BUSINESS OVERVIEW
Business Summary Carrier is a leading global provider of healthy, safe and sustainable building and cold chain solutions. We operate three business segments, HVAC, Refrigeration and Fire & Security, each with strong brands and innovative products which we expect to drive future growth. Today, our portfolio includes industry-leading brands such as Carrier, Kidde, Edwards, LenelS2,Carrier Transicold and Automated Logic that offer innovative HVAC, refrigeration, fire, security and building automation technologies to help make the world safer and more comfortable. Our worldwide operations are affected by global and regional industrial, economic and political factors and trends. These include the mega-trends of urbanization, climate change and increasing requirements for food safety driven by the food needs of our growing global population and the rising standards of living in emerging markets. We believe that our business segments are well positioned to benefit from favorable secular trends, including these mega-trends and from the strength of our industry-leading brands and track record of innovation. In addition, we regularly review our markets to proactively detect trends and adapt our strategies accordingly. Our business is also affected by changes in the general level of economic activity, such as changes in business and consumer spending, construction and shipping activity as well as short-term economic factors such as currency fluctuations, commodity price volatility and supply disruptions. However, we continue to invest in our business, take pricing actions to mitigate supply chain and inflationary pressures, develop new products and services in order to remain competitive in our markets and use risk management strategies to mitigate various exposures. We believe that we have industry-leading global brands which form the foundation of our business strategy. Coupled with our focus on growth, innovation and operational efficiency, we expect to drive long-term future growth and increased value for our shareowners.
Recent Developments
Sale of
OnJuly 26, 2021 , we entered into an agreement to sell our Chubb business to APi for an enterprise value of$3.1 billion . The purchase price is subject to working capital and other adjustments as provided in the Agreement. Chubb, reported within our Fire & Security segment, delivers essential fire safety and security solutions from design and installation to monitoring, service and maintenance across more than 17 countries around the globe. AtJune 30, 2021 , Chubb did not meet the criteria for assets held for sale in the Unaudited Condensed Consolidated Balance Sheet. On a prospective basis, the net assets of Chubb will be classified as held for sale until the divestiture is completed. This transaction is expected to close late in the fourth quarter of 2021 or early in the first quarter of 2022, subject to regulatory approvals, required works council consultation inFrance and customary closing conditions. Based on the carrying amount of Chubb's net assets, foreign currency translation rates and other assumptions atJune 30, 2021 , we expect to recover the carrying value of the disposal group upon completion of the transaction. In conjunction with the Agreement, we have agreed to provide APi, and APi has agreed to provide the Company, certain transitional services for varying periods after the closing.
Share Repurchase Program
OnJuly 27, 2021 , our Board of Directors approved a$1.75 billion increase to our existing$350 million stock repurchase program authorized inFebruary 2021 . Share repurchases may take place from time to time subject to market conditions and at our discretion in the open market or through one or more other public or private transactions. Separation from United Technologies Corporation OnApril 3, 2020, UTC completed the Separation of Carrier into an independent, publicly traded company. In connection with the Separation, we issued an aggregate principal balance of$11.0 billion of debt and transferred approximately$10.9 billion of cash to UTC onFebruary 27, 2020 andMarch 27, 2020 . In addition, we entered into several agreements with UTC andOtis that govern various aspects of the relationship among us, UTC andOtis following the Separation and the Distribution including theTSA (which expired onMarch 31, 2021 ), the TMA, an employee matters agreement and an intellectual property agreement. Income and expense under these agreements are not material. 26 -------------------------------------------------------------------------------- Our financial statements for periods prior to the Separation and the Distribution are prepared on a "carve-out" basis and include all amounts directly attributable to Carrier. Net cash transfers and other property transferred between UTC and us, including related party receivables and payables between us and other UTC affiliates, are presented as Net transfers to UTC. In addition, the financial statements include allocations of costs for administrative functions and services performed on our behalf by centralized groups within UTC. All allocations and estimates in the Unaudited Condensed Consolidated Financial Statements are based on assumptions that management believes are reasonable. Our financial statements for the periods subsequent toApril 3, 2020 are consolidated financial statements based on the reported results of Carrier as a stand-alone company.
