Item 1. Financial Statements

OTIS WORLDWIDE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

						Quarter Ended March 31,
(dollars in millions, except per share amounts; shares in millions)						2023						2022
Net sales:
Product sales						$	1,307					$	1,422
Service sales						2,039						1,992
						3,346						3,414
Costs and expenses:
Cost of products sold						1,098						1,190
Cost of services sold						1,252						1,218
Research and development						35						37
Selling, general and administrative						455						459
						2,840						2,904
Other income (expense), net						7						16
Operating profit						513						526
Non-service pension cost (benefit)						—						—
Interest expense (income), net						33						37
Net income before income taxes						480						489
Income tax expense						128						136
Net income						352						353
Less: Noncontrolling interest in subsidiaries' earnings						21						42
Net income attributable to Otis Worldwide Corporation						$	331					$	311
Earnings per share (Note 2):
Basic						$	0.80					$	0.73
Diluted						$	0.79					$	0.73
Weighted average number of shares outstanding:
Basic shares						414.3						424.2
Diluted shares						417.8						427.7

See accompanying Notes to Condensed Consolidated Financial Statements.

OTIS WORLDWIDE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

						Quarter Ended March 31,
(dollars in millions)						2023						2022
Net income						$	352					$	353
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments						(34)						—
Pension and postretirement benefit plan adjustments						—						2
Change in unrealized cash flow hedging						3						—
Other comprehensive income (loss), net of tax						(31)						2
Comprehensive income (loss), net of tax						321						355
Less: Comprehensive (income) loss attributable to noncontrolling interest						(24)						23
Comprehensive income attributable to Otis Worldwide Corporation						$	297					$	378

See accompanying Notes to Condensed Consolidated Financial Statements.

OTIS WORLDWIDE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(dollars in millions)						March 31, 2023						December 31, 2022
Assets
Cash and cash equivalents						$	1,117					$	1,189
Accounts receivable (net of allowance for expected credit losses of $139 and $152)						3,364						3,357
Contract assets						710						664
Inventories						642						617
Other current assets						320						316
Total Current Assets						6,153						6,143
Future income tax benefits						281						285
Fixed assets (net of accumulated depreciation of $1,183 and $1,151)						719						719
Operating lease right-of-use assets						468						449
Intangible assets, net						360						369
Goodwill						1,570						1,567
Other assets						294						287
Total Assets						$	9,845					$	9,819
Liabilities and Equity (Deficit)
Short-term borrowings and current portion of long-term debt						$	646					$	670
Accounts payable						1,515						1,717
Accrued liabilities						1,679						1,794
Contract liabilities						2,983						2,662
Total Current Liabilities						6,823						6,843
Long-term debt						6,116						6,098
Future pension and postretirement benefit obligations						391						392
Operating lease liabilities						329						315
Future income tax obligations						278						279
Other long-term liabilities						546						556
Total Liabilities						14,483						14,483
Commitments and contingent liabilities (Note 16)
Redeemable noncontrolling interest						129						135
Shareholders' Equity (Deficit):
Common Stock and additional paid-in capital						172						162
Treasury Stock						(1,750)						(1,575)
Accumulated deficit						(2,653)						(2,865)
Accumulated other comprehensive income (loss)						(626)						(592)
Total Shareholders' Equity (Deficit)						(4,857)						(4,870)
Noncontrolling interest						90						71
Total Equity (Deficit)						(4,767)						(4,799)
Total Liabilities and Equity (Deficit)						$	9,845					$	9,819

