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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, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-39220
____________________________________ 
CARRIER GLOBAL CORPORATION
(Exact name of registrant as specified in its charter)
____________________________________ 
Delaware   83-4051582
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
13995 Pasteur Boulevard, Palm Beach Gardens, Florida 33418
(Address of principal executive offices, including zip code)
(561) 365-2000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock ($0.01 par value) CARR New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No   
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer Smaller reporting company Emerging growth company

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
As of July 15, 2021, there were 867,701,396 shares of Common Stock outstanding.
1

Table of Contents             
CARRIER GLOBAL CORPORATION
CONTENTS OF QUARTERLY REPORT ON FORM 10-Q
Three and Six Months Ended June 30, 2021
Page
3
3
3
4
5
6
7
8

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
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)

For the Three Months Ended June 30, For the Six Months Ended June 30,
(In millions, except per share amounts) 2021 2020 2021 2020
Net sales
Product sales $ 4,584  $ 3,275  $ 8,448  $ 6,422 
Service sales 856  697  1,691  1,438 
Total Net sales 5,440  3,972  10,139  7,860 
Costs and expenses
Cost of products sold (3,235) (2,343) (5,959) (4,580)
Cost of services sold (586) (488) (1,167) (1,017)
Research and development (125) (94) (246) (192)
Selling, general and administrative (813) (637) (1,556) (1,329)
Total Costs and expenses (4,759) (3,562) (8,928) (7,118)
Equity method investment net earnings 87  57  125  86 
Other income (expense), net 15  (25) 18  (71)
Operating profit 783  442  1,354  757 
Non-service pension (expense) benefit 19  14  37  31 
Interest (expense) income, net (71) (81) (164) (118)
Income from operations before income taxes 731  375  1,227  670 
Income tax (expense) benefit (234) (106) (338) (299)
Net income from operations 497  269  889  371 
Less: Non-controlling interest in subsidiaries' earnings from operations 10  18  14 
Net income attributable to common shareowners $ 487  $ 261  $ 871  $ 357 
Earnings per share
Basic $ 0.56  $ 0.30  $ 1.00  $ 0.41 
Diluted $ 0.55  $ 0.30  $ 0.98  $ 0.41 
Weighted-average number of shares outstanding
Basic 868.7  866.2  869.0  866.2 
Diluted 890.9  870.9  890.4  870.9 
The accompanying notes are an integral part of the Unaudited Condensed Consolidated Financial Statements.

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CARRIER GLOBAL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)

For the Three Months Ended June 30, For the Six Months Ended June 30,
(In millions) 2021 2020 2021 2020
Net income from operations $ 497  $ 269  $ 889  $ 371 
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments arising during period 59  251  (62) (239)
Pension and post-retirement benefit plan adjustments 13  12 
Other comprehensive income (loss), net of tax 65  258  (49) (227)
Comprehensive income (loss) 562  527  840  144 
Less: Comprehensive income (loss) attributable to non-controlling interest 10  18  13 
Comprehensive income (loss) attributable to common shareowners $ 552  $ 518  $ 822  $ 131 
The accompanying notes are an integral part of the Unaudited Condensed Consolidated Financial Statements.

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CARRIER GLOBAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
As of
(In millions) June 30,
2021
December 31,
2020
Assets
Cash and cash equivalents $ 2,630  $ 3,115 
Accounts receivable, net 3,128  2,781 
Contract assets, current 695  656 
Inventories, net 1,885  1,629 
Other assets, current 416  343 
Total current assets 8,754  8,524 
Future income tax benefits 461  449 
Fixed assets, net 1,837  1,810 
Operating lease right-of-use assets 786  788 
Intangible assets, net 1,071  1,037 
Goodwill 10,279  10,139 
Pension and post-retirement assets 635  554 
Equity method investments 1,572  1,513 
Other assets 343  279 
Total Assets $ 25,738  $ 25,093 
Liabilities and Equity
Accounts payable $ 2,362  $ 1,936 
Accrued liabilities 2,541  2,471 
Contract liabilities, current 576  512 
Current portion of long-term debt 125  191 
Total current liabilities 5,604  5,110 
Long-term debt 9,600  10,036 
Future pension and post-retirement obligations 511  524 
Future income tax obligations 556  479 
Operating lease liabilities 635  642 
Other long-term liabilities 1,712  1,724 
Total Liabilities 18,618  18,515 
Commitments and contingent liabilities (Note 18)
Equity
Common stock
Treasury stock (130) — 
Additional paid-in capital 5,366  5,345 
Retained earnings 2,305  1,643 
Accumulated other comprehensive loss (794) (745)
Non-controlling interest 364  326 
Total Equity 7,120  6,578 
Total Liabilities and Equity $ 25,738  $ 25,093 
The accompanying notes are an integral part of the Unaudited Condensed Consolidated Financial Statements.
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CARRIER GLOBAL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(Unaudited)
(In millions) UTC Net Investment Accumulated Other Comprehensive Income (Loss) Common Stock Treasury Stock Additional Paid-In Capital Retained Earnings Non-Controlling Interest Total Equity
Balance as of December 31, 2019 $ 15,355  $ (1,253) $   $   $   $   $ 333  $ 14,435 
Net income 96  —  —  —  —  —  102 
Other comprehensive income (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 as of March 31, 2020 $ 4,433  $ (1,736) $   $   $   $   $ 329  $ 3,026 
Net income —  —  —  —  —  261  269 
Other comprehensive income (loss), net of tax —  257  —  —  —  —  258 
Dividends declared on common stock (1)
—  —  —  —  —  (70) —  (70)
Shares issued under incentive plans, net —  —  —  —  24  —  —  24 
Net transfers from UTC 859  —  —  —  —  —  —  859 
Reclassification of UTC Net investment to Common stock and Additional paid-in capital (5,292) —  —  5,283  —  —  — 
Balance as of June 30, 2020 $   $ (1,479) $ 9  $   $ 5,307  $ 191  $ 338  $ 4,366 
(In millions) UTC Net Investment Accumulated Other Comprehensive Income (Loss) Common Stock Treasury Stock Additional Paid-In Capital Retained Earnings Non-Controlling Interest Total Equity
Balance as of December 31, 2020 $   $ (745) $ 9  $   $ 5,345  $ 1,643  $ 326  $ 6,578 
Net income —  —  —  —  —  384  392 
Other comprehensive income (loss), net of tax —  (114) —  —  —  —  —  (114)
Shares issued under incentive plans, net —  —  —  —  (14) —  —  (14)
Stock-based compensation —  —  —  —  19  —  —  19 
Dividends attributable to non-controlling interest —  —  —  —  —  —  (5) (5)
Treasury stock repurchase —  —  —  (38) —  —  —  (38)
Balance as of March 31, 2021 $   $ (859) $ 9  $ (38) $ 5,350  $ 2,027  $ 329  $ 6,818 
Net income 487 10 497
Other comprehensive income (loss), net of tax 65 65
Dividends declared on common stock (2)
(209) (209)
Shares issued under incentive plans, net (4) (4)
Stock-based compensation 20 20
Dividends attributable to non-controlling interest (21) (21)
Acquisition of non-controlling interest 46 46
Treasury stock repurchase (92) (92)
Balance as of June 30, 2021 $   $ (794) $ 9  $ (130) $ 5,366  $ 2,305  $ 364  $ 7,120 
(1) Cash dividends declared were $0.08 per share for the three months ended June 30, 2020.
(2) Cash dividends declared were $0.24 per share for the three months ended June 30, 2021.


