Document/ExhibitDescriptionPagesSize 1: 10-Q Quarterly Report HTML 1.50M
2: EX-10.1 Material Contract HTML 130K
3: EX-10.2 Material Contract HTML 47K
4: EX-10.3 Material Contract HTML 164K
5: EX-10.4 Material Contract HTML 177K
6: EX-10.5 Material Contract HTML 150K
7: EX-15 Letter re: Unaudited Interim Financial Info HTML 25K
8: EX-31.1 Certification -- §302 - SOA'02 HTML 29K
9: EX-31.2 Certification -- §302 - SOA'02 HTML 29K
10: EX-31.3 Certification -- §302 - SOA'02 HTML 29K
11: EX-32 Certification -- §906 - SOA'02 HTML 28K
17: R1 Cover Page HTML 84K
18: R2 Condensed Consolidated Statements of Operations HTML 113K
19: R3 Condensed Consolidated Statements of Comprehensive HTML 63K
Income
20: R4 Condensed Consolidated Balance Sheets HTML 157K
21: R5 Condensed Consolidated Balance Sheets HTML 30K
(Parenthetical)
22: R6 Condensed Consolidated Statements of Changes in HTML 83K
Equity
23: R7 Condensed Consolidated Statements of Changes in HTML 27K
Equity (Parenthetical)
24: R8 Condensed Consolidated Statements of Cash Flows HTML 113K
25: R9 General HTML 33K
26: R10 Earnings per Share HTML 46K
27: R11 Revenue Recognition HTML 43K
28: R12 Accounts Receivable, Net HTML 46K
29: R13 Inventories HTML 33K
30: R14 Business Acquisitions, Goodwill and Intangible HTML 38K
Assets
31: R15 Borrowings and Lines of Credit HTML 73K
32: R16 Employee Benefit Plans HTML 58K
33: R17 Stock HTML 33K
34: R18 Accumulated Other Comprehensive Income (Loss) HTML 68K
35: R19 Income Taxes HTML 32K
36: R20 Restructuring and Transformation Costs HTML 66K
37: R21 Financial Instruments HTML 80K
38: R22 Fair Value Measurements HTML 94K
39: R23 Guarantees HTML 32K
40: R24 Contingent Liabilities HTML 37K
41: R25 Segment Financial Data HTML 85K
42: R26 Accounting Pronouncements HTML 42K
43: R27 Subsequent Events HTML 27K
44: R28 General (Policies) HTML 28K
45: R29 Earnings per Share (Tables) HTML 45K
46: R30 Revenue Recognition (Tables) HTML 37K
47: R31 Accounts Receivable, Net (Tables) HTML 49K
48: R32 Inventories (Tables) HTML 33K
49: R33 Business Acquisitions, Goodwill and Intangible HTML 39K
Assets (Tables)
50: R34 Borrowings and Lines of Credit (Tables) HTML 73K
51: R35 Employee Benefit Plans (Tables) HTML 55K
52: R36 Accumulated Other Comprehensive Income (Loss) HTML 67K
(Tables)
53: R37 Restructuring and Transformation Costs (Tables) HTML 59K
54: R38 Financial Instruments (Tables) HTML 78K
55: R39 Fair Value Measurements (Tables) HTML 93K
56: R40 Segment Financial Data (Tables) HTML 76K
57: R41 General (Details) HTML 27K
58: R42 Earnings per Share (Details) HTML 69K
59: R43 Revenue Recognition - Contract With Customer, HTML 39K
Assets and Liabilities (Details)
60: R44 Revenue Recognition - Narrative (Details) HTML 39K
61: R45 Accounts Receivable, Net - Schedule of Accounts HTML 40K
Receivable (Details)
62: R46 Accounts Receivable, Net - Schedule of Allowance HTML 34K
for Credit Losses (Details)
63: R47 Inventories (Details) HTML 34K
64: R48 Business Acquisitions, Goodwill and Intangible HTML 35K
Assets - Narrative (Details)
65: R49 Business Acquisitions, Goodwill and Intangible HTML 39K
Assets - Schedule of Goodwill (Details)
66: R50 Borrowings and Lines of Credit - Short-Term HTML 32K
Borrowings (Details)
67: R51 Borrowings and Lines of Credit - Narrative HTML 51K
(Details)
68: R52 Borrowings and Lines of Credit - Long-Term Debt HTML 82K
(Details)
69: R53 Borrowings and Lines of Credit - Schedule of Debt HTML 30K
Issuance Expenses (Details)
70: R54 Borrowings and Lines of Credit - Schedule of HTML 40K
Average Interest Rates on Borrowings (Details)
71: R55 Employee Benefit Plans - Schedule of Defined HTML 53K
Benefit Plan Disclosures (Details)
72: R56 Employee Benefit Plans - Schedule of Share-based HTML 31K
Compensation and Related Income Tax Benefits
(Details)
73: R57 Employee Benefit Plans - Narrative (Details) HTML 32K
74: R58 Stock (Details) HTML 64K
75: R59 Accumulated Other Comprehensive Income (Loss) HTML 63K
(Details)
76: R60 Income Taxes (Details) HTML 32K
77: R61 Restructuring and Transformation Costs - Schedule HTML 42K
of Pretax Restructuring Costs (Details)
78: R62 Restructuring and Transformation Costs - Narrative HTML 51K
(Details)
79: R63 Restructuring and Transformation Costs - Pre-Tax HTML 34K
Restructuring Costs (Details)
80: R64 Restructuring and Transformation Costs - HTML 39K
Restructuring Roll forward (Details)
81: R65 Financial Instruments - Narrative (Details) HTML 56K
82: R66 Financial Instruments - Schedule of Fair Value of HTML 54K
Derivative Instruments (Details)
83: R67 Financial Instruments - Schedule of Gain (Loss) on HTML 27K
Derivative Instruments Reclassified From OCI
(Details)
84: R68 Financial Instruments - Schedule of Gain (Loss) on HTML 38K
Derivative and Non-Derivative Instruments
(Details)
85: R69 Fair Value Measurements (Details) HTML 80K
86: R70 Guarantees - Narrative (Details) HTML 33K
87: R71 Contingent Liabilities (Details) HTML 54K
88: R72 Segment Financial Data (Details) HTML 77K
89: R73 Subsequent Events (Details) HTML 30K
91: XML IDEA XML File -- Filing Summary XML 159K
94: XML XBRL Instance -- otis-20240331_htm XML 1.66M
90: EXCEL IDEA Workbook of Financial Report Info XLSX 133K
13: EX-101.CAL XBRL Calculations -- otis-20240331_cal XML 184K
14: EX-101.DEF XBRL Definitions -- otis-20240331_def XML 566K
15: EX-101.LAB XBRL Labels -- otis-20240331_lab XML 1.31M
16: EX-101.PRE XBRL Presentations -- otis-20240331_pre XML 869K
12: EX-101.SCH XBRL Schema -- otis-20240331 XSD 158K
92: JSON XBRL Instance as JSON Data -- MetaLinks 498± 710K
93: ZIP XBRL Zipped Folder -- 0001781335-24-000022-xbrl Zip 454K
(Address of principal executive offices, including zip code)
(i860) i674-3000
(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
iCommon Stock ($0.01 par value)
iOTIS
iNew
York Stock Exchange
i0.318% Notes due 2026
iOTIS/26
iNew
York Stock Exchange
i0.934% Notes due 2031
iOTIS/31
iNew 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. iYesý. 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). iYesý. No ¨.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer,""accelerated filer,""smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
iLarge
Accelerated Filer
ý
Accelerated Filer
¨
Non-accelerated Filer
¨
Smaller Reporting Company
i☐
Emerging
Growth Company
i☐
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 i☐. No ý.
