Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

BUSINESS OVERVIEW

Business Summary

Carrier Global Corporation ("we" or "our") is a global leader in intelligent climate and energy solutions with a focus on providing differentiated, digitally-enabled lifecycle solutions to our customers. Our portfolio includes industry-leading brands such as Carrier, Viessmann, Toshiba, Automated Logic, Carrier Transicold, Kidde, Edwards and LenelS2 that offer innovative heating, ventilating and air conditioning ("HVAC"), refrigeration, fire, security and building automation technologies to help make the world safer and more comfortable. We also provide a broad array of related building services, including audit, design, installation, system integration, repair, maintenance and monitoring. Our operations are classified into three segments: HVAC, Refrigeration and Fire & Security.

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 the 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 end markets to proactively identify 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. 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

Acquisition of Viessmann Climate Solutions

On April 25, 2023, we announced that we entered into a Share Purchase Agreement (the “Agreement”) to acquire the climate solutions business (the "VCS Business") of Viessmann Group GmbH & Co. KG (“Viessmann”), a privately-held company. The VCS Business develops intelligent, integrated and sustainable technologies, including heat pumps, boilers, photovoltaic systems, home battery storage and digital solutions, primarily for residential customers in Europe. The acquisition was completed on January 2, 2024. As a result, the assets, liabilities and results of operations of the VCS Business are consolidated in the accompanying Unaudited Condensed Consolidated Financial Statements as of the date of acquisition and reported within our HVAC segment.

Portfolio Transformation

On April 25, 2023, we announced plans to exit our Fire & Security and Commercial Refrigeration businesses over the course of 2024. On December 7, 2023, we entered into a stock purchase agreement to sell our Access Solutions business ("Access Solutions") to Honeywell International Inc. for an enterprise value of approximately $4.95 billion. Access Solutions, historically reported in our Fire & Security segment, is a global supplier of physical security and digital access solutions supporting the hospitality, commercial, education and military markets. On December 12, 2023, we entered into a stock purchase agreement to sell our Commercial Refrigeration business ("CCR") to Haier Group Corporation for an enterprise value of approximately $775 million. CCR, historically reported in our Refrigeration segment, is a global supplier of turnkey solutions for commercial refrigeration systems and services, with a primary focus on serving food retail customers, cold storage facilities and warehouses. On March 5, 2024, we entered into a stock purchase agreement to sell our Industrial Fire business ("Industrial Fire") to Sentinel Capital Partners for an enterprise value of approximately $1.425 billion. Industrial Fire, historically reported in our Fire & Security segment, is a leading manufacturer of a full spectrum of fire detection and suppression solutions and services in critical high-hazard environments, including oil and gas, power generation, marine and offshore facilities, automotive, data centers and aircraft hangars. These transactions are expected to close in 2024.

Deconsolidation of Kidde-Fenwal, Inc.

On May 14, 2023, Kidde-Fenwal, Inc. ("KFI"), an indirect wholly-owned subsidiary of ours, filed a petition for voluntary reorganization under Chapter 11 of the United States Bankruptcy Code ("Chapter 11") in the United States Bankruptcy Court for the District of Delaware. KFI, an industrial fire detection and suppression business historically reported in our Fire & Security segment, has indicated that it intends to use the bankruptcy process to explore strategic alternatives, including the sale of KFI as a going concern. KFI has further stated that, during the Chapter 11 process, KFI expects that there will be no significant interruptions to its business operations. As of the petition date, KFI was deconsolidated and its respective assets and liabilities were derecognized from our Unaudited Condensed Consolidated Financial Statements.

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 accompanying 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 2023 Form 10-K, we describe the significant accounting estimates and policies used in the preparation of the accompanying Unaudited Condensed Consolidated Financial Statements. Except as noted below, there have been no significant changes in our critical accounting estimates.

Business Combinations

In accordance with ASC 805, Business Combinations ("ASC 805"), acquisitions that meet the definition of a business are recorded using the acquisition method of accounting. We recognize and measure the identifiable assets acquired, liabilities assumed and any non-controlling interest as of the acquisition date at fair value. The valuation of intangible assets is determined by an income approach methodology, using assumptions such as projected future revenues, customer attrition rates, royalty rates, tax rates and discount rates. The excess, if any, of total consideration transferred in a business combination over the fair value of identifiable assets acquired, liabilities assumed and any non-controlling interest is recognized as goodwill. Costs incurred as a result of a business combination other than costs related to the issuance of debt or equity securities are recorded in the period the costs are incurred.

