As filed with the Securities and Exchange Commission on February 7, 2020.
File No. 001-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of
the Securities Exchange Act of 1934
CARRIER GLOBAL CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware
|
Carrier Global Corporation – 83-4051582
|
(State or other jurisdiction of
incorporation or organization) |
(I.R.S. employer
identification number) |
|
|
13995 Pasteur Boulevard
Palm Beach Gardens, Florida |
33418
|
(Address of principal executive offices)
|
(Zip code)
|
(561) 365-2000
(Registrant’s telephone number, including area code)
Securities to be registered pursuant to Section 12(b) of the Act:
Title of Each Class
to be so Registered |
Name of Each Exchange on which
Each Class is to be Registered |
Common Stock, par value $0.01 per share
|
New York Stock Exchange
|
Securities to be registered pursuant to Section 12(g) of the Act: None
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. (Check one):
Large accelerated filer
|
o
|
Accelerated filer
|
o
|
|
|
|
|
Non-accelerated filer
|
☒
|
Smaller reporting company
|
o
|
|
|
|
|
|
|
Emerging growth company
|
o
|
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. o
CARRIER GLOBAL CORPORATION
INFORMATION REQUIRED IN REGISTRATION STATEMENT
CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT AND ITEMS OF FORM 10
Certain information required to be included herein is incorporated by reference to specifically identified portions of the body of the information statement filed herewith as Exhibit 99.1. None of the information contained in the information statement shall be incorporated by reference herein or deemed to be a part hereof unless such information is specifically incorporated by reference.
Item 1. | Business. |
The information required by this item is contained under the sections of the information statement entitled Information Statement Summary, Risk Factors, Cautionary Note Regarding Forward-Looking Statements, The Separation and Distribution, Managements Discussion and Analysis of Financial Condition and Results of Operations, Business, Certain Relationships and Related Party Transactions and Where You Can Find More Information. Those sections are incorporated herein by reference.
Item 1A. | Risk Factors. |
The information required by this item is contained under the section of the information statement entitled Risk Factors. That section is incorporated herein by reference.
Item 2. | Financial Information. |
The information required by this item is contained under the sections of the information statement entitled Capitalization, Selected Historical Combined Financial Data of Carrier, Unaudited Pro Forma Combined Financial Information, Managements Discussion and Analysis of Financial Condition and Results of Operations and Index to Combined Financial Statements and the financial statements referenced therein. Those sections are incorporated herein by reference.
Item 3. | Properties. |
The information required by this item is contained under the section of the information statement entitled Business. That section is incorporated herein by reference.
Item 4. | Security Ownership of Certain Beneficial Owners and Management. |
The information required by this item is contained under the section of the information statement entitled Security Ownership of Certain Beneficial Owners and Management. That section is incorporated herein by reference.
Item 5. | Directors and Executive Officers. |
The information required by this item is contained under the sections of the information statement entitled Management and Directors. Those sections are incorporated herein by reference.
Item 6. | Executive Compensation. |
The information required by this item is contained under the sections of the information statement entitled Director Compensation and Executive Compensation. Those sections are incorporated herein by reference.
Item 7. | Certain Relationships and Related Transactions. |
The information required by this item is contained under the sections of the information statement entitled Management, Directors and Certain Relationships and Related Party Transactions. Those sections are incorporated herein by reference.
1
Item 8. | Legal Proceedings. |
The information required by this item is contained under the section of the information statement entitled Business—Legal Proceedings. That section is incorporated herein by reference.
Item 9. | Market Price of, and Dividends on, the Registrant’s Common Equity and Related Shareowner Matters. |
The information required by this item is contained under the sections of the information statement entitled The Separation and Distribution, Dividend Policy, Capitalization and Description of Carrier Capital Stock. Those sections are incorporated herein by reference.
Item 10. | Recent Sales of Unregistered Securities. |
The information required by this item is contained under the sections of the information statement entitled Description of Material Indebtedness and Description of Carrier Capital Stock—Sale of Unregistered Securities. Those sections are incorporated herein by reference.
Item 11. | Description of Registrant’s Securities to be Registered. |
The information required by this item is contained under the sections of the information statement entitled The Separation and Distribution, Dividend Policy and Description of Carrier Capital Stock. Those sections are incorporated herein by reference.
Item 12. | Indemnification of Directors and Officers. |
The information required by this item is contained under the section of the information statement entitled Description of Carrier Capital Stock—Charter and Bylaw Provisions. That section is incorporated herein by reference.
Item 13. | Financial Statements and Supplementary Data. |
The information required by this item is contained under the section of the information statement entitled Index to Combined Financial Statements and the financial statements referenced therein. That section is incorporated herein by reference.
Item 14. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. |
None.
2
Item 15. | Financial Statements and Exhibits. |
(a) | Financial Statements |
The information required by this item is contained under the sections of the information statement entitled Unaudited Pro Forma Combined Financial Information and Index to Combined Financial Statements and the financial statements referenced therein. Those sections are incorporated herein by reference.
(b) | Exhibits |
The following documents are filed as exhibits hereto:
Exhibit Number
|
Exhibit Description
|
Form of Separation and Distribution Agreement by and among United Technologies Corporation, Otis Worldwide Corporation and Carrier Global Corporation
|
|
Agreement and Plan of Merger, dated as of June 9, 2019, by and among United Technologies Corporation, Light Merger Sub Corp. and Raytheon Company, incorporated by reference to United Technologies Corporation’s Current Report on Form 8-K (Commission file number 1-812) filed with the SEC on June 10, 2019
|
|
Form of Amended and Restated Certificate of Incorporation of Carrier Global Corporation
|
|
Form of Amended and Restated Bylaws of Carrier Global Corporation
|
|
Form of Transition Services Agreement by and among United Technologies Corporation, Otis Worldwide Corporation and Carrier Global Corporation
|
|
Form of Tax Matters Agreement by and among United Technologies Corporation, Otis Worldwide Corporation and Carrier Global Corporation
|
|
Form of Employee Matters Agreement by and among United Technologies Corporation, Otis Worldwide Corporation and Carrier Global Corporation
|
|
Form of Intellectual Property Agreement by and among United Technologies Corporation, Otis Worldwide Corporation and Carrier Global Corporation
|
|
Form of Carrier Global Corporation 2020 Long-Term Incentive Plan
|
|
Form of Carrier Global Corporation Change in Control Severance Plan
|
|
Form of Carrier Global Corporation Executive Annual Bonus Plan
|
|
Schedule of Terms for Restricted Stock Unit Awards granted under the Carrier Global Corporation 2020 Long-Term Incentive Plan
|
|
Schedule of Terms for Restricted Stock Unit Awards (Off-Cycle) granted under the Carrier Global Corporation 2020 Long-Term Incentive Plan
|
|
Schedule of Terms for Stock Appreciation Right Awards granted under the Carrier Global Corporation 2020 Long-Term Incentive Plan
|
|
Schedule of Terms for Stock Appreciation Right Awards (Off-Cycle) granted under the Carrier Global Corporation 2020 Long-Term Incentive Plan
|
|
Schedule of Terms for Performance Share Unit Awards granted under the Carrier Global Corporation 2020 Long-Term Incentive Plan
|
|
Schedule of Terms for Non-Qualified Stock Option Awards granted under the Carrier Global Corporation 2020 Long-Term Incentive Plan
|
|
Carrier Global Corporation Deferred Compensation Plan
|
|
Carrier Global Corporation Savings Restoration Plan
|
|
Carrier Global Corporation Company Automatic Contribution Excess Plan
|
|
Carrier Global Corporation LTIP Performance Share Unit Deferral Plan
|
|
Form of Carrier Global Corporation Pension Preservation Plan
|
|
Legacy United Technologies Corporation Executive Leadership Group Agreements
|
|
Legacy Schedule of Terms for United Technologies Corporation Executive Leadership Group Restricted Stock Unit Retention Awards
|
|
Form of Carrier Global Corporation Board of Directors Deferred Stock Unit Plan
|
3
Exhibit Number
|
Exhibit Description
|
Form of French Sub-Plan for Restricted Stock Units granted under the Carrier Global Corporation 2020 Long-Term Incentive Plan
|
|
Offer Letter with Timothy McLevish, dated September 6, 2019
|
|
List of Subsidiaries
|
|
Information Statement of Carrier Global Corporation, preliminary and subject to completion, dated February 7, 2020
|
4
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.
|
CARRIER GLOBAL CORPORATION
|
||
|
|
|
|
|
By:
|
/s/ David Gitlin
|
|
|
|
Name:
|
David Gitlin
|
|
|
Title:
|
President and Chief Executive Officer
|
Date: February 7, 2020
Page
|
|||
ARTICLE I DEFINITIONS
|
2
|
||
ARTICLE II THE SEPARATION
|
18
|
||
2.1
|
Transfer of Assets and Assumption of Liabilities
|
18
|
|
2.2
|
Carrier Assets; Otis Assets; UTC Assets
|
21
|
|
2.3
|
Carrier Liabilities; Otis Liabilities; UTC Liabilities
|
25
|
|
2.4
|
Approvals, Notifications and Delays
|
29
|
|
2.5
|
Novation of Liabilities
|
30
|
|
2.6
|
Release of Guarantees
|
31
|
|
2.7
|
Termination of Agreements
|
32
|
|
2.8
|
Treatment of Shared Contracts
|
33
|
|
2.9
|
Bank Accounts; Cash Balances
|
34
|
|
2.10
|
Ancillary Agreements
|
35
|
|
2.11
|
Disclaimer of Representations and Warranties
|
35
|
|
2.12
|
Financing Arrangements; Cash Transfers.
|
36
|
|
2.13
|
Financial Information Certifications
|
37
|
|
2.14
|
Transition Committee
|
38
|
|
ARTICLE III THE DISTRIBUTIONS
|
38
|
||
3.1
|
Sole and Absolute Discretion; Cooperation
|
38
|
|
3.2
|
Actions Prior to the Distribution
|
39
|
|
3.3
|
Conditions to Each Distribution
|
40
|
|
3.4
|
The Distributions
|
42
|
|
ARTICLE IV MUTUAL RELEASES; INDEMNIFICATION
|
44
|
||
4.1
|
Release of Pre-Distribution Claims
|
44
|
|
4.2
|
Indemnification by Carrier
|
47
|
|
4.3
|
Indemnification by Otis
|
48
|
|
4.4
|
Indemnification by UTC
|
48
|
|
4.5
|
Indemnification Obligations Net of Insurance Proceeds and Other Amounts
|
49
|
|
4.6
|
Procedures for Indemnification of Third-Party Claims
|
50
|
|
4.7
|
Additional Matters
|
52
|
|
4.8
|
Right of Contribution
|
53
|
|
4.9
|
Covenant Not to Sue
|
54
|
|
4.10
|
Remedies Cumulative
|
54
|
|
4.11
|
Survival of Indemnities
|
55
|
|
ARTICLE V CERTAIN OTHER MATTERS
|
55
|
||
5.1
|
Insurance Matters
|
55
|
|
5.2
|
Late Payments
|
58
|
|
5.3
|
Inducement
|
58
|
|
5.4
|
Post-Effective Time Conduct
|
58
|
|
5.5
|
Director and Officer Insurance
|
59
|
ARTICLE VI EXCHANGE OF INFORMATION; CONFIDENTIALITY
|
59
|
||
6.1
|
Agreement for Exchange of Information
|
59
|
|
6.2
|
Ownership of Information
|
60
|
|
6.3
|
Compensation for Providing Information
|
60
|
|
6.4
|
Record Retention
|
61
|
|
6.5
|
Limitations of Liability
|
61
|
|
6.6
|
Other Agreements Providing for Exchange of Information
|
61
|
|
6.7
|
Production of Witnesses; Records; Cooperation
|
61
|
|
6.8
|
Privileged Matters
|
62
|
|
6.9
|
Confidentiality
|
65
|
|
6.10
|
Protective Arrangements
|
66
|
|
ARTICLE VII DISPUTE RESOLUTION
|
67
|
||
7.1
|
Good Faith Officer Negotiation
|
67
|
|
7.2
|
Mediation
|
67
|
|
7.3
|
Arbitration
|
68
|
|
7.4
|
Litigation and Unilateral Commencement of Arbitration
|
68
|
|
7.5
|
Conduct During Dispute Resolution Process
|
69
|
|
7.6
|
Dispute Resolution Coordination
|
69
|
|
ARTICLE VIII FURTHER ASSURANCES AND ADDITIONAL COVENANTS
|
69
|
||
8.1
|
Further Assurances
|
69
|
|
ARTICLE IX TERMINATION
|
70
|
||
9.1
|
Termination
|
70
|
|
9.2
|
Effect of Termination
|
71
|
|
ARTICLE X MISCELLANEOUS
|
71
|
||
10.1
|
Counterparts; Entire Agreement; Corporate Power
|
71
|
|
10.2
|
Governing Law
|
72
|
|
10.3
|
Assignability
|
72
|
|
10.4
|
Third-Party Beneficiaries
|
72
|
|
10.5
|
Notices
|
72
|
|
10.6
|
Severability
|
74
|
|
10.7
|
Force Majeure
|
74
|
|
10.8
|
No Set-Off
|
74
|
|
10.9
|
Expenses
|
75
|
|
10.10
|
Headings
|
75
|
|
10.11
|
Survival of Covenants
|
75
|
|
10.12
|
Waivers of Default
|
75
|
|
10.13
|
Specific Performance
|
75
|
|
10.14
|
Amendments
|
75
|
|
10.15
|
Interpretation
|
76
|
|
10.16
|
Limitations of Liability
|
76
|
|
10.17
|
Performance
|
77
|
|
10.18
|
Mutual Drafting
|
77
|
|
10.19
|
Ancillary Agreements
|
77
|
SCHEDULES
|
|
Schedule 1.1
|
Carrier Discontinued or Divested Businesses
|
Schedule 1.2
|
Carrier Contracts
|
Schedule 1.3
|
Carrier Transferred Entities
|
Schedule 1.4
|
Otis Discontinued or Divested Businesses
|
Schedule 1.5
|
Otis Contracts
|
Schedule 1.6
|
Otis Transferred Entities
|
Schedule 2.1(a)
|
Plan of Reorganization
|
Schedule 2.2(a)(ix)(A)
|
Carrier Former Captive Assets
|
Schedule 2.2(a)(x)
|
Carrier Assets
|
Schedule 2.2(b)(ix)(A)
|
Otis Former Captive Assets
|
Schedule 2.2(b)(x)
|
Otis Assets
|
Schedule 2.2(c)
|
UTC Assets
|
Schedule 2.3(a)(iii)
|
Carrier Liabilities
|
Schedule 2.3(a)(iv)
|
Carrier Business Liabilities
|
Schedule 2.3(a)(viii)
|
Carrier Specified Litigation Liabilities
|
Schedule 2.3(b)(iii)
|
Otis Liabilities
|
Schedule 2.3(b)(iv)
|
Otis Business Liabilities
|
Schedule 2.3(b)(viii)
|
Otis Specified Litigation Liabilities
|
Schedule 2.3(c)(i)
|
UTC Liabilities
|
Schedule 2.5(a)
|
Novation of Liabilities
|
Schedule 2.7(b)(ii)
|
Intercompany Agreements
|
Schedule 2.12(a)
|
Carrier Financing Arrangements
|
Schedule 2.12(b)
|
Otis Financing Arrangements
|
Schedule 4.4(e)
|
Specified UTC Information
|
Schedule 5.1(b)
|
Insurance Access Limitations
|
Schedule 10.9
|
Allocation of Certain Costs and Expenses
|
EXHIBITS
|
|
Exhibit A
|
Amended and Restated Certificate of Incorporation of Carrier Global Corporation
|
Exhibit B
|
Amended and Restated Bylaws of Carrier Global Corporation
|
Exhibit C
|
Amended and Restated Certificate of Incorporation of Otis Worldwide Corporation
|
Exhibit D
|
Amended and Restated Bylaws of Otis Worldwide Corporation
|
Attention:
|
Sean Moylan, Corporate Vice President and Associate General Counsel
|
E-mail:
|
Sean.Moylan@utc.com
|
Attention:
|
Joshua R. Cammaker
Edward J. Lee
Jenna E. Levine
|
E-mail:
|
JRCammaker@wlrk.com
EJLee@wlrk.com
JELevine@wlrk.com
|
Attention:
|
General Counsel
|
E-mail:
|
[ ]
|
Attention:
|
Joshua R. Cammaker
Edward J. Lee
Jenna E. Levine
|
E-mail:
|
JRCammaker@wlrk.com
EJLee@wlrk.com
JELevine@wlrk.com
|
Attention:
|
General Counsel
|
E-mail:
|
[ ]
|
Attention:
|
Joshua R. Cammaker
Edward J. Lee
Jenna E. Levine
|
E-mail:
|
JRCammaker@wlrk.com
EJLee@wlrk.com
JELevine@wlrk.com
|
UNITED TECHNOLOGIES CORPORATION
|
||
By:
|
||
Name:
|
||
Title:
|
||
OTIS WORLDWIDE CORPORATION
|
||
By:
|
||
Name:
|
||
Title:
|
||
CARRIER GLOBAL CORPORATION
|
||
By:
|
||
Name:
|
||
Title:
|
1. |
The name of this corporation is: Carrier Global Corporation. The original Certificate of Incorporation was filed with the Secretary of the State of Delaware on March 15, 2019 under the name “Carrier Solutions Corporation.” A
Certificate of Amendment to the original Certificate of Incorporation and a Restated Certificate of Incorporation were filed with the Secretary of State of the State of Delaware on July 8, 2019. A Certificate of Amendment to the Restated
Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on [ ], 2020, and a Certificate of Amendment to the Restated Certificate of Incorporation was filed with the Secretary of State of the State
of Delaware on [ ], 2020 (the Restated Certificate of Incorporation, as amended, the “Certificate of Incorporation”).
|
2. |
This Amended and Restated Certificate of Incorporation was duly adopted in accordance with the provisions of Sections 242 and 245 of the DGCL and by the written consent of its sole stockholder in accordance with Section 228 of the
DGCL, and is to become effective as of [ ], Eastern Time, on [ ], 2020.
|
3. |
This Amended and Restated Certificate of Incorporation restates and amends the Certificate of Incorporation to read in its entirety as follows:
|
CARRIER GLOBAL CORPORATION
|
||
By:
|
||
Name:
|
||
Title:
|
Exhibit 10.1
FORM OF
TRANSITION SERVICES AGREEMENT
BY AND AMONG
UNITED TECHNOLOGIES CORPORATION,
CARRIER GLOBAL CORPORATION
AND
OTIS WORLDWIDE CORPORATION
DATED AS OF [ ], 2020
TABLE OF CONTENTS
Page | |||
ARTICLE I DEFINITIONS | 2 | ||
Section 1.01. | Definitions | 2 | |
ARTICLE II SERVICES | 8 | ||
Section 2.01. | Services | 8 | |
Section 2.02. | Performance of Services | 9 | |
Section 2.03. | Charges for Services | 11 | |
Section 2.04. | Reimbursement for Out-of-Pocket Costs and Expenses | 11 | |
Section 2.05. | Changes in the Performance of Services | 12 | |
Section 2.06. | Transitional Nature of Services | 12 | |
Section 2.07. | Subcontracting | 12 | |
Section 2.08. | Local Agreements | 13 | |
ARTICLE III OTHER ARRANGEMENTS | 13 | ||
Section 3.01. | Access | 13 | |
ARTICLE IV BILLING; TAXES | |||
15 | |||
Section 4.01. | Procedure | 15 | |
Section 4.02. | Late Payments | 15 | |
Section 4.03. | Taxes | 15 | |
Section 4.04. | No Set-Off | 15 | |
Section 4.05. | Audit Rights | 15 | |
ARTICLE V TERM AND TERMINATION | 16 | ||
Section 5.01. | Term | 16 | |
Section 5.02. | Extension of a Service Period | 16 | |
Section 5.03. | Early Termination | 17 | |
Section 5.04. | Interdependencies | 17 | |
Section 5.05. | Effect of Termination | 18 | |
Section 5.06. | Information Transmission | 18 | |
ARTICLE VI CONFIDENTIALITY; PROTECTIVE ARRANGEMENTS | 19 | ||
Section 6.01. | Obligations of UTC, Carrier and Otis | 19 | |
Section 6.02. | No Release; Return or Destruction | 20 | |
Section 6.03. | Privacy and Data Protection Laws | 20 | |
Section 6.04. | Protective Arrangements | 20 |
ARTICLE VII LIMITED LIABILITY AND INDEMNIFICATION | 21 | ||
Section 7.01. | Limitations on Liability | 21 | |
Section 7.02. | Obligation to Re-Perform; Liabilities | 24 | |
Section 7.03. | Third-Party Claims | 24 | |
Section 7.04. | Service Provider Indemnity | 24 | |
Section 7.05. | Indemnification Procedures | 24 | |
ARTICLE VIII MISCELLANEOUS | 25 | ||
Section 8.01. | Mutual Cooperation | 25 | |
Section 8.02. | Further Assurances | 25 | |
Section 8.03. | Audit Assistance | 25 | |
Section 8.04. | Title to Intellectual Property | 25 | |
Section 8.05. | Independent Contractors | 26 | |
Section 8.06. | Counterparts; Entire Agreement; Corporate Power | 26 | |
Section 8.07. | Governing Law | 27 | |
Section 8.08. | Assignability | 27 | |
Section 8.09. | Third-Party Beneficiaries | 28 | |
Section 8.10. | Notices | 29 | |
Section 8.11. | Severability | 29 | |
Section 8.12. | Force Majeure | 30 |
|
Section 8.13. | Headings | 30 | |
Section 8.14. | Waivers of Default | 30 | |
Section 8.15. | Dispute Resolution | 30 | |
Section 8.16. | Specific Performance | 31 | |
Section 8.17. | Amendments | 32 | |
Section 8.18. | Precedence of Schedules | 32 | |
Section 8.19. | Interpretation | 32 | |
Section 8.20. | Mutual Drafting | 32 | |
Annex A: TSA Committee |
FORM OF
TRANSITION SERVICES AGREEMENT
This TRANSITION SERVICES AGREEMENT, dated as of [ ], 2020 (as it may be amended and in effect from time to time, this “Agreement”), is by and among United Technologies Corporation, a Delaware corporation (“UTC”), Carrier Global Corporation, a Delaware corporation (“Carrier”) and Otis Worldwide Corporation, a Delaware corporation (“Otis”).
R E C I T A L S:
WHEREAS, the board of directors of UTC (the “UTC Board”) has determined that it is in the best interests of UTC and its shareowners to separate UTC into three independent, publicly traded companies, one that shall operate the UTC Business, one that shall operate the Carrier Business and one that shall operate the Otis Business;
WHEREAS, in furtherance of the foregoing, the UTC Board has determined that it is appropriate and desirable to (a) separate the Carrier Business from the UTC Business and the Otis Business (the “Carrier Separation”) and, following the Carrier Separation, make a distribution, on a pro rata basis, to holders of UTC Shares on the Carrier Record Date of all of the outstanding Carrier Shares owned by UTC (the “Carrier Distribution”) and (b) separate the Otis Business from the UTC Business and the Carrier Business (the “Otis Separation,” and the Carrier Separation, together or as applicable, the “Separation”) and, following the Otis Separation, make a distribution, on a pro rata basis, to holders of UTC Shares on the Otis Record Date (which may be the same date as the Carrier Record Date) of all of the outstanding Otis Shares owned by UTC (the “Otis Distribution,” and together with the Carrier Distribution, the “Distributions”);
WHEREAS, in order to effectuate the Separation and the Distributions, UTC, Carrier and Otis have entered into a Separation and Distribution Agreement, dated
as of [ ], 2020 (as it may be amended and in effect from time to time, the “Separation and Distribution Agreement”); and
WHEREAS, in order to facilitate and provide for an orderly transition in connection with the Separation and the Distributions, the Parties desire to enter
into this Agreement which sets forth the terms of certain relationships and other agreements among the Parties as set forth herein.
NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, hereby agree as follows:
Article I
DEFINITIONS
Section 1.01. Definitions. For purposes of this Agreement, the following terms shall have the following meanings, and capitalized terms used but not otherwise defined herein shall have the meaning ascribed to them in the Separation and Distribution Agreement:
“Action” shall mean any demand, action, claim, dispute, suit, countersuit, arbitration, inquiry, subpoena, proceeding or investigation of any nature (whether criminal, civil, legislative, administrative, regulatory, prosecutorial or otherwise) by or before any federal, state, local, foreign or international Governmental Authority or any arbitration or mediation tribunal.
“Additional Services” shall have the meaning set forth in Section 2.01(b).
“Affiliate” shall have the meaning set forth in the Separation and Distribution Agreement.
“Agreement” shall have the meaning set forth in the Preamble.
“Ancillary Agreements” shall have the meaning set forth in the Separation and Distribution Agreement.
“Carrier” shall have the meaning set forth in the Preamble.
“Carrier Business” shall have the meaning set forth in the Separation and Distribution Agreement.
“Carrier Change of Control” means the first of the following events, if any, to occur following the Carrier Effective Time:
(i) the acquisition by any person, entity or “group” (as defined in Section 13(d) of the Exchange Act) of beneficial ownership of fifty percent (50%) or more of the combined voting power of Carrier’s then-outstanding voting securities, other than any such acquisition by Carrier, any of its Subsidiaries, any employee benefit plan of Carrier, or any of its Subsidiaries, or any Affiliates of any of the foregoing;
(ii) the merger, consolidation or other similar transaction involving Carrier, as a result of which persons who were stockholders of Carrier immediately prior to such merger, consolidation, or other similar transaction do not, immediately thereafter, own, directly or indirectly, more than fifty percent (50%) of the combined voting power entitled to vote generally in the election of directors of the merged or consolidated company;
(iii) within any twelve (12)-month period commencing after the Carrier Effective Time, (A) the persons who were directors of Carrier at the beginning of such period shall cease to constitute at least a majority of the directors of Carrier and (B) the persons constituting a majority of the directors of Carrier shall cease to be made up of (1) persons who were directors of Carrier at the beginning of such period and (2) persons who were elected, appointed or nominated for election by at least a majority of the directors of Carrier at the time of such election, appointment or nomination who were directors of Carrier at the beginning of such period or who were previously elected, appointed or nominated pursuant to this clause (2); or
(iv) the sale, transfer or other disposition of all or substantially all of the assets of Carrier and its Subsidiaries.
“Carrier Distribution” shall have the meaning set forth in the Recitals.
“Carrier Distribution Date” shall mean the date of the consummation of the Carrier Distribution, which shall be determined by the UTC Board in its sole and absolute discretion.
“Carrier Effective Time” shall mean 12:01 a.m., New York City time, on the Carrier Distribution Date.
“Carrier Group” shall mean (a) prior to the Effective Time, Carrier and each Person that will be a Subsidiary of Carrier as of immediately after the Effective Time, including the Carrier Transferred Entities and their respective Subsidiaries, even if, prior to the Effective Time, such Person is not a Subsidiary of Carrier; and (b) on and after the Effective Time, Carrier and each Person that is a Subsidiary of Carrier.
“Carrier Record Date” shall mean the close of business on the date determined by the UTC Board as the record date for determining holders of UTC Shares entitled to receive Carrier Shares pursuant to the Carrier Distribution.
“Carrier Separation” shall have the meaning set forth in the Recitals.
“Carrier Shares” shall mean the shares of common stock, par value $0.01 per share, of Carrier.
“Charge” and “Charges” shall have the meaning set forth in Section 2.03.
“Confidential Information” shall mean all Information that is either confidential or proprietary.
“Dispute” shall have the meaning set forth in Section 8.15(a).
“Distribution Date” shall mean the Carrier Distribution Date or the Otis Distribution Date, as applicable.
“Distributions” shall have the meaning set forth in the Recitals.
“Effective Time” shall mean the Carrier Effective Time or the Otis Effective Time, as applicable; it being understood that except as otherwise specified herein, if the Carrier Effective Time and the Otis Effective Time do not occur at the same time, then: (a) as between Carrier or any member of the Carrier Group, on the one hand, and Otis or any member of the Otis Group, on the other hand, the term “Effective Time” shall refer to the First Effective Time; (b) as between Carrier or any member of the Carrier Group, on the one hand, and UTC or any member of the UTC Group on the other hand, the term “Effective Time” shall refer to the Carrier Effective Time; and (c) as between Otis or any member of the Otis Group, on the one hand, and UTC or any member of the UTC Group on the other hand, the term “Effective Time” shall refer to the Otis Effective Time.
“e-mail” shall have the meaning set forth in Section 8.10.
“First Effective Time” shall mean (a) if the Carrier Effective Time and the Otis Effective Time do not occur at the same time, the first to occur of the Carrier Effective Time and the Otis Effective Time, or (b) if the Carrier Effective Time and the Otis Effective Time occur at the same time, the Effective Time.
“Force Majeure” shall mean, with respect to a Party, an event beyond the reasonable control of such Party (or any Person acting on its behalf), which event (a) does not arise or result from the fault or negligence of such Party (or any Person acting on its behalf) and (b) by its nature would not reasonably have been foreseen by such Party (or such Person), or, if it would reasonably have been foreseen, was unavoidable, and includes acts of God, acts of civil or military authority, acts of terrorism, cyberattacks, embargoes, epidemics, war, riots, insurrections, fires, explosions, earthquakes, floods, unusually severe weather conditions, labor problems or unavailability of parts, or, in the case of computer systems, any significant and prolonged failure in electrical or air conditioning equipment. Notwithstanding the foregoing, (i) the receipt by a Party of an unsolicited takeover offer or other acquisition proposal, even if unforeseen or unavoidable, and such Party’s response thereto, and (ii) the inability to obtain sufficient funds needed for the performance of a Party’s obligation hereunder, shall not be deemed an event of Force Majeure.
“Governmental Authority” shall mean any nation or government, any state, municipality or other political subdivision thereof, and any entity, body, agency, commission, department, board, bureau, court, tribunal or other instrumentality, whether domestic, foreign, multinational, national, supranational, federal, state, territorial, provincial or local, exercising executive, legislative, judicial, regulatory, administrative or other similar functions of, or pertaining to, a government and any executive official thereof.
“Information” shall mean information, whether or not patentable or copyrightable, in written, oral, electronic or other tangible or intangible forms, stored in any medium, including studies, reports, records, books, contracts, instruments, surveys, discoveries, ideas, concepts, know-how, techniques, designs, specifications, drawings, blueprints, artwork, design, research and development files, diagrams, models, prototypes, samples, flow charts, data, computer data, disks, diskettes, tapes, computer programs or other software, marketing plans, customer names, communications by or to attorneys (including attorney-client privileged communications), memos and other materials prepared by attorneys or under their direction (including attorney work product), and other technical, financial, employee or business information or data.
“Interest Payment” shall have the meaning set forth in Section 4.02.
“Law” shall mean any domestic, foreign, multinational, national, supranational, federal, state, territorial, provincial, local or similar law (including common law), statute, code, order, ordinance, rule, regulation, treaty (including any income tax treaty), license, permit, authorization, approval, consent, decree, injunction, binding judicial or administrative interpretation or other requirement, in each case, enacted, promulgated, issued or entered by a Governmental Authority.
“Level of Service” shall have the meaning set forth in Section 2.02(a).
“Liabilities” shall mean all debts, guarantees, assurances, commitments, liabilities, responsibilities, Losses, remediation, deficiencies, damages, fines, penalties, settlements, sanctions, costs, expenses, interest and obligations of any nature or kind, whether accrued or fixed, absolute or contingent, matured or unmatured, accrued or not accrued, asserted or unasserted, liquidated or unliquidated, foreseen or unforeseen, known or unknown, reserved or unreserved, or determined or determinable, including those arising under any Law, claim (including any Third-Party Claim), demand, Action, or order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Authority or arbitration tribunal, and those arising under any contract, agreement, obligation, indenture, instrument, lease, promise, arrangement, release, warranty, commitment or undertaking, or any fines, damages or equitable relief that is imposed, in each case, including all costs and expenses relating thereto.
“Local Agreement” shall have the meaning set forth in Section 2.08.
“Losses” shall mean actual losses (including any diminution in value), costs, damages, penalties and expenses (including legal and accounting fees and expenses and costs of investigation and litigation), whether or not involving a Third-Party Claim.
“Minimum Service Period” means the period commencing on the Distribution Date and ending ninety (90) days after the Distribution Date, unless otherwise specified with respect to a particular service on the Schedules hereto.
“Otis” shall have the meaning set forth in the Preamble.
“Otis Business” shall have the meaning set forth in the Separation and Distribution Agreement.
“Otis Change of Control” means the first of the following events, if any, to occur following the Otis Effective Time:
(i) the acquisition by any person, entity or “group” (as defined in Section 13(d) of the Exchange Act) of beneficial ownership of fifty percent (50%) or more of the combined voting power of Otis’ then-outstanding voting securities, other than any such acquisition by Otis, any of its Subsidiaries, any employee benefit plan of Otis, or any of its Subsidiaries, or any Affiliates of any of the foregoing;
(ii) the merger, consolidation or other similar transaction involving Otis as a result of which persons who were stockholders of Otis immediately prior to such merger, consolidation, or other similar transaction do not, immediately thereafter, own, directly or indirectly, more than fifty percent (50%) of the combined voting power entitled to vote generally in the election of directors of the merged or consolidated company;
(iii) within any twelve (12)-month period commencing after the Otis Effective Time, (A) the persons who were directors of Otis at the beginning of such period shall cease to constitute at least a majority of the directors of Otis and (B) the persons constituting a majority of the directors of Otis shall cease to be made up of (1) persons who were directors of Otis at the beginning of such period and (2) persons who were elected, appointed or nominated for election by at least a majority of the directors of Otis at the time of such election, appointment or nomination who were directors of Otis at the beginning of such period or who were previously elected, appointed or nominated pursuant to this clause (2); or
(iv) the sale, transfer or other disposition of all or substantially all of the assets of Otis and its Subsidiaries.
“Otis Distribution” shall have the meaning set forth in the Recitals.
“Otis Distribution Date” shall mean the date of the consummation of the Otis Distribution, which shall be determined by the UTC Board in its sole and absolute discretion.
“Otis Effective Time” shall mean 12:01 a.m., New York City time, on the Otis Distribution Date.
“Otis Group” shall mean (a) prior to the Effective Time, Otis and each Person that will be a Subsidiary of Otis as of immediately after the Effective Time, including the Otis Transferred Entities and their respective Subsidiaries, even if, prior to the Effective Time, such Person is not a Subsidiary of Otis; and (b) on and after the Effective Time, Otis and each Person that is a Subsidiary of Otis.
“Otis Record Date” shall mean the close of business on the date determined by the UTC Board as the record date for determining holders of UTC Shares entitled to receive Otis Shares pursuant to the Otis Distribution.
“Otis Separation” shall have the meaning set forth in the Recitals.
“Otis Shares” shall mean the shares of common stock, par value $0.01 per share, of Otis.
“Party” or “Parties” shall mean the parties to this Agreement.
“Person” shall mean an individual, a general or limited partnership, a corporation, a trust, a joint venture, an unincorporated organization, a limited liability entity, any other entity and any Governmental Authority.
“Representatives” shall mean, with respect to any Person, any of such Person’s directors, officers, employees, agents, consultants, advisors, accountants, attorneys or other representatives.
“Routine Communication” shall mean any notice, request or communication exclusively regarding routine matters under this Agreement, including any notice, request or communication regarding operational matters under this Agreement (e.g., early termination of a Service, extension of a Service Period, billing or payment matters or other ordinary course matters relating to the provision or receipt of a Service).
“Separation” shall have the meaning set forth in the Recitals.
“Separation and Distribution Agreement” shall have the meaning set forth in the Recitals.
“Service Baseline Period” shall have the meaning set forth in Section 2.02(a).
“Service Period” shall mean, with respect to any Service, the period commencing on the applicable Distribution Date and ending on the earliest to occur of (a) the date that a Party terminates the provision of such Service pursuant to Section 5.03 and (b) the date, if any, specified for termination of such Service on the Schedules hereto, or, if no such date is specified, the date that is the eighteen (18)-month anniversary of the applicable Distribution Date.
“Service Provider” shall mean, with respect to any Service, the Party providing such Service.
“Service Provider Indemnitees” shall have the meaning set forth in Section 7.03.
“Service Recipient” shall mean, with respect to any Service, the Party receiving such Service.
“Service Recipient Indemnitees” shall have the meaning set forth in Section 7.04.
“Services” shall have the meaning set forth in Section 2.01(a).
“Subsidiary” shall mean, with respect to any Person, any corporation, limited liability company, joint venture, partnership or other entity of which such Person (a) beneficially owns, either directly or indirectly, more than fifty percent (50%) of (i) the total combined voting power of all classes of voting securities, (ii) the total combined equity interests or (iii) the capital or profit interests, in the case of a partnership, or (b) otherwise has (i) the power to vote, either directly or indirectly, sufficient securities to elect a majority of the board of directors or similar governing body or (ii) the power to vote, either directly or indirectly, sufficient securities to elect half of the board of directors or similar governing body and a casting vote with respect to decisions of such board of directors or similar governing body.
.
“Tax” shall have the meaning set forth in the Tax Matters Agreement.
“Taxing Authority” shall mean a national, foreign, municipal, state, federal or other Governmental Authority responsible for the administration of any Tax.
“Tax Matters Agreement” shall mean the Tax Matters Agreement to be entered into by and among UTC, Carrier and Otis in connection with the Separation, the Distributions and the other transactions contemplated by the Separation and Distribution Agreement, as it may be amended and in effect from time to time.
“Termination Charges” shall mean, with respect to the termination of any Service pursuant to Section 5.03(a)(i), any and all costs, fees and expenses (other than any severance or retention costs, unless otherwise specified with respect to a particular Service on the Schedules hereto or in the other Ancillary Agreements) payable by UTC or its Subsidiaries to a Third Party directly as a result of such termination; provided, however, that UTC shall use commercially reasonable efforts to minimize any costs, fees or expenses payable to any Third Party in connection with any such termination and shall credit any resulting reductions against the Termination Charges payable by Carrier or Otis, as applicable.
“Third Party” shall mean any Person other than the Parties or any of their respective Affiliates.
“Third-Party Claim” shall mean any Action commenced by any Third Party against any Party or any of its Affiliates.
“TSA Committee” shall have the meaning set forth in Section 8.15(a).
“UTC” shall have the meaning set forth in the Preamble.
“UTC Board” shall have the meaning set forth in the Recitals.
“UTC Business” shall have the meaning set forth in the Separation and Distribution Agreement.
“UTC Shares” shall mean the shares of common stock, par value $1.00 per share, of UTC.
Article II
SERVICES
Section 2.01. Services.
(a) Commencing as of the applicable Effective Time, each Service Provider agrees to provide, or to cause one or more of its Subsidiaries to provide, to the applicable Service Recipient, or any Subsidiary of such Service Recipient, the applicable services (the “Services”) set forth on the Schedules hereto.
(b) After the date of this Agreement, if (i) Carrier or Otis identifies a service that UTC provided to it or any of its Subsidiaries prior to the applicable Distribution Date that it reasonably needs in order for the Carrier Business or Otis Business, as applicable, to continue to operate in substantially the same manner in which the Carrier Business or Otis Business, as applicable, operated prior to the applicable Distribution Date, and such service was not included on the Schedules hereto (other than because the Parties agreed such service shall not be provided), or (ii) UTC identifies a service that Carrier or Otis provided to it or any of its Subsidiaries prior to the applicable Distribution Date that it reasonably needs in order for the UTC Business to continue to operate in substantially the same manner in which the UTC Business operated prior to the applicable Distribution Date, and such service was not included on the Schedules hereto (other than because the Parties agreed such service shall not be provided), then, in each case, if such Party provides written notice to the applicable other Party within sixty (60) days after the applicable Distribution Date requesting such additional services, then the applicable other Party shall use its commercially reasonable efforts to provide such requested additional services (such requested additional services, the “Additional Services”); provided, however, that no Party shall be obligated to provide any Additional Service if it does not, in its reasonable judgment, have adequate resources to provide such Additional Service or if the provision of such Additional Service would significantly disrupt the operation of Service Provider’s business; and provided, further, that the applicable Party shall not be required to provide any Additional Services if the applicable Parties are unable to reach agreement on the terms thereof (including with respect to Charges therefor). In connection with any request for Additional Services in accordance with this Section 2.01(b), the applicable Parties shall negotiate in good faith the terms of a supplement to the applicable Schedule, which terms shall be consistent with the terms of, and the pricing methodology used for, similar Services provided under this Agreement. Upon the mutual written agreement of the applicable Parties, the supplement to the applicable Schedule shall describe in reasonable detail the nature, scope, Service Period(s), termination provisions and other terms applicable to such Additional Services in a manner similar to that in which the Services are described in the existing Schedules. Each supplement to the applicable Schedule, as agreed to in writing by the applicable Parties, shall be deemed part of this Agreement as of the date of such agreement and the Additional Services set forth therein shall be deemed “Services” provided under this Agreement, in each case subject to the terms and conditions of this Agreement.
Section 2.02. Performance of Services.
(a) Subject to Section 2.05 and unless otherwise provided with respect to a specific Service on the Schedules hereto, Service Provider shall perform (directly, through one (1) or more of its Subsidiaries, or through a Third Party service provider in accordance herewith), all Services to be provided in a manner that is substantially similar in all material respects to the analogous services provided by Service Provider or any of its applicable Subsidiaries to its applicable functional group or Subsidiary (collectively referred to as the “Level of Service”) during the one (1)-year period ending on the last day of Service Provider’s last fiscal quarter completed on or prior to the applicable Distribution Date (the “Service Baseline Period”).
(b) Nothing in this Agreement shall require Service Provider to perform or cause to be performed any Service to the extent that the manner of such performance would constitute a violation of any applicable Law or any existing contract or agreement with a Third Party. If Service Provider is or becomes aware that any such violation is reasonably likely, Service Provider shall use commercially reasonable efforts to promptly advise Service Recipient of such potential violation, and the applicable Parties shall mutually seek an alternative that addresses such potential violation. The Parties agree to cooperate in good faith and use commercially reasonable efforts to obtain any necessary Third Party consents required under any existing contract or agreement with a Third Party to allow Service Provider to perform, or cause to be performed, all Services to be provided hereunder in accordance with the standards set forth in this Section 2.02. Service Recipient shall reimburse Service Provider for all reasonable out-of-pocket costs and expenses (if any) to the extent incurred by Service Provider or any of its Subsidiaries at any time following the First Effective Time in connection with obtaining any such Third Party consent that is required to allow Service Provider to perform or cause to be performed such Services (it being understood that to the extent any such consent is required in respect of a Service to be provided to more than one Party hereunder, each applicable Service Recipient shall be responsible for fifty percent (50%) of such reimbursement); provided, however, that any such out-of-pocket cost or expense incurred in excess of one hundred thousand dollars ($100,000.00) shall require advance written approval of Service Recipient; provided, further, that if Service Recipient does not provide such advance written approval and the incurrence of such cost or expense is reasonably necessary for Service Provider to provide the applicable Service in accordance with the standards set forth in this Agreement, Service Provider shall not be required to perform such Service. If the applicable Parties, despite the use of such commercially reasonable efforts, are unable to obtain a required Third Party consent with respect to a Service, or the performance of a Service by Service Provider would constitute a violation of any applicable Law, Service Provider shall have no obligation whatsoever to perform or cause to be performed such Service.
(c) If Service Recipient requests that Service Provider perform or cause to be performed any Service in a manner that is more burdensome (with respect to service quality or quantity, other than in a de minimis respect) than the Level of Service during the Service Baseline Period, then the applicable Parties shall cooperate and negotiate in good faith to determine whether Service Provider will be required to provide such requested increased Level of Service. If the applicable Parties determine that Service Provider shall provide the requested increased Level of Service, then such increased Level of Service shall be documented in a written agreement signed by the applicable Parties. Each amended section of the Schedules hereto, as agreed to in writing by the applicable Parties, shall be deemed part of this Agreement as of the date of such written agreement and the Level of Service increases set forth in such written agreement shall be deemed a part of the “Services” provided under this Agreement, in each case subject to the terms and conditions of this Agreement.
(d) (i) Without prejudice to Section 8.08(b), neither Service Provider nor any of its Subsidiaries shall be required to perform or cause to be performed any of the Services for the benefit of any Third Party or any other Person other than Service Recipient and its Subsidiaries, and (ii) EXCEPT AS EXPRESSLY PROVIDED IN THIS SECTION 2.02 OR Article VII, EACH PARTY ACKNOWLEDGES AND AGREES (A) THAT ALL SERVICES ARE PROVIDED ON AN “AS-IS” BASIS, (B) THAT SERVICE RECIPIENT, AS APPLICABLE, ASSUMES ALL RISK AND LIABILITY ARISING FROM OR RELATING TO ITS USE OF AND RELIANCE UPON THE SERVICES, AND (C) THAT SERVICE PROVIDER MAKES NO OTHER REPRESENTATIONS OR GRANTS ANY WARRANTIES, EXPRESS OR IMPLIED, EITHER IN FACT OR BY OPERATION OF LAW, BY STATUTE OR OTHERWISE, WITH RESPECT TO THE SERVICES. SERVICE PROVIDER SPECIFICALLY DISCLAIMS ANY OTHER WARRANTIES, WHETHER WRITTEN OR ORAL, OR EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF QUALITY, MERCHANTABILITY, OR FITNESS FOR A PARTICULAR USE OR PURPOSE OR THE NON-INFRINGEMENT OF ANY INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES.
(e) Each Party shall be responsible for its own compliance with any and all Laws applicable to its performance under this Agreement. No Party shall knowingly take any action in violation of any such applicable Law that results in Liability being imposed on the other Party.
Section 2.03. Charges for Services. Unless otherwise provided with respect to a specific Service on the Schedules hereto, Service Recipient shall pay Service Provider a fee for such Services (or category of Services, as applicable) (each fee, a “Charge” and, collectively, “Charges”), which Charges shall be set forth on the applicable Schedules hereto, or if not so set forth, then, unless otherwise provided with respect to a specific Service on the Schedule hereto, based upon the cost of providing such Services as shall be agreed by the applicable Parties from time to time. During the term of this Agreement, the amount of a Charge for any Service may be modified to the extent of (a) any adjustments mutually agreed by the applicable Parties, (b) any adjustments due to a change in Level of Service requested by Service Recipient, and agreed upon by Service Provider, and (c) any adjustment in the rates or charges imposed by any Third Party provider that is providing Services, provided that Service Provider will notify Service Recipient in writing of any such change in rates at least thirty (30) days prior to the effective date of such rate change. Together with any invoice for Charges, Service Provider shall provide Service Recipient with reasonable documentation, including any additional documentation reasonably requested by Service Recipient to the extent that such documentation is in Service Provider’s or its Subsidiaries’ possession or control, to support the calculation of such Charges.
Section 2.04. Reimbursement for Out-of-Pocket Costs and Expenses. Service Recipient shall reimburse Service Provider for reasonable out-of-pocket costs and expenses to the extent incurred by Service Provider or any of its Subsidiaries at any time following the First Effective Time in connection with providing the Services to Service Recipient (including reasonable travel-related expenses) to the extent that such costs and expenses are not reflected in the Charges for such Services or otherwise reimbursed to Service Provider pursuant to another provision of this Agreement; provided, however, that any such costs or expenses (including business travel and related expenses) incurred in excess of an aggregate amount of (a) fifty thousand dollars ($50,000.00) with respect to Carrier or Otis as Service Recipient shall require advance written approval of Carrier or Otis, as applicable, (b) fifteen thousand dollars ($15,000.00) with respect to UTC as Service Recipient and Carrier as Service Provider shall require advance written approval of UTC and (c) fifteen thousand dollars ($15,000.00) with respect to UTC as Service Recipient and Otis as Service Provider shall require advance written approval of UTC; provided, further, that if Service Recipient does not provide such advance written approval and the incurrence of such cost or expense is reasonably necessary for Service Provider to provide such Service in accordance with the standards set forth in this Agreement, Service Provider shall not be required to perform such Service. Any authorized travel-related expenses to the extent incurred at any time following the Effective Time in performing the Services shall be charged to Service Recipient in accordance with Service Provider’s then-applicable business travel policies.
Section 2.05. Changes in the Performance of Services.
(a) Subject to the performance standards for Services set forth in Section 2.02(a), Section 2.02(b) and Section 2.02(c), Service Provider may make changes from time to time in the manner of performing the Services if Service Provider is making similar changes in performing analogous services for itself and if Service Provider furnishes to Service Recipient prompt and reasonable prior written notice (in content and timing) of such changes; provided, if such change shall materially adversely affect the timeliness or quality of, or the Charges for, the applicable Service, Service Recipient shall be permitted to terminate this Agreement or the applicable specific Service pursuant to Section 5.03(a)(i) without being required to (i) pay any Termination Charges pursuant to Section 5.05 or (ii) comply with the notice requirements set forth in Section 5.03(a)(i) or with clauses (x), (y) or (z) of Section 5.03(a)(i).
(b) Subject to the limitations set forth in Section 2.02(b), Service Recipient may request a change to a Service by submitting a request in writing to Service Provider describing the proposed change in reasonable detail. Service Provider shall respond to the request as soon as reasonably practicable, and the applicable Parties shall use commercially reasonable efforts to agree to arrangements for Service Provider to accommodate such change in a manner that would not adversely impact (other than de minimis impacts) the cost, burden, liability or risk associated with providing the applicable Service or cause any other non-commercially reasonable disruption or adverse impact on Service Provider’s business. Each agreed upon change shall be documented by an amendment in writing to the applicable Schedule.
Section 2.06.Transitional Nature of Services. The Parties acknowledge the transitional nature of the Services and agree to cooperate in good faith and to use commercially reasonable efforts to avoid a disruption in the transition of the Services from Service Provider to Service Recipient (or its designee) including to assist with exiting a Service or portion thereof, it being understood that any incremental costs and expenses incurred by Service Provider in compliance with any request of Service Recipient pursuant to this Section 2.06 will be paid by the Service Recipient. Service Recipient agrees to use commercially reasonable efforts to reduce or eliminate its and its Subsidiaries’ dependency on each Service to the extent and as soon as is reasonably practicable (it being understood that this Section 2.06 shall not require Service Recipient to terminate any Service during the Minimum Service Period or otherwise prior to the initial termination date for such Service set forth on the applicable Schedule).
Section 2.07. Subcontracting. Service Provider may hire or engage one or more Third Parties to perform any or all of its obligations under this
Agreement; provided, however, that (a) Service Provider shall use the same degree of care (but at least reasonable care) in selecting each such Third Party as it would if such Third Party was being retained to provide similar services
to Service Provider and (b) Service Provider shall in all cases remain responsible (as primary obligor) for all of its obligations under this Agreement with respect to the scope of the Services, the performance standard for Services set forth in Section
2.02(a), Section 2.02(b) and
Section 2.02(c) and the content of the Services provided to Service Recipient. Service Provider shall be liable for any breach of its obligations under this Agreement by any Third Party service provider engaged by Service Provider.
Section 2.08. Local Agreements. Each of UTC, Carrier and Otis recognize and agree that it may be necessary or desirable to separately document certain matters relating to the Services provided hereunder in various jurisdictions from time to time or to otherwise modify the scope or nature of such Services, in each case to the extent necessary to comply with applicable Law. If such an agreement or modification of any of the Services is required by applicable Law, or if the applicable Parties mutually determine entry into such an agreement or modification of Services would be desirable, in each case in order for Service Provider or its Subsidiaries to provide any of the Services in a particular jurisdiction, Service Provider and Service Recipient shall, or shall cause their applicable Subsidiaries to, to enter into local implementing agreements (as each may be amended and in effect from time to time, each a “Local Agreement”) in form and content reasonably acceptable to the applicable Parties; provided that the execution or performance of any such Local Agreement shall in no way alter or modify any term or condition of this Agreement or the effect of any such term or condition, except to the extent expressly specified in such Local Agreement. Except as used in this Section 2.08, any references herein to this Agreement and the Services to be provided hereunder, shall include any Local Agreement and any local services to be provided thereunder. Except as expressly set forth in any Local Agreement, in the event of a conflict between the terms contained in a Local Agreement and the terms contained in this Agreement (including the applicable Schedules), the terms in this Agreement shall take precedence.
Article III
OTHER ARRANGEMENTS
Section 3.01. Access.
(a) Upon reasonable advance notice, and subject to the confidentiality provisions of this Agreement, Carrier shall, and shall cause its Subsidiaries to, allow UTC and its Subsidiaries and their respective Representatives reasonable access during normal business hours to the facilities, Information, systems, infrastructure and personnel of Carrier and its Subsidiaries (i) as reasonably necessary for UTC and its Subsidiaries to fulfill their obligations under this Agreement and, as applicable, to verify the accuracy of internal controls over information technology, reporting of financial data and related processes employed in connection with verifying compliance with Section 404 of the Sarbanes-Oxley Act of 2002 or (ii) as required to comply with any other Law or the terms of any contract with a Governmental Authority; provided that in each case (x) such access shall not unreasonably interfere with any of the business or operations of Carrier or any of its Subsidiaries and (y) in the event that Carrier determines that providing such access would violate any applicable Law or agreement or waive any attorney-client or similar privilege, then Carrier and UTC shall use commercially reasonable efforts to permit such access in a manner that avoids any such consequence. UTC agrees that all of its and its Subsidiaries’ employees shall, and that it shall use commercially reasonable efforts to cause its Representatives’ employees to, when on the property of Carrier or its Subsidiaries, or when given access to any facilities, Information, systems, infrastructure or personnel of Carrier or its Subsidiaries, conform to the policies and procedures of Carrier and its Subsidiaries, as applicable, concerning health, safety, conduct and security which are made known or provided to UTC from time to time.
(b) Upon reasonable advance notice, and subject to the confidentiality provisions of this Agreement, Otis shall, and shall cause its Subsidiaries to, allow UTC and its Subsidiaries and their respective Representatives reasonable access during normal business hours to the facilities, Information, systems, infrastructure and personnel of Otis and its Subsidiaries (i) as reasonably necessary for UTC and its Subsidiaries to fulfill their obligations under this Agreement and, as applicable, to verify the accuracy of internal controls over information technology, reporting of financial data and related processes employed in connection with verifying compliance with Section 404 of the Sarbanes-Oxley Act of 2002 or (ii) as required to comply with any other Law or the terms of any contract with a Governmental Authority; provided that in each case (x) such access shall not unreasonably interfere with any of the business or operations of Otis or any of its Subsidiaries and (y) in the event that Otis determines that providing such access would violate any applicable Law or agreement or waive any attorney-client or similar privilege, then Otis and UTC shall use commercially reasonable efforts to permit such access in a manner that avoids any such consequence. UTC agrees that all of its and its Subsidiaries’ employees shall, and that it shall use commercially reasonable efforts to cause its Representatives’ employees to, when on the property of Otis or its Subsidiaries, or when given access to any facilities, Information, systems, infrastructure or personnel of Otis or its Subsidiaries, conform to the policies and procedures of Otis and its Subsidiaries, as applicable, concerning health, safety, conduct and security which are made known or provided to UTC from time to time.
(c) Upon reasonable advance notice, and subject to the confidentiality provisions of this Agreement, UTC shall, and shall cause its Subsidiaries to, allow Carrier, Otis and their respective Subsidiaries and Representatives reasonable access during normal business hours to the facilities, Information, systems, infrastructure and personnel of UTC and its Subsidiaries (i) as reasonably necessary for each of Carrier and Otis to fulfill its obligations under this Agreement and to verify the adequacy of internal controls over information technology, reporting of financial data and related processes employed in connection with the Services being provided, including in connection with verifying compliance with Section 404 of the Sarbanes-Oxley Act of 2002 or (ii) as required to comply with any other Law or the terms of any contract with a Governmental Authority; provided that in each case (x) such access shall not unreasonably interfere with any of the business or operations of UTC or any of its Subsidiaries and (y) in the event that UTC determines that providing such access would violate any applicable Law or agreement or waive any attorney-client or similar privilege, then the applicable Parties shall use commercially reasonable efforts to permit such access in a manner that avoids any such consequence. Each of Carrier and Otis agrees that all of its and its Subsidiaries’ employees shall, and that it shall use commercially reasonable efforts to cause its Representatives’ employees to, when on the property of UTC or its Subsidiaries, or when given access to any facilities, Information, systems, infrastructure or personnel of UTC or its Subsidiaries, conform to the policies and procedures of UTC and its Subsidiaries, as applicable, concerning health, safety, conduct and security which are made known or provided to Carrier or Otis, as applicable, from time to time.
Article IV
BILLING; TAXES
Section 4.01. Procedure. Service Recipient shall pay, or cause to be paid, to Service Provider the fees for the Charges for the applicable Services, and, without duplication, all other costs incurred by Service Provider to the extent required by this Agreement. Amounts payable pursuant to this Agreement shall be paid by wire transfer or Automated Clearing House payment (or such other method of payment as may be agreed between the applicable Parties from time to time) to Service Provider (as directed by Service Provider), which amounts shall be due (a) in the case of recurring fees, within sixty (60) days of the last day of the calendar month for which the applicable Service is to be provided, and (b) in the case of all other amounts, within sixty (60) days of Service Recipient’s receipt of each invoice for Charges, including reasonable documentation pursuant to Section 2.03. All amounts due and payable hereunder shall be paid in U.S. dollars. In the event of any billing dispute, Service Recipient shall promptly pay any undisputed amount.
Section 4.02. Late Payments. Charges not paid when due pursuant to this Agreement and which are not disputed in good faith (and any amounts billed or otherwise invoiced or demanded and properly payable that are not paid within sixty (60) days of the receipt of such bill, invoice or other demand) shall accrue interest at a rate per annum equal to the Prime Rate plus two percent (2%) or the maximum rate under applicable Law, whichever is lower (the “Interest Payment”).
Section 4.03. Taxes. Without limiting any provisions of this Agreement, Service Recipient shall bear any and all Taxes and other similar charges (and any related interest and penalties) imposed on, or payable with respect to, any fees or charges, including any Charges, payable by it pursuant to this Agreement, including all sales, use, value-added, and similar Taxes, but excluding any Taxes on Service Provider’s income. Notwithstanding anything to the contrary in the previous sentence or elsewhere in this Agreement, Service Recipient shall be entitled to withhold from any payments to Service Provider any such Taxes that Service Recipient is required by applicable Law to withhold and shall pay such Taxes to the applicable Taxing Authority.
Section 4.04. No Set-Off. Except as mutually agreed in writing by Service Provider and Service Recipient, none of Service Recipient and its Affiliates shall have any right of set-off or other similar rights with respect to any amounts owed to Service Provider or any of its Subsidiaries pursuant to this Agreement on account of any obligation owed by Service Provider or any of its Subsidiaries to Service Recipient or any of its Subsidiaries.
Section 4.05. Audit Rights. Subject to the confidentiality provisions of this Agreement, Service Provider shall, and shall cause its Affiliates to, provide, upon ten (10) business days’ prior written notice from Service Recipient, any information within Service Provider’s or its Affiliates’ possession that Service Recipient reasonably requests in connection with any Services being provided to Service Recipient by Service Provider or a Third Party service provider, including any applicable invoices or other supporting documentation, or in the case of a Third Party service provider, agreements documenting the arrangements between such Third Party service provider and Service Provider; provided, however, that each of UTC, Carrier and Otis shall make no more than one (1) such request to each other applicable Party during any calendar month. Service Recipient shall reimburse Service Provider for any reasonable, documented, out-of-pocket costs incurred in connection with Service Provider providing such information.
Article V
TERM AND TERMINATION
Section 5.01. Term. This Agreement shall commence at the First Effective Time and shall terminate, as between UTC and Carrier and UTC and Otis, upon the earliest to occur of (a) (i) as between UTC and Carrier, the close of business on the last day of the last Service Period with respect to any Service UTC is obligated to provide to Carrier or Carrier is obligated to provide to UTC or (ii) as between UTC and Otis, the close of business on the last day of the last Service Period with respect to any Service UTC is obligated to provide to Otis or Otis is obligated to provide to UTC, in each case, in accordance with the terms of this Agreement; and (b) the mutual written agreement of UTC and Carrier or UTC and Otis, as applicable, to terminate this Agreement in its entirety as between such Parties. Unless otherwise terminated pursuant to Section 5.03, this Agreement shall terminate with respect to each Service as of the close of business on the last day of the Service Period for such Service.
Section 5.02. Extension of a Service Period. After the date of this Agreement, if Service Recipient (a) desires to extend the Service Period for any Service, as reflected on a Schedule to this Agreement, and (b) provides written notice to Service Provider at least thirty (30) days prior to expiration of the applicable Service Period for such Service, then Service Provider shall use its commercially reasonable efforts to continue to provide such Service for the extended Service Period; provided, however, that Service Provider shall not be obligated to extend a Service Period for any Service if (x) despite the use of commercially reasonable efforts, Service Provider would be unable to provide such Service without significant disruption to its or its Subsidiaries’ businesses or unreasonable expenditures of time (relative to the time required to provide such Service during the initial Service Period) or unreimbursed costs or (y) there are interdependencies among such Service and any other Services for which the Service Period will expire prior to the end of such extension, and such interdependencies cannot be addressed despite good-faith negotiations between UTC and Carrier or UTC and Otis, as applicable; provided, further, that under no circumstances will any Service Period be extended beyond the date that is the eighteen (18)-month anniversary of the applicable Distribution Date. To the extent the costs to provide such Service will increase during such extended Service Period, the applicable Parties shall negotiate in good faith the Charges for such Service, which Charges shall be determined in a manner consistent with the methodology reflected in Section 2.03 and the applicable Schedule. The applicable Parties will amend the relevant Schedule to reflect such extended Service Period and any increased Charges applicable to the Service. Such amended Schedule, as agreed to in writing by the applicable Parties, shall be deemed part of this Agreement as of the date of such agreement, in each case subject to the terms and conditions of this Agreement.
Section 5.03. Early Termination.
(a) Without prejudice to Service Recipient’s rights with respect to Force Majeure, Service Recipient may from time to time terminate this Agreement with respect to the entirety of any Service (for the avoidance of doubt, Service Recipient may terminate any Service set forth on any part of the Schedules hereto without terminating all or any other Services set forth on the same Schedule as such terminated Service):
(i) for any reason or no reason, upon the giving of at least sixty (60) days’ prior written notice (or such other number of days specified in the Schedules hereto) to Service Provider; provided, however, that any such termination (x) may not be effective prior to the end of the Minimum Service Period, (y) may only be effective as of the last day of a calendar month and (z) shall be subject to the obligation to pay any applicable Termination Charges pursuant to Section 5.05; or
(ii) if Service Provider has failed to perform any of its material obligations under this Agreement with respect to such Service, and such failure shall continue to be uncured by Service Provider for a period of at least thirty (30) days after receipt by Service Provider of written notice of such failure from Service Recipient; provided, however, that Service Recipient shall not be entitled to terminate this Agreement with respect to the applicable Service if, as of the end of such period, there remains a good-faith Dispute between the applicable Parties (undertaken in accordance with the terms of Section 8.15) as to whether Service Provider has cured the applicable breach.
(b) Service Provider may terminate this Agreement with respect to the entirety of any Service at any time upon prior written notice to Service Recipient if Service Recipient has failed to perform any of its material obligations under this Agreement with respect to such Service, including making payment of Charges for such Service when due, and such failure shall continue to be uncured by Service Recipient for a period of at least thirty (30) days after receipt by Service Recipient of a written notice of such failure from Service Provider; provided, however, that Service Provider shall not be entitled to terminate this Agreement with respect to the applicable Service if, as of the end of such period, there remains a good-faith Dispute between the applicable Parties (undertaken in accordance with the terms of Section 8.15) as to whether Service Recipient has cured the applicable breach.
(c) UTC may terminate this Agreement with respect to all Services provided to Carrier if there is a Carrier Change of Control and with respect to all Services provided to Otis if there is an Otis Change of Control.
(d) The Schedules hereto shall be updated to reflect any terminated Service.
Section 5.04. Interdependencies.
(a) UTC and Carrier acknowledge and agree that (a) there may be interdependencies among the Services being provided to Carrier under this Agreement; (b) upon the request of UTC or Carrier, UTC and Carrier shall cooperate and act in good faith to determine whether (i) any such interdependencies exist with respect to the particular Service that Carrier is seeking to terminate pursuant to Section 5.03 and (ii) in the case of such termination, UTC’s ability to provide a particular Service to Carrier in accordance with this Agreement would be materially and adversely affected by such termination of another Service by Carrier; and (c) in the event that UTC and Carrier have determined that such interdependencies exist and such termination would materially and adversely affect UTC’s ability to provide a particular Service to Carrier in accordance with this Agreement, UTC and Carrier shall (i) negotiate in good faith to amend the Schedules hereto with respect to such impacted Service prior to such termination, which amendment shall be consistent with the terms of comparable Services, and (ii) if after such negotiation, UTC and Carrier are unable to agree on such amendment, UTC’s obligation to provide such Service to Carrier shall terminate automatically with such termination.
(b) UTC and Otis acknowledge and agree that (a) there may be interdependencies among the Services being provided to Otis under this Agreement; (b) upon the request of UTC or Otis, UTC and Otis shall cooperate and act in good faith to determine whether (i) any such interdependencies exist with respect to the particular Service that Otis is seeking to terminate pursuant to Section 5.03 and (ii) in the case of such termination, UTC’s ability to provide a particular Service to Otis in accordance with this Agreement would be materially and adversely affected by such termination of another Service by Otis; and (c) in the event that UTC and Otis have determined that such interdependencies exist and such termination would materially and adversely affect UTC’s ability to provide a particular Service to Otis in accordance with this Agreement, UTC and Otis shall (i) negotiate in good faith to amend the Schedules hereto with respect to such impacted Service prior to such termination, which amendment shall be consistent with the terms of comparable Services, and (ii) if after such negotiation, UTC and Otis are unable to agree on such amendment, UTC’s obligation to provide such Service to Otis shall terminate automatically with such termination.
Section 5.05. Effect of Termination. Upon the termination of any Service pursuant to this Agreement, Service Provider shall have no further obligation to provide the terminated Service, and Service Recipient shall have no obligation to pay any future Charges relating to such Service; provided, however, that Service Recipient shall remain obligated to Service Provider for (a) the Charges owed and payable in respect of Services provided prior to the effective date of termination for such Service, and (b) any applicable Termination Charges (which, in the case of clause (b), shall not be payable in the event that Service Recipient terminates any Service pursuant to Section 5.03(a)(ii)); provided, further, that, any Termination Charges relating to fixed costs in respect of any terminated Service shall be due at the time such Service is terminated. In connection with the termination of any Service, the provisions of this Agreement not relating solely to such terminated Service shall survive any such termination, and in connection with a termination of this Agreement, Article I, this Article V, Article VII and Article VIII, all confidentiality obligations under this Agreement and Liability for all due and unpaid Charges, and Termination Charges shall continue to survive indefinitely.
Section 5.06. Information Transmission. Service Provider, on behalf of itself and its Subsidiaries, shall use commercially reasonable efforts to provide or make available, or cause to be provided or made available, Service Recipient in accordance with Section 6.1 of the Separation and Distribution Agreement, any Information received or computed by Service Provider for the benefit of Service Recipient concerning the relevant Service during the Service Period; provided, however, that, except as otherwise agreed to in writing by the applicable Parties (a) Service Provider shall not have any obligation to provide, or cause to be provided, Information in any nonstandard format, (b) Service Provider and its Subsidiaries shall be reimbursed for their reasonable costs in accordance with Section 6.3 of the Separation and Distribution Agreement for creating, gathering, copying, transporting and otherwise providing such Information, and (c) Service Provider shall use commercially reasonable efforts to maintain any such Information in accordance with Section 6.4 of the Separation and Distribution Agreement.
Article VI
CONFIDENTIALITY; PROTECTIVE ARRANGEMENTS
Section 6.01. Obligations of UTC, Carrier and Otis.
(a) Subject to Section 6.04, until the third (3rd) anniversary of the date of the termination of this Agreement with respect to UTC and Carrier, each of UTC and Carrier, on behalf of itself and each of its Subsidiaries, agrees to hold, and to cause its respective Representatives to hold, in strict confidence, with at least the same degree of care that applies to UTC’s Confidential Information pursuant to policies in effect as of the Effective Time, all Confidential Information concerning such other Party or its Subsidiaries or their respective businesses that is either in its possession (including Confidential Information in its possession prior to the date hereof) or furnished by such other Party or such other Party’s Subsidiaries or their respective Representatives at any time pursuant to this Agreement (including pursuant to Section 3.01, Section 4.05, Section 5.06 and Section 8.03), and shall not use any such Confidential Information other than for such purposes as may be expressly permitted hereunder, except, in each case, to the extent that such Confidential Information (a) is in the public domain or is generally available to the public, other than as a result of a disclosure by such Party or any of its Subsidiaries or any of their respective Representatives in violation of this Agreement; (b) is lawfully acquired from other sources by such Party or any of its Subsidiaries, which sources are not themselves known by such Party or any of its Subsidiaries to be bound by a confidentiality obligation or other contractual, legal or fiduciary obligation of confidentiality with respect to such Confidential Information; or (c) is independently developed or generated without reference to or use of the Confidential Information of such other Party or any of its Subsidiaries. If any Confidential Information of a Party or any of its Subsidiaries is disclosed to such other Party or any of its Subsidiaries in connection with providing the Services, then such disclosed Confidential Information shall be used only as required to perform such Services.
(b) Subject to Section 6.04, until the third (3rd) anniversary of the date of the termination of this Agreement with respect to UTC and Otis, each of UTC and Otis, on behalf of itself and each of its Subsidiaries, agrees to hold, and to cause its respective Representatives to hold, in strict confidence, with at least the same degree of care that applies to UTC’s Confidential Information pursuant to policies in effect as of the Effective Time, all Confidential Information concerning such other Party or its Subsidiaries or their respective businesses that is either in its possession (including Confidential Information in its possession prior to the date hereof) or furnished by such other Party or such other Party’s Subsidiaries or their respective Representatives at any time pursuant to this Agreement (including pursuant to Section 3.01, Section 4.05, Section 5.06 and Section 8.03), and shall not use any such Confidential Information other than for such purposes as may be expressly permitted hereunder, except, in each case, to the extent that such Confidential Information (a) is in the public domain or is generally available to the public, other than as a result of a disclosure by such Party or any of its Subsidiaries or any of their respective Representatives in violation of this Agreement; (b) is lawfully acquired from other sources by such Party or any of its Subsidiaries, which sources are not themselves known by such Party or any of its Subsidiaries to be bound by a confidentiality obligation or other contractual, legal or fiduciary obligation of confidentiality with respect to such Confidential Information; or (c) is independently developed or generated without reference to or use of the Confidential Information of such other Party or any of its Subsidiaries. If any Confidential Information of a Party or any of its Subsidiaries is disclosed to such other Party or any of its Subsidiaries in connection with providing the Services, then such disclosed Confidential Information shall be used only as required to perform such Services.
Section 6.02. No Release; Return or Destruction. Each Party agrees not to release or disclose, or permit to be released or disclosed, any Confidential Information of another Party pursuant to Section 6.01 to any other Person, except its Representatives who need to know such Confidential Information in their capacities as such (who shall be advised of their obligations hereunder with respect to such Confidential Information) and except in compliance with Section 6.04. Without limiting the foregoing, when any such Confidential Information is no longer needed for the purposes contemplated by the Separation and Distribution Agreement, this Agreement or any other Ancillary Agreements, each Party will promptly after the request of another Party either return to such other Party all such Confidential Information of such other Party in a tangible form (including all copies thereof and all notes, extracts or summaries based thereon) or notify such other Party in writing that it has destroyed such information (and such copies thereof and such notes, extracts or summaries based thereon); provided that the Parties may retain electronic back-up versions of such Confidential Information maintained on routine computer system back-up tapes, disks or other backup storage devices; and provided, further, that any such retained back-up information shall remain subject to the confidentiality provisions of this Agreement.
Section 6.03. Privacy and Data Protection Laws. Each Party shall comply with all applicable state, federal and foreign privacy and data protection Laws that are or that may in the future be applicable to the provision of the Services under this Agreement.
Section 6.04. Protective Arrangements. In the event that a Party or any of its Subsidiaries either determines on the advice of its counsel that it is required to disclose any information pursuant to applicable Law or receives any request or demand under lawful process (including from any Governmental Authority) to disclose or provide information of another Party (or any of its Subsidiaries) that is subject to the confidentiality provisions hereof, such Party shall notify such other Party (to the extent legally permitted) as promptly as practicable under the circumstances prior to disclosing or providing such information and shall cooperate, at the expense of such other Party, in seeking any appropriate protective order requested by such other Party. In the event that such other Party fails to receive such appropriate protective order in a timely manner and the Party receiving the request or demand reasonably determines that its failure to disclose or provide such information shall actually prejudice the Party receiving the request or demand, then the Party that received such request or demand may thereafter disclose or provide information to the extent required by such Law (as so advised by its counsel) or by lawful process (including by such Governmental Authority), and the disclosing Party shall promptly provide such other Party with a copy of the information so disclosed, in the same form and format so disclosed, together with a list of all Persons to whom such information was disclosed, in each case to the extent legally permitted.
Article VII
LIMITED LIABILITY AND INDEMNIFICATION
Section 7.01. Limitations on Liability.
(a) Service Provider Limitations on Liability.
(i) SUBJECT TO Section 7.02, THE LIABILITIES OF UTC AND ITS SUBSIDIARIES AND THEIR RESPECTIVE REPRESENTATIVES, COLLECTIVELY, TO CARRIER UNDER THIS AGREEMENT FOR ANY ACT OR FAILURE TO ACT IN CONNECTION WITH THE SERVICES PROVIDED BY UTC TO CARRIER (INCLUDING THE PERFORMANCE OR BREACH OF THIS AGREEMENT), OR FROM THE SALE, DELIVERY OR PROVISION OF ANY SERVICES PROVIDED TO CARRIER OR ITS SUBSIDIARIES BY UTC UNDER OR CONTEMPLATED BY THIS AGREEMENT, WHETHER IN CONTRACT, TORT (INCLUDING NEGLIGENCE AND STRICT LIABILITY) OR OTHERWISE, SHALL NOT EXCEED THE AGGREGATE CHARGES PAID OR PAYABLE BY CARRIER TO UTC UNDER THIS AGREEMENT OVER THE PREVIOUS TWELVE (12) MONTHS OR SINCE THE DATE OF THIS AGREEMENT (IF PRIOR TO THE FIRST ANNIVERSARY OF THIS AGREEMENT) WITH RESPECT TO THE SERVICES GIVING RISE TO SUCH LIABILITY.
(ii) SUBJECT TO Section 7.02, THE LIABILITIES OF UTC AND ITS SUBSIDIARIES AND THEIR RESPECTIVE REPRESENTATIVES, COLLECTIVELY, TO OTIS UNDER THIS AGREEMENT FOR ANY ACT OR FAILURE TO ACT IN CONNECTION WITH THE SERVICES PROVIDED BY UTC TO OTIS (INCLUDING THE PERFORMANCE OR BREACH OF THIS AGREEMENT), OR FROM THE SALE, DELIVERY OR PROVISION OF ANY SERVICES PROVIDED TO OTIS OR ITS SUBSIDIARIES BY UTC UNDER OR CONTEMPLATED BY THIS AGREEMENT, WHETHER IN CONTRACT, TORT (INCLUDING NEGLIGENCE AND STRICT LIABILITY) OR OTHERWISE, SHALL NOT EXCEED THE AGGREGATE CHARGES PAID OR PAYABLE BY OTIS TO UTC UNDER THIS AGREEMENT OVER THE PREVIOUS TWELVE (12) MONTHS OR SINCE THE DATE OF THIS AGREEMENT (IF PRIOR TO THE FIRST ANNIVERSARY OF THIS AGREEMENT) WITH RESPECT TO THE SERVICES GIVING RISE TO SUCH LIABILITY.
(iii) SUBJECT TO Section 7.02, THE LIABILITIES OF CARRIER AND ITS SUBSIDIARIES AND THEIR RESPECTIVE REPRESENTATIVES, COLLECTIVELY, TO UTC UNDER THIS AGREEMENT FOR ANY ACT OR FAILURE TO ACT IN CONNECTION WITH THE SERVICES PROVIDED BY CARRIER TO UTC (INCLUDING THE PERFORMANCE OR BREACH OF THIS AGREEMENT), OR FROM THE SALE, DELIVERY OR PROVISION OF ANY SERVICES PROVIDED TO UTC OR ITS SUBSIDIARIES BY CARRIER UNDER OR CONTEMPLATED BY THIS AGREEMENT, WHETHER IN CONTRACT, TORT (INCLUDING NEGLIGENCE AND STRICT LIABILITY) OR OTHERWISE, SHALL NOT EXCEED THE AGGREGATE CHARGES PAID OR PAYABLE BY UTC TO CARRIER UNDER THIS AGREEMENT OVER THE PREVIOUS TWELVE (12) MONTHS OR SINCE THE DATE OF THIS AGREEMENT (IF PRIOR TO THE FIRST ANNIVERSARY OF THIS AGREEMENT) WITH RESPECT TO THE SERVICES GIVING RISE TO SUCH LIABILITY.
(iv) SUBJECT TO Section 7.02, THE LIABILITIES OF OTIS AND ITS SUBSIDIARIES AND THEIR RESPECTIVE REPRESENTATIVES, COLLECTIVELY, TO UTC UNDER THIS AGREEMENT FOR ANY ACT OR FAILURE TO ACT IN CONNECTION WITH THE SERVICES PROVIDED BY OTIS TO UTC (INCLUDING THE PERFORMANCE OR BREACH OF THIS AGREEMENT), OR FROM THE SALE, DELIVERY OR PROVISION OF ANY SERVICES PROVIDED TO UTC OR ITS SUBSIDIARIES BY OTIS UNDER OR CONTEMPLATED BY THIS AGREEMENT, WHETHER IN CONTRACT, TORT (INCLUDING NEGLIGENCE AND STRICT LIABILITY) OR OTHERWISE, SHALL NOT EXCEED THE AGGREGATE CHARGES PAID OR PAYABLE BY UTC TO OTIS UNDER THIS AGREEMENT OVER THE PREVIOUS TWELVE (12) MONTHS OR SINCE THE DATE OF THIS AGREEMENT (IF PRIOR TO THE FIRST ANNIVERSARY OF THIS AGREEMENT) WITH RESPECT TO THE SERVICES GIVING RISE TO SUCH LIABILITY.
(b) Service Recipient Limitations on Liability.
(i) SUBJECT TO SECTION 7.02, EXCEPT FOR THE FAILURE OF CARRIER TO PAY FOR SERVICES, AND WITHOUT LIMITING CARRIER’S OBLIGATIONS PURSUANT TO Section 7.03, THE LIABILITIES OF CARRIER AND ITS SUBSIDIARIES AND THEIR RESPECTIVE REPRESENTATIVES, COLLECTIVELY, UNDER THIS AGREEMENT TO UTC RELATING TO THE RECEIPT OF ANY SERVICES PROVIDED BY UTC TO CARRIER UNDER OR CONTEMPLATED BY THIS AGREEMENT, WHETHER IN CONTRACT, TORT (INCLUDING NEGLIGENCE AND STRICT LIABILITY) OR OTHERWISE, SHALL NOT EXCEED THE AGGREGATE AMOUNT OF FEES (EXCLUDING ANY FEES CHARGED BY UTC FOR REIMBURSEMENT OF THIRD PARTY FEES) PAID OR PAYABLE BY CARRIER UNDER THIS AGREEMENT OVER THE PREVIOUS TWELVE (12) MONTHS OR SINCE THE DATE OF THIS AGREEMENT (IF PRIOR TO THE FIRST ANNIVERSARY OF THIS AGREEMENT) WITH RESPECT TO ALL SERVICES PROVIDED BY UTC TO CARRIER PURSUANT THIS AGREEMENT.
(ii) SUBJECT TO SECTION 7.02, EXCEPT FOR THE FAILURE OF OTIS TO PAY FOR SERVICES, AND WITHOUT LIMITING OTIS’ OBLIGATIONS PURSUANT TO Section 7.03, THE LIABILITIES OF OTIS AND ITS SUBSIDIARIES AND THEIR RESPECTIVE REPRESENTATIVES, COLLECTIVELY, UNDER THIS AGREEMENT TO UTC RELATING TO THE RECEIPT OF ANY SERVICES PROVIDED BY UTC TO OTIS UNDER OR CONTEMPLATED BY THIS AGREEMENT, WHETHER IN CONTRACT, TORT (INCLUDING NEGLIGENCE AND STRICT LIABILITY) OR OTHERWISE, SHALL NOT EXCEED THE AGGREGATE AMOUNT OF FEES (EXCLUDING ANY FEES CHARGED BY UTC FOR REIMBURSEMENT OF THIRD PARTY FEES) PAID OR PAYABLE BY OTIS UNDER THIS AGREEMENT OVER THE PREVIOUS TWELVE (12) MONTHS OR SINCE THE DATE OF THIS AGREEMENT (IF PRIOR TO THE FIRST ANNIVERSARY OF THIS AGREEMENT) WITH RESPECT TO ALL SERVICES PROVIDED BY UTC TO OTIS PURSUANT THIS AGREEMENT.
(iii) SUBJECT TO SECTION 7.02, EXCEPT FOR THE FAILURE OF UTC TO PAY FOR SERVICES, AND WITHOUT LIMITING UTC’S OBLIGATIONS PURSUANT TO Section 7.03, THE LIABILITIES OF UTC AND ITS SUBSIDIARIES AND THEIR RESPECTIVE REPRESENTATIVES, COLLECTIVELY, UNDER THIS AGREEMENT TO CARRIER RELATING TO THE RECEIPT OF ANY SERVICES PROVIDED BY CARRIER TO UTC UNDER OR CONTEMPLATED BY THIS AGREEMENT, WHETHER IN CONTRACT, TORT (INCLUDING NEGLIGENCE AND STRICT LIABILITY) OR OTHERWISE, SHALL NOT EXCEED THE AGGREGATE AMOUNT OF FEES (EXCLUDING ANY FEES CHARGED BY CARRIER FOR REIMBURSEMENT OF THIRD PARTY FEES) PAID OR PAYABLE BY UTC UNDER THIS AGREEMENT OVER THE PREVIOUS TWELVE (12) MONTHS OR SINCE THE DATE OF THIS AGREEMENT (IF PRIOR TO THE FIRST ANNIVERSARY OF THIS AGREEMENT) WITH RESPECT TO ALL SERVICES PROVIDED BY CARRIER TO UTC PURSUANT THIS AGREEMENT.
(iv) SUBJECT TO SECTION 7.02, EXCEPT FOR THE FAILURE OF UTC TO PAY FOR SERVICES, AND WITHOUT LIMITING UTC’S OBLIGATIONS PURSUANT TO Section 7.03, THE LIABILITIES OF UTC AND ITS SUBSIDIARIES AND THEIR RESPECTIVE REPRESENTATIVES, COLLECTIVELY, UNDER THIS AGREEMENT TO OTIS RELATING TO THE RECEIPT OF ANY SERVICES PROVIDED BY OTIS TO UTC UNDER OR CONTEMPLATED BY THIS AGREEMENT, WHETHER IN CONTRACT, TORT (INCLUDING NEGLIGENCE AND STRICT LIABILITY) OR OTHERWISE, SHALL NOT EXCEED THE AGGREGATE AMOUNT OF FEES (EXCLUDING ANY FEES CHARGED BY OTIS FOR REIMBURSEMENT OF THIRD PARTY FEES) PAID OR PAYABLE BY UTC UNDER THIS AGREEMENT OVER THE PREVIOUS TWELVE (12) MONTHS OR SINCE THE DATE OF THIS AGREEMENT (IF PRIOR TO THE FIRST ANNIVERSARY OF THIS AGREEMENT) WITH RESPECT TO ALL SERVICES PROVIDED BY OTIS TO UTC PURSUANT THIS AGREEMENT.
(c) IN NO EVENT SHALL ANY OF THE PARTIES, THEIR SUBSIDIARIES OR THEIR RESPECTIVE REPRESENTATIVES BE LIABLE TO ANOTHER PARTY FOR ANY INDIRECT, INCIDENTAL, PUNITIVE, EXEMPLARY, REMOTE, SPECULATIVE OR SIMILAR DAMAGES IN EXCESS OF COMPENSATORY DAMAGES OF THE OTHER PARTY IN CONNECTION WITH THE PERFORMANCE OF THIS AGREEMENT (OTHER THAN ANY SUCH LIABILITY WITH RESPECT TO A THIRD-PARTY CLAIM), AND EACH PARTY HEREBY WAIVES ON BEHALF OF ITSELF, ITS SUBSIDIARIES AND ITS REPRESENTATIVES ANY CLAIM FOR SUCH DAMAGES, WHETHER ARISING IN CONTRACT, TORT OR OTHERWISE.
(d) The limitations in Section 7.01(a)(i), Section 7.01(a)(ii), Section 7.01(a)(iii), Section 7.01(a)(iv), Section 7.01(b)(i), Section 7.01(b)(ii), Section 7.01(b)(iii), Section 7.01(b)(iv) and Section 7.01(c) shall not apply in respect of any Liability arising out of or in connection with (i) any Party’s Liability for breaches of confidentiality under Article VI, (ii) the Parties’ respective obligations under Section 7.03 or 7.04 or (iii) the willful misconduct or fraud of or by the Party to be charged.
Section 7.02. Obligation to Re-Perform; Liabilities. In the event of any breach of this Agreement by Service Provider with respect to the provision of any Services (with respect to which Service Provider can reasonably be expected to re-perform in a commercially reasonable manner), Service Provider shall, at the request of Service Recipient, promptly correct in all material respects such error, defect or breach or re-perform in all material respects such Services at the sole cost and expense of Service Provider. The remedy set forth in this Section 7.02 shall be the sole and exclusive remedy of Service Recipient for any such breach of this Agreement; provided, however, that the foregoing shall not prohibit Service Recipient from exercising its right to terminate this Agreement in accordance with the provisions of Section 5.03(a)(ii) or seeking specific performance in accordance with Section 8.16. Any request for re-performance in accordance with this Section 7.02 by Service Recipient must be in writing and specify in reasonable detail the particular error, defect or breach, and such request must be made no more than one month from the later of (x) the date on which such breach occurred and (y) the date on which such breach was reasonably discovered by Service Recipient.
Section 7.03. Third-Party Claims. In addition to (but not in duplication of) its other indemnification obligations (if any) under the Separation and Distribution Agreement, this Agreement or any other Ancillary Agreement, Service Recipient shall indemnify, defend and hold harmless Service Provider, its Subsidiaries and each of their respective Representatives, and each of the successors and assigns of any of the foregoing (collectively, the “Service Provider Indemnitees”), from and against any and all claims of Third Parties relating to, arising out of or resulting from Service Recipient’s use or receipt of the Services provided by Service Provider hereunder, other than Third-Party Claims arising out of the gross negligence, willful misconduct or fraud of any Service Provider Indemnitee.
Section 7.04. Service Provider Indemnity. In addition to (but not in duplication of) its other indemnification obligations (if any) under the Separation and Distribution Agreement, this Agreement or any other Ancillary Agreement, Service Provider shall indemnify, defend and hold harmless Service Recipient, its Subsidiaries and each of their respective Subsidiaries and Representatives, and each of the successors and assigns of any of the foregoing (collectively, the “Service Recipient Indemnitees”), from and against any and all Liabilities relating to, arising out of or resulting from the sale, delivery or provision of any Services provided by Service Provider to Service Recipient hereunder, but only to the extent that such Liability relates to, arises out of or results from Service Provider’s gross negligence, willful misconduct or fraud.
Section 7.05. Indemnification Procedures. The procedures for indemnification set forth in Article IV of the Separation and Distribution Agreement shall govern claims for indemnification under this Agreement.
Article VIII
MISCELLANEOUS
Section 8.01. Mutual Cooperation.
(a) Each of UTC and Carrier shall, and shall cause its Subsidiaries to, cooperate with the other Party and its Subsidiaries in connection with the performance of the Services hereunder; provided, however, that such cooperation shall not unreasonably disrupt the normal operations of such Party or its Subsidiaries; and, provided, further, that this Section 8.01(a) shall not require such Party to incur any out-of-pocket costs or expenses unless and except as expressly provided in this Agreement or otherwise agreed in writing by the applicable Parties.
(b) Each of UTC and Otis shall, and shall cause its Subsidiaries to, cooperate with the other Party and its Subsidiaries in connection with the performance of the Services hereunder; provided, however, that such cooperation shall not unreasonably disrupt the normal operations of such Party or its Subsidiaries; and, provided, further, that this Section 8.01(b) shall not require such Party to incur any out-of-pocket costs or expenses unless and except as expressly provided in this Agreement or otherwise agreed in writing by the applicable Parties.
Section 8.02. Further Assurances. Subject to the terms of this Agreement, each Party shall take, or cause to be taken, any and all reasonable actions, including the execution, acknowledgment, filing and delivery of any and all documents and instruments that any other Party may reasonably request to effect the intent and purpose of this Agreement and the transactions contemplated hereby.
Section 8.03. Audit Assistance. Each of the Parties and their respective Subsidiaries are or may be subject to regulation and audit by a Governmental Authority (including a Taxing Authority), standards organizations, customers or other parties to contracts with such Parties or their respective Subsidiaries under applicable Law, standards or contract provisions. If a Governmental Authority, standards organization, customer or other party to a contract with a Party or its Subsidiary exercises its right to examine or audit such Party’s or its Subsidiary’s books, records, documents or accounting practices and procedures pursuant to such applicable Law, standards or contract provisions, and such examination or audit relates to the Services, then, subject to the confidentiality provisions of this Agreement, the applicable other Party shall provide, at the sole cost and expense of the requesting Party, all assistance reasonably requested by the Party that is subject to the examination or audit in responding to such examination or audits or requests for Information, to the extent that such assistance or Information is within the reasonable control of the cooperating Party and is related to the Services.
Section 8.04. Title to Intellectual Property. Except as expressly provided for under the terms of this Agreement, the Separation and Distribution Agreement or the Intellectual Property Agreement, Service Recipient acknowledges that it shall acquire no right, title or interest (including any license rights or rights of use) in any intellectual property that is owned or licensed by Service Provider, by reason of the provision of the Services hereunder. Service Recipient shall not remove or alter any copyright, trademark, confidentiality or other proprietary notices that appear on any intellectual property owned or licensed by Service Provider, and Service Recipient shall reproduce any such notices on any and all copies thereof. Service Recipient shall not attempt to decompile, translate, reverse engineer or make excessive copies of any intellectual property owned or licensed by Service Provider, and Service Recipient shall promptly notify Service Provider of any such attempt, regardless of whether by Service Recipient or any Third Party, of which Service Recipient becomes aware.
Section 8.05. Independent Contractors. The Parties each acknowledge and agree that they are separate entities, each of which has entered into this Agreement for independent business reasons. The relationships of the Parties hereunder are those of independent contractors and nothing contained herein shall be deemed to create a joint venture, partnership or any other relationship between or among any of the Parties. Employees performing Services hereunder do so on behalf of, under the direction of, and as employees of, Service Provider, and Service Recipient shall have no right, power or authority to direct such employees, unless otherwise specified with respect to a particular Service on the Schedules hereto.
Section 8.06. Counterparts; Entire Agreement; Corporate Power.
(a) This Agreement may be executed in one (1) or more counterparts, all of which shall be considered one (1) and the same agreement, and shall become effective when one or more counterparts have been signed by each of the Parties and delivered to the other Parties.
(b) This Agreement, the Separation and Distribution Agreement and the other Ancillary Agreements and the Exhibits, Schedules and appendices hereto and thereto contain the entire agreement among the Parties with respect to the subject matter hereof, supersede all previous agreements, negotiations, discussions, writings, understandings, commitments and conversations with respect to such subject matter, and there are no agreements or understandings among the Parties other than those set forth or referred to herein or therein with respect to such subject matter. This Agreement, the Separation and Distribution Agreement, and the other Ancillary Agreements govern the arrangements in connection with the Separation and the Distributions and would not have been entered independently.
(c) UTC represents on behalf of itself and, to the extent applicable, each of its Subsidiaries, and each of Carrier and Otis represents on behalf of itself and, to the extent applicable, each of its Subsidiaries, as follows:
(i) each such Person has the requisite corporate or other power and authority and has taken all corporate or other action necessary in order to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby; and
(ii) this Agreement has been duly executed and delivered by it and constitutes a valid and binding agreement of it and is enforceable in accordance with the terms hereof.
(d) Each Party acknowledges and agrees that delivery of an executed counterpart of a signature page to this Agreement (whether executed by manual, stamp or mechanical signature) by facsimile or by e-mail in portable document format (PDF) shall be effective as delivery of such executed counterpart of this Agreement. Each Party expressly adopts and confirms each such facsimile, stamp or mechanical signature (regardless of whether delivered in person, by mail, by courier, by facsimile or by e-mail in portable document format (PDF)) made in its respective name as if it were a manual signature delivered in person, agrees that it will not assert that any such signature or delivery is not adequate to bind such Party to the same extent as if it were signed manually and delivered in person and agrees that, at the reasonable request of another Party at any time, it will as promptly as reasonably practicable cause this Agreement to be manually executed (any such execution to be as of the date of the initial date thereof) and delivered in person, by mail or by courier.
Section 8.07. Governing Law. This Agreement (and any claims or disputes arising out of or related hereto or to the transactions contemplated hereby or to the inducement of any Party to enter herein, whether for breach of contract, tortious conduct or otherwise and whether predicated on common law, statute or otherwise) shall be governed by and construed and interpreted in accordance with the Laws of the State of Delaware, irrespective of the choice of Laws principles of the State of Delaware, including all matters of validity, construction, effect, enforceability, performance and remedies.
Section 8.08. Assignability.
(a) This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns; provided, however, that (i) Carrier may not assign its rights or delegate its obligations under this Agreement without the express prior written consent of UTC, (ii) Otis may not assign its rights or delegate its obligations under this Agreement without the express prior written consent of UTC, (iii) UTC may not assign its rights or delegate its obligations with respect to Carrier under this Agreement without the express prior written consent of Carrier and (iv) UTC may not assign its rights or delegate its obligations with respect to Otis under this Agreement without the express prior written consent of Otis.
(b) Notwithstanding the foregoing and without limiting UTC’s rights pursuant to Section 5.03(c), no consent shall be required pursuant to Section 8.08(a) for the assignment of a Party’s rights and obligations under the Separation and Distribution Agreement, this Agreement and the other Ancillary Agreements in whole (i.e., the assignment of such Party’s rights and obligations under the Separation and Distribution Agreement, this Agreement and all the other Ancillary Agreements all at the same time) in connection with a merger, consolidation or other business combination of such Party with or into any other Person or a sale of all or substantially all of the assets of such Party to another Person, in each case so long as the resulting, surviving or acquiring Person assumes all the obligations of such applicable Party by operation of Law or pursuant to an agreement in form and substance reasonably satisfactory to the Party or Parties whose consent would otherwise be required pursuant to Section 8.08(a). The Parties agree that if Carrier or Otis divests a business or portion of a business to a third party buyer while such business (or portion thereof, as applicable) is receiving Services under this Agreement, and the unavailability of the Services for the remaining applicable Service Period would materially and adversely impact such divested business (or portion thereof, as applicable) or Carrier’s or Otis’, as applicable, ability to successfully complete such divestiture, upon the written request of Carrier or Otis, as applicable, UTC and Carrier or Otis, as applicable, will cooperate in good faith and use commercially reasonable efforts to agree on a mutually acceptable and commercially reasonable plan to permit such divested business (or portion thereof, as applicable), but, for clarity, not any portion of the applicable third party buyer’s businesses or operations other than solely such divested business (or portion thereof, as applicable), to continue to receive the applicable Services during the remaining applicable Service Period consistent with the terms and conditions hereof, such plan to include, if mutually acceptable and commercially reasonable, any appropriate set-up or similar activities to segregate, as appropriate, the services provided to the divested business (or portion thereof, as applicable) from those provided to Carrier or Otis, as appropriate, and if and when such plan to segregate the services for such divested business (or portion thereof, as applicable) is mutually agreed (or if not mutually agreed, so long as UTC and Carrier or Otis, as applicable, shall have determined that such plan is not necessary after cooperating in good faith), UTC shall provide such services to such divested business (or portion thereof, as applicable) on the terms set out herein; provided that (a) the third party buyer, pursuant to an agreement with Carrier or Otis, as applicable, assumes all obligations of Carrier or Otis, as applicable, under this Agreement in respect of such divested business (or portion thereof) and such applicable Services which agreement shall be in form and substance reasonably satisfactory to UTC, and shall also specify that other than the preparation for and provision of the applicable Services and any necessary interaction with the third party buyer in connection therewith, UTC need only communicate and interact with Carrier or Otis, as applicable, and not such third party buyer, including with respect to invoicing, for which UTC shall invoice Carrier or Otis, as applicable, and Carrier or Otis, as applicable, shall remit payment to UTC, (b) notwithstanding the foregoing clause (a) and in addition to (but not in duplication of) its other indemnification obligations (if any) under the Separation and Distribution Agreement, this Agreement or any other Ancillary Agreement, Carrier or Otis, as applicable, shall indemnify, defend and hold harmless UTC, its Subsidiaries and each of their respective Representatives, and each of the successors and assigns of any of the foregoing, from and against any and all Liabilities relating to, arising out of or resulting from the sale, delivery or provision of any such Services to such third party buyer (except to the extent that such Liability relates to, arises out of or results from UTC’s gross negligence, willful misconduct or fraud), and (c) the provision of such applicable Services to such third party buyer shall be not be materially more burdensome to UTC, its Subsidiaries and each of their respective Representatives (either alone or in the aggregate with all other Services hereunder) than the provision of such applicable Services prior to such divestiture, including by requiring no greater amount or frequency of any such Services and being subject to no greater requirements or standards (other than the segregation of the services as contemplated above); provided, further, that under no circumstances shall UTC be required to agree to provide any such applicable Services to such third party buyer if doing so would adversely impact (other than de minimis impacts) the cost, burden, liability or risk associated with providing such applicable Services compared to the cost, burden, liability and risk associated with providing such applicable Services to Carrier or Otis, as applicable, prior to such divestiture, or otherwise cause any other non-de minimis disruption to or adverse impact on the UTC Business.
Section 8.09. Third-Party Beneficiaries. Except as provided in Article VII with respect to the Service Provider Indemnitees and the Service Recipient Indemnitees in their respective capacities as such, (a) the provisions of this Agreement are solely for the benefit of the Parties and are not intended to confer upon any other Person except the Parties any rights or remedies hereunder; and (b) there are no other third-party beneficiaries of this Agreement and this Agreement shall not provide any other Third Party with any remedy, claim, Liability, reimbursement, claim of action or other right in excess of those existing without reference to this Agreement.
Section 8.10. Notices. Except with respect to a Routine Communication (which shall be governed by Section 8.15), all notices, requests, claims, demands or other communications under this Agreement shall be in writing and shall be given or made (and except as provided herein shall be deemed to have been duly given or made upon receipt) by delivery in person, by overnight courier service, by certified mail, return receipt requested, or by electronic mail (“e-mail”), so long as confirmation of receipt of such e-mail is requested and received, to the respective Parties at the following addresses (or at such other address for a Party as shall be specified in a notice given in accordance with this Section 8.10):
If to UTC, to:
United Technologies Corporation
10 Farm Springs Road
Farmington, CT 06032
Attention: Sean Moylan
E-mail: Sean.Moylan@utc.com
If to Carrier, to:
Carrier Global Corporation
13995 Pasteur Boulevard
Palm Beach Gardens, FL 33418
Attention: General Counsel
E-mail: [ ]
If to Otis, to:
Otis Worldwide Corporation
One Carrier Place
Farmington, CT 06032
Attention: General Counsel
E-mail: [ ]
Any Party may, by notice to the other Parties, change the address to which such notices are to be given.
Section 8.11. Severability. If any provision of this Agreement or the application thereof to any Person or circumstance is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof, or the application of such provision to Persons or circumstances or in jurisdictions other than those as to which it has been held invalid or unenforceable, shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby. Upon such determination, the Parties shall negotiate in good faith in an effort to agree upon a suitable and equitable provision to effect the original intent of the Parties.
Section 8.12. Force Majeure. No Party shall be deemed in default of this Agreement for any delay or failure to fulfill any obligation hereunder so long as and to the extent to which any delay or failure in the fulfillment of such obligations is prevented, frustrated, hindered or delayed as a consequence of circumstances of Force Majeure. Without limiting the termination rights contained in this Agreement, in the event of any such excused delay, the time for performance shall be extended for a period equal to the time lost by reason of the delay. A Party claiming the benefit of this provision shall, as soon as reasonably practicable after the occurrence of any such Force Majeure, (a) provide written notice to the applicable other Parties of the nature and extent of such Force Majeure; and (b) use commercially reasonable efforts to remove any such causes and resume performance under this Agreement as soon as reasonably practicable (and in no event later than the date that the affected Party resumes analogous performance under any other agreement or for itself, its Affiliates or any Third Party) unless this Agreement has previously been terminated under Article V or this Section 8.12. Service Recipient shall be (i) relieved of the obligation to pay Charges for the affected Service(s) throughout the duration of such Force Majeure and (ii) entitled to permanently terminate such Service(s) if the delay or failure in providing such Services because of a Force Majeure shall continue to exist for more than thirty (30) consecutive days (it being understood that Service Recipient shall not be required to provide any advance notice of such termination to Service Provider).
Section 8.13. Headings. The Article, Section and Paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.
Section 8.14. Waivers of Default. Waiver by any Party of any default by another Party of any provision of this Agreement shall not be deemed a waiver by the waiving Party of any subsequent or other default, nor shall it prejudice the rights of the waiving Party. No failure or delay by any Party in exercising any right, power or privilege under this Agreement shall operate as a waiver thereof, nor shall a single or partial exercise thereof prejudice any other or further exercise thereof or the exercise of any other right, power or privilege.
Section 8.15. Dispute Resolution.
(a) Prior to the First Effective Time, the Parties shall establish a committee (the “TSA Committee”) that shall initially consist of the six individuals set forth on Annex A hereto. Each of UTC, Carrier and Otis may replace any member of the TSA Committee appointed by such Party at any time upon notice to the other Parties in accordance with Section 8.10. The TSA Committee shall be responsible for monitoring and managing all matters related to any of the transactions contemplated by this Agreement and shall use commercially reasonable efforts to meet monthly (or with such other frequency mutually agreed by each of the applicable Parties) for the purposes of reviewing and discussing cooperatively and in good faith the status of the Services, including any approaching terminations of Service Periods and the effective transition of Services from Service Provider to Service Recipient in connection therewith. Notwithstanding the requirements of Section 8.10, any Routine Communication shall be delivered via e-mail (with confirmation of receipt requested and received) to the members of the TSA Committee appointed by the relevant Party or Parties. For all Routine Communications other than Routine Communications which are exclusively related to ordinary course payment or billing of a Service, a copy shall also be delivered via e-mail (with confirmation of receipt requested and received) to the Persons listed in Section 8.10 with respect to the relevant Party or Parties. All decisions by the TSA Committee or any subcommittee thereof shall be effective only if mutually agreed by each of the applicable Parties implicated in the applicable matter. The Parties shall utilize the procedures set forth in Section 8.15(b) to resolve any matters as to which the TSA Committee is not able to reach a decision. In the event of any controversy, dispute or claim (a “Dispute”) arising out of or relating to any Party’s rights or obligations under this Agreement (whether arising in contract, tort or otherwise), calculation or allocation of the costs of any Service or otherwise arising out of or relating in any way to this Agreement (including the interpretation or validity of this Agreement), such Dispute shall be resolved by submitting such Dispute first to the TSA Committee, and the members of the TSA Committee from the Parties involved in such Dispute shall seek to resolve such Dispute through informal good-faith negotiation. In the event that the relevant members of the TSA Committee fail to meet, or if they meet and fail to resolve a Dispute within twenty (20) business days, then either Party involved in such Dispute may pursue the remedy set forth in Section 8.15(b).
(b) If the procedures set forth in Section 8.15(a) have been followed with respect to a Dispute and such Dispute remains unresolved, such Dispute shall be resolved in accordance with the dispute resolution process referred to in Article VII of the Separation and Distribution Agreement.
(c) In any Dispute regarding the amount of a Charge or a Termination Charge, if such Dispute is finally resolved pursuant to the dispute resolution process set forth or referred to in Section 8.15(a) or Section 8.15(b) and it is determined that the Charge or the Termination Charge, as applicable, that Service Provider has invoiced Service Recipient, and that Service Recipient has paid to Service Provider, is greater or less than the amount that the Charge or the Termination Charge, as applicable, should have been, then (i) if it is determined that Service Recipient has overpaid the Charge or the Termination Charge, as applicable, Service Provider shall within ten (10) days after such determination reimburse Service Recipient an amount of cash equal to such overpayment, plus the Interest Payment, accruing from the date of payment by Service Recipient to the time of reimbursement by Service Provider; and (ii) if it is determined that Service Recipient has underpaid the Charge or the Termination Charge, as applicable, Service Recipient shall within ten (10) days after such determination reimburse Service Provider an amount of cash equal to such underpayment, plus the Interest Payment, accruing from the date such payment originally should have been made by Service Recipient to the time of payment by Service Recipient.
Section 8.16. Specific Performance. Subject to Section 8.15, in the event of any actual or threatened default in, or breach of, any of the terms, conditions and provisions of this Agreement, the Party or Parties who are, or are to be, thereby aggrieved shall have the right to specific performance and injunctive or other equitable relief (on an interim or permanent basis) in respect of its rights or their rights under this Agreement, in addition to any and all other rights and remedies at law or in equity, and all such rights and remedies shall be cumulative. The Parties agree that the remedies at law for any breach or threatened breach are inadequate compensation for any loss and that any defense in any Action for specific performance that a remedy at law would be adequate is waived. Any requirements for the securing or posting of any bond with such remedy are hereby waived by each of the Parties. Unless otherwise agreed in writing, Service Provider shall continue to provide Services and the Parties shall honor all other commitments under this Agreement during the course of dispute resolution pursuant to the provisions of Section 8.15 and this Section 8.16 with respect to all matters not subject to such Dispute; provided, however, that this obligation shall only exist during the term of this Agreement.
Section 8.17. Amendments. No provisions of this Agreement shall be deemed waived, amended, supplemented or modified by a Party, unless such waiver, amendment, supplement or modification is in writing and signed by the authorized representative of the Party against whom enforcement of such waiver, amendment, supplement or modification is sought.
Section 8.18. Precedence of Schedules. Each Schedule attached to or referenced in this Agreement is hereby incorporated into and shall form a part of this Agreement; provided, however, that the terms contained in such Schedule shall only apply with respect to the Services provided under that Schedule. In the event of a conflict between the terms contained in an individual Schedule and the terms in the body of this Agreement, the terms in the Schedule shall take precedence with respect to the Services under such Schedule only. No terms contained in individual Schedules shall otherwise modify the terms of this Agreement.
Section 8.19. Interpretation. In this Agreement, (a) words in the singular shall be deemed to include the plural and vice versa and words of one gender shall be deemed to include the other genders as the context requires; (b) the terms “hereof,” “herein” and “herewith” and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole (including all of the Schedules, Annexes and Exhibits hereto) and not to any particular provision of this Agreement; (c) Article, Section, Exhibit, Annex and Schedule references are to the Articles, Sections, Exhibits, Annexes and Schedules to this Agreement unless otherwise specified; (d) unless otherwise stated, all references to any agreement shall be deemed to include the exhibits, schedules and annexes to such agreement; (e) the word “including” and words of similar import when used in this Agreement shall mean “including, without limitation,” unless otherwise specified; (f) the word “or” shall not be exclusive; (g) unless otherwise specified in a particular case, the word “days” refers to calendar days; (h) references to “business day” shall mean any day other than a Saturday, a Sunday or a day on which banking institutions are generally authorized or required by Law to close in New York, New York; (i) references herein to this Agreement or any other agreement contemplated herein shall be deemed to refer to this Agreement or such other agreement as of the date on which it is executed and as it may be amended, modified or supplemented thereafter, unless otherwise specified; (j) unless expressly stated to the contrary in this Agreement, all references to “the date hereof,” “the date of this Agreement,” “hereby” and “hereupon” and words of similar import shall all be references to [ ], 2020; (k) the word “extent” and the phrase “to the extent” shall mean the degree to which a subject or other thing extends, and such word or phrase shall not merely mean “if”; and (l) any local currency conversion to U.S. dollars shall be based on the appropriate foreign exchange conversion rate for the then-current month, based upon the average for such month, as calculated consistently with how such local currency conversion was calculated in the twelve (12)-month period prior to the date of this Agreement.
Section 8.20. Mutual Drafting. This Agreement shall be deemed to be the joint work product of the Parties and any rule of construction that a document shall be interpreted or construed against a drafter of such document shall not be applicable to this Agreement.
[Remainder of page intentionally left blank]
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their duly authorized representatives as of the date first written above.
|
UNITED TECHNOLOGIES CORPORATION
|
||
|
|
|
|
|
By:
|
|
|
|
|
Name:
|
|
|
|
Title:
|
|
|
CARRIER GLOBAL CORPORATION
|
||
|
|
|
|
|
By:
|
|
|
|
|
Name:
|
|
|
|
Title:
|
|
|
OTIS WORLDWIDE CORPORATION
|
||
|
|
|
|
|
By:
|
|
|
|
|
Name:
|
|
|
|
Title:
|
|
[Signature Page to Transaction Services Agreement]
Page
|
||
Section 1.
|
Definition of Terms
|
2
|
Section 2.
|
Allocation of Tax Liabilities
|
15
|
Section 2.01
|
General Rule.
|
15
|
Section 2.02
|
Allocation of United States Federal Income Tax and Federal Other Tax
|
15
|
Section 2.03
|
Allocation of State Income and State Other Taxes
|
16
|
Section 2.04
|
Allocation of Foreign Taxes
|
17
|
Section 2.05
|
Certain Transaction and Other Taxes
|
18
|
Section 3.
|
Proration of Taxes for Straddle Periods
|
20
|
Section 4.
|
Preparation and Filing of Tax Returns.
|
20
|
Section 4.01
|
General
|
20
|
Section 4.02
|
UTC’s Responsibility
|
20
|
Section 4.03
|
Carrier’s Responsibility
|
21
|
Section 4.04
|
Otis’s Responsibility
|
21
|
Section 4.05
|
Tax Accounting Practices
|
21
|
Section 4.06
|
Consolidated or Combined Tax Returns
|
22
|
Section 4.07
|
Right to Review Tax Returns
|
22
|
Section 4.08
|
SpinCo Carrybacks and Claims for Refund
|
23
|
Section 4.09
|
Apportionment of Earnings and Profits and Tax Attributes
|
23
|
Section 4.10
|
Gain Recognition Agreements
|
24
|
Section 4.11
|
Transfer Pricing
|
24
|
Section 5.
|
Tax Payments
|
25
|
Section 5.01
|
Payment of Taxes with Respect Tax Returns
|
25
|
Section 5.02
|
Indemnification Payments
|
25
|
Section 6.
|
Tax Benefits
|
26
|
Section 6.01
|
Tax Benefits
|
26
|
Section 6.02
|
UTC, Carrier, and Otis Income Tax Deductions in Respect of Certain Equity Awards and Incentive Compensation
|
28
|
Section 7.
|
Tax-Free Status
|
28
|
Section 7.01
|
Representations
|
28
|
Section 7.02
|
Restrictions on Carrier and Otis
|
29
|
Section 7.03
|
Restrictions on UTC
|
34
|
Section 7.04
|
Procedures Regarding Opinions and Rulings
|
34
|
Section 7.05
|
Liability for Tax-Related Losses and Specified Income Taxes
|
36
|
Section 7.06
|
Section 336(e) Election
|
40
|
Section 8.
|
Assistance and Cooperation
|
41
|
Section 8.01
|
Assistance and Cooperation
|
41
|
Section 8.02
|
Income Tax Return Information
|
42
|
Section 8.03
|
Reliance by UTC
|
42
|
Section 8.04
|
Reliance by Carrier
|
42
|
Section 8.05
|
Reliance by Otis
|
43
|
Section 9.
|
Tax Records
|
43
|
Section 9.01
|
Retention of Tax Records
|
43
|
Section 9.02
|
Access to Tax Records
|
44
|
Section 10.
|
Tax Contests
|
44
|
Section 10.01
|
Notice
|
44
|
Section 10.02
|
Control of Tax Contests
|
44
|
Section 11.
|
Effective Date; Termination of Prior Intercompany Tax Allocation Agreements
|
46
|
Section 12.
|
Survival of Obligations
|
47
|
Section 13.
|
Treatment of Payments; Tax Gross Up
|
47
|
Section 13.01
|
Treatment of Tax Indemnity and Tax Benefit Payments
|
47
|
Section 13.02
|
Tax Gross Up
|
48
|
Section 13.03
|
Interest
|
48
|
Section 14.
|
Disagreements
|
48
|
Section 15.
|
Late Payments
|
48
|
Section 16.
|
Expenses
|
49
|
Section 17.
|
General Provisions
|
49
|
Section 17.01
|
Addresses and Notices
|
49
|
Section 17.02
|
Binding Effect
|
50
|
Section 17.03
|
Waiver
|
50
|
Section 17.04
|
Severability
|
50
|
Section 17.05
|
Authority
|
50
|
Section 17.06
|
Further Action
|
50
|
Section 17.07
|
Integration
|
50
|
Section 17.08
|
Construction
|
51
|
Section 17.09
|
No Double Recovery
|
51
|
Section 17.10
|
Counterparts
|
51
|
Section 17.11
|
Governing Law
|
51
|
Section 17.12
|
Amendment
|
52
|
Section 17.13
|
SpinCo Subsidiaries
|
52
|
Section 17.14
|
Successors
|
52
|
Section 17.15
|
Injunctions
|
52
|
If to UTC, to:
United Technologies Corporation
10 Farm Springs Road
Farmington, Connecticut 06032
Attention: [Director, Taxes]
E-mail: [ ]
|
with a copy to:
United Technologies Corporation
10 Farm Springs Road
Farmington, Connecticut 06032
Attention: [Chief Financial Officer][General Counsel]
E-mail: [ ]
|
If to Carrier, to:
Carrier Global Corporation
13995 Pasteur Boulevard
Palm Beach Gardens, Florida 33418
Attention: [Director, Taxes]
E-mail: [ ]
|
with a copy to:
Carrier Global Corporation
13995 Pasteur Boulevard
Palm Beach Gardens, Florida 33418
Attention: [Chief Financial Officer][General Counsel]
E-mail: [ ]
|
If to Otis, to:
Otis Worldwide Corporation
One Carrier Place
Farmington, Connecticut 06032
Attention: [Director, Taxes]
E-mail: [ ]
|
with a copy to:
Otis Worldwide Corporation
One Carrier Place
Farmington, Connecticut 06032
Attention: [Chief Financial Officer][General Counsel]
E-mail: [ ]
|
UNITED TECHNOLOGIES CORPORATION
|
||
By:
|
||
|
Name:
|
|
Title:
|
||
CARRIER GLOBAL CORPORATION
|
||
By:
|
||
|
Name:
|
|
|
Title:
|
|
OTIS WORLDWIDE CORPORATION
|
||
By:
|
||
|
Name:
|
|
|
Title:
|
ARTICLE I DEFINITIONS
|
2
|
|||
Section 1.01.
|
Definitions
|
2
|
||
Section 1.02.
|
Interpretation
|
11
|
||
ARTICLE II GENERAL PRINCIPLES FOR ALLOCATION OF LIABILITIES
|
11 |
|||
Section 2.01.
|
General Principles
|
11
|
||
Section 2.02.
|
Service Credit
|
13
|
||
Section 2.03.
|
Adoption and Transfer and Assumption of Benefit Plans
|
14
|
||
ARTICLE III ASSIGNMENT OF EMPLOYEES
|
16
|
|||
Section 3.01.
|
Active Employees
|
16
|
||
Section 3.02.
|
Individual Agreements
|
17
|
||
Section 3.03.
|
Consultation with Labor Representatives; Labor Agreements
|
18
|
||
Section 3.04.
|
Non-Solicitation
|
19
|
||
ARTICLE IV EQUITY, INCENTIVE AND EXECUTIVE COMPENSATION
|
19
|
|||
Section 4.01.
|
General Rules and Adoption of Equity Plans
|
19
|
||
Section 4.02.
|
Equity Incentive Awards
|
20
|
||
Section 4.03.
|
Equity Grants to Rehired Employees
|
31
|
||
Section 4.04.
|
Cash Payment for Fractional Shares
|
31
|
||
Section 4.05.
|
Non-Equity Incentive Plans
|
31
|
||
Section 4.06.
|
Director Compensation
|
32
|
||
ARTICLE V U.S. QUALIFIED RETIREMENT PLANS
|
32
|
|||
Section 5.01.
|
UTC Employee Retirement Plan
|
32
|
||
Section 5.02.
|
UTC Savings Plans
|
32
|
||
ARTICLE VI NONQUALIFIED DEFERRED COMPENSATION PLANS
|
34
|
|||
Section 6.01.
|
UTC Retained Nonqualified Deferred Compensation Plans
|
34
|
||
Section 6.02.
|
UTC Bifurcated Nonqualified Deferred Compensation Plans
|
35
|
||
ARTICLE VII NON-U.S. RETIREMENT PLANS
|
37
|
|||
Section 7.01.
|
Retention of UK Pension Scheme
|
37
|
||
ARTICLE VIII WELFARE BENEFIT PLANS
|
37
|
|||
Section 8.01.
|
Welfare Plans
|
37
|
||
Section 8.02.
|
COBRA
|
38
|
||
Section 8.03.
|
Flexible Benefit Plans
|
39
|
||
Section 8.04.
|
Vacation, Holidays and Leaves of Absence
|
39
|
Section 8.05.
|
Disability Plans
|
40
|
|
Section 8.06.
|
Life Insurance
|
40
|
|
Section 8.07.
|
Retiree Medical
|
40
|
|
Section 8.08.
|
Severance, Retention and Unemployment Compensation
|
40
|
|
Section 8.09.
|
Workers’ Compensation
|
41
|
|
Section 8.10.
|
Insurance Contracts
|
41
|
|
Section 8.11.
|
Third-Party Vendors
|
41
|
|
ARTICLE IX MISCELLANEOUS
|
41
|
||
Section 9.01.
|
Information Sharing and Access
|
41
|
|
Section 9.02.
|
Preservation of Rights to Amend
|
42
|
|
Section 9.03.
|
Fiduciary Matters
|
42
|
|
Section 9.04.
|
Reimbursement of Costs and Expenses
|
43
|
|
Section 9.05.
|
Dispute Resolution
|
43
|
|
Section 9.06.
|
No Third-Party Beneficiaries
|
43
|
|
Section 9.07.
|
Incorporation of Separation Agreement Provisions
|
43
|
UNITED TECHNOLOGIES CORPORATION
|
||
By: | ||
|
Name:
|
|
Title:
|
||
OTIS WORLDWIDE CORPORATION
|
||
By: | ||
|
Name:
|
|
Title:
|
||
CARRIER GLOBAL CORPORATION
|
||
By: | ||
|
Name:
|
|
Title:
|
ARTICLE I DEFINITIONS
|
2
|
||
1.1
|
Defined Terms
|
2
|
|
ARTICLE II ASSIGNMENT OF SOLELY OWNED INTELLECTUAL PROPERTY RIGHTS
|
7
|
||
2.1
|
Assigned Intellectual Property Rights
|
7
|
|
ARTICLE III LICENSING OF INTELLECTUAL PROPERTY RIGHTS
|
7
|
||
3.1
|
Licensed Intellectual Property Rights
|
7
|
|
3.2
|
Reserved Intellectual Property Rights
|
9
|
|
3.3
|
No Rescission
|
9
|
|
ARTICLE IV TRADEMARKS
|
10
|
||
4.1
|
Ownership of United Technologies Trademarks
|
10
|
|
4.2
|
Use of United Technologies Trademarks
|
11
|
|
4.3
|
Special Trademark Provisions.
|
11
|
|
ARTICLE V EXCLUDED AGREEMENTS
|
11
|
||
5.1
|
No Change to Excluded Agreements
|
11
|
|
ARTICLE VI CONFIDENTIALITY
|
12
|
||
6.1
|
Received Information and Materials
|
12
|
|
6.2
|
Confidential Information
|
12
|
|
6.3
|
Obligations
|
12
|
|
6.4
|
Termination of UTC NDA
|
13
|
|
ARTICLE VII LIMITATIONS AND DISCLAIMERS
|
13
|
||
7.1
|
Subsequent Delivery of Intellectual Property Rights
|
13
|
|
7.2
|
No Additional Obligations
|
13
|
|
7.3
|
DISCLAIMER
|
14
|
|
7.4
|
Limitations of Liability
|
14
|
|
ARTICLE VIII GOVERNING LAW AND DISPUTE RESOLUTION
|
14
|
||
8.1
|
Governing Law
|
14
|
|
8.2
|
Alternative Dispute Resolution
|
14
|
|
8.3
|
Confidentiality
|
15
|
|
8.4
|
Equitable Relief
|
15
|
ARTICLE IX GENERAL PROVISIONS
|
16
|
||
9.1
|
Entire Agreement; Conflict Among Agreements
|
16
|
|
9.2
|
Assignment and Change of Control; Successor and Assigns
|
16
|
|
9.3
|
Bankruptcy
|
17
|
|
9.4
|
Amendments and Waivers
|
17
|
|
9.5
|
Notice
|
17
|
|
9.6
|
Severability
|
18
|
|
9.7
|
Counterparts
|
18
|
|
9.8
|
Further Assurances
|
18
|
|
9.9
|
Interpretation
|
18
|
UNITED TECHNOLOGIES CORPORATION
|
||
By:
|
||
Name:
|
||
Title:
|
OTIS WORLDWIDE CORPORATION
|
||
By:
|
||
Name:
|
||
Title:
|
CARRIER GLOBAL CORPORATION
|
||
By:
|
||
Name:
|
||
Title:
|
Exhibit 10.5
Form of Carrier Global Corporation 2020 Long-Term Incentive Plan
SECTION 1: Purpose; Definitions
The purpose of this Plan is to enable the Corporation to implement a compensation program that correlates compensation opportunities with shareowner value, focuses management on long-term, sustainable performance, and provides the Corporation with a competitive advantage in attracting, retaining and motivating officers, employees and directors.
