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, 2000 there were 470,520,367 shares of Common Stock outstanding.
Page Part I - Financial Information Item 1. Financial Statements: Condensed Consolidated Statement of 1 Operations for the quarters ended March 31, 2000 and 1999 Condensed Consolidated Balance Sheet at March 2 31, 2000 and December 31, 1999 Condensed Consolidated Statement of Cash 3 Flows for the quarters ended March 31, 2000 and 1999 Notes to Condensed Consolidated Financial 4 Statements Report of Independent Accountants 9 Item 2. Management's Discussion and Analysis of 10 Results of Operations and Financial Position Item 3. Quantitative and Qualitative 14 Disclosures About Market Risk Part II - Other Information Item 1. Legal Proceedings 16 Item 6. Exhibits and Reports on Form 8-K 16 Signatures 17 Exhibit Index 18
Item 1. Financial Statements
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited) Quarter Ended March 31, In Millions (except per share amounts) 2000 1999 Revenues: Product sales $ 4,824 $ 3,980 Service sales 1,483 1,402 Financing revenues and other income, net 83 60 6,390 5,442 Costs and expenses: Cost of products sold 3,717 3,110 Cost of services sold 911 867 Research and development 314 274 Selling, general and administrative 781 701 Interest 86 55 5,809 5,007 Income from continuing operations before income taxes and minority interests 581 435 Income taxes 177 136 Minority interests 27 21 Income from continuing operations 377 278 Discontinued operation: Income from operations of discontinued UT Automotive unit (net of applicable income tax provision of $15 in 1999) - 30 Net income $ 377 $ 308 Earnings per share of Common Stock: Basic: Continuing operations $ .78 $ .60 Discontinued operation - .07 Net earnings $ .78 $ .67 Diluted: Continuing operations $ .74 $ .57 Discontinued operation - .06 Net earnings $ .74 $ .63 Dividends per share of Common Stock: $ .20 $ .18 Average number of shares outstanding: Basic 473 451 Diluted 511 492
CONDENSED CONSOLIDATED BALANCE SHEET March 31, December 31, In Millions 2000 1999 (Unaudited)
Cash and cash equivalents $ 657 $ 957 Accounts receivable, net 4,298 4,337 Inventories and contracts in progress, net 3,641 3,504 Future income tax benefits 1,505 1,563 Other current assets 268 266 Total Current Assets 10,369 10,627 Fixed assets 10,238 10,455 Less: Accumulated depreciation 5,895 5,995 4,343 4,460 Goodwill 5,752 5,641 Other assets 3,737 3,638 Total Assets $ 24,201 $ 24,366
Liabilities and Shareowners' Equity
Short-term borrowings $ 790 $ 902 Accounts payable 2,080 1,957 Accrued liabilities 5,859 6,023 Long-term debt currently due 229 333 Total Current Liabilities 8,958 9,215 Long-term debt 3,246 3,086 Future pension and postretirement benefit obligations 1,623 1,601 Other long-term liabilities 2,895 2,898 Series A ESOP Convertible Preferred Stock 795 808 ESOP deferred compensation (352) (359) 443 449 Shareowners' Equity: Common Stock 4,301 4,227 Treasury Stock (3,478) (3,182) Retained earnings 6,707 6,463 Accumulated other non-shareowners' changes in equity (494) (391) 7,036 7,117 Total Liabilities and Shareowners' Equity $ 24,201 $ 24,366
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) Quarter Ended March 31, In Millions 2000 1999 Operating Activities: Income from continuing operations $ 377 $ 278 Adjustments to reconcile income from continuing operations to net cash flows provided by operating activities: Depreciation and amortization 212 183 Deferred income tax provision 27 50 Change in: Accounts receivable 23 (108) Inventories and contracts in progress (99) (138) Accounts payable and accrued liabilities 21 201 Other current assets (4) (71) Other, net (31) (19) Net cash flows provided by operating activities 526 376 Investing Activities: Capital expenditures (149) (129) Investments in businesses (269) (95) Dispositions of businesses - 43 Increase in customer financing assets, net (15) (11) Other, net 40 6 Net cash flows used in investing activities (393) (186) Financing Activities: Issuance of long-term debt 216 - Repayment of long-term debt (145) (14) (Decrease) increase in short-term borrowings, net (122) 53 Dividends paid on Common Stock (94) (81) Repurchase of Common Stock (300) (97) Other, net 13 55 Net cash flows used in financing activities (432) (84) Net cash flows provided by discontinued operation - 30 Effect of foreign exchange rate changes on Cash and cash equivalents (1) (29) Net (decrease) increase in Cash and cash equivalents (300) 107 Cash and cash equivalents, beginning of year 957 550 Cash and cash equivalents, end of period $ 657 $ 657
See accompanying Notes to Condensed Consolidated Financial Statements
The Condensed Consolidated Financial Statements at March 31, 2000 and for the quarters ended March 31, 2000 and 1999 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 1999.
