UNITED TECHNOLOGIES CORPORATION 42 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 (8)% (8)% (7)% 10% 10% 12 % Restructuring costs – – – – – (5)% Other – – (8)% – – 10 % Total % change (8)% (8)% (15)% 10% 10% 17 % Total Increase (Decrease) Year-Over-Year for: (DOLLARS IN MILLIONS) 2012 2011 2010 2012 Compared with 2011 2011 Compared with 2010 Net Sales $ 6,791 $ 7,355 $ 6,684 $ (564) (8)% $ 671 10% Cost of Sales 5,643 6,120 5,539 (477) (8)% 581 10% 1,148 1,235 1,145 Operating Expenses and Other 436 395 429 Operating Profits $ 712 $ 840 $ 716 $ (128) (15)% $ 124 17% The organic sales decrease (8%) reflects reduced aircraft deliveries and completions from foreign military operations (6%) across various programs including four fewer CH-148 aircraft for the Canadian Gov- ernment, reduced U.S. Government sales (2%) and lower volume from customer funded development programs (2%). These decreases were partially offset by increased commercial aircraft volume (2%) due primarily to increased S-92 sales, which were partially offset by lower S-76 sales as Sikorsky transitions to the new S-76D model. The operational profit decrease (7%) is a result of lower sales to the U.S. Government (12%), higher engineering and development costs (1%) and lower profits from foreign military oper- ations (8%) due in large part to the previously noted $157 million loss provision for the CH-148 contract with the Canadian Government, partially offset by favorable aircraft mix within the foreign military operations business. These decreases were partially offset by an increase in commercial profits (10%) due primarily to strong S-92 volume and profitability, and increased aftermarket support (5%) due primarily to increased U.S. Government spares sales, favorable con- tract performance and savings from restructuring initiatives. The 8% decrease in “Other” primarily reflects the absence of a gain recog- nized on the contribution of a business to a venture in the United Arab Emirates in 2011. increased as higher aircraft deliveries and favorable aircraft config- uration mix more than offset the adverse impact of losses associated with higher than expected development costs on international mili- tary development aircraft sales (2% combined). The remainder of the operational profit increase was primarily driven by lower manufactur- ing costs, higher volume on customer funded development and lower research and development costs, which more than offset the impact of fewer aircraft deliveries from commercial operations. The 10% increase contributed by “Other” reflects the gain recognized on contribution of a business to a venture in the United Arab Emirates. Eliminations and other reflects the elimination of sales, other income and operating profit transacted between segments, as well as the operating results of certain smaller businesses. We have previously reported the results of UTC Power and Clipper within eliminations and other but have reclassified the results of these businesses to dis- continued operations for all periods presented. The change in sales in 2012, as compared with 2011, reflects an increase in the amount of inter-segment sales eliminations due to our acquisition of Goodrich. The change in the operating profit elimination in 2012, as compared with 2011, primarily reflects the benefit of lower insurance and legal costs and gains on corporate-held investments. The increase in organic sales (10%) was primarily attributable to higher military aircraft sales including higher international develop- ment aircraft sales and favorable military aircraft configuration mix (8% combined), which more than offset a decrease from commer- cial operations (2%) due to fewer aircraft deliveries. Net sales from aftermarket support increased (4%) primarily driven by higher spares volume. The operational profit improvement (12%) was primarily attributable to an increase in aftermarket support (10%) driven by higher spares volume. Operating profits in the military business LIQUIDITY AND FINANCIAL CONDITION Eliminations and other 2011 Compared with 2010 2012 Compared with 2011 (DOLLARS IN MILLIONS) 2012 2011 Cash and cash equivalents $ 4,819 $ 5,960 Total debt 23,221 10,260 Net debt (total debt less cash and cash equivalents) 18,402 4,300 Total equity 27,069 22,820 Total capitalization (total debt plus total equity) 50,290 33,080 Net capitalization (total debt plus total equity less cash and cash equivalents) 45,471 27,120 Total debt to total capitalization 46% 31% Net debt to net capitalization 40% 16%