SEC Info - Carrier Global Corp. - ‘10-Q’ for 6/30/22

Assets

Cash and cash equivalents

i 3,017

i 2,987

Accounts receivable, net

i 2,823

i 2,403

Contract assets, current

i 712

i 503

Inventories, net

i 2,350

i 1,970

Assets held for sale

i —

i 3,168

Other assets, current

i 374

i 376

Total current assets

i 9,276

i 11,407

Future income tax benefits

i 566

i 563

Fixed assets, net

i 1,805

i 1,826

Operating lease right-of-use assets

i 595

i 640

Intangible assets, net

i 458

i 509

Goodwill

i 9,067

i 9,349

Pension and post-retirement assets

i 31

i 43

Equity method investments

i 1,671

i 1,593

Other assets

i 193

i 242

Total Assets

i 23,662

i 26,172

Liabilities and Equity

Accounts payable

i 2,403

i 2,334

Accrued liabilities

i 2,430

i 2,561

Contract liabilities, current

i 444

i 415

Liabilities held for sale

i —

i 1,134

Current portion of long-term debt

i 269

i 183

Total current liabilities

i 5,546

i 6,627

Long-term debt

i 8,298

i 9,513

Future pension and post-retirement obligations

i 366

i 380

Future income tax obligations

i 335

i 354

Operating lease liabilities

i 490

i 527

Other long-term liabilities

i 1,635

i 1,677

Total Liabilities

i 16,670

i 19,078

Commitments and contingent liabilities (Note 19)

Equity

Common stock

i 9

Treasury stock

( i 1,543)

( i 529)

Additional paid-in capital

i 5,441

i 5,411

Retained earnings

i 4,564

i 2,865

Accumulated other comprehensive loss

( i 1,775)

( i 989)

Non-controlling interest

i 296

i 327

Total Equity

i 6,992

i 7,094

Total Liabilities and Equity

i 23,662

i 26,172

The accompanying notes are an integral part of the Unaudited Condensed Consolidated Financial Statements.

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CARRIER GLOBAL CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(Unaudited)

(In millions)

Accumulated Other Comprehensive Income (Loss)

Common Stock

Treasury Stock

Additional Paid-In Capital

Retained Earnings

Non-Controlling Interest

Total Equity

Balance as of December 31, 2021

( i 989)

i 9

( i 529)

i 5,411

i 2,865

i 327

i 7,094

Net income

—

i 1,379

i 8

i 1,387

Other comprehensive income (loss), net of tax

( i 308)

—

( i 308)

Shares issued under incentive plans, net

—

( i 17)

—

( i 17)

Stock-based compensation

—

i 21

—

i 21

Dividends attributable to non-controlling interest

—

( i 1)

Sale of non-controlling interest

—

( i 5)

Treasury stock repurchase

—

( i 741)

—

( i 741)

Balance as of March 31, 2022

( i 1,297)

i 9

( i 1,270)

i 5,415

i 4,244

i 329

i 7,430

Net income

—

i 573

i 14

i 587

Other comprehensive income (loss), net of tax

( i 478)

—

( i 9)

( i 487)

Dividends declared on common stock (1)

—

( i 253)

—

( i 253)

Conversion of cash settled awards

—

i 6

—

i 6

Stock-based compensation

—

i 20

—

i 20

Dividends attributable to non-controlling interest

—

( i 38)

Treasury stock repurchase

—

( i 273)

—

( i 273)

Balance as of June 30, 2022

( i 1,775)

i 9

( i 1,543)

i 5,441

i 4,564

i 296

i 6,992

(In millions)

Accumulated Other Comprehensive Income (Loss)

Common Stock

Treasury Stock

Additional Paid-In Capital

Retained Earnings

Non-Controlling Interest

Total Equity

Balance as of December 31, 2020

( i 745)

i 9

i —

i 5,345

i 1,643

i 326

i 6,578

Net income

—

i 384

i 8

i 392

Other comprehensive income (loss), net of tax

( i 114)

—

( i 114)

Shares issued under incentive plans, net

—

( i 14)

—

( i 14)

Stock-based compensation

—

i 19

—

i 19

Dividends attributable to non-controlling interest

—

( i 5)

Treasury stock repurchase

—

( i 38)

—

( i 38)

Balance as of March 31, 2021

( i 859)

i 9

( i 38)

i 5,350

i 2,027

i 329

i 6,818

Net income

—

i 487

i 10

i 497

Other comprehensive income (loss), net of tax

i 65

—

i 65

Dividends declared on common stock (2)

—

( i 209)

—

( i 209)

Shares issued under incentive plans, net

—

( i 4)

—

( i 4)

Stock-based compensation

—

i 20

—

i 20

Dividends attributable to non-controlling interest

—

( i 21)

Acquisition of non-controlling interest

—

i 46

Treasury stock repurchase

—

( i 92)

—

( i 92)

Balance as of June 30, 2021

( i 794)

i 9

( i 130)

i 5,366

i 2,305

i 364

i 7,120

(1) Cash dividends declared were $ i 0.30 per share for the three months ended June 30, 2022.

(2) Cash dividends declared were $ i 0.24 per share for the three months ended June 30, 2021

The accompanying notes are an integral part of the Unaudited Condensed Consolidated Financial Statements.

