CARR 10-K & 10-Q changes, risk factors and insider trading

•Demand for our HVAC products and services is influenced by weather conditions, seasonality, macroeconomic conditions and seasonality.other factors.

Our international sales and operations are also subject to the risks associated with changes in local government regulations and policies regarding investments, employment, taxation, incentives, foreign exchange and capital controls and the repatriation of earnings. Moreover, government regulations and policies regarding international trade, such as import quotas, punitive taxes or tariffs or similar trade barriers, including counter-tariffs and other retaliatory trade policies, whether imposed by individual governments or regional trade blocs, can affect demand for our products and services, impact the competitive position of our products or services or encumber our ability to manufacture or sell or procure products in certain countries. The implementation of more restrictive trade policies, including tariffs, by the U.S. or by other countries, such as China and Mexico, where we sell or produce our products and services or procure materials, or unpredictability or rapid shifts in trade policies, including as a result of trade conflict between the U.S. and other countries, couldhave in the past negatively impactimpacted, and could in the future negatively impact, our business, results of operations and financial condition. Our international sales and operations are also sensitive to political and economic instability, changes in foreign national priorities and government budgets, and the risks associated with differing legal systems and customs in foreign countries.

Our business operations, particularly in our HVACClimate segment,Solutions Americas and Climate Solutions Asia Pacific, Middle East & Africa segments, depend on various strategic relationships, namely, joint ventures and non-wholly owned subsidiaries. We sell our products and services through certain key distributor, joint venture and similar relationships, including the Carrier Enterprise joint ventures with Watsco, Inc., AHI-Carrier FZC, a United Arab Emirates-based joint venture and various joint ventures with members of the Midea Group.

There is a general consensus that greenhouse gas emissions are linked to climate events, and that these emissions must be reduced dramatically to avert its worst effects. Increased public awareness and concern about climate events may continue to: (1) generate more international, regional and/or national requirements to curtail the use of high global warming potential refrigerants (e.g., the Kigali Amendment to the Montreal Protocol and the American Innovation and Manufacturing ("AIM") Act of 2020, which are essential to many of our products); (2) increase building energy and cold chain efficiency; (3) cause a shift away from the use of fossil fuels as an energy source, including natural gas prohibitions; and (4) lead to the adoption of additional rules and regulations surrounding public disclosures relating to greenhouse gas emissions, including those adopted in California and the European Union.Union as well as in other jurisdictions, which may vary by jurisdiction. In some instances, these requirements may render our existing technology, particularly some of our HVAC and refrigeration products, non-compliant or obsolete and we may be required to make increased capital expenditures to meet new regulations and standards, changing interpretations and stricter enforcement of current laws and regulations.regulations, or divergent requirements across jurisdictions in which we operate. Furthermore, our customers and the markets we serve may impose emissions or other environmental standards through regulation, market-based emissions policies or consumer preferences that we may not be able to timely meet due to our required level of capital investment and technology advancement. While we are committed to pursuing sustainable solutions for our products, there can be no assurance that our development efforts will be successful, that our products will be accepted by the market, that proposed regulations or deregulation will not have an adverse effect on our competitive position, or that economic returns will justify our investments in new product development.

At the same time, U.S. energy and climate policy may not align with the above trends. Inconsistent international, regional and/or national requirements associated with climate regulations, suchincluding asthe withdrawal by the U.S. participation infrom the Paris Climate Agreement, also create economic and regulatory uncertainty. There is also regulatory and budgetary uncertainty associated with government incentives, which, if discontinued or materially reduced, could adversely impact the demand for energy-efficient buildings and homes and could increase costs of compliance. Further, the retraction of existing and implementation of new U.S. energy and/or climate policy and incentives could significantly and adversely impact our business, strategic direction and growth plans.

We have set sustainability goals to be achieved by 2030, which include investing over $4 billion to develop intelligent climate and energy solutions that reduce environmental impacts, avoiding more than 1 gigaton of customer greenhouse gas emissions, achieving carbon neutral operations and reducing energy intensity by 10% across our operations. Although we intend to meet these goals, we have expended and may be required to continue to expend significant resources to do so, which has increased and could continue to increase our operational costs. Further, there can be no assurance of the extent to which any of our goals will be achieved, or that any future expenditures or investments we make in furtherance of achieving such goals will be available, effective, meet investor expectations or any binding or non-binding legal standards regarding sustainability performance. For example, to make substantial progress toward or to meet some of these goals, we may need to purchase or deploy a combination of renewable energy utility contracts, carbon credits or offsets, energy-efficient or low-emission products or operations, or carbon sequestration technologies, and there can be no assurance of the extent to which such contracts, credits, offsets, products, operations or technologies will be available or effective in reducing emissions or energy intensity. As global regulatory reporting obligations continue to emerge and evolve, we strive to align our sustainability disclosures to global reporting requirements, standards, and best practices. To the extent that reporting gaps exist as reporting standards change over time, this could result in increased compliance costs and risks.

