-----BEGIN PRIVACY-ENHANCED MESSAGE-----
Proc-Type: 2001,MIC-CLEAR
Originator-Name: webmaster@www.sec.gov
Originator-Key-Asymmetric:
MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen
TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB
MIC-Info: RSA-MD5,RSA,
IA9Vmmi5bl/2P9ExTrdpSfy8oMDJx/cWqvA/FQr0yDcQQKkUKNUNCn4Zeh/MRPyr
B81BzCF/b5sNIVU8nOq+sA==
0000101829-03-000150.txt : 20030303
0000101829-03-000150.hdr.sgml : 20030303
20030303170332
ACCESSION NUMBER: 0000101829-03-000150
CONFORMED SUBMISSION TYPE: 10-K/A
PUBLIC DOCUMENT COUNT: 4
CONFORMED PERIOD OF REPORT: 20021231
FILED AS OF DATE: 20030303
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: UNITED TECHNOLOGIES CORP /DE/
CENTRAL INDEX KEY: 0000101829
STANDARD INDUSTRIAL CLASSIFICATION: AIRCRAFT ENGINES & ENGINE PARTS [3724]
IRS NUMBER: 060570975
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K/A
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-00812
FILM NUMBER: 03589942
BUSINESS ADDRESS:
STREET 1: UNITED TECHNOLOGIES BLDG
STREET 2: ONE FINANCIAL PLZ
CITY: HARTFORD
STATE: CT
ZIP: 06101
BUSINESS PHONE: 2037287000
FORMER COMPANY:
FORMER CONFORMED NAME: UNITED TECHNOLOGIES CORP
DATE OF NAME CHANGE: 19841205
FORMER COMPANY:
FORMER CONFORMED NAME: UNITED TECHNOLOGIES MICROELECTRONICS CENTER
DATE OF NAME CHANGE: 19850825
10-K/A
1
ten-ka2002.htm
FORM 10-KA 2002
Form 10-KA 2002
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
Amendment No. 1
[X] |
ANNUAL REPORT PURSUANT TO
SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2002
Commission file number 1-812
UNITED TECHNOLOGIES CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of
incorporation or organization) |
06
0570975
(I.R.S. Employer
Identification No.) |
One
Financial Plaza, Hartford, Connecticut
(Address of principal executive offices) |
06103
(Zip Code) |
Registrant's telephone number, including
area code: (860) 728-7000
Securities registered pursuant to Section 12(b) of the Act:
Title of
each class
Common Stock ($1 par value)
(CUSIP 913017 10 9) |
Name of
each exchange on which registered
New York Stock Exchange |
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 Act). Yes X . No __.
At February 11, 2003, there were 470,454,442
shares of Common Stock outstanding. The aggregate market value of the voting Common Stock
held by non-affiliates at June 28, 2002 was approximately $31,963,349,887, based on the
New York Stock Exchange closing price for such shares on that date. For purposes of this
calculation, the Registrant has assumed that its directors and executive officers are
affiliates.
List hereunder documents incorporated by
reference and the Part of the Form 10-K into which the document is incorporated: (1)
Portions of the United Technologies Corporation 2002 Annual Report to Shareowners are
incorporated by reference in Parts I, II and IV hereof; and (2) Portions of the United
Technologies Corporation Proxy Statement for the 2003 Annual Meeting of Shareowners are
incorporated by reference in Part III hereof.
Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and is
not to be contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. [ ]
The undersigned registrant hereby amends Item 15, Exhibits,
Financial Statement Schedules and Reports on Form 8-K of Part IV of its Annual Report on
Form 10-K for the year ended December 31, 2002 by deleting Exhibits 13 and 21 filed with
the Securities and Exchange Commission on February 10, 2003 and replacing them in their
entirety with Exhibits 13 and 21 filed herewith.
Explanatory Note
This Form 10-K/A is being filed to correct certain
typographical errors in Exhibit 13 of the Corporations Annual Report on Form 10-K
for the year ended December 31, 2002 (the "Report on Form 10-K") filed with the
Securities and Exchange Commission on February 10, 2003, including an error in the tabular
presentation of Notes 10 and 17 to Consolidated Financial Statements and errors in certain
names and titles listed under "Directors" and "Leadership" in the
Corporations 2002 Annual Report to Shareowners. This Form 10-K/A is also being filed
to correct certain errors in the list of Subsidiaries of the Registrant set forth in
Exhibit 21 to the Corporations Report on Form 10-K. The corresponding pages
contained in the Corporations printed Annual Report and printed Report on Form 10-K
previously distributed to investors are correct and do not require revision.
The Corporation believes that these changes are not
material to its financial condition, results of operations or cash flows.
Except as described above, no change has been made to the
Corporations Report on Form 10-K filed on February 10, 2003. This report continues
to speak as of the date of the original filing of the Corporations Report on Form
10-K and the Corporation has not updated the disclosure in this report. The filing of this
amended Form 10-K/A should not be understood to mean that any statements contained herein
are true or complete as of any date subsequent to the date of the original filing of the
Corporations Report on Form 10-K.
Part IV.
Item 15. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K.
(3) Exhibits
The following Exhibits are submitted electronically
herewith:
Exhibit Number
13 |
Annual Report to Shareowners for
the year ended December 31, 2002 (except for the pages and information thereof expressly
incorporated by reference in the Corporations Report on Form 10-K, the Annual Report
to Shareowners is provided solely for the information of the Securities and Exchange
Commission and is not to be deemed "filed" as part of this Form 10-K/A). |
|
|
21 |
Subsidiaries of the Registrant. |
|
|
23 |
Consent of PricewaterhouseCoopers
LLP. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
UNITED TECHNOLOGIES CORPORATION
(Registrant)
By:
William H. Trachsel
Senior Vice President, General Counsel and Secretary
Date: March 3, 2003
CERTIFICATION
I, George David, certify that:
1. I have reviewed this annual report on
Form 10-K of United Technologies Corporation;
2. Based on my knowledge, this annual report
does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial
statements, and other financial information included in this annual report, fairly present
in all material respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers
and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and
procedures to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the
registrant's disclosure controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our
conclusions about the effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers
and I have disclosed, based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design
or operation of internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that
involves management or other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers
and I have indicated in this annual report whether there were significant changes in
internal controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
Date: March 3, 2003 |
George David
Chairman and Chief Executive Officer |
CERTIFICATION
I, Stephen F. Page, certify that:
1. I have reviewed this annual report on Form
10-K of United Technologies Corporation;
2. Based on my knowledge, this annual report
does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial
statements, and other financial information included in this annual report, fairly present
in all material respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers
and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and
procedures to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the
registrant's disclosure controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our
conclusions about the effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers
and I have disclosed, based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design
or operation of internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that
involves management or other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers
and I have indicated in this annual report whether there were significant changes in
internal controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
Date:
March 3, 2003 |
Stephen F. Page
Vice Chairman and Chief Financial Officer |
EX-13
4
ex13tk2002.htm
EX 13
UTC Annual Report -- 2002
EXHIBIT 13
Five Year Summary
|
IN MILLIONS OF DOLLARS, EXCEPT PER
SHARE AMOUNTS |
|
2002 |
|
2001 |
|
2000 |
|
1999 |
|
1998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year |
|
|
|
|
|
|
|
|
|
|
|
Revenues |
$ |
28,212 |
$ |
27,897 |
$ |
26,583 |
$ |
24,127 |
$ |
22,809 |
|
Research and development |
|
1,191 |
|
1,254 |
|
1,302 |
|
1,292 |
|
1,168 |
|
Income from continuing operations(1) |
|
2,236 |
|
1,938 |
|
1,808 |
|
841 |
|
1,157 |
|
Net income |
|
2,236 |
|
1,938 |
|
1,808 |
|
1,531 |
|
1,255 |
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations |
|
4.67 |
|
4.06 |
|
3.78 |
|
1.74 |
|
2.47 |
|
Net
earnings |
|
4.67 |
|
4.06 |
|
3.78 |
|
3.22 |
|
2.68 |
|
Net
earnings adjusted for SFAS No. 142 |
|
|
|
4.51 |
|
4.18 |
|
3.51 |
|
2.84 |
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations |
|
4.42 |
|
3.83 |
|
3.55 |
|
1.65 |
|
2.33 |
|
Net
earnings |
|
4.42 |
|
3.83 |
|
3.55 |
|
3.01 |
|
2.53 |
|
Net
earnings adjusted for SFAS No. 142 |
|
|
|
4.25 |
|
3.92 |
|
3.27 |
|
2.67 |
|
Cash dividends per common share |
|
.98 |
|
.90 |
|
.825 |
|
.76 |
|
.695 |
|
Average number of shares of Common Stock outstanding: |
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
472.4 |
|
470.2 |
|
470.1 |
|
465.6 |
|
455.5 |
|
Diluted |
|
505.6 |
|
505.4 |
|
508.0 |
|
506.7 |
|
494.8 |
|
Return on average common shareowners' equity,
after tax |
|
26.8% |
|
23.6% |
|
24.4% |
|
24.6% |
|
28.6% |
|
Operating cash flows |
|
2,853 |
|
2,976 |
|
2,631 |
|
2,401 |
|
2,376 |
|
Capital expenditures |
|
586 |
|
793 |
|
937 |
|
762 |
|
673 |
|
Acquisitions, including debt assumed |
|
424 |
|
525 |
|
1,340 |
|
6,268 |
|
1,237 |
|
Share repurchase |
|
700 |
|
599 |
|
800 |
|
822 |
|
650 |
|
|
|
|
|
|
|
|
|
|
|
|
|
At year end |
|
|
|
|
|
|
|
|
|
|
|
Working capital, continuing operations |
$ |
3,848 |
$ |
2,892 |
$ |
1,318 |
$ |
1,412 |
$ |
1,359 |
|
Total assets |
|
29,090 |
|
27,010 |
|
25,364 |
|
24,366 |
|
17,768 |
|
Long-term debt, including current portion |
|
4,676 |
|
4,371 |
|
3,772 |
|
3,419 |
|
1,669 |
|
Total debt |
|
4,873 |
|
4,959 |
|
4,811 |
|
4,321 |
|
2,173 |
|
Debt to total capitalization |
|
37% |
|
37% |
|
39% |
|
38% |
|
33% |
|
ESOP Preferred Stock, net |
|
428 |
|
429 |
|
432 |
|
449 |
|
456 |
|
Shareowners' equity |
|
8,355 |
|
8,369 |
|
7,662 |
|
7,117 |
|
4,378 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of employees - continuing operations |
|
155,000 |
|
152,000 |
|
153,800 |
|
148,300 |
|
134,400 |
|
|
|
|
|
|
|
|
|
|
|
|
(1) 1999 and 1998 Income from continuing operations excludes the results
of UT Automotive which was sold in 1999
and reflected in discontinued
operations.
The 1999 amount reflects restructuring and related charges
of $1.1 billion.
Management's Discussion and Analysis
Management's Discussion and Analysis of Financial Condition and Results
of Operations
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. The Corporation's segment operating
results are discussed in the Segment Review and Note 17 of the Notes
to Consolidated Financial Statements.
Business Environment
As worldwide businesses, the Corporation's operations are affected by
global, regional and industry economic and political factors. However,
the Corporation's geographic and industry diversity, as well as the
diversity of its product sales and service, has helped limit the impact
of any one industry or the economy of any single country on the consolidated
results. Current economic conditions in the commercial airline industry,
global refrigeration industry, and commercial heating, ventilating
and air conditioning markets had a negative impact on the Corporation's
consolidated results and are expected to continue to present challenges
to its businesses.
The Corporation's growth strategy contemplates
acquisitions in its core businesses. The rate and extent to which appropriate
acquisition opportunities are available and to which acquired businesses are
integrated and anticipated synergies or cost savings are achieved can affect
the Corporation's operations and results.
Revenues from outside the U.S., including U.S.
export sales, in dollars and as a percentage of total segment revenues, are as
follows:
|
|
IN MILLIONS OF DOLLARS |
2002 |
2001 |
2000 |
2002 |
2001 |
2000 |
|
|
|
Europe |
$ 5,573 |
$ 4,716 |
$ 4,413 |
19% |
17% |
17% |
|
|
|
Asia Pacific |
3,647 |
3,420 |
3,319 |
13% |
12% |
12% |
|
|
|
Other Foreign |
2,581 |
2,785 |
2,820 |
9% |
10% |
11% |
|
|
|
U.S. Exports |
4,053 |
3,947 |
4,134 |
14% |
14% |
15% |
|
|
|
International
Segment
Revenues |
$15,854 |
$14,868 |
$14,686 |
55% |
53% |
55% |
|
As part of its globalization strategy,
the Corporation has invested in businesses in certain countries, including
Argentina, Brazil, the People's Republic of China, Russia and South Korea,
which carry higher levels of currency, political and economic risk. At
December 31, 2002, the Corporation's net investment in any one of these
countries was less than 6% of consolidated equity.
During 2002, the strengthening of the euro had
a favorable impact on the translation of foreign currency-denominated operating
results into U.S. dollars. The favorable impact of the euro was partially offset
by weakening Latin America currencies.
OTIS is the world's largest elevator and escalator manufacturing, installation
and service company. Otis designs, manufactures, sells and installs a
wide range of passenger and freight elevators, and produces a broad line
of escalators. In addition to new equipment, Otis provides modernization
products and services to upgrade elevators and escalators as well as
maintenance services for a substantial portion of the products it sells,
and those of other manufacturers. It serves an international customer
base, principally in the commercial and residential property industries.
In 2002, 77% of its revenues were generated outside the U.S. Otis' results
can be impacted by various economic factors, including fluctuations in
commercial construction, labor costs, interest rates, foreign currency
exchange rates and raw material costs.
During 2002, construction activity in Europe was
mixed but declined overall, and in Asia, activity was strong in both China and
South Korea, but remained weak in Japan. U.S. office building construction starts
continued to decline. Construction order activity slowed and national office
vacancy rates increased as market conditions softened.
CARRIER is the world's largest manufacturer of commercial and residential
heating, ventilating and air conditioning ("HVAC") systems and equipment.
Carrier is also a leading producer of commercial and transport refrigeration
equipment and provides aftermarket services and components for its products
and those of other manufacturers in both the HVAC and refrigeration industries.
During 2002, 48% of Carrier's revenues were generated outside the U.S.
and by U.S. exports. Carrier's results can be impacted by a number of
external factors, including commercial and residential construction activity,
production and utilization of transport equipment, weather conditions,
fuel prices, interest rates, foreign currency exchange rates, raw material
costs and industry capacity.
During 2002, U.S. commercial construction starts
decreased and investment in replacement refrigeration and HVAC equipment declined
compared to 2001. The global transport refrigeration market improved in 2002,
due in part to stabilizing fuel prices and favorable trends in interest rates.
A warmer summer selling season in many regions of the U.S. and strength in housing
starts favorably impacted North American residential HVAC operations, while international
construction markets weakened. Slow economic growth and global pricing trends
are expected to continue to present challenges to the North American and international
HVAC and commercial refrigeration markets in 2003.
Management's Discussion and Analysis
PRATT & WHITNEY and the FLIGHT SYSTEMS segments comprise the Corporation's
aerospace businesses and produce and service commercial and government
aerospace and defense products. The financial performance of these segments
is directly tied to the aerospace and defense industries. Traffic growth,
load factors, worldwide airline profits, influenced in part by fuel prices
and labor issues, and general economic activity have been reliable indicators
for new aircraft and aftermarket orders in the aerospace industry. Spare
part sales and aftermarket service trends are impacted by many 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 and are expected to continue
in 2003.
The Corporation's total sales to the U.S. Government
increased in 2002 to $4,554 million or 16% of total sales, compared with $3,798
million or 14% of total sales in 2001 and $2,875 million or 11% of total sales
in 2000. 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 2002 and is expected
to remain at high levels in 2003.
PRATT & WHITNEY is among the world's leading suppliers of commercial,
general aviation and military aircraft engines. Pratt & Whitney provides
spare parts and aftermarket and fleet management services for the engines
it produces, along with power generation systems. These products and
services are regulated by strict safety and performance standards which
can create uncertainty regarding the profitability of commercial engine
programs. Pratt & Whitney is responding to market pressures by diversifying
its product base for large commercial engines from the wide-bodied aircraft
market to include engines designed specifically for the narrow-bodied
aircraft market. In addition, the aftermarket business is being impacted
by technological improvements to newer generation engines that increase
reliability and by increased competition. Pratt & Whitney continues to
enhance its aftermarket business through repositioning actions aimed
at improving efficiency and through selective acquisitions and ventures.
Pratt & Whitney provides engines and aftermarket
products and services to both the U.S. and foreign governments. Pratt & Whitney's
engines have been selected to power the Air Force's F/A-22 and F-35 Joint Strike
Fighter aircraft. In 2002, the F119 engine that powers the F/A-22 was approved
for operational use by the U.S. Air Force. The F-35 Joint Strike Fighter program
is intended to lead to the development of a single aircraft, with configurations
for conventional and short take off and landing, for the U.S. Navy, Air Force
and Marine Corps, the United Kingdom Royal Navy and other international customers.
FLIGHT SYSTEMS SEGMENT provides global products and services through
Hamilton Sundstrand and Sikorsky. Hamilton Sundstrand provides aerospace
and industrial products and aftermarket services for diversified industries
worldwide. Aerospace products include aircraft power generation management
and distribution systems, and environmental, flight and fuel control
systems. Industrial products include air compressors, metering devices,
fluid handling equipment and gear drives. Hamilton Sundstrand is responding
to industry conditions by focusing on development of new product and
service offerings, acquisitions and actions aimed at improving efficiency
and aftermarket growth opportunities.
Sikorsky is one of the world's largest manufacturers
of military and commercial helicopters, and provides aftermarket helicopter and
aircraft products and services. It has responded to continued overcapacity among
helicopter manufacturers by improving its cost structure, expanding the capabilities
of its existing products and developing new product and service offerings. During
2002, Sikorsky expanded its aftermarket business base by acquiring Derco Holding,
a supplier of military aircraft logistics, component distribution and repairs
and aftermarket program management. In its government business, Sikorsky will
continue to supply Black Hawk helicopters and their derivatives to the U.S. and
foreign governments under contracts extending into 2006. A Sikorsky-Boeing joint
venture is under contract with the U.S. Army to develop the RAH-66 Comanche,
nine of which are contracted for delivery in 2005-2006. Sikorsky is also leading
an international team in developing the S/H-92, a large cabin derivative of the
Black Hawk, for the commercial and military markets. Type certification of the
S-92 was obtained from the Federal Aviation Administration in December 2002.
Management's Discussion and Analysis
Critical Accounting Estimates
Preparation of the Corporation's financial statements requires management
to make estimates and assumptions that affect the reported amounts
of assets, liabilities, revenues and expenses. Note 1 to the Consolidated
Financial Statements describes the significant accounting policies
used in preparation of the Consolidated Financial Statements. Management
believes the most complex and sensitive judgments, because of their
significance to the Consolidated Financial Statements, result primarily
from the need to make estimates about the effects of matters that are
inherently uncertain. The most significant areas involving management
judgments and estimates are described below. Actual results in these
areas could differ from management's estimates.
LONG-TERM CONTRACT ACCOUNTING. The Corporation utilizes percentage of
completion accounting on certain of its long-term contracts. The percentage
of completion method requires estimates of future revenues and costs
over the full term of product delivery.
Losses, if any, on long-term contracts are provided
for when anticipated. Loss provisions are based upon excess inventoriable manufacturing,
engineering, estimated product warranty and product performance guarantee costs
in excess of the revenue from the products contemplated under the contractual
arrangement. Revenue used in determining contract loss provisions is based upon
an estimate of the quantity, pricing and timing of future product deliveries.
