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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 ____________________________________ 
FORM 10-Q
____________________________________ 
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020September 30, 2023
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                 to                 
Commission file number 001-39221
____________________________________ 
OTIS WORLDWIDE CORPORATION
(Exact name of registrant as specified in its charter)
____________________________________ 
Delaware83-3789412
(State or other jurisdiction of incorporation)(I.R.S. Employer Identification No.)
One Carrier Place, Farmington, Connecticut 06032
(Address of principal executive offices, including zip code)

(860) 233-6847logo_otis (2).jpg
(Registrant's telephone number, including area code)
____________________________________ 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange
on which registered
Common Stock ($0.01 par value)OTISNew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý.    No  ¨.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý.    No  ¨.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated FilerýAccelerated Filer¨
Non-accelerated Filer¨Smaller Reporting Company☐
Emerging Growth Company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ¨
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐.    No  ý.

At April 30, 2020 there were 433,079,455 shares of Common Stock outstanding.
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OTIS WORLDWIDE CORPORATION
CONTENTS OF QUARTERLY REPORT ON FORM 10-Q
Quarter Ended March 31, 2020
Page
4
Item 1. Unaudited Financial Statements:
4
Condensed Combined Statements of Operations for the quarters ended March 31, 2020 and 2019
5
Condensed Combined Statements of Comprehensive Income for the quarters ended March 31, 2020 and 2019
6
Condensed Combined Balance Sheets at March 31, 2020 and December 31, 2019
7
Condensed Combined Statements of Changes in Equity for the quarters ended March 31, 2020 and 2019
8
Condensed Combined Statements of Cash Flows for the quarters ended March 31, 2020 and 2019
9
Notes to Condensed Combined Financial Statements
10
Report of Independent Registered Public Accounting Firm
26
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
27
Item 3. Quantitative and Qualitative Disclosures About Market Risk
38
Item 4. Controls and Procedures
38
41
Item 1. Legal Proceedings
41
Item 1A. Risk Factors
41
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
41
Item 6. Exhibits
41
45

Otis Worldwide Corporation and its subsidiaries' names, abbreviations thereof, logos, and product and service designators are all either the registered or unregistered trademarks or tradenames of Otis Worldwide Corporation and its subsidiaries. Names, abbreviations of names, logos, and products and service designators of other companies are either the registered or unregistered trademarks or tradenames of their respective owners. As used herein, the terms "we," "us," "our," "the Business," or "Otis," unless the context otherwise requires, mean Otis Worldwide Corporation and its subsidiaries. References to internet websites in this Form 10-Q are provided for convenience only. Information available through these websites is not incorporated by reference into this Form 10-Q.
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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements
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OTIS WORLDWIDE CORPORATION
(Exact name of registrant as specified in its charter)
____________________________________ 
Delaware83-3789412
(State or other jurisdiction of incorporation)(I.R.S. Employer Identification No.)
One Carrier Place, Farmington, Connecticut 06032
(Address of principal executive offices, including zip code)

(860) 674-3000
(Registrant's telephone number, including area code)
____________________________________ 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange
on which registered
Common Stock ($0.01 par value)OTISNew York Stock Exchange
0.000% Notes due 2023OTIS/23New York Stock Exchange
0.318% Notes due 2026OTIS/26New York Stock Exchange
0.934% Notes due 2031OTIS/31New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý.    No  ¨.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý.    No  ¨.
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated FilerýAccelerated Filer¨
Non-accelerated Filer¨Smaller Reporting Company☐
Emerging Growth Company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐.    No  ý.

As of October 16, 2023 there were 409,258,823 shares of Common Stock outstanding.

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OTIS WORLDWIDE CORPORATION
CONTENTS OF QUARTERLY REPORT ON FORM 10-Q
Quarter Ended September 30, 2023
Page
4
Item 1. Financial Statements:
4
Condensed Consolidated Statements of Operations for the quarters ended September 30, 2023 and 2022
4
Condensed Consolidated Statements of Operations for thenine months ended September 30, 2023 and 2022
5
Condensed Consolidated Statements of Comprehensive Income for the quarters and nine months ended September 30, 2023 and 2022
6
Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022
7
Condensed Consolidated Statements of Changes in Equity for the quarters ended September 30, 2023 and 2022
8
Condensed Consolidated Statements of Changes in Equity for the nine months ended September 30, 2023 and 2022
9
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022
10
Notes to Condensed Consolidated Financial Statements
11
Report of Independent Registered Public Accounting Firm
29
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
30
Item 3. Quantitative and Qualitative Disclosures About Market Risk
44
Item 4. Controls and Procedures
44
47
Item 1. Legal Proceedings
47
Item 1A. Risk Factors
47
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
47
Item 5. Other Information
47
Item 6. Exhibits
48
49

Otis Worldwide Corporation's and its subsidiaries' names, abbreviations thereof, logos, and product and service designators are all either the registered or unregistered trademarks or tradenames of Otis Worldwide Corporation and its subsidiaries. Names, abbreviations of names, logos, and products and service designators of other companies are either the registered or unregistered trademarks or tradenames of their respective owners. As used herein, the terms "we," "us," "our," "the Company" or "Otis," unless the context otherwise requires, mean Otis Worldwide Corporation and its subsidiaries. References to Internet websites in this Form 10-Q are provided for convenience only. Information available through these websites is not incorporated by reference into this Form 10-Q.
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PART I – FINANCIAL INFORMATION

Item 1.    Financial Statements

OTIS WORLDWIDE CORPORATION
CONDENSED COMBINEDCONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) 
 Quarter Ended March 31,
(amounts in millions, except per share amounts)20202019
Net sales:
Product sales$1,123  $1,271  
Service sales1,843  1,830  
2,966  3,101  
Costs and expenses:
Cost of products sold914  1,060  
Cost of services sold1,155  1,140  
Research and development38  39  
Selling, general and administrative465  441  
2,572  2,680  
Other (expense) income, net(65) (6) 
Operating profit329  415  
Non-service pension benefit(3) (11) 
Interest expense, net5  1  
Income from operations before income taxes327  425  
Income tax expense125  125  
Net income202  300  
Less: Noncontrolling interest in subsidiaries' earnings37  27  
Net income attributable to Otis Worldwide Corporation$165  $273  
Earnings Per Share of Common Stock - Basic and Diluted:
Net income attributable to Otis Worldwide Corporation$0.38  $0.63  
Number of Basic and Diluted shares outstanding433.1  433.1  

 Quarter Ended September 30,
(dollars in millions, except per share amounts; shares in millions)20232022
Net sales:
Product sales$1,435 $1,447 
Service sales2,088 1,897 
3,523 3,344 
Costs and expenses:
Cost of products sold1,195 1,208 
Cost of services sold1,282 1,165 
Research and development36 37 
Selling, general and administrative452 417 
2,965 2,827 
Other income (expense), net13 12 
Operating profit571 529 
Non-service pension cost (benefit)— 1 
Interest expense (income), net39 35 
Net income before income taxes532 493 
Income tax expense137 143 
Net income395 350 
Less: Noncontrolling interest in subsidiaries' earnings19 26 
Net income attributable to Otis Worldwide Corporation$376 $324 
Earnings per share (Note 2):
Basic$0.92 $0.77 
Diluted$0.91 $0.77 
Weighted average number of shares outstanding:
     Basic shares410.8418.5
     Diluted shares413.7421.2

See accompanying Notes to Condensed CombinedConsolidated Financial StatementsStatements.
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OTIS WORLDWIDE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

 Nine Months Ended September 30,
(dollars in millions, except per share amounts; shares in millions)20232022
Net sales:
Product sales$4,346 $4,403 
Service sales6,243 5,843 
10,589 10,246 
Costs and expenses:
Cost of products sold3,621 3,689 
Cost of services sold3,843 3,597 
Research and development107 112 
Selling, general and administrative1,386 1,315 
8,957 8,713 
Other income (expense), net32 9 
Operating profit1,664 1,542 
Non-service pension cost (benefit)1 2 
Interest expense (income), net109 107 
Net income before income taxes1,554 1,433 
Income tax expense400 382 
Net income1,154 1,051 
Less: Noncontrolling interest in subsidiaries' earnings71 95 
Net income attributable to Otis Worldwide Corporation$1,083 $956 
Earnings per share (Note 2):
Basic$2.62 $2.27 
Diluted$2.60 $2.25 
Weighted average number of shares outstanding:
Basic shares412.6421.3
Diluted shares415.8424.3

See accompanying Notes to Condensed Consolidated Financial Statements.
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OTIS WORLDWIDE CORPORATION
CONDENSED COMBINEDCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

Quarter Ended March 31,
(dollars in millions)20202019
Net income$202  $300  
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments(122) 35  
Pension and postretirement benefit plan adjustments1  (22) 
Change in unrealized cash flow hedging11  —  
Other comprehensive income (loss), net of tax(110) 13  
Comprehensive income92  313  
Less: Comprehensive income attributable to noncontrolling interest(31) (26) 
Comprehensive income attributable to Otis Worldwide Corporation$61  $287  
See accompanying Notes to Condensed Combined Financial Statements
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OTIS WORLDWIDE CORPORATION
CONDENSED COMBINED BALANCE SHEETS
(Unaudited)
(dollars in millions)March 31, 2020December 31, 2019
Assets
Cash and cash equivalents$1,207  $1,446  
Accounts receivable (net of allowance for expected credit losses of $113 and $83)2,888  2,861  
Contract assets, current491  529  
Inventories, net599  571  
Other assets, current329  251  
Total Current Assets5,514  5,658  
Future income tax benefits428  373  
Fixed assets1,776  1,803  
Less: Accumulated depreciation(1,088) (1,082) 
Fixed assets, net688  721  
Operating lease right-of-use assets

535  535  
Intangible assets, net462  490  
Goodwill1,608  1,647  
Other assets289  263  
Total Assets$9,524  $9,687  
Liabilities and (Deficit) Equity
Short-term borrowings$67  $34  
Accounts payable1,102  1,331  
Accrued liabilities1,645  1,739  
Contract liabilities, current2,541  2,270  
Total Current Liabilities5,355  5,374  
Long-term debt6,258  5  
Future pension and postretirement benefit obligations579  590  
Operating lease liabilities

379  386  
Future income tax obligations839  695  
Other long-term liabilities303  311  
Total Liabilities13,713  7,361  
Commitments and contingent liabilities (Note 16)
Redeemable noncontrolling interest95  95  
UTC Net (Deficit) Investment:
UTC Net (Deficit) Investment(3,959) 2,458  
Accumulated other comprehensive loss(862) (758) 
Total UTC Net (Deficit) Investment(4,821) 1,700  
Noncontrolling interest537  531  
Total (Deficit) Equity(4,284) 2,231  
Total Liabilities and (Deficit) Equity$9,524  $9,687  
Quarter Ended September 30,Nine Months Ended September 30,
(dollars in millions)2023202220232022
Net income$395 $350 $1,154 $1,051 
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments33 151 (71)56 
Pension and postretirement benefit plan adjustments— 2 — 6 
Change in unrealized cash flow hedging2 (4)(1)(4)
Other comprehensive income (loss), net of tax35 149 (72)58 
Comprehensive income (loss), net of tax430 499 1,082 1,109 
Less: Comprehensive (income) loss attributable to noncontrolling interest(13)(7)(55)30 
Comprehensive income attributable to Otis Worldwide Corporation$417 $492 $1,027 $1,139 

See accompanying Notes to Condensed CombinedConsolidated Financial StatementsStatements.
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OTIS WORLDWIDE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

(dollars in millions)September 30, 2023December 31, 2022
Assets
Cash and cash equivalents$1,636 $1,189 
Accounts receivable (net of allowance for expected credit losses of $126 and $152)3,455 3,357 
Contract assets733 664 
Inventories624 617 
Other current assets301 316 
Total Current Assets6,749 6,143 
Future income tax benefits290 285 
Fixed assets (net of accumulated depreciation of $1,196 and $1,151)708 719 
Operating lease right-of-use assets417 449 
Intangible assets, net336 369 
Goodwill1,547 1,567 
Other assets343 287 
Total Assets$10,390 $9,819 
Liabilities and Equity (Deficit)
Short-term borrowings and current portion of long-term debt$585 $670 
Accounts payable1,655 1,717 
Accrued liabilities1,725 1,794 
Contract liabilities2,784 2,662 
Total Current Liabilities6,749 6,843 
Long-term debt6,822 6,098 
Future pension and postretirement benefit obligations390 392 
Operating lease liabilities293 315 
Future income tax obligations258 279 
Other long-term liabilities488 556 
Total Liabilities15,000 14,483 
Commitments and contingent liabilities (Note 16)
Redeemable noncontrolling interest123 135 
Shareholders' Equity (Deficit):
Common Stock and additional paid-in capital198 162 
Treasury Stock(2,155)(1,575)
Accumulated deficit(2,183)(2,865)
Accumulated other comprehensive income (loss)(648)(592)
Total Shareholders' Equity (Deficit)(4,788)(4,870)
Noncontrolling interest55 71 
Total Equity (Deficit)(4,733)(4,799)
Total Liabilities and Equity (Deficit)$10,390 $9,819 

See accompanying Notes to Condensed Consolidated Financial Statements.
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OTIS WORLDWIDE CORPORATION
CONDENSED COMBINEDCONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)

Quarter Ended March 31, 2020
(dollars in millions)UTC Net Investment (Deficit)Accumulated Other Comprehensive (Loss)Total UTC Net Investment (Deficit)Noncontrolling InterestTotal UTC Net Investment (Deficit)Redeemable Noncontrolling Interest
Balance January 1, 2020$2,458  $(758) $1,700  $531  $2,231  $95  
Net income165  —  165  37  202  —  
Other comprehensive loss, net of tax—  (104) (104) (4) (108) (2) 
Dividends attributable to noncontrolling interest—  —  —  (21) (21) —  
Acquisition, disposal and other changes in noncontrolling interest—  —  —  (6) (6) —  
Changes in redeemable noncontrolling interest redemption value—  —  —  —  —  2  
Adoption of credit loss standard, net of tax (Note 6)(25) —  (25) —  (25) —  
Net transfers to UTC(6,557) —  (6,557) —  (6,557) —  
Balance March 31, 2020$(3,959) $(862) $(4,821) $537  $(4,284) $95  
Common Stock and Additional Paid-In CapitalTreasury StockAccumulated DeficitAccumulated Other Comprehensive Income (Loss)Total Shareholders'
(Deficit) Equity		Noncontrolling InterestTotal (Deficit) EquityRedeemable Noncontrolling Interest
(dollars in millions, except per share amounts)
Quarter Ended September 30, 2023
Balance as of June 30, 2023$183 $(1,927)$(2,419)$(689)$(4,852)$101 $(4,751)$126 
Net income— — 376 — 376 17 393 2 
Other comprehensive income (loss), net of tax— — — 41 41 (2)39 (4)
Stock-based compensation and Common Stock issued under employee plans15 — — — 15 — 15 — 
Cash dividends declared ($0.34 per common share)— — (139)— (139)— (139)— 
Repurchase of Common Shares— (228)— — (228)— (228)— 
Dividends attributable to noncontrolling interest— — — — — (61)(61)— 
Acquisitions, disposals and other changes— — (1)— (1)— (1)(1)
Balance as of September 30, 2023$198 $(2,155)$(2,183)$(648)$(4,788)$55 $(4,733)$123 
Quarter Ended September 30, 2022
Balance as of June 30, 2022$121 $(1,125)$(3,245)$(748)$(4,997)$109 $(4,888)$136 
Net income— — 324 — 324 24 348 2 
Other comprehensive income (loss), net of tax, and foreign currency reclassifications (Note 10)— — — 168 168 (9)159 (10)
Stock-based compensation and Common Stock issued under employee plans13 — — — 13 — 13 — 
Cash dividends declared ($0.29 per common share)— — (121)— (121)— (121)— 
Repurchase of Common Shares— (300)— — (300)— (300)— 
Dividends attributable to noncontrolling interest— — — — — (68)(68)— 
Acquisitions, disposals and other changes— — — — — (4)(4)— 
Balance as of September 30, 2022$134 $(1,425)$(3,042)$(580)$(4,913)$52 $(4,861)$128 

See accompanying Notes to Condensed Consolidated Financial Statements.
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OTIS WORLDWIDE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)

Quarter Ended March 31, 2019
(dollars in millions)UTC Net InvestmentAccumulated Other Comprehensive (Loss)Total UTC Net InvestmentNoncontrolling InterestTotal UTC Net InvestmentRedeemable Noncontrolling Interest
Balance January 1, 2019$2,277  $(708) $1,569  $537  $2,106  $109  
Net income273  —  273  27  300  —  
Redeemable noncontrolling interest in subsidiaries' earnings—  —  —  3  3  (3) 
Other comprehensive income (loss), net of tax—  14  14  1  15  (2) 
Dividends attributable to noncontrolling interest—  —  —  (30) (30) —  
Acquisition, disposal and other changes in noncontrolling interest—  —  —  4  4  —  
Changes in redeemable noncontrolling interest redemption value—  —  —  —  —  5  
Net transfers to UTC(298) —  (298) —  (298) —  
Balance March 31, 2019$2,252  $(694) $1,558  $542  $2,100  $109  
Common Stock and Additional Paid-In CapitalAccumulated DeficitAccumulated Other Comprehensive Income (Loss)Total Shareholders'
(Deficit) Equity		Noncontrolling InterestTotal (Deficit) EquityRedeemable Noncontrolling Interest
Treasury Stock
(dollars in millions, except per share amounts)
Nine Months Ended September 30, 2023
Balance as of December 31, 2022$162 $(1,575)$(2,865)$(592)$(4,870)$71 $(4,799)$135 
Net income— — 1,083 — 1,083 64 1,147 7 
Other comprehensive income (loss), net of tax— — — (56)(56)(7)(63)(9)
Stock-based compensation and Common Stock issued under employee plans36 — (1)— 35 — 35 — 
Cash dividends declared ($0.97 per common share)— — (400)— (400)— (400)— 
Repurchase of Common Shares— (580)— — (580)— (580)— 
Dividends attributable to noncontrolling interest— — — — — (70)(70)(9)
Acquisitions, disposals and other changes— — — — — (3)(3)(1)
Balance as of September 30, 2023$198 $(2,155)$(2,183)$(648)$(4,788)$55 $(4,733)$123 
Nine Months Ended September 30, 2022
Balance as of December 31, 2021$119 $(725)$(2,256)$(763)$(3,625)$481 $(3,144)$160 
Net income— — 956 — 956 82 1,038 13 
Other comprehensive income (loss), net of tax, and foreign currency reclassifications (Note 10)— — — 183 183 (17)166 (108)
Stock-based compensation and Common Stock issued under employee plans32 — (1)— 31 — 31 — 
Cash dividends declared ($0.82 per common share)— — (345)— (345)— (345)— 
Repurchase of Common Shares— (700)— — (700)— (700)— 
Dividends attributable to noncontrolling interest— — — — — (80)(80)(11)
Reclassification of noncontrolling interest to forward purchase agreement and redeemable noncontrolling interest (Note 1)— — (1,482)— (1,482)(403)(1,885)1,476 
Acquisitions, disposals and other changes(17)— 86 — 69 (11)58 (1,402)
Balance as of September 30, 2022$134 $(1,425)$(3,042)$(580)$(4,913)$52 $(4,861)$128 


See accompanying Notes to Condensed CombinedConsolidated Financial Statements
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OTIS WORLDWIDE CORPORATION
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(Unaudited)
 Quarter Ended March 31,
(dollars in millions)20202019
Operating Activities:
Net income$202  $300  
Adjustments to reconcile net income to net cash flows provided by operating activities, net of acquisitions:
Depreciation and amortization43  45  
Deferred income tax provision (benefit)16  (2) 
Stock compensation cost11  7  
Loss on fixed asset impairment (Note 17)55  —  
Change in:
Accounts receivable, net(116) (56) 
Contract assets and liabilities, current355  268  
Inventories, net(49) 7  
Other assets, current(85) 7  
Accounts payable and accrued liabilities(289) (309) 
Pension contributions(10) (10) 
Other operating activities, net26  40  
Net cash flows provided by operating activities159  297  
Investing Activities:
Capital expenditures(39) (28) 
Investments in businesses, net of cash acquired (Note 8)(5) (19) 
Investments in equity securities(51) —  
Other investing activities, net3  29  
Net cash flows used in investing activities(92) (18) 
Financing Activities:
Proceeds from issuance of long-term debt6,300  —  
Payment of long-term debt issuance costs(43) —  
Increase in short-term borrowings, net36  15  
Net transfers to UTC(6,550) (306) 
Dividends paid to noncontrolling interest(21) (30) 
Other financing activities, net22  9  
Net cash flows used in financing activities(256) (312) 
Effect of foreign exchange rate changes on cash and cash equivalents(50) 20  
Net (decrease) in cash, cash equivalents and restricted cash(239) (13) 
Cash, cash equivalents and restricted cash, beginning of year1,459  1,346  
Cash, cash equivalents and restricted cash, end of period1,220  1,333  
Less: Restricted cash13  13  
Cash and cash equivalents, end of period$1,207  $1,320  

See accompanying Notes to Condensed Combined Financial StatementsStatements.
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OTIS WORLDWIDE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Nine Months Ended September 30,
(dollars in millions)20232022
Operating Activities:
Net income$1,154 $1,051 
Adjustments to reconcile net income to net cash flows provided by operating activities, net of acquisitions and dispositions:
Depreciation and amortization145 145 
Deferred income tax expense (benefit)(34)6 
Stock compensation cost49 41 
Change in operating assets and liabilities:
Accounts receivable, net(214)(171)
Contract assets and liabilities, current68 143 
Inventories(8)(80)
Other current assets(4)(14)
Accounts payable(35)137 
Accrued liabilities(66)(166)
Pension contributions(32)(28)
Other operating activities, net7 32 
Net cash flows provided by (used in) operating activities1,030 1,096 
Investing Activities:
Capital expenditures(96)(81)
Acquisitions of businesses and intangible assets, net of cash (Note 6)(27)(38)
Dispositions of businesses, net of cash (Note 6)— 61 
Proceeds from the sale of (investments in) marketable securities(2)(7)
Receipts (payments) on settlements of derivative contracts(21)121 
Other investing activities, net14 6 
Net cash flows provided by (used in) investing activities(132)62 
Financing Activities:
Net proceeds from (repayments of) borrowings (maturities of 90 days or less)(90)80 
Proceeds from issuance of long-term debt747 — 
Payment of debt issuance costs(6)— 
Repayment of long-term debt— (500)
Dividends paid on Common Stock(400)(345)
Repurchases of Common Stock(575)(700)
Dividends paid to noncontrolling interest(76)(107)
Acquisition of Zardoya Otis shares— (1,802)
Other financing activities, net(18)(28)
Net cash flows provided by (used in) financing activities(418)(3,402)
Effect of exchange rate changes on cash and cash equivalents(34)(191)
Net increase (decrease) in cash, cash equivalents and restricted cash446 (2,435)
Cash, cash equivalents and restricted cash, beginning of year1,195 3,477 
Cash, cash equivalents and restricted cash, end of period1,641 1,042 
Less: Restricted cash5 8 
Cash and cash equivalents, end of period$1,636 $1,034 
See accompanying Notes to Condensed Consolidated Financial Statements.
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OTIS WORLDWIDE CORPORATION
NOTES TO CONDENSED COMBINEDCONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1: General

The Condensed CombinedConsolidated Financial Statements at March 31, 2020as of September 30, 2023 and for the quarters and nine months ended March 31, 2020September 30, 2023 and 20192022 are unaudited, but in the opinion of management include all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of the results for the interim periods. The Condensed CombinedConsolidated Balance Sheet atas of December 31, 20192022 was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles ("GAAP") in the United States.States ("U.S."). The results reported in these Condensed CombinedConsolidated Financial Statements should not necessarily be taken as indicative of results that may be expected for the entire year. The financial information included herein should be read in conjunction with the Company's annual consolidated financial statements and accompanying notes included in our registration statementAnnual Report on Form 1010-K (File No. 001-39221), initially filed with the Securities and Exchange Commission (“SEC”) on February 7, 2020, as amended by Amendment No. 1 filed on March 11, 2020for fiscal year 2022 ("2022 Form 10"10-K" or "Form 10-K").

