Good evening. Welcome back to the Asia Society for the annual investor update by UTC. Before we get started, just a couple of housekeeping details. First of all, tonight's presentation is being carried live on the web. The presentation materials can be found at utc.com. And of course, legal disclaimer presentation will contain forward-looking statements, subject to risks and uncertainties that could cause actual results to differ materially.
Okay, Louis is going to talk about Goodrich in more detail just a few minutes, but let me just take a second to comment on the regulatory process to get that out of the way. As expected, we have received a second request from the U.S. government, and we're working on that response right now. We're also on track with our plans for the filings really around the world, and all of that remains on track. And there's no change to our expectation that we're going to close on Goodrich, probably by about the end of June, mid-2012. And due to the fact that we continue to work on these filings, we're not going to be taking specific questions regarding the regulatory process or other parts of the deal.
Okay. With that, let me just start with 2011, just a quick recap before we get to the guidance and Louis. As a reminder, we're going to talk to all segment results, both on '11 and for '12, adjusted for restructuring and one-time items just like we typically do. So this year, all right, no surprises here, very, very solid year, organic growth 5%, all 6 business units will show organic revenue growth. And all 6 businesses will again have double-digit operating margins for the year.
At the same time, we continue to increase our investments in game-changing technologies, in 4 GTF platforms. The X2 even on the commercial side, the Aurora furniture continue to invest. E&D is up about $275 million plus, for the year. So you have big investments, but the right thing to position the business long term. And again, continued strong execution, and a focus on 2012 with restructuring. And we started out the year with $100 million to $150 million of restructuring. We're now at $300 million plus, as we position the business for the uncertainty that we're seeing to date around the world. Since we released third quarter results back in October, order rates across the business, really no change, in line with what we had expected to see. Obviously, a slowing world economy, we've seen that in the order rates, but not a surprise, so in line with expectations.
And at this point of the year, FX, despite the recent volatility, will not have a significant impact on 2011 results. Full year average about 140, maybe 139. But again, as we sit here towards the end of December, not a big impact.
We had seen ongoing market weakness and productivity issues at F&S. As a result, tonight we're going to take down the F&S guidance one more time this year, unfortunately. So about a growth of $50 million year-over-year from $100 million previously. The good news, if there is, and the story is, the problems have been identified, they're related to productivity, they're related to some restructuring that has been going on in the field in Europe. As you roll in, the team are on top of it. It is fixable. We will fix it. And the business will grow earnings next year.
Offsetting the F&S headwind, we are going to see a little bit of an important improvement in the tax rate of about 0.5. So net-net, no change to the overall guidance for the year. Still see sales up $58 billion -- up to $58 billion, up 7%, EPS, $5.47. That's up $0.15 from last year, and a strong cash flow. Free cash flow will exceed net income for the full year, and we -- despite the fact that we suspended share buyback back in September when we announced the Goodrich acquisition, we still return 70% of free cash flow to share owners this year, in the form of dividends and share buybacks. So a very good year, a solid year, positioning the business for 2012. With that, let me hand this over to Louis Chênevert, UTC's Chairman and CEO.
Louis R. Chênevert
Well, thank you, Greg, and good evening to all of you. It's an absolute pleasure. It's hard to believe, it's already been a year, we're back in New York for the annual event. As noted, 2011, another strong year for UTC. Solid execution across the portfolio. We're well positioned to grow the base business going forward. We announced 2 transformational deal in 2011. I'm very proud that we could bring together such property. As Goodrich and IAE, of course, as you heard from Greg, it's in the regulatory approval, but we feel good for our mid-year close in '12.
Three-key points of the deal. Customer feedback has been very positive, integration planning is going very well and not laying the team and the integration group are making great progress, and we're going to be very aggressive to ensure that from day 1, after we close, we hit the ground running, so we're doing all this planning process at this point in time. And definitely, I mean, these transformational deal will drive very strong growth in 2013 and beyond. So 2012 is kind of a transition year. But after that, absence of one-time cost for the deal, and then the earnings momentum, it's going to be very, very good for our shareholder at UTC. Bottom line though, good performance in 2011, and we really laid the foundation for strong earnings growth in the future.
Now let me start this evening, perhaps, and let's look at the overall economic environment. You know, in 2011, world GDP growth was led by emerging markets. Certainly, I'm here to say that 2012, this trend will continue. That's where we see the strong momentum. But even there, with strong, it's moderating growth, as certainly in some of these emerging markets. And across the globe, we'll see uneven growth in 2012.
The world GDP estimates have recently been revised as you know, downward, 2.9%, but I'll say this. Even this, at this point, given everything going on perhaps feel optimistic. And we're planning for slow growth in Europe and North America, I would say slow growth to flat, given everything going on. And based on outlook, as you saw, we accelerated restructuring, it's not going to be $300 plus million for 2011, because this is the month for UTC, we always are proactive and prepared for what could be a tougher environment, and we're doing that again at this point in time.
Now, looking more closely at developed economies. Despite what's been advertised here and there, strong holiday sales, U.S. consumer sentiment, as well as housing, unemployment remained very weak. And there's more challenges in Europe, certainly in the last couple of days have shown some of these challenges surface even more where the economic sentiment is deteriorating as we speak. If we turn to businesses, for example, for Carrier and we're experiencing $0.03 to $0.05 growth in U.S. red, that is really driven by the replacement market. There is 95 million units installed out there. And what we're seeing is, with the life cycle of these products, people eventually have to replace. But even then, we've seen a trend where people replace with the lower tier machines, and they try to sometimes do everything they can to repair, to buy time. So that, I think, is a pretty good snapshot of how consumers feel overall at this point in time.
So if you look at commercial construction market, the indicators for the last period year, the ABI, has been below 50 for 6 of the last 7 months, indicating also low activity at this point throughout 2012. Overall, we see flat commercial activity in Europe, and slight growth in North America.