The extent of progress toward completion on the Corporation's long-term commercial
aerospace and helicopter contracts is measured using units of delivery. In addition,
the Corporation uses the cost-to-cost method for long-term aftermarket and development
contracts in the aerospace businesses and for elevator and escalator installation
and modernization contracts. Contract accounting also requires estimates of future
costs over the performance period of the contract as well as an estimate of award
fees and other sources of revenue.
Contract costs are incurred over a period of several
years, and the estimation of these costs requires management's judgment. The
long-term nature of these contracts, the complexity of the products, and the
strict safety and performance standards under which they are regulated can affect
the Corporation's ability to estimate costs precisely. As a result, the Corporation
reviews and updates its cost estimates on significant contracts on a quarterly
basis, and no less than annually for all others, or when circumstances change
and warrant a modification to a previous estimate. Adjustments to contract loss
provisions are recorded in earnings upon identification.
INCOME TAXES. The future tax benefit arising from net deductible temporary
differences and tax carryforwards is $3.1 billion at December 31, 2002
and $2.6 billion at December 31, 2001. Management believes that the Corporation's
earnings during the periods when the temporary differences become deductible
will be sufficient to realize the related future income tax benefits.
For those jurisdictions where the expiration date of tax carryforwards
or the projected operating results indicate that realization is not likely,
a valuation allowance is provided.
In assessing the need for a valuation allowance,
the Corporation estimates future taxable income, considering the feasibility
of ongoing tax planning strategies and the realizability of tax loss carryforwards.
Valuation allowances related to deferred tax assets can be impacted by changes
to tax laws, changes to statutory tax rates and future taxable income levels.
In the event the Corporation were to determine that it would not be able to realize
all or a portion of its deferred tax assets in the future, the Corporation would
reduce such amounts through a charge to income in the period that such determination
was made. Conversely, if the Corporation were to determine that it would be able
to realize its deferred tax assets in the future in excess of the net carrying
amounts, the Corporation would decrease the recorded valuation allowance through
an increase to income in the period that such determination was made. See Note
10 to the Consolidated Financial Statements for further discussion.
BUSINESS ACQUISITIONS. The Corporation completed acquisitions in 2002
of $424 million, including $22 million of debt assumed in the acquisition
of businesses. The assets and liabilities of acquired businesses are
recorded under the purchase method at their estimated fair values at
the dates of acquisition. Goodwill represents costs in excess of fair
values assigned to the underlying net assets of acquired businesses.
The Corporation has recorded goodwill of $7 billion at December 31, 2002
and $6.8 billion at December 31, 2001.
In accordance with Statement of Financial Accounting
Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets," goodwill
and intangible assets deemed to have indefinite lives are not amortized, but
are subject to annual impairment testing. The identification and measurement
of goodwill impairment involves the estimation of the fair value of reporting
units. The estimates of fair value of reporting units are based on the best information
available as of the date of the assessment, which primarily incorporate management
assumptions about expected future cash flows and contemplate other valuation
techniques. Future cash flows can be affected by changes in industry or market
conditions or the rate and extent to which anticipated synergies or cost savings
are realized with newly acquired entities. Although no goodwill impairment has
been recorded to date, there can be no assurances that future goodwill impairments
will not occur. See Note 7 to the Consolidated Financial Statements for further
discussion.
PRODUCT PERFORMANCE. The Corporation extends performance and operating
cost guarantees beyond its normal service and warranty policies for extended
periods on some of its products, particularly commercial aircraft engines.
Liability under such guarantees is based 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 accrues for such costs that are probable and can be reasonably
estimated. The costs associated with these product performance and operating
cost guarantees require estimates over the full terms of the agreements,
and require management to consider factors such as the extent of future
maintenance requirements and the future cost of material and labor to
perform the services. These cost estimates are largely based upon historical
experience. See Note 15 to the Consolidated Financial Statements for
further discussion.
Management's Discussion and Analysis
CONTRACTING WITH THE U.S. GOVERNMENT.
The Corporation's contracts with
the U.S. Government are subject to government investigations and 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. In addition, the Corporation accrues for
liabilities associated with those government contracting matters that
are probable and can be reasonably estimated. The inherent uncertainty
related to the outcome of these matters can result in amounts materially
different from any provisions made with respect to their resolution.
The Corporation recorded sales to the U.S. Government of $4.6 billion
in 2002 and $3.8 billion in 2001.
EMPLOYEE BENEFIT PLANS. The Corporation and its subsidiaries sponsor
domestic and foreign defined benefit pension and other postretirement
plans. Major assumptions used in the accounting for these employee benefit
plans include the discount rate, expected return on plan assets, rate
of increase in employee compensation levels and health care cost increase
projections. Assumptions are determined based on Company data and appropriate
market indicators, and are evaluated each year as of the plans' measurement
date. A change in any of these assumptions would have an effect on net
periodic pension and postretirement benefit costs reported in the Consolidated
Financial Statements.
Lower market interest rates and plan asset returns
have resulted in declines in pension plan asset performance and funded status.
As a result, the discount rate was lowered to 6.75% and expected return on plan
assets was lowered to 8.50%, reflecting current economic conditions. Pension
expense in 2003 is expected to be negatively impacted by these changes. See Note
11 to the Consolidated Financial Statements for further discussion.
Results of Operations
|
IN MILLIONS OF DOLLARS |
2002 |
2001
|
2000
|
|
|
Sales
|
$27,980 |
$27,486
|
$26,206
|
|
|
Financing revenues and other income,
net |
232 |
411
|
377
|
|
|
Revenues |
$28,212 |
$27,897
|
$26,583
|
|
Consolidated revenues increased 1% in
2002 and 5% in 2001. Foreign currency translation had a minimal favorable
impact in 2002 and decreased revenues 2% in 2001.
Sales in 2002 reflect growth at Otis and Sikorsky,
largely offset by lower volume at Carrier and Pratt & Whitney. Sales growth in
2001 reflects growth in base businesses at Pratt & Whitney, Flight Systems and
Otis, and growth from acquisitions, primarily at Carrier.
Financing revenues and other income, net, decreased
$179 million and increased $34 million in 2002 and 2001, respectively. The 2002
decrease reflects interest income associated with the settlement of prior year
tax audits recorded in 2001. The 2001 increase reflects the settlement of prior
year tax audits recorded in 2001, largely offset by interest income on prior
year income tax credits resulting from an industry-related court decision and
modification of a product support agreement recorded in 2000.
|
IN MILLIONS OF DOLLARS |
2002 |
2001
|
2000
|
|
|
Cost of sales
|
$20,161 |
$20,087
|
$18,970
|
|
|
Gross margin percent |
27.9% |
26.9%
|
27.6%
|
|
Gross margin increased in 2002 to 27.9%
from 26.9% in 2001 due primarily to $230 million of goodwill amortization
in 2001 which was discontinued in 2002 and the approximate $100 million
settlement of environmental claims in 2002. These items contributed 1.2
percentage points to gross margin in 2002. Gross margin decreased in
2001 to 26.9% from 27.6% due primarily to restructuring and related charges
of $224 million recorded in cost of sales in 2001.
IN MILLIONS OF
DOLLARS |
2002 |
2001
|
2000
|
Research and development —
company funded
|
$1,191 |
$1,254
|
$1,302
|
Percent of sales |
4.3% |
4.6%
|
5.0%
|
Research and development spending decreased
$63 million (5%) in 2002 and decreased $48 million (4%) in 2001. The
2002 decrease is primarily associated with the variable nature of engineering
development program schedules at Pratt & Whitney and cost reduction actions
at Carrier partially offset by increased spending on Sikorsky's S/H-92
program. The 2001 decrease is due primarily to decreased spending at
Pratt & Whitney associated with the timing of development schedules.
The above years include the Corporation's continued funding of research
and development at its fuel cell unit. Total research and development
expenses are expected to approximate 4% to 5% of sales in 2003.
In addition to company funded programs, customer
funded research and development was $1,189 million in 2002, $846 million in 2001,
and $865 million in 2000. The 2002 increase of $343 million is primarily attributable
to increases in Pratt & Whitney's military business. Customer funded research
and development decreased $19 million (2%) in 2001.
IN MILLIONS OF DOLLARS |
2002 |
2001
|
2000
|
|
Selling, general and administrative
|
$ 3,203 |
$ 3,323
|
$ 3,171
|
|
Percent of sales |
11.4% |
12.1%
|
12.1%
|
|
Management's Discussion and Analysis
Selling, general and administrative expenses
as a percentage of sales decreased seven-tenths of a percent in 2002
and were flat in 2001. The 2002 decrease reflects the benefits of cost
reduction actions, primarily at Carrier, and $43 million lower restructuring
charges in 2002. The 2001 amount reflects $124 million of charges associated
with 2001 restructuring actions and the impact of acquisitions, primarily
at Carrier. These increases were offset by savings from prior cost reduction
actions across the business.
|
|
IN MILLIONS OF DOLLARS |
2002 |
2001
|
2000
|
|
|
|
Interest expense
|
$381 |
$426
|
$382
|
|
Interest expense decreased 11% in 2002
and increased 12% in 2001. The 2002 decrease is due primarily to lower
short-term borrowings partially offset by the issuance of $500 million
of 6.10% notes in April 2002. The 2001 increase is primarily related
to the October 2001 issuance of $400 million of 4.875% notes, the February
2001 issuance of $500 million of 6.35% notes, and the November 2000 issuance
of $500 million of 7.125% notes.
|
|
2002 |
2001
|
2000
|
|
|
Average interest rate
during the year:
|
|
|
|
|
|
Short-term borrowings
|
9.4% |
7.0%
|
9.9%
|
|
|
Total debt
|
6.9% |
7.3%
|
8.1%
|
|
The average interest rate during the year
on short-term borrowings exceeded that of total debt due to lower commercial
paper balances and higher short-term borrowing rates in certain foreign
operations. The weighted-average interest rate applicable to debt outstanding
at December 31, 2002 was 7.0% for short-term borrowings and 6.5% for
total debt.
|
2002 |
2001
|
2000
|
|
Effective income tax rate
|
27.1% |
26.9%
|
30.9%
|
|
The effective tax rate in 2002 reflects
the benefit of increased use of certain tax planning strategies, including
utilization of a capital loss carryback, and reflects the increase in
pre-tax income from discontinuing amortization of non-deductible goodwill
in accordance with SFAS No. 142. The 2001 effective tax rate reflects
the impact of the favorable settlement of certain prior year tax audits.
Excluding this settlement the effective rate was 30.0%. The effective
income tax rate for 2001, adjusted for the impact of SFAS No. 142 and
excluding the favorable settlement of prior year tax audits in 2001,
was 28.2%. The 2000 effective tax rate includes the impact of two discrete
items: the revaluation of the Corporation's state deferred tax asset
resulting from the enactment of Connecticut tax law changes and the benefits
from income tax credits for prior periods associated with an industry
related court decision. Excluding discrete items and adjusting for the
impact of SFAS No. 142, the 2000 effective income tax rate was 28.8%.
The Corporation has continued to lower its effective tax rate by implementing
tax reduction strategies. The Corporation expects its effective tax rate
to increase in 2003 to a rate that is more consistent with the prior
year effective tax rate before discrete items and the impact of SFAS
No. 142.
In the normal course, the Corporation and its subsidiaries
are examined by various tax authorities, including the Internal Revenue Service
("IRS"). The IRS is reviewing the Corporation's claims for prior periods'
benefits as part of its routine examinations of the Corporation's income tax
returns. Any additional impact on the Corporation's liability for income taxes
cannot presently be determined, but the Corporation believes adequate provision
has been made for any adjustments arising from these examinations.
For additional discussion of income taxes, see "Critical
Accounting Estimates – Income Taxes" and Note 10 to the Consolidated
Financial Statements.
Effective January 1, 2002, the Corporation
ceased the amortization of goodwill in accordance with SFAS No. 142.
As more fully described in Note 7 to the Consolidated Financial Statements,
net income in 2001 and 2000 adjusted to exclude amounts no longer being
amortized was $2,150 and $1,998, respectively. On that basis, diluted
earnings per share were $4.25 in 2001 and $3.92 in 2000.
The impact of goodwill amortization recorded in
the Corporation's segments, and the effect that discontinuing amortization would
have had on certain income statement line item amounts is as follows:
|
IN MILLIONS OF DOLLARS |
2001
|
2000
|
|
|
Otis
|
$ 30
|
$ 29
|
|
|
Carrier
|
74
|
57
|
|
|
Pratt & Whitney
|
23
|
21
|
|
|
Flight Systems
|
103
|
99
|
|
|
Total segment goodwill amortization
|
230
|
206
|
|
|
Income taxes
|
(16)
|
(14)
|
|
|
Minority interest in subsidiaries'
earnings
|
(2)
|
(2)
|
|
|
Net income impact
|
$212
|
$190
|
|
|
Diluted earnings per share
|
$
.42
|
$ .37
|
|
For additional discussion, see Notes
1, 2 and 7 to the Consolidated Financial Statements.
Management's Discussion and Analysis
Business Acquisitions
During 2002, the Corporation invested $424 million, including debt assumed,
in business acquisitions. That amount includes Sikorsky's second quarter
purchase of Derco Holding and acquisitions at Pratt & Whitney. During
2001, the Corporation invested $525 million, including debt assumed,
in the acquisition of more than 30 businesses. Those investments included
Pratt & Whitney and Hamilton Sundstrand's acquisitions of aftermarket
businesses and a number of small acquisitions in the commercial businesses.
For additional discussion of acquisitions, see "Liquidity and
Financing Commitments" and Note 2 to the Consolidated Financial
Statements.
Under SFAS No. 142, intangible assets deemed to
have indefinite lives and goodwill are no longer subject to amortization. All
other intangible assets are to be amortized over their estimated useful lives.
Intangible assets and goodwill are subject to annual impairment testing using
the guidance and criteria described in the standard.
Restructuring and Other Costs
2002 Actions As described in Note 12 to the Consolidated Financial Statements,
during 2002, the Corporation recorded pre-tax restructuring and related
charges totaling $321 million. These charges relate to ongoing cost
reduction efforts, including workforce reductions and consolidation
of manufacturing, sales and service facilities, and include $237 million
recorded in cost of sales and $81 million in selling, general and administrative
expenses.
The charges were recorded in the Corporation's
segments as follows: Otis $73 million, Carrier $114 million, Pratt & Whitney
$80 million and Flight Systems $55 million. The charges included accruals of
$203 million for severance and related employee termination costs, $48 million
for asset write-downs, largely related to the disposal of manufacturing assets
and facilities that will no longer be utilized, and $19 million for facility
exit and lease termination costs. Additional charges associated with these restructuring
actions totaling $51 million that were not accruable at the time were also recorded
in 2002, primarily in the Carrier segment.
The 2002 actions 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. Approximately 75% of the total pre-tax
charge will require cash payments, which will be funded by cash generated from
operations. During the year, the Corporation made pre-tax cash outflows of approximately
$104 million related to the 2002 programs. Savings are expected to increase over
a two-year period resulting in recurring pre-tax savings of approximately $285
million annually. As of December 31, 2002, approximately 4,900 employees and
200,000 square feet of facilities have been eliminated. The balance of the remaining
workforce and facility related cost reduction actions are targeted to be completed
in 2003. A significant portion of the remaining square footage to be eliminated
under the 2002 actions relates to one domestic manufacturing facility. Operations
were ceased at this facility late in 2002, and activities to ready the facility
for sale are expected to be completed in early 2003. As of December 31, 2002,
approximately $133 million of severance and related costs and $11 million of
facility exit and lease termination accruals remain.
2001 Actions As described in Note 12 to the Consolidated Financial Statements,
during the second half of 2001, the Corporation recorded pre-tax restructuring
and related charges of $348 million associated with ongoing efforts to
reduce costs in its segments in a continually challenging business environment
and to address current conditions in the commercial airline industry.
The restructuring actions focus principally on improving the overall
level of organizational efficiency and consolidation of manufacturing,
sales and service facilities. These charges were recorded in the Corporation's
segments as follows: Otis $83 million, Carrier $172 million, Pratt & Whitney
$63 million and Flight Systems $30 million. The charges included accruals
of $256 million for severance and related employment termination costs,
$53 million for asset write-downs and $19 million for facility exit and
lease termination costs.
The amounts included $224 million recorded in cost
of sales and $124 million in selling, general and administrative expenses, and
relate to net workforce reductions of approximately 8,700 salaried and hourly
employees, the elimination of approximately 2.3 million square feet of facilities
and the disposal of assets associated with exited facilities. Savings are expected
to build over a two-year period resulting in recurring pre-tax savings of approximately
$300 million annually.
Approximately 70% of the total pre-tax charge will
require cash payments, which will be funded by cash generated from operations.
During 2002, the Corporation made pre-tax cash outflows of approximately $122
million associated with this program. As of December 31, 2002, workforce reductions
of approximately 7,900 employees were completed and approximately 2.1 million
square feet of facilities were eliminated. The balance of the workforce and facility
related cost reduction actions are expected to be substantially complete in early
2003. As of December 31, 2002, approximately $37 million of severance and related
costs and $1 million of facility exit and lease termination accruals remain.
The Corporation may initiate additional restructuring
actions in 2003 in its ongoing efforts to reduce costs. No significant actions
have been approved at this time.
Segment Review
|
|
|
Revenues |
Operating Profits |
Operating Profit Margin |
|
|
IN MILLIONS OF DOLLARS |
|
2002 |
2001
|
2000
|
2002 |
2001
|
2000
|
2002 |
2001
|
2000
|
|
|
Otis
|
|
$6,811 |
$6,338
|
$6,153
|
$1,057 |
$ 847
|
$ 798
|
15.5% |
13.4%
|
|
|
|
Carrier |
|
8,773 |
8,895
|
8,430
|
779 |
590
|
795
|
8.9% |
6.6%
|
9.4%
|
|
|
Pratt & Whitney |
|
7,645 |
7,679
|
7,366
|
1,282 |
1,308
|
1,200
|
16.8% |
17.0%
|
16.3%
|
|
|
Flight Systems |
|
5,571 |
5,292
|
4,992
|
741 |
670
|
614
|
13.3% |
12.7%
|
12.3%
|
|
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. For certain
of these subsidiaries, minority shareholders have rights which overcome
the presumption of control as described in Note 17 to the Consolidated
Financial Statements. In the Corporation's consolidated results, these
subsidiaries are accounted for using the equity method of accounting.
2002 Compared to 2001
OTIS revenues increased $473 million (7%) in 2002 reflecting increases
in all geographic regions and growth in both new equipment and service
sales. Foreign currency translation increased revenues 2% in 2002,
largely reflecting the strength of the euro in relation to the U.S.
dollar. The 2002 increase also includes approximately two percentage
points of organic growth, as well as the impact of acquisitions.
Otis operating profits increased $210 million (25%)
in 2002. The operating profit increase reflects profit improvement in all geographic
regions, primarily in Asia and Europe. The increase was due primarily to the
profit impact of increased revenues, including those from recent acquisitions,
productivity improvements and the absence of goodwill amortization in 2002. Foreign
currency translation increased operating profits by 3% in 2002.
CARRIER revenues decreased $122 million (1%) in 2002. The decrease reflects
continued weakness in the North American and European commercial HVAC
markets, the commercial refrigeration business, and in Latin America,
partially offset by increased volume in the transport refrigeration business.
Foreign currency translation had a minimal impact in 2002, reflecting
the strength of the U.S. dollar in relation to Latin American currencies,
largely offset by the strengthening of the euro.