Non-Shareowners' Changes in Equity
Non-shareowners' changes in equity includes 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, 2000 1999 Net Income $ 377 $ 308 Foreign currency translation, net (29) (78) Unrealized holding loss on marketable equity securities, net (74) - $ 274 $ 230
Investments in Businesses
During the first quarter of 2000, the Corporation invested $269 million in businesses, including Carrier's purchase of the commercial refrigeration business of Electrolux AB. 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 and is being amortized over its estimated useful life. The results of operations of all acquired businesses have been included in the Condensed Consolidated Statements of Operations beginning on the effective date of each acquisition. The pro forma results, assuming these acquisitions had been made at the beginning of the year, would not be materially different from reported results.
Inventories and Contracts in Progress
March 31, December 31, In Millions 2000 1999 Inventories consist of the following: Raw material $ 713 $ 702 Work-in-process 1,001 1,158 Finished goods 2,171 1,871 Contracts in progress 1,667 1,561 5,552 5,292 Less: Progress payments, secured by lien, on U.S. Government contracts (145) (87) Billings on contracts in progress (1,766) (1,701) $ 3,641 $ 3,504
During 1999, the Corporation's operating segments initiated a variety of actions aimed at further strengthening their future profitability and competitive position. Those actions focused principally on rationalizing manufacturing processes and improving the overall level of organizational efficiency, including the removal of management layers. Restructuring charges accrued in 1999 were $842 million before income taxes and minority interests and will result in net reductions of approximately 15,000 salary and hourly employees and approximately 8 million square feet of facilities.
The 1999 accrued costs were recorded across each of the Corporation's operating segments as follows:
In Millions Otis $ 178 Carrier 182 Pratt & Whitney 345 Flight Systems 131 Other 6 $ 842
The following table summarizes the accrued costs associated with the 1999 restructuring actions by type and related activity through March 31, 2000:
Accrued Accrued Exit & Severance Lease Accrued Site and Related Asset Write- Termination Restoration & In Millions Costs downs Costs Other Costs Total 1999 Charges: Staff reductions $ 433 $ - $ - $ - $ 433 Facility closures 149 160 44 56 409 Total accrued charges 582 160 44 56 842 Adjustments 2 - - - 2 1999 Adjusted 584 160 44 56 844 Utilized to date: Cash (199) - (3) (16) (218) Non-cash (48) (160) - - (208) Balance at March 31, 2000 $ 337 $ - $ 41 $ 40 $ 418
The 1999 accrued costs were recorded in cost of sales (87%) and selling, general and administrative expenses (13%) and related to:
. Workforce reductions of approximately 15,000 employees, primarily at Pratt & Whitney (5,200 employees), Otis (4,000 employees) and Carrier (3,200 employees)
. Plant closings that will result in the reduction of approximately 8 million square feet of facilities, primarily at Pratt & Whitney (3 million square feet) and Carrier (2.9 million square feet), and charges associated with the write-down of property, plant and equipment to fair value, where fair value is based on appraised value, primarily at Pratt & Whitney ($70 million) and Carrier ($41 million).
As of March 31, 2000, workforce reductions of approximately 7,600 employees were completed and approximately 1.4 million square feet were eliminated. The remaining workforce reductions and plant closings are planned to be substantially completed by December of this year.
In the first quarter of 2000, the Corporation incurred additional costs of $43 million associated with the restructuring actions that were not accruable when the actions were initiated.