Now, looking at 10-year towards the yields, the downward trend also means continued impact on pension expense. I'd like to back to this. I'm very pleased of the leadership team and all we've done to make sure we positioned for the best outcome. But obviously, we focus on what we control and the discount rate is going to be no later than December 31. Bottom line, the ongoing debt crisis and uncertainty in the world economy, is really dampening the economic outlook.
In emerging markets, the outlook obviously is better as I've said in my opening remarks because it's mostly driven by urbanization. This is what fuels the growth. In China, as you know, it's a very important market, for example, for Otis. We're encouraged by the recent efforts by the Central Bank, the East Credit. And China's continued investment in social housing. We've seen a big shift over the last few years, into a different mix for Otis, but also, a lot of momentum on social housing. Social housing market is very important to Otis. It's grown at 35% CAGR since 2000.
Overall, Otis China sales are expected to be up double digits in 2012. This is based on what is a strong market backlog. It's up basically 20% alone this year.
Of course, we recognize that the order rates are unlikely perhaps to remain as strong as 2011 levels, but the fact is, we know that there's a big shift in China from the coastal area to central and west, and that evolution continue. And government action in my view, shouldn't mean that we see, perhaps soft landing for that market. And there's still a lot of strength as I described in central and western city. And ultimately, the long-term price for China in my view, is that if you think about Otis today in aftermarket, we have 75,000 elevators that are under service contract, it's now about 7% of news outcome with some aftermarket contract, it's up from 6%.
75,000 units is the size of our U.K. market position for Otis. And the fact is, we know in mature markets, the average is about 60% of the installs on the service contract. And maybe China is not going to be like mature market for a long time to come, but I know one thing, it's not going to be 7%. So there's plentiful upside for Didi and the team there, in 2012 and beyond, as we continue to set up the company, to take full advantage of that aftermarket opportunity.
Turning now to Aerospace segment. Commercial airline profitability, is still challenging. At all price remain always a concern, and that's why we've devout this technology, that can make a difference for the airline, that could improve their performance, as far as bottom-line results. Long-term RPM growth though, still looks strong for the year. For example, RPM growth is 6%. And we expect in 2012, it's going to be between 4% to 6%. At Pratt and Hamilton, we expect aftermarket growth, despite the tough compares, we'll deliver some good numbers. Commercial Aerospace and Pratt will be up mid-single digits, and Hamilton, probably up 10%.
This is aircraft market. We know the high end has already recovered, long-range, large business aircraft. There's been incredible recovery in demand. They've already surpassed prior peak. The low end is still sluggish, low to mid size, but the fact is, we know that basically, that market is going to start to recover, based on the trends for 2012. And at Pratt Canada, engine shipments will be up mid-teens next year, driven by the new platforms we've won, but also the helicopter segment. U.S. DoD segments, obviously, U.S. DoD spend is under pressure.
A few key points to remember. U.S. DoD today accounts only for 18% of our sales. As I said earlier this year, we now have gotten to the position where emerging markets are more sales than U.S. DoD. Emerging market are now 20%, so that's a big transition. UTC in my view is on the right program. I look at our portfolio product for U.S. DoD. I take my portfolio any day and that's the JSF. That is the platform like the BLACK HAWK helicopter, that's the 53-kilo, so we are, in my view, as a young, modern program that has a long bright future ahead.
All doubts about the alternate engine on the JSF I think has been removed, hopefully tonight, based on recent announcement. This is a question I don't have to answer. And our focus is really on creating value for the customer, driving cost down, making sure the taxpayer and the DoD see the value in our program. I mean, that's what we do in this company. And I know that the team is going to deliver and we're going to delight the customer. Program execution continues to go quite well with Dave and the team and how we support Lockheed Martin in the platform. So bottom line, mixed outlook for 2012. So we'll continue to focus on what we control, including, improving productivity. This is what UTC knows to do, and we have a team, we have a nice operating system, and we know how to drive it.
We're on track to spend over $300 million on restructuring this year. This has gone up to the year. I mean, this follows spending well over $1 billion in the past 2 years alone, and we see the results across the business. I mean, what we've invested in restructuring, we've seen the great deal. Carrier's transformation has resulted from basically all these efforts we put in place. Today, Carrier adds a much lower structural cost. Overall as a percent of sales, has fallen to 18%. And the number of executive, for example, has been reduced from 270, back in '08 to 140 today. It's a simple organization, more focused and I'm very proud of what you and the team have accomplished. It's a great example of using UTC's knowhow, and focusing the business and getting outstanding results.
Hamilton's Industrial business has grown profit by 30% since '08 on flat sales. So the key takeaway is, we've taken the actions that will help costs down in a challenging 2012. And if we turn to the outlook for 2012, FX rate and pension will be significant headwind in 2012, I think it's no surprise.
If I start with the euro, predicting the rate has become almost impossible. You look at last year, 1.29 in January, 1.48 in May and just in the last 8 weeks, the euro has changed from 1.42 to 1.49 yesterday, it's back to 1.30 today. So in building our 2012 plans, we have set the euro at 1.35. This is below the 2011 average rate of 1.40. I mean, this is what we see for 2011 finals. So this is how we expect it for plan 2012. Pension are also expected to be a headwind. It's about $0.15 of EPS headwind, and this assumes a discount rate of 5%. And as you know, December 31 is going to be the key date where we find out what the discount rate truly is. But just recently, I mean, discount rates gone from 4.7 to 5.4, and that obviously moves the number substantially.
