Carrier Global Corporation
10-Q on 07/31/2020   Download
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FALSE2020Q20001783180--12-31P3YP3YSUBSEQUENT EVENTS 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Table of Contents    
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, 2020
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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock ($0.01 par value)CARRNew 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 and post such files).    Yes  .    No  .
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 filerSmaller 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  .
At June 30, 2020, there were 866,164,968 shares of Common Stock outstanding.
1

Table of Contents    
CARRIER GLOBAL CORPORATION AND SUBSIDIARIES
CONTENTS OF QUARTERLY REPORT ON FORM 10-Q
Three and Six Months Ended June 30, 2020

Page
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.


2

Table of Contents    



PART I – FINANCIAL INFORMATION
Item 1. Financial Statements

CARRIER GLOBAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
For the Three Months Ended June 30,For the Six Months Ended June 30,
(dollars in millions, except per share amounts; shares in millions)2020201920202019
Net sales
Product sales (Note 5)$3,275  $4,139  $6,422  $7,705  
Service sales697  823  1,438  1,580  
3,972  4,962  7,860  9,285  
Costs and expenses
Cost of products sold (Note 5)2,343  2,906  4,580  5,471  
Cost of services sold488  582  1,017  1,114  
Research and development94  103  192  200  
Selling, general and administrative637  680  1,329  1,364  
3,562  4,271  7,118  8,149  
Equity method investment net earnings57  80  86  120  
Other (expense) income, net(25) 34  (71) 49  
Operating profit442  805  757  1,305  
Non-service pension benefit14  38  31  77  
Interest (expense) income, net(81) 16  (118) 20  
Income from operations before income taxes375  859  670  1,402  
Income tax expense106  65  299  205  
Net income from operations269  794  371  1,197  
Less: Non-controlling interest in subsidiaries' earnings from operations8  10  14  13  
Net income attributable to common shareowners$261  $784  $357  $1,184  
Earnings per share (Note 3)
Basic$0.30  $0.91  $0.41  $1.37  
Diluted $0.30  $0.91  $0.41  $1.37  
Weighted average number of shares outstanding (Note 3)
Basic866.2  866.2  866.2  866.2  
Diluted870.9  866.2  870.9  866.2  


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

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CARRIER GLOBAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)
For the Three Months Ended June 30,For the Six Months Ended June 30,
(dollars in millions)2020201920202019
Net income from operations$269  $794  $371  $1,197  
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments arising during period251  (81) (239) 15  
Pension and post-retirement benefit plan adjustments7  4  12  9  
Other comprehensive income (loss), net of tax258  (77) (227) 24  
Comprehensive income527  717  144  1,221  
Less: Comprehensive income attributable to non-controlling interest(9) (7) (13) (15) 
Comprehensive income attributable to common shareowners$518  $710  $131  $1,206  
The accompanying notes are an integral part of the Unaudited Condensed Consolidated Financial Statements.

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CARRIER GLOBAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
(dollars in millions)June 30, 2020December 31, 2019
Assets
Cash and cash equivalents$2,704  $952  
Accounts receivable, net (Note 5 and Note 6)2,665  2,726  
Contract assets, current761  622  
Inventories, net1,639  1,332  
Other assets, current284  327  
Total current assets8,053  5,959  
Future income tax benefits419  500  
Fixed assets, net1,651  1,663  
Operating lease right-of-use assets843  832  
Intangible assets, net1,024  1,083  
Goodwill9,735  9,884  
Pension and post-retirement assets521  490  
Equity method investments1,697  1,739  
Other assets233  256  
Total Assets$24,176  $22,406  
Liabilities and Equity
Accounts payable (Note 5)$1,765  $1,701  
Accrued liabilities (Note 5)2,246  2,088  
Contract liabilities, current477  443  
Current portion of long-term debt301  237  
Total current liabilities4,789  4,469  
Long-term debt11,728  82  
Future pension and post-retirement obligations462  456  
Future income tax obligations (Note 5 and Note 14)445  1,099  
Operating lease liabilities688  682  
Other long-term liabilities (Note 5)1,698  1,183  
Total Liabilities19,810  7,971  
Commitments and contingent liabilities (Note 18)
Equity
UTC Net investment  15,355  
Common stock, par value $0.01; 4,000,000,000 shares authorized; 866,164,968 shares issued and outstanding as of June 30, 2020
9    
Additional paid-in capital5,307    
Retained earnings191    
Accumulated other comprehensive loss(1,479) (1,253) 
Non-controlling interest338  333  
Total Equity4,366  14,435  
Total Liabilities and Equity$24,176  $22,406  
The accompanying notes are an integral part of the Unaudited Condensed Consolidated Financial Statements.

