UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
FORM 10-Q
UNITED STATES
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 March 31, 2002
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 |
One Financial Plaza, Hartford, Connecticut 06103
(860) 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 March 31, 2002 there were 472,859,118 shares of Common Stock outstanding.
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONTENTS OF QUARTERLY REPORT ON FORM 10-Q
Quarter Ended March 31, 2002
| Page | |
| Part I - Financial Information | |
| Item 1. Financial Statements: | |
|
Condensed Consolidated Statement of Operations for the quarters ended March 31, 2002 and 2001 |
1 |
|
Condensed Consolidated Balance Sheet at March 31, 2002 and December 31, 2001 |
2 |
|
Condensed Consolidated Statement of Cash Flows for the
quarters ended March 31, 2002 and 2001 |
3 |
| Notes to Condensed Consolidated Financial Statements | 4 |
| Report of Independent Accountants | 12 |
|
Item 2. Management's Discussion and Analysis of Results of Operations and Financial Position |
13 |
| Item 3. Quantitative and Qualitative Disclosures About Market Risk | 22 |
| Part II - Other Information | |
| Item 1. Legal Proceedings | 24 |
| Item 2. Changes in Securities and Use of Proceeds | 24 |
| Item 6. Exhibits and Reports on Form 8-K | 24 |
| Signatures | 25 |
| Exhibit Index | 26 |
"Corporation," unless the context otherwise requires, means United Technologies Corporation or UTC and its subsidiaries.
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
Part I – Financial Information
Item 1 – Financial Statements
CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS
(Unaudited)
In Millions (except per share amounts) |
Quarter
Ended March 31, |
|||
| 2002 | 2001 |
|||
| Revenues: | ||||
| Product sales | $ |
4,700 |
$ |
4,988 |
| Service sales | 1,621 | 1,609 | ||
| Financing revenues and other income, net | 53 | 74 | ||
| 6,374 | 6,671 | |||
| Costs and expenses: | ||||
| Cost of products sold | 3,420 | 3,794 | ||
| Cost of services sold | 1,065 | 1,018 | ||
| Research and development | 338 | 297 | ||
| Selling, general and administrative | 754 | 785 | ||
| Interest | 99 | 107 | ||
| 5,676 | 6,001 | |||
| Income before income taxes and minority interests | 698 | 670 | ||
| Income taxes | 198 | 204 | ||
| Minority interests | 33 | 26 | ||
| Net income | $ |
467 |
$ |
440 |
| Earnings per share of Common Stock: | ||||
| Basic | $ |
.97 | $ |
.92 |
| Diluted | $ |
.92 | $ |
.86 |
| Dividends per share of Common Stock | $ |
.245 | $ |
.225 |
| Average number of shares outstanding: | ||||
| Basic | 473 | 471 | ||
| Diluted | 507 | 508 | ||
See accompanying Notes to Condensed Consolidated Financial Statements
1
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
In Millions |
March 31, |
December 31, |
||
Assets |
||||
| Cash and cash equivalents | $ |
1,337 | $ |
1,558 |
| Accounts receivable, net | 4,227 | 4,093 | ||
| Inventories and contracts in progress, net | 4,143 | 3,973 | ||
| Future income tax benefits | 1,348 | 1,378 | ||
| Other current assets | 304 | 261 | ||
| Total Current Assets | 11,359 | 11,263 | ||
| Fixed assets | 10,501 | 10,405 | ||
| Less: Accumulated depreciation | (5,965) |
(5,856) | ||
| 4,536 | 4,549 | |||
| Goodwill | 6,810 | 6,802 | ||
| Other assets | 4,302 | 4,355 | ||
| Total Assets | $ |
27,007 | $ |
26,969 |
Liabilities and Shareowners' Equity |
||||
| Short-term borrowings | $ |
432 | $ |
588 |
| Accounts payable | 2,232 | 2,156 | ||
| Accrued liabilities | 5,605 | 5,493 | ||
| Long-term debt currently due | 41 | 134 | ||
| Total Current Liabilities | 8,310 | 8,371 | ||
| Long-term debt | 4,144 | 4,237 | ||
| Future pension and postretirement benefit obligations | 2,709 | 2,703 | ||
| Other long-term liabilities | 2,770 | 2,860 | ||
| Series A ESOP Convertible Preferred Stock | 735 | 743 | ||
| ESOP deferred compensation | (307) | (314) | ||
| 428 | 429 | |||
| Shareowners' Equity: | ||||
| Common Stock | 5,196 | 5,090 | ||
| Treasury Stock | (4,502) | (4,404) | ||
| Retained earnings | 9,471 | 9,149 | ||
|
Accumulated other non-shareowners' changes in equity |
(1,519) |
(1,466) |
||
| 8,646 | 8,369 | |||
| Total Liabilities and Shareowners' Equity | $ |
27,007 | $ |
26,969 |
See accompanying Notes to Condensed Consolidated Financial Statements
2
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH
FLOWS
(Unaudited)
| In Millions | Quarter Ended March 31, | |||
| 2002 | 2001 | |||
| Operating Activities: | ||||
| Net income | $ |
467 | $ |
440 |
| Adjustments to reconcile
net income to net cash flows provided by operating activities: |
||||
| Depreciation and amortization | 175 | 222 | ||
| Deferred income tax provision | 74 | 32 | ||
| Change in: | ||||
| Accounts receivable | (171) | (20) | ||
| Inventories and contracts in progress | (153) | (241) | ||
| Accounts payable and accrued liabilities | 180 | 256 | ||
| Other current assets | (49) | (29) | ||
| Other, net | 50 | (27) | ||
| Net cash flows provided by operating activities | 573 | 633 | ||
| Investing Activities: | ||||
| Capital expenditures | (156) | (207) | ||
| Investments in businesses | (118) | (173) | ||
| Dispositions of businesses | - | 8 | ||
| Decrease (increase) in customer financing assets, net | 1 | (52) | ||
| Other, net | 5 | (3) | ||
| Net cash flows used in investing activities | (268) | (427) | ||
| Financing Activities: | ||||
