filings.toolsItem 8. Financial Statements and Supplementary Data
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Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
(All other schedules are not required and have been omitted)
Management's Report on Internal Control over Financial Reporting
The management of Otis is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Management has assessed the effectiveness of Otis' internal control over financial reporting as of December 31, 2025. In making its assessment, management has utilized the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013). Management concluded that based on its assessment, Otis' internal control over financial reporting was effective as of December 31, 2025. The effectiveness of Otis' internal control over financial reporting, as of December 31, 2025, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included herein.
| OTIS WORLDWIDE CORPORATION (Registrant) | |||||
| by: | /s/ Judith F. Marks | ||||
| Judith F. Marks | |||||
| Chair, President and Chief Executive Officer | |||||
| by: | /s/ Cristina Méndez | ||||
| Cristina Méndez | |||||
| Executive Vice President and Chief Financial Officer | |||||
| by: | /s/ Michael P. Ryan | ||||
| Michael P. Ryan | |||||
| Senior Vice President and Chief Accounting Officer | |||||
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Otis Worldwide Corporation
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Otis Worldwide Corporation and its subsidiaries (the "Company") as of December 31, 2025 and 2024, and the related consolidated statements of operations, of comprehensive income, of changes in equity and of cash flows for each of the three years in the period ended December 31, 2025, including the related notes and financial statement schedule listed in the accompanying index (collectively referred to as the "consolidated financial statements"). We also have audited the Company's internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. 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 audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue Recognition - Estimated Costs at Completion for New Equipment and Modernization Contracts
As described in Notes 2 and 21 to the consolidated financial statements, the Company recognized $5.0 billion and $1.9 billion of revenue from new equipment and modernization contracts, respectively, for the year ended December 31, 2025. For new equipment and modernization contracts, equipment and installation are typically procured in a single contract providing the customer with a complete installed elevator or escalator unit. The combination of equipment and installation promises are typically a single performance obligation. For these performance obligations, revenue is recognized over time using costs incurred to date relative to total estimated costs at completion to measure progress. As disclosed by management, contract costs are usually incurred over a period of time, which can be several years, and the estimation of these costs requires management’s judgment. The long-term nature of the contracts, the complexity of the products and the scale of the projects can affect management’s ability to estimate costs precisely. In developing the cost estimates, management utilizes a combination of the historical costs and expected costs considering current circumstances. Management reviews cost estimates for modification on significant new equipment and modernization contracts on a quarterly basis and when circumstances change and, for others, no less frequently than annually or when circumstances change and warrant a modification to a previous estimate. Management records changes in contract estimates using the cumulative catch-up method and reviews changes in contract estimates for their impact on net sales or operating profit in the consolidated financial statements. Contract costs included in the calculation are comprised of labor, materials, subcontractors’ costs or other direct costs and indirect costs, which include indirect labor costs.
The principal considerations for our determination that performing procedures relating to revenue recognition - estimated costs at completion for new equipment and modernization contracts is a critical audit matter are the significant judgment by management to determine the estimated costs at contract completion, which in turn led to significant auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence related to the estimated expected labor and indirect labor costs used in the development of estimated costs at contract completion.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the revenue recognition process, including controls over the determination of the estimated costs at contract completion and development of the significant assumptions related to the estimated expected labor and indirect labor costs. These procedures also included, among others, evaluating and testing management’s process for developing and modifying estimated costs at contract completion for a sample of contracts, which included evaluating the reasonableness of significant assumptions related to the estimated expected labor and indirect labor costs considered by management specific to each contract. Evaluating the reasonableness of the estimated expected labor and indirect labor costs involved assessing management’s ability to reasonably estimate costs at completion by (i) testing costs incurred to date and obtaining a sample of executed contracts and related change orders, (ii) performing a comparison of the margin, driven by the estimated and actual costs incurred, to that of similar completed equipment contracts, and (iii) evaluating the timely identification of circumstances that may warrant a modification to estimated total cost to complete.
/s/ PricewaterhouseCoopers LLP
Hartford, Connecticut
February 5, 2026
We have served as the Company’s auditor since 2019.
OTIS WORLDWIDE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
| (dollars in millions, except per share amounts; shares in millions) | 2025 | 2024 | 2023 | |||||||||||||||||
| Net sales: | ||||||||||||||||||||
| Product sales | $ | 4,989 | $ | 5,367 | $ | 5,812 | ||||||||||||||
| Service sales | 9,442 | 8,894 | 8,397 | |||||||||||||||||
| 14,431 | 14,261 | 14,209 | ||||||||||||||||||
| Costs and expenses: | ||||||||||||||||||||
| Cost of products sold | 4,182 | 4,459 | 4,843 | |||||||||||||||||
| Cost of services sold | 5,879 | 5,545 | 5,173 | |||||||||||||||||
| Research and development | 152 | 152 | 144 | |||||||||||||||||
| Selling, general and administrative | 1,979 | 1,861 | 1,884 | |||||||||||||||||
| 12,192 | 12,017 | 12,044 | ||||||||||||||||||
| Other income (expense), net | (106) | (236) | 21 | |||||||||||||||||
| Operating profit | 2,133 | 2,008 | 2,186 | |||||||||||||||||
| Non-service pension cost (benefit) | 3 | — | 5 | |||||||||||||||||
| Interest expense (income), net | 196 | (31) | 150 | |||||||||||||||||
| Net income before income taxes | 1,934 | 2,039 | 2,031 | |||||||||||||||||
| Income tax expense | 479 | 305 | 533 | |||||||||||||||||
| Net income | 1,455 | 1,734 | 1,498 | |||||||||||||||||
| Less: Noncontrolling interest in subsidiaries' earnings | 71 | 89 | 92 | |||||||||||||||||
| Net income attributable to Otis Worldwide Corporation | $ | 1,384 | $ | 1,645 | $ | 1,406 | ||||||||||||||
| Earnings per share (Note 3): | ||||||||||||||||||||
| Basic | $ | 3.52 | $ | 4.10 | $ | 3.42 | ||||||||||||||
| Diluted | $ | 3.50 | $ | 4.07 | $ | 3.39 | ||||||||||||||
| Weighted average number of shares outstanding | ||||||||||||||||||||
| Basic shares | 392.8 | 401.7 | 411.4 | |||||||||||||||||
| Diluted shares | 394.9 | 404.4 | 414.6 |
See accompanying Notes to Consolidated Financial Statements.
OTIS WORLDWIDE CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| (dollars in millions) | 2025 | 2024 | 2023 | ||||||||||||||||||||||||||
| Net income | $ | 1,455 | $ | 1,734 | $ | 1,498 | |||||||||||||||||||||||
| Other comprehensive income (loss): | |||||||||||||||||||||||||||||
| Foreign currency translation adjustments, net of tax | (366) | (13) | (93) | ||||||||||||||||||||||||||
| Pension and postretirement benefit plan adjustments: | |||||||||||||||||||||||||||||
| Net actuarial gain (loss) | 63 | (2) | (90) | ||||||||||||||||||||||||||
| Prior service credit | (5) | — | — | ||||||||||||||||||||||||||
| Amortization of actuarial (gain) loss and prior service credit | 3 | — | (1) | ||||||||||||||||||||||||||
| Other | (5) | 6 | (1) | ||||||||||||||||||||||||||
| 56 | 4 | (92) | |||||||||||||||||||||||||||
| Tax benefit (expense) | (15) | (2) | 22 | ||||||||||||||||||||||||||
| Pension and postretirement benefit plan adjustments, net of tax | 41 | 2 | (70) | ||||||||||||||||||||||||||
| Change in unrealized cash flow hedging: | |||||||||||||||||||||||||||||
| Unrealized cash flow hedging gain (loss) | (3) | 2 | 6 | ||||||||||||||||||||||||||
| Adjustment for net (gain) loss realized and included in net income | 2 | — | (8) | ||||||||||||||||||||||||||
| Change in unrealized cash flow hedging, net of tax | (1) | 2 | (2) | ||||||||||||||||||||||||||
| Tax benefit (expense) | (1) | — | — | ||||||||||||||||||||||||||
| Change in unrealized cash flow hedging, net of tax | (2) | 2 | (2) | ||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | (327) | (9) | (165) | ||||||||||||||||||||||||||
| Comprehensive income (loss), net of tax | 1,128 | 1,725 | 1,333 | ||||||||||||||||||||||||||
| Less: Comprehensive (income) loss attributable to noncontrolling interest | (86) | (75) | (85) | ||||||||||||||||||||||||||
| Comprehensive income attributable to Otis Worldwide Corporation | $ | 1,042 | $ | 1,650 | $ | 1,248 | |||||||||||||||||||||||
See accompanying Notes to Consolidated Financial Statements.
OTIS WORLDWIDE CORPORATION
CONSOLIDATED BALANCE SHEETS
| (dollars in millions) | 2025 | 2024 | ||||||||||||
| Assets | ||||||||||||||
| Cash and cash equivalents | $ | 1,096 | $ | 2,300 | ||||||||||
| Accounts receivable (net of allowance for expected credit losses of $125 and $125) | 3,688 | 3,428 | ||||||||||||
| Contract assets | 699 | 706 | ||||||||||||
| Inventories | 613 | 557 | ||||||||||||
| Other current assets | 405 | 679 | ||||||||||||
| Total Current Assets | 6,501 | 7,670 | ||||||||||||
| Future income tax benefits | 407 | 302 | ||||||||||||
| Fixed assets, net | 743 | 701 | ||||||||||||
| Operating lease right-of-use assets | 554 | 422 | ||||||||||||
| Intangible assets, net | 343 | 311 | ||||||||||||
| Goodwill | 1,695 | 1,548 | ||||||||||||
| Other assets | 410 | 362 | ||||||||||||
| Total Assets | $ | 10,653 | $ | 11,316 | ||||||||||
| Liabilities and Equity (Deficit) | ||||||||||||||
| Short-term borrowings and current portion of long-term debt | $ | 1,056 | $ | 1,351 | ||||||||||
| Accounts payable | 2,142 | 1,879 | ||||||||||||
| Accrued liabilities | 1,847 | 1,921 | ||||||||||||
| Contract liabilities | 2,611 | 2,598 | ||||||||||||
| Total Current Liabilities | 7,656 | 7,749 | ||||||||||||
| Long-term debt | 6,900 | 6,973 | ||||||||||||
| Future pension and postretirement benefit obligations | 419 | 434 | ||||||||||||
| Operating lease liabilities | 397 | 298 | ||||||||||||
| Future income tax obligations | 223 | 207 | ||||||||||||
| Other long-term liabilities | 329 | 383 | ||||||||||||
| Total Liabilities | 15,924 | 16,044 | ||||||||||||
| Commitments and contingent liabilities (Note 20) | ||||||||||||||
| Redeemable noncontrolling interest | 75 | 57 | ||||||||||||
| Shareholders' Equity (Deficit): | ||||||||||||||
| Common Stock and additional paid-in-capital | 333 | 265 | ||||||||||||
| Treasury Stock | (4,198) | (3,390) | ||||||||||||
| Accumulated deficit | (440) | (978) | ||||||||||||
| Accumulated other comprehensive income (loss) | (1,087) | (745) | ||||||||||||
| Total Shareholders' Equity (Deficit) | (5,392) | (4,848) | ||||||||||||
| Noncontrolling interest | 46 | 63 | ||||||||||||
| Total Equity (Deficit) | (5,346) | (4,785) | ||||||||||||
| Total Liabilities and Equity (Deficit) | $ | 10,653 | $ | 11,316 |
See accompanying Notes to Consolidated Financial Statements.
OTIS WORLDWIDE CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| (dollars in millions, except per share amounts) | Common Stock and Additional Paid-In Capital | Treasury Stock | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Total Shareholders' (Deficit) Equity | Noncontrolling Interest | Total (Deficit) Equity | Redeemable Noncontrolling Interest | ||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2022 | $ | 162 | $ | (1,575) | $ | (2,865) | $ | (592) | $ | (4,870) | $ | 71 | $ | (4,799) | $ | 135 | ||||||||||||||||||||||||||||||||||
| Net income | — | — | 1,406 | — | 1,406 | 83 | 1,489 | 9 | ||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | — | — | — | (158) | (158) | (3) | (161) | (4) | ||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation and Common Stock issued under employer plans | 51 | — | (2) | — | 49 | — | 49 | — | ||||||||||||||||||||||||||||||||||||||||||
| Cash dividends declared ($1.31 per Common Share) | — | — | (539) | — | (539) | — | (539) | — | ||||||||||||||||||||||||||||||||||||||||||
| Repurchase of Common Shares | — | (807) | — | — | (807) | — | (807) | — | ||||||||||||||||||||||||||||||||||||||||||
| Dividends attributable to noncontrolling interest | — | — | — | — | — | (79) | (79) | (9) | ||||||||||||||||||||||||||||||||||||||||||
| Acquisitions, disposals and other changes | — | — | (5) | — | (5) | (3) | (8) | 4 | ||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2023 | 213 | (2,382) | (2,005) | (750) | (4,924) | 69 | (4,855) | 135 | ||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | 1,645 | — | 1,645 | 80 | 1,725 | 9 | ||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | — | — | — | 5 | 5 | (5) | — | (9) | ||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation and Common Stock issued under employer plans | 53 | — | (3) | — | 50 | — | 50 | — | ||||||||||||||||||||||||||||||||||||||||||
| Cash dividends declared ($1.51 per Common Share) | — | — | (606) | — | (606) | — | (606) | — | ||||||||||||||||||||||||||||||||||||||||||
| Repurchase of Common Shares | — | (1,008) | — | — | (1,008) | — | (1,008) | — | ||||||||||||||||||||||||||||||||||||||||||
| Dividends attributable to noncontrolling interest | — | — | — | — | — | (81) | (81) | (12) | ||||||||||||||||||||||||||||||||||||||||||
| Acquisitions, disposals and other changes | (1) | — | (9) | — | (10) | — | (10) | (66) | ||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2024 | 265 | (3,390) | (978) | (745) | (4,848) | 63 | (4,785) | 57 | ||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | 1,384 | — | 1,384 | 65 | 1,449 | 6 | ||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | — | — | — | (342) | (342) | 8 | (334) | 7 | ||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation and Common Stock issued under employer plans | 71 | — | (3) | — | 68 | — | 68 | — | ||||||||||||||||||||||||||||||||||||||||||
| Cash dividends declared ($1.65 per Common Share) | — | — | (647) | — | (647) | — | (647) | — | ||||||||||||||||||||||||||||||||||||||||||
| Repurchase of Common Shares | — | (808) | — | — | (808) | — | (808) | — | ||||||||||||||||||||||||||||||||||||||||||
| Dividends attributable to noncontrolling interest | — | — | — | — | — | (63) | (63) | (5) | ||||||||||||||||||||||||||||||||||||||||||
| Acquisitions, disposals and other changes | (3) | — | (196) | — | (199) | (27) | (226) | 10 | ||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2025 | $ | 333 | $ | (4,198) | $ | (440) | $ | (1,087) | $ | (5,392) | $ | 46 | $ | (5,346) | $ | 75 | ||||||||||||||||||||||||||||||||||
See accompanying Notes to Consolidated Financial Statements.
OTIS WORLDWIDE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
| (dollars in millions) | 2025 | 2024 | 2023 | |||||||||||||||||
| Operating Activities: | ||||||||||||||||||||
| Net income | $ | 1,455 | $ | 1,734 | $ | 1,498 | ||||||||||||||
| Adjustments to reconcile net income to net cash flows provided by operating activities, net of acquisitions and dispositions: | ||||||||||||||||||||
| Depreciation and amortization | 175 | 181 | 193 | |||||||||||||||||
| Deferred income tax expense (benefit) | (104) | (31) | (61) | |||||||||||||||||
| Stock compensation cost | 80 | 73 | 64 | |||||||||||||||||
| Gain from reversal of German Tax Litigation interest accrual (Note 1) | — | (50) | — | |||||||||||||||||
| Change in: | ||||||||||||||||||||
| Accounts receivable, net | (111) | (68) | (239) | |||||||||||||||||
| Contract assets and liabilities, current | (71) | (40) | (30) | |||||||||||||||||
| Inventories | (25) | 26 | 15 | |||||||||||||||||
| Other current assets | 225 | (354) | 38 | |||||||||||||||||
| Accounts payable | 181 | 57 | 152 | |||||||||||||||||
| Accrued liabilities | (140) | 85 | 33 | |||||||||||||||||
| Pension and postretirement contributions | (43) | (51) | (48) | |||||||||||||||||
| Other operating activities, net | (26) | 1 | 12 | |||||||||||||||||
| Net cash flows provided by operating activities | 1,596 | 1,563 | 1,627 | |||||||||||||||||
| Investing Activities: | ||||||||||||||||||||
| Capital expenditures | (152) | (126) | (138) | |||||||||||||||||
| Acquisitions of businesses and intangible assets, net of cash (Note 7) | (109) | (87) | (36) | |||||||||||||||||
| Net proceeds from the sale of fixed assets | 60 | 6 | 7 | |||||||||||||||||
| Proceeds from sale of (investments in) marketable securities, net | — | (9) | 4 | |||||||||||||||||
| Receipts (payments) on settlements of derivative contracts, net | (204) | 49 | (28) | |||||||||||||||||
| Other investing activities, net | (1) | 3 | 8 | |||||||||||||||||
| Net cash flows provided by (used in) investing activities | (406) | (164) | (183) | |||||||||||||||||
| Financing Activities: | ||||||||||||||||||||
| Net proceeds from (repayments of) borrowings (maturities of 90 days or less) | (25) | 11 | (113) | |||||||||||||||||
| Proceeds from borrowings (maturities longer than 90 days) | 167 | — | — | |||||||||||||||||
| Proceeds from issuance of long-term debt | 500 | 1,497 | 747 | |||||||||||||||||
| Payment of debt issuance costs | (5) | (11) | (6) | |||||||||||||||||
| Repayment of long-term debt | (1,300) | — | (534) | |||||||||||||||||
| Dividends paid on Common Stock | (647) | (606) | (539) | |||||||||||||||||
| Repurchases of Common Stock | (809) | (1,007) | (800) | |||||||||||||||||
| Acquisition of noncontrolling interest shares (Note 1) | (217) | (75) | — | |||||||||||||||||
| Dividends paid to noncontrolling interest | (69) | (94) | (85) | |||||||||||||||||
| Other financing activities, net | (16) | (24) | (20) | |||||||||||||||||
| Net cash flows provided by (used in) financing activities | (2,421) | (309) | (1,350) | |||||||||||||||||
| Effect of foreign exchange rate changes on cash and cash equivalents | 15 | (49) | (9) | |||||||||||||||||
| Net increase (decrease) in cash and cash equivalents | (1,216) | 1,041 | 85 | |||||||||||||||||
| Cash, cash equivalents and restricted cash, beginning of year | 2,321 | 1,280 | 1,195 | |||||||||||||||||
| Cash, cash equivalents and restricted cash, end of year | 1,105 | 2,321 | 1,280 | |||||||||||||||||
| Less: Restricted cash | 9 | 21 | 6 | |||||||||||||||||
| Cash and cash equivalents, end of period | $ | 1,096 | $ | 2,300 | $ | 1,274 | ||||||||||||||
| Supplemental cash flow information: | ||||||||||||||||||||
| Interest paid | $ | 230 | $ | 172 | $ | 132 | ||||||||||||||
See accompanying Notes to Consolidated Financial Statements.