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CARRIER GLOBAL CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

For the Six Months Ended June 30,

(In millions)

2022

2021

Operating Activities

Net income from operations

i 1,974

i 889

Adjustments to reconcile net income to net cash flows from operating activities:

Depreciation and amortization

i 155

i 168

Deferred income tax provision

( i 17)

i 33

Stock-based compensation costs

i 41

i 40

Equity method investment net earnings

( i 159)

( i 125)

(Gain) loss on extinguishment of debt

( i 36)

i —

(Gain) loss on sale of investments

( i 1,119)

i —

Changes in operating assets and liabilities

Accounts receivable, net

( i 483)

( i 288)

Contract assets, current

( i 224)

( i 41)

Inventories, net

( i 435)

( i 210)

Other assets, current

( i 37)

( i 27)

Accounts payable and accrued liabilities

i 79

i 368

Contract liabilities, current

i 42

Defined benefit plan contributions

( i 6)

( i 27)

Distributions from equity method investments

i 15

i 42

Other operating activities, net

i 40

( i 119)

Net cash flows provided by (used in) operating activities

( i 170)

i 745

Investing Activities

Capital expenditures

( i 122)

( i 132)

Investment in businesses, net of cash acquired

( i 38)

( i 167)

Dispositions of businesses

i 2,944

i 1

Settlement of derivative contracts, net

( i 123)

( i 6)

Other investing activities, net

( i 16)

i 3

Net cash flows provided by (used in) investing activities

i 2,645

( i 301)

Financing Activities

Increase (decrease) in short-term borrowings, net

( i 22)

( i 13)

Issuance of long-term debt

i 21

i 74

Repayment of long-term debt

( i 1,127)

( i 605)

Repurchases of common stock

( i 1,014)

( i 130)

Dividends paid on common stock

( i 257)

( i 209)

Dividends paid to non-controlling interest

( i 22)

( i 30)

Other financing activities, net

( i 13)

i 15

Net cash flows provided by (used in) financing activities

( i 2,434)

( i 898)

Effect of foreign exchange rate changes on cash and cash equivalents

( i 41)

( i 2)

Net increase (decrease) in cash and cash equivalents and restricted cash

i —

( i 456)

Cash, cash equivalents and restricted cash, beginning of period

i 3,025

i 3,120

Cash, cash equivalents and restricted cash, end of period

i 3,025

i 2,664

Less: restricted cash

i 8

i 34

Cash and cash equivalents, end of period

i 3,017

i 2,630

The accompanying notes are an integral part of the Unaudited Condensed Consolidated Financial Statements.

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CARRIER GLOBAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1: i DESCRIPTION OF THE BUSINESS

Carrier Global Corporation is the leading global provider of healthy, safe, sustainable and intelligent building and cold chain solutions. The Company's portfolio includes industry-leading brands such as Carrier, Automated Logic, Carrier Transicold, Kidde, Edwards and LenelS2 that offer innovative heating, ventilating, air conditioning ("HVAC"), refrigeration, fire, security and building automation technologies to help make the world safer and more comfortable. The Company also provides a broad array of related building services, including audit, design, installation, system integration, repair, maintenance and monitoring.

In the opinion of management, the accompanying Unaudited Condensed Consolidated Financial Statements contain all adjustments (which include normal recurring adjustments) necessary to state fairly the financial position, results of operations and cash flows for the periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") have been omitted pursuant to the rules and regulations of the United States Securities and Exchange Commission (the "SEC"). These Unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K for 2021 filed with the SEC on February 8, 2022 (the "2021 Form 10-K").

Impact of the COVID-19 Pandemic

In early 2020, the World Health Organization declared the outbreak of a respiratory disease known as COVID-19 as a global pandemic. In response, many countries implemented containment and mitigation measures to combat the outbreak, which severely restricted the level of economic activity and caused a significant contraction in the global economy. As a result, the Company took several preemptive actions to manage liquidity, preserve the health and safety of its employees and customers as well as maintain the continuity of its operations. The preparation of financial statements requires management to use judgments in making estimates and assumptions based on the relevant information available at the end of each period, which can have a significant effect on reported amounts. However, due to significant uncertainty surrounding the pandemic, including a resurgence in cases and the spread of COVID-19 variants, management's judgments could change. While the Company's results of operations, cash flows and financial condition could be negatively impacted, the extent of any continuing impact cannot be estimated with certainty at this time.

NOTE 2: i BASIS OF PRESENTATION

i The Unaudited Condensed Consolidated Financial Statements include all accounts of the Company and its wholly-owned and majority-owned subsidiaries in which it has control. All intra-company accounts and transactions have been eliminated. Related party transactions between the Company and its equity method investees have not been eliminated. Non-controlling interest represents a non-controlling investor's interests in the results of subsidiaries that the Company controls and consolidates.

Sale of Chubb Fire & Security Business

On July 26, 2021, the Company entered into a stock purchase agreement to sell its Chubb Fire and Security business ("Chubb") to APi Group Corporation ("APi"). As a result, the assets and liabilities of Chubb are presented as held for sale on the accompanying Unaudited Condensed Consolidated Balance Sheet as of December 31, 2021 and recorded at the lower of their carrying value or fair value less estimated cost to sell. The sale of Chubb was completed on January 3, 2022 (the "Chubb Sale"). See Note 16 - Divestitures for additional information.

Separation from United Technologies

On April 3, 2020, United Technologies Corporation, since renamed Raytheon Technologies Corporation ("UTC"), completed the spin-off of the Company into an independent, publicly traded company (the "Separation") through a pro-rata distribution (the "Distribution") on a i one-for-one basis of all of the outstanding shares of common stock of the Company to UTC shareowners who held shares of UTC common stock as of the close of business on March 19, 2020, the record date of the Distribution. The Company incurred separation-related costs including employee-related costs, costs to establish certain stand-alone functions, information technology systems, professional service fees and other costs associated with becoming an independent, publicly traded company. These costs are primarily recorded in Selling, general and administrative in the Unaudited Condensed Consolidated Statement of Operations and totaled $ i 3 million and $ i 19 million for the three and six months ended June 30, 2021, respectively.

