] Inventories and Contracts in Progress
IN MILLIONS OF DOLLARS | 2002 | 2001
|
||
Inventories consist of the following: | ||||
Raw material | $ 740 | $ 738 | ||
Work-in-process | 1,026 | 1,208 | ||
Finished goods | 2,329 | 2,159 | ||
Contracts in progress | 2,093 | 2,106 | ||
6,188 |
6,211
|
|||
Less: | ||||
Progress payments, secured by lien, on U.S. Government contracts |
(123) | (146) | ||
Billings on contracts in progress | (2,346) | (2,099) | ||
$ 3,719 |
$ 3,966
|
Raw materials, work-in-process and finished
goods are net of valuation reserves of $699 million and $578 million
as of December 31, 2002 and 2001, respectively.
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 at December 31, 2002 and 2001. Approximately 58% of total inventories
and contracts in progress have been acquired or manufactured under such long-term
contracts, a portion of which is not scheduled for delivery under long-term contracts
within the next twelve months.
Notes to Consolidated Financial Statements
[note 6] Fixed Assets
IN MILLIONS OF DOLLARS | Estimated Useful Lives |
2002 | 2001
|
||
Land | – | $ 196 | $ 188 | ||
Buildings and improvements | 20-40 years | 3,552 | 3,373 | ||
Machinery, tools and equipment | 3-20 years | 6,904 | 6,524 | ||
Other, including under construction |
– | 217 | 320 | ||
10,869 |
10,405
|
||||
Accumulated depreciation | (6,282) | (5,856) | |||
$ 4,587 |
$ 4,549
|
Depreciation expense was $640 million in 2002, $616 million in 2001
and $608 million in 2000.
Notes to Consolidated Financial Statements
[note 7] Goodwill and Other Intangible Assets
Effective January 1, 2002, the Corporation ceased the amortization of
goodwill in accordance with SFAS No. 142. Results adjusted to exclude
amounts no longer being amortized, are as follows:
IN MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS |
2002 | 2001
|
2000
|
||
Reported net income | $ 2,236 | $ 1,938 | $ 1,808 | ||
Adjustments: | |||||
Goodwill amortization | – | 230 | 206 | ||
Income taxes | – | (16) | (14) | ||
Minority interest in subsidiaries' earnings |
– | (2) | (2) | ||
Adjusted net income | $ 2,236 | $ 2,150 | $ 1,998 | ||
Basic earnings per share | |||||
Reported | $ 4.67 | $ 4.06 | $ 3.78 | ||
Adjusted | $ 4.67 | $ 4.51 | $ 4.18 | ||
Diluted earnings per share | |||||
Reported | $ 4.42 | $ 3.83 | $ 3.55 | ||
Adjusted | $ 4.42 | $ 4.25 | $ 3.92 |
The changes in the carrying amount of goodwill for the year ended December 31, 2002, by segment, are as follows:
IN MILLIONS OF DOLLARS | Otis | Carrier | Pratt & Whitney |
Flight Systems |
Total Segments |
Eliminations and Other |
Total | ||
Balance as of January 1, 2002 | $ 727 | $ 2,012 | $ 367 | $ 3,696 | $ 6,802 | – | $ 6,802 | ||
Goodwill resulting from business combinations completed or finalized |
(5) | 15 | 86 | 60 | 156 | – | 156 | ||
Foreign currency translation and other | 31 | (27) | (2) | 25 | 27 | $ (4) | 23 | ||
Balance as of December 31, 2002 | $ 753 | $ 2,000 | $ 451 | $ 3,781 | $ 6,985 | $ (4) | $ 6,981 |
The increase in goodwill during 2002 resulted principally from business
combinations completed or finalized in the period, including acquisitions
at Pratt & Whitney and Sikorsky's acquisition of Derco Holding. Goodwill
is subject to annual impairment testing as required under SFAS No. 142.
As of December 31, 2002, the Corporation was not required to recognize
any goodwill impairment. There can be no assurance that goodwill impairment
will not occur in the future.
Identifiable intangible assets as of December 31,
2002 are recorded in Other assets in the Consolidated Balance Sheet and are comprised
of the following:
IN MILLIONS OF DOLLARS | Gross Amount |
Accumulated |
Net Intangible Assets |
||
Amortized intangible assets | |||||
Purchased service contracts | $ 684 | $ (199) | $ 485 | ||
Patents and trademarks | 152 | (26) | 126 | ||
Other, principally customer relationships |
60 | (17) | 43 | ||
$ 896 | $ (242) | $ 654 |
Amortization of intangible assets for
the year ended December 31, 2002 was $53 million. Amortization of these
intangible assets during each of the next five years is expected to approximate
$50 million.
During 2002, the Corporation acquired intangible
assets of $135 million primarily related to service contracts. The weighted-average
amortization period for these service contracts is 14 years.
Notes to Consolidated Financial Statements
[note 8] Accrued Liabilities
IN MILLIONS OF DOLLARS | 2002 | 2001
|
||
Accrued salaries, wages and employee benefits |
$1,056 | $ 984 | ||
Accrued restructuring costs | 182 | 197 | ||
Service and warranty accruals | 690 | 555 | ||
Advances on sales contracts | 795 | 994 | ||
Income taxes payable | 584 | 508 | ||
Other | 2,260 | 2,296 | ||
$5,567 |
$5,534
|
Notes to Consolidated Financial Statements
[note 9] Borrowings and Lines of Credit
Short-term borrowings consist of the following:
IN MILLIONS OF DOLLARS | 2002 | 2001
|
||
Domestic borrowings | $ 9 | $ 2 | ||
Foreign bank borrowings | 188 | 273 | ||
Commercial paper | - | 313 | ||
$197 |
$588
|
The weighted-average interest rates applicable
to short-term borrowings outstanding at December 31, 2002 and 2001 were
7.0% and 5.6%. At December 31, 2002, approximately $800 million was available
under short-term lines of credit with local banks at the Corporation's
various international subsidiaries.
At December 31, 2002, 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, 2002.