Note 1: Business Overview
Otis (as defined below) is the world’s largest elevator and escalator manufacturing, installation and service company. Our operations are classified into two 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, for residential, commercial 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.
UpLift
During 2023, the Company announced UpLift to transform the Company's operating model. UpLift includes, among other aspects, the standardization of processes and improvement of supply chain procurement, as well as organizational changes which result in restructuring actions. See Note 15, "Restructuring and Transformation Costs" for information regarding UpLift restructuring actions and related costs incurred.
German Tax Litigation
In August 2024, we received a favorable ruling regarding a tax litigation in Germany. As a result, income tax benefits of approximately $185 million and related interest income of approximately $200 million are included in Income tax expense (benefit) and Interest expense (income), net, respectively, in the Consolidated Statements of Operations for 2024. The income tax benefits are recorded as an income tax receivable in Other current assets in the Consolidated Balance Sheets as of December 31, 2024. The interest income includes the reversal of an interest accrual of $50 million and recognition of an interest receivable of approximately $140 million reflected in Accrued liabilities and Other current assets, respectively, in the Consolidated Balance Sheets as of December 31, 2024.
The Company has started to receive refunds and anticipates the refund process to continue into 2026. As a result, Other current assets in the Consolidated Balance Sheets as of December 31, 2025 and 2024 include an income tax receivable of approximately $75 million and $175 million, respectively, and an interest receivable of approximately $65 million and $140 million, respectively.
Pursuant to the Tax Matters Agreement ("TMA") with RTX Corporation ("RTX", our former parent), and based on the facts and contractual provisions at the time, the Company recorded indemnification expense of $194 million for amounts due to RTX resulting from the outcome of this tax litigation in Germany in 2024. Based on additional information received from RTX during the year, which resulted in additional indemnification expense of $67 million, offset by indemnity payments made to RTX of $205 million, the Company now estimates the amount payable to RTX to be $56 million. The indemnification expense is included in Other income (expense), net in the Consolidated Statements of Operations in 2025 and 2024, and the amounts payable to RTX are included in Accrued liabilities in the Consolidated Balance Sheets as of December 31, 2025 and 2024, respectively.
See Note 14, "Income Taxes" and Note 20, "Contingent Liabilities" for additional information.
Acquisitions of Noncontrolling Interests
In October 2025, we purchased all of the outstanding shares of Otis Electric Elevator Company Limited ("Otis Electric") from the noncontrolling shareholder for approximately $215 million ($80 million from Cash and $135 million from borrowings). As a result, $188 million was recorded to Accumulated deficit for the difference between the purchase price and the historical noncontrolling interest carrying value and $27 million was recorded to Noncontrolling interest. Otis Electric is now 100% owned by our joint venture Otis Elevator (China) Investment Company Limited ("Otis China") and one of its subsidiaries. The impact to Accumulated other comprehensive income (loss) was not significant.
The Company owned a controlling interest and had operational control of Otis Electric as of and for the years ended December 31, 2025, 2024 and 2023, and all other periods during 2025, 2024 and 2023, and therefore its financial results are included in our Consolidated Financial Statements.
In 2024, we purchased all of the outstanding shares of our consolidated subsidiary in Japan from the noncontrolling shareholders for approximately $70 million.
Separation from United Technologies Corporation
On April 3, 2020, United Technologies Corporation, subsequently renamed to RTX Corporation ("UTC" or "RTX", as applicable), completed the spin-off of the Company into an independent publicly-traded company (the "Separation") through a pro-rata distribution of 0.5 shares of Common Stock for every share of UTC common stock held at the close of business on the record date of March 19, 2020 ("Distribution"). Otis began to trade as a separate public company (New York Stock Exchange ("NYSE"): OTIS) on April 3, 2020. See Note 2, "Summary of Significant Accounting Policies" for additional information regarding the Separation and related costs.
Unless the context otherwise requires, references to "Otis", "we", "us", "our" and "the Company" refer to (i) Otis Worldwide Corporation's business prior to the Separation and (ii) Otis Worldwide Corporation and its subsidiaries following the Separation, as applicable. References to "UTC" relate to pre-Separation matters, and references to "RTX" relate to post-Separation matters.
Note 2: Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation. The accompanying Consolidated Financial Statements include the accounts of Otis and its controlled subsidiaries, as well as entities where Otis has a variable interest and is the primary beneficiary as defined by Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 810, Consolidation. The factors we use to determine the primary beneficiary of a variable interest entity ("VIE") may include decision authority, control over management of day-to-day operations and the amount of our equity investment in relation to others' investments.
All significant intercompany accounts and transactions within the Company have been eliminated in the preparation of the Consolidated Financial Statements.
Certain amounts for prior years have been reclassified to conform to the current year presentation, which are immaterial.
Use of Estimates. The preparation of the Consolidated Financial Statements and accompanying notes in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities. In addition, estimates and assumptions may impact the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. 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 conditions, including inflationary pressures, higher interest rates and tighter credit conditions as of December 31, 2025 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 Consolidated Financial Statements resulting from our assessments of these matters, future assessment of our current expectations at that time of the magnitude and duration of these macroeconomic conditions, as well as other factors, could result in material impacts to our Consolidated Financial Statements in future reporting periods.
New import tariffs implemented by the U.S. and other countries, as currently in effect, could have a material impact on our results in 2026 and future years. The impact of tariffs is dependent upon negotiations with customers and suppliers and other mitigation efforts and potential further changes in global trade policies, including higher tariffs in the U.S. or other countries.
We also assessed certain accounting matters as they relate to the ongoing conflict between Russia and Ukraine and the conflicts in the Middle East, 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 Consolidated Financial Statements 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.
Cash and Cash Equivalents. Cash and cash equivalents includes cash on hand, demand deposits and short-term cash investments that are highly liquid in nature and have original maturities of three months or less.
Restricted Cash. In certain circumstances we are required to maintain cash deposits with certain banks with respect to contractual or other legal obligations, and therefore the use of these cash deposits for general operational purposes is restricted. Our restricted cash balances are $9 million and $21 million as of December 31, 2025 and 2024, respectively, which are primarily included in Other current assets in the Consolidated Balance Sheets.
Accounts Receivable. The Company records accounts receivable when the right to consideration becomes unconditional. We regularly evaluate the collectability of our accounts receivable and maintain reserves for expected credit losses. We do not believe that accounts receivable represent significant concentrations of credit risk because of the diversified portfolio of individual customers and geographic areas.
Trade receivables. Trade receivables as of December 31, 2025 and 2024 are $3.7 billion and $3.4 billion, respectively. Trade receivables include billed receivables which are currently due from customers and unbilled receivables where we have satisfied our performance obligations but the amounts due may not be currently billable to the customer under the terms of the contract. Amounts are billed as work progresses in accordance with agreed-upon contract terms, either at periodic intervals or upon achievement of contractual milestones.
Retainage. Current and long-term accounts receivable as of December 31, 2025 and 2024 include retainage of $58 million and $57 million, respectively. Retainage represents amounts that, pursuant to the applicable contract, are not due until after project completion and acceptance by the customer.
Customer Financing Notes Receivable. Through financing arrangements with our customers, we extend payment terms, which are generally not more than one year in duration. Customer financing notes receivable as of December 31, 2025 and 2024 are $47 million and $55 million, respectively, and are included in Accounts receivable, net as of December 31, 2025 and 2024.
Credit Losses. We are exposed to credit losses primarily through our net sales of products and services to our customers which are recorded as Accounts Receivable, net in the Consolidated Balance Sheets. We evaluate each customer's ability to pay through assessing customer creditworthiness, historical experience and current economic conditions through a reasonable forecast period. Factors considered in our evaluation of assessing collectability and risk include: underlying value of any collateral or security interests, significant past due balances, historical losses and existing economic conditions including country and political risk. There can be no assurance that actual results will not differ from estimates or that consideration of these factors in the future will not result in an increase or decrease to the allowance for credit losses. We may require collateral or prepayment to mitigate credit risk.
We estimate expected credit losses of financial assets with similar risk characteristics. We determine an asset is impaired when our assessment identifies there is a risk that we will be unable to collect amounts due according to the contractual terms of the agreement. We monitor our ongoing credit exposure through reviews of customer balances against contract terms and due dates, current economic conditions and dispute resolution. Estimated credit losses are written off in the period in which the financial asset is no longer collectible.
The changes in allowance for credit losses related to Accounts receivable, net for 2025, 2024, and 2023 are as follows:
| (dollars in millions) | 2025 | 2024 | 2023 | |||||||||||||||||
| Balance as of January 1 | $ | 125 | $ | 130 | $ | 152 | ||||||||||||||
| Provision for expected credit losses | 33 | 34 | 29 | |||||||||||||||||
| Write-offs charged against the allowance for expected credit losses | (39) | (32) | (48) | |||||||||||||||||
| Foreign exchange and other | 6 | (7) | (3) | |||||||||||||||||
| Balance as of December 31 | $ | 125 | $ | 125 | $ | 130 | ||||||||||||||
Factoring. The Company may sell certain trade accounts and notes receivable to lending institutions primarily to manage credit risk. Financial assets sold under these arrangements are excluded from Accounts receivable, net in the Company’s Consolidated Balance Sheets at the time of sale if the Company has surrendered control over the related assets. Whether control has been relinquished requires, among other things, an evaluation of relevant legal considerations and an assessment of the nature and extent of the Company’s continuing involvement with the assets transferred. Gains and losses stemming from transfers reported as sales are included in Interest expense (income), net in the accompanying Consolidated Statements of Operations.
Contract Assets and Liabilities. Contract assets and liabilities represent the difference in the timing of revenue recognition from receipt of cash from our customers and billings.
Contract assets reflect revenue recognized and performance obligations satisfied in advance of customer billings. Performance obligations partially satisfied in advance of customer billings are included in Contract assets, current. Contract liabilities relate to payments received in advance of the satisfaction of performance under the contract. We receive payments from customers based on the terms established in our contracts. See Note 4, "Contract Assets and Liabilities" for further discussion of contract assets and liabilities.
Inventories. Inventories are stated at the lower of cost or estimated realizable value and are primarily based on a first-in, first-out method. Valuation write-downs for excess, obsolete and slow-moving inventory are estimated by comparing the inventory levels of individual parts to both future sales forecasts or production requirements and historical usage rates in order to identify inventory where the resale value or replacement value is less than inventoriable cost. See Note 5, "Inventories" for further details of the inventories by classification.
Fixed Assets. Fixed assets, including software capitalized for internal-use, are recorded at cost. Depreciation of fixed assets is computed over the fixed assets' useful lives on a straight-line basis, unless another systematic and rational basis is more representative of the fixed asset's pattern of use. See Note 6, "Fixed Assets" for further details of useful lives.
Internal Use Software. The Company capitalizes direct costs of services used in the development of, and external software acquired for use as, internal-use software. Amounts capitalized are amortized over a period ranging from three to five years, on a straight-line basis, unless another systematic and rational basis is more representative of the software's use. Amounts are reported as a component of Machinery and equipment.
Asset Retirement Obligations. The Company records the fair value of legal obligations associated with the retirement of tangible long-lived assets in the period in which the legal obligations are determined to exist. Upon initial recognition of a liability, the Company capitalizes the cost of the asset retirement obligation by increasing the carrying amount of the related long-lived asset. Over time, the liability is adjusted for changes in its present value and the capitalized cost is depreciated over the useful life of the related asset.
Fair Value of Financial Instruments. The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources, while unobservable inputs reflect a reporting entity’s pricing based upon their own market assumptions. The fair value hierarchy consists of the following three levels:
Level I – Quoted prices for identical instruments in active markets.
Level II – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level III – Instruments whose significant value drivers are unobservable.
The carrying amount of current trade receivables, accounts payable and accrued expenses approximates fair value due to the short maturity (less than one year) of the instruments.
Equity Method Investments. Entities in which we have the ability to exercise significant influence, but do not control, are accounted for under the equity method of accounting and are included in Other assets in the Consolidated Balance Sheets. Under this method of accounting, our share of the net earnings or losses of the investee entity is included in Other income (expense), net in the Consolidated Statements of Operations since the activities of the investee entity are closely aligned with the operations of the Company. We evaluate our equity method investments whenever events or changes in circumstance indicate that the carrying amounts of such investments may be impaired. If a decline in the value of an equity method investment is determined to be other than temporary, a loss is recorded in earnings in the current period.
Business Combinations. We account for transactions that are classified as business combinations in accordance with the FASB ASC Topic 805: Business Combinations. Once a business is acquired, the fair values of the identifiable assets acquired and liabilities assumed are determined with the excess cost recorded to goodwill. As required, preliminary fair values are determined once a business is acquired, with the final determination of the fair values being completed within the one-year measurement period from the date of acquisition.
Goodwill, Intangible Assets and Long-Lived Assets. Goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired businesses. Intangible assets consist of service portfolios, patents, trademarks/trade names, customer relationships and other intangible assets. Acquired intangible assets are recognized at fair value during acquisition accounting and then amortized to Cost of products and services sold and Selling, general and administrative over the applicable useful lives.
Goodwill and Indefinite-Lived Intangible Assets. Goodwill and intangible assets deemed to have indefinite lives are not amortized. Goodwill and indefinite-lived intangible assets are subject to impairment testing annually or when a triggering event occurs using the guidance and criteria described in FASB ASC Topic 350: Intangibles – Goodwill and Other. This testing compares carrying values to fair values and, when appropriate, the carrying value of these assets is reduced to fair value.
We test goodwill for impairment at a level within the Company referred to as the reporting unit, which is one level below the operating segment level. When testing goodwill for impairment, the Company may first assess qualitative factors. If an initial qualitative assessment identified that it is more likely than not that the fair value of a reporting unit is less than its carrying value, additional quantitative testing is performed. The Company may also elect to skip the qualitative testing and proceed directly to the quantitative testing. If the quantitative testing indicates that goodwill is impaired, an impairment charge is recognized based on the difference between the reporting unit's carrying value and its fair value. When it is determined that a quantitative analysis is required, the Company primarily utilizes a discounted cash flow methodology to calculate the fair value of its reporting units. The Company completed its most recent annual impairment testing as of July 1, 2025, and determined in the qualitative assessment that quantitative testing is not necessary. There were no triggering events since the annual impairment test.
Finite-Lived Intangible Assets and Long-Lived Assets. Useful lives of finite-lived intangible assets are estimated based upon the nature of the intangible asset. These intangible assets are amortized based on the pattern in which the economic benefits of the intangible assets are consumed or if straight-line amortization approximates the pattern of economic benefit, a straight-line amortization method may be used. The range of estimated useful lives is as follows:
| Purchased service portfolios | 5 to 25 years | |||||||
| Patents, trademarks/trade names | 4 to 40 years | |||||||
| Customer relationships and other | 1 to 20 years |
The Company evaluates the potential impairment of long-lived assets, including finite-lived intangible assets, whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. If the carrying value of other long-lived assets held and used exceeds the sum of the undiscounted expected future cash flows, the carrying value is written down to fair value. See Note 6, "Fixed Assets" and Note 7, "Business Acquisitions, Dispositions, Goodwill and Intangible Assets" for additional information regarding intangible assets and other long-lived assets.
