UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2004
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 1-812
UNITED TECHNOLOGIES CORPORATION
| DELAWARE | 06-0570975 |
One Financial Plaza, Hartford, Connecticut 06103
(860) 728-7000
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes x. No ¨.
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x. No ¨.
At March 31, 2004 there were 513,953,900 shares of Common Stock outstanding.
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONTENTS OF QUARTERLY REPORT ON FORM 10-Q
Quarter Ended March 31, 2004
| Page | ||
| Part I - Financial Information |
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| Item 1. Financial Statements: |
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| Condensed Consolidated Statement of Operations for the quarters ended March 31, 2004 and 2003 |
2 | |
| Condensed Consolidated Balance Sheet at March 31, 2004 and December 31, 2003 |
3 | |
| Condensed Consolidated Statement of Cash Flows for the quarters ended March 31, 2004 and 2003 |
4 | |
| 5 | ||
| 16 | ||
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
17 | |
| Item 3. Quantitative and Qualitative Disclosures About Market Risk |
25 | |
| 25 | ||
| Part II - Other Information |
||
| 27 | ||
| Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities |
28 | |
| 28 | ||
| 29 | ||
| 30 | ||
“Corporation,” unless the context otherwise requires, means United Technologies Corporation, or UTC, and its subsidiaries.
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
Part I – Financial Information
| Item 1. | Financial Statements |
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
| Quarter Ended March 31, | ||||||
| In Millions (except per share amounts) | 2004 |
2003 | ||||
| Revenues |
||||||
| Product sales |
$ | 5,846 | $ | 4,864 | ||
| Service sales |
2,511 | 1,789 | ||||
| Financing revenues and other income, net |
289 | 49 | ||||
| 8,646 | 6,702 | |||||
| Costs and expenses |
||||||
| Cost of products sold |
4,621 | 3,707 | ||||
| Cost of services sold |
1,649 | 1,159 | ||||
| Research and development |
308 | 235 | ||||
| Selling, general and administrative |
1,105 | 764 | ||||
| Interest |
87 | 91 | ||||
| 7,770 | 5,956 | |||||
| Income before income taxes and minority interests |
876 | 746 | ||||
| Income taxes |
245 | 209 | ||||
| Minority interests |
52 | 35 | ||||
| Net income |
$ | 579 | $ | 502 | ||
| Earnings per share of Common Stock |
||||||
| Basic |
$ | 1.16 | $ | 1.05 | ||
| Diluted |
$ | 1.14 | $ | 1.00 | ||
| Dividends per share of Common Stock |
$ | .35 | $ | .245 | ||
| Average number of shares outstanding |
||||||
| Basic |
498 | 470 | ||||
| Diluted |
508 | 501 | ||||
See accompanying Notes to Condensed Consolidated Financial Statements
2
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
| In Millions | March 2004 |
December 31, 2003 |
||||||
| Assets | ||||||||
| Cash and cash equivalents |
$ | 1,731 | $ | 1,623 | ||||
| Accounts receivable, net |
5,365 | 5,187 | ||||||
| Inventories and contracts in progress, net |
4,495 | 4,200 | ||||||
| Future income tax benefits |
1,374 | 1,372 | ||||||
| Other current assets |
407 | 388 | ||||||
| Total Current Assets |
13,372 | 12,770 | ||||||
| Customer financing assets |
1,044 | 1,031 | ||||||
| Future income tax benefits |
1,290 | 1,283 | ||||||
| Fixed assets |
12,231 | 12,082 | ||||||
| Less: Accumulated depreciation |
(7,228 | ) | (7,002 | ) | ||||
| 5,003 | 5,080 | |||||||
| Goodwill |
9,515 | 9,329 | ||||||
| Other assets |
5,704 | 5,561 | ||||||
| Total Assets |
$ | 35,928 | $ | 35,054 | ||||
| Liabilities and Shareowners’ Equity | ||||||||
| Short-term borrowings |
$ | 371 | $ | 669 | ||||
| Accounts payable |
2,991 | 2,806 | ||||||
| Accrued liabilities |
7,481 | 6,851 | ||||||
| Long-term debt currently due |
373 | 375 | ||||||
| Total Current Liabilities |
11,216 | 10,701 | ||||||
| Long-term debt |
4,261 | 4,257 | ||||||
| Future pension and postretirement benefit obligations |
4,683 | 4,752 | ||||||
| Other long-term liabilities |
2,885 | 2,928 | ||||||
| Minority interest in subsidiary companies |
798 | 709 | ||||||
| Shareowners’ Equity: |
||||||||
| Common Stock |
6,748 | 6,587 | ||||||
| Treasury Stock |
(5,551 | ) | (5,335 | ) | ||||
| Retained earnings |
12,915 | 12,527 | ||||||
| Unearned ESOP shares |
(268 | ) | (273 | ) | ||||
| Accumulated other non-shareowners’ changes in equity |
(1,759 | ) | (1,799 | ) | ||||
| 12,085 | 11,707 | |||||||
| Total Liabilities and Shareowners’ Equity |
$ | 35,928 | $ | 35,054 | ||||
See accompanying Notes to Condensed Consolidated Financial Statements
3
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
| Quarter Ended March 31, |
||||||||
| In Millions | 2004 |
2003 |
||||||
| Operating Activities: |
||||||||
| Net income |
$ | 579 | $ | 502 | ||||