Long-term debt consists of the following:
IN MILLIONS OF DOLLARS | Weighted Average Interest Rate |
Maturity | 2002 | 2001 | ||
Notes and other debt denominated in: |
||||||
U.S. dollars | 6.6% | 2003-2029 | $4,425 | $3,901 | ||
Foreign currency | 4.5% | 2003-2018 | 19 | 204 | ||
ESOP debt | 7.7% | 2003-2009 | 232 | 266 | ||
4,676 | 4,371 | |||||
Less: Long-term debt currently due |
44 | 134 | ||||
$4,632 | $4,237 |
Principal payments required on long-term
debt for the next five years are: $44 million in 2003, $384 million in
2004, $37 million in 2005, $705 million in 2006, and $35 million in 2007.
The Corporation has entered into $125 million and
$325 million of interest rate contracts in 2002 and 2001, respectively, which
swap fixed interest rates for floating rates. The expiration dates of the various
contracts are tied to scheduled debt payment dates and extend to 2006.
The Corporation issued a total of $500 million
and $900 million of notes in 2002 and 2001, respectively, under shelf registration
statements previously filed with the Securities and Exchange Commission. The
2002 notes carry an interest rate of 6.10%. The weighted-average interest rate
on the 2001 notes is 5.694%. Proceeds from the debt issuances were used for general
corporate purposes, including repayment of commercial paper, to support investment
activities and repurchasing the Corporation's Common Stock.
At December 31, 2002, up to $1.1 billion of additional
debt and equity securities 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 13% and 18% at December 31, 2002 and 2001, respectively.
Notes to Consolidated Financial Statements
[note 10] Taxes on Income
Significant components of income tax provision (benefit) for each year
are as follows:
IN MILLIONS OF DOLLARS | 2002 | 2001
|
2000
|
|||
Current: | ||||||
United States: | ||||||
Federal | $ 116 | $ 18 | $ 164 | |||
State | 15 | 29 | 56 | |||
Foreign | 438 | 411 | 387 | |||
569 | 458 | 607 | ||||
Future: | ||||||
United States: | ||||||
Federal | 321 | 314 | 143 | |||
State | 19 | (18) | 76 | |||
Foreign | (22) | 1 | 27 | |||
318 | 297 | 246 | ||||
Income tax expense | $ 887 | $ 755 | $ 853 | |||
Attributable to items credited to equity and goodwill |
$ 912 | $ 401 | $ 266 |
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, 2002 and 2001 are as follows:
IN MILLIONS OF DOLLARS | 2002 | 2001
|
|||
Future income tax benefits: | |||||
Insurance and employee benefits | $ 1,445 | $ 840 | |||
Other asset basis differences | 376 | 300 | |||
Other liability basis differences | 1,017 | 1,219 | |||
Tax loss carryforwards | 230 | 176 | |||
Tax credit carryforwards | 257 | 228 | |||
Valuation allowance | (236) | (180) | |||
$ 3,089 |
$ 2,583
|
||||
Future income taxes payable: | 230 | 176 | |||
Fixed assets | $ 84 | $ 64 | |||
Other items, net | 109 | 130 | |||
$ 193 |
$ 194
|
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 | 2002 | 2001
|
2000
|
|||
United States | $ 1,899 | $ 1,619 | $ 1,511 | |||
Foreign | 1,377 | 1,188 | 1,247 | |||
$ 3,276 | $ 2,807 | $ 2,758 | ||||
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:
2002 | 2001
|
2000
|
||||
Statutory U.S. federal income tax rate |
35.0% | 35.0% | 35.0% | |||
Tax on international activities including exports |
(7.0) | (6.2) | (6.0) | |||
Goodwill | – | 1.8 | 1.7 | |||
Enacted tax law changes | – | – | 1.9 | |||
Tax audit settlement | – | (3.1) | – | |||
Other | (0.9) | (0.6) | (1.7) | |||
Effective income tax rate | 27.1% | 26.9% | 30.9% |
The effective tax rate for 2002 reflects
the benefit of increased use of certain tax-planning strategies, including
utilization of a capital loss carryback, and the increase in pre-tax
income from discontinuing amortization of non-deductible goodwill in
accordance with SFAS No. 142.
The 2001 effective tax rate includes the impact
of the favorable settlement of certain prior year tax audits. Excluding this
settlement, the 2001 effective tax rate was 30.0%. The effective income tax rate
adjusted for the impact of SFAS No. 142 and excluding the favorable settlement
of prior year tax audits in 2001 was 28.2%.
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. Excluding the discrete items and adjusting for the impact of SFAS No.
142, the 2000 effective tax rate was 28.8%.
Tax credit carryforwards at December 31, 2002 were
$257 million of which $47 million expires from 2003-2017.
Tax loss carryforwards, principally state and foreign,
at December 31, 2002 were $961 million of which $640 million expire as follows:
$207 million from 2003-2007, $203 million from 2008-2012, $230 million from 2013-2022.
Notes to Consolidated Financial Statements
[note 11] 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 employer contributions were $133
million, $123 million and $107 million for 2002, 2001 and 2000, respectively.
The Corporation's nonunion domestic employee savings
plans use 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 Shareowners' 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 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,
2002, 6.5 million shares had been committed to employees, leaving 4.4 million
shares in the ESOP Trust, with an approximate fair value of $1.1 billion 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 PLANS. The Corporation and its subsidiaries sponsor many domestic
and foreign defined benefit pension and other postretirement plans.
The 2001 amounts in the following tables are valued
at September 30. In 2002, the Corporation changed the measurement date for its
domestic defined benefit pension and postretirement plans from September 30 to
November 30 to more closely align the measurement date of these plans with the
Corporation's year-end financial reporting date. The impact of this change was
not material.