Demand for our HVAC products and services, representing our largest segmentsegments by sales, is seasonal and affected by the weather. Cooler than normal summers depress sales of our replacement air conditioning products and services and warmer than normal winters have the same effect on our heating products. Historically, sales to residential HVAC customers tend to be higher in the second and third quarters of the year because, in the U.S. and other northern hemisphere regions, spring and summer are the peak seasons for sales of air conditioning systems and services. In these circumstances, the results of any quarterly period may not be indicative of expected results for a full year, and unusual weather patterns or events could positively or negatively affect our business and impact overall results of operations.

We also may incur -incur, and have incurred -incurred, unanticipated costs or expenses, including asset impairment and other charges and expenses associated with litigation and other liabilities. In addition, in connection with certain acquisitions including the acquisition of the VCS Business, we have disclosed and may from time to time disclose, unaudited pro forma financial information. This pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of what our actual financial position or results of operations would have been had the acquisition been completed on the dates indicated therein. Further, our actual results and financial position may differ materially and adversely from the unaudited pro forma financial information, including due to certain adjustments made by our management, and due to changes between preliminary estimates of the fair value of assets to be acquired and liabilities to be assumed, and the final acquisition accounting. Additionally, accounting requirements relating to business combinations, including the requirement to expense certain acquisition costs as incurred, may cause us to incur greater earnings volatility and generally lower earnings subsequent to periods in which we acquire new businesses. Any of the foregoing could adversely affect our business and results of operations.

We also make strategic divestitures from time to time, including the dispositions during 2024 of Access Solutions, Industrial Fire, CCR and the CRF Business.Business, as well as the pending disposition of the Riello business which is subject to customary closing conditions and regulatory approvals.. These and other divestitures may result in continued financial exposure to the divested businesses, such as through guarantees, other financial arrangements, continued supply and services arrangements or through the retention of liabilities, such as for environmental and product liability claims. Under these arrangements, nonperformance by those divested businesses or claims against retained liabilities could result in the imposition of obligations that could have a material adverse effect on our results of operations, cash flows or financial condition.

As of December 31, 2024,2025, we had approximately $12.3$11.5 billion in aggregate principal amount of outstanding indebtedness, including debt incurred to close the acquisition of the VCS Business on January 2, 2024.indebtedness. See Note 7 – Borrowings and Lines of Credit in the accompanying Notes to the Consolidated Financial Statements and the section entitled "Liquidity and Financial Condition" in this Annual Report for additional information. We may also incur additional indebtedness in the future, including via issuance of commercial paper, under our Revolving Credit Facility.Facility or by issuing additional notes.

In addition, we may be the target of competitor or other third-party patent enforcement actions (for example, brought by owners of Standard Essential Patents or other relevant patents) seeking substantial monetary damages or seeking to prevent the sale and marketing of certain of our products. Our competitive position also may be adversely impacted by limitations on our ability to obtain possession, ownership or necessary licenses concerning data important to the development or sale of our products or service offerings, or by limitations on our ability to restrict the use by others of data related to our products or services. Any of these events or factors could subject us to judgments, penalties and significant litigation costs or temporarily or permanently disrupt our sales and marketing of the affected products or services and could have a material adverse effect on our competitive position, results of operations, cash flows or financial condition.

We use a variety of raw materials, supplier-provided parts, finished goods, and third-party service providers in our business. The ability of suppliers to deliver materials, parts, componentscomponents, finished goods, and manufacturing equipment to our manufacturing facilities, and our ability to manufacture and distribute without disruption, could affect our business performance. Significant shortages, supplier capacity constraintsconstraints, supplier disputes, supplier quality issues, or production disruptions, price increases, duties, tariffs or other government actions could increase our operating costs, disrupt our operations and adversely impact the competitive positions of our products.

Our reliance on suppliers and commodity markets to secure components (such as motors and valves), finished goods (including products purchased directly from suppliers for resale), and raw materials (such as copper, aluminum and steel), andas well as on service providers to deliver our products, exposes us to volatility in the prices and availability of these materialsmaterials, products, and services. We use a wide range of materialsmaterials, finished goods, and components in the global production and distribution of our products, which come from numerous suppliers around the world. Because some key parts and finished goods may be available only from a single supplier or a limited group of suppliers, we are subject to supply and pricing risk. In addition, certain proprietary component parts used in some of our products are provided by single-source unaffiliated third-party suppliers. We would be unable to obtain these proprietary components for an indeterminate period of time if these single-source suppliers were to cease or interrupt production or otherwise fail to supply these components to us, which could adversely affect our product sales and operating results. Our supply chain could be impacted by climate events through extreme weather, resulting in delivery or production disruptions and increased material costs. In addition, other issues with suppliers (such as capacity constraints, quality issues, consolidations, closings or bankruptcies), price increases, raw material/component/finished good shortages, regulatory limitations, government actions, or the decreased availability of trucks and other delivery services could also have a material adverse effect on our ability to meet our commitments to customers or increase our operating costs. Periodic disruptions in our supply chains have resulted, and may continue to result, in sufficient inventory not being available in a timely manner or during the appropriate season as well as higher freight and other logistic costs, including increased carrier rates, which could have a material adverse effect on our business.