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CARRIER GLOBAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(Unaudited)

(dollars in millions)UTC Net InvestmentAccumulated Other Comprehensive LossCommon StockAdditional Paid-In CapitalRetained EarningsNon-Controlling InterestTotal Equity
Balance at January 1, 2019$15,132  $(1,215) $  $  $  $352  $14,269  
Net income400  —  —  —  —  3  403  
Other comprehensive income, net of tax—  96  —  —  —  5  101  
Dividends attributable to non-controlling interest—  —  —  —  —  (2) (2) 
Net transfers to UTC(81) —  —  —  —  —  (81) 
Adoption impact of ASU 2018-029  (9) —  —  —  —    
Balance at March 31, 201915,460  (1,128)       358  14,690  
Net income784  —  —  —  —  10  794  
Other comprehensive loss, net of tax—  (74) —  —  —  (3) (77) 
Dividends attributable to non-controlling interest—  —  —  —  —  (2) (2) 
Net transfers to UTC(445) —  —  —  —  —  (445) 
Balance at June 30, 2019$15,799  $(1,202) $  $  $  $363  $14,960  
Balance at January 1, 2020$15,355  $(1,253) $  $  $  $333  $14,435  
Net income96  —  —  —  —  6  102  
Other comprehensive loss, net of tax—  (483) —  —  —  (2) (485) 
Dividends attributable to non-controlling interest—  —  —  —  —  (8) (8) 
Net transfers to UTC(11,014) —  —  —  —  —  (11,014) 
Adoption impact of ASU 2016-13(4) —  —  —  —  —  (4) 
Balance at March 31, 20204,433  (1,736)       329  3,026  
Net income—  —  —  —  261  8  269  
Other comprehensive income, net of tax—  257  —  —  —  1  258  
Dividends declared on Common Stock ($0.08 per share)
—  —  —  —  (70) —  (70) 
Common stock issued under employee plans—  —  —  24  —  —  24  
Net transfers from UTC859  —  —  —  —  —  859  
Reclassification of UTC Net Investment to Common stock and Additional paid-in capital(5,292) —  9  5,283  —  —    
Balance as of June 30, 2020$  $(1,479) $9  $5,307  $191  $338  $4,366  



The accompanying notes are an integral part of the Unaudited Condensed Consolidated Financial Statements.
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CARRIER GLOBAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
 For the Six Months Ended June 30,
(dollars in millions)20202019
Operating Activities
Net income from operations$371  $1,197  
Adjustments to reconcile net income from operations to net cash flows provided by operating activities, net of acquisitions and dispositions
Depreciation and amortization159  167  
Deferred income tax provision135  (57) 
Stock compensation costs35  22  
Equity method investment net earnings(86) (120) 
Distributions from equity method investments49  46  
Impairment charge on minority-owned joint venture investments72    
Changes in operating assets and liabilities
Accounts receivable, net27  (206) 
Contract assets, current(140) (43) 
Inventories, net(325) (340) 
Other assets, current32  16  
Accounts payable and accrued liabilities152  (173) 
Contract liabilities, current37  (16) 
Pension contributions(27) (27) 
Other operating activities, net65  (95) 
Net cash flows provided by operating activities556  371  
Investing Activities
Capital expenditures(94) (89) 
(Payment) receipt from settlement of derivative contracts(23) 1  
Other investing activities, net14  8  
Net cash flows used in investing activities(103) (80) 
Financing Activities
(Decrease) increase in short-term borrowings, net(17) 45  
Issuance of long-term debt11,734  77  
Repayment of long-term debt(36) (37) 
Dividends paid to non-controlling interest(8) (3) 
Net transfers to UTC(10,359) (548) 
Other financing activities, net1  (26) 
Net cash flows provided by (used in) financing activities1,315  (492) 
Effect of foreign exchange rate changes on cash and cash equivalents(17) 7  
Net increase (decrease) in cash and cash equivalents and restricted cash1,751  (194) 
Cash, cash equivalents and restricted cash, beginning of period957  1,134  
Cash, cash equivalents and restricted cash, end of period2,708  940  
Less: restricted cash4  4  
Cash and cash equivalents, end of period$2,704  $936  
The accompanying notes are an integral part of the Unaudited Condensed Consolidated Financial Statements.