RESULTS OF OPERATIONS

Three Months Ended March 31, 2024 Compared with the Three Months Ended March 31, 2023

The following represents our consolidated net sales and operating results:

						Three Months Ended March 31,
(In millions)						2024						2023						Period Change						% Change
Net sales						$	6,182					$	5,273					$	909					17		%
Cost of products and services sold						(4,477)						(3,895)						(582)						15		%
Gross margin						1,705						1,378						327						24		%
Operating expenses						(1,205)						(823)						(382)						46		%
Operating profit						500						555						(55)						(10)		%
Non-operating income (expense), net						(165)						(46)						(119)						259		%
Income from operations before income taxes						335						509						(174)						(34)		%
Income tax expense						(46)						(122)						76						(62)		%
Net income from operations						289						387						(98)						(25)		%
Less: Non-controlling interest in subsidiaries' earnings from operations						20						14						6						43		%
Net income attributable to common shareowners						$	269					$	373					$	(104)					(28)		%

Net Sales

For the three months ended March 31, 2024, Net sales were $6.2 billion, a 17% increase compared with the same period of 2023. The components of the year-over-year change were as follows:

						Three Months Ended March 31, 2024
Organic						2		%
Foreign currency translation						—		%
Acquisitions and divestitures, net						15		%
Total % change						17		%

Organic sales for the three months ended March 31, 2024, increased by 2% compared with the same period of 2023. The organic increase was primarily driven by our HVAC segment due to improved end-markets in the Americas, which more than offset reduced end-market demand in EMEA and Asia. In addition, our Fire & Security segment benefited from volume growth and price improvements in both the Commercial and Residential fire and Industrial fire businesses. Refrigeration results decreased as each of the segment's businesses experienced challenges in certain end-markets during the quarter. Refer to "Segment Review" below for a discussion of Net sales by segment.

On January 2, 2024, we acquired the VCS Business, a leading manufacturer of high efficiency heating and renewable energy systems in Europe. The results of the VCS Business have been included in our Unaudited Condensed Consolidated Financial Statements since the date of acquisition. The transaction added 16% to Net sales during the three months ended March 31, 2024, and is included in Acquisitions and divestitures, net.

As of May 14, 2023, we no longer controlled KFI as their activities are subject to review and oversight by the bankruptcy court. Therefore, KFI was deconsolidated and their respective assets and liabilities were derecognized from our Unaudited Condensed Consolidated Financial Statements. The deconsolidation had a 1% impact on Net sales during the three months ended March 31, 2024, and is included in Acquisitions and divestitures, net.

Gross Margin

For the three months ended March 31, 2024, gross margin was $1.7 billion, a 24% increase compared with the same period of 2023. The components were as follows:

						Three Months Ended March 31,
(In millions)						2024						2023
Net sales						$	6,182					$	5,273
Cost of products and services sold						(4,477)						(3,895)
Gross margin						$	1,705					$	1,378
Percentage of net sales						27.6		%				26.1		%

Gross margin increased by $327 million compared with the three months ended March 31, 2023. The main driver of the increase related to ongoing customer demand, pricing improvements and our continued focus on productivity initiatives. Operating results associated with the VCS Business since the date of acquisition further benefited gross margin during the period. As a result, gross margin as a percentage of Net sales increased by 150 basis points compared with the same period of 2023. However, the results of the VCS Business included inventory step-up, backlog amortization and intangible asset amortization resulting from the recognition of acquired assets at fair value. These costs had a 250 basis point unfavorable impact on gross margin as a percentage of Net sales.

Operating Expenses

For the three months ended March 31, 2024, operating expenses, including Equity method investment net earnings, were $1.2 billion, a 46% increase compared with the same period of 2023. The components were as follows:

						Three Months Ended March 31,
(In millions)						2024						2023
Selling, general and administrative						$	(985)					$	(721)
Research and development						(224)						(139)
Equity method investment net earnings						31						44
Other income (expense), net						(27)						(7)
Total operating expenses						$	(1,205)					$	(823)
Percentage of net sales						19.5		%				15.6		%

For the three months ended March 31, 2024, Selling, general and administrative expenses were $985 million, a 37% increase compared with the same period of 2023. The increase is primarily due to incremental expenses associated with the VCS Business since the date of acquisition. In addition, the current period also included $89 million of acquisition and divestiture-related costs compared with $12 million during the three months ended March 31, 2023.