IN MILLIONS OF DOLLARS | 2002 | 2001
|
||
Change in Benefit Obligation: |
||||
Beginning balance | $ 12,354 | $ 12,232 | ||
Service cost | 255 | 250 | ||
Interest cost | 884 | 869 | ||
Actuarial loss (gain) | 1,272 | (239) | ||
Total benefits paid | (839) | (796) | ||
Net settlement and curtailment (gain) loss |
(11) | 13 | ||
Acquisitions | – | 3 | ||
Other | 10 | 22 | ||
Ending balance | $ 13,925 |
$ 12,354
|
||
Change in Plan Assets: | ||||
Beginning balance | $ 10,025 | $ 13,119 | ||
Actual return on plan assets |
(295) | (2,338) | ||
Employer contributions | 1,060 | 51 | ||
Benefits paid from plan assets |
(808) | (755) | ||
Acquisitions | – | 1 | ||
Other | 43 | (53) | ||
Ending balance | $ 10,025 |
$ 10,025
|
||
Funded status | $(3,900) | $ (2,329) | ||
Unrecognized net actuarial loss |
4,891 | 2,173 | ||
Unrecognized prior service cost |
143 | 287 | ||
Unrecognized net obligation at transition |
5 | 7 | ||
Net amount recognized | $ 1,139 |
$ 138
|
||
Amounts Recognized in the Consolidated Balance Sheet Consist of: |
||||
Prepaid benefit cost | $ 1,537 | $ 492 | ||
Accrued benefit liability | (3,985) | (1,534) | ||
Intangible asset | 180 | 286 | ||
Accumulated other non-shareowners' changes in equity |
3,407 | 894 | ||
Net amount recognized | $ 1,139 |
$ 138
|
Major assumptions used in accounting for pension plans are presented in the following table as weighted-averages:
2002 | 2001
|
2000
|
||||
Pension Benefits: | ||||||
Discount rate | 6.6% | 7.4% | 7.4% | |||
Expected return on plan assets | 9.2% | 9.6% | 9.7% | |||
Salary scale | 4.4% | 4.7% | 4.9% | |||
The expected return on plan assets for
determining 2003 net periodic benefit cost was lowered to 8.5%.
At December 31, 2002 and 2001, the Corporation
recorded an increase to the minimum pension liability of $2.4 billion and $1.1
billion, respectively, resulting in a net of tax charge to equity of $1.6 billion
and $519 million, respectively.
Qualified domestic pension plan benefits comprise
approximately 86% of the projected benefit obligation and are generally based
on an employee's years of service and compensation near retirement or, if a union
plan, on a stated amount for each year of service. Certain foreign plans, which
comprise approximately 12% of the projected benefit obligation, are considered
defined benefit plans for accounting purposes. Non-qualified domestic pension
plans provide supplementary retirement benefits to certain employees and are
not a meaningful component of the projected benefit obligation.
During 2002, the Corporation contributed $253 million
of Treasury Stock and made a $500 million voluntary cash contribution to its
domestic pension plans. In December 2001, the Corporation contributed $247 million
of Treasury Stock to its domestic pension plans. Plan assets at December 31,
2002 and 2001 are comprised primarily of equity securities (67% and 69%, respectively)
and fixed income securities (24% and 21%, respectively). Common Stock of the
Corporation, included in the equities amounts above, amounted to approximately
6% and 3% of domestic plan assets at December 31, 2002 and 2001, respectively.
Market performance can have a significant impact
on the funded status of the plans and contributed to the underfunded status in
2002. Qualified domestic plans comprised 73% of the total unfunded status and
domestic non-qualified plans, which have no assets, were 7% of the total unfunded
status.
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 $13,853 million, $12,399 million
and $9,960 million, as of December 31, 2002 and $11,551 million, $10,596 million
and $9,560 million, as of December 31, 2001.
IN MILLIONS OF DOLLARS | 2002 | 2001
|
2000
|
|||
Components of Net Periodic Benefit Cost: |
||||||
Pension Benefits: | ||||||
Service cost | $ 255 | $ 250 | $ 238 | |||
Interest cost | 884 | 869 | 839 | |||
Expected return on plan assets | (1,116) | (1,135) | (1,060) | |||
Amortization of prior service cost | 39 | 36 | 34 | |||
Amortization of unrecognized
net transition obligation (asset) |
2 | (2) | (20) | |||
Recognized actuarial net loss | 4 | 14 | 11 | |||
Net settlement and curtailment loss (gain) |
37 | 46 | (2) | |||
Net periodic pension benefit cost – employer |
$ 105 | $ 78 | $ 40 | |||
Net periodic pension benefit cost – multiemployer plans |
$ 55 | $ 45 | $ 30 |
POSTRETIREMENT PLANS
IN MILLIONS OF DOLLARS | 2002 | 2001
|
|||
Change in Benefit Obligation: |
|||||
Beginning balance | $ 1,040 | $ 1,175 | |||
Service cost | 11 | 15 | |||
Interest cost | 73 | 85 | |||
Actuarial loss (gain) | 16 | (152) | |||
Total benefits paid | (114) | (106) | |||
Net settlement and curtailment (gain) loss |
(59) | 8 | |||
Other | 30 | 15 | |||
Ending balance | $ 997 |
$ 1,040
|
|||
Change in Plan Assets: | |||||
Beginning balance | $ 62 | $ 76 | |||
Actual return on plan assets |
(1) | (7) | |||
Employer contributions | 1 | 1 | |||
Benefits paid from plan assets |
(13) | (11) | |||
Other | 4 | 3 | |||
Ending balance | $ 53 |
$ 62
|
|||
Funded status | $ (944) | $ (978) | |||
Unrecognized net actuarial gain |
(102) | (138) | |||
Unrecognized prior service cost |
(94) | (105) | |||
Unrecognized net obligation at transition |
– | 18 | |||
Net amount recognized | $ (1,140) |
$ (1,203)
|
|||
Amounts Recognized in |
|||||
Accrued benefit liability | $ (1,140) | $ (1,203) | |||
Major assumptions used in accounting for postretirement plans are presented in the following table as weighted-averages:
2002 | 2001
|
2000
|
|||
Other Postretirement Benefits: | |||||
Discount rate | 6.7% | 7.5% | 7.5% | ||
Expected return on plan assets | 9.1% | 9.6% | 9.6% | ||
For measurement purposes, a 10% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2002. The rate is assumed to decrease 0.5% per year to 5% in 2013.
