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 and Edwards that offer innovative heating, ventilating and air conditioning ("HVAC"), refrigeration, fire 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 June 2, 2024, we completed the sale of our Access Solutions business ("Access Solutions") to Honeywell International Inc. ("Honeywell") for cash proceeds of $5.0 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. We recognized a gain on the sale of $2.9 billion, which is included in Other income (expense), net on the accompanying Unaudited Condensed Consolidated Statement of Operations. The net proceeds received are subject to working capital and other adjustments provided in the stock purchase agreement.

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. The transaction is expected to close in 2024.

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. The sale of Industrial Fire was completed on July 1, 2024.

The following table summarizes Net sales for each of our businesses included in our portfolio transformation:

						Three Months Ended June 30,												Six Months Ended June 30,												Year Ended December 31,
(In millions)						2024						2023						2024						2023						2023
Access Solutions						$	112					$	181					$	282					$	356					$	716
Industrial Fire						143						134						287						251						520
Commercial and Residential Fire						495						471						937						886						1,827
Commercial Refrigeration						254						269						495						513						1,074

The announced plan to exit our Fire & Security segment represents a single disposal plan to separately divest multiple businesses. As such, at the time that the remaining significant business in the segment, Commercial and Residential Fire, qualifies as held for sale, the Fire & Security segment in aggregate will likely be presented in discontinued operations. We expect this to occur 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, indicated that it intended to use the bankruptcy process to explore strategic alternatives, including the sale of KFI as a going concern. 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

Due to the sale of Access Solutions, we no longer consolidate the results of Access Solutions in our financial statements as of June 2, 2024. Therefore, this Management's Discussion and Analysis of Financial Condition and Results of Operations only

includes the financial results of Access Solutions in periods prior to the date of the sale. As a result, prior periods may not be comparable to the current period.

Three Months Ended June 30, 2024 Compared with the Three Months Ended June 30, 2023

The following represents our consolidated net sales and operating results:

						Three Months Ended June 30,
(In millions)						2024						2023						Period Change						% Change
Net sales						$	6,689					$	5,992					$	697					12		%
Cost of products and services sold						(4,811)						(4,237)						(574)						14		%
Gross margin						1,878						1,755						123						7		%
Operating expenses						1,813						(1,266)						3,079						(243)		%
Operating profit						3,691						489						3,202						655		%
Non-operating income (expense), net						(167)						(67)						(100)						149		%
Income from operations before income taxes						3,524						422						3,102						735		%
Income tax expense						(1,155)						(189)						(966)						511		%
Net income from operations						2,369						233						2,136						917		%
Less: Non-controlling interest in subsidiaries' earnings from operations						32						34						(2)						(6)		%
Net income attributable to common shareowners						$	2,337					$	199					$	2,138					1,074		%

Net Sales

For the three months ended June 30, 2024, Net sales were $6.7 billion, a 12% increase compared with the same period of 2023. The components of the year-over-year change were as follows:

						Three Months Ended June 30, 2024
Organic						2		%
Foreign currency translation						(1)		%
Acquisitions and divestitures, net						11		%
Total % change						12		%

Organic sales for the three months ended June 30, 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 and EMEA, which more than offset reduced end-market demand in 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. Results in our Refrigeration segment were mixed as growth in Transport refrigeration was partially offset by challenges in Commercial refrigeration end-markets. Refer to "Segment Review" below for a discussion of Net sales by segment.

Gross Margin

For the three months ended June 30, 2024, gross margin was $1.9 billion, a 7% increase compared with the same period of 2023. The components were as follows:

						Three Months Ended June 30,
(In millions)						2024						2023
Net sales						$	6,689					$	5,992
Cost of products and services sold						(4,811)						(4,237)
Gross margin						$	1,878					$	1,755
Percentage of net sales						28.1		%				29.3		%

Gross margin increased by $123 million compared with the three months ended June 30, 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. 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 300 basis point unfavorable impact on gross margin as a percentage of Net sales. As a result, gross margin as a percentage of Net sales decreased by 120 basis points compared with the same period of 2023.

