United Technologies 2011 Annual Report Download - page 47

MANAGEMENT’S DISCUSSION AND ANALYSIS
sufficient operating flexibility, cash reserves and funding
sources to maintain adequate amounts of liquidity and to
meet our future operating cash needs.
Given our extensive international operations, most of our cash
is denominated in foreign currencies. We manage our
worldwide cash requirements by reviewing available funds
among the many subsidiaries through which we conduct our
business and the cost effectiveness with which those funds
can be accessed. The repatriation of cash balances from
certain of our subsidiaries could have adverse tax
consequences or be subject to capital controls; however,
those balances are generally available without legal
restrictions to fund ordinary business operations. As
discussed in Note 10, with few exceptions, U.S. income taxes
have not been provided on undistributed earnings of
international subsidiaries. Our intention is to reinvest these
earnings permanently or to repatriate the earnings only when
it is tax effective to do so.
As also discussed in Note 10, in 2010 management decided to
repatriate additional high tax dividends from the current year
to the U.S. as a result of U.S. tax legislation enacted at the
time. The favorable tax benefit generated by these dividends
was substantially offset by the tax cost related to the
repatriation of other current year earnings. As a result,
approximately $2.5 billion of foreign subsidiary cash was
repatriated to the U.S. during 2010, primarily through receipt
of dividends from current year earnings, the tax free return of
capital, and intercompany loans. These funds were largely
used to repay commercial paper borrowings.
On occasion, we are required to maintain cash deposits with
certain banks with respect to contractual obligations related
to acquisitions or divestitures or other legal obligations. As of
December 31, 2011 and 2010, the amount of such restricted
cash was approximately $37 million and $75 million,
respectively. At both December 31, 2011 and 2010, all
restricted cash is included in current assets.
We believe our future operating cash flows will be sufficient
to meet our future operating cash needs. Further, our ability
to obtain debt or equity financing, as well as the availability
under committed credit lines, provides additional potential
sources of liquidity should they be required or appropriate.
Cash Flow from Operating Activities
(Dollars in millions) 2011 2010
Net cash flows provided by operating activities $6,590 $5,906
The increase in net cash flows provided by operating
activities in 2011 as compared with 2010 was due largely to
the increase in net income attributable to common
shareowners as a result of higher sales volumes and to lower
global pension cash contributions. These benefits were
partially offset by higher working capital cash requirements.
During 2011, the net increase in working capital resulted in a
cash outflow of $418 million compared to a cash inflow of
$525 million during 2010. This increase of $943 million in
working capital was primarily driven by higher accounts
receivable due to increased sales volumes, as well as reduced
advances by customers to Sikorsky.
The funded status of our defined benefit pension plans is
dependent upon many factors, including returns on invested
assets and the level of market interest rates. We can
contribute cash or company stock to our plans at our
discretion, subject to applicable regulations. Total cash
contributions to our global defined benefit pension plans
were $551 million and $1.3 billion during 2011 and 2010,
respectively. During 2011 and 2010, we also contributed $450
million and $250 million, respectively, in UTC common stock
to our defined benefit pension plans. As of December 31, 2011,
the total investment by the domestic defined benefit pension
plans in our securities was approximately 5% of total plan
assets. We expect to make contributions of approximately
$100 million to our foreign defined benefit pension plans in
2012. Although our domestic defined benefit pension plans
are approximately 87% funded on a projected benefit
obligation basis and we are not required to make additional
contributions through the end of 2012, we may elect to make
discretionary contributions in 2012. Contributions to our
global defined benefit pension plans in 2012 are expected to
meet or exceed the current funding requirements.
Cash Flow from Investing Activities
(Dollars in millions) 2011 2010
Net cash flows used in investing activities $(707) $(3,187)
The decrease in net cash flows used in investing activities
was largely a result of a $2.4 billion decrease in our cash
investment in businesses in 2011, as compared with 2010. The
cash investment in businesses across all of our operations in
2011 was $357 million and consisted of a number of small
acquisitions in both our commercial and aerospace
businesses. Cash investment in businesses across all of our
operations in 2010 was approximately $2.8 billion and
primarily reflects the acquisition of the GE Security business
for approximately $1.8 billion and the acquisition of Clipper
for approximately $350 million. The remainder consisted of a
number of small acquisitions in both our aerospace and
commercial businesses. Excluding spending for our pending
acquisitions of Goodrich and Rolls-Royce’s interests in IAE,
we expect cash investments in businesses in 2012 to
approximate $500 million; however, actual acquisition
spending may vary depending upon the timing, availability
and appropriate value of acquisition opportunities. Capital
expenditures increased $118 million in 2011 primarily at Carrier
and Hamilton Sundstrand, which included expenditures
related to new product launches and investment in low-cost
manufacturing facilities.
Customer financing activities were a net source of cash of
$50 million in 2011, compared to a net use of cash of $55
million in 2010. While we expect that 2012 customer financing
activity will be a net use of funds, actual funding is subject to
2011 ANNUAL REPORT 45