There has been no significant change in the Corporation's material contingencies during 2000. 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, contained in the Corporation's Annual Report incorporated by reference in Form 10-K for calendar year 1999.
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.
The Corporation maintains property insurance with a number of insurance companies. Litigation is continuing against one of the Corporation's historical property insurers seeking coverage for environmental costs incurred at certain facilities. The litigation is expected to last several years. Environmental liabilities are not reduced by potential insurance reimbursements.
As discussed above, the Corporation has accrued for the costs of environmental remediation activities and periodically reassesses these amounts. Management believes that losses materially in excess of amounts accrued are not resonably possible.
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 was 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'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.
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. The Corporation has accrued its estimated liability that may result under these guarantees.
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.
Earnings Per Share Quarter Ended March 31, In Millions (except per 2000 1999 share amounts) Income from continuing operations $ 377 $ 278 Less: ESOP Stock dividends (8) (8) Basic earnings from continuing operations 369 270 ESOP Stock adjustment 7 7 Diluted earnings from continuing operations $ 376 $ 277 Income from discontinued operation, net of tax $ - $ 30 Net income $ 377 $ 308 Less: ESOP Stock dividends (8) (8) Basic earnings 369 300 ESOP Stock adjustment 7 7 Diluted earnings $ 376 $ 307 Average shares: Basic 473 451 Stock awards 11 14 ESOP Stock 27 27 Diluted 511 492 Earnings per share of Common Stock: Basic: Continuing operations $ .78 $ .60 Discontinued operation - .07 Net earnings $ .78 $ .67 Diluted: Continuing operations $ .74 $ .57 Discontinued operation - .06 Net earnings $ .74 $ .63
With respect to the unaudited condensed consolidated financial information of United Technologies Corporation for the quarter ended March 31, 2000 and 1999, PricewaterhouseCoopers LLP ("PricewaterhouseCoopers") reported that they have applied limited procedures in accordance with professional standards for a review of such information. However, their separate report dated April 19, 2000 appearing below, states that they did not audit and they do not express an opinion on that unaudited condensed consolidated financial information. 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 information 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.
To the Shareowners of
United Technologies Corporation
We have reviewed the accompanying condensed consolidated statement of operations of United Technologies Corporation and consolidated subsidiaries for the quarters ended March 31, 2000, and 1999, the condensed consolidated statement of cash flows for the three months ended March 31, 2000 and 1999, and the condensed consolidated balance sheet as of March 31, 2000. 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 auditing standards generally accepted in the United States, 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 accounting principles generally accepted in the United States.
We previously audited in accordance with auditing standards generally accepted in the United States, the consolidated balance sheet as of December 31, 1999, 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 19, 2000, 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, 1999, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.
/s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Hartford, Connecticut April 19, 2000
Item 2. Management's Discussion and Analysis of Results of Operations and Financial Position
The Corporation's operations are classified into four operating segments. Carrier and Otis serve customers in the commercial property and residential housing industries. Pratt & Whitney and the Flight Systems segment, which includes Sikorsky Aircraft and Hamilton Sundstrand, serve commercial and government customers in the aerospace industry.
As worldwide businesses, the Corporation's operations are affected by global and regional economic factors. However, the diversity of the Corporation's businesses and global market presence has helped limit the impact of any one industry or the economy of any single country on the consolidated results.
There has been no significant change in the Corporation's business environment during the first quarter of 2000. For discussion of the Corporation's business environment, refer to the discussions of "Business Environment," "Commercial Aerospace," and "Government Business" 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 1999.
Consolidated revenues increased 17% to $6.39 billion in the first quarter of 2000 compared to $5.44 billion in the same period in 1999. Excluding the unfavorable impact of foreign currency translation, consolidated revenues increased 19% in the first quarter of 2000, 7% of which was attributable to the ongoing businesses of Otis and Carrier exclusive of recent acquisitions. The remaining increase was primarily due to the impact of acquisitions, including the acquisition of Sundstrand in the second quarter of 1999, International Comfort Products in the third quarter of 1999, LG Industrial Systems' Building Facilities Group ("LG Elevator") in the fourth quarter of 1999 and the refrigeration business of Electrolux AB during the first quarter of 2000. The revenue increase was partially offset by a decline at Pratt & Whitney.