For purposes of this Plan, the following terms are defined as set forth below:
a. | “Affiliate” means a company or other entity in which the Corporation has an equity or other financial interest, including joint ventures and partnerships. |
b. | “Applicable Exchange” means the New York Stock Exchange or such other securities exchange as may at the applicable time be the principal market for the Common Stock. |
c. | “Assumed Spin-Off Award” means an award granted to certain employees, officers, and directors of the Corporation, United Technologies Corporation, Otis Worldwide Corporation, and their respective Subsidiaries under a Prior Plan, which award is assumed by the Corporation and converted into an Award in connection with the Spin-Off, pursuant to the terms of the Employee Matters Agreement. |
d. | “Award” means a Stock Option, Stock Appreciation Right, Restricted Stock Award, Restricted Stock Unit Award, Other Stock-Based Award or Cash Award granted pursuant to the terms of this Plan. For the avoidance of doubt, the term “Award” includes each Assumed Spin-Off Award. |
e. | “Award Agreement” means a written or electronic document or agreement setting forth the terms and conditions of a specific Award. |
f. | “Board” means the Board of Directors of the Corporation. |
g. | “Business Combination” has the meaning set forth in Section 10(e)(iii). |
h. | “Cash Award” means an award granted to a Participant under Section 9 of this Plan. |
i. | “Cause” means, unless otherwise provided in an Award Agreement: (i) conduct involving a felony criminal offense under U.S. federal or state law or an equivalent violation of the laws of any other country; (ii) dishonesty, fraud, self-dealing or material violations of civil law in the course of fulfilling the Participant’s employment duties; (iii) breach of the Participant’s intellectual property agreement or other written agreement with the Corporation; (iv) willful misconduct injurious to the Corporation or any of its Subsidiaries or Affiliates as shall be determined by the Committee; (v) negligent conduct injurious to the Corporation and any of its Subsidiaries and Affiliates, including negligent supervision of a subordinate who causes significant harm to the Corporation as determined by the Committee; or (vi) prior to a Change-in-Control, such other events as shall be determined by the Committee. Notwithstanding the general rule of Section 2(c), following a Change-in-Control, any determination by the Committee as to whether “Cause” exists shall be subject to de novo review. Notwithstanding the foregoing, if a Participant is covered by the Corporation’s Change in Control Severance Plan, the definition of Cause for such Participant shall be as set forth in such plan. |
j. | “Change-in-Control” has the meaning set forth in Section 10(e). |
k. | “Code” means the Internal Revenue Code of 1986, as amended from time to time, and any successor thereto, the Treasury Regulations thereunder and other relevant interpretive guidance issued by the Internal Revenue Service or the Treasury Department. Reference to any specific section of the Code shall be deemed to include such regulations and guidance, as well as any successor provision of the Code. |
l. | “Committee” means the Committee referred to in Section 2. |
m. | “Common Stock” means common stock, par value $0.01 per share, of the Corporation. |
n. | “Corporate Transaction” has the meaning set forth in Section 3(d). |
o. | “Corporation” means Carrier Global Corporation, a Delaware corporation, or its successor. |
p. | “Disability” means permanent and total disability as determined under the Corporation’s long-term disability plan applicable to the Participant, or if there is no such plan applicable to the Participant, “Disability” means a determination of total disability by the Social Security Administration; provided that, in either case, the Participant’s condition also qualifies as a “disability” for purposes of Section 409A(a)(2)(C) of the Code, with respect to an Award that constitutes “nonqualified deferred compensation” subject to Section 409A of the Code. |
q. | “Disaffiliation” means a Subsidiary’s or an Affiliate’s ceasing to be a Subsidiary or Affiliate for any reason (including as a result of a public offering, or a spinoff or sale by the Corporation, of the stock of the Subsidiary or Affiliate) or a sale of a division of the Corporation and its Affiliates. |
r. | “Effective Date” has the meaning set forth in Section 12(a). |
s. | “Eligible Individuals” means directors, officers, and employees of the Corporation or any of its Subsidiaries or Affiliates, and prospective directors, officers and employees who have accepted offers of employment or consultancy from the Corporation or its Subsidiaries or Affiliates. |
t. | “Employee Matters Agreement” means the Employee Matters Agreement among the Corporation, United Technologies Corporation, and Otis Worldwide Corporation, entered into in connection with the Spin-Off. |
u. | “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, and any successor thereto. |
v. | “Fair Market Value” means, except as otherwise determined by the Committee, the closing price of a Share on the Applicable Exchange on the date of measurement or, if Shares were not traded on the Applicable Exchange on such measurement date, then on the next preceding date on which Shares were traded on the Applicable Exchange, as reported by such source as the Committee may select. If there is no regular public trading market for such Common Stock, the Fair Market Value of the Common Stock shall be determined by the Committee in good faith and, to the extent applicable, such determination shall be made in a manner that satisfies Sections 409A and Sections 422(c)(1) of the Code. |
w. | “Forfeiture Amount” has the meaning set forth in Section 14(i)(ii). |
x. | “Full-Value Award” means any Award other than Stock Appreciation Right, Stock Option or Cash Awards. |
y. | “Good Reason” means, the occurrence of any of the following without a Participant’s consent: (i) a material reduction in the Participant’s annual base salary, annual bonus opportunities, long-term incentive opportunities or other compensation and benefits in the aggregate from those in effect immediately prior to the Change-in-Control; (ii) a material diminution in the Participant’s title, duties, authority, responsibilities, functions or reporting relationship from those in effect immediately prior to the Change-in-Control; or (iii) a mandatory relocation of the Participant’s principal location of employment greater than 50 miles from immediately prior to the Change-in-Control. In order to invoke a termination for Good Reason, the Participant shall provide written notice to the Corporation of the existence of one or more of the conditions described in clauses (i) through (iii) within 90 days following the Participant’s knowledge of the initial existence of such condition or conditions, and the Corporation shall have 30 days following receipt of such written notice (the “Cure Period”) during which it may cure the condition, if curable. If the Corporation fails to cure the condition constituting Good Reason during the Cure Period, the Participant must terminate employment, if at all, within one year following the end of the Cure Period in order for such termination to constitute a termination for Good Reason. The Participant’s mental or physical incapacity following the occurrence of an event described above in clauses (i) through (iii) shall not affect the Participant’s ability to terminate employment for Good Reason. Notwithstanding the foregoing, if a Participant is covered by the Corporation’s Change in Control Severance Plan, the definition of Good Reason for such Participant shall be as set forth in such plan. |
z. | “Grant Date” means (i) the date on which the Committee by resolution selects an Eligible Individual to receive a grant of an Award and determines the number of Shares, or the formula for earning a number of Shares, to be subject to such Award or the cash amount subject to such Award and all other material terms applicable to such Award; or (ii) such later date as the Committee shall provide in such resolution. |
aa. | “Incentive Stock Option” means any Stock Option designated in the applicable Award Agreement as an “incentive stock option” within the meaning of Section 422 of the Code, and that in fact so qualifies. |
bb. | “Incumbent Board” has the meaning set forth in Section 10(e)(ii). |
cc. | “Individual Agreement” means, after a Change-in-Control, (i) a change-in-control or severance agreement between a Participant and the Corporation or one of its Affiliates, or (ii) a change-in-control or severance plan covering a Participant that is sponsored by the Corporation or one of its Affiliates. |
dd. | “Nonqualified Stock Option” means any Stock Option that is not an Incentive Stock Option. |
ee. | “Other Stock-Based Award” means an award granted to a Participant under Section 8 of this Plan. |
ff. | “Outstanding Corporation Common Stock” has the meaning set forth in Section 10(e)(i). |
gg. | “Outstanding Corporation Voting Securities” has the meaning set forth in Section 10(e)(i). |
hh. | “Participant” means an Eligible Individual to whom an Award is or has been granted. |
ii. | “Performance Goals” means the performance goals established by the Committee in connection with the grant of an Award which may be based on attainment of specified levels of one or more of the following measures, or of any other measures determined by the Committee in its discretion: stock price, total shareholder return, earnings (whether based on earnings before taxes, earnings before interest and taxes or earnings before interest, taxes, depreciation and amortization), earnings per share, return on equity, return on sales, return on assets or operating or net assets, market share, objective customer service measures or indices, pre- or after-tax income, net income, cash flow (before or after dividends or other adjustments), free cash flow, cash flow per share (before or after dividends or other adjustments), gross margin, working capital and gross inventory turnover, risk-based capital, revenues, revenue growth, return on capital (whether based on return on total capital or return on invested capital), cost control, gross profit, operating profit, unit volume, sales, in each case with respect to the Corporation or any one or more Subsidiaries, Affiliates, divisions, business units or business segments thereof, either in absolute terms or relative to the performance of one or more other companies (including an index covering multiple companies). |
jj. | “Person” has the meaning set forth in Section 10(e)(i). |
kk. | “Plan” means the Carrier Global Corporation 2020 Long-Term Incentive Plan, as set forth herein and as hereinafter amended from time to time. |
ll. | “Prior Plans” means the United Technologies Corporation 2018 Long-Term Incentive Plan, the United Technologies Corporation Long-Term Incentive Plan, as amended and restated, and the Rockwell Collins, Inc. 2015 Long-Term Incentives Plan, as assumed by United Technologies Corporation. |
mm. | “Replaced Award” has the meaning set forth in Section 10(b). |
nn. | “Replacement Award” has the meaning set forth in Section 10(b). |
oo. | “Section 16(b)” has the meaning set forth in Section 11(a). |
pp. | “Share” means a share of Common Stock. |
qq. | “Spin-Off” shall mean the distribution of Shares to the shareowners of United Technologies Corporation in 2020 pursuant to the Separation and Distribution Agreement between the Corporation, United Technologies Corporation, and Otis Worldwide Corporation, entered into in connection with such distribution. |
rr. | “Stock Appreciation Right” means an Award granted under Section 5(a). |
ss. | “Stock Option” means an Award granted under Section 5(b). |
tt. | “Subsidiary” means any corporation, partnership, joint venture, limited company or other entity during any period in which at least a 50% voting or profits interest is owned, directly or indirectly, by the Corporation or any successor to the Corporation. |
uu. | “Term” means the maximum period during which a Stock Appreciation Right or Stock Option may remain outstanding, subject to earlier termination upon Termination of Service or otherwise, as specified in the applicable Award Agreement. |
vv. | “Termination of Service” means the termination of the applicable Participant’s employment with, or performance of services for, the Corporation and any of its Subsidiaries or Affiliates. Unless otherwise determined by the Committee: (i) if a Participant’s employment with the Corporation and its Affiliates terminates but such Participant continues to provide services to the Corporation and its Affiliates in a non-employee capacity, such change in status shall not be deemed a Termination of Service, (ii) a Participant employed by, or performing services for, a Subsidiary or an Affiliate or a division of the Corporation and its Affiliates shall also be deemed to incur a Termination of Service if, as a result of a Disaffiliation, such Subsidiary, Affiliate or division ceases to be a Subsidiary, Affiliate or division, as the case may be, and the Participant does not immediately thereafter become an employee of, or service provider for, the Corporation or another Subsidiary or Affiliate, and (iii) a Participant shall not be deemed to have incurred a Termination of Service solely by reason of such individual’s incurrence of a Disability. Temporary absences from employment because of illness, vacation or leave of absence and transfers among the Corporation and its Subsidiaries and Affiliates shall not be considered a Termination of Service. Absences from employment by reason of notice periods, garden leaves or similar paid leaves implemented in contemplation of a permanent termination of employment shall not be recognized as service under this Plan. Notwithstanding the foregoing provisions of this definition, with respect to any Award that constitutes “nonqualified deferred compensation” subject to Section 409A of the Code, a Participant shall not be considered to have experienced a “Termination of Service” unless the Participant has experienced a “separation from service” within the meaning of Section 409A of the Code (a “Separation from Service”), and a Separation from Service shall be deemed to occur where the Participant and the Corporation and its Subsidiaries and Affiliates reasonably anticipate that the bona fide level of services that the Participant will perform (whether as an employee or as an independent contractor) will be permanently reduced to a level that is less than thirty-seven and a half percent (37.5%) of the average level of bona fide services the Participant performed during the immediately preceding 36 months (or the entire period the Participant has provided services if the Participant has been providing services to the Corporation and/or any of its Subsidiaries or Affiliates for less than 36 months). |
SECTION 2. Administration
a. | Committee. This Plan shall be administered by the Board directly, or if the Board elects, by the Compensation Committee or such other committee of the Board as the Board may from time to time designate, which committee shall be composed of not less than two directors, and shall be appointed by and serve at the pleasure of the Board. All references in this Plan to the “Committee” refer to the Board as a whole, unless a separate committee has been designated or authorized consistent with the foregoing. |
Subject to the terms and conditions of this Plan, the Committee shall have absolute authority:
i. | To select the Eligible Individuals to whom Awards may from time to time be granted; |
ii. | To determine whether and to what extent Stock Appreciation Rights, Incentive Stock Options, Nonqualified Stock Options, Restricted Stock Units, Restricted Stock, Other Stock-Based Awards and Cash Awards or any combination thereof are to be granted hereunder; |
iii. | To determine the number of Shares to be covered by each Award granted hereunder; |
iv. | To approve the form of any Award Agreement and determine the terms and conditions of any Award granted hereunder, including, but not limited to, the exercise price (subject to Section 5(c)), any vesting condition, restriction or limitation (which may be related to the performance of the Participant, the Corporation or any Subsidiary or Affiliate), treatment on Termination of Service, and any vesting acceleration or forfeiture waiver regarding any Award and the Shares relating thereto, based on such factors as the Committee shall determine; |
v. | To modify, amend or adjust the terms and conditions (including, but not limited to, Performance Goals and measured results when necessary or appropriate for the purposes of preserving the validity of the goals as originally set by the Committee) of any Award (subject to Sections 5(d) and 5(e)), from time to time, including, without limitation, in order to comply with tax and securities laws, including laws of countries outside of the United States, and to comply with changes of law and accounting standards; |
vi. | To determine to what extent and under what circumstances Common Stock or cash payable with respect to an Award shall be deferred either automatically or at the election of a Participant; |
vii. | To determine under what circumstances an Award may be settled in cash, Shares, other property or a combination of the foregoing; |
viii. | To adopt, alter and repeal such administrative rules, guidelines and practices governing this Plan as it shall, from time to time, deem advisable; |
ix. | To establish any “blackout” period that the Committee in its sole discretion deems necessary or advisable; |
x. | To interpret the terms and provisions of this Plan and any Award issued under this Plan (and any Award Agreement relating thereto); |
xi. | To decide all other matters that must be determined in connection with an Award; and |
xii. | To otherwise administer this Plan. |
b. Procedures.
i. | The Committee may act only by a majority of its members then in office, except that the Committee may, except to the extent prohibited by applicable law, including Section 157(c) of the Delaware General Corporation Law, or the listing standards of the Applicable Exchange, allocate all or any portion of its responsibilities and powers to any one or more of its members and may delegate all or any part of its responsibilities and powers to any person or persons selected by it. Any such allocation or delegation may be revoked by the Committee at any time. |
ii. | Subject to Section 11(a), any authority granted to the Committee may be exercised by the full Board. To the extent that any permitted action taken by the Board conflicts with action taken by the Committee, the Board action shall control. |
c. | Discretion of Committee. Subject to Section 1(i), any determination made by the Committee or pursuant to delegated authority under the provisions of this Plan with respect to any Award shall be made in the sole discretion of the Committee or such delegate at the time of the grant of the Award or, unless in contravention of any express term of this Plan, at any time thereafter. All decisions made by the Committee or any appropriately delegated person pursuant to the provisions of this Plan shall be final, binding and conclusive on all persons, including the Corporation, Participants and Eligible Individuals. |
d. | Cancellation or Suspension. Subject to Section 5(d), the Committee shall have full power and authority to determine whether, to what extent and under what circumstances any Award shall be canceled or suspended. |
e. | Award Agreements. The terms and conditions of each Award, as determined by the Committee, shall be set forth in a written (or electronic) Award Agreement, which shall be delivered to the Participant receiving such Award upon, or as promptly as is reasonably practicable following, the grant of such Award. The effectiveness of an Award shall be subject to the Participant’s acceptance of the applicable Award Agreement within the time period specified in the Award Agreement, unless otherwise provided in the Award Agreement. Award Agreements may be amended only in accordance with Section 12(d) hereof. |
f. | Minimum Vesting Period. Except for Awards granted with respect to a maximum of five percent of the Shares authorized in the first sentence of Section 3(a) and Assumed Spin-Off Awards, Award Agreements shall not provide for a designated vesting period of less than one year. |
g. | Foreign Employees and Foreign Law Considerations. The Committee may grant Awards to Eligible Individuals who are foreign nationals, who are located outside the United States, who are not compensated from a payroll maintained in the United States, and/or who are otherwise subject to (or could cause the Corporation to be subject to) legal or regulatory provisions of countries or jurisdictions outside the United States, and, in furtherance of such purposes, the Committee may adopt such procedures or sub-plans as may be necessary or advisable to comply with such legal or regulatory provisions. |
SECTION 3. Common Stock Subject to Plan
a. | Authorized Shares. The maximum number of Shares that may be issued pursuant to Awards granted under this Plan shall be 90,000,000, which includes Shares subject to Assumed Spin-Off Awards. The maximum number of shares that may be issued pursuant to Incentive Stock Options under this Plan shall be 90,000,000. Shares issued under this Plan may be authorized and unissued Shares, treasury Shares, or Shares purchased in the open market or otherwise, at the sole discretion of the Committee. Each Share issued pursuant to a Full-Value Award will result in a reduction of the number of Shares available for issuance under this Plan by 2 Shares. Each Share issued pursuant to a Stock Option or Stock Appreciation Right will result in a reduction of the number of Shares available for issuance under this Plan by one Share. |
b. | Individual Limits. A Participant who is not a non-employee director may not be granted: (i) Stock Appreciation Rights and Stock Options in excess of 2,500,000 Shares during any calendar year, (ii) Full-Value Awards in excess of 600,000 Shares during any calendar year, or (iii) Cash Awards in excess of $10,000,000. Compensation payable by the Corporation to any non-employee director of the Corporation, including Awards granted under this Plan (with Awards valued based on the fair value on the Grant Date for accounting purposes) and cash fees paid or credited, may not exceed $1,500,000 during any single calendar year. None of the foregoing limitations in this Section 3(b) shall apply to Assumed Spin-Off Awards. |
c. | Rules for Calculating Shares Issued. To the extent that any Award is forfeited, terminates, expires or lapses instead of being exercised, or any Award is settled for cash, the Shares subject to such Awards will not be counted as Shares issued under this Plan. If the exercise price of any Stock Appreciation Right or Stock Option and/or the tax withholding obligations relating to any Award are satisfied by delivering Shares (either actually or through a signed document affirming the Participant’s ownership and delivery of such Shares) or the Corporation withholding Shares relating to such Award, the gross number of Shares subject to the Award shall nonetheless be deemed to have been issued under this Plan. |
d. | Adjustment Provisions. |
i. | In the event of a merger, consolidation, acquisition of property or shares, stock rights offering, liquidation, disposition for consideration of the Corporation’s direct or indirect ownership of a Subsidiary or Affiliate (including by reason of a Disaffiliation), or similar event affecting the Corporation or any of its Subsidiaries (each, a “Corporate Transaction”), the Committee or the Board may in its discretion make such substitutions or adjustments as it deems appropriate and equitable to: (A) the aggregate number and kind of Shares or other securities reserved for issuance and delivery under this Plan; (B) the various maximum limitations set forth in Section 3(b) applicable to the grants to individuals of certain types of Awards; (C) the number and kind of Shares or other securities subject to outstanding Awards; (D) financial goals or measured results to preserve the validity of the original goals set by the Committee; and (E) the exercise price of outstanding Awards. |
ii. | In the event of a stock dividend, stock split, reverse stock split, reorganization, share combination, or recapitalization or similar event affecting the capital structure of the Corporation, or a Disaffiliation, separation or spinoff, in each case without consideration, or other extraordinary dividend of cash or other property to the Corporation’s shareholders, the Committee or the Board shall make such substitutions or adjustments as it deems appropriate and equitable to: (A) the aggregate number and kind of Shares or other securities reserved for issuance and delivery under this Plan; (B) the various maximum limitations set forth in Section 3(b) applicable to the grants to individuals of certain types of Awards; (C) the number and kind of Shares or other securities subject to outstanding Awards; (D) financial goals or measured results to preserve the validity of the original goals set by the Committee; and (E) the exercise price of outstanding Awards. |
iii. | In the case of Corporate Transactions, such adjustments may include: (A) the cancellation of outstanding Awards in exchange for payments of cash, property or a combination thereof having an aggregate value equal to the value of such Awards, as determined by the Committee or the Board in its sole discretion (it being understood that in the case of a Corporate Transaction with respect to which shareholders of Common Stock receive consideration other than publicly traded equity securities of the ultimate surviving entity, any such determination by the Committee that the value of a Stock Option or Stock Appreciation Right shall for this purpose be deemed to equal the excess, if any, of the value of the consideration being paid for each Share pursuant to such Corporate Transaction over the exercise price of such Stock Appreciation Right or Stock Option shall conclusively be deemed valid); (B) the substitution of other property (including cash or other securities of the Corporation and securities of entities other than the Corporation) for the Shares subject to outstanding Awards; and (C) in connection with any Disaffiliation, arranging for the assumption of Awards, or replacement of Awards with new awards based on other property or other securities (including other securities of the Corporation and securities of entities other than the Corporation), by the affected Subsidiary, Affiliate, or division or by the entity that controls such Subsidiary, Affiliate or division following such Disaffiliation (as well as any corresponding adjustments to Awards that remain based upon Corporation securities). |
iv. | Any adjustments made pursuant to this Section 3(d) to Awards that are considered “nonqualified deferred compensation” subject to Section 409A of the Code shall be made in compliance with the requirements of Section 409A of the Code; and any adjustments made pursuant to Section 3(d) to Awards that are not considered “deferred compensation” subject to Section 409A of the Code shall be made in such a manner as to ensure that after such adjustments, either: (A) the Awards continue not to constitute “deferred compensation” subject to Section 409A of the Code; or (B) there does not result in the imposition of any penalty taxes under Section 409A of the Code in respect of such Awards. |
v. | Any adjustment under this Section 3(d) need not be applied uniformly to all Participants. |
SECTION 4: Eligibility
a. | Awards may be granted under this Plan to Eligible Individuals; provided, however, that Incentive Stock Options may be granted only to employees of the Corporation and its subsidiaries or Parent Corporation (within the meaning of Section 424(f) of the Code). In connection with the Spin-Off and pursuant to the terms of the Employee Matters Agreement, certain employees, officers, and directors of the Corporation, United Technologies Corporation, and Otis Worldwide Corporation and their respective Subsidiaries will receive Assumed Spin-Off Awards. |
SECTION 5: Stock Appreciation Rights and Stock Options
a. | Nature of Stock Appreciation Rights. Upon the exercise of a Stock Appreciation Right, the Participant shall be entitled to receive an amount in cash, or Shares with a Fair Market Value, equal to the product of (i) the excess of the Fair Market Value of one Share over the exercise price of the applicable Stock Appreciation Right, multiplied by (ii) the number of Shares in respect of which the Stock Appreciation Right has been exercised. The applicable Award Agreement shall specify whether such payment is to be made in cash or Common Stock, or shall reserve to the Committee or the Participant the right to make that determination prior to or upon the exercise of the Stock Appreciation Right. |
b. | Types of Stock Options. Stock Options may be granted in the form of Incentive Stock Options or Nonqualified Stock Options. The Award Agreement for a Stock Option shall indicate whether the Stock Option is intended to be an Incentive Stock Option or a Nonqualified Stock Option. |
c. | Exercise Price. The exercise price per Share subject to a Stock Appreciation Right or Stock Option shall be determined by the Committee and set forth in the applicable Award Agreement, and shall not be less than the Fair Market Value of a Share on the applicable Grant Date. In no event may any Stock Appreciation Right or Stock Option granted under this Plan be amended, other than pursuant to Section 3(d), to decrease the exercise price thereof, be cancelled in exchange for cash or other Awards or in conjunction with the grant of any new Stock Appreciation Right or Stock Option with a lower exercise price, or otherwise be subject to any action that would be treated, under the Applicable Exchange listing standards or for accounting purposes, as a “repricing” of such Stock Appreciation Right or Stock Option, unless such amendment, cancellation or action is approved by the Corporation’s shareholders. |
d. | Term. The Term of each Stock Appreciation Right and each Stock Option shall be fixed by the Committee, but no Stock Appreciation Right or Stock Option shall be exercisable more than 10 years after its Grant Date. |
e. | Exercisability; Method of Exercise. Except as otherwise provided herein, Stock Appreciation Rights and Stock Options shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Committee. Subject to the provisions of this Section 5, Stock Appreciation Rights and Stock Options may be exercised, in whole or in part in accordance with the methods and procedures established by the Committee in the Award Agreement or otherwise. |
f. | Delivery; Rights of Shareowners. A Participant shall not be entitled to delivery of Shares pursuant to the exercise of a Stock Appreciation Right or Stock Option until the exercise price therefore has been fully paid and applicable taxes have been withheld. Except as otherwise provided in Section 5(j), a Participant shall have all of the rights of a shareowner of the number of Shares deliverable pursuant to such Stock Appreciation Right or Stock Option (including, if applicable, the right to vote the applicable Shares), when the Participant: (i) has given written notice of exercise; (ii) if requested, has given the representation described in Section 14(a); and (iii) in the case of a Stock Option, has paid in full for such Shares. |
g. | Nontransferability of Stock Appreciation Rights and Stock Options. No Stock Appreciation Right or Stock Option shall be transferable by a Participant other than, for no value or consideration: (i) by will or by the laws of descent and distribution; or (ii) in the case of a Stock Appreciation Right or Nonqualified Stock Option, as otherwise expressly permitted by the Committee including, if so permitted, pursuant to a transfer to such Participant’s family members, whether directly or indirectly, or by means of a trust or partnership or otherwise (for purposes of this Plan, unless otherwise determined by the Committee, “family member” shall have the meaning given to such term in General Instructions A.1(a)(5) to Form S-8 under the Securities Act of 1933, as amended, and any successor thereto). Any Stock Appreciation Right or Stock Option shall be exercisable, subject to the terms of this Plan, only by the Participant, the guardian or legal representative of the Participant, or any person to whom such Stock Option is transferred pursuant to this Section 5(g), it being understood that the term “holder” and “Participant” include such guardian, legal representative and other transferee; provided, however, that the term “Termination of Service” shall continue to refer to the Termination of Service of the original Participant. No Participant may enter into any agreement for the purpose of selling, transferring or otherwise engaging in any transaction that has the effect of exchanging his or her economic interest in any Award to another person or entity for a cash payment or other consideration unless first approved by a majority of the Corporation’s shareowners. |
h. | Termination of Service. The effect of a Participant’s Termination of Service on any Stock Appreciation Right or Stock Option then held by the Participant shall be set forth in the applicable Award Agreement. |
i. | Additional Rules for Incentive Stock Options. Notwithstanding any other provision of this Plan to the contrary, no Stock Option that is intended to qualify as an Incentive Stock Option may be granted to any Eligible Individual who at the time of such grant owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Corporation or of any Subsidiary, unless at the time such Stock Option is granted the exercise price is at least 110% of the Fair Market Value of a Share and such Stock Option by its terms is not exercisable after the expiration of five years from the date such Stock Option is granted. In addition, the aggregate Fair Market Value of the Common Stock (determined at the time a Stock Option for the Common Stock is granted) for which Incentive Stock Options are exercisable for the first time by a Participant during any calendar year, under all of the incentive stock option plans of the Corporation and of any Subsidiary, may not exceed $100,000. To the extent a Stock Option that by its terms was intended to be an Incentive Stock Option exceeds this $100,000 limit, the portion of the Stock Option in excess of such limit shall be treated as a Nonqualified Stock Option. |
j. | Dividends and Dividend Equivalents. Dividends (whether paid in cash or Shares) and dividend equivalents may not be paid or accrued on Stock Appreciation Rights or Stock Options; provided that Stock Appreciation Rights and Stock Options may be adjusted under certain circumstances in accordance with the terms of Section 3(d). |
SECTION 6: Restricted Stock
a. | Administration. Shares of Restricted Stock are actual Shares issued to a Participant and may be awarded either alone or in addition to other Awards granted under this Plan. The Committee shall determine the Eligible Individuals to whom and the time or times at which grants of Restricted Stock will be awarded, the number of Shares to be awarded to any Eligible Individual, the conditions for vesting, the time or times within which such Awards may be subject to forfeiture, and any other terms and conditions of the Awards, in addition to those contained in Section 6(c). |
b. | Book Entry Registration or Certificated Shares. Shares of Restricted Stock shall be evidenced in such manner as the Committee may deem appropriate, including book-entry registration or issuance of one or more stock certificates registered in the name of the Participant and bearing an appropriate legend referring to the terms, conditions and restrictions applicable to such Award. |
c. | Terms and Conditions. Shares of Restricted Stock shall be subject to the following terms and conditions and such other terms and conditions as are set forth in the applicable Award Agreement (including the vesting or forfeiture provisions applicable upon a Termination of Service): |
i. | The Committee shall, prior to or at the time of grant, condition: (A) the vesting of an Award of Restricted Stock upon the continued service of the applicable Participant, or (B) the grant or vesting of an Award of Restricted Stock upon the attainment of Performance Goals, or the attainment of Performance Goals and the continued service of the applicable Participant. The conditions for grant or vesting and the other provisions of Restricted Stock Awards (including any applicable Performance Goals) need not be the same with respect to each recipient. |
ii. | Subject to the provisions of this Plan and the applicable Award Agreement, during the period, if any, set by the Committee, commencing with the date of such Restricted Stock Award for which such vesting restrictions apply, and until the expiration of such period, the Participant shall not be permitted to sell, assign, transfer, pledge or otherwise encumber Shares of Restricted Stock. |
d. | Rights of a Shareowner. Except as provided in this Section 6 and the applicable Award Agreement, the applicable Participant shall have, with respect to the Shares of Restricted Stock, all of the rights of a shareowner of the Corporation holding the class or series of Common Stock that is the subject of the Restricted Stock, including, if applicable, the right to vote the Shares and the right to receive any dividends (subject to Section 14(e)). |
e. | Termination of Service. The effect of a Participant’s Termination of Service on his or her Restricted Stock shall be set forth in the applicable Award Agreement. |
SECTION 7: Restricted Stock Units
a. | Nature of Awards. Restricted stock units and deferred stock units (together, “Restricted Stock Units”) are Awards denominated in Shares that will be settled, subject to the terms and conditions of the Restricted Stock Units, in a specified number of Shares or an amount of cash equal to the Fair Market Value of a specified number of Shares. |
b. | Terms and Conditions. Restricted Stock Units shall be subject to the following terms and conditions and such other terms and conditions as are set forth in the applicable Award Agreement (including the vesting or forfeiture provisions applicable upon a Termination of Service): |
i. | The Committee shall, prior to or at the time of grant, condition: (A) the vesting of Restricted Stock Units upon the continued service of the applicable Participant, or (B) the grant or vesting of Restricted Stock Units upon the attainment of Performance Goals, or the attainment of Performance Goals and the continued service of the applicable Participant. The conditions for grant or vesting and the other provisions of Restricted Stock Units (including any applicable Performance Goals) need not be the same with respect to each recipient. An Award of Restricted Stock Units shall be settled as and when the Restricted Stock Units vest, at a later time specified by the Committee in the applicable Award Agreement, or, if the Committee so permits, in accordance with an election of the Participant. |
ii. | The Award Agreement for Restricted Stock Units shall specify whether, to what extent and on what terms and conditions the applicable Participant shall be entitled to receive payments corresponding to the dividends payable on the Common Stock (subject to Section 14(e)). |
c. | Rights of a Shareowner. A Participant to whom Restricted Stock Units are awarded shall have no rights as a shareowner with respect to the Shares represented by the Restricted Stock Units unless and until Shares are actually delivered to the Participant in settlement thereof. |
d. | Termination of Service. The effect of a Participant’s Termination of Service on his or her Restricted Stock Units shall be set forth in the applicable Award Agreement. |
SECTION 8: Other Stock-Based Awards
The Committee may grant equity-based or equity-related awards not otherwise described herein in such amounts and subject to such terms and conditions consistent with the terms of this Plan as the Committee shall determine. Without limiting the generality of the preceding sentence, each such Other Stock-Based Award may: (a) involve the transfer of actual Shares to Participants, either at the time of grant or thereafter, or payment in cash or otherwise of amounts based on the value of Shares; (b) be subject to performance-based and/or service-based conditions; (c) be in the form of phantom stock, restricted stock, restricted stock units, performance shares, deferred share units or share-denominated performance units, or other awards denominated in, or with a value determined by reference to, a number of Shares that is specified at the time of the grant of such award; and (d) be designed to comply with applicable laws of jurisdictions other than the United States.
SECTION 9: Cash Awards
The Committee may grant awards that are denominated and payable in cash in such amounts and subject to such terms and conditions consistent with the terms of this Plan as the Committee shall determine.
SECTION 10: Change-in-Control Provisions
a. | General. The provisions of this Section 10 shall, subject to Section 3(d), apply notwithstanding any other provision of this Plan to the contrary, except to the extent the Committee specifically provides otherwise in an Award Agreement. |
b. | Impact of Change-in-Control. Upon the occurrence of a Change-in-Control: (i) all then-outstanding Stock Appreciation Rights and Stock Options shall become fully vested and exercisable, all Full-Value Awards (other than performance-based Awards), and all Cash Awards (other than performance-based Awards) shall vest in full, be free of restrictions, and be deemed to be earned and payable in an amount equal to the full value of such Award, except in each case to the extent that another Award meeting the requirements of Section 10(c) (any award meeting the requirements of Section 10(c), a “Replacement Award”) is provided to the Participant pursuant to Section 3(d) to replace such Award (any award intended to be replaced by a Replacement Award, a “Replaced Award”), and (ii) any performance-based Award that is not replaced by a Replacement Award shall be deemed to be earned and payable in an amount equal to the full value of such performance-based Award (with all applicable Performance Goals deemed achieved at the greater of (x) the applicable target level; and (y) the level of achievement as determined by the Committee not later than the date of the Change-in-Control, taking into account performance through the latest date preceding the Change-in-Control as to which performance can, as a practical matter, be determined (but not later than the end of the applicable performance period). |
c. | Replacement Awards. An Award shall meet the conditions of this Section 10(c) (and hence qualify as a Replacement Award) if: (i) it is of the same type as the Replaced Award (except that for any Replaced Award that is performance-based, the Replacement Award shall be subject solely to time-based vesting for the remainder of the applicable performance period (or such shorter period as determined by the Committee) and the applicable Performance Goals shall be deemed to be achieved at the greater of (x) the applicable target level; and (y) the level of achievement as determined by the Committee taking into account performance through the latest date preceding the Change-in-Control as to which performance can, as a practical matter, be determined (but not later than the end of the applicable performance period); (ii) it has a value equal to the value of the Replaced Award as of the date of the Change-in-Control, as determined by the Committee in its sole discretion consistent with Section 3(d); (iii) the underlying Replaced Award was an equity-based award, it relates to publicly traded equity securities of the Corporation or the entity surviving the Corporation following the Change-in-Control; (iv) it contains terms relating to time-based vesting (including with respect to a Termination of Service) that are substantially identical to those of the Replaced Award; and (v) its other terms and conditions are not less favorable to the Participant than the terms and conditions of the Replaced Award (including the provisions that would apply in the event of a subsequent Change-in-Control) as of the date of the Change-in-Control. Without limiting the generality of the foregoing, a Replacement Award may take the form of a continuation of the applicable Replaced Award if the requirements of the preceding sentence are satisfied. If a Replacement Award is granted, the Replaced Award shall not vest upon the Change-in-Control. The determination whether the conditions of this Section 10(c) are satisfied shall be made by the Committee, as constituted immediately before the Change-in-Control, in its sole discretion. |
d. | Termination of Service. Notwithstanding any other provision of this Plan to the contrary, and unless otherwise determined by the Committee and set forth in the applicable Award Agreement, upon a Termination of Service of a Participant by the Corporation other than for Cause or by the Participant for Good Reason within 24 months (or such longer period as is specified in the applicable Award Agreement) following a Change-in-Control: (i) all Replacement Awards held by such Participant shall vest in full and be free of restrictions, and (ii) unless otherwise provided in the applicable Award Agreement, notwithstanding any other provision of this Plan to the contrary, any Stock Appreciation Right or Stock Option held by the Participant as of the date of the Change-in-Control that remains outstanding as of the date of such Termination of Service may thereafter be exercised until the expiration of the stated full Term of such Stock Appreciation Right or Nonqualified Stock Option. |
e. | Definition of Change-in-Control. For purposes of this Plan, a “Change-in-Control” shall mean the happening of any of the following events: |
i. | An acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either: (1) the then outstanding shares of common stock of the Corporation (the “Outstanding Corporation Common Stock”); or (2) the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors (the “Outstanding Corporation Voting Securities”); provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute a Change-in-Control: (1) any acquisition directly from the Corporation, (2) any acquisition by the Corporation, (3) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Corporation or any entity controlled by the Corporation, or (4) any acquisition by any entity pursuant to a transaction that complies with clauses (1), (2) and (3) of subsection (iii) of this Section 10(e); or |
ii. | A change in the composition of the Board such that the individuals who, as of the Effective Date, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that, for purposes of this Section 10(e), any individual who becomes a member of the Board subsequent to the Effective Date whose election, or nomination for election by the Corporation’s shareowners, was approved by a vote of at least two-thirds of those individuals who are members of the Board and who were also members of the Incumbent Board (or deemed to be such pursuant to this proviso) shall be considered as though such individual were a member of the Incumbent Board; provided, further, that any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board shall not be considered as a member of the Incumbent Board; or |
iii. | The consummation of a reorganization, merger, statutory share exchange or consolidation or similar transaction involving the Corporation or any of its subsidiaries or sale or other disposition of all or substantially all of the assets of the Corporation, or the acquisition of assets or securities of another entity by the Corporation or any of its subsidiaries (a “Business Combination”), in each case, unless, following such Business Combination, (1) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Corporation Common Stock and Outstanding Corporation Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock (or, for a noncorporate entity, equivalent securities) and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors (or, for a noncorporate entity, equivalent securities), as the case may be, of the entity resulting from such Business Combination (including an entity that, as a result of such transaction, owns the Corporation or all or substantially all of the Corporation’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Corporation Common Stock and Outstanding Corporation Voting Securities, as the case may be, (2) no Person (excluding any entity resulting from such Business Combination or any employee benefit plan (or related trust) of the Corporation or such entity resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock (or, for a noncorporate entity, equivalent securities) of the entity resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such entity except to the extent that such ownership existed prior to the Business Combination, and (3) at least a majority of the members of the Board of Directors (or, for a noncorporate entity, equivalent body or committee) of the entity resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or |
iv. | The approval by the shareholders of the Corporation of a complete liquidation or dissolution of the Corporation. |
f. | Notwithstanding any other provision of this Plan, any Award Agreement or any Individual Agreement, for any Award that constitutes nonqualified deferred compensation within the meaning of Section 409A of the Code, a Change-in-Control shall not constitute a settlement or distribution event with respect to such Award, or an event that otherwise changes the timing of settlement or distribution of such Award, unless the Change-in-Control also constitutes an event described in Section 409A(a)(2)(v) of the Code and the regulations promulgated thereunder (a “Section 409A CIC”); provided, however, that whether or not a Change-in-Control is a Section 409A CIC, such Change-in-Control shall result in the accelerated vesting of such Award to the extent provided by the Award Agreement, this Plan, any Individual Agreement or otherwise by the Committee. |
SECTION 11: Section 16(b); Section 409A
a. | The provisions of this Plan are intended to ensure that no transaction under this Plan is subject to (and all such transactions will be exempt from) the short-swing profit recovery rules of Section 16(b) of the Exchange Act (“Section 16(b)”). Accordingly, the composition of the Committee shall be subject to such limitations as the Board deems appropriate to permit transactions pursuant to this Plan to be exempt (pursuant to Rule 16b-3 promulgated under the Exchange Act) from Section 16(b), and no delegation of authority by the Committee shall be permitted if such delegation would cause any such transaction to be subject to (and not exempt from) Section 16(b). |
b. | This Plan and the Awards granted hereunder are intended to comply with the requirements of Section 409A of the Code or an exemption or exclusion therefrom and, with respect to amounts that are subject to Section 409A of the Code, it is intended that this Plan be administered and interpreted in all respects in accordance with Section 409A of the Code. Each payment under any Award that constitutes “nonqualified deferred compensation” subject to Section 409A of the Code shall be treated as a separate payment for purposes of Section 409A of the Code. In no event may a Participant, directly or indirectly, designate the calendar year of any payment to be made under any Award that constitutes “nonqualified deferred compensation” subject to Section 409A of the Code. Notwithstanding any other provision of this Plan or any Award Agreement to the contrary, if a Participant is a “specified employee” within the meaning of Section 409A of the Code (as determined in accordance with the methodology established by the Corporation), amounts that constitute “nonqualified deferred compensation” subject to Section 409A of the Code that would otherwise be payable by reason of a Participant’s Separation from Service during the six-month period immediately following such Separation from Service shall instead be paid or provided on the first business day following the date that is six months following the Participant’s Separation from Service. If the Participant dies following the Separation from Service and prior to the payment of any amounts delayed on account of Section 409A of the Code, such amounts shall be paid to the personal representative of the Participant’s estate within 30 days following the date of the Participant’s death. |
SECTION 12: Term, Amendment and Termination
a. | Effectiveness. Prior to the Spin-Off, this Plan was approved by the Board and by United Technologies Corporation as the sole shareowner of the Corporation. This Plan will be effective on the date on which the Spin-Off occurs (the “Effective Date”). |
b. | Termination. This Plan will terminate on the tenth anniversary of the Effective Date. Awards outstanding as of such date shall not be affected or impaired by the termination of this Plan. |
c. | Amendment of Plan. The Board or the Committee may amend, alter, or discontinue this Plan, but no amendment, alteration or discontinuation shall be made that would materially impair the rights of the Participant with respect to a previously granted Award without such Participant’s consent, except such an amendment made to comply with applicable law, including Section 409A of the Code, Applicable Exchange listing standards or accounting rules. In addition, no amendment shall be made without the approval of the Corporation’s shareowners to the extent such approval is required by applicable law or the listing standards of the Applicable Exchange. |
d. | Amendment of Awards. Subject to Section 5(c), the Committee may unilaterally amend the terms of any Award theretofore granted, but no such amendment shall, without the Participant’s consent, materially impair the rights of any Participant with respect to an Award, except such an amendment made to cause this Plan or Award to comply with applicable law, including Section 409A of the Code, Applicable Exchange listing standards or accounting rules. |
SECTION 13: Unfunded Status of Plan
Neither the Corporation nor the Committee shall have any obligation to segregate assets or establish a trust or other arrangements to meet the obligations created under the Plan. Any liability of the Corporation to any Participant with respect to an Award shall be based solely upon contractual obligation created by the Plan and the Award Agreement. No such obligation shall be deemed to be secured by any pledge or encumbrance on the property of the Corporation.
SECTION 14: General Provisions
a. | Conditions for Issuance. The Committee may require each person purchasing or receiving Shares pursuant to an Award to represent to and agree with the Corporation in writing that such person is acquiring the Shares without a view to the distribution thereof. The certificates for such Shares may include any legend that the Committee deems appropriate to reflect any restrictions on transfer. Notwithstanding any other provision of this Plan or agreements made pursuant thereto, the Corporation shall not be required to issue or deliver any Shares (whether in certificated or book-entry form) under this Plan prior to fulfillment of all of the following conditions: (i) listing or approval for listing upon notice of issuance, of such Shares on the Applicable Exchange; (ii) any registration or other qualification of such Shares of the Corporation under any state or federal law or regulation, or the maintaining in effect of any such registration or other qualification that the Committee shall, in its absolute discretion upon the advice of counsel, deem necessary or advisable; and (iii) obtaining any other consent, approval, or permit from any state or federal governmental agency that the Committee shall, in its absolute discretion, determine to be necessary or advisable. |
b. | Additional Compensation Arrangements. Nothing contained in this Plan shall prevent the Corporation or any Subsidiary or Affiliate from adopting other or additional compensation arrangements for its employees. |
c. | No Contract of Employment. This Plan shall not constitute a contract of employment, and adoption of this Plan shall not confer upon any employee any right to continued employment, nor shall it interfere in any way with the right of the Corporation or any Subsidiary or Affiliate to terminate the employment of any employee at any time. |
d. | Required Taxes. No later than the date as of which an amount first becomes includible in the gross income of a Participant for federal, state, local or foreign income, or employment or other tax purposes with respect to any Award under this Plan, such Participant shall pay to the Corporation, or make arrangements satisfactory to the Corporation regarding the payment of, any federal, state, local or foreign taxes of any kind required by law to be withheld with respect to such amount. Unless otherwise determined by the Corporation, withholding obligations may be settled with Common Stock, including Common Stock that is part of the Award that gives rise to the withholding requirement, having a Fair Market Value on the date of withholding equal to the amount required to be withheld for tax purposes, all in accordance with such procedures as the Committee establishes. The obligations of the Corporation under this Plan shall be conditional on such payment or arrangements, and the Corporation and its Affiliates shall, to the extent permitted by law, have the right to deduct any such taxes from any payment otherwise due to such Participant. The Committee may establish such procedures as it deems appropriate, including making irrevocable elections, for the settlement of withholding obligations with Common Stock. |
e. | Dividends and Dividend Equivalents. Any dividends or dividend equivalents credited with respect to any Award will be subject to the same time and/or performance-based vesting conditions applicable to such Award and shall, if vested, be delivered or paid at the same time as such Award. |
f. | Designation of Death Beneficiary. The Committee shall establish such procedures as it deems appropriate for a Participant to designate a beneficiary to whom any amounts payable in the event of such Participant’s death are to be paid or by whom any rights of such Participant, after such Participant’s death, may be exercised. |
g. | Governing Law and Interpretation. This Plan and all Awards made and actions taken hereunder shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to principles of conflict of laws. The captions of this Plan are not part of the provisions hereof and shall have no force or effect. Whenever the words “include,” “includes” or “including” are used in this Plan, they shall be deemed to be followed by the words “but not limited to” and the word “or” shall be understood to mean “and/or” where the context so requires. |
h. | Non-Transferability. Except as otherwise provided in Section 5(g) or as determined by the Committee, Awards under this Plan are not transferable except by will or by laws of descent and distribution. |
i. | Clawback Policy. |
i. | Forfeiture Event. Unless otherwise determined by the Committee, upon the occurrence of any of the following events, the Participant shall forfeit all of the Participant’s outstanding Awards, whether vested or unvested, and shall pay the Forfeiture Amount (as defined in clause (ii) below) to the Corporation within 30 days following receipt from the Corporation of written notice from the Corporation: |
A. | Termination of Service for Cause; |
B. | Within three years following any Termination of Service the Committee determines that the Participant engaged in conduct before the Participant’s termination date that would have constituted the basis for a Termination of Service for Cause; |
C. | At any time during the 24-month period immediately following any Termination of Service, a Participant: |
1. | Solicits for employment or otherwise attempts to retain the professional services of any individual then employed or engaged by the Corporation (other than a person performing secretarial or similar services) or who was so employed or engaged during the three-month period preceding such solicitation; or |
2. | Publicly disparages the Corporation or any of its officers, directors or senior executive employees or otherwise makes any public statement that is materially detrimental to the interests of the Corporation or such individuals; or |
D. | At any time during the 12-month period following any Termination of Service, a Participant becomes employed by, consults for or otherwise renders services to any business entity or person engaged in activities that compete with the Corporation or the business unit that employed the Participant, unless the Participant has first obtained the written consent of the Chief Human Resources Officer or her or his delegate. For purposes of applying this provision: (x) Participant shall be deemed to have been employed by each business unit that employed the Participant within the two-year period immediately prior to the date of the Termination of Service, and (y) the status of a business entity or person as a competitor shall be determined by the Chief Human Resources Officer in her or his sole discretion. |
ii. | Forfeiture Amount. The “Forfeiture Amount” means an amount determined by the Committee in its sole and absolute discretion, up to the sum of: (A) the Fair Market Value of any Shares held by the Participant as of the date that the Committee requires forfeiture that were acquired by the Participant pursuant to an Award during the three-year period preceding such date, (B) the amount of (1) the proceeds from the sale (including sales to the Corporation) of any Shares acquired by the Participant pursuant to an Award during the three-year period preceding the date that the Committee requires forfeiture, less (2) the amount, if any, paid by the Participant to purchase such Shares, and (C) any proceeds received by the Participant upon cash settlement of any Award during the three-year period preceding the date that the Committee requires forfeiture. |
iii. | Committee Determination. Without limiting the generality of Section 2, the Committee shall make all determinations required pursuant to this Section 14(i) in its sole and absolute discretion, and such determinations shall be conclusive and binding on all Persons. Notwithstanding any provision of Section 14(i)(i) to the contrary, the Committee has sole and absolute discretion not to require a Participant to pay all or any portion of a Forfeiture Amount, and its determination not to require any Participant to pay all or any portion of a Forfeiture Amount with respect to any particular act by any particular Participant shall not in any way reduce or eliminate the Committee’s authority to require payment of a Forfeiture Amount with respect to any other act or other Participant. |
iv. | Effect of Change-in-Control. Notwithstanding the foregoing and notwithstanding anything to the contrary in any Award Agreement or otherwise, this Section 14(i) shall not be applicable to any Participant following a Change-in-Control. |
v. | Nonexclusive Remedy. This Section 14(i) shall be a nonexclusive remedy and nothing contained in this Section 14(i) shall preclude the Corporation from pursuing any other applicable remedies available to it, whether in addition to, or in lieu of, application of this Section 14(i). |
j. | Assumed Spin-Off Awards. Notwithstanding anything in this Plan to the contrary, each Assumed Spin-Off Award shall be subject to the terms and conditions of the Prior Plan and award agreement to which such Award was subject immediately prior to the Spin-Off, subject to the adjustment of such Award by the Compensation Committee of United Technologies Corporation and the terms of the Employee Matters Agreement, provided that following the date of the Spin-Off, each such Award shall relate solely to Shares and be administered by the Committee in accordance with the administrative procedures in effect under this Plan. |
Exhibit 10.6
FORM OF CARRIER GLOBAL CORPORATION
CHANGE IN CONTROL SEVERANCE PLAN
SECTION 1
PURPOSE OF THE PLAN
The Board of Directors (the “Board”) of Carrier Global Corporation (the “Company”), recognizes that the possibility of a Change in Control (as defined in Section 2.6) of the Company, and the uncertainty it could create, may result in the loss or distraction of employees of the Company to the detriment of the Company and its shareholders.
The Committee considers the avoidance of such loss and distraction to be essential to protecting and enhancing the best interests of the Company and its shareholders. The Committee also believes that when a Change in Control is perceived as imminent, or is occurring, the Committee should be able to receive and rely on disinterested service from employees regarding the best interests of the Company and its shareholders without concern that employees might be distracted or concerned by the personal uncertainties and risks created by the perception of an imminent or occurring Change in Control.
Therefore, in order to fulfill the above purposes, the Plan was adopted by the Board on [ ] and shall become effective on the Effective Date (as defined in Section 2.12).
SECTION 2
DEFINITIONS
Certain terms used herein have the definitions given to them in the first place in which they are used. As used herein, the following words and phrases shall have the following respective meanings:
2.1 “Affiliated Entity” means any entity controlled by, controlling or under common control with the Company.
2.2 “Annual Base Salary” means the annual base salary paid or payable, including any base salary that is subject to deferral, to the Participant by the Company or any of the Affiliated Entities at the rate in effect (or required to be in effect before any diminution that is a basis of the Participant’s termination for Good Reason) immediately prior to the Change in Control, or, if higher, immediately prior to the Date of Termination.
2.3 “Benefit Continuation Period” means a period of twelve (12) months from the Date of Termination.
2.4 “Cause” means (a) the willful and continued failure of the Participant to perform substantially the Participant’s duties with the Company or any Affiliated Entity (other than any such failure resulting from incapacity due to physical or mental illness or following the Participant’s delivery of a Notice of Termination for Good Reason), after a written demand for substantial performance is delivered to the Participant by the Board, or if the Company is not the ultimate parent corporation of the Affiliated Entities and is not publicly traded, the board of directors of the ultimate parent of the Company (the “Applicable Board”), which specifically identifies the manner in which the Board believes that the Participant has not substantially performed the Participant’s duties, or (b) the willful engaging by the Participant in illegal conduct which is materially and demonstrably injurious to the Company. For purposes of this provision, no act or failure to act, on the part of the Participant, shall be considered “willful” unless it is done, or omitted to be done, by the Participant in bad faith or without reasonable belief that the Participant’s action or omission was in the best interests of the Company. Any act, or failure to act, based upon (i) authority given pursuant to a resolution duly adopted by the Applicable Board, (ii) the instructions of the CEO or another executive officer of the Company or (iii) the advice of counsel for the Company, shall be conclusively presumed to be done, or omitted to be done, by the Participant in good faith and in the best interests of the Company. The cessation of employment of the Participant shall not be deemed to be for Cause unless and until there shall have been delivered to the Participant a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Applicable Board at a meeting of the Applicable Board called and held for such purpose (after reasonable notice is provided to the Participant and the Participant is given an opportunity, together with counsel for the Participant, to be heard before the Applicable Board), finding that, in the good faith opinion of the Applicable Board, the Participant is guilty of the conduct described in this definition, and specifying the particulars of such conduct in detail.
2.5 “CEO” means the Chief Executive Officer of the Company.
2.6 “Change in Control” means the first to occur of the following:
(a) An acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (A) the then-outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (B) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that, for purposes of this subsection (a), the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its Affiliates or Subsidiaries or (iv) any acquisition by any entity pursuant to a transaction that complies with clauses (i), (ii) and (iii) of subsection (c) of this Section 2.6;
(b) A change in the composition of the Board such that individuals who, as of the Effective Date, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that, for purposes of this Section 2.6, any individual who becomes a member of the Board subsequent to the Effective Date whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least two-thirds of those individuals who are members of the Board and who were also members of the Incumbent Board (or deemed to be such pursuant to this proviso) shall be considered as though such individual were a member of the Incumbent Board; provided, further, that any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board shall not be considered as a member of the Incumbent Board;
(c) The consummation of a reorganization, merger, statutory share exchange or consolidation or similar transaction involving the Company or any of its subsidiaries, a sale or other disposition of all or substantially all of the assets of the Company, or the acquisition of assets or securities of another entity by the Company or any of its Subsidiaries (each, a “Business Combination”), in each case unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then-outstanding shares of common stock (or, for a noncorporate entity, equivalent securities) and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors (or, for a noncorporate entity, equivalent governing body), as the case may be, of the entity resulting from such Business Combination (including, without limitation, an entity that, as a result of such transaction, owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Business Combination of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any entity resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such entity resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then-outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then-outstanding voting securities of such entity, except to the extent that such ownership existed prior to the Business Combination, and (iii) at least a majority of the members of the Board of Directors (or, for a noncorporate entity, equivalent governing body) of the entity resulting from the Business Corporation were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or
(d) The approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.
For the avoidance of doubt, the Separation (as defined in Section 2.23) shall not constitute a Change in Control.
2.7 “Code” means the Internal Revenue Code of 1986, as amended from time to time.
2.8 “Committee” means the Compensation Committee of the Board.
2.9 “Company” means Carrier Global Corporation and any successor(s) thereto or, if applicable, the ultimate parent of any such successor.
2.10 “Date of Termination” means the date of receipt of a Notice of Termination from the Company or the Participant, as applicable, or any later date specified in the Notice of Termination (subject to the notice and cure periods in the definition of Good Reason). If the Participant’s employment is terminated by reason of death, the Date of Termination shall be the date of death of the Participant. If the Participant’s employment is terminated by reason of Disability, the Date of Termination shall be the Disability Effective Date. Notwithstanding the foregoing, in no event shall the Date of Termination occur until the Participant experiences a “separation from service” within the meaning of Section 409A of the Code, and the date on which such separation from service takes place shall be the “Date of Termination.”
2.11 “Disability” means the absence of the Participant from his or her duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness that is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Participant or the Participant’s legal representative (the date of such determination, the “Disability Effective Date”).
2.12 “Effective Date” means the date on which the Separation (as defined in Section 2.23) occurs.
2.13 “Good Reason” means:
(a) A reduction of the Participant’s Annual Base Salary from that in effect immediately prior to the Change in Control, or if higher, that in effect thereafter;
(b) A material reduction in the Participant’s (i) target or maximum annual cash bonus opportunity or (ii) annual long-term incentive compensation (cash and equity awards), including target or maximum incentive opportunity from those in effect immediately prior to the Change in Control, or if higher, than in effect at any time thereafter;
(c) A material reduction in the retirement, welfare, fringe and other benefits provided or made available to the Participant from those in effect immediately prior to the Change in Control, or if more favorable, those provided or made available to similarly situated executives of the Company or the Affiliated Entities at any time thereafter;
(d) A material diminution in the Participant’s authority, duties, or responsibilities from those in effect immediately prior to the Change in Control or a material diminution in the authority, duties, or responsibilities of the supervisor to whom the Participant is required to report from those in effect immediately prior to the Change in Control;
(e) A change in the geographic location at which the Participant must perform services of more than 50 miles from the location the Participant was customarily required to perform services immediately prior to the Change in Control that results in an increase in the Participant’s commute from his or her principal personal residence by more than twenty-five (25) miles;
(f) A material diminution in the budget over which the Participant retains authority from that in effect immediately prior to the Change in Control; or
(g) Any other action or inaction that constitutes a material breach by the Company of an agreement with the Participant related to the terms and conditions of the Participant’s employment.
In order to invoke a termination for Good Reason, the Participant shall provide written notice to the Company of the existence of one or more of the conditions described in clauses (a) through (g) within 90 days of the initial existence of such condition or conditions, specifying in reasonable detail the conditions constituting Good Reason, and the Company shall have 30 days following receipt of such written notice (the “Cure Period”) during which it may remedy the condition. In the event that the Company fails to remedy the condition constituting Good Reason during the applicable Cure Period, the Participant’s “separation from service” (within the meaning of Section 409A of the Code) must occur, if at all, within 30 days from the earlier of (i) the end of the Cure Period, or (ii) the date the Company provides written notice to the Participant that it does not intend to cure such condition. The Participant’s mental or physical incapacity following the occurrence of an event described above in clauses (a) through (g) shall not affect the Participant’s ability to terminate employment for Good Reason and the Participant’s death following delivery of a Notice of Termination for Good Reason shall not affect the Participant’s estate’s entitlement to the severance payments and benefits provided hereunder upon a termination of employment for Good Reason.
2.14 “Multiple” means (a) for the CEO three (3), (b) for Tier 1 Participants two (2), (c) for Tier 2 Participants one and one-half (1.5) and (d) for Tier 3 Participants, a multiple between one (1) and two (2), as determined by the Committee and set forth in the Tier 3 Participant’s Participation Notice.
2.15 “Notice of Termination” means a written notice delivered to the other party that (a) indicates the specific termination provision in this Plan relied upon, (b) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Participant’s employment under the provision so indicated, and (c) if the Date of Termination (as defined herein) is other than the date of receipt of such notice, specifies the Date of Termination (which Date of Termination shall be not more than 30 days after the giving of such notice; except in the case of a termination for Good Reason, notice shall not be more than 90 days before the termination date). Any termination by the Company for Cause or by the Participant for Good Reason shall be communicated by a Notice of Termination to the other party hereto given in accordance with Section 10.7 of this Plan. The failure by the Participant or the Company to set forth in the Notice of Termination any fact or circumstance that contributes to a showing of Good Reason or Cause shall not waive any right of the Participant or the Company, respectively, hereunder or preclude the Participant or the Company, respectively, from asserting such fact or circumstance in enforcing the Participant’s or the Company’s respective rights hereunder.
2.16 “Participant” means the CEO and each executive (i.e., job grades E5, E4, E3, E2 and E1) of the Company or an Affiliated Entity who is on U.S. payroll and primarily provides services in the United States.
2.17 “Plan” means this Carrier Global Corporation Change in Control Severance Plan.
2.18 “Qualified Termination” means any termination of a Participant’s employment, during the two-year period beginning on and including the date of a Change in Control, by the Participant for Good Reason or by the Company other than for Cause, death or Disability.
2.19 “Target Annual Bonus” means the Participant’s target annual bonus pursuant to the Company Executive Annual Bonus Plan (or other applicable annual bonus plan) in effect (or required to be in effect before any diminution that is a basis of the Participant’s termination for Good Reason) immediately prior to the Change in Control, or, if higher, immediately prior to the Date of Termination.
2.20 “Tier 1 Participant” means each Participant who is an E5, E4 or E3 executive immediately prior to a Change in Control.
2.21 “Tier 2 Participant” means each Participant who is an E2 or E1 executive immediately prior to a Change in Control.
2.22 “Tier 3 Participant” means each other employee of the Company or an Affiliated Entity who is designated by the Committee in writing as a Participant.
2.23 “Separation” means the separation of the Company from United Technologies Corporation pursuant to which the Company becomes a separate publicly traded company.
2.24 “Subsidiaries” means any corporation, limited liability company, partnership or other organization, whether incorporated or unincorporated, of which (a) at least a majority of the outstanding shares of capital stock of, or other equity interests, having by their terms ordinary voting power to elect a majority of the board of directors or others performing similar functions with respect to such corporation or other organization is directly or indirectly owned or controlled by the Company or by any one or more of its Subsidiaries, or by such Person and one or more of its Subsidiaries, or (b) with respect to a partnership, the Company or any other Subsidiary of the Company is a general partner of such partnership.
SECTION 3
Separation BENEFITS
3.1 Qualified Termination. If a Participant experiences a Qualified Termination, the Company shall pay or provide to the Participant the following payments and benefits at the time or times set forth below, subject to Section 9:
(a) a lump sum payment in cash, subject to (other than in the case of the Accrued Obligations and Other Benefits) the Participant’s execution and nonrevocation of a General Release of Claims and Restrictive Covenant Agreement substantially in the form attached hereto as Exhibit B (the “Release and Covenant Agreement”), payable as soon as practicable following the date on which such agreement becomes effective and irrevocable and in any event no later than the seventieth (70th) day following the Date of Termination, equal to the aggregate of the following amounts:
(i) the sum of (A) the Participant’s Annual Base Salary through the Date of Termination, (B) any annual incentive payment earned by the Participant for a performance period that was completed prior to the Date of Termination, (C) any accrued and unused vacation pay or other paid time off, and (D) any business expenses incurred by the Participant that are unreimbursed as of the Date of Termination, in each case, to the extent not theretofore paid (the sum of the amounts described in clauses (A), (B), (C) and (D) shall be hereinafter referred to as the “Accrued Obligations”); provided that, notwithstanding the foregoing, in the case of clauses (A) and (B), if the Participant has made an irrevocable election under any deferred compensation arrangement subject to Section 409A of the Code to defer any portion of the Annual Base Salary or annual incentive payment described in clause (A) or (B) above, then for all purposes of this Section 3 (including, without limitation, Section 3.1(a)(i)), such deferral election, and the terms of the applicable arrangement, shall apply to the same portion of the amount described in such clauses (A) or (B), and such portion shall not be considered as part of the “Accrued Obligations” but shall instead be an “Other Benefit” (as defined below);
(ii) the product of (A) the Target Annual Bonus and (B) a fraction, the numerator of which is the number of days in the fiscal year in which the Date of Termination occurs from the first day of such fiscal year to and including the Date of Termination, and the denominator of which is the total number of days in such fiscal year (the “Prorated Bonus”), reduced by any annual bonus payment to which the Participant has been paid or is otherwise entitled, in each case, for the same period of service, and subject to any applicable deferral election on the same basis as set forth in the proviso to Section 3.1(a)(i); and
(iii) the amount equal to the product of (A) the Multiple and (B) the sum of (1) the Participant’s Annual Base Salary and (2) the Target Annual Bonus.
The Accrued Obligations shall be paid in cash within 30 days following the Date of Termination.
(b) Healthcare Benefits. For the Benefit Continuation Period, the Company shall continue to provide to the Participant (and the Participant’s dependents who were covered by healthcare benefit coverage pursuant to a plan sponsored by the Company or an Affiliated Entity as of immediately prior to the Date of Termination, if any (the “eligible dependents”)), without any requirement for the Participant (or the eligible dependents) to pay a monthly premium, healthcare benefit coverage (including medical, prescription, dental, vision, basic life, and employee assistance program coverage and, for Participants who are ELG members, annual executive physicals if such physicals were offered to ELG members either immediately prior to the Change in Control, or immediately prior to the Date of Termination) at least equal to the coverage that would have been provided to the Participant (and the Participant’s eligible dependents, if any) if the Participant had continued employment with the Company during the Benefit Continuation Period; provided, however, that if the Participant becomes reemployed with another employer and is eligible to receive any of the types of healthcare benefits under another employer-provided plan, the healthcare benefit coverage that is duplicative of the type of coverage provided hereunder shall cease. The Participant shall promptly notify the Company that the Participant has become eligible to receive healthcare benefits under another employer-provided plan. The period for providing continuation coverage under the group health plans of the Company and the Affiliated Entities as described in Section 4980B of the Code (i.e., “COBRA” continuation benefits), if applicable, shall commence upon the expiration of the Benefits Continuation Period (or, if earlier, upon the cessation of the healthcare benefits coverage provided hereunder). For purposes of determining eligibility (but not the time of commencement of benefits) of the Participant for retiree benefits pursuant to any applicable plans, practices, programs and policies, the Participant shall be considered to have remained employed during the Benefit Continuation Period and to have retired on the last day of such period.
(c) Outplacement Services. The Company shall, at its sole expense as incurred, provide the Participant with outplacement services for a period of twelve (12) months following the Date of Termination, the scope and provider of which shall be selected by the Participant in the Participant’s sole discretion, provided that the aggregate cost of such services shall not exceed 15% of the Participant’s Annual Base Salary.
(d) Financial Planning Services. The Company shall, at its expense as incurred, provide the Participant with continuation of financial planning services for a period of twelve (12) months following the Date of Termination, if the Participant was eligible for this benefit immediately prior the Change in Control or the Date of Termination, the scope and provider of which shall be determined by the Participant in the Participant’s discretion, provided that the aggregate cost of such services shall not exceed the maximum cost of such services available to the Participant as of immediately prior to the Change in Control (or if greater, at any time thereafter).
(e) Other Benefits. To the extent not theretofore paid or provided, the Company shall timely pay or provide to the Participant any other amounts or benefits required to be paid or provided or which the Participant is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and the Affiliated Entities, including amounts credited to the Participant’s account under the Company Deferred Compensation Plan, as amended, or any successor plan (such other amounts and benefits shall be hereinafter referred to as the “Other Benefits”).
3.2 Death; Disability. If the Participant’s employment is terminated by reason of the Participant’s death or Disability during the two-year period beginning on the date of a Change in Control, the Company shall provide the Participant’s estate or beneficiaries with the Accrued Obligations, a pro-rated Target Annual Bonus for the year of termination and the timely payment or delivery of the Other Benefits in accordance with the terms of the underlying plans or agreements, and shall have no other severance obligations under this Plan. The Accrued Obligations and the Prorated Target Bonus shall be paid to the Participant, or the Participant’s estate or beneficiary, as applicable, in a lump sum in cash within 30 days after the Date of Termination, subject to any applicable deferral election as contemplated by Sections 3.1(a)(i) and (ii). With respect to the provision of the Other Benefits, the term “Other Benefits” as used in this Section 4.2 shall include, without limitation, and the Participant, or the Participant’s estate and/or beneficiary, shall be entitled to receive, benefits at least equal to the most favorable benefits provided by the Company and the Affiliated Entities to similarly situated executives, or the estates and/or beneficiaries of similarly situated executives, of the Company and the Affiliated Entities under such plans, programs, practices and policies relating to disability or death benefits, as applicable, as in effect with respect to other similarly situated executives, or their estates and/or beneficiaries at any time during the 120-day period immediately preceding the Change in Control or, if more favorable to the Participant, or the Participant’s estate and/or beneficiary, as in effect on the Disability Effective Date or the date of the Participant’s death with respect to other similarly situated executives of the Company and the Affiliated Entities and/or their estate or beneficiaries.
SECTION 4
Golden parachute Excise tax
4.1 Anything in this Plan to the contrary notwithstanding, in the event the Accounting Firm (as defined below) shall determine that receipt of all Payments (as defined below) would subject the Participant to the excise tax under Section 4999 of the Code, the Accounting Firm shall determine whether to reduce any of the Payments paid or payable pursuant to this Plan (the “Plan Payments”) so that the Parachute Value (as defined below) of all Payments, in the aggregate, equals the Safe Harbor Amount (as defined below). The Plan Payments shall be so reduced only if the Accounting Firm determines that the Participant would have a greater Net After-Tax Receipt (as defined below) of aggregate Payments if the Plan Payments were so reduced. If the Accounting Firm determines that the Participant would not have a greater Net After-Tax Receipt of aggregate Payments if the Plan Payments were so reduced, the Participant shall receive all Plan Payments to which the Participant is entitled hereunder.
4.2 If the Accounting Firm determines that aggregate Plan Payments should be reduced so that the Parachute Value of all Payments, in the aggregate, equals the Safe Harbor Amount, the Company shall promptly give the Participant notice to that effect and a copy of the detailed calculation thereof. All determinations made by the Accounting Firm under this Section 4 shall be binding upon the Company and the Participant and shall be made as soon as reasonably practicable and in no event later than 15 days following the Date of Termination. For purposes of reducing the Plan Payments so that the Parachute Value of all Payments, in the aggregate, equals the Safe Harbor Amount, only amounts payable under this Plan (and no other Payments) shall be reduced. The reduction of the amounts payable hereunder, if applicable, shall be made by reducing the Plan Payments and benefits that have a Parachute Value in the following order: Section 3.1(c), Section 3.1(d), Section 3.1(e), Section 3.1(b), Section 3.1(a)(ii), and Section 3.1(a)(iii), in each case, beginning with payments or benefits that do not constitute non-qualified deferred compensation and reducing payments or benefits in reverse chronological order beginning with those that are to be paid or provided the farthest in time from the Date of Termination, based on the Accounting Firm’s determination. All reasonable fees and expenses of the Accounting Firm shall be borne solely by the Company.
4.3 To the extent requested by the Participant, the Company shall cooperate with the Participant in good faith in valuing, and the Accounting Firm shall take into account the value of, services provided or to be provided by the Participant (including, without limitation, the Participant’s agreeing to refrain from performing services pursuant to a covenant not to compete or similar covenant, before, on or after the date of a change in ownership or control of the Company (within the meaning of Q&A-2(b) of the final regulations under Section 280G of the Code), such that payments in respect of such services may be considered reasonable compensation within the meaning of Q&A-9 and Q&A-40 to Q&A-44 of the final regulations under Section 280G of the Code and/or exempt from the definition of the term “parachute payment” within the meaning of Q&A-2(a) of the final regulations under Section 280G of the Code in accordance with Q&A-5(a) of the final regulations under Section 280G of the Code.
4.4 The following terms shall have the following meanings for purposes of this Section 5:
(a) “Accounting Firm” shall mean a nationally recognized certified public accounting firm or other professional organization that is a certified public accounting firm recognized as an expert in determinations and calculations for purposes of Section 280G of the Code that is selected by the Company prior to a Change in Control for purposes of making the applicable determinations hereunder, which firm shall not, without the Participant’s consent, be a firm serving as accountant or auditor for the individual, entity or group effecting the Change in Control.
(b) “Net After-Tax Receipt” shall mean the present value (as determined in accordance with Sections 280G(b)(2)(A)(ii) and 280G(d)(4) of the Code) of a Payment net of all taxes imposed on the Participant with respect thereto under Sections 1 and 4999 of the Code and under applicable state and local laws, determined by applying the highest marginal rate under Section 1 of the Code and under state and local laws which applied to the Participant’s taxable income for the immediately preceding taxable year, or such other rate(s) as the Accounting Firm determines to be likely to apply to the Participant in the relevant tax year(s).
(c) “Parachute Value” of a Payment shall mean the present value as of the date of the Change in Control for purposes of Section 280G of the Code of the portion of such Payment that constitutes a “parachute payment” under Section 280G(b)(2) of the Code, as determined by the Accounting Firm for purposes of determining whether and to what extent the excise tax under Section 4999 of the Code will apply to such Payment.
(d) “Payment” shall mean any payment, benefit or distribution in the nature of compensation (within the meaning of Section 280G(b)(2) of the Code) to or for the benefit of the Participant, whether paid, payable or provided pursuant to this Plan or otherwise.
(e) “Safe Harbor Amount” shall mean the maximum Parachute Value of all Payments that the Participant can receive without any Payments being subject to the Excise Tax.
4.5 The provisions of this Section 4 shall survive the expiration of this Plan.
SECTION 5
NOnDUPLICATIOn; Legal Fees; Non-Exclusivity of Rights
5.1 Nonduplication. The amount of the payment under Section 3.1(a)(iii) of this Plan will be offset and reduced by the full amount and/or value of any severance benefits, compensation and benefits provided during any notice period, pay in lieu of notice, mandated termination indemnities, or similar benefits that the Participant may separately be entitled to receive from the Company or any Affiliated Entity based on any employment agreement or other contractual obligation (whether individual or union/works council) or statutory scheme. If a Participant’s employment is terminated because of a plant shut-down or mass layoff or other event to which the Worker Adjustment and Retraining Notification Act of 1988 or similar state law (collectively, “WARN”) applies, then the amount of the severance payment under Section 3.1(a)(iii) of this Plan to which the Participant is entitled shall be reduced, dollar for dollar, by the amount of any pay provided to the Participant in lieu of the notice required by WARN, and the Benefits Continuation Period shall be reduced for any period of benefits continuation or pay in lieu thereof provided to Participant due to the application of WARN.
5.2 Legal Fees. The Company agrees to pay as incurred (within ten business days following the Company’s receipt of an invoice from the Participant), to the full extent permitted by law, all legal fees and expenses that the Participant may reasonably incur as a result of any contest by the Company, the Participant or others of the validity or enforceability of, or liability under, any provision of this Plan or any guarantee of performance thereof (including as a result of any contest (regardless of the outcome) by the Participant about the amount of any payment pursuant to this Plan) (each, a “Contest”), plus, in each case, interest on any delayed payment to which the Participant is ultimately determined to be entitled at the applicable federal rate provided for in Section 7872(f)(2)(A) of the Code (“Interest”) based on the rate in effect for the month in which such legal fees and expenses were incurred.
5.3 Non-exclusivity of Rights. Nothing in this Plan shall prevent or limit a Participant’s continuing or future participation in any plan, program, policy or practice provided by the Company or the Affiliated Entities and for which the Participant may qualify, nor shall anything herein limit or otherwise affect such rights as a Participant may have under any other contract or agreement with the Company or any of the Affiliated Entities, including without limitation the Company’s 2020 Long-Term Incentive Plan (or any successor plan) and any applicable schedule of terms or award agreement thereunder. Amounts that are vested benefits or that a Participant and/or a Participant’s dependents are otherwise entitled to receive under any plan, policy, practice, program, agreement or arrangement of the Company or any of the Affiliated Entities shall be payable in accordance with such plan, policy, practice, program, agreement or arrangement. Without limiting the generality of the foregoing, the Participant’s resignation under this Plan, with or without Good Reason, shall in no way affect the Participant’s ability to terminate employment by reason of the Participant’s “retirement” under, or to be eligible to receive benefits under, any compensation and benefits plans, programs or arrangements of the Company or the Affiliated Entities, including without limitation any retirement or pension plans or arrangements or substitute plans adopted by the Company, the Affiliated Entities or their respective successors, and any termination which otherwise qualifies as Good Reason shall be treated as such even if it is also a “retirement” for purposes of any such plan.
SECTION 6
Amendment and Termination
The Plan may be terminated or amended in any respect by resolution adopted by the Committee; provided that, in connection with or in anticipation of a Change in Control, this Plan may not be terminated or amended in any manner that would adversely affect the rights or potential rights of Participants; provided, further, that following a Change in Control, this Plan shall continue in full force and effect and shall not terminate, expire or be amended until after all Participants who become entitled to any payments or benefits hereunder shall have received such payments and benefits in full pursuant to Section 3.
SECTION 7
Plan Administration
7.1 General. The Committee is responsible for the general administration and management of this Plan (the committee acting in such capacity, the “Plan Administrator”) and shall have all powers and duties necessary to fulfill its responsibilities, including, but not limited to, the discretion to interpret and apply the provisions of this Plan and to determine all questions relating to eligibility for benefits under this Plan, to interpret or construe ambiguous, unclear, or implied (but omitted) terms in any fashion it deems to be appropriate, and to make any findings of fact needed in the administration of this Plan. Following a Change in Control, the validity of any such interpretation, construction, decision, or finding of fact shall be given de novo review if challenged in court, by arbitration, or in any other forum, and such de novo standard shall apply notwithstanding the grant of full discretion hereunder to the Plan Administrator or characterization of any such decision by the Plan Administrator as final or binding on any party.
7.2 Not Subject to ERISA. This Plan does not require an ongoing administrative scheme and, therefore, is intended to be a payroll practice which is not subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). However, if it is determined that this Plan is subject to ERISA, (i) it shall be considered to be an unfunded plan maintained by the Company primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees (a “top-hat plan”), and (ii) it shall be administered in a manner which complies with the provisions of ERISA that are applicable to top-hat plans.
7.3 Indemnification. To the extent permitted by law, the Company shall indemnify the Plan Administrator, whether the Committee or the Independent Committee, from all claims for liability, loss, or damage (including the payment of expenses in connection with defense against such claims) arising from any act or failure to act in connection with this Plan.
SECTION 8
Successors; Assignment
8.1 Successors. The Company shall require any corporation, entity, individual or other person who is the successor (whether direct or indirect by purchase, merger, consolidation, reorganization or otherwise) to all or substantially all the business and/or assets of the Company to expressly assume and agree to perform, by a written agreement in form and in substance satisfactory to the Company, all of the obligations of the Company under this Plan. As used in this Plan, the term “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Plan by operation of law, written agreement or otherwise.
8.2 Assignment of Rights. It is a condition of this Plan, and all rights of each person eligible to receive benefits under this Plan shall be subject hereto, that no right or interest of any such person in this Plan shall be assignable or transferable in whole or in part, except by will or the laws of descent and distribution or other operation of law, including, but not by way of limitation, lawful execution, levy, garnishment, attachment, pledge, bankruptcy, alimony, child support or qualified domestic relations order.
SECTION 9
Section 409A of the Code
9.1 General. The obligations under this Plan are intended to comply with the requirements of Section 409A of the Code or an exemption or exclusion therefrom and shall in all respects be administered in accordance with Section 409A of the Code. Any payments that qualify for the “short-term deferral” exception, the separation pay exception or another exception under Section 409A of the Code shall be paid under the applicable exception to the maximum extent possible. For purposes of the limitations on nonqualified deferred compensation under Section 409A of the Code, each payment of compensation under this Plan shall be treated as a separate payment of compensation for purposes of applying the exclusion under Section 409A of the Code for short-term deferral amounts, the separation pay exception or any other exception or exclusion under Section 409A of the Code. All payments to be made upon a termination of employment under this Plan may only be made upon a “separation from service” under Section 409A of the Code to the extent necessary in order to avoid the imposition of penalty taxes on a Participant pursuant to Section 409A of the Code. In no event may a Participant, directly or indirectly, designate the calendar year of any payment under this Plan.
9.2 Reimbursements and In-Kind Benefits. Notwithstanding anything to the contrary in this Plan, all reimbursements and in-kind benefits provided under this Plan that are subject to Section 409A of the Code shall be made in accordance with the requirements of Section 409A of the Code, including without limitation, where applicable, the requirement that (i) in no event shall the Company’s obligations to make such reimbursements or to provide such in-kind benefits apply later than the Participant’s remaining lifetime (or if longer, through the 20th anniversary of the Effective Date; (ii) the amount of expenses eligible for reimbursement, or in-kind benefits provided, during a calendar year may not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other calendar year; (iii) the reimbursement of an eligible fees and expenses shall be made no later than the last day of the calendar year following the year in which the applicable fees and expenses were incurred; provided that the Participant shall have submitted an invoice for such fees and expenses at least 10 days before the end of the calendar year next following the calendar year in which such fees and expenses were incurred; and (iv) the right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit.
9.3 Delay of Payments. Notwithstanding any other provision of this Plan to the contrary, if a Participant is considered a “specified employee” for purposes of Section 409A of the Code (as determined in accordance with the methodology established by the Company as in effect on the Date of Termination), any payment or benefit that constitutes nonqualified deferred compensation within the meaning of Section 409A of the Code that is otherwise due to be paid to such Participant under this Agreement during the six-month period immediately following such Participant’s separation from service (as determined in accordance with Section 409A of the Code) on account of such Participant’s separation from service shall be accumulated and paid to such Participant with Interest (based on the rate in effect for the month in which the Participant’s separation from service occurs) on the first business day of the seventh month following the Participant’s separation from service (the “Delayed Payment Date”), to the extent necessary to avoid penalty taxes or accelerated taxation pursuant to Section 409A of the Code. If such Participant dies during the postponement period, the amounts and entitlements delayed on account of Section 409A of the Code shall be paid to the personal representative of his or her estate on the first to occur of the Delayed Payment Date or 30 calendar days after the date of such Participant’s death.
SECTION 10
MISCELLANEOUS
10.1 Controlling Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Florida, without giving effect to any choice of law or conflicting provision or rule (whether of the State of Florida or any other jurisdiction) that would cause the laws of any jurisdiction other than the State of Florida to be applied. In furtherance of the foregoing, the internal laws of the State of Florida will control the interpretation and construction of this Agreement, even if under such jurisdiction’s choice of law or conflict of law analysis, the substantive law of some other jurisdiction would ordinarily apply.
10.2 Withholding. The Company may withhold from any amount payable or benefit provided under this Plan such federal, state, local, foreign and other taxes as are required to be withheld pursuant to any applicable law or regulation.
10.3 Gender and Plurals. Wherever used in this Plan document, words in the masculine gender shall include masculine or feminine gender, and, unless the context otherwise requires, words in the singular shall include the plural, and words in the plural shall include the singular.
10.4 Plan Controls. In the event of any inconsistency between this Plan document and any other communication regarding this Plan, this Plan document controls. The captions in this Plan are not part of the provisions hereof and shall have no force or effect.
10.5 Not an Employment Contract. Neither this Plan nor any action taken with respect to it shall confer upon any person the right to continued employment with the Company.
10.6 Notices.
(a) Any notice required to be delivered to the Company by a Participant hereunder shall be properly delivered to the Company when personally delivered to, or actually received through the U.S. mail by:
Carrier Global Corporation
13995 Pasteur Blvd
Palm Beach Gardens, Florida 33418
Attention: General Counsel
(b) Any notice required to be delivered to the Participant by the Company hereunder shall be properly delivered to the Participant when the Company delivers such notice personally or by placing said notice in the U.S. mail registered or certified mail, return receipt requested, postage prepaid to that person’s last known address as reflected on the books and records of the Company.
10.7 Severability. If any provision of this Plan is held invalid or unenforceable, its invalidity or unenforceability shall not affect any other provisions of this Plan, and this Plan shall be construed and enforced as if such provision had not been included in this Plan.
Exhibit A
Carrier Global Corporation
Designation of Change in Control Severance Plan Participation
The Participant identified below has been selected to participate in the Carrier Global Corporation Change in Control Severance Plan (the “Plan”)[, at the Tier level noted below]. A copy of the Plan is attached. By signing this designation, which is a condition to the Participant’s participation in the Plan, the Participant acknowledges and agrees that (a) the Participant’s entitlement to benefits under the Plan is subject to the terms and conditions of the Plan as in effect from time to time and (b) the Participant’s rights under the Plan are the sole and exclusive rights of the Participant with respect to separation pay in connection with, or following, a Change in Control (as defined in the Plan) and supersede and replace any rights of the Participant under any prior arrangement relating to separation pay in connection with, or following, a change in control of the Company.
Carrier Global Corporation
By: |
Title: |
Date: |
Name of Participant
[Tier: ______]
Acknowledged and agreed this ____ day of _____________, 20__
[Insert Name of Participant] |
Exhibit B
GENERAL RELEASE OF CLAIMS AND
RESTRICTIVE COVENANT AGREEMENT
THIS GENERAL RELEASE OF CLAIMS AND RESTRICTIVE COVENANT AGREEMENT (this “Agreement”) is entered into between [___] (“Employee”) and Carrier Global Corporation (the “Company”) as of [DATE]. Capitalized terms used and not defined herein shall have the meanings provided in the Carrier Global Corporation Change in Control Severance Plan (the “Plan”). Capitalized terms used in this Agreement that are not otherwise defined shall have the meanings set forth in the Plan. The entering into and non-revocation of this Agreement is a condition to Employee’s right to receive the severance payments and benefits under Section 3.1 of the Plan (other than the Accrued Obligations and Other Benefits).
Accordingly, Employee and the Company agree as follows:
1. Release of Claims.
(a) Employee Release of Claims. Employee, for himself, his heirs, administrators, representatives, executors, successors and assigns (collectively, “Releasers”), hereby irrevocably and unconditionally releases, acquits and forever discharges and agrees not to sue the Company or any of its Affiliated Entities and their respective current and former directors, officers, shareholders, trustees, employees, consultants, independent contractors, successors and assigns and all persons acting by, through or under or in concert with any of them (collectively, “Releasees”), from all actions, damages, losses, costs and claims of any and every kind and nature whatsoever, at law or in equity, whether absolute or contingent, up to and including the date of this Agreement, arising from or relating to Employee’s employment with, or termination of employment from, the Company and its Affiliated Entities, and from any and all charges, complaints, claims, liabilities, obligations, promises, agreements, controversies, damages, actions, causes of action, suits, rights, demands, costs, losses, debts and expenses of any nature whatsoever, known or unknown, suspected or unsuspected and any claims of wrongful discharge, breach of contract, implied contract, promissory estoppel, defamation, slander, libel, tortious conduct, employment discrimination or claims under any federal, state or local employment statute, law, order or ordinance, including any rights or claims arising under the Age Discrimination in Employment Act of 1967, as amended (“ADEA”) Title VII of the Civil Rights Act of 1964, as amended; the Equal Pay Act of 1963, as amended; the Americans with Disabilities Act of 1990, as amended; the Employee Retirement Income Security Act of 1974, as amended and any other federal, state or local laws or regulations prohibiting employment discrimination. This Agreement specifically excludes (i) Employee’s right to receive the amounts and benefits under the Plan and to enforce the terms of this Agreement, (ii) Employee’s rights to vested amounts and benefits under any employee benefit plan of the Company or its Affiliated Entities, (iii) any claims arising after the date hereof, and (iv) any claim or right Employee may have to indemnification or coverage under the Company’s or any of its Affiliated Entities’ respective bylaws or directors’ and officers’ insurance policies or any agreement to which Employee is a party or a third-party beneficiary. To the maximum extent permitted by law, Employee agrees that he has not filed, nor will he ever file, a lawsuit asserting any claims which are released by this Agreement, or to accept any benefit from any lawsuit which might be filed by another person or governmental entity based in whole or in part on any event, act, or omission which is the subject of the release contained in this Agreement.
(b) EEOC. The parties agree that this Agreement shall not affect the rights and responsibilities of the U.S. Equal Employment Opportunity Commission (hereinafter “EEOC”) to enforce ADEA and other laws. Employee agrees, however, to waive the right to recover monetary damages in any charge, complaint or lawsuit filed by him or on his behalf with respect to any claims released in this Agreement.
(c) Section 1542 of the California Civil Code. The parties hereto expressly acknowledge and agree that all rights under Section 1542 of the California Civil Code are expressly waived. That section provides:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.
2. Restrictive Covenants.
(a) Confidential Information. Employee shall hold in a fiduciary capacity for the benefit of the Company and its Affiliated Entities all secret or confidential information, knowledge, or data relating to the Company and its Affiliated Entities and businesses, which information, knowledge or data shall have been obtained by Employee during Employee’s employment by the Company or its Affiliated Entities and which information, knowledge or data shall not be or become public knowledge (other than by acts by Employee or representatives of Employee in violation of this Agreement, collectively, “Confidential Information”), and Employee agrees not to provide such Confidential Information, directly or indirectly, to any third party; provided that any information that: (i) is lawfully received by Employee from any third party without restriction on disclosure or use; or (ii) is required to be disclosed by law; or (iii) is clearly immaterial in amount or significance, shall not be deemed to be Confidential Information for purposes of this Section 2(a). After the Date of Termination, Employee shall not, without the prior written consent of the Company or as may otherwise be required by law, use, communicate or divulge any such Confidential Information. Notwithstanding any other provisions of this Section 2(a), pursuant to 18 USC Section 1833(b), Employee shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of any Confidential Information that is a trade secret that is made: (A) confidentially to a federal, state or local government official, either directly or indirectly, or to an attorney, and solely for the purpose of reporting or investigating a suspected violation of law; or (B) in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. If Employee files a lawsuit for retaliation by the Company for reporting a suspected violation of law, Employee may disclose such trade secret to Employee’s attorney and use the trade secret information in related court proceedings, provided that Employee files any document containing the trade secret information under seal and does not disclose the trade secret, except pursuant to court order. Notwithstanding any provision of this Agreement to the contrary, the provisions of this Agreement are not intended to, and shall be interpreted in a manner that does not, limit or restrict Employee from exercising any legally protected whistleblower rights (including pursuant to Rule 21F under the Securities Exchange Act of 1934).
(b) To further ensure the protection of the Company’s confidential information, Employee agrees that for a period of one (1) year after Employee’s Date of Termination, Employee will not accept employment with or provide services in any form to (including serving as a director, partner or founder, or entering into a consulting relationship or similar arrangements) a business that (i) competes, directly or indirectly, with any of the Company’s principal business units as of the Date of Termination; or (ii) is a material customer of or a material supplier to any of the Company’s businesses as of the Date of Termination (a “Competitive Business”); provided that, it shall not be considered a breach of this Agreement for Employee to be a passive owner of not more than 5% of the outstanding stock or other securities or interests of a corporation or other entity that is a Competitive Business, so long as Employee has no direct or indirect active participation in the business or management of such corporation or entity.
(c) Employee and Customer Nonsolicitation. Employee agrees that for a period of two (2) years after Employee’s Date of Termination, Employee shall not, directly or indirectly: (i) solicit any individual who is, at the time of such solicitation (or was during the three (3)-month period prior to the date of such solicitation), employed by the Company or one of its Affiliated Entities with whom Employee had direct contact (other than incidental) during the two (2)-year period prior to the Date of Termination to terminate or refrain from rendering services to the Company or its Affiliated Entities for the purpose of becoming employed by, or becoming a consultant to, any individual or entity other than the Company or its Affiliated Entities, or (ii) induce or attempt to induce any current customer, investor, supplier, licensee or other business relation of the Company or any of its Affiliated Entities with whom or which Employee had direct contact (other than incidental) during the two (2)-year period prior to the Date of Termination (“Customer”) to cease doing business with the Company or its Affiliated Entities, or in any way interfere with the relationship between any such Customer, on the one hand, and the Company or any of its Affiliated Entities, on the other hand.
(d) Non-disparagement. Employee agrees not to disparage or defame, through any public medium (including social media) the business reputation, technology, products, practices or conduct of the Company or its Affiliated Entities or any member of the board of directors or any executive officer of the Company in their capacity as such. Nothing in this Agreement or elsewhere shall prevent Employee from making statements in confidence to an immediate family member or to an attorney for the purpose of seeking legal advice, or from making truthful statements when required by law, subpoena or the like, or in arbitration or other proceeding permitted under this Agreement and/or the Plan, as applicable.
(e) Employee Acknowledgment. Employee acknowledges that Employee’s agreeing to comply with the covenants in this Section 2 is in consideration for the payments and benefits to be received by Employee under Section 3.1 of the Plan. Employee understands that the covenants in this Section 2 may limit Employee’s ability to work in a business similar to the business of the Company and its Affiliated Entities; provided, however, Employee agrees that, in light of Employee’s education, skills, abilities and financial resources, Employee shall not assert, and it shall not be relevant nor admissible as evidence in any dispute arising in respect of the covenants in this Section 2, that any provisions of such covenants prevent Employee from earning a living. Employee acknowledges that any intellectual property agreement between Employee and the Company will continue in full force and effect following the Date of Termination.
(f) Remedies. Employee acknowledges that the Company and its Affiliated Entities would be irreparably injured by a violation of Section 2(a), (b), (c) or (d), and Employee agrees that the Company and such Affiliated Entities, in addition to any other remedies available, shall be entitled to a preliminary injunction, temporary restraining order, or other equivalent relief, restraining Employee from any actual or threatened material breach of any of Sections 2(a), (b), (c) or (d). In no event shall an asserted violation of the provisions of this Section 2 constitute a basis for deferring or withholding any amounts otherwise payable to Employee under this Agreement.
(g) Severability; Blue Pencil. Employee acknowledges and agrees that Employee has had the opportunity to seek advice of counsel in connection with this Agreement and the restrictive covenants contained herein are reasonable in geographic scope, temporal duration, and in all other respects. If it is determined that any provision of this Section 2 is invalid or unenforceable, the remainder of the provisions of this Section 2 shall not thereby be affected and shall be given full effect, without regard to the invalid portions. If any court or other decision-maker of competent jurisdiction determines that any of the covenants in this Section 2 is unenforceable because of the duration or geographic scope of such provision, then, after such determination becomes final and unappealable, the duration or scope of such provision, as the case may be, shall be reduced so that such provision becomes enforceable, and that, in its reduced form, such provision shall be enforced.
3. Timing for Consideration.
Employee acknowledges that the Company has specifically advised Employee of the right to seek the advice of an attorney concerning the terms and conditions of this Agreement. Employee further acknowledges that Employee has been furnished with a copy of this Agreement, and has been afforded forty-five (45) calendar days in which to consider the terms and conditions of this Agreement. By executing this Agreement, Employee affirmatively states that Employee has had sufficient and reasonable time to review this Agreement and to consult with an attorney concerning Employee’s legal rights prior to the final execution of this Agreement. Employee further agrees that Employee has carefully read this Agreement and fully understands its terms. Employee acknowledges that Employee has entered into this Agreement, knowingly, freely and voluntarily. Employee understands that Employee may revoke this Agreement within seven (7) calendar days after signing this Agreement. Revocation of this Agreement must be made in writing and must be received by the General Counsel of the Company, at the address above, within the time period set forth above.
4. Effectiveness of Agreement.
This Agreement shall become effective and enforceable on the eighth (8) day following Employee’s delivery of a copy of this executed Agreement to the Company, provided Employee does not timely exercise Employee’s right of revocation as described in Section 3 above. If Employee fails to timely sign and deliver this Agreement or timely revokes this Agreement, this Agreement will be without force or effect, and Employee shall not be entitled to the payments or benefits described in Section 3.1 of the Plan (other than the Accrued Obligations and Other Benefits).
5. Miscellaneous.
(a) Governing Law. This Agreement will be governed by and construed in accordance with the laws of the State of Florida, without giving effect to any choice of law or conflicting provision or rule (whether of the State of Florida or any other jurisdiction) that would cause the laws of any jurisdiction other than the State of Florida to be applied. In furtherance of the foregoing, the internal laws of the State of Florida will control the interpretation and construction of this Agreement, even if under such jurisdiction’s choice of law or conflict of law analysis, the substantive law of some other jurisdiction would ordinarily apply.
(b) Severability. The provisions of this Agreement and obligations of the parties are severable, and if any part or portion of it is found to be unenforceable, the other paragraphs shall remain fully valid and enforceable.
(c) Entire Agreement; Amendment. This Agreement constitutes the entire agreement between the parties with respect to the subject matter of this Agreement. No amendment to this Agreement shall be binding upon either party unless in writing and signed by or on behalf of such party.
(d) Dispute Resolution. Except with respect to claims for breach of the obligations under Section 2 of this Agreement, for which the Company may seek enforcement in any court having competent jurisdiction at its election, any dispute arising between the Company and Employee with respect to the validity, performance or interpretation of this Agreement shall be submitted to and determined in binding arbitration in the State of Florida, for resolution in accordance with the rules of the American Arbitration Association, modified to provide that the decision of the arbitrator shall be binding on the parties; shall be furnished in writing, separately and specifically stating the findings of fact and conclusions of law on which the decision is based; shall be kept confidential by the arbitrator and the parties; and shall be rendered within sixty (60) days following the arbitrator being impaneled. Costs and expenses of the arbitration shall be borne by the Company regardless of the outcome. The arbitrator shall be selected in accordance with the rules of the American Arbitration Association.
(e) Assignment. Without the prior written consent of Employee, this Agreement shall not be assignable by the Company. This Agreement shall inure to the benefit of and be enforceable by Employee’s heirs and legal representatives. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.
(f) Successors. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. “Company” means the Company as herein defined and any successor to its business and/or assets as aforesaid that assumes and agrees to perform this Agreement by operation of law or otherwise.
ACKNOWLEDGED AND AGREED BY:
Date: | ||||
CARRIER GLOBAL CORPORATION | ||||
Name: | ||||
Title: |
Exhibit 10.7
FORM OF CARRIER GLOBAL CORPORATION
EXECUTIVE ANNUAL BONUS PLAN
1. | Purpose |
The purpose of the Carrier Global Corporation Executive Annual Bonus Plan (the “Plan”) is to reinforce corporate, organizational and other goals; to promote the achievement of those goals; to ensure a strong linkage of pay to performance; and to attract, retain and motivate eligible employees. This Plan shall be effective as of the date the Company becomes a separate publicly traded company following its spin-off from United Technologies Corporation (the “Effective Date”).
2. | Definitions |
For the purposes of the Plan, the following terms shall have the following meanings:
“Affiliated Entity” means any entity controlled by, controlling or under common control with the Company.
“Award” means a cash award based on the achievement of performance goals for a Performance Period.
“Board” means the Board of Directors of the Company.
“Change in Control” has the meaning set forth in the Company’s 2020 Long-Term Incentives Plan (or any successor plan thereto). For the avoidance of doubt, the Separation shall not constitute a Change in Control.
“Code” means the Internal Revenue Code of 1986, as amended from time to time, and all regulations, interpretations, and administrative guidance issued thereunder.
“Committee” means the Compensation Committee of the Board, or such other committee as the Board may from time to time designate, which committee shall be comprised of not less than two directors, and shall be appointed by and serve at the pleasure of the Board.
“Common Stock” means the common stock of the Company.
“Company” means Carrier Global Corporation, a Delaware corporation, or its successor.
“Effective Date” has the meaning set forth in Section 1.
“ELG Member” means a person who is a member of the Company’s Executive Leadership Group.
“Eligible Employee” means any employee who has been designated by the Company or an Affiliated Entity as an executive (e.g., employee grades E5 (including ELG Members), E4, E3, E2 and E1) and who is on the active salaried payroll of the Company or an Affiliated Entity at any time during the Performance Period to which an Award relates.
“Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, and any successor thereto.
“Executive Officer” means an officer of the Company who is subject to Section 16 of the Exchange Act.
“Performance Period” means the Company’s fiscal year, or such other period designated by the Committee.
“Plan” has the meaning set forth in Section 1.
“Section 409A” means Section 409A of the Code.
“Separation” means the means the separation of the Company from United Technologies Corporation pursuant to which the Company becomes a separate publicly traded company.
“Stub Period” means the portion of the Performance Period that ends on the date of the Change in Control.
3. |
Administration
|
The Plan shall be administered by the Committee. The Committee shall have the authority in its sole and absolute discretion, subject to, and not inconsistent with, the express provisions of the Plan and applicable law, to administer the Plan (including all related Plan documents) and to exercise all the powers and authorities either specifically granted to it under the Plan or necessary or advisable in the administration of the Plan, including, without limitation, to determine who should be granted Awards and the amount of the Awards; to determine the time or times at which Awards shall be granted; to determine the terms, conditions, restrictions and performance criteria, including performance goals, relating to any Award; to determine whether, to what extent, and under what circumstances an Award may be settled, cancelled, forfeited, or surrendered; to increase or decrease the value of an Award to differentiate the performance of individual Eligible Employees and/or business or functional units of the Company; to make adjustments in performance goals or results in recognition of unusual, unexpected, or non-recurring events, including mergers, acquisitions and dispositions, or in response to changes in applicable laws, regulations, or accounting principles, or for any other reason; to construe and interpret the Plan and any Plan document; to prescribe, amend and rescind rules and regulations relating to the Plan; to determine the terms and provisions of any Award documents; and to make all other determinations deemed necessary or advisable for the administration of the Plan.
The Committee may delegate to one or more officers of the Company such duties under the Plan as it may deem advisable, and for all purposes of the Plan, such officer(s) shall be treated as the Committee; provided, however, that the Committee shall administer the Plan for Executive Officers and ELG Members. No officer may designate himself or herself as an Award recipient under any authority delegated to the officer. All decisions, determinations and interpretations of the Committee shall be final and binding on all persons, including the Company, Affiliated Entities, Eligible Employees (or any person claiming any rights under the Plan from or through any Eligible Employee) and any shareholder.
No member of the Board or the Committee shall be liable for any action taken or determination made in good faith with respect to the Plan or any Award granted hereunder.
4. | Eligibility |
Only Eligible Employees may be granted Awards under the Plan.
5. | Performance Goals |
Performance goals may consist of financial, operational and strategic performance measures for the Company, an Affiliated Entity and/or any business or functional unit thereof; individual performance goals for Eligible Employees; and/or such other goals as may be determined by the Committee. Performance goals shall be set prior to, or reasonably promptly following, the start of the Performance Period.
6. | Amounts Available for Awards |
The maximum amount payable in respect an Award under the Plan to any Eligible Employee shall not exceed 200% of his or her annual target bonus amount; provided, however, that such maximum shall be adjusted upwards or downwards on a pro rata basis to reflect a Performance Period longer or shorter than one year. The annual target bonus amount shall be expressed as a percentage of the Eligible Employee’s annual salary in effect on December 1st of the Performance Period (or, for purposes of Section 9, the first day of the month immediately preceding the month in which a Change in Control occurs), unless otherwise specified in the Award.
7. | Determination and Payment of Awards |
Payments, if any, due in respect of Awards shall be paid in a lump sum in cash or, at the discretion of the Committee, in lieu of such cash payments, in the form of restricted stock or restricted stock units (collectively “Stock Awards”) awarded under the Company’s long-term incentive plan, or in any combination of cash or Stock Awards. Cash payments made in respect of Awards will be paid as soon as administratively practicable following the end of the applicable Performance Period and the Committee’s determination of the achievement of the underlying performance goals, and, for Eligible Employees on a United States-based payroll or otherwise subject to taxation in the United States, no later than the 15th day of the third month following the end of the Performance Period. In order to be eligible to receive an Award, an Eligible Employee must be employed on the last day of the Performance Period, subject to Section 9 hereof and any rules established under the Plan from time to time. The Committee may, in its sole discretion, permit Eligible Employees to defer the payment of Awards in accordance with and subject to the terms of one or more deferred compensation plans sponsored by the Company or an Affiliated Entity. The Committee’s decisions regarding the amount of each Award shall be final, binding and conclusive for all purposes and need not be consistent among Eligible Employees.
8. | Clawback |
Subject to applicable law, any Eligible Employee or former Eligible Employee shall be obligated to repay to the Company, within 30 days following the Company’s demand for payment, all or a portion of the amount paid for an Award for a Performance Period in which: (i) there was a recalculation of a performance goal; (ii) the corrected performance goal would have (or likely would have) resulted in a smaller payment for the Award, and (iii) the inaccuracies were attributable, in whole or in part, to the Eligible Employee’s negligence or intentional misconduct. The Committee will determine the amount to be repaid in its sole discretion, which, at a minimum, will equal the difference between the amount paid for the Award and the amount that would have been paid had the corrected performance goal been used to calculate the Award. In addition, the Committee reserves the right to require repayment of all or any portion of an Award from Eligible Employees and former Eligible Employees without regard to clause (iii) above as appropriate.
9. | Change in Control |
Notwithstanding anything to the contrary in the Plan, upon a Change in Control this Plan shall terminate and each Eligible Employee shall be entitled to a lump sum cash payment for the Stub Period. The payment calculated prior to any pro ration to account for the Stub Period shall be the greater of (i) the Eligible Employee’s target bonus amount for the Performance Period or (ii) such amount determined by the Committee based upon actual performance over the portion of the Performance Period completed as the most practicable date prior to the Change in Control and projecting such performance to the end of the Performance Period. The proration will be determined by dividing the number of days completed in the Stub Period immediately prior to the date of the Change in Control by the total number of days in the Performance Period. Payments due as a result of the termination of the Plan upon a Change in Control shall be made within 30 days following the date of the Change in Control and shall be made to all Eligible Employees who were employed by the Company or an Affiliated Entity immediately prior to the date of the Change in Control regardless of whether they are still employed on the payment date.
10. | Amendment and Termination of the Plan |
The Board or the Committee shall have the right at any time to amend, suspend, discontinue or terminate the Plan; provided, however, that no amendment of the Plan shall operate to annul or diminish, without the consent of the Eligible Employee, an Award already made hereunder, and no amendment adopted in connection with or in anticipation of a Change in Control shall adversely affect an Eligible Employee’s entitlement to an Award for the Stub Period after a Change in Control.
11. | Personal Data |
In connection with managing and administering the Plan, the Company processes certain personal information about Eligible Employees including, but not limited to, name, home address, telephone number, date of birth, social insurance number, salary, nationality, job title, shares or directorships held in the Company, and details of all Awards paid or pending payment. Some of this information is collected by the Eligible Employee’s local employer and is transferred to the Company, as needed, for the purposes of implementation, administration, and management of the Plan. This information may also be shared with third parties providing services to the Company in connection with the Plan, and the Company takes all necessary steps, in accordance with applicable data protection laws, to ensure that such personal information is adequately protected. The Company is headquartered in the United States, and some of its subsidiaries and affiliates are located outside of the United States. The Company will have in place standard contractual clauses approved by the European Commission to allow for transfer of personal data outside the European Union or European Economic Area. Likewise, the Company will take all necessary measures, in accordance with applicable data protection laws, to protect personal information relating to Eligible Employees located in countries with data privacy laws that is transferred to other countries. Applicable data privacy laws may provide Eligible Employees the right to review and, if factually inaccurate, correct any personal information relating to them.
12. | Miscellaneous |
12.1 | Section 409A. Each Award is intended to be excluded from coverage under Section 409A as a short-term deferral unless, and only to the extent that, a deferral election for such Award is made pursuant to a deferred compensation plan sponsored by the Company or an Affiliated Entity. If an Award does not qualify as a short-term deferral or for another exemption under Section 409A, it is intended that such Award will be paid in a manner that satisfies the requirements of Section 409A, and in the event any Award is payable to a “specified employee” (as determined in accordance with the methodology established by the Company in accordance with Section 409A) that would be payable during the six-month period following the specified employee’s “separation from service” (as determined in accordance with the methodology established by the Company in accordance with Section 409A) shall instead by paid on the first business day of the 7th month following the separation from service to the extent necessary to avoid the imposition of any additional taxes or penalties under Section 409A. |
12.2 | Additional Compensation Arrangement. Nothing contained in this Plan shall prevent or limit the Company or any Affiliated Entity from adopting other or additional compensation arrangements for any employee. |
12.3 | No Contract of Employment. This Plan shall not constitute a contract of employment, and adoption of this Plan or the payment of Awards shall not confer upon any employee any right to continued employment or payment for future Awards, nor shall it interfere in any way with the right of the Company or any Affiliated Entity to terminate the employment of any employee at any time. Participation in the Plan is voluntary and at the complete discretion of the Company. This Plan shall not be deemed to constitute part of an Eligible Employee’s terms and conditions of employment. |
12.4 | Plan Expenses. All expenses and costs in connection with the operation of the Plan shall be borne by the Company or an Affiliated Entity and no part thereof shall be charged against Awards or to Eligible Employees. |
12.5 | Withholding. The Company or an Affiliated Entity shall have the right to deduct from Awards any applicable taxes, and any other deductions, required to be withheld with respect to such payments. In addition, the Company or an Affiliated Entity also may withhold such amounts from other amounts payable by the Company or an Affiliated Entity, subject to applicable law. |
12.6 | No Limitation on Corporate Actions. Nothing contained in the Plan shall be construed to prevent the Company or an Affiliated Entity from taking or not taking any corporate action, whether or not such action could have an adverse effect on any Awards made under the Plan. No Eligible Employee, beneficiary or other person shall have any claim as a result of any such action. |
12.7 | Unfunded Plan. The Plan is intended to constitute an unfunded plan for incentive compensation. Prior to the payment of any Award, nothing contained herein shall give any rights that are greater than those of a general creditor of the Company or an Affiliated Entity. |
12.8 | Severability. If any provision of this Plan is held invalid or unenforceable, its invalidity or unenforceability shall not affect any of the other provisions of the Plan, and this Plan shall be construed and enforced as if such provision had not been included in the Plan. |
12.9 | Governing Law. The Plan and all actions taken thereunder shall be governed by and interpreted in accordance with and governed by the laws of the State of Delaware. |
12.10 | Nontransferability. A person’s rights and interests under the Plan, including any Award previously made to such person or any amounts payable under the Plan, may not be sold, assigned, pledged, transferred or otherwise alienated or hypothecated except, in the event of death, to a designated beneficiary as may be provided in the Plan, or in the absence of such designation, by will or the laws of descent and distribution. |
12.11 | Beneficiaries. To the extent the Committee permits beneficiary designations, any payment of Awards under the Plan to a deceased Eligible Employee shall be paid to the beneficiary duly designated by the Eligible Employee in accordance with the Company’s or an Affiliated Entity’s practices. If no such beneficiary has been designated or survives the Eligible Employee, payment shall be made to the Eligible Employee’s estate. A beneficiary designation, if such are permitted, may be changed or revoked by an Eligible Employee at any time, provided the change or revocation is filed with the Committee prior to the Eligible Employee’s death. |
12.12 | Successor. All obligations of the Company under the Plan, with respect to Awards granted hereunder, shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business or assets of the Company. |
12.13 | Relationship to Other Benefits. No payment of benefit under the Plan shall be taken into account in determining any benefits pursuant to any pension, retirement, savings, profit sharing, group insurance, termination programs and/or indemnities or severance payments, welfare or other benefit plan of the Company or any Affiliated Entity, except to the extent otherwise expressly provided in writing in such other plan or arrangement. |
• |
“Normal Retirement” means retirement on or after age 65;
|
• |
“Early Retirement” means retirement on or after:
|
o |
Age 55 with 10 or more years of continuous service as of the Termination Date; or
|
o |
Age 50, but before age 55, and the Participant’s age and continuous service as of the Termination Date adds up to 65 or more (“Rule of 65”).
|
(i) |
Termination for Cause (as defined in the LTIP);
|
(ii) |
A determination that the Participant engaged in conduct that could have constituted the basis for a Termination for Cause, including determinations made within three years following the Termination Date;
|
(iii) |
Within twenty-four months following the Termination Date, the Participant:
|
(A) |
Solicits a Company employee, or individual who had been a Company employee within the previous three months, for an opportunity outside of the Company; or
|
(B) |
Publicly disparages the Company, its employees, directors, products, or otherwise makes a public statement that is materially detrimental to the interests of the Company or such individuals; or
|
(iv) |
At any time during the twelve-month period following the Termination Date the Participant becomes employed by, consults for, or otherwise renders services to any business entity or person engaged in activities (A) that compete with the
Corporation or the business unit that employed the Participant, or (B) that is a material customer of or a material supplier to the Corporation or the business unit that employed the Participant, unless, in either case, the Participant has
first obtained the consent of the Chief Human Resources Officer or her or his delegate. This restriction applies to competitors, customers, and suppliers of each business unit that employed the Participant within the two-year period prior to
the Termination Date. The determination of status of competitors, customers, and suppliers will be made by the Chief Human Resources Officer (or her or his delegate) in her or his sole discretion.
|
(ii) |
A determination that the Participant engaged in conduct that could have constituted the basis for a Termination for Cause, including determinations made within three years following the Termination Date;
|
(iii) |
Within twenty-four months following the Termination Date, the Participant:
|
(A) |
Solicits a Company employee, or individual who had been a Company employee within the previous three months, for an opportunity outside of the Company; or
|
(B) |
Publicly disparages the Company, its employees, directors, products, or otherwise makes a public statement that is materially detrimental to the interests of the Company or such individuals; or
|
(iv) |
At any time during the twelve-month period following the Termination Date the Participant becomes employed by, consults for, or otherwise renders services to any business entity or person engaged in activities (A) that compete with the
Corporation or the business unit that employed the Participant, or (B) that is a material customer of or a material supplier to the Corporation or the business unit that employed the Participant, unless, in either case, the Participant has
first obtained the consent of the Chief Human Resources Officer or her or his delegate. This restriction applies to competitors, customers, and suppliers of each business unit that employed the Participant within the two-year period prior
to the Termination Date. The determination of status of competitors, customers, and suppliers will be made by the Chief Human Resources Officer (or her or his delegate) in her or his sole discretion.
|
• |
“Normal Retirement” means retirement on or after age 65;
|
• |
“Early Retirement” means retirement on or after:
|
o |
Age 55 with 10 or more years of continuous service as of the Termination Date; or
|
o |
Age 50, but before age 55, and the Participant’s age and continuous service as of the Termination Date adds up to 65 or more (“Rule of 65”).
|
Retirement Type
|
Company Consents to Early Retirement *
|
Exercise Period
|
Normal Retirement (age 65)
|
N/A
|
SARs may be exercised until the expiration of their term
|
Early Retirement on or after age 55 + 10 years of continuous service as of the Termination Date
|
Yes
|
SARs may be exercised until the expiration of their term
|
No
|
SARs may be exercised for three (3) years following the Termination Date or until the expiration of the SAR, whichever is earlier
|
|
Early Retirement on or after age 50, but prior to age 55 + years of service = 65+ as of the Termination Date
|
Yes
|
SARs may be exercised for five (5) years following the Termination Date or until the expiration of the SAR, whichever is earlier
|
No
|
SARs may be exercised for three (3) years following the Termination Date or until the expiration of the SAR, whichever is earlier
|
|
* The Company’s consent to the Participant’s Retirement will be at the sole discretion of the Company based on its ability to effectively transition the Participant’s responsibilities as of
the Termination Date and such other factors as it may deem appropriate.
|
(i) |
Termination for Cause (as defined in the LTIP);
|
(ii) |
A determination that the Participant engaged in conduct that could have constituted the basis for a Termination for Cause, including determinations made within three years following the Termination Date;
|
(iii) |
Within twenty-four months following the Termination Date, the Participant:
|
(A) |
Solicits a Company employee, or individual who had been a Company employee within the previous three months, for an opportunity outside of the Company; or
|
(B) |
Publicly disparages the Company, its employees, directors, products, or otherwise makes a public statement that is materially detrimental to the interests of the Company or such individuals; or
|
(iv) |
At any time during the twelve-month period following the Termination Date
the Participant becomes employed by, consults for, or otherwise renders services to any business entity or person engaged in activities (A) that compete with the Corporation or the business unit that employed the Participant, or (B) that is
a material customer of or a material supplier to the Corporation or the business unit that employed the Participant, unless, in either case, the Participant has
first obtained the consent of the Chief Human Resources Officer or her or his delegate. This restriction applies to competitors, customers, and suppliers of each business unit that employed the Participant within the
two-year period prior to the Termination Date. The determination of status of competitors, customers, and suppliers will be made by the Chief Human Resources Officer (or her or his delegate) in her or his sole discretion.
|
• |
“Normal Retirement” means retirement on or after age 65;
|
• |
“Early Retirement” means retirement on or after:
|
o |
Age 55 with 10 or more years of continuous service as of the Termination Date; or
|
o |
Age 50, but before age 55, and the Participant’s age and continuous service as of the Termination Date adds up to 65 or more (“Rule of 65”).
|
Retirement Type
|
Company Consents to Early Retirement *
|
Exercise Period
|
Normal Retirement (age 65)
|
N/A
|
SARs may be exercised until the expiration of their term
|
Early Retirement on or after age 55 + 10 years of continuous service as of the Termination Date
|
Yes
|
SARs may be exercised until the expiration of their term
|
No
|
SARs may be exercised for three (3) years following the Termination Date or until the expiration of the SAR, whichever is earlier
|
|
Early Retirement on or after age 50, but prior to age 55 + years of service = 65+ as of the Termination Date
|
Yes
|
SARs may be exercised for five (5) years following the Termination Date or until the expiration of the SAR, whichever is earlier
|
No
|
SARs may be exercised for three (3) years following the Termination Date or until the expiration of the SAR, whichever is earlier
|
|
* The Company’s consent to the Participant’s Retirement will be at the sole discretion of the Company based on its ability to effectively transition the Participant’s responsibilities as
of the Termination Date and such other factors as it may deem appropriate.
|
(i) |
Termination for Cause (as defined in the LTIP);
|
(ii) |
A determination that the Participant engaged in conduct that could have constituted the basis for a Termination for Cause, including determinations made within three years following the Termination Date;
|
(iii) |
Within twenty-four months following the Termination Date, the Participant:
|
(A) |
Solicits a Company employee, or individual who had been a Company employee within the previous three months, for an opportunity outside of the Company; or
|
(B) |
Publicly disparages the Company, its employees, directors, products, or otherwise makes a public statement that is materially detrimental to the interests of the Company or such individuals; or
|
(iv) |
At any time during the twelve-month period following the Termination Date
the Participant becomes employed by, consults for, or otherwise renders services to any business entity or person engaged in activities (A) that compete with the Corporation or the business unit that employed the Participant, or (B)
that is a material customer of or a material supplier to the Corporation or the business unit that employed the Participant, unless, in either case,
the Participant has first obtained the consent of the Chief Human Resources Officer or her or his delegate. This restriction applies to competitors, customers, and suppliers of each business
unit that employed the Participant within the two-year period prior to the Termination Date. The determination of status of competitors, customers, and suppliers will be made by the Chief Human Resources Officer (or her or his delegate)
in her or his sole discretion.
|
Stock Plan Administrator
|
|
StockPlanAdmin@carrier.com
|
|
OR
|
|
Carrier Global Corporation
|
|
Attn: Stock Plan Administrator
|
|
13995 Pasteur Boulevard
|
|
Palm Beach Gardens, FL 33418
|
• |
“Normal Retirement” means retirement on or after age 65;
|
• |
“Early Retirement” means retirement on or after:
|
o |
Age 55 with 10 or more years of continuous service as of the Termination Date; or
|
o |
Age 50, but before age 55, and the Participant’s age and continuous service as of the Termination Date adds up to 65 or more (“Rule of 65”).
|
(i) |
Termination for Cause (as defined in the LTIP);
|
(ii) |
The Committee determines that Award vesting was based on incorrect performance measurement calculations. In such event, vesting (and recoupment, if applicable) will be adjusted consistent with the actual corrected results;
|
(iii) |
A determination that the Participant engaged in conduct that could have constituted the basis for a Termination for Cause, including determinations made within three years following the Termination Date;
|
(iv) |
Within twenty-four months following the Termination Date, the Participant:
|
(A) |
Solicits a Company employee, or individual who had been a Company employee within the previous three months, for an opportunity outside of the Company; or
|
(B) |
Publicly disparages the Company, its employees, directors, products, or otherwise makes a public statement that is materially detrimental to the interests of the Company or such individuals; or
|
(v) |
At any time during the twelve-month period following the Termination Date the Participant becomes employed by, consults for, or otherwise renders services to any business entity or person engaged in activities (A) that compete with the
Corporation or the business unit that employed the Participant, or (B) that is a material customer of or a material supplier to the Corporation or the business unit that employed the Participant, unless, in either case, the Participant
has first obtained the consent of the Chief Human Resources Officer or her or his delegate. This restriction applies to competitors, customers, and suppliers of each business unit that employed the Participant within the two-year period
prior to the Termination Date. The determination of status of competitors, customers, and suppliers will be made by the Chief Human Resources Officer (or her or his delegate) in her or his sole discretion.
|
Stock Plan Administrator
|
|
StockPlanAdmin@carrier.com
|
|
OR
|
|
Carrier Global Corporation
|
|
Attn: Stock Plan Administrator
|
|
13995 Pasteur Boulevard
|
|
Palm Beach Gardens, FL 33418
|
• |
“Normal Retirement” means retirement on or after age 65;
|
• |
“Early Retirement” means retirement on or after:
|
o |
Age 55 with 10 or more years of continuous service as of the Termination Date; or
|
o |
Age 50, but before age 55, and the Participant’s age and continuous service as of the Termination Date adds up to 65 or more (“Rule of 65”).
|
Retirement Type
|
Company Consents to Early Retirement *
|
Exercise Period
|
Normal Retirement (age 65)
|
N/A
|
Options may be exercised until the expiration of their term
|
Early Retirement on or after age 55 + 10 years of continuous service as of the Termination Date
|
Yes
|
Options may be exercised until the expiration of their term
|
No
|
Options may be exercised for three (3) years following the Termination Date or until the expiration of the Stock Option, whichever is earlier
|
|
Early Retirement on or after age 50, but prior to age 55 + years of service = 65+ as of the Termination Date
|
Yes
|
Options may be exercised for five (5) years following the Termination Date or until the expiration of the Option, whichever is earlier
|
No
|
Options may be exercised for three (3) years following the Termination Date or until the expiration of the Option, whichever is earlier
|
|
* The Company’s consent to the Participant’s Retirement will be at the sole discretion of the Company based on its ability to effectively transition the Participant’s responsibilities as
of the Termination Date and such other factors as it may deem appropriate.
|
(i) |
Termination for Cause (as defined in the LTIP);
|
(ii) |
A determination that the Participant engaged in conduct that could have constituted the basis for a Termination for Cause, including determinations made within three years following the Termination Date;
|
(iii) |
Within twenty-four months following the Termination Date, the Participant:
|
(A) |
Solicits a Company employee, or individual who had been a Company employee within the previous three months, for an opportunity outside of the Company; or
|
(B) |
Publicly disparages the Company, its employees, directors, products, or otherwise makes a public statement that is materially detrimental to the interests of the Company or such individuals; or
|
(iv) |
At any time during the twelve-month period following the Termination Date the Participant becomes employed by, consults for, or otherwise renders services
to any business entity or person engaged in activities (A) that compete with the Corporation or the business unit that employed the Participant, or (B) that is a material customer of or a material supplier to the Corporation or the
business unit that employed the Participant, unless, in either case, the Participant has first obtained the consent of the Chief Human Resources Officer or her or his delegate. This restriction
applies to competitors, customers, and suppliers of each business unit that employed the Participant within the two-year period prior to the Termination Date. The determination of status of competitors, customers, and suppliers will be
made by the Chief Human Resources Officer (or her or his delegate) in her or his sole discretion.
|
Stock Plan Administrator
|
|
StockPlanAdmin@carrier.com
|
|
OR
|
|
Carrier Global Corporation
|
|
Attn: Stock Plan Administrator
|
|
13995 Pasteur Boulevard
|
|
Palm Beach Gardens, FL 33418
|
(a) |
Beneficiary means the person, persons, entity or entities designated on an electronic or written form by the Participant to receive the value of his or her Plan Account in the event of the
Participant’s death in accordance with the terms of the Plan. If the Participant fails to designate a Beneficiary, or the Beneficiary (and any contingent
Beneficiary) does not survive the Participant, the value of the Participant’s Plan Account will be paid to the Participant’s estate.
|
(b) |
Benefit Restoration Contribution means a contribution by the Corporation to the Participant’s Plan Account to recognize the reduction in the value of employer matching or other contributions
under the Qualified Savings Plan or the Savings Restoration Plan, as a result of the reduction of such Participant’s Compensation pursuant to the Plan.
|
(c) |
Carrier Company means (i) prior to the Spin-off, UTC or any entity controlled by or under common control with UTC within the meaning of Section 414(b) or (c) of the Code and (ii) from and after
the Spin-off, the Corporation and any entity controlled by or under common control with the Corporation within the meaning of Section 414(b) or (c) of the Code (but under both (i) and (ii) substituting “at least 20 percent” for “at least
80 percent” as the control threshold used in applying Sections 414(b) and (c)).
|
(d) |
Code means the Internal Revenue Code of 1986, as amended from time to time, and any successor thereto. Reference to any section of the Internal Revenue Code shall include any final regulations
or other applicable guidance. References to “Section 409A” shall refer to Section 409A of the Code and regulations and guidance issued thereunder by the Internal Revenue Service as from time to time in effect.
|
(e) |
Committee means the Carrier Benefit Plan Committee, which is responsible for the administration of the Plan. The Committee may delegate administrative responsibilities to individuals and
entities as it shall determine.
|
(f) |
Common Stock means the common stock of United Technologies Corporation until the Spin-off and means the common stock of Carrier Global Corporation from and after such date.
|
(g) |
Compensation means base salary and Incentive Compensation Payments otherwise payable to a Participant by a UTC Company and considered to be wages for purposes of federal income tax withholding,
but before any deferral of Compensation pursuant to the Plan. Compensation does not include foreign-service premiums and allowances, compensation realized from long-term incentive plan awards or other types of awards.
|
(h) |
Corporation means Carrier Global Corporation, or any successor thereto.
|
(i) |
Default Investment Option means the Investment Fund designated by the Plan or selected by the Committee on behalf of all Participants at the time they first become eligible to participate in the
Plan. The Default Investment Option shall be the income fund, unless otherwise determined in the sole discretion of the Committee.
|
(j) |
Deferral Period means the period prior to the receipt of Compensation deferred hereunder.
|
(k) |
Disability means permanent and total disability as determined under the Corporation’s long-term disability plan applicable to the Participant or, if there is no such plan applicable to the
Participant, “Disability” means a determination of total disability by the Social Security Administration.
|
(l) |
Election Form means the enrollment form provided by the Committee to Participants electronically or in paper form for the purpose of deferring Compensation under the Plan. Each Participant’s
Election Form must contain such information as the Committee may require, including: the amount to be deferred from base salary and/or from any Incentive Compensation Payment, as applicable; the respective amounts to be allocated to the
Participant’s Retirement Account and/or Special Purpose Account or Accounts; the percentage allocation among the Investment Funds with respect to each such Account; and, if not previously elected for an Account, the method of distribution
of each such Account; and the Deferral Period for each Special Purpose Account. There will be a separate Election Form for each calendar year.
|
(m) |
ERISA means the Employee Retirement Income Security Act of 1974, as amended.
|
(n) |
Incentive Compensation Payment means amounts meeting the definition of “performance-based compensation” under Section 409A awarded to a Participant pursuant to the Corporation’s executive
annual bonus plan.
|
(o) |
Investment Fund means a hypothetical fund that tracks the value of an investment option as may be established by the Committee from time to time. Investment Funds shall be valued in the manner
set forth under Section 5.3. The value of Participants’ Accounts shall be adjusted to replicate the performance of the applicable Investment Funds. Amounts credited to any Investment Fund do not result in any investment in actual assets
corresponding to the Investment Fund.
|
(p) |
Participant means an executive (i.e., band E-1 or higher) who (i) is determined by the Committee to be
within a select group of management or highly compensated employees of the Corporation or one of its Subsidiaries, (ii) is paid from a U.S. payroll, receives compensation subject to federal income tax withholding and files a U.S. income
tax return, or is grandfathered in from a prior plan, and (iii) elects to defer Compensation under the Plan. A Participant who has previously deferred Compensation under the Plan but who ceases to be eligible under the preceding sentence
shall not be eligible to further defer Compensation under Section 3.1 but shall remain a Participant under the Plan with respect to his or her Plan Account until it is distributed or forfeited in accordance with the terms of the Plan.
|
(q) |
Plan means the Carrier Global Corporation Deferred Compensation Plan, as amended from time to time.
|
(r) |
Plan Account means the aggregate value of all Special Purpose Accounts and the Retirement Account, but excluding accounts under the Prior Plan. Accounts under the Prior Plan will be valued and
administered separately in accordance with the terms and procedures in effect under the Prior Plan.
|
(s) |
Prior Plan means the United Technologies Corporation Deferred Compensation Plan, as in effect on September 1, 2002, as set forth in Appendix A. All amounts earned and vested under the Prior
Plan, and any subsequent increases in these amounts that are permitted to be treated as grandfathered benefits under Section 409A, shall continue to be subject to the terms and conditions of the Prior Plan.
|
(t) |
Qualified Saving Plan means the United Technologies Corporation Employee Savings Plan until the Spin-off date and means the Carrier Retirement Savings Plan from and after the Spin-off date.
|
(u) |
Retirement means Separation from Service on or after the attainment of age fifty (50).
|
(v) |
Retirement Account means a Plan Account maintained on behalf of the Participant that is targeted for distribution following the Participant’s Retirement.
|
(w) |
Retirement Date means the date of a Participant’s Retirement.
|
(x) |
Savings Restoration Plan means the Corporation’s Savings Restoration Plan.
|
(y) |
Separation from Service means a Participant’s termination of employment with all Carrier Companies, other than by reason of death. A Separation from Service will be deemed to occur where the
Participant and the Carrier Company that employs the Participant reasonably anticipate that the bona fide level of services the Participant will perform (whether as an employee or as an independent contractor) for Carrier Companies will
be permanently reduced to a level that is less than thirty-seven and a half percent (37.5%) of the average level of bona fide services the Participant performed during the immediately preceding thirty-six (36) months (or the entire period
the Participant has provided services if the Participant has been providing services to the Carrier Companies for less than thirty-six (36) months). A Participant shall not be considered to have had a Separation from Service as a result
of a transfer from one Carrier Company to another Carrier Company. For the avoidance of doubt, a transfer of employment from an entity that constitutes a Carrier Company prior to the Spin-off to an entity that constitutes a Carrier
Company following the Spin-off shall not constitute a Separation from Service under the Plan or with respect to benefits transferred to the Plan if such transfer is made in connection with the Spin-off, but a transfer from a Carrier
Company to UTC or Otis (or one of their affiliates) after the Spin-off (and that otherwise satisfies the definition of a Separation from Service) shall constitute a Separation from Service.
|
(z) |
Special Purpose Account means a Plan Account maintained on behalf of the Participant with a targeted distribution date in the calendar year specified by the Participant. The minimum Deferral
Period for a Special Purpose Account is five (5) calendar years following the end of the calendar year with respect to which the Account is established.
|
(aa) |
Specified Employee means, for the period (i) until the Corporation’s first specified employee effective date following the Spin-off, those officers and executives of the Corporation and its
Subsidiaries who were identified as specified employees of UTC on the “specified employee identification date” preceding such specified employee effective date (as such terms are defined by Treas. Regs. Sec. 1.409A-1(i)(3) and (4)); and
(ii) from and after the Corporation’s first specified employee effective date following the Spin-off, each of the fifty (50) highest-paid officers and other executives of the Corporation and its affiliates (determined for this purpose
under Treas. Regs. Sec. 1.409A-1(g)), effective annually as of April 1st, based on compensation reported in Box 1 of Form W-2, but including amounts that are excluded from taxable income as a result of elective deferrals to qualified
plans and pre-tax contributions. Foreign compensation earned by a nonresident alien that is not effectively connected with the conduct of a trade or business in the United
States will not be used to determine Specified Employees following the Spin-off.
|
(bb) |
Spin-off has the meaning set forth in Section 1.2.
|
(cc) |
Subsidiary means any corporation, partnership, joint venture, limited company or other entity during any period in which at least a fifty percent (50%) voting or profits interest is owned,
directly or indirectly, by the Corporation or any successor to the Corporation.
|
(dd) |
UTC Common Stock means the common stock of United Technologies Corporation.
|
(ee) |
UTC DCP means the United Technologies Corporation Deferred Compensation Plan as in effect immediately prior to the Spin-off.
|
(a) |
the new election must be made at least twelve (12) months prior to the earlier of the date on which payments will commence under the current election and/or the date of a Separation
from Service following attainment of age fifty (50); and the new election shall be ineffective if the Participant incurs a Separation from Service within twelve (12) months after the date of the new election;
|
(b) |
the new election will not take effect until at least twelve (12) months after the date when the new election is submitted in a manner acceptable to the Committee; and
|
(c) |
the new payment commencement date must be five (5) years later than the date on which payments would commence under the current election.
|
Carrier Global Corporation
|
|
13995 Pasteur Boulevard
|
|
Palm Beach Gardens, FL 33418
|
|
Attn: Benefit Plan Committee
|
|
Telephone: 561-365-2000
|
a) |
Beneficiary means the person, persons or entity designated on an electronic or written form by the Participant to receive the value of his or her Plan Accounts in the event of the Participant’s
death in accordance with the terms of this Plan. If the Participant fails to designate a Beneficiary, or the Beneficiary (and any contingent Beneficiary) does not survive the Participant, the value of the Participant’s Plan Accounts will
be paid to the Participant’s estate.
|
b) |
Benefit Restoration Contribution means an amount credited on behalf of the Participant to the DCP that would have been credited to the Participant’s Carrier Contribution Account under this Plan
but for the reduction of such Participant’s Eligible Compensation due to an elective deferral of compensation by the Participant under the DCP.
|
c) |
Carrier means Carrier Global Corporation.
|
d) |
Carrier Company means (i) prior to the Spin-off, UTC or any entity controlled by or under common control with UTC within the meaning of Section 414(b) or (c) of the Code and (ii) from and after
the Spin-off, the Corporation and any entity controlled by or under common control with the Corporation within the meaning of Section 414(b) or (c) of the Code (but under both (i) and (ii) substituting “at least 20 percent” for “at least 80
percent” as the control threshold used in applying Sections 414(b) and (c)).
|
e) |
Carrier Contribution means the amount credited to a Participant’s Carrier Contribution Account in accordance with the formula set forth in Article V.
|
f) |
Carrier Contribution Account means a Plan account maintained on behalf of a Participant for the purpose of crediting Carrier Contributions.
|
g) |
Code means the Internal Revenue Code of 1986, as amended from time to time, and any successor thereto. Reference to any Section of the Internal Revenue Code shall include any final regulations or
other applicable guidance. References to “Section 409A” shall include Section 409A of the Code and any final regulations or other applicable guidance issued thereunder by the Internal Revenue Service from time to time in effect.
|
h) |
Committee means the Carrier Benefit Plan Committee, which is responsible for the administration of the Plan. The Committee may delegate administrative responsibilities to individuals and
entities as it shall determine.
|
i) |
Common Stock means the common stock of United Technologies Corporation until the Spin-off and means the common stock of Carrier Global Corporation from and after such date.
|
j) |
Corporation means Carrier Global Corporation.
|
k) |
DCP means the Carrier Global Corporation Deferred Compensation Plan.
|
l) |
Default Investment Option means the Investment Fund designated by the Plan or selected by the Committee on behalf of all Participants at the time they first become eligible to participate in the
Plan. The Default Investment Option shall be the income fund (or its closest equivalent), unless otherwise determined in the sole discretion of the Committee.
|
m) |
Deferred Stock Units means, until the Spin-off, hypothetical shares of UTC Common Stock, and from and after the Spin-off, hypothetical shares of the Corporation’s Common Stock.
|
n) |
Disability means permanent and total disability as determined under the Corporation’s long-term disability plan applicable to the Participant, or if there is no such plan applicable to the
Participant, “Disability” means a determination of total disability by the Social Security Administration.
|
o) |
Election Form means the enrollment form provided by the Committee to Participants electronically or in paper form for the purpose of deferring Eligible Compensation under the Plan. Each
Participant’s Election Form must contain such information as the Committee may require, including: the percentage of Eligible Compensation to be deferred with respect to the following calendar year; the percentage allocation among the
Investment Funds with respect to the Participant Contribution Account; and if not previously elected for the Plan Accounts, the method of distribution.
|
p) |
Eligible Compensation means the total compensation paid with respect to a Plan Year to a Participant meeting the definition of “Compensation” as set forth in the Qualified Savings Plan, but (a)
modified by disregarding the IRS Compensation Limit in such definition and (b) including a Participant’s contributions to this Plan.
|
q) |
Employee means an employee of the Corporation and its Subsidiaries, but excluding any employee who is not eligible to participate in the Qualified Savings Plan and any Represented Employee (as
defined in the Qualified Savings Plan). For the period from January 1, 2020, until the Spin-off date, “Corporation” as used in this definition shall mean Carrier Global Corporation and “Employee” shall exclude any employee of UTC and its
Subsidiaries and affiliates who is not deemed to be within the Carrier business unit of UTC.
|
r) |
Investment Fund means a hypothetical fund that tracks the value of an investment option offered under the Qualified Savings Plan or the DCP, as determined by the Committee. Investment Funds
offered under the SRP may be changed from time to time by the Committee and shall be valued in the manner set forth in Section 6.3. The value of Participants’ Plan Accounts shall be adjusted to replicate the performance of the applicable
Investment Funds. Amounts credited to any Investment Fund do not result in the investment in actual assets corresponding to the Investment Fund.
|
s) |
IRS Compensation Limit means the limitation imposed by Section 401(a)(17) of the Code.
|
t) |
A Participant eligible to contribute under the Plan for a Plan Year means an eligible Employee: (i) who is a participant in the Qualified Savings Plan;
(ii) whose Eligible Compensation is in excess of the IRS Compensation Limit; (iii) who elects to defer Eligible Compensation under the Plan; and (iv) who is not an active participant in the UTC SRP or the Carrier Savings Restoration Plan.