IN MILLIONS OF DOLLARS | 2002 | 2001
|
2000
|
|||
Components of Net Periodic Benefit Cost: |
||||||
Other Postretirement Benefits: | ||||||
Service cost | $ 11 | $ 15 | $ 13 | |||
Interest cost | 73 | 85 | 82 | |||
Expected return on plan assets | (5) | (7) | (7) | |||
Amortization of prior service cost | (19) | (13) | (16) | |||
Net settlement and curtailment gain |
(57) | (3) | – | |||
Net periodic other postretirement benefit cost |
$ 3 | $ 77 | $ 72 |
During 2002, the Corporation modified
the postretirement medical and life insurance benefits provided to certain
employees resulting in the recognition of a $43 million curtailment gain.
The gain was recorded in segment cost of products sold and selling, general
and administrative expenses.
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, 2002 by approximately $45 million. The
effects of this change on the service cost and the interest cost components of
the net postretirement benefit expense for 2002 would total approximately $4
million.
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 4 million
options on Common Stock may be granted annually under the Corporation's
Employee Stock Option Plan.
A summary of the transactions under all plans for
the three years ended December 31, 2002 follows:
Stock Options | |||||
SHARES AND UNITS IN THOUSANDS |
Shares |
Average Price |
Other Incentive Shares/Units |
||
Outstanding at: | |||||
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 | 8,255 | 75.60 | 78 | ||
Exercised/earned | (6,206) | 26.83 | (127) | ||
Canceled | (1,292) | 66.33 | (40) | ||
December 31, 2001 | 43,149 | $ 48.85 | 394 | ||
Granted | 10,313 | 65.18 | 280 | ||
Exercised/earned | (4,031) | 32.01 | (88) | ||
Canceled | (1,383) | 68.99 | (16) | ||
December 31, 2002 | 48,048 | $ 53.19 | 570 | ||
Granted options in the above table include
options issued in connection with business combinations.
The following table summarizes information about
stock options outstanding and exercisable (in thousands) at December 31, 2002:
Outstanding Options | Options Exercisable | |||||||
Exercise Price | Shares | Average Price |
Remaining Term |
Shares | Average Price |
|||
$10.01-$25.00 | 6,516 | $19.02 | 2.07 | 6,516 | $19.02 | |||
$25.01-$40.00 | 8,656 | 35.18 | 4.34 | 8,656 | 35.18 | |||
$40.01-$55.00 | 6,587 | 51.95 | 5.87 | 6,552 | 51.95 | |||
$55.01-$70.00 | 16,136 | 63.81 | 8.19 | 2,808 | 60.09 | |||
$70.01-$85.00 | 10,153 | 74.36 | 7.95 | 1,166 | 73.31 |
In accordance with SFAS No. 123, "Accounting for Stock Issued to Employees," 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:
2002 | 2001
|
2000
|
||||
Risk-free interest rate | 4.4% | 4.8% | 6.1% | |||
Expected life | 5 years | 5 years | 5 years | |||
Expected volatility | 39% | 36% | 30% | |||
Expected dividend yield | 1.6% | 1.3% | 1.0% |
A table illustrating the effect on net
income and earnings per share as if the Black-Scholes fair value method
had been applied to long-term incentive plans is presented in Note 1.
The weighted-average grant date fair values of
options granted during 2002, 2001 and 2000 were $23.30, $24.83 and $21.33.
Notes to Consolidated Financial Statements
[note 12] Restructuring
2002 ACTIONS. During 2002, the Corporation recorded pre-tax restructuring
and related charges totaling $321 million. These charges relate to
ongoing cost reduction efforts, including workforce reductions and
consolidation of manufacturing, sales and service facilities, and include
$237 million recorded in cost of sales, $81 million in selling, general
and administrative expenses.
The charges were recorded in the Corporation's
segments as follows: Otis $73 million, Carrier $114 million, Pratt & Whitney
$80 million and Flight Systems $55 million. The charges included accruals of
$203 million for severance and related employee termination costs, $48 million
for asset write-downs, largely related to the disposal of manufacturing assets
and facilities that will no longer be utilized, and $19 million for facility
exit and lease termination costs. Additional charges associated with these restructuring
actions totaling $51 million that were not accruable at the time were also recorded
in 2002, primarily in the Carrier segment.
The 2002 actions are expected to result in net
workforce reductions of approximately 7,000 salaried and hourly employees, the
elimination of approximately 2.0 million square feet of facilities and the disposal
of assets associated with exited facilities. As of December 31, 2002, approximately
4,900 employees and 200,000 square feet of facilities have been eliminated. The
balance of the remaining workforce and facility related cost reduction actions
are targeted to be completed in 2003. A significant portion of the remaining
square footage to be eliminated under the 2002 actions relates to one domestic
manufacturing facility. Operations were ceased at this facility late in 2002
and activities to ready the facility for sale are expected to be completed in
early 2003. As of December 31, 2002, approximately $133 million of severance
and related costs and $11 million of facility exit and lease termination accruals
remain.
2001 ACTIONS. During the second half of 2001, the Corporation recorded
pre-tax charges totaling $348 million associated with ongoing efforts
to reduce costs in its segments in a continually challenging business
environment and to address current conditions in the commercial airline
industry. The restructuring actions focus principally on improving the
overall level of organizational efficiency and consolidation of manufacturing,
sales and service facilities. These charges were recorded in the Corporation's
segments as follows: Otis $83 million, Carrier $172 million, Pratt & Whitney
$63 million and Flight Systems $30 million. The charges included accruals
of $256 million for severance and related employment termination costs,
$53 million for asset write-downs and $19 million for facility exit and
lease termination costs.
The amounts included $224 million recorded in cost
of sales and $124 million in selling, general and administrative expenses, and
relate to net workforce reductions of approximately 8,700 salaried and hourly
employees, the elimination of approximately 2.3 million square feet of facilities
and the disposal of assets associated with exited facilities.
