Discontinued Operations and Disposal Groups

9 Months Ended

Sep. 30, 2020

Discontinued Operations and Disposal Groups [Abstract]

Disposal Groups, Including Discontinued Operations, Disclosure

Discontinued Operations

As discussed above, on April 2, 2020, Carrier and Otis entered into a Separation and Distribution Agreement with UTC (since renamed Raytheon Technologies Corporation), pursuant to which, among other things, UTC agreed to separate into three independent, publicly traded companies – UTC, Otis and Carrier and distribute all of the outstanding common stock of Carrier and Otis to UTC shareowners who held shares of UTC common stock as of the close of business on March 19, 2020. The Separation Transactions were completed on April 3, 2020. In the nine months ended September 30, 2020, a total of $1,335 million of costs have been incurred related to the Separation Transactions and recorded in the following financial statement line items: $958 million in Income from discontinued operations, $81 million of benefit in Income tax expense from discontinued operations, $39 million in Income from continuing operations and $419 million in Income tax expense.

Carrier and Otis are presented as discontinued operations and, as such, have been excluded from both continuing operations and segment results for all periods presented. Income (loss) from discontinued operations is as follows:


	Quarter Ended September 30,						Nine Months Ended September 30,
(dollars, in millions)	2020		2019		2020		2019
Otis	$	—	$	277	$	187	$	799
Carrier	—		418		196		1,334
Separation related transactions ⁽¹⁾	113		(505)		(782)		(592)
Income (loss) from discontinued operations	$	113	$	190	$	(399)	$	1,541

(1) Reflects debt extinguishment costs related to the Company’s paydown of debt to not exceed the maximum applicable net indebtedness under the Raytheon Merger Agreement, and unallocable transaction costs incurred by the Company primarily related to professional services costs pertaining to the Separation Transactions and the establishment of Otis and Carrier as stand-alone public companies, facility relocation costs, costs to separate information systems, costs of retention bonuses and tax charges and benefits related to separation activities.

The following summarized financial information related to discontinued operations has been reclassified from Income from continuing operations and included in Income (loss) from discontinued operations:


	Quarter Ended September 30,						Nine Months Ended September 30,
(dollars, in millions)	2020		2019		2020		2019
Otis
Product sales	$	—	$	1,449	$	1,123	$	4,240
Service sales	—		1,858		1,843		5,511
Cost of products sold	—		1,185		913		3,471
Cost of services sold	—		1,146		1,157		3,430
Research and development	—		39		38		118
Selling, general and administrative expense	—		468		450		1,381
Other income (expense), net	—		(11)		(65)		(36)
Non-operating (income) expense, net	—		(3)		3		5
Income from discontinued operations, before income taxes	—		461		340		1,310
Income tax expense	—		140		116		396
Income from discontinued operations	—		321		224		914
Less: Noncontrolling interest in subsidiaries earnings from discontinued operations	—		44		37		115
Income from discontinued operations attributable to common shareowners	$	—	$	277	$	187	$	799
Carrier
Product sales	$	—	$	3,991	$	3,143	$	11,684
Service sales	—		825		741		2,405
Cost of products sold	—		2,778		2,239		8,242
Cost of services sold	—		593		527		1,706
Research and development	—		101		98		301
Selling, general and administrative expense	—		731		669		2,151
Other income (expense), net	—		(12)		(30)		156
Non-operating (income) expense, net	—		(12)		17		(33)
Income from discontinued operations, before income taxes	—		613		304		1,878
Income tax expense	—		183		102		519
Income from discontinued operations	—		430		202		1,359
Less: Noncontrolling interest in subsidiaries earnings from discontinued operations	—		12		6		25
Income from discontinued operations attributable to common shareowners	$	—	$	418	$	196	$	1,334
Separation related transactions ⁽¹⁾
Selling, general and administrative expense	$	(13)	$	3	154		$	3

Non-operating expense, net	—		—		709		—
Income (loss) from discontinued operations, before income taxes	13		(3)		(863)		(3)
Income tax (benefit) expense	(100)		502		(81)		589
Income (loss) from discontinued operations, net of tax	113		(505)		(782)		(592)
Total Income (loss) from discontinued operations attributable to common shareowners	$	113	$	190	$	(399)	$	1,541

Selected financial information related to cash flows from discontinued operations is as follows:


	Nine Months Ended September 30,
(dollars, in millions)	2020		2019











Net cash (used in) provided by operating activities	$	(693)	$	1,605
Net cash used in investing activities	(241)		(241)
Net cash used in financing activities	(1,449)		(1,410)

Net cash (used in) provided by operating activities includes the net operating cash flows of Otis and Carrier prior to the separation, as well as costs incurred by the Company primarily related to professional services costs pertaining to the separation and the establishment of Otis and Carrier as stand-alone public companies, facility relocation costs, costs to separate information systems, costs of retention bonuses and tax charges related to separation activities. Net cash used in financing activities for the nine months ended September 30, 2020 primarily consists of cash distributed by the Company to Otis and Carrier upon separation and debt extinguishment costs related to the early repayment of debt, partially offset by net transfer activity. Net cash used in financing activities for the nine months ended September 30, 2019 primarily consists of net transfer activity consisting of cash transfers and distributions.

The major components of assets and liabilities related to discontinued operations at December 31, 2019 are provided below:


(dollars, in millions)	Otis		Carrier		Total
Assets
Cash and cash equivalents	$	1,446	$	995	$	2,441
Accounts receivable, net	2,899		2,728		5,627
Contract assets	530		679		1,209
Inventory, net	571		1,332		1,903
Other assets, current	213		221		434

Future income tax benefits	355		370		725
Fixed assets, net	747		1,686		2,433
Operating lease right-of-use assets	529		818		1,347
Goodwill	1,647		9,807		11,454
Intangible assets, net	490		1,083		1,573
Other assets	220		2,457		2,677
Total assets related to discontinued operations	$	9,647	$	22,176	$	31,823
Liabilities and Redeemable Noncontrolling Interest
Short-term borrowings	$	33	$	38	$	71
Accounts payable	1,321		1,682		3,003
Accrued liabilities	1,651		2,889		4,540
Contract liabilities	2,288		611		2,899
Long-term debt currently due	1		237		238
Long-term debt	5		82		87
Future pension and postretirement benefit obligations	560		455		1,015
Operating lease liabilities	383		668		1,051

Other long-term liabilities⁽¹⁾	514		1,025		1,539

Total liabilities related to discontinued operations	$	6,756	$	7,687	$	14,443

(1) Amounts include a deferred tax jurisdictional netting adjustment of $145 million.

The Separation of Carrier was treated as a return on capital and recorded as a reduction to retained earnings, as it was in a net asset position, while the Separation of Otis was treated as a return of capital and recorded as an adjustment to Common stock, as it was in a net liability position. The remaining assets and liabilities related to discontinued operations at September 30, 2020 primarily relate to trailing tax assets and liabilities of the Company related to the Separation Transactions, including indemnification obligations.