We use various tactical and strategic actions to mitigate our raw materialmaterial, finished good, and supply chain risks and challenges, including consolidating commodity purchases, locking in prices of expected purchases of certain raw materials, finished goods and components, dual sourcing, increasing regionalization, requirements as to safety stock, proactive engagement with suppliers and our workforce and dynamic management of freight costs and availability. However, these efforts may be unsuccessful or could cause us to pay higher prices for a commodity when compared with the market price at the time the commodity is actually purchased or delivered. For example, the availability and prices of raw materials and supplies may be impacted as a result of, among other things, the imposition of tariffs, duties and other potential changes in trade policies. Our suppliers could also be subject to regulations including climate related regulations, compliance with which would increase our costs and the impacts of which are difficult to predict. We believe that our supply management and production practices appropriately balance the foreseeable risks and the costs of alternative practices or other mitigation. Nonetheless, these risks may have a material adverse effect on our competitive position, results of operations, cash flows or financial condition.

Our operations and those of our suppliers are subject to disruption for a variety of reasons, including epidemics, pandemics, supplier plant shutdowns or slowdowns, transportation delays, work stoppages, utility outages, labor relations, changes in laws or regulations, governmental regulatory and enforcement actions, intellectual property claims against suppliers, financial issues such as a supplier bankruptcy, Technology failures and hazards such as fire, earthquakes, flooding or other natural disasters. Insurance for certain disruptions may not be available, affordable or adequate. The effects of climate-related matters, including extreme weather events, long-term changes in temperature levels and water availability may exacerbate these risks. Such disruption has in the past and could in the future interrupt our ability to manufacture certain products. Any significant disruption could have a material adverse impact on our competitive position.

From time to time customers and others may seek to become suppliers or integrators of products and services that compete with our own or pursue other strategies to disrupt our business model. For example, an affiliate of a customer in our transport refrigeration business produces refrigeration units for shipping containers that compete with our products, and another one of our transport refrigeration customers produces refrigeration units for truck trailers that compete with our refrigeration units. In addition, our customers or existing or future competitors may seek to introduce non-traditional business models or disruptive technologies and products in the industries in which we participate, resulting in increased competition and new dynamics in these industries.

Product and service quality issues could harm customer confidence in our company and our brands. If certain of our product and service offerings do not meet applicable safety standardsstandards, – whichas has beenpreviously the case –occurred, or our customers’ expectations regarding safety or quality, we can experience, and have experienced previously, lost sales and increased costs and we can be exposed, and have previously been exposed, to legal, financial and reputational risks. Actual, potential or perceived product safety concerns could expose us to litigation as well as government enforcement actions, which has also occurred in certain instances. In addition, when our products fail to perform as expected, we have been, and may in the future be, exposed to warranty, product liability, personal injury and other claims.

We are subject to a variety of litigation, legal and compliance risks including, without limitation, claims, lawsuits and/or regulatory enforcement actions relating to breach of contract, cybersecurity and data privacy, employment and labor, environmental and employee health and safety matters, global chemical compliance, intellectual property rights, personal injury, product safety and taxes as well as anti-corruption, competition and securities laws and other laws governing improper business practices. If found responsible in connection with such matters, we could be subject to significant fines, penalties, repayments and other damages (in certain cases, treblemultiple damages) and experience reputational harm.

Global chemical use restrictions related to protection of human health and the environment as well as climate event directives may require additional investments in product designs, resulting in increased manufacturing, production and sourcing costs as well as updates to product safety assessments. These restrictions may also increase our legal obligations regarding remediation of our current and legacy operational sites.

At times, we are involved in disputes with private parties over environmental issues, including litigation over the allocation of cleanup costs, alleged personal injuries and property damage. Existing and future asbestos-related claims could adversely affect our financial condition, results of operations and cash flows. Personal injury lawsuits may involve individual and putative class actions alleging that contaminants originating from our current or former products or operating facilities caused or contributed to medical conditions. Property damage lawsuits may involve claims relating to environmental damage or diminution of real estate values. Even in litigation where we believe our liability is remote, there is a risk that a negative finding or decisionoutcome could have a material adverse effect on our competitive position, results of operations, cash flows or financial condition, in particular with respect to environmental claims in regions where we have, or previously had, significant operations or where certain of our products have been manufactured and used.

