Thank you, George.
Let me start by saying that I am truly honored by the trust the board has placed in me. I thank the board for providing me this opportunity, and I assure you that I fully understand the responsibilities that come with the honor of being named Chief Executive of United Technologies.
I also want to thank George. First, I want to thank you for your kind words earlier. More importantly, I want to thank you for the guidance you have provided; and the knowledge and wisdom you have shared with me over the past decade. Finally, I want to thank you for your commitment to making our transition flawless. In addition to being a remarkable leader and CEO, you have been a wonderful coach, mentor and teacher – always raising the bar and setting higher goals for everything from financial performance to EH&S goals.
I look forward to continuing to work with you as UTC’s Chairman. And, I hope that everyone here will join me in thanking you for your long and distinguished service as CEO.
As I assume the role of Chief Executive, I am excited and optimistic about our future. In my two years as President and COO, I’ve visited almost 60 UTC facilities around the world. Based on my observations during these visits, I’m confident that further deployment of our ACE operating system will continue to increase productivity and drive margin improvement. UTC also has a strong and experienced management team, the right balance in our global footprint, and 225,000 great employees who come to work every day wanting to make a difference.
As CEO, I am committed to build upon the fundamentals that have made UTC a great company, including investing in technology and innovation, driving operations excellence and ensuring a disciplined approach to the redeployment of cash generated by our businesses. All of which will allow for UTC to continue to deliver superior results for our shareholders.
Let me turn now to UTC’s performance in 2007. I will begin with a quick review of UTC’s financial performance and then spend a few minutes discussing some key aspects of our business operations.
2007 was another strong year for UTC. Our revenues grew to $54.8 Billion, a 14 percent increase from 2006 and double what they were in 2000. Once again, organic growth was strong at 9 percent, continuing the trend of the past three years. This growth is a reflection of the strength of UTC’s balanced portfolio, our competitive global cost positions and the success of new product introductions.
Net income and earnings per share grew 13 and 15 percent respectively reflecting our continued focus on process improvement and cost containment. Cash flow from operations less capital expenditures was essentially equal to net income, despite two large non-recurring outflows in the first quarter totaling $500 Million.
This strong cash flow enabled UTC to raise the dividend rate on common shares 21 percent in 2007, more than tripling the rate since 2001. Share repurchase in 2007 was $2.0 billion. Total shareowner return for the year was 24 percent, and has compounded at 17 percent annually for the decade ending December 31, 2007. UTC’s cumulative shareholder return over this decade is 388 percent, more than three and half times that of the Dow Industrials and five times the S&P 500.
Turning now to the business operations – product development continued to progress well across the entire company during 2007. One example is Pratt & Whitney’s new Geared Turbofan engine, which began ground testing and is expected to fly later this year. The Geared Turbofan engine was selected as the exclusive power source for the Mitsubishi Regional Jet and the Bombardier C-Series. Both aircraft are expected to enter service in 2013.
At Hamilton Sundstrand, work continues at the systems integration lab in Rockford, Illinois in support of the Boeing 787 launch. Although the 787 program experienced some delays in 2007, orders continued to be strong, approaching 900 aircraft. This is good news for Hamilton Sundstrand, which is providing nine major systems for the 787. Hamilton Sundstrand is also supplying 13 systems and major components for the Airbus A380, which entered service last October. The Industrial Business at Hamilton Sundstrand continues to perform well, recording double-digit growth for the fifth consecutive year.
Sikorsky also enjoyed a strong year, with record sales and the delivery of 174 aircraft, up from 100 in 2006. Sikorsky ended 2007 with the largest backlog in company history, over $11 Billion dollars.
On the commercial side, Otis’ Gen2 elevators continue to achieve great success in the market, with total units sold exceeding 110,000. The Gen2 has been a principal factor in Otis’ growth worldwide, with annual sales growing on average 16 percent during the past three years. Otis continues to have great success in the rapidly growing emerging markets. One example is Otis supplying more than 1,300 units – with a value of $100 Million dollars - for projects related to the 2008 Beijing Olympics.
