FORM 11-K ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Plan period ended December 31, 1997 Commission File Number 1-812 UNITED TECHNOLOGIES CORPORATION EMPLOYEE SAVINGS PLAN (Full title of the plan) UNITED TECHNOLOGIES CORPORATION One Financial Plaza Hartford, Connecticut 06101 (Name of issuer of the securities held pursuant to the plan and the address of its principal executive office) FINANCIAL STATEMENTS OF THE UNITED TECHNOLOGIES CORPORATION EMPLOYEE SAVINGS PLAN REPORT OF INDEPENDENT ACCOUNTANTS To the Participants and Administrator of the United Technologies Corporation Employee Savings Plan In our opinion, the accompanying statements of net assets available for benefits with fund information and the related statement of changes in net assets available for benefits with fund information present fairly, in all material respects, the net assets available for benefits of the United Technologies Corporation Employee Savings Plan at December 31, 1997 and December 31, 1996, and the changes in net assets available for benefits for the period ended December 31, 1997, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Plan'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 generally accepted auditing standards 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 the opinion expressed above. Our audits were performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The fund information in the statement of net assets available for benefits and the statement of changes in net assets available for benefits is presented for purposes of additional analysis rather than to present the net assets available for plan benefits and changes in net assets available for benefits of each fund. The fund information has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. PRICE WATERHOUSE LLP Hartford, Connecticut June 26, 1998 UNITED TECHNOLOGIES CORPORATION EMPLOYEE SAVINGS PLAN Statement of Net Assets Available for Benefits With Fund Information December 31, 1997 (Thousands of Dollars, except unit value)
The accompanying notes are an integral part of these financial statements. PAGESmall UTC INVESCO Company International Common Total Income Equity Stock Index Equity Index Global Stock Return Fund Fund Fund Fund Fund Fund Fund Assets: Investments, at fair value: Beneficial interests in Bankers Trust Company Pyramid: Large Capitalization Equity Index Fund $ - $ 809,958 $ - $ - $ 29,900 $ - $ - Russell 2000 Equity Index Fund - - 20,980 - - - - Daily Japanese Equity Index Fund - - - 1,227 - - - Daily Non Japanese Equity Index Fund - - - 3,681 - - - Government/Corporate Fixed Income Index Fund - - - - 24,463 - - Daily International Equity Index Fund - - - - 28,688 - - United Technologies Corporation Common Stock - - - - - 388,403 - United Technologies Corporation ESOP Preferred Stock - - - - - - - Shares of respective registered investment companies - - - - - - 11,352 Investments, at contract value or cost: Beneficial interests in investment contracts, at contract value 2,815,491 - - - - - - Participant loans, at cost - - - - - - - Temporary investments, at cost plus accrued interest - - - - - 5,833 - Total Investments 2,815,491 809,958 20,980 4,908 83,051 394,236 11,352 Plan receivables 1,996 676 25 8 88 1,078 17 Accrued ESOP contribution receivable - - - - - - - Total Assets 2,817,487 810,634 21,005 4,916 83,139 395,314 11,369 Liabilities: Accrued liabilities - - - - - 2,509 - Loans payable, net - - - - - - - Accrued interest on ESOP debt and notes payable - - - - - - - ESOP debt - - - - - - - Notes payable to United Technologies Corporation - - - - - - - Total Liabilities - - - - - 2,509 - Net Assets Available for Benefits $2,817,487 $ 810,634 $ 21,005 $ 4,916 $ 83,139 $ 392,805 $ 11,369 Units of participation 456,642,903 38,564,887 1,735,924 466,827 34,932,354 32,516,958 390,823 Unit value $ 6.17 $ 21.02 $ 12.10 $ 10.53 $ 2.38 $ 12.08 $ 29.09 UNITED TECHNOLOGIES CORPORATION EMPLOYEE SAVINGS PLAN Statement of Net Assets Available for Benefits With Fund Information December 31, 1997 (Thousands of Dollars, except unit value)
