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"2010 was another strong year for United Technologies. Solid execution across our business units resulted in double-digit earnings growth."

April 13, 2011

Annual Meeting of Shareowners, Remarks of Louis Chênevert, Chairman & CEO, United Technologies Corporation, Phoenix, Arizona – As Prepared

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2010 was another strong year for United Technologies. Solid execution across our business units resulted in double-digit earnings growth, despite challenges in many of our markets. In addition to meeting our financial commitments in 2010, we positioned UTC for continued earnings and top line growth by investing in game-changing technologies, improving the efficiency of our products and facilities, and expanding our presence in emerging markets - which for the first time represent over 20 percent of UTC's sales.

Simply put, 2010 was a year of many notable accomplishments at UTC. I’ll talk about some of these accomplishments in a moment. But first, I’d like to spend a few minutes talking about the manner in which we achieved our results. At UTC, responsibility and operational excellence are fully integrated. Everywhere we do business, we operate with a complete commitment to the highest ethical standards, the safest work environments, and we seek to reduce the environmental impact of our products and operations.

UTC is also a world leader in supporting employee development through our Employee Scholar Program. More than 30,000 degrees have been earned by UTC employees through this program since its inception in 1996. And I’m happy to announce that, this year, UTC will reach an important milestone. Our cumulative investment in the Employee Scholar Program will exceed $1 billion. This milestone reflects UTC’s unmatched commitment to lifelong learning, and our belief that we should strive to continuously improve everything we do, as a company and as individuals.

This same belief is found in our environmental, health and safety goals. Since our first EH&S goals were established in 1991, United Technologies has significantly reduced hazardous waste and air emissions, lowered the environmental impact of our products, and improved employee health and safety. And in 2010, we set aggressive new Sustainability Goals, raising the bar across every facet of our operations, from the environmental design standards for our products to employee safety.

Our commitment to sustainability continues to be recognized by third parties. Newsweek ranked UTC as one of the greenest companies in America. And UTC was, once again, named to the Dow Jones Sustainability Index. In 2010, UTC was also awarded the prestigious Stanley C. Pace Leadership in Ethics Award from the Ethics Resource Center. This award recognizes UTC’s unwavering commitment to the highest ethical standards everywhere we do business around the world.

Across UTC, we recruit and develop the most talented employees, and we set our employees to work on achieving big goals safely, ethically and profitably. We believe our approach drives results, starting with our unmatched financial performance.

Turning now to financial performance, 2010 marked a return to organic growth, as some of our short-cycle businesses began to recover, and emerging markets continued to grow. Proactive restructuring and improved productivity drove exceptional margin expansion of 100 basis points to a record 15.4 percent – adjusted for 2010 restructuring and one-time items1. Also on this adjusted basis, all six UTC businesses achieved double-digit operating margins, a first for UTC. On a reported basis, segment operating margin at 14.6 percent was 140 basis points higher than prior year, with five of six segments above 10 percent operating margins.

Along with strong operating performance came exceptional cash flow performance, with free cash flow once again exceeding net income. We returned $3.7 billion – or about 75 percent of free cash flow – to shareowners in the form of share repurchase and dividends2. We also increased our dividend 10 percent in 2010 – and 2010 marked the 74th consecutive year that United Technologies has paid dividends to shareowners.

Over the past decade, United Technologies has continued to outperform its peers and key market indices on total shareowner return. From December 31, 2000 through December 31, 2010, UTC has delivered total shareowner return of 140 percent, nearly four times the Dow Jones Industrials and more than nine times the S&P 500.

As we look ahead to 2011, we are confident in our ability to again deliver double digit earnings growth. Improving market conditions – led by the BRIC countries and other emerging markets, as well as a broader recovery across our businesses – give us confidence in our ability to accelerate top-line growth in 2011. UTC’s lean cost structure, resulting from our aggressive restructuring actions, will allow us to convert growth opportunities into strong bottom-line results.

Looking further ahead, investments in research and development focused on game-changing technologies will continue to drive growth. In 2010, we invested more than $3.6 billion in company- and customer-funded R&D. And in 2011, we anticipate increasing our company-funded engineering by more than $200 million.

This long-term technology investment strategy is paying big dividends with our customers. Pratt & Whitney’s revolutionary Geared Turbofan (GTF) engine is one example. More than a decade ago, we set out to develop a revolutionary new jet engine, one that would deliver unmatched fuel efficiency with significant reductions in noise, emissions and operating costs. Despite pressures from two global economic downturns, we continued to invest in this technology, believing it would redefine the marketplace. And today we are very encouraged by the results.