| Issuance of long-term debt | - | 500 | ||
| Repayment of long-term debt | (185) | (105) | ||
| Decrease in short-term borrowings, net | (139) | (332) | ||
| Common Stock issued under employee stock plans | 107 | 133 | ||
| Dividends paid on Common Stock | (116) | (106) | ||
| Repurchase of Common Stock | (100) | (200) | ||
| Other, net | (79) | (51) | ||
| Net cash flows used in financing activities | (512) | (161) | ||
| Effect of foreign exchange rate
changes on Cash and cash equivalents |
(14) | (13) |
||
| Net
(decrease) increase in Cash and cash equivalents |
(221) |
32 |
||
| Cash and cash equivalents, beginning of year | 1,558 | 748 | ||
| Cash and cash equivalents, end of period | $ |
1,337 | $ |
780 |
See accompanying Notes to Condensed Consolidated Financial Statements
3
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
The Condensed Consolidated Financial Statements at March 31, 2002 and for the quarters ended March 31, 2002 and 2001 are unaudited, but in the opinion of management include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods. The results reported in these condensed consolidated financial statements should not necessarily be taken as indicative of results that may be expected for the entire year. The financial information included herein should be read in conjunction with the financial statements and notes in the Corporation's Annual Report incorporated by reference in Form 10-K for calendar year 2001.
Derivative Instruments and Hedging Activities
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. 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 its counterparties. The Corporation does not anticipate nonperformance by any of these counterparties.
Foreign currency exposures that cannot be naturally offset within an operating unit to an insignificant amount are hedged with foreign currency derivatives. These derivatives include forward contracts and swaps that cover exposures arising from remeasurement of foreign-currency-denominated receivables, payables and borrowings. The Corporation also uses forward contracts, in limited circumstances, to hedge a portion of its forecasted purchases of raw materials. In addition, a portion of the Corporation's fixed-rate long-term debt portfolio is hedged with fixed for floating interest rate swaps.
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.
Quarterly ActivityAt March 31, 2002 and 2001, the fair value of derivatives held by the Corporation, including those embedded in other contracts, was a net liability of $44 million and $53 million, respectively. The non-shareowner changes in equity associated with hedging activity during the quarters ended March 31, 2002 and 2001 were as follows:
In Millions, net of tax |
2002 | 2001 | |||
Balance at January 1 |
$ |
(23) |
$ | - |
|
Cash flow hedging loss, net |
(11) | (37) | |||
Net loss reclassified to sales or cost of products sold |
16 | 8 | |||
Balance at March 31 |
$ |
(18) | $ | (29) |
4
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
Of the amount recorded in shareowners' equity, an $18 million pre-tax loss is expected to be reclassified into sales or cost of products sold to reflect the fixed prices obtained from hedging within the next 12 months. Gains and losses recognized in earnings related to discontinuance of cash flow hedges and ineffectiveness of cash flow hedges during the quarter ended March 31, 2002 were immaterial. All open derivative contracts mature by December 2005.
Non-Shareowners' Changes in EquityNon-shareowners' changes in equity include all changes in equity during a period except changes resulting from investments by and distributions to shareowners. A summary of the non-shareowners' changes in equity is provided below.
| Quarter Ended March 31, |
||||
| In Millions | ||||
| 2002 | 2001 | |||
| Net income | $ |
467 | $ |
440 |
| Foreign currency translation, net | (56) | (111) | ||
| Unrealized holding (loss) on
marketable equity securities, net |
(2) |
(16) |
||
| Cash flow hedging gain (loss), net | 5 | (29) | ||
$ |
414 | $ |
284 | |
Inventories and Contracts in Progress
In Millions |
March
31, |
December
31, |
||
| Inventories consist of the following: | ||||
| Raw material | $ |
778 | $ |
728 |
| Work-in-process | 1,195 | 1,208 |
||
| Finished goods | 2,348 | 2,176 |
||
| Contracts in progress | 2,098 | 2,106 |
||
| 6,419 | 6,218 |
|||
| Less: | ||||
| Progress payments, secured by lien, on U.S. Government contracts |
(170) |
|
||
| Billings on contracts in progress | (2,106) | (2,099) |
||
$ |
4,143 | $ |
3,973 |
Investments in Businesses
During the first quarter of 2002, the Corporation invested $138 million, including $20 million of debt assumed, in the acquisition of businesses. Those investments consisted primarily of aerospace industry acquisitions at Pratt & Whitney. The assets and liabilities of the acquired businesses accounted for under the purchase method were 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 has been recorded as goodwill. 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.
5
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
The results of operations of acquired businesses have been included in the Condensed Consolidated Statement of Operations beginning on the effective date of each acquisition. The proforma results, assuming these acquisitions had been made at the beginning of the year, would not be materially different from reported results.