The accompanying notes are an integral part of the Unaudited Condensed Consolidated Financial Statements.
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CARRIER GLOBAL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
  For the Six Months Ended June 30,
(In millions) 2021 2020
Operating Activities
Net income from operations $ 889  $ 371 
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization 168  159 
Deferred income tax provision 33  135 
Stock-based compensation costs 40  35 
Equity method investment net earnings (125) (86)
Distributions from equity method investments 42  49 
Impairment charge on minority-owned joint venture investments —  72 
Changes in operating assets and liabilities
Accounts receivable, net (288) 27 
Contract assets, current (41) (140)
Inventories, net (210) (325)
Other assets, current (27) 32 
Accounts payable and accrued liabilities 368  152 
Contract liabilities, current 42  37 
Defined benefit plan contributions (27) (27)
Other operating activities, net (119) 65 
Net cash flows provided by (used in) operating activities 745  556 
Investing Activities
Capital expenditures (132) (94)
Investment in businesses, net of cash acquired (167) — 
Dispositions of businesses — 
Settlement of derivative contracts, net (6) (23)
Other investing activities, net 14 
Net cash flows provided by (used in) investing activities (301) (103)
Financing Activities
Increase (decrease) in short-term borrowings, net (13) (17)
Issuance of long-term debt 74  11,734 
Repayment of long-term debt (605) (36)
Repurchases of common stock (130) — 
Dividends paid on common stock (209) — 
Dividends paid to non-controlling interest (30) (8)
Net transfers to UTC —  (10,359)
Other financing activities, net 15 
Net cash flows provided by (used in) financing activities (898) 1,315 
Effect of foreign exchange rate changes on cash and cash equivalents (2) (17)
Net increase (decrease) in cash and cash equivalents and restricted cash (456) 1,751 
Cash, cash equivalents and restricted cash, beginning of period 3,120  957 
Cash, cash equivalents and restricted cash, end of period 2,664  2,708 
Less: restricted cash 34 
Cash and cash equivalents, end of period $ 2,630  $ 2,704 

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

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CARRIER GLOBAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1: DESCRIPTION OF THE BUSINESS

Carrier Global Corporation is a leading global provider of heating, ventilating, air conditioning ("HVAC"), refrigeration and fire and security solutions. The Company also provides a broad array of related building services, including audit, design, installation, system integration, repair, maintenance and monitoring. In the opinion of management, the accompanying Unaudited Condensed Consolidated Financial Statements contain all adjustments (which include normal recurring adjustments) necessary to state fairly the financial position, results of operations and cash flows for the periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") have been omitted pursuant to the rules and regulations of the United States Securities and Exchange Commission (the "SEC"). These Unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K for 2020 filed with the SEC on February 9, 2021 (the "2020 Form 10-K").

On April 3, 2020 (the "Distribution Date"), United Technologies Corporation, since renamed Raytheon Technologies Corporation ("UTC"), completed the spin-off of the Company into an independent, publicly traded company (the "Separation") through a pro-rata distribution (the "Distribution") on a one-for-one basis of all of the outstanding shares of common stock of the Company to UTC shareowners who held shares of UTC common stock as of the close of business on March 19, 2020, the record date of the Distribution. In connection with the Separation, the Company issued an aggregate principal balance of $11.0 billion of debt and transferred approximately $10.9 billion of cash to UTC on February 27, 2020 and March 27, 2020. On April 1, 2020 and April 2, 2020, the Company received cash contributions totaling $590 million from UTC related to the Separation.

In connection with the Separation, 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 following the Separation and the Distribution, including a transition services agreement ("TSA"), a tax matters agreement ("TMA"), an employee matters agreement and an intellectual property agreement that cover services such as information technology, tax, finance and human resources. In addition, the Company incurred separation-related costs including employee-related costs, costs to establish certain stand-alone functions, information technology systems, professional service fees and other costs associated with becoming an independent, publicly traded company. These costs are primarily recorded in Selling, general and administrative in the Unaudited Condensed Consolidated Statement of Operations and totaled $3 million and $23 million for the three months ended June 30, 2021 and 2020, respectively. Costs for the six months ended June 30, 2021 and 2020 were $19 million and $68 million, respectively. The TSA expired on March 31, 2021.

Impact of the COVID-19 Pandemic

In early 2020, the World Health Organization declared the outbreak of a respiratory disease known as COVID-19 as a global pandemic. In response, many countries implemented containment and mitigation measures to combat the outbreak, which severely restricted the level of economic activity and caused a significant contraction in the global economy. As a result, the Company temporarily closed or reduced production at manufacturing facilities across the globe to ensure employee safety and instructed non-essential employees to work from home. In addition, the Company took several preemptive actions during 2020 to manage liquidity as demand for its products decreased. Despite the adverse impacts of the pandemic on the Company’s results beginning in the first quarter of 2020, manufacturing operations resumed and several restorative actions were completed during 2020, including the reinstatement of annual merit-based salary increases and continued investment to support the Company's core strategy.

The Company continues to focus its efforts on preserving the health and safety of its employees and customers as well as maintaining the continuity of its operations. In addition, the Company continues to actively monitor its liquidity position and working capital needs and believes that its overall capital resources and liquidity position are adequate. The preparation of financial statements requires management to use judgments in making estimates and assumptions based on the relevant information available at the end of each period, which can have a significant effect on reported amounts. However, due to significant uncertainty surrounding the pandemic, management's judgments could change. While the Company's results of operations, cash flows and financial condition could be negatively impacted, the extent of any continuing impact cannot be estimated with certainty at this time.


