UNITED STATESSECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C.
20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30,2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE 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
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, 2003 there were468,814,654 shares of Common Stock outstanding.
CONTENTS OF QUARTERLY REPORT ON FORM 10-QQuarter Ended June 30,2003
"Corporation," unless the context otherwise requires, means United Technologies Corporation or UTC and its subsidiaries.
UNITED TECHNOLOGIES CORPORATIONAND SUBSIDIARIES
Part I - Financial Information
Item 1
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS(Unaudited)
2002
$
5,566
632
624
See accompanying Notes to Condensed Consolidated Financial Statements
2
10,266
1,134
1,091
3
CONDENSED CONSOLIDATED BALANCE SHEET
June 30,2003
December 31,2002
(Unaudited)
Assets
(6,712)
Liabilities and Shareowners' Equity
Common Stock
10,836
4
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS(Unaudited)
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)
The Condensed Consolidated Financial Statements at June 30, 2003 and for the quarters and six-month periods ended June 30, 2003 and 2002 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 2002. Certain reclassifications have been made to the prior year amounts to conform to the current year presentation.
Employee Benefit Plans
During the first six months of 2003, the Corporation made $600 million of cash contributions to its defined benefit domestic pension plans, including $500 million in the first quarter and $100 million in the second quarter.
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.
Pro forma net income
6
Derivative Instruments and Hedging Activities
The Corporation uses derivative instruments, including swaps, forward contracts and options, to manage certain foreign currency, interest rate and commodity price exposures. Derivative instruments are viewed as risk management tools by the Corporation and are not used for trading or speculative purposes. Derivatives used for hedging purposes must be designated and effective as a hedge of the identified risk exposure at the inception of the contract. Accordingly, changes in the fair value of the derivative contract must be highly correlated with changes in the fair value of the underlying hedged item at inception of the hedge and over the life of the hedge contract.
The fair value of derivatives held by the Corporation, including those embedded in other contracts, was a net asset of $152 million at June 30, 2003. Of the amount recorded in shareowners' equity, a $63 million pre-tax gain is expected to be reclassified into sales or cost of products sold to reflect the fixed prices obtained from hedging within the next 12 months. Gains and losses recognized in earnings related to the ineffectiveness of cash flow hedges during the six months ended June 30, 2003 were immaterial. All open derivative contracts accounted for as cash flow hedges mature by March 2006.
Non-Shareowners' Changes in Equity
Non-shareowners' changes in equity include 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.
7
Inventories and Contracts in Progress
740
1,026
2,329
2,177
6,272
(123)
(2,346)
3,803
Guarantees
In December 2002, the Corporation adopted Financial Accounting Standards Board Interpretation ("FIN") No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." The Corporation adopted the disclosure requirements of the interpretation as of December 31, 2002. Effective January 1, 2003, additional provisions of FIN 45 became effective and were adopted by the Corporation. The accounting guidelines are applicable to guarantees issued after December 31, 2002 and require that the Corporation record a liability for the fair value of such guarantees in the balance sheet.
The Corporation extends a variety of financial, market value and product performance guarantees to third parties. There have been no material changes to guarantees outstanding since December 31, 2002.
The changes in the carrying amount of service and product warranties and product performance guarantees for the six months ended June 30, 2003, are as follows:
Acquisitions, Goodwill and Other Intangible Assets
During the first six months of 2003, the Corporation's investments in businesses were $94 million, including $76 million in the second quarter, primarily for the initial purchase of Chubb plc shares. The assets and liabilities of acquired businesses are recorded at fair value at the date of acquisition under the purchase method.
8
Identifiable intangible assets are recorded in "Other assets" in the Condensed Consolidated Balance Sheet and are comprised of:
AccumulatedAmortization
Amortization of intangible assets for the quarter and six-month periods ended June 30, 2003 was $15 million and $29 million, respectively, compared with $13 million and $23 million for the same periods last year. Amortization of these intangible assets for 2003 to 2007 is expected to approximate $55 million per year.