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CARRIER GLOBAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Condensed Consolidated Financial Statements as of June 30, 2020 and for the three and six months ended June 30, 2020 and 2019 are unaudited, and include all adjustments (consisting only of normal recurring adjustments) considered necessary by management to fairly state our results of operations, financial position and cash flows for the interim periods. The results reported in the Unaudited Condensed Consolidated Financial Statements are not necessarily indicative of results that may be expected for any other interim period or the entire year. The financial information included herein should be read in conjunction with the financial statements and notes in the Company's information statement, dated March 16, 2020, which was included as Exhibit 99.1 in our Current Report on Form 8-K filed with the Securities and Exchange Commission ("SEC") on March 16, 2020 (the "Information Statement").
Impact of the COVID-19 pandemic

A novel strain of coronavirus ("COVID-19") surfaced in Wuhan, China in late 2019 and has since spread throughout the rest of the world. In March 2020, COVID-19 was declared a pandemic by the World Health Organization and a national emergency by the U.S. Government. The pandemic has negatively affected the U.S. and global economies, disrupted global supply chains and financial markets, resulted in significant travel restrictions, mandated facility closures, and shelter-in-place orders.

Carrier is taking all prudent measures to protect the health and safety of our employees and has implemented work from home requirements, where possible, social distancing where working from home is not feasible, including in our manufacturing facilities, deep cleaning protocols at all of our facilities and travel restrictions, among other measures. We have also taken appropriate measures to work with our customers to minimize potential disruption and to support the communities that we serve to address the challenges posed by the pandemic.
The full extent of the impact of the COVID-19 pandemic on the Company's operational and financial performance will depend on future developments, including the duration and spread of the pandemic, as well as any worsening of the pandemic and whether there will be additional outbreaks of the pandemic, and related containment and mitigation actions taken by the U.S., state and local and international governments to prevent disease spread. The extent of the pandemic's impact on Carrier will also depend upon our employees' ability to work safely in our facilities, our customers’ ability to continue to operate or receive our products, the ability of our suppliers to continue to operate, and the level of activity and demand for the ultimate product and services of our customers or their customers.
During the three months ended March 31, 2020, we temporarily closed or reduced production at manufacturing facilities in North America, Asia and Europe for safety reasons and in response to lower demand for our products, however, as of June 30, 2020, our manufacturing facilities (and nearly all of our suppliers) had resumed operations and 95% of our production capacity was available and, where appropriate, we initiated return-to-work protocols at our non-manufacturing facilities where employees were previously working remotely. During the three months ended March 31, 2020, we considered the outbreak and subsequent impacts to be a trigger to reassess our goodwill and intangible asset valuations. In order to evaluate these impacts, we made forecast assumptions regarding future business activity that are subject to a wide range of uncertainties, including those noted in the prior paragraph. Based upon qualitative and, in certain cases, quantitative analyses, we determined that our goodwill and intangible assets were not impaired. For the period ended June 30, 2020, we reviewed the assumptions used in our March 31, 2020 assessment and determined that they remain appropriate.
We continue to focus on navigating the challenges COVID-19 presents by preserving our liquidity and managing our cash flows through preemptive actions to enhance our ability to meet our liquidity needs over the next twelve months. Such actions include, but are not limited to modifying the financial covenants in our revolving and term loan credit agreements and issuing $750 million of unsecured, unsubordinated long-term debt (see Note 10 – Borrowings and Lines of Credit for additional information), reducing our discretionary spending, our capital investments and general and administrative costs by implementing pay freezes and cuts, employee furloughs and the suspension of non-critical hiring, and participation in global COVID-19 relief measures, including the Coronavirus Aid, Relief, and Economic Security ("CARES") Act, which provides for payroll tax deferrals and credits, income tax payment deferrals, and an increase in the income tax interest deduction limitation.


