Otis Worldwide 10Q 2022 Q3 Quarterly report

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 September 30, 2022


☐			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)

____________________________________


Delaware						83-3789412
(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 class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock ($0.01 par value)	OTIS	New York Stock Exchange
0.000% Notes due 2023	OTIS/23	New York Stock Exchange
0.318% Notes due 2026	OTIS/26	New York Stock Exchange
0.934% Notes due 2031	OTIS/31	New 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 ¨.

Table of Contents

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 Filer	ý	Accelerated 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.

At October 14, 2022 there were 416,586,077 shares of Common Stock outstanding.

Table of Contents

OTIS WORLDWIDE CORPORATION

CONTENTS OF QUARTERLY REPORT ON FORM 10-Q

Quarter Ended September 30, 2022


			Page

PART I – FINANCIAL INFORMATION			4

Item 1. Financial Statements:			4

Condensed Consolidated Statements of Operations for the quarters ended September 30, 2022 and 2021			4

Condensed Consolidated Statements of Operations for the nine months ended September 30, 2022 and 2021			5

Condensed Consolidated Statements of Comprehensive Income for the quarters and nine months ended September 30, 2022 and 2021			6

Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021			7

Condensed Consolidated Statements of Changes in Equity for the quarters ended September 30, 2022 and 2021			8

Condensed Consolidated Statements of Changes in Equity for the nine months ended September 30, 2022 and 2021			9

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021			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

PART II – OTHER INFORMATION			47

Item 1. Legal Proceedings			47

Item 1A. Risk Factors			47

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			47



Item 6. Exhibits			48

SIGNATURES			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.

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

OTIS WORLDWIDE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Quarter Ended September 30,
(amounts in millions, except per share amounts)	2022		2021
Net sales:
Product sales	$	1,447	$	1,681
Service sales	1,897		1,939
	3,344		3,620
Costs and expenses:
Cost of products sold	1,208		1,381
Cost of services sold	1,165		1,179
Research and development	37		39
Selling, general and administrative	417		479
	2,827		3,078
Other income (expense), net	12		—
Operating profit	529		542
Non-service pension cost (benefit)	1		2
Interest expense (income), net	35		33
Net income before income taxes	493		507
Income tax expense	143		128
Net income	350		379






Less: Noncontrolling interest in subsidiaries' earnings	26		48
Net income attributable to Otis Worldwide Corporation	$	324	$	331





Earnings per share (Note 2):
Basic	$	0.77	$	0.78
Diluted	$	0.77	$	0.77





Weighted average number of shares outstanding:
Basic shares	418.5		425.8
Diluted shares	421.2		430.6

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents

OTIS WORLDWIDE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



	Nine Months Ended September 30,
(amounts in millions, except per share amounts)	2022		2021
Net sales:
Product sales	$	4,403	$	4,866
Service sales	5,843		5,863
	10,246		10,729
Costs and expenses:
Cost of products sold	3,689		3,986
Cost of services sold	3,597		3,589
Research and development	112		113
Selling, general and administrative	1,315		1,445
	8,713		9,133
Other income (expense), net	9		16
Operating profit	1,542		1,612
Non-service pension cost (benefit)	2		6
Interest expense (income), net	107		92
Net income before income taxes	1,433		1,514
Income tax expense	382		404
Net income	1,051		1,110
Less: Noncontrolling interest in subsidiaries' earnings	95		145








Net income attributable to Otis Worldwide Corporation	$	956	$	965

Earnings per share (Note 2):

Basic	$	2.27	$	2.25
Diluted	$	2.25	$	2.23

Weighted average number of shares outstanding:
Basic shares	421.3		428.5
Diluted shares	424.3		432.0

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents

OTIS WORLDWIDE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Quarter Ended September 30,				Nine Months Ended September 30,
(dollars in millions)	2022		2021		2022		2021


Net income	$	350	$	379	$	1,051	$	1,110
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	151		(37)		56		(39)
Pension and postretirement benefit plan adjustments	2		4		6		11

Change in unrealized cash flow hedging	(4)		4		(4)		1
Other comprehensive income (loss), net of tax	149		(29)		58		(27)
Comprehensive income (loss), net of tax	499		350		1,109		1,083
Less: Comprehensive (income) loss attributable to noncontrolling interest	(7)		(43)		30		(130)
Comprehensive income attributable to Otis Worldwide Corporation	$	492	$	307	$	1,139	$	953

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents

OTIS WORLDWIDE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


(dollars in millions)	September 30, 2022		December 31, 2021
Assets
Cash and cash equivalents	$	1,034	$	1,565
Restricted cash	7		1,910
Accounts receivable (net of allowance for expected credit losses of $156 and $175)	3,103		3,232
Contract assets	641		550
Inventories	603		622
Other current assets	441		382

Total Current Assets	5,829		8,261
Future income tax benefits	290		335
Fixed assets (net of accumulated depreciation of $1,079 and $1,156)	692		774
Operating lease right-of-use assets	464		526
Intangible assets, net	346		419
Goodwill	1,448		1,667
Other assets	273		297
Total Assets	$	9,342	$	12,279
Liabilities and Equity (Deficit)
Short-term borrowings	$	103	$	24
Accounts payable	1,521		1,556
Accrued liabilities	1,662		1,993
Contract liabilities	2,706		2,674


Total Current Liabilities	5,992		6,247
Long-term debt	6,459		7,249
Future pension and postretirement benefit obligations	505		558
Operating lease liabilities	325		336
Future income tax obligations	244		267
Other long-term liabilities	550		606
Total Liabilities	14,075		15,263
Commitments and contingent liabilities (Note 16)
Redeemable noncontrolling interest	128		160
Shareholders' Equity (Deficit):

Common Stock and additional paid-in capital	134		119

Treasury Stock	(1,425)		(725)
Accumulated deficit	(3,042)		(2,256)

Accumulated other comprehensive income (loss)	(580)		(763)
Total Shareholders' Equity (Deficit)	(4,913)		(3,625)
Noncontrolling interest	52		481
Total Equity (Deficit)	(4,861)		(3,144)
Total Liabilities and Equity (Deficit)	$	9,342	$	12,279

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents

OTIS WORLDWIDE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)



	Common Stock and Additional Paid-In Capital	Treasury Stock		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Shareholders' (Deficit) Equity		Noncontrolling Interest		Total (Deficit) Equity		Redeemable Noncontrolling Interest

(dollars in millions, except per share amounts)
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 plans		13		—		—		—		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

Quarter Ended September 30, 2021
Balance as of June 30, 2021		$	86	$	(506)	$	(2,662)	$	(803)	$	(3,885)	$	468	$	(3,417)	$	163
Net income		—		—		331		—		331		46		377		2
Other comprehensive income (loss), net of tax		—		—		—		(24)		(24)		(5)		(29)		(1)
Stock-based compensation and Common Stock issued under employee plans		18		—		(1)		—		17		—		17		—
Cash dividends declared ($0.24 per Common Share)		—		—		(102)		—		(102)		—		(102)		—
Repurchase of Common Shares		—		(219)		—		—		(219)		—		(219)		—
Dividends attributable to noncontrolling interest		—		—		—		—		—		(24)		(24)		—
Acquisition, disposal and other changes		(2)		—		1		—		(1)		1		—		—
Balance as of September 30, 2021		$	102	$	(725)	$	(2,433)	$	(827)	$	(3,883)	$	486	$	(3,397)	$	164

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents

OTIS WORLDWIDE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)


	Common Stock and Additional Paid-In Capital		Treasury Stock		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Shareholders' (Deficit) Equity		Noncontrolling Interest		Total (Deficit) Equity		Redeemable Noncontrolling Interest


(dollars in millions, except per share amounts)
Nine Months Ended September 30, 2022
Balance 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 plans	32		—		(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 at September 30, 2022	$	134	$	(1,425)	$	(3,042)	$	(580)	$	(4,913)	$	52	$	(4,861)	$	128

Nine Months Ended September 30, 2021
Balance December 31, 2020	$	59	$	—	$	(3,106)	$	(815)	$	(3,862)	$	467	$	(3,395)	$	194
Net income	—		—		965		—		965		138		1,103		7
Other comprehensive income (loss), net of tax	—		—		—		(12)		(12)		(8)		(20)		(8)
Stock-based compensation and Common Stock issued under employee plans	45		—		(2)		—		43		—		43		—
Cash dividends declared ($0.68 per common share)	—		—		(291)		—		(291)		—		(291)		—
Repurchase of Common Shares	—		(725)		—		—		(725)		—		(725)		—
Dividends attributable to noncontrolling interest	—		—		—		—		—		(121)		(121)		(11)
Acquisitions, disposals and other changes	(2)		—		1		—		(1)		10		9		(18)
Balance at September 30, 2021	$	102	$	(725)	$	(2,433)	$	(827)	$	(3,883)	$	486	$	(3,397)	$	164

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents

OTIS WORLDWIDE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine Months Ended September 30,
(dollars in millions)	2022		2021
Operating Activities:
Net income	$	1,051	$	1,110
Adjustments to reconcile net income to net cash flows provided by operating activities, net of acquisitions and dispositions:
Depreciation and amortization	145		152
Deferred income tax expense (benefit)	6		(72)
Stock compensation cost	41		48



Change in operating assets and liabilities:
Accounts receivable, net	(171)		(107)
Contract assets and liabilities, current	143		140
Inventories	(80)		18
Other current assets	(14)		12
Accounts payable	137		230
Accrued liabilities	(166)		(29)


Pension contributions	(28)		(23)
Other operating activities, net	32		(6)
Net cash flows provided by operating activities	1,096		1,473
Investing Activities:
Capital expenditures	(81)		(115)
Acquisitions of businesses and intangible assets, net of cash (Note 6)	(38)		(59)
Dispositions of businesses, net of cash (Note 6)	61		—
Proceeds from the sale of (investments in) marketable securities	(7)		40

Receipts (payments) on settlements of derivative contracts	121		35
Other investing activities, net	6		30
Net cash flows provided by (used in) investing activities	62		(69)
Financing Activities:
Net proceeds from (repayments of) borrowings (maturities of 90 days or less)	80		(294)
Proceeds from borrowings (maturities longer than 90 days)	—		152
Repayments of borrowings (maturities longer than 90 days)	—		(503)
Proceeds from issuance of long-term debt	—		199
Payment of debt issuance costs	—		(11)
Repayment of long-term debt	(500)		—


Dividends paid on Common Stock	(345)		(291)
Repurchases of Common Stock	(700)		(725)
Dividends paid to noncontrolling interest	(107)		(130)
Acquisition of Zardoya Otis shares (Note 1)	(1,802)		—
Other financing activities, net	(28)		(18)
Net cash flows provided by (used in) financing activities	(3,402)		(1,621)





Effect of foreign exchange rate changes on cash and cash equivalents	(191)		(11)
Net increase (decrease) in cash, cash equivalents and restricted cash	(2,435)		(228)
Cash, cash equivalents and restricted cash, beginning of year	3,477		1,801
Cash, cash equivalents and restricted cash, end of period	1,042		1,573
Less: Restricted cash	8		20

Cash and cash equivalents, end of period	$	1,034	$	1,553

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents

OTIS WORLDWIDE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1: General

The Condensed Consolidated Financial Statements as of September 30, 2022 and for the quarters and nine months ended September 30, 2022 and 2021 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 Consolidated Balance Sheet as of December 31, 2021 was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles ("GAAP") in the United States ("U.S."). The results reported in these Condensed Consolidated 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 Annual Report on Form 10-K for fiscal year 2021 ("2021 Form 10-K" or "Form 10-K").