Note 1: Description of BusinessUnless the context otherwise requires, references to "Otis," "we," "us," "our" and "the Company" refer to Otis Worldwide Corporation and its subsidiaries.

Otis Worldwide Corporation (“Otis,” “the Business,” “we,” “us” or “our”) isThere have been no changes to the world’s largest elevator and escalator manufacturing, installation and service company. Our operations are classified into 2 segments: New Equipment and Service. ThroughCompany's significant accounting policies described in the New Equipment segment, we design, manufacture, sell and installCompany's 2022 Form 10-K that have a wide range of passenger and freight elevators as well as escalators and moving walkways for residential and commercial building and infrastructure projects. The Service segment provides maintenance and repair services for both our products and those of other manufacturers, and provides modernization services to upgrade elevators and escalators.

On November 26, 2018, United Technologies Corporation, subsequently renamed to Raytheon Technologies Corporation on April 3, 2020 ("UTC" or “Parent”), announced its intention to spin-off its Otis reportable segment into a separate publicly traded company (the "Separation"). On April 3, 2020, UTC completed the spin-off of Otis through a pro-rata distribution of 0.5 shares of Otis common stock for every share of UTC common stock held at the close of businessmaterial impact on the record date of March 19, 2020. Otis began to trade as a separate public company (New York Stock Exchange ("NYSE"): OTIS) on April 3, 2020.

Note 2: Basis of Presentation

These accompanyingCompany's Condensed CombinedConsolidated Financial Statements reflectand the historical financial position, results of operations and cash flows ofrelated notes. Certain amounts presented in the Business for the periods presented as historically managed within UTC. The Condensed Combined Financial Statementsprior period have been derived from the consolidated financial statements and accounting records of UTC. They have been prepared in accordance with the instructionsreclassified to Form 10-Q and Rule 10-01 of Regulation S-X and accordingly, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted. The Condensed Combined Financial Statements at March 31, 2020 and for the quarters ended March 31, 2020 and 2019 are priorconform to the Separation and thus are prepared on a "carve-out" basis.

The Condensed Combined Statements of Operations include all revenues and costs directly attributable to Otis, including costs for facilities, functions and services used by Otis. Costs for certain functions and services performed by centralized UTC organizations are directly charged to Otis based on specific identification when possible or based on a reasonable allocation driver such as net sales, headcount, usage or other allocation methods. All charges and allocations for facilities, functions and services performed by UTC organizations have been deemed settled in cash by Otis to UTC in thecurrent period in which the cost was recorded on the Condensed Combined Statements of Operations. Current and deferred income taxes have been determined based on the stand-alone results of Otis. However, because the Business was included in UTC’s tax group in certain jurisdictions, the Business’ actual tax balances may differ from those reported. The Business’ portion of its domestic income taxes and certain income taxes for jurisdictions outside the United States are deemed to have been settled in the period the related tax expense was recorded.

All significant intracompany accounts and transactions within the Business have been eliminated in the preparation of the Condensed Combined Financial Statements. The Condensed Combined Financial Statements of the Business include assets and liabilities that have been determined to be specifically or otherwise attributable to the Business.

Risks and Uncertainties. In March 2020, the World Health Organization declared the outbreak of the novel strain of coronavirus ("COVID-19") a global pandemic and recommended a number of restrictive measures to contain the spread. Many governments in the regions where we generate the majority of our revenue have adopted such policies, including social distancing and restrictions on businesses deemed non-essential. The Business is closely monitoring the impact of the
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COVID-19 pandemic and managing the effects on its business globally as the situation continues to evolve. It is difficult to estimate at this time the duration and extent of the impact of the pandemic on the business, financial position, cash flow and results of operations. The results of our operations and overall financial performance were impacted during the quarter ended March 31, 2020, with varied impacts across all regions.
Due to existing conditions and uncertainty, the Business believes that COVID-19 will have an impact on its business, cash flow and results of operations for the three months ended June 30, 2020 and likely for the remainder of the year ending December 31, 2020. The extent of the impact will depend largely on future developments,presentation, which are highly uncertain and cannot be predicted with certainty, including the emergence of new information concerning the severity of the outbreak and actions by government authorities to contain the outbreak or treat its impact, among other things.immaterial.

Use of Estimates. The preparation of these Condensed Consolidated Financial Statements and accompanying notes in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ materially from those estimates.

We assessed certain accounting matters that generally require consideration of forecasted financial information in the context withof the information reasonably available to us and the unknown future impacts of COVID-19 at March 31, 2020macroeconomic developments, including inflationary pressures, higher interest rates and tighter credit conditions, as of September 30, 2023 and through the date of this report. The accounting matters assessed included, but were not limited to, our allowance for credit losses, the carrying value of our goodwill and other long-lived assets, financial assets and revenue recognition. While there was not a material impact to our Condensed CombinedConsolidated Financial Statements as of September 30, 2023 and for the quarterquarters and nine months ended March 31, 2020September 30, 2023 and 2022 resulting from our assessments of these matters, future assessment of our current expectations at that time of the magnitude and duration of COVID-19,these macroeconomic developments, as well as other factors, could result in material impacts to our Condensed CombinedConsolidated Financial Statements in future reporting periods.

We also assessed certain accounting matters as they relate to the ongoing conflict between Russia and Ukraine and the war in Israel and Gaza, including, but not limited to, our allowance for credit losses, the carrying value of long-lived assets, revenue recognition and the classification of assets. There was not a material impact to our Condensed Consolidated Financial Statements as of September 30, 2023 and for the quarters and nine months ended September 30, 2023 and 2022 resulting from our assessment of these matters. We continue to assess the impact on our results of operations, financial position and overall performance as the situations develop and any broader implications they may have on the global economy.

Supplier Finance Programs. On January 1, 2023, we adopted ASU No. 2022-04, Liabilities - Supplier Finance Programs (Topic 450-50): Disclosure of Supplier Finance Program Obligations that requires entities that use supplier finance programs in connection with the purchase of goods and services to disclose the key terms of the programs and information about obligations outstanding at the end of the reporting period.

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Certain Otis subsidiaries participate in supplier finance programs, under which we agree to pay third-party financial institutions the stated amounts of confirmed invoices from suppliers on the original maturity dates of the invoices, while the participating suppliers generally have the ability to sell, or otherwise pledge as collateral, their receivables from the Company to the participating financial institutions. Our obligations to suppliers, including the amounts due and scheduled payment dates, are not impacted by the suppliers' decisions to sell their receivables to the financial institutions, or otherwise pledge their receivables as collateral, under these arrangements. The Company is not a party to the arrangements between the suppliers and the financial institutions, and the Company's payment terms to the financial institutions, including the timing and amount of payments, are based on the original supplier invoices. Based on the applicable supplier agreements, the maturity dates of these supplier invoices can range between 30 and 120 days from the invoice date.

The outstanding obligations confirmed by the Company as valid to the financial institutions under our supplier finance programs were $537 million and $564 million as of September 30, 2023 and December 31, 2022, respectively. These obligations are included in Accounts payable in the Condensed Consolidated Balance Sheets, and all activity related to the obligations is presented within operating activities on the Condensed Consolidated Statements of Cash Flows.

The Company or the financial institutions may terminate the agreements with advanced notice. Otis has pledged no assets in connection with its supplier finance programs.

Note 2: Earnings per Share

 Quarter Ended September 30,Nine Months Ended September 30,
(dollars in millions, except per share amounts; shares in millions)2023202220232022
Net income attributable to Otis Worldwide Corporation$376 $324 $1,083 $956 
Impact of redeemable noncontrolling interest— — — — 
Net income attributable to common shareholders$376 $324 $1,083 $956 
Basic weighted average number of shares outstanding410.8 418.5 412.6 421.3 
Stock awards and equity units (share equivalent)2.9 2.7 3.2 3.0 
Diluted weighted average number of shares outstanding413.7 421.2 415.8 424.3 
Earnings Per Share of Common Stock:
Basic$0.92$0.77$2.62$2.27
Diluted$0.91$0.77$2.60$2.25

The computation of diluted earnings per share excludes the effect of the potential exercise of stock awards, including stock appreciation rights and stock options, when the average market price of the Common Stock is lower than the exercise price of the related stock awards during the period because the effect would be anti-dilutive. In addition, the computation of diluted earnings per share excludes the effect of the potential exercise of stock awards when the awards' assumed proceeds exceed the average market price of the common shares during the period. There were 1.0 million of anti-dilutive stock awards excluded from the computation for the quarter and nine months ended September 30, 2023, and 2.4 million for the quarter and nine months ended September 30, 2022.

Note 3: Earnings per Share
On April, 3, 2020, the date of consummation of the Separation, 433,079,455 shares of the Business' common stock, par value $0.01 per share, were distributed to UTC shareholders of record as of March 19, 2020. This share amount is being utilized for the calculation of basic and diluted earnings per share for all periods presented prior to the Separation as all common stock was owned by UTC prior to the Separation. For the 2020 and 2019 year to date calculations, these shares are treated as issued and outstanding at January 1, 2020 and 2019 for purposes of calculating historical basic and diluted earnings per share.

 Quarter Ended March 31,
(dollars in millions, except per share amounts; shares in millions)20202019
Net income attributable to Otis Worldwide Corporation$165  $273  
Basic and diluted number of shares outstanding433.1  433.1  
Earnings Per Share:
Basic and Diluted$0.38  $0.63  
Note 4: Revenue Recognition

We account for revenue in accordance with Accounting Standards Codification ("ASC") Topic 606: Revenue from Contracts with Customers.

Performance Obligations. The Business' revenue streams include new equipment, maintenance and repair and modernization (including related installation). New equipment, modernization and repair services revenue is typically recognized over time as we are enhancing an asset the customer controls. Maintenance revenue is recognized on a straight-line basis over the life of the maintenance contract.

For new equipment and modernization transactions, equipment and installation are typically procured in a single contract providing the customer with a complete installed elevator or escalator unit. The combination of equipment and installation promises are typically a single performance obligation. For repair services, the customer typically contracts for specific short-term services which form a single performance obligation. For these performance obligations, revenue is recognized over time using costs incurred to date relative to total estimated costs at completion to measure progress.

For maintenance contracts, given the continuous nature of the maintenance services throughout the year, we recognize revenue on maintenance contracts on a straight-line basis which aligns with the cost profile of these services.


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Contract Assets and Liabilities. Contract assets reflect revenue recognized in advance of customer billing. Contract liabilities are recognized when a customer pays consideration, or we have a right to receive an amount of unconditional consideration, in advance of the satisfaction of performance obligations under the contract. We typically receive progress payments from our customers as we perform our work over time.

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Total contractContract assets and contractContract liabilities as of March 31, 2020September 30, 2023 and December 31, 20192022 are as follows:
(dollars in millions)March 31, 2020December 31, 2019
Contract assets, current$491  $529  
Total contract assets491  529  
Contract liabilities, current2,541  2,270  
Contract liabilities, noncurrent (included within Other long-term liabilities)25  18  
Total contract liabilities2,566  2,288  
Net contract liabilities$2,075  $1,759  

(dollars in millions)September 30, 2023December 31, 2022
Contract assets, current$733 $664 
Total contract assets733 664 
Contract liabilities, current2,784 2,662 
Contract liabilities, non-current (included within Other long-term liabilities)47 52 
Total contract liabilities2,831 2,714 
Net contract liabilities$2,098 $2,050 

Contract assets decreasedincreased by $38$69 million during the quarternine months ended March 31, 2020September 30, 2023 as a result of the progression of current contracts and timing of billing on customer contracts and contract completions.contracts. Contract liabilities increased by $278$117 million during the quarternine months ended March 31, 2020September 30, 2023 primarily due to customer billings on contracts in excess of revenue earned.

In the quartersnine months ended March 31, 2020September 30, 2023 and 2019,2022, we recognized revenue of $0.9$1.8 billion related to the contract liabilities as of January 1, 20202023 and as of January 1, 2019.2022, respectively.

Remaining Performance Obligations ("RPO"). RPO represents the aggregate amount of total contract transaction price that is unsatisfied or partially unsatisfied. As of March 31, 2020,September 30, 2023, our total RPO was approximately $16.3$17.8 billion. Of the total RPO as of March 31, 2020,September 30, 2023, we expect approximately 91%90% will be recognized as sales over the following 24 months. On December 31, 2019, we had approximately $16.4 billion of remaining performance obligations, at which time we expected to recognize approximately 91% of these remaining performance obligations as sales in the next 24 months.

Note 5: Related Parties

Historically, the Business has been managed and operated in the normal course of business with other affiliates of UTC. Accordingly, certain shared costs had been allocated to the Business and reflected as expenses in these Condensed Combined Financial Statements.

Allocated Centralized Costs.The Condensed Combined Financial Statements have been prepared on a stand-alone basis and are derived from the consolidated financial statements and accounting records of UTC.

UTC incurred significant corporate costs such as treasury, tax, accounting, human resources, audit, legal, purchasing, information technology and other such services. The costs associated with these services generally include all payroll and benefit costs, as well as overhead costs related to certain functions. All such amounts have been deemed to have been incurred and settled by the Business in the period in which the costs were recorded. The allocated functional service expenses and general corporate expenses for the quarters ended March 31, 2020 and 2019 were approximately $16 million and $17 million, respectively, and are primarily included in Selling, general and administrative on the Condensed Combined Statements of Operations.The future results of operations, financial position and cash flows could differ materially from the historical results presented herein.

Separation Costs. In connection with the Separation as further described in Note 1, we have incurred pre-Separation costs of approximately $32 million for the quarter ended March 31, 2020. The Separation costs are primarily recorded in Selling, general and administrative on the Condensed Combined Statements of Operations and primarily consist of employee-related costs, costs to establish certain stand-alone functions and information technology systems, professional services fees and other transaction-related costs to transition to being a stand-alone public company. There were no costs incurred in connection with the Separation for the quarter ended March 31, 2019.

Cash Management and Financing. The Business participated in UTC's centralized cash management and financing programs. Disbursements were made through centralized accounts payable systems which were operated by UTC. Cash receipts were transferred to centralized accounts, which were also maintained by UTC. As cash is received and disbursed by UTC, it was
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accounted for by the Business through UTC Net (Deficit) Investment. All short and long-term debt was financed by UTC prior to the issuance of the notes and the term loan in connection with the Separation, and the financing decisions for wholly and majority owned subsidiaries were determined by UTC. The Business' cash that is not included in the centralized cash management and financing programs was classified as Cash and cash equivalents on the Condensed Combined Balance Sheets.

At March 31, 2020, the Business was in bank overdraft position of approximately $30 million, which is included in Short term borrowings on the Condensed Combined Balance Sheets. The bank overdraft amount is due from UTC and is recorded through UTC Net (Deficit) Investment on the Condensed Combined Balance Sheets. The balance from UTC was paid in full to the Business prior to the Separation.

During the quarter ended March 31, 2020, net liabilities of $43 million were contributed to the Business by UTC, primarily consisting of deferred tax assets and liabilities and fixed assets. These non-cash contributions are recorded as Net transfers to UTC on the Condensed Combined Statements of Changes in Equity through UTC Net (Deficit) Investment.

Long-Term Debt, Accounts Receivable and Accounts Payable. Certain related party transactions between the Business and UTC have been included within UTC Net (Deficit) Investment on the Condensed Combined Balance Sheets in the historical periods presented. The UTC Net Investment includes related party receivables due from UTC and its affiliates of $0.0 billion and $7.7 billion as of March 31, 2020 and December 31, 2019, respectively. The UTC Net (Deficit) Investment includes related party payables due to UTC and its affiliates of $278 million and $750 million as of March 31, 2020 and December 31, 2019, respectively, which primarily relate to centralized cash management and financing programs. The UTC Net (Deficit) Investment includes related party debt due to UTC and its affiliates of $0 million and $100 million as of March 31, 2020 and December 31, 2019, respectively. The total effect of the settlement of these related party transactions is reflected as a financing activity on the Condensed Combined Statements of Cash Flows.

Guarantees. UTC provided parent guarantees to certain customers or other third parties regarding the product performance obligations of Otis under certain installation and long-term maintenance contracts. The guarantees terminated upon Separation.

UTC provided parent guarantees on behalf of Otis to guarantee ordinary course of business performance obligations as required by certain Otis customers and banks to support credit facilities to Otis' affiliates. At December 31, 2019, the total outstanding parent guarantees were approximately $1.8 billion and have since been terminated in connection with the Separation.

UTC provided parent guarantees of the Otis long-term debt that terminated upon Separation.

Note 6:4: Accounts Receivable, Net

Adoption of Credit Loss Standard

In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU and its related amendments (collectively, the Credit Loss Standard) modifies the impairment model to utilize an expected loss methodology in place of the incurred loss methodology for financial instruments including trade receivables, contract assets, long term receivables and off-balance sheet credit exposures. The Credit Loss Standard requires consideration of a broader range of information to estimate expected credit losses, including historical information, current conditions and evaluate this assessment through a reasonable forecast period. This ASU requires that the income statement reflect the measurement of credit losses for newly recognized financial assets as well as the expected increase or decrease of expected credit losses that have taken place during the period, which may result in earlier recognition of certain losses. We adopted this standard effective January 1, 2020 utilizing a modified retrospective approach. A cumulative-effect non-cash after-tax adjustment to retained earnings as of January 1, 2020 was recorded in the amount of approximately $25 million.

We are exposed to credit losses primarily through our net sales of products and services to our customers which are recorded as Accounts Receivable, net on the Condensed Combined Balance Sheet. We evaluate each customer's ability to pay through assessing customer creditworthiness, historical experience, current economic conditions and through a reasonable forecast period. Factors considered in our evaluation of assessing collectability and risk include: underlying value of any collateral or security interests, significant past due balances, historical losses and existing economic conditions including country and political risk. There can be no assurance that actual results will not differ from estimates or that consideration of these factors in the future will not result in an increase or decrease to the allowance for credit losses. We may require collateral or prepayment to mitigate credit risk.

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We estimate expected credit losses of financial assets with similar risk characteristics. We determine an asset is impaired when our assessment identifies there is a risk that we will be unable to collect amounts due according to the contractual terms of the agreement. We monitor our ongoing credit exposure through reviews of customer balances against contract terms and due dates, current economic conditions and dispute resolution. Estimated credit losses are written off in the period in which the financial asset is no longer collectible.

Accounts receivable, net consisted of the following at March 31, 2020as of September 30, 2023 and December 31, 2019:2022:

(dollars in millions)March 31, 2020December 31, 2019
Trade receivables$2,780  $2,723  
Unbilled receivables116  108  
Miscellaneous receivables105  113  
3,001  2,944  
Less: Allowance for expected credit losses1
113  83  
Balance$2,888  $2,861  
1 Prior to January 1, 2020 allowances for doubtful accounts were recorded when accounts receivable were determined to be uncollectible.
(dollars in millions)September 30, 2023December 31, 2022
Trade receivables$3,295 $3,231 
Unbilled receivables123 103 
Miscellaneous receivables100 91 
Customer financing notes receivable63 84 
3,581 3,509 
Less: allowance for expected credit losses126 152 
Accounts receivable, net$3,455 $3,357 

The changes in allowance for expected credit losses related to Accounts receivable, net for the quarternine months ended March 31, 2020 isSeptember 30, 2023 and 2022, respectively, are as follows:

(dollars in millions)March 31, 2020
Balance as of December 31, 2019$83 
Impact of credit standard adoption28 
Current period provision for expected credit losses4 
Write-offs charged against the allowance for expected credit losses(3)
Other1 
Balance as of March 31, 2020$113 
Nine Months Ended September 30,
(dollars in millions)20232022
Balance as of January 1$152 $175 
Provision for expected credit losses21 4 
Write-offs charged against the allowance for expected credit losses(42)(14)
Foreign exchange and other(5)(9)
Balance as of September 30$126 $156 

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Note 7:5: Inventories net

(dollars in millions)March 31, 2020December 31, 2019
Raw materials and work-in-process$108  $103  
Finished goods491  468  
Total$599  $571  
Inventories consisted of the following as of September 30, 2023 and December 31, 2022:

(dollars in millions)September 30, 2023December 31, 2022
Raw materials and work-in-process$162 $166 
Finished goods462 451 
Total$624 $617 

Raw materials, work-in-process and finished goods are net of valuation reserveswrite-downs of $102$89 million and $103$96 million as of March 31, 2020September 30, 2023 and December 31, 2019,2022, respectively.