As of April 15, 2024 there were i404,322,811
shares of Common Stock outstanding.
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.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1: iGeneral
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.
i
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 $i510 million and $i627 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.
(dollars
in millions, except per share amounts; shares in millions)
2024
2023
Net income attributable to Otis Worldwide Corporation
$
i353
$
i331
Impact
of redeemable noncontrolling interest
i—
i—
Net
income attributable to common shareholders
$
i353
$
i331
Basic
weighted average number of shares outstanding
ii405.2/
ii414.3/
Stock
awards and equity units (share equivalent)
i2.9
i3.5
Diluted
weighted average number of shares outstanding
i408.1
i417.8
Earnings
Per Share of Common Stock:
Basic
$
i0.87
$
i0.80
Diluted
$
i0.86
$
i0.79
/
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 i1.4
million and i1.1 million of anti-dilutive stock awards excluded from the computation for the quarters ended March 31, 2024 and 2023, respectively.
Note 3: iRevenue
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.
Contract
assets decreased by $i1 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 $i250
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 $i1.0 billion and $i0.9 billion
related to contract liabilities as of January 1, 2024 and 2023, respectively.
Remaining Performance Obligations ("RPO"). RPO represents the aggregate amount of total contract transaction price that is unsatisfied or partially unsatisfied. As of March 31, 2024, our total
RPO was approximately $i18.3 billion. Of the total RPO as of March 31, 2024, we expect approximately i90% will be recognized as sales over the following i24
months.
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)
2024
2023
Balance
as of January 1
$
i130
$
i152
Provision
for expected credit losses
i6
i6
Write-offs
charged against the allowance for expected credit losses
Raw
materials, work-in-process and finished goods are net of valuation write-downs of $i88 million and $i87 million as of March 31, 2024 and December 31, 2023,
respectively.
Note 6: iBusiness Acquisitions, Goodwill and Intangible Assets
Business
Acquisitions. Our acquisitions of businesses and intangible assets, net of cash, totaled $i30 million and $i16 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. iChanges in our Goodwill balances during the quarter ended March 31, 2024 were as follows:
Intangible
Assets. Intangible assets cost and accumulated amortization were $i2,064 million and $i1,721 million, respectively, as of March 31,
2024, and $i2,072 million and $i1,737 million, respectively, as of December 31, 2023.
Amortization
of intangible assets for the quarters ended March 31, 2024 and 2023 was $i15 million and $i17 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.
Commercial
Paper. As of March 31, 2024, there were ino borrowings outstanding under the Company's $i1.5 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.
As of March 31, 2024, we had a revolving credit agreement with various banks providing for a $i1.5 billion unsecured, unsubordinated ifive-year
revolving credit facility, maturing March 10, 2028. As of March 31, 2024, there were ino 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. iLong-term debt consisted of the following:
i0.37%
notes due 2026 (¥i21.5 billion principal value)
i142
i150
i0.318%
notes due 2026 (€i600 million principal value)
i650
i658
i2.293%
notes due 2027
i500
i500
i5.250%
notes due 2028
i750
i750
i2.565%
notes due 2030
i1,500
i1,500
i0.934%
notes due 2031 (€i500 million principal value)
i542
i548
i3.112%
notes due 2040
i750
i750
i3.362%
notes due 2050
i750
i750
Other (including
finance leases)
i4
i4
Total principal long-term
debt
i6,888
i6,910
Other
(discounts and debt issuance costs)
(i42)
(i44)
Total
long-term debt
i6,846
i6,866
Less:
current portion
i—
i—
Long-term
debt, net of current portion
$
i6,846
$
i6,866
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.
i
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)
2024
2023
Debt issuance costs amortization
$
i2
$
i3
Total
interest expense on external debt
i43
i33
/
The
unamortized debt issuance costs as of March 31, 2024 and December 31, 2023 were $i40 million and $i42 million, respectively.