Unless the context otherwise requires, references to "Otis", "we", "us", "our" and "the Company" refer to Otis Worldwide Corporation and its subsidiaries.

There have been no changes to the Company's significant accounting policies described in the Company's Form 10-K that have a material impact on the Company's Condensed Consolidated Financial Statements and the related notes.

Revisions

As previously disclosed, in 2021 the Company identified a misclassification between noncontrolling interest and redeemable noncontrolling interest. Accordingly, the Company adjusted the noncontrolling interest and redeemable noncontrolling interest in the Condensed Consolidated Statements of Changes in Equity as of September 30, 2021, resulting in an increase to Redeemable noncontrolling interest of $102 million, a decrease to Noncontrolling interest of $73 million and a decrease to Accumulated deficit of $29 million. Refer to Note 2 of the Company’s audited consolidated financial statements and notes thereto included in our 2021 Form 10-K.

Zardoya Otis Tender Offer

The Company previously announced its Tender Offer to acquire all of the issued and outstanding shares of Zardoya Otis not owned by the Company in cash, and its intention to delist the shares of Zardoya Otis from the Spanish stock exchanges subsequent to the Tender Offer. The price per share of the Tender Offer was €7.07 in cash as of March 31, 2022, after adjustments for dividends paid. The Tender Offer was approved by the Spanish regulator on February 28, 2022. As a result of the Tender Offer approval, the issued and outstanding shares of Zardoya Otis owned by Euro Syns, S.A. were reclassified to current liabilities as Forward purchase agreement, and the remaining shares not owned by the Company were deemed redeemable at the option of the other shareholders and were reclassified from Noncontrolling interest to Redeemable noncontrolling interest on our Condensed Consolidated Balance Sheets. The difference between the historical noncontrolling interest carrying value in the balance sheet and the fair value of the Tender Offer was recorded to Accumulated deficit.

The results of the Tender Offer were announced on April 7, 2022, with tenders, including of the Euro Syns, S.A.' shares, of 45.49% of the shares outstanding accepted, resulting in the Company owning 95.51% of Zardoya Otis. The shares tendered to the Company were settled in cash on April 12, 2022 for approximately €1.5 billion from the Company's restricted cash held in escrow. The acquisition and settlement of the remaining issued and outstanding shares of Zardoya Otis not owned by the Company for approximately €150 million occurred in the second quarter, with the automatic delisting of Zardoya Otis shares on May 9, 2022.

The Company owned a controlling interest and had operational control of Zardoya Otis as of and for the periods ended September 30, 2022 and 2021, and all other periods during 2022 and 2021, and therefore its financial results are included in our Condensed Consolidated Financial Statements. The Company owned 50.02% of Zardoya Otis as of March 31, 2022, and 100% as of June 30 and September 30, 2022.

Table of Contents

Separation

On April 3, 2020, the Company became an independent publicly-traded company (the "Separation") through a pro-rata distribution of 0.5 shares of Common Stock for every share of United Technologies Corporation, subsequently renamed to Raytheon Technologies Corporation ("UTC" or "RTX", as applicable), common stock held at the close of business on the record date of March 19, 2020. Otis began to trade as a separate public company (New York Stock Exchange: OTIS) on April 3, 2020.

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 of the information reasonably available to us and the unknown future impacts of COVID-19 as of September 30, 2022 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 Consolidated Financial Statements as of September 30, 2022 and for the quarters and nine months ended September 30, 2022 and 2021, respectively, resulting from our assessments of these matters, future assessment of our current expectations at that time of the magnitude and duration of COVID-19, as well as other factors, could result in material impacts to our Condensed Consolidated Financial Statements in future reporting periods.

We also assessed certain accounting matters as they relate to the ongoing conflict between Russia and Ukraine, 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, 2022 and for the quarter and nine months ended September 30, 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 situation develops and any broader implications it may have on the global economy. Additionally, the Company sold its business in Russia during the third quarter of 2022. See Note 6, "Business Acquisitions, Dispositions, Goodwill and Intangible Assets" for additional information regarding the sale of our Russia business.

Note 2: Earnings per Share


	Quarter Ended September 30,				Nine Months Ended September 30,
(amounts in millions, except per share amounts)	2022		2021		2022		2021


Net income attributable to Otis Worldwide Corporation	$	324	$	331	$	956	$	965
Impact of redeemable noncontrolling interest	—		—		—		—
Net income attributable to common shareholders	$	324	$	331	$	956	$	965

Basic weighted average number of shares outstanding	418.5		425.8		421.3		428.5
Stock awards and equity units (share equivalent)	2.7		4.8		3.0		3.5
Diluted weighted average number of shares outstanding	421.2		430.6		424.3		432.0

Earnings Per Share of Common Stock:


Basic	$	0.77	$	0.78	$	2.27	$	2.25



Diluted	$	0.77	$	0.77	$	2.25	$	2.23

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 2.4 million of anti-dilutive stock awards excluded from the computation for the quarter and nine months ended September 30, 2022, and 0.1 million for the quarter and nine months ended September 30, 2021.

Table of Contents

Note 3: Revenue Recognition

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

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.

Total Contract assets and Contract liabilities as of September 30, 2022 and December 31, 2021 are as follows:


(dollars in millions)	September 30, 2022		December 31, 2021
Contract assets, current	$	641	$	550

Total contract assets	641		550

Contract liabilities, current	2,706		2,674
Contract liabilities, non-current (included within Other long-term liabilities)	48		52
Total contract liabilities	2,754		2,726
Net contract liabilities	$	2,113	$	2,176

Contract assets increased by $91 million during the nine months ended September 30, 2022 as a result of the progression of current contracts and timing of billing on customer contracts, partially offset by the impact of foreign exchange rates. Contract liabilities increased by $28 million during the nine months ended September 30, 2022 primarily due to contract billings in excess of revenue earned, partially offset by the impact of foreign exchange rates and a decrease of $102 million of contract liabilities due to the sale of our Russia business during the third quarter of 2022. See Note 6, "Business Acquisitions, Dispositions, Goodwill and Intangible Assets" for additional information regarding the sale of our Russia business.

In the nine months ended September 30, 2022 and 2021, we recognized revenue of $1.8 billion and $1.9 billion related to contract liabilities as of January 1, 2022 and 2021, respectively.

Remaining Performance Obligations ("RPO"). RPO represents the aggregate amount of total contract transaction price that is unsatisfied or partially unsatisfied. As of September 30, 2022, our total RPO was $16.6 billion.

Of the total RPO as of September 30, 2022, we expect 90% will be recognized as sales over the following 24 months.

Note 4: Accounts Receivable, Net

Accounts receivable, net consisted of the following as of September 30, 2022 and December 31, 2021:


(dollars in millions)	September 30, 2022		December 31, 2021
Trade receivables	$	2,982	$	3,117
Unbilled receivables	104		109
Miscellaneous receivables	92		88
Customer financing notes receivable	81		93
	3,259		3,407
Less: allowance for expected credit losses	156		175
Accounts receivable, net	$	3,103��	$	3,232

Table of Contents

The changes in allowance for expected credit losses related to Accounts receivable, net for the nine months ended September 30, 2022 and 2021, respectively, are as follows:


	Nine Months Ended September 30,
(dollars in millions)	2022		2021
Balance as of January 1	$	175	$	161
Provision for expected credit losses	4		27
Write-offs charged against the allowance for expected credit losses	(14)		(8)
Foreign exchange and other	(9)		(3)
Balance as of September 30	$	156	$	177

Note 5: Inventories


(dollars in millions)	September 30, 2022		December 31, 2021
Raw materials and work-in-process	$	149	$	140
Finished goods	454		482
Total	$	603	$	622

Raw materials, work-in-process and finished goods are net of valuation reserves of $93 million and $99 million as of September 30, 2022 and December 31, 2021, respectively.

Inventories decreased during the nine months ended September 30, 2022, including decreases of $16 million of raw materials and work-in-process and $36 million of finished goods due to the sale of our Russia business during the third quarter of 2022. See Note 6, "Business Acquisitions, Dispositions, Goodwill and Intangible Assets" for additional information regarding the sale of our Russia business. These decreases were partially offset by increases to inventory in order to support backlog conversion.

Note 6: Business Acquisitions, Dispositions, Goodwill and Intangible Assets

Business Acquisitions. Our acquisitions of businesses and intangibles assets, net of cash, totaled $38 million and $59 million in the nine months ended September 30, 2022 and 2021, respectively. The acquisitions consisted of a number of acquisitions primarily in our Service segment. Transaction costs incurred were not considered significant.

Goodwill. Changes in our Goodwill balances during the nine months ended September 30, 2022 were as follows:


(dollars in millions)	Balance as of December 31, 2021		Goodwill Resulting From Business Combinations		Business Disposals 1		Foreign Currency Translation and Other		Balance as of September 30, 2022
New Equipment	$	336	$	—	$	(26)	$	(41)	$	269
Service	1,331		10		(3)		(159)		1,179
Total	$	1,667	$	10	$	(29)	$	(200)	$	1,448

1 The sale of our Russia business included $29 million of goodwill. For additional information, refer to the subheading "Disposals and Held For Sale Assets and Liabilities" below.

