MANAGEMENT’S DISCUSSION AND ANALYSIS SEGMENT REVIEW Commercial Businesses 2011 ANNUAL REPORT 35 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 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. The financial performance of our commercial businesses can be influenced by a number of external factors including fluctuations in residential and commercial construction activity, regulatory changes, interest rates, labor costs, foreign currency exchange rates, customer attrition, raw material and energy costs, credit markets and other global and political factors. Carrier’s financial performance can also be influenced by production and utilization of transport equipment, and for its residential business, weather conditions. Geographic and industry diversity across the commercial businesses help to balance the impact of such factors on our consolidated operating results, particularly in the face of uneven economic growth. During 2011, we saw strong but moderating growth in the emerging markets, with combined orders in Brazil, Russia, India and China increasing 19% in 2011 as compared with 2010, and tapering to 8% in the fourth quarter of 2011, as compared to the same period in 2010. Otis’ new equipment orders in China were strong for the year (28%), but slowed during the fourth quarter to 13%. Organic sales growth within our commercial businesses was led by Carrier (9%) in 2011, principally on strength in the transport refrigeration markets. In 2011, 72% of total commercial business sales were generated outside the United States, including U.S. export sales, as compared to 71% in 2010. The following table shows sales generated outside the U.S., including U.S. export sales, for each of the commercial business segments: NET SALES OPERATING PROFITS OPERATING PROFIT MARGIN (Dollars in millions) 2011 2010 2009 2011 2010 2009 2011 2010 2009 Otis $ 12,437 $ 11,579 $ 11,723 $2,815 $2,575 $2,447 22.6% 22.2% 20.9% Carrier 11,969 11,386 11,335 1,520 1,062 740 12.7% 9.3% 6.5% UTC Fire & Security 6,895 6,490 5,503 692 714 493 10.0% 11.0% 9.0% Pratt & Whitney 13,430 12,935 12,392 1,999 1,987 1,835 14.9% 15.4% 14.8% Hamilton Sundstrand 6,150 5,608 5,560 1,082 918 857 17.6% 16.4% 15.4% Sikorsky 7,355 6,684 6,287 840 716 608 11.4% 10.7% 9.7% Total segment 58,236 54,682 52,800 8,948 7,972 6,980 15.4% 14.6% 13.2% Eliminations and other (46) (356) (375) (430) (409) (255) General corporate expenses — — — (419) (377) (348) Consolidated $58,190 $54,326 $ 52,425 $8,099 $ 7,186 $ 6,377 13.9% 13.2% 12.2% 2011 2010 Otis 83% 82% Carrier 58% 56% UTC Fire & Security 77% 78% TOTAL CHANGE YEAR-OVER-YEAR FOR: 2011 Compared with 2010 2010 Compared with 2009 (Dollars in millions) 2011 2010 2009 $ % $ % Net Sales $12,437 $11,579 $11,723 $858 7% $ (144) (1)% Cost of Sales 8,090 7,540 7,830 550 7% (290) (4)% 4,347 4,039 3,893 Operating Expenses and Other 1,532 1,464 1,446 Operating Profits $2 , 8 1 5 $ 2,575 $2,447 $240 9% $ 128 5 %