10-Q 1 otis-20240331.htm 10-Q otis-20240331
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 ____________________________________ 
FORM 10-Q
____________________________________ 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2024
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                  to                 
Commission file number 001-39221
____________________________________ 

logo_otis (2).jpg
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 classTrading Symbol(s)Name of each exchange
on which registered
Common Stock ($0.01 par value)OTISNew York Stock Exchange
0.318% Notes due 2026OTIS/26New York Stock Exchange
0.934% Notes due 2031OTIS/31New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý.    No  ¨.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý.    No  ¨.
1

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated FilerýAccelerated Filer¨
Non-accelerated Filer¨Smaller Reporting Company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ¨

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

As of April 15, 2024 there were 404,322,811 shares of Common Stock outstanding.

2

OTIS WORLDWIDE CORPORATION
CONTENTS OF QUARTERLY REPORT ON FORM 10-Q
Quarter Ended March 31, 2024
 
 Page

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.
3

PART I – FINANCIAL INFORMATION

Item 1.    Financial Statements

OTIS WORLDWIDE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) 

 Quarter Ended March 31,
(dollars in millions, except per share amounts; shares in millions)20242023
Net sales:
Product sales$1,280 $1,307 
Service sales2,157 2,039 
3,437 3,346 
Costs and expenses:
Cost of products sold1,067 1,098 
Cost of services sold1,342 1,252 
Research and development36 35 
Selling, general and administrative462 455 
2,907 2,840 
Other income (expense), net14 7 
Operating profit544 513 
Non-service pension cost (benefit)  
Interest expense (income), net44 33 
Net income before income taxes500 480 
Income tax expense126 128 
Net income374 352 
Less: Noncontrolling interest in subsidiaries' earnings21 21 
Net income attributable to Otis Worldwide Corporation$353 $331 
Earnings per share (Note 2):
Basic$0.87 $0.80 
Diluted$0.86 $0.79 
Weighted average number of shares outstanding:
     Basic shares405.2414.3
     Diluted shares408.1417.8

See accompanying Notes to Condensed Consolidated Financial Statements.
4

OTIS WORLDWIDE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

Quarter Ended March 31,
(dollars in millions)20242023
Net income$374 $352 
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments(25)(34)
Pension and postretirement benefit plan adjustments9  
Change in unrealized cash flow hedging3 3 
Other comprehensive income (loss), net of tax(13)(31)
Comprehensive income (loss), net of tax361 321 
Less: Comprehensive (income) loss attributable to noncontrolling interest(14)(24)
Comprehensive income attributable to Otis Worldwide Corporation$347 $297 

See accompanying Notes to Condensed Consolidated Financial Statements.
5

OTIS WORLDWIDE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

(dollars in millions)March 31, 2024December 31, 2023
Assets
Cash and cash equivalents$884 $1,274 
Accounts receivable (net of allowance for expected credit losses of $133 and $130)
3,654 3,538 
Contract assets716 717 
Inventories593 612 
Other current assets291 259 
Total Current Assets6,138 6,400 
Future income tax benefits303 323 
Fixed assets (net of accumulated depreciation of $1,238 and $1,232)
713 727 
Operating lease right-of-use assets405 416 
Intangible assets, net343 335 
Goodwill1,575 1,588 
Other assets314 328 
Total Assets$9,791 $10,117 
Liabilities and Equity (Deficit)
Short-term borrowings and current portion of long-term debt$35 $32 
Accounts payable1,641 1,878 
Accrued liabilities1,691 1,873 
Contract liabilities2,951 2,696 
Total Current Liabilities6,318 6,479 
Long-term debt6,846 6,866 
Future pension and postretirement benefit obligations452 462 
Operating lease liabilities284 292 
Future income tax obligations 255 245 
Other long-term liabilities452 493 
Total Liabilities14,607 14,837 
Commitments and contingent liabilities (Note 16)
Redeemable noncontrolling interest124 135 
Shareholders' Equity (Deficit):
Common Stock and additional paid-in capital210 213 
Treasury Stock(2,684)(2,382)
Accumulated deficit(1,794)(2,005)
Accumulated other comprehensive income (loss)(756)(750)
Total Shareholders' Equity (Deficit)(5,024)(4,924)
Noncontrolling interest84 69 
Total Equity (Deficit)(4,940)(4,855)
Total Liabilities and Equity (Deficit)$9,791 $10,117 

