UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549

 ____________________________________ 

FORM 10-Q

____________________________________ 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-39220

____________________________________ 

CARRIER GLOBAL CORPORATION

(Exact name of registrant as specified in its charter)

____________________________________ 

Delaware	83-4051582
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

13995 Pasteur Boulevard, Palm Beach Gardens, Florida 33418

(Address of principal executive offices, including zip code)

(561) 365-2000

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock ($0.01 par value)	CARR	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No   ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐	Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

As of July 17, 2023, there were 837,627,926 shares of Common Stock outstanding.

1

CARRIER GLOBAL CORPORATION

CONTENTS OF QUARTERLY REPORT ON FORM 10-Q

Three and Six Months Ended June 30, 2023

	Page
PART I – FINANCIAL INFORMATION	3
Item 1. Financial Statements:	3
Condensed Consolidated Statement of Operations (Unaudited)	3
Condensed Consolidated Statement of Comprehensive Income (Loss) (Unaudited)	4
Condensed Consolidated Balance Sheet (Unaudited)	5
Condensed Consolidated Statement of Changes in Equity (Unaudited)	6
Condensed Consolidated Statement of Cash Flows (Unaudited)	7
Notes to Condensed Consolidated Financial Statements (Unaudited)	8
Report of Independent Registered Public Accounting Firm	27
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3. Quantitative and Qualitative Disclosures About Market Risk	45
Item 4. Controls and Procedures	45
PART II – OTHER INFORMATION	46
Item 1. Legal Proceedings	46
Item 1A. Risk Factors	46
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	46
Item 6. Exhibits	47
SIGNATURES	49

Carrier Global Corporation and its subsidiaries' names, abbreviations thereof, logos and product and service designators are all either the registered or unregistered trademarks or trade names of Carrier Global Corporation and its subsidiaries. Names, abbreviations of names, logos and products and service designators of other companies are either the registered or unregistered trademarks or trade names of their respective owners. As used herein, the terms "we," "us," "our," "the Company" or "Carrier," unless the context otherwise requires, mean Carrier Global Corporation and its subsidiaries. References to internet websites in this Form 10-Q are provided for convenience only. Information available through these websites is not incorporated by reference into this Form 10-Q.

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PART I – FINANCIAL INFORMATION

Item 1.    Financial Statements

CARRIER GLOBAL CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)

	Three Months Ended June 30,				Six Months Ended June 30,
(In millions, except per share amounts)	2023		2022		2023		2022
Net sales
Product sales	$	5,355	$	4,662	$	10,041	$	8,832
Service sales	637		549		1,224		1,033
Total Net sales	5,992		5,211		11,265		9,865
Costs and expenses
Cost of products sold	(3,769)		(3,363)		(7,227)		(6,361)
Cost of services sold	(468)		(401)		(905)		(764)
Research and development	(151)		(122)		(290)		(247)
Selling, general and administrative	(784)		(614)		(1,505)		(1,215)
Total Costs and expenses	(5,172)		(4,500)		(9,927)		(8,587)
Equity method investment net earnings	52		101		96		159
Other income (expense), net	(383)		7		(390)		1,119
Operating profit	489		819		1,044		2,556
Non-service pension (expense) benefit	—		(1)		—		(2)
Interest (expense) income, net	(67)		(61)		(113)		(109)
Income from operations before income taxes	422		757		931		2,445
Income tax (expense) benefit	(189)		(170)		(311)		(471)
Net income from operations	233		587		620		1,974
Less: Non-controlling interest in subsidiaries' earnings from operations	34		14		48		22
Net income attributable to common shareowners	$	199	$	573	$	572	$	1,952
Earnings per share
Basic	$	0.24	$	0.68	$	0.68	$	2.30
Diluted	$	0.23	$	0.67	$	0.67	$	2.25
Weighted-average number of shares outstanding
Basic	836.0		845.7		835.5		849.5
Diluted	850.9		862.7		851.5		868.4

