United Technologies 2011 Annual Report Download - page 45

MANAGEMENT’S DISCUSSION AND ANALYSIS
Sikorsky’s aftermarket business includes spare parts sales, overhaul and repair services, maintenance contracts and logistics
support programs for helicopters and other aircraft. Sales are principally made to the U.S. and foreign governments, and
commercial helicopter operators. Sikorsky is increasingly engaging in logistics support programs and partnering with its
government and commercial customers to manage and provide logistics, maintenance and repair services.
TOTAL CHANGE YEAR-OVER-YEAR FOR:
2011 Compared with 2010 2010 Compared with 2009
(Dollars in millions) 2011 2010 2009 $% $%
Net Sales $7,355 $6,684 $6,287 $671 10% $397 6%
Cost of Sales 6,120 5,539 5,319 581 10% 220 4%
1,235 1,145 968
Operating Expenses and Other 395 429 360
Operating Profits $ 840 $716 $608 $124 17% $ 108 18%
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 10% 10% 12 % 6% 4% 17 %
Acquisitions and divestitures, net ——— — — (1)%
Restructuring costs — — (5)% — — (1)%
Other ——10%——3%
Total % change 10% 10% 17 % 6% 4% 18 %
2011 Compared with 2010
The increase in organic sales (10%) was primarily attributable
to higher military aircraft sales including higher international
development aircraft sales and favorable military aircraft
configuration mix (8% combined), which more than offset a
decrease from commercial operations (2%) due to fewer
aircraft deliveries. Net sales from aftermarket support
increased (4%) primarily driven by higher spares volume.
The operational profit improvement (12%) was primarily
attributable to an increase in aftermarket support
(10%) driven by higher spares volume. Operating profits in
the military business increased as higher aircraft deliveries
and favorable aircraft configuration mix more than offset the
adverse impact of losses associated with higher than
expected development costs on international military
development aircraft sales (2% combined). The remainder of
the operational profit increase was primarily driven by lower
manufacturing costs, higher volume on customer funded
development and lower research and development costs,
which more than offset the impact of fewer aircraft deliveries
from commercial operations. The 10% increase contributed by
“Other” reflects the gain recognized on contribution of a
business to a venture in the United Arab Emirates.
2010 Compared with 2009
The organic sales growth (6%) was primarily attributable to
higher military aircraft sales (6%), partially offset by the
impact of fewer aircraft deliveries from commercial
operations (2%) due to continued commercial market
weakness. Sales from aftermarket support increased
(2%) primarily driven by higher military sales volume and
aircraft modernizations.
Gross margin and operational profit improvement were
primarily attributable to increased military aircraft sales (15%),
partially offset by a decline in commercial operations
(2%) due to unfavorable aircraft configuration mix and fewer
deliveries as a result of continued commercial market
weakness. Improvement in aftermarket support (4%) was
driven by higher military sales and aircraft modernizations.
The remainder of the operational profit change was driven by
higher year-over-year research and development costs, which
were substantially offset by favorable gross margin from
lower manufacturing costs. The 3% increase contributed by
“Other” primarily reflects the absence of prior year costs
associated with a union contract ratified in 2009.
Eliminations and other
Eliminations and other reflects the elimination of sales, other
income and operating profit transacted between segments,
as well as the operating results of certain smaller businesses
such as UTC Power and Clipper. The change in sales in 2011,
as compared with 2010, primarily reflects the acquisition of
Clipper. The change in the operating profit elimination in 2011,
as compared with 2010, primarily reflects the impact from the
acquisition of Clipper and costs associated with the pending
acquisition of Goodrich, partially offset by the absence of the
$159 million other-than-temporary impairment charge on our
investment in Clipper, which was recorded during the third
quarter of 2010.
2011 ANNUAL REPORT 43