In December, Airbus became the fourth aircraft manufacturer to select the Geared Turbofan when it announced the New Engine Option (NEO) for its A320 family of aircraft. Just four months later, this became the lead development engine for the A320, with orders from Air Lufthansa Airlines, International Lease Finance Corporation, and India’s IndiGo Airlines, whose order of 300 GTF engines represents one of the largest orders in aviation history. We believe these selections will greatly enhance Pratt & Whitney’s position in the commercial aircraft market for decades to come, validating our strategy of investing in technologies in anticipation of where our markets are headed.

We believe these selections will greatly enhance Pratt & Whitney’s position in the commercial aircraft market for decades to come, validating our strategy of investing in technologies in anticipation of where our markets are headed.

In addition to technology investments, we remain focused on our ACE operating system to drive operational excellence in our factories, in our back-office functions, and in our supply chain. We recognize that improving our supply chain performance is critical to sustaining future growth, which is why we recently increased the scope of our industry-leading Supplier Gold program, to drive continued operational improvements in 2011 and beyond.

Turning now to the performance of our business units in 2010; starting with Carrier, which led UTC’s margin expansion story with 280 basis points of margin growth on a reported basis, or 240 basis points of growth, adjusted for restructuring and one-time items1.

This growth represents the great progress Carrier is making, transforming itself into a stronger, more focused and higher returns business, by divesting low-performing, non-core assets, improving efficiency and reducing its cost structure. In 2010, Carrier also expanded its portfolio with a number of high-technology, energy-efficient and environmentally-sound products, including the WeatherMaster, a large rooftop air conditioner unit that is 20 percent more efficient than industry standards, and the Vector 1550, an all-electric trailer refrigeration unit that lowers carbon emissions by 35 percent.

In addition to its industry-leading margins, operating performance, and best-in-class products and services, Otis also offers a full range of energy-efficient elevator systems, including its flagship Gen2 elevator system, and its energy-conserving ReGen drives. Otis’ position as a leading provider to the high-rise market was solidified with the 2010 opening of the Burj Khalifa in Dubai and the Bitexco Financial Tower in Vietnam. Significant wins for Otis in 2010 included a contract to provide 88 energy-efficient elevators, escalators and moving walkways to Los Angeles International Airport, the world’s busiest origin and destination airport.

Our newest business, UTC Fire & Security, enhanced its reputation as a leading franchise in the $100 billion global fire safety and electronic security industry with the $1.8 billion acquisition of GE Security, which closed in March 2010. This acquisition strengthened UTC’s portfolio by adding scale, market reach, and new product offerings. Solid execution and integration made the acquisition accretive in year one, ahead of schedule, demonstrating UTC’s disciplined approach to acquisitions and capital redeployment. UTC Fire & Security also continues to expand its presence in key emerging markets, including the Middle East, China and India. Operating margins at UTC Fire & Security increased to 12.2 percent, adjusted for restructuring and one-time items, putting Fire & Security on track to achieve its goal of 15 percent operating margins by 20121. On a reported basis operating margins increased to 11 percent.

On the aerospace side, Hamilton Sundstrand continues to strengthen its market-leading position as a key systems provider for next generation aircraft. Hamilton Sundstrand was recently selected to provide five major systems for the COMAC C919 narrow-body aircraft, and will provide key systems for the Boeing 787 Dreamliner, the Airbus A350 WXB, and Bombardier’s C-Series.

2010 was another solid year for Sikorsky. It delivered 253 large aircraft, and on a reported basis, operating margins increased to 10.7 percent. Adjusted for restructuring and one-time items, Sikorsky expanded its adjusted operating margin to 10.9 percent, putting the company on track to achieve its 14 percent target by 20141. Expanding its global presence, Sikorsky also saw the first flight of the S-70i helicopter – the newest BLACK HAWK variant for international markets – in 2010. The S-70i, manufactured and assembled in Mielec, Poland, will help drive Sikorsky’s growing international sales.

Sikorsky’s X2 Technology demonstrator continued to stretch the boundaries for vertical flight. In 2010, the X2 achieved a speed of 250 knots, demonstrating its ability to double the speed of today’s helicopters, while retaining desirable attributes such as excellent low-speed handling and efficient hovering capabilities. In March, the National Aeronautics Association selected the X2 as the winner of the 2010 Collier Trophy. This prestigious award is given in recognition of the year’s greatest achievement in aerospace.

Building on the success of the X2, Sikorsky will design, build and fly two prototype light tactical helicopters. Called the S-97 Raider, these prototypes will be used for flight testing and evaluation by the U.S. Armed Forces, and will offer significant improvements over today’s light military helicopters. This is another example of our strategy of investing in technologies in anticipation of where our markets and customer demand are headed.

At Pratt & Whitney, testing on the PurePower Geared Turbofan engine I mentioned earlier is proceeding very well with nearly 200 hours of testing completed. This testing has confirmed that when this engine enters service in 2013, it will: deliver double-digit reductions in fuel burn, cut nitrogen oxide emissions in half, and lower airport community noise by up to 75 percent over today’s best-in-class engines.