Now I'm proud that if you look at what we've done with the pension, we've taken the steps a couple of years ago, to ensure we optimize the headwind with pension. Had we not done that, the headwind would be even more substantial. And we moved the cash balance for new employees several years ago, we're also in the process of sunsetting the SAE plan, and we're in the year 3 of 5 on that. The pension plan, the good news is, with all the money that we've put in, it's $3.5 million the last couple of years, it's $700 million just in '11. The plant is well funded at about 90%. So in 2012, there's no need for domestic funding of the plan, for actually, it's the next 2 years, not just '12, it's '12 and '13. So all the actions we took and the proactive injection of money in the plan, positions us well for the future. So FX and pension will have big impact on 2012 business unit guidance.
At the high-end of the guidance range, BU process growth is 5%, and sales, 4%. Excluding FX and pension, profit growth is 9% and sales, 5%. Strong conversion, you've come to expect from UTC and RBU. For our base business, excluding the Goodrich transaction, and assuming business as usual for UTC, so if you look at it, BU would contribute $0.38 of growth year-over-year. You'd have $0.06 of benefit from the tax rate reduction to 29.5% and $0.09 of benefit from corporate item, primarily the share repurchase program we would have continued, if we didn't suspend the buyback for the Goodrich transaction.
So key takeaway, our EPS growth outlook for the base business is up 10%, which is consistent with our long-term target of double-digit earnings growth. Now, if you turn to specific business unit guidance, including the negative impact on FX and pension, at UTC, where life is, everything gets a stretch plan. And the present is always eager to take on that stretch plan, and bring it home with their teams. This year is no different. Commercial businesses if we start with Otis, new equipment is up high-single digit, with continued service growth. Earnings will be up $50 million to $75 million on higher volumes, partially offset by FX.
As you know, FX has a big impact on Otis, because of the global footprint and the business that they use specifically in euro. CCS, our new business segment, on Brazil, organic sales will be up 4%, offset by a portfolio divestitures and FX. As you know, we've done a huge transformation, again through the last few years, but quite a big substantial move in the last 12 months.
Earnings will be up $225 million on strong conversion. I think it's also important to note that the first half of '12, will be tough for it's CCS, because Carrier phase is true tough compares. We have started to see a lot of momentum developed in the first half of '11. And therefore, it causes for a tough compare in the first half of '12. If you turn to aerospace, P&W, earnings will be down 0 to 50. As we continue to invest in game-changing platform and strategic programs that are truly going to fuel tremendous top line growth in the future, Pratt is back in the narrow-body business in a big way with obviously IAE transaction that will complete next year, but also the traction at GTF, which I'll cover a little later on.
Basically, we feel very good about the 320neo (sic)[A320neo]. We feel very good that also the progress on the PW800 core, that's leveraging a C-Series type, Geared Turbofan core, to make a large business jet application in the future. We're still focused on that with our investment in E&D. Obviously, they'll see higher attention. We'll PWC FX, that is partially offset by growth in commercial aftermarket, as well as the restructuring savings for what they've done in '11.
At Hamilton Sundstrand, I expect a very strong year. This is the year for Hamilton Sundstrand. We're now ramping up the production system for 787. Many new platform are going to start to enter service. So sales growth will be up 10%, growth in the industrials and commercial air OEM and aftermarket. Earnings will be up $150 million on higher volumes. And I'm excited about how well the business is positioned to take on this challenge for '12. Sikorsky, earnings will be up $25 million to $50 million, and that's despite the pressure on top line with the BLACK HAWK production volume next year, as well as the 5 Canadian maritime deliveries that we are forecasting in '12.
The growth is driven by restructuring savings and productivity. Margin expansion is consistent with the 14 by 14 target that Jeff embraced. And I'm confident, based on the outlook and the current planning, that we're absolutely on track to meet that big bull target by '14.
So turning now to Goodrich, truly a transformational event for our company. My goal, #1, is to move fast and the transaction is on track, all reviews are proceeding well, customer reaction is very positive. And if you assume a mid-close, a mid-2012 close, what we see is EPS dilution for '12, that's about $0.40. That's the high end of our earlier range. Now this is preliminary. It could vary a bit up or down. As we learn more about the business, I think we're going to be able to confirm that. It also includes a $0.15 unfavorable impact of equity issuance. I hate, I really hate issuing equity. I mean, this is something Greg and I are totally aligned. And we're working our ways to limit this at this point in time and stay tuned.
I think this team will develop a plan, so we absolutely minimize what we have to do going forward on equity issuance. So in addition to the $0.40 I described earlier, there's a $0.10 impact in 2012 from the suspension of share buyback. Looking ahead, as I said in my opening remarks, 2013 will be a very strong year. If you think about the estimate for Goodrich, you'll have the absence of deal costs and you'll have $0.20 to $0.25 of accretive earnings to the company.
So I mean at this point in time, preliminary, we're very excited about what it's going to do as far as transformation for the company going forward. Now, turning to the EPS outlook for 2012. At the top line, we expect 2012 sales to be $59 billion to $60 billion for the base business, so it's up 2% to 3% with 2% to 4% organic growth. FX headwinds of 1 point of the euro at 1.35, EPS for the base business is therefore, going to be $5.80 to $6. That is up 10% at the top, 6% at the bottom. Again, this excludes Goodrich and assumes business as usual, including share repurchase that would accrue to the accretive in our Goodrich. With respect to contingency, at the midrange, we have $130 million at the midrange or $5.90. Assuming a June 30 Goodrich close, the sales would increase $4.5 million, EPS would be diluted by about $0.50 to $0.40, plus the other $0.10 I described, resulting in EPS in the range of $5.30 to $5.50.
You know, 2012 is going to be a challenging environment, but I expect good performance from our base businesses. Closing Goodrich transforms our portfolio, sets the stage for very strong 2013 and beyond. At UTC, we have a long-term track record of earnings growth, and I'm confident we have the right strategy to build a very strong future.