See accompanying Notes to Condensed Consolidated Financial Statements.
6

OTIS WORLDWIDE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)

(dollars in millions, except per share amounts)Common Stock and Additional Paid-In CapitalTreasury StockAccumulated DeficitAccumulated Other Comprehensive Income (Loss)Total Shareholders'
(Deficit) Equity
Noncontrolling InterestTotal (Deficit) EquityRedeemable Noncontrolling Interest
Quarter Ended March 31, 2024
Balance as of December 31, 2023$213 $(2,382)$(2,005)$(750)$(4,924)$69 $(4,855)$135 
Net income  353  353 18 371 3 
Other comprehensive income (loss), net of tax   (6)(6)(2)(8)(5)
Stock-based compensation and Common Stock issued under employee plans(2) (1) (3) (3) 
Cash dividends declared ($0.34 per common share)
  (138) (138) (138) 
Repurchase of Common Shares (302)  (302) (302) 
Dividends attributable to noncontrolling interest     (1)(1)(8)
Acquisitions, disposals and other changes(1) (3) (4) (4)(1)
Balance as of March 31, 2024$210 $(2,684)$(1,794)$(756)$(5,024)$84 $(4,940)$124 
Quarter Ended March 31, 2023
Balance as of December 31, 2022$162 $(1,575)$(2,865)$(592)$(4,870)$71 $(4,799)$135 
Net income— — 331 — 331 18 349 3 
Other comprehensive income (loss), net of tax— — — (34)(34)2 (32)1 
Stock-based compensation and Common Stock issued under employee plans10 —  — 10 — 10 — 
Cash dividends declared ($0.29 per common share)
— — (120)— (120)— (120)— 
Repurchase of Common Shares— (175)— — (175)— (175)— 
Dividends attributable to noncontrolling interest— — — — — (1)(1)(8)
Acquisitions, disposals and other changes— — 1 — 1 — 1 (2)
Balance as of March 31, 2023$172 $(1,750)$(2,653)$(626)$(4,857)$90 $(4,767)$129 

See accompanying Notes to Condensed Consolidated Financial Statements.
7

OTIS WORLDWIDE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

 Quarter Ended March 31,
(dollars in millions)20242023
Operating Activities:
Net income$374 $352 
Adjustments to reconcile net income to net cash flows provided by operating activities, net of acquisitions and dispositions:
Depreciation and amortization44 47 
Deferred income tax expense (benefit)16 (2)
Stock compensation cost16 15 
Change in operating assets and liabilities:
Accounts receivable, net(162)14 
Contract assets and liabilities, current275 263 
Inventories9 (20)
Other current assets(24)(12)
Accounts payable(217)(218)
Accrued liabilities(142)(155)
Pension contributions(12)(14)
Other operating activities, net(6)8 
Net cash flows provided by (used in) operating activities171 278 
Investing Activities:
Capital expenditures(31)(25)
Acquisitions of businesses and intangible assets, net of cash (Note 6)(30)(16)
Receipts (payments) on settlements of derivative contracts(21)17 
Other investing activities, net3 3 
Net cash flows provided by (used in) investing activities(79)(21)
Financing Activities:
Net proceeds from (repayments of) borrowings (maturities of 90 days or less)3 (32)
Dividends paid on Common Stock(138)(120)
Repurchases of Common Stock(300)(175)
Acquisition of noncontrolling interest shares(4) 
Dividends paid to noncontrolling interest(9)(9)
Other financing activities, net(19)(5)
Net cash flows provided by (used in) financing activities(467)(341)
Effect of exchange rate changes on cash and cash equivalents(18)10 
Net increase (decrease) in cash, cash equivalents and restricted cash(393)(74)
Cash, cash equivalents and restricted cash, beginning of year1,280 1,195 
Cash, cash equivalents and restricted cash, end of period887 1,121 
Less: Restricted cash3 4 
Cash and cash equivalents, end of period$884 $1,117 

See accompanying Notes to Condensed Consolidated Financial Statements.
8

OTIS WORLDWIDE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1: General

The Condensed Consolidated Financial Statements as of March 31, 2024 and for the quarters ended March 31, 2024 and 2023 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, 2023 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 2023 ("2023 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 2023 Form 10-K that have a material impact on the Company's Condensed Consolidated Financial Statements and the related notes.