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 and in 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 ended March 31, 2024, Equity method investment net earnings were $31 million, a 30% decrease compared with the same period of 2023. The decrease was primarily driven by a $23 million charge associated with the devaluation of U.S. Dollar denominated balances at an HVAC equity investment in Egypt.

Other income (expense), net primarily includes the impact of gains and losses related to the sale of businesses or 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. In connection with the acquisition of the VCS Business, we recognized a $86 million loss during the three months ended March 31, 2024 on the mark-to-market valuation of our window forward contracts associated with the cash outflows of the Euro-denominated purchase price for the VCS Business. In addition, we recognized a $46 million gain associated with our share of United Technologies Corporation's conclusion of certain income tax matters from their 2017 and 2018 tax audit with the Internal Revenue Service ("IRS").

Non-Operating Income (Expense), net

For the three months ended March 31, 2024, Non-operating income (expense), net was $165 million, a 259% increase compared with the same period of 2023. The components were as follows:

						Three Months Ended March 31,
(In millions)						2024						2023
Non-service pension (expense) benefit						$	—					$	—
Interest expense						$	(180)					$	(71)
Interest income						15						25
Interest (expense) income, net						$	(165)					$	(46)
Non-operating income (expense), net						$	(165)					$	(46)

Non-operating income (expense), 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 ended March 31, 2024, Interest expense was $180 million, a 154% increase compared with the same period of 2023. In connection with the acquisition of the VCS Business, we entered into several financing arrangements to fund the cash portion of the Euro-denominated purchase price.

Income Taxes

						Three Months Ended March 31,
						2024						2023
Effective tax rate						13.7		%				24.0		%

We account for income tax expense in accordance with ASC 740, which requires an estimate of the annual effective income tax rate for the full year to be applied to the respective interim period, taking into account year-to-date amounts and projected results for the full year. The effective tax rate was 13.7% for the three months ended March 31, 2024, compared with 24.0% for the three months ended March 31, 2023. The year-over-year decrease was primarily driven by a tax benefit of $21 million associated with United Technologies Corporation's conclusion of certain income tax matters from their 2017 and 2018 tax audit with the IRS, a net tax benefit of $19 million related to adjustments to basis differences in certain companies presented as held-for-sale and a net tax benefit of $16 million related to the re-organization and disentanglement of certain Fire & Security industrial businesses in advance of the planned divestitures. These amounts were partially offset by a tax charge of $15 million related to a reduction of utilizable foreign tax credits.

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, health, 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 designed to help 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 17 - Segment Financial Data.

Three Months Ended March 31, 2024 Compared with Three Months Ended March 31, 2023

Summary performance for each of our segments is as follows:

						Net Sales												Operating Profit												Operating Profit Margin
						Three Months Ended March 31,												Three Months Ended March 31,												Three Months Ended March 31,
(In millions)						2024						2023						2024						2023						2024						2023
HVAC						$	4,541					$	3,622					$	429					$	435					9.4		%				12.0		%
Refrigeration						884						898						97						108						11.0		%				12.0		%
Fire & Security						887						869						153						93						17.2		%				10.7		%
Total segment						$	6,312					$	5,389					$	679					$	636					10.8		%				11.8		%

HVAC Segment

For the three months ended March 31, 2024, Net sales in our HVAC segment were $4.5 billion, a 25% increase compared with the same period of 2023. The components of the year-over-year change were as follows:

						Net Sales
Organic						2		%
Foreign currency translation						(1)		%
Acquisitions and divestitures, net						24		%
Total % change in Net sales						25		%

The organic increase in Net sales of 2% was driven by continued strong results in the segment. Growth in the Americas (up 6%) were primarily driven by our Commercial and Light commercial businesses which benefited from ongoing customer demand and pricing improvements. Growth was partially offset by volume reductions in our Residential business. EMEA (down 10%) was impacted by lower customer demand in residential markets. The reduction was partially offset by strong ongoing customer demand and pricing improvements in commercial markets. Asia (flat) was impacted by lower demand in Japan, offset by improved results in China.