Intangible Assets. Intangible assets cost and accumulated amortization were $1,892 million and $1,546 million, respectively, as of September 30, 2022, and $2,117 million and $1,698 million, respectively, as of December 31, 2021.

Amortization of intangible assets for the quarter and nine months ended September 30, 2022 was $18 million and $55 million, respectively, compared to $22 million and $67 million for the same periods in 2021. Excluding the impact of currency translation adjustments, there were no other significant changes in our Intangible Assets during the quarters and nine months ended September 30, 2022 and 2021.

Table of Contents

Disposals and Held For Sale Assets and Liabilities. As of September 30, 2022, assets held for sale were $9 million, and are included in Other current assets in the Condensed Consolidated Balance Sheets. There were no balances as of December 31, 2021.

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 quarter ended June 30, 2022.

Note 7: Borrowings and Lines of Credit


(dollars in millions)	September 30, 2022		December 31, 2021
Commercial paper	$	71	$	—
Other borrowings	32		24
Total short-term borrowings	$	103	$	24

Commercial Paper. As of September 30, 2022, there were $71 million in borrowings outstanding under the Company's $1.5 billion commercial paper programs. We 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 borrowings activity in 2021, refer to Note 10 of the Company's audited consolidated financial statements and notes thereto included in our 2021 Form 10-K.

Long-term debt. As of September 30, 2022, we have a credit agreement, as amended, with various banks providing for a $1.5 billion 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, that matures in April 2025. As of September 30, 2022, there were no borrowings under the Company's revolving credit facility.

Table of Contents

As of September 30, 2022, the Company is in compliance with all covenants in the revolving credit agreement and the indentures governing all outstanding long-term debt. Long-term debt consisted of the following:


(dollars in millions)	September 30, 2022		December 31, 2021
LIBOR plus 45 bps floating rate notes due 2023 1,2,3	$	—	$	500
0.000% notes due 2023 (€500 million principal value) 2	484		565
2.056% notes due 2025 2	1,300		1,300
0.37% notes due 2026 (¥21.5 billion principal value) 2	149		189
0.318% notes due 2026 (€600 million principal value) 2	580		677
2.293% notes due 2027 2	500		500
2.565% notes due 2030 2	1,500		1,500
0.934% notes due 2031 (€500 million principal value) 2	484		565
3.112% notes due 2040 2	750		750
3.362% notes due 2050 2	750		750
Other (including finance leases)	6		4
Total principal long-term debt	6,503		7,300
Other (discounts and debt issuance costs)	(44)		(51)
Total long-term debt	6,459		7,249
Less: current portion	—		—
Long-term debt, net of current portion	$	6,459	$	7,249

1 The three-month LIBOR rate as of December 31, 2021 was approximately 0.21%.

2 We may redeem these notes at our option pursuant to certain terms.

3 The Company redeemed its $500 million floating rate notes due in 2023, at par, using cash on hand in January 2022.

For additional details regarding the Company's debt in 2021, refer to Note 10 of the Company's audited consolidated financial statements and notes thereto included in our 2021 Form 10-K.

Debt discounts and debt issuance costs are presented as a reduction of debt on the Condensed Consolidated 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, 2022 and 2021 reflects the following:


	Quarter Ended September 30,				Nine Months Ended September 30,
(dollars in millions)	2022		2021		2022		2021
Debt issuance costs amortization	$	1	$	1	$	6	$	4
Total interest expense on external debt	35		34		106		101

The unamortized debt issuance costs as of September 30, 2022 and December 31, 2021 were $44 million and $51 million, respectively.

The average maturity of our long-term debt as of September 30, 2022 is approximately 8.9 years. The average interest expense rate on our borrowings outstanding as of September 30, 2022 and December 31, 2021 was as follows:


	September 30, 2022		December 31, 2021
Short-term borrowings	3.4	%	—	%
Total long-term debt	2.0	%	1.9	%

Table of Contents

The average interest expense rate on our borrowings during the quarters and nine months ended September 30, 2022 and 2021 was as follows:


	Quarter Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Short-term borrowings	2.5	%	(0.2)	%	1.3	%	(0.3)	%
Total long-term debt	2.0	%	2.4	%	2.0	%	2.4	%

Note 8: Employee Benefit Plans

Pension and Postretirement Plans. The 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 September 30,				Nine Months Ended September 30,
(dollars in millions)	2022		2021		2022		2021
Defined benefit plans	$	7	$	5	$	28	$	23
Defined contribution plans	14		14		49		47
Multi-employer pension and postretirement plans	40		38		101		118

The following table illustrates the components of net periodic benefit cost for the Company's defined benefit pension plans:


	Quarter Ended September 30,				Nine Months Ended September 30,
(dollars in millions)	2022		2021		2022		2021
Service cost	$	10	$	11	$	30	$	33
Interest cost	4		3		13		10
Expected return on plan assets	(8)		(6)		(21)		(18)

Recognized actuarial net loss	3		5		8		14
Net settlement and curtailment (gain) loss	1		(1)		1		(1)
Total net periodic benefit cost	$	10	$	12	$	31	$	38

Postretirement Benefit Plans. The Company sponsors postretirement benefit plans that provide health 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 September 30, 2022 and 2021, respectively.

Stock-based Compensation. The Company adopted the 2020 Long-Term Incentive Plan (the "Plan") effective April 3, 2020. As of September 30, 2022, approximately 24 million shares remain available for awards under the Plan.

Stock-based Compensation Expense

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

Table of Contents

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


	Quarter Ended September 30,				Nine Months Ended September 30,
(dollars in millions)	2022		2021		2022		2021
Stock-based compensation expense (Share Based)	$	13	$	17	$	41	$	48
Stock-based compensation expense (income) (Liability Awards)	—		1		(1)		2
Total gross stock-based compensation expense	13		18		40		50
Less: future tax benefit	2		2		5		6
Stock-based compensation expense, net of tax	$	11	$	16	$	35	$	44

As of September 30, 2022, there was approximately $68 million of total unrecognized compensation cost related to non-vested equity awards granted under the Plan. 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 authorized Preferred Stock, of which none were issued or outstanding as of September 30, 2022 and December 31, 2021.

Common Stock. There are 2 billion shares of $0.01 par value Common Stock authorized. As of September 30, 2022, 435.4 million shares of Common Stock were issued, which includes 18.8 million shares of treasury stock. As of December 31, 2021, 434.7 million shares of Common Stock were issued, which included 9.7 million shares of treasury stock.

Share Repurchase Program. As of December 31, 2021, the Company was authorized by the Board of Directors to purchase up to $1 billion of Common Stock under a share repurchase program, of which $275 million was remaining at such time.

During the quarter ended March 31, 2022, we repurchased an additional 2.6 million shares for approximately $200 million under the above-referenced program. On March 9, 2022, our Board of Directors revoked any remaining share repurchase authority under the prior share repurchase program and approved a new share repurchase program for up to $1 billion of Common Stock, of which $500 million had been utilized as of September 30, 2022.

During the quarter and nine months ended September 30, 2022, the Company repurchased 3.8 million and 9.1 million shares, respectively, for approximately $300 million and $700 million, respectively, compared to 2.4 million and 9.7 million shares in the same periods of 2021 for approximately $219 million and $725 million, respectively.

The Company'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 10b-18 under the Securities Exchange Act of 1934, as amended (the "Exchange Act").

Table of Contents

Note 10: Accumulated Other Comprehensive Income (Loss)

A summary of the changes in each component of Accumulated other comprehensive income (loss), net of tax, for the quarters and nine months ended September 30, 2022 and 2021 is provided below:


(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, net	93		—		(5)		88

Amounts reclassified, pre-tax	77		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, net	173		—		(2)		171
Amounts reclassified upon change in Otis' share of Zardoya Otis ownership (Note 1)	(69)		—		—		(69)
Amounts reclassified, pre-tax	77		8		(2)		83
Tax benefit reclassified	—		(2)		—		(2)

Balance as of September 30, 2022	$	(461)	$	(122)	$	3	$	(580)


(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, 2021
Balance as of June 30, 2021	$	(608)	$	(196)	$	1	$	(803)
Other comprehensive income (loss) before reclassifications, net	(32)		—		5		(27)
Amounts reclassified, pre-tax	—		5		(1)		4
Tax benefit reclassified	—		(1)		—		(1)

Balance as of September 30, 2021	$	(640)	$	(192)	$	5	$	(827)

Nine Months Ended September 30, 2021
Balance as of December 31, 2020	$	(616)	$	(203)	$	4	$	(815)
Other comprehensive income (loss) before reclassifications, net	(24)		—		(2)		(26)
Amounts reclassified, pre-tax	—		14		3		17
Tax benefit reclassified	—		(3)		—		(3)

Balance as of September 30, 2021	$	(640)	$	(192)	$	5	$	(827)

Amounts reclassified that relate to foreign currency translation 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.

Table of Contents

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 8, "Employee Benefit Plans" for additional information.

Note 11: Income Taxes

The increase in the effective tax rate for the quarter ended September 30, 2022, is primarily due to the absence of a favorable income tax settlement related to the Separation recorded in the quarter ended September 30, 2021, partially offset by a reduction in tax liability as a result of finalizing the 2021 U.S. federal income tax return.

The effective tax rate for the nine months ended September 30, 2022, is unchanged as a result of offsetting items, including the elimination of Base Erosion Anti Abuse Tax (“BEAT”) in the U.S., the release of a tax reserve related to a forward transfer pricing agreement with a European tax authority, the absence of a reduction in the deferred tax liability related to repatriation of foreign earnings recorded in the quarter ended March 31, 2021, and the absence of a favorable income tax settlement as described above.

The Company conducts business globally and, as a result, the Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world, including such major jurisdictions as 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 Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations for years before 2010.

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. The evaluation considers any additional worldwide uncertain tax positions, the closure of tax statutes or the re-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 $20 million increase to a $310 million decrease and associated interest could change within the range of a $5 million increase to a $130 million decrease.

