George David:
While the ushers are collecting ballots and the inspectors are tabulating the
vote, I would like to update you on our progress and the outlook for UTC.
Earlier I introduced Louis Chênevert, our new president and chief operating officer. Before giving my traditional remarks on the state of UTC, let's have a few words from Louis.
Louis Chênevert:
Thank you, George. I'm excited to have the opportunity to be a part of the leadership of one of the world's most respected and well managed companies. I thank the board for electing me and also for their continued support. I am looking forward to my new responsibilities and working closely with each of the board members.
During the next few years with George's guidance, I will learn everything I can about UTC, and with the help of the business unit presidents I'll get to know all of their operations, especially the commercial businesses. Fortunately, I already have relationships with the business unit leaders through the Presidents Council, so I think we're already in good shape. UTC is a learning company, it's what inspires our employees and me personally, so I am going to roll up my sleeves and dig in.
George and I have had many discussions about UTC's direction, and while UTC has had a very good run, we both think there's lots of runway ahead. I believe we will get there by ramping up our focus on ACE, always having the most technically advanced products and services, and keeping our customer's needs front and center. We won't get any of this done without our dedicated and smart employees worldwide, and I'm committed to work alongside them to achieve even more for this great company. Fred Rentschler, the founder of UTC's legacy company United Aircraft, said, "Let's stick with our own things. We know them best and have only scratched the surface." Eighty years later, I couldn't agree more. Thank you.
George David:
Thank you, Louis. We can summarize UTC's 2005 year in two of our familiar phrases, "more of the same" and "no bad news." These seven words mean 2005 had market share gains for UTC in some significant products, successful new product launches, and continuing shareholder value creation through excellent financial performance.
Our revenues grew to $43 billion last year, 14 percent above 2004. Seven percentage points came from acquisitions. Another seven percentage points was organic growth following eight percentage points the prior year. These are big numbers and confirm a solid economy worldwide and the market share gains I mentioned. Nice news for shareholders is they seem to be continuing in 2006.
UTC net income and earnings per share each grew 18 percent in 2005, before the adoption of the FIN 47 accounting change. Our operating income margin increased again in 2005, and has tripled from the early 1990s. Cash flow from operations less capital expenditures again exceeded net income, UTC's traditional standard.
Although equity markets for large cap companies had generally lower returns last year, UTC was again above the market indices. Our total shareholder return was 10 percent, as compared with 2 percent for the Dow Industrials and 5 percent for the S&P 500. Longer term, UTC's total shareholder return is just under 1,100 percent since the early 1990s, three times both the Dow Industrials and the S&P 500.
A big product win for us over the last several years has been Otis' Gen2 elevators which eliminate the need for separate machine rooms and consequently save space. In their regenerative configurations, which recapture energy with descending loads, energy savings are 75 percent as compared with similar models just a decade ago.
Carrier led its industry in adopting the new federal SEER 13 energy standard. This became effective in January and increases the minimum electrical efficiency for air conditioners shipped in the United States by 30 percent. Amazingly, Carrier's product is 20 percent smaller, 30 percent lighter and uses 40 percent less refrigerant that comparable high efficiency models a year ago.
On the aerospace side, Hamilton Sundstrand had a clean sweep against its traditional competitor for the Boeing 787 jet, winning eight of eight systems competed, and Pratt & Whitney Canada has won all three engine launches for the new class of very light jets.
We had smooth leadership transitions following Louis' election as UTC's president. Steve Finger returned to Pratt & Whitney from Sikorsky, and caps a 30 year Pratt career there. Jeff Pino took over leadership at Sikorsky from his prior position of head of marketing and commercial programs and also capping a career in helicopters. We like this depth of management.
Profitability and responsibility are equally fundamental values at UTC. We capture the latter in our Corporate Responsibility Report, copies of which are available for shareholders today. One highlight in the report is UTC's amazing accomplishment of lowering total energy consumption worldwide (kilowatts and Btus) by 18 percent since 1997 on a company twice the size. Imagine the gains in the energy agenda worldwide if all industry could make comparable gains.
We were included in the Dow Jones Sustainability Indices last year for the seventh year in a row. These indices cover 60 industries in 24 countries. The standard is to rank inside the top 10 percent of this population. We were also recognized again at the 2006 World Economic Forum in Davos as one of the "100 Most Sustainable Corporations in the World."
Another highlight is UTC's widely recognized Employee Scholar Program. Last year we saw total college and university degrees earned by employees pass 18,500. A further 13,500 employees are currently working toward degrees, 9,000 here in the United States and 4,500 overseas. Our spending to date exceeds half a billion dollars and includes more than 4 million shares of UTC stock awarded on degree attainment for each graduate. These shares have a current value of approximately $240 million. This is an amazing program and we talk it up all the time. UTC's view is that we owe our employees opportunities to advance themselves, and this is how we put teeth into this statement.
Nice recognition for UTC came from Fortune magazine's annual Most Admired Survey, where we were again ranked as number one in the aerospace category for the sixth year in a row. Ten thousand investors, board members, corporate executives, and opinion leaders generally are polled to determine the rankings. We were also named as one of the top 25 companies for African Americans by Black Professionals magazine.
UTC's success over many years is a testament to the work of our 220,000 employees around the world. On behalf of shareholders, I thank them for their great skills and commitments which have made these results happen.
And closing with some nice extra news, UTC's board of directors earlier today approved a 20 percent increase in the dividend rate to 26.5 cents quarterly, effective with the payment on June 10, and I imagine shareholders are happy to hear this.
