Item 1. Financial Statements

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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)2024202320242023
Net sales
Product sales$6,004$5,355$11,546$10,041
Service sales6856371,3251,224
Total Net sales6,6895,99212,87111,265
Costs and expenses
Cost of products sold(4,296)(3,769)(8,294)(7,227)
Cost of services sold(515)(468)(994)(905)
Research and development(187)(151)(411)(290)
Selling, general and administrative(975)(784)(1,960)(1,505)
Total Costs and expenses(5,973)(5,172)(11,659)(9,927)
Equity method investment net earnings905212196
Other income (expense), net2,885(383)2,858(390)
Operating profit3,6914894,1911,044
Non-service pension (expense) benefit(1)—(1)—
Interest (expense) income, net(166)(67)(331)(113)
Income from operations before income taxes3,5244223,859931
Income tax (expense) benefit(1,155)(189)(1,201)(311)
Net income from operations2,3692332,658620
Less: Non-controlling interest in subsidiaries' earnings from operations32345248
Net income attributable to common shareowners$2,337$199$2,606$572
Earnings per share
Basic$2.59$0.24$2.90$0.68
Diluted$2.55$0.23$2.85$0.67
Weighted-average number of shares outstanding
Basic902.4836.0900.2835.5
Diluted915.3850.9913.6851.5

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

CARRIER GLOBAL CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

Three Months Ended June 30,Six Months Ended June 30,
(In millions)2024202320242023
Net income from operations$2,369$233$2,658$620
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments arising during period(188)(63)(576)(9)
Pension and post-retirement benefit plan adjustments1—1—
Amortization of unrealized cash flow hedging gain (loss)(1)—(2)—
Divestitures373—373—
Other comprehensive income (loss), net of tax185(63)(204)(9)
Comprehensive income (loss)2,5541702,454611
Less: Comprehensive income (loss) attributable to non-controlling interest31264842
Comprehensive income (loss) attributable to common shareowners$2,523$144$2,406$569

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

CARRIER GLOBAL CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEET

(Unaudited)

As of
(In millions)June 30, 2024December 31, 2023
Assets
Cash and cash equivalents$2,919$10,015
Accounts receivable, net3,1872,481
Contract assets333306
Inventories, net3,0452,217
Assets held for sale1,6013,314
Other current assets488447
Total current assets11,57318,780
Future income tax benefits939739
Fixed assets, net3,1172,293
Operating lease right-of-use assets635491
Intangible assets, net7,0481,028
Goodwill15,2457,989
Pension and post-retirement assets8132
Equity method investments1,2211,140
Other assets565330
Total Assets$40,424$32,822
Liabilities and Equity
Accounts payable$3,181$2,742
Accrued liabilities4,2622,811
Contract liabilities493425
Liabilities held for sale687862
Current portion of long-term debt2,05251
Total current liabilities10,6756,891
Long-term debt11,27014,242
Future pension and post-retirement obligations247155
Future income tax obligations2,184535
Operating lease liabilities501391
Other long-term liabilities1,4681,603
Total Liabilities26,34523,817
Commitments and contingent liabilities (Note 19)
Equity
Common stock99
Treasury stock(1,972)(1,972)
Additional paid-in capital8,5635,535
Retained earnings8,8546,591
Accumulated other comprehensive loss(1,686)(1,486)
Non-controlling interest311328
Total Equity14,0799,005
Total Liabilities and Equity$40,424$32,822

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

CARRIER GLOBAL CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(Unaudited)

(In millions)Accumulated Other Comprehensive Income (Loss)Common StockTreasury StockAdditional Paid-In CapitalRetained EarningsNon-Controlling InterestTotal Equity
Balance as of December 31, 2023$(1,486)$9$(1,972)$5,535$6,591$328$9,005
Net income————26920289
Other comprehensive income (loss), net of tax(386)————(3)(389)
Shares issued under incentive plans, net———(22)——(22)
Stock-based compensation———23——23
Acquisition of VCS Business———3,000——3,000
Balance as of March 31, 2024$(1,872)$9$(1,972)$8,536$6,860$345$11,906
Net income————2,337322,369
Other comprehensive income (loss), net of tax186————(1)185
Dividends declared on common stock (1)————(343)—(343)
Shares issued under incentive plans, net———2——2
Stock-based compensation———25——25
Dividends attributable to non-controlling interest—————(65)(65)
Balance as of June 30, 2024$(1,686)$9$(1,972)$8,563$8,854$311$14,079
(In millions)Accumulated Other Comprehensive Income (Loss)Common StockTreasury StockAdditional Paid-In CapitalRetained EarningsNon-Controlling InterestTotal Equity
Balance as of December 31, 2022$(1,688)$9$(1,910)$5,481$5,866$318$8,076
Net income————37314387
Other comprehensive income (loss), net of tax52————254
Shares issued under incentive plans, net———(9)——(9)
Stock-based compensation———22——22
Treasury stock repurchase——(62)———(62)
Balance as of March 31, 2023$(1,636)$9$(1,972)$5,494$6,239$334$8,468
Net income————19934233
Other comprehensive income (loss), net of tax(55)————(8)(63)
Dividends declared on common stock (2)————(309)—(309)
Shares issued under incentive plans, net———(18)——(18)
Stock-based compensation———18——18
Dividends attributable to non-controlling interest—————(41)(41)
Balance as of June 30, 2023$(1,691)$9$(1,972)$5,494$6,129$319$8,288
(1) Cash dividends declared were $0.38 per share for the three months ended June 30, 2024
(2) Cash dividends declared were $0.37 per share for the three months ended June 30, 2023