| Adjustments to reconcile net income to net cash flows provided by operating activities: |
||||||||
| Depreciation and amortization |
262 | 180 | ||||||
| Deferred income tax provision |
19 | 91 | ||||||
| Minority interests in subsidiaries’ earnings |
52 | 35 | ||||||
| Change in: |
||||||||
| Accounts receivable |
(126 | ) | (51 | ) | ||||
| Inventories and contracts in progress |
(249 | ) | (114 | ) | ||||
| Accounts payable and accrued liabilities |
680 | 138 | ||||||
| Other current assets |
(15 | ) | (57 | ) | ||||
| Voluntary contributions to global pension plans |
(308 | ) | (500 | ) | ||||
| Other, net |
(104 | ) | 28 | |||||
| Net cash flows provided by operating activities |
790 | 252 | ||||||
| Investing Activities: |
||||||||
| Capital expenditures |
(123 | ) | (87 | ) | ||||
| Investments in businesses |
(44 | ) | (18 | ) | ||||
| Dispositions of businesses |
3 | — | ||||||
| Increase in customer financing assets, net |
(12 | ) | (9 | ) | ||||
| Other, net |
80 | 6 | ||||||
| Net cash flows used in investing activities |
(96 | ) | (108 | ) | ||||
| Financing Activities: |
||||||||
| Repayment of long-term debt |
(4 | ) | (2 | ) | ||||
| (Decrease) Increase in short-term borrowings, net |
(277 | ) | 17 | |||||
| Common Stock issued under employee stock plans |
119 | 43 | ||||||
| Dividends paid on Common Stock |
(166 | ) | (115 | ) | ||||
| Repurchase of Common Stock |
(216 | ) | (201 | ) | ||||
| Other, net |
(45 | ) | (65 | ) | ||||
| Net cash flows used in financing activities |
(589 | ) | (323 | ) | ||||
| Effect of foreign exchange rate changes on Cash and cash equivalents |
3 | 26 | ||||||
| Net increase (decrease) in Cash and cash equivalents |
108 | (153 | ) | |||||
| Cash and cash equivalents, beginning of year |
1,623 | 2,080 | ||||||
| Cash and cash equivalents, end of period |
$ | 1,731 | $ | 1,927 | ||||
See accompanying Notes to Condensed Consolidated Financial Statements
4
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Condensed Consolidated Financial Statements at March 31, 2004 and for the quarters ended March 31, 2004 and 2003 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 2003. Certain reclassifications have been made to the prior year amounts to conform to the current year presentation.
Employee Benefit Plans
Pension and Postretirement Plans
During the first three months of 2004 and 2003, the Corporation voluntarily contributed cash of $308 and $500 million, respectively, to its defined benefit pension plans. The Corporation also contributed $35 million and $29 million, respectively, to its defined contribution plans.
The following table illustrates the components of net periodic benefit cost for the Corporation’s pension and other postretirement benefits.
| Pension Benefits Quarter Ended March 31, |
Other March 31, |
|||||||||||||||
| In Millions | 2004 |
2003 |
2004 |
2003 |
||||||||||||
| Components of Net Periodic Benefit Cost: |
||||||||||||||||
| Service cost |
$ | 82 | $ | 71 | $ | 2 | $ | 2 | ||||||||
| Interest cost |
257 | 228 | 16 | 16 | ||||||||||||
| Expected return on plan assets |
(310 | ) | (276 | ) | (1 | ) | (1 | ) | ||||||||
| Amortization of prior service cost |
37 | 7 | (6 | ) | (5 | ) | ||||||||||
| Amortization of unrecognized net transition obligation |
1 | 1 | — | — | ||||||||||||
| Recognized actuarial net loss |
6 | 12 | — | — | ||||||||||||
| Net settlement and curtailment loss (gain) |
24 | — | 1 | — | ||||||||||||
| Total Net periodic pension benefit cost |
$ | 97 | $ | 43 | $ | 12 | $ | 12 | ||||||||
5
UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
Stock–Based Compensation
The Corporation has long-term incentive plans authorizing various types of market and performance based incentive awards that may be granted to officers and employees. The Corporation applies APB Opinion 25, “Accounting for Stock Issued to Employees,” and related interpretations in accounting for its long-term incentive plans. The exercise price of stock options is set on the grant date and may not be less than the fair market value per share on that date. Stock options have a term of ten years and generally vest after three years.
The following table illustrates the effect on net income and earnings per share as if the Black-Scholes fair value method described in Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” as amended, had been applied to the Corporation’s long-term incentive plans.
| Quarter Ended March 31, |
||||||||
| In Millions | 2004 |
2003 |
||||||
| (except per share amounts) | ||||||||
| Net income as reported |
$ | 579 | $ | 502 | ||||
| Add: Stock-based employee compensation expense included in net income, net of related tax effects |
— | — | ||||||
| Less: Total stock-based employee compensation expense determined under Black-Scholes option pricing model, net of related tax effects |
(28 | ) | (32 | ) | ||||