PAGEPutnam Fidelity Putnam New SoGen Growth & Fund for Fidelity Low- PBHG Opportun- Interna- Income Growth Fidelity Priced Stock Growth ities tional Portfolio and Income Contrafund Fund Fund Fund Fund, Inc. Assets: Investments, at fair value: Beneficial interests in Bankers Trust Company Pyramid: Large Capitalization Equity Index Fund $ - $ - $ - $ - $ - $ - $ - Russell 2000 Equity Index Fund - - - - - - - Daily Japanese Equity Index Fund - - - - - - - Daily Non Japanese Equity Index Fund - - - - - - - Government/Corporate Fixed Income Index Fund - - - - - - - Daily International Equity Index Fund - - - - - - - United Technologies Corporation Common Stock - - - - - - - United Technologies Corporation ESOP Preferred Stock - - - - - - - Shares of respective registered investment companies 88,982 29,327 35,471 38,276 55,770 42,073 9,434 Investments, at contract value or cost: Beneficial interests in investments contracts, at contract value - - - - - - - Participant loans, at cost - - - - - - - Temporary investments, at cost plus accrued interest - - - - - - - Total investments 88,982 29,327 35,471 38,276 55,770 42,073 9,434 Plan receivables 127 42 60 53 107 72 18 Accrued ESOP contribution receivable - - - - - - - Total Assets 89,109 29,369 35,531 38,329 55,877 42,145 9,452 Liabilities: Accrued liabilities - - - - - - - Loans payable, net - - - - - - - Accrued interest on ESOP debt and notes payable - - - - - - - ESOP debt - - - - - - - Notes payable to United Technologies Corporation - - - - - - - Total Liabilities - - - - - - - Net Assets Available for Benefits $ 89,109 $ 29,369 $ 35,531 $ 38,329 $ 55,877 $ 42,145 $ 9,452 Units of participation 2,338,837 1,501,494 761,983 1,525,236 2,200,755 858,340 371,399 Unit value $ 38.10 $ 19.56 $ 46.63 $ 25.13 $ 25.39 $ 49.10 $ 25.45 The accompanying notes are an integral part of these financial statements. UNITED TECHNOLOGIES CORPORATION EMPLOYEE SAVINGS PLAN Statement of Net Assets Available for Benefits With Fund Information December 31, 1997 (Thousands of Dollars, except unit value)
Templeton Templeton Developing Foreign Markets Fund I Trust I Loan Fund ESOP Fund Total Investments, at fair value: Beneficial interests in Bankers Trust Company Pyramid: Large Capitalization Equity Index Fund $ - $ - $ - $ - $ 839,858 Russell 2000 Equity Index Fund - - - - 20,980 Daily Japanese Equity Index Fund - - - - 1,227 Daily Non Japanese Equity Index Fund - - - - 3,681 Government/Corporate Fixed Income Index Fund - - - - 24,463 Daily International Equity Index Fund - - - - 28,688 United Technologies Corporation Common Stock - - - 340 388,743 United Technologies Corporation ESOP Preferred Stock - - - 1,897,956 1,897,956 Shares of respective registered investment companies 17,216 8,766 - - 336,667 Investments, at contract value or cost: Beneficial interests in investment contracts, at contract value - - - - 2,815,491 Participant loans, at cost - - 62,048 - 62,048 Temporary investments, at cost plus accrued interest - - - 1,402 7,235 Total Investments 17,216 8,766 62,048 1,899,698 6,427,037 Plan receivables 31 18 - 962 5,378 Accrued ESOP contribution receivable - - - 87,188 87,188 Total Assets 17,247 8,784 62,048 1,987,848 6,519,603 Liabilities: Accrued liabilities - - - 171 2,680 Loans payable, net - - - - - Accrued interest on ESOP debt and notes payable - - - 2,271 2,271 ESOP debt - - - 408,900 408,900 Notes payable to United Technologies Corporation - - - 89,633 89,633 Total Liabilities - - - 500,975 503,484 Net Assets Available for Benefits $ 17,247 $ 8,784 $ 62,048 $ 1,486,873 $6,016,119 Units of participation 1,733,322 678,876 62,048,000 263,507,383 Unit value $ 9.95 $ 12.94 $ 1.00 $ 5.64 The accompanying notes are an integral part of these financial statements. UNITED TECHNOLOGIES CORPORATION EMPLOYEE SAVINGS PLAN Statement of Net Assets Available for Benefits With Fund Information December 31, 1996 (Thousands of Dollars, except unit value)
