Along with profitability and operational excellence, corporate responsibility is an essential priority at UTC. As our statement of values says, “Successful businesses improve the human condition. We maintain the highest ethical, environmental and safety standards everywhere, and we encourage and celebrate our employees’ active roles in their communities.”

UTC’s shareholder performance has been exceptional. Total shareholder return was 24 percent in 2007, and cumulatively 388 percent over the last decade. We are proud to have achieved these results while maintaining principles of good corporate citizenship including the highest ethical and environmental standards.

In 2007, UTC launched its latest and most aggressive set of Environment, Health & Safety (EH&S) goals. We have moved uniformly to absolute goals rather than normalizing for volume as applied to some goals previously. For the important greenhouse gases (GHG) category, we have also adopted the measurement protocol of the World Business Council for Sustainable Development and World Resources Institute. This protocol captures direct and indirect (e.g., GHG arising from business travel on commercial aircraft) greenhouse gas impacts of CO2 and five comparable gases. UTC’s 2007-2010 absolute reduction goal is 3 percent annually or 12 percent cumulatively, and we exceeded this with a 5 percent reduction in 2007. Although on a different measurement basis, this GHG goal measured in metric tons of CO2 equivalents compares favorably to UTC’s already notable reductions in energy use globally averaging 2 percent annually since 1997.

Other important goals include water use (10 percent reduced by 2010), non-recycled industrial process waste (30 percent reduced by 2010), and employee lost workday incident rate (65 percent reduced to 0.17 in 2010). Results in 2007 for each are well ahead of commitments, with water use reduced 6 percent, non-recycled industrial process waste 14 percent, and lost workday incident rate 37 percent to 0.31.

In 2007, 81 percent of employees participated in UTC’s biennial employee survey, the highest participation since the worldwide survey began in 2000. Overall employee favorability increased 3 percentage points from the prior survey, and ethics, EH&S and customer focus were the highest rated categories. Importantly, the ethics category score increased 10 percentage points.

UTC’s commitments to employee diversity have been sustained and strong. Since 1997, UTC’s diversity population (females, people of color and African-Americans) has more than doubled in the executive, managerial and professional categories combined. Diversity representation has also increased in eight of nine measured categories, and we anticipate continuing increases. Among our many diversity initiatives, a traditionally important one is INROADS which develops and places young minorities in business. UTC’s involvement began more than 20 years ago, and we were recognized this year by INROADS as its top corporate partner with 214 interns.

The year’s progress was not without setbacks. Two issues reported previously were resolved early in the year, the European Union investigation of cartel behavior in the elevator industry and a Hamilton Sundstrand violation of the U.S. Clean Water Act. This report includes details, and UTC’s compliance mechanisms have been renewed and strengthened accordingly. Tragically, four UTC employees lost their lives in 2007. Although reduced from prior years and including two deaths as the result of a violent crime and one motor vehicle fatality, any loss of life is unacceptable.

Strengthened compliance mechanisms included expanded employee ethics training and mandatory inclusion of an ethics component in annual appraisals for all salaried employees worldwide. The former included 480,000 modules for 95,000 salaried employees. The latter was completed for 96 percent of domestic salaried employees. UTC’s long time DIALOG system for reporting employee concerns confidentially, already Web enabled and available globally, was centralized in 2007 in response to employee feedback. A total of 69,054 DIALOGs have been written and responded to since the program began in 1986.

On behalf of UTC shareowners, we thank all UTC employees who continue to make this a truly amazing company. As always, we welcome feedback on performance.