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

CARRIER GLOBAL CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

Six Months Ended June 30,
(In millions)20242023
Operating Activities
Net income from operations$2,658$620
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization625273
Deferred income tax provision(338)(110)
Stock-based compensation costs4840
Equity method investment net earnings(121)(96)
(Gain) loss on sale of investments / deconsolidation(2,881)276
Changes in operating assets and liabilities
Accounts receivable, net(286)(406)
Contract assets(62)(40)
Inventories, net(2)(59)
Other current assets(52)(105)
Accounts payable and accrued liabilities1,118120
Contract liabilities(19)37
Distributions from equity method investments1210
Other operating activities, net—(56)
Net cash flows provided by (used in) operating activities700504
Investing Activities
Capital expenditures(215)(144)
Investment in businesses, net of cash acquired(10,779)(56)
Dispositions of businesses4,87736
Settlement of derivative contracts, net(185)(14)
Kidde-Fenwal, Inc. deconsolidation—(134)
Other investing activities, net2916
Net cash flows provided by (used in) investing activities(6,273)(296)
Financing Activities
Increase (decrease) in short-term borrowings, net—(19)
Issuance of long-term debt2,5556
Repayment of long-term debt(3,542)(12)
Repurchases of common stock—(62)
Dividends paid on common stock(330)(309)
Dividends paid to non-controlling interest(67)(41)
Other financing activities, net(22)(69)
Net cash flows provided by (used in) financing activities(1,406)(506)
Effect of foreign exchange rate changes on cash and cash equivalents(82)(13)
Net increase (decrease) in cash and cash equivalents and restricted cash, including cash classified in current assets held for sale(7,061)(311)
Less: Change in cash balances classified as assets held for sale34—
Net increase (decrease) in cash and cash equivalents and restricted cash(7,095)(311)
Cash, cash equivalents and restricted cash, beginning of period10,0173,527
Cash, cash equivalents and restricted cash, end of period2,9223,216
Less: restricted cash37
Cash and cash equivalents, end of period$2,919$3,209

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

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, Viessmann, Toshiba, Automated Logic, Carrier Transicold, Kidde and Edwards that offer innovative heating, ventilating, air conditioning ("HVAC"), refrigeration, fire 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 2023 filed with the SEC on February 6, 2024 (the "2023 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.

Acquisition of Viessmann Climate Solutions

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. The acquisition was completed on January 2, 2024. As a result, the assets, liabilities and results of operations of the VCS Business are consolidated in the accompanying Unaudited Condensed Consolidated Financial Statements as of the date of acquisition and reported within the Company’s HVAC segment. See Note 15 – Acquisitions for additional information.

Portfolio Transformation

On December 7, 2023, the Company entered into a stock purchase agreement to sell its Access Solutions business ("Access Solutions") to Honeywell International Inc. As a result, the assets and liabilities of Access Solutions are presented as held for sale on the accompanying Unaudited Condensed Consolidated Balance Sheet as of December 31, 2023, and recorded at the lower of their carrying value or fair value less estimated cost to sell. The sale of Access Solutions was completed on June 2, 2024. See Note 16 - Divestitures for additional information.

On December 12, 2023, the Company entered into a stock purchase agreement to sell its Commercial Refrigeration business ("CCR") to Haier Group Corporation for an enterprise value of approximately $775 million. In addition, the net assets of the Company’s Industrial Fire business ("Industrial Fire") met the criteria to be classified as held for sale during the fourth quarter of 2023. As a result, the assets and liabilities of each business are presented as held for sale in the accompanying Unaudited Condensed Consolidated Balance Sheet as of June 30, 2024 and December 31, 2023, and recorded at the lower of their carrying value or fair value less estimated cost to sell. On March 5, 2024, the Company entered into a stock purchase agreement to sell Industrial Fire to Sentinel Capital Partners for an enterprise value of approximately $1.425 billion. The sale of Industrial Fire was completed on July 1, 2024. See Note 16 - Divestitures for additional information.

Deconsolidation of Kidde-Fenwal, Inc.

On May 14, 2023, Kidde-Fenwal, Inc. ("KFI"), an indirect wholly-owned subsidiary of the Company, 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 historically reported in the Company's Fire & Security segment, indicated that it intended to use the bankruptcy process to explore strategic alternatives, including the sale of KFI as a going concern. 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.

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. Following the Separation and Distribution, the Company entered into several agreements with UTC and Otis Worldwide Corporation ("Otis") that govern various aspects of the relationship among the Company, UTC and Otis. As of June 30, 2024, only certain portions of the Tax Matters Agreement ("TMA") remain in effect.

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.

Recently Issued Accounting Pronouncements

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which requires public entities to disclose information about their reportable segments’ significant expenses on an interim and annual basis. In addition, the amendments clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment and contain other disclosure requirements. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023 and interim periods beginning after December 15, 2024, with early adoption permitted. The Company is currently assessing the impact of this ASU on its financial statements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures ("ASU 2023-09"), which requires public entities to disclose disaggregated information about their effective tax rate reconciliation as well as information on income taxes paid. ASU 2023-09 is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently assessing the impact of this ASU on its financial statements.

On March 6, 2024, the SEC adopted new rules designed to enhance public company disclosures related to the risks and impacts of climate-related matters. The rules amend the provisions of both Regulation S-K and Regulation S-X to require disclosure of climate-related risks, transition plans, targets and goals, risk management and governance as well as require disclosure of the financial effects of severe weather events and other natural conditions as well as the use of carbon offsets or renewable energy credits. Disclosure requirements will begin phasing in for fiscal years beginning on or after January 1, 2025, subject to legal challenges and the SEC's voluntary stay of the disclosure requirements. The Company will continue to assess the impact of these new rules on its financial statements while the stay is in place.

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, 2024December 31, 2023
Raw materials$981$695
Work-in-process285259
Finished goods1,7791,263
Inventories, net$3,045$2,217

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 $245 million and $223 million as of June 30, 2024 and December 31, 2023, 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.

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

(In millions)HVACRefrigerationFire & SecurityTotal
Balance as of December 31, 2023$6,407$1,124$458$7,989
Acquisitions (1)7,572——7,572
Divestitures (2)——3131
Reclassified to held for sale (2)—3(13)(10)
Foreign currency translation(364)(26)53(337)
Balance as of June 30, 2024$13,615$1,101$529$15,245

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

(2) See Note 16 - Divestitures 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.

Identifiable intangible assets consisted of the following:

June 30, 2024December 31, 2023
(In millions)Gross AmountAccumulated AmortizationNet AmountGross AmountAccumulated AmortizationNet Amount
Amortized:
Customer relationships$5,868$(852)$5,016$1,222$(610)$612
Patents and trademarks973(186)787332(163)169
Service portfolios and other1,802(621)1,181686(503)183
8,643(1,659)6,9842,240(1,276)964
Unamortized:
Trademarks and other64—6464—64
Intangible assets, net$8,707$(1,659)$7,048$2,304$(1,276)$1,028

Amortization of intangible assets was as follows:

Three Months Ended June 30,Six Months Ended June 30,
(In millions)2024202320242023
Amortization expense of Intangible assets$218$61$430$125

NOTE 5: BORROWINGS AND LINES OF CREDIT

Long-term debt consisted of the following:

(In millions)June 30, 2024December 31, 2023
2.242% Notes due 2025 (1)$1,200$1,200
4.375% Notes due 2025 (2)801830
5.800% Notes due 2025—1,000
2.493% Notes due 2027900900
4.125% Notes due 2028801830
2.722% Notes due 20302,0002,000
2.700% Notes due 2031750750
4.500% Notes due 2032908941
5.900% Notes due 20341,0001,000
3.377% Notes due 20401,5001,500
3.577% Notes due 20502,0002,000
6.200% Notes due 20541,0001,000
Total long-term notes12,86013,951
Japanese Term Loan Facility337379
Other debt (including project financing obligations and finance leases)22074
Discounts and debt issuance costs(95)(111)
Total debt13,32214,293
Less: current portion of long-term debt2,05251
Long-term debt, net of current portion$11,270$14,242

(1) 2.242% Notes due February 15, 2025; reclassified to Current portion of long-term debt.