A Participant who has previously contributed to the Plan but who ceases to be eligible under the preceding sentence shall not be eligible to make or receive a contribution under Article IV or V but shall remain a Participant under the Plan
with respect to his or her Plan Accounts until they are distributed or forfeited in accordance with the terms of the Plan.
|
u) |
Participant Contribution Account means a Plan account maintained on behalf of a Participant who defers Eligible Compensation under this Plan.
|
v) |
Performance-Based Compensation means performance-based compensation as defined in Treas. Reg. Sec. 1.409A–1(e).
|
w) |
Plan means the Carrier Global Corporation Savings Restoration Plan, as amended from time to time.
|
x) |
Plan Accounts means the Participant Contribution Account and the Carrier Contribution Account maintained on behalf of a Participant.
|
y) |
Plan Year means the calendar year.
|
z) |
Qualified Saving Plan means the United Technologies Corporation Employee Savings Plan until the Spin-off date and means the Carrier Retirement Savings Plan from and after the Spin-off date.
|
aa) |
Separation from Service means a Participant’s termination of employment with all Carrier Companies, other than by reason of death. A Separation from Service will be deemed to occur when the
Participant and the Carrier Company that employs the Participant reasonably anticipate that the bona fide level of services the Participant will perform (whether as an Employee or as an independent contractor) for Carrier Companies will be
permanently reduced to a level that is less than thirty-seven and one-half percent (37.5%) of the average level of bona fide services the Participant performed during the immediately preceding 36 months (or the entire period the Participant
has provided services if the Participant has been providing services to the Carrier Companies for less than 36 months). A Participant shall not be considered to have had a Separation from Service as a result of a transfer from one Carrier
Company to another Carrier Company. For avoidance of doubt, a transfer of employment from an entity that constitutes a Carrier Company prior to the Spin-off to an entity that constitutes a Carrier Company following the Spin-off shall not
constitute a Separation from Service under this Plan or with respect to benefits accrued under the UTC SRP and transferred to this Plan if such transfer is made in connection with the Spin-off, but a transfer from a Carrier Company to UTC
or Otis (or one of their affiliates) after the Spin-off (and that otherwise satisfies the definition of a Separation from Service) shall constitute a Separation from Service.
|
bb) |
Specified Employee means for the period (1) until the Corporation’s first specified Employee effective date following the Spin-off, those officers and executives of the Corporation and its
Subsidiaries who were identified as a specified employee of UTC on the “specified employee identification date” preceding such specified employee effective date (as such terms are defined by Treas. Reg. Sec. 1.409A-1(i)(3) and (4)); and (2)
from and after the Corporation’s first specified employee effective date following the Spin-off, each of the fifty (50) highest-paid officers and other executives of the Corporation and its affiliates (determined for this purpose under
Treas. Reg. Sec. 1.409A-1(g)), effective annually as of April 1st, based on compensation reported in Box 1 of Form W-2, but including amounts that are excluded from taxable income as a result of elective deferrals to qualified plans and
pre-tax contributions. Foreign compensation earned by a nonresident alien that is not effectively connected with the conduct of a trade or business in the United States will not be used to determine Specified Employees following the
Spin-off.
|
cc) |
Spin-off has the meaning set forth in Section 1.2.
|
dd) |
Subsidiary means any corporation, partnership, joint venture, limited company or other entity during any period in which at least a 50% voting or profits interest is owned, directly or
indirectly, by the Corporation or any successor to the Corporation.
|
ee) |
UTC means United Technologies Corporation.
|
ff) |
UTC SRP means the United Technologies Corporation Savings Restoration Plan.
|
Carrier Global Corporation
|
|
13995 Pasteur Boulevard
|
|
Palm Beach Gardens, FL 33418
|
|
Attn: Benefit Plan Committee
|
|
Telephone: 561-365-2000
|
(a) |
Beneficiary means the person, persons, entity or entities designated on an electronic or written form by the Participant to receive the value of his or her Plan Account in the event of the
Participant’s death in accordance with the terms of this Plan. If the Participant fails to designate a Beneficiary, or the Beneficiary (and any contingent Beneficiary) does not survive the Participant, the value of the Participant’s Plan
Account will be paid to the Participant’s estate.
|
(b) |
Benefit Reduction Contribution means an amount credited by the Corporation to the Participant’s Plan Account to restore the reduction in the Company Automatic Contribution credited to a
Participant’s Plan Account as a result of the reduction of such Participant’s Eligible Earnings due to an elective deferral of compensation by the Participant under the Carrier Global Corporation Deferred Compensation Plan.
|
(c) |
Carrier Company means (i) prior to the Spin-off, UTC or any entity controlled by or under common control with UTC within the meaning of Section 414(b) or (c) of the Code and (ii) from and after
the Spin-off, the Corporation and any entity controlled by or under common control with the Corporation within the meaning of Section 414(b) or (c) of the Code (but under both (i) and (ii) substituting “at least 20 percent” for “at least
80 percent” as the control threshold used in applying Sections 414(b) and (c)).
|
(d) |
Code means the Internal Revenue Code of 1986, as amended from time to time, and any successor thereto. Reference to any section of the Internal Revenue Code shall include any final regulations
or other applicable guidance. References to “Section 409A” shall refer to Section 409A of the Code and any final regulations and guidance issued thereunder by the Internal Revenue Service from time to time in effect.
|
(e) |
Committee means the Carrier Benefit Plan Committee, which is responsible for the administration of the Plan.
|
(f) |
Company Automatic Contribution means the age-graded non-matching contribution credited to the Plan on behalf of a Participant in accordance with Sections 5.1 and 5.2 of the Plan. Where
referring to Company Automatic Contributions in the Qualified Savings Plan, the definition of such term in the Qualified Savings Plan shall apply.
|
(g) |
Company Matching Contribution means the matching contribution credited to the Plan on behalf of a Participant in accordance with Section 5.2 of the Plan.
|
(h) |
Corporation means Carrier Global Corporation.
|
(i) |
DCP means the Carrier Global Corporation Deferred Compensation Plan.
|
(j) |
Default Investment Option means the Investment Fund designated by the Plan or selected by the Committee on behalf of all Participants at the time they first become eligible to participate in the
Plan. The Default Investment Option shall be the Income Fund, unless otherwise determined in the sole discretion of the Committee.
|
(k) |
Disability means permanent and total disability as determined under the Corporation’s long-term disability plan applicable to the Participant, or if there is no such plan applicable to the
Participant, “Disability” means a determination of total disability by the Social Security Administration.
|
(l) |
Election Form means the form or process provided by the Committee to Participants electronically or in paper form for the purpose of specifying the method of distribution and/or the percentage
allocation among the Investment Funds with respect to a Participant’s Plan Account.
|
(m) |
Eligible Earnings means the total compensation paid with respect to a Plan Year to a Participant meeting the definition of “Compensation” as set forth in the Qualified Savings Plan, but modified
by disregarding the IRS Compensation Limit in such definition and including amounts the Participant elects to defer for such Plan Year to the Carrier Savings Restoration Plan.
|
(n) |
Eligible Excess Compensation means Eligible Earnings in excess of the IRS Compensation Limit for any Plan Year.
|
(o) |
Employee means an employee of the Corporation and its Subsidiaries, but excluding any employee who is not eligible to participate in the Qualified Savings Plan and any Represented Employee (as
defined in the Qualified Savings Plan). For the period from January 1, 2020 until the Spin-off date, Corporation as used in this definition shall mean Carrier Corporation and Employee shall exclude any employee of UTC and its
Subsidiaries and affiliates who is not deemed to be within the Carrier business unit of UTC.
|
(p) |
Investment Fund means a hypothetical fund that tracks the value of an investment option offered under the Qualified Savings Plan or the DCP, as determined by the Committee. Investment Funds
offered under the CACEP may be changed from time to time by the Committee and shall be valued in the manner set forth in Section 6.2. The value of Participants’ Accounts shall be adjusted to replicate the performance of the applicable
Investment Funds. Amounts credited to any Investment Fund do not result in the investment in actual assets corresponding to the Investment Fund.
|
(q) |
IRS Compensation Limit means the limitation imposed by Section 401(a)(17) of the Code.
|
(r) |
IRS Contribution Limit means the limitation imposed by Section 415(c) of the Code.
|
(s) |
A Participant eligible for a contribution under the Plan for a Plan Year means an eligible Employee who (i) has Eligible Excess Compensation, or (ii) is barred from receiving an allocation of
Company contributions under the Qualified Savings Plan for such Plan Year due to the IRS Contribution Limit; and (iii) is not an active Participant in the UTC CACEP or the Carrier Global Corporation Company Automatic Excess Plan. A
Participant who has previously received an allocation under the Plan but who ceases to be eligible under the preceding sentence shall not be eligible for a contribution under Article V but shall remain a Participant under the Plan with
respect to his or her Plan Account until it is distributed or forfeited in accordance with the terms of the Plan.
|
(t) |
Plan means the Carrier Global Corporation Company Automatic Contribution Excess Plan, as amended from time to time.
|
(u) |
Plan Account means an account maintained on behalf of a Participant for the purpose of crediting Company Automatic Contributions and Company Matching Contributions.
|
(v) |
Plan Year means the calendar year.
|
(w) |
Qualified Saving Plan means the United Technologies Corporation Employee Savings Plan until the Spin-off date and means the Carrier Retirement Savings Plan from and after the Spin-off date.
|
(x) |
Separation from Service means a Participant’s termination of employment with all Carrier Companies, other than by reason of death. A Separation from Service will be deemed to occur where the
Participant and the Carrier Company that employs the Participant reasonably anticipate that the bona fide level of services the Participant will perform (whether as an employee or as an independent contractor) for Carrier Companies will
be permanently reduced to a level that is less than thirty-seven and a half percent (37.5%) of the average level of bona fide services the Participant performed during the immediately preceding thirty-six (36) months (or the entire period
the Participant has provided services if the Participant has been providing services to Carrier Companies for less than thirty-six (36) months). A Participant shall not be considered to have had a Separation from Service as a result of a
transfer from one Carrier Company to another Carrier Company. For avoidance of doubt, a transfer of employment from an entity that constitutes a Carrier Company prior to the Spin-off to an entity that constitutes a Carrier Company
following the Spin-off shall not constitute a Separation from Service under this Plan or with respect to benefits accrued under the UTC CACEP and transferred to this Plan if such transfer is made in connection with the Spin-off, but a
transfer from a Carrier Company to UTC or Otis (or one of their affiliates) after the Spin-off (and that otherwise satisfies the definition of a Separation from Service) shall constitute a Separation from Service.
|
(y) |
Specified Employee means for the period (i) until the Corporation’s first specified employee effective date following the Spin-off, those officers and executives of the Corporation and its
Subsidiaries who were identified as a specified employee of UTC on the “specified employee identification date” preceding such specified employee effective date (as such terms are defined by Treas. Regs. Sec. 1.409A-1(i)(3) and (4)); and
(ii) from and after the Corporation’s first specified employee effective date following the Spin-off, each of the fifty (50) highest-paid officers and other executives of the Corporation and its affiliates (determined for this purpose
under Treas. Regs. Sec. 1.409A-1(g)), effective annually as of April 1, based on Box 1 of Form W-2, but including amounts that are excluded from taxable income as a result of elective deferrals to qualified plans and pre-tax
contributions. Foreign compensation earned by a nonresident alien that is not effectively connected with the conduct of a trade or business in the United States will not be used to determine Specified Employees following the Spin-off.
|
(z) |
Spin-off means the process by which the Corporation becomes a separate publicly traded company and no longer a UTC subsidiary.
|
(aa) |
Subsidiary means any corporation, partnership, joint venture, limited company or other entity during any period in which at least a fifty percent (50%) voting or profits interest is owned,
directly or indirectly, by the Corporation or any successor to the Corporation.
|
(bb) |
UTC means United Technologies Corporation.
|
(cc) |
UTC CACEP means the United Technologies Corporation Company Automatic Contribution Excess Plan.
|
Carrier Global Corporation
|
|
13995 Pasteur Boulevard
|
|
Palm Beach Gardens, FL 33418
|
|
Attn: Carrier Benefit Plan Committee
|
|
Telephone: 561-365-2000
|
(a) |
Beneficiary means the person, persons, entity, or entities designated on an electronic or written form by the Participant to receive the value of his or her Plan Account in the event of the
Participant’s death in accordance with the terms of this Plan. If the Participant fails to designate a Beneficiary, or the Beneficiary (and any contingent Beneficiary) does not survive the Participant, the value of the Participant’s Plan
Account will be paid to the Participant’s estate.
|
(b) |
Carrier Company means, (i) prior to the Spin-off, any entity within the Carrier business unit of UTC controlled by or under common control with UTC within the meaning of Section 414(b) or (c) of
the Code and (ii) from and after the Spin-off, the Corporation and any entity controlled by or under common control with the Corporation within the meaning of Section 414(b) or (c) of the Code (but under both clauses (i) and (ii)
substituting “at least 20 percent” for “at least 80 percent” as the control threshold used in applying Sections 414(b) and (c)).
|
(c) |
Carrier LTIP PSU Deferral Plan means the Carrier Global Corporation LTIP Performance Share Unit Deferral Plan.
|
(d) |
Code means the Internal Revenue Code of 1986, as amended from time to time, and any successor thereto. Reference to any section of the Internal Revenue Code shall include any final regulations
or other applicable guidance. References to “Section 409A” shall include any final regulations or other applicable guidance issued thereunder by the Internal Revenue Service from time to time in effect.
|
(e) |
Committee means the Carrier Benefit Plan Committee, which is responsible for the administration of this Plan. The Committee may delegate administrative responsibilities to such individuals and
entities as it shall determine.
|
(f) |
Common Stock means the common stock of United Technologies Corporation until the Spin-off and means the common stock of the Corporation from and after such date.
|
(g) |
Corporation means Carrier Global Corporation, or any successor thereto.
|
(h) |
DCP means the United Technologies Deferred Compensation Plan prior to the Spin-off date and means the Corporation’s Deferred Compensation Plan from and after the Spin-off date.
|
(i) |
Default Deferral Period means the minimum Deferral Period of five (5) years following the date on which the Performance Cycle Account is established.
|
(j) |
Default Distribution means payment in a lump sum distribution.
|
(k) |
Deferral Period means the period designated (or deemed to be designated) by the Participant in accordance with this Plan that ends on the Participant’s Retirement Date or on a Specific Deferral
Date.
|
(l) |
Deferred Share Units means PSUs that have been deferred pursuant to the terms of this Plan (or pursuant to the UTC LTIP PSU Deferral Plan for periods prior to the Spin-off), and dividend
equivalents that are credited and invested pursuant to Section 7.1.
|
(m) |
Disability means permanent and total disability as determined under the Corporation’s long-term disability plan applicable to the Participant, or if there is no such plan applicable to the
Participant, “Disability” means a determination of total disability by the Social Security Administration; provided that, in either case, the Participant’s condition also qualifies as a
“disability” for purposes of Section 409A(a)(2)(C).
|
(n) |
Election Form means the enrollment form provided by the Committee to Participants electronically or in paper form for the purpose of deferring PSUs under this Plan. Each Participant’s Election
Form must contain such information as the Committee may require, including: the percentage of the award to be deferred with respect to the applicable Performance Cycle, the form of distribution elected, and the distribution start date (see also Default Deferral Period and Default Distribution). There will be a separate Election Form for each Performance Cycle.
|
(o) |
Employee means an employee of the Corporation and its subsidiaries. For the period January 1, 2020 until the Spin-off date, Employee shall exclude any employee of UTC and its subsidiaries and
affiliates that is not deemed to be within the Carrier business unit of UTC.
|
(p) |
ERISA means the Employee Retirement Income Security Act of 1974, as amended.
|
(q) |
Investment Fund means a hypothetical fund that tracks the value of an investment option offered under the Qualified Savings Plan or the DCP, as determined by the Committee. Investment Funds
offered under the LTIP PSU Deferral Plan may be changed from time to time by the Committee and shall be valued in the manner set forth in Section 5.1. The value of Participants’ Plan Accounts invested in Investment Funds shall be
adjusted to replicate the performance of the applicable Investment Funds. Amounts credited to any Investment Fund do not result in the investment in actual assets corresponding to the Investment Fund.
|
(r) |
Participant means an Employee of a Carrier Company who (i) is determined by the Committee to be within a select group of management or highly compensated employees, (ii) is paid from a U.S.
payroll, (iii) files a U.S. income tax return, (iv) has been awarded PSUs, (v) elects to defer a portion of such PSUs pursuant to the terms of this Plan, and (vi) is not an active participant in the UTC LTIP PSU Deferral Plan or the
Carrier LTIP PSU Deferral Plan. A Participant who has previously contributed to this Plan, but who ceases to be eligible under the preceding sentence, shall not be eligible to further defer PSUs under Article IV, but shall remain a
Participant under this Plan with respect to his or her Plan Account until final distribution in accordance with the terms of this Plan.
|
(s) |
Performance Cycle means the three (3)-year performance measurement period during which the pre-established performance targets are measured for each PSU Award.
|
(t) |
Performance Cycle Account means the account established for each Participant for each Performance Cycle for which PSUs have been deferred under this Plan. The Performance Cycle Account shall
be established shortly after the end of the final year of the three (3)-year performance measurement period (i.e., when the Corporation’s Compensation Committee determines the extent to which the
performance goals were obtained).
|
(u) |
Plan means the Carrier Global Corporation LTIP Performance Share Unit Deferral Plan, as amended from time to time.
|
(v) |
Plan Account means the aggregate value of all Performance Cycle Accounts.
|
(w) |
PSUs means restricted stock units granted pursuant to a long-term incentive plan of the Corporation (or for periods prior to the Spin-off, pursuant to a
UTC long-term incentive plan), the vesting of which are conditioned upon the attainment of performance goals and continued service.
|
(x) |
Qualified Savings Plan means the United Technologies Corporation Employee Savings Plan until the Spin-off date and means the Carrier Retirement Savings Plan from and after the Spin-off date.
|
(y) |
Retirement means a Separation from Service on or after attainment of age fifty (50).
|
(z) |
Retirement Date means the date of a Participant’s Retirement.
|
(aa) |
Separation from Service means a Participant’s termination of employment with all Carrier Companies, other than by reason of death. A Separation from Service will be deemed to occur where the
Participant and the Carrier Company that employs the Participant reasonably anticipate that the bona fide level of services the Participant will perform (whether as an employee or as an independent contractor) for the Carrier Companies
will be permanently reduced to a level that is less than thirty-seven and a half percent (37.5%) of the average level of bona fide services the Participant performed during the immediately preceding thirty-six (36) months (or the entire
period the Participant has provided services if the Participant has been providing services to the Carrier Companies for less than thirty-six (36) months). A Participant shall not be considered to have had a Separation from Service as a
result of a transfer from one Carrier Company to another Carrier Company. For the avoidance of doubt, a transfer of employment from an entity that constitutes a Carrier Company prior to the Spin-off to an entity that constitutes a
Carrier Company following the Spin-off shall not constitute a Separation from Service under this Plan or with respect to benefits transferred to this Plan if such transfer is made in connection with the Spin-off, but a transfer from a
Carrier Company to UTC or Otis (or one of their affiliates) after the Spin-off (and that otherwise satisfies the definition of a Separation from Service) shall constitute a Separation from Service.
|
(bb) |
Share means a share of UTC Common Stock until the Spin-off, and means a share of the Corporation’s common stock from and after such date.
|
(cc) |
Specific Deferral Date means a specified date, not less than five (5) years following the date on which the Performance Cycle Account is established.
|
(dd) |
Specified Employee means for the period (1) until the Corporation’s first specified employee effective date following the Spin-off, those officers and executives of the Corporation and its
affiliates who were identified as a specified employee of UTC on the “specified employee identification date” preceding such specified employee effective date (as such terms are defined by Treas. Regs. Sec. 1.409A-1(i)(3) and (4)); and
(2) from and after the Corporation’s first specified employee effective date following the Spin-off, each of the fifty (50) highest-paid officers and other executives of the Corporation and its affiliates (determined for this purpose
under Treas. Regs. Sec. 1.409A-1(g)), effective annually as of April 1st, based on compensation reported on Box 1 of Form W-2, but including amounts that are excluded from taxable income as a result of elective deferrals to qualified
plans and pre-tax contributions. Foreign compensation earned by a nonresident alien that is not effectively connected with the conduct of a trade or business in the United States will not be used to determine Specified Employees
following the Spin-off.
|
(ee) |
UTC LTIP PSU Deferral Plan means the United Technologies Corporation LTIP Performance Share Unit Deferral Plan.
|
(ff) |
Valuation Date means the date on which Deferred Share Units included in a Participant’s Performance Cycle Account are valued prior to distribution. If the New York Stock Exchange is closed on
a Valuation Date, the Valuation Date will be the next business day.
|
(gg) |
Separation from Service prior to age 50. If the distribution is made because of the Participant’s Separation from Service prior to attaining age fifty (50), the Valuation Date for the lump sum
distribution will be the July 31st next following the Separation from Service date.
|
(hh) |
Retirement. If the distribution is made because of the Participant’s Retirement and the distribution is (1) a lump sum, the Valuation Date will be the July 31st next following the Retirement
Date (or, if later, the vesting date for the PSUs) or (2) in installments, the Valuation Date will be the July 31st next following the Retirement Date (or, if later, the vesting date for the PSUs) and each subsequent July 31st thereafter
for the remaining installments.
|
(ii) |
Specific Deferral Date. If the distribution is made because the Deferral Period has ended on a Specific Deferral Date, the Valuation Date for the lump sum or initial installment distribution
will be the July 31st next following the Specific Deferral Date and each subsequent July 31st thereafter for any remaining installments.
|
(jj) |
Death. If the distribution is made as a result of the Participant’s death, the Valuation Date will be a date that is as soon as practicable prior to the date the distribution is to be made on
account of the death.
|
(kk) |
Separation from Service prior to age 50. If the distribution is made because of the Participant’s Separation from Service prior to attaining age fifty (50), the Valuation Date will be
determined by reference to the date upon which the Participant’s Separation from Service occurs. For Separations of Service that occur in a year (1) prior to July 21st, the Valuation Date will be July 31st of that year, (2) on or after
July 21st and prior to October 21st, the Valuation Date will be October 31st, (3) on or after October 21st and prior to December 1st, the Valuation Date will be December 15th, and (4) in the month of December, the Valuation Date will be
January 15th of the following year.
|
(ll) |
Retirement. If the distribution is made because of the Participant’s Retirement and the distribution is a lump sum, the Valuation Date will be determined by reference to the date upon which the
Participant’s Retirement Date occurs (or, if later, the vesting date for the PSUs). For Retirement Dates that occur in a year (1) prior to July 21st, the Valuation Date will be July 31st of that year, (2) on or after July 21st and prior
to October 21st, the Valuation Date will be October 31st, (3) on or after October 21st and prior to December 1st, the Valuation Date will be December 15th, and (4) in the month of December, the Valuation Date will be January 15th of the
following year. If the distribution is made because of the Participant’s Retirement and the distribution is in the form of installments, the Valuation Date will be the July 31st next following the Retirement Date (or if later the vesting
date of the PSUs) and each subsequent July 31st thereafter for the remaining installments.
|
(mm) |
Specific Deferral Date. If the distribution is made because the Deferral Period has ended on a Specific Deferral Date, the Valuation Date for the lump sum or initial installment distribution
will be the July 31st next following the Specific Deferral Date and each subsequent July 31st thereafter for any remaining installments.
|
(nn) |
Death. If the distribution is made as a result of the Participant’s death, the Valuation Date will be a date that is as soon as practicable prior to the date the distribution is to be made on
account of the death.
|
(a) |
The new election must be made at least twelve (12) months prior to the earlier of the date on which payments will commence under the current election and/or the date of the Participant’s Separation from Service following the attainment
of age fifty (50) (and the new election shall be ineffective if the Participant incurs a Separation from Service within twelve (12) months after the date of the new election);
|
(b) |
The new election will not take effect until at least twelve (12) months after the date when the new election is submitted in a manner acceptable to the Committee; and
|
(c) |
The new payment commencement date must be at least five (5) years later than the date on which payments would commence under the current election.
|
Carrier Global Corporation
|
|
13995 Pasteur Boulevard
|
|
Palm Beach Gardens, FL 33418
|
|
Attn: Benefit Plan Committee
|
|
Telephone: 561-365-2000
|
1. |
PREAMBLE
|
1.1 |
Purpose
|
1.2 |
Spin-off from UTC
|
2. |
DEFINITIONS
|
3. |
ELIGIBILITY
|
4. |
DETERMINATION OF PLAN BENEFITS
|
4.1 |
FAE Benefit
|
4.2 |
CB Benefit
|
4.3 |
Credited Interest on CB Benefit
|
4.4 |
Calculation of FAE Benefit Prior to Transfer
|
(a) |
equals the FAE Benefit that would be paid to such Participant (or on his or her death to his or her Beneficiary) under the UTC Qualified Retirement Plan if the provisions of the UTC Qualified Retirement Plan were administered without
regard to the Limits; and
|
(b) |
equals the FAE Benefit payable to such Participant (or on his or her death to his or her Beneficiary) under the UTC Qualified Retirement Plan.
|
4.5 |
Calculation of CB Benefit Prior to Transfer
|
5. |
PARTICIPANT ELECTIONS AND DESIGNATIONS
|
5.1 |
Payment Elections
|
5.2 |
Form of FAE Benefit
|
5.3 |
Form of CB Benefit
|
5.4 |
FAE Benefit in the Form of Lump Sum or Annual Installments
|
5.5 |
CB Benefit in the Form of Annual Installments or an Annuity
|
5.6 |
Change in Payment Election
|
i. |
A Plan Participant may make an election to receive a monthly annuity payment, single lump-sum payment, or a series of 2 to 10 annual installment payments;
|
ii. |
The new election must be made at least twelve months prior to the date payments are scheduled to commence (and the new election shall be ineffective if the payment commencement date occurs within twelve months after the date of the new
election);
|
iii. |
The new election will not take effect until at least twelve months after the date when the Participant submits a new Election Form; and
|
iv. |
The new benefit payment commencement date must be at least five years later than the date on which payments commence under the current election.
|
5.7 |
Full Satisfaction of Corporation’s Obligation
|
5.8 |
Designation of Beneficiary
|
6. |
DISTRIBUTION OF BENEFIT
|
6.1 |
Distribution of Plan Benefit Generally
|
i. |
If a Participant’s benefit is an FAE Benefit only, the benefit will be paid to the Participant on the first business day of the month following the later of a Participant’s Separation from Service, or when the Participant reaches age
55;
|
ii. |
If a Participant’s benefit is a CB Benefit only, the benefit will be paid to the Participant on the first business day of the month following the Participant’s Separation from Service; or
|
iii. |
If a Participant’s benefit is both an FAE Benefit and a CB Benefit, the benefit will be paid to the Participant according to the rules outlined above in Subsections i. and ii. for the corresponding portions of the
benefit.
|
6.2 |
Separation from Service of Specified Employees
|
6.3 |
Administrative Adjustments in Payment Date
|
7. |
DISTRIBUTION IN THE EVENT OF DEATH
|
7.1 |
FAE Benefit in the Form of an Annuity
|
i. |
If death occurs prior to age 55 with at least five years of service and less than 10 years of service, the spouse of the Participant shall receive a 50% survivor annuity benefit beginning on the date the Participant would have attained
his or her 55th birthday. If the Participant is unmarried, no Plan benefit is payable.
|
ii. |
If death occurs prior to age 55 with at least 10 years of service, the spouse of the Participant shall receive a 100% survivor annuity benefit beginning on the date the Participant would have attained his or her 55th birthday. If the
Participant is unmarried, no Plan benefit is payable.
|
iii. |
If death occurs on or after attainment of age 55 with at least 10 years of service or attainment of age 65, and the Participant has elected a survivor annuity, survivor benefits shall be paid as a 100% survivor annuity benefit
beginning as soon as practicable but no later than December 31st of the year following the year in which the death occurred in the following order:
|
(1) |
to the Spouse of the Participant, if the Participant is married at the time of death;
|
(2) |
to the named Beneficiary or contingent annuitant, if the Participant is not married at the time of death;
|
(3) |
to the children of the Participant (divided among them equally) if the Participant has not designated a Beneficiary prior to his or her death; or
|
(4) |
to the Participant’s estate, if the Participant has no children at the time of his or her death, or as a lump sum actuarial equivalent to the Participant’s estate, at the sole discretion of the Administrator, in lieu of the survivor
annuity benefit.
|
iv. |
If the Participant is not married at the time of death and the Participant has not designated a Beneficiary or contingent annuitant, the benefit shall be payable as:
|
(1) |
a 10-year certain actuarially equivalent annuity to the children of the Participant; or
|
(2) |
a 5-year certain actuarially equivalent annuity to the estate of the Participant.
|
7.2 |
FAE Benefit in the Form of a Lump-Sum or Annual Installments
|
i. |
If death occurs prior to age 55, with at least 10 years of service, the accrued FAE Benefit shall be paid in a lump-sum payment, as of the date the Participant would have attained his or her 55th birthday, in the following order:
|
(1) |
to the Spouse of the Participant, if the Participant is married at the time of death;
|
(2) |
to the children of the Participant (divided among them equally) if the Participant is not married at the time of death; or
|
(3) |
to the Participant’s estate, if the Participant has no children at the time of his or her death.
|
ii. |
If death occurs on or after age 55, with at least 10 years of service, the Plan accrued benefit shall be paid to the Beneficiary beginning on the first business day of the month following the Participant’s death, in the following
order:
|
(1) |
to the named Beneficiary;
|
(2) |
to the Spouse of the Participant, if the Participant is married at the time of death, and has not named a Beneficiary;
|
(3) |
to the children of the Participant (divided among them equally), if the Participant is not married at the time of death; or
|
(4) |
to the Participant’s estate, if the Participant has no children at the time of his or her death.
|
iii. |
If death occurs after the benefit commencement date but before all annual installments have been paid, the remaining installments will be paid to the Beneficiary as scheduled.
|
iv. |
If death occurs at any age, with less than 10 years of service, 50% of the accrued FAE Benefit shall be paid in a lump-sum payment as of the date the Participant would have attained his or her 55th birthday (or on the first business
day of the month following the Participant’s death if the Participant had already attained age 55) in the following order:
|
(1) |
to the Spouse of the Participant, if the Participant is married at the time of death;
|
(2) |
to the children of the Participant (divided among them equally) if the Participant is not married at the time of death; or
|
(3) |
to the estate of the Participant, if the Participant has no children at the time of his or her death.
|
7.3 |
CB Benefit Prior to Benefit Distribution Commencement
|
i. |
to the named Beneficiary;
|
ii. |
to the Spouse of the Participant, if the Participant is married at the time of death and has not designated a Beneficiary prior to his or her death;
|
iii. |
to the children of the Participant (divided among them equally), if the Participant is not married at the time of death; or
|
iv. |
to the Participant’s estate, if the Participant has no children at the time of his or her death.
|
7.4 |
CB Benefit Following Benefit Distribution Commencement
|
i. |
Monthly Annuity
|
(1) |
as a 100% survivor annuity benefit to the named Beneficiary;
|
(2) |
as a 100% survivor annuity benefit to the Spouse of the Participant, if the Participant is married at the time of death and has not designated a Beneficiary prior to his or her death;
|
(3) |
as a 100% survivor annuity benefit to the children of the Participant (divided among them equally), if the Participant is not married at the time of death; or
|
(4) |
as a 100% survivor annuity benefit to the Participant’s estate, if the Participant has no children at the time of his or her death, or as a lump sum actuarial equivalent to the Participant’s estate, at the sole discretion of the
Administrator, in lieu of the survivor annuity benefit.
|
ii. |
Installment Payments
|
(1) |
to the named Beneficiary;
|
(2) |
to the Spouse of the Participant, if the Participant is married at the time of death and has not designated a Beneficiary prior to his or her death;
|
(3) |
to the children of the Participant (divided among them equally), if the Participant is not married at the time of death; or
|
(4) |
to the Participant’s estate, if the Participant has no children at the time of his or her death, or as a lump sum to the Participant’s estate, at the sole discretion of the Administrator, in lieu of installment payments.
|
8. |
DISABILITY
|
9. |
FUNDING
|
10. |
CHANGE OF CONTROL
|
11. |
NONASSIGNABILITY EXCEPT DOMESTIC RELATIONS ORDERS
|
(a) |
Except as provided in Subsection (b) or (c) below, no Participant or Beneficiary or any other person shall have the right to sell, assign, transfer, pledge, or otherwise encumber any interest in the Plan and the rights
to all payments are unassignable and non-transferable. A payment hereunder, prior to actual payment, will not be subject to attachment or seizure for the payment of any debts, judgments or other obligations. Plan benefits will not be
transferred by operation of law in the event of a Participant’s or any Beneficiary’s bankruptcy or insolvency.
|
(b) |
The Plan shall comply with the terms of any valid domestic relations order submitted to the Committee. Any payment to a party other than the Participant pursuant to the terms of a domestic relations order shall be charged against and
reduce the Participant’s benefit. Neither the Plan, the Corporation, the Committee, nor any other party shall be liable in any manner to any person, including but not limited to any Participant or Beneficiary, for complying with the
terms of a domestic relations order.
|
(c) |
To the extent that any Participant, Beneficiary or other person receives an excess or erroneous payment under the Plan, the amount of such excess or erroneous payment shall be held in a constructive trust for the benefit of the
Corporation and the Plan, and shall be repaid by such person upon demand. The Committee may reduce any other benefit payable to such person, or may pursue any remedy available at law or equity to recover the amount of such excess or
erroneous payment or the proceeds thereof. Notwithstanding the foregoing, the amount payable to a Participant or Beneficiary may be offset by any amount owed to any Carrier Company to the extent permitted by Section 409A.
|
12. |
NO CONTRACT OF EMPLOYMENT
|
13. |
TAXES/WITHHOLDING
|
14. |
GOVERNING LAW
|
15. |
AMENDMENT AND TERMINATION
|
15.1 |
Power to Amend or Terminate Plan Reserved
|
15.2 |
Final Plan Distributions
|
15.3 |
No Consent Required
|
16. |
COMPLIANCE WITH SECTION 409A
|
17. |
NOTICE
|
18. |
VALIDITY
|
19. |
SUCCESSORS
|
20. |
ADMINISTRATION AND CLAIMS
|
20.1 |
Plan Administration
|
20.2 |
Claim Procedures
|
i. |
Upon receipt of a claim, the Committee or its designated agent shall advise the Claimant that a response will be forthcoming within 90 days. The Committee may, however, extend the response period for up to an additional 90 days for
reasonable cause, and shall notify the Claimant of the reason for the extension and the expected response date. The Committee or its designated agent shall respond to the claim within the specified period.
|
ii. |
If the claim is denied in whole or part, the Committee shall provide the Claimant with a written decision, using language calculated to be understood by the Claimant, setting forth (1) the specific reason or reasons for such denial;
(2) the specific reference to relevant provisions of the Plan on which such denial is based; (3) a description of any additional material or information necessary for the Claimant to perfect his or her claim and an explanation why such
material or such information is necessary; (4) appropriate information as to the steps to be taken if the Claimant wishes to submit the claim for review; (5) the time limits for requesting a review of the claim; and (6) the Claimant’s
right to bring an action for benefits under Section 502(a) of ERISA.
|
iii. |
Within 60 days after the Claimant’s receipt of the written decision denying the claim in whole or in part, the Claimant may request in writing that the Committee review the determination. The Claimant or his or her duly authorized
representative may, but need not, review the relevant documents and submit issues and comment in writing for consideration by the Committee. If the Claimant does not request a review of the initial determination within such 60-day
period, the Claimant shall be barred from challenging the determination.
|
iv. |
Within 60 days after the Committee receives a request for review, it will review the initial determination. If special circumstances require that the 60-day time period be extended, the Committee will so notify the Claimant and will
render the decision as soon as possible, but no later than 120 days after receipt of the request for review.
|
v. |
The Committee shall have the greatest discretion permitted by law in making decisions pursuant to this Section 20.2. All decisions on review shall be final and binding with respect to all concerned parties. The decision on
review shall set forth, in a manner calculated to be understood by the Claimant, (1) the specific reasons for the decision, including references to the relevant Plan provisions upon which the decision is based; (2) the Claimant’s right to
receive, upon request and free of charge, reasonable access to and copies of all documents, records, and other information, relevant to his or her benefits; and (3) the Claimant’s right to bring an action for benefits under Section 502(a)
of ERISA.
|
21. |
CERTAIN REGULATORY MATTERS
|
22. |
TO WHOM SHOULD QUESTIONS CONCERNING THE PLAN BE DIRECTED?
|
Carrier Global Corporation
|
|
13995 Pasteur Boulevard
|
|
Palm Beach Gardens, FL 33418
|
|
Attn: Carrier Employee Benefit Committee
|
|
Telephone: 561-365-2000
|
/s/ Christopher J. Nelson
|
||
Christopher J. Nelson
|
||
President, North America HVAC
|
||
UTC Building & Industrial Systems
|
||
5/21/15
|
||
Date
|
UNITED TECHNOLOGIES CORPORATION
|
||
By
|
/s/ Elizabeth B. Amato
|
|
|
Elizabeth B. Amato
|
|
Senior Vice President, Human Resources &
|
||
Organization
|
||
5/26/15
|
||
Date
|
(a) |
“Company” means United Technologies Corporation and its subsidiaries, divisions and affiliates.
|
(b) |
"Company Information" means (i) confidential or proprietary information including without limitation information received from third parties under confidential or proprietary conditions; (ii) information subject to the
Company’s attorney-client or work-product privilege; and (iii) other technical, business or financial information, the use or disclosure of which might reasonably be construed to be contrary to the Company’s interests.
|
(c) |
“Qualifying Separation” means and includes a Mutually Agreeable Termination, a Change- in-Control Termination, or retirement at age 62 or later.
|
(i) |
“Mutually Agreeable Termination” means a decision by the Company, in its sole discretion, to terminate the Executive’s employment with the Company as a result of circumstances described in this paragraph and the Executive’s
acknowledgment and agreement that his/her employment will end as a result of such circumstances. Circumstances that may result in a Mutually Agreeable Termination include management realignment, change in business conditions or
priorities, the sale or elimination of the Executive’s business unit or any other change in business circumstances that materially and adversely affects the Executive’s role within the Company or such circumstances that preclude
continued employment at the ELG level, in all cases as determined by the Senior Vice President, Human Resources and Organization. Neither a unilateral voluntary resignation nor a Termination for Cause will constitute a Mutually
Agreeable Termination.
|
(ii) |
“Change-in-Control Termination” means either the involuntary termination of the Executive’s employment by the Company (other than a Termination for Cause) or the voluntary resignation by the Executive for Good Reason within
24 months following a Change in-Control.
|
(A) |
“Change-in-Control” shall mean any of the following events:
|
1. |
The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a “Person”)) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange
Act) of 20% or more of the then-outstanding Shares of Common Stock plus any other outstanding shares of stock of the Corporation entitled to vote in the election of directors (the “Outstanding Corporation Voting Securities”);
provided, however, that the Corporation and any employee benefit plan (or related trust) sponsored by it shall not be deemed to be a Person; or
|
2. |
A change in the composition of the Board such that the individuals who constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board. For this purpose, any individual whose
election or nomination for election by the Corporation’s shareowners was approved by a vote of at least two-thirds of the directors then comprising the Incumbent Board shall be considered a member of the Incumbent Board; or
|
3. |
The consummation of a reorganization, merger, statutory share exchange or consolidation or similar corporate transaction involving the Corporation or any of its Subsidiaries or a sale or other disposition of substantially all
of the assets of the Corporation or a material acquisition of assets or stock of another entity by the Corporation or any of its Subsidiaries, (each, a “Business Combination”) if:
|
a. |
the individuals and entities that were the beneficial owners of the Outstanding Corporation Voting Securities immediately prior to such Business Combination do not beneficially own, directly or indirectly, more than 50% of
the then-outstanding shares of stock and the combined voting power of the then-outstanding voting securities of the corporation resulting from such Business Combination; or
|
b. |
a Person beneficially owns, directly or indirectly, 20% or more of the then-outstanding shares of stock of the corporation resulting from such Business Combination; or
|
c. |
members of the Incumbent Board do not comprise at least a majority of the members of the board of directors of the corporation resulting from such Business Combination; or
|
4. |
A complete liquidation or dissolution of the Corporation.
|
(B) |
“Good Reason” means voluntary termination of the Executive’s employment within twenty-four (24) months of a Change-in-Control and the occurrence of any one or more of the following:
|
1. |
The assignment of the Executive to a position that is materially inconsistent with the Executive’s authorities, duties, responsibilities, and status (including reporting relationships) as an employee of the Company, or a
material reduction or change in the nature or status of the Executive’s authorities, duties, or responsibilities from those in effect immediately preceding a Change-in-Control;
|
2. |
The Company requires the Executive to be based at a location which is at least fifty (50) miles further from the Executive’s current primary residence than such residence is from the Executive’s current job location, except
for required travel on Company business to an extent substantially consistent with the Executive’s business obligations immediately preceding the Change-in-Control;
|
3. |
A reduction by the Company in the Executive’s Base Salary in effect on the date preceding the Change-in-Control;
|
4. |
A material reduction in the Executive’s level of participation in any of the Company’s short- and/or long-term incentive compensation plans, employee benefit or retirement plans, policies, practices, or arrangements in which
the Executive participates from the levels in place during the fiscal year immediately preceding the Change-in-Control; provided, however, that reductions in the levels of participation in any such plans shall not be deemed to
be “Good Reason” if the Executive’s reduced level of participation in each such program remains substantially consistent with the average level of participation of other executives who have positions commensurate with the
Executive’s position; or
|
5. |
The failure of the Company to obtain a satisfactory agreement from any successor to the Company to assume and agree to perform its obligations under this Agreement.
|
(d) |
“Termination for Cause” means a decision by the Company to terminate the Executive’s employment for (i) violation of an ELG covenant, (ii) conduct involving a felony criminal offense under U.S. federal or state law or an
equivalent violation of the laws of any other country, (iii) dishonesty, fraud, self-dealing, or material violations of civil law in the course of fulfilling the Executive’s employment duties; (iv) breach of the Executive’s
intellectual property agreement or other written agreement with the Company; or (v) willful misconduct injurious to the Company, as determined by the Committee.
|
/s/ David L. Gitlin
|
||
David L. Gitlin
|
||
President, Aircraft Systems
|
||
UTC Aerospace Systems
|
||
November 7, 2013
|
||
Date
|
UNITED TECHNOLOGIES CORPORATION
|
||
By |
/s/ Elizabeth B. Amato
|
|
Elizabeth B. Amato
|
||
Senior Vice President, Human Resources &
|
||
Organization
|
||
11/12/13
|
||
Date
|
(a) |
“Company” means United Technologies Corporation and its subsidiaries, divisions and affiliates.
|
(b) |
“Company Information” means (i) confidential or proprietary information including without limitation information received from third parties under confidential or proprietary
conditions; (ii) information subject to the Company’s attorney-client or work-product privilege; and (iii) other technical, business or financial information, the use or disclosure of which might reasonably be construed to be contrary
to the Company’s interests.
|
(c) |
“Qualifying Separation” means and includes a Mutually Agreeable Termination, a Change- in-Control Termination, or retirement at age 62 or later.
|
(i) |
“Mutually Agreeable Termination” means a decision by the Company, in its sole discretion, to terminate the Executive’s employment with the Company as a result of circumstances
described in this paragraph and the Executive’s acknowledgment and agreement that his/her employment will end as a result of such circumstances. Circumstances that may result in a Mutually Agreeable Termination include management
realignment, change in business conditions or priorities, the sale or elimination of the Executive’s business unit or any other change in business circumstances that materially and adversely affects the Executive’s role within the
Company or such circumstances that preclude continued employment at the ELG level, in all cases as determined by the Senior Vice President, Human Resources and Organization. Neither a unilateral voluntary resignation nor a
Termination for Cause will constitute a Mutually Agreeable Termination.
|
(ii) |
“Change-in-Control Termination” means either the involuntary termination of the Executive’s employment by the Company (other than a Termination for Cause) or the voluntary
resignation by the Executive for Good Reason within 24 months following a Change in-Control.
|
(A) |
“Change-in-Control” shall mean any of the following events:
|
1. |
The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a “Person”)) of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of the then-outstanding Shares of Common Stock plus any other outstanding shares of stock of the Corporation entitled to vote in the election of directors (the
“Outstanding Corporation Voting Securities”); provided, however, that the Corporation and any employee benefit plan (or related trust) sponsored by it shall not be deemed to be a Person; or
|
2. |
A change in the composition of the Board such that the individuals who constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the
Board. For this purpose, any individual whose election or nomination for election by the Corporation’s shareowners was approved by a vote of at least two-thirds of the directors then comprising the Incumbent Board shall be considered
a member of the Incumbent Board; or
|
3. |
The consummation of a reorganization, merger, statutory share exchange or consolidation or similar corporate transaction involving the Corporation or any of its Subsidiaries or
a sale or other disposition of substantially all of the assets of the Corporation or a material acquisition of assets or stock of another entity by the Corporation or any of its Subsidiaries, (each, a “Business Combination”) if:
|
a. |
the individuals and entities that were the beneficial owners of the Outstanding Corporation Voting Securities immediately prior to such Business Combination do not beneficially
own, directly or indirectly, more than 50% of the then-outstanding shares of stock and the combined voting power of the then-outstanding voting securities of the corporation resulting from such Business Combination; or
|
b. |
a Person beneficially owns, directly or indirectly, 20% or more of the then-outstanding shares of stock of the corporation resulting from such Business Combination; or
|
c. |
members of the Incumbent Board do not comprise at least a majority of the members of the board of directors of the corporation resulting from such Business Combination; or
|
4. |
A complete liquidation or dissolution of the Corporation.
|
|
(B)
|
“Good Reason” means voluntary termination of the Executive’s employment within twenty-four (24) months of a Change-in-Control and the occurrence of any one or more of the following:
|
1. |
The assignment of the Executive to a position that is materially inconsistent with the Executive’s authorities, duties, responsibilities, and status (including reporting
relationships) as an employee of the Company, or a material reduction or change in the nature or status of the Executive’s authorities, duties, or responsibilities from those in effect immediately preceding a Change-in-Control;
|
2. |
The Company requires the Executive to be based at a location which is at least fifty (50) miles further from the Executive’s current primary residence than such residence is
from the Executive’s current job location, except for required travel on Company business to an extent substantially consistent with the Executive’s business obligations immediately preceding the Change-in-Control;
|
3. |
A reduction by the Company in the Executive’s Base Salary in effect on the date preceding the Change-in-Control;
|
4. |
A material reduction in the Executive’s level of participation in any of the Company’s short- and/or long-term incentive compensation plans, employee benefit or retirement
plans, policies, practices, or arrangements in which the Executive participates from the levels in place during the fiscal year immediately preceding the Change-in-Control; provided, however, that reductions in the levels of
participation in any such plans shall not be deemed to be “Good Reason” if the Executive’s reduced level of participation in each such program remains substantially consistent with the average level of participation of other
executives who have positions commensurate with the Executive’s position; or
|
5. |
The failure of the Company to obtain a satisfactory agreement from any successor to the Company to assume and agree to perform its obligations under this Agreement.
|
(d) |
“Termination for Cause” means a decision by the Company to terminate the Executive’s employment for (i) violation of an ELG covenant, (ii) conduct involving a felony criminal
offense under U.S. federal or state law or an equivalent violation of the laws of any other country, (iii) dishonesty, fraud, self-dealing, or material violations of civil law in the course of fulfilling the Executive’s employment
duties; (iv) breach of the Executive’s intellectual property agreement or other written agreement with the Company; or (v) willful misconduct injurious to the Company, as determined by the Committee.
|
/s/ Jurgen Timperman
|
||
Jurgen Timperman
|
||
President, Fire & Security Products
|
||
UTC Climate, Controls & Security
|
||
10/9/2017
|
||
Date
|
||
UNITED TECHNOLOGIES CORPORATION
|
||
By
|
/s/ Elizabeth B. Amato
|
|
Elizabeth B. Amato
|
||
Executive Vice President and Chief Human Resources Officer
|
||
10/16/17
|
||
Date
|
(a) |
“Company” means United Technologies Corporation and its subsidiaries, divisions and affiliates.
|
(b) |
“Company Information” means (i) confidential or proprietary information including without limitation information received from third parties under confidential or proprietary conditions; (ii) information subject to the
Company’s attorney-client or work-product privilege; and (iii) other technical, business or financial information, the use or disclosure of which might reasonably be construed to be contrary to the Company’s interests.
|
(c) |
“Qualifying Separation” means and includes a Mutually Agreeable Termination, a Change-in-Control Termination, or retirement at age 62 or later.
|
(i) |
“Mutually Agreeable Termination” means a decision by the Company, in its sole discretion, to terminate the Executive’s employment with the Company as a result of circumstances described in this paragraph and the Executive’s
acknowledgment and agreement that his/her employment will end as a result of such circumstances. Circumstances that may result in a Mutually Agreeable Termination include management realignment, change in business conditions or
priorities, the sale or elimination of the Executive’s business unit or any other change in business circumstances that materially and adversely affects the Executive’s role within the Company or such circumstances that preclude
continued employment at the ELG level, in all cases as determined by the Executive Vice President and Chief Human Resources Officer. Neither a unilateral voluntary resignation nor a Termination for Cause will constitute a
Mutually Agreeable Termination.
|
(ii) |
“Change-in-Control Termination” means either the involuntary termination of the Executive’s employment by the Company (other than a Termination for Cause) or the voluntary resignation by the Executive for Good Reason within
24 months following a Change in-Control.
|
(A) |
“Change-in-Control” shall mean any of the following events:
|
1. |
The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a “Person”)) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange
Act) of 20% or more of the then-outstanding Shares of Common Stock plus any other outstanding shares of stock of the Corporation entitled to vote in the election of directors (the “Outstanding Corporation Voting Securities”);
provided, however, that the Corporation and any employee benefit plan (or related trust) sponsored by it shall not be deemed to be a Person; or
|
2. |
A change in the composition of the Board such that the individuals who constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board. For this purpose, any individual whose
election or nomination for election by the Corporation’s shareowners was approved by a vote of at least two-thirds of the directors then comprising the Incumbent Board shall be considered a member of the Incumbent Board; or
|
3. |
The consummation of a reorganization, merger, statutory share exchange or consolidation or similar corporate transaction involving the Corporation or any of its Subsidiaries or a sale or other disposition of substantially all
of the assets of the Corporation or a material acquisition of assets or stock of another entity by the Corporation or any of its Subsidiaries, (each, a “Business Combination”) if:
|
a. |
the individuals and entities that were the beneficial owners of the Outstanding Corporation Voting Securities immediately prior to such Business Combination do not beneficially own, directly or indirectly, more than 50% of
the then-outstanding shares of stock and the combined voting power of the then-outstanding voting securities of the corporation resulting from such Business Combination; or
|
b. |
a Person beneficially owns, directly or indirectly, 20% or more of the then-outstanding shares of stock of the corporation resulting from such Business Combination; or
|
c. |
members of the Incumbent Board do not comprise at least a majority of the members of the board of directors of the corporation resulting from such Business Combination; or
|
4. |
A complete liquidation or dissolution of the Corporation
|
(B) |
“Good Reason” means voluntary termination of the Executive’s employment within twenty-four (24) months of a Change-in-Control and the occurrence of any one or more of the following:
|
1. |
The assignment of the Executive to a position that is materially inconsistent with the Executive’s authorities, duties, responsibilities, and status (including reporting relationships) as an employee of the Company, or a
material reduction or change in the nature or status of the Executive’s authorities, duties, or responsibilities from those in effect immediately preceding a Change-in-Control;
|
2. |
The Company requires the Executive to be based at a location which is at least fifty (50) miles further from the Executive’s current primary residence than such residence is from the Executive’s current job location, except
for required travel on Company business to an extent substantially consistent with the Executive’s business obligations immediately preceding the Change-in-Control;
|
3. |
A reduction by the Company in the Executive’s Base Salary in effect on the date preceding the Change-in-Control;
|
4. |
A material reduction in the Executive’s level of participation in any of the Company’s short- and/or long-term incentive compensation plans, employee benefit or retirement plans, policies, practices, or arrangements in which
the Executive participates from the levels in place during the fiscal year immediately preceding the Change-in-Control; provided, however, that reductions in the levels of participation in any such plans shall not be deemed to
be “Good Reason” if the Executive’s reduced level of participation in each such program remains substantially consistent with the average level of participation of other executives who have positions commensurate with the
Executive’s position; or
|
5. |
The failure of the Company to obtain a satisfactory agreement from any successor to the Company to assume and agree to perform its obligations under this Agreement.
|
(d) |
“Termination for Cause” means a decision by the Company to terminate the Executive’s employment for (i) violation of an ELG covenant, (ii) conduct involving a felony criminal offense under U.S. federal or state law or an
equivalent violation of the laws of any other country, (iii) dishonesty, fraud, self-dealing, or material violations of civil law in the course of fulfilling the Executive’s employment duties; (iv) breach of the Executive’s
intellectual property agreement or other written agreement with the Company; or (v) willful misconduct injurious to the Company, as determined by the Committee.
|
Kevin J. O’Connor
|
||
Senior Vice President & General Counsel
|
||
Carrier
|
||
Date
|
||
UNITED TECHNOLOGIES CORPORATION
|
||
By
|
||
Elizabeth B. Amato
|
||
Executive Vice President and Chief Human Resources Officer
|
||
|
||
Date
|
(a)
|
“Committee” means the Compensation Committee of the Board of Directors.
|
(b)
|
“Company” means United Technologies Corporation and its subsidiaries, divisions and affiliates.
|
(c)
|
“Company Information” means (i) confidential or proprietary information, including without limitation, information received from third parties under confidential or
proprietary conditions; (ii) information subject to the Company’s attorney-client or work-product privilege; and (iii) other technical, business or financial information, the use or disclosure of which might reasonably be
construed to be contrary to the Company’s interests.
|
(d)
|
“Qualifying Separation” means and includes a Mutually Agreeable Termination, a Change- in-Control Termination, or retirement at age 62 or later.
|
(i)
|
“Mutually Agreeable Termination” means a decision by the Company, in its sole discretion, to terminate the Executive’s employment with the Company as a result of
circumstances described in this paragraph and the Executive’s acknowledgment and agreement that his/her employment will end as a result of such circumstances. Circumstances that may result in a Mutually Agreeable Termination
include management realignment, change in business conditions or priorities, the sale or elimination of the Executive’s business unit or any other change in business circumstances that materially and adversely affects the
Executive’s role within the Company or such circumstances that preclude continued employment at the ELG level. Neither a unilateral voluntary resignation nor a Termination for Cause will constitute a Mutually Agreeable
Termination.
|
(ii)
|
“Change-in-Control Termination” means either the involuntary termination of the Executive’s employment by the Company (other than a Termination for Cause) or the voluntary
resignation by the Executive for Good Reason within 24 months following a Change -in-Control.
|
(A)
|
“Change-in-Control” shall mean any of the following events:
|
1.
|
An acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a “Person”) of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either: (a) the then outstanding shares of common stock of the Corporation (the “Outstanding Corporation Common Stock”); or (b) the combined voting
power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors (the “Outstanding Corporation Voting Securities”); provided, however, that for purposes of this section
1, the following acquisitions shall not constitute a Change-in-Control: (1) any acquisition directly from the Corporation, (2) any acquisition by the Corporation, (3) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Corporation or any entity controlled by the Corporation, or (4) any acquisition by any entity pursuant to a transaction that complies with clauses (a), (b) and (c) of subsection (3) of this
Section (d)(ii)(A); or
|
2.
|
A change in the composition of the Board such that the individuals who, as of the Effective Date, constitute the Board (the “Incumbent Board”) cease for any reason to
constitute at least a majority of the Board; provided, however, that for purposes of this Section (d)(2)(A), any individual who becomes a member of the Board subsequent to the Effective Date whose election, or nomination for
election by the Corporation’s shareowners, was approved by a vote of at least two-thirds of those individuals who are members of the Board and who were also members of the Incumbent Board (or deemed to be pursuant to this
proviso) shall be considered as though such individual were a member of the Incumbent Board; provided further, that any such individual whose initial assumption of office occurs as a result of either an actual or threatened
election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board shall not be considered as a member of the
Incumbent Board; or
|
3.
|
The consummation of a reorganization, merger, statutory share exchange or consolidation or similar transaction involving the Corporation or any of its subsidiaries or a
sale or other disposition of all or substantially all of the assets of the Corporation, or the acquisition of assets or stock of another entity by the Corporation or any of its subsidiaries, (a “Business Combination”), in each
case, unless following such Business Combination, (a) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Corporation Common Stock and Outstanding Corporation
Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock (or, for a non-corporate entity, equivalent
securities) and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors (or, for a non-corporate entity, equivalent securities), as the case may be, of the
entity resulting from such Business Combination (including an entity that, as a result of such transaction, owns the Corporation or all or substantially all of the Corporation’s assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Corporation Common Stock and Outstanding Corporation Voting Securities, as the case may
be, (b) no Person (excluding any entity resulting from such Business Combination or any employee benefit plan (or related trust) of the Corporation or such entity resulting from such Business Combination) beneficially owns,
directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock (or, for a non-corporate entity, equivalent securities) of the entity resulting from such Business Combination or the combined
voting power of the then outstanding voting securities of such entity except to the extent that such ownership existed prior to the Business Combination, and (c) at least a majority of the members of the Board of Directors (or,
for a non-corporate entity, equivalent body or committee) of the entity resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the
Board, providing for such Business Combination; or
|
4.
|
The approval by the shareholders of the Corporation of a complete liquidation or dissolution of the Corporation.
|
(B) |
“Good Reason” means, voluntary termination of the Executive’s employment within twenty-four (24) months of a Change-in-Control and
the occurrence of any of the following without a Participant’s consent: (i) a material reduction in the Participant’s annual base salary, annual bonus opportunities, long-term incentive opportunities or other compensation and
benefits in the aggregate from those in effect immediately prior to the Change-in-Control; (ii) a material diminution in the Participant’s title, duties, authority, responsibilities, functions or reporting relationship from
those in effect immediately prior to the Change-in-Control; (iii) a mandatory relocation of the Participant’s principal location of employment greater than 50 miles from immediately prior to the Change-in-Control; or (iv) The
failure of the Company to obtain a satisfactory agreement from any successor to the Company to assume and agree to perform its obligations under this Agreement.
|
In order to invoke a termination for Good Reason, the Participant shall provide written notice to the Corporation of the existence of one or more of the conditions
described in clauses (i) through (iv) within 90 days following the Participant’s knowledge of the initial existence of such condition or conditions, and the Corporation shall have 30 days following receipt of such written
notice (the “Cure Period”) during which it may cure the condition, if curable. If the Corporation fails to cure the condition constituting Good Reason during the Cure Period, the Participant must terminate employment, if at
all, within one year following the end of the Cure Period in order for such termination to constitute a termination for Good Reason. The Participant’s mental or physical incapacity following the occurrence of an event
described above in clauses (i) through (iv) shall not affect the Participant’s ability to terminate employment for Good Reason.
|
(e) |
“Termination for Cause” means a decision by the Company to terminate the Executive’s employment for (i) violation of an ELG covenant, (ii) conduct involving a felony
criminal offense under U.S. federal or state law or an equivalent violation of the laws of any other country, (iii) dishonesty, fraud, self-dealing, or material violations of civil law in the course of fulfilling the
Executive’s employment duties; (iv) breach of the Executive’s intellectual property agreement or other written agreement with the Company; (v) willful misconduct injurious to the Company, as determined by the Committee; (vi)
negligent conduct injurious to the Company, including negligent supervision of a subordinate who causes significant harm to the Company as determined by the Committee; or (vii) prior to a Change-in-Control, such other events
as shall be determined by the Committee. Following a Change-in-Control, any determination by the Committee as to whether “Cause” exists shall be subject to de novo review.
|
/s/ Nadia Villeneuve
|
||
Nadia Villeneuve
|
||
Vice President & Chief Human Resources Officer
|
||
Carrier | ||
10/31/2019
|
||
Date
|
||
UNITED TECHNOLOGIES CORPORATION
|
||
By |
/s/ Elizabeth B. Amato
|
|
Elizabeth B. Amato
|
||
Executive Vice President and Chief Human Resources Officer
|
||
11/12/2019
|
||
Date
|
(a) |
“Committee” means the Compensation Committee of the Board of Directors.
|
(b) |
“Company” means United Technologies Corporation and its subsidiaries, divisions and affiliates.
|
(c) |
"Company Information" means (i) confidential or proprietary information, including without limitation, information received from third parties under confidential or proprietary conditions; (ii) information subject
to the Company’s attorney-client or work-product privilege; and (iii) other technical, business or financial information, the use or disclosure of which might reasonably be construed to be contrary to the Company’s
interests.
|
(d) |
“Qualifying Separation” means and includes a Mutually Agreeable Termination, a Change- in-Control Termination, or retirement at age 62 or later.
|
(i) |
“Mutually Agreeable Termination” means a decision by the Company, in its sole discretion, to terminate the Executive’s employment with the Company as a result of circumstances described in this paragraph and the
Executive’s acknowledgment and agreement that his/her employment will end as a result of such circumstances. Circumstances that may result in a Mutually Agreeable Termination include management realignment, change in
business conditions or priorities, the sale or elimination of the Executive’s business unit or any other change in business circumstances that materially and adversely affects the Executive’s role within the Company or
such circumstances that preclude continued employment at the ELG level, in all cases as determined by the Executive Vice President and Chief Human Resources Officer. Neither a unilateral voluntary resignation nor a
Termination for Cause will constitute a Mutually Agreeable Termination.
|
(ii) |
“Change-in-Control Termination” means either the involuntary termination of the Executive’s employment by the Company (other than a Termination for Cause) or the voluntary resignation by the Executive for Good
Reason within 24 months following a Change-in-Control.
|
(A) |
“Change-in-Control” shall mean any of the following events:
|
1. |
An acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either: (a) the then outstanding shares of common stock of the Corporation (the “Outstanding Corporation Common Stock”); or (b) the combined voting power of the then outstanding voting
securities of the Corporation entitled to vote generally in the election of directors (the “Outstanding Corporation Voting Securities”); provided, however, that for purposes of this section 1, the following
acquisitions shall not constitute a Change-in-Control: (1) any acquisition directly from the Corporation, (2) any acquisition by the Corporation, (3) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Corporation or any entity controlled by the Corporation, or (4) any acquisition by any entity pursuant to a transaction that complies with clauses (a), (b) and (c) of subsection (3) of
this Section (d)(ii)(A); or
|
2. |
A change in the composition of the Board such that the individuals who, as of the Effective Date, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board;
provided, however, that for purposes of this Section (d)(2)(A), any individual who becomes a member of the Board subsequent to the Effective Date whose election, or nomination for election by the Corporation’s
shareowners, was approved by a vote of at least two-thirds of those individuals who are members of the Board and who were also members of the Incumbent Board (or deemed to be pursuant to this proviso) shall be
considered as though such individual were a member of the Incumbent Board; provided further, that any such individual whose initial assumption of office occurs as a result of either an actual or threatened election
contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board shall not be considered as a member of the
Incumbent Board; or
|
3. |
The consummation of a reorganization, merger, statutory share exchange or consolidation or similar transaction involving the Corporation or any of its subsidiaries or a sale or other disposition of all or
substantially all of the assets of the Corporation, or the acquisition of assets or stock of another entity by the Corporation or any of its subsidiaries, (a “Business Combination”), in each case, unless following such
Business Combination, (a) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Corporation Common Stock and Outstanding Corporation Voting Securities
immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock (or, for a non-corporate entity, equivalent
securities) and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors (or, for a non-corporate entity, equivalent securities), as the case may be,
of the entity resulting from such Business Combination (including an entity that, as a result of such transaction, owns the Corporation or all or substantially all of the Corporation’s assets either directly or through
one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Corporation Common Stock and Outstanding Corporation Voting
Securities, as the case may be, (b) no Person (excluding any entity resulting from such Business Combination or any employee benefit plan (or related trust) of the Corporation or such entity resulting from such
Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock (or, for a non-corporate entity, equivalent securities) of the entity resulting
from such Business Combination or the combined voting power of the then outstanding voting securities of such entity except to the extent that such ownership existed prior to the Business Combination, and (c) at least
a majority of the members of the Board of Directors (or, for a non-corporate entity, equivalent body or committee) of the entity resulting from such Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or
|
4. |
The approval by the shareholders of the Corporation of a complete liquidation or dissolution of the Corporation.
|
(B) |
“Good Reason” means, voluntary termination of the Executive’s employment within twenty-four (24) months of a Change-in-Control and the occurrence of any of the following
without a Participant’s consent: (i) a material reduction in the Participant’s annual base salary, annual bonus opportunities, long-term incentive opportunities or other compensation and benefits in the aggregate from
those in effect immediately prior to the Change-in-Control; (ii) a material diminution in the Participant’s title, duties, authority, responsibilities, functions or reporting relationship from those in effect
immediately prior to the Change-in-Control; (iii) a mandatory relocation of the Participant’s principal location of employment greater than 50 miles from immediately prior to the Change-in-Control; or (iv) The failure
of the Company to obtain a satisfactory agreement from any successor to the Company to assume and agree to perform its obligations under this Agreement.
|
(e) |
“Termination for Cause” means a decision by the Company to terminate the Executive’s employment for (i) violation of an ELG covenant, (ii) conduct involving a felony criminal offense under U.S. federal or state law
or an equivalent violation of the laws of any other country, (iii) dishonesty, fraud, self-dealing, or material violations of civil law in the course of fulfilling the Executive’s employment duties; (iv) breach of the
Executive’s intellectual property agreement or other written agreement with the Company; (v) willful misconduct injurious to the Company, as determined by the Committee; (vi) negligent conduct injurious to the Company,
including negligent supervision of a subordinate who causes significant harm to the Company as determined by the Committee; or (vii) prior to a Change-in-Control, such other events as shall be determined by the
Committee. Following a Change-in-Control, any determination by the Committee as to whether “Cause” exists shall be subject to de novo review.
|
(a) |
During the period of the Recipient’s employment, and following termination of employment, the Recipient agrees to protect and to not disclose “Company Information” until the information has become public (through no action on the
part of the Recipient) or is no longer material or relevant to the Company.
|
(b) |
During the period of the Recipient’s employment, and for a period of two years following termination of employment, the Recipient agrees to not initiate, cause or allow to be initiated (under those conditions which he or she
controls) any action which would reasonably be expected to encourage or to induce any employee of the Company or any of its affiliated entities to leave the employ of the Company or its affiliated entities. In this regard, the Recipient
agrees that he or she will not directly or indirectly recruit any executive or other employee of the Company or provide any information or make referrals to personnel recruitment agencies or other third parties in connection with
executives of the Company and other employees.
|
(a) |
The Pre-Vesting Date Covenant described in (a) above remains in full effect and the Pre-Vesting Date Covenant described in (b) above will remain in effect for two years following the Vesting Date.
|
(b) |
To further ensure the protection of Company Information, the Recipient agrees not to accept employment in any form (including entering into consulting relationships or similar arrangements) for a period of three years following the
Vesting Date with any business that: (i) competes directly or indirectly with any of the Company’s businesses; or (ii) is a material customer of or a material supplier to any of the Company’s businesses unless the Recipient has obtained
the written consent from the Senior Vice President, Human Resources & Organization (or the successor to such position), which consent shall be granted or withheld in his or her sole discretion. The Recipient agrees that the terms of
this paragraph are reasonable. However, if any portion of this paragraph is held by competent authority to be unenforceable, this paragraph shall be deemed amended to limit its scope to the broadest scope that such authority determines
is enforceable, and as so amended shall continue in effect. The Recipient acknowledges that the ELG RSU Retention Award shall constitute compensation in satisfaction of this covenant.
|
(c) |
For a period of three years following the Vesting Date, the Recipient will not directly or indirectly, in any capacity or manner, make any statements of any kind (or cause, further, assist, solicit, encourage, support or participate
in the foregoing), whether verbal, in writing, electronically transferred or otherwise, or disclose any items of information which, in either case are or may reasonably be construed to be derogatory, critical or adverse to the interests
of the Company. The Recipient agrees that he or she will not disparage the Company, its executives, directors or products.
|
(a) |
“Company” means United Technologies Corporation and its subsidiaries, divisions and affiliates.
|
(b) |
“Company Information” means (i) confidential or proprietary information including without limitation information received from third parties under confidential or proprietary conditions; (ii) information
subject to the Company’s attorney-client or work-product privilege; and (iii) other technical, business or financial information, the use or disclosure of which might reasonably be construed to be contrary to the Company’s interests.
|
(c) |
“Qualifying Separation” means and includes a Mutually Agreeable Termination, a Change-in-Control Termination, or retirement at age 62 or later.
|
(i) |
“Mutually Agreeable Termination” means a decision by the Company, in its sole discretion, to terminate the Executive’s employment with the Company as a result of circumstances described in this paragraph and
the Executive’s acknowledgment and agreement that his/her employment will end as a result of such circumstances. Circumstances that may result in a Mutually Agreeable Termination include management realignment, change in business
conditions or priorities, the sale or elimination of the Executive’s business unit or any other change in business circumstances that materially and adversely affects the Executive’s role within the Company or such circumstances that
preclude continued employment at the ELG level, in all cases as determined by the Senior Vice President, Human Resources and Organization. Neither a unilateral voluntary resignation nor a Termination for Cause will constitute a
Mutually Agreeable Termination.
|
(ii) |
“Change-in-Control Termination” means either the involuntary termination of the Executive’s employment by the Company (other than a Termination for Cause) or the voluntary resignation by the Executive for Good
Reason within 24 months following a Change-in-Control.
|
(A) |
“Change-in-Control” shall mean any of the following events:
|
1. |
The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a “Person”)) of beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 20% or more of the then-outstanding Shares of Common Stock plus any other outstanding shares of stock of the Corporation entitled to vote in the election of directors (the “Outstanding Corporation Voting
Securities”); provided, however, that the Corporation and any employee benefit plan (or related trust) sponsored by it shall not be deemed to be a Person; or
|
2. |
A change in the composition of the Board such that the individuals who constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board. For this purpose, any
individual whose election or nomination for election by the Corporation’s shareowners was approved by a vote of at least two-thirds of the directors then comprising the Incumbent Board shall be considered a member of the Incumbent
Board; or
|
3. |
The consummation of a reorganization, merger, statutory share exchange or consolidation or similar corporate transaction involving the Corporation or any of its Subsidiaries or a sale or other disposition of
substantially all of the assets of the Corporation or a material acquisition of assets or stock of another entity by the Corporation or any of its Subsidiaries, (each, a “Business Combination”) if:
|
a. |
the individuals and entities that were the beneficial owners of the Outstanding Corporation Voting Securities immediately prior to such Business Combination do not beneficially own, directly or indirectly,
more than 50% of the then-outstanding shares of stock and the combined voting power of the then-outstanding voting securities of the corporation resulting from such Business Combination; or
|
b. |
a Person beneficially owns, directly or indirectly, 20% or more of the then-outstanding shares of stock of the corporation resulting from such Business Combination; or
|
c. |
members of the Incumbent Board do not comprise at least a majority of the members of the board of directors of the corporation resulting from such Business Combination; or
|
4. |
A complete liquidation or dissolution of the Corporation.
|
(B) |
“Good Reason” means voluntary termination of the Executive’s employment within twenty-four (24) months of a Change-in-Control and the occurrence of any one or more of the following:
|
1. |
The assignment of the Executive to a position that is materially inconsistent with the Executive’s authorities, duties, responsibilities, and status (including reporting relationships) as an employee of the
Company, or a material reduction or change in the nature or status of the Executive’s authorities, duties, or responsibilities from those in effect immediately preceding a Change-in-Control;
|
2. |
The Company requires the Executive to be based at a location which is at least fifty (50) miles further from the Executive’s current primary residence than such residence is from the Executive’s current job
location, except for required travel on Company business to an extent substantially consistent with the Executive’s business obligations immediately preceding the Change-in-Control;
|
3. |
A reduction by the Company in the Executive’s Base Salary in effect on the date preceding the Change-in-Control;
|
4. |
A material reduction in the Executive’s level of participation in any of the Company’s short- and/or long-term incentive compensation plans, employee benefit or retirement plans, policies, practices, or arrangements in which the
Executive participates from the levels in place during the fiscal year immediately preceding the Change-in-Control; provided, however, that reductions in the levels of participation in any such plans shall not be deemed to be “Good
Reason” if the Executive’s reduced level of participation in each such program remains substantially consistent with the average level of participation of other executives who have positions commensurate with the Executive’s position;
or
|
5. |
The failure of the Company to obtain a satisfactory agreement from any successor to the Company to assume and agree to perform its obligations under this Agreement.
|
(d) |
“Termination for Cause” means a decision by the Company to terminate the Executive’s employment for (i) violation of an ELG covenant, (ii) conduct involving a felony criminal offense under U.S. federal or state law or an equivalent
violation of the laws of any other country, (iii) dishonesty, fraud, self-dealing, or material violations of civil law in the course of fulfilling the Executive’s employment duties; (iv) breach of the Executive’s intellectual property
agreement or other written agreement with the Company; or (v) willful misconduct injurious to the Company, as determined by the Committee.
|
■ |
Membership in the ELG ceases. While an employee of the Company, your membership in the ELG ceases for any reason.
|
■ |
Non-mutual termination. You terminate employment and the Company wants to retain your services.
|
■ |
Violation of ELG Covenants. You violate any of the ELG Covenants.
|
■ |
Self-dealing. You engage in conduct which serves your own personal interests at the expense of the Company, or permit others to do so.
|
■ |
Financial restatement. A restatement of financial results attributable to your actions, whether intentional or negligent.
|
■ |
Improper or criminal conduct. Your discharge results from actions (or omissions) which you did not reasonably believe to be in the best interests of the Company. You must not engage in conduct
that is fraudulent, dishonest, or violates federal, state or local law.
|
■ |
Termination for Cause. Your termination results from facts or circumstances that constitute a Termination for Cause as defined herein; or if following termination, the Company determines within
three years that you engaged in conduct that would have constituted the basis for a Termination for Cause.
|
1. | (a) | The Executive’s employment with the Company will terminate effective ___________ (the “Termination Date”). |
2. | (a) | The number of Restricted Stock Units (RSUs) that will vest subject to this Vesting Agreement is set forth in the Award Statement. |
(b) |
RSUs will be converted into shares of Common Stock effective as of the Vesting Date. The converted shares will be unrestricted and freely transferable.
|
3. | (a) | The Executive hereby agrees to release the Company, present or former employees, officers and directors from all claims or demands the Executive may have arising from or relating to [his/her] employment with the Company or the termination of that employment. This includes a release of any rights or claims the Executive may have under the Age Discrimination in Employment Act of 1967, as amended, which prohibits age discrimination in employment; Title VII of the Civil Rights Act of 1964, as amended, which prohibits discrimination in employment based on race, color, national origin, religion or sex; the Equal Pay Act, which prohibits paying men and women unequal pay for equal work; the Americans with Disabilities Act which prohibits discrimination on the basis of handicap; the Employee Retirement Income Security Act of 1974, as amended, which prohibits discrimination on the basis of eligibility to receive benefits and any other federal, state or local laws or regulations prohibiting employment discrimination. This release also includes a release by the Executive of any claims or actions for wrongful discharge based on statute, regulation, contract, tort, common or civil law or otherwise. |
(b) |
This Release covers all claims based on any facts or events, whether known or unknown by the Executive that occurred on or before the effective date of this Agreement. The Executive will notify the Company of
any claims that may arise after the effective date of this Agreement but before the Termination Date and ratify the release and waiver, effective as of the Termination Date, following resolution of any claims as a pre-condition to
receiving the benefits provided for in Section 2 herein.
|
(c) |
This Release does not include, however, a release of the Executive’s rights to any vested pension, deferred compensation, health or similar benefits to which [he/she]
may be entitled in accordance with the terms of the Company employee benefit plans in which [he/she] participated.
|
(d) |
Nothing in this Agreement shall be construed to prohibit the Executive from filing a charge with, or participating in, any investigation or proceeding by the EEOC or comparable governmental agency. The Executive agrees, however, to
waive the right to recover monetary damages in any charge, complaint or lawsuit filed by [him/her] or on [his/her] behalf with respect any claims released
in Section 3 of this Agreement.
|
(e) |
The Executive understands and agrees that the ELG RSU Retention Award distributed pursuant to this Agreement is in full and complete satisfaction of all obligations due [him/her] under the ELG Program. The Executive understands and agrees that [he/she] shall not be entitled to any severance payments, payments in lieu of vacation, holiday or other fringe benefits. The Executive further agrees that the ELG RSU Retention Award shall be
offset and reduced by the full amount (if any) of cash severance benefits that the Executive may separately be entitled to receive from the Company based on any employment agreement, contractual obligation or statutory scheme,
including mandated termination indemnities or similar benefits.
|
(f) |
Following the Termination Date, the Executive agrees to cooperate with the Company with respect to matters that involved [him/her] during the course of [his/her] employment if such cooperation is deemed necessary or appropriate by the Company.
|
(g) |
The Executive agrees to resign from all committees, boards, associations and other organizations, both internal and external, to which the Executive currently belongs in [his/her]
capacity as a Company executive, except as mutually agreed with the Company. Following the Termination Date, the Executive will be free to join boards and affiliate with organizations provided that such affiliation will not violate any
of the obligations set forth in Section 4 of this Agreement.
|
(h)
|
The Executive is encouraged, at [his/her] own expense, to consult with an attorney before signing this Agreement and acknowledges that [he/she] was offered sufficient time to consider it.
|
(i) |
The Executive may revoke this Agreement within seven (7) days of the date of the Executive’s signature. Revocation can be made by delivering a written notice of revocation to [
____ ], Senior Vice President, Human Resources and Organization, United Technologies Corp., One Financial Plaza, Hartford, CT 06101. For this revocation to be effective, [____] must
receive written notice no later than close of business on the seventh (7th) day after the Executive signs this Agreement. If the Executive revokes this Agreement, it shall not be effective or enforceable and the Executive will not
receive the payment and/or benefits described herein and agrees to immediately repay to the Company the value of any benefits provided prior to revocation.
|
4. |
The Executive makes the following representations to and agreements with the Company:
|
(a) |
During a period beginning on the date hereof and extending for three years after the Termination Date, the Executive will not directly or indirectly, in any capacity or manner, make any statements of any kind
(or cause, further, assist, solicit, encourage, support or participate in the foregoing), whether verbal, in writing, electronically transferred or otherwise, or disclose any items of information which are or may reasonably be
construed to be derogatory, critical of, or adverse to the interests of the Company. The Executive agrees that [he/she] will not disparage the Company, its executives, directors or products.
|
(b) |
The Executive acknowledges that in the course of [his/her] employment with the Company [he/she] has acquired Company
Information and that such Company Information has been disclosed to [him/her] in confidence and for the Company’s use only. The Executive agrees that, except as [he/she]
may otherwise be directed under this Agreement or as required by law, regulation or legal proceeding, [he/she] (i) will keep such Company Information confidential at all times, (ii) will not
disclose or communicate Company Information to any third party and (iii) will not make use of Company Information on his own behalf or on behalf of any third party. In the event that the Executive becomes legally compelled to disclose
any Company Information, it is agreed that the Executive will provide the Company with prompt written notice of such request(s) so that the Company may seek a protective order or other appropriate legal remedy to which it may be
entitled. The Executive acknowledges that any unauthorized disclosure to third parties of Company Information or other violation, or threatened violation, of this Agreement would cause irreparable damage to the trade secret,
confidential or proprietary status of Company Information and to the Company. Therefore, in such event the Company shall be entitled to an injunction prohibiting the Executive from any such disclosure, attempted disclosure, violation
or threatened violation. When Company Information becomes generally available to the public other than by the Executive’s acts or omissions, it is no longer subject to the restrictions in this paragraph.
|
(c) |
To further ensure the protection of Company Information, the Executive agrees that for a period of three years [Alternative clause: one year in the event of a Change in
Control Termination] after [his/her] Termination Date, [he/she] will not accept employment in any form (including entering into consulting
relationships or similar arrangements) with a business which: (i) competes directly or indirectly with [any of the Company’s businesses (applies to corporate executives)] [the Executive’s business unit
(includes current and past business units)]; or (ii) is a material customer of or a material supplier to [any of the Company’s businesses] [the Executive’s business unit], unless the
Executive has obtained the written consent of the Senior Vice President, Human Resources & Organization or [his/her] successor, which consent shall be granted or withheld in his sole
discretion. The Executive acknowledges that the ELG RSU Retention Award vested and distributed pursuant to this Agreement constitutes compensation in satisfaction of this paragraph (4)(d). The parties agree that the terms of this
paragraph are reasonable. However, if any portion of this paragraph is held by competent authority to be unenforceable, this paragraph shall be deemed amended to limit its scope to the broadest scope that such authority determines is
enforceable, and as so amended shall continue in effect.
|
(d) |
For a period of two years following the Termination Date, [Alternative clause: one year following a Change
in Control Termination] the Executive will not initiate, cause or allow to be initiated (under those conditions which [he/she] controls) any action which would reasonably be expected to encourage or to induce any employee of the Company or any of its affiliated entities to leave the employ of the Company or its affiliated entities. In
this regard, the Executive agrees that [he/she] will not directly or indirectly recruit any Company executive or other employee or provide any information or make referrals to personnel
recruitment agencies or other third parties in connection with Company executives and other employees.
|
(e) |
The Executive acknowledges that the Intellectual Property Agreement between [him/her] and the Company will continue in full force and effect following the Termination
Date.
|
5. |
The Company represents to the Executive that it is fully authorized and empowered to enter into this Agreement, and that it will safeguard this Agreement and its terms from public disclosure with the same
degree of care with which the Company protects its proprietary information.
|
6. |
The obligations of the parties hereto are severable and divisible. In the event any provision hereunder is determined to be illegal or unenforceable, the remainder of this Agreement shall continue in full
force and effect.
|
7. |
In addition to any other rights the Company may have, should the Executive breach any of the terms of this Agreement, the ELG RSU Retention Award will be forfeited and subject to recoupment by the Company.
Such action by the Company will not be taken capriciously and will have no effect on the Release and Waiver contained in this Agreement.
|
8. |
Any dispute arising between the Company and the Executive with respect to the validity, performance or interpretation of this Agreement shall be submitted to and determined in binding arbitration in Hartford,
Connecticut, for resolution in accordance with the rules of the American Arbitration Association, modified to provide that the decision by the arbitrator shall be binding on the parties; shall be furnished in writing, separately and
specifically stating the findings of fact and conclusions of law on which the decision is based; shall be kept confidential by the arbitrator and the parties; and shall be rendered within 60 days following impanelment of the
arbitrator. Costs of the arbitration shall be borne by the party that does not prevail. The arbitrator shall be selected in accordance with the rules of the American Arbitration Association.
|
9. |
This Agreement shall be subject to and governed by the laws of the State of Connecticut.
|
10. |
This Agreement constitutes the entire agreement between the parties and supersedes all previous communications between the parties with respect to the subject matter of this Agreement. No amendment to this
Agreement shall be binding upon either party unless in writing and signed by or on behalf of such party.
|
11. |
Any notice under this agreement shall be in writing and addressed to the Executive as follows: _______________
|
United Technologies Corporation
|
|
One Financial Plaza
|
|
Hartford, CT 06101
|
|
Attention: Senior Vice President,
|
|
Human Resources and Organization.
|
12. |
The Company reserves the right to withhold applicable taxes from any amounts paid pursuant to this Agreement to the extent required by law. The Executive, or [his/her]
estate, shall be responsible for any and all tax liability imposed on amounts paid hereunder.
|
13. |
Capitalized terms in this Agreement are defined in the Schedule of Terms applicable to this ELG RSU Retention Award.
|
14. |
If and to the extent any payment or benefit provided herein is determined to be deferred compensation within the meaning of Section 409A, such payment or benefit will provided in a manner that complies with
Section 409A.
|
15. |
The Executive states that [he/she] has read this Agreement, including the Release and Waiver contained herein, fully understands its content and effect, and without
duress or coercion, knowingly and voluntarily assents to its terms.
|
By:
|
|
By:
|
|
|
[Name]
|
[Name of Executive]
|
|||
Senior Vice President, Human
Resources and Organization
|
Date:
|
Date |
(a) |
During the period of the Recipient’s employment, and following termination of employment, the Recipient agrees to protect and to not disclose “Company Information” until the information has become public (through no action on the
part of the Recipient) or is no longer material or relevant to the Company.
|
(b) |
During the period of the Recipient’s employment, and for a period of two years following termination of employment, the Recipient agrees to not initiate, cause or allow to be initiated (under those conditions which he or she
controls) any action which would reasonably be expected to encourage or to induce any employee of the Company or any of its affiliated entities to leave the employ of the Company or its affiliated entities. In this regard, the
Recipient agrees that he or she will not directly or indirectly recruit any executive or other employee of the Company or provide any information or make referrals to personnel recruitment agencies or other third parties in
connection with executives of the Company and other employees.
|
(a) |
The Pre-Vesting Date Covenant described in (a) above remains in full effect and the Pre-Vesting Date Covenant described in (b) above will remain in effect for two years following the Vesting Date.
|
(b) |
To further ensure the protection of Company Information, the Recipient agrees not to accept employment in any form (including entering into consulting relationships or similar arrangements) for a period of three years following
the Vesting Date with any business that: (i) competes directly or indirectly with any of the Company’s businesses; or (ii) is a material customer of or a material supplier to any of the Company’s businesses unless the Recipient has
obtained the written consent from the Executive Vice President & Chief Human Resources Officer (or the successor to such position), which consent shall be granted or withheld in his or her sole discretion. The Recipient agrees
that the terms of this paragraph are reasonable. However, if any portion of this paragraph is held by competent authority to be unenforceable, this paragraph shall be deemed amended to limit its scope to the broadest scope that such
authority determines is enforceable, and as so amended shall continue in effect. The Recipient acknowledges that the ELG RSU Retention Award shall constitute compensation in satisfaction of this
covenant.
|
(c) |
For a period of three years following the Vesting Date, the Recipient will not directly or indirectly, in any capacity or manner, make any statements of any kind (or cause, further, assist, solicit, encourage, support or
participate in the foregoing), whether verbal, in writing, electronically transferred or otherwise, or disclose any items of information which, in either case are or may reasonably be construed to be derogatory, critical or adverse
to the interests of the Company. The Recipient agrees that he or she will not disparage the Company, its executives, directors or products.
|
■ |
Membership in the ELG ceases. While an employee of the Company, your membership in the ELG ceases for any reason.
|
■ |
Non-mutual termination. You terminate employment and the Company wants to retain your services.
|
■ |
Violation of ELG Covenants. You violate any of the ELG Covenants.
|
■ |
Self-dealing. You engage in conduct which serves your own personal interests at the expense of the Company, or permit others to do so.
|
■ |
Financial restatement. A restatement of financial results attributable to your actions, whether intentional or negligent.
|
■ |
Improper or criminal conduct. Your discharge results from actions (or omissions) which you did not reasonably believe to be in the best interests of the Company. You must not engage in
conduct that is fraudulent, dishonest, or violates federal, state or local law.
|
■ |
Termination for Cause. Your termination results from facts or circumstances that constitute a Termination for Cause as defined herein; or if following termination, the Company determines
within three years that you engaged in conduct that would have constituted the basis for a Termination for Cause.
|
(a) |
“Qualifying Separation” means and includes a Mutually Agreeable Termination, a Change-in-Control Termination, or retirement at age 62 or later.
|
(b) |
“Mutually Agreeable Termination” means a decision by the Company, in its sole discretion, to terminate the Executive’s employment with the Company as a result of circumstances described in this
paragraph and the Executive’s acknowledgment and agreement that his/her employment will end as a result of such circumstances. Circumstances that may result in a Mutually Agreeable Termination include management realignment,
change in business conditions or priorities, the sale or elimination of the Executive’s business unit or any other change in business circumstances that materially and adversely affects the Executive’s role within the Company or
such circumstances that preclude continued employment at the ELG level, in all cases as determined by the Executive Vice President & Chief Human Resources Officer. Neither a
unilateral voluntary resignation nor a Termination for Cause will constitute a Mutually Agreeable Termination.
|
(c) |
“Change-in-Control Termination” means either the involuntary termination of the Executive’s employment by the Company (other than a Termination for Cause) or the voluntary resignation by the Executive
for Good Reason within 24 months following a Change-in-Control.
|
(d) |
“Change-in-Control” shall mean any of the following events:
|
1. |
The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a “Person”)) of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of the then-outstanding Shares of Common Stock plus any other outstanding shares of stock of the Corporation entitled to vote in the election of directors (the “Outstanding
Corporation Voting Securities”); provided, however, that the Corporation and any employee benefit plan (or related trust) sponsored by it shall not be deemed to be a Person; or
|
2. |
A change in the composition of the Board such that the individuals who constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board. For this
purpose, any individual whose election or nomination for election by the Corporation’s shareowners was approved by a vote of at least two-thirds of the directors then comprising the Incumbent Board shall be considered a member of
the Incumbent Board; or
|
3. |
The consummation of a reorganization, merger, statutory share exchange or consolidation or similar corporate transaction involving the Corporation or any of its Subsidiaries or a sale or other
disposition of substantially all of the assets of the Corporation or a material acquisition of assets or stock of another entity by the Corporation or any of its Subsidiaries, (each, a “Business Combination”) if:
|
a. |
the individuals and entities that were the beneficial owners of the Outstanding Corporation Voting Securities immediately prior to such Business Combination do not beneficially own, directly or
indirectly, more than 50% of the then-outstanding shares of stock and the combined voting power of the then-outstanding voting securities of the corporation resulting from such Business Combination; or
|
b. |
a Person beneficially owns, directly or indirectly, 20% or more of the then-outstanding shares of stock of the corporation resulting from such Business Combination; or
|
c. |
members of the Incumbent Board do not comprise at least a majority of the members of the board of directors of the corporation resulting from such Business Combination; or
|
4. |
A complete liquidation or dissolution of the Corporation.
|
(e) |
“Good Reason” means voluntary termination of the Executive’s employment within twenty-four (24) months of a Change-in-Control and the occurrence of any one or
more of the following:
|
1. |
The assignment of the Executive to a position that is materially inconsistent with the Executive’s authorities, duties, responsibilities, and status (including reporting relationships) as an employee
of the Company, or a material reduction or change in the nature or status of the Executive’s authorities, duties, or responsibilities from those in effect immediately preceding a Change-in-Control;
|
2. |
The Company requires the Executive to be based at a location which is at least fifty (50) miles further from the Executive’s current primary residence than such residence is from the Executive’s
current job location, except for required travel on Company business to an extent substantially consistent with the Executive’s business obligations immediately preceding the Change-in-Control;
|
3. |
A reduction by the Company in the Executive’s Base Salary in effect on the date preceding the Change-in-Control;
|
4. |
A material reduction in the Executive’s level of participation in any of the Company’s short- and/or long-term incentive compensation plans, employee benefit or retirement plans, policies, practices, or arrangements in which the
Executive participates from the levels in place during the fiscal year immediately preceding the Change-in-Control; provided, however, that reductions in the levels of participation in any such plans shall not be deemed to be “Good
Reason” if the Executive’s reduced level of participation in each such program remains substantially consistent with the average level of participation of other executives who have positions commensurate with the Executive’s
position; or
|
5. |
The failure of the Company to obtain a satisfactory agreement from any successor to the Company to assume and agree to perform its obligations under this Agreement.
|
(f) |
“Termination for Cause” means a decision by the Company to terminate the Executive’s employment for (i) violation of an ELG covenant, (ii) conduct involving a felony criminal offense under U.S. federal or state law or an
equivalent violation of the laws of any other country, (iii) dishonesty, fraud, self-dealing, or material violations of civil law in the course of fulfilling the Executive’s employment duties; (iv) breach of the Executive’s
intellectual property agreement or other written agreement with the Company; or (v) willful misconduct injurious to the Company, as determined by the Committee.
|
1. | (a) | The Executive’s employment with the Company will terminate effective ___________ (the “Termination Date”). |
2. | (a) | Effective as of the Vesting Date, the number of ELG RSUs awarded, including dividend equivalents will convert into an equal number of shares of UTC Common Stock, less the number of shares withheld to pay taxes. The net number of shares will be transferred to an account in the Executive’s name on the records of UTC’s stock transfer agent, Computershare Trust Company. The Executive acknowledges [his/her] understanding that the vesting of this ELG RSU Award will occur in consideration of [his/her] agreements and obligations set forth in this Agreement and the ELG RSU Award. |
(b) |
The Executive understands and agrees that the value of the ELG RSU Award will not be treated as compensation for any purpose under any of the retirement, savings, severance or other employee benefit
plans in which [he/she] participated.
|
3. | (a) | The Executive hereby agrees to release the Company, its subsidiaries, divisions, present or former employees, officers and directors from all claims or demands the Executive may have arising from or related to [his/her] employment with the Company or the termination of that employment. This includes a release of any rights or claims the Executive may have under the Age Discrimination in Employment Act of 1967, as amended from time to time, which prohibits age discrimination in employment; Title VII of the Civil Rights Act of 1964, as amended, which prohibits discrimination in employment based on race, color, national origin, religion or sex; the Equal Pay Act, which prohibits paying men and women unequal pay for equal work; the Americans with Disabilities Act which prohibits discrimination on the basis of handicap; the Employee Retirement Income Security Act of 1974, as amended, which prohibits discrimination on the basis of eligibility to receive benefits and any other federal, state or local laws or regulations prohibiting employment discrimination. This release also includes a release by the Executive of any claims or actions for wrongful discharge based on statute, regulation, contract, tort, common or civil law or otherwise. |
(b) |
This Release covers all claims based on any facts or events, whether known or unknown by the Executive that occurred on or before the effective date of this Agreement. The Executive will notify the
Company of any claims that may arise after the effective date of this Agreement but before the Termination Date and ratify the release and waiver, effective as of the Termination Date, following resolution of any claims as a
pre-condition to receiving the benefits provided for in Section 2 herein.
|
(c) |
This Release does not include a release of the Executive’s rights to any pension, deferred compensation, health or similar benefits to which [he/she] may be
entitled in accordance with the terms of the Company employee benefit plans in which [he/she] participated.
|
(d) |
Nothing in this Agreement shall be construed to prohibit the Executive from filing a charge with, or participating in, any investigation or proceeding by the U.S. Equal Employment Opportunity Commission (EEOC) or comparable
governmental agency. The Executive agrees, however, to waive the right to recover monetary damages in any charge, complaint or lawsuit filed by [him/her] or on [his/her] behalf with respect any claims released in Section 3 of this Agreement.
|
(e) |
The Executive understands and agrees that the vesting and distribution of the ELG RSU Award distributed pursuant to this Agreement is in full and complete satisfaction of all obligations due [him/her] by the Company and that no other obligations are due [him/her] under the ELG Program. The Executive further aclnowledges that [he/she] shall not be entitled to any additional severance payments or payments in lieu of vacation, holiday or other fringe benefits under the ELG or any other Company program. The Executive
further agrees that the ELG RSU Award shall be offset and reduced by the full amount (if any) of cash severance benefits that the Executive may separately be entitled to receive from the Company based on any employment agreement,
contractual obligation or statutory scheme, including mandated termination indemnities or similar benefits.
|
(f) |
Following the Termination Date, the Executive agrees that [he/she] will cooperate with the Company with respect to matters that involved [him/her] during the course of [his/her] employment if such cooperation is deemed necessary or appropriate by the Company.
|
(g) |
The Executive agrees to resign from all committees, boards, associations and other organizations, both internal and external, to which the Executive currently belongs in [his/her] capacity as a Company executive, except as mutually agreed with the Company. Following the Termination Date, the Executive will be free to join boards and affiliate with organizations provided that such
affiliation will not violate or conflict with any of [his/her] obligations set forth in Section 4 of this Agreement.
|
(h)
|
The Executive is encouraged, at [his/her] own expense, to consult with an attorney before signing this Agreement and acknowledges that [he/she] was offered sufficient time to consider it.
|
(i) |
The Executive may revoke this Agreement within seven (7) days of the date of the Executive’s signature. Revocation can be made by delivering a written notice of revocation to [ ____ ], Executive Vice President & Chief Human Resources Officer, United Technologies Corporation, 10 Farm Springs, Farmington, CT 06032. For this revocation to be effective, [____] must receive written notice no later than close of business on the seventh (7th) day after the Executive signs this Agreement. If the Executive revokes this Agreement, it shall not be
effective or enforceable and the Executive will not vest in the ELG RSU Award or receive any other benefits described herein and agrees to immediately repay to the Company the value of any benefits provided prior to revocation.
|
4. |
In consideration of the benefits of membership in the ELG and the ELG RSU Award, the Executive has agreed to certain restrictive covenants effective during the course of [his/her] employment and additional restrictive covenants that become effective upon the termination of his employment and the vesting of his ELG RSU Award (the “ELG Covenants”). The Executive hereby acknowledges and
affirms [his/her] ELG Covenants and makes the following representations to and agreements with the Company:
|
(a) |
During a period beginning on the date hereof and extending for three years after the Termination Date, the Executive will not directly or indirectly, in any capacity or manner, make any statements of
any kind (or cause, further, assist, solicit, encourage, support or participate in the foregoing), whether verbal, in writing, electronically transferred or otherwise, or disclose any items of information which are or may
reasonably be construed to be derogatory, critical of, or adverse to the interests of the Company. The Executive agrees that [he/she] will not disparage the Company, its executives,
directors or products.
|
(b) |
The Executive acknowledges that in the course of [his/her] employment with the Company [he/she] has acquired Company
Information and that such Company Information has been disclosed to [him/her] in confidence and for the Company’s use only. The Executive agrees that, except as [he/she] may otherwise be directed under this Agreement or as required by law, regulation or legal proceeding, [he/she] (i) will keep such Company Information confidential at
all times, (ii) will not disclose or communicate Company Information to any third party and (iii) will not make use of Company Information on his own behalf or on behalf of any third party. In the event that the Executive becomes
legally compelled to disclose any Company Information, it is agreed that the Executive will provide the Company with prompt written notice of such request(s) so that the Company may seek a protective order or other appropriate legal
remedy to which it may be entitled. In view of the nature of the Executive’s employment and the sensitive nature of Company Information which the Executive has received during the course of [his/her] employment,
the Executive agrees that any unauthorized disclosure to third parties of Company Information or other violation, or threatened violation, of this Agreement would cause irreparable damage to the trade secret, confidential or
proprietary status of Company Information and to the Company. Therefore, in that event the Company shall be entitled to an injunction prohibiting the Executive from any such disclosure, attempted disclosure, violation or threatened
violation. When Company Information becomes generally available to the public other than by the Executive’s acts or omissions, it is no longer subject to the restrictions in this paragraph.
|
(c) |
To further ensure the protection of Company Information, the Executive agrees that for a period of three (3) years [Alternative
clause: one year in the event of a Change in Control Termination] after [his/her] Termination
Date, [he/she] will not accept employment in any form (including entering into consulting relationships or similar
arrangements) with a business which: (i) competes directly or indirectly with [any of the Company’s businesses (applies to corporate executives)] [the Executive’s
business unit (includes current and past business units)]; or (ii) is a material customer of or a material supplier to [any of
the Company’s businesses] [the Executive’s business unit], unless the Executive has obtained the written consent of the Executive Vice President & Chief Human Resources Officer or [his/her] successor, which consent shall be granted or withheld in his sole discretion. The
Executive acknowledges that the ELG RSU Award vested and distributed pursuant to this Agreement constitutes full and adequate consideration for the Executive’s obligations set forth in this paragraph (4)(d). The parties agree
that the terms of this paragraph are reasonable. However, if any portion of this paragraph is held by competent authority to be unenforceable, this paragraph shall be deemed amended to limit its scope to the broadest scope that
such authority determines is enforceable, and as so amended shall continue in effect. committee
|
(d) |
For a period of two (2) years following the Termination Date, [Alternative clause: one year following a Change in Control
Termination] the Executive will not initiate, cause or allow to be initiated (under those conditions which [he/she] controls) any action which would reasonably be expected to encourage or to induce any employee of the Company or any of its affiliated entities to leave the employ of the Company or its affiliated
entities. In this regard, the Executive agrees that [he/she] will not directly or indirectly recruit any Company executive or other employee or provide any information or make
referrals to personnel recruitment agencies or other third parties in connection with Company executives and other employees.
|
(e) |
The Executive acknowledges that the Intellectual Property Agreement between [him/her] and the Company will continue in full force and effect following the
Termination Date.
|
5. |
The Company represents to the Executive that it is fully authorized and empowered to enter into this Agreement, and that it will safeguard this Agreement and its terms from public disclosure with the
same degree of care with which the Company protects its proprietary information.
|
6. |
The obligations of the parties hereto are severable and divisible. In the event any provision hereunder is determined to be illegal or unenforceable, the remainder of this Agreement shall continue in
full force and effect.
|
7. |
In addition to any other rights the Company may have, should the Executive breach any of the terms of this Agreement, the Company will have the right to recover the value realized from the ELG RSU
Award and any other benefits provided hereunder, the amount of such recovery to be determined relative to the damages caused by the breach. Such action by the Company will not be taken capriciously and will have no effect on the
Release and Waiver contained in this Agreement.
|
8. |
Any dispute arising between the Company and the Executive with respect to the validity, performance or interpretation of this Agreement shall be submitted to and determined in binding arbitration in
Farmington, Connecticut, for resolution in accordance with the rules of the American Arbitration Association, modified to provide that the decision by the arbitrator shall be binding on the parties; shall be furnished in writing,
separately and specifically stating the findings of fact and conclusions of law on which the decision is based; shall be kept confidential by the arbitrator and the parties; and shall be rendered within 60 days following empanelment
of the arbitrator. Costs of the arbitration shall be borne by the party that does not prevail. The arbitrator shall be selected in accordance with the rules of the American Arbitration Association.
|
9. |
This Agreement shall be subject to and governed by the laws of the State of Connecticut, USA.
|
10. |
This Agreement constitutes the entire agreement between the parties and supersedes all previous communications between the parties with respect to the subject matter of this Agreement. No amendment
to this Agreement shall be binding upon either party unless in writing and signed by or on behalf of such party.
|
11. |
Any notice under this agreement shall be in writing and addressed to the Executive at [his/her] home address of record at the Company and to the Company as
follows:
|
United Technologies Corporation
|
|
10 Farm Springs Road
|
|
Farmington, CT 06032
|
|
Attention: Executive Vice President &
|
|
Chief Human Resources Officer
|
12. |
The Company reserves the right to withhold applicable taxes from any amounts paid pursuant to this Agreement to the extent required by law. The Executive, or [his/her] estate,
shall be responsible for any and all tax liability imposed on amounts paid hereunder.
|
13. |
Capitalized terms in this Agreement, not otherwise defined herein, are defined in the Schedule of Terms applicable to this ELG RSU Award, or the UTC Long Term Incentive Plan, as amended and restated.
|
14. |
If and to the extent any payment or benefit provided herein is determined to be deferred compensation within the meaning of Section 409A, such payment or benefit will provided in a manner that
complies with Section 409A.
|
15. |
The Executive states that [he/she] has read this Agreement, including the Release and Waiver contained herein, fully understands its content and effect, and
without duress or coercion, knowingly and voluntarily assents to its terms.
|
By:
|
By:
|
|||
[Name]
|
[Name of Executive]
|
|||
Executive Vice President and
Chief Human Resources Officer
|
Date:
|
Date:
|
(a) |
During the period of the Participant’s employment, and following termination of employment, the Participant agrees to protect and to not disclose “Company Information” until the information has become public (through no
action on the part of the Participant) or is no longer material or relevant to the Company.
|
(b) |
During the period of the Participant’s employment, and for a period of two years following termination of employment, the Participant agrees to not initiate, cause or allow to be initiated (under those conditions which he or
she controls) any action which would reasonably be expected to encourage or to induce any employee of the Company or any of its affiliated entities, or any individual who had been an employee of the Company or any of its
affiliated entities within the previous three months, to leave the employ of the Company or its affiliated entities. In this regard, the Participant agrees that he or she will not directly or indirectly recruit any executive or
other employee of the Company (or individual who had been an employee of the Company within the previous three months) or provide any information or make referrals to personnel recruitment agencies or other third parties in
connection with executives of the Company and other employees (or individual who had been employees of the Company within the previous three months).
|
(c) |
During the period of the Participant’s employment, and for a period of one year following termination of employment, the Participant agrees not to accept employment in any form (including entering into consulting
relationships or similar arrangements) with any business that: (i) engages in activities that compete directly or indirectly with any of the Company’s businesses; or (ii) is a material customer of or a material supplier to any
of the Company’s businesses unless the Participant has first obtained the consent of the Chief Human Resources Officer, which consent shall be granted or withheld in his or her sole discretion.
|
(a) |
The Pre-Vesting Date Covenant described in (a) above remains in full effect and the Pre-Vesting Date Covenants described in (b) and (c) above will remain in effect, for two years and one year respectively, as detailed above
following the Vesting Date.
|
(b) |
To further ensure the protection of Company Information, the Participant agrees not to accept employment in any form (including entering into consulting relationships or similar arrangements) for an additional one year period
which shall run consecutive to the one year Pre-Vesting Date Covenant referenced above, for a total two-year noncompetition period following the Vesting Date with any business that: (i) engages in activities that compete
directly or indirectly with any of the Company’s businesses; or (ii) is a material customer of or a material supplier to any of the Company’s businesses unless the Participant has first obtained the consent of the Chief Human
Resources Officer, which consent shall be granted or withheld in his or her sole discretion.
|
(c) |
For a period of two-years following the Vesting Date, the Participant will not directly or indirectly, in any capacity or manner, make any statements of any kind (or cause, further, assist, solicit, encourage, support or
participate in the foregoing), whether verbal, in writing, electronically transferred or otherwise, or disclose any items of information which, in either case are or may reasonably be construed to be derogatory, critical or
adverse to the interests of the Company. The Participant agrees that he or she will not disparage the Company, its executives, directors or products.
|
■ |
Membership in the ELG ceases. While an employee of the Company, Participant’s membership in the ELG ceases for any reason.
|
■ |
Non-mutual termination. Participant terminates employment and the Company wants to retain Participant’s services.
|
■ |
Violation of ELG Covenants. Participant violates any of the ELG Covenants.
|
■ |
Self-dealing. Participant engages in conduct which serves his or her own personal interests at the expense of the Company, or permit others to do so.
|
■ |
Financial restatement. A restatement of financial results attributable to Participant’s actions, whether intentional or negligent.
|
■ |
Improper or criminal conduct. Participant’s discharge results from actions (or omissions) which Participant did not reasonably believe to be in the best interests of the Company.
Participant must not engage in conduct that is fraudulent, dishonest, or violates federal, state or local law.
|
■ |
Termination for Cause. Participant’s termination results from facts or circumstances that constitute a Termination for Cause as defined herein; or if following termination, the Company
determines within three years that Participant engaged in conduct that would have constituted the basis for a Termination for Cause.
|
1. | (a) | The Executive’s employment with the Company will terminate effective ___________ (the “Termination Date”). |
2. | (a) | Effective as of the Vesting Date, the number of ELG RSUs awarded, including dividend equivalents will convert into an equal number of shares of UTC Common Stock, less the number of shares withheld to pay taxes. The Executive acknowledges [his/her] understanding that the vesting of this ELG RSU Award will occur in consideration of [his/her] agreements and obligations set forth in this Agreement and the ELG RSU Award. |
(b) |
The Executive understands and agrees that the value of the ELG RSU Award will not be treated as compensation for any purpose under any of the retirement, savings, severance or other employee
benefit plans in which [he/she] participated.
|
3. | (a) | The Executive, for [him/her]self and on behalf of [his/her] heirs, executors, assigns and successors in interest, hereby agrees to release the Company, its subsidiaries, divisions, present or former employees, officers and directors, personally and in their capacity as employees, officers and directors of the Company, from all claims or demands the Executive may have based on [his/her] employment with the Company or the termination of that employment. This includes a release of any rights or claims the Executive may have under the Age Discrimination in Employment Act of 1967, as amended from time to time, which prohibits age discrimination in employment; Title VII of the Civil Rights Act of 1964, as amended from time to time, which prohibits discrimination in employment based on race, color, national origin, religion or sex; the Equal Pay Act, which prohibits paying men and women unequal pay for equal work; the Americans with Disabilities Act which prohibits discrimination on the basis of handicap; the Employee Retirement and Income Security Act of 1974, as amended from time to time, which prohibits termination of employment for the purpose of interfering with eligibility for employee benefits, and any other federal, state or local laws or regulations prohibiting employment discrimination. This release also includes any claims or actions for wrongful discharge, breach of contract (express or implied), tort, defamation, emotional distress or any other claims otherwise related to his employment or the termination of his employment with the Company. The Executive acknowledges and agrees that this release also applies to similar claims he might assert under the laws of any other country. The Parties agree that this Agreement constitutes a comprehensive and conclusive resolution of all matters related to the termination of his employment. |
(b) |
This Release covers all claims based on any facts or events, whether known or unknown by the Executive that occurred on or before the effective date of this Agreement. The Executive will
notify the Company of any claims that [he/she] asserts may have arisen after the effective date of this Agreement but
before the Termination Date. The Executive agrees to ratify and confirm the release and waiver effective as of the Termination Date as a pre-condition to receiving any of the benefits hereunder. The Executive
acknowledges that he is not entitled to, and will not assert any claim for termination related benefits under any jurisdiction outside of the United States, whether based on foreign law, regulation, collective agreement,
contract or arrangement.
|
(c) |
This Release does not include a release of the Executive’s rights to any pension, deferred compensation, health or similar benefits to which [he/she] may be
entitled in accordance with the terms of the Company employee benefit plans in which [he/she] participated.
|
(d) |
Nothing in this Agreement shall be construed to prohibit the Executive from filing a charge with, or participating in, any investigation or proceeding by the U.S. Equal Employment Opportunity Commission (EEOC), the Securities
and Exchange Commission (SEC) or other comparable governmental agency. The Executive agrees, however, to waive the right to recover monetary damages in any charge, complaint or lawsuit filed by [him/her] or
on [his/her] behalf with respect any claims released pursuant to this Agreement.
|
(e) |
The Executive understands and agrees that the vesting and distribution of the ELG RSU Award pursuant to this Agreement is in full and complete satisfaction of all obligations due [him/her] by the Company and that no other obligations are due [him/her] under the ELG Program. The Executive further acknowledges that [he/she] shall not be entitled to any additional severance payments or payments in lieu of vacation, holiday or other fringe benefits under the ELG or any other Company program. The Executive
further agrees that the ELG RSU Award shall be offset and reduced by the full amount (if any) of cash severance benefits that the Executive may separately be entitled to receive from the Company based on any employment
agreement, contractual obligation or statutory scheme, including mandated termination indemnities or similar benefits.
|
(f) |
Following the Termination Date, the Executive agrees that [he/she] will cooperate with the Company with respect to matters that involved [him/her] during the course of [his/her] employment if such cooperation is deemed necessary or appropriate by the Company.
|
(g) |
The Executive agrees to resign from all committees, boards, associations and other organizations, both internal and external, to which the Executive currently belongs in [his/her] capacity as a Company executive, except as mutually agreed with the Company. Following the Termination Date, the Executive will be free to join boards and affiliate with organizations provided that
such affiliation will not violate or conflict with any of [his/her] obligations set forth in Section 4 of this Agreement.
|
(h)
|
The Executive is encouraged, at [his/her] own expense, to consult with an attorney before signing this Agreement and acknowledges that [he/she] was offered sufficient time to review and consider this Agreement.
|
(i) |
The Executive may revoke this Agreement within seven (7) days of the date of the Executive’s signature. Revocation can be made by delivering a written notice of revocation to [ ____ ], Executive Vice President & Chief Human Resources Officer, United Technologies Corporation, 10 Farm Springs, Farmington, CT 06032. For this revocation to be effective, [____] must receive written notice no later than close of business on the seventh (7th) day after the Executive signs this Agreement. If the Executive revokes this Agreement, it shall not be
effective or enforceable and the Executive will not vest in the ELG RSU Award or receive any other benefits described herein and agrees to immediately repay to the Company the value of any benefits provided prior to revocation.
|
4. |
In consideration of the benefits of membership in the ELG and the opportunity to vest in the ELG RSU Award, the Executive has agreed to certain restrictive covenants effective during the course
of [his/her] employment and additional restrictive covenants that become effective upon the termination of [his/her] employment and the vesting of [his/her] ELG RSU Award (the “ELG Covenants”). The Executive hereby acknowledges and affirms [his/her] ELG Covenants and makes the following
representations to and additional agreements with the Company:
|
(a) |
During a period beginning on the date hereof and extending for two years after the Termination Date, the Executive will not directly or indirectly, in any capacity or manner, make any statements
of any kind (or cause, further, assist, solicit, encourage, support or participate in the foregoing), whether verbal, in writing, electronically transferred or otherwise, or disclose any items of information which are or may
reasonably be construed to be derogatory, critical of, or adverse to the interests of the Company. The Executive agrees that [he/she] will not disparage the Company, its executives,
directors or products.
|
(b) |
The Executive acknowledges that in the course of [his/her] employment with the Company [he/she] has acquired Company
Information and that such Company Information has been disclosed to [him/her] in confidence and for the Company’s use only. The Executive agrees that, except as [he/she] may otherwise be directed under this Agreement or as required by law, regulation or legal proceeding, [he/she] (i) will keep such Company Information confidential
at all times, (ii) will not disclose or communicate Company Information to any third party and (iii) will not make use of Company Information on his own behalf or on behalf of any third party. In the event that the Executive
becomes legally compelled to disclose any Company Information, it is agreed that the Executive will provide the Company with prompt written notice of such request(s) so that the Company may seek a protective order or other
appropriate legal remedy to which it may be entitled. In view of the nature of the Executive’s employment and the sensitive nature of Company Information which the Executive has received during the course of [his/her] employment, the Executive agrees that any unauthorized disclosure to third parties of Company Information or other violation, or threatened violation, of this Agreement would cause
irreparable damage to the trade secret, confidential or proprietary status of Company Information and to the Company. Therefore, in that event the Company shall be entitled to an injunction prohibiting the Executive from any
such disclosure, attempted disclosure, violation or threatened violation. When Company Information becomes generally available to the public other than by the Executive’s acts or omissions, it is no longer subject to the
restrictions in this paragraph.
|
(i) |
Notice regarding trade secrets. Under certain conditions, the Defend Trade Secrets Act of 2016 (Public Law No. 114-153, Section 7) provides immunity from liability for certain disclosures of trade secrets, in confidence or
under seal, to the government or in connection with a court proceeding, when related to suspected violations of law raised in good faith. (18 U.S.C. § 1833).
|
(c) |
To further ensure the protection of Company Information, the Executive agrees that for a period of two (2) years after [his/her] Termination Date, [he/she] will not accept employment in any form (including entering into
consulting relationships or similar arrangements) with a business which: (i) competes directly or indirectly with [any of the Company’s businesses (applies to
corporate executives)] [the Executive’s business unit (includes current and past business units)]; or (ii) is a material customer of or a material supplier to [any of the Company’s businesses] [the Executive’s business unit], unless the Executive has obtained the written consent of the Executive
Vice President & Chief Human Resources Officer or [his/her] successor, which consent
shall be granted or withheld in his sole discretion. The Executive acknowledges that the ELG RSU Award vested and distributed pursuant to this Agreement constitutes full and adequate consideration for the Executive’s
obligations set forth in this paragraph (4)(d). The parties agree that the terms of this paragraph are reasonable. However, if any portion of this paragraph is held by competent authority to be unenforceable, this paragraph
shall be deemed amended to limit its scope to the broadest scope that such authority determines is enforceable, and as so amended shall continue in effect.
|
(d) |
For a period of two (2) years following the Termination Date, the Executive will not initiate, cause or allow to be initiated (under those conditions which [he/she] controls) any action which would reasonably be expected to encourage or to induce any employee of the Company or any of its affiliated entities to
leave the employ of the Company or its affiliated entities. In this regard, the Executive agrees that [he/she] will not directly or indirectly recruit any Company executive or
other employee or provide any information or make referrals to personnel recruitment agencies or other third parties in connection with Company executives and other employees.
|
(e) |
The Executive acknowledges that the Intellectual Property Agreement between [him/her] and the Company will continue in full force and effect following the
Termination Date.
|
5. |
The Company represents to the Executive that it is fully authorized and empowered to enter into this Agreement, and that it will safeguard this Agreement and its terms from public disclosure with
the same degree of care with which the Company protects its proprietary information.
|
6. |
The Executive will not disclose or allow to be disclosed any of the terms or conditions of this Agreement. The Executive agrees not to make duplicate copies of this Agreement, provided, however, [he/she] may retain a copy of the Agreement; and provided further, that [he/she] may disclose this Agreement to [his/her] spouse,
attorney, financial advisor and the preparer of [his/her] tax returns. Further, the Executive may, if necessary, advise a new employer of [his/her] obligations
hereunder.
|
7. |
The obligations of the parties hereto are severable and divisible. In the event any provision hereunder is determined to be illegal or unenforceable, the remainder of this Agreement shall
continue in full force and effect.
|
8. |
In addition to any other rights the Company may have, should the Executive breach any of the terms of this Agreement, the Company will have the right to recover the value realized from the ELG RSU
Award and any other benefits provided hereunder, the amount of such recovery to be determined relative to the damages caused by the breach. Such action by the Company will not be taken capriciously and will have no effect on
the Release and Waiver contained in this Agreement.
|
9. |
Any dispute arising between the Company and the Executive with respect to the validity, performance or interpretation of this Agreement shall be submitted to and determined in binding arbitration
in Hartford, Connecticut, for resolution in accordance with the rules of the American Arbitration Association, modified to provide that the decision by the arbitrator shall be binding on the parties; shall be furnished in
writing, separately and specifically stating the findings of fact and conclusions of law on which the decision is based; shall be kept confidential by the arbitrator and the parties; and shall be rendered within 60 days
following empanelment of the arbitrator. Costs of the arbitration shall be borne by the party that does not prevail. The arbitrator shall be selected in accordance with the rules of the American Arbitration Association.
|
10. |
This Agreement shall be subject to and governed by the laws of the State of Connecticut, USA, excluding its conflict of laws rules.
|
11. |
This Agreement constitutes the entire agreement between the parties and supersedes all previous communications between the parties with respect to the subject matter of this Agreement. No
amendment to this Agreement shall be binding upon either party unless in writing and signed by or on behalf of such party.
|
12. |
Any notice under this agreement shall be in writing and addressed to the Executive at [his/her] home address of record at the Company and to the Company as
follows:
|
United Technologies Corporation
|
|
10 Farm Springs Road
|
|
Farmington, CT 06032
|
|
Attention: Executive Vice President &
|
|
Chief Human Resources Officer
|
13. |
The Executive, or [his/her] estate, shall be responsible for any and all tax liability imposed on amounts paid hereunder. The Company reserves the right to
withhold applicable taxes from any amounts paid pursuant to this Agreement to the extent required by law.
|
14. |
Capitalized terms in this Agreement, not otherwise defined herein, are defined in the ELG Program materials, Schedule of Terms applicable to this ELG RSU Award, or the UTC Long Term Incentive
Plan, as amended and restated.
|
15. |
If and to the extent any payment or benefit provided herein is determined to be deferred compensation within the meaning of Section 409A, such payment or benefit will provided in a manner that
complies with Section 409A.
|
16. |
The effective date of this Agreement shall be seven (7) days from the date in which the Agreement is signed and dated by the Executive, provided the Executive has not revoked acceptance in accordance with Paragraph 3(i)
above. If the Agreement is not dated by the Executive, the effective day of the Agreement shall be seven (7) calendar days after receipt of the Agreement by the Company, provided the Executive has not revoked acceptance in
accordance with Paragraph 3(i) above.
|
17. |
The Executive states that [he/she] has read this Agreement, including the Release and Waiver contained herein, fully understands its content and effect, and
without duress or coercion, knowingly and voluntarily assents to its terms.
|
By:
|
By:
|
|||
[Name]
|
[Name of Executive]
|
|||
Executive Vice President and
Chief Human Resources Officer
|
Date:
|
Date:
|
Article I INTRODUCTION AND PURPOSE
|
1
|
||
1.01
|
Purpose of Plan
|
1
|
|
1.02
|
Impact of Spin-off from UTC
|
1
|
|
1.03
|
Effective Date of Plan
|
2
|
|
Article II DEFINITIONS
|
2
|
||
Article III ELIGIBLE COMPENSATION
|
6
|
||
3.01
|
Annual Retainer
|
6
|
|
3.02
|
Annual Deferred Stock Unit Award
|
6
|
|
3.03
|
Transferred New Director Restricted Stock Unit Award
|
7
|
|
3.04
|
Duplication of Benefits
|
7
|
|
Article IV ACCOUNTS AND CREDITS
|
7
|
||
4.01
|
Annual Deferred Stock Unit Award
|
7
|
|
4.02
|
Elective Annual Retainer
|
7
|
|
4.03
|
Transferred New Director Restricted Stock Unit Award
|
8
|
|
4.04
|
Accounts
|
8
|
|
4.05
|
Deferred Stock Unit Accounts
|
9
|
|
4.06
|
Hypothetical Nature of Accounts and Investments
|
10
|
|
Article V ELECTION PROCEDURES AND DISTRIBUTIONS
|
11
|
||
5.01
|
Annual Retainer Deferral Election
|
11
|
|
5.02
|
Annual Retainer Deferral Election Deadline
|
11
|
|
5.03
|
Distribution Commencement Date
|
11
|
|
5.04
|
Election of Form and Amount of Distribution
|
12
|
|
5.05
|
Change in Distribution Election
|
13
|
|
Article VI ADMINISTRATION
|
14
|
||
6.01
|
In General
|
14
|
|
6.02
|
Plan Amendment and Termination
|
14
|
|
6.03
|
Reports to Participants
|
15
|
|
6.04
|
Delegation of Authority
|
15
|
|
6.05
|
Distribution of Shares
|
15
|
Article VII MISCELLANEOUS
|
16
|
||
7.01
|
Rights Not Assignable
|
16
|
|
7.02
|
Certain Rights Reserved
|
16
|
|
7.03
|
Withholding Taxes
|
16
|
|
7.04
|
Compliance with Section 409A
|
16
|
|
7.05
|
Incompetence
|
17
|
|
7.06
|
Inability to Locate Participants and Beneficiaries
|
17
|
|
7.07
|
Successors
|
17
|
|
7.08
|
Usage
|
18
|
|
7.09
|
Severability
|
18
|
|
7.10
|
Share Ownership Requirements
|
18
|
|
7.11
|
Governing Law
|
19
|
APPENDIX A |
Carrier Global Corporation Board of Directors Deferred Stock Unit Prior Plan (the “Prior Carrier Plan”)
|
CARRIER GLOBAL CORPORATION
|
|||
By:
|
|||
Attest:
|
|||
Date:
|
Article I INTRODUCTION
|
A-1
|
||
1.01
|
Purpose of Plan
|
A-1
|
|
1.02
|
Effective Date of Plan
|
A-1
|
|
Article II DEFINITIONS
|
A-1
|
||
Article III CREDITS
|
A-2
|
||
3.01
|
Transition Credits
|
A-2
|
|
3.02
|
Automatic Credits
|
A-3
|
|
3.03
|
Elective Credits
|
A-3
|
|
Article IV ACCOUNTS AND INVESTMENTS
|
A-3
|
||
4.01
|
Accounts
|
A-3
|
|
4.02
|
Stock Units
|
A-4
|
|
4.03
|
Hypothetical Nature of Accounts and Investments
|
A-5
|
|
Article V PAYMENTS
|
A-5
|
||
5.01
|
Entitlement to Payment
|
A-5
|
|
5.02
|
Payment Commencement Date
|
A-5
|
|
5.03
|
Form and Amount of Payment
|
A-6
|
|
Article VI ADMINISTRATION
|
A-7
|
||
6.01
|
In General
|
A-7
|
|
6.02
|
Plan Amendment and Termination
|
A-7
|
|
6.03
|
Reports to Participants
|
A-7
|
|
6.04
|
Delegation of Authority
|
A-7
|
|
Article VII MISCELLANEOUS
|
A-8
|
||
7.01
|
Rights Not Assignable
|
A-8
|
|
7.02
|
Certain Rights Reserved
|
A-8
|
|
7.03
|
Withholding Taxes
|
A-8
|
|
7.04
|
Incompetence
|
A-8
|
|
7.05
|
Inability to Locate Participants and Beneficiaries
|
A-9
|
|
7.06
|
Successors
|
A-9
|
|
7.07
|
Usage
|
A-9
|
|
7.08
|
Severability
|
A-9
|
|
7.09
|
Governing Law
|
A-10
|
UNITED TECHNOLOGIES
CORPORATION
|
|||
By:
|
|||
Attest:
|
|||
Date:
|
1. |
DEFINITIONS
|
1.1 |
Award
|
1.2 |
Disability
|
1.3 |
Eligible Individuals
|
1.4 |
Grant Date
|
1.5 |
Qualified Stock Units
|
1.6 |
Restricted Period
|
1.7 |
Restricted Stock Units
|
2. |
ELIGIBILITY
|
2.1 |
Subject to Sections 2.2, 2.3 and 2.4 below, any French Participant on the Grant Date shall be eligible to receive Awards under this Sub-Plan; provided that such
Eligible Individual is (i) employed under the terms and conditions of an employment contract (“contrat de travail”) with a French
Entity or (ii) a Corporate Officer having a management function in the French Entity, as specified under the French Commercial Code (“Managing Corporate Officer”).
|
2.2 |
Notwithstanding any other provision of the Plan, Restricted Stock Units granted under this Sub-Plan shall not be awarded to any Eligible Individual who is holding
Shares representing ten percent (10%) or more of the Corporation’s capital at the date of the award or who may hold Shares representing ten percent (10%) or more of the Corporation’s capital due to the award of Restricted Stock Units.
|
2.3 |
Notwithstanding any other provision of the Plan, Restricted Stock Units can only be granted to Managing Corporate Officers (mandataires sociaux) under this Sub-Plan; provided that the following conditions are met:
|
• |
Restricted Stock Units or stock-options are granted in the conditions of the French Commercial Code to at least ninety percent (90%) of the employees of the
Corporation’s entities in France; or
|
• |
A profit sharing agreement (i.e., French “accord d’intéressement” as defined in Article L.3312-2 of the French Labour Code, “accord de participation dérogatoire” as defined in Article L.3324-2 of the same Code or “accord
de participation volontaire” as defined in Article L.3323-6 of the same Code) benefiting to at least ninety percent (90%) of the employees of the Corporation’s entities in France is in place.
|
2.4 |
Notwithstanding any other provision of the Plan, Awards may not be granted to corporate officers of a French Entity, other than Managing Corporate Officers, unless
the officer is employed under the terms and conditions of an employment contract (“contrat de travail”) with a French Entity and is
otherwise eligible to receive Awards under the Plan.
|
3. |
SETTLEMENT OF AWARDS
|
4. |
DIVIDEND EQUIVALENTS
|
5. |
MINIMUM PERIOD BEFORE WHICH THE TRANSFER OF PROPERTY OF SHARES CAN OCCUR
|
5.1 |
Notwithstanding any other provision of the Plan, the Restricted Stock Units granted pursuant to this Sub-Plan shall not vest and the Shares underlying the Awards
shall not be transferred to French Participants before the first (1st) anniversary of the Grant Date, except in the event of death as described below in Section 9.
|
5.2 |
In the event a French Participant terminates employment with the Corporation or the French Entity before the first (1st) anniversary of the Grant Date for any
reason other than death, his or her Restricted Stock Units shall be forfeited and he or she shall have no right to claim for compensation for the loss of his or her Restricted Stock Units and for not being issued and allotted the
underlying Shares.
|
6. |
SALE RESTRICTION PERIOD
|
6.1 |
Notwithstanding any other provisions of the Plan, and in the event the Awards vest and the Shares are transferred to the French Participant before the second (2nd)
anniversary of the Grant Date, the Shares issued pursuant to such Award shall be subject to a restriction on sale or transfer until the second (2nd) anniversary of the Grant Date, except in any event provided for under French law as an
exception to this minimum time period before which the Shares cannot be sold, and notably in the event of Disability and death as described below in Sections 8 and 9.
|
6.2 |
Notwithstanding any other provision of the Plan, for Restricted Stock Units granted to Corporate Officers of the Corporation under this Sub-Plan, if any, the Board
or the Committee shall, in the applicable Award Agreement, either:
|
• |
specify that the Shares underlying the Award granted cannot be disposed of before the end of the Corporate Officer status of the Participant; or
|
• |
determine a minimum quantity of Shares that the Participant shall hold until the end of his or her Corporate Officer status.
|
7. |
SPECIFIC CLOSED PERIODS DURING WHICH THE SHARES CANNOT BE DISPOSED OF
|
8. |
DISABILITY
|
9. |
TRANSFER TO HEIRS
|
10. |
EXCHANGE OF SHARES DURING THE SALE RESTRICTION PERIOD
|
11. |
DEFINITIVE DELIVERY OF THE SHARES
|
12. |
VOLUNTARY DEFERRAL OF THE AWARD
|
13. |
LIMITATION ON THE GRANT OF RESTRICTED STOCK AWARDS
|
14. |
ADJUSTMENTS AND CHANGE IN CORPORATE STRUCTURE
|
(i) |
in cases that would be authorized or rendered compulsory under French law; and
|
(ii) |
in the event of operations performed on the share capital of the Company before the delivery of the Shares, in which cases, the Committee is authorized to adjust
the number of Shares to be delivered but only in order to protect the rights of the Participant and to guarantee the neutrality of such operations.
|
15. |
INTERPRETATION
|
16. |
TAX TREATMENT
|
17. |
NO RIGHT TO EMPLOYMENT
|
18. |
PERIOD DURING WHICH FRENCH QUALIFIED RESTRICTED STOCK UNITS CAN BE GRANTED
|
19. |
PARTICIPANT ACCOUNT
|
20. |
NON-TRANSFERABILITY OF THE AWARD
|
21. |
SEVERABILITY
|
22. |
EFFECTIVE DATE
|
Carrier
13995 Pasteur Boulevard
Palm Beach Gardens, FL 33410
|
![]() |
•
|
Two home finding trips for a total of 10 days, for you and one individual
|
•
|
Reimbursement of actual costs of your interim living expenses for up to 60 days or until you move into your new home, whichever occurs first. You also have the option to receive a lump sum cash allowance in lieu of the interim living
expense reimbursement. The cash allowance is based on 60 days at the government lodging rate in your move destination.
|
•
|
UTC will reimburse certain en-route expenses, such as airfare, from the departure location to the destination location incurred by you and your family members
|
•
|
Shipment of household goods and storage for up to 60 days, if needed
|
/s/ Timothy R. McLevish
|
9/6/2019
|
|
Timothy McLevish
|
Date
|
Subsidiary
|
State or Country of Incorporation
or Organization
|
|
Carrier Corporation
|
Delaware
|
|
Chubb Group Ltd. | UK | |
Chubb Ltd.
|
UK
|
|
Goodrich Aftermarket Services Ltd. |
UK |
|
Goodrich Inertial Ltd.
|
UK
|
|
Jada Holdings BV
|
Netherlands
|
|
Kidde UK
|
UK
|
|
Kidde US Holdings Inc.
|
Delaware
|
|
Sebec Holdings Corporation
|
Canada
|
|
Silver Lake Holdings S.a.r.l.
|
Luxembourg
|
|
United Technologies Far East Ltd.
|
Hong Kong
|
|
UTC (US) LLC
|
Delaware
|
|
UTC Fire & Security Americas Corporation, Inc.
|
Delaware
|
|
UTC Fire & Security Corporation
|
Delaware
|
|
UTC Fire & Security Luxembourg S.a.r.l.
|
Luxembourg
|
|
Exhibit 99.1
[ ], 2020
Dear United Technologies Shareowner:
In November 2018, we announced our plan to separate United Technologies Corporation (UTC) into three independent, publicly traded companies: (1) UTC, a preeminent aerospace company comprised of the Collins Aerospace and Pratt & Whitney businesses; (2) Carrier Global Corporation (Carrier), a leading global provider of heating, ventilating and air conditioning (HVAC), refrigeration, fire and security solutions; and (3) Otis Worldwide Corporation (Otis), the worlds largest elevator and escalator manufacturing, installation and service company. The separation will occur through two spin-offs, pursuant to which we will distribute to UTC shareowners all of the outstanding shares of common stock of Carrier and Otis.