Income Taxes. 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. For those tax positions where it is more-likely-than-not that a tax benefit will be sustained, we have recorded the largest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where it is not more-likely-than-not that a tax benefit will be sustained, no tax benefit has been recognized in the financial statements. Where applicable, associated interest expense has also been recognized. We recognize accrued interest related to unrecognized tax benefits in Interest expense (income), net. Penalties, if incurred, would be recognized as a component of Income tax expense.
The U.S. Tax Cuts and Jobs Act ("TCJA") subjects the Company to a tax on Global Intangible Low-Taxed Income ("GILTI"). GILTI is a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. We account for GILTI as a period cost as incurred.
See Note 14, "Income Taxes" for additional information.
Revenue Recognition. We recognize revenue in accordance with FASB ASC Topic 606: Revenue from Contracts with Customers and its related amendments, (referred to, collectively, as "ASC 606"). The Company's revenue streams include new equipment, maintenance and repair, and modernization. New equipment, modernization and repair services revenue are recognized over time as we are enhancing an asset the customer controls. Maintenance revenue is recognized on a straight-line basis over the life of the maintenance contract.
New Equipment, Modernization and Repair Services. For new equipment and modernization transactions, equipment and installation are typically procured in a single contract providing the customer with a complete installed elevator or escalator unit. The combination of equipment and installation promises are typically a single performance obligation. For repair services, the customer typically contracts for specific short-term services which form a single performance obligation.
For these performance obligations, revenue is recognized over time using costs incurred to date relative to total estimated costs at completion to measure progress. Incurred costs represent work performed, which corresponds with and best depicts transfer of control or the enhancement of the customer’s assets. Contract costs included in the calculation are comprised of labor, materials, subcontractors’ costs or other direct costs and indirect costs, which include indirect labor costs. In developing our cost estimates, we utilize a combination of our historical cost experience and expected costs considering current circumstances. Specific to new equipment and modernization arrangements, the Company, based on project progression, reviews cost estimates for modification on significant contracts on a quarterly basis and when circumstances change, and for others, no less frequently than annually or when circumstances change and warrant a modification to a previous estimate. These estimates form the basis for the amount of revenue to be recognized and include the latest updated total transaction price, costs and risks for each contract. These estimates for our ongoing contracts may materially change due to the change and completions of the contract scopes, cost estimates and customers' plans, among other factors.
For performance obligations recognized under the cost to cost method, we record changes in contract estimates using the cumulative catch-up method. Modifications are recognized as a cumulative catch-up or treated as a separate accounting contract if the modification adds distinct goods or services and the modification is priced at its stand-alone selling price.
Maintenance. Our customers purchase maintenance contracts which include services such as required periodic maintenance procedures, preventive services and stand ready obligations to remediate issues with the elevator/escalator when and if they arise. Given the continuous nature of these services throughout the year, we recognize revenue on maintenance contracts on a straight-line basis which aligns with the cost profile of these services. Contractual changes are typically recognized prospectively as most modifications are extensions of the existing arrangement.
Transaction Price Considerations. Our contracts with customers typically include fixed payments to Otis. These fixed payments are generally received as we progress the performance obligations to the customers. As a result, we have not identified any significant financing elements in our contracts, and our contracts do not have significant estimates related to variable consideration except in the case of a project having an underlying performance issue, which is rare. In situations where multiple performance obligations in a single contract exist (e.g., both new equipment and maintenance), the transaction price is allocated to each performance obligation in proportion to its stand-alone selling price. Estimates are made to account for changes in transaction prices attributable to pricing disputes that occur subsequent to the inception of contracts, based upon historical experience and the status of contracts.
Certain Costs to Obtain or Fulfill Contracts. Certain costs to obtain or fulfill a contract with a customer must be capitalized, to the extent recoverable from the associated contract margin, and subsequently amortized as the products or services are delivered to the customer. Sales commissions related to new equipment, modernization and maintenance contracts, excluding renewals, are capitalized as contract fulfillment costs and are amortized consistent with the pattern of transfer of the goods or services. Customer contract costs, which do not qualify for capitalization as contract fulfillment costs, are expensed as incurred.
Loss Contracts. Loss provisions on contracts are recognized to the extent that estimated contract costs exceed the estimated consideration from the products or services contemplated under the contractual arrangement. For new commitments, we generally record loss provisions at contract inception. For existing commitments, anticipated losses on contractual arrangements are recognized in the period in which losses become probable.
Remaining Performance Obligations ("RPO"). RPO represents the aggregate amount of total contract transaction price that is unsatisfied or partially unsatisfied. As of December 31, 2025, our total RPO was approximately $19.1 billion. Of the total RPO as of December 31, 2025, we expect approximately 75% will be recognized as sales over the following 24 months.
Additional disclosure required by ASC 606 is provided in Note 21, "Segment Financial Data", including disaggregation of revenue into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.
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 due date of the invoices, while the participating suppliers generally have the ability to sell, or otherwise pledge as collateral, their receivables from the Company to the participating financial institutions. Our obligations to suppliers, including the amounts due and scheduled payment dates, are not impacted by the suppliers' decisions to sell their receivables to the financial institutions, or otherwise pledge their receivables as collateral, under these arrangements. The Company is not a party to the arrangements between the suppliers and the financial institutions, and the Company's payment terms to the financial institutions, including the timing and amount of payments, are based on the original supplier invoices.
Based on the applicable supplier agreements, the payment terms of these supplier invoices typically range between 30 and 240 days from the invoice date.
The outstanding obligations confirmed by the Company as valid to the financial institutions under our supplier finance programs were $831 million and $714 million as of December 31, 2025 and 2024, respectively, including $80 million and $67 million as of December 31, 2025 and 2024, respectively, related to programs with payment terms of 240 days from the invoice date. These obligations are included in Accounts payable in the Consolidated Balance Sheets, and all activity related to the obligations is presented within operating activities in the Consolidated Statements of Cash Flows.
The Company or the financial institutions may terminate the agreements with advanced notice. Otis has pledged no assets in connection with its supplier finance programs.
The changes in outstanding obligations confirmed as valid by the Company under its supplier finance programs for 2025 and 2024 are as follows:
| (dollars in millions) | 2025 | 2024 | ||||||||||||
| Confirmed obligations outstanding as of January 1 | $ | 714 | $ | 627 | ||||||||||
| Invoices confirmed during the year | 2,064 | 2,118 | ||||||||||||
| Confirmed invoices paid during the year | (1,970) | (2,013) | ||||||||||||
| Foreign currency exchange impact | 23 | (18) | ||||||||||||
| Confirmed obligations outstanding as of December 31 | $ | 831 | $ | 714 |
Self-Insurance. The Company is primarily self-insured for a number of risks including, but not limited to, workers’ compensation, general liability, automobile liability and employee-related healthcare benefits. The Company has obtained insurance coverage for amounts exceeding individual and aggregate loss limits. The Company accrues for known future claims and incurred but not reported losses within Accrued liabilities and Other long-term liabilities in the Consolidated Balance Sheets, totaling $240 million and $238 million as of December 31, 2025 and 2024, respectively.
Derivatives and Hedging Activity. We have used derivative instruments, principally forward contracts, to help manage certain foreign currency and commodity price exposures. Derivative instruments are viewed as risk management tools by us and are not used for trading or speculative purposes. By their nature, all financial instruments involve market and credit risks. We enter into derivative and other financial instruments with major investment-grade financial institutions and have policies to monitor the credit risk of those counterparties. We limit counterparty exposure and concentration of risk by diversifying counterparties. While there can be no assurance, we do not anticipate any material non-performance by any of these counterparties.
Designated Derivative Instruments. Derivatives used for hedging purposes may be designated and effective as a hedge of the identified risk exposure at the inception of the contract. All derivative instruments are recorded in the Consolidated Balance Sheets at fair value. Derivatives are used to hedge foreign currency denominated balance sheet items and commodity prices for materials recognized in cost of sales, and are reported directly in earnings along with offsetting transaction gains and losses on the items being hedged. Derivatives used to hedge forecasted cash flows associated with foreign currency commitments or forecasted commodity purchases may be accounted for as cash flow hedges, as deemed appropriate. Gains and losses on derivatives designated as cash flow hedges are recorded in Other comprehensive income (loss), net of tax and reclassified to earnings as a component of product sales or expenses, as applicable, when the hedged transaction occurs. Gains and losses on derivatives designated as cash flow hedges are recorded in Other operating activities, net within the Consolidated Statement of Cash Flows until reclassification to earnings. To the extent that a previously designated hedging transaction is no longer an effective hedge, any ineffectiveness measured in the hedging relationship is recorded in earnings in the period it occurs.
Additional information pertaining to net investment hedging is included in Note 16, "Financial Instruments".
Non-Designated Derivative Instruments. To the extent the hedge accounting criteria are not applied, the foreign currency forward contracts and commodity price contracts are utilized as economic hedges and changes in the fair value of these contracts are recorded in earnings in the period in which they occur. Additional information pertaining to these contracts is included in Note 16, "Financial Instruments".
In addition, the Company periodically enters into sales contracts denominated in currencies other than the functional currency of the parties to the transaction. The Company accounts for these transactions separately valuing the embedded derivative component of these contracts. The changes in the fair value of these embedded derivatives are immaterial in 2025, 2024 and 2023.
Environmental. Environmental investigatory, remediation, operating and maintenance costs are accrued 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 with respect to each individual site, including current laws, regulations and prior remediation experience. Where no amount within a range of estimates is more likely, the minimum is accrued. Liabilities with fixed or reliably determinable future cash payments are discounted. Accrued environmental liabilities are not reduced by potential insurance reimbursements. See Note 20, "Contingent Liabilities" for additional details on the environmental remediation activities.
Research and Development. These costs are expensed in the period incurred and are shown on a separate line of the Consolidated Statements of Operations. Research and development expenses, covering research and the advancement of potential new and improved products and their uses, primarily include salaries and other employment costs.
Other Income (Expense), Net. Other income (expense), net includes the impact of changes in the fair value and settlement of certain derivatives, gains or losses on sale of businesses and fixed assets, earnings from equity method investments, fair value changes on marketable securities, impairments, UpLift transformation costs, Separation-related adjustments, gains on insurance recoveries and certain other infrequent operating income and expense items. See Note 15, "Restructuring and Transformation Costs" for additional details on UpLift transformation costs.
Foreign Exchange. We conduct business in many different currencies and, accordingly, are subject to the inherent risks associated with foreign exchange rate movements. The financial position and results of operations of substantially all of our foreign subsidiaries are measured using the local currency as the functional currency. Foreign currency denominated assets and liabilities are translated into U.S. dollars at the exchange rates existing at the respective balance sheet dates, and income and expense items are translated at the average exchange rates during the respective periods. The aggregate effects of translating the balance sheets of these subsidiaries are deferred within Accumulated other comprehensive income (loss).
Pension and Postretirement Obligations. Guidance under FASB ASC Topic 715: Compensation – Retirement Benefits requires balance sheet recognition of the overfunded or underfunded status of pension and postretirement benefit plans. Under this guidance, actuarial gains and losses, prior service costs or credits and any remaining transition assets or obligations that have not been recognized under previous accounting standards must be recognized in Other comprehensive income (loss), net of tax effects, until they are amortized as a component of net periodic benefit cost. See Note 11, "Employee Benefit Plans" for additional information.
Additional Paid-in Capital. Additional paid-in capital includes the value of stock-based award activity, as well as the difference between the cost of acquiring the Noncontrolling interest in consolidated subsidiaries and Otis' carrying value of the Noncontrolling interest associated with those subsidiaries.
Noncontrolling Interest. Ownership interest in the Company's consolidated subsidiaries held by parties other than the Company are presented separately from Shareholders' Equity (Deficit) as "Noncontrolling interest" within equity in the Consolidated Balance Sheets. The amount of net income attributable to Otis Worldwide Corporation and the noncontrolling interest are both presented in the Consolidated Statements of Operations.
All noncontrolling interest with redemption features, such as put options or other contractual obligations to acquire the noncontrolling interest, that are not solely within our control are redeemable noncontrolling interest. Redeemable noncontrolling interest are reported in the mezzanine section of the Consolidated Balance Sheets, between Liabilities and Shareholders' Equity (Deficit), at the greater of redemption value or initial carrying value.
The activity attributable to noncontrolling interest and redeemable noncontrolling interest for 2025, 2024 and 2023 is presented in the Consolidated Statements of Changes in Equity.
Separation from UTC and Related Costs. The Separation, as further described in Note 1, "Business Overview", was completed pursuant to a Separation and Distribution Agreement ("Separation Agreement") and other agreements with our former parent, UTC, and Carrier Global Corporation ("Carrier"), related to the Separation, including but not limited to a tax matters agreement (the "Tax Matters Agreement" or "TMA").
We entered into the TMA with our former parent UTC and Carrier that governs the parties’ respective rights, responsibilities and obligations with respect to tax matters (including responsibility for taxes, entitlement to refunds, allocation of tax attributes, preparation of tax returns, control of tax contests and other tax matters). Subject to certain exceptions set forth in the TMA, Otis generally is responsible for federal, state and foreign taxes imposed on a separate return basis on Otis (or any of its subsidiaries) with respect to taxable periods (or portions thereof) that ended on or prior to the date of the Distribution. The TMA provides special rules that allocate responsibility for tax liabilities arising from a failure of the Separation transactions to qualify for tax-free treatment based on the reasons for such failure.
Accounting Pronouncements.
In March 2020, the FASB issued ASU 2020-04*,* Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("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. The adoption of this ASU did not have a material impact on our 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 Consolidated Financial Statements, as disclosed in Note 2, "Summary of Significant Accounting Policies" under the heading "Supplier Finance Programs".
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. The adoption of this ASU did not have a material impact on our 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 adopted this standard effective for the reporting period December 31, 2024. The adoption of this standard resulted in additional disclosure. See Note 21, "Segment Financial Data" for further details.
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. The adoption of this ASU resulted in additional annual disclosure, but did not impact our consolidated financial position, results of operations, or cash flows.
In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. The amendments in this update require disclosure, in the notes to financial statements, on disaggregated information about specific categories underlying certain income statement expense line items that are considered relevant, including the purchase of inventory, employee compensation, depreciation, and intangible asset amortization. The amendments in ASU 2024-03 are effective for fiscal years beginning after December 15, 2026. Early adoption is permitted. Adoption of this ASU will result in additional disclosure, but will not impact our consolidated financial position, results of operations, or cash flows.
In May 2025, the FASB issued ASU 2025-03, Business Combinations (Topic 805) and Consolidation (Topic 810): Determining the Accounting Acquirer in the Acquisition of a Variable Interest Entity. The amendments in this update require an entity involved in an acquisition transaction effected primarily by exchanging equity interests when the legal acquiree is a VIE that meets the definition of a business to consider the factors in the ASU to determine which entity is the accounting acquirer. The amendments in ASU 2025-03 are effective for fiscal years beginning after December 15, 2026. 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 Consolidated Financial Statements.
In July 2025, the FASB issued ASU 2025-05, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets. The amendments in this Update provide a practical expedient when developing reasonable and supportable forecasts as part of estimating expected credit losses, allowing entities to assume that current conditions as of the balance sheet date do not change for the remaining life of the asset. The amendments in ASU 2025-05 are effective for fiscal years beginning after December 15, 2025, and interim reporting periods within those annual reporting periods. We are currently evaluating the impact of this standard, however; we do not expect it to have a material impact on our Consolidated Financial Statements.
In September 2025, the FASB issued ASU 2025-06, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software. The amendments in this update remove all references to prescriptive and sequential software development stages (referred to as "project stages") throughout Subtopic 350-40. The amendments in this update specify that the disclosures in Subtopic 360-10, Property, Plant, and Equipment—Overall, are required for all capitalized internal-use software costs, regardless of how those costs are presented in the financial statements. Additionally, the amendments clarify that the intangibles disclosures in paragraphs 350-30-50-1 through 50-3 are not required for capitalized internal-use software costs. The amendments in ASU 2025-06 are effective for fiscal years beginning after December 15, 2027, and interim reporting periods within those annual reporting periods. Early adoption is permitted. We are currently evaluating the impact of this standard.
In September 2025, the FASB issued ASU 2025-07, Derivatives and Hedging (Topic 815) and Revenue from Contracts with Customers (Topic 606): Derivatives Scope Refinements and Scope Clarification for Share-Based Noncash Consideration from a Customer in a Revenue Contract. The amendments in this update exclude from derivative accounting non-exchange-traded contracts with underlyings that are based on operations or activities specific to one of the parties to the contract. The amendments in ASU 2025-07 are effective for fiscal years beginning after December 15, 2026, and interim reporting periods within those annual reporting periods. Early adoption is permitted. We are currently evaluating the impact of this standard.
In November 2025, the FASB issued ASU 2025-09, Derivatives and Hedging (Topic 815): Hedge Accounting Improvements. Consistent with the original objective of Update 2017-12, the objective of this Update is to more closely align hedge accounting with the economics of an entity’s risk management activities. The amendments in this Update are intended to better reflect those strategies in financial reporting by enabling entities to achieve and maintain hedge accounting for highly effective economic hedges of forecasted transactions. The amendments in ASU 2025-09 apply to any entity that elects to apply hedge accounting in accordance with Topic 815 and are effective for fiscal years beginning after December 15, 2026, and interim reporting periods within those annual reporting periods. Early adoption is permitted. We are currently evaluating the impact of this standard.