Carrier's operating profits increased $189 million
(32%) in 2002. Excluding 2002 and 2001 restructuring charges, operating profit
increased $131 million (17%) reflecting the benefit of cost reduction actions
and the absence of goodwill amortization, partially offset by the profit impact
of decreased volume, competitive pricing and continued performance issues in
some of the acquired entities.
PRATT & WHITNEY revenues decreased $34 million, less than one percentage
point, in 2002. The decrease was due primarily to lower volume at Pratt & Whitney
Power Systems, declines in commercial spare parts sales, reflecting current
conditions in the commercial airline industry, and lower engine volume
at Pratt & Whitney Canada. These decreases were partially offset by increases
in military engine and commercial overhaul and repair revenue. Consistent
with the Corporation's expectations, commercial spare parts orders declined
approximately 10% in 2002.
Pratt & Whitney operating profits decreased $26
million (2%) in 2002, reflecting lower profits from Pratt & Whitney Canada, commercial
spare parts and Pratt & Whitney Power Systems. The decreases were partially offset
by higher military engine and commercial overhaul and repair profits. The results
also reflect the favorable impact of commercial engine contract changes offset
by estimated costs to support product warranties to certain customers and costs
associated with the PW6000 program.
FLIGHT SYSTEMS revenues increased $279 million (5%) in 2002. The increase
was due to higher value helicopter shipments and increased aftermarket
revenues at Sikorsky, resulting in part from the acquisition of Derco
Holding in the second quarter of 2002. These increases were partially
offset by lower commercial aerospace aftermarket and industrial volume
at Hamilton Sundstrand.
Flight Systems operating profits increased $71
million (11%) in 2002. The increase was due primarily to the discontinuance of
goodwill amortization. Excluding goodwill amortization, operating profits decreased
$32 million (4%) due primarily to lower commercial aerospace aftermarket and
industrial volume at Hamilton Sundstrand and increased research and development
spending at Sikorsky related to S-92 certification.
2001 Compared to 2000
OTIS revenues increased $185 million (3%) in 2001, reflecting increases
in all regions and growth in both new equipment and service sales.
The strengthening of the U.S. dollar in relation to European and Asian
currencies during the year had the effect of reducing reported revenues
by 4%.
Otis operating profits increased $49 million (6%)
in 2001 reflecting profit improvements in all regions which resulted from volume
increases and cost reduction actions. The 2001 restructuring charges and foreign
currency translation reduced reported operating profits by 14% during the year.
CARRIER revenues increased $465 million (6%) in 2001, almost entirely
due to acquisitions, including the acquisition of Specialty Equipment
Companies during the fourth quarter of 2000, and growth in the European
and Asian HVAC markets. The improvements were largely offset by continued
weakness in several of the global refrigeration businesses and the negative
foreign currency impact due primarily to the strength of the U.S. dollar
in relation to Asian and European currencies, which reduced revenues
by 2%.
Carrier operating profits decreased $205 million
(26%) compared to 2000 in part due to 2001 restructuring charges of $172 million
and the unfavorable impact of foreign currency translation. The decrease is primarily
due to poor market conditions in refrigeration, North American commercial HVAC
and Latin America, as well as performance issues in some of the acquired entities,
particularly global refrigeration businesses. The 2001 operating profit decrease
was partially offset by the acquisition of Specialty Equipment Companies in the
fourth quarter of 2000 and improved performance in Carrier's European and Asian
HVAC businesses.
PRATT & WHITNEY revenues increased $313 million (4%) in 2001. The increase
was due primarily to increased shipments at Pratt & Whitney Power Systems
and higher volume at Pratt & Whitney Canada, partially offset by lower
commercial aerospace aftermarket volume in the fourth quarter of 2001.
Pratt & Whitney operating profits increased $108
million (9%) in 2001, reflecting favorable volume at Pratt & Whitney Canada and
Pratt & Whitney Power Systems and cost reduction actions throughout the segment.
These increases were partially offset by restructuring charges and lower commercial
aerospace aftermarket volume in the fourth quarter.
FLIGHT SYSTEMS revenues increased $300 million (6%) in 2001. The increase
was due primarily to increased original equipment sales and aftermarket
revenues at Hamilton Sundstrand's aerospace business and increased helicopter
shipments at Sikorsky. Flight Systems operating profits increased $56
million (9%) in 2001, reflecting growth in Hamilton Sundstrand's aerospace
business and increased helicopter shipments at Sikorsky. Operating profits
in 2001 included restructuring charges of $30 million.
Segment Review
Liquidity and Financing Commitments
|
IN MILLIONS OF DOLLARS |
2002
|
2001
|
|
Cash and cash equivalents
|
$
2,080
|
$ 1,558
|
|
Total debt
|
4,873
|
4,959
|
|
Net debt (total debt less cash)
|
2,793
|
3,401
|
|
Shareowners' equity
|
8,355
|
8,369
|
|
Total capitalization (debt
plus equity)
|
13,228
|
13,328
|
|
Debt to total capitalization
|
37%
|
37%
|
|
Net debt to total capitalization
|
25%
|
29%
|
Management assesses the Corporation's liquidity in terms of its ability
to generate cash to fund its operating, investing and financing activities.
Significant factors affecting the management of liquidity are: cash flows
generated from operating activities, capital expenditures, customer financing
requirements, investments in businesses, dividends, Common Stock repurchases,
adequacy of available bank lines of credit and the ability to attract
long-term capital with satisfactory terms.
Net cash provided by operating activities in 2002
was $2,853 million compared to $2,976 million in 2001. The decrease reflects
a $500 million cash contribution to the Corporation's domestic pension plans
partially offset by improved operating and working capital performance. Pre-tax
cash outflows associated with restructuring and other actions, including costs
not accruable or contemplated when the actions were initiated, were $226 million
in 2002 and $303 million in 2001.
Cash used in investing activities was $1,088 million
in 2002 compared to $1,277 million in 2001. The most significant components of
investing cash flows are capital expenditures and business acquisitions. Capital
expenditures decreased $207 million to $586 million in 2002, reflecting a reprioritization
of capital projects. Capital expenditures are expected to increase in 2003 to
approximate anticipated depreciation levels. In 2002, the Corporation invested
$424 million in the acquisition of businesses, consisting of $402 million of
cash and $22 million of assumed debt. In 2001 acquisitions totaled $525 million,
consisting of $439 million of cash and $86 million of assumed debt. Cash spending
for investments in 2002 includes Sikorsky's acquisition of Derco Holding and
acquisitions at Pratt & Whitney. Acquisition activity in 2003 is expected to
approximate $1.5 billion and is dependent upon the availability of appropriate
acquisition opportunities.
Customer financing activities used net cash of
$164 million in 2002, compared to $123 million in 2001, reflecting increased
customer requirements for financing. While the Corporation expects that customer
financing will be a net use of cash in 2003, actual funding is subject to usage
under existing customer financing arrangements. At December 31, 2002, the Corporation
had financing and rental commitments of $1.6 billion related to commercial aircraft,
of which as much as $434 million may be required to be disbursed in 2003. The
Corporation may also arrange for third-party investors to assume a portion of
its commitments. Refer to Note 4 to the Consolidated Financial Statements for
additional discussion of the Corporation's commercial aerospace industry assets
and commitments.
Financing cash outflows for 2002 and 2001 include
the Corporation's repurchase of 10.9 million and 8.5 million shares of Common
Stock for $700 million and $599 million, respectively. Share repurchase 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 in each of the last three years. In October 2002, the Corporation announced
that the Board of Directors authorized the repurchase of up to 30 million shares.
The new authorization replaces the previous share repurchase authority. At December
31, 2002, 25.3 million shares remained available for repurchase under the authorized
program.
Segment Review
At December 31, 2002, the Corporation
had credit commitments from banks totaling $1.5 billion under a Revolving
Credit Agreement, which serves as a back-up facility for issuance of
commercial paper. At December 31, 2002, there were no borrowings under
the Revolving Credit Agreement. In addition, at December 31, 2002, approximately
$800 million was available under short-term lines of credit with local
banks at the Corporation's various international subsidiaries.
As described in Note 9 to the Consolidated Financial
Statements, the Corporation issued $500 million and $900 million of long-term
notes payable in 2002 and 2001, respectively. The proceeds of those issuances
were used for the repayment of commercial paper, to support investment activities,
and for general corporate purposes, including repurchases of the Corporation's
Common Stock. At December 31, 2002, up to $1.1 billion of additional debt and
equity securities could be issued under a shelf registration statement on file
with the Securities and Exchange Commission.
The funded status of the Corporation's pension
plans is dependent upon many factors, including returns on invested assets and
the level of market interest rates. Recent declines in the value of securities
traded in equity markets coupled with declines in long-term interest rates have
had a negative impact on the funded status of the plans. During 2002, the Corporation
contributed $753 million to its domestic pension plans, including $253 million
of Treasury Stock in August and a $500 million voluntary cash contribution in
October. During 2001, the Corporation contributed $247 million of Treasury Stock
to its domestic pension plans. These contributions are reported as an increase
in other assets in the Consolidated Balance Sheet. An independent manager has
been appointed to hold and dispose of the shares from time to time in the open
markets or otherwise. The Corporation can contribute cash to these plans at its
discretion and made a $500 million cash contribution in January 2003. As of December
31, 2002, the total investment by the defined benefit pension plans in the Corporation's
securities, including the Treasury Stock transactions described above, is approximately
6% of total plan assets.
The Corporation's shareowners' equity is impacted
by a variety of factors, including those items that are not reported in earnings
but are reported directly in equity, such as foreign currency translation, minimum
pension liability adjustments, unrealized holding gains and losses on available-for-sale
securities and cash flow hedging transactions. The Corporation recorded a $1.6
billion after-tax charge to equity, reflecting the increase in the additional
minimum liability under its pension plans of $2.4 billion, which is included
in future pension and postretirement benefit obligations in the December 31,
2002 Consolidated Balance Sheet. See the Consolidated Statement of Changes in
Shareowners' Equity for information on such non-shareowners' changes.
The Corporation believes that existing sources
of liquidity are adequate to meet anticipated borrowing needs at comparable risk-based
interest rates 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 generally consistent with recent levels.
The anticipated level of debt to capital is expected to be sufficient to satisfy
the Corporation's various cash flow requirements, including acquisition spending,
continued Common Stock repurchases and pension funding as needed.
A summary of the Corporation's contractual obligations
and commitments as of December 31, 2002 is as follows:
|
|
|
|
|
|
Payments Due by Period |
|
|
|
IN MILLIONS OF DOLLARS
Contractual Obligations |
|
Total |
|
Less than
1 Year |
1-3 Years |
4-5 Years |
After
5 Years |
|
|
|
Long-term debt
|
|
$4,676 |
|
$ 44 |
$421 |
$740 |
$3,471 |
|
|
|
Operating leases |
|
766 |
|
212 |
274 |
146 |
134 |
|
|
|
Total contractual obligations |
|
$5,442 |
|
$256 |
$695 |
$886 |
$3,605 |
|
See Notes 9 and 16 for additional information on contractual obligations.
|
|
|
|
|
|
Amount of Commitment Expiration
per Period |
|
|
IN MILLIONS OF DOLLARS
Commercial Commitments |
|
Committed |
|
Less than
1 Year |
1-3 Years |
4-5 Years |
After
5 Years |
|
|
Commercial aerospace financing and
rental commitments
|
|
$1,365 |
|
$314 |
$286 |
$629 |
$136 |
|
|
IAE financing arrangements |
|
1,232 |
|
388 |
268 |
85 |
491 |
|
|
Unconsolidated subsidiary debt guarantees |
|
259 |
|
97 |
90 |
— |
72 |
|
|
Commercial aerospace financing arrangements |
|
164 |
|
7 |
39 |
8 |
110 |
|
|
Commercial customer financing arrangements |
|
62 |
|
46 |
16 |
— |
— |
|
|
Total commercial commitments |
|
$3,082 |
|
$852 |
$699 |
$722 |
$809 |
See Notes 4, 15 and 16 for additional information on commercial commitments.
Segment Review
Market Risk and Risk Management
The Corporation is exposed to fluctuations in foreign currency exchange
rates, interest rates and commodity prices. To manage certain of those
exposures, the Corporation uses derivative instruments, including swaps,
forward contracts and options. Derivative instruments utilized by the
Corporation in its hedging activities are viewed as risk management
tools, involve little complexity and are not used for trading or speculative
purposes. The Corporation diversifies the counterparties used and monitors
the concentration of risk to limit its counterparty exposure.
The Corporation has evaluated its exposure to changes
in foreign currency exchange rates, interest rates and commodity prices in its
market risk sensitive instruments, which are primarily cash, debt and derivative
instruments, using a value at risk analysis. Based on a 95% confidence level
and a one-day holding period, at December 31, 2002, the potential loss in fair
value of the Corporation's market risk sensitive instruments was not material
in relation to the Corporation's financial position, results of operations or
cash flows. The Corporation's calculated value at risk exposure represents an
estimate of reasonably possible net losses based on historical market rates,
volatilities and correlations and is not necessarily indicative of actual results.
Refer to Notes 1, 9, 13 and 14 to the Consolidated Financial Statements for additional
discussion of foreign exchange, interest rates and financial instruments.
FOREIGN CURRENCY EXPOSURES. The Corporation has a large volume of foreign
currency exposures that result from its international sales, purchases,
investments, borrowings and other international transactions. International
segment revenues, including U.S. export sales, averaged approximately
$15 billion over the last three years. The Corporation actively manages
foreign currency exposures that are associated with committed foreign
currency purchases and sales and other assets and liabilities created
in the normal course of business at the operating unit level. Exposures
that cannot be naturally offset within an operating unit to an insignificant
amount are hedged with foreign currency derivatives. The Corporation
also has a significant amount of foreign currency net asset exposures.
Currently, the Corporation does not hold any derivative contracts that
hedge its foreign currency net asset exposures but may consider such
strategies in the future.
The Corporation's cash position includes amounts
denominated in foreign currencies. The Corporation manages its worldwide cash
requirements considering available funds among its many subsidiaries and the
cost effectiveness with which these 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.
INTEREST RATE EXPOSURES. The Corporation's long-term debt portfolio
consists mostly of fixed-rate instruments. Due to recent declines in
market interest rates, a portion of that portfolio is hedged with fixed
for floating interest rate swaps. The hedges are designated as fair value
hedges and the gains and losses on the swaps are reported in interest
expense, reflecting that portion of interest expense at a variable rate.
From time to time the Corporation issues commercial paper, which exposes
the Corporation to changes in interest rates.
COMMODITY PRICE EXPOSURES. The Corporation is exposed to volatility
in the prices of raw materials used in some of its products and uses
forward contracts in limited circumstances to manage some of those exposures.
The forward contracts are designated as hedges of the cash flow variability
that results from the forecasted purchases. Gains and losses on those
derivatives are deferred in other comprehensive income to the extent
they are effective as hedges and reclassified into cost of products sold
in the period in which the hedged transaction impacts earnings.
Environmental Matters
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. As a result,
the Corporation has established, and continually updates, policies
relating to environmental standards of performance for its operations
worldwide. The Corporation believes that expenditures necessary to
comply with the present regulations governing environmental protection
will not have a material effect upon its competitive position, consolidated
financial position, results of operations or cash flows.
The Corporation has identified approximately 470
locations, mostly in the United States, at which it may have some liability for
remediating contamination. The Corporation does not believe that any individual
location's exposure will have a material effect on the results of operations
of the Corporation. Sites in the investigation or remediation stage represent
approximately 95% of the Corporation's accrued environmental liability. The remaining
5% of the recorded liability consists of sites where the Corporation may have
some liability but investigation is in the initial stages or has not begun.
The Corporation has been identified as a potentially
responsible party under the Comprehensive Environmental Response Compensation
and Liability Act ("CERCLA" or Superfund) at approximately 100 sites. The number
of Superfund sites, in and of itself, does not represent a relevant measure of
liability because the nature and extent of environmental concerns vary from site
to site and the Corporation's share of responsibility varies from sole responsibility
to very little responsibility. In estimating its liability for remediation, the
Corporation considers its likely proportionate share of the anticipated remediation
expense and the ability of other potentially responsible parties to fulfill their
obligations.
At December 31, 2002, the Corporation had $438
million reserved for environmental remediation. Cash outflows for environmental
remediation were $42 million in 2002, $61 million in 2001 and $54 million in
2000. The Corporation estimates that ongoing environmental remediation expenditures
in each of the next two years will not exceed $50 million.
The Corporation has had insurance in force over
its history with a number of insurance companies and has pursued litigation seeking
indemnity and defense under these insurance policies in relation to its environmental
liabilities. In January 2002, the Corporation settled the last of these lawsuits
under an agreement providing for the Corporation to receive payments totaling
approximately $100 million.
Segment Review
U.S. Government
The Corporation's contracts with the U.S. Government are 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. In addition, the Corporation accrues
for liabilities associated with those government contracting matters
that are probable and can be reasonably estimated.
Additional discussion of the Corporation's environmental
and U.S. Government contract matters is included in "Critical Accounting
Estimates – Contracting with the Federal Government" and Notes 1 and
16 to the Consolidated Financial Statements.
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.
New Accounting Pronouncements
In June 2001, SFAS No. 143, "Accounting for Asset Retirement Obligations" was
issued. The standard requires that legal obligations associated with
the retirement of tangible long-lived assets be recorded at fair value
when incurred and is effective for the Corporation on January 1, 2003.
Adoption of this standard will not have a material impact on the Corporation's
consolidated financial position, results of operations or cash flows.
In September 2002, SFAS No. 146, "Accounting
for Costs Associated with Exit or Disposal Activities" was issued. This
statement provides guidance on the recognition and measurement of liabilities
associated with exit or disposal activities and requires that such liabilities
be recognized when incurred. This statement is effective for exit or disposal
activities initiated on or after January 1, 2003 and does not impact recognition
of costs under the Corporation's existing programs. Adoption of this standard
may impact the timing of recognition of costs associated with future exit and
disposal activities, depending upon the nature of the actions initiated.
In November 2002, FASB Interpretation ("FIN")
No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others" was issued. The
interpretation provides guidance on the guarantor's accounting and disclosure
requirements for guarantees, including indirect guarantees of indebtedness of
others. The Corporation has adopted the disclosure requirements of the interpretation
as of December 31, 2002. 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.
In January 2003, FIN No. 46, "Consolidation
of Variable Interest Entities" was issued. The interpretation provides guidance
on consolidating variable interest entities and applies immediately to variable
interests created after January 31, 2003. The guidelines of the interpretation
will become applicable for the Corporation in its third quarter 2003 financial
statements for variable interest entities created before February 1, 2003. The
interpretation requires variable interest entities to be consolidated if the
equity investment at risk is not sufficient to permit an entity to finance its
activities without support from other parties or the equity investors lack certain
specified characteristics. The Corporation is reviewing FIN No. 46 to determine
its impact, if any, on future reporting periods, and does not currently anticipate
any material accounting or disclosure requirement under the provisions of the
interpretation.
Segment Review
Cautionary Note Concerning Factors
That May Affect Future Results
This Annual Report 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 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. 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-K, 10-Q and 8-K filed with
the Securities and Exchange Commission from time to time. The Corporation's
Annual Report on Form 10-K for 2002 includes important information as
to risk factors in the "Business" section under the headings "Description
of Business by Segment" and "Other Matters Relating to the
Corporation's Business as a Whole," and in the "Legal Proceedings" section.
Management's Responsibility
for Financial Statements and Controls
We believe it is critical to provide investors and other users of our
financial statements with information that is relevant, objective, understandable
and timely, so that they can make informed decisions. As a result, we
have established and we maintain accounting systems and practices and
internal control processes designed to provide reasonable assurance that
transactions are properly executed and recorded and that our policies
and procedures are carried out appropriately.