Impact of the COVID-19 Pandemic
In early 2020, theWorld Health Organization declared the outbreak of a respiratory disease known as COVID-19 as a global pandemic. In response, many countries implemented containment and mitigation measures to combat the outbreak, which severely restricted the level of economic activity and caused a significant contraction in the global economy. As a result, we temporarily closed or reduced production at manufacturing facilities across the globe to ensure employee safety and instructed non-essential employees to work from home. In addition, we took several preemptive actions during 2020 to manage liquidity as demand for our products decreased. Despite the adverse impacts of the pandemic on our results beginning in the first quarter of 2020, manufacturing operations resumed and several restorative actions were completed during 2020 including the reinstatement of annual merit-based salary increases and continued investment to support our core strategy. We continue to focus our efforts on preserving the health and safety of our employees and customers as well as maintaining the continuity of our operations. In addition, we continue to actively monitor our liquidity position and working capital needs and believe that our overall capital resources and liquidity position are adequate. The preparation of financial statements requires management to use judgments in making estimates and assumptions based on the relevant information available at the end of each period, which can have a significant effect on reported amounts. However, due to significant uncertainty surrounding the pandemic, management's judgments could change. While our results of operations, cash flows and financial condition could be negatively impacted, the extent of any continuing impact cannot be estimated with certainty at this time. CRITICAL ACCOUNTING ESTIMATES Preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, sales and expenses. We believe that the most complex and sensitive judgments, because of their potential significance to the Unaudited Condensed Consolidated Financial Statements, result primarily from the need to make estimates about the effects of matters that are inherently uncertain. In "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our 2020 Form 10-K, we describe the significant accounting estimates and policies used in the preparation of the Unaudited Condensed Consolidated Financial Statements. There have been no significant changes in our critical accounting estimates. 27 -------------------------------------------------------------------------------- RESULTS OF OPERATIONS
Three Months Ended
For the Three Months Ended
Period (In millions) 2021 2020 Change % Change Net sales$ 5,440 $ 3,972 $ 1,468 37 % Cost of products and services sold (3,821) (2,831) (990) 35 % Gross margin 1,619 1,141 478 42 % Operating expenses (836) (699) (137) 20 % Operating profit 783 442 341 77 % Non-operating income (expenses), net (52) (67) 15 (22) % Income from operations before income taxes 731 375 356 95 % Income tax expense (234) (106) (128) 121 % Net income from operations 497 269 228 85 % Less: Non-controlling interest in subsidiaries' earnings from operations 10 8 2 25 %
Net income attributable to common shareowners
$ 261 $ 226 87 % Net Sales
For the three months ended
For the Three Months EndedJune 30, 2021 Organic 31 % Foreign currency translation 5 % Acquisitions and divestitures, net 1 % Total % change 37 % As the global economy continues to recover from the impact of the COVID-19 pandemic, we continue to see improvement across our global business. During the three months endedJune 30, 2021 , higher volume in each of our segments increased organic sales by 31% compared with the same period of 2020. The organic increase was primarily driven by our HVAC segment with continued strong results in theNorth America residential and light commercial business and improved global end-markets in our Commercial HVAC business. Strong results in both our Refrigeration and Fire & Security segments were driven by improved global end-markets compared with the prior period. Refer to "Segment Review" below for a discussion of Net sales by segment.
Gross Margin
For the three months endedJune 30, 2021 , gross margin was$1.6 billion , a 42% increase compared with the same period of 2020. The components were as follows: For the Three Months Ended June 30, (In millions) 2021 2020 Net sales$ 5,440 $ 3,972 Cost of products and services sold (3,821) (2,831) Gross margin$ 1,619 $ 1,141 Percentage of net sales 29.8 % 28.7 % 28
-------------------------------------------------------------------------------- The increase in gross margin for the three months endedJune 30, 2021 was primarily driven by strong operational performance and continued improvement in the global economic climate during the current period. Higher volume in each of our segments outpaced operational costs as we continued to focus on Carrier 700 cost containment actions. These improvements were partially offset by the rising cost for commodities and components used in our products, certain supply chain inefficiencies and freight costs. As a result, gross margin as a percentage of Net sales increased by 110 basis points compared with the same period of 2020. Operating Expenses For the three months endedJune 30, 2021 , operating expenses, including Equity method investment net earnings, were$836 million , a 20% increase compared with the same period of 2020. The components were as follows: For the Three Months Ended June 30, (In millions) 2021 2020 Selling, general and administrative$ (813) $ (637) Research and development (125) (94) Equity method investment net earnings 87 57 Other income (expense), net 15 (25) Total operating expenses$ (836) $ (699) Percentage of net sales 15.4 % 17.6 % For the three months endedJune 30, 2021 , Selling, general and administrative expenses were$813 million , a 28% increase compared with the same period of 2020. At the onset of the COVID-19 pandemic, we initiated various cost containment initiatives in order to help mitigate the impacts on our business, which included reducing discretionary spending, employee furloughs and temporarily closing or limiting the presence of our workforce in our facilities. As a result, the increase in Selling, general and administrative expense in the current period reflects the gradual return to our operational spending levels prior to the COVID-19 pandemic. In addition, higher compensation costs, restructuring charges and unfavorable foreign currency movements along with transaction costs associated with the planned divestiture of our Chubb business further contributed to the year-over-year increase . Costs associated with the Separation were$3 million during the three months endedJune 30, 2021 compared with$23 million for the same period in 2020.
