SEC Filing | Carrier Global Corporation

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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 March 31, 2023


☐			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 April 17, 2023, there were 834,838,102 shares of Common Stock outstanding.

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CARRIER GLOBAL CORPORATION

CONTENTS OF QUARTERLY REPORT ON FORM 10-Q

Three Months Ended March 31, 2023


			Page

PART I – FINANCIAL INFORMATION			3

Item 1. Financial Statements:			3

Condensed Consolidated Statement of Operations (Unaudited)			3



Condensed Consolidated Statement of Comprehensive Income (Loss) (Unaudited)			4

Condensed Consolidated Balance Sheet (Unaudited)			5

Condensed Consolidated Statement of Changes in Equity (Unaudited)			6

Condensed Consolidated Statement of Cash Flows (Unaudited)			7

Notes to Condensed Consolidated Financial Statements (Unaudited)			8

Report of Independent Registered Public Accounting Firm			26

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			27

Item 3. Quantitative and Qualitative Disclosures About Market Risk			37

Item 4. Controls and Procedures			37

PART II – OTHER INFORMATION			38

Item 1. Legal Proceedings			38

Item 1A. Risk Factors			38

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			38



Item 6. Exhibits			40

SIGNATURES			41

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

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

CARRIER GLOBAL CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)


	Three Months Ended March 31,
(In millions, except per share amounts)	2023		2022
Net sales
Product sales	$	4,686	$	4,170
Service sales	587		484
Total Net sales	5,273		4,654
Costs and expenses
Cost of products sold	(3,458)		(2,998)
Cost of services sold	(437)		(363)
Research and development	(139)		(125)
Selling, general and administrative	(721)		(601)
Total Costs and expenses	(4,755)		(4,087)
Equity method investment net earnings	44		58
Other income (expense), net	(7)		1,112
Operating profit	555		1,737
Non-service pension (expense) benefit	—		(1)
Interest (expense) income, net	(46)		(48)
Income from operations before income taxes	509		1,688
Income tax (expense) benefit	(122)		(301)
Net income from operations	387		1,387
Less: Non-controlling interest in subsidiaries' earnings from operations	14		8









Net income attributable to common shareowners	$	373	$	1,379

Earnings per share
Basic	$	0.45	$	1.62
Diluted	$	0.44	$	1.58

Weighted-average number of shares outstanding
Basic	835.0		853.3
Diluted	852.2		874.1

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)


	Three Months Ended March 31,
(In millions)	2023		2022
Net income from operations	$	387	$	1,387


Other comprehensive income (loss), net of tax:




Foreign currency translation adjustments arising during period	54		(61)









Pension and post-retirement benefit plan adjustments	—		(2)
Chubb divestiture	—		(245)












Other comprehensive income (loss), net of tax	54		(308)
Comprehensive income (loss)	441		1,079
Less: Comprehensive income (loss) attributable to non-controlling interest	16		8
Comprehensive income (loss) attributable to common shareowners	$	425	$	1,071

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)	March 31, 2023		December 31, 2022
Assets
Cash and cash equivalents	$	3,347	$	3,520
Accounts receivable, net	3,032		2,833
Contract assets, current	568		537
Inventories, net	2,803		2,640
Other assets, current	408		349
Total current assets	10,158		9,879
Future income tax benefits	639		612
Fixed assets, net	2,277		2,241
Operating lease right-of-use assets	625		642
Intangible assets, net	1,287		1,342
Goodwill	9,987		9,977
Pension and post-retirement assets	29		26
Equity method investments	1,103		1,148

Other assets	306		219
Total Assets	$	26,411	$	26,086

Liabilities and Equity
Accounts payable	$	2,926	$	2,833
Accrued liabilities	2,374		2,610
Contract liabilities, current	516		449

Current portion of long-term debt	142		140
Total current liabilities	5,958		6,032
Long-term debt	8,708		8,702
Future pension and post-retirement obligations	354		349
Future income tax obligations	581		568
Operating lease liabilities	506		529

Other long-term liabilities	1,836		1,830
Total Liabilities	17,943		18,010
Commitments and contingent liabilities (Note 19)
Equity
Common stock	9		9
Treasury stock	(1,972)		(1,910)
Additional paid-in capital	5,494		5,481
Retained earnings	6,239		5,866
Accumulated other comprehensive loss	(1,636)		(1,688)
Non-controlling interest	334		318
Total Equity	8,468		8,076
Total Liabilities and Equity	$	26,411	$	26,086