On January 2, 2024, we acquired the VCS Business, a leading manufacturer of high efficiency heating and renewable energy systems in Europe. The results of the VCS Business have been included in our Unaudited Condensed Consolidated Financial Statements since the date of acquisition. The transaction added 24% to Net sales during the three months ended March 31, 2024 and is included in Acquisitions and divestitures, net.

For the three months ended March 31, 2024, Operating profit in our HVAC segment was $429 million, a 1% decrease compared with the same period of 2023. The components of the year-over-year change were as follows:

						Operating Profit
Operational						29		%
Acquisitions and divestitures, net						3		%
Restructuring						(2)		%
Amortization of acquired intangibles						(31)		%
Total % change in Operating profit						(1)		%

The operational profit increase of 29% was primarily attributable to ongoing customer demand and pricing improvements in certain end-markets compared with the prior year. In addition, favorable material and logistics costs drove productivity benefits in the segment. These benefits more than offset volume reductions in certain end-markets. Segment results were also impacted by lower earnings from equity method investments which included a $23 million charge associated with the devaluation of U.S. Dollar denominated balances at an HVAC equity investment in Egypt.

Refrigeration Segment

For the three months ended March 31, 2024, Net sales in our Refrigeration segment were $884 million, a 2% decrease compared with the same period of 2023. The components of the year-over-year change were as follows:

						Net Sales
Organic						(2)		%
Foreign currency translation						—		%
Total % change in Net sales						(2)		%

Organic Net sales decreased 2% compared with the prior year as the segment experienced challenges in certain end-markets during the period. Results for Commercial refrigeration decreased (down 3%) compared with the prior year, primarily driven by lower volumes in Europe as economic conditions and inflationary cost pressures impacted end-market demand. In addition, Asia was impacted by reduced end-market demand in China. Transport refrigeration results decreased (down 3%) compared to the prior year as lower end-market demand in North America more than offset improved results in Europe and Asia. In addition, the year-over-year decrease was partially offset by strong container end-markets.

For the three months ended March 31, 2024, Operating profit in our Refrigeration segment was $97 million, a 10% decrease compared with the same period of 2023. The components of the year-over-year change were as follows:

						Operating Profit
Operational						12		%
Acquisitions and divestitures, net						(1)		%
Restructuring						3		%
Other						(24)		%
Total % change in Operating profit						(10)		%

The increase in operational profit of 12% was primarily driven by favorable productivity initiatives and price improvements compared with the prior year. In addition, volume growth in certain end-markets further benefited the segment. These amounts were partially offset by volume reductions in certain end-markets. Inflationary cost pressures are moderating but continue to impact our operating profit. Amounts reported in Other represent a $24 million gain on the sale of a business within Transport refrigeration in the prior year.

Fire & Security Segment

For the three months ended March 31, 2024, Net sales in our Fire & Security segment were $887 million, a 2% increase compared with the same period of 2023. The components of the year-over-year change were as follows:

						Net Sales
Organic						7		%
KFI deconsolidation						(5)		%
Total % change in Net sales						2		%

The organic increase in Net sales of 7% was primarily driven by volume growth and price improvements compared with the prior year. Increased sales in our Commercial and Residential fire business benefited from ongoing customer demand and price improvements in the Americas and Europe. Growth in our Global Industrial business was driven by strong end-market demand and pricing improvements.

For the three months ended March 31, 2024, Operating profit in our Fire & Security segment was $153 million, a 65% increase compared with the same period of 2023. The components of the year-over-year change were as follows:

						Operating Profit
Operational						75		%
Restructuring						6		%
KFI deconsolidation						(14)		%
Other						(2)		%
Total % change in Operating profit						65		%

The increase in operational profit of 75% was primarily driven by volume growth and price improvements compared with the prior year. In addition, favorable material and logistics costs drove productivity benefits during the period. The segment also benefited from lower inventory-related reserves compared with the prior year as supply chain challenges improved. In addition, lower depreciation and amortization, which was ceased on held-for-sale assets in accordance with ASC 360, Property, Plant and Equipment, further benefited operational profit. These amounts were partially offset by lower volumes in certain end-markets. Inflationary cost pressures are moderating but continue to impact our operating profit.