In June 2019, we also entered into a merger agreement with Raytheon Company (Raytheon) pursuant to which the UTC aerospace businesses and Raytheon will combine in a merger of equals. Following the completion of the spin-offs of Otis and Carrier and the Raytheon merger, UTCs common stock will remain outstanding and UTC will be renamed Raytheon Technologies Corporation.
I encourage you to read the attached information statement, which describes the Carrier spin-off in detail and contains important business and financial information about Carrier. The Carrier spin-off is expected to create an industry-leading, independent public company with a distinct product and solutions portfolio and corporate strategy. Carrier will have a strong financial profile and greater focus and enhanced operational agility, which will enable Carrier to more effectively pursue its own strategic goals and capture opportunities in its industries. As an independent company, Carrier will be better positioned to allocate resources and deploy capital consistent with its growth priorities.
For U.S. federal income tax purposes, the Carrier spin-off is intended to be generally tax-free to UTC shareowners. No vote of UTC shareowners is required for the distribution of Carrier shares in the Carrier spin-off.
UTC is making available a separate information statement that will help you understand the Otis spin-off and how it will affect your post-separation ownership in UTC and Otis.
We believe the separation provides tremendous opportunities for our businesses as we work to continue to build long-term value. We appreciate your continuing support of UTC and look forward to your future support of Carrier.
Sincerely,
[ ]
Gregory J. Hayes
Chairman and Chief Executive Officer
United Technologies Corporation
[ ], 2020
Dear Future Carrier Shareowner:
I am excited to welcome you as a future shareowner of Carrier Global Corporation (Carrier).
Carrier is a leading global provider of heating, ventilating and air conditioning (HVAC); refrigeration; fire and security solutions. Our company is built on a legacy of innovation, beginning with its founders—Willis Carrier, who designed the worlds first modern air conditioning system; Robert Edwards, who patented the first electric alarm bell; and Walter Kidde, who produced the first integrated smoke detection and carbon dioxide extinguishing system for use onboard ships. Supported by the iconic Carrier name, the companys portfolio of industry-leading brands includes Carrier, Automated Logic, Carrier Transicold, Edwards, GST, Kidde, LenelS2 and Marioff. Carriers businesses enable modern life by promoting smarter, safer, more efficient and more sustainable buildings and infrastructure across a wide range of residential, commercial and industrial applications.
As an independent, publicly traded company, we believe we will be attractively positioned to:
• | Drive growth in existing markets through continued innovation; |
• | Invest in attractive geographies; |
• | Develop advanced technologies to further expand our services and aftermarket business; |
• | Strategically optimize our portfolio of products and services; and |
• | Focus on cost-effective performance excellence. |
Carriers spirit of innovation continues today with our core mission of focusing on developing smart, sustainable and efficient solutions to meet the complex challenges resulting from the mega-trends of urbanization, climate change and food security driven by our growing global population, rising standards of living and increasing energy and environmental regulation. With over 200 new products released over the last two years, our comprehensive range of products and services and our industry-leading brands reputations for quality and innovation make us a supplier and business partner of choice.
With our legacy and focus, we believe the vision for Carriers future is clear. We intend to deliver unparalleled value for our customers, working faster and smarter, enabling us to succeed in partnership with them. We intend to continue to attract and retain the best talent, treat our people with respect and dignity and embrace best-in-class ethical and sustainability standards. We will also maintain an unrelenting focus on strategies and actions that we believe will drive sustained value for our shareowners.
We invite you to learn more about Carrier by reviewing the enclosed information statement. As we prepare to become an independent, publicly traded company, we look forward to a successful future building upon our rich heritage and strong fundamentals.
Sincerely,
[ ]
David Gitlin
President and Chief Executive Officer
Carrier Global Corporation
Information contained herein is subject to completion or amendment. A Registration Statement on Form 10 relating to these securities has been filed with the United States Securities and Exchange Commission under the United States Securities Exchange Act of 1934, as amended.
Preliminary and Subject to Completion, Dated February 7, 2020
INFORMATION STATEMENT
CARRIER GLOBAL CORPORATION
This information statement is being furnished in connection with the spin-off by United Technologies Corporation (UTC) of its wholly owned subsidiary, Carrier Global Corporation (Carrier). To implement the spin-off of Carrier from UTC, UTC currently plans to distribute all of the shares of Carrier common stock on a pro rata basis to UTC shareowners in a distribution that is intended to qualify as generally tax-free to UTC shareowners for U.S. federal income tax purposes.
For every share of common stock of UTC held of record by you as of the close of business on [ ], 2020, which is the record date for the distribution, you will receive one share of Carrier common stock. You will receive cash in lieu of any fractional shares of Carrier common stock that you would have received after application of the above ratio. As discussed under The Separation and Distribution—Trading Between the Record Date and Distribution Date, if you sell your shares of UTC common stock in the regular-way market after the record date and on or before the distribution date, you also will be selling your right to receive shares of Carrier common stock in connection with the distribution. We expect the shares of Carrier common stock to be distributed by UTC to you at 12:01 a.m., Eastern Time, on [ ], 2020. We refer to the distribution of Carrier common stock as the distribution and the date of the distribution as the distribution date.
In June 2019, UTC and Raytheon Company (Raytheon) entered into an Agreement and Plan of Merger (the Raytheon merger agreement), which provides for the combination of the UTC Aerospace Businesses (as defined below) and Raytheon in a merger of equals transaction with Raytheon surviving as a wholly owned subsidiary of UTC. The Raytheon merger is conditioned on, among other things, the consummation of the distribution. However, the distribution is not conditioned on the consummation of the Raytheon merger and, accordingly, the distribution may occur even if the Raytheon merger agreement is terminated or the Raytheon merger will otherwise not be consummated. For more information, see Certain Relationships and Related Party Transactions—Raytheon Merger Agreement.
Until the separation occurs, Carrier will continue to be a wholly owned subsidiary of UTC. Consequently, subject to UTCs agreement to consummate the distribution pursuant to, and subject to the terms and conditions of, the Raytheon merger agreement, UTC will have the sole and absolute discretion to determine and change the terms of the separation (or to terminate the separation), including the establishment of the record date for the distribution and the distribution date, as well as to modify the number of outstanding shares of common stock of Carrier that it will retain, if any, following the distribution.
UTC shareowners are not required to vote on the distribution. Therefore, you are not being asked for a proxy and you are not required to send a proxy to UTC. You do not need to pay any consideration, exchange or surrender your existing shares of UTC common stock or take any other action to receive your shares of Carrier common stock. Separately, a vote of UTC shareowners is required to approve the issuance of UTC common stock to holders of Raytheon common stock in connection with the Raytheon merger. UTC has separately made available to UTC shareowners a registration statement on Form S-4 and a joint proxy statement/prospectus in connection with the vote and the issuance of shares of UTC common stock in the Raytheon merger.
There is no current trading market for Carrier common stock, although we expect that a limited market, commonly known as a when-issued trading market, will develop on or shortly before the record date for the distribution, and we expect regular-way trading of Carrier common stock to begin on the first trading day after the distribution is completed. For more information regarding the trading of Carrier common stock, see The Separation and Distribution—Trading Between the Record Date and Distribution Date. Carrier intends to list its common stock on the New York Stock Exchange (NYSE) under the symbol CARR. Following the distribution, UTC will continue to trade on the NYSE under the symbol UTX; however, if the Raytheon merger is completed, UTC will change its name to Raytheon Technologies Corporation and trade on the NYSE under the symbol RTX.
In reviewing this information statement, you should carefully consider the matters described under Risk Factors.
Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined if this information statement is truthful or complete. Any representation to the contrary is a criminal offense.
This information statement does not constitute an offer to sell or the solicitation of an offer to buy any securities.
The date of this information statement is [ ], 2020.
This information statement was first made available to UTC shareowners on or about [ ], 2020
TABLE OF CONTENTS
Page |
|||
Presentation of Information
Unless the context otherwise requires:
• | The information included in this information statement about Carrier, including the audited historical combined financial statements of Carrier, which primarily comprise the assets and liabilities of UTC’s heating, ventilating and air conditioning (HVAC), refrigeration, fire and security solutions businesses, assumes the completion of all of the transactions referred to in this information statement in connection with the separation and distribution. |
• | References in this information statement to Carrier, we, us, our, our company and the company refer to Carrier Global Corporation, a Delaware corporation, and its subsidiaries. |
• | References in this information statement to Otis refer to Otis Worldwide Corporation, a Delaware corporation, and its subsidiaries. |
• | References in this information statement to UTC refer to United Technologies Corporation, a Delaware corporation, and its consolidated subsidiaries, including the Carrier Business and the Otis Business, prior to completion of the separation, unless the context otherwise requires or unless otherwise specified. |
• | References in this information statement to the Carrier Business refer to UTC’s Carrier operating segment, covering HVAC, refrigeration, fire and security solutions. |
i
• | References in this information statement to the Otis Business refer to UTC’s Otis operating segment, covering elevator and escalator manufacturing, installation and service businesses. |
• | References in this information statement to the UTC Aerospace Businesses refer to both UTC’s Pratt & Whitney operating segment, which supplies aircraft engines and aftermarket services for the commercial, military, business jet and general aviation markets, and its Collins Aerospace Systems segment, which provides technologically advanced aerospace products and aftermarket service solutions for aircraft manufacturers, airlines, regional, business and general aviation markets, military, space and undersea operations. |
• | References in this information statement to the separation refer to the separation of the Carrier Business and the Otis Business from UTC’s other businesses and the creation, as a result of the distributions, of an independent, publicly traded company, Carrier, and an independent, publicly traded company, Otis, to hold the assets and liabilities associated with the Carrier Business, and the assets and liabilities associated with the Otis Business, respectively, after the distributions. |
• | References in this information statement to the distribution or the Carrier distribution refer to the distribution of all of Carrier’s issued and outstanding shares of common stock to UTC shareowners as of the close of business on the record date for the distribution (which we refer to as the record date). |
• | References in this information statement to the Otis distribution refer to the distribution of all of Otis’ issued and outstanding shares of common stock to UTC shareowners as of the close of business on the record date for such distribution. |
• | References in this information statement to the distributions refer to, collectively, the Carrier distribution and the Otis distribution. |
• | References in this information statement to Carrier’s per share data assume a distribution ratio of one share of Carrier common stock for every share of UTC common stock. |
• | References in this information statement to Carrier’s historical assets, liabilities, products, businesses or activities generally refer to the historical assets, liabilities, products, businesses or activities of the Carrier Business as the business was conducted as part of UTC prior to the separation. |
• | References in this information statement to the IRS ruling refer to the private letter ruling from the Internal Revenue Service (which we refer to as the IRS) regarding certain U.S. federal income tax matters relating to the separation and the distribution. |
• | References in this information statement to separation agreement refer to the Separation and Distribution Agreement that UTC, Carrier and Otis will enter into to effect the separation and provide a framework for the relationship among UTC, Carrier and Otis after the separation. |
• | References in this information statement to the Raytheon merger agreement refer to the Agreement and Plan of Merger, dated as of June 9, 2019, by and among UTC, Light Merger Sub Corp. (Merger Sub), a wholly owned subsidiary of UTC, and Raytheon, which provides for, among other things and subject to the satisfaction or waiver of specified conditions, the combination of the UTC Aerospace Businesses and Raytheon in a merger of equals transaction through the merger of Merger Sub with and into Raytheon (the Raytheon merger), with Raytheon surviving the Raytheon merger as a wholly owned subsidiary of UTC. |
Trademarks and Trade Names
Among the trademarks that Carrier and its subsidiaries own or have rights to use that appear in this information statement are the names Automated Logic, Autronica, Bryant, Carrier, Carrier Commercial Refrigeration, Carrier Transicold, CIAT, Chubb, Day & Night, Det-Tronics, Edwards, Fireye, GST, Heil, Kidde, Interlogix, LenelS2, Marioff, NORESCO, Onity, Riello, Sensitech and Supra. Carrier 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 and its subsidiaries. Names, abbreviations of names, logos and product and service designators of other companies are either the registered or unregistered trademarks or trade names of their respective owners.
ii
Industry Information
Unless indicated otherwise, the information concerning the industries in which Carrier participates contained in this information statement is based on Carriers general knowledge of and expectations concerning the industry. Carriers position, share and industry size are based on estimates using publicly available information, Carriers internal data and estimates, based on data from various industry analyses, our internal research and adjustments and assumptions that we believe to be reasonable. Carrier has not independently verified data from publicly available information or industry analyses and cannot guarantee their accuracy or completeness. In addition, Carrier believes that data regarding the industry, share and its position within such industry provide general guidance but are inherently imprecise. Further, Carriers estimates and assumptions involve risks and uncertainties and are subject to change based on various factors, including those discussed in the Risk Factors section. These and other factors could cause results to differ materially from those expressed in the estimates and assumptions.
iii
QUESTIONS AND ANSWERS ABOUT THE SEPARATION AND DISTRIBUTION
What are Carrier and Otis, and why is UTC separating the Carrier Business and the Otis Business and distributing Carrier and Otis common stock?
|
Carrier and Otis, which are currently wholly owned subsidiaries of UTC, were formed to own and operate UTC’s Carrier Business and Otis Business, respectively. The separation of Carrier and Otis from UTC is intended, among other things, to better position the management of each of Carrier and Otis to pursue opportunities for long-term growth and profitability unique to each company’s business and to allow each business to more effectively implement its own distinct capital structure and capital allocation strategies. UTC expects that the separation will result in enhanced long-term performance of each of Carrier and Otis for the reasons discussed in The Separation and Distribution—Reasons for the Separation.
|
|
|
|
|
|
This document relates only to the Carrier distribution.
|
|
|
|
|
Why am I receiving this document?
|
UTC is making this document available to you because you are a holder of shares of UTC common stock. If you are a holder of shares of UTC common stock as of the close of business on [ ], 2020, the record date, you will be entitled to receive one share of Carrier common stock for every share of UTC common stock that you hold as of the record date. This document will help you understand how the separation and distribution will affect your post-separation ownership in UTC and Carrier.
|
|
|
|
|
|
UTC is making available a separate information statement that will help you understand the Otis distribution and how it will affect your post-separation ownership in UTC and Otis. UTC has also separately made available to UTC shareowners a registration statement on Form S-4 and a joint proxy statement/prospectus in connection with the issuance of UTC common stock to holders of Raytheon common stock in the Raytheon merger and the vote of UTC shareowners to approve such issuance.
|
|
|
|
|
How will the separation of Carrier and Otis from UTC work?
|
As part of the separation, and prior to completion of the Carrier distribution or the Otis distribution, UTC and its subsidiaries expect to complete an internal reorganization (which we refer to as the internal reorganization) in order to transfer the Carrier Business to Carrier, and the Otis Business to Otis. To accomplish the separation, UTC will distribute all of the outstanding shares of Carrier common stock to UTC shareowners, and will separately distribute all of the outstanding shares of Otis common stock to UTC shareowners, in each case on a pro rata basis in distributions intended to be generally tax-free for U.S. federal income tax purposes. Following the separation, the number of shares of UTC common stock you own will not change as a result of the separation.
|
|
|
|
|
What is the record date for the distribution?
|
The record date will be [ ], 2020.
|
|
|
|
|
When will the distribution occur?
|
We expect that all of the outstanding shares of Carrier common stock will be distributed by UTC at 12:01 a.m., Eastern Time, on [ ], 2020, to holders of record of shares of UTC common stock at the close of business on [ ], 2020, the record date. We currently
|
1
|
expect the Otis distribution to occur on or around the date of the Carrier distribution, unless otherwise determined by the UTC Board of Directors in its sole and absolute discretion, but subject to UTCs agreement to consummate each of the Carrier distribution and the Otis distribution as required pursuant to, and subject to the terms and conditions of, the Raytheon merger agreement. There is no assurance that the Carrier distribution and the Otis distribution will occur on or around the same date or that either distribution will occur at all.
|
|
|
|
|
What do shareowners need to do to participate in the distribution?
|
Shareowners of UTC as of the record date will not be required to take any action to receive Carrier common stock in the distribution, but you are urged to read this entire information statement carefully. No shareowner approval of the distribution is required. You are not being asked for a proxy. You do not need to pay any consideration, exchange or surrender your existing shares of UTC common stock or take any other action to receive your shares of Carrier common stock. Please do not send in your UTC stock certificates. The distribution will not affect the number of outstanding shares of UTC common stock or any rights of UTC shareowners, although, as described under Will the Carrier distribution and the Otis distribution affect the market price of my UTC common stock?, it will affect the market price of each outstanding share of UTC common stock.
|
|
|
|
|
How will shares of Carrier common stock be issued?
|
You will receive shares of Carrier common stock through the same channels that you currently use to hold or trade shares of UTC common stock, whether through a brokerage account, 401(k) plan or other channel. Receipt of Carrier shares will be documented for you in the same manner that you typically receive shareowner updates, such as monthly broker statements and 401(k) statements.
|
|
|
|
|
|
If you own shares of UTC common stock as of the close of business on the record date, including shares held in certificated form, UTC, with the assistance of Computershare Trust Company, N.A., the distribution agent (Computershare), will electronically distribute shares of Carrier common stock to you or to your brokerage firm on your behalf in book-entry form. Computershare will mail you a book-entry account statement that reflects your shares of Carrier common stock, or your bank or brokerage firm will credit your account for the shares.
|
|
|
|
|
How many shares of Carrier common stock will I receive in the distribution?
|
UTC will distribute to you on the distribution date one share of Carrier common stock for every share of UTC common stock held by you as of close of business on the record date. Based on approximately [ ] shares of UTC common stock outstanding as of [ ], 2020, a total of approximately [ ] shares of Carrier common stock will be distributed to UTC’s shareowners. For additional information on the distribution, see The Separation and Distribution.
|
|
|
|
|
Will Carrier issue fractional shares of its common stock in the distribution?
|
No. Carrier will not issue fractional shares of its common stock in the distribution. Fractional shares that UTC shareowners would otherwise have been entitled to receive will be aggregated and sold in the public market by the distribution agent. The net cash proceeds of these sales will be distributed pro rata (based on the fractional share such holder would otherwise be entitled to receive) to those shareowners who would
|
2
|
otherwise have been entitled to receive fractional shares. Recipients of cash in lieu of fractional shares will not be entitled to any interest on the amounts paid in lieu of fractional shares.
|
|
|
|
|
What are the conditions to the distribution?
|
The distribution is subject to the satisfaction (or waiver by UTC in its sole and absolute discretion) of the following conditions, subject to UTC’s agreement to consummate the Carrier distribution pursuant to, and subject to the terms and conditions of, the Raytheon merger agreement:
|
|
|
|
|
|
•
|
the U.S. Securities and Exchange Commission (the SEC) declaring effective the registration statement of which this information statement forms a part and such registration statement not being the subject of any stop order or any legal, administrative, arbitral or other action, suit, investigation, proceeding, indictment or litigation by the SEC seeking a stop order;
|
|
|
|
|
•
|
this information statement having been made available to UTC shareowners;
|
|
|
|
|
•
|
(1) the IRS ruling regarding certain U.S. federal income tax matters relating to the separation and distribution received by UTC continuing to be valid and satisfactory to the UTC Board of Directors and (2) the receipt by UTC and continued validity of an opinion of outside counsel, satisfactory to the UTC Board of Directors, regarding the qualification of certain elements of the distribution under Section 355 of the Internal Revenue Code of 1986, as amended (the Code);
|
|
|
|
|
•
|
the internal reorganization having been completed and the transfer of assets and liabilities of the Carrier Business from UTC and its affiliates to Carrier and its affiliates and the Otis Business from UTC and its affiliates to Otis and its affiliates, and the transfer of assets and liabilities of the UTC Aerospace Businesses from Carrier and its affiliates and Otis and its affiliates to UTC and its affiliates (other than Carrier, Otis and their respective affiliates), as set forth in the separation agreement, having been completed in all material respects;
|
|
|
|
|
•
|
the receipt by the UTC Board of Directors of one or more opinions (which have not been withdrawn or adversely modified) in customary form from one or more nationally recognized valuation or accounting firms or investment banks as to (1) the adequacy of surplus under Delaware law with respect to Carrier to effect the distribution from Carrier to UTC of certain proceeds from the financing arrangements described under Description of Material Indebtedness prior to the effective time of the distribution, and with respect to UTC to effect the distribution, and (2) the solvency of each of UTC and Carrier after the completion of the distribution;
|
|
|
|
|
•
|
all actions or filings necessary or appropriate under applicable U.S. federal, state or other securities or blue sky laws and the rules and regulations thereunder having been taken and, where applicable,
|
3
|
|
having become effective or been accepted by the applicable governmental entity;
|
|
|
|
|
•
|
the execution of the transition services agreement, the tax matters agreement, the employee matters agreement and the intellectual property agreement contemplated by the separation agreement;
|
|
|
|
|
•
|
no governmental entity of competent jurisdiction having issued or entered any injunction or other decree, order, judgment, writ, stipulation, award or temporary restraining order, and no applicable law having been enacted or promulgated, in each case that (whether temporary or permanent) has the effect of enjoining or otherwise prohibiting the consummation of the separation, the distribution or any of the related transactions;
|
|
|
|
|
•
|
the shares of Carrier common stock to be distributed having been approved for listing on the NYSE, subject to official notice of distribution;
|
|
|
|
|
•
|
UTC having received certain proceeds from the financing arrangements described under Description of Material Indebtedness and being satisfied in its sole and absolute discretion that it will have no liability under such arrangements as of the effective time of the distribution; and
|
|
|
|
|
•
|
no other event or development existing or having occurred that, in the judgment of UTC’s Board of Directors, in its sole and absolute discretion, makes it inadvisable to effect the separation, the distribution and the other related transactions.
|
|
|
|
|
UTC and Carrier cannot assure you that any or all of these conditions will be met, or that the distribution will be consummated even if all of the conditions are met. UTC can decline at any time to go forward with the Carrier distribution. However, under the Raytheon merger agreement, UTC has agreed with Raytheon that, subject to the terms and conditions of the Raytheon merger agreement, UTC will consummate the separation and each of the Carrier distribution and the Otis distribution. In addition, the completion of the separation and each of the Carrier distribution and the Otis distribution is a condition to the Raytheon merger under the Raytheon merger agreement. Accordingly, the Raytheon merger will not be completed unless and until the separation and each of the Carrier distribution and the Otis distribution are completed.
|
|
|
|
|
|
The completion of the Raytheon merger is not a condition to the completion of the Carrier distribution and the Otis distribution. Therefore, UTC may complete the Carrier distribution even if the conditions to the Raytheon merger under the Raytheon merger agreement have not been satisfied or waived, the Raytheon merger agreement has been terminated or the Raytheon merger will otherwise not be consummated. Additionally, UTC may still go forward with the Carrier distribution even if the Otis distribution does not occur or may go forward with the Otis distribution even if the Carrier distribution does not occur.
|
4
|
For a complete discussion of all of the conditions to the distribution, see The Separation and Distribution—Conditions to the Distribution.
|
|
|
|
|
When is the separation expected to be completed?
|
The completion and timing of the separation are dependent upon a number of conditions. We expect that the shares of Carrier common stock will be distributed by UTC at 12:01 a.m., Eastern Time, on [ ], 2020, to the holders of record of shares of UTC common stock at the close of business on [ ], 2020, the record date. We currently expect the Otis distribution to occur on or around the date of the Carrier distribution, unless otherwise determined by the UTC Board of Directors in its sole and absolute discretion, but subject to UTC’s agreement to consummate each of the Carrier distribution and the Otis distribution as required pursuant to, and subject to the terms and conditions of, the Raytheon merger agreement. There is no assurance that the Carrier distribution and the Otis distribution will occur on or around the same date or that either distribution will occur at all.
|
|
|
|
|
Can UTC decide to cancel the distribution even if all the conditions have been met?
|
Yes. Until the distribution has occurred, the UTC Board of Directors has the right to terminate the distribution, even if all of the conditions are satisfied, subject to UTC’s agreement to consummate the distribution pursuant to, and subject to the terms and conditions of, the Raytheon merger agreement.
|
|
|
|
|
What if I want to sell my UTC common stock or my Carrier common stock?
|
You should consult with your financial advisors, such as your broker, bank or tax advisor. If you sell your shares of UTC common stock in the regular-way market after the record date and on or before the distribution date, you will also be selling your right to receive shares of Carrier common stock in connection with the distribution.
|
|
|
|
|
What is regular-way and ex-distribution trading of UTC common stock?
|
Beginning on or shortly before the record date and continuing up to and through the distribution date, we expect that there will be two markets in UTC common stock: a regular-way market and an ex-distribution market. UTC common stock that trades in the regular-way market will trade with an entitlement to receive shares of Carrier common stock pursuant to the distribution. Shares that trade in the ex-distribution market will trade without an entitlement to receive Carrier common stock pursuant to the distribution. If you decide to sell any shares of UTC common stock before the distribution date, you should make sure your broker, bank or other nominee understands whether you want to sell your UTC common stock with or without your entitlement to Carrier common stock pursuant to the distribution. For more information regarding the trading of Carrier common stock, see The Separation and Distribution—Trading Between the Record Date and Distribution Date.
|
|
|
|
|
Where will I be able to trade shares of Carrier common stock?
|
Carrier intends to list its common stock on the NYSE under the symbol CARR. Carrier expects that trading in shares of its common stock will begin on a when-issued basis on or shortly before the record date and will continue up to and through the distribution date, and that regular-way trading in Carrier common stock will begin on the first trading day after the distribution is completed. If trading begins on a when-issued basis, you may purchase or sell Carrier common stock up to and through the distribution date, but your transaction will not settle until after the distribution date. For more information regarding the trading of Carrier common stock, see The Separation and
|
5
|
Distribution—Trading Between the Record Date and Distribution Date. Carrier cannot predict the trading prices for its common stock before, on or after the distribution date.
|
|
|
|
|
What will happen to the listing of UTC common stock?
|
UTC common stock will continue to trade on the NYSE after the distribution. If the Raytheon merger is completed, the symbol under which UTC common stock trades on the NYSE will change from UTX to RTX effective upon the completion of the Raytheon merger.
|
|
|
|
|
Will the number of shares of UTC common stock that I own change as a result of the distribution?
|
No. The number of shares of UTC common stock that you own will not change as a result of the distribution.
|
|
|
|
|
Will the Carrier distribution and the Otis distribution affect the market price of my UTC common stock?
|
Yes. As a result of the Carrier distribution and the Otis distribution, it is expected that the trading price of shares of UTC common stock immediately following the Carrier distribution and the Otis distribution will be different from the regular-way trading price of such shares immediately prior to the distributions because the trading price will no longer reflect the value of the Carrier Business and the Otis Business. There can be no assurance whether the aggregate market value of the UTC common stock, the Carrier common stock and the Otis common stock following the distributions will be the same as or higher or lower than the market value of UTC common stock had the distributions not occurred. This means, for example, that the combined trading prices after the Carrier distribution and the Otis distribution of one share of Carrier common stock, the number of shares of Otis common stock to be distributed per share of UTC common stock in the Otis distribution and one share of UTC common stock, may be equal to, greater than or less than the trading price of one share of UTC common stock before the distributions.
|
|
|
|
|
What are the material U.S. federal income tax consequences of the separation and the distribution?
|
The distribution is conditioned on (1) the IRS ruling regarding certain U.S. federal income tax matters relating to the separation and distribution received by UTC remaining valid and satisfactory to the UTC Board of Directors and (2) the receipt by UTC and continued validity of an opinion of outside counsel, satisfactory to the UTC Board of Directors, regarding the qualification of certain elements of the distribution under Section 355 of the Code. Accordingly, it is expected that you will not recognize any gain or loss, and no amount will be included in your income, upon your receipt of Carrier common stock pursuant to the distribution for U.S. federal income tax purposes. You will, however, recognize gain or loss for U.S. federal income tax purposes with respect to cash received in lieu of a fractional share of Carrier common stock. You should consult your own tax advisor as to the particular consequences of the distribution to you, including the applicability and effect of any U.S. federal, state and local tax laws, as well as foreign tax laws. For more information regarding the material U.S. federal income tax consequences of the distribution, see Material U.S. Federal Income Tax Consequences.
|
|
|
|
|
What will Carrier’s relationship be with UTC and Otis following the separation?
|
After the separation, UTC, Carrier and Otis will be separate companies with separate management teams and separate boards of directors. Carrier will enter into a separation agreement with UTC and Otis to
|
6
|
effect the separation and to provide a framework for the relationship among UTC, Carrier and Otis after the separation, and will enter into certain other agreements, including a transition services agreement, a tax matters agreement, an employee matters agreement and an intellectual property agreement. These agreements will allocate among Carrier, Otis and UTC the assets, employees, liabilities and obligations (including, among others, investments, property and employee benefits and tax-related assets and liabilities) of UTC and its subsidiaries attributable to periods prior to, at and after the separation, provide for certain services to be delivered on a transitional basis and govern the relationship among Carrier, Otis and UTC following the separation. These agreements will not be impacted by the completion of the Raytheon merger. For additional information regarding the separation agreement and other transaction agreements, see Risk Factors—Risks Related to the Distribution and Certain Relationships and Related Party Transactions.
|
|
|
|
|
Who will manage Carrier after the separation?
|
Carrier will benefit from an experienced management team. Led by David Gitlin, who will be Carrier’s President and Chief Executive Officer, and John V. Faraci, who will be Carrier’s Executive Chairman, Carrier’s management team will have extensive experience driving growth in businesses across multiple industries. For more information regarding Carrier’s directors and management, see Directors and Management.
|
|
|
|
|
Are there risks associated with owning Carrier common stock?
|
Yes. Ownership of Carrier common stock is subject to both general and specific risks relating to Carrier’s business, the industry in which it operates, its ongoing contractual relationships with UTC and Otis and its status as a separate, publicly traded company. Ownership of Carrier common stock is also subject to risks relating to the separation. Certain of these risks are described in the Risk Factors section of this information statement. We encourage you to read that section carefully.
|
|
|
|
|
Does Carrier plan to pay dividends?
|
Following the distribution, we expect that Carrier will initially pay a cash dividend on a quarterly basis at an aggregate annual rate of approximately $550 million. However, the timing, declaration, amount of, and payment of any dividends will be within the discretion of Carrier’s Board of Directors and will depend upon many factors, including our financial condition, earnings, capital requirements of our operating subsidiaries, covenants associated with certain of our debt service obligations, legal requirements, regulatory constraints, industry practice, ability to access capital markets, and other factors deemed relevant by Carrier’s Board of Directors. Moreover, if as expected we determine to initially pay a dividend following the distribution, there can be no assurance that we will continue to pay dividends in the same amounts or at all thereafter. See Dividend Policy.
|
|
|
|
|
Will Carrier incur any debt prior to or at the time of the distribution?
|
Yes. Carrier expects to complete one or more financing transactions before the distribution is completed, with approximately $10.7 billion of the proceeds of such financings expected to be used to distribute cash to UTC. As a result of such transactions, Carrier anticipates having approximately $11.1 billion of outstanding indebtedness upon completion of the distribution. On the distribution date, Carrier anticipates that the debt will consist of a combination of long-term notes and bank term
|
7
|
loans. The amount of indebtedness incurred by Carrier and the amount of cash distributed by Carrier may be adjusted by UTC as described elsewhere in this information statement. See Description of Material Indebtedness and Risk Factors.
|
|
|
|
|
Who will be the distribution agent for the distribution and transfer agent and registrar for Carrier common stock?
|
The distribution agent, transfer agent and registrar for the Carrier common stock will be Computershare. For questions relating to the transfer or mechanics of the stock distribution, you should contact Computershare toll-free at (866) 507-8028 or from outside the U.S. at (781) 575-3345.
|
|
|
|
|
Where can I find more information about UTC and Carrier?
|
Before the distribution, if you have any questions relating to UTC or UTC’s business performance, you should contact:
|
|
|
|
|
|
United Technologies Corporation
10 Farm Springs Road Farmington, CT 06032 Attention: Investor Relations Department Phone: (860) 728-7608 Email: InvRelations@corphq.utc.com |
|
|
|
|
|
After the distribution, Carrier shareowners who have any questions relating to Carrier or Carrier’s business performance should contact Carrier at:
|
|
|
|
|
|
Carrier Global Corporation
13995 Pasteur Boulevard Palm Beach Gardens, FL 33418 Attention: Investor Relations Department |
|
|
|
|
|
Carrier’s investor relations website (www.corporate.carrier.com/investors) will be operational on or around [ ], 2020. The Carrier website and the information contained therein or connected thereto are not incorporated into this information statement or the registration statement of which this information statement forms a part, or in any other filings with, or any information furnished or submitted to, the SEC.
|
8
The following is a summary of selected information discussed in this information statement. This summary may not contain all of the details concerning the separation or other information that may be important to you. To better understand the separation and our business and financial position, you should carefully review this entire information statement. Unless the context otherwise requires, the information included in this information statement about Carrier, including the combined financial statements, assumes the completion of all of the transactions referred to in this information statement in connection with the separation and distribution, including the Otis distribution. Unless the context otherwise requires, or when otherwise specified, references in this information statement to Carrier, we, us, our, our company and the company refer to Carrier Global Corporation, a Delaware corporation, and its subsidiaries. Unless the context otherwise requires, references in this information statement to UTC refer to United Technologies Corporation, a Delaware corporation, and its consolidated subsidiaries, including the Carrier Business and the Otis Business prior to completion of the separation.
Unless the context otherwise requires, or when otherwise specified, references in this information statement to our historical assets, liabilities, products, businesses or activities of our businesses are generally intended to refer to the historical assets, liabilities, products, businesses or activities of the Carrier Business of UTC as it was conducted as part of UTC prior to the separation.
Our Company
Carrier is a leading global provider of HVAC, refrigeration, fire and security solutions. Our innovative solutions promote smarter, safer and more sustainable buildings and infrastructure, and help to effectively preserve the freshness, quality and safety of perishables across a wide variety of industries. Our comprehensive range of products and services, reputation for quality and innovation and our industry-leading brands make us a trusted provider for our customers critical applications in the construction, transportation, security, food retail, pharmaceutical and other industries.
Our company is built on a legacy of innovation, beginning with its founders—Willis Carrier, who designed the worlds first modern air conditioning system; Robert Edwards, who patented the first electric alarm bell; and Walter Kidde, who produced the first integrated smoke detection and carbon dioxide extinguishing system for use onboard ships. This culture of innovation supports our core strategy of developing smart, sustainable and efficient solutions to meet the complex challenges resulting from the mega-trends of urbanization, climate change and increasing requirements for food safety driven by the food needs of our growing global population, rising standards of living and increasing energy and environmental regulation. The iconic Carrier brand, with its reputation for innovation and quality, is complemented by our other strong brands, including Automated Logic, Carrier Transicold, Edwards, GST, Kidde, LenelS2 and Marioff.
We believe that growth in our businesses is supported by favorable secular trends, including the mega-trends discussed above, which underpin growth across our HVAC, Refrigeration and Fire & Security businesses. We also believe that we are well positioned to benefit from these long-term trends as a result of the strength of our industry-leading brands and track record of innovation.
We have an extensive global footprint with approximately 53,000 employees globally, including approximately 3,600 engineers, and our solutions are sold in over 160 countries around the world. We sell our products and services directly to end customers and indirectly through distributors, independent sales representatives, wholesalers, dealers, other channel partners and retail outlets.
For the year ended December 31, 2019, our net sales were approximately $18.6 billion, and our operating profit was approximately $2.5 billion. Our net sales for the year ended December 31, 2019 were derived from the Americas (55 percent), Europe-Middle East (30 percent) and Asia-Pacific (15 percent). Our international operations, including U.S. export sales, represented approximately 52 percent of our net sales for the year ended December 31, 2019. During the same period, new equipment and service and aftermarket contributed 72 percent and 28 percent, respectively, of our net sales excluding inter-segment eliminations.
9
1 | Excluding inter-segment eliminations. |
Our Segments
Our company is organized into three business segments—HVAC; Refrigeration; and Fire & Security, which, for the year ended December 31, 2019, contributed 51 percent, 20 percent and 29 percent, respectively, of our net sales excluding inter-segment eliminations, and 56 percent, 19 percent and 25 percent, respectively, of our operating profit excluding inter-segment eliminations and general corporate expenses.
HVAC. Our HVAC segment provides products, controls, services and solutions to meet the heating and cooling needs of residential and commercial customers, while enhancing building performance, energy efficiency and sustainability. Through an industry-leading family of brands, including Automated Logic, Bryant, Carrier, CIAT, Day & Night, Heil, NORESCO and Riello, we offer an innovative and complete product portfolio, including air conditioners, heating systems, controls and aftermarket components, as well as aftermarket repair and maintenance services and building automation solutions. Our broad product portfolio offers numerous solutions for our residential and commercial customers.
Refrigeration. Our Refrigeration segment is comprised of transport refrigeration and commercial refrigeration products and solutions. Our transport refrigeration products and services include refrigeration and monitoring systems for trucks, trailers, shipping containers, intermodal and rail. Our transport refrigeration products and cold chain monitoring solutions enable the safe, reliable transport of food and beverages, medical supplies and other perishable cargo. Our commercial refrigeration equipment solutions incorporate next-generation technologies to preserve freshness, ensure safety and enhance the appearance of retail food and beverage. Our Sensitech business provides targeted solutions and services for supply chain visibility—addressing quality and compliance, security and logistics performance management. Our Refrigeration segment includes our Carrier Commercial Refrigeration, Carrier Transicold and Sensitech brands.
Fire & Security. Our fire and security products encompass a wide range of residential and building systems, including fire, flame, gas, smoke and carbon monoxide detection; portable fire extinguishers; fire suppression systems, intruder alarms; access control systems and video management systems; and electronic controls. In addition, our fire and security service offerings include audit, design, installation and system integration, as well as aftermarket maintenance, repair and monitoring services. We sell fire detection and suppression technologies to protect a variety of premises, including homes, commercial buildings and industrial sites. Our security solutions range from advanced physical security solutions, including access control, video surveillance, key management systems, electronic locks and mobile credentialing for a variety of commercial applications, such as corporate, healthcare, government, hospitality, education, real estate, property management, industrial and automotive, to intrusion monitoring and life-safety solutions for the residential market. Our technology includes web-based and mobile applications enhanced by cloud-based services. Our Fire & Security brands include Autronica, Chubb, Det-Tronics, Edwards, Fireye, GST, Interlogix, Kidde, LenelS2, Marioff, Onity and Supra.
10
Our Strengths
We believe that Carrier is differentiated by our industry-leading portfolio of iconic brands, comprehensive product and service offerings and reputation for innovation and quality, which make us a trusted provider to our customers across a wide range of growing markets and channels for commercial and residential building, industrial and smart cold chain applications. Our competitive strengths include:
Portfolio of iconic brands and leading segment positions. Our iconic and enduring brands are among the most recognized in their respective industries. Individually, many of our brands are leaders within their respective segments, and we believe that, collectively, they represent a uniquely positioned portfolio of trusted assets that, together with our ability to provide comprehensive, state-of-the-art solutions, make us a supplier and business partner of choice.
Extensive and diversified portfolio of solutions, industries and customers. We have a comprehensive and diverse set of products and services in many industries. While many of our products and brands are leaders in their respective industries, our business model is not dependent on any single product, brand, industry or customer. Our products solve different problems for a diverse set of customers in a range of applications and locations, while benefiting from our fundamental operational strategies and focus on innovation. The diversity of our product and service offerings better qualifies us to be a supplier of choice for a comprehensive range of solutions, while mitigating potential short-term headwinds in particular locations, applications or industries.
Global scale and presence in developing and growth markets. We believe that our global scale and comprehensive offering of products and services provide us with advantages over other providers with respect to design, manufacturing, sourcing, sales and marketing. Our understanding of local conditions, regulations and customer needs helps position us to focus on attractive verticals and geographies and respond more rapidly to changing regulatory requirements. This knowledge also enables us to take learnings, technologies and products developed for one region or customer and apply them to others, driving further growth and creating value for our stakeholders. Many of the geographical, product or service markets in which we currently operate, including China, India, Vietnam and other developing countries in Southeast Asia, are experiencing long-term sustained growth. These countries have high growth potential due to increasing demand for our products and services from currently low penetration rates, rising living standards and consumption, and increasing regulatory emphasis on safety, energy efficiency and the environment. Our global scale, presence and extensive distribution network create opportunities for targeted geographic expansion of our product and service offerings, allow us to serve a diversified customer base and provide exposure to short- and long-cycle end markets.
Strong, long-term distribution relationships. We have long-term relationships with an extensive network of channel partners that uniquely position us to meet customers demands across the industries and geographies we serve. In many instances, these relationships have been forged over decades of selling HVAC, refrigeration, fire and security products to provide tailored solutions for a variety of customers and applications. We also have a number of joint venture arrangements and strategic relationships with our channel partners that align our respective incentives and facilitate our collective ability to win new business. We believe that we share a trust, relationship and mutual respect with our channel partners that is unmatched in our industry. These deep relationships are the product of decades of effort, extensive personal connections and a long history of dedicated performance and satisfied expectations. The strength of our relationships with our channel partners, our channel partners relationships with end users and, the breadth of our distribution network, provide us with an important competitive advantage and help make Carrier a provider of choice even when we do not sell directly to the end user.
Proven track record of innovation with focus on world mega-trends. We have a strong history of innovation across all of our segments and our current priorities include solutions to address the challenges presented by the mega-trends of urbanization, climate change and the food needs of our growing global population. Since 2014, we have grown our engineering team globally by approximately 20 percent to approximately 3,600 engineers. We hold approximately 7,000 active patents and/or pending patent applications worldwide to protect our research and development (R&D) investments in new products and services. In the last two years, we introduced over 200 new products. Our recent innovations include a suite of digital HVAC solutions that improve on-demand customer engagement, as well as visibility into system performance and remote management; combining carbon dioxide as a natural refrigerant with energy-efficient technology to reduce the carbon footprint of marine container refrigeration applications; and the first multi-criteria smoke detector to receive the UL 268 (7th edition) Standard for Safety of Smoke Detectors and Fire Alarm Systems certification.
11
Innovation in our product portfolio is a strong driver of continued growth as customers increasingly value energy efficiency, sustainability and digitally-connected building systems. These factors are an important aspect of customers buying decisions and serve as key differentiators for Carrier.
Sizable service and aftermarket business drives growth. By virtue of our global scale and market tenure, we have one of the largest installed bases in many of the industries we serve, which enables us to drive recurring revenue streams from the sale of repair and maintenance services, parts, components, and end of lifecycle product replacements that are required for installed products. Our sales of other value added recurring and non-recurring services provide additional revenue streams over and above sales derived from our equipment business. In 2019, approximately 28 percent of our net sales were generated by service and aftermarket.
Attractive financial profile underpinned by strong margins and operating cash flow. We benefit from attractive margins and a track record of strong cash flow generation. Over the past two years, our operating margins have consistently been over 13 percent, a level maintained through the reputational strength of our brands and our culture of operational efficiency. We also benefit from the low capital intensity of our businesses, which has contributed to our track record of generating strong operating cash flow. Over the past two years, our capital expenditures averaged approximately 1.3 percent of net sales and we generated a cumulative $4.1 billion of operating cash flow.
Experienced management team and skilled workforce. Our strategy is driven by an experienced global leadership team and implemented by skilled operating teams with approximately 53,000 employees worldwide, including approximately 3,600 engineers. Our global workforce, of which approximately 80 percent is located outside the United States, reflects our deep regional knowledge and enables us to maintain close relationships with our customers. Our leadership team includes executives who have deep industry expertise, as well as executives who have extensive experience driving growth and operational excellence across different businesses. This combination of collective industry experience and strong leadership supports our ability to successfully implement our business strategies.
Our Strategies
We intend to continue to grow by serving our diverse industries, geographies and customer bases with a broad range of solutions to address the complex challenges resulting from global mega-trends and by innovating ahead of regulatory requirements. Our key strategies include both a sustained focus on growth opportunities as well as a commitment to establishing a best-in-class cost structure as a stand-alone company, encompassing the following elements:
Focus on growth
Drive organic growth in existing served markets through technology and innovation. We plan to maintain our proven track record of innovation by leveraging our culture dedicated to designing smarter, more connected and more sustainable environments; our industry-leading brands; and our long-term relationships with channel partners and customers to provide solutions tailored for growing verticals and applications in the markets we serve. For example, in HVAC, through enhanced engagement with enterprise account owners and operators in key vertical segments, we are utilizing our broad building system offerings to provide innovative, intelligent building solutions to address our customers needs for energy efficiency, safety, security and an improved occupant experience. Our R&D efforts are focused on growing our products and services across our segments—we continue to invest in innovation and intend to continue to work closely with our distribution partners to offer best-in-class products and solutions that anticipate customer needs related to refrigerants, efficiency, emissions, noise levels and safety. As customer demands for more sustainable and connected equipment continue to evolve, our ability to innovate and provide cutting-edge products and technologies is key to our continued success and ability to grow our businesses. Our innovation efforts are supported by R&D investments, which were approximately 2.2 percent of net sales in 2019.
Invest for growth in attractive geographies. We believe that we are well positioned to expand our product, service and aftermarket offerings in a number of attractive geographies that have significant potential for substantial growth. Long-term growth opportunities in these geographies are supported by durable global mega-trends. We plan to leverage the scale of our global operations, the strength of our iconic brands and our proven track record in creating valuable partnerships to focus on targeted expansion into new locations and channels where we believe that we can drive profitable growth. We also continue to strengthen our long-term
12
relationships with channel partners to ensure global market coverage and a superior level of customer service. We believe our understanding of local conditions, regulations and customer needs helps position us to focus on attractive geographies and to move more quickly to meet rapidly changing regulatory requirements.
Expand in higher value-added services and aftermarket. Products make up the majority of our sales today. Our product sales, including installations, are more than two-thirds of total sales and will continue to be the foundation of the business going forward. However, as service and aftermarket offerings evolve in the industry to include more highly sophisticated digital and as-a-service models enabled by data and analytics, we will pursue targeted opportunities for growth, leveraging our smart, connected products and our broad technological expertise across building systems. In addition, we plan to utilize digital technologies to enhance our internal operations and enable seamless transactions with customers across the customer experience and equipment lifecycles (for example, by providing customers visibility from order through delivery).
Strategically optimize product, technology and geographic portfolio to enhance growth. We intend to seek opportunities to optimize our portfolio of products and services to allocate resources toward profitable growth, and to selectively pursue strategic partnerships, mergers, acquisitions and divestitures that will enhance our core business, complement our existing array of brands, products and services, and leverage our global scale and scope.
Leading Cost Structure
Focus on cost-effective performance. As a stand-alone public company, we plan to continue to foster operational, financial and commercial excellence, to drive sales and earnings growth while maintaining an attractive cost structure, through Carriers longstanding way of doing business. With roots in our legacy manufacturing and business process excellence, the Carrier operating system is based on lean principles and a highly competitive cost structure that leverages low-cost manufacturing and R&D resources to drive end-to-end supply chain excellence. In connection with our focus on cost-effective performance, we launched a strategic cost reduction initiative in 2019 with the goal of reducing cumulative supply chain, factory and general administrative costs by up to $600 million in the aggregate by the end of 2022.
Summary of Risk Factors
An investment in our company is subject to a number of risks, including risks relating to our business, risks related to the distribution and risks related to our common stock. Set forth below is a high-level summary of some, but not all, of these risks. For a more thorough description of these risks, please read the information in Risk Factors included elsewhere in this information statement.
Risks Related to Our Business
• | Our international operations subject us to risk as our results of operations may be adversely affected by changes in local and regional economic conditions, such as fluctuations in exchange rates, risks associated with government policies on international trade and investments, including import quotas, capital controls, punitive taxes or tariffs or similar trade barriers, and risks associated with emerging markets; |
• | We are party to joint ventures and other strategic relationships, which may not be successful and may expose us to special risks and restrictions; |
• | Global climate change and related regulations could negatively affect our business; |
• | Cooler than normal summers or warmer than normal winters may depress our sales; |
• | Natural disasters or other unexpected events may disrupt our operations, adversely affect our results of operations and financial condition, and may not be covered by insurance; |
• | Information security, data privacy and identity protection may require significant resources and present certain risks to our business, reputation and financial condition; |
• | Our business and financial performance depend on continued substantial investment in information technology infrastructure, which may not yield anticipated benefits, and may be adversely affected by cyber-attacks on information technology infrastructure and products and other business disruptions; |
13
• | We may be affected by global economic, capital market and political conditions in general, and conditions in the construction, transportation and infrastructure industries in particular; |
• | We use a variety of raw materials, supplier-provided parts, components, subcomponents and third-party service providers in our business, and significant shortages, supplier capacity constraints, supplier production disruptions, price increases, trade disruptions or tariffs could increase our operating costs and adversely impact the competitive positions of our products; |
• | We design, manufacture and service products that incorporate advanced technologies. The introduction of new products and technologies involves risks, and we may not realize the degree or timing of benefits initially anticipated; |
• | We operate in a competitive environment and our profitability depends on our ability to accurately estimate the costs and timing of providing our products and services; |
• | Customers and others may take disruptive actions; |
• | Labor matters may impact our business; |
• | Our defined benefit pension plans are subject to financial market risks that could adversely affect our results; |
• | We may not realize expected benefits from our cost reduction and restructuring efforts, and our profitability may be hurt or our business otherwise might be adversely affected; |
• | Additional tax expense or additional tax exposures could affect our future profitability; |
• | We depend on our intellectual property, and have access to certain intellectual property and information of our customers and suppliers; infringement or failure to protect our intellectual property could adversely affect our future growth and success; |
• | Failure to achieve and maintain a high level of product and service quality could damage our reputation with customers and negatively impact our results; |
• | We are subject to litigation, environmental, product safety and other legal and compliance risks; |
• | We engage in acquisitions and divestitures, and may encounter difficulties integrating acquired businesses with, or disposing of businesses from, our current operations; therefore, we may not realize the anticipated benefits of these acquisitions and divestitures; |
• | We may be required to recognize impairment charges for our goodwill and certain other intangible assets; |
• | We may need additional financing in the future to meet our capital needs or to make opportunistic acquisitions, and such financing may not be available on favorable terms, if at all, and may be dilutive to existing shareowners; and |
• | Failure to maintain a satisfactory credit rating could adversely affect our liquidity, capital position, borrowing costs and access to capital markets. |
Risks Related to the Distribution
• | We have no recent history of operating as an independent company, and our historical and pro forma financial information is not necessarily indicative of the results that we would have achieved as a separate, publicly traded company and may not be a reliable indicator of our future results; |
• | Following the distribution, our financial profile will change and we will be a smaller, less diversified company than UTC prior to the distribution; |
• | We may not achieve some or all of the expected benefits of the separation and distribution, and the separation and distribution may materially adversely affect our business; |
• | UTC’s plan to separate into three independent, publicly traded companies is subject to various risks and uncertainties and may not be completed in accordance with the expected plans or anticipated timeline, or at all, and will involve significant time and expense, which could disrupt or adversely affect our business; |
14
• | The combined market value following the Carrier distribution and the Otis distribution of one share of Carrier common stock, the number of shares of Otis common stock to be distributed per share of UTC common stock in the Otis distribution and one share of UTC common stock may not equal or exceed the pre-distribution value of one share of UTC common stock; |
• | We expect to incur both one-time and ongoing material costs as a result of the separation, which could adversely affect our profitability; |
• | In connection with the distribution, we expect to incur debt obligations, and we may incur additional debt obligations in the future, which could adversely affect our business and profitability and our ability to meet other obligations; |
• | After the separation, certain members of management, directors and shareowners may own stock in UTC, Carrier and Otis, and as a result may face actual or potential conflicts of interest; |
• | We could experience temporary interruptions in business operations and incur additional costs as we further develop information technology infrastructure and transition our data to our stand-alone systems; |
• | We may not be able to engage in desirable capital-raising or strategic transactions following the separation; |
• | In connection with the separation into three independent public companies, each of UTC, Carrier and Otis will indemnify the other parties for certain liabilities. If we are required to pay under these indemnities to UTC and/or Otis, our financial results could be negatively impacted. Also, the UTC or Otis indemnities may not be sufficient to hold us harmless from the full amount of liabilities for which UTC and Otis will be allocated responsibility, and UTC and/or Otis may not be able to satisfy their respective indemnification obligations in the future; |
• | UTC or Otis may fail to perform under various transaction agreements that will be executed as part of the separation, or we may fail to have the necessary systems and services in place when the transition services agreement expires; |
• | The terms we will receive in our agreements with UTC or Otis could be less beneficial than the terms we may have otherwise received from unaffiliated third parties; |
• | If the distribution, together with certain related transactions, were to fail to qualify as a transaction that is generally tax-free for U.S. federal income tax purposes, including as a result of subsequent acquisitions of our stock or the stock of UTC (including pursuant to the Raytheon merger), we, as well as UTC, Otis and UTC’s shareowners, could be subject to significant tax liabilities. In addition, if certain internal restructuring transactions were to fail to qualify as transactions that are generally tax-free for U.S. federal or non-U.S. income tax purposes, we, as well as UTC and Otis, could be subject to significant tax liabilities. In certain circumstances, we could be required to indemnify UTC for material taxes and other related amounts pursuant to indemnification obligations under the tax matters agreement; |
• | The transfer to us by UTC or Otis of certain contracts, permits and other assets and rights may require the consents or approvals of, or provide other rights to, third parties and governmental authorities. If such consents or approvals are not obtained, we may not be entitled to the benefit of such contracts, permits and other assets and rights, which could increase our expenses or otherwise harm our business and financial performance; |
• | Until the distribution occurs, the UTC Board of Directors may change the terms of the separation in ways that may be unfavorable to us; |
• | No vote of UTC shareowners is required in connection with the distribution. As a result, if the distribution occurs and you do not want to receive our common stock in the distribution, your sole recourse will be to divest yourself of your UTC common stock prior to the record date or in the regular-way trading market during the period prior to the distribution; |
• | Failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could materially and adversely affect us; |
15
• | The allocation of intellectual property rights among us, UTC and Otis as part of the separation could adversely impact our competitive position and our ability to develop and commercialize certain future products and services; and |
• | Potential liabilities may arise due to fraudulent transfer considerations, which would adversely affect our financial condition and results of operations. |
Risks Related to Our Common Stock
• | We cannot be certain that an active trading market for our common stock will develop or will be sustained after the distribution and, following the distribution, our stock price may fluctuate significantly; |
• | A significant number of shares of our common stock may be sold following the distribution, which may cause our stock price to decline; |
• | There may be substantial changes in our shareowner base; |
• | Your percentage of ownership in Carrier may be diluted in the future; |
• | We cannot guarantee the timing, amount or payment of dividends on our common stock; |
• | Anti-takeover provisions could enable our Board of Directors to resist a takeover attempt by a third party and limit the power of our shareowners; and |
• | Our amended and restated bylaws will designate the state courts within the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our shareowners, which could discourage lawsuits against Carrier and our directors and officers. |
The Separation and Distribution
On November 26, 2018, UTC announced its intention to separate the Carrier Business and the Otis Business from the UTC Aerospace Businesses. The separation will occur through pro rata distributions to UTC shareowners of 100 percent of the shares of common stock of Carrier and 100 percent of the shares of common stock of Otis, which were formed to hold UTCs Carrier Business and Otis Business, respectively.
On June 9, 2019, UTC entered into the Raytheon merger agreement, which provides for the combination of the UTC Aerospace Businesses and Raytheon in a merger of equals transaction with Raytheon surviving as a wholly owned subsidiary of UTC. Under the Raytheon merger agreement, UTC has agreed with Raytheon that, subject to the terms and conditions of the Raytheon merger agreement, UTC will consummate the separation and each of the Carrier distribution and the Otis distribution. In addition, the completion of the separation and each of the Carrier distribution and the Otis distribution is a condition to the Raytheon merger under the Raytheon merger agreement. Accordingly, the Raytheon merger will not be completed unless and until the separation and each of the Carrier distribution and the Otis distribution are completed. The completion of the Raytheon merger is not a condition to the completion of the distributions. Therefore, UTC may complete the distribution even if the conditions to the Raytheon merger under the Raytheon merger agreement have not been satisfied or waived, the Raytheon merger agreement has been terminated or the Raytheon merger will otherwise not be consummated. For more information, see Certain Relationships and Related Party Transactions—Raytheon Merger Agreement.
On [ ], 2020, the UTC Board of Directors approved the distribution of all of Carriers issued and outstanding shares of common stock on the basis of one share of Carrier common stock for every share of UTC common stock held as of the close of business on [ ], 2020, the record date. We currently expect the Otis distribution to occur on or around the date of the Carrier distribution, unless otherwise determined by the UTC Board of Directors in its sole and absolute discretion, but subject to UTCs agreement to consummate each of the Carrier distribution and the Otis distribution as required pursuant to, and subject to the terms and conditions of, the Raytheon merger agreement. Though UTC has agreed pursuant to, and subject to the terms and conditions of, the Raytheon merger agreement, that UTC will consummate the separation and each of the Carrier distribution and the Otis distribution, there can be no assurance that the Carrier distribution and the Otis distribution will occur on or around the same date or that either distribution will occur at all. UTC is making available a separate information statement relating to the Otis distribution that contains important additional information regarding the distribution of common stock of Otis.
16
Carriers Post-Separation Relationship with UTC and Otis
After the separation, UTC, Carrier and Otis will each be separate companies with separate management teams and separate boards of directors. Prior to the separation, UTC, Carrier and Otis will enter into the separation agreement. We will also enter into various other agreements to effect the separation and to provide a framework for our relationship with UTC and Otis after the separation, including a transition services agreement, a tax matters agreement, an employee matters agreement and an intellectual property agreement. These agreements will allocate among Carrier, Otis and UTC the assets, liabilities and obligations (including, among others, investments, property and employee benefits and tax-related assets and liabilities) of UTC and its subsidiaries attributable to periods prior to, at and after the separation, provide for certain services to be delivered on a transitional basis and govern the relationship among Carrier, Otis and UTC following the separation. These agreements will not be impacted by the completion of the Raytheon merger. For additional information regarding the separation agreement and other transaction agreements, see Risk Factors—Risks Related to the Distribution and Certain Relationships and Related Party Transactions.
Transfer of Assets and Assumption of Liabilities
The separation agreement will identify the assets to be transferred, the liabilities to be assumed and the contracts to be assigned to each of Carrier, Otis and UTC as part of the separation, and it will provide for when and how these transfers, assumptions and assignments will occur. In particular, the separation agreement will provide, among other things, that subject to the terms and conditions contained therein:
• | certain assets of, or related to, the Carrier Business, referred to as the Carrier Assets, will be transferred to Carrier or one of its subsidiaries. Subject to limited exceptions, assets used or held for use solely or primarily in the Carrier Business will be Carrier Assets; |
• | certain liabilities of, or related to, the Carrier Business, which we refer to as the Carrier Liabilities, will be retained by or transferred to Carrier or one of its subsidiaries. Subject to limited exceptions, liabilities to the extent arising out of or relating to the Carrier Business or a Carrier Asset will be Carrier Liabilities, and liabilities arising out of litigation or other claims (including in respect of environmental or asbestos-related matters) or governmental investigations, sanctions or orders will be Carrier Liabilities to the extent the facts underlying the applicable matter arose out of or relate to the Carrier Business, Carrier Assets or the other Carrier Liabilities; |
• | certain assets of, or related to, the Otis Business, which we refer to as the Otis Assets, will be retained by or transferred to Otis or one of its subsidiaries. Subject to limited exceptions, assets used or held for use solely or primarily in the Otis Business will be Otis Assets; |
• | certain liabilities of, or related to, the Otis Business, which we refer to as the Otis Liabilities, will be retained by or transferred to Otis or one of its subsidiaries. Subject to limited exceptions, liabilities to the extent arising out of or relating to the Otis Business or an Otis Asset will be Otis Liabilities, and liabilities arising out of litigation or other claims (including in respect of environmental or asbestos-related matters) or governmental investigations, sanctions or orders will be Otis Liabilities to the extent the facts underlying the applicable matter arose out of or relate to the Otis Business, Otis Assets or the other Otis Liabilities; and |
• | all assets and liabilities other than the Carrier Assets, the Otis Assets, the Carrier Liabilities and the Otis Liabilities (such assets and liabilities, other than the Carrier Assets and the Otis Assets, and the Carrier Liabilities and the Otis Liabilities, we refer to as the UTC Assets and UTC Liabilities, respectively) will be retained by or transferred to UTC or one of its subsidiaries. |
For additional information regarding the separation agreement and the transfer of assets and assumption of liabilities, see Risk Factors—Risks Related to the Distribution and Certain Relationships and Related Party Transactions.
17
Reasons for the Separation
The UTC Board of Directors believes that the separation of UTC into three independent, publicly traded companies through the separation of its Carrier Business and Otis Business from UTC is in the best interests of UTC and its shareowners for a number of reasons (irrespective of whether or not the Raytheon merger is completed), including:
• | Greater Focus and Enhanced Operational Agility. The separation will permit each company to more effectively focus on pursuing its own distinct operating priorities and strategies for long-term growth and profitability, and will better position the management teams of each company to focus on strengthening its core businesses. Maintaining a sharper focus on its core businesses and growth opportunities will allow each company to respond better and more quickly to developments in its industry and to customer demands. In addition, the separation is expected to enhance operational agility of the separated companies, which will lead to improved operating discipline and help drive better results. |
• | Strong Financial Profile of Each Company on a Stand-alone Basis. Each of UTC, Carrier and Otis has established itself as a global leader with the scale to be both self-sufficient and to sustain investment through economic cycles. In addition, each of the companies is expected to have an investment grade credit rating and strong financial characteristics to independently drive growth and investment. |
• | Separate Capital Structures and Allocation Flexibility. The separation will permit each company to allocate its financial resources to meet the unique needs of its own businesses, which will allow each company to intensify its focus on its distinct strategic priorities and individual business risk and return profiles.The separation will also allow each company to more flexibly pursue its own distinct capital structure, capital allocation strategy and capital return policy. In addition, after the separation, the Carrier Business will no longer need to compete within UTC with the UTC Aerospace Businesses and the Otis Business for capital and other corporate resources. |
• | Creation of Independent Equity Currencies and Increased Strategic Opportunities. The separation will afford Carrier and Otis the ability to offer their independent equity securities to the capital markets and enable each stand-alone business to use its own industry-focused stock to pursue portfolio enhancing acquisitions or other strategic opportunities that are more closely aligned with each company’s strategic goals and expected growth opportunities. |
• | Alignment of Management Incentives with Performance. The separation will allow each company to more effectively recruit, retain and motivate employees through the use of stock-based compensation that more closely reflects and aligns management and employee incentives with specific growth objectives, financial goals and business attributes. Following the separation, recruitment and retention is expected to be enhanced by more consistent talent requirements across the businesses, providing recruiters and applicants with greater clarity and understanding of talent needs and opportunities associated with the core business activities, principles and risks of each company. |
• | Broadening of Investor Base. The separation will allow each company to more effectively articulate a clear investment proposition to attract a long-term investor base suited to its businesses, growth profile and capital allocation priorities, and will facilitate each company’s access to capital by providing investors with three distinct investment opportunities. This is expected to attract shareowners with distinct investment preferences. |
The UTC Board of Directors also considered a number of potentially negative factors in evaluating the separation, including:
• | Risk of Failure to Achieve Anticipated Benefits of the Separation. UTC, Carrier and Otis may not achieve the anticipated benefits of the separation for a variety of reasons, including, among others: the separation will require significant amounts of management’s time and effort, which may divert management’s attention from operating each company’s business; there may be dis-synergy costs related to the separation, including costs of restructuring transactions and other significant costs; and following the separation, each of UTC, Carrier and Otis may be more susceptible to certain economic and market fluctuations, and other adverse events than if Carrier and Otis were still a part of UTC because each business will be less diversified than UTC prior to the separation. |
18
• | Capital Allocation Efficiency and Flexibility. Following the separation, Carrier and Otis may lose capital allocation efficiency and flexibility, as each company will no longer be able to use cash flow from one of UTC’s other businesses to fund its investments and operations. Additionally, as smaller companies, the cost of capital for each company may be higher than UTC’s cost of capital prior to the separation, and each company may not obtain the same credit rating as UTC prior to the separation. |
• | Loss of Scale and Increased Administrative Costs. As part of UTC, Carrier and Otis benefit from UTC’s scale in procuring certain goods and services. After the separation, as stand-alone companies, Carrier and Otis may be unable to obtain these goods, services and technologies at prices or on terms as favorable as those UTC obtained prior to the separation. In addition, as part of UTC, Carrier and Otis benefit from certain functions performed by UTC, such as accounting, auditing, tax, legal, human resources, investor relations, risk management, treasury and other general and administrative functions. After the separation, UTC will not perform these functions for Carrier or Otis (other than certain functions that will be provided for a limited time pursuant to the transition services agreement) and, because of Carrier’s and Otis’ smaller scale as stand-alone companies, the cost of performing such functions could be higher than the amounts reflected in Carrier’s or Otis’ historical financial statements, which would cause profitability to decrease. |
• | Disruptions and Costs Related to the Separation. The actions required to separate Carrier’s, Otis’ and UTC’s respective businesses could disrupt each company’s operations. In addition, Carrier and Otis will incur substantial costs in connection with the separation and the transition to being a stand-alone public company, which may include tax costs associated with the internal restructuring and costs to separate shared systems, accounting, tax, legal and other professional services costs, recruiting and relocation costs associated with hiring key senior management personnel who are new to Carrier and Otis. |
• | Limitations on Strategic Transactions. Under the terms of the tax matters agreement that Carrier and Otis will enter into with UTC, Carrier and Otis will be restricted from taking certain actions that could cause the distribution or certain related transactions (or certain transactions undertaken as part of the internal reorganization) to fail to qualify as tax-free transactions under applicable law. These restrictions may limit for a period of time Carrier’s and Otis’ ability to pursue certain strategic transactions and equity issuances or engage in other transactions that might increase the value of their business. |
• | Uncertainty Regarding Stock Prices. We cannot predict the effect of the Carrier distribution and the Otis distribution on the trading prices of Carrier, Otis or UTC common stock or know with certainty whether the combined market value of one share of Carrier common stock, the number of shares of Otis common stock to be distributed per share of UTC common stock in the Otis distribution and one share of UTC common stock will be less than, equal to or greater than the market value of one share of UTC common stock prior to the distributions. Furthermore, there is the risk of volatility in each company’s stock price following the distributions due to sales by certain shareowners whose investment objectives may not be met by each company’s common stock, and it may take time for each company to attract its optimal shareowner base. |
In determining to pursue the separation, the UTC Board of Directors concluded that the potential benefits of the separation outweighed the foregoing factors. See The Separation and Distribution—Reasons for the Separation and Risk Factors included elsewhere in this information statement.
Corporate Information
Carrier was incorporated in Delaware for the purpose of holding the Carrier Business in connection with the separation and distribution described herein. Prior to the contribution of the Carrier Business to Carrier by UTC, which will occur prior to the distribution, Carrier will have no operations other than those incidental to its formation and the separation. Our principal executive offices are located at 13995 Pasteur Boulevard, Palm Beach Gardens, FL 33418, and our telephone number is (561) 365-2000. We maintain an Internet site at www.carrier.com. Our website and the information contained therein or connected thereto are not incorporated into this information statement or the registration statement of which this information statement forms a part, or in any other filings with, or any information furnished or submitted to, the SEC.
19
Reason for Furnishing this Information Statement
This information statement is being furnished solely to provide information to UTC shareowners who will receive shares of Carrier common stock in the distribution. UTC shareowners are not required to vote on the distribution. Therefore, you are not being asked for a proxy and you are not required to send a proxy to UTC. You do not need to pay any consideration, exchange or surrender your existing shares of UTC common stock or take any other action to receive your shares of Carrier common stock. This information statement is not, and is not to be construed as, an inducement or encouragement to buy or sell any of Carriers securities. The information contained in this information statement is believed by Carrier to be accurate as of the date set forth on its cover. Changes may occur after that date, and neither UTC nor Carrier will update the information except as may be required in the ordinary course of their respective disclosure obligations and practices.
UTC is making available a separate information statement that will help you understand the Otis distribution and how it will affect your post-separation ownership in UTC and Otis. UTC has also separately made available to UTC shareowners a registration statement on Form S-4 and a joint proxy statement/prospectus in connection with the issuance of UTC common stock to holders of Raytheon common stock in the Raytheon merger and the vote of UTC shareowners to approve such issuance.
20
SUMMARY OF SELECTED HISTORICAL AND UNAUDITED PRO FORMA
COMBINED FINANCIAL DATA
The following summary financial data reflect the historical combined operations of Carrier. We derived the summary historical combined statements of operations data for the years ended December 31, 2019, 2018 and 2017, and summary historical combined balance sheet data as of December 31, 2019 and 2018, as set forth below, from Carriers audited historical combined financial statements (which we refer to as the “combined financial statements”), which are included in the “Index to Combined Financial Statements” section of this information statement. The selected historical combined balance sheet data as of December 31, 2017 was derived from our historical audited combined balance sheet not included in this information statement. The selected unaudited historical combined financial data as of, and for each of, the years ended December 31, 2016 and 2015 was derived from our underlying financial records, which were derived from the financial records of UTC. In managements opinion, the unaudited combined financial data has been prepared on substantially the same basis as the audited combined financial statements and include all adjustments, consisting only of ordinary recurring adjustments, necessary for a fair presentation of the selected historical combined financial data for the periods presented. To ensure a full understanding of this summary historical combined financial data, you should read the summary combined financial data presented below in conjunction with “Managements Discussion and Analysis of Financial Condition and Results of Operations” and the combined financial statements and accompanying notes included in the Index to Combined Financial Statements section of this information statement.
The summary historical combined financial data does not necessarily reflect what our results of operations and financial position would have been if we had operated as a separate publicly traded company during the periods presented, including changes that will occur in our operations and capitalization as a result of the separation and distribution. Accordingly, the historical results should not be relied upon as an indicator of our future performance.
The summary unaudited pro forma combined financial data for the year ended December 31, 2019 has been prepared to reflect the separation, including the incurrence of principal indebtedness of an assumed amount equal to approximately $10.7 billion, as described in Description of Material Indebtedness, and the distribution of an assumed amount equal to approximately $10.7 billion of cash to UTC (which amounts of indebtedness incurred and cash distributed may be adjusted by UTC as described elsewhere in this information statement). This indebtedness is expected to consist of a combination of long-term notes and bank term loans. The Unaudited Pro Forma Combined Statement of Operations for the year ended December 31, 2019 assumes the separation occurred on January 1, 2019. The Unaudited Pro Forma Combined Balance Sheet as of December 31, 2019 assumes the separation occurred on December 31, 2019. The pro forma adjustments give effect to amounts that are directly attributable to the separation and distribution, factually supportable and, with respect to the Unaudited Pro Forma Combined Statement of Operations, expected to have a continuing impact on Carrier. The assumptions used and pro forma adjustments derived from such assumptions are based on currently available information and we believe such assumptions are reasonable under the circumstances.
The unaudited pro forma combined financial information is not necessarily indicative of our results of operations or financial condition had the distribution and our anticipated post-separation capital structure been completed on the dates assumed. It may not reflect the results of operations or financial condition that would have resulted had we been operating as an independent, publicly traded company during such period. In addition, it is not necessarily indicative of our future results of operations or financial condition.
You should read this summary financial data together with “Unaudited Pro Forma Combined Financial Information,” “Capitalization,” “Selected Historical Combined Financial Data of Carrier,” “Managements Discussion and Analysis of Financial Condition and Results of Operations” and the combined financial statements and the accompanying notes included in the Index to Combined Financial Statements section of this information statement.
21
Summary of Selected Historical and Unaudited Pro Forma
Combined Financial Data
Pro Forma For the Year ended December 31, |
Years ended December 31, |
|||||||||||||||||
(dollars in millions) |
2019 (Unaudited) |
2019 |
2018 |
2017 |
2016 (Unaudited) |
2015 (Unaudited) |
||||||||||||
Results of Operations Data: |
||||||||||||||||||
Net sales |
$ | 18,608 | $ | 18,608 | $ | 18,914 | $ | 17,814 | $ | 16,853 | $ | 16,709 | ||||||
Research and development |
401 | 401 | 400 | 364 | 351 | 325 | ||||||||||||
Restructuring costs |
126 | 126 | 80 | 111 | 65 | 108 | ||||||||||||
Operating profit(1) |
2,542 | 2,491 | 3,637 | 3,030 | 2,760 | 2,563 | ||||||||||||
Net income(2) (3) |
1,786 | 2,155 | 2,769 | 1,267 | 1,900 | 1,837 | ||||||||||||
Net income attributable to Carrier Global Corporation |
1,747 | 2,116 | 2,734 | 1,227 | 1,854 | 1,782 | ||||||||||||
Capital expenditures |
243 | 243 | 263 | 326 | 340 | 261 |
Pro Forma As of December 31, |
As of December 31, |
|||||||||||||||||
(dollars in millions) |
2019 (Unaudited) |
2019 |
2018 |
2017 |
2016 (Unaudited) |
2015 (Unaudited) |
||||||||||||
Balance Sheet Data: |
||||||||||||||||||
Working capital(4) |
$ | 1,528 | $ | 1,490 | $ | 1,643 | $ | 1,750 | $ | 1,693 | $ | 1,749 | ||||||
Total assets(5) |
22,464 | 22,406 | 21,737 | 21,985 | 20,981 | 20,693 | ||||||||||||
Total liabilities(5) (6) |
18,366 | 7,971 | 7,468 | 7,201 | 5,844 | 5,745 |
(1) | 2019 operating profit includes a charge of $108 million related to the impairment of an equity investment. 2018 operating profit includes a $799 million pre-tax gain on the sale of the Taylor business, and 2017 operating profit includes a $379 million pre-tax gain on the sale of our investment in Watsco, Inc. |
(2) | 2019 net income includes a tax benefit of $149 million as a result of the filing by a subsidiary of Carrier to participate in an amnesty program offered by the Italian Tax Authority and conclusion of a U.S. income tax audit. 2018 net income includes a charge of $102 million related to future non-U.S. taxes associated with anticipated future repatriation of non-U.S. earnings. 2017 net income includes unfavorable net tax charges of approximately $799 million related to U.S. tax reform legislation enacted in December 2017. |
(3) | The Pro Forma 2019 net income reflects $370 million of interest expense and amortization of issuance costs in connection with the incurrence of indebtedness as described in Description of Material Indebtedness elsewhere in this information statement. |
(4) | Working capital is defined as current assets less current liabilities. |
(5) | The increase in total assets and total liabilities as of December 31, 2019 primarily relates to the adoption of Accounting Standards Update (ASU) No. 2016-02—Leases (Topic 842), which Carrier adopted as of January 1, 2019. |
(6) | The Pro Forma December 31, 2019 total liabilities include the incurrence of principal indebtedness of an assumed amount equal to approximately $10.7 billion, as described in Description of Material Indebtedness elsewhere in this information statement. |
22
You should carefully consider the following risks and other information in this information statement in evaluating Carrier and Carrier common stock. Any of the following risks and uncertainties could materially adversely affect our business, financial condition or results of operations.
Risks Related to Our Business
Our international operations subject us to risk as our results of operations may be adversely affected by changes in local and regional economic conditions, such as fluctuations in exchange rates, risks associated with government policies on international trade and investments, including import quotas, capital controls, punitive taxes or tariffs or similar trade barriers, and risks associated with emerging markets.
We conduct our business on a global basis, with approximately 52 percent of our 2019 sales derived from international operations, including U.S. export sales. Changes in local and regional economic conditions, including fluctuations in exchange rates, may affect product demand and reported profits in our non-U.S. operations, where transactions are generally denominated in local currencies. In addition, currency fluctuations may affect the prices we pay for the materials used in our products, and as a result, our operating margins may be negatively impacted by higher costs for certain cross-border transactions. Our financial statements are denominated in U.S. Dollars. Accordingly, fluctuations in exchange rates may also give rise to gains or losses when financial statements of non-U.S. operating units are translated into U.S. Dollars. Given that the majority of our sales are non-U.S. based, a strengthening of the U.S. Dollar against other major foreign currencies could adversely affect our results of operations.
Our international sales and operations are subject to risks associated with changes in local government regulations and policies, investments, taxation, foreign exchange controls, capital controls, employment regulations and the repatriation of earnings. Government policies on international trade and investments such as import quotas, capital controls, punitive taxes or tariffs or similar trade barriers, whether imposed by individual governments or regional trade blocs, can affect demand for our products and services, impact the competitive position of our products or services or encumber our ability to manufacture or sell products in certain countries. The implementation of more restrictive trade policies or the renegotiation of existing trade agreements with the United States or countries, such as China and Mexico, where we sell or produce large quantities of products and services or procure materials incorporated into our products, including a further escalation of the trade conflict between the United States and China, could negatively impact our business, results of operations and financial condition. Our international sales and operations are also sensitive to political and economic instability and changes in foreign national priorities and government budgets. International transactions may involve increased financial and legal risks due to differing legal systems and customs in foreign countries. In addition, a novel strain of coronavirus surfaced in Wuhan, China in December 2019, resulting in increased travel restrictions and extended shutdown of certain businesses in the region. The impact of the coronavirus on our business is uncertain at this time and will depend on future developments, but prolonged closures in China may disrupt our operations and the operations of our suppliers, distributors and customers, which could negatively impact our business, results of operations and financial condition.
We expect that sales to emerging markets will continue to account for a significant portion of our sales as developing nations and regions around the world increase their demand for our products. In addition, as part of our globalization strategy, we have invested in certain countries, including Mexico, Brazil, China, India and countries in the Middle East. These emerging market operations can present many risks, including cultural differences (such as employment and business practices), compliance risks, economic and government instability, currency fluctuations, and the imposition of foreign exchange and capital controls. While these factors and their impact are difficult to predict, any one or more of them could have a material adverse effect on our competitive position, results of operations, cash flows or financial condition.
We are party to joint ventures and other strategic relationships, which may not be successful and may expose us to special risks and restrictions.
Our business operations, particularly in our HVAC segment, depend on various strategic relationships, joint ventures and non-wholly owned subsidiaries. We sell our products and services through certain key distributor, joint venture and customer relationships, including the Carrier Enterprise joint ventures with subsidiaries of Watsco, Inc.; AHI-Carrier FZC (AHI-Carrier), a UAE-based joint venture with Airconditioning & Heating
23
International FZC, a subsidiary of United Motors & Heavy Equipment Co. LLC; Beijer, a publicly traded company listed on the Stockholm Stock Exchange in which we maintain a significant ownership stake; various joint ventures with members of the Midea Group; and Toshiba Carrier, a joint venture with Toshiba with which we have several other joint ventures. Some of our strategic relationships or joint ventures engage in manufacturing and/or product development. Loss of a key channel partner, a significant downturn or deterioration in the business or financial condition of a key channel partner, joint venture or other partner, whether related to, among other things, a labor strike, diminished liquidity or credit unavailability, weak demand for products or delays in the launch of new products, could adversely affect our results of operations in a particular period or the value of our equity investment. If we are not successful in maintaining strategic distribution relationships, our financial condition, results of operations and cash flows may be adversely affected.
We are party to numerous joint ventures, some of which we do not control. In addition, our ability to apply our internal controls and compliance policies to these businesses is limited and can expose us to additional financial and reputational risks. We seek to take proactive steps to mitigate these concerns, including through audits and similar reviews. During one such recent audit, for example, Carrier identified certain payments, representing (based on the preliminary analysis to date) an aggregate of approximately $380 million paid to AHI-Carrier over a ten-year period for products sold in the ordinary course by that minority-owned joint venture from entities of undetermined affiliation with AHI-Carriers distributors and customers, predominately based in countries in the Commonwealth of Independent States. Based on the preliminary nature of the analysis to date, Carrier cannot reasonably predict that any, or what portion of, these payments may have violated applicable law. Carrier does not manage the joint venture and does not direct its treasury or related functions; however, Carrier has exercised its audit rights under the joint venture agreement and commenced an investigation of these third-party payments. This investigation is pending, and as noted above at this time, Carrier cannot reasonably predict the likelihood of a determination that any, or what portion of, these payments may have violated applicable law or reasonably estimate the possible loss or range of losses to the joint venture or to Carrier in the event of such a determination. In addition, Carrier has reported these preliminary findings to the SEC and the U.S. Department of Justice and intends to fully cooperate with their inquiries.
Joint ventures and strategic relationships inherently involve special risks. Whether or not we hold a majority interest or maintain operational control in such arrangements, our partners may (1) have economic or business interests or goals that are inconsistent with or contrary to ours, (2) exercise veto or other rights, to the extent available, to block actions that we believe to be in our or the joint ventures or strategic relationships best interests, (3) take action contrary to our policies or objectives or (4) be unable or unwilling to fulfill their obligations.
Additionally, some of our joint venture or other strategic agreements prohibit us from competing in certain geographic markets or product and services channels, and these restrictions may apply to other products and services we develop, or businesses we acquire, in the future. There can be no assurance that any particular joint venture or strategic relationship will be beneficial to us.
Global climate change and related regulations could negatively affect our business.
The effects of climate change, such as extreme weather conditions, create financial risks to our business. For example, the demand for our products and services, such as residential air conditioning equipment, may be affected by unseasonable weather conditions. The effects of climate change could also disrupt our operations by impacting the availability and cost of materials needed for manufacturing and could increase insurance and other operating costs. These factors may impact our decisions to construct new facilities or maintain existing facilities in areas most prone to physical climate risks. We could also face indirect financial risks passed through the supply chain and disruptions that could result in increased prices for our products and the resources needed to produce them. Further, there is regulatory uncertainty around government incentives, which, if discontinued, could adversely impact the demand for energy-efficient buildings and could increase costs of compliance.
Increased public awareness and concern regarding global climate change may result in more international, regional and/or national requirements to reduce or mitigate the effects of greenhouse gas emissions. The lack of consistent climate change legislation creates economic and regulatory uncertainty. These factors may impact the demand for our products, obsolescence of our products and our results of operations.
Additionally, refrigerants are essential to many of our products, and there is a growing concern regarding the ozone-depletion and global warming potential of such materials. As such, national, regional and international
24
regulations and policies are being considered to curtail their use, which may, in some cases, render our existing technology and products noncompliant. While we are committed to pursuing sustainable solutions, there can be no assurance that our commitments will be successful, that our products will be accepted by the market, that proposed regulation or deregulation will not have a negative competitive impact or that economic returns will reflect our investments in new product development.
Cooler than normal summers or warmer than normal winters may depress our sales.
Demand for our HVAC products and services, representing our largest segment by sales, is seasonal and affected by the weather. Cooler than normal summers depress our sales of replacement air conditioning products and services. Similarly, warmer than normal winters have the same effect on our heating products. Additionally, sales to residential customers in our HVAC business historically tend to be higher in the second and third quarters of the year because, in the United States and other northern hemisphere regions, spring and summer are the peak seasons for sales of air conditioning systems and services. The results of any quarterly period may not be indicative of expected results for a full year, and unusual weather patterns or events could positively or negatively affect our business and impact overall results of operations.
Natural disasters or other unexpected events may disrupt our operations, adversely affect our results of operations and financial condition, and may not be covered by insurance.
The occurrence of one or more natural disasters, power outages or other unexpected events, including hurricanes, fires, earthquakes, volcanic eruptions, tsunamis, floods and severe weather in the United States or in other countries in which we or our suppliers or customers operate could adversely affect our operations and financial performance. Natural disasters, power outages or other unexpected events could damage or close one or more of our facilities or disrupt our operations temporarily or long-term, such as by causing business interruptions or by affecting the availability and/or cost of materials needed for manufacturing. In some significant cases, we have only one factory that can manufacture a specific product or product line. As a result, damage to or the closure of that factory may disrupt or prevent us from manufacturing certain products. Existing insurance arrangements may not cover the costs or lost cash flows that may arise from such events. The occurrence of any of these events could also increase our insurance and other operating costs.
Information security, data privacy and identity protection may require significant resources and present certain risks to our business, reputation and financial condition.
We and certain of our products collect, store, have access to and otherwise process certain confidential or sensitive data that may be subject to data privacy and cybersecurity laws or customer-imposed controls. Although we seek to protect such data and design our products to enable our customers to use them while complying with applicable data privacy and cybersecurity laws and/or customer-imposed controls, our internal systems and products may be vulnerable to hacking or other cyber-attacks, theft, programming errors or employee errors, which could lead to the compromise of such data, unauthorized access, use, disclosure, modification or destruction of information, improper use of our systems, software solutions or networks, defective products, production downtimes and/or operational disruptions in violation of applicable law and/or contractual obligations. A significant actual or perceived risk of theft, loss, fraudulent use or misuse of customer, employee or other data, whether by us, our suppliers, channel partners, customers or other third parties, as a result of employee error or malfeasance, or as a result of the imaging, software, security and other products we incorporate into our products, as well as non-compliance with applicable industry standards or our contractual or other legal obligations or privacy and information-security policies regarding such data, could result in costs, fines, litigation or regulatory actions, or could lead customers to select products and services of our competitors. In addition, any such event could harm our reputation, cause unfavorable publicity or otherwise adversely affect certain potential customers perception of the security and reliability of our services as well as our credibility and reputation, which could result in lost sales. In addition, because of the global nature of our business, both our internal systems and products must comply with the applicable laws, regulations and standards in a number of jurisdictions, and government enforcement actions and violations of data privacy and cybersecurity laws could be costly or interrupt our business operations. Any of the foregoing factors could result in reputational damage or civil or governmental proceedings, which could result in a material adverse effect on our competitive position, results of operations, cash flows or financial condition.
25
Our business and financial performance depend on continued substantial investment in information technology infrastructure, which may not yield anticipated benefits, and may be adversely affected by cyber-attacks on information technology infrastructure and products and other business disruptions.
The efficient operation of our business will require continued substantial investment in technology infrastructure systems, and we must attract and retain qualified people to operate these systems, expand and improve them, integrate new systems effectively and efficiently convert to new systems when required. An inability to fund, acquire and implement these systems might impact our ability to respond effectively to changing customer expectations, manage our business, scale our solutions effectively or impact our customer service levels, which could put us at a competitive disadvantage and negatively impact our financial results. Repeated or prolonged interruptions of service due to problems with our systems or third-party technologies, whether or not in our control, could have a significant negative impact on our reputation and our ability to sell products and services. Furthermore, we are highly dependent upon a variety of internal computer and telecommunication systems to operate our business. Failure to design, develop and implement new technology infrastructure systems in an effective and timely manner, or to adequately invest in and maintain these systems, could result in the diversion of managements attention and resources and could materially adversely affect our operating results, competitive position and ability to efficiently manage our business. Our existing information systems may become obsolete, requiring us to transition our systems to a new platform. Such a transition could be time consuming, costly and damaging to our competitive position, and could require additional management resources. Failure to implement and deploy new systems or replacement systems on the schedules anticipated, could materially adversely affect our operating results.
In addition, our business may be impacted by disruptions to our own or third-party information technology (IT) infrastructure, which could result from (among other causes) cyber-attacks on or failures of such infrastructure or compromises to its physical security, as well as from damaging weather or other acts of nature. Cyber-based risks, in particular, are evolving and include attacks on our IT infrastructure, as well as attacks targeting the security, integrity and/or availability of the hardware, software and information installed, stored or transmitted in our products, including after the purchase of those products and when they are installed into third-party products, facilities or infrastructure. Such attacks could disrupt our business operations, our systems or those of third parties, and could impact the ability of our products to work as intended. We have experienced cyber-based attacks and, due to the evolving threat landscape, may continue to experience them going forward, potentially with more frequency. We continue to make investments and adopt measures designed to enhance our protection, detection, response and recovery capabilities, and to mitigate potential risks to our technology, products, services and operations from potential cyber-attacks. However, given the unpredictability, nature and scope of cyber-attacks, it is possible that potential vulnerabilities could go undetected for an extended period. As a result of a cyber-attack, we could potentially be subject to production downtimes, operational delays or other detrimental impacts on our operations or ability to provide products and services to our customers; destruction or corruption of data; security breaches; manipulation or improper use of our or third-party systems, networks or products; financial losses from remedial actions, loss of business, potential liability, penalties, fines and/or damage to our reputation—any of which could have a material adverse effect on our competitive position, results of operations, cash flows or financial condition. Due to the evolving nature of such risks, the impact of any potential incident cannot be predicted. Any disruption to our business due to such issues, or an increase in our costs to cover these issues that is greater than what we have anticipated, could have an adverse effect on our competitive position, results of operations, cash flows or financial condition.
There can be no assurance that our systems will not fail or experience disruptions, and any significant failure or disruption of these systems could prevent us from making sales, ordering supplies, delivering products, providing functional products and otherwise conducting our business.
We may be affected by global economic, capital market and political conditions in general, and conditions in the construction, transportation and infrastructure industries in particular.
Our business, financial condition, operating results and cash flows may be adversely affected by changes in global economic conditions and geopolitical risks, including credit market conditions, levels of consumer and business confidence, fluctuations in residential, commercial and industrial construction activity, pandemic health issues (including coronavirus), natural disasters, regulatory changes, commodity prices, raw material and energy
26
costs, interest rates, exchange rates, levels of government spending and deficits, trade policies (including tariffs, boycotts and sanctions), political conditions, regulatory changes, actual or anticipated default on sovereign debt and other challenges that could affect the global economy.
These economic and political conditions affect our business in a number of ways. For example, the tightening of credit in the capital markets could adversely affect the ability of our customers, including individual end-customers and businesses, to obtain financing for significant purchases and operations, which could result in a decrease in or cancellation of orders for our products and services. Similarly, tightening credit may adversely affect our supply base and increase the potential for one or more of our suppliers to experience financial distress or bankruptcy. Additionally, because we have a number of factories and suppliers in foreign countries, the imposition of tariffs or sanctions, or unusually restrictive border crossing rules could adversely affect our supply chain and overall business.
Our business is also adversely affected by decreases in the general level of economic activity, such as decreases in business and consumer spending, construction activity and shipping activity. A slowdown in building and remodeling activity also can adversely affect our financial performance. In addition, our financial performance may be influenced by the production and utilization of transport equipment, including truck production cycles in North America and Europe, and, particularly in our HVAC business, weather conditions.
We use a variety of raw materials, supplier-provided parts, components, subcomponents and third-party service providers in our business, and significant shortages, supplier capacity constraints, supplier production disruptions, price increases, trade disruptions or tariffs could increase our operating costs and adversely impact the competitive positions of our products.
Our reliance on suppliers (including third-party logistics providers) and commodity markets to secure the raw materials and components used in our products, and on service providers to deliver our products, exposes us to volatility in the prices and availability of these materials and services. In certain instances, we depend upon a single source of supply, manufacturing, logistics support or assembly, or participate in commodity markets that may be subject to allocations of limited supplies. Issues with suppliers (such as a disruption in deliveries, capacity constraints, production disruptions, quality issues and consolidations, closings or bankruptcies), price increases, decreased availability of raw materials or commodities or decreased availability of trucks and other delivery service resources could have a material adverse effect on our ability to meet our commitments to customers or increase our operating costs. Tariffs can increase our costs, the impact of which is difficult to predict. We believe that our supply management and production practices are based on an appropriate balancing of the foreseeable risks and the costs of alternative practices. Nonetheless, these risks may have a material adverse effect on our competitive position, results of operations, cash flows or financial condition.
We design, manufacture and service products that incorporate advanced technologies. The introduction of new products and technologies involves risks, and we may not realize the degree or timing of benefits initially anticipated.
We seek to grow our business through the design, development, production, sale and support of innovative products that incorporate advanced technologies. The laws and regulations applicable to our products, and our customers product and service needs, change from time to time, and regulatory changes may render our products and technologies noncompliant. Our ability to realize the anticipated benefits of our technological advancements or product improvements depends on a variety of factors, including meeting development, production, certification and regulatory approval schedules; execution of internal and external performance plans; availability of supplier and internally produced parts and materials; performance of suppliers and subcontractors; hiring and training of qualified personnel; achieving cost and production efficiencies; identification of emerging regulatory and technological trends in our target end markets; validation and performance of innovative technologies; the level of customer interest in new technologies and products; and the costs and customer acceptance of the new or improved products.
Our products and services also may incorporate technologies developed or manufactured by third parties, which, when combined with our technology or products, creates additional risks and uncertainties. As a result, the performance and market acceptance of these third-party products and services could affect the level of customer interest and acceptance of our own products in the marketplace.
Our R&D efforts may not result in new technologies or products being developed on a timely basis or meet the needs of our customers as effectively as competitive offerings. Our competitors may develop competing
27
technologies that gain market acceptance before or instead of our products. In addition, we may not be successful in anticipating or reacting to changes in the regulatory environments in which our products are sold, and the markets for our products may not develop or grow as we anticipate.
We operate in a competitive environment and our profitability depends on our ability to accurately estimate the costs and timing of providing our products and services.
In certain of our businesses, our contracts are typically awarded on a competitive basis. Our bids are based upon, among other items, the cost to provide the products and services. To generate an acceptable return on our investment in these contracts, we must be able to accurately estimate our costs to provide the services and deliver the products required by the contract and to be able to complete the contracts in a timely manner. If we fail to accurately estimate our costs or the time required to complete a contract, the profitability of our contracts may be materially and adversely affected. In addition, some of our contracts provide for liquidated damages if we do not perform in accordance with the contract. Any of the foregoing could have a material adverse effect on our competitive position, results of operations, cash flows or financial condition.
Customers and others may take disruptive actions.
From time to time customers and others may seek to become competitive suppliers of our products and services or pursue other strategies to disrupt our business model. For example, an affiliate of a customer in our transport refrigeration business has started to produce refrigeration units for shipping containers that compete with our products, and another one of our transport refrigeration customers has started to produce refrigeration units for truck trailers that compete with our refrigeration units. In addition, our customers or existing or future competitors may seek to introduce non-traditional business models or disruptive technologies and products in the industries in which we participate, resulting in increased competition and new dynamics in these industries.
Labor matters may impact our business.
A significant portion of our employees are represented by labor unions or works councils in a number of countries under various collective bargaining agreements with varying durations and expiration dates. See Business—Employees and Employee Relations. We may not be able to satisfactorily renegotiate these agreements before they expire. In addition, existing agreements may not prevent a strike or work stoppage, union and works council campaigns and other labor disputes. We may also be subject to general country strikes or work stoppages unrelated to our specific business or collective bargaining agreements. Additionally, a shortage in certain workforces, such as technicians or truck drivers, may impact our business by affecting the ability to install, sell and deliver our products. Any such work stoppages (or potential work stoppages) could have a material adverse effect on our financial results, productivity, results of operations and reputation.
Our defined benefit pension plans are subject to financial market risks that could adversely affect our results.
The performance of the financial markets and interest rates can impact our defined benefit pension plan expenses and funding obligations. Significant decreases in the discount rate or investment losses on plan assets may increase our funding obligations and adversely impact our financial results. See Note 12 to the Combined Financial Statements included in the Index to Combined Financial Statements section of this information statement for further discussion on pension plans and related obligations and contingencies.
We may not realize expected benefits from our cost reduction and restructuring efforts, and our profitability may be hurt or our business otherwise might be adversely affected.
In order to operate more efficiently and cost effectively, we have from time to time, and may continue to, adjust employment, optimize our footprint or undertake other restructuring activities. These activities are complex and may involve or require significant changes to our operations. If we do not successfully manage restructuring activities, expected efficiencies and benefits might be delayed or not realized. Risks associated with these actions and other workforce management issues include unfavorable political responses and reputational harm, unforeseen delays in the implementation of the restructuring activities, additional costs, adverse effects on employee morale, the failure to meet operational targets due to the loss of employees or work stoppages, and difficulty managing our operations during or after facility consolidations, any of which may impair our ability to achieve anticipated cost reductions, otherwise harm our business or have a material adverse effect on our competitive position, results of operations, cash flows or financial condition.
28
Additional tax expense or additional tax exposures could affect our future profitability.
We are subject to income taxes in the United States and various international jurisdictions. Changes to tax laws and regulations as well as changes and conflicts in related interpretations or other tax guidance could materially impact our tax receivables and liabilities and our deferred tax assets and deferred tax liabilities. Additionally, in the ordinary course of business, we are subject to examinations by various tax authorities. In addition, governmental authorities in various jurisdictions could launch new examinations and expand existing examinations. The global and diverse nature of our operations means that these risks will continue and additional examinations, proceedings and contingencies will arise from time to time. Our competitive position, cash flows, results of operation or financial condition may be affected by the outcome of examinations, proceedings and contingencies that cannot be predicted with certainty.
See Business Overview, Results of Operations—Income Taxes under Managements Discussion and Analysis of Financial Condition and Results of Operations and Notes 3 and 14 to the Combined Financial Statements included in the Index to Combined Financial Statements section of this information statement for further discussion on income taxes and related contingencies, including our provisional accounting and assessment of the effect of the Tax Cuts and Jobs Act of 2017 (TCJA).
We depend on our intellectual property, and have access to certain intellectual property and information of our customers and suppliers; infringement or failure to protect our intellectual property could adversely affect our future growth and success.
We rely on a combination of patents, trademarks, copyrights, trade secrets, nondisclosure agreements, customer and supplier agreements, license agreements, information technology security systems, internal controls and compliance systems and other measures to protect our intellectual property. We also rely on nondisclosure agreements, information technology security systems and other measures to protect certain customer and supplier information and intellectual property that we have in our possession or to which we have access. Our efforts to protect such intellectual property and proprietary rights may not be sufficient. We cannot be sure that our pending patent applications will result in the issuance of patents to us, that patents issued to or licensed by us in the past or in the future will not be challenged or circumvented by competitors or that these patents will be found to be valid or sufficiently broad to preclude our competitors from introducing technologies similar to those covered by our patents and patent applications. Our ability to protect and enforce our intellectual property rights also may be limited. In addition, we may be the target of competitor or other third-party patent enforcement actions seeking substantial monetary damages or seeking to prevent the sale and marketing of certain of our products or services. Our competitive position also may be adversely impacted by limitations on our ability to obtain possession of, and ownership or necessary licenses concerning, data important to the development or provision of our products or service offerings, or by limitations on our ability to restrict the use by others of data related to our products or services. Any of these events or factors could subject us to judgments, penalties and significant litigation costs or temporarily or permanently disrupt our sales and marketing of the affected products or services and could have a material adverse effect on our competitive position, results of operations, cash flows or financial condition.
Failure to achieve and maintain a high level of product and service quality could damage our reputation with customers and negatively impact our results.
Product and service quality issues could harm customer confidence in our company and our brands. If our product and service offerings do not meet applicable safety standards or our customers expectations regarding safety or quality, we could experience lost sales and increased costs and we could be exposed to legal, financial and reputational risks. Actual, potential or perceived product safety concerns could expose us to litigation as well as government enforcement action. In addition, if any of our products fail to perform as expected, we may be exposed to warranty and product liability claims.
We maintain strict quality controls and procedures. However, we cannot be certain that these controls and procedures will reveal defects in our products or their raw materials, which may not become apparent until after the products have been placed in beneficial use in the market. Accordingly, there is a risk that products will have defects, which could require a product recall or field corrective action. Product recalls and field corrective actions can be expensive to implement, and may damage our reputation, customer relationships and market share. We have conducted product recalls and field corrective actions in the past, and may do so again in the future.
29
In many jurisdictions, product liability claims are not limited to any specified amount of recovery. If any such claims or contribution requests or requirements exceed our available insurance or if there is a product recall, there could be an adverse impact on our results of operations. In addition, a recall or claim could require us to review our entire product portfolio to assess whether similar issues are present in other products, which could result in a significant disruption to our business and which could have a further adverse impact on our business, financial condition, results of operations and cash flows. There can be no assurance that we will not experience any material warranty or product liability claim losses in the future, that we will not incur significant costs to defend such claims or that we will have adequate reserves to cover any recalls, repair and replacement costs.
We are subject to litigation, environmental, product safety and other legal and compliance risks.
We are subject to a variety of litigation, legal and compliance risks. These risks relate to, among other things, product safety, personal injuries, intellectual property rights, contract-related claims, taxes, environmental matters, employee health and safety, competition laws and laws governing improper business practices. If convicted or found liable in connection with such matters, we could be subject to significant fines, penalties, repayments and other damages (in certain cases, treble damages).
As a global business, we are subject to complex laws and regulations in the U.S. and other countries in which we operate. Those laws and regulations may be interpreted in different ways. They may also change from time to time, as may related interpretations and other guidance. Changes in laws or regulations could result in higher expenses. Uncertainty relating to laws or regulations may also affect how we operate, structure our investments and enforce our rights.
Changes in environmental and climate change related-laws, including laws relating to refrigerants, efficiency and greenhouse gas emissions, could require additional investments in product designs, which may be more expensive or difficult to manufacture, qualify and sell and/or may involve additional product safety risks, and could increase environmental compliance expenditures. Evolving climate change concerns or changes in regulations related to such concerns, including with respect to refrigerants, efficiency and greenhouse gas emissions, could subject us to additional costs and restrictions, such as increased energy and raw materials costs. Furthermore, various jurisdictions and regulators may take different approaches to and impose differing or inconsistent requirements under environmental and climate change-related laws, which may make it more costly or difficult for us to sell our products (including by requiring that we monitor such developments, incur increased test and certification costs, increase time-to-market and develop additional country-specific variants for certain products) or prevent us from selling certain products in certain geographic markets.
At times we are involved in disputes with private parties over environmental issues, including litigation over the allocation of cleanup costs, alleged personal injuries and property damage. Existing and future asbestos-related and other product liability claims could adversely affect our financial condition, results of operations and cash flows. Personal injury lawsuits may involve individual and purported class actions alleging that contaminants originating from our current or former products or operating facilities caused or contributed to medical conditions. Property damage lawsuits may involve claims relating to environmental damage or diminution of real estate values. Even in litigation where we believe our liability is remote, there is a risk that a negative finding or decision could have a material adverse effect on our competitive position, results of operations, cash flows or financial condition, in particular with respect to environmental claims in regions where we have, or previously had, significant operations or where certain of our products have been used.
In addition, the U.S. Foreign Corrupt Practices Act (FCPA) and other anti-corruption laws generally prohibit companies and their intermediaries from making improper payments to government officials for the purpose of obtaining or retaining business. The FCPA applies to companies, individual directors, officers, employees and agents. Under certain anti-corruption laws, U.S. companies also may be held liable for the actions of partners or representatives, including joint ventures. Certain of our customer relationships are with governmental entities and are, therefore, subject to the FCPA and other anti-corruption laws. Despite meaningful measures to ensure lawful conduct, which include training and internal controls, we may not always be able to prevent our employees or third-party agents or channel partners from violating the FCPA or other anti-corruption laws. As a result, we could be subject to criminal and civil penalties, disgorgement, changes or enhancements to our compliance measures that could increase our costs or other remedial actions. Moreover, we are subject to antitrust, anti-collusion and anti-money laundering laws in various jurisdictions throughout the world. Changes in these laws or their interpretation, administration and/or enforcement may occur over time, and any such changes
30
may limit our future acquisitions or operations, or result in changes to our strategies, sales and distribution structures or other business practices. Though we have implemented policies, controls and other measures to prevent money laundering, collusion or anti-competitive behavior, our controls may not always be effective in preventing our employees, third-party agents or channel partners from violating anti-money laundering, antitrust or anti-collusion laws.
Violations of FCPA, antitrust, anti-money laundering or other anti-corruption or anti-collusion laws, or allegations of such violations, could disrupt our operations, cause reputational harm, involve significant management distraction and result in a material adverse effect on our competitive position, results of operations, cash flows or financial condition.
We also must comply with various laws and regulations relating to the export of products, services and technology from the U.S. and other countries having jurisdiction over our operations. In the United States, these laws include, among others, the Export Administration Regulations (EAR) administered by the U.S. Department of Commerce and embargoes and sanctions regulations administered by the U.S. Department of the Treasury. Restrictions on the export of our products could have a material adverse effect on our competitive position, results of operations, cash flows or financial condition.
For a description of current material legal proceedings and regulatory matters, see Business—Legal Proceedings and Note 20 to the Combined Financial Statements included in the Index to Combined Financial Statements section of this information statement.
We engage in acquisitions and divestitures, and may encounter difficulties integrating acquired businesses with, or disposing of businesses from, our current operations; therefore, we may not realize the anticipated benefits of these acquisitions and divestitures.
We seek to grow through strategic acquisitions in addition to internal growth. In the past several years, we have acquired various businesses and entered into joint venture arrangements in an effort to complement and expand our business. We expect to continue such pursuits in the future. Our due diligence reviews may not identify all of the material issues necessary to accurately estimate the cost and potential loss contingencies of a particular transaction, including potential exposure to regulatory sanctions resulting from an acquisition targets previous activities. For example, we may incur unanticipated costs, expenses or other liabilities, or reduced sales, as a result of an acquisitions violation of applicable laws, such as the FCPA or other anti-corruption laws outside of the United States. We also may incur unanticipated costs or expenses, including post-closing asset impairment charges as well as expenses associated with eliminating duplicate facilities, litigation, and other liabilities. We may encounter difficulties in integrating acquired businesses with our operations, applying our internal controls to these acquired businesses, or in managing strategic investments. Additionally, we may not realize the degree or timing of benefits we anticipate when we first enter into a transaction. Any of the foregoing could adversely affect our business and results of operations. In addition, accounting requirements relating to business combinations, including the requirement to expense certain acquisition costs as incurred, may cause us to incur greater earnings volatility and generally lower earnings during periods in which we acquire new businesses.
We also make strategic divestitures from time to time. Our divestitures may result in continued financial exposure to the divested businesses, such as through guarantees, other financial arrangements, continued supply and services arrangements or through the retention of liabilities, such as for environmental and product liability claims. Under these arrangements, nonperformance by those divested businesses or claims against retained liabilities could result in obligations being imposed on us that could have a material adverse effect on our cash flows, results of operations, or financial condition.
The success of future acquisitions, divestitures and joint ventures will depend on the satisfaction of conditions precedent to such transactions and the timing of consummation of such transactions, which will depend in part on the ability of the parties to secure any required regulatory approvals in a timely manner, among other things. For constraints on mergers and acquisition activity after the completion of the distribution, see —Risks Related to the Distribution.
We may be required to recognize impairment charges for our goodwill and certain other intangible assets.
We may be required to recognize impairment charges for our goodwill and certain other intangible assets. Our other intangible assets primarily consists of trademarks. At December 31, 2019, the net carrying value of our goodwill and certain other intangible assets totaled $9.9 billion and $534 million, respectively. In accordance
31
with generally accepted accounting principles in the United States (GAAP), we periodically assess these assets to determine if they are impaired. Significant negative industry or economic trends, disruptions to our business, planned or unexpected significant changes in the use of the assets, and sustained market capitalization declines may result in recognition of impairments to goodwill or certain other intangible assets. Any charges relating to such impairments could have a material adverse impact on our results of operations in the periods recognized.
We may need additional financing in the future to meet our capital needs or to make opportunistic acquisitions, and such financing may not be available on favorable terms, if at all, and may be dilutive to existing shareowners.
Upon completion of the distribution, we anticipate having approximately $11.1 billion of outstanding indebtedness. We may need additional financing for our general corporate purposes. For example, we may need funds to increase our investments in R&D activities, to make acquisitions or otherwise grow our business or refinance or repay existing debt. Volatility in the world financial markets could increase borrowing costs or affect our ability to access the capital markets. Our ability to issue debt or enter into other financing arrangements on acceptable terms could be adversely affected if there is a material decline in the demand for our products or in the solvency of our customers, suppliers or distributors or other significantly unfavorable changes in economic conditions. We may be unable to obtain additional financing on terms favorable to us, if at all. If we fail to obtain or lose an investment grade credit rating or adequate funds are not available on acceptable terms, we may be unable to successfully develop or enhance products, fund our expansion or respond to competitive pressures, any of which could negatively affect our business. If we raise additional funds by issuing equity securities, our shareowners will experience dilution of their ownership interest. If we raise additional funds by issuing debt, we may be subject to limitations on our operations due to restrictive covenants.
Failure to maintain a satisfactory credit rating could adversely affect our liquidity, capital position, borrowing costs and access to capital markets.
In connection with the distribution, we expect to complete one or more financing transactions on or prior to the completion of the distribution, with approximately $10.7 billion of the proceeds of such financings expected to be used to distribute cash to UTC. As a result of these transactions, we anticipate having approximately $11.1 billion of outstanding indebtedness when the distribution is completed. The amount of indebtedness incurred by Carrier and the amount of cash distributed by Carrier may be adjusted by UTC as described elsewhere in this information statement. In anticipation of the distribution, we expect Carrier to be issued an investment grade credit rating by each of Moodys Investors Services, Inc. and Standard & Poors. Despite these anticipated investment grade credit ratings at the time of the distribution, any future downgrades could increase the cost of borrowing under any indebtedness we may incur in connection with the distribution or otherwise, reduce market capacity for our commercial paper or require the posting of collateral under our derivative contracts. There can be no assurance that we will be able to maintain our credit ratings once established, and any additional actual or anticipated changes or downgrades in our credit ratings, including any announcement that our ratings are under review for a downgrade, may have a negative impact on our liquidity, capital position and access to the capital markets.
Risks Related to the Distribution
We have no recent history of operating as an independent company, and our historical and pro forma financial information is not necessarily indicative of the results that we would have achieved as a separate, publicly traded company and may not be a reliable indicator of our future results.
The historical information about Carrier in this information statement refers to the Carrier Business as operated by and integrated with UTC. Our historical and pro forma financial information included in this information statement is derived from the combined financial statements and accounting records of UTC. Accordingly, the historical and pro forma financial information included in this information statement does not necessarily reflect the financial condition, results of operations or cash flows that we would have achieved as a separate, publicly traded company during the periods presented or those that we will achieve in the future primarily as a result of the factors described below:
• | Generally, our working capital requirements and capital for our general corporate purposes, including capital expenditures and acquisitions, have historically been satisfied through UTC’s corporate-wide |
32
cash management practices. Following the distribution, our results of operations and cash flows may be more volatile, and we may need to obtain additional financing from banks, through public offerings or private placements of debt or equity securities, strategic relationships or other arrangements, which may or may not be available and may be more costly.
• | Prior to the distribution, our business has been operated by UTC as part of its broader corporate organization, rather than as an independent company. UTC or one of its affiliates performed or helped perform various corporate functions for us, such as accounting, auditing, tax, legal, human resources, investor relations, risk management, treasury and other general and administrative functions. Our historical and pro forma financial results reflect allocations of corporate expenses from UTC for such functions, which are likely to be less than the expenses we would have incurred had we operated as a separate publicly traded company. |
• | Currently, our business is integrated with the other businesses of UTC. Historically, we have shared economies of scale in costs, employees, vendor relationships and customer relationships, which have enabled us to procure more advantageous arrangements with respect to, among other things, information technology, logistics, raw materials, facility management, travel services, fleet and professional services. After the distribution, as a stand-alone company, we may be unable to obtain similar arrangements to the same extent as UTC did, or on terms as favorable as those UTC obtained, prior to the distribution. |
• | After the distribution, the cost of capital for our business may be higher than UTC’s cost of capital prior to the distribution. |
• | Our historical financial information does not reflect the debt that we will incur as part of the distribution. |
• | As an independent public company, we will separately become subject to the reporting requirements of the Securities Exchange Act of 1934 (the Exchange Act), the Sarbanes-Oxley Act (Sarbanes-Oxley) and the Dodd-Frank Act and will be required to prepare our stand-alone financial statements according to the rules and regulations required by the SEC. These reporting and other obligations will place significant demands on our management and on administrative and operational resources. Moreover, to comply with these requirements, we anticipate that we will need to migrate our systems, including information technology systems, implement additional financial and management controls, reporting systems and procedures, and hire additional accounting and finance staff. We expect to incur additional annual expenses related to these requirements, and those expenses may be significant. If we are unable to upgrade our financial and management controls, reporting systems, information technology and procedures in a timely and effective fashion, our ability to comply with our financial reporting requirements and other rules that apply to reporting companies under the Exchange Act could be impaired. |
Other significant changes may occur in our cost structure, management, financing and business operations as a result of operating as a company separate from UTC. For additional information about the past financial performance of our business and the basis of presentation of the combined financial statements and the unaudited pro forma combined financial statements of our business, see Unaudited Pro Forma Combined Financial Information, Selected Historical Combined Financial Data of Carrier, Managements Discussion and Analysis of Financial Condition and Results of Operations and the historical combined financial statements and accompanying notes included elsewhere in this information statement.
Following the distribution, our financial profile will change, and we will be a smaller, less diversified company than UTC prior to the distribution.
Following the distribution, Carrier will be a smaller, less diversified company than UTC prior to the distribution. As a result, we may be more vulnerable to changing market conditions, which could have a material adverse effect on our business, financial condition and results of operations. In addition, the diversification of our sales, costs, and cash flows will diminish as a stand-alone company, such that our results of operations, cash flows, working capital and financing requirements may be subject to increased volatility and our ability to fund capital expenditures and investments, pay dividends and service debt may be diminished. Following the distribution, we may also lose capital allocation efficiency and flexibility because we will no longer be able to use cash flow from the UTC Aerospace Businesses or the Otis Business to fund our investments and operations.
33
We may not achieve some or all of the expected benefits of the separation and distribution, and the separation and distribution may materially adversely affect our business.
We may not be able to achieve the full strategic and financial benefits expected to result from the separation and distribution, or such benefits may be delayed or not occur at all. The separation and distribution are expected to provide the following benefits, among others: (1) enabling our management to more effectively pursue its own distinct operating priorities and strategies, while also enhancing our operational agility through a more nimble organization; (2) permitting us to allocate our financial resources to meet the unique needs of our businesses, which will allow us to intensify our focus on distinct strategic priorities and to more effectively pursue our own distinct capital structures and capital allocation strategies; (3) affording us the ability to offer an independent equity security to the capital markets and enabling us to more flexibly pursue strategic opportunities more closely aligned with our strategic goals and expected growth opportunities; (4) permitting us to more effectively recruit, retain and motivate employees through the use of stock-based compensation that more closely aligns management and employee incentives with specific business goals and objectives related to our businesses; and (5) allowing us to more effectively articulate a clear investment proposition to attract a long-term investor base suited to our businesses, growth profile and capital allocation priorities.
We may not achieve these and other anticipated benefits for a variety of reasons, including, among others: (1) the distribution will require significant amounts of managements time and effort, which may divert managements attention from operating our business; (2) following the distribution, we may lose capital allocation efficiency and flexibility because, for instance, we will no longer be able to use cash flow from one of UTCs other businesses to fund investments and operations; (3) following the distribution, we may be more susceptible to certain market fluctuations and other adverse events because our businesses will be less diversified than UTCs businesses prior to the completion of the distribution; (4) after the distribution, as a stand-alone company, we may be unable to obtain certain goods, services and technologies at prices or on terms as favorable as those UTC obtained prior to completion of the distribution; (5) the distribution may require us to incur substantial costs, including accounting, tax, legal and other professional services costs, costs related to retaining and attracting business and operational relationships with customers, suppliers and other counterparties, recruiting and relocation costs associated with hiring key senior management personnel who are new to Carrier, costs to retain key management personnel, tax costs and costs to separate shared systems and other unforeseen dis-synergy costs; (6) under the terms of the tax matters agreement that we will enter into with UTC and Otis, we will be restricted from taking certain actions that could cause the distribution or certain related transactions (or certain transactions undertaken as part of the internal reorganization) to fail to qualify as tax-free transactions and these restrictions may limit us for a period of time from pursuing certain strategic transactions and equity issuances or engaging in other transactions that might increase the value of our businesses; and (7) potential negative reactions from the financial markets if UTC fails to complete the distribution as currently expected or within the anticipated time frame. If we fail to achieve some or all of the benefits expected to result from the distribution, or if such benefits are delayed, it could have a material adverse effect on our competitive position, business, financial condition, results of operations and cash flows.