As of December 31, 2024,2025, the net carrying value of our goodwill and intangible assets totaled $14.6$15.5 billion and $6.4$6.3 billion, respectively. Our intangible assets primarily consist of customer relationships, patents, service portfoliostrademarks and trademarks.technology. We periodically assess these assets to determine if they are impaired. Significant negative industry or economic trends, disruptions to our business, planned or unexpected significant changes in the use of the assets, and sustained market capitalization declines may result in the impairment of goodwill or intangible assets. Any charges relating to such impairments could have a material adverse impact on our results of operations in the period in which the impairment is recognized.

We have been issued an investment grade credit rating by each of Moody’s Investors Services, Inc. ("Moody's"), and Standard & Poor’s ("S&P") and Fitch Ratings Inc. ("Fitch Ratings"). Nonetheless, anyAny future downgrades could increase our borrowing costs, reduce market capacity for our commercial paper or require the posting of collateral under our derivative contracts. There can be no assurance that we will be able to maintain our credit ratings, and any additional actual or anticipated changes or downgrades, including any announcement that our ratings are under review for a downgrade, may have a negative impact on our liquidity, capital position and access to the capital markets. Additionally, our credit agreements generally provide for an increase in interest rates if the ratings for our debt are downgraded.

In connection with the Separation (including the internal reorganization described previouslyin our previously-filed periodic reports), UTC completed several corporate reorganization transactions involving its subsidiaries which, along with the Distribution, may be subject to various fraudulent conveyance and transfer laws. If, under these laws, a court were to determine that, at the time of the Separation, any entity involved in these reorganization transactions or the Separation: (1) was insolvent, was rendered insolvent by reason of the Separation, or had remaining assets constituting unreasonably small capital, and (2) received less than fair consideration in exchange for the Distribution; or intended to incur, or believed it would incur, debts beyond its ability to pay these debts as they matured, then the court could void the Separation and the Distribution, in whole or in part, as a fraudulent conveyance or transfer. The court could then require our shareowners to return to UTC some or all of the shares of Carrier common stock issued in the Distribution, or require UTC or us, as the case may be, to fund liabilities of the other company for the benefit of creditors. The measure of insolvency will vary depending upon the jurisdiction and the applicable law. Generally, however, an entity would be considered insolvent if the fair value of its assets was less than the amount of its liabilities (including the probable amount of contingent liabilities), or if it incurred debt beyond its ability to repay the debt as it matures. No assurance can be given as to what standard a court would apply to determine insolvency or that a court would determine that we or any of our subsidiaries were solvent at the time of or after giving effect to the Distribution.

Our business, operating results, cash flows and financial condition have in the past been and in the future may be adversely affected by changes in global economic conditions and geopolitical risks and conditions, including climate and energy policies, regulatory changes, credit market conditions, levels of consumer and business confidence, fluctuations in residential, commercial and industrial construction activity, pandemic health issues, natural disasters, commodity prices, energy costs, interest rate fluctuations, inflation, recession, foreign exchange rates, levels of government spending and deficits, trade policies (including tariffs, boycotts and sanctions), military conflicts, acts of terrorism, government instability, actual or anticipated defaults on sovereign debt and other challenges that could affect the global economy. These economic and political conditions affect our business in a number of ways. For example, because we have a number of factories and suppliers in foreign countries, the imposition of tariffs or additional sanctionssanctions, which we continue to monitor and mitigate, as necessary, or unusually restrictive border crossing rules could adversely affect our supply chain, operations and overall business.

There are ongoing threats of war, terrorism or governmental instability in various countries and regions, including those where we do business. In March 2022, we suspended business operations in Russia by ceasing to pursue new business opportunities while continuing to fulfill existing contracts for equipment, service and parts, where possible, in a manner that fully complies with applicable sanctions and trade controls. Our sales, operations and supply chain in Russia and Ukraine are not material to Carrier. However, the military conflict between the two countriescountries, as well as other global conflicts such as the conflict in the Middle East, and attendant geopolitical environment may continue to negatively impact the global economy and major financial markets, and may result in additional increases in commodity prices and supply-chain disruptions, including shortages of materials, higher costs for fuel and freight and increased transportation delays. Uncertainty related to these global economic, capital market and political conditions and events, and the perception that such conditions and events may occur, could have a material adverse effect on our business, results of operations, cash flows and financial condition. Furthermore, the tightening of credit in the capital markets could adversely affect the ability of our customers, including individual end-customers and businesses, to obtain financing for significant purchases and operations, which could result in a decrease in or cancellation of orders for our products and services. Similarly, tightening credit may adversely affect our supply base and increase the potential for one or more of our suppliers to experience financial distress or bankruptcy.