The
weighted average maturity of our long-term debt as of March 31, 2024 is approximately i7.6 years. The weighted average interest expense rate on our borrowings outstanding as of March 31, 2024 and December 31, 2023 was as follows:
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. iContributions
to our plans were as follows:
Quarter Ended March 31,
(dollars in millions)
2024
2023
Defined
benefit plans
$
i12
$
i14
Defined
contribution plans
i20
i19
Multi-employer
pension and postretirement plans
i40
i34
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)
2024
2023
Service
cost
$
i8
$
i7
Interest
cost
i8
i8
Expected
return on plan assets
(i8)
(i8)
Recognized
actuarial net loss
i—
i—
Total
net periodic benefit cost
$
i8
$
i7
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 $ii1/ 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 i20 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.
i
Stock-based
compensation expense and the resulting tax benefits were as follows:
Quarter Ended March 31,
(dollars in millions)
2024
2023
Stock-based
compensation expense (Share Based)
$
i16
$
i15
Less:
future tax benefit
(i2)
(i2)
Stock-based
compensation expense, net of tax
$
i14
$
i13
/
As
of March 31, 2024, following our annual grant issuance on February 7, 2024, there was approximately $i117 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 i2.1
years.
Preferred Stock. There are ii125/
million shares of $ii0.01/ par value Preferred Stock authorized, of which iinone/
were issued as of March 31, 2024 and December 31, 2023.
Common Stock. There are i2 billion shares of $i0.01
par value Common Stock authorized. As of March 31, 2024 and December 31, 2023, i438.0 million and i437.0 million shares of Common Stock were issued, respectively,
which includes i33.7 million and i30.4 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 $i2.0 billion of Common Stock under a share repurchase program, of which approximately $i900 million
was remaining at such time.
During the quarters ended March 31, 2024 and 2023, the Company repurchased i3.4 million and i2.1 million
shares, respectively, for $i300 million and $i175 million, respectively. Share repurchases in excess of issuances are subject to a i1%
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: iAccumulated
Other Comprehensive Income (Loss)
i
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:
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.
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 $i10 million increase to a $i340 million
decrease and associated interest could change within the range of a $i10 million increase to a $i145 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: iRestructuring 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.
i
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:
Restructuring
costs, unless otherwise indicated, were approximately i30% New Equipment and i70% 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.
UpLift restructuring actions of up to $i55 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 $i50 million and $i24 million,
respectively, of which approximately i30% relates to New Equipment and i70% relates to Service.
In the quarter ended March
31, 2024, we incurred $i12 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 $i83 million
and $i23 million, respectively, of which approximately i30% relates to New Equipment and i70%
relates to Service.
Restructuring Accruals.iThe following table summarizes the accrual balance and utilization for restructuring actions, which are primarily for severance costs and most will require cash payment:
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 $i4.9 billion
and $i4.6 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 $i18 million
and $i21 million as of March 31, 2024 and December 31, 2023, respectively.
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:
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.
i
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:
Gain
(loss) recorded in Accumulated other comprehensive income (loss)
$
i4
$
i1
/
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 $i1 million is expected to be reclassified from
Accumulated other comprehensive income (loss) into Cost of products sold to reflect the fixed prices obtained from foreign exchange and commodity hedging within the next 12 months. All derivative contracts accounted for as cash flow hedges as of March 31, 2024 will mature by December 2028.
Net Investment Hedges. We may use non-derivative instruments (foreign currency denominated borrowings) and derivative instruments (foreign exchange forward contracts)
to hedge portions of the Company's investments in foreign subsidiaries and manage foreign exchange risk. For instruments that are designated and qualify as a hedge of net investment in foreign operations and that meet the effectiveness requirements, the net gains or losses attributable to changes in spot exchange rates are recorded in foreign currency translation within Other comprehensive income (loss) on the Condensed Consolidated Statements of Comprehensive Income, and will remain in Accumulated other comprehensive income (loss) until the hedged investment is sold or substantially liquidated. The remainder of the change in value of such instruments is recorded in earnings, including to the extent foreign currency denominated borrowings are not designated in, or are de-designated from, a net
investment hedge relationship.
Our use of foreign exchange forward contracts designated as hedges of the Company's net investment in foreign subsidiaries can vary depending on the Company's desired foreign exchange risk coverage.
We have ¥i21.5 billion
of Japanese Yen denominated long-term debt that qualifies as a net investment hedge against our investments in Japanese businesses, as well as foreign exchange forward contracts with notional amounts of €i120 million and HK$i2
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 €i95 million that matured during the second quarter of 2023. This qualified as a
net investment hedge and was deemed to be effective until maturity.
i
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:
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:
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 $i1 million and gains of $i1 million
in the quarters ended March 31, 2024 and 2023, respectively.
Note 14: iFair 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.
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.iIn 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:
Fair
Value of Financial Instruments.iThe 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:
Long-term
debt, including current portion (excluding leases and other)
(i6,884)
(i6,113)
(i6,906)
(i6,224)
Long-term
liabilities, including current portion
(i181)
(i163)
(i197)
(i185)
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:
Long-term
debt, including current portion (excluding leases and other)
(i6,224)
i—
(i6,224)
i—
Long-term
liabilities, including current portion
(i185)
i—
(i185)
i—
Note
15: iGuarantees
The Company provides service and warranty on its products beyond normal service and warranty policies. The carrying amount of service and product guarantees were $i11
million and $i12 million as of March 31, 2024 and December 31, 2023, respectively.
The
Company provides certain financial guarantees to third parties. As of March 31, 2024, Otis has stand-by letters of credit with maximum potential payment totaling $i139 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 March 31, 2024, Otis has determined there are no estimated costs probable under these guarantees.
Note 16: iContingent 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.
For details regarding the Company's outstanding liability for environmental obligations, refer to Note 21 of the Company's audited consolidated financial statements and notes thereto included in our 2023 Form
10-K.
Legal Proceedings.
German Tax Litigation
We have been involved in administrative review proceedings with the German Tax Office, which concern approximately €i215 million (approximately $i233 million
as of March 31, 2024) 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 €i118 million (approximately $i128 million
as of March 31, 2024).
In August 2012, a suit was filed in the local German Tax Court (Berlin-Brandenburg). In 2015, our former parent United Technologies Corporation ("UTC"), now RTX Corporation ("RTX"), made tax and interest payments to German tax authorities of €i275 million (approximately $i300 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 held a hearing on June 12, 2023, and issued a decision in favor of Otis on July 21, 2023. On September 14, 2023, the German tax authorities filed an appeal to the German Federal Tax Court. The German Federal Tax Court is expected to rule on the appeal later in 2024. As a result of the appeal filing, this matter remains contested, and the Company cannot assess the ultimate outcome of this case.
