To the Pension Administration
and Investment Committee of
United Technologies Corporation
and Members of the United Technologies Corporation Employee Savings Plan
In our opinion, the accompanying statements of financial condition and the related statement of income and changes in plan equity present fairly, in all material respects, the financial position of the United Technologies Corporation Employee Savings Plan at November 30, 1994 and 1993, and the results of its operations and the changes in its plan equity for the year ended November 30, 1994, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Plan Administrator; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
UNITED TECHNOLOGIES CORPORATION EMPLOYEE SAVINGS PLAN Statement of Financial Condition November 30, 1994 (Thousands of Dollars, except unit value) UTC Funds Income Fund Equity Fund Stock Fund ESOP Fund Global Fund Loan Fund Combined Assets: Investments: Beneficial interests in contract issued by insurance companies, at cost plus accrued interest $ 2,755,250 $ - $ - $ - $ - $ - $2,755,250 Beneficial interests in Bankers Trust Company Pyramid Fixed Income Index Fund, at market - - - - 22,172 - 22,172 Beneficial interests in Bankers Trust Company Pyramid Equity Index Fund, at market - 301,467 - - 24,378 - 325,845 Beneficial interests in Bankers Trust Company Pyramid International Securities Index Fund, at market - - - - 27,889 - 27,889 United Technologies Corporation Common Stock, at market plus accrued dividends ($989) - - 117,338 - - - 117,338 United Technologies Corporation ESOP Preferred Stock, at guaranteed value - - - 887,045 - - 887,045 Participant loans, at cost plus accrued interest - - - - - 51,036 51,036 Temporary investments, at cost plus accrued interest 9 3 4,296 17 40 - 4,365 Total Investments 2,755,259 301,470 121,634 887,062 74,479 51,036 4,190,940 Contributions and fund and plan transfers receivable 1,024 1,936 9,681 - 293 281 13,215 Accrued ESOP contribution receivable - - - 131,791 - - 131,791 Accrued dividends on ESOP Preferred Stock - - - 14,589 - - 14,589 Total Assets 2,756,283 303,406 131,315 1,033,442 74,772 51,317 4,350,535 Less - Liabilities: Contributions and fund and plan transfers payable 9,812 - - - 1,684 - 11,496 Loans payable, net 2,916 719 740 - 173 198 4,746 Accrued interest on ESOP debt and notes payable - - - 11,923 - - 11,923 ESOP debt - - - 552,600 - - 552,600 Notes payable to United Technologies Corporation - - - 131,935 - - 131,935 Accrued investment purchases - - 430 - - - 430 Total Liabilities 12,728 719 1,170 696,458 1,857 198 713,130 Plan Equity $ 2,743,555 $ 302,687 $ 130,145 $ 336,984 $ 72,915 $ 51,119 $3,637,405 Units of participation 557,633,130 33,096,835 28,199,425 227,193,128 48,413,029 51,119,000 Unit value $ 4.92 $ 9.15 $ 4.62 $ 1.48 $ 1.51 $ 1.00 (See accompanying Notes to Financial Statements)
UNITED TECHNOLOGIES CORPORATION EMPLOYEE SAVINGS PLAN Statement of Financial Condition November 30, 1993 (Thousands of Dollars, except unit value) UTC Funds Income Fund Equity Fund Stock Fund ESOP Fund Global Fund Loan Fund Combined Assets: Investments: Beneficial interests in contracts issued by insurance companies, at cost plus accrued interest $ 2,620,323 $ - $ - $ - $ - $ - $2,620,323 Beneficial interests in Bankers Trust Company Pyramid Fixed Income Index Fund, at market - - - - 14,829 - 14,829 Beneficial interests in Bankers Trust Company Pyramid Equity Index Fund, at market - 281,926 - - 18,878 - 300,804 Beneficial interests in Bankers Trust Company Pyramid International Securities Index Fund, at market - - - - 15,736 - 15,736 United Technologies Corporation Common Stock, at market plus accrued dividends ($843) - - 114,183 - - - 114,183 United Technologies Corporation ESOP Preferred Stock, at guaranteed value - - - 809,895 - - 809,895 Participant loans, at cost plus accrued interest - - - - - 48,636 48,636 Temporary investments, at cost plus accrued interest 63 3 