Item 1. Financial Statements

OTIS WORLDWIDE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

						Quarter Ended September 30,
(amounts in millions, except per share amounts)						2022						2021
Net sales:
Product sales						$	1,447					$	1,681
Service sales						1,897						1,939
						3,344						3,620
Costs and expenses:
Cost of products sold						1,208						1,381
Cost of services sold						1,165						1,179
Research and development						37						39
Selling, general and administrative						417						479
						2,827						3,078
Other income (expense), net						12						—
Operating profit						529						542
Non-service pension cost (benefit)						1						2
Interest expense (income), net						35						33
Net income before income taxes						493						507
Income tax expense						143						128
Net income						350						379
Less: Noncontrolling interest in subsidiaries' earnings						26						48
Net income attributable to Otis Worldwide Corporation						$	324					$	331
Earnings per share (Note 2):
Basic						$	0.77					$	0.78
Diluted						$	0.77					$	0.77
Weighted average number of shares outstanding:
Basic shares						418.5						425.8
Diluted shares						421.2						430.6

See accompanying Notes to Condensed Consolidated Financial Statements.

OTIS WORLDWIDE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

						Nine Months Ended September 30,
(amounts in millions, except per share amounts)						2022						2021
Net sales:
Product sales						$	4,403					$	4,866
Service sales						5,843						5,863
						10,246						10,729
Costs and expenses:
Cost of products sold						3,689						3,986
Cost of services sold						3,597						3,589
Research and development						112						113
Selling, general and administrative						1,315						1,445
						8,713						9,133
Other income (expense), net						9						16
Operating profit						1,542						1,612
Non-service pension cost (benefit)						2						6
Interest expense (income), net						107						92
Net income before income taxes						1,433						1,514
Income tax expense						382						404
Net income						1,051						1,110
Less: Noncontrolling interest in subsidiaries' earnings						95						145
Net income attributable to Otis Worldwide Corporation						$	956					$	965
Earnings per share (Note 2):
Basic						$	2.27					$	2.25
Diluted						$	2.25					$	2.23
Weighted average number of shares outstanding:
Basic shares						421.3						428.5
Diluted shares						424.3						432.0

See accompanying Notes to Condensed Consolidated Financial Statements.

OTIS WORLDWIDE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

						Quarter Ended September 30,												Nine Months Ended September 30,
(dollars in millions)						2022						2021						2022						2021
Net income						$	350					$	379					$	1,051					$	1,110
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments						151						(37)						56						(39)
Pension and postretirement benefit plan adjustments						2						4						6						11
Change in unrealized cash flow hedging						(4)						4						(4)						1
Other comprehensive income (loss), net of tax						149						(29)						58						(27)
Comprehensive income (loss), net of tax						499						350						1,109						1,083
Less: Comprehensive (income) loss attributable to noncontrolling interest						(7)						(43)						30						(130)
Comprehensive income attributable to Otis Worldwide Corporation						$	492					$	307					$	1,139					$	953

See accompanying Notes to Condensed Consolidated Financial Statements.

OTIS WORLDWIDE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(dollars in millions)						September 30, 2022						December 31, 2021
Assets
Cash and cash equivalents						$	1,034					$	1,565
Restricted cash						7						1,910
Accounts receivable (net of allowance for expected credit losses of $156 and $175)						3,103						3,232
Contract assets						641						550
Inventories						603						622
Other current assets						441						382
Total Current Assets						5,829						8,261
Future income tax benefits						290						335
Fixed assets (net of accumulated depreciation of $1,079 and $1,156)						692						774
Operating lease right-of-use assets						464						526
Intangible assets, net						346						419
Goodwill						1,448						1,667
Other assets						273						297
Total Assets						$	9,342					$	12,279
Liabilities and Equity (Deficit)
Short-term borrowings						$	103					$	24
Accounts payable						1,521						1,556
Accrued liabilities						1,662						1,993
Contract liabilities						2,706						2,674
Total Current Liabilities						5,992						6,247
Long-term debt						6,459						7,249
Future pension and postretirement benefit obligations						505						558
Operating lease liabilities						325						336
Future income tax obligations						244						267
Other long-term liabilities						550						606
Total Liabilities						14,075						15,263
Commitments and contingent liabilities (Note 16)
Redeemable noncontrolling interest						128						160
Shareholders' Equity (Deficit):
Common Stock and additional paid-in capital						134						119
Treasury Stock						(1,425)						(725)
Accumulated deficit						(3,042)						(2,256)
Accumulated other comprehensive income (loss)						(580)						(763)
Total Shareholders' Equity (Deficit)						(4,913)						(3,625)
Noncontrolling interest						52						481
Total Equity (Deficit)						(4,861)						(3,144)
Total Liabilities and Equity (Deficit)						$	9,342					$	12,279

See accompanying Notes to Condensed Consolidated Financial Statements.