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Recently Issued and Adopted Accounting Pronouncements

i The Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") is the sole source of authoritative U.S. GAAP other than SEC issued rules and regulations that apply only to SEC registrants. The FASB issues Accounting Standards Updates ("ASU") to communicate changes to the codification. The Company considers the applicability and impact of all ASUs. ASUs pending adoption were assessed and determined to be either not applicable or not expected to have a material impact on the Unaudited Condensed Consolidated Financial Statements.

NOTE 3: i INVENTORIES, NET

Inventories are stated at the lower of cost or estimated net realizable value. Cost is primarily determined based on the first-in, first-out inventory method ("FIFO") or average cost methods, which approximates current replacement cost. However, certain subsidiaries use the last-in, first-out inventory method ("LIFO").

Inventories, net consisted of the following:

(In millions)

Raw materials

i 701

i 559

Work-in-process

i 243

i 197

Finished goods

i 1,406

i 1,214

Inventories, net

i 2,350

i 1,970

The Company performs periodic assessments utilizing customer demand, production requirements and historical usage rates to determine the existence of excess and obsolete inventory and records necessary provisions to reduce such inventories to the lower of cost or estimated net realizable value. Raw materials, work-in-process and finished goods are net of valuation reserves of $ i 151 million and $ i 154 million as of June 30, 2022 and December 31, 2021, respectively.

NOTE 4: i GOODWILL AND INTANGIBLE ASSETS

The Company records goodwill as the excess of the purchase price over the fair value of the net assets acquired in a business combination. Goodwill is tested and reviewed annually for impairment on July 1 or whenever there is a material change in events or circumstances that indicates that the fair value of the reporting unit may be less than its carrying value.

The changes in the carrying amount of goodwill were as follows:

(In millions)

HVAC

Refrigeration

Fire & Security

Total

Balance as of December 31, 2021

i 5,658

i 1,228

i 2,463

i 9,349

Goodwill resulting from business combinations (1)

i 15

i —

i 1

i 16

Foreign currency translation

( i 162)

( i 39)

( i 97)

( i 298)

Balance as of June 30, 2022

i 5,511

i 1,189

i 2,367

i 9,067

(1) See Note 15 - Acquisitions for additional information.

Indefinite-lived intangible assets are tested and reviewed annually for impairment on July 1 or whenever there is a material change in events or circumstances that indicates that the fair value of the asset may be less than the carrying amount of the asset. All other intangible assets with finite useful lives are amortized over their estimated useful lives.

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i i

Identifiable intangible assets consisted of the following:

(In millions)

Gross Amount

Accumulated Amortization

Net Amount

Gross Amount

Accumulated Amortization

Net Amount

Amortized:

Customer relationships

i 919

( i 701)

i 218

i 945

( i 699)

i 246

Patents and trademarks

i 224

( i 180)

i 44

i 232

( i 182)

i 50

Service portfolios and other

i 672

( i 540)

i 132

i 688

( i 539)

i 149

i 1,815

( i 1,421)

i 394

i 1,865

( i 1,420)

i 445

Unamortized:

Trademarks and other

i 64

—

i 64

—

i 64

Intangible assets, net

i 1,879

( i 1,421)

i 458

i 1,929

( i 1,420)

i 509

/ /

Amortization of intangible assets was as follows:


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
(In millions)	2022		2021		2022		2021
Amortization expense of Intangible assets	$	i 20	$	i 25	$	i 41	$	i 49

NOTE 5: i BORROWINGS AND LINES OF CREDIT

i Long-term debt consisted of the following:

(In millions)

December 31,
2021

i 2.242% Notes due February 15, 2025

i 1,200

i 2,000

i 2.493% Notes due February 15, 2027

i 900

i 1,250

i 2.722% Notes due February 15, 2030

i 2,000

i 2.700% Notes due February 15, 2031

i 750

i 3.377% Notes due April 5, 2040

i 1,500

i 3.577% Notes due April 5, 2050

i i 2,000 /

i 2,000

Total long-term Notes

i 8,350

i 9,500

Other debt (including project financing obligations and finance leases)

i 279

i 267

Discounts and debt issuance costs

( i 62)

( i 71)

Total debt

i 8,567

i 9,696

Less: current portion of long-term debt

i 269

i 183

Long-term debt, net of current portion

i 8,298

i 9,513

Revolving Credit Facility

On February 10, 2020, the Company entered into a revolving credit agreement with various banks permitting aggregate borrowings of up to $ i 2.0 billion pursuant to an unsecured, unsubordinated revolving credit facility that matures on April 3, 2025 (the "Revolving Credit Facility"). The Revolving Credit Facility supports the Company's commercial paper program and cash requirements of the Company. A commitment fee of i 0.125% is charged on unused commitments. Borrowings under the Revolving Credit Facility are available in U.S. Dollars, Euros and Pounds Sterling and bear interest at a variable interest rate plus a ratings-based margin, which was i 125 basis points as of June 30, 2022. As of June 30, 2022, there were i no borrowings outstanding under the Revolving Credit Facility.

Commercial Paper Program

The Company has a $ i 2.0 billion unsecured, unsubordinated commercial paper program, which can be used for general

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corporate purposes, including the funding of working capital and potential acquisitions. As of June 30, 2022, there were i no borrowings outstanding under the commercial paper program.

Project Financing Arrangements

The Company is involved in several long-term construction contracts in which it arranges project financing with certain customers. As a result, the Company issued $ i 21 million and $ i 71 million of debt during the six months ended June 30, 2022 and 2021, respectively. Long-term debt repayments associated with these financing arrangements during the six months ended June 30, 2022 and 2021 were $ i 12 million and $ i 83 million, respectively.

Debt Covenants

The Revolving Credit Facility and the indenture for the long-term Notes contain affirmative and negative covenants customary for financings of these types, which, among other things, limit the Company's ability to incur additional liens, to make certain fundamental changes and to enter into sale and leaseback transactions. As of June 30, 2022, the Company was in compliance with the covenants under the agreements governing its outstanding indebtedness.