(2) 4.375% Notes due May 29, 2025; reclassified to Current portion of long-term debt.

Acquisition Funding

On January 2, 2024, the Company completed the acquisition of the VCS Business for total consideration of $14.2 billion. Under the terms of the Agreement, 20% of the purchase price was paid in Carrier common stock, issued directly to Viessmann and subject to certain lock up provisions and 80% was paid in cash, subject to working capital and other adjustments. In order to fund the Euro-denominated cash portion of the purchase price, the Company used cash on hand, debt financing and various term loan facilities.

Debt Issuance

In November 2023, the Company issued $3.0 billion principal amount of USD-denominated notes in three tranches. The tranches consisted of $1.0 billion aggregate principal amount of 5.80% notes due 2025, $1.0 billion aggregate principal amount of 5.90% notes due 2034 and $1.0 billion aggregate principal amount of 6.20% notes due 2054 (collectively, the “USD Notes”). In addition, the Company issued €2.35 billion principal amount of Euro-denominated notes in three tranches. The tranches consisted of €750 million aggregate principal amount of 4.375% notes due 2025, €750 million aggregate principal amount of 4.125% notes due 2028 and €850 million aggregate principal amount of 4.50% notes due 2032 (collectively, the “Euro Notes”). The Company capitalized $51 million of deferred financing costs which are being amortized over the term of their related notes. The notes are subject to certain customary covenants and the Company has the option to redeem the notes in whole or in part at any time prior to their stated maturity date at the redemption price set forth in the indenture agreements. In June 2024, the Company redeemed the $1.0 billion aggregate principal amount of 5.80% notes due in 2025 and incurred a $8 million make-whole premium upon prepayment and wrote off $4 million of related unamortized debt financing costs.

Bridge Loan

On April 25, 2023, the Company entered into commitment letters with JPMorgan Chase Bank, N.A., BofA Securities, Inc. and Bank of America, N.A. to provide a €8.2 billion aggregate principal, senior unsecured bridge term loan facility (the “Bridge Loan”). Euro-denominated borrowings bore interest at the EURIBOR Rate plus a ratings-based margin, USD-denominated borrowings bore interest at either a Term SOFR Rate plus 0.10% and a ratings-based margin or, alternatively, at a base rate plus a ratings-based margin. The Company capitalized $48 million of deferred financing costs associated with the Bridge Loan which were amortized over the commitment period. Upon entering into a senior unsecured delayed draw term loan facility and issuing the USD Notes and the Euro Notes, the Company reduced the Bridge Loan by €7.7 billion and accelerated the amortization on $25 million of deferred financing costs in Interest expense during 2023. On January 2, 2024, the Company entered into a 60-day senior unsecured term loan agreement consisting of a Euro-denominated tranche in an aggregate amount of €113 million and a USD-denominated tranche in an aggregate amount of $349 million (the “60-day Loan”). Upon entering into the 60-day Loan, the Company reduced the final portion of the Bridge Loan by €500 million and subsequently terminated the agreement. Borrowings under the 60-day Loan were repaid in March 2024.

Delayed Draw Facility

On May 19, 2023, the Company entered into a senior unsecured delayed draw term loan credit agreement with JPMorgan Chase Bank, N.A., as administrative agent and certain other lenders that permits aggregate borrowings of up to €2.3 billion (the "Delayed Draw Facility"). The facility consists of an 18-month, Euro-denominated tranche in an aggregate amount of €1.15 billion and a 3-year, Euro-denominated tranche in an aggregate amount of €1.15 billion. Euro-denominated borrowings bear interest at the EURIBOR Rate plus a ratings-based margin, USD-denominated borrowings bear interest at either a Term SOFR Rate plus 0.10% and a ratings-based margin or, alternatively, at a base rate plus a ratings-based margin. The Company capitalized $4 million of deferred financing costs which will be amortized over the respective term of the tranches. On January 2, 2024, the Company borrowed the full amount available under the Delayed Draw Facility in U.S. Dollars. Borrowings under the Delayed Draw Facility were repaid in June 2024 and the facility was subsequently terminated.

364-Day Revolver

On May 17, 2024, the Company entered into a 364-day, $500 million, senior unsecured revolving credit agreement with JPMorgan Chase Bank, N.A., as administrative agent and certain other lenders (the “364-day Revolver”). Borrowings are available in U.S. Dollars and Euros. USD-denominated borrowings bear interest at either a Term SOFR Rate plus 0.10% and a ratings-based margin or, alternatively, at a base rate plus a ratings-based margin, Euro-denominated borrowings bear interest at the Adjusted EURIBOR Rate plus a ratings-based margin. Upon entering into the 364-day Revolver, the Company terminated its existing $500 million senior unsecured revolving credit agreement that was set to mature in May 2024. As of June 30, 2024, there were no borrowings outstanding under the 364-day Revolver.

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%. 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 Yen-denominated purchase price of Toshiba Carrier Corporation ("TCC") 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 bear interest at either a Term SOFR Rate plus 0.10% and a ratings-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. In addition, the Company capitalized $2 million of deferred financing costs which are being amortized over its term. As of June 30, 2024, 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, 2024, 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 $20 million and $6 million of debt during the six months ended June 30, 2024 and 2023, respectively. Long-term debt repayments associated with these financing arrangements during the six months ended June 30, 2024 and 2023 were $6 million and $12 million, respectively.

Debt Covenants

The Revolving Credit Facility, 364-day Revolver, 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 certain liens, to make certain fundamental changes and to enter into sale and leaseback transactions. As of June 30, 2024, the Company was in compliance with the covenants under the agreements governing its outstanding indebtedness.

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.

