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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 September 30, 2024
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 |
4.375% Notes due 2025 | | CARR25 | | New York Stock Exchange |
4.125% Notes due 2028 | | CARR28 | | New York Stock Exchange |
4.500% Notes due 2032 | | CARR32 | | 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 October 15, 2024, there were 897,227,361 shares of Common Stock outstanding.
CARRIER GLOBAL CORPORATION
CONTENTS OF QUARTERLY REPORT ON FORM 10-Q
Three and Nine Months Ended September 30, 2024
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.
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
-CARRIER GLOBAL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
(In millions, except per share amounts) | | 2024 | | 2023 | | 2024 | | 2023 |
Net sales | | | | | | | | |
Product sales | | $ | 5,307 | | | $ | 4,344 | | | $ | 15,460 | | | $ | 12,939 | |
Service sales | | 677 | | | 591 | | | 1,878 | | | 1,696 | |
Total Net sales | | 5,984 | | | 4,935 | | | 17,338 | | | 14,635 | |
Costs and expenses | | | | | | | | |
Cost of products sold | | (3,796) | | | (2,986) | | | (11,245) | | | (9,269) | |
Cost of services sold | | (511) | | | (463) | | | (1,456) | | | (1,321) | |
Research and development | | (172) | | | (126) | | | (524) | | | (355) | |
Selling, general and administrative | | (799) | | | (664) | | | (2,394) | | | (1,870) | |
Total Costs and expenses | | (5,278) | | | (4,239) | | | (15,619) | | | (12,815) | |
Equity method investment net earnings | | 66 | | | 75 | | | 187 | | | 171 | |
Other income (expense), net | | (9) | | | (261) | | | (34) | | | (370) | |
Operating profit | | 763 | | | 510 | | | 1,872 | | | 1,621 | |
Non-service pension (expense) benefit | | (1) | | | — | | | (1) | | | — | |
Interest (expense) income, net | | 8 | | | (39) | | | (290) | | | (126) | |
Earnings before income taxes | | 770 | | | 471 | | | 1,581 | | | 1,495 | |
Income tax (expense) benefit | | (172) | | | (177) | | | (339) | | | (453) | |
Earnings from continuing operations | | 598 | | | 294 | | | 1,242 | | | 1,042 | |
Discontinued operations, net of tax | | (117) | | | 87 | | | 1,897 | | | (41) | |
Net earnings (loss) | | 481 | | | 381 | | | 3,139 | | | 1,001 | |
Less: Non-controlling interest in subsidiaries' | | 34 | | | 24 | | | 86 | | | 72 | |
Net earnings (loss) attributable to common shareowners | | $ | 447 | | | $ | 357 | | | $ | 3,053 | | | $ | 929 | |
Amounts attributable to common shareowners: | | | | | | | | |
Continuing operations | | $ | 564 | | | $ | 270 | | | $ | 1,156 | | | $ | 970 | |
Discontinued operations | | (117) | | | 87 | | | 1,897 | | | (41) | |
Net earnings (loss) attributable to common shareowners | | $ | 447 | | | $ | 357 | | | $ | 3,053 | | | $ | 929 | |
Earnings per share | | | | | | | | |
Basic: | | | | | | | | |
Continuing operations | | $ | 0.63 | | | $ | 0.32 | | | $ | 1.28 | | | $ | 1.16 | |
Discontinued operations | | (0.13) | | | 0.11 | | | 2.11 | | | (0.05) | |
Net earnings (loss) | | $ | 0.50 | | | $ | 0.43 | | | $ | 3.39 | | | $ | 1.11 | |
Diluted: | | | | | | | | |
Continuing operations | | $ | 0.62 | | | $ | 0.32 | | | $ | 1.26 | | | $ | 1.14 | |
Discontinued operations | | (0.13) | | | 0.10 | | | 2.08 | | | (0.05) | |
Net earnings (loss) | | $ | 0.49 | | | $ | 0.42 | | | $ | 3.34 | | | $ | 1.09 | |
Weighted-average number of shares outstanding | | | | | | | | |
Basic | | 901.2 | | | 838.7 | | | 900.9 | | | 836.6 | |
Diluted | | 915.0 | | | 854.7 | | | 914.4 | | | 852.7 | |
The accompanying notes are an integral part of the Unaudited Condensed Consolidated Financial Statements.
CARRIER GLOBAL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
(In millions) | | 2024 | | 2023 | | 2024 | | 2023 |
Net earnings (loss) | | $ | 481 | | | $ | 381 | | | $ | 3,139 | | | $ | 1,001 | |
Other comprehensive income (loss), net of tax: | | | | | | | | |
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Foreign currency translation adjustments arising during period | | 678 | | | (246) | | | 102 | | | (255) | |
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Pension and post-retirement benefit plan adjustments | | 1 | | | — | | | 2 | | | — | |
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Unrealized cash flow hedging gain (loss) arising during period | | — | | | 80 | | | — | | | 80 | |
Amortization of unrealized cash flow hedging gain (loss) | | (1) | | | — | | | (3) | | | — | |
Divestitures | | 215 | | | — | | | 588 | | | — | |
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Other comprehensive income (loss), net of tax | | 893 | | | (166) | | | 689 | | | (175) | |
Comprehensive income (loss) | | 1,374 | | | 215 | | | 3,828 | | | 826 | |
Less: Comprehensive income (loss) attributable to non-controlling interest | | 43 | | | 23 | | | 91 | | | 65 | |
Comprehensive income (loss) attributable to common shareowners | | $ | 1,331 | | | $ | 192 | | | $ | 3,737 | | | $ | 761 | |
The accompanying notes are an integral part of the Unaudited Condensed Consolidated Financial Statements.