Our business and financial performance is also adversely affected by decreases in the general level of economic activity, such as decreases in business and consumer spending and construction (both residential and commercial as well as remodeling). In addition, our financial performance may be influenced by the production and utilization of transport equipment, including truck production cycles in North America and Europe. Significant changes in these factors have in the past and may in the future have materially adverse impacts on our results of operations or financial condition.

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 and Carrier TransicoldTransicold, among others, that offer innovative heating, ventilating and air conditioning ("HVAC"), refrigerationcooling and cold chain transportation solutions to helpenhance makethe lives we live and the world saferwe and more comfortable.share. 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 twofour segments: HVACClimate Solutions Americas, Climate Solutions Europe, Climate Solutions Asia Pacific, Middle East & Africa and Refrigeration.Climate Solutions Transportation.

Through our performance-driven culture, we anticipate creating long-term shareowner value by investing strategically to strengthen our product position in homes, buildings and across the cold chain in order to drive profitable growth. We believe our business segments are well positioned to benefit from favorable secular trends, including the mega-trends of urbanization, population growth and demographic shifts, food security and safety, digitalization,electrification, globalincreasing connectivitydemand for climate control and energyaccelerated efficiency.digitalization. Coupled with our industry-leading brands and track record of innovation, we continue to provide market-leading solutions for our customers.

This discussion summarizes the significant factors affecting our consolidated results of operations, financial condition and liquidity for the year ended December 31, 2024,2025, compared with December 31, 2023.2024. This discussion should be read in conjunction with Item 8, the Consolidated Financial Statements and the accompanying Notes to the Consolidated Financial Statements in this Annual Report. A detailed discussion of the year ended December 31, 2023,2024, compared with December 31, 2022,2023, is not included herein and can be found in the Management's Discussion and Analysis of Financial Condition and Results of Operations section in the recast of the Company's 2023 Annual Report,Report on Form 10-K for the year ended December 31, 2024, included within Exhibit 99.1 to the Current Report on Form 8-K filed with the SEC on FebruaryJuly 6,29, 2024,2025, under the heading "Results of Operations," which is incorporated herein by reference.

For the year ended December 31, 2024,2025, Net sales was $22.5$21.7 billion, ana 19%3% increasedecrease compared with the same period of 2023.2024. The components of the year-over-year change were as follows:

For the year ended December 31, 2024,2025, gross margin was $6.0$5.6 billion, a 16%6% increasedecrease compared with the same period of 2023.2024. The components were as follows:

For the year ended December 31, 2024,2025, Selling, general and administrative expenses were $3.2$3.1 billion, a 23%3% increasedecrease compared with the same period of 2023.2024. The increasedecrease is primarily duerelates to incrementalproductivity expensesinitiatives associated with our portfolio transformation and synergies associated with the VCSintegration Business sinceof the dateVCS of acquisition.Business. In addition, foreign currency translation further benefitted results. These benefits were partially offset by higher compensation and other employee-related costscosts. furtherIn contributed toaddition, the increase. The current year also included $95$56 million of acquisition and divestiture-related costs compared with $123$95 million during the year ended December 31, 2023.2024.

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 energyproduct efficiencyinnovations 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 year ended December 31, 2024,2025, Equity method investment net earnings were $231$229 million, a 9%1% increasedecrease compared with the same period of 2023.2024. The increasedecrease was primarily driven by higherlower earnings in HVAC joint ventures acrosswithin allour regions.Climate TheSolutions increaseAmericas 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. In addition, prior year results include a $16 million benefit recognized in connection with a favorable tax ruling at a minority owned joint venture.segment.

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 year ended December 31, 2024,2025, we completedfinalized the working capital and other adjustments provided in the stock purchase agreement governing the sale of CCR and recognized a gaingains on the sale of $318several million.equity Inmethod 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 expected cash outflows of the Euro-denominated purchase price.investments.

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 year ended December 31, 2024,2025, interest expense was $580$458 million, a 90%21% increasedecrease compared with the same period of 2023.2024. Consistent with our capital allocation strategy, we reduced our outstanding debt by approximately $3 billion over the course of 2024 and repaid an additional $1.2 billion during 2025. During 2024, we redeemed $1.0 billion aggregate principal amount of USD-denominated 5.80% notes due in 2025 and redeemed €750 million aggregate principal amount of 4.375% Euro-denominated notes due 2025 with the proceeds from the issuance of €750 million aggregate principal amount of 3.625% Euro-denominated notes due 2037. In addition, we completed tender offers to repurchase approximately $1.1 billion aggregate principal which included $125 million of notes due 2034, $350 million of notes due 2054, and approximately $600 million of notes due 2050. Combined, we incurred make-whole premiums of $14 million in Interest expense, wrote off $17 million of unamortized deferred financing costs in Interest expense and recognized a net gain of $97 million in Interest income. During 2023, we entered into several financing arrangements in connection with the acquisition of the VCS Business and capitalized $105 million of deferred financing costs. As a result, we amortized $55 million of deferred financing costs in Interest expense, of which $47 million related to our senior unsecured bridge term loan facility (the "Bridge Loan").