Core Values
We are committed to performance and improving shareowner value. We communicate
honestly to investors and strive to deliver what we promise. We conduct
our business in accordance with the Corporation's Code of Ethics, which
is distributed to employees across the Corporation and is published
in 16 languages. Through our Business Practices Office, we have long-standing
programs in place that allow employees, customers, suppliers and others
to identify situations, on a confidential or anonymous basis, that
may be in violation of the Corporation's Code of Ethics.
Financial Controls and Transparency
Our internal controls are designed to ensure that assets are safeguarded,
transactions are executed according to management authorization and
that our financial systems and records can be relied upon for preparing
our financial statements and related disclosures. Our system of internal
controls includes continuous review of our financial policies and procedures
to ensure accounting and regulatory issues have been appropriately
addressed, recorded and disclosed. We execute periodic on-site accounting
control and compliance reviews in each of our businesses to ensure
policies and procedures are being followed. Our internal auditors test
the adequacy of internal controls and compliance with policies, as
well as perform a number of financial audits across the businesses
throughout the year. The independent auditors perform audits of our
financial statements, in which they examine evidence supporting the
amounts and disclosures in our financial statements, and also consider
our system of internal controls and procedures in planning and performing
their audits. Their report appears on page 15.
Management Controls
Our management team is committed to providing high-quality, relevant
and timely information about our businesses. Management performs reviews
of each of our businesses throughout the year, addressing issues ranging
from financial performance and strategy to personnel and compliance.
We require that each business unit president, chief financial officer
and controller certify the accuracy of that business unit's financial
information and its system of internal accounting and disclosure controls
and procedures on a quarterly and annual basis. We also require each
finance executive worldwide to acknowledge adherence to a series of
principles and responsibilities governing the professional and ethical
conduct expected within the UTC finance organization, as modeled after
the Financial Executives International code of conduct.
Our Board of Directors normally meets seven times
per year to provide oversight, to review corporate strategies and operations,
and to assess management's conduct of the business. The Audit Committee of our
Board of Directors is comprised of five individuals who are not employees or
officers of the company and normally meets eight times per year. The Audit Committee
is responsible for the appointment and oversight of the audit work performed
by the independent auditors, as well as overseeing our financial reporting practices
and internal control systems. The Audit Committee meets regularly with our internal
auditors and independent auditors, as well as management. Both the internal auditors
and independent auditors have full, unlimited access to the Audit Committee.
Management is responsible for implementing and
maintaining adequate systems of internal and disclosure controls and procedures
and for monitoring their effectiveness. We strive to recruit, train and retain
high performance individuals to ensure that our controls are designed, implemented
and maintained in a high-quality, reliable manner. We evaluated the systems of
internal and disclosure controls and procedures as of December 31, 2002. Based
on that evaluation, management believes the internal accounting controls provide
reasonable assurance that the Corporation's assets are safeguarded, transactions
are executed in accordance with management's authorizations, and the financial
records are reliable for the purpose of preparing financial statements.
/s/ George David |
|
/s/ Stephen F. Page |
George David
Chairman and Chief Executive Officer |
|
Stephen F. Page
Vice Chairman and Chief Financial Officer
|
Report of Independent Auditors
To the Shareowners of United Technologies Corporation
In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of operations, of changes in shareowners'
equity and of cash flows present fairly, in all material respects, the
financial position of United Technologies Corporation and its subsidiaries
at December 31, 2002 and 2001, and the results of their operations and
their cash flows for each of the three years in the period ended December
31, 2002, in conformity with accounting principles generally accepted
in the United States of America. These financial statements are the responsibility
of the Corporation's management; 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 auditing standards
generally accepted in the United States of America, 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 our opinion.
As discussed in Note 7 to the Consolidated Financial
Statements, effective January 1, 2002, the Corporation adopted Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets".
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Hartford, Connecticut
January 16, 2003
Consolidated Statement of Operations
IN MILLIONS OF DOLLARS, EXCEPT PER
SHARE AMOUNTS |
|
2002 |
|
2001 |
|
2000 |
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
Product sales |
$ |
21,189 |
$ |
20,907 |
$ |
20,174 |
Service sales |
|
6,791 |
|
6,579 |
|
6,032 |
Financing revenues and other income, net |
|
232 |
|
411 |
|
377 |
|
|
28,212 |
|
27,897 |
|
26,583 |
Costs and Expenses |
|
|
|
|
|
|
Cost of products sold |
|
15,717 |
|
15,826 |
|
15,146 |
Cost of services sold |
|
4,444 |
|
4,261 |
|
3,824 |
Research and development |
|
1,191 |
|
1,254 |
|
1,302 |
Selling, general and administrative |
|
3,203 |
|
3,323 |
|
3,171 |
Interest |
|
381 |
|
426 |
|
382 |
|
|
24,936 |
|
25,090 |
|
23,825 |
|
|
|
|
|
|
|
Income before income taxes and minority interests |
|
3,276 |
|
2,807 |
|
2,758 |
Income taxes |
|
887
|
|
755
|
|
853 |
Minority interests in subsidiaries' earnings |
|
153 |
|
114 |
|
97 |
Net Income |
$ |
2,236 |
$ |
1,938 |
$ |
1,808 |
|
|
|
|
|
|
|
Earnings per Share of Common Stock |
|
|
|
|
|
|
Basic |
$ |
4.67 |
$ |
4.06 |
$ |
3.78 |
Diluted |
$ |
4.42 |
$ |
3.83 |
$ |
3.55 |
See accompanying Notes to Consolidated Financial Statements
Consolidated Balance Sheet
|
IN MILLIONS OF DOLLARS, EXCEPT PER SHARE (SHARES
IN THOUSANDS) |
|
2002 |
|
2001 |
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
Cash and cash equivalents |
$ |
2,080 |
$ |
1,558 |
|
Accounts receivable (net of allowance for doubtful accounts of
$380 and $404) |
|
4,277 |
|
4,141 |
|
Inventories and contracts in progress |
|
3,719 |
|
3,966 |
|
Future income tax benefits |
|
1,431 |
|
1,378 |
|
Other current assets |
|
244 |
|
261 |
|
Total Current Assets |
|
11,751 |
|
11,304 |
|
Customer financing assets |
|
771 |
|
665 |
|
Future income tax benefits |
|
1,658 |
|
1,205 |
|
Fixed assets |
|
4,587 |
|
4,549 |
|
Goodwill |
|
6,981 |
|
6,802 |
|
Other assets |
|
3,342 |
|
2,485 |
|
Total Assets |
$ |
29,090 |
$ |
27,010 |
|
|
|
|
|
|
|
Liabilities and Shareowners' Equity |
|
|
|
|
|
Short-term borrowings |
$ |
197 |
$ |
588 |
|
Accounts payable |
|
2,095 |
|
2,156 |
|
Accrued liabilities |
|
5,567 |
|
5,534 |
|
Long-term debt currently due |
|
44 |
|
134 |
|
Total Current Liabilities |
|
7,903 |
|
8,412 |
|
Long-term debt |
|
4,632 |
|
4,237 |
|
Future pension and postretirement benefit obligations |
|
5,088 |
|
2,703 |
|
Other long-term liabilities |
|
2,095 |
|
2,310 |
|
Commitments and contingent liabilities (Notes 4 and 16) |
|
|
|
|
|
Minority interests in subsidiary companies |
|
589 |
|
550 |
|
|
|
|
|
|
|
Series A ESOP Convertible Preferred Stock, $1 par value |
|
|
|
|
|
Authorized-20,000 shares |
|
|
|
|
|
Outstanding-10,945 and 11,307 shares |
|
718 |
|
743 |
|
ESOP deferred compensation |
|
(290) |
|
(314) |
|
|
|
428 |
|
429 |
|
Shareowners' Equity: |
|
|
|
|
|
Capital Stock: |
|
|
|
|
|
Preferred
Stock, $1 par value; Authorized-250,000 shares; None issued
or outstanding |
|
|
|
|
|
Common
Stock, $1 par value; Authorized-2,000,000 shares; Issued 607,038
and
603,076 shares |
|
5,447 |
|
5,090 |
|
Treasury Stock-137,418 and 130,917
common shares at cost |
|
(4,951) |
|
(4,404) |
|
Retained earnings |
|
10,836 |
|
9,149 |
|
Accumulated other non-shareowners'
changes in equity: |
|
|
|
|
|
Foreign
currency translation |
|
(832) |
|
(889) |
|
Minimum
pension liability |
|
(2,151) |
|
(563) |
|
Other |
|
6 |
|
(14) |
|
|
|
(2,977) |
|
(1,466) |
|
Total Shareowners' Equity |
|
8,355 |
|
8,369 |
|
Total Liabilities and Shareowners'
Equity |
$ |
29,090 |
$ |
27,010 |
See accompanying Notes to Consolidated Financial Statements
Consolidated Statement of Cash Flows
IN MILLIONS OF DOLLARS |
|
2002 |
|
2001 |
|
|
2000 |
Operating Activities |
|
|
|
|
|
|
|
Net income |
$ |
2,236 |
$ |
1,938 |
|
$ |
1,808 |
Adjustments to reconcile net income to net cash |
|
|
|
|
|
|
|
flows provided by operating
activities: |
|
|
|
|
|
|
|
Depreciation
and amortization |
|
727 |
|
905 |
|
|
859 |
Deferred
income tax provision |
|
318 |
|
297 |
|
|
246 |
Minority
interests in subsidiaries' earnings |
|
153 |
|
114 |
|
|
97 |
Change in: |
|
|
|
|
|
|
|
Accounts
receivable |
|
80 |
|
289 |
|
|
(69) |
Inventories
and contracts in progress |
|
327 |
|
(147) |
|
|
(184) |
Other
current assets |
|
10 |
|
46 |
|
|
19 |
Accounts
payable and accrued liabilities |
|
(301) |
|
(406) |
|
|
(184) |
Contribution to domestic pension plans |
|
(500) |
|
|
|
|
|
Other, net |
|
(197) |
|
(60) |
|
|
39 |
Net Cash Provided by Operating
Activities |
|
2,853 |
|
2,976 |
|
|
2,631 |
|
|
|
|
|
|
|
|
Investing Activities |
|
|
|
|
|
|
|
Capital expenditures |
|
(586) |
|
(793) |
|
|
(937) |
Increase in customer financing assets |
|
(386) |
|
(360) |
|
|
(339) |
Decrease in customer financing assets |
|
222 |
|
237 |
|
|
299 |
Business acquisitions |
|
(402) |
|
(439) |
|
|
(1,168) |
Dispositions of businesses |
|
26 |
|
17 |
|
|
|
Other, net |
|
38 |
|
61 |
|
|
44 |
Net Cash Used in Investing
Activities |
|
(1,088) |
|
(1,277) |
|
|
(2,101) |
|
|
|
|
|
|
|
|
Financing Activities |
|
|
|
|
|
|
|
Issuance of long-term debt |
|
500 |
|
904 |
|
|
712 |
Repayment of long-term debt |
|
(231) |
|
(354) |
|
|
(435) |
(Decrease) increase in short-term borrowings |
|
(357) |
|
(465) |
|
|
83 |
Common Stock issued under employee stock plans |
|
183 |
|
224 |
|
|
310 |
Dividends paid on Common Stock |
|
(462) |
|
(423) |
|
|
(387) |
Repurchase of Common Stock |
|
(700) |
|
(599) |
|
|
(800) |
Dividends to minority interests and other |
|
(184) |
|
(147) |
|
|
(193) |
Net Cash Used in Financing
Activities |
|
(1,251) |
|
(860) |
|
|
(710) |
|
|
|
|
|
|
|
|
Effect of foreign exchange rate changes on Cash and
cash equivalents |
|
8 |
|
(29) |
|
|
(29) |
|
|
|
|
|
|
|
|
Net increase (decrease) in
Cash and cash equivalents |
|
522 |
|
810 |
|
|
(209) |
Cash and cash equivalents, beginning of year |
|
1,558 |
|
748 |
|
|
957 |
Cash and cash equivalents, end of year |
$ |
2,080 |
$ |
1,558 |
|
$ |
748 |
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information: |
|
|
|
|
|
|
|
Interest paid, net of amounts
capitalized |
$ |
368 |
$ |
420 |
|
$ |
381 |
Income taxes paid, net of refunds |
$ |
396 |
$ |
497 |
|
$ |
496 |
Non-cash investing and financing activities include: |
|
|
|
|
|
|
|
The 2002 and 2001 Treasury
Stock contributions of $253 million and |
|
|
|
|
|
|
|
$247
million, respectively, to domestic defined benefit pension plans |
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements
Consolidated Statement of Changes
in Shareowners' Equity
|
IN MILLIONS OF DOLLARS, EXCEPT PER
SHARE AMOUNTS |
Common
Stock |
Treasury
Stock |
Retained
Earnings |
Accumulated
Other Non-
Shareowners'
Changes
In Equity |
Non-
Shareowners'
Changes in
Equity for
the Period
|
|
|
December 31, 1999 |
$4,227 |
$(3,182) |
$6,463 |
$ (391) |
|
|
|
Common Stock issued under employee plans |
|
|
|
|
|
|
|
(9.4 million shares), including
tax benefit of $128 |
438 |
27 |
(109) |
|
|
|
|
Common Stock repurchased (13.6 million shares) |
|
(800) |
|
|
|
|
|
Dividends on Common Stock ($.825 per share) |
|
|
(387) |
|
|
|
|
Dividends on ESOP Preferred Stock ($4.80 per share) |
|
|
(32) |
|
|
|
|
Non-Shareowners' Changes in Equity: |
|
|
|
|
|
|
|
Net income |
|
|
1,808 |
|
$1,808 |
|
|
Foreign currency translation
adjustments |
|
|
|
(184) |
(184) |
|
|
Minimum pension liability
adjustments, net of |
|
|
|
|
|
|
|
income
tax benefits of $5 |
|
|
|
(3) |
(3) |
|
|
Unrealized holding loss on
marketable equity securities, |
|
|
|
|
|
|
|
net
of income tax benefits of $115 |
|
|
|
(213) |
(213) |
|
|
December 31, 2000 |
$4,665 |
$(3,955) |
$7,743 |
$ (791) |
$1,408 |
|
|
Common Stock issued under employee plans |
|
|
|
|
|
|
|
(6.2 million shares), including
tax benefit of $91 |
315 |
13 |
(78) |
|
|
|
|
Common Stock contributed to defined benefit |
|
|
|
|
|
|
|
pension plans (4.1 million
shares) |
110 |
137 |
|
|
|
|
|
Common Stock repurchased (8.5 million shares) |
|
(599) |
|
|
|
|
|
Dividends on Common Stock ($.90 per share) |
|
|
(423) |
|
|
|
|
Dividends on ESOP Preferred Stock ($4.80 per share) |
|
|
(31) |
|
|
|
|
Non-Shareowners' Changes in Equity: |
|
|
|
|
|
|
|
Net income |
|
|
1,938 |
|
$1,938 |
|
|
Foreign currency translation
adjustments |
|
|
|
(142) |
(142) |
|
|
Minimum pension liability
adjustments, net of |
|
|
|
|
|
|
|
income
tax benefits of $303 |
|
|
|
(519) |
(519) |
|
|
Unrealized holding gain on
marketable equity |
|
|
|
|
|
|
|
securities,
net of income taxes of $5 |
|
|
|
9 |
9 |
|
|
Unrealized cash flow hedging
loss, net of |
|
|
|
|
|
|
|
income
tax benefits of $12 |
|
|
|
(23) |
(23) |
|
|
December 31, 2001 |
$5,090 |
$(4,404) |
$9,149 |
$(1,466) |
$1,263 |
|
|
Common Stock issued under employee plans |
|
|
|
|
|
|
|
(4.2 million shares), including
tax benefit of $45 |
247 |
10 |
(56) |
|
|
|
|
Common Stock contributed to defined benefit |
|
|
|
|
|
|
|
pension plans (4.1 million
shares) |
110 |
143 |
|
|
|
|
|
Common Stock repurchased (10.9 million shares) |
|
(700) |
|
|
|
|
|
Dividends on Common Stock ($.98 per share) |
|
|
(462) |
|
|
|
|
Dividends on ESOP Preferred Stock ($4.80 per share) |
|
|
(31) |
|
|
|
|
Non-Shareowners' Changes in Equity: |
|
|
|
|
|
|
|
Net income |
|
|
2,236 |
|
$2,236 |
|
|
Foreign currency translation
adjustments |
|
|
|
57 |
57 |
|
|
Minimum pension liability
adjustments, net of |
|
|
|
|
|
|
|
income
tax benefits of $927 |
|
|
|
(1,588) |
(1,588) |
|
|
Unrealized holding loss on
marketable equity securities, |
|
|
|
|
|
|
|
net
of income tax benefits of $4 |
|
|
|
(7) |
(7) |
|
|
Unrealized cash flow hedging
gain, net of |
|
|
|
|
|
|
|
income
taxes of $14 |
|
|
|
27 |
27 |
|
|
December 31, 2002 |
$5,447 |
$(4,951) |
$10,836 |
$(2,977) |
$ 725 |
|
See accompanying Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
[note 1] Summary of Accounting Principles
The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses. Actual results could differ from those estimates.
Certain reclassifications have been made to prior year amounts to conform
to the current year presentation.
CONSOLIDATION. The consolidated financial statements include the accounts
of the Corporation and its controlled subsidiaries. Intercompany transactions
have been eliminated.
CASH AND CASH EQUIVALENTS. Cash and cash equivalents includes cash on
hand, demand deposits and short-term cash investments which are highly
liquid in nature and have original maturities of three months or less.
ACCOUNTS RECEIVABLE. Current and long-term accounts receivable include:
|
IN MILLIONS OF DOLLARS |
2002 |
2001 |
|
Retainage
|
$ 40 |
$ 26 |
|
Unbilled receivables
|
$180 |
$150 |
Retainage represents amounts which, pursuant
to the contract, are not due until project completion and acceptance
by the customer. Unbilled receivables represent revenues that are not
currently billable to the customer under the terms of the contract. These
items are expected to be collected in the normal course of business.
Long-term accounts receivable are included in Other assets in the Consolidated
Balance Sheet.
In 2002, the Corporation reclassified $48 million
of prior year amounts provided for aerospace customer financing exposures from
the allowance for doubtful accounts primarily to accrued liabilities.
MARKETABLE EQUITY SECURITIES. Equity securities that have a readily
determinable fair value and management does not intend to hold are classified
as available for sale and carried at fair value. Unrealized holding gains
and losses are recorded as a separate component of shareowners' equity,
net of deferred income taxes.
INVENTORIES AND CONTRACTS IN PROGRESS. Inventories and contracts in
progress are stated at the lower of cost or estimated realizable value
and are primarily based on first-in, first-out ("FIFO") or
average cost methods; however, certain subsidiaries use the last-in,
first-out ("LIFO") method. If inventories which were valued
using the LIFO method had been valued under the FIFO method, they would
have been $103 million higher at December 31, 2002 and 2001.
Costs accumulated against specific contracts or
orders are at actual cost. Materials in excess of requirements for contracts
and current or anticipated orders have been reserved as appropriate.
Manufacturing costs are allocated to current production
and firm contracts.
FIXED ASSETS. Fixed assets are stated at cost. Depreciation is computed
over the assets' useful lives using the straight-line method, except
for aerospace assets acquired prior to January 1, 1999, which are depreciated
using accelerated methods.
GOODWILL AND OTHER INTANGIBLE ASSETS. Goodwill represents costs in excess
of fair values assigned to the underlying net assets of acquired businesses
and was historically amortized using the straight-line method of amortization
over periods that ranged from 10 to 40 years. Effective July 1, 2001,
the Corporation adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets," applicable
to business combinations completed after June 30, 2001. In accordance
with these standards, goodwill acquired after June 30, 2001 is not amortized.