Restructuring
During 2002, the Corporation recorded pre-tax restructuring and related charges totaling $321 million. These charges related to ongoing cost reduction efforts, including workforce reductions and consolidation of manufacturing, sales and service facilities. These programs are expected to result in net workforce reductions of approximately 7,000 salaried and hourly employees, the elimination of approximately 2.0 million square feet of facilities and the disposal of assets associated with exited facilities. As of June 30, 2003, reductions of approximately 1,000 employees and approximately 600 thousand square feet remain to be completed under the programs. As of June 30, 2003, approximately $58 million of severance and related costs and $5 million of facility exit and lease termination accruals remain outstanding. The programs are expected to be completed in 2003.
In the first and second quarters of 2003, the Corporation recorded pre-tax restructuring and related charges of $11 million and $22 million, respectively, in connection with its continuing cost reduction efforts. These charges were similar in nature to those noted above and were recorded in both the commercial and aerospace units. The amounts were not material to the results of any individual segment.
Contingent Liabilities
There has been no significant change in the Corporation's material contingencies during 2003. Summarized below, however, are the matters previously described in Notes 1 and 16 of the Notes to the Consolidated Financial Statements in the Corporation's Annual Report, incorporated by reference in Form 10-K for calendar year 2002.
9
Environmental
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. Accrued environmental liabilities are not reduced by potential insurance reimbursements. The Corporation periodically reassesses these accrued amounts. Management believes that the likelihood of incurring losses materially in excess of amounts accrued is remote.
U.S. Government
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, they 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 that 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. In addition, the Corporation accrues for liabilities associated with those matters that are probable and can be reasonably estimated.
Other
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. In addition, the Corporation incurs discretionary costs to service its products in connection with product performance issues. The Corporation has accrued its estimated liability that may result under these guarantees and for service costs which are probable and can be reasonably estimated.
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 condition, results of operations or cash flows.
10
Earnings Per Share
2003
(8)
616
Segment Financial Data
The Corporation's operations are classified into four principal segments: Otis, Carrier, Pratt & Whitney and Flight Systems. Those segments were generally determined based on the management structure of the businesses and the groupings of similar operating companies, where each management organization has general operating autonomy over diversified products and services.
11
With respect to the unaudited condensed consolidated financial information of United Technologies Corporation for the quarters and six-month periods ended June 30, 2003 and 2002, PricewaterhouseCoopers LLP ("PricewaterhouseCoopers") reported that they have applied limited procedures in accordance with professional standards for a review of such information. However, their report dated July 17, 2003, 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.
REPORT OF INDEPENDENT AUDITORS
To the Shareowners of United Technologies Corporation
We have reviewed the accompanying condensed consolidated balance sheet of United Technologies Corporation and its consolidated subsidiaries as of June 30, 2003, and the related condensed consolidated statement of operations for each of the three-month and six-month periods ended June 30, 2003 and 2002, and the condensed consolidated statement of cash flows for the six-month periods ended June 30, 2003 and 2002. This interim financial information is the responsibility of the Corporation's management.
/s/ PricewaterhouseCoopers LLPPricewaterhouseCoopers LLPHartford, ConnecticutJuly 17, 2003
12
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
BUSINESS ENVIRONMENT
The Corporation's operations are classified into four principal segments: Otis, Carrier, Pratt & Whitney and Flight Systems. Otis and Carrier serve customers in the commercial and residential property industries. Carrier also serves commercial and transport refrigeration customers. Pratt & Whitney and the Flight Systems segment, which includes Hamilton Sundstrand and Sikorsky Aircraft ("Sikorsky"), primarily serve commercial and government customers in the aerospace industry.
For discussion of the Corporation's business environment, refer to the discussion of "Business Environment" in the Management's Discussion and Analysis of Financial Condition and Results of Operations in the Corporation's Annual Report incorporated by reference in Form 10-K for calendar year 2002. The current status of significant factors impacting the Corporation's business environment in 2003 is discussed below.
As worldwide businesses, the Corporation's operations are affected by global and regional industry, economic and political factors. The Corporation's geographic and industry diversity, as well as the diversity of its product sales and services, has helped limit the impact of any one industry or the economy of any single country on the consolidated results. Economic conditions in the commercial airline industry, global refrigeration industries, commercial HVAC and construction markets had a negative impact on the Corporation's consolidated results in the first six months of 2003 and are expected to continue to present challenges to its businesses. In addition, the defense portion of the Corporation's aerospace businesses is affected by changes in market demand and the global political environment. The Corporation's participation in long-term production and development programs for the U.S. Government has contributed positively to the Corporation's results in the first six months of 2003 and is expected to continue to benefit results for the remainder of 2003. During the first six months of 2003, foreign currencies contributed positively to the Corporation's consolidated results, primarily driven by the strength of the euro in relation to the U.S. dollar.