Research and development costs relate to new product development and new technology innovation. Due to the variable nature of program development schedules, year-over-year spending levels can fluctuate. In addition, we continue to invest to prepare for future energy efficiency and refrigerant regulation changes as well as digital controls technologies.
Investments over which we do not exercise control, but have significant influence, are accounted for using the equity method of accounting. For the three months endedJune 30, 2021 , Equity method investment net earnings were$87 million , a 53% increase compared with the same period of 2020. The increase was primarily related to higher earnings in HVAC joint ventures inNorth America andAsia as end-markets improved compared with the prior period. These amounts were partially offset by the reduction in earnings resulting from the sale of our investment in Beijer REF AB in 2020. Other income (expense), net primarily includes the impact of gains and losses related to the sale of interests in our equity method investments, foreign currency gains and losses on transactions that are denominated in a currency other than an entity's functional currency and hedging-related activities. The year-over-year change of$40 million for the three months endedJune 30, 2021 is primarily driven by higher gains recognized on hedging activities, the absence of an unfavorable impact of a change in the estimate of certain long-term liabilities and the unfavorable impact of a product recall matter in 2020. 29 --------------------------------------------------------------------------------
Non-Operating Income (Expenses), net
For the three months endedJune 30, 2021 , Non-operating income (expenses), net was$52 million , a 22% increase compared with the same period of 2020. The components were as follows: For the Three Months Ended June 30, (In millions) 2021 2020 Non-service pension (expense) benefit$ 19 $ 14 Interest expense$ (75) $ (85) Interest income 4 4 Interest (expense) income, net $
(71)
Non-operating income (expenses), net $
(52)
Non-operating income (expenses), net includes the results from activities other than normal business operations such as interest expense, interest income and the non-service components of pension and post-retirement obligations. Interest expense is affected by the amount of debt outstanding and the interest rates on that debt. For the three months endedJune 30, 2021 , Interest expense was$75 million , a 12% decrease compared with the same period in 2020. The decrease was primarily driven by the repayment of our$1.75 billion Term Loan Credit Facility in 2020 and the prepayment of the$500 million 1.923% Notes inFebruary 2021 . Income Taxes For the Three Months Ended June 30, 2021 2020 Effective tax rate 32.0 % 28.2 % The increase in the effective tax rate for the three months endedJune 30, 2021 compared with the same period in 2020 is primarily due to a$43 million deferred tax charge as a result of an enacted tax rate increase from 19% to 25% in theUnited Kingdom .
Six Months Ended
For the Six Months Ended
Period (In millions) 2021 2020 Change % Change Net sales$ 10,139 $ 7,860 $ 2,279 29 % Cost of products and services sold (7,126) (5,597) (1,529) 27 % Gross margin 3,013 2,263 750 33 % Operating expenses (1,659) (1,506) (153) 10 % Operating profit 1,354 757 597 79 % Non-operating income (expenses), net (127) (87) (40) 46 % Income from operations before income taxes 1,227 670 557 83 % Income tax expense (338) (299) (39) 13 % Net income from operations 889 371 518 140 % Less: Non-controlling interest in subsidiaries' earnings from operations 18 14 4 29 %
Net income attributable to common shareowners $ 871
$ 357 $ 514 144 % Net Sales 30
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For the six months ended
For the Six Months EndedJune 30, 2021 Organic 24 % Foreign currency translation 5 % Total % change 29 % As the global economy continues to recover from the impact of the COVID-19 pandemic, we continue to see improvement across our global business. During the six months endedJune 30, 2021 , higher volume in each of our segments increased organic sales by 24% compared with the same period in 2020. The organic increase was primarily driven by our HVAC segment with continued strong results forNorth America residential and light commercial business and improved global end-markets in our Commercial HVAC business. Strong results in both our Refrigeration and Fire & Security segments were driven by improved global end-markets compared with the prior period. Refer to "Segment Review" below for a discussion of Net sales by segment.