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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. All intra-company accounts and transactions have been eliminated. Related party transactions between the Company and its equity method investees have not been eliminated. Non-controlling interest represents a non-controlling investor's interests in the results of subsidiaries that the Company controls and consolidates.

The Company's financial statements for the periods prior to the Separation and the Distribution are prepared on a "carve-out" basis and include all amounts directly attributable to the Company. Net cash transfers and other property transferred between UTC and the Company, including related party receivables and payables between the Company and other UTC affiliates, are presented as Net transfers to UTC. In addition, the financial statements include allocations of costs for administrative functions and services performed on behalf of the Company by centralized groups within UTC. All allocations and estimates in the Unaudited Condensed Consolidated Financial Statements are based on assumptions that management believes are reasonable. The Company's financial statements for the periods subsequent to April 3, 2020 are consolidated financial statements based on the reported results of Carrier as a stand-alone company.

Recently 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 not referenced below were assessed and determined to be either not applicable or are not expected to have a material impact on the Unaudited Condensed Consolidated Financial Statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU 2019-12"), which simplifies certain aspects of income tax accounting guidance in ASC 740, Income Taxes ("ASC 740") reducing the complexity of its application while maintaining or improving the usefulness of the information required to be reported. The ASU eliminates certain exceptions from ASC 740 including: intra-period tax allocation, deferred tax liabilities related to outside basis differences and year-to-date loss in interim periods, among others. ASU 2019-12 was effective for periods beginning after December 15, 2020, including interim periods therein with early adoption permitted. The Company adopted this ASU on January 1, 2021 with no material impact on the Unaudited Condensed Consolidated Financial Statements.

NOTE 3: INVENTORIES, NET

Inventories are stated at the lower of cost or estimated 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").

The major classes of inventory are as follows:

(In millions) June 30,
2021
December 31,
2020
Raw materials $ 478  $ 363 
Work-in-process 190  143 
Finished goods 1,217  1,123 
Inventories, net $ 1,885  $ 1,629 

The Company performs periodic assessments to determine the existence of excess and obsolete inventory and records necessary provisions to reduce such inventories to estimated realizable value. Raw materials, work-in-process and finished goods are net of valuation reserves of $189 million and $183 million as of June 30, 2021 and December 31, 2020, 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 during the third quarter 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.
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The changes in the carrying amount of goodwill are as follows:

(In millions) HVAC Refrigeration Fire & Security Total
Balance as of December 31, 2020 $ 5,489  $ 1,251  $ 3,399  $ 10,139 
Goodwill resulting from business combinations (1) 175  —  —  175 
Foreign currency translation (19) (4) (12) (35)
Balance as of June 30, 2021 $ 5,645  $ 1,247  $ 3,387  $ 10,279 
(1) See Note 15 - Business Acquisitions and Dispositions for more information.

Indefinite-lived intangible assets are tested and reviewed annually for impairment during the third quarter 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 are comprised of the following:

June 30, 2021 December 31, 2020
(In millions) Gross Amount Accumulated Amortization Net Amount Gross Amount Accumulated Amortization Net Amount
Amortized:
Customer relationships $ 1,593  $ (1,302) $ 291  $ 1,558  $ (1,285) $ 273 
Patents and trademarks 300  (227) 73  301  (222) 79 
Monitoring lines 72  (61) 11  71  (59) 12 
Service portfolios and other 683  (550) 133  644  (542) 102 
2,648  (2,140) 508  2,574  (2,108) 466 
Unamortized:
Trademarks and other 563    563  571  —  571 
Intangible assets, net $ 3,211  $ (2,140) $ 1,071  $ 3,145  $ (2,108) $ 1,037 

Amortization of intangible assets was $25 million and $25 million for the three months ended June 30, 2021 and 2020, respectively, and $49 million and $50 million for the six months ended June 30, 2021 and 2020, respectively.
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NOTE 5: BORROWINGS AND LINES OF CREDIT

Long-term debt consisted of the following:

(In millions, except percentages) June 30,
2021
December 31,
2020
1.923% Notes due February 15, 2023
$ —  (1) $ 500 
2.242% Notes due February 15, 2025
2,000  2,000 
2.493% Notes due February 15, 2027
1,250  1,250 
2.722% Notes due February 15, 2030
2,000  2,000 
2.700% Notes due February 15, 2031
750  750 
3.377% Notes due April 5, 2040
1,500  1,500 
3.577% Notes due April 5, 2050
2,000  2,000 
Total long-term Notes 9,500  10,000 
Other debt (including project financing obligations and finance leases) 300  308 
Discounts and debt issuance costs (75) (81)
Total debt 9,725  10,227 
Less: current portion of long-term debt 125  191 
Long-term debt, net of current portion $ 9,600  $ 10,036 
(1) In February 2021, the Company prepaid the 1.923% Notes due in February 2023 and incurred a $17 million make-whole premium upon prepayment and wrote-off $2 million of the remaining unamortized deferred financing costs.
Revolving Credit Facility

On February 10, 2020, the Company entered into a revolving credit agreement with various banks permitting aggregate borrowings of up to $2.0 billion pursuant to an unsecured, unsubordinated revolving credit facility that matures on April 3, 2025 (the "Revolving Credit Facility"). The Revolving Credit Facility supports the Company's commercial paper program and cash requirements of the Company. A commitment fee of 0.125% is charged on unused commitments. Borrowings under the Revolving Credit Facility are available in U.S. Dollars, Euros and Pounds Sterling and bear interest at a variable interest rate based on LIBOR plus a ratings-based margin, which was 125 basis points as of June 30, 2021. As of June 30, 2021, there were no borrowings outstanding under the Revolving Credit Facility.

Commercial Paper Program

As of June 30, 2021, the Company had 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, 2021, there were no borrowings outstanding under the commercial paper program.

Project Financing Arrangements

The Company is involved in several long-term construction contracts in which it arranges project financing with certain customers. As a result, the Company issued $71 million and $75 million of debt during the six months ended June 30, 2021 and 2020, respectively. Long-term debt repayments associated with these financing arrangements during the six months ended June 30, 2021 and 2020 were $83 million and $36 million, respectively.