As of December 31, 2002, workforce reductions of
approximately 7,900 employees were completed and approximately 2.1 million square
feet of facilities were eliminated. The balance of the workforce and facility
related cost reduction actions are expected to be substantially complete in early
2003. As of December 31, 2002, approximately $37 million of severance and related
costs and $1 million of facility exit and lease termination accruals remain.
Notes to Consolidated Financial Statements
[note 13] 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. Foreign currency denominated
assets and liabilities are translated into U.S. dollars at the exchange
rates existing at the respective balance sheet dates, and income and
expense items are translated at the average exchange rates during the
respective periods. 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 $4.2 billion and $3.7 billion
at December 31, 2002 and 2001.
The notional amount of foreign exchange contracts
hedging foreign currency transactions was $2.9 billion and $3.0 billion at December
31, 2002 and 2001, respectively.
Notes to Consolidated Financial Statements
[note 14] 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 non-performance by any of these counterparties.
The non-shareowner changes in equity associated with hedging activity for the twelve months ended December 31, 2002 and 2001 were as follows:
IN MILLIONS OF DOLLARS | 2002 | 2001 | ||
Balance at January 1 | $(23) | – | ||
Cash flow hedging loss, net | (6) | $(55) | ||
Net loss reclassified to sales | ||||
or cost of products sold | 33 | 32 | ||
Balance at December 31 | $ 4 | $(23) |
Of the amount recorded in shareowners'
equity, a $3 million pre-tax gain is expected to be reclassified into
sales or cost of products sold to reflect the fixed prices obtained from
hedging within the next twelve months. Gains and losses recognized in
earnings related to the discontinuance or the ineffectiveness of cash
flow and fair value hedges were immaterial for the years ended December
31, 2002 and 2001. At December 31, 2002, all derivative contracts accounted
for as cash flow hedges mature by December 2005.
Following the adoption of SFAS No. 133, all derivative
instruments are recorded on the balance sheet at fair value. At December 31,
2002 and 2001, the fair value of derivatives recorded as assets is $58 million
and $28 million, respectively, and the fair value of derivatives recorded as
liabilities is $39 million and $76 million, respectively. The Corporation uses
derivatives to hedge forecasted cash flows associated with foreign currency commitments
or forecasted commodity purchases which are accounted for as cash flow hedges.
In addition, the Corporation uses derivatives, such as interest rate swaps and
currency swaps which are accounted for as fair value hedges.
The carrying amounts and fair values of financial
instruments at December 31, are as follows:
2002 | 2001 | |||||||
IN MILLIONS OF DOLLARS | Carrying Amount |
Fair Value |
Carrying Amount |
Fair Value |
||||
Liabilities | ||||||||
Marketable equity | ||||||||
securities | $ 17 | $ 17 | $ 53 | $ 53 | ||||
Long-term receivables | 155 | 151 | 56 | 57 | ||||
Customer financing | ||||||||
note receivables | 301 |
299
|
377 | 374 | ||||
Short-term borrowings | (197) | (197) | (588) | (588) | ||||
Long-term debt | (4,657) | (5,374) | (4,355) | (4,586) |
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 $1.6 billion at December 31, 2002. Risks associated with
changes in interest rates on these commitments are mitigated 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.
Notes to Consolidated Financial Statements
[note 15] Guarantees
The Corporation extends a variety of financial, market value and product
performance guarantees to third parties. As of December 31, 2002 the
following were outstanding:
IN MILLIONS OF DOLLARS | Maximum Potential Payment |
Carrying Amount of Liability |
||||
Environmetal remediation | ||||||
indemnification (See Note 16) | No limit | $186 | ||||
Financial guarantees: | ||||||
Credit facilities and debt | ||||||
obligations – unconsolidated | ||||||
subsidiaries (expire 2003 to 2010) |
$ 259
|
$ –
|
||||
IAE's financing arrangements | ||||||
(See Note 4) | $1,232 | $ 22 | ||||
Commercial aerospace financing | ||||||
arrangements (See Note 4) |
$ 164
|
$ 26
|
||||
Commercial customer financing | ||||||
arrangements |
$ 62
|
$ –
|
The Corporation accrues for costs associated
with guarantees 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,
and where no amount within a range of estimates is more likely, the minimum
is accrued.
The Corporation provides service and warranty policies
on its products and extends performance and operating cost guarantees beyond
its normal service and warranty policies on some of its products, particularly
commercial aircraft engines. Liability under service and warranty policies is
based upon a review of historical warranty and service claim experience. Liability
for performance and operating cost guarantees is based upon future product performance
and durability, and is estimated largely based upon historical experience. Adjustments
are made to accruals as claim data and historical experience warrant. In addition,
the Corporation incurs discretionary costs to service its products in connection
with product performance issues.
The changes in the carrying amount of service and product warranties and product performance guarantees for the year ended December 31, 2002, are as follows:
IN MILLIONS OF DOLLARS | ||||
Balances as of January 1, 2002 | $ 1,090 | |||
Warranties and guarrantees issued | 355 | |||
Settlements made | (475) | |||
Adjustments to provision | 54 | |||
Balance as of December 31, 2002 | $1,024 |
Notes to Consolidated Financial Statements
[note 16] Commitments and Contingent Liabilities
LEASES. The Corporation occupies space and uses certain equipment under
lease arrangements. Rental commitments of $766 million at December
31, 2002 under long-term noncancelable operating leases are payable
as follows: $212 million in 2003, $159 million in 2004, $115 million
in 2005, $87 million in 2006, $59 million in 2007 and $134 million
thereafter.
Rent expense was $214 million in 2002, $204 million
in 2001 and $194 million in 2000.
Additional information pertaining to commercial
aerospace rental commitments is included in Note 4.
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 the likelihood of incurring losses
materially in excess of amounts accrued is remote.
The Corporation has had insurance in force over
its history with a number of insurance companies and has
pursued litigation seeking indemnity and defense under these insurance
policies in relation to its environmental liabilities. In January 2002,
the Corporation settled the last of these lawsuits under an agreement
providing for the Corporation to receive payments totaling approximately
$100 million. 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. In addition, the Corporation accrues for liabilities
associated with those matters that are probable and can be reasonably estimated.