OTIS WORLDWIDE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)

												Common Stock and Additional Paid-In Capital						Treasury Stock						Accumulated Deficit						Accumulated Other Comprehensive Income (Loss)						Total Shareholders' (Deficit) Equity						Noncontrolling Interest						Total (Deficit) Equity						Redeemable Noncontrolling Interest
(dollars in millions, except per share amounts)
Quarter Ended September 30, 2022
Balance as of June 30, 2022																		$	121					$	(1,125)					$	(3,245)					$	(748)					$	(4,997)					$	109					$	(4,888)					$	136
Net income																		—						—						324						—						324						24						348						2
Other comprehensive income (loss), net of tax, and foreign currency reclassifications (Note 10)																		—						—						—						168						168						(9)						159						(10)
Stock-based compensation and Common Stock issued under employee plans																		13						—						—						—						13						—						13						—
Cash dividends declared ($0.29 per Common Share)																		—						—						(121)						—						(121)						—						(121)						—
Repurchase of Common Shares																		—						(300)						—						—						(300)						—						(300)						—
Dividends attributable to noncontrolling interest																		—						—						—						—						—						(68)						(68)						—
Acquisitions, disposals and other changes																		—						—						—						—						—						(4)						(4)						—
Balance as of September 30, 2022																		$	134					$	(1,425)					$	(3,042)					$	(580)					$	(4,913)					$	52					$	(4,861)					$	128
Quarter Ended September 30, 2021
Balance as of June 30, 2021																		$	86					$	(506)					$	(2,662)					$	(803)					$	(3,885)					$	468					$	(3,417)					$	163
Net income																		—						—						331						—						331						46						377						2
Other comprehensive income (loss), net of tax																		—						—						—						(24)						(24)						(5)						(29)						(1)
Stock-based compensation and Common Stock issued under employee plans																		18						—						(1)						—						17						—						17						—
Cash dividends declared ($0.24 per Common Share)																		—						—						(102)						—						(102)						—						(102)						—
Repurchase of Common Shares																		—						(219)						—						—						(219)						—						(219)						—
Dividends attributable to noncontrolling interest																		—						—						—						—						—						(24)						(24)						—
Acquisition, disposal and other changes																		(2)						—						1						—						(1)						1						—						—
Balance as of September 30, 2021																		$	102					$	(725)					$	(2,433)					$	(827)					$	(3,883)					$	486					$	(3,397)					$	164

See accompanying Notes to Condensed Consolidated Financial Statements.

OTIS WORLDWIDE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)

						Common Stock and Additional Paid-In Capital						Treasury Stock						Accumulated Deficit						Accumulated Other Comprehensive Income (Loss)						Total Shareholders' (Deficit) Equity						Noncontrolling Interest						Total (Deficit) Equity						Redeemable Noncontrolling Interest
(dollars in millions, except per share amounts)
Nine Months Ended September 30, 2022
Balance December 31, 2021						$	119					$	(725)					$	(2,256)					$	(763)					$	(3,625)					$	481					$	(3,144)					$	160
Net income						—						—						956						—						956						82						1,038						13
Other comprehensive income (loss), net of tax, and foreign currency reclassifications (Note 10)						—						—						—						183						183						(17)						166						(108)
Stock-based compensation and Common Stock issued under employee plans						32						—						(1)						—						31						—						31						—
Cash dividends declared ($0.82 per common share)						—						—						(345)						—						(345)						—						(345)						—
Repurchase of Common Shares						—						(700)						—						—						(700)						—						(700)						—
Dividends attributable to noncontrolling interest						—						—						—						—						—						(80)						(80)						(11)
Reclassification of noncontrolling interest to forward purchase agreement and redeemable noncontrolling interest (Note 1)						—						—						(1,482)						—						(1,482)						(403)						(1,885)						1,476
Acquisitions, disposals and other changes						(17)						—						86						—						69						(11)						58						(1,402)
Balance at September 30, 2022						$	134					$	(1,425)					$	(3,042)					$	(580)					$	(4,913)					$	52					$	(4,861)					$	128
Nine Months Ended September 30, 2021
Balance December 31, 2020						$	59					$	—					$	(3,106)					$	(815)					$	(3,862)					$	467					$	(3,395)					$	194
Net income						—						—						965						—						965						138						1,103						7
Other comprehensive income (loss), net of tax						—						—						—						(12)						(12)						(8)						(20)						(8)
Stock-based compensation and Common Stock issued under employee plans						45						—						(2)						—						43						—						43						—
Cash dividends declared ($0.68 per common share)						—						—						(291)						—						(291)						—						(291)						—
Repurchase of Common Shares						—						(725)						—						—						(725)						—						(725)						—
Dividends attributable to noncontrolling interest						—						—						—						—						—						(121)						(121)						(11)
Acquisitions, disposals and other changes						(2)						—						1						—						(1)						10						9						(18)
Balance at September 30, 2021						$	102					$	(725)					$	(2,433)					$	(827)					$	(3,883)					$	486					$	(3,397)					$	164