Operating Expenses

For the three months ended June 30, 2024, operating expenses, including Equity method investment net earnings, were a benefit of $1.8 billion, a 243% decrease compared with the same period of 2023. The components were as follows:

						Three Months Ended June 30,
(In millions)						2024						2023
Selling, general and administrative						$	(975)					$	(784)
Research and development						(187)						(151)
Equity method investment net earnings						90						52
Other income (expense), net						2,885						(383)
Total operating expenses						$	1,813					$	(1,266)
Percentage of net sales						(27.1)		%				21.1		%

For the three months ended June 30, 2024, Selling, general and administrative expenses were $975 million, a 24% 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 $92 million of acquisition and divestiture-related costs compared with $14 million during the three months ended June 30, 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 June 30, 2024, Equity method investment net earnings were $90 million, a 73% increase compared with the same period of 2023. The increase was primarily driven by higher earnings in HVAC joint ventures across all regions.

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. During the three months ended June 30, 2024, we completed the sale of Access Solutions and recognized a gain on the sale of $2.9 billion.

During the three months ended June 30, 2023, we recognized a loss of $293 million on the deconsolidation of KFI due to its Chapter 11 filing. In addition, we recognized a $111 million loss on the mark-to-market valuation of our window forward contracts associated with the expected cash outflows of the Euro-denominated purchase price of the VCS Business.

Non-Operating Income (Expense), net

For the three months ended June 30, 2024, Non-operating income (expense), net was $167 million, a 149% increase compared with the same period of 2023. The components were as follows:

						Three Months Ended June 30,
(In millions)						2024						2023
Non-service pension (expense) benefit						$	(1)					$	—
Interest expense						$	(185)					$	(94)
Interest income						19						27
Interest (expense) income, net						$	(166)					$	(67)
Non-operating income (expense), net						$	(167)					$	(67)

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 June 30, 2024, Interest expense was $185 million, a 97% 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. In addition, we incurred a make-whole premium of $8 million and wrote off $4 million of unamortized deferred financing costs associated with the redemption of our $1.0 billion aggregate principal amount of 5.80% notes due in 2025. During the three months ended June 30, 2023, we amortized $21 million of deferred financing cost in Interest expense, of which $19 million related to our senior unsecured bridge term loan facility (the "Bridge Loan").

Income Taxes

						Three Months Ended June 30,
						2024						2023
Effective tax rate						32.8		%				44.8		%

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 32.8% for the three months ended June 30, 2024, compared with 44.8% for the three months ended June 30, 2023. The year-over-year decrease was primarily driven by the absence of the non-deductible loss of $293 million on the deconsolidation of KFI due to its Chapter 11 filing and the $111 million loss on the mark-to-market valuation of our window forward contracts associated with the expected cash outflows of the Euro-denominated purchase price of the VCS Business recognized during the three months ended June 30, 2023. These amounts were partially offset by the $1.1 billion tax on the $2.9 billion gain on the sale of Access Solutions and a held-for-sale tax benefit of $43 million related to adjustments to basis differences in certain companies recognized during the three months ended June 30, 2024.

Six Months Ended June 30, 2024 Compared with the Six Months Ended June 30, 2023

The following represents our consolidated net sales and operating results:

						Six Months Ended June 30,
(In millions)						2024						2023						Period Change						% Change
Net sales						$	12,871					$	11,265					$	1,606					14		%
Cost of products and services sold						(9,288)						(8,132)						(1,156)						14		%
Gross margin						3,583						3,133						450						14		%
Operating expenses						608						(2,089)						2,697						(129)		%
Operating profit						4,191						1,044						3,147						301		%
Non-operating income (expense), net						(332)						(113)						(219)						194		%
Income from operations before income taxes						3,859						931						2,928						315		%
Income tax expense						(1,201)						(311)						(890)						286		%
Net income from operations						2,658						620						2,038						329		%
Less: Non-controlling interest in subsidiaries' earnings from operations						52						48						4						8		%
Net income attributable to common shareowners						$	2,606					$	572					$	2,034					356		%

Net Sales

For the six months ended June 30, 2024, Net sales were $12.9 billion, a 14% increase compared with the same period of 2023. The components of the year-over-year change were as follows:

						Six Months Ended June 30, 2024
Organic						2		%
Foreign currency translation						(1)		%
Acquisitions and divestitures, net						13		%
Total % change						14		%

Organic sales for the six months ended June 30, 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-markets 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. Refer to "Segment Review" below for a discussion of Net sales by segment.