Our strategy remains unchanged, as tricky points, we're positioning ourselves to benefit from recovering and emerging markets. We remain focused on cost and productivity to achieve and sustain industry-leading margins. And as usual, we're focused on generating strong cash flow. And to better execute this strategy, we announced a new organizational structure. I've been working on this for over a year. The 2 key points about the new structure is that it increases our capabilities, and more importantly, it drives proper ownership, accountability moving forward.
I have few comments on the new structure starting with the aero side. Our new organizational structure allows us to better leverage the long-term investments we've made. Bringing more senior executive focus to the big programs, think about GTF execution, JSF execution, 787 ramp up. So big focus on leadership, and also reduce costs by leveraging the supply base and low-cost sourcing initiative. And this is something we know how to do at UTC. The new structure also allows us to better coordinate our technology development efforts, and emerging market efforts as well, where we see a lot of momentum developing. Adding Goodrich to the new organizational structure brings more benefits, including additional cost synergies, both in management structure, as well as positions us to deliver more integrated solution for the next generation aircraft.
In my view, the total content we're going to see with this acquisition, plus our portfolio, puts us in a unique position going forward, to offer great value, cost reduction to our end customers, and I'm excited about this. If you think about it, 3 months ago, we announced a deal, and you probably are asking yourselves how do we feel about this deal 3 months later. Tell you what, the more I learned, 3 months separated from the deal, I like it even more today than I did the day Marsha and I signed the transaction. It's got great people, it's got great products, and it has a great future.
Goodrich, along with the IAE deal, will transform the company as we move forward. I also like the IAE transaction, we did a whole lot. I mean you're seeing some of the results of that transaction in last 24 hours, with the jet fluid deal. There's no doubt it's going to be a lot easier to transition customers from classic B25 100 power to GTF solution in the future. That move is a great example of our legacy customer that is moving along with the GTF, so this is all good for the customer, for our shareholders and for moving forward with tremendous momentum.
So turning now to combined Carrier parts security business segment. Our new climate control security system segment allows us to better serve our customers. We have unmatched product portfolio, if you think about the content we have in large infrastructure, building solutions. And this is unique to UTC now. The new structure allows us to stay very close, link with the customer and find a way to drive the right value solution for them. And under the combined entity, we'll be able to better coordinate our own investments, and the customer relationships on the global footprint. And we'll do that while delivering cost savings from management consolidation. There's no doubt that new structure also emphasizes the significant area of growth, which is building automation and control.
In the past, we had all of these different pieces, both in Fire & Security, as well as Carrier Enterprise Carrier Solution. And now, it's going to be pulled together, to create the right level of value for the end customer, and you'll hear a lot more from Gill in March. I'm truly excited about the opportunities that we've created, with a combination of these 2 segments that have been in the works now for over a year. In the meantime, I'll share the 3 major elements of driving margin growth in this new segment.
I know you're already anxious to hear about Gill and about Akhil and the Presidents in March, but let me give you a high-level heads up. First driver is business transformation. In the case of the momentum in the Geraud business, we're looking across the portfolio for opportunities to rationalize. This is something that we have done. We're carrying divested in the last couple of years, over $3 billion of non-core business, and it's paying big dividends, Geraud will apply the same discipline to the F&S portfolio.
The second driver to the productivity is, we're seeking opportunity for cost savings across the business and management consolidation. And we know how to do that again at UTC. F&S already is still very high, there is opportunity to simplify and reduce structural costs. You got to remember, we did 61 acquisition at F&S. So we had a lot of pieces together, we've structured a lot. And as you look at it today in retrospect, Greg talked about some disappointment this year with F&S. But the fact is, we've taken focus on businesses. We're now about 12% on our way to mid-teens. The fact is, the new organization gives us the chance to basically position these businesses with the right structure
and basically, through portfolio pruning in certain assets, we've already started with the man guarding business. We don't think this is a UTC-style business and we started to divest those in the last couple of years. Expect there's going to be more transformation in that portfolio. And from my end, I'm happy, Geraud, you want to come up here? It's become a tradition in December. I have to do big goal for someone, and tonight's going to be for Geraud. I'm announcing a big first goal for Geraud. For CCS of 15% margin by '15. And Geraud, I've already framed the -- there you go, congratulations. Thank you for embracing big bowl Geraud, you don't have to comment tonight, I know -- absolutely, it's a pleasure. This is the UTC way, right? So big goal for CCS. I'm confident Geraud and the team will achieve it, the demonstrated track record is there.
I recall some of your comments to him, where you were challenging him and me when this Carrier is going to get to double digits. And then you see Carrier be there, with the big goal of 12 by '12, we got there a year early. None of you believe this was possible a couple of years ago, but portfolio transformation has driven tremendous momentum. Geraud is the man, he knows how to do it and expect that this goal will be met. It's going to be exciting.
Part of our success will come from leveraging growth opportunities in emerging markets, and that new portfolio, as well as our aerospace segment is no different. At UTC, we're well positioned in emerging markets. Emerging market sales are 20% of UTC sales, as I mentioned earlier, it's up from 15% in 2000. It's a higher percentage, as I mentioned, than U.S. DoD sales to date, 20 versus 18. Year-to-date, performance in the BRIC countries has been extremely strong.
China, this year, it will be over $3.5 million of sales. It's up 20% -- 21% I see through third quarter. Russia, Brazil, India, have also seen very solid growth. So I like our position in emerging markets. I like our knowledge of these markets and how, we could impact them with our value solution and our local leadership talent that drives the daily agenda. And I'm most proud of what we've accomplished through the attraction of this leadership team in these emerging markets, as well as our continued commitment to fund technology investment, to what has been tough economic times. And I wouldn't be here today to talk about GTF, had we said well, it's so tough out there. Let's take a pause on some of these investments. We would not be announcing all these new orders. We would not be announcing the 4 platforms.