Income Equity UTC Common Global Fund Fund Stock Fund Fund Loan Fund ESOP Fund Total Assets: Investments, at fair value: Beneficial interests in Bankers Trust Company Pyramid: Government/Corporate Fixed Income Index Fund $ - $ - $ - $ 34,139 $ - $ - $ 34,139 Large Capitalization Equity Index Fund - 654,420 - 39,834 - - 694,254 Daily International Equity Index Fund - - - 44,878 - - 44,878 United Technologies Corporation Common Stock - - 328,760 - - - 328,760 United Technologies Corporation ESOP Preferred Stock - - - - - 1,758,882 1,758,882 Investments, at contract value or cost: Beneficial interests in investment contracts, at contract value 2,920,121 - - - - - 2,920,121 Participant loans, at cost - - - - 53,658 - 53,658 Temporary investments, at cost plus accrued interest 121 - 34 - - 1,512 1,667 Total Investments 2,920,242 654,420 328,794 118,851 53,658 1,760,394 5,836,359 Plan receivables 1,191 285 742 63 361 - 2,642 Accrued ESOP contribution receivable - - - - - 80,132 80,132 Total Assets 2,921,433 654,705 329,536 118,914 54,019 1,840,526 5,919,133 Liabilities: Accrued liabilities 20 269 - 404 - 780 1,473 Loans payable, net 348 (155) 504 (31) (199) - 467 Accrued interest on ESOP debt and note payable - - - - - 2,452 2,452 ESOP debt - - - - - 445,300 445,300 Note payable to United Technologies Corporation - - - - - 79,233 79,233 Total Liabilities 368 114 504 373 (199) 527,765 528,925 Net Assets Available for Benefits $ 2,921,065 $ 654,591 $ 329,032 $ 118,541 $ 54,218 $ 1,312,761 $5,390,208 Units of participation 511,545,534 41,549,958 30,372,710 57,356,443 54,218,000 258,588,435 Unit value $ 5.71 $ 15.75 $ 10.83 $ 2.07 $ 1.00 $ 5.08 The accompanying notes are an integral part of these financial statements. /TABLE UNITED TECHNOLOGIES CORPORATION EMPLOYEE SAVINGS PLAN Statement of Changes in Net Assets Available for Benefits With Fund Information Period Ended December 31, 1997 (Thousands of Dollars)
Small Company UTC INVESCO Stock International Common Total Income Equity Index Equity Index Global Stock Return Fund Fund Fund Fund Fund Fund Fund Additions to net assets attributed to: Investment Income: Net appreciation (depreciation) in fair value of investments $ - $203,723 $ 1,656 $ 160 $ 13,057 $ 37,975 $ 965 Interest 216,006 4 1 1 (25) 201 - Dividends - - - - - - 394 Total Investment Income 216,006 203,727 1,657 161 13,032 38,176 1,359 Contributions: Participants' 70,501 38,622 958 494 7,097 16,748 616 Employer's 115 29 1 - 8 7 - Total Contributions 70,616 38,651 959 494 7,105 16,755 616 Repayments on loans 16,716 6,209 103 35 1,067 2,687 62 Deductions from net assets attributed to: Distributions to participants 171,452 31,958 262 50 3,286 14,280 464 Loans to participants 18,890 7,812 56 39 1,007 4,454 54 Administrative expenses 76 12 - - 3 4 - Interest expense - - - - - - - Total Deductions 190,418 39,782 318 89 4,296 18,738 518 Net increase / (decrease) prior to transfers 112,920 208,805 2,401 601 16,908 38,880 1,519 Inter-fund transfers (215,503) (51,818) 18,604 4,315 (52,125) 25,322 9,850 Assets transferred out of Plan (995) (944) - - (185) (429) - Net increase / (decrease) (103,578) 156,043 21,005 4,916 (35,402) 63,773 11,369 Net Assets Available for Benefits December 31, 1996 2,921,065 654,591 - - 118,541 329,032 - Net Assets Available for Benefits December 31, 1997 $2,817,487 $810,634 $21,005 $ 4,916 $ 83,139 $392,805 $ 11,369 The accompanying notes are an integral part of these financial statements. /TABLE UNITED TECHNOLOGIES CORPORATION EMPLOYEE SAVINGS PLAN Statement of Changes in Net Assets Available for Benefits With Fund Information Period Ended December 31, 1997 (Thousands of Dollars)