In December 2025, the FASB issued ASU 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements. The amendments in this Update result in a comprehensive list of interim disclosures that are required by GAAP. In developing the list of disclosures required by other Topics, the Board focused on identifying the interim disclosures that are currently required under GAAP. The objective of the amendments is to provide clarity about the current requirements, rather than evaluate whether to expand or reduce interim disclosure requirements. The amendments in ASU 2025-11 are effective for fiscal years beginning after December 15, 2027, and interim reporting periods within those annual reporting periods. We are currently evaluating the impact of this standard.
Other new accounting pronouncements issued but not effective until after December 31, 2025 did not and are not expected to have a material impact on our financial position, results of operations or cash flows.
Note 3: Earnings per Share
| (dollars in millions, except per share amounts; shares in millions) | 2025 | 2024 | 2023 | |||||||||||||||||
| Net income attributable to common shareholders | $ | 1,384 | $ | 1,645 | $ | 1,406 | ||||||||||||||
| Basic weighted average number of shares outstanding | 392.8 | 401.7 | 411.4 | |||||||||||||||||
| Stock awards and equity units (share equivalent) | 2.1 | 2.7 | 3.2 | |||||||||||||||||
| Diluted weighted average number of shares outstanding | 394.9 | 404.4 | 414.6 | |||||||||||||||||
| Earnings Per Share of Common Stock: | ||||||||||||||||||||
| Basic | $ | 3.52 | $ | 4.10 | $ | 3.42 | ||||||||||||||
| Diluted | $ | 3.50 | $ | 4.07 | $ | 3.39 |
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. Lastly, the computations of diluted earnings per share include outstanding awards granted prior to the Separation from UTC and converted upon the Separation, in accordance with the Employee Matters Agreement. There were 0.4 million, 0.7 million and 1.0 million of anti-dilutive stock awards excluded from the computation for 2025, 2024 and 2023 respectively.
The impact of redeemable noncontrolling interest to Net income attributable to common shareholders was immaterial for 2025, 2024, and 2023.
Note 4: Contract Assets and Liabilities
Contract assets reflect revenue recognized in advance of customer billings. Contract liabilities are recognized when a customer pays consideration, or we have an unconditional right to receive 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 payments in advance of performing work, progress payments as we perform contract work over time, or in some cases, payments upon completion of work.
Total Contract assets and Contract liabilities as of December 31, 2025 and 2024 are as follows:
| (dollars in millions) | 2025 | 2024 | |||||||||||||||
| Contract assets, current | $ | 699 | $ | 706 | |||||||||||||
| Total contract assets | 699 | 706 | |||||||||||||||
| Contract liabilities, current | (2,611) | (2,598) | |||||||||||||||
| Contract liabilities, noncurrent (included within Other long-term liabilities) | (29) | (38) | |||||||||||||||
| Total contract liabilities | (2,640) | (2,636) | |||||||||||||||
| Net contract liabilities | $ | (1,941) | $ | (1,930) |
Contract assets decreased by $7 million and Contract liabilities increased by $4 million during 2025 due to the progression of current contracts and timing of billing on customer contracts, net of the foreign exchange increases of $33 million and $120 million, respectively.
During 2025, 2024 and 2023, we recognized revenue of approximately $2.0 billion each year related to the contract liabilities as of January 1, 2025, 2024, and 2023.
Note 5: Inventories
Inventories consisted of the following as of December 31:
| (dollars in millions) | 2025 | 2024 | ||||||||||||
| Raw materials and work-in-process | $ | 139 | $ | 134 | ||||||||||
| Finished goods | 474 | 423 | ||||||||||||
| Total | $ | 613 | $ | 557 |
Raw materials and work-in-process and finished goods are net of valuation write-downs of $84 million and $82 million as of December 31, 2025 and 2024, respectively.
Note 6: Fixed Assets
Fixed assets consisted of the following as of December 31:
| (dollars in millions) | Estimated Useful Lives | 2025 | 2024 | |||||||||||||||||
| Land | $ | 39 | $ | 38 | ||||||||||||||||
| Buildings and improvements | 20 - 40 Years | 498 | 516 | |||||||||||||||||
| Machinery and equipment | 3 - 12 Years | 1,311 | 1,234 | |||||||||||||||||
| Assets under construction | 156 | 105 | ||||||||||||||||||
| 2,004 | 1,893 | |||||||||||||||||||
| Less: Accumulated depreciation | (1,261) | (1,192) | ||||||||||||||||||
| Total | $ | 743 | $ | 701 |
Depreciation expense was $113 million, $120 million and $126 million in 2025, 2024 and 2023, respectively.
Note 7: Business Acquisitions, Dispositions, Goodwill and Intangible Assets
Business Acquisitions. Our acquisitions of businesses and intangible assets, net of cash, totaled $109 million, $87 million and $36 million (including debt assumed) in 2025, 2024 and 2023, respectively, and were primarily in our Service segment. Transaction costs incurred were not considered significant.
Goodwill. Changes in our Goodwill balances in 2025 were as follows:
| (dollars in millions) | Balance as of December 31, 2024 | Goodwill Resulting From Business Combinations | Foreign Currency Translation and Other | Balance as of December 31, 2025 | ||||||||||||||||||||||||||||
| New Equipment | $ | 277 | $ | — | $ | 17 | $ | 294 | ||||||||||||||||||||||||
| Service | 1,271 | 65 | 65 | 1,401 | ||||||||||||||||||||||||||||
| Total | $ | 1,548 | $ | 65 | $ | 82 | $ | 1,695 |
Changes in our Goodwill balances in 2024 were as follows:
| (dollars in millions) | Balance as of December 31, 2023 | Goodwill Resulting From Business Combinations | Foreign Currency Translation and Other | Balance as of December 31, 2024 | ||||||||||||||||||||||
| New Equipment | $ | 295 | $ | — | $ | (18) | $ | 277 | ||||||||||||||||||
| Service | 1,293 | 46 | (68) | 1,271 | ||||||||||||||||||||||
| Total | $ | 1,588 | $ | 46 | $ | (86) | $ | 1,548 |
Intangible Assets. Identifiable intangible assets are comprised of the following:
| 2025 | 2024 | |||||||||||||||||||||||||||||||
| (dollars in millions) | Gross Amount | Accumulated Amortization | Gross Amount | Accumulated Amortization | ||||||||||||||||||||||||||||
| Amortized: | ||||||||||||||||||||||||||||||||
| Purchased service portfolios | $ | 2,133 | $ | (1,818) | $ | 1,930 | $ | (1,640) | ||||||||||||||||||||||||
| Patents, trademarks/trade names | 19 | (16) | 18 | (16) | ||||||||||||||||||||||||||||
| Customer relationships and other | 61 | (43) | 52 | (39) | ||||||||||||||||||||||||||||
| 2,213 | (1,877) | 2,000 | (1,695) | |||||||||||||||||||||||||||||
| Unamortized: | ||||||||||||||||||||||||||||||||
| Trademarks and other | 7 | — | 6 | — | ||||||||||||||||||||||||||||
| Total | $ | 2,220 | $ | (1,877) | $ | 2,006 | $ | (1,695) |
Amortization of intangible assets was $62 million in 2025 and 2024, and $67 million in 2023. Excluding the impact of acquisitions, currency translation adjustments and the reclassification of $16 million of intangible assets, net to assets held for sale in 2024, there were no other significant changes in our Intangible Assets during 2025, 2024 and 2023.
The estimated future amortization of intangible assets over the next five years is as follows:
| (dollars in millions) | 2026 | 2027 | 2028 | 2029 | 2030 | |||||||||||||||||||||||||||
| Future amortization | $ | 46 | $ | 40 | $ | 35 | $ | 32 | $ | 29 |
Disposals and Held for Sale Assets and Liabilities. Assets held for sale were $5 million and $38 million as of December 31, 2025 and 2024, respectively. Liabilities held for sale were $9 million as of December 31, 2024. There were no liabilities held for sale as of December 31, 2025. These balances are included in Other current assets and Accrued liabilities in the Consolidated Balance Sheets, respectively.
During 2025, we sold one of our non-U.S. subsidiaries, primarily related to the Service segment. The Company recorded a total pre-tax loss on sale of $28 million, of which $10 million was recorded in 2025, and $18 million was recorded in 2024, in Other income (expenses), net in the Consolidated Statements of Operations.
Note 8: Borrowings and Lines of Credit
Short-term borrowings consisted of the following as of December 31:
| (dollars in millions) | 2025 | 2024 | ||||||||||||
| Commercial paper | $ | — | $ | — | ||||||||||
| Other borrowings | 215 | 51 | ||||||||||||
| Total short-term borrowings | $ | 215 | $ | 51 |
Commercial Paper and Other Borrowings. As of December 31, 2025, there were no borrowings outstanding under the Company's $1.5 billion commercial paper programs. We use our commercial paper borrowings for general corporate purposes including to finance acquisitions, pay dividends, repurchase shares and for debt refinancing. The need for commercial paper borrowings may arise if the use of domestic cash for general corporate purposes exceeds the sum of domestic cash generation and foreign cash repatriated to the U.S. The main increase in Other borrowings was due to borrowings for the purchase of the outstanding shares of Otis Electric from the non-controlling shareholder. See Note 1 "Business Overview" for additional information on the acquisition of the non-controlling interest.
Long-Term Debt. As of December 31, 2025, we have a credit agreement ("Credit Agreement") with various banks providing for a $1.5 billion unsecured, unsubordinated five-year revolving credit facility, effective August 8, 2025, with an interest rate on US dollar denominated borrowings at Otis' option of the Term Secured Overnight Financing Rate ("SOFR") or a base rate, and an interest rate on Euro denominated borrowings at Otis' option of the EURIBO rate or a daily simple Euro Short Term Rate ("ESTR"), plus, in each case, an applicable margin. The applicable margin initially is 1.000% for Term SOFR rate, EURIBO rate and daily simple ESTR rate borrowings, and 0.000% for base rate borrowings, and can fluctuate based on reference to Otis' public debt ratings, as specified in the Credit Agreement. As of December 31, 2025, there were no borrowings under the revolving credit facility. The undrawn portion of the revolving credit facility serves as a backstop for the issuance of commercial paper. On August 8, 2025, we terminated all commitments outstanding under the previous credit agreement, which was scheduled to expire on March 10, 2028.
On August 16, 2023, we issued $750 million unsecured, unsubordinated five-year notes due August 16, 2028 (the "Notes") with an interest rate of 5.25%. The net proceeds of the Notes were used to fund the repayment of our outstanding commercial paper borrowings and to fund the repayment at maturity of the €500 million 0.000% Euro Notes due November 12, 2023, with the remainder used for other general corporate purposes.
On November 19, 2024, we issued $600 million unsecured, unsubordinated seven-year notes due November 19, 2031 with an interest rate of 5.125% and €850 million Euro denominated ($899 million), unsecured, unsubordinated three-year notes due November 19, 2027 with an interest rate of 2.875%. A portion of the net proceeds of the notes were used to fund the repayment at maturity of the $1.3 billion 2.056% Notes that were due on April 5, 2025. The remainder of the proceeds were used to fund the repayment of the Company's commercial paper borrowings and for other general corporate purposes.
On September 4, 2025, we issued $500 million unsecured, unsubordinated ten-year notes due September 4, 2035 with an interest rate of 5.131%. A portion of the proceeds will be used to fund the repayment at maturity of the Japanese Yen denominated 0.370% Notes due March 18, 2026. The remainder of the proceeds were used to fund the repayment of certain of our commercial paper borrowings.
Our revolving credit agreement and indentures contain affirmative and negative covenants customary for financings of these types that, among other things, limit the Company's and its subsidiaries' ability to incur additional liens, to make certain fundamental changes and to enter into sale and leaseback transactions. In addition, the revolving credit agreement requires that we maintain a maximum consolidated leverage ratio, as defined in the agreement. The revolving credit agreement and indentures also contain events of default customary for financings of these types. The Company is in compliance with all covenants in the revolving credit agreement and the indentures governing all notes as of December 31, 2025.
Long-term debt, including current portion, consisted of the following as of December 31:
| (dollars in millions) | 2025 | 2024 | ||||||||||||
| 2.056% notes due 2025 | $ | — | $ | 1,300 | ||||||||||
| 0.370% notes due 2026 (¥21.5 billion principal value) | 137 | 137 | ||||||||||||
| 0.318% notes due 2026 (€600 million principal value) | 705 | 624 | ||||||||||||
| 2.293% notes due 2027 | 500 | 500 | ||||||||||||
| 2.875% notes due 2027 (€850 million principal value) | 999 | 885 | ||||||||||||
| 5.250% notes due 2028 | 750 | 750 | ||||||||||||
| 2.565% notes due 2030 | 1,500 | 1,500 | ||||||||||||
| 5.125% notes due 2031 | 600 | 600 | ||||||||||||
| 0.934% notes due 2031 (€500 million principal value) | 588 | 520 | ||||||||||||
| 5.131% notes due 2035 | 500 | — | ||||||||||||
| 3.112% notes due 2040 | 750 | 750 | ||||||||||||
| 3.362% notes due 2050 | 750 | 750 | ||||||||||||
| Other (including finance leases) | 6 | 6 | ||||||||||||
| Total principal long-term debt | 7,785 | 8,322 | ||||||||||||
| Other (discounts and debt issuance costs) | (44) | (49) | ||||||||||||
| Total long-term debt | 7,741 | 8,273 | ||||||||||||
| Less: current portion | 841 | 1,300 | ||||||||||||
| Long-term debt, net of current portion | $ | 6,900 | $ | 6,973 |
We may redeem any series of notes at our option pursuant to certain terms.
Debt discounts and debt issuance costs are presented as a reduction of debt in the 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 Consolidated Statements of Operations for 2025, 2024 and 2023 reflects the following:
| (dollars in millions) | 2025 | 2024 | 2023 | |||||||||||||||||
| Debt issuance costs amortization | $ | 10 | $ | 8 | $ | 7 | ||||||||||||||
| Total interest expense on debt | 217 | 183 | 155 |
The unamortized debt issuance costs as of December 31, 2025 and 2024 were $41 million and $45 million, respectively.
The average maturity of our long-term debt as of December 31, 2025 is approximately 6.7 years. The average interest expense rate on our borrowings as of December 31, 2025 and 2024 was as follows:
| 2025 | 2024 | |||||||||||||
| Short-term commercial paper | — | % | — | % | ||||||||||
| Total long-term debt | 3.0 | % | 2.7 | % |
The average interest expense rate on our borrowings for 2025, 2024 and 2023 was as follows:
| 2025 | 2024 | 2023 | ||||||||||||||||||
| Short-term commercial paper | 3.8 | % | 5.4 | % | 5.1 | % | ||||||||||||||
| Total long-term debt | 2.8 | % | 2.5 | % | 2.1 | % |
The schedule of principal payments required on long-term debt, excluding finance leases, for the next five years and thereafter is:
| (dollars in millions) | Principal Payments | |||||||
| 2026 | $ | 842 | ||||||
| 2027 | 1,499 | |||||||
| 2028 | 750 | |||||||
| 2029 | — | |||||||
| 2030 | 1,500 | |||||||
| Thereafter | 3,188 | |||||||
| Total | $ | 7,779 |
Note 9: Accrued Liabilities
Accrued liabilities consisted of the following as of December 31:
| (dollars in millions) | 2025 | 2024 | ||||||||||||
| Accrued salaries, wages and employee benefits | $ | 605 | $ | 579 | ||||||||||
| Operating lease liabilities | 158 | 120 | ||||||||||||
| Accrued interest | 129 | 147 | ||||||||||||
| Contractual indemnity obligations | 113 | 244 | ||||||||||||
| VAT and other non-income tax payables | 109 | 123 | ||||||||||||
| Accrued income taxes payable | 75 | 75 | ||||||||||||
| Other liabilities | 658 | 633 | ||||||||||||
| Total | $ | 1,847 | $ | 1,921 |
Accrued interest primarily consists of interest accrued for uncertain tax positions, as well as $67 million and $64 million of interest accrued for borrowings as of December 31, 2025 and 2024, respectively, as described in Note 8, "Borrowings and Lines of Credit".
As of December 31, 2025 and 2024, Contractual indemnity obligations includes a $56 million and $194 million indemnity payable to RTX, respectively, resulting from the outcome of the German tax litigation as described in Note 20, "Contingent Liabilities".
Note 10: Other Long-Term Liabilities
Other long-term liabilities consisted of the following as of December 31:
| (dollars in millions) | 2025 | 2024 | ||||||||||||
| General, product and auto liability | $ | 136 | $ | 137 | ||||||||||
| Employee benefits | 98 | 92 | ||||||||||||
| Contractual indemnity obligations | 23 | 80 | ||||||||||||
| Other liabilities | 72 | 74 | ||||||||||||
| Total | $ | 329 | $ | 383 |
The Contractual indemnity obligations consist of payables to RTX, resulting from the TMA. See Note 2, "Summary of Significant Accounting Policies" for further details.
Note 11: Employee Benefit Plans
The Company sponsors numerous single-employer domestic and foreign employee benefit plans.
Employee Savings Plans. We sponsor various employee savings plans. Our contributions to employer-sponsored defined contribution plans were $74 million, $71 million and $65 million for 2025, 2024, and 2023, respectively.