So this is something as you know, that needs a commitment from the BU President. It needs my support and that's something I'm extremely proud of. At UTC, we understand the importance of funding our future and funding tremendous momentum to the right platform. R&D is still strong organic growth in the past, and positions us very well for the future in my view. Prior to the launch of the deal, I love the questions about the big GTF investments, and about the gear technology, because there were peers and there were players out there, kind of doubtful on whether this could ever be brought home.
Today, I get no question about the GTF technology, and I think the numbers speak for themselves. The GTF engine continues to perform exceptionally well in testing. We got over $1,000 of full-engine testing. You'll hear a lot more about GTF progress in March, as well as about our other technology developing program, and that includes the Sikorsky S-97 radar. That is the second step to the X2 Technology.
With respect to R&D spend for 2012, excluding Goodrich, we expect to spend over $4 billion in customer and company-funded R&D. Company-funded R&D is expected to be up $150 million, primarily at Pratt.
2012 will be the peak. Company-funded R&D will flatten in '13, and then it's going to start declining. Because at this point in time, we have learned first of all, the new R&D investment are very productive the way we approach them. We're leveraging multiple platforms, and I can see a path to not only flatten, but start declining as we go forward. And as you know, we got to reap the benefits of tremendous top line, based on the investments that we make. In addition to the technology leadership, we are focused on industry-leading margins, always. Our goal is industry-leading margin across all businesses. The good news is, we're not there yet. We've had solid progress in driving productivity for the past decade. Operating profit has nearly tripled and sales have more than doubled.
At the same time, the number of employees and manufacturing square footage has remained relatively flat. I'm proud of this performance. I'm proud of our leadership team. We've aggressively and proactively restructured our businesses to position for strong future. We've grown our service portfolio. We've increased our low-cost sourcing and we've deployed, ACE the common language across the whole portfolio. Bottom line, lots of progress by this team since I became CEO back in '06. And it's hard to believe, 2012 is going to be my fifth year as CEO of the company. I mean, time just flies when you're having so much fun, right?
In 2010, I set a goal you'll recall of having 70% of our key suppliers spend come from goal and performing suppliers by 2012, covering more than 2,000 suppliers. We're on track to meet this goal for our base business. I'm proud of traction. We're getting a lot of pool from the supplier, where the ramp up that's just in front of us, it's exactly the right recipe in my view for success. And we expect to see the benefits of many of our new program, EIS and suppliers, will meet to quickly ramp up over the next few years to support these programs, there's going to be additional benefit as we leverage ACE operating system, obviously with Goodrich, once we've close Goodrich, be assured. I mean they already have the right foundation in my view from what I've seen at Goodrich, but they don't have a wholly integrated operating system, and I think they're eager to be able to leverage what we've done so far, and with our ACE operating system. And of course, that will lead to reset the goals, because once we integrate this $8 million business in UTC, it's going to be a headwind near term. But we've got the track record that says, we're going to bring him home, and I think we're going to see a lot of momentum.
Strategic sourcing is another area of opportunity for improving margin, both in our base business and more once we get the Goodrich family in the portfolio. As with R.A. system, we've made good progress against the sourcing goals. Back in '01, 15% of our material spent was with low-cost sources. Today, we're on track to reach 40% target by 2012 -- sorry, by 2013.
Earlier this fall, I made the same commitment to the UTC board, while touring our UTC facility in Poland, which includes Hamilton Sundstrand, new APU business and overall business in session [ph]. Sikorsky's Munich facility, that has delivered fabulous results at this point, they're now manufacturing the international BLACK HAWK, to support Sikorsky's international sales growth.
As you probably read in the news recently, we've delivered one of these international HAWK to Mexico, we've delivered 3 to Saudi, and we just secured following the board's trip to Poland, 12 order from the Sultan of Brunei. And that is very exciting because this is a process where there's a lot of traction, the facility, some of you have seen it, is fabulous. And the momentum in that the Polish environment is just very rewarding as you'll walk the factory and you see what we have accomplished in just a couple of years. Our new structure allows us to best leverage these effort across the common supply base, and acquiring Goodrich obviously provides, again, more opportunities in this area. Because Goodrich strategic sourcing to date, is less than 10% on the retail spend, so there's good upside as we look at the future, understand these businesses, and position them to deliver more value to the end customer and to our shareholders.
So turning the page to cash flow. Cash flow has been very strong this year, 109% of net income through September with $156 million of pension contribution. For the full year, we expect free cash flow to exceed net income. We suspended share buyback, as you know, with the Goodrich announcement but we've already done $2.2 billion of share repurchase, by the time to we did that suspension.
For the coming year, we again, expect free cash flow that will meet or exceed net income. And as in the past, we continue to effectively redeploy that cash. In 2011, we announced 2 transformational deals. Goodrich and IAE, beautiful, both in our core. Those are businesses that are very complementary. And at the right time in my view in the aero cycle. I look at the ramp up and schedule of the big OEMs, with their narrow-body segment. I look at the future RPM growth chart. It's significantly improved our position in the fast-growing commercial aerospace aftermarket as well, because there's big content on aftermarket in the Goodrich property as well.
Our market that is projected to grow at least 5% annually for the next 20 years, so I like that a lot. Goodrich brings complementary products, high aftermarket content, well positioned for the next-generation aircraft. And from what I've seen so far, as I've said earlier, just great people and a culture that's going to mesh very well with the UTC culture, and that's also important for our success moving forward.
So from a financial perspective, solidly accretive in year 2, the business case includes today $350 million to $450 million of cost energy, I'm very confident that's going to be a lot there, and I'm going to challenge Alain at the right time. Alain's working with integration team. We're learning a lot more about the business and stay tuned in March, I'm sure we'll have more news on exactly what we see from a cost synergies, as we integrate these businesses.
