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 September 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 September 30, 1994 there were 124,658,499 shares of Common Stock outstanding.
PAGE
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONTENTS OF QUARTERLY REPORT ON FORM 10-Q
Quarter Ended September 30, 1994
Page
Part I - Financial Information
Item 1. Financial Statements:
Condensed Consolidated Statement of
Operations for the three months ended 1
September 30, 1994 and 1993
Condensed Consolidated Statement of
Operations for the nine months ended 2
September 30, 1994 and 1993
Condensed Consolidated Balance Sheet at
September 30, 1994 and December 31, 1993 3
Condensed Consolidated Statement of Cash
Flows for the nine months ended September 4
30, 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 6. Exhibits and Reports on Form 8-K 14
Signatures 15
Exhibit Index
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UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended
September 30,
In Millions of Dollars (except per share amounts) 1994 1993
Revenues:
Product sales $ 4,094 $ 4,055
Service sales 1,041 1,001
Financing revenues and other income, net 118 72
5,253 5,128
Costs and expenses:
Cost of products sold 3,361 3,289
Cost of services sold 652 625
Research and development 229 263
Selling, general and administrative 611 608
Interest 59 60
4,912 4,845
Income before income taxes and minority interests 341 283
Income taxes 118 99
Minority interests 29 27
Net Income $ 194 $ 157
Preferred Stock Dividend Requirement $ 10 $ 11
Earnings Applicable to Common Stock $ 184 $ 146
Per share of Common Stock:
Primary earnings $ 1.43 $ 1.16
Fully diluted earnings $ 1.35 $ 1.08
Dividends $ .50 $ .45
Average shares outstanding (in thousands):
Primary 127,975 126,518
Fully diluted 140,471 139,266
See Accompanying Notes
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UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Nine Months Ended
September 30,
In Millions of Dollars (except per share amounts) 1994 1993
Revenues:
Product sales $ 12,154 $ 12,288
Service sales 3,032 3,001
Financing revenues and other income, net 394 273
15,580 15,562
Costs and expenses:
Cost of products sold 10,058 10,092
Cost of services sold 1,892 1,891
Research and development 730 832
Selling, general and administrative 1,862 1,895
Interest 178 192
14,720 14,902
Income before income taxes and minority interests 860 660
Income taxes 310 242
Minority interests 78 67
Net Income $ 472 $ 351
Preferred Stock Dividend Requirement $ 32 $ 32
Earnings Applicable to Common Stock $ 440 $ 319
Per share of Common Stock:
Primary earnings $ 3.42 $ 2.55
Fully diluted earnings $ 3.24 $ 2.40
Dividends $ 1.40 $ 1.35
Average shares outstanding (in thousands):
Primary 128,772 125,467
Fully diluted 141,319 138,272
See Accompanying Notes
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UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
September 30, December 31,
In Millions of Dollars 1994 1993
Assets
Cash and short-term cash investments $ 544 $ 421
Accounts receivable 3,439 2,981
Future income tax benefits 619 794
Inventories and contracts in progress, net 3,139 3,153
Other current assets 162 357
Total Current Assets 7,903 7,706
Fixed assets 10,184 9,796
Less - accumulated depreciation (5,704) (5,231)
4,480 4,565
Other assets 3,313 3,347
Total Assets $ 15,696 $ 15,618
Liabilities and Shareowners' Equity
Short-term debt $ 914 $ 1,020
Accounts payable 1,613 1,815
Accrued liabilities 2,962 2,965
Accrued restructuring costs 154 245
Other current liabilities 1,001 875
Total Current Liabilities 6,644 6,920
Future income taxes payable 195 177
Long-term debt 1,894 1,939
Other long-term liabilities 2,965 2,808
Series A ESOP Convertible Preferred Stock 919 822
ESOP deferred charge and note receivable (691) (646)
228 176
Shareowners' Equity:
Common Stock 2,131 2,075
Treasury stock (841) (677)
Retained earnings 2,730 2,466
Deferred foreign currency translation adjustments (211) (227)
Minimum pension liability adjustment (39) (39)
3,770 3,598
Total Liabilities and Shareowners' Equity $ 15,696 $ 15,618
See Accompanying Notes
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UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
In Millions of Dollars 1994 1993
Cash flows from operating activities:
Net income $ 472 $ 351
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization 623 599
(Increase) decrease in accounts receivable and
inventories, net of progress payments (362) 380
Increase (decrease) in:
Accounts payable and accrued liabilities (273) (710)
Future income taxes payable and future income
tax benefits 115 15
Advances on sales contracts 120 55
Other, net 205 180
Net Cash Flows from Operating Activities 900 870
Cash flows from investing activities:
Purchases of fixed assets (489) (551)
Acquisitions of business interests (106) -
Dispositions of business interests 238 -
(Increase) decrease in customer financings, net 17 (274)
Other, net 35 33
Net Cash Flows from Investing Activities (305) (792)
Cash flows from financing activities:
Issuance of long-term debt 31 17
Repayments of long-term debt (150) (575)
Increase (decrease) in short-term borrowings, net (50) 588
Dividends paid on Common and ESOP Preferred
Stocks (209) (199)