Gross Margin
For the six months endedJune 30, 2021 , gross margin was$3.0 billion , a 33% increase compared with the same period of 2020. The components were as follows: For the Six Months Ended June 30, (In millions) 2021 2020 Net sales$ 10,139 $ 7,860 Cost of products and services sold (7,126) (5,597) Gross margin$ 3,013 $ 2,263 Percentage of net sales
29.7 % 28.8 %
The increase in gross margin for the six months endedJune 30, 2021 was primarily driven by strong operational performance and continued improvement in the global economic climate during the current period. Higher volume in each of our segments outpaced operational costs as we continued to focus on Carrier 700 cost containment actions. These improvements were partially offset by the rising cost for commodities and components used in our products, certain supply chain inefficiencies and freight costs. As a result, gross margin as a percentage of Net sales increased by 90 basis points compared with the same period of 2020. Operating Expenses For the six months endedJune 30, 2021 , operating expenses, including Equity method investment net earnings, were$1.7 billion , a 10% increase compared with the same period in 2020. The components were as follows: For the Six Months Ended June 30, (In millions) 2021 2020 Selling, general and administrative$ (1,556) $ (1,329) Research and development (246) (192) Equity method investment net earnings 125 86 Other income (expense), net 18 (71) Total operating expenses$ (1,659) $ (1,506) Percentage of net sales 16.4 % 19.2 % 31
-------------------------------------------------------------------------------- For the six months endedJune 30, 2021 , Selling, general and administrative expenses were$1.6 billion , a 17% increase compared with the same period of 2020. At the onset of the COVID-19 pandemic, we initiated various cost containment initiatives in order to help mitigate the impacts on our business, which included reducing discretionary spending, employee furloughs and temporarily closing or limiting the presence of our workforce in our facilities. As a result, the increase in Selling, general and administrative expense in the current period reflects the gradual return to our operational spending levels prior to the COVID-19 pandemic. In addition, higher compensation costs and restructuring charges in the current period along with transaction costs associated with the planned divestiture of our Chubb business further contributed to the year-over-year increase. Costs associated with the Separation were$19 million during the six months endedJune 30, 2021 compared with$68 million for the same period in 2020.
Research and development costs relate to new product development and new technology innovation. Due to the variable nature of program development schedules, year-over-year spending levels can fluctuate. In addition, we continue to invest to prepare for future energy efficiency and refrigerant regulation changes as well as digital controls technologies.
Investments over which we do not exercise control, but have significant influence, are accounted for using the equity method of accounting. For the six months endedJune 30, 2021 , Equity method investment net earnings were$125 million , a 45% increase compared with the same period of 2020. The increase was primarily related to higher earnings in HVAC joint ventures inAsia , theMiddle East andNorth America as end-markets improved compared with the prior period. These amounts were partially offset by a change in the estimated cost of a product recall matter and the reduction in earnings resulting from the sale of our investment in Beijer REF AB in 2020. Other income (expense), net primarily includes the impact of gains and losses related to the sale of interests in our equity method investments, foreign currency gains and losses on transactions that are denominated in a currency other than an entity's functional currency and hedging-related activities. The year-over-year change of$89 million for the six months endedJune 30, 2021 is primarily driven by the absence of an other-than-temporary impairment charge of$71 million on a minority-owned joint venture investment in 2020. In addition, higher gains on hedging activities were partially offset by higher deferred compensation costs in the current period.