So exciting time. IAE deal as well, brings smoother transition. As I said earlier, from B25 100 to GTF platform. It's streamlined to support for 320 family of engines. It's important to remember, there's an install base of IAE engine, where we now have majority control after we close this transaction, 4,500 engine installed base. There's a backlog of 2,000 engines you saw recently. We have secured a follow-on order for American Airline, which is the A321 family with a classic V2500.
In my view, that will pave the way for securing GTF platform at the right time obviously. There's always challenges in the industry, and the week after the deal we got announced, we announced bankruptcy. But I'm confident that these deals is what exactly America needs, to reduce their costs and succeed in the future, so I think we're well positioned there.
But it's just a couple of example, I mean if you think about JetBlue, you think about American secured recently. IAE transaction is going to help a lot more of this in the future. We've also strengthened our relationship with Rolls Royce. Rolls is a great company. Rolls is very strong in their wide-body segment, and they have great technology. And there's no doubt, as we form this partnership for next-generation aircraft, and this is still far away, because we need the right platform to launch. We'll bring the best-in-class technology, and Rolls has already stated publicly many times, that they fully embrace and endorse GTF technology. So we got a game plan until 2025 right now. Where any launch after we move forward with, for replacement aircraft and narrow body, would be done with GTF.
And if you combine both our best technology with the GTF architecture, there's no doubt we're going to be hugely successful. So again, both Goodrich, IAE transactions are on track for mid-'12 at this point in time. We'll keep you informed. Besides value enhancing acquisition, UTC has a long track record of returning cash to shareholders through dividends. And I'm very proud of our track record. 75 years in a row, uninterrupted of dividends. Through most of this decade, we have improved, as you know, or increased the dividend every 5 quarters. Most recent, was this year's second quarter, was 12.9%. I will continue the practice of increasing the dividend, in line with EPS growth, maintaining our payout ratio. This is very important for you. This is very important for our shareholder in the market. And as always, we are focused on creating value for our shareholders.
Over the last decade, UTC shareholder return has increased nearly 200%, significantly outperforming peers and the broader market. 2011 was a year for laying the foundation for continued long-term earnings growth. We focused on core with Goodrich and IAE. We align our organizational structure to capitalize on emerging markets. We remain focused on productivity and cost reduction actions. We delivered strong cash performance and raised our dividends. Simply put, I'm very proud of what we accomplished in 2011. Let me close by saying, yes, we delivered in 2011 with 15% EPS growth expected. We see good growth in our business in 2012, despite a challenging environment. Because guess what, our global presence and our balance works at UTC.
I mean, if you look at all the markets we serve and the plus and minuses, we always find the recipe with this team to go deliver on our promises. And the deal we've announced this year, will transform our business long term. And I'm proud that as I look at 2013 and beyond, I smile already.
And you're going to smile when you see what we're going to accomplish with these transactions. We're committed to the goal of double-digit growth. This is in our genes at UTC. This is the way we operate day in, day out. So let me stop here and I'll open up the floor for questions. Thank you very much.
Louis R. Chênevert
There's a microphone that's going to come down and circulate. Let's start right here with Dean, we'll go up there, then we got right here, so we already got 3 questions in the queue.
Louis, hopefully we can walk through the issues where Bryant Security and you talked about productivity issues, Europe, and just size for us in what the problem was and what the resolution and timing might be?
Louis R. Chênevert
It's a very good question. Honestly, as you can imagine, I'm disappointed that we have some of these glitches. Obviously, I don't control the U.K. market. That's been very soft for us, and it's had an impact. But the productivity side, it's something we know what to do. I think the convergence of all these restructuring that we did in uncertain locations, has become overwhelming. And in the metrics that we track in all that, there should have been perhaps, a pause done at a certain point in time on some of this reorganization, because we started to lose some momentum on some of these reorganization. Now if I think about my career at UTC, if I think about our core competency, we've been there before. I mean remember '06, when I took over as CEO, I look at Jeff, I mean we had a strike on our end. Sikorsky was not so special. Today, we're all proud of Sikorsky, 3x sales, we fixed it, we've got a big bowl target, 14x14. If I took the Carrier transformation example. So I mean, it's unfortunate, we wind up in this position. But I would say this, the progress is not a straight line, from 4% to 15%. I mean we have had good momentum, but at this point in time, we're 12%. It's not what we want, but we know how to fix it, Geraud's already on it, we've identified the issue, we've made a couple of leadership change, the structure is in place. You're going to hear a lot more in March, but this is going to be resolved, I give you my personal commitment. Because we can move people around. That's what our strength to UTC today. Obviously, we jump start initiative at the Sikorsky, we transferred some of the key players if they needed to do it. Obviously, we jump start Carriers quality et cetera, same thing. In the case of F&S, remember, it's an influx of all these culture through acquisition, but also, a lot of people to drive the business. We're reorganizing, making the business also a little simpler. Post 61 acquisitions, there is quite a bit of a complexity in there that needs to be dealt with, that is also the cause of this challenge. Right there.
Somewhat related to that, can you talk a little bit about restructuring, you doubled spending this year, of what you plan from 150 to 300. How much of that was pulling things forward versus new actions for the current environment? And can you just talk about what the net spend in 2012 looks like versus 2011?
Louis R. Chênevert
Sure. Well, obviously, restructuring is in our culture. We always try to position the business for the future. We always have, I want to say, several proposal from the BU that we analyze and that we work with them to see if the payback was good enough for our requirement, to see what the outlook is, why they want to do it. What we saw mostly on the back half of '11, is obviously, given the turmoil and basically, European Community, given some of the changes in the business, we saw the need to accelerate some of the restructuring. That's why wound up by now, $300 plus million. And going forward, at this point in time, as you know, there's still lot that's driven this in some of the market, you can be assured. The one thing I didn't mention tonight is very important, restructuring will equal gain. Remember, I made a commitment to all of you earlier in -- as I've presented the guidance for '11, that this one-time special charge wouldn't do anymore. We are committed, Larry and I are committed to that. So no more disconnect in the future, but we also see opportunities as we move forward in '12. Greg, do you want to comment a little more on some of the inputs we're receiving in planning for next year?