See accompanying Notes to Condensed Consolidated Financial Statements.

OTIS WORLDWIDE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

						Nine Months Ended September 30,
(dollars in millions)						2022						2021
Operating Activities:
Net income						$	1,051					$	1,110
Adjustments to reconcile net income to net cash flows provided by operating activities, net of acquisitions and dispositions:
Depreciation and amortization						145						152
Deferred income tax expense (benefit)						6						(72)
Stock compensation cost						41						48
Change in operating assets and liabilities:
Accounts receivable, net						(171)						(107)
Contract assets and liabilities, current						143						140
Inventories						(80)						18
Other current assets						(14)						12
Accounts payable						137						230
Accrued liabilities						(166)						(29)
Pension contributions						(28)						(23)
Other operating activities, net						32						(6)
Net cash flows provided by operating activities						1,096						1,473
Investing Activities:
Capital expenditures						(81)						(115)
Acquisitions of businesses and intangible assets, net of cash (Note 6)						(38)						(59)
Dispositions of businesses, net of cash (Note 6)						61						—
Proceeds from the sale of (investments in) marketable securities						(7)						40
Receipts (payments) on settlements of derivative contracts						121						35
Other investing activities, net						6						30
Net cash flows provided by (used in) investing activities						62						(69)
Financing Activities:
Net proceeds from (repayments of) borrowings (maturities of 90 days or less)						80						(294)
Proceeds from borrowings (maturities longer than 90 days)						—						152
Repayments of borrowings (maturities longer than 90 days)						—						(503)
Proceeds from issuance of long-term debt						—						199
Payment of debt issuance costs						—						(11)
Repayment of long-term debt						(500)						—
Dividends paid on Common Stock						(345)						(291)
Repurchases of Common Stock						(700)						(725)
Dividends paid to noncontrolling interest						(107)						(130)
Acquisition of Zardoya Otis shares (Note 1)						(1,802)						—
Other financing activities, net						(28)						(18)
Net cash flows provided by (used in) financing activities						(3,402)						(1,621)
Effect of foreign exchange rate changes on cash and cash equivalents						(191)						(11)
Net increase (decrease) in cash, cash equivalents and restricted cash						(2,435)						(228)
Cash, cash equivalents and restricted cash, beginning of year						3,477						1,801
Cash, cash equivalents and restricted cash, end of period						1,042						1,573
Less: Restricted cash						8						20
Cash and cash equivalents, end of period						$	1,034					$	1,553

See accompanying Notes to Condensed Consolidated Financial Statements.

OTIS WORLDWIDE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1: General

The Condensed Consolidated Financial Statements as of September 30, 2022 and for the quarters and nine months ended September 30, 2022 and 2021 are unaudited, but in the opinion of management include all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of the results for the interim periods. The Condensed Consolidated Balance Sheet as of December 31, 2021 was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles ("GAAP") in the United States ("U.S."). The results reported in these Condensed Consolidated Financial Statements should not necessarily be taken as indicative of results that may be expected for the entire year. The financial information included herein should be read in conjunction with the Company's annual consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for fiscal year 2021 ("2021 Form 10-K" or "Form 10-K").

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

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

Revisions

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

Zardoya Otis Tender Offer

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

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

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

Separation

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

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

We assessed certain accounting matters that generally require consideration of forecasted financial information in the context of the information reasonably available to us and the unknown future impacts of COVID-19 as of September 30, 2022 and through the date of this report. The accounting matters assessed included, but were not limited to, our allowance for credit losses, the carrying value of our goodwill and other long-lived assets, financial assets and revenue recognition. While there was not a material impact to our Condensed Consolidated Financial Statements as of September 30, 2022 and for the quarters and nine months ended September 30, 2022 and 2021, respectively, resulting from our assessments of these matters, future assessment of our current expectations at that time of the magnitude and duration of COVID-19, as well as other factors, could result in material impacts to our Condensed Consolidated Financial Statements in future reporting periods.