Note 8:6: Business Acquisitions, Disposals, Goodwill and Intangible Assets

Business Acquisitions. Our investments inacquisitions of businesses and intangible assets, net of cash, acquired, totaled $5$27 million and $19$38 million in the quartersnine months ended March 31, 2020September 30, 2023 and 2019, respectively. The acquisitions consisted of a number of individually insignificant acquisitions2022, respectively, and were primarily in our Service segment. Transaction costs incurred were not considered significant.

Goodwill. Changes in our Goodwill balances during the quarternine months ended March 31, 2020September 30, 2023 were as follows:
(dollars in millions)Balance as of January 1, 2020Goodwill Resulting
From Business Combinations		Foreign Currency
Translation and Other		Balance as of March 31, 2020
New Equipment$337  $—  $(8) $329  
Service1,310  —  (31) 1,279  
Total$1,647  $—  $(39) $1,608  

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(dollars in millions)Balance as of December 31, 2022Goodwill Resulting
from Business Combinations		Foreign Currency
Translation 
and Other
Balance as of
September 30, 2023
New Equipment$292 $— $(5)$287 
Service1,275 6 (21)1,260 
Total$1,567 $6 $(26)$1,547 

Intangible Assets. Identifiable intangibleIntangible assets are comprisedcost and accumulated amortization were $2,010 million and $1,674 million, respectively, as of the following:September 30, 2023, and $2,026 million and $1,657 million, respectively, as of December 31, 2022.

March 31, 2020December 31, 2019
(dollars in millions)Gross AmountAccumulated
Amortization		Gross AmountAccumulated
Amortization
Amortized:
Purchased service portfolios$2,016  $(1,572) $2,069  $(1,598) 
Patents, trademarks/trade names20  (15) 21  (15) 
Customer relationships and other45  (39) 46  (40) 
2,081  (1,626) 2,136  (1,653) 
Unamortized:
Trademarks and other7  —  7  —  
Total$2,088  $(1,626) $2,143  $(1,653) 

Amortization of intangible assets for the quartersquarter and nine months ended March 31, 2020 and 2019September 30, 2023 was $22$17 million and $24$51 million, respectively.respectively, compared to $18 million and $55 million for the same periods in 2022. Excluding the impact of currency translation adjustments, there were no other significant changes in our Intangible Assetsassets during the quarters and nine months ended MarchSeptember 30, 2023 and 2022.

Held For Sale Assets and Liabilities. As of September 30, 2023 and December 31, 20202022, assets held for sale were $11 million and 2019.$9 million, respectively, and are included in Other current assets in the Condensed Consolidated Balance Sheets.

In June 2022, we entered into an agreement to sell our business in Russia to a third party, which was then sold on July 27, 2022. As of June 30, 2022, our operations in Russia, primarily in the New Equipment segment, were classified as assets and liabilities held for sale of $157 million and $136 million, respectively. The Company recorded the loss on sale and related charges of $6 million and $24 million in Other expense (income), net in the Condensed Consolidated Statements of Operations for the quarter and nine months ended September 30, 2022, respectively, including an impairment loss of $18 million related to the net assets held for sale during the nine months ended September 30, 2022.

Note 9:7: Borrowings and Lines of Credit
(dollars in millions)March 31, 2020December 31, 2019
Commercial paper$—  $—  
Other borrowings67  34  
Total short-term borrowings$67  $34  

(dollars in millions)September 30, 2023December 31, 2022
Commercial paper$— $94 
Other borrowings54 45 
Total short-term borrowings$54 $139 

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Commercial Paper. As of March 31, 2020, we have entered into a revolving credit agreement with various banks. This revolving credit facility permits aggregate borrowings of up to $1.5 billion available on April 3, 2020, pursuant to an unsecured, unsubordinated 5-year revolving credit facility with an interest rate of LIBOR plus 125 basis points and a commitment fee rate of 12.5 basis points. As of March 31, 2020,September 30, 2023, there were no borrowings outstanding under the revolving credit facility. The undrawn portion of the revolving credit facility serves as a backstop for the issuance of commercial paper.

As of March 31, 2020, we have entered into aCompany's $1.5 billion unsecured, unsubordinated commercial paper program that became available on April 3, 2020.programs. We plan to use our commercial paper borrowings for general corporate purposes including to finance acquisitions, pay dividends, repurchase shares and for debt refinancing. The need for commercial paper borrowings may arise if the use of domestic cash for general corporate purposes exceeds the sum of domestic cash generation and foreign cash repatriated to the U.S.

For details regarding the Company's short-term borrowing activity in 2022, refer to Note 10 of the Company's audited consolidated financial statements and notes thereto included in our 2022 Form 10-K.

Long-term debt. On March 10, 2023, the Company entered into a new credit agreement ("Credit Agreement") with various banks providing for a $1.5 billion unsecured, unsubordinated five-year revolving credit facility, with an interest rate on US Dollar denominated borrowings at Otis' option of the Term Secured Overnight Financing Rate ("SOFR") plus 0.10% or a base rate, and an interest rate on Euro denominated borrowings at Otis' option of the EURIBO rate or a daily simple Euro Short Term Rate ("ESTR"), plus, in each case, an applicable margin. The applicable margin initially is 1.25% for Term SOFR rate, EURIBO rate and daily simple ESTR rate borrowings, and 0.25% for base rate borrowings, and can fluctuate determined by reference to Otis' public debt ratings, as specified in the Credit Agreement. As of September 30, 2023, there were no borrowings under the Credit Agreement. The undrawn portion of the Credit Agreement serves as a backstop for the issuance of commercial paper. On March 10, 2023, we also terminated all commitments outstanding under the previous credit agreement, which was scheduled to expire on April 3, 2025.

On February 10, 2020, the Business entered into a Term Loan Credit Agreement ("Term Loan") providing for a $1.0 billionAugust 16, 2023, we issued $750 million unsecured, unsubordinated 3-year loan credit facility. On March 27, 2020, the Business drew on the full amountfive-year notes due August 16, 2028 (the "Notes") with an interest rate of the term loan.

Additionally, on February 27, 2020, we issued $5.3 billion unsecured, unsubordinated notes ("the Notes")5.25%.

The net proceeds of the financing arrangements described aboveNotes were used to fund the repayment of approximately $6.3 billion inOtis' commercial paper borrowings and will be used to fund the aggregate were distributed to UTC.repayment at maturity of the €500 million 0.000% notes due November 12, 2023, with the remainder used for other general corporate purposes.

The revolving credit agreement, term loan agreement and indenture contain affirmative and negativeAs of September 30, 2023, the Company is in compliance with all covenants customary for financings of these types that, among other things, limit the Business and its subsidiaries’ ability to incur additional liens, to make certain fundamental changes and to enter into sale and leaseback transactions. In addition,in the revolving credit agreement and the term loan credit agreement require that we maintain a maximum consolidated total leverage ratio. The revolving credit agreement, term loan credit agreement and indenture also contain events of default customary for financings of these types.
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indentures governing all outstanding long-term debt. Long-term debt as of March 31, 2020 and December 31, 2019 consisted of the following:
(dollars in millions)March 31, 2020December 31, 2019
LIBOR plus 112.5 bps Term Loan due 2023 2,4
$1,000  $—  
LIBOR plus 45 bps floating rate notes due 2023 1,3
500  —  
2.056% notes due 2025 3
1,300  —  
2.293% notes due 2027 3
500  —  
2.565% notes due 2030 3
1,500  —  
3.112% notes due 2040 3
750  —  
3.362% notes due 2050 3
750  —  
Other (including finance leases)5  5  
Total principal long-term debt$6,305  $5  
Other (discounts and debt issuance costs)(47) —  
Total long-term debt$6,258  $5  
Less: current portion—  —  
Long-term debt, net of current portion$6,258  $5  

1 The three-month LIBOR rate at March 31, 2020 was approximately 1.45%.
(dollars in millions)September 30, 2023December 31, 2022
0.000% notes due 2023 (€500 million principal value)$531 $531 
2.056% notes due 20251,300 1,300 
0.37% notes due 2026 (¥21.5 billion principal value)145 163 
0.318% notes due 2026 (€600 million principal value)637 638 
2.293% notes due 2027500 500 
5.250% notes due 2028750 — 
2.565% notes due 20301,500 1,500 
0.934% notes due 2031 (€500 million principal value)531 531 
3.112% notes due 2040750 750 
3.362% notes due 2050750 750 
Other (including finance leases)4 8 
Total principal long-term debt7,398 6,671 
Other (discounts and debt issuance costs)(45)(42)
Total long-term debt7,353 6,629 
Less: current portion531 531 
Long-term debt, net of current portion$6,822 $6,098 
2 The six-month LIBOR rate at March 31, 2020 was approximately 1.18%.
3 On February 27, 2020, we issued $5.3 billion of unsecured, unsubordinated notes. We may redeem theseany series of notes at our option pursuant to theircertain terms.
4 On March 27, 2020, we drew down $1.0 billion For additional details regarding the Company's debt activity in 2022, refer to Note 10 of the Company's audited consolidated financial statements and notes thereto included in our unsecured, unsubordinated term loan.2022 Form 10-K.

15
We recorded $47 millionTable of dContentsebt issuance costs related to the Notes.
Debt discounts and debt issuance costs are presented as a reduction of debt on the Condensed CombinedConsolidated Balance Sheets and are amortized as a component of interest expense over the term of the related debt using the effective interest method. The Condensed Consolidated Statements of Operations for the quarters and nine months ended September 30, 2023 and 2022 reflects the following:

Quarter Ended September 30,Nine Months Ended September 30,
(dollars in millions)2023202220232022
Debt issuance costs amortization$2 $1 $5 $6 
Total interest expense on external debt38 35 105 106 
We had no
The unamortized debt payments during the quarter ended Marchissuance costs as of September 30, 2023 and December 31, 2020. 2022 were $43 million and $42 million, respectively.

The weighted average maturity of our long-term debt at March 31, 2020as of September 30, 2023 is approximately 10.67.5 years. The weighted average interest expense rate on our total borrowings foroutstanding as of September 30, 2023 and December 31, 2022 was as follows:

September 30, 2023December 31, 2022
Short-term commercial paper—%4.7%
Total long-term debt2.3%2.0%

The weighted average interest expense rate on our borrowings during the quarterquarters and nine months ended March 31, 2020 is approximately 2.5%. The schedule of principal payments required on long-term debt for the next five yearsSeptember 30, 2023 and thereafter is:2022 was as follows:

(dollars in millions)
2020$—  
20212  
20221  
20231,501  
20241  
Thereafter4,800  
Total$6,305  
Quarter Ended September 30,Nine Months Ended September 30,
2023202220232022
Short-term commercial paper5.4%2.5%5.0%1.3%
Total long-term debt2.1%2.0%2.0%2.0%

Note 10:8: Employee Benefit Plans

Pension and Postretirement Plans. We sponsorThe Company sponsors both funded and unfunded domestic and foreign defined benefit pension and other postretirement benefit plans, and defined contribution plans. Contributions to our plans were as follows:
 Quarter Ended March 31,
(dollars in millions)20202019
Defined benefit plans$10  $10  
Defined contribution plans16  11  
Multi-employer pension and postretirement plans37  38  

 Quarter Ended September 30,Nine Months Ended September 30,
(dollars in millions)2023202220232022
Defined benefit plans$8 $7 $32 $28 
Defined contribution plans16 14 50 49 
Multi-employer pension and postretirement plans42 40 117 101 


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The following table illustrates the components of net periodic benefit cost for ourthe Company's defined benefit pension plans:
 Quarter Ended March 31,
(dollars in millions)20202019
Service cost$10  $8  
Interest cost4  5  
Expected return on plan assets(7) (6) 
Amortization of prior service credit—  (1) 
Recognized actuarial net loss4  3  
Net settlement and curtailment loss—  1  
Total net periodic benefit cost$11  $10  

 Quarter Ended September 30,Nine Months Ended September 30,
(dollars in millions)2023202220232022
Service cost$7 $10 $22 $30 
Interest cost8 4 24 13 
Expected return on plan assets(8)(8)(24)(21)
Recognized actuarial net loss— 3 — 8 
Net settlement and curtailment (gain) loss— 1 — 1 
Total net periodic benefit cost$7 $10 $22 $31 

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Postretirement Benefit Plans. We sponsorThe Company sponsors postretirement benefit plans that provide health and life benefits to eligible retirees. The postretirement plans are unfunded. The net periodic benefit cost was less than $1 million for the quarters and nine months ended March 31, 2020September 30, 2023 and 2019,2022, respectively.

UTC Sponsored Defined Benefit Plans.Stock-based Compensation. Defined benefit pension and postretirement benefit plans sponsored by UTC have been accountedThe Company adopted the 2020 Long-Term Incentive Plan (the "Plan") effective April 3, 2020. As of September 30, 2023, approximately 23 million shares remain available for as multi-employer plans in these Condensed Combined Financial Statements, in accordance with FASB ASC Topic 715-30: Defined Benefit Plans – Pension and FASB ASC Topic 715-60: Defined Benefit Plans – Other Postretirement. FASB ASC Topic 715: Compensation-Retirement Benefits provides that an employer that participates in a multi-employer defined benefit plan is not required to report a liability beyondawards under the contributions currently due and unpaid to the plan. Therefore, no assets or liabilities related to these plans have been included on the Condensed Combined Balance Sheets.Plan.

These pensionStock-based Compensation Expense

The Company measures the cost of all share-based payments, including stock options, at fair value on the grant date and post retirement expensesrecognizes this cost in the Condensed Consolidated Statements of Operations over the award's applicable vesting period. A forfeiture rate assumption is applied on grant date to adjust the expense recognition for awards that are not expected to vest.

Stock-based compensation expense and the resulting tax benefits were allocatedas follows:

Quarter Ended September 30,Nine Months Ended September 30,
(dollars in millions)2023202220232022
Stock-based compensation expense (Share Based)$15 $13 $49 $41 
Stock-based compensation expense (income) (Liability Awards)— — — (1)
Total gross stock-based compensation expense15 13 49 40 
Less: future tax benefit2 2 6 5 
Stock-based compensation expense, net of tax$13 $11 $43 $35 

As of September 30, 2023, following our annual grant issuance on February 7, 2023, there was approximately $76 million of total unrecognized compensation cost related to non-vested equity awards granted under the BusinessPlan. This cost is expected to be recognized ratably over a weighted-average period of 1.9 years.

Note 9: Stock

Preferred Stock. There are 125 million shares of $0.01 par value Preferred Stock authorized, of which none were issued as of September 30, 2023 and reportedDecember 31, 2022.

Common Stock. There are 2 billion shares of $0.01 par value Common Stock authorized. As of September 30, 2023, 436.9 million shares of Common Stock were issued, which includes 27.6 million shares of Treasury Stock. As of December 31, 2022, 435.6 million shares of Common Stock were issued, which included 20.8 million shares of Treasury Stock.

Treasury Stock. As of September 30, 2023, the Company was authorized by the Board of Directors to purchase up to $2.0 billion of Common Stock under a share repurchase program, of which approximately $1.4 billion was remaining at such time.

During the quarter and nine months ended September 30, 2023, the Company repurchased 2.6 million and 6.8 million shares, respectively, for $225 million and $575 million, respectively, compared to 3.8 million and 9.1 million shares in Costthe same periods of products2022 for $300 million and services sold, Selling, general and administrative and Non-service pension benefit$700 million, respectively. Beginning January 1, 2023, share repurchases in excess of issuances are subject to a 1% excise tax, which is included as part of the cost basis of the shares acquired in Treasury Stock on the Condensed Combined StatementsConsolidated Balance Sheets as of Operations. September 30, 2023.

The amounts for pensionCompany's share repurchase program does not obligate it to acquire any specific number of shares. Under this program, shares may be purchased in the open market, in privately negotiated transactions, under accelerated share repurchase programs or under plans complying with Rules 10b5-1 and retirement expenses for10b-18 under the quarters ended March 31, 2020 and 2019 wereSecurities Exchange Act of 1934, as follows:amended (the "Exchange Act").
Quarter Ended March 31,
(dollars in millions)20202019
Service cost$1  $4  
Non-service pension benefit(5) (13) 
Total$(4) $(9) 

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Note 11:10: Accumulated Other Comprehensive LossIncome (Loss)

A summary of the changes in each component of Accumulated other comprehensive loss,income (loss), net of tax, for the quarters and nine months ended March 31, 2020September 30, 2023 and 20192022 is provided below:
(dollars in millions)
Foreign
Currency
Translation
Defined Benefit
Pension and
Postretirement
Plans
Unrealized
Hedging
(Losses)
Gains
Accumulated
Other
Comprehensive
(Loss) Income
Quarter Ended March 31, 2020
Balance at December 31, 2019$(588) $(167) $(3) $(758) 
Other comprehensive (loss) income before
reclassifications, net		(116) —  11  (105) 
Amounts reclassified, pre-tax—  4  —  4  
Tax benefit reclassified—  (3) —  (3) 
Balance at March 31, 2020$(704) $(166) $8  $(862) 
(dollars in millions)Foreign
Currency
Translation		Defined Benefit
Pension and
Postretirement
Plans		Unrealized
Hedging Gains
(Losses)		Accumulated
Other
Comprehensive
Income (Loss)
Quarter Ended September 30, 2023
Balance as of June 30, 2023$(681)$(8)$— $(689)
Other comprehensive income (loss) before reclassifications, net39 — 1 40 
Amounts reclassified, pre-tax— — 1 1 
Tax benefit reclassified— — — — 
Balance as of September 30, 2023$(642)$(8)$2 $(648)
Nine Months Ended September 30, 2023
Balance as of December 31, 2022$(587)$(8)$3 $(592)
Other comprehensive income (loss) before reclassifications, net(56)— (7)(63)
Amounts reclassified, pre-tax1 — 8 9 
Tax benefit reclassified— — (2)(2)
Balance as of September 30, 2023$(642)$(8)$2 $(648)

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(dollars in millions)
Foreign
Currency
Translation
Defined Benefit
Pension and
Postretirement
Plans		Unrealized
Hedging
(Losses) Gains
Accumulated
Other
Comprehensive
(Loss) Income
Quarter Ended March 31, 2019
Balance at December 31, 2018$(573) $(135) $—  $(708) 
Other comprehensive income (loss) before
reclassifications, net		36  (28) —  8  
Amounts reclassified, pre-tax—  2  —  2  
Tax expense reclassified—  4  —  4  
Balance at March 31, 2019$(537) $(157) $—  $(694) 
(dollars in millions)Foreign
Currency
Translation		Defined Benefit
Pension and
Postretirement
Plans		Unrealized
Hedging Gains
(Losses)		Accumulated
Other
Comprehensive
Income (Loss)
Quarter Ended September 30, 2022
Balance as of June 30, 2022$(631)$(124)$7 $(748)
Other comprehensive income (loss) before reclassifications, net93 — (5)88 
Amounts reclassified, pre-tax77 3 1 81 
Tax benefit reclassified— (1)— (1)
Balance as of September 30, 2022$(461)$(122)$3 $(580)
Nine Months Ended September 30, 2022
Balance as of December 31, 2021$(642)$(128)$7 $(763)
Other comprehensive income (loss) before reclassifications, net173 — (2)171 
Amounts reclassified upon change in Otis' share of Zardoya Otis ownership(69)— — (69)
Amounts reclassified, pre-tax77 8 (2)83 
Tax benefit reclassified— (2)— (2)
Balance as of September 30, 2022$(461)$(122)$3 $(580)

Amounts reclassified that relate to defined benefit pension and postretirement plans include amortization of prior service costs and actuarial net losses recognized during each period presented.These costs are recorded as components of net periodic pension cost for each period presented. See Note 10 8, "Employee Benefit Plans"– Employee Benefit Plans for additional information.

Amounts reclassified that relate to foreign currency translation in the quarter and nine months ended September 30, 2022 are related to our Russia business sold during the quarter ended September 30, 2022. See Note 6, "Business Acquisitions, Dispositions, Goodwill and Intangible Assets" for additional information regarding the sale of our Russia business.
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Note 12:11: Income Taxes

The increasedecrease in the effective tax rate for the quarter ended March 31, 2020September 30, 2023, is primarily the result of the tax impact of one-time Separation costs anddue to a fixed asset impairment loss.

As part of the Separation process, the Business determined that as a stand-alone company the Business no longer intends to reinvest certain undistributed earnings of its international subsidiaries that have been previously taxed in the U.S, which are different from the historical assertion of UTC. For the remainder of the Business' undistributed international earnings, the Business will continue to permanently reinvest these earnings unless it is tax effective to repatriate. As a result of the change in assertion, the Business recognized a one-time tax benefit of $9 million in the quarter resulting from an overall reduction in the deferred tax liability previously recorded by UTC.related to repatriation of foreign earnings, reversal of tax reserves related to the U.S. foreign tax credit regulations, and the closure of a foreign tax audit.

The Businessdecrease in the effective tax rate for the nine months ended September 30, 2023 is due to a lower forecasted tax cost on repatriation in 2023. This is partially offset by the absence of a tax reserve release related to a forward transfer pricing agreement with a European tax authority and the elimination of Base Erosion Anti-Abuse Tax in the U.S., recorded in 2022.

Otis conducts business globally and, as a result, the BusinessOtis or one or more of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normalordinary course of business, the Business isOtis could be subject to examination by taxing authorities throughout the world, including such major jurisdictions as Australia,Austria, Belgium, Brazil, Canada, China, France, Germany, Hong Kong, India, Italy, Japan, Mexico, Netherlands, Portugal, South Korea, Spain, Switzerland, the United Kingdom, and the United States. With a few exceptions, the BusinessOtis is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations for years before 2009.2010.

A subsidiary of Otis engaged in tax-related litigation in Belgium received a favorable appellate court decision in 2018. The Belgian tax authorities appealed the decision to the Court of Cassation (the equivalent of the Supreme Court in Belgium). On December 4, 2020, the Court of Cassation overturned the decision of the appellate court and remanded the case to the appellate court for reconsideration. Following a hearing on March 20, 2023, the Antwerp Appellate Court ruled against the Company. Otis has decided not to appeal the decision, which marks the end of this litigation. Otis expects to receive the assessment for tax and interest in the quarter ending December 31, 2023. The associated tax and interest have been fully reserved and are included in the range below.