UTCs plan to separate into three independent, publicly traded companies is subject to various risks and uncertainties and may not be completed in accordance with the expected plans or anticipated timeline, or at all, and will involve significant time and expense, which could disrupt or adversely affect our business.
On November 26, 2018, UTC announced plans to separate into three independent, publicly traded companies. The separation and distribution are subject to the satisfaction of certain conditions (or waiver by UTC in its sole and absolute discretion), subject to UTCs agreement to consummate the Carrier distribution pursuant to and subject to the terms and conditions of the Raytheon merger agreement. The conditions to the separation and distribution include final approval by UTCs Board of Directors, receipt of tax rulings in certain jurisdictions and/or a tax opinion from external counsel (as applicable), the SEC declaring effective the registration statement of which this information statement forms a part and satisfactory completion of financing. Furthermore, the separation is complex in nature, and unanticipated developments or changes, including changes in the law, the macroeconomic environment, competitive conditions of UTCs markets, the uncertainty of the financial markets and challenges in executing the separation, could delay or prevent the completion of the proposed separation, or cause the separation to occur on terms or conditions that are different or less favorable than expected. We currently expect the Otis distribution to occur on or around the date of the Carrier distribution, unless otherwise determined by the UTC Board of Directors in its sole and absolute discretion, but subject to UTCs agreement to consummate each of the Carrier distribution and the Otis distribution as required pursuant to, and subject to the
34
terms and conditions of, the Raytheon merger agreement. Though UTC has agreed pursuant to, and subject to the terms and conditions of the Raytheon merger agreement, that UTC will consummate the separation and each of the Carrier distribution and the Otis distribution, there can be no assurance that the Carrier distribution and the Otis distribution will occur on or around the same date or that either distribution will occur at all.
The process of completing the separation has been and is expected to continue to be time-consuming and involves significant costs. The separation costs may be significantly higher than what we currently anticipate and may not yield a discernible benefit if the separation is not completed or is not well executed, or the expected benefits of the separation are not realized. Executing the proposed separation will also require significant amounts of managements time and effort, which may divert managements attention from operating and growing our business. Other challenges associated with effectively executing the separation include attracting, retaining, motivating and training employees, including additional employees that we will need to operate as a stand-alone company; addressing disruptions to our supply chain, manufacturing, sales and distribution, and other operations resulting from separating UTC into three independent public companies; and separating from UTCs information systems.
The combined market value following the Carrier distribution and the Otis distribution of one share of Carrier common stock, the number of shares of Otis common stock to be distributed per share of UTC common stock in the Otis distribution and one share of UTC common stock may not equal or exceed the pre-distribution value of one share of UTC common stock.
There can be no assurance that following the Carrier distribution and the Otis distribution the aggregate market value of one share of Carrier common stock, the number of shares of Otis common stock to be distributed per share of UTC common stock in the Otis distribution and one share of UTC common stock will be higher than, lower than or the same as the market value of a share of UTC common stock if the separation did not occur.
We expect to incur both one-time and ongoing material costs as a result of the separation, which could adversely affect our profitability.
We expect to incur, as a result of the separation, both one-time and ongoing costs that are greater than those we currently incur. These increased costs may arise from various factors, including financial reporting, costs associated with complying with federal securities laws (including compliance with the Exchange Act, Sarbanes-Oxley and the Dodd-Frank Act), and costs associated with accounting, auditing, tax, legal, human resources, investor relations, risk management, treasury and other general and administrative related functions, and it is possible that these costs will be material to our business.
In connection with the distribution, we expect to incur debt obligations, and we may incur additional debt obligations in the future, which could adversely affect our business and profitability and our ability to meet other obligations.
We expect to complete one or more financing transactions before the distribution is completed, with approximately $10.7 billion of the proceeds of such financings expected to be used to distribute cash to UTC. As a result of such transactions, we anticipate having approximately $11.1 billion of outstanding indebtedness when the distribution is completed. See Description of Material Indebtedness. We may also incur additional indebtedness in the future. In addition, the amount of indebtedness actually incurred by Carrier and the amount of cash actually distributed by Carrier to UTC (or otherwise transferred to or from UTC or Carrier, as applicable, prior to the distribution) may be adjusted prior to the completion of the distribution in a manner that is intended to result in approximately $24.3 billion of adjusted net indebtedness of the UTC Aerospace Businesses immediately prior to the completion of the merger, subject to and in accordance with the Raytheon merger agreement; accordingly, the actual cash and debt balances of Carrier immediately following the distribution may be higher or lower than currently anticipated.
This significant amount of debt could potentially have important consequences to us and our debt and equity investors, including: (1) requiring a substantial portion of our cash flow from operations to make interest payments; (2) making it more difficult to satisfy debt service and other obligations; (3) increasing the risk of a future credit ratings downgrade of our debt, which could increase future debt costs and limit the future availability of debt financing; (4) increasing our vulnerability to general adverse economic and industry conditions; (5) reducing the cash flow available to fund capital expenditures and other corporate purposes and to
35
grow our business; (6) limiting our flexibility in planning for, or reacting to, changes in our business and the industry; (7) placing us at a competitive disadvantage relative to our competitors that may not be as highly leveraged with debt; and (8) limiting our ability to borrow additional funds as needed or take advantage of business opportunities as they arise, pay cash dividends or repurchase shares.
As described in the section of this information statement entitled “Description of Material Indebtedness,” the terms of Carriers indebtedness are expected to contain covenants restricting its financial flexibility in a number of ways, including, among other things, restrictions on Carriers ability and the ability of certain of Carriers subsidiaries to incur liens, to make certain fundamental changes and to enter into sale and leaseback transactions. If Carrier breaches a restrictive covenant under any of its indebtedness, or an event of default occurs in respect of any of its indebtedness, Carriers lenders may be entitled to declare all amounts owing in respect thereof to be immediately due and payable.
To the extent that we incur additional indebtedness, the foregoing risks could increase. In addition, our actual cash requirements in the future may be greater than expected. Our cash flow from operations may not be sufficient to repay all of the outstanding debt as it becomes due, and we may not be able to borrow money, sell assets or otherwise raise funds on acceptable terms, or at all, to refinance our debt.
After the separation, certain members of management, directors and shareowners may own stock in UTC, Carrier and Otis, and as a result may face actual or potential conflicts of interest.
After the separation, the management and directors of each of UTC, Carrier and Otis may own common stock in all three companies. This ownership overlap could create, or appear to create, potential conflicts of interest when the management and directors of one company face decisions that could have different implications for themselves and the other two companies. For example, potential conflicts of interest could arise in connection with the resolution of any dispute regarding the terms of the agreements governing the separation and Carriers relationship with UTC and Otis thereafter. These agreements include the separation agreement, the transition services agreement, the tax matters agreement, the employee matters agreement, the intellectual property agreement and any commercial agreements between the parties or their affiliates. Potential conflicts of interest may also arise out of any commercial arrangements that we or UTC may enter into in the future.
We could experience temporary interruptions in business operations and incur additional costs as we further develop information technology infrastructure and transition our data to our stand-alone systems.
We are in the process of further developing an IT infrastructure and systems to support our critical business functions, including accounting and reporting, in order to replace many of the systems and functions UTC currently provides. We may experience temporary interruptions in business operations if we cannot transition effectively to our own stand-alone systems and functions, which could disrupt our business operations and have a material adverse effect on our profitability. In addition, our costs for the operation of these systems may be higher than the amounts reflected in the combined financial statements.
We may not be able to engage in desirable capital-raising or strategic transactions following the separation.
Under current U.S. federal income tax law, a spin-off that otherwise qualifies for tax-free treatment can be rendered taxable to the parent corporation and its shareowners as a result of certain post-spin-off transactions, including certain acquisitions of shares or assets of the spun-off corporation. To preserve the tax-free treatment of the separation and the distribution, and in addition to Carriers indemnity obligation described below, the tax matters agreement will restrict us, for the two-year period following the distribution, except in specific circumstances, from: (1) entering into any transaction pursuant to which all or a portion of the shares of Carrier stock would be acquired, whether by merger or otherwise; (2) issuing equity securities beyond certain thresholds; (3) repurchasing shares of Carrier stock other than in certain open-market transactions; and (4) ceasing to actively conduct certain of our businesses. The tax matters agreement will also prohibit us from taking or failing to take any other action that would prevent the distribution and certain related transactions from qualifying as a transaction that is generally tax-free, for U.S. federal income tax purposes, under Sections 355 and 368(a)(1)(D) of the Code or for applicable non-U.S. income tax purposes. Further, the tax matters agreement will impose similar restrictions on us and our subsidiaries during the two-year period following the distribution that are intended to prevent certain transactions undertaken as part of the internal reorganization from failing to qualify as transactions that are generally tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D)
36
of the Code or for applicable non-U.S. income tax purposes. These restrictions may limit our ability to pursue certain equity issuances, strategic transactions, repurchases or other transactions that we may otherwise believe to be in the best interests of our shareowners or that might increase the value of our business. For more information, see Certain Relationships and Related Party Transactions—Tax Matters Agreement and Material U.S. Federal Income Tax Consequences.
In connection with the separation into three independent public companies, each of UTC, Carrier and Otis will indemnify the other parties for certain liabilities. If we are required to pay under these indemnities to UTC and/or Otis, our financial results could be negatively impacted. Also, the UTC or Otis indemnities may not be sufficient to hold us harmless from the full amount of liabilities for which UTC and Otis will be allocated responsibility, and UTC and/or Otis may not be able to satisfy their respective indemnification obligations in the future.
Pursuant to the separation agreement and certain other agreements among UTC, Carrier and Otis, each party will agree to indemnify the other parties for certain liabilities as discussed further in Certain Relationships and Related Party Transactions. Indemnities that we may be required to provide UTC and/or Otis are not subject to any cap, may be significant and could negatively impact our business. Third parties could also seek to hold us responsible for any of the liabilities that UTC and/or Otis has agreed to retain. The indemnities from UTC and Otis for our benefit may not be sufficient to protect us against the full amount of such liabilities, and UTC and/or Otis may not be able to fully satisfy their respective indemnification obligations. Any amounts we are required to pay pursuant to such indemnification obligations and other liabilities could require us to divert cash that would otherwise have been used in furtherance of our operating business.
Moreover, even if we ultimately succeed in recovering from UTC or Otis, as applicable, we may be temporarily required to bear these losses ourselves. Each of these risks could negatively affect our business, results of operations and financial condition.
UTC or Otis may fail to perform under various transaction agreements that will be executed as part of the separation, or we may fail to have the necessary systems and services in place when the transition services agreement expires.
In connection with the separation and prior to the distribution, Carrier, Otis and UTC will enter into the separation agreement and will also enter into various other agreements, including a transition services agreement, a tax matters agreement, an employee matters agreement, and an intellectual property agreement. These agreements, together with the documents and agreements by which the internal reorganization will be effected, will determine the allocation of assets and liabilities among the companies following the separation and will include any necessary indemnifications related to liabilities and obligations. The transition services agreement will provide for the performance of certain services by UTC for the benefit of Carrier and/or Otis and by Carrier and/or Otis for the benefit of UTC for a period of time after the separation. If UTC or Otis is unable or unwilling to satisfy its obligations under these agreements, including its indemnification obligations, we could incur operational difficulties and/or losses. We are in the process of creating systems and services to replace many of the systems and services that UTC currently provides to us. However, we may not be successful in implementing these systems and services in a timely manner or at all, we may incur additional costs in connection with, or following, the implementation of these systems and services, and we may not be successful in transitioning data from UTCs systems to ours.
The terms we will receive in our agreements with UTC or Otis could be less beneficial than the terms we may have otherwise received from unaffiliated third parties.
The agreements we will enter into with UTC and Otis in connection with the separation, including the separation agreement, a transition services agreement, a tax matters agreement, an employee matters agreement and an intellectual property agreement, were prepared in the context of the separation while Carrier was still a wholly owned subsidiary of UTC. Accordingly, Carrier did not have a board of directors or a management team that were independent of UTC. In addition, certain of the terms in these agreements were provided for in, and were the result of negotiations between UTC and Raytheon in connection with, the Raytheon merger agreement. As a result of these factors, the terms of those agreements may not reflect terms that would have resulted from arms-length negotiations between unaffiliated third parties. See Certain Relationships and Related Party Transactions.
37
If the distribution, together with certain related transactions, were to fail to qualify as a transaction that is generally tax-free for U.S. federal income tax purposes, including as a result of subsequent acquisitions of our stock or the stock of UTC (including pursuant to the Raytheon merger), we, as well as UTC, Otis and UTCs shareowners, could be subject to significant tax liabilities. In addition, if certain internal restructuring transactions were to fail to qualify as transactions that are generally tax-free for U.S. federal or non-U.S. income tax purposes, we, as well as UTC and Otis could be subject to significant tax liabilities. In certain circumstances, we could be required to indemnify UTC for material taxes and other related amounts pursuant to indemnification obligations under the tax matters agreement.
The distribution is conditioned on, among other things, (1) the IRS ruling regarding certain U.S. federal income tax matters relating to the separation and distribution received by UTC remaining valid and satisfactory to the UTC Board of Directors and (2) the receipt by UTC and continued validity of an opinion of outside counsel, satisfactory to the UTC Board of Directors, regarding the qualification of certain elements of the distribution under Section 355 of the Code. The IRS ruling and the opinion of counsel will be based upon and rely on, among other things, various facts and assumptions, as well as certain representations, statements and undertakings of UTC, Carrier and Otis, including those relating to the past and future conduct of UTC, Carrier and Otis. If any of these representations, statements or undertakings is, or becomes, inaccurate or incomplete, or if any of the representations or covenants contained in any of the separation-related agreements and documents or in any documents relating to the IRS ruling and/or the opinion of counsel are inaccurate or not complied with by UTC, Carrier, Otis or any of their respective subsidiaries, the IRS ruling and/or the opinion of counsel may be invalid and the conclusions reached therein could be jeopardized.
Notwithstanding receipt of the IRS ruling and the opinion of counsel, the IRS could determine that the distribution and/or certain related transactions should be treated as taxable transactions for U.S. federal income tax purposes if it determines that any of the representations, assumptions or undertakings upon which the IRS ruling or the opinion of counsel was based are inaccurate or have not been complied with. In addition, the IRS ruling does not address all of the issues that are relevant to determining whether the distribution, together with certain related transactions, qualifies as a transaction that is generally tax-free for U.S. federal income tax purposes. The opinion of counsel represents the judgment of such counsel and is not binding on the IRS or any court, and the IRS or a court may disagree with the conclusions in the opinion of counsel. Accordingly, notwithstanding receipt by UTC of the IRS ruling and the opinion of counsel, there can be no assurance that the IRS will not assert that the distribution and/or certain related transactions do not qualify for tax-free treatment for U.S. federal income tax purposes (including by reason of the Raytheon merger) or that a court would not sustain such a challenge. In the event the IRS were to prevail with such challenge, we, as well as UTC, Otis and UTCs shareowners, could be subject to significant U.S. federal income tax liability.
If the distribution were to fail to qualify as a transaction that is generally tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code, in general, for U.S. federal income tax purposes, UTC would recognize a taxable gain as if it had sold the Carrier common stock in a taxable sale for its fair market value, and UTC shareowners who receive Carrier common stock in the distribution would be subject to tax as if they had received a taxable distribution equal to the fair market value of such shares. Even if the distribution were to otherwise qualify as a tax-free transaction under Sections 355 and 368(a)(1)(D) of the Code, it may result in taxable gain to UTC (but not its shareowners) under Section 355(e) of the Code if the distribution were deemed to be part of a plan (or series of related transactions) pursuant to which one or more persons acquire, directly or indirectly, shares representing a 50 percent or greater interest (by vote or value) in UTC or Carrier. For this purpose, any acquisitions of UTC or Carrier shares within the period beginning two years before the distribution and ending two years after the distribution are presumed to be part of such a plan, although UTC or Carrier may be able to rebut that presumption (including by qualifying for one or more safe harbors under applicable Treasury Regulations). Further, for purposes of this test, even if the Raytheon merger were treated as part of such a plan, the Raytheon merger alone should not cause the distribution to be taxable to UTC under Section 355(e) of the Code because pre-Raytheon merger holders of UTC common stock will own over 50 percent of the UTC common stock immediately following the Raytheon merger. However, if the IRS were to determine that other acquisitions of UTC or Carrier stock, either before or after the distribution, were part of a plan or series of related transactions that included the distribution, such determination could result in significant tax liabilities to UTC. For more information, see Material U.S. Federal Income Tax Consequences.
In addition, as part of the separation, and prior to the Carrier distribution and the Otis distribution, UTC and its subsidiaries expect to complete the internal reorganization, and UTC, Carrier, Otis and their respective
38
subsidiaries expect to incur certain tax costs in connection with the internal reorganization, including non-U.S. tax costs resulting from transactions in non-U.S. jurisdictions, which may be material. With respect to certain transactions undertaken as part of the internal reorganization, UTC has requested and intends to obtain tax rulings in certain non-U.S. jurisdictions and/or opinions of external tax advisors, in each case, regarding the tax treatment of such transactions. Such tax rulings and opinions will be based upon and rely on, among other things, various facts and assumptions, as well as certain representations (including with respect to certain valuation matters relating to the internal reorganization), statements and undertakings of UTC, Carrier, Otis or their respective subsidiaries. If any of these representations or statements is, or becomes, inaccurate or incomplete, or if UTC, Carrier, Otis or any of their respective subsidiaries do not fulfill or otherwise comply with any such undertakings or covenants, such tax rulings and/or opinions may be invalid or the conclusions reached therein could be jeopardized. Further, notwithstanding receipt of any such tax rulings and/or opinions, there can be no assurance that the relevant taxing authorities will not assert that the tax treatment of the relevant transactions differs from the conclusions reached in the relevant tax rulings and/or opinions. In the event any such tax rulings and/or opinions cannot be obtained or the relevant taxing authorities prevail with any challenge in respect of any relevant transaction, we, as well as UTC and Otis could be subject to significant tax liabilities.
Under the tax matters agreement to be entered into among UTC, Carrier and Otis in connection with the separation, Carrier generally would be required to indemnify UTC and Otis for any taxes resulting from the separation (and any related costs and other damages) to the extent such amounts resulted from (1) an acquisition of all or a portion of the equity securities or assets of Carrier, whether by merger or otherwise (and regardless of whether we participated in or otherwise facilitated the acquisition), (2) other actions or failures to act by Carrier or (3) certain of Carriers representations, covenants or undertakings contained in any of the separation-related agreements and documents or in any documents relating to the IRS ruling and/or the opinion of counsel being incorrect or violated. Further, under the tax matters agreement, we generally would be required to indemnify UTC and Otis for a specified portion of any taxes (and any related costs and other damages) (a) arising as a result of the failure of either of the distributions and certain related transactions to qualify as a transaction that is generally tax-free (including as a result of Section 355(e) of the Code) or a failure of any internal separation transaction that is intended to qualify as a transaction that is generally tax-free to so qualify, in each case, to the extent such amounts did not result from a disqualifying action by, or acquisition of equity securities of, Carrier, Otis or UTC or (b) arising from an adjustment, pursuant to an audit or other tax proceeding, with respect to any separation transaction that is not intended to qualify as a transaction that is generally tax-free. Any such indemnity obligations could be material. For a more detailed discussion, see Certain Relationships and Related Party Transactions—Tax Matters Agreement.
The transfer to us by UTC or Otis of certain contracts, permits and other assets and rights may require the consents or approvals of, or provide other rights to, third parties and governmental authorities. If such consents or approvals are not obtained, we may not be entitled to the benefit of such contracts, permits and other assets and rights, which could increase our expenses or otherwise harm our business and financial performance.
The separation agreement will provide that certain contracts, permits and other assets and rights are to be transferred from UTC, Otis or their subsidiaries to Carrier or its subsidiaries in connection with the separation. The transfer of certain of these contracts, permits and other assets and rights may require consents or approvals of third parties or governmental authorities or provide other rights to third parties. In addition, in some circumstances, Carrier and UTC or Otis are joint beneficiaries of contracts, and we and UTC or Otis may need the consents of third parties in order to split, separate, replace, novate or replicate the existing contracts or the relevant portion of the existing contracts. While we anticipate entering into new contracts in place of transferring such contracts, we may not be successful in doing so in many instances.
Some parties may use consent requirements or other rights to terminate contracts or obtain more favorable contractual terms from us, which, for example, could take the form of price increases, require us to expend additional resources in order to obtain the services or assets previously provided under the contract, or require us to make arrangements with new third parties or obtain letters of credit or other forms of credit support. If we do not obtain required consents or approvals, we may be unable to obtain the benefits, permits, assets and contractual commitments that are intended to be allocated to us as part of our separation from UTC, and we may be required to seek alternative arrangements to obtain services and assets which may be more costly and/or of
39
lower quality. The termination, modification, replacement or replication of these contracts or permits or the failure to timely complete the transfer or separation of these contracts or permits could negatively impact our business, financial condition, results of operations and cash flows.
Until the distribution occurs, the UTC Board of Directors may change the terms of the separation in ways that may be unfavorable to us.
Until the distribution occurs, Carrier will continue to be a wholly owned subsidiary of UTC. Accordingly, UTC has the discretion to determine and change the terms of the separation, including the establishment of the record date and the distribution date; provided, that any such determination or change will be subject to UTCs obligations to complete the separation and each of the Carrier distribution and the Otis distribution in accordance with the terms and conditions of the Raytheon merger agreement (including, with respect to certain changes, the requirement that UTC obtain Raytheons prior written consent). These changes could be unfavorable to us, and as a general matter, Raytheons consent would not be required to effect changes that are unfavorable to us. In addition, subject to UTCs obligations under the Raytheon merger agreement, the UTC Board of Directors may decide not to proceed with the distribution at any time prior to the distribution date.
No vote of UTC shareowners is required in connection with the distribution. As a result, if the distribution occurs and you do not want to receive our common stock in the distribution, your sole recourse will be to divest yourself of your UTC common stock prior to the record date or in the regular-way trading market during the period prior to the distribution.
No vote of UTC shareowners is required in connection with the distribution. Accordingly, if the distribution occurs and you do not want to receive our common stock in the distribution, your only recourse will be to divest yourself of your UTC common stock prior to the record date or in the regular-way trading market during the period prior to the distribution.
Failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could materially and adversely affect us.
As a public company, we will be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and the Dodd-Frank Act and will be required to prepare our financial statements according to the rules and regulations required by the SEC. In addition, the Exchange Act requires that we file annual, quarterly and current reports. Our failure to prepare and disclose this information in a timely manner or to otherwise comply with applicable law could subject us to penalties under federal securities laws, expose us to lawsuits and restrict our ability to access financing. In addition, the Sarbanes-Oxley Act requires that, among other things, we establish and maintain effective internal controls and procedures for financial reporting and disclosure purposes. Internal control over financial reporting is complex and may be revised over time to adapt to changes in our business, or changes in applicable accounting rules. We cannot assure you that our internal control over financial reporting will be effective in the future or that a material weakness will not be discovered with respect to a prior period for which we had previously believed that internal controls were effective. If we are not able to maintain or document effective internal control over financial reporting, our independent registered public accounting firm will not be able to certify as to the effectiveness of our internal control over financial reporting when required. While we have been adhering to these laws and regulations as a subsidiary of UTC, after the distribution we will need to demonstrate our ability to manage our compliance with these laws and regulations as an independent, public company.
Matters affecting our internal controls may cause us to be unable to report our financial information on a timely basis, or may cause us to restate previously issued financial information, and thereby subject us to adverse regulatory consequences, including sanctions or investigations by the SEC, or violations of applicable stock exchange listing rules. There could also be a negative reaction in the financial markets due to a loss of investor confidence in our company and the reliability of our financial statements. Confidence in the reliability of our financial statements is also likely to suffer if we or our independent registered public accounting firm report a material weakness in our internal control over financial reporting. This could have a material and adverse effect on us by, for example, leading to a decline in our share price and impairing our ability to raise additional capital.
40
The allocation of intellectual property rights among us, UTC and Otis as part of the separation could adversely impact our competitive position and our ability to develop and commercialize certain future products and services.
In connection with the separation, we are entering into an intellectual property agreement with UTC and Otis governing, among other things, the allocation of intellectual property rights related to our and their businesses. As a result of the separation and such allocation, we will no longer have an ownership interest in certain intellectual property rights, but will become a non-exclusive licensee of such rights. This loss of the ownership of certain intellectual property rights could adversely affect our ability to maintain our competitive position through the enforcement of these rights against third parties that infringe these rights. In addition, we may lose our ability to license these rights to third parties in exchange for a license to such third parties rights we may need to operate our business.
The terms of the intellectual property agreement also include cross-licenses among the parties of certain intellectual property rights owned by Carrier, Otis and UTC and needed for the continuation of the operations of the Carrier Business, Otis Business and the UTC Aerospace Businesses, respectively. The licenses granted to us by UTC and Otis are nonexclusive and, accordingly, UTC and Otis could license such licensed intellectual property rights to our competitors, which could adversely affect our competitive position in the industry. Moreover, our use of the intellectual property rights licensed to us by UTC and Otis will be restricted to certain fields of use related to our business. The limited nature of such licenses, and the other rights granted to Carrier pursuant to the intellectual property agreement, may not provide us with all the intellectual property rights that UTC or Otis currently holds or may in the future hold that we may need as our business changes in the future. Accordingly, if we were to expand our business to include new products and services outside of our current fields of use, we may not have the benefit of such licenses for such new products or services. As a result, it may be necessary for us to develop our technology independently of such licensed rights, which could make it more difficult, time consuming and/or expensive for us to develop and commercialize certain new products and services.
Potential liabilities may arise due to fraudulent transfer considerations, which would adversely affect our financial condition and results of operations.
In connection with the separation (including the internal reorganization), UTC has undertaken and will undertake several corporate reorganization transactions involving its subsidiaries which, along with the distribution, may be subject to various fraudulent conveyance and transfer laws. If, under these laws, a court were to determine that, at the time of the separation, any entity involved in these reorganization transactions or the separation:
• | (1) was insolvent, was rendered insolvent by reason of the separation, or had remaining assets constituting unreasonably small capital, and (2) received less than fair consideration in exchange for the distribution; or |
• | intended to incur, or believed it would incur, debts beyond its ability to pay these debts as they matured, |
then the court could void the separation and distribution, in whole or in part, as a fraudulent conveyance or transfer. The court could then require our shareowners to return to UTC some or all of the shares of Carrier common stock issued in the distribution, or require UTC or Carrier, as the case may be, to fund liabilities of the other company for the benefit of creditors. The measure of insolvency will vary depending upon the jurisdiction and the applicable law. Generally, however, an entity would be considered insolvent if the fair value of its assets was less than the amount of its liabilities (including the probable amount of contingent liabilities), or if it incurred debt beyond its ability to repay the debt as it matures. No assurance can be given as to what standard a court would apply to determine insolvency or that a court would determine that Carrier or any of its subsidiaries were solvent at the time of or after giving effect to the distribution.
Risks Related to Our Common Stock
We cannot be certain that an active trading market for our common stock will develop or be sustained after the distribution and, following the distribution, our stock price may fluctuate significantly.
A public market for our common stock does not currently exist. We anticipate that on or prior to the record date, trading of shares of our common stock will begin on a when-issued basis and will continue through the distribution date. However, we cannot guarantee that an active trading market will develop or be sustained for our common stock after the distribution, nor can we predict the prices at which shares of our common stock may
41
trade after the distribution. Similarly, we cannot predict the effect of the Carrier distribution and the Otis distribution on the trading prices of our common stock or whether the combined market value of one share of our common stock, the number of shares of Otis common stock to be distributed per share of UTC common stock in the Otis distribution and one share of UTC common stock will be less than, equal to or greater than the market value of one share of UTC common stock prior to the distributions.
Until the market has fully evaluated the Carrier distribution, the Otis distribution and the transactions contemplated by the Raytheon merger agreement, including the pendency, completion or termination, as applicable, of the Raytheon merger, the price at which each share of UTC common stock trades may fluctuate more significantly than might otherwise be typical, even with other market conditions, including general volatility, held constant. Such fluctuations may be due to a variety of factors, including uncertainty as to the expected timing of completion of the Raytheon merger or whether it will be completed at all, the value of UTCs remaining businesses without Otis and Carrier in the event the Raytheon merger is not completed and investors assessment of the likelihood that UTC will realize the expected benefits of the Raytheon merger. The completion of the Raytheon merger is not a condition to the completion of the Carrier distribution or the Otis distribution, and UTC may complete the distributions (in accordance with the terms of the Raytheon merger agreement, to the extent in effect) even if the Raytheon merger agreement has been terminated.
Similarly, until the market has fully evaluated our business as a stand-alone entity, the prices at which shares of Carrier common stock trade may fluctuate more significantly than might otherwise be typical, even with other market conditions, including general volatility, held constant. The increased volatility of our stock price following the distribution may have a material adverse effect on our business, financial condition and results of operations. The market price of our common stock may fluctuate significantly due to a number of factors, some of which may be beyond our control, including: (1) actual or anticipated fluctuations in our operating results; (2) changes in earnings estimated by securities analysts or our ability to meet those estimates; (3) the operating and stock price performance of comparable companies; (4) changes to the regulatory and legal environment under which we operate; (5) actual or anticipated fluctuations in commodities prices; and (6) domestic and worldwide economic conditions.
A significant number of shares of our common stock may be sold following the distribution, which may cause our stock price to decline.
Any sales of substantial amounts of our common stock in the public market or the perception that such sales might occur, in connection with the distribution or otherwise, may cause the market price of our common stock to decline. Upon completion of the distribution, we expect that we will have an aggregate of approximately [ ] shares of our common stock issued and outstanding. Shares distributed to UTC shareowners in the separation will generally be freely tradable without restriction or further registration under the U.S. Securities Act of 1933, as amended (the Securities Act), except for shares owned by one of our affiliates, as that term is defined in Rule 405 under the Securities Act.
We are unable to predict whether large amounts of our common stock will be sold in the open market following the distribution. We are also unable to predict whether a sufficient number of buyers of our common stock to meet the demand to sell shares of our common stock at attractive prices would exist at that time.
There may be substantial changes in our shareowner base.
Investors holding UTC common stock may hold UTC common stock because of a decision to invest in a company with UTCs profile. Following the distribution, the shares of our common stock held by those investors will represent an investment in a company with a different profile than that of UTC. This change may not match some shareowners investment strategies, which could cause them to sell our common stock. As a result, our stock price may decline or experience volatility as our shareowner base changes.
Your percentage of ownership in Carrier may be diluted in the future.
In the future, your percentage ownership in Carrier may be diluted because of equity issuances for acquisitions, capital market transactions or otherwise, including any equity awards that we will grant to our directors, officers and employees. Our employees will have stock-based awards that correspond to shares of our common stock after the distribution as a result of the conversion of and/or adjustments to their UTC stock-based awards. Such awards will have a dilutive effect on our earnings per share, which could adversely affect the
42
market price of our common stock. We also plan to issue additional stock-based awards, including annual awards, new hire awards and periodic retention awards, as applicable, to our directors, officers and other employees under our employee benefits plans as part of our ongoing equity compensation program.
We cannot guarantee the timing, amount or payment of dividends on our common stock.
Following the distribution, we expect that Carrier will initially pay a cash dividend on a quarterly basis at an aggregate annual rate of approximately $550 million. However, the timing, declaration, amount of, and payment of any dividends will be within the discretion of Carriers Board of Directors and will depend upon many factors, including our financial condition, earnings, capital requirements of our operating subsidiaries, covenants associated with certain of our debt service obligations, legal requirements, regulatory constraints, industry practice, ability to access capital markets, and other factors deemed relevant by Carriers Board of Directors. Moreover, if as expected we determine to initially pay a dividend following the distribution, there can be no assurance that we will continue to pay dividends in the same amounts or at all thereafter. For more information, see Dividend Policy.
Anti-takeover provisions could enable our Board of Directors to resist a takeover attempt by a third party and limit the power of our shareowners.
Carriers amended and restated certificate of incorporation and amended and restated bylaws will contain, and Delaware law contains, provisions that are intended to deter coercive takeover practices and inadequate takeover bids by making such practices or bids unacceptably expensive to the bidder and to encourage prospective acquirers to negotiate with Carriers Board of Directors rather than to attempt a hostile takeover. These provisions are expected to include, among others, (1) the ability of our remaining directors to fill vacancies on Carriers Board of Directors (except in an instance where a director is removed by shareowners and the resulting vacancy is filled by shareowners); (2) limitations on shareowners ability to call a special shareowner meeting; (3) rules regarding how shareowners may present proposals or nominate directors for election at shareowner meetings; and (4) the right of Carriers Board of Directors to issue preferred stock without shareowner approval.
In addition, we expect to be subject to Section 203 of the Delaware General Corporation Law (DGCL), which could have the effect of delaying or preventing a change of control that you may favor. Section 203 provides that, subject to limited exceptions, persons that acquire, or are affiliated with persons that acquire, more than 15 percent of the outstanding voting stock of a Delaware corporation may not engage in a business combination with that corporation, including by merger, consolidation or acquisitions of additional shares, for a three-year period following the date on which that person or any of its affiliates becomes the holder of more than 15 percent of the corporations outstanding voting stock.
We believe these provisions will protect our shareowners from coercive or otherwise unfair takeover tactics by requiring potential acquirers to negotiate with Carriers Board of Directors and by providing Carriers Board of Directors with more time to assess any acquisition proposal. These provisions are not intended to make Carrier immune from takeovers; however, these provisions will apply even if the offer may be considered beneficial by some shareowners and could delay or prevent an acquisition that Carriers Board of Directors determines is not in the best interests of Carrier and our shareowners. These provisions may also prevent or discourage attempts to remove and replace incumbent directors. See Description of Carrier Capital Stock—Charter and Bylaw Provisions and Description of Carrier Capital Stock—Change of Control.
In addition, an acquisition or further issuance of our stock could trigger the application of Section 355(e) of the Code, causing the distribution to be taxable to UTC. For a discussion of Section 355(e) of the Code, see Material U.S. Federal Income Tax Consequences. Under the tax matters agreement, we would be required to indemnify UTC for the resulting tax, and this indemnity obligation might discourage, delay or prevent a change of control that our shareowners may consider favorable.
Our amended and restated bylaws will designate the state courts within the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our shareowners, which could discourage lawsuits against Carrier and our directors and officers.
Carriers amended and restated bylaws will provide that unless Carriers Board of Directors otherwise determines, the state courts within the State of Delaware (or, if no state court located within the State of Delaware has jurisdiction, the federal district court for the District of Delaware) will be the sole and exclusive
43
forum for any derivative action or proceeding brought on behalf of Carrier, any action asserting a claim for or based on a breach of a fiduciary duty owed by any current or former director or officer or other employee of Carrier to Carrier or to Carrier shareowners, including a claim alleging the aiding and abetting of such a breach of fiduciary duty, any action asserting a claim against Carrier or any current or former director or officer or other employee of Carrier arising pursuant to any provision of the DGCL or our amended and restated certificate of incorporation or amended and restated bylaws, any action asserting a claim relating to or involving Carrier governed by the internal affairs doctrine, or any action asserting an internal corporate claim as that term is defined in Section 115 of the DGCL.
To the fullest extent permitted by law, this exclusive forum provision will apply to state and federal law claims, including claims under the federal securities laws, including the Securities Act and the Exchange Act, although Carrier shareowners will not be deemed to have waived Carriers compliance with the federal securities laws and the rules and regulations thereunder. The enforceability of similar choice of forum provisions in other companies organizational documents has been challenged in legal proceedings, and it is possible that, in connection with claims arising under federal securities laws or otherwise, a court could find the exclusive forum provision contained in the amended and restated bylaws to be inapplicable or unenforceable.
This exclusive forum provision may limit the ability of our shareowners to bring a claim in a judicial forum that such shareowners find favorable for disputes with Carrier or our directors or officers, which may discourage such lawsuits against Carrier and our directors and officers. Alternatively, if a court were to find this exclusive forum provision inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings described above, we may incur additional costs associated with resolving such matters in other jurisdictions, which could negatively affect our business, results of operations and financial condition.
44
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This information statement and other materials UTC and Carrier have filed or will file with the SEC contain or incorporate by reference statements which, to the extent they are not statements of historical or present fact, constitute forward-looking statements under the securities laws. From time to time, oral or written forward-looking statements may also be included in other information released to the public. These forward-looking statements are intended to provide managements current expectations or plans for our future operating and financial performance, based on assumptions currently believed to be valid. Forward-looking statements can be identified by the use of words such as believe, expect, expectations, plans, strategy, prospects, estimate, project, target, anticipate, will, should, see, guidance, outlook, confident and other words of similar meaning in connection with a discussion of future operating or financial performance or the separation. Forward-looking statements may include, among other things, statements relating to future sales, earnings, cash flow, results of operations, uses of cash, share repurchases, tax rates and other measures of financial performance or potential future plans, strategies or transactions of Carrier, Otis or UTC following UTCs separation into three independent public companies and/or following completion of the Raytheon merger, the separation, including the expected timing of completion of the separation and estimated costs associated with the separation, the Raytheon merger, including synergies or customer cost savings and the expected timing of the completion of the Raytheon merger, and other statements that are not historical facts. All forward-looking statements involve risks, uncertainties and other factors that may cause actual results to differ materially from those expressed or implied in the forward-looking statements. Such risks, uncertainties and other factors include, without limitation:
• | the effect of economic conditions in the industries and markets in which Carrier and UTC and their respective businesses operate in the U.S. and globally and any changes therein, including financial market conditions, fluctuations in commodity prices, interest rates and foreign currency exchange rates, levels of end market demand in construction, the impact of weather conditions, pandemic health issues (including coronavirus) and natural disasters and the financial condition of our customers and suppliers; |
• | challenges in the development, production, delivery, support, performance and realization of the anticipated benefits of advanced technologies and new products and services; |
• | future levels of indebtedness, including indebtedness that may be incurred in connection with the separation, and capital spending and research and development spending; |
• | future availability of credit and factors that may affect such availability, including credit market conditions and our capital structure; |
• | the timing and scope of future repurchases of our common stock, which may be suspended at any time due to various factors, including market conditions and the level of other investing activities and uses of cash; |
• | delays and disruption in delivery of materials and services from suppliers; |
• | cost reduction efforts and restructuring costs and savings and other consequences thereof; |
• | new business and investment opportunities; |
• | the anticipated benefits of moving away from diversification and balance of operations across product lines, regions and industries; |
• | the outcome of legal proceedings, investigations and other contingencies; |
• | pension plan assumptions and future contributions; |
• | the impact of the negotiation of collective bargaining agreements and labor disputes; |
• | the effect of changes in political conditions in the U.S. and other countries in which Carrier and UTC and their respective businesses operate, including the effect of changes in U.S. trade policies or the U.K.’s withdrawal from the EU, on general market conditions, global trade policies and currency exchange rates in the near term and beyond; |
45
• | the effect of changes in tax, environmental, regulatory (including among other things import/export) and other laws and regulations in the U.S. and other countries in which Carrier and UTC and their respective businesses operate; |
• | the ability of Carrier and UTC to retain and hire key personnel; |
• | the scope, nature, impact or timing of the separation and other acquisition and divestiture activity, including among other things integration of acquired businesses into existing businesses and realization of synergies and opportunities for growth and innovation and incurrence of related costs; |
• | the expected benefits and timing of the separation, and the risk that conditions to the separation will not be satisfied and/or that the separation will not be completed within the expected time frame, on the expected terms or at all; |
• | a determination by the IRS and other tax authorities that the distribution or certain related transactions should be treated as taxable transactions; |
• | the possibility that any consents or approvals required in connection with the separation will not be received or obtained within the expected time frame, on the expected terms or at all; |
• | expected financing transactions undertaken in connection with the separation and risks associated with the additional indebtedness; |
• | the risk that dis-synergy costs, costs of restructuring transactions and other costs incurred in connection with the separation will exceed Carrier’s estimates; |
• | risks associated with the transactions contemplated by the Raytheon merger agreement or the announcement or pendency of such transactions, including disruptions to UTC’s or Carrier’s operations and the potential distraction of UTC or Carrier management or employees; |
• | UTC’s obligations pursuant to the Raytheon merger agreement to consummate the Carrier distribution and the Otis distribution in accordance with the terms and conditions of the Raytheon merger agreement, including with respect to the timing of the distributions and the requirement that UTC obtain Raytheon’s prior written consent to effect certain changes to the terms of the separation or distributions, and the resulting limitations on UTC’s ability to determine or alter the structure or timing of the internal restructuring, the separation and the distributions or the terms and conditions of the separation agreement or ancillary agreements; and |
• | the impact of the separation on Carrier’s business and the risk that the separation may be more difficult, time-consuming or costly than expected, including the impact on Carrier’s resources, systems, procedures and controls, diversion of management’s attention and the impact on relationships with customers, suppliers, employees and other business counterparties. |
There can be no assurance that the separation, distribution or any other transaction described above will in fact be consummated in the manner described or at all. The above list of factors is not exhaustive or necessarily in order of importance. For additional information on identifying factors that may cause actual results to vary materially from those stated in forward-looking statements, see the discussions under Risk Factors. Any forward-looking statement speaks only as of the date on which it is made, and Carrier assumes no obligation to update or revise such statement, whether as a result of new information, future events or otherwise, except as required by applicable law.
46
THE SEPARATION AND DISTRIBUTION
Overview
On November 26, 2018, UTC announced its intention to separate the Carrier Business and the Otis Business from UTCs Aerospace Businesses. The separation will occur through pro rata distributions to UTC shareowners of 100 percent of the shares of common stock of Carrier and 100 percent of the shares of common stock of Otis, which were formed to ultimately hold UTCs Carrier Business and Otis Business, respectively.
In connection with the Carrier distribution, we expect that:
• | UTC will complete the internal reorganization through which Carrier will become the parent company of the UTC operations comprising, and the entities that will conduct, the Carrier Business; |
• | Carrier will incur approximately $10.7 billion of principal indebtedness, consisting of a combination of long-term notes and bank term loans (which amount may be adjusted by UTC as described elsewhere in this information statement); and |
• | using a portion of the proceeds from one or more financing transactions before the distribution is completed, Carrier will distribute approximately $10.7 billion of cash to UTC (which amount may be adjusted by UTC as described elsewhere in this information statement). |
On June 9, 2019, UTC entered into the Raytheon merger agreement, which provides for the combination of the UTC Aerospace Businesses and Raytheon in a merger of equals transaction with Raytheon surviving as a wholly owned subsidiary of UTC. Under the Raytheon merger agreement, UTC has agreed with Raytheon that, subject to the terms and conditions of the Raytheon merger agreement, UTC will consummate the separation and each of the Carrier distribution and the Otis distribution. In addition, the completion of the separation and each of the Carrier distribution and the Otis distribution is a condition to the Raytheon merger pursuant to the Raytheon merger agreement. Accordingly, the Raytheon merger will not be completed unless and until the separation and each of the distributions are completed. The completion of the Raytheon merger is not a condition to the completion of the distributions. Therefore, UTC may complete the distribution even if the conditions to the Raytheon merger under the Raytheon merger agreement have not been satisfied or waived, the Raytheon merger agreement has been terminated or the Raytheon merger will otherwise not be consummated. For additional information, see Certain Relationships and Related Party Transactions—Raytheon Merger Agreement.
On [ ], 2020, the UTC Board of Directors approved the distribution of all of Carriers issued and outstanding shares of common stock on the basis of one share of Carrier common stock for every share of UTC common stock held as of the close of business on [ ], 2020, the record date.
At 12:01 a.m., Eastern Time, on [ ], 2020, the distribution date, each UTC shareowner will receive one share of Carrier common stock for every share of UTC common stock held at the close of business on the record date, as described below. UTC shareowners will receive cash in lieu of any fractional shares of Carrier common stock that they would have received after application of this ratio. Upon completion of the separation, each UTC shareowner as of the record date will continue to own shares of UTC and will receive a proportionate share of the outstanding common stock of Carrier to be distributed. You will not be required to make any payment, surrender or exchange your UTC common stock or take any other action to receive your shares of Carrier common stock in the distribution. The distribution as described elsewhere in this information statement is subject to the satisfaction or waiver of certain conditions. For a more detailed description of these conditions, see —Conditions to the Distribution. We currently expect the Otis distribution to occur on or around the date of the Carrier distribution, unless otherwise determined by the UTC Board of Directors in its sole and absolute discretion, but subject to UTCs agreement to consummate each of the Carrier distribution and the Otis distribution as required pursuant to, and subject to the terms and conditions of, the Raytheon merger agreement. Though UTC has agreed pursuant to, and subject to the terms and conditions of the Raytheon merger agreement, that UTC will consummate the separation and each of the Carrier distribution and the Otis distribution, there can be no assurance that the Carrier distribution and the Otis distribution will occur on or around the same date or that either distribution will occur at all.
47
Reasons for the Separation
The UTC Board of Directors believes that the separation of UTC into three independent, publicly traded companies through the separation of its Carrier Business and Otis Business is in the best interests of UTC and its shareowners for a number of reasons (irrespective of whether or not the Raytheon merger is completed), including:
• | Greater Focus and Enhanced Operational Agility. The separation will permit each company to more effectively focus on pursuing its own distinct operating priorities and strategies for long-term growth and profitability, and will better position the management teams of each company to focus on strengthening its core businesses. Maintaining a sharper focus on its core businesses and growth opportunities will allow each company to respond better and more quickly to developments in its industry and to customer demands. In addition, the separation is expected to enhance operational agility of the separated companies, which will lead to improved operating discipline and help drive better results. |
• | Strong Financial Profile of Each Company on a Stand-alone Basis. Each of UTC, Carrier and Otis has established itself as a global leader with the scale to be both self-sufficient and to sustain investment through economic cycles. In addition, each of the companies is expected to have an investment grade credit rating and strong financial characteristics to independently drive growth and investment. |
• | Separate Capital Structures and Allocation Flexibility. The separation will permit each company to allocate its financial resources to meet the unique needs of its own businesses, which will allow each company to intensify its focus on its distinct strategic priorities and individual business risk and return profiles. The separation will also allow each company to more flexibly pursue its own distinct capital structure, capital allocation strategy, and capital return policy. In addition, after the separation, the Carrier Business will no longer need to compete within UTC with the UTC Aerospace Businesses and the Otis Business for capital and other corporate resources. |
• | Creation of Independent Equity Currencies and Increased Strategic Opportunities. The separation will afford Carrier and Otis the ability to offer their independent equity securities to the capital markets and enable each stand-alone business to use its own industry-focused stock to pursue portfolio enhancing acquisitions or other strategic opportunities that are more closely aligned with each company’s strategic goals and expected growth opportunities. |
• | Alignment of Management Incentives with Performance. The separation will allow each company to more effectively recruit, retain and motivate employees through the use of stock-based compensation that more closely reflects and aligns management and employee incentives with specific growth objectives, financial goals and business attributes. Following the separation, recruitment and retention is expected to be enhanced by more consistent talent requirements across the businesses, providing recruiters and applicants with greater clarity and understanding of talent needs and opportunities associated with the core business activities, principles and risks of each company. |
• | Broadening of Investor Base. The separation will allow each company to more effectively articulate a clear investment proposition to attract a long-term investor base suited to its businesses, growth profile and capital allocation priorities, and will facilitate each company’s access to capital by providing investors with three distinct investment opportunities. This is expected to attract shareowners with distinct investment preferences. |
The UTC Board of Directors also considered a number of potentially negative factors in evaluating the separation, including:
• | Risk of Failure to Achieve Anticipated Benefits of the Separation. UTC, Carrier and Otis may not achieve the anticipated benefits of the separation for a variety of reasons, including, among others: the separation will require significant amounts of management’s time and effort, which may divert management’s attention from operating each company’s business; there may be dis-synergy costs related to the separation, including costs of restructuring transactions and other significant costs; and following the separation, each of UTC, Carrier and Otis may be more susceptible to certain economic and market fluctuations, and other adverse events than if Carrier and Otis were still a part of UTC because each business will be less diversified than UTC prior to the separation. |
48
• | Capital Allocation Efficiency and Flexibility. Following the separation, Carrier and Otis may lose capital allocation efficiency and flexibility, as each company will no longer be able to use cash flow from one of UTC’s other businesses to fund its investments and operations. Additionally, as smaller companies, the cost of capital for each company may be higher than UTC’s cost of capital prior to the separation and each company may not obtain the same credit rating as UTC prior to the separation. |
• | Loss of Scale and Increased Administrative Costs. As part of UTC, Carrier and Otis benefit from UTC’s scale in procuring certain goods and services. After the separation, as stand-alone companies, Carrier and Otis may be unable to obtain these goods, services and technologies at prices or on terms as favorable as those UTC obtained prior to the separation. In addition, as part of UTC, Carrier and Otis benefit from certain functions performed by UTC, such as accounting, auditing, tax, legal, human resources, investor relations, risk management, treasury and other general and administrative functions. After the separation, UTC will not perform these functions for Carrier or Otis (other than certain functions that will be provided for a limited time pursuant to the transition services agreement) and, because of Carrier’s and Otis’ smaller scale as stand-alone companies, the cost of performing such functions could be higher than the amounts reflected in Carrier’s or Otis’ historical financial statements, which would cause profitability to decrease. |
• | Disruptions and Costs Related to the Separation. The actions required to separate Carrier’s, Otis’ and UTC’s respective businesses could disrupt each company’s operations. In addition, Carrier and Otis will incur substantial costs in connection with the separation and the transition to being a stand-alone public company, which may include tax costs associated with the internal restructuring and costs to separate shared systems, accounting, tax, legal and other professional services costs, recruiting and relocation costs associated with hiring key senior management personnel who are new to Carrier and Otis. |
• | Limitations on Strategic Transactions. Under the terms of the tax matters agreement that Carrier and Otis will enter into with UTC, Carrier and Otis will be restricted from taking certain actions that could cause the distribution or certain related transactions (or certain transactions undertaken as part of the internal reorganization) to fail to qualify as tax-free transactions under applicable law. These restrictions may limit for a period of time Carrier’s and Otis’ ability to pursue certain strategic transactions and equity issuances or engage in other transactions that might increase the value of their business. |
• | Uncertainty Regarding Stock Prices. We cannot predict the effect of the Carrier distribution and the Otis distribution on the trading prices of Carrier, Otis or UTC common stock or know with certainty whether the combined market value of one share of Carrier common stock, the number of shares of Otis common stock to be distributed per share of UTC common stock in the Otis distribution and one share of UTC common stock will be less than, equal to or greater than the market value of one share of UTC common stock prior to the distributions. Furthermore, there is the risk of volatility in each company’s stock price following the distribution due to sales by certain shareowners whose investment objectives may not be met by each company’s common stock, and it may take time for each company to attract its optimal shareowner base. |
In determining to pursue the separation, the UTC Board of Directors concluded that the potential benefits of the separation outweighed the foregoing factors. For additional information, see Risk Factors.
Formation of Carrier
Carrier was formed in Delaware on March 15, 2019, for the purpose of ultimately holding UTCs Carrier Business. As part of the plan to separate the Carrier Business from the remainder of UTCs businesses, UTC plans to transfer the equity interests of certain entities that are expected to operate the Carrier Business and the assets and liabilities of the Carrier Business to Carrier prior to the distribution. For additional information, see —Internal Reorganization.
When and How You Will Receive the Distribution
With the assistance of Computershare, it is expected that UTC will distribute Carrier common stock at 12:01 a.m., Eastern Time, on [ ], 2020, the distribution date, to all holders of outstanding UTC common stock as of the close of business on [ ], 2020, the record date. Computershare, which currently serves as the transfer agent and registrar for UTC common stock, will serve as the settlement and distribution agent in connection with the distribution and the transfer agent and registrar for Carrier common stock.
49
If you own UTC common stock as of the close of business on the record date, the Carrier common stock that you are entitled to receive in the distribution will be issued electronically, as of the distribution date, to you in book-entry form or to your bank or brokerage firm on your behalf. If you are a registered shareowner of UTC common stock in book-entry form or as physical share certificates, Computershare will mail you a direct registration account statement that reflects your shares of Carrier common stock. Book-entry form refers to a method of recording share ownership when no physical share certificates are issued to shareowners, as is the case in this distribution. You will not receive physical share certificates for your shares of Carrier common stock.
Most UTC shareowners hold their common stock through a bank or brokerage firm. In such cases, the bank or brokerage firm is said to hold the shares in street name and ownership would be recorded on the bank or brokerage firms books. If you hold your UTC common stock through a bank or brokerage firm, your bank or brokerage firm will credit your account for the Carrier common stock that you are entitled to receive in the distribution. If you have any questions concerning the mechanics of having shares held in street name, please contact your bank or brokerage firm.
If you sell UTC common stock in the regular-way market after the record date and on or before the distribution date, you will be selling your right to receive shares of Carrier common stock in the distribution.
Transferability of Shares You Receive
The shares of Carrier common stock that will be distributed in connection with the distribution will be transferable without registration under the Securities Act, except for shares received by persons who may be deemed to be our affiliates. Persons who may be deemed to be our affiliates after the distribution generally include individuals or entities that control, are controlled by or are under common control with us, which may include certain of our executive officers or directors. Securities held by our affiliates will be subject to resale restrictions under the Securities Act. Our affiliates will be permitted to sell shares of our common stock only pursuant to an effective registration statement or an exemption from the registration requirements of the Securities Act, such as the exemption afforded by Rule 144 under the Securities Act.
Number of Shares of Carrier Common Stock You Will Receive
For every share of UTC common stock that you own at the close of business on [ ], 2020, the record date, you will receive one share of Carrier common stock on the distribution date. UTC will not distribute any fractional shares of Carrier common stock to its shareowners. Instead, if you are a registered holder, Computershare will aggregate fractional shares into whole shares, sell the whole shares in the open market at prevailing market prices and distribute the aggregate cash proceeds (net of discounts and commissions) of the sales pro rata (based on the fractional share such holder would otherwise be entitled to receive) to each holder who otherwise would have been entitled to receive a fractional share in the distribution. If you hold your shares of UTC common stock through a bank or brokerage firm, your bank or brokerage firm will receive, on your behalf, your pro rata share of the net cash proceeds of the sales and will electronically credit your account for your share of such proceeds. Computershare, in its sole discretion, without any influence by UTC or Carrier, will determine when, how, and through which broker-dealer and at what price to sell the whole shares. Any broker-dealer used by Computershare will not be an affiliate of either UTC or Carrier and Computershare is not an affiliate of either UTC or Carrier. Neither Carrier nor UTC will be able to guarantee any minimum sale price in connection with the sale of these shares. Recipients of cash in lieu of fractional shares will not be entitled to any interest on the amounts paid in lieu of fractional shares.
The net cash proceeds of these sales of fractional shares will be taxable for U.S. federal income tax purposes. See Material U.S. Federal Income Tax Consequences for an explanation of certain material U.S. federal income tax consequences of the distribution.
Treatment of Equity-Based Compensation
UTC equity-based compensation awards outstanding as of the distribution date are expected to be adjusted as described below; however, the Compensation Committee of the UTC Board of Directors may alter the treatment of awards in any non-U.S. jurisdiction to the extent that it determines such alteration is necessary or appropriate, including to avoid adverse tax consequences to the award holders. The description below assumes that the Carrier distribution and the Otis distribution occur on the same day. If the Carrier distribution and the Otis distribution do not occur on the same day, then it is expected that the adjustment methodology described
50
below would be appropriately modified by the Compensation Committee of the UTC Board of Directors in a manner that is intended to preserve the aggregate intrinsic value of each award immediately after each of the Carrier distribution and the Otis distribution when compared to the aggregate intrinsic value immediately prior to such distribution (in each case, as calculated based on the applicable stock price measurements specified in the employee matters agreement), subject to rounding.
Because the distribution is expected to be completed prior to the consummation of the Raytheon merger and may occur even if the Raytheon merger agreement is terminated or the Raytheon merger will otherwise not be consummated, the award adjustments described below will occur independent of the Raytheon merger. If the Raytheon merger is consummated, UTC common stock will remain outstanding and UTC will be renamed Raytheon Technologies Corporation. Accordingly, following the Raytheon merger, adjusted equity-based compensation awards relating to UTC common stock will continue to relate to UTC common stock, which will trade on the NYSE under the symbol RTX.
Vested Stock Appreciation Right Awards
As of the distribution date, each outstanding and vested UTC stock appreciation right (SAR) award will be converted into a SAR award relating to shares of UTC common stock, a SAR award relating to shares of Carrier common stock, and a SAR award relating to shares of Otis common stock. The number of shares subject to each SAR award and the exercise price of each SAR award will be adjusted in a manner intended to preserve the aggregate intrinsic value of the original UTC SAR award immediately after the distributions when compared to the aggregate intrinsic value immediately prior to the distributions (in each case, as calculated based on the applicable stock price measurements specified in the employee matters agreement), subject to rounding. Each adjusted SAR award will be subject to the same terms, post-termination exercise rules and other restrictions that applied to the original UTC SAR award immediately before the distributions.
Unvested Stock Appreciation Right Awards
Awards Held by UTC Employees. As of the distribution date, each outstanding and unvested UTC SAR award held by an employee who is employed by UTC or its subsidiaries (other than Carrier and Otis and their respective subsidiaries) immediately prior to the distributions will remain denominated in shares of UTC common stock, although the number of shares subject to the award and the exercise price of the award will be adjusted in a manner intended to preserve the aggregate intrinsic value of the original UTC SAR award immediately after the distributions when compared to the aggregate intrinsic value immediately prior to the distributions (in each case, as calculated based on the applicable stock price measurements specified in the employee matters agreement), subject to rounding. Each adjusted UTC SAR award will be subject to the same terms, vesting conditions, post-termination exercise rules and other restrictions that applied to the original UTC SAR award immediately before the distributions.
Awards Held by Carrier Employees. As of the distribution date, each outstanding and unvested UTC SAR award held by an employee who is employed by Carrier or one of its subsidiaries immediately prior to the distributions will be converted into an award of SARs relating to Carrier common stock, with the number of shares subject to the award and the exercise price of the award to be adjusted in a manner intended to preserve the aggregate intrinsic value of the original UTC SAR award immediately after the distributions when compared to the aggregate intrinsic value immediately prior to the distributions (in each case, as calculated based on the applicable stock price measurements specified in the employee matters agreement), subject to rounding. Each adjusted Carrier SAR award will be subject to the same terms, vesting conditions, post-termination exercise rules and other restrictions that applied to the original UTC SAR award immediately before the distributions.
Awards Held by Otis Employees. As of the distribution date, each outstanding and unvested UTC SAR award held by an employee who is employed by Otis or one of its subsidiaries immediately prior to the distributions will be converted into an award of SARs relating to Otis common stock, with the number of shares subject to the award and the exercise price of the award to be adjusted in a manner intended to preserve the aggregate intrinsic value of the original UTC SAR award immediately after the distributions when compared to the aggregate intrinsic value immediately prior to the distributions (in each case, as calculated based on the applicable stock price measurements specified in the employee matters agreement), subject to rounding. Each adjusted Otis SAR award will be subject to the same terms, vesting conditions, post-termination exercise rules and other restrictions that applied to the original UTC SAR award immediately before the distributions.
51
Vested Stock Option Awards
As of the distribution date, each outstanding and vested UTC stock option award will be converted into a stock option award denominated in shares of UTC common stock, a stock option award denominated in shares of Carrier common stock and a stock option award denominated in shares of Otis common stock. The number of shares subject to each option award and the exercise price of each option award will be adjusted in a manner intended to preserve the aggregate intrinsic value of the original UTC stock option award immediately after the distributions when compared to the aggregate intrinsic value immediately prior to the distributions (in each case, as calculated based on the applicable stock price measurements specified in the employee matters agreement), subject to rounding. Each adjusted stock option award will be subject to the same terms, post-termination exercise rules and other restrictions that applied to the original UTC stock option award immediately before the distributions.
Unvested Stock Option Awards
Awards Held by UTC Employees. As of the distribution date, each outstanding and unvested UTC stock option award held by an employee who is employed by UTC and its subsidiaries (other than Carrier and Otis and their respective subsidiaries) immediately prior to the distributions will remain denominated in shares of UTC common stock, although the number of shares subject to the award and the exercise price of the award will be adjusted in a manner intended to preserve the aggregate intrinsic value of the original UTC stock option award immediately after the distributions when compared to the aggregate intrinsic value immediately prior to the distributions (in each case, as calculated based on the applicable stock price measurements specified in the employee matters agreement), subject to rounding. Each adjusted UTC stock option award will be subject to the same terms, vesting conditions, post-termination exercise rules and other restrictions that applied to the original UTC stock option award immediately before the distributions.
Awards Held by Carrier Employees. As of the distribution date, each outstanding and unvested UTC stock option award held by an employee who is employed by Carrier or one of its subsidiaries immediately prior to the distributions will be converted into a stock option award denominated in shares of Carrier common stock, with the number of shares subject to the award and the exercise price of the award to be adjusted in a manner intended to preserve the aggregate intrinsic value of the original UTC stock option award immediately after the distributions when compared to the aggregate intrinsic value immediately prior to the distributions (in each case, as calculated based on the applicable stock price measurements specified in the employee matters agreement), subject to rounding. Each adjusted Carrier stock option award will be subject to the same terms, vesting conditions, post-termination exercise rules and other restrictions that applied to the original UTC stock option award immediately before the distributions.
Awards Held by Otis Employees. As of the distribution date, each outstanding and unvested UTC stock option award held by an employee who is employed by Otis or one of its subsidiaries immediately prior to the distributions will be converted into a stock option award denominated in shares of Otis common stock, with the number of shares subject to the award and the exercise price of the award to be adjusted in a manner intended to preserve the aggregate intrinsic value of the original UTC stock option award immediately after the distributions when compared to the aggregate intrinsic value immediately prior to the distributions (in each case, as calculated based on the applicable stock price measurements specified in the employee matters agreement), subject to rounding. Each adjusted Otis stock option award will be subject to the same terms, vesting conditions, post-termination exercise rules and other restrictions that applied to the original UTC stock option award immediately before the distributions.
Performance Share Unit Awards and Restricted Stock Unit Awards
Conversion of Certain Performance Share Unit Awards into Restricted Stock Unit Awards. Effective as of immediately prior to the distribution date, the level of achievement of the performance goals applicable to outstanding UTC performance share unit awards (other than performance share unit awards with performance goals relating exclusively to the Carrier Business or the Otis Business) will be determined by the Compensation Committee of the UTC Board of Directors and such performance share unit awards will be converted into restricted stock unit awards, which will be subject only to time-based vesting conditions. UTC performance share unit awards with performance goals relating exclusively to the Carrier Business or the Otis Business will remain subject to such performance goals and will continue to constitute performance share unit awards after the adjustments contemplated below.
52
Awards Held by UTC Employees and Former UTC Employees. As of the distribution date, each outstanding UTC restricted stock unit award (including each such award that was originally granted as a performance share unit award that was subject to vesting based on UTC performance) held by an employee who is employed by UTC and its subsidiaries (other than Carrier and Otis and their respective subsidiaries) immediately prior to the distributions or a former employee whose last employment was not with Carrier or Otis will remain denominated in shares of UTC common stock, although the number of shares subject to the award will be adjusted in a manner intended to preserve the aggregate intrinsic value of the original UTC restricted stock unit award immediately after the distributions when compared to the aggregate intrinsic value immediately prior to the distributions (in each case, as calculated based on the applicable stock price measurements specified in the employee matters agreement), subject to rounding. Each adjusted UTC restricted stock unit award will be subject to the same terms, vesting conditions and other restrictions that applied to the original UTC restricted stock unit award immediately before the distributions.
Awards Held by Carrier Employees and Former Carrier Employees. As of the distribution date, each outstanding UTC restricted stock unit award (including each such award that was originally granted as a performance share unit award that was subject to vesting based on UTC performance) and each outstanding performance share unit award held by an employee who is employed by Carrier or one of its subsidiaries immediately prior to the distributions or a former employee who was last employed by Carrier or one of its subsidiaries will be converted into an award of restricted stock units or performance share units, respectively, relating to Carrier common stock, with the number of shares subject to the award to be adjusted in a manner intended to preserve the aggregate intrinsic value of the original UTC award immediately after the distributions when compared to the aggregate intrinsic value immediately prior to the distributions (in each case, as calculated based on the applicable stock price measurements specified in the employee matters agreement), subject to rounding. Each adjusted Carrier restricted stock unit award and each adjusted Carrier performance share unit award will be subject to the same terms, vesting conditions and other restrictions that applied to the original UTC award immediately before the distributions.
Awards Held by Otis Employees and Former Otis Employees. As of the distribution date, each outstanding UTC restricted stock unit award (including each such award that was originally granted as a performance share unit award that was subject to vesting based on UTC performance) and each outstanding performance share unit award held by an employee who is employed by Otis or one of its subsidiaries immediately prior to the distributions or a former employee who was last employed by Otis or one of its subsidiaries will be converted into an award of restricted stock units or performance share units, respectively, relating to Otis common stock, with the number of shares subject to the award to be adjusted in a manner intended to preserve the aggregate intrinsic value of the original UTC award immediately after the distributions when compared to the aggregate intrinsic value immediately prior to the distributions (in each case, as calculated based on the applicable stock price measurements specified in the employee matters agreement), subject to rounding. Each adjusted Otis restricted stock unit award and each adjusted Otis performance share unit award will be subject to the same terms, vesting conditions and other restrictions that applied to the original UTC award immediately before the distributions.
Vested Director Deferred Stock Unit Awards and Vested Director Deferred Restricted Stock Unit Awards
As of the distribution date, each outstanding and vested UTC deferred stock unit award and vested, deferred UTC restricted stock unit award held by a current or former director of UTC will be converted into an award of deferred stock units or deferred restricted stock units, as applicable, relating to shares of UTC common stock, an award of deferred stock units or deferred restricted stock units, as applicable, relating to shares of Carrier common stock and an award of deferred stock units or deferred restricted stock units, as applicable, relating to shares of Otis common stock. The number of shares subject to each deferred stock unit award or deferred restricted stock unit award, as applicable, will be adjusted in a manner intended to preserve the aggregate intrinsic value of the original UTC deferred stock unit award or deferred restricted stock unit award, as applicable, immediately after the distributions when compared to the aggregate intrinsic value immediately prior to the distributions (in each case, as calculated based on the applicable stock price measurements specified in the employee matters agreement), subject to rounding. UTC will retain the liability for adjusted deferred stock unit awards and deferred restricted stock unit awards held by each current director who will serve as a director of UTC after the distributions and each former director, and Carrier or Otis, as applicable, will assume the liability for adjusted deferred stock unit awards and deferred restricted stock unit awards held by each director who will
53
serve as a director of Carrier or Otis after the distributions. The adjusted deferred stock unit awards and deferred restricted stock unit awards will be subject to the same terms, payment timing rules and other restrictions that applied to the original UTC deferred stock unit awards or deferred restricted stock unit awards, as applicable, immediately before the distributions, except that (1) for each director who will serve as a director of UTC after the distributions, the adjusted deferred stock unit awards and deferred restricted stock unit awards relating to shares of Carrier common stock and shares of Otis common stock will be cash-settled, (2) for each director who will serve as a director of Carrier after the distributions, the adjusted deferred stock unit awards and adjusted deferred restricted stock unit awards relating to shares of UTC common stock and Otis common stock will be cash-settled and (3) for each director who will serve as a director of Otis after the distributions, the adjusted deferred stock unit awards and deferred restricted stock unit awards relating to shares of UTC common stock and Carrier common stock will be cash-settled.
Unvested Director Deferred Restricted Stock Unit Awards
Awards Held by UTC Directors. As of the distribution date, each outstanding and unvested UTC restricted stock unit award held by a director of UTC who will serve as a director of UTC after the distributions (whether or not such person will also serve as a director of Carrier or Otis) will remain denominated in shares of UTC common stock, although the number of shares subject to the award will be adjusted in a manner intended to preserve the aggregate intrinsic value of the original UTC restricted stock unit award immediately after the distributions when compared to the aggregate intrinsic value immediately prior to the distributions (in each case, as calculated based on the applicable stock price measurements specified in the employee matters agreement), subject to rounding. Each adjusted UTC restricted stock unit award will be subject to the same terms, vesting conditions and other restrictions that applied to the original UTC restricted stock unit award immediately before the distributions.
Awards Held by Carrier Directors. As of the distribution date, each outstanding and unvested UTC restricted stock unit award held by a director of UTC who will serve as a director of Carrier (and not as a director of UTC) after the distributions will be converted into a restricted stock unit award relating to shares of Carrier common stock, with the number of shares subject to the award to be adjusted in a manner intended to preserve the aggregate intrinsic value of the original UTC restricted stock unit award immediately after the distributions when compared to the aggregate intrinsic value immediately prior to the distributions (in each case, as calculated based on the applicable stock price measurements specified in the employee matters agreement), subject to rounding. Each adjusted Carrier restricted stock unit award will be subject to the same terms, vesting conditions and other restrictions that applied to the original UTC restricted stock unit award immediately before the distributions.
Awards Held by Otis Directors. As of the distribution date, each outstanding and unvested UTC restricted stock unit award held by a director of UTC who will serve as a director of Otis (and not as a director of UTC) after the distributions will be converted into a restricted stock unit award relating to shares of Otis common stock, with the number of shares subject to the award to be adjusted in a manner intended to preserve the aggregate intrinsic value of the original UTC restricted stock unit award immediately after the distributions when compared to the aggregate intrinsic value immediately prior to the distributions (in each case, as calculated based on the applicable stock price measurements specified in the employee matters agreement), subject to rounding. Each adjusted Otis restricted stock unit award will be subject to the same terms, vesting conditions and other restrictions that applied to the original UTC restricted stock unit award immediately before the distributions.
Internal Reorganization
As part of the separation, and prior to the Carrier distribution and the Otis distribution, it is expected that UTC will complete an internal reorganization in order to transfer: (1) the Carrier Business to Carrier, which Carrier will hold following the separation; and (2) the Otis Business to Otis, which Otis will hold following the separation. Among other things and subject to limited exceptions, the internal reorganization is expected to result in Carrier and Otis owning, directly or indirectly, the operations comprising, and the entities that conduct, the Carrier Business and the Otis Business, respectively.
The internal reorganization is expected to include various restructuring transactions pursuant to which (1) the operations, assets and liabilities of UTC used to conduct the Carrier Business and the Otis Business will be separated from the operations, assets and liabilities of UTC used to conduct the UTC Aerospace Businesses,
54
(2) such Carrier Business operations, assets and liabilities will be contributed, transferred or otherwise allocated to Carrier or one of its direct or indirect subsidiaries and (3) such Otis Business operations, assets and liabilities will be contributed, transferred or otherwise allocated to Otis or one of its direct or indirect subsidiaries. These restructuring transactions may take the form of asset or equity transfers, mergers, demergers, distributions, contributions and similar transactions, and will involve the formation of new subsidiaries in U.S. and non-U.S. jurisdictions to own and operate the Carrier Business, the Otis Business or the UTC Aerospace Businesses in such jurisdictions.
Following the completion of the internal reorganization and immediately prior to the distribution: (1) Carrier will be the parent company of the entities and assets that are expected to conduct the Carrier Business; (2) Otis will be the parent company of the entities and assets that are expected to conduct the Otis Business; and (3) UTC will remain the parent company of the entities and assets that are expected to conduct the UTC Aerospace Businesses.
Results of the Distribution
After the distribution, Carrier will be an independent, publicly traded company. The actual number of shares to be distributed will be determined at the close of business on [ ], 2020, the record date, and will reflect any exercise of UTC options that occurs, and any settlement of performance share unit awards or restricted stock unit awards initiated, between the date the UTC Board of Directors declares the distribution and the record date. The distribution will not affect the number of outstanding shares of UTC common stock or any rights of UTC shareowners. UTC will not distribute any fractional shares of Carrier common stock.
Carrier will enter into a separation agreement and other related agreements with UTC and Otis to effect the separation and to provide a framework for our relationship with UTC and Otis after the separation, and will enter into certain other agreements, including a transition services agreement, a tax matters agreement, an employee matters agreement and an intellectual property agreement. These agreements will allocate among Carrier, Otis and UTC the assets, employees, liabilities and obligations (including, among others, investments, property and employee benefits and tax-related assets and liabilities) of UTC and its subsidiaries attributable to periods prior to, at and after Carriers and Otis separation from UTC, provide for certain services to be delivered on a transitional basis and govern the relationship among Carrier, Otis and UTC following the separation. These agreements will not be impacted by the completion of the Raytheon merger. For additional information regarding the separation agreement and other transaction agreements, see Risk Factors—Risks Related to the Distribution and Certain Relationships and Related Party Transactions.
Market for Carrier Common Stock
There is currently no public trading market for Carrier common stock. Carrier intends to apply to list its common stock on the NYSE under the symbol CARR. Carrier has not and will not set the initial price of its common stock. The initial price will be established by the public markets.
We cannot predict the price at which Carrier common stock will trade after the distribution. In fact, the combined trading prices, after the Carrier distribution and the Otis distribution, of one share of Carrier common stock, the number of shares of Otis common stock to be distributed per share of UTC common stock in the Otis distribution and one share of UTC common stock, may not equal the regular-way trading price of one share of UTC common stock immediately prior to the distributions. The price at which Carrier common stock trades may fluctuate significantly, particularly until an orderly public market develops. Trading prices for Carrier common stock will be determined in the public markets and may be influenced by many factors. See Risk Factors—Risks Related to Our Common Stock.
Incurrence of Debt
Carrier expects to complete one or more financing transactions before the distribution is completed, with approximately $10.7 billion of the proceeds of such financings expected to be used to distribute cash to UTC. As a result of such transactions, Carrier anticipates having approximately $11.1 billion of outstanding indebtedness upon completion of the distribution. On the distribution date, Carrier anticipates that this debt will consist of a combination of long-term notes and bank term loans. The amount of indebtedness incurred by Carrier and the amount of cash distributed by Carrier may be adjusted by UTC as described elsewhere in this information statement. For more information, see Description of Material Indebtedness.
55
Trading Between the Record Date and Distribution Date
Beginning on or shortly before the record date and continuing up to and including through the distribution date, it is expected that there will be two markets in UTC common stock: a regular-way market and an ex-distribution market. UTC common stock that trades on the regular-way market will trade with an entitlement to Carrier common stock distributed in the distribution. UTC common stock that trades on the ex-distribution market will trade without an entitlement to Carrier common stock distributed in the distribution. Therefore, if you sell shares of UTC common stock in the regular-way market up to and including through the distribution date, you will be selling your right to receive shares of Carrier common stock in the distribution. If you own UTC common stock at the close of business on the record date and sell those shares on the ex-distribution market up to and including through the distribution date, you will receive the shares of Carrier common stock that you are entitled to receive pursuant to your ownership of shares of UTC common stock as of the record date.
Furthermore, beginning on or shortly before the record date and continuing up to and including the distribution date, Carrier expects that there will be a when-issued market in its common stock. When-issued trading refers to a sale or purchase made conditionally because the security has been authorized but not yet issued. The when-issued trading market will be a market for Carrier common stock that will be distributed to holders of UTC common stock on the distribution date. If you owned UTC common stock at the close of business on the record date, you would be entitled to Carrier common stock distributed pursuant to the distribution. You may trade this entitlement to shares of Carrier common stock, without trading the UTC common stock you own, on the when-issued market. On the first trading day after the distribution is completed, when-issued trading with respect to Carrier common stock will end, and regular-way trading with respect to Carrier common stock will begin.
Conditions to the Distribution
The distribution will be effective at 12:01 a.m., Eastern Time, on [ ], 2020, which is the distribution date, provided that the conditions set forth in the separation agreement have been satisfied (or waived by UTC in its sole and absolute discretion), subject to UTCs agreement to consummate the distribution pursuant to, and subject to the terms and conditions of, the Raytheon merger agreement. The conditions set forth in the separation agreement include, among others:
• | the SEC declaring effective the registration statement of which this information statement forms a part and such registration statement not being the subject of any stop order or any legal, administrative, arbitral or other action, suit, investigation, proceeding, indictment or litigation by the SEC seeking a stop order; |
• | this information statement having been made available to UTC shareowners; |
• | (1) the IRS ruling regarding certain U.S. federal income tax matters relating to the separation and distribution received by UTC remaining valid and satisfactory to the UTC Board of Directors and (2) the receipt by UTC and continued validity of an opinion of outside counsel, satisfactory to the UTC Board of Directors, regarding the qualification of certain elements of the distribution under Section 355 of the Code; |
• | the internal reorganization having been completed and the transfer of assets and liabilities of the Carrier Business from UTC and its affiliates to Carrier and its affiliates and the Otis Business from UTC and its affiliates to Otis and its affiliates, and the transfer of assets and liabilities of the UTC Aerospace Businesses from Carrier and its affiliates and Otis and its affiliates to UTC and its affiliates (other than Otis, Carrier and their respective affiliates), as set forth in the separation agreement, having been completed in all material respects; |
• | the receipt by the UTC Board of Directors of one or more opinions (which have not been withdrawn or adversely modified) in customary form from one or more nationally recognized valuation or accounting firms or investment banks as to (1) the adequacy of surplus under Delaware law with respect to Carrier to effect the distribution from Carrier to UTC of certain proceeds from the financing arrangements described under Description of Material Indebtedness prior to the effective time of the distribution, and with respect to UTC to effect the distribution, and (2) the solvency of each of UTC and Carrier after the completion of the distribution; |
56
• | all actions or filings necessary or appropriate under applicable U.S. federal, state or other securities or blue sky laws and the rules and regulations thereunder having been taken and, where applicable, having become effective or been accepted by the applicable governmental entity; |
• | the execution of the transition services agreement, the tax matters agreement, the employee matters agreement and the intellectual property agreement contemplated by the separation agreement; |
• | no governmental entity of competent jurisdiction having issued or entered any injunction or other decree, order, judgment, writ, stipulation, award or temporary restraining order, and no applicable law having been enacted or promulgated, in each case that (whether temporary or permanent) has the effect of enjoining or otherwise prohibiting the consummation of the separation, the distribution or any of the related transactions; |
• | the shares of Carrier common stock to be distributed having been approved for listing on the NYSE, subject to official notice of distribution; |
• | UTC having received certain proceeds from the financing arrangements described under Description of Material Indebtedness and being satisfied in its sole and absolute discretion that it will have no liability under such arrangements as of the effective time of the distribution; and |
• | no other event or development existing or having occurred that, in the judgment of UTC’s Board of Directors, in its sole and absolute discretion, makes it inadvisable to effect the separation, the distribution and the other related transactions. |
Until the distribution occurs, UTC will have the discretion to determine (and change) the terms of the distribution and to determine the record date, the distribution date and the distribution ratio; however, any such determination or change will be subject to UTCs obligations to complete the separation and each of the Carrier distribution and the Otis distribution in accordance with the terms and conditions of the Raytheon merger agreement (including, with respect to certain changes, the requirement that UTC obtain Raytheons prior written consent).
UTC may waive any of the conditions to the distribution. UTC can decline at any time to go forward with the distribution, may go forward with the Carrier distribution even if the Otis distribution does not occur or may go forward with the Otis distribution even if the Carrier distribution does not occur. However, under the Raytheon merger agreement, UTC has agreed with Raytheon that, subject to the terms and conditions of the Raytheon merger agreement, UTC will consummate the separation and each of the Carrier distribution and the Otis distribution. In addition, the completion of the separation and each of the Carrier distribution and the Otis distribution is a condition to the Raytheon merger pursuant to the Raytheon merger agreement. Accordingly, the Raytheon merger will not be completed unless and until the separation and each of the distributions are completed. The completion of the Raytheon merger is not a condition to the completion of the distributions. Therefore, UTC may complete the distribution even if the conditions to the Raytheon merger under the Raytheon merger agreement have not been satisfied or waived, the Raytheon merger agreement has been terminated or the Raytheon merger will otherwise not be consummated.
UTC does not intend to notify its shareowners of any modifications to the terms of the separation or distribution that, in the judgment of its Board of Directors, are not material. For example, the UTC Board of Directors might consider material such matters as significant changes to the distribution ratio and the assets to be contributed or the liabilities to be assumed in the separation. To the extent that the UTC Board of Directors determines that any modifications by UTC materially change the material terms of the distribution, UTC will notify UTC shareowners in a manner reasonably calculated to inform them about the modification as may be required by law, by, for example, publishing a press release, filing a current report on Form 8-K or circulating a supplement to this information statement.
57
Following the distribution, we expect that Carrier will initially pay a cash dividend on a quarterly basis at an aggregate annual rate of approximately $550 million. However, the timing, declaration, amount of, and payment of any dividends will be within the discretion of Carriers Board of Directors and will depend upon many factors, including our financial condition, earnings, capital requirements of our operating subsidiaries, covenants associated with certain of our debt service obligations, legal requirements, regulatory constraints, industry practice, ability to access capital markets, and other factors deemed relevant by Carriers Board of Directors. Moreover, if as expected we determine to initially pay a dividend following the distribution, there can be no assurance that we will continue to pay dividends in the same amounts or at all thereafter.
58
The following table sets forth our capitalization as of December 31, 2019, on a historical basis and on a pro forma basis to give effect to the pro forma adjustments included in the unaudited pro forma combined financial information included elsewhere in this information statement. The information below is not necessarily indicative of what our capitalization would have been had the separation, distribution and related financing transactions been completed as of December 31, 2019. In addition, it is not indicative of our future capitalization and may not reflect the capitalization or financial condition that would have resulted had we operated as a stand-alone public company as of the applicable dates presented. This table should be read in conjunction with “Unaudited Pro Forma Combined Financial Information,” “Selected Historical Combined Financial Data of Carrier,” “Managements Discussion and Analysis of Financial Condition and Results of Operations” and the combined financial statements and notes included in the “Index to Combined Financial Statements” section of this information statement.
December 31, 2019 |
||||||
(dollars in millions) |
Actual |
Pro Forma |
||||
Cash |
||||||
Cash and cash equivalents |
$ | 952 | $ | 952 | ||
Capitalization: |
||||||
Debt Outstanding |
||||||
Short-term borrowings |
$ | 274 | $ | 274 | ||
Long-term debt |
89 | 10,768 | ||||
Total Indebtedness |
363 | 11,042 | ||||
Equity |
||||||
Common stock, par value $0.01 |
$ | — | $ | 9 | ||
Additional paid-in capital |
— | 5,009 | ||||
UTC Net Investment |
15,355 | — | ||||
Accumulated other comprehensive loss |
(1,253 | ) |
(1,253 | ) |
||
Noncontrolling interest |
333 | 333 | ||||
Total Equity |
14,435 | 4,098 | ||||
Total Capitalization |
$ | 14,798 | $ | 15,140 |
59
SELECTED HISTORICAL COMBINED FINANCIAL DATA OF CARRIER
The following selected historical combined financial data reflect the combined operations of Carrier. The historical combined statements of operations data for the years ended December 31, 2019, 2018 and 2017 and the related historical combined balance sheet data as of December 31, 2019 and 2018 have been derived from Carriers audited combined financial statements and the accompanying notes included in the Index to Combined Financial Statements section of this information statement. The historical combined balance sheet data as of December 31, 2017 was derived from our historical audited combined balance sheet not included in this information statement. The selected unaudited historical combined financial data as of, and for each of, the years ended December 31, 2016 and 2015 was derived from our underlying financial records, which were derived from the financial records of UTC. In managements opinion, the unaudited combined financial data has been prepared on substantially the same basis as the audited combined financial statements and include all adjustments, consisting only of ordinary recurring adjustments, necessary for a fair presentation of the selected historical combined financial data for the periods presented.
Our audited historical combined financial statements include certain expenses of UTC that were allocated to us for certain functions, including general corporate expenses related to finance, legal, insurance, compliance, employee benefits and incentives, information technology and human resources services. These expenses have been allocated to us on the basis of direct usage when identifiable, with the remainder allocated on a pro rata basis with UTC and Otis of net sales, headcount or other measures when applicable. We believe the basis on which the expenses have been allocated are a reasonable reflection of the utilization of services provided to or the benefit received by us during the periods presented. Nevertheless, such allocations may not represent the actual expenses that we may have incurred if Carrier had been an independent public company during the periods or at the dates presented. As such, the combined financial statements do not necessarily reflect what our financial condition and results of operations would have been had Carrier operated as an independent public company during the periods or at the dates presented.
The selected historical combined financial data below are not necessarily indicative of the results of operations or financial condition that may be expected for any future period or date. This information is only a summary and should be read in conjunction with Managements Discussion and Analysis of Financial Condition and Results of Operations and the combined financial statements and the accompanying notes included in the “Index to Combined Financial Statements” section of this information statement.
(dollars in millions) |
2019 |
2018 |
2017 |
2016 (Unaudited) |
2015 (Unaudited) |
||||||||||
For The Year |
|||||||||||||||
Net sales |
$ | 18,608 | $ | 18,914 | $ | 17,814 | $ | 16,853 | $ | 16,709 | |||||
Research and development |
401 | 400 | 364 | 351 | 325 | ||||||||||
Restructuring costs |
126 | 80 | 111 | 65 | 108 | ||||||||||
Operating profit(1) |
2,491 | 3,637 | 3,030 | 2,760 | 2,563 | ||||||||||
Net income(2) |
2,155 | 2,769 | 1,267 | 1,900 | 1,837 | ||||||||||
Net income attributable to Carrier Global Corporation |
2,116 | 2,734 | 1,227 | 1,854 | 1,782 | ||||||||||
Capital expenditures |
$ | 243 | 263 | 326 | 340 | 261 |
(1) | 2019 operating profit includes a charge of $108 million related to the impairment of an equity investment. 2018 operating profit includes a $799 million pre-tax gain on the sale of the Taylor business, and 2017 operating profit includes a $379 million pre-tax gain on the sale of our investment in Watsco, Inc. |
(2) | 2019 net income includes a tax benefit of $149 million as a result of the filing by a subsidiary of Carrier to participate in an amnesty program offered by the Italian Tax Authority and conclusion of a U.S. income tax audit. 2018 net income includes a charge of $102 million related to future non-U.S. taxes associated with anticipated future repatriation of non-U.S. earnings. 2017 net income includes unfavorable net tax charges of approximately $799 million related to U.S. tax reform legislation enacted in December 2017. |
(dollars in millions) |
2019 |
2018 |
2017 |
2016 (Unaudited) |
2015 (Unaudited) |
||||||||||
At Year End |
|||||||||||||||
Working capital(3) |
$ | 1,490 | $ | 1,643 | $ | 1,750 | $ | 1,693 | $ | 1,749 | |||||
Total assets(4) |
22,406 | 21,737 | 21,985 | 20,981 | 20,693 | ||||||||||
Total liabilities(4) |
7,971 | 7,468 | 7,201 | 5,844 | 5,745 | ||||||||||
Number of employees |
52,635 | 54,384 | 54,998 | 56,475 | 55,058 |
(3) | Working capital is defined as current assets less current liabilities. |
(4) | The increase in total assets and total liabilities in 2019 primarily relates to the adoption of ASU No. 2016-02—Leases (Topic 842), which Carrier adopted as of January 1, 2019. |
60
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The unaudited pro forma combined financial information presented below has been derived from our audited historical combined financial statements included in this information statement. While the audited historical combined financial statements reflect the past financial results of the Carrier Business, this pro forma information gives effect to the separation of that business into an independent, publicly traded company. The pro forma adjustments to reflect the separation, distribution and related transactions from and with UTC include:
• | the separation of the assets (including the equity interests of certain subsidiaries) and liabilities related to UTC’s Carrier Business from UTC and the transfer of those assets (including the equity interests of certain subsidiaries) and liabilities to Carrier; |
• | the pro-rata distribution of 100 percent of our issued and outstanding common stock by UTC in connection with the separation; |
• | the effect of our anticipated post-separation capital structure, including the incurrence of principal indebtedness of an assumed amount equal to approximately $10.7 billion and the expected distribution of an amount equal to approximately $10.7 billion of cash to UTC (which amounts of indebtedness incurred and cash distributed may be adjusted by UTC as described below); and |
• | the impact of the separation, distribution and related transactions contemplated by the separation agreement, the transition services agreement, the tax matters agreement, the employee matters agreement and the intellectual property agreement among us, Otis and UTC, and the provisions contained therein. |
The pro forma adjustments are based on the available information and assumptions our management believes are reasonable; however, such adjustments are subject to change as the costs of operating as a stand-alone company are determined. In addition, such adjustments are estimates and may not prove to be accurate. The unaudited pro forma combined financial information has been derived from the historical combined financial statements included in this information statement and includes certain adjustments to give effect to events that are (1) directly attributable to the separation, distribution and related transactions, (2) factually supportable and (3) with respect to the statement of operations, expected to have a continuing impact on the combined results of the operations of Carrier.
The Unaudited Pro Forma Combined Statement of Operations for the year ended December 31, 2019 has been prepared as though the distribution occurred on January 1, 2019. The Unaudited Pro Forma Combined Balance Sheet as of December 31, 2019 has been prepared as though the distribution occurred on December 31, 2019. The unaudited pro forma combined financial information, which was prepared in accordance with Article 11 of Regulation S-X, is for illustrative purposes only, and does not reflect what our financial position and results of operations would have been had the distribution occurred on the date indicated and is not necessarily indicative of our future financial position and future results of operations. One-time transaction-related costs incurred prior to, or concurrent with, the separation, distribution and related transactions are not included in the Unaudited Pro Forma Combined Statement of Operations. Carrier will incur certain nonrecurring third-party costs related to the separation, distribution and related transactions. Such nonrecurring amounts will include financial advisory, information technology, legal, accounting, consulting and other professional advisory fees and other transaction-related costs that will not be capitalized. The Unaudited Pro Forma Combined Statement of Operations does not reflect these nonrecurring expenses. Liabilities associated with such one-time transaction-related costs, however, are accrued in the Unaudited Pro Forma Combined Balance Sheet.
The unaudited pro forma combined financial information should be read in conjunction with our audited historical combined financial statements and the accompanying notes in the Index to Combined Financial Statements, Capitalization and Managements Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this information statement. The unaudited pro forma combined financial information constitutes forward-looking information and is subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated. See Cautionary Note Regarding Forward-Looking Statements and Risk Factors included elsewhere in this information statement.
61
Unaudited Pro Forma Combined Statement of Operations
For the Year Ended December 31, 2019
Dollars in millions, except per share amounts; shares in millions |
Historical |
Pro Forma Adjustments (Note 2) |
Pro Forma Year Ended December 31, 2019 |
|||||||||
Net sales: |
||||||||||||
Product sales |
$ | 15,360 | $ | — | $ | 15,360 | ||||||
Service sales |
3,248 | — | 3,248 | |||||||||
18,608 | — | 18,608 | ||||||||||
Costs and expenses: |
||||||||||||
Cost of products sold |
10,890 | — | 10,890 | |||||||||
Cost of services sold |
2,299 | — | 2,299 | |||||||||
Research and development |
401 | — | 401 | |||||||||
Selling, general and administrative |
2,761 | (46 | ) |
(A) (K) |
2,715 | |||||||
16,351 | (46 | ) |
16,305 | |||||||||
Equity method investment net earnings |
236 | — | 236 | |||||||||
Other income (expense), net |
(2 | ) |
5 | (A) |
3 | |||||||
Operating profit |
2,491 | 51 | 2,542 | |||||||||
Non-service pension benefit |
(154 | ) |
81 | (I) |
(73 | ) |
||||||
Interest (income) expense, net |
(27 | ) |
406 | (G) (H) |
379 | |||||||
Income from operations before income taxes |
2,672 | (436 | ) |
2,236 | ||||||||
Income tax expense |
517 | (67 | ) |
(C) |
450 | |||||||
Net income |
$ | 2,155 | $ | (369 | ) |
$ | 1,786 | |||||
Less: Noncontrolling interest in subsidiaries’ earnings |
39 | — | 39 | |||||||||
Net income attributable to Carrier Global Corporation |
$ | 2,116 | $ | (369 | ) |
$ | 1,747 | |||||
Earnings per common share |
||||||||||||
Basic |
(D) |
$ | 2.02 | |||||||||
Diluted |
(E) |
$ | 2.00 | |||||||||
Weighted-average common shares outstanding |
||||||||||||
Basic |
(D) |
865.3 | ||||||||||
Diluted |
(E) |
871.9 |
See accompanying notes to the Unaudited Pro Forma Combined Financial Information.
62
Unaudited Pro Forma Combined Balance Sheet
As of December 31, 2019
Dollars in millions |
Historical |
Pro Forma Adjustments (Note 2) |
Pro Forma Year Ended December 31, 2019 |
|||||||||
ASSETS |
||||||||||||
Cash and cash equivalents |
$ | 952 | $ | — | (F) |
$ | 952 | |||||
Accounts receivable, net |
2,726 | — | 2,726 | |||||||||
Contract assets, current |
622 | — | 622 | |||||||||
Inventories, net |
1,332 | — | 1,332 | |||||||||
Other assets, current |
327 | — | 327 | |||||||||
Total Current Assets |
5,959 | — | 5,959 | |||||||||
Future income tax benefits |
500 | — | 500 | |||||||||
Operating lease right-of-use assets |
832 | — | 832 | |||||||||
Fixed assets, net |
1,663 | 58 | (K) |
1,721 | ||||||||
Intangible assets, net |
1,083 | — | 1,083 | |||||||||
Goodwill |
9,884 | — | 9,884 | |||||||||
Pension and postretirement assets |
490 | — | 490 | |||||||||
Equity method investments |
1,739 | — | 1,739 | |||||||||
Other assets |
256 | — | 256 | |||||||||
Total Assets |
$ | 22,406 | $ | 58 | $ | 22,464 | ||||||
LIABILITIES AND EQUITY |
||||||||||||
Accounts payable |
1,701 | — | 1,701 | |||||||||
Accrued liabilities |
2,325 | (38 | ) |
(A)(J) |
2,287 | |||||||
Contract liabilities, current |
443 | — | 443 | |||||||||
Total Current Liabilities |
4,469 | (38 | ) |
4,431 | ||||||||
Long-term debt |
— | 10,679 | (F) |
10,768 | ||||||||
89 | (F) |
|||||||||||
Operating lease liabilities |
682 | — | 682 | |||||||||
Future pension and postretirement benefit obligations |
456 | — | 456 | |||||||||
Future income tax obligations |
1,099 | (727 | ) |
(C)(J) |
372 | |||||||
Other long-term liabilities |
1,265 | 481 (89) |
(J) (F) |
1,657 | ||||||||
Total Liabilities |
7,971 | 10,395 | 18,366 | |||||||||
Commitments and contingent liabilities |
||||||||||||
Equity: |
||||||||||||
UTC Net Investment |
15,355 | (15,355 | ) |
(B) |
— | |||||||
Accumulated other comprehensive loss |
(1,253 | ) |
— | (1,253 | ) |
|||||||
Common stock, par value $0.01 |
— | 9 | (B) |
9 | ||||||||
Additional paid-in capital |
— | 5,009 | (B) |
5,009 | ||||||||
Noncontrolling interest |
333 | — | 333 | |||||||||
Total Equity |
14,435 | (10,337 | ) |
4,098 | ||||||||
Total Liabilities and Equity |
$ | 22,406 | $ | 58 | $ | 22,464 |
See accompanying notes to the Unaudited Pro Forma Combined Financial Information.
63
NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
Note 1: Basis of Presentation
The accompanying unaudited pro forma combined financial information was prepared in accordance with Article 11 of Regulation S-X of the SEC and presents the Unaudited Pro Forma Combined Statement of Operations and Unaudited Pro Forma Combined Balance Sheet based on the audited historical combined financial statements included in this information statement, after giving effect to the separation, distribution and related transactions. The audited historical combined financial statements of Carrier have been adjusted in the accompanying unaudited pro forma combined financial information to give effect to pro forma events that are: (1) directly attributable to the separation, distribution and related transactions, (2) factually supportable, and (3) with respect to the statement of operations, expected to have a continuing impact on the combined results of operations of Carrier.
The accompanying unaudited pro forma combined financial information is presented for illustrative purposes only and does not purport to be indicative of the actual results that would have been achieved by Carrier if the separation, distribution and related transactions had been consummated for the period presented or that will be achieved in the future.
In addition, for the period presented in the unaudited pro forma combined financial information, the operations of Carrier were conducted and accounted for as part of UTC. The audited historical combined financial statements and unaudited pro forma combined financial information of Carrier have been derived from UTCs historical accounting records and reflect certain allocations of expenses. All of the allocations and estimates in such financial statements are based on assumptions that management believes are reasonable. The unaudited pro forma combined financial statements of Carrier do not necessarily represent the financial position or results of operations of Carrier had it been operated as a stand-alone company during the period or at the date presented.
As a stand-alone public company, we expect to incur incremental recurring costs. The significant assumptions involved in determining our estimates of recurring costs of being a stand-alone public company include:
• | costs to perform financial reporting and regulatory compliance, and costs associated with accounting, auditing, tax, legal, information technology, human resources, investor relations, risk management, treasury and other general and administrative related functions; |
• | compensation including equity-based awards, and benefits with respect to new and existing positions; |
• | insurance premiums; |
• | changes in our overall facility costs; |
• | depreciation and amortization related to information technology infrastructure investments; and |
• | the type and level of other costs expected to be incurred. |
No pro forma adjustments have been made to reflect the additional costs and expenses described above because they are projected amounts based on estimates and would not be factually supportable. Our preliminary estimates of these additional recurring costs expected to be incurred annually are approximately $110 million to $140 million greater than the expenses historically allocated to us from UTC, and primarily relate to general and administrative expenses.
We currently estimate that we will incur one-time expenses of between $125 million and $150 million associated with becoming a stand-alone public company. The accompanying unaudited pro forma combined financial statements are not adjusted for these estimated expenses as they are also projected amounts based on estimates and would not be factually supportable and in addition are not expected to have an ongoing effect on our operating results. These expenses primarily relate to the following:
• | accounting, tax and other professional services costs pertaining to the separation and our establishment as a stand-alone public company; |
• | facility relocation costs; |
• | costs to separate information systems; and |
• | costs of retention bonuses. |
64
Note 2: Pro Forma Adjustments
(A) Reflects (1) the removal of approximately $58 million of one-time separation costs directly related to the separation, distribution and related transactions that were incurred during the historical period and are not expected to have a continuing impact on the operating results following the consummation of the distribution and (2) the accrual of approximately $30 million of liabilities associated with such one-time transaction-related costs expected to be incurred by Carrier prior to the separation from UTC.
(B) Represents the reclassification of UTCs net investment in Carrier, including the additional net assets expected to be contributed by UTC and other pro forma adjustments, into Additional paid-in capital and common stock, par value $0.01 to reflect the number of shares of Carriers common stock expected to be outstanding at the distribution date. We have assumed the number of outstanding shares of common stock based on the number of UTC common shares of 865,308,981 outstanding at January 31, 2020 and an assumed pro-rata distribution ratio of one share of Carrier common stock for each share of UTC common stock.
(C) Represents the income tax impact of the pro forma adjustments for the year ended December 31, 2019. This adjustment was primarily calculated by applying the statutory tax rates in the respective jurisdictions to each of the pre-tax pro forma adjustments. The estimated pro forma tax reduction is $67 million for the year ended December 31, 2019.
Pursuant to the tax matters agreement, Carrier is responsible for unrecognized tax benefits to the extent a reserve relates exclusively to the Carrier Business. Accordingly, the pro forma combined financial information reflects a decrease to the Future income tax obligations in the amount of $26 million.
(D) Pro forma basic earnings per share and pro forma weighted-average basic shares outstanding for the year ended December 31, 2019 reflect the number of shares of Carriers common stock which are expected to be outstanding upon completion of the distribution. We have assumed the number of outstanding shares of common stock based on the number of UTC common shares outstanding at January 31, 2020 and an assumed pro-rata distribution ratio of one share of Carrier common stock for each share of UTC common stock. The actual number of shares of Carriers common stock currently outstanding may be different from this estimated amount.
(E) Pro forma diluted earnings per share and pro forma weighted-average diluted shares outstanding reflect the estimated number of shares of Carriers common stock that are expected to be outstanding upon completion of the distribution and reflect the potential issuance of shares of our common stock under our equity plans, based on the distribution ratio of one share of Carrier common stock for every share of UTC common stock. The actual number of shares of Carrier common stock currently outstanding may be different from this estimated amount. Pro forma diluted earnings per share excludes the potential conversion of unvested equity awards in UTC that are held by Carrier employees, as the conversion factor is dependent on various factors, including the UTC and Carrier share prices before and after the separation, which cannot be fully estimated at this time.
(F) Reflects the incurrence of approximately $10.7 billion of principal indebtedness, net of issuance costs of approximately $65 million, as well as the reclassification of existing debt of approximately $84 million and existing finance lease obligations of approximately $5 million from Other long-term liabilities. The expected $10.7 billion of principal indebtedness consists of unsubordinated, unsecured notes and term loans with an assumed weighted-average life of approximately 12 years and with an assumed weighted-average interest rate of approximately 3.39 percent. In addition, on or about the distribution date, an unsecured, unsubordinated 5-year revolving credit facility that provides for the availability of $2 billion of borrowings is expected to become effective. The undrawn portion of the revolving credit agreement will serve as a backup facility for the issuance of commercial paper under an unsecured, unsubordinated $2 billion commercial paper program that is also expected to become effective, on or about the distribution date. No adjustment has been made to the unaudited pro forma financial information to reflect the potential issuance of commercial paper or draw down on the revolving credit facility. The cash proceeds received from the assumed debt issuance are assumed to be distributed to UTC. The amount of indebtedness actually incurred by Carrier and the amount of cash actually distributed by Carrier to UTC (or otherwise transferred to or from UTC or Carrier, as applicable, prior to the distribution) may be adjusted prior to the completion of the distribution in a manner that is intended to result in approximately $24.3 billion of adjusted net indebtedness of the UTC Aerospace Businesses as of immediately prior to the completion of the merger, subject to and in accordance with the Raytheon merger agreement; accordingly, the actual cash and debt balances of Carrier immediately following the distribution may be higher or lower than currently anticipated.
65
The expected debt balance at the time of the distribution was determined by senior management based on a review of a number of factors, including forecast liquidity and capital requirements, expected operating results and general economic conditions.
(G) The adjustment of $370 million for fiscal year ended December 31, 2019 represents approximately $365 million of interest expense and approximately $5 million of amortization of issuance costs in connection with the incurrence of debt as described above. The pro forma impact was based on approximately $10.7 billion of principal indebtedness with an assumed weighted-average interest rate of approximately 3.39 percent, and an assumed weighted-average life of approximately 12 years. A 1/8 percent variance in the assumed interest rate on the indebtedness would change annual interest expense by $13 million.
(H) The adjustment of $36 million for fiscal year ended December 31, 2019 represents elimination of net related party interest income, principally related to legacy related party cash pooling activity.
(I) Primarily reflects the removal of Non-service pension benefit historically allocated to us for a UTC-sponsored defined-benefit pension plan. No portion of this plan will transfer to us upon separation and our employees will no longer accrue additional benefits. The remaining Non-service pension benefit relates to pension plans expected to be retained by Carrier.
(J) Pursuant to the tax matters agreement, we are required to make payments to UTC representing Carrier's portion of UTC's remaining net tax liability attributable to a U.S. income tax on previously undistributed earnings of Carrier's international subsidiaries resulting from the passage of the TCJA. For purposes of the unaudited pro forma combined financial information, we removed the balance, which was computed on a separate return methodology, of approximately $68 million that was recorded within Accrued liabilities and $701 million that was recorded within Future income tax obligations. A future obligation of $481 million is recorded within Other long-term liabilities, and is expected to be settled in six annual installments, beginning April 15, 2021.
(K) Represents approximately $58 million of net assets that will be contributed by UTC to us prior to the separation, primarily related to fixed assets previously owned and operated by UTC and approximately $7 million of related activity associated with the net assets that were not part of our historical operations.
66
This section discusses Carriers business assuming the completion of all of the transactions described in this information statement, including the separation and distribution.
Our Company
Carrier is a leading global provider of HVAC, refrigeration, fire and security solutions. Our innovative solutions promote smarter, safer and more sustainable buildings and infrastructure, and help to effectively preserve the freshness, quality and safety of perishables across a wide variety of industries. Our comprehensive range of products and services, reputation for quality and innovation, and our industry-leading brands make us a trusted provider for our customers critical applications in the construction, transportation, security, food retail, pharmaceutical and other industries.
Our company is built on a legacy of innovation, beginning with its founders—Willis Carrier, who designed the worlds first modern air conditioning system; Robert Edwards, who patented the first electric alarm bell; and Walter Kidde, who produced the first integrated smoke detection and carbon dioxide extinguishing system for use onboard ships. This culture of innovation supports our core strategy of developing smart, sustainable and efficient solutions to meet the complex challenges resulting from the mega-trends of urbanization, climate change and increasing requirements for food safety driven by the food needs of our growing global population, rising standards of living and increasing energy and environmental regulation. The iconic Carrier brand, with its reputation for innovation and quality, is complemented by our other strong brands, including Automated Logic, Carrier Transicold, Edwards, GST, Kidde, LenelS2 and Marioff.
We believe that growth in our businesses is supported by favorable secular trends, including the mega-trends discussed above, which underpin growth across our HVAC, Refrigeration and Fire & Security businesses. We also believe that we are well positioned to benefit from these long-term trends as a result of the strength of our industry-leading brands and track record of innovation.
We have an extensive global footprint with approximately 53,000 employees globally, including over approximately 3,600 engineers, and our solutions are sold in over 160 countries around the world. We sell our products and services directly to end customers and indirectly through distributors, independent sales representatives, wholesalers, dealers, other channel partners and retail outlets.
For the year ended December 31, 2019, our net sales were approximately $18.6 billion, and our operating profit was approximately $2.5 billion. Our net sales for the year ended December 31, 2019 were derived from the Americas (55 percent), Europe-Middle East (30 percent) and Asia-Pacific (15 percent). Our international operations, including U.S. export sales, represented approximately 52 percent of our net sales for the year ended December 31, 2019. During the same period, new equipment and service and aftermarket contributed 72 percent and 28 percent, respectively, of our net sales excluding inter-segment eliminations.
(1) | Excluding inter-segment eliminations. |
67
Our Strengths
We believe that Carrier is differentiated by our industry-leading portfolio of iconic brands, comprehensive product and service offerings and reputation for innovation and quality, which make us a trusted provider to our customers across a wide range of growing markets and channels for commercial and residential building, industrial and smart cold chain applications. Our competitive strengths include:
Portfolio of iconic brands and leading segment positions. Our iconic and enduring brands are among the most recognized in their respective industries. Individually, many of our brands are leaders within their respective segments and we believe that, collectively, they represent a uniquely positioned portfolio of trusted assets that, together with our ability to provide comprehensive, state-of-the-art solutions, make us a supplier and business partner of choice.
Extensive and diversified portfolio of solutions, industries and customers. We have a comprehensive and diverse set of products and services in many industries. While many of our products and brands are leaders in their respective industries, our business model is not dependent on any single product, brand, industry or customer. Our products solve different problems for a diverse set of customers in a range of applications and locations, while benefiting from our fundamental operational strategies and focus on innovation. The diversity of our product and service offerings better qualifies us to be a supplier of choice for a comprehensive range of solutions, while mitigating potential short-term headwinds in particular locations, applications or industries.
Global scale and presence in developing and growth markets. We believe that our global scale and comprehensive offering of products and services provide us with advantages over other providers with respect to design, manufacturing, sourcing, sales and marketing. Our understanding of local conditions, regulations and customer needs helps position us to focus on attractive verticals and geographies and respond more rapidly to changing regulatory requirements. This knowledge also enables us to take learnings, technologies and products developed for one region or customer and apply them to others, driving further growth and creating value for our stakeholders. Many of the geographical, product or service markets in which we currently operate, including China, India, Vietnam and other developing countries in Southeast Asia, are experiencing long-term sustained growth. These countries have high growth potential due to increasing demand for our products and services from currently low penetration rates, rising living standards and consumption, and increasing regulatory emphasis on safety, energy efficiency and the environment. Our global scale, presence and extensive distribution network create opportunities for targeted geographic expansion of our product and service offerings, allow us to serve a diversified customer base and provide exposure to short- and long-cycle end markets.
Strong, long-term distribution relationships. We have long-term relationships with an extensive network of channel partners that uniquely position us to meet customers demands across the industries and geographies we serve. In many instances, these relationships have been forged over decades of selling HVAC, refrigeration, fire and security products to provide tailored solutions for a variety of customers and applications. We also have a number of joint venture arrangements and strategic relationships with our channel partners that align our respective incentives and facilitate our collective ability to win new business. We believe that we share a trust, relationship and mutual respect with our channel partners that is unmatched in our industry. These deep relationships are the product of decades of effort, extensive personal connections and a long history of dedicated performance and satisfied expectations. The strength of our relationships with our channel partners, our channel partners relationships with end users and the breadth of our distribution network, provide us with an important competitive advantage and help make Carrier a provider of choice even when we do not sell directly to the end user.
Proven track record of innovation with focus on world mega-trends. We have a strong history of innovation across all of our segments and our current priorities include solutions to address the challenges presented by the mega-trends of urbanization, climate change and the food needs of our growing global population. Since 2014, we have grown our engineering team globally by approximately 20 percent to approximately 3,600 engineers. We hold approximately 7,000 active patents and/or pending patent applications worldwide to protect our R&D investments in new products and services. In the last two years, we introduced over 200 new products. Our recent innovations include a suite of digital HVAC solutions that improve on-demand customer engagement, as well as visibility into system performance and remote management; combining carbon dioxide as a natural refrigerant with energy-efficient technology to reduce the carbon footprint of marine container refrigeration applications; and the first multi-criteria smoke detector to receive the UL 268 (7th edition) Standard for Safety of Smoke Detectors and Fire Alarm Systems certification. Innovation in our
68
product portfolio is a strong driver of continued growth as customers increasingly value energy efficiency, sustainability and digitally-connected building systems. These factors are an important aspect of customers buying decisions and serve as key differentiators for Carrier.
Sizable service and aftermarket business drives growth. By virtue of our global scale and market tenure, we have one of the largest installed bases in many of the industries we serve, which enables us to drive recurring revenue streams from the sale of repair and maintenance services, parts, components, and end of lifecycle product replacements that are required for installed products. Our sales of other value added recurring and non-recurring services provide additional revenue streams over and above sales derived from our equipment business. In 2019, approximately 28 percent of our net sales were generated by service and aftermarket.
Attractive financial profile underpinned by strong margins and operating cash flow. We benefit from attractive margins and a track record of strong cash flow generation. Over the past two years, our operating margins have consistently been over 13 percent, a level maintained through the reputational strength of our brands and our culture of operational efficiency. We also benefit from the low capital intensity of our businesses, which has contributed to our track record of generating strong operating cash flow. Over the past two years, our capital expenditures averaged approximately 1.3 percent of net sales and we generated a cumulative $4.1 billion of operating cash flow.
Experienced management team and skilled workforce. Our strategy is driven by an experienced global leadership team and implemented by skilled operating teams with approximately 53,000 employees worldwide, including approximately 3,600 engineers. Our global workforce, of which approximately 80 percent is located outside the United States, reflects our deep regional knowledge and enables us to maintain close relationships with our customers. Our leadership team includes executives who have deep industry expertise, as well as executives who have extensive experience driving growth and operational excellence across different businesses. This combination of collective industry experience and strong leadership supports our ability to successfully implement our business strategies.
Our Strategies
We intend to continue to grow by serving our diverse industries, geographies and customer bases with a broad range of solutions to address the complex challenges resulting from global mega-trends and by innovating ahead of regulatory requirements. Our key strategies include both a sustained focus on growth opportunities as well as a commitment to establishing a best-in-class cost structure as a stand-alone company, encompassing the following elements:
Focus on growth
Drive organic growth in existing served markets through technology and innovation. We plan to maintain our proven track record of innovation by leveraging our culture dedicated to designing smarter, more connected and more sustainable environments; our industry-leading brands; and our long-term relationships with channel partners and customers to provide solutions tailored for growing verticals and applications in the markets we serve. For example, in HVAC, through enhanced engagement with enterprise account owners and operators in key vertical segments, we are utilizing our broad building system offerings to provide innovative, intelligent building solutions to address our customers needs for energy efficiency, safety, security and an improved occupant experience. Our R&D efforts are focused on growing our products and services across our segments—we continue to invest in innovation and intend to continue to work closely with our distribution partners to offer best-in-class products and solutions that anticipate customer needs related to refrigerants, efficiency, emissions, noise levels and safety. As customer demands for more sustainable and connected equipment continue to evolve, our ability to innovate and provide cutting-edge products and technologies is key to our continued success and ability to grow our businesses. Our innovation efforts are supported by R&D investments, which were approximately 2.2 percent of net sales in 2019.
Invest for growth in attractive geographies. We believe that we are well positioned to expand our product, service and aftermarket offerings in a number of attractive geographies that have significant potential for substantial growth. Long-term growth opportunities in these geographies are supported by durable global mega-trends. We plan to leverage the scale of our global operations, the strength of our iconic brands and our proven track record in creating valuable partnerships to focus on targeted expansion into new locations and channels where we believe that we can drive profitable growth. We also continue to strengthen our long-term
69
relationships with channel partners to ensure global market coverage and a superior level of customer service. We believe our understanding of local conditions, regulations and customer needs helps position us to focus on attractive geographies and to move more quickly to meet rapidly changing regulatory requirements.
Expand in higher value-added services and aftermarket. Products make up the majority of our sales today. Our product sales, including installations, are more than two-thirds of total sales and will continue to be the foundation of the business going forward. However, as service and aftermarket offerings evolve in the industry to include more highly sophisticated digital and as-a-service models enabled by data and analytics, we will pursue targeted opportunities for growth, leveraging our smart, connected products and our broad technological expertise across building systems. In addition, we plan to utilize digital technologies to enhance our internal operations and enable seamless transactions with customers across the customer experience and equipment lifecycles (for example, by providing customers visibility from order through delivery).
Strategically optimize product, technology and geographic portfolio to enhance growth. We intend to seek opportunities to optimize our portfolio of products and services to allocate resources toward profitable growth, and to selectively pursue strategic partnerships, mergers, acquisitions and divestitures that will enhance our core business, complement our existing array of brands, products and services, and leverage our global scale and scope.
Leading Cost Structure
Focus on cost-effective performance. As a stand-alone public company, we plan to continue to foster operational, financial and commercial excellence, to drive sales and earnings growth while maintaining an attractive cost structure, through Carriers longstanding way of doing business. With roots in our legacy manufacturing and business process excellence, the Carrier operating system is based on lean principles and a highly competitive cost structure that leverages low-cost manufacturing and R&D resources to drive end-to-end supply chain excellence. In connection with our focus on cost-effective performance, we launched a strategic cost reduction initiative in 2019 with the goal of reducing cumulative supply chain, factory and general administrative costs by up to $600 million in the aggregate by the end of 2022.
70
Our Products, Services and Customers
Under a broad portfolio of iconic brands, we provide a wide range of products and solutions, including cooling, heating, ventilating and building automation systems; refrigeration; fire, flame, gas, smoke and carbon monoxide detection; portable fire extinguishers; fire suppression systems; intruder alarms; access control systems and video management systems; and electronic controls. Our broad range of products is complemented by a spectrum of related services, including audit, design, installation, system integration, repair, maintenance and monitoring services.
71
HVAC
Our HVAC segment provides products, controls, services and solutions to meet the heating and cooling needs of residential and commercial customers, while enhancing building performance, energy efficiency and sustainability. Through an industry-leading family of brands, including Automated Logic, Bryant, Carrier, CIAT, Day & Night, Heil, NORESCO and Riello, we offer an innovative and complete product portfolio, including air conditioners, heating systems, controls and aftermarket components, as well as repair and maintenance services and building automation solutions. Our broad product portfolio offers numerous solutions for our residential and commercial customers.
We have a leadership position serving residential customers in North America, supported by a large, installed base and new construction demand in both single-family and multi-family housing. We take a full system approach to commercial building solutions, from modeling a buildings HVAC needs to delivering innovative equipment and easy-to-use controls. We also leverage our commercial HVAC equipment sales to offer a portfolio of services to support the efficient, safe and predictable operation of our equipment.
As proven innovators in HVAC, our solutions are found in some of the most advanced, sustainable, and prestigious buildings around the world. Our HVAC products and solutions are sold directly, including to building contractors and owners, and indirectly through joint ventures, independent sales representatives, distributors, wholesalers, dealers and retail outlets, as well as through direct sales offices, which sell, in part, to mechanical contractors.
Our HVAC segment had net sales excluding inter-segment eliminations of $9.7 billion in 2019, and, as of December 31, 2019, remaining performance obligations (RPO), or the aggregate amount of total contract transaction price that is unsatisfied or partially unsatisfied, of approximately $2.7 billion.
Refrigeration
Our Refrigeration segment is comprised of transport refrigeration and commercial refrigeration products and solutions. Our transport refrigeration products and solutions include refrigeration and monitoring systems for trucks, trailers, shipping containers, intermodal and rail. Our transport refrigeration products and cold chain monitoring solutions enable the safe, reliable transport of food and beverages, medical supplies and other perishable cargo. Our commercial refrigeration equipment solutions incorporate next-generation technologies to preserve freshness, ensure safety and enhance the appearance of retail food and beverage.
We sell our refrigeration products and solutions directly, including to transportation companies and retail stores, and indirectly through joint ventures, independent sales representatives, distributors, wholesalers and dealers. Our refrigeration products and solutions are sold under established brand names, including Carrier Commercial Refrigeration, Carrier Transicold and Sensitech. Carrier Transicold is an established industry leader providing customers around the world with advanced, energy-efficient and environmentally sustainable container refrigeration systems and generator sets, direct-drive truck units, trailer refrigeration systems and marine container refrigeration. Under the Carrier and other brand names, we offer a comprehensive portfolio of next-generation commercial refrigeration products, including refrigerated cabinets, freezers, systems and controls, all of which help maximize merchandising opportunities while reducing energy consumption and operating costs. Carrier Commercial Refrigeration sells products and services to customers in a wide range of food retail formats concentrated primarily in Europe, the Middle East and Asia. Sensitech offers leading solutions and services for supply chain visibility addressing quality and compliance, security and logistics performance management. Sensitechs innovative monitoring products and services help to maintain the quality, integrity and security of our customers valuable products at every step in their journey around the world.
Our Refrigeration segment had net sales excluding inter-segment eliminations of $3.8 billion in 2019 and, as of December 31, 2019, RPO of approximately $836 million.
Fire & Security
We offer a broad array of fire and security products to meet the needs of our customers. Our fire and security products and solutions encompass a wide range of residential and building systems, including fire, flame, gas, smoke and carbon monoxide detection; portable fire extinguishers; fire suppression systems; intruder alarms; access control systems and video management systems; and electronic controls.
72
Our fire detection and suppression technologies protect a variety of premises, including homes, commercial buildings and industrial sites, and are sold under our trusted brands, including Autronica, Det-Tronics, Edwards, Fireye, GST, Kidde and Marioff. Our security products are sold under top-tier brands, including Interlogix, LenelS2, Onity and Supra. Our security solutions range from advanced physical security solutions, including access control, video surveillance, key management systems, electronic locks and mobile credentialing for a range of commercial applications including corporate, healthcare, government, hospitality, education, real estate, property management, industrial and automotive, to intrusion monitoring and life-safety solutions for the residential market. Our technology includes web-based and mobile applications enhanced by cloud-based services.
Our fire and security service offerings include audit, design, installation, system integration, repair, maintenance and monitoring services. These solutions, primarily sold under our Chubb brand, complement our fire and security products. Chubb has a network of skilled technicians and 24/7 monitoring centers providing continuous support for customers in a number of countries across the world.
We sell our fire and security products and solutions directly to end customers, including governments, financial institutions, architects, building owners and developers, security and fire consultants and homeowners, as well as through manufacturers representatives, distributors, dealers, value-added resellers and retailers. Key purchasing factors considered by our fire and security customers include route to market, quality, innovation, brand loyalty, price and performance.
Our Fire & Security segment had net sales excluding inter-segment eliminations of approximately $5.5 billion in 2019 and, as of December 31, 2019, RPO of approximately $1.2 billion.
Competition and Other Factors Affecting the Carrier Business
As a global business, our operations can be affected by a variety of economic, industry and other factors, including those described in this section and in Managements Discussion and Analysis of Financial Condition and Results of Operations, Cautionary Note Regarding Forward-Looking Statements and Risk Factors.
Carrier is subject to significant competition from a large number of companies in the United States and other countries, and each competes on the basis of price, delivery schedule, product performance and service. The geographies in which we sell our products, solutions and services in the HVAC, Refrigeration and Fire & Security segments tend to have a large number of local companies. We believe that Carrier is one of the leading equipment manufacturers in each of its addressable segments and that our portfolio of strong brands, together with our ability to provide comprehensive solutions in state-of-the-art building, refrigeration and industrial systems and services, make us a supplier and business partner of choice.
HVAC
Competition in HVAC equipment includes many international, regional and local companies, the largest of which include Daikin Industries, Ltd., Gree Electric, Ingersoll-Rand PLC, Johnson Controls International PLC, Lennox International, Midea Group and Mitsubishi Electric Corporation, among others. Contracts are typically awarded or negotiated on the basis of price, product availability, delivery schedule, product performance, product line breadth, brand reputation, design, technical expertise and service. We focus on technical innovation to produce sustainable solutions, which provide our customers with higher efficiency and lower operating costs. We believe that our ability to innovate in anticipation of regulatory requirements is a key advantage in HVAC equipment, and we leverage, both directly and through our local distributors and joint ventures, our knowledge and expertise in our own equipment and controls to sell our portfolio of services to customers. We regularly offer incentives and training, such as credits/discounts for offering promotional pricing and contract terms on our products, to our distribution partners to purchase and sell our products to ensure an adequate supply of our products.
Refrigeration
Competition in refrigeration includes multinational companies, including Ingersoll-Rand PLC, Daikin Industries, Ltd. and Panasonic Corporation, as well as numerous regional and local companies. Sales depend heavily on product performance, efficiency and reliability, as well as service and support. We believe that our track record of technical innovation in producing environmentally sustainable solutions for precision temperature
73
and humidity control, as well as our global parts and service support footprint, differentiate us from the competition. The transport refrigeration business can be affected by truck production cycles in North America and Europe, which result from a variety of factors, including general economic conditions, replacement cycles, age of fleet and pre-buys.
Fire & Security
Competition in fire and security products, solutions and services includes several large multinational companies, including Assa Abloy AB, Bosch Group, Zhejiang Dahua, Hangzhou Hikvision Digital, Honeywell International Inc., Johnson Controls International PLC and Siemens AG, among others. We believe that our trusted brands (including Autronica, Chubb, Det-Tronics, Edwards, Fireye, GST, Interlogix, Kidde, LenelS2, Marioff, Onity and Supra), our understanding of our customers fire and security needs, our reputation for technical innovation and the reliable performance of our products and solutions are key competitive advantages.
Compliance with Government Regulations
We conduct our business through subsidiaries and affiliates worldwide. Changes in legislation or government policies, including the ongoing changes in regulations, including with respect to climate change concerns, can affect our worldwide operations. In particular, our business may be affected by changes in governmental regulation of refrigerants and energy efficiency standards, noise regulation and product and fire safety regulations, including changes related to hydro fluorocarbons/emissions reductions efforts in the United States and Canada, energy conservation standards in the United States, the regulation of fluorinated gases in the European Union (EU), the EUs Ecodesign implementation regulations and chemical regulations, the EUs regulations on hazardous substances, electric and electronic equipment waste, and by other regulations promulgated by the European Committee for Standardization. Additionally, the increased fragmentation of regulatory requirements may increase our costs by requiring the development of country-specific variants, the monitoring and compliance of additional regulations as well as additional testing and certifications. The laws and regulations applicable to our products and services change regularly, and certain regulatory changes may render our products and technologies noncompliant. We do not anticipate that changes in laws and regulations applicable to our products will have a material adverse effect upon our cash flows, competitive position, financial condition or results of operations.
Our operations are also subject to and affected by environmental regulations promulgated by federal, state and local authorities in the United States and by authorities with jurisdiction over our foreign operations. Most U.S. laws governing environmental matters include criminal penalties. We have incurred and will likely continue to incur liabilities under various statutes for the cleanup of pollutants previously released into the environment. We do not anticipate that compliance with current provisions relating to the protection of the environment or that any payments we may be required to make for cleanup liabilities will have a material adverse effect upon our cash flows, competitive position, financial condition or results of operations. Environmental matters are further addressed in Managements Discussion and Analysis of Financial Condition and Results of Operations and Notes 3 and 19 to the Combined Financial Statements included in the Index to Combined Financial Statements section of this information statement.
Certain of our fire and security products are subject to certification by governmental agencies and regulatory bodies in the various jurisdictions in which we operate, including, among others, the U.S. Consumer Product Safety Commission, the U.S. National Highway Traffic Safety Administration, the U.S. Coast Guard, Health Canada, Transport Canada and the Procuraduría Federal del Consumidor in Mexico. In addition, certain fire and safety products may be impacted by recent legislative and regulatory changes, such as the John S. McCain National Defense Authorization Act for Fiscal Year 2019 and the changing landscape related to tariffs and trade regulations.
U.S. laws, regulations, orders and other measures concerning the export or re-export of products, software, services and technology to, and other trade-related activities involving, non-U.S. countries and parties affect the operations of Carrier and its affiliates.
For further discussion of risks related to environmental matters and other government regulations, see Risk Factors, —Legal Proceedings and Note 20 to the Combined Financial Statements included in the Index to Combined Financial Statements section of this information statement.
74
Working Capital and Operations
We maintain levels of inventory consistent with industry practices. These levels are impacted from time to time by seasonality and fluctuations in demand, and vary across and within segments. Additional requirements are usually met with procurement from suppliers and vendors.
RPO consists of the aggregate amount of total contract transaction price that is unsatisfied or partially unsatisfied. As of December 31, 2019, our total RPO for the HVAC, Refrigeration and Fire & Security segments is approximately $2.7 billion, $836 million and $1.2 billion, respectively. Of these totals, we expect approximately 57 percent, 74 percent and 72 percent, respectively, will be recognized as sales over the following 12 months.