We also assessed certain accounting matters as they relate to the ongoing conflict between Russia and Ukraine, including, but not limited to our allowance for credit losses, the carrying value of long-lived assets, revenue recognition and the classification of assets. There was not a material impact to our Condensed Consolidated Financial Statements as of September 30, 2022 and for the quarter and nine months ended September 30, 2022 resulting from our assessment of these matters. We continue to assess the impact on our results of operations, financial position and overall performance as the situation develops and any broader implications it may have on the global economy. Additionally, the Company sold its business in Russia during the third quarter of 2022. See Note 6, "Business Acquisitions, Dispositions, Goodwill and Intangible Assets" for additional information regarding the sale of our Russia business.

Note 2: Earnings per Share

						Quarter Ended September 30,												Nine Months Ended September 30,
(amounts in millions, except per share amounts)						2022						2021						2022						2021
Net income attributable to Otis Worldwide Corporation						$	324					$	331					$	956					$	965
Impact of redeemable noncontrolling interest						—						—						—						—
Net income attributable to common shareholders						$	324					$	331					$	956					$	965
Basic weighted average number of shares outstanding						418.5						425.8						421.3						428.5
Stock awards and equity units (share equivalent)						2.7						4.8						3.0						3.5
Diluted weighted average number of shares outstanding						421.2						430.6						424.3						432.0
Earnings Per Share of Common Stock:
Basic						$	0.77					$	0.78					$	2.27					$	2.25
Diluted						$	0.77					$	0.77					$	2.25					$	2.23

The computation of diluted earnings per share excludes the effect of the potential exercise of stock awards, including stock appreciation rights and stock options, when the average market price of the Common Stock is lower than the exercise price of the related stock awards during the period because the effect would be anti-dilutive. In addition, the computation of diluted earnings per share excludes the effect of the potential exercise of stock awards when the awards' assumed proceeds exceed the average market price of the common shares during the period. There were 2.4 million of anti-dilutive stock awards excluded from the computation for the quarter and nine months ended September 30, 2022, and 0.1 million for the quarter and nine months ended September 30, 2021.

Note 3: Revenue Recognition

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

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

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

(dollars in millions)						September 30, 2022						December 31, 2021
Contract assets, current						$	641					$	550
Total contract assets						641						550
Contract liabilities, current						2,706						2,674
Contract liabilities, non-current (included within Other long-term liabilities)						48						52
Total contract liabilities						2,754						2,726
Net contract liabilities						$	2,113					$	2,176

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

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

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

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

Note 4: Accounts Receivable, Net

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

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

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

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

Note 5: Inventories

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

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

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

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

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

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

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

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

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

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

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

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

Note 7: Borrowings and Lines of Credit

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

Commercial Paper. As of September 30, 2022, there were $71 million in borrowings outstanding under the Company's $1.5 billion commercial paper programs. We use our commercial paper borrowings for general corporate purposes including to finance acquisitions, pay dividends, repurchase shares and for debt refinancing. The need for commercial paper borrowings may arise if the use of domestic cash for general corporate purposes exceeds the sum of domestic cash generation and foreign cash repatriated to the U.S.

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

Long-term debt. As of September 30, 2022, we have a credit agreement, as amended, with various banks providing for a $1.5 billion unsecured, unsubordinated, 5-year revolving credit facility, with an interest rate of LIBOR plus 125 basis points and a commitment fee rate of 12.5 basis points, that matures in April 2025. As of September 30, 2022, there were no borrowings under the Company's revolving credit facility.

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

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

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

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

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

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

Debt discounts and debt issuance costs are presented as a reduction of debt on the Condensed Consolidated Balance Sheets and are amortized as a component of interest expense over the term of the related debt using the effective interest method. The Condensed Consolidated Statements of Operations for the quarters and nine months ended September 30, 2022 and 2021 reflects the following:

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

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

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

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

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

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

Note 8: Employee Benefit Plans

Pension and Postretirement Plans. The Company sponsors both funded and unfunded domestic and foreign defined benefit pension and other postretirement benefit plans, and defined contribution plans. Contributions to our plans were as follows:

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

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

						Quarter Ended September 30,												Nine Months Ended September 30,
(dollars in millions)						2022						2021						2022						2021
Service cost						$	10					$	11					$	30					$	33
Interest cost						4						3						13						10
Expected return on plan assets						(8)						(6)						(21)						(18)
Recognized actuarial net loss						3						5						8						14
Net settlement and curtailment (gain) loss						1						(1)						1						(1)
Total net periodic benefit cost						$	10					$	12					$	31					$	38

Postretirement Benefit Plans. The Company sponsors postretirement benefit plans that provide health benefits to eligible retirees. The postretirement plans are unfunded. The net periodic benefit cost was less than $1 million for the quarters and nine months ended September 30, 2022 and 2021, respectively.