Debt Covenants

The Revolving Credit Facility and the indenture for the long-term notes contain affirmative and negative covenants customary for financings of these types which, among other things, limit the Company's ability to incur additional liens, to make certain fundamental changes and to enter into sale and leaseback transactions. On June 2, 2020, the Company entered into an amendment of the Revolving Credit Facility, under which certain terms of the facility were amended for a period beginning on June 2, 2020 and ending on December 30, 2021 (the "Covenant Modification Period"). The Company may terminate the Covenant Modification Period prior to December 30, 2021, subject to the satisfaction of certain conditions. The amendment deferred testing of the Company's consolidated total net leverage ratio financial covenant until June 30, 2021 and increases the consolidated total net leverage ratio limit until December 31, 2021. The amendment also required the Company to maintain
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liquidity at a certain level until the earlier of (1) June 29, 2021 and (2) the last day of the Covenant Modification Period. As of June 30, 2021 the requirement to test the Company's consolidated total net leverage ratio was reinstated, and there is no remaining requirement to maintain liquidity at a certain level. Additionally, during the Covenant Modification Period, the Company is subject to: (a) limitations on the incurrence of subsidiary indebtedness, (b) limitations on the making of restricted payments, including purchases by the Company of shares of its common stock and the amount of dividends the Company may pay and (c) a "most favored nations" provision related to certain terms of any committed credit facility in an amount greater than $100 million. As of June 30, 2021, 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. 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 Company's Unaudited Condensed Consolidated Balance Sheet:

(In millions) Total Level 1 Level 2 Level 3
June 30, 2021
Derivative assets $ (1) $ —  $ $ — 
Derivative liabilities $ (3) (2) $ —  $ (3) $ — 
December 31, 2020
Derivative assets $ 17  (1) $ —  $ 17  $ — 
Derivative liabilities $ (5) (2) $ —  $ (5) $ — 
(2) Included in Other assets, current on the accompanying Unaudited Condensed Consolidated Balance Sheet
(3) Included in Accrued liabilities on the accompanying Unaudited Condensed Consolidated Balance Sheet

The Company's long-term debt is measured at fair value based on observable market inputs which are considered Level 1 within the fair value hierarchy. The following table provides the carrying amounts and fair values of financial instruments that are not recorded at fair value in the Company's Unaudited Condensed Consolidated Balance Sheet:

June 30, 2021 December 31, 2020
(In millions) Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Total Long-term Notes (1)
$ 9,500  $ 9,930  $ 10,000  $ 10,811 
(1) Excludes debt discount and issuance costs
The carrying value of cash and cash equivalents, accounts receivable, accounts payable and short-term borrowings approximate
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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, approximate fair value and are classified as Level 3 in the fair value hierarchy.

NOTE 7: EMPLOYEE BENEFIT PLANS

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

Contributions to the plans were as follows:

For the Three Months Ended June 30, For the Six Months Ended June 30,
(In millions) 2021 2020 2021 2020
Defined benefit plans $ $ $ 27  $ 27 
Defined contribution plans $ 30  $ 25  $ 67  $ 55 
Multi-employer pension plans $ $ $ 12  $ 10 

The following table illustrates the components of net periodic pension benefits for the defined benefit pension and post-retirement benefit plans:

For the Three Months Ended June 30, For the Six Months Ended June 30,
(In millions) 2021 2020 2021 2020
Service cost $ $ $ 14  $ 15 
Interest cost 10  13  19  26 
Expected return on plan assets (37) (34) (73) (69)
Amortization of prior service credit —  — 
Recognized actuarial net (gain) loss 16  10 
Net settlement, curtailment and special termination benefit (gain) loss —  —  — 
Net periodic pension expense (benefit) $ (12) $ (9) $ (23) $ (16)

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 once at the date of grant and is 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 is included in Selling, general and administrative in the accompanying Unaudited Condensed Consolidated Statements of Operations. The expense recognized was as follows:

For the Three Months Ended June 30, For the Six Months Ended June 30,
(in millions) 2021 2020 2021 2020
Equity settled $ 21  $ 22  $ 40  $ 35 
Cash settled 10  (1)
Total stock-based compensation expense $ 27  $ 26  $ 50  $ 34 

Prior to the Separation and the Distribution, the Company participated in UTC's long-term incentive plans, which authorized various types of market and performance-based incentive awards. For these periods, stock-based compensation expense was allocated to the Company from UTC based upon direct employee headcount. In connection with the Separation and the
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Distribution, all awards were converted into Carrier stock-based awards with unvested awards converted to preserve their intrinsic value immediately before and after the Separation.

NOTE 9: GUARANTEES

The Company provides service and warranty coverage on its products and extends performance and operating cost guarantees beyond normal service and warranty coverage on certain products. In addition, the Company incurs discretionary costs to service its products in connection with specific product performance issues. Liabilities for performance and operating cost guarantees are based upon future product performance and durability and are estimated based upon historical experience. Adjustments are recorded to accruals based on claims data and historical experience. The changes in the carrying amount of service and product warranties and product performance guarantees, included in Accrued liabilities on the accompanying Unaudited Condensed Consolidated Balance Sheet, are as follows:

For the Six Months Ended June 30,
(In millions) 2021 2020
Balance as of January 1, $ 514  $ 488 
Warranties, performance guarantees issued and changes in estimated liability 89  105 
Settlements made (80) (92)
Balance as of June 30, $ 523  $ 501 

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, 2021, 870,754,214 shares of common stock were issued, which includes 3,053,847 shares of treasury stock.

Share Repurchase Program

On February 4, 2021, the Company's Board of Directors approved a stock repurchase program authorizing the repurchase of up to $350 million of the Company's outstanding common stock. The Company may repurchase shares from time to time subject to market conditions and at the Company's discretion in the open market or through one or more other public or private transactions, subject to compliance with the Company's obligations under the TMA and the Revolving Credit Facility. The Company records repurchases under the cost method whereby the entire cost of the acquired stock is recorded as Treasury stock as a reduction to equity. The reissuance of treasury stock uses the first-in, first-out method of accounting.

The Company repurchased 2.1 million shares and 3.1 million shares of common stock for an aggregate purchase price of $92 million and $130 million for the three and six months ended June 30, 2021, respectively, which are held in Treasury stock as of June 30, 2021 as reflected on its Unaudited Condensed Consolidated Balance Sheet.