See Note 16, “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 12: Restructuring Costs

During the quarter and nine months ended September 30, 2022, we recorded restructuring costs totaling $6 million and $45 million, respectively, for new and ongoing restructuring actions. We recorded these charges as follows:


	Quarter Ended September 30,				Nine Months Ended September 30,
(dollars in millions)	2022		2021		2022		2021
Cost of products and services sold	$	2	$	5	$	16	$	19
Selling, general and administrative	4		4		29		16

Total	$	6	$	9	$	45	$	35

Restructuring Actions. During the nine months ended September 30, 2022, we recorded the following restructuring costs: $41 million for restructuring actions initiated in 2022, consisting of $15 million in Cost of products and services sold and $26 million in Selling, general and administrative expenses; $3 million for restructuring actions initiated in 2021 consisting of $1 million in Cost of products and services sold and $2 million in Selling, general and administrative expenses; and $1 million for restructuring actions initiated prior to 2021.

We are targeting to complete in 2022 the majority of remaining restructuring actions initiated in 2022 and 2021, with certain utilization beyond 2022.

Table of Contents

The following table summarizes expected, incurred and remaining costs for the 2022 and 2021 restructuring actions:


(dollars in millions)	Expected Costs		Costs Incurred During 2021		Costs Incurred Quarter Ended March 31, 2022		Costs Incurred Quarter Ended June 30, 2022		Costs Incurred Quarter Ended September 30, 2022		Remaining Costs as of September 30, 2022



Total 2022 Actions	$	62	$	—	$	(13)	$	(24)	$	(4)	$	21
Total 2021 Actions	$	44	$	(41)	$	(1)	$	—	$	(2)	$	—

The following table summarizes the accrual balance and utilization for the 2022 and 2021 restructuring actions, which are primarily for severance costs:


(dollars in millions)	2022 Actions		2021 Actions
Quarter Ended September 30, 2022
Restructuring accruals as of June 30, 2022	$	24	$	8
Net restructuring costs	4		2
Utilization, foreign exchange and other costs	(12)		(1)
Balance as of September 30, 2022	$	16	$	9

Nine Months Ended September 30, 2022
Restructuring accruals as of December 31, 2021	$	—	$	22
Net restructuring costs	41		3
Utilization, foreign exchange and other costs	(25)		(16)
Balance as of September 30, 2022	$	16	$	9

Additionally, there is a $13 million accrual balance as of September 30, 2022 for restructuring actions initiated prior to 2021 remaining to be utilized. Most of the expected charges will require cash payment.

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 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 average of the notional amount of foreign exchange contracts hedging foreign currency transactions was $3.7 billion and $3.3 billion as of September 30, 2022 and December 31, 2021, respectively. The average of the notional amount of contracts hedging commodity purchases was $15 million and $16 million as of September 30, 2022 and December 31, 2021, respectively.

Table of Contents

The following table summarizes the fair value and presentation on the Condensed Consolidated Balance Sheets for derivative instruments as of September 30, 2022 and December 31, 2021:


(dollars in millions)	Balance Sheet Classification	September 30, 2022		December 31, 2021
Derivatives designated as Cash flow hedging instruments:
	Asset Derivatives:
Foreign exchange contracts	Other current assets	$	6	$	7
Foreign exchange contracts	Other assets	3		1
	Total asset derivatives	$	9	$	8

	Liability Derivatives:
Foreign exchange contracts	Accrued liabilities	$	(7)	$	(3)
Commodity contracts	Accrued liabilities	(1)		—
Foreign exchange contracts	Other long-term liabilities	(1)		—
	Total liability derivatives	$	(9)	$	(3)
Derivatives not designated as Cash flow hedging instruments:
	Asset Derivatives:
Foreign exchange contracts	Other current assets	$	93	$	23

Foreign exchange contracts	Other assets	3		5

	Total asset derivatives	$	96	$	28

	Liability Derivatives:
Foreign exchange contracts	Accrued liabilities	$	(55)	$	(11)
Commodity contracts	Accrued liabilities	(4)		—
Foreign exchange contracts	Other long-term liabilities	(3)		(2)

	Total liability derivatives	$	(62)	$	(13)

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 quarters and nine months ended September 30, 2022 and 2021, respectively.

The effect of cash flow hedging relationships on Accumulated other comprehensive income (loss) as of September 30, 2022 and December 31, 2021 are presented in the table below:


(dollars in millions)	September 30, 2022		December 31, 2021
Gain (loss) recorded in Accumulated other comprehensive income (loss)	$	3	$	7

The Company utilizes the critical terms match method in assessing firm commitment derivatives and 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 $2 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, 2022 will mature by October 2026.

Net Investment Hedges. We have foreign-denominated long-term debt balances that qualify as net investment hedges. Changes in the value of these net investment hedges due to foreign currency gains or losses are deferred as foreign currency translation adjustments in 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. We evaluate the effectiveness of the net investment hedges each quarter.

Table of Contents

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 of September 30, 2022, the net investment hedge is deemed to be effective. During the quarter and nine months ended September 30, 2022, we recognized gains of $10 million and $40 million, respectively, compared to gains of $1 million and $5 million, respectively, in the same periods of 2021, associated with this net investment hedge in Other comprehensive income (loss).

In September 2020, we issued €420 million of Euro denominated commercial paper. The Euro denominated commercial paper while outstanding qualified as a net investment hedge against our investments in European businesses. During 2021, we fully repaid the Euro denominated commercial paper, and there is no longer a net investment hedge against our investments in European businesses as of September 30, 2022 or December 31, 2021. During the quarter and nine months ended September 30, 2021, we recognized gains of $4 million and $16 million, respectively, associated with this net investment hedge in Other comprehensive income (loss).

Derivatives not designated as Cash flow hedging instruments. The net effect of derivatives not designated as Cash flow hedging instruments primarily 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)	2022		2021		2022		2021

Foreign exchange contracts	$	9	$	4	$	12	$	8

Note 14: Fair Value Measurements

Valuation Techniques. Our equity 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. The fair value gains or losses related to our equity 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.

As of September 30, 2022, 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.

The fair values of the current portion of the Company's financial instruments that are not carried at fair value approximated their carrying values because of the short-term nature of the current portion. 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, 2022 and December 31, 2021:


	September 30, 2022
(dollars in millions)	Total		Level 1		Level 2		Level 3
Recurring fair value measurements:
Equity securities	$	26	$	26	$	—	$	—
Derivative assets	105		—		105		—
Derivative liabilities	(71)		—		(71)		—

Table of Contents


	December 31, 2021
(dollars in millions)	Total		Level 1		Level 2		Level 3
Recurring fair value measurements:
Equity securities	$	25	$	25	$	—	$	—
Derivative assets	36		—		36		—
Derivative liabilities	(16)		—		(16)		—

Fair Value of Financial Instruments. The following table provides carrying amounts and fair values of financial instruments that are not carried at fair value as of September 30, 2022 and December 31, 2021:


	September 30, 2022				December 31, 2021
(dollars in millions)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-term receivables, net	$	61	$	60	$	65	$	63
Customer financing notes receivable, net	51		48		77		76
Short-term borrowings	(103)		(103)		(24)		(24)
Long-term debt (excluding leases and other)	(6,497)		(5,384)		(7,296)		(7,420)
Long-term liabilities (including current portion)	(233)		(210)		(253)		(240)

The following tables provide the valuation hierarchy classification of assets and liabilities that are not carried at fair value in the Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021:


	September 30, 2022
(dollars in millions)	Total		Level 1		Level 2		Level 3
Long-term receivables, net	$	60	$	—	$	60	$	—
Customer financing notes receivable, net	48		—		48		—
Short-term borrowings	(103)		—		(103)		—
Long-term debt (excluding leases and other)	(5,384)		—		(5,384)		—
Long-term liabilities (including current portion)	(210)		—		(210)		—


	December 31, 2021
(dollars in millions)	Total		Level 1		Level 2		Level 3
Long-term receivables, net	$	63	$	—	$	63	$	—
Customer financing notes receivable, net	76		—		76		—
Short-term borrowings	(24)		—		(24)		—
Long-term debt (excluding leases and other)	(7,420)		—		(7,420)		—
Long-term liabilities (including current portion)	(240)		—		(240)		—

Note 15: Guarantees

The Company 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 nine months ended September 30, 2022 and 2021 are as follows:


(dollars in millions)	2022		2021
Balance as of December 31	$	20	$	25
Warranties	1		3
Settlements made	(7)		(8)
Foreign exchange and other	(1)		1
Balance as of September 30	$	13	$	21

Table of Contents

The Company provides certain financial guarantees to third parties. As of September 30, 2022, Otis has stand-by letters of credit with maximum potential payment totaling $141 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, 2022, 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 Company's operations are subject to environmental regulation by authorities with jurisdiction over its operations. The Company 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 $5 million and $12 million as of September 30, 2022 and December 31, 2021, respectively, and is principally included in Other long-term liabilities on the Condensed Consolidated 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 $208 million as of September 30, 2022) 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 $114 million as of September 30, 2022).

In August 2012, a suit was filed in the local German Tax Court (Berlin-Brandenburg). In 2015, our former parent, UTC, now 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 in July 2018, the German Federal Tax Court remanded the matter to the local German Tax Court for further proceedings. In December 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 has not yet set a hearing date. Despite the remand, there is no assurance that the local German Tax Court will rule in the Company's favor, and the decision of the German Tax Office ultimately could be sustained.

Pursuant to the Tax Matters Agreement ("TMA") with our former parent, UTC, the Company retains the liability associated with the remaining interest, and has recorded an interest accrual of €45 million (approximately $43 million as of September 30, 2022), net of payments and other deductions, included within Accrued liabilities on the Condensed Consolidated Balance Sheets as of September 30, 2022. If the Company prevails in this matter, any recoveries would be allocated between RTX and the Company pursuant to the terms of the TMA.

Table of Contents

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-related claims were not material individually or in the aggregate as of and for the periods ended September 30, 2022 and December 31, 2021.

The estimated range of total liabilities to resolve all pending and unasserted potential future asbestos claims through 2059 is approximately $22 million to $45 million as of September 30, 2022 and December 31, 2021. Because no amount within the range of estimates is more likely to occur than any other, we have recorded the minimum amount of $22 million, which is principally recorded in Other long-term liabilities on our Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021. Amounts are on a pre-tax basis, not discounted, and exclude the Company's legal fees to defend the asbestos claims (which will continue to be expensed as they are incurred). In addition, the Company has an insurance recovery receivable for probable asbestos-related recoveries of approximately $5 million, which is principally included in Other assets on our Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021.