As of January 1, 2002, the remaining provisions
of SFAS No. 141 and No. 142 were effective for the Corporation. These standards
require the use of the purchase method of accounting for business combinations,
set forth the accounting for the initial recognition of acquired intangible assets
and goodwill, and describe the accounting for intangible assets and goodwill
subsequent to initial recognition. Under the provisions of these standards, goodwill
and intangible assets deemed to have indefinite lives are no longer subject to
amortization. All other intangible assets are amortized over their estimated
useful lives. Goodwill and intangible assets are subject to annual impairment
testing using the guidance and criteria described in the standards. This testing
compares carrying values to fair values and when appropriate, the carrying value
of these assets is required to be reduced to fair value.
Prior to the adoption of SFAS No. 142, the Corporation
evaluated potential impairment of goodwill on an ongoing basis and of other intangible
assets when appropriate. This evaluation compared the carrying value of assets
to the sum of the undiscounted expected future cash flows. If an asset's carrying
value exceeded the expected cash flows, the asset was written down to fair value.
OTHER LONG-LIVED ASSETS. The Corporation evaluates the potential impairment
of other long-lived assets when appropriate. If the carrying value of
assets exceeds the sum of the undiscounted expected future cash flows,
the carrying value of the asset is written down to fair value.
REVENUE RECOGNITION. Sales under government and commercial fixed-price
contracts and government fixed-price-incentive contracts are recorded
at the time deliveries are made or, in some cases, on a percentage-of-completion
basis. Sales under cost-reimbursement contracts are recorded as work
is performed.
Sales under elevator and escalator installation
and modernization contracts are accounted for under the percentage-of-completion
method.
Losses, if any, on contracts are provided for when
anticipated. Loss provisions are based upon excess inventoriable manufacturing,
engineering, estimated product warranty and product performance guarantee costs
in excess of the revenue from products contemplated under the contractual arrangement.
Contract accounting requires estimates of future costs over the performance period
of the contract as well as estimates of award fees and other sources of revenue.
These estimates are subject to change and result in adjustments to margins on
contracts in progress. The extent of progress toward completion on the Corporation's
long-term commercial aerospace and helicopter contracts is measured using units
of delivery. In addition, the Corporation uses the cost-to-cost method for long-term
aftermarket and development contracts in the aerospace businesses and for elevator
and escalator installation and modernization contracts. The Corporation reviews
its cost estimates on significant contracts on a quarterly basis, and for others,
no less frequently than annually, or when circumstances change and warrant a
modification to a previous estimate. Adjustments to contract loss provisions
are recorded in earnings upon identification.
Service sales, representing aftermarket repair
and maintenance activities, are recognized over the contractual period or as
services are performed.
Revenues from engine programs under collaboration
agreements are recorded as earned and the collaborator share of revenue is recorded
as a reduction of revenue at that time. Costs associated with engine programs
under collaboration agreements are expensed as incurred. The collaborator share
of program costs is recorded as a reduction of the related expense item at that
time.
RESEARCH AND DEVELOPMENT. Research and development costs not specifically
covered by contracts and those related to the Corporation-sponsored share
of research and development activity in connection with cost-sharing
arrangements are charged to expense as incurred.
Research and development costs incurred under contracts
with customers are reported as a component of cost of products sold. Revenue
from such contracts is recognized as product sales when earned.
HEDGING ACTIVITY. 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 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.
Effective January 1, 2001, the Corporation adopted
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as
amended. The standard requires that all derivative instruments be recorded on
the balance sheet at fair value. Derivatives used to hedge foreign-currency-denominated
balance sheet items are reported directly in earnings along with offsetting transaction
gains and losses on the items being hedged. Derivatives used to hedge forecasted
cash flows associated with foreign currency commitments or forecasted commodity
purchases are accounted for as cash flow hedges. Gains and losses on derivatives
designated as cash flow hedges are recorded in other comprehensive income and
reclassified to earnings in a manner that matches the timing of the earnings
impact of the hedged transactions. The ineffective portion of all hedges, if
any, is recognized currently in earnings.
The adoption of SFAS No. 133 did not have a material
impact on the Corporation's consolidated results of operations, financial position
or cash flows.
ENVIRONMENTAL. 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.
LONG-TERM INCENTIVE PLANS. As more fully described in Note 11, 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,
set at the time of the grant, is not less than the fair market value
per share at the date of grant. 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 SFAS No. 123, "Accounting for Stock-Based Compensation" had been
applied to the Corporation's long-term incentive plans.
|
|
Year Ended December 31 |
|
|
IN MILLIONS OF DOLLARS
EXCEPT PER SHARE AMOUNTS |
2002 |
2001 |
2000 |
|
|
Net income, as reported |
$2,236 |
$1,938 |
$1,808 |
|
|
Add: Stock-based employee
compensation expense (benefit)
included in net income, net of
related tax effects |
3 |
(1) |
6 |
|
|
Less: Total stock-based employee
compensation expense deter-
mined under Black-Scholes
option pricing model, net of
related tax effects |
(121) |
(101) |
(80) |
|
|
Pro forma net income |
$2,118 |
$1,836 |
$1,734 |
|
|
Earnings per share: |
|
|
|
|
|
Basic – as reported |
$ 4.67 |
$ 4.06 |
$ 3.78 |
|
|
Basic – pro forma |
$ 4.42 |
$ 3.84 |
$ 3.62 |
|
|
|
|
|
|
|
|
Diluted – as reported |
$ 4.42 |
$ 3.83 |
$ 3.55 |
|
|
Diluted – pro forma |
$ 4.19 |
$ 3.64 |
$ 3.41 |
|
Notes to Consolidated Financial Statements
[note 2] Business Acquisitions
ACQUISITIONS. The Corporation completed acquisitions in 2002, 2001, and
2000 for $424 million, $525 million, and $1,340 million, including
debt assumed of $22 million, $86 million, and $172 million, respectively.
The 2002 amount includes Sikorsky's acquisition of Derco Holding and
acquisitions at Pratt & Whitney. The 2001 amount includes Hamilton
Sundstrand's acquisition of Claverham Group LTD, Hamilton Sundstrand's
and Pratt & Whitney's acquisitions of aftermarket businesses and a
number of small acquisitions in the commercial businesses. The 2000
amount includes the acquisition of Specialty Equipment Companies for
$708 million, including debt assumed.
The assets and liabilities of the acquired businesses
are accounted for under the purchase method and 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 was recorded as an increase in goodwill
of $156 million in 2002, $307 million in 2001, and $1,412 million in 2000. The
results of operations of acquired businesses have been included in the Consolidated
Statement of Operations beginning as of the effective date of acquisition.
The cost of acquisitions, including finalization
of restructuring plans, and allocations of cost may require adjustment based
upon information that may come to the attention of the Corporation which is not
currently available.
Notes to Consolidated Financial Statements
[note 3] Earnings Per Share
|
IN MILLIONS OF DOLLARS,
EXCEPT PER SHARE AMOUNTS |
Income |
Average
Shares |
Per Share
Amount |
|
|
December 31, 2002 |
|
|
|
|
|
Net income |
$
2,236 |
|
|
|
|
Less: ESOP Stock dividends |
(31) |
|
|
|
|
Net income - basic |
2,205 |
472.4 |
$
4.67 |
|
|
Stock awards |
– |
7.1 |
|
|
|
ESOP Stock adjustment |
29 |
26.1 |
|
|
|
Net income - diluted |
$
2,234 |
505.6 |
$
4.42 |
|
|
December 31, 2001 |
|
|
|
|
|
Net income |
$ 1,938 |
|
|
|
|
Less: ESOP Stock dividends |
(31) |
|
|
|
|
Net income - basic |
1,907 |
470.2 |
$ 4.06 |
|
|
Stock awards |
– |
9.2 |
|
|
|
ESOP Stock adjustment |
28 |
26.0 |
|
|
|
Net income - diluted |
$ 1,935 |
505.4 |
$ 3.83 |
|
|
December 31, 2000 |
|
|
|
|
|
Net income |
$ 1,808 |
|
|
|
|
Less: ESOP Stock dividends |
(32) |
|
|
|
|
Net income - basic |
1,776 |
470.1 |
$ 3.78 |
|
|
Stock awards |
– |
11.3 |
|
|
|
ESOP Stock adjustment |
28 |
26.6 |
|
|
|
Net income - diluted |
$ 1,804 |
508.0 |
$ 3.55 |
|
Notes to Consolidated Financial Statements
[note 4] Commercial Aerospace Industry Assets and Commitments
The Corporation has receivables and other financing assets with commercial
aerospace industry customers totaling $1,974 million and $1,630 million
at December 31, 2002 and 2001, respectively.
Customer financing assets related to commercial
aerospace industry customers consist of products under lease of $357 million
and notes and leases receivable of $317 million. The notes and leases receivable
are scheduled to mature as follows: $110 million in 2003, $47 million in 2004,
$26 million in 2005, $19 million in 2006, $14 million in 2007 and $101 million
thereafter.
Financing commitments, in the form of secured debt,
guarantees or lease financing, are provided to commercial aerospace customers.
The extent to which the financing commitments will be utilized is not currently
known, since customers may be able to obtain more favorable terms from other
financing sources. The Corporation may also arrange for third-party investors
to assume a portion of its commitments. If financing commitments are exercised,
debt financing is generally secured by assets with fair market values equal to
or exceeding the financed amounts with interest rates established at the time
of funding. The Corporation also may lease aircraft and subsequently sublease
the aircraft to customers under long-term noncancelable operating leases. In
some instances, customers may have minimum lease terms, which result in sublease
periods shorter than the Corporation's lease obligation. Lastly, the Corporation
has residual value and other guarantees related to various commercial aircraft
engine customer financing arrangements. The estimated fair market values of the
guaranteed assets equal or exceed the value of the related guarantees, net of
existing reserves.
The Corporation's commercial aerospace financing
and rental commitments as of December 31, 2002 were $1,365 million and are exercisable
as follows: $314 million in 2003, $137 million in 2004, $149 million in 2005,
$158 million in 2006, $471 million in 2007 and $136 million thereafter. The Corporation's
financing obligations with customers are contingent upon maintenance of certain
levels of financial condition by the customers.
In addition, the Corporation had residual value
and other guarantees of $164 million as of December 31, 2002.
The Corporation has a 33% interest in International
Aero Engines AG ("IAE"), an international consortium of four shareholders
organized to support the V2500 commercial aircraft engine program. The Corporation's
interest in IAE is accounted for under the equity method of accounting. IAE may
offer customer financing in the form of guarantees, secured debt or lease financing
in connection with V2500 engine sales. At December 31, 2002, IAE had financing
commitments of $736 million and asset value guarantees of $55 million. The Corporation's
share of IAE's financing commitments and asset value guarantees was approximately
$257 million at December 31, 2002. In addition, IAE had lease obligations under
long-term noncancelable leases of approximately $441 million, on an undiscounted
basis, through 2021 related to aircraft which are subleased to customers under
long-term leases. These aircraft have fair market values which approximate the
financed amounts, net of reserves. The shareholders of IAE have guaranteed IAE's
financing arrangements to the extent of their respective ownership interests.
In the event of default by a shareholder on certain of these financing arrangements,
the other shareholders would be proportionately responsible.
Total reserves related to receivables and financing
assets, financing commitments and guarantees were $241 million and $228 million
at December 31, 2002 and 2001, respectively.
Notes to Consolidated Financial Statements
[note 5] Inventories and Contracts in Progress
|
IN MILLIONS OF DOLLARS |
2002 |
2001
|
|
|
Inventories consist of the following: |
|
|
|
|
Raw material |
$ 740 |
$ 738 |
|
|
Work-in-process |
1,026 |
1,208 |
|
|
Finished goods |
2,329 |
2,159 |
|
|
Contracts in progress |
2,093 |
2,106 |
|
|
|
6,188 |
6,211
|
|
|
Less: |
|
|
|
|
Progress payments, secured by lien,
on U.S. Government contracts |
(123) |
(146) |
|
|
Billings on contracts in progress |
(2,346) |
(2,099) |
|
|
|
$
3,719 |
$ 3,966
|
|
Raw materials, work-in-process and finished
goods are net of valuation reserves of $699 million and $578 million
as of December 31, 2002 and 2001, respectively.
Contracts in progress principally relate to elevator
and escalator contracts and include costs of manufactured components, accumulated
installation costs and estimated earnings on incomplete contracts.
The Corporation's sales contracts in many cases
are long-term contracts expected to be performed over periods exceeding twelve
months at December 31, 2002 and 2001. Approximately 58% of total inventories
and contracts in progress have been acquired or manufactured under such long-term
contracts, a portion of which is not scheduled for delivery under long-term contracts
within the next twelve months.
Notes to Consolidated Financial Statements
[note 6] Fixed Assets
|
IN MILLIONS OF DOLLARS |
Estimated
Useful Lives |
2002 |
2001
|
|
|
Land |
– |
$ 196 |
$ 188 |
|
|
Buildings and improvements |
20-40 years |
3,552 |
3,373 |
|
|
Machinery, tools and equipment |
3-20 years |
6,904 |
6,524 |
|
|
Other, including
under construction |
– |
217 |
320 |
|
|
|
|
10,869 |
10,405
|
|
|
Accumulated depreciation |
|
(6,282) |
(5,856) |
|
|
|
|
$
4,587 |
$ 4,549
|
|
Depreciation expense was $640 million in 2002, $616 million in 2001
and $608 million in 2000.
Notes to Consolidated Financial Statements
[note 7] Goodwill and Other Intangible Assets
Effective January 1, 2002, the Corporation ceased the amortization of
goodwill in accordance with SFAS No. 142. Results adjusted to exclude
amounts no longer being amortized, are as follows:
|
IN MILLIONS OF DOLLARS,
EXCEPT PER SHARE AMOUNTS |
2002 |
2001
|
2000
|
|
|
Reported net income |
$
2,236 |
$
1,938 |
$ 1,808 |
|
|
Adjustments: |
|
|
|
|
|
Goodwill amortization |
– |
230 |
206 |
|
|
Income taxes |
– |
(16) |
(14) |
|
|
Minority interest in
subsidiaries' earnings |
– |
(2) |
(2) |
|
|
Adjusted net income |
$
2,236 |
$ 2,150 |
$ 1,998 |
|
|
|
|
|
|
|
|
Basic earnings per share |
|
|
|
|
|
Reported |
$ 4.67 |
$ 4.06 |
$ 3.78 |
|
|
Adjusted |
$ 4.67 |
$ 4.51 |
$ 4.18 |
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
|
|
|
|
Reported |
$ 4.42 |
$ 3.83 |
$ 3.55 |
|
|
Adjusted |
$ 4.42 |
$ 4.25 |
$ 3.92 |
|
The changes in the carrying amount of goodwill for the year ended December
31, 2002, by segment, are as follows:
|
IN MILLIONS OF DOLLARS |
Otis |
Carrier |
Pratt &
Whitney |
Flight
Systems |
Total
Segments |
Eliminations
and Other |
Total |
|
|
Balance as of January 1, 2002 |
$ 727 |
$ 2,012 |
$ 367 |
$ 3,696 |
$ 6,802 |
– |
$ 6,802 |
|
|
Goodwill resulting from business
combinations completed or finalized |
(5) |
15 |
86 |
60 |
156 |
– |
156 |
|
|
Foreign currency translation and other |
31 |
(27) |
(2) |
25 |
27 |
$
(4) |
23 |
|
|
Balance as of December 31, 2002 |
$
753 |
$
2,000 |
$
451 |
$
3,781 |
$
6,985 |
$
(4) |
$
6,981 |
|
The increase in goodwill during 2002 resulted principally from business
combinations completed or finalized in the period, including acquisitions
at Pratt & Whitney and Sikorsky's acquisition of Derco Holding. Goodwill
is subject to annual impairment testing as required under SFAS No. 142.
As of December 31, 2002, the Corporation was not required to recognize
any goodwill impairment. There can be no assurance that goodwill impairment
will not occur in the future.
Identifiable intangible assets as of December 31,
2002 are recorded in Other assets in the Consolidated Balance Sheet and are comprised
of the following:
|
IN MILLIONS OF DOLLARS |
Gross
Amount |
Accumulated
Amortization
|
Net Intangible
Assets |
|
|
Amortized intangible assets |
|
|
|
|
|
Purchased service contracts |
$ 684 |
$ (199) |
$ 485 |
|
|
Patents and trademarks |
152 |
(26) |
126 |
|
|
Other, principally customer
relationships |
60 |
(17) |
43 |
|
|
|
$ 896 |
$ (242) |
$ 654 |
|
Amortization of intangible assets for
the year ended December 31, 2002 was $53 million. Amortization of these
intangible assets during each of the next five years is expected to approximate
$50 million.
During 2002, the Corporation acquired intangible
assets of $135 million primarily related to service contracts. The weighted-average
amortization period for these service contracts is 14 years.
Notes to Consolidated Financial Statements
[note 8] Accrued Liabilities
|
IN MILLIONS OF DOLLARS |
2002 |
2001
|
|
|
Accrued salaries, wages and
employee benefits |
$1,056 |
$ 984 |
|
|
Accrued restructuring costs |
182 |
197 |
|
|
Service and warranty accruals |
690 |
555 |
|
|
Advances on sales contracts |
795 |
994 |
|
|
Income taxes payable |
584 |
508 |
|
|
Other |
2,260 |
2,296 |
|
|
|
$5,567 |
$5,534
|
|
Notes to Consolidated Financial Statements
[note 9] Borrowings and Lines of Credit
Short-term borrowings consist of the following:
|
IN MILLIONS OF DOLLARS |
2002 |
2001
|
|
|
Domestic borrowings |
$ 9 |
$ 2 |
|
|
Foreign bank borrowings |
188 |
273 |
|
|
Commercial paper |
- |
313 |
|
|
|
$197 |
$588
|
|
The weighted-average interest rates applicable
to short-term borrowings outstanding at December 31, 2002 and 2001 were
7.0% and 5.6%. At December 31, 2002, approximately $800 million was available
under short-term lines of credit with local banks at the Corporation's
various international subsidiaries.
At December 31, 2002, the Corporation had credit
commitments from banks totaling $1.5 billion under a Revolving Credit Agreement,
which serves as a back-up facility for issuance of commercial paper. There were
no borrowings under the Revolving Credit Agreement at December 31, 2002.
Long-term debt consists of the following:
|
IN MILLIONS OF DOLLARS |
Weighted
Average
Interest Rate |
Maturity |
2002 |
2001 |
|
|
Notes and other debt
denominated in: |
|
|
|
|
|
|
U.S. dollars |
6.6% |
2003-2029 |
$4,425 |
$3,901 |
|
|
Foreign currency |
4.5% |
2003-2018 |
19 |
204 |
|
|
ESOP debt |
7.7% |
2003-2009 |
232 |
266 |
|
|
|
|
|
4,676 |
4,371 |
|
|
Less: Long-term debt
currently due |
|
|
44 |
134 |
|
|
|
|
|
$4,632 |
$4,237 |
|
Principal payments required on long-term
debt for the next five years are: $44 million in 2003, $384 million in
2004, $37 million in 2005, $705 million in 2006, and $35 million in 2007.
The Corporation has entered into $125 million and
$325 million of interest rate contracts in 2002 and 2001, respectively, which
swap fixed interest rates for floating rates. The expiration dates of the various
contracts are tied to scheduled debt payment dates and extend to 2006.