Pursuant to the TMA with our former parent, UTC, the Company retains the liability associated with the remaining interest, and has recorded an interest accrual of €i45 million (approximately $i48 million
as of March 31, 2024), net of payments and other deductions, included within Accrued liabilities on the Condensed Consolidated Balance Sheets as of March 31, 2024. If the Company prevails in this matter, any recoveries would be allocated between RTX and the Company pursuant to the terms of the TMA.
Asbestos Matters
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 March 31, 2024 and December 31, 2023.
The estimated range of total liabilities to resolve all pending and unasserted potential future asbestos claims through 2059 is approximately $i11 million
to $i22 million as of March 31, 2024, and approximately $i20 million to $i43 million
as of December 31, 2023. Since no amount within the range of estimates is more likely to occur than any other, we have recorded the minimum amounts of $i11 million and $i20 million
as of March 31, 2024 and December 31, 2023, respectively, which are principally recorded in Other long-term liabilities on our Condensed Consolidated Balance Sheets. 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 $i3 million
and $i5 million as of March 31, 2024 and December 31, 2023, respectively, which are principally included in Other assets on our Condensed Consolidated Balance Sheets.
Other. 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.
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.
Our operations are classified into itwo 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. Otis discloses segment operating profit as its measure of segment performance, reconciled to total Otis operating profit. Segment operating profit excludes certain expenses and income that are not allocated to segments (as described below in "Corporate and Unallocated").
Effective in the first quarter of 2024, the measure of segment performance used by Otis' Chief Operating Decision Maker ("CODM") changed and, as a result, Otis' disclosed measure of segment performance (segment operating profit) was updated.
The change to segment operating profit aligns with the update to how the CODM assesses performance and allocates resources for the Company's segments, and therefore is our measure of segment profitability in accordance with GAAP under ASC 280, Segment Reporting.
As a result of the change, restructuring costs and other items not allocated to the operating segments are presented as part of Corporate and Unallocated. The financial information presented herein reflects the impact of the measure of segment performance change for all periods presented.
i
Segment
information for the quarters ended March 31, 2024 and 2023 are as follows:
Quarter Ended March 31,
(dollars in millions)
2024
2023
Net
Sales
New Equipment
$
i1,280
$
i1,307
Service
i2,157
i2,039
Total
$
i3,437
$
i3,346
Operating
Performance
New Equipment operating profit
$
i71
$
i69
Service
operating profit
i523
i479
Total segment operating profit
i594
i548
Corporate
and Unallocated
General corporate expenses and other
(i33)
(i30)
UpLift
restructuring actions
(i1)
i—
Other restructuring
actions
(i19)
(i5)
UpLift transformation costs
(i12)
i—
Separation-related
reserve adjustment
i15
i—
Total company
operating profit
i544
i513
Non-service pension cost (benefit)
i—
i—
Interest
expense (income), net
i44
i33
Net
income before income taxes
$
i500
$
i480
/
Corporate
and Unallocated includes a Separation-related reserve adjustment, which represents the reduction of our contractual indemnity obligation payable to RTX that resulted from the TMA. This benefit is recorded in Other income (expense), net in our Condensed Consolidated Statements of Operations during the quarter ended March 31, 2024.
Total assets are not presented for each segment as they are not presented to, or reviewed by, the Chief Operating Decision Maker.
Geographic Sales.iGeographic
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 ended March 31, 2024 and 2023.
Quarter Ended March 31,
(dollars
in millions)
2024
2023
United States Operations
$
i1,064
$
i976
International
Operations
China
i425
i501
Other
i1,948
i1,869
Total
$
i3,437
$
i3,346
Disaggregated
Sales by Type. iSegment Net sales disaggregated by product and service type for the quarters ended March 31, 2024 and 2023 are as follows:
Quarter
Ended March 31,
(dollars in millions)
2024
2023
New Equipment
$
i1,280
$
i1,307
Maintenance
and Repair
i1,769
i1,679
Modernization
i388
i360
Total
Service
i2,157
i2,039
Total
$
i3,437
$
i3,346
Major
Customers. There were no customers that individually accounted for 10% or more of the Company's consolidated Net sales for the quarters ended March 31, 2024 and 2023.
Note 18: iAccounting
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 ("ASU 2020-04"), which provides temporary optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments in ASU 2020-04 apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another
reference rate expected to be discontinued because of reference rate reform. Additionally, in December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 ("ASU 2022-06"), which allows ASU 2020-04 to be adopted and applied prospectively to contract modifications made on or before December 31, 2024. We do not expect the adoption of this standard to have a material impact on our Condensed Consolidated Financial Statements.
In 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. The Company adopted ASU 2021-08 effective January 1, 2023.
The adoption of this ASU did not have a material impact on our Condensed Consolidated Financial Statements.
In September 2022, the FASB issued ASU 2022-04, Liabilities - Supplier Finance Programs (Topic 450-50): Disclosure of Supplier Finance Program Obligations, which 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. The adoption of this ASU did not have a material impact on our Condensed Consolidated Financial Statements, as disclosed in Note 1, "General".
In August 2023, the FASB issued ASU 2023-05, Business Combinations - Joint Ventures Formations (Subtopic 805-60): Recognition and initial measurement ("ASU 2023-05"), which requires that joint ventures, upon formation, apply a new basis of accounting by initially measuring assets and liabilities at fair value. The amendments in ASU 2023-05 are effective for joint ventures that are formed on or after January
1, 2025. Early adoption is permitted. We are currently evaluating the impact of this standard, however we do not expect it to have a material impact on our Condensed Consolidated Financial Statements.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The amendments in this update improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendments in ASU 2023-07 are effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. We are currently evaluating the impact of this standard; however, we do not expect it to have a material impact on our Condensed Consolidated Financial Statements.