2,675 4,110 3,136 - 9,987 Total Investments 2,620,386 281,929 116,858 814,005 52,579 48,636 3,934,393 Contributions and fund and plan transfers receivable 336 1,061 91 - 565 603 2,656 Accrued ESOP contribution receivable - - - 142,880 - - 142,880 Accrued dividends on ESOP Preferred Stock - - - 13,291 - - 13,291 Accrued investment sales - - 882 - - - 882 Total Assets 2,620,722 282,990 117,831 970,176 53,144 49,239 4,094,102 Less - Liabilities: Contributions and fund and plan transfers payable 2,239 - 585 - - - 2,824 Loans payable, net 490 174 3 - 9 2,605 3,281 Accrued interest on ESOP debt and note payable - - - 12,103 - - 12,103 ESOP debt - - - 586,500 - - 586,500 Note payable to United Technologies Corporation - - - 98,933 - - 98,933 Total Liabilities 2,729 174 588 697,536 9 2,605 703,641 Plan Equity $ 2,617,993 $ 282,816 $ 117,243 $ 272,640 $ 53,135 $ 46,634 $3,390,461 Units of participation 572,460,112 31,296,082 24,763,454 197,765,611 36,657,462 46,634,000 Unit value $ 4.57 $ 9.04 $ 4.73 $ 1.38 $ 1.45 $ 1.00 (See accompanying Notes to Financial Statements)
UNITED TECHNOLOGIES CORPORATION EMPLOYEE SAVINGS PLAN Statement of Income and Changes in Plan Equity Plan Year Ended November 30, 1994 (Thousands of Dollars) UTC Funds Income Fund Equity Fund Stock Fund ESOP Fund Global Fund Loan Fund Combined Contributions: Members $ 101,511 $ 29,278 $ 6,558 $ - $ 8,922 $ - $ 146,269 Employer 223 33 3 66,754 12 - 67,025 Total Contributions 101,734 29,311 6,561 66,754 8,934 - 213,294 Investment Income: Interest 195,679 7 167 124 33 3,445 199,455 Dividends - - 3,586 65,845 - - 69,431 Total Investment Income 195,679 7 3,753 65,969 33 3,445 268,886 Repayments on loans 17,634 4,089 1,104 - 1,007 (23,834) - Unrealized depreciation of investments - (114,760) (6,879) - (696) - (122,335) Gain on sale of investments - 118,333 - - 2,780 - 121,113 Deduct: Distributions to members: In cash 144,463 14,787 4,899 9,938 3,072 498 177,657 In shares of United Technologies Corporation Common Stock - - 155 - - - 155 Loans to participants 19,050 3,743 1,363 - 1,227 (25,383) - Interest expense - - - 55,645 - - 55,645 Earned and unapplied forfeitures 33 - 1 213 - - 247 Total Deductions 163,546 18,530 6,418 65,796 4,299 (24,885) 233,704 Inter-fund and inter-plan transfers (26,125) 1,421 14,781 (2,583) 12,021 (11) (496) Transfer from other plans 186 - - - - - 186 Net Increase in Plan Equity 125,562 19,871 12,902 64,344 19,780 4,485 246,944 Plan Equity November 30, 1993 2,617,993 282,816 117,243 272,640 53,135 46,634 3,390,461 Plan Equity November 30, 1994 $2,743,555 $ 302,687 $ 130,145 $ 336,984 $ 72,915 $ 51,119 $3,637,405 (See accompanying Notes to Financial Statements)
NOTE 1 - DESCRIPTION OF THE PLAN
The United Technologies Corporation Employee Savings Plan (the Plan) is a defined contribution savings plan sponsored by United Technologies Corporation (United). Generally, non-represented employees in participating business units of United are eligible to participate in the Plan after the employee has completed one year of service. Below is a brief description of the Plan. More complete information is provided in the plan document which is available from the Plan sponsor.
Members may elect to contribute, through payroll deductions, between 2 and 16 percent of their total compensation. Under the Internal Revenue Code, members whose annual earnings totaled no more than $64,245 could have elected to have tax-deferred contributions made on their behalf of up to 16 percent during plan year 1994 (subject to Internal Revenue Code limitations). This threshold, which is adjusted annually for inflation, increased to $66,000 for plan year 1995. Members whose earnings exceeded that amount could have elected to have tax- deferred contributions in amounts up to 6 percent of compensation subject to Internal Revenue Code non-discrimination tests and other limitations. Member contributions are fully vested at all times under the Plan.