Intellectual Property
We maintain a broad portfolio of patents, trademarks, copyrights, trade secrets, licenses and franchises related to our business. We hold approximately 7,000 active patents and/or pending patent applications worldwide to protect our R&D investments in new products and services. From time to time, we take actions to protect our business by asserting our intellectual property rights against third-party infringers. We believe we have taken reasonable measures to build this portfolio of intellectual property rights, but we cannot be assured that none of these intellectual property rights may be challenged, found invalid or unenforceable. See the Risk Factors section for further discussion of intellectual property matters.
Raw Materials and Supplies
We believe that we have adequate sources for materials, components, services and supplies used in our manufacturing. We work continuously with our supply base to ensure an adequate source of supply and to reduce costs. We pursue cost reductions through a number of mechanisms, including consolidating purchases, reducing the number of suppliers, global sourcing, design changes and competitive bidding. In some instances, we depend upon a single source of supply or participate in commodity markets, including rare-earth metals, that may be subject to allocations of limited supplies. We believe that our supply management practices are based on an appropriate balancing of the foreseeable risks and the costs of alternative practices. Although at times high prices for some raw materials important to our business (for example, steel, copper and aluminum) have caused margin and cost pressures, we do not foresee near term unavailability of materials, components or supplies that would have a material adverse effect on our competitive position, results of operations, cash flows or financial condition. Additionally, because we have a number of factories and suppliers in foreign countries, the imposition of tariffs or sanctions, or unusually restrictive border-crossing rules, could adversely affect our supply chain. For further discussion of the possible effects of the cost and availability of raw materials on our business, see the Risk Factors section.
Employees and Employee Relations
At December 31, 2019, we had approximately 53,000 employees, of which approximately 80 percent are based outside the United States. During 2019, we negotiated or concluded five domestic collective bargaining agreements. In 2020, two domestic collective bargaining agreements are subject to renegotiation, the largest of which covers certain workers at our Indianapolis, Indiana facility. Although some previous contract renegotiations have had a significant impact on our financial condition or results of operations in prior years, we do not anticipate that the renegotiation of these contracts in 2020 will have a material adverse effect on our competitive position, cash flows, financial condition or results of operations. At December 31, 2019, approximately 30 percent of our employees in the United States were covered by collective bargaining agreements. Employees in certain foreign jurisdictions are represented by local works councils as may be customary or required in those jurisdictions. Our business may be adversely affected by work stoppages, union negotiations, labor disputes and other matters associated with our labor force. For discussion of the effects of our restructuring actions on employment, see Risk Factors, Managements Discussion and Analysis of Financial Condition and Results of Operations and Note 15 to the Combined Financial Statements included in the Index to Combined Financial Statements section of this information statement.
Properties
We operate approximately 1,200 sites, which comprise approximately 35 million square feet of productive space. Of these, our large footprint facilities and key manufacturing sites comprise approximately 24 million square feet of productive space. Approximately 56 percent, 15 percent and 26 percent of these significant
75
properties are associated with our HVAC, Refrigeration and Fire & Security segments, respectively, with approximately 3 percent not associated with a particular segment. Approximately 30 percent of these significant properties are leased and the remainder are owned. Approximately 31 percent of these significant properties are located in the United States.
Our fixed assets as of December 31, 2019 include manufacturing facilities and non-manufacturing facilities, such as warehouses, and a substantial quantity of machinery and equipment, most of which is general purpose machinery and equipment that use special jigs, tools and fixtures and that, in many instances, have automatic control features and special adaptations. The facilities, warehouses, machinery and equipment in use as of December 31, 2019 are in good operating condition, are well-maintained and substantially all are generally in regular use.
Joint Ventures
Our joint venture arrangements and strategic relationships are an important part of our business. We hold interests in over 60 such entities, which are either consolidated within our combined financial statements, accounted for by the equity method of accounting or the cost basis of accounting. While all three of our segments participate in joint ventures and strategic relationships, the majority of such interests are in our HVAC business. Our joint ventures and strategic relationships engage in various activities including distribution, manufacturing and product development. We consider our relationships with these joint ventures and strategic relationships to be integral to our business operations. We sell products to and purchase products from many of these related parties. See Note 16 to the Combined Financial Statements for additional information.
Seasonality
Demand for certain of our products and services is seasonal and can be impacted by weather. For instance, sales and services of our HVAC products to residential customers have historically been higher in the second and third quarters of the calendar year, which represents the peak seasons of spring and summer for sales and services related to air conditioning in North America. For further discussion of the possible effects of seasonality on our business, see the Risk Factors section.
Legal Proceedings
Asbestos
Like many other industrial companies, we and our subsidiaries have been named as defendants in lawsuits alleging personal injury as a result of exposure to asbestos that was integrated into certain of our historical products or business premises. While we have never manufactured asbestos and no longer incorporate it in any of our products, certain of our historical products, like those of many other manufacturers, contained components incorporating asbestos. A substantial majority of these asbestos-related claims have been dismissed without payment or were covered in full or in part by insurance or other forms of indemnity. Additional cases were litigated and settled without any insurance reimbursement. The amounts involved in asbestos-related claims were not material individually or in the aggregate in any year.
The estimated range of total liabilities to resolve all pending and unasserted potential future asbestos claims through 2059 is approximately $255 million to $290 million. Where no amount within a range of estimates is more likely, the minimum is accrued. We have recorded the minimum amount of $255 million, which is principally recorded in Other long-term liabilities on the Combined Balance Sheet as of December 31, 2019. This amount is on a pre-tax basis, not discounted, and excludes our legal fees to defend the asbestos claims, which will continue to be expensed as they are incurred. This estimate was developed by UTC with the assistance of an outside actuarial expert and was based not only on UTCs analysis of its own asbestos claims history from 2010 through 2015 and its contractual insurance coverage litigations, but also on broader nationwide asbestos trend data, including a substantial drop in non-malignant asbestos claims; an increasing focus on malignancy claims, primarily those involving mesothelioma, a cancer that now has an historical and fairly predictable future annual incidence rate; and a substantial decrease in average annual claim filings. In addition, we have an insurance recovery receivable for probable asbestos related recoveries of approximately $104 million, which is included primarily in Other assets on our Combined Balance Sheet as of December 31, 2019.
The amounts we have recorded for asbestos-related liabilities and insurance recoveries are based on currently available information and assumptions that we believe are reasonable. Our actual liabilities or insurance recoveries
76
could be higher or lower than those recorded if actual results vary significantly from the assumptions. Key variables in these assumptions include the number and type of new claims to be filed each year, the outcomes or resolution of such claims, the average cost of resolution of each new claim, the amount of insurance available, allocation methodologies, the contractual terms with each insurer with whom we have reached settlements, the resolution of coverage issues with other excess insurance carriers with whom we have not yet achieved settlements and the solvency risk with respect to co-defendants and our insurance carriers. Other factors that may affect our future liability include uncertainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case, legal rulings that may be made by state and federal courts and the passage of state or federal legislation. At the end of each year, we will evaluate all of these factors and, with input from an outside actuarial expert, make any necessary adjustments to both our estimated asbestos liabilities and insurance recoveries.
Aqueous Film Forming Foam Litigation
Aqueous Film Forming Foam (AFFF) is a firefighting foam developed in the 1970s pursuant to U.S. military specification and used to extinguish certain types of fires primarily at airports and military bases. AFFF was manufactured by several companies, including National Foam and Angus Fire, which had a very small share of the AFFF market both in the United States and worldwide. UTC acquired the National Foam and Angus Fire businesses in 2005 as part of the acquisition of Kidde, which has been operated by Carrier. In 2013, UTC divested the National Foam and Angus Fire businesses to a third party.
Carrier and many other parties, including the third party buyer of the National Foam and Angus Fire businesses, have been named as defendants in numerous putative class actions and other lawsuits alleging that the historic use of AFFF caused personal injuries and property damage. Additionally, several state and municipal plaintiffs have commenced litigation against the same defendants to recover remediation costs related to historic use of AFFF. In December 2018, the U.S. Judicial Panel on Multidistrict Litigation transferred and consolidated all of the AFFF cases pending in the federal courts to the U.S. District Court for the District of South Carolina for pre-trial proceedings.
Plaintiffs allege that an ingredient in AFFF contains, or breaks down into, chemicals known as perflourooctane sulfonate (PFOS) and perflourooctane acid (PFOA) that were released into the environment and, in some instances, ultimately into drinking water supplies. National Fire and Angus Fire purchased these perflourinated chemical ingredients from third party chemical manufacturers. PFOS and PFOA have also been used by many third parties to manufacture carpets, clothing, fabrics, cookware and other consumer products.
Carrier is vigorously defending these cases and believes that it has meritorious defenses to the claims asserted. At this time, however, given the numerous factual, scientific and legal issues to be resolved relating to these claims, Carrier is unable to assess the probability of liability or reasonably estimate the damages, if any, to be allocated to Carrier, if one or more plaintiffs were to prevail in these cases.
Other
We have commitments and contingent liabilities related to legal proceedings, self-insurance programs and matters arising out of the ordinary course of business. We accrue contingencies based on a range of possible outcomes. If no amount within this range is a better estimate than any other, we accrue the minimum amount.
In the ordinary course of business, Carrier is also routinely a defendant in, party to or otherwise subject to many pending and threatened legal actions, claims, disputes and proceedings. These matters are often based on alleged violations of contract, product liability, warranty, regulatory, environmental, health and safety, employment, intellectual property, tax and other laws. In some of these proceedings, claims for substantial monetary damages are asserted against Carrier and could result in fines, penalties, compensatory or treble damages or non-monetary relief. We do not believe that these matters will have a material adverse effect upon our competitive position, results of operations, cash flows or financial condition.
For a further discussion, see Risk Factors and —Compliance with Government Regulations.
77
Corporate Information
Carrier was incorporated in Delaware for the purpose of holding the Carrier Business in connection with the separation and distribution described herein. Prior to the contribution of the Carrier Business to us by UTC, which will occur prior to the distribution, Carrier will have no operations other than those incidental to the separation. Our principal executive offices are located at 13995 Pasteur Boulevard, Palm Beach Gardens, FL 33418, and our telephone number is (561) 365-2000. We maintain an Internet site at www.carrier.com. Our website and the information contained therein or connected thereto are not incorporated into this information statement or the registration statement of which this information statement forms a part, or in any other filings with, or any information furnished or submitted to, the SEC.
78
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
You should read the following discussion of our results of operations and financial condition together with the audited historical combined financial statements (referred to as the combined financial statements) and the notes thereto included in this information statement as well as the discussion in the Business section of this information statement. This discussion contains forward-looking statements that involve risks and uncertainties. The forward-looking statements are not historical facts, but rather are based on current expectations, estimates, assumptions and projections about our industry, business and future financial results. Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including those discussed in Risk Factors and Cautionary Note Regarding Forward-Looking Statements included elsewhere in this information statement. The financial information discussed below and included in this information statement may not necessarily reflect what our financial condition, results of operations or cash flow would have been had we been a stand-alone company during the periods presented or what our financial condition, results of operations and cash flows may be in the future.
Amounts in millions unless otherwise stated.
Separation from UTC
On November 26, 2018, UTC announced its intention to separate the Carrier Business and the Otis Business from the UTC Aerospace Businesses. The separation will occur through pro rata distributions to UTC shareowners of 100 percent of the shares of common stock of Carrier and 100 percent of the shares of common stock of Otis, which were formed to hold UTCs Carrier Business and Otis Business, respectively.
The combined financial statements included in this information statement have been prepared from UTCs historical accounting records and are presented on a stand-alone basis and are derived from the consolidated financial statements and accounting records of the Carrier business of UTC. The combined financial statements reflect our financial position, results of operations and cash flows as we were historically managed, in conformity with GAAP.
Our combined financial statements include all revenues and costs directly attributable to Carrier, including costs for facilities, functions and services used by Carrier. Costs for certain functions and services performed by centralized UTC organizations are directly charged to Carrier based on specific identification when possible or based on a reasonable allocation driver such as net sales, headcount, usage or other allocation methods. The results of operations include allocations of costs for administrative functions and services performed on behalf of Carrier by centralized groups within UTC.
We intend to enter into a transition services agreement with UTC and Otis in connection with the separation pursuant to which UTC will provide us with certain services and we will provide certain services to UTC for a limited time to help ensure an orderly transition following the separation.
Under the transition services agreement, Carrier will receive certain services, including information technology services, technical and engineering support, application support for operations, legal, payroll, finance, tax and accounting, general administrative services and other support services. As costs for these services historically were included in our operating results through expense allocations from UTC, we do not expect the costs associated with the transition services agreement to be materially different and, therefore, we do not expect such costs to materially affect our results of operations or cash flows after becoming a stand-alone company.
Subsequent to the separation, we will incur expenditures consisting primarily of employee-related costs, costs to establish certain stand-alone functions and information technology systems and other transaction-related costs. Additionally, we will incur increased costs as a result of becoming an independent, publicly traded company, primarily from establishing or expanding the corporate support for our businesses, including information technology, human resources, treasury, tax, internal audit, risk management, stock-based compensation programs, accounting and financial reporting, investor relations, governance, legal, procurement and other services. Our preliminary estimates of these additional recurring costs expected to be incurred annually are approximately $110 million to $140 million greater than the expenses historically allocated to us from UTC, and primarily relate to Selling, general and administrative expenses. We believe our cash flow from operations will be sufficient to fund these additional corporate expenses.
79
In connection with the separation, we will enter into a tax matters agreement with UTC and Otis that will govern the parties respective rights, responsibilities and obligations with respect to tax matters (including responsibility for taxes, entitlement to refunds, allocation of tax attributes, preparation of tax returns, control of tax contests and other tax matters).
Subject to certain exceptions set forth in the tax matters agreement, Carrier generally will be responsible for federal, state and foreign taxes imposed on a separate return basis on Carrier (or any of its subsidiaries) with respect to taxable periods (or portions thereof) that end on or prior to the date of the distribution.
The tax matters agreement will provide special rules that allocate responsibility for tax liabilities arising from a failure of the separation transactions to qualify for tax-free treatment based on the reasons for such failure. The tax matters agreement also imposes restrictions on each of Carrier and Otis during the two-year period following the distribution that are intended to prevent certain transactions from failing to qualify as transactions that are generally tax-free. See Certain Relationships and Related Party Transactions, Risks related to the Distribution and Material U.S. Federal Tax Consequences for additional discussion.
In connection with the separation, we will also enter into an employee matters agreement and intellectual property agreement with UTC and Otis. These agreements are not expected to have a material impact on the financial results of Carrier. See Certain Relationships and Related Party Transactions for additional discussion.
In connection with the separation, we expect to complete one or more financing transactions on or prior to the completion of the distribution, with the approximately $10.7 billion of the proceeds of such financings expected to be used to distribute a cash dividend to UTC. We anticipate having approximately $10.7 billion of outstanding principal indebtedness related to these financing transactions and $11.1 billion of total outstanding principal indebtedness when the distribution is completed. The amount of indebtedness incurred by Carrier and the amount of cash distributed by Carrier may be adjusted by UTC as described elsewhere in this information statement. See Liquidity and Financial Condition, Unaudited Pro Forma Combined Financial Information and Description of Material Indebtedness included elsewhere in this information statement for additional details related to this indebtedness.
Business Overview
We are a global provider of HVAC, refrigeration, fire and security solutions. Carrier also provides a broad array of related services, including audit, design, installation, system integration, repair, maintenance and monitoring services.
Our worldwide operations can be affected by industrial, economic and political factors on both a regional and global level. This includes mega-trends of urbanization, climate change and increasing requirements for food safety driven by the food needs of our growing global population, rising standards of living and increasing energy and environmental regulation. We believe that growth in our businesses is supported by favorable secular trends, including the mega-trends discussed above, which underpin growth across our HVAC, Refrigeration and Fire & Security businesses. We also believe that we are well positioned to benefit from these long-term trends as a result of the strength of our industry-leading brands and track record of innovation.
The effects of climate change, such as extreme weather conditions, create financial risks to our business. For example, the demand for our products and services, such as residential air conditioning equipment, may be affected by unseasonable weather conditions. Demand for our HVAC products and services, representing our largest segment by sales, is seasonal and affected by the weather. Cooler than normal summers depress our sales of replacement air conditioning products and services. Similarly, warmer than normal winters have the same effect on our heating products.
Our business is also affected by changes in the general level of economic activity, such as changes in business and consumer spending, construction activity and shipping activity. A change in building and remodeling activity also can affect our financial performance. In addition, our financial performance may be influenced by the production and utilization of transport equipment, including truck production cycles in North America and Europe.
Our operations are organized into three segments: HVAC, Refrigeration and Fire & Security. Our HVAC segment provides products, controls, services and solutions to meet the heating and cooling needs of residential and commercial customers. Our Refrigeration segment provides refrigeration and monitoring systems for trucks,
80
trailers, shipping containers, intermodal and rail, as well as commercial refrigeration products. Our Fire & Security products encompass a wide range of residential and commercial building systems and security and service solutions. Our customers are in both the public and private sectors, and our businesses reflect an extensive geographic diversification that has evolved with continued globalization. See Note 21 to the Combined Financial Statements for additional discussion of sales attributed to geographic regions.
Our combined net sales (excluding inter-segment eliminations) were as follows:
2019 |
2018 |
2017 |
|||||||
HVAC |
51 | % |
50 | % |
50 | % |
|||
Refrigeration |
20 | % |
21 | % |
21 | % |
|||
Fire & Security |
29 | % |
29 | % |
29 | % |
|||
100 | % |
100 | % |
100 | % |
As part of our growth strategy, we invest in businesses in certain countries that carry high levels of currency, political and/or economic risk, such as Mexico, China, Brazil, India and countries in the Middle East. As of December 31, 2019, the net assets in any one of these countries did not exceed 10% of our combined equity.
Organic sales growth was 1% in 2019 and 6% in 2018. 2019 reflects growth in HVAC (1%) and Fire & Security (1%), partially offset by declines in Refrigeration (1%). 2018 reflected growth across all segments, as Refrigeration, HVAC and Fire & Security sales were up (9%), (7%) and (2%), respectively.
Our earnings growth strategy contemplates earnings from organic sales growth, including growth from new product development and product improvements, structural cost reductions, operational improvements and incremental earnings from future investments in acquisitions.
Operating profit in 2019, 2018 and 2017 includes the impact from activities that are not expected to recur often or that are not otherwise reflective of our underlying operations, such as net gains from sales of businesses, the unfavorable impact of contract matters with customers, transaction, acquisition and integration costs, impairments and other significant non-recurring and non-operational items. For additional discussion, see Results of Operations.
Our investments in businesses in 2019, 2018 and 2017 included a number of small acquisitions primarily in our HVAC and Fire & Security segments.
Both acquisition and restructuring costs associated with business combinations are expensed as incurred. Depending on the nature and level of acquisition activity, earnings could be adversely impacted due to acquisition and restructuring actions initiated in connection with the integration of businesses acquired. For additional discussion of acquisitions and restructuring, see Liquidity and Financial Condition, Restructuring Costs and Notes 9 and 15 to the Combined Financial Statements.
On December 22, 2017, the TCJA was enacted. For additional discussion, see Critical Accounting Estimates—Income Taxes and Note 14 to the Combined Financial Statements.
Results of Operations
Net Sales
(dollars in millions) |
2019 |
2018 |
2017 |
||||||
Net sales |
$ | 18,608 | $ | 18,914 | $ | 17,814 | |||
Percentage change year-over-year |
(2 | )% |
6 | % |
The factors contributing to the total percentage change year-over-year in total net sales are as follows:
(dollars in millions) |
2019 |
2018 |
||||
Organic / operational |
1 | % |
6 | % |
||
Foreign currency translation |
(2 | )% |
1 | % |
||
Acquisitions and divestitures, net |
(1 | )% |
(1 | )% |
||
Total % change |
(2 | )% |
6 | % |
81
The 2019 organic sales increase of 1% was primarily driven by growth in HVAC (1%) as well as increases in Fire & Security (1%) and partially offset by declines in Refrigeration (1%). HVAC organic sales growth was driven by stronger sales in the North America residential HVAC market, as well as growth in Asia and the Americas for commercial HVAC. Organic growth in the Fire & Security segment was driven by stronger product sales globally, as well as field service growth primarily within Asia. Refrigeration declines were driven by transport refrigeration, primarily the container business, partially offset by growth in North America Truck Trailer as well as a decline in commercial refrigeration, primarily in Europe. The divestiture related sales decrease in 2019 was due to the 2018 sale of the Taylor business within the Refrigeration segment.
All three segments experienced organic sales growth during 2018 compared to 2017. Refrigeration grew 9% organically, reflecting stronger transport refrigeration sales and additional growth in commercial refrigeration sales. HVAC organic sales growth of 7% was driven by higher sales to residential customers in North America, as well as global growth for commercial HVAC. Organic sales growth of 2% in the Fire & Security segment was driven by growth in both product and field service sales.
Cost of Products and Services Sold
(dollars in millions) |
2019 |
2018 |
2017 |
||||||
Total cost of products and services sold |
$ | 13,189 | $ | 13,345 | $ | 12,629 | |||
Percentage change year-over-year |
(1 | )% |
6 | % |
The factors contributing to the total percentage change year-over-year in cost of products and services sold are as follows:
(dollars in millions) |
2019 |
2018 |
||||
Organic / operational |
2 | % |
6 | % |
||
Foreign currency translation |
(2 | )% |
1 | % |
||
Acquisitions and divestitures, net |
(1 | )% |
(1 | )% |
||
Total % change |
(1 | )% |
6 | % |
The decrease in total cost of products and services sold in 2019 was primarily driven by favorable foreign currency translation and net acquisition and divestiture activity, which more than offset increases from organic sales growth as well as higher tariffs and unfavorable commodity impacts.
The increase in total cost of products and services sold in 2018 was primarily driven by the organic sales increases noted above.
Gross Margin
(dollars in millions) |
2019 |
2018 |
2017 |
||||||
Gross margin |
$ | 5,419 | $ | 5,569 | $ | 5,185 | |||
Percentage of net sales |
29.1 | % |
29.4 | % |
29.1 | % |
Gross margin as a percentage of net sales decreased 30 basis points in 2019 as the favorable impact of pricing and productivity net of unfavorable commodities and tariffs was more than offset by unfavorable mix, the absence of a favorable prior year contract adjustment related to a large commercial project and the unfavorable year-over-year impact resulting from the revaluation of certain long-term liabilities.
The 30 basis point increase in 2018 gross margin as a percentage of net sales was primarily driven by favorable pricing, the absence of a large commercial HVAC project adjustment and the absence of a product recall program in the Fire & Security segment, partially offset by increased commodities and logistics costs.
Research and Development
(dollars in millions) |
2019 |
2018 |
2017 |
||||||
Research and development expense |
$ | 401 | $ | 400 | $ | 364 | |||
Percentage of net sales |
2.2 | % |
2.1 | % |
2.0 | % |
82
Research and development spending is subject to the variable nature of program development schedules and, therefore, year-over-year variations in spending levels are expected. Research and development expenses increased by 10 basis points as a percentage of net sales in 2019 primarily driven by a prior year acquisition and investments in the Fire & Security segment, partially offset by relatively lower spend in the HVAC and Refrigeration segment, partially due to the 2018 divestiture of Taylor.
Research and development expenses increased by 10 basis points as a percentage of net sales in 2018 primarily driven by increased investment in new products across all Carrier businesses.
Selling, General and Administrative
(dollars in millions) |
2019 |
2018 |
2017 |
||||||
Selling, general and administrative |
$ | 2,761 | $ | 2,689 | $ | 2,584 | |||
Percentage of net sales |
14.8 | % |
14.2 | % |
14.5 | % |
Selling, general and administrative expenses increased 60 basis points as a percentage of net sales in 2019, primarily driven by $53 million of costs relating to the separation, as well as a consultant contract termination fee of $34 million, neither of which were incurred in 2018, partially offset by lower year-over-year corporate allocations from UTC.
Selling, general and administrative expenses increased 4% in 2018, primarily driven by higher employee compensation and benefit related expenses and higher technology related allocations from UTC, but decreased 30 basis points as a percentage of net sales primarily due to favorable sales volume leverage.
We are continuously evaluating our cost structure and have implemented restructuring actions as a method of keeping our cost structure competitive. The amounts reflected above include the impact of restructuring actions on Selling, general and administrative expenses. For additional discussion, see Restructuring Costs and Note 15 to the Combined Financial Statements.
Restructuring Costs
(dollars in millions) |
2019 |
2018 |
2017 |
||||||
Cost of sales |
$ | 36 | $ | 36 | $ | 48 | |||
Selling, general and administrative |
$ | 90 | $ | 44 | $ | 63 | |||
Total restructuring costs |
$ | 126 | $ | 80 | $ | 111 |
Restructuring actions are an essential component of our operating margin improvement efforts and relate to existing and recently acquired operations. Charges generally arise from severance related to workforce reductions, facility exit and lease termination costs associated with the consolidation of field and manufacturing operations and costs to exit legacy programs. We continue to closely monitor the economic environment and may undertake further restructuring actions to keep our cost structure aligned with the demands of prevailing market conditions.
2019 Actions. During 2019, we recorded net pre-tax restructuring charges of $110 million relating to ongoing cost reduction actions initiated in 2019. For actions initiated in 2019, we are targeting to complete the majority of the remaining workforce and facility-related cost reductions in 2020. During 2019, we had cash outflows of approximately $63 million related to the 2019 actions. As of December 31, 2019, we expect to incur additional restructuring and other charges of $10 million to complete these actions.
2018 Actions. During 2019 and 2018, we recorded net pre-tax restructuring charges of $16 and $63 million, respectively, relating to ongoing cost reduction actions initiated in 2018. During 2019, we had cash outflows of approximately $37 million related to the 2018 actions. As of December 31, 2019, we expect to incur additional restructuring and other charges of $8 million to complete the 2018 actions.
2017 Actions. During 2019, 2018 and 2017, we recorded net pre-tax restructuring charges of zero, $1 million and $76 million, respectively, relating to ongoing cost reduction actions initiated in 2017. During 2019, we had cash outflows of approximately $8 million related to the 2017 actions. As of December 31, 2019, we do not expect to incur additional restructuring charges related to the 2017 actions.
In addition, during 2019, 2018 and 2017, we recorded net pre-tax restructuring costs totaling zero, $16 million and $35 million, respectively, for restructuring actions initiated in 2016 and prior. For additional
83
discussion of restructuring, see Note 15 to the Combined Financial Statements. As of December 31, 2019, we do not expect to incur additional restructuring charges related to the 2016 actions.
Equity Method Investment Net Earnings
(dollars in millions) |
2019 |
2018 |
2017 |
||||||
Equity method investment net earnings |
$ | 236 | $ | 220 | $ | 218 |
Investments over which we do not exercise control but have significant influence are accounted for using the equity method of accounting. Equity in earnings of uncombined equity method investments increased in 2019 by $16 million, primarily due to stronger earnings from our investments in HVAC joint ventures in Europe and Asia.
Equity in earnings of uncombined equity method investments increased in 2018 by $2 million, primarily due to stronger earnings from our investments in HVAC joint ventures in Europe, partially offset by decreases in earnings from equity investees in the Middle East and Asia.
For additional discussion, see Notes 3 and 16 to the Combined Financial Statements.
Other Income (Expense), Net
(dollars in millions) |
2019 |
2018 |
2017 |
||||||
Other income (expense), net |
$ | (2 | ) |
$ | 937 | $ | 575 |
Other income (expense), net primarily includes the impact of foreign exchange gains and losses as well as other ongoing or infrequently occurring items such as gains and losses on business divestitures.
The year-over-year decrease of $939 million in Other income (expense), net in 2019 was primarily driven by the absence of a prior year gain of $799 million from the divestiture of Taylor, as well as the 2019 impairment of an equity method investment ($108 million).
The year-over-year increase of $362 million in Other income (expense), net in 2018 was primarily driven by the 2018 gain on the divestiture of Taylor of $799 million, partially offset by the absence of a prior year gain of $379 million from the sale of our investment in Watsco, Inc.
See Notes 9, 16 and 17 to the Combined Financial Statements for further discussion of these transactions.
Interest (Income) Expense, Net
(dollars in millions) |
2019 |
2018 |
2017 |
||||||
Interest expense |
$ | 75 | $ | 84 | $ | 219 | |||
Interest income |
$ | (102 | ) |
$ | (121 | ) |
$ | (104 | ) |
Interest (income) expense, net |
$ | (27 | ) |
$ | (37 | ) |
$ | 115 |
Interest income and expense relates primarily to interest on related party activity between us and UTC. See Note 5 to the Combined Financial Statements.
Interest (income) expense, net decreased 27% in 2019 as compared with 2018, which primarily reflects changes in interest earned on related party receivables due from UTC.
Interest (income) expense, net decreased 132% in 2018 as compared with 2017 due to a related party payable with UTC that was settled in November 2017. The increase in interest income in 2018 as compared with 2017 primarily reflects interest earned on related party receivables due from UTC.
Income Taxes
(dollars in millions) |
2019 |
2018 |
2017 |
||||||
Effective income tax rate |
19.4 | % |
27.9 | % |
58.5 | % |
84
The 2019 effective tax rate reflects a net tax benefit of $149 million as a result of the filing by a subsidiary of Carrier to participate in an amnesty program offered by the Italian Tax Authority and conclusion of the audit by the Examination Division of the Internal Revenue Service for the UTC 2014, 2015, and 2016 tax years.
The 2018 effective tax rate reflects a net tax charge of $102 million as a result of UTCs change of assertion of no longer intending to reinvest certain undistributed earnings of its international subsidiaries. The effective income tax rate for 2018 also reflects the incremental tax cost associated with the divestiture of Taylor.
The 2017 effective tax rate reflects a net tax charge of $799 million attributable to the passage of the TCJA. This amount primarily relates to U.S. income tax attributable to previously undistributed earnings of international subsidiaries and equity investments and the revaluation of U.S. deferred income taxes. The 2017 effective tax rate also includes a favorable adjustment of $18 million related to the expiration of statutes of limitations in various jurisdictions.
For additional discussion of income taxes and the effective income tax rate, see Critical Accounting Estimates—Income Taxes and Note 14 to the Combined Financial Statements.
Net Income Attributable to Carrier
(dollars in millions) |
2019 |
2018 |
2017 |
||||||
Net income from continuing operations attributable to Carrier |
$ | 2,116 | $ | 2,734 | $ | 1,227 |
Net income attributable to Carrier for the year ended December 31, 2019 includes restructuring charges, net of tax benefit, of $94 million ($126 million pre-tax), as well as the impact of a $108 million pre-tax impairment of an equity method investment.
Net income attributable to Carrier for the year ended December 31, 2018 includes restructuring charges, net of tax benefit, of $66 million ($80 million pre-tax), as well as the impact of a $799 million pre-tax gain on the divestiture of Taylor in 2018.
Net income attributable to Carrier for the year ended December 31, 2017 includes restructuring charges, net of tax benefit, of $81 million ($111 million pre-tax), as well as the net unfavorable impact of a $799 million tax charge in connection with the passage of the TCJA as described in Note 14 to the Combined Financial Statements, and the unfavorable impact of a product recall program in our Fire & Security segment and an unfavorable contract adjustment on a large commercial HVAC project, partially offset by a gain resulting from the sale of our investment in Watsco, Inc.
Segment review
Net sales |
Operating profit |
Operating profit margin |
|||||||||||||||||||||||||
(dollars in millions) |
2019 |
2018 |
2017 |
2019 |
2018 |
2017 |
2019 |
2018 |
2017 |
||||||||||||||||||
HVAC |
$ | 9,712 | $ | 9,713 | $ | 9,045 | $ | 1,563 | $ | 1,720 | $ | 2,001 | 16 | % |
18 | % |
22 | % |
|||||||||
Refrigeration |
3,792 | 4,095 | 3,823 | 532 | 1,353 | 562 | 14 | % |
33 | % |
15 | % |
|||||||||||||||
Fire & Security |
5,500 | 5,531 | 5,324 | 708 | 726 | 639 | 13 | % |
13 | % |
12 | % |
|||||||||||||||
Total Segment |
19,004 | 19,339 | 18,192 | 2,803 | 3,799 | 3,202 | 15 | % |
20 | % |
18 | % |
|||||||||||||||
Eliminations and other |
(396 | ) |
(425 | ) |
(378 | ) |
(156 | ) |
(24 | ) |
(32 | ) |
40 | % |
6 | % |
8 | % |
|||||||||
General corporate expenses |
— | — | — | (156 | ) |
(138 | ) |
(140 | ) |
0 | % |
0 | % |
0 | % |
||||||||||||
Combined |
$ | 18,608 | $ | 18,914 | $ | 17,814 | $ | 2,491 | $ | 3,637 | $ | 3,030 | 13 | % |
19 | % |
17 | % |
HVAC
Our HVAC segment provides products, controls, services and solutions to meet the heating and cooling needs of residential and commercial customers, while enhancing building performance, energy efficiency and sustainability. Our established brands include Automated Logic, Bryant, Carrier, CIAT, Day & Night, Heil, NORESCO and Riello. Products include air conditioners, heating systems, controls and aftermarket components, as well as aftermarket repair and maintenance services and building automation solutions. HVAC products and solutions are sold directly, including to building contractors and owners, and indirectly through equity method investees, independent sales representatives, distributors, wholesalers, dealers and retail outlets, as well as through direct sales offices which sell, in part, to mechanical contractors.
85
Total Increase (Decrease) Year-Over-Year for: |
|||||||||||||||||||||
(dollars in millions) |
2019 |
2018 |
2017 |
2019 Compared with 2018 |
2018 Compared with 2017 |
||||||||||||||||
Net sales |
$ | 9,712 | $ | 9,713 | $ | 9,045 | $ | (1 | ) |
— | % |
$ | 668 | 7 | % |
||||||
Operating profit |
1,563 | 1,720 | 2,001 | (157 | ) |
(9 | )% |
(281 | ) |
(14 | )% |
2019 |
2018 |
|||||||||||
Net sales |
Operating profit |
Net sales |
Operating profit |
|||||||||
Organic/Operational |
1 | % |
— | % |
7 | % |
5 | % |
||||
Foreign currency translation |
(1 | )% |
(1 | )% |
— | % |
1 | % |
||||
Restructuring costs |
— | % |
(2 | )% |
— | % |
1 | % |
||||
Other |
— | % |
(6 | )% |
— | % |
(21 | )% |
||||
Total % change |
— | % |
(9 | )% |
7 | % |
(14 | )% |
2019 Compared with 2018
The organic sales increase of 1% primarily reflects stronger residential HVAC sales in the North America region (2%) in addition to growth for commercial HVAC offerings in Asia (3%) and the Americas (2%), partially offset by declines in the Middle East and Europe (9%).
The organic operational profit was flat in comparison to the prior year, due to:
• | Favorable impact of pricing and productivity net of unfavorable commodities and tariffs (7%, combined) |
• | Higher income from equity method investments (1%) |
These increases were offset by:
• | Lower unit volume and unfavorable mix (3%) |
• | The absence of a prior year favorable contract adjustment related to a large commercial project combined with the unfavorable year-over-year impact resulting from the revaluation of certain long-term liabilities (3%, combined) |
• | Higher selling, general and administrative expenses (2%) |
The 6% decrease in Other primarily reflects the $108 million impact of an equity method investment impairment.
2018 Compared with 2017
The organic sales increase of 7% was driven primarily by growth in residential sales in the North America region (9%) and growth globally for commercial HVAC offerings (5%).
The organic operational profit increase of 5% was driven by:
• | The year-over-year impact of a contract adjustment related to a large commercial project (5%) |
• | Profit contribution from the higher sales volumes, net of mix (4%) |
• | Favorable pricing, net of commodities (4%) |
These increases were partially offset by:
• | Higher logistics costs (3%) |
• | Higher selling, general and administrative and research and development costs (3%) |
• | Higher warranty costs (2%) |
The 21% decrease in Other primarily reflects the year-over-year impact of the absence of the prior year gain from the sale of our investment in Watsco, Inc.
86
Refrigeration
Our Refrigeration segment includes transport refrigeration and monitoring systems for trucks, trailers, shipping containers, intermodal and rail, as well as commercial refrigeration products. Transport refrigeration products and cold chain monitoring solutions are used to enable the safe, reliable transport of food and beverages, medical supplies and other perishable cargo. Commercial refrigeration solutions include refrigerated cabinets, freezers, systems and controls. Our commercial refrigeration equipment solutions incorporate next-generation technologies to preserve freshness, ensure safety and enhance the appearance of food and beverage retail. Our Refrigeration products and services are sold under established brand names, including Carrier Commercial Refrigeration, Carrier Transicold and Sensitech. Refrigeration products and services are sold directly, including to transportation companies and retail stores, and indirectly through equity method investees, independent sales representatives, distributors, wholesalers and dealers.
Total Increase (Decrease) Year-Over-Year for: |
|||||||||||||||||||||
(dollars in millions) |
2019 |
2018 |
2017 |
2019 Compared with 2018 |
2018 Compared with 2017 |
||||||||||||||||
Net sales |
$ | 3,792 | $ | 4,095 | $ | 3,823 | $ | (303 | ) |
(7 | )% |
$ | 272 | 7 | % |
||||||
Operating profit |
532 | 1,353 | 562 | (821 | ) |
(61 | )% |
791 | 141 | % |
2019 |
2018 |
|||||||||||
Net sales |
Operating profit |
Net sales |
Operating profit |
|||||||||
Organic/Operational |
(1 | )% |
— | % |
9 | % |
5 | % |
||||
Foreign currency translation |
(3 | )% |
(1 | )% |
2 | % |
1 | % |
||||
Acquisitions and divestitures, net |
(3 | )% |
(2 | )% |
(4 | )% |
(5 | )% |
||||
Restructuring costs |
— | % |
— | % |
— | % |
(2 | )% |
||||
Other |
— | % |
(58 | )% |
— | % |
142 | % |
||||
Total % change |
(7 | )% |
(61 | )% |
7 | % |
141 | % |
2019 Compared with 2018
The organic sales decrease of 1% was driven by declines in transport refrigeration sales (1%), primarily the container business (9%), partially offset by growth in North America truck trailer (5%), as well as declines in commercial refrigeration (1%), primarily in Europe.
The organic operational profit was flat in comparison to the prior year, due to:
• | Favorable pricing, cost and productivity (3%, combined) |
These increases were offset by:
• | Lower unit volume and unfavorable mix (3%) |
The 58% decrease in Other primarily reflects the year-over-year impact of the absence of the prior year gain from the divestiture of Taylor.
2018 Compared with 2017
The organic sales increase of 9% was driven primarily by growth in transport refrigeration sales (13%), as well as stronger sales to commercial refrigeration customers (4%).
The organic operational profit increase of 5% was driven by:
• | Profit contribution from higher sales volumes, net of mix (11%) |
These increases were partially offset by:
• | Higher selling, general and administrative costs and research and development costs (5%) |
• | Higher commodities, net of price (1%) |
The 142% increase in Other is primarily due to the gain recorded during 2018 related to the divestiture of Taylor.
87
Fire & Security
Our Fire & Security segment includes a wide range of residential and building systems, including fire, flame, gas, smoke and carbon monoxide detection; portable fire extinguishers; fire suppression systems; intruder alarms; access control systems and video management systems; and electronic controls. Other fire and security service offerings include audit, design, installation and system integration, as well as aftermarket maintenance and repair and monitoring services. Our established brands include Autronica, Chubb, Det-Tronics, Edwards, Fireye, GST, Interlogix, Kidde, LenelS2, Marioff, Onity and Supra. Our Fire & Security products and solutions are sold directly to end customers as well as through manufacturers representatives, distributors, dealers, value-added resellers and retail distribution.
Total Increase (Decrease) Year-Over-Year for: |
|||||||||||||||||||||
(dollars in millions) |
2019 |
2018 |
2017 |
2019 Compared with 2018 |
2018 Compared with 2017 |
||||||||||||||||
Net sales |
$ | 5,500 | $ | 5,531 | $ | 5,324 | $ | (31 | ) |
(1 | )% |
$ | 207 | 4 | % |
||||||
Operating profit |
708 | 726 | 639 | (18 | ) |
(2 | )% |
87 | 14 | % |
2019 |
2018 |
|||||||||||
Net sales |
Operating profit |
Net sales |
Operating profit |
|||||||||
Organic/Operational |
1 | % |
(2 | )% |
2 | % |
3 | % |
||||
Foreign currency translation |
(3 | )% |
(2 | )% |
2 | % |
2 | % |
||||
Acquisitions and divestitures, net |
1 | % |
2 | % |
— | % |
— | % |
||||
Restructuring costs |
— | % |
(2 | )% |
— | % |
4 | % |
||||
Other |
— | % |
2 | % |
— | % |
5 | % |
||||
Total % change |
(1 | )% |
(2 | )% |
4 | % |
14 | % |
2019 Compared with 2018
The organic sales increase of 1% was driven primarily by global growth in product sales (1%) as well as growth in field service (1%), primarily within Asia (5%).
The organic operational profit decrease of 2% was driven by:
• | Unfavorable mix, net of higher volume (2%) |
• | Investments in research and development (2%) |
• | Higher inventory obsolescence reserves associated with a business closure (1%) |
• | Unfavorable impact of a service contract adjustment (1%) |
These decreases were partially offset by:
• | Favorable pricing, cost and productivity (5%, combined) |
The 2% increase in Other primarily reflects the absence of the prior year impact of period costs associated with a product recall program (3%).
2018 Compared with 2017
The organic sales increase of 2% was driven primarily by growth in both product sales (2%) and field service and monitoring sales (2%).
The organic operational profit increase of 3% was driven by:
• | Profit contribution from higher sales volumes, net of mix (7%) |
This increase was partially offset by:
• | Higher selling, general and administrative costs and research and development costs (3%) |
• | Higher commodities, net of price (1%) |
88
The 5% increase in Other primarily reflects the absence of the prior year impact of a product recall program (11%), partially offset the absence of prior year gains on the sale of investments (4%) and non-core businesses (2%).
Eliminations and other and General corporate expenses
Net Sales |
Operating Profit |
|||||||||||||||||
(dollars in millions) |
2019 |
2018 |
2017 |
2019 |
2018 |
2017 |
||||||||||||
Eliminations and other |
$ | (396 | ) |
(425 | ) |
(378 | ) |
$ | (156 | ) |
(24 | ) |
(32 | ) |
||||
General corporate expenses |
— | — | — | (156 | ) |
(138 | ) |
(140 | ) |
Eliminations and other reflects the elimination of sales, other income and operating profit transacted between segments, as well as other infrequently occurring items or items outside of normal business operations, such as costs of the separation and divestiture transaction costs. In addition, operating profit within Eliminations and other includes costs associated with the settlement and defense of potential future asbestos-related claims, insurance settlements on asbestos-related matters and the revaluation of any liability for potential future asbestos-related claims.
The year-over-year decrease in sales eliminations in 2019 as compared with 2018 reflects a decrease in the amount of inter-segment eliminations.
The year-over-year change in operating profit within Eliminations and other in 2019 as compared with 2018 is primarily due to 2019 separation-related costs ($58 million), the unfavorable impact of a consultant contract termination ($34 million) and lower asbestos-related settlement gains ($31 million), partially offset by the absence of 2018 divestiture transaction costs ($15 million).
General corporate expenses increased by $18 million from 2018 to 2019, primarily driven by higher general and administrative expenses. General corporate expenses decreased by $2 million from 2017 to 2018.
General corporate expenses primarily include allocations of corporate expenses from UTC, which are not necessarily indicative of future expenses and do not necessarily reflect the results that Carrier would have experienced as an independent company for the periods presented.
Liquidity and Financial Condition
Carrier has historically participated in UTCs centralized treasury management, including centralized cash pooling and overall financing arrangements. However, historically, we have generated operating cash flow sufficient to fund our working capital, capital expenditures and financing requirements. Following the separation, we expect to fund our ongoing operating, investing and financing requirements mainly through cash flows from operations, available liquidity through cash on hand and available bank lines of credit and access to capital markets (including commercial paper programs).
We may incur debt or issue equity as needed. From time to time we may need to access the capital markets to obtain financing. Although we believe that the arrangements in place at the time of the separation and the distribution will permit us to finance our operations on acceptable terms and conditions, our access to, and the availability of, financing on acceptable terms and conditions in the future will be impacted by many factors, including (1) our credit ratings or absence of a credit rating, (2) the liquidity of the overall capital markets and (3) the current state of the economy. There can be no assurance that we will be able to obtain additional financing on terms favorable to us, if at all.
Prior to the distribution, Carrier intends to enter into a $2 billion unsecured, unsubordinated 5-year revolving credit facility, a $1.75 billion unsecured, unsubordinated 3-year term loan credit facility and a $2 billion unsecured, unsubordinated commercial paper program. Prior to the distribution, Carrier expects to draw $1.5 billion from the term loan credit facility and to issue approximately $9.24 billion of unsecured, unsubordinated long-term notes. The revolving credit facility, which will not be available to Carrier or its subsidiaries until after the separation, will be a source of liquidity to support cash requirements and to backstop a commercial paper program.
After the separation, Carrier expects to have total indebtedness outstanding of approximately $11.1 billion, including (i) $0.4 billion of existing debt, (ii) $9.24 billion of long-term notes and (iii) $1.5 billion utilized from
89
the term loan credit facility mentioned above. Incremental interest payments related to the indebtedness are expected to approximate $370 million per year, reflecting an approximate weighted average interest rate of 3.39%. The net proceeds of the new financing arrangements described above of $10.7 billion are expected to be used to distribute cash to UTC. See Description of Material Indebtedness for additional discussion.
Net cash used for or provided by financing activities is due to transfers to and from UTC. The components of net transfers include: (1) cash transfers from Carrier to UTC; (2) cash investments from UTC used to fund operations, capital expenditures and acquisitions; (3) charges (benefits) for income taxes; (4) receivables and payables between Carrier and UTC; and (5) allocations of UTCs corporate expenses described elsewhere in this information statement. This net cash used for or provided from financing activities in the historical periods is reflected as changes in UTCs investment in Carrier.
Following enactment of the TCJA, Carrier no longer intends to reinvest certain undistributed earnings of its international subsidiaries that have been previously taxed in the U.S. For the remainder of the Companys undistributed international earnings, Carrier will continue to permanently reinvest these earnings unless it is tax effective to repatriate. As a stand-alone public company, Carrier may change its assertion on certain undistributed earnings of its international subsidiaries, and the net deferred tax liability related to our assertion on undistributed earnings may be different than the amount reported in the audited historical combined financial statements.
Following the separation, the capital structure and sources of liquidity for Carrier will change significantly. Carrier will no longer participate in cash management and funding arrangements with UTC. Instead, Carriers ability to fund its capital needs will depend on its ongoing ability to generate cash from operations and its access to bank lines of credit and the capital markets.
Cash Flow—Operating Activities
(dollars in millions) |
2019 |
2018 |
2017 |
||||||
Net cash flows provided by operating activities |
$ | 2,002 | $ | 2,055 | $ | 2,098 |
Cash generated from operating activities in 2019 was approximately $53 million lower than 2018. Cash outflows for working capital increased $96 million over the prior period to support ongoing operations of Carrier. The 2019 cash outflows from working capital were $420 million. Accounts receivable, net increased approximately $129 million over 2018 due to a decrease in discounting activities. Contract assets, current decreased $23 million due primarily to customer billings in excess of revenue recognition. Accounts payable and accrued liabilities decreased $311 million primarily in connection with timing of vendor payments.
Cash generated from operating activities in 2018 was approximately $43 million lower than 2017. Cash outflows for working capital increased $552 million over the prior period to support higher top line organic growth. The 2018 cash outflows from working capital were $324 million. Accounts receivable, net increased approximately $211 million over 2017 due to an increase in sales volume. Contract assets, current increased $67 million due primarily to revenue recognition in excess of customer billings. Inventory, net and accounts payable and accrued liabilities increased $151 million and $88 million, respectively, primarily driven by increases to support higher sales volume.
Cash Flow—Investing Activities
(dollars in millions) |
2019 |
2018 |
2017 |
||||||
Net cash flows provided by (used in) investing activities |
$ | (213 | ) |
$ | 415 | $ | 271 |
Cash flows used in investing activities in 2019 compared to 2018 increased $628 million primarily due to the absence of $1.0 billion in proceeds received from the 2018 divestiture of Taylor, partially offset by decreases of $310 million in cash outflows for acquisitions and decreases in capital expenditures of $20 million.
Cash flows provided by investing activities for 2018 and 2017 primarily reflect capital investments in and dispositions of businesses and capital expenditures. Capital expenditures in 2018 ($263 million) primarily relate to new facilities and investments in products and information technology. The $144 million increase in cash flows provided by investing activities was primarily driven by the proceeds of $1.0 billion received from the divestiture of Taylor in 2018, partially offset by the absence of $596 million in proceeds received from the 2017 sale of our investment in Watsco, Inc., as well as an increase of $134 million in 2018 in cash outflows for
90
acquisitions. Cash investments in businesses, net of cash acquired, in 2018 ($310 million) primarily relate to the acquisition of the S2 business within our Fire & Security segment in the fourth quarter of 2018.
Cash Flow—Financing Activities
(dollars in millions) |
2019 |
2018 |
2017 |
||||||
Net cash flows used in financing activities |
$ | (1,967 | ) |
$ | (2,627 | ) |
$ | (2,193 | ) |
Our financing activities primarily include transfers to (and from) UTC. Net cash used in financing activities decreased $660 million in 2019 compared to 2018 primarily due to a decrease in Net transfers to UTC, partially offset by repayments of project financing obligations. Net cash used in financing activities increased $434 million in 2018 compared to the prior year due to increases in amounts transferred to UTC of $835 million, partially offset by the year-over-year impact of the absence of a 2017 purchase of the remaining noncontrolling interest to reach 100% ownership of the Riello HVAC business ($286 million).
Critical Accounting Estimates
Preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Note 3 to the Combined Financial Statements describes the significant accounting policies used in preparation of the combined financial statements. Management believes the most complex and sensitive judgments, because of their significance to the combined financial statements, result primarily from the need to make estimates about the effects of matters that are inherently uncertain. The most significant areas involving management judgments and estimates are described below. Actual results in these areas could differ from managements estimates.
Revenue Recognition from Contracts with Customers
Effective January 1, 2018, we adopted ASU 2014-09 and its related amendments (referred to, collectively, as the New Revenue Standard) and elected the modified retrospective approach. The adoption of the New Revenue Standard did not have a material impact on revenue, net income or net assets. Note 4 to the Combined Financial Statements contains further detail regarding the adoption of the New Revenue Standard and its impact on the combined financial statements as of, and for, the year ended December 31, 2018.
We recognize revenue on an over-time basis on installation and service contracts related to our HVAC, Refrigeration and Fire & Security service businesses. For contracts recorded on an over-time basis, we measure progress toward completion using costs incurred to date relative to total estimated costs at completion. This over-time basis using an input method requires estimates of future revenues and costs over the full term of product and/or service delivery. Incurred costs represent work performed, which correspond with and best depict transfer of control to the customer. Contract costs are incurred over a period of time, which can generally range from several months to years, and the estimation of these costs requires managements judgment. We review our cost estimates on significant contracts on a quarterly basis and, for others, at least annually or when circumstances change and warrant a modification to a previous estimate. We record changes in contract estimates using the cumulative catch-up method.
We consider the contractual consideration payable by the customer and assess variable consideration that may affect the total transaction price, including contractual discounts, contract incentive payments, estimates of award fees and other sources of variable consideration, when determining the transaction price of each contract. Variable consideration is included in the estimated transaction price when there is a basis to reasonably estimate the amount. These estimates are based on historical experience, anticipated performance and best judgment at the time. We also consider whether the contracts provide customers with significant financing, although in general our contracts do not contain significant financing.
Income Taxes
The future tax benefit arising from deductible temporary differences and tax carryforwards was $923 million at December 31, 2019 and $645 million at December 31, 2018. Management believes that our earnings during the periods when the temporary differences become deductible will be sufficient to realize the related future income tax benefits, which may be realized over an extended period of time. For those jurisdictions where the expiration date of tax carryforwards or the projected operating results indicate that realization is not likely, a valuation allowance is provided.
91
In assessing the need for a valuation allowance, we estimate future taxable income, considering the feasibility of ongoing tax planning strategies and the realizability of tax loss carryforwards. Valuation allowances related to deferred tax assets can be affected by changes to tax laws, changes to statutory tax rates and future taxable income levels. In the event we were to determine that we would not be able to realize all or a portion of our deferred tax assets in the future, we would reduce such amounts through an increase to tax expense in the period in which that determination is made or when tax law changes are enacted. Conversely, if we were to determine that we would be able to realize our deferred tax assets in the future in excess of the net carrying amounts, we would decrease the recorded valuation allowance through a decrease to tax expense in the period in which that determination is made.
In the ordinary course of business there is inherent uncertainty in quantifying our income tax positions. We assess our income tax positions and record tax benefits for all years subject to examination based upon managements evaluation of the facts, circumstances and information available at the reporting date. For those tax positions where it is more likely than not that a tax benefit will be sustained, we have recorded the largest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where it is not more likely than not that a tax benefit will be sustained, no tax benefit has been recognized in the financial statements. See Notes 3 and 14 to the Combined Financial Statements for further discussion.
Goodwill and Intangible Assets
Our goodwill balance had an aggregate carrying amount of $9.9 billion as of December 31, 2019. Our indefinite-lived intangible asset balance primarily consists of individual trademarks, which had an aggregate carrying amount of $534 million as of December 31, 2019.
We test our reporting units and trademarks for impairment annually as of the first day of our third quarter, or more frequently if events or circumstances indicate it is more likely than not that the fair value of a reporting unit or trademark is less than its carrying amount. Such events and circumstances could include, among other things, increased competition or unexpected loss of market share, increased input costs beyond projections (for example due to regulatory or industry changes), disposals of significant businesses or components of our business, unexpected business disruptions (for example due to a natural disaster or loss of a customer, supplier or other significant business relationship), unexpected significant declines in operating results or significant adverse changes in the markets in which we operate. We test reporting units for impairment by comparing the estimated fair value of each reporting unit with its carrying amount. We test trademarks for impairment by comparing the estimated fair value of each brand with its carrying amount. If the carrying amount of a reporting unit or trademark exceeds its estimated fair value, we record an impairment loss based on the difference between fair value and carrying amount, in the case of reporting units, not to exceed the associated carrying amount of goodwill.
Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates and market factors. Estimating the fair value of individual reporting units and trademarks requires us to make assumptions and estimates regarding our future plans, as well as industry, economic and regulatory conditions. If current expectations of future growth rates and margins are not met, if market factors outside of our control, such as discount rates, change, or if managements expectations or plans otherwise change, including as a result of the execution of our global five-year strategic plan, then one or more of our reporting units or trademarks might become impaired in the future.
We utilize the discounted cash flow method under the income approach to estimate the fair value of our reporting units. The discounted cash flow approach relies on our estimates of future cash flows and explicitly addresses factors such as timing, growth and margins, with due consideration given to forecasting risk. We developed these assumptions based on the market and geographic risks unique to each reporting unit. Some of the more significant assumptions inherent in estimating the fair values include the estimated future annual net cash flows for each reporting unit (including net sales, cost of products and services sold, selling, general and administrative expenses, depreciation and amortization, working capital and capital expenditures), income tax rates, long-term growth rates and a discount rate that appropriately reflects the risks inherent in each future cash flow stream. We selected the assumptions used in the financial forecasts using historical data, supplemented by current and anticipated market conditions, estimated growth rates, managements plans and guideline companies. For all reporting units, the excess of the estimated fair value over carrying value (expressed as a percentage of
92
carrying value) in the 2019 test was a minimum of 46%. A significant increase in the discount rate, decrease in the long-term growth rate or substantial reductions in our end markets and volume assumptions could have a negative impact on the estimated fair value of these reporting units.
For our indefinite-lived assets, a fair value is determined on a relief from royalty methodology, which is based on the implied royalty paid, at an appropriate discount rate, to license the use of an asset rather than owning the asset. Some of the more significant assumptions inherent in estimating the fair values include the estimated future annual net sales for each trademark, royalty rates (as a percentage of net sales that would hypothetically be charged by a licensor of the brand to an unrelated licensee), income tax considerations, long-term growth rates, a discount rate that reflects the level of risk associated with the future cost savings attributable to the brand, and managements intent to invest in the brand indefinitely. We selected the assumptions used in the financial forecasts using historical data, supplemented by current and anticipated market conditions, estimated product category growth rates, managements plans and guideline companies. The present value of the after-tax cost savings (i.e., royalty relief) indicates the estimated fair value of the asset. Any excess of the carrying value over the estimated fair value would be recognized as an impairment loss equal to that excess. For all trade names, the excess of the estimated fair value over carrying value (expressed as a percentage of carrying value) in the 2019 test was a minimum of 48%.
Based on the results of these calculations, we determined that the fair value of the reporting units and indefinite-lived intangible assets exceeded their respective carrying values. The estimates of fair value are based on the best information available as of the date of the assessment, which primarily incorporates management assumptions about expected future cash flows. Although these assets are not currently impaired, there can be no assurance that future impairments will not occur. See Note 9 to the Combined Financial Statements for further information.
Employee Benefit Plans
We sponsor domestic and foreign defined benefit pension and other postretirement plans. Major assumptions used in the accounting for these employee benefit plans include the discount rate, expected return on plan assets, rate of increase in employee compensation levels and mortality rates. Assumptions are determined based on company data and appropriate market indicators, and are evaluated each year at December 31. A change in any of these assumptions would have an effect on net periodic pension and postretirement benefit costs reported in the combined financial statements.
In the following table, we show the sensitivity of our pension and other postretirement benefit plan liabilities and net periodic cost to a 25 basis point change in the discount rates for benefit obligations, interest cost and service cost as of December 31, 2019:
(dollars in millions) |
Increase in Discount Rate of 25 bps |
Decrease in Discount Rate of 25 bps |
||||
Pension plans |
||||||
Projected benefit obligation |
$ | (104.0 | ) |
$ | 110.0 | |
Net periodic pension (benefit) cost |
(2.1 | ) |
3.1 | |||
Other postretirement benefit plans* |
||||||
Accumulated postretirement benefit obligation |
(0.3 | ) |
0.3 |
* | The impact on net periodic postretirement (benefit) cost is less than $0.1 million. |
These estimates assume no change in the shape or steepness of the company-specific yield curve used to plot the individual spot rates that will be applied to the future cash outflows for future benefit payments in order to calculate interest and service cost. A flattening of the yield curve, from a narrowing of the spread between interest and obligation discount rates, would increase our net periodic pension cost. Conversely, a steepening of the yield curve, from an increase in the spread between interest and obligation discount rates, would decrease our net periodic pension cost.
Pension expense is also sensitive to changes in the expected long-term rate of asset return. An increase or decrease of 25 basis points in the expected long-term rate of asset return would have decreased or increased 2019 pension expense by approximately $7.2 million.
93
The weighted-average discount rates used to measure pension liabilities and costs utilize each plans specific cash flows and are then compared to high-quality bond indices for reasonableness. For our significant plans, we utilize a full yield curve approach in the estimation of the service cost and interest cost components by applying the specific spot rates along the yield curve used in determination of the benefit obligation to the relevant projected cash flows. Global market interest rates decreased in 2019 as compared with 2018, and, as a result, the weighted-average discount rate used to measure pension liabilities decreased from 2.8% in 2018 to 2.0% in 2019. The weighted-average discount rates used to measure service cost and interest cost were 3.2% and 2.7%, respectively, in 2019 and 2.8% and 2.4%, respectively, in 2018.
See Note 12 to the Combined Financial Statements for further discussion.
Contingent Liabilities
Our operating units include businesses that sell products and services and conduct operations throughout the world. As described in Note 20 to the Combined Financial Statements, contractual, regulatory and other matters, including asbestos claims, may arise in the ordinary course of business that subject us to claims or litigation. We have recorded reserves in the combined financial statements related to these matters, which are developed using input derived from actuarial estimates and historical and anticipated experience depending on the nature of the reserve, and in certain instances with consultation of legal counsel, internal and external consultants and engineers. Subject to the uncertainties inherent in estimating future costs for these types of liabilities, we believe our estimated reserves are reasonable and do not believe the final determination of the liabilities with respect to these matters would have a material effect on our financial condition, results of operations, liquidity or cash flows for any year. See Risk Factors included elsewhere in this information statement.
Environmental Matters
Our operations are subject to environmental regulation by federal, state and local authorities in the United States and regulatory authorities with jurisdiction over our foreign operations. As a result, we have established, and continually update, policies relating to environmental standards of performance for our operations worldwide. We believe that expenditures necessary to comply with the current regulations governing environmental protection will not have a material adverse effect upon our competitive position, results of operations, cash flows or financial condition.
We have identified 204 locations, mostly in the United States, at which we may have some liability for remediating contamination. We have resolved our liability at 117 of these locations. We do not believe that any individual locations exposure will have a material adverse effect on our results of operations. Sites in the investigation, remediation or operation and maintenance stage represent approximately 87% of our accrued environmental remediation reserve.
We have been identified as a potentially responsible party under the Comprehensive Environmental Response Compensation and Liability Act (CERCLA or Superfund) at 19 sites. The number of Superfund sites, in and of itself, does not represent a relevant measure of liability because the nature and extent of environmental concerns vary from site to site and our share of responsibility varies from sole responsibility to very little responsibility. In estimating our liability for remediation, we consider our likely proportionate share of the anticipated remediation expense and the ability of other potentially responsible parties to fulfill their obligations.
At December 31, 2019 and 2018, we had $217 and $215 million, respectively, reserved for environmental remediation. See Note 20 to the Combined Financial Statements for additional discussion on environmental obligations.
Asbestos Matters
The amounts recorded for asbestos-related liabilities are based on currently available information and assumptions that we believe are reasonable and are made with input from outside actuarial experts. The estimated range of total liabilities to resolve all pending and unasserted potential future asbestos claims through 2059 is approximately $255 million to $290 million. Where no amount within a range of estimates is more likely, the minimum is accrued. We have recorded the minimum amount of $255 million, which is principally recorded in Other long-term liabilities on the Combined Balance Sheet as of December 31, 2019. This amount is on a pre-tax
94
basis, not discounted, and excludes the Company's legal fees to defend the asbestos claims, which will continue to be expensed by the Company as they are incurred. In addition, the Company has an insurance recovery receivable for probable asbestos related recoveries of approximately $104 million, which is included primarily in Other assets on the Combined Balance Sheet as of December 31, 2019. See Business—Legal Proceedings—Asbestos for further discussion of the estimated liabilities and insurance recoveries. See Note 20 to the Combined Financial Statements for further discussion of these matters.
Off-Balance Sheet Arrangements and Contractual Obligations
We extend a variety of financial guarantees to third parties in support of our business. We also have obligations arising from environmental, health and safety, tax and employment matters. Circumstances that could cause the contingent obligations and liabilities arising from these arrangements to come to fruition include changes in an underlying transaction, non-performance under a contract or deterioration in the financial condition of the guaranteed party.
A summary of our combined contractual obligations and commitments as of December 31, 2019 is as follows:
Payments due by period |
|||||||||||||||
(dollars in millions) |
Total |
2020 |
2021-2022 |
2023-2024 |
Thereafter |
||||||||||
Operating leases |
$ | 939 | $ | 182 | $ | 272 | $ | 170 | $ | 315 | |||||
Purchase obligations |
1,346 | 1,076 | 211 | 59 | — | ||||||||||
Other long-term liabilities |
764 | 219 | 217 | 121 | 207 | ||||||||||
Total contractual obligations |
$ | 3,049 | $ | 1,477 | $ | 700 | $ | 350 | $ | 522 |
Operating leases include amounts related to future contractual payments on our leases for land and buildings, vehicles and machinery and equipment.
Purchase obligations include amounts committed for the purchase of goods and services under legally enforceable contracts or purchase orders. Where it is not practically feasible to determine the legally enforceable portion of our obligation under certain of our long-term purchase agreements, we include additional expected purchase obligations beyond what may be legally enforceable.
Other long-term liabilities primarily include those amounts on our December 31, 2019 balance sheet representing obligations under product service and warranty policies, estimated environmental remediation costs and expected contributions under employee benefit programs. The timing of expected cash flows associated with these obligations is based upon managements estimates over the terms of these agreements and is largely based upon historical experience.
The above table excludes the following:
• | Principal amount of indebtedness expected to be incurred in connection with the separation and distribution of approximately $10.7 billion and associated interest payments of $370 million per year. See “Description of Material Indebtedness” for additional discussion. |
• | Unrecognized tax benefits of $166 million, the timing of which is uncertain to become payable. See Note 14 to the Combined Financial Statements for additional discussion on unrecognized tax benefits. |
• | Carrier's obligations pursuant to the tax matters agreement to settle with UTC the net remaining tax liability of $481 million under the TCJA mandatory transition tax attributable to Carrier. This amount will be settled with UTC in six annual installments, beginning in April of 2021. |
Recent Accounting Pronouncements
See Note 3 to the Combined Financial Statements for a discussion of recent accounting pronouncements and their effect on us.
Market Risk and Risk Management
Carrier is exposed to fluctuations in foreign currency exchange rates, interest rates and commodity prices. To manage certain of those exposures, we primarily use foreign currency forward contracts, swaps and options.
95
These hedging activities provide only limited protection against currency exchange and credit risks. Factors that could influence the effectiveness of these hedging programs include currency markets, the availability of hedging instruments and the liquidity of the credit markets.
Foreign Currency Exposures
We transact business in various foreign currencies, which exposes our cash flows and earnings to changes in foreign currency exchange rates. These exposures include the translation of local currency balances of foreign subsidiaries, remeasurement of assets and liabilities denominated in foreign currencies and other transactions involving foreign currencies. We attempt to manage foreign currency transaction exposures through operational strategies and the use of foreign currency hedging contracts. While the objective of our hedging program is to minimize the foreign currency exchange impact on operating results, there may be variances between the hedging and underlying exposure gains and losses because of the length of certain hedging contracts. Carrier does not enter into hedging contracts for speculative purposes.
Commodity Price Exposures
We are exposed to volatility in the prices of raw materials used in some of our products, and from time to time we may use forward contracts in limited circumstances to manage some of those exposures. In the future, if hedges are utilized, gains and losses may affect earnings. There were no significant outstanding commodity hedges as of December 31, 2019.
96
Executive Officers Following the Distribution
The following table sets forth information regarding the individuals who are expected to serve as executive officers of Carrier following the completion of the distribution. Some of Carriers executive officers are currently executive officers and employees of UTC, but will cease to hold such positions upon the consummation of the distribution. See Directors.
Name
|
Age
|
Position
|
John V. Faraci
|
69
|
Executive Chairman
|
David Gitlin
|
50
|
President & Chief Executive Officer; President, HVAC
|
Ajay Agrawal
|
56
|
Vice President, Strategy & Services
|
David Appel
|
64
|
President, Refrigeration
|
Kyle Crockett
|
46
|
Vice President, Controller
|
Timothy McLevish
|
64
|
Vice President, Chief Financial Officer
|
Christopher Nelson
|
49
|
President, HVAC – Commercial
|
Kevin O’Connor
|
52
|
Vice President, General Counsel & Government Relations
|
Matthew Pine
|
48
|
President, HVAC – Residential
|
Jurgen Timperman
|
47
|
President, Fire & Security
|
Nadia Villeneuve
|
47
|
Vice President, Chief Human Resources Officer
|
John V. Faraci. Mr. Faraci served as Chairman and Chief Executive Officer of International Paper (paper, packaging and distribution) from 2003 to 2014. Earlier in 2003, he was elected as President and director of that company, and served as its Executive Vice President and Chief Financial Officer from 2000 to 2003. From 1995 to 1999, Mr. Faraci was Chief Executive Officer and managing director of Carter Holt Harvey Ltd., a former New Zealand subsidiary of International Paper. He first joined International Paper in 1974. Mr. Faraci is an Operating Partner with Advent International (global private equity). He is a director of ConocoPhillips Company, PPG Industries, Inc. and United States Steel Corporation, and was a director of UTC prior to the separation. He serves on the board of the National Fish and Wildlife Foundation and is past Chairman of the Board of Trustees of Denison University. Mr. Faraci is also a member of the Royal Bank of Canada Advisory Board, a member of the Board of Trustees of the American Enterprise Institute and a member of the Council on Foreign Relations. Mr. Faraci holds a bachelors degree from Denison University and an MBA from the University of Michigans Ross School of Business.
David Gitlin. Mr. Gitlin was appointed President and Chief Executive Officer of Carrier in June 2019 and President, HVAC in December 2019. He most recently served as President and Chief Operating Officer of Collins Aerospace from 2018 to 2019 and President of UTC Aerospace Systems from 2015 to 2018 after leading the integration of Goodrich Corporation with UTC. Prior to the formation of UTC Aerospace Systems, Mr. Gitlin worked for UTCs Hamilton Sundstrand division as President of Aerospace Customers & Business Development; Vice President of Auxiliary Power, Engine & Control Systems; Vice President and General Manager of Hamilton Sundstrand Power Systems; Vice President of Pratt & Whitney programs; and General Manager of Rolls-Royce/General Electric programs. Before joining Hamilton Sundstrand, he served in roles at UTC headquarters and Pratt & Whitney. Mr. Gitlin earned a bachelors degree from Cornell University, a Juris Doctor from the University of Connecticut School of Law and an MBA from MITs Sloan School of Management.
Ajay Agrawal. Mr. Agrawal was appointed Vice President, Strategy & Services of Carrier in October 2019. He most recently served as Vice President, Aftermarket Services, and Vice President responsible for Rockwell Collins integration for Collins Aerospace, a UTC company, from August 2015 to September 2019 and as Vice President, Aftermarket and Programs at the Pratt & Whitney division of UTC from 2009 to July 2015. Prior to that he served in a variety of leadership roles in UTC from 2005 to 2009, including head of Financial Planning and Analysis for UTC, Vice President of Strategy and Business Development at Hamilton Sundstrand and Senior Director of Strategy and Development at UTC. Prior to joining UTC, he held roles of increasing responsibility at Bain & Company from 1998 to 2005. Mr. Agrawal holds a doctorate in engineering from the University of Missouri and an MBA from Carnegie Mellon University.
David Appel. Mr. Appel was appointed President, Refrigeration of Carrier in 2010. Prior to that, he held several roles within Carriers business, including President, HVAC for Europe, the Middle East and Africa (EMEA) from 2009 to 2010; President, Building Systems & Service EMEA from 2006 to 2009; Vice President,
97
European HVAC Distribution from 2003 to 2006; and Managing Director for Toshiba Carrier UK from 2002 to 2003. In total, he has more than 30 years of experience with UTC. Mr. Appel holds a bachelors degree in economics from the Wharton School of Business, University of Pennsylvania.
Kyle Crockett. Mr. Crockett was appointed Vice President, Controller of Carrier in January 2020. He joined Carrier from General Motors where he held several positions, including Director, Global Business Solutions – Finance from 2017 to 2020; Director, SEC Reporting and Consolidation from 2015 to 2017; Regional Controller, GM Europe from 2013 to 2015; Controller, GM Korea from 2010 to 2013; and Senior Manager, SEC Reporting from 2008 to 2010. Before joining General Motors, Mr. Crockett was Senior Manager at GMAC (now Ally Financial) from 2007 to 2008 and held various roles of increasing responsibility at KPMG LLP from 2002 to 2006, including Senior Manager. Mr. Crockett holds a bachelors degree in accounting from Grand Valley State University and is a Certified Public Accountant.
Timothy McLevish. Mr. McLevish was appointed Vice President, Chief Financial Officer of Carrier in October 2019. He joined Carrier from Walgreens Boots Alliance, Inc., where he served as Senior Advisor to the Chief Executive Officer from 2018 to 2019 and from 2015 to 2016, and as Executive Vice President and Chief Financial Officer, first of Walgreens Co. then of Walgreens Boots Alliance, Inc., from 2014 to 2015. In 2016 and 2017 he served as the Executive Chairman of Lamb Weston Holdings, Inc. Prior to joining Walgreens, Mr. McLevish served as Executive Vice President and Chief Financial Officer for Kraft Foods Group, Inc. from 2012 to 2013, and as Executive Vice President in 2014. Prior to that, he served as Executive Vice President and advisor to the Chief Executive Officer of Kraft Foods, Inc. from 2011 to 2012, leading the separation of Kraft Foods Group, Inc. from Kraft Foods, Inc. (since renamed Mondelēz International, Inc.) and, from 2007 to 2011, he served as Executive Vice President and Chief Financial Officer of Kraft Foods, Inc. Prior to Kraft, Mr. McLevish served as Senior Vice President and Chief Financial Officer of Ingersoll-Rand Company Limited from 2002 to 2007 and as Vice President and Chief Financial Officer of The Mead Corporation from 1999 to 2002. Mr. McLevish has served as a director of Kennametal Inc. since 2004 and as a director of R.R. Donnelly & Sons Company since 2016. He served as a director of URS Corporation from 2012 to 2014, ConAgra Foods, Inc. from 2015 to 2016, US Foods, Inc. in 2016 and, as noted above, of Lamb Weston Holdings, Inc. from 2016 to 2017. Mr. McLevish holds a bachelors degree from the University of Minnesota and an MBA from Harvard Business School.
Christopher Nelson. Mr. Nelson was appointed President, HVAC – Commercial in April 2018. Previously, he held many roles at Carrier including, President, North American HVAC from 2012 to 2018; Vice President, Sales & Marketing for Residential & Commercial Systems from 2008 to 2012; Vice President and General Manager, Light Commercial Systems from 2006 to 2008; and Director of Residential Ducted System Platforms from 2004 to 2006. Prior to joining UTC, Mr. Nelson was at McKinsey & Company from 2000 to 2004, Johnson & Johnson from 1996 to 1998 and an officer in the U.S. Army from 1992 to 1996. Mr. Nelson holds a bachelors degree in science from the University of Notre Dame and an MBA from Cornell University.
Kevin OConnor. Mr. OConnor was appointed Vice President, General Counsel & Government Relations of Carrier in January 2020. He joined Carrier from Point72 Asset Management where he served as Chief Legal Officer from 2015 through 2019. Prior to that he served as Vice President, Global Ethics and Compliance for UTC from 2012 to 2015 and as a partner at Bracewell and Giuliani from 2009 to 2012. From 2002 to 2009, he served in the U.S. Department of Justice as Associate Attorney General of the United States (2008 to 2009), Chief of Staff to the United States Attorney General (2007), Associate Deputy Attorney General (2007) and as U.S. Attorney for Connecticut (2002 to 2008). Prior to his service with the Department of Justice, Mr. OConnor, was counsel and partner at Day, Berry & Howard from 1999 to 2002, associate at LeBoeuf, Lamb Greene & MacRae from 1997 to 1999, Senior Counsel at the U.S. Securities and Exchange Commission Division of Enforcement from 1995 to 1997, associate at Cahill Gordon & Reindel from 1993 to 1995 and a law clerk to the Honorable William H. Timbers of the United States Court of Appeals for the Second Circuit from 1992 to 1993. Mr. OConnor holds a bachelors degree in Government from the University of Notre Dame and a Juris Doctor from the University of Connecticut School of Law.
Matthew Pine. Mr. Pine was appointed President, HVAC – Residential of Carrier in April 2018. Prior to that, he held several other roles within Carriers business, including Vice President and General Manager, HVAC – Residential from 2017 to 2018, Vice President, Marketing & Product Management from 2014 to 2017 and Director of Marketing & Advanced Systems from 2012 to 2014. Prior to joining UTC, he held leadership positions with Vestas Wind Systems as the Head of Power Plant Sales Technologies from 2011 to 2012, Lennox
98
International as the Director of Product Management & Marketing from 2009 to 2011 and various roles of increasing responsibility at Ingersoll Rand from 1998 to 2009. Mr. Pine holds a bachelors degree in business from The University of Alabama and an MBA in finance from Northeastern University.
Jurgen Timperman. Mr. Timperman was appointed President, Fire & Security of Carrier in February 2019. Prior to that, he held several other roles within UTCs fire and security business, including President, Global Fire & Security Products from 2017 to 2019, President, Global Security Products from 2015 to 2017, President, Security & Access Solutions from 2012 to 2015, President, Fire & Security Operations from 2011 to 2012 and Regional General Manager, Global Security Products, Middle East and Africa from 2009 to 2011. Prior to joining UTC, he held roles of increasing responsibility with various divisions of General Electric from 1995 to 2009. Mr. Timperman is on the board of directors for the FDNY Foundation and holds a masters degree in electro-mechanical engineering from Ghent University in Belgium.
Nadia Villeneuve. Ms. Villeneuve was appointed Vice President, Chief Human Resources Officer of Carrier in 2015. Prior to that, she served as Vice President and Chief Human Resources Officer for the Pratt & Whitney division of UTC from 2012 to 2015 and as Vice President, Human Resources, Asia for the UTC Fire & Security division of UTC, located in Shanghai, China, from 2010 to 2012. Previously, Ms. Villenueve held several other positions at Pratt & Whitney, including Director, Human Resources, Engineering from 2009 to 2010, Director, Human Resources, Commercial Engines from 2007 to 2009 and in various roles before from 2000 to 2007 based in the U.S., Canada and Poland. Prior to joining UTC, Ms. Villeneuve was a Consultant with the Lalonde-Bard Consulting Group from 1998 to 2000 and Manager, Customer Relations at Royal Bank of Canada in 1997. Ms. Villeneuve holds a bachelors degree in finance from Université du Québec a Montréal (Montréal, Québec, Canada) and a masters degree in management from l'École des Hautes Études Commerciales, Université de Montréal (Montréal, Québec, Canada).
99
Board of Directors Following the Distribution
The following table sets forth information regarding those persons who are expected to serve on Carriers Board of Directors (the Board) following completion of the distribution and until their respective successors are duly elected and qualified. Carriers amended and restated certificate of incorporation and amended and restated bylaws will provide that directors will be elected annually.
Name
|
Age
|
Position
|
John V. Faraci
|
69
|
Executive Chairman
|
Jean-Pierre Garnier
|
72
|
Director
|
David Gitlin
|
50
|
Director
|
John J. Greisch
|
64
|
Director
|
Charles M. Holley, Jr.
|
63
|
Director
|
Michael M. McNamara
|
63
|
Director
|
Michael A. Todman
|
62
|
Director
|
Virginia M. (Gina) Wilson
|
65
|
Director
|
John V. Faraci. Mr. Faraci served as Chairman and Chief Executive Officer of International Paper (paper, packaging and distribution) from 2003 to 2014. Earlier in 2003, he was elected as President and director of that company, and served as its Executive Vice President and Chief Financial Officer from 2000 to 2003. From 1995 to 1999, Mr. Faraci was Chief Executive Officer and managing director of Carter Holt Harvey Ltd., a former New Zealand subsidiary of International Paper. He first joined International Paper in 1974. Mr. Faraci is an Operating Partner with Advent International (global private equity). He is a director of ConocoPhillips Company, PPG Industries, Inc. and United States Steel Corporation, and was a director of UTC prior to the separation. He serves on the board of the National Fish and Wildlife Foundation and is past Chairman of the Board of Trustees of Denison University. Mr. Faraci is also a member of the Royal Bank of Canada Advisory Board, a member of the Board of Trustees of the American Enterprise Institute and a member of the Council on Foreign Relations. Mr. Faraci holds a bachelors degree from Denison University and an MBA from the University of Michigans Ross School of Business.
Jean-Pierre Garnier. Dr. Garnier is Chairman of Idorsia Pharmaceuticals Ltd. (biopharmaceuticals) and an Operating Partner at Advent International (global private equity). He served as Chairman of Actelion from 2011 to 2017, CEO of Pierre Fabre SA from 2008 to 2010, and as CEO and Executive Member of the Board of Directors of GlaxoSmithKline plc from 2000 to 2008. Dr. Garnier served as CEO of SmithKline Beecham plc in 2000, and as Chief Operating Officer and Executive Member of the Board of Directors from 1996 to 2000. Dr. Garnier is a director of Radius Health, Inc., and Chairman of the Board of CARMAT, and was a director of UTC prior to the separation. He served as Chairman of the Board of Alzheon, Inc. (non-public) from 2015 to 2018 and as a director of Renault S.A. (public) from 2009 to 2016. Dr. Garnier is on the Advisory Board of Newmans Own Foundation and the Board of Trustees of the Max Planck Florida Institute for Neuroscience. He is a Knight Commander of the Order of the British Empire and Officier de la Légion dHonneur of France. Dr. Garnier holds a masters degree and Ph.D. from Louis Pasteur University and an MBA from Stanford University.
David Gitlin. Mr. Gitlin was appointed President and Chief Executive Officer of Carrier in June 2019 and President, HVAC in December 2019. He most recently served as President and Chief Operating Officer of Collins Aerospace from 2018 to 2019 and President of UTC Aerospace Systems from 2015 to 2018 after leading the integration of Goodrich Corporation with UTC. Prior to the formation of UTC Aerospace Systems, Mr. Gitlin worked for UTCs Hamilton Sundstrand division as President of Aerospace Customers & Business Development; Vice President of Auxiliary Power, Engine & Control Systems; Vice President and General Manager of Hamilton Sundstrand Power Systems; Vice President of Pratt & Whitney programs; and General Manager of Rolls-Royce/General Electric programs. Before joining Hamilton Sundstrand, he served in roles at UTC headquarters and Pratt & Whitney. Mr. Gitlin earned a bachelors degree from Cornell University, a Juris Doctor from the University of Connecticut School of Law and an MBA from MITs Sloan School of Management.
John J. Greisch. Mr. Greisch served as President and Chief Executive Officer of Hill-Rom Holdings, Inc. (medical technology company) from 2010 until his retirement in 2018. Prior to Hill-Rom, Mr. Greisch was
100
President, International Operations for Baxter International, Inc. (health care) from 2006 to 2009. While at Baxter, he also served as Chief Financial Officer from 2004 to 2006, as President of its bioscience division from 2003 to 2004, Vice President, Finance and Strategy (bioscience division) during 2003 and Vice President, Finance (renal division) from 2002 to 2003. Previously, Mr. Greisch was President and Chief Executive Officer for FleetPride Corporation (distributor of heavy-duty truck and trailer replacement parts) from 1998 to 2001. Prior to that, he held various positions at The Interlake Corporation (metal products) from 1986 to 1997, including serving as President of its Materials Handling Group, and at Price Waterhouse (professional accounting services) from 1978 to 1985. Mr. Greisch is a director of Catalent, Inc., Cerner Corporation and Idorsia Pharmaceuticals Ltd. He previously served as a director of Hill-Rom from 2010 to 2018, Actelion Ltd. from 2013 to 2017 and TomoTherapy, Inc. from 2008 to 2010. Additionally, he currently serves as a senior advisor to TPG Capital and is on the Board of Directors for the Ann & Robert H. Lurie Childrens Hospital of Chicago. Mr. Greisch holds a bachelors degree from Miami University (Ohio) and an MBA from the Kellog School of Management at Northwestern University.
Charles M. Holley, Jr. Mr. Holley served as Executive Vice President and Chief Financial Officer for Wal-Mart Stores, Inc. from 2010 to 2015 and as Executive Vice President in 2016. Previously, Mr. Holley served in various roles at Walmart, including as Executive Vice President, Finance and Treasurer from 2007 to 2010, Senior Vice President, Finance from 2005 to 2007, Senior Vice President and Controller from 2003 to 2005 and in various other roles for Wal-Mart International from 1994 through 2002. Prior to Walmart, he served in various roles at Tandy Corporation and spent more than 10 years with Ernst & Young LLP. Mr. Holley served as an Independent Senior Advisor, U.S. CFO Program, at Deloitte LLP from 2016 to 2019. Mr. Holley is a director of Amgen Inc. and Phillips 66, and he also serves on the Advisory Council for the McCombs School of Business at the University of Texas at Austin and the University of Texas Presidents Development Board. Mr. Holley holds a bachelors degree from the University of Texas at Austin and an MBA from the University of Houston.
Michael M. McNamara. Mr. McNamara is Head of Samara, a division of Airbnb, a position he has held since January 2020. He is also a venture partner at Eclipse Ventures (Silicon Valley venture capital firm), a role he has held since February 2019. From 2006 to 2018, Mr. McNamara served as the Chief Executive Officer of Flex Ltd. (multinational technological manufacturer). From 1994 until his appointment as Chief Executive Officer in 2006, Mr. McNamara served in other senior roles at Flex. Mr. McNamara is a director of Workday, Inc. and Slack Technologies, Inc. He was also a member of the Advisory Board of Tsinghua University School of Economics and Management from 2006 to 2019, and a member of the presidential CEO Advisory Board of Massachusetts Institute of Technology from 2017 to 2019. He was previously a director of Flex from 2005 to 2018, a director of APTIV Corp (previously Delphi Automotive PLC) from 2009 to 2013 and a director of SunEdison, Inc. (previously MEMC Electronic Materials, Inc.) from 2008 to 2012. Mr. McNamara holds a bachelors degree from the University of Cincinnati and an MBA from Santa Clara University.
Michael A. Todman. Mr. Todman retired as Vice Chairman of the Whirlpool Corporation (home appliances and related products) in 2015. Prior to his appointment as Vice Chairman, Mr. Todman held various executive positions, including President of Whirlpool International, as well as President, Whirlpool North America. Mr. Todman held several senior positions, including Executive Vice President and President of Whirlpool Europe, and Executive Vice President, Whirlpool North America, as well as other positions at Whirlpool during his tenure, which began in 1993. Prior to joining Whirlpool, he held a variety of leadership positions at Wang Laboratories, Inc. (computer industry), and began his career at Price Waterhouse. Mr. Todman is a director of Newell Brands Inc., Brown-Forman Corporation and Prudential Financial, Inc. He previously served on the Board of Directors of Whirlpool from 2006 to 2015. Mr. Todman holds a bachelors degree from Georgetown University.
Virginia M. (Gina) Wilson. Ms. Wilson served as Senior Executive Vice President and Chief Financial Officer of Teachers Insurance and Annuity Association of America (TIAA) (financial services) from 2010 to 2019. Prior to joining TIAA, she was Executive Vice President and Chief Financial Officer of Wyndham Destinations (formerly Wyndham Worldwide Corporation, a hotel, timeshare and vacation company) from 2006 to 2009. She also served as Executive Vice President and Chief Accounting Officer at Cendant Corporation (consumer services in the real estate and travel industries) from 2003 to 2006, Senior Vice President and Controller at MetLife, Inc. from 1999 to 2003 and Senior Vice President and Controller at Transamerica Life Insurance Companies from 1996 to 1999. Ms. Wilson was an audit partner at Deloitte & Touche LLP earlier in
101
her career. Ms. Wilson is a director of Conduent Incorporated and Charles River Laboratories International, Inc. She has served as Trustee and Vice Chair of Catholic Charities of the Archdiocese of New York. Ms. Wilson holds bachelors and masters degrees from the University of Illinois and is a certified public accountant.
Director Independence
Under our Director Independence Policy and the stock exchange listing standards, a majority of our directors must be independent, meaning that the director does not have a direct or indirect material relationship with Carrier (other than as a director). The Director Independence Policy will guide the independence determination and will include the categories of relationships that the Board has determined are not material relationships that would impair a directors independence. The Director Independence Policy will be available on our website in connection with the distribution.
Before joining the Board and annually thereafter, each director will complete a questionnaire seeking information about relationships and transactions that may require disclosure, that may affect the independence determination, or that may affect heightened independence standards that apply to members of the Audit and Compensation Committees. The Governance Committee will complete an assessment considering all known relevant facts and circumstances about those relationships bearing on the independence of a director or nominee. The assessment will also consider sales and purchases of products and services, in the ordinary course of business, between Carrier (including its subsidiaries) and other companies or charitable organizations, where directors and nominees (and their immediate family members) may have relationships pertinent to the independence determination.
The Board is expected to affirmatively determine that all of the directors, other than John V. Faraci and David Gitlin, who are employed by Carrier, are independent under Carriers Director Independence Policy and the stock exchange listing standards because none of the directors, other than John V. Faraci and David Gitlin, has a business, financial, family or other relationship with Carrier that is considered material.
Board Committees
Effective upon the completion of the distribution, the Board will have the following three standing committees: Audit; Governance; and Compensation. Each standing committee is expected to be composed exclusively of independent directors. Each standing committee will have the authority to retain independent advisors to assist in the fulfillment of its responsibilities, to approve the fees paid to those advisors and to terminate their engagements. The Board is expected to adopt written charters for each committee, which will be made available on our website in connection with the distribution.
Audit
|
||
Charles M. Holley (Chair)
Michael M. McNamara Michael A. Todman Virginia M. (Gina) Wilson |
•
|
Assists the Board in overseeing: the integrity of Carrier’s financial statements; the independence, qualifications and performance of Carrier’s internal and external auditors; Carrier’s compliance with its policies and procedures, internal controls, Code of Ethics, and applicable laws and regulations; and policies and procedures relating to risk assessment and management
|
•
|
Nominates, for appointment by shareowners, an accounting firm to serve as Carrier’s independent auditor and maintains responsibility for compensation, retention and oversight of the auditor
|
|
•
|
Pre-approves all audit services and permitted non-audit services to be performed for Carrier by its independent auditor
|
|
•
|
Reviews and approves the appointment and replacement of the senior Internal Audit executive
|
|
•
|
Reviews and assists the Board in overseeing the management of Carrier’s financial resources and financial risks
|
102
|
•
|
Reviews and assists the Board in overseeing policies and programs relating to the management of foreign exchange exposure, interest rates; raw materials prices; investment of pension assets; and insurance and risk management
|
|
•
|
Reviews and assists the Board in overseeing strategies and plans for certain acquisitions and divestitures, including discussion of possible transactions and their financial impact
|
Governance
|
||
Jean-Pierre Garnier (Chair)
John J. Greisch Michael M. McNamara Virginia M. (Gina) Wilson |
•
|
Identifies and recommends qualified candidates for election to the Board
|
•
|
Develops and recommends appropriate corporate governance guidelines
|
|
•
|
Oversees the design and conduct of the annual self-evaluation of the Board, its committees and individual directors
|
|
•
|
Recommends appropriate compensation of directors
|
|
•
|
Submits to the Board recommendations for committee assignments
|
|
•
|
Reviews and monitors the orientation of new Board members and the continuing education of all directors
|
|
•
|
Reviews and oversees Carrier’s positions on significant public issues and corporate social responsibility, including diversity, the environment and safety
|
Compensation
|
||
John J. Greisch (Chair)
Jean-Pierre Garnier Charles M. Holley, Jr. Michael A. Todman |
•
|
Reviews Carrier’s executive compensation policies and practices to ensure that they adequately and appropriately align executive and shareowner interests
|
•
|
Reviews and approves the design of and sets performance goals for the annual bonus and long-term incentive awards for executives
|
|
•
|
Evaluates the performance of Carrier and its Named Executive Officers relative to the pre-established performance goals set by the Committee for the annual and long-term incentive programs
|
|
•
|
Approves compensation levels for Executive Leadership Group (ELG) members and executive officers
|
|
•
|
Reviews a risk assessment of Carrier’s compensation policies, plans and practices
|
How We Make Pay Decisions and Assess Our Programs
During our fiscal year ended December 31, 2019, Carrier was not an independent public company, and did not have a compensation committee or any other committee serving a similar function. Decisions regarding the compensation of those who currently serve as our executive officers were made by UTC, as described in the section of this information statement entitled Executive Compensation—Compensation Discussion and Analysis.
103
Corporate Governance
Our Commitment to Sound Corporate Governance
Carrier will be committed to strong corporate governance practices that will be designed to maintain high standards of oversight, accountability, integrity and ethics while promoting long-term growth in shareowner value.
Our governance structure will enable independent, experienced and accomplished directors to provide advice, insight and oversight to advance the interests of Carrier and our shareowners. Carrier will strive to maintain sound governance standards, to be reflected in our Code of Ethics, Governance Guidelines, our systematic approach to risk management, and our commitment to transparent financial reporting and strong internal controls.
The following documents will be made available on the Corporate Governance section of our website (www.carrier.com) in connection with the separation, where you will be able to access information about corporate governance at Carrier:
• | Governance Guidelines; |
• | Board Committee Charters; |
• | Certificate of Incorporation and Bylaws; |
• | Code of Ethics; |
• | Director Independence Policy; |
• | Related Person Transactions Policy; |
• | Public Activities; |
• | Stock ownership requirements; |
• | Information about our anonymous reporting program, which allows Carrier’s employees and other stakeholders to identify potential instances of non-compliance or unethical practices confidentially and outside the usual management channels; and |
• | Information about how to communicate concerns to the Board and management. |
The Carrier website and the information contained therein or connected thereto are not incorporated into this information statement or the registration statement of which this information statement forms a part, or in any other filings with, or any information furnished or submitted to, the SEC.
Shareowner Engagement
We will plan to solicit feedback on an annual basis from our largest shareowners with respect to changes that the Board (or a Committee) is considering regarding Carriers executive compensation program and our corporate governance practices. Each year after the proxy statement relating to our annual meeting of shareowners is filed, we will plan to hold discussions that generally focus on the clarity and effectiveness of our disclosures and on matters that are of interest to investors. We will also discuss other topics with investors, such as leadership structure, corporate social responsibility and Carriers diversity and sustainability initiatives.
In addition, management and independent directors will routinely engage with our shareowners on financial performance, capital allocation and business strategy.
Criteria for Board Membership
The following attributes are essential for all Carrier directors, and we will look to see that the Board exhibits these attributes:
• | Objectivity and independence in making informed business decisions; |
• | Extensive knowledge, experience and judgment; |
• | The highest integrity; |
104
• | Diversity of perspective; |
• | A willingness to devote the extensive time necessary to fulfill a director’s duties; |
• | An appreciation for the role of the corporation in society; and |
• | Loyalty to the interests of Carrier and its shareowners. |
While we will not have a policy on Board diversity, a directors ability to contribute to the diversity of perspectives necessary in Board deliberations is an attribute that is critical to Carriers success.
The following consist of the principal skills and expertise that are essential to effective oversight in light of Carriers business requirements and strategy:
• | Financial. Leadership of a financial firm, management of an enterprise’s finance function or of a large profit and loss statement, resulting in proficiency in complex financial management, financial reporting processes, capital allocation, capital markets and mergers and acquisitions, representing the importance we place on accurate financial reporting and robust financial controls and compliance. |
• | International. Carrier has operations around the world. Directors with international experience thus provide valuable business and cultural perspectives. |
• | Knowledge of Company / Industry. Knowledge of or experience in Carrier’s industries and markets, whether acquired through service as a senior leader in one of these industries or markets, a related industry or market or through prior service on the UTC Board of Directors. |
• | Risk Management / Oversight. This experience is critical to the Board’s role in overseeing and understanding major risk exposures, including significant financial, operational, compliance, reputational, strategic, international and cybersecurity risks. |
• | Senior Leadership. Extensive leadership experience with a significant enterprise, resulting in a practical understanding of organizations, processes and strategic planning, along with demonstrated strengths in developing talent, succession planning and driving change and long-term growth. |
• | Technology and Innovation. Experience in research and development, engineering, science, digital or technology. This translates into an understanding of Carrier’s technological innovations, development and marketing challenges, how to anticipate technological trends and how to generate disruptive innovation, all of which help us to execute our business objectives and strategy. |
Board Leadership Structure
The Governance Committee is expected to routinely review our governance practices and board leadership structure.
As of the completion of the distribution, it is expected that John V. Faraci will serve as Executive Chairman. Under our Governance Guidelines to be adopted in connection with the distribution, the Board will designate a non-employee director to serve as Lead Director when the Chairman is not independent. As an employee of Carrier, Mr. Faraci will not be an independent director. It is expected that Jean-Pierre Garnier will serve as the Lead Director as of the completion of the distribution.
Carriers independent directors are expected to meet in regularly scheduled private sessions without management and in additional sessions when requested.
Board Self-Evaluation Process
The Board is expected to evaluate annually its own performance and that of the standing committees and individual directors. The Governance Committee will be responsible for and oversee the design and the manner in which the annual self-evaluation is completed. The Lead Director and the Governance Committee Chair will jointly lead the self-evaluation process.
The self-evaluation will inform the Boards consideration of the following:
• | Board roles; |
• | Opportunities to increase the Board’s effectiveness, including the addition of new skills and expertise; |
105
• | Refreshment objectives, including composition and diversity; and |
• | Succession planning. |
The self-evaluation process is expected to generate improvements to our corporate governance practices and the Boards effectiveness.
Board Refreshment and Nominating Process
The Governance Committee is expected to regularly review with the Board the key skills and areas of expertise that are most important in selecting candidates to serve as directors, taking into account Carriers operations and the mix of capabilities and experience already represented on the Board. As part of the Boards annual evaluation of its overall effectiveness, the Board will consider whether its composition reflects the diversity of experience, skills and perspectives that continuously enhance the Boards ability to carry out its oversight role and to effectively support Carriers growth and strategy. Based on these considerations, the Board will adjust the priority it gives to various director qualifications when identifying candidates.
The Governance Guidelines and the amended and restated bylaws will not impose term limits on directors because Carrier believes that a director who serves for an extended period will develop a deep understanding of Carriers history, practices and strategy and will therefore be uniquely positioned to provide insight and perspective regarding Carriers operations and strategic direction. However, the Governance Guidelines will provide for a mandatory retirement age of 75 for directors in order to facilitate the Boards continuing refreshment. The Governance Guidelines will provide that the Board will retain the authority to approve exceptions to this policy based upon special circumstances. Additionally, the Boards self-evaluation process, including individual director evaluations, is expected to contribute to the Governance Committees consideration of each incumbents skills and expertise as part of the nomination and refreshment process.
The Governance Committee will consider candidates recommended by directors, management and shareowners who meet the qualifications Carrier seeks in its directors. The Governance Committee may also engage search firms to assist in identifying and evaluating qualified candidates and to ensure that the Governance Committee is considering a large and diverse pool of potential candidates. The amended and restated certificate of incorporation and amended and restated bylaws will provide that directors will be elected annually and the Governance Guidelines will provide for majority voting for directors in uncontested elections.
The amended and restated bylaws will establish advance notice procedures with respect to the nomination by shareowners of candidates for election as a director. Eligible shareowners will also be permitted to include their own director nominees in Carriers proxy materials under the circumstances set forth in the amended and restated bylaws. Generally, a shareowner or a group of up to 20 shareowners, who has maintained continuous qualifying ownership of at least 3 percent of Carriers outstanding common stock for at least three years, will be permitted to include director nominees constituting up to 20 percent of the board of directors in the proxy materials for an annual meeting of shareowners if such shareowner or group of shareowners complies with the other requirements set forth in the proxy access provision of the amended and restated bylaws. A copy of the amended and restated bylaws will be available on our website.
How We Will Manage Risk
Carrier encounters a range of risks, including legal, financial, operational, strategic and reputational. Among these broad categories, specific risks include human capital, market conditions, the overall political climate, and the impact of disruptive events, such as natural disasters.
To manage these risks, Carrier will implement a comprehensive enterprise risk management (ERM) program in connection with the distribution that will conform to the Enterprise Risk – Management Integrated Framework established by the Committee of Sponsoring Organizations of the Treadway Commission. As part of Carriers ERM program, the Vice President, Internal Audit will be responsible for identifying and reporting to the Executive Chairman and the President and Chief Executive Officer, the notable business and compliance risks that could affect business operating plans and strategic initiatives, assessing the likelihood and potential impact of the pertinent risks and designing mitigation plans. The Executive Chairman, President and Chief Executive Officer, Chief Financial Officer and General Counsel will report to the Board at least annually on business risks, compliance risks, functional risks and the associated mitigation plans.
106
The full Board will be responsible for the oversight of Carriers risk management process and structure, while the Audit Committee will oversee Carriers overall policies and practices for enterprise risk management. In addition, responsibility for the oversight of specific risk categories will be allocated among the Board and its committees as follows:
Full Board of Directors
|
Audit Committee
|
Governance Committee
|
Compensation Committee
|
• Risk management
program • Major strategies and business objectives • Most significant risks, such as major litigation • Succession planning • Government relations |
• Financial
• Operational • Compliance • Reputational • Strategic • Cybersecurity |
• Corporate
governance • Director candidate review • Conflicts of interest • Director independence • Environment • Safety • Equal employment opportunity • Public policy issues |
• Compensation and
benefits policies, practices and plans • Incentive plan performance metrics and goals • Compensation levels for senior leaders • Compensation plan design • Executive retention |
Through Carriers ERM framework, the Compensation Committee will identify, monitor and mitigate compensation risk in the following ways:
• | Emphasis on Long-Term Performance. Long-term incentives will be the cornerstone of Carrier’s executive compensation program. Our long-term incentive program will incorporate long-term financial performance metrics which align executive and shareowner interests. |
• | Rigorous Share Ownership Requirements. Carrier will maintain significant share ownership requirements for our senior executives and directors. These requirements are intended to reduce risk by aligning the economic interests of executives and directors with those of our shareowners. A significant stake in future performance discourages the pursuit of short-term opportunities that can create excessive risk. |
• | Prohibition on Short Sales, Pledging and Hedging of Carrier Securities. Carrier will prohibit directors, officers and employees from entering into transactions involving short sales of our securities. Further, directors and executive officers will be prohibited from pledging or assigning an interest in Carrier stock, stock options or other equity interests as collateral for a loan. Transactions in put options, call options or other derivative securities that have the effect of hedging the value of Carrier securities will also be prohibited, whether the securities were granted to or otherwise acquired or held, directly or indirectly, by the applicable director or executive. |
• | Comprehensive Clawback Policy. Carrier will maintain a comprehensive policy on recoupment that applies to both annual and long-term incentive compensation. The policy will allow Carrier to claw back compensation in a number of circumstances, including, but not limited to, financial restatements, compensation earned as a result of financial miscalculations, violations of Carrier’s Code of Ethics and violations of post-employment restrictive covenants. |
• | Post-Employment Covenants. ELG members (which will include each of our named executive officers) will be restricted in engaging in post-employment activities detrimental to Carrier, such as disclosing proprietary information, soliciting Carrier employees or engaging in competitive activities. |
107
Corporate Governance Information, Code of Ethics and How to Contact the Board
The Code of Ethics will apply to all directors and employees, including the principal executive, financial and accounting officers. Shareowners and other interested persons may send communications to the Board, the Lead Director, or one or more independent directors by (1) using the contact information provided on the Corporate Governance section of Carriers website at www.carrier.com, (2) letter addressed to the Corporate Secretary (see above for contact information) or (3) contacting Carriers anonymous reporting program at 1-[ ]. Communications relating to Carriers accounting, internal controls, auditing matters or business practices will be reviewed by Carriers Vice President, Global Ethics & Compliance and reported to the Audit Committee pursuant to the Carrier Governance Guidelines. All other communications will be reviewed by the Carrier Corporate Secretary and reported to the Board, as appropriate, pursuant to the Governance Guidelines.
Procedures for Approval of Related Persons Transactions
Carrier will adopt a written policy for the review of transactions with related persons (the Related Person Transactions Policy). The Related Person Transactions Policy will require review, approval or ratification of transactions exceeding $120,000 in which Carrier or any of its subsidiaries is a participant and in which a Carrier director, executive officer, a beneficial owner of five percent or more of Carriers outstanding shares, or an immediate family member of any of the foregoing persons, has a direct or indirect material interest. Any such transactions, other than specified pre-approved transactions that require annual reporting, will be required to be reported for review by the Carrier Corporate Secretary who will, in consultation with the Vice President, Global Ethics & Compliance, assess whether the transaction is a transaction with a related person, as such term is defined under Carriers policy and the relevant SEC rules. Following this review, the Governance Committee will determine whether the transaction can be approved or not, based on whether the transaction is determined to be in, or not inconsistent with, the best interests of Carrier and its shareowners. In making this determination, the Governance Committee will take into consideration whether the transaction is on terms no less favorable to Carrier than those available with other parties and the related persons interest in the transaction. Carriers policy generally will permit employment of relatives of related persons possessing qualifications consistent with Carriers requirements for non-related persons in similar circumstances if the employment is approved by the Vice President, Chief Human Resources Officer and the Vice President, Global Ethics & Compliance.
108
The Carrier director compensation program will be subject to the review and approval of the Board or a committee thereof after the distribution. The Compensation Committee of the UTC Board of Directors has approved an initial director compensation program for Carrier that is designed to enable ongoing attraction and retention of highly qualified directors and to address the time, effort, expertise and accountability required of active Board membership. This program is described in further detail below.
Treatment of outstanding UTC equity-based compensation awards held by Carrier non-employee directors in connection with the distribution is described under The Separation and Distribution—Treatment of Equity-Based Compensation.
Annual Retainer
The following chart shows the initial annual retainers for non-employee directors. 40% is payable in cash and the remaining 60% is payable in deferred stock units, although a director also may elect to receive 100% of the retainer in deferred stock units.
Role |
Cash ($) |
Deferred Stock Units ($) |
Total ($) |
||||||
All Directors (base retainer) Incremental Amount Above Base Retainer* |
$ | 124,000 | $ | 186,000 | $ | 310,000 | |||
Lead Director |
$ | 14,000 | $ | 21,000 | $ | 35,000 | |||
Audit Committee Chair |
$ | 10,000 | $ | 15,000 | $ | 25,000 | |||
Audit Committee Member |
$ | 6,000 | $ | 9,000 | $ | 15,000 | |||
Compensation Committee Chair |
$ | 8,000 | $ | 12,000 | $ | 20,000 | |||
Governance Committee Chair |
$ | 8,000 | $ | 12,000 | $ | 20,000 |
* | Directors serving in multiple leadership roles receive incremental compensation for each role. |
Directors do not receive additional compensation for attending regularly scheduled Board or committee meetings, but do receive an additional $5,000 for each special meeting attended in person.
Annual retainers are paid each year following the annual meeting of shareowners. New directors joining the Board between the annual meeting of shareowners and the end of September receive 100% of the annual retainer. Directors joining the Board between October and the next annual meeting of shareowners receive 50% of the annual retainer for the year they joined the Board.
After a non-employee director leaves the Board, deferred stock units are converted into shares of common stock, payable either in a lump-sum or in 10- or 15-year installments in accordance with the directors prior election. When Carrier pays a dividend on its common stock, each non-employee director is credited with additional deferred stock units equal in value to the dividend paid on the corresponding number of shares of Carrier.
For a description of the adjustments that are expected to be made to outstanding UTC equity-based compensation awards, including those held by Carrier directors who previously served on the UTC Board of Directors, in connection with the distribution, see The Separation and Distribution—Treatment of Equity-Based Compensation.
Executive Chairman Compensation
Carriers Executive Chairman, John V. Faraci, will receive a base salary of $1,000,000 per year and an annual long-term incentive award opportunity of $1,500,000.
Director Share Ownership Requirements
Each Carrier non-employee director will be required to own Carrier common stock (including deferred stock units) with a value equal to five times such directors annual base cash retainer (or, in the case of the Executive Chairman, his annual base salary). Directors must achieve the required stock ownership level within five years after joining the Board.
109
Compensation Discussion and Analysis
Introduction
Carrier is currently a subsidiary of UTC and not an independent public company, and its compensation committee has not yet been formed. Decisions regarding the past compensation of Carriers named executive officers were made by the Compensation Committee of the UTC Board of Directors (referred to in this section as the UTC Compensation Committee) if the executive previously served as an executive officer or ELG member of UTC, or otherwise by UTC management. After the distribution, Carriers executive compensation programs, policies and practices for its executive officers and ELG members will be subject to the review and approval of the Compensation Committee of the Board (the Carrier Compensation Committee).
For purposes of this Compensation Discussion and Analysis and the following executive compensation tables, the individuals referred to as the named executive officers are Carriers Chief Executive Officer, Chief Financial Officer and, of the other individuals designated as Carriers executive officers, the three most highly compensated based on 2019 compensation from UTC. The individuals designated as Carriers named executive officers are listed below.
• | David Gitlin, President and Chief Executive Officer |
• | Timothy McLevish, Chief Financial Officer |
• | Christopher Nelson, President, HVAC Commercial |
• | Jurgen Timperman, President, Fire & Security |
• | Matthew Pine, President HVAC Residential |
The following sections of this Compensation Discussion and Analysis describe UTCs executive compensation philosophy, executive compensation program elements and certain UTC executive compensation plans, policies and practices, as well as certain aspects of Carriers anticipated compensation structure following the distribution.
110
UTC COMPENSATION PHILOSOPHY AND PROCESS
UTCs Executive Compensation Philosophy
The UTC Compensation Committee believes that there must be a meaningful link between the compensation paid to UTCs executives and UTCs goal of long-term, sustainable growth for its shareowners. This core philosophy is embedded in the following principles, which guide all aspects of UTCs compensation program:
UTC’S GUIDING PRINCIPLES FOR EXECUTIVE COMPENSATION
|
||
|
|
|
Competitiveness
|
Long-Term Focus
|
Balance
|
|
|
|
Total compensation should be sufficiently competitive to attract, retain and motivate a leadership team capable of maximizing UTC’s performance. Each element should be benchmarked relative to peers.
|
For UTC’s most senior executives, long-term, stock-based compensation opportunities should significantly outweigh short-term, cash-based opportunities. Annual objectives should complement sustainable, long-term performance.
|
The portion of total compensation contingent on performance should increase with an executive’s level of responsibility. Annual and long-term incentive opportunities should reward the appropriate balance of short-, medium- and long-term financial, strategic and operational business results.
|
|
|
|
Pay-for-Performance
|
Responsibility
|
Shareowner Alignment
|
|
|
|
A substantial portion of compensation should be variable, contingent and directly linked to individual, company and business unit performance.
|
A complete commitment to ethical and corporate responsibility is a fundamental principle incorporated into all aspects of UTC’s compensation program. Compensation should take into account each executive’s responsibility to act at all times in accordance with UTC’s Code of Ethics and its environmental, health and safety objectives. Financial, strategic and operational performance must not compromise these values.
|
The financial interests of executives should be aligned with the long-term interests of UTC’s share owners through stock-based compensation and performance metrics that correlate with long-term shareowner value.
|
111
How UTC Makes Pay Decisions and Assesses Its Programs
WHO DOES WHAT
UTC Compensation Committee
Oversees UTCs programs
• | Sets financial, strategic and operational goals and objectives for UTC, the business units and UTC’s Chief Executive Officer, as they relate to the annual and long-term incentive programs. |
• | Assesses UTC, business unit and UTC named executive officer performance relative to the pre-established goals and objectives set for the year. |
• | Approves UTC’s Chief Executive Officer pay adjustments based on its assessment of UTC’s Chief Executive Officer performance. |
• | Reviews the UTC’s Chief Executive Officer’s recommendations for pay changes for UTC Executive Leadership Group (UTC ELG) members and UTC executive officers, and makes adjustments as appropriate. |
• | Evaluates the competitiveness of the compensation packages for UTC ELG members and UTC executive officers. |
• | Approves all UTC executive compensation program design changes, including severance, change-in-control and supplemental benefit arrangements. |
• | Reviews risk assessments of UTC’s compensation plans, policies and practices. |
• | Considers UTC shareowner input regarding UTC’s executive compensation decisions and policies. |
• | All decisions are subject to review by the other independent directors. |
Chief Executive Officer
Provides selective input to the UTC Compensation Committee
• | Considers the performance of each UTC ELG member/UTC executive officer, his or her business unit and/or function, market benchmarks, internal equity and retention risk when determining pay recommendations. |
• | Presents the UTC Compensation Committee with recommendations for each principal element of compensation for UTC ELG members (including the other UTC named executive officers) and UTC executive officers. |
• | Does not have any role in the UTC Compensation Committee’s determination of his own compensation. |
UTC Management and the Independent Consultant
Provide insight and assistance
UTCs Executive Vice President & Chief Human Resources Officer, along with UTCs Human Resources staff and the independent compensation consultant, provide insights on UTCs program design and compensation market data to assist the UTC Compensation Committee with its decisions. UTC management also has been delegated oversight responsibility over UTC executive compensation plan administration.
UTC Shareowners
Provide feedback on UTCs programs
In assessing UTCs program each year, the UTC Compensation Committee reviews the feedback received from UTCs shareowners. This feedback, along with other factors, helps the UTC Compensation Committee in its decisions and its ongoing assessment of the effectiveness of UTCs program.
112
Role of UTC Compensation Committees Independent Compensation Consultant
The UTC Compensation Committee has retained Pearl Meyer & Partners (Pearl Meyer) to serve as its executive compensation consultant. Although Pearl Meyer may make recommendations on the form and amount of compensation, the UTC Compensation Committee makes all decisions regarding the compensation of UTCs named executive officers and other UTC ELG members.
In general, Pearl Meyer advises the UTC Compensation Committee on a variety of subjects, including compensation plan design and trends, pay-for-performance analytics, benchmarking data and related matters. Pearl Meyer reports directly to the UTC Compensation Committee, participates in meetings as requested and communicates with the UTC Compensation Committee Chair between meetings as necessary.
Prior to engaging Pearl Meyer, the UTC Compensation Committee reviewed the firms qualifications, independence and any potential conflicts of interest. Pearl Meyer generally does not perform other services for or receive other fees from UTC. The UTC Compensation Committee therefore determined that Pearl Meyer qualified as an independent consultant. The UTC Compensation Committee has the sole authority to modify or approve Pearl Meyers compensation, determine the nature and scope of its services, evaluate its performance, terminate the engagement and hire a replacement or additional consultant at any time.
The UTC Compensation Committee also uses market data from other compensation consulting firms for benchmarking and other purposes. However, this benchmark data is generally available broadly to these firms other consulting clients.
UTCs Compensation Peer Group
How UTC Uses Peer Group Data.
UTC compares its executive compensation program to those at the 24 companies that make up UTCs Compensation Peer Group (UTC CPG). Data from a broader range of companies, including the Fortune 100, are used for insight into general compensation trends and to supplement UTC CPG data when necessary and appropriate. To maintain a sufficiently competitive executive compensation program, the UTC Compensation Committee believes the target value of each principal element of compensation should approximate the market median of the companies UTC views as competitors for executive talent. The UTC Compensation Committee annually evaluates each compensation element relative to the market for each UTC ELG members role and makes adjustments as necessary. However, individual compensation may vary from market median benchmarks based on the UTC Compensation Committees assessment of UTC, business unit/function and individual performance, job scope, retention risk, tenure and other factors that it determines to be relevant to its evaluation.
How UTCs Compensation Peer Group is Constructed
The UTC CPGs composition reflects a mix of both industry and non-industry peers that the UTC Compensation Committee views as competitors for senior executive talent. 11 of these 24 companies are Dow Jones Industrial Average components. The UTC Compensation Committee believes the companies in the UTC CPG provide a relevant comparison based on their similarity to UTC in size, geographic footprint and operational complexity, taking into account factors such as revenue, market capitalization, global scope of operations, manufacturing footprint, research and development activities and diversified product portfolios. The UTC CPG is constructed to serve the specific purpose of benchmarking executive compensation. For this reason, UTC does not use the relative financial performance of the UTC CPG as a performance metric in UTCs incentive compensation programs.
113
PRINCIPAL ELEMENTS OF UTC EXECUTIVE COMPENSATION PROGRAM
Base Salaries
To attract and retain talented and qualified executives, UTC provides competitive base salaries, which UTC targets at the market median. Each year the UTC Compensation Committee reviews the UTC Chief Executive Officers recommendations for base salary adjustments for UTC ELG members relative to peer market data for similar roles. The UTC Compensation Committee has complete discretion to modify or approve the UTC Chief Executive Officers recommendations. The UTC Chief Executive Officer has no involvement in the UTC Compensation Committees determination of his own base salary. Actual salaries may vary from market medians based on factors such as job scope and responsibilities, experience, tenure, individual performance, retention risk and internal pay equity. Carrier anticipates following a similar methodology in setting base salaries.
2019 Base Salaries for Carrier Named Executive Officers
The following table sets forth the base salary of each of our named executive officers as of December 31, 2019. During the year, Mr. Gitlin received a merit base salary increase and an increase to reflect a market data driven adjustment in connection with his role as President and Chief Executive Officer of a soon to be public company. Mr. Pine received a salary increase due to his promotion to President, HVAC Residential. Messrs. Nelson and Timperman each received merit-based increases.
Named Executive Officer |
Base Salary as of December 31, 2019 |
||
David Gitlin, President and Chief Executive Officer |
$ | 1,000,000 | |
Timothy McLevish, Chief Financial Officer |
$ | 800,000 | |
Christopher Nelson, President, HVAC Commercial |
$ | 600,000 | |
Jurgen Timperman, President, Fire & Security |
$ | 500,000 | |
Matthew Pine, President, HVAC Residential |
$ | 410,000 |
Annual Bonuses
UTCs Objectives
The UTC Compensation Committee believes its methodology for determining annual bonus awards accomplishes the following objectives:
• | Sets financial performance goals that are consistent with the UTC Compensation Committee’s assessment of the opportunities and risks for the upcoming year, as communicated to investors. |
• | Establishes challenging but achievable performance goals for UTC’s executives. |
• | Provides incentive opportunities that are market competitive. |
• | Allows the UTC Compensation Committee to make discretionary adjustments if it determines that measured performance does not fully align with its assessment of overall performance. |
Annual Bonus Targets
The UTC Compensation Committee approves annual bonus target levels based on relevant market data for each UTC ELG members role. Target levels are expressed as a percentage of base salary and generally approximate the market median.
Pool Determination
Annual bonus funding pools are calculated by first multiplying each executives annual bonus target value (base salary multiplied by target bonus percentage) by the applicable UTC or business unit financial performance factor approved by the UTC Compensation Committee based on the level of achievement of pre-established financial performance goals. These amounts are then aggregated to determine award pools for Corporate executives and each business unit, and are subsequently allocated among eligible executives based on individual performance.
114
Individual Performance
UTC named executive officers begin the year with individual financial, strategic and operational objectives. Based on the UTC Chief Executive Officers assessment of each UTC named executive officers performance, he may recommend that the UTC Compensation Committee make a discretionary adjustment to increase or decrease the annual bonus calculated using the applicable financial performance factor. The UTC Compensation Committee considers these recommendations and makes adjustments as it deems appropriate. UTCs Chief Executive Officer has no role in the UTC Compensation Committees determination of his own annual bonus.
UTC Compensation Committees Use of Discretion in Determining Annual Bonus Awards
UTCs annual bonus program is designed to closely align individual payouts with performance relative to pre-established goals. However, the UTC Compensation Committee retains the authority to make upward or downward adjustments if it determines that UTC, business unit and/or individual performance measured by the metrics does not accurately reflect the overall quality of performance for the year. Although the achievement of financial performance goals remains the primary basis for determining actual annual bonus amounts, the UTC Compensation Committee has previously made positive and negative discretionary adjustments to financial performance factors and as a result of individual performance. Examples of situations that could result in discretionary adjustment include:
• | Material, unforeseen circumstances beyond UTC management’s control that affected financial performance results relative to the established goals or certain non-recurring charges or credits unrelated to operating performance; |
• | Tax or accounting rule adjustments that positively or negatively impact performance; |
• | Changes to UTC’s capital structure; |
• | An executive’s performance relative to specific individual annual objectives; or |
• | An executive’s failure to adhere to UTC’s Code of Ethics, Enterprise Risk Management program or other UTC policies. |
2019 Annual Bonuses for Carrier Named Executive Officers
In 2019, with respect to our named executive officers who were members of the UTC ELG, their 2019 annual bonuses were determined in accordance with the process described above, except that Mr. Gitlin, provided input on adjustments for Carriers other named executive officers to UTCs Chief Executive Officer. Carrier anticipates following a methodology in determining annual bonuses similar to the one used by UTC.
The following table sets forth for each of our named executive officers the annual target bonus percentage in effect as of December 31, 2019 and the actual bonus payout for 2019 reflected as a percentage of base salary in effect on December 31, 2019.
Named Executive Officer |
Target Bonus |
Actual Bonus Payout(1) |
||||
David Gitlin, President and Chief Executive Officer |
125 | % |
120 | % |
||
Timothy McLevish, Chief Financial Officer |
100 | % |
21 | % |
||
Christopher Nelson, President, HVAC Commercial |
80 | % |
58 | % |
||
Jurgen Timperman, President, Fire & Security |
80 | % |
60 | % |
||
Matthew Pine, President, HVAC Residential |
60 | % |
51 | % |
(1) | Actual payout for Mr. Gitlin reflects blended target bonus in light of a target bonus increase provided in 2019 and also takes into account his time worked in his prior UTC role before transitioning to Carrier and the associated UTC actual payout factor. Actual payout for Mr. Pine reflects blended target bonus in light of a target bonus increase provided in 2019. Actual payout for Mr. McLevish was prorated to reflect time worked during 2019. |
Under the terms of the 2019 annual bonus program, payout factors begin at 50% of target (for threshold-level performance) and are capped at 200% of target (for maximum-level performance). There are no payouts for below threshold-level performance and at no point can the UTC Compensation Committee approve a payout factor above 200% of target.
115
For 2019, the size of the Carrier annual bonus was determined based on the performance of Carrier relative to pre-established annual performance goals at threshold, target and maximum levels for two financial metrics: earnings growth (EBIT) and free cash flow (FCF).
EBIT is defined as earnings before interest and taxes at constant currency, adjusted for restructuring, non-recurring and other significant, non-operational items, and the impact of acquisitions/divestitures and it measures the immediate impact of operating decisions on the annual performance of Carrier.
FCF is an internal measure at constant currency, and defined as consolidated net cash flow provided by operating activities, less capital expenditures, and adjusted for restructuring, non-recurring and other significant, non-operational items. FCF measures Carriers ability to generate cash to fund our operations and key business investments.
The UTC Compensation Committee believes annual bonuses should not be positively or negatively impacted by short-term decisions made in the best interest of long-term business strategies. Using non-GAAP performance measures encourages decision-making that considers long-term value creation that does not conflict with short-term incentive metrics. Adjustments for restructuring, non-recurring and other significant, non-operational items and acquisitions and divestures provides a more stable performance assessment of Carriers core business, and aligns compensation opportunities with the non-GAAP financial expectations we communicate to investors.
The actual level of achievement of the goal for each metric is included in the table below.
Metrics |
Bonus Performance Goal |
Bonus Payout Factor (as a % of target) |
Bonus Performance Result |
Bonus Actual Payout Factor |
Total Carrier Bonus Performance Multiplier |
||||||||||
EBIT |
|||||||||||||||
Threshold |
$2.845 billion |
50% |
|||||||||||||
Target |
$3.160 billion |
100% |
$2.963 billion |
69% |
|||||||||||
Maximum |
$3.475 billion |
200% |
69% |
||||||||||||
FCF |
|||||||||||||||
Threshold |
$1.695 billion |
50% |
|||||||||||||
Target |
$2.260 billion |
100% |
$1.921 billion |
70% |
|||||||||||
Maximum |
$2.825 billion |
200% |
Long-Term Incentive Awards
Each year the UTC Compensation Committee reviews the design of UTCs long-term incentive (LTI) awards to ensure consistency with the UTC programs fundamental objective of aligning the interests of UTC executives and UTC shareowners while attracting and retaining talented senior leaders. UTCs annual LTI awards are subject to three-year, service-based (and in the case of PSUs, performance-based) vesting requirements, with limited exceptions for death, disability, retirement, change-in-control and certain qualifying involuntary terminations.
116
Performance Share Units (PSUs)
UTC PSUs vest at the end of a three-year performance period if, and to the extent that, UTC achieves performance goals established by the UTC Compensation Committee. When a UTC PSU vests, it converts into one share of UTC common stock. Unvested UTC PSUs do not earn dividend equivalents. UTC PSUs are designed to deliver market median compensation at target levels of performance. Performance below or above target levels will result in payouts that differ from the market median.
Stock Appreciation Rights (SARs)
UTC SARs entitle the award recipient to receive at the time of exercise shares of UTC common stock with a market value equal to the difference between the market price of UTC common stock on the date the UTC SARs are exercised and the exercise price that was set at the grant date (i.e., the closing price of UTC common stock on the date of grant). UTC SARs vest and become exercisable after three years and expire 10 years from the grant date.
To align UTC shareowner and UTC executive interests, UTC SAR awards directly link UTC named executive officer compensation to share price appreciation. The UTC Compensation Committee believes the 10-year term of these awards incentivizes long-term shareowner value creation.
Special Equity-Based Awards
The UTC Compensation Committee also may, from time to time, approve special equity grants for purposes such as recruitment, retention and recognition, or to drive the achievement of specific strategic performance goals. These special grants may be in the form of UTC PSUs, UTC SARs, UTC restricted stock units (RSUs), UTC restricted stock or UTC performance-based SARs.
Treatment of LTI Awards in Connection with the Distribution
For a description of the adjustments that are expected to be made to outstanding UTC LTI awards, including those held by Carrier named executive officers, in connection with the distribution, see The Separation and Distribution—Treatment of Equity-Based Compensation.
2019 LTI Awards for Carrier Named Executive Officers
For 2019, the target grant date value of UTC annual LTI awards granted to each Carrier named executive officer is set forth in the table below. The 2019 Annual LTI Award value, which is the approved value, varies from the total amount reported in the Summary Compensation table under Stock Awards and Option Awards because UTC uses a 30-day average closing price of UTC common stock in determining the number of shares to be awarded.
Named Executive Officer
|
2019 Annual LTI Award
|
David Gitlin, President and Chief Executive Officer(1)
|
$4,100,000
|
Timothy McLevish, Chief Financial Officer(2)
|
N/A
|
Christopher Nelson, President, HVAC Commercial(1)
|
$1,600,000
|
Jurgen Timperman, President, Fire & Security(1)
|
$1,050,000
|
Matthew Pine, President, HVAC Residential(3)
|
$500,000
|
(1) | Reflects annual LTI awards in the form of 50% UTC PSUs and 50% UTC SARs, which are subject to UTC’s standard schedule of terms, including a three-year vesting requirement. |
(2) | Mr. McLevish joined Carrier in September 2019 and therefore did not receive any 2019 annual LTI awards. |
(3) | Reflects annual LTI awards in the form of 50% UTC SARs, 30% UTC PSUs and 20% UTC RSUs, which are subject to UTC’s standard schedule of terms, including a three-year vesting requirement. |
The number of UTC RSUs, UTC PSUs and UTC SARs awarded pursuant to an annual LTI award is determined based on the 30-day average of UTCs closing stock price prior to the grant date. This method stabilizes the impact of potential volatility of UTCs stock price on the date of grant. However, because the award value is ultimately determined based on the closing price of UTC common stock on the grant date and other accounting valuation assumptions, the value approved by the UTC Compensation Committee differs from the grant date fair value shown in the Summary Compensation Table.