In December 2023, the FASB issued
ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments in this update address investor requests for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. This update also includes certain other amendments to improve the effectiveness of income tax disclosures. The amendments in ASU 2023-09 are effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. We are currently evaluating the impact of this standard; however, we do not expect it to have a material impact on our Condensed Consolidated Financial Statements.
Other new accounting pronouncements issued but not effective until after March 31, 2024 did not and are not expected
to have a material impact on our financial position, results of operations or liquidity.
Note 19: iSubsequent Events
In April 2024, we notified the noncontrolling shareholders of one of our subsidiaries that we are exercising our call option to acquire all of their outstanding shares. The value to purchase these shares is
estimated to be approximately $i70 million and is reflected in Redeemable noncontrolling interest in our Condensed Consolidated Balance Sheet as of March 31, 2024. The purchase of these shares is expected to be completed in the third quarter of 2024.
With respect to the unaudited condensed consolidated financial information of Otis Worldwide Corporation for the quarters ended March 31, 2024 and 2023, 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 April 25, 2024, 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 March 31, 2024, and the related condensed consolidated statements of operations, of comprehensive income, of changes in equity and of cash flows for the three-month periods ended March 31, 2024 and 2023, 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, 2023, 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 2, 2024, 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, 2023, 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 isthe 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.
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 life cycle.
The current status of significant factors affecting our business environment in 2024 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 2023Form 10-K.
UpLift
Announced in July 2023, UpLift is a program with the goal of transforming our operating model. UpLift will include the standardization
of our processes and improvement of our supply chain procurement, among other aspects of the program, as well as restructuring actions. We expect UpLift to generate approximately $150 million in annual savings by mid-year 2025, with restructuring and other incremental costs to complete the transformation ("UpLift transformation costs") over that period of approximately the same amount.
UpLift costs incurred are as follows:
Quarter
Ended March 31,
(dollars in millions)
2024
2023
UpLift restructuring action costs
$
1
$
—
UpLift transformation costs
12
—
Total
UpLift costs
$
13
$
—
UpLift restructuring action costs of $26 million have been incurred since the beginning of the program, primarily during the fourth quarter of 2023. UpLift restructuring action costs are primarily severance costs, and are recorded in Selling, general and administrative in the Condensed Consolidated Statements of Operations. For further details, refer to the discussion on restructuring costs in the "Results of Operations," as well as Note 12 to the Condensed Consolidated Financial Statements.
UpLift transformation costs of $28 million have been incurred since the beginning of the program. These costs are primarily consulting and incremental personnel costs, and are recorded in Other income (expense), net in the Condensed Consolidated Statements of Operations.
Impact of Global Macroeconomic Developments on Our Company
Global macroeconomic developments have impacted, and continue to impact, aspects of the Company's operations and overall financial performance during the quarters ended March 31, 2024 and 2023.
These macroeconomic developments include, among others, inflationary pressures, higher interest rates and tighter credit conditions. These macroeconomic trends could continue to impact our business, including impacts to overall financial performance during the remainder of 2024, as a result of the following, among other things:
•Supplier liquidity, as well as supplier and raw material capacity constraints, delays and related costs;
•Customer demand impacting our new equipment, maintenance and repair, and modernization businesses;
•Customer liquidity constraints and related credit reserves; and
•Cancellations or delays of customer orders.
We
currently do not expect any significant impact to our capital and financial resources from these macroeconomic developments, including to our overall liquidity position based on our available cash and cash equivalents and our access to credit facilities and the capital markets.
See the "Liquidity and Financial Condition" section in this Form 10-Q for further detail and Item 1A. "Risk Factors" in our 2023Form 10-Kfor macroeconomic risks related to our business.
Risks Associated with Ongoing Conflicts
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-security 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). We do not have operations in Russia.
To the extent possible, we continue to operate our business in Ukraine, which represented less than 1% of our revenue and operating profit for the quarter ended March 31, 2024 and year ended December 31, 2023.
Additionally,
we do not have operations or material net sales in Israel or Gaza. Although we transport products through the Red Sea, we currently do not expect the recent hostilities in that region to have a material impact on our business.
We cannot predict how the events described above will evolve. If the events continue for a significant period of time or expand to other countries, and depending on the ultimate outcomes of these conflicts, which remain uncertain, they could heighten certain risks disclosed in Item 1A "Risk Factors" in our 2023 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.
Environmental, Social and Governance ("ESG")
There have been no, and we do not expect there to be in the near term, material impacts on our business, financial condition or results of operations
as a result of compliance with legislation or regulatory rules regarding climate change, from the known physical effects of climate change or as a result of implementing our ESG initiatives. Increased regulation (including SEC and European Union requirements) and other climate change concerns, however, could subject us to additional costs and restrictions, and we are not able to predict how such regulations or concerns would affect our business, operations or financial results.
For discussion of Otis’ ESG goals, see the discussion under “Environmental, Social and Governance (“ESG”)” in Item 1 in our 2023 Form
10-K.
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 2023
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.
The Organic volume increase of 3.8% for the quarter ended March 31, 2024
was driven by an increase in organic sales of 6.5% in Service, partially offset by a decrease of (0.5)% in New Equipment organic sales.
See the "Segment Review" section for a discussion of Net sales by segment.
Cost of Products and Services Sold
Quarter Ended March 31,
(dollars
in millions)
2024
2023
Total cost of products and services sold
$
2,409
$
2,350
Percentage change year-over-year
2.5
%
The
factors contributing to the percentage change year-over-year for the quarter ended March 31, 2024 in total cost of products and services sold are as follows:
Components of Cost of Products and Services Sold change:
The organic increase in Total cost of products and services sold for the quarter ended March 31, 2024was primarily driven by the organic sales increases noted above. Inflationary pressures, including annual wage increases, were mitigated by productivity and lower commodity prices, primarily steel.
Gross margin
percentage remained relatively flat for the quarter ended March 31, 2024, when compared to the same period for 2023.
See the "Segment Review" section below for discussion of operating results by segment.
Research and Development
Quarter Ended March 31,
(dollars
in millions)
2024
2023
Research and development
$
36
$
35
Percentage of Net sales
1.0
%
1.0
%
Research
and development was relatively flat for the quarter ended March 31, 2024, when compared to the same period for 2023.