Gross Margin

For the six months ended June 30, 2024, gross margin was $3.6 billion, a 14% increase compared with the same period of 2023. The components were as follows:

						Six Months Ended June 30,
(In millions)						2024						2023
Net sales						$	12,871					$	11,265
Cost of products and services sold						(9,288)						(8,132)
Gross margin						$	3,583					$	3,133
Percentage of net sales						27.8		%				27.8		%

Gross margin increased by $450 million compared with the six months ended June 30, 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. 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 260 basis point unfavorable impact on gross margin as a percentage of Net sales. As a result, gross margin as a percentage of Net sales was flat compared with the same period of 2023.

Operating Expenses

For the six months ended June 30, 2024, operating expenses, including Equity method investment net earnings, were a benefit of $0.6 billion, a 129% decrease compared with the same period of 2023. The components were as follows:

						Six Months Ended June 30,
(In millions)						2024						2023
Selling, general and administrative						$	(1,960)					$	(1,505)
Research and development						(411)						(290)
Equity method investment net earnings						121						96
Other income (expense), net						2,858						(390)
Total operating expenses						$	608					$	(2,089)
Percentage of net sales						(4.7)		%				18.5		%

For the six months ended June 30, 2024, Selling, general and administrative expenses were $2.0 billion, a 30% 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, higher compensation and other employee-related costs further contributed to the increase. The current period also included $181 million of acquisition and divestiture-related costs compared with $26 million during the six months ended June 30, 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 six months ended June 30, 2024, Equity method investment net earnings were $121 million, a 26% increase compared with the same period of 2023. The increase was primarily driven by higher earnings in HVAC joint ventures across all regions. The increase was partially offset 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. During the six months ended June 30, 2024, we completed the sale of Access Solutions and recognized a gain on the sale of $2.9 billion. 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"). In connection with the acquisition of the VCS Business, we recognized an $86 million loss on the mark-to-market valuation of our window forward contracts associated with the cash outflows of the Euro-denominated purchase price.

During the six months ended June 30, 2023, we recognized a loss of $293 million on the deconsolidation of KFI due to its Chapter 11 filing. In addition, we recognized a $111 million loss on the mark-to-market valuation of our window forward contracts associated with the expected cash outflows of the Euro-denominated purchase price of the VCS Business.

Non-Operating Income (Expense), net

For the six months ended June 30, 2024, Non-operating income (expense), net was $332 million, a 194% increase compared with the same period of 2023. The components were as follows:

						Six Months Ended June 30,
(In millions)						2024						2023
Non-service pension (expense) benefit						$	(1)					$	—
Interest expense						$	(365)					$	(165)
Interest income						34						52
Interest (expense) income, net						$	(331)					$	(113)
Non-operating income (expense), net						$	(332)					$	(113)

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 six months ended June 30, 2024, Interest expense was $365 million, a 121% 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 Euro-denominated purchase price. In addition, we incurred a make-whole premium of $8 million and wrote off $4 million of unamortized deferred financing costs associated with the redemption of our $1.0 billion aggregate principal amount of 5.80% notes due in 2025. During the six months ended June 30, 2023, we amortized $22 million of deferred financing cost in Interest expense, of which $19 million related to our Bridge Loan.

Income Taxes

						Six Months Ended June 30,
						2024						2023
Effective tax rate						31.1		%				33.4		%

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 31.1% for the six months ended June 30, 2024 compared with 33.4% for the six months ended June 30, 2023. The year-over-year decrease was primarily driven by the absence of the non-deductible loss of $293 million on the deconsolidation of KFI due to its Chapter 11 filing recognized during the six months ended June 30, 2023. This amount was partially offset by the $1.1 billion tax on the $2.9 billion gain on the sale of Access Solutions and a held-for-sale tax benefit of $62 million related to adjustments to basis differences in certain companies recognized during the six months ended June 30, 2024. In addition, we recognized a tax benefit of $21 million associated with the TMA and UTC's conclusion of certain income tax matters from their 2017 and 2018 tax audit with the U.S. Internal Revenue Service ("IRS"), a net tax benefit of $16 million related to the re-organization and disentanglement of certain Fire & Security industrial businesses in advance of their planned divestitures and a tax charge of $15 million related to a reduction of utilizable foreign tax credits during the six months ended June 30, 2024.