Pension Plans. We sponsor both funded and unfunded domestic and foreign defined benefit pension plans that cover a large number of our employees. While we sponsor domestic pension plans that provide retirement benefits to certain employees, they are not a material component of the projected benefit obligation. Our plans use a December 31 measurement date consistent with our fiscal year.
| (dollars in millions) | 2025 | 2024 | ||||||||||||
| Change in benefit obligation: | ||||||||||||||
| Beginning balance | $ | 949 | $ | 957 | ||||||||||
| Service cost | 34 | 32 | ||||||||||||
| Interest cost | 32 | 32 | ||||||||||||
| Actuarial (gain) loss | (47) | 25 | ||||||||||||
| Benefits paid | (33) | (46) | ||||||||||||
| Net settlement, curtailment and special termination benefits | (32) | (9) | ||||||||||||
| Other | 94 | (42) | ||||||||||||
| Ending balance | $ | 997 | $ | 949 | ||||||||||
| Change in plan assets: | ||||||||||||||
| Beginning balance | $ | 637 | $ | 609 | ||||||||||
| Actual return on plan assets | 48 | 57 | ||||||||||||
| Employer contributions | 42 | 51 | ||||||||||||
| Benefits paid | (33) | (46) | ||||||||||||
| Settlements | (32) | (9) | ||||||||||||
| Other | 51 | (25) | ||||||||||||
| Ending balance | $ | 713 | $ | 637 | ||||||||||
| Funded status: | ||||||||||||||
| Fair value of plan assets | $ | 713 | $ | 637 | ||||||||||
| Benefit obligations | (997) | (949) | ||||||||||||
| Funded status of plan | $ | (284) | $ | (312) | ||||||||||
| Amounts recognized in the Consolidated Balance Sheets consist of: | ||||||||||||||
| Noncurrent assets | $ | 130 | $ | 115 | ||||||||||
| Current liability | (30) | (28) | ||||||||||||
| Noncurrent liability | (384) | (399) | ||||||||||||
| Net amount recognized | $ | (284) | $ | (312) | ||||||||||
| Amounts recognized in Accumulated other comprehensive loss consist of: | ||||||||||||||
| Net actuarial loss | $ | 38 | $ | 98 | ||||||||||
| Prior service cost | 5 | 1 | ||||||||||||
| Net amount recognized | $ | 43 | $ | 99 |
The amounts included in "actuarial (gain) loss" in the above table are primarily due to changes in discount rate assumptions driven by changes in corporate bond yields. The amounts included in "Other" in the above table primarily reflect the impact of foreign exchange translation, primarily for plans in Australia, Germany, Japan, South Korea and Switzerland.
In 2025, 2024 and 2023 we made cash contributions to our defined benefit pension plans of $42 million, $51 million and $48 million, respectively.
Information for pension plans with accumulated benefit obligations or projected benefit obligations in excess of plan assets as of December 31 are as follows:
| (dollars in millions) | 2025 | 2024 | ||||||||||||
| Pension plans with accumulated benefit obligations in excess of plan assets: | ||||||||||||||
| Projected benefit obligation | $ | 411 | $ | 397 | ||||||||||
| Accumulated benefit obligation | 367 | 353 | ||||||||||||
| Fair value of plan assets | 3 | 3 | ||||||||||||
| Pension plans with projected benefit obligations in excess of plan assets: | ||||||||||||||
| Projected benefit obligation | $ | 533 | $ | 707 | ||||||||||
| Accumulated benefit obligation | 455 | 609 | ||||||||||||
| Fair value of plan assets | 119 | 280 |
The accumulated benefit obligation for all defined benefit pension plans was approximately $0.9 billion and $0.8 billion as of December 31, 2025 and 2024, respectively.
The components of the net periodic pension cost are as follows:
| (dollars in millions) | 2025 | 2024 | 2023 | |||||||||||||||||
| Service cost | $ | 34 | $ | 32 | $ | 29 | ||||||||||||||
| Interest cost | 32 | 32 | 33 | |||||||||||||||||
| Expected return on plan assets | (35) | (34) | (31) | |||||||||||||||||
| Recognized actuarial net loss | 3 | 1 | (1) | |||||||||||||||||
| Net settlement, curtailment and special termination benefits loss (gain) | 2 | 1 | 4 | |||||||||||||||||
| Net periodic pension cost – employer | $ | 36 | $ | 32 | $ | 34 |
Other changes in plan assets and benefit obligations recognized in other comprehensive loss are as follows:
| (dollars in millions) | 2025 | 2024 | 2023 | |||||||||||||||||
| Current year actuarial (gain) loss | $ | (60) | $ | 2 | $ | 93 | ||||||||||||||
| Prior service cost arising during period | 5 | — | — | |||||||||||||||||
| Amortization of actuarial gain (loss) | (3) | — | 1 | |||||||||||||||||
| Net settlement and curtailment (loss) gain | (3) | (1) | (4) | |||||||||||||||||
| Other | 5 | (6) | 1 | |||||||||||||||||
| Total recognized in other comprehensive (income) loss | $ | (56) | $ | (5) | $ | 91 | ||||||||||||||
| Net recognized in net periodic pension cost and other comprehensive (income) loss | $ | (20) | $ | 27 | $ | 125 |
The amounts included in "Other" in the above table primarily reflect the impact of foreign exchange translation, primarily for plans in Canada, Germany, Spain, and Switzerland.
Major assumptions used in determining the benefit obligation and net cost for pension plans are presented in the following table as weighted-averages:
| Benefit Obligation | Net Cost | |||||||||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | 2023 | ||||||||||||||||||||||||||||
| Discount rate | 3.6 | % | 3.3 | % | 3.3 | % | 3.4 | % | 3.8 | % | ||||||||||||||||||||||
| Salary scale | 3.0 | % | 3.1 | % | 3.1 | % | 3.2 | % | 3.1 | % | ||||||||||||||||||||||
| Expected return on plan assets | — | — | 5.3 | % | 5.3 | % | 5.1 | % | ||||||||||||||||||||||||
| Interest crediting rate | 2.0 | % | 1.8 | % | 1.8 | % | 1.7 | % | 2.1 | % |
The weighted-average discount rates used to measure pension benefit obligations and net costs are set by reference to specific analyses using each plan’s specific cash flows and then compared to high-quality bond indices for reasonableness.
In determining the expected return on plan assets, we consider the relative weighting of plan assets, the historical performance of total plan assets and individual asset classes, and economic and other indicators of future performance. In addition, we may consult with, and consider the opinions of, financial and other professionals in developing appropriate capital market assumptions. Return projections are also validated using a simulation model that incorporates yield curves, credit spreads and risk premiums to project long-term prospective returns.
The plans’ investment management objectives include providing the liquidity and asset levels needed to meet current and future benefit payments, while maintaining a prudent degree of portfolio diversification considering interest rate risk and market volatility. Globally, investment strategies target a mix of approximately 50% of growth-seeking assets and 50% of income-generating and hedging assets using a wide diversification of asset types, fund strategies and investment managers. The growth seeking allocation consists of global public equities in developed and emerging countries, and alternative-asset class strategies. Within the income-generating assets, the fixed income portfolio consists of mainly government and broadly diversified high-quality corporate bonds.
The fair values of pension plan assets as of December 31, 2025 by asset category are as follows:
| (dollars in millions) | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Not Subject to Leveling | Total | |||||||||||||||||||||||||||
| Asset category | ||||||||||||||||||||||||||||||||
| Public equities: | ||||||||||||||||||||||||||||||||
| Global Equity Commingled Funds (1) | $ | 86 | $ | 3 | $ | — | $ | — | $ | 89 | ||||||||||||||||||||||
| Global Equity Funds at net asset value (5) | — | — | — | 154 | 154 | |||||||||||||||||||||||||||
| Fixed income securities: | ||||||||||||||||||||||||||||||||
| Governments | 22 | 41 | — | — | 63 | |||||||||||||||||||||||||||
| Corporate Bonds | 50 | 45 | — | — | 95 | |||||||||||||||||||||||||||
| Fixed income securities at net asset value (5) | — | — | — | 60 | 60 | |||||||||||||||||||||||||||
| Real estate (2) (5) | 14 | 20 | — | 7 | 41 | |||||||||||||||||||||||||||
| Other (3) (5) | 7 | 140 | — | 26 | 173 | |||||||||||||||||||||||||||
| Cash and cash equivalents (4) (5) | 31 | 2 | — | 7 | 40 | |||||||||||||||||||||||||||
| Total | $ | 210 | $ | 251 | $ | — | $ | 254 | 715 | |||||||||||||||||||||||
| Other assets and liabilities (6) | (2) | |||||||||||||||||||||||||||||||
| Total as of December 31, 2025 | $ | 713 |
(1) Represents investments in mutual funds and investments in commingled funds that invest primarily in common stocks.
(2) Represents investments in real estate including commingled funds.
(3) Represents insurance contracts and global-balanced-risk commingled funds consisting mainly of equity, bonds and some commodities.
(4) Represents short-term commercial paper, bonds and other cash or cash-like instruments.
(5) In accordance with FASB ASU 2015-07, Fair Value Measurement (Topic 820), certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented for the total pension benefits plan assets.
(6) Represents trust receivables and payables that are not leveled.
The fair values of pension plan assets as of December 31, 2024 by asset category are as follows:
| (dollars in millions) | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Not Subject to Leveling | Total | |||||||||||||||||||||||||||
| Asset category | ||||||||||||||||||||||||||||||||
| Public equities: | ||||||||||||||||||||||||||||||||
| Global Equity Commingled Funds (1) | $ | 72 | $ | 3 | $ | — | $ | — | $ | 75 | ||||||||||||||||||||||
| Global Equity Funds at net asset value (5) | — | — | — | 143 | 143 | |||||||||||||||||||||||||||
| Fixed income securities: | ||||||||||||||||||||||||||||||||
| Governments | 14 | 2 | — | — | 16 | |||||||||||||||||||||||||||
| Corporate Bonds | 44 | — | — | — | 44 | |||||||||||||||||||||||||||
| Fixed income securities at net asset value (5) | — | — | — | 140 | 140 | |||||||||||||||||||||||||||
| Real estate (2) (5) | 12 | 17 | — | 9 | 38 | |||||||||||||||||||||||||||
| Other (3) (5) | 5 | 122 | — | 23 | 150 | |||||||||||||||||||||||||||
| Cash and cash equivalents (4) (5) | 27 | — | — | 3 | 30 | |||||||||||||||||||||||||||
| Total | $ | 174 | $ | 144 | $ | — | $ | 318 | $ | 636 | ||||||||||||||||||||||
| Other assets and liabilities (6) | 1 | |||||||||||||||||||||||||||||||
| Total as of December 31, 2024 | $ | 637 |
(1) Represents investments in mutual funds and investments in commingled funds that invest primarily in common stocks.
(2) Represents investments in real estate including commingled funds.
(3) Represents insurance contracts and global-balanced-risk commingled funds consisting mainly of equity, bonds and some commodities.
(4) Represents short-term commercial paper, bonds and other cash or cash-like instruments.
(5) In accordance with FASB ASU 2015-07, Fair Value Measurement (Topic 820), certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented for the total pension benefits plan assets.
(6) Represents trust receivables and payables that are not leveled.
Quoted market prices are used to value investments when available. Investments in securities traded on exchanges, including listed futures and options, are valued at the last reported sale prices on the last business day of the year or, if not available, the last reported bid prices. Fixed income securities are primarily measured using a market approach pricing methodology, where observable prices are obtained by market transactions involving identical or comparable securities of issuers with similar credit ratings. Over-the-counter securities and government obligations are valued at the bid prices or the average of the bid and ask prices on the last business day of the year from published sources or, if not available, from other sources considered reliable, generally broker quotes. Temporary cash investments are stated at cost, which approximates fair value.
We expect to make total contributions of approximately $45 million to our global defined benefit pension plans in 2026, including benefit payments to be paid directly from corporate assets.
Benefit payments, including amounts to be paid from corporate assets, and reflecting expected future service, as appropriate, are expected to be paid as follows: $79 million in 2026, $74 million in 2027, $75 million in 2028, $76 million in 2029, $80 million in 2030, and $391 million from 2031 through 2035.
Postretirement Benefit Plans. We sponsor postretirement benefit plans that provide health benefits to eligible retirees. The postretirement plans are unfunded. The benefit obligation was $7 million and $6 million as of December 31, 2025, and 2024, respectively. The net periodic cost was less than $1 million for 2025, 2024 and 2023. Other comprehensive losses recognized related to changes in benefit obligations were less than $1 million in 2025 and $1 million in 2024.
The projected benefit obligation discount rate was 6.8% as of December 31, 2025 and 2024. The Net Cost discount rate was 6.8%, 7.2% and 7.0% for 2025, 2024 and 2023, respectively.
Benefit payments, including amounts to be paid from corporate assets, and reflecting expected future service, as appropriate, are expected to be paid as follows: $1 million each year from 2026 through 2030, and $3 million from 2031 through 2035.
Multiemployer Benefit Plans. We contribute to various domestic and international multiemployer defined benefit pension plans. The risks of participating in these multiemployer plans are different from single-employer plans in that assets contributed are pooled and may be used to provide benefits to employees of other participating employers. If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers. Lastly, if we choose to stop participating in some of our multiemployer plans, we may be required to pay those plans a withdrawal liability based on the underfunded status of the plan.
Our participation in these plans for the annual periods ended December 31 is outlined in the table below. Unless otherwise noted, the most recent Pension Protection Act ("PPA") zone status available in 2025 and 2024 is for the plan’s year-end at June 30, 2024 and June 30, 2023, respectively. The zone status is based on information that we received from the plan and is certified by the plan’s actuary. Our significant plan is in the green zone which represents a plan that is at least 80% funded and does not require a financial improvement plan ("FIP") or a rehabilitation plan ("RP").
| (dollars in millions) | PPA Zone Status | FIP/RP Status | Contributions | Surcharge Imposed | Expiration Date of Collective-Bargaining Agreement | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Pension Fund | EIN/Pension Plan Number | 2025 | 2024 | Pending/Implemented | 2025 | 2024 | 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||
| National Elevator Industry Pension Plan | 23-2694291 | Green | Green | No | $ | 133 | $ | 134 | $ | 128 | No | 7/8/2027 | ||||||||||||||||||||||||||||||||||||||||||||
| Other funds | 9 | 9 | 9 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 142 | $ | 143 | $ | 137 |
For the plan years ended June 30, 2024 and 2023, respectively, we were listed in the National Elevator Industry Pension Plan’s Forms 5500 as providing more than 5% of the total contributions for the plan. At the date these financial statements were issued, the Form 5500 was not available for the plan year ending June 30, 2025.
In addition, we participate in multiemployer arrangements that provide postretirement benefits other than pensions, with the National Elevator Industry Health Benefit Plan being the most significant. These arrangements generally provide medical and life benefits for eligible active employees and retirees and their dependents. Contributions to multiemployer plans that provide postretirement benefits other than pensions were $20 million for 2025, 2024 and 2023.
Stock-Based Compensation. The Company adopted the 2020 Long-Term Incentive Plan (the "Plan") effective on April 3, 2020. A total of 45 million shares of common stock are authorized under the Plan. The Plan provides for the grant of various types of awards including restricted share unit awards, stock appreciation rights, stock options, and performance-based awards. Under the Plan, the exercise price of awards, if any, is set on the grant date and may not be less than the fair market value per share on that date. Generally, stock appreciation rights and stock options have a term of ten years and a three-year vesting period, subject to limited exceptions. In the event of retirement, annual stock appreciation rights, stock options, and restricted share units held for more than one year may become vested and exercisable (if applicable), subject to certain terms and conditions. Awards with performance-based vesting generally have a minimum three-year vesting period and vest based on actual performance against pre-established metrics. In the event of retirement, performance-based awards held for more than one year generally remain eligible to vest based on actual performance relative to target metrics. All other restricted awards generally have a three-year vesting period. We currently intend to issue new shares for share option exercises and conversions under our equity compensation arrangements, and will continue to evaluate this policy in connection with our share repurchase program. As of December 31, 2025, approximately 18 million shares remain available for awards under the 2020 Plan.
Stock-based Compensation Expense
We measure the cost of all share-based payments, including stock options, at fair value on the grant date and recognize this cost in the Consolidated Statements of Operations. A forfeiture rate assumption is applied on grant date to adjust the expense recognition for awards that are not expected to vest.
Stock-based compensation expense, net of estimated forfeitures, is primarily reflected in Selling, general and administrative expenses in the Consolidated Statements of Operations, in addition to Cost of products sold, Cost of services sold and Research and development.
Stock-based compensation expense and the resulting tax benefits in 2025, 2024 and 2023 were as follows:
| (dollars in millions) | 2025 | 2024 | 2023 | |||||||||||||||||
| Stock-based compensation expense (Share Based) | $ | 80 | $ | 73 | $ | 64 | ||||||||||||||
| Stock-based compensation expense (income) (Liability Awards) | — | — | — | |||||||||||||||||
| Total gross stock-based compensation expense | 80 | 73 | 64 | |||||||||||||||||
| Less: future tax benefit | (7) | (7) | (7) | |||||||||||||||||
| Stock-based compensation expense, net of tax | $ | 73 | $ | 66 | $ | 57 |
For 2025, 2024 and 2023, the amount of cash received from the exercise of stock options was $3 million, $4 million and $6 million, respectively, with an associated tax benefit realized of $7 million, $11 million and $6 million, respectively. In addition, for 2025, 2024 and 2023, the associated tax benefit realized from the vesting of performance share units and other restricted awards was $5 million, $10 million and $9 million, respectively. The tax benefit was computed using current U.S. federal and state tax rates applicable in 2025, 2024 and 2023.