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

3

CARRIER GLOBAL CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

	Three Months Ended June 30,				Six Months Ended June 30,
(In millions)	2023		2022		2023		2022
Net income from operations	$	233	$	587	$	620	$	1,974
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments arising during period	(63)		(489)		(9)		(550)
Pension and post-retirement benefit plan adjustments	—		2		—		—
Chubb divestiture	—		—		—		(245)
Other comprehensive income (loss), net of tax	(63)		(487)		(9)		(795)
Comprehensive income (loss)	170		100		611		1,179
Less: Comprehensive income (loss) attributable to non-controlling interest	26		5		42		13
Comprehensive income (loss) attributable to common shareowners	$	144	$	95	$	569	$	1,166

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

4

CARRIER GLOBAL CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEET

(Unaudited)

	As of
(In millions)	June 30, 2023		December 31, 2022
Assets
Cash and cash equivalents	$	3,209	$	3,520
Accounts receivable, net	3,212		2,833
Contract assets, current	578		537
Inventories, net	2,699		2,640
Other assets, current	443		349
Total current assets	10,141		9,879
Future income tax benefits	690		612
Fixed assets, net	2,262		2,241
Operating lease right-of-use assets	600		642
Intangible assets, net	1,181		1,342
Goodwill	9,927		9,977
Pension and post-retirement assets	32		26
Equity method investments	1,139		1,148
Other assets	312		219
Total Assets	$	26,284	$	26,086
Liabilities and Equity
Accounts payable	$	2,956	$	2,833
Accrued liabilities	2,661		2,610
Contract liabilities, current	483		449
Current portion of long-term debt	134		140
Total current liabilities	6,234		6,032
Long-term debt	8,655		8,702
Future pension and post-retirement obligations	350		349
Future income tax obligations	560		568
Operating lease liabilities	485		529
Other long-term liabilities	1,712		1,830
Total Liabilities	17,996		18,010
Commitments and contingent liabilities (Note 19)
Equity
Common stock	9		9
Treasury stock	(1,972)		(1,910)
Additional paid-in capital	5,494		5,481
Retained earnings	6,129		5,866
Accumulated other comprehensive loss	(1,691)		(1,688)
Non-controlling interest	319		318
Total Equity	8,288		8,076
Total Liabilities and Equity	$	26,284	$	26,086

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

5

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, 2022	$	(1,688)	$	9	$	(1,910)	$	5,481	$	5,866	$	318	$	8,076
Net income	—		—		—		—		373		14		387
Other comprehensive income (loss), net of tax	52		—		—		—		—		2		54
Shares issued under incentive plans, net	—		—		—		(9)		—		—		(9)
Stock-based compensation	—		—		—		22		—		—		22
Treasury stock repurchase	—		—		(62)		—		—		—		(62)
Balance as of March 31, 2023	$	(1,636)	$	9	$	(1,972)	$	5,494	$	6,239	$	334	$	8,468
Net income	—		—		—		—		199		34		233
Other comprehensive income (loss), net of tax	(55)		—		—		—		—		(8)		(63)
Dividends declared on common stock (1)	—		—		—		—		(309)		—		(309)
Shares issued under incentive plans, net	—		—		—		(18)		—		—		(18)
Stock-based compensation	—		—		—		18		—		—		18
Dividends attributable to non-controlling interest	—		—		—		—		—		(41)		(41)
Balance as of June 30, 2023	$	(1,691)	$	9	$	(1,972)	$	5,494	$	6,129	$	319	$	8,288
(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	$	(989)	$	9	$	(529)	$	5,411	$	2,865	$	327	$	7,094
Net income	—		—		—		—		1,379		8		1,387
Other comprehensive income (loss), net of tax	(308)		—		—		—		—		—		(308)
Shares issued under incentive plans, net	—		—		—		(17)		—		—		(17)
Stock-based compensation	—		—		—		21		—		—		21
Dividends attributable to non-controlling interest	—		—		—		—		—		(1)		(1)
Sale of non-controlling interest	—		—		—		—		—		(5)		(5)
Treasury stock repurchase	—		—		(741)		—		—		—		(741)
Balance as of March 31, 2022	$	(1,297)	$	9	$	(1,270)	$	5,415	$	4,244	$	329	$	7,430
Net income	—		—		—		—		573		14		587
Other comprehensive income (loss), net of tax	(478)		—		—		—		—		(9)		(487)
Dividends declared on common stock (2)	—		—		—		—		(253)		—		(253)
Conversion of cash settled awards	—		—		—		6		—		—		6
Stock-based compensation	—		—		—		20		—		—		20
Dividends attributable to non-controlling interest	—		—		—		—		—		(38)		(38)
Treasury stock repurchase	—		—		(273)		—		—		—		(273)
Balance as of June 30, 2022	$	(1,775)	$	9	$	(1,543)	$	5,441	$	4,564	$	296	$	6,992
(1) Cash dividends declared were $0.38 per share for the three months ended June 30, 2023
(2) Cash dividends declared were $0.30 per share for the three months ended June 30, 2022