The employer will make contributions with respect to each member equal in amount to 60 percent of the members contributions, up to specified limits. United has established an Employee Stock Ownership Plan (ESOP) to fund United's match of employee contributions. The ESOP Fund will be invested primarily in stock of United and is currently invested primarily in United Series A ESOP Convertible Preferred Stock, having a $4.80 dividend per annum (See Note 6). Employer contributions may not be directed to an investment fund other than the ESOP Fund except for members eligible for early retirement. Members who have reached at least age 55 and have completed at least 10 years of continuous service may direct that up to 50 percent, in multiples of 25 percent, of their ESOP account balances and future employer contributions be invested in the other investment funds offered through the Plan. Generally, employer contributions become fully vested after two years of Plan participation.
All employee contributions are credited to a member account maintained by the Plan Administrator. Contributions will be invested, pursuant to each member's direction, in one or more of the following funds: the Income Fund, the Equity Fund, the UTC Stock Fund, and the Global Fund. Members may elect to have 100 percent of their contributions invested in one investment fund or may allocate the contributions in any whole percentage (effective January 1, 1994) among the funds. Prior to January 1, 1994, allocations were made in multiples of 25 percent. Members are permitted to transfer their accounts between investment funds once per quarter in any whole percentage (effective January 1, 1994). Prior to January 1, 1994, transfers between investment funds were generally performed in multiples of 10 percent.
The Income Fund is invested in contracts issued by five insurance companies designated by the Pension Investment Committee. Under these contracts, each insurance company guarantees repayment in full of the principal amount invested plus interest credited at a fixed rate for a specified period. Interest is credited to each contract based on an annual interest rate set each year by the individual insurance carriers. This rate, which differs among contracts, takes into account any difference between prior year credited interest and the actual amount of investment earnings allocable to the contract in accordance with the established allocation procedures of the insurance carrier. The weighted
The UTC Stock Fund consists principally of 1,988,738 and 1,831,759 shares of Common Stock of United at November 30, 1994 and 1993, respectively.
The Global Fund will be invested in almost equal proportions in three different funds managed by the Trustee: the BT Pyramid International Securities Index Fund, the BT Pyramid Fixed Income Index Fund and the BT Pyramid Equity Index Fund (as described above). The International Securities Index Fund invests in four other international index funds managed by the Trustee. The Fixed Income Index Fund invests primarily in obligations of the U.S. Government and its agencies and other publicly traded, high-grade domestic debt instruments. Interest and dividends earned by these investments are reinvested and increase market value.
Members with at least two years of plan participation are allowed to borrow up to 50 percent of their account balances (excluding the ESOP Fund). Loan amounts can range from $1,000 to $50,000 and must be repaid in 5 years or less with interest.
Forfeitures of employer contributions are used to reduce employer contributions; earned but unapplied forfeitures will be applied against future employer contributions and are shown separately in the Statement of Income and Changes in Plan Equity.
Members who transfer to a new location of United which is covered by a different savings plan have the option of transferring their account balances in accordance with the provisions of the new savings plan, including available investment funds.
Number of participants in the Plan at year end were as follows:
November 30, 1994 1993 Income Fund 47,776 48,098 Equity Fund 18,625 15,503 UTC Stock Fund 10,673 6,488 ESOP Fund 41,998 43,033 Global Fund 7,235 4,379
United has entered into a master trust agreement with Bankers Trust (the Trustee). Under this agreement, certain employee savings plans of United and its subsidiaries combine their trust fund investments in the Master Trust. Participating plans purchase units of participation in the investment funds based on their monthly contribution to such funds and the unit value of the applicable investment fund at the end of the month. The value of a unit in each fund is determined at the end of each month by dividing the sum of uninvested cash, accrued income and the current market value of investments by the total number of outstanding units in such funds. The plans receive income from the funds' investments which increase the unit values. Distributions reduce the number of participation units held by the plans.
The investments of the Income Fund are valued at cost plus accrued interest. The investments of the Equity Fund, the UTC Stock Fund, and the Global Fund are valued at market as determined by the Trustee by reference to published market data. The ESOP Preferred Stock is valued at its fair value, which is the higher of the guaranteed value ($65) or the market value of United's Common Stock (See Note 6).