On the military side, Pratt & Whitney’s F135 engine for the Joint Strike Fighter remains the engine of choice for the U.S. Armed Forces and our international partners. The engine continues to achieve significant new milestones, demonstrating excellent reliability and performance. And, later this year, the first F-35 will arrive at Eglin Air Force Base in Florida to begin training operations with the U.S. military. The outstanding performance of the F135 validates the decision of the U.S. Congress and the Pentagon to eliminate funding for an extra engine, leaving the F135 as the sole engine for the Joint Strike Fighter.

These are just a few of the many accomplishments across United Technologies over the past year. All of these accomplishments and our strong financial performance in 2010 reflect the dedication and commitment of our experienced senior management team and more than 200,000 UTC employees around the world.

In closing, I’ll note that I continue to see tremendous opportunities for United Technologies in the future. Our portfolio of products and services uniquely positions UTC to support – and to benefit from – widespread growth in today’s emerging markets. Countries such as China, India, and Brazil are already seeing big changes, with much more to come in places like South Korea, Vietnam, Mexico, and Turkey, as well as in the Middle East and Africa. As urbanization drives emerging markets to build out their infrastructure, we’ll continue to see more skyscrapers, schools, airports, hospitals and stadiums – and the need for air travel between cities will become more evident. As this occurs, the global demand for energy – and the need for more energy-efficient solutions – will create additional opportunities for United Technologies. And, I’m confident that UTC is well positioned to take advantage of these opportunities.

As shareowners, I’m sure you have received our Annual Report for 2010. The title of this year’s Report is “Big Goals. Big Results” – which reflects our philosophy at United Technologies. We understand our customers have a choice, and how we perform determines whether they choose us. We also understand our shareowners have a choice, and to remain a preferred investment, we need to set and meet aggressive targets in any economic environment. This is why we’ll continue to set “Big Goals” – finding better, faster and more efficient ways to deliver “Big Results” to our customers and shareowners.


1 These margin amounts are adjusted for non-recurring items, restructuring and other costs. See Appendix for additional information integral to assessing UTC’s financial position, operating performance and cash flow, including a reconciliation of differences between non-GAAP measures used in these comments and the comparable financial measures calculated in accordance with generally accepted accounting principles (“GAAP”) in the United States.

2 This represents funds returned to shareowners as a percentage of a cash flow measure we call free cash flow. We define free cash flow as cash flow from operations less capital expenditures. In 2010, UTC generated cash flow from operations of $5.9 billion and capital expenditures were approximately $900 million, resulting in free cash flow of $5 billion. We returned approximately 63 percent of cash flow from operations to shareowners through dividends and share repurchases. See Appendix for further information reconciling the differences between free cash flow and cash flow from operations, which is the comparable financial measure calculated in accordance with GAAP.

These comments contain 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 our future operating and financial performance, based on assumptions currently believed to be valid. Forward-looking statements can be identified by the use of words such as “believe,” “expect,” “plans,” “strategy,” “prospects,” “estimate,” “project,” “target,” “anticipate,” “will,” “should,” “see,” “guidance” 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 sales, earnings, cash flow, results of operations, uses of cash and other measures of financial performance; the effect of economic conditions in the markets in which we operate and in the United States and globally and any changes therein, including financial market conditions, fluctuation in commodity prices, interest rates and foreign currency exchange rates; levels of end market demand in construction and in both the commercial and defense segments of the aerospace industry; levels of air travel, financial difficulties (including bankruptcy) of commercial airlines; the impact of weather conditions and the financial condition of our customers and suppliers; delays and disruption in delivery of materials and services from suppliers; new business opportunities; cost reduction efforts and restructuring costs and savings and other consequences thereof; the scope, nature or impact of acquisition and divestiture activity, including integration of acquired businesses into our existing businesses; the development, production and support of advanced technologies and new products and services; the anticipated benefits of diversification and balance of operations across product lines, regions and industries; the impact of the negotiation of collective bargaining agreements, and labor disputes; the outcome of legal proceedings and other contingencies; future repurchases of common stock; future levels of indebtedness and capital and research and development spending; future availability of credit; pension plan assumptions and future contributions; and the effect of changes in tax, environmental and other laws and regulations in the United States and other countries in which we operate. 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 our reports on Forms 10-K, 10-Q and 8-K filed with the SEC from time to time, including, but not limited to, the information included in UTC's Forms 10-K and 10-Q under the headings “Business,” “Risk Factors,” “Management's Discussion and Analysis of Financial Condition and Results of Operations” and “Legal Proceedings” and in the notes to the financial statements included in UTC's Forms 10-K and 10-Q.

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