During 2022, the Company entered into cross currency swaps with various financial institutions to fund a portion of the Yen-denominated purchase price of TCC. 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. From time to time, the Company settles and enters into new cross currency swaps with the same purpose and characteristics as initially established.

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.

During 2023, 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 of the VCS Business. The instruments had an aggregate notional amount of €7 billion and were 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 2023, the Company recognized a $96 million loss on the mark-to-market valuation of its window forward contracts. The Company settled the window forward contracts on January 2, 2024, upon the acquisition of the VCS Business and recognized an additional $86 million loss.

During 2023, the Company entered into several interest rate swap contracts to mitigate interest rate exposure on the forecasted issuance of long-term debt. The contracts had an aggregate notional amount of $1.525 billion and were designated as cash flow hedges with changes in fair value reported in Equity in the accompanying Unaudited Condensed Consolidated Balance Sheet. Fair value was measured on a recurring basis using observable market inputs, such as forward, discount and interest rates. In November 2023, the contracts were settled upon the issuance of the underlying debt. As a result, the Company deferred a net unrecognized gain of $58 million in Equity which will be subsequently recognized in Interest expense over the term of the related notes which range from 2034 to 2044. The amount expected to be amortized during 2024 is a net gain of $5 million.

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)TotalLevel 1Level 2Level 3
June 30, 2024
Derivative assets (1)(3)$62$—$62$—
Derivative liabilities (2)(3)$(12)$—$(12)$—
December 31, 2023
Derivative assets (1) (3)$32$—$32$—
Derivative liabilities (2) (3)$(126)$—$(126)$—

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

(2) Included in Accrued liabilities and Other long-term liabilities on the accompanying Unaudited Condensed Consolidated Balance Sheet.

(3) Includes cross currency swaps and window forward contracts (which were settled on January 2, 2024).

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, 2024December 31, 2023
(In millions)Carrying AmountFair ValueCarrying AmountFair Value
Total long-term notes (1)$12,860$11,725$13,951$13,194

(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 U.S. and international defined benefit pension and defined contribution plans. In addition, the Company contributes to various U.S. and international multi-employer defined benefit pension plans.

Contributions to the plans were as follows:

Three Months Ended June 30,Six Months Ended June 30,
(In millions)2024202320242023
Defined benefit plans$12$5$18$11
Defined contribution plans$35$29$74$66
Multi-employer pension plans$4$4$8$8

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)2024202320242023
Service cost$3$4$7$8
Interest cost781416
Expected return on plan assets(7)(8)(14)(16)
Amortization of prior service credit—1—1
Recognized actuarial net (gain) loss—(1)—(1)
Net settlement, curtailment and special termination benefit (gain) loss1—1—
Net periodic pension expense (benefit)$4$4$8$8

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)2024202320242023
Equity compensation costs - equity settled$26$18$48$40
Equity compensation costs - cash settled (1)1112
Total stock-based compensation expense$27$19$49$42

(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)20242023
Balance as of January 1,$570$552
Warranties, performance guarantees issued and changes in estimated liability165117
Settlements made(143)(92)
Other(8)(2)
Acquisitions (1)202—
Balance as of June 30,$786$575

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

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, 2024 and December 31, 2023, 946,155,120 and 883,068,393 shares of common stock were issued, respectively, which includes 43,490,981 shares of treasury stock, for both periods 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, 2023, the Company repurchased 43.5 million shares of common stock for an aggregate purchase price of $2.0 billion, including shares repurchased under an accelerated share repurchase agreement. As a result, the Company had approximately $2.1 billion remaining under the current authorization at December 31, 2023. Upon announcement of the proposed acquisition of the VCS Business, the Company temporarily paused its share repurchase program in order to advance its capital allocation strategy. As a result, there was no share repurchase activity during the six months ended June 30, 2024.

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, 2024 is as follows:

(In millions)Foreign Currency TranslationDefined Benefit Pension and Post-retirement PlansUnrealized Hedging Gains (Losses)Accumulated Other Comprehensive Income (Loss)
Balance as of December 31, 2023$(1,444)$(100)$58$(1,486)
Other comprehensive income (loss) before reclassifications, net(385)——(385)
Amounts reclassified, pre-tax——(1)(1)
Balance as of March 31, 2024$(1,829)$(100)$57$(1,872)
Other comprehensive income (loss) before reclassifications, net(187)——(187)
Amounts reclassified, pre-tax—1(1)—
Divestitures, net373——373
Balance as of June 30, 2024$(1,643)$(99)$56$(1,686)

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 TranslationDefined Benefit Pension and Post-retirement PlansUnrealized Hedging Gains (Losses)Accumulated Other Comprehensive Income (Loss)
Balance as of December 31, 2022$(1,604)$(84)$—$(1,688)
Other comprehensive income (loss) before reclassifications, net52——52
Balance as of March 31, 2023$(1,552)$(84)$—$(1,636)
Other comprehensive income (loss) before reclassifications, net(55)——(55)
Balance as of June 30, 2023$(1,607)$(84)$—$(1,691)

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)2024202320242023
Sales Type
Product$4,468$3,754$8,541$6,955
Service502462970883
HVAC sales4,9704,2169,5117,838
Product8518581,6231,645
Service122114234225
Refrigeration sales9739721,8571,870
Product8098691,6341,682
Service6263124119
Fire & Security sales8719321,7581,801
Total segment sales6,8146,12013,12611,509
Eliminations and other(125)(128)(255)(244)
Net sales$6,689$5,992$12,871$11,265

Contract Balances

Total contract assets and contract liabilities consisted of the following:

(In millions)June 30, 2024December 31, 2023
Contract assets$333$306
Contract assets, non-current (included within Other assets)4026
Total contract assets373332
Contract liabilities(493)(425)
Contract liabilities, non-current (included within Other long-term liabilities)(161)(160)
Total contract liabilities(654)(585)
Net contract assets (liabilities)$(281)$(253)

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 $348 million during the six months ended June 30, 2024 that related to contract liabilities as of January 1, 2024. 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)2024202320242023
HVAC$25$3$32$2
Refrigeration17110
Fire & Security3(1)1012
Total Segment2994324
General corporate expenses3—42
Total restructuring costs (1)$32$9$47$26
Cost of sales$13$3$25$9
Selling, general and administrative1962217
Total restructuring costs (1)$32$9$47$26

(1) 2024 restructuring costs include period related charges.