Effective July 1, 2001, the Corporation adopted the provisions of Statement of Financial Accounting Standards No. 141 "Business Combinations" ("SFAS 141"). The provisions of SFAS 141 apply to business combinations completed after June 30, 2001 and require that the purchase method of accounting be used to account for such transactions and set forth the accounting and initial recognition of acquired intangible assets and goodwill.
Goodwill and Other Intangible Assets
Effective July 1, 2001, the Corporation adopted the provisions of Statement of Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142") applicable to business combinations completed after June 30, 2001. Effective January 1, 2002, additional provisions of SFAS 142, relating to business combinations completed prior to June 30, 2001 became effective and were adopted by the Corporation. Under the provisions of this standard, intangible assets deemed to have indefinite lives and goodwill are not subject to amortization. All other intangible assets are 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. This testing requires comparison of carrying values to fair values, and when appropriate, the carrying value of impaired assets is reduced to fair value. Transitional goodwill impairment testing is to be completed within the first six months of adoption. As of March 31, 2002, the Corporation has recognized no impairment of goodwill. There can be no assurance that future goodwill impairments will not occur.
Net income, basic and diluted earnings per share for the quarter ended March 31, 2001, adjusted to exclude amounts no longer being amortized are as follows:
|
Quarter Ended |
|||||
| March 31, | |||||
| In Millions (except per share amounts) | 2002 | 2001 | |||
| Reported Net income | $ |
467 |
$ | 440 | |
| Adjustments: Goodwill amortization | - | 56 | |||
| Income taxes | - | (4) | |||
| Adjusted Net income | $ | 467 | $ | 492 | |
| Basic earnings per share: | |||||
| Reported | $ | 0.97 | $ | 0.92 | |
| Adjusted | - | 1.03 | |||
| Diluted earnings per share: | |||||
| Reported | $ | 0.92 | $ | 0.86 | |
| Adjusted | - | 0.96 | |||
6
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
| In Millions | 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 |
6 |
7 |
75 |
|
42 |
- |
42 |
|||||||
| Foreign currency translation and other | (9) | (17) | - | (4) | (30) | (4) | (34) | |||||||
| Balance as of March 31, 2002 | $ | 724 | $ | 2,002 | $ | 442 | $ | 3,646 | $ | 6,814 | $ | (4) | $ | 6,810 |
The increase in goodwill during the quarter ended March 31, 2002 results from business combinations completed or finalized in the period. The decline in goodwill at Flight Systems for the three-month period is largely related to finalization of purchase accounting for Hamilton Sundstrand's acquisition of Claverham Group, LTD.
Identifiable intangible assets as of March 31, 2002 are recorded in Other assets in the Condensed Consolidated Balance Sheet and are comprised of:
| In Millions | Gross Amount |
Accumulated Amortization |
|||
| Amortized intangible assets | |||||
| Purchased service contracts | $ | 537 | $ | (159) | |
| Patents and trademarks | 135 | (19) | |||
| Other, principally customer relationships |
65 |
(8) |
|||
| $ | 737 | $ | (186) | ||
Amortization of intangible assets for the three months ended March 31, 2002 was $10 million. Amortization expense of these intangible assets for 2002 to 2006 is estimated to be approximately $40 million per year.
Restructuring
During the first quarter of 2002, the Corporation recorded pre-tax restructuring and related charges totaling $102 million, primarily in the Carrier segment, related to ongoing cost reduction efforts. These efforts focus principally on the consolidation of manufacturing, sales and service facilities.
The charges include accruals of $42 million for severance and related employee termination costs, $38 million for asset write-downs, largely related to the disposal of manufacturing assets and facilities that are no longer to be utilized, and $12 million for facility exit and lease termination costs. Related charges associated with restructuring actions totaling $10 million were also recorded in the quarter, primarily in the Carrier segment. The charges during the quarter include approximately $85 million recorded in cost of sales, $15 million in selling, general and administrative expenses, and $2 million in financing revenues and other income, net.
7
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
The first quarter 2002 actions are expected to result in net workforce
reductions of approximately 1,600 salaried and hourly employees, the elimination
of approximately 1.2 million square feet of facilities and the disposal of
assets associated with exited facilities. Workforce
reductions of approximately 200 employees were completed during the quarter
ended March 31, 2002. The balance
of the workforce and facility related cost reduction actions are expected to be
completed by early 2003.
During the second half of 2001, the Corporation recorded pre-tax charges
totaling $348 million associated with ongoing cost reduction efforts and to
address challenging market conditions in the commercial airline industry.
Those programs are expected to result in 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 March 31, 2002, reductions of approximately 2,500 employees and
approximately 1.5 million square feet remain under the programs.
The programs are expected to be completed in 2002. As
of March 31, 2002, approximately $167 million of severance and related cost and
$26 million of facility exit and lease termination accruals remain under these
programs.
Contingent Liabilities
There has been no significant change in the Corporation's material
contingencies during 2002. Summarized below, however, are the matters previously
described in Notes 1 and 14 of the Notes to Consolidated Financial Statements in
the Corporation's Annual Report, incorporated by reference in Form 10-K for
calendar year 2001.
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.
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. The Corporation periodically reassesses these accrued 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 over two years.
This settlement was recorded as a reduction to cost of sales in the
first quarter of 2002.
8 UNITED TECHNOLOGIES CORPORATION
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
these 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.
9 UNITED TECHNOLOGIES CORPORATION Earnings Per Share 2002 2001 $ $ $ $ $ $ $ $ Segment Financial Data The Corporation's
operations are classified into four principal segments: Otis, Carrier, Pratt & Whitney and Flight Systems.