CARRIER GLOBAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
| | | | | | | | | | | | | | |
| | As of |
(In millions) | | September 30, 2024 | | December 31, 2023 |
Assets | | | | |
Cash and cash equivalents | | $ | 2,225 | | | $ | 9,852 | |
Accounts receivable, net | | 2,726 | | | 2,080 | |
Inventories, net | | 2,646 | | | 1,823 | |
Assets held for sale | | 2,680 | | | 5,093 | |
Other current assets | | 917 | | | 728 | |
Total current assets | | 11,194 | | | 19,576 | |
Future income tax benefits | | 1,142 | | | 718 | |
Fixed assets, net | | 3,015 | | | 2,160 | |
Operating lease right-of-use assets | | 568 | | | 421 | |
Intangible assets, net | | 7,118 | | | 945 | |
Goodwill | | 15,294 | | | 7,520 | |
Pension and post-retirement assets | | 54 | | | 32 | |
Equity method investments | | 1,287 | | | 1,140 | |
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Other assets | | 529 | | | 310 | |
Total Assets | | $ | 40,201 | | | $ | 32,822 | |
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Liabilities and Equity | | | | |
Accounts payable | | $ | 2,829 | | | $ | 2,483 | |
Accrued liabilities | | 4,233 | | | 2,997 | |
Liabilities held for sale | | 1,221 | | | 1,450 | |
Current portion of long-term debt | | 2,095 | | | 51 | |
Total current liabilities | | 10,378 | | | 6,981 | |
Long-term debt | | 10,337 | | | 14,242 | |
Future pension and post-retirement obligations | | 209 | | | 149 | |
Future income tax obligations | | 2,241 | | | 523 | |
Operating lease liabilities | | 445 | | | 333 | |
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Other long-term liabilities | | 1,549 | | | 1,589 | |
Total Liabilities | | 25,159 | | | 23,817 | |
Commitments and contingent liabilities (Note 19) | | | | |
Equity | | | | |
Common stock | | 9 | | | 9 | |
Treasury stock | | (2,403) | | | (1,972) | |
Additional paid-in capital | | 8,588 | | | 5,535 | |
Retained earnings | | 9,301 | | | 6,591 | |
Accumulated other comprehensive loss | | (802) | | | (1,486) | |
Non-controlling interest | | 349 | | | 328 | |
Total Equity | | 15,042 | | | 9,005 | |
Total Liabilities and Equity | | $ | 40,201 | | | $ | 32,822 | |
The accompanying notes are an integral part of the Unaudited Condensed Consolidated Financial Statements.
CARRIER GLOBAL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(Unaudited)
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(In millions) | | Accumulated Other Comprehensive Income (Loss) | | Common Stock | | Treasury Stock | | Additional Paid-In Capital | | Retained Earnings | | Non-Controlling Interest | | Total Equity |
Balance as of December 31, 2023 | | $ | (1,486) | | | $ | 9 | | | $ | (1,972) | | | $ | 5,535 | | | $ | 6,591 | | | $ | 328 | | | $ | 9,005 | |
Net earnings (loss) | | — | | | — | | | — | | | — | | | 269 | | | 20 | | | 289 | |
Other comprehensive income (loss), net of tax | | (386) | | | — | | | — | | | — | | | — | | | (3) | | | (389) | |
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Shares issued under incentive plans, net | | — | | | — | | | — | | | (22) | | | — | | | — | | | (22) | |
Stock-based compensation | | — | | | — | | | — | | | 23 | | | — | | | — | | | 23 | |
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Acquisition of VCS Business | | — | | | — | | | — | | | 3,000 | | | — | | | — | | | 3,000 | |
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Balance as of March 31, 2024 | | $ | (1,872) | | | $ | 9 | | | $ | (1,972) | | | $ | 8,536 | | | $ | 6,860 | | | $ | 345 | | | $ | 11,906 | |
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Net earnings (loss) | | — | | — | | — | | — | | 2,337 | | 32 | | 2,369 |
Other comprehensive income (loss), net of tax | | 186 | | — | | — | | — | | — | | (1) | | 185 |
Dividends declared on common stock (1) | | — | | — | | — | | — | | (343) | | — | | (343) |
Shares issued under incentive plans, net | | — | | — | | — | | 2 | | | — | | — | | 2 |
Stock-based compensation | | — | | — | | — | | 25 | | | — | | — | | 25 |
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Dividends attributable to non-controlling interest | | — | | — | | — | | — | | — | | (65) | | (65) |
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Balance as of June 30, 2024 | | $ | (1,686) | | | $ | 9 | | | $ | (1,972) | | | $ | 8,563 | | | $ | 8,854 | | | $ | 311 | | | $ | 14,079 | |
Net earnings (loss) | | — | | | — | | | — | | | — | | | 447 | | | 34 | | | 481 | |
Other comprehensive income (loss), net of tax | | 884 | | | — | | | — | | | — | | | — | | | 9 | | | 893 | |
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Shares issued under incentive plans, net | | — | | | — | | | — | | | (3) | | | — | | | — | | | (3) | |
Stock-based compensation | | — | | | — | | | — | | | 28 | | | — | | | — | | | 28 | |
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Dividends attributable to non-controlling interest | | — | | | — | | | — | | | — | | | — | | | (5) | | | (5) | |
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Treasury stock repurchase | | — | | | — | | | (431) | | | — | | | — | | | — | | | (431) | |
Balance as of September 30, 2024 | | $ | (802) | | | $ | 9 | | | $ | (2,403) | | | $ | 8,588 | | | $ | 9,301 | | | $ | 349 | | | $ | 15,042 | |
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(1) Cash dividends declared were $0.38 per share for the three months ended June 30, 2024 | | | | | | | | |
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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) |
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(In millions) | | Accumulated Other Comprehensive Income (Loss) | | Common Stock | | Treasury Stock | | Additional Paid-In Capital | | Retained Earnings | | Non-Controlling Interest | | Total Equity |
Balance as of December 31, 2022 | | $ | (1,688) | | | $ | 9 | | | $ | (1,910) | | | $ | 5,481 | | | $ | 5,866 | | | $ | 318 | | | $ | 8,076 | |
Net earnings (loss) | | — | | | — | | | — | | | — | | | 373 | | | 14 | | | 387 | |
Other comprehensive income (loss), net of tax | | 52 | | | — | | | — | | | — | | | — | | | 2 | | | 54 | |
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Shares issued under incentive plans, net | | — | | | — | | | — | | | (9) | | | — | | | — | | | (9) | |
Stock-based compensation | | — | | | — | | | — | | | 22 | | | — | | | — | | | 22 | |
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Treasury stock repurchase | | — | | | — | | | (62) | | | — | | | — | | | — | | | (62) | |
Balance as of March 31, 2023 | | $ | (1,636) | | | $ | 9 | | | $ | (1,972) | | | $ | 5,494 | | | $ | 6,239 | | | $ | 334 | | | $ | 8,468 | |
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Net earnings (loss) | | — | | | — | | | — | | | — | | | 199 | | | 34 | | | 233 | |
Other comprehensive income (loss), net of tax | | (55) | | | — | | | — | | | — | | | — | | | (8) | | | (63) | |
Dividends declared on common stock (1) | | — | | | — | | | — | | | — | | | (309) | | | — | | | (309) | |
Shares issued under incentive plans, net | | — | | | — | | | — | | | (18) | | | — | | | — | | | (18) | |
Stock-based compensation | | — | | | — | | | — | | | 18 | | | — | | | — | | | 18 | |
Dividends attributable to non-controlling interest | | — | | | — | | | — | | | — | | | — | | | (41) | | | (41) | |
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Balance as of June 30, 2023 | | $ | (1,691) | | | $ | 9 | | | $ | (1,972) | | | $ | 5,494 | | | $ | 6,129 | | | $ | 319 | | | $ | 8,288 | |
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Net earnings (loss) | | — | | | — | | | — | | | — | | | 357 | | | 24 | | | 381 | |
Other comprehensive income (loss), net of tax | | (165) | | | — | | | — | | | — | | | — | | | (1) | | | (166) | |
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Stock-based compensation | | — | | | — | | | — | | | 23 | | | — | | | — | | | 23 | |
Dividends attributable to non-controlling interest | | — | | | — | | | — | | | — | | | — | | | (2) | | | (2) | |
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Sale of non-controlling interest | | — | | | — | | | — | | | — | | | — | | | (22) | | | (22) | |
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Balance as of September 30, 2023 | | $ | (1,856) | | | $ | 9 | | | $ | (1,972) | | | $ | 5,517 | | | $ | 6,486 | | | $ | 318 | | | $ | 8,502 | |
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(1) Cash dividends declared were $0.37 per share for the three months ended June 30, 2023 | | | | | | | | |
The accompanying notes are an integral part of the Unaudited Condensed Consolidated Financial Statements.