Gregory J. Hayes
Yes, again, as it relates to 2011, I think the biggest item that really popped up on the radar screen in the back half of the year was the actions we've taken at Sikorsky, as we've positioned the business for what is a slow growth defense environment. Jeff has taken some very, very tough actions down at Sikorsky, both in scratch, but really around the global footprint. But it's really not Jeff, and Jeff, he's probably the biggest but I don't deviate, he has been doing continued restructuring at JFS. In fact, all of the businesses have been continued restructuring. I also don't think we've pulled anything forward. I think again, this is just a reaction to the fact we got some good news on the gains, on the taxes. We got some nice settlements. And as we look at next year, we'll probably have about $150 million to $200 million of restructuring, and we have gains already in sight to do those things. So we've got -- I think it's just business as usual, making sure that the business is cost competitive.
Louis R. Chênevert
Okay. We got a question from over there. Right here, we're going to take it.
I have a couple, Louis. Just First of all, very simply, if you breakdown the 4% organic growth in CCS that you're looking for, can you just do that very simply for, I guess, Fire & Security, and then residential, nonresidential, et cetera?
Louis R. Chênevert
This is moving forward, this is probably a great time by the way, to exposed our new leader of CCS and ask him to complement. I mean, from the macro level, I think we have the plans all coming together, [indiscernible] Gill do you want to take the mic, and perhaps, comment on how it comes together?
We see rates up 3% to 5% next year. We see commercial in the U.S. about up 5%, we see Asia commercial high single-digit, close to double digit, China's already down, obviously container will be down shortly on the back of a very strong number this year. Europe, truck trailer, will be down mid-single digit, and we see a truck trailer review is up mid-single digit. On the F&S side, we see flattish in Europe, actually also flattish in Europe for the HVAC segment. And on the product side of F&S, up in the 3% to 4%. And Asia, up more but you shake it all up, and you get about 4%.
[indiscernible] This is a roll up, and Louis, you mentioned 61 acquisitions. And we've lowered the targets, I think 3x here, the last 2.5 quarters. And you're expecting earnings to be up next year in the segment. And we understand the productivity, and obviously, Europe is tough. But if -- can you separate the segment maybe, into sub-businesses and help convince us and me that is isolated? And this is U.K., that is one area, and the rest of the business, they're doing okay, and what gives you the confidence that this is really going to turn around?
Louis R. Chênevert
Well from a high level, I mean, U.K. is, I would say, a material piece of the drag. The rest is productivity across the business. But this is what we know to do by the way. And I gave you a couple of example earlier, hopefully that's the best convincing you can get of what we did at Sikorsky earlier. What Gill has done with the business transformation to drive margin. I mean we have identified the pieces, and Gill has already started to put leadership in place, to make sure the right ownership accountability is there. So I have -- no doubt, we're focusing on the productivity piece already, with the changes and the results, pretty much come quickly after you've put the right players, and I would say, 2012 we'll give you the update.
Revenue were softer, clearly on organic growth at expected mix was adverse and the productivity side was -- take the U.K. situation, it went from 108 branches to 25 branches after we acquired Chubb and the initial, and you put it all together, and it's all a term loan. and I think it's a lot of internal focus trying to get that done. And we see some erosion of maintenance portfolio and customer portfolio, and that's what's been driving this productivity down. So we're getting that back with a control.
The cost-reduction, we get next year from the synergies between the Carrier and F&S management structure, and original management structure. We shoot for $50 million to $100 million right there. So we have tangible state that I will detail more in March, but hopefully, we'll make you comfortable that we're also challenging our target for next year is achievable.
Do you feel like, given all the acquisitions here, do you feel like you have a firm grasp of -- you couldn't really dive down into the individual businesses and see what's going on? I mean how much of this has been a real surprise for you? It's kind of been brewing for awhile, but you've collectively understood that user over, because you just took this over. But how much of this is -- do you think that it's been brewing for quite some time, and you just haven't been able to see it because of all the M&A, and different systems, that sort of thing.
Louis R. Chênevert
I think again, it's a 61 acquisition, and in some areas, maybe too much too fast in terms of restructuring, to realignment, integration, and some things didn't go right. So we're going get that back on track in some very solid businesses, the strong businesses on solid segments. Louis mentioned that we will take a look at the portfolio, and there's some things we can do on the portfolio side, I think we can have the business more focus, and track some of the perspective across the businesses. So again, more in March.
Louis R. Chênevert
Just a side comment, I think this crowd is very important too is that we like the F&S businesses a lot. There's a lot of great content. It's very complementary to large structure. The one thing that I could tell you it does to me, is I also realize the complexity of managing a lot of multiple small acquisition. That's why you see me also, reviewing our past track record of success. Think about Sundstrand and what it did for Hamilton, and what it's done for 787 traction. What happens is, when you do bigger deals, you got the proper leadership focus, you got the proper attention because it's so important that it's managed very differently. When you do 61 deals, the bigger ones, wind up by doing very well. Like the security, we've updated you, became accretive in year 1. It was big enough, it was material same thing with Chubb, with Kinney [ph] initially. And I would say that going forward that's why you see me focused more on -- if we do something that complements our portfolio, bigger things, obviously tougher to achieve make them happen. But once you get -- once you agree, you got the leadership really focused, and there's no distraction, you'd go at it. Like, for example, right now, Alain is squarely with the team, and they get the integration manager focused on how we're going to bring this home, because it is important for the company. So that is my view of looking at this as we move forward. Howard?