Traffic growth, load factors, worldwide airline profits, influenced in part by fuel prices and labor issues, and general economic activity have historically been reliable indicators for new aircraft and aftermarket orders in the aerospace industry. Spare part sales and aftermarket service trends are impacted by factors including usage, pricing, regulatory changes and retirement of older aircraft. Performance in the general aviation sector is closely tied to the overall health of the economy and is positively correlated to corporate profits. Current conditions in the airline industry include reduced flight schedules, an increased number of idle aircraft, workforce reductions and declining financial performance, including recent airline bankruptcies. Airlines and aircraft manufacturers continue to reduce supplier bases and seek lower cost packages. These conditions have resulted in decreased aerospace volume and orders in the Corporation's commercial aerospace businesses in the first six months of 2003 and are expected to continue for the remainder of 2003. In addition, ongoing U.S. military involvement in Iraq has created uncertainty in the airline industry.
13
The residual impact of war in Iraq, continued commercial airline financial distress, slowed global economic growth, including the near term impact of Severe Acute Respiratory Syndrome ("SARS"), and weather conditions in key HVAC markets create uncertainties that could impact the Corporation's earnings outlook for the remainder of 2003.
CRITICAL ACCOUNTING ESTIMATES
RESULTS OF CONTINUING OPERATIONS
Consolidated revenues were $7.8 billion in the second quarter of 2003, an increase of $466 million (6%) when compared to the same period of 2002 and $14.5 billion for the six-month period of 2003, a $794 million (6%) increase when compared to the same period of 2002. Foreign currency translation contributed approximately two-thirds of the revenue increase in the quarter and six-month periods ended June 30, 2003 due primarily to the continued strengthening of the euro in relation to the U.S. dollar. The second quarter and six-month increases reflect growth at Otis, increased aftermarket revenues at Sikorsky and increased military revenues at Pratt & Whitney. These increases were partially offset by declines in commercial spare parts volume in the aerospace businesses.
The Corporation's research and development spending includes both company and customer funded programs. Total research and development spending for the Corporation increased $93 million (16%) to $665 million in the second quarter of 2003 and increased $80 million (7%) to $1.2 billion in the first six months of 2003 compared to the same periods of 2002.
Company funded research and development spending decreased $24 million (8%) and $127 million (20%) in the second quarter and six-month period of 2003, respectively, when compared to the same periods of 2002. The second quarter decrease is due primarily to lower spending in the commercial aerospace businesses. The six-month decrease also reflects the finalization of a technology funding agreement at Pratt & Whitney Canada in the first quarter of 2003, lower spending on Sikorsky's S-92 program which received Federal Aviation Administration type certification during the fourth quarter of 2002 and costs associated with the PW6000 program recorded in the first quarter of 2002. As a percentage of sales, research and development was 3.6% in the second quarter and six-month period of 2003, compared to 4.2% and 4.7% in the same periods of 2002. Company funded research and development spending is subject to the variable nature of program development schedules and in the second half of 2003 is expected to approximate amounts reported in the first six months of 2003.
14
In addition to company funded programs, customer funded research and development programs were $384 million and $733 million in the second quarter and six-month period of 2003, respectively, as compared to $267 million and $526 million for the same periods of 2002. The increases are primarily attributable to Pratt & Whitney's military business.
Interest expense decreased $3 million (3%) and $11 million (6%) in the second quarter and six-month period of 2003, respectively, when compared to the same periods of 2002.
Net income and diluted earnings per share increased $8 million (1%) and $.03 (2%), respectively, in the second quarter of 2003 when compared with the same period of 2002. Net income and diluted earnings per share increased $43 million (4%) and $.12 (6%), respectively, in the first six months of 2003 when compared to the same period of 2002. The favorable impact of foreign currency translation contributed $.07 per share and $.12 per share to the second quarter and first six months of 2003, respectively.