CARRIER GLOBAL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
| | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
(In millions) | | 2024 | | 2023 |
Operating Activities | | | | |
Net earnings (loss) | | $ | 3,139 | | | $ | 1,001 | |
Discontinued operations, net of tax | | (1,897) | | | 41 | |
Adjustments for non-cash items, net: | | | | |
Depreciation and amortization | | 914 | | | 368 | |
Deferred income tax provision | | (296) | | | (150) | |
Stock-based compensation costs | | 65 | | | 55 | |
Equity method investment net earnings | | (187) | | | (171) | |
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(Gain) loss on extinguishment of debt | | (88) | | | — | |
(Gain) loss on sale of investments / deconsolidation | | (2) | | | (19) | |
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Changes in operating assets and liabilities | | | | |
Accounts receivable, net | | (135) | | | (279) | |
Inventories, net | | 76 | | | (72) | |
Accounts payable and accrued liabilities | | (258) | | | 622 | |
Distributions from equity method investments | | 36 | | | 45 | |
Other operating activities, net | | (159) | | | (96) | |
Net cash flows provided by (used in) continuing operating activities | | 1,208 | | | 1,345 | |
Net cash flows provided by (used in) discontinued operating activities | | (777) | | | 200 | |
Net cash flows provided by (used in) operating activities | | 431 | | | 1,545 | |
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Investing Activities | | | | |
Capital expenditures | | (302) | | | (217) | |
Investment in businesses, net of cash acquired | | (10,873) | | | (69) | |
Dispositions of businesses | | — | | | 54 | |
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Settlement of derivative contracts, net | | (187) | | | (66) | |
Other investing activities, net | | 31 | | | 14 | |
Net cash flows provided by (used in) continuing investing activities | | (11,331) | | | (284) | |
Net cash flows provided by (used in) discontinued investing activities | | 6,217 | | | (147) | |
Net cash flows provided by (used in) investing activities | | (5,114) | | | (431) | |
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Financing Activities | | | | |
Increase (decrease) in short-term borrowings, net | | 37 | | | (27) | |
Issuance of long-term debt | | 2,586 | | | 14 | |
Repayment of long-term debt | | (4,530) | | | (15) | |
Repurchases of common stock | | (431) | | | (62) | |
Dividends paid on common stock | | (514) | | | (465) | |
Dividends paid to non-controlling interest | | (72) | | | (46) | |
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Other financing activities, net | | (15) | | | (72) | |
Net cash flows provided by (used in) continuing financing activities | | (2,939) | | | (673) | |
Net cash flows provided by (used in) discontinued financing activities | | (11) | | | (15) | |
Net cash flows provided by (used in) financing activities | | (2,950) | | | (688) | |
Effect of foreign exchange rate changes on cash and cash equivalents | | (18) | | | (45) | |
Net increase (decrease) in cash and cash equivalents and restricted cash, including cash classified in current assets held for sale | | (7,651) | | | 381 | |
Less: Change in cash balances classified as assets held for sale | | (36) | | | (5) | |
Net increase (decrease) in cash and cash equivalents and restricted cash | | (7,615) | | | 386 | |
Cash, cash equivalents and restricted cash, beginning of period | | 9,854 | | | 3,303 | |
Cash, cash equivalents and restricted cash, end of period | | 2,239 | | | 3,689 | |
Less: restricted cash | | 14 | | | 4 | |
Cash and cash equivalents, end of period | | $ | 2,225 | | | $ | 3,685 | |
The accompanying notes are an integral part of the Unaudited Condensed Consolidated Financial Statements.
CARRIER GLOBAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1: DESCRIPTION OF THE BUSINESS
Carrier Global Corporation (the "Company") is a global leader in intelligent climate and energy solutions with a focus on providing differentiated, digitally-enabled lifecycle solutions to its customers. The Company's portfolio includes industry-leading brands such as Carrier, Viessmann, Toshiba, Automated Logic and Carrier Transicold that offer innovative heating, ventilating, air conditioning ("HVAC"), refrigeration and cold chain transportation solutions to help make the world safer and more comfortable. The Company also provides a broad array of related building services, including audit, design, installation, system integration, repair, maintenance and monitoring. The Company's operations are classified into two segments: HVAC and Refrigeration.
In the opinion of management, the accompanying Unaudited Condensed Consolidated Financial Statements contain all adjustments (which include normal recurring adjustments) necessary to state fairly the financial position, results of operations and cash flows for the periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") have been omitted pursuant to the rules and regulations of the United States Securities and Exchange Commission (the "SEC"). The accompanying Unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K for 2023 filed with the SEC on February 6, 2024 (the "2023 Form 10-K").
