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UNITED TECHNOLOGIES CORPORATION

AND SUBSIDIARIES

 

 

FORM 10-Q

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C.

 

20549

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 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 June 30, 2004 there were 511,630,546 shares of Common Stock outstanding.

 

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UNITED TECHNOLOGIES CORPORATION

AND SUBSIDIARIES

 

CONTENTS OF QUARTERLY REPORT ON FORM 10-Q

 

Quarter Ended June 30, 2004

 

            

Page

Part I - Financial Information

    
   

Item 1. Financial Statements:

    
       

Condensed Consolidated Statement of Operations for the quarters ended June 30, 2004 and 2003

    2
        Condensed Consolidated Statement of Operations for the six months ended June 30, 2004 and 2003    3
        Condensed Consolidated Balance Sheet at June 30, 2004 and December 31, 2003    4
        Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2004 and 2003    5
        Notes to Condensed Consolidated Financial Statements    6
        Report of Independent Registered Public Accounting Firm    19
   

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

    20
   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

    29
   

Item 4. Controls and Procedures

    29

Part II - Other Information

     
   

Item 1. Legal Proceedings

   31
   

Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

   32
    Item 4. Submission of Matters to a Vote of Security Holders    32
    Item 6. Exhibits and Reports on Form 8-K    34

Signatures

   35

Exhibit Index

   36

 

“Corporation,” unless the context otherwise requires, means United Technologies Corporation, or UTC, and its subsidiaries.

Table of Contents

UNITED TECHNOLOGIES CORPORATION

AND SUBSIDIARIES

 

Part I – Financial Information

 

      Item 1. Financial Statements

 

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)

 

     Quarter Ended
June 30,
In Millions (except per share amounts)    2004
    2003

Revenues

              

Product sales

    $ 6,826    $ 5,813

Service sales

      2,629      1,895

Financing revenues and other income, net

      167      82
    
  
       9,622      7,790
    
  

Costs and expenses

              

Cost of products sold

      5,251      4,381

Cost of services sold

      1,720      1,238

Research and development

      313      281

Selling, general and administrative

      1,088      857
    
  

Operating Profit

    $ 1,250    $ 1,033

Interest

      91      93

Income before income taxes and minority interests

      1,159      940

Income taxes

      261      263

Minority interests

      61      45
    
  

Net income

    $ 837    $ 632
    
  

Earnings per share of Common Stock

              

Basic

    $ 1.69    $ 1.33

Diluted

    $ 1.66    $ 1.26

Dividends per share of Common Stock

    $ .35    $ .27

Average number of shares outstanding

              

Basic

      496      468

Diluted

      505      500

 

See accompanying Notes to Condensed Consolidated Financial Statements

 

2

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UNITED TECHNOLOGIES CORPORATION

AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)

 

     Six Months Ended
June 30,
In Millions (except per share amounts)    2004
    2003

Revenues

              

Product sales

    $ 12,672    $ 10,677

Service sales

      5,140      3,684

Financing revenues and other income, net

      456      131
    
  
       18,268      14,492
    
  

Costs and expenses

              

Cost of products sold

      9,852      8,088

Cost of services sold

      3,389      2,397

Research and development

      621      516

Selling, general and administrative

      2,193      1,621
    
  

Operating Profit

    $ 2,213    $ 1,870

Interest

      178      184

Income before income taxes and minority interests

      2,035      1,686

Income taxes

      506      472

Minority interests

      113      80
    
  

Net income

    $ 1,416    $ 1,134
    
  

Earnings per share of Common Stock

              

Basic

    $ 2.85    $ 2.38

Diluted

    $ 2.79    $ 2.27

Dividends per share of Common Stock

    $ .70    $ .515

Average number of shares outstanding

              

Basic

      498      469

Diluted

      507      500

 

See accompanying Notes to Condensed Consolidated Financial Statements

 

3

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UNITED TECHNOLOGIES CORPORATION

AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEET

 

In Millions    June 30,
2004
     December 31,
2003
  
     (Unaudited)     (Audited)  
Assets  
Cash and cash equivalents    $ 2,018     $ 1,623  
Accounts receivable, net      6,000       5,187  
Inventories and contracts in progress, net      4,442       4,420  
Future income tax benefits      1,342       1,372  
Other current assets      361       388  
    
 

