40 UNITED TECHNOLOGIES CORPORATION * As discussed further in the “Business Overview” and “Results of Operations” sections, for Pratt & Whitney only, the transactional impact of foreign exchange hedging at P&WC has been netted against the translational foreign exchange impact for presentation purposes in the above table. For all other segments, these foreign exchange transactional impacts are included within the organic sales/operational operating profit caption in their respective tables. Due to its significance to Pratt & Whitney’s overall operating results, we believe it is useful to segregate the foreign exchange transactional impact in order to clearly identify the underlying financial performance. The operational profit decline (3%) primarily reflects higher year-over-year research and development costs (14%), unfavorable commercial engine business mix and fewer military engine business deliveries (combined 7%), partially offset by higher commercial spares and aftermarket volume (14%). Additionally, gains recorded on contract settlements and contract close-outs were offset, in Organic sales growth (6%) was driven by growth in the large commercial engine business (5%), higher spares volume across the business (combined 2%), and higher industrial volume at Pratt & Whitney Power Systems (1%). These increases were partially offset by lower military engine sales. Organic sales growth (2%) was driven by higher military engine deliv- eries and aftermarket sales (5%), higher P&WC engine and spares volume (1%), and higher industrial volume at Pratt & Whitney Power Systems (1%), offset by a decrease in commercial aftermarket (6%). Sales increased (9%) as a result of the consolidation of IAE and the transfer of the APU business to Pratt & Whitney from UTC Aero- space Systems. part, by losses incurred as a result of increased airline industry exposures during the year (combined 4%). The 2% contributed by “Other” primarily reflects the gain on a sale of an equity investment. UTC Aerospace Systems On July 26, 2012, UTC acquired Good- rich, pursuant to a merger agreement dated September 21, 2011. As a result of the acquisition, Goodrich became a wholly-owned subsidiary of UTC. The acquired Goodrich business and the former Hamilton Sundstrand segment have been combined to form the new UTC Aerospace Systems segment. UTC Aerospace Systems is among the world’s leading suppliers of technologically advanced aerospace products and aftermarket services for diversified industries worldwide. UTC Aerospace Systems’ aerospace prod- ucts include electric power generation, management and dis- tribution systems, flight control systems, engine control systems, intelligence, surveillance and reconnaissance systems, engine components, environmental control systems, fire protection and detection systems, propeller systems, aircraft nacelles, and interior, actuation, landing and electronic systems. UTC Aerospace Systems products serve commercial, military, regional, business and general aviation, as well as military ground vehicle, space and undersea applications. Aftermarket services include spare parts, overhaul and repair, engineering and technical support and fleet maintenance programs. UTC Aerospace Systems sells aerospace products to airframe manufacturers, the U.S. and foreign governments, aircraft operators, maintenance, repair and overhaul providers, and independent distributors. The operational profit decrease (16%) was primarily driven by lower profit on commercial aftermarket (17%), higher research and development (8%), partially offset by favorable P&WC engine volume and delivery mix (3%), higher military engine and spares volume (3%) and an increase in contract settlements and close outs (3%). Operating profit increased due to net acquisitions (6%) primarily as a result of the consolidation of IAE. 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 $ 13,964 $ 12,711 $ 12,150 $ 1,253 10 % $ 561 5 % Cost of Sales 10,600 9,282 9,011 1,318 14 % 271 3 % 3,364 3,429 3,139 Operating Expenses and Other 1,775 1,562 1,254 Operating Profits $ 1,589 $ 1,867 $ 1,885 $ (278) (15)% $ (18) (1)% 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* 2 % 5 % (16)% 6 % 3% (3)% Foreign currency (including P&WC net hedging)* (1)% – (3)% (1)% – (2)% Acquisitions and divestitures, net 9% 9% 6% – – – Restructuring costs – – (2)% – – 2 % Other – – – – – 2 % Total % change 10 % 14 % (15)% 5 % 3% (1)%