During 2002, the Corporation recorded pre-tax restructuring and related charges totaling $321 million. These charges related to on-going cost reduction efforts, including workforce reductions and consolidation of manufacturing, sales and service facilities. These programs are expected to result in net workforce reductions of approximately 7,000 salaried and hourly employees, the elimination of approximately 2.0 million square feet of facilities and the disposal of assets associated with exited facilities. During 2003, the Corporation has incurred pre-tax cash outflows related to the 2002 programs of approximately $89 million which were funded from cash generated from operations. Savings are expected to increase over a two-year period resulting in recurring pre-tax savings of approximately $285 million annually. As of June 30, 2003, reductions of approximately 1,000 employees and approximately 600 thousand square feet remain to be completed under the programs. As of June 30, 2003, approximately $58 million of severance and related costs and $5 million of facility exit and lease termination accruals remain outstanding. The programs are expected to be completed in 2003.
15
Segment Review
Revenues, operating profits and operating profit margins of the Corporation's principal segments include the results of all majority-owned subsidiaries, consistent with the management reporting of these businesses. As discussed in the Notes to the Condensed Consolidated Financial Statements for certain of these subsidiaries, minority shareholders have rights which overcome the presumption of control. In the consolidated results, these subsidiaries are accounted for using the equity method of accounting. Adjustments to reconcile segment reporting to consolidated results are included in "Eliminations and other," which also includes certain small subsidiaries. Results for the quarters and six-month periods ended June 30, 2003 and 2002 are as follows:
General corporate expenses
-
940
935
Segment operating profits for the quarters ended June 30, 2003 and 2002 include restructuring and related charges of $22 and $29, respectively.
Revenues
(195)
1,686
1,633
In the first and second quarters of 2003, the Corporation recorded restructuring and related charges of $11 and $22, respectively, in connection with its continuing cost reduction efforts in both the commercial and aerospace segments.
Segment operating profits for the six months ended June 30, 2002 include restructuring and related charges. The amounts recorded in the first quarter were as follows: Otis - $16, Carrier - $74, Pratt & Whitney - $9, and Flight Systems - $5. In the second quarter of 2002, charges of $29 were recorded in connection with the Corporation's continuing cost reduction efforts, primarily in the commercial segments.
16
Otis revenues increased $276 million (16%) and $560 million (17%) in the second quarter and first six months of 2003, respectively, compared to the same periods of 2002 largely reflecting growth in all regions. The favorable impact of foreign currency translation contributed approximately 60% of the revenue increase, reflecting the strengthening of the euro in relation to the U.S. dollar.
Otis operating profits increased $73 million (28%) and $153 million (31%) in the second quarter and first six months of 2003, respectively, compared to the same periods of 2002. The second quarter and six-month increases reflect profit improvement in all regions and the favorable impact of foreign currency translation, which contributed approximately half of the operating profit growth. The six month increase also reflects the absence of $16 million of restructuring charges recorded in the first quarter of 2002. Restructuring charges recorded in the second quarter of 2003 and 2002 were comparable in both periods.
Carrier's operating profits increased $28 million (8%) and $118 million (30%) in the second quarter and first six months of 2003, respectively, compared to the same periods of 2002. These increases reflect higher volume in the transport refrigeration business and continued benefits from cost reduction actions partially offset by unfavorable pricing trends in commercial HVAC and Asia. The six-month increase also reflects the absence of $74 million of restructuring charges recorded in the first quarter of 2002, with approximately half of the remainder due to the favorable impact of foreign currency translation. Foreign currency translation contributed approximately half of the reported second quarter operating profit increase.
Pratt & Whitney revenues increased $73 million (4%) and decreased $36 million (1%) in the second quarter and first six months of 2003, respectively, compared to the same periods of 2002. The second quarter increase is due primarily to increased military revenues partially offset by declines in commercial spare parts volume and lower volume at Pratt & Whitney Canada. The six-month period also reflects lower volume at Pratt & Whitney Power Systems compared to the same period of 2002.