Putnam Fidelity Putnam New SoGen Growth & Fund Fidelity Low- PBHG Opportun- Interna- Income for Growth Fidelity Priced Stock Growth ities tional Portfolio and Income Contrafund Fund Fund Fund Fund, Inc. Additions to net assets attributed to: Investment Income: Net appreciation (depreciation) in fair value of investments $ 9,037 $ (423) $ 1,374 $ 2,628 $ 2,036 $ 4,624 $ (508) Interest - - - - - - - Dividends 3,560 3,659 2,876 2,200 (8) 887 926 Total Investment Income 12,597 3,236 4,250 4,828 2,028 5,511 418 Contributions: Participants' 5,938 2,141 2,936 2,308 6,862 3,836 947 Employer's 3 1 2 1 4 5 - Total Contributions 5,941 2,142 2,938 2,309 6,866 3,841 947 Repayments on loans 630 257 300 230 712 434 65 Deductions from net assets attributed to: Distributions to participants 2,351 664 981 828 1,437 687 242 Loans to participants 535 213 242 194 549 453 38 Administrative expenses - - - 13 2 - - Interest expense - - - - - - - Total Deductions 2,886 877 1,223 1,035 1,988 1,140 280 Net increase / (decrease) prior to transfers 16,282 4,758 6,265 6,332 7,618 8,646 1,150 Inter-fund transfers 72,827 24,611 29,266 31,997 48,259 33,499 8,302 Assets transferred out of Plan - - - - - - - Net increase / (decrease) 89,109 29,369 35,531 38,329 55,877 42,145 9,452 Net Assets Available for Benefits December 31, 1996 - - - - - - - Net Assets Available for Benefits December 31, 1997 $ 89,109 $ 29,369 $ 35,531 $ 38,329 $ 55,877 $ 42,145 $ 9,452 The accompanying notes are an integral part of these financial statements. /TABLE UNITED TECHNOLOGIES CORPORATION EMPLOYEE SAVINGS PLAN Statement of Changes in Net Assets Available for Benefits With Fund Information Period Ended December 31, 1997 (Thousands of Dollars)
NOTE 4 - EMPLOYEE STOCK OWNERSHIP PLAN Since 1989, the ESOP has purchased approximately 14.5 million shares of $1.00 par value Series A ESOP Convertible Preferred Stock ("ESOP Shares"), with a $4.80 per share annual dividend from UTC. Each ESOP Share is convertible into two shares of UTC's Common Stock. The ESOP financed the ESOP Share purchases with interest bearing promissory notes. See Notes 5 and 6. Participants are allocated ESOP Shares as they earn UTC's matching contributions. For the period ended December 31, 1997, participants were credited with matching contributions of $56.7 million representing approximately 367,400 shares. Additionally, in lieu of receiving cash, participants are allocated ESOP Shares for dividends paid on their shares. During 1997, participants earned dividends of approximately $31.9 million representing approximately 171,300 shares. ESOP Shares allocated are calculated at the higher of twice the daily ending price of UTC Common Stock or the $65 guaranteed value. ESOP Shares are released for allocation to participants as principal and interest payments are made on the debt. The ESOP uses the ESOP Shares' cash dividends and additional contributions from UTC to repay the principal and interest. The Employer Contributions presented in the Statement of Changes in Net Assets Available for Benefits include approximately $8.4 million of additional cash contributions from UTC plus $9.5 million of Employer Contributions receivable from UTC at December 31, 1997. The $9.5 million is due to share allocations exceeding share releases during 1997. The number of ESOP Shares allocated to participants' accounts is equal in value to the fixed matching contributions specified by the Plan. To the extent that ESOP Shares released through debt service payments are not sufficient to meet the matching contribution requirement, UTC will contribute additional ESOP Shares, UTC Common Stock or cash. To the extent that ESOP Shares released through debt service will exceed the matching contribution requirement, management intends to restructure the debt so that the value of the released ESOP Shares does not exceed the matching contribution requirement. Shares allocated to a participant generally may not be distributed until the participant's termination, disability, retirement or death. Upon distribution, a participant may elect to receive either cash or two shares of UTC Common Stock for each ESOP Share valued at the higher of twice the market value of UTC's Common Stock or $65. A participant cannot elect to receive the distribution in ESOP Shares.Templeton Templeton Developing Foreign Markets Fund I Trust I Loan Fund ESOP Fund Total Additions to net assets attributed to: Investment Income: Net appreciation (depreciation) in fair value of investments $ (1,664) $ (2,998) $ - $ 177,220 $ 448,862 Interest - - 4,765 449 221,402 Dividends 1,844 599 - 63,002 79,939 Total Investment Income 180 (2,399) 4,765 240,671 750,203 Contributions: Participants' 1,503 924 - - 162,431 Employer's 1 - - 17,910 18,087 Total Contributions 1,504 924 - 17,910 180,518 Repayments on loans 131 99 (29,737) - - Deductions from net assets attributed to: Distributions to participants 270 316 1,535 27,093 258,156 Loans to participants 109 82 (34,727) - - Administrative expenses - 1 - - 111 Interest expense - - - 41,974 41,974 Total Deductions 379 399 (33,192) 69,067 300,241 Net increase / (decrease) prior to transfers 1,436 (1,775) 8,220 189,514 630,480 Inter-fund transfers 15,811 10,559 - (13,776) - Assets transferred out of Plan - - (390) (1,626) (4,569) Net increase / (decrease) 17,247 8,784 7,830 174,112 625,911 Net Assets Available for Benefits December 31, 1996 - - 54,218 1,312,761 5,390,208 Net Assets Available for Benefits December 31, 1997 $ 17,247 $ 8,784 $ 62,048 $ 1,486,873 $6,016,119 The accompanying notes are an integral part of these financial statements. /TABLE UNITED TECHNOLOGIES CORPORATION EMPLOYEE SAVINGS PLAN Notes to Financial Statements NOTE 1 - DESCRIPTION OF THE PLAN General. The United Technologies Corporation (UTC) Employee Savings Plan (the Plan) is a defined contribution savings plan administered by UTC. It is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). Generally, non-represented employees in participating business units of UTC are eligible to participate in the Plan after completing one year of service. The following is a brief description of the Plan. For more complete information, participants should refer to the plan document which is available from UTC. Contributions and Vesting. Participants may elect to contribute, through payroll deductions, between 2 and 16 percent of their total compensation. Participant contributions, plus actual earnings thereon, are fully vested at all times under the Plan. UTC has established a leveraged Employee Stock Ownership Plan (ESOP) to fund the employer matching contributions to the Plan. The ESOP is primarily invested in UTC Series A ESOP Convertible Preferred Stock. UTC will match 60 percent of a participant's contributions, up to specified limits, in ESOP Preferred Stock (See Note 4). However, participants who have reached at least age 55 and have completed at least 10 years of continuous service may direct up to 50 percent, in multiples of 25 percent, of their ESOP account balances and future employer contributions to be invested in the other investment funds offered through the Plan. Generally, employer contributions, plus actual earnings thereon, become fully vested after two years of Plan participation. Participant Accounts. Each participant's account is credited with the participant's contributions and allocations of (a) UTC's contributions based on a percentage of the participant's contribution and (b) Plan earnings based on account balances. The benefit to which a participant is entitled is the benefit that can be provided from the participant's vested account. Forfeited balances of terminated participants' nonvested amounts are used to reduce future UTC contributions. For the period ended December 31, 1997, approximately $232,000 of forfeitures were used to fund UTC's contributions. Trustee and Recordkeeper. All of the Plan's assets are held by Bankers Trust Company, the Plan Trustee. As of January 1, 1997, Fidelity Institutional Retirement Services Company assumed the participant account recordkeeping responsibilities. Investment Options. On January 1, 1997, investment options increased to sixteen from the previous four. Participants may elect to allocate their contributions in any whole percentage among the following funds. Participants are permitted to transfer their accounts between investment funds daily in any whole percentage or whole dollar amount. The investment funds are as follows: . The Income Fund invests in contracts issued by five insurance companies. See Note 3. . The Equity Fund invests in a portfolio of common stocks replicating the Standard & Poor's Composite Index of 500 stocks (S&P 500). . The Small Company Stock Index Fund invests in a portfolio of common stocks replicating