Total Current Assets

      14,163       12,990  
    
 
Customer financing assets      1,066       1,031  
Future income tax benefits      1,164       1,283  
Fixed assets      12,100       12,082  

Less: Accumulated depreciation

      (7,253 )     (7,002 )
    
 
       4,847       5,080  
    
 
Goodwill      9,644       9,329  
Other assets      5,808       5,561  
    
 

Total Assets

    $ 36,692     $ 35,274  
    
 
Liabilities and Shareowners’ Equity  
Short-term borrowings    $ 350     $ 669  
Accounts payable      3,269       2,806  
Accrued liabilities      7,414       7,071  
Long-term debt currently due      368       375  
    
 

Total Current Liabilities

      11,401       10,921  
    
 
Long-term debt      4,247       4,257  
Future pension and postretirement benefit obligations      4,687       4,752  
Other long-term liabilities      3,065       2,928  
Minority interest in subsidiary companies      812       709  
Shareowners’ Equity:                 

Common Stock

      6,800       6,587  

Treasury Stock

      (5,808 )     (5,335 )

Retained earnings

      13,578       12,527  

Unearned ESOP shares

      (265 )     (273 )

Accumulated other non-shareowners’ changes in equity

      (1,825 )     (1,799 )
    
 
       12,480       11,707  
    
 

Total Liabilities and Shareowners’ Equity

    $ 36,692     $ 35,274  
    
 

 

See accompanying Notes to Condensed Consolidated Financial Statements

 

4

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UNITED TECHNOLOGIES CORPORATION

AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

 

     Six Months Ended
June 30,
  
In Millions    2004
     2003
  

Operating Activities:

                 

Net income

    $ 1,416     $ 1,134  

Adjustments to reconcile net income to net cash flows provided by operating activities:

                 

Depreciation and amortization

      514       367  

Deferred income tax provision

      112       146  

Minority interests in subsidiaries’ earnings

      113       80  

Change in:

                 

Accounts receivable

      (777 )     (177 )

Inventories and contracts in progress

      10       48  

Accounts payable and accrued liabilities

      662       9  

Other current assets

      32       (89 )

Voluntary contributions to global pension plans

      (358 )     (600 )

Other, net

      167       137  
    
 

Net cash flows provided by operating activities

      1,891       1,055  
    
 

Investing Activities:

                 

Capital expenditures

      (271 )     (196 )

Investments in businesses

      (209 )     (94 )

Dispositions of businesses

      6       —    

Increase in customer financing assets, net

      (45 )     (56 )

Other, net

      78       18  
    
 

Net cash flows used in investing activities

      (441 )     (328 )
    
 

Financing Activities:

                 

Repayment of long-term debt

      (4 )     (14 )

(Decrease) Increase in short-term borrowings, net

      (297 )     4  

Common Stock issued under employee stock plans

      163       127  

Dividends paid on Common Stock

      (331 )     (242 )

Repurchase of Common Stock

      (480 )     (251 )

Other, net

      (92 )     (95 )
    
 

Net cash flows used in financing activities

      (1,041 )     (471 )
    
 

Effect of foreign exchange rate changes on Cash and cash equivalents

      (14 )     79  
    
 

Net increase in Cash and cash equivalents

      395       335  

Cash and cash equivalents, beginning of year

      1,623       2,080  
    
 

Cash and cash equivalents, end of period

    $ 2,018     $ 2,415  
    
 

 

See accompanying Notes to Condensed Consolidated Financial Statements

 

5

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UNITED TECHNOLOGIES CORPORATION

AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The Condensed Consolidated Financial Statements at June 30, 2004 and for the quarters and six months ended June 30, 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 six months of 2004 and 2003, the Corporation’s total cash contributions to its defined benefit plans were $424 million and $644 million, respectively, including $75 million and $123 million in the second quarter of 2004 and 2003, respectively. Voluntary contributions comprised $50 million and $358 million, respectively, of the total contribution made in the second quarter and first six months of 2004. During the first six months of 2004 and 2003, the Corporation also contributed $67 million and $54 million, respectively, to its defined contribution plans, including $32 million and $25 million in the second quarter of 2004 and 2003, respectively.

 

The following tables illustrate the components of net periodic benefit cost for the Corporation’s pension and other postretirement benefits.

 

     Pension Benefits
Quarter Ended
June 30,
     Pension Benefits
Six Months Ended
June 30,
  
In Millions    2004
     2003