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

Stock-based Compensation Expense

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

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

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

As of September 30, 2022, there was approximately $68 million of total unrecognized compensation cost related to non-vested equity awards granted under the Plan. This cost is expected to be recognized ratably over a weighted-average period of 1.9 years.

Note 9: Stock

Preferred Stock. There are 125 million shares of $0.01 par value authorized Preferred Stock, of which none were issued or outstanding as of September 30, 2022 and December 31, 2021.

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

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

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

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

The Company's share repurchase program does not obligate it to acquire any specific number of shares. Under this program, shares may be purchased in the open market, in privately negotiated transactions, under accelerated share repurchase programs or under plans complying with Rules 10b5-1 and 10b-18 under the Securities Exchange Act of 1934, as amended (the "Exchange Act").

Note 10: Accumulated Other Comprehensive Income (Loss)

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

(dollars in millions)						Foreign Currency Translation						Defined Benefit Pension and Postretirement Plans												Unrealized Hedging Gains (Losses)						Accumulated Other Comprehensive Income (Loss)
Quarter Ended September 30, 2022
Balance as of June 30, 2022						$	(631)					$	(124)											$	7					$	(748)
Other comprehensive income (loss) before reclassifications, net						93						—												(5)						88
Amounts reclassified, pre-tax						77						3												1						81
Tax benefit reclassified						—						(1)												—						(1)
Balance as of September 30, 2022						$	(461)					$	(122)											$	3					$	(580)
Nine Months Ended September 30, 2022
Balance as of December 31, 2021						$	(642)					$	(128)											$	7					$	(763)
Other comprehensive income (loss) before reclassifications, net						173						—												(2)						171
Amounts reclassified upon change in Otis' share of Zardoya Otis ownership (Note 1)						(69)						—												—						(69)
Amounts reclassified, pre-tax						77						8												(2)						83
Tax benefit reclassified						—						(2)												—						(2)
Balance as of September 30, 2022						$	(461)					$	(122)											$	3					$	(580)

(dollars in millions)						Foreign Currency Translation						Defined Benefit Pension and Postretirement Plans												Unrealized Hedging Gains (Losses)						Accumulated Other Comprehensive Income (Loss)
Quarter Ended September 30, 2021
Balance as of June 30, 2021						$	(608)					$	(196)											$	1					$	(803)
Other comprehensive income (loss) before reclassifications, net						(32)						—												5						(27)
Amounts reclassified, pre-tax						—						5												(1)						4
Tax benefit reclassified						—						(1)												—						(1)
Balance as of September 30, 2021						$	(640)					$	(192)											$	5					$	(827)
Nine Months Ended September 30, 2021
Balance as of December 31, 2020						$	(616)					$	(203)											$	4					$	(815)
Other comprehensive income (loss) before reclassifications, net						(24)						—												(2)						(26)
Amounts reclassified, pre-tax						—						14												3						17
Tax benefit reclassified						—						(3)												—						(3)
Balance as of September 30, 2021						$	(640)					$	(192)											$	5					$	(827)

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

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

Note 11: Income Taxes

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

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

The Company conducts business globally and, as a result, the Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world, including such major jurisdictions as Austria, Belgium, Brazil, Canada, China, France, Germany, Hong Kong, India, Italy, Japan, Mexico, Netherlands, Portugal, South Korea, Spain, Switzerland, the United Kingdom and the United States. With a few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations for years before 2010.

In the ordinary course of business, there is inherent uncertainty in quantifying our income tax positions. We assess our income tax positions and record tax benefits for all years subject to examination based upon management’s evaluation of the facts, circumstances, and information available at the reporting date. The evaluation considers any additional worldwide uncertain tax positions, the closure of tax statutes or the re-valuation of current uncertain tax positions arising from the issuance of legislation, regulatory or other guidance or developments in examinations, in appeals, or in the courts. Based on the preceding factors, it is reasonably possible that within the next 12 months unrecognized tax benefits could change within the range of a $20 million increase to a $310 million decrease and associated interest could change within the range of a $5 million increase to a $130 million decrease.