Gross margin as a percentage of sales increased 0.5 percentage points to 26.6% in the first quarter of 2000 compared to 26.1% in the same period of 1999 principally as a result of previous cost reduction actions.
Research and development spending increased $40 million (15%) in the first quarter of 2000 compared to 1999, principally due to the inclusion of Sundstrand operations in the Flight Systems segment in the first quarter of 2000. As a percentage of sales, research and development was 5.0% in the first quarter of 2000 as compared to 5.1% in the same period of 1999. Research and development is expected to remain at approximately 5% of sales in 2000.
Selling, general and administrative expenses increased $80 million (11%) in the first quarter of 2000 compared to 1999. The increase relates primarily to the impact of 1999 and 2000 acquisitions not reflected in the first quarter of 1999, including Sundstrand Corporation, International Comfort Products, and Electrolux, partially offset by benefits associated with previous cost reduction actions. As a percent of sales, these expenses were 12.4% in the first quarter of 2000 as compared to 13% in the same period of 1999.
The effective income tax rate for the first quarter of 2000 was 30.5% compared to 31.3% for the first quarter of 1999. The Corporation has continued to lower its effective income tax rate by implementing tax reduction strategies.
Restructuring and Other Costs
As described in the Notes to the Condensed Consolidated Financial Statements, the Corporation's operating segments initiated a variety of actions in 1999 aimed at further strengthening their future profitability and competitive position. The 1999 actions totaled $1,120 million, before income taxes and minority interest, and included accrued restructuring charges of $842 million, related charges of $141 million that were not accruable when initiated, and charges associated with product development and aircraft systems integration and non-product purchasing.
In February 2000, a Federal District Court issued an injunction relative to certain restructuring actions planned by Pratt & Whitney that would move work from Connecticut to Arkansas, Texas and Oklahoma. Pratt & Whitney appealed this injunction and expects a decision later in 2000. The accruable portion of the cost of these actions was recorded during 1999. The Corporation does not believe that resolution of the litigation will materially impact the Corporation's restructuring program.
In the current year, the Corporation expects to have pre-tax cash outflows related to the 1999 programs of approximately $750 million, to be paid out of normal operations, including up to $300 million of additional costs that were not accruable when the actions were initiated. Through March 31, 2000, approximately $43 million of additional costs have been incurred. The 1999 restructuring and other actions taken by the Corporation are expected to result in savings that should offset the additional costs expected to be incurred, resulting in a modest benefit in 2000. Recurring savings, associated primarily with net reduction in workforce and facility closures, are expected to increase over a three-year period to approximately $750 million pre-tax annually.
Revenues, operating profits and operating profit margins of the Corporation's principal operating segments for the quarter ended March 31, 2000 and 1999 are as follows:
In Millions of Dollars Operating Revenues Operating Profits Profit Margin Quarter Ended March 31, 2000 1999 2000 1999 2000 1999 Otis $ 1,543 $ 1,363 $ 192 $ 155 12.4% 11.4% Carrier 1,846 1,510 123 91 6.7% 6.0% Pratt & Whitney 1,824 2,019 282 280 15.5% 13.9% Flight Systems 1,257 606 138 40 11.0% 6.6% Total segment 6,470 5,498 735 566 11.4% 10.3% Eliminations and other (80) (56) (11) (11) General corporate expenses - - (57) (65) Consolidated $ 6,390 $ 5,442 667 490 Interest expense (86) (55) Consolidated income from continuing operations before income taxes and minority interests $ 581 $ 435
Otis revenues increased 13% in the first quarter of 2000 compared to 1999. Excluding the unfavorable impact of foreign currency translation, revenues in the quarter increased 17% reflecting the impact of the fourth quarter 1999 acquisition of LG Elevator and growth in North American and European operations. Weaker European currencies generated most of the unfavorable foreign currency translation impact.
Otis operating profits increased $37 million (24%) in the first quarter of 2000 compared to 1999. Excluding the unfavorable impact of foreign currency translation, operating profits in the quarter increased 32%, reflecting increases at most operations. The majority of the operating profit increase was associated with margin expansion in European operations.
