United Technologies 2008 Annual Report Download - page 43

Management’s Discussion and Analysis
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Business Overview
We are a global provider of high technology products and services to the building systems and
aerospace industries. Our operations are classified into six principal business segments: Otis,
Carrier, UTC Fire & Security, Pratt & Whitney, Hamilton Sundstrand and Sikorsky. Otis,
Carrier and UTC Fire & Security are collectively referred to as the “commercial businesses,”
while Pratt & Whitney, Hamilton Sundstrand and Sikorsky are collectively referred to as the
“aerospace businesses.” The commercial businesses generally serve customers in the worldwide
commercial and residential property industries, although Carrier also serves customers in the
commercial and transport refrigeration industries. The aerospace businesses serve commercial
and government aerospace customers in both the original equipment and aftermarket parts
and services markets. In addition, a portion of these businesses serve customers in certain
industrial markets. Our consolidated revenues were derived from the commercial and
aerospace businesses as follows (revenues from Hamilton Sundstrand’s and Pratt & Whitney’s
industrial markets are included in “commercial and industrial”):
2008 2007 2006
Commercial and industrial 62% 63% 63%
Military aerospace and space 17% 16% 16%
Commercial aerospace 21% 21% 21%
100% 100% 100%
In both 2008 and 2007, approximately 60% of our consolidated sales were original equipment
and 40% were aftermarket parts and services, while in 2006 the amounts were 59% and 41%,
respectively.
Our strategy has been, and continues to be, the maintenance of balance across our businesses
in order to limit the impact of any one industry or the economy of any single country on our
consolidated operating results. This balance is managed, in part, through the commercial and
aerospace revenue, and original equipment and aftermarket parts and services splits noted
above, and the combination of shorter cycles in our commercial businesses, particularly
Carrier, and longer cycles in our aerospace businesses, as well as through the geographic
diversity that has evolved with the continued globalization of world economies. The
composition of total revenues from outside the United States, including U.S. export sales, in
dollars and as a percentage of total segment revenues, has been as follows:
(in millions of dollars) 2008 2007 2006 2008 2007 2006
Europe $15,819 $14,341 $12,069 27% 26% 25%
Asia Pacific 8,212 7,991 7,056 14% 15% 15%
Other Non-U.S. 6,416 5,605 4,809 11% 10% 10%
U.S. Exports 7,035 6,228 4,848 12% 11% 10%
International segment revenues $37,482 $34,165 $28,782 64% 62% 60%
As part of our growth strategy, we invest in businesses in certain countries that carry high levels
of currency, political and/or economic risk, such as Argentina, Brazil, China, India, Russia and
South Africa. At December 31, 2008, our investment in any one of these countries did not
exceed 4% of consolidated shareowners’ equity.
Despite an increasingly difficult economic environment in 2008, total revenues increased 7%
year-over-year, as compared with 2007. Extreme volatility and financial market disruption in
the United States, Europe and Asia, continuing airline financial distress, moderating
commercial construction activity and depressed conditions in the domestic and certain
international housing markets all contributed to weakening worldwide economic conditions.
As discussed further below, some of these factors have adversely impacted aspects of our
underlying businesses and are continuing to present operational challenges. Conversely, other
market factors remained generally strong throughout 2008, and our businesses have continued
to improve upon their operational performance.
Weakness in the U.S. residential market, as well as a second half slowdown in both global
non-residential construction activity and the commercial aerospace market, created
challenging business conditions in 2008 that are expected to continue through 2009. As a result
of the current economic conditions, organic revenue growth was 5% in 2008 compared with
the 9% realized in both 2007 and 2006. Although lower than in 2007, the growth rate in 2008
was still well in excess of general economic growth levels reflecting the global infrastructure
investments that have benefited our commercial businesses, and the strong opening order
backlogs entering 2008. However, as the second half of 2008 progressed, we experienced a
decline in order rates in the commercial businesses, predominately at the end of the year.
2008 Annual Report 41