The effective tax rate for the year ended December 31, 2024,2025 was higherlower than the Company's statutory U.S. federal income tax rate. The increasedecrease was primarily driven by a net tax chargebenefit of $650$64 million relatedfrom changes to the German effective rate and a statutory reduction to the German corporate tax rate enacted during the year, a tax benefit of $49 million from the re-organization of thea VCSJapanese Businesssubsidiary and a non-deductible loss of $86$16 million ontax thebenefit 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, partially offsetgenerated by the lower effective tax rate on the $318 million gain on the salepurchase of CCR and $44 million of foreigninvestment tax credits generatedfrom anda utilized in the current year.third-party.

The effective tax rate for the year ended December 31, 2023,2024 was higher than the Company's statutory U.S. federal income tax rate. The increase was primarily driven by a net tax charge of $27$650 million relatingrelated to thea re-organization and disentanglement of the CCRVCS businesses in advance of the planned divestiture. In addition, the effective tax rate was impacted by the recognition of a deferred tax liability for withholding tax of $19 million on repatriated foreign earnings, non-deductible divestiture-related costsBusiness and a non-deductible loss of $96$86 million on the mark-to-market valuation of ourthe Company's window forward contracts associated with the expected cash outflows of the Euro-denominated purchase price of the VCS Business. These amounts were partially offset by the lower effective tax rate on the $318 million gain on the sale of CCR and $44 million of foreign tax credits generated and utilized in the current year.

We conducthave ourfour operations through two reportableoperating segments:

•TheClimate HVACSolutions segmentAmericas provides products, controls, services and solutions to meet the heating, cooling and ventilation needs of residential and commercial customers in North and South America while enhancing building performance, health, energy efficiency and sustainability.

•TheClimate RefrigerationSolutions segmentTransportation includes global transport refrigeration and monitoring products, services and digital solutions for trucks, trailers, shipping containers, intermodal and rail.

For the year ended December 31, 2024,2025, Net sales inwere our HVAC segment was $19.1$10.5 billion, a 26%1% increasedecrease compared with the same period of 2023.2024. The components of the year-over-year change were as follows:

The organic decrease in Net sales of 1% was primarily driven by volume reductions within certain end-markets compared with the prior year. TransportLower resultsvolume decreasedin our residential business (down 8%9%) compared to the prior yearwas primarily due to lowerreduced end-market demand and distributor destocking. In addition, lower volume in Northour America.light Thecommercial reductionbusiness was(down 20%) further impacted segment results. These results were partially offset by higher volumesgrowth in Asiaour and Europe. Results in the Containercommercial business (up 24%23%) was primarily driven by strongongoing end-marketcustomer demand and improved pricing.price.

For the year ended December 31, 2024,2025, OperatingSegment operating profit in our Refrigeration segment was $715$2.2 million,billion, a 67%7% increasedecrease compared with the same period of 2023.2024. The components of the year-over-year change were as follows:

In February 2026, the U.S. Supreme Court ruled that tariffs imposed under the International Emergency Economic Powers Act ("IEEPA") were unauthorized. We were the importer of record for certain products previously subject to IEEPA tariffs. In March 2026, the U.S. Court of International Trade ordered U.S. Customs and Border Protection to refund IEEPA tariffs collected;previously however,collected. the refund process and timing remain uncertain, and the order may be subject to further government action or challenge. Accordingly, asAs of March 31, June 30, 2026, we have not recorded any benefit related to potential refunds of IEEPA tariffs paid.paid, as such amounts were not considered probable and reasonably estimable.

On December 16, 2025, we entered into a purchase agreement to sell our Riello business ("Riello") to Ariston Group with expected gross proceeds of approximately $430 million. Riello, predominantly reported in our Climate Solutions Europe segment, is a leading international manufacturer that designs, produces and integrates a comprehensive portfolio of thermal solutions including burners, boilers, heat pumps, cooling systems and aftermarket services for residential, commercial and industrial applications, with a strong focus on energy efficiency, innovation and a global distribution network. ThisWe transactionrecognized isan expectedimpairment tocharge closeof $46 million recorded in Other income (expense), net on the firstaccompanying halfUnaudited Condensed Consolidated Statement of 2026Operations andduring isthe subjectthree tomonths customaryended closingJune conditions30, and2026. regulatoryThe approvals.sale of Riello was completed on July 1, 2026.