In the ordinary course of business, there is inherent uncertainty in quantifying our income tax positions. We assess our income tax positions and record tax benefits for all years subject to examination based upon management’s evaluation of the facts, circumstances, and information available at the reporting date. It is reasonably possible that a range of a $10 million net increase to a $330 million net reduction of unrecognized tax benefits may occur within the next 12 months as a result ofThe evaluation considers any additional worldwide uncertain tax positions, the closure of tax statutes or the revaluationre-valuation of current uncertain tax positions arising from the issuance of legislation, regulatory or other guidance or developments in examinations, in appeals, or in the courts. Based on the preceding factors, it is reasonably possible that within the next 12 months unrecognized tax benefits could change within the range of a $10 million increase to a $330 million decrease and associated interest could change within the range of a $5 million increase to a $140 million decrease.

See Note 16, Contingent Liabilities,“Contingent Liabilities” for discussion regarding uncertain tax positions, included in the above range, related to pending litigation with respect to certain deductions claimed in Germany.

Note 13:12: Restructuring and Transformation Costs

We initiate restructuring actions to keep our cost structure competitive. Charges generally arise from severance related to workforce reductions, and to a lesser degree, facility exit and lease termination costs associated with the consolidation of office and manufacturing operations.

During the quarter ended September 30, 2023, we announced the UpLift program to transform our operating model. The program will include, among other aspects, the standardization of our processes and improving our supply chain procurement, as well as restructuring actions. During the quarter and nine months ended September 30, 2023, we incurred $4 million of incremental non-restructuring costs associated with the program ("transformation costs"), including consulting and personnel costs, which were recorded in Other income (expense), net in the Condensed Consolidated Statements of Operations. There were no UpLift restructuring actions initiated in the nine months ended September 30, 2023. See Note 19, "Subsequent Events," for discussion regarding UpLift restructuring actions approved following period-end.

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During the quarters and nine months ended March 31, 2020September 30, 2023 and 2019,2022, we recorded pre-tax restructuring costs totaling $6 million and $25 million, respectively, for new and ongoing restructuring actions. We recorded pre-tax restructuring costs of $4 million related to 2020 actions and $2 million of costs related to 2019 actions. We recorded these charges as follows:
Quarter Ended March 31,
(dollars in millions)20202019
Cost of products and services sold$—  $8  
Selling, general and administrative6  17  
Total$6  $25  

Quarter Ended September 30,Nine Months Ended September 30,
(dollars in millions)2023202220232022
New Equipment$10 $2 $15 $18 
Service11 4 21 27 
Total$21 $6 $36 $45 

18
Quarter Ended September 30,Nine Months Ended September 30,
(dollars in millions)2023202220232022
Cost of products and services sold$9 $2 $11 $16 
Selling, general and administrative12 4 25 29 
Total$21 $6 $36 $45 

TableThe restructuring expenses incurred during the quarter and nine months ended September 30, 2023 and 2022, were primarily the result of Contents
2020 Actions. During the quarter ended March 31, 2020, we recorded pre-tax restructuring costs of $4 million primarily included in Selling, generalprograms initiated during 2023 and administrative expenses on the Condensed Combined Statement of Operations. The 2020 actions relate to ongoing cost reduction efforts, including workforce reductions.
2022. We are targeting to complete in 2021by the end of 2024 the majority of remaining restructuring actions initiated in 2020. the quarter and nine months ended September 30, 2023 and the full year 2022, with certain utilization beyond 2023 due to legal requirements in the applicable jurisdictions. Expected total costs for the restructuring actions initiated are $120 million, including $43 million to New Equipment and $77 million to Service operating segments, respectively. Remaining costs to incur for the restructuring actions initiated are expected to be $28 million, including $6 million to New Equipment and $22 million to Service operating segments, respectively.

The following table summarizes the accrual balance and utilization for the 2020 restructuring actions, which are primarily for severance costs and most will require cash payment:

(dollars in millions)
Restructuring accruals as of December 31, 2022$41 
Net restructuring costs36
Utilization, foreign exchange and other costs(35)
Balance as of September 30, 2023$42

Note 13: Financial Instruments

We enter into derivative instruments primarily for risk management purposes, including derivatives designated as hedging instruments under ASC 815, Derivatives and Hedging. We operate internationally and, in the quarter ended March 31, 2020:
(dollars in millions)SeveranceFacility Exit, Lease Termination and Other CostsTotal
Quarter Ended March 31, 2020
Net pre-tax restructuring costs$4  $—  $4  
Utilization, foreign exchange and other costs(1) —  (1) 
Balance at March 31, 2020$3  $—  $3  
normal course of business, are exposed to fluctuations in interest rates, commodity prices and foreign exchange rates. These fluctuations can increase the costs of financing, investing in and operating the business. We may use derivative instruments, including swaps, forward contracts and options, to manage certain foreign currency, commodity price and interest rate exposures.

The following table summarizes expected, incurredfour-quarter average of the notional amount of foreign exchange contracts hedging foreign currency transactions was $4.3 billion and remaining costs for$3.9 billion as of September 30, 2023 and December 31, 2022, respectively. The four-quarter average of the 2020 restructuring actions:
(dollars in millions)
Expected
Costs
Costs Incurred Quarter Ended
March 31, 2020		Remaining Costs at
March 31, 2020
Total restructuring$5  $(4) $1  
notional amount of contracts hedging commodity purchases was $24 million and $20 million as of September 30, 2023 and December 31, 2022, respectively.

20
2019 Actions. During the quarter ended March 31, 2020, we recorded pre-tax restructuring costs totaling $2 million for restructuring actions initiated in 2019, allTable of which were included in Selling, general and administrative expenses Condensed Combined Statement of Operations. The 2019 actions relate to ongoing cost reduction efforts, including workforce reductions.Contents
The following table summarizes the accrual balancesfair value and utilization presentation on the Condensed Consolidated Balance Sheets for derivative instruments as of September 30, 2023 and December 31, 2022:

(dollars in millions)Balance Sheet ClassificationSeptember 30, 2023December 31, 2022
Derivatives designated as Cash flow hedging instruments:
Asset Derivatives:
Foreign exchange contractsOther current assets$2 $3 
Foreign exchange contractsOther assets3 2 
Total asset derivatives$5 $5 
Liability Derivatives:
Foreign exchange contractsAccrued liabilities$(3)$(4)
Commodity contractsAccrued liabilities— (1)
Foreign exchange contractsOther long-term liabilities(1)— 
Total liability derivatives$(4)$(5)
Derivatives not designated as Cash flow hedging instruments:
Asset Derivatives:
Foreign exchange contractsOther current assets$31 $25 
Foreign exchange contractsOther assets5 3 
Total asset derivatives$36 $28 
Liability Derivatives:
Foreign exchange contractsAccrued liabilities$(17)$(20)
Commodity contractsAccrued liabilities— (4)
Foreign exchange contractsOther long-term liabilities(4)(2)
Total liability derivatives$(21)$(26)

Derivatives designated as Cash flow hedging instruments. The amounts of gain or (loss) attributable to foreign exchange and commodity contract activity reclassified from Accumulated other comprehensive income (loss) were immaterial for the 2019 restructuring actions for the quarterquarters and nine months ended March 31, 2020:    
(dollars in millions)Severance
Facility Exit,
Lease
Termination and
Other Costs
Total
Quarter Ended March 31, 2020
Restructuring accruals at January 1, 2019$6  $—  $6  
Net pre-tax restructuring costs2  —  2  
Utilization, foreign exchange and other costs(6) —  (6) 
Balance at March 31, 2020$2  $—  $2  
September 30, 2023 and 2022, respectively.

The followingeffect of cash flow hedging relationships on Accumulated other comprehensive income (loss) as of September 30, 2023 and December 31, 2022 are presented in the table summarizes expected, incurred and remaining costs for the 2019 restructuring actions:below:
(dollars in millions)
Expected
Costs
Costs incurred during 2019Costs Incurred Quarter Ended
March 31, 2020		Remaining Costs at
March 31, 2020
Total restructuring$63  $(45) $(2) $16  

(dollars in millions)September 30, 2023December 31, 2022
Gain (loss) recorded in Accumulated other comprehensive income (loss)$2 $3 

2018The Company utilizes the critical terms match method in assessing firm commitment derivatives and Prior Actions.regression testing in assessing commodity derivatives for hedge effectiveness. Accordingly, the hedged items and derivatives designated as hedging instruments are highly effective.

Assuming current market conditions continue, a pre-tax loss of $1 million is expected to be reclassified from Accumulated other comprehensive income (loss) into Cost of products sold to reflect the fixed prices obtained from foreign exchange and commodity hedging within the next 12 months. All derivative contracts accounted for as cash flow hedges as of September 30, 2023 will mature by December 2028.

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Net Investment Hedges. DuringWe may use non-derivative (foreign currency denominated debt) and derivative (foreign exchange forward contracts) instruments to hedge portions of the Company's investment in foreign subsidiaries and manage foreign exchange risk. For instruments that are designated and qualify as hedges of net investments in foreign operations and that meet the effectiveness requirements, the net gains or losses attributable to changes in spot exchange rates are recorded in foreign currency translation within Other comprehensive income (loss) on the Condensed Consolidated Statements of Comprehensive Income, and will remain in Accumulated other comprehensive income (loss) until the hedged investment is sold or substantially liquidated. The remainder of the change in value of such instruments is recorded in earnings, including to the extent foreign currency denominated debt is not designated in or is de-designated from a net investment hedge relationship.

Our use of foreign exchange forward contracts designated as hedges of the Company's net investment in foreign subsidiaries can vary depending on the Company's desired foreign exchange risk coverage.

We have ¥21.5 billion of Japanese Yen denominated long-term debt, which qualifies as a net investment hedge against our investments in Japanese businesses, as well as notional amounts of foreign exchange forward contracts of €120 million and HK$2 billion which qualify as net investment hedges against our investments in certain European and Asian businesses, respectively. The net investment hedges are deemed to be effective. Additionally, we had a notional amount of a foreign exchange forward contract of €95 million that qualified as a net investment hedge, which matured during the quarter ended March 31, 2020, no pre-tax restructuring costsJune 30, 2023 and the net investment hedge was deemed to be effective until maturity. The maturity dates of the current non-derivative and derivative instruments designated in net investment hedges range from 2024 to 2026.

The amounts of gains (losses) recognized in other comprehensive income (loss) related to non-derivative and derivative instruments designated as net investment hedges are as follows.

Quarter Ended September 30,Nine Months Ended September 30,
2023202220232022
Foreign currency denominated long-term debt$6 $10 $18 $40 
Foreign currency forward contracts2 — 3 — 
Total$8 $10 $21 $40 

Derivatives not designated as Cash flow hedging instruments. The net effect of derivatives not designated as Cash flow hedging instruments within Other income (expense) net, on the Condensed Consolidated Statements of Operations was as follows:

Quarter Ended September 30,Nine Months Ended September 30,
(dollars in millions)2023202220232022
Foreign exchange contracts$4 $9 $16 $12 

The effects of derivatives not designated as Cash flow hedge instruments within Cost of products sold on the Condensed Consolidated Statements of Operations were recorded for restructuring actions initiatedgains of $1 million in 2018the quarter ended September 30, 2023 and prior.losses of $8 million in the nine months ended September 30, 2023, compared to losses of $3 million and $11 million in the same periods of 2022, respectively.

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Note 14: Fair Value Measurements
In accordance with the provisions of ASC 820: Fair Value Measurements, the following tables provide the valuation hierarchy classification of assets and liabilities that are carried at fair value and measured on a recurring and non-recurring basis in our Condensed Combined Balance Sheets as of March 31, 2020 and December 31, 2019:
March 31, 2020
(dollars in millions)TotalLevel 1Level 2Level 3
Recurring fair value measurements:
Equity securities$52  $52  $—  $—  
Derivative assets33  —  33  —  
Derivative liabilities(17) —  (17) —  

December 31, 2019
(dollars in millions)TotalLevel 1Level 2Level 3
Recurring fair value measurements:
Equity securities$3  $3  $—  $—  
Derivative assets9  —  9  —  
Derivative liabilities(5) —  (5) —  

Valuation Techniques.Techniques. Our equitymarketable securities include equity investments that are traded in active markets, either domestically or internationally, and are measured at fair value using closing stock prices from active markets.markets. The fair value gains or losses related to our equity marketable securities are recorded through net income. Our derivative assets and liabilities include foreign exchange and commodity contracts that are measured at fair value using internal models based on observable market inputs such as forward rates, interest rates, our own credit risk and our counterparties' credit risks. Our Notes are measured at fair value using closing bond prices from active markets. Our term loan is measured at fair value using external interest rates and market conditions to derive a market interest rate, which at March 31, 2020 approximated the actual rate.

As of March 31, 2020,September 30, 2023, there has not been any significant impact to the fair value of our derivative liabilities due to our own credit risk. Similarly, there has not been any significant adverse impact to our derivative assets based on our evaluation of our counterparties' credit risks.

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Due to their short-term nature, the carrying value approximated fair value for the current portion of the Company’s financial instruments not carried at fair value. The fair value of receivables, including customer financing notes receivable, net, that were issued long-term are based on the discounted values of their related cash flows at interest rates reflecting the attributes of the counterparties, including geographic location. Customer-specific risk, including credit risk, is already considered in the carrying value of those receivables. Our notes, as described in Note 7, "Borrowings and Lines of Credit," are measured at fair value using closing bond prices from active markets.

Recurring Fair Value Measurements. In accordance with the provisions of ASC 820: Fair Value Measurements, the following tables provide the valuation hierarchy classification of assets and liabilities that are carried at fair value and measured on a recurring and non-recurring basis in our Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022: 

September 30, 2023
(dollars in millions)TotalLevel 1Level 2Level 3
Recurring fair value measurements:
Marketable securities$31 $31 $— $— 
Derivative assets41 — 41 — 
Derivative liabilities(25)— (25)— 

December 31, 2022
(dollars in millions)TotalLevel 1Level 2Level 3
Recurring fair value measurements:
Marketable securities$30 $30 $— $— 
Derivative assets33 — 33 — 
Derivative liabilities(31)— (31)— 

Fair Value of Financial Instruments.The following table provides carrying amounts and fair values of financial instruments that are not carried at fair value in our Condensed Combined Balance Sheets at March 31, 2020as of September 30, 2023 and December 31, 2019:
 March 31, 2020December 31, 2019
(dollars in millions)
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Long-term receivables$62  $62  $62  $62  
Customer financing notes receivable77  77  62  62  
Short-term borrowings(67) (67) (34) (34) 
Long-term debt (excluding finance leases)(6,300) (6,123) —  —  
Long-term liabilities(3) (3) (4) (4) 
2022:

 September 30, 2023December 31, 2022
(dollars in millions)Carrying
Amount		Fair
Value		Carrying
Amount		Fair
Value
Long-term receivables, net$49 $49 $55 $53 
Customer financing notes receivable, net31 27 55 51 
Short-term borrowings(54)(54)(139)(139)
Long-term debt, including current portion (excluding leases and other)(7,394)(6,343)(6,663)(5,661)
Long-term liabilities, including current portion(197)(184)(222)(197)

The following tables provide the valuation hierarchy classification of assets and liabilities that are not carried at fair value in the Condensed CombinedConsolidated Balance Sheet at March 31, 2020Sheets as of September 30, 2023 and December 31, 2019:2022:

March 31, 2020
(dollars in millions)TotalLevel 1Level 2Level 3
Long-term receivables$62  $—  $62  $—  
Customer financing notes receivable77  —  77  —  
Short-term borrowings(67) —  (67) —  
Long-term debt (excluding finance leases)(6,123) —  (5,123) (1,000) 
Long-term liabilities(3) —  (3) —  
September 30, 2023
(dollars in millions)TotalLevel 1Level 2Level 3
Long-term receivables, net$49 $— $49 $— 
Customer financing notes receivable, net27 — 27 — 
Short-term borrowings(54)— (54)— 
Long-term debt, including current portion (excluding leases and other)(6,343)— (6,343)— 
Long-term liabilities, including current portion(184)— (184)— 
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December 31, 2022
(dollars in millions)TotalLevel 1Level 2Level 3
Long-term receivables, net$53 $— $53 $— 
Customer financing notes receivable, net51 — 51 — 
Short-term borrowings(139)— (139)— 
Long-term debt, including current portion (excluding leases and other)(5,661)— (5,661)— 
Long-term liabilities, including current portion(197)— (197)— 

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December 31, 2019
(dollars in millions)TotalLevel 1Level 2Level 3
Long-term receivables$62  $—  $62  $—  
Customer financing notes receivable62  —  62  —  
Short-term borrowings(34) —  (34) —  
Long-term liabilities(4) —  (4) —  

Note 15: Guarantees

The BusinessCompany provides service and warranty on its products beyond normal service and warranty policies. The changes in the carrying amount of service and product guarantees for the quartersnine months ended March 31, 2020September 30, 2023 and 20192022 are as follows:

(dollars in millions)(dollars in millions)20202019(dollars in millions)20232022
Balance as of January 1$27  $47  
Balance as of December 31Balance as of December 31$13 $20 
WarrantiesWarranties7  2  Warranties3 1 
Settlements madeSettlements made(3) (3) Settlements made(5)(7)
Other(1) 1  
Balance as of March 31$30  $47  
Foreign exchange and otherForeign exchange and other(1)(1)
Balance as of September 30Balance as of September 30$10 $13 

The Company provides certain financial guarantees to third parties. As of September 30, 2023, Otis has stand-by letters of credit with maximum potential payment totaling $128 million. We accrue costs associated with guarantees when it is probable that a liability has been incurred and the amount can be reasonably estimated. The most likely cost to be incurred is accrued based on an evaluation of currently available facts, and where no amount within a range of estimates is more likely, the minimum is accrued. In accordance with ASC Topic 460: Guarantees, we record these liabilities at fair value. As of September 30, 2023, Otis has determined there are no estimated costs probable under these guarantees.

Note 16: Contingent Liabilities

Except as otherwise noted, while we are unable to predict the final outcome, based on information currently available, we do not believe that resolution of any of the following matters will have a material adverse effect upon our competitive position, results of operations, cash flows or financial condition. In addition to the specific amounts noted below, where we have recorded loss contingency accruals for the below and other matters, the amounts in aggregate are not material. Legal costs generally are expensed when incurred.

Environmental. As previously disclosed, the Business’Company's operations are subject to environmental regulation by authorities with jurisdiction over its operations. The BusinessCompany has accrued for the costs of environmental remediation activities, including, but not limited to, investigatory, remediation, operating and maintenance costs and performance guarantees, and periodically reassesses these amounts. Management believes that the likelihood of incurring losses materially in excess of amounts accrued is remote. The outstanding liability for environmental obligations was $12 was $5 million at the quarters ended March 31, 2020as of September 30, 2023 and December 31, 2019 respectively2022, and is principally included in Accrued liabilities and Other long-term liabilities on the Condensed CombinedConsolidated Balance Sheets.

Legal Proceedings.

German Tax Litigation

As previously disclosed, we have been involved in administrative review proceedings with the German Tax Office, which concern approximately €215 million (approximately $237$229 million as of March 31, 2020)September 30, 2023) of tax benefits that we have claimed related to a 1998 reorganization of the corporate structure of our operations in Germany. Upon audit, these tax benefits were disallowed by the German Tax Office. We estimate interest associated with the aforementioned tax benefits is an additional approximately €118 million (approximately $130 million)$126 million as of September 30, 2023). On

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In August 3, 2012, a suit was filed in the local German Tax Court (Berlin-Brandenburg). In 2015, our former parent United Technologies Corporation ("UTC"), now RTX Corporation ("RTX"), made tax and interest payments to German tax authorities of €275 million (approximately $300 million) in order to avoid additional interest accruals pending final resolution of this matter. In March 2016, the local German Tax Court dismissed the suit, and we appealed this decision to the German Federal Tax Court. Following a hearing onin July 24, 2018, the German Federal Tax Court remanded the matter to the local German Tax Court for further proceedings. In 2015, UTC made taxDecember 2020, the local German Tax Court ruled against the Company.

On January 26, 2021, the Company filed an appeal with the German Federal Tax Court. On February 8, 2022, the Company received the decision of the German Federal Tax Court, in which the Court remanded the case for reconsideration by the local German Tax Court. The local German Tax Court held a hearing on June 12, 2023, and interest payments toissued a decision in favor of Otis on July 21, 2023. On September 14, 2023, the German tax authorities filed an appeal to the German Federal Tax Court. The German Federal Tax Court is expected to rule on the appeal in 2024. As a result of €275 million (approximately $303 million) in order to avoid additional interest accruals pending final resolutionthe appeal filing, this matter remains contested, and the Company cannot assess the ultimate outcome of this matter. case.

Pursuant to the tax matters agreement,Tax Matters Agreement ("TMA") with our former parent, UTC, the BusinessCompany retains the liability associated with the remaining interest, and has recorded an interest accrual of €44.7€45 million (approximately $49.1 million)$47 million as of September 30, 2023), net of payments and other deductions, included within Other long-termAccrued liabilities on the Condensed CombinedConsolidated Balance Sheet at March 31, 2020. InSheets as of September 30, 2023. If the event that UTC and Otis prevailCompany prevails in this matter, any recoveries would be allocated between UTCRTX and the BusinessCompany pursuant to the terms of the tax matters agreement.TMA.



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Asbestos Matters

As previously disclosed, we have been named as defendants in lawsuits alleging personal injury as a result of exposure to asbestos. While we have never manufactured any asbestos-containing component parts, and no longer incorporate asbestos in any current products, certain of our historical products have contained components manufactured by third parties incorporating asbestos. A substantial majority of these asbestos-related claims have been dismissed without payment or were covered in full or in part by insurance or other forms of indemnity. Additional cases were litigated and settled without any insurance reimbursement. The amounts involved in asbestos relatedasbestos-related claims were not material individually or in the aggregate as of and for the periods ended March 31, 2020September 30, 2023 and December 31, 2019.2022.

The estimated range of total liabilities to resolve all pending and unasserted potential future asbestos claims through 2059 is approximately $24$21 million to $45 million. Because$43 million as of September 30, 2023 and December 31, 2022. Since no amount within the range of estimates is more likely to occur than any other, we have recorded the minimum amount of $24$21 million, which is principally recorded in Other long-term liabilities on our Condensed CombinedConsolidated Balance Sheets as of March 31, 2020September 30, 2023 and December 31, 2019.2022. Amounts are on a pre-tax basis, not discounted, and excludesexclude the Business’Company's legal fees to defend the asbestos claims (which will continue to be expensed as they are incurred). In addition, the BusinessCompany has an insurance recovery receivable for probable asbestos relatedasbestos-related recoveries of approximately $5 million, which is principally included in Other assets on our Condensed CombinedConsolidated Balance Sheets as of March 31, 2020September 30, 2023 and December 31, 2019.2022.