Tender Offers

On March 15, 2022, the Company commenced tender offers to purchase up to $ i 1.15 billion ("Aggregate Tender Cap") aggregate principal of the Company's i 2.242% Notes due 2025 and i 2.493% Notes due 2027 (together, the "Senior Notes"). The tender offers included payment of applicable accrued and unpaid interest up to the settlement date, along with a fixed spread for early repayment. Based on participation, the Company elected to settle the tender offers on March 30, 2022. The aggregate principal amount of Senior Notes validly tendered and accepted was approximately $ i 1.15 billion, which included $ i 800 million of Notes due 2025 and $ i 350 million of Notes due 2027. As a result, the Company recognized a net gain of $ i 33 million and wrote off $ i 5 million of unamortized deferred financing costs within Interest (expense) income, net on the accompanying Unaudited Condensed Consolidated Statement of Operations during the three months ended March 31, 2022.

NOTE 6: i FAIR VALUE MEASUREMENTS

ASC 820, Fair Value Measurement ("ASC 820"), defines fair value as the price that would be received if an asset is sold or the price paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also establishes a three-level fair value hierarchy that prioritizes information used in developing assumptions when pricing an asset or liability as follows:

•Level 1: Observable inputs such as quoted prices in active markets;

•Level 2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and

•Level 3: Unobservable inputs where there is little or no market data, which requires the reporting entity to develop its own assumptions.

ASC 820 requires the use of observable market data, when available, in making fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.

i In the normal course of business, the Company is exposed to certain risks arising from business operations and economic factors, including foreign currency and commodity price risk. These exposures are managed through operational strategies and the use of undesignated hedging contracts. The Company's derivative assets and liabilities are measured at fair value on a recurring basis using internal models based on observable market inputs, such as forward, interest, contract and discount rates with changes in fair value reported directly in earnings.

i The following tables provide the valuation hierarchy classification of assets and liabilities that are recorded at fair value and

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measured on a recurring basis in the Company's Unaudited Condensed Consolidated Balance Sheet:

(In millions)

Total

Level 1

Level 2

Level 3

Derivative assets (1)

i 3

i —

i 3

i —

Derivative liabilities (2)

( i 9)

i —

( i 9)

i —

Derivative assets (1)

i 8

i —

i 8

i —

Derivative liabilities (2)

( i 35)

i —

( i 35)

i —

(1) Included in Other assets, current on the accompanying Unaudited Condensed Consolidated Balance Sheet.

(2) Included in Accrued liabilities on the accompanying Unaudited Condensed Consolidated Balance Sheet.

The following table provides the carrying amounts and fair values of the Company's long-term notes that are not recorded at fair value in the Unaudited Condensed Consolidated Balance Sheet:

(In millions)

Carrying
Amount

Fair
Value

Carrying
Amount

Fair
Value

Total long-term Notes (1)

i 8,350

i 7,040

i 9,500

i 9,842

(1) Excludes debt discount and issuance costs.

The fair value of the Company's long-term debt is measured based on observable market inputs which are considered Level 1 within the fair value hierarchy. The carrying value of cash and cash equivalents, accounts receivable, accounts payable and short-term borrowings approximate fair value due to the short-term nature of these accounts and would be classified as Level 1 in the fair value hierarchy. The Company's financing leases and project financing obligations, included in Long-term debt and Current portion of long-term debt on the accompanying Unaudited Condensed Consolidated Balance Sheet, approximate fair value and are classified as Level 3 in the fair value hierarchy.

NOTE 7: i EMPLOYEE BENEFIT PLANS

The Company sponsors both funded and unfunded domestic and international defined benefit pension and defined contribution plans. In addition, the Company contributes to various domestic and international multi-employer pension plans.

Contributions to the plans were as follows:


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
(In millions)	2022 (1)		2021		2022 (1)		2021
Defined benefit plans	$	i 2	$	i 3	$	i 6	$	i 27
Defined contribution plans	$	i 28	$	i 30	$	i 66	$	i 67
Multi-employer pension plans	$	i 3	$	i 7	$	i 6	$	i 12

(1) See Note 16 - Divestitures for additional information.

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The components of net periodic pension expense (benefit) for the defined benefit pension plans are as follows:

For the Three Months Ended June 30,

For the Six Months Ended June 30,

(In millions)

2022 (1)

2021

2022 (1)

2021

Service cost

i 4

i 7

i 9

i 14

Interest cost

i 4

i 10

i 8

i 19

Expected return on plan assets

( i 6)

( i 37)

( i 13)

( i 73)

Amortization of prior service credit

i —

i 1

Recognized actuarial net (gain) loss

i 3

i 8

i 5

i 16

Net periodic pension expense (benefit)

i 5

( i 12)

i 10

( i 23)

(1) See Note 16 - Divestitures for additional information.

NOTE 8: i STOCK-BASED COMPENSATION

The Company accounts for stock-based compensation plans in accordance with ASC 718, Compensation - Stock Compensation, which requires a fair-value based method for measuring the value of stock-based compensation. Fair value is measured at the date of grant and is generally not adjusted for subsequent changes. The Company's stock-based compensation plans include programs for stock appreciation rights, restricted stock units and performance share units.

Stock-based compensation expense, net of estimated forfeitures, is included in Cost of products sold, Selling, general and administrative and Research and development in the accompanying Unaudited Condensed Consolidated Statements of Operations.

Stock-based compensation cost by award type was as follows:


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
(In millions)	2022		2021		2022		2021





Equity compensation costs - equity settled	$	i 20	$	i 21	$	i 41	$	i 40
Equity compensation costs - cash settled (1)	( i 11)		i 6		( i 17)		i 10
Total stock-based compensation expense	$	i 9	$	i 27	$	i 24	$	i 50

(1) The cash settled awards are classified as liability awards and are measured at fair value at each balance sheet date.

