Carrier Global Corporation — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone fourth-quarter report. Carrier is a global provider of HVAC, refrigeration, fire, security and building-automation products and services.
Financial results
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Net sales | $20.613 billion | $17.456 billion | +18% |
| Gross margin | $5.980 billion; 29.0% of sales | $5.109 billion; 29.3% | +17%; margin down 0.3 percentage point |
| Operating profit | $2.645 billion | $3.083 billion | -14% |
| Net income attributable to common shareowners | $1.664 billion | $1.982 billion | -16% |
| Diluted earnings per share | $1.87 | $2.25 | Down $0.38 |
| Cash provided by operating activities | $2.237 billion | $1.692 billion | +32% |
| Capital expenditures | $344 million | $312 million | +$32 million |
Revenue growth included 15% organic/operational growth, 2% foreign-currency benefit and 1% net contribution from acquisitions and divestitures. Higher volume and pricing supported results, while commodity and component inflation, supply constraints and freight costs pressured margins.
Operating profit and earnings comparisons were affected by the 2020 $1.123 billion gain on the sale of Carrier’s Beijer investment. In 2021, that gain was absent; thus, the reported decline does not represent the underlying sales trend alone. The 2021 effective tax rate was 29.1%, including a $157 million net charge primarily related to the planned Chubb divestiture and a $43 million U.K. tax-rate-change charge, partly offset by tax benefits.
Segments and material changes
| Segment | 2021 sales | Sales change | 2021 operating profit |
|---|---|---|---|
| HVAC | $11.390 billion | +20% | $1.738 billion, versus $2.462 billion |
| Refrigeration | $4.127 billion | +24% | $476 million, +33% |
| Fire & Security | $5.515 billion | +11% | $662 million, +13% |
Management attributed HVAC’s reported profit decline primarily to the absence of the prior-year Beijer gain; operational profit increased, supported by higher volumes, pricing, productivity and equity-method earnings. Refrigeration benefited from recovering transport and commercial markets, including vaccine-related cargo monitoring. Fire & Security also recovered from pandemic-related weakness. Demand remained strong across segments, but supply and logistics constraints limited performance.
Cash, debt and capital allocation
At year-end, cash and cash equivalents were $2.987 billion, total debt was $9.696 billion and net debt was $6.709 billion. Debt fell from $10.227 billion in 2020; net debt to net capitalization improved to 49% from 52%. The company reported $7.094 billion of equity and compliance with debt covenants. Its $2.0 billion revolving credit facility and $2.0 billion commercial-paper program had no borrowings outstanding.
Operating cash flow increased to $2.237 billion, partly reflecting income and working-capital movements. Investing activities used $692 million, including $366 million for acquisitions and $344 million of capital expenditures. Financing activities used $1.562 billion, including $527 million of share repurchases, $500 million to redeem notes and $417 million of common dividends. Carrier repurchased 10.4 million shares during 2021 and paid $0.48 per share in dividends.
Long-term note maturities include $2.002 billion in 2025 and $7.504 billion thereafter. The company reported an approximately 2.8% weighted-average interest rate on total borrowings and investment-grade ratings with stable outlooks.
Outlook, transactions and risks
The filing gives no numerical 2022 earnings or revenue guidance. Management said supply-chain, component-shortage, inflation and transportation challenges were expected to continue for the foreseeable future, while demand remained strong. Carrier described ongoing pricing, cost-reduction, dual-sourcing, automation and localized-manufacturing actions. Its Carrier 700 program targeted $700 million of cost reductions over three years.
Carrier completed the sale of Chubb Fire & Security to APi on January 3, 2022, after year-end. The transaction had a $3.1 billion enterprise value and expected net proceeds of approximately $2.6 billion, subject to adjustments. Chubb’s results remained in 2021 results; its assets and liabilities were classified as held for sale at year-end. On February 6, 2022, Carrier agreed to acquire a majority stake in Toshiba Carrier Corporation for approximately $900 million; closing was expected before the end of the third quarter of 2022, subject to conditions and approvals. On January 4, 2022, Carrier also entered into a $500 million accelerated share repurchase agreement.
Key risks include lingering COVID-19 effects; supply availability and cost inflation; international, currency and seasonal demand exposure; climate-related regulation and product-transition costs; cybersecurity; labor and pension exposures; debt and credit-rating sensitivity; and acquisition/divestiture execution. AFFF litigation remained a notable uncertainty: Carrier faced more than 1,800 individual lawsuits and more than 160 government and water-utility suits, among other actions. The company said it could not assess the probability of liability or reasonably estimate potential damages, and could not assure that future exposure would not be material. Asbestos liabilities were recorded at $237 million, with estimated liability through 2059 of $237 million to $258 million and $98 million of recorded related recoveries.
Management concluded internal controls over financial reporting were effective, and the independent auditor issued unqualified opinions on the financial statements and internal controls.
Investor verification priorities
- Separate recurring operating performance from the 2020 Beijer gain when assessing profit trends, especially in HVAC.
- Track whether pricing and Carrier 700 savings offset continued component, commodity and freight inflation, and whether supply constraints ease.
- Verify the final Chubb sale proceeds and use of cash, and monitor the Toshiba Carrier acquisition’s price, financing, approvals and expected benefits.
- Follow AFFF litigation, indemnification and insurance developments; the filing does not provide a reasonably estimable potential loss.
- Review debt maturities, cash generation, repurchases and dividends against the company’s growth-investment plans and leverage commitments.