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)	Accumulated Other Comprehensive Income (Loss)		Common Stock		Treasury Stock		Additional Paid-In Capital		Retained Earnings		Non-Controlling Interest		Total Equity
Balance as of December 31, 2022	$	(1,688)	$	9	$	(1,910)	$	5,481	$	5,866	$	318	$	8,076
Net income	—		—		—		—		373		14		387
Other comprehensive income (loss), net of tax	52		—		—		—		—		2		54

Shares issued under incentive plans, net	—		—		—		(9)		—		—		(9)
Stock-based compensation	—		—		—		22		—		—		22



Treasury stock repurchase	—		—		(62)		—		—		—		(62)


Balance as of March 31, 2023	$	(1,636)	$	9	$	(1,972)	$	5,494	$	6,239	$	334	$	8,468


















































































(In millions)	Accumulated Other Comprehensive Income (Loss)		Common Stock		Treasury Stock		Additional Paid-In Capital		Retained Earnings		Non-Controlling Interest		Total Equity
Balance as of December 31, 2021	$	(989)	$	9	$	(529)	$	5,411	$	2,865	$	327	$	7,094
Net income	—		—		—		—		1,379		8		1,387
Other comprehensive income (loss), net of tax	(308)		—		—		—		—		—		(308)

Shares issued under incentive plans, net	—		—		—		(17)		—		—		(17)
Stock-based compensation	—		—		—		21		—		—		21
Dividends attributable to non-controlling interest	—		—		—		—		—		(1)		(1)


Sale of non-controlling interest	—		—		—		—		—		(5)		(5)

Treasury stock repurchase	—		—		(741)		—		—		—		(741)
Balance as of March 31, 2022	$	(1,297)	$	9	$	(1,270)	$	5,415	$	4,244	$	329	$	7,430

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)


	Three Months Ended March 31,
(In millions)	2023		2022
Operating Activities
Net income from operations	$	387	$	1,387
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization	136		79
Deferred income tax provision	(24)		48
Stock-based compensation costs	22		21
Equity method investment net earnings	(44)		(58)

(Gain) loss on extinguishment of debt	—		(36)
(Gain) loss on sale of investments	(16)		(1,112)

Changes in operating assets and liabilities
Accounts receivable, net	(157)		(207)
Contract assets, current	(28)		(154)
Inventories, net	(126)		(390)
Other assets, current	(60)		(15)
Accounts payable and accrued liabilities	(25)		132
Contract liabilities, current	64		13
Defined benefit plan contributions	(6)		(4)
Distributions from equity method investments	3		11
Other operating activities, net	(6)		83
Net cash flows provided by (used in) operating activities	120		(202)

Investing Activities
Capital expenditures	(70)		(56)
Investment in businesses, net of cash acquired	(52)		(9)
Dispositions of businesses	35		2,935

Settlement of derivative contracts, net	(18)		(32)
Other investing activities, net	5		(18)
Net cash flows provided by (used in) investing activities	(100)		2,820

Financing Activities
Increase (decrease) in short-term borrowings, net	10		(33)
Issuance of long-term debt	5		14
Repayment of long-term debt	(2)		(1,123)
Repurchases of common stock	(62)		(734)
Dividends paid on common stock	(154)		(129)


Other financing activities, net	(10)		(15)
Net cash flows provided by (used in) financing activities	(213)		(2,020)





Effect of foreign exchange rate changes on cash and cash equivalents	20		(1)
Net increase (decrease) in cash and cash equivalents and restricted cash	(173)		597
Cash, cash equivalents and restricted cash, beginning of period	3,527		3,025
Cash, cash equivalents and restricted cash, end of period	3,354		3,622
Less: restricted cash	7		18
Cash and cash equivalents, end of period	$	3,347	$	3,604

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 (the "Company") is the leading global provider of healthy, safe, sustainable and intelligent building and cold chain solutions with a focus on providing differentiated, digitally-enabled lifecycle solutions to its customers. The Company's portfolio includes industry-leading brands such as Carrier, Toshiba, Automated Logic, Carrier Transicold, Kidde, Edwards and LenelS2 that offer innovative heating, ventilating, air conditioning ("HVAC"), refrigeration, fire, security and building automation technologies to help make the world safer and more comfortable. The Company also provides a broad array of related building services, including audit, design, installation, system integration, repair, maintenance and monitoring. The Company's operations are classified into three segments: HVAC, Refrigeration and Fire & Security.