Non-Operating Income (Expenses), net
For the six months ended
For the Six Months Ended June 30, (In millions) 2021 2020 Non-service pension (expense) benefit$ 37 $ 31 Interest expense$ (171) $ (123) Interest income 7 5 Interest (expense) income, net
Non-operating income (expenses), net
Non-operating income (expenses), net includes the results from activities other than normal business operations such as interest expense, interest income and the non-service components of pension and post-retirement obligations. For the six months endedJune 30, 2021 Interest expense was$171 million , a 39% increase compared with the same period in 2020. In connection with the Separation and the Distribution, we issued$11.0 billion of long-term debt inFebruary 2020 . As a result, interest expense during the six months endedJune 30, 2020 only included interest expense incurred on such debt after the issuance date. In addition, during the six months endedJune 30, 2021 , we incurred a make-whole premium of$17 million and wrote-off$2 million of unamortized deferred financing costs as a result of the redemption of our$500 million 1.923% Notes originally due inFebruary 2023 . Income Taxes 32
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For the Six Months Ended June 30, 2021 2020 Effective tax rate 27.5 % 44.6 % The decrease in the effective tax rate for the six months endedJune 30, 2021 compared with the same period in 2020 is primarily due to the absence of a prior year charge of$51 million related to a valuation allowance recorded against aUnited Kingdom tax loss and credit carry forward and a$46 million charge resulting from our decision to no longer permanently reinvest certain pre-2018 unremitted non-U.S. earnings. The six months endedJune 30, 2021 included a$43 million deferred tax charge as a result of an enacted tax rate increase from 19% to 25% in theUnited Kingdom , partially offset by the recognition of a favorable tax adjustment of$21 million resulting from a re-organization of our German subsidiaries. SEGMENT REVIEW We have three operating segments: •The HVAC segment provides products, controls, services and solutions to meet the heating, cooling and ventilation needs of residential and commercial customers while enhancing building performance, energy efficiency and sustainability. •The Refrigeration segment includes transport refrigeration and monitoring products, services and digital solutions for trucks, trailers, shipping containers, intermodal and rail, as well as commercial refrigeration products. •The Fire & Security segment provides a wide range of residential, commercial and industrial technologies and systems and services solutions to protect people and property. We determine our segments based on how our Chief Executive Officer,who is the Chief Operating Decision Maker (the "CODM"), allocates resources, assesses performance and makes operational decisions. The CODM allocates resources and evaluates the financial performance of each of our segments based on Net sales and Operating profit. Adjustments to reconcile segment reporting to the consolidated results are included in Note 16 - Segment Financial Data.
Three Months Ended
Summary performance for each of our segments for the three months ended
Net Sales Operating Profit Operating Profit Margin For the Three Months Ended For the Three Months Ended June 30, June 30, For the Three Months Ended June 30, (In millions) 2021 2020 2021 2020 2021 2020 HVAC$ 3,120 $ 2,291 $ 573 $ 358 18.4 % 15.6 % Refrigeration 1,021 700 123 61 12.0 % 8.7 % Fire & Security 1,403 1,057 148 106 10.5 % 10.0 % Total segment$ 5,544 $ 4,048 $ 844 $ 525 15.2 % 13.0 % HVAC Segment
For the three months ended
Net Sales Organic 32 % Foreign currency translation 3 % Acquisitions and divestitures, net 1 % Total % change in Net sales 36 % 33
-------------------------------------------------------------------------------- The organic increase in Net sales of 32% was driven by strong results across each of the segment's businesses. Increased sales in ourNorth America residential and light commercial HVAC business (40%) were driven by new construction, the ongoing stay-at-home workforce and higher distributor stocking levels. Increased sales in our Commercial HVAC business (22%) benefited from the gradual improvement in the global economic environment as our end markets continue to improve from the prior year impacts of the COVID-19 pandemic. Volume growth inNorth America ,Europe andAsia were the primary drivers of improved results during the period. In addition, the Commercial HVAC business completed the acquisition of Giwee onJune 1, 2021 . Giwee is aChina -based manufacturer of HVAC products, offering a portfolio of products including variable refrigerant flow, modular chillers and light commercial air conditioners. Giwee has been included in our Unaudited Condensed Consolidated Financial Statements since the date of acquisition. The transaction added 1% to Net sales during the three months endedJune 30, 2021 . Refer to Note 15 - Business Acquisitions and Dispositions for additional information.
For the three months ended
Operating Profit Operational 61 % Foreign currency translation 2 % Acquisitions and divestitures, net (1) % Restructuring (2) % Total % change in Operating profit 60 % The increase in operational profit of 61% was primarily attributable to higher sales volumes in each of the segment's businesses compared with the prior period. In addition, favorable product mix, productivity initiatives and higher income from equity method investments benefited operational profit. These amounts were partially offset by the rising cost for commodities and components used in our products and higher freight costs. Higher selling, general and administrative costs and research and development further impacted operational profit as our businesses return to normal spending levels as compared with the prior period. The segment was also impacted by transaction costs, inventory step-up and backlog amortization associated with the acquisition of Giwee.