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 June 30, 2024 Compared with Three Months Ended June 30, 2023

Summary performance for each of our segments is as follows:

						Net Sales												Operating Profit												Operating Profit Margin
						Three Months Ended June 30,												Three Months Ended June 30,												Three Months Ended June 30,
(In millions)						2024						2023						2024						2023						2024						2023
HVAC						$	4,970					$	4,216					$	687					$	742					13.8		%				17.6		%
Refrigeration						973						972						113						112						11.6		%				11.5		%
Fire & Security						871						932						3,001						(157)						344.5		%				(16.8)		%
Total segment						$	6,814					$	6,120					$	3,801					$	697					55.8		%				11.4		%

HVAC Segment

For the three months ended June 30, 2024, Net sales in our HVAC segment were $5.0 billion, a 18% 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						17		%
Total % change in Net sales						18		%

The organic increase in Net sales of 2% was driven by continued strong results in the segment. Growth in the Americas (up 5%) was primarily driven by our Commercial and Light Commercial businesses which benefited from ongoing customer demand and pricing improvements. In addition, volume increases in residential markets further benefited results. Growth in EMEA (up 2%) was primarily driven by ongoing customer demand and pricing improvements in our Commercial business. Residential markets continue to be impacted by reduced volume compared with the prior year. Results in Asia (down 7%) were impacted by lower demand in the region, primarily 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 17% to Net sales during the three months ended June 30, 2024 and is included in Acquisitions and divestitures, net.

For the three months ended June 30, 2024, Operating profit in our HVAC segment was $687 million, a 7% decrease compared with the same period of 2023. The components of the year-over-year change were as follows:

						Operating Profit
Operational						16		%
Acquisitions and divestitures, net						(2)		%
Restructuring						(3)		%
Amortization of acquired intangibles						(18)		%
Total % change in Operating profit						(7)		%

The operational profit increase of 16% 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. Higher earnings from equity method investments further benefited operational profit in the segment.

Refrigeration Segment

For the three months ended June 30, 2024, Net sales in our Refrigeration segment were $973 million, flat compared to the same period of 2023. The components of the year-over-year change were as follows:

						Net Sales
Organic						1		%
Foreign currency translation						(1)		%
Total % change in Net sales						—		%

The organic increase in Net Sales of 1% was primarily driven by volume growth and price improvements within certain end-markets compared with the prior year. Transport refrigeration results increased (up 3%) compared to the prior year primarily due to strong container end-markets. In addition, higher volumes in Europe and Asia further benefited results but were more than offset by lower end-market demand in North America. Results for Commercial refrigeration decreased (down 5%) 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.

For the three months ended June 30, 2024, Operating profit in our Refrigeration segment was $113 million, a 1% increase compared with the same period of 2023. The components of the year-over-year change were as follows:

						Operating Profit
Operational						1		%
Foreign currency translation						(1)		%
Restructuring						5		%
Other						(4)		%
Total % change in Operating profit						1		%

The increase in operational profit of 1% 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 other end-markets. Inflationary cost pressures are moderating but continue to impact our operating profit. Amounts reported in Other represent $4 million of divestiture-related costs associated with the announced sale of CCR.

Fire & Security Segment

For the three months ended June 30, 2024, Net sales in our Fire & Security segment were $871 million, a 7% decrease compared with the same period of 2023. The components of the year-over-year change were as follows:

						Net Sales
Organic						3		%
Acquisitions and divestitures, net						(8)		%
KFI deconsolidation						(2)		%
Total % change in Net sales						(7)		%

The organic increase in Net sales of 3% 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. Acquisitions and divestitures, net primarily relates to the current year results of Access Solutions, the sale of which was completed on June 2, 2024.

For the three months ended June 30, 2024, Operating profit in our Fire & Security segment was $3.0 billion, a 2,011% increase compared with the same period of 2023. The components of the year-over-year change were as follows:

						Operating Profit
Operational						31		%
Foreign currency translation						(1)		%
Acquisitions and divestitures, net						(17)		%
Restructuring						(3)		%
KFI deconsolidation						184		%
Access Solutions gain						1,834		%
Amortization of acquired intangibles						1		%
Other						(18)		%
Total % change in Operating profit						2,011		%

The increase in operational profit of 31% was primarily driven by volume growth, price improvements and favorable product mix 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. 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.

Acquisitions and divestitures, net primarily relates to the current year results of Access Solutions, the sale of which was completed on June 2, 2024. Amounts reported in Other represent $11 million of divestiture-related costs associated with our announced portfolio transformation and Access Solutions sale.