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. In addition, the Corporation incurs discretionary costs to
service its products in connection with product performance issues. The
Corporation has accrued its estimated liability that may result under
these guarantees and for service costs which are probable and can be
reasonably estimated.
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.
Notes to Consolidated Financial Statements
[note 17] Segment Financial Data
The Corporation's operations are classified in four principal 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 principally in the commercial and residential property industries.
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.
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, 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.
FLIGHT SYSTEMS SEGMENT provides global aerospace and industrial products and services through Hamilton Sundstrand and Sikorsky. 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 products include military and commercial helicopters, aftermarket products and service.
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 "Investor's
Accounting for an Investee When the Investor Has a Majority of the Voting
Interest but the Minority Shareholder or Shareholders Have Certain Approval
or Veto Rights", overcome the presumption of control. In the Corporation's
consolidated results, these subsidiaries are accounted for using the
equity method of accounting. The participating rights granted by contract
to minority shareholders that overcome the presumption of control include
minority participation in the appointment, dismissal and compensation
of senior management, approval of organizational structure changes, policies,
annual operating and capital plans, including approval of merger and
acquisition investment activities, and annual dividend plans. These and
other participating rights that allow the minority shareholder to participate
in decisions that occur as part of the ordinary course of business are
represented through the minority shareholder's ability to block actions
proposed by the majority interest. Adjustments to reconcile segment reporting
to consolidated results are included in "Eliminations and other," which
also includes certain small subsidiaries.
Segment information for the years ended December
31 follows:
Segment Information
Total Revenues | Operating Profits | ||||||||
IN MILLIONS OF DOLLARS | 2002 | 2001
|
2000
|
2002 | 2001
|
2000
|
|||
Otis
|
$ 6,811 |
$ 6,338
|
$ 6,153
|
$1,057 |
$ 847
|
$ 798 | |||
Carrier | 8,773 |
8,895
|
8,430
|
779 |
590
|
795
|
|||
Pratt & Whitney | 7,645 |
7,679
|
7,366
|
1,282 |
1,308
|
1,200
|
|||
Flight Systems | 5,571 |
5,292
|
4,992
|
741 |
670
|
614
|
|||
Total Segment | $28,800 |
$28,204
|
$26,941
|
$3,859 |
$3,415
|
$3,407
|
|||
Eliminations and other | (558) |
(307)
|
(358)
|
(27) |
25
|
(39)
|
|||
General corporate expenses | — |
—
|
—
|
(175) |
(207)
|
(228)
|
|||
Consolidated | $28,212 |
$27,897
|
$26,583
|
$3,657 |
$3,233
|
3,140
|
|||
Interest income |
|
(381) |
(426)
|
(382)
|
|||||
Income before income taxes and minority interests | $3,276 |
$2,807
|
$2,758
|
Goodwill amortization recorded in segment
operating profits for the year ended December 31, 2001 is as follows:
Otis – $30, Carrier – $74, Pratt & Whitney – $23,
and Flight Systems – $103. Excluding goodwill amortization, segment
operating profits for the year ended December 31, 2001 are as follows:
Otis – $877, Carrier – $664, Pratt & Whitney – $1,331,
and Flight Systems – $773.
Goodwill amortization recorded in segment operating
profits for the year ended December 31, 2000 is as follows: Otis – $29,
Carrier – $57, Pratt & Whitney – $21, and Flight Systems – $99.
Excluding goodwill amortization, segment operating profits for the year ended
December 31, 2000 are as follows: Otis – $827, Carrier – $852, Pratt & Whitney – $1,221,
and Flight Systems – $713.
Total Assets | Capital Expenditures | Depreciation & Amortization | |||||||||||
IN MILLIONS OF DOLLARS | 2002 | 2001
|
2000
|
2002 | 2001
|
2000
|
2002 | 2001
|
2000
|
||||
Otis
|
$ 4,060 |
$ 3,777
|
$ 3,753
|
$ 81 |
$ 80
|
$108
|
$138 |
$159
|
$165 |
||||
Carrier | 7,431 |
7,202
|
6,907
|
94 |
226
|
231
|
189 |
248
|
206
|
||||
Pratt & Whitney | 6,082 |
6,090
|
5,951
|
257 |
343
|
369
|
209 |
223
|
217
|
||||
Flight Systems | 8,005 |
7,724
|
7,750
|
127 |
125
|
195
|
169 |
259
|
261
|
||||
Total segment
|
$25,578 |
$24,793
|
$24,361
|
$559 |
$774
|
$903
|
$705 |
$889
|
$849 |
||||
Eliminations and other | 3,512 |
2,217
|
1,003
|
27 |
19
|
34
|
22 |
16
|
10
|
||||
Consolidated | $29,090 |
$27,010
|
$25,364
|
$586 |
$793
|
$937
|
$727 |
$905
|
$859
|
SEGMENT REVENUES AND OPERATING PROFIT. Total revenues by 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 include income before interest expense, income taxes and minority interest.