Other.Putative Class Action Lawsuit

On August 12, 2020, a putative class action lawsuit, (Geraud Darnis et al. v. Raytheon Technologies Corporation et al.), was filed in the United States District Court for the District of Connecticut (the "Court") against Otis, RTX, Carrier Global Corporation ("Carrier"), each of their directors, and various incentive and deferred compensation plans in connection with the separation of Otis and Carrier from UTC (the "Separation") in April 2020. On September 13, 2021, plaintiffs filed an amended complaint against the three company defendants only. The named plaintiffs are former employees of UTC and its current and former subsidiaries, including Otis and Carrier. They seek to recover monetary damages, as well as related declaratory and equitable relief, based on claimed decreases in the value of long-term incentive awards and deferred compensation under nonqualified deferred compensation plans allegedly caused by the formula used to calculate the adjustments to such awards and deferred compensation from RTX, Carrier, and Otis following the spin-offs of Carrier and Otis and the subsequent combination of UTC and Raytheon Company. On September 30, 2022, in response to motions to dismiss filed by the defendants, the Court dismissed the class action in its entirety with prejudice. The plaintiffs appealed the decision on October 26, 2022. On August 24, 2023, the Second Circuit Court of Appeals entered judgment in defendants’ favor, upholding the trial court’s decision. This action is concluded.

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Other. As previously disclosed, we have commitments and contingent liabilities related to legal proceedings, self-insurance programs and matters arising out of the normal course of business. We accrue contingencies based on a range of possible outcomes. If no amount within this range is a better estimate than any other, we accrue the minimum amount. While it is not possible to determine the ultimate disposition of each of these claims and whether they will be resolved consistent with our beliefs, we expect that the outcome of such claims, individually or in the aggregate, will not have a material adverse effect on our business, financial condition, cash flows or results of operations.

As previously disclosed, in certain European countries, claims for overcharges on elevators and escalators related to civil cartel cases have been made, which we have accrued for based on our evaluation of the claims. While it is not possible to determine the ultimate disposition of each of these claims and whether they will be resolved consistent with our beliefs, historical settlement experience of these cases havehas not been material to the business, financial condition, cash flows or results of operations, howeveroperations. However, the future outcome of these cases cannot be determined.

As previously disclosed, in the ordinary course of business, the BusinessCompany is also routinely a defendant in, party to or otherwise subject to many pending and threatened legal actions, claims, disputes and proceedings. These matters are often based on alleged violations of contract, product liability, warranty, regulatory, environmental, health and safety, employment, intellectual property, tax and other laws. In some of these proceedings, claims for substantial monetary damages are asserted against the BusinessCompany and its subsidiaries and could result in fines, penalties, compensatory or treble damages or non-monetary relief. We do not believe that these matters will have a material adverse effect upon our competitive position, results of operations, cash flows or financial condition.

Note 17: Segment Financial Data

Our operations are classified into 2two operating segments: New Equipment and Service. Through the New Equipment segment, we design, manufacture, sell and install a wide range of passenger and freight elevators as well as escalators and moving walkways to customers in the residential and commercial building and infrastructure projects. The Service segment provides maintenance and repair services for both our products and those of other manufacturers, and provides modernization services to upgrade elevators and escalators. The operating segments are generally based on the management structure of the Business,Company, how management allocates resources, assesses performance and makes strategic and operational decisions.

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Segment Information. Segment information for the quarters ended March 31, 2020September 30, 2023 and 20192022 are as follows:

Net SalesOperating ProfitOperating Profit Margin
(dollars in millions)202020192020201920202019
New Equipment$1,123  $1,271  $64  $59  5.7 %4.6 %
Service1,843  1,830  400  386  21.7 %21.1 %
Total segment2,966  3,101  464  445  15.6 %14.4 %
General corporate expenses and other 1
—  —  (135) (30) 
Total$2,966  $3,101  $329  $415  11.1 %13.4 %
1The increase in general corporate expenses and other during the quarter ended March 31, 2020 compared to the quarter ended March 31, 2019 is primarily driven by a fixed asset impairment charge and related costs of approximately $67 million, as well as Separation related costs of $32 million and standalone public company costs.
Net SalesOperating ProfitOperating Profit Margin
(dollars in millions)202320222023202220232022
New Equipment$1,435 $1,447 $94 $100 6.6 %6.9 %
Service2,088 1,897 507 446 24.3 %23.5 %
Total segments3,523 3,344 601 546 17.1 %16.3 %
General corporate expenses and other——(30)(17)——
Total$3,523 $3,344 $571 $529 16.2 %15.8 %

Segment information for the nine months ended September 30, 2023 and 2022 are as follows:
Net SalesOperating ProfitOperating Profit Margin
(dollars in millions)202320222023202220232022
New Equipment$4,346 $4,403 $277 $292 6.4 %6.6 %
Service6,243 5,843 1,475 1,328 23.6 %22.7 %
Total segments10,589 10,246 1,752 1,620 16.5 %15.8 %
General corporate expenses and other— — (88)(78)——
Total$10,589 $10,246 $1,664 $1,542 15.7 %15.0 %
Total assets are not presented for each segment as they are not presented to, or reviewed by, the Chief Operating Decision Maker ("CODM").Maker.
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Geographic External Sales. Geographic Net sales are attributed to the geographic regions based on their location of origin. With the exception of the U.S. and China, there were no individually significant countries with sales exceeding 10% of Net sales during the quarters and nine months ended March 31, 2020September 30, 2023 and 2019.2022.
External Net Sales
Quarter Ended March 31,
(dollars in millions)20202019
United States Operations:$890  $917  
International Operations:
China319  377  
Other1,757  1,807  
Total$2,966  $3,101  

Quarter Ended September 30,Nine Months Ended September 30,
(dollars in millions)2023202220232022
United States Operations$1,004 $943 $3,015 $2,873 
International Operations
  China596 672 1,832 1,951 
  Other1,923 1,729 5,742 5,422 
Total$3,523 $3,344 $10,589 $10,246 

Disaggregated Sales by Type. Segment Net sales disaggregated by product and service type for the quarters and nine months ended March 31, 2020September 30, 2023 and 20192022 are as follows:
Quarter ended March 31,
(dollars in millions)20202019
Disaggregated Net sales by type
New Equipment$1,123  $1,271  
Maintenance and repair1,510  1,507  
Modernization333  323  
Total Service1,843  1,830  
$2,966  $3,101  

Quarter Ended September 30,Nine Months Ended September 30,
(dollars in millions)2023202220232022
New Equipment$1,435 $1,447 $4,346 $4,403 
Maintenance and Repair1,715 1,555 5,116 4,784 
Modernization373 342 1,127 1,059 
Total Service2,088 1,897 6,243 5,843 
Total$3,523 $3,344 $10,589 $10,246 

Major Customers. There were no customers that individually accounted for 10% or more of the Business’ combinedCompany's consolidated Net sales for the quarters and nine months ended March 31, 2020September 30, 2023 and 2019.2022.

Note 18: Accounting Pronouncements

In August 2018,October 2021, the FASB issued ASU 2018-13, Fair Value Measurement2021-08, Business Combinations (Topic 820)805): Disclosure Framework—Changes to the Disclosure RequirementsAccounting for Fair Value MeasurementContract Assets and Contract Liabilities from Contracts with Customers. The new standard removes the disclosure requirementsThis ASU clarifies that an acquirer of a business should recognize and measure contract assets and contract liabilities in a business combination in accordance with ASC Topic 606, Revenue from Contracts with Customers. ASU 2021-08 is effective for the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy. The provisions of this ASU are effective forfiscal years beginning after December 15, 2019,2022, with early adoptionapplication permitted. The BusinessCompany adopted this standardASU 2021-08 effective January 1, 2020. The adoption of this ASU did not have a significant impact on our Condensed Combined Financial Statements.
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In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans. The new standard includes updates to the disclosure requirements for defined benefit plans including several additions, deletions and modifications to the disclosure requirements. The provisions of this ASU are effective for years ending after December 15, 2020, with early adoption permitted. The Business adopted this standard effective January 1, 2020. The adoption of this ASU did not have a significant impact on our Condensed Combined Financial Statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The new standard provides updated guidance surrounding implementation costs associated with cloud computing arrangements that are service contracts. The provisions of this ASU are effective for years beginning after December 15, 2019. The Business adopted this standard effective January 1, 2020.2023. The adoption of this ASU did not have a material impact on our Condensed CombinedConsolidated Financial Statements.

In October 2018,September 2022, the FASB issued ASU 2018-17, ConsolidationNo. 2022-04, Liabilities - Supplier Finance Programs (Topic 810)450-50): Targeted ImprovementsDisclosure of Supplier Finance Program Obligations, whichrequires entities that use supplier finance programs in connection with the purchase of goods and services to Related Party Guidancedisclose the key terms of the programs and information about obligations outstanding at the end of the reporting period, including a rollforward of those obligations. The guidance does not affect the recognition, measurement or financial statement presentation of supplier finance program obligations. ASU 2022-04 is effective for Variable Interest Entities. The amendments in this update for determining whether a decision-making fee is a variable interest require reporting entities to consider indirect interests held through related parties under common control on a proportional basis rather than as the equivalent of a direct interest in its entirety (as currently required in GAAP). Therefore, these amendments likely will result in more decision makers not having a variable interest through their decision-making arrangements. These amendments also will create alignment between determining whether a decision making fee is a variable interest and determining whether a reporting entity within a related party group is the primary beneficiary of a Variable Interest Entity ("VIE"). If fewer decision-making fees are considered variable interests, the focus on determining which party within a related party group under common control may have a controlling financial interest will be shifted to the variable interest holders in the group with more significant economic interests. This will significantly reduce the risk that decision makers with insignificant direct and indirect interests could be deemed the primary beneficiary of a VIE. The provisions of this ASU are effective forfiscal years beginning after December 15, 2019, with early adoption permitted.2022, except for the disclosure of rollforward information, which is effective for fiscal years beginning after December 15, 2023. The BusinessCompany adopted this standardASU 2022-04 effective January 1, 2020.2023. The adoption of this ASU did not have a material impact on our Condensed CombinedConsolidated Financial Statements, as disclosed in Note 1, "General."

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In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2020-04"), which provides temporary optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments in ASU 2020-04 apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. Additionally, in December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 ("ASU 2022-06"), which allows ASU 2020-04 to be adopted and applied prospectively to contract modifications made on or before December 31, 2024. We do not expect the adoption of this standard to have a material impact on our Condensed Consolidated Financial Statements.

In August 2023, the FASB issued ASU 2023-05, Business Combinations - Joint Ventures Formations (Subtopic 805-60): Recognition and initial measurement ("ASU 2023-05"), which requires that joint ventures, upon formation, apply a new basis of accounting by initially measuring assets and liabilities at fair value. The amendments in ASU 2023-05 are effective for joint ventures that are formed on or after January 1, 2025. Early adoption is permitted. We are currently evaluating the impact of this standard, however we do not expect it to have a material impact on our Condensed Consolidated Financial Statements.

Other new accounting pronouncements issued but not effective until after September 30, 2023 did not and are not expected to have a material impact on our financial position, results of operations or liquidity.

Note 19 -19: Subsequent Events

The Business evaluated events and transactions occurring subsequentFollowing period end, on October 5, 2023, UpLift restructuring actions of approximately $55 million were approved, which are expected to March 31, 2020.

Distribution from UTC. On April 3, 2020, the Separation was completed through UTC's pro-rata distribution (the “Distribution”) of 100% of the outstanding common stock of Otis, to holders of UTC common stock who held shares of UTC common stock, as of the close of business on the record date of March 19, 2020. UTC distributed 433,079,455 shares of Otis’ common stock, par value $0.01 per share,be incurred beginning in the Distribution, which was effective at 12:01 a.m., Eastern Time, on April 3, 2020. As a resultfourth quarter of the Distribution, UTC shareowners of record received 0.5 shares of Otis’ common stock for every share of UTC common stock. As a result of the Distribution, Otis became an independent, publicly-traded company and its common stock is listed under the symbol “OTIS” on the NYSE.

In connection with the Separation, the Business entered into several agreements with UTC and Carrier Global Corporation ("Carrier"), including a separation and distribution agreement that sets forth certain agreements with UTC and Carrier regarding the principal2023 through 2024. These are primarily severance related costs. We expect these actions to be taken in connection withmostly completed and cash to be paid by the Separation, including identifying the assets transferred, the liabilities assumed and the contracts transferred to eachend of UTC, Carrier and Otis as part of the Separation, and when and how these transfers and assumptions occurred. Other agreements that we entered into that govern aspects of our relationship with UTC and Carrier following the Separation include:

•Transition Services Agreement. We entered into a transition services agreement under which UTC is to provide the Business2024, with certain services and we will provide certain servicesactions to UTC for a limited timebe completed beyond 2024 due to help ensure an orderly transition followinglegal requirements in the Separation. The services we receive include, but are not limited to, information technology services, technical and engineering support, application support for operations, legal, payroll, finance, tax and accounting, general administrative services and other support services.

•Tax Matters Agreement. We entered into a tax matters agreement with UTC and Carrier that governs the parties’ respective rights, responsibilities and obligations with respect to tax matters (including responsibility for taxes, entitlement to refunds, allocation of tax attributes, preparation of tax returns, control of tax contests and other taxapplicable jurisdictions.
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matters). Subject to certain exceptions set forth in the tax matters agreement, Otis generally is responsible for federal, state and foreign taxes imposed on a separate return basis on Otis (or any of its subsidiaries) with respect to taxable periods (or portions thereof) that ended on or prior to the date of the Distribution. The tax matters agreement provides special rules that allocate responsibility for tax liabilities arising from a failure of the Separation transactions to qualify for tax-free treatment based on the reasons for such failure. The tax matters agreement also imposes restrictions on Otis during the two-year period following the Distribution that are intended to prevent certain transactions from failing to qualify as transactions that are generally tax-free.

•Employee Matters Agreement and Intellectual Property Agreement. We also entered into an employee matters agreement and intellectual property agreement with UTC and Carrier in connection with the Separation.
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With respect to the unaudited condensed consolidated financial information of Otis Worldwide Corporation for the quarters and nine months ended September 30, 2023 and 2022, PricewaterhouseCoopers LLP ("PricewaterhouseCoopers") reported that it has applied limited procedures in accordance with professional standards for a review of such information. However, its report dated October 26, 2023, appearing below, states that the firm did not audit and does not express an opinion on that unaudited condensed consolidated financial information. PricewaterhouseCoopers has not carried out any significant or additional review procedures beyond those that would have been necessary if their report had not been included. Accordingly, the degree of reliance on its report on such information should be restricted in light of the limited nature of the review procedures applied. PricewaterhouseCoopers is not subject to the liability provisions of Section 11 of the Securities Act of 1933, as amended ("the Act") for its report on the unaudited condensed consolidated financial information because that report is not a "report" or a "part" of a registration statement prepared or certified by PricewaterhouseCoopers within the meaning of Sections 7 and 11 of the Act.



Report of Independent Registered Public Accounting Firm


To the Board of Directors and Shareholders of Otis Worldwide Corporation

Results of Review of Interim Financial Information

We have reviewed the accompanying condensed combinedconsolidated balance sheet of Otis Worldwide Corporation and its subsidiaries (the “Company”) as of March 31, 2020,September 30, 2023, and the related condensed combinedconsolidated statements of operations, of comprehensive income, and of changes in equity for the three-month and nine-month periods ended September 30, 2023 and 2022and of cash flows for the three-monthnine-month periods ended March 31, 2020September 30, 2023 and 2019,2022, including the related notes (collectively referred to as the “interim financial information”). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial information for it to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) and in accordance with auditing standards generally accepted in, the United States of America, the combinedconsolidated balance sheet of the Company as of December 31, 2019,2022, and the related combinedconsolidated statements of operations, of comprehensive income, of changes in equity and of cash flows for the year then ended (not presented herein), and in our report dated February 7, 2020,3, 2023, we expressed an unqualified opinion on those combinedconsolidated financial statements. In our opinion, the information set forth in the accompanying condensed combinedconsolidated balance sheet information as of December 31, 2019,2022, is fairly stated, in all material respects, in relation to the combinedconsolidated balance sheet from which it has been derived.

Basis for Review Results

This interim financial information is the responsibility of the Company’s management. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

/s/ PricewaterhouseCoopers LLP

Hartford, CTConnecticut
May 8, 2020October 26, 2023
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Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations

BUSINESS OVERVIEW

Business Summary

We are the world’s largestleading elevator and escalator manufacturing, installation and service company. Our companyCompany is organized into two segments, - New Equipment and Service. Through our New Equipment segment, we design, manufacture, sell and install a wide range of passenger and freight elevators, as well as escalators and moving walkways for residential and commercial buildings and infrastructure projects. Our New Equipment customers include real-estate and building developers and general contractors governments, architects and specialized consultants who develop and/or design buildings for residential, commercial, retail or mixed-use activity. We sell our New Equipment directly to customers, as well as through agents and distributors.

Through our Service segment, we perform maintenance and repair services for both our own products and those of other manufacturers and provide modernization services to upgrade elevators and escalators. Maintenance services include inspections to ensure code compliance, preventive maintenance offerings and other customized maintenance offerings tailored to meet customer needs, as well as repair services to address equipment and component wear and tear and breakdowns. Modernization services enhance equipment operation and improve building functionality. Modernization offerings can range from relatively simple upgrades of interior finishes and aesthetics to complex upgrades of larger components and sub-systems. Our typical Service customers include building owners, facility managers, housing associations and government agencies that operate buildings where elevators and escalators are installed.

We serve our customers through a global network of approximately 69,000 employees. employees. These include sales personnel, field technicians with separate skills in performing installation and service, as well as engineers driving our continued product development and innovation. We function under a centralized operating model whereby a single global strategy is set around New Equipment and Service because we seek to grow our maintenance portfolio, in part, through the conversion of new elevator and escalator installations into service contracts. Accordingly, we benefit from an integrated global strategy, which sets priorities and establishes accountability across the full product lifecycle.life cycle.

The current status of significant factors affecting our business environment in 20202023 is discussed below. For additional discussion, refer to the "Business Overview" section in Management's Discussion and Analysis of Financial Condition and Results of Operations in our Form 102022.
Separation from United Technologies Corporation
On April 3, 2020, the Separation was completed through the Distribution of 100% of the outstanding common stock of Otis to holders of UTC common stock who held shares of UTC common stock as of the close of business on the record date of March 19, 2020. UTC distributed 433,079,455 shares of Otis' common stock, par value $0.01 per share in the Distribution, which was effective at 12:01 a.m. Eastern Time, on April 3, 2020. As a result of the Distribution, UTC shareowners of record received 0.5 shares of Otis' common stock for every share of UTC common stock. As a result of the Distribution, Otis became an independent, publicly traded company and its common stock is listed under the symbol "OTIS" on the NYSE.

The Condensed Combined Financial Statements included in this Form 10-Q have been prepared from UTC’s historical accounting records and are presented on a stand-alone basis as if the Business’ operations had been conducted independently from UTC. Our Condensed Combined Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America.

In anticipation of the Separation during the quarter ended March 31, 2020 and subsequent to the Separation, we have and expect to continue to incur one-time Separation costs consisting primarily of employee-related costs such as recruitment and relocation expenses, costs to establish certain stand-alone functions and information technology systems, professional services fees and other transaction-related costs. Additionally, we will incur increased costs as a result of becoming an independent, publicly traded company, primarily from establishing or expanding the corporate support for our businesses, including information technology, human resources, treasury, tax, internal audit, risk management, stock-based compensation programs, accounting and financial reporting, investor relations, governance, legal, procurement and other services. We believe our cash flows from operations will be sufficient to fund these additional corporate expenses.

We entered into a transition services agreement with UTC and Carrier on April 2, 2020, in connection with the Separation pursuant to which UTC provides us with certain services and we provide certain services to UTC for a limited time to help ensure an orderly transition following the Separation. The services we receive include, but are not limited to, information technology services, technical and engineering support, application support for operations, legal, payroll, finance, tax and
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accounting, general administrative services and other support services. For additional discussion, see “Certain Relationships and Related Party Transactions,” in the Form 1010-K.

As costs for these services historically were included in the Business' operating results through expense allocations from UTC, we do not expect the costs associated with the transition services agreement to be materially different and, therefore, we do not expect such costs to materially affect our results of operations or cash flows after becoming a stand-alone company.Recent Developments

In connection with the Separation, we entered into a tax matters agreement with UTC and Carrier on April 2, 2020, that governs the parties’ respective rights, responsibilities and obligations with respect to tax matters (including responsibility for taxes, entitlement to refunds, allocation of tax attributes, preparation of tax returns, control of tax contests and other tax matters).

Subject to certain exceptions set forth in the tax matters agreement, the Business generally will be responsible for federal, state and foreign taxes imposed on a separate return basis on the Business (or any of its subsidiaries) with respect to taxable periods (or portions thereof) that ended on or prior to the date of the Distribution.UpLift Program

The tax matters agreement provides special rules that allocate responsibility for tax liabilities arising from a failureUpLift program was announced in July 2023, with the goal to transform our operating model. The program will include the standardization of our processes and improving our supply chain procurement, among other aspects of the Separation transactionsprogram, as well as restructuring actions. We expect the program to qualify for tax-free treatment based ongenerate approximately $150 million in annual savings by mid-year 2025, with restructuring and other non-recurring costs ("transformation costs") over that period of approximately the reasons for such failure. The tax matters agreement also imposes restrictions on each of Otis and Carrier during the two-year period following the Distribution that are intended to prevent certain transactions from failing to qualify as transactions that are generally tax-free.

On December 22, 2017, the Tax Cuts and Jobs Act was enacted which significantly changed U.S. tax law. This new legislation imposed a one-time toll charge, paid in installments over an 8-year period, on deemed repatriated earnings of foreign subsidiaries as of December 31, 2017. Under the terms of the tax matters agreement, Otis will indemnify UTC for a percentage of the toll charge installment payments due after April 3, 2020. As a result, a portion of the future income tax obligations correspondingsame amount. For further details, refer to the toll charge will be reclassifieddiscussion on restructuring costs in the "Results of Operations," as a contractual indemnity obligation within Other long-term liabilities onwell as Note 12 and Note 19 to the Condensed Combined Balance Sheet. For additional discussion, see “Certain Relationships and Related Party Transactions,” in the Form 10.