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

6

CARRIER GLOBAL CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

	Six Months Ended June 30,
(In millions)	2023		2022
Operating Activities
Net income from operations	$	620	$	1,974
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization	273		155
Deferred income tax provision	(110)		(17)
Stock-based compensation costs	40		41
Equity method investment net earnings	(96)		(159)
(Gain) loss on extinguishment of debt	—		(36)
(Gain) loss on sale of investments / deconsolidation	276		(1,119)
Changes in operating assets and liabilities
Accounts receivable, net	(406)		(483)
Contract assets, current	(40)		(224)
Inventories, net	(59)		(435)
Other assets, current	(105)		(37)
Accounts payable and accrued liabilities	120		79
Contract liabilities, current	37		42
Defined benefit plan contributions	(11)		(6)
Distributions from equity method investments	10		15
Other operating activities, net	(45)		40
Net cash flows provided by (used in) operating activities	504		(170)
Investing Activities
Capital expenditures	(144)		(122)
Investment in businesses, net of cash acquired	(56)		(38)
Dispositions of businesses	36		2,944
Settlement of derivative contracts, net	(14)		(123)
Kidde-Fenwal, Inc. deconsolidation	(134)		—
Other investing activities, net	16		(16)
Net cash flows provided by (used in) investing activities	(296)		2,645
Financing Activities
Increase (decrease) in short-term borrowings, net	(19)		(22)
Issuance of long-term debt	6		21
Repayment of long-term debt	(12)		(1,127)
Repurchases of common stock	(62)		(1,014)
Dividends paid on common stock	(309)		(257)
Dividends paid to non-controlling interest	(41)		(22)
Other financing activities, net	(69)		(13)
Net cash flows provided by (used in) financing activities	(506)		(2,434)
Effect of foreign exchange rate changes on cash and cash equivalents	(13)		(41)
Net increase (decrease) in cash and cash equivalents and restricted cash	(311)		—
Cash, cash equivalents and restricted cash, beginning of period	3,527		3,025
Cash, cash equivalents and restricted cash, end of period	3,216		3,025
Less: restricted cash	7		8
Cash and cash equivalents, end of period	$	3,209	$	3,017

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

7

CARRIER GLOBAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1: DESCRIPTION OF THE BUSINESS

Carrier Global Corporation (the "Company") is a global leader in intelligent climate and energy solutions with a focus on providing differentiated, digitally-enabled lifecycle solutions to its customers. The Company's portfolio includes industry-leading brands such as Carrier, Toshiba, 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. The Company's operations are classified into three segments: HVAC, Refrigeration and Fire & Security.

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"). The accompanying 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 2022 filed with the SEC on February 7, 2023 (the "2022 Form 10-K").

NOTE 2: BASIS OF PRESENTATION

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. Inter-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.

Planned Portfolio Transformation

On April 25, 2023, the Company announced that it entered into a Share Purchase Agreement (the “Agreement”) to acquire the climate solutions business (the "VCS Business") of Viessmann Group GmbH & Co. KG (“Viessmann”), a privately-held company, for approximately €12 billion. The VCS Business develops intelligent, integrated and sustainable technologies, including heat pumps, boilers, photovoltaic systems, home battery storage and digital solutions, primarily for residential customers in Europe. The transaction is expected to close around the end of 2023, subject to customary closing conditions and regulatory approvals. In addition, the Company also announced plans to exit its Fire & Security and Commercial Refrigeration businesses over the course of 2024. See Note 15 – Acquisitions and Note 16 - Divestitures for additional information.