Geographic Areas
External Revenues | Operating Profits | Long-Lived Assets | |||||||||
IN MILLIONS OF DOLLARS | 2002 | 2001
|
2000
|
2002 | 2001
|
2000
|
2002 | 2001
|
2000
|
||
United States operations
|
$16,760 |
$17,109
|
$16,231
|
$2,289 |
$1,987
|
$1,950
|
$ 8,648 |
$ 8,489
|
$ 8,535 |
||
International operations | |||||||||||
Europe | 5,573 |
4,716
|
4,413
|
690 |
570
|
606
|
1,547 |
1,188
|
1,030
|
||
Asia Pacific | 3,647 |
3,420
|
3,319
|
573 |
416
|
368
|
1,428 |
1,404
|
1,418
|
||
Other | 2,581 |
2,785
|
2,820
|
307 |
442
|
483
|
521 |
574
|
534
|
||
Eliminations and other | (349) |
(133)
|
(200)
|
(202) |
(182)
|
(267)
|
78 |
72
|
71
|
||
Consolidated | $28,212 |
$27,897
|
$26,583
|
$3,657 |
$3,233
|
$3,140
|
$12,222 |
$11,727
|
$11,588
|
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 | 2002 | 2001
|
2000
|
|||
Europe | $1,422 |
$1,314
|
1,606
|
|||
Asia Pacific | 1,594 |
1,484
|
1,632
|
|||
Other | 1,037 |
1,149
|
896
|
|||
$4,053 |
$3,947
|
$4,134
|
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 | 2002 | 2001
|
2000
|
||||
Pratt & Whitney | $2,489 |
$1,708
|
1,616
|
||||
Flight Systems | 2,015 |
2,037
|
1,207
|
Selected Quarterly Financial Data (Unaudited)
2002 Quarters | 2001 Quarters | ||||||||||
IN MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS | First | Second | Third | Fourth | First | Second | Third | Fourth | |||
Sales
|
$6,321 |
$7,271
|
$7,250
|
$7,138 | $6,597 | $7,260 | $6,734 | $6,895 | |||
Gross Margin | 1,836 | 2,081 | 2,012 | 1,890 | 1,785 | 2,076 | 1,811 | 1,727 | |||
Net income | 467 |
624
|
612
|
533 | 440 | 588 | 565 | 345 | |||
Net income adjusted for SFAS No. 142 | 492 | 641 | 619 | 398 | |||||||
Earnings per share of Common Stock: | |||||||||||
Basic | $ .97 |
$ 1.30
|
$ 1.28
|
$ 1.11 | $ .92 | $ 1.23 | $ 1.19 | $ .72 | |||
Diluted | $ .92 |
1.23
|
$ 1.21
|
$ 1.06 | $ .86 | $ 1.16 | $ 1.12 | $ .69 | |||
Earnings per share of Common Stock: | |||||||||||
adjusted for SFAS No. 142 | |||||||||||
Basic | $ 1.03 | $ 1.34 | $ 1.31 | $ .83 | |||||||
Diluted | $ .96 | $ 1.26 | $ 1.23 | $ .80 |
Comparative Stock Data
2002 | 2001 | ||||||||
Common Stock | High | Low | Dividend | High | Low | Dividend | |||
First Quarter | $77.25 | $59.37 | $.245 | $82.08 | $67.00 | $.225 | |||
Second Quarter | $75.00 |
$64.85
|
$.245
|
$87.21 | $70.83 | $.225 | |||
Third Quarter | $71.00 |
$55.98
|
$.245
|
$76.56 | $41.64 | $.225 | |||
Fourth Quarter | $65.83 |
$49.19
|
$.245
|
$65.56 | $47.25 | $.225 |
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 24,100 common shareowners of record at December 31, 2002.
Directors
Board of Directors George David Jean-Pierre Garnier Jamie S. Gorelick Charles R. Lee Richard D. McCormick Stephen F. Page Frank P. Popoff H. Patrick Swygert André Villeneuve H. A. Wagner Sanford I. Weill
|
Permanent Committees Audit Committee Compensation & Executive Committee Finance Committee Committee on Nominations Public Issues Review Committee |
Leadership
Mario Abajo David Adler Tesfaye Aklilu Ted F. Amyuni Alain M. Bellemare Richard H. Bennett, Jr. Todd Bluedorn Dean C. Borgman Ari Bousbib John W. Boyd Kent L. Brittan William M. Brown William R. Brown William L. Bucknall, Jr. John F. Cassidy, Jr. |
Louis R. Chênevert Halsey Cook Geraud Darnis George David G. Sandy Diehl John Doucette Stephen N. Finger James L. Gingrich Patrick J. Gnazzo Bruno Grob Anthony J. Guzzi Ruth R. Harkin David P. Hess Tadayuki Inoue George H. Jamison |
Larry D. Knauer Edwin W. Laprade John P. Leary Robert Leduc Patrick LHostis Jeanne M. Liedtka Arthur W. Lucas Paul W. Martin Ronald F. McKenna Raymond J. Moncini Larry O. Moore Robert R. Moore David G. Nord Joseph R. Ornelas |
Gilles P. Ouimet Stephen F. Page Jeffrey P. Pino Carlos Renck Jürgen Reuning Jeffrey P. Rhodenbaugh Olivier J. Robert Thnomas I. Rogan Ellen S. Smith William H. Trachsel Joseph E. Triompo Jan van Dokkum Charles M. Vo Randall E. Wilcox |
Shareowner Information |
||||
Corporate Office |
||||
United Technologies Corporation This annual report is made available to shareowners in advance of the annual meeting of shareowners to be held at 2:00 p.m., April 9, 2003, in New York, New York. The proxy statement will be made available to shareowners on or about February 21, 2003, at which time proxies for the meeting will be requested. Information about UTC, including financial information, can be found at our Website: www.utc.com. Stock Listing Ticker Symbol: UTX Transfer Agent and Registrar EquiServe Trust Company, N.A.