In connection with the Separation, we entered into an employee matters agreement and intellectual property agreement with UTC and Carrier on April 2, 2020. These agreements are not expected to have a material impact on the financial results of Otis. For additional discussion see "Certain Relationships and Related Party Transactions" in the Form 10.Consolidated Financial Statements.

Impact of COVID-19Global Macroeconomic Developments on our BusinessOur Company

A novel strain of coronavirus (“COVID-19”) surfaced in Wuhan, China in December 2019,Global macroeconomic developments have impacted, and has since spread throughout the restcontinue to impact, aspects of the world, resulting in widespread travel restrictionsCompany's operations and extended shutdowns of non-essential businesses. We continue to provide critical maintenanceoverall financial performance during the quarters and repair services, however this pandemic has impacted our business,nine months ended September 30, 2023 and is expected to2022. These macroeconomic developments include, among others, inflationary pressures, higher interest rates and tighter credit conditions. These macroeconomic trends could continue to impact our business, including impacts to overall financial performance during the remainder of 2023, as limitations remain in force globally.a result of the following, among other things:

The results of•Supplier liquidity, as well as supplier and raw material capacity constraints, delays and related costs;
•Customer demand impacting our operationsnew equipment, maintenance and overall financial performance were impacted during the quarter ended March 31, 2020, with varied impacts across all regions. The broader implications of COVID-19 on our results of operations, including net salesrepair, and overall financial performance remain uncertain, however we anticipate it will negatively impact our business during the quarter ended June 30, 2020 and the remainder of 2020, potentially as a result of:

modernization businesses;
•Customer liquidity constraints
•Temporary closure or reduced capacity of our factory operations
•New equipment job site closures and related credit reserves; and
•Cancellations or delays of customer orders
•Challenges in accessing units to provide maintenance and repair services
•Customer demand impacting our maintenance and repair businessorders.

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We currently do not expect any significant impact to our capital and financial resources from these macroeconomic developments, including to our overall liquidity position based on our available cash and cash equivalents and our access to credit facilities and the capital markets.

See the "Liquidity and Financial Condition" section in this Form 10-Q for further detail and Item 1A. "Risk Factors" in our 2022Form 10-Kfor additional risks related to the COVID-19 pandemic, including macroeconomic risks associated therewith, and global economic, capital market and political conditions in general, and conditions in the construction and infrastructure industries in particular.

Risks Associated with the Ongoing Conflict between Russia and Ukraine and Other Geo-political Events

The ongoing conflict between Russia and Ukraine has resulted in worldwide geo-political and macroeconomic uncertainty, including volatile commodity markets, foreign exchange fluctuations, supply chain disruptions, increased risk of cyber incidents, reputational risk, increased operating costs (including fuel and other input costs), environmental, health and safety risks related to securing and maintaining facilities, additional sanctions and other regulations (including restrictions on the transfer of funds to and from Russia).

To the extent possible, we continue to operate our business in Ukraine, which represented less than 1% of our full year 2022 and nine months ended September 30, 2023 revenue and operating profit. As previously disclosed, we sold our business in Russia to a third party on July 27, 2022, which represented approximately 1% of both our revenue and operating profit in 2022.

Additionally, we do not have operations in Israel or Gaza and currently do not expect the recent war in the region to have a material impact on our business.

We are focused on navigating these challenges presented by COVID-19 by preservingcannot predict how the events described above will evolve. If the events continue for a significant time or expand to other countries, they could heighten certain risks disclosed in Item 1A "Risk Factors" in our liquidity and managing our cash flow through taking the necessary measures to meet our short-term liquidity needs. Such actions could include,2022 Form 10-K, including but are not limited to, reducingadverse effects on macroeconomic conditions, including increased inflation, constraints on the availability of commodities, supply chain disruption and decreased business spending; cyber-incidents; disruptions to our discretionary spending, reducing payroll costsor our business partners’ global technology infrastructure, including through cyber-attack or cyber-intrusion; adverse changes in international trade policies and restructuring.relations; claims, litigation and regulatory enforcement; our ability to implement and execute our business strategy; terrorist activities; our exposure to foreign currency fluctuations; reputational risk; and constraints, volatility, or disruption in the capital markets, any of which could have a material adverse effect on our business, results of operations, cash flows and financial condition.

See the LiquidityEnvironmental, Social and Financial Condition section for further detail.Governance ("ESG")

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We alsoThere have been no, and we do not anticipate anyexpect there to be in the near term, material impairmentsimpacts on our business, financial condition or results of operations as a result of compliance with legislation or regulatory rules regarding climate change, from the known physical effects of climate change or as a result of implementing our ESG initiatives. Increased regulation (including pending SEC and European Union requirements) and other climate change concerns, however, could subject us to additional costs and restrictions, and we are not able to predict how such regulations or concerns would affect our goodwill, intangible asset and long-lived asset balances.business, operations or financial results.

See Part I,For additional discussion of Otis’ ESG goals, see the discussion under “Environmental, Social and Governance (“ESG”)” in Item 1A,"Risk Factors" below for further discussion.1 in our 2022 Form 10-K.

CRITICAL ACCOUNTING ESTIMATES

Preparation of our Condensed CombinedConsolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. The accounting policies that involve the most significant estimates, assumptions and management judgments used in preparation of the Condensed CombinedConsolidated Financial Statements, or are the most sensitive to change due to outside factors, are discussed in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Estimates" included in theour 2022 Form 1010-K. Except as disclosed in Note 6 and Note 18 to our Condensed CombinedConsolidated Financial Statements in this Form 10-Q, pertaining to adoption of new accounting pronouncements, there have been no material changes in these policies.

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RESULTS OF OPERATIONS

Net Sales
Quarter Ended March 31, Quarter Ended September 30,Nine Months Ended September 30,
(dollars in millions)(dollars in millions)20202019(dollars in millions)2023202220232022
Net salesNet sales$2,966  $3,101  Net sales$3,523$3,344$10,589 $10,246 
Percentage change year-over-yearPercentage change year-over-year(4.4)%Percentage change year-over-year5.4 %3.3 %

The factors contributing to the total percentage change year-over-year in total Net sales for the quarter and nine months ended March 31, 2020September 30, 2023 are as follows:
Quarter Ended March 31, 2020
Organic volume(2.1)%
Foreign currency translation(1.8)%
Acquisitions and divestitures, net(0.5)%
Total % change(4.4)%

Components of Net sales change:Quarter Ended September 30, 2023Nine Months Ended September 30, 2023
Organic volume5.2 %6.1 %
Foreign currency translation0.6 %(2.1)%
Acquisitions and divestitures, net(0.4)%(0.7)%
Total % change5.4 %3.3 %

The Organic volume decreaseincrease of (2.1)%5.2% for the quarter ended March 31, 2020September 30, 2023 was driven by a decreasean increase in organic sales of (9.8)%8.4% in Service and 1.0% in New Equipment. The Organic volume increase of 6.1% for the nine months ended September 30, 2023 was driven by an increase in organic sales of 8.0% in Service and 3.6% in New Equipment.

The decrease in Net sales due to Acquisitions and divestitures, net is primarily the result of the sale of our Russia business in the New Equipment segment, partially offset by organic sales growththird quarter of 3.3% in the Service segment.2022.

See the "Segment Review" belowsection for a discussion of Net sales by segment.

Cost of Products and Services Sold
Quarter Ended March 31, Quarter Ended September 30,Nine Months Ended September 30,
(dollars in millions)(dollars in millions)20202019(dollars in millions)2023202220232022
Total cost of products and services soldTotal cost of products and services sold$2,069  $2,200  Total cost of products and services sold$2,477$2,373$7,464$7,286
Percentage change year-over-yearPercentage change year-over-year(6.0)%Percentage change year-over-year4.4 %2.4 %

The factors contributing to the percentage change year-over-year for the quarter and nine months ended March 31, 2020September 30, 2023 in total cost of products and services sold are as follows:
Quarter Ended March 31, 2020
Organic volume(3.3)%
Foreign currency translation(1.9)%
Acquisitions and divestitures, net(0.4)%
Restructuring(0.4)%
Total % change(6.0)%

Components of Cost of Products and Services Sold change:Quarter Ended September 30, 2023Nine Months Ended September 30, 2023
Organic volume4.3 %5.7 %
Foreign currency translation0.4 %(2.2)%
Acquisitions and divestitures, net and other(0.3)%(1.1)%
Total % change4.4 %2.4 %

The organic decrease organic increase in totalTotal cost of products and services sold for the quarter and nine months ended March 31, 2020 wasSeptember 30, 2023 was primarily driven by the organic sales decreaseincreases noted above. Inflationary pressures, including annual wage increases and higher Service related material costs were mitigated by productivity and lower commodity prices, primarily steel.

The decrease in Total cost of products and services sold due to Acquisitions and divestitures, net is primarily the result of the sale of our Russia business in the third quarter of 2022.
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Gross Margin
 Quarter Ended March 31,
(dollars in millions)20202019
Gross margin$897  $901  
Gross margin percentage30.2 %29.1 %
 Quarter Ended September 30,Nine Months Ended September 30,
(dollars in millions)2023202220232022
Gross margin$1,046 $971 $3,125 $2,960 
Gross margin percentage29.7 %29.0 %29.5 %28.9 %

Gross margin percentage increased 11070 and 60 basis points for the quarter and nine months ended March 31, 2020September 30, 2023, respectively, when compared to the same periodperiods for 2019, primarily driven by improvement in2022, due to the benefit from Service sales growing faster than New Equipment margin ratesales, favorable pricing, lower commodity prices, and overall segment mix.the benefits from productivity, partially offset by the inflationary pressures described above.

See the Segment Review"Segment Review" section below for discussion of operating results by segment.

Research and Development
Quarter Ended March 31, Quarter Ended September 30,Nine Months Ended September 30,
(dollars in millions)(dollars in millions)20202019(dollars in millions)2023202220232022
Research and developmentResearch and development$38  $39  Research and development$36 $37 $107 $112 
Percentage of net sales1.3 %1.3 %
Percentage of Net salesPercentage of Net sales1.0 %1.1 %1.0 %1.1 %

Research and development spending remainedwas relatively consistentflat for the quarter and nine months ended March 31, 2020September 30, 2023, when compared to the same period in 2019. We continue to focus on our commitment to Internet of Things technology developing the next generation of connected elevators and escalators.periods for 2022.

Selling, General and Administrative
 Quarter Ended March 31,
(dollars in millions)20202019
Selling, general and administrative expenses$465  $441  
Percentage of net sales15.7 %14.2 %
 Quarter Ended September 30,Nine Months Ended September 30,
(dollars in millions)2023202220232022
Selling, general and administrative$452 $417 $1,386 $1,315 
Percentage of Net sales12.8 %12.5 %13.1 %12.8 %

Selling, general and administrative expenses increased $24$35 million or 5.4% for the quarter ended March 31, 2020September 30, 2023 driven by annual wage increases, higher other employment related costs, higher restructuring costs and unfavorable foreign exchange impacts of $5 million, partially offset by cost containment actions when compared to the same period in 2019. Lower employment costs were more than offset by Separation costs incurred of $32 million and additional standalone public company costs of $22 million. 2022.

Selling, general and administrative expenses increased $71 million for the nine months ended September 30, 2023 driven by annual wage increases and higher other employment related costs, increasedpartially offset by cost containment actions, lower restructuring costs and favorable foreign exchange impacts of $14 million. The nine months ended September 30, 2023, compared to the same period in 2022, was also impacted by higher credit loss reserves.

Selling, general and administrative expenses as a percentage of Net sales duringincreased 30 basis points for the quarter and nine months ended March 31, 2020, primarily driven bySeptember 30, 2023, compared to the increasesame periods in Separation costs2022.

Restructuring and lower sales in 2020.Transformation Costs
 Nine Months Ended September 30,
(dollars in millions)20232022
Restructuring costs$36$45

We are continuously evaluating our cost structure and have implemented restructuring actions as a method of keeping our cost structure competitive. For further discussion, see “Restructuring Costs” below and Note 13 in the Notes to the Condensed Combined Financial Statements.

Restructuring Costs
 Quarter Ended March 31,
(dollars in millions)20202019
Restructuring costs$6  $25  

We initiate restructuring actions as a method to keep our cost structure competitive. Charges generally arise from severance related to workforce reductions, and to a lesser degree, facility exit and lease termination costs associated with the consolidation of fieldoffice and manufacturing operations. We continue to closely monitor the economic environment and may undertake further restructuring actions to keep our cost structure aligned with the demands of the prevailing market conditions.

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During the nine months ended September 30, 2023, we also incurred $4 million of incremental non-restructuring costs associated with the UpLift program ("transformation costs"), including consulting and personnel costs, which were recorded in Other income (expense), net in the Condensed Consolidated Statements of Operations. There were no UpLift restructuring actions initiated in the nine months ended September 30, 2023. See Note 19 to the Condensed Consolidated Financial Statements for discussion regarding UpLift restructuring actions approved following period-end.

Total Restructuringrestructuring costs were $6$36 million for the quarternine months ended March 31, 2020September 30, 2023 and included $4$31 million of costs related to 20202023 actions and $2$5 million of costs related to 20192022 actions.

2020 Actions. During the quarter ended March 31, 2020, we recorded net pre-tax restructuring charges of $4 million relating to ongoing cost reduction actions initiated in 2020. We are targeting to complete in 2020 and 2021 the majorityMost of the remaining workforce cost reduction actions initiated in 2020. Approximately 92% of the total expected pre-tax charges will require cash payments, which we have funded and expect to continue to fund with cash generatedgenerated from operations. During the quarter ended March 31, 2020, we had cash outflows of approximately $1 million related to the 2020 actions. We expect recurring pre-tax
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The table below presents approximate cash outflows related to the restructuring actions during the nine months ended September 30, 2023, and the expected cash payments to complete the actions announced:

(dollars in millions)
Cash outflows during the nine months ended September 30, 2023$30 
Expected cash payments remaining to complete actions announced70 

We generally expect to achieve annual recurring savings in continuing operations to increase to approximately $7 million annually overwithin the two-year period subsequent to initiating the actions.actions, including $28 million for the 2023 actions and $66 million for the 2022 actions, of which approximately $55 million was realized for the 2023 and 2022 actions during the nine months ended September 30, 2023.

2019 Actions. During the quarters ended March 31, 2020 and 2019, we recorded net pre-tax restructuring charges of $2 million and $19 million, respectively, for actions initiated in 2019. We are targeting to complete in 2020 the majority of the remaining workforce and all facility related cost reduction actions initiated in 2019. Approximately 96% of the total pre-tax charge will require cash payments, which we have and expect to continue to fund with cash generated from operations. During the quarter ended March 31, 2020, we had cash outflows of approximately $6 million related to the 2019 actions. We expect to incur additional restructuring charges of $16 million to complete these actions. We expect recurring pre-tax savings to increase over the two-year period after initiating the actions to approximately $49 million annually, of which approximately $10 million was realized during the quarter ended March 31, 2020.

In addition, we recorded net pre-tax restructuring costs totaling $0 and $6 million in the quarters ended March 31, 2020 and 2019, respectively, for restructuring actions initiated in 2018 and prior. For additional discussion of restructuring, see NNote 12 and Note 19 to the Condensed Consolidated Financial Statements.

Other Income (Expense), Net
 Quarter Ended September 30,Nine Months Ended September 30,
(dollars in millions)2023202220232022
Other income (expense), net$13$12$32$9

The change in Other Income (Expense), Net, of $1 million ote 13and $23 million for the quarter and nine months ended September 30, 2023, respectively, compared to tthe same periods in 2022, was primarily driven by the absence of the loss on the sale of our Russia business and related charges of $6 million and $24 million when compared to the same periods in 2022, respectively, partially offset by UpLift transformation costs of $4 million in the quarter and nine months ended September 30, 2023. These periods were also impacted by foreign currency mark-to-market adjustments.

Interest Expense (Income), Net
 Quarter Ended September 30,Nine Months Ended September 30,
(dollars in millions)2023202220232022
Interest expense (income), net$39$35$109$107

Interest Expense (Income), increased $4 million and $2 million for the hequarter and nine months ended September 30, 2023, compared to the same periods in 2022, respectively, driven by higher interest expense related to the $750 million unsecured, unsubordinated debt issued in August 2023, partially offset by higher interest income.

The average interest rate on our long-term debt for each ofthe quarter and nine months ended September 30, 2023 and 2022 was approximately 2%. For additional discussion of borrowings, see Note 7 to the Condensed CombinedConsolidated Financial Statements.

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Other (Expense) Income, NetTable of Contents
 Quarter Ended March 31,
(dollars in millions)20202019
Other (expense) income, net$(65) $(6) 

Other (expense) income, net primarily includes the impact of changes in the fair value and settlement of embedded and foreign exchange derivatives, gains or losses on sale of businesses and fixed assets, earnings from equity method investments, fair value changes on equity securities, impairments and certain other operating items. The year-over-year increase in Other (expense) income, net of $(59) million for the quarter ended March 31, 2020 when compared to the same period in 2019 is primarily driven by a fixed asset impairment of approximately $(55) million and related license costs of approximately $(12) million, offset by favorable mark-to-market adjustments on foreign currency derivatives when compared to the same period in 2019.

Interest Expense, Net
 Quarter Ended March 31,
(dollars in millions)20202019
Interest expense, net$5  $1  

Interest expense, net primarily relates to interest on newly issued external debt, offset partially by interest income primarily related to interest earned on cash balances, short-term investments and related party activity between Otis and UTC.

The increase in Interest expense, net in the quarter ended March 31, 2020 in comparison to the same period in 2019 was primarily driven by interest expense of approximately $13 million on the newly issued $5.3 billion of unsecured, unsubordinated notes on February 27, 2020 and the $1.0 billion drawn on the Term Loan on March 27, 2020, offset primarily by higher income earned on short-term investments for the quarter ended March 31, 2020.

The average interest rate on the newly acquired debt as of March 31, 2020 is approximately 2.5%.

For additional discussion of borrowings, see Note 9 to the Condensed Combined Financial Statements.
Income Taxes
 Quarter Ended March 31,
 20202019
Effective tax rate38.2 %29.4 %
 Quarter Ended September 30,Nine Months Ended September 30,
 2023202220232022
Effective tax rate25.8 %29.0 %25.7 %26.7 %

The increasedecrease in the effective tax rate for the quarter ended March 31, 2020September 30, 2023, is primarily the result of the tax impact on one-time Separation costs anddue to a fixed asset impairment loss, discussed above.

As part of the Separation process, the Business determined that as a stand-alone company, the Business no longer intends to reinvest certain undistributed earnings of its international subsidiaries that have been previously taxed in the U.S., which are different from the historical assertion of UTC. For the remainder of the Business' undistributed international earnings, the
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Business will continue to permanently reinvest these earnings unless it is tax effective to repatriate. As a result of the change in assertion, the Business recognized a one-time tax benefit of $9 million in the quarter resulting from an overall reduction in the deferred tax liability previously recorded by UTC.related to repatriation of foreign earnings, reversal of tax reserves related to the U.S. foreign tax credit regulations, and the closure of a foreign tax audit.

The Business will continuedecrease in the effective tax rate for the nine months ended September 30, 2023 is due to review and incorporate as necessary U.S. Tax Cuts and Jobs Act ("TCJA") changesa lower forecasted tax cost on repatriation in 2023. This is partially offset by the absence of a tax reserve release related to forthcominga forward transfer pricing agreement with a European tax authority and the elimination of Base Erosion Anti-Abuse Tax in the U.S. Treasury Regulations., recorded in 2022.

We anticipate some variability in the tax rate quarter to quarter from potential discrete items.

For additional discussion of income taxes and the effective income tax rate, see Note 1211 to the Condensed CombinedConsolidated Financial Statements.

Noncontrolling Interest in Subsidiaries' Earnings and Net Income Attributable to Otis Worldwide Corporation
 Quarter Ended March 31,
(dollars in millions)20202019
Noncontrolling interest in subsidiaries' earnings$37  $27  

 Quarter Ended September 30,Nine Months Ended September 30,
(dollars in millions)2023202220232022
Noncontrolling interest in subsidiaries' earnings$19$26$71$95
Net income attributable to Otis Worldwide Corporation$376$324$1,083$956

Noncontrolling interest in subsidiaries' earnings increasedwere $(7) million lower for the quarter ended March 31, 2020 in comparison to the same period in 2019 was primarily due to an increase in net income from subsidiaries with noncontrolling interests. There was no other significant activity for the quarter ended March 31, 2020.

Net Income Attributable to Otis Worldwide Corporation
 Quarter Ended March 31,
(dollars in millions, except per share amounts)20202019
Net income attributable to Otis Worldwide Corporation$165  $273  
Basic and diluted earnings per share from operations$0.38  $0.63  

Net income attributable to Otis Worldwide Corporation for the quarter ended March 31, 2020 includes restructuring charges, net of a tax benefit, of $4 million ($6 million pre-tax), as well charges relating to significant non-operational and/or nonrecurring items, net of a tax benefit, of approximately $93 million ($115 million pre-tax) which include the costs related to the separation from UTC and a fixed asset impairment loss. These significant non-operational and/or nonrecurring items, and the resulting higher effective tax rate, were the primary contributors to lower Net income attributable to Otis Worldwide Corporation for the quarter ended March 31, 2020 whenSeptember 30, 2023, compared to the same period in 2019. The effects2022, primarily driven by the impacts of foreign exchange and net income from non-wholly owned subsidiaries. Ownership interest in the underlying non-wholly owned subsidiaries has remained generally consistent year-over-year.

Noncontrolling interest in subsidiaries' earnings were $(24) million lower for the nine months ended September 30, 2023, compared to the same period in 2022, primarily driven by Otis' increased ownership in Otis Mobility (formerly Zardoya Otis) starting in the second quarter of 2022, as well as impacts of foreign exchange and net income from non-wholly owned subsidiaries. For details on the results of the above resultedTender Offer and purchases of shares of Otis Mobility not previously owned by the Company, see Note 1 of the Company's audited consolidated financial statements and notes thereto included in an impact of $0.22 on the bour 2022 asic and diluted earnings per share for the quarter ended March 31, 2020.Form 10-K.