The following table summarizes changes in the restructuring reserve, included in Accrued liabilities on the accompanying Unaudited Condensed Consolidated Balance Sheet:

Six Months Ended June 30,
(In millions)20242023
Balance as of January 1,$55$24
Net pre-tax restructuring costs4126
Acquisitions (1)8—
Utilization, foreign exchange and other(47)(19)
Balance as of June 30,$57$31

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

As of June 30, 2024, the Company had $57 million accrued for costs associated with its announced restructuring initiatives. The balance relates to cost reduction efforts, primarily severance related across each of the Company's segments, along with reserves associated with the Company's planned portfolio transformation. The Company expects a majority of the balance to be utilized within one year.

NOTE 13: 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 32.8% for the three months ended June 30, 2024 compared with 44.8% for the three months ended June 30, 2023. The year-over-year decrease was primarily driven by the absence of the non-deductible loss of $293 million on the deconsolidation of KFI due to its Chapter 11 filing and the $111 million loss on the mark-to-market valuation of our window forward contracts associated with the expected cash outflows of the Euro-denominated purchase price of the VCS Business recognized during the three months ended June 30, 2023. These amounts were partially offset by the $1.1 billion tax on the $2.9 billion gain on the sale of Access Solutions and a held-for-sale tax benefit of $43 million related to adjustments to basis differences in certain companies recognized during the three months ended June 30, 2024.

The effective tax rate was 31.1% for the six months ended June 30, 2024, compared with 33.4% for the six months ended June 30, 2023. The year-over-year decrease was primarily driven by the absence of the non-deductible loss of $293 million on the deconsolidation of KFI due to its Chapter 11 filing recognized during the six months ended June 30, 2023. This amount was partially offset by the $1.1 billion tax on the $2.9 billion gain on the sale of Access Solutions and a held-for-sale tax benefit of $62 million related to adjustments to basis differences in certain companies recognized during the six months ended June 30, 2024. In addition, the Company recognized a tax benefit of $21 million associated with the TMA and UTC's conclusion of certain income tax matters from their 2017 and 2018 tax audit with the U.S. Internal Revenue Service ("IRS"), a net tax benefit of $16 million related to the re-organization and disentanglement of certain Fire & Security industrial businesses in advance of the planned divestitures, and a tax charge of $15 million related to a reduction of utilizable foreign tax credits during the six months ended June 30, 2024.

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 IRS has completed its audit of UTC's 2017 and 2018 tax years. 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 2020 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 $20 million to $40 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.

NOTE 14: 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,Six Months Ended June 30,
(In millions, except per share amounts)2024202320242023
Net income attributable to common shareowners$2,337$199$2,606$572
Basic weighted-average number of shares outstanding902.4836.0900.2835.5
Stock awards and equity units (share equivalent)12.914.913.416.0
Diluted weighted-average number of shares outstanding915.3850.9913.6851.5
Antidilutive shares excluded from computation of diluted earnings per share4.15.94.15.6
Earnings Per Share
Basic$2.59$0.24$2.90$0.68
Diluted$2.55$0.23$2.85$0.67

NOTE 15: ACQUISITIONS

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.

Viessmann Climate Solutions

On January 2, 2024, the Company completed the acquisition of the VCS Business from Viessmann for total consideration of $14.2 billion. The purchase price consisted of (i) $11.2 billion in cash and (ii) 58,608,959 shares of the Company's common stock, subject to certain lock-up provisions and anti-dilution protection. The Company funded the cash portion of the purchase price with a combination of cash on hand, net proceeds from the USD Notes and Euro Notes and borrowings under the Delayed Draw Facility and the 60-day Loan.

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 Company believes that secular trends in these areas will drive significant, sustained future growth. In addition, the Company anticipates realizing significant operational synergies including savings through supplier rationalization and leverage, reduced manufacturing costs and lower general and administrative costs. Longer term, the Company expects to benefit from synergies related to service revenue expansion, leverage of distribution channels and cross-selling opportunities.

The components of the purchase price are as follows:

(In millions)January 2, 2024
Cash$11,156
Common shares (58,608,959 shares at $51.20 per share)3,001
Total consideration$14,157

The preliminary allocation of the purchase price is as follows:

(In millions)Preliminary January 2, 2024Measurement Period AdjustmentsAs Adjusted January 2, 2024
Cash and cash equivalents$394(1)$393
Accounts receivable4085413
Inventories948—948
Other current assets17—17
Fixed assets91311924
Intangible assets6,640—6,640
Other assets2842286
Accounts payable(288)(2)(290)
Other liabilities, current(626)(4)(630)
Future income tax obligations(1,825)5(1,820)
Other liabilities(284)(12)(296)
Total identifiable net assets6,58146,585
Goodwill7,576(4)7,572
Total consideration$14,157$—$14,157

The excess purchase price over the estimated fair value of the net identifiable assets acquired was recognized as goodwill and totaled $7.6 billion, which is not deductible for tax purposes. Accounts receivable and current liabilities were stated at their historical carrying value, which approximates fair value given the short-term nature of these assets and liabilities. The estimate of fair value for inventory and fixed assets was based on an assessment of the acquired assets' condition as well as an evaluation of the current market value of such assets.

The Company recorded intangible assets based on its estimate of fair value which consisted of the following:

(In millions)Estimated Useful Life (in years)Intangible Assets Acquired
Customer relationships17$4,787
Technology10 - 201,051
Trademark40679
Backlog1123
Total intangible assets acquired$6,640

The valuation of intangible assets was determined using an income approach methodology including the multi-period excess earnings method and the relief from royalty method. Key assumptions used in estimating future cash flows included projected revenue growth rates, EBITDA margins, discount rates, customer attrition rates and royalty rates among others. The projected future cash flows are discounted to present value using an appropriate discount rate. As of June 30, 2024, the Company is substantially complete with the process of allocating the purchase price and valuing the acquired assets and liabilities assumed except for certain amounts associated with tax-related assets.

During the three and six months ended June 30, 2024, the Company incurred $7 million and $37 million of acquisition-related costs, respectively. During 2023, $80 million of acquisition-related costs were incurred, of which $8 million and $20 million was recognized during the three and six months ended June 30, 2023, respectively. These acquisition costs are reflected within Selling, general and administrative in the Unaudited Condensed Consolidated Statement of Operations.

The assets, liabilities and results of operations of the VCS Business are consolidated in the accompanying Unaudited Condensed Consolidated Financial Statements as of the date of acquisition and reported within the Company's HVAC segment.

