CARRIER GLOBAL Corp (CARR)

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 and Carrier Transicold that offer innovative heating, cooling and cold chain solutions to enhance the lives we live and the world we 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 four segments: Climate Solutions Americas, Climate Solutions Europe, Climate Solutions Asia Pacific, Middle East & Africa and 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, electrification, increasing demand for climate control and accelerated digitalization. Coupled with our industry-leading brands and track record of innovation, we continue to provide market-leading solutions for our customers.

Our worldwide operations are affected by global and regional industrial, economic and political factors, trade policies and trends. They are 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.

Through a combination of supply‑chain adjustments, productivity initiatives and pricing actions, we fully mitigated the 2025 impact of tariffs implemented in 2025. While these tariffs did not have a material impact on our prior year results, in 2026 we continue to evaluate and assess any potential exposure to the impacts of these tariffs, including impacts to supply chains and cost structures.

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 previously collected. As of June 30, 2026, we have not recorded any benefit related to potential refunds of IEEPA tariffs paid, as such amounts were not considered probable and reasonably estimable.

On April 2, 2026, updated Section 232 tariffs applicable to steel, aluminum and copper were announced. We expect to mitigate the 2026 impact by leveraging similar strategies deployed during 2025 including supply chain changes, operational cost reduction and pricing actions.

To date, neither the IEEPA tariffs implemented during 2025 nor the Section 232 tariffs have had a material impact on our business, and we will continue to monitor developments in U.S. tariff policy and assess the impact of any changes on our business.

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Recent Developments

Sale of Riello Business

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. We recognized an impairment charge of $46 million recorded in Other income (expense), net on the accompanying Unaudited Condensed Consolidated Statement of Operations during the three months ended June 30, 2026. The sale of Riello was completed on July 1, 2026.

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 2025 Form 10-K, we describe the significant accounting estimates and policies used in the preparation of the accompanying Unaudited Condensed Consolidated Financial Statements. There have been no significant changes in our critical accounting estimates.

RESULTS OF OPERATIONS

Three Months Ended June 30, 2026 Compared with the Three Months Ended June 30, 2025

The following represents our consolidated net sales and operating results:

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Net Sales

For the three months ended June 30, 2026, Net sales were $6.4 billion, a 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 June 30, 2026, increased by 3% compared with the same period of 2025. The organic increase was primarily due to our Climate Solutions Americas segment as improved end-market demand resulted in higher volumes. In addition, improved end-market demand in both our Climate Solutions Europe and Climate Solutions Asia Pacific, Middle East & Africa segments further benefited overall results. Results in Climate Solutions Transportation were flat. Refer to "Segment Review" below for a discussion of Net sales by segment.

Gross Margin

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

Gross margin decreased by $41 million compared with the three months ended June 30, 2025, primarily due to higher input costs, including the impact of tariffs, and unfavorable business mix. These amounts were partially offset by higher volumes in certain end-markets and our continued focus on productivity initiatives. As a result, gross margin as a percentage of Net sales decreased by 170 basis points compared with the same period of 2025.

Operating Expenses

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

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For the three months ended June 30, 2026, Selling, general and administrative expenses were $810 million, primarily flat compared with the same period of 2025. Results include savings from cost reduction initiatives and lower managed expenses. These benefits were largely offset by higher investment spending and incentive compensation costs.

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 product innovations and 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, 2026, Equity method investment net earnings were $58 million, a 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 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.

Non-Operating Income (Expense), net

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

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ITEM 7. 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 and Carrier Transicold, among others, that offer innovative heating, cooling and cold chain solutions to enhance the lives we live and the world we 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 four segments: Climate Solutions Americas, Climate Solutions Europe, Climate Solutions Asia Pacific, Middle East & Africa and 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, electrification, increasing demand for climate control and accelerated digitalization. Coupled with our industry-leading brands and track record of innovation, we continue to provide market-leading solutions for our customers.

Our worldwide operations are affected by global and regional industrial, economic and political factors, trade policies and trends. They are 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.

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We continue to actively monitor evolving macroeconomic conditions and recent trade policy announcements. Based on our updated analysis, we fully mitigated the impact of tariffs during 2025 through a combination of supply-chain adjustments, productivity initiatives and approximately $200 million of incremental product pricing actions. To date, tariffs have not had a material impact on our business and we are deploying additional strategies, including cost containment measures, to limit future exposure in the current market environment.