Selling, General and Administrative
Quarter Ended March 31,
(dollars in millions)
2024
2023
Selling,
general and administrative
$
462
$
455
Percentage of Net sales
13.4
%
13.6
%
Selling,
general and administrative expenses increased $7 million for the quarter ended March 31, 2024, when compared to the same period for 2023, driven by higher restructuring costs and annual wage increases, partially offset by lower costs resulting from UpLift and favorable foreign exchange impacts.
Selling, general and administrative expenses as a percentage of Net sales decreased (20) basis points for the quarter ended March 31, 2024, compared to the same period in 2023.
Restructuring Costs
Quarter
Ended March 31,
(dollars in millions)
2024
2023
UpLift restructuring action costs
$
1
$
—
Other restructuring action costs
19
5
Total
restructuring costs
$
20
$
5
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. 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.
There were $1 million of UpLift restructuring action costs for the quarter ended March
31, 2024. We also incurred $12 million of UpLift transformation costs in the quarter ended March 31, 2024, primarily consulting and incremental personnel costs, which are recorded in Other income (expense), net in the Condensed Consolidated Statements of Operations.
Other restructuring action costs were $19 million for the quarter ended March 31, 2024 and included $9 million of costs related to 2024 actions and $10 million of costs related to 2023 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. The table below presents approximate cash outflows related to the restructuring actions during the quarter ended March 31, 2024, and the expected cash payments to complete the actions announced:
(dollars in millions)
UpLift Actions
Other
Actions
Total Restructuring
Cash outflows during the three months ended March 31, 2024
$
7
$
13
$
20
Expected cash payments remaining to complete actions announced
31
57
88
The
approved UpLift restructuring actions are expected to generate approximately $50 million in annual recurring savings by 2025, primarily in Selling, general and administrative expenses, and of which approximately $8 million was realized during the quarter ended March 31, 2024.
For other restructuring actions, we generally expect to achieve annual recurring savings within the two-year period subsequent to initiating the actions, including $10 million for the 2024 actions and $42 million for the 2023 actions, of which approximately $11 million was realized for the 2024 and 2023 actions during the quarter ended March 31, 2024.
For additional discussion of restructuring, see Note 12 to the Condensed Consolidated Financial Statements.
Other
Income (Expense), Net
Quarter Ended March 31,
(dollars in millions)
2024
2023
Other
income (expense), net
$
14
$
7
The change in Other Income (Expense), Net, of $7 million for the quarter ended March 31, 2024, compared to the same period in 2023, was primarily driven by the reduction of our contractual indemnity obligation payable to RTX that resulted from the TMA and other reserve adjustments, partially offset by UpLift transformation costs of $12 million and unfavorable foreign currency mark-to-market adjustments in the quarter ended March
31, 2024.
Interest Expense (Income), Net
Quarter Ended March 31,
(dollars in millions)
2024
2023
Interest
expense (income), net
$
44
$
33
Interest expense (income), net increased $11 million for the quarter ended March 31, 2024, compared to the same period in 2023, primarily driven by higher interest expense related to the $750 million unsecured, unsubordinated debt issued in August 2023.
The average interest rate on our long-term debt for the quarters
ended March 31, 2024 and 2023, was 2.5% and 2.0%, respectively. For additional discussion of borrowings, see Note 7 to the Condensed Consolidated Financial Statements.
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 TMA and the excess tax benefit associated with stock option exercises in the quarter.
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.
Net
income attributable to Otis Worldwide Corporation
$
353
$
331
Noncontrolling interest in subsidiaries' earnings were relatively flat for the quarter ended March 31, 2024,
compared to the same period in 2023. Ownership interest in the underlying non-wholly owned subsidiaries has remained generally consistent year-over-year.
Net income attributable to Otis Worldwide Corporation increased for the quarter ended March 31, 2024, compared to the same period in 2023, due to higher operating profit (including the impact of foreign exchange rates) and a lower effective tax rate, partially offset by higher interest expense.
During the quarter ended March 31, 2024, we updated our measure of segment performance (segment operating profit) used to evaluate financial performance of the operating segments and allocate resources. The financial information presented herein reflects the impact of the measure of segment performance changes for all periods presented. See Note 17 to the Condensed Consolidated Financial Statements for additional information.
Summary performance for our operating segments, reconciled to total operating profit, for the quarters ended March 31, 2024 and 2023 was as follows:
Net
Sales
Operating Profit
Operating Profit Margin
(dollars in millions)
2024
2023
2024
2023
2024
2023
New Equipment
$
1,280
$
1,307
$
71
$
69
5.5%
5.3%
Service
2,157
2,039
523
479
24.2%
23.5%
Total
segment
$
3,437
$
3,346
594
548
17.3%
16.4%
Corporate and Unallocated
General
corporate expenses and other
(33)
(30)
UpLift restructuring actions
(1)
—
Other
restructuring actions
(19)
(5)
UpLift transformation costs
(12)
—
Separation-related
reserve adjustment
15
—
Consolidated Operating Profit
$
544
$
513
15.8%
15.3%
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 ended March 31, 2024 and 2023
was as follows:
Summary analysis
of the Net sales change for New Equipment for the quarter ended March 31, 2024 compared with the quarter ended March 31, 2023 was as follows:
The organic sales decrease of (0.5)% was driven by a decline in China, partially offset by mid-teens organic sales growth in Americas and low single-digit organic sales growth in EMEA and Asia Pacific.
Operating profit
New Equipment operating profit increased $2 million including foreign exchange headwinds of $(4) million. Favorable price, productivity and commodity tailwinds more than offset lower volume and regional mix headwinds. Operating margin increased 20 basis points.
