United Technologies 2012 Annual Report Download - page 30

28 UNITED TECHNOLOGIES CORPORATION
In addition to the divestiture of certain non-core businesses,
we also issued $9.8 billion in long-term debt, $3.2 billion in commer-
cial paper, a $2.0 billion term loan and $1.1 billion of equity units to
fund the acquisition of Goodrich. As of December 31, 2012, we have
repaid all of the term loan and nearly all of the commercial paper
issued to finance the acquisition.
Our consolidated net sales were derived from the commer-
cial and aerospace businesses as follows (sales from Pratt & Whit-
ney’s industrial markets are included in “commercial and
industrial”):
2012 2011 2010
Commercial and industrial 51% 57% 57%
Military aerospace and space 21% 20% 21%
Commercial aerospace 28% 23% 22%
100% 100% 100%
The significant shift in sales from Commercial and industrial
to Commercial aerospace largely reflects the Goodrich and IAE
transactions. In 2012, approximately 57% of our consolidated sales
were original equipment and 43% were aftermarket parts and serv-
ices, while in 2011 the amounts were 56% and 44%, respectively.
The amounts in 2010 were 57% and 43%, respectively.
Our worldwide operations can be affected by industrial,
economic and political factors on both a regional and global level.
To limit the impact of any one industry, or the economy of any sin-
gle country on our consolidated operating results, our strategy has
been, and continues to be, the maintenance of a balanced and
diversified portfolio of businesses. Our operations include original
equipment manufacturing (OEM) and extensive related aftermarket
parts and services in both our commercial and aerospace busi-
nesses. Our business mix also reflects the combination of shorter
cycles at UTC Climate, Controls & Security and in our commercial
aerospace aftermarket businesses, and longer cycles at Otis and in
our aerospace OEM businesses. Our customers include companies
in the private sector and governments, and our businesses reflect
an extensive geographic diversification that has evolved with the
continued globalization of world economies. The composition of net
sales from outside the U.S., including U.S. export sales to these
regions, in U.S. Dollars and as a percentage of total segment sales,
is as follows:
(DOLLARS IN MILLIONS) 2012 2011 2010 2012 2011 2010
Europe $ 11,823 $ 12,344 $ 11,678 20% 22% 22%
Asia Pacific 8,733 9,016 7,658 15% 16% 15%
Other Non-U.S. 4,964 5,376 5,369 9% 10% 10%
U.S. Exports 9,201 7,721 7,102 16% 14% 14%
International
segment sales $ 34,721 $ 34,457 $ 31,807 60% 62% 61%
As part of our growth strategy, we invest in businesses in
certain countries that carry high levels of currency, political and/or
economic risk, such as Argentina, Brazil, China, India, Mexico,
Russia, South Africa and countries in the Middle East. At
December 31, 2012, the net assets in any one of these countries
did not exceed 5% of consolidated shareowners’ equity.
As in the previous year, our short cycle shipments and order
rates were mixed across our businesses. In 2012, as compared with
2011, commercial aerospace spares orders at Pratt & Whitney
decreased 12%, excluding additional orders due primarily to the
consolidation of IAE, and UTC Aerospace Systems’ commercial
aerospace orders decreased 4%, excluding additional orders from
Goodrich. Ongoing economic uncertainty and high oil prices have led
to continued cash conservation and constrained spending by major
airlines. Strength in UTC Aerospace Systems commercial and military
aerospace OEM business and military OEM sales at Pratt & Whitney,
were offset by fewer deliveries for foreign military operations at Sikor-
sky. Conversely, UTC Climate, Controls & Security’s North American
residential HVAC orders increased approximately 8% in 2012, while
Otis’ new equipment orders in 2012 were consistent with 2011 order
levels. While Otis new equipment orders in China declined early in
2012, order rates increased late in the year with fourth quarter orders
in China 19% higher than the fourth quarter of 2011. Although
uncertainty surrounding the resolution of the fiscal debate in the U.S.
and the European debt crisis, together with the slowdown in China
and other emerging economies drove volatility in financial markets
during 2012, the economic environment in Europe has recently
begun to stabilize while the U.S. and China continue gradual recov-
eries. The 2013 global GDP forecast is 2.5%, with growth expected
to be slower in the first half of the year and uneven across the globe.
We continue to expect growth rates in emerging markets, particularly
in China and India, to outpace the rest of the world. Further, the
gradual commercial construction recovery in North America through-
out 2012 is expected to continue in 2013.
We had no organic sales growth during 2012. We expect
organic sales growth in 2013 to be 3% to 5%.
Although we expect an increase in organic growth, which,
if realized, would contribute to operating profit growth, we also
continue to invest in new platforms and new markets to position us
for additional growth, while remaining focused on structural cost
reduction, operational improvements and disciplined cash
redeployment. These actions contributed to our earnings during
2012 and positioned us for future earnings growth as the global
economy recovers. We undertook a significant restructuring ini-
tiative in 2012 to reduce structural and overhead costs across all of
our businesses. Restructuring costs in continuing operations
totaled $590 million, $315 million and $387 million in 2012, 2011
and 2010, respectively. Segment operating margin decreased 110
basis points from 15.1% in 2011 to 14.0% in 2012. This year-over-
year decrease is primarily due to a 50 basis point adverse impact of
restructuring charges and non-recurring items and a 70 basis point
adverse impact from higher research and development expenses.