Refrigeration Segment
For the three months endedJune 30, 2021 , Net sales in our Refrigeration segment were$1.0 billion , a 46% increase compared with the same period of 2020. The components of the year-over-year change were as follows:Net Sales Organic 38 % Foreign currency translation 8 % Total % change in Net sales 46 % The organic increase in Net sales of 38% was driven by strong results across each of the segment's businesses reflecting the gradual improvement in the global economic environment as our end markets significantly improved from the prior year impacts of the COVID-19 pandemic. Transport refrigeration sales (42%) benefited from the continued recovery associated with the cyclical decline that began in late 2019 as well as a rebound in the demand for global transportation. Commercial refrigeration sales (30%) also increased due to a rebound in demand. For the three months endedJune 30, 2021 , Operating profit in our Refrigeration segment was$123 million , a 102% increase compared with the same period of 2020. The components of the year-over-year change were as follows: 34 --------------------------------------------------------------------------------
Operating Profit Operational 87 % Foreign currency translation 12 % Other 3 % Total % change in Operating profit 102 % The increase in operational profit of 87% was primarily attributable to higher sales volumes compared with the prior period which was impacted by the COVID-19 pandemic. In addition, favorable productivity initiatives benefited factory costs. These amounts were partially offset by the rising cost for commodities and components used in our products and logistics costs. Higher selling, general and administrative costs and research and development activities further impacted operational profit as our businesses return to normal spending levels compared with the prior period.
Fire & Security Segment
For the three months ended
Net Sales Organic 25 % Foreign currency translation 8 % Total % change in Net sales 33 % The organic increase in Net sales of 25% was driven by strong results across each of our businesses reflecting the gradual improvement in the global economic environment as our end markets improved from the prior year impacts of the COVID-19 pandemic. Field service sales (27%) benefited from improved end-markets impacted by COVID-19 in the prior period. All regions benefited from increased volumes compared with the prior period. An increase in product sales (24%) was primarily driven by stronger residential and commercial sales in theAmericas . In addition, volume increases inEurope andAsia benefited the period as lockdowns continue to be lifted.
For the three months ended
Operating Profit Operational 53 % Foreign currency translation 8 % Restructuring (3) % Other (18) % Total % change in Operating profit 40 % The increase in operational profit of 53% was primarily attributable to higher sales volumes compared with the prior period which was heavily impacted by the COVID-19 pandemic. These amounts were partially offset by the rising cost for commodities and components used in our products, certain supply chain inefficiencies and freight costs. In addition, higher selling, general and administrative costs and research and development further impacted operational profit as our businesses return to normal spending levels as compared with the prior period. Amounts reported in Other represent transaction costs associated with the planned divestiture of our Chubb business as well as the absence of a favorable adjustment related to a product recall matter in the prior period. 35 --------------------------------------------------------------------------------
Six Months Ended
Summary performance for each of our segments for the six months ended
Net Sales Operating Profit Operating Profit Margin (dollars in millions) 2021 2020 2021 2020 2021 2020 HVAC$ 5,606 $ 4,250 $ 938 $ 525 16.7 % 12.4 % Refrigeration 2,026 1,508 250 160 12.3 % 10.6 % Fire & Security 2,707 2,263 298 226 11.0 % 10.0 % Total segment$ 10,339 $ 8,021 $ 1,486 $ 911 14.4 % 11.4 % HVAC Segment For the six months endedJune 30, 2021 , Net sales in our HVAC segment were$5.6 billion , a 32% increase compared with the same period of 2020. The components of the year-over-year change were as follows: Net Sales Organic 28 % Foreign currency translation 3 % Acquisitions and divestitures, net 1 % Total % change in Net sales 32 % The organic increase in Net sales of 28% was driven by strong results across each of the segment's businesses. Increased sales in ourNorth America residential and light commercial HVAC business (37%) were driven by new construction, the ongoing stay-at-home workforce and higher distributor stocking levels. Increased sales in our Commercial HVAC business (19%) benefited from the gradual improvement in the global economic environment as our end markets continue to improve from the prior year impacts of the COVID-19 pandemic. Volume growth inEurope andAsia were the primary drivers of improved results during the period.