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 macroeconomic developments, including inflationary pressures, higher interest rates and tighter credit conditions, as of March 31, 2024 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 March 31, 2024 and for the quarters ended March 31, 2024 and 2023 resulting from our assessments of these matters, future assessment of our expectations of the magnitude and duration of these macroeconomic developments, 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 and the war in Israel and Gaza, including, but not limited to, our allowance for credit losses, the carrying value of long-lived assets, revenue recognition and the classification of assets. There was not a material impact to our Condensed Consolidated Financial Statements as of March 31, 2024 and for the quarters ended March 31, 2024 and 2023 resulting from our assessment of these matters. We continue to assess the impact on our results of operations, financial position and overall performance as the situations develop and any broader implications they may have on the global economy.

Supplier Finance Programs. Certain Otis subsidiaries participate in supplier finance programs, under which we agree to pay third-party financial institutions the stated amounts of confirmed invoices from suppliers on the original maturity dates of the invoices, while the participating suppliers generally have the ability to sell, or otherwise pledge as collateral, their receivables from the Company to the participating financial institutions. The outstanding obligations confirmed by the Company as valid to the financial institutions under our supplier finance programs were $510 million and $627 million as of March 31, 2024 and December 31, 2023, respectively. These obligations are included in Accounts payable in the Condensed Consolidated Balance Sheets, and all activity related to the obligations is presented within operating activities on the Condensed Consolidated Statements of Cash Flows.

9

Note 2: Earnings per Share

 Quarter Ended March 31,
(dollars in millions, except per share amounts; shares in millions)20242023
Net income attributable to Otis Worldwide Corporation$353 $331 
Impact of redeemable noncontrolling interest  
Net income attributable to common shareholders$353 $331 
Basic weighted average number of shares outstanding405.2 414.3 
Stock awards and equity units (share equivalent)2.9 3.5 
Diluted weighted average number of shares outstanding408.1 417.8 
Earnings Per Share of Common Stock:
Basic$0.87$0.80
Diluted$0.86$0.79

The computation of diluted earnings per share excludes the effect of the potential exercise of stock awards, including stock appreciation rights and stock options, when the average market price of the Common Stock is lower than the exercise price of the related stock awards during the period because the effect would be anti-dilutive. In addition, the computation of diluted earnings per share excludes the effect of the potential exercise of stock awards when the awards' assumed proceeds exceed the average market price of the common shares during the period. There were 1.4 million and 1.1 million of anti-dilutive stock awards excluded from the computation for the quarters ended March 31, 2024 and 2023, respectively.

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 receive payments from customers based on the terms established in our contracts, which are progress payments as we perform contract work over time, payments in advance of performing work, or in some cases, payments upon completion of work.

Total Contract assets and Contract liabilities as of March 31, 2024 and December 31, 2023 are as follows:

(dollars in millions)March 31, 2024December 31, 2023
Contract assets, current$716 $717 
Total contract assets716 717 
Contract liabilities, current2,951 2,696 
Contract liabilities, non-current (included within Other long-term liabilities)43 48 
Total contract liabilities 2,994 2,744 
Net contract liabilities$2,278 $2,027 

Contract assets decreased by $1 million during the quarter ended March 31, 2024 as a result of the progression of current contracts and timing of billing on customer contracts. Contract liabilities increased by $250 million during the quarter ended March 31, 2024 primarily due to billings on contracts in excess of revenue earned.

In the quarters ended March 31, 2024 and 2023, we recognized revenue of approximately $1.0 billion and $0.9 billion related to contract liabilities as of January 1, 2024 and 2023, respectively.

10

Remaining Performance Obligations ("RPO"). RPO represents the aggregate amount of total contract transaction price that is unsatisfied or partially unsatisfied. As of March 31, 2024, our total RPO was approximately $18.3 billion. Of the total RPO as of March 31, 2024, we expect approximately 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 March 31, 2024 and December 31, 2023:

(dollars in millions)March 31, 2024December 31, 2023
Trade receivables$3,466 $3,390 
Unbilled receivables151 119 
Miscellaneous receivables107 96 
Customer financing notes receivable63 63 
3,787 3,668 
Less: allowance for expected credit losses(133)(130)
Accounts receivable, net$3,654 $3,538 

The changes in allowance for expected credit losses related to Accounts receivable, net for the quarter ended March 31, 2024 and 2023, respectively, are as follows:

Quarter Ended March 31,
(dollars in millions)20242023
Balance as of January 1$130 $152 
Provision for expected credit losses6 6 
Write-offs charged against the allowance for expected credit losses(2)(20)
Foreign exchange and other(1)1 
Balance as of March 31$133 $139 

Note 5: Inventories

Inventories consisted of the following as of March 31, 2024 and December 31, 2023:

(dollars in millions)March 31, 2024December 31, 2023
Raw materials and work-in-process$148 $154 
Finished goods445 458 
Total$593 $612 

Raw materials, work-in-process and finished goods are net of valuation write-downs of $88 million and $87 million as of March 31, 2024 and December 31, 2023, respectively.