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 March 31, 2023
Balance as of December 31, 2022																		$	162					$	(1,575)					$	(2,865)					$	(592)					$	(4,870)					$	71					$	(4,799)					$	135
Net income																		—						—						331						—						331						18						349						3
Other comprehensive income (loss), net of tax																		—						—						—						(34)						(34)						2						(32)						1
Stock-based compensation and Common Stock issued under employee plans																		10						—						—						—						10						—						10						—
Cash dividends declared ($0.29 per common share)																		—						—						(120)						—						(120)						—						(120)						—
Repurchase of Common Shares																		—						(175)						—						—						(175)						—						(175)						—
Dividends attributable to noncontrolling interest																		—						—						—						—						—						(1)						(1)						(8)
Acquisitions, disposals and other changes																		—						—						1						—						1						—						1						(2)
Balance as of March 31, 2023																		$	172					$	(1,750)					$	(2,653)					$	(626)					$	(4,857)					$	90					$	(4,767)					$	129
Quarter Ended March 31, 2022
Balance as of December 31, 2021																		$	119					$	(725)					$	(2,256)					$	(763)					$	(3,625)					$	481					$	(3,144)					$	160
Net income																		—						—						311						—						311						33						344						9
Other comprehensive income (loss), net of tax																		—						—						—						67						67						(1)						66						(64)
Stock-based compensation and Common Stock issued under employee plans																		5						—						—						—						5						—						5						—
Cash dividends declared ($0.24 per common share)																		—												(102)						—						(102)						—						(102)						—
Repurchase of Common Shares																		—						(200)						—						—						(200)						—						(200)						—
Dividends attributable to noncontrolling interest																		—						—						—						—						—						(3)						(3)						(10)
Reclassification of noncontrolling interest to redeemable noncontrolling interest																		—						—						(1,482)						—						(1,482)						(403)						(1,885)						1,476
Acquisitions, disposals and other changes																		(3)						—						—						—						(3)						—						(3)						1
Balance as of March 31, 2022																		$	121					$	(925)					$	(3,529)					$	(696)					$	(5,029)					$	107					$	(4,922)					$	1,572

See accompanying Notes to Condensed Consolidated Financial Statements.

OTIS WORLDWIDE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

						Quarter Ended March 31,
(dollars in millions)						2023						2022
Operating Activities:
Net income						$	352					$	353
Adjustments to reconcile net income to net cash flows provided by operating activities, net of acquisitions and dispositions:
Depreciation and amortization						47						48
Deferred income tax expense (benefit)						(2)						17
Stock compensation cost						15						13
Change in operating assets and liabilities:
Accounts receivable, net						14						(51)
Contract assets and liabilities, current						263						278
Inventories						(20)						(14)
Other current assets						(12)						56
Accounts payable						(218)						(36)
Accrued liabilities						(155)						(178)
Pension contributions						(14)						(12)
Other operating activities, net						8						30
Net cash flows provided by operating activities						278						504
Investing Activities:
Capital expenditures						(25)						(30)
Acquisitions of businesses and intangible assets, net of cash (Note 6)						(16)						(8)
Proceeds from the sale of (investments in) marketable securities						—						(7)
Receipts (payments) on settlements of derivative contracts						17						28
Other investing activities, net						3						—
Net cash flows provided by (used in) investing activities						(21)						(17)
Financing Activities:
Net proceeds from (repayments of) borrowings (maturities of 90 days or less)						(32)						26
Repayment of long-term debt						—						(500)
Dividends paid on Common Stock						(120)						(102)
Repurchases of Common Stock						(175)						(200)
Dividends paid to noncontrolling interest						(9)						(33)
Other financing activities, net						(5)						(14)
Net cash flows provided by (used in) financing activities						(341)						(823)
Effect of foreign exchange rate changes on cash and cash equivalents						10						(63)
Net increase (decrease) in cash, cash equivalents and restricted cash						(74)						(399)
Cash, cash equivalents and restricted cash, beginning of year						1,195						3,477
Cash, cash equivalents and restricted cash, end of period						1,121						3,078
Less: Restricted cash						4						1,843
Cash and cash equivalents, end of period						$	1,117					$	1,235

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 March 31, 2023 and for the quarters ended March 31, 2023 and 2022 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, 2022 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 2022 ("2022 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. Certain amounts presented in the prior period have been reclassified to conform to the current period presentation, which are immaterial.

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

We assessed certain accounting matters that generally require consideration of forecasted financial information in the context of the information reasonably available to us and the unknown future impacts of macroeconomic developments, including inflationary pressures, higher interest rates and tighter credit conditions, as of March 31, 2023 and through the date of this report. The accounting matters assessed included, but were not limited to, our allowance for credit losses, the carrying value of our goodwill and other long-lived assets, financial assets and revenue recognition. While there was not a material impact to our Condensed Consolidated Financial Statements as of March 31, 2023 and for the quarters ended March 31, 2023 and 2022, respectively, resulting from our assessments of these matters, future assessment of our expectations of the magnitude and duration of these macroeconomic developments, as well as other factors, could result in material impacts to our Condensed Consolidated Financial Statements in future reporting periods.