Significant Events

Sale of Riello Business

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. This transaction is expected to close in the first half of 2026 and is subject to customary closing conditions and regulatory approvals.

Portfolio Transformation

During 2024, we completed several activities designed to simplify our business portfolio, transforming it into a pure-play climate and energy solutions provider. On January 2, 2024, we acquired the climate solutions business (the "VCS Business") of Viessmann Group GmbH & Co. KG (together with its affiliates, “Viessmann”). The VCS Business, primarily reported in the Climate Solutions Europe segment, is a premier residential and light commercial heating, ventilating and air conditioning ("HVAC") provider in Europe that expanded our portfolio to offer a global, comprehensive suite of sustainable and innovative building and energy management solutions. In addition, we divested our Commercial and Residential Fire, Access Solutions and Industrial Fire businesses which were historically reported in our Fire & Security segment. The transactions represented a single disposal plan to separately divest multiple businesses over different reporting periods and met the criteria to be presented as discontinued operations. We also divested our Commercial Refrigeration business (“CCR”) during 2024. CCR, which was historically reported in the Climate Solutions Transportation segment (previously named Refrigeration), did not meet the criteria to be presented as discontinued operations.

Segment Reorganization

As a result of our portfolio transformation, we revised our reportable segments to better align our reporting structure with our business strategy, resource allocation and performance assessment. Under the revised segment structure, we have three new regional HVAC operating segments. Combined with the existing Climate Solutions Transportation operating segment, the four operating segments also serve as our reportable segments. This model is designed to create a simplified, more focused and customer-centric organization across the globe. Each segment reports through separate management teams which regularly review their operating results with our Chief Operating Decision Maker (the "CODM") determined in accordance with applicable accounting guidance. In connection with the revised structure, the CODM changed the measure used to evaluate segment profitability from Operating profit to Segment operating profit. All prior period comparative information has been recast to reflect the revised segment structure.

RESULTS OF OPERATIONS

This discussion summarizes the significant factors affecting our consolidated results of operations, financial condition and liquidity for the year ended December 31, 2025, compared with December 31, 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, 2024, compared with December 31, 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 Annual 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 July 29, 2025, under the heading "Results of Operations," which is incorporated herein by reference.

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Year Ended December 31, 2025 Compared with Year Ended December 31, 2024

The following represents our consolidated net sales and operating results:

Net Sales

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

Organic sales for the year ended December 31, 2025, decreased by 1% compared with the same period of 2024. The organic decrease was primarily due to our Climate Solutions Americas segment as reduced demand in certain end-markets resulted in lower volumes. In addition, lower end-market demand in both Climate Solutions Europe and Climate Solutions Asia Pacific, Middle East & Africa further impacted results. These amounts were partially offset by improved end-market demand in our Climate Solutions Transportation segment. Refer to "Segment Review" below for a discussion of Net sales by segment.

Gross Margin

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

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Gross margin decreased by $357 million compared with the year ended December 31, 2024, primarily due to lower volumes in certain end-markets partially offset by our continued focus on productivity initiatives. As a result, gross margin as a percentage of Net sales decreased by 70 basis points compared with the same period of 2024. The prior period included inventory step-up and backlog amortization resulting from the recognition of acquired assets of the VCS Business at fair value which are now fully amortized. These costs had a 130 basis point unfavorable impact on the prior period gross margin as a percentage of Net sales.

Operating Expenses

For the year ended December 31, 2025, operating expenses, including Equity method investment net earnings, was $3.5 billion, a 4% increase compared with the same period of 2024. The components were as follows:

For the year ended December 31, 2025, Selling, general and administrative expenses were $3.1 billion, a 3% decrease compared with the same period of 2024. The decrease relates to productivity initiatives associated with our portfolio transformation and synergies associated with the integration of the VCS Business. In addition, foreign currency translation further benefitted results. These benefits were partially offset by higher compensation and other employee-related costs. In addition, the current year also included $56 million of acquisition and divestiture-related costs compared with $95 million during the year ended December 31, 2024.

Research and development costs relate to new product development and new technology innovation. Due to the variable nature of program development schedules, y

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