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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
____________________________________
FORM 10-Q
____________________________________
| | | | | |
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2020
OR
| | | | | |
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 001-39220
____________________________________
CARRIER GLOBAL CORPORATION
(Exact name of registrant as specified in its charter)
____________________________________
| | | | | | | | |
| Delaware | | 83-4051582 |
| (State or Other Jurisdiction of Incorporation or Organization) | | (I.R.S. Employer Identification No.) |
13995 Pasteur Boulevard, Palm Beach Gardens, Florida 33418
(Address, of principal executive offices, including zip code)
(561) 365-2000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
| Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
| Common Stock ($0.01 par value) | | CARR | | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒. No ☐.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒. No ☐.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | |
| Large accelerated filer | ☐
| Accelerated filer | ☐ |
| | | |
| Non-accelerated filer | ☒ | Smaller reporting company | ☐ |
| | | |
| | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐. No ☒.
At June 30, 2020, there were 866,164,968 shares of Common Stock outstanding.
CARRIER GLOBAL CORPORATION AND SUBSIDIARIES
CONTENTS OF QUARTERLY REPORT ON FORM 10-Q
Three and Six Months Ended June 30, 2020
Carrier Global Corporation and its subsidiaries' names, abbreviations thereof, logos, and product and service designators are all either the registered or unregistered trademarks or trade names of Carrier Global Corporation and its subsidiaries. Names, abbreviations of names, logos, and products and service designators of other companies are either the registered or unregistered trademarks or trade names of their respective owners. As used herein, the terms "we," "us," "our," "the Company," or "Carrier," unless the context otherwise requires, mean Carrier Global Corporation and its subsidiaries. References to internet websites in this Form 10-Q are provided for convenience only. Information available through these websites is not incorporated by reference into this Form 10-Q.
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
CARRIER GLOBAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended June 30, | | | | For the Six Months Ended June 30, | | |
| (dollars in millions, except per share amounts; shares in millions) | 2020 | | 2019 | | 2020 | | 2019 |
| Net sales | | | | | | | |
| Product sales (Note 5) | $ | 3,275 | | | $ | 4,139 | | | $ | 6,422 | | | $ | 7,705 | |
| Service sales | 697 | | | 823 | | | 1,438 | | | 1,580 | |
| 3,972 | | | 4,962 | | | 7,860 | | | 9,285 | |
| Costs and expenses | | | | | | | |
| Cost of products sold (Note 5) | 2,343 | | | 2,906 | | | 4,580 | | | 5,471 | |
| Cost of services sold | 488 | | | 582 | | | 1,017 | | | 1,114 | |
| Research and development | 94 | | | 103 | | | 192 | | | 200 | |
| Selling, general and administrative | 637 | | | 680 | | | 1,329 | | | 1,364 | |
| 3,562 | | | 4,271 | | | 7,118 | | | 8,149 | |
| Equity method investment net earnings | 57 | | | 80 | | | 86 | | | 120 | |
| Other (expense) income, net | (25) | | | 34 | | | (71) | | | 49 | |
| Operating profit | 442 | | | 805 | | | 757 | | | 1,305 | |
| Non-service pension benefit | 14 | | | 38 | | | 31 | | | 77 | |
| Interest (expense) income, net | (81) | | | 16 | | | (118) | | | 20 | |
| Income from operations before income taxes | 375 | | | 859 | | | 670 | | | 1,402 | |
| Income tax expense | 106 | | | 65 | | | 299 | | | 205 | |
| Net income from operations | 269 | | | 794 | | | 371 | | | 1,197 | |
| Less: Non-controlling interest in subsidiaries' earnings from operations | 8 | | | 10 | | | 14 | | | 13 | |
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| Net income attributable to common shareowners | $ | 261 | | | $ | 784 | | | $ | 357 | | | $ | 1,184 | |
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| Earnings per share (Note 3) | | | | | | | |
| Basic | $ | 0.30 | | | $ | 0.91 | | | $ | 0.41 | | | $ | 1.37 | |
| Diluted | $ | 0.30 | | | $ | 0.91 | | | $ | 0.41 | | | $ | 1.37 | |
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| Weighted average number of shares outstanding (Note 3) | | | | | | | |
| Basic | 866.2 | | | 866.2 | | | 866.2 | | | 866.2 | |
| Diluted | 870.9 | | | 866.2 | | | 870.9 | | | 866.2 | |
| | | | | | | |
The accompanying notes are an integral part of the Unaudited Condensed Consolidated Financial Statements.