Accumulated Other Comprehensive Income (Loss)

A summary of changes in the components of Accumulated other comprehensive income (loss) for the three months ended June 30, 2021 and 2020 is as follows:

(In millions) Foreign Currency Translation Defined Benefit Pension and Post-retirement Plans Accumulated Other Comprehensive Income (Loss)
Balance as of March 31, 2021 $ (312) $ (547) $ (859)
Other comprehensive income (loss) before reclassifications, net 59  —  59 
Amounts reclassified, pre-tax — 
Tax expense (benefit) reclassified —  (2) (2)
Balance as of June 30, 2021 $ (253) $ (541) $ (794)
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(In millions) Foreign Currency Translation Defined Benefit Pension and Post-retirement Plans Accumulated Other Comprehensive Income (Loss)
Balance as of March 31, 2020 $ (1,268) $ (468) $ (1,736)
Other comprehensive income (loss) before reclassifications, net 250  252 
Amounts reclassified, pre-tax — 
Tax expense (benefit) reclassified —  (1) (1)
Balance as of June 30, 2020 $ (1,018) $ (461) $ (1,479)

A summary of changes in the components of Accumulated other comprehensive income (loss) for the six months ended June 30, 2021 and 2020 is as follows:

(In millions) Foreign Currency Translation Defined Benefit Pension and Post-retirement Plans Accumulated Other Comprehensive Income (Loss)
Balance as of December 31, 2020 $ (191) $ (554) $ (745)
Other comprehensive income (loss) before reclassifications, net (62) —  (62)
Amounts reclassified, pre-tax —  17  17 
Tax benefit reclassified —  (4) (4)
Balance as of June 30, 2021 $ (253) $ (541) $ (794)


(In millions) Foreign Currency Translation Defined Benefit Pension and Post-retirement Plans Accumulated Other Comprehensive Income (Loss)
Balance as of December 31, 2019 $ (780) $ (473) $ (1,253)
Other comprehensive income (loss) before reclassifications, net (238) (236)
Amounts reclassified, pre-tax —  12  12 
Tax benefit reclassified —  (2) (2)
Balance as of June 30, 2020 $ (1,018) $ (461) $ (1,479)

NOTE 11: REVENUE RECOGNITION

The Company recognizes revenue 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 benefit 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.
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Sales disaggregated by product and service are as follows:

For the Three Months Ended June 30, For the Six Months Ended June 30,
(In millions) 2021 2020 2021 2020
Sales Type
Product $ 2,757  $ 1,976  $ 4,904  $ 3,633 
Service 363  315  702  617 
HVAC sales 3,120  2,291  5,606  4,250 
Product 915  609  1,807  1,322 
Service 106  91  219  186 
Refrigeration sales 1,021  700  2,026  1,508 
Product 1,012  762  1,931  1,622 
Service 391  295  776  641 
Fire & Security sales 1,403  1,057  2,707  2,263 
Total segment sales 5,544  4,048  10,339  8,021 
Eliminations and other (104) (76) (200) (161)
Net sales $ 5,440  $ 3,972  $ 10,139  $ 7,860 

Contract Balances

Total contract assets and liabilities arising from contracts with customers are as follows:

(In millions) June 30,
2021
December 31,
2020
Contract assets, current $ 695  $ 656 
Contract assets, non-current (included within Other assets) 166  98 
Total contract assets $ 861  $ 754 
Contract liabilities, current (576) (512)
Contract liabilities, non-current (included within Other long-term liabilities) (171) (165)
Total contract liabilities (747) (677)
Net contract assets $ 114  $ 77 

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 the contract or when the Company has a right to consideration that is conditioned upon transfer of a good or service to the customer. Contract liabilities are recognized as revenue as (or when) the Company performs under the contract. The Company recognized revenue of $100 million during the six months ended June 30, 2021 that related to contract liabilities as of January 1, 2021. The Company expects a majority of its 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.
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The Company recorded net pre-tax restructuring costs for new and ongoing restructuring initiatives as follows:

For the Three Months Ended June 30, For the Six Months Ended June 30,
(In millions) 2021 2020 2021 2020
HVAC $ $ $ 11  $
Refrigeration
Fire & Security 20 
Total Segment 19  10  36  15 
General corporate expenses
Total restructuring costs $ 21  $ 11  $ 39  $ 16 
Cost of sales $ $ $ 11  $
Selling, general and administrative 15  28  10 
Total restructuring costs $ 21  $ 11  $ 39  $ 16 

The following table summarizes the reserves and charges related to restructuring actions:

For the Six Months Ended June 30,
(In millions) 2021 2020
Balance as of January 1, $ 49  $ 66 
Net pre-tax restructuring costs 39  16 
Utilization, foreign exchange and other (40) (35)
Balance as of June 30, $ 48  $ 47 

During the six months ended June 30, 2021, charges associated with restructuring initiatives related to cost reduction efforts. Amounts recognized primarily related to severance due to workforce reductions and exit costs due to the consolidation of field operations. As of June 30, 2021, the Company had $48 million accrued for costs associated with its announced restructuring initiatives, all of which is expected to be paid within one year.

NOTE 13: INCOME TAXES

The Company accounts for income tax expense in accordance with ASC 740, which requires that 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 for the three months ended June 30, 2021 was 32.0% compared with 28.2% for the three months ended June 30, 2020. The period-over-period increase is primarily due to a $43 million deferred tax charge as a result of a tax rate increase enacted on June 10, 2021, with an effective date of April 2023, from 19% to 25% in the United Kingdom.

The effective tax rate for the six months ended June 30, 2021 was 27.5% compared with 44.6% for the six months ended June 30, 2020. The year-over-year decrease is primarily due to the absence of a prior year charge of $51 million related to a valuation allowance recorded against a United Kingdom tax loss and credit carryforward and a $46 million charge resulting from the Company's decision to no longer permanently reinvest certain pre-2018 unremitted non-U.S. earnings. The six months ended June 30, 2021 included a $43 million deferred tax charge as a result of the tax rate increase from 19% to 25% in the United Kingdom, partially offset by the recognition of a favorable tax adjustment of $21 million resulting from a re-organization in our German subsidiaries.

Income taxes through March 31, 2020 were recorded based on a "carve-out" and separate company basis. Prior to the Separation and the Distribution, the Company’s portion of income taxes for domestic and certain foreign jurisdictions were
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deemed settled in the period the related tax expense was recorded. After the Separation and the Distribution, the Company’s income taxes are prepared on a stand-alone basis.

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

The Company conducts business globally and files income tax returns in U.S. federal, state and foreign jurisdictions. In certain jurisdictions, the Company's operations were included in UTC's combined tax returns for the periods through the Distribution. The U.S. Internal Revenue Service ("IRS") commenced an audit of UTC's tax years 2017 and 2018 in the second quarter of 2020. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world, including Australia, Belgium, Canada, China, Czech Republic, France, Germany, Hong Kong, India, Italy, Mexico, the Netherlands, Singapore, the United Kingdom and the United States. The Company is no longer subject to U.S. federal income tax examination for years prior to 2017 and, with few exceptions, is no longer subject to state, local and foreign income tax examinations for tax years prior to 2013.

