Progress and Challenges

Governance

Objectives and Progress
Achieve 100 percent awareness of UTC’s Code of Ethics at executive, managerial and professional levels. UTC’s annual Code of Ethics/Conflict of Interest survey affirmed 100 percent awareness among executives and 98 percent awareness among managers and professionals. Additionally, the biennial employee survey showed 95 percent of all employees were aware of UTC’s Code of Ethics, an 8 percentage point improvement over the prior survey. The ethics category as a whole improved 10 percentage points worldwide.

Challenges
In 2007, the previously reported European Union investigation of the elevator industry was resolved, and Otis and UTC received a civil fine of approximately $300 million, which reflects a 48 percent reduction due to Otis’ immediate and full cooperation with the investigation. UTC and Otis have appealed the amount of the fine. After Otis’ investigation, nine local employees of Otis subsidiaries were terminated in 2004. Since this incident, we renewed and strengthened our ethics programs worldwide. More information on this program is on page 8 of this report.

Environment

Objectives and Progress
Reduce greenhouse gas emissions 3 percent annually and water consumption 2.5 percent annually from 2007 to 2010. In 2007, we reduced greenhouse gas emissions 5 percent and water consumption 6 percent.

Invest $100 million from 2007 to 2010 in energy conservation projects, including co-generation systems. In 2007, we identified more than 600 projects valued at $80 million; we funded $31 million, half of which supports co-generation systems. The co-generation system at Pratt & Whitney’s Middletown, Connecticut, facility is operational. Our Newington, Connecticut, data center is installing a UTC Power PureComfort system which will be running in 2008. Co-generation systems at Sikorsky in Stratford, Connecticut, and Hamilton Sundstrand in Windsor Locks, Connecticut, will be on line in 2009 and 2010, respectively.

Challenges
In 2007, Hamilton Sundstrand pleaded guilty to violating the Federal Clean Water Act and agreed to pay a $1 million fine and $11 million to fund environmental projects. The company admitted discharging wastewater with excessive copper into the Farmington River in 2003 and failing to report monitoring data. As a result, one supervisor was fired and another demoted and reassigned. The company has since strengthened internal controls, augmented training and added an executive environmental compliance officer. After analysis, UTC updated standards for managing environment, health & safety compliance, as described on page 8 of this report.

People

Objectives and Progress
Increase overall favorable responses to the biennial employee survey by 3 percentage points. Overall favorability was up 3 percentage points worldwide in 2007. Participation was at a record level of 81 percent.

Work toward elimination of work-related fatalities and serious injuries. In 2007, we had 29 serious injuries and four work-related fatalities. Any injury or fatality is one too many, and we will continue to work toward elimination.

Reduce lost workday incident rate from .49 to .17 and recordable incidents from 1.42 to .64, both globally by 2010. At the end of 2007, we reduced our lost workday incident rate from .49 to .31 and our recordable incident rate from 1.42 to 1.16, both globally.

Challenges
We deeply regret the deaths of four UTC employees while at work in 2007, one of which was a motor vehicle fatality. We also recorded 29 serious injuries in the same year. These incidents reflect the hazardous nature of some of our business activities, our dispersed workforces and the challenge of permanently eliminating fatal and serious injuries from all our workplaces worldwide.