|
Dividends EquiServe Trust Company, N.A. Dividend and Transfer inquiries: Electronic Access Your enrollment is revocable until each year's record date for
the annual meeting. Beneficial shareowners may be able to request
electronic access by contacting your broker or bank, or ADP at Shareowner Dividend Reinvestment and Stock Purchase Plan |
Additional Information Corporate Secretary For additional information about the Corporation please contact
Investor Relations at the above corporate office address, or
visit our Website at Shareowner Information Services To access the service, dial 1-800-881-1914 from any touch-tone phone and follow the recorded instructions. Direct Registration System Environmentally Friendly Report This annual report is printed on recycled and recyclable paper. |
||
WWW.UTC.COM |
||||
WWW.PRATT-WHITNEY.COM |
Exhibit 21
UNITED TECHNOLOGIES CORPORATION
Subsidiaries of the Registrant
December 31, 2002
Entity Name | State/Country of Incorporation |
Ardco, Inc. | Illinois |
Britannia Lift Services (UK) Ltd. | United Kingdom |
Cade Industries, Inc | Wisconsin |
Caricor Ltd | Delaware |
Carlyle Scroll Holdings | Delaware |
Carmel Forge Limited (The) | Israel |
Carrier Air Conditioning Philippines, Inc. | Philippines |
Carrier Air Conditioning Pty Ltd (CPL) | Australia |
Carrier Corporation | Delaware |
Carrier HVACR Investments B.V | Netherlands |
Carrier LG Limited | South Korea |
Carrier Limited Korea | South Korea |
Carrier Mexico S.A. de C.V. | Mexico |
Carrier Refrigeration AB | Sweden |
Carrier S.A. | Argentina |
Carrier S.A. | France |
Carrier S.P.A. | Italy |
Carrier Singapore PTE Limited | Singapore |
Carrier Transicold Europe S.A. | France |
Carrier Transicold Industries S.A. | France |
CEAM Srl | Italy |
China Tianjin Otis Elevator Company, Ltd. | China |
Claverham Group Limited | United Kingdom |
Eagle Services Asia Private Limited | Singapore |
Elevadores Otis Ltda. | Brazil |
Empresas Carrier S.A. De C.V. | Mexico |
Guangzhou Otis Elevator Company, Ltd. | China |
Hamilton Sundstrand Corporation | Delaware |
Hamilton Sundstrand Holdings EURL | France |
Hamilton Sundstrand Holdings, Inc | Delaware |
Hamilton Sundstrand International Holdings Ltd. | Cayman Islands |
Hamilton Sundstrand Power Systems, Inc. | Delaware |
Helicopter Support, Inc. | Connecticut |
Homogeneous Metals, Inc. | New York |
HWH of Delaware, Inc. | Delaware |
International Comfort Products Corporation (USA) | Delaware |
Johns Perry Lifts Holdings | Cayman Islands |
Latin American Holding, Inc. | Delaware |
LG Otis Elevator Company | South Korea |
Milton Roy Company | Pennsylvania |
Misr Refrigeration And Air Conditioning Manufacturing Company S.A.E. | Egypt |
NAES Acquisition Corporation | Delaware |
Nevada Bond Investment Corp. II | Nevada |
Nippon Otis Elevator Company | Japan |
Otis [France] | France |
Otis Building Technologies Pty | Australia |
Otis Canada, Inc. | Canada |
Otis Elevator (China) Investment Company Limited | China |
Otis Elevator Company (H.K.) Limited | Hong Kong |
Otis Elevator Company (India) Limited | India |
Otis Elevator Company (New Jersey) | New Jersey |
Otis Elevator Company Pty. Ltd | Australia |
Otis Far East Holdings Limited | Hong Kong |
Otis GmbH & Co. OHG | Germany |
Otis Holdings GmbH & Co. OHG | Germany |
Otis Holdings Limited | United Kingdom |
Otis Investments Plc | United Kingdom |
Otis Lifts Holdings Company | United Kingdom |
Otis Limited | United Kingdom |
Otis S.p.A | Italy |
Otis Servizi S.r.L. | Italy |
Pratt & Whitney Auto Air, Inc. | Michigan |
Pratt & Whitney Canada Leasing Inc. | Canada |
Pratt & Whitney Component Solutions, Inc. | Michigan |
Pratt & Whitney Engine Services, Inc. | Delaware |
Pratt & Whitney Holdings LLC | Cayman Islands |
Pratt & Whitney Power Systems, Inc. | Delaware |
Pratt & Whitney Services, Inc. | Singapore |
Ratier-Figeac S.A. | France |
Sikorsky Aircraft Corporation | Delaware |
Sikorsky Export Corporation | Delaware |
Sikorsky International Operations, Inc. | Delaware |
Sirius (Korea) Ltd. | United Kingdom |
Specialty Equipment Manufacturing Corporation | Delaware |
Specialty Equipment Companies, Inc. | Delaware |
Springer Carrier Ltda. | Brazil |
Sullair Corporation | Indiana |
Sundyne Corporation | Delaware |
Tadiran Ampa Ltd. | Israel |
The Falk Corporation | Delaware |
Toshiba Carrier (Thailand) Corporation | Thailand |
Toshiba Carrier UK Limited | United Kingdom |
Tyler Holdings Corporation | Delaware |
Tyler Refrigeration Corporation | Delaware |
United Technologies Corporation | Alabama |
United Technologies Electronic Controls, Inc. | Delaware |
United Technologies Far East Limited | Hong Kong |
United Technologies Finance Corporation | Delaware |
United Technologies Holding GmbH | Germany |
United Technologies Holdings B.V. | Netherlands |
United Technologies Holdings Limited | United Kingdom |
United Technologies Holdings S.A. | France |
United Technologies Intercompany Lending Ireland Limited | Ireland |
United Technologies International Corporation- Asia Private Ltd | Singapore |
United Technologies International Operations, Inc. | Delaware |
United Technologies International SAS | France |
UT Insurance (Vermont), Inc. | Vermont |
UT Park View, Inc. | Delaware |
UTC Canada Corporation | Canada |
UTCL Investments BV | Netherlands |
Xizi Otis Elevator Company (Hangzhou) Limited | China |
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, STEPHEN F. PAGE 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, 2002, 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 3rd day of February, 2003.
H. Patrick Swygert |
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, STEPHEN F. PAGE 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, 2002, 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 3rd day of February, 2003.
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, STEPHEN F. PAGE 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, 2002, 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 3rd day of February, 2003.
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, STEPHEN F. PAGE 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, 2002, 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 3rd day of February, 2003.
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, STEPHEN F. PAGE 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, 2002, 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 3rd day of February, 2003.
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, STEPHEN F. PAGE 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, 2002, 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 3rd day of February, 2003.
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, STEPHEN F. PAGE 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, 2002, 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 3rd day of February, 2003.
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, STEPHEN F. PAGE 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, 2002, 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 3rd day of February, 2003.
H. 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, STEPHEN F. PAGE 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, 2002, 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 3rd day of February, 2003.
Sanford I. Weill |