In the ordinary course of business, there is inherent uncertainty in quantifying the Company's income tax positions. The Company assesses its income tax positions and records tax benefits for all years subject to examination based upon management’s evaluation of the facts, circumstances and information available at the reporting date. The Company believes that it is reasonably possible that a net decrease in unrecognized tax benefits of between $20 million and $35 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.
Three Months Ended June 30, Six Months Ended June 30,
(In millions, except per share amounts) 2021 2020 2021 2020
Net income attributable to common shareowners $ 487  $ 261  $ 871  $ 357 
Basic weighted-average number of shares outstanding 868.7  866.2  869.0  866.2 
Stock awards and equity units (share equivalent) 22.2  4.7  21.4  4.7 
Diluted weighted-average number of shares outstanding 890.9  870.9  890.4  870.9 
Antidilutive shares excluded from computation of diluted earnings per share 3.1  30.9  3.1  30.9 
Earnings Per Share
Basic $ 0.56  $ 0.30  $ 1.00  $ 0.41 
Diluted $ 0.55  $ 0.30  $ 0.98  $ 0.41 

On the Distribution Date, 866,158,910 shares of the Company’s common stock, par value $0.01 per share, were distributed to UTC shareowners of record as of March 19, 2020. This share amount is utilized for the calculation of basic and diluted earnings per share for all periods presented prior to the Separation and the Distribution and such shares are treated as issued and outstanding for purposes of calculating historical earnings per share. It is assumed that there are no dilutive equity instruments for the periods prior to the Separation and Distribution because there were no Carrier stock-based awards outstanding prior to the Separation and the Distribution.

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NOTE 15: BUSINESS ACQUISITIONS AND DISPOSITIONS

During the six months ended June 30, 2021, the Company acquired consolidated and minority-owned businesses. The aggregate cash paid, net of cash acquired, totaled $167 million and was funded through cash on hand. Acquisitions are recorded using the acquisition method of accounting in accordance with ASC 805, Business Combinations ("ASC 805"). 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. Intangible assets associated with these transactions totaled $94 million and primarily related to customer relationships, technology assets and a non-compete agreement. The excess purchase price over the estimated fair value of net assets acquired was recognized as goodwill and totaled $175 million.

Acquisition of Giwee Group Co.

On June 1, 2021, the Company acquired a 70% controlling stake in Guangdong Giwee Group and its subsidiaries ("Giwee"). Giwee is a China-based manufacturer of HVAC products, offering a portfolio of products including variable refrigerant flow, modular chillers and light commercial air conditioners. The results of Giwee are reported within the HVAC segment as of the date of acquisition. The Company has not included pro forma financial information required under ASC 805 as the pro forma impact was not deemed significant.

The excess of the purchase price over the estimated fair value of the net assets acquired was recognized as goodwill and totaled $168 million, 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 property, plant and equipment 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 preliminary estimate of fair value, which consisted of the following:

(in millions) Estimated Useful Life (in years) Intangible Assets Acquired
Customer relationships
14 $ 52 
Technology 10 34 
Non-compete agreement
5
Total intangible assets acquired $ 94 

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 rate, customer attrition rates and royalty rates. The projected future cash flows are discounted to present value using an appropriate discount rate. As of June 30, 2021, the Company has not finalized the process of allocating the purchase price and valuing the acquired assets and liabilities for the Giwee acquisition.

NOTE 16: SEGMENT FINANCIAL DATA

The Company has three operating segments:

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 and systems, and service solutions to protect people and property.

Our customers are in both the public and private sectors and our businesses reflect extensive geographic diversification. Inter-company sales between segments are immaterial.
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Net sales and Operating profit by segment are as follows:

Net Sales Operating Profit
For the Three Months Ended June 30, For the Three Months Ended June 30,
(In millions) 2021 2020 2021 2020
HVAC $ 3,120  $ 2,291  $ 573  $ 358 
Refrigeration 1,021  700  123  61 
Fire & Security 1,403  1,057  148  106 
Total segment 5,544  4,048  844  525 
Eliminations and other (104) (76) (23) (56)
General corporate expenses —  —  (38) (27)
Total Consolidated $ 5,440  $ 3,972  $ 783  $ 442 

Net Sales Operating Profit
For the Six Months Ended June 30, For the Six Months Ended June 30,
(In millions) 2021 2020 2021 2020
HVAC $ 5,606  $ 4,250  $ 938  $ 525 
Refrigeration 2,026  1,508  250  160 
Fire & Security 2,707  2,263  298  226 
Total segment 10,339  8,021  1,486  911 
Eliminations and other (200) (161) (63) (91)
General corporate expenses —  —  (69) (63)
Total Consolidated $ 10,139  $ 7,860  $ 1,354  $ 757 

Geographic external sales are attributed to the geographic regions based on their location of origin. With the exception of the U.S. presented in the table below, there were no individually significant countries with sales exceeding 10% of total sales during the six months ended June 30, 2021 and 2020.

For the Three Months Ended June 30, For the Six Months Ended June 30,
(In millions) 2021 2020 2021 2020
United States $ 2,848  $ 2,192  $ 5,201  $ 4,203 
International:
Europe 1,459  969  2,857  2,148 
Asia Pacific 907  645  1,649  1,164 
Other 226  166  432  345 
Net sales $ 5,440  $ 3,972  $ 10,139  $ 7,860 


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NOTE 17: 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) 2021 2020 2021 2020
Sales to equity method investees included in Product sales
$ 652  $ 434  $ 1,120  $ 778 
Purchases from equity method investees included in Cost of products sold
$ 98  $ 66  $ 174  $ 143 

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

(In millions) June 30,
2021
December 31, 2020
Receivables from equity method investees included in Accounts receivable, net
$ 243  $ 161 
Payables to equity method investees included in Accounts payable
$ 59  $ 38 

The Company periodically reviews the carrying value of its equity method investments to determine if there has been an other-than-temporary decline in fair value. During the three months ended March 31, 2020, the Company determined that indicators of impairment existed for a minority owned joint venture investment and performed a valuation of this investment using a discounted cash flow method. The Company determined that the loss in value was other-than-temporary due to a reduction in sales and earnings that were primarily driven by a deterioration in the oil and gas industry (the joint venture's primary market) and by the impact of the COVID-19 pandemic. As a result, the Company recorded a non-cash, other-than-temporary impairment charge of $71 million on this investment during the three months ended March 31, 2020, which is included in Other income (expense), net on the accompanying Unaudited Condensed Consolidated Statement of Operations.