Three Months Ended MarchJune 31,30, 2026 Compared with the Three Months Ended MarchJune 31,30, 2025

For the three months ended MarchJune 31,30, 2026, Net sales were $5.3$6.4 billion, a 2%4% increase compared with the same period of 2025. The components of the year-over-year change were as follows:

Organic sales for the three months ended MarchJune 31,30, 2026, decreasedincreased by 1%3% compared with the same period of 2025. The organic decreaseincrease was primarily due to our Climate Solutions Americas segment as reducedimproved end-market demand resulted in ourhigher residential business impacted the segment.volumes. In addition, lowerimproved end-market demand in both our Climate Solutions Europe and Climate Solutions Asia Pacific, Middle East & Africa segments further impactedbenefited overall results. These results were partially offset by improved end-market demandResults in Climate Solutions Transportation.Transportation were flat. Refer to "Segment Review" below for a discussion of Net sales by segment.

For the three months ended MarchJune 31,30, 2026, gross margin was $1.2$1.7 billion, a 14%2% decrease compared with the same period of 2025. The components were as follows:

Gross margin decreased by $201$41 million compared with the three months ended MarchJune 31,30, 2025, primarily due to lowerhigher volumesinput incosts, certainincluding end-marketsthe within eachimpact of ourtariffs, segments.and Theunfavorable associatedbusiness under-absorption, in addition to an increase in costs associated with announced restructuring initiatives, further impacted our results.mix. These amounts were partially offset by higher volumes in certain end-markets, pricing improvementsend-markets and our continued focus on productivity initiatives. As a result, gross margin as a percentage of Net sales decreased by 440170 basis points compared with the same period of 2025.

For the three months ended MarchJune 31,30, 2026, operating expenses, including Equity method investment net earnings, were $985$903 million, a 20.7%4% increase compared with the same period of 2025. The components were as follows:

For the three months ended MarchJune 31,30, 2026, Selling, general and administrative expenses were $861$810 million, anprimarily 18% increaseflat compared with the same period of 2025. TheResults increaseinclude primarilysavings relatesfrom tocost anreduction increase in costs associated with announced restructuring initiatives. In addition, higher compensation, commissioninitiatives and employee-relatedlower costsmanaged further impacted our results.expenses. These costsbenefits were partiallylargely offset by lowerhigher consultinginvestment spending and otherincentive managedcompensation expenses. The current period also included $14 million of acquisition and divestiture-related costs compared with $6 million during the three months ended March 31, 2025.costs.

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 MarchJune 31,30, 2026, Equity method investment net earnings were $31$58 million, a 30%26% decrease compared with the same period of 2025. The decrease was primarily driven by lower earnings in joint ventures within our Climate Solutions Americas.Americas and Climate Solutions Asia Pacific, Middle East & Africa segments.

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, 2026, our Climate Solutions Europe segment recorded a $46 million impairment on its Riello business. During the three months ended June 30, 2025, we finalized working capital and other adjustments provided in the stock purchase agreement governing the sale of CCR.

For the three months ended MarchJune 31,30, 2026, Non-operating income (expense), net was $89$104 million, a 10%14% increase compared with the same period of 2025. The components were as follows:

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 MarchJune 31,30, 2026, Interest expense was $111$126 million, a 1%10% decreaseincrease compared with the same period of 2025. DuringThe increase is a result of commercial paper borrowings outstanding during the three months ended MarchJune 31,30, 2025, we repaid $1.2 billion, consistent with our capital allocation strategy.2026.

The Company accounts for income tax expense in accordance with ASC 740, Income Taxes ("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 (56.5)%25.0% for the three months ended MarchJune 31,30, 2026, compared with 20.3%20.0% for the three months ended MarchJune 31,30, 2025. The year-over-year decreaseincrease was primarily driven by athe net $99$46 million taxnon-deductible benefitimpairment fromcharge theon partialRiello release ofand a valuation$10 allowancemillion increase in tax expense associated with our operations in a Swisshigher subsidiaryGerman and a favorable settlement of $18 million related to a state incomeeffective tax audit,rate both in the current period. In addition,during the three months ended MarchJune 31,30, 2026. The three months ended June 30, 2025, included ana $8 millionstate tax benefit generatedof by$6 million related to the purchaseutilization of investmenta capital loss and a tax creditsbenefit of $6 million from athe third-party.conclusion of the UTC 2020 U.S. Internal Revenue Service ("IRS") tax audit.

