United Technologies 2011 Annual Report Download - page 36

MANAGEMENT’S DISCUSSION AND ANALYSIS
RESTRUCTURING COSTS
We recorded net pre-tax restructuring costs totaling $336
million in 2011 and $443 million in 2010 for new and ongoing
restructuring actions. We recorded these charges in the
segments as follows:
(Dollars in millions) 2011 2010
Otis $73 $83
Carrier 46 75
UTC Fire & Security 80 78
Pratt & Whitney 67 138
Hamilton Sundstrand 16 37
Sikorsky 53 14
Eliminations and other 118
Total $336 $443
The 2011 charges consist of $180 million in cost of sales, $154
million in selling, general and administrative expenses and $2
million in other income, net, and, as described below,
primarily relate to actions initiated during 2011 and 2010. The
2010 charges consist of $283 million in cost of sales, $159
million in selling, general and administrative expenses and $1
million in other income, net. The 2010 restructuring costs
reflected in Eliminations and other largely reflect curtailment
charges required under our domestic pension plans due to
the significant headcount reductions associated with the
various restructuring actions. The 2010 charges relate
principally to actions initiated during 2010 and 2009.
Restructuring actions are an essential component of our
operating margin improvement efforts and relate to both
existing operations and those recently acquired. We expect
to incur additional restructuring costs in 2012 of at least $150
million to $200 million, including trailing costs related to prior
actions, associated with our continuing cost reduction efforts
and to the integration of acquisitions. The expected adverse
impact on earnings in 2012 from anticipated additional
restructuring costs is expected to be offset by the beneficial
impact from non-recurring items. Although no specific plans
for significant actions have been finalized at this time, we
continue to closely monitor the economic environment and
may undertake further restructuring actions to keep our cost
structure aligned with the demands of the prevailing market
conditions.
2011 Actions. During 2011, we initiated restructuring actions
relating to ongoing cost reduction efforts, including
workforce reductions and consolidation of field operations.
We recorded net pre-tax restructuring charges totaling $286
million as follows: Otis $76 million, Carrier $31 million, UTC
Fire & Security $62 million, Pratt & Whitney $52 million,
Hamilton Sundstrand $13 million, Sikorsky $51 million and
Eliminations and other $1 million. The charges consist of $136
million in cost of sales, $147 million in selling, general and
administrative expenses and $3 million in other income, net.
Those costs consist of $259 million for severance and related
employee termination costs, $4 million for asset write-downs
and $23 million for facility exit, lease termination and other
related costs.
We expect the actions initiated in 2011, once fully complete,
to result in net workforce reductions of approximately 5,000
hourly and salaried employees, the exiting of approximately
2 million net square feet of facilities and the disposal of assets
associated with the exited facilities. As of December 31, 2011,
we have completed, with respect to the actions initiated in
2011, net workforce reductions of approximately 2,200
employees, and 50,000 net square feet of facilities have been
exited. We are targeting to complete in 2012 the majority of
the remaining workforce and facility related cost reduction
actions initiated in 2011. Approximately 85% of the total
pre-tax charge will require cash payments, which we have
and expect to continue to fund with cash generated from
operations. During 2011, we had cash outflows of
approximately $102 million related to the 2011 actions. We
expect to incur additional restructuring and other charges of
$82 million to complete these actions. We expect recurring
pre-tax savings to increase over the two-year period
subsequent to initiating the actions to approximately $300
million annually, of which approximately $59 million was
realized in 2011.
2010 Actions. During 2011, we recorded net pre-tax
restructuring charges of $55 million for actions initiated in
2010. The 2010 actions relate to ongoing cost reduction
efforts, including workforce reductions and the consolidation
of field operations. We recorded the charges in 2011 as
follows: Carrier $19 million, UTC Fire & Security $23 million,
Pratt & Whitney $8 million, Hamilton Sundstrand $3 million,
and Sikorsky $2 million. The charges consist of $36 million in
cost of sales and $19 million in selling, general and
administrative expenses. Those costs consisted of $9 million
for severance and related employee termination costs, $11
million for asset write-downs and $35 million for facility exit,
lease termination and other related costs.
We expect the actions initiated in 2010, once fully completed,
to result in net workforce reductions of approximately 5,000
hourly and salaried employees, the exiting of approximately
3.9 million net square feet of facilities and the disposal of
assets associated with the exited facilities. As of December 31,
2011, we have completed, with respect to the actions initiated
in 2010, net workforce reductions of approximately 4,000
employees and exited 2.5 million net square feet of facilities.
We are targeting to complete in 2012 the majority of the
remaining workforce and all facility related cost reduction
actions initiated in 2010. Approximately 80% of the total
pre-tax charge will require cash payments, which we have
and expect to continue to fund with cash generated from
operations. During 2011, we had cash outflows of
approximately $194 million related to the 2010 actions. We
expect to incur additional restructuring charges of $21 million
to complete these actions. We expect recurring pre-tax
savings to increase over the two-year period subsequent to
initiating the actions to approximately $350 million annually.
For additional discussion of restructuring, see Note 12 to the
Consolidated Financial Statements.
34 UNITED TECHNOLOGIES CORPORATION