As of December 31, 2025, there was approximately $83 million of total unrecognized compensation cost related to non-vested equity awards granted under the Plan. This cost is expected to be recognized ratably over a weighted-average period of 1.7 years.
A summary of the activity under Otis' plans for 2025 follows:
| Stock Appreciation Rights | Restricted Share Units | Performance Share Units | Stock Options | |||||||||||||||||||||||||||||||||||||||||||||||
| (shares in thousands) | Shares | Average Price* | Shares | Average Price** | Shares | **Average Price **** | Shares | **Average Price *** | ||||||||||||||||||||||||||||||||||||||||||
| Outstanding at: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2024 | 5,946 | $ | 71.58 | 943 | $ | 88.01 | 953 | $ | 92.08 | 124 | $ | 68.21 | ||||||||||||||||||||||||||||||||||||||
| Granted (1) | — | — | 503 | 94.07 | 411 | 98.33 | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Exercised / Earned (1) | (1,189) | 60.91 | (412) | 85.09 | (179) | 86.71 | (54) | 61.41 | ||||||||||||||||||||||||||||||||||||||||||
| Cancelled | (75) | 86.10 | (97) | 90.41 | (129) | 92.82 | — | — | ||||||||||||||||||||||||||||||||||||||||||
| December 31, 2025 | 4,682 | $ | 74.06 | 937 | $ | 92.16 | 1,056 | $ | 95.34 | 70 | $ | 73.38 |
- Weighted-average grant price
** Weighted-average grant fair value
(1) Includes annual retainer awards issued to the Board of Directors
No stock options and stock appreciation rights were granted by Otis during 2025. The weighted-average grant date fair value of stock options and stock appreciation rights granted by Otis, during 2024 and 2023 was $24.34 and $24.67, respectively. The weighted-average grant date fair value of performance share units, which vest upon achieving certain performance metrics, and other restricted stock awards granted by Otis during 2025, 2024 and 2023 was $96.07, $89.54 and $84.88, respectively. The total intrinsic value (which is the amount by which the stock price exceeded the exercise price on the date of exercise) of stock options and stock appreciation rights exercised during 2025, 2024 and 2023 was $44 million, $78 million and $65 million, respectively. The total fair value (which is the stock price at vesting) of performance share units and other restricted awards vested was $56 million, $95 million and $75 million during 2025, 2024 and 2023, respectively.
The following table summarizes information about equity awards outstanding that are vested and expected to vest and equity awards outstanding that are exercisable as of December 31, 2025:
| Equity Awards Vested and Expected to Vest | Equity Awards That Are Exercisable | |||||||||||||||||||||||||||||||||||||||||||||||||
| (shares in thousands; aggregate intrinsic value in millions) | Awards | **Average Price *** | Aggregate Intrinsic Value | **Remaining Term **** | Awards | **Average Price *** | Aggregate Intrinsic Value | **Remaining Term **** | ||||||||||||||||||||||||||||||||||||||||||
| Stock Options/Stock Appreciation Rights | 4,746 | $ | 74.03 | $ | 66 | 4.5 years | 4,249 | $ | 72.22 | $ | 65 | 4.1 years | ||||||||||||||||||||||||||||||||||||||
| Performance Share Units/Restricted Share Units | 1,929 | — | $ | 169 | 1.1 years | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
- Weighted-average grant price per share
** Weighted-average contractual remaining term in years
In 2025, the Company made a change to the equity awards mix granted annually to the executive population as part of their overall compensation program. Specifically, the Company eliminated annual grants of stock appreciation rights and stock option awards and replaced them with additional mix of restricted stock units and performance share units. As a result of this change, the Company was no longer required to perform valuation modeling using the Binomial Lattice model in 2025. For prior years, the fair value of each option award was estimated on the date of grant using the Binomial Lattice model. The following table indicates the assumptions used in estimating fair values for stock appreciated rights and stock options granted in 2024 and 2023. Lattice-based option models incorporate ranges of assumptions for inputs; those ranges are as follows:
| 2025 | 2024 | 2023 | ||||||||||||||||||
| Expected volatility | N/A | 26.1% - 26.8% | 27.8% - 28.1% | |||||||||||||||||
| Weighted-average volatility | N/A | 26.8% | 27.9% | |||||||||||||||||
| Expected term (in years) | N/A | 5.3 | 6.2 | |||||||||||||||||
| Expected dividend yield | N/A | 1.6% | 1.5% | |||||||||||||||||
| Risk-free rate | N/A | 3.6% - 3.7% | 3.4% - 4.7% |
For 2024 and 2023, the expected volatility for Otis was calculated using a blend of Otis and peer-group stock volatility. The estimate for equity award exercise and employee termination behavior within the valuation model incorporates Otis employee data from prior to the Separation. The expected term represents an estimate of the period of time equity awards are expected to remain outstanding. The risk-free rate is based on the term structure of interest rates at the time of equity award grant.
The Company uses a Monte Carlo simulation approach based on a three-year measurement period to determine fair value of the performance share units that are subject to market conditions. This approach includes the use of assumptions regarding the future performance of the Company’s stock and those of a peer group. Those assumptions include expected volatility, risk-free interest rates, correlations and dividend yield.
Note 12: Stock
Preferred Stock. There are 125 million shares of $0.01 par value authorized Preferred Stock, of which none were issued or outstanding as of December 31, 2025 or 2024.
Common Stock. There are 2.0 billion shares of $0.01 par value Common Stock authorized. As of December 31, 2025 and 2024, 439.4 million and 438.6 million shares of Common Stock were issued, respectively, which includes 49.6 million and 41.0 million shares of treasury stock, respectively.
Treasury Stock. As of December 31, 2025, the Company was authorized by the Board of Directors to purchase up to $2.0 billion of Common Stock under a share repurchase program, of which approximately $1.3 billion was remaining at such time.
During 2025, 2024 and 2023, the Company repurchased 8.6 million, 10.6 million and 9.6 million shares of Common Stock, respectively, for approximately $800 million, $1.0 billion and $800 million, respectively. Share repurchases in excess of issuances are subject to a 1% excise tax, which is included as part of the cost basis of the shares acquired in Treasury Stock in the Consolidated Balance Sheets as of December 31, 2025 and 2024, as well as within financing activities in the Consolidated Statements of Cash Flows when paid.
The Company's share repurchase program does not obligate it to acquire any specific number of shares. 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.
Note 13: Accumulated Other Comprehensive Income (Loss)
A summary of the changes in each component of Accumulated other comprehensive income (loss), net of tax, for 2025, 2024 and 2023 is provided below:
| (dollars in millions) | Foreign Currency Translation | Defined Benefit Pension and Postretirement Plans | Unrealized Hedging Gains (Losses) | Accumulated Other Comprehensive Income (Loss) | ||||||||||||||||||||||
| Balance as of December 31, 2022 | $ | (587) | $ | (8) | $ | 3 | $ | (592) | ||||||||||||||||||
| Other comprehensive income (loss) before reclassifications, net | (87) | (69) | 6 | (150) | ||||||||||||||||||||||
| Amounts reclassified, pre-tax | 1 | (1) | (8) | (8) | ||||||||||||||||||||||
| Tax expense (benefit) reclassified | — | — | — | — | ||||||||||||||||||||||
| Balance as of December 31, 2023 | (673) | (78) | 1 | (750) | ||||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications, net | 1 | 2 | 2 | 5 | ||||||||||||||||||||||
| Amounts reclassified, pre-tax | — | — | — | — | ||||||||||||||||||||||
| Tax expense (benefit) reclassified | — | — | — | — | ||||||||||||||||||||||
| Balance as of December 31, 2024 | (672) | (76) | 3 | (745) | ||||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications, net | (381) | 39 | (4) | (346) | ||||||||||||||||||||||
| Amounts reclassified, pre-tax | — | 3 | 2 | 5 | ||||||||||||||||||||||
| Tax expense (benefit) reclassified | — | (1) | — | (1) | ||||||||||||||||||||||
| Balance as of December 31, 2025 | $ | (1,053) | $ | (35) | $ | 1 | $ | (1,087) | ||||||||||||||||||
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 11, "Employee Benefit Plans" for additional information.
Note 14: Income Taxes
Income Before Income Taxes. The sources of income from operations before income taxes are:
| (dollars in millions) | 2025 | 2024 | 2023 | |||||||||||||||||
| United States | $ | 631 | $ | 505 | $ | 565 | ||||||||||||||
| Foreign | 1,303 | 1,534 | 1,466 | |||||||||||||||||
| Net income before income taxes | $ | 1,934 | $ | 2,039 | $ | 2,031 |
As a result of the TCJA the Company determined it no longer intends to reinvest certain undistributed earnings of its international subsidiaries that have been previously taxed in the U.S. As such, Otis recorded the international taxes associated with the future remittance of these earnings as part of the Separation from UTC. For the remainder of the Company's undistributed international earnings, unless tax effective to repatriate, Otis will continue to permanently reinvest these earnings. It is not practicable to estimate the amount of tax that might be payable on the remaining amounts.
On July 4, 2025, the One Big Beautiful Bill Act was enacted, which includes a broad range of tax reform provisions affecting businesses, including extending and modifying certain key Tax Cuts & Jobs Act provisions (both domestic and international). The tax impacts of this legislation do not have a material impact on our Consolidated Financial Statements.
Provision for Income Taxes. The income tax expense (benefit) for 2025, 2024 and 2023 consisted of the following components:
| (dollars in millions) | 2025 | 2024 | 2023 | |||||||||||||||||
| Current: | ||||||||||||||||||||
| United States: | ||||||||||||||||||||
| Federal | $ | 128 | $ | 74 | $ | 82 | ||||||||||||||
| State | 56 | 45 | 50 | |||||||||||||||||
| Foreign | 399 | 217 | 462 | |||||||||||||||||
| 583 | 336 | 594 | ||||||||||||||||||
| Future: | ||||||||||||||||||||
| United States: | ||||||||||||||||||||
| Federal | (59) | (11) | (24) | |||||||||||||||||
| State | (16) | (1) | (5) | |||||||||||||||||
| Foreign | (29) | (19) | (32) | |||||||||||||||||
| (104) | (31) | (61) | ||||||||||||||||||
| Income tax expense | $ | 479 | $ | 305 | $ | 533 | ||||||||||||||
| Attributable to items (charged) credited to (deficit) equity | $ | (15) | $ | (6) | $ | 16 |
Reconciliation of Effective Income Tax Rate. Differences between effective income tax rates and the statutory U.S. federal income tax rate are as follows:
| 2025 | 2024 | 2023 | ||||||||||||||||||||||||||||||||||||||||||
| (dollars in millions) | Amount | Percent | Amount | Percent | Amount | Percent | ||||||||||||||||||||||||||||||||||||||
| U.S. Federal Statutory Tax Rate | $ | 406 | 21.0 | % | $ | 428 | 21.0 | % | $ | 427 | 21.0 | % | ||||||||||||||||||||||||||||||||
| State and Local Income Taxes, Net of Federal Income Tax Effect (1) | 31 | 1.6 | % | 35 | 1.7 | % | 36 | 1.8 | % | |||||||||||||||||||||||||||||||||||
| Foreign Tax Effects: | ||||||||||||||||||||||||||||||||||||||||||||
| France: | ||||||||||||||||||||||||||||||||||||||||||||
| Distributable reserve deferred adjustment | — | — | % | (37) | (1.8) | % | — | — | % | |||||||||||||||||||||||||||||||||||
| Other | 13 | 0.7 | % | 14 | 0.7 | % | 10 | 0.5 | % | |||||||||||||||||||||||||||||||||||
| Germany: | ||||||||||||||||||||||||||||||||||||||||||||
| Statutory tax rate difference between Germany and United States | 8 | 0.4 | % | 25 | 1.2 | % | 7 | 0.4 | % | |||||||||||||||||||||||||||||||||||
| Tax litigation settlement | 1 | 0.1 | % | (247) | (12.1) | % | — | — | % | |||||||||||||||||||||||||||||||||||
| Other | (1) | — | % | — | — | % | 2 | 0.1 | % | |||||||||||||||||||||||||||||||||||
| Ireland: | ||||||||||||||||||||||||||||||||||||||||||||
| Nontaxable interest income | (25) | (1.3) | % | (29) | (1.4) | % | (23) | (1.1) | % | |||||||||||||||||||||||||||||||||||
| Other | — | — | % | 3 | 0.2 | % | 8 | 0.4 | % | |||||||||||||||||||||||||||||||||||
| Luxembourg: | ||||||||||||||||||||||||||||||||||||||||||||
| Nondeductible interest expense | 49 | 2.4 | % | 53 | 2.6 | % | 47 | 2.3 | % | |||||||||||||||||||||||||||||||||||
| Other | — | — | % | (4) | (0.2) | % | (5) | (0.2) | % | |||||||||||||||||||||||||||||||||||
| Other foreign jurisdictions | 53 | 2.6 | % | 94 | 4.6 | % | 73 | 3.4 | % | |||||||||||||||||||||||||||||||||||
| Effect of Changes in Tax Laws or Rates Enacted in the Current Period | — | — | % | — | — | % | — | — | % | |||||||||||||||||||||||||||||||||||
| Effect of Cross-Border Tax Laws: | ||||||||||||||||||||||||||||||||||||||||||||
| Foreign-derived intangible income | (49) | (2.5) | % | (35) | (1.7) | % | (23) | (1.1) | % | |||||||||||||||||||||||||||||||||||
| Foreign withholding tax reclassification | (49) | (2.5) | % | (43) | (2.1) | % | (31) | (1.5) | % | |||||||||||||||||||||||||||||||||||
| Other | 13 | 0.7 | % | 8 | 0.4 | % | 10 | 0.5 | % | |||||||||||||||||||||||||||||||||||
| Tax Credits: | ||||||||||||||||||||||||||||||||||||||||||||
| Other | (2) | (0.1) | % | (1) | (0.1) | % | (2) | (0.1) | % | |||||||||||||||||||||||||||||||||||
| Changes in Valuation Allowance | 1 | 0.1 | % | 1 | 0.1 | % | (3) | (0.2) | % | |||||||||||||||||||||||||||||||||||
| Nontaxable or Nondeductible Items: | ||||||||||||||||||||||||||||||||||||||||||||
| Net Indemnity Payable/(Receivable) to/(from) former parent | 15 | 0.8 | % | 37 | 1.8 | % | — | — | % | |||||||||||||||||||||||||||||||||||
| Other | 11 | 0.6 | % | 6 | 0.3 | % | 7 | 0.3 | % | |||||||||||||||||||||||||||||||||||
| Changes in Unrecognized Tax Benefits | 2 | 0.1 | % | — | — | % | (4) | (0.2) | % | |||||||||||||||||||||||||||||||||||
| Other Adjustments | 2 | 0.1 | % | (3) | (0.2) | % | (3) | (0.1) | % | |||||||||||||||||||||||||||||||||||
| Effective income tax rate | $ | 479 | 24.8 | % | $ | 305 | 15.0 | % | $ | 533 | 26.2 | % |
(1) State taxes in California and New York contributed to the majority of the tax effect in this category.
The 2025 effective tax rate is higher than the statutory U.S. rate primarily due to higher international tax rates as compared to the lower U.S. federal statutory rate. The 2025 effective tax rate is higher than the 2024 effective tax rate primarily due to the absence of estimated tax benefits arising from the resolution of the German tax litigation and the absence of the reduction in a deferred tax liability related to the mitigation of future repatriation costs, both recorded in 2024, and the tax effect of the increase in our estimated nondeductible TMA indemnity obligation payable to RTX recorded in 2025. These impacts were partially offset by an incremental benefit related to foreign-derived intangible income and foreign valuation allowance releases recorded in 2025.
The 2024 effective tax rate is lower than the 2023 effective tax rate and the statutory U.S. rate primarily due to recognition of estimated tax benefits arising from the resolution of the German tax litigation and the reduction of a deferred tax liability related to the mitigation of future repatriation costs.
The 2023 effective tax rate is higher than the statutory U.S. rate primarily due to higher international tax rates as compared to the lower U.S. federal statutory rate.
Deferred Tax Assets and Liabilities. Future income taxes represent the tax effects of transactions which are reported in different periods for tax and financial reporting purposes. These amounts consist of the tax effects of temporary differences between the tax and financial reporting balance sheets and tax carryforwards. Future income tax benefits and obligations within the same tax paying component of a particular jurisdiction are offset for presentation in the Consolidated Balance Sheets.
The tax effects of temporary differences and tax carryforwards which gave rise to future income tax benefits and obligations as of December 31, 2025 and 2024 are as follows:
| (dollars in millions) | 2025 | 2024 | ||||||||||||
| Future income tax benefits: | ||||||||||||||
| Insurance and employee benefits | $ | 90 | $ | 109 | ||||||||||
| Other asset basis differences | 119 | 113 | ||||||||||||
| Other liability basis differences | 453 | 349 | ||||||||||||
| Tax loss carryforwards | 226 | 201 | ||||||||||||
| Tax credit carryforwards | 55 | 54 | ||||||||||||
| Valuation allowances | (256) | (250) | ||||||||||||
| Total future income tax benefits | $ | 687 | $ | 576 | ||||||||||
| Future income tax obligations: | ||||||||||||||
| Intangible assets | $ | 148 | $ | 143 | ||||||||||
| Other assets basis differences | 221 | 203 | ||||||||||||
| Total future income tax obligations | $ | 369 | $ | 346 |
Valuation allowances have been established primarily for tax credit carryforwards, tax loss carryforwards, and certain foreign temporary differences to reduce the future income tax benefits to expected realizable amounts.