17
LIQUIDITY AND FINANCIAL CONDITION
Net cash flows provided by operating activities decreased $370 million in the first six months of 2003 compared to the corresponding period in 2002, due primarily to a $600 million cash contribution to the Corporation's domestic defined benefit pension plans, partially offset by improved operating performance.
18
Net cash flows used in financing activities increased $48 million in the first six months of 2003 compared with the same period of 2002, due primarily to higher share repurchases and increased dividends on Common Stock partially offset by lower debt repayments and short term borrowings. Under a shelf registration statement previously filed with the Commission, the Corporation can issue approximately $1.1 billion of additional debt and equity securities.
Recent Accounting Guidance
The adoption of FIN 46 for variable interests created after January 31, 2003 did not have a material impact on the Corporation's consolidated financial condition, results of operations or cash flows. The Corporation is continuing to review the provisions of FIN 46 to determine its impact, if any, on future reporting periods with respect to interests in variable interest entities created prior to February 1, 2003, and does not currently anticipate any material accounting or disclosure requirement under the provisions of the interpretation.
19
In May 2003, SFAS No. 150, "Accounting for Certain Instruments with Characteristics of Both Liabilities and Equity" was issued. The standard establishes how an issuer classifies and measures certain freestanding financial instruments with characteristics of liabilities and equity and requires that such instruments be classified as liabilities. The standard is effective for financial instruments entered into or modified after May 31, 2003 and is otherwise effective at the beginning of the first interim period beginning after June 15, 2003. Adoption of the standard is not expected to have a material impact on the Corporation's consolidated financial position, results of operations or cash flows.
20
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 six months of 2003. 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 2002.
Item 4. Controls and Procedures
As of the end of the quarter ended June 30, 2003, management, including the Corporation's Chief Executive Officer and Vice Chairman and Chief Financial Officer, has evaluated the effectiveness of the design and operation of the Corporation's disclosure controls and procedures. Based upon that evaluation, and as of the end of the quarter for which this report is made, the Chief Executive Officer and Vice Chairman and Chief Financial Officer concluded that the disclosure controls and procedures were effective, in all material respects, to ensure that information required to be disclosed in the reports the Corporation files and submits under the Exchange Act is recorded, processed, summarized and reported as and when required.
21
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," "target," "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 and integration into the Corporation's businesses
Product developments and new business opportunities
Restructuring costs and savings
The outcome of contingencies
Future repurchases of Common Stock
Future levels of indebtedness and capital spending
Pension plan assumptions and future contributions.
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 Quarterly 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 Financial Condition and Results of Operations" under the headings "Business Environment," "Critical Accounting Estimates," "Results of Continuing Operations," and "Liquidity and Financial Condition." The Corporation's Annual Report on Form 10-K for the calendar year 2002 also includes important information as to risk factors in the "Business" section under the headings "General," "Description of Business by Segment" and "Other Matters Relating to the Corporation's Business as a Whole" and in the "Legal Proceedings" section. Additional important information as to risk factors is included in the Corporation's 2002 Annual Report to Shareowners in the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" under the headings "Business Environment," "Critical Accounting Estimates," "Environmental Matters," 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.
22
Part II – Other InformationItem 1. Legal Proceedings
Part II – Other Information
Item 1. Legal Proceedings
As previously reported, the Corporation had pending against it one qui tam complaint under the civil False Claims Act in United States District Court for the District of Connecticut: U.S. ex rel. Drake v. Norden Systems, Inc. and UTC, No. 394CV00963 (filed July 1997, and involving allegations of improper accounting for fixed assets). In February 2003, the case was dismissed. On June 18, 2003, the Court denied the relator's motion for reconsideration. The relator has appealed this dismissal.
As previously reported, in March 1999, the U.S. Department of Justice filed a civil False Claims Act complaint against the Corporation in United States District Court for the Southern District of Ohio (Western Division), No. C-3-99-093. This lawsuit relates to the "Fighter Engine Competition" between Pratt & Whitney's F100 engine and GE's F110 engine, for contracts awarded by the U.S. Air Force between fiscal years 1985 and 1990, inclusive. The Government alleges that Pratt & Whitney inflated its estimated costs for purchased parts and withheld data that would have revealed the overstatements. In mid-2002, the Court denied motions filed by Pratt & Whitney that could have resulted in dismissal of all or part of the Government's claims. The Corporation requested that the Court reconsider this denial. This request was denied in March 2003. On May 9, 2003, the Government asked the Court to allow an amendment to the complaint, which the Corporation has opposed. Trial of this matter is anticipated in the second quarter of 2004.