Service
The
Service segment performs maintenance and repair services for both our products, and those of other manufacturers, and provides modernization services to upgrade elevators and escalators. Maintenance services include inspections to ensure code compliance, preventive maintenance offerings and other customized maintenance offerings tailored to meet customer needs, as well as repair services that address equipment and component wear and tear, and breakdowns. Modernization services enhance equipment operation and improve building functionality. Modernization offerings can range from relatively simple upgrades of interior finishes and aesthetics, to complex upgrades of larger components and sub-systems. Our typical Service customers include building owners, facility managers, housing associations and government agencies that operate buildings where elevators and escalators are installed.
Summary performance for
Service for the quarters ended March 31, 2024 and 2023 was as follows:
The organic sales increase of 6.5% is due to organic sales increases in maintenance and repair of 5.8% and in modernization of 9.7%.
Components
of Net sales change:
Maintenance and Repair
Modernization
Organic volume
5.8
%
9.7
%
Foreign currency translation
(0.7)
%
(1.6)
%
Acquisitions
and divestitures, net
0.2
%
—
%
Total
% change
5.3
%
8.1
%
Operating profit
Service operating profit increased $44 million including foreign exchange headwinds of ($3) million. Higher volume, improved pricing on maintenance contracts and productivity were partially offset by inflationary pressures including annual wage increases. Operating margin increased
70 basis points.
Corporate
and Unallocated
Quarter Ended March 31,
(dollars in millions)
2024
2023
General
corporate expenses and other
$
(33)
$
(30)
UpLift restructuring actions
(1)
—
Other restructuring actions
(19)
(5)
UpLift
transformation costs
(12)
—
Separation-related reserve adjustment
15
—
Total Corporate and Unallocated
$
(50)
$
(35)
General
corporate expenses and other for the quarter ended March 31, 2024 increased $3 million, compared to the same period in 2023, primarily due to the impact of foreign currency mark-to-market adjustments. UpLift and costs related to the program began in the third quarter of 2023. Additionally, higher other restructuring action costs were mostly offset by the reduction of our contractual indemnity obligation payable to RTX that resulted from the TMA.
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.
As of March 31, 2024, we had cash and cash equivalents of approximately $900 million, of which approximately 95% 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 March 31, 2024 and December 31, 2023, the amount of such restricted cash was approximately $3 million and $6 million, respectively.
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 March 31, 2024 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, including tighter credit conditions. There can be no assurance that we will continue to have access to the capital markets on terms acceptable to us.
The following table contains several key measures of our financial condition and liquidity:
Net debt (total debt
less cash and cash equivalents)
5,997
5,624
Total equity
(4,940)
(4,855)
Total capitalization (total debt plus total equity)
1,941
2,043
Net
capitalization (total debt plus total equity less cash and cash equivalents)
1,057
769
Total debt to total capitalization
355
%
338
%
Net
debt to net capitalization
567
%
731
%
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.
Borrowings and Lines of Credit
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. As of March 31, 2024, there were no borrowings under the revolving credit agreement. The undrawn portion of the revolving credit agreement serves as a backstop for the issuance of commercial paper.
There was no commercial paper outstanding as of March 31, 2024. For additional discussion of borrowings, see Note 7 to the Condensed Consolidated Financial
Statements.
Share Repurchase Program
On December 1, 2022, our Board of Directors approved a share repurchase program for up to $2.0 billion of Common Stock, of which approximately $900 million was remaining as of March 31, 2024. 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.
The following table reflects the major categories of cash flows. For additional details, see the Condensed Consolidated Statements of Cash Flows.
Quarter Ended March 31,
(dollars in millions)
2024
2023
Net
cash flows provided by (used in):
Operating activities
$
171
$
278
Investing activities
(79)
(21)
Financing activities
(467)
(341)
Effect
of foreign exchange rate changes on cash and cash equivalents
(18)
10
Net increase (decrease) in cash and cash equivalents and restricted cash
$
(393)
$
(74)
Operating activities
Cash flows from operating activities primarily represent inflows and outflows associated with our operations. Primary activities include
net income from operations adjusted for non-cash transactions, working capital changes and changes in other assets and liabilities.
The year-over-year decrease in net cash provided by operating activities was primarily driven by working capital balances during the periods, including an increase in Accounts receivables, net in the quarter ended March 31, 2024 compared to a decrease the same period in 2023, due to the timing of billings.
During the quarter ended March 31, 2024, net cash provided by operating activities was $171 million. The primary drivers of the inflow related to $374 million of net income and changes in Contract assets and liabilities, net,
due to the timing of billings on contracts compared to the progression on current contracts. These were partially offset by a decrease in Accounts payable due to the timing of payments to suppliers, an increase in Accounts receivable, net, due to the timing of billings, and a decrease in Accrued liabilities due to the timing of payments, including employee-related benefits, interest and income taxes.
During the quarter ended March 31, 2023, net cash provided by operating activities was $278 million. The primary drivers of the inflow related to $352 million of net income and changes in Contract
assets and liabilities, net, due to the timing of billings on contracts compared to the progression on current contracts. These were partially offset by a decrease in Accounts payable due to the timing of payments to suppliers and a decrease in Accrued liabilities due to the timing of payments, including employee-related benefits and interest.
Investing activities
Cash flows from investing activities primarily represent inflows and outflows associated with long-term assets, including capital expenditures, investments in businesses and securities, proceeds from the sale of fixed assets and the settlement of derivative contracts.
During the quarter ended March 31, 2024, net cash used in investing activities was $79 million. The primary drivers of the outflow related to $31 million of capital expenditures, $30 million of acquisitions of businesses and intangible assets and $21 million of net cash payments from the settlement of derivative instruments.
During the quarter ended March 31, 2023, net cash used in investing activities was $21 million. The primary drivers of the outflow were $25 million of capital expenditures and $16 million of acquisitions of businesses and intangible assets, partially offset by $17 million of net cash receipts from the settlement of derivative instruments.
As discussed
in Note 13 to the Condensed Consolidated Financial Statements, we enter into derivative instruments for risk management purposes. We operate internationally and, in the normal course of business, are exposed to fluctuations in interest rates, foreign exchange rates and commodity prices. These fluctuations can increase the costs of financing, investing and operating the business. We use derivative instruments, including forward contracts and options to manage certain foreign currency and commodity price exposures.
