FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C.
20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period
from____________________________to__________________________
Commission file number 1-812
UNITED TECHNOLOGIES CORPORATION
DELAWARE 06-0570975
United Technologies Building, Hartford, Connecticut 06101
(203) 728-7000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X . No .
At June 30, 1994 there were 126,312,240 shares of Common Stock outstanding.
PAGE
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONTENTS OF QUARTERLY REPORT ON FORM 10-Q
Quarter Ended June 30, 1994
Page
Part I - Financial Information
Item 1. Financial Statements:
Condensed Consolidated Statement of
Operations for the three months ended June 1
30, 1994 and 1993
Condensed Consolidated Statement of
Operations for the six months ended June 2
30, 1994 and 1993
Condensed Consolidated Balance Sheet at June
30, 1994 and December 31, 1993 3
Condensed Consolidated Statement of Cash
Flows for the six months ended June 30, 4
1994 and 1993
Notes to Condensed Consolidated Financial 5
Statements
Report of Independent Accountants 7
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Position 8
Part II - Other Information
Item 1. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of 14
Security Holders
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
Exhibit Index
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UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended
June 30,
In Millions of Dollars (except per share amounts) 1994 1993
Revenues:
Product sales $ 4,278 $ 4,489
Service sales 1,028 1,019
Financing revenues and other income, net 183 62
5,489 5,570
Costs and expenses:
Cost of products sold 3,571 3,674
Cost of services sold 631 646
Research and development 261 286
Selling, general and administrative 648 660
Interest 63 64
5,174 5,330
Income before income taxes and minority interests 315 240
Income taxes 117 87
Minority interests 26 23
Net Income $ 172 $ 130
Preferred Stock Dividend Requirement $ 11 $ 10
Earnings Applicable to Common Stock $ 161 $ 120
Per share of Common Stock:
Primary earnings $ 1.25 $ .95
Fully diluted earnings $ 1.18 $ .89
Dividends $ .45 $ .45
Average shares outstanding (in thousands):
Primary 129,312 125,455
Fully diluted 141,887 138,269
See Accompanying Notes
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UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Six Months Ended
June 30,
In Millions of Dollars (except per share amounts) 1994 1993
Revenues:
Product sales $ 8,060 $ 8,233
Service sales 1,991 2,000
Financing revenues and other income, net 276 201
10,327 10,434
Costs and expenses:
Cost of products sold 6,697 6,803
Cost of services sold 1,240 1,266
Research and development 501 569
Selling, general and administrative 1,251 1,287
Interest 119 132
9,808 10,057
Income before income taxes and minority interests 519 377
Income taxes 192 143
Minority interests 49 40
Net Income $ 278 $ 194
Preferred Stock Dividend Requirement $ 22 $ 21
Earnings Applicable to Common Stock $ 256 $ 173
Per share of Common Stock:
Primary earnings $ 1.98 $ 1.38
Fully diluted earnings $ 1.89 $ 1.31
Dividends $ .90 $ .90
Average shares outstanding (in thousands):
Primary 129,235 125,043
Fully diluted 141,831 137,874
See Accompanying Notes
2
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
June 30, December 31,
In Millions of Dollars 1994 1993
Assets
Cash and short-term cash investments $ 567 $ 421
Accounts receivable 3,454 2,981
Future income tax benefits 687 794
Inventories and contracts in progress, net 3,276 3,153
Other current assets 243 357
Total Current Assets 8,227 7,706
Fixed assets 9,983 9,796
Less - accumulated depreciation (5,516) (5,231)
4,467 4,565
Other assets 3,152 3,347
Total Assets $ 15,846 $ 15,618
Liabilities and Shareowners' Equity
Short-term debt $ 1,236 $ 1,020
Accounts payable 1,599 1,815
Accrued liabilities 2,876 2,965
Accrued restructuring costs 214 245
Other current liabilities 901 875
Total Current Liabilities 6,826 6,920
Future income taxes payable 198 177
Long-term debt 1,954 1,939
Other long-term liabilities 2,977 2,808
Series A ESOP Convertible Preferred Stock 919 822
ESOP deferred charge and note receivable (735) (646)
184 176
Shareowners' Equity:
Common Stock 2,128 2,075
Treasury stock (729) (677)
Retained earnings 2,609 2,466
Deferred foreign currency translation adjustments (262) (227)
Minimum pension liability adjustment (39) (39)
3,707 3,598