CARRIER GLOBAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended June 30, | | | | For the Six Months Ended June 30, | | |
| (dollars in millions) | 2020 | | 2019 | | 2020 | | 2019 |
| Net income from operations | $ | 269 | | | $ | 794 | | | $ | 371 | | | $ | 1,197 | |
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| Other comprehensive income (loss), net of tax | | | | | | | |
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| Foreign currency translation adjustments arising during period | 251 | | | (81) | | | (239) | | | 15 | |
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| Pension and post-retirement benefit plan adjustments | 7 | | | 4 | | | 12 | | | 9 | |
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| Other comprehensive income (loss), net of tax | 258 | | | (77) | | | (227) | | | 24 | |
| Comprehensive income | 527 | | | 717 | | | 144 | | | 1,221 | |
| Less: Comprehensive income attributable to non-controlling interest | (9) | | | (7) | | | (13) | | | (15) | |
| Comprehensive income attributable to common shareowners | $ | 518 | | | $ | 710 | | | $ | 131 | | | $ | 1,206 | |
The accompanying notes are an integral part of the Unaudited Condensed Consolidated Financial Statements.
CARRIER GLOBAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
| | | | | | | | | | | |
| (dollars in millions) | June 30, 2020 | | December 31, 2019 |
| Assets | | | |
| Cash and cash equivalents | $ | 2,704 | | | $ | 952 | |
| Accounts receivable, net (Note 5 and Note 6) | 2,665 | | | 2,726 | |
| Contract assets, current | 761 | | | 622 | |
| Inventories, net | 1,639 | | | 1,332 | |
| Other assets, current | 284 | | | 327 | |
| Total current assets | 8,053 | | | 5,959 | |
| Future income tax benefits | 419 | | | 500 | |
| Fixed assets, net | 1,651 | | | 1,663 | |
| Operating lease right-of-use assets | 843 | | | 832 | |
| Intangible assets, net | 1,024 | | | 1,083 | |
| Goodwill | 9,735 | | | 9,884 | |
| Pension and post-retirement assets | 521 | | | 490 | |
| Equity method investments | 1,697 | | | 1,739 | |
| Other assets | 233 | | | 256 | |
| Total Assets | $ | 24,176 | | | $ | 22,406 | |
| | | |
| Liabilities and Equity | | | |
| Accounts payable (Note 5) | $ | 1,765 | | | $ | 1,701 | |
| Accrued liabilities (Note 5) | 2,246 | | | 2,088 | |
| Contract liabilities, current | 477 | | | 443 | |
| Current portion of long-term debt | 301 | | | 237 | |
| Total current liabilities | 4,789 | | | 4,469 | |
| Long-term debt | 11,728 | | | 82 | |
| Future pension and post-retirement obligations | 462 | | | 456 | |
| Future income tax obligations (Note 5 and Note 14) | 445 | | | 1,099 | |
| Operating lease liabilities | 688 | | | 682 | |
| Other long-term liabilities (Note 5) | 1,698 | | | 1,183 | |
| Total Liabilities | 19,810 | | | 7,971 | |
| Commitments and contingent liabilities (Note 18) | | | |
| Equity | | | |
| UTC Net investment | — | | | 15,355 | |
Common stock, par value $0.01; 4,000,000,000 shares authorized; 866,164,968 shares issued and outstanding as of June 30, 2020 | 9 | | | — | |
| Additional paid-in capital | 5,307 | | | — | |
| Retained earnings | 191 | | | — | |
| Accumulated other comprehensive loss | (1,479) | | | (1,253) | |
| Non-controlling interest | 338 | | | 333 | |
| Total Equity | 4,366 | | | 14,435 | |
| Total Liabilities and Equity | $ | 24,176 | | | $ | 22,406 | |
The accompanying notes are an integral part of the Unaudited Condensed Consolidated Financial Statements.