Carrier revenues increased 22% in the first quarter of 2000 compared to 1999. Excluding the unfavorable impact of foreign currency translation, revenues in the quarter increased 24%, with improvement in all operations. The majority of the improvement was in North American and Refrigeration operations and includes the impact of the recently acquired refrigeration business of Electrolux AB and the third quarter 1999 acquisition of International Comfort Products.
Carrier operating profits increased $32 million (35%) in the first quarter of 2000 compared to 1999. Excluding the impact of foreign currency translation, operating profits increased 37%, largely reflecting expansion in margin and volume in North American operations, which includes the impact of the third quarter 1999 acquisition of International Comfort Products.
Pratt & Whitney revenues decreased 10% in the first quarter of 2000 compared to 1999. The decrease is associated with the previously anticipated decline in the aerospace cycle and reflects fewer military and commercial large engine shipments, partially offset by growth at Pratt & Whitney Canada.
Pratt & Whitney operating profits increased $2 million (1%) in the first quarter of 2000 compared to 1999, primarily due to improvements at Pratt & Whitney Canada and continued cost reductions, largely offset by the impact of fewer military engine shipments.
Flight Systems revenues increased $651 million (107%) in the first quarter of 2000 compared to 1999. The increase in revenues reflects the inclusion of Sundstrand's operations for the first quarter of 2000 and delivery of several higher value helicopters at Sikorsky.
Flight Systems operating profits increased $98 million (245%) in the first quarter of 2000 compared to 1999, due to the inclusion of Sundstrand's results for the first quarter of 2000 in Hamilton Sundstrand and higher value shipments at Sikorsky.
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, Common Stock repurchases, adequate bank lines of credit and financial flexibility to attract long-term capital with satisfactory terms.
Set forth below are selected key cash flow data:
Quarter Ended March 31, In Millions 2000 1999 Operating Activities Net cash flows provided by operating activities $ 526 $ 376 Investing Activities Capital expenditures (149) (129) Investments in businesses (269) (95) Increase in customer financing assets, net (15) (11) Financing Activities Repurchase of Common Stock (300) (97) (Decrease) increase in total debt (56) 21 Increase (decrease) in net debt 244 (86) Net cash flows provided by discontinued operation - 30
Cash flows provided by operating activities increased $150 million in the first quarter of 2000 compared to the corresponding period in 1999. The increase resulted from improved operating and working capital performance.
Cash flows used in investing activities increased $207 million in the first quarter of 2000 compared to the first quarter in 1999. The increase is primarily associated with an additional $174 million invested in businesses in 2000, including Carrier's purchase of the refrigeration business of Electrolux AB. Cash spending for investments in businesses in 2000 should exceed $1 billion. Customer financing activity was a net use of cash of $15 million in the first quarter of 2000, consistent with an $11 million net use of cash in the first quarter of 1999. While the Corporation expects that 2000 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's total commitments to finance or arrange financing of commercial aircraft and related equipment at March 31, 2000 were approximately $1.1 billion compared to $1.3 billion for the same period in 1999.
The Corporation repurchased $300 million of Common Stock, representing 5.7 million shares, in the first quarter of 2000 under previously announced share repurchase programs. The share repurchase program continues to be a use of the Corporation's cash flows and has more than offset the dilutive effect resulting from the issuance of stock under stock-based employee benefit programs. At March 31, 2000, the Corporation is authorized to repurchase an additional 19.3 million shares.
Other selected financial data are as follows:
March 31, December 31, March 31, In Millions of Dollars 2000 1999 1999 Cash and cash equivalents $ 657 $ 957 $ 657 Total debt 4,265 4,321 2,194 Net debt (total debt less cash) 3,608 3,364 1,537 Shareowners' equity 7,036 7,117 4,499 Debt-to-total capitalization 38% 38% 33% Net debt-to-total capitalization 34% 32% 25%
The Corporation manages its worldwide cash requirements considering available funds among the many subsidiaries through which it conducts its business 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 consistent with the prior year.
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 2000. 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 1999.