Total Liabilities and Shareowners' Equity $ 15,846 $ 15,618
See Accompanying Notes
3
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
In Millions of Dollars 1994 1993
Cash flows from operating activities:
Net income $ 278 $ 194
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization 415 391
Increase in accounts receivable and
inventories, net of progress payments (496) (76)
Increase (decrease) in:
Accounts payable and accrued liabilities (407) (536)
Future income taxes payable and future income
tax benefits 122 117
Advances on sales contracts 55 53
Other, net 171 90
Net Cash Flows from Operating Activities 138 233
Cash flows from investing activities:
Purchases of fixed assets (290) (350)
Acquisitions of business interests (83) -
Dispositions of business interests 227 -
(Increase) decrease in customer financings, net 105 (114)
Other, net 10 49
Net Cash Flows from Investing Activities (31) (415)
Cash flows from financing activities:
Issuance of long-term debt 29 15
Repayments of long-term debt (113) (543)
Increase in short-term borrowings, net 300 830
Dividends paid on Common and ESOP Preferred
Stocks (135) (133)
Common Stock repurchase (52) -
Other, net 32 (4)
Net Cash Flows from Financing Activities 61 165
Effect of foreign exchange rate changes on cash and
short-term cash investments (22) (7)
Net Increase (Decrease) in Cash and Short-Term
Cash Investments 146 (24)
Cash and Short-Term Cash Investments, Beginning of
year 421 354
Cash and Short-Term Cash Investments, End of period $ 567 $ 330
Supplemental Disclosure of Cash Flow Information:
Interest paid, net of amounts capitalized $ 96 $ 126
Income taxes paid, net of refunds 67 25
See Accompanying Notes
4
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The condensed consolidated financial statements at June 30, 1994 and for the
three-month and six-month periods ended June 30, 1994 and 1993 are unaudited,
but in the opinion of the Corporation include all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of the
results for the interim periods. Certain 1993 amounts have been reclassified to
conform with the presentation at June 30, 1994.
In January 1994, the Corporation issued 1.4 million additional Series A
Convertible Preferred shares to the ESOP. As required, these shares will be
accounted for under the recently issued AICPA Statement of Position (SOP) 93-6,
"Employers' Accounting for Employee Stock Ownership Plans," and will be
considered outstanding as they are committed to employee accounts. The
Corporation is considering adopting SOP 93-6 relative to its previously issued
ESOP Convertible Preferred shares which is optional under the SOP.
While there has been no significant change in the Corporation's material
contingencies during 1994, the matters previously described in Note 13 of Notes
to Financial Statements in the Corporation's Annual Report on Form 10K for
calendar year 1993 are summarized below.
The Corporation extends performance and operating cost guarantees, which are
beyond its normal warranty and service policies, for extended periods on some of
its products, particularly commercial aircraft engines. Liability under such
guarantees is contingent upon future product performance and durability. The
Corporation has accrued its estimated liability that may result under these
guarantees.
The Corporation has been identified as a potentially responsible party under
the Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA" or Superfund) for environmental remediation at 87 federal Superfund
sites, many of which relate to formerly-owned businesses. Additionally, the
Corporation is potentially responsible for remediation under federal, state
and/or local regulations at other sites. The Corporation has adequately
provided for its share of future remediation and related expenditures at
Superfund and other known sites for which it may have some remediation
responsibility.
The Corporation has instituted legal proceedings against its insurers seeking
insurance coverage for remediation and related expenditures. These proceedings
are expected to last several years. As no prediction can be made as to the
outcome of these proceedings, potential insurance reimbursements are not
recorded. The above uncertainties notwithstanding, the Corporation believes
that expenditures necessary to comply with the present regulations governing
environmental protection will not have a material effect upon its capital
expenditures, competitive position, financial position or results of operations.