We also assessed certain accounting matters as they relate to the ongoing conflict between Russia and Ukraine, including, but not limited to our allowance for credit losses, the carrying value of long-lived assets, revenue recognition and the classification of assets. There was not a material impact to our Condensed Consolidated Financial Statements as of March 31, 2023 and for the quarter ended March 31, 2023 resulting from our assessment of these matters. We continue to assess the impact on our results of operations, financial position and overall performance as the situation develops and any broader implications it may have on the global economy.

Supplier Finance Programs. On January 1, 2023, we adopted 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.

Certain Otis subsidiaries participate in supplier finance programs, under which we agree to pay third-party financial institutions the stated amounts of confirmed invoices from suppliers on the original maturity dates of the invoices, while the participating suppliers generally have the ability to sell, or otherwise pledge as collateral, their receivables from the Company to the participating financial institutions. 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 maturity dates of these supplier invoices can range between 30 and 105 days from the invoice date.

The outstanding obligations confirmed by the Company as valid to the financial institutions under our supplier finance programs were $404 million and $564 million as of March 31, 2023 and December 31, 2022, respectively. These obligations are included in Accounts payable in the Condensed Consolidated Balance Sheets, and all activity related to the obligations is presented within operating activities on the Consolidated Statements of Cash Flows.

The Company or the finance institutions may terminate the agreements with advanced notice. Otis has pledged no assets in connection with its supplier finance programs.

Revision. As previously disclosed in our Form 10-Q for the quarter ended June 30, 2022, following the filing of the Company’s Form 10-Q for the quarterly period ended March 31, 2022, we identified an error in the presentation of the shares of Zardoya Otis, S.A. ("Zardoya Otis", later renamed Otis Mobility S.A.) owned by the third party Euro Syns, S.A ("Euro Syns"). Upon revisiting the accounting as of March 31, 2022, the Company determined that the shares owned by Euro Syns that were recorded in Redeemable non-controlling interest for $409 million should have been classified in Forward purchase agreement (a separate new financial statement line item within current liabilities), resulting in a net decrease in Redeemable noncontrolling interest of $409 million. The effects of these corrections are reflected in these Condensed Consolidated Financial Statements for the quarters ended March 31, 2023 and 2022, including in the Condensed Consolidated Statement of Changes in Equity for the quarter ended March 31, 2022, and will be reflected in future filings, as applicable. There was no impact of this error on the Condensed Consolidated Statement of Operations, Statement of Comprehensive Income or the Statement of Cash Flows for the quarter ended March 31, 2022.

Note 2: Earnings per Share

						Quarter Ended March 31,
(dollars in millions, except per share amounts; shares in millions)						2023						2022
Net income attributable to Otis Worldwide Corporation						$	331					$	311
Impact of redeemable noncontrolling interest						—						—
Net income attributable to common shareholders						$	331					$	311
Basic weighted average number of shares outstanding						414.3						424.2
Stock awards and equity units (share equivalent)						3.5						3.5
Diluted weighted average number of shares outstanding						417.8						427.7
Earnings Per Share of Common Stock:
Basic						$	0.80					$	0.73
Diluted						$	0.79					$	0.73

The computation of diluted earnings per share excludes the effect of the potential exercise of stock awards, including stock appreciation rights and stock options, when the average market price of the Common Stock is lower than the exercise price of the related stock awards during the period because the effect would be anti-dilutive. In addition, the computation of diluted earnings per share excludes the effect of the potential exercise of stock awards when the awards' assumed proceeds exceed the average market price of the common shares during the period. There were 1.1 million and 2.6 million of anti-dilutive stock awards excluded from the computation for the quarters ended March 31, 2023 and 2022, respectively.

Note 3: Revenue Recognition

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

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

Total Contract assets and Contract liabilities as of March 31, 2023 and December 31, 2022 are as follows:

(dollars in millions)						March 31, 2023						December 31, 2022
Contract assets, current						$	710					$	664
Total contract assets						710						664
Contract liabilities, current						2,983						2,662
Contract liabilities, non-current (included within Other long-term liabilities)						49						52
Total contract liabilities						3,032						2,714
Net contract liabilities						$	2,322					$	2,050

Contract assets increased by $46 million during the quarter ended March 31, 2023 as a result of the progression of current contracts and timing of billing on customer contracts. Contract liabilities increased by $318 million during the quarter ended March 31, 2023 primarily due to contract billings in excess of revenue earned.