NOTE 2: BASIS OF PRESENTATION
The Unaudited Condensed Consolidated Financial Statements include all accounts of the Company and its wholly-owned and majority-owned subsidiaries in which it has control. Inter-company accounts and transactions have been eliminated. Related party transactions between the Company and its equity method investees have not been eliminated. Non-controlling interest represents a non-controlling investor's interests in the results of subsidiaries that the Company controls and consolidates.
Acquisition of Viessmann Climate Solutions
On April 25, 2023, the Company announced that it entered into a Share Purchase Agreement (the “Agreement”) to acquire the climate solutions business (the "VCS Business") of Viessmann Group GmbH & Co. KG (“Viessmann”), a privately-held company. The acquisition was completed on January 2, 2024. As a result, the assets, liabilities and results of operations of the VCS Business are consolidated in the accompanying Unaudited Condensed Consolidated Financial Statements as of the date of acquisition and reported within the Company’s HVAC segment. See Note 15 – Acquisitions for additional information.
Portfolio Transformation
On December 7, 2023, the Company entered into a stock purchase agreement to sell its Access Solutions business ("Access Solutions") to Honeywell International Inc. As a result, the assets and liabilities of Access Solutions are presented as held for sale on the accompanying Unaudited Condensed Consolidated Balance Sheet as of December 31, 2023, and recorded at the lower of their carrying value or fair value less estimated cost to sell. The sale of Access Solutions was completed on June 2, 2024. See Note 16 - Divestitures for additional information.
During the fourth quarter of 2023, the net assets of the Company's Industrial Fire business ("Industrial Fire") met the criteria to be classified as held for sale. As a result, the assets and liabilities of Industrial Fire are presented as held for sale on the accompanying Unaudited Condensed Consolidated Balance Sheet as of December 31, 2023, and recorded at the lower of their carrying value or fair value less estimated cost to sell. On March 5, 2024, the Company entered into a stock purchase agreement to sell Industrial Fire to Sentinel Capital Partners. The sale of Industrial Fire was completed on July 1, 2024. See Note 16 - Divestitures for additional information.
On December 12, 2023, the Company entered into a stock purchase agreement to sell its Commercial Refrigeration business ("CCR") to Haier Group Corporation for an enterprise value of approximately $775 million. As a result, the assets and liabilities of CCR are presented as held for sale on the accompanying Unaudited Condensed Consolidated Balance Sheet as of September 30, 2024 and December 31, 2023, and recorded at the lower of their carrying value or fair value less estimated cost to sell. The sale of CCR was completed on October 1, 2024. See Note 16 - Divestitures for additional information.
On August 15, 2024, the Company entered into a stock purchase agreement to sell its Commercial and Residential Fire business (“CRF Business”) to an affiliate of Lone Star Funds for an enterprise value of approximately $3.0 billion. As a result, the assets and liabilities of the CRF Business are presented as held for sale on the accompanying Unaudited Condensed Consolidated Balance Sheet as of September 30, 2024 and December 31, 2023, and recorded at the lower of their carrying value or fair value less estimated cost to sell. See Note 16 - Divestitures for additional information.
Discontinued Operations
In 2023, the Company announced plans to exit its Fire & Security and Commercial Refrigeration businesses over the course of 2024. The announced plan to exit the Fire & Security segment represents a single disposal plan to separately divest multiple businesses over different reporting periods. Upon the CRF Business qualifying as held for sale during the three months ended September 30, 2024, the components of the Fire & Security segment in aggregate met the criteria to be presented as discontinued operations in the accompanying Unaudited Condensed Consolidated Statement of Operations and Unaudited Condensed Consolidated Statement of Cash Flows. In addition, the assets and liabilities of the CRF Business have been reclassified to held for sale at December 31, 2023. The results of the CCR business did not meet the criteria to be presented in discontinued operations. See Note 16 - Divestitures for additional information.
Deconsolidation of Kidde-Fenwal, Inc.
On May 14, 2023, Kidde-Fenwal, Inc. ("KFI"), an indirect wholly-owned subsidiary of the Company, filed a petition for voluntary reorganization under Chapter 11 of the United States Bankruptcy Code ("Chapter 11") in the United States Bankruptcy Court for the District of Delaware. KFI, an industrial fire detection and suppression business historically reported in the Company's Fire & Security segment, indicated that it intended to use the bankruptcy process to explore strategic alternatives, including the sale of KFI as a going concern. As of the petition date, KFI was deconsolidated and its respective assets and liabilities were derecognized from the Company's Unaudited Condensed Consolidated Financial Statements. The sale of KFI was completed on July 1, 2024. See Note 19 - Commitments and Contingent Liabilities for additional information.
Separation from United Technologies
On April 3, 2020 (the "Distribution Date"), United Technologies Corporation ("UTC"), since renamed RTX Corporation ("Raytheon Technologies Corporation" or "RTX"), completed the spin-off of Carrier into an independent, publicly traded company (the "Separation") through a pro-rata distribution (the "Distribution") on a one-for-one basis of all of the outstanding shares of common stock of Carrier to UTC shareowners who held shares of UTC common stock as of the close of business on March 19, 2020, the record date of the Distribution. Following the Separation and Distribution, the Company entered into several agreements with UTC and Otis Worldwide Corporation ("Otis") that govern various aspects of the relationship among the Company, UTC and Otis. As of September 30, 2024, only certain portions of the Tax Matters Agreement ("TMA") remain in effect.
Recently Issued and Adopted Accounting Pronouncements
The Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") is the sole source of authoritative U.S. GAAP other than SEC issued rules and regulations that apply only to SEC registrants. The FASB issues Accounting Standards Updates ("ASU") to communicate changes to the codification. The Company considers the applicability and impact of all ASUs. ASUs pending adoption were assessed and determined to be either not applicable or are not expected to have a material impact on the accompanying Unaudited Condensed Consolidated Financial Statements.
Recently Issued Accounting Pronouncements
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which requires public entities to disclose information about their reportable segments’ significant expenses on an interim and annual basis. In addition, the amendments clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment and contain other disclosure requirements. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023 and interim periods beginning after December 15, 2024, with early adoption permitted. The Company is currently assessing the impact of this ASU on its financial statements.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures ("ASU 2023-09"), which requires public entities to disclose disaggregated information about their effective tax rate reconciliation as well as information on income taxes paid. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently assessing the impact of this ASU on its financial statements.