The Corporation is now and believes that, in light of the current government
contracting environment, it will be the subject of one or more government
investigations. If the Corporation or one of its business units were charged
with wrongdoing as a result of any of these investigations, the Corporation or
one of its business units could be suspended from bidding on or receiving awards
of new government contracts pending the completion of legal proceedings. If
convicted or found liable, the Corporation could be fined and debarred from new
government contracting for a period generally not to exceed three years. Any
contracts found to be tainted by fraud could be voided by the Government.
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UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
The Corporation also has other commitments and contingent liabilities related
to legal proceedings and matters arising out of the normal course of business.
Management believes that resolution of these matters will not have a material
adverse effect upon either results of operations, cash flows, or financial
position of the Corporation.
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UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
With respect to the unaudited condensed consolidated financial information of
United Technologies Corporation for the three and six-month periods ended June
30, 1994 and 1993, Price Waterhouse LLP ("Price Waterhouse") reported that they
have applied limited procedures in accordance with professional standards for a
review of such information. However, their separate report dated July 20, 1994
appearing below, states that they did not audit and they do not express an
opinion on that unaudited condensed consolidated financial information. Price
Waterhouse has not carried out any significant or additional audit tests beyond
those which would have been necessary if their report had not been included.
Accordingly, the degree of reliance on their report on such information should
be restricted in light of the limited nature of the review procedures applied.
Price Waterhouse is not subject to the liability provisions of section 11 of the
Securities Act of 1933 for their report on the unaudited condensed consolidated
financial information because that report is not a "report" or a "part" of the
registration statement prepared or certified by Price Waterhouse within the
meaning of sections 7 and 11 of the Act.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
United Technologies Corporation
We have reviewed the accompanying condensed consolidated statement of
operations of United Technologies Corporation and consolidated subsidiaries for
the three and six-month periods ended June 30, 1994 and 1993, the condensed
consolidated statement of cash flows for the six months ended June 30, 1994 and
1993, and the condensed consolidated balance sheet as of June 30, 1994. This
financial information is the responsibility of the company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial information for it to be in
conformity with generally accepted accounting principles.
We previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1993, and the
related consolidated statements of operations, of cash flows and of changes in
shareowners' equity for the year then ended (not presented herein), and in our
report dated January 26, 1994, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying condensed consolidated balance sheet as of December 31, 1993,
when read in conjunction with the consolidated financial statements from which
it has been derived, is fairly stated in all material respects in relation
thereto.
PRICE WATERHOUSE LLP
Hartford, Connecticut
July 20, 1994
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UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL POSITION
BUSINESS ENVIRONMENT
The Corporation's major business units serve commercial property and
residential housing, government and commercial aerospace, and automotive
manufacturing customers. Like many businesses, these operations are
increasingly affected by global, as well as regional, economic cycles. While
the U.S. economy continues to strengthen, the results of key international
economies are mixed and are expected to continue to exert a negative influence
on the Corporation's results of operations in the near term.
U.S. residential housing starts continued to increase, up 18% in the first
half of 1994 over the same period in 1993, however, commercial construction
starts remain weak. U.S. commercial vacancy rates have improved only marginally
from the 1992 peak of 18%. Construction activity in Europe and Japan remains
weak while activity in China and other Asia-Pacific countries continues to
strengthen.
Although several domestic airlines have begun to record operating profits for
the first time in several years, the commercial airline industry continues to be
adversely affected by and respond to global market weakness. The financial
performance of the Corporation's Pratt & Whitney segment and, to a lesser
extent, the Flight Systems segment is directly correlated to the commercial
aerospace industry. The Pratt & Whitney segment is a major supplier of
commercial aircraft engines and spare parts. The Flight Systems segment,
through Hamilton Standard, provides fuel and environmental control systems and
propellers for commercial aircraft. While the order rates for commercial
aircraft engine spare parts have shown modest improvement, new commercial
aircraft volumes continue to decrease.
The U.S. Defense industry continues to experience significant downsizing, and
further consolidation within the industry is expected. As a result, the
Corporation has continued to reduce its reliance on U.S. Defense contracts over
the past few years. This trend has been partially offset by increased foreign
military sales.