I want to keep Geraud out there, but I sort of want to take, I want the things you said, and ask you to elaborate on -- you talked about divestitures, and how you don't want to issue very much equity, if any, to pay for Goodrich. So could you talk a little bit about how you evaluate returns, what kind of portfolio you want to see a little bit longer term at United Technologies? Because clearly, there's a lot of assets and in any large business, there's always a few businesses that you can find somebody that appreciates them more than you might.
Louis R. Chênevert
It's a good question, nice comment. As you know, I mean I cannot comment on acquisition divestitures but I'll say this, I love our position in aero globally, I love our position in commercial and what we can do for large structure. But if you look at big details of our businesses, there's a lot of, I would say, other pieces that developed over the years that I get the team deployed fully looking at all these pieces. And when I made the comment, I hate equity issuance, and I'm going to work aggressively with Greg to minimize, obviously, we're going to go see what pieces of the business, long-term perhaps, is in a prime position at this point in time. It's going to create value long term versus what potentially could help us minimize equity issuance. And I'll just leave it there for now. I think about John's counsel is getting on the edge of his seat and a little nervous I'm going to be skipping something else. But I think I give you the essence.
By the time we get to March, I think you'll know a lot more.
Well just a follow up, and I'm not going to try to tell you totally down, there's going to be some opportunities to clearly generate a lot of cash on some sales, but it will ding your earnings. So how do you think about that trade off?
Louis R. Chênevert
Well, I think we need to make sure we achieve obviously, minimize equity issuance, but also at the same time, we need to do the right thing for long term. And there's also mixes more obviously, there's a couple of businesses that have very nice return than others, that are certainly more of a drag than any have heard to our earnings dollars, so all these is being looked at. And say to March, I think between Greg and I and Matt Broubber is at the corp. office now, looking at some of these strategic place, and will have updates, as we go forward.
A quick follow up on CCS. How much of your -- you have $225 million uptick next year. How much of $150 million to $200 million of restructuring is for CCS, and how much of the $225 million is the result of restructuring? For example, if you expect to say, $50 million to $100 million from kind of combining the headquarters, I mean, can you do that in the 4th quarter or early in the year, so that you get a lot of that next year?
Louis R. Chênevert
Well I think that is definitely going to be some portions of the restructuring that's going to be allocated to help support the transformation of CCS. I mean, we didn't put this organization in place to 0 and excited and then say okay, we're going to start you from what you need to reshape the business, so we're going to do that. There's definitely going to be productivity momentum that's already embedded in the business with the actions they took, there's going to be more to come. Did you want to comment some more, Geraud, on that or maybe, I know Greg, you have some thoughts perhaps on where we stand?
How about we wait for March? Okay, we have $175 million lined up for restructuring net productivity cost reduction next year as a target.
That's the benefit or that's...
That's everything that we're going to do.
Louis R. Chênevert
Combined productivity and restructuring.
Combined. Okay, if you want to do -- a roadmap for CCS next year's at $225 million. The way it works, you should have about $135 million of the drop through the volume, organic growth of about 4%, which is $725 million, so that's about $175 million. You get net productivity cost reduction of about $175 million, about half of it come from combination, restructuring of things like this. And that's after covering wages and pension and this for us is a very big strong target. We lined up to get that done. And then, we actually are going to have some offsets, which are about $50 million of FX negative. Then we lose, we have a headwind of about $100 million from some divestitures at Carrier. We do this some of the earnings. Some of the -- actually amortization our F&S, we're not clear there, so we're actually going up next year from the G deal of last year, and then we have some nonrecurring items that were mentioned at F&S during the year, which would be headwind going to next year. Net commodity pricing will be actually probably a benefit of about 25, if you put all this together, you get 225 earnings growth.
Louis R. Chênevert
And that balance is 225, we're good, okay? Right there, question.
So on the 15x15 for CCS, is it possible to break that down into the sort of Carrier standalone prior to Security standalone and then the net cost benefit of putting the 2 together?
Louis R. Chênevert
Well, I think it's very premature to do that breakdown. I mean, we put a big goal out there. Obviously, a big piece is going to come from productivity. A big piece is going to come from the reshaping of the business. And I think it's fair to say for a 15 roadmap, Geraud's got a big goal, in March, you can actually ask him the steps in this journey, to the big roadmap, okay? Last question? Okay, right there.
Louis, thanks. You used to talk about 8% organic growth in '12, potentially in future matching what you used to do last cycle. Obviously, this year, last year, looking at next year, averages more like 5. So I was wondering if you've lowered your kind of medium-term organic growth view for UTX overall. And that's one reason why you've done this reorganization of the businesses, or do you still think that UTX can hit the 8% organic sales growth run rate that used to hit in the previous cycle.
Louis R. Chênevert
I absolutely am convinced we could hit the higher threshold like we've done pre, if you think '08, we were almost had 8%. There's no doubt we can achieve that level. And it's really going to come from the phase that we're in as well, which is going to enable the higher growth. Obviously, I talked about emerging markets. We got mature economies are kind of sluggish. But think about just the momentum that develops around what is the deliveries of all these aerospace product at Hamilton, you're seeing a bit of it start in '12. But then right behind, you're going to have the C-Series start to deliver. You're going to have the MRJ, you're going to have the neo, you got JSF when low and initial production lacks 4 days at this point. We're about to transition and as you know now, I often how it ends, we're going to see twice the volume, as it ramps up. You got the 53-kilo we've been talking about, that comes out later. So we got the international heart. We got aftermarket is going to continue to grow, so there's a lot of opportunities, basically to see the high-single digit top line growth that we have seen in the past. And I'm absolutely confident that, that's what we're going to see as we move forward. This is a good place to wrap up. Thank you very much for being here. It's rare, there's so many questions pending. I apologize if we can't take them all tonight. But great team, great position with transformational activities in '11, and stay tuned, we'll deliver our promises to you in '12. Just a reminder, we did a lot more in '11 than what we promised just a year ago. So look forward to delivering on our commitment to all of you. Thank you.
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