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"), which was also separated from UTC in the Separation, each of their directors, and various incentive and deferred compensation plans. 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. On October 26, 2022, the plaintiffs filed a Notice of Appeal with the Court, appealing its decision. At this time, we do not believe this action will have a material adverse effect on our business, financial conditions, cash flows or results of operations.

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 has not been material to the business, financial condition, cash flows or results of operations, however the future outcome of these cases cannot be determined.

As previously disclosed, in the ordinary course of business, the Company 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 Company 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.

Table of Contents

Note 17: Segment Financial Data

Our operations are classified into two 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 Company, how management allocates resources, assesses performance and makes strategic and operational decisions.

Segment Information. Segment information for the quarters ended September 30, 2022 and 2021 are as follows:


	Net Sales				Operating Profit				Operating Profit Margin
(dollars in millions)	2022		2021		2022		2021		2022		2021
New Equipment	$	1,447	$	1,681	$	100	$	131	6.9	%	7.8	%
Service	1,897		1,939		446		444		23.5	%	22.9	%
Total segments	3,344		3,620		546		575		16.3	%	15.9	%

General corporate expenses and other	—		—		(17)		(33)		—		—
Total	$	3,344	$	3,620	$	529	$	542	15.8	%	15.0	%

Segment information for the nine months ended September 30, 2022 and 2021 are as follows:


	Net Sales				Operating Profit				Operating Profit Margin
(dollars in millions)	2022		2021		2022		2021		2022		2021
New Equipment	$	4,403	$	4,866	$	292	$	382	6.6	%	7.9	%
Service	5,843		5,863		1,328		1,315		22.7	%	22.4	%
Total segments	10,246		10,729		1,620		1,697		15.8	%	15.8	%
General corporate expenses and other	—		—		(78)		(85)		—		—
Total	$	10,246	$	10,729	$	1,542	$	1,612	15.0	%	15.0	%

Total assets are not presented for each segment as they are not presented to, or reviewed by, the Chief Operating Decision Maker.

Geographic 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 September 30, 2022 and 2021.


	Quarter Ended September 30,				Nine Months Ended September 30,
(dollars in millions)	2022		2021		2022		2021
United States Operations	$	943	$	927	$	2,873	$	2,802
International Operations
China	672		811		1,951		2,176
Other	1,729		1,882		5,422		5,751
Total	$	3,344	$	3,620	$	10,246	$	10,729

Table of Contents

Disaggregated Sales by Type. Segment Net sales disaggregated by product and service type for the quarters and nine months ended September 30, 2022 and 2021 are as follows:


	Quarter Ended September 30,				Nine Months Ended September 30,
(dollars in millions)	2022		2021		2022		2021

New Equipment	$	1,447	$	1,681	$	4,403	$	4,866

Maintenance and Repair	1,555		1,608		4,784		4,828
Modernization	342		331		1,059		1,035
Total Service	1,897		1,939		5,843		5,863
Total	$	3,344	$	3,620	$	10,246	$	10,729

Major Customers. There were no customers that individually accounted for 10% or more of the Company's consolidated Net sales for the quarters and nine months ended September 30, 2022 and 2021.

Note 18: Accounting Pronouncements

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, 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. ASU 2020-04 is currently effective and upon adoption may be applied prospectively to contract modifications made on or before December 31, 2022. We are currently evaluating the impact of adopting this standard but do not expect it to have a material impact on our Condensed Consolidated Financial Statements.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This 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 fiscal years beginning after December 15, 2022, with early application permitted. We are currently evaluating the impact of adopting this standard, however we do not expect it to have a material impact on our Condensed Consolidated Financial Statements.

In September 2022, the FASB issued 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, 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 fiscal years beginning after December 15, 2022, except for the disclosure of rollforward information, which is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. We are currently evaluating the impact of adopting this standard on our Condensed Consolidated Financial Statements.

Other new accounting pronouncements issued but not effective until after September 30, 2022 did not and are not expected to have a material impact on our financial position, results of operations or liquidity.

Table of Contents

With respect to the unaudited condensed consolidated financial information of Otis Worldwide Corporation for the quarters and nine months ended September 30, 2022 and 2021, 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 27, 2022, 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 consolidated balance sheet of Otis Worldwide Corporation and its subsidiaries (the “Company”) as of September 30, 2022, and the related condensed consolidated statements of operations, of comprehensive income and of changes in equity for the three-month and nine-month periods ended September 30, 2022 and 2021 and the condensed consolidated statements of cash flows for the nine-month periods ended September 30, 2022 and 2021, 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), the consolidated balance sheet of the Company as of December 31, 2021, and the related consolidated 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 4, 2022, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2021, is fairly stated, in all material respects, in relation to the consolidated 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, Connecticut

October 27, 2022

Table of Contents

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

BUSINESS OVERVIEW

Business Summary

We are the world’s leading elevator and escalator manufacturing, installation and service company. Our Company 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 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 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 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.

The current status of significant factors affecting our business environment in 2022 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 10-K.

Recent Developments

Sale of Russia business and risks associated with the ongoing conflict between Russia and Ukraine

The ongoing conflict between Russia and Ukraine has resulted in worldwide geopolitical 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 2021 and nine months ended September 30, 2022 revenue and operating profit.

As previously disclosed, in March 2022 we stopped taking new equipment orders in Russia and making new investments in the country, and reassessed our operations in Russia, which represented approximately 2% of our 2021 revenue and operating profit and approximately 1% of our six months ended June 30, 2022 revenue and operating profit, comprised mostly of New Equipment. In June 2022, we entered into an agreement to sell our business in Russia to a third party, resulting in classification of the business' assets and liabilities as held for sale as of June 30, 2022 and recording an impairment loss of $18 million. On July 27, 2022, we completed the sale of our business in Russia to the third party. We recorded an impairment from the sale and conflict-related charges totaling $10 million and $28 million, primarily in Other expense (income), net in the Condensed Consolidated Statements of Operations for the quarter and nine months ended September 30, 2022, respectively. See Note 6, "Business Acquisitions, Dispositions, Goodwill and Intangible Assets" for further details.

Table of Contents

We cannot predict how the conflict will evolve. If the conflict continues for a significant time or expands to other countries, it could heighten certain risks disclosed in Item 1A "Risk Factors" in our 2021 Form 10-K, including but not limited to, adverse 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 or our business partners’ global technology infrastructure, including through cyber-attack or cyber-intrusion; adverse changes in international trade policies and 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.

Consistent with our risk management process, the Otis Board of Directors and its Audit Committee have received numerous updates on the ongoing conflict between Russia and Ukraine and have reviewed, and continue to review, with management the financial, operational, compliance, reputational and cyber risks associated therewith and related mitigation actions. The Otis Board of Directors oversaw the process of selling our business in Russia, including reviewing the terms and conditions thereof, and the Audit Committee approved the sale. The Otis Board of Directors continued to receive updates on the sale process until the completion of the sale, including with respect to the satisfaction of the closing conditions.

Zardoya Otis Tender Offer

As previously disclosed, the Company announced the Tender Offer to acquire all issued and outstanding shares of Zardoya Otis not owned by Otis, at an offer price of €7.07 per share in cash, after adjusting for dividends. The results of the Tender Offer were announced on April 7, 2022, with tenders of 45.49% of the shares outstanding accepted. The shares tendered to the Company were settled in cash on April 12, 2022 for approximately €1.5 billion from the Company's restricted cash held in escrow, resulting in the Company owning 95.51% of Zardoya Otis. The acquisition and settlement of the remaining issued and outstanding shares not owned by the Company for approximately €150 million (based on the adjusted tender price of €7.07 per share) and the automatic delisting of Zardoya Otis shares occurred during the second quarter of 2022.

See Note 1, "General" to the Condensed Consolidated Financial Statements, for further details regarding this transaction and financing arrangements entered into in connection with the Tender Offer.

Impact of COVID-19 on our Company

The results of our operations and overall financial performance were impacted due to the COVID-19 pandemic during the quarters and nine months ended September 30, 2022 and 2021. COVID-19 has had and could continue to have an impact on our business in the future, including impacts to overall financial performance during the remainder of 2022, as a result of the following, among other things:

•Customer demand impacting our new equipment, maintenance and repair, and modernization businesses;

•Cancellations or delays of customer orders;

•Customer liquidity constraints and related credit reserves; and

•Supplier and raw material capacity constraints, delays and related costs

We currently do not expect any significant impact to our capital and financial resources from the COVID-19 pandemic, 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 Form 10-K for additional risks related to COVID-19.

Table of Contents

CRITICAL ACCOUNTING ESTIMATES

Preparation of our Condensed Consolidated 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 Consolidated 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 our Form 10-K. Except as disclosed in Note 18 to our Condensed Consolidated Financial Statements in this Form 10-Q, pertaining to adoption of new accounting pronouncements, there have been no material changes in these policies.

As a result of our business in Russia being sold during the third quarter of 2022, the results of the operations in Russia are excluded from the organic volume changes and are reflected in Acquisitions and divestitures. See Note 6, "Business Acquisitions, Dispositions, Goodwill and Intangible Assets" to the Condensed Consolidated Financial Statements, for further details.

RESULTS OF OPERATIONS

Net Sales


	Quarter Ended September 30,					Nine Months Ended September 30,
(dollars in millions)	2022			2021		2022			2021
Net sales	$	3,344		$	3,620	$	10,246		$	10,729
Percentage change year-over-year	(7.6)		%			(4.5)		%

The factors contributing to the total percentage change year-over-year in total Net sales for the quarter and nine months ended September 30, 2022 are as follows:


Components of Net sales change:	Quarter Ended September 30, 2022		Nine Months Ended September 30, 2022
Organic volume	0.8	%	1.4	%
Foreign currency translation	(7.2)	%	(5.2)	%

Acquisitions and divestitures, net	(1.2)	%	(0.7)	%


Total % change	(7.6)	%	(4.5)	%

The Organic volume increase of 0.8% for the quarter ended September 30, 2022 was driven by an increase in organic sales of 6.2% in Service, largely offset by a decrease of (5.4)% in New Equipment organic sales.

