MANAGEMENT’S DISCUSSION AND ANALYSIS RESTRUCTURING COSTS 34 UNITED TECHNOLOGIES CORPORATION For additional discussion of restructuring, see Note 12 to the Consolidated Financial Statements. 2011 Actions. During 2011, we initiated restructuring actions relating to ongoing cost reduction efforts, including workforce reductions and consolidation of field operations. We recorded net pre-tax restructuring charges totaling $286 million as follows: Otis $76 million, Carrier $31 million, UTC Fire & Security $62 million, Pratt & Whitney $52 million, Hamilton Sundstrand $13 million, Sikorsky $51 million and Eliminations and other $1 million. The charges consist of $136 million in cost of sales, $147 million in selling, general and administrative expenses and $3 million in other income, net. Those costs consist of $259 million for severance and related employee termination costs, $4 million for asset write-downs and $23 million for facility exit, lease termination and other related costs. We expect the actions initiated in 2010, once fully completed, to result in net workforce reductions of approximately 5,000 hourly and salaried employees, the exiting of approximately 3.9 million net square feet of facilities and the disposal of assets associated with the exited facilities. As of December 31, 2011, we have completed, with respect to the actions initiated in 2010, net workforce reductions of approximately 4,000 employees and exited 2.5 million net square feet of facilities. We are targeting to complete in 2012 the majority of the remaining workforce and all facility related cost reduction actions initiated in 2010. Approximately 80% of the total pre-tax charge will require cash payments, which we have and expect to continue to fund with cash generated from operations. During 2011, we had cash outflows of approximately $194 million related to the 2010 actions. We expect to incur additional restructuring charges of $21 million to complete these actions. We expect recurring pre-tax savings to increase over the two-year period subsequent to initiating the actions to approximately $350 million annually. Restructuring actions are an essential component of our operating margin improvement efforts and relate to both existing operations and those recently acquired. We expect to incur additional restructuring costs in 2012 of at least $150 million to $200 million, including trailing costs related to prior actions, associated with our continuing cost reduction efforts and to the integration of acquisitions. The expected adverse impact on earnings in 2012 from anticipated additional restructuring costs is expected to be offset by the beneficial impact from non-recurring items. Although no specific plans for significant actions have been finalized at this time, we continue to closely monitor the economic environment and may undertake further restructuring actions to keep our cost structure aligned with the demands of the prevailing market conditions. 2010 Actions. During 2011, we recorded net pre-tax restructuring charges of $55 million for actions initiated in 2010. The 2010 actions relate to ongoing cost reduction efforts, including workforce reductions and the consolidation of field operations. We recorded the charges in 2011 as follows: Carrier $19 million, UTC Fire & Security $23 million, Pratt & Whitney $8 million, Hamilton Sundstrand $3 million, and Sikorsky $2 million. The charges consist of $36 million in cost of sales and $19 million in selling, general and administrative expenses. Those costs consisted of $9 million for severance and related employee termination costs, $11 million for asset write-downs and $35 million for facility exit, lease termination and other related costs. The 2011 charges consist of $180 million in cost of sales, $154 million in selling, general and administrative expenses and $2 million in other income, net, and, as described below, primarily relate to actions initiated during 2011 and 2010. The 2010 charges consist of $283 million in cost of sales, $159 million in selling, general and administrative expenses and $1 million in other income, net. The 2010 restructuring costs reflected in Eliminations and other largely reflect curtailment charges required under our domestic pension plans due to the significant headcount reductions associated with the various restructuring actions. The 2010 charges relate principally to actions initiated during 2010 and 2009. We expect the actions initiated in 2011, once fully complete, to result in net workforce reductions of approximately 5,000 hourly and salaried employees, the exiting of approximately 2 million net square feet of facilities and the disposal of assets associated with the exited facilities. As of December 31, 2011, we have completed, with respect to the actions initiated in 2011, net workforce reductions of approximately 2,200 employees, and 50,000 net square feet of facilities have been exited. We are targeting to complete in 2012 the majority of the remaining workforce and facility related cost reduction actions initiated in 2011. Approximately 85% of the total pre-tax charge will require cash payments, which we have and expect to continue to fund with cash generated from operations. During 2011, we had cash outflows of approximately $102 million related to the 2011 actions. We expect to incur additional restructuring and other charges of $82 million to complete these actions. We expect recurring pre-tax savings to increase over the two-year period subsequent to initiating the actions to approximately $300 million annually, of which approximately $59 million was realized in 2011. We recorded net pre-tax restructuring costs totaling $336 million in 2011 and $443 million in 2010 for new and ongoing restructuring actions. We recorded these charges in the segments as follows: (Dollars in millions) 2011 2010 Otis $73 $8 3 Carrier 46 75 UTC Fire & Security 80 78 Pratt & Whitney 67 138 Hamilton Sundstrand 16 37 Sikorsky 53 14 Eliminations and other 1 18 Total $336 $443