CARRIER GLOBAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (dollars in millions) | | UTC Net Investment | | Accumulated Other Comprehensive Loss | | | | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Non-Controlling Interest | | Total Equity |
| Balance at January 1, 2019 | | $ | 15,132 | | | $ | (1,215) | | | | | $ | — | | | $ | — | | | $ | — | | | $ | 352 | | | $ | 14,269 | |
| Net income | | 400 | | | — | | | | | — | | | — | | | — | | | 3 | | | 403 | |
| Other comprehensive income, net of tax | | — | | | 96 | | | | | — | | | — | | | — | | | 5 | | | 101 | |
| Dividends attributable to non-controlling interest | | — | | | — | | | | | — | | | — | | | — | | | (2) | | | (2) | |
| Net transfers to UTC | | (81) | | | — | | | | | — | | | — | | | — | | | — | | | (81) | |
| Adoption impact of ASU 2018-02 | | 9 | | | (9) | | | | | — | | | — | | | — | | | — | | | — | |
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| Balance at March 31, 2019 | | 15,460 | | | (1,128) | | | | | — | | | — | | | — | | | 358 | | | 14,690 | |
| | | | | | | | | | | | | | | | |
| Net income | | 784 | | | — | | | | | — | | | — | | | — | | | 10 | | | 794 | |
| Other comprehensive loss, net of tax | | — | | | (74) | | | | | — | | | — | | | — | | | (3) | | | (77) | |
| Dividends attributable to non-controlling interest | | — | | | — | | | | | — | | | — | | | — | | | (2) | | | (2) | |
| | | | | | | | | | | | | | | | |
| Net transfers to UTC | | (445) | | | — | | | | | — | | | — | | | — | | | — | | | (445) | |
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| Balance at June 30, 2019 | | $ | 15,799 | | | $ | (1,202) | | | | | $ | — | | | $ | — | | | $ | — | | | $ | 363 | | | $ | 14,960 | |
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| Balance at January 1, 2020 | | $ | 15,355 | | | $ | (1,253) | | | | | $ | — | | | $ | — | | | $ | — | | | $ | 333 | | | $ | 14,435 | |
| Net income | | 96 | | | — | | | | | — | | | — | | | — | | | 6 | | | 102 | |
| Other comprehensive loss, net of tax | | — | | | (483) | | | | | — | | | — | | | — | | | (2) | | | (485) | |
| Dividends attributable to non-controlling interest | | — | | | — | | | | | — | | | — | | | — | | | (8) | | | (8) | |
| Net transfers to UTC | | (11,014) | | | — | | | | | — | | | — | | | — | | | — | | | (11,014) | |
| Adoption impact of ASU 2016-13 | | (4) | | | — | | | | | — | | | — | | | — | | | — | | | (4) | |
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| Balance at March 31, 2020 | | 4,433 | | | (1,736) | | | | | — | | | — | | | — | | | 329 | | | 3,026 | |
| | | | | | | | | | | | | | | | |
| Net income | | — | | | — | | | | | — | | | — | | | 261 | | | 8 | | | 269 | |
| Other comprehensive income, net of tax | | — | | | 257 | | | | | — | | | — | | | — | | | 1 | | | 258 | |
Dividends declared on Common Stock ($0.08 per share) | | — | | | — | | | | | — | | | — | | | (70) | | | — | | | (70) | |
| Common stock issued under employee plans | | — | | | — | | | | | — | | | 24 | | | — | | | — | | | 24 | |
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| | | | | | | | | | | | | | | | |
| Net transfers from UTC | | 859 | | | — | | | | | — | | | — | | | — | | | — | | | 859 | |
| Reclassification of UTC Net Investment to Common stock and Additional paid-in capital | | (5,292) | | | — | | | | | 9 | | | 5,283 | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | |
| Balance as of June 30, 2020 | | $ | — | | | $ | (1,479) | | | | | $ | 9 | | | $ | 5,307 | | | $ | 191 | | | $ | 338 | | | $ | 4,366 | |
The accompanying notes are an integral part of the Unaudited Condensed Consolidated Financial Statements.