The Organic volume increase of 1.4% for the nine months ended September 30, 2022 was driven by an increase in organic sales of 5.7% in Service, partially offset by a decrease of (3.9)% in New Equipment organic sales.

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

Table of Contents

Cost of Products and Services Sold


	Quarter Ended September 30,					Nine Months Ended September 30,
(dollars in millions)	2022			2021		2022			2021
Total cost of products and services sold	$	2,373		$	2,560	$	7,286		$	7,575
Percentage change year-over-year	(7.3)		%			(3.8)		%

The factors contributing to the percentage change year-over-year for the quarter and nine months ended September 30, 2022 in total cost of products and services sold are as follows:


Components of Cost of Products and Services Sold change:	Quarter Ended September 30, 2022		Nine Months Ended September 30, 2022
Organic volume	1.4	%	2.1	%
Foreign currency translation	(7.5)	%	(5.3)	%

Acquisitions and divestitures, net	(1.2)	%	(0.6)	%


Total % change	(7.3)	%	(3.8)	%

The organic increase in total cost of products and services sold for the quarter and nine months ended September 30, 2022 was primarily driven by the organic sales increases noted above and inflationary pressures, including higher commodity prices of $18 million and $89 million, respectively, primarily driven by steel, in addition to higher freight and fuel costs and annual wage increases, partially mitigated by productivity.

Gross Margin


	Quarter Ended September 30,						Nine Months Ended September 30,
(dollars in millions)	2022			2021			2022			2021
Gross margin	$	971		$	1,060		$	2,960		$	3,154
Gross margin percentage	29.0		%	29.3		%	28.9		%	29.4		%

Gross margin percentage decreased 30 and 50 basis points for the quarter and nine months ended September 30, 2022, respectively, when compared to the same periods for 2021, due to the inflationary pressures described above, partially offset by favorable service pricing, productivity and the benefit from Service sales growing faster than New Equipment sales.

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

Research and Development


	Quarter Ended September 30,						Nine Months Ended September 30,
(dollars in millions)	2022			2021			2022			2021
Research and development	$	37		$	39		$	112		$	113
Percentage of Net sales	1.1		%	1.1		%	1.1		%	1.1		%

Research and development was relatively flat for the quarter and nine months ended September 30, 2022, when compared to the same period for 2021.

Selling, General and Administrative


	Quarter Ended September 30,						Nine Months Ended September 30,
(dollars in millions)	2022			2021			2022			2021
Selling, general and administrative	$	417		$	479		$	1,315		$	1,445
Percentage of Net sales	12.5		%	13.2		%	12.8		%	13.5		%

Selling, general and administrative expenses decreased $62 million and $130 million for the quarter and nine months ended September 30, 2022, respectively, when compared to the same periods in 2021, as cost containment actions, other employment related cost reductions, lower credit loss reserves, as well as the impact from foreign exchange of $35 million and $69 million for the quarter and nine months ended September 30, 2022, respectively, were partially offset by annual wage

Table of Contents

increases and higher restructuring costs.

Selling, general and administrative expenses as a percentage of Net sales decreased 70 basis points for the quarter and nine months ended September 30, 2022, compared to the same periods in 2021.

Restructuring Costs


	Nine Months Ended September 30,
(dollars in millions)	2022		2021
Restructuring costs	$	45	$	35

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. 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.

Total restructuring costs were $45 million for the nine months ended September 30, 2022 and included $41 million of costs related to 2022 actions, $3 million of costs related to 2021 actions and $1 million of costs related to pre-2021 actions.

Most of the expected charges will require cash payments, which we have funded and expect to continue to fund with cash generated from operations. During the nine months ended September 30, 2022, we had cash outflows of approximately $47 million related to the restructuring actions and expect to make cash payments of $58 million to complete the actions announced, which will be comprised of the utilization of existing restructuring accruals and $22 million of additional restructuring expenses to be recognized.

We generally expect to achieve annual recurring savings within the two-year period subsequent to initiating the actions, including $65 million for the 2022 actions and $40 million for the 2021 actions, of which approximately $43 million was realized for the 2022 and 2021 actions during the nine months ended September 30, 2022.

For additional discussion of restructuring, see Note 12 to the Condensed Consolidated Financial Statements.

Other Income (Expense), Net


	Quarter Ended September 30,				Nine Months Ended September 30,
(dollars in millions)	2022		2021		2022		2021
Other income (expense), net	$	12	$	—	$	9	$	16

The change in Net Other Income (Expense), of $12 million for the quarter ended September 30, 2022, compared to the same period in 2021, was primarily driven by favorable foreign currency mark-to-market adjustments and the absence of the impact of settlements of certain TMA transactions recognized during the quarter ended September 30, 2021, partially offset by the loss on the sale of our Russia business and related charges.

The change in Other Income (Expense), Net of $(7) million for the nine months ended September 30, 2022, compared to the same period in 2021, was primarily driven by a loss on the sale of our Russia business and related charges, partially offset by favorable foreign currency mark-to-market adjustments and lower non-recurring Separation-related costs.

For additional discussion of the sale of our Russia business, see Note 6 to the Condensed Consolidated Financial Statements.

Interest Expense (Income), Net


	Quarter Ended September 30,				Nine Months Ended September 30,
(dollars in millions)	2022		2021		2022		2021


Interest expense (income), net	$	35	$	33	$	107	$	92

Net Interest Expense (Income) was relatively flat in the quarter ended September 30, 2022, compared to the same period in 2021.

Table of Contents

The increase in Interest Expense (Income), Net of $15 million in the nine months ended September 30, 2022, compared to the same period in 2021, was primarily driven by interest expense related to the Tender Offer for Zardoya Otis and lower interest income year-over-year.

The average interest rate on our long-term debt for the quarter and nine months ended September 30, 2022 is 2.0% and for the same periods in 2021 was 2.4%.

For additional discussion of borrowings, see Note 7 to the Condensed Consolidated Financial Statements.

Income Taxes


	Quarter Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Effective tax rate	29.0	%	25.2	%	26.7	%	26.7	%

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 11 to the Condensed Consolidated Financial Statements.

Noncontrolling Interest in Subsidiaries' Earnings and Net Income Attributable to Otis Worldwide Corporation


	Quarter Ended September 30,				Nine Months Ended September 30,
(dollars in millions)	2022		2021		2022		2021
Noncontrolling interest in subsidiaries' earnings	$	26	$	48	$	95	$	145
Net income attributable to Otis Worldwide Corporation	$	324	$	331	$	956	$	965

Noncontrolling interest in subsidiaries' earnings were lower for the quarter and nine months ended September 30, 2022, respectively, compared to the same periods in 2021 primarily due to Otis' increased ownership in Zardoya Otis in the second quarter of 2022. For details on the results of the Tender Offer and purchases of shares of Zardoya Otis not previously owned by the Company, see Note 1 to the Condensed Consolidated Financial Statements.

Net income attributable to Otis Worldwide Corporation was relatively flat for the quarter and nine months ended September 30, 2022, respectively, compared to the same periods in 2021.

Table of Contents

Segment Review

Summary performance for our operating segments for the quarters ended September 30, 2022 and 2021 was as follows:


	Net Sales				Operating Profit				Operating Profit Margin
(dollars in millions)	2022		2021		2022		2021		2022		2021
New Equipment	$	1,447	$	1,681	$	100	$	131	6.9	%	7.8	%
Service	1,897		1,939		446		444		23.5	%	22.9	%
Total segment	3,344		3,620		546		575		16.3	%	15.9	%
General corporate expenses and other	—		—		(17)		(33)		—		—
Total	$	3,344	$	3,620	$	529	$	542	15.8	%	15.0	%

Summary performance for our operating segments for the nine months ended September 30, 2022 and 2021 was as follows:


	Net Sales				Operating Profit				Operating Profit Margin
(dollars in millions)	2022		2021		2022		2021		2022		2021
New Equipment	$	4,403	$	4,866	$	292	$	382	6.6	%	7.9	%
Service	5,843		5,863		1,328		1,315		22.7	%	22.4	%
Total segment	10,246		10,729		1,620		1,697		15.8	%	15.8	%
General corporate expenses and other	—		—		(78)		(85)		—		—
Total	$	10,246	$	10,729	$	1,542	$	1,612	15.0	%	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 and general contractors that 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 New Equipment for the quarters and nine months ended September 30, 2022 and 2021 was as follows:



	Quarter Ended September 30,										Nine Months Ended September 30,
(dollars in millions)	2022			2021			Change		Change		2022			2021			Change		Change
Net sales	$	1,447		$	1,681		$	(234)	(13.9)	%	$	4,403		$	4,866		$	(463)	(9.5)	%
Cost of sales	1,208			1,381			(173)		(12.5)	%	3,689			3,986			(297)		(7.5)	%
	239			300			(61)		(20.3)	%	714			880			(166)		(18.9)	%
Operating expenses	139			169			(30)		(17.8)	%	422			498			(76)		(15.3)	%
Operating profit	$	100		$	131		$	(31)	(23.7)	%	$	292		$	382		$	(90)	(23.6)	%
Operating profit margin	6.9		%	7.8		%					6.6		%	7.9		%

Table of Contents

Summary analysis of the Net sales change for New Equipment for the quarter and nine months ended September 30, 2022 compared with the quarter and nine months ended September 30, 2021 was as follows:


Components of Net sales change:	Quarter Ended September 30, 2022		Nine Months Ended September 30, 2022
Organic volume	(5.4)	%	(3.9)	%
Foreign currency translation	(5.8)	%	(3.9)	%

Acquisitions/Divestitures, net and Other	(2.7)	%	(1.7)	%


Total % change	(13.9)	%	(9.5)	%

Quarter Ended September 30, 2022

Net sales

Organic sales declined (5.4)% as low teens growth in Asia Pacific and mid single digit growth in EMEA was more than offset by declines in China and Americas.

Operating profit

New Equipment operating profit decreased $(31) million primarily driven by lower volume of $(28) million and the related under absorption. Favorable productivity and lower selling, general and administrative costs more than offset commodity costs of $(18) million, primarily steel, in addition to other inflationary increases, including freight costs. Operating profit was also impacted by operations in Russia of $(10) million. Operating margin decreased 90 basis points.