Net income attributable to Otis Worldwide Corporation for the quarter ended March 31, 2019 includes restructuring charges, net of a tax benefit, of $18 million ($25 million pre-tax). The effects of restructuring charges resulted in an impact of $0.04 on the basic and diluted earnings per shareincreased for the quarter and nine months ended March 31, 2019September 30, 2023., compared to the same periods in 2022, due to higher operating profit (including the impact of foreign exchange rates), lower noncontrolling interest in subsidiaries' earnings, and a lower effective tax rate.

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Segment Review

Summary performance for each of theour operating segments for the quarters ended March 31, 2020September 30, 2023 and 20192022 was as follows:
Net SalesOperating ProfitOperating Profit Margin
(dollars in millions)202020192020201920202019
New Equipment$1,123  $1,271  $64  $59  5.7 %4.6 %
Service1,843  1,830  400  386  21.7 %21.1 %
Total segment$2,966  $3,101  $464  $445  15.6 %14.4 %
General corporate expenses and other—  —  (135) (30) —  —  
Total$2,966  $3,101  $329  $415  11.1 %13.4 %

Net SalesOperating ProfitOperating Profit Margin
(dollars in millions)202320222023202220232022
New Equipment$1,435 $1,447 $94 $100 6.6 %6.9 %
Service2,088 1,897 507 446 24.3 %23.5 %
Total segment3,523 3,344 601 546 17.1 %16.3 %
General corporate expenses and other— — (30)(17)——
Total$3,523 $3,344 $571 $529 16.2 %15.8 %


Summary performance for our operating segments for the nine months ended September 30, 2023 and 2022 was as follows:

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Net SalesOperating ProfitOperating Profit Margin
(dollars in millions)202320222023202220232022
New Equipment$4,346 $4,403 $277 $292 6.4 %6.6 %
Service6,243 5,843 1,475 1,328 23.6 %22.7 %
Total segment10,589 10,246 1,752 1,620 16.5 %15.8 %
General corporate expenses and other— — (88)(78)——
Total$10,589 $10,246 $1,664 $1,542 15.7 %15.0 %

New Equipment

The New Equipment segment designs, manufactures, sells and installs a wide range of passenger and freight elevators, as well as escalators and moving walkways in residential and commercial buildings and infrastructure projects. Our New Equipment customers include real-estate and building developers,developers and general contractors architects, governments and specialized consultants whothat develop and/or design buildings for residential, infrastructure, commercial, retail or mixed-use activity. We sell directly to customers as well as through agents and distributors. We also sell New Equipment to government agencies to support infrastructure projects, such as airports, railways or metros.

Summary performance for the New Equipment segment for the quarters and nine months ended March 31, 2020September 30, 2023 and 2019 were2022 was as follows:
 
(dollars in millions)20202019ChangeChange
Net sales$1,123  $1,271  $(148) (11.6)%
Cost of sales914  1,060  (146) (13.8)%
$209  $211  $(2) (0.9)%
Operating expenses and other145  152  (7) (4.6)%
Operating profit$64  $59  $5  8.5 %

 Quarter Ended September 30,Nine Months Ended September 30,
(dollars in millions)20232022ChangeChange20232022ChangeChange
Net sales$1,435$1,447 $(12)(0.8)%$4,346$4,403 $(57)(1.3)%
Cost of sales1,1951,208 (13)(1.1)%3,6213,689 (68)(1.8)%
240239 10.4 %725714 11 1.5 %
Operating expenses146139 75.0 %448422 26 6.2 %
Operating profit$94$100 $(6)(6.0)%$277$292 $(15)(5.1)%
Operating profit margin6.6 %6.9 %6.4 %6.6 %

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Summary analysis of the Net sales change for New Equipment segment for the quarter and nine months ended September 30, 2023 compared with the quarter and nine months ended September 30, 2022 was as follows:

Components of Net sales change:Quarter Ended September 30, 2023Nine Months Ended September 30, 2023
Organic volume1.0 %3.6 %
Foreign currency translation(0.9)%(3.0)%
Acquisitions and divestitures, net and other(0.9)%(1.9)%
Total % change(0.8)%(1.3)%

Quarter Ended March 31, 2020 compared with Quarter Ended March 31, 2019
 Net SalesCost of SalesOperating Profit
Organic/Operational(9.8)%(11.8)%3.4 %
Foreign currency translation(1.8)%(1.8)%(3.4)%
Restructuring cost— %(0.2)%8.5 %
Total % change(11.6)%(13.8)%8.5 %
September 30, 2023

Net sales

The organic sales decreaseincrease of (9.8)%1.0% was driven by high-single digit organic sales declinesgrowth in all regions, with a doubleAmericas and EMEA, partially offset by mid-single digit organic sales decline in Asia primarilyAsia.

The decrease in Net sales due to Acquisitions and divestitures, net and other is primarily the COVID-19 impactresult of the sale of our Russia business in the region, and high single digit decline in the Americas.third quarter of 2022.

Operating profit

New Equipment operationaloperating profit increased 3.4% as lowerdecreased $(6) million including foreign exchange headwinds of ($9) million with volume (31.7)% wasrelatively flat. Favorable price, improved productivity and commodity tailwinds more than offset by favorable rate of 30.5% primarily due to material productivityregional and lower commodity costs of 3.1%. In addition, favorableproduct mix headwinds and higher selling, general and administrative expenses contributedcosts. Operating profit was also impacted by higher restructuring costs. Operating margin decreased 30 basis points.

Nine Months Ended September 30, 2023

Net sales

The organic sales increase of 3.6% was driven by high-single digit organic sales growth in EMEA, mid-single digit organic sales growth in Americas and low-single digit organic sales growth in Asia.

The decrease in Net sales due to Acquisitions and divestitures, net and other is primarily the improvementresult of the sale of our Russia business in the third quarter of 2022.

Operating profit

New Equipment operating profit.profit decreased $(15) million including $(23) million of foreign exchange headwinds. Higher volume, favorable price, improved productivity and commodity tailwinds were partially offset by regional and product mix headwinds and higher selling, general and administrative costs. Operating margin decreased 20 basis points.

Service

The Service segment performs maintenance and repair services for both our products, and those of other manufacturers, and provides modernization services to upgrade elevators and escalators. Maintenance services include inspections to ensure code compliance, preventive maintenance offerings and other customized maintenance offerings tailored to meet customer needs, as well as repair services that address equipment and component wear and tear, and breakdowns. Modernization services enhance equipment operation and improve building functionality. Modernization offerings can range from relatively simple upgrades of interior finishes and aesthetics, to complex upgrades of larger components and sub-systems. Our typical Service customers include building owners, facility managers, housing associations and government agencies that operate buildings where elevators and escalators are installed.

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Summary performance for Service for the quarters and nine months ended September 30, 2023 and 2022 was as follows:

 Quarter Ended September 30,Nine Months Ended September 30,
(dollars in millions)20232022ChangeChange20232022ChangeChange
Net sales$2,088$1,897$191 10.1 %$6,243$5,843$400 6.8 %
Cost of sales1,2821,165117 10.0 %3,8433,597246 6.8 %
80673274 10.1 %2,4002,246154 6.9 %
Operating expenses29928613 4.5 %9259187 0.8 %
Operating profit$507$446$61 13.7 %$1,475$1,328$147 11.1 %
Operating profit margin24.3 %23.5 %23.6 %22.7 %

Summary performanceanalysis of Service Net sales change for the Service segment forquarter and nine months ended September 30, 2023 compared with the quartersquarter and nine months ended March 31, 2020 and 2019September 30, 2022 was as follows:
 
(dollars in millions)20202019ChangeChange
Net sales$1,843  $1,830  $13  0.7 %
Cost of sales1,155  1,140  15  1.3 %
$688  $690  $(2) (0.3)%
Operating expenses and other288  304  (16) (5.3)%
Operating profit$400  $386  $14  3.6 %

Components of Net sales change:Quarter Ended September 30, 2023Nine Months Ended September 30, 2023
Organic volume8.4 %8.0 %
Foreign currency translation1.8 %(1.3)%
Acquisitions and divestitures, net(0.1)%0.1 %
Total % change10.1 %6.8 %

Service segment Quarter Ended March 31, 2020 compared with Quarter Ended March 31, 2019
Net SalesCost of SalesOperating Profit
Organic/Operational3.3 %4.6 %2.3 %
Foreign currency translation(1.9)%(1.9)%(2.1)%
Acquisitions/Divestitures, net(0.7)%(0.9)%(0.2)%
Restructuring cost— %(0.5)%3.6 %
Total % change0.7 %1.3 %3.6 %
September 30, 2023

Net sales

The organic sales increase of 3.3% primarily consists of8.4% is due to organic sales growthincreases in maintenance and repair of 2.5%8.6% and in modernization 6.8%of 7.6%.

Maintenance and repair net sales were flat year over year and was comprised of a 2.5% organic sales increase, offset by foreign currency headwinds (1.9)% and decreases related to net acquisitions and divestitures (0.4)%.

Modernization net sales increased 3.1% for the quarter which is made up of a 6.8% increase in organic sales, offset by decreases in foreign currency (1.5)% and from net acquisitions and divestitures (2.2)%.
Components of Net sales change:Maintenance and RepairModernization
Organic volume8.6 %7.6 %
Foreign currency translation2.0 %0.9 %
Acquisitions and divestitures, net(0.2)%0.3 %
Total % change10.4 %8.8 %

Operating profit

Service operationaloperating profit increased 2.3% driven$61 million with higher volume of $53 million and foreign exchange tailwinds of $13 million. Improved pricing on maintenance contracts and productivity offset by higher restructuring costs, as well as annual wage increases and other inflationary pressures, including higher material costs. Operating margin increased 80 basis points.

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Nine Months Ended September 30, 2023

Net sales

The organic sales increase of 8.0% is due to organic sales increases in maintenance and repair of 8.2% and in modernization of 7.3%.

Components of Net sales change:Maintenance and RepairModernization
Organic volume8.2 %7.3 %
Foreign currency translation(1.2)%(1.7)%
Acquisitions and divestitures, net— %0.7 %
Total % change7.0 %6.3 %

Operating profit

Service operating profit increased $147 million with higher volume 4.1%, favorable price/mix and productivity 4.7%;of $156 million partially offset by labor inflation (4.1)%foreign exchange headwinds of $(9) million. Improved pricing on maintenance contracts and under absorption of labor in certain parts of the world.productivity offset annual wage increases and other inflationary pressures, including higher material costs. Operating margin increased 90 basis points.

General corporate expensesCorporate Expenses and otherOther
Quarter Ended March 31,Quarter Ended September 30,Nine Months Ended September 30,
(dollars in millions)(dollars in millions)20202019(dollars in millions)2023202220232022
General corporate expenses and otherGeneral corporate expenses and other$(135) $(30) General corporate expenses and other$(30)$(17)$(88)$(78)

General corporate expenses and other primarily reflects certain corporate overhead costs, Separation-related costs, standalone public company costs and a one-time fixed asset impairment. The increase in general corporate expenses and other duringfor the quarter and nine months ended March 31, 2020September 30, 2023 increased $13 million and $10 million, respectively, compared to the same periodperiods in 2019, is2022, primarily driven by a fixed asset impairmentdue to the impact of approximately $55foreign currency mark-to-market adjustments, UpLift transformation costs of $4 million and related license costs of approximately $12 million, Separation related costs of $32 million and standalone public companyhigher corporate costs, partially offset by lower employment costs.the absence of the loss on the sale of our Russia business and related charges of $6 million and $24 million when compared to the same periods in 2022, respectively.


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LIQUIDITY AND FINANCIAL CONDITION
(dollars in millions)March 31, 2020December 31, 2019
Cash and cash equivalents$1,207  $1,446  
Total debt6,325  39  
Net debt (total debt less cash and cash equivalents)5,118  (1,407) 
Total equity(4,284) 2,231  
Total capitalization (total debt plus total equity)2,041  2,270  
Net capitalization (total debt plus total equity less cash and cash equivalents)834  824  
Total debt to total capitalization310 %2 %
Net debt to net capitalization614 %(171)%

Otis has historically participated in UTC’s centralized treasury management, including centralized cash pooling and overall financing arrangements. However, historically, we have generated operating cash flow sufficient to fund our working capital, capital expenditures and financing requirements.
(dollars in millions)September 30, 2023December 31, 2022
Cash and cash equivalents$1,636 $1,189 
Total debt7,407 6,768 
Net debt (total debt less cash and cash equivalents)5,771 5,579 
Total equity(4,733)(4,799)
Total capitalization (total debt plus total equity)2,674 1,969 
Net capitalization (total debt plus total equity less cash and cash equivalents)1,038 780 
Total debt to total capitalization277 %344 %
Net debt to net capitalization556 %715 %

At March 31, 2020,As of September 30, 2023, we had cash and cash equivalents of $1.2approximately $1.6 billion, of which approximately 99%64% was held by the Business'Company's foreign subsidiaries. After March 31, 2020subsidiaries. Domestic cash and beforecash equivalents as of September 30, 2023 includes amounts that will be used to fund the Separation, repayment at maturity of the Business received $190€500 million of domestic cash contributions from UTC in connection with the Separation. 0.000% notes due November 12, 2023. We manage our worldwide cash requirements by reviewing available funds among the many subsidiaries through which we conduct our business and the cost effectivenesscost-effectiveness with which those funds can be accessed. On occasion, we are required to maintain cash deposits with certain banks with respect to contractual obligations related to acquisitions orand divestitures or other legal obligations. As of March 31, 2020September 30, 2023 and December 31, 2019,2022, the amount of such restricted cash was approximately $13 million.approximately $5 million and $6 million, respectively.

From time to timetime-to-time we may need to access the capital markets to obtain financing. We may incur indebtedness or issue equity as needed. Although we believe that the arrangements in place at the timeas of the Separation willSeptember 30, 2023 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 willcould be impacted by many factors, including (1) our credit ratings or absence of a credit rating, (2) the liquidity of the overall capital markets and (3) the current state of the economy.economy, including tighter credit conditions. There can be no assurance that we will continue to have access to the capital markets on terms acceptable to us.

DAs of uring the quarter ended March 31, 2020, Otis entered into the following debt transactions:September 30, 2023

–, we had a revolving credit agreement with various banks providing for a $1.5 billion unsecured, unsubordinated 5-yearfive-year revolving credit facility effective on April 3, 2020facility. As of September 30, 2023, there were no borrowings under the revolving credit agreement. The undrawn portion of the revolving credit agreement serves as a backstop for the issuance of commercial paper.

–$1.0 billion,On August 16, 2023, we issued $750 million unsecured, unsubordinated 3-year term loan

–$5.3 billionfive-year notes due August 16, 2028 (the "Notes") with an interest rate of unsecured, unsubordinated long-term notes

–$1.5 billion unsecured, unsubordinated commercial paper program became available on April 3, 2020

The following is a summary of the debt issuances for the quarter ended March 31, 2020:

(dollars in millions)
Issuance DateDescription of NotesAggregate Principal Balance
03-27-2020LIBOR plus 112.5 bps Term Loan due 2023$1,000 
02-27-2020LIBOR plus 45 bps floating rate notes due 2023500 
02-27-20202.056% notes due 20251,300 
02-27-20202.293% notes due 2027500 
02-27-20202.565% notes due 20301,500 
02-27-20203.112% notes due 2040750 
02-27-20203.362% notes due 2050750 
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5.25%. The net proceeds fromof the above issuances totaling $6.3 billionNotes were used to distribute cashfund the repayment of Otis' commercial paper borrowings and will be used to UTC as partfund the repayment at maturity of the Separation.
€500 million 0.000% notes due November 12, 2023, with the remainder used for other general corporate purposes. The Company redeemed the $500 million floating notes originally due in 2023 during the nine months ended September 30, 2022.
For additional discussion of borrowings, see Note 97 to the Condensed CombinedConsolidated Financial Statements.

As part of the Separation process, Otis determined that as a stand-alone company, the Business no longer intendsThe Company does not intend to reinvest certain undistributed earnings of itsour international subsidiaries that have been previously taxed in the U.S, which is different from the historical assertion of UTC.U.S. For the remainder of the Business'Company’s undistributed international earnings, Otisunless tax effective to repatriate, we will continue to permanently reinvest these earnings unless it is tax effective to repatriate. As a result of the change in assertion, Otis recognized a one-time tax benefit of $9 million in the quarter resulting from an overall reduction in the liability previously recorded by UTC.earnings.

Following the Separation, weWe expect to fund our ongoing operating, investing and financing requirements mainly through cash flows from operations, available liquidity through cash on hand and available bank lines of credit and access to capital markets.

As of April 3, 2020,On December 1, 2022, our Board of Directors authorizedapproved a share repurchase program for up to $1$2.0 billion of our common stock.Common Stock, of which approximately $1.4 billion was remaining as of September 30, 2023. Under this program, shares may be purchased on the open market, in privately negotiated transactions, or under accelerated share repurchase ("ASR") programs or under plans complying with rules 10b5-1 and 10b-18 under the Securities Exchange Act of 1934, as amended. We currently do not expect any share repurchases under the program in 2020 as we focus on deleveraging.
Cash Flow - Operating Activities
 Quarter Ended March 31,
(dollars in millions)20202019
Net cash flows provided by operating activities$159  $297  

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Cash generatedFlows

The following table reflects the major categories of cash flows. For additional details, see the Condensed Consolidated Statements of Cash Flows.
 Nine Months Ended September 30,
(dollars in millions)20232022
Net cash flows provided by (used in):
Operating activities$1,030 $1,096 
Investing activities(132)62 
Financing activities(418)(3,402)
Effect of foreign exchange rate changes on cash and cash equivalents(34)(191)
Net increase (decrease) in cash and cash equivalents and restricted cash$446 $(2,435)

Operating activities

Cash flows from operating activities primarily represent inflows and outflows associated with our operations. Primary activities include net income from operations adjusted for non-cash transactions, working capital changes and changes in other assets and liabilities.

The year-over-year decrease in net cash provided by operating activities was primarily driven by working capital balances during the periods, including a decrease in Accounts payable in the quarternine months ended March 31, 2020 was $138 million lower thanSeptember 30, 2023 compared to an increase the same period in 2019, primarily due to increased cash outflows for current assets and current liabilities in the quarter ended March 31, 2020 of $101 million compared to the quarter ended March 31, 2019. In addition, the Business incurred $32 million of one-time Separation costs and public company standalone costs of approximately $22 million for the quarter ended March 31, 2020 that contributed to the decrease.

In the quarter ended March 31, 2020, cash outflows from current assets and current liabilities were $184 million. Accounts payable and accrued liabilities decreased $289 million2022, due to the timing of payments to suppliers and employees, Accounts receivable increased $116 millionhigher balances due as of December 31, 2022 compared to December 31, 2021, as well as a smaller inflow from net Contract assets and liabilities, current in the nine months ended September 30, 2023 compared to the same period in 2022, due to thethe timing of billings Other assets, on contracts compared to the progression on current increased $85 million primarily due to tax prepayments in certain tax jurisdictions, and Inventories, net increased $49 million due to higher production inventory and purchases of inventory in advance of potential supply chain disruptions due to COVID-19.contracts. These were partially offset by the timing of income tax payments and a smaller increase in Inventories in the nine months ended September 30, 2023 compared to the same period in 2022.

During the nine months ended September 30, 2023, net changecash provided by operating activities was $1.0 billion. The primary driver of the inflow related to $1.2 billion of net income and changes in Contract assets, current and Contract liabilities, current, of $355 million, which were driven bynet, due to the timing of billings on contracts and contract completions.compared to the progression on current contracts. These were partially offset by an increase in Accounts receivable, net, due to the timing of billings.

InDuring the quarternine months ended March 31, 2019,September 30, 2022, net cash outflows from current assets and currentprovided by operating activities was $1.1 billion. The primary driver of the inflow related to $1.1 billion of net income. An increase in Accounts receivable, net, due to the timing of billings, a decrease in Accrued liabilities were $83 million. Accounts payable and accrued liabilities decreased $309 million due to the timing of payments of employee-related benefits, income taxes and other accruals, and an increase in Inventories to suppliers and employees and Accounts receivable increased $56 million due to increased billing volume. Thesesupport backlog conversion were partially offset by the net changechanges in Contract assets, current and Contract liabilities, current, of $268 million, which were driven bynet, due to the timing of billings on contracts compared to the progression on current contracts and contract completions. The remaining offset of $14 million wasincreased Accounts payable due to activity in Other assets, current and Inventories, net.the timing of payments to suppliers.

Cash Flow - Investing Activities
 Quarter Ended March 31,
(dollars in millions)20202019
Net cash flows used in investing activities$(92) $(18) 
activities

Cash flows used infrom investing activities for the quarter ended March 31, 2020primarily represent inflows and 2019 primarily reflectoutflows associated with long-term assets, including capital expenditures, investments in businesses and securities, and proceeds received onfrom the sale of fixed assets. Cash flowsassets and the settlement of derivative contracts.

During the nine months ended September 30, 2023, net cash used in investing activities inwas $132 million. The primary driver of the quarter ended March 31, 2020 comparedoutflow related to $96 million of capital expenditures, $27 million of acquisitions of businesses and intangible assets and $21 million of net cash payments from the same period in 2019 increased $74 million primarily due to a $51 million increase in investments made in equity securities, $26 million lower Other investing activities, net due tosettlement of derivative instruments.
36

lower short-termDuring the nine months ended September 30, 2022, net cash provided by investing activityactivities was $62 million. The primary drivers of the inflow were $121 million of net cash receipts from the settlement of derivative instruments and a $11$61 million increaseof net proceeds from the sale of our business in capital expenditures. TheseRussia in the third quarter of 2022, which were partially offset by a $14$81 million decrease in investments in businesses.of capital expenditures and $38 million of acquisitions of businesses and intangible assets.

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Cash Flow - Financing Activities
 Quarter Ended March 31,
(dollars in millions)20202019
Net cash flows used in financing activities$(256) $(312) 
As discussed in Note 13 to the Condensed Consolidated Financial Statements, we enter into derivative instruments for risk management purposes. We operate internationally and, in the normal course of business, are exposed to fluctuations in interest rates, foreign exchange rates and commodity prices. These fluctuations can increase the costs of financing, investing and operating the business. We use derivative instruments, including forward contracts and options to manage certain foreign currency and commodity price exposures.