the Russell 2000 Index. . The International Equity Index Fund invests in the equities of a mix of stock markets outside the U.S. . The Global Fund invests in both U.S. and foreign investments to replicate the performance, in approximately equal portions, of three indices: the S&P 500, the EAFE Index (an international stock index of large companies in Europe, Australia and the Far East), and the Lehman Brothers Government/Corporate Index. . The UTC Common Stock Fund consists principally of 5,334,294 and 4,962,417 shares of UTC Common Stock at December 31 1997 and 1996, respectively. . The INVESCO Total Return Fund invests in shares of a registered investment company that principally invests in both equity and fixed or variable income securities to achieve a moderate total return from capital appreciation and current income. . The Fidelity Growth & Income Portfolio invests in shares of a registered investment company that principally invests in U.S. and foreign equity securities that pay current dividends and show potential earnings growth. . The Putnam Fund for Growth and Income invests in shares of a registered investment company that principally invests in equity securities of companies that pay regular dividends to shareowners. . The Fidelity Contrafund invests in shares of a registered investment company that principally invests in equity securities of U.S. and foreign companies believed to be undervalued or out of favor. . The Fidelity Low-Priced Stock Fund invests in shares of a registered investment company that principally invests in equity securities of companies believed to be undervalued, overlooked or out of favor, which are generally priced at $35 or less. . The PBHG Growth Fund invests in shares of a registered investment company that principally invests in equity securities of companies believed to have an outlook for strong earnings growth. . The Putnam New Opportunities Fund invests in shares of a registered investment company that principally invests in equity securities of companies in certain emerging industry groups. . The SoGen International Fund, Inc. invests in shares of a registered investment company that invests in U.S. and foreign equity, fixed income and gold-related securities and cash. . The Templeton Foreign Fund I invests in shares of a registered investment company that principally invests in equity securities of companies in developed and developing countries outside the U.S. . The Templeton Developing Markets Trust I invests in shares of a registered investment company that principally invests in equity securities of companies in developing countries. Participant Loans. Participants with at least two years of plan participation are allowed to borrow up to 50 percent of their vested account balances (excluding the ESOP). Loan amounts can range from $1,000 to $50,000 and must be repaid within 5 years. The loans are secured by the balance in the participant's account and bear interest at Bankers Trust's prime rate plus one percent. Principal and interest are paid ratably through payroll deductions. Payment of Benefits. Generally, benefits are paid in a lump sum to a terminating participant. A participant terminating due to retirement may elect to receive benefits in installments over two to twenty years. At the participant's election, the portion of a lump sum distribution attributable to the UTC Stock Fund and ESOP may be paid in shares of UTC Common Stock instead of cash. Distributions in common stock for the period ended December 31, 1997 were approximately $5,825,000. Other. Participants who transfer to a new UTC location with a different savings plan have the option of transferring their account balances in accordance with the provisions of the new savings plan. NOTE 2 - SUMMARY OF ACCOUNTING PRINCIPLES Basis of Accounting. The financial statements of the Plan are prepared under the accrual method of accounting. Benefits are recorded when paid. Master Trust. The Plan's assets are kept in a Master Trust maintained by the Trustee. Under the Master Trust agreement, the assets of certain