Cash
flows from financing activities primarily represent inflows and outflows associated with equity and borrowings. Primary activities include short-term and long-term borrowing activity, paying dividends to shareholders, the repurchase of our Common Stock and dividends or other payments to noncontrolling interests.
During the quarter ended March 31, 2024, net cash used in financing activities was $467 million. The primary drivers of the outflow were the repurchases of our Common Stock of $300 million and dividends paid on our Common Stock of $138 million.
During the quarter ended March 31, 2023, net cash used in financing activities was $341 million. The primary drivers of the outflow were repurchases of our Common Stock of $175 million and dividends
paid on our Common Stock of $120 million.
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 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 9: Borrowings and Lines of Credit" in Item 8 in our 2023 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 quarter ended March 31, 2024 and as of December 31, 2023 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.
Highland Balance Sheet - Standalone and Unconsolidated
Current assets (intercompany receivables from non-guarantor subsidiaries)
$
—
$
75
Current
assets (excluding intercompany receivables from non-guarantor subsidiaries)
—
—
Noncurrent assets (investments in consolidated subsidiaries)
15,711
15,711
Noncurrent assets (intercompany receivables from non-guarantor subsidiaries)
513
518
Noncurrent
assets (excluding investments in consolidated subsidiaries)
—
—
Current liabilities (intercompany payables to non-guarantor subsidiaries)
363
—
Current liabilities (excluding intercompany payables to non-guarantor subsidiaries)
3
1
Noncurrent
liabilities (intercompany payables to non-guarantor subsidiaries)
3,484
3,467
Noncurrent liabilities (excluding intercompany payables to non-guarantor subsidiaries)
1,185
1,199
Off-Balance
Sheet Arrangements and Contractual Obligations
Item 5 "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2023 Form 10-K discloses our off-balance sheet arrangements and contractual obligations. As of March 31, 2024, 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 ended March 31, 2024. 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 2023 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 Senior Vice President and Chief Accounting Officer ("CAO"), of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2024. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon our evaluation,
our CEO, our CFO and our CAO have concluded that, as of March 31, 2024, 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 March 31, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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, restructuring actions (including UpLift), 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 and any changes therein, including financial market conditions, fluctuations in commodity prices, and other inflationary pressures, interest rates and foreign currency exchange rates, levels of end market demand in construction, pandemic health issues (including COVID-19 and variants thereof), natural disasters, whether as a result of climate change or otherwise, and the financial condition of Otis’ customers and suppliers;
•the
effect of changes in political conditions in the U.S., including in connection with the results of the 2024 election or otherwise, and other countries in which Otis and its businesses operate, including the effects of the conflict between Russia and Ukraine, the war between Israel and Hamas, and tensions between the U.S. and China, on general market conditions, commodity costs, global trade policies and related sanctions and export controls, and currency exchange rates in the near term and beyond;
•challenges in the development, production, delivery, support, performance and realization of the anticipated benefits of advanced technologies and new products and services;
•future levels of indebtedness, capital spending and research and development spending;
•future
availability of credit and factors that may affect such availability or costs thereof, including credit market conditions and Otis’ capital structure;
•the timing and scope of future repurchases of Otis’ common stock ("Common Stock"), which may be suspended at any time due to various factors, including market conditions and the level of other investing activities and uses of cash;
•fluctuations in prices and delays and disruption in delivery of materials and services from suppliers, whether as a result of changes in general economic conditions, geopolitical conflicts or otherwise;
•cost reduction or containment actions, restructuring costs and related savings and other consequences thereof, including with respect to UpLift;
•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 and labor inflation in the markets in which Otis and its businesses operate globally;
•the effect of changes in tax, environmental, regulatory (including among other things import/export) and other laws and regulations in the U.S. and other countries in which Otis and its businesses operate;
•the ability of Otis to retain and hire key personnel;
•the
scope, nature, impact or timing of acquisition and divestiture activity, the integration of acquired businesses into existing businesses and realization of synergies and opportunities for growth and innovation and incurrence of related costs;
•the determination by the Internal Revenue Service (the "IRS") and other tax authorities that the distribution or certain related transactions in connection with the Separation should be treated as taxable transactions; and
•our obligations and our disputes that have or may hereafter arise under the agreements we entered into with RTX and Carrier in connection with the Separation.
These and other factors are more fully discussed in the "Notes to Condensed Consolidated Financial Statements" under the headings "Note 1: General" and "Note 16: Contingent Liabilities" and in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Form 10-Q and in our 2023 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 21: 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.
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 Item 3 "Legal Proceedings" in our 2023 Form
10-K.
Item 1A. Risk Factors
Additional information regarding risk factors can be found under "Recent Developments" in the "Business Overview" and "Cautionary Note Concerning Factors That May Affect Future Results" sections of Management's Discussion and Analysis of Financial Condition and Results of Operations in this Form 10-Q.
Except as otherwise noted above, there have been no material changes in the Company's risk factors from those disclosed in
Item 1A "Risk Factors," in our 2023Form 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 March 31, 2024 of equity securities that are registered by us pursuant to Section 12 of the Exchange Act.
2024
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)
January 1 - January 31
1,895
$
87.65
1,895
$
1,034
February
1 - February 29
1,282
91.59
1,282
$
916
March 1 - March 31
173
95.57
173
$
900
Total
3,350
$
89.57
3,350
(1)
Average price paid per share includes any broker commissions associated with the repurchases.
On December 1, 2022, our Board of Directors approved a share repurchase program for up to $2.0 billion of Common Stock. As of March 31, 2024, the maximum dollar value of shares that may yet be purchased under this current program was approximately $900 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.
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.*
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 ended March 31, 2024 and 2023, (ii) Condensed Consolidated Statements of Comprehensive Income for the quarters ended March 31, 2024 and 2023, (iii) Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023, (iv) Condensed Consolidated Statements of Cash
Flows for the quarters ended March 31, 2024 and 2023, (v) Condensed Consolidated Statements of Changes in Equity for the quarters ended March 31, 2024 and 2023 and (vi) Notes to Condensed Consolidated Financial Statements.
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.