Deconsolidation of Kidde-Fenwal, Inc.

On May 14, 2023, Kidde-Fenwal, Inc. ("KFI") filed a petition for voluntary reorganization under Chapter 11 of the United States Bankruptcy Code ("Chapter 11") in the United States Bankruptcy Court for the District of Delaware. KFI, an industrial fire detection and suppression business and an indirect wholly-owned subsidiary of the Company, has indicated that it intends to use the bankruptcy process to explore strategic alternatives, including the sale of KFI as a going concern. KFI has further stated that, during the Chapter 11 process, KFI expects that there will be no significant interruptions to its business operations. As of the petition date, KFI was deconsolidated and its respective assets and liabilities were derecognized from the Company's Unaudited Condensed Consolidated Financial Statements. See Note 19 - Commitments and Contingent Liabilities for additional information.

Acquisition of Toshiba Carrier Corporation

On February 6, 2022, the Company entered into a binding agreement to acquire a majority ownership interest in Toshiba Carrier Corporation (“TCC”), a variable refrigerant flow ("VRF") and light commercial HVAC joint venture between Carrier and Toshiba Corporation. The acquisition was completed on August 1, 2022. As a result, the assets, liabilities and results of operations of TCC are consolidated in the accompanying Unaudited Condensed Consolidated Financial Statements as of the

8

date of acquisition and reported within the Company’s HVAC segment. Upon closing, Toshiba Corporation retained a 5% ownership interest in TCC. See Note 15 – Acquisitions for additional information.

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"). 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 17 countries around the globe. 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 (the Distribution Date"), United Technologies Corporation ("UTC"), since renamed RTX Corporation ("Raytheon Technologies Corporation" or "RTX"), completed the spin-off of Carrier into an independent, publicly traded company (the "Separation") through a pro-rata distribution (the "Distribution") on a one-for-one basis of all of the outstanding shares of common stock of Carrier 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. In connection with the Separation, the Company issued an aggregate principal balance of $11.0 billion of debt and transferred approximately $10.9 billion of cash to UTC on February 27, 2020 and March 27, 2020. On April 1, 2020 and April 2, 2020, the Company received cash contributions totaling $590 million from UTC related to the Separation.

Recently Issued and Adopted Accounting Pronouncements

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 are not expected to have a material impact on the accompanying Unaudited Condensed Consolidated Financial Statements.

NOTE 3: 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)	June 30, 2023		December 31, 2022
Raw materials	$	841	$	884
Work-in-process	291		230
Finished goods	1,567		1,526
Inventories, net	$	2,699	$	2,640

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 $241 million and $190 million as of June 30, 2023 and December 31, 2022, respectively.

NOTE 4: 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.

9

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

(In millions)	HVAC		Refrigeration		Fire & Security		Total
Balance as of December 31, 2022	$	6,392	$	1,197	$	2,388	$	9,977
Acquisitions / divestitures	(11)		(4)		—		(15)
Foreign currency translation	(22)		(4)		(9)		(35)
Balance as of June 30, 2023	$	6,359	$	1,189	$	2,379	$	9,927

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.

Identifiable intangible assets consisted of the following:

	June 30, 2023						December 31, 2022
(In millions)	Gross Amount		Accumulated Amortization		Net Amount		Gross Amount		Accumulated Amortization		Net Amount
Amortized:
Customer relationships	$	1,408	$	(754)	$	654	$	1,431	$	(720)	$	711
Patents and trademarks	388		(202)		186		401		(191)		210
Service portfolios and other	932		(655)		277		953		(595)		358
	2,728		(1,611)		1,117		2,785		(1,506)		1,279
Unamortized:
Trademarks and other	64		—		64		63		—		63
Intangible assets, net	$	2,792	$	(1,611)	$	1,181	$	2,848	$	(1,506)	$	1,342

Amortization of intangible assets was as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
(In millions)	2023		2022		2023		2022
Amortization expense of Intangible assets	$	61	$	20	$	125	$	41