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NOTE 1: DESCRIPTION OF THE BUSINESS

Carrier Global Corporation is a leading global provider of heating, ventilating, air conditioning ("HVAC"), refrigeration, and fire and security solutions. Carrier also provides a broad array of related building services, including audit, design, installation, system integration, repair, maintenance and monitoring. Carrier’s operations are classified into three segments: HVAC, Refrigeration, and Fire & Security. The HVAC and Refrigeration segments sell their products and solutions directly, including to building contractors and owners, transportation companies and retail stores, or indirectly through joint venture and other minority-owned investments, independent sales representatives, distributors, wholesalers, dealers and retail outlets. These products and services are sold under the Carrier name and other brand names including Automated Logic, Bryant, CIAT, Day & Night, Heil, NORESCO, Riello, Carrier Commercial Refrigeration, Carrier Transicold, Sensitech and others. The Fire & Security segment sells its products directly to customers, or indirectly through manufacturers’ representatives, distributors, dealers, value-added resellers and retailers. Fire & Security’s products and services are used by governments, financial institutions, architects, building owners and developers, security and fire consultants, homeowners and other end-users requiring a high level of security and fire protection for their businesses and residences. These products and services are sold under brand names including Autronica, Chubb, Det-Tronics, Edwards, Fireye, GST, Kidde, LenelS2, Marioff, Onity, Supra and others.

On November 26, 2018, United Technologies Corporation, since renamed Raytheon Technologies Corporation ("UTC"), announced its intention to spin off Carrier, one of UTC's reportable segments, into a separate publicly traded company (the "Separation"). On April 3, 2020, UTC completed the Separation through a pro-rata distribution (the "Distribution") of all of the outstanding common stock of the Company to UTC shareowners who held shares of UTC common stock as of the close of business on March 19, 2020, the record date for the Distribution. UTC distributed 866,158,910 shares of Carrier common stock in the Distribution, which was effective at 12:01 a.m., Eastern Time, on April 3, 2020 (the "Effective Time"). As a result of the Distribution, Carrier became an independent public company and our common stock is listed under the symbol "CARR" on the New York Stock Exchange. In connection with the Separation, Carrier 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, Carrier received cash contributions totaling $590 million from UTC related to the Separation. See Note 10 – Borrowings and Lines of Credit and Note 3 – Earnings Per Share for additional information.
In connection with the Separation, Carrier entered into several agreements with UTC and Otis Worldwide Corporation ("Otis"), including a separation and distribution agreement that sets forth certain agreements with UTC and Otis regarding the principal actions to be taken in connection with the Separation, including identifying the assets transferred, the liabilities assumed and the contracts transferred to each of UTC, Otis and Carrier as part of the Separation, and when and how these transfers and assumptions occurred. Other agreements we entered into that govern aspects of our relationship with UTC and Otis following the Separation include:
Transition Services Agreement. We entered into a Transition Services Agreement (the "TSA") with UTC and Otis in connection with the Separation pursuant to which UTC provides us with certain services and we provide certain services to UTC for a limited time to help ensure an orderly transition following the Separation. The services we receive include, but are not limited to, information technology services, technical and engineering support, application support for operations, legal, payroll, finance, tax and accounting, general administrative services and other support services. Because costs for these services historically were included in our operating results based on allocations from UTC, we do not expect the costs associated with the TSA to be materially different and, therefore, we do not expect such costs to materially affect our results of operations or cash flows after we became an independent publicly traded company nor do we expect such costs to be materially different when these services are transitioned from UTC to Carrier.
Tax Matters Agreement. We entered into a Tax Matters Agreement (the "TMA") with UTC and Otis that governs the parties’ respective rights, responsibilities and obligations with respect to tax matters (including responsibility for taxes, entitlement to refunds, allocation of tax attributes, preparation of tax returns, control of tax contests and other tax matters). Subject to certain exceptions set forth in the TMA, Carrier generally is responsible for federal, state and foreign taxes imposed on a separate return basis upon Carrier (or any of its subsidiaries) with respect to taxable periods (or portions thereof) that ended on or prior to the date of the Distribution. The TMA provides special rules that allocate responsibility for tax liabilities arising from a failure of the Separation transactions to qualify for tax-free treatment based on the reasons for such failure. The TMA also imposes restrictions on each of Carrier and Otis during the two-year period following the Distribution that are intended to prevent certain transactions from failing to qualify as transactions that are generally tax-free.
Employee Matters Agreement and Intellectual Property Agreement. We entered into an employee matters agreement and intellectual property agreement with UTC and Otis in connection with the Separation.
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NOTE 2: BASIS OF PRESENTATION
The Unaudited Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. All significant intra-company accounts and transactions have been eliminated in the preparation of the Unaudited Condensed Consolidated Financial Statements. 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 we control and consolidate.
Certain immaterial amounts presented in the Information Statement have been reclassified to conform to the current period presentation, including the reclassification of the Current portion of long-term debt from Accrued liabilities for 2019 on the accompanying Unaudited Condensed Consolidated Balance Sheet.
The Company's financial statements for periods prior to the Separation and the Distribution are prepared on a "carve-out" basis, as described below. The Company's financial statements for the period from April 3, 2020 through June 30, 2020 are consolidated financial statements based on the reported results of Carrier as a stand-alone company.
Basis of Presentation Prior to the Separation and the Distribution
Prior to the Separation and the Distribution, the Unaudited Condensed Consolidated Financial Statements reflect the financial position, results of operations and cash flows of the Company for the periods presented as historically managed within UTC. For those periods prior to the Separation and the Distribution, the Unaudited Condensed Consolidated Financial Statements are derived from the consolidated financial statements and accounting records of UTC.