Those segments are generally determined based upon the management of the
business and on the basis of separate groups of operating companies, each with
general operating autonomy over diversified products and services.
Segment
financial data includes 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 Emerging Issues Task Force ("EITF") 96-16, overcome the presumption of
consolidation. In the
Corporation's consolidated results, these subsidiaries are accounted for using
the equity method of accounting. Adjustments
to reconcile segment reporting to consolidated results are included in
"Eliminations and other," which also includes certain small subsidiaries.
Segment
information for the three-month periods ended March 31, 2002 and 2001, are included in Management's Discussion and Analysis in the
"Segment Review" section. Recent Accounting Guidance In June 2001,
Statement of Financial Accounting Standards No. 143 "Accounting for Asset
Retirement Obligations" ("SFAS 143") was issued. The
standard requires that legal obligations associated with the retirement of
long-lived intangible assets be recorded at fair value when incurred and will be
effective for the Corporation on January 1, 2003. The Corporation is currently reviewing the provisions of SFAS
143 to determine the standard's impact upon adoption. In August 2001,
Statement of Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets," ("SFAS
144") was issued.
This statement provides guidance on the accounting for the impairment or
disposal of long-lived assets and was effective for the Corporation on January
1, 2002. The adoption of SFAS 144 did not have a material impact on its consolidated financial position,
results of operations, or cash flows. 10 UNITED TECHNOLOGIES CORPORATION With
respect to the unaudited condensed consolidated financial statements of United
Technologies Corporation for the quarters ended March 31, 2002 and 2001,
PricewaterhouseCoopers LLP ("PricewaterhouseCoopers") reported that
they have applied limited procedures in accordance with professional standards
for a review of such information. However,
their report dated April 17, 2002, appearing below, states that they
did not audit and they do not express an opinion on that unaudited condensed
consolidated financial statements. PricewaterhouseCoopers
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. PricewaterhouseCoopers is
not subject to the liability provisions of Section 11 of the Securities Act of
1933 ("the Act") for their report on the unaudited condensed
consolidated financial statements because that report is not a "report" or a "part" of a registration statement prepared or
certified by PricewaterhouseCoopers within the meaning of Sections 7 and 11 of
the Act. REPORT OF INDEPENDENT ACCOUNTANTS To the Shareowners of
We have reviewed the accompanying condensed consolidated statement of
operations of United Technologies Corporation and its consolidated subsidiaries
for the quarters ended March 31, 2002 and 2001, the condensed consolidated
statement of cash flows for the three months ended March 31, 2002 and 2001, and
the condensed consolidated balance sheet as of March 31, 2002.
These financial statements are the responsibility of the Corporation's
management. We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants.
A review of consolidated interim financial statements 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 auditing standards generally accepted in the United States of America, 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 condensed consolidated interim financial statements for
them to be in conformity with accounting principles generally accepted in the
United States of America.
We previously audited in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet as of
December 31, 2001, and the related consolidated statements of operations, of
changes in shareowners' equity and of cash flows for the year then ended (not
presented herein), and in our report dated January 17, 2002, 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, 2001, is fairly stated
in all material respects in relation to the consolidated balance sheet from
which it has been derived. /s/ PricewaterhouseCoopers LLP 12 UNITED TECHNOLOGIES CORPORATION Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Position BUSINESS ENVIRONMENT
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
Sikorsky Aircraft ("Sikorsky") and Hamilton Sundstrand, primarily
serve commercial and government customers in the aerospace industry.
For discussion of the Corporation's business environment, refer to the
discussion of "Business Environment" in the Management's Discussion
and Analysis of Results of Operations and Financial Position in the Corporation's Annual Report incorporated by reference in Form 10-K for calendar
year 2001. The current status of
significant factors impacting the Corporation's business environment in 2002
is discussed below.
As worldwide businesses, the Corporation's operations are affected by
global and
regional industry, economic and political factors.
The downturn in the North American economy, including current conditions
in the commercial airline industry, retail and transport refrigeration
industries,
HVAC and construction markets had a negative impact on the Corporation's
consolidated results, and is expected to continue to present challenges to the
Corporation's businesses operating in these markets.
During the first quarter of 2002, continued weakness in European and
Asian currencies had a negative impact on the Corporation's consolidated
results. In addition, the defense
portion of the Corporation's aerospace businesses is affected by changes in
market demand and the global political environment.
In general, the diversity of the Corporation's businesses and global
market presence have helped, and are expected to continue to help, limit the
impact of any one industry or the economy of any single country on the
consolidated results.
The Corporation's growth strategy contemplates acquisitions in its core
businesses. The rate and extent to which acquired businesses are
integrated and anticipated synergies or cost savings are achieved can affect the
Corporation's operations and results. Traffic
growth, load factors, worldwide airline profits, and general economic activity
have been historically reliable indicators for new aircraft and after-market
orders. Spare part sales and
after-market service trends can be impacted by many factors, including usage,
pricing, regulatory changes and retirement of older aircraft.
Performance in the general aviation sector has been closely tied to the
overall health of the economy and is positively correlated to corporate profits.