Common Stock repurchase (164) -
Other, net 68 8
Net Cash Flows from Financing Activities (474) (161)
Effect of foreign exchange rate changes on cash and
short-term cash investments 2 (17)
Net Increase (Decrease) in Cash and Short-Term
Cash Investments 123 (100)
Cash and Short-Term Cash Investments, Beginning of
year 421 354
Cash and Short-Term Cash Investments, End of period $ 544 $ 254
Supplemental Disclosure of Cash Flow Information:
Interest paid, net of amounts capitalized $ 134 $ 171
Income taxes paid, net of refunds 147 114
See Accompanying Notes
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UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The condensed consolidated financial statements at September 30, 1994 and for
the three-month and nine-month periods ended September 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 September 30, 1994.
In January 1994, the Corporation issued 1.4 million additional Series A
Convertible Preferred shares to the ESOP. As required, these shares are
accounted for under the November 1993 AICPA Statement of Position (SOP) 93-6,
"Employers' Accounting for Employee Stock Ownership Plans," and are considered
outstanding when they are committed to employee accounts. Adoption of SOP 93-6
is optional for previous ESOP Convertible Preferred shares, all of which are
considered outstanding under the Corporation's current accounting methods. The
Corporation is considering a fourth quarter 1994 adoption of SOP 93-6 for the
previous ESOP Convertible Preferred shares with effect from January 1, 1994,
which would result in restatement of each of the 1994 quarters. The principal
impact of such adoption would be to consider as outstanding only those ESOP
Convertible Preferred shares committed to employee accounts, to report as
interest expense all interest on the debt of the ESOP trust and to report
preferred stock dividends only on those shares considered as outstanding. It is
not expected that adoption of SOP 93-6, including the recognition of the
cumulative effect of this change, will materially impact full year earnings per
share.
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 89 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 costs, property damage, third party liability
and related costs. The two suits against the Corporation's insurers who hold
third party liability policies have resulted in settlements with many of the
defendants. However, since all defendants have not settled, the cases continue
and it is expected that they will last several years. The case against the
holders of the Corporation's property damage insurance policies is proceeding
and no settlements have been made in that case. Potential insurance
reimbursements are not recorded. The Corporation believes that expenditures
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UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
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.
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 the results of operations, financial position, or cash flows
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 nine-month periods ended
September 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 October 19, 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 nine-month periods ended September 30, 1994 and 1993, the
condensed consolidated statement of cash flows for the nine months ended
September 30, 1994 and 1993, and the condensed consolidated balance sheet as of
September 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
October 19, 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 19% in the first
nine months 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 be strong.
North American car and light truck production increased 12% (1,153,000 units)
in the first nine 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.
Although several domestic airlines have begun to show improved profitability
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.
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 Nine Months Ended
September 30, September 30,
In Millions of Dollars 1994 1993 1994 1993
Product sales $ 4,094 $ 4,055 $ 12,154 $ 12,288
Service sales 1,041 1,001 3,032 3,001
Financing revenues and
other income, net 118 72 394 273
Consolidated revenues increased $125 million and $18 million for the three-
month and nine-month periods ended September 30, 1994, respectively, from the
comparable 1993 periods. Increases in sales volumes in the Carrier, Otis and
Automotive segments were partially offset by the impact of continuing reductions
in commercial aerospace volumes in the Pratt & Whitney and Flight Systems
segments. Financing revenues and other income increased in the 1994 third
quarter and nine-month periods by $46 million and $121 million, respectively,
from the corresponding 1993 periods. The increase in the third quarter is
principally due to more events than in the comparable 1993 quarter which give
rise to financing revenues and other income including miscellaneous asset sales,
insurance litigation settlements and interest income. Other income in the 1994
nine-month period includes $87 million realized in the Flight Systems segment on
the sale of the equity share holdings in Westland Group plc. in April 1994.