117
The terms of the UTC PSU awards granted to our named executive officers in 2019 provide for vesting based on performance relative to earnings per share (EPS) and return on invested capital (ROIC) goal (each weighted at 35%) and a relative total shareowner return (TSR) goal (weighted at 30%). To allow performance to be measured at the time of the distribution, at its February 2019 meeting, the UTC Compensation Committee set three annual EPS growth goals (with underlying quarterly assumptions) for the 2019 PSU award. This differs from UTCs historical practice of setting a three-year EPS compound annual growth rate goal. ROIC and TSR goals continue to be measured relative to a three-year performance period. Vesting occurs following the three-year performance period and payouts can range from 8% of target if threshold performance is achieved for the least weighted metric (relative TSR) to a maximum payout of 200% if maximum performance is achieved for all three metrics. If UTCs three-year TSR is negative, the payout for the TSR portion of the award is capped at 100% regardless of UTCs relative TSR performance versus the companies within the S&P 500.
Other LTI Awards Granted to Carrier Named Executive Officers in 2019
In addition to the 2019 annual LTI awards described above, the following UTC LTI awards were granted to Carrier named executive officers in 2019:
• | Mr. McLevish received a sign-on equity award with a target value of $4,000,000, in the form of 25% RSUs and 75% SARs, which are subject to UTC’s standard schedule of terms, including a three-year vesting requirement, except that the awards also vest upon a termination of Mr. McLevish’s employment without cause or Mr. McLevish’s retirement (defined as termination of employment on or after age 65) on or after October 31, 2021. |
• | Messrs. Nelson, Timperman and Pine each received a one-time time equity award with a target grant date value of $3,000,000, with 50% in the form of UTC RSUs and 50% in the form of UTC SARs, which will vest three years from the grant date. |
118
OTHER UTC COMPENSATION ARRANGEMENTS
UTC Retirement and Deferred Compensation Benefits
UTCs retirement and deferred compensation plans help UTC attract and retain talented executives. Over the years, the UTC Compensation Committee has updated these programs to maintain a competitive position within an evolving market. UTC believes the overall design of its retirement and deferred compensation programs is currently consistent with compensation practices in the marketplace and provides participating executives with benefits that approximate the UTC CPG market median.
Below are brief descriptions of each retirement and deferred compensation arrangement offered by UTC.
Plan
|
Description
|
UTC Pension Plan
|
A tax-qualified defined benefit pension plan that provides retirement benefits to employees hired prior to January 1, 2010. Effective December 31, 2014, participants hired prior to July 1, 2002, who had been covered by a final average earnings formula of this plan transitioned to a cash balance formula, which was already in effect for participants hired on or after July 1, 2002. Under the cash balance formula, participants earn two types of credits—pay credits and interest credits. Effective December 31, 2019, this plan was frozen, other than with respect to interest credits on cash balance accounts in the plan and active participants who were previously eligible for cash balance benefits under this plan became eligible for equivalent age-based contributions under the UTC Employee Savings Plan.
|
|
|
UTC Pension Preservation Plan
|
An unfunded, nonqualified defined benefit pension plan that mirrors the benefit formula, compensation recognition, retirement eligibility and vesting provisions of the tax-qualified UTC Pension Plan. For employees hired prior to January 1, 2010, it provides pension benefits not provided under the tax-qualified pension plan because of Internal Revenue Code limits. Effective December 31, 2019, this plan was frozen, other than with respect to interest credits on cash balance accounts in the plan and active participants who were previously eligible for cash balance benefits became eligible for equivalent age-based contributions under the UTC Company Automatic Contribution Excess Plan.
|
|
|
UTC Employee Savings Plan
|
A tax-qualified defined contribution plan where employees receive a matching contribution in the form of UTC stock units with a value equal to 60% of the first 6% of pay (consisting of base salary plus annual bonus) contributed by the employee. Salaried employees hired on or after January 1, 2010, receive an additional age-based company contribution (ranging from 3% to 5.5% of earnings) to their UTC Employee Savings Plan account. Effective January 1, 2020, salaried employees hired prior to January 1, 2010, who previously participated in the UTC Pension Plan now receive additional age-based Company contributions (ranging from 3% to 8% of earnings), an amount equivalent to the cash balance benefits previously provided under UTC’s pension plans.
|
|
|
UTC Savings Restoration Plan
|
An unfunded, nonqualified plan that permits eligible employees to defer up to 6% of their compensation to the extent such compensation exceeds the Internal Revenue Code compensation limit applicable to the qualified UTC Employee Savings Plan. UTC provides matching contributions in the form of UTC stock units at the same rate (60% of the 6% of pay) that would have been provided in the UTC Employee Savings Plan, if not for Internal Revenue Code limits.
|
|
|
|
|
UTC Company Automatic Contribution Excess Plan
|
An unfunded, nonqualified plan in which eligible employees may receive an age-based company automatic contribution for amounts above the Internal Revenue Code limits applicable to the qualified UTC Employee Savings Plan. For employees hired on or after January 1, 2010, these age-based contributions range from 3% to 5.5% of earnings. Beginning January 1, 2020, employees hired prior to January 1, 2010, who previously participated in UTC’s pension plans, now receive company contributions ranging from 3% to 8% of earnings. The plan also provides missed matching contributions for employees whose contributions to the UTC Employee Savings Plan are limited by the Internal Revenue Code’s contribution limits.
|
|
|
UTC Deferred Compensation Plan
|
An unfunded, nonqualified, deferred compensation plan that allows UTC executives the opportunity to defer up to 50% of base salary and up to 70% of annual bonus.
|
|
|
UTC PSU Deferral Plan
|
An unfunded, nonqualified, deferred compensation plan that allows UTC executives to defer between 10% and 100% of their vested PSU awards. Upon vesting, the deferred portion of each UTC PSU award is converted into UTC deferred stock units that accrue dividend equivalents.
|
119
UTC Perquisites and Other Benefits
UTC provides the following benefits to UTCs senior executives, which the UTC Compensation Committee believes are consistent with market practice and contributes to recruitment and retention. UTC has also historically provided certain personal aircraft usage and security arrangements that are not described below because they apply exclusively to UTCs Chief Executive Officer.
Perquisite/Benefits
|
Description
|
UTC ELG Life Insurance
|
UTC ELG members appointed prior to January 31, 2015, may receive company-funded life insurance coverage up to three times their base salary at age 62 (projected or actual). This benefit is not available to any of the Carrier named executive officers other than Mr. Gitlin.
|
|
|
UTC ELG Long-Term Disability
|
The UTC ELG long-term disability program provides an annual benefit upon disability that is equal to 80% of base salary plus target annual bonus.
|
|
|
Healthcare
|
UTC ELG members are eligible to participate in the same health benefit program offered to other employees.
|
|
|
Executive Physical
|
UTC ELG members are eligible for a comprehensive annual executive physical.
|
|
|
Executive Leased Vehicle
|
UTC provides UTC ELG members with an annual allowance toward the costs of a leased vehicle. For UTC ELG members, the value of the allowance varies by UTC ELG appointment date. Any costs above the annual allowance are generally paid directly by the UTC executive.
|
|
|
Financial Planning
|
UTC ELG members are eligible to receive an annual financial planning benefit.
|
UTC Succession Planning
On an annual basis, UTCs Chairman & Chief Executive Officer and UTCs Executive Vice President & Chief Human Resources Officer provide the UTC Board of Directors with information about the succession planning for key senior leadership roles, including the UTC Chief Executive Officer. Succession plans include a readiness assessment, biographical information and future career development plans. The UTC Board of Directors views are incorporated into succession plans, which are updated annually based on this feedback. Carrier anticipates following a similar methodology.
UTC Post-Employment Restrictive Covenants
UTC senior executives and UTC ELG members may not engage in activities after termination or retirement that are detrimental to UTC, such as disclosing proprietary information, soliciting UTC employees or engaging in competitive activities. Violations can result in a clawback of annual and LTI awards. These restrictions will also apply to Carrier senior executives and ELG members following the distribution.
UTC Clawback Policy
UTC has a comprehensive policy on recoupment (clawback) of executive compensation, which applies to both UTCs annual and LTI compensation programs. In the event of a financial restatement or recalculation of a financial metric applicable to an award, UTC has the right to recover annual bonus payments and gains realized from vested LTI awards from any UTC executive (including UTC named executive officers) involved in activities that caused the restatement or recalculation. Clawbacks of bonuses, LTI awards and compensation realized from prior awards also may be triggered by violations of UTCs Code of Ethics, failure to meet employee health and safety standards, violations of post-employment restrictive covenants or the exposure of UTC to excessive risk as determined under our Enterprise Risk Management program. In addition, UTC has the right to recover compensation when a UTC executives negligence (including negligent supervision of a subordinate) causes significant harm to UTC. If required or otherwise appropriate, UTC may publicly disclose the circumstances surrounding the UTC Compensation Committees decision to seek recoupment. Carrier will also have these clawback rules following the distribution.
120
No Short Sales, Pledging or Hedging of UTC Securities and No Underwater Option Buyouts
UTC prohibits directors, officers and employees from entering into transactions involving short sales of UTC securities. Further, directors and executive officers are prohibited from pledging or assigning an interest in UTC common stock, stock options or other equity interests as collateral for a loan. Transactions in put options, call options or other derivative securities that have the effect of hedging the value of UTC securities also are prohibited, whether or not those securities were granted to or held, directly or indirectly, by a director, officer or employee. Carrier will have the same prohibitions following the distribution.
Tax Deductibility of UTC Incentive Compensation
To the extent consistent with other compensation objectives, the UTC Compensation Committee has sought to minimize UTCs compensation-related tax burden. Section 162(m) of the Code limits UTCs deduction to $1 million for annual compensation paid to its covered employees, as defined in section 162(m).
121
GOING FORWARD CARRIER COMPENSATION ARRANGEMENTS
Overview
Immediately after the distribution, Carriers executive compensation program will be similar to UTCs executive compensation program, and will generally be comprised of base salary, an annual performance-based bonus, annual LTI awards and limited executive perquisites.
In connection with the separation, Carrier generally expects to adopt compensation and benefit plans, including deferred compensation, retirement plans and supplemental retirement plans, that are similar to those in effect at UTC before the separation, except that Carrier will not adopt a plan that is similar to the UTC Pension Plan. Carrier will also adopt an annual bonus plan and change in control severance plan, each as described below, and the 2020 Long-Term Incentive Plan (which is described in this information statement under the heading Carrier Global Corporation 2020 Long-Term Incentive Plan). In addition, Carriers executive compensation philosophy and practices will initially mirror those at UTC. Following the distribution, the Compensation Committee of the Board Carrier Compensation Committee will consider and develop Carriers compensation programs, plans, philosophy and practices, consistent with Carriers business needs and goals.
Carrier Compensation Consultant and Peer Group
In anticipation of the separation, Pearl Meyer has been retained by the UTC Compensation Committee to serve as the initial compensation consultant to the Carrier Compensation Committee commencing on the distribution. However, after the distribution, the Carrier Compensation Committee will review and determine whether to continue to engage Pearl Meyer as its compensation consultant.
Also in anticipation of the separation, the UTC Compensation Committee has approved an initial Compensation Peer Group for Carrier consisting of the following companies: 3M Co., Cummins Inc., Danaher Corp., Dover Corp., Eaton Corp. plc, Emerson Electric Co., Fortive Corp., Honeywell International Inc., Illinois Tool Works Inc., Ingersoll-Rand Plc, Johnson Controls International Inc., Lear Corp., Parker-Hannifin Corp., Rockwell Automation, Inc., Stanley Black & Decker, Inc., TE Connectivity Ltd., Western Digital Corp and Whirlpool Corp. These companies were selected based on the following criteria: similarity to Carrier in size, geographic footprint and operational complexity, taking into account factors such as revenue, market capitalization, global scope of operations, manufacturing footprint and research and development activities. Although the Compensation Peer Group after the distribution will be determined by the Carrier Compensation Committee and its compensation consultant, it is expected that the Carrier Compensation Peer Group described above will be considered in Carriers initial executive compensation decisions.
Compensation Arrangements with Carrier Named Executive Officers
UTC entered into an offer letter with Timothy McLevish, the Chief Financial Officer of Carrier, in connection with his commencement of employment on September 30, 2019. The offer letter provides for an annual compensation package consisting of a base salary of $800,000, a target annual bonus award of 100% of base salary (prorated for 2019) and an annual equity award generally consisting of RSUs, SARs and PSUs, with a target 2020 annual equity award opportunity of $3,500,000. In addition, the offer letter provides for a sign-on equity award valued at $4,000,000, in the form of 25% RSUs and 75% SARs, which vests after three years of employment or, if earlier, upon a termination of Mr. McLevishs employment without cause or Mr. McLevishs retirement (defined as termination of employment on or after age 65) on or after October 31, 2021. The offer letter also provides for a relocation benefits package in connection with Mr. McLevishs relocation to Palm Beach Gardens, Florida.
Carrier Executive Annual Bonus Plan
It is expected that Carrier will adopt an executive annual bonus plan to become effective upon, and subject to, the occurrence of the distribution. The eligible participants under the annual bonus plan would include the named executive officers of Carrier.
Pursuant to the bonus plan, each Carrier named executive officer will be eligible for a discretionary bonus payable based on the achievement of performance goals established by the Carrier Compensation Committee based on financial, operational, strategic performance measures, individual performance measures and/or such
122
other measures as may be determined by the Carrier Compensation Committee. The performance period under the bonus plan will be Carriers fiscal year, unless otherwise designated by the Carrier Compensation Committee. Each bonus paid under the plan will be in the form of cash or, at the discretion of the Carrier Compensation Committee, restricted stock or restricted stock units.
Upon a change in control (as defined in the bonus plan) of Carrier, each named executive officer will be entitled to receive a prorated bonus for the portion of the performance period that ends on the change in control, which payment shall be based on the greater of (1) the officers target bonus for the performance period and (2) the officers bonus based on the Carrier Compensation Committees determination of the actual level of achievement of the applicable performance goals prior to the change in control and projecting such performance to the end of the performance period.
Carrier Change in Control Severance Plan
Carrier will adopt a change in control severance plan to become effective upon, and subject to, the occurrence of the distribution. The eligible participants under the severance plan would include the named executive officers of Carrier and its other executives.
Pursuant to the severance plan, any Carrier named executive officer who is terminated without cause or resigns for good reason on, or within the two years following, a change in control (as defined in the severance plan) of Carrier, would be entitled to receive (subject to the officers execution of a release of claims in favor of Carrier and agreement to a one-year post-termination noncompetition covenant and a two-year post-termination non-solicitation covenant):
• | a lump sum cash severance payment equal to three times (for the Chief Executive Officer) or two times (for the other named executive officers) the sum of (a) the officer’s annual base salary and (b) the officer’s target annual bonus; |
• | a prorated target annual bonus for the year of termination (reduced by any annual bonus payment to which the named executive officer is entitled for the same period of service); |
• | up to 12 months of healthcare benefit coverage continuation at no premium cost to the officer; |
• | outplacement services for 12 months; and |
• | continued financial planning services for 12 months. |
The severance plan provides that, in the event that the payments and benefits to a named executive officer in connection with a change in control, whether pursuant to the severance plan or otherwise, would be subject to the golden parachute excise tax imposed under Sections 280G and 4999 of the Code, then the officer will either receive all such payments and benefits and pay the excise tax, or such payments and benefits will be reduced to the extent necessary so that the excise tax does not apply, whichever approach results in a higher after-tax amount of the payments and benefits being retained by the officer.
Named Executive Officer Share Ownership Requirements
Each Carrier named executive officer will be required to own Carrier common stock (including RSUs and notional shares credited under Carriers supplemental retirement and deferred compensation plans, but excluding stock options, SARs and unvested PSUs) with a value equal to six times (for the Chief Executive Officer), four times (for the Chief Financial Officer and each other named executive officer who is a president of a unit), or three times (for each other named executive officer) the officers base salary. Named executive officers must achieve the required stock ownership level within five years after the ownership requirement first applies to them. If the ownership requirement is not met after this five-year period, then the named executive officer is not permitted to sell shares of Carrier until achieving the required ownership level.
123
Summary Compensation Table
Named Executive Officer |
Year |
Salary ($) |
Bonus ($)(1) |
Stock Awards ($)(2) |
Option Awards ($)(3) |
Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)(4) |
All Other Compensation ($)(5) |
Total ($) |
Total Without Change in Pension Value ($) |
||||||||||||||||||
David Gitlin, President and Chief Executive Officer |
2019 | 966,667 | 1,200,000 | 2,150,799 | 2,066,540 | 969,211 | 386,063 | 7,739,280 | 6,770,069 | ||||||||||||||||||
2018 | 900,000 | 1,300,000 | 2,950,834 | 1,051,810 | — | 239,548 | 6,442,192 | 6,442,192 | |||||||||||||||||||
2017 | 812,500 | 1,100,000 | 6,855,052 | 943,250 | 385,996 | 181,970 | 10,278,768 | 9,892,772 | |||||||||||||||||||
Timothy McLevish, Vice President and Chief Financial Officer |
2019 | 203,030 | 165,000 | 1,000,080 | 2,793,945 | — | 18,275 | 4,180,330 | 4,180,330 | ||||||||||||||||||
Christopher Nelson, President, HVAC Commercial |
2019 | 593,750 | 350,000 | 2,346,684 | 2,202,364 | 205,153 | 98,531 | 5,796,482 | 5,591,329 | ||||||||||||||||||
Jurgen Timperman, President, Fire & Security |
2019 | 492,500 | 300,000 | 2,052,859 | 1,927,504 | — | 271,144 | 5,044,007 | 5,044,007 | ||||||||||||||||||
Matthew Pine, President, HVAC Residential |
2019 | 405,417 | 210,000 | 1,901,672 | 1,524,376 | — | 86,239 | 4,127,704 | 4,127,704 |
(1) | Bonus. Cash bonuses provided under the UTC Annual Executive Incentive Compensation Plan. Payments are primarily based on the achievement of pre-established goals. However, the UTC Compensation Committee retains discretion to adjust annual bonus amounts based on its assessment of overall performance. Consequently, annual bonuses are reported in the Bonus column rather than in the Non-Equity Incentive Plan Compensation column. For Mr. McLevish, the amount shown reflects a prorated bonus paid for the period between his date of hire (September 30, 2019) and the end of the calendar year. |
(2) | Stock Awards. Grant date fair value of UTC PSUs and UTC RSUs, calculated in accordance with the FASB ASC Topic 718, but excluding the effect of estimated forfeitures. The assumptions made in calculating the fair value of these awards are set forth in Note 12 to the Combined Financial Statements. PSU awards are discussed in footnote 2 of the Grants of Plan-Based Awards table. The grant date fair values shown for PSU awards granted in 2019 to our named executive officers assume target-level performance. If the highest level of performance is achieved, the grant date fair values would be: Mr. Gitlin, $3,588,722; Mr. Nelson, $1,411,956; Mr. Timperman, $921,694; and Mr. Pine, $262,781. |
(3) | Option Awards. Grant date fair value of UTC SARs, calculated in accordance with the FASB ASC Topic 718, but excluding the effect of estimated forfeitures. The assumptions made in the valuation of these awards are set forth in Note 12 to the Combined Financial Statements. |
(4) | Change in Pension Value and Nonqualified Deferred Compensation Earnings. The amounts in this column reflect the change, if any, in the year-over-year actuarial present value of each executive’s accrued benefit under UTC’s defined benefit plans. Actuarial value computations are based on the assumptions disclosed in the Pension Benefits table. |
(5) | All Other Compensation. The 2019 amounts in this column consist of the following items: |
124
All Other Compensation
Name |
Leased Vehicle Payments(a) ($) |
Insurance Premiums(b) ($) |
401(k) Plan Company Match(c) ($) |
Company Contributions to Nonqualified Deferred Compensation Plans(d) ($) |
Relocation Benefits(e) ($) |
Financial Planning(f) ($) |
Healthcare Benefits(g) ($) |
Miscellaneous ($) |
Total ($) |
||||||||||||||||||
D. Gitlin |
33,289 | 63,604 | 10,080 | 71,520 | 168,289 | 16,000 | 22,278 | 1,003 | 386,063 | ||||||||||||||||||
T. McLevish |
— | — | 2,750 | 3,667 | 5,085 | 3,567 | 3,206 | — | 18,275 | ||||||||||||||||||
C. Nelson |
21,933 | — | 10,080 | 30,015 | — | 16,000 | 18,632 | 1,871 | 98,531 | ||||||||||||||||||
J. Timperman |
22,720 | — | 24,080 | 52,675 | 139,868 | 12,956 | 18,388 | 457 | 271,144 | ||||||||||||||||||
M. Pine |
21,438 | — | 24,080 | 20,520 | — | — | 20,201 | — | 86,239 |
(a) | Annual costs incurred by UTC in connection with a leased vehicle provided to the executive. |
(b) | Premiums paid on behalf of the executive under the ELG life insurance program. This benefit was eliminated for ELG members appointed after January 31, 2015, thereby excluding all but Mr. Gitlin. Under this plan, UTC pays the premiums on a cash value life insurance contract owned by the executive. Life insurance benefits equal up to three times the executive's actual or projected base salary at age 62. Once vested (age 55 or older with three years of service as an ELG member), UTC funds the policy to maintain coverage following retirement. |
(c) | Dollar value of company matching contributions made into the UTC Employee Savings Plan, which includes an additional company automatic contribution for employees hired on or after January 1, 2010 (e.g., Messrs. McLevish, Timperman and Pine) who do not participate in UTC's pension plans, which were closed to new participants. |
(d) | Dollar value of company contributions to the UTC Savings Restoration Plan (SRP) and the UTC Company Automatic Contribution Excess Plan (CACEP). Under the SRP, participants are credited with a benefit equal to the company matching contribution that the executive did not receive under the UTC Employee Savings Plan due to Internal Revenue Code limits. For executives hired on or after January 1, 2010, including Messrs. McLevish, Timperman and Pine, the CACEP provides an additional age-based company automatic contribution for compensation earned over Internal Revenue Code limits. |
(e) | Costs associated with relocation expenses, which includes a tax reimbursement payment of $47,264 for Mr. Gitlin and a tax equalization payment of $116,668 for Mr. Timperman. |
(f) | Costs associated with a financial planning benefit available to ELG members. |
(g) | Costs incurred by the company associated with annual executive physicals and broad-based company-covered healthcare benefits. |
Named Executive Officer |
Grant Date(1) |
Estimated Future Payouts under Equity Incentive Plan Awards(2) |
All Other Stock Awards: Number of Shares of Stock or Units (#)(3) |
All Other Option Awards: Number of Securities Underlying Options (#)(4) |
Exercise or Base Price of Option Awards ($/Sh)(5) |
Grant Date Fair Value of Stock and Option Awards(6) ($) |
||||||||||||||||||
Threshold (#) |
Target (#) |
Maximum (#) |
||||||||||||||||||||||
D. Gitlin |
2/5/2019 | 1,464 | 18,300 | 36,600 | — | — | — | 2,150,799 | ||||||||||||||||
2/5/2019 | — | — | — | — | 101,500 | 120.77 | 2,066,540 | |||||||||||||||||
T. McLevish |
10/1/2019 | (7) |
— | — | — | 7,475 | — | — | 1,000,080 | |||||||||||||||
10/1/2019 | (7) |
— | — | — | — | 123,900 | 133.79 | 2,793,945 | ||||||||||||||||
C. Nelson |
2/5/2019 | 576 | 7,200 | 14,400 | — | — | — | 846,216 | ||||||||||||||||
6/14/2019 | (8) |
— | — | — | 11,975 | — | — | 1,500,468 | ||||||||||||||||
2/5/2019 | — | — | — | — | 39,500 | 120.77 | 804,220 | |||||||||||||||||
6/14/2019 | (8) |
— | — | — | — | 66,200 | 125.30 | 1,398,144 | ||||||||||||||||
J. Timperman |
2/5/2019 | 376 | 4,700 | 9,400 | — | — | — | 552,391 | ||||||||||||||||
6/14/2019 | (8) |
— | — | — | 11,975 | — | — | 1,500,468 | ||||||||||||||||
2/5/2019 | — | — | — | — | 26,000 | 120.77 | 529,360 | |||||||||||||||||
6/14/2019 | (8) |
— | — | — | — | 66,200 | 125.30 | 1,398,144 | ||||||||||||||||
M. Pine |
2/5/2019 | 107 | 1,340 | 2,680 | — | — | — | 157,490 | ||||||||||||||||
2/5/2019 | — | — | — | 2,018 | — | — | 243,714 | |||||||||||||||||
6/14/2019 | (8) |
— | — | — | 11,975 | — | — | 1,500,468 | ||||||||||||||||
2/5/2019 | — | — | — | — | 6,200 | 120.77 | 126,232 | |||||||||||||||||
6/14/2019 | (8) |
— | — | — | — | 66,200 | 125.30 | 1,398,144 |
(1) | The UTC Compensation Committee approved the 2019 annual LTI awards at its February 1, 2019 meeting, specifying the February 5, 2019 grant date. |
125
(3) | Number of UTC RSUs, which vest three years from the grant date, subject to continued service with the company except in certain limited circumstances described in the footnotes to the Potential Payments on Termination or Change-in-Control table. Each UTC RSU corresponds to one share of UTC common stock. When UTC pays a dividend to shareholders, UTC RSUs earn dividend equivalents during the vesting period that are reinvested as additional UTC RSUs. The reinvested UTC RSUs vest on the same date as the underlying UTC RSUs. |
(4) | Number of UTC SARs, which vest and become exercisable three years from the grant date, subject to continued service with the company except in certain limited circumstances described in the footnotes to the Potential Payments on Termination or Change-in-Control table. |
(5) | The UTC SAR exercise price equals the closing price of UTC common stock on the grant date. |
(6) | Grant date fair value of awards granted in 2019, with vesting assumed at 100% of target for performance-based awards. Values are calculated in accordance with the FASB ASC Topic 718, but excluding the effect of estimated forfeitures. |
(7) | In connection with his hire, Mr. McLevish received UTC RSU and UTC SAR awards on October 1, 2019. These awards vest three years from the grant date, subject to continued service with the company except in certain limited circumstances described in the footnotes to the Potential Payments on Termination or Change-in-Control table. RSUs earn dividend equivalents during the vesting period that are reinvested as additional UTC RSUs each time UTC pays a dividend to shareowners. The reinvested UTC RSUs vest on the same date as the underlying UTC RSUs. |
(8) | Messrs. Nelson, Pine and Timperman each received retention UTC RSU and SAR awards on June 14, 2019, which vest three years from the grant date subject to the executive's continued employment, except in certain limited circumstances described in the footnotes to the Potential Payments on Termination or Change-in-Control table. UTC RSUs earn dividend equivalents during the vesting period that are reinvested as additional UTC RSUs each time UTC pays a dividend to shareowners. The reinvested UTC RSUs vest on the same date as the underlying UTC RSUs. |
Outstanding Equity Awards At Fiscal Year-End
Option Awards |
Stock Awards |
|||||||||||||||||||||||||||||
Name |
Grant Date |
Number of Securities Underlying Unexercised Options (#) Exercisable |
Number of Securities Underlying Unexercised Options (#) Unexercisable |
Number of Securities Underlying Unexercised Unearned Options (#) |
Option Exercise Price ($)(1) |
Option Expiration Date |
Number of Shares or Units of Stock That Have Not Vested (#)(2) |
Market Value of Shares or Units of Stock That Have Not Vested ($)(3) |
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)(4) |
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(5) |
||||||||||||||||||||
D. Gitlin |
2/5/2019 | — | 101,500 | (6) |
— | 120.77 | 2/4/2029 | — | — | 36,600 | 5,481,216 | |||||||||||||||||||
1/2/2018 | — | 53,500 | (7) |
— | 128.16 | 1/1/2028 | 6,793 | (10) |
1,017,320 | 32,200 | 4,822,272 | |||||||||||||||||||
10/11/2017 | — | — | — | — | — | 35,737 | (13) |
5,351,973 | — | — | ||||||||||||||||||||
1/3/2017 | — | 55,000 | (8) |
— | 110.83 | 1/2/2027 | 7,917 | (11) |
1,185,650 | 20,862 | 3,124,293 | |||||||||||||||||||
1/4/2016 | 79,000 | — | — | 95.57 | 1/3/2026 | — | — | — | — | |||||||||||||||||||||
1/2/2015 | 46,000 | — | — | 115.04 | 1/1/2025 | — | — | — | — | |||||||||||||||||||||
1/2/2014 | 24,500 | — | — | 112.49 | 1/1/2024 | — | — | — | — | |||||||||||||||||||||
11/12/2013 | — | — | — | — | — | 16,104 | (12) |
2,411,735 | — | — | ||||||||||||||||||||
1/2/2013 | 18,900 | — | — | 84.00 | 1/1/2023 | — | — | — | — | |||||||||||||||||||||
8/1/2012 | 45,036 | — | — | 74.79 | 7/31/2022 | — | — | — | — | |||||||||||||||||||||
T. McLevish |
10/1/2019 | — | 123,900 | (15) |
— | 133.79 | 9/30/2029 | 7,475 | (15) |
1,119,456 | — | — | ||||||||||||||||||
C. Nelson |
6/14/2019 | — | 66,200 | (14) |
— | 125.30 | 6/13/2029 | 12,101 | (14) |
1,812,246 | — | — | ||||||||||||||||||
2/5/2019 | — | 39,500 | (6) |
— | 120.77 | 2/4/2029 | — | — | 14,400 | 2,156,544 | ||||||||||||||||||||
1/2/2018 | — | 21,000 | (7) |
— | 128.16 | 1/1/2028 | 2,612 | (10) |
391,173 | 12,600 | 1,886,976 | |||||||||||||||||||
6/15/2017 | — | — | — | — | — | 17,522 | (16) |
2,624,095 | — | — | ||||||||||||||||||||
1/3/2017 | — | 21,000 | (8) |
— | 110.83 | 1/2/2027 | 2,995 | (11) |
448,531 | 7,866 | 1,178,012 | |||||||||||||||||||
6/1/2015 | — | — | — | — | — | 9,510 | (12) |
1,424,218 | — | — | ||||||||||||||||||||
J. Timperman |
6/14/2019 | — | 66,200 | (14) |
— | 125.30 | 6/13/2029 | 12,101 | (14) |
1,812,246 | — | — | ||||||||||||||||||
2/5/2019 | — | 26,000 | (6) |
— | 120.77 | 2/4/2029 | — | — | 9,400 | 1,407,744 | ||||||||||||||||||||
1/2/2018 | — | 11,500 | (7) |
— | 128.16 | 1/1/2028 | 1,463 | (10) |
219,099 | 7,000 | 1,048,320 | |||||||||||||||||||
10/16/2017 | — | — | — | — | — | 8,944 | (12) |
1,339,453 | — | — | ||||||||||||||||||||
10/2/2017 | — | — | — | — | — | 4,468 | (17) |
669,128 | — | — | ||||||||||||||||||||
1/3/2017 | — | 6,400 | (8) |
— | 110.83 | 1/2/2027 | 2,444 | (11) |
366,013 | 1,756 | 262,979 | |||||||||||||||||||
10/1/2013 | — | — | — | — | — | 937 | (17) |
140,325 | — | — |
126
Option Awards |
Stock Awards |
|||||||||||||||||||||||||||||
Name |
Grant Date |
Number of Securities Underlying Unexercised Options (#) Exercisable |
Number of Securities Underlying Unexercised Options (#) Unexercisable |
Number of Securities Underlying Unexercised Unearned Options (#) |
Option Exercise Price ($)(1) |
Option Expiration Date |
Number of Shares or Units of Stock That Have Not Vested (#)(2) |
Market Value of Shares or Units of Stock That Have Not Vested ($)(3) |
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)(4) |
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(5) |
||||||||||||||||||||
M. Pine |
6/14/2019 | — | 66,200 | (14) |
— | 125.30 | 6/13/2029 | 12,101 | (14) |
1,812,246 | — | — | ||||||||||||||||||
2/5/2019 | — | 6,200 | (6) |
— | 120.77 | 2/4/2029 | 2,062 | (9) |
308,805 | 2,680 | 401,357 | |||||||||||||||||||
1/2/2018 | — | 4,500 | (7) |
— | 128.16 | 1/1/2028 | 1,521 | (10) |
227,785 | 1,960 | 293,530 | |||||||||||||||||||
1/3/2017 | — | 2,600 | (8) |
— | 110.83 | 1/2/2027 | 1,219 | (11) |
182,557 | 479 | 71,735 | |||||||||||||||||||
11/1/2016 | — | — | — | — | — | 1,850 | (18) |
277,056 | — | — |
(1) | The exercise price of each UTC SAR equaled the closing price of UTC common stock on the grant date. |
(2) | UTC RSUs, which include dividend equivalents (if applicable), earned during the vesting period that are reinvested as additional UTC RSUs each time UTC pays a dividend to shareowners. The reinvested UTC RSUs vest on the same date as the underlying UTC RSUs. |
(3) | Calculated by multiplying the number of unvested UTC RSUs by $149.76, the NYSE closing price of UTC common stock on the last trading day of 2019. |
(4) | UTC PSUs that are subject to vesting contingent on company performance relative to pre-established performance goals measured over a three-year period and the executive’s continued employment, except in certain limited circumstances as detailed in footnotes to the Potential Payments on Termination or Change-In-Control Tables. The number of shares shown with respect to UTC PSU awards granted in 2018 and 2019 assumes maximum-level performance, based on vesting estimates as of December 31, 2019. The number of shares shown for the 2017 UTC PSU awards reflect vesting at 114% of target based on actual performance through December 31, 2019. The service condition for this award was satisfied on January 3, 2020. |
(5) | Calculated by multiplying the number of unvested 2019 and 2018 PSUs and the number of vested 2017 PSUs by the NYSE closing price of UTC common stock on the last trading day of 2019. |
(6) | UTC SARs scheduled to vest on February 5, 2022, subject to the executive's continued employment, except in certain limited circumstances as described the footnotes to the Potential Payments on Termination or Change-in-Control table. |
(7) | UTC SARs scheduled to vest on January 2, 2021, subject to the executive's continued employment, except in certain limited circumstances as described the footnotes to the Potential Payments on Termination or Change-in-Control table. |
(8) | UTC SARS that vested on January 3, 2020. |
(9) | UTC RSUs scheduled to vest on February 5, 2022, subject to the executive's continued employment, except in certain limited circumstances described the footnotes to the Potential Payments on Termination or Change-in-Control table. These UTC RSU awards earn dividend equivalents during the vesting period, which vest at the same time as the underlying UTC RSUs. |
(10) | UTC RSUs scheduled to vest on January 2, 2021, subject to the executive's continued employment, except in certain limited circumstances described the footnotes to the Potential Payments on Termination or Change-in-Control table. These UTC RSU awards earn dividend equivalents during the vesting period, which vest at the same time as the underlying UTC RSUs. |
(11) | UTC RSUs scheduled to vest on January 3, 2020, subject to the executive’s continued employment, except in certain limited circumstances described the footnotes to the Potential Payments on Termination or Change-in-Control table. These UTC RSU awards earn dividend equivalents during the vesting period, which vest at the same time as the underlying UTC RSUs. |
(12) | ELG RSUs granted upon the executive's appointment to the ELG, which vest in the event of a mutually agreeable separation following three years of ELG service or upon death, disability or qualified termination following a change-in-control. These UTC RSU awards earn dividend equivalents during the vesting period, which vest at the same time as the underlying UTC RSUs. |
(13) | Retention RSU award granted to Mr. Gitlin, which will vest on October 11, 2020, subject to continued employment or earlier in the case of death, disability or qualifying termination following a change-in-control. This UTC RSU award earns dividend equivalents during the vesting period, which vest at the same time as the underlying UTC RSUs. |
(14) | Special Retention UTC SAR and UTC RSU awards granted to Messrs. Nelson, Timperman and Pine, which will vest on June 14, 2022, subject to continued employment or earlier in the case of death, disability or qualifying termination following a change-in-control. The UTC RSU awards earn dividend equivalents during the vesting period, which vest at the same time as the underlying UTC RSUs. |
(15) | UTC SAR and UTC RSU awards granted to Mr. McLevish in connection with his hire, which will vest on October 1, 2022, subject to continued employment or earlier in the case of death, disability, retirement (on or after October 31, 2021), involuntary termination (other than for cause) or qualifying termination after a change-in-control. The UTC RSU award earns dividend equivalents during the vesting period, which vest at the same time as the underlying UTC RSUs. |
(16) | Retention UTC RSU award granted to Mr. Nelson, which will vest on June 15, 2021, subject to continued employment or earlier in the case of death, disability or qualifying termination following a change-in-control. This UTC RSU award earns dividend equivalents during the vesting period, which vest at the same time as the underlying UTC RSUs. |
(17) | Retention UTC RSU award granted on October 1, 2013 and Chairman's UTC RSU award granted to Mr. Timperman on October 2, 2017, which will vest on October 1, 2021 and October 2, 2021, respectively, subject to continued employment or earlier in the case of death, disability or qualifying termination following a change-in-control. These UTC RSU awards earn dividend equivalents during the vesting period, which vest at the same time as the underlying UTC RSUs. |
127
(18) | Chairman's UTC RSU award granted to Mr. Pine, which will vest on November 1, 2020, subject to continued employment or earlier in the case of death, disability or qualifying termination following a change-in-control. This UTC RSU award earns dividend equivalents during the vesting period, which vest at the same time as the underlying UTC RSUs. |
Option Exercises and Stock Vested
Name |
Option Awards(1) |
Stock Awards(3) |
||||||||||
Number of Shares Acquired on Exercise (#) |
Value Realized on Exercise ($)(2) |
Number of Shares Acquired on Vesting (#) |
Value Realized on Vesting ($)(4) |
|||||||||
D. Gitlin |
— | — | 18,328 | 2,249,212 | ||||||||
T. McLevish |
— | — | — | — | ||||||||
C. Nelson |
81,906 | 2,669,205 | 13,556 | 1,742,829 | ||||||||
J. Timperman |
13,200 | 584,168 | 12,704 | 1,646,787 | ||||||||
M. Pine |
2,400 | 79,334 | 4,442 | 568,269 |
(1) | UTC SARs exercised during 2019. |
(2) | Calculated by multiplying the number of shares acquired on exercise by the difference between the market price of UTC common stock on the exercise date and the exercise price of the UTC SAR. |
(3) | UTC PSUs and UTC RSUs that converted to shares of UTC common stock on a one-for-one basis upon vesting in 2019. UTC PSUs granted on January 4, 2016 vested at 114% of target on February 11, 2019, based on performance through December 31, 2018. |
(4) | Calculated by multiplying the number of vested UTC PSUs and UTC RSUs by the market price of UTC common stock on the vesting date. |
Pension Benefits
Named Executive Officer |
Plan Name |
Number of Years Credited Service (#) |
Present Value of Accumulated Benefit ($)(1) |
Payments During Last Fiscal Year ($) |
||||||
D. Gitlin |
UTC Pension Plan |
22 | 951,980 | — | ||||||
UTC Pension Preservation Plan |
22 | 1,957,448 | — | |||||||
Total |
— | 2,909,428 | — | |||||||
T. McLevish(2) |
UTC Pension Plan |
— | — | — | ||||||
UTC Pension Preservation Plan |
— | — | — | |||||||
Total |
— | — | — | |||||||
C. Nelson(3) |
UTC Pension Plan |
16 | 329,721 | — | ||||||
UTC Pension Preservation Plan |
16 | 443,776 | — | |||||||
Total |
— | 773,497 | — | |||||||
J. Timperman(2) |
UTC Pension Plan |
— | — | — | ||||||
UTC Pension Preservation Plan |
— | — | — | |||||||
Total |
— | — | — | |||||||
M. Pine(2) |
UTC Pension Plan |
— | — | — | ||||||
UTC Pension Preservation Plan |
— | — | — | |||||||
Total |
— | — | — |
(1) | The following assumptions were used to determine the present value of the accumulated pension benefit: (i) the named executive officers are assumed to retire at age 62 for the final average earnings benefit and age 65 for the cash balance benefit, which are the earliest dates on which the named executive officers can retire without a reduction of benefits due to age; (ii) projected lump-sum payments under the UTC Pension Preservation Plan (PPP) final average earnings benefit are calculated using a lump-sum interest rate of 4.0%; (iii) the amounts shown assume the following form of payment: (a) 70% in a monthly annuity and 30% in a lump-sum payment for benefits earned under the final average earnings formula of the UTC Pension Plan; (b) a lump-sum payment for benefits earned under the cash balance formula of the UTC Pension Plan; and (c) an optional form of payment based on the participant’s elections on file for the PPP. |
(2) | Messrs. McLevish, Timperman and Pine were hired by UTC after January 1, 2010, and therefore do not participate in UTC's legacy pension plans. |
(3) | Mr. Nelson was hired after July 1, 2002 and therefore, his entire pension benefit is determined based on the cash balance formula. Benefits are available following termination of employment and are paid as a lump sum or as an equivalent monthly annuity. |
128
Nonqualified Deferred Compensation
Named Executive Officer |
Plan |
Executive Contributions in Last FY ($)(1) |
Registrant Contributions in Last FY ($)(2) |
Aggregate Earnings in Last FY ($)(3) |
Aggregate Withdrawals/ Distributions ($) |
Aggregate Balance at Last FYE ($)(4) |
||||||||||
D. Gitlin |
UTC Savings Restoration Plan |
119,200 | 71,520 | 279,587 | — | 1,203,090 | ||||||||||
T. McLevish |
UTC Deferred Compensation Plan |
66,667 | 3,667 | 1,436 | — | 71,769 | ||||||||||
C. Nelson |
UTC Savings Restoration Plan |
50,025 | 30,015 | 201,218 | — | 788,529 | ||||||||||
J. Timperman |
UTC Savings Restoration Plan |
36,750 | 22,050 | 15,861 | — | 108,679 | ||||||||||
UTC Company Automatic Contribution Excess Plan |
— | 30,625 | 1,673 | — | 60,859 | |||||||||||
M. Pine |
UTC Company Automatic Contribution Excess Plan |
— | 20,520 | 1,949 | — | 65,190 |
(1) | Amounts shown in this column are included in the Salary and Bonus columns of the Summary Compensation Table. |
(2) | Amounts shown in this column are included in the All Other Compensation column of the Summary Compensation Table. |
(3) | Amounts shown reflect hypothetical investment returns to accounts based on fixed income, bond and equity indices selected by the participant. Participants may also elect UTC stock units with dividend reinvestments (except for the CACEP). These returns do not constitute above-market earnings. |
(4) | The sum of contributions (both by the executive and UTC) and credited earnings on those deferrals, less withdrawals. Of these totals, the following amounts have been included in the Summary Compensation Table in prior years: $304,080 (Mr. Gitlin). |
Potential Payments on Termination or Change-in-Control
Payment Type |
D. Gitlin ($) |
T. McLevish ($) |
C. Nelson ($) |
J. Timperman ($) |
M. Pine ($) |
||||||||||
Termination - Involuntary (For Cause) |
|||||||||||||||
Cash Payment |
— | — | — | — | — | ||||||||||
Pension Benefit(1) |
2,624,780 | — | 410,524 | — | — | ||||||||||
Option / SAR Value(2) |
— | — | — | — | — | ||||||||||
Stock Awards Value(2) |
— | — | — | — | — | ||||||||||
Sub-Total |
2,624,780 | — | 410,524 | — | — | ||||||||||
Less: Vested Pension |
(2,624,780 | ) |
— | (410,524 | ) |
— | — | ||||||||
Amount Triggered due to Termination |
— | — | — | — | — | ||||||||||
Termination - Voluntary |
|||||||||||||||
Cash Payment |
— | — | — | — | — | ||||||||||
Pension Benefit(1) |
2,624,780 | — | 410,524 | — | — | ||||||||||
Option / SAR Value(3)(4) |
14,707,208 | — | — | — | — | ||||||||||
Stock Awards Value(3)(4) |
8,702,854 | — | — | — | — | ||||||||||
Sub-Total |
26,034,842 | — | 410,524 | — | — | ||||||||||
Less: Vested Pension and Equity |
(26,034,842 | ) |
— | (410,524 | ) |
— | — | ||||||||
Amount Triggered due to Termination |
— | — | — | — | — | ||||||||||
Termination - Involuntary (Not for Cause) |
|||||||||||||||
Cash Payment |
— | — | — | — | — | ||||||||||
Pension Benefit(1) |
2,624,780 | — | 410,524 | — | — | ||||||||||
Option / SAR Value(3)(5) |
14,707,208 | 1,978,683 | 1,119,930 | 414,759 | 166,018 | ||||||||||
Stock Awards Value(3)(5)(6) |
11,114,589 | 1,119,456 | 4,192,232 | 1,264,423 | 543,179 | ||||||||||
Sub-Total |
28,446,577 | 3,098,139 | 5,722,686 | 1,679,182 | 709,197 | ||||||||||
Less: Vested Pension and Equity |
(26,034,842 | ) |
— | (410,524 | ) |
— | — | ||||||||
Amount Triggered due to Termination |
2,411,735 | 3,098,139 | 5,312,162 | 1,679,182 | 709,197 | ||||||||||
Termination - Change-in-Control |
|||||||||||||||
Cash Payment(8) |
— | — | — | — | — | ||||||||||
Pension Benefit(1) |
2,624,780 | — | 410,524 | — | — | ||||||||||
Option / SAR Value(7) |
17,649,693 | 1,978,683 | 4,035,487 | 2,870,544 | 1,997,408 | ||||||||||
Stock Awards Value(7) |
19,037,491 | 1,119,456 | 10,212,733 | 6,241,397 | 3,285,824 | ||||||||||
Sub-Total |
39,311,964 | 3,098,139 | 14,658,744 | 9,111,941 | 5,283,232 | ||||||||||
Less: Vested Pension and Equity |
(25,070,387 | ) |
— | (410,524 | ) |
— | — | ||||||||
Amount Triggered due to Termination |
14,241,577 | 3,098,139 | 14,248,220 | 9,111,941 | 5,283,232 |
(1) | Estimated lump-sum value of the nonqualified portion of the retirement benefits accrued under UTC’s pension plans, assuming retirement or termination on December 31, 2019, payable as of such date or attainment of age 55 (if later) based on the plan’s 2020 lump-sum basis. The present value of benefits payable under the qualified plan are shown in the Pension Benefits table. |
129
(2) | Outstanding equity awards will be forfeited upon involuntary termination (for cause). |
(3) | Equity awards are valued based on the closing price of UTC common stock on the NYSE ($149.76) on the last trading day of 2019. For the 2019 and 2018 PSU awards, values shown reflect estimated performance as of December 31, 2019. The actual vesting of 114% of target is shown for the 2017 PSU grant. |
(4) | UTC SARs and UTC RSUs awards granted under UTC’s annual LTI program that are outstanding for more than one year will vest in the event of voluntary termination only after attaining qualifying retirement (defined as either: (i) age 65; (ii) age 55 plus 10 years of service; or (iii) Rule of 65 — age 50 to 54 plus years of service add up to 65 or more). For executives who have attained qualifying retirement status, PSUs outstanding for at least one year will remain eligible to vest at the completion of the performance period to the extent performance targets are achieved. Mr. Gitlin has satisfied the qualifying retirement condition of the Rule of 65. For non-retirement eligible executives who voluntarily terminate, all unvested awards are cancelled and vested UTC SARs may be exercised up to 90 days following separation. With the exception of Mr. McLevish's 2019 UTC SAR and UTC RSU awards, special out-of-cycle and ELG RSU awards do not have retirement eligibility treatment and, therefore, forfeit upon voluntary termination. Mr. McLevish's 2019 UTC SAR and UTC RSU awards provide for vesting in the event of his retirement on or after October 31, 2021. |
(5) | UTC SARs and UTC RSUs awards that are outstanding for more than one year will vest and PSUs will remain eligible to vest (to the extent performance targets are achieved) in the event of involuntary termination (not for cause) after an executive qualifies for retirement. For executives who have not yet qualified for retirement, but have held awards for at least one year, in the event of involuntary termination (not for cause) a pro-rata portion of UTC SARs and UTC RSUs will vest and a pro-rata portion of UTC PSUs will remain eligible to vest at the completion of the performance period to the extent performance goals are achieved. Special out-of-cycle and ELG RSU awards do not have retirement eligibility treatment and, therefore, forfeit upon involuntary termination (not for cause), except for Mr. McLevish’s 2019 UTC SAR and UTC RSU awards. In the event of involuntary termination (not for cause), Mr. McLevish's UTC RSU award and UTC SAR award vest immediately. All vested SARs for Mr. McLevish will remain exercisable for the earlier of one year following the termination date or the expiration of the UTC SAR. |
(6) | ELG RSUs will vest in the case of mutually agreeable separation following three years of ELG service. As of December 31, 2019, only Messrs. Gitlin and Nelson have met the service condition. |
(7) | In the event of qualifying termination following a change-in-control, the UTC Long-Term Incentive Plans provide for the accelerated vesting of all outstanding equity awards (including awards outstanding for less than one year, special out-of-cycle and ELG RSU awards). PSUs granted under the original 2005 UTC Long-Term Incentive Plan vest at target performance and PSUs granted under the UTC 2018 Long-Term Incentive Plan vest at the greater of target or actual performance. As a result, amounts shown for the 2018 PSUs assume target performance, and amounts shown for the 2019 PSUs assume the estimated performance as of December 31, 2019. For the 2017 PSUs, actual performance vesting (114% of target) is shown. All values shown reflect the closing price of UTC common stock ($149.76) on the last trading day of 2019. |
(8) | None of the named executive officers are eligible for change-in-control benefits under the UTC Senior Executive Severance Plan, which was closed to participants effective June 2009, and the named executive officers were not otherwise eligible for cash severance in connection with a change-in-control as of December 31, 2019. |
130
CARRIER GLOBAL CORPORATION 2020 LONG-TERM INCENTIVE PLAN
Carrier will adopt the Carrier Global Corporation 2020 Long-Term Incentive Plan (the Plan) in connection with the distribution. The following is a summary of the principal terms of the Plan, which is qualified in its entirety by reference to the full text of the Plan. The Carrier equity-based compensation awards issued in connection with the adjustment of outstanding UTC equity-based compensation awards upon the distribution (see The Separation and Distribution—Treatment of Equity-Based Compensation) will be issued pursuant to the Plan and will reduce the shares authorized for issuance under the Plan.
Purpose of the Plan
The purpose of the Plan is to enable Carrier to implement a compensation program that correlates compensation opportunities with shareowner value, focuses management on long-term sustainable performance and provides Carrier with a competitive advantage in attracting, retaining and motivating officers, employees and directors.
Administration of the Plan
The Plan will be administered by the Board or, if the Board elects, by the Carrier Compensation Committee or any other committee of the Board as designated by the Board from time to time. All references in this section to the Committee refer to the Board as a whole or the applicable committee designated by the Board. Subject to applicable law, the Committee may allocate all or any portion of its responsibilities and powers to any one or more of its members or other persons it selects, provided that no delegation of authority will be permitted that would cause a transaction pursuant to the Plan to be subject to (and not exempt from) Section 16(b) of the Exchange Act.
Subject to the terms and conditions of the Plan, the Committee (or its delegate) will have absolute authority to administer the Plan, including the authority to select the eligible individuals to receive awards, to determine the type of each award, the number of shares to be granted and the terms and conditions of the awards. The Committee also has authority to adopt procedures or sub-plans as necessary or advisable to comply with foreign legal or regulatory provisions for awards granted to participants outside of the United States.
Authorized Shares
The maximum number of shares of Carrier common stock that may be issued pursuant to awards granted under the Plan shall be 90,000,000 which includes shares subject to awards granted in connection with the adjustment of outstanding UTC equity-based compensation awards upon the distribution. Shares issued under the Plan may be authorized and unissued shares, treasury shares or shares purchased in the open market or otherwise, at the sole discretion of the Committee.
Each share of Carrier common stock issued pursuant to a full-value award (i.e., restricted stock, restricted stock units, performance share units and any other award that is not a stock appreciation right or stock option) will reduce the number of shares available for issuance under the Plan by two. Each share of Carrier common stock issued pursuant to a stock appreciation right or stock option will reduce the number of shares available for issuance under the Plan by one.
An employee participant may not be granted: (1) stock appreciation rights and stock options in excess of 2,500,000 shares during any calendar year, (2) full-value awards in excess of 600,000 shares during any calendar year, or (3) cash awards in excess of $10,000,000 during any calendar year. Compensation payable by Carrier to any non-employee director of Carrier, including awards granted under the Plan (with awards valued based on the fair value on the grant date for accounting purposes) and cash fees paid or credited, may not exceed $1,500,000 during any single calendar year. Such limitations do not apply to equity-based compensation awards issued in connection with the adjustment of outstanding UTC equity-based compensation awards upon the distribution.
To the extent that any award under the Plan is forfeited, terminates, expires or lapses instead of being exercised, or any award is settled for cash, the shares subject to such awards will not be counted as shares issued under the Plan. If the exercise price of any stock appreciation right or stock option and/or the tax withholding obligations relating to any award are satisfied by delivering shares or Carrier withholding shares relating to such award, the gross number of shares subject to the award shall nonetheless be deemed to have been issued under the Plan.
131
Eligibility
Directors, officers and employees of Carrier and its subsidiaries and affiliates, and prospective directors, officers and employees who have accepted offers of employment from Carrier and its subsidiaries and affiliates are eligible to receive awards under the Plan. Pursuant to the terms of the employee matters agreement, certain employees, officers, and directors of Carrier, UTC and Otis and their respective subsidiaries will receive equity-based compensation awards under the Plan issued in connection with the adjustment of outstanding UTC equity-based compensation awards upon the distribution.
Types of Awards
Stock Appreciation Rights and Stock Options
Stock appreciation rights and stock options entitle the participant to receive an amount in cash or shares with a value equal to the product of: (1) the difference between the fair market value of one share on the exercise date less the fair market value of one share on the grant date (the spread), multiplied by (2) the number of stock appreciation rights or stock options that have been exercised. Stock options granted under the Plan may either be incentive stock options (ISOs), which are intended to qualify for favorable treatment to the recipient under U.S. federal tax law, or nonqualified stock options, which do not qualify for this favorable tax treatment. The exercise price will be determined by the Committee and provided in the applicable award agreement, and will not be less than the fair market value (as defined in the Plan) on the grant date. In no event may any stock appreciation right or stock option granted under the Plan be amended (other than below under Plan and Award Adjustments) to: (1) decrease the exercise price; (2) cancel in exchange for cash or other awards or in conjunction with the grant of any new stock appreciation right or stock option with a lower exercise price; or (3) be subject to any action that would be treated, under the applicable stock exchange listing standards or for accounting purposes, as a repricing, unless such amendment, cancellation or action is approved by shareowners. The term of each stock appreciation right and stock option is fixed by the Committee, but cannot be more than 10 years after the grant date. The effect of a participants termination of service on any award held by the participant will be described in the applicable schedule of terms for the award.
A stock option that is intended to qualify as an ISO may not be granted to an eligible individual who at grant owns more than 10% of the total combined voting power of all classes of stock of Carrier, unless at the time the exercise price of such ISO is at least 110% of the fair market value of a share and is not exercisable after the fifth anniversary of the grant date. In addition, the aggregate fair market value of the shares at grant for which ISOs become exercisable by a participant during any calendar year may not exceed $100,000.
Restricted Stock and Restricted Stock Units
Shares of restricted stock are actual shares of Carrier common stock issued to a participant. The Committee determines: (1) the participants eligible to receive restricted stock; (2) the timing of grants; (3) the number of shares to be awarded; (4) the vesting conditions of awards; (5) the conditions in which an award may be subject to forfeiture; and (6) any other terms and conditions of the award, in addition to those contained in the Plan. A participant holding restricted shares will have all the rights of a shareowner of Carrier holding shares of common stock, including, if applicable, the right to vote the shares and the right to receive any dividends (except as otherwise noted under Dividends and Dividend Equivalents below).
Restricted stock units, which include deferred stock units and performance share units, are awards denominated in shares that will be settled, subject to the applicable awards terms and conditions, in a specified number of shares of Carrier common stock or cash equal to the fair market value of the number of shares of common stock. The Committee may require that restricted stock units vest based on either the continued service of the participant, the attainment of performance goals or a combination of both. Restricted stock units will be settled upon vesting or at a later time if permitted pursuant to a deferred compensation arrangement. Certain restricted stock unit awards may be eligible for dividends or dividend equivalents.
Performance Awards
The grant or vesting of awards under the Plan may be conditioned on the achievement of performance goals established by the Committee, which may be based on attainment of specified levels of one or more of the following measures, or of any other measures determined by the Committee in its discretion, including: stock
132
price, total shareowner return, earnings (whether based on earnings before taxes, earnings before interest and taxes or earnings before interest, taxes, depreciation and amortization), earnings per share, return on equity, return on sales, return on assets or operating or net assets, market share, objective customer service measures or indices, pre- or after-tax income, net income, cash flow (before or after dividends or other adjustments), free cash flow, cash flow per share (before or after dividends or other adjustments), gross margin, working capital and gross inventory turnover, risk-based capital, revenues, revenue growth, return on capital (whether based on return on total capital or return on invested capital), cost control, gross profit, operating profit, unit volume and sales, in each case with respect to Carrier or any one or more subsidiaries, divisions, business units or business segments thereof, either in absolute terms or relative to the performance of one or more other companies (including an index covering multiple companies).
Other Stock-Based Awards
Other stock-based awards are awards under the Plan not otherwise specifically described in the Plan that are valued by reference to, or otherwise relate to, shares of Carrier common stock, and which are subject to terms and conditions consistent with the terms of the Plan that are determined by the Committee.
Cash Awards
Cash awards are awards under the Plan that are denominated and payable in cash and which are subject to such terms and conditions consistent with the terms of the Plan as are determined by the Committee.
Dividends and Dividend Equivalents
Any dividends or dividend equivalents credited with respect to any award under the Plan will be subject to the same time and/or performance-based vesting conditions applicable to such award and will, if vested, be delivered or paid at the same time as the underlying award. The schedule of terms for the award will specify if the award is subject to dividend or dividend equivalent payments. Stock appreciation rights and stock options cannot receive dividend or dividend equivalent payments under the Plan.
Minimum Vesting Period
The Committee may not grant awards with a designated vesting period of less than one year, except for awards granted to a maximum of 5% of the authorized share reserve under the Plan. Such minimum vesting period does not apply to equity-based compensation awards issued in connection with the adjustment of outstanding UTC equity-based compensation awards upon the distribution.
Plan and Award Adjustments
The Committee has discretion to make adjustments to the Plan and outstanding awards in limited circumstances, as described below.
Corporate Transactions and Other Corporate Events
In the event of a: (1) a merger, consolidation, acquisition of property or shares, stock rights offering, liquidation, disposition for consideration of an equity interest in a subsidiary or affiliate, or similar event affecting Carrier or any of its subsidiaries; or (2) a stock dividend, stock split, reverse stock split, reorganization, share combination or recapitalization or similar event affecting the capital structure of Carrier, or a disaffiliation, separation or spinoff, or other extraordinary dividend, the Committee may in its discretion, in the case of events described in clause (1) and (2), make such substitutions or adjustments as it deems appropriate and equitable to: (a) the aggregate number and kind of shares or other securities reserved for issuance and delivery under the Plan; (b) the various maximum limitations on the grants to individuals of certain types of awards; (c) the number and kind of shares or other securities subject to outstanding awards; (d) financial goals or results relating to a performance goal; and (e) the exercise price of outstanding awards. In the case of certain corporate transactions, such an adjustment may consist of cancellation of outstanding awards in exchange for payments of cash, property or a combination of both having an aggregate value equal to the value of such awards, which in the case of an option may be the excess, if any of the deal consideration per share over the per share exercise price.
133
Change in Control
Upon a change in control of Carrier, participants in the Plan will be granted replacement awards by the acquiring or surviving company that are of the same type held prior to the change in control. Performance awards will be converted into replacement time-based awards for the remainder of the applicable performance period (or such shorter period determined by the Committee), with the number of underlying shares determined based on the greater of actual performance through the latest practicable date prior to the change in control and target performance. Replacement awards will generally continue to vest on the same schedule as the original awards, except that, if a participants employment is terminated by Carrier other than for cause, or if the participant terminates for good reason, in each case, within the 24 months following the change in control, then the participants replacement awards will become vested in full. In the event an acquiring or surviving company refuses to issue replacement awards, or if the acquiring or surviving company is not a publicly held company, then all awards under the Plan will become vested in full upon the change in control, with performance awards vesting at the greater of actual performance through the latest practicable date prior to the change-in-control and target performance. The terms cause, good reason and change in control are defined in the Plan, except that, in the case of a participant who is covered by the Carrier Change in Control Severance Plan, the terms cause and good reason are defined in such plan.
Plan and Award Amendments
The Committee may amend, alter or discontinue the Plan at any time, subject to two limitations. First, no amendment, alteration or discontinuance may materially impair the rights of a participant with respect to a previously granted award without the participants consent (unless the amendment is required to comply with applicable law, stock exchange rules, tax rules or accounting rules). Second, an amendment must receive approval of shareowners, if required by applicable law, or the applicable stock exchange listing standards. The Committee may unilaterally amend the terms of any outstanding award, but no such amendment shall, without the participants consent and except as otherwise described above, materially impair the rights of any participant with respect to an award, except such an amendment made to cause this Plan or award to comply with applicable law, applicable stock exchange listing standards or accounting rules.
Clawback Provisions
The Committee has the authority, in the event of certain types of misconduct or upon the occurrence of specified events to cancel awards, including vested awards, and to recoup gains realized by participants from previous awards under the Plan.
Term of the Plan
The Plan is effective as of the distribution and, unless earlier terminated by the Committee, will terminate on the tenth anniversary of the effective date.
134
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The material agreements described below are filed as exhibits to the registration statement on Form 10 of which this information statement is a part. The summaries set forth below of each such agreement are qualified in their entireties by reference to the full text of the applicable agreements, which are incorporated by reference into this information statement.
Raytheon Merger Agreement
On June 9, 2019, UTC, Merger Sub and Raytheon entered into the Raytheon merger agreement.
Pursuant to the Raytheon merger agreement, each share of Raytheon common stock issued and outstanding as of the merger effective time of the Raytheon merger (the merger effective time) (except for shares held by Raytheon as treasury stock) will be converted into the right to receive 2.3348 shares of UTC common stock (and, if applicable, cash in lieu of fractional shares) (the Raytheon merger consideration), less any applicable withholding taxes. Each share of UTC common stock issued and outstanding will remain issued and outstanding and will not be canceled or converted as a result of the Raytheon merger.
As of the merger effective time, each unvested Raytheon restricted stock award and Raytheon restricted stock unit award that becomes vested at the merger effective time by its terms will be converted into the right to receive the Raytheon merger consideration in respect of each underlying share of Raytheon common stock, less applicable tax withholding. As of the merger effective time, each other unvested Raytheon restricted stock award and Raytheon restricted stock unit award, and each Raytheon performance-based restricted stock unit award, will be converted into an equivalent award of UTC relating to the number of shares of UTC common stock equal to the product of (1) the number of shares of Raytheon common stock subject to such award immediately prior to the merger effective time (determined, in the case of a performance-based restricted stock unit award, by deeming the applicable performance conditions to be achieved at the levels determined pursuant to the methodology described in the Raytheon merger agreement), multiplied by (2) 2.3348, and each converted award will otherwise have the same terms and conditions (other than performance-based vesting conditions, in the case of a performance-based restricted stock unit award) that applied to the corresponding Raytheon award immediately prior to the merger effective time.
UTC has agreed that, before the completion of the Raytheon merger, UTC will complete the separation and each of the Carrier distribution and the Otis distribution in accordance with the Raytheon merger agreement, including certain separation principles agreed to by Raytheon and UTC in connection with the merger agreement that are consistent with the terms of the separation and the distribution as described elsewhere in this information statement and that provide for certain parameters and restrictions on the terms of the separation agreement and related agreements, including that these agreements must generally be on terms that are customary for similar separation transactions. Pursuant to the Raytheon merger agreement, the separation and each of the Carrier distribution and the Otis distribution are to be completed as promptly as reasonably practicable (taking into account the requirements of applicable law and the rules and regulations of the NYSE), but in any event on or before the fourth business day prior to the outside date (as defined below) (as the outside date may be extended as described below, and subject to an additional automatic extension to the first business day after the 35th day following the date on which each of the events described in the following clauses (1) and (2) have occurred if the date on which each of these events has occurred is fewer than 35 days before the outside date, after (1) the satisfaction or waiver of all of the conditions to UTCs obligation under the Raytheon merger agreement to complete the separation, the Carrier distribution, the Otis distribution and the Raytheon merger and (2) receipt by UTC from Raytheon of (a) written confirmation that each of the conditions to Raytheons obligation under the Raytheon merger agreement to complete the Raytheon merger has been satisfied or waived and Raytheon stands ready, willing and able to close the Raytheon merger and (b) and an executed officers certificate certifying Raytheons compliance with its representations, warranties and obligations under the Raytheon merger agreement (subject to the applicable materiality standards set forth therein)).
The Raytheon merger agreement provides for various governance arrangements, including that UTCs name will be changed to Raytheon Technologies Corporation.
The completion of the Raytheon merger is subject to conditions, including:
• | the approval of the Raytheon merger by Raytheon stockholders and the approval of the issuance of shares of UTC common stock in connection with the Raytheon merger by UTC shareowners; |
135
• | the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended; |
• | the receipt of other required regulatory approvals; |
• | the effectiveness of the registration statement on Form S-4 that UTC has separately made available to UTC and Raytheon stockholders and the effectiveness of the registration statement on Form 10 of which this information statement is a part and the registration statement on Form 10 of which the separate information statement UTC is making available with respect to the Carrier distribution is a part (and, in each case, the absence of any stop order, or actions by the SEC seeking a stop order); |
• | approval of the listing on the NYSE of the UTC common stock to be issued as the Raytheon merger consideration and approvals for listing of the shares of common stock to be distributed in each of the Carrier distribution and the Otis distribution on the applicable security exchange(s); |
• | the absence of an injunction or law prohibiting the separation, either the Otis distribution or the Carrier distribution, or the Raytheon merger; |
• | (1) the IRS ruling regarding certain U.S. federal income tax matters relating to the separation and distribution received by the UTC remaining valid and (2) the receipt by UTC and continued validity of an opinion of outside counsel regarding the qualification of certain elements of each of the Carrier distribution and the Otis distribution under Section 355 of the Code; |
• | receipt by each of UTC and Raytheon of an opinion of its respective outside counsel to the effect that (1) the Raytheon merger will qualify as a reorganization within the meaning of Section 368(a) of the Code and (2) the Raytheon merger will not cause Section 355(e) of the Code to apply to either the Otis distribution or the Carrier distribution; |
• | receipt by UTC of solvency opinions relating to the distributions; |
• | the accuracy of the representations and warranties of the parties under the Raytheon merger agreement (subject to the materiality standards set forth in the Raytheon merger agreement); |
• | the performance by the parties to the Raytheon merger agreement of their respective covenants and obligations under the Raytheon merger agreement in all material respects, and with respect to UTC, compliance in all respects with the covenant (subject to the terms and conditions of the Raytheon merger agreement) that the adjusted net indebtedness of the UTC Aerospace Businesses will not exceed $24.3 billion; and |
• | delivery of officer certificates by the parties to the Raytheon merger agreement certifying satisfaction of certain of the conditions described above. |
In addition, the completion of the Raytheon merger is subject to the prior completion of the separation and each of the Carrier distribution and the Otis distribution.
The Raytheon merger agreement may be terminated by mutual written consent of Raytheon and UTC at any time before the merger effective time. In addition, the Raytheon merger agreement may be terminated by either Raytheon or UTC if:
• | the Raytheon merger has not been completed by July 1, 2020, (1) subject to an automatic extension to January 4, 2021, if certain conditions other than certain antitrust-related conditions are or would be satisfied as of such date, and subject to further extension at UTC’s election if certain antitrust-related conditions have been satisfied on or after November 15, 2020, and the condition relating to the completion of the separation and distributions has not yet been satisfied, which extension would be to the first business day after the 50th day following the date on which the last of the antitrust-related conditions have been satisfied or (2) subject to extension at the election of UTC or Raytheon to October 1, 2020, if certain conditions other than certain separation-related conditions are or would be satisfied as of such date and subject to further extension at Raytheon’s election to January 4, 2021 if the separation-related conditions have not yet been satisfied but certain other conditions have been or would be satisfied as of such date, and subject to the additional 35-day extension referred to above (we refer to July 1, 2020, as so extended, as the outside date); |
136
• | the approval of the Raytheon merger has not been obtained at the special meeting of Raytheon stockholders or at any adjournment or postponement of such meeting; |
• | the approval of the issuance of shares of UTC common stock has not been obtained at the special meeting of UTC shareowners or at any adjournment or postponement of such meeting; |
• | any governmental entity of competent jurisdiction has issued or entered any order or any applicable law has been enacted or promulgated that would permanently restrain, enjoin or otherwise prohibit the completion of the separation, either the Otis distribution or the Carrier distribution or the Raytheon merger; |
• | the other party breaches or fails to perform any of its representations, warranties, covenants or other agreements in the Raytheon merger agreement, which breach or failure to perform would result in the failure of a condition related to the accuracy of the other party’s representations and warranties or performance of covenants in the Raytheon merger agreement, subject to certain materiality thresholds and rights to cure and other limitations; or |
• | the other party’s board changes its recommendation to its shareowners to vote in favor of the transaction or the other party willfully breaches certain covenants under the Raytheon merger agreement to not solicit alternative transactions. |
The Raytheon merger agreement provides that, in connection with a termination of the Raytheon merger agreement under specified circumstances, Raytheon will be required to pay UTC a termination fee of $1.785 billion or UTC will be required to pay Raytheon a termination fee of $2.365 billion.
The representations, warranties and covenants set forth in the Raytheon merger agreement described above have been made only for the purposes of the agreement and solely for the benefit of the parties to the agreement, may be subject to limitations agreed upon by the contracting parties, including being qualified by confidential disclosures made for the purposes of allocating contractual risk between the parties instead of establishing these matters as facts, and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors. In addition, such representations and warranties (1) will not survive completion of the Raytheon merger and cannot be the basis for any claims under the Raytheon merger agreement by the party not making such representations and warranties after termination of the Raytheon merger agreement, except as a result of fraud or a willful breach, and (2) were made only as of the dates specified in the Raytheon merger agreement. Accordingly, the Raytheon merger agreement is incorporated by reference into this filing only to provide investors with information regarding the terms of the Raytheon merger agreement and not to provide investors with any other factual information regarding the parties to the Raytheon merger agreement or their respective businesses.
Agreements with UTC and Otis
Following the separation and distributions, Carrier, Otis and UTC will each operate separately, each as an independent public company. In connection with the separation, Carrier will enter into a separation agreement with UTC and Otis to effect the separation and to provide a framework for the relationship among UTC, Carrier and Otis after the separation, and will enter into certain other agreements, including a transition services agreement, a tax matters agreement, an employee matters agreement and an intellectual property agreement. These agreements will allocate among Carrier, Otis and UTC the assets, liabilities and obligations (including, among others, investments, property and employee benefits and tax-related assets and liabilities) of UTC and its subsidiaries attributable to periods prior to, at and after the separation, provide for certain services to be delivered on a transitional basis, and govern the relationship among Carrier, Otis and UTC following the separation. These agreements will not be impacted by the completion of the Raytheon merger.
The material agreements described below are filed as exhibits to the registration statement on Form 10 of which this information statement is a part. The summaries set forth below of each such agreement are qualified in their entireties by reference to the full text of the applicable agreements, which are incorporated by reference into this information statement.
137
Separation Agreement
Transfer of Assets and Assumption of Liabilities
The separation agreement will identify the assets to be transferred, the liabilities to be assumed and the contracts to be transferred to each of Carrier, Otis and UTC as part of the separation of UTC into three independent companies, and will provide for when and how these transfers and assumptions will occur. In particular, the separation agreement will provide that, among other things, subject to the terms and conditions contained therein:
• | certain assets of, or related to, the Carrier Business, which we refer to as the Carrier Assets, will be retained by or transferred to Carrier or Carrier’s subsidiaries, including: |
• | equity interests of Carrier’s subsidiaries as of immediately after the effective time of the distributions; |
• | assets (other than cash and cash equivalents) that are included on the Carrier unaudited pro forma balance sheet as of December 31, 2019 included in the “Unaudited Pro Forma Combined Financial Information” section of this information statement, as well as assets that are of a nature or type that would have resulted in such assets being included on a pro forma combined balance sheet of Carrier and Carrier’s subsidiaries; |
• | contracts (or portions thereof) that, subject to limited exceptions, solely or primarily relate to the Carrier Business; |
• | permits used or held for use solely or primarily in the Carrier Business; |
• | certain intellectual property rights and technology used or held for use in the Carrier Business; |
• | information solely or primarily related to the Carrier Assets, the Carrier Liabilities, the Carrier Business or Carrier’s subsidiaries; |
• | cash and cash equivalents held in bank or brokerage accounts owned exclusively by Carrier or Carrier’s subsidiaries as of the effective time; |
• | other assets expressly allocated to Carrier or Carrier’s subsidiaries pursuant to the terms of the separation agreement or the other agreements entered into in connection with the separation; and |
• | subject to limited exceptions, other assets used or held for use solely or primarily in the Carrier Business. |
• | certain liabilities of, or related to, the Carrier Business, which we refer to as the Carrier Liabilities, will be retained by or transferred to Carrier or Carrier’s subsidiaries, including: |
• | liabilities that are included on the Carrier unaudited pro forma balance sheet as of December 31, 2019 included in the “Unaudited Pro Forma Combined Financial Information” section of this information statement, as well as liabilities that are of a nature or type that would have resulted in such liabilities being included on a pro forma combined balance sheet of Carrier and Carrier’s subsidiaries; |
• | liabilities relating to, arising out of or resulting from the actions, inactions, events, omissions, conditions, facts, or circumstances to the extent related to, arising out of or resulting from the Carrier Business or the Carrier Assets; |
• | liabilities to the extent relating to, arising out of or resulting from the contracts, intellectual property rights, technology, licenses, permits or financing arrangements that relate to the Carrier Business; |
• | liabilities arising out of litigation or other claims (including in respect of environmental or asbestos-related matters) made by third parties including directors, officers, stockholders, employees and agents of Carrier, Otis or UTC, or any investigations, sanctions or orders, to the extent the facts underlying the applicable matter relate to, arise out of or result from the Carrier Business, Carrier Assets or the other Carrier Liabilities; |
138
• | other liabilities expressly allocated to Carrier or Carrier’s subsidiaries pursuant to the terms of the separation agreement or certain other agreements entered into in connection with the separation; and |
• | subject to limited exceptions, other liabilities to the extent arising out of or relating to the Carrier Business or a Carrier Asset. |
• | certain assets of, or related to, the Otis Business, which we refer to as the Otis Assets, will be retained by or transferred to Otis or Otis’ subsidiaries, including: |
• | equity interests of Otis’ subsidiaries as of immediately after the effective time of the distributions; |
• | assets (other than cash and cash equivalents) that are included on the Otis unaudited pro forma balance sheet as of December 31, 2019, as well as assets that are of a nature or type that would have resulted in such assets being included on a pro forma combined balance sheet of Otis and Otis’ subsidiaries; |
• | contracts (or portions thereof) that, subject to limited exceptions, solely or primarily relate to the Otis Business; |
• | permits used or held for use solely or primarily in the Otis Business; |
• | certain intellectual property rights and technology used or held for use in the Otis Business; |
• | information solely or primarily related to the Otis Assets, the Otis Liabilities, the Otis Business or Otis’ subsidiaries; |
• | cash and cash equivalents held in bank or brokerage accounts owned exclusively by Otis or Otis’ subsidiaries as of the effective time; |
• | other assets expressly allocated to Otis or Otis’ subsidiaries pursuant to the terms of the separation agreement or the other agreements entered into in connection with the separation; and |
• | subject to limited exceptions, other assets used or held for use solely or primarily in the Otis Business. |
• | certain liabilities of, or related to, the Otis Business, which we refer to as the Otis Liabilities, will be retained by or transferred to Otis or Otis’ subsidiaries, including: |
• | liabilities that are included on the Otis unaudited pro forma balance sheet as of December 31, 2019, as well as liabilities that are of a nature or type that would have resulted in such liabilities being included on a pro forma combined balance sheet of Otis and Otis’ subsidiaries; |
• | liabilities relating to, arising out of or resulting from the actions, inactions, events, omissions, conditions, facts, or circumstances to the extent related to, arising out of or resulting from the Otis Business or the Otis Assets; |
• | liabilities to the extent relating to, arising out of or resulting from the contracts, intellectual property rights, technology, licenses, permits or financing arrangements that relate to the Otis Business; |
• | liabilities arising out of litigation or other claims (including in respect of environmental or asbestos-related matters) made by third parties, including directors, officers, stockholders, employees and agents of Carrier, Otis or UTC, or any investigations, sanctions or orders, to the extent the facts underlying the applicable matter relate to, arise out of or result from the Otis Business, Otis Assets or the other Otis Liabilities; |
• | other liabilities expressly allocated to Otis or Otis’ subsidiaries pursuant to the terms of the separation agreement or certain other agreements entered into in connection with the separation; and |
• | subject to limited exceptions, other liabilities to the extent arising out of or relating to the Otis Business or an Otis Asset. |
• | all assets other than the Carrier Assets and the Otis Assets, which we refer to as the “UTC Assets,” will be retained by or transferred to UTC or UTC’s subsidiaries, including: |
• | assets expressly allocated to UTC or UTC’s subsidiaries pursuant to the terms of the separation agreement or the other agreements entered into in connection with the separation; |
139
• | intellectual property rights and technology used or held for use in the UTC Business; |
• | permits used or held for use solely or primarily in the UTC Business; |
• | information not solely or primarily related to the Carrier Assets, the Carrier Liabilities, the Carrier Business, Carrier’s subsidiaries, the Otis Assets, the Otis Liabilities, the Otis Business or Otis’ subsidiaries; and |
• | cash and cash equivalents not held in bank or brokerage accounts owned exclusively by Carrier, Otis or their respective subsidiaries as of the effective time. |
• | all liabilities other than the Carrier Liabilities and the Otis Liabilities, which we refer to as the “UTC Liabilities,” will be retained by or transferred to UTC or UTC’s subsidiaries, including: |
• | liabilities relating to, arising out of or resulting from the actions, inactions, events, omissions, conditions, facts or circumstances occurring or existing prior to the effective time of the distributions, of UTC or UTC’s subsidiaries, in each case that are not Carrier Liabilities or Otis Liabilities; |
• | liabilities arising out of litigation or other claims (including in respect of environmental or asbestos-related matters) made by third parties, including directors, officers, stockholders, employees and agents of Carrier, Otis or UTC, or any investigations, sanctions or orders, to the extent the facts underlying the applicable matter relate to, arise out of or result from the UTC Business, UTC Assets or the other UTC Liabilities; and |
• | other liabilities expressly allocated to UTC or UTC’s subsidiaries pursuant to the terms of the separation agreement or certain other agreements entered into in connection with the separation. |
Except as expressly set forth in the separation agreement or any ancillary agreement, none of Carrier, Otis or UTC will make any representation or warranty as to the assets, business or liabilities transferred or assumed as part of the separation, as to any consents or approvals required in connection with the transfers, as to the value of or the freedom from any security interests of any of the assets transferred, as to the absence or presence of any defenses or right of setoff or freedom from counterclaim with respect to any claim or other asset of any of Carrier, Otis or UTC, or as to the legal sufficiency of any document or instrument delivered to convey title to any asset to be transferred in connection with the separation. All assets will be transferred on an as is, where is basis, and the respective transferees will bear the economic and legal risks that any conveyance will prove to be insufficient to vest in the transferee good and marketable title, free and clear of all security interests, that any necessary consents or governmental approvals or notifications are not obtained or made, or that any requirements of laws or judgments are not complied with.
Information in this information statement with respect to the assets and liabilities of the parties following the Carrier distribution and the Otis distribution is presented based on the allocation of such assets and liabilities pursuant to the separation agreement, unless the context otherwise requires. The separation agreement will provide that in the event that the transfer of certain assets and liabilities (or a portion thereof) to Carrier, Otis or UTC, as applicable, does not occur prior to the separation, then until such assets or liabilities (or a portion thereof) are able to be transferred, Carrier, Otis or UTC, as applicable, will hold such assets on behalf and for the benefit of the transferee and will pay, perform and discharge such liabilities, for which the transferee will reimburse Carrier, Otis or UTC, as applicable, for all commercially reasonable payments made in connection with the performance and discharge of such liabilities.
The Distributions
The separation agreement will also govern the rights and obligations of the parties regarding the distributions following the completion of the separation. On the distribution date, UTC will distribute to its shareowners that hold UTC common stock as of the record date all of the issued and outstanding shares of Carrier common stock on a pro rata basis. On the date of the Otis distribution, UTC will distribute to its shareowners that hold UTC common stock as of the record date for the Otis distribution all of the issued and outstanding shares of Otis common stock on a pro rata basis. In each of the Carrier distribution and the Otis distribution, shareowners will receive cash in lieu of any fractional shares.
140
Conditions to the Distribution
The separation agreement will provide that the Carrier distribution and the Otis distribution are each subject to satisfaction (or waiver by UTC in its sole and absolute discretion) of certain conditions. The conditions to the Otis distribution are substantially identical to those of the Carrier distribution, other than that they apply to Otis. The conditions to the Carrier distribution are described under The Separation and Distribution—Conditions to the Distribution. Under the separation agreement, UTC will have the sole and absolute discretion to determine (and change) the terms of the Carrier distribution and the Otis distribution and to determine the record date, the distribution date and the distribution ratio for each of the Carrier distribution and the Otis distribution. However, any such determination or change will be subject to UTCs obligations to complete the separation and each of the Carrier distribution and the Otis distribution in accordance with the terms and conditions of the Raytheon merger agreement (including, with respect to certain changes, the requirement that UTC obtain Raytheons prior written consent). Notwithstanding the conditions set forth in the separation agreement, pursuant to and subject to the terms and conditions of the Raytheon merger agreement, UTC has agreed with Raytheon that UTC will consummate the separation and each of the Otis distribution and the Carrier distribution.
Releases
The separation agreement will provide that Carrier and its affiliates will release and discharge UTC, Otis and their respective affiliates and certain other non-recourse parties from all Carrier Liabilities, all liabilities arising from or in connection with the activities to implement the separation and the Carrier distribution and the Otis distribution, and all liabilities arising from or in connection with all actions, inactions, events, omissions, conditions, facts or circumstances occurring or existing before the distribution date to the extent relating to, arising out of or resulting from the Carrier Business, the Carrier Assets or the Carrier Liabilities, in each case except as expressly set forth in the separation agreement.
The separation agreement will provide that Otis and its affiliates will release and discharge UTC, Carrier and their respective affiliates and certain other non-recourse parties from all Otis Liabilities, all liabilities arising from or in connection with the activities to implement the separation and the Carrier distribution and the Otis distribution, and all liabilities arising from or in connection with all actions, inactions, events, omissions, conditions, facts or circumstances occurring or existing before the distribution date to the extent relating to, arising out of or resulting from the Otis Business, the Otis Assets or the Otis Liabilities, in each case except as expressly set forth in the separation agreement.
The separation agreement will provide that UTC and its affiliates will release and discharge Carrier, Otis and their respective affiliates and certain other non-recourse parties from all UTC Liabilities, all liabilities arising from or in connection with the activities to implement the separation and the Carrier distribution and the Otis distribution, and all liabilities arising from or in connection with all actions, inactions, events, omissions, conditions, facts or circumstances occurring or existing before the distribution date to the extent relating to, arising out of or resulting from the UTC Aerospace Businesses, the UTC Assets or the UTC Liabilities, in each case except as expressly set forth in the separation agreement.
These releases will not extend to obligations or liabilities under any agreements among the parties that remain in effect following the separation, which agreements include the separation agreement and the other agreements described under Certain Relationships and Related Party Transactions, or to any obligations or liabilities for the sale, lease, construction or receipt of goods, property or services in the ordinary course of business prior to the distribution date.
Indemnification
In the separation agreement, Carrier will agree to indemnify, defend and hold harmless UTC, Otis, each of UTCs and Otis respective affiliates, and each of UTCs and Otis and their respective affiliates directors, officers and employees, from and against all liabilities relating to, arising out of or resulting from:
• | the Carrier Liabilities; |
• | Carrier’s failure or the failure of any other person to pay, perform or otherwise promptly discharge any of the Carrier Liabilities, in accordance with their respective terms, whether prior to, at or after the distribution; |
141
• | except to the extent relating to a UTC Liability or an Otis Liability, any guarantee, indemnification or contribution obligation for the benefit of Carrier by UTC or Otis that survives the distribution; |
• | any breach by Carrier of the separation agreement or any of the ancillary agreements; and |
• | any untrue statement or alleged untrue statement or omission or alleged omission of material fact with respect to (1) all information contained in the Carrier Form 10, this information statement or certain other Carrier disclosure documents other than information relating to Otis or its business, assets or liabilities or the Otis distribution, or statements made explicitly in UTC’s name, and (2) all information in respect of Carrier or its business, assets or liabilities or the Carrier distribution in any UTC disclosure document in respect of a reporting period beginning prior to the completion of the Carrier distribution, or in the Otis Form 10, the Otis information statement or certain other Otis disclosure documents. |
In the separation agreement, Otis will agree to indemnify, defend and hold harmless UTC, Carrier, each of UTCs and Carriers respective affiliates, and each of UTCs and Carriers and their respective affiliates directors, officers and employees, from and against all liabilities relating to, arising out of or resulting from:
• | the Otis Liabilities; |
• | Otis’ failure or the failure of any other person to pay, perform or otherwise promptly discharge any of the Otis Liabilities, in accordance with their respective terms, whether prior to, at or after the distribution; |
• | except to the extent relating to a UTC Liability or a Carrier Liability, any guarantee, indemnification or contribution obligation for the benefit of Otis by UTC or Carrier that survives the distribution; |
• | any breach by Otis of the separation agreement or any of the ancillary agreements; and |
• | any untrue statement or alleged untrue statement or omission or alleged omission of material fact with respect to (1) all information contained in the Otis Form 10, the Otis information statement or certain other Otis disclosure documents other than information relating to Carrier or its business, assets or liabilities or the Carrier distribution, or statements made explicitly in UTC’s name, and (2) all information in respect of Otis or its business, assets or liabilities or the Otis distribution in any UTC disclosure document in respect of a reporting period beginning prior to the completion of the Otis distribution, or in the Carrier Form 10, this information statement or certain other Carrier disclosure documents. |
UTC will agree to indemnify, defend and hold harmless each of Carrier and Otis and each of their respective affiliates and each of Carriers and Otis and their respective affiliates directors, officers and employees from and against all liabilities relating to, arising out of or resulting from:
• | the UTC Liabilities; |
• | the failure of UTC or any other person to pay, perform or otherwise promptly discharge any of the UTC Liabilities in accordance with their respective terms whether prior to, at or after the distributions; |
• | except to the extent relating to an Otis Liability or a Carrier Liability, any guarantee, indemnification or contribution obligation for the benefit of UTC by Otis or Carrier, as applicable, that survives the distributions; |
• | any breach by UTC of the separation agreement or any of the ancillary agreements; and |
• | any untrue statement or alleged untrue statement or omission or alleged omission of material fact with respect to (1) statements made explicitly in UTC’s name in the Carrier Form 10 or the Otis Form 10, this information statement or the Otis information statement, or certain other Carrier disclosure documents or Otis disclosure documents and (2) statements in any UTC disclosure document other than information in respect of Carrier or Otis or their respective businesses, assets or liabilities or the distributions, made in any UTC disclosure document in respect of a reporting period beginning prior to the distributions. |
The separation agreement will also establish procedures with respect to claims subject to indemnification and related matters.
142
Indemnification with respect to taxes, and the procedures related thereto, will be governed by the tax matters agreement.
Insurance
The separation agreement will provide for the allocation among the parties of rights and obligations under existing insurance policies. In general, no party will have rights under the other parties insurance policies, except to make occurrence-based claims in respect of losses incurred prior to specified coverage transition dates under the other parties third-party occurrence-based policies to the extent such policies provided coverage for UTC, Carrier or Otis, as applicable, prior to such coverage transition dates. The party accessing the insurance policies will generally be responsible for deductibles, retention amounts, and other fees and expenses to the extent arising out of its accessing such policies. The separation agreement will also provide that each of Carrier and Otis will have rights to access certain third-party insurance or reinsurance policies held by UTC captive insurance entities.
Further Assurances
In addition to the actions specifically provided for in the separation agreement, except as otherwise set forth therein or in any ancillary agreement, Carrier, Otis and UTC will agree in the separation agreement to use reasonable best efforts, prior to, on and after the distribution date, to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws, regulations and agreements to consummate and make effective the transactions contemplated by the separation agreement and the ancillary agreements.
Dispute Resolution
The separation agreement will contain provisions that govern, except as otherwise provided in any ancillary agreement, the resolution of disputes, controversies or claims that may arise among Carrier, Otis and UTC related to the separation or distributions. These provisions will contemplate that efforts will be made to resolve disputes, controversies and claims through a transition committee, then by escalation of the matter to executives of the parties in dispute. If such efforts are not successful, one of the parties in dispute may submit the dispute, controversy or claim to nonbinding mediation or, if such nonbinding mediation is not successful, binding arbitration, subject to the provisions of the separation agreement.
Expenses
Except as expressly set forth in the separation agreement or in any ancillary agreement, the party incurring the expense will be responsible for all costs and expenses incurred in connection with the separation incurred prior to the distribution date, including costs and expenses relating to legal and tax counsel, financial advisors and accounting advisory work related to the separation. Except as expressly set forth in the separation agreement or in any ancillary agreement, or as otherwise agreed in writing by Carrier, Otis and UTC, all costs and expenses incurred in connection with the separation after the distributions will also be paid by the party incurring such cost and expense.
Other Matters
Other matters governed by the separation agreement will include approvals and notifications of transfer, termination of intercompany agreements, shared contracts, financial information certifications, transition committee provisions, confidentiality, access to and provision of records, privacy and data protection, production of witnesses, privileged matters, and financing arrangements. The separation agreement will not provide for any of Carrier, Otis or UTC to be subject to restrictions on competition.
Amendment and Termination
The separation agreement will provide that it may be terminated, and the separation and distributions may be modified or abandoned, at any time prior to the distribution date in the sole and absolute discretion of the UTC Board of Directors without the approval of Carrier or Otis. Pursuant to and subject to the terms and conditions of the Raytheon merger agreement, UTC has agreed with Raytheon that UTC will consummate the separation and each of the Carrier distribution and the Otis distribution.
143
The separation agreement will provide that no provision of the separation agreement or any ancillary agreement may be waived, amended, supplemented or modified by a party without the written consent of the party or parties against whom it is sought to enforce such waiver, amendment supplement or modification. In addition, pursuant to the terms and conditions of the Raytheon merger agreement, UTC may not give its consent to certain categories of such waivers, amendments, supplements or modifications, or make certain other changes to the terms of the separation, the Carrier distribution or the Otis distribution without the prior written consent of Raytheon.
After the distribution date, the separation agreement may not be amended or terminated, except by an agreement in writing signed by Carrier, Otis and UTC.
In the event of a termination of the separation agreement, no party, nor any of its directors, officers or employees, will have any liability of any kind to the other parties or any other person by reason of the separation agreement.
Transition Services Agreement
Carrier, Otis and UTC will enter into a transition services agreement in connection with the separation pursuant to which UTC and its subsidiaries will provide to Carrier and Otis and their respective subsidiaries, and Carrier and Otis and their respective subsidiaries will provide to UTC and its subsidiaries, on an interim, transitional basis, various services, as applicable, including, but not limited to information technology services, technical and engineering support, application support for operations, legal, payroll, finance, tax and accounting, general administrative services and other support services. The agreed-upon charges for such services are generally intended to allow the servicing party to charge a price comprised of costs and expenses, including reasonably allocable overhead expenses. The party receiving each transition service will be provided with reasonable information that supports the charges for the transition services being provided.
The services will commence on the distribution date and will generally terminate no later than 12 months (or in certain cases, 18 months) following the distribution date. The receiving party may terminate any services by giving prior written notice to the provider of such services and paying any applicable wind-down charges.
Subject to certain exceptions, the liabilities of each party under the transition services agreement in respect of such partys provision of services will generally be limited to the aggregate charges actually paid or payable to such party by the recipient of such services pursuant to the transition services agreement. The transition services agreement also will provide that the provider of a service will not be liable to the recipient of such service for any indirect, incidental, punitive, exemplary, remote, speculative or similar damages in excess of compensatory damages of another party.
Additional Transition Services Agreement
Carrier and Otis will also enter into an additional transition services agreement in connection with the separation pursuant to which Carrier and its subsidiaries will provide to Otis and its subsidiaries, and Otis and its subsidiaries will provide to Carrier and its subsidiaries, on an interim, transitional basis, certain limited services. The terms and conditions of the additional transition services agreement between Carrier and Otis are the same in all material respects to the terms and conditions of the transition services agreement between Carrier, Otis and UTC.
Tax Matters Agreement
In connection with the separation, Carrier, Otis and UTC will enter into a tax matters agreement that will govern the parties respective rights, responsibilities and obligations with respect to taxes (including responsibility for taxes, entitlement to refunds, allocation of tax attributes, preparation of tax returns, control of tax contests, and other tax matters).
Under the tax matters agreement, UTC generally will be responsible for all U.S. federal income taxes imposed on the UTC consolidated tax return group and state and foreign income, franchise, capital gain, withholding and similar taxes imposed on a consolidated, combined or unitary group (or similar tax group under non-U.S. law) that includes UTC or one of its subsidiaries with respect to taxable periods (or portions thereof) that end on or prior to the distribution date, except (1) special rules will apply with respect to certain taxes imposed in connection with the separation and distribution, (2) Carrier and Otis will each be responsible for a
144
specified portion of any installment payment required to be paid after the distribution date by UTC pursuant to Section 965(h)(2) of the Code, (3) Carrier and Otis will each be responsible for specified taxes that exclusively relate to the Carrier Business or the Otis Business, as applicable and (4) Carrier and Otis will each be responsible for taxes resulting from any breach of certain representations or covenants made by Carrier or Otis, as applicable, in the tax matters agreement or other separation-related agreements. Carrier and Otis generally will each be responsible for all federal, state, or foreign income, franchise, capital gain, withholding or similar taxes imposed on a separate return basis on Carrier (or any of its subsidiaries or any subgroup consisting solely of Carrier and its subsidiaries) or Otis (or any of its subsidiaries or any subgroup consisting solely of Otis and its subsidiaries), as applicable, with respect to taxable periods (or portions thereof) that end on or prior to the date of the relevant distribution, except (a) special rules will apply with respect to certain taxes imposed in connection with the separation and distribution and (b) UTC will be responsible for taxes resulting from any breach of any covenant made by UTC in the tax matters agreement or other separation-related agreements.
The tax matters agreement will provide special rules that allocate tax liabilities in the event either (1) the distribution, together with certain related transactions, fails to qualify as a transaction that is generally tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code or (2) any internal separation transaction that is intended to qualify as a transaction that is generally tax-free fails to so qualify. Under the tax matters agreement, each party generally will be responsible for any taxes and related amounts imposed on UTC, Carrier or Otis as a result of the failure to so qualify, to the extent that the failure to so qualify is attributable to actions, events or transactions relating to such partys respective stock, assets or business, or a breach of the relevant covenants made by that party in the tax matters agreement. Further, under the tax matters agreement, each of UTC, Carrier and Otis would be responsible for a specified portion of any taxes (and any related costs and other damages) (a) arising as a result of the failure of either of the distributions and certain related transactions to qualify as a transaction that is generally tax-free (including as a result of Section 355(e) of the Code) or a failure of any internal separation transaction that is intended to qualify as a transaction that is generally tax-free to so qualify, in each case, to the extent such amounts did not result from a disqualifying action by, or acquisition of equity securities of, Carrier, Otis or UTC or (b) arising from an adjustment, pursuant to an audit or other tax proceeding, with respect to any separation transaction that is not intended to qualify as a transaction that is generally tax-free.
In addition, the tax matters agreement will impose certain restrictions on Carrier and its subsidiaries during the two-year period following the distribution that will be intended to prevent either of the distributions, together with certain related transactions, from failing to qualify as a transaction that is generally tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code. Specifically, during such period, except in specific circumstances, Carrier and its subsidiaries will generally be prohibited from (1) ceasing to conduct certain businesses, (2) entering into certain transactions or series of transactions pursuant to which all or a portion of the shares of Carrier common stock would be acquired or all or a portion of certain assets of Carrier and its subsidiaries would be acquired, (3) liquidating or merging or consolidating with any other person, (4) issuing equity securities beyond certain thresholds, (5) repurchasing Carrier stock other than in certain open-market transactions or (6) taking or failing to take any other action that would cause the distribution, together with certain related transactions, to fail to qualify as a transaction that is generally tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code or for other applicable non-U.S. income tax purposes. Further, the tax matters agreement will impose similar restrictions on us and our subsidiaries during the two-year period following the distribution that are intended to prevent certain transactions undertaken as part of the internal reorganization from failing to qualify as transactions that are generally tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code or for applicable non-U.S. income tax purposes.
Employee Matters Agreement
Carrier, Otis and UTC will enter into an employee matters agreement in connection with the separation to allocate liabilities and responsibilities relating to employment matters, employee compensation and benefits plans and programs, and other related matters. The employee matters agreement will govern certain compensation and employee benefit obligations with respect to the current and former employees and non-employee directors of each company.
The employee matters agreement will provide that, unless otherwise specified, each party will be responsible for liabilities associated with current and former employees of such party and its current and former subsidiaries.
145
The employee matters agreement will also govern the terms of equity-based awards granted by UTC prior to the separation. See The Separation and Distribution—Treatment of Equity-Based Compensation.
The employee matters agreement will restrict each of Carrier, Otis and UTC from soliciting certain employees of either of the other parties for a period of 18 months following the Carrier Distribution and the Otis Distribution, subject to customary exceptions.
Intellectual Property Agreement
Carrier, Otis and UTC will enter into an intellectual property agreement in connection with the separation under which each party, on behalf of itself and its subsidiaries, will as of the effective time of the distributions, own or have the right to use certain intellectual property rights relevant to the Carrier Business, the Otis Business or the UTC Aerospace Businesses, respectively. The intellectual property agreement will provide that intellectual property rights that arose from certain services performed by one of the Carrier Business, the Otis Business and the UTC Aerospace Businesses (the performer) at the request of one of the other two businesses (the requester) generally will be assigned to the requester or the performer in accordance with prior intercompany practice. Additionally, the intellectual property agreement will provide that each of the Carrier Business, the Otis Business and the UTC Aerospace Businesses (the licensor) will grant to the other two businesses (each, a licensee) a license to intellectual property rights of the licensor that, prior to the distribution date, were used in connection with, necessary for the ongoing conduct of or subject to a documented plan for future use by, the licensee. The licenses will be royalty-free, nonexclusive, perpetual, irrevocable, fully paid-up, and, in the field of the licensees business, worldwide. The licenses will include the licensees right to sublicense, subject to certain customary limitations, and customary confidentiality requirements will apply.
In addition, Carrier, Otis and UTC will agree that ownership of certain trademarks used by more than one of Carrier, Otis and UTC will be allocated to one of Carrier, Otis and UTC and licensed to one or both of the other parties to the extent they use such trademarks.
Other
In connection with the internal restructuring transactions, UTC, Carrier and Otis have executed agreements to effect the transfer of assets and liabilities contemplated by the separation agreement. In limited circumstances, such agreements provide for true-up payments to satisfy requirements under non-U.S. laws. Carrier is not expected to have an obligation to make any true-up payments following the distribution, and, to the extent Carrier is entitled to receive true-up payments following the distribution, such payments are not expected to be material.
146
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of material U.S. federal income tax consequences of the distribution to U.S. holders (as defined below) of UTC common stock. This discussion is based on the Code, U.S. Treasury Regulations promulgated thereunder, rulings and other administrative pronouncements issued by the IRS, and judicial decisions, in each case as in effect and available on the date of this information statement and all of which are subject to differing interpretations and change at any time, possibly with retroactive effect. Any such change could affect the accuracy of the statements and conclusions set forth in this document.
This discussion applies only to U.S. holders of shares of UTC common stock who hold such shares as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion is based upon the assumption that the separation and the distribution, together with certain related transactions, will be consummated in accordance with the separation agreement and the other separation-related agreements and as described elsewhere in this information statement. This discussion is for general information only and is not tax advice. It does not address all aspects of U.S. federal income taxation that may be relevant to particular holders of UTC common stock in light of their particular circumstances nor does it address tax considerations applicable to holders that are or may be subject to special treatment under the U.S. federal income tax laws (such as, without limitation, insurance companies, tax-exempt organizations, financial institutions, mutual funds, certain former U.S. citizens or long-term residents of the United States, broker-dealers, partnerships (or entities or arrangements treated as partnerships for U.S. federal income tax purposes), or other pass-through entities or the owners thereof, traders in securities who elect a mark-to-market method of accounting, holders who hold their UTC common stock as part of a hedge, straddle, conversion, synthetic security, integrated investment or constructive sale transaction, holders who acquired UTC common stock or Carrier common stock upon the exercise of employee stock options or otherwise as compensation or holders whose functional currency is not the U.S. Dollar). This discussion also does not address any tax consequences arising under the alternative minimum tax, the Medicare tax on net investment income or the Foreign Account Tax Compliance Act (including the Treasury Regulations promulgated thereunder and intergovernmental agreements entered into pursuant thereto or in connection therewith). In addition, no information is provided with respect to any tax considerations under state, local or foreign laws or U.S. federal laws other than those pertaining to the U.S. federal income tax. This discussion does not address the tax consequences to any person who actually or constructively owns 5 percent or more of UTC common stock.
If a partnership (or any other entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds UTC common stock, the tax treatment of a partner in such partnership will generally depend upon the status of the partner and the activities of the partnership. Holders of UTC common stock that are partnerships and partners in such partnerships should consult their own tax advisors as to the tax consequences of the distribution.
For purposes of this discussion, a U.S. holder is a beneficial owner of UTC common stock that is, for U.S. federal income tax purposes:
• | an individual citizen or a resident of the United States; |
• | a corporation (or any other entity treated as a corporation) created or organized in or under the laws of the United States, any state thereof or the District of Columbia; |
• | an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or |
• | a trust, if (1) a court within the United States is able to exercise primary supervision over its administration and one or more U.S. persons have the authority to control all of the substantial decisions of such trust or (2) it has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person. |
THE FOLLOWING DISCUSSION IS A SUMMARY OF MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION UNDER CURRENT LAW AND IS FOR GENERAL INFORMATION ONLY. ALL HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES OF THE DISTRIBUTION TO THEM, INCLUDING THE APPLICATION AND EFFECT OF U.S. FEDERAL, STATE, LOCAL, NON-U.S. AND OTHER TAX LAWS.
147
The distribution is conditioned, among other things, on (1) the IRS ruling regarding certain U.S. federal income tax matters relating to the separation and distribution received by UTC remaining valid and satisfactory to the UTC Board of Directors and (2) the receipt by UTC and continued validity of an opinion of outside counsel, satisfactory to the UTC Board of Directors, regarding the qualification of certain elements of the distribution under Section 355 of the Code. The IRS ruling and the opinion of counsel are or will be based upon and rely on, among other things, various facts and assumptions, as well as certain representations, statements and undertakings of Carrier, Otis and UTC (including those relating to the past and future conduct of Carrier, Otis and UTC). If any of these representations, statements or undertakings is, or becomes, inaccurate or incomplete, or if any of the representations or covenants contained in any of the separation-related agreements and documents or in any documents relating to the IRS ruling and/or the opinion of counsel are inaccurate or not complied with by Otis, Carrier or UTC, the IRS ruling and/or the opinion of counsel may be invalid and the conclusions reached therein could be jeopardized.
Notwithstanding receipt by UTC of the IRS ruling and the opinion of counsel, the IRS could determine that the distribution and/or certain related transactions should be treated as taxable transactions for U.S. federal income tax purposes if it determines that any of the representations, assumptions or undertakings upon which the IRS ruling or the opinion of counsel was based are false or have been violated. In addition, the IRS ruling does not address all of the issues that are relevant to determining whether the distribution, together with certain related transactions, qualifies as a transaction that is generally tax-free for U.S. federal income tax purposes, and an opinion of counsel represents the judgment of such counsel and is not binding on the IRS or any court and the IRS or a court may disagree with the conclusions in the opinion of counsel. Accordingly, notwithstanding receipt by UTC of the IRS ruling and the opinion of counsel, there can be no assurance that the IRS will not assert that the distribution and/or certain related transactions do not qualify for tax-free treatment for U.S. federal income tax purposes or that a court would not sustain such a challenge. In the event the IRS were to prevail with such challenge, UTC, Carrier and UTC shareowners could be subject to significant U.S. federal income tax liability. Please refer to —Material U.S. Federal Income Tax Consequences if the Distribution is Taxable below.
Material U.S. Federal Income Tax Consequences if the Distribution, Together with Certain Related Transactions, Qualifies as a Transaction That is Generally Tax-Free Under Sections 355 and Sections 368(a)(1)(D) of the Code.
If the distribution, together with certain related transactions, qualifies as a transaction that is generally tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code, the U.S. federal income tax consequences of the distribution are as follows:
• | no gain or loss will be recognized by, and no amount will be includible in the income of UTC as a result of the distribution, other than gain or income arising in connection with certain internal restructurings undertaken in connection with the separation and distribution (including with respect to any portion of the borrowing proceeds transferred to UTC from Carrier that is not used for qualifying purposes) and with respect to any excess loss account or intercompany transaction required to be taken into account by UTC under Treasury Regulations relating to consolidated federal income tax returns; |
• | no gain or loss will be recognized by (and no amount will be included in the income of) U.S. holders of UTC common stock upon the receipt of Carrier common stock in the distribution for U.S. federal income tax purposes, except with respect to any cash received in lieu of fractional shares of Carrier common stock (as described below); |
• | the aggregate tax basis of the UTC common stock and the Carrier common stock received in the distribution (including any fractional share interest in Carrier common stock for which cash is received) in the hands of each U.S. holder of UTC common stock immediately after the distribution will equal the aggregate basis of UTC common stock held by the U.S. holder immediately before the distribution, allocated between the UTC common stock and the Carrier common stock (including any fractional share interest in Carrier common stock for which cash is received) in proportion to the relative fair market value of each on the date of the distribution (provided that, in the event the Carrier distribution and the Otis distribution occur on the same date, the aggregate tax basis of the UTC common stock, the Carrier common stock and the Otis common stock received in the distributions (including any fractional share interest in Carrier common stock and/or Otis common stock for which cash is received) in the hands of each U.S. holder of UTC common stock immediately after the distributions will equal the aggregate basis of UTC common stock held by the U.S. holder immediately before the |
148
distributions, allocated among the UTC common stock, the Carrier common stock and the Otis common stock (including any fractional share interest in Carrier common stock and/or Otis common stock for which cash is received) in proportion to the relative fair market value of each on the date of the distributions); and
• | the holding period of the Carrier common stock received by each U.S. holder of UTC common stock in the distribution (including any fractional share interest in Carrier common stock for which cash is received) will generally include the holding period at the time of the distribution for the UTC common stock with respect to which the distribution is made. |
A U.S. holder who receives cash in lieu of a fractional share of Carrier common stock in the distribution will be treated as having sold such fractional share for cash, and will recognize capital gain or loss in an amount equal to the difference between the amount of cash received and such U.S. holders adjusted tax basis in such fractional share. Such gain or loss will be long-term capital gain or loss if the U.S. holders holding period for its UTC common stock exceeds one year at the time of the distribution.
If a U.S. holder of UTC common stock holds different blocks of UTC common stock (generally shares of UTC common stock purchased or acquired on different dates or at different prices), such holder should consult its tax advisor regarding the determination of the basis and holding period of shares of Carrier common stock received in the distribution in respect of particular blocks of UTC common stock.
Material U.S. Federal Income Tax Consequences if the Distribution Is Taxable.
As discussed above, notwithstanding receipt by UTC of the IRS ruling and an opinion of counsel, the IRS could assert that the distribution does not qualify for tax-free treatment for U.S. federal income tax purposes. If the IRS were successful in taking this position, some or all of the consequences described above would not apply, and UTC, Carrier, Otis and UTC shareowners could be subject to significant U.S. federal income tax liability. In addition, certain events that may or may not be within the control of UTC, Carrier or Otis could cause the distribution and certain related transactions to not qualify for tax-free treatment for U.S. federal income tax purposes. Depending on the circumstances, Carrier may be required to indemnify UTC and Otis for taxes (and certain related losses) resulting from the distribution and certain related transactions not qualifying as tax-free.
If the distribution were to fail to qualify as a transaction that is generally tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code, in general, for U.S. federal income tax purposes, UTC would recognize taxable gain as if it had sold the Carrier common stock in a taxable sale for its fair market value (unless UTC and Carrier jointly make an election under Section 336(e) of the Code with respect to the distribution, in which case, in general, (1) the UTC group would recognize taxable gain as if Carrier had sold all of its assets in a taxable sale in exchange for an amount equal to the fair market value of the Carrier common stock and the assumption of all Carriers liabilities and (2) Carrier would obtain a related step up in the basis of its assets), and UTC shareowners who receive Carrier common stock in the distribution would be subject to tax as if they had received a taxable distribution equal to the fair market value of such shares.
Even if the distribution were to otherwise qualify as a tax-free transaction under Sections 355 and 368(a)(1)(D) of the Code, it may result in taxable gain to UTC (but not its shareowners) under Section 355(e) of the Code if the distribution were deemed to be part of a plan (or series of related transactions) pursuant to which one or more persons acquire, directly or indirectly, shares representing a 50 percent or greater interest (by vote or value) in UTC or Carrier. For this purpose, any acquisitions of UTC or Carrier shares within the period beginning two years before the distribution and ending two years after the distribution are presumed to be part of such a plan, although UTC or Carrier may be able to rebut that presumption (including by qualifying for one or more safe harbors under applicable Treasury Regulations). Further, for purposes of this test, even if the Raytheon merger were treated as part of such a plan, the Raytheon merger alone should not cause the distribution to be taxable to UTC under Section 355(e) of the Code because pre-Raytheon merger holders of UTC common stock will own over 50 percent of the UTC common stock immediately following the Raytheon merger. However, if the IRS were to determine that other acquisitions of UTC or Carrier stock, either before or after the distribution, were part of a plan or series of related transactions that included the distribution, such determination could result in significant tax liabilities to UTC.
149
In connection with the distribution, Carrier, Otis and UTC will enter into a tax matters agreement pursuant to which each of Carrier and Otis will be responsible for certain liabilities and obligations following the distributions. In general, under the terms of the tax matters agreement, if the distribution, together with certain related transactions, were to fail to qualify as a transaction that is generally tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code (including as a result of Section 355(e) of the Code) or if certain related transactions were to fail to qualify as tax-free under applicable law, and if such failure were the result of actions taken after the distribution by UTC, Carrier or Otis, then the party responsible for such failure will be responsible for all taxes imposed on UTC, Carrier or Otis to the extent such taxes result from such actions. However, if such failure was the result of any acquisition of Carrier shares, or of certain of Carriers representations, statements or undertakings being incorrect, incomplete or breached, then Carrier generally will be responsible for all taxes imposed as a result of such acquisition or breach. Further, under the terms of the tax matters agreement, if either of the distributions, together with certain related transactions, were to fail to qualify as a transaction that is generally tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code (including as a result of Section 355(e) of the Code) or if certain related transactions were to fail to qualify as tax-free under applicable law, and if such failure were not the result of actions taken after the distribution by, or acquisitions of equity securities of, UTC, Carrier or Otis, then UTC, Carrier and Otis will each be responsible for a specified portion of any such taxes. For a discussion of the tax matters agreement, see Certain Relationships and Related Party Transactions—Tax Matters Agreement. Carriers indemnification obligations to UTC and Otis under the tax matters agreement will not be limited in amount or subject to any cap. If Carrier is required to pay any taxes or indemnify UTC, Otis and their respective subsidiaries and officers and directors under the circumstances set forth in the tax matters agreement, Carrier may be subject to substantial liabilities.
Backup Withholding and Information Reporting.
Payments of cash to U.S. holders of UTC common stock in lieu of fractional shares of Carrier common stock may be subject to information reporting and backup withholding (currently, at a rate of 24 percent), unless such U.S. holder delivers a properly completed IRS Form W-9 certifying such U.S. holders correct taxpayer identification number and certain other information, or otherwise establishes an exemption from backup withholding. Backup withholding is not an additional tax. Amounts withheld under the backup withholding rules may be refunded or credited against a U.S. holders U.S. federal income tax liability, provided that the required information is timely furnished to the IRS.
THE FOREGOING DISCUSSION IS A SUMMARY OF MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION UNDER CURRENT LAW AND IS FOR GENERAL INFORMATION ONLY. ALL HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES OF THE DISTRIBUTION TO THEM, INCLUDING THE APPLICATION AND EFFECT OF U.S. FEDERAL, STATE, LOCAL, NON-U.S. AND OTHER TAX LAWS.
150
DESCRIPTION OF MATERIAL INDEBTEDNESS
Prior to the distribution, Carrier intends to enter into a $2 billion unsecured, unsubordinated 5-year revolving credit facility, a $1.75 billion unsecured, unsubordinated 3-year term loan credit facility and a $2 billion unsecured, unsubordinated commercial paper program. Prior to the distribution, Carrier also expects to issue approximately $9.24 billion of unsecured, unsubordinated notes. It is expected that the term loan credit facility, of which Carrier expects to utilize approximately $1.5 billion prior to the distribution, and the unsecured notes will be guaranteed by UTC until the distribution date and that upon completion of the distribution such guarantees will terminate. As a result of such transactions, we anticipate having approximately $11.1 billion of outstanding indebtedness when the distribution is completed. We may also incur additional indebtedness in the future. In addition, the amount of indebtedness actually incurred by Carrier may be adjusted prior to the completion of the distribution in a manner that is intended to result in approximately $24.3 billion of adjusted net indebtedness of the UTC Aerospace Businesses immediately prior to the completion of the merger, subject to and in accordance with the Raytheon merger agreement; accordingly, the actual debt balance of Carrier immediately following the distribution may be higher or lower than currently anticipated.
Carrier expects to use proceeds from the revolving credit facility and commercial paper program for general corporate purposes and to use the net proceeds from the term loan credit facility and bond offering for distributions to UTC. UTC has informed us that it intends to use the proceeds it receives from Carrier to pay principal and accrued interest on a portion of its outstanding indebtedness.
Carriers debt balance at the time of the distribution is being determined based on internal capital planning and considering the following factors and assumptions: anticipated business plan, optimal debt levels, operating activities, general economic contingencies, investment grade credit rating, and desired financing capacity.
Notes
As described above, Carrier expects to issue approximately $9.24 billion in aggregate principal amount of unsecured, unsubordinated notes, which will be offered and sold to qualified institutional buyers in reliance on Rule 144A under the Securities Act and to non-U.S. persons in reliance on Regulation S of the Securities Act. Carrier expects that the maturities of the notes will range from 3 years to 30 years. The notes are expected to contain customary affirmative covenants, negative covenants and events of default for financings of this type and to be redeemable at Carriers option in a customary manner.
The foregoing description and the other information in this information statement regarding the potential offering of notes is included in this information statement solely for informational purposes. Nothing in this information statement should be construed as an offer to sell, or the solicitation of an offer to buy, any such notes.
Revolving and Term Loan Credit Facilities
As described above, Carrier and its wholly owned subsidiary, Carrier Intercompany Lending Designated Activity Company intend to enter into a $2 billion unsecured, unsubordinated 5-year revolving credit facility with JPMorgan Chase Bank, N.A., as administrative agent and the other financial institutions to be party thereto as agents and lenders. The revolving credit facility will not be available to Carrier or its subsidiaries until after the distribution. It is expected that loans under the revolving credit facility will be available in U.S. Dollars, Euro and Sterling and, subject to customary conditions, certain other currencies. It is intended that loans under the revolving credit facility will bear interest based on a ratings-based pricing grid.
In addition, Carrier, as borrower, and UTC, as guarantor, intend to enter into a $1.75 billion unsecured, unsubordinated 3-year term loan credit facility with JPMorgan Chase Bank, N.A., as administrative agent and the other financial institutions to be party thereto as agents and lenders. Loans under the term loan credit facility are expected to be available in U.S. Dollars and bear interest based on a ratings-based pricing grid. Following the distribution, UTC will cease to be a guarantor.
The credit facilities are expected to contain affirmative and negative covenants customary for financings of this type that, among other things, would limit Carrier and its subsidiaries ability to incur additional liens, to make certain fundamental changes and to enter into sale and leaseback transactions. In addition, we expect that the credit facilities will require that we maintain a maximum consolidated total leverage ratio. The credit facilities are also expected to contain events of default customary for financings of this type.
151
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Before the separation and distribution, all of the outstanding shares of Carrier common stock will be owned beneficially and of record by UTC. Following the separation and distribution, Carrier expects to have outstanding an aggregate of approximately [ ] shares of common stock based upon approximately [ ] shares of UTC common stock issued and outstanding on [ ], 2020, excluding treasury shares, assuming no exercise of UTC options and applying the distribution ratio.
Share Ownership Information for Directors and Officers
The following table shows the number of shares of Carrier common stock expected to be beneficially owned by our current directors, named executive officers and our directors and current executive officers as a group immediately following the completion of the distribution, based on ownership of UTC common stock as of January 31, 2020 and based on the assumption that, for every share of UTC common stock held by such persons, they will receive one share of Carrier common stock. None of these individuals, or the group as a whole, would be expected to beneficially own more than 1 percent of our common stock immediately following the completion of the distribution. Each person listed in the following table had sole voting and investment power of the shares shown, except as noted in the footnotes below.
Directors and Executive Officers |
SARs Exercisable within 60 days(1) |
RSUs Convertible to Shares within 60 days(2) |
DSUs Convertible to Shares within 60 days(3) |
Total Shares Beneficially Owned(4) |
Percentage of Class |
||||||||||
John V. Faraci |
— | 2,404 | 54,559 | 56,963 | * |
||||||||||
Jean-Pierre Garnier |
— | — | 90,875 | 108,985 | * |
||||||||||
John J. Greisch |
— | — | — | 322 | * |
||||||||||
Charles M. Holley, Jr. |
— | — | — | 29 | * |
||||||||||
Michael M. McNamara |
— | — | — | — | * |
||||||||||
Michael A. Todman |
— | — | — | — | * |
||||||||||
Virginia M. (Gina) Wilson |
— | — | — | — | * |
||||||||||
David Gitlin |
91,010 | — | — | 112,680 | (5) |
* |
|||||||||
Timothy McLevish |
— | — | — | — | * |
||||||||||
Christopher Nelson |
5,504 | — | — | 12,449 | * |
||||||||||
Matthew Pine |
682 | — | — | 1,816 | * |
||||||||||
Jurgen Timperman |
1,678 | — | — | 3,494 | * |
||||||||||
All directors and executive officers as a group (17 persons) |
368,124 | * |
(1) | The SARs in the table reflect the net number of shares of Carrier common stock that would be issued to the executive officers if their vested SARs were exercised within 60 days of January 31, 2020 (assuming that the UTC SARs could be exercised for Carrier common stock). Once vested, each SAR can be exercised for the number of shares having a value equal to the increase in value of a share from the date the SAR was granted through the exercise date. The net number of shares was calculated using $150.20 per share, which was the closing price of UTC common stock on January 31, 2020. |
(2) | The non-employee director RSUs vest in equal portions over five years and are distributed in shares of common stock upon termination of service. The table reflects the vested portion of the RSUs, which are the number of shares in which the director has the right to acquire beneficial ownership at any time within 60 days after January 31, 2020, following termination of service (assuming the UTC RSUs are settled in Carrier common stock). |
(3) | The non-employee director DSUs are converted into common stock upon termination of service. The table reflects the number of shares in which the director and nominee has the right to acquire beneficial ownership at any time within 60 days after January 31, 2020, following termination of service (assuming the UTC DSUs are settled in Carrier common stock). |
(4) | Includes vested share equivalents held under the UTC Employee Savings Plan that are allocated to an executive officer’s account. |
(5) | Includes 12,893 shares in which Mr. Gitlin shares voting and investment power with his spouse. |
* | Represents beneficial ownership of less than one percent of the outstanding shares of UTC common stock, based on 865,308,981 shares of UTC common stock issued and outstanding as of January 31, 2020. |
152
Certain Beneficial Owners
The following table shows all holders known to Carrier that are expected to be beneficial owners of more than 5 percent of the outstanding shares of Carrier common stock immediately following the completion of the distribution, based on ownership of UTC common stock as of December 31, 2018 and based upon the assumption that, for every share of UTC common stock held by such persons, they will receive one share of Carrier common stock.
Name and Address |
Shares |
Percent of Class |
||||
State Street Corporation(1) State Street Financial Center One Lincoln Street Boston, MA 02111 |
89,786,914 | 10.4 | % |
|||
The Vanguard Group(2) 100 Vanguard Boulevard Malvern, PA 19355 |
65,593,077 | 7.6 | % |
|||
BlackRock, Inc.(3) 55 East 52nd Street New York, NY 10055 |
54,035,145 | 6.3 | % |
(1) | State Street Corporation reported in an SEC filing that, as of December 31, 2018, it held sole voting power with respect to zero shares of UTC common stock, shared voting power with respect to 81,137,873 shares of UTC common stock, sole dispositive power with respect to zero shares of UTC common stock, and shared dispositive power with respect to 89,777,522 shares of UTC common stock. State Street Corporation also reported that its wholly owned subsidiary, State Street Bank and Trust Company, is the trustee for the UTC common stock in the UTC Employee Savings Plan Master Trust, which beneficially owns 5.9% of common stock of UTC, and that in this capacity State Street Bank and Trust Company has dispositive power and voting power over the shares in certain circumstances. |
(2) | The Vanguard Group reported in an SEC filing that, as of December 31, 2018, it held sole voting power with respect to 919,135 shares of UTC common stock, shared voting power with respect to 197,765 shares of UTC common stock, sole dispositive power with respect to 64,469,610 shares of UTC common stock, and shared dispositive power with respect to 1,123,467 shares of UTC common stock. |
(3) | BlackRock, Inc., reported in an SEC filing that, as of December 31, 2018, it held sole voting power with respect to 47,755,974 shares of UTC common stock and sole dispositive power with respect to 54,035,145 shares of UTC common stock. |
153
DESCRIPTION OF CARRIER CAPITAL STOCK
Carriers certificate of incorporation and bylaws will be amended and restated prior to the distribution. The following briefly summarizes the material terms of our capital stock that will be contained in our amended and restated certificate of incorporation and amended and restated bylaws. These summaries do not describe every aspect of these securities and documents and are subject to all the provisions of our amended and restated certificate of incorporation or amended and restated bylaws that will be in effect at the time of the distribution, and are qualified in their entirety by reference to these documents, which you should read (along with the applicable provisions of Delaware law) for complete information on our capital stock as of the time of the distribution. The amended and restated certificate of incorporation and amended and restated bylaws, each in a form expected to be in effect at the time of the distribution, will be included as exhibits to Carriers registration statement on Form 10, of which this information statement forms a part. We will include our amended and restated certificate of incorporation and amended and restated bylaws, as in effect at the time of the distribution, in a Current Report on Form 8-K filed with the SEC. The following also summarizes certain relevant provisions of the DGCL. Since the terms of the DGCL are more detailed than the general information provided below, you should read the actual provisions of the DGCL for complete information.
General
Carriers authorized capital stock will consist of [ ] shares of common stock, par value $0.01 per share, and [ ] shares of preferred stock, par value $0.01 per share.
Immediately following the distribution, we expect that approximately [ ] shares of our common stock will be issued and outstanding and that no shares of our preferred stock will be issued and outstanding.
Common Stock
Immediately following the distribution, we expect that approximately [ ] shares of our common stock will be issued and outstanding, all of which will be fully paid and nonassessable.
Common shareowners will be entitled to one vote for each share held on all matters submitted to a vote of shareowners.
Common shareowners will be entitled to share equally in the dividends, if any, that may be declared by Carriers Board of Directors out of funds that are legally available to pay dividends, but only after payment of any dividends required to be paid on outstanding preferred stock, if any. Upon any voluntary or involuntary liquidation, dissolution or winding up of Carrier, the common shareowners will be entitled to share ratably in all assets of Carrier remaining after we pay all of our debts and other liabilities and any amounts we may owe to the holders of our preferred stock, if any.
Common shareowners will not have any preemptive, subscription, redemption or conversion rights. The rights, preferences and privileges of common shareowners will be subject to the rights of the shareowners of any series of preferred stock that we will or may designate and issue.
Delaware law and our amended and restated bylaws will permit us to issue uncertificated shares of common stock.
Preferred Stock
As noted above, the rights, preferences and privileges of common shareowners may be affected by the rights, preferences and privileges granted to holders of preferred stock. For this reason, you should be aware that Carriers Board of Directors will have the authority, without further action by the shareowners, to issue shares of preferred stock in one or more series, and to fix the rights, preferences and privileges (including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences) of each series, which may be greater than the rights of the common stock. It is not possible to state the actual effect of the issuance of any additional series of preferred stock upon the rights of common shareowners until the Board determines the specific rights of the holders of that series. However, the effects might include, among other things (1) restricting dividends on the common stock, (2) diluting the voting power of the common stock, (3) impairing the liquidation rights of the common stock, or (4) delaying or preventing a change in control of Carrier without further action by the shareowners.
154
Immediately following the distribution, we expect no shares of our preferred stock to be issued and outstanding.
Charter and Bylaw Provisions
Upon completion of the separation and the distribution, we expect that eight individuals will serve on Carriers Board of Directors. At each annual meeting of shareowners, the entire Board will be elected for a term of one year. Carriers amended and restated bylaws will provide that the Board may, from time to time, designate the number of directors; however, the number may not be less than five nor more than 14. Vacancies on the board (except in an instance where a director is removed by shareowners and the resulting vacancy is filled by shareowners) may be filled by a vote of the majority of the directors then in office, even if less than a quorum.
Carriers amended and restated bylaws will establish advance notice procedures with respect to shareowner proposals and the nomination of candidates for election of directors, other than nominations made by or at the direction of Carriers Board of Directors. Eligible shareowners will be permitted to include their own director nominees in Carriers proxy materials under the circumstances set forth in the amended and restated bylaws. Generally, a shareowner or a group of up to 20 shareowners, who has maintained continuous qualifying ownership of at least 3 percent of Carriers outstanding common stock for at least three years, will be permitted to include director nominees constituting up to 20 percent of the Board in the proxy materials for an annual meeting of shareowners if such shareowner or group of shareowners complies with the other requirements set forth in the proxy access provision.
