United Technologies 2011 Annual Report Download - page 43

MANAGEMENT’S DISCUSSION AND ANALYSIS
2011 Compared with 2010
Organic sales growth (5%) was driven by growth in the large
commercial engine business (5%), higher spares volume
across the business (combined 2%), and higher industrial
volume at Pratt & Whitney Power Systems (1%). These
increases were partially offset by lower military engine sales.
The impact from foreign currency reflects the unfavorable
transactional impact of foreign exchange hedging at P&WC
(1%).
The operational profit decline (3%) primarily reflects higher
year-over-year research and development costs (11%),
unfavorable commercial engine business mix and fewer
military engine business deliveries (combined 6%), partially
offset by higher commercial spares volume (10%).
Additionally, gains recorded on contract settlements and
contract close-outs were offset, in part, by losses incurred as
a result of increased airline industry exposures during the
year (combined 4%). The 2% contributed by “Other” primarily
reflects the gain on a sale of an equity investment.
2010 Compared with 2009
Organic sales were essentially flat year-over-year. Growth in
the large commercial engine business (4%), driven by higher
commercial spares and aftermarket sales volumes, and an
increase in the military engine business (1%) on higher engine
deliveries, were mostly offset by lower sales at P&WC
(2%) due to decreased engine sales volume and a decline at
Pratt & Whitney Power Systems (2%) from lower industrial
sales volumes. The impact from foreign currency
(4%) reflects the beneficial transactional impact of foreign
exchange hedging at P&WC.
The operational profit decline (3%) primarily reflects higher
year-over-year research and development costs. Lower
profits at P&WC (9%) driven by decreased engine sales
volumes were offset by higher profit contribution from the
large commercial engine business (6%) driven by higher
commercial spares and aftermarket sales volumes and an
increase in the military engine business (3%).
Hamilton Sundstrand is among the world’s leading suppliers of technologically advanced aerospace and industrial products
and aftermarket services for diversified industries worldwide. Hamilton Sundstrand’s aerospace products, such as power
generation, management and distribution systems, flight control systems, engine control systems, environmental control
systems, fire protection and detection systems, auxiliary power units and propeller systems, serve commercial, military,
regional, business and general aviation, as well as military ground vehicle, space and undersea applications. Aftermarket
services include spare parts, overhaul and repair, engineering and technical support and fleet maintenance programs. Hamilton
Sundstrand sells aerospace products to airframe manufacturers, the U.S. and foreign governments, aircraft operators and
independent distributors. Hamilton Sundstrand’s principal industrial products, such as air compressors, metering pumps and
heavy duty process pumps, serve industries involved with chemical and hydrocarbon processing, oil and gas production, water
and wastewater treatment and construction. Hamilton Sundstrand sells these products under the Sullair, Sundyne, Milton Roy
and other brand names directly to end users, and through manufacturer representatives and distributors.
In September 2011, to better serve customers and drive to growth and achieve efficiencies through greater integration across
certain product lines, we announced a new organizational structure. As part of this new structure, we 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.
TOTAL CHANGE YEAR-OVER-YEAR FOR:
2011 Compared with 2010 2010 Compared with 2009
(Dollars in millions) 2011 2010 2009 $% $%
Net Sales $ 6,150 $5,608 $5,560 $542 10% $48 1%
Cost of Sales 4,292 3,881 3,893 411 11% (12) —
1,858 1,727 1,667
Operating Expenses and Other 776 809 810
Operating Profits $ 1,082 $ 918 $ 857 $ 164 18% $61 7%
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% 12 % 12 % 1% — 8 %
Foreign currency translation 1% 1% 1% — (1)% (1)%
Acquisitions and divestitures, net — (1)% (1)% —— —
Restructuring costs —— 2%—— 6%
Other — (1)% 4 % — 1 % (6)%
Total % change 10% 11 % 18 % 1% — 7 %
2011 ANNUAL REPORT 41