On March 6, 2024, the SEC adopted new rules designed to enhance public company disclosures related to the risks and impacts of climate-related matters. The rules amend the provisions of both Regulation S-K and Regulation S-X to require disclosure of climate-related risks, transition plans, targets and goals, risk management and governance as well as require disclosure of the financial effects of severe weather events and other natural conditions as well as the use of carbon offsets or renewable energy credits. Disclosure requirements will begin phasing in for fiscal years beginning on or after January 1, 2025, subject to legal challenges and the SEC's voluntary stay of the disclosure requirements. The Company will continue to assess the impact of these new rules on its financial statements while the stay is in place.
NOTE 3: INVENTORIES, NET
Inventories are stated at the lower of cost or estimated net realizable value. Cost is primarily determined based on the first-in, first-out inventory method ("FIFO") or average cost methods, which approximates current replacement cost. However, certain subsidiaries use the last-in, first-out inventory method ("LIFO").
Inventories, net consisted of the following:
| | | | | | | | | | | | | | |
(In millions) | | September 30, 2024 | | December 31, 2023 |
Raw materials | | $ | 872 | | | $ | 534 | |
Work-in-process | | 246 | | | 245 | |
Finished goods | | 1,528 | | | 1,044 | |
| | | | |
Inventories, net | | $ | 2,646 | | | $ | 1,823 | |
The Company performs periodic assessments utilizing customer demand, production requirements and historical usage rates to determine the existence of excess and obsolete inventory and records necessary provisions to reduce such inventories to the lower of cost or estimated net realizable value. Raw materials, work-in-process and finished goods are net of valuation reserves of $224 million and $173 million as of September 30, 2024 and December 31, 2023, respectively.
NOTE 4: GOODWILL AND INTANGIBLE ASSETS
The Company records goodwill as the excess of the purchase price over the fair value of the net assets acquired in a business combination. Goodwill is tested and reviewed annually for impairment on July 1 or whenever there is a material change in events or circumstances that indicates that the fair value of the reporting unit may be less than its carrying value.
The changes in the carrying amount of goodwill were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In millions) | | HVAC | | Refrigeration | | | | Corporate and other | | Total |
Balance as of December 31, 2023 | | $ | 6,407 | | | $ | 1,037 | | | | | $ | 76 | | | $ | 7,520 | |
Acquisitions (1) | | 7,608 | | | 29 | | | | | — | | | 7,637 | |
| | | | | | | | | | |
| | | | | | | | | | |
Foreign currency translation | | 61 | | | 76 | | | | | — | | | 137 | |
Balance as of September 30, 2024 | | $ | 14,076 | | | $ | 1,142 | | | | | $ | 76 | | | $ | 15,294 | |
(1) See Note 15 - Acquisitions for additional information.
Indefinite-lived intangible assets are tested and reviewed annually for impairment on July 1 or whenever there is a material change in events or circumstances that indicates that the fair value of the asset may be less than the carrying amount of the asset. All other intangible assets with finite useful lives are amortized over their estimated useful lives.
Identifiable intangible assets consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2024 | | December 31, 2023 |
(In millions) | | Gross Amount | | Accumulated Amortization | | Net Amount | | Gross Amount | | Accumulated Amortization | | Net Amount |
| | | | | | | | | | | | |
Customer relationships | | $ | 5,990 | | | $ | (852) | | | $ | 5,138 | | | $ | 1,056 | | | $ | (445) | | | $ | 611 | |
Patents and trademarks | | 946 | | | (140) | | | 806 | | | 255 | | | (96) | | | 159 | |
| | | | | | | | | | | | |
Service portfolios and other | | 1,637 | | | (463) | | | 1,174 | | | 431 | | | (256) | | | 175 | |
Total intangible assets | | $ | 8,573 | | | $ | (1,455) | | | $ | 7,118 | | | $ | 1,742 | | | $ | (797) | | | $ | 945 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Amortization of intangible assets was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
(In millions) | | 2024 | | 2023 | | 2024 | | 2023 |
Amortization expense of Intangible assets | | $ | 213 | | | $ | 54 | | | $ | 632 | | | $ | 167 | |
Annual Impairment Test
The Company tested its goodwill and indefinite-lived intangible assets for impairment on July 1 as part of its annual assessment. For each test except one, the Company qualitatively assessed all relevant events or circumstances that could impact the estimate of fair value and determined it was more likely than not that the fair value of each reporting unit and indefinite-lived intangible assets exceeded their carrying amount. For the remaining test, the Company performed a quantitative goodwill impairment test to determine if any impairment existed. The test did not indicate any goodwill impairment.
In connection with the presentation of the CRF Business as held for sale at September 30, 2024, the Company reassigned goodwill to the remaining business activities previously reported within the Fire & Security segment. For the test, the Company qualitatively assessed all relevant events or circumstances that could impact the estimate of fair value and determined it was more likely than not that the fair value of the remaining business activities exceeded their carrying amount. Due to these business activities no longer meeting the criteria of a reportable segment, they have been included in Corporate and other.
NOTE 5: BORROWINGS AND LINES OF CREDIT
Long-term debt consisted of the following:
| | | | | | | | | | | | | | | | |
(In millions) | | | | September 30, 2024 | | December 31, 2023 |
2.242% Notes due 2025 (1) | | | | $ | 1,200 | | | $ | 1,200 | |
4.375% Notes due 2025 (2) | | | | 836 | | | 830 | |
5.800% Notes due 2025 | | | | — | | | 1,000 | |
2.493% Notes due 2027 | | | | 900 | | | 900 | |
4.125% Notes due 2028 | | | | 836 | | | 830 | |
2.722% Notes due 2030 | | | | 2,000 | | | 2,000 | |
2.700% Notes due 2031 | | | | 750 | | | 750 | |
4.500% Notes due 2032 | | | | 948 | | | 941 | |
5.900% Notes due 2034 | | | | 875 | | | 1,000 | |
3.377% Notes due 2040 | | | | 1,500 | | | 1,500 | |
3.577% Notes due 2050 | | | | 1,400 | | | 2,000 | |
6.200% Notes due 2054 | | | | 650 | | | 1,000 | |
Total long-term notes | | | | 11,895 | | | 13,951 | |
| | | | | | |
Japanese Term Loan Facility | | | | 374 | | | 379 | |
Other debt (including project financing obligations and finance leases) | | | | 243 | | | 74 | |
Discounts and debt issuance costs | | | | (80) | | | (111) | |
Total debt | | | | 12,432 | | | 14,293 | |
Less: current portion of long-term debt | | | | 2,095 | | | 51 | |
Long-term debt, net of current portion | | | | $ | 10,337 | | | $ | 14,242 | |
(1) 2.242% Notes due February 15, 2025; reclassified to Current portion of long-term debt.