The expenses of operating the Plan are payable out of the funds held under the Plan, unless the employer elects to pay such expenses. The expenses for the 1994 plan year were paid by the employer.
The Plan is not subject to federal income tax as the Plan and its related trust are considered by United to satisfy the qualification and exemption requirements of Sections 401(a) and 501(a) of the Internal Revenue Code. United has received a favorable determination letter (dated November 3, 1990) from the Internal Revenue Service (IRS) to the effect that the ESOP portion of the Plan qualifies under Sections 401(a) and 501(a) of the Code. United intends to apply for a new determination letter from the IRS indicating that the other provisions of the Plan, as amended since the date of the most recent IRS letter applicable to such provisions (1986), continue to be tax exempt under Sections 401(a) and 501(a) of the Code. Under these sections, contributions by United, employees (at their election) and related earnings will be tax deferred until such amounts are distributed. It is expected, given the lack of substantive plan amendments, that a favorable determination will be issued from the IRS, and accordingly, no
The following is a summary of the insurance contracts held in the Master Trust Income Fund and the portion allocable to the Plan:
(Thousands of Dollars) November 30, 1994 1993 CIGNA $ 1,505,766 $ 1,409,243 Aetna 529,588 543,882 Travelers 449,496 455,988 Prudential 237,500 249,747 Metropolitan Life 437,048 328,543 $ 3,159,398 $ 2,987,403 Amount of the contracts allocable to the Plan $ 2,755,250 $ 2,620,323
NOTE 4 - GAIN ON SALE OF INVESTMENTS
The Trustee uses the average cost method in determining the cost of securities for purposes of calculating the gain or loss on the sale of securities. Gains and losses of the Master Trust funds are allocated to the participating plans based upon participation units at the month-end valuation date following the sale. The gains recognized by the Master Trust funds and amounts allocable to the Plan, for the Plan year November 30, 1994, are as follows:
(Thousands of Dollars) Equity Fund Global Fund Proceeds from sale of securities $ 397,600 $ 55,624 Cost basis of securities sold 253,925 52,706 Gain on sale $ 143,675 $ 2,918 Amount of the gain allocable to the Plan $ 118,333 $ 2,780
NOTE 5 - REQUESTED DISTRIBUTIONS
The following is a summary of distributions requested by participants which had not yet been paid at the respective plan year end:
November 30, November 30, 1994 1993 (Thousands of Dollars) Dollars Units Dollars Units Income Fund $ 23,243 4,725,942 $ 8,900 1,946,163 Equity Fund 2,158 235,984 972 107,542 UTC Stock Fund 725 156,983 312 65,841 Global Fund 450 298,768 187 129,034 Loan Fund 2,158 2,158,000 255 255,000
In conjunction with the establishment of the ESOP, discussed above, United's Board of Directors authorized 20,000,000 shares of preferred stock, par value $1.00 per share designated as Series A ESOP Convertible Preferred Stock, having an annual dividend of $4.80 per share. Each share of ESOP Preferred Stock is convertible into one share of United's Common Stock. On June 30, 1989, the Trustee acquired 10,153,847 shares of this new series of ESOP Preferred Stock at an acquisition price of $65.00 per share and placed them in the Master Trust for future allocation to participants. On March 30, 1990, the Trustee acquired an additional 2,900,000 shares of this new series of ESOP Preferred Stock at an acquisition price of $69.77 per share and placed them in the Master Trust for future allocation to participants. On February 9, 1994, the Trustee acquired an additional 1,400,000 shares of ESOP Preferred Stock at an acquisition price of $70.22 per share and placed them in the Master Trust for future allocation to participants. The ESOP financed the purchase of these shares with interest bearing promissory notes. United shall contribute sufficient funds each year, when combined with quarterly dividends on the ESOP Preferred Stock, will meet the Trust's debt service requirements.