In the quarters ended March 31, 2023 and 2022, we recognized revenue of $0.9 billion and $1.0 billion related to contract liabilities as of January 1, 2023 and 2022, respectively.

Remaining Performance Obligations ("RPO"). RPO represents the aggregate amount of total contract transaction price that is unsatisfied or partially unsatisfied. As of March 31, 2023, our total RPO was $17.9 billion. Of the total RPO as of March 31, 2023, 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 March 31, 2023 and December 31, 2022:

(dollars in millions)						March 31, 2023						December 31, 2022
Trade receivables						$	3,203					$	3,231
Unbilled receivables						133						103
Miscellaneous receivables						91						91
Customer financing notes receivable						76						84
						3,503						3,509
Less: allowance for expected credit losses						139						152
Accounts receivable, net						$	3,364					$	3,357

The changes in allowance for expected credit losses related to Accounts receivable, net for the quarters ended March 31, 2023 and 2022, respectively, are as follows:

						Quarter Ended March 31,
(dollars in millions)						2023						2022
Balance as of January 1						$	152					$	175
Provision for expected credit losses						6						7
Write-offs charged against the allowance for expected credit losses						(20)						(2)
Foreign exchange and other						1						8
Balance as of March 31						$	139					$	188

Note 5: Inventories

(dollars in millions)						March 31, 2023						December 31, 2022
Raw materials and work-in-process						$	180					$	166
Finished goods						462						451
Total						$	642					$	617

Raw materials, work-in-process and finished goods are net of valuation write-downs of $97 million and $96 million as of March 31, 2023 and December 31, 2022, respectively.

Note 6: Business Acquisitions, Goodwill and Intangible Assets

Business Acquisitions. Our acquisitions of businesses and intangible assets, net of cash, totaled $16 million and $8 million in the quarters ended March 31, 2023 and 2022, 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 quarter ended March 31, 2023 were as follows:

(dollars in millions)						Balance as of December 31, 2022						Goodwill Resulting from Business Combinations												Foreign Currency Translation and Other						Balance as of March 31, 2023
New Equipment						$	292					$	—											$	1					$	293
Service						1,275						—												2						1,277
Total						$	1,567					$	—											$	3					$	1,570

Intangible Assets. Intangible assets cost and accumulated amortization were $2,043 million and $1,683 million, respectively, as of March 31, 2023, and $2,026 million and $1,657 million, respectively, as of December 31, 2022.

Amortization of intangible assets for the quarters ended March 31, 2023 and 2022 was $17 million and $19 million, respectively. Excluding the impact of currency translation adjustments, there were no other significant changes in our Intangible assets during the quarters ended March 31, 2023 and 2022.

Note 7: Borrowings and Lines of Credit

(dollars in millions)						March 31, 2023						December 31, 2022
Commercial paper						$	75					$	94
Other borrowings						32						45
Total short-term borrowings						$	107					$	139

Commercial Paper. As of March 31, 2023, there were $75 million in borrowings outstanding under the Company's $1.5 billion commercial paper programs, including €60 million of Euro denominated commercial paper. 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 2022, refer to Note 10 of the Company's audited consolidated financial statements and notes thereto included in our 2022 Form 10-K.

Long-term debt. On March 10, 2023, the Company entered into a new credit agreement ("Credit Agreement") with various banks providing for a $1.5 billion unsecured, unsubordinated 5-year revolving credit facility, with an interest rate on US Dollar denominated borrowings at Otis' option of the Term Secured Overnight Financing Rate ("SOFR") plus 0.10% 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 1.25% for Term SOFR rate, EURIBO rate and daily simple ESTR rate borrowings, and 0.25% for base rate borrowings, and can fluctuate determined by

reference to Otis' public debt ratings, as specified in the Credit Agreement. As of March 31, 2023, there were no borrowings under the Credit Agreement. The undrawn portion of the Credit Agreement serves as a backstop for the issuance of commercial paper. On March 10, 2023, we also terminated all commitments outstanding under the previous existing credit agreement, which was scheduled to expire on April 3, 2025.