Progress on 2006 Objectives

Our progress in achieving the four corporate responsibility objectives we set in 2005.

Governance

Objective 1: Reinvigorate compliance and ethics programs worldwide.

During 2006, we updated our Code of Ethics, originally published in 1990. More than 160,000 copies of the updated Code were distributed; more than 4,000 employee meetings were held to discuss the Code; online training doubled; compliance risk assessments were conducted at 74 entities; ethics was embedded in performance appraisals for salaried employees and executives; and the staff of business practices officers was increased from 39 full-time-equivalent positions to 60 full-time-equivalent positions. The roll-out of the Code will be finished, worldwide, in early 2007.

The Environment

Objective 2: Develop and test next-generation environment, health and safety goals.

In 2006, we successfully completed our decade-long effort to significantly reduce energy, water, air emissions and waste from our internal processes. The year was spent preparing for the implementation of ambitious new goals for absolute reductions, which we begin in 2007 and plan to achieve by the end of 2010 (see page 14). In addition to these challenging new targets for our internal operations, we are introducing goals for our products and suppliers as well.

Our People

Objective 3: Launch integrated diversity and inclusion intranet site.

We created a diversity and inclusion intranet site that highlights stories of innovation achieved by multicultural teams spanning different disciplines, levels, geographies, ages and genders. The site will be widely promoted within UTC in 2007.

Our Communities

Objective 4: Create unified corporate-wide community affairs program and develop metrics to assess.

Community Affairs will now focus on three strategic areas for UTC: math and science education, the environment and the arts. Each UTC business will focus 50 percent of its philanthropic contributions on these strategic areas, with the balance supporting employee engagement and customer requests for donations. We created an internal Community Affairs survey to measure our effectiveness, and will implement this corporate-wide in 2007.

2006 Challenges

Challenging issues and events that we addressed during the year.

Governance

In 2006, we dismissed 289 employees and disciplined 234 others for compliance and ethics lapses. These totals are higher than in prior years due to increased employee awareness, accountability and the impact of bringing newly acquired companies into UTC. We also encouraged UTC employees to use our Ombudsman and DIALOG programs to communicate their concerns outside of traditional management channels.

We anticipate resolution in 2007 to a European Union investigation of the elevator industry in several EU countries. This investigation, which began in 2004 and focused on antitrust issues, was the principle catalyst for the renewed and broadened compliance and ethics program as described on page 14.

The Environment

In 2001, UTC targeted 100 percent elimination of materials of concern (toxic and hazardous materials) from new product designs. Although we have achieved a 44 percent reduction, we have been challenged to make further reductions, particularly in aerospace applications, because of either the lack of alternatives for high temperature applications or customer requirements.

Our People

Increasing workplace safety continues to be a focus for the company. We set an aggressive goal in 1996 of 90 percent reduction in lost workday and U.S. recordable incident rates. While we fell short of this goal, we made significant progress at 80 and 78 percent, respectively.

We deeply regret the deaths of five UTC employees while at work in 2006. We also recorded 41 serious injuries in 2006, an increase over the prior year. These injuries and deaths occurred despite extensive training and physical safeguards, which we continually examine and strengthen. These incidents reflect the hazardous nature of some of our business activities, our dispersed field workforces and the challenge of permanently eliminating serious injuries from all our workplaces worldwide.