(2) 4.375% Notes due May 29, 2025; reclassified to Current portion of long-term debt.
Acquisition Funding
On January 2, 2024, the Company completed the acquisition of the VCS Business for total consideration of $14.2 billion. Under the terms of the Agreement, 20% of the purchase price was paid in Carrier common stock, issued directly to Viessmann and subject to certain lock up provisions and 80% was paid in cash, subject to working capital and other adjustments. In order to fund the Euro-denominated cash portion of the purchase price, the Company used cash on hand, debt financing and various term loan facilities.
Debt Issuance
In November 2023, the Company issued $3.0 billion principal amount of USD-denominated notes in three tranches. The tranches consisted of $1.0 billion aggregate principal amount of 5.80% notes due 2025, $1.0 billion aggregate principal amount of 5.90% notes due 2034 and $1.0 billion aggregate principal amount of 6.20% notes due 2054 (collectively, the “USD Notes”). In addition, the Company issued €2.35 billion principal amount of Euro-denominated notes in three tranches. The tranches consisted of €750 million aggregate principal amount of 4.375% notes due 2025, €750 million aggregate principal amount of 4.125% notes due 2028 and €850 million aggregate principal amount of 4.50% notes due 2032 (collectively, the “Euro Notes”). The Company capitalized $51 million of deferred financing costs which are being amortized over the term of their related notes. The notes are subject to certain customary covenants and the Company has the option to redeem the notes in whole or in part at any time prior to their stated maturity date at the redemption price set forth in the indenture agreements. In June 2024, the Company redeemed the $1.0 billion aggregate principal amount of 5.80% notes due in 2025 and incurred a $8 million make-whole premium upon prepayment and wrote off $4 million of related unamortized debt financing costs.
Bridge Loan
On April 25, 2023, the Company entered into commitment letters with JPMorgan Chase Bank, N.A., BofA Securities, Inc. and Bank of America, N.A. to provide a €8.2 billion aggregate principal, senior unsecured bridge term loan facility (the “Bridge Loan”). Euro-denominated borrowings bore interest at the EURIBOR Rate plus a ratings-based margin, USD-denominated borrowings bore interest at either a Term SOFR Rate plus 0.10% and a ratings-based margin or, alternatively, at a base rate plus a ratings-based margin. The Company capitalized $48 million of deferred financing costs associated with the Bridge Loan which were amortized over the commitment period. Upon entering into a senior unsecured delayed draw term loan facility and issuing the USD Notes and the Euro Notes, the Company reduced the Bridge Loan by €7.7 billion and accelerated the amortization on $25 million of deferred financing costs in Interest expense during 2023. On January 2, 2024, the Company entered into a 60-day senior unsecured term loan agreement consisting of a Euro-denominated tranche in an aggregate amount of €113 million and a USD-denominated tranche in an aggregate amount of $349 million (the “60-day Loan”). Upon entering into the 60-day Loan, the Company reduced the final portion of the Bridge Loan by €500 million and subsequently terminated the agreement. Borrowings under the 60-day Loan were repaid in March 2024.
Delayed Draw Facility
On May 19, 2023, the Company entered into a senior unsecured delayed draw term loan credit agreement with JPMorgan Chase Bank, N.A., as administrative agent and certain other lenders that permits aggregate borrowings of up to €2.3 billion (the "Delayed Draw Facility"). The facility consisted of an 18-month, Euro-denominated tranche in an aggregate amount of €1.15 billion and a 3-year, Euro-denominated tranche in an aggregate amount of €1.15 billion. Euro-denominated borrowings bear interest at the EURIBOR Rate plus a ratings-based margin, USD-denominated borrowings bear interest at either a Term SOFR Rate plus 0.10% and a ratings-based margin or, alternatively, at a base rate plus a ratings-based margin. The Company capitalized $4 million of deferred financing costs which will be amortized over the respective term of the tranches. On January 2, 2024, the Company borrowed the full amount available under the Delayed Draw Facility in U.S. Dollars. Borrowings under the Delayed Draw Facility were repaid in June 2024 and the facility was subsequently terminated.
364-Day Revolver
On May 17, 2024, the Company entered into a 364-day, $500 million, senior unsecured revolving credit agreement with JPMorgan Chase Bank, N.A., as administrative agent and certain other lenders (the “364-day Revolver”). Borrowings are available in U.S. Dollars and Euros. USD-denominated borrowings bear interest at either a Term SOFR Rate plus 0.10% and a ratings-based margin or, alternatively, at a base rate plus a ratings-based margin, Euro-denominated borrowings bear interest at the Adjusted EURIBOR Rate plus a ratings-based margin. Upon entering into the 364-day Revolver, the Company terminated its existing $500 million senior unsecured revolving credit agreement that was set to mature in May 2024. As of September 30, 2024, there were no borrowings outstanding under the 364-day Revolver.
Japanese Term Loan Facility
On July 15, 2022, the Company entered into a five-year, JPY 54 billion (approximately $400 million) senior unsecured term loan facility with MUFG Bank Ltd., as administrative agent and lender, and certain other lenders (the "Japanese Term Loan Facility"). Borrowings under the Japanese Term Loan Facility bear interest at a rate equal to the Tokyo Term Risk Free Rate plus 0.75%. The Company capitalized $2 million of deferred financing costs which are being amortized over its term. On July 25, 2022, the Company borrowed JPY 54 billion under the Japanese Term Loan Facility and used the proceeds to fund a portion of the Yen-denominated purchase price of Toshiba Carrier Corporation ("TCC") and to pay related fees and expenses.
Revolving Credit Facility
On May 19, 2023, the Company entered into a revolving credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, and certain other lenders, permitting aggregate borrowings of up to $2.0 billion pursuant to an unsecured, unsubordinated revolving credit facility that matures in May 2028 (the "Revolving Credit Facility"). The Revolving Credit Facility supports the Company's commercial paper program and can be used for other general corporate purposes. Borrowings are available in U.S. Dollars and Euros. U.S. Dollar borrowings bear interest at either a Term SOFR Rate plus 0.10% and a ratings-based margin or, alternatively, at an alternate base rate plus a ratings-based margin. Euro borrowings bear interest at an adjusted EURIBOR rate plus a ratings-based margin. A ratings-based commitment fee is charged on unused commitments. In addition, the Company capitalized $2 million of deferred financing costs which are being amortized over its term. As of September 30, 2024, there were no borrowings outstanding under the Revolving Credit Facility.
