United Technologies 2012 Annual Report Download - page 43

Management’s Discussion and Analysis 2012 ANNUAL REPORT 41
Total Increase (Decrease) Year-Over-Year for:
(DOLLARS IN MILLIONS) 2012 2011 2010 2012 Compared with 2011 2011 Compared with 2010
Net Sales $ 8,334 $ 4,760 $ 4,399 $ 3,574 75% $ 361 8%
Cost of Sales 6,090 3,403 3,112 2,687 79% 291 9%
2,244 1,357 1,287
Operating Expenses and Other 1,300 598 633
Operating Profits $ 944 $ 759 $ 654 $ 185 24% $ 105 16%
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 7% 6% 6% 8 % 10 % 8 %
Foreign currency translation (1)% (1)% (1)% 1% 1% 2%
Acquisitions and divestitures, net 69 % 73 % 33 % (1)% (1)% (1)%
Restructuring costs – 1 % (14)% ––2%
Other –––– (1)% 5 %
Total % change 75 % 79 % 24 % 8% 9% 16%
2012 Compared with 2011
The organic sales growth (7%) reflects higher commercial aero-
space OEM (4%), military aerospace OEM (2%), and aftermarket
(1%) volume.
The organic increase in operational profit (6%) primarily
reflects the benefit of profit contribution on higher sales (11%) and
lower warranty costs (5%) partially offset by higher engineering and
development (4%) and pension costs (6%). “Acquisitions and
divestitures, net” is principally a result of the acquisition of Good-
rich.
2011 Compared with 2010
The organic sales growth (8%), primarily reflects higher aftermarket
(6%) and OEM (2%) volumes. The organic cost of sales growth
(10%) exceeded the organic sales growth due largely to an adverse
mix within aerospace OEM and higher warranty costs.
The increase in operational profit (8%) reflects an increase
in aftermarket volume, partially offset by adverse mix within OEM,
including a reduction in military ground vehicle volumes and an
increase in volume of lower margin commercial programs (8%).
Also, operational profit growth reflects the benefit of lower research
and development costs (5%), offset by higher warranty costs (6%).
The increase contributed by “Other” primarily reflects the absence
of approximately $28 million of asset impairment charges recorded
in the second quarter of 2010. These charges related primarily to
the disposition of an aerospace business as part of UTC Aerospace
System’s efforts to implement low cost sourcing initiatives.
Sikorsky is one of the world’s largest helicopter companies. Sikor-
sky manufactures military and commercial helicopters and also
provides aftermarket helicopter and aircraft parts and services.
Current major production programs at Sikorsky include the UH-
60M Black Hawk medium-transport helicopters and HH-60M
Medevac helicopters for the U.S. and foreign governments, the
S-70 Black Hawk for foreign governments, the MH-60S and MH-
60R helicopters for the U.S. Navy, the International Naval Hawk for
multiple naval missions, and the S-76 and S-92 helicopters for
commercial operations. The UH-60M helicopter is the latest and
most modern in a series of Black Hawk variants that Sikorsky has
been delivering to the U.S. Army since 1978. In July 2012, the U.S.
Government and Sikorsky signed a five-year multi-service contract
for approximately 650 H-60 helicopters. Actual production quanti-
ties will be determined year-by-year over the life of the program
based on funding allocations set by Congress and the U.S.
Department of Defense acquisition priorities, as well as the level of
Foreign Military Sales. Sikorsky is also developing the CH-53K next
generation heavy lift helicopter for the U.S. Marine Corps and the
CH-148 derivative of the H-92 helicopter, a military variant of the
S-92 helicopter, for the Canadian Government. See the Aerospace
Business section of Management’s Discussion and Analysis, above,
for further discussion of Sikorsky’s contract with the Canadian
Government.
Sikorsky’s aftermarket business includes spare parts sales,
mission equipment, 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 govern-
ments, and commercial helicopter operators. Sikorsky is increas-
ingly engaging in logistics support programs and partnering with its
government and commercial customers to manage and provide
logistics, maintenance and repair services.