Carriers amended and restated bylaws will include an exclusive forum provision. This provision will provide that, unless Carrier consents in writing to the selection of an alternative forum, the sole and exclusive forum for various types of suits will be a state court located within the State of Delaware (or, if no state court located within the State of Delaware has jurisdiction, the federal district court for the District of Delaware). Such suits will include (1) any derivative action or proceeding brought on behalf of Carrier, (2) any action asserting a claim of breach of a fiduciary duty owed by any director or officer or other employee of Carrier to the company or to Carriers shareowners, (3) any action asserting a claim against Carrier or any director or officer or other employee of Carrier arising pursuant to any provision of the DGCL or Carriers amended and restated certificate of incorporation or amended and restated bylaws (as either may be amended from time to time) or (4) any action asserting a claim against Carrier or any director or officer or other employee of Carrier governed by the internal affairs doctrine. Under Carriers amended and restated bylaws, to the fullest extent permitted by law, this exclusive forum provision will apply to state and federal law claims, including claims under the federal securities laws, including the Securities Act and the Exchange Act, although Carrier shareowners will not be deemed to have waived Carriers compliance with the federal securities laws and the rules and regulations thereunder. The enforceability of similar choice of forum provisions in other companies organizational documents has been challenged in legal proceedings, and it is possible that, in connection with claims arising under federal securities laws or otherwise, a court could find the exclusive forum provision contained in Carriers amended and restated bylaws to be inapplicable or unenforceable.
Carriers amended and restated certificate of incorporation and amended and restated bylaws will provide that any action permitted to be taken at an annual or special meeting of shareowners may be effected by the written consent of shareowners if shareowners representing 25 percent of the outstanding voting power of Carrier capital stock have requested a record date for such action and certain other conditions are satisfied in accordance with Carriers amended and restated certificate of incorporation and amended and restated bylaws.
Carriers amended and restated certificate of incorporation and amended and restated bylaws will provide that special meetings of shareowners may be called by the Chairman of the Board of Directors or the Chief Executive Officer, a majority of Carriers whole Board of Directors, or the Secretary at the written request of shareowners with qualifying ownership of at least 15 percent of the outstanding shares of Carrier capital stock entitled to vote generally in the election of directors and subject to the provisions and conditions set forth in Carriers amended and restated certificate of incorporation and amended and restated bylaws.
Under Delaware law, the affirmative vote of a majority of the shares entitled to vote on any matter is required to amend a corporations certificate of incorporation or bylaws, unless a corporations certificate of incorporation or bylaws, as the case may be, requires a greater percentage.
Certain of the provisions of Carriers amended and restated certificate of incorporation and amended and restated bylaws discussed above and below could discourage a proxy contest or the acquisition of control of a
155
substantial block of our stock. These provisions could also have the effect of discouraging a third party from making a tender offer or otherwise attempting to obtain control of Carrier, even though an attempt to obtain control of Carrier might be beneficial to Carrier and its shareowners.
Carriers amended and restated certificate of incorporation will include provisions eliminating the personal liability of our directors for monetary damages resulting from breaches of their fiduciary duty to the extent permitted by Delaware law. The amended and restated bylaws will include provisions indemnifying our directors, officers and employees to the fullest extent permitted by Delaware law, including under circumstances in which indemnification is otherwise discretionary. The amended and restated bylaws will additionally include provisions relating to reimbursement by Carrier of expenses reasonably incurred by our current and former directors and officers in advance of the final disposition of any such proceeding, and permitting the Chief Executive Officer or the General Counsel and the Chief Financial Officer acting together to reimburse the expenses of our current and former employees, agents and fiduciaries in advance of the final disposition of any such proceeding.
Change of Control
Section 203 of the DGCL, under certain circumstances, may make it more difficult for a person who is an Interested Shareowner, as defined in Section 203, to effect various business combinations with a corporation for a three-year period. Under Delaware law, a corporations certificate of incorporation or bylaws may exclude a corporation from the restrictions imposed by Section 203. However, Carriers amended and restated certificate of incorporation and amended and restated bylaws will not exclude us from these restrictions, and these restrictions will apply to us.
Listing
We intend to apply to have our shares of common stock listed on the NYSE under the symbol CARR.
Sale of Unregistered Securities
On March 15, 2019, Carrier issued one share of its common stock to UTC pursuant to Section 4(a)(2) of the Securities Act. We did not register the issuance of the issued shares under the Securities Act because such issuance did not constitute a public offering.
Transfer Agent and Registrar
After the distribution, the transfer agent and registrar for our common stock will be Computershare.
156
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form 10 with the SEC with respect to the shares of our common stock being distributed as contemplated by this information statement. This information statement is a part of, and does not contain all of the information set forth in, the registration statement and the exhibits and schedules to the registration statement. For further information with respect to Carrier and Carrier common stock, please refer to the registration statement, including its exhibits and schedules. Statements made in this information statement relating to any contract or other document filed as an exhibit to the registration statement include the material terms of such contract or other document. However, such statements are not necessarily complete, and you should refer to the exhibits attached to the registration statement for copies of the actual contract or document. You may review a copy of the registration statement, including its exhibits and schedules, on the Internet website maintained by the SEC at www.sec.gov. Information contained on or connected to any website referenced in this information statement is not incorporated into this information statement or the registration statement of which this information statement forms a part, or in any other filings with, or any information furnished or submitted to, the SEC.
As a result of the distribution, Carrier will become subject to the information and reporting requirements of the Exchange Act and, in accordance with the Exchange Act, will file periodic reports, proxy statements and other information with the SEC.
We intend to furnish holders of our common stock with annual reports containing consolidated financial statements prepared in accordance with GAAP and audited and reported on, with an opinion expressed, by an independent registered public accounting firm.
You should rely only on the information contained in this information statement or to which this information statement has referred you. We have not authorized any person to provide you with different information or to make any representation not contained in this information statement.
157
INDEX TO COMBINED FINANCIAL STATEMENTS
CARRIER GLOBAL CORPORATION
(A Business of United Technologies Corporation)
COMBINED FINANCIAL STATEMENTS
As of and for the Years Ended December 31, 2019, 2018 and 2017
F-1
Report of Independent Registered Public Accounting Firm
To the Shareowners and Board of Directors of United Technologies Corporation
Opinion on the Financial Statements
We have audited the accompanying combined balance sheets of Carrier Global Corporation (a Business of United Technologies Corporation) (the Company) as of December 31, 2019 and 2018, and the related combined statements of operations, of comprehensive income, of changes in equity and of cash flows for each of the three years in the period ended December 31, 2019, including the related notes and financial statement schedule listed in the accompanying index (collectively referred to as the combined financial statements). In our opinion, the combined financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America.
Change in Accounting Principle
As discussed in Note 19 to the combined financial statements, the Company changed the manner in which it accounts for leases in 2019.
Basis for Opinion
These combined financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on the Companys combined financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these combined financial statements in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the combined financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the combined financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the combined financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Hartford, Connecticut
February 7, 2020
We have served as the Company's auditor since 2019.
F-2
Combined Statements of Operations
For the Years Ended December 31, |
|||||||||
(dollars in millions) |
2019 |
2018 |
2017 |
||||||
Net sales: |
|||||||||
Product sales (Notes 5 and 16) |
$ | 15,360 | $ | 15,674 | $ | 14,775 | |||
Service sales |
3,248 | 3,240 | 3,039 | ||||||
18,608 | 18,914 | 17,814 | |||||||
Costs and expenses: |
|||||||||
Cost of products sold (Notes 5 and 16) |
10,890 | 11,063 | 10,474 | ||||||
Cost of services sold |
2,299 | 2,282 | 2,155 | ||||||
Research and development |
401 | 400 | 364 | ||||||
Selling, general and administrative |
2,761 | 2,689 | 2,584 | ||||||
16,351 | 16,434 | 15,577 | |||||||
Equity method investment net earnings |
236 | 220 | 218 | ||||||
Other income (expense), net |
(2 | ) |
937 | 575 | |||||
Operating profit |
2,491 | 3,637 | 3,030 | ||||||
Non-service pension benefit |
(154 | ) |
(168 | ) |
(139 | ) |
|||
Interest (income) expense, net |
(27 | ) |
(37 | ) |
115 | ||||
Income from operations before income taxes |
2,672 | 3,842 | 3,054 | ||||||
Income tax expense |
517 | 1,073 | 1,787 | ||||||
Net income |
2,155 | 2,769 | 1,267 | ||||||
Less: Noncontrolling interest in subsidiaries’ earnings |
39 | 35 | 40 | ||||||
Net income attributable to Carrier Global Corporation |
$ | 2,116 | $ | 2,734 | $ | 1,227 |
See accompanying notes to the Combined Financial Statements.
F-3
Combined Statements of Comprehensive Income
For the Years Ended December 31, |
|||||||||
(dollars in millions) |
2019 |
2018 |
2017 |
||||||
Net income |
$ | 2,155 | $ | 2,769 | $ | 1,267 | |||
Other comprehensive (loss) income, net of tax: |
|||||||||
Foreign currency translation adjustments arising during period |
48 | (449 | ) |
771 | |||||
Less: reclassification adjustments for gain on sale of an investment in a foreign entity recognized in Other income (expense), net |
2 | — | — | ||||||
50 | (449 | ) |
771 | ||||||
Pension and postretirement benefit plans: |
|||||||||
Net actuarial loss arising during period |
(112 | ) |
(221 | ) |
(13 | ) |
|||
Prior service (cost) credit arising during period |
— | (9 | ) |
14 | |||||
Amortization of actuarial loss and prior service cost |
11 | 17 | 16 | ||||||
Other |
3 | 21 | (33 | ) |
|||||
(98 | ) |
(192 | ) |
(16 | ) |
||||
Tax benefit |
15 | 33 | 5 | ||||||
(83 | ) |
(159 | ) |
(11 | ) |
||||
Unrealized loss on available-for-sale securities: |
|||||||||
Unrealized holding loss arising during period |
— | — | (31 | ) |
|||||
Reclassification adjustments for gain on sale of investment included in Other income (expense), net |
— | — | (394 | ) |
|||||
— | — | (425 | ) |
||||||
Tax benefit |
— | — | 163 | ||||||
— | — | (262 | ) |
||||||
Change in unrealized cash flow hedging: |
|||||||||
Unrealized cash flow hedging gain arising during period |
— | — | 2 | ||||||
Loss reclassified into Product sales |
— | 2 | 1 | ||||||
— | 2 | 3 | |||||||
Other comprehensive (loss) income, net of tax |
(33 | ) |
(606 | ) |
501 | ||||
Comprehensive income |
2,122 | 2,163 | 1,768 | ||||||
Less: comprehensive income attributable to noncontrolling interest |
(35 | ) |
(27 | ) |
(74 | ) |
|||
Comprehensive income attributable to Carrier Global Corporation |
$ | 2,087 | $ | 2,136 | $ | 1,694 |
See accompanying notes to the Combined Financial Statements.
F-4
As of December 31, |
||||||
(dollars in millions) |
2019 |
2018 |
||||
Assets |
||||||
Cash and cash equivalents |
$ | 952 | $ | 1,129 | ||
Accounts receivable (net of allowance for doubtful accounts of $45 and $141) (Notes 5 and 16) |
2,726 | 2,673 | ||||
Contract assets, current |
622 | 566 | ||||
Inventories, net |
1,332 | 1,363 | ||||
Other assets, current |
327 | 378 | ||||
Total Current Assets |
5,959 | 6,109 | ||||
Future income tax benefits |
500 | 398 | ||||
Operating lease right-of-use assets |
832 | — | ||||
Fixed assets, net |
1,663 | 1,653 | ||||
Intangible assets, net |
1,083 | 1,214 | ||||
Goodwill |
9,884 | 9,849 | ||||
Pension and postretirement assets |
490 | 441 | ||||
Equity method investments |
1,739 | 1,770 | ||||
Other assets |
256 | 303 | ||||
Total Assets |
$ | 22,406 | $ | 21,737 | ||
Liabilities and Equity |
||||||
Accounts payable (Notes 5 and 16) |
1,701 | 1,944 | ||||
Accrued liabilities |
2,325 | 2,074 | ||||
Contract liabilities, current |
443 | 448 | ||||
Total Current Liabilities |
4,469 | 4,466 | ||||
Operating lease liabilities |
682 | — | ||||
Future pension and postretirement benefit obligations |
456 | 419 | ||||
Future income tax obligations |
1,099 | 1,280 | ||||
Other long-term liabilities |
1,265 | 1,303 | ||||
Total Liabilities |
7,971 | 7,468 | ||||
Commitments and contingent liabilities (Note 20) |
||||||
UTC Net Investment: |
||||||
UTC Net Investment |
15,355 | 15,132 | ||||
Accumulated other comprehensive loss |
(1,253 | ) |
(1,215 | ) |
||
Total UTC Net Investment |
14,102 | 13,917 | ||||
Noncontrolling interest |
333 | 352 | ||||
Total Equity |
14,435 | 14,269 | ||||
Total Liabilities and Equity |
$ | 22,406 | $ | 21,737 |
See accompanying notes to the Combined Financial Statements.
F-5
Combined Statements of Changes in Equity
(dollars in millions) |
UTC Net Investment |
Accumulated Other Comprehensive Income (Loss) |
Total UTC Net Investment |
Noncontrolling Interest |
Total Equity |
Redeemable Noncontrolling Interest |
||||||||||||
Balance January 1, 2017 |
$ | 15,696 | $ | (1,084 | ) |
$ | 14,612 | $ | 348 | $ | 14,960 | $ | 177 | |||||
Net income |
1,227 | — | 1,227 | 40 | 1,267 | — | ||||||||||||
Redeemable noncontrolling interest in subsidiaries’ earnings |
— | — | — | (9 | ) |
(9 | ) |
9 | ||||||||||
Other comprehensive income, net of tax |
— | 467 | 467 | 11 | 478 | 23 | ||||||||||||
Sale (purchase) of subsidiary shares from noncontrolling interest |
4 | — | 4 | — | 4 | (286 | ) |
|||||||||||
Dividends attributable to noncontrolling interest |
— | — | — | (31 | ) |
(31 | ) |
(4 | ) |
|||||||||
Acquisition of noncontrolling interest |
— | — | — | 12 | 12 | — | ||||||||||||
Redeemable noncontrolling interest fair value adjustment |
(81 | ) |
— | (81 | ) |
— | (81 | ) |
81 | |||||||||
Net transfers to UTC |
(1,816 | ) |
— | (1,816 | ) |
— | (1,816 | ) |
— | |||||||||
Balance December 31, 2017 |
15,030 | (617 | ) |
14,413 | 371 | 14,784 | — | |||||||||||
Net income |
2,734 | — | 2,734 | 35 | 2,769 | — | ||||||||||||
Other comprehensive loss, net of tax |
— | (598 | ) |
(598 | ) |
(8 | ) |
(606 | ) |
— | ||||||||
Dividends attributable to noncontrolling interest |
— | — | — | (46 | ) |
(46 | ) |
— | ||||||||||
Adoption of ASU 2016-16 |
9 | — | 9 | — | 9 | — | ||||||||||||
Net transfers to UTC |
(2,641 | ) |
— | (2,641 | ) |
— | (2,641 | ) |
— | |||||||||
Balance December 31, 2018 |
15,132 | (1,215 | ) |
13,917 | 352 | 14,269 | — | |||||||||||
Net income |
2,116 | — | 2,116 | 39 | 2,155 | — | ||||||||||||
Other comprehensive loss, net of tax |
— | (29 | ) |
(29 | ) |
(4 | ) |
(33 | ) |
— | ||||||||
Dividends attributable to noncontrolling interest |
— | — | — | (28 | ) |
(28 | ) |
— | ||||||||||
Disposition of noncontrolling interest |
— | — | — | (26 | ) |
(26 | ) |
|||||||||||
Adoption of ASU 2018-02 |
9 | (9 | ) |
— | — | — | — | |||||||||||
Net transfers to UTC |
(1,902 | ) |
— | (1,902 | ) |
— | (1,902 | ) |
— | |||||||||
Balance December 31, 2019 |
$ | 15,355 | $ | (1,253 | ) |
$ | 14,102 | $ | 333 | $ | 14,435 | $ | — |
See accompanying notes to the Combined Financial Statements.
F-6
Combined Statements of Cash Flows
For the Years Ended December 31, |
|||||||||
(dollars in millions) |
2019 |
2018 |
2017 |
||||||
Operating Activities: |
|||||||||
Net income |
$ | 2,155 | $ | 2,769 | $ | 1,267 | |||
Adjustments to reconcile net income to net cash flows provided by operating activities, net of acquisitions and dispositions: |
|||||||||
Depreciation and amortization |
335 | 357 | 372 | ||||||
Deferred income tax (benefit) provision |
(122 | ) |
133 | 73 | |||||
Impact from U.S. tax reform |
— | — | 799 | ||||||
Gain on sale of Taylor |
— | (799 | ) |
— | |||||
Gain on sale of available-for-sale securities |
— | — | (418 | ) |
|||||
Stock compensation cost |
52 | 44 | 34 | ||||||
Equity method investment net earnings |
(236 | ) |
(220 | ) |
(218 | ) |
|||
Distributions from equity method investments |
158 | 143 | 142 | ||||||
Impairment of equity method investment |
108 | — | — | ||||||
Change in: |
|||||||||
Accounts receivable, net |
(129 | ) |
(211 | ) |
159 | ||||
Contract assets, current |
23 | (67 | ) |
— | |||||
Inventories, net |
(2 | ) |
(151 | ) |
(102 | ) |
|||
Other assets, current |
17 | (7 | ) |
(21 | ) |
||||
Accounts payable and accrued liabilities |
(311 | ) |
88 | 192 | |||||
Contract liabilities, current |
(18 | ) |
24 | — | |||||
Pension contributions |
(36 | ) |
(45 | ) |
(44 | ) |
|||
Other operating activities, net |
8 | (3 | ) |
(137 | ) |
||||
Net cash flows provided by operating activities |
2,002 | 2,055 | 2,098 | ||||||
Investing Activities: |
|||||||||
Capital expenditures |
(243 | ) |
(263 | ) |
(326 | ) |
|||
Investments in businesses, net of cash acquired (Note 9) |
— | (310 | ) |
(176 | ) |
||||
Dispositions of businesses (Note 9) |
6 | 1,032 | 52 | ||||||
Proceeds from sale of investments in Watsco, Inc. |
— | — | 596 | ||||||
Other investing activities, net |
24 | (44 | ) |
125 | |||||
Net cash flows provided by (used in) investing activities |
(213 | ) |
415 | 271 | |||||
Financing Activities: |
|||||||||
Increase (decrease) in short-term borrowings, net |
25 | 3 | (8 | ) |
|||||
Issuance of project financing obligations |
107 | 117 | 99 | ||||||
Repayment of project financing obligations |
(138 | ) |
— | (103 | ) |
||||
Purchase of shares from redeemable noncontrolling interest |
— | — | (286 | ) |
|||||
Dividends paid to noncontrolling interest |
(28 | ) |
(46 | ) |
(31 | ) |
|||
Net transfers to UTC |
(1,954 | ) |
(2,685 | ) |
(1,850 | ) |
|||
Other financing activities, net |
21 | (16 | ) |
(14 | ) |
||||
Net cash flows used in financing activities |
(1,967 | ) |
(2,627 | ) |
(2,193 | ) |
|||
Effect of foreign exchange rates on cash and cash equivalents |
1 | (39 | ) |
64 | |||||
Net (decrease) increase in cash, cash equivalents and restricted cash |
(177 | ) |
(196 | ) |
240 | ||||
Cash, cash equivalents and restricted cash, beginning of year |
1,134 | 1,330 | 1,090 | ||||||
Cash, cash equivalents and restricted cash, end of year |
957 | 1,134 | 1,330 | ||||||
Less: Restricted cash |
5 | 5 | 6 | ||||||
Cash and cash equivalents, end of year |
$ | 952 | $ | 1,129 | $ | 1,324 | |||
Supplemental Cash Flow Information: |
|||||||||
Interest paid, net of amounts capitalized |
$ | 28 | $ | 16 | $ | 14 | |||
Interest paid - related party |
55 | 59 | 202 | ||||||
Income taxes paid - related party |
475 | 649 | 608 | ||||||
Income taxes paid, net of refunds |
$ | 284 | $ | 276 | $ | 309 |
See accompanying notes to the Combined Financial Statements.
F-7
Notes to the Combined Financial Statements
NOTE 1: DESCRIPTION OF THE BUSINESS
Carrier Global Corporation (Carrier, the Business, we, us or our) is a global provider of heating, ventilating, air conditioning (HVAC), refrigeration, fire and security solutions. Carrier also provides a broad array of related building services, including audit, design, installation, system integration, repair, maintenance and monitoring.
Carriers operations are classified into three segments: HVAC, Refrigeration, and Fire & Security. The HVAC and Refrigeration segments sell their products and solutions directly, including to building contractors and owners, transportation companies and retail stores, or indirectly through equity method investments, independent sales representatives, distributors, wholesalers, dealers and retail outlets. These products and services are sold under the Carrier name and other brand names including Automated Logic, Bryant, CIAT, Day & Night, Heil, NORESCO, Riello, Carrier Commercial Refrigeration, Carrier Transicold, Sensitech and others. For the Fire & Security segment, products and services are used by governments, financial institutions, architects, building owners and developers, security and fire consultants, homeowners and other end-users requiring a high level of security and fire protection for their businesses and residences. Carrier provides its fire and security products and services under Autronica, Chubb, Det-Tronics, Edwards, Fireye, GST, Interlogix, Kidde, LenelS2, Marioff, Onity, Supra and other brand names, and sells directly to customers as well as through manufacturers representatives, distributors, dealers, value-added resellers and retailers.
On November 26, 2018, United Technologies Corporation (UTC) announced its plan to separate Carrier into an independent publicly traded company (the Separation). The Separation will be effectuated through a spin-off, pursuant to which UTC will distribute to UTC shareowners all of the outstanding common shares of common stock of Carrier.
NOTE 2: BASIS OF PRESENTATION
The Business has historically operated as a part of UTC; consequently, stand-alone financial statements have not historically been prepared for the Business. The accompanying Combined Financial Statements have been prepared from UTCs historical accounting records and are presented on a stand-alone basis as if the Business operations had been conducted independently from UTC. These Combined Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP).
The Combined Statements of Operations include all revenues and costs directly attributable to Carrier, including costs for facilities, functions and services used by Carrier. Costs for certain functions and services performed by centralized UTC are directly charged to Carrier based on specific identification when possible or based on a reasonable allocation driver such as net sales, headcount, usage or other allocation methods. The results of operations include allocations of costs for administrative functions and services performed on behalf of Carrier by centralized groups within UTC and certain pension and other post-retirement benefit costs (see Note 5 – Related Parties for a description of the allocation methodologies). All charges and allocations for facilities, functions and services performed by UTC organizations have been deemed settled in cash by Carrier to UTC in the period in which the cost was recorded in the Combined Statements of Operations. Current and deferred income taxes have been determined based on the stand-alone results of Carrier. However, because the Business filed as part of UTCs tax group in certain jurisdictions, the Business actual tax balances may differ from those reported. The Business portion of its domestic and certain income taxes for jurisdictions outside the United States are deemed to have been settled in the period the related tax expense was recorded.
UTC uses a centralized approach to cash management and financing its operations. Accordingly, none of the cash, third party debt or related interest expense of UTC has been allocated to Carrier in the Combined Financial Statements. However, cash balances primarily associated with certain foreign entities that do not participate in UTCs cash management program have been included in the Combined Financial Statements. Transactions between UTC and Carrier are deemed to have been settled immediately through UTCs Net Investment, other than those transactions which have historically been cash-settled and which are reflected in the Combined Balance Sheets within Accounts receivable (see Note 6 – Accounts Receivable, Net and Note 5 – Related Parties for additional information). The net effect of the deemed settled transactions is reflected in the Combined Statements of Cash Flows as Net transfers to UTC within financing activities and in the Combined Balance Sheets as UTCs Net Investment (see Note 5 – Related Parties for additional information).
F-8
All intracompany accounts and transactions within the Business have been eliminated in the preparation of the Combined Financial Statements. The Combined Financial Statements of the Business include assets and liabilities that have been determined to be specifically identifiable or otherwise attributable to the Business.
All of the allocations and estimates in the Combined Financial Statements are based on assumptions that management believes are reasonable. However, the Combined Financial Statements included herein may not be indicative of the financial position, results of operations and cash flows of the Business in the future, or if the Business had been a separate, stand-alone entity during the years presented.
The noncontrolling interest represents the noncontrolling investors interests in the results of subsidiaries that we control and combine.
NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Combination. The Combined Financial Statements have been prepared on a stand-alone basis and include the accounts of Carrier and its wholly-owned subsidiaries, as well as entities in which Carrier has a controlling financial interest.
Use of Estimates. The preparation of the Combined Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities. In addition, estimates and assumptions may impact the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents. Cash and cash equivalents includes cash on hand, demand deposits and short-term cash investments that are highly liquid in nature and have original maturities of three months or less. The Business participates in UTCs centralized cash management and financing programs (see Note 5 – Related Parties for additional information). The cash reflected on the Combined Balance Sheets represents cash on hand at certain foreign entities that do not participate in the centralized cash management program and are specifically identifiable to the Business.
On occasion, the Business is required to maintain cash deposits with certain banks with respect to contractual or other legal obligations. As of December 31, 2019 and 2018, restricted cash of approximately $5 million and $5 million, respectively, is included in Other assets, current on the Combined Balance Sheets.
Accounts Receivable. Accounts receivable consist of billed and unbilled amounts. Billed amounts include invoices presented to customers that have not been paid. Unbilled receivables represent revenues that have been earned but are not currently billable to the customer under the terms of the contract because billings are based on milestones or other triggering events. These items are expected to be billed and collected in the ordinary course of business. Receivables are recognized net of an allowance for doubtful accounts. The Business primarily estimates reserves for losses on receivables based on historical experience and by specific identification based on an assessment of a customers ability to make required payments. Upon adoption of Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers, and its related amendments (collectively, the New Revenue Standard) on January 1, 2018, the majority of unbilled receivables have been reclassified to Contract assets as described below. Unbilled receivables where the Business has an unconditional right to payment are included in Accounts receivable.
Contract Assets and Liabilities. Contract assets and liabilities represent the difference in the timing of revenue recognition from receipt of cash from the customers. Contract assets reflect revenue recognized and performance obligations satisfied in advance of customer billing. Performance obligations partially satisfied in advance of customer billings are included in Contract assets; prior to the adoption of the New Revenue Standard, these amounts were included as unbilled receivables in Accounts receivable.
Contract liabilities relate to payments received in advance of the satisfaction of performance obligations under the contract. The Business receives payments from customers based on the terms established in the contracts. See Note 4 – Revenue Recognition for further discussion of contract assets and liabilities.
Inventories. Inventories are stated at the lower of cost or estimated realizable value and are primarily based on first-in, first-out (FIFO) or average cost methods, which approximate current replacement cost; however,
F-9
certain Carrier entities use the last-in, first-out (LIFO) method. If inventories that were valued using the LIFO method had been valued under the FIFO method, they would have been higher by $120 million and $113 million at December 31, 2019 and 2018, respectively. At December 31, 2019 and 2018, approximately 32% and 31%, respectively, of all inventory utilized the LIFO method.
Valuation reserves for excess, obsolete and slow-moving inventory are estimated by comparing the inventory levels of individual parts and products to both future sales forecasts or production requirements and historical usage rates in order to identify inventory where the resale value or replacement value is less than the cost of the inventory. Other factors that management considers in determining the adequacy of these reserves include whether the part meets current specifications and whether it can be substituted for a part currently being sold or used as a service part, and overall market conditions and other inventory management initiatives.
Fair Value of Financial Instruments. The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources, while unobservable inputs reflect a reporting entitys pricing based upon their own market assumptions. The fair value hierarchy consists of the following three levels:
• | Level I – Quoted prices for identical instruments in active markets. |
• | Level II – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable. |
• | Level III – Instruments whose significant value drivers are unobservable. |
The carrying amount of trade receivables, accounts payable and accrued expenses approximates fair value due to the short maturity (less than one year) of the instruments.
Business Combinations. The Business accounts for transactions that are classified as business combinations in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 805: Business Combinations. Once a business is acquired, the fair value of the identifiable assets acquired and liabilities assumed are determined with the excess cost recorded to goodwill. As required, preliminary fair values are determined once a business is acquired, with the final determination of the fair values being completed within the one-year measurement period from the date of acquisition.
Equity Method Investments. Investments in which Carrier has the ability to exercise significant influence, but do not control, are accounted for under the equity method of accounting and are presented on the Combined Balance Sheets. Under this method of accounting, the Business share of the net earnings or losses of the investee is presented within Operating profit on the Combined Statements of Operations since the activities of the investee are closely aligned with the operations of the Business. The Business evaluates its equity method investments whenever events or changes in circumstance indicate that the carrying amounts of such investments may be impaired. If a decline in the value of an equity method investment is determined to be other than temporary, a loss is recorded in earnings in the current period. Distributions received from equity method investees are presented in the Combined Statements of Cash Flows based on the cumulative earnings approach.
Goodwill and Intangible Assets. Goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired businesses. Goodwill and intangible assets deemed to have indefinite lives are not amortized. Goodwill and indefinite-lived intangible assets are tested annually for impairment or when a triggering event occurs using the guidance and criteria described in FASB ASC Topic 350: Intangibles – Goodwill and Other. This testing compares carrying values to fair values and, when appropriate, the carrying value of these assets is reduced to fair value. The Business completed its most recent annual impairment testing as of July 1, 2019 and determined that no impairments to the carrying value of goodwill or indefinite lived intangible assets were necessary.
Intangible assets consist of trademarks, patents, service contracts, monitoring lines and customer relationships and are recognized at fair value in acquisition accounting and then amortized to cost of sales and selling, general and administrative expenses.
F-10
Useful lives of finite-lived intangible assets are estimated based upon the nature of the intangible asset. These intangible assets are amortized based on the pattern in which the economic benefits of the intangible assets are consumed. If a pattern of economic benefit cannot be reliably determined or if straight-line amortization approximates the pattern of economic benefit, a straight-line amortization method may be used. The range of estimated useful lives is as follows:
Customer relationships
|
1-30 years
|
Trademarks and trade names
|
5-30 years
|
Service contracts
|
1-23 years
|
Monitoring lines
|
7-10 years
|
Patents
|
7-8 years
|
Other Long-Lived Assets. The Business evaluates the potential impairment of other long-lived assets whenever events or changes in circumstances indicate that the related carrying amounts of a long-lived asset or asset group may not be recoverable. The carrying value of a long-lived asset or asset group is considered impaired when the projected future undiscounted cash flows to be generated from the asset or asset group over its remaining depreciable life are less than its current carrying value. The Business measures impairment based on the amount by which the carrying value exceeds the estimated fair value of the long-lived asset or asset group. There were no impairments of long-lived assets for the three years ended December 31, 2019.
Income Taxes. Income taxes as presented in the Combined Financial Statements of the Business attribute current and deferred income taxes of UTC to the Business stand-alone financial statements in a manner that is systematic, rational and consistent with the asset and liability method prescribed by FASB ASC Topic 740: Income Taxes (ASC 740). Accordingly, the Business income tax provision was prepared following the separate return method. The separate return method applies ASC 740 to the stand-alone financial statements of each member of the consolidated group as if the group members were a separate taxpayer and a stand-alone enterprise. The calculation of our income taxes on a separate return basis requires considerable amount of judgment and use of both estimates and allocations. As a result, actual transactions included in the consolidated financial statements of UTC may not be included in the separate Combined Financial Statements of the Business. Similarly, the tax treatment of certain items reflected in the Combined Financial Statements of the Business may not be reflected in the consolidated financial statements and tax returns of UTC. Therefore, such items as net operating losses, credit carry-forwards and valuation allowances may exist in the stand-alone financial statements that may or may not exist in UTCs consolidated financial statements. As such, the income taxes of the Business as presented in the Combined Financial Statements may not be indicative of the income taxes that the Business will generate in the future.
Certain operations of the Business have historically been included in a consolidated return with other UTC entities. Current obligations for taxes in certain jurisdictions, where the Business files a consolidated tax return with UTC, are deemed settled with UTC for purposes of the Combined Financial Statements. Current obligations for tax in jurisdictions where the Business does not file a consolidated return with UTC, including certain foreign jurisdictions and certain U.S. states, are recorded as accrued liabilities. On December 22, 2017, the TCJA was enacted (see Note 14 – Income Taxes). As a result, income tax attributable to certain previously undistributed earnings of the Business international subsidiaries was recognized in 2017 and is recorded within Accrued liabilities and Future income tax obligations on the Combined Balance Sheets pursuant to UTCs election to pay the tax over time, for which Carrier will settle with UTC.
In the ordinary course of business, there is inherent uncertainty in quantifying income tax positions. The Business assesses its income tax positions and records tax benefits for all years subject to examination based upon managements evaluation of the facts, circumstances and information available at the reporting date. For those tax positions where it is more-likely-than-not that a tax benefit will be sustained, the Business has recorded the largest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where it is not more-likely-than-not that a tax benefit will be sustained, no tax benefit has been recognized in the financial statements. Where applicable, associated interest expense has also been recognized. The Business recognizes accrued interest related to unrecognized tax benefits in interest expense. Penalties, if incurred, would be recognized as a component of income tax expense.
F-11
The TCJA contains a new law that subjects the Business to a tax on Global Intangible Low-Taxed Income (GILTI), beginning in 2018. GILTI is a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. The FASB has provided that companies subject to GILTI have the option to account for the GILTI tax as a period cost if and when incurred, or to recognize deferred taxes for temporary differences, including outside basis differences, expected to reverse as GILTI. The Business has elected to account for GILTI as a period cost, if incurred.
Revenue Recognition. ASU 2014-09 and its related amendments were effective for reporting periods beginning after December 15, 2017. The Business adopted the New Revenue Standard effective January 1, 2018 and elected the modified retrospective approach. The results for periods before 2018 were not adjusted for the new standard. See Note 4 – Revenue Recognition for a discussion of the effect of the New Revenue Standard on the Combined Financial Statements.
The Business accounts for revenue in accordance with FASB ASC Topic 606: Revenue from Contracts with Customers. Under Topic 606, a performance obligation is a promise in a contract to transfer a distinct good or service to the customer. Some of the contracts with customers contain a single performance obligation, while others contain multiple performance obligations most commonly when a contract spans multiple phases of the product life-cycle such as development, production, installation, maintenance and support. A contracts transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. When there are multiple performance obligations within a contract, the Business allocates the transaction price to each performance obligation based on its relative stand-alone selling price.
Carrier considers the contractual consideration payable by the customer and assesses variable consideration that may affect the total transaction price, including contractual discounts, price concessions, contract incentive payments, estimates of award fees and other sources of variable consideration, when determining the transaction price of each contract. The Business includes variable consideration in the estimated transaction price when there is a basis to reasonably estimate the amount. These estimates are based on historical experience, anticipated performance and best judgment at the time. The Business also considers whether the contracts provide customers with significant financing. Generally, contracts do not contain significant financing.
Point in time revenue recognition. Performance obligations are satisfied as of a point in time for certain businesses in HVAC, certain refrigeration systems and certain alarm and fire detection and suppression systems. Revenue is recognized when control of the product transfers to the customer, generally upon product shipment.
Over-time revenue recognition. Performance obligations are satisfied over-time if the customer receives the benefits as the Business performs work, if the customer controls the asset as it is being produced, or if the product being produced for the customer has no alternative use and the Business has a contractual right to payment. The Business recognizes revenue on an over-time basis on installation and service contracts related to its Refrigeration and Fire & Security businesses as well as certain businesses within HVAC. For over-time performance obligations requiring the installation of equipment, revenue is recognized using costs incurred to date relative to total estimated costs at completion to measure progress. Incurred costs represent work performed, which correspond with and best depict transfer of control to the customer. Contract costs include labor, materials and subcontractors costs, or other direct costs, and where applicable, indirect costs.
Contract modifications that are for goods or services that are not distinct are accounted for as part of the existing contract. If the goods or services are considered distinct, then the contract modification would be accounted for prospectively or as part of a new contract. The Business reviews cost estimates on significant contracts on at least a quarterly basis, and for others, no less frequently than annually or when circumstances change and warrant a modification to a previous estimate. The Business records changes in contract estimates using the cumulative catch-up method. There were no material changes in contract estimates during the periods presented.
For 2017, prior to the adoption of the New Revenue Standard, the Business recognized sales for products and services in accordance with the provisions of Staff Accounting Bulletin (SAB) Topic 13, Revenue Recognition, as applicable. Sales within the scope of this SAB Topic were recognized when persuasive evidence of an arrangement existed, product delivery had occurred or services had been rendered, pricing was fixed or determinable and collectability was reasonably assured. Subsequent changes in service contracts were accounted for prospectively.
F-12
Contract Accounting and Separately Priced Maintenance: For construction-type and certain production-type contracts, sales were recognized on a percentage-of-completion basis following contract accounting methods. Contracts consisted of enforceable agreements which form the basis of our unit of accounting for measuring sales, accumulating costs and recording loss provisions as necessary. Contract accounting required estimates of award fees and other sources of variable consideration as well as future costs over the performance period of the contract. Cost estimates were subject to change and result in adjustments to margins on contracts in progress. Contract costs included estimated inventoriable manufacturing, engineering, product warranty and product performance guarantee costs, as appropriate.
Loss provisions on contracts were recognized to the extent that estimated contract costs exceed the estimated consideration contemplated under the contractual arrangement. For new commitments, the Business generally recorded loss provisions at the earlier of contract announcement or contract signing except for certain requirements contracts under which losses are recorded upon receipt of the purchase order which obligates us to perform. For existing commitments, anticipated losses on contracts were recognized in the period in which losses become evident. Products contemplated under contractual arrangements included firm quantities of products sold under contract.
The Business reviewed its cost estimates on significant contracts on a quarterly basis, and for others, no less frequently than annually or when circumstances change and warrant a modification to a previous estimate. The Business recorded changes in contract estimates using the cumulative catch-up method in accordance with the FASB ASC Topic 605: Revenue Recognition.
Cash Payments to Customers. Carrier customarily offered its customers incentives to purchase products to ensure an adequate supply of its products in the distribution channels. The principal incentive program provided reimbursements to distributors for offering promotional pricing for products. The Business accounted for incentive payments made as a reduction in sales based on an estimate at the time the sale is recognized.
Self-Insurance. The Business maintains self-insurance retentions for a number of risks, including but not limited to, workers compensation, general liability, automobile liability, property and employee-related healthcare benefits. It has obtained insurance coverage for amounts exceeding individual and aggregate loss limits. The Business accrues for known future claims and incurred but not reported losses. Liabilities related to self-insured risks were $239 million and $224 million at December 31, 2019 and 2018, respectively, of which $66 million and $64 million were primarily classified as Other long-term liabilities at December 31, 2019 and 2018, respectively. The expense related to self-insurance was $177 million, $170 million and $158 million for the years ended December 31, 2019, 2018 and 2017, respectively.
Environmental. Environmental investigatory, remediation, operating and maintenance costs are accrued when it is probable that a liability has been incurred and the amount can be reasonably estimated. The most likely cost to be incurred is accrued based on an evaluation of currently available facts with respect to each individual site, including existing technology, current laws and regulations and prior remediation experience. Where no amount within a range of estimates is more likely, the minimum is accrued. For sites with multiple responsible parties, the Business considers its likely proportionate share of the anticipated remediation costs and the ability of the other parties to fulfill their obligations in establishing a provision for those costs. Liabilities with fixed or reliably determinable future cash payments are discounted. Accrued environmental liabilities are not reduced by potential insurance reimbursements. See Note 20 – Contingent Liabilities for additional details on the environmental remediation activities.
Asbestos Related Liabilities and Insurance Recoveries, and Indemnification Receivables. The Business records an undiscounted liability for any asbestos related contingency that is probable of occurrence and reasonably estimable. In connection with the recognition of liabilities for asbestos related matters, the Business records asbestos related insurance recoveries that are deemed probable. The amounts recorded by Carrier for asbestos-related liabilities and insurance recoveries are based on currently available information and assumptions that Management believes are reasonable. Carriers actual liabilities or insurance recoveries could be higher or lower than those recorded if actual results vary significantly from the assumptions. Key variables in these assumptions include the number and type of new claims to be filed each year, the outcomes or resolution of such claims, the average cost of resolution of each new claim, the amount of insurance available, allocation methodologies, the contractual terms with each insurer with whom the Business has reached settlements, the resolution of coverage issues with other excess insurance carriers with whom the Business has not yet achieved
F-13
settlements, and the solvency risk with respect to Carriers insurance carriers. Other factors that may affect future liability include uncertainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case, legal rulings that may be made by state and federal courts and the passage of state or federal legislation. At the end of each year, the Business evaluates all of these factors and, with input from an outside actuarial expert, make any necessary adjustments to both estimated asbestos liabilities and insurance recoveries. For additional information, see Note 20 – Contingent Liabilities.
Asset Retirement Obligations. The Business records the fair value of legal obligations associated with the retirement of tangible long-lived assets in the period in which it is determined to exist, if a reasonable estimate of fair value can be made. Upon initial recognition of a liability, the Business capitalizes the cost of the asset retirement obligation by increasing the carrying amount of the related long-lived asset. Over time, the liability is increased for changes in its present value and the capitalized cost is depreciated over the useful life of the related asset. As of December 31, 2019 and 2018, the outstanding liability for asset retirement obligations was $74 million and $73 million, respectively, which is included in Other long-term liabilities in the accompanying Combined Balance Sheets.
Other Income (Expense), Net. Other income (expense), net includes the impact of foreign exchange gains or losses, gains or losses on sale of fixed assets as well as other infrequently occurring items. Gains and losses on the disposal of businesses or other investments are also included within Other income (expense), net.
Foreign Exchange. The Business operates in many different currencies and, accordingly, is subject to the inherent risks associated with foreign exchange rate movements. The financial position and results of operations of substantially all of the Business are measured using the local currency as the functional currency. Foreign currency denominated assets and liabilities are translated into U.S. Dollars at the exchange rates existing at the respective balance sheet dates, and income and expense items are translated at the average exchange rates during the respective periods. The aggregate effects of translating foreign currency denominated balance sheets are deferred as a separate component of UTC Net Investment.
Pension and Postretirement Obligations. Guidance under FASB ASC Topic 715: Compensation – Retirement Benefits requires balance sheet recognition of the overfunded or underfunded status of pension and postretirement benefit plans. Under this guidance, actuarial gains and losses, prior service costs or credits and any remaining transition assets or obligations that have not been recognized under previous accounting standards must be recognized in other comprehensive income, net of tax effects, until they are amortized as a component of net periodic benefit cost. Pension and postretirement obligation balances and related costs reflected within the Combined Financial Statements include both costs directly attributable to plans dedicated to Carrier, as well as an allocation of costs for Carrier employees participation in UTCs plans. See Note 12 – Employee Benefit Plans for additional details.
Product Performance Obligations. The Business extends performance and operating cost guarantees beyond normal service and warranty policies for extended periods on some of the Business products. The liabilities under such guarantees are based upon future product performance and durability and the Business records such costs that are probable and can be reasonably estimated within Cost of products sold. Separately priced extended warranties are recorded within Contract liabilities as of December 31, 2019 and 2018. In addition, the Business incurs discretionary costs to service its products in connection with product performance issues. The costs associated with these product performance and operating cost guarantees require estimates over the full terms of the agreements and require management to consider factors such as the extent of future maintenance requirements and the future cost of material and labor to perform the services. These cost estimates are largely based upon historical experience. See Note 18 – Guarantees for further discussion.
UTC Net Investment. UTCs net investment in the Business is presented as UTC Net Investment on the Combined Balance Sheets. The Combined Statements of Changes in Equity include net cash transfers and other property transfers between UTC and the Business as well as related party receivables and payables between the Business and other UTC affiliates that were settled on a current basis. UTC performs cash management and other treasury-related functions on a centralized basis for nearly all of its legal entities, which includes the Business and, consequently, the net cash generated by the Business is transferred to UTC through the intercompany accounts.
Recent Accounting Pronouncements. In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. This ASU requires the income tax
F-14
consequences of an intra-entity transfer of an asset, other than inventory, to be recognized when the transfer occurs. Two common examples of assets included in the scope of this update are intellectual property and property, plant and equipment. Carrier adopted the new standard effective January 1, 2018. The adoption of this standard did not have a material impact on the Combined Financial Statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU requires a financial asset (or group of financial assets) to be measured at an amortized cost basis and presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets in order to present the net carrying value, which represents the amount expected to be collected on the financial asset. The provisions of this ASU are effective for years beginning after December 15, 2019, with early adoption permitted. The Business is still evaluating the impact of this ASU and its related amendments on the Combined Financial Statements, which is not expected to be material.
In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (Topic 220). The new standard allows companies to reclassify to retained earnings the stranded tax effects in accumulated other comprehensive income (AOCI) from the then newly-enacted TCJA. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. The Business elected to reclassify the income tax effects of TCJA from AOCI to UTC Net Investment effective January 1, 2019. The adoption of this standard did not have a material impact on the Combined Financial Statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. The new standard removes the disclosure requirements for the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy. The provisions of this ASU are effective for years beginning after December 15, 2019, with early adoption permitted. The Business does not expect this ASU to have a significant impact on the Combined Financial Statements, as it only includes changes to disclosure requirements.
In August 2018, the FASB issued ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans. The new standard includes updates to the disclosure requirements for defined benefit plans including several additions, deletions and modifications to the disclosure requirements. The provisions of this ASU are effective for years ending after December 15, 2020, with early adoption permitted. The Business is currently evaluating the impact of this ASU and expect to adopt for the year ending December 31, 2020.
In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customers Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. The new standard provides updated guidance surrounding implementation costs associated with cloud computing arrangements that are service contracts. The provisions of this ASU are effective for years beginning after December 15, 2019, with early adoption permitted. The Business is currently evaluating the impact of this ASU.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this update remove certain exceptions of Topic 740 including: exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or gain from other items; exception to the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment; exception to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary; exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. There are also additional areas of guidance in regards to: franchise and other taxes partially based on income and the interim recognition of enactment of tax laws and rate changes. The provisions of this ASU are effective for years beginning after December 15, 2020, with early adoption permitted. The Business is currently evaluating the impact of this ASU.
NOTE 4: REVENUE RECOGNITION
Under the New Revenue Standard effective for the period ending December 31, 2018, revenue is recognized using an over-time revenue recognition model when contracts meet one or more of the mandatory criteria established in the New Revenue Standard. If none of the criteria are met, revenue is recognized at a point in
F-15
time. Performance obligations are satisfied at a point in time for HVAC, certain refrigeration systems and certain alarm and fire detection and suppression systems and products. Revenue is recognized at the point when control of the product transfers to the customer, generally upon product shipment. Under the New Revenue Standard, revenue is recognized on an over-time basis using an input method for installation, service and other repair contracts within the Business. For separately priced product maintenance, sales are primarily recognized on a straight-line basis over the contract period. The Business measures progress toward completion for these contracts using costs incurred to date relative to total estimated costs at completion. Incurred costs represent work performed, which corresponds with and best depicts the transfer of control to the customer. The ongoing effect of recognizing revenue on an over-time basis is not expected to be materially different than the previous revenue recognition method.
The New Revenue Standard had an immaterial impact on the 2018 Combined Statement of Operations. The New Revenue Standard also resulted in the establishment of Contract asset and Contract liability balance sheet accounts, and in the reclassification of balances to these new accounts from Accounts receivable, Inventories and contracts in progress, net, and Accrued liabilities.
Contract Assets and Liabilities. Contract assets reflect revenue recognized and performance obligations satisfied in advance of customer billing. Contract liabilities relate to payments received in advance of the Business satisfying its performance obligations under the contract. The Business receives payments from customers based on the terms established in the contracts. Total contract assets and contract liabilities as of December 31, 2019 and 2018 are as follows:
(dollars in millions) |
2019 |
2018 |
||||
Contract assets, current |
$ | 622 | $ | 566 | ||
Contract assets, noncurrent (included within Other assets) |
57 | 100 | ||||
Total contract assets |
679 | 666 | ||||
Contract liabilities, current |
(443 | ) |
(448 | ) |
||
Contract liabilities, noncurrent (included within Other long-term liabilities) |
(168 | ) |
(164 | ) |
||
Total contract liabilities |
(611 | ) |
(612 | ) |
||
Net contract assets |
$ | 68 | $ | 54 |
The Business reclassified $666 million to contract assets in connection with the adoption of the New Revenue Standard on January 1, 2018. Contract assets increased by $13 million from January 1, 2019 to December 31, 2019 due primarily to revenue recognition in excess of customer billings. Contract assets increased by $143 million from January 1, 2018 to December 31, 2018 due primarily to revenue recognition in excess of customer billings.
The Business reclassified $612 million to contract liabilities in connection with the adoption of the New Revenue Standard. In 2019, we recognized net sales of $362 million related to contract liabilities as of January 1, 2019. Contract liabilities decreased by $1 million from January 1, 2019 to December 31, 2019 and increased by $4 million from January 1, 2018 through December 31, 2018.
Remaining performance obligations (RPO). RPOs are the aggregate amount of total contract transaction price that is unsatisfied or partially unsatisfied. Carriers total RPO is approximately $4.7 billion and $5.3 billion as of December 31, 2019 and 2018, respectively. Of the total RPO as of December 31, 2019, the Business expects approximately 64% will be recognized as sales over the following 12 months.
NOTE 5: RELATED PARTIES
Historically, Carrier has been managed and operated in the ordinary course of business with other affiliates of UTC. Accordingly, certain shared costs have been allocated to the Business and reflected as expenses in the Combined Financial Statements.
Related Party Sales. During the historical periods presented, the Business sold products and services to UTC and its non-Carrier businesses. Product sales in the Combined Statements of Operations include sales to affiliates of UTC of $23 million, $25 million and $29 million for the years ended December 31, 2019, 2018 and 2017, respectively.
F-16
Allocated Centralized Costs. The Combined Financial Statements have been prepared on a stand-alone basis and are derived from the consolidated financial statements and accounting records of UTC.
UTC incurs significant corporate costs for services provided to the Business as well as to other UTC businesses. These services include treasury, tax, accounting, human resources, audit, legal, purchasing, information technology and other such services. The costs associated with these services generally include all payroll and benefit costs, as well as overhead costs related to the support functions. UTC also allocates costs associated with corporate insurance coverage and medical, pension, postretirement and other health plan costs for employees participating in UTC sponsored plans. UTC corporate costs were either specifically attributable to Carrier, when possible, or allocated to the Business. Allocations are based on direct usage where identifiable as well a number of other utilization measures including headcount, proportionate usage and relative revenues. All such amounts have been deemed to have been incurred and settled by the Business in the period in which the costs were recorded and are included in the UTC Net Investment.
The allocated functional service expenses and general corporate expenses for the years ended December 31, 2019, 2018 and 2017 were $245 million, $277 million and $240 million, respectively, and are primarily included in Selling, general and administrative in the Combined Statements of Operations.
In the opinion of management of UTC and the Business, the expense and cost allocations have been determined on a basis considered to be a reasonable reflection of the utilization of services provided or the benefit received by the Business during 2019, 2018 and 2017. The amounts that would have been, or will be incurred, on a stand-alone basis could differ from the amounts allocated due to economies of scale, difference in management judgment, a requirement for more or fewer employees or other factors. Management does not believe, however, that it is practicable to estimate what these expenses would have been had the Business operated as an independent entity, including any expenses associated with obtaining any of these services from unaffiliated entities. In addition, the future results of operations, financial position and cash flows could differ materially from the historical results presented herein.
Cash Management and Financing. The Business participates in UTCs centralized cash management and financing programs. Disbursements are made through centralized accounts payable systems, which are operated by UTC. Cash receipts are transferred to centralized accounts, which are also maintained by UTC. As cash is received and disbursed by UTC, it is accounted for by the Business through UTC Net Investment. All short and long-term debt is financed by UTC, and financing decisions for wholly and majority owned subsidiaries are determined by UTC Treasury. See Note 2 – Basis of Presentation for additional information. The Business cash that is not included in the centralized cash management and financing programs is classified as Cash and cash equivalents on the Combined Balance Sheets.
Accounts Receivable and Payable. Certain related party transactions between the Business and UTC have been included within UTC Net Investment in the Combined Balance Sheets in the historical periods presented when the related party transactions are not settled in cash. The UTC Net Investment includes related party receivables due from UTC and its affiliates of $16.0 billion and $15.1 billion as of December 31, 2019 and 2018, respectively. The UTC Net Investment includes related party payables due to UTC and its affiliates of $3.3 billion and $2.6 billion as of December 31, 2019 and 2018, respectively. The interest income and expense related to the activity with UTC that was included in Carriers results is presented on a net basis in the Combined Statements of Operations. Interest income on the activity with UTC was $91 million, $110 million and $85 million for the years ended December 31, 2019, 2018 and 2017, respectively. Interest expense on the activity with UTC was $55 million, $59 million and $202 million for the years ended December 31, 2019, 2018 and 2017, respectively. Included in interest expense for the year ended December 31, 2017 is $146 million related to a related party payable that was settled in November 2017. The total effect of the settlement of these related party transactions is reflected as a financing activity in the Combined Statements of Cash Flows.
Additionally, certain transactions between Carrier and UTC and affiliate businesses are cash-settled on a current basis and, therefore, are reflected in the Combined Balance Sheets. Accounts receivable includes $6 million and $12 million at December 31, 2019 and 2018, respectively, and Accounts payable includes $4 million and $8 million at December 31, 2019 and 2018, respectively, related to such transactions.
F-17
Guarantees. UTC and its affiliates have issued parent company guarantees to certain customers or other third parties regarding the performance obligations of Carrier under certain installation and long-term maintenance contracts. There were no costs charged to the Business by UTC related to these guarantees. Payouts under these guarantees were not significant for 2019, 2018 and 2017.
UTC has also obtained guarantees from banks on behalf of Carrier to guarantee ordinary course of business performance obligations as required by certain Carrier customers or other third parties. Typically, such guarantees are in amounts equal to a portion or the entire value of the awarded contract and remain in place through the completion of a contract or warranty period. As of December 31, 2019 and 2018, total outstanding UTC guarantees were approximately $1.4 billion and $0.9 billion, respectively. The Business does not believe that the performance of the underlying obligations secured by such guarantees will have a material adverse effect on Carriers financial position, results of operations or cash flows. Third-party costs relating to bank guarantees are reflected in the results of operations.
Equity Method Investments. Carrier sells products to and purchases products from uncombined entities accounted for under the equity method, which are considered to be related parties. See Note 16–Equity Method Investments for additional disclosure related to Carriers equity method investments and associated related party transactions.
Separation Costs. In connection with the Separation as further described in Note 1, we have incurred pre-separation costs of approximately $58 million for the year ended December 31, 2019 and zero for both years ended December 31, 2018 and 2017. These costs were primarily related to employee-related costs such as recruitment and relocation expenses, costs to establish certain stand-alone functions and information technology systems, professional services fees and other transaction-related costs during Carriers transition to being a stand-alone public company and are primarily recorded within Selling, general and administrative in the Combined Statement of Operations.
NOTE 6: ACCOUNTS RECEIVABLE, NET
(dollars in millions) |
2019 |
2018 |
||||
Trade receivables |
$ | 2,444 | $ | 2,549 | ||
Receivables from affiliates |
143 | 113 | ||||
Miscellaneous receivables |
184 | 152 | ||||
$ | 2,771 | $ | 2,814 | |||
Less: Allowance for doubtful accounts |
(45 | ) |
(141 | ) |
||
2,726 | 2,673 |
Accounts receivable are carried at amounts that approximate fair value. Bad debt expense was $18 million, $20 million and $12 million for the years ended December 31, 2019, 2018 and 2017, respectively. In 2019, $61 million of the prior year allowance for doubtful accounts has been reflected as a direct reduction in Trade receivables.
NOTE 7: INVENTORIES, NET
(dollars in millions) |
2019 |
2018 |
||||
Raw materials |
$ | 290 | $ | 336 | ||
Work-in-process |
120 | 102 | ||||
Finished goods |
922 | 925 | ||||
$ | 1,332 | 1,363 |
Raw materials, work-in-process and finished goods are net of valuation reserves of $152 million and $142 million as of December 31, 2019 and 2018, respectively.
F-18
NOTE 8: FIXED ASSETS, NET
Fixed assets are recorded at cost and are depreciated on a straight-line basis over the estimated useful lives of individual assets.
(dollars in millions) |
Estimated Useful Lives (Years) |
2019 |
2018 |
||||||
Land |
$ | 113 | $ | 114 | |||||
Buildings and improvements |
40 |
1,138 | 1,142 | ||||||
Machinery, tools and equipment |
3 to 25 |
1,924 | 1,815 | ||||||
Rental assets |
3 to 12 |
395 | 293 | ||||||
Other, including assets under construction |
188 | 180 | |||||||
3,758 | 3,544 | ||||||||
Accumulated depreciation |
(2,095 | ) |
(1,891 | ) |
|||||
$ | 1,663 | $ | 1,653 |
Depreciation expense was $219 million, $221 million and $226 million for the years ended December 31, 2019, 2018 and 2017, respectively.
NOTE 9: BUSINESS ACQUISITIONS, DISPOSITIONS, GOODWILL AND INTANGIBLE ASSETS
Business Acquisitions and Dispositions. The Business investments through acquisitions, net of cash acquired, in 2019 and 2018 were zero and $310 million, respectively. The acquisitions in 2018 are not considered material for presentation of pro forma results under FASB ASC Topic 805: Business Combinations. Acquisition-related costs have been expensed as incurred and were not material in any of the periods presented.
The Business completed the sale of businesses in 2019 and 2018 for $6 million and $1,032 million in cash, respectively. In 2018, the Business recorded a pre-tax gain of $799 million on the sale of the Taylor business.
Goodwill. The changes in the carrying amount of goodwill are as follows:
(dollars in millions) |
HVAC |
Refrigeration |
Fire & Security |
Total |
||||||||
Balance as of January 1, 2018 |
$ | 5,472 | $ | 1,417 | $ | 3,176 | $ | 10,065 | ||||
Goodwill resulting from business combinations |
— | 1 | 194 | 195 | ||||||||
Foreign currency translation and other |
(142 | ) |
(187 | ) |
(82 | ) |
(411 | ) |
||||
Balance as of December 31, 2018 |
5,330 | 1,231 | 3,288 | 9,849 | ||||||||
Foreign currency translation and other |
21 | (3 | ) |
17 | 35 | |||||||
Balance as of December 31, 2019 |
$ | 5,351 | $ | 1,228 | $ | 3,305 | $ | 9,884 |
The $411 million net reduction in goodwill within foreign currency translations and other in 2018 includes a $151 million reduction of goodwill attributable to the sale of Taylor within the Refrigeration segment. We completed our annual impairment testing as of July 1, 2019 and determined that no adjustments to the carrying value of goodwill were necessary.
F-19
Intangible Assets. Identifiable intangible assets are comprised of the following:
2019 |
2018 |
|||||||||||
(dollars in millions) |
Gross Amount |
Accumulated Amortization |
Gross Amount |
Accumulated Amortization |
||||||||
Amortized: |
||||||||||||
Customer relationships |
$ | 1,479 | $ | (1,154 | ) |
$ | 1,511 | $ | (1,098 | ) |
||
Patents and trademarks |
287 | (201 | ) |
292 | (189 | ) |
||||||
Monitoring lines |
67 | (52 | ) |
64 | (46 | ) |
||||||
Service portfolios and other |
629 | (506 | ) |
631 | (490 | ) |
||||||
2,462 | (1,913 | ) |
2,498 | (1,823 | ) |
|||||||
Unamortized: |
||||||||||||
Trademarks and other |
534 | — | 539 | — | ||||||||
Total |
$ | 2,996 | $ | (1,913 | ) |
$ | 3,037 | $ | (1,823 | ) |
Amortization of intangible assets was $116 million, $136 million and $146 million for the years ended December 31, 2019, 2018 and 2017, respectively. The estimated future amortization of intangible assets is as follows:
(dollars in millions) |
2020 |
2021 |
2022 |
2023 |
2024 |
||||||||||
Future amortization |
$ | 101 | $ | 91 | $ | 72 | $ | 63 | $ | 55 |
NOTE 10: ACCRUED LIABILITIES
(dollars in millions) |
2019 |
2018 |
||||
Accrued salaries, wages and employee benefits |
$ | 516 | $ | 519 | ||
Accrued taxes |
318 | 325 | ||||
Warranty related |
200 | 190 | ||||
Project financing obligations |
234 | 150 | ||||
Accrued restructuring |
66 | 56 | ||||
Accrued legal and environmental reserves |
24 | 26 | ||||
Customer advances and deferred revenue |
26 | 24 | ||||
Other |
941 | 784 | ||||
$ | 2,325 | $ | 2,074 |
Customer advances and deferred revenue is primarily comprised of advanced billings on service contracts that are typically billed annually or quarterly and amortized ratably over the contract period.
The project financing obligations included in the table above are associated with the sale of rights to unbilled revenues related to the ongoing activity of an entity included within our HVAC segment.
NOTE 11: OTHER LONG-TERM LIABILITIES
Other long-term liabilities as of December 31, 2019 and 2018 are as follows:
(dollars in millions) |
2019 |
2018 |
||||
Warranty related |
$ | 288 | $ | 283 | ||
Environmental reserves |
203 | 200 | ||||
Project financing obligations |
75 | 137 | ||||
Asset retirement obligations |
74 | 73 | ||||
Other |
625 | 610 | ||||
$ | 1,265 | $ | 1,303 |
The project financing obligations included in the table above are associated with the sale of rights to unbilled revenues related to the ongoing activity of an entity included within our HVAC segment.
F-20
NOTE 12: EMPLOYEE BENEFIT PLANS
The Business sponsors numerous single-employer domestic and international employee benefit plans and certain of our employees participate in employee benefit plans (the Shared Plans) sponsored by UTC which include participants of other UTC businesses. We account for our participation in the Shared Plans as multiemployer benefit plans, as discussed below.
In March 2017, the FASB issued ASU 2017-07, Compensation Benefits (Topic 715), Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This ASU requires an employer to report the service cost component of net periodic pension benefit cost in the same line item(s) as other compensation cost arising from services rendered by the pertinent employee during the period, with other cost components presented separately from the service cost component and outside of income from operations. This ASU also allows only the service cost component of net periodic pension benefit cost to be eligible for capitalization when applicable. This ASU was effective for years beginning after December 15, 2017. The Business adopted this standard on January 1, 2018 applying the presentation requirements retrospectively. The Business elected to apply the practical expedient, which allows us to use amounts in the employee benefit plans note as the basis for applying retrospective presentation for comparative periods as it is impracticable to determine the disaggregation of the cost components for amounts capitalized and amortized in those periods. Provisions related to presentation of the service cost component eligibility for capitalization were applied prospectively. The presentation change related to the periodic benefit cost of Carriers defined benefit pension and postretirement plans is reflected in all periods presented in these financial statements.
Employee Savings Plans. The Business sponsors various employee savings plans. UTC also sponsors and contributes to defined contribution employee savings plans. Certain employees of Carrier participate in these plans. Carriers contributions to employer sponsored defined contribution plans were $88 million, $94 million and $86 million for 2019, 2018 and 2017, respectively.
Pension Plans. The Business sponsors both funded and unfunded domestic and foreign defined benefit pension plans that cover a large number of our employees. The largest plans are generally closed to new participants. The Business plans use a December 31 measurement date consistent with our fiscal year.
(dollars in millions) |
2019 |
2018 |
||||
Change in Benefit Obligation |
||||||
Beginning balance |
$ | 2,581 | $ | 2,822 | ||
Service cost |
31 | 33 | ||||
Interest cost |
67 | 64 | ||||
Actuarial (gain) loss |
351 | (110 | ) |
|||
Benefits paid |
(132 | ) |
(114 | ) |
||
Net settlement, curtailment and special termination benefits |
(38 | ) |
(8 | ) |
||
Other |
25 | (106 | ) |
|||
Ending balance |
$ | 2,885 | $ | 2,581 | ||
Change in Plan Assets |
||||||
Beginning balance |
$ | 2,635 | $ | 3,000 | ||
Actual return on plan assets |
381 | (162 | ) |
|||
Employer contributions |
36 | 45 | ||||
Benefits paid |
(132 | ) |
(114 | ) |
||
Settlements |
(14 | ) |
(7 | ) |
||
Other |
47 | (127 | ) |
|||
Ending balance |
$ | 2,953 | $ | 2,635 | ||
Funded Status |
||||||
Fair value of plan assets |
$ | 2,953 | $ | 2,635 | ||
Benefit obligations |
(2,885 | ) |
(2,581 | ) |
||
Funded status of plan |
$ | 68 | $ | 54 |
F-21
(dollars in millions) |
2019 |
2018 |
||||
Amounts Recognized in the Combined Balance Sheets Consist of |
||||||
Noncurrent assets |
$ | 488 | $ | 442 | ||
Current liability |
(9 | ) |
(16 | ) |
||
Noncurrent liability |
(411 | ) |
(372 | ) |
||
Net amount recognized |
$ | 68 | $ | 54 | ||
Amounts Recognized in Accumulated Other Comprehensive Loss Consist of |
||||||
Net actuarial loss |
$ | 577 | $ | 482 | ||
Prior service cost |
15 | 11 | ||||
Net amount recognized |
$ | 592 | $ | 493 |
The amounts included in Other in the above table primarily reflect the impact of foreign exchange translation, primarily for plans in the U.K., Canada and Germany.
Qualified domestic pension plan benefits covering certain union-represented employees comprise approximately 9% of the projected benefit obligation. Benefits for union employees are generally based on a stated amount for each year of service; these plans are closed to new entrants. Foreign plans comprise approximately 91% of the projected benefit obligation; certain of these plans provide participants with one-time payments upon separation of employment rather than a retirement annuity, but are considered defined benefit plans for accounting purposes. Nonqualified domestic pension plans provide supplementary retirement benefits to certain employees and are not a material component of the projected benefit obligation.
In 2019, 2018 and 2017, we made $36 million, $45 million and $44 million, respectively, of cash contributions to our foreign defined benefit pension plans.
Information for pension plans with accumulated benefit obligations in excess of plan assets:
(dollars in millions) |
2019 |
2018 |
||||
Projected benefit obligation |
$ | 549 | $ | 501 | ||
Accumulated benefit obligation |
506 | 463 | ||||
Fair value of plan assets |
137 | 125 |
Information for pension plans with projected benefit obligations in excess of plan assets:
(dollars in millions) |
2019 |
2018 |
||||
Projected benefit obligation |
$ | 690 | $ | 616 | ||
Accumulated benefit obligation |
630 | 564 | ||||
Fair value of plan assets |
270 | 228 |
The accumulated benefit obligation for all defined benefit pension plans was $2.8 billion and $2.5 billion at December 31, 2019 and 2018, respectively.
The components of the net periodic pension benefit are as follows:
(dollars in millions) |
2019 |
2018 |
2017 |
||||||
Pension Benefits: |
|||||||||
Service cost |
$ | 31 | $ | 33 | $ | 34 | |||
Interest cost |
67 | 64 | 65 | ||||||
Expected return on plan assets |
(154 | ) |
(170 | ) |
(160 | ) |
|||
Amortization of prior service cost |
2 | 1 | 2 | ||||||
Recognized actuarial net loss |
9 | 16 | 14 | ||||||
Net settlement, curtailment and special termination benefits loss (gain) |
4 | 1 | (3 | ) |
|||||
Net periodic pension benefit – employer |
$ | (41 | ) |
$ | (55 | ) |
$ | (48 | ) |
F-22
Other changes in plan assets and benefit obligations recognized in other comprehensive loss in 2019 are as follows:
(dollars in millions) |
2019 |
||
Current year actuarial loss |
$ | 112 | |
Amortization of actuarial loss |
(9 | ) |
|
Amortization of prior service cost |
(2 | ) |
|
Net settlement and curtailment gain |
(4 | ) |
|
Other |
2 | ||
Total recognized in other comprehensive loss |
$ | 99 | |
Net recognized in net periodic pension benefit and other comprehensive loss |
$ | 58 |
The amount included in Other in the above table primarily reflects the impact of foreign exchange translation, primarily for plans in the U.K., Canada and Germany.
The estimated amount that will be amortized from accumulated other comprehensive loss into net periodic pension benefit in 2020 is as follows:
(dollars in millions) |
|||
Net actuarial loss |
$ | 18 | |
Prior service cost |
1 | ||
$ | 19 |
Major assumptions used in determining the benefit obligation and net cost for pension plans are presented in the following table as weighted-averages:
Benefit Obligation |
Net Cost |
||||||||||||||
(dollars in millions) |
2019 |
2018 |
2019 |
2018 |
2017 |
||||||||||
Discount rate |
|||||||||||||||
Projected benefit obligation |
2.0 | % |
2.8 | % |
2.8 | % |
2.5 | % |
2.7 | % |
|||||
Interest cost(1) |
— | — | 2.7 | % |
2.4 | % |
2.5 | % |
|||||||
Service cost(1) |
— | — | 3.2 | % |
2.8 | % |
3.1 | % |
|||||||
Salary scale |
3.4 | % |
3.0 | % |
3.0 | % |
3.0 | % |
2.6 | % |
|||||
Expected return on plan assets |
— | — | 5.6 | % |
6.0 | % |
6.2 | % |
Note (1) | The 2019 and 2018 discount rates used to measure the service cost and interest cost applies to our significant plans. The projected benefit obligation discount rate is used for the service cost and interest cost measurements for non-significant plans. |
The weighted-average discount rates used to measure pension benefit obligations and net costs are set by reference to specific analyses using each plans specific cash flows and are then comparing them to high-quality bond indices for reasonableness. For those significant plans, the Business utilizes a full yield curve approach in the estimation of the service cost and interest cost components by applying the specific spot rates along the yield curve used in determination of the benefit obligation to the relevant projected cash flows.
In determining the expected return on plan assets, we consider the relative weighting of plan assets, the historical performance of total plan assets and individual asset classes, and economic and other indicators of future performance. In addition, we may consult with and consider the opinions of financial and other professionals in developing appropriate capital market assumptions. Return projections are also validated using a simulation model that incorporates yield curves, credit spreads and risk premiums to project long-term prospective returns.
The plans investment management objectives include providing the liquidity and asset levels needed to meet current and future benefit payments, while maintaining a prudent degree of portfolio diversification considering interest rate risk and market volatility. Globally, investment strategies target a mix of approximately 40% of growth seeking assets and 60% of income generating and hedging assets using a wide diversification of
F-23
asset types, fund strategies and investment managers. The growth seeking allocation consists of global public equities in developed and emerging countries, and alternative-asset class strategies. Within the income generating assets, the fixed income portfolio consists of mainly government and broadly diversified high quality corporate bonds.
The plans have continued their pension risk management techniques designed to reduce the plans interest rate risk. More specifically, the plans have incorporated liability hedging programs that include the adoption of a risk reduction objective as part of the long-term investment strategy. Under this objective the income generating and hedging assets typically increased as funded status improves. The hedging programs incorporate a range of assets and investment tools, each with ranging interest rate sensitivity. As a result of the improved funded status of the plans due to favorable asset returns and funding of the plans, the income generating and hedging assets increased significantly in recent years.
The fair values of pension plan assets at December 31, 2019 and 2018 by asset category are as follows:
(dollars in millions) |
Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Not Subject to Leveling |
Total |
||||||||||
Asset Category |
|||||||||||||||
Public Equities: |
|||||||||||||||
Global Equities |
$ | 29 | $ | — | $ | — | $ | — | $ | 29 | |||||
Global Equity Commingled Funds(1) |
— | 141 | — | — | 141 | ||||||||||
Enhanced Global Equities(2) |
3 | 3 | — | — | 6 | ||||||||||
Global Equity Funds at net asset value(8) |
— | — | — | 927 | 927 | ||||||||||
Private Equities(3),(8) |
— | — | 2 | 10 | 12 | ||||||||||
Fixed income securities: |
|||||||||||||||
Governments |
8 | 35 | — | — | 43 | ||||||||||
Corporate Bonds |
— | 169 | — | — | 169 | ||||||||||
Fixed income securities(8) |
— | — | — | 1,449 | 1,449 | ||||||||||
Real Estate(4),(8) |
— | 3 | 12 | 6 | 21 | ||||||||||
Other(5),(8) |
— | 68 | — | 23 | 91 | ||||||||||
Cash & cash equivalents(6),(8) |
— | 3 | — | 44 | 47 | ||||||||||
Subtotal |
$ | 40 | $ | 422 | $ | 14 | $ | 2,459 | $ | 2,935 | |||||
Other Assets & Liability(7) |
18 | ||||||||||||||
Total at December 31, 2019 |
$ | 2,953 | |||||||||||||
Public Equities: |
|||||||||||||||
Global Equities |
$ | 22 | $ | — | $ | — | $ | — | $ | 22 | |||||
Global Equity Commingled Funds(1) |
1 | 115 | — | — | 116 | ||||||||||
Enhanced Global Equities(2) |
1 | 4 | — | — | 5 | ||||||||||
Global Equity Funds at net asset value(8) |
— | — | — | 815 | 815 | ||||||||||
Private Equities(3),(8) |
— | — | 1 | 9 | 10 | ||||||||||
Fixed income securities: |
|||||||||||||||
Governments |
13 | 28 | — | — | 41 | ||||||||||
Corporate Bonds |
— | 136 | — | — | 136 | ||||||||||
Fixed income securities(8) |
— | — | — | 1,323 | 1,323 | ||||||||||
Real Estate(4),(8) |
— | 3 | 10 | 13 | 26 | ||||||||||
Other(5),(8) |
— | 63 | — | 18 | 81 | ||||||||||
Cash & cash equivalents(6),(8) |
— | 7 | — | 37 | 44 | ||||||||||
Subtotal |
$ | 37 | $ | 356 | $ | 11 | $ | 2,215 | $ | 2,619 | |||||
Other Assets & Liability(7) |
16 | ||||||||||||||
Total at December 31, 2018 |
$ | 2,635 |
Note (1) | Represents commingled funds that invest primarily in common stocks. |
F-24
Note 2 | Represents enhanced equity separate account and commingled fund portfolios. A portion of the portfolio may include long-short market neutral and relative value strategies that invest in publicly traded, equity and fixed income securities, as well as derivatives of equity and fixed income securities and foreign currency. |
Note 3 | Represents limited partner investments with general partners that primarily invest in debt and equity. |
Note 4 | Represents investments in real estate including commingled funds and directly held properties. |
Note 5 | Represents insurance contracts and global balanced risk commingled funds consisting mainly of equity, bonds and some commodities. |
Note 6 | Represents short-term commercial paper, bonds and other cash or cash-like instruments. |
Note 7 | Represents trust receivables and payables that are not leveled. |
Note 8 | In accordance with ASU 2015-07, Fair Value Measurement (Topic 820), certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented for the total pension benefits plan assets. |
Derivatives in the plan are primarily used to manage risk and gain asset class exposure while still maintaining liquidity. Derivative instruments mainly consist of equity futures, interest rate futures, interest rate swaps and currency forward contracts.
The fair value measurement of plan assets using significant unobservable inputs (Level 3) did not have significant activity in 2019 or 2018 related to unrealized losses (gains), purchases, sales, or settlements.
Quoted market prices are used to value investments when available. Investments in securities traded on exchanges, including listed futures and options, are valued at the last reported sale prices on the last business day of the year or, if not available, the last reported bid prices. Fixed income securities are primarily measured using a market approach pricing methodology, where observable prices are obtained by market transactions involving identical or comparable securities of issuers with similar credit ratings. Over-the-counter securities and government obligations are valued at the bid prices or the average of the bid and ask prices on the last business day of the year from published sources or, if not available, from other sources considered reliable, generally broker quotes. Temporary cash investments are stated at cost, which approximates fair value.
We expect to make total contributions of approximately $29 million to our global defined benefit pension plans in 2020. Contributions do not reflect benefits to be paid directly from corporate assets.
Benefit payments, including amounts to be paid from corporate assets, and reflecting expected future service, as appropriate, are expected to be paid as follows: $127 million in 2020, $120 million in 2021, $123 million in 2022, $125 million in 2023, $126 million in 2024 and $665 million from 2025 through 2029.
Postretirement Benefit Plans. The Business sponsors postretirement benefit plans that provide health and both life benefits to eligible retirees. The postretirement plans are unfunded. The benefit obligation was $6 million at both December 31, 2019 and 2018. The net periodic benefit cost was $0.2 million, $0.2 million and $0.3 million for 2019, 2018 and 2017, respectively. Other comprehensive income of $1 million was recognized during 2019 related to changes in benefit obligations.
The projected benefit obligation discount rate was 3.0% and 3.6% at December 31, 2019 and 2018, respectively. The Net Cost discount rate was 3.6%, 3.4% and 3.7% for 2019, 2018 and 2017, respectively.
Benefit payments, including amounts to be paid from corporate assets, and reflecting expected future service, as appropriate, are expected to be paid as follows: $0.3 million in 2020, $0.3 million in 2021, $0.2 million in 2022, $0.2 million in 2023, $0.2 million in 2024 and $1.1 million from 2025 through 2029.
Multiemployer Benefit Plans. The Business contributes to various domestic and foreign multiemployer defined benefit pension plans. The risks of participating in these multiemployer plans are different from single-employer plans in that assets contributed are pooled and may be used to provide benefits to employees of other participating employers. If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers. Lastly, if we choose to stop participating in some of our multiemployer plans, we may be required to pay those plans a withdrawal liability based on the underfunded status of the plan.
Our participation in these plans for the annual periods ended December 31 is outlined in the table below. Unless otherwise noted, the most recent Pension Protection Act (PPA) zone status available in 2019 and 2018
F-25
is for the plans year-end at December 31, 2018, and December 31, 2017, respectively. The zone status is based on information that we received from the plan and is certified by the plans actuary. Our significant plan is in the green zone which represents a plan that is at least 80% funded and does not require a financial improvement plan (FIP) or a rehabilitation plan (RP).
(dollars in millions) |
EIN/ Pension Plan Number |
Zone Status |
FIP/ RP Status Pending/ Implemented |
Contributions |
Surcharge Imposed |
Expiration Date of Collective- Bargaining Agreement |
||||||||||||||||||
Pension Fund |
2019 |
2018 |
2019 |
2018 |
||||||||||||||||||||
Metal and technology industry pension plan |
N/A | Green | Green | No | $ | 6 | $ | 6 | No | September 30, 2021 |
||||||||||||||
Other funds |
14 | 15 | ||||||||||||||||||||||
$ | 20 | $ | 21 |
UTCs defined benefit pension and postretirement benefit plans have been accounted for as multi-employer plans in these Combined Financial Statements, in accordance with FASB ASC No. 715-30, Defined Benefit Plans-Pension and FASB ASC No. 715-60, Defined Benefit Plans-Other Postretirement. FASB ASC No. 715, Compensation-Retirement Benefits provides that an employer that participates in a multi-employer defined benefit plan is not required to report a liability beyond the contributions currently due and unpaid to the plan. Therefore, no assets or liabilities related to these plans have been included in the Combined Balance Sheets. These pension and post retirement expenses were allocated to the Business and reported in cost of goods sold, selling, general and administrative expenses and non-service pension costs. The amounts for pension and retirement expenses for the year ended December 31, 2019, 2018 and 2017 were as follows:
(dollars in millions) |
2019 |
2018 |
2017 |
||||||
Service cost |
$ | 18 | $ | 22 | $ | 23 | |||
Non-service pension cost |
(81 | ) |
(80 | ) |
(57 | ) |
|||
$ | (63 | ) |
$ | (58 | ) |
$ | (34 | ) |
Stock-Based Compensation. Carrier participates in UTCs long-term incentive plans (LTIP) which authorize various types of market and performance-based incentive awards including stock options, stock appreciation rights, performance share units and other such awards. Stock-based compensation expense reflected in the accompanying Combined Financial Statements relates to stock plan awards of UTC awarded to Carrier employees and not stock awards of Carrier as Carrier does not grant stock awards. The following disclosures represent stock-based compensation expenses attributable to Carrier based on the awards and terms previously granted under UTCs stock-based compensation plans to Carrier employees. Accordingly, the amounts presented are not necessarily indicative of future awards and do not necessarily reflect the results that Carrier would have experienced as an independent company for the periods presented.
Under the UTC LTIP Plans, the exercise price of awards is set on the grant date and may not be less than the fair market value per share on that date. Generally, stock appreciation rights and stock options have a term of ten years and a three-year vesting period, subject to limited exceptions. In the event of retirement, annual stock appreciation rights, stock options and restricted stock units held for more than one year may become vested and exercisable, subject to certain terms and conditions. LTIP awards with performance-based vesting generally have a minimum three-year vesting period and vest based on actual performance against pre-established metrics. In the event of retirement, performance-based awards held for more than one year, remain eligible to vest based on actual performance relative to target metrics.
The Business measures the cost of all share-based payments, including stock options, at fair value on the grant date and recognizes this cost in the Combined Statements of Operations net of expected forfeitures. For the years ended December 31, 2019, 2018 and 2017, $52 million, $44 million and $34 million respectively, of compensation cost directly attributable to Carrier employees was recognized in operating results. The associated future income tax benefit recognized was $11 million, $10 million and $8 million for the years ended December 31, 2019, 2018 and 2017, respectively. The amounts have been adjusted for the impact of the TCJA. Please see Note 14 — Income Taxes for additional details.
F-26
For the years ended December 31, 2019, 2018 and 2017, the amount of cash received from the exercise of stock options was $3 million, $4 million and $7 million, respectively, with an associated tax benefit realized of $16 million, $7 million and $19 million, respectively. In addition, for the years ended December 31, 2019, 2018 and 2017, the associated tax benefit realized from the vesting of performance share units and other restricted awards was $9 million, $2 million and $4 million, respectively. The 2019 amount was computed using current U.S. federal and state tax rates.
At December 31, 2019, there was $62 million of total unrecognized compensation costs related to non-vested equity awards granted under long-term incentive plans. This cost is expected to be recognized ratably over a weighted-average period of 2.5 years.
A summary of the transactions under all long-term incentive plans that UTC granted to Carrier employees for the year ended December 31, 2019 follows:
Stock Options |
Stock Appreciation Rights |
Performance Share Units |
Other Incentive Shares/ Units |
||||||||||||||||||
(shares and units in thousands) |
Shares |
Average Price* |
Shares |
Average Price* |
Units |
Average Price* |
|||||||||||||||
Outstanding at |
|||||||||||||||||||||
December 31, 2018 |
71 | $ | 85.86 | 5,635 | $ | 100.16 | 289 | $ | 110.59 | 499 | |||||||||||
Granted |
2 | 133.19 | 1,673 | 124.37 | 142 | 121.79 | 219 | ||||||||||||||
Ancillary** |
— | — | — | — | 18 | 95.53 | — | ||||||||||||||
Exercised/earned |
(35 | ) |
87.18 | (1,658 | ) |
89.30 | (155 | ) |
95.54 | (211 | ) |
||||||||||
Cancelled |
(1 | ) |
110.83 | (157 | ) |
120.41 | (25 | ) |
112.39 | (35 | ) |
||||||||||
Net Transfers(1) |
(1 | ) |
95.23 | 665 | 105.29 | 93 | 108.91 | 121 | |||||||||||||
December 31, 2019 |
36 | $ | 91.06 | 6,158 | $ | 109.71 | 362 | $ | 120.16 | 593 |
* | Weighted-average grant/exercise price |
** | Ancillary shares granted based on actual performance achieved on the 2016 award |
Note (1) | Represents net activity related to employee movement between UTC business units and other miscellaneous adjustments. |
The weighted-average grant date fair value of stock options and stock appreciation rights granted by UTC during 2019, 2018 and 2017 was $21.02, $20.25 and $17.55, respectively. The weighted-average grant date fair value of performance share units, which vest upon achieving certain performance metrics, granted by UTC during 2019, 2018 and 2017 was $112.76, $131.42 and $111.00 respectively. The total fair value of awards vested during the years ended December 31, 2019, 2018 and 2017 was $48 million, $27 million and $35 million, respectively. The total intrinsic value (which is the amount by which the stock price exceeded the exercise price on the date of exercise) of stock options and stock appreciation rights exercised during the years ended December 31, 2019, 2018, and 2017 was $80 million, $43 million and $63 million, respectively. The total intrinsic value (which is the stock price at vesting) of performance share units and other restricted awards vested was $45 million, $14 million and $18 million during the years ended December 31, 2019, 2018 and 2017, respectively.
The following table summarizes information about equity awards outstanding for Carrier employees that are vested and expected to vest and equity awards outstanding that are exercisable at December 31, 2019:
Equity Awards Vested and Expected to Vest |
Equity Awards That Are Exercisable |
||||||||||||||||||||||||||||||
(shares in thousands; aggregate intrinsic value in millions) |
Awards |
Average Price* |
Aggregate Intrinsic Value |
Remaining Term** |
Awards |
Average Price* |
Aggregate Intrinsic Value |
Remaining Term** |
|||||||||||||||||||||||
Stock Options/Stock Appreciation rights |
6,083 | $ | 109.31 | $ | 246 | 6.1 years |
3,333 | $ | 98.4 | $ | 171 | 4.3 years |
|||||||||||||||||||
Performance Share Units/ Restricted Stock |
1,006 | $ | — | $ | 151 | 1.7 years |
* | Weighted-average exercise price per share |
** | Weighted-average contractual remaining term in years |
F-27
The fair value of each option award is estimated on the date of grant using a binomial lattice model. The following table indicates the assumptions used in estimating fair value for the years ended December 31, 2019 and 2018. These assumptions represent those utilized by UTC and are not necessarily indicative of assumptions that would be used by Carrier as a stand-alone company. Lattice-based option models incorporate ranges of assumptions for inputs; those ranges are as follows:
|
2019
|
2018
|
2017
|
Expected volatility
|
18.8% - 19.7%
|
17.5% - 21.1%
|
19%
|
Weighted-average volatility
|
20%
|
18%
|
19%
|
Expected term (in years)
|
6.5 - 6.6
|
6.5-6.6
|
6.5
|
Expected dividend yield
|
2.4%
|
2.2%
|
2.4%
|
Risk-free rate
|
2.3% - 2.7%
|
1.3% - 2.7%
|
0.5% - 2.5%
|
Expected volatilities are based on the returns of UTC stock, including implied volatilities from traded options on UTCs stock for the binomial lattice model. UTC uses historical data to estimate equity award exercise and employee termination behavior within the valuation model. The expected term represents an estimate of the period of time equity awards are expected to remain outstanding. The risk-free rate is based on the term structure of interest rates at the time of equity award grant.
NOTE 13: ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
A summary of the changes in each component of accumulated other comprehensive (loss) income, net of tax for the years ended December 31, 2019, 2018 and 2017 is provided below:
(dollars in millions) |
Foreign Currency Translation |
Defined Benefit Pension and Postretirement Plans |
Unrealized Gains (Losses) on Available- for-Sale Securities |
Unrealized Hedging Gains (Losses) |
Accumulated Other Comprehensive Income (Loss) |
||||||||||
Balance at January 1, 2017 |
$ | (1,130 | ) |
$ | (211 | ) |
$ | 262 | $ | (5 | ) |
$ | (1,084 | ) |
|
Other comprehensive income (loss) before reclassifications, net |
747 | (32 | ) |
(31 | ) |
2 | 686 | ||||||||
Amounts reclassified, pre-tax |
(10 | ) |
16 | (394 | ) |
1 | (387 | ) |
|||||||
Tax expense reclassified |
— | 5 | 163 | — | 168 | ||||||||||
Balance at December 31, 2017 |
$ | (393 | ) |
$ | (222 | ) |
$ | — | $ | (2 | ) |
$ | (617 | ) |
|
Other comprehensive loss before reclassifications, net |
(441 | ) |
(209 | ) |
— | — | (650 | ) |
|||||||
Amounts reclassified, pre-tax |
— | 17 | — | 2 | 19 | ||||||||||
Tax expense reclassified |
— | 33 | — | — | 33 | ||||||||||
Balance at December 31, 2018 |
$ | (834 | ) |
$ | (381 | ) |
$ | — | $ | — | $ | (1,215 | ) |
||
Other comprehensive loss before reclassifications, net |
52 | (109 | ) |
— | — | (57 | ) |
||||||||
Amounts reclassified, pre-tax |
2 | 11 | — | — | 13 | ||||||||||
Tax expense reclassified |
— | 15 | — | — | 15 | ||||||||||
ASU 2018-02 adoption impact |
— | (9 | ) |
— | — | (9 | ) |
||||||||
Balance at December 31, 2019 |
$ | (780 | ) |
$ | (473 | ) |
$ | — | $ | — | $ | (1,253 | ) |
Amounts reclassified related to defined benefit pension and postretirement plans include amortization of prior service costs and actuarial net losses recognized during each period presented. These costs are recorded as components of net periodic pension cost for each period presented (see Note 12 — Employee Benefit Plans for additional details).
Amounts reclassified in 2017 that relate to unrealized gains (losses) on available-for-sale securities, pre-tax includes approximately $394 million of previously unrealized gains reclassified to Other income (expense), net as a result of sales of significant investments in available-for-sale securities in 2017, including Carriers sale of investments in Watsco, Inc.
F-28
All noncontrolling interests with redemption features, such as put options, that are not solely within the Business control (redeemable noncontrolling interests) were reported in the mezzanine section of the Combined Balance Sheets, between liabilities and equity, at the greater of redemption value or initial carrying value through December 31, 2017. The decrease in the value of redeemable noncontrolling interest in the Combined Statements of Changes in Equity for the year ended December 31, 2017 is primarily attributable to our acquisition of the remaining interest in an Italian heating products and services company, initially acquired in 2016.
NOTE 14: INCOME TAXES
Income Before Income Taxes: The sources of income from operations before income taxes are:
(dollars in millions) |
2019 |
2018 |
2017 |
||||||
United States |
$ | 1,460 | $ | 2,360 | $ | 1,620 | |||
Foreign |
$ | 1,212 | $ | 1,482 | $ | 1,434 | |||
Total |
$ | 2,672 | $ | 3,842 | $ | 3,054 |
On December 22, 2017 Public Law 115-97 An Act to Provide for Reconciliation to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018 was enacted. This law is commonly referred to as the Tax Cuts and Jobs Act of 2017 (TCJA).
Following enactment of the TCJA, Carrier no longer intends to reinvest certain undistributed earnings of its international subsidiaries that have been previously taxed in the U.S. As such, in 2018 it recorded the international taxes associated with the future remittance of these earnings. For the remainder of Carriers undistributed international earnings, unless tax effective to repatriate, Carrier intends to continue to permanently reinvest these earnings. As of December 31, 2019, such undistributed earnings were approximately $6 billion, excluding other comprehensive income amounts. It is not practicable to estimate the amount of tax that might be payable on the remaining amounts.
Provision for Income Taxes
The income tax expense (benefit) for the years ended December 31, 2019, 2018 and 2017 consisted of the following components:
(dollars in millions) |
2019 |
2018 |
2017 |
||||||
Current: |
|||||||||
United States: |
|||||||||
Federal |
$ | 262 | $ | 479 | 1,318 | ||||
State |
72 | 119 | 99 | ||||||
Foreign |
305 | 342 | 342 | ||||||
639 | 940 | 1,759 | |||||||
Future: |
|||||||||
United States: |
|||||||||
Federal |
(14 | ) |
(37 | ) |
22 | ||||
State |
(2 | ) |
24 | 2 | |||||
Foreign |
(106 | ) |
146 | 4 | |||||
(122 | ) |
133 | 28 | ||||||
Income tax expense |
517 | 1,073 | 1,787 | ||||||
Attributable to items credited to UTC Net Investment |
$ | (36 | ) |
$ | (68 | ) |
$ | (168 | ) |
Reconciliation of Effective Income Tax Rate. Differences between the effective income tax rates and the statutory U.S. federal income tax rate are as follows:
(dollars in millions) |
2019 |
2018 |
2017 |
||||||
Statutory U.S. federal income tax rate |
21.0 | % |
21.0 | % |
35.0 | % |
|||
State income taxes |
2.5 | % |
2.6 | % |
1.8 | % |
|||
Tax on international activities |
2.5 | % |
4.4 | % |
(3.4 | )% |
|||
Tax audit settlements |
(5.6 | )% |
— | % |
(0.4 | )% |
|||
U.S. tax reform adoption |
— | % |
— | % |
26.1 | % |
|||
Other |
(1.0 | )% |
(0.1 | )% |
(0.6 | )% |
|||
Effective income tax rate |
19.4 | % |
27.9 | % |
58.5 | % |
F-29
The 2019 effective tax rate reflects a net tax benefit of $149 million as a result of the filing by a subsidiary of Carrier to participate in an amnesty program offered by the Italian Tax Authority and conclusion of the audit by the Examination Division of the Internal Revenue Service for the UTC 2014, 2015 and 2016 tax years.
The 2018 effective tax rate reflects a net tax charge of $102 million as a result of UTCs change of assertion of no longer intending to reinvest certain undistributed earnings of its international subsidiaries.
The 2017 effective tax rate reflects a net tax charge of $799 million attributable to the passage of the TCJA. These amounts primarily relate to U.S. income tax attributable to certain previously undistributed earnings of the Business international subsidiaries and equity investments and the revaluation of U.S. deferred income taxes.
Deferred Tax Assets and Liabilities. Future income taxes represent the tax effects of transactions which are reported in different periods for tax and financial reporting purposes. These amounts consist of the tax effects of temporary differences between the tax and financial reporting balance sheets and tax carryforwards. Future income tax benefits and payables within the same tax paying component of a particular jurisdiction are offset for presentation in the Combined Balance Sheets.
The tax effects of temporary differences and tax carryforwards which gave rise to future income tax benefits and payables at December 31, 2019 and 2018 are as follows:
(dollars in millions) |
2019 |
2018 |
||||
Future income tax benefits: |
||||||
Insurance and employee benefits |
$ | 76 | $ | 76 | ||
Other asset basis differences |
128 | 126 | ||||
Other liability basis differences |
556 | 331 | ||||
Tax loss carryforward |
236 | 159 | ||||
Tax credit carryforwards |
55 | 60 | ||||
Valuation allowances |
(128 | ) |
(107 | ) |
||
$ | 923 | $ | 645 | |||
Future income taxes payable: |
||||||
Intangible assets |
$ | 392 | $ | 403 | ||
Other asset basis differences |
297 | 165 | ||||
$ | 689 | $ | 568 |
Valuation allowances have been established primarily for tax credit carryforwards, tax loss carryforwards and certain foreign temporary differences to reduce the future income tax benefits to expected realizable amounts.
Tax Credit and Loss Carryforwards. At December 31, 2019, tax credit carryforwards, principally state and foreign, and tax loss carryforwards, principally state and foreign, were as follows:
(dollars in millions) |
Tax Loss Carryforwards |
Tax Credit Carryforwards |
||||
Expiration period: |
||||||
2020-2024 |
$ | 52 | $ | 8 | ||
2025-2029 |
105 | 3 | ||||
2030-2039 |
41 | 1 | ||||
Indefinite |
882 | 43 | ||||
Total |
$ | 1,080 | $ | 55 |
F-30
Unrecognized Tax Benefits. At December 31, 2019, Carrier had gross tax-effected unrecognized tax benefits of $166 million, all of which, if recognized, would impact the effective tax rate. A reconciliation of the beginning and ending amounts of unrecognized tax benefits and interest expense related to unrecognized tax benefits for the years ended December 31, 2019, 2018 and 2017 is as follows:
(dollars in millions) |
2019 |
2018 |
2017 |
||||||
Balance at January 1 |
$ | 316 | $ | 290 | $ | 243 | |||
Additions for tax positions related to the current year |
30 | 27 | 54 | ||||||
Additions for tax positions of prior years |
14 | 3 | 17 | ||||||
Reductions for tax positions of prior years |
(19 | ) |
(4 | ) |
(20 | ) |
|||
Settlements |
(175 | ) |
— | (4 | ) |
||||
Balance at December 31 |
$ | 166 | $ | 316 | $ | 290 | |||
Gross interest expense related to unrecognized tax benefits |
$ | 8 | $ | 8 | $ | 4 | |||
Total accrued interest balance at December 31 |
$ | 25 | $ | 33 | $ | 24 |
Carrier conducts business globally and, as a result, Carrier or one or more of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. As noted previously, in certain jurisdictions, Carriers operations are included in combined tax returns with UTC. In the ordinary course of business, the Business is subject to examination by taxing authorities throughout the world, including such major jurisdictions as Australia, Belgium, Canada, China, Czech Republic, France, Germany, Hong Kong, India, Italy, Mexico, Netherlands, Singapore, the United Kingdom and the United States. With few exceptions, Carrier is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations for years before 2010.
During the second quarter of 2019, a subsidiary of Carrier that was engaged in litigation before the Italian Supreme Court filed for participation in the Italian amnesty program. In addition, during the second quarter of 2019, the Examination Division of the IRS completed its review of UTCs tax years of 2014, 2015 and 2016 and certain state income tax exams concluded. As a result of the amnesty filing in Italy and the conclusion of the IRS and state audits, Carrier recognized a non-cash gain of approximately $166 million, including pre-tax interest of approximately $16 million.
During 2017, Carrier recognized a noncash gain of approximately $20 million, including a pre-tax interest adjustment of $2 million, as a result of federal, state and non-U.S. tax year primarily related to the expiration of applicable statutes of limitation, including expiration of the U.S. federal income tax statute of limitations for UTCs 2013 tax year.
It is reasonably possible that a net increase within the range of $14 million to $18 million of unrecognized tax benefits may occur over the next 12 months as a result of additional worldwide uncertain tax positions, the revaluation of current uncertain tax positions arising from developments in examinations, in appeals, or in the courts, or the closure of tax statutes.
NOTE 15: RESTRUCTURING COSTS
During the years ended December 31, 2019, 2018 and 2017, the Business recorded net pre-tax restructuring costs totaling $126 million, $80 million and $111 million, respectively, for new and ongoing restructuring actions. The Business recorded charges in the segments as follows:
(dollars in millions) |
2019 |
2018 |
2017 |
||||||
HVAC |
$ | 56 | $ | 20 | $ | 36 | |||
Refrigeration |
14 | 23 | 13 | ||||||
Fire & Security |
53 | 34 | 57 | ||||||
Eliminations and other |
3 | 3 | 5 | ||||||
Total |
$ | 126 | $ | 80 | $ | 111 |
F-31
Restructuring charges incurred in the years ended December 31, 2019, 2018 and 2017 primarily relate to actions initiated during 2019, 2018 and 2017, and were recorded as follows:
(dollars in millions) |
2019 |
2018 |
2017 |
||||||
Cost of sales |
$ | 36 | $ | 36 | $ | 48 | |||
Selling, general, & administrative |
90 | 44 | 63 | ||||||
Total |
$ | 126 | $ | 80 | $ | 111 |
2019 Actions. During 2019, the Business recorded net pre-tax restructuring costs totaling $110 million for restructuring actions initiated in 2019, consisting of $29 million in Cost of sales and $81 million in Selling, general and administrative expenses. The 2019 actions relate to ongoing cost reduction efforts, including workforce reductions and consolidation of field operations.
The following table summarizes the accrual balances and utilization by cost type for the 2019 restructuring actions:
(dollars in millions) |
Severance |
Facility Exit, Lease Termination and Other Costs |
Total |
||||||
Balance at January 1, 2019 |
$ | — | $ | — | $ | — | |||
Net pre-tax restructuring costs |
102 | 8 | 110 | ||||||
Utilization, foreign exchange and other costs |
(60 | ) |
(7 | ) |
(67 | ) |
|||
Balance at December 31, 2019 |
$ | 42 | $ | 1 | $ | 43 |
The following table summarizes expected, incurred and remaining costs for the 2019 restructuring actions by segment:
(dollars in millions) |
Expected Costs |
Costs Incurred During 2019 |
Remaining Costs at December 31, 2019 |
||||||
HVAC |
$ | 53 | $ | (51 | ) |
$ | 2 | ||
Refrigeration |
16 | (14 | ) |
2 | |||||
Fire & Security |
49 | (43 | ) |
6 | |||||
Eliminations and other |
2 | (2 | ) |
— | |||||
Total |
$ | 120 | $ | (110 | ) |
$ | 10 |
2018 Actions. During 2019, the Business recorded net pre-tax restructuring costs totaling $16 million for restructuring actions initiated in 2018, consisting of $7 million in Cost of sales and $9 million in Selling, general and administrative expenses. The 2018 actions relate to ongoing cost reduction efforts, including workforce reductions and consolidation of field operations.
The following table summarizes the accrual balances and utilization by cost type for the 2018 restructuring actions:
(dollars in millions) |
Severance |
Facility Exit, Lease Termination and Other Costs |
Total |
||||||
Balance at January 1, 2018 |
$ | — | $ | — | $ | — | |||
Net pre-tax restructuring costs |
57 | 6 | 63 | ||||||
Utilization, foreign exchange and other costs |
(26 | ) |
(4 | ) |
(30 | ) |
|||
Balance at December 31, 2018 |
$ | 31 | $ | 2 | $ | 33 | |||
Net pre-tax restructuring costs |
8 | 8 | 16 | ||||||
Utilization, foreign exchange and other costs |
(30 | ) |
(9 | ) |
(39 | ) |
|||
Balance at December 31, 2019 |
$ | 9 | $ | 1 | $ | 10 |
F-32
The following table summarizes expected, incurred and remaining costs for the 2018 restructuring actions by segment:
(dollars in millions) |
Expected Costs |
Costs Incurred During 2018 |
Costs Incurred During 2019 |
Remaining Costs at December 31, 2019 |
||||||||
HVAC |
$ | 24 | $ | (17 | ) |
$ | (7 | ) |
$ | — | ||
Refrigeration |
26 | (21 | ) |
— | 5 | |||||||
Fire & Security |
34 | (22 | ) |
(9 | ) |
3 | ||||||
Eliminations and other |
3 | (3 | ) |
— | — | |||||||
Total |
$ | 87 | $ | (63 | ) |
$ | (16 | ) |
$ | 8 |
2017 Actions. During 2019, the Business did not incur any costs related to restructuring actions initiated in 2017. The 2017 actions relate to ongoing cost reduction efforts, including workforce reductions and the consolidation of field operations.
The following table summarizes the accrual balances and utilization by cost type for the 2017 restructuring actions:
(dollars in millions) |
Severance |
Facility Exit, Lease Termination and Other Costs |
Total |
||||||
Balance at January 1, 2017 |
$ | — | $ | — | $ | — | |||
Net pre-tax restructuring costs |
74 | 2 | 76 | ||||||
Utilization, foreign exchange and other costs |
(33 | ) |
(1 | ) |
(34 | ) |
|||
Balance at December 31, 2017 |
41 | 1 | 42 | ||||||
Net pre-tax restructuring costs |
(4 | ) |
5 | 1 | |||||
Utilization, foreign exchange and other costs |
(26 | ) |
(1 | ) |
(27 | ) |
|||
Balance at December 31, 2018 |
11 | 5 | 16 | ||||||
Net pre-tax restructuring costs |
(1 | ) |
1 | — | |||||
Utilization, foreign exchange and other costs |
(7 | ) |
(1 | ) |
(8 | ) |
|||
Balance at December 31, 2019 |
$ | 3 | $ | 5 | $ | 8 |
As of December 31, 2019, remaining expected costs related to 2017 restructuring programs are not significant.
2016 Actions. During 2019, the Business did not incur any restructuring costs related to actions initiated in 2016 and prior. As of December 31, 2019, we have $5 million of accrual balances remaining related to 2016 and prior actions.
NOTE 16: EQUITY METHOD INVESTMENTS
Carrier had 30 and 31 uncombined domestic and foreign affiliates as of December 31, 2019 and 2018, respectively. The Business has reflected the results of its historical equity earnings from its equity investments in its Combined Statements of Operations. While the Business retains an ongoing interest in and has significant influence with its equity method investments, the Business does not control these operations directly. Carriers ownership interests in equity method investments vary among individual investments but range between 20% and 50%.
F-33
Summarized financial information for equity method investments is reflected below.
(dollars in millions) |
2019 |
2018 |
||||
Current assets |
$ | 4,324 | $ | 4,123 | ||
Noncurrent assets |
2,058 | 1,703 | ||||
Total assets |
6,382 | 5,826 | ||||
Current liabilities |
2,310 | 2,204 | ||||
Noncurrent liabilities |
592 | 445 | ||||
Total liabilities |
2,902 | 2,649 | ||||
Total net equity of investees |
3,480 | 3,177 |
(dollars in millions) |
2019 |
2018 |
2017 |
||||||
Net sales |
$ | 9,622 | $ | 9,142 | $ | 8,697 | |||
Gross profit |
1,741 | 1,673 | 1,606 | ||||||
Income from continuing operations |
578 | 645 | 561 | ||||||
Net income |
578 | 645 | 561 |
Carrier periodically reviews the carrying value of its investments to determine if there has been an other-than-temporary decline in carrying value. A variety of factors are considered when determining if a decline in carrying value is other than temporary, including, among other factors, the financial condition and business prospects of the investee, as well as Carriers intent with regard to the investment. During the Business assessment of potential impairment indicators related to its equity method investments during 2019, the Business determined that indicators of impairment existed for a specific investment in its portfolio. The Business performed a valuation of this investment and determined that the fair value was less than its carrying value. As a result, the Business recorded a non-cash pre-tax charge of $108 million in the third quarter of 2019. There were no other material impairments of Carriers investments during the historical periods presented.
Carrier sells products to and purchases products from uncombined entities accounted for under the equity method, which are considered to be related parties. During each of the years ended December 31, 2019, 2018 and 2017, Product sales in the Combined Statements of Operations included sales to equity method investees of $1.8 billion, $1.9 billion and $1.9 billion, respectively. During the years ended December 31, 2019, 2018 and 2017, respectively, Cost of products sold in the Combined Statements of Operations included purchases from equity method investees of $368 million, $355 million and $378 million (as corrected from approximately $600 million in both 2018 and 2017). Carrier had receivables from equity method investees of $137 million and $101 million at December 31, 2019 and 2018, respectively. Carrier also had payables to equity method investees of $55 million and $74 million at December 31, 2019 and 2018, respectively. The receivables and payables were included in Account receivable, net and Accounts payable, respectively, on the Combined Balance Sheets.
NOTE 17: OTHER INCOME (EXPENSE), NET
(dollars in millions) |
2019 |
2018 |
2017 |
||||||
Transaction gains |
$ | — | $ | 799 | $ | 379 | |||
Impairment of equity method investment (Note 16) |
(108 | ) |
— | — | |||||
Other |
106 | 138 | 196 | ||||||
Total |
$ | (2 | ) |
$ | 937 | $ | 575 |
The transaction gain recorded in 2018 relates to our sale of Taylor. The transaction gain recorded in 2017 relates to the sale of our investment in Watsco, Inc.
NOTE 18: GUARANTEES
The Business has commitments and performance guarantees, including energy savings guarantees, under long-term service and maintenance contracts related to its air conditioning equipment and system controls. Liabilities recorded on the Combined Balance Sheets related to these guarantees were not significant during the historical periods presented.
F-34
The Business also has obligations arising from sales of certain businesses and assets, including those from representations and warranties and related indemnities for environmental, health and safety (including asbestos-related), tax and employment matters. The maximum potential payment related to these obligations is not a specified amount as a number of the obligations do not contain financial caps. The carrying amount of liabilities related to these obligations was $10 million at both December 31, 2019 and December 31, 2018 recorded within Accrued liabilities. For additional information regarding the environmental indemnifications, see Note 20 — Contingent Liabilities.
Carrier accrues for costs associated with guarantees when it is probable that a liability has been incurred and the amount can be reasonably estimated. The most likely cost to be incurred is accrued based on an evaluation of currently available facts, and where no amount within a range of estimates is more likely, the minimum is accrued. In accordance with FASB ASC Topic 460-10: Guarantees, the Business records these liabilities at fair value.
The Business provides service and warranty policies on its products and extends performance and operating cost guarantees beyond normal service and warranty policies on some of its products. In addition, the Business incurs discretionary costs to service its products in connection with specific product performance issues. Liabilities for performance and operating cost guarantees are based upon future product performance and durability, and are largely estimated based upon historical experience. Adjustments are recorded to accruals as claim data and historical experience warrant. The changes in the carrying amount of service and product warranties and product performance guarantees for the years ended December 31, 2019 and 2018 are as follows:
(dollars in millions) |
2019 |
2018 |
||||
Balance as of January 1 |
$ | 473 | $ | 500 | ||
Warranties and performance guarantees issued |
182 | 171 | ||||
Settlement made |
(164 | ) |
(191 | ) |
||
Other |
(3 | ) |
(7 | ) |
||
Balance as of December 31 |
$ | 488 | $ | 473 |
NOTE 19: LEASES
We adopted ASU 2016-02, Leases (Topic 842) and its related amendments (collectively, the New Lease Accounting Standard) effective January 1, 2019, and elected the modified retrospective approach in which results for periods before 2019 were not adjusted for the new standard and the cumulative effect of the change in accounting was recognized through retained earnings at the date of adoption.
The New Lease Accounting Standard establishes a right-of-use model that requires a lessee to record a right-of-use asset and a lease liability on the Combined Balance Sheet for all leases with terms longer than 12 months. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the Combined Statement of Operations. In addition, this standard requires a lessor to classify leases as either sales-type, finance or operating. A lease will be treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as financing. If the lessor doesnt convey risks and rewards or control, the lease is treated as operating.
We have elected certain of the practical expedients available under the New Lease Accounting Standard. We have applied the practical expedient which allows prospective transition to the New Lease Accounting Standard on January 1, 2019. Under the transition practical expedient, we did not reassess lease classification, embedded leases or initial direct costs. We have applied the practical expedient for short-term leases, whereby a lease ROU asset and liability is not recognized and the expense is recognized in a straight-line basis over the lease term. In addition, we have lease agreements with lease and non-lease components, for which we have elected the practical expedients to combine these components for certain equipment leases. Additionally, for certain equipment leases, we apply a portfolio approach to effectively account for the operating lease right-of-use assets and liabilities. The adoption of the New Lease Accounting Standard did not have a material effect on our Combined Statement of Operations or Combined Statement of Cash Flows. Upon adoption, we recorded an $894 million right-of-use asset and a $901 million lease liability. The adoption of the New Lease Accounting Standard had an immaterial impact on UTC Net Investment.
F-35
We enter into lease agreements for the use of real estate space, vehicles, information technology equipment and certain other equipment under operating and finance leases. We determine if an arrangement contains a lease at inception. Operating leases are included in Operating lease right-of-use assets, Accrued liabilities and Operating lease liabilities in our Combined Balance Sheet. Finance leases are not considered significant to our Combined Balance Sheet or Combined Statement of Operations.
Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use an incremental borrowing rate, consistent with that of UTC, based on the information available at commencement date in determining the present value of lease payments, and use the implicit rate when readily determinable. We determine our incremental borrowing rate through market sources including relevant industry rates. Our lease right-of-use assets also include any lease pre-payments and exclude lease incentives. Certain of our leases include variable payments, which may vary based upon changes in facts or circumstances after the start of the lease. We exclude variable payments from lease right-of-use assets and lease liabilities, to the extent not considered fixed, and instead, expense variable payments as incurred. Variable lease expense and lease expense for short duration contracts is not a material component of lease expense. Our leases generally have remaining lease terms of 1 to 25 years, some of which include options to extend leases. The majority of our leases with options to extend are up to 3 years with the ability to terminate the lease within 1 year. The exercise of lease renewal options is at our sole discretion and our lease right-of-use assets and liabilities reflect only the options we are reasonably certain that we will exercise. Lease expense is recognized on a straight-line basis over the lease term.
Operating lease expense for the year ended December 31, 2019, was $206 million.
Supplemental cash flow information related to operating leases was as follows:
(dollars in millions) |
Year Ended December 31, 2019 |
||
Operating cash flows used for the measurement of operating lease liabilities |
$ | (201 | ) |
Operating lease right-of-use assets obtained in exchange for operating lease obligations |
$ | 136 |
Operating lease right-of-use assets and liabilities are reflected on our Combined Balance Sheet as follows:
(dollars in millions, except lease term and discount rate) |
December 31, 2019 |
||
Operating lease right-of-use assets |
$ | 832 | |
Accrued liabilities |
(163 | ) |
|
Operating lease liabilities |
(682 | ) |
|
Total operating lease liabilities |
$ | (845 | ) |
Supplemental information related to operating leases was as follows:
December 31, 2019 |
|||
Weighted-Average Remaining Lease Term (in years) |
8.0 | ||
Weighted-Average Discount Rate |
3.6 | % |
Carrier has historically operated as a part of UTC and currently uses UTCs weighted-average discount rate. This rate may differ when Carrier operates on a stand-alone basis.
F-36
Undiscounted maturities of operating lease liabilities, including options to extend lease terms that are reasonably certain of being exercised, as of December 31, 2019 are as follows:
(dollars in millions, except lease term and discount rate) |
Operating |
||
2020 |
$ | 182 | |
2021 |
151 | ||
2022 |
121 | ||
2023 |
97 | ||
2024 |
73 | ||
Thereafter |
315 | ||
Total undiscounted lease payments |
939 | ||
Less imputed interest |
(94 | ) |
|
Total discounted lease payments |
$ | 845 |
Prior to the adoption of the New Lease Accounting Standard, rental commitments on an undiscounted basis were approximately $685 million at December 31, 2018, under long-term non-cancelable operating leases and were payable as follows: $189 million in 2019, $146 million in 2020, $110 million in 2021, $77 million in 2022, $52 million in 2023 and $111 million thereafter. Rent expense was $167 million and $164 million in 2018 and 2017, respectively.
NOTE 20: CONTINGENT LIABILITIES
Except as otherwise noted, while the Business is unable to predict the final outcome, based on information currently available, the Business does not believe that resolution of any of the following matters will have a material adverse effect upon the Business competitive position, results of operations, cash flows or financial condition.
Environmental. The Business operations are subject to environmental regulation by authorities with jurisdiction over its operations. As described in Note 3 to the Combined Financial Statements, the Business has accrued for the costs of environmental remediation activities, including but not limited to investigatory, remediation, operating and maintenance costs and performance guarantees, and periodically reassesses these amounts. Management believes that the likelihood of incurring losses materially in excess of amounts accrued is remote. As of December 31, 2019 and 2018, the outstanding liability for environmental obligations was $217 million and $215 million, respectively, of which $14 million and $15 million is included in Accrued liabilities and $203 million and $200 million is included in Other long-term liabilities in the accompanying Combined Balance Sheets.
Legal Proceedings. Asbestos Matters — The Business and its combined subsidiaries have been named as defendants in lawsuits alleging personal injury as a result of exposure to asbestos integrated into certain of Carriers products or business premises. While the Business has never manufactured asbestos and no longer incorporates it in any currently-manufactured products, certain of Carriers historical products, have contained components incorporating asbestos. A substantial majority of these asbestos-related claims have been dismissed without payment or were covered in full or in part by insurance or other forms of indemnity. Additional cases were litigated and settled without any insurance reimbursement. The amounts involved in asbestos related claims were not material individually or in the aggregate in any year.
The amounts recorded for asbestos-related liabilities are based on currently available information and assumptions that we believe are reasonable and are made with input from outside actuarial experts. The estimated range of total liabilities to resolve all pending and unasserted potential future asbestos claims through 2059 is approximately $255 million to $290 million. Where no amount within a range of estimates is more likely, the minimum is accrued. We have recorded the minimum amount of $255 million, which is principally recorded in Other long-term liabilities on the Combined Balance Sheet as of December 31, 2019. This amount is on a pre-tax basis, not discounted, and excludes the Business legal fees to defend the asbestos claims, which will continue to be expensed by the Business as they are incurred. In addition, the Business has an insurance recovery receivable for probable asbestos related recoveries of approximately $104 million, which is included primarily in Other assets on the Combined Balance Sheet as of December 31, 2019.
F-37
Other. As described in Note 18 to the Combined Financial Statements, the Business extends performance and operating cost guarantees beyond the normal warranty and service policies for extended periods on some of the products. The Business typically accrues its estimate of the liability that may result under these guarantees and for service costs that are probable and can be reasonably estimated. For further discussion and rollforward related warranties, see Note 18 — Guarantees.
The Business also has other commitments and contingent liabilities related to legal proceedings and matters arising out of the ordinary course of business. The Business accrues contingencies based upon a range of possible outcomes. If no amount within this range is a better estimate than any other, then the Business accrues the minimum amount.
In the ordinary course of business, Carrier is also routinely a defendant in, party to or otherwise subject to many pending and threatened legal actions, claims, disputes and proceedings. These matters are often based on alleged violations of contract, product liability, warranty, regulatory, environmental, health and safety, employment, intellectual property, tax and other laws. In some of these proceedings, claims for substantial monetary damages are asserted against the Business and its subsidiaries and could result in fines, penalties, compensatory or treble damages or non-monetary relief. The Business does not believe that these matters will have a material adverse effect upon its competitive position, results of operations, cash flows or financial condition.
NOTE 21: SEGMENT FINANCIAL DATA
Carrier has historically operated as an operating segment within UTC. As it is transitioning into an independent, publicly traded company, the Business Chief Executive Officer, its Chief Operating Decision Maker (CODM), evaluated how to view and measure the Business performance. Based upon such evaluation, and effective during the second quarter of 2019, Carrier determined it is organized into three operating segments, which are also its reportable segments, based on how the CODM allocates resources, assesses performance and makes strategic and operational decisions. The CODM allocates resources to and evaluates the financial performance of each operating segment primarily based on net sales and operating profit. For the years ended December 31, 2019, 2018 and 2017, segment results are presented in accordance with this new structure. The Carrier operating segments determined in accordance with FASB ASC Topic 280 — Segment Reporting are (1) HVAC; (2) Refrigeration; and (3) Fire & Security. The segments are generally determined based on the decision-making structure of the Business and the grouping of similar products and services.
HVAC provides products, controls, services and solutions to meet the heating and cooling needs of residential and commercial customers, while enhancing building performance, energy efficiency and sustainability. Carriers industry-leading family of brands includes Carrier, Automated Logic, Bryant, CIAT, Day & Night, Heil, NORESCO and Riello. Products include air conditioners, heating systems, controls and aftermarket components, as well as aftermarket repair and maintenance services and building automation solutions. HVAC products and solutions are sold directly, including to building contractors and owners, and indirectly through equity method investees, independent sales representatives, distributors, wholesalers, dealers and retail outlets.
Refrigeration is comprised of transport refrigeration and commercial refrigeration products and solutions. Transport refrigeration products and services include refrigeration and monitoring systems for trucks, trailers, shipping containers, intermodal and rail. Transport refrigeration products and cold chain monitoring solutions are used to enable the safe, reliable transport of food and beverages, medical supplies and other perishable cargo. Commercial refrigeration solutions include refrigerated cabinets, freezers, systems and controls. Carriers commercial refrigeration equipment solutions incorporate next-generation technologies to preserve freshness, ensure safety and enhance the appearance of retail food and beverage. The Business Refrigeration products and services are sold under established brand names, including Carrier Commercial Refrigeration, Carrier Transicold and Sensitech. Refrigeration products and services are sold directly, including to transportation companies and retail stores, and indirectly through equity method investees, independent sales representatives, distributors, wholesalers and dealers.
Fire & Security includes a wide range of residential and building systems, including fire, flame, gas, smoke and carbon monoxide detection; portable fire extinguishers; fire suppression systems; intruder alarms; access control systems and video management systems. Other fire and security service offerings include audit, design, installation and system integration, as well as aftermarket maintenance and repair and monitoring services.
F-38
Established brands include Autronica, Chubb, Det-Tronics, Edwards, Fireye, GST, Interlogix, Kidde, LenelS2, Marioff, Onity and Supra. Fire & Security products and solutions are sold directly to end customers, as well as through manufacturers representatives, distributors, dealers, value-added resellers and retailers.
Segment Information. Total sales by segment include inter-segment sales, which are generally made at prices approximating those that the selling entity is able to obtain on external sales. Segment information for the years ended December 31 is as follows:
Net sales |
Operating profit |
|||||||||||||||||
(dollars in millions) |
2019 |
2018 |
2017 |
2019 |
2018 |
2017 |
||||||||||||
HVAC |
$ | 9,712 | $ | 9,713 | $ | 9,045 | $ | 1,563 | $ | 1,720 | $ | 2,001 | ||||||
Refrigeration |
3,792 | 4,095 | 3,823 | 532 | 1,353 | 562 | ||||||||||||
Fire & Security |
5,500 | 5,531 | 5,324 | 708 | 726 | 639 | ||||||||||||
Total Segment |
19,004 | 19,339 | 18,192 | 2,803 | 3,799 | 3,202 | ||||||||||||
Eliminations and other |
(396 | ) |
(425 | ) |
(378 | ) |
(156 | ) |
(24 | ) |
(32 | ) |
||||||
General corporate expenses |
— | — | — | (156 | ) |
(138 | ) |
(140 | ) |
|||||||||
Combined |
$ | 18,608 | $ | 18,914 | $ | 17,814 | $ | 2,491 | $ | 3,637 | $ | 3,030 |
Total assets are not presented for each segment as they are not presented to or reviewed by the CODM.
Segment Assets |
Capital Expenditures |
Depreciation & Amortization |
|||||||||||||||||||||||||
(dollars in millions) |
2019 |
2018 |
2017 |
2019 |
2018 |
2017 |
2019 |
2018 |
2017 |
||||||||||||||||||
HVAC |
$ | 1,953 | $ | 1,844 | $ | 1,630 | $ | 150 | $ | 149 | $ | 148 | $ | 160 | $ | 164 | $ | 173 | |||||||||
Refrigeration |
989 | 998 | 1,017 | 30 | 40 | 36 | 34 | 36 | 33 | ||||||||||||||||||
Fire & Security |
1,728 | 1,764 | 1,698 | 50 | 45 | 50 | 123 | 141 | 152 | ||||||||||||||||||
Total Segment |
4,670 | 4,606 | 4,345 | 230 | 234 | 234 | 317 | 341 | 358 | ||||||||||||||||||
Eliminations and other |
10 | (4 | ) |
(10 | ) |
13 | 29 | 92 | 18 | 16 | 14 | ||||||||||||||||
Combined |
$ | 4,680 | $ | 4,602 | $ | 4,335 | $ | 243 | $ | 263 | $ | 326 | $ | 335 | $ | 357 | $ | 372 | |||||||||
Cash and cash equivalents |
952 | 1,129 | 1,324 | ||||||||||||||||||||||||
Other assets, current |
327 | 378 | 341 | ||||||||||||||||||||||||
Total Current Assets |
$ | 5,959 | $ | 6,109 | $ | 6,000 |
Segment assets in the table above represents accounts receivable, contract assets, current, and inventories, net. Such accounts are regularly reviewed by management and are therefore reported above as segment assets. All other remaining assets and liabilities for all periods presented are managed on a company-wide basis.
Geographic External Sales and Long-Lived Assets. Geographic external sales and operating profits are attributed to the geographic regions based on their location of origin. With the exception of the U.S. presented in the table below, there were no individually significant countries with sales exceeding 10% of total sales during the years ended December 31, 2019, 2018 and 2017. Long-lived assets are net fixed assets attributed to the specific geographic regions:
External Net sales |
Long-Lived Assets |
|||||||||||||||||
(dollars in millions) |
2019 |
2018 |
2017 |
2019 |
2018 |
2017 |
||||||||||||
United States Operations |
$ | 9,594 | $ | 9,415 | $ | 8,686 | $ | 701 | $ | 700 | $ | 727 | ||||||
International Operations: |
||||||||||||||||||
Europe |
5,327 | 5,711 | 5,323 | 439 | 451 | 480 | ||||||||||||
Asia Pacific |
2,813 | 2,853 | 2,782 | 241 | 244 | 222 | ||||||||||||
Other |
874 | 935 | 1,023 | 282 | 258 | 255 | ||||||||||||
$ | 18,608 | $ | 18,914 | $ | 17,814 | $ | 1,663 | $ | 1,653 | $ | 1,684 |
F-39
Segment sales disaggregated by product versus service for the year ended December 31, 2019, 2018 and 2017 are as follows:
(dollars in millions) |
2019 |
2018 |
2017 |
||||||
Sales Type |
|||||||||
Product |
$ | 8,279 | $ | 8,395 | $ | 7,902 | |||
Service |
1,433 | 1,318 | 1,143 | ||||||
Total HVAC sales |
9,712 | 9,713 | 9,045 | ||||||
Product |
3,405 | 3,665 | 3,427 | ||||||
Service |
387 | 430 | 396 | ||||||
Total Refrigeration sales |
3,792 | 4,095 | 3,823 | ||||||
Product |
4,072 | 4,039 | 3,824 | ||||||
Service |
1,428 | 1,492 | 1,500 | ||||||
Total Fire & Security sales |
5,500 | 5,531 | 5,324 | ||||||
Total segment sales |
19,004 | 19,339 | 18,192 | ||||||
Eliminations and other |
(396 | ) |
(425 | ) |
(378 | ) |
|||
Combined |
$ | 18,608 | $ | 18,914 | $ | 17,814 |
Major Customers. There were no customers that individually accounted for 10% or more of the Business combined Net sales for the years ended December 31, 2019, 2018 and 2017.
NOTE 22: SUBSEQUENT EVENTS
The Business evaluated events and transactions occurring subsequent to December 31, 2019 through February 7, 2020, the date the Combined Financial Statements were issued and concluded that there were no subsequent events that required recognition or disclosure.
F-40
Carrier Global Corporation
(A Business of United Technologies Corporation)
Valuation and Qualifying Accounts
As of and for the Years Ended December 31, 2019, 2018 and 2017
(Dollars in millions) |
|||
Allowances for Doubtful Accounts |
|||
Balance, January 1, 2017 |
$ | 157 | |
Provision charged to income |
12 | ||
Doubtful accounts written off (net) |
(23 | ) |
|
Other adjustments |
6 | ||
Balance, December 31, 2017 |
152 | ||
Provision charged to income |
20 | ||
Doubtful accounts written off (net) |
(22 | ) |
|
Other adjustments |
(9 | ) |
|
Balance, December 31, 2018 |
141 | ||
Provision charged to income |
18 | ||
Doubtful accounts written off (net) |
(45 | ) |
|
Other adjustments(1) |
(69 | ) |
|
Balance, December 31, 2019 |
$ | 45 |
(Dollars in millions) |
|||
Future Income Tax Benefits — Valuation allowance |
|||
Balance, January 1, 2017 |
$ | 104 | |
Additions charged to income tax expense |
17 | ||
Reductions credited to income tax expense |
(11 | ) |
|
Other adjustments |
3 | ||
Balance, December 31, 2017 |
113 | ||
Additions charged to income tax expense |
15 | ||
Reductions credited to income tax expense |
(14 | ) |
|
Other adjustments |
(7 | ) |
|
Balance, December 31, 2018 |
107 | ||
Additions charged to income tax expense |
41 | ||
Reductions credited to income tax expense |
(16 | ) |
|
Other adjustments |
(4 | ) |
|
Balance, December 31, 2019 |
$ | 128 |
(1) | Includes $61 million of the prior year allowance for doubtful accounts which has been reflected as a direct reduction in Trade receivables. |
F-41