Revenues for the Corporation's principal business segments for the three-
month and nine-month periods ended September 30, 1994 and 1993 and analysis of
the variations for 1994 compared to 1993 follow:
Quarter Ended Nine Months Ended
September 30, September 30,
In Millions of Dollars 1994 1993 1994 1993
Pratt & Whitney $ 1,376 $ 1,433 $ 4,214 $ 4,679
Flight Systems 768 893 2,428 2,529
Carrier 1,363 1,209 3,721 3,384
Otis 1,158 1,087 3,348 3,286
Automotive 606 528 1,914 1,733
Pratt & Whitney segment revenues for the third quarter of 1994 and the nine-
month period ended September 30, 1994 decreased $57 million (4%) and $465
million (10%), respectively, from the comparable 1993 periods. During the 1994
periods, shipments of commercial engines and sales of government spare parts
were lower than the 1993 periods. Also, the 1993 second quarter included
revenues resulting from the renegotiation of certain aircraft leases. These
reductions during the first nine months of 1994 were partially offset by higher
commercial spare parts sales and military engine shipments. Commercial spare
parts sales and military engine shipments during the 1994 third quarter were
essentially unchanged from the same period in 1993.
Third quarter 1994 Flight Systems segment revenues decreased $125 million
(14%) from the comparable quarter of 1993. Excluding the gain on the sale of
the equity share holdings in Westland Group plc. which was recognized in the
second quarter of 1994, segment revenues for the nine-month period decreased
$188 million (7%) from the same period in 1993. Revenues decreased in both
periods of 1994 from 1993 primarily as a result of lower helicopter volumes at
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UNITED TECHNOLOGIES CORPORATION
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Sikorsky, continuing reductions in commercial aerospace volumes at Hamilton
Standard, and the absence of Norden revenues.
Carrier segment revenues increased $154 million (13%) and $337 million (10%)
for the three-month and nine-month periods ended September 30, 1994,
respectively, over the comparable 1993 periods. Revenues in the 1994 third
quarter were higher in all geographic regions and at Carrier Transicold.
Revenues in the European region for the nine-month period remained lower than
the comparable 1993 period primarily due to lower volumes.
Otis segment revenues for the third quarter of 1994 and the nine-month period
ended September 30, 1994 increased $71 million (7%) and $62 million (2%),
respectively, over the comparable 1993 periods. Increased revenues in the
Pacific Rim, in part as a result of the consolidation of the operations in China
earlier in 1994 were partially offset by lower revenues in Europe and Latin
America. The impact of the translation of foreign currency revenues into U.S.
dollars was a negative $67 million for the 1994 nine-month period and a
favorable $22 million for the 1994 third quarter.
Revenues from the Automotive segment increased $78 million (15%) and $181
million (10%) in the 1994 third quarter and nine-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 16% in the third quarter of 1994 from the third quarter
of 1993 and increased approximately 12% in the 1994 nine-month period over the
corresponding 1993 period.
Margin information on the Corporation's product and service sales for the
three-month and nine-month periods ended September 30, 1994 and 1993 follows:
Quarter Ended Nine Months Ended
September 30, September 30,
In Millions of Dollars 1994 1993 1994 1993
Cost of products sold $ 3,361 $ 3,289 $ 10,058 $ 10,092
Product margin % 17.9% 18.9% 17.2% * 17.9%
Cost of services sold 652 625 1,892 1,891
Service margin % 37.4% 37.6% 37.6% 37.0%
* Product margin percentage for the nine months ended
September 30, 1994 was 17.9% before the impact of charges
for downsizing and other actions described below.
Product margins during the third quarter of 1994 were lower than the same
period in 1993 principally as a result of higher costs associated with the
introduction of new products and lower production volumes at Hamilton Standard.
Product margins showed stability or improvement at all of the Corporation's
other business units for the quarter.
Operating profits in the Corporation's principal business segments for the
three-month and nine-month periods ended September 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
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UNITED TECHNOLOGIES CORPORATION
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resulted in charges of $50 million and $35 million, respectively, in the Pratt &
Whitney and Flight Systems results for the second quarter.