Financing activities primarily include issuance of long-term debt, increases (decreases) in short-term borrowings, dividends paid to noncontrolling interests and transfers to and from UTC, consisting of, among other things, cash transfers, distributions, cash investments and changes in receivables and payables between Otis and UTC. See Note 5 to the Condensed Combined Financial Statements for further discussion on transactions with UTC.

Cash flows from financing activities primarily represent inflows and outflows associated with equity and borrowings. Primary activities include short-term and long-term borrowing activity, paying dividends to shareholders, the repurchase of our Common Stock and dividends or other payments to noncontrolling interests.
Net
During the nine months ended September 30, 2023, net cash used in financing activities decreased $56was $418 million. The primary drivers of the outflow were the repurchases of our Common Stock of $575 million, in the quarter ended March 31, 2020 compared to the same period in 2019 primarily due todividends paid on our Common Stock of $400 million and net repayments of short-term borrowings of $90 million, which were partially offset by $741 million of net proceeds from the issuance of long-term notes of $5.3 billion and the draw of $1.0 billion from its term loan, partially offset by a $6.2 billion increase in net transfers to UTC primarily driven by the distributiondebt. A portion of the proceeds from the long-term debt issuance will be used to fund the repayment at maturity of the €500 million 0.000% notes due November 12, 2023.

During the nine months ended September 30, 2022, net proceedscash used in financing activities was $3.4 billion. The primary drivers of these borrowings to UTC. Sthe outflow were the settlement in cash of the tender offer for shares of Zardoya Otis not previously owned (the "Tender Offer") for $1.8 billion, repurchases of our Common Stock of $700 million, repayments of long-term debt of $500 million and dividends paid on our Common Stock of $345 million.

For additional discussion of the Tender Offer, see Note 1 of the Company's audited consolidated financial statements and notes thereto included in our 2022 eeForm 10-K. For additional discussion of borrowing activity, see Note 9 7 to the Condensed CombinedConsolidated Financial StatementsStatements.
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Guaranteed Securities: Summarized Financial Information

The following information is provided in compliance with Rule 13-01 of Regulation S-X under the Securities Exchange Act of 1934, as amended, with respect to the 2023 Euro Notes, the 2026 Euro Notes and the 2031 Euro Notes (together the "Euro Notes"), in each case issued by Highland Holdings S.à r.l. (“Highland”), a private limited liability company (société à responsabilité limitée) incorporated and existing under the laws of the Grand Duchy of Luxembourg ("Luxembourg"). The Euro Notes are fully and unconditionally guaranteed by Otis Worldwide Corporation ("OWC") on an unsecured, unsubordinated basis. Refer to "Note 10: Borrowings and Lines of Credit" in Item 8 in our 2022 Form 10-K, for further discussionadditional information.

Highland is a wholly-owned, indirect consolidated subsidiary of OWC. OWC is incorporated under the laws of Delaware. As a company incorporated and existing under the laws of Luxembourg, and with its registered office in Luxembourg, Highland is subject to Luxembourg insolvency and bankruptcy laws in the event any insolvency proceedings are initiated against it. Luxembourg bankruptcy law is significantly different from, and may be less favorable to creditors than, the bankruptcy law in effect in the United States and may make it more difficult for creditors to recover the amount they could expect to recover in liquidation under U.S. insolvency and bankruptcy rules.

The Euro Notes are not guaranteed by any of OWC's or Highland's subsidiaries (all OWC subsidiaries other than Highland are referred to herein as "non-guarantor subsidiaries"). Holders of the Euro Notes will have a direct claim only against Highland, as issuer, and OWC, as guarantor.

The following tables set forth the summarized financial information as of and for the nine months ended September 30, 2023 and as of December 31, 2022 of each of OWC and Highland on borrowings.a standalone basis, which does not include the consolidated impact of the assets, liabilities, and financial results of their subsidiaries except as noted on the tables below, nor does it include any impact of intercompany eliminations as there were no intercompany transactions between OWC and Highland. This summarized financial information is not intended to present the financial position or results of operations of OWC or Highland in accordance with U.S. GAAP.

(dollars in millions)Nine Months Ended September 30, 2023
OWC Statement of Operations - Standalone and Unconsolidated
Revenue$—
Cost of revenue—
Operating expenses6
Income from consolidated subsidiaries97
Income (loss) from operations excluding income from consolidated subsidiaries(7)
Net income (loss) excluding income from consolidated subsidiaries(86)

(dollars in millions)September 30, 2023December 31, 2022
OWC Balance Sheet - Standalone and Unconsolidated
Current assets (excluding intercompany receivables from non-guarantor subsidiaries)$601 $94 
Current assets (intercompany receivables from non-guarantor subsidiaries)— — 
Noncurrent assets (investments in consolidated subsidiaries)1,236 1,236 
Noncurrent assets (excluding investments in consolidated subsidiaries)42 45 
Current liabilities (intercompany payables to non-guarantor subsidiaries)3,979 3,090 
Current liabilities (excluding intercompany payables to non-guarantor subsidiaries)97 166 
Noncurrent liabilities5,869 5,186 

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(dollars in millions)Nine Months Ended September 30, 2023
Highland Statement of Operations - Standalone and Unconsolidated
Revenue$—
Cost of revenue—
Operating expenses—
Income from consolidated subsidiaries475
Income (loss) from operations excluding income from consolidated subsidiaries—
Net income (loss) excluding income from consolidated subsidiaries(136)

(dollars in millions)September 30, 2023December 31, 2022
Highland Balance Sheet - Standalone and Unconsolidated
Current assets (excluding intercompany receivables from non-guarantor subsidiaries)$— $— 
Current assets (intercompany receivables from non-guarantor subsidiaries)43 195 
Noncurrent assets (investments in consolidated subsidiaries)15,711 12,524 
Noncurrent assets (intercompany receivables from non-guarantor subsidiaries)538 572 
Noncurrent assets (excluding investments in consolidated subsidiaries)— — 
Current liabilities (intercompany payables to non-guarantor subsidiaries)— — 
Current liabilities (excluding intercompany payables to non-guarantor subsidiaries)537 532 
Noncurrent liabilities (excluding intercompany payables to non-guarantor subsidiaries)1,162 1,160 
Noncurrent liabilities (intercompany payables to non-guarantor subsidiaries)3,303 — 

Off-Balance Sheet Arrangements and Contractual Obligations
A summary of the additional significant obligations that the Business has entered into during the quarter ended March 31, 2020 is as follows:

Payments Due by Period
(dollars in millions)Total20202021202220232024Thereafter
Long-term debt$6,305  $—  $2  $1  $1,501  $1  $4,800  

The section entitled “Management’sItem 5 "Management's Discussion and Analysis of Financial Condition and Results of Operations – Off-Balance Sheet ArrangementsOperations" in our 2022 Form 10-K discloses our off-balance sheet arrangements and Contractual Obligations” provided a table summarizing our contractual obligations and commercial commitments at the end of 2019 that would require the use of funds.obligations. As of March 31, 2020,September 30, 2023, there have been no additional material changes into these off-balance sheet arrangements and contractual obligations, outside the amountsordinary course of business except for those disclosed in the "Note 7, Borrowings and Lines of Credit" within Item 1 of this Form 1010-Q.
.
Item 3.    Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk

Our long-term debt portfolio primarily consists of fixed-rate instruments. For any variable rate debt, interest rate changes in the London Interbank Offered Rate ("LIBOR") will impact future earnings and cash flows. From time to time, we may hedge floating rates using interest rate swaps. The hedges are designated as fair value hedges and the gains and losses on the swaps are reported in interest expense, reflecting that portion of interest expense at a variable rate. We issue commercial paper, which exposes us to changes in interest rates. Currently, we do not hold any derivative contracts that hedge our interest exposures, but may consider such strategies in the future.

There hashave been no significant change in our exposurematerial changes to the Company’s market risk during the quarter and nine months ended March 31, 2020.September 30, 2023. For a discussion of ourthe Company’s exposure to market risk, refer to the section entitled “Management’s DiscussionCompany’s market risk disclosures set forth in Item 7A "Quantitative and Analysis of Financial Condition and Results of Operations –Qualitative Disclosures About Market Risk and Risk Management”Risk" in theour 2022 Form 1010-K.

Item 4.    Controls and Procedures

As required by Rule 13a-15 under the Exchange Act, we carried out an evaluation under the supervision and with the participation of our management, including the President and Chief Executive Officer ("CEO"), the Executive Vice President and Chief Financial Officer ("CFO") and the Vice President and Chief Accounting Officer ("CAO"), of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2020.September 30, 2023. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon our evaluation, our CEO, our CFO and our CAO have concluded that, as of March 31, 2020,September 30, 2023, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including our CEO, our CFO and our CAO, as appropriate, to allow timely decisions regarding required disclosure.

There hashave been no changechanges in our internal control over financial reporting during the quarter ended March 31, 2020,September 30, 2023, that hashave materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.

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Cautionary Note Concerning Factors That May Affect Future Results

This Form 10-Q contains statements which, to the extent they are not statements of historical or present fact, constitute “forward-looking statements” under the securities laws. From time to time, oral or written forward-looking statements may also be included in other information released to the public. These forward-looking statements are intended to provide management’s current expectations or plans for Otis’ future operating and financial performance, based on assumptions currently believed to be valid. Forward-looking statements can be identified by the use of words such as “believe,” “expect,” “expectations,” “plans,” “strategy,” “prospects,” “estimate,” “project,” “target,” “anticipate,” “will,” “should,” “see,” “guidance,” “outlook,” “confident”“medium-term,” “near-term,” “confident,” “goals” and other words of similar meaning in connection with a discussion of future operating or financial performance or the Separation.performance. Forward-looking statements may include, among other things, statements relating to future sales, earnings, cash flow, results of operations, uses of cash, dividends, share repurchases, tax rates, R&D spend, restructuring actions, including UpLift, credit ratings, net indebtedness and other measures of financial performance or potential future plans, strategies or transactions, of Otis following the Separation,or statements that relate to climate change and our intent to achieve certain ESG targets or goals, including the estimatedoperational impacts and costs associated with the Separationtherewith, and other statements that are not historical facts. All forward-looking statements involve risks, uncertainties and other factors that may cause actual results to differ materially from those expressed or implied in the forward-looking statements. For those statements, Otis claims the protection of the safe harbor for forward-looking statements contained in the U.S. Private Securities Litigation Reform Act of 1995. Such risks, uncertainties and other factors include, without limitation:

•the effect of economic conditions in the industries and markets in which Otis and its businesses operate in the U.S. and globally and any changes therein, including financial market conditions, fluctuations in commodity prices, and other inflationary pressures, interest rates and foreign currency exchange rates, levels of end market demand in construction, the impact of weatherconditions, pandemic health issues (including COVID-19 and its effects, among other things, on global supply, demand, and distribution disruptions as the coronavirus outbreak continues and results in an increasingly prolonged period of travel, commercial and/or other similar restrictions and limitations)variants thereof), natural disasters, whether as a result of climate change or otherwise, and the financial condition of Otis’ customers and suppliers;
•the effect of changes in political conditions in the U.S. and other countries in which Otis and its businesses operate, including the effects of the ongoing conflict between Russia and Ukraine, the recent war in Israel and Gaza, and increased tensions between the U.S. and China, on general market conditions, commodity costs, global trade policies and related sanctions and export controls, and currency exchange rates in the near term and beyond;
•challenges in the development, production, delivery, support, performance and realization of the anticipated benefits of advanced technologies and new products and services;
•future levels of indebtedness, including indebtedness incurred in connection with the Separation, and capital spending and research and development spending;
•future availability of credit and factors that may affect such availability or costs, including credit market conditions and Otis’ capital structure;
•the timing and scope of future repurchases of Otis’ common stock ("Common Stock"), which may be suspended at any time due to various factors, including market conditions and the level of other investing activities and uses of cash;
•fluctuations in prices and delays and disruption in delivery of materials and services from suppliers;suppliers, whether as a result of COVID-19, the ongoing conflict between Russia and Ukraine or otherwise;
•cost reduction efforts andor containment actions, restructuring costs and related savings and other consequences thereof;thereof, including with respect to UpLift;
•new business and investment opportunities;
•the anticipated benefits of moving away from diversification and balance of operations across product lines, regions and industries;
•the outcome of legal proceedings, investigations and other contingencies;
•pension plan assumptions and future contributions;
•the impact of the negotiation of collective bargaining agreements and labor disputes;
•the effect of changes in political conditionsdisputes and labor inflation in the U.S. and other countriesmarkets in which Otis and its businesses operate including the effect of changes in U.S. trade policies or the United Kingdom’s withdrawal from the European Union, on general market conditions, global trade policies and currency exchange rates in the near term and beyond;globally;
•the effect of changes in tax, environmental, regulatory (including among other things import/export) and other laws and regulations in the U.S. and other countries in which Otis and its businesses operate;
•the ability of Otis to retain and hire key personnel;
•the scope, nature, impact or timing of acquisition and divestiture activity, including among other thingsthe integration of acquired businesses into existing businesses and realization of synergies and opportunities for growth and innovation and incurrence of related costs;
•the expected benefits of the Separation;
•a determination by the Internal Revenue Service and other tax authorities that the distribution or certain related transactions in connection with the Separation should be treated as taxable transactions; and
•risks associatedour obligations and our disputes that have or may hereafter arise under the agreements we entered into with indebtedness incurred as a result of financing transactions undertakenRTX and Carrier in connection with the Separation;Separation.
•the risk that dis-synergy costs, costs of restructuring transactions and other costs incurred in connection with the Separation will exceed Otis’ estimates; and
•the impact of the Separation on Otis’ businesses and Otis’ resources, systems, procedures and controls, diversion of management’s attention and the impact on relationships with customers, suppliers, employees and other business counterparties.
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In addition, this Form 10-Q includes important information as to risks, uncertaintiesThese and other factors that may cause actual results to differ materially from those expressed or impliedare more fully discussed in the forward-looking statements. See the "Notes to Condensed CombinedConsolidated Financial Statements" under the headings "Note 1: Basis of Presentation"General" and "Note 16: Contingent Liabilities,Liabilities" and in "Management's Discussion and Analysis of Financial
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Condition and Results of Operations" in this Form 10-Q and in our 2022 Form 10-K under the headings "Item 1. Business," the section titled"Item 1A. Risk Factors," "Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Item 8. Financial Statements and Supplementary Data" under the headings "Business Overview," "Critical Accounting Estimates," "Results"Note 1: Business Overview" and "Note 22: Contingent Liabilities" and elsewhere in each of Operations," and "Liquidity and Financial Condition," and the sections titled "Legal Proceedings" and "Risk Factors" in this Form 10-Q and in our Form 10. Additional important information as to these factors is included in our Form 10 in "Item 1. Business", "Item 1A. Risk Factors", "Item 2. Financial Information" and "Item 8. Legal Proceedings" and in our Form S-3 Registration Statement (Registration No. 333-237550) under the heading "Risk Factors".filings. The forward-looking statements speak only as of the date of this report or, in the case of any document incorporated by reference,reference, the date of that document. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. Additional information as to factors that may cause actual results to differ materially from those expressed or implied in the forward-looking statements is disclosed from time to time in our other filings with the SEC.
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PART II – OTHER INFORMATION

Item 1. Legal Proceedings

See Note 16. Contingent16, "Contingent Liabilities to the Condensed CombinedConsolidated Financial Statements,Statements" for discussion regarding material legal proceedings.

Except as otherwise noted above, there have been no material developments in legal proceedings. For previously reported information about legal proceedings refer to "Item 8."Part II - Other Information, Item 1. Legal Proceedings," Proceedings" in our Form 10-Q for the quarters ended March 31, 2023 and June 30, 2023 and Item 3 "Legal Proceedings" in our 2022 Form 1010-K.

Item 1A. Risk Factors

Additional information regarding risk factors can be found under "Recent Developments" in the "Business Overview" and "Cautionary Note Concerning Factors That May Affect Future Results" sections of Management's Discussion and Analysis of Financial Condition and Results of Operations in this Form 10-Q.

Except as otherwise noted below,above, there have been no material changes in the Company's risk factors from those disclosed in Item 1A Risk"Risk Factors," in our 2022Form 1010-K and under "Risk Factors" in our Form S-3 Registration Statement (Registration No. 333-237550) under the heading "Risk Factors".

Our business may be further impacted by the COVID-19 pandemic.

As previously disclosed, a novel strain of coronavirus (“COVID-19”) surfaced in Wuhan, China in December 2019, and has since spread throughout the rest of the world, resulting in widespread travel restrictions and extended shutdowns of non-essential businesses, including construction and hospitality venues, impacting to various extents our factory operations, new equipment installations and access to units under maintenance. The extent of the resulting impact of the COVID-19 pandemic on our business is uncertain at this time and will depend on future developments, but further prolonged closures throughout the world and continued decreases in the general level of economic activity may further disrupt our operations and the operations of our suppliers, distributors and customers. Additionally, further tightening of credit in the capital markets could adversely affect our ability to access the capital markets or could result in a significant increase in our borrowing costs. It could also affect the ability of our customers to pay for our products and services and to obtain financing for significant purchases and operations, which has resulted in, and could further result in, a decrease and/or cancellation of orders for our products and services and/or payment delays or defaults. Similarly, further 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, which could impact our ability to fulfill orders on time or at anticipated cost. Any of these factors could have a material adverse effect on our business, results of operations, cash flows and financial condition.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Issuer Purchases of Equity Securities

The following table provides information about our purchases during the quarter ended September 30, 2023 of equity securities that are registered by us pursuant to Section 12 of the Exchange Act.

2023Total Number of Shares Purchased
(thousands)
Average Price Paid per Share (1)
Total Number of Shares Purchased as Part of a Publicly Announced Program
(thousands)		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program
(dollars in millions)
July 1 - July 3155$90.7955$1,645
August 1 - August 312,06785.792,067$1,468
September 1 - September 3051084.21510$1,425
Total2,632$85.512,632

(1)     Average price paid per share includes any broker commissions associated with the repurchases.

On December 1, 2022, our Board of Directors approved a share repurchase program for up to $2.0 billion of Common Stock. As of September 30, 2023, the maximum dollar value of shares that may yet be purchased under this current program was approximately $1.4 billion. Under this program, shares may be purchased on the open market, in privately negotiated transactions, under accelerated share repurchase programs or under plans complying with Rules 10b5-1 and 10b-18 under the Exchange Act.

Item 5. Other Information

Insider Adoption or Termination of Trading Arrangements

During the fiscal quarter ended September 30, 2023, except for Ms. Marks, our Chair, President and Chief Executive Officer, none of our directors or officers adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as those terms are defined in Regulation S-K. On July 28, 2023, Ms. Marks adopted a trading plan intended to satisfy the affirmative defense conditions of Rule 10b5-1(c). Under this plan, the shares received by Ms. Marks upon the vesting of the performance stock units ("PSUs") granted to her by the Company on February 5, 2021 (after giving effect to tax withholding and a previous election to defer 50% of the PSU shares earned) will be sold at the market price so long as the
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Company’s common stock is trading at or above a limit price. The plan will terminate at the close of business on the day the shares become available for sale even if the Company’s common stock is trading below the limit price and the shares are not sold. We expect that the plan will terminate in early February 2024, shortly after the date the PSUs are expected to vest.

The number of shares that may be sold by Ms. Marks upon vesting of the PSUs will depend upon the Company’s achievement of the underlying financial performance goals and the application of a multiplier factor based on our relative total shareowner return over the 2021-2023 performance period, and can range from 0 to 200% of the sum of the target PSUs granted plus additional PSUs credited for dividend equivalents. Ms. Marks was granted 65,355 “target” PSUs on February 5, 2021. However, because Ms. Marks previously elected to defer receipt of 50% of the PSUs to be earned under our PSU Deferral Plan, the number of shares delivered to her at vesting and available for sale will be accordingly reduced. Assuming the shares are sold under the plan, we estimate, based on our projected performance against the underlying financial performance goals, our relative total shareholder return through the last trading day of the quarter ending September 30, 2023, current tax withholding rates, future crediting of dividend equivalents assuming our current dividend remains unchanged and a stock price of $80.31 (the closing price of our stock on the last trading day of the quarter ending September 30, 2023), and Ms. Marks election to defer 50% of the PSUs, that 37,080 shares could be sold under the plan.

Item 6. Exhibits

Exhibit

Number
Exhibit Description
2.14.1
3.1(a)
3.1(b)
3.2
4.1
41

Exhibit
Number
Exhibit Description
4.2
4.3
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
42

Exhibit
Number
Exhibit Description
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
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Exhibit
Number
Exhibit Description
10.29
10.30
10.31
15
31.1
31.2
31.3
32
101.INSXBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.*
101.SCHXBRL Taxonomy Extension Schema Document.*
101.CALXBRL Taxonomy Extension Calculation Linkbase Document.*
101.DEFXBRL Taxonomy Extension Definition Linkbase Document.*
101.LABXBRL Taxonomy Extension Label Linkbase Document.*
101.PREXBRL Taxonomy Extension Presentation Linkbase Document.*
104Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document.

Notes to Exhibits List:

*    Submitted electronically herewith.

Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language): (i) Condensed CombinedConsolidated Statements of Operations for the quarters and nine months ended March 31, 2020September 30, 2023 and 2019,2022, (ii) Condensed CombinedConsolidated Statements of Comprehensive Income for the quarters and nine months ended March 31, 2020September 30, 2023 and 2019,2022, (iii) Condensed CombinedConsolidated Balance Sheets as of March 31, 2020September 30, 2023 and December 31, 2019,2022, (iv) Condensed CombinedConsolidated Statements of Cash Flows for the quartersnine months ended March 31, 2020September 30, 2023 and 2019,2022, (v) Condensed CombinedConsolidated Statements of Changes in Equity for the quarters and nine months ended March 31, 2020September 30, 2023 and 20192022 and (vi) Notes to Condensed CombinedConsolidated Financial Statements.
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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

OTIS WORLDWIDE CORPORATION
(Registrant)
Dated:May 8, 2020October 26, 2023by:
/s/ RAHUL GHAI
Rahul GhaiANURAG MAHESHWARI
Anurag Maheshwari
Executive Vice President and Chief Financial Officer
(on behalf of the Registrant and as the Registrant's Principal Financial Officer)
Dated:May 8, 2020October 26, 2023by:
/s/ MMICHAEL P. RYANICHAEL P.RYAN
Michael P. Ryan
Vice President and Chief Accounting Officer
(on behalf of the Registrant and as the Registrant's Principal Accounting Officer)

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