Participants in the ESOP Fund accrue on a monthly basis a beneficial interest equal to the employer contributions at the rate of 60% of members' participating contributions. This beneficial interest is represented by share equivalents of ESOP Preferred Stock, as calculated monthly at the higher of the month end price of United Common Stock or the $65.00 per share ESOP Preferred Stock guaranteed value. ESOP Preferred Stock dividends, at the annual rate of $4.80 per share, are attributed to these ESOP Preferred Stock share equivalents based on participants' beneficial interests in such shares held as of the record dates which are coincident with the payment dates. As of November 30, 1994 and 1993, participants in the ESOP Fund had an aggregate beneficial interest in ESOP Preferred Stock, net, and attributed dividends totaling approximately $336,984,000 and $272,640,000, respectively. Shares of ESOP Preferred Stock must be allocated to participants' accounts by the Trustee at least once per Plan year, but are generally allocated on the last business day of each month.
Purchased shares of ESOP Preferred Stock are held by the Trustee with the number of purchased shares allocated to each employee determined annually in accordance with a method approved by the Internal Revenue Service. To the extent that allocated shares are not sufficient to meet the matching requirement of the Plan, United will contribute additional ESOP Preferred Stock, United Common Stock or cash.
Shares allocated to employees generally may not be distributed until the employee's termination, disability, retirement or death. Upon distribution, shares of ESOP Preferred Stock must be converted into one share of United's Common Stock or, if the value of the Common Stock is less than the guaranteed value, the Trustee may require United to repurchase the ESOP Preferred Stock for the guaranteed value.
The Trustee accounts for participants' beneficial interests in the ESOP Fund based upon units of participation and related unit value (see Note 2).
The ESOP Preferred Stock is redeemable, in whole or in part, generally at the option of United at a redemption price of $67.40 per share plus accrued and unpaid dividends. The redemption price decreases annually until it reaches $65.00. However, upon notice to the Trustee of United's intention to redeem, the Trustee may elect to convert each ESOP preferred share into one share of United Common Stock if the value of United's Common Stock exceeds the redemption price.
On February 1, 1990, the Master Trust with United as guarantor executed a Note and Guaranty Agreement to issue $660,000,000 of Series A, B, C and D notes (described below) representing the ESOP's permanent financing. Interest is payable quarterly on the 10th of March, June, September and December coincident with the dividend payment date on the ESOP Preferred Stock. Principal payments are payable annually on the 10th of December. The amounts outstanding under the Agreement at November 30, 1994 are as follows:
Principal Rate of Note Series (000's) Interest Due A $ 216,000 7.24% 1999 B 286,600 7.68% 2008 C 17,300 7.68% 2008 D 32,700 7.68% 2009 $ 552,600
NOTE 8 - PURCHASE OF SERIES A ESOP CONVERTIBLE PREFERRED SHARES
On February 9, 1994, the Trustee acquired an additional 1,400,000 shares of ESOP Preferred Stock at an acquisition price of $70.22 per share and placed them in the Master Trust for future allocation to participants. The ESOP financed the purchase of these shares with a 6.75% $98.3 million promissory note issued to United.
NOTE 9 - NOTES PAYABLE TO UNITED
The Notes Payable to United are promissory notes with interest payable quarterly on the 10th of March, June, September and December coincident with the dividend payment date on the ESOP Preferred Stock. Principal payments are generally payable annually on the 10th of December. The current amounts outstanding under the agreements at November 30, 1994 are as follows:
Principal Rate of Issue Date (000's) Interest Due March 30, 1990 $ 93,733 10.50% 2009 February 9, 1994 38,202 6.75% 2009 $ 131,935
Effective January 1, 1994, the Plan permits transfers between investment funds in any whole percentage. Prior to January 1, 1994, transfers between investment accounts were generally made through increments of 10%.
Effective January 1, 1994, the Plan permits future allocation of investment fund contributions in any whole percentage. Prior to January 1, 1994, investment allocations were made in 25% increments.
Effective January 1, 1994, the Plan permits participants to receive an installment distribution upon attaining age 55 with five years of service. Prior to January 1, 1994, the Plan rules required age 55 with a minimum of 10
The Plan (or persons who administer the employee benefit plan), pursuant to the requirements of the Securities Exchange Act of 1934, has duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized.
Dated: May 25, 1995 By: /s/ Daniel P. O'Connell Daniel P. O'Connell Corporate Director, Employee Benefits and Human Resources Systems
We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 33-26627) of United Technologies Corporation of our report dated May 25, 1995 appearing in the United Technologies Corporation Employee Savings Plan's Annual Report on Form 11-K for the year ended November 30, 1994.
PRICE WATERHOUSE LLP