11

Note 6: Business Acquisitions, Goodwill and Intangible Assets

Business Acquisitions. Our acquisitions of businesses and intangible assets, net of cash, totaled $30 million and $16 million in the quarters ended March 31, 2024 and 2023, respectively, and were primarily in our Service segment. Transaction costs incurred were not considered significant.

Goodwill. Changes in our Goodwill balances during the quarter ended March 31, 2024 were as follows:

(dollars in millions)Balance as of December 31, 2023Goodwill Resulting
from Business Combinations
Foreign Currency
Translation 
and Other
Balance as of
March 31, 2024
New Equipment$295$$(5)$290
Service1,29314(22)1,285
Total$1,588$14$(27)$1,575

Intangible Assets. Intangible assets cost and accumulated amortization were $2,064 million and $1,721 million, respectively, as of March 31, 2024, and $2,072 million and $1,737 million, respectively, as of December 31, 2023.

Amortization of intangible assets for the quarters ended March 31, 2024 and 2023 was $15 million and $17 million, respectively. Excluding the impact of acquisitions and currency translation adjustments, there were no other significant changes in our Intangible assets during the quarters ended March 31, 2024 and 2023.

Note 7: Borrowings and Lines of Credit

(dollars in millions)March 31, 2024December 31, 2023
Commercial paper$$
Other borrowings3532
Total short-term borrowings$35$32

Commercial Paper. As of March 31, 2024, there were no 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 borrowing activity in 2023, refer to Note 9 of the Company's audited consolidated financial statements and notes thereto included in our 2023 Form 10-K.

12

Long-term debt.

As of March 31, 2024, we had a revolving credit agreement with various banks providing for a $1.5 billion unsecured, unsubordinated five-year revolving credit facility, maturing March 10, 2028. As of March 31, 2024, there were no borrowings under the revolving credit agreement. As of March 31, 2024, 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)March 31, 2024December 31, 2023
2.056% notes due 2025
$1,300 $1,300 
0.37% notes due 2026 (¥21.5 billion principal value)
142 150 
0.318% notes due 2026 (€600 million principal value)
650 658 
2.293% notes due 2027
500 500 
5.250% notes due 2028
750 750 
2.565% notes due 2030
1,500 1,500 
0.934% notes due 2031 (€500 million principal value)
542 548 
3.112% notes due 2040
750 750 
3.362% notes due 2050
750 750 
Other (including finance leases)4 4 
Total principal long-term debt6,888 6,910 
Other (discounts and debt issuance costs)(42)(44)
Total long-term debt6,846 6,866 
Less: current portion  
Long-term debt, net of current portion$6,846 $6,866 

We may redeem any series of notes at our option pursuant to certain terms. For additional details regarding the Company's debt activity in 2023, refer to Note 9 of the Company's audited consolidated financial statements and notes thereto included in our 2023 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 ended March 31, 2024 and 2023 reflects the following:

Quarter Ended March 31,
(dollars in millions)20242023
Debt issuance costs amortization$2 $3 
Total interest expense on external debt43 33 

The unamortized debt issuance costs as of March 31, 2024 and December 31, 2023 were $40 million and $42 million, respectively.

The weighted average maturity of our long-term debt as of March 31, 2024 is approximately 7.6 years. The weighted average interest expense rate on our borrowings outstanding as of March 31, 2024 and December 31, 2023 was as follows:

March 31, 2024December 31, 2023
Short-term commercial paper%%
Total long-term debt2.5%2.5%

13

The weighted average interest expense rate on our borrowings during the quarters ended March 31, 2024 and 2023 was as follows:

Quarter Ended March 31,
20242023
Short-term commercial paper5.5%4.8%
Total long-term debt2.5%2.0%

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 March 31,
(dollars in millions)20242023
Defined benefit plans$12 $14 
Defined contribution plans20 19 
Multi-employer pension and postretirement plans40 34 

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

 Quarter Ended March 31,
(dollars in millions)20242023
Service cost$8 $7 
Interest cost8 8 
Expected return on plan assets(8)(8)
Recognized actuarial net loss  
Total net periodic benefit cost$8 $7 

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 ended March 31, 2024 and 2023, respectively.