North American car and light truck production increased 11% (738,000 units)
in the first six months of 1994 over the comparable period in 1993. Although
slightly improved, the European market continues to be adversely affected by the
lingering recession in Europe and is expected to underperform the North American
market in the near future.
In the first quarter of 1994, certain revisions were made in the
Corporation's segment reporting. The Corporation's USBI and Chemical Systems
businesses have been reclassified into the Pratt & Whitney segment from the
Flight Systems segment. In addition, the non-UT Automotive portion of the
Automotive segment, a small amount representing the remainder of the former
Industrial Products segment, and the Other segment have been reclassified to
Financing Revenues and Other Income. These segment reporting changes are
intended to align external reporting with the manner in which the operating
units are managed and measured from an internal profitability perspective.
Previously reported segment information has been restated to reflect these
changes.
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UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
RESULTS OF OPERATIONS
Quarter Ended Six Months Ended
June 30, June 30,
In Millions of Dollars 1994 1993 1994 1993
Product sales $ 4,278 $ 4,489 $ 8,060 $ 8,233
Service sales 1,028 1,019 1,991 2,000
Financing revenues and
other income, net 183 62 276 201
Consolidated revenues decreased $81 million and $107 million for the three-
month and six-month periods ended June 30, 1994, respectively, from the
comparable 1993 periods. Increases in sales volumes in the Carrier and
Automotive segments were substantially offset by the impact of continuing
reductions in commercial aerospace volumes in the Pratt & Whitney segment. The
overall stronger U.S. dollar relative to the prior year periods negatively
impacted both product and service sales in the quarter and six-month periods
ended June 30, 1994. Financing revenues and other income increased in the 1994
second quarter and six-month periods by $121 million and $75 million,
respectively, from the corresponding 1993 periods. Other income in the 1994
second quarter includes $87 million realized in the Flight Systems segment on
the sale of the equity share holdings in Westland Group plc. in April 1994. The
increase in the 1994 second quarter also includes the sale of an additional
participation interest in the PW4000 engine program by Pratt & Whitney.
Revenues for the Corporation's principal business segments for the three-
month and six-month periods ended June 30, 1994 and 1993 and analysis of the
variations for 1994 compared to 1993 follow:
Quarter Ended Six Months Ended
June 30, June 30,
In Millions of Dollars 1994 1993 1994 1993
Pratt & Whitney $ 1,478 $ 1,768 $ 2,838 $ 3,246
Flight Systems 854 802 1,660 1,636
Carrier 1,346 1,237 2,358 2,175
Otis 1,136 1,141 2,190 2,199
Automotive 695 639 1,308 1,205
Pratt & Whitney segment revenues for the second quarter of 1994 and the six-
month period ended June 30, 1994 decreased $290 million (16%) and $408 million
(13%), respectively, from the comparable 1993 periods. Also, the 1993 second
quarter included revenues resulting from the renegotiation of certain aircraft
leases. During the 1994 periods, shipments of commercial engines and sales of
government spare parts were lower than the 1993 periods, partially offset by
higher commercial spare parts sales and military engine shipments.
Excluding the gain on the sale of the equity share holdings in Westland Group
plc., Flight Systems segment revenues decreased $35 million (4%) and $63 million
(4%) in the 1994 second quarter and six-month period, respectively, from the
same 1993 periods. Helicopter revenues increased in both periods of 1994 over
1993 primarily as a result of higher aircraft volumes. Increased deliveries of
Black Hawk helicopters to the U.S. Government during 1994 offset the higher
deliveries of aircraft to the Turkish government in 1993. These increases were
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UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
more than offset by continuing reductions in commercial aerospace volumes at
Hamilton Standard.
Carrier segment revenues increased $109 million (9%) and $183 million (8%)
for the three-month and six-month periods ended June 30, 1994, respectively,
over the comparable 1993 periods. Revenues were higher in all geographic
regions except Europe, where lower volumes and the unfavorable translation
impact of the U.S. dollar continue to negatively impact revenues.