Quarter Ended Nine Months Ended
September 30, September 30,
In Millions of Dollars 1994 1993 1994 1993
With Without
Pratt & Whitney $ 110 $ 58 $ 247 $ 297 $ 104
Flight Systems 57 91 203 151 242
Carrier 127 114 252 252 207
Otis 111 100 309 309 292
Automotive 31 20 131 131 111
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 of the nine-month
period will be based on 1994 operating results without the effect of the
downsizing charges and the Westland gain.
Pratt & Whitney segment operating profits increased $52 million and $193
million for the 1994 third quarter and nine-month period, respectively, from the
comparable 1993 periods. Pratt's operating profit increased in both periods of
1994 from 1993 primarily as a result of the benefits of cost reduction programs
and lower research and development spending, and for the nine-month period,
higher commercial spare parts sales 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 $34 million (37%) and $91 million
(38%) in the three-month and nine-month periods ended September 30, 1994,
respectively, from the corresponding 1993 periods. Operating profits decreased
in both periods of 1994 from 1993 primarily as a result of continuing reductions
in commercial aerospace volumes at Hamilton Standard, the absence of Norden
results, and for the 1994 third quarter, lower helicopter volumes at Sikorsky.
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 third quarter and nine-month period
ended September 30, 1994 increased $13 million (11%) and $45 million (22%),
respectively, over the comparable 1993 periods primarily due to improved results
in North America and at Carrier's Transicold business. The increases were
further supplemented by improved European results during the 1994 third quarter
as compared to the corresponding quarter in 1993.
Segment operating profits for Otis in the third quarter and first nine-months
of 1994 increased from the comparable 1993 periods $11 million (11%) and $17
million (6%), respectively. Operating profits increased in all regions with the
exception of Latin America. Increases in the Pacific Rim were particularly
strong for the periods, in part from the increased investment made in China
earlier in the year which allowed for full consolidation.
Automotive segment operating profits for the three-month and nine-month
periods ended September 30, 1994 increased $11 million (55%) and $20 million
(18%), respectively, over the comparable 1993 periods. The increases are
primarily attributable to higher sales volumes and the absence of the 1993 third
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UNITED TECHNOLOGIES CORPORATION
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quarter charges to rationalize certain manufacturing operations in Europe.
Partially offsetting the 1994 increases were higher launch costs in support of
new business awards in North America.
Research and development expenses decreased $34 million (13%) and $102
million (12%) in the third quarter and first nine-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 third quarter of 1994
remained essentially unchanged from the corresponding period in 1993 and
decreased $33 million (2%) in the 1994 nine-month period from 1993. The nine-
month decrease 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. Such decrease
in the 1994 third quarter was offset by sales volume related increases at
Carrier, the consolidation of Otis operations in China in early 1994 and the
unfavorable translation impact of the U.S. dollar.
Interest expense decreased $1 million (2%) and $14 million (7%) in the third
quarter and first nine 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:
Nine Months Ended
September 30,
In Millions of Dollars 1994 1993
Net Cash Flows from Operating Activities $ 900 $ 870
Purchases of fixed assets $ (489) $ (551)
Acquisitions of business interests (106) -
Dispositions of business interests 238 -
Customer financing activities, net 17 (274)
Other investing activities 35 33
Net Cash Flows from Investing Activities $ (305) $ (792)
Net Cash Flows from Financing Activities $ (474) $ (161)
Cash inflow from operations was $900 million during the nine-month period
ended September 30, 1994 versus $870 million in the corresponding period of
1993. The impact of the Corporation's improved operating performance was offset
by the $150 million payment made during the 1994 second quarter to the U.S.
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UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
Government for a previously reported settlement by Sikorsky Aircraft. The
amount of the settlement was accrued in prior years.
During 1994, the Corporation received proceeds of approximately $238 million
primarily from the sales of the equity share holdings in Westland Group plc. and
the net operating assets (excluding real property) of its Norden subsidiary.
Also during 1994, the Corporation invested $106 million for acquisitions,
principally to acquire minority shareowners' interests in Otis and Carrier
subsidiaries in Europe.
Financing activities include the use of $164 million for the repurchase,
commencing in April 1994, of approximately 2.6 million 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 September 30, 1994, December 31, 1993 and
September 30, 1993 follows:
September 30, December 31, September 30,
In Millions of Dollars 1994 1993 1993
Net working capital $ 1,259 $ 786 $ 631
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 $ 914 $ 1,020 $ 1,152
Long-term debt 1,529 1,560 1,645
Capital lease obligations 365 379 385
Shareowners' equity 3,770 3,598 3,485
Debt to total capitalization 43% 45% 48%
The Corporation's ratio of debt to total capitalization at September 30, 1994
decreased five percentage points from the same date one year earlier as a result
of operating results and improved cash flow.