Airline operations continue to be negatively impacted by the disruption
caused by the September 2001 attacks and the downturn in the North American
economy. These conditions have
resulted in reduced flight schedules, an increased number of idle aircraft,
workforce reductions and declining financial performance within the airline
industry. The airlines and aircraft
manufacturers have continued to reduce their supplier bases and seek lower cost
packages. These conditions have
resulted in decreased commercial aerospace volume and orders in the
Corporation's aerospace businesses, which are expected to continue in 2002. 13 UNITED TECHNOLOGIES CORPORATION The
Corporation's products and services are regulated by strict safety and
performance standards, particularly in the commercial engine business. These standards can create uncertainty regarding the
profitability of commercial engine programs. There have been no significant changes in the
Corporation's business
environment during the first three months of 2002. RESULTS
OF CONTINUING OPERATIONS Consolidated
revenues decreased $297 million (4%) to $6.37 billion in the first quarter of
2002 compared to the same period in 2001. Excluding
the unfavorable impact of foreign currency translation, consolidated revenues
decreased 3%. The decrease
primarily reflects lower volume at Carrier, Flight Systems and Pratt &
Whitney. Gross margin as a percentage of sales increased 1.9 percentage points to
29.0% in the first quarter of 2002 compared with 27.1% in the first quarter of
2001. The gross margin increase
reflects the benefit of an approximate $100 million settlement of environmental
claims, the absence of goodwill amortization and the favorable impact of
commercial engine contract changes at Pratt & Whitney, partially offset by
restructuring charges of $85 million. Gross
margin also benefited from previous cost reduction actions.
Research and development spending increased $41 million (14%) in the
first quarter of 2002 compared to 2001. The
increase is due primarily to increases at Pratt & Whitney,
reflecting the variable nature of engineering development program schedules and
costs associated with the PW6000 program, as well as increased spending on
Sikorsky's S/H-92 program. These
increases were partially offset by cost reduction actions at Carrier.
As a percentage of sales, research and development was 5.3% in the first
quarter of 2002 as compared to 4.5% in the same period of 2001. Research and development is expected to be approximately 5%
of sales in 2002.
Selling, general and administrative expenses decreased $31 million (4%)
in the first quarter of 2002 compared to 2001.
The decrease is primarily the result of cost reduction actions,
principally at Carrier, offset by restructuring charges of $15 million recorded
in the first quarter of 2002. As a
percentage of sales, selling, general and administrative expenses were 11.9% in
the first quarter of 2002 and 2001.
The effective income tax rate for the first quarter of 2002 was 28.4%, as
compared to 30.4% for the same period of 2001.
The reduction in the Corporation's effective tax rate for the first
quarter of 2002 is due primarily to an increase in pre-tax income from
discontinuing amortization of non-deductible goodwill. The first quarter
2001 effective tax rate, adjusted for the impact of adoption of Statement of
Financial Accounting Standards No. 142, ("SFAS 142"), was 28.7%. The
Corporation has continued to lower its effective income tax rate by implementing
tax reduction strategies.
Net income of $467 million and diluted earnings per share of $.92
increased $27 million (6%) and $.06 per share (7%), respectively in the first
quarter of 2002 compared to 2001. First
quarter 2002 net income and diluted earnings per share include the impact of
discontinuing amortization of goodwill in accordance with SFAS 142.
Net income and diluted earnings per share for the quarter ended March 31,
2001, adjusted to exclude amounts no longer being amortized, were $492 million
and $.96 per share, respectively.
14 UNITED TECHNOLOGIES CORPORATION Restructuring
As described in the Notes to Condensed Consolidated Financial Statements,
during the quarter ended March 31, 2002, the Corporation recorded pre-tax
restructuring and related charges totaling $102 million associated with on-going
cost reduction efforts. These
efforts focus principally on the consolidation of manufacturing, sales and
service facilities. The charges, which were recorded primarily at Carrier, include accruals
of $42 million for severance and related employee termination costs, $38 million
for asset write-downs, largely related to the disposal of manufacturing assets
and facilities that are no longer to be utilized, and $12 million for facility exit and lease termination
costs. Related charges associated with restructuring actions
totaling $10 million were also recorded in the quarter, primarily in the Carrier
segment. The charges during the
quarter include $85 million recorded in cost of sales, $15 million in selling,
general and administrative expenses, and $2 million in financing revenues and
other income, net. The first quarter 2002 actions are expected to result in net workforce
reductions of approximately 1,600 salaried and hourly employees, the elimination
of approximately 1.2 million square feet of facilities and the disposal of
assets associated with exited facilities. Savings
are expected to increase over a two-year period resulting in recurring pre-tax
savings of approximately $80 million annually.
Approximately 60% of the total pre-tax charge will require cash payments,
which will be funded by cash generated from operations.
As of March 31, 2002, workforce reductions of approximately 200 employees were
completed. The balance of the
workforce and facility related cost reduction actions are expected to be
completed by early 2003. During the second half of 2001, the Corporation recorded pre-tax
restructuring and related charges of $348 million associated with ongoing cost
reduction efforts and to address challenging market conditions in the commercial
airline industry. In the current year, the Corporation has incurred
pre-tax cash outflows related to the 2001 programs of approximately $53 million,
which were funded by cash generated from operations.
Recurring pre-tax savings, associated primarily with the net reduction in
workforce and facility closures, are expected to increase over a two-year period
to approximately $300 million annually. As
of March 31, 2002, reductions of approximately 2,500 employees and approximately
1.5 million square feet remain under the programs.