NOTE 9: i PRODUCT WARRANTIES

i In the ordinary course of business, the Company provides standard warranty coverage on its products. Provisions for these amounts are established at the time of sale and estimated primarily based on product warranty terms and historical claims experience. In addition, the Company incurs discretionary costs to service its products in connection with specific product performance issues. Provisions for these amounts are established when they are known and estimable. The Company assesses the adequacy of its initial provisions and will make adjustments as necessary based on known or anticipated claims or as new information becomes available that suggests it is probable that future costs will be different than estimated amounts. Amounts associated with these provisions are classified on the accompanying Unaudited Condensed Consolidated Balance Sheet as Accrued liabilities or Other long-term liabilities based on their anticipated settlement date.

The changes in the carrying amount of warranty related provisions are as follows:

For the Six Months Ended June 30,

(In millions)

2022

2021

Balance as of January 1,

i 524

i 514

Warranties, performance guarantees issued and changes in estimated liability

i 84

i 89

Settlements made

( i 78)

( i 80)

Other

( i 5)

i —

Balance as of June 30,

i 525

i 523

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NOTE 10: i EQUITY

The authorized number of shares of common stock of Carrier is i 4,000,000,000 shares of $ i 0.01 par value. As of June 30, 2022 and December 31, 2021, i 874,951,424 and i 873,064,219 shares of common stock were issued, respectively, which includes i 33,114,977 and i 10,375,654 shares of treasury stock, respectively.

Share Repurchase Program

The Company may repurchase its outstanding common stock from time to time subject to market conditions and at the Company's discretion in the open market or through one or more other public or private transactions and subject to compliance with the Company's obligations under certain tax agreements. Shares acquired are recognized at cost and presented separately on the balance sheet as a reduction to Equity. In July 2021, the Company's Board of Directors approved a $ i 1.75 billion increase to the Company's existing $ i 350 million share repurchase program authorizing the repurchase of up to $ i 2.1 billion of the Company's outstanding common stock. During 2021, the Company repurchased i 10.4 million shares of common stock for an aggregate purchase price of $ i 529 million.

On December 14, 2021, the Company entered into an accelerated share repurchase agreement ("ASR Agreement") to repurchase $ i 500 million of its common stock pursuant to the Company's existing share repurchase program. In accordance with the ASR Agreement, the Company received initial delivery of i 7.6 million shares on January 4, 2022, representing approximately i 80% of the expected share repurchases. The final number of shares under the ASR Agreement was based on the daily average of the volume-weighted average share price of the Company's common stock over the term of the ASR Agreement. Upon final settlement, the Company received an additional i 2.7 million shares on February 8, 2022 and recognized $ i 500 million in Treasury stock as a reduction in equity.

During the six months ended June 30, 2022, the Company repurchased i 22.7 million shares of common stock for an aggregate purchase price of $ i 1.0 billion, which includes shares repurchased under the ASR Agreement. As of June 30, 2022, the Company has approximately $ i 557 million remaining under the current authorization.

Accumulated Other Comprehensive Income (Loss)

A summary of changes in the components of Accumulated other comprehensive income (loss) for the three and six months ended June 30, 2022 and 2021 is as follows:

(In millions)

Foreign Currency Translation

Defined Benefit Pension and Post-retirement Plans

Accumulated Other Comprehensive Income (Loss)

Balance as of December 31, 2021

( i 505)

( i 484)

( i 989)

Other comprehensive income (loss) before reclassifications, net

( i 61)

( i 4)

( i 65)

Amounts reclassified, pre-tax

i —

i 3

Tax expense (benefit) reclassified

i —

( i 1)

Divestitures, net

( i 574)

i 329

( i 245)

Balance as of March 31, 2022

( i 1,140)

( i 157)

( i 1,297)

Other comprehensive income (loss) before reclassifications, net

( i 480)

i —

( i 480)

Amounts reclassified, pre-tax

i —

i 3

Tax expense (benefit) reclassified

i —

( i 1)

Balance as of June 30, 2022

( i 1,620)

( i 155)

( i 1,775)

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(In millions)

Foreign Currency Translation

Defined Benefit Pension and Post-retirement Plans

Accumulated Other Comprehensive Income (Loss)

Balance as of December 31, 2020

( i 191)

( i 554)

( i 745)

Other comprehensive income (loss) before reclassifications, net

( i 121)

i —

( i 121)

Amounts reclassified, pre-tax

i —

i 9

Tax expense (benefit) reclassified

i —

( i 2)

Balance as of March 31, 2021

( i 312)

( i 547)

( i 859)

Other comprehensive income (loss) before reclassifications, net

i 59

i —

i 59

Amounts reclassified, pre-tax

i —

i 8

Tax expense (benefit) reclassified

i —

( i 2)

Balance as of June 30, 2021

( i 253)

( i 541)

( i 794)

NOTE 11: i REVENUE RECOGNITION

i The Company accounts for revenue in accordance with ASC 606: Revenue from Contracts with Customers. Revenue is recognized when control of a good or service promised in a contract (i.e. performance obligation) is transferred to a customer. Control is obtained when a customer has the ability to direct the use of and obtain substantially all of the remaining benefits from that good or service. A significant portion of the Company's performance obligations are recognized at a point-in-time when control of the product transfers to the customer, which is generally at the time of shipment. The remaining portion of the Company’s performance obligations are recognized over time as the customer simultaneously obtains control as the Company performs work under a contract, or if the product being produced for the customer has no alternative use and the Company has a contractual right to payment.