The Corporation issued a total of $500 million
and $900 million of notes in 2002 and 2001, respectively, under shelf registration
statements previously filed with the Securities and Exchange Commission. The
2002 notes carry an interest rate of 6.10%. The weighted-average interest rate
on the 2001 notes is 5.694%. Proceeds from the debt issuances were used for general
corporate purposes, including repayment of commercial paper, to support investment
activities and repurchasing the Corporation's Common Stock.
At December 31, 2002, up to $1.1 billion of additional
debt and equity securities could be issued under a shelf registration statement
on file with the Securities and Exchange Commission.
The percentage of total debt at floating interest
rates was 13% and 18% at December 31, 2002 and 2001, respectively.
Notes to Consolidated Financial Statements
[note 10] Taxes on Income
Significant components of income tax provision (benefit) for each year
are as follows:
|
|
IN MILLIONS OF DOLLARS |
2002 |
2001
|
2000
|
|
|
|
Current: |
|
|
|
|
|
|
United States: |
|
|
|
|
|
|
Federal |
$
116 |
$ 18 |
$ 164 |
|
|
|
State |
15 |
29 |
56 |
|
|
|
Foreign |
438 |
411 |
387 |
|
|
|
|
569 |
458 |
607 |
|
|
|
Future: |
|
|
|
|
|
|
United States: |
|
|
|
|
|
|
Federal |
321 |
314 |
143 |
|
|
|
State |
19 |
(18) |
76 |
|
|
|
Foreign |
(22) |
1 |
27 |
|
|
|
|
318 |
297 |
246 |
|
|
|
Income tax expense |
$
887 |
$ 755 |
$ 853 |
|
|
|
|
|
|
|
|
|
|
Attributable to items
credited to equity
and goodwill |
$
912 |
$ 401 |
$ 266 |
|
Future income taxes represent the tax
effects of transactions which are reported in different periods for tax
and financial reporting purposes. These amounts consist of the tax effects
of temporary differences between the tax and financial reporting balance
sheets and tax carryforwards. The tax effects of temporary differences
and tax carryforwards which gave rise to future income tax benefits and
payables at December 31, 2002 and 2001 are as follows:
|
|
IN MILLIONS OF DOLLARS |
2002 |
2001
|
|
|
|
Future income tax benefits: |
|
|
|
|
|
Insurance and employee benefits |
$
1,445 |
$ 840 |
|
|
|
Other asset basis differences |
376 |
300 |
|
|
|
Other liability basis differences |
1,017 |
1,219 |
|
|
|
Tax loss carryforwards |
230 |
176 |
|
|
|
Tax credit carryforwards |
257 |
228 |
|
|
|
Valuation allowance |
(236) |
(180) |
|
|
|
|
$
3,089 |
$ 2,583
|
|
|
|
Future income taxes payable: |
|
|
|
|
|
Fixed assets |
$
84 |
$
64 |
|
|
|
Other items, net |
109 |
130 |
|
|
|
|
$ 193 |
$ 194
|
|
Current and non-current future income
tax benefits and payables within the same tax jurisdiction are generally
offset for presentation in the Consolidated Balance Sheet. Valuation
allowances have been established primarily for tax credit and tax loss
carryforwards to reduce the future income tax benefits to amounts expected
to be realized.
The sources of income from continuing operations
before income taxes and minority interests are:
|
|
IN MILLIONS OF DOLLARS |
2002 |
2001
|
2000
|
|
|
|
United States |
$
1,899 |
$
1,619 |
$ 1,511 |
|
|
|
Foreign |
1,377 |
1,188 |
1,247 |
|
|
|
|
$
3,276 |
$ 2,807 |
$ 2,758 |
|
|
|
|
|
|
|
|
United States income taxes have not been
provided on undistributed earnings of international subsidiaries. The
Corporation's intention is to reinvest these earnings permanently or
to repatriate the earnings only when it is tax effective to do so. Accordingly,
the Corporation believes that any U.S. tax on repatriated earnings would
be substantially offset by U.S. foreign tax credits.
Differences between effective income tax rates
and the statutory U.S. federal income tax rates are as follows:
|
|
|
2002 |
2001
|
2000
|
|
|
|
Statutory U.S. federal
income tax rate |
35.0% |
35.0% |
35.0% |
|
|
|
Tax on international
activities including
exports |
(7.0) |
(6.2) |
(6.0) |
|
|
|
Goodwill |
– |
1.8 |
1.7 |
|
|
|
Enacted tax law changes |
– |
– |
1.9 |
|
|
|
Tax audit settlement |
– |
(3.1) |
– |
|
|
|
Other |
(0.9) |
(0.6) |
(1.7) |
|
|
|
Effective income tax rate |
27.1% |
26.9% |
30.9% |
|
The effective tax rate for 2002 reflects
the benefit of increased use of certain tax-planning strategies, including
utilization of a capital loss carryback, and the increase in pre-tax
income from discontinuing amortization of non-deductible goodwill in
accordance with SFAS No. 142.
The 2001 effective tax rate includes the impact
of the favorable settlement of certain prior year tax audits. Excluding this
settlement, the 2001 effective tax rate was 30.0%. The effective income tax rate
adjusted for the impact of SFAS No. 142 and excluding the favorable settlement
of prior year tax audits in 2001 was 28.2%.
The 2000 effective tax rate includes the impact
of two discrete items: the revaluation of the Corporation's state deferred tax
asset resulting from the enactment of Connecticut tax law changes and the benefits
of income tax credits for prior periods associated with an industry related court
decision. Excluding the discrete items and adjusting for the impact of SFAS No.
142, the 2000 effective tax rate was 28.8%.
Tax credit carryforwards at December 31, 2002 were
$257 million of which $47 million expires from 2003-2017.
Tax loss carryforwards, principally state and foreign,
at December 31, 2002 were $961 million of which $640 million expire as follows:
$207 million from 2003-2007, $203 million from 2008-2012, $230 million from 2013-2022.
Notes to Consolidated Financial Statements
[note 11] Employee Benefit Plans
The Corporation and its subsidiaries sponsor numerous domestic and foreign
employee benefit plans. Those plans are discussed below.
EMPLOYEE SAVINGS PLANS. The Corporation and certain subsidiaries sponsor
various employee savings plans. Total employer contributions were $133
million, $123 million and $107 million for 2002, 2001 and 2000, respectively.
The Corporation's nonunion domestic employee savings
plans use an Employee Stock Ownership Plan ("ESOP") for employer contributions.
External borrowings, guaranteed by the Corporation and reported as debt in the
Consolidated Balance Sheet, were used by the ESOP to fund a portion of its purchase
of ESOP Stock from the Corporation. Each share of ESOP Stock is convertible into
four shares of Common Stock, has a guaranteed value of $65, a $4.80 annual dividend
and is redeemable at any time for $65 per share. Upon notice of redemption by
the Corporation, the Trustee has the right to convert the ESOP Stock into Common
Stock. Because of its guaranteed value, the ESOP Stock is classified outside
of Shareowners' Equity.
Shares of ESOP Stock are committed to employees
at fair value on the date earned. The ESOP Stock's cash dividends are used for
debt service payments. Participants receive shares in lieu of the cash dividends.
As debt service payments are made, ESOP Stock is released from an unreleased
shares account. If share releases do not meet share commitments, the Corporation
will contribute additional ESOP Stock, Common Stock or cash. At December 31,
2002, 6.5 million shares had been committed to employees, leaving 4.4 million
shares in the ESOP Trust, with an approximate fair value of $1.1 billion based
on equivalent common shares.
Upon withdrawal, shares of the ESOP Stock must
be converted into the Corporation's Common Stock or, if the value of the Common
Stock is less than the guaranteed value of the ESOP Stock, the Corporation must
repurchase the shares at their guaranteed value.
PENSION PLANS. The Corporation and its subsidiaries sponsor many domestic
and foreign defined benefit pension and other postretirement plans.
The 2001 amounts in the following tables are valued
at September 30. In 2002, the Corporation changed the measurement date for its
domestic defined benefit pension and postretirement plans from September 30 to
November 30 to more closely align the measurement date of these plans with the
Corporation's year-end financial reporting date. The impact of this change was
not material.
|
|
IN MILLIONS OF DOLLARS |
2002 |
2001
|
|
|
Change in Benefit
Obligation: |
|
|
|
|
Beginning balance |
$
12,354 |
$ 12,232 |
|
|
Service cost |
255 |
250 |
|
|
Interest cost |
884 |
869 |
|
|
Actuarial loss (gain) |
1,272 |
(239) |
|
|
Total benefits paid |
(839) |
(796) |
|
|
Net settlement and
curtailment (gain) loss |
(11) |
13 |
|
|
Acquisitions |
– |
3 |
|
|
Other |
10 |
22 |
|
|
Ending balance |
$
13,925 |
$ 12,354
|
|
|
Change in Plan Assets: |
|
|
|
|
Beginning balance |
$
10,025 |
$ 13,119 |
|
|
Actual return on
plan assets |
(295) |
(2,338) |
|
|
Employer contributions |
1,060 |
51 |
|
|
Benefits paid from
plan assets |
(808) |
(755) |
|
|
Acquisitions |
– |
1 |
|
|
Other |
43 |
(53) |
|
|
Ending balance |
$
10,025 |
$ 10,025
|
|
|
Funded status |
$(3,900) |
$ (2,329) |
|
|
Unrecognized net
actuarial loss |
4,891 |
2,173 |
|
|
Unrecognized prior
service cost |
143 |
287 |
|
|
Unrecognized net obligation
at transition |
5 |
7 |
|
|
Net amount recognized |
$ 1,139 |
$ 138
|
|
|
Amounts Recognized in
the Consolidated
Balance Sheet
Consist of: |
|
|
|
|
Prepaid benefit cost |
$ 1,537 |
$ 492 |
|
|
Accrued benefit liability |
(3,985) |
(1,534) |
|
|
Intangible asset |
180 |
286 |
|
|
Accumulated other
non-shareowners'
changes in equity |
3,407 |
894 |
|
|
Net amount recognized |
$ 1,139 |
$ 138
|
Major assumptions used in accounting for
pension plans are presented in the following table as weighted-averages:
|
|
|
2002 |
2001
|
2000
|
|
|
|
Pension Benefits: |
|
|
|
|
|
|
Discount rate |
6.6% |
7.4% |
7.4% |
|
|
|
Expected return on plan assets |
9.2% |
9.6% |
9.7% |
|
|
|
Salary scale |
4.4% |
4.7% |
4.9% |
|
|
|
|
|
|
|
|
The expected return on plan assets for
determining 2003 net periodic benefit cost was lowered to 8.5%.
At December 31, 2002 and 2001, the Corporation
recorded an increase to the minimum pension liability of $2.4 billion and $1.1
billion, respectively, resulting in a net of tax charge to equity of $1.6 billion
and $519 million, respectively.
Qualified domestic pension plan benefits comprise
approximately 86% of the projected benefit obligation and are generally based
on an employee's years of service and compensation near retirement or, if a union
plan, on a stated amount for each year of service. Certain foreign plans, which
comprise approximately 12% of the projected benefit obligation, are considered
defined benefit plans for accounting purposes. Non-qualified domestic pension
plans provide supplementary retirement benefits to certain employees and are
not a meaningful component of the projected benefit obligation.
During 2002, the Corporation contributed $253 million
of Treasury Stock and made a $500 million voluntary cash contribution to its
domestic pension plans. In December 2001, the Corporation contributed $247 million
of Treasury Stock to its domestic pension plans. Plan assets at December 31,
2002 and 2001 are comprised primarily of equity securities (67% and 69%, respectively)
and fixed income securities (24% and 21%, respectively). Common Stock of the
Corporation, included in the equities amounts above, amounted to approximately
6% and 3% of domestic plan assets at December 31, 2002 and 2001, respectively.
Market performance can have a significant impact
on the funded status of the plans and contributed to the underfunded status in
2002. Qualified domestic plans comprised 73% of the total unfunded status and
domestic non-qualified plans, which have no assets, were 7% of the total unfunded
status.
The projected benefit obligation, accumulated benefit
obligation and fair value of plan assets for the pension plans with accumulated
benefit obligations in excess of plan assets were $13,853 million, $12,399 million
and $9,960 million, as of December 31, 2002 and $11,551 million, $10,596 million
and $9,560 million, as of December 31, 2001.
|
|
IN MILLIONS OF DOLLARS |
2002 |
|
2001
|
|
2000
|
|
|
|
Components of Net
Periodic Benefit Cost: |
|
|
|
|
|
|
|
|
Pension Benefits: |
|
|
|
|
|
|
|
|
Service cost |
$ 255 |
|
$ 250 |
|
$ 238 |
|
|
|
Interest cost |
884 |
|
869 |
|
839 |
|
|
|
Expected return on plan assets |
(1,116) |
|
(1,135) |
|
(1,060) |
|
|
|
Amortization of prior service
cost |
39 |
|
36 |
|
34 |
|
|
|
Amortization of unrecognized
net
transition obligation (asset) |
2 |
|
(2) |
|
(20) |
|
|
|
Recognized actuarial net loss |
4 |
|
14 |
|
11 |
|
|
|
Net settlement and curtailment
loss (gain) |
37 |
|
46 |
|
(2) |
|
|
|
Net periodic pension benefit
cost – employer |
$ 105 |
|
$ 78 |
|
$ 40 |
|
|
|
Net periodic pension benefit
cost – multiemployer plans |
$ 55 |
|
$ 45 |
|
$ 30 |
|
POSTRETIREMENT PLANS
|
|
IN MILLIONS OF DOLLARS |
2002 |
2001
|
|
|
|
Change in Benefit
Obligation: |
|
|
|
|
|
Beginning balance |
$ 1,040 |
$ 1,175 |
|
|
|
Service cost |
11 |
15 |
|
|
|
Interest cost |
73 |
85 |
|
|
|
Actuarial loss (gain) |
16 |
(152) |
|
|
|
Total benefits paid |
(114) |
(106) |
|
|
|
Net settlement and
curtailment (gain) loss |
(59) |
8 |
|
|
|
Other |
30 |
15 |
|
|
|
Ending balance |
$ 997 |
$ 1,040
|
|
|
|
Change in Plan Assets: |
|
|
|
|
|
Beginning balance |
$
62 |
$ 76 |
|
|
|
Actual return on
plan assets |
(1) |
(7) |
|
|
|
Employer contributions |
1 |
1 |
|
|
|
Benefits paid from
plan assets |
(13) |
(11) |
|
|
|
Other |
4 |
3 |
|
|
|
Ending balance |
$
53 |
$ 62
|
|
|
|
Funded status |
$ (944) |
$ (978) |
|
|
|
Unrecognized net
actuarial gain |
(102) |
(138) |
|
|
|
Unrecognized prior
service cost |
(94) |
(105) |
|
|
|
Unrecognized net obligation
at transition |
– |
18 |
|
|
|
Net amount recognized |
$
(1,140) |
$ (1,203)
|
|
|
|
Amounts Recognized in
the Consolidated
Balance Sheet
Consist of:
|
|
|
|
|
|
Accrued benefit liability |
$
(1,140) |
$ (1,203) |
|
|
|
|
|
|
|
Major assumptions used in accounting for
postretirement plans are presented in the following table as weighted-averages:
|
|
2002 |
2001
|
2000
|
|
|
Other Postretirement Benefits: |
|
|
|
|
|
Discount rate |
6.7% |
7.5% |
7.5% |
|
|
Expected return on plan assets |
9.1% |
9.6% |
9.6% |
|
|
|
|
|
|
|
For measurement purposes, a 10% annual
rate of increase in the per capita cost of covered health care benefits
was assumed for 2002. The rate is assumed to decrease 0.5% per year to
5% in 2013.
|
|
IN MILLIONS OF DOLLARS |
2002 |
2001
|
2000
|
|
|
|
Components of Net
Periodic Benefit Cost: |
|
|
|
|
|
|
Other Postretirement Benefits: |
|
|
|
|
|
|
Service cost |
$ 11 |
$ 15 |
$ 13 |
|
|
|
Interest cost |
73 |
85 |
82 |
|
|
|
Expected return on plan assets |
(5) |
(7) |
(7) |
|
|
|
Amortization of prior service
cost |
(19) |
(13) |
(16) |
|
|
|
Net settlement and
curtailment gain |
(57) |
(3) |
– |
|
|
|
Net periodic other
postretirement benefit cost |
$ 3 |
$ 77 |
$ 72 |
|
During 2002, the Corporation modified
the postretirement medical and life insurance benefits provided to certain
employees resulting in the recognition of a $43 million curtailment gain.
The gain was recorded in segment cost of products sold and selling, general
and administrative expenses.
Assumed health care cost trend rates have a significant
effect on the amounts reported for the health care plan. A one-percentage-point
change in assumed health care cost trend rates would change the accumulated postretirement
benefit obligation as of December 31, 2002 by approximately $45 million. The
effects of this change on the service cost and the interest cost components of
the net postretirement benefit expense for 2002 would total approximately $4
million.
LONG-TERM INCENTIVE PLANS. The Corporation has long-term incentive plans
authorizing various types of market and performance based incentive awards,
which may be granted to officers and employees. The 1989 Long-Term Incentive
Plan provides for the annual grant of awards in an amount not to exceed
2% of the aggregate shares of Common Stock, treasury shares and potentially
dilutive common shares for the preceding year. In addition, up to 4 million
options on Common Stock may be granted annually under the Corporation's
Employee Stock Option Plan.
A summary of the transactions under all plans for
the three years ended December 31, 2002 follows:
|
|
|
Stock
Options |
|
|
|
SHARES AND UNITS IN THOUSANDS |
Shares
|
Average
Price |
Other
Incentive
Shares/Units |
|
|
Outstanding at: |
|
|
|
|
|
December 31, 1999 |
44,668 |
$ 33.49 |
1,250 |
|
|
Granted |
8,167 |
64.55 |
86 |
|
|
Exercised/earned |
(9,412) |
24.99 |
(840) |
|
|
Canceled |
(1,031) |
51.55 |
(13) |
|
|
December 31, 2000 |
42,392 |
$ 40.93 |
483 |
|
|
Granted |
8,255 |
75.60 |
78 |
|
|
Exercised/earned |
(6,206) |
26.83 |
(127) |
|
|
Canceled |
(1,292) |
66.33 |
(40) |
|
|
December 31, 2001 |
43,149 |
$ 48.85 |
394 |
|
|
Granted |
10,313 |
65.18 |
280 |
|
|
Exercised/earned |
(4,031) |
32.01 |
(88) |
|
|
Canceled |
(1,383) |
68.99 |
(16) |
|
|
December 31, 2002 |
48,048 |
$
53.19 |
570 |
|
|
|
|
|
|
Granted options in the above table include
options issued in connection with business combinations.
The following table summarizes information about
stock options outstanding and exercisable (in thousands) at December 31, 2002:
|
|
|
Outstanding Options |
Options Exercisable |
|
|
|
Exercise Price |
Shares |
Average
Price |
Remaining
Term |
Shares |
Average
Price |
|
|
|
$10.01-$25.00 |
6,516 |
$19.02 |
2.07 |
6,516 |
$19.02 |
|
|
|
$25.01-$40.00 |
8,656 |
35.18 |
4.34 |
8,656 |
35.18 |
|
|
|
$40.01-$55.00 |
6,587 |
51.95 |
5.87 |
6,552 |
51.95 |
|
|
|
$55.01-$70.00 |
16,136 |
63.81 |
8.19 |
2,808 |
60.09 |
|
|
|
$70.01-$85.00 |
10,153 |
74.36 |
7.95 |
1,166 |
73.31 |
|
In accordance with SFAS No. 123, "Accounting
for Stock Issued to Employees," the fair value of each stock option
grant has been estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions:
|
|
|
2002 |
2001
|
2000
|
|
|
|
Risk-free interest rate |
4.4% |
4.8% |
6.1% |
|
|
|
Expected life |
5
years |
5 years |
5 years |
|
|
|
Expected volatility |
39% |
36% |
30% |
|
|
|
Expected dividend yield |
1.6% |
1.3% |
1.0% |
|
A table illustrating the effect on net
income and earnings per share as if the Black-Scholes fair value method
had been applied to long-term incentive plans is presented in Note 1.