Carrier also continued to benefit from growth in emerging markets. In, India revenues grew 36 percent, driven by the sale of stationary refrigeration units to support India’s growth in modern retailing. Carrier’s focus on energy efficiency and environmentally responsible technology permitted Carrier to win 69% of the 2008 Beijing-related air-conditioning contracts. Carrier’s Evergreen Chiller remains the world’s most efficient non-ozone depleting chiller for cooling commercial buildings.
Along with Carrier’s achievements were some challenges, particularly in the North American residential market. However, those challenges were more than offset by very strong performance in Carrier’s other three business units. Carrier’s growth despite these challenges reflects the value of balance in their portfolio.
Our newest business, UTC Fire & Security continued its growth in 2007 through a number of strategic acquisitions, including Initial Electronic Security Group, which provides integrated electronic security solutions, and Finland-based Marioff Corporation, a global provider of water mist fire suppression systems.
Margin expansion remains Fire & Security’s top priority. Restructuring actions as well as productivity improvements in both field operations and the supply chain resulted in margin expansion of 15 percent last year.
UTC Power’s systems also continued to gain traction in the marketplace with zero-emission fuel cell buses now operating on both coasts in the US and in Europe. In 2007 R&D magazine recognized UTC Power’s PureCycle geothermal power system as one of the 100 most technologically significant products introduced during the past year. Growing concerns over rising energy costs and climate change both reinforce the value of our investment in UTC Power and our outlook for the future.
Investing in the future remains a hallmark of UTC. Last year we spent $3.6 billion on research and development, over the part decade we have invested $26 billion dollars on research and development. One technology we are investing in is the X-2 technology demonstrator helicopter. The X-2 helicopter employs a co-axial double rotor configuration with a pusher propeller. It is expected to fly at nearly double the speed of a traditional helicopter while retaining the precision and maneuverability of a traditional rotorcraft. We think this technology has the potential to transform the helicopter industry.
I’d like to close with some important comments about corporate responsibility at UTC. UTC has embraced sustainability not only in our products but also within our operations. Today we use 20 percent less energy than we did in 1997 while revenues are 157 percent higher. Water use is also down 47 percent during the same time period. These accomplishments are being noticed. For the fourth consecutive year, UTC has been named one of the world's 100 most sustainable companies at the World Economic Forum in Davos.
Also, last year marked the launch of our new EH&S goals, which extend through 2010 and include absolute metrics rather than normalizing for volume. Progress in 2007 includes a 5 percent reduction in absolute CO2 emissions and a 14 percent reduction in non-greenhouse gas emissions from the prior year. We're well on our way to achieving our goal of 12 percent CO2 reduction and 20 percent non-greenhouse gas reduction by 2010.
Aside from our environmental agenda, we've continued to strengthen compliance mechanisms at UTC, including expanded employee ethics training and mandatory inclusion of an ethics component in annual appraisals for all salaried employees worldwide.
Education and developing talent remains a focus at UTC. Last year we had a record number of participants in the Employee Scholar Program. Nearly 14,600 employees were enrolled in 2007, 35 percent of these employees were international and 31 percent were hourly employees. To date, almost 24,000 degrees have been earned, and UTC’s investment in the Employee Scholar Program is $700 million.
UTC also continues to receive some nice recognition. In January, Forbes named UTC as one of America’s Best Big Companies, and we are one of only 21 “Honor Roll” companies – that have been on the Forbes list every year since 1999. Institutional Investor magazine rated us as the "Top Shareholder-Friendly" company in the Aerospace & Defense Electronics sector. Once again we were named to Fortune magazine's list of Most Admired companies. We've been ranked either first or second in the Aerospace sector every year for the last decade.
Let me close by simply stating that 2007 was a strong year at UTC. As I look to 2008, UTC is off to a good start despite challenges in the residential market and a slowing US economy. For the rest of the year, I’m confident that UTC’s balanced portfolio and focus on operations excellence will allow us to outperform in what will likely be a more challenging economic environment.