In the opinion of management, the accompanying Unaudited Condensed Consolidated Financial Statements contain all adjustments (which include normal recurring adjustments) necessary to state fairly the financial position, results of operations and cash flows for the periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") have been omitted pursuant to the rules and regulations of the United States Securities and Exchange Commission (the "SEC"). The accompanying Unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K for 2022 filed with the SEC on February 7, 2023 (the "2022 Form 10-K").

NOTE 2: BASIS OF PRESENTATION

The Unaudited Condensed Consolidated Financial Statements include all accounts of the Company and its wholly-owned and majority-owned subsidiaries in which it has control. Inter-company accounts and transactions have been eliminated. Related party transactions between the Company and its equity method investees have not been eliminated. Non-controlling interest represents a non-controlling investor's interests in the results of subsidiaries that the Company controls and consolidates.

Acquisition of Toshiba Carrier Corporation

On February 6, 2022, the Company entered into a binding agreement to acquire a majority ownership interest in Toshiba Carrier Corporation (“TCC”), a variable refrigerant flow ("VRF") and light commercial HVAC joint venture between Carrier and Toshiba Corporation. The acquisition was completed on August 1, 2022. As a result, the assets, liabilities and results of operations of TCC are consolidated in the accompanying Unaudited Condensed Consolidated Financial Statements as of the date of acquisition and reported within the Company’s HVAC segment. Upon closing, Toshiba Corporation retained a 5% ownership interest in TCC. See Note 15 – Acquisitions for additional information.

Sale of Chubb Fire & Security Business

On July 26, 2021, the Company entered into a stock purchase agreement to sell its Chubb Fire and Security business ("Chubb") to APi Group Corporation ("APi"). Chubb, which was reported within the Company’s Fire & Security segment, delivered essential fire safety and security solutions from design and installation to monitoring, service and maintenance across more than 17 countries around the globe. The sale of Chubb was completed on January 3, 2022 (the "Chubb Sale"). See Note 16 - Divestitures for additional information.

Separation from United Technologies

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

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

NOTE 3: INVENTORIES, NET

Inventories are stated at the lower of cost or estimated net realizable value. Cost is primarily determined based on the first-in, first-out inventory method ("FIFO") or average cost methods, which approximates current replacement cost. However, certain subsidiaries use the last-in, first-out inventory method ("LIFO").

Inventories, net consisted of the following:


(In millions)	March 31, 2023		December 31, 2022
Raw materials	$	881	$	884
Work-in-process	292		230
Finished goods	1,630		1,526

Inventories, net	$	2,803	$	2,640

The Company performs periodic assessments utilizing customer demand, production requirements and historical usage rates to determine the existence of excess and obsolete inventory and records necessary provisions to reduce such inventories to the lower of cost or estimated net realizable value. Raw materials, work-in-process and finished goods are net of valuation reserves of $221 million and $190 million as of March 31, 2023 and December 31, 2022, respectively.

NOTE 4: GOODWILL AND INTANGIBLE ASSETS

The Company records goodwill as the excess of the purchase price over the fair value of the net assets acquired in a business combination. Goodwill is tested and reviewed annually for impairment on July 1 or whenever there is a material change in events or circumstances that indicates that the fair value of the reporting unit may be less than its carrying value.

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


(In millions)	HVAC		Refrigeration		Fire & Security		Total
Balance as of December 31, 2022	$	6,392	$	1,197	$	2,388	$	9,977
Acquisitions / divestitures	(13)		(4)		—		(17)

Foreign currency translation	16		3		8		27
Balance as of March 31, 2023	$	6,395	$	1,196	$	2,396	$	9,987

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.

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Identifiable intangible assets consisted of the following:


	March 31, 2023						December 31, 2022
(In millions)	Gross Amount		Accumulated Amortization		Net Amount		Gross Amount		Accumulated Amortization		Net Amount
Amortized:
Customer relationships	$	1,426	$	(734)	$	692	$	1,431	$	(720)	$	711
Patents and trademarks	404		(199)		205		401		(191)		210

Service portfolios and other	956		(630)		326		953		(595)		358
	2,786		(1,563)		1,223		2,785		(1,506)		1,279
Unamortized:
Trademarks and other	64		—		64		63		—		63
Intangible assets, net	$	2,850	$	(1,563)	$	1,287	$	2,848	$	(1,506)	$	1,342