The programs are expected to be completed by the end of 2002. As of March 31, 2002, approximately $167 million of severance and related
cost and $26 million of facility exit and lease termination accruals remain
under these programs. 15 UNITED TECHNOLOGIES CORPORATION Segment
Review 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. Adjustments to reconcile segment reporting to consolidated
results are included in "Eliminations and other," which also includes
certain small subsidiaries. Results
for the quarters ended March 31, 2002 and 2001 are as follows: General corporate expenses - - *First
quarter 2002 restructuring and related charges included in segment operating
profit are as follows: Otis - $16,
Carrier - $74, Pratt & Whitney - $9, and Flight Systems - $5.
Excluding these charges, first quarter 2002 segment operating profit and
related operating profit margins are as follows:
Otis - $250 (16.3%), Carrier - $135 (7.1%), Pratt & Whitney - $327
(17.8%), and Flight Systems - $163 (13.5%). **Effective
January 1, 2002, the Corporation adopted SFAS 142 which requires that intangible
assets deemed to have indefinite lives and goodwill are no longer subject to
amortization. Goodwill amortization recorded in segment operating profit for the
quarter ended March 31, 2001 is as follows: Otis - $7, Carrier - $18, Pratt
& Whitney - $5, and Flight Systems - $26.
Excluding goodwill amortization, first quarter 2001 segment operating
profit and related operating profit margins are as follows: Otis - $227 (14.7%), Carrier - $149 (7.1%), Pratt & Whitney - $348
(18.5%), and Flight Systems - $194 (15.5%). Otis
revenues decreased $12 million (1%) in the first quarter of 2002 compared to
2001. Excluding the impact of
foreign currency translation, revenues increased 3%, largely due to
acquisitions. The negative foreign
currency impact was primarily due to the strengthening of the U.S. dollar in relation
to European and Asian currencies. Otis operating profits increased $14 million (6%) in the first quarter of
2002 compared to 2001. Excluding
the first quarter 2002 restructuring charge, the operating profit increase reflects
profit improvements in all regions. Foreign currency negatively impacted
results by 4%.
Carrier revenues decreased $189
million (9%) in the first quarter of 2002 compared to 2001. Excluding the impact
of foreign currency translation, revenues decreased 7% reflecting market
weakness in the North American HVAC and Commercial Refrigeration businesses, and
economic pressures in Latin America. The
negative foreign currency impact was primarily due to the strengthening of the U.S.
dollar in relation to Asian and European currencies. 16 UNITED TECHNOLOGIES CORPORATION
Carrier operating profits decreased $70
million (53%) in the first quarter of 2002 compared to 2001. The operating profit decrease reflects the first quarter of 2002
restructuring charge and the profit impact of reduced volume partially offset by
cost reduction actions and the absence of goodwill amortization.
Pratt & Whitney revenues
decreased $38 million (2%) in the first quarter of 2002 compared to 2001. The decrease was primarily due to lower volume at Pratt & Whitney
Canada and Power Systems, and lower commercial spare parts volume, reflecting
current conditions in the commercial airline industry. This decline was partially offset by higher overhaul and repair volume
and military revenues. Pratt & Whitney operating profits decreased $25 million (7%) in the
first quarter of 2002 compared to 2001, primarily reflecting lower volume at
Pratt & Whitney Canada, costs associated with the PW6000 program and the
impact of lower commercial spare parts volume.
These results were partially offset by higher military profits and the
favorable impact of commercial engine contract changes. Flight
Systems revenues decreased $45 million (4%) in the first quarter of 2002
compared to 2001. The first quarter
decrease is primarily associated with lower helicopter shipments at Sikorsky and
lower commercial aerospace spares and lower industrial volume at Hamilton
Sundstrand, reflecting current market conditions.
Flight Systems operating profits decreased $10 million (6%) in the first
quarter of 2002 compared to 2001. The
majority of the operating profit decline is attributable to Sikorsky, due to
higher research and development costs on the S/H-92 program and increased costs
on an international Naval Hawk program, partially offset by higher margins from
a favorable mix of helicopter shipments. Operating
profits at Hamilton Sundstrand also declined, due primarily to lower commercial
aerospace and industrial volume, partially offset by the absence of goodwill
amortization and the impact of cost reduction actions. LIQUIDITY AND FINANCIAL POSITION Management assesses the Corporation's liquidity in terms of its overall
ability to generate cash to fund its operating and investing activities.
Significant factors affecting the management of liquidity are cash flows
generated from operating activities, capital expenditures, investments in
businesses, customer financing requirements, dividends, Common Stock
repurchases, adequate bank lines of credit and financial flexibility to attract
long-term capital with satisfactory terms.
$ $ $
Net cash flows provided by operating activities decreased $60 million in the
first quarter of 2002 compared to the first quarter of 2001, due largely to
higher accounts receivable levels. 17 UNITED TECHNOLOGIES CORPORATION Cash used in investing activities
decreased $159 million in the first quarter of 2002 compared to the first
quarter of 2001. The decrease is
due primarily to lower investments in businesses and lower capital expenditures
due to a rationalization of capital projects.
Cash spending for investments in businesses for the first quarter of 2002
consist primarily of aerospace acquisitions at Pratt & Whitney. Total
investment in businesses in 2002 is expected to approximate $1 billion and
includes the second quarter acquisition of Derco Holding Ltd., which
will result in an expansion of Sikorsky's aftermarket business. Cash used in
customer financing activity decreased $53 million in the first quarter of 2002
compared with the same period of 2001, primarily due to lower customer generated
requirements for financing. While
the Corporation expects that 2002 customer financing activity will be a net use
of funds, actual funding is subject to usage under existing customer financing
commitments during the remainder of the year.
The Corporation had financing and rental commitments of $1.7 billion
related to commercial aircraft at March 31, 2002, compared to $1.6 billion at
December 31, 2001.