Otis segment revenues were substantially unchanged in the 1994 second quarter
and six-month period from the same 1993 periods. Increased revenues in the
Asia-Pacific region were offset by the $51 million and $89 million negative
translation impact of the U.S. dollar in the second quarter and first six months
of 1994, respectively.
Revenues from the Automotive segment increased $56 million (9%) and $103
million (9%) in the 1994 second quarter and six-month period, respectively, over
comparable 1993 amounts primarily due to higher North American industry volumes
and increased European market penetration. North American car and light truck
production was up 10% in the second quarter of 1994 from the second quarter of
1993 and has increased approximately 11% in the 1994 six-month period over the
corresponding 1993 period. Automotive North American revenues increased at a
slightly lower rate than the overall industry due primarily to capacity
constraints on some popular vehicle models with significant UT Automotive
content.
Margin information on the Corporation's product and service sales for the
three-month and six-month periods ended June 30, 1994 and 1993 follows:
Quarter Ended Six Months Ended
June 30, June 30,
In Millions of Dollars 1994 1993 1994 1993
Cost of products sold $ 3,571 $ 3,674 $ 6,697 $ 6,803
Product margin % 16.5% * 18.2% 16.9% * 17.4%
Cost of services sold 631 646 1,240 1,266
Service margin % 38.6% 36.6% 37.7% 36.7%
* Product margin percentages for the quarter and six months
ended June 30, 1994 were 18.5% and 18.0%, respectively,
before the impact of charges for downsizing and other
actions described below.
Operating profits in the Corporation's principal business segments for the
three-month and six-month periods ended June 30, 1994 and 1993 and analysis of
the variations for 1994 compared to 1993 are presented below.
In the 1994 second quarter management approved certain volume related
downsizing and other actions at Pratt & Whitney and at the Hamilton Standard
division of Flight Systems. These included workforce reduction plans at Pratt &
Whitney in Canada and at Hamilton Standard, the writedown of property held for
sale, the closure and consolidation of certain facilities and, at Hamilton
Standard, the disposition of certain lower margin product lines. These actions
resulted in charges of $50 million and $35 million, respectively, in the Pratt &
Whitney and Flight Systems operating results for the quarter.
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UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
Quarter Ended Six Months Ended
June 30, June 30,
In Millions of Dollars 1994 1993 1994 1993
With Without With Without
Pratt & Whitney $ 53 $ 103 $ 22 $ 137 $ 187 $ 46
Flight Systems 99 47 80 146 94 151
Carrier 107 107 85 125 125 93
Otis 101 101 98 198 198 192
Automotive 56 56 54 100 100 91
Operating profits for 1994 are shown above with and without the effect of the
downsizing and other actions described above and of the $87 million gain
realized in Flight Systems on the sale of the equity share holdings in Westland
Group plc. For analysis and comparison, the discussions below will be based on
1994 operating results without the effect of the downsizing charges and the
Westland gain.
Pratt & Whitney segment operating profits increased $81 million and $141
million for the 1994 second quarter and six-month period, respectively, from the
comparable 1993 periods. Pratt's operating profit increased due to higher
commercial spare parts sales over the depressed level of the prior year, reduced
research and development spending, and for the second quarter, the sale of an
additional participation interest in the PW4000 engine program. The
improvements were partially offset by the impact of higher manufacturing cost
estimates on commercial engine contracts, principally related to higher initial
production costs on the PW4084 engine.
Flight Systems operating profits decreased $33 million (41%) and $57 million
(38%) in the three-month and six-month periods ended June 30, 1994 from the
comparable 1993 periods. Improved performance at Sikorsky, primarily from
increased helicopter deliveries, was more than offset by lower commercial
aerospace volumes and higher engineering and other product development costs at
Hamilton Standard. Lower 1994 results at Hamilton Standard are expected to
negatively impact full year results for the Flight Systems segment.
Carrier segment operating profits for the second quarter and six-month period
ended June 30, 1994 increased $22 million (26%) and $32 million (34%),
respectively, over the comparable 1993 periods primarily due to improved results
in North America and at Carrier's Transicold business. These increases were
partially offset by lower 1994 results in Europe.
