Separation costs

[Table of Contents](#i329aa562213e420593df15cade55885b_7)             Separation from United Technologies On April 3, 2020, United Technologies Corporation, since renamed Raytheon Technologies Corporation ("UTC"), completed the spin-off of the Company into an independent, publicly traded company (the "Separation") through a pro-rata distribution (the "Distribution") on a one-for-one basis of all of the outstanding shares of 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 of the Distribution. The Company incurred separation-related costs including employee-related costs, costs to establish certain stand-alone functions, information technology systems, professional service fees and other costs associated with becoming an independent, publicly traded company. These costs are primarily recorded in Selling, general and administrative in the accompanying Unaudited Condensed Consolidated Statement of Operations and totaled $19 million for the nine months ended September 30, 2021.   
Recently Issued and Adopted Accounting PronouncementsThe Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") is the sole source of authoritative U.S. GAAP other than SEC issued rules and regulations that apply only to SEC registrants. The FASB issues Accounting Standards Updates ("ASU") to communicate changes to the codification. The Company considers the applicability and impact of all ASUs. ASUs pending adoption were assessed and determined to be either not applicable or not expected to have a material impact on the accompanying Unaudited Condensed Consolidated Financial Statements.  
NOTE 3: INVENTORIES, NET Inventories are stated at the lower of cost or estimated net realizable value. Cost is primarily determined based on the first-in, first-out inventory method ("FIFO") or average cost methods, which approximates current replacement cost. However, certain subsidiaries use the last-in, first-out inventory method ("LIFO").  
Inventories, net consisted of the following:

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|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| (In millions) |  | September 30, 2022 |  | December 31, 2021 |
| Raw materials |  | $ | 822  |  |  | $ | 559  |  |
| Work-in-process |  | 217  |  |  | 197  |  |
| Finished goods |  | 1,625  |  |  | 1,214  |  |
|  |  |  |  |  |
| Inventories, net |  | $ | 2,664  |  |  | $ | 1,970  |  |

  
The Company performs periodic assessments utilizing customer demand, production requirements and historical usage rates to determine the existence of excess and obsolete inventory and records necessary provisions to reduce such inventories to the lower of cost or estimated net realizable value. Raw materials, work-in-process and finished goods are net of valuation reserves of $157 million and $154 million as of September 30, 2022 and December 31, 2021, respectively.  
NOTE 4: GOODWILL AND INTANGIBLE ASSETS The Company records goodwill as the excess of the purchase price over the fair value of the net assets acquired in a business combination. Goodwill is tested and reviewed annually for impairment on July 1 or whenever there is a material change in events or circumstances that indicates that the fair value of the reporting unit may be less than its carrying value.   
The changes in the carrying amount of goodwill were as follows:  


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| (In millions) |  |  | HVAC |  | Refrigeration |  | Fire & Security |  | Total |
| Balance as of December 31, 2021 |  |  | $ | 5,658  |  |  | $ | 1,228  |  |  | $ | 2,463  |  |  | $ | 9,349  |  |
| Goodwill resulting from business combinations (1) |  |  | 877  |  |  | —  |  |  | 1  |  |  | 878  |  |
|  |  |  |  |  |  |  |  |  |  |
| Foreign currency translation |  |  | (368) |  |  | (80) |  |  | (158) |  |  | (606) |  |
| Balance as of September 30, 2022 |  |  | $ | 6,167  |  |  | $ | 1,148  |  |  | $ | 2,306  |  |  | $ | 9,621  |  |

(1) See Note 15 - Acquisitions for additional information.  
Indefinite-lived intangible assets are tested and reviewed annually for impairment on July 1 or whenever there is a material change in events or circumstances that indicates that the fair value of the asset may be less than the carrying amount of the 10