Amortization of intangible assets was as follows:


	Three Months Ended March 31,
(In millions)	2023		2022
Amortization expense of Intangible assets	$	64	$	21

NOTE 5: BORROWINGS AND LINES OF CREDIT

Long-term debt consisted of the following:


(In millions)	March 31, 2023		December 31, 2022


2.242% Notes due February 15, 2025	$	1,200	$	1,200
2.493% Notes due February 15, 2027	900		900
2.722% Notes due February 15, 2030	2,000		2,000
2.700% Notes due February 15, 2031	750		750
3.377% Notes due April 5, 2040	1,500		1,500
3.577% Notes due April 5, 2050	2,000		2,000


Total long-term notes	8,350		8,350
Japanese Term Loan Facility	408		404
Other debt (including project financing obligations and finance leases)	152		149
Discounts and debt issuance costs	(60)		(61)
Total debt	8,850		8,842
Less: current portion of long-term debt	142		140
Long-term debt, net of current portion	$	8,708	$	8,702

Japanese Term Loan Facility

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

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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. 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. Pounds Sterling borrowings bear interest at a variable rate based on daily simple SONIA plus 0.0326%, Euro borrowings bear interest at EURIBOR rates and U.S. Dollar borrowings bear interest at LIBOR plus a ratings-based margin, which was 125 basis points as of March 31, 2023. As of March 31, 2023, there were no borrowings outstanding under the Revolving Credit Facility.

Commercial Paper Program

The Company has a $2.0 billion unsecured, unsubordinated commercial paper program, which can be used for general corporate purposes, including the funding of working capital and potential acquisitions. As of March 31, 2023, there were no borrowings outstanding under the commercial paper program.

Project Financing Arrangements

The Company is involved in long-term construction contracts in which it arranges project financing with certain customers. As a result, the Company issued $5 million and $14 million of debt during the three months ended March 31, 2023 and 2022, respectively. Long-term debt repayments associated with these financing arrangements during the three months ended March 31, 2023 and 2022 were $2 million and $8 million, respectively.

Debt Covenants

The Revolving Credit Facility, the indenture for the long-term notes and the Japanese Term Loan Facility contain affirmative and negative covenants customary for financings of these types, which, among other things, limit the Company's ability to incur additional liens, to make certain fundamental changes and to enter into sale and leaseback transactions. As of March 31, 2023, the Company was in compliance with the covenants under the agreements governing its outstanding indebtedness.

Tender Offers

On March 15, 2022, the Company commenced tender offers to purchase up to $1.15 billion ("Aggregate Tender Cap") aggregate principal of the Company's 2.242% Notes due 2025 and 2.493% Notes due 2027 (together, the "Senior Notes"). The tender offers included payment of applicable accrued and unpaid interest up to the settlement date, along with a fixed spread for early repayment. Based on participation, the Company elected to settle the tender offers on March 30, 2022. The aggregate principal amount of Senior Notes validly tendered and accepted was approximately $1.15 billion, which included $800 million of Notes due 2025 and $350 million of Notes due 2027. As a result, the Company recognized a net gain of $33 million and wrote off $5 million of unamortized deferred financing costs within Interest (expense) income, net on the accompanying Unaudited Condensed Consolidated Statement of Operations during the three months ended March 31, 2022.

NOTE 6: FAIR VALUE MEASUREMENTS

ASC 820, Fair Value Measurement ("ASC 820"), defines fair value as the price that would be received if an asset is sold or the price paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also establishes a three-level fair value hierarchy that prioritizes information used in developing assumptions when pricing an asset or liability as follows:

•Level 1: Observable inputs such as quoted prices in active markets;

•Level 2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and

•Level 3: Unobservable inputs where there is little or no market data, which requires the reporting entity to develop its own assumptions.

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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 earnings in the accompanying Unaudited Condensed Consolidated Statement of Operations.

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

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

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
March 31, 2023


Derivative assets (1)(3)	$	20	$	—	$	20	$	—
Derivative liabilities (2)(3)	$	(71)	$	—	$	(71)	$	—

December 31, 2022


Derivative assets (1) (3)	$	28	$	—	$	28	$	—
Derivative liabilities (2) (3)	$	(48)	$	—	$	(48)	$	—

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

(2) Included in Accrued liabilities on the accompanying Unaudited Condensed Consolidated Balance Sheet.

(3) Includes cross currency swaps.