Otis 1994 second quarter segment operating profits increased from the
comparable 1993 period by $3 million (3%). Operating profits for the 1994 six-
month period increased by $6 million (3%) over 1993. Excluding the translation
impact of the U.S. dollar, operating profits increased $11 million and $21
million in the second quarter and first half of 1994, respectively. Operating
profits excluding the translation impact improved in all regions during the
second quarter and first six months of 1994 over 1993 except for North America,
where second quarter 1994 results were essentially unchanged from the same
period in 1993.
Automotive segment operating profits for the three and six-month periods
ended June 30, 1994 increased by $2 million (4%) and $9 million (10%),
respectively, over the comparable 1993 periods. The increases are primarily
attributable to higher North American volumes and increased market penetration
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UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
in Europe. Partially offsetting these improvements were higher launch costs in
support of new customers and new business awards in North America.
Research and development expenses decreased $25 million (9%) and $68 million
(12%) in the second quarter and first six-months of 1994, respectively, from the
comparable 1993 periods. The decreases occurred mainly at Pratt & Whitney where
the development phases of the PW4084 and PW4168 commercial engine programs are
reaching maturity.
Selling, general and administrative expenses for the second quarter of 1994
decreased $12 million (2%) in comparison with the corresponding 1993 period and
decreased $36 million (3%) in the 1994 six-month period from 1993. The
decreases resulted principally from the effects of the Corporation's
restructuring efforts initiated in the first quarter of 1992 which have
increasingly reduced ongoing general and administrative expenses.
Interest expense decreased $1 million (2%) and $13 million (10%) in the
second quarter and first six months of 1994, respectively, primarily as a result
of the Corporation's cash management and debt reduction programs, partially
offset by the effect of slightly higher interest rates.
FINANCIAL POSITION AND LIQUIDITY
Management assesses the Corporation's liquidity in terms of its overall
ability to generate cash to fund its operating and investing activities. Of
particular importance in the management of liquidity are cash flows generated
from operating activities, capital expenditure levels, adequate bank lines of
credit, and financial flexibility to attract long-term capital on satisfactory
terms.
Set forth below is selected key cash flow data from the Consolidated
Statement of Cash Flows:
Six Months Ended
June 30,
In Millions of Dollars 1994 1993
Net Cash Flows from Operating Activities $ 138 $ 233
Purchases of fixed assets $ (290) $ (350)
Acquisitions of business interests (83) -
Dispositions of business interests 227 -
Customer financing activities, net 105 (114)
Other investing activities 10 49
Net Cash Flows from Investing Activities $ (31) $ (415)
Net Cash Flows from Financing Activities $ 61 $ 165
Cash inflow from operations was $138 million during the six-month period
ended June 30, 1994 versus $233 million in the corresponding period of 1993.
During the second quarter 1994, the Corporation paid $150 million to the U.S.
Government for a previously reported settlement by Sikorsky Aircraft. The
amount of the settlement was accrued in prior years.
During the second quarter 1994, the Corporation received proceeds of
approximately $227 million from the sales of the equity share holdings in
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UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
Westland Group plc. and the net operating assets (excluding real property) of
its Norden subsidiary. Also during the 1994 second quarter, the Corporation
invested $83 million for acquisitions, principally to acquire minority
shareowners' interests in Otis and Carrier subsidiaries in Europe.
Customer financing was a net source of funds during the first six months of
$105 million primarily due to lower customer financing requirements and the sale
of certain customer financing assets.
Financing activities include the use of $52 million for the repurchase,
commencing in April 1994, of approximately 800,000 shares of the Corporation's
common stock under a previously announced program to repurchase shares to
counter the dilutive effect of shares issued under employee compensation and
benefit programs.