Sales disaggregated by product and service are as follows:

For the Three Months Ended June 30,

For the Six Months Ended June 30,

(In millions)

2022

2021

2022

2021

Sales Type

Product

i 3,005

i 2,757

i 5,644

i 4,904

Service

i 383

i 363

i 714

i 702

HVAC sales

i 3,388

i 3,120

i 6,358

i 5,606

Product

i 925

i 915

i 1,792

i 1,807

Service

i 116

i 106

i 225

i 219

Refrigeration sales

i 1,041

i 1,021

i 2,017

i 2,026

Product

i 838

i 1,012

i 1,609

i 1,931

Service

i 49

i 391

i 96

i 776

Fire & Security sales

i 887

i 1,403

i 1,705

i 2,707

Total segment sales

i 5,316

i 5,544

i 10,080

i 10,339

Eliminations and other

( i 105)

( i 104)

( i 215)

( i 200)

Net sales

i 5,211

i 5,440

i 9,865

i 10,139

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Contract Balances

Total contract assets and contract liabilities consisted of the following:

(In millions)

Contract assets, current

i 712

i 503

Contract assets, non-current (included within Other assets)

i 6

i 70

Total contract assets

i 718

i 573

Contract liabilities, current

( i 444)

( i 415)

Contract liabilities, non-current (included within Other long-term liabilities)

( i 169)

( i 165)

Total contract liabilities

( i 613)

( i 580)

Net contract assets

i 105

( i 7)

The timing of revenue recognition, billings and cash collections results in contract assets and contract liabilities. Contract assets relate to the conditional right to consideration for any completed performance under a contract when costs are incurred in excess of billings under the percentage-of-completion methodology. Contract liabilities relate to payments received in advance of performance under a contract or when the Company has a right to consideration that is conditioned upon transfer of a good or service to a customer. Contract liabilities are recognized as revenue as (or when) the Company performs under the contract.

The Company recognized revenue of $ i 221 million during the six months ended June 30, 2022 that related to contract liabilities as of January 1, 2022. The Company expects a majority of its current contract liabilities at the end of the period to be recognized as revenue in the next i 12 months.

NOTE 12: i RESTRUCTURING COSTS

The Company incurs costs associated with restructuring initiatives intended to improve operating performance, profitability and working capital levels. Actions associated with these initiatives may include improving productivity, workforce reductions and the consolidation of facilities.

The Company recorded net pre-tax restructuring costs for new and ongoing restructuring initiatives as follows:

For the Three Months Ended June 30,

For the Six Months Ended June 30,

(In millions)

2022

2021

2022

2021

HVAC

i 2

i 7

i 6

i 11

Refrigeration

i 6

i 3

i 6

i 5

Fire & Security

i 3

i 9

i 20

Total Segment

i 11

i 19

i 21

i 36

General corporate expenses

i 2

i 3

Total restructuring costs

i 13

i 21

i 23

i 39

Cost of sales

i 5

i 6

i 7

i 11

Selling, general and administrative

i 8

i 15

i 16

i 28

Total restructuring costs

i 13

i 21

i 23

i 39

i The following table summarizes the reserve and charges relating to the restructuring reserve, included in Accrued liabilities on the accompanying Unaudited Condensed Consolidated Balance Sheet:

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For the Six Months Ended June 30,

(In millions)

2022

2021

Balance as of January 1,

i 54

i 49

Net pre-tax restructuring costs

i 23

i 39

Utilization, foreign exchange and other

( i 34)

( i 40)

Balance as of June 30,

i 43

i 48

During the six months ended June 30, 2022 and 2021, charges associated with restructuring initiatives related to cost reduction efforts. Amounts recognized primarily related to severance due to workforce reductions and exit costs due to the consolidation of field operations. As of June 30, 2022, the Company had $ i 43 million accrued for costs associated with its announced restructuring initiatives, all of which is expected to be paid within one year.

NOTE 13: i INCOME TAXES

The Company accounts for income tax expense in accordance with ASC 740, Income Taxes ("ASC 740"), which requires an estimate of the annual effective income tax rate for the full year to be applied to the respective interim period, taking into account year-to-date amounts and projected results for the full year. The effective tax rate was i 22.5% for the three months ended June 30, 2022 compared with i 32.0% for the three months ended June 30, 2021. The year-over-year decrease was primarily driven by a combined tax benefit of $ i 15 million related to re-organizations in Australia, Canada and the United Kingdom recorded during the three months ended June 30, 2022 as well as the absence of a $ i 43 million deferred tax charge recorded during the three months ended June 30, 2021 associated with a tax rate increase in the United Kingdom enacted on June 10, 2021 with an effective date of April 2023.

The effective tax rate was i 19.3% for the six months ended June 30, 2022 compared with i 27.5% for the six months ended June 30, 2021. The year-over-year decrease was primarily driven by a lower effective tax rate on the Chubb gain compared with the Company's U.S. statutory rate and a favorable tax adjustment of $ i 32 million associated with foreign tax credits generated and expected to be utilized in the current year. The six months ended June 30, 2021 included a $ i 43 million deferred tax charge associated with a tax rate increase in the United Kingdom enacted on June 10, 2021 with an effective date of April 2023, partially offset by the recognition of a favorable tax adjustment of $ i 21 million resulting from the re-organization of a German subsidiary.

The Company assesses the realizability of its deferred tax assets on a quarterly basis through an analysis of potential sources of future taxable income, including prior year taxable income that may be available to absorb a carryback of tax losses, reversals of existing taxable temporary differences, tax planning strategies and forecasts of taxable income. The Company considers all negative and positive evidence, including the weight of the evidence, to determine whether valuation allowances against deferred tax assets are required. The Company maintains valuation allowances against certain deferred tax assets.

