United Technologies 2008 Annual Report Download - page 56

an increase in other net operating assets of approximately $240 million. The approximately
$560 million growth in inventory was significantly lower than the $1.1 billion growth in 2007
and largely reflected the increased production levels at Sikorsky. However, the overall growth
in inventories was more than offset by accounts payable and customer advances reflected in the
approximately $790 million increase in accounts payable and accrued liabilities. The increase
in accounts receivable is reflective of the overall growth in revenues.
For 2007, revenue and production growth generated a combined increase in inventory and
accounts receivable of approximately $1.6 billion. However, this amount was completely
funded by accounts payable and customer advances as reflected in the approximately $1.6
billion increase in accounts payable and accrued liabilities. Changes in other net operating
assets consumed approximately $680 million due largely to the payment of the previously
noted EU Fine and to the payment of Canadian taxes in connection with ongoing tax planning
activities.
The funded status of our pension plans is dependent upon many factors, including returns on
invested assets and the level of market interest rates. We can contribute cash or company stock
to our plans at our discretion, subject to applicable regulations. Total cash contributions to
pension plans during 2008 and 2007 were $242 million and $181 million, respectively. We also
contributed $250 million and $150 million in UTC common stock to these plans during 2008
and 2007, respectively. As of December 31, 2008, the total investment by the defined benefit
pension plans in our securities is approximately 4% of total plan assets. We expect to make
contributions of approximately $600 million to our pension plans in 2009, including
approximately $400 million to our domestic plans. Expected contributions to our defined
pension plans in 2009 will meet or exceed the current funding requirements.
Cash Flow from Investing Activities
Year Ended December 31,
(in millions of dollars) 2008 2007
Net cash flows used in investing activities $(2,336) $(3,182)
The 2008 activity primarily reflects a net investment in businesses of $915 million and capital
expenditures of $1,216 million. This compares with a net investment in businesses in 2007 of
$1,739 million and capital expenditures of $1,153 million. Cash investment in businesses
across all of our operations in 2008 was $1,252 million and primarily consisted of a number of
small acquisitions in our commercial businesses. Acquisitions in 2007 consisted principally of
the UTC Fire & Security acquisition of IESG for $952 million and Marioff for $348 million, as
well as a number of smaller acquisitions across the businesses. Dispositions in both 2008 and
2007 consisted primarily of the sale of certain non-core businesses including Carrier’s Fincoil
in 2007. We expect total investments in businesses in 2009 to approximate $2 billion; however,
actual acquisition spending may vary depending upon the timing, availability and appropriate
value of acquisition opportunities.
The $63 million increase in capital expenditures in 2008 as compared with 2007 is related
largely to restructuring and facility changes across the businesses. In preparation for the
challenging economic climate expected in 2009, we have tightened capital expenditure
spending substantially across the company and as a result expect a reduction of spending in
2009.
Customer financing activities were a net cash use of $147 million in 2008, compared to a net
cash use of $139 million in 2007. While we expect that customer financing will be a net use of
cash in 2009, actual funding is subject to usage under existing customer financing
arrangements. At December 31, 2008, we had financing and rental commitments of $1,142
million related to commercial aircraft, of which as much as $407 million may be required to be
disbursed in 2009. We may also arrange for third-party investors to assume a portion of our
commitments. Refer to Note 4 to the Consolidated Financial Statements for additional
discussion of our commercial aerospace industry assets and commitments.
Cash Flow from Financing Activities
Year Ended December 31,
(in millions of dollars) 2008 2007
Net cash flows used in financing activities $(2,238) $(1,955)
In both 2008 and 2007, cash was primarily used to return value to shareowners through
dividends and share repurchases. In December 2008, May 2008 and December 2007, we
issued $1.25 billion, $1.0 billion and $1.0 billion, respectively, of long-term debt. The
proceeds of the May 2008 issuance were primarily used for general corporate purposes,
including financing acquisitions and repurchases of our stock. The proceeds of the December
2008 and 2007 issuances were primarily used to repay commercial paper borrowings and
to repay outstanding borrowings under our multicurrency revolving credit facility
described below.
The timing and levels of certain cash flow activities, such as acquisitions and repurchases of our
stock, have resulted in the issuance of both long-term and short-term debt. Commercial paper
54 United Technologies Corporation