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 . Product developments and new business opportunities . Restructuring costs and cost reduction efforts . 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" and "Restructuring." The Corporation's Annual Report on Form 10-K for 1999 also includes important information as to risk factors in the "Business" section under the headings "Description of Business by Operating 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 1999 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.
Item 1. Legal Proceedings
As previously reported, a jury in Chromalloy Gas Turbine Corporation v. United Technologies Corporation, No. 95-CI-12541, a Texas state action, found that Pratt & Whitney did not monopolize any relevant market but did willfully attempt to monopolize an unspecified market. In May 1997, the court entered a Final Judgment denying Chromalloy's request for damages, injunctive relief and declaratory relief. In October 1998, the Texas Fourth Court of Appeals affirmed the decision of the trial court, declining to grant injunctive relief to Chromalloy. In November 1999, the appellate court denied Chromalloy's motions for rehearing and rehearing en banc. In March 2000, Chromalloy filed a petition for review with the Texas Supreme Court.
As previously reported, the Corporation was served in December 1998, with a qui tam complaint under the Civil False Claims Act that had been filed under seal in the United States District Court for the District of Connecticut in October 1996 (U.S. ex rel. Waldron v. UTC, No. 396CV02038). The complaint sought unspecified damages (trebled) with penalties arising out of an alleged failure by Pratt & Whitney to estimate properly the costs of performing a cost- type development contract. The complainant sought and received court approval on March 12, 2000 to dismiss the lawsuit, and cannot reopen this matter. Although the U.S. Government retains the right to reopen the case on its own behalf, it concurred in the dismissal and previously has not intervened in this matter.
Except as noted above, there have been no material developments in legal proceedings during the quarter ended March 31, 2000. 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 calendar year 1999.
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 flows or financial position.
Item 6. Exhibits and Reports on Form 8-K
(12) Statement re: computation of ratio of earnings to fixed charges.*
(15) Letter re: unaudited interim financial information.*
(27) Financial data schedule.*
*Submitted electronically herewith.
(b) No reports on Form 8-K were filed during the quarter ended March 31, 2000.
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.
Dated: April 28, 2000 By: /s/ David J. FitzPatrick David J. FitzPatrick Senior Vice President and Chief Financial Officer Dated: April 28, 2000 By: /s/ David G. Nord David G. Nord Acting Controller Dated: April 28, 2000 By: /s/ William H. Trachsel William H. Trachsel Senior Vice President, General Counsel and Secretary
Exhibit 12- Statement re: computation of ratio of earnings to fixed charges. *
Exhibit 15- Letter re: unaudited interim financial information. *
Exhibit 27- Financial data schedule.*
*Submitted electronically herewith.
Exhibit 12 UNITED TECHNOLOGIES CORPORATION AND SUBSIDIARIES STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES Quarter Ended March 31, In Millions of Dollars 2000 1999 Fixed Charges: Interest expense $ 86 $ 55 Interest capitalized 4 4 One-third of rents* 17 20 Total Fixed Charges $ 107 $ 79 Earnings: Income from continuing operations before income taxes and minority interests $ 581 $ 435 Fixed charges per above 107 79 Less: interest capitalized (4) (4) 103 75 Amortization of interest capitalized 4 7 Total Earnings $ 688 $ 517 Ratio of Earnings to Fixed Charges 6.43 6.54 * Reasonable approximation of the interest factor.
April 28, 2000
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
We are aware that our report dated April 19, 2000 on our review of interim financial information of United Technologies Corporation as of and for the period ended March 31, 2000 and included in the Company's quarterly report on Form 10-Q for the quarter then ended is incorporated by reference in the Prospectus constituting part of its Registration Statements on Form S-3 (Nos. 333-89041 and 333-91959), in the Registration Statement on Form S-4 (No. 333- 77991) 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, 333-77991 and 333-82911).
Yours very truly,
/s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Hartford, Connecticut
This schedule contains summary financial information extracted from the
Condensed Consolidated Balance Sheet at March 31, 2000 (Unaudited) and the
Condensed Consolidated Statement of Operations for the three months ended March
31, 2000 (Unaudited) and is qualified in its entirety by reference to such
FISCAL YEAR END
DEC 31 2000
JAN 01 2000
MAR 31 2000
TOTAL LIABILITY AND EQUITY