United Technologies 2011 Annual Report Download - page 30

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 for the periods presented herein 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.” Certain reclassifications have
been made to the prior year amounts to conform to the
current year presentation.
On September 28, 2011, we announced a new organizational
structure to better serve customers and to drive growth and
achieve greater efficiencies through integration across certain
product lines. This new structure combines Carrier and UTC
Fire & Security into a new segment called UTC Climate,
Controls & Security. Beginning with the first quarter of 2012,
Carrier and UTC Fire & Security will report combined financial
and operational results as part of this new segment. As part
of this new organizational structure, we also created UTC
Propulsion & Aerospace Systems, a new organization
consisting of Pratt & Whitney and Hamilton Sundstrand.
Pratt & Whitney and Hamilton Sundstrand will continue to
report their financial and operational results as separate
segments, which is consistent with how we will allocate
resources and measure the financial performance of these
businesses. We have reported our financial and operational
results for the periods presented herein under the six
principal segments noted above, consistent with how we
have reviewed our business operations for decision-making
purposes, resource allocation and performance assessment
during 2011.
Our consolidated net sales were derived from the commercial
and aerospace businesses as follows (sales from Hamilton
Sundstrand’s and Pratt & Whitney’s industrial markets are
included in “commercial and industrial”):
2011 2010 2009
Commercial and industrial 58% 57% 58%
Military aerospace and space 20% 21% 21%
Commercial aerospace 22% 22% 21%
100% 100% 100%
In each of 2011, 2010 and 2009, approximately 58% of our
consolidated sales were original equipment and 42% were
aftermarket parts and services.
Our worldwide operations can be affected by industrial,
economic and political factors on both a regional and global
level. To limit the impact of any one industry, or the economy
of any single country on our consolidated operating results,
our strategy has been, and continues to be, the maintenance
of a balanced and diversified portfolio of businesses. Our
businesses include both commercial and aerospace
operations, original equipment manufacturing (OEM) and
extensive related aftermarket parts and services businesses,
as well as the combination of shorter cycles at Carrier and in
our commercial aerospace aftermarket businesses, and
longer cycles at Otis and at our aerospace OEM businesses.
Our customers include companies in the private sector and
governments, and our businesses reflect an extensive
geographic diversification that has evolved with the
continued globalization of world economies. The composition
of net sales from outside the United States, including U.S.
export sales to these regions, in U.S. Dollars and as a
percentage of total segment sales, is as follows:
(Dollars in millions) 2011 2010 2009 2011 2010 2009
Europe $ 12,601 $ 11,957 $ 12,216 22% 22% 23%
Asia Pacific 9,394 7,986 7,173 16% 15% 14%
Other Non-U.S. 5,380 5,374 4,991 9% 10% 9%
U.S. Exports 7,957 7,296 6,996 14% 13% 13%
International
segment sales $35,332 $32,613 $31,376 61% 60% 59%
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,
Mexico, Russia, South Africa and countries in the Middle East.
At December 31, 2011, the net assets in any one of these
countries did not exceed 7% of consolidated shareowners’
equity.
Although the global economy improved in 2011 as compared
with 2010, signs of recovery experienced early in 2011 began
losing momentum later in the year, reflecting concerns about
the deepening sovereign debt crisis in Europe and the
political climate in Washington, D.C. As a result of persistent
high unemployment in the United States (U.S.) and Europe, a
weak U.S. housing market, government budget reduction
plans, and the European sovereign debt crisis, growth within
developed economies remains low. In 2011, world gross
domestic product growth was approximately 3%, with
growth led by emerging markets, and we expect emerging
markets will continue growing in 2012, although at a
moderating pace. Despite ongoing uncertainty in the world
economy, global aerospace markets are trending favorably
with commercial airline traffic, pricing, and capacity utilization
increasing, and major airframe manufacturers expecting
record delivery levels in 2012. Although we expect
commercial construction in Europe to be flat in 2012 as
compared with 2011, we are beginning to see a slight recovery
in North America. Globally, construction markets remain
generally weak, with the exception of some emerging
markets. The European economy remains an uncertainty as
we enter 2012, with continued volatility in the Euro. Although
we do not have any significant direct exposure to European
sovereign debt, we do generate approximately 26% of our
net sales, including U.S. exports, from Europe. Therefore,
continued economic decline in Europe could have a
significant adverse impact on our financial results especially if
coupled with further declines in the Euro or other foreign
28 UNITED TECHNOLOGIES CORPORATION