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 of March 31, 2024, we had cash and cash equivalents of $1.3 billion, of which approximately 96% 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 of March 31, 2024 and December 31, 2023, the amount of such restricted cash was approximately $4 million and $2 million, respectively.

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 complement 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 level of our existing indebtedness, (3) the restrictions under our debt agreements, (4) the liquidity of the overall capital markets and (5) the state of the economy. There can be no assurance that we will be able to obtain additional financing on terms favorable to us, if at all.

The following table contains several key measures of our financial condition and liquidity:

(In millions)						March 31, 2024						December 31, 2023
Cash and cash equivalents						$	1,313					$	10,015
Total debt						$	16,895					$	14,293
Total equity						$	11,906					$	9,005
Net debt (total debt less cash and cash equivalents)						$	15,582					$	4,278
Total capitalization (total debt plus total equity)						$	28,801					$	23,298
Net capitalization (total debt plus total equity less cash and cash equivalents)						$	27,488					$	13,283
Total debt to total capitalization						59		%				61		%
Net debt to net capitalization						57		%				32		%

Acquisition of the VCS Business

On April 25, 2023, we announced that we entered into an Agreement to acquire the VCS Business. Under the terms of the Agreement, 20% of the purchase price was to be paid in Carrier common stock, issued directly to Viessmann and subject to certain lock-up provisions and 80% was to be paid in cash. Simultaneously, we entered into commitment letters with JPMorgan Chase Bank, N.A., BofA Securities, Inc. and Bank of America, N.A. to provide a €8.2 billion senior unsecured bridge term loan facility (the "Bridge Loan") to fund a portion of the Euro-denominated purchase price.

On May 19, 2023, we entered into a 364-day, $500 million, senior unsecured revolving credit agreement with JPMorgan Chase Bank, N.A., as administrative agent and certain other lenders (the "Revolver"). In addition, we entered into a senior unsecured delayed draw term loan credit agreement with JPMorgan Chase Bank, N.A., as administrative agent and certain other lenders that permits aggregate borrowings of up to €2.3 billion (the "Delayed Draw Facility"). Upon entering into the Delayed Draw Facility, the aggregate principal amount of the Bridge Loan was reduced by €2.3 billion. In November 2023, we issued $3.0 billion principal amount of USD-denominated notes ("USD Notes") and €2.35 billion principal amount of Euro-denominated notes ("Euro Notes"). Upon issuance, the aggregate principal amount of the Bridge Loan was reduced by €5.4 billion. On January 2, 2024, we entered into a 60-day senior unsecured term loan agreement consisting of a Euro-denominated tranche in an aggregate amount of €113 million and a USD-denominated tranche in an aggregate amount of $349 million (the “60-day Loan”). Upon entering into the 60-day Loan, we reduced the final portion of the Bridge Loan by €500 million and subsequently terminated the agreement.

On January 2, 2024, we completed the acquisition of the VCS Business for $14.2 billion. The cash portion of the purchase price was funded through cash on hand, proceeds from the USD Notes and the Euro Notes and borrowings under the Delayed Draw Facility and the 60-day Loan. In addition, proceeds from the Revolver became available upon closing.

Borrowings and Lines of Credit

We maintain a $2.0 billion unsecured, unsubordinated commercial paper program which we can use for general corporate purposes, including the funding of working capital and potential acquisitions. In addition, we maintain a $2.0 billion revolving credit agreement with various banks (the "Revolving Credit Facility") that matures in May 2028 which supports our commercial paper borrowing program and can be used for general corporate purposes. A ratings-based commitment fee is charged on unused commitments. As of March 31, 2024, we had no borrowings outstanding under our commercial paper program or our Revolving Credit Facility.

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 2054. Interest payments related to long-term Notes are expected to approximate $708 million per year, reflecting an approximate weighted-average interest rate of 4.22%. 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 accompanying Unaudited Condensed Consolidated Financial Statements for additional information regarding the terms of our long-term debt obligations.

The following table presents our credit ratings and outlook as of March 31, 2024:

Rating Agency						Long-term Rating (1)						Short-term Rating						Outlook (2) (3)
Standards & Poor's ("S&P")						BBB						A2						Positive
Moody's Investors Service Inc. ("Moody's")						Baa3						P3						Positive
Fitch Ratings ("Fitch")						BBB						F3						Stable

(1) The long-term rating for S&P was affirmed on May 14, 2021, and for Moody's on March 30, 2022. Fitch's long-term rating was updated in December 2023.