CARRIER GLOBAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
| | | | | | | | | | | |
| | For the Six Months Ended June 30, | | |
| (dollars in millions) | 2020 | | 2019 |
| Operating Activities | | | |
| Net income from operations | $ | 371 | | | $ | 1,197 | |
| Adjustments to reconcile net income from operations to net cash flows provided by operating activities, net of acquisitions and dispositions | | | |
| Depreciation and amortization | 159 | | | 167 | |
| Deferred income tax provision | 135 | | | (57) | |
| Stock compensation costs | 35 | | | 22 | |
| Equity method investment net earnings | (86) | | | (120) | |
| Distributions from equity method investments | 49 | | | 46 | |
| Impairment charge on minority-owned joint venture investments | 72 | | | — | |
| Changes in operating assets and liabilities | | | |
| Accounts receivable, net | 27 | | | (206) | |
| Contract assets, current | (140) | | | (43) | |
| Inventories, net | (325) | | | (340) | |
| Other assets, current | 32 | | | 16 | |
| Accounts payable and accrued liabilities | 152 | | | (173) | |
| Contract liabilities, current | 37 | | | (16) | |
| Pension contributions | (27) | | | (27) | |
| Other operating activities, net | 65 | | | (95) | |
| Net cash flows provided by operating activities | 556 | | | 371 | |
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| Investing Activities | | | |
| Capital expenditures | (94) | | | (89) | |
| | | |
| | | |
| (Payment) receipt from settlement of derivative contracts | (23) | | | 1 | |
| Other investing activities, net | 14 | | | 8 | |
| Net cash flows used in investing activities | (103) | | | (80) | |
| | | |
| Financing Activities | | | |
| (Decrease) increase in short-term borrowings, net | (17) | | | 45 | |
| Issuance of long-term debt | 11,734 | | | 77 | |
| Repayment of long-term debt | (36) | | | (37) | |
| | | |
| Dividends paid to non-controlling interest | (8) | | | (3) | |
| Net transfers to UTC | (10,359) | | | (548) | |
| Other financing activities, net | 1 | | | (26) | |
| Net cash flows provided by (used in) financing activities | 1,315 | | | (492) | |
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| Effect of foreign exchange rate changes on cash and cash equivalents | (17) | | | 7 | |
| Net increase (decrease) in cash and cash equivalents and restricted cash | 1,751 | | | (194) | |
| Cash, cash equivalents and restricted cash, beginning of period | 957 | | | 1,134 | |
| Cash, cash equivalents and restricted cash, end of period | 2,708 | | | 940 | |
| Less: restricted cash | 4 | | | 4 | |
| Cash and cash equivalents, end of period | $ | 2,704 | | | $ | 936 | |
The accompanying notes are an integral part of the Unaudited Condensed Consolidated Financial Statements.
CARRIER GLOBAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Condensed Consolidated Financial Statements as of June 30, 2020 and for the three and six months ended June 30, 2020 and 2019 are unaudited, and include all adjustments (consisting only of normal recurring adjustments) considered necessary by management to fairly state our results of operations, financial position and cash flows for the interim periods. The results reported in the Unaudited Condensed Consolidated Financial Statements are not necessarily indicative of results that may be expected for any other interim period or the entire year. The financial information included herein should be read in conjunction with the financial statements and notes in the Company's information statement, dated March 16, 2020, which was included as Exhibit 99.1 in our Current Report on Form 8-K filed with the Securities and Exchange Commission ("SEC") on March 16, 2020 (the "Information Statement").
Impact of the COVID-19 pandemic
A novel strain of coronavirus ("COVID-19") surfaced in Wuhan, China in late 2019 and has since spread throughout the rest of the world. In March 2020, COVID-19 was declared a pandemic by the World Health Organization and a national emergency by the U.S. Government. The pandemic has negatively affected the U.S. and global economies, disrupted global supply chains and financial markets, resulted in significant travel restrictions, mandated facility closures, and shelter-in-place orders.
Carrier is taking all prudent measures to protect the health and safety of our employees and has implemented work from home requirements, where possible, social distancing where working from home is not feasible, including in our manufacturing facilities, deep cleaning protocols at all of our facilities and travel restrictions, among other measures. We have also taken appropriate measures to work with our customers to minimize potential disruption and to support the communities that we serve to address the challenges posed by the pandemic.
The full extent of the impact of the COVID-19 pandemic on the Company's operational and financial performance will depend on future developments, including the duration and spread of the pandemic, as well as any worsening of the pandemic and whether there will be additional outbreaks of the pandemic, and related containment and mitigation actions taken by the U.S., state and local and international governments to prevent disease spread. The extent of the pandemic's impact on Carrier will also depend upon our employees' ability to work safely in our facilities, our customers’ ability to continue to operate or receive our products, the ability of our suppliers to continue to operate, and the level of activity and demand for the ultimate product and services of our customers or their customers.
