United Technologies 2012 Annual Report Download - page 37

Management’s Discussion and Analysis 2012 ANNUAL REPORT 35
Otis is the world’s largest elevator and escalator manufacturing,
installation and service company. Otis designs, manufactures, sells
and installs a wide range of passenger and freight elevators for
low-, medium- and high-speed applications, as well as a broad line
of escalators and moving walkways. In addition to new equipment,
Otis provides modernization products to upgrade elevators and
escalators as well as maintenance and repair services for both its
products and those of other manufacturers. Otis serves customers
in the commercial and residential property industries around the
world. Otis sells directly to the end customer and through sales
representatives and distributors.
Total Increase (Decrease) Year-Over-Year for:
(DOLLARS IN MILLIONS) 2012 2011 2010 2012 Compared with 2011 2011 Compared with 2010
Net Sales $ 12,056 $ 12,437 $ 11,579 $ (381) (3)% $ 858 7%
Cost of Sales 8,008 8,090 7,540 (82) (1)% 550 7%
4,048 4,347 4,039
Operating Expenses and Other 1,536 1,532 1,464
Operating Profits $ 2,512 $ 2,815 $ 2,575 $ (303) (11)% $ 240 9%
Factors Contributing to Total % Increase (Decrease) Year-Over-Year in:
2012 2011
Net Sales Cost of Sales
Operating
Profits Net Sales Cost of Sales
Operating
Profits
Organic / Operational – 1% (3)% 2% 2% 2%
Foreign currency translation (3)% (3)% (4)% 4% 4% 5%
Acquisitions and divestitures, net ––– 1% 1% –
Restructuring costs – 1 % (4)% –––
Other ––– ––2%
Total % change (3)% (1)% (11)% 7% 7% 9%
2012 Compared with 2011
There was no organic sales growth in 2012 as higher service sales
were offset by lower new equipment sales. Higher service sales in
Asia and the Americas (2%) were offset by declines in Europe (1%).
Lower new equipment volume (1%) primarily in China and Europe
was partially offset by a slight increase in the Americas and Russia.
The operational profit decline for the year (3%) is due to
lower new equipment contribution driven by lower volume and pric-
ing pressures (4%), lower service contribution (1%) resulting from
continued pricing pressure primarily in Europe, and the impact of
higher commodity costs (1%). Partially offsetting these factors were
benefits derived from ongoing cost reduction initiatives (3%).
2011 Compared with 2010
The organic sales increase (2%) in the year was due to higher new
equipment sales volume in China, Russia and Brazil (combined 3%),
partially offset by declines in North America (1%). Increased con-
tractual maintenance and repair volume across all regions was off-
set by a decline in modernization volume in Europe. New
equipment orders improved 15% versus the prior year, led by
strong order growth in China. Selling prices remained under
pressure.
The operational profit improvement (2%) in the period was
due to higher new equipment volume, increases in contractual
maintenance and repair services, and the benefits of ongoing cost
reduction initiatives, partially offset by lower pricing, the impact of
higher commodity costs, and lower modernization volume in
Europe.
UTC Climate, Controls & Security As described above, on Sep-
tember 28, 2011, we announced a new organizational structure
that allows us to better serve customers through greater integration
across product lines. As part of this new structure, effective Jan-
uary 1, 2012, we formed the UTC Climate, Controls & Security
segment, which is composed of the former Carrier and UTC Fire &
Security segments. UTC Climate, Controls & Security is the leading
provider of HVAC and refrigeration solutions, including controls for
residential, commercial, industrial and transportation applications.
These products and services are sold under the Carrier name and
other brand names to building contractors and owners, homeown-
ers, transportation companies, retail stores and food service
companies. UTC Climate, Controls & Security is also a global pro-
vider of security and fire safety products and services. UTC Climate,
Controls & 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 sup-
pression 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. In certain markets, UTC Climate, Controls & Security