Selected financial data as of June 30, 1994, December 31, 1993 and June 30,
1993 follows:
June 30, December 31, June 30,
In Millions of Dollars 1994 1993 1993
Net working capital $ 1,401 $ 786 $ 827
Current asset ratio 1.2 to 1 1.1 to 1 1.1 to 1
Short-term borrowings and
current
portion of long-term debt $ 1,236 $ 1,020 $ 1,418
Long-term debt 1,580 1,560 1,644
Capital lease obligations 374 379 400
Shareowners' equity 3,707 3,598 3,446
Debt to total capitalization 46% 45% 50%
The Corporation's ratio of debt to total capitalization at June 30, 1994
decreased four percentage points from the same date one year earlier as a result
of operating results and improved cash flow. Due to seasonal impacts affecting
the Corporation's businesses, the June 30, 1994 debt to total capitalization
ratio is slightly higher than the ratio at the end of the prior year.
As previously disclosed, the Corporation filed a registration statement with
the Securities and Exchange Commission on January 19, 1994 pursuant to its plan
to sell to the public a 40 percent equity interest in UT Automotive, the
Corporation's Automotive segment. The Corporation has postponed the offering of
17.8 million shares of UT Automotive in light of current market conditions. The
company will continue to monitor the market.
For a description of the Corporation's material contingencies, refer to Notes
to Condensed Consolidated Financial Statements at pages 5 and 6 of this report
and Part I, Item 3 - Legal Proceedings of the Corporation's Annual Report on
Form 10K for calendar year 1993.
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UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
Part II - Other Information
Item 1. Legal Proceedings
In August of 1994, UT Automotive reached agreement with the Michigan
Department of Natural Resources (MDNR) concerning alleged violations of certain
provisions of an air permit for its Niles, Michigan facility which MDNR asserted
were violations of a Consent Judgment between MDNR and UTA (Consent Judgment No.
92-1811-CET, Berrien County Circuit Court). Costs and penalties associated with
the settlement agreement are less than $100,000. The matter which was
previously reported in the Corporation's Annual Report on Form 10K for the
calendar year 1993 is now concluded.
Other than the matter described above, there has been no material change in
legal proceedings during the second quarter of 1994. (For a description of
previously reported legal proceedings, refer to Part 1, Item 3 - Legal
Proceedings of the Corporation's Annual Report on Form 10K for calendar year
1993.)
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Corporation held its Annual Meeting of Shareowners on April 18, 1994.
(b) The following individuals were nominated and elected to serve as directors:
Howard H. Baker, Jr., Antonia H. Chayes, Robert F. Daniell, George David,
Robert F. Dee, Charles W. Duncan, Jr., Pehr G. Gyllenhammar, Gerald D. Hines,
Charles R. Lee, Robert H. Malott, and Jacqueline G. Wexler.
(c) The shareowners voted as follows on the following matters:
1. Election of directors. The voting result for each nominee is as follows:
Howard H. Baker, Jr. - 121,390,292 votes for, 860,055 votes withheld,
Antonia Handler Chayes - 121,434,345 votes for, 816,002 votes withheld,
Robert F. Daniell - 121,398,828 votes for, 851,519 votes withheld, George
David - 121,387,341 votes for, 863,006 votes withheld, Robert F. Dee -
121,405,615 votes for, 844,732 votes withheld, Charles W. Duncan, Jr. -
121,419,945 votes for, 830,402 votes withheld, Pehr G. Gyllenhammer -
121,413,320 votes for, 837,027 votes withheld, Gerald D. Hines -
121,442,511 votes for, 807,836 votes withheld, Charles R. Lee - 121,469,919
votes for, 780,428 votes withheld, Robert H. Malott - 121,456,298 votes
for, 794,049 votes withheld, and Jacqueline G. Wexler -121,350,102 votes
for, 900,245 votes withheld.
2. Appointment of auditors. The proposal was approved by a count of
121,296,673 votes for, 418,845 votes against, and 534,829 votes abstaining.
3. A shareowner proposal recommending that the Corporation provide to
shareowners a list of all executives contractually entitled to receive a
base salary in excess of $100,000 annually. The proposal was rejected by a
count of 21,462,220 votes for, 89,243,312 votes against, with 3,369,313
votes abstaining, and 8,175,502 broker non-votes.
4. A shareowner proposal recommending that the Corporation implement or
increase activity on each of the nine MacBride Principles. The proposal
was rejected by a count of 6,233,144 votes for, 98,278,953 votes against,
with 9,562,748 votes abstaining, and 8,175,502 broker non-votes.