Stock-based Compensation. The Company adopted the 2020 Long-Term Incentive Plan (the "Plan") effective April 3, 2020. As of March 31, 2024, approximately 20 million shares remain available for awards under the Plan.

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 over the award's applicable vesting period. A forfeiture rate assumption is applied on grant date to adjust the expense recognition for awards that are not expected to vest.

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

Quarter Ended March 31,
(dollars in millions)20242023
Stock-based compensation expense (Share Based)$16 $15 
Less: future tax benefit(2)(2)
Stock-based compensation expense, net of tax$14 $13 

As of March 31, 2024, following our annual grant issuance on February 7, 2024, there was approximately $117 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 2.1 years.

14

Note 9: Stock

Preferred Stock. There are 125 million shares of $0.01 par value Preferred Stock authorized, of which none were issued as of March 31, 2024 and December 31, 2023.

Common Stock. There are 2 billion shares of $0.01 par value Common Stock authorized. As of March 31, 2024 and December 31, 2023, 438.0 million and 437.0 million shares of Common Stock were issued, respectively, which includes 33.7 million and 30.4 million shares of treasury stock, respectively.

Treasury Stock. As of March 31, 2024, the Company was authorized by the Board of Directors to purchase up to $2.0 billion of Common Stock under a share repurchase program, of which approximately $900 million was remaining at such time.

During the quarters ended March 31, 2024 and 2023, the Company repurchased 3.4 million and 2.1 million shares, respectively, for $300 million and $175 million, respectively. Share repurchases in excess of issuances are subject to a 1% excise tax, which is included as part of the cost basis of the shares acquired in Treasury Stock on the Condensed Consolidated Balance Sheets.

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").

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 ended March 31, 2024 and 2023 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 March 31, 2024
Balance as of December 31, 2023$(673)$(78)$1 $(750)
Other comprehensive income (loss) before reclassifications, net(18)9 2 (7)
Amounts reclassified, pre-tax  1 1 
Tax benefit reclassified    
Balance as of March 31, 2024$(691)$(69)$4 $(756)

(dollars in millions)Foreign
Currency
Translation
Defined Benefit
Pension and
Postretirement
Plans
Unrealized
Hedging Gains
(Losses)
Accumulated
Other
Comprehensive
Income (Loss)
Quarter Ended March 31, 2023
Balance as of December 31, 2022$(587)$(8)$3 $(592)
Other comprehensive income (loss) before reclassifications, net(37) 4 (33)
Amounts reclassified, pre-tax  (1)(1)
Tax benefit reclassified    
Balance as of March 31, 2023$(624)$(8)$6 $(626)

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.

15

Note 11: Income Taxes

The decrease in the effective tax rate for the quarter ended March 31, 2024 is primarily the result of the tax impact of a reduction of our contractual indemnity obligation payable to RTX that resulted from the Tax Matters Agreement ("TMA") and the excess tax benefit associated with stock option exercises in the quarter.

Otis conducts business globally and, as a result, Otis or one or more of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the ordinary course of business, Otis could be 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, Otis is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations for years before 2013.

A subsidiary of Otis engaged in tax-related litigation in Belgium received a favorable appellate court decision in 2018. The Belgian tax authorities appealed the decision to the Court of Cassation (the equivalent of the Supreme Court in Belgium). On December 4, 2020, the Court of Cassation overturned the decision of the appellate court and remanded the case to the appellate court for reconsideration. Following a hearing on March 20, 2023, the Antwerp Appellate Court ruled against the Company. Otis has decided not to appeal the decision, which marks the end of this litigation. Otis expects to receive the assessment for tax and interest in 2024. The associated tax and interest have been fully reserved and are included in the range below.