NOTE 18: 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 ("ASC 450"), the Company records accruals for loss contingencies when it is probable that a liability will be incurred and the amount of the loss can be reasonably estimated. These accruals are generally based upon a range of possible outcomes. If no amount within the range is a better estimate than any other, the Company accrues the minimum amount. In addition, these estimates are reviewed periodically and adjusted to reflect additional information when it becomes available. The Company is unable to predict the final outcome of the following matters based on the information currently available, except as otherwise noted. However, the Company does not believe that the resolution of any of these matters will have a material adverse effect upon the Company's competitive position, results of operations, cash flows or financial condition.

Environmental Matters

The Company’s operations are subject to environmental regulation by various authorities. The Company has accrued for the costs of environmental remediation activities, including but not limited to investigatory, remediation, operating and maintenance costs and performance guarantees, and the Company periodically reassesses these amounts. Management believes that the likelihood of incurring losses materially in excess of the amounts accrued is remote. The outstanding liabilities for environmental obligations are as follows:

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(In millions) June 30,
2021
December 31, 2020
Environmental reserves included in Accrued liabilities
$ 25  $ 26 
Environmental reserves included in Other long-term liabilities
209  213 
Total Environmental reserves $ 234  $ 239 

Asbestos Matters

The Company and its consolidated subsidiaries have been named as defendants in lawsuits alleging personal injury as a result of exposure to asbestos allegedly integrated into certain Carrier products or business premises. While the Company has never manufactured asbestos and no longer incorporates it into any currently-manufactured products, certain products that the Company no longer manufactures contained components incorporating asbestos. A substantial majority of these asbestos-related claims have been dismissed without payment or have been covered in full or in part by insurance or other forms of indemnity. Additional cases were litigated and settled without any insurance reimbursement. The amounts involved in asbestos-related claims were not material individually or in the aggregate in any period.

The Company had asbestos liabilities and related recoveries as follows:

(In millions) June 30,
2021
December 31,
2020
Asbestos liabilities included in Accrued liabilities
$ 18  $ 17 
Asbestos liabilities included in Other long-term liabilities
222  228 
Total Asbestos liabilities $ 240  $ 245 
Asbestos-related recoveries included in Other assets, current
$ $
Asbestos-related recoveries included in Other assets
95  97 
Total Asbestos-related recoveries $ 101  $ 103 

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. Where no amount within a range of estimates is more likely, the minimum is accrued. 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 an insurance recovery receivable for probable asbestos-related recoveries.

UTC Equity Awards Conversion Litigation

On August 12, 2020, several former employees of UTC or its subsidiaries filed a putative class action complaint (the "Complaint") in the United States District Court for the District of Connecticut against Raytheon Technologies Corporation, Carrier, Otis, the former members of the UTC Board of Directors and the members of the Carrier and Otis Boards of Directors (Geraud Darnis, et al. v. Raytheon Technologies Corporation, et al.). The Complaint challenges the method by which UTC equity awards were converted to UTC, Carrier and Otis equity awards following the Separation and the Distribution. The Complaint asserted that the defendants are liable for breach of certain equity compensation plans and for breach of fiduciary duty and also asserted claims under certain provisions of the Employee Retirement Income Security Act of 1974, as amended. Plaintiffs have withdrawn, with prejudice, their claims against Otis's and Carrier's current Boards of Directors. Carrier believes that the remaining claims against the Company are without merit.

Aqueous Film Forming Foam Litigation

Aqueous Film Forming Foam ("AFFF") is a firefighting foam developed in the 1970s pursuant to U.S. military specification and used to extinguish certain types of fires primarily at airports and military bases. AFFF was manufactured by several companies, including National Foam and Angus Fire. UTC acquired the National Foam and Angus Fire businesses in 2005 as part of the acquisition of Kidde, which had been operated by Carrier. In 2013, UTC divested the National Foam and Angus Fire businesses to a third party.

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The Company and many other parties, including the third-party buyer of the National Foam and Angus Fire businesses, have been named as defendants in over 1,300 cases, including putative class actions and other lawsuits, alleging that the historic use of AFFF caused personal injuries and property damage. Additionally, several state, municipal and water utility plaintiffs have commenced litigation against the same defendants to recover remediation costs related to historic use of AFFF. In December 2018, the U.S. Judicial Panel on Multidistrict Litigation ("MDL") transferred and consolidated all of the AFFF cases pending in the federal courts to the U.S. District Court for the District of South Carolina for pre-trial proceedings.

Plaintiffs in the MDL allege that a chemical ingredient in AFFF contains, or breaks down into, compounds known as perflourooctane sulfonate ("PFOS") and perflourooctane acid ("PFOA") that were released into the environment and, in some instances, ultimately leached into drinking water supplies. National Foam and Angus Fire purchased these perflourinated chemical ingredients from third-party chemical manufacturers to manufacture AFFF. Chemicals containing PFOS and PFOA (or their precursors) have also been used for decades by many third parties to manufacture carpets, clothing, fabrics, cookware and other consumer products. The individual plaintiffs in the MDL generally seek compensatory damages for alleged personal injuries, medical monitoring and 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 generally seek damages and costs related to the remediation of public property and water supplies.

The Company and other defendants are also party to fewer than 10 cases in state court brought by oil refining companies in the U.S. alleging product liability claims related to legacy sales of AFFF and seeking damages for the costs to replace the product and for property damage.

The Company and other defendants are also party to an action related to the AFFF manufacturing facility that was operated by National Foam and Angus Fire in which the plaintiff water utility seeks remediation costs related to the alleged contamination of the local water supply.

The Company believes that it has meritorious defenses to these claims and the Company is also seeking insurance coverage for these claims. At this time, however, 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 reasonably estimate the damages, if any, to be allocated to the Company, if one or more plaintiffs were to prevail in these cases, and there can be no assurance that any such future exposure will not be material in any period.

Income Taxes
Under the TMA, the Company is responsible to UTC for its share of the Tax Cuts and Jobs Act ("TCJA") transition tax associated with foreign undistributed earnings as of December 31, 2017. As a result, a liability of $453 million is included within the accompanying Unaudited Condensed Consolidated Balance Sheet at June 30, 2021. This obligation is expected to be settled in annual installments ending in April 2026 with the next installment of $36 million included within Accrued Liabilities. 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 competitive position, results of operations, cash flows or financial condition.