Commercial Paper Program
The Company has a $2.0 billion unsecured, unsubordinated commercial paper program, which can be used for general corporate purposes, including the funding of working capital and potential acquisitions. As of September 30, 2024, there were no borrowings outstanding under the commercial paper program.
Project Financing Arrangements
The Company is involved in long-term construction contracts in which it arranges project financing with certain customers. As a result, the Company issued $40 million and $14 million of debt during the nine months ended September 30, 2024 and 2023, respectively. Long-term debt repayments associated with these financing arrangements during the nine months ended September 30, 2024 and 2023, were $7 million and $15 million, respectively.
Debt Covenants
The Revolving Credit Facility, 364-day Revolver, the indenture for the long-term notes and the Japanese Term Loan Facility contain affirmative and negative covenants customary for financings of these types, which, among other things, limit the Company's ability to incur certain liens, to make certain fundamental changes and to enter into sale and leaseback transactions. As of September 30, 2024, the Company was in compliance with the covenants under the agreements governing its outstanding indebtedness.
Tender Offers
In July 2024, the Company commenced tender offers to purchase up to $800 million ("Aggregate Tender Cap") aggregate principal of certain tranches of the Company's notes. The tender offers included payment of applicable accrued and unpaid interest up to the settlement date, along with a fixed spread for early repayment. Based on participation, the Company elected to increase the Aggregate Tender Cap and settle the tender offers early. The aggregate principal amount tendered and accepted was approximately $1.0 billion, which included $125 million of notes due 2034, $350 million of notes due 2054 and approximately $600 million of notes due 2050. Upon settlement, the Company recognized a net gain of $97 million and wrote off $11 million of unamortized deferred financing costs within Interest (expense) income, net on the accompanying Unaudited Condensed Consolidated Statement of Operations.
NOTE 6: FAIR VALUE MEASUREMENTS
ASC 820, Fair Value Measurement ("ASC 820"), defines fair value as the price that would be received if an asset is sold or the price paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also establishes a three-level fair value hierarchy that prioritizes information used in developing assumptions when pricing an asset or liability as follows:
•Level 1: Observable inputs such as quoted prices in active markets;
•Level 2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
•Level 3: Unobservable inputs where there is little or no market data, which requires the reporting entity to develop its own assumptions.
ASC 820 requires the use of observable market data, when available, in making fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.
In the normal course of business, the Company is exposed to certain risks arising from business operations and economic factors, including foreign currency and commodity price risk. These exposures are managed through operational strategies and the use of undesignated hedging contracts. The Company's derivative assets and liabilities are measured at fair value on a recurring basis using internal models based on observable market inputs, such as forward, interest, contract and discount rates with changes in fair value reported in Other income (expense), net in the accompanying Unaudited Condensed Consolidated Statement of Operations.
During 2022, the Company entered into cross currency swaps with various financial institutions to fund a portion of the Yen-denominated purchase price of TCC. The cross currency swaps are measured at fair value on a recurring basis using observable market inputs, such as forward, discount and interest rates as well as credit default swap spreads. The Company designated the cross currency swaps as a partial hedge of its investment in certain subsidiaries whose functional currency is the Japanese Yen in order to manage foreign currency translation risk. As a result, changes in the fair value of the swaps are recorded in Equity in the accompanying Unaudited Condensed Consolidated Balance Sheet. From time to time, the Company settles and enters into new cross currency swaps with the same purpose and characteristics as initially established.
The remaining portion of the Yen-denominated purchase price was funded by the Japanese Term Loan Facility. The carrying value of the facility is translated on a recurring basis using the exchange rate at the end of the applicable period and approximates its fair value. The Company designated the Japanese Term Loan Facility as a partial hedge of its investment in certain subsidiaries whose functional currency is the Japanese Yen in order to manage foreign currency translation risk. As a result, changes in the carrying value of the Japanese Term Loan Facility associated with foreign exchange rate movements are recorded in Equity in the Unaudited Condensed Consolidated Balance Sheet.
During 2023, the Company entered into window forward contracts with Bank of America N.A. and JPMorgan Chase Bank N.A. to mitigate the foreign currency risk of the expected cash outflows associated with the Euro-denominated purchase price of the VCS Business. The instruments had an aggregate notional amount of €7 billion and were measured at fair value on a recurring basis using observable market inputs, such as forward, discount and interest rates with changes in fair value reported in Other income (expense), net in the accompanying Unaudited Condensed Consolidated Statement of Operations. During 2023, the Company recognized a $96 million loss on the mark-to-market valuation of its window forward contracts. The Company settled the window forward contracts on January 2, 2024, upon the acquisition of the VCS Business and recognized an additional $86 million loss.
During 2023, the Company entered into several interest rate swap contracts to mitigate interest rate exposure on the forecasted issuance of long-term debt. The contracts had an aggregate notional amount of $1.525 billion and were designated as cash flow hedges with changes in fair value reported in Equity in the accompanying Unaudited Condensed Consolidated Balance Sheet. Fair value was measured on a recurring basis using observable market inputs, such as forward, discount and interest rates. In November 2023, the contracts were settled upon the issuance of the underlying debt. As a result, the Company deferred a net unrecognized gain of $58 million in Equity which will be subsequently recognized in Interest expense over the term of the related notes which range from 2034 to 2044. The amount expected to be amortized during 2024 is a net gain of $5 million.
In July 2024, the Company entered into cross currency swaps with Barclays Bank PLC as syndication swap arranger in order to manage foreign currency translation risk on Euro-denominated assets. The swaps have an aggregate notional amount of $2.0 billion and are measured at fair value on a recurring basis using observable market inputs, such as forward, discount and interest rates. The Company designated the cross currency swaps as a partial hedge of its investment in certain subsidiaries whose functional currency is the Euro. As a result, changes in the fair value of the swaps are recorded in Equity in the accompanying Unaudited Condensed Consolidated Balance Sheet.
