United Technologies 2011 Annual Report Download - page 39

MANAGEMENT’S DISCUSSION AND ANALYSIS
FACTORS CONTRIBUTING TO TOTAL % CHANGE YEAR-OVER-YEAR IN:
2011 2010
Net Sales Cost of Sales
Operating
Profits Net Sales Cost of Sales
Operating
Profits
Organic / Operational 9% 9% 27% 6% 6% 39%
Foreign currency translation 2% 3% 3% 1% 1% —
Acquisitions and divestitures, net (6)% (7)% (4)% (7)% (8)% 3 %
Restructuring costs —— 3%——18%
Other — (1)% 14 % — — (16)%
Total % change 5% 4% 43% —(1)%44%
2011 Compared with 2010
Organic sales growth was 9%, with the recovery in the
transport refrigeration market providing the most significant
contribution. The 6% decrease in “Acquisitions and
divestitures, net” reflects the net impact from acquisitions
and the business transformation actions completed in the
preceding twelve months as part of Carrier’s ongoing
portfolio transformation initiative.
The operational profit improvement of 27% was driven by
strong conversion on organic sales growth, particularly in the
higher margin transport refrigeration business, lower bad
debt expense, and earnings improvement in Carrier’s joint
venture in Japan (4%). This was partially offset by higher net
commodity costs (9%). The 14% increase in “Other” primarily
reflects the year-over-year impact of net gains associated
with Carrier’s ongoing portfolio transformation. This includes
an approximately $80 million gain recorded in 2011 as a result
of the contribution of Carrier’s heating, ventilating, and
air-conditioning operations in Brazil, Argentina, and Chile into
a new venture controlled by Midea Group of China. Also
included in “Other” is the absence of an asset impairment
charge in 2010 of approximately $58 million, reflected in cost
of sales, associated with the disposition of a business.
2010 Compared with 2009
Organic sales growth of 6% was driven primarily by
improvement in the transport refrigeration and Asian and
Latin America HVAC markets, partially offset by a decline in
the European commercial HVAC equipment markets. The 7%
decrease contributed by “Acquisitions and divestitures, net”
in 2010 primarily reflects the net year-over-year impact from
the disposition of businesses and the global formation of
non-controlling ventures as part of Carrier’s ongoing portfolio
transformation initiative.
Incremental profits resulting from sales of higher margin
products, particularly in the transport refrigeration business,
combined with the carry-over benefits of operating cost
reduction and restructuring (combined 54%), were partially
offset by increased commodity costs and adverse pricing
(17%) to contribute to the high operational profit
improvement of 39%. The decrease contributed by “Other”
primarily reflects the year-over-year net impact of gains and
losses resulting from dispositions associated with Carrier’s
ongoing portfolio transformation. This includes an
approximately $58 million asset impairment charge in 2010
associated with disposition activity as well as the absence of
an approximately $60 million gain recognized in 2009 from
the contribution of the majority of Carrier’s U.S. Residential
Sales and Distribution business into a new venture formed
with Watsco, Inc.
UTC Fire & Security is a global provider of security and fire safety products and services. UTC Fire & Security provides
electronic security products such as intruder alarms, access control systems, and video surveillance systems and designs and
manufactures a wide range of fire safety products including specialty hazard detection and fixed suppression products,
portable fire extinguishers, fire detection and life safety systems, and other firefighting equipment. Services provided to the
electronic security and fire safety industries include systems integration, video surveillance, installation, maintenance and
inspection services. UTC Fire & Security also provides monitoring, response and security personnel services, including
cash-in-transit security, to complement its electronic security and fire safety businesses. UTC Fire & Security products and
services are used by governments, financial institutions, architects, building owners and developers, security and fire
consultants, homeowners and other end-users requiring a high level of security and fire protection for their businesses and
residences. UTC Fire & Security provides its products and services under Chubb, Kidde and other brand names and sells
directly to the customer as well as through manufacturer representatives, distributors, dealers and U.S. retail distribution.
In 2010, we completed the acquisition of the GE Security business from GE. With the acquisition of GE Security, UTC
strengthened its portfolio of security and fire safety technologies for commercial and residential applications, including fire
detection and life safety systems, intrusion alarms, video surveillance and access control systems, while also significantly
enhancing UTC Fire & Security’s North American presence. In 2011, we continued to exit non-core businesses including the
divestiture of our U.K. and Singapore guarding businesses.
2011 ANNUAL REPORT 37