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

Note 12: Restructuring Costs

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

						Quarter Ended September 30,												Nine Months Ended September 30,
(dollars in millions)						2022						2021						2022						2021
Cost of products and services sold						$	2					$	5					$	16					$	19
Selling, general and administrative						4						4						29						16
Total						$	6					$	9					$	45					$	35

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

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

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

(dollars in millions)						Expected Costs						Costs Incurred During 2021						Costs Incurred Quarter Ended March 31, 2022						Costs Incurred Quarter Ended June 30, 2022						Costs Incurred Quarter Ended September 30, 2022						Remaining Costs as of September 30, 2022
Total 2022 Actions						$	62					$	—					$	(13)					$	(24)					$	(4)					$	21
Total 2021 Actions						$	44					$	(41)					$	(1)					$	—					$	(2)					$	—

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

(dollars in millions)						2022 Actions						2021 Actions
Quarter Ended September 30, 2022
Restructuring accruals as of June 30, 2022						$	24					$	8
Net restructuring costs						4						2
Utilization, foreign exchange and other costs						(12)						(1)
Balance as of September 30, 2022						$	16					$	9
Nine Months Ended September 30, 2022
Restructuring accruals as of December 31, 2021						$	—					$	22
Net restructuring costs						41						3
Utilization, foreign exchange and other costs						(25)						(16)
Balance as of September 30, 2022						$	16					$	9

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

Note 13: Financial Instruments

We enter into derivative instruments primarily for risk management purposes, including derivatives designated as hedging instruments under ASC 815, Derivatives and Hedging. We operate internationally and, in the normal course of business, are exposed to fluctuations in interest rates, commodity prices and foreign exchange rates. These fluctuations can increase the costs of financing, investing in and operating the business. We may use derivative instruments, including swaps, forward contracts and options, to manage certain foreign currency, commodity price and interest rate exposures.

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

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

(dollars in millions)						Balance Sheet Classification						September 30, 2022						December 31, 2021
Derivatives designated as Cash flow hedging instruments:
						Asset Derivatives:
Foreign exchange contracts						Other current assets						$	6					$	7
Foreign exchange contracts						Other assets						3						1
						Total asset derivatives						$	9					$	8
						Liability Derivatives:
Foreign exchange contracts						Accrued liabilities						$	(7)					$	(3)
Commodity contracts						Accrued liabilities						(1)						—
Foreign exchange contracts						Other long-term liabilities						(1)						—
						Total liability derivatives						$	(9)					$	(3)
Derivatives not designated as Cash flow hedging instruments:
						Asset Derivatives:
Foreign exchange contracts						Other current assets						$	93					$	23
Foreign exchange contracts						Other assets						3						5
						Total asset derivatives						$	96					$	28
						Liability Derivatives:
Foreign exchange contracts						Accrued liabilities						$	(55)					$	(11)
Commodity contracts						Accrued liabilities						(4)						—
Foreign exchange contracts						Other long-term liabilities						(3)						(2)
						Total liability derivatives						$	(62)					$	(13)

Derivatives designated as Cash flow hedging instruments*.* The amounts of gain or (loss) attributable to foreign exchange and commodity contract activity reclassified from Accumulated other comprehensive income (loss) were immaterial for the quarters and nine months ended September 30, 2022 and 2021, respectively.

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

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

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

Assuming current market conditions continue, a pre-tax loss of $2 million is expected to be reclassified from Accumulated other comprehensive income (loss) into Cost of products sold to reflect the fixed prices obtained from foreign exchange and commodity hedging within the next 12 months. All derivative contracts accounted for as cash flow hedges as of September 30, 2022 will mature by October 2026.

Net Investment Hedges. We have foreign-denominated long-term debt balances that qualify as net investment hedges. Changes in the value of these net investment hedges due to foreign currency gains or losses are deferred as foreign currency translation adjustments in Other comprehensive income (loss) on the Condensed Consolidated Statements of Comprehensive Income, and will remain in Accumulated other comprehensive income (loss) until the hedged investment is sold or substantially liquidated. We evaluate the effectiveness of the net investment hedges each quarter.

We have ¥21.5 billion of Japanese Yen denominated long-term debt, which qualifies as a net investment hedge against our investments in Japanese businesses. As of September 30, 2022, the net investment hedge is deemed to be effective. During the quarter and nine months ended September 30, 2022, we recognized gains of $10 million and $40 million, respectively, compared to gains of $1 million and $5 million, respectively, in the same periods of 2021, associated with this net investment hedge in Other comprehensive income (loss).