Six Months Ended June 30, 2024 Compared with Six Months Ended June 30, 2023

Summary performance for each of our segments is as follows:

			Net Sales												Operating Profit												Operating Profit Margin
			Six Months Ended June 30,												Six Months Ended June 30,												Six Months Ended June 30,
(In millions)			2024						2023						2024						2023						2024						2023
HVAC			$	9,511					$	7,838					$	1,116					$	1,177					11.7		%				15.0		%
Refrigeration			1,857						1,870						210						220						11.3		%				11.8		%
Fire & Security			1,758						1,801						3,154						(64)						179.4		%				(3.6)		%
Total segment			$	13,126					$	11,509					$	4,480					$	1,333					34.1		%				11.6		%

HVAC Segment

For the six months ended June 30, 2024, Net sales in our HVAC segment were $9.5 billion, a 21% 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						20		%
Total % change in Net sales						21		%

The organic increase in Net sales of 2% was driven by continued strong results in the segment. Growth in the Americas (up 5%) was primarily driven by our Commercial and Light Commercial businesses which benefited from ongoing customer demand and pricing improvements. Moderate growth in our residential business due to price improvements was impacted by lower volumes compared with the prior year. EMEA (down 4%) continues to be impacted by reduced volumes in residential markets. The reduction was partially offset by ongoing customer demand and pricing improvements in our Commercial business. Results in Asia (down 4%) were impacted by lower demand in the region, primarily 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 20% to Net sales during the six months ended June 30, 2024 and is included in Acquisitions and divestitures, net.

For the six months ended June 30, 2024, Operating profit in our HVAC segment was $1.1 billion, a 5% decrease compared with the same period of 2023. The components of the year-over-year change were as follows:

						Operating Profit
Operational						21		%
Acquisitions and divestitures, net						—		%
Restructuring						(3)		%
Amortization of acquired intangibles						(23)		%
Total % change in Operating profit						(5)		%

The operational profit increase of 21% 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. Higher earnings from equity method investments further benefited operational profit in the segment. The increase was partially offset by 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 six months ended June 30, 2024, Net sales in our Refrigeration segment were $1.9 billion, a 1% decrease compared with the same period of 2023. The components of the year-over-year change were as follows:

						Net Sales
Organic						(1)		%
Foreign currency translation						—		%
Total % change in Net sales						(1)		%

Organic Net sales decreased 1% compared to the prior year as the segment experienced challenges in certain end-markets during the period. Results for Commercial refrigeration decreased (down 4%) 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 results were impacted by reduced end-market demand in China. Transport refrigeration sales were flat compared to the prior year as lower end-market demand in North America offset improved results in Europe and Asia. However, the decrease was offset by strong container end-markets.

For the six months ended June 30, 2024, Operating profit in our Refrigeration segment was $210 million, a 5% decrease compared with the same period of 2023. The components of the year-over-year change were as follows:

						Operating Profit
Operational						6		%
Restructuring						4		%
Other						(15)		%
Total % change in Operating profit						(5)		%

The increase in operational profit of 6% 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 other end-markets. Inflationary cost pressures are moderating but continue to impact our operating profit. Amounts reported in Other represent $6 million of divestiture-related costs associated with the announced sale of CCR. In addition, the prior year includes a $24 million gain on the sale of a business within Transport refrigeration.

Fire & Security Segment

For the six months ended June 30, 2024, Net sales in our Fire & Security segment were $1.8 billion, a 2% decrease compared with the same period of 2023. The components of the year-over-year change were as follows:

						Net Sales
Organic						5		%
Acquisitions and divestitures, net						(4)		%
KFI deconsolidation						(3)		%
Total % change in Net sales						(2)		%

The organic increase in Net sales of 5% 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. Acquisitions and divestitures, net primarily relates to the Access Solutions divestiture completed on June 2, 2024.

For the six months ended June 30, 2024, Operating profit in our Fire & Security segment was $3.2 billion, a 5,028% increase compared with the same period of 2023. The components of the year-over-year change were as follows:

						Operating Profit
Operational						183		%
Foreign currency translation						(2)		%
Acquisitions and divestitures, net						(41)		%
Restructuring						3		%
Amortization of acquired intangibles						6		%
KFI deconsolidation						430		%
Access Solutions gain						4,483		%
Other						(34)		%
Total % change in Operating profit						5,028		%

The increase in operational profit of 183% 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.