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NOTE 5: BORROWINGS AND LINES OF CREDIT

Long-term debt consisted of the following:

(In millions)	June 30, 2023		December 31, 2022
2.242% Notes due February 15, 2025	$	1,200	$	1,200
2.493% Notes due February 15, 2027	900		900
2.722% Notes due February 15, 2030	2,000		2,000
2.700% Notes due February 15, 2031	750		750
3.377% Notes due April 5, 2040	1,500		1,500
3.577% Notes due April 5, 2050	2,000		2,000
Total long-term notes	8,350		8,350
Japanese Term Loan Facility	374		404
Other debt (including project financing obligations and finance leases)	146		149
Discounts and debt issuance costs	(81)		(61)
Total debt	8,789		8,842
Less: current portion of long-term debt	134		140
Long-term debt, net of current portion	$	8,655	$	8,702

Japanese Term Loan Facility

On July 15, 2022, the Company entered into a five-year, JPY 54 billion (approximately $400 million) senior unsecured term loan facility with MUFG Bank Ltd., as administrative agent and lender, and certain other lenders (the "Japanese Term Loan Facility"). Borrowings under the Japanese Term Loan Facility bear interest at a rate equal to the Tokyo Term Risk Free Rate plus 0.75%. In addition, the Japanese Term Loan Facility is subject to customary covenants including a covenant to maintain a maximum consolidated leverage ratio. The Company capitalized $2 million of deferred financing costs which are being amortized over its term. On July 25, 2022, the Company borrowed JPY 54 billion under the Japanese Term Loan Facility and used the proceeds to fund a portion of the TCC acquisition and to pay related fees and expenses.

Revolving Credit Facility

On May 19, 2023, the Company entered into a revolving credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, and certain other lenders, permitting aggregate borrowings of up to $2.0 billion pursuant to an unsecured, unsubordinated revolving credit facility that matures in May 2028 (the "Revolving Credit Facility"). The Revolving Credit Facility supports the Company's commercial paper program and can be used for other general corporate purposes. Borrowings are available in U.S. Dollars and Euros. U.S. Dollar borrowings can bear interest at either a Term SOFR Rate plus 0.10% and a rating-based margin or, alternatively, at an alternate base rate plus a ratings-based margin. Euro borrowings bear interest at an adjusted EURIBOR rate plus a ratings-based margin. A ratings-based commitment fee is charged on unused commitments. Upon entering into the agreement, the Company terminated its existing revolving credit facility that was set to mature in April 2025. In addition, the Company capitalized $2 million of deferred financing costs which are being amortized over its term. As of June 30, 2023, there were no borrowings outstanding under the Revolving Credit Facility.

Commercial Paper Program

The Company has a $2.0 billion unsecured, unsubordinated commercial paper program, which can be used for general corporate purposes, including the funding of working capital and potential acquisitions. As of June 30, 2023, there were no borrowings outstanding under the commercial paper program.

Project Financing Arrangements

The Company is involved in long-term construction contracts in which it arranges project financing with certain customers. As a result, the Company issued $6 million and $21 million of debt during the six months ended June 30, 2023 and 2022, respectively. Long-term debt repayments associated with these financing arrangements during the six months ended June 30, 2023 and 2022 were $12 million and $12 million, respectively.

11

Debt Covenants

The Revolving Credit Facility, the indenture for the long-term notes and the Japanese Term Loan Facility 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, 2023, 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 $1.15 billion ("Aggregate Tender Cap") aggregate principal of the Company's 2.242% Notes due 2025 and 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 $1.15 billion, which included $800 million of Notes due 2025 and $350 million of Notes due 2027. As a result, the Company recognized a net gain of $33 million and wrote off $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: 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.

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 in Other income (expense), net in the accompanying Unaudited Condensed Consolidated Statement of Operations.

In connection with the TCC acquisition, the Company funded a portion of the Yen-denominated purchase price with cash on hand by entering into cross currency swaps with SMBC Capital Markets, Inc., as syndication swap arranger, and certain other financial institutions. The cross currency swaps are measured at fair value on a recurring basis using observable market inputs, such as forward, discount and interest rates as well as credit default swap spreads. The Company designated the cross currency swaps as a partial hedge of its investment in certain subsidiaries whose functional currency is the Japanese Yen in order to manage foreign currency translation risk. As a result, changes in the fair value of the swaps are recorded in Equity in the accompanying Unaudited Condensed Consolidated Balance Sheet.