In the ordinary course of business, there is inherent uncertainty in quantifying our income tax positions. We assess our income tax positions and record tax benefits for all years subject to examination based upon management’s evaluation of the facts, circumstances, and information available at the reporting date. 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 $10 million increase to a $340 million decrease and associated interest could change within the range of a $10 million increase to a $145 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 and Transformation Costs

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

During the quarters ended March 31, 2024 and 2023, we recorded restructuring costs for new and ongoing restructuring actions, including UpLift actions beginning in 2023, as follows:

Quarter Ended March 31, 2024Quarter Ended March 31, 2023
(dollars in millions)UpLiftOtherTotalUpLiftOtherTotal
Cost of products and services sold$ $5 $5 $ $2 $2 
Selling, general and administrative1 14 15  3 3 
Total $1 $19 $20 $ $5 $5 
Restructuring costs, unless otherwise indicated, were approximately 30% New Equipment and 70% Service. Although this reflects the segments to which the restructuring costs relate, refer to Note 17 for more information about our measure of segment performance (segment operating profit), which no longer includes restructuring costs, among other items, beginning in the first quarter of 2024.

UpLift Restructuring Actions and Transformation Costs. During the third quarter of 2023, we announced UpLift to transform our operating model. UpLift includes, among other aspects, the standardization of our processes and improvement of our supply chain procurement, as well as restructuring actions.

16

UpLift restructuring actions of up to $55 million were approved in 2023, which are primarily severance related costs. We expect these actions to be mostly completed and cash to be paid by the end of 2024, with certain payments to be completed in 2025. Expected total costs and remaining costs to incur for the approved actions identified to-date are approximately $50 million and $24 million, respectively, of which approximately 30% relates to New Equipment and 70% relates to Service.

In the quarter ended March 31, 2024, we incurred $12 million of incremental, non-restructuring costs associated with transforming our operating model as a part of UpLift ("UpLift transformation costs"), including consulting and personnel costs, which are recorded in Other income (expense), net in the Condensed Consolidated Statements of Operations.

Other Restructuring Actions. The other restructuring expenses incurred during the quarter ended March 31, 2024 and 2023, were primarily the result of restructuring programs initiated during 2024 and 2023. We are targeting to complete by the end of 2024 the majority of remaining other restructuring actions initiated in the quarter ended March 31, 2024 and the full year 2023, with certain utilization beyond 2024 due to contractual obligations or legal requirements in the applicable jurisdictions. Expected total costs and remaining costs to incur for the other restructuring actions initiated are $83 million and $23 million, respectively, of which approximately 30% relates to New Equipment and 70% relates to Service.

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

(dollars in millions)UpLift ActionsOther ActionsTotal Restructuring Actions
Restructuring accruals as of December 31, 2023$13 $35 $48 
Net restructuring costs1 19 20 
Utilization, foreign exchange and other costs(8)(20)(28)
Restructuring accruals as of March 31, 2024$6 $34 $40 

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 four-quarter average of the notional amount of foreign exchange contracts hedging foreign currency transactions was $4.9 billion and $4.6 billion as of March 31, 2024 and December 31, 2023, respectively. The four-quarter average of the notional amount of contracts hedging commodity purchases was $18 million and $21 million as of March 31, 2024 and December 31, 2023, respectively.

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The following table summarizes the fair value and presentation on the Condensed Consolidated Balance Sheets for derivative instruments as of March 31, 2024 and December 31, 2023:

(dollars in millions)Balance Sheet ClassificationMarch 31, 2024December 31, 2023
Derivatives designated as Cash flow hedging instruments:
Asset Derivatives:
Foreign exchange contractsOther current assets$4 $2 
Commodity contractsOther current assets 1 
Foreign exchange contractsOther assets2 2 
Total asset derivatives$6 $5 
Liability Derivatives:
Foreign exchange contractsAccrued liabilities$(3)$(4)
Foreign exchange contractsOther long-term liabilities (1)
Total liability derivatives$(3)$(5)
Derivatives not designated as Cash flow hedging instruments:
Asset Derivatives:
Foreign exchange contractsOther current assets$29 $20 
Foreign exchange contractsOther assets2 4 
Total asset derivatives$31 $24 
Liability Derivatives:
Foreign exchange contractsAccrued liabilities$(19)$(34)
Foreign exchange contractsOther long-term liabilities(3)(7)
Total liability derivatives$(22)$(41)

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 ended March 31, 2024 and 2023, respectively.