During the three months ended March 31, 2020, we temporarily closed or reduced production at manufacturing facilities in North America, Asia and Europe for safety reasons and in response to lower demand for our products, however, as of June 30, 2020, our manufacturing facilities (and nearly all of our suppliers) had resumed operations and 95% of our production capacity was available and, where appropriate, we initiated return-to-work protocols at our non-manufacturing facilities where employees were previously working remotely. During the three months ended March 31, 2020, we considered the outbreak and subsequent impacts to be a trigger to reassess our goodwill and intangible asset valuations. In order to evaluate these impacts, we made forecast assumptions regarding future business activity that are subject to a wide range of uncertainties, including those noted in the prior paragraph. Based upon qualitative and, in certain cases, quantitative analyses, we determined that our goodwill and intangible assets were not impaired. For the period ended June 30, 2020, we reviewed the assumptions used in our March 31, 2020 assessment and determined that they remain appropriate.
We continue to focus on navigating the challenges COVID-19 presents by preserving our liquidity and managing our cash flows through preemptive actions to enhance our ability to meet our liquidity needs over the next twelve months. Such actions include, but are not limited to modifying the financial covenants in our revolving and term loan credit agreements and issuing $750 million of unsecured, unsubordinated long-term debt (see Note 10 – Borrowings and Lines of Credit for additional information), reducing our discretionary spending, our capital investments and general and administrative costs by implementing pay freezes and cuts, employee furloughs and the suspension of non-critical hiring, and participation in global COVID-19 relief measures, including the Coronavirus Aid, Relief, and Economic Security ("CARES") Act, which provides for payroll tax deferrals and credits, income tax payment deferrals, and an increase in the income tax interest deduction limitation.
NOTE 1: DESCRIPTION OF THE BUSINESS
Carrier Global Corporation is a leading global provider of heating, ventilating, air conditioning ("HVAC"), refrigeration, and fire and security solutions. Carrier also provides a broad array of related building services, including audit, design, installation, system integration, repair, maintenance and monitoring. Carrier’s operations are classified into three segments: HVAC, Refrigeration, and Fire & Security. The HVAC and Refrigeration segments sell their products and solutions directly, including to building contractors and owners, transportation companies and retail stores, or indirectly through joint venture and other minority-owned investments, independent sales representatives, distributors, wholesalers, dealers and retail outlets. These products and services are sold under the Carrier name and other brand names including Automated Logic, Bryant, CIAT, Day & Night, Heil, NORESCO, Riello, Carrier Commercial Refrigeration, Carrier Transicold, Sensitech and others. The Fire & Security segment sells its products directly to customers, or indirectly through manufacturers’ representatives, distributors, dealers, value-added resellers and retailers. Fire & Security’s products and services are used by governments, financial institutions, architects, building owners and developers, security and fire consultants, homeowners and other end-users requiring a high level of security and fire protection for their businesses and residences. These products and services are sold under brand names including Autronica, Chubb, Det-Tronics, Edwards, Fireye, GST, Kidde, LenelS2, Marioff, Onity, Supra and others.
On November 26, 2018, United Technologies Corporation, since renamed Raytheon Technologies Corporation ("UTC"), announced its intention to spin off Carrier, one of UTC's reportable segments, into a separate publicly traded company (the "Separation"). On April 3, 2020, UTC completed the Separation through a pro-rata distribution (the "Distribution") of all of the outstanding common stock of the Company to UTC shareowners who held shares of UTC common stock as of the close of business on March 19, 2020, the record date for the Distribution. UTC distributed 866,158,910 shares of Carrier common stock in the Distribution, which was effective at 12:01 a.m., Eastern Time, on April 3, 2020 (the "Effective Time"). As a result of the Distribution, Carrier became an independent public company and our common stock is listed under the symbol "CARR" on the New York Stock Exchange. In connection with the Separation, Carrier issued an aggregate principal balance of $11.0 billion of debt and transferred approximately $10.9 billion of cash to UTC on February 27, 2020 and March 27, 2020. On April 1, 2020 and April 2, 2020, Carrier received cash contributions totaling $590 million from UTC related to the Separation. See Note 10 – Borrowings and Lines of Credit and Note 3 – Earnings Per Share for additional information.