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NOTE 19: SUBSEQUENT EVENTS

Sale of Chubb Fire & Security Business

On July 26, 2021, the Company entered into an agreement to sell its Chubb Fire and Security business (Chubb) to APi Group Corporation (APi) for an enterprise value of $3.1 billion (the “Agreement”). The purchase price is subject to working capital and other adjustments as provided in the Agreement. Chubb, reported within the Company’s Fire & Security segment, delivers essential fire safety and security solutions from design and installation to monitoring, service and maintenance across more than 17 countries around the globe. At June 30, 2021, Chubb did not meet the criteria for assets held for sale in the Unaudited Condensed Consolidated Balance Sheet. On a prospective basis, the net assets of Chubb will be classified as held for sale until the divestiture is completed. This transaction is expected to close late in the fourth quarter of 2021 or early in the first quarter of 2022, subject to regulatory approvals, required works council consultation in France and customary closing conditions. Based on the carrying amount of Chubb’s net assets, foreign currency translation rates and other assumptions at June 30, 2021, the Company expects to recover the carrying value of the disposal group upon completion of the transaction. In conjunction with the Agreement, the Company has agreed to provide APi, and APi has agreed to provide the Company, certain transitional services for varying periods after the closing.

Share Repurchase Program

On July 27, 2021, the Company's Board of Directors approved a $1.75 billion increase to the Company's existing $350 million stock repurchase program authorized in February 2021. Share repurchases may take place from time to time subject to market conditions and at the Company's discretion in the open market or through one or more other public or private transactions.

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With respect to the Unaudited Condensed Consolidated Financial Statements of Carrier for the three and six months ended June 30, 2021 and 2020, 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 29, 2021, appearing below, states that the firm did not audit and does not express an opinion on the 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 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, 2021, and the related condensed consolidated statements of operations, of comprehensive income (loss), of changes in equity for the three-month and six-month periods ended June 30, 2021 and 2020 and the condensed consolidated statement of cash flows for the six-month periods ended June 30, 2021 and 2020, 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, 2020, and the related consolidated statements of operations, of comprehensive income, of changes in equity and of cash flows for the year then ended (not presented herein), and in our report dated February 9, 2021, which included a paragraph describing a change in the manner of accounting for leases in the 2019 financial statements, 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, 2020, 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

Hallandale Beach, Florida
July 29, 2021
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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

BUSINESS OVERVIEW

Business Summary
Carrier is a leading global provider of healthy, safe and sustainable building and cold chain solutions. We operate three business segments, HVAC, Refrigeration and Fire & Security, each with strong brands and innovative products which we expect to drive future growth. Today, our portfolio includes industry-leading brands such as Carrier, Kidde, Edwards, LenelS2, Carrier Transicold and Automated Logic that offer innovative HVAC, refrigeration, fire, security and building automation technologies to help make the world safer and more comfortable.

Our worldwide operations are affected by global and regional industrial, economic and political factors and trends. These include the mega-trends of urbanization, climate change and increasing requirements for food safety driven by the food needs of our growing global population and the rising standards of living in emerging markets. We believe that our business segments are well positioned to benefit from favorable secular trends, including these mega-trends and from the strength of our industry-leading brands and track record of innovation. In addition, we regularly review our markets to proactively detect trends and adapt our strategies accordingly.

Our business is also affected by changes in the general level of economic activity, such as changes in business and consumer spending, construction and shipping activity as well as short-term economic factors such as currency fluctuations, commodity price volatility and supply disruptions. However, we continue to invest in our business, take pricing actions to mitigate supply chain and inflationary pressures, develop new products and services in order to remain competitive in our markets and use risk management strategies to mitigate various exposures. We believe that we have industry-leading global brands which form the foundation of our business strategy. Coupled with our focus on growth, innovation and operational efficiency, we expect to drive long-term future growth and increased value for our shareowners.

Recent Developments

Sale of Chubb Fire & Security Business

On July 26, 2021, we entered into an agreement to sell our Chubb business to APi for an enterprise value of $3.1 billion. The purchase price is subject to working capital and other adjustments as provided in the Agreement. Chubb, reported within our Fire & Security segment, delivers essential fire safety and security solutions from design and installation to monitoring, service and maintenance across more than 17 countries around the globe. At June 30, 2021, Chubb did not meet the criteria for assets held for sale in the Unaudited Condensed Consolidated Balance Sheet. On a prospective basis, the net assets of Chubb will be classified as held for sale until the divestiture is completed. This transaction is expected to close late in the fourth quarter of 2021 or early in the first quarter of 2022, subject to regulatory approvals, required works council consultation in France and customary closing conditions. Based on the carrying amount of Chubb’s net assets, foreign currency translation rates and other assumptions at June 30, 2021, we expect to recover the carrying value of the disposal group upon completion of the transaction. In conjunction with the Agreement, we have agreed to provide APi, and APi has agreed to provide the Company, certain transitional services for varying periods after the closing.

Share Repurchase Program

On July 27, 2021, our Board of Directors approved a $1.75 billion increase to our existing $350 million stock repurchase program authorized in February 2021. Share repurchases may take place from time to time subject to market conditions and at our discretion in the open market or through one or more other public or private transactions.

Separation from United Technologies Corporation
On April 3, 2020, UTC completed the Separation of Carrier into an independent, publicly traded company. In connection with the Separation, we 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. In addition, we entered into several agreements with UTC and Otis that govern various aspects of the relationship among us, UTC and Otis following the Separation and the Distribution including the TSA (which expired on March 31, 2021), the TMA, an employee matters agreement and an intellectual property agreement. Income and expense under these agreements are not material.

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Our financial statements for periods prior to the Separation and the Distribution are prepared on a "carve-out" basis and include all amounts directly attributable to Carrier. Net cash transfers and other property transferred between UTC and us, including related party receivables and payables between us and other UTC affiliates, are presented as Net transfers to UTC. In addition, the financial statements include allocations of costs for administrative functions and services performed on our behalf by centralized groups within UTC. All allocations and estimates in the Unaudited Condensed Consolidated Financial Statements are based on assumptions that management believes are reasonable. Our financial statements for the periods subsequent to April 3, 2020 are consolidated financial statements based on the reported results of Carrier as a stand-alone company.

Impact of the COVID-19 Pandemic

In early 2020, the World Health Organization declared the outbreak of a respiratory disease known as COVID-19 as a global pandemic. In response, many countries implemented containment and mitigation measures to combat the outbreak, which