The weighted-average grant date fair values of
options granted during 2002, 2001 and 2000 were $23.30, $24.83 and $21.33.
Notes to Consolidated Financial Statements
[note 12] Restructuring
2002 ACTIONS. During 2002, the Corporation recorded pre-tax restructuring
and related charges totaling $321 million. These charges relate to
ongoing cost reduction efforts, including workforce reductions and
consolidation of manufacturing, sales and service facilities, and include
$237 million recorded in cost of sales, $81 million in selling, general
and administrative expenses.
The charges were recorded in the Corporation's
segments as follows: Otis $73 million, Carrier $114 million, Pratt & Whitney
$80 million and Flight Systems $55 million. The charges included accruals of
$203 million for severance and related employee termination costs, $48 million
for asset write-downs, largely related to the disposal of manufacturing assets
and facilities that will no longer be utilized, and $19 million for facility
exit and lease termination costs. Additional charges associated with these restructuring
actions totaling $51 million that were not accruable at the time were also recorded
in 2002, primarily in the Carrier segment.
The 2002 actions 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 December 31, 2002, approximately
4,900 employees and 200,000 square feet of facilities have been eliminated. The
balance of the remaining workforce and facility related cost reduction actions
are targeted to be completed in 2003. A significant portion of the remaining
square footage to be eliminated under the 2002 actions relates to one domestic
manufacturing facility. Operations were ceased at this facility late in 2002
and activities to ready the facility for sale are expected to be completed in
early 2003. As of December 31, 2002, approximately $133 million of severance
and related costs and $11 million of facility exit and lease termination accruals
remain.
2001 ACTIONS. During the second half of 2001, the Corporation recorded
pre-tax charges totaling $348 million associated with ongoing efforts
to reduce costs in its segments in a continually challenging business
environment and to address current conditions in the commercial airline
industry. The restructuring actions focus principally on improving the
overall level of organizational efficiency and consolidation of manufacturing,
sales and service facilities. These charges were recorded in the Corporation's
segments as follows: Otis $83 million, Carrier $172 million, Pratt & Whitney
$63 million and Flight Systems $30 million. The charges included accruals
of $256 million for severance and related employment termination costs,
$53 million for asset write-downs and $19 million for facility exit and
lease termination costs.
The amounts included $224 million recorded in cost
of sales and $124 million in selling, general and administrative expenses, and
relate to net workforce reductions of approximately 8,700 salaried and hourly
employees, the elimination of approximately 2.3 million square feet of facilities
and the disposal of assets associated with exited facilities.
As of December 31, 2002, workforce reductions of
approximately 7,900 employees were completed and approximately 2.1 million square
feet of facilities were eliminated. The balance of the workforce and facility
related cost reduction actions are expected to be substantially complete in early
2003. As of December 31, 2002, approximately $37 million of severance and related
costs and $1 million of facility exit and lease termination accruals remain.
Notes to Consolidated Financial Statements
[note 13] Foreign Exchange
The Corporation conducts business in many different currencies and, accordingly,
is subject to the inherent risks associated with foreign exchange rate
movements. The financial position and results of operations of substantially
all of the Corporation's foreign subsidiaries are measured using the
local currency as the functional currency. Foreign currency denominated
assets and liabilities are translated into U.S. dollars at the exchange
rates existing at the respective balance sheet dates, and income and
expense items are translated at the average exchange rates during the
respective periods. The aggregate effects of translating the balance
sheets of these subsidiaries are deferred as a separate component of
shareowners' equity. The Corporation had foreign currency net assets
in more than forty currencies, aggregating $4.2 billion and $3.7 billion
at December 31, 2002 and 2001.
The notional amount of foreign exchange contracts
hedging foreign currency transactions was $2.9 billion and $3.0 billion at December
31, 2002 and 2001, respectively.
Notes to Consolidated Financial Statements
[note 14] Financial Instruments
The Corporation operates internationally and, in the normal course of
business, is exposed to fluctuations in interest rates, foreign exchange
rates and commodity prices. These fluctuations can increase the costs
of financing, investing and operating the business. The Corporation
manages its foreign currency transaction risks and some commodity exposures
to acceptable limits through the use of derivatives designated as hedges.
By nature, all financial instruments involve market
and credit risks. The Corporation enters into derivative and other financial
instruments with major investment grade financial institutions and has policies
to monitor the credit risk of those counterparties. The Corporation limits counterparty
exposure and concentration of risk by diversifying counterparties. The Corporation
does not anticipate non-performance by any of these counterparties.
The non-shareowner changes in equity associated
with hedging activity for the twelve months ended December 31, 2002 and
2001 were as follows:
IN MILLIONS OF DOLLARS |
2002
|
|
2001 |
Balance at January 1 |
$
(23) |
|
– |
Cash flow hedging loss, net |
(6) |
|
$ (55) |
Net loss reclassified to sales |
|
|
|
or cost of products sold |
33 |
|
32 |
Balance at December 31 |
$
4 |
|
$
(23) |
Of the amount recorded in shareowners'
equity, a $3 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 twelve months. Gains and losses recognized in
earnings related to the discontinuance or the ineffectiveness of cash
flow and fair value hedges were immaterial for the years ended December
31, 2002 and 2001. At December 31, 2002, all derivative contracts accounted
for as cash flow hedges mature by December 2005.
Following the adoption of SFAS No. 133, all derivative
instruments are recorded on the balance sheet at fair value. At December 31,
2002 and 2001, the fair value of derivatives recorded as assets is $58 million
and $28 million, respectively, and the fair value of derivatives recorded as
liabilities is $39 million and $76 million, respectively. The Corporation uses
derivatives to hedge forecasted cash flows associated with foreign currency commitments
or forecasted commodity purchases which are accounted for as cash flow hedges.
In addition, the Corporation uses derivatives, such as interest rate swaps and
currency swaps which are accounted for as fair value hedges.
The carrying amounts and fair values of financial
instruments at December 31, are as follows:
|
|
|
|
2002 |
2001 |
|
|
|
IN MILLIONS OF DOLLARS |
|
Carrying
Amount |
Fair
Value |
Carrying
Amount |
Fair
Value |
|
|
|
Financial Assets and
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Marketable equity |
|
|
|
|
|
|
|
|
securities |
|
$ 17 |
$ 17 |
$ 53 |
$ 53 |
|
|
|
Long-term receivables |
|
155 |
151 |
56 |
57 |
|
|
|
Customer financing |
|
|
|
|
|
|
|
|
note
receivables |
|
301 |
299
|
377 |
374 |
|
|
|
Short-term borrowings |
|
(197) |
(197) |
(588) |
(588) |
|
|
|
Long-term debt |
|
(4,657) |
(5,374) |
(4,355) |
(4,586) |
|
The above fair values were computed based
on comparable transactions, quoted market prices, discounted future cash
flows or an estimate of the amount to be received or paid to terminate
or settle the agreement, as applicable.
The values of marketable equity securities represent
the Corporation's investment in common stock that is classified as available
for sale and is accounted for at fair value.
The Corporation had outstanding financing and rental
commitments totaling $1.6 billion at December 31, 2002. Risks associated with
changes in interest rates on these commitments are mitigated by the fact that
interest rates are variable during the commitment term and are set at the date
of funding based on current market conditions, the fair value of the underlying
collateral and the credit worthiness of the customers. As a result, the fair
value of these financings is expected to equal the amounts funded. The fair value
of the commitment itself is not readily determinable and is not considered significant.
Additional information pertaining to these commitments is included in Note 4.
Notes to Consolidated Financial Statements
[note 15] Guarantees
The Corporation extends a variety of financial, market value and product
performance guarantees to third parties. As of December 31, 2002 the
following were outstanding:
|
|
IN MILLIONS OF DOLLARS |
|
Maximum
Potential
Payment |
|
Carrying
Amount of
Liability |
|
|
Environmental remediation |
|
|
|
|
|
|
indemnification (See Note 16) |
|
No limit |
|
$186 |
|
|
Financial guarantees: |
|
|
|
|
|
|
Credit facilities
and debt |
|
|
|
|
|
|
obligations – unconsolidated |
|
|
|
|
|
|
subsidiaries
(expire 2003 to 2010) |
|
$ 259
|
|
$ –
|
|
|
IAE's financing
arrangements |
|
|
|
|
|
|
(See
Note 4) |
|
$1,232 |
|
$ 22 |
|
|
Commercial aerospace
financing |
|
|
|
|
|
|
arrangements
(See Note 4) |
|
$ 164
|
|
$ 26
|
|
|
Commercial customer
financing |
|
|
|
|
|
|
arrangements |
|
$ 62
|
|
$ –
|
The Corporation accrues for costs associated
with guarantees 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,
and where no amount within a range of estimates is more likely, the minimum
is accrued.
The Corporation provides service and warranty policies
on its products and extends performance and operating cost guarantees beyond
its normal service and warranty policies on some of its products, particularly
commercial aircraft engines. Liability under service and warranty policies is
based upon a review of historical warranty and service claim experience. Liability
for performance and operating cost guarantees is based upon future product performance
and durability, and is estimated largely based upon historical experience. Adjustments
are made to accruals as claim data and historical experience warrant. In addition,
the Corporation incurs discretionary costs to service its products in connection
with product performance issues.
The changes in the carrying amount of
service and product warranties and product performance guarantees for
the year ended December 31, 2002, are as follows:
|
IN MILLIONS OF DOLLARS |
|
|
|
|
Balances as of January 1, 2002 |
|
$ 1,090 |
|
|
Warranties and guarantees issued |
|
355 |
|
|
Settlements made |
|
(475) |
|
|
Adjustments to provision |
|
54 |
|
|
Balance as of December 31, 2002 |
|
$1,024 |
|
Notes to Consolidated Financial Statements
[note 16] Commitments and Contingent Liabilities
LEASES. The Corporation occupies space and uses certain equipment under
lease arrangements. Rental commitments of $766 million at December
31, 2002 under long-term noncancelable operating leases are payable
as follows: $212 million in 2003, $159 million in 2004, $115 million
in 2005, $87 million in 2006, $59 million in 2007 and $134 million
thereafter.
Rent expense was $214 million in 2002, $204 million
in 2001 and $194 million in 2000.
Additional information pertaining to commercial
aerospace rental commitments is included in Note 4.
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.
As described in Note 1, the Corporation has accrued for the costs of
environmental remediation activities and periodically reassesses these
amounts. Management believes that the likelihood of incurring losses
materially in excess of amounts accrued is remote.
The Corporation has had insurance in force over
its history with a number of insurance companies and has
pursued litigation seeking indemnity and defense under these insurance
policies in relation to its environmental liabilities. In January 2002,
the Corporation settled the last of these lawsuits under an agreement
providing for the Corporation to receive payments totaling approximately
$100 million. Accrued environmental liabilities are not reduced by potential
insurance reimbursements.
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 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. 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 position,
results of operations or cash flows.
Notes to Consolidated Financial Statements
[note 17] Segment Financial Data
The Corporation's operations are classified in four principal segments.
Those segments were generally determined based on the management of
the businesses and on the basis of separate groups of operating companies,
each with general operating autonomy over diversified products and
services.
OTIS products include elevators, escalators, service, automated people
movers and spare parts sold to a diversified international customer base
principally in the commercial and residential property industries.
CARRIER products include heating, ventilating and air conditioning systems
and equipment, commercial and transport refrigeration equipment and service
for a diversified international customer base principally in commercial
and residential real estate development.
PRATT & WHITNEY products include aircraft engines and spare parts
sold to a diversified customer base, including international and domestic
commercial airlines and aircraft leasing companies, aircraft manufacturers,
and U.S. and non-U.S. governments. Pratt & Whitney also provides
product support and a full range of overhaul, repair and fleet management
services and produces land-based power generation equipment.
FLIGHT SYSTEMS SEGMENT provides global aerospace and industrial products
and services through Hamilton Sundstrand and Sikorsky. Hamilton Sundstrand
provides aerospace and industrial products for diversified industries.
Aerospace products include aircraft power generation management and distribution
systems, and environmental, flight and fuel control systems. Sikorsky
products include military and commercial helicopters, aftermarket products
and service.
Segment and geographic data include the
results of all majority-owned businesses, consistent with the management
reporting of these businesses. For certain of these subsidiaries, minority
shareholders have rights which, under the provisions of EITF 96-16 "Investor's
Accounting for an Investee When the Investor Has a Majority of the Voting
Interest but the Minority Shareholder or Shareholders Have Certain Approval
or Veto Rights", overcome the presumption of control. In the Corporation's
consolidated results, these subsidiaries are accounted for using the
equity method of accounting. The participating rights granted by contract
to minority shareholders that overcome the presumption of control include
minority participation in the appointment, dismissal and compensation
of senior management, approval of organizational structure changes, policies,
annual operating and capital plans, including approval of merger and
acquisition investment activities, and annual dividend plans. These and
other participating rights that allow the minority shareholder to participate
in decisions that occur as part of the ordinary course of business are
represented through the minority shareholder's ability to block actions
proposed by the majority interest. Adjustments to reconcile segment reporting
to consolidated results are included in "Eliminations and other," which
also includes certain small subsidiaries.
Segment information for the years ended December
31 follows:
Segment Information
|
|
|
Total Revenues |
Operating Profits |
|
|
|
IN MILLIONS OF DOLLARS |
2002 |
2001
|
2000
|
2002 |
2001
|
2000
|
|
|
|
Otis
|
$ 6,811 |
$ 6,338
|
$ 6,153
|
$1,057 |
$ 847
|
$ 798 |
|
|
|
Carrier |
8,773 |
8,895
|
8,430
|
779 |
590
|
795
|
|
|
|
Pratt & Whitney |
7,645 |
7,679
|
7,366
|
1,282 |
1,308
|
1,200
|
|
|
|
Flight Systems |
5,571 |
5,292
|
4,992
|
741 |
670
|
614
|
|
|
|
Total segment |
$28,800 |
$28,204
|
$26,941
|
$3,859 |
$3,415
|
$3,407
|
|
|
|
Eliminations and other |
(588) |
(307)
|
(358)
|
(27) |
25
|
(39)
|
|
|
|
General corporate expenses |
— |
—
|
—
|
(175) |
(207)
|
(228)
|
|
|
|
Consolidated |
$28,212 |
$27,897
|
$26,583
|
$3,657 |
$3,233
|
$3,140
|
|
|
|
Interest
expense |
|
|
|
(381) |
(426)
|
(382)
|
|
|
|
Income before income taxes and minority interests |
|
|
|
$3,276 |
$2,807
|
$2,758
|
|
Goodwill amortization recorded in segment
operating profits for the year ended December 31, 2001 is as follows:
Otis – $30, Carrier – $74, Pratt & Whitney – $23,
and Flight Systems – $103. Excluding goodwill amortization, segment
operating profits for the year ended December 31, 2001 are as follows:
Otis – $877, Carrier – $664, Pratt & Whitney – $1,331,
and Flight Systems – $773.
Goodwill amortization recorded in segment operating
profits for the year ended December 31, 2000 is as follows: Otis – $29,
Carrier – $57, Pratt & Whitney – $21, and Flight Systems – $99.
Excluding goodwill amortization, segment operating profits for the year ended
December 31, 2000 are as follows: Otis – $827, Carrier – $852, Pratt & Whitney – $1,221,
and Flight Systems – $713.
|
|
|
|
Total Assets |
Capital Expenditures |
Depreciation & Amortization |
|
|
|
IN MILLIONS OF DOLLARS |
|
2002 |
2001
|
2000
|
2002 |
2001
|
2000
|
2002 |
2001
|
2000
|
|
|
|
Otis
|
|
$ 4,060 |
$ 3,777
|
$ 3,753
|
$ 81 |
$ 80
|
$108
|
$138 |
$159
|
|
|
|
|
Carrier |
|
7,431 |
7,202
|
6,907
|
94 |
226
|
231
|
189 |
248
|
206
|
|
|
|
Pratt & Whitney |
|
6,082 |
6,090
|
5,951
|
257 |
343
|
369
|
209 |
223
|
217
|
|
|
|
Flight Systems |
|
8,005 |
7,724
|
7,750
|
127 |
125
|
195
|
169 |
259
|
261
|
|
|
|
Total segment
|
|
$25,578 |
$24,793
|
$24,361
|
$559 |
$774
|
$903
|
$705 |
$889
|
|
|
|
|
Eliminations and other |
|
3,512 |
2,217
|
1,003
|
27 |
19
|
34
|
22 |
16
|
10
|
|
|
|
Consolidated |
|
$29,090 |
$27,010
|
$25,364
|
$586 |
$793
|
$937
|
$727 |
$905
|
$859
|
|
SEGMENT REVENUES AND OPERATING PROFIT. Total revenues by segment include
intersegment sales, which are generally made at prices approximating
those that the selling entity is able to obtain on external sales. Operating
profits by segment include income before interest expense, income taxes
and minority interest.
Geographic Areas
|
|
External Revenues |
Operating Profits |
Long-Lived Assets |
|
|
IN MILLIONS OF DOLLARS |
2002 |
2001
|
2000
|
2002 |
2001
|
2000
|
2002 |
2001
|
2000
|
|
|
United States operations
|
$16,760 |
$17,109
|
$16,231
|
$2,289 |
$1,987
|
$1,950
|
$ 8,648 |
$ 8,489
|
|
|
|
International operations: |
|
|
|
|
|
|
|
|
|
|
|
Europe |
5,573 |
4,716
|
4,413
|
690 |
570
|
606
|
1,547 |
1,188
|
1,030
|
|
|
Asia Pacific |
3,647 |
3,420
|
3,319
|
573 |
416
|
368
|
1,428 |
1,404
|
1,418
|
|
|
Other |
2,581 |
2,785
|
2,820
|
307 |
442
|
483
|
521 |
574
|
534
|
|
|
Eliminations and other |
(349) |
(133)
|
(200)
|
(202) |
(182)
|
(267)
|
78 |
72
|
71
|
|
|
Consolidated |
$28,212 |
$27,897
|
$26,583
|
$3,657 |
$3,233
|
$3,140
|
$12,222 |
$11,727
|
$11,588
|
|
GEOGRAPHIC EXTERNAL REVENUES AND OPERATING PROFIT. Geographic external
revenues and operating profits are attributed to the geographic regions
based on their location of origin. United States external revenues include
export sales to commercial customers outside the U.S. and sales to the
U.S. Government, commercial and affiliated customers, which are known
to be for resale to customers outside the U.S.
Revenues from United States operations include
export sales as follows:
|
IN MILLIONS OF DOLLARS |
|
2002 |
2001
|
2000
|
|
|
Europe |
|
$1,422 |
$1,314
|
1,606
|
|
|
Asia Pacific |
|
1,594 |
1,484
|
1,632
|
|
|
Other |
|
1,037 |
1,149
|
896
|
|
|
|
|
$4,053 |
$3,947
|
$4,134
|
|
GEOGRAPHIC LONG-LIVED ASSETS. Long-lived assets include net fixed assets
and intangibles which can be attributed to the specific geographic regions.