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 deferred action on the
offering of 17.8 million shares of UT Automotive in light of market conditions,
and the offering has been withdrawn.
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.
13
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
Part II - Other Information
Item 1. Legal Proceedings
As previously reported, the Corporation, in March 1992, received a subpoena
from the Department of Defense Inspector General requesting documents in
connection with Pratt & Whitney's sale of goods and services to the Israeli
Government. The investigation relates to the activities of former Israeli
General Rami Dotan who pleaded guilty in Israel to engaging in corrupt practices
in connection with Israeli Air Force procurements involving another engine
manufacturer. A federal grand jury in the Southern District of Florida is
investigating this matter. In addition, the Civil Division of the Department of
Justice is also investigating and has indicated its intent to pursue this matter
under the False Claims Act. The Department of Justice has calculated single
damages as $10 million and, under the False Claims Act, these damages could be
trebled. Management believes that resolution of this matter will not have a
material adverse effect upon the results of operations, financial position, cash
flows, or competitive position of the Corporation.
Other than the matter described above, there has been no material change in
legal proceedings during the third 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 and to Part II, Item 1 - Legal Proceedings of the Corporation's reports on
Form 10Q for the first and second quarters of calendar year 1994.)
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 September 30,
1994.
14
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: November 14, 1994 By:Stephen F. Page
Stephen F. Page
Executive Vice President and
Chief Financial Officer
Dated: November 14, 1994 By:George E. Minnich
George E. Minnich
Vice President and Controller
Dated: November 14, 1994 By:William H. Trachsel
William H. Trachsel
Vice President and Secretary
15
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
16
Exhibit 11
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
Three Months Ended
September 30,
In Millions of Dollars (except per share amounts) 1994 1993
Earnings applicable to Common Stock $ 184 $ 146
Add back of Common Stock dividend upon assumed
conversion of ESOP Preferred Stock 6 4
Fully diluted net earnings for period $ 190 $ 150
Average number of common shares outstanding during
period (four month-end average) 127,975,384 126,517,907
Fully diluted average number of common shares
outstanding, assuming all outstanding convertible
securities had been converted on the dates of issue 140,471,050 139,265,793
Primary earnings per common share $ 1.43 $ 1.16
Fully diluted earnings per common share $ 1.35 $ 1.08
PAGE
Exhibit 11
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
Nine Months Ended
September 30,
In Millions of Dollars (except per share amounts) 1994 1993
Earnings applicable to Common Stock $ 440 $ 319
Add back of Common Stock dividend upon assumed
conversion of ESOP Preferred Stock 18 12
Fully diluted net earnings for period $ 458 $ 331
Average number of common shares outstanding during
period (ten month-end average) 128,771,788 125,467,437
Fully diluted average number of common shares
outstanding, assuming all outstanding convertible
securities had been converted on the dates of issue 141,318,873 138,272,299
Primary earnings per common share $ 3.42 $ 2.55
Fully diluted earnings per common share $ 3.24 $ 2.40
PAGE
Exhibit 12
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Nine Months Ended
September 30,
In Millions of Dollars 1994 1993
Fixed Charges:
Interest on indebtedness $ 178 $ 192
Interest capitalized 17 23
One-third of rents* 76 76
Total Fixed Charges $ 271 $ 291
Earnings:
Income before income taxes and minority interests $ 860 $ 660
Fixed charges per above 271 291
Less: interest capitalized (17) (23)
254 268
Amortization of interest capitalized 32 31
Total Earnings $ 1,146 $ 959
Ratio of Earnings to Fixed Charges 4.23 3.30
* Reasonable approximation of the interest factor.
PAGE
Exhibit 15
November 14, 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 October 19, 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
5
1,000,000
9-MOS
DEC-31-1994
JAN-01-1994
SEP-30-1994
544
0
3,734
(295)
3,139
7,903
10,184
(5,704)
15,696
6,644
1,894
2,131
228
0
1,639
15,696
12,154
15,580
10,058
11,950
730
0
178
860
310
472
0
0
0
472
3.42
3.24