In connection with the Separation, Carrier entered into several agreements with UTC and Otis Worldwide Corporation ("Otis"), including a separation and distribution agreement that sets forth certain agreements with UTC and Otis regarding the principal actions to be taken in connection with the Separation, including identifying the assets transferred, the liabilities assumed and the contracts transferred to each of UTC, Otis and Carrier as part of the Separation, and when and how these transfers and assumptions occurred. Other agreements we entered into that govern aspects of our relationship with UTC and Otis following the Separation include:
Transition Services Agreement. We entered into a Transition Services Agreement (the "TSA") with UTC and Otis in connection with the Separation pursuant to which UTC provides us with certain services and we provide certain services to UTC for a limited time to help ensure an orderly transition following the Separation. The services we receive include, but are not limited to, information technology services, technical and engineering support, application support for operations, legal, payroll, finance, tax and accounting, general administrative services and other support services. Because costs for these services historically were included in our operating results based on allocations from UTC, we do not expect the costs associated with the TSA to be materially different and, therefore, we do not expect such costs to materially affect our results of operations or cash flows after we became an independent publicly traded company nor do we expect such costs to be materially different when these services are transitioned from UTC to Carrier.
Tax Matters Agreement. We entered into a Tax Matters Agreement (the "TMA") with UTC and Otis that governs the parties’ respective rights, responsibilities and obligations with respect to tax matters (including responsibility for taxes, entitlement to refunds, allocation of tax attributes, preparation of tax returns, control of tax contests and other tax matters). Subject to certain exceptions set forth in the TMA, Carrier generally is responsible for federal, state and foreign taxes imposed on a separate return basis upon Carrier (or any of its subsidiaries) with respect to taxable periods (or portions thereof) that ended on or prior to the date of the Distribution. The TMA provides special rules that allocate responsibility for tax liabilities arising from a failure of the Separation transactions to qualify for tax-free treatment based on the reasons for such failure. The TMA also imposes restrictions on each of Carrier and Otis during the two-year period following the Distribution that are intended to prevent certain transactions from failing to qualify as transactions that are generally tax-free.
Employee Matters Agreement and Intellectual Property Agreement. We entered into an employee matters agreement and intellectual property agreement with UTC and Otis in connection with the Separation.
NOTE 2: BASIS OF PRESENTATION
The Unaudited Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. All significant intra-company accounts and transactions have been eliminated in the preparation of the Unaudited Condensed Consolidated Financial Statements. Related party transactions between the Company and its equity method investees have not been eliminated.
Non-controlling interest represents a non-controlling investor's interests in the results of subsidiaries that we control and consolidate.
Certain immaterial amounts presented in the Information Statement have been reclassified to conform to the current period presentation, including the reclassification of the Current portion of long-term debt from Accrued liabilities for 2019 on the accompanying Unaudited Condensed Consolidated Balance Sheet.
The Company's financial statements for periods prior to the Separation and the Distribution are prepared on a "carve-out" basis, as described below. The Company's financial statements for the period from April 3, 2020 through June 30, 2020 are consolidated financial statements based on the reported results of Carrier as a stand-alone company.
Basis of Presentation Prior to the Separation and the Distribution
Prior to the Separation and the Distribution, the Unaudited Condensed Consolidated Financial Statements reflect the financial position, results of operations and cash flows of the Company for the periods presented as historically managed within UTC. For those periods prior to the Separation and the Distribution, the Unaudited Condensed Consolidated Financial Statements are derived from the consolidated financial statements and accounting records of UTC.
The Unaudited Condensed Consolidated Statement of Operations includes all revenues and costs directly attributable to Carrier, including costs for facilities, functions and services used by Carrier. Prior to the Separation, costs for certain functions and services performed by UTC were directly charged to Carrier based on specific identification when possible or based on a reasonable allocation driver such as net sales, headcount, proportionate usage or other allocation methods. The results of operations include allocations of costs for administrative functions and services performed on behalf of Carrier by centralized groups within UTC and certain pension and other post-retirement benefit costs (see Note 5 – Related Parties for a description of the allocation methodologies). All charges and allocations for facilities, functions and services performed by UTC have been deemed settled in cash by Carrier to UTC in the period in which the cost was recorded in the Unaudited Condensed Consolidated Statement of Operations.
Prior to the Separation, UTC used a centralized approach to cash management and financing its operations. Accordingly, none of the cash, third party debt or related interest expense of UTC has been allocated to Carrier in the Unaudited Condensed Consolidated Financial Statements for the period prior to the Separation. However, cash balances primarily associated with certain foreign entities that did not participate in UTC’s cash management program have been included in the Unaudited Condensed Consolidated Financial Statements for periods prior to the Separation. Transactions betwee