(2) S&P revised its outlook to positive from stable in December 2023.

(3) Moody's Investors Service revised its outlook to positive from stable on February 28, 2023.

Portfolio Transformation

On April 25, 2023, we announced plans to exit our Fire & Security and Commercial Refrigeration businesses over the course of 2024. On December 7, 2023, we entered into a stock purchase agreement to sell our Fire & Security Access Solutions business to Honeywell International Inc. for an enterprise value of approximately $4.95 billion. On December 12, 2023, we entered into a stock purchase agreement to sell CCR to Haier Group Corporation for an enterprise value of approximately $775 million. On March 5, 2024, we entered into a stock purchase agreement to sell Industrial Fire to Sentinel Capital Partners for an enterprise value of approximately $1.425 billion. These transactions are expected to close in 2024.

Share Repurchase Program

We may repurchase our outstanding common stock from time to time subject to market conditions and at our discretion. Repurchases occur in the open market or through one or more other public or private transactions pursuant to plans complying with Rules 10b5-1 and 10b-18 under the Exchange Act. Since the initial authorization in February 2021, our Board of Directors authorized the repurchase of up to $4.1 billion of our outstanding common stock. As of December 31, 2023, we repurchased 43.5 million shares of common stock for an aggregate purchase price of $2.0 billion, including shares repurchased under an accelerated share repurchase agreement. As a result, we had approximately $2.1 billion remaining under the current authorization at December 31, 2023. Upon announcement of the acquisition of the VCS Business, we temporarily paused our share repurchase program in order to advance our capital allocation strategy.

Dividends

We paid dividends on common stock during the three months ended March 31, 2024, totaling $159 million. In April 2024, the Board of Directors declared a dividend of $0.19 per share of common stock payable on May 22, 2024 to shareowners of record at the close of business on May 3, 2024.

Discussion of Cash Flows

						Three Months Ended March 31,
(In millions)						2024						2023
Net cash flows provided by (used in):
Operating activities						$	40					$	120
Investing activities						(11,081)						(100)
Financing activities						2,379						(213)
Effect of foreign exchange rate changes on cash and cash equivalents						(68)						20
Net increase (decrease) in cash and cash equivalents and restricted cash						$	(8,730)					$	(173)

Cash flows from operating activities primarily represent inflows and outflows associated with our operations. Primary activities include net income from operations adjusted for non-cash transactions, working capital changes and changes in other assets and liabilities. The year-over-year decrease in net cash provided by operating activities was primarily driven by an increase in working capital balances compared with the prior period. Higher accounts receivable balances due to increased sales and lower account payables impacted working capital. Prior year working capital balances increased due to higher safety stock and supply chain constraints.

Cash flows from investing activities primarily represent inflows and outflows associated with long-term assets. Primary activities include capital expenditures, acquisitions, divestitures and proceeds from the sale of fixed assets. During the three months ended March 31, 2024, net cash used in investing activities was $11.1 billion. The primary driver of the outflow related to the acquisition of the VCS Business, which totaled $10.8 billion, net of cash acquired. Additional investing outflows include $209 million related to settlement of derivatives and $104 million of capital expenditures. During the three months ended March 31, 2023, net cash used in investing activities was $100 million. The primary driver of the outflow related to $70 million of capital expenditures. In addition, we settled working capital and other transaction-related items associated with the acquisition of Toshiba Carrier Corporation and invested in several businesses. These amounts totaled $52 million, net of cash acquired and were partially offset by the proceeds from the sale of a business during the period.

Cash flows from financing activities primarily represent inflows and outflows associated with equity or borrowings. During the three months ended March 31, 2024, net cash provided by financing activities was $2.4 billion. The primary driver of the inflow related to the proceeds of borrowings on the Bridge Loan and Delayed Draw Facility which were used to fund the cash portion of the acquisition of the VCS Business. This amount was partially offset by the outflow related to the payment of $159 million in dividends to our common shareowners. During the three months ended March 31, 2023, net cash used in financing activities was $213 million. The primary driver of the outflow related to the payment of $154 million in dividends to our common shareowners. In addition, we paid $62 million to repurchase shares of our common stock.