employee savings plans of UTC and its subsidiaries are combined. Participating Plans purchase units of participation in the investment funds based on their contribution to such funds and the unit value of the applicable investment fund at the end of the trading day in which a transaction occurs. The unit value of each fund is determined at the close of each day by dividing the sum of uninvested cash, accrued income and the current value of investments by the total number of outstanding units in such funds. Income from the funds' investments increases the Plans' unit values. Distributions to participants reduce the number of participation units held by the Plans. At December 31, 1997, the Plan's interest in the Master Trust comprised 902,776,301 units of the 1,012,560,383 total units of participation, or 89.16%. At December 31, 1996, the Plan's interest in the Master Trust comprised 953,631,080 units of the total 1,062,864,802 units of participation, or 89.72%. Investment Valuation. The Income Fund's investment contracts are stated at contract value which represents contributions plus earnings, less Plan withdrawals. The ESOP Preferred Stock's fair value is the higher of the guaranteed value ($65) or twice the market value of UTC's Common Stock (See Note 4). All other funds are stated at fair value, as determined by the Trustee, typically by reference to published market data. Plan Expenses. Plan administrative expenses, including Trustee and recordkeeper fees were paid directly by the employer in 1997. The employer also paid certain investment management fees for the Bankers Trust managed funds. All other administrative and investment expenses were paid out of Plan assets. Use of Estimates. The preparation of financial statements requires UTC to make estimates and assumptions that affect the reported amounts in the financial statements. Actual results could differ from those estimates. NOTE 3 - INVESTMENT CONTRACTS Under these contracts, each insurance company guarantees repayment in full of the principal amount invested plus interest credited at a fixed rate for a specified period. Interest is credited to each contract based on an annual interest rate set each year by the individual insurance companies. This rate, which differs among contracts, takes into account any difference between prior year credited interest and the actual amount of investment earnings allocable to the contract in accordance with the established allocation procedures of the insurance company. The interest rates earned for 1997 and 1996 were 8.1% and 7.5%, respectively. The following is a summary of the investment contracts held in the Income Fund and the portion allocable to the Plan: (Thousands of Dollars) December 31, December 31, 1997 1996 CIGNA $ 1,456,404 $ 1,512,307 Aetna 437,582 457,815 Travelers 367,509 388,845 Prudential 231,133 236,966 Metropolitan Life 780,096 782,764 $ 3,272,724 $ 3,378,697 Amount of the contracts allocable to the Plan $ 2,815,491 $ 2,920,121 The ESOP Fund's investment in ESOP Shares at period end is as follows: As discussed above, market value is represented by the higher of the guaranteed value of $65 per share or the daily closing price of two shares of UTC's Common Stock. As such, the market value of the ESOP Shares was $145.625 and $132.50 per share at December 31, 1997 and 1996, respectively. Further, the Net Assets Available for Benefits in the ESOP Fund at December 31, 1997 and 1996 include unrealized appreciation of approximately $1.05 billion and $896.0 million, of which $500.4 million and $455.2 million is on unallocated shares. The ESOP Shares are redeemable, in whole or in part, at the option of UTC at a redemption price of $65.96 per share plus accrued and unpaid dividends. The redemption price decreases annually until it reaches $65. However, upon notice to the Trustee of UTC's intention to redeem, the Trustee can convert each preferred share into two shares of UTC Common Stock if more beneficial to participants. NOTE 5 - ESOP DEBT In 1990, the Master Trust, with UTC as guarantor, executed a Note and Guaranty Agreement and issued $660,000,000 of Series A, B, C and D notes (described below) representing the ESOP's permanent financing. The amounts outstanding under the Agreement, with interest rates and maturity dates, are as follows at December 31, 1997:
(Thousands of Dollars, December 31, 1997 December 31, 1996 except share amounts) Allocated Total Allocated Total Number of Shares 6,826,380 13,033,172 6,530,685 13,274,579 Guaranteed Value $ 443,715 $ 847,156 $ 424,495 $ 862,848 Market $ 994,092 $ 1,897,956 $ 865,316 $ 1,758,882 Required payments on these Notes, in aggregate, for the next five plan years are $36.3 million in 1998, $36.0 million in 1999, $35.5 million in 2000, $35.0 million in 2001, and $34.5 million in 2002. NOTE 6 - NOTE PAYABLE In conjunction with the ESOP financing discussed in Note 5, UTC issued a promissory note in 1990, bearing interest at 10.5%, and due over the period 1998 to 2009. At December 31, 1997, $74,633,000 was outstanding. Required principal payments on the Note for the next five plan years are $4.6 million in 1998, $4.8 million in 1999, $4.9 million in 2000, $ 5.0 million in 2001, and $5.2 million in 2002.
Principal Rate of Note Series (000's) Interest Due A $ 72,300 7.24% 1998 - 1999 B 286,600 7.68% 2000 - 2008 C 17,300 7.68% 2008 D 32,700 7.68% 2009 $ 408,900 On December 10, 1997, the Trustee executed an additional $15,000,000 promissory note to UTC. This note bears an interest rate of 6.35%, has a December 10, 2007 maturity date, and replaced a portion of the 1990 ESOP Debt notes described in Note 5 above. NOTE 7 - PLAN TERMINATION Although it has not expressed any intent to do so, UTC has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA and to certain Plan provisions that limit this right when certain ESOP loans remain outstanding. In the event of Plan termination, participants will become 100 percent vested in their accounts. NOTE 8 - RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500 The following are reconciliations of net assets available for benefits and benefits paid from the financial statements to the Form 5500:
December 31, (Thousands of Dollars) 1997 1996 Net assets available for benefits per the financial statements $6,016,119 $5,390,208 Amounts allocated to participant withdrawals (907) (38,084) Net assets available for benefits per Form 5500 $6,015,212 $5,352,124 Year Ended December 31, 1997
Amounts allocated to participant withdrawals are recorded on Form 5500 for benefit claims that have been processed and approved for payment prior to December 31 but not yet paid as of that date. NOTE 9 - TAX STATUS The Internal Revenue Service has determined and informed UTC by letter dated September 23, 1996 that the Plan and related trust are designed in accordance with applicable sections of the Internal Revenue Code (IRC). The Plan has been amended since receiving the determination letter. However, the Plan administrator and tax counsel believe that the Plan is designed and is currently being operated in compliance with the applicable requirements of the IRC.Benefits paid to participants per the financial statements $ 258,156 Add: Amounts allocated to participant withdrawals at December 31, 1997 907 Less: Amounts allocated to participant withdrawals at December 31, 1996 (38,084) Benefits paid to participants per Form 5500 $ 220,979 SIGNATURES The Plan (or persons who administer the employee benefit plan), pursuant to the requirements of the Securities Exchange Act of 1934, has duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized. UNITED TECHNOLOGIES CORPORATION EMPLOYEE SAVINGS PLAN Dated: June 26, 1998 By: /s/ Daniel P. O'Connell Daniel P. O'Connell Corporate Director, Employee Benefits and Human Resources Systems United Technologies Corporation Exhibit 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 33-26627) of United Technologies Corporation of our report dated June 26, 1998 appearing in the United Technologies Corporation Employee Savings Plan's Annual Report on Form 11-K for the year ended December 31, 1997. PRICE WATERHOUSE LLP Hartford, Connecticut June 26, 1998