For the six months ended
Operating Profit Operational 69 % Foreign currency translation 2 % Acquisitions and divestitures, net (2) % Restructuring (2) % Other 12 % Total % change 79 % The operational profit increase of 69% was primarily attributable to higher sales volumes in each of the segment's businesses compared with the prior period. In addition, favorable product mix, productivity initiatives and higher income from equity method investments benefited operational profit. These amounts were partially offset by higher selling, general and administrative costs and research and development as our businesses return to normal spending levels as compared with the prior period. The increase in Other of 12% primarily reflects the absence of a prior period non-cash, other-than-temporary impairment charge of$71 million on a minority-owned joint venture investment due to a reduction in sales and earnings that were driven by a deterioration in the oil and gas industry (the joint venture's primary market) and the impact of the COVID-19 pandemic. In addition, amounts reported in Other reflects the absence of a gain on sale of an interest in a joint venture in the prior period. 36 --------------------------------------------------------------------------------
Refrigeration Segment
For the six months endedJune 30, 2021 , Net sales in our Refrigeration segment were$2.0 billion , a 34% increase compared with the same period of 2020. The components of the year-over-year change were as follows:Net Sales Organic 28 % Foreign currency translation 6 % Total % change in Net sales 34 % The organic increase in Net sales of 28% was driven by strong results across each of the segment's businesses reflecting the gradual improvement in the global economic environment as our end markets significantly improved from the prior year impacts of the COVID-19 pandemic. Transport refrigeration sales (32%) benefited from the continued recovery associated with the cyclical decline that began in late 2019 as well as a rebound in the demand for global transportation and COVID-19 vaccine-related cargo monitoring. Commercial refrigeration sales (21%) also increased due to a rebound in demand. For the six months endedJune 30, 2021 , Operating profit in our Refrigeration segment was$250 million , a 56% increase compared with the same period of 2020. The components of the year-over-year change were as follows: Operating Profit Operational 49 % Foreign currency translation 7 % Restructuring (1) % Other 1 % Total % change 56 % The increase in operational profit of 49% was primarily attributable to higher sales volumes compared with the prior period which was heavily impacted by the COVID-19 pandemic. In addition, favorable productivity initiatives benefited material and factory costs. These amounts were partially offset by inflation and increased logistics costs. Higher selling, general and administrative costs and research and development further impacted operational profit as our businesses return to normal spending levels as compared with the prior period.
Fire & Security Segment
For the six months endedJune 30, 2021 , Net sales in our Fire & Security segment were$2.7 billion , a 20% increase compared with the same period of 2020. The components of the year-over-year change were as follows: Net Sales Organic 13 % Foreign currency translation 7 % Total % change in Net sales 20 % The organic increase in Net sales of 13% was driven by strong results across each of the segment's businesses reflecting the gradual improvement in the global economic environment as our end markets improved from the prior year impacts of the COVID-19 pandemic. Field service sales (14%) benefited from improved end-markets in regions that were previously impacted by COVID-19, includingEurope andAsia . An increase in product sales (13%) was primarily driven by improvements in theAmericas ,Asia andEurope which were impacted by shutdowns related to COVID-19 in the prior period. 37 -------------------------------------------------------------------------------- For the six months endedJune 30, 2021 , Operating profit in our Fire & Security segment was$298 million , a 32% increase compared with the same period of 2020. The components of the year-over-year change were as follows: Operating Profit Operational 40 % Foreign currency translation 6 % Restructuring (5) % Other (9) % Total % change 32 % The increase in operational profit of 40% was primarily attributable to higher sales volumes and favorable mix compared with the prior period which was heavily impacted by the COVID-19 pandemic. These operational increases were partially offset by unfavorable component costs and higher freight. In addition, higher selling, general and administrative costs and research and development further impacted operational profit as our businesses return to normal spending levels as compared with the prior period. Amounts reported in Other represent transaction costs associated with the planned divestiture of our Chubb business as well as the absence of a favorable adjustment related to a product recall matter in the prior period. LIQUIDITY AND FINANCIAL CONDITION We assess liquidity in terms of our ability to generate adequate amounts of cash necessary to fund our current and future cash requirements to support our business and strategic initiatives. In doing so, we review and analyze our cash on hand, working capital, debt service requirements and capital expenditures. We rely on operating cash flows as our primary source of liquidity. In addition, we have access to other sources of capital to finance our strategic initiatives and fund growth. As ofJune 30, 2021 , we had cash and cash equivalents of$2.6 billion , of which approximately 38% was held by our foreign subsidiaries. We manage our worldwide cash requirements by reviewing available funds and the cost effectiveness with which we can access funds held by foreign subsidiaries. On occasion, we are required to maintain cash deposits in