Nine Months Ended September 30, 2022

Net sales

Organic sales declined (3.9)% as high single digit growth in Asia Pacific and low single digit growth in EMEA was more than offset by declines in China and the Americas.

Operating profit

New Equipment operating profit decreased $(90) million. Lower volume of $(38) million, under absorption from lower volume, higher commodity costs of ($89) million, primarily steel, and increased freight costs were partially mitigated by favorable productivity and lower selling, general and administrative costs. Operating profit was also impacted by operations in Russia of $(32) million. Operating margin decreased 130 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.

Table of Contents

Summary performance for Service for the quarters and nine months ended September 30, 2022 and 2021 was as follows:



	Quarter Ended September 30,										Nine Months Ended September 30,
(dollars in millions)	2022			2021			Change		Change		2022			2021			Change		Change
Net sales	$	1,897		$	1,939		$	(42)	(2.2)	%	$	5,843		$	5,863		$	(20)	(0.3)	%
Cost of sales	1,165			1,179			(14)		(1.2)	%	3,597			3,589			8		0.2	%
	732			760			(28)		(3.7)	%	2,246			2,274			(28)		(1.2)	%
Operating expenses	286			316			(30)		(9.5)	%	918			959			(41)		(4.3)	%
Operating profit	$	446		$	444		$	2	0.5	%	$	1,328		$	1,315		$	13	1.0	%
Operating profit margin	23.5		%	22.9		%					22.7		%	22.4		%

Summary analysis of Service Net sales change for the quarter and nine months ended September 30, 2022 compared with the quarter and nine months ended September 30, 2021 was as follows:




Components of Net sales change:	Quarter Ended September 30, 2022		Nine Months Ended September 30, 2022
Organic volume	6.2	%	5.7	%
Foreign currency translation	(8.5)	%	(6.1)	%

Acquisitions/Divestitures, net	0.1	%	0.1	%


Total % change	(2.2)	%	(0.3)	%

Quarter Ended September 30, 2022

Net sales

The organic sales increase of 6.2% is due to organic sales increases in maintenance and repair of 5.4% and modernization of 10.3%.




Components of Net sales change:	Maintenance and Repair		Modernization
Organic volume	5.4	%	10.3	%
Foreign currency translation	(8.8)	%	(7.6)	%

Acquisitions/Divestitures, net	—	%	0.9	%


Total % change	(3.4)	%	3.6	%

Operating profit

Service operating profit increased $2 million with higher volume of $41 million offset by foreign exchange headwinds of $(47) million. Improved pricing on maintenance contracts, productivity, and other employment related cost reductions more than offset annual wage increases and other inflationary pressures, including higher fuel and material costs. Operating margin increased 60 basis points.

Table of Contents

Nine Months Ended September 30, 2022

Net sales

The organic sales increase of 5.7% is due to organic sales increases in maintenance and repair of 5.3% and modernization of 7.8%.


Components of Net sales change:	Maintenance and Repair		Modernization
Organic volume	5.3	%	7.8	%
Foreign currency translation	(6.3)	%	(5.7)	%

Acquisitions/Divestitures, net	0.1	%	0.3	%


Total % change	(0.9)	%	2.4	%

Operating profit

Service operating profit increased $13 million due to higher volume of $104 million, favorable pricing on maintenance contracts and productivity, partially offset by foreign exchange headwinds of $(103) million, annual wage increases and other inflationary pressures, including higher fuel costs. Operating margin increased 30 basis points.

General Corporate Expenses and Other


	Quarter Ended September 30,				Nine Months Ended September 30,
(dollars in millions)	2022		2021		2022		2021

General corporate expenses and other	$	(17)	$	(33)	$	(78)	$	(85)

General corporate expenses and other for the quarter ended September 30, 2022 decreased $16 million compared to the same quarter in 2021, primarily due to favorable foreign currency mark-to-market adjustments and the absence of the impact of settlements of certain TMA transactions recognized during the quarter ended September 30, 2021, partially offset by the loss on the sale of our Russia business and related charges.

General corporate expenses and other for the nine months ended September 30, 2022 decreased $7 million compared to the same period in 2021, primarily due to favorable foreign currency mark-to-market adjustments and lower non-recurring Separation related costs, partially offset by the loss on the sale of our Russia business and related charges.

LIQUIDITY AND FINANCIAL CONDITION


(dollars in millions)	September 30, 2022			December 31, 2021
Cash and cash equivalents	$	1,034		$	1,565
Total debt	6,562			7,273
Net debt (total debt less cash and cash equivalents)	5,528			5,708
Total equity 1	(4,861)			(3,144)
Total capitalization (total debt plus total equity)	1,701			4,129
Net capitalization (total debt plus total equity less cash and cash equivalents)	667			2,564

Total debt to total capitalization 1	386		%	176		%
Net debt to net capitalization 1	829		%	223		%

1 Our total debt to total capitalization ratio and net debt to net capitalization ratio increased in the nine months ended September 30, 2022 due to the $1.5 billion reduction in equity as a result of the Tender Offer. For more information on the impact of the Zardoya Otis noncontrolling interest reclassification, see Note 1 to the Condensed Consolidated Financial Statements.

Table of Contents

As of September 30, 2022, we had cash and cash equivalents of approximately $1.0 billion, of which approximately 96% was held by the Company's foreign subsidiaries. We manage our worldwide cash requirements by reviewing available funds among the many subsidiaries through which we conduct our business and the cost-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 and divestitures or other legal obligations. As of September 30, 2022 and December 31, 2021, the amount of such restricted cash was approximately $8 million and $1.9 billion, respectively, including cash held in escrow to fund the Tender Offer as of December 31, 2021. For information on the results of the Tender Offer and use of the cash held in escrow for the Tender Offer, see Note 1 to the Condensed Consolidated Financial Statements.

From time-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 as of September 30, 2022 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 could 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. There can be no assurance that we will continue to have access to the capital markets on terms acceptable to us.

There were no long-term debt issuances for the nine months ended September 30, 2022. 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 7 to the Condensed Consolidated Financial Statements.

The Company does not intend to reinvest certain undistributed earnings of our international subsidiaries that have been previously taxed in the U.S. For the remainder of the Company’s undistributed international earnings, unless tax effective to repatriate, we will continue to permanently reinvest these earnings.

We 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.

On March 9, 2022, our Board of Directors revoked any remaining share repurchase authority under the prior share repurchase program and approved a new share repurchase program for up to $1 billion of Common Stock, of which $500 million had been utilized as of September 30, 2022. 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 Securities Exchange Act of 1934, as amended.

Cash Flow - Operating Activities


	Nine Months Ended September 30,
(dollars in millions)	2022		2021
Net cash flows provided by operating activities	$	1,096	$	1,473

Cash generated from operating activities in the nine months ended September 30, 2022 was $377 million lower than the same period in 2021, primarily due to lower cash flow related to current assets and current liabilities activity of $415 million, as described below. These were partially offset by $64 million of higher non-cash adjustments from Net income and $38 million of higher Other operating activities, net, primarily due to long-term accruals and other activities in the nine months ended September 30, 2022.

Nine Months Ended September 30, 2022 Changes in Working Capital

Cash outflows related to current assets and current liabilities operating activity for the nine months ended September 30, 2022 were $151 million. These cash outflows were primarily driven by:

•Accounts receivable, net, which increased $171 million, primarily due to the timing of billings;

•Accrued liabilities, which decreased $166 million, primarily due to the timing of payments of employee-related benefits, income taxes and other accruals; and

•Inventories, which increased $80 million, primarily to support backlog conversion; which were partially offset by

Table of Contents

•Contract assets, current and Contract liabilities, current, net change of $143 million, driven by the timing of billings on contracts compared to the progression on current contracts; and

•Accounts payable, which increased by $137 million, due to the timing of payments to suppliers.

Nine Months Ended September 30, 2021 Changes in Working Capital

Cash inflows related to current assets and current liabilities operating activity for the nine months ended September 30, 2021 were $264 million. These cash inflows were primarily driven by:

•Accounts payable, which increased $230 million, primarily due to increased volume;

•Contract assets, current and Contract liabilities, current, net change of $140 million, driven by the timing of billings on contracts compared to the progression on current contracts;

•Inventories, which decreased $18 million, due to the timing of deliveries to construction sites; and

•Other current assets, which decreased $12 million, due to prepaid income tax refunds and indemnification payments received, partially offset by advance payments to suppliers; which were partially offset by

•Accounts receivable, net, which increased $107 million, primarily due to increased volume; and

•Accrued liabilities, which decreased $29 million, primarily due to the timing of payments of income taxes, including the payment of foreign tax obligations pursuant to the TMA.

Cash Flow - Investing Activities

Cash flows used in investing activities primarily reflect capital expenditures, investments in businesses and securities, proceeds from the sale of fixed assets and settlement of derivative contracts.

Nine Months Ended September 30, 2022 compared to Nine Months Ended September 30, 2021


	Nine Months Ended September 30,
(dollars in millions)	2022		2021		Change
Investing Activities:
Capital expenditures	$	(81)	$	(115)	$	34
Acquisitions of businesses and intangible assets, net of cash	(38)		(59)		21
Dispositions of businesses, net of cash	61		—		61
Proceeds from the sale of (investments in) marketable securities	(7)		40		(47)

Receipts (payments) on settlements of derivative contracts	121		35		86
Other investing activities, net	6		30		(24)
Net cash flows provided by (used in) investing activities	$	62	$	(69)	$	131

Cash flows provided by (used in) investing activities in the nine months ended September 30, 2022 was a cash inflow of $62 million compared to a cash outflow of $69 million during the same period in 2021. The higher cash of $131 million was the result of the following drivers:

•$86 million higher net cash receipts from the settlement of derivative instruments, with net cash receipts of $121 million and $35 million during the nine months ended September 30, 2022 and 2021, respectively;

•$61 million of net proceeds from the sale of our business in Russia during the third quarter of 2022; and

•$34 million lower capital expenditures and $21 million lower investments in businesses and intangible assets in the nine months ended September 30, 2022; partially offset by

Table of Contents

•$47 million less cash from marketable securities, resulting from $7 million of investments in marketable securities in the nine months ended September 30, 2022 compared to $40 million of net proceeds from sale of and investments in marketable securities in the nine months ended September 30, 2021.