The following table summarizes the results of the VCS Business since the date of acquisition:

(In millions)Three Months Ended June 30, 2024Six Months Ended June 30, 2024
Net sales$743$1,618
Net income (loss)(109)(233)

The financial results of the VCS Business includes amortization of the step-up to fair value of inventory and backlog as well as intangible amortization totaling $247 million and $497 million for the three and six months ended June 30, 2024, respectively.

Unaudited Pro Forma Financial Information

The following unaudited pro forma financial information is presented to illustrate the estimated effects of the acquisition of the VCS Business as if the business combination had occurred on January 1, 2023:

Three Months Ended June 30,Six Months Ended June 30,
(In millions)2024202320242023
Net sales$6,689$7,227$12,871$13,505
Net income (loss)2,4212502,764329

The pro forma amounts include the historical operating results of the Company and the VCS Business prior to the acquisition, with adjustments directly attributable to the acquisition including amortization of the step-up to fair value of inventory and amortization expense of acquired intangible assets. The unaudited pro forma financial information is not necessarily indicative of the results of operations that actually would have been achieved had the acquisition of the VCS Business been consummated as of the dates indicated, nor is it indicative of any future results. In addition, the unaudited pro forma financial information does not reflect the expected realization of any synergies or cost savings associated with the acquisition.

NOTE 16: DIVESTITURES

Access Solutions

On June 2, 2024, the Company completed the sale of Access Solutions for cash proceeds of $5.0 billion. Access Solutions, historically reported in the Company's Fire & Security segment, is a global supplier of physical security and digital access solutions supporting the hospitality, commercial, education and military markets. The Company recognized a gain on the sale of $2.9 billion, which is included in Other income (expense), net on the accompanying Unaudited Condensed Consolidated Statement of Operations. The net proceeds received are subject to working capital and other adjustments provided in the stock purchase agreement governing the sale of Access Solutions.

The following table summarizes the assets and liabilities of Access Solutions divested as of the date of sale:

(In millions)June 2, 2024
Cash and cash equivalents$82
Accounts receivable, net90
Inventories, net43
Contract assets3
Other current assets3
Fixed assets, net18
Intangible assets, net53
Goodwill1,467
Operating lease right-of-use assets16
Other assets8
Total assets held for sale$1,783
Accounts payable$54
Accrued liabilities20
Contract liabilities60
Operating lease liabilities17
Other long-term liabilities10
Total liabilities held for sale$161

Commercial Refrigeration and Industrial Fire

On December 12, 2023, the Company entered into a stock purchase agreement to sell the CCR business to Haier Group Corporation for an enterprise value of approximately $775 million. CCR, historically reported in the Company's Refrigeration segment, is a global supplier of turnkey solutions for commercial refrigeration systems and services, with a primary focus on serving food retail customers, cold storage facilities and warehouses. As a result, the assets and liabilities of CCR are presented as held for sale in the accompanying Unaudited Condensed Consolidated Balance Sheet as of June 30, 2024 and December 31, 2023, and recorded at the lower of their carrying value or fair value less estimated cost to sell. The transaction is expected to close in 2024 and is subject to customary closing conditions.

The net assets of Industrial Fire met the criteria to be classified as held for sale during the fourth quarter of 2023. Industrial Fire, historically reported in the Company's Fire & Security segment, is a leading manufacturer of a full spectrum of fire detection and suppression solutions and services in critical high-hazard environments, including oil and gas, power generation, marine and offshore facilities, automotive, data centers and aircraft hangars. As a result, the assets and liabilities of Industrial Fire are presented as held for sale in the accompanying Unaudited Condensed Consolidated Balance Sheet as of June 30, 2024 and December 31, 2023, and recorded at the lower of their carrying value or fair value less estimated cost to sell. On March 5, 2024, the Company entered into a stock purchase agreement to sell its Industrial Fire business to Sentinel Capital Partners for an enterprise value of approximately $1.425 billion. The sale of Industrial Fire was completed on July 1, 2024.

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

June 30, 2024
(In millions)Commercial RefrigerationIndustrial FireTotal
Cash and cash equivalents$151$40$191
Accounts receivable, net20793300
Inventories, net9872170
Contract assets11751168
Other current assets17522
Fixed assets, net7924103
Intangible assets, net—22
Goodwill69452521
Operating lease right-of-use assets482674
Other assets48250
Total assets held for sale$834$767$1,601
Accounts payable$122$43$165
Accrued liabilities14955204
Contract liabilities241943
Long-term debt, including current portion7—7
Future pension and post-retirement obligations196—196
Future income tax obligations7310
Operating lease liabilities362056
Other long-term liabilities336
Total liabilities held for sale$544$143$687
December 31, 2023
(In millions)Commercial RefrigerationAccess SolutionsIndustrial FireTotal
Cash and cash equivalents$131$6$20$157
Accounts receivable, net274104101479
Inventories, net843165180
Contract assets98242142
Other current assets153422
Fixed assets, net781322113
Intangible assets, net—53255
Goodwill721,4984392,009
Operating lease right-of-use assets49132890
Other assets44101367
Total assets held for sale$845$1,733$736$3,314
Accounts payable$129$20$39$188
Accrued liabilities1812155257
Contract liabilities23532298
Long-term debt, including current portion8——8
Future pension and post-retirement obligations203—1204
Future income tax obligations4239
Operating lease liabilities40112374
Other long-term liabilities312924
Total liabilities held for sale$591$119$152$862

NOTE 17: SEGMENT FINANCIAL DATA

The Company conducts its operations through 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.

Net sales and Operating profit by segment are as follows:

Net SalesOperating Profit
Three Months Ended June 30,Three Months Ended June 30,
(In millions)2024202320242023
HVAC$4,970$4,216$687$742
Refrigeration973972113112
Fire & Security8719323,001(157)
Total segment6,8146,1203,801697
Eliminations and other(125)(128)(23)(146)
General corporate expenses——(87)(62)
Total Consolidated$6,689$5,992$3,691$489
Net SalesOperating Profit
Six Months Ended June 30,Six Months Ended June 30,
(In millions)2024202320242023
HVAC$9,511$7,838$1,116$1,177
Refrigeration1,8571,870210220
Fire & Security1,7581,8013,154(64)
Total segment13,12611,5094,4801,333
Eliminations and other(255)(244)(98)(184)
General corporate expenses——(191)(105)
Total Consolidated$12,871$11,265$4,191$1,044

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 three and six months ended June 30, 2024 and 2023.