Tax Credit and Loss Carryforwards. As of December 31, 2025, tax credit carryforwards, principally federal and state, and tax loss carryforwards, principally foreign, were as follows:
| (dollars in millions) | Tax Credit Carryforwards | Tax Loss Carryforwards | ||||||||||||
| Expiration period: | ||||||||||||||
| 2026-2030 | $ | 11 | $ | 52 | ||||||||||
| 2031-2035 | 12 | 22 | ||||||||||||
| 2036-2045 | 2 | 111 | ||||||||||||
| Indefinite | 30 | 789 | ||||||||||||
| Total | $ | 55 | $ | 974 |
Unrecognized Tax Benefits. As of December 31, 2025, the Company had gross tax-effected unrecognized tax benefits of $152 million, all of which, if recognized, would impact the effective tax rate. A reconciliation of the beginning and ending amounts of unrecognized tax benefits and interest expense related to unrecognized tax benefits for 2025, 2024 and 2023 is as follows:
| (dollars in millions) | 2025 | 2024 | 2023 | |||||||||||||||||
| Balance at January 1 | $ | 149 | $ | 394 | $ | 386 | ||||||||||||||
| Additions for tax positions related to the current year | 11 | 12 | 10 | |||||||||||||||||
| Additions for tax positions of prior years | 10 | — | 7 | |||||||||||||||||
| Reductions for tax positions of prior years | (18) | (12) | (8) | |||||||||||||||||
| Settlements | — | (245) | (1) | |||||||||||||||||
| Balance at December 31 | $ | 152 | $ | 149 | $ | 394 | ||||||||||||||
| Gross interest expense (income) related to unrecognized tax benefits | $ | (22) | $ | (146) | $ | 6 | ||||||||||||||
| Total accrued interest balance at December 31 | $ | 64 | $ | 84 | $ | 148 |
The decrease in unrecognized tax benefits and associated interest in 2024 is primarily due to the resolution of the German tax litigation. See Note 20, "Contingent Liabilities" for discussion regarding the German tax litigation.
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 U.S. 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 2016.
A subsidiary of Otis lost a tax litigation case in Belgium in 2023 and decided not to appeal. Otis may receive the assessment for tax and interest within the next 12 months. The associated tax and interest have been fully reserved.
Income Taxes Paid. The income taxes paid, net of refunds, for 2025, 2024 and 2023 are as follows:
| (dollars in millions) | 2025 | 2024 | 2023 | |||||||||||||||||
| Income taxes paid, net of refunds | ||||||||||||||||||||
| Federal | $ | 116 | $ | 55 | $ | 85 | ||||||||||||||
| State | 62 | 52 | 43 | |||||||||||||||||
| Foreign: | ||||||||||||||||||||
| China | 72 | 91 | 90 | |||||||||||||||||
| France | 43 | 52 | 28 | |||||||||||||||||
| Germany | (102) | 33 | 32 | |||||||||||||||||
| Japan | 39 | 41 | 40 | |||||||||||||||||
| Spain | 47 | 41 | 39 | |||||||||||||||||
| Foreign Other | 194 | 221 | 189 | |||||||||||||||||
| Total income taxes paid, net of refunds | $ | 471 | $ | 586 | $ | 546 |
Note 15: Restructuring and Transformation Costs
We initiate restructuring actions to keep our cost structure competitive. Charges generally arise from severance related to workforce reductions, and to a lesser degree, facility exit and lease termination costs associated with the consolidation of office and manufacturing operations. Due to the size, nature and frequency of these discrete actions, they are fundamentally different from the Company's ongoing productivity initiatives.
During 2025, 2024 and 2023, we recorded restructuring costs for new and ongoing restructuring actions, including UpLift actions beginning in 2023, as follows:
| (dollars in millions) | 2025 | 2024 | 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| UpLift | Other | Total | UpLift | Other | Total | UpLift | Other | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
| Cost of products and services sold | $ | 13 | $ | 31 | $ | 44 | $ | 8 | $ | 20 | $ | 28 | $ | — | $ | 6 | $ | 6 | ||||||||||||||||||||||||||||||||||||||
| Selling, general and administrative | 63 | 23 | 86 | 23 | 20 | 43 | 25 | 36 | 61 | |||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 76 | $ | 54 | $ | 130 | $ | 31 | $ | 40 | $ | 71 | $ | 25 | $ | 42 | $ | 67 |
Restructuring costs incurred and expected, unless otherwise indicated, are approximately 30% New Equipment and 70% Service. Although this reflects the segments to which the restructuring costs relate, refer to Note 21, "Segment Financial Data" for more information about our measure of segment performance (segment operating profit), which no longer includes restructuring costs, among other items, beginning in 2024.
UpLift Restructuring Actions and Transformation Costs. In 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 organizational changes which result in restructuring actions.
UpLift restructuring actions were approved in 2023, 2024 and 2025. These costs are primarily severance related costs. These actions initiated during 2025, 2024 and 2023 are substantially completed as of December 31, 2025. Expected total costs and remaining costs to incur for the actions initiated are approximately $150 million and $18 million, respectively. Following completion of the program, the Company does not expect to incur restructuring or transformation costs of a similar nature. Ongoing costs related to continuous improvement initiatives are expected to be consistent with historical operating expenses.
In 2025, 2024, and 2023, we incurred $69 million, $65 million and $16 million, respectively, of incremental, non-restructuring costs associated with transforming our operating model as a part of UpLift ("UpLift transformation costs"), which are recorded in Other income (expense), net in the Consolidated Statements of Operations. The UpLift transformation costs are primarily for consultants, third-party service providers and personnel focused on designing and implementing a centralized service delivery model that supports our new organizational structure, including the standardization of our supply chain and digital technology procurement.
Other Restructuring Actions. The other restructuring expenses incurred during 2025, 2024 and 2023 were primarily the result of restructuring programs initiated related to severance and facility exit costs. We are targeting to complete in 2026 the majority of the remaining restructuring actions initiated in 2025 and 2024, with certain utilization beyond 2026 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 $94 million and $16 million, respectively. Remaining costs are expected to be approximately 50% New Equipment and 50% Service.
Reorganization of Operations in China
In January 2025, we announced the reorganization of our operations in China. Among other aspects, this reorganization will result in restructuring actions of approximately $30 million. These actions include severance related costs, and these actions are substantially completed as of December 31, 2025. Amounts related to the reorganization of operations in China are included within Other restructuring actions.
Restructuring Accruals. The following table summarizes the accrual balance and utilization for the restructuring actions, which are primarily for severance costs:
| (dollars in millions) | UpLift Actions | Other Actions | Total Restructuring Actions | |||||||||||||||||
| Restructuring accruals as of December 31, 2023 | $ | 13 | $ | 35 | $ | 48 | ||||||||||||||
| Net restructuring costs | 31 | 40 | 71 | |||||||||||||||||
| Utilization, foreign exchange and other | (31) | (51) | (82) | |||||||||||||||||
| Restructuring accruals as of December 31, 2024 | 13 | 24 | 37 | |||||||||||||||||
| Net restructuring costs | 76 | 54 | 130 | |||||||||||||||||
| Utilization, foreign exchange and other | (39) | (54) | (93) | |||||||||||||||||
| Restructuring accrual as of December 31, 2025 | $ | 50 | $ | 24 | $ | 74 |
Note 16: Financial Instruments
We enter into derivative instruments primarily for risk management purposes, including derivatives designated as hedging instruments under ASC 815, Derivatives and Hedging. We operate internationally and, in the normal course of business, are exposed to fluctuations in interest rates, commodity prices and foreign exchange rates. These fluctuations can increase the costs of financing, investing in and operating the business. We may use derivative instruments, including swaps, forward contracts and options, to manage certain foreign currency, commodity price and interest rate exposures.
The four-quarter average of the notional amount of foreign exchange contracts hedging foreign currency transactions was approximately $5.6 billion and $5.3 billion as of December 31, 2025 and 2024, respectively. The four-quarter average of the notional amount of contracts hedging commodity purchases was $12 million and $14 million as of December 31, 2025 and 2024, respectively.
The following table summarizes the fair value and presentation in the Consolidated Balance Sheets for derivative instruments as of December 31:
| (dollars in millions) | Balance Sheet Classification | 2025 | 2024 | |||||||||||||||||
| Derivatives designated as Cash flow hedging instruments: | ||||||||||||||||||||
| Asset Derivatives: | ||||||||||||||||||||
| Foreign exchange contracts | Other current assets | $ | 4 | $ | 5 | |||||||||||||||
| Foreign exchange contracts | Other assets | 2 | 4 | |||||||||||||||||
| Total asset derivatives | $ | 6 | $ | 9 | ||||||||||||||||
| Liability Derivatives: | ||||||||||||||||||||
| Foreign exchange contracts | Accrued liabilities | $ | (3) | $ | (4) | |||||||||||||||
| Foreign exchange contracts | Other long-term liabilities | (2) | (1) | |||||||||||||||||
| Total liability derivatives | $ | (5) | $ | (5) | ||||||||||||||||
| Derivatives not designated as Cash flow hedging instruments: | ||||||||||||||||||||
| Asset Derivatives: | ||||||||||||||||||||
| Foreign exchange contracts | Other current assets | $ | 11 | $ | 53 | |||||||||||||||
| Commodity contracts | Other current assets | 1 | — | |||||||||||||||||
| Foreign exchange contracts | Other assets | 2 | 6 | |||||||||||||||||
| Total asset derivatives | $ | 14 | $ | 59 | ||||||||||||||||
| Liability Derivatives: | ||||||||||||||||||||
| Foreign exchange contracts | Accrued liabilities | $ | (25) | $ | (39) | |||||||||||||||
| Foreign exchange contracts | Other long-term liabilities | (2) | (6) | |||||||||||||||||
| Total liability derivatives | $ | (27) | $ | (45) |
Derivatives designated as Cash flow hedging instruments. The amount of gain or (loss) attributable to foreign exchange and commodity contract activity reclassified from Accumulated other comprehensive income (loss) was immaterial for 2025, 2024 and 2023, and is presented in Note 13, "Accumulated Other Comprehensive Income (Loss)".
The effect of cash flow hedging relationships on Accumulated other comprehensive income (loss) as of December 31, 2025 and 2024 are presented in the table below:
| (dollars in millions) | 2025 | 2024 | ||||||||||||||||||||||||
| Gain (loss) recorded in Accumulated other comprehensive income (loss) | $ | 1 | $ | 3 | ||||||||||||||||||||||
The Company utilizes the critical terms match method in assessing firm commitment derivatives and regression testing in assessing commodity derivatives for hedge effectiveness. Accordingly, the hedged items and derivatives designated as hedging instruments are highly effective.
Assuming current market conditions continue, a pre-tax gain of $1 million is expected to be reclassified from Accumulated other comprehensive income (loss) into Cost of products sold to reflect the fixed prices obtained from foreign exchange and commodity hedging within the next 12 months. All derivative contracts accounted for as cash flow hedges as of December 31, 2025 will mature by November 2029.
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) in the 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 derivative instruments designated as hedges of net investment in foreign subsidiaries can vary depending on the Company's desired foreign exchange risk coverage.
We have ¥21.5 billion of Japanese Yen denominated long-term debt that qualifies as a net investment hedge against our investments in Japanese businesses, as well as derivative instruments that qualify as net investment hedges against our investments in certain European businesses (notional amount of €169 million) and Asian businesses (notional amount of HK$2.2 billion). 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 2026 to 2027.
In 2025, we de-designated six derivative instruments that qualified as net investment hedges in certain European businesses with notional amount totaling €150 million, and in certain Asian businesses with notional amounts of ¥2.1 billion and HK$1.3 billion, respectively. These de-designated instruments were deemed to be effective until de-designation.
In 2024, we de-designated a derivative instrument that qualified as a net investment hedge in certain Asian businesses with a notional amount of HK$1.5 billion, which was deemed to be effective until de-designation.
Additionally, we had derivative instruments with notional amount of €95 million that matured during 2023. These derivative instruments qualified as net investment hedges which were deemed to be effective until maturity.
The following table summarizes the amounts of gains (losses) recognized in other comprehensive income (loss) related to non-derivative and derivative instruments designated as net investment hedges in 2025, 2024 and 2023:
| (dollars in millions) | 2025 | 2024 | 2023 | |||||||||||||||||
| Foreign currency denominated long-term debt | $ | 1 | $ | 13 | $ | 13 | ||||||||||||||
| Foreign currency forward contracts | (7) | 10 | 4 | |||||||||||||||||
| Total | $ | (6) | $ | 23 | $ | 17 |
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, in the Consolidated Statements of Operations in 2025, 2024 and 2023 was as follows:
| (dollars in millions) | 2025 | 2024 | 2023 | |||||||||||||||||||||||||||||
| Foreign exchange contracts | $ | 25 | $ | 7 | $ | 20 |
The effects of derivatives not designated as Cash flow hedge instruments within Cost of products sold in the Consolidated Statements of Operations were as follows:
| (dollars in millions) | 2025 | 2024 | 2023 | |||||||||||||||||||||||||||||
| Commodity and foreign exchange contracts | $ | 5 | $ | (1) | $ | (5) |
Note 17: Fair Value Measurements
In accordance with the provisions of ASC 820: Fair Value Measurements, the following tables provide the valuation hierarchy classification of assets and liabilities that are carried at fair value and measured on a recurring and non-recurring basis in our Consolidated Balance Sheets as of December 31, 2025 and 2024:
| December 31, 2025 | ||||||||||||||||||||||||||
| (dollars in millions) | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||
| Recurring fair value measurements: | ||||||||||||||||||||||||||
| Marketable securities | $ | 55 | $ | 55 | $ | — | $ | — | ||||||||||||||||||
| Derivative assets | 20 | — | 20 | — | ||||||||||||||||||||||
| Derivative liabilities | (32) | — | (32) | — | ||||||||||||||||||||||
| December 31, 2024 | ||||||||||||||||||||||||||
| (dollars in millions) | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||
| Recurring fair value measurements: | ||||||||||||||||||||||||||
| Marketable securities | $ | 44 | $ | 44 | $ | — | $ | — | ||||||||||||||||||
| Derivative assets | 68 | — | 68 | — | ||||||||||||||||||||||
| Derivative liabilities | (50) | — | (50) | — | ||||||||||||||||||||||
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 December 31, 2025, there has not been any significant impact to the fair value of our derivative liabilities due to our own credit risk. Similarly, there has not been any significant adverse impact to our derivative assets based on our evaluation of our counterparties' credit risks.
The fair values of the current portion of the Company's financial instruments not carried at fair value approximated their carrying values because of the short-term nature of the current portion. The fair value of receivables, including customer financing notes receivable, net, that were issued long-term are based on the discounted values of their related cash flows at interest rates reflecting the attributes of the counterparties, including geographic location. Customer-specific risk, including credit risk, is already considered in the carrying value of those receivables. Our long-term debt, as described in Note 8, "Borrowings and Lines of Credit", is measured at fair value using closing bond prices from active markets.
The following table provides carrying amounts and fair values of financial instruments that are not carried at fair value in our Consolidated Balance Sheets as of December 31, 2025 and 2024:
| December 31, 2025 | December 31, 2024 | |||||||||||||||||||||||||
| (dollars in millions) | Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||||||||||||
| Long-term receivables, net | $ | 49 | $ | 48 | $ | 47 | $ | 46 | ||||||||||||||||||
| Customer financing notes receivable, net | 16 | 14 | 21 | 19 | ||||||||||||||||||||||
| Short-term borrowings | (214) | (214) | (51) | (51) | ||||||||||||||||||||||
| Long-term debt, including current portion (excluding leases and other) | (7,779) | (7,269) | (8,316) | (7,600) | ||||||||||||||||||||||
| Long-term liabilities, including current portion | (84) | (81) | (132) | (123) |
Long-term liabilities, including current portion, as of December 31, 2025 and 2024 is primarily $80 million and $131 million, respectively, of payables to RTX for reimbursement of tax payments that RTX is responsible to pay after the Separation as a result of the TMA.
The following tables provide the valuation hierarchy classification of assets and liabilities that are not carried at fair value in the Consolidated Balance Sheets as of December 31, 2025 and 2024:
| December 31, 2025 | ||||||||||||||||||||||||||
| (dollars in millions) | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||
| Long-term receivables, net | $ | 48 | $ | — | $ | 48 | $ | — | ||||||||||||||||||
| Customer financing notes receivable, net | 14 | — | 14 | — | ||||||||||||||||||||||
| Short-term borrowings | (214) | — | (214) | — | ||||||||||||||||||||||
| Long-term debt, including current portion (excluding leases and other) | (7,269) | — | (7,269) | — | ||||||||||||||||||||||
| Long-term liabilities, including current portion | (81) | — | (81) | — |
| December 31, 2024 | ||||||||||||||||||||||||||
| (dollars in millions) | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||
| Long-term receivables, net | $ | 46 | $ | — | $ | 46 | $ | — | ||||||||||||||||||
| Customer financing notes receivable, net | 19 | — | 19 | — | ||||||||||||||||||||||
| Short-term borrowings | (51) | — | (51) | — | ||||||||||||||||||||||
| Long-term debt, including current portion (excluding leases and other) | (7,600) | — | (7,600) | — | ||||||||||||||||||||||
| Long-term liabilities, including current portion | (123) | — | (123) | — |
Note 18: Guarantees
The Company provides service and warranty on its products beyond normal service and warranty policies. The carrying amounts of service and product guarantees were $10 million and $16 million as of December 31, 2025 and 2024, respectively.