The Unaudited Condensed Consolidated Statement of Operations includes all revenues and costs directly attributable to Carrier, including costs for facilities, functions and services used by Carrier. Prior to the Separation, costs for certain functions and services performed by UTC were directly charged to Carrier based on specific identification when possible or based on a reasonable allocation driver such as net sales, headcount, proportionate usage or other allocation methods. The results of operations include allocations of costs for administrative functions and services performed on behalf of Carrier by centralized groups within UTC and certain pension and other post-retirement benefit costs (see Note 5 – Related Parties for a description of the allocation methodologies). All charges and allocations for facilities, functions and services performed by UTC have been deemed settled in cash by Carrier to UTC in the period in which the cost was recorded in the Unaudited Condensed Consolidated Statement of Operations.
Prior to the Separation, UTC used a centralized approach to cash management and financing its operations. Accordingly, none of the cash, third party debt or related interest expense of UTC has been allocated to Carrier in the Unaudited Condensed Consolidated Financial Statements for the period prior to the Separation. However, cash balances primarily associated with certain foreign entities that did not participate in UTC’s cash management program have been included in the Unaudited Condensed Consolidated Financial Statements for periods prior to the Separation. Transactions between UTC and Carrier are deemed settled immediately through UTC’s Net investment, other than those transactions which have historically been cash-settled and which are reflected in the Unaudited Condensed Consolidated Balance Sheet within Accounts receivable, net and Accounts payable. The net effect of the deemed settled transactions is reflected in the Unaudited Condensed Consolidated Statement of Cash Flows as Net transfers to UTC within financing activities and in the Unaudited Condensed Consolidated Balance Sheet as UTC’s Net investment (see Note 5 – Related Parties for additional information).
All of the allocations and estimates in the Unaudited Condensed Consolidated Financial Statements are based on assumptions that management believes are reasonable. However, for the periods prior to the Separation, the Unaudited Condensed Consolidated Financial Statements included herein may not be indicative of the financial position, results of operations and cash flows of the Company in the future, or if the Company had been a separate, stand-alone entity during the periods presented.