Three Months Ended June 30,Six Months Ended June 30,
(In millions)2024202320242023
United States$3,477$3,389$6,444$6,249
International:
Europe1,8891,2053,8602,401
Asia Pacific1,1041,1942,1442,227
Other219204423388
Net sales$6,689$5,992$12,871$11,265

NOTE 18: 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. Amounts attributable to equity method investees are as follows:

Three Months Ended June 30,Six Months Ended June 30,
(In millions)2024202320242023
Sales to equity method investees included in Product sales$832$887$1,555$1,641
Purchases from equity method investees included in Cost of products sold$59$59$114$102

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

(In millions)June 30, 2024December 31, 2023
Receivables from equity method investees included in Accounts receivable, net$276$231
Payables to equity method investees included in Accounts payable$51$44

NOTE 19: 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 has been 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 its results of operations 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 the technology required to remediate, current laws and regulations and prior remediation experience.

The outstanding liabilities for environmental obligations are as follows:

(In millions)June 30, 2024December 31, 2023
Environmental reserves included in Accrued liabilities$16$21
Environmental reserves included in Other long-term liabilities200203
Total Environmental reserves$216$224

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's asbestos liabilities and related insurance recoveries are as follows:

(In millions)June 30, 2024December 31, 2023
Asbestos liabilities included in Accrued liabilities$16$15
Asbestos liabilities included in Other long-term liabilities201206
Total Asbestos liabilities$217$221
Asbestos-related recoveries included in Other current assets$5$5
Asbestos-related recoveries included in Other assets8688
Total Asbestos-related recoveries$91$93

The amounts recorded for asbestos-related liabilities are based on currently available information and assumptions that the Company believes are reasonable and are made with input from outside actuarial experts. These amounts are undiscounted and exclude the Company’s legal fees to defend the asbestos claims, which are expensed as incurred. In addition, the Company has recorded insurance recovery receivables for probable asbestos-related recoveries.

Aqueous Film Forming Foam Litigation

As of June 30, 2024, the Company, KFI and others have been named as defendants in more than 8,500 lawsuits filed by individuals in or removed to the federal courts of the United States alleging that the historic use of Aqueous Film Forming Foam ("AFFF") caused personal injuries and/or property damage. The Company, KFI and others have also been named as defendants in more than 800 lawsuits filed by several U.S. states, municipalities and water utilities in or removed to U.S. federal courts alleging that the historic use of AFFF caused contamination of property and water supplies. In December 2018, the U.S. Judicial Panel on Multidistrict Litigation transferred and consolidated all AFFF cases pending in the U.S. federal courts against the Company, KFI and others to the U.S. District Court for the District of South Carolina (the "MDL Proceedings"). The individual plaintiffs in the MDL Proceedings generally seek damages for alleged personal injuries, medical monitoring, diminution in property value and injunctive relief to remediate alleged contamination of water supplies. The U.S. state, municipal and water utility plaintiffs in the MDL Proceedings generally seek damages and costs related to the remediation of public property and water supplies.

AFFF is a firefighting foam, developed beginning in the late 1960s pursuant to U.S. military specification, used to extinguish certain types of hydrocarbon-fueled fires. The lawsuits identified above relate to Kidde Fire Fighting, Inc., which owned the National Foam business. Kidde Fire Fighting, Inc. was acquired by a UTC subsidiary in 2005 and merged into KFI in 2007. The National Foam business manufactured AFFF for sale to government (including the U.S. federal government) and non-government customers in the U.S. at a single facility located in West Chester, Pennsylvania (the "Pennsylvania Site"). In 2013, KFI divested the AFFF businesses to an unrelated third party. The Company acquired KFI as part of the Separation in April 2020.

The key components that contribute to AFFF's fire-extinguishing capabilities are known as fluorosurfactants. Neither the Company, nor KFI, nor any of the Company's subsidiaries involved in the AFFF litigation manufactured fluorosurfactants. Instead, the National Foam business purchased these substances from unrelated third parties for use in manufacturing AFFF. Plaintiffs in the MDL Proceedings allege that the fluorosurfactants used by various manufacturers in producing AFFF contained, or over time degraded into, compounds known as per- and polyfluoroalkyl substances (referred to collectively as "PFAS"), including perflourooctanesulfonic acid ("PFOS") and perflourooctanoic acid ("PFOA"). Plaintiffs further allege that, as a result of the use of AFFF, PFOS and PFOA were released into the environment and, in some instances, ultimately reached drinking water supplies.

Plaintiffs in the MDL Proceedings allege that PFOS and PFOA contamination has resulted from the use of AFFF manufactured using a process known as ECF, and that this process was used exclusively by 3M. They also allege that PFOA contamination has resulted from the use of AFFF manufactured using a different process, known as telomerization, and that this process was used exclusively by the other AFFF manufacturers (including the National Foam business). Compounds containing PFOS and PFOA (as well as many other PFAS) have also been used for decades by many third parties in a number of different industries to manufacture firefighters’ protective outerwear, carpets, clothing, fabrics, cookware, food packaging, personal care products, cleaning products, paints, varnishes and other consumer and industrial products.

Plaintiffs in the MDL Proceedings have named multiple defendants, including suppliers of chemicals and raw materials used to manufacture fluorosurfactants, fluorosurfactant manufacturers and AFFF manufacturers. The defendants in the MDL Proceedings moved for summary judgment on the government contractor defense, which potentially applies to AFFF sold to or used by the U.S. government. After full briefing and oral argument, on September 16, 2022, the MDL court declined to enter summary judgment for the defendants. The defense, however, remains available at any trial to which it applies.

On September 23, 2022, after completion of discovery, the MDL court selected one water provider case, the City of Stuart, FL v. 3M, et al., for a bellwether trial. That trial was scheduled to begin in early June 2023 but was postponed indefinitely. The MDL court ordered that the bellwether process for personal injury cases to begin in 2023. However, the court has not yet outlined details on that process or its timing.

Outside of the MDL Proceedings, the Company and other defendants also are party to six lawsuits in U.S. state courts brought by oil refining companies alleging product liability claims related to legacy sales of AFFF and seeking damages for the costs to replace the product and for property damage. In addition, the Company and other defendants are party to two actions related to the Pennsylvania Site in which the plaintiff water utility company seeks remediation costs related to the alleged contamination of the local water supply. The Company, KFI and other defendants are also party to one action in Arizona state court brought by a firefighter claiming that occupational exposure to AFFF has caused certain personal injuries.