Net cash flows used in financing activities increased $351 million in the
first quarter of 2002 due primarily to the issuance of $500 million of 6.35%
Notes in the first quarter of 2001, partially offset by lower repurchases of
Common Stock in the first quarter of 2002.
Under shelf registration statements previously filed with the Securities
and Exchange Commission, the Corporation can issue up to $1.6 billion of
additional debt and equity securities.
The Corporation repurchased $100 million of Common Stock, representing 1.4
million shares, in the first quarter of 2002 under previously announced share
repurchase programs. The share repurchase programs continue to be a use of the
Corporation's cash flows and have more than offset the dilutive effect
resulting from the issuance of stock and options under stock-based employee
benefit programs. At March 31,
2002, the Corporation was authorized to repurchase an additional 14.4 million
shares, and expects total share repurchases in 2002 to approximate $400 million
or more. The Corporation manages its worldwide cash requirements considering
available funds among the many subsidiaries through which it conducts its
businesses and the cost effectiveness with which those 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.
Management believes that its existing cash position and other available
sources of liquidity are sufficient to meet current and anticipated requirements
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.
Critical Accounting Policies
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 of the Notes to Consolidated Financial Statements in the
Corporation's Annual Report on Form 10-K for the year ended December 31, 2001
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.
18 UNITED TECHNOLOGIES CORPORATION 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 warranty and product guarantee costs over the net revenue from the
products contemplated by the specific order. The net revenue is determined based
upon an estimate of the quantity, pricing and timing of future product
deliveries. Contract accounting
also requires estimates of future costs over the performance period of the
contract. Contract costs are incurred over a period of several years and the
estimation of these costs requires management 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 updates its cost estimates when circumstances change and warrant a modification to a previous
estimate. Adjustments to contract
loss provisions resulting from revisions to cost estimates or changes to
customer contractual terms are recorded in earnings upon identification.
Income Taxes The future tax benefit arising from net deductible temporary differences
and tax carryforwards is $2.6 billion at March 31, 2002 and
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. Business Acquisitions The Corporation completed acquisitions in the first quarter of 2002 for
$138 million, including $20 million of debt assumed in the acquisition of
businesses. The assets and liabilities of acquired business 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 companies. The
Corporation has recorded goodwill of $6.8 billion as of March 31, 2002 and
December 31, 2001.
19
UNITED TECHNOLOGIES CORPORATION In accordance with SFAS 142, goodwill and intangible assets deemed to
have indefinite lives are not amortized, but are subject to annual impairment
testing using the specific guidance and criteria described in the standard.
The identification and measurement of goodwill impairment involves the
estimation of the fair value of reporting units, including the related goodwill.
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.
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. Contracting
with the Federal 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 matters that are probable and can be reasonably estimated.
The inherent uncertainty related to the outcome of these audit matters
can result in amounts materially different from any provisions we have made with
respect to their resolution. The
Corporation recorded sales to the U.S. Government of $905 million and $761
million in the first
quarter of 2002 and 2001, respectively. 20 UNITED TECHNOLOGIES CORPORATION Recent
Accounting Guidance In June 2001,
SFAS 143, "Accounting for Asset Retirement Obligations" was issued. The standard requires that legal obligations associated with the
retirement of long-lived intangible assets be recorded at fair value when
incurred and will be effective for the Corporation on January 1, 2003. The Corporation is currently reviewing the provisions of SFAS 143 to
determine the standard's impact upon adoption. In August 2001,
SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" was issued. This
statement provides guidance on the accounting for the impairment or disposal of
long-lived assets and the measurement and reporting of discontinued operations.
SFAS 144 was effective for the Corporation on January 1, 2002. The adoption of SFAS
144 did not have a material impact on its
consolidated financial position, results of operations, or cash flows. 21 UNITED TECHNOLOGIES CORPORATION Item 3. Quantitative and Qualitative Disclosures about
Market Risk There has been no
significant change in the Corporation's exposure to market risk during the first
quarter of 2002. For discussion of the Corporation's exposure to market risk, refer to Item
7A, Quantitative and Qualitative Disclosures about Market Risk, contained in the
Corporation's Annual Report incorporated by reference in Form 10-K for the calendar year
2001. 22 UNITED TECHNOLOGIES CORPORATION This report on
Form 10-Q 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. 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 Report on Form 10-Q includes important
information as to risk factors in the "Notes to Condensed Consolidated
Financial Statements" under the heading "Contingent Liabilities" and in
the section titled "Management's Discussion and Analysis of Results of
Operations and Financial Position" under the headings "Business
Environment," "Restructuring and Other Costs," "Results of Continuing
Operations," "Liquidity and Financial Position" and "Critical
Accounting Policies." The Corporation's
Annual Report on Form 10-K for 2001 also includes important information as to
risk factors in the "Business" section under the headings "Description of
Business by Segment," "Other Matters Relating to the Corporation's
Business as a Whole" and "Legal Proceedings." Additional important
information as to risk factors is included in the Corporation's 2001 Annual
Report to Shareowners in the section titled "Management's Discussion and
Analysis of Results of Operations and Financial Position" under the headings
"Business Environment" and "Restructuring and Other Costs." 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.
23 UNITED TECHNOLOGIES CORPORATION Part II – Other Information Item 1. Legal Proceedings A previously reported case, U.S. ex rel. Capella
v. UTC and Norden Systems Inc., No. 394CV02063 (filed December 1994), has
been dismissed. Except as
noted above, there have been no material developments in legal proceedings.