Three Months Ended MarchJune 31,30, 2026 Compared with Three Months Ended MarchJune 31,30, 2025

For the three months ended MarchJune 31,30, 2026, Net sales were $2.5$3.4 billion, a 3%4% decreaseincrease compared with the same period of 2025. The components of the year-over-year change were as follows:

The organic decreaseincrease in Net sales of 3%4% was driven by volume reductionsgrowth within certain end-markets compared with the prior year. Lower volumeGrowth in our residential business (downup 12%9%) was primarily driven by reduced end-market demand. These results were partially offset by growthimprovements in our commercial business (up 4%) primarily driven by ongoing customerend-market demand and improved price.pricing. In addition, higher volume in our light commercial business (up 9%10%) further benefited segment results. These results were partially offset by volume reductions in our commercial business (down 6%) driven by timing of customer deliveries offset by improved price.

For the three months ended MarchJune 31,30, 2026, Segment operating profit was $373$823 million, a 35%6% decrease compared with the same period of 2025. The components of the year-over-year change were as follows:

The segment operational profit decrease of 35%10% was primarily attributable to volumehigher reductionsinput incosts, certainincluding end-marketsthe impact of tariffs, and unfavorable product mix compared with the prior year. TheIn associated under-absorption, in addition toaddition, higher selling, general and administrative expenses and lower earnings from equity method investments,investments further impacted the segment. These amounts were partially offset by favorable productivity initiatives.initiatives, improved price and higher volumes in certain end-markets. Amounts reported in other represent adjustments related to the timing and classification of amounts recognized in operating profit.

For the three months ended MarchJune 31,30, 2026, Net sales were $1.3 billion, ana 11%6% increase compared with the same period of 2025. The components of the year-over-year change were as follows:

OrganicThe organic increase in Net sales wereof flat3% aswas a result of ongoingmixed challengesdemand in certainacross end-markets compared with the prior year. Results in our residential and light commercial business increased (up 2%7%) as a result of higher volumes across the region partially offset by targeted pricing promotions. Results in our commercial business decreased (down 5%6%) due to lower volumes across the region.

For the three months ended MarchJune 31,30, 2026, Segment operating profit was $89$95 million, a 15%4% decrease compared with the same period of 2025. The components of the year-over-year change were as follows:

The segment operational profit decrease of 29%7% was primarily attributable to volumeproduct reductions and associated under-absorptionmix in certain end-markets compared with the prior year. In addition, price promotions,promotions and higher selling, general and administrative expenses as well as warranty-related charges further impacted the segment. These amounts were partially offset by continuedfavorable productivity initiatives and higher volumevolumes in certain end-markets. Amounts reported in other represent the benefit of a legal reserve no longer required.

For the three months ended MarchJune 31,30, 2026, Net sales were $834$917 million, a 1%4% increase compared with the same period of 2025. The components of the year-over-year change were as follows:

The organic decreaseincrease in Net sales of 1%4% was driven by volume reductionsimprovements within certain end-markets compared with the prior year. Results in China decreased (down 13%14%) as end-markets experienced economic challenges impacting both demand and price. These results were predominantlymore than offset by ongoing end-market demand and improved price in the region's remaining geographies.

For the three months ended MarchJune 31,30, 2026, Segment operating profit was $81$108 million, a 33%20% decrease compared with the same period of 2025. The components of the year-over-year change were as follows:

The segment operational profit decrease of 36% was primarily attributable to unfavorable product mix and volume reductions in certain end-markets compared with the prior year. TheIn associated under-absorption, in addition to unfavorable product mix andaddition, higher selling, general and administrative expenses,expenses and lower earnings from equity method investments further impacted segmentthe results.segment. These reductions were partially offset by favorable productivity initiatives.initiatives and higher volumes in certain end-markets. Amounts reported in other represent a gain on sale of land.

For the three months ended MarchJune 31,30, 2026, Net sales were $713$738 million, a 10%2% increase compared to the same period of 2025. The components of the year-over-year change were as follows:

The organic increase inOrganic Net sales ofwere 5% wasflat primarily driven by volumemixed growthend-market within certain end-marketsdemand compared with the prior year. Container results increased (up 38%39%) due to ongoing end-market demand. These results were partially offset by lower volume in our global truck and trailer business (down 7%13%) primarily due to reduced end-market demand in allNorth regions.America and Europe partially offset by improvements in Asia.

For the three months ended MarchJune 31,30, 2026, Segment operating profit was $101$118 million, aan 4%8% increasedecrease compared with the same period of 2025. The components of the year-over-year change were as follows:

The segment operational profit decrease of 1%10% was primarily driven by unfavorable product mix and lower volumes in certain end-markets compared with the prior year. In addition, costs associated with warranty-related issues and higher selling, general and administrative costs further impacted the segment. These amounts were partially offset by favorable productivity initiatives.initiatives In addition,and higher volumes in certain end-markets provided additional benefit in the segment but led to unfavorable mix.end-markets.