The following tables provide the valuation hierarchy classification of assets and liabilities that are recorded at fair value and measured on a recurring basis in the accompanying Unaudited Condensed Consolidated Balance Sheet:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(In millions) | | Total | | Level 1 | | Level 2 | | Level 3 |
September 30, 2024 | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Derivative assets (1)(3) | | $ | 70 | | | $ | — | | | $ | 70 | | | $ | — | |
Derivative liabilities (2)(3) | | $ | (69) | | | $ | — | | | $ | (69) | | | $ | — | |
| | | | | | | | |
December 31, 2023 | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Derivative assets (1) (3) | | $ | 32 | | | $ | — | | | $ | 32 | | | $ | — | |
Derivative liabilities (2) (3) | | $ | (126) | | | $ | — | | | $ | (126) | | | $ | — | |
(1) Included in Other current assets and Other assets on the accompanying Unaudited Condensed Consolidated Balance Sheet.
(2) Included in Accrued liabilities and Other long-term liabilities on the accompanying Unaudited Condensed Consolidated Balance Sheet.
(3) Includes cross currency swaps and window forward contracts (which were settled on January 2, 2024).
The following table provides the carrying amounts and fair values of the Company's long-term notes that are not recorded at fair value in the accompanying Unaudited Condensed Consolidated Balance Sheet:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2024 | | December 31, 2023 | |
(In millions) | | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Total long-term notes (1) | | $ | 11,895 | | | $ | 11,372 | | | $ | 13,951 | | | $ | 13,194 | | |
| | | | | | | | | |
(1) Excludes debt discount and issuance costs.
The fair value of the Company's long-term debt is measured based on observable market inputs which are considered Level 1 within the fair value hierarchy. The carrying value of cash and cash equivalents, accounts receivable, accounts payable and short-term borrowings approximate fair value due to the short-term nature of these accounts and would be classified as Level 1 in the fair value hierarchy. The Company's financing leases and project financing obligations, included in Long-term debt and Current portion of long-term debt on the accompanying Unaudited Condensed Consolidated Balance Sheet, approximate fair value and are classified as Level 3 in the fair value hierarchy.
NOTE 7: EMPLOYEE BENEFIT PLANS
The Company sponsors U.S. and international defined benefit pension and defined contribution plans. In addition, the Company contributes to various U.S. and international multi-employer defined benefit pension plans.
Contributions to the plans were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
(In millions) | | 2024 | | 2023 | | 2024 | | 2023 |
Defined benefit plans | | $ | 16 | | | $ | 6 | | | $ | 34 | | | $ | 17 | |
Defined contribution plans | | $ | 30 | | | $ | 30 | | | $ | 104 | | | $ | 96 | |
Multi-employer pension plans | | $ | 4 | | | $ | 3 | | | $ | 12 | | | $ | 11 | |
The components of net periodic pension expense (benefit) for the defined benefit pension plans are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
(In millions) | | 2024 | | 2023 | | 2024 | | 2023 |
Service cost | | $ | 4 | | | $ | 4 | | | $ | 11 | | | $ | 12 | |
Interest cost | | 13 | | | 8 | | | 26 | | | 24 | |
Expected return on plan assets | | (13) | | | (8) | | | (27) | | | (24) | |
Amortization of prior service cost | | — | | | 1 | | | — | | | 2 | |
Recognized actuarial net (gain) loss | | — | | | (1) | | | 1 | | | (2) | |
Net settlement, curtailment and special termination benefit (gain) loss | | 1 | | | — | | | 1 | | | — | |
Net periodic pension expense (benefit) | | $ | 5 | | | $ | 4 | | | $ | 12 | | | $ | 12 | |
| | | | | | | | |
Amounts recorded in continuing operations | | $ | 5 | | | $ | 4 | | | $ | 12 | | | $ | 12 | |
Amounts recorded in discontinued operations | | — | | | — | | | — | | | — | |
Net periodic pension expense (benefit) | | $ | 5 | | | $ | 4 | | | $ | 12 | | | $ | 12 | |
NOTE 8: STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation plans in accordance with ASC 718, Compensation - Stock Compensation, which requires a fair-value based method for measuring the value of stock-based compensation. Fair value is measured at the date of grant and is generally not adjusted for subsequent changes. The Company's stock-based compensation plans include programs for stock appreciation rights, restricted stock units and performance share units.
Stock-based compensation expense, net of estimated forfeitures, is included in Cost of products sold, Selling, general and administrative and Research and development in the accompanying Unaudited Condensed Consolidated Statements of Operations.
Stock-based compensation cost by award type was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
(In millions) | | 2024 | | 2023 | | 2024 | | 2023 |
Equity compensation costs - equity settled | | $ | 28 | | | $ | 23 | | | $ | 76 | | | $ | 63 | |
Equity compensation costs - cash settled (1) | | 2 | | | 1 | | | 3 | | | 3 | |
Total stock-based compensation expense | | $ | 30 | | | $ | 24 | | | $ | 79 | | | $ | 66 | |
| | | | | | | | |
Amounts recorded in continuing operations | | $ | 27 | | | $ | 22 | | | $ | 68 | | | $ | 58 | |
Amounts recorded in discontinued operations | | 3 | | | 2 | | | 11 | | | 8 | |
Total stock-based compensation expense | | $ | 30 | | | $ | 24 | | | $ | 79 | | | $ | 66 | |
(1) The cash settled awards are classified as liability awards and are measured at fair value at each balance sheet date.
NOTE 9: PRODUCT WARRANTIES
In the ordinary course of business, the Company provides standard warranty coverage on its products. Provisions for these amounts are established at the time of sale and estimated primarily based on product warranty terms and historical claims experience. In addition, the Company incurs discretionary costs to service its products in connection with specific product performance issues. Provisions for these amounts are established when they are known and estimable. The Company assesses the adequacy of its initial provisions and will make adjustments as necessary based on known or anticipated claims or as new information becomes available that suggests it is probable that future costs will be different than estimated amounts. Amounts associated with these provisions are classified on the accompanying Unaudited Condensed Consolidated Balance Sheet as Accrued liabilities or Other long-term liabilities based on their anticipated settlement date.
The changes in the carrying amount of warranty related provisions are as follows:
| | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
(In millions) | | 2024 | | 2023 |
Balance as of January 1, | | $ | 568 | | | $ | 544 | |
Warranties, performance guarantees issued and changes in estimated liability | | 229 | | | 188 | |
Settlements made | | (211) | | | (146) | |
Other | | 5 | | | (14) | |
Acquisitions (1) | | 202 | | | — | |
| | | | |
| | | | |
Balance as of September 30, | | $ | 793 | | | $ | 572 | |
(1) See Note 15 - Acquisitions for additional information.
NOTE 10: EQUITY
The authorized number of shares of common stock of Carrier is 4,000,000,000 shares of $0.01 par value. As of September 30, 2024 and December 31, 2023,