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

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

						Quarter Ended September 30,												Nine Months Ended September 30,
(dollars in millions)						2022						2021						2022						2021
Foreign exchange contracts						$	9					$	4					$	12					$	8

Note 14: Fair Value Measurements

Valuation Techniques. Our equity securities include equity investments that are traded in active markets, either domestically or internationally, and are measured at fair value using closing stock prices from active markets. The fair value gains or losses related to our equity securities are recorded through net income. Our derivative assets and liabilities include foreign exchange and commodity contracts that are measured at fair value using internal models based on observable market inputs such as forward rates, interest rates, our own credit risk and our counterparties' credit risks.

As of September 30, 2022, there has not been any significant impact to the fair value of our derivative liabilities due to our own credit risk. Similarly, there has not been any significant adverse impact to our derivative assets based on our evaluation of our counterparties' credit risks.

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

Recurring Fair Value Measurements. In accordance with the provisions of ASC 820: Fair Value Measurements, the following tables provide the valuation hierarchy classification of assets and liabilities that are carried at fair value and measured on a recurring and non-recurring basis in our Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021:

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

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

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

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

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

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

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

Note 15: Guarantees

The Company provides service and warranty on its products beyond normal service and warranty policies. The changes in the carrying amount of service and product guarantees for the nine months ended September 30, 2022 and 2021 are as follows:

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

The Company provides certain financial guarantees to third parties. As of September 30, 2022, Otis has stand-by letters of credit with maximum potential payment totaling $141 million. We accrue costs associated with guarantees when it is probable that a liability has been incurred and the amount can be reasonably estimated. The most likely cost to be incurred is accrued based on an evaluation of currently available facts, and where no amount within a range of estimates is more likely, the minimum is accrued. In accordance with ASC Topic 460: Guarantees, we record these liabilities at fair value. As of September 30, 2022, Otis has determined there are no estimated costs probable under these guarantees.

Note 16: Contingent Liabilities

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

Environmental. As previously disclosed, the Company's operations are subject to environmental regulation by authorities with jurisdiction over its operations. The Company has accrued for the costs of environmental remediation activities, including, but not limited to, investigatory, remediation, operating and maintenance costs and performance guarantees, and periodically reassesses these amounts. Management believes that the likelihood of incurring losses materially in excess of amounts accrued is remote. The outstanding liability for environmental obligations was $5 million and $12 million as of September 30, 2022 and December 31, 2021, respectively, and is principally included in Other long-term liabilities on the Condensed Consolidated Balance Sheets.

Legal Proceedings.

German Tax Litigation

As previously disclosed, we have been involved in administrative review proceedings with the German Tax Office, which concern approximately €215 million (approximately $208 million as of September 30, 2022) of tax benefits that we have claimed related to a 1998 reorganization of the corporate structure of our operations in Germany. Upon audit, these tax benefits were disallowed by the German Tax Office. We estimate interest associated with the aforementioned tax benefits is an additional approximately €118 million (approximately $114 million as of September 30, 2022).

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

On January 26, 2021, the Company filed an appeal with the German Federal Tax Court. On February 8, 2022, the Company received the decision of the German Federal Tax Court, in which the Court remanded the case for reconsideration by the local German Tax Court. The local German Tax Court has not yet set a hearing date. Despite the remand, there is no assurance that the local German Tax Court will rule in the Company's favor, and the decision of the German Tax Office ultimately could be sustained.

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

Asbestos Matters

As previously disclosed, we have been named as defendants in lawsuits alleging personal injury as a result of exposure to asbestos. While we have never manufactured any asbestos-containing component parts, and no longer incorporate asbestos in any current products, certain of our historical products have contained components manufactured by third parties incorporating asbestos. A substantial majority of these asbestos-related claims have been dismissed without payment or were covered in full or in part by insurance or other forms of indemnity. Additional cases were litigated and settled without any insurance reimbursement. The amounts involved in asbestos-related claims were not material individually or in the aggregate as of and for the periods ended September 30, 2022 and December 31, 2021.