The Company and KFI believe that they have meritorious defenses to the claims in the MDL Proceedings and the other AFFF lawsuits. Given the numerous factual, scientific and legal issues to be resolved relating to these claims, the Company is unable to assess the probability of liability or to reasonably estimate a range of possible loss at this time. There can be no assurance that any such future exposure will not be material in any period.

On May 14, 2023, KFI filed a voluntary petition with the United States Bankruptcy Court for the District of Delaware seeking relief under Chapter 11 of the Bankruptcy Code after the Company determined that it would not provide financial support to KFI going forward, other than ensuring KFI has access to services necessary for the effective operation of its business. As a result, all litigation against KFI is automatically stayed. KFI filed an adversary complaint and motion in the Chapter 11 case seeking an order staying or enjoining all AFFF-related litigation against the Company, its other subsidiaries and RTX. That motion was resolved through an agreement that effectively stays the AFFF litigation against these parties. KFI has also indicated to the bankruptcy court that it intends to pursue insurance coverage for AFFF-related liabilities and contractual indemnification for AFFF-related liabilities from the third party to which KFI sold National Foam. On November 21, 2023, the bankruptcy court ordered certain parties, including the Company, to participate in a mediation with respect to claims that might be asserted by and against it in the bankruptcy proceedings. The parties have engaged in several mediation sessions and anticipate further sessions in the future. The terms and scope of any potential settlement may be affected by, among other factors, the United States Supreme Court's decision in Harrington v. Purdue Pharma, L.P., which held that nonconsensual releases of litigation claims against non-debtors are unavailable.

Deconsolidation Due to Bankruptcy

As of May 14, 2023, the Company no longer controlled KFI as their activities are subject to review and oversight by the bankruptcy court. Therefore, KFI was deconsolidated and their respective assets and liabilities were derecognized from the Company’s Unaudited Condensed Consolidated Financial Statements. Upon deconsolidation, the Company determined the fair value of its retained interest in KFI to be zero and will account for it prospectively using the cost method. As a result of these actions, the Company recognized a loss of $297 million in its Unaudited Condensed Consolidated Statement of Operations within Other income/(expense), net. In addition, the deconsolidation resulted in an investing cash outflow of $134 million in the Company's Unaudited Condensed Consolidated Statement of Cash Flows.

In connection with the bankruptcy filing, KFI entered into several agreements with subsidiaries of the Company to ensure they have access to services necessary for the effective operation of their business. All post-deconsolidation activity between the Company and KFI are reported as third-party transactions recorded within the Company's Unaudited Condensed Consolidated Statement of Operations. Since the petition date, there were no material transactions between the Company and KFI other than a $15 million payment by the Company to KFI under the terms of a tax sharing arrangement.

On March 15, 2024, the Company and Pacific Avenue Capital Partners entered into certain agreements including a stock and asset purchase agreement whereby Pacific Avenue Capital Partners shall acquire certain assets and operating liabilities of KFI, subject to approval by the bankruptcy court. On April 1, 2024, the bankruptcy court subsequently approved the sale, which was completed on July 1, 2024 for $140 million, subject to working capital and other adjustments as provided in the sale agreement. However, there has been no determination with respect to the allocation of sale proceeds.

Income Taxes

Under the TMA relating to the Separation, the Company is responsible to UTC for its share of the Tax Cuts and Jobs Act transition tax associated with foreign undistributed earnings as of December 31, 2017. During the six months ended June 30, 2024, the Company recognized a $46 million gain associated with the TMA and UTC's conclusion of certain income tax matters from their 2017 and 2018 tax audit with the IRS. Liabilities under the TMA of $118 million and $108 million are included within the accompanying Unaudited Condensed Consolidated Balance Sheet within Accrued Liabilities and Other Long-Term Liabilities as of June 30, 2024, respectively. This obligation is expected to be settled in annual installments with the next installment of $118 million due in April 2025 and the final installment due in April 2026. The Company believes that the likelihood of incurring losses materially in excess of this amount is remote.

Other

The Company has other commitments and contingent liabilities related to legal proceedings, self-insurance programs and matters arising in the ordinary course of business. The Company accrues for contingencies 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 the ordinary course of business, the Company is also routinely a defendant in, party to or otherwise subject to many pending and threatened legal actions, claims, disputes and proceedings. These matters are often based on alleged violations of contract, product liability, warranty, regulatory, environmental, health and safety, employment, intellectual property, tax and other laws. In some of these proceedings, claims for substantial monetary damages are asserted against the Company and could result in fines, penalties, compensatory or treble damages or non-monetary relief. The Company does not believe that these matters will have a material adverse effect upon its results of operations, cash flows or financial condition.

With respect to the accompanying Unaudited Condensed Consolidated Financial Statements for the three and six months ended June 30, 2024 and 2023, PricewaterhouseCoopers LLP ("PricewaterhouseCoopers") reported that it has applied limited procedures in accordance with professional standards for a review of such information. However, its report dated July 25, 2024, appearing below, states that the firm did not audit and does not express an opinion on the accompanying Unaudited Condensed Consolidated Financial Statements. PricewaterhouseCoopers has not carried out any significant or additional audit tests beyond those that would have been necessary if their report had not been included. Accordingly, the degree of reliance on its report on such information should be restricted in light of the limited nature of the review procedures applied. PricewaterhouseCoopers is not subject to the liability provisions of Section 11 of the Securities Act of 1933, as amended (the "Securities Act"), for its report on the accompanying Unaudited Condensed Consolidated Financial Statements because that report is not a "report" or a "part" of a registration statement prepared or certified by PricewaterhouseCoopers within the meaning of Sections 7 and 11 of the Securities Act.

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareowners of Carrier Global Corporation

Results of Review of Interim Financial Information

We have reviewed the accompanying condensed consolidated balance sheet of Carrier Global Corporation and its subsidiaries (the “Company”) as of June 30, 2024, and the related condensed consolidated statements of operations, of comprehensive income (loss), and of changes in equity for the three-month and six-month periods ended June 30, 2024 and 2023 and the condensed consolidated statement of cash flows for the six-month periods ended June 30, 2024 and 2023, including the related notes (collectively referred to as the “interim financial information”). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial information for it to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of the Company as of December 31, 2023, and the related consolidated statements of operations, of comprehensive income (loss), of changes in equity and of cash flows for the year then ended (not presented herein), and in our report dated February 6, 2024, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2023, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

This interim financial information is the responsibility of the Company’s management. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

/s/ PricewaterhouseCoopers LLP

Miami, Florida

July 25, 2024

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