For a description of previously reported legal proceedings, refer to Part
I, Item 3, Legal Proceedings, of the Corporation's Annual Report on Form 10-K
for 2001. The Corporation does not believe that resolution of the foregoing legal
matters will have a material adverse effect upon the Corporation's competitive
position, results of operations, cash flow or financial position. Item 2. Changes
in Securities and Use of Proceeds On December 15, 2001, the Corporation contributed 4,074,980 shares of its
Common Stock valued at $247 million to its defined benefit pension plans, in
accordance with Section 4(2) of the Securities Act of 1933. This contribution will reduce future obligations of the Corporation to
fund the plans.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits (b) Reports on Form 8-K. No reports on Form 8-K were filed
during the quarter ended March 31, 2002. *Submitted electronically herewith. 24 UNITED TECHNOLOGIES CORPORATION 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. 25 EXHIBIT INDEX *Submitted electronically herewith. 26
Exhibit 12 UNITED TECHNOLOGIES CORPORATION STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES 2002 2001 * Reasonable approximation of the
interest factor. Exhibit 15 April 23, 2002 Securities and Exchange Commission Commissioners: We are aware that our report dated April 17, 2002
on our review of interim financial information of United Technologies
Corporation (the "Corporation") as of and for the period ended March 31,
2002 and included in the Corporation's quarterly report on Form 10-Q for the
quarter then ended is incorporated by reference in its Registration Statements
on Form S-3 (Nos. 333-51830 and 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.
333-21853, 333-18743, 333-21851, 33-57769, 33-45440, 33-11255, 33-26580,
33-26627, 33-28974, 33-51385, 33-58937, 2-87322, 333-77817, and 333-82911). Yours very truly, /s/ PricewaterhouseCoopers LLP
AND SUBSIDIARIES
AND SUBSIDIARIES
Quarter Ended March 31,
In Millions (except per share
amounts)
Net income
467
440
Less: ESOP Stock Dividends
(8)
(8)
Basic earnings
459
432
ESOP Stock adjustment
7
7
Diluted earnings
466
439
Average shares:
Basic
473
471
Stock awards
8
11
ESOP Stock
26
26
Diluted
507
508
Earnings per share of Common
Stock:
Basic
.97
.92
Diluted
.92
.86
AND SUBSIDIARIES
United Technologies
Corporation
PricewaterhouseCoopers LLP
Hartford, Connecticut
April 17, 2002
AND SUBSIDIARIES
AND SUBSIDIARIES
AND SUBSIDIARIES
AND SUBSIDIARIES
In
Millions of Dollars
Revenues
Operating Profit
Operating
Profit Margin
Quarter Ended
March 31,
2002
2001
2002*
2001**
2002*
2001**
Otis
$
1,536
$
1,548
$
234
$
220
15.2%
14.2%
Carrier
1,896
2,085
61
131
3.2%
6.3%
Pratt
& Whitney
1,840
1,878
318
343
17.3%
18.3%
Flight
Systems
1,209
1,254
158
168
13.1%
13.4%
Total
segment
6,481
6,765
771
862
11.9%
12.7%
Eliminations and other
(107)
(94)
83
(33)
(57)
(52)
Consolidated
$
6,374
$
6,671
797
777
Interest expense
(99)
(107)
Income
before income taxes
and minority interests
$
698
$
670
AND SUBSIDIARIES
In Millions of Dollars
March
31,
2002
December 31,
2001
March 31,
2001
Cash and cash equivalents
1,337
1,558
780
Total debt
4,617
4,959
4,874
Net debt (total debt less cash)
3,280
3,401
4,094
Shareowners' equity
8,646
8,369
7,738
Debt to total capitalization
35%
37%
39%
Net debt to total capitalization
28%
29%
35%
AND SUBSIDIARIES
AND SUBSIDIARIES
AND SUBSIDIARIES
AND SUBSIDIARIES
AND SUBSIDIARIES
AND SUBSIDIARIES
AND SUBSIDIARIES
(12)
Statement re: computation of ratio of earnings
to fixed charges. *
(15)
Letter re: unaudited interim financial
information. *
AND SUBSIDIARIES
UNITED TECHNOLOGIES CORPORATION
Dated: April
23, 2002
By: /s/ David J. FitzPatrick
David J. FitzPatrick
Senior Vice President,
Chief
Financial Officer
Dated: April
23, 2002
By: /s/ David G. Nord
David G. Nord
Vice President, Controller
Dated: April
23, 2002
By: /s/ William H. Trachsel
William H. Trachsel
Senior Vice President, General
Counsel and Secretary
(12)
Statement re: computation of ratio of earnings
to fixed charges. *
(15)
Letter re: unaudited interim financial
information. *
AND SUBSIDIARIES
Quarter
Ended
March
31,
In
Millions of Dollars
Fixed
Charges:
Interest expense
$
99
$
107
Interest
capitalized
4
6
One-third of
rents*
16
16
Total Fixed
Charges
$
119
$
129
Earnings:
Income before
income taxes and minority interests
$
698
$
670
Fixed charges per
above
119
129
Less: interest
capitalized
(4)
(6)
115
123
Amortization of
interest capitalized
1
5
Total Earnings
$
814
$
798
Ratio
of Earnings to Fixed Charges
6.84
6.19
450 Fifth Street, N.W.
Washington, D.C. 20549
PricewaterhouseCoopers LLP
Hartford, Connecticut