The effect of cash flow hedging relationships on Accumulated other comprehensive income (loss) as of March 31, 2024 and December 31, 2023 are presented in the table below:

(dollars in millions)March 31, 2024December 31, 2023
Gain (loss) recorded in Accumulated other comprehensive income (loss)$4 $1 

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 gain of $1 million is expected to be reclassified from Accumulated other comprehensive income (loss) into Cost of products sold to reflect the fixed prices obtained from foreign exchange and commodity hedging within the next 12 months. All derivative contracts accounted for as cash flow hedges as of March 31, 2024 will mature by December 2028.

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

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

We have ¥21.5 billion of Japanese Yen denominated long-term debt that qualifies as a net investment hedge against our investments in Japanese businesses, as well as foreign exchange forward contracts with notional amounts of €120 million and HK$2 billion that qualify as net investment hedges against our investments in certain European and Asian businesses. The net investment hedges are deemed to be effective. The maturity dates of the current non-derivative and derivative instruments designated in net investment hedges range from 2024 to 2026.

Additionally, we had a foreign exchange forward contract with a notional amount of €95 million that matured during the second quarter of 2023. This qualified as a net investment hedge and was deemed to be effective until maturity.

The following table summarizes the amounts of gains (losses) recognized in other comprehensive income (loss) related to non-derivative and derivative instruments designated as net investment hedges:

Quarter Ended March 31,
(dollars in millions)20242023
Foreign currency denominated long-term debt$8 $(1)
Foreign currency forward contracts 1 
Total$8 $ 

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

Quarter Ended March 31,
(dollars in millions)20242023
Foreign exchange contracts$(1)$3 

The effects of derivatives not designated as Cash flow hedge instruments within Cost of products sold on the Condensed Consolidated Statements of Operations were losses of less than $1 million and gains of $1 million in the quarters ended March 31, 2024 and 2023, respectively.

Note 14: Fair Value Measurements

Valuation Techniques. Our marketable securities include 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 marketable securities are recorded through net income. Our derivative assets and liabilities include foreign exchange and commodity contracts that are measured at fair value using internal and third party models based on observable market inputs such as forward rates, interest rates, our own credit risk and our counterparties' credit risks.

As of March 31, 2024, there has not been any significant impact to the fair value of our derivative liabilities due to our own credit risk. Similarly, there has not been any significant adverse impact to our derivative assets based on our evaluation of our counterparties' credit risks.

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Due to their short-term nature, the carrying value approximated fair value for the current portion of the Company’s financial instruments not carried at fair value. The fair value of receivables, including customer financing notes receivable, net, that were issued long-term are based on the discounted values of their related cash flows at interest rates reflecting the attributes of the counterparties, including geographic location. Customer-specific risk, including credit risk, is already considered in the carrying value of those receivables. Our long-term debt, as described in Note 7, "Borrowings and Lines of Credit", is 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 March 31, 2024 and December 31, 2023: 

March 31, 2024
(dollars in millions)TotalLevel 1Level 2Level 3
Recurring fair value measurements:
Marketable securities$29 $29 $ $ 
Derivative assets37  37  
Derivative liabilities(25) (25) 

December 31, 2023
(dollars in millions)TotalLevel 1Level 2Level 3
Recurring fair value measurements:
Marketable securities$28 $28 $ $ 
Derivative assets29  29  
Derivative liabilities(46) (46) 

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 March 31, 2024 and December 31, 2023:

 March 31, 2024December 31, 2023
(dollars in millions)Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Long-term receivables, net$49 $48 $55 $54 
Customer financing notes receivable, net24 22 26 23 
Short-term borrowings(35)(35)(32)(32)
Long-term debt, including current portion (excluding leases and other)(6,884)(6,113)(6,906)(6,224)
Long-term liabilities, including current portion(181)(163)(197)(185)

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 March 31, 2024 and December 31, 2023:

March 31, 2024
(dollars in millions)TotalLevel 1Level 2Level 3
Long-term receivables, net$48 $ $48 $ 
Customer financing notes receivable, net22  22  
Short-term borrowings(35) (35) 
Long-term debt, including current portion (excluding leases and other)(6,113) (6,113) 
Long-term liabilities, including current portion(163) (163) 
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December 31, 2023
(dollars in millions)TotalLevel 1Level 2Level 3
Long-term receivables, net$54 $ $54 $ 
Customer financing notes receivable, net23  23  
Short-term borrowings(32) (32) 
Long-term debt, including current portion (excluding leases and other)(6,224) (6,224)