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:


	March 31, 2023				December 31, 2022
(In millions)	Carrying Amount		Fair Value		Carrying Amount		Fair Value



Total long-term Notes (1)	$	8,350	$	7,105	$	8,350	$	6,832

(1) Excludes debt discount and issuance costs.

The fair value of the Company's long-term debt is measured based on observable market inputs which are considered Level 1 within the fair value hierarchy. The carrying value of cash and cash equivalents, accounts receivable, accounts payable and short-term borrowings approximate fair value due to the short-term nature of these accounts and would be classified as Level 1 in the fair value hierarchy. The Company's financing leases and project financing obligations, included in Long-term debt and

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Current portion of long-term debt on the accompanying Unaudited Condensed Consolidated Balance Sheet, approximate fair value and are classified as Level 3 in the fair value hierarchy.

NOTE 7: EMPLOYEE BENEFIT PLANS

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

Contributions to the plans were as follows:


	Three Months Ended March 31,
(In millions)	2023		2022
Defined benefit plans	$	6	$	4
Defined contribution plans	$	37	$	38
Multi-employer pension plans	$	4	$	3

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


	Three Months Ended March 31,
(In millions)	2023		2022
Service cost	$	4	$	5
Interest cost	8		4
Expected return on plan assets	(8)		(7)
Amortization of prior service credit	—		1
Recognized actuarial net (gain) loss	—		2

Net periodic pension expense (benefit)	$	4	$	5

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 March 31,
(In millions)	2023		2022
Equity compensation costs - equity settled	$	22	$	21
Equity compensation costs - cash settled (1)	1		(6)
Total stock-based compensation expense	$	23	$	15

(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

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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:


	Three Months Ended March 31,
(In millions)	2023		2022
Balance as of January 1,	$	552	$	524
Warranties, performance guarantees issued and changes in estimated liability	54		45
Settlements made	(45)		(43)
Other	2		—
Balance as of March 31,	$	563	$	526

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 March 31, 2023 and December 31, 2022, 878,272,100 and 876,487,480 shares of common stock were issued, respectively, which includes 43,490,981 and 42,103,995 shares of treasury stock, respectively.

Share Repurchase Program

The Company may repurchase its outstanding common stock from time to time subject to market conditions and at the Company's discretion. Repurchases occur in the open market or through one or more other public or private transactions pursuant to plans complying with Rules 10b5-1 and 10b-18 under the Exchange Act. Shares acquired are recognized at cost and presented separately on the balance sheet as a reduction to Equity. Since the initial authorization in February 2021, the Company's Board of Directors authorized the repurchase of up to $4.1 billion of the Company's outstanding common stock. As of December 31, 2022, the Company repurchased 42.1 million shares of common stock for an aggregate purchase price of $1.9 billion, including shares repurchased under an accelerated share repurchase agreement. As a result, the Company had approximately $2.2 billion remaining under the current authorization at December 31, 2022.

During the three months ended March 31, 2023, the Company repurchased 1.4 million shares of common stock for an aggregate purchase price of $62 million. As a result, the Company has approximately $2.1 billion remaining under the current authorization at March 31, 2023.

Accumulated Other Comprehensive Income (Loss)

A summary of changes in the components of Accumulated other comprehensive income (loss) for the three months ended March 31, 2023 is as follows:


(In millions)	Foreign Currency Translation		Defined Benefit Pension and Post-retirement Plans		Accumulated Other Comprehensive Income (Loss)
Balance as of December 31, 2022	$	(1,604)	$	(84)	$	(1,688)
Other comprehensive income (loss) before reclassifications, net	52		—		52
Amounts reclassified, pre-tax	—		—		—
Tax expense (benefit) reclassified	—		—		—

Balance as of March 31, 2023	$	(1,552)	$	(84)	$	(1,636)

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A summary of changes in the components of Accumulated other comprehensive income (loss) for the three months ended March 31, 2022 is as follows:


(In millions)	Foreign Currency Translation		Defined Benefit Pension and Post-retirement Plans		Accumulated Other Comprehensive Income (Loss)
Balance as of December 31, 2021	$	(505)	$	(484)	$	(989)
Other comprehensive income (loss) before reclassifications, net	(61)		(4)		(65)
Amounts reclassified, pre-tax	—		3		3
Tax expense (benefit) reclassified	—		(1)		(1)
Chubb divestiture	(574)		329		(245)
Balance as of March 31, 2022	$	(1,140)	$	(157)	$	(1,297)