Acquisitions and divestitures, net primarily relates to the current year results of Access Solutions, the sale of which was completed on June 2, 2024. Amounts reported in Other represent $16 million of separation-related costs associated with our announced portfolio transformation and Access Solutions sale.

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 June 30, 2024, we had cash and cash equivalents of $2.9 billion, of which approximately 52% 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 June 30, 2024 and December 31, 2023, the amount of such restricted cash was approximately $3 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)						June 30, 2024						December 31, 2023
Cash and cash equivalents						$	2,919					$	10,015
Total debt						$	13,322					$	14,293
Total equity						$	14,079					$	9,005
Net debt (total debt less cash and cash equivalents)						$	10,403					$	4,278
Total capitalization (total debt plus total equity)						$	27,401					$	23,298
Net capitalization (total debt plus total equity less cash and cash equivalents)						$	24,482					$	13,283
Total debt to total capitalization						49		%				61		%
Net debt to net capitalization						42		%				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. Proceeds from the Revolver became available upon closing.

In March 2024, borrowings under the 60-day loan were repaid. In May 2024, the Revolver was terminated and refinanced in order to extend its maturity to May 2025. In addition, we redeemed our $1.0 billion aggregate principle amount of 5.80% notes due in 2025 and repaid borrowings under the Delayed Draw Facility in June 2024, which was subsequently terminated.

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 June 30, 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 $479 million per year, reflecting an approximate weighted-average interest rate of 3.63%. 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 June 30, 2024:

Rating Agency						Long-term Rating (1)						Short-term Rating (2)						Outlook (2) (3) (4)
Standards & Poor's ("S&P")						BBB						A2						Positive
Moody's Investors Service Inc. ("Moody's")						Baa2						P2						Positive
Fitch Ratings ("Fitch")						BBB						F3						Stable

(1) The long-term rating for S&P was affirmed on May 14, 2021, upgraded by Moody's to Baa2 on May 13, 2024. Fitch's was updated in December 2023.

(2) Fitch upgraded its short-term rating to F2 from F3 and revised its outlook to positive from stable on July 11, 2024.

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

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

Portfolio Transformation

On June 2, 2024, we completed the divestiture of Access Solutions for cash proceeds of $5.0 billion, subject to customary working capital and other adjustments. Consistent with our capital allocation strategy, the net proceeds will be used to fund repayment of debt, investments in organic and inorganic growth initiatives and capital returns to shareowners as well as for general corporate purposes.

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. The transaction is expected to close in 2024. 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. The sale was completed on July 1, 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 six months ended June 30, 2024, totaling $330 million. In June 2024, the Board of Directors declared a dividend of $0.19 per share of common stock payable on August 8, 2024, to shareowners of record at the close of business on June 21, 2024.

Discussion of Cash Flows

						Six Months Ended June 30,
(In millions)						2024						2023
Net cash flows provided by (used in):
Operating activities						$	700					$	504
Investing activities						(6,273)						(296)
Financing activities						(1,406)						(506)
Effect of foreign exchange rate changes on cash and cash equivalents						(82)						(13)
Net increase (decrease) in cash and cash equivalents and restricted cash						$	(7,061)					$	(311)

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 increase in net cash provided by operating activities was primarily driven by an decrease in working capital balances compared with the prior period. Higher accounts payable balances, improved cash conversion and lower inventory benefited working capital during the year.

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 six months ended June 30, 2024, net cash used in investing activities was $6.3 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 $185 million related to settlement of derivatives and $215 million of capital expenditures. These outflows were partially offset by the divestiture of Access Solutions for cash proceeds of $5.0 billion. During the six months ended June 30, 2023, net cash used in investing activities was $296 million. The primary drivers of the outflow related to $144 million of capital expenditures and $134 million related to the deconsolidation of KFI. 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 $56 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 six months ended June 30, 2024, net cash used in financing activities was $1.4 billion. The primary driver of the outflow is due to repayments of long-term debt of $3.5 billion which includes prepayments of the Delayed Draw Facility and the redemption of our 5.80% notes due in 2025. In addition, we made dividend payments of $330 million to our common shareowners. These outflows were partially offset by the proceeds of borrowings used to fund the cash portion of the acquisition of the VCS Business. During the six months ended June 30, 2023, net cash used in financing activities was $506 million. The primary driver of the outflow related to the payment of $309 million in dividends to our common shareowners. In addition, we paid $62 million to repurchase shares of our common stock.