MAJOR CUSTOMERS. Revenues include sales under prime contracts and subcontracts
to the U.S. Government, primarily related to Pratt & Whitney and
Flight Systems products, as follows:
|
|
IN MILLIONS OF DOLLARS |
|
2002 |
2001
|
2000
|
|
|
|
Pratt & Whitney |
|
$2,489 |
$1,708
|
$1,616
|
|
|
|
Flight Systems |
|
2,015 |
2,037
|
1,207
|
|
Selected Quarterly Financial Data (Unaudited)
|
|
|
2002 Quarters |
2001 Quarters |
|
|
|
IN MILLIONS OF DOLLARS, EXCEPT PER SHARE
AMOUNTS |
First |
Second |
Third |
Fourth |
First |
Second |
Third |
Fourth |
|
|
|
Sales
|
$6,321 |
$7,271
|
$7,250
|
$7,138 |
$6,597 |
$7,260 |
$6,734 |
$6,895 |
|
|
|
Gross Margin |
1,836 |
2,081 |
2,012 |
1,890 |
1,785 |
2,076 |
1,811 |
1,727 |
|
|
|
Net income |
467 |
624
|
612
|
533 |
440 |
588 |
565 |
345 |
|
|
|
Net income adjusted for SFAS No. 142 |
|
|
|
|
492 |
641 |
619 |
398 |
|
|
|
Earnings per share of Common Stock: |
|
|
|
|
|
|
|
|
|
|
|
Basic |
$ .97 |
$ 1.30
|
$ 1.28
|
$ 1.11 |
$ .92 |
$ 1.23 |
$ 1.19 |
$ .72 |
|
|
|
Diluted |
$ .92 |
$ 1.23
|
$ 1.21
|
$ 1.06 |
$ .86 |
$ 1.16 |
$ 1.12 |
$ .69 |
|
|
|
Earnings per share of Common Stock |
|
|
|
|
|
|
|
|
|
|
|
adjusted for SFAS No. 142 |
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
$ 1.03 |
$ 1.34 |
$ 1.31 |
$ .83 |
|
|
|
Diluted |
|
|
|
|
$ .96 |
$ 1.26 |
$ 1.23 |
$ .80 |
|
Comparative Stock Data
|
|
|
2002 |
2001 |
|
|
|
Common Stock |
High |
Low |
Dividend
|
High |
Low |
Dividend |
|
|
|
First Quarter |
$77.25 |
$59.37 |
$.245 |
$82.08 |
$67.00 |
$.225 |
|
|
|
Second Quarter |
$75.00 |
$64.85
|
$.245
|
$87.21 |
$70.83 |
$.225 |
|
|
|
Third Quarter |
$71.00 |
$55.98
|
$.245
|
$76.56 |
$41.64 |
$.225 |
|
|
|
Fourth
Quarter |
$65.83 |
$49.19
|
$.245
|
$65.56 |
$47.25 |
$.225 |
|
The Corporation's Common Stock is listed on the New York Stock Exchange.
The high and low prices are based on the Composite Tape of the New York
Stock Exchange. There were approximately 24,100 common shareowners of
record at December 31, 2002.
Directors
Board of Directors
George David
Chairman and
Chief Executive Officer
Jean-Pierre Garnier
Chief Executive Officer
GlaxoSmithKline plc
(Pharmaceuticals)
Jamie S. Gorelick
Vice Chair, Fannie Mae
(Mortgage Funding)
Charles R. Lee
Non-Executive Chairman
of the Board of Directors
Verizon Communications
(Telecommunications)
Richard D. McCormick
Immediate Past Chairman
International Chamber of
Commerce (ICC)
Stephen F. Page
Vice Chairman
and Chief Financial Officer
Frank P. Popoff
Retired Chairman and
Chief Executive Officer
The Dow Chemical Company
(Chemicals and Chemical Products)
H. Patrick Swygert
President
Howard University
André Villeneuve
Retired Chairman
Instinet Corporation
(Electronic Agency Stockbroker)
H. A. Wagner
Retired Chairman
Air Products and Chemicals, Inc.
(Industrial Gases and Chemicals)
Sanford I. Weill
Chairman and
Chief Executive Officer
Citigroup Inc.
(Financial Services)
|
|
Permanent Committees
Audit Committee
Frank P. Popoff, Chairman
Jamie S. Gorelick
Richard D. McCormick
André Villeneuve
H. A. Wagner
Compensation &
Executive Development
H. A. Wagner, Chairman
Jean-Pierre Garnier
Charles R. Lee
Richard D. McCormick
Frank P. Popoff
Executive Committee
George David, Chairman
Charles R. Lee
Stephen F. Page
Frank P. Popoff
H. A. Wagner
Finance Committee
Charles R. Lee, Chairman
George David
Jamie S. Gorelick
Stephen F. Page
Frank P. Popoff
H. Patrick Swygert
André Villeneuve
Sanford I. Weill
Committee on Nominations
and Governance
Richard D. McCormick, Chairman
Jean-Pierre Garnier
Charles R. Lee
H. Patrick Swygert
H. A. Wagner
Sanford I. Weill
Public Issues Review Committee
Jean-Pierre Garnier, Chairman
Jamie S. Gorelick
H. Patrick Swygert
André Villeneuve
Sanford I. Weill
|
Leadership
Mario Abajo
President,
South Europe and
Middle East, Otis
David Adler
Senior Vice President,
Worldwide Customer Service,
Sikorsky
Tesfaye Aklilu
Vice President, Quality
Ted F. Amyuni
Senior Vice President,
Operations, Carrier
Alain M. Bellemare
President,
Pratt & Whitney Canada
Richard H. Bennett, Jr.
Vice President, Environment,
Health & Safety
Todd Bluedorn
President, North
America Commercial,
Carrier
Dean C. Borgman
President, Sikorsky
Ari Bousbib
President, Otis
John W. Boyd
Vice President, Operations,
Hamilton Sundstrand
Kent L. Brittan
Vice President,
Supply Management
William M. Brown
President, Transicold,
Carrier
William R. Brown
President, Asia-Pacific, Carrier
William L. Bucknall, Jr.
Senior Vice President, Human
Resources and Organization
John F. Cassidy, Jr.
Senior Vice President,
Science and Technology
and Vice President,
United Technologies
Research Center
|
Louis R. Chênevert
President, Pratt & Whitney
Halsey Cook
President, North America
Residential, Carrier
Geraud Darnis
President, Carrier
George David
Chairman and
Chief Executive Officer
G. Sandy Diehl
President, Escalator
Systems Division, Otis
John Doucette
Vice President and
Chief Information Officer
Stephen N. Finger
Executive Vice President,
Engineering, Operations
and President,
Military Engines,
Pratt & Whitney
James L. Gingrich
President,
Flight Systems and Services,
Hamilton Sundstrand
Patrick J. Gnazzo
Vice President,
Business Practices
Bruno Grob
President,
North Europe, Otis
Anthony J. Guzzi
President, North America
Distribution and Services,
Carrier
Ruth R. Harkin
Senior Vice President,
International Affairs
and Government Relations
David P. Hess
President, Aerospace
Power Systems,
Hamilton Sundstrand
Tadayuki Inoue
President, Japan, Otis
George H. Jamison
Vice President,
Communications
|
Larry D. Knauer
President, Space & Russian
Programs,
Pratt & Whitney
Edwin W. Laprade
President, Industrial,
Hamilton Sundstrand
John P. Leary
Vice President,
Employee Relations
Robert Leduc
Executive Vice President & Chief Operating Officer,
Pratt & Whitney and President,
Large Commercial Engines
Patrick LHostis
President, Europe,
Middle East and Africa,
Carrier
Jeanne M. Liedtka
Vice President,
Chief Learning Officer
Arthur W. Lucas
Senior Vice President,
Engineering,
Pratt & Whitney
Paul W. Martin
Senior Vice President, U.S.
Government & Advanced
Development Programs,
Sikorsky
Ronald F. McKenna
President,
Hamilton Sundstrand
Raymond J. Moncini
President, North and South
America, Otis
Larry O. Moore
Senior Vice President,
Module Centers and
Operations, Pratt & Whitney
Robert R. Moore
Senior Vice President,
Operations, Sikorsky
David G. Nord
Vice President, Controller
Joseph R. Ornelas
Vice President,
Engineering & Technology,
Hamilton Sundstrand
|
Gilles P. Ouimet
Chairman,
Pratt & Whitney Canada
Stephen F. Page
Vice Chairman and
Chief Financial Officer
Jeffrey P. Pino
Senior Vice President,
Marketing & Commercial
Programs, Sikorsky
Carlos Renck
President, Latin America,
Carrier
Jürgen Reuning
President, Central and East
Europe, Otis
Jeffrey P. Rhodenbaugh
President, Commercial
Refrigeration, Carrier
Olivier J. Robert
Senior Vice President,
Engineering & Operations,
Otis
Thomas I. Rogan
Vice President, Treasurer
Ellen S. Smith
President, Power Systems,
Pratt & Whitney
William H. Trachsel
Senior Vice President,
General Counsel and
Secretary
Joseph E. Triompo
President, Engine and
Control Systems,
Hamilton Sundstrand
Jan van Dokkum
President, UTC Power
Charles M. Vo
President
North Asia Pacific, Otis
Randal E. Wilcox
President,
South Asia Pacific, Otis
|
Shareowner Information
|
Corporate Office
|
|
|
|
|
United Technologies Corporation
One Financial Plaza
Hartford, Connecticut 06103
Telephone 1-860-728-7000
This annual report is made available to shareowners in advance
of the annual meeting of shareowners to be held at 2:00 p.m.,
April 9, 2003, in New York, New York. The proxy statement will
be made available to shareowners on or about February 21, 2003,
at which time proxies for the meeting will be requested.
Information about UTC, including financial information, can
be found at our Website: www.utc.com.
Stock Listing
New York, London, Paris, Frankfurt, Brussels and Swiss Stock
Exchanges
Ticker Symbol: UTX
Transfer Agent and Registrar
EquiServe Trust Company, N.A., is the transfer agent, registrar
and dividend disbursing agent for UTC's Common Stock. Questions
and communications regarding transfer of stock, replacement
of lost certificates, dividends and address changes should
be directed to:
EquiServe Trust Company, N.A.
P.O. Box 43069
Providence, RI
02940-3069
Telephone: 1-800-519-3111
Website: www.equiserve.com
|
|
Dividends
Dividends are usually declared the first month of each calendar
quarter and are usually paid on the 10th day of March, June,
September and December. The dividend-disbursing agent for the
Common Stock is:
EquiServe Trust Company, N.A.
P.O. Box 43069
Providence, RI
02940-3069
Dividend and Transfer inquiries:
1-800-519-3111
TDD: 1-800-952-9245
Telecommunications device for the hearing impaired.
Electronic Access
Shareowners of record may sign up at the following Website for
electronic access to future annual reports and proxy materials,
rather than receiving mailed copies:
www.econsent.com
Your enrollment is revocable until each year's record date for
the annual meeting. Beneficial shareowners may be able to request
electronic access by contacting your broker or bank, or ADP at
www.utc.com/investor/econsent/ics.htm.
Shareowner Dividend Reinvestment and Stock Purchase Plan
The Corporation has adopted a Shareowner Dividend Reinvestment
and Stock Purchase Plan that provides eligible holders with
a simple and convenient method of investing cash dividends
and voluntary cash payments in additional shares of Common
Stock without payment of a brokerage commission or service
charge. Shareowners should carefully review the Plan Prospectus
before investing. For more information and a Plan Prospectus,
contact EquiServe Trust Company, N.A. at 1-800-519-3111.
|
|
Additional Information
Shareowners may obtain a copy of the United Technologies Report on
Form 10-K for 2002 filed with the Securities and Exchange
Commission by writing to:
Corporate Secretary
United Technologies Corporation
One Financial Plaza
Hartford, Connecticut 06103
For additional information about the Corporation please contact
Investor Relations at the above corporate office address, or
visit our Website at
www.utc.com.
Shareowner Information Services
Our Internet and telephone services give shareowners fast access
to UTC financial results. The 24-hour-a-day, toll-free telephone
service includes recorded summaries of UTC's quarterly earnings
information and other company news. Callers also may request
copies of our quarterly earnings and news releases, by either fax
or mail, and obtain copies of the UTC Annual Report and Form 10-K.
To access the service, dial 1-800-881-1914 from any touch-tone
phone and follow the recorded instructions.
Direct Registration System
If your shares are held in street name through a broker and you
are interested in participating in the Direct Registration System,
you may have your broker transfer the shares to EquiServe Trust
Company, N.A., electronically through the Direct Registration
System. Interested investors can request a description of this
book-entry form of registration by calling Shareowner Information
Services at 1-800-881-1914.
Environmentally Friendly Report
This annual report is printed
on recycled and recyclable paper.
|
|
|
|
|
|
|
|
WWW.UTC.COM
|
|
|
|
|
WWW.PRATT-WHITNEY.COM
WWW.OTIS.COM
WWW.CARRIER.COM
WWW.HAMILTONSUNDSTRAND.COM
WWW.SIKORSKY.COM
WWW.UTCFUELCELLS.COM
|
|
|
EX-21
5
ex21tka2002.htm
EX 21
Exhibit 21
Exhibit 21
UNITED TECHNOLOGIES CORPORATION
Subsidiaries of the Registrant
December 31, 2002
Entity Name |
State/Country of
Incorporation |
|
|
Britannia Lift Services (UK) Ltd. |
United Kingdom |
Cade Industries, Inc |
Wisconsin |
Caricor Ltd |
Delaware |
Carlyle Scroll Holdings |
Delaware |
Carmel Forge Limited (The) |
Israel |
Carrier Air Conditioning
Philippines, Inc. |
Philippines |
Carrier Air Conditioning Pty Ltd
(CPL) |
Australia |
Carrier Corporation |
Delaware |
Carrier HVACR Investments B.V |
Netherlands |
Carrier LG Limited |
South Korea |
Carrier Limited Korea |
South Korea |
Carrier Mexico S.A. de C.V. |
Mexico |
Carrier Commercial Refrigeration,
Inc. |
Delaware |
Carrier Refrigeration AB |
Sweden |
Carrier S.A. |
Argentina |
Carrier S.A. |
France |
Carrier S.P.A. |
Italy |
Carrier Singapore PTE Limited |
Singapore |
Carrier Transicold Europe S.A. |
France |
Carrier Transicold Industries
S.A. |
France |
CEAM Srl |
Italy |
China Tianjin Otis Elevator
Company, Ltd. |
China |
Claverham Group Limited |
United Kingdom |
Eagle Services Asia Private
Limited |
Singapore |
Elevadores Otis Ltda. |
Brazil |
Empresas Carrier S.A. De C.V. |
Mexico |
Guangzhou Otis Elevator Company,
Ltd. |
China |
Hamilton Sundstrand Corporation |
Delaware |
Hamilton Sundstrand Holdings EURL |
France |
Hamilton Sundstrand Holdings, Inc |
Delaware |
Hamilton Sundstrand International
Holdings Ltd. |
Cayman Islands |
Hamilton Sundstrand Power
Systems, Inc. |
Delaware |
Hamilton Sundstrand UK Holdings
Limited |
United Kingdom |
Helicopter Support, Inc. |
Connecticut |
Homogeneous Metals, Inc. |
New York |
HWH of Delaware, Inc. |
Delaware |
International Comfort Products
Corporation (USA) |
Delaware |
Johns Perry Lifts Holdings |
Cayman Islands |
Latin American Holding, Inc. |
Delaware |
LG Otis Elevator Company |
South Korea |
Milton Roy Company |
Pennsylvania |
Misr Refrigeration And Air
Conditioning Manufacturing Company S.A.E. |
Egypt |
NAES Acquisition Corporation |
Delaware |
Nevada Bond Investment Corp. II |
Nevada |
Nippon Otis Elevator Company |
Japan |
Otis [France] |
France |
Otis Building Technologies Pty |
Australia |
Otis Canada, Inc. |
Canada |
Otis Elevator (China) Investment
Company Limited |
China |
Otis Elevator Company (H.K.)
Limited |
Hong Kong |
Otis Elevator Company (India)
Limited |
India |
Otis Elevator Company (New
Jersey) |
New Jersey |
Otis Elevator Company Pty. Ltd |
Australia |
Otis Far East Holdings Limited |
Hong Kong |
Otis GmbH & Co. OHG |
Germany |
Otis Holdings GmbH & Co. OHG |
Germany |
Otis Investments Plc |
United Kingdom |
Otis Lifts Holding Company |
Cayman Islands |
Otis Limited |
United Kingdom |
Otis S.p.A |
Italy |
Otis Servizi S.r.L. |
Italy |
Pratt & Whitney Auto Air,
Inc. |
Michigan |
Pratt & Whitney Canada
Leasing Inc. |
Canada |
Pratt & Whitney Component
Solutions, Inc. |
Michigan |
Pratt & Whitney Engine
Services, Inc. |
Delaware |
Pratt & Whitney Holdings LLC |
Cayman Islands |
Pratt & Whitney Power
Systems, Inc. |
Delaware |
Pratt & Whitney Services,
Inc. |
Singapore |
Ratier-Figeac S.A. |
France |
Sikorsky Aircraft Corporation |
Delaware |
Sikorsky Export Corporation |
Delaware |
Sikorsky International
Operations, Inc. |
Delaware |
Sirius (Korea) Ltd. |
United Kingdom |
Springer Carrier Ltda. |
Brazil |
Sullair Corporation |
Indiana |
Sundyne Corporation |
Delaware |
Tadiran Ampa Ltd. |
Israel |
The Falk Corporation |
Delaware |
Toshiba Carrier (Thailand)
Corporation |
Thailand |
Toshiba Carrier UK Limited |
United Kingdom |
United Technologies Canada,
Limited |
Canada |
United Technologies Electronic
Controls, Inc. |
Delaware |
United Technologies Far East
Limited |
Hong Kong |
United Technologies Finance
Corporation |
Delaware |
United Technologies Holding GmbH |
Germany |
United Technologies Holdings B.V. |
Netherlands |
United Technologies Holdings
Limited |
United Kingdom |
United Technologies Holdings S.A. |
France |
United Technologies Intercompany
Lending Ireland Limited |
Ireland |
United Technologies International
Corporation- Asia Private Ltd |
Singapore |
United Technologies International
Operations, Inc. |
Delaware |
United Technologies International
SAS |
France |
UT Insurance (Vermont), Inc. |
Vermont |
UT Park View, Inc. |
Delaware |
UTC Canada Corporation |
Canada |
UTCL Investments BV |
Netherlands |
Xizi Otis Elevator Company
(Hangzhou) Limited |
China |
Zardoya Otis, S.A. |
Spain |
Other subsidiaries of the Registrant have been omitted from this listing since,
considered in the aggregate as a single subsidiary, they would not constitute a
significant subsidiary.
EX-23
6
ex23tka2002.htm
EX 23
Exhibit 23
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in the
Registration Statement on Form S-3 (No. 333-60276) as amended by Post-Effective Amendment
No. 1, in the Registration Statement on Form S-4 (No. 333-77991) as amended by
Post-Effective Amendment No. 1 on Form S-8 (No. 333-77991-01), and in the Registration
Statements on Form S-8 (Nos. 333-103307, 333-103306, 333-103305, 333-100724, 333-100723,
333-100718, 333-21853, 333-18743, 333-21851, 33-57769, 33-11255, 33-26580, 33-26627,
33-51385, 33-58937, 333-77817 and 333-82911) of United Technologies Corporation of our
report dated January 16, 2003 relating to the financial statements, which appears in the
2002 Annual Report to Shareowners, which is incorporated by reference in this Annual
Report on Form 10-K/A. We also consent to the reference to us under the heading
"Experts" in such Registration Statements.
PricewaterhouseCoopers LLP
Hartford, Connecticut
February 27, 2003
-----END PRIVACY-ENHANCED MESSAGE-----