14
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
5. A shareowner proposal recommending that the Corporation provide a
comprehensive report to shareowners regarding foreign military sales. The
proposal was rejected by a count of 3,463,443 votes for, 101,269,440 votes
against, with 9,341,962 votes abstaining, and 8,175,502 broker non-votes.
6. A shareowner proposal recommending that the Corporation endorse the Code of
Conduct for Business Operating in South Africa. The proposal was rejected
by a count of 5,551,792 votes for, 97,146,682 votes against, with
11,376,371 votes abstaining, and 8,175,502 broker non-votes.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
(11) Computation of per share earnings
(12) Computation of ratio of earnings to fixed charges
(15) Letter re unaudited interim financial information.
(b) No Reports on Form 8-K were filed during the quarter ended June 30, 1994.
15
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED TECHNOLOGIES CORPORATION
Dated: August 10, 1994 By: STEPHEN F.
PAGE
Stephen F. Page
Executive Vice President and
Chief Financial Officer
Dated: August 10, 1994 By: GEORGE E.
MINNICH
George E. Minnich
Vice President and Controller
Dated: August 10, 1994 By: WILLIAM H.
TRACHSEL
William H. Trachsel
Vice President and Secretary
16
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit 11 - Computation of per share earnings
Exhibit 12 - Computation of ratio of earnings to fixed charges
Exhibit 15 - Letter re unaudited interim financial information
17
Exhibit 11
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
Three Months Ended
June 30,
In Millions of Dollars (except per share amounts) 1994 1993
Earnings applicable to Common Stock $ 161 $ 120
Add back of Common Stock dividend upon assumed
conversion of ESOP Preferred Stock 6 4
Fully diluted net earnings for period $ 167 $ 124
Average number of common shares outstanding during
period (four month-end average) 129,311,829 125,454,729
Fully diluted average number of common shares
outstanding, assuming all outstanding convertible
securities had been converted on the dates of issue 141,886,872 138,268,674
Primary earnings per common share $ 1.25 $ .95
Fully diluted earnings per common share $ 1.18 $ .89
PAGE
Exhibit 11
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
Six Months Ended
June 30,
In Millions of Dollars (except per share amounts) 1994 1993
Earnings applicable to Common Stock $ 256 $ 173
Add back of Common Stock dividend upon assumed
conversion of ESOP Preferred Stock 12 8
Fully diluted net earnings for period $ 268 $ 181
Average number of common shares outstanding during
period (seven month-end average) 129,235,103 125,043,142
Fully diluted average number of common shares
outstanding, assuming all outstanding convertible
securities had been converted on the dates of issue 141,831,481 137,874,216
Primary earnings per common share $ 1.98 $ 1.38
Fully diluted earnings per common share $ 1.89 $ 1.31
PAGE
Exhibit 12
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Six Months Ended
June 30,
In Millions of Dollars 1994 1993
Fixed Charges:
Interest on indebtedness $ 119 $ 132
Interest capitalized 12 15
One-third of rents* 51 58
Total Fixed Charges $ 182 $ 205
Earnings:
Income before income taxes and minority interests $ 519 $ 377
Fixed charges per above 182 205
Less: interest capitalized (12) (15)
170 190
Amortization of interest capitalized 22 21
Total Earnings $ 711 $ 588
Ratio of Earnings to Fixed Charges 3.91 2.87
* Reasonable approximation of the interest factor.
PAGE
Exhibit 15
August 10, 1994
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Dear Sirs:
We are aware that United Technologies Corporation has incorporated by reference
our report dated July 20, 1994 (issued pursuant to the provisions of Statement
on Auditing Standards No. 71) in the Prospectus constituting part of its
Registration Statements on Form S-3 (Nos. 33-46916, 33-40163, 33-34320, 33-
31514, and 33-6452) and Form S-8 (Nos. 33-45440, 33-11255, 33-26580, 33-26627,
33-28974, 33-51385, and 2-87322). We are also aware of our responsibilities
under the Securities Act of 1933.
Yours very truly,
Price Waterhouse LLP