The Company conducts business globally and files income tax returns in U.S. federal, state and foreign jurisdictions. In certain jurisdictions, the Company's operations were included in UTC's combined tax returns for the periods through the Distribution. The U.S. Internal Revenue Service ("IRS") is currently auditing UTC's tax years 2017 and 2018. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world, including Australia, Belgium, Canada, China, Czech Republic, France, Germany, Hong Kong, India, Italy, Mexico, the Netherlands, Singapore, the United Kingdom and the United States. The Company is no longer subject to U.S. federal income tax examination for years prior to 2017 and, with few exceptions, is no longer subject to state, local and foreign income tax examinations for tax years prior to 2013.

In the ordinary course of business, there is inherent uncertainty in quantifying the Company's income tax positions. The Company assesses its income tax positions and records tax benefits for all years subject to examination based upon management’s evaluation of the facts, circumstances and information available at the reporting date. The Company believes that it is reasonably possible that a net decrease in unrecognized tax benefits of $ i 10 million to $ i 65 million may occur within 12 months as a result of additional uncertain tax positions, the Separation, the revaluation of uncertain tax positions arising from examinations, appeals, court decisions and/or the expiration of tax statutes.

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NOTE 14: i EARNINGS PER SHARE

Earnings per share is computed by dividing Net income attributable to common shareowners by the weighted-average number of shares of common stock outstanding during the period (excluding treasury stock). Diluted earnings per share is computed by giving effect to all potentially dilutive stock awards that are outstanding. The computation of diluted earnings per share excludes the effect of the potential exercise of stock-based awards, including stock appreciation rights and stock options, when the effect of the potential exercise would be anti-dilutive.

The following table summarizes the weighted-average number of shares of common stock outstanding for basic and diluted earnings per share calculations:

Three Months Ended June 30,

For the Six Months Ended June 30,

(In millions, except per share amounts)

2022

2021

2022

2021

Net income attributable to common shareowners

i 573

i 487

i 1,952

i 871

Basic weighted-average number of shares outstanding

i 845.7

i 868.7

i 849.5

i 869.0

Stock awards and equity units (share equivalent)

i 17.0

i 22.2

i 18.9

i 21.4

Diluted weighted-average number of shares outstanding

i 862.7

i 890.9

i 868.4

i 890.4

Antidilutive shares excluded from computation of diluted earnings per share

i 4.5

i 3.1

i 2.9

i 3.1

Earnings Per Share

Basic

i 0.68

i 0.56

i 2.30

i 1.00

Diluted

i 0.67

i 0.55

i 2.25

i 0.98

NOTE 15: i ACQUISITIONS

During the six months ended June 30, 2022, the Company acquired consolidated businesses and minority-owned businesses. The aggregate cash paid, net of cash acquired, totaled $ i 38 million and was funded through cash on hand. Acquisitions are recorded using the acquisition method of accounting in accordance with ASC 805, Business Combinations. As a result, the aggregate purchase price has been allocated to assets acquired and liabilities assumed based on the estimate of fair market value of such assets and liabilities at the date of acquisition. The excess purchase price over the estimated fair value of net assets acquired during the six months ended June 30, 2022 was recognized as goodwill and totaled $ i 16 million.

Toshiba Carrier Corporation Acquisition Agreement

On February 6, 2022, the Company entered into a binding agreement to acquire a majority ownership interest in Toshiba Carrier Corporation (“TCC”) for approximately $ i 900 million. TCC, a variable refrigerant flow ("VRF") and light commercial HVAC joint venture between Carrier and Toshiba Corporation, designs and manufactures flexible, energy-efficient and high-performance VRF and light commercial HVAC systems as well as commercial products, compressors and heat pumps. The acquisition will include all of TCC’s advanced research and development centers and global manufacturing operations, product pipeline and the long-term use of Toshiba’s iconic brand. The transaction is expected to close in early August, subject to customary closing conditions, including regulatory approvals. Upon closing, Toshiba Corporation will retain a i 5% ownership interest in TCC.

NOTE 16: i DIVESTITURES

Sale of Chubb Fire & Security Business

On January 3, 2022, the Company completed the Chubb Sale for net proceeds of $ i 2.9 billion. Chubb, which was reported within the Company’s Fire & Security segment, delivered essential fire safety and security solutions from design and installation to monitoring, service and maintenance across more than i 17 countries around the globe. During the three months ended March 31, 2022, the Company recognized a net gain on the sale of $ i 1.1 billion, which is included in Other income (expense), net on the accompanying Unaudited Condensed Consolidated Statement of Operations.

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The following table summarizes Chubb's assets and liabilities classified as held for sale:

(In millions)

December 31,
2021

Cash and cash equivalents

i 60

Accounts receivable, net

i 445

Inventories, net

i 73

Contract assets, current

i 184

Other assets, current

i 27

Fixed assets, net

i 67

Intangible assets, net

i 545

Goodwill

i 940

Operating lease right-of-use assets

i 193

Pension and post-retirement assets

i 614

Other assets

i 20

Total assets disposed

i 3,168

Accounts payable

( i 190)

Accrued liabilities

( i 248)

Contract liabilities, current

( i 162)

Future pension and post-retirement obligations

( i 69)

Future income tax obligations

( i 273)

Operating lease liabilities

( i 175)

Other long-term liabilities

( i 17)

Total liabilities disposed

( i 1,134)

The sale agreement included several customary provisions to settle working capital and other transaction-related items as of the date of sale. As of June 30, 2022, APi and the Company are in the process of finalizing these amounts in accordance with the terms of the sale agreement. Upon finalization, any adjustments will be recognized within Other income (expense), net on the accompanying Unaudited Condensed Consolidated Statement of Operations.