The remaining portion of the Yen-denominated purchase price was funded by the Japanese Term Loan Facility. The carrying value of the facility is translated on a recurring basis using the exchange rate at the end of the applicable period and approximates its fair value. The Company designated the Japanese Term Loan Facility as a partial hedge of its investment in certain subsidiaries whose functional currency is the Japanese Yen in order to manage foreign currency translation risk. As a result, changes in the carrying value of the Japanese Term Loan Facility associated with foreign exchange rate movements are recorded in Equity in the Unaudited Condensed Consolidated Balance Sheet.

12

In connection with the proposed acquisition of the VCS Business, the Company entered into window forward contracts with Bank of America N.A. and JPMorgan Chase Bank N.A. to mitigate the foreign currency risk of the expected cash outflows associated with the Euro-denominated purchase price. The instruments have an aggregate notional amount of €7 billion and a settlement window between November 28, 2023 and February 27, 2024. The window forward contracts are measured at fair value on a recurring basis using observable market inputs, such as forward, discount and interest rates with changes in fair value reported in Other income (expense), net in the accompanying Unaudited Condensed Consolidated Statement of Operations. During the three months ended June 30, 2023, the Company recognized a $111 million loss on the mark-to-market valuation of its window forward contracts.

The following tables provide the valuation hierarchy classification of assets and liabilities that are recorded at fair value and measured on a recurring basis in the accompanying Unaudited Condensed Consolidated Balance Sheet:

(In millions)	Total		Level 1		Level 2		Level 3
June 30, 2023
Derivative assets (1)(3)	$	18	$	—	$	18	$	—
Derivative liabilities (2)(3)	$	(176)	$	—	$	(176)	$	—
December 31, 2022
Derivative assets (1) (3)	$	28	$	—	$	28	$	—
Derivative liabilities (2) (3)	$	(48)	$	—	$	(48)	$	—

(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.

(3) Includes cross currency swaps and window forward contracts.

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 accompanying Unaudited Condensed Consolidated Balance Sheet:

	June 30, 2023				December 31, 2022
(In millions)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Total long-term Notes (1)	$	8,350	$	6,943	$	8,350	$	6,832

(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: 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:

	Three Months Ended June 30,				Six Months Ended June 30,
(In millions)	2023		2022		2023		2022
Defined benefit plans	$	5	$	2	$	11	$	6
Defined contribution plans	$	29	$	28	$	66	$	66
Multi-employer pension plans	$	4	$	3	$	8	$	6

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

	Three Months Ended June 30,				Six Months Ended June 30,
(In millions)	2023		2022		2023		2022
Service cost	$	4	$	4	$	8	$	9
Interest cost	8		4		16		8
Expected return on plan assets	(8)		(6)		(16)		(13)
Amortization of prior service credit	1		—		1		1
Recognized actuarial net (gain) loss	(1)		3		(1)		5
Net periodic pension expense (benefit)	$	4	$	5	$	8	$	10

NOTE 8: 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:

	Three Months Ended June 30,				Six Months Ended June 30,
(In millions)	2023		2022		2023		2022
Equity compensation costs - equity settled	$	18	$	20	$	40	$	41
Equity compensation costs - cash settled (1)	1		(11)		2		(17)
Total stock-based compensation expense	$	19	$	9	$	42	$	24

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

NOTE 9: PRODUCT WARRANTIES

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:

	Six Months Ended June 30,
(In millions)	2023		2022
Balance as of January 1,	$	552	$	524
Warranties, performance guarantees issued and changes in estimated liability	117		84
Settlements made	(92)		(78)
Other	(2)		(5)
Balance as of June 30,	$	575	$	525

