United Technologies 2012 Annual Report Download - page 38

36 UNITED TECHNOLOGIES CORPORATION
also provides monitoring, response and security personnel services,
including cash-in-transit security, to complement its electronic
security and fire safety businesses. Through its venture with Wats-
co, Inc., UTC Climate, Controls & Security distributes Carrier, Bry-
ant, Payne and Totaline residential and light commercial HVAC
products in the U.S. and selected territories in the Caribbean and
Latin America. UTC Climate, Controls & Security sells directly to
end customers and through manufacturers’ representatives,
distributors, wholesalers, dealers and retail outlets. Certain of UTC
Climate, Controls & Security’s HVAC businesses are seasonal and
can be impacted by weather. UTC Climate, Controls & Security
customarily offers its customers incentives to purchase products to
ensure an adequate supply of its products in the distribution chan-
nels. The principal incentive program provides reimbursements to
distributors for offering promotional pricing on UTC Climate, Con-
trols & Security products. We account for incentive payments made
as a reduction to sales. UTC Climate, Controls & Security products
and services are used by governments, financial institutions, archi-
tects, building owners and developers, security and fire con-
sultants, homeowners and other end-users requiring a high level of
security and fire protection for their businesses and residences.
UTC Climate, Controls & Security provides its security and fire
safety products and services under Chubb, Kidde and other brand
names and sells directly to customers as well as through manu-
facturer representatives, distributors, dealers and U.S. retail
distribution.
Total Increase (Decrease) Year-Over-Year for:
(DOLLARS IN MILLIONS) 2012 2011 2010 2012 Compared with 2011 2011 Compared with 2010
Net Sales $ 17,090 $ 18,864 $ 17,876 $ (1,774) (9)% $ 988 6%
Cost of Sales 12,316 13,848 13,158 (1,532) (11)% 690 5%
4,774 5,016 4,718
Operating Expenses and Other 2,349 2,804 2,942
Operating Profits $ 2,425 $ 2,212 $ 1,776 $ 213 10 % $ 436 25%
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 – – 10 % 7% 8% 13%
Foreign currency translation (2)% (3)% (2)% 3% 3% 3%
Acquisitions and divestitures, net (7)% (8)% – (4)% (5)% (2)%
Restructuring costs – – (1)% ––2%
Other ––3%– (1)% 9 %
Total % change (9)% (11)% 10 % 6% 5% 25%
2012 Compared with 2011
There was no organic sales growth during 2012 as lower volumes
in the transport refrigeration business (1%) were offset by growth in
the Americas (1%) attributable to the residential and commercial
HVAC businesses. The decrease in “Acquisitions and divestitures,
net” (7%) reflects the year-over-year impact of divestitures com-
pleted in the preceding twelve months associated with UTC Cli-
mate, Controls & Security’s ongoing portfolio transformation.
The 10% operational profit increase was driven largely by
the benefits of net cost productivity and restructuring actions
(combined 3%) including savings from the consolidation of legacy
Carrier and UTC Fire & Security, favorable commodity costs (2%),
and higher equity income from joint venture partners (2%). Also,
operational profit included the benefit of a special cash dividend
(1%) received from an interest in a distribution partner. The 3%
increase in “Other” primarily reflects an approximately $46 million
net year-over-year gain from UTC Climate, Controls & Security’s
ongoing portfolio transformation and the absence of a $66 million
other-than-temporary impairment charge recorded on an Asian
equity investment in the prior year. This was partially offset by the
absence of an approximately $25 million favorable litigation reso-
lution and gain on the disposition of the U.K. Security business,
both recorded in 2011. The year-over-year net portfolio trans-
formation gain primarily includes approximately $120 million from
the sale of a controlling interest in a Canadian distribution business,
including a $24 million pension settlement charge, combined with
an approximately $215 million net gain from the sale of a controlling
interest in a manufacturing and distribution joint venture in Asia.
These gains were partially offset by a $32 million loss on the dis-
position of the U.S. Fire & Security branch operations, $142 million
of impairment charges recorded in 2012 related to ongoing busi-
ness dispositions, and the absence of an approximately $80 million
prior year gain resulting primarily from the contribution of legacy
Carrier’s HVAC operations in Brazil, Argentina and Chile into a new
venture controlled by Midea Group of China.