As previously reported, the Corporation entered into a Consent Decree in August of 1993 with the EPA and the Department of Justice in Docket Number H-90-715 (JAC) in the U.S. District Court for the District of Connecticut. Under the Consent Decree, the Corporation agreed to adopt programs to enhance the effectiveness of its environmental management systems and to conduct environmental regulatory compliance audits of all of its facilities in New England. The Corporation having successfully completed all requirements of the Consent Decree and upon Joint Motion by the Corporation and the United States, the Consent Decree was terminated by order of the U.S. District Court for the District of Connecticut, effective as of April 10, 2003.
Except as noted above, there have been no material developments in legal proceedings. 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 2002.
The Corporation does not believe that the resolution of the foregoing legal matters will have a material adverse effect upon the Corporation's competitive position, results of operations, cash flow or financial condition.
23
Item 4. Submission of Matters to a Vote of Security Holders The Corporation held its Annual Meeting of Shareowners on April 9, 2003.The following individuals were nominated and elected to serve as directors:George David, Jean-Pierre Garnier, Jamie S. Gorelick, Charles R. Lee, Richard D. McCormick,Stephen F. Page, Frank P. Popoff, H. Patrick Swygert, Andre Villeneuve and Harold A. WagnerThe Shareowners voted as follows on the following matters:1)Election of directors. The voting results for each of the nominees are as follows:
Item 4. Submission of Matters to a Vote of Security Holders
The Corporation held its Annual Meeting of Shareowners on April 9, 2003.
The following individuals were nominated and elected to serve as directors:
George David, Jean-Pierre Garnier, Jamie S. Gorelick, Charles R. Lee, Richard D. McCormick,Stephen F. Page, Frank P. Popoff, H. Patrick Swygert, Andre Villeneuve and Harold A. Wagner
The Shareowners voted as follows on the following matters:
Votes For
Votes Withheld
George David
415,338,033
Jean-Pierre Garnier
409,547,916
Jamie S. Gorelick
405,612,179
20,153,311
Charles R. Lee
407,288,818
Richard D. McCormick
405,916,237
Frank P. Popoff
401,523,485
H. Patrick Swygert
417,463,643
Andre Villeneuve
405,864,053
Harold A. Wagner
406,061,602
2)A proposal of the Audit Committee and the Board of Directors to re-appoint PricewaterhouseCoopers LLP to serve as Independent Auditor. A total of 396,399,903 shares were voted for and 23,269,301 shares were voted against this proposal. There were 6,096,286 abstentions and zero broker non-votes.3)A shareowner proposal recommending additional disclosure of compensation of executive officers. A total of 29,713,878 shares were voted for and 339,100,860 shares were voted against this proposal. There were 9,079,690 abstentions and 47,871,062 broker non-votes.4)A shareowner proposal recommending that the Board of Directors provide a report concerning the Corporation's involvement in space-based weaponization. A total of 19,132,696 shares were voted for and 343,134,077 shares were voted against this proposal. There were 15,423,775 abstentions and 48,074,942 broker non-votes.5)A shareowner proposal recommending shareowner approval of certain future severance agreements with senior executives. A total of 199,116,227 shares were voted for and 169,409,562 shares were voted against this proposal. There were 9,162,834 abstentions and 48,076,867 broker non-votes.
24
Item 6. Exhibits and Reports on Form 8-K (a) Exhibits
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(12)
(15)
(99.1)
(99.2)
(b) Reports on Form 8-K
On April 17, 2003, the Corporation filed a Report on Form 8-K, furnishing under Item 12, an April 17, 2003 press release announcing its first quarter 2003 results. (Such press release is not incorporated by reference herein or deemed "filed" within the meaning of Section 18 of the Securities Act.)
*Submitted electronically herewith.
25
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.
26
UNITED TECHNOLOGIES CORPORATIONAND SUBSIDIARIESEXHIBIT INDEX
EXHIBIT INDEX
27