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NOTE 10: EQUITY

The authorized number of shares of common stock of Carrier is 4,000,000,000 shares of $0.01 par value. As of June 30, 2023 and December 31, 2022, 880,570,371 and 876,487,480 shares of common stock were issued, respectively, which includes 43,490,981 and 42,103,995 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. Repurchases occur in the open market or through one or more other public or private transactions pursuant to plans complying with Rules 10b5-1 and 10b-18 under the Exchange Act. Shares acquired are recognized at cost and presented separately on the balance sheet as a reduction to Equity. Since the initial authorization in February 2021, the Company's Board of Directors authorized the repurchase of up to $4.1 billion of the Company's outstanding common stock. As of December 31, 2022, the Company repurchased 42.1 million shares of common stock for an aggregate purchase price of $1.9 billion, including shares repurchased under an accelerated share repurchase agreement. As a result, the Company had approximately $2.2 billion remaining under the current authorization at December 31, 2022.

During the six months ended June 30, 2023, the Company repurchased 1.4 million shares of common stock for an aggregate purchase price of $62 million. As a result, the Company has approximately $2.1 billion remaining under the current authorization at June 30, 2023.

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, 2023 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, 2022	$	(1,604)	$	(84)	$	(1,688)
Other comprehensive income (loss) before reclassifications, net	52		—		52
Amounts reclassified, pre-tax	—		—		—
Tax expense (benefit) reclassified	—		—		—
Balance as of March 31, 2023	$	(1,552)	$	(84)	$	(1,636)
Other comprehensive income (loss) before reclassifications, net	(55)		—		(55)
Amounts reclassified, pre-tax	—		—		—
Tax expense (benefit) reclassified	—		—		—
Balance as of June 30, 2023	$	(1,607)	$	(84)	$	(1,691)

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A summary of changes in the components of Accumulated other comprehensive income (loss) for the three and six months ended June 30, 2022 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	$	(505)	$	(484)	$	(989)
Other comprehensive income (loss) before reclassifications, net	(61)		(4)		(65)
Amounts reclassified, pre-tax	—		3		3
Tax expense (benefit) reclassified	—		(1)		(1)
Chubb divestiture	(574)		329		(245)
Balance as of March 31, 2022	$	(1,140)	$	(157)	$	(1,297)
Other comprehensive income (loss) before reclassifications, net	(480)		—		(480)
Amounts reclassified, pre-tax	—		3		3
Tax expense (benefit) reclassified	—		(1)		(1)
Balance as of June 30, 2022	$	(1,620)	$	(155)	$	(1,775)

NOTE 11: REVENUE RECOGNITION

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:

	Three Months Ended June 30,				Six Months Ended June 30,
(In millions)	2023		2022		2023		2022
Sales Type
Product	$	3,754	$	3,005	$	6,955	$	5,644
Service	462		383		883		714
HVAC sales	4,216		3,388		7,838		6,358
Product	858		925		1,645		1,792
Service	114		116		225		225
Refrigeration sales	972		1,041		1,870		2,017
Product	869		838		1,682		1,609
Service	63		49		119		96
Fire & Security sales	932		887		1,801		1,705
Total segment sales	6,120		5,316		11,509		10,080
Eliminations and other	(128)		(105)		(244)		(215)
Net sales	$	5,992	$	5,211	$	11,265	$	9,865

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Contract Balances

Total contract assets and contract liabilities consisted of the following:

(In millions)	June 30, 2023		December 31, 2022
Contract assets, current	$	578	$	537
Contract assets, non-current (included within Other assets)	8		6
Total contract assets	586		543
Contract liabilities, current	(483)		(449)
Contract liabilities, non-current (included within Other long-term liabilities)	(170)		(174)
Total contract liabilities	(653)		(623)
Net contract assets (liabilities)	$	(67)	$	(80)

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 $264 million during the six months ended June 30, 2023 that related to contract liabilities as of January 1, 2023. The Company expects a majority of its current contract liabilities at the end of the period to be recognized as revenue in the next 12 months.

NOTE 12: 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. Due to the size, nature and frequency of these discrete plans, they are fundamentally different from the Company's ongoing productivity actions.

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

	Three Months Ended June 30,			Six Months Ended June 30,
(In millions)	2023		2022	2023	2022
HVAC	$	3