Management’s Discussion and Analysis 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. 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 higher commodity costs, and lower modernization volume in Europe. 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%). 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 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 2011 Compared with 2010 2012 Compared with 2011 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 ANNUAL REPORT 35