connection with contractual obligations related to acquisitions, divestitures or other legal obligations. As ofJune 30, 2021 andDecember 31, 2020 , the amount of such restricted cash was approximately$34 million and$4 million , respectively. We maintain a$2.0 billion unsecured, unsubordinated commercial paper program which can be used for general corporate purposes, including working capital and potential acquisitions. In addition, we maintain our$2.0 billion Revolving Credit Facility that matures onApril 3, 2025 which supports our commercial paper borrowing program and cash requirements. This Revolving Credit Facility has a commitment fee of 0.125% that is charged on unused commitments. Borrowings are available inU.S. Dollars, Euros and Pounds Sterling and bear interest at a variable rate based on LIBOR plus a ratings-based margin (or customary LIBOR replacement provisions), which was 125 basis points as ofJune 30, 2021 . As ofJune 30, 2021 , we had no borrowings outstanding under our commercial paper program and our Revolving Credit Facility. We continue to actively manage and strengthen our business portfolio to meet the current and future needs of our customers. This is accomplished through research and development activities with a focus on new product development and new technology innovation as well as sustaining activities with a focus on improving existing products and reducing production costs. We also pursue potential acquisitions to compliment existing products and services to enhance our product portfolio. In addition, we routinely conduct discussions, evaluate targets and enter into agreements regarding possible acquisitions, divestitures, joint ventures and equity investments to manage our business portfolio. We believe that our available cash and operating cash flows will be sufficient to meet our future operating cash needs. Our committed credit facilities and access to the debt and equity markets provide additional sources of short-term and long-term capital to fund current operations, debt maturities and future investment opportunities. Although we believe that the arrangements currently in place 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 credit ratings, (2) the liquidity of the overall capital markets and (3) the state of the economy, including the impact of the COVID-19 pandemic. There can be no assurance that we will be able to obtain additional financing on terms favorable to us, if at all. 38 -------------------------------------------------------------------------------- The Revolving Credit Facility and the indentures for the long-term notes contain affirmative and negative covenants customary for financings of these types, which among other things, limit our ability to incur additional liens, to make certain fundamental changes and to enter into sale and leaseback transactions. As ofJune 30, 2021 , we were in compliance with the covenants under the agreements governing our outstanding indebtedness. The following table presents our credit ratings and outlook as ofJune 30, 2021 : Rating Agency Long-term Rating (1) Short-term Rating Outlook (2) Standards & Poor's ("S&P") BBB A2 StableMoody's Investor Services, Inc. ("Moody's") Baa3 P3 Stable Fitch Ratings ("Fitch") BBB- F3 Stable
(1) The long-term rating for S&P was affirmed on
The following table contains several key measures of our financial condition and liquidity: June 30, December 31, (In millions, except percentages) 2021 2020 Cash and cash equivalents$ 2,630 $ 3,115 Total debt$ 9,725 $ 10,227 Total equity$ 7,120 $ 6,578 Net debt (total debt less cash and cash equivalents)$ 7,095 $ 7,112 Total capitalization (total debt plus total equity) $
16,845
$ 14,215 $ 13,690 Total debt to total capitalization 58 % 61 % Net debt to net capitalization 50 % 52 % Our short-term obligations primarily consist of current maturities of long-term debt. Our long-term obligations primarily consist of long-term notes with maturity dates ranging between 2025 and 2050. Interest payments related to indebtedness are expected to approximate$282 million per year, reflecting an approximate weighted-average interest rate of 2.89%. Any borrowings from the Revolving Credit Facility are subject to variable interest rates. See Note 5 - Borrowings and Lines of Credit in the Notes to the Unaudited Condensed Consolidated Financial Statements for additional information regarding the terms of our long-term debt obligations. During the six months endedJune 30, 2021 , we acquired consolidated and minority-owned businesses, including a 70% controlling stake in Giwee. We plan to complete the acquisition of the remaining 30% stake in Giwee in 2021. The aggregate cash paid for acquisitions, net of cash acquired, totaled$167 million and was funded through cash on hand. See Note 15 - Business Acquisitions and Dispositions for additional information. OnFebruary 4, 2021 , our Board of Directors approved a stock repurchase program authorizing the repurchase of up to$350 million of our outstanding common stock. Share repurchases may take place from time to time subject to market conditions and at our discretion in the open market or through one or more other public or private transactions, subject to compliance with our obligations under the TMA and our Revolving Credit Facility. During the three and six months endedJune 30, 2021 , we repurchased 2.1 million and 3.1 million shares of our common stock, respectively, for an aggregate purchase price of$130 million for the six months endedJune 30, 2021 , which are held inTreasury stock as ofJune 30, 2021 in the Unaudited Condensed Consolidated Balance Sheet. We paid dividends on common stock of$0.12 per share during the three months endedJune 30, 2021 , totaling$104 million . OnJune 9, 2021 , the Board of Directors declared a dividend of$0.12 per share of common stock payable onAugust 10, 2021 to shareowners of record at the close of business onJune 24, 2021 . 39
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