The Company provides certain financial guarantees to third parties. As of December 31, 2025, Otis has stand-by letters of credit with maximum potential payment totaling $181 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 the FASB ASC Topic 460: Guarantees, we record these liabilities at fair value. As of December 31, 2025, Otis has determined there are no estimated costs probable under these guarantees.
Note 19: Leases
ASU 2016-02, Leases (Topic 842) and its related amendments (collectively, "Lease Accounting Standard") establishes a right-of-use ("ROU") model that requires a lessee to record a ROU asset and a lease liability in the Consolidated Balance Sheets for all leases with terms longer than 12 months. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the Consolidated Statements of Operations.
We enter into lease agreements for the use of real estate space, vehicles and certain other equipment under operating and finance leases. We determine if an arrangement contains a lease at inception. Operating leases are included in Operating lease ROU assets, Accrued liabilities, and Operating lease liabilities in our Consolidated Balance Sheets. Finance leases are not considered significant to our Consolidated Balance Sheets or Consolidated Statements of Operations. We apply the practical expedient for short-term leases, whereby a lease ROU asset and liability is not recognized and the expense is recognized in a straight-line basis over the lease term.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments, and use the implicit rate when readily determinable. We determine our incremental borrowing rate through market sources including relevant industry rates. Our lease ROU assets also include any lease pre-payments and exclude lease incentives. Certain of our leases include variable payments, which may vary based upon changes in facts or circumstances after the start of the lease. We exclude variable payments from lease ROU assets and lease liabilities, to the extent not considered fixed, and instead, expense variable payments as incurred. Variable lease expense and lease expense for short duration contracts is not a material component of lease expense. Our leases generally have remaining lease terms of 1 to 20 years, some of which include options to extend leases. The majority of our leases with options to extend are up to five years with the ability to terminate the lease within one year. The exercise of lease renewal options is at our sole discretion and our lease ROU assets and liabilities reflect only the options we are reasonably certain that we will exercise. Lease expense is recognized on a straight-line basis over the lease term.
Operating lease cost for 2025, 2024 and 2023 was $206 million, $166 million and $153 million, respectively.
Supplemental cash flow information related to operating leases for 2025, 2024 and 2023 was as follows:
| (dollars in millions) | 2025 | 2024 | 2023 | |||||||||||||||||
| Cash paid for amounts included in the measurement of operating lease liabilities: | ||||||||||||||||||||
| Operating cash outflows from operating leases | $ | (188) | $ | (129) | $ | (129) | ||||||||||||||
| Non-cash operating lease activity: | ||||||||||||||||||||
| ROU assets obtained in exchange for operating lease liabilities | 323 | 150 | 93 |
Operating lease ROU assets and liabilities are reflected on our Consolidated Balance Sheets as of December 31, 2025 and 2024 are as follows:
| (dollars in millions) | 2025 | 2024 | ||||||||||||
| Operating lease ROU assets | $ | 554 | $ | 422 | ||||||||||
| Accrued liabilities | $ | 158 | $ | 120 | ||||||||||
| Operating lease liabilities | 397 | 298 | ||||||||||||
| Total operating lease liabilities | $ | 555 | $ | 418 |
Supplemental information related to operating leases as of December 31, 2025 and 2024 are as follows:
| 2025 | 2024 | |||||||||||||||||||
| Weighted Average Remaining Lease Term (in years) | 3.9 | 4.1 | ||||||||||||||||||
| Weighted Average Discount Rate | 4.2 | % | 4.0 | % |
Undiscounted maturities of operating lease liabilities, including options to extend lease terms that are reasonably certain of being exercised, as of December 31, 2025 are as follows:
| (dollars in millions) | Total | |||||||
| 2026 | $ | 178 | ||||||
| 2027 | 153 | |||||||
| 2028 | 116 | |||||||
| 2029 | 73 | |||||||
| 2030 | 38 | |||||||
| Thereafter | 47 | |||||||
| Total undiscounted lease payments | 605 | |||||||
| Less: imputed interest | (50) | |||||||
| Total discounted lease payments | $ | 555 |
Note 20: Contingent Liabilities
Except as otherwise noted, while we are unable to predict the final outcome, based on information currently available, we do not believe that resolution of any of the following matters will have a material adverse effect upon our competitive position, results of operations, cash flows or financial condition. In addition to the specific amounts noted below, where we have recorded loss contingency accruals for other matters described below and other matters, the amounts in aggregate are not material. Legal costs generally are expensed when incurred.
Environmental. As previously disclosed, the Company's operations are subject to environmental regulation by authorities with jurisdiction over its operations. The Company has accrued for the costs of environmental remediation activities, including, but not limited to, investigatory, remediation, operating and maintenance costs and performance guarantees, and periodically reassesses these amounts. Management believes that the likelihood of incurring losses materially in excess of amounts accrued is remote. The outstanding liability for environmental obligations was $5 million as of December 31, 2025 and 2024, and is principally included in Other long-term liabilities in the Consolidated Balance Sheets.
Legal Proceedings.
German Tax Litigation
In the third quarter of 2024, Otis prevailed in a German tax litigation case stemming from the 1998 reorganization of the Company's operations in Germany. As a result of winning the case, the Company expects to receive total refunds of prepaid tax, prepaid interest, overpayment interest, and court fees of approximately €308 million net of tax (approximately $362 million) as of December 31, 2025. The Company has started to receive refunds and anticipates the refund process to continue into 2026.
The recoveries related to this matter are allocated between RTX and the Company pursuant to the terms of the TMA with our former parent, UTC, by way of indemnification payments. The Company has established an indemnity payable to RTX, which is intended to cover RTX’s tax and interest payable to the IRS. Interest on RTX’s liability to the IRS will continue to accrue until RTX's tax liability is paid. The Company and RTX disagree about both the scope of the indemnity payable to RTX and the Company’s liability for interest accruing on amounts already paid to RTX. The Company expects this dispute to be resolved pursuant to the dispute resolution procedures of the TMA.
| (dollars in millions) | 2025 | 2024 | ||||||||||||
| Indemnity Payable (in Accrued liabilities) | $ | 56 | $ | 194 |
As of December 31, 2024, the Company estimated its indemnity payable to RTX to be $194 million and recorded this amount in its financial statements for the year ended December 31, 2024.
Based on additional information received from RTX during the year, which resulted in additional indemnification expense of $67 million, offset by indemnity payments made to RTX of $205 million, the Company now estimates the remaining amount payable to RTX to be $56 million. The indemnification expense is included in Other income (expense), net in the Consolidated Statements of Operations in 2025 and 2024, and the amounts payable to RTX are included in Accrued liabilities in the Consolidated Balance Sheets as of December 31, 2025 and 2024, respectively.
This estimate could further change due to the parties' continuing dispute concerning the scope of the final indemnity amount, which will be resolved pursuant to the procedures set forth in the TMA.
See Note 1, "Business Overview" for additional information on the impacts of the litigation and TMA activity to the Consolidated Financial Statements as of December 31, 2025.
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 for 2025 and 2024.
The estimated range of total liabilities to resolve all pending and unasserted potential future asbestos claims through 2059 is approximately $11 million to $31 million as of December 31, 2025, and approximately $11 million to $21 million as of December 31, 2024. Since no amount within the range of estimates is more likely to occur than any other, we have recorded the minimum amount of $11 million as of December 31, 2025 and 2024, which is principally recorded in Other long-term liabilities on our 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 $3 million, which is principally included in Other assets on our Consolidated Balance Sheets as of December 31, 2025 and 2024.
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.
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 have 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.
Refer to Note 21, "Segment Financial Data" for information about Litigation-related settlement costs recognized in 2025 for certain legal matters that are outside of the ordinary course of business.
Note 21: Segment Financial Data
Our operations are classified into two operating segments: New Equipment and Service. Through the New Equipment segment, we design, manufacture, sell and install a wide range of passenger and freight elevators as well as escalators and moving walkways to customers in the residential, commercial 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, as well as 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 Net income before income taxes. Segment operating profit excludes certain expenses and income that are not allocated to segments (as described below in "Corporate and Unallocated").
Otis' Chief Operating Decision Maker ("CODM") is the Company's Chief Executive Officer. The CODM assesses the performance of each operating segment and allocates resources to those segments based on net sales and segment operating profit. The CODM compares segment operating profit results to prior periods and forecasted amounts to assess performance and to make decisions regarding the allocation of capital and other investments. Discrete asset information for each segment is not presented to, or reviewed by, the CODM.
Segment information for 2025 is as follows:
| 2025 | ||||||||||||||||||||
| (dollars in millions) | New Equipment | Service | Total | |||||||||||||||||
| Net sales | $ | 4,989 | $ | 9,442 | $ | 14,431 | ||||||||||||||
| Costs and expenses: | ||||||||||||||||||||
| Cost of sales | 4,157 | 5,860 | 10,017 | |||||||||||||||||
| Selling, general and administrative | 485 | 1,184 | 1,669 | |||||||||||||||||
| Other including research and development | 107 | 24 | 131 | |||||||||||||||||
| Total segment operating profit | $ | 240 | $ | 2,374 | 2,614 | |||||||||||||||
| Corporate and Unallocated: | ||||||||||||||||||||
| General corporate expenses and other | 180 | |||||||||||||||||||
| UpLift restructuring | 76 | |||||||||||||||||||
| Other restructuring | 54 | |||||||||||||||||||
| UpLift transformation costs | 69 | |||||||||||||||||||
| Separation-related adjustments | 70 | |||||||||||||||||||
| Litigation-related settlement costs | 21 | |||||||||||||||||||
| Held for sale impairment | 10 | |||||||||||||||||||
| Other, net | 1 | |||||||||||||||||||
| Total company operating profit | 2,133 | |||||||||||||||||||
| Non-service pension cost (benefit) | 3 | |||||||||||||||||||
| Interest expense (income), net | 196 | |||||||||||||||||||
| Net income before income taxes | $ | 1,934 |
Segment information for 2024 is as follows:
| 2024 | ||||||||||||||||||||
| (dollars in millions) | New Equipment | Service | Total | |||||||||||||||||
| Net sales | $ | 5,367 | $ | 8,894 | $ | 14,261 | ||||||||||||||
| Costs and expenses: | ||||||||||||||||||||
| Cost of sales | 4,443 | 5,533 | 9,976 | |||||||||||||||||
| Selling, general and administrative | 490 | 1,144 | 1,634 | |||||||||||||||||
| Other including research and development | 105 | 32 | 137 | |||||||||||||||||
| Total segment operating profit | $ | 329 | $ | 2,185 | 2,514 | |||||||||||||||
| Corporate and Unallocated: | ||||||||||||||||||||
| General corporate expenses and other | 158 | |||||||||||||||||||
| UpLift restructuring | 31 | |||||||||||||||||||
| Other restructuring | 40 | |||||||||||||||||||
| UpLift transformation costs | 65 | |||||||||||||||||||
| Separation-related adjustments | 177 | |||||||||||||||||||
| Litigation-related settlement costs | 18 | |||||||||||||||||||
| Held for sale impairment | 18 | |||||||||||||||||||
| Other, net | (1) | |||||||||||||||||||
| Total company operating profit | 2,008 | |||||||||||||||||||
| Non-service pension cost (benefit) | — | |||||||||||||||||||
| Interest expense (income), net | (31) | |||||||||||||||||||
| Net income before income taxes | $ | 2,039 |
Segment information for 2023 is as follows:
| 2023 | ||||||||||||||||||||
| (dollars in millions) | New Equipment | Service | Total | |||||||||||||||||
| Net sales | $ | 5,812 | $ | 8,397 | $ | 14,209 | ||||||||||||||
| Costs and expenses: | ||||||||||||||||||||
| Cost of sales | 4,837 | 5,173 | 10,010 | |||||||||||||||||
| Selling, general and administrative | 498 | 1,174 | 1,672 | |||||||||||||||||
| Other including research and development | 96 | 36 | 132 | |||||||||||||||||
| Total segment operating profit | $ | 381 | $ | 2,014 | 2,395 | |||||||||||||||
| Corporate and Unallocated: | ||||||||||||||||||||
| General corporate expenses and other | 126 | |||||||||||||||||||
| UpLift restructuring | 25 | |||||||||||||||||||
| Other restructuring | 42 | |||||||||||||||||||
| UpLift transformation costs | 16 | |||||||||||||||||||
| Total company operating profit | 2,186 | |||||||||||||||||||
| Non-service pension cost (benefit) | 5 | |||||||||||||||||||
| Interest expense (income), net | 150 | |||||||||||||||||||
| Net income before income taxes | $ | 2,031 |
Corporate and Unallocated includes adjustments related to the Separation, Litigation-related settlement costs, impairment loss for held for sale net assets, restructuring costs and UpLift transformation costs.
Separation-related adjustments represent net adjustments of amounts due to and from RTX in accordance with the TMA, including amounts due to RTX related to a favorable ruling received in August 2024 regarding the German tax litigation. Separation-related adjustments in 2024 also include a reduction of our contractual indemnity obligation payable to RTX that resulted from the TMA and receipts from RTX in accordance with the TMA. These adjustments are recorded in Other income (expense), net in our Consolidated Statements of Operations in 2025 and 2024, respectively. See Note 14, "Income Taxes" and Note 20, "Contingent Liabilities" for additional information about the German tax litigation.
Litigation-related settlement costs in 2025 and 2024 represent the aggregate amount of settlement costs and increase in loss contingency accruals, excluding legal costs, for certain legal matters that are outside of the ordinary course of business due to the size, complexity and unique facts of these matters.
Impairment loss related to net assets held for sale is recorded in Other income (expense), net in the Consolidated Statements of Operations in 2025 and 2024, respectively. See Note 7, "Business Acquisitions, Dispositions, Goodwill and Intangible Assets" for additional information about the held for sale assets and liabilities.
Refer to Note 15, "Restructuring and Transformation Costs" for more information about restructuring and UpLift transformation costs.
Geographic External Sales and Long-Lived Assets. Geographic Net sales are attributed to the geographic regions based on their location of origin. Long-lived assets are Fixed assets, net attributed to the specific geographic regions. With the exception of the U.S. and China, there were no individually significant countries with Net sales exceeding 10% of the Company's consolidated Net sales during 2025, 2024 and 2023.
| External Net Sales | Long Lived Assets | |||||||||||||||||||||||||||||||||||||
| (dollars in millions) | 2025 | 2024 | 2023 | 2025 | 2024 | 2023 | ||||||||||||||||||||||||||||||||
| United States Operations | $ | 4,192 | $ | 4,239 | $ | 4,030 | $ | 323 | $ | 315 | $ | 325 | ||||||||||||||||||||||||||
| International Operations | ||||||||||||||||||||||||||||||||||||||
| China | 1,650 | 1,919 | 2,444 | 70 | 72 | 83 | ||||||||||||||||||||||||||||||||
| Other | 8,589 | 8,103 | 7,735 | 350 | 314 | 319 | ||||||||||||||||||||||||||||||||
| Total | $ | 14,431 | $ | 14,261 | $ | 14,209 | $ | 743 | $ | 701 | $ | 727 | ||||||||||||||||||||||||||
Disaggregated Net sales by type. Net sales disaggregated by product and service type for 2025, 2024 and 2023 are as follows:
| (dollars in millions) | 2025 | 2024 | 2023 | |||||||||||||||||
| New Equipment | $ | 4,989 | $ | 5,367 | $ | 5,812 | ||||||||||||||
| Maintenance and Repair | 7,584 | 7,211 | 6,870 | |||||||||||||||||
| Modernization | 1,858 | 1,683 | 1,527 | |||||||||||||||||
| Total Service | 9,442 | 8,894 | 8,397 | |||||||||||||||||
| Total | $ | 14,431 | $ | 14,261 | $ | 14,209 | ||||||||||||||
Major Customers. There were no customers that individually accounted for 10% or more of the Company's consolidated Net sales for 2025, 2024 and 2023.
OTIS WORLDWIDE CORPORATION
SCHEDULE II - Valuation and Qualifying Accounts
Three years ended December 31, 2025
(dollars in millions)
| Future Income Tax Benefits - Valuation Allowance | ||||||||
| Balance, December 31, 2022 | $ | 240 | ||||||
| Additions charged to income tax expense | 16 | |||||||
| Reductions credited to income tax expense | (22) | |||||||
| Other adjustments | 5 | |||||||
| Balance, December 31, 2023 | 239 | |||||||
| Additions charged to income tax expense | 32 | |||||||
| Reductions credited to income tax expense | (11) | |||||||
| Other adjustments | (10) | |||||||
| Balance, December 31, 2024 | 250 | |||||||
| Additions charged to income tax expense | 17 | |||||||
| Reductions credited to income tax expense | (38) | |||||||
| Other adjustments | 27 | |||||||
| Balance, December 31, 2025 | $ | 256 |
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