NOTE 17: i SEGMENT FINANCIAL DATA

The Company conducts its operations through i three reportable operating segments: HVAC, Refrigeration and Fire & Security. In accordance with ASC 280 - Segment Reporting, the Company's segments maintain separate financial information for which results of operations are evaluated on a regular basis by the Company's Chief Operating Decision Maker in deciding how to allocate resources and in assessing performance.

•The HVAC segment provides products, controls, services and solutions to meet the heating, cooling and ventilation needs of residential and commercial customers while enhancing building performance, health, energy efficiency and sustainability.

•The Refrigeration segment includes transport refrigeration and monitoring products, services and digital solutions for trucks, trailers, shipping containers, intermodal and rail, as well as commercial refrigeration products.

•The Fire & Security segment provides a wide range of residential, commercial and industrial technologies designed to help protect people and property.

The Company's customers are in both the public and private sectors and its businesses reflect extensive geographic diversification. Inter-company sales between segments are immaterial.

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Net sales and Operating profit by segment are as follows:

Net Sales

Operating Profit

For the Three Months Ended June 30,

(In millions)

2022

2021

2022

2021

HVAC

i 3,388

i 3,120

i 585

i 573

Refrigeration

i 1,041

i 1,021

i 147

i 123

Fire & Security

i 887

i 1,403

i 134

i 148

Total segment

i 5,316

i 5,544

i 866

i 844

Eliminations and other

( i 105)

( i 104)

( i 16)

( i 23)

General corporate expenses

i —

( i 31)

( i 38)

Total Consolidated

i 5,211

i 5,440

i 819

i 783

Net Sales

Operating Profit

For the Six Months Ended June 30,

(In millions)

2022

2021

2022

2021

HVAC

i 6,358

i 5,606

i 1,055

i 938

Refrigeration

i 2,017

i 2,026

i 254

i 250

Fire & Security

i 1,705

i 2,707

i 1,352

i 298

Total segment

i 10,080

i 10,339

i 2,661

i 1,486

Eliminations and other

( i 215)

( i 200)

( i 40)

( i 63)

General corporate expenses

i —

( i 65)

( i 69)

Total Consolidated

i 9,865

i 10,139

i 2,556

i 1,354

Geographic external sales are attributed to the geographic regions based on their location of origin. With the exception of the U.S. presented in the table below, there were no individually significant countries with sales exceeding 10% of total sales during the six months ended June 30, 2022 and 2021.

For the Three Months Ended June 30,

For the Six Months Ended June 30,

(In millions)

2022

2021

2022

2021

United States

i 3,171

i 2,848

i 5,955

i 5,201

International:

Europe

i 1,119

i 1,459

i 2,164

i 2,857

Asia Pacific

i 713

i 907

i 1,365

i 1,649

Other

i 208

i 226

i 381

i 432

Net sales

i 5,211

i 5,440

i 9,865

i 10,139

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NOTE 18: i RELATED PARTIES

Equity Method Investments

The Company sells products to and purchases products from unconsolidated entities accounted for under the equity method and, therefore, these entities are considered to be related parties. i Amounts attributable to equity method investees are as follows:


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
(In millions)	2022		2021		2022		2021
Sales to equity method investees included in Product sales	$	i 787	$	i 652	$	i 1,411	$	i 1,120
Purchases from equity method investees included in Cost of products sold	$	i 91	$	i 98	$	i 201	$	i 174

The Company had receivables from and payables to equity method investees as follows:

(In millions)

Receivables from equity method investees included in Accounts receivable, net

i 315

i 150

Payables to equity method investees included in Accounts payable

i 57

i 51

NOTE 19: i COMMITMENTS AND CONTINGENT LIABILITIES

The Company is involved in various litigation, claims and administrative proceedings, including those related to environmental (including asbestos) and legal matters. In accordance with ASC 450, Contingencies, the Company records accruals for loss contingencies when it is probable that a liability will be incurred and the amount of the loss can be reasonably estimated. These accruals are generally based upon a range of possible outcomes. If no amount within the range is a better estimate than any other, the Company accrues the minimum amount. In addition, these estimates are reviewed periodically and adjusted to reflect additional information when it becomes available. The Company is unable to predict the final outcome of the following matters based on the information currently available, except as otherwise noted. However, the Company does not believe that the resolution of any of these matters will have a material adverse effect upon the Company's competitive position, results of operations, cash flows or financial condition.

Environmental Matters

The Company’s operations are subject to environmental regulation by various authorities. The Company has accrued for the costs of environmental remediation activities, including but not limited to investigatory, remediation, operating and maintenance costs and performance guarantees. The most likely cost to be incurred is accrued based on an evaluation of currently available facts with respect to individual sites, including technology required to remediate, current laws and regulations and prior remediation experience.

The outstanding liabilities for environmental obligations are as follows:

(In millions)

Environmental reserves included in Accrued liabilities

i 29

Environmental reserves included in Other long-term liabilities

i 187

i 191

Total Environmental reserves

i 216

i 220

For sites with multiple responsible parties, the Company considers its likely proportionate share of the anticipated remediation costs and the ability of other parties to fulfill their obligations in establishing a provision for these costs. Accrued environmental liabilities are not reduced by potential insurance reimbursements and are undiscounted.

Asbestos Matters

The Company has been named as a defendant in lawsuits alleging personal injury as a result of exposure to asbestos allegedly integrated into certain Carrier products or business premises. While the Company has never manufactured asbestos and no longer incorporates it into any currently-manufactured products, certain products that the Company no longer manufactures

contained components incorporating asbestos. A substantial majority of these asbestos-related claims have been dismissed without payment or have been covered in full or in part by insurance or other forms of indemnity. Additional cases were litigated and settled without any insurance reimbursement. The amounts involved in asbestos-related claims were not material individually or in the aggregate in any period.

The Company had asbestos liabilities and related insurance recoveries as follows:

(In millions)