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 exposures and commodity prices.

See Note 6 to the Condensed Consolidated Financial Statements for further details regarding the sale of our business in Russia.

Cash Flow - Financing Activities

Financing activities primarily include increases or decreases in short-term borrowings, issuance or repayment of long-term debt, dividends paid to common shareholders, repurchases of Common Stock and dividends or other payments to noncontrolling interests.


	Nine Months Ended September 30,
(dollars in millions)	2022		2021		Change
Financing Activities:

Increase (decrease) in short-term borrowings, net	$	80	$	(645)	$	725

Proceeds from issuance of long-term debt	—		199		(199)
Payment of debt issuance costs	—		(11)		11
Repayment of long-term debt	(500)		—		(500)


Dividends paid on Common Stock	(345)		(291)		(54)
Repurchases of Common Stock	(700)		(725)		25
Dividends paid to noncontrolling interest	(107)		(130)		23
Acquisition of Zardoya Otis shares	(1,802)		—		(1,802)
Other financing activities, net	(28)		(18)		(10)
Net cash flows provided by (used in) financing activities	$	(3,402)	$	(1,621)	$	(1,781)

Net cash used in financing activities increased $1.8 billion in the nine months ended September 30, 2022 compared to the same period in 2021, primarily due to the settlement in cash of the Tender Offer for $1,802 million (€1,663 million) during the second quarter of 2022. For additional discussion of the Tender Offer, see Note 1 to the Condensed Consolidated Financial Statements.

Net repayments on borrowings were $420 million during the nine months ended September 30, 2022, compared to $457 million during the same period in 2021, which were made with cash flow from operations and existing cash balances. Net repayments on borrowings are comprised of the following activity:

•Repayments of long-term debt of $500 million, partially offset by net short-term borrowings of $80 million, during the nine months ended September 30, 2022; and

•Net repayments of short-term borrowings of $645 million, partially offset by net proceeds from the issuance of long-term debt of $188 million, during the nine months ended September 30, 2021.

For additional discussion of borrowings activity, see Note 7 to the Condensed Consolidated Financial Statements.

Table of Contents

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 2021 Form 10-K, for additional 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, 2022 and as of December 31, 2021 of each of OWC and Highland on 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, 2022
OWC Statement of Operations - Standalone and Unconsolidated
Revenue	$	—
Cost of revenue	—
Operating expenses	(3)
Income from consolidated subsidiaries	70
Income (loss) from operations excluding income from consolidated subsidiaries	3
Net income (loss) excluding income from consolidated subsidiaries	(76)


(dollars in millions)	September 30, 2022		December 31, 2021
OWC Balance Sheet - Standalone and Unconsolidated
Current assets (excluding intercompany receivables from non-guarantor subsidiaries)	$	99	$	197
Current assets (intercompany receivables from non-guarantor subsidiaries)	—		—
Noncurrent assets, investments in consolidated subsidiaries	1,271		1,271
Noncurrent assets (excluding investments in consolidated subsidiaries)	44		48
Current liabilities (intercompany payables to non-guarantor subsidiaries)	2,892		1,516
Current liabilities (excluding intercompany payables to non-guarantor subsidiaries)	132		73
Noncurrent liabilities	5,174		5,725

Table of Contents


(dollars in millions)	Nine Months Ended September 30, 2022
Highland Statement of Operations - Standalone and Unconsolidated
Revenue	$	—
Cost of revenue	—
Operating expenses	—
Income from consolidated subsidiaries	740
Income (loss) from operations excluding income from consolidated subsidiaries	—
Net income (loss) excluding income from consolidated subsidiaries	(7)


(dollars in millions)	September 30, 2022		December 31, 2021
Highland Balance Sheet - Standalone and Unconsolidated
Current assets (excluding intercompany receivables from non-guarantor subsidiaries)	$	—	$	—
Current assets (intercompany receivables from non-guarantor subsidiaries)	1		2
Noncurrent assets (investments in consolidated subsidiaries)	12,524		12,524
Noncurrent assets (intercompany receivables from non-guarantor subsidiaries)	538		666
Noncurrent assets (excluding investments in consolidated subsidiaries)	—		—
Current liabilities (intercompany payables to non-guarantor subsidiaries)	304		171
Current liabilities (excluding intercompany payables to non-guarantor subsidiaries)	6		2

Noncurrent liabilities	1,539		1,795

Off-Balance Sheet Arrangements and Contractual Obligations

Item 5 "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2021 Form 10-K discloses our off-balance sheet arrangements and contractual obligations. As of September 30, 2022, there have been no material changes to these off-balance sheet arrangements and contractual obligations, outside the ordinary course of business except for those disclosed in "Note 7, Borrowings and Lines of Credit" within Item 1 of this Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes to the Company’s market risk during the quarter and nine months ended September 30, 2022. For a discussion of the Company’s exposure to market risk, refer to the Company’s market risk disclosures set forth in Item 7A "Quantitative and Qualitative Disclosures About Market Risk" in our 2021 Form 10-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 September 30, 2022. 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 September 30, 2022, 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 have been no changes in our internal control over financial reporting during the quarter ended September 30, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents

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,” “medium-term,” “near-term,” “confident,” “goals” and other words of similar meaning in connection with a discussion of future operating or financial 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, credit ratings, net indebtedness and other measures of financial performance or potential future plans, strategies or transactions, or statements that relate to climate change and our intent to achieve certain ESG targets or goals, including operational impacts and costs associated therewith, 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, interest rates and foreign currency exchange rates, levels of end market demand in construction, pandemic health issues (including COVID-19 and variants thereof and the ongoing economic recovery therefrom and their effects on, among other things, global supply, demand and distribution), 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 and related sanctions and export controls, on general market conditions, global trade policies, currency exchange rates and stakeholder perception 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, capital spending and research and development spending;

•future availability of credit and factors that may affect such availability, 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, whether as a result of COVID-19, the ongoing conflict between Russia and Ukraine or otherwise;

•cost reduction or containment actions, restructuring costs and related savings and other consequences thereof;

•new business and investment opportunities;

•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 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, including as a result of the ongoing conflict between Russia and Ukraine;

•the ability of Otis to retain and hire key personnel;

•the scope, nature, impact or timing of acquisition and divestiture activity, the integration of acquired businesses into existing businesses and realization of synergies and opportunities for growth and innovation and incurrence of related costs;

•the ability to achieve the expected benefits of the Tender Offer and the timing thereof;

•the 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

•the amount of our obligations and nature of our disputes that have or may hereafter arise under the agreements we entered into with RTX and Carrier in connection with the Separation.

Table of Contents

These and other factors are more fully discussed in this Form 10-Q in the "Notes to Condensed Consolidated Financial Statements" under the headings "Note 1: General" and "Note 16: Contingent Liabilities, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and in our 2021 Form 10-K under the headings "Item 1. Business", "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 "Note 1: Business Overview" and "Note 22: Contingent Liabilities" and elsewhere in each of these filings. The forward-looking statements speak only as of the date of this report or, in the case of any document incorporated by 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.

Table of Contents

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

See Note 16, Contingent Liabilities to the Condensed Consolidated Financial 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 "Part II - Other Information, Item 1. Legal Proceedings" in our Form 10-Qs for the quarters ended June 30, 2022 and March 31, 2022 and to Item 3 "Legal Proceedings" in our 2021 Form 10-K.

Item 1A. Risk Factors

Additional information regarding risk factors can be found under "Risks associated with the ongoing conflict between Russia and Ukraine" and "Cautionary Note Concerning Factors That May Affect Future Results" in Management's Discussion and Analysis of Financial Condition and Results of Operations in this Form 10-Q.

Except as otherwise noted above, there have been no material changes in the Company's risk factors from those disclosed in Item 1A "Risk Factors", in our 2021 Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

The following table provides information about our purchases during the quarter ended September 30, 2022 of equity securities that are registered by us pursuant to Section 12 of the Exchange Act.


2022	Total 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 31	—	$	—	—	$	800
August 1 - August 31	3,793	79.08		3,793	$	500
September 1 - September 30	—	—		—	$	500
Total	3,793	$	—	3,793

(1) Average price paid per share includes costs associated with the repurchases.

On April 27, 2020, our Board of Directors authorized a share repurchase program for up to $1 billion of Common Stock. On March 9, 2022, our Board of Directors revoked any remaining share repurchase authority under the prior share repurchase program and approved a new share repurchase program for up to $1 billion of Common Stock. As of September 30, 2022, the maximum dollar value of shares that may yet be purchased under this current program was $500 million. 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.

Table of Contents

Item 6. Exhibits


Exhibit Number						Exhibit Description





15						Letter re: unaudited interim financial information.*

31.1						Rule 13a-14(a)/15d-14(a) Certification.*

31.2						Rule 13a-14(a)/15d-14(a) Certification.*

31.3						Rule 13a-14(a)/15d-14(a) Certification.*

32						Section 1350 Certifications.*

101.INS						XBRL 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.SCH						XBRL Taxonomy Extension Schema Document.*

101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document.*

101.DEF						XBRL Taxonomy Extension Definition Linkbase Document.*

101.LAB						XBRL Taxonomy Extension Label Linkbase Document.*

101.PRE						XBRL Taxonomy Extension Presentation Linkbase Document.*

104						Cover 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 Consolidated Statements of Operations for the quarters and nine months ended September 30, 2022 and 2021, (ii) Condensed Consolidated Statements of Comprehensive Income for the quarters and nine months ended September 30, 2022 and 2021, (iii) Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021, (iv) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021, (v) Condensed Consolidated Statements of Changes in Equity for the quarters and nine months ended September 30, 2022 and 2021 and (vi) Notes to Condensed Consolidated Financial Statements.

Table of Contents

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:	October 27, 2022	by:	/s/ ANURAG MAHESHWARI
			Anurag Maheshwari
			Executive Vice President and Chief Financial Officer

			(on behalf of the Registrant and as the Registrant's Principal Financial Officer)

Dated:	October 27, 2022	by:	/s/ MICHAEL P. RYAN
			Michael P. Ryan
			Vice President and Chief Accounting Officer

			(on behalf of the Registrant and as the Registrant's Principal Accounting Officer)

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	H.S. freshman Avg

Otis Worldwide (OTIS) 10-Q2022 Q3 Quarterly report

Content analysis