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

Putative Class Action Lawsuit

On August 12, 2020, a putative class action lawsuit, (Geraud Darnis et al. v. Raytheon Technologies Corporation et al.), was filed in the United States District Court for the District of Connecticut (the "Court") against Otis, RTX, Carrier Global Corporation ("Carrier"), which was also separated from UTC in the Separation, each of their directors, and various incentive and deferred compensation plans. On September 13, 2021, plaintiffs filed an amended complaint against the three company defendants only. The named plaintiffs are former employees of UTC and its current and former subsidiaries, including Otis and Carrier. They seek to recover monetary damages, as well as related declaratory and equitable relief, based on claimed decreases in the value of long-term incentive awards and deferred compensation under nonqualified deferred compensation plans allegedly caused by the formula used to calculate the adjustments to such awards and deferred compensation from RTX, Carrier, and Otis following the spin-offs of Carrier and Otis and the subsequent combination of UTC and Raytheon Company. On September 30, 2022, in response to motions to dismiss filed by the defendants, the Court dismissed the class action in its entirety with prejudice. On October 26, 2022, the plaintiffs filed a Notice of Appeal with the Court, appealing its decision. At this time, we do not believe this action will have a material adverse effect on our business, financial conditions, cash flows or results of operations.

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

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

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

Note 17: Segment Financial Data

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

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

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

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

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

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

Geographic Sales. Geographic Net sales are attributed to the geographic regions based on their location of origin. With the exception of the U.S. and China, there were no individually significant countries with sales exceeding 10% of Net sales during the quarters and nine months ended September 30, 2022 and 2021.

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

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

						Quarter Ended September 30,												Nine Months Ended September 30,
(dollars in millions)						2022						2021						2022						2021
New Equipment						$	1,447					$	1,681					$	4,403					$	4,866
Maintenance and Repair						1,555						1,608						4,784						4,828
Modernization						342						331						1,059						1,035
Total Service						1,897						1,939						5,843						5,863
Total						$	3,344					$	3,620					$	10,246					$	10,729

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

Note 18: Accounting Pronouncements

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

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU clarifies that an acquirer of a business should recognize and measure contract assets and contract liabilities in a business combination in accordance with ASC Topic 606, Revenue from Contracts with Customers. ASU 2021-08 is effective for fiscal years beginning after December 15, 2022, with early application permitted. We are currently evaluating the impact of adopting this standard, however we do not expect it to have a material impact on our Condensed Consolidated Financial Statements.

In September 2022, the FASB issued ASU No. 2022-04, Liabilities - Supplier Finance Programs (Topic 450-50): Disclosure of Supplier Finance Program Obligations that requires entities that use supplier finance programs in connection with the purchase of goods and services to disclose the key terms of the programs and information about obligations outstanding at the end of the reporting period, including a rollforward of those obligations. The guidance does not affect the recognition, measurement or financial statement presentation of supplier finance program obligations. ASU 2022-04 is effective for fiscal years beginning after December 15, 2022, except for the disclosure of rollforward information, which is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. We are currently evaluating the impact of adopting this standard on our Condensed Consolidated Financial Statements.

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

With respect to the unaudited condensed consolidated financial information of Otis Worldwide Corporation for the quarters and nine months ended September 30, 2022 and 2021, PricewaterhouseCoopers LLP (PricewaterhouseCoopers) reported that it has applied limited procedures in accordance with professional standards for a review of such information. However, its report dated October 27, 2022, appearing below, states that the firm did not audit and does not express an opinion on that unaudited condensed consolidated financial information. PricewaterhouseCoopers has not carried out any significant or additional review procedures beyond those that would have been necessary if their report had not been included. Accordingly, the degree of reliance on its report on such information should be restricted in light of the limited nature of the review procedures applied. PricewaterhouseCoopers is not subject to the liability provisions of Section 11 of the Securities Act of 1933, as amended (the Act) for its report on the unaudited condensed consolidated financial information because that report is not a "report" or a "part" of a registration statement prepared or certified by PricewaterhouseCoopers within the meaning of Sections 7 and 11 of the Act.

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Otis Worldwide Corporation

Results of Review of Interim Financial Information

We have reviewed the accompanying condensed consolidated balance sheet of Otis Worldwide Corporation and its subsidiaries (the “Company”) as of September 30, 2022, and the related condensed consolidated statements of operations, of comprehensive income and of changes in equity for the three-month and nine-month periods ended September 30, 2022 and 2021 and the condensed consolidated statements of cash flows for the nine-month periods ended September 30, 2022 and 2021, including the related notes (collectively referred to as the “interim financial information”). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial information for it to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of the Company as of December 31, 2021, and the related consolidated statements of operations, of comprehensive income, of changes in equity and of cash flows for the year then ended (not presented herein), and in our report dated February 4, 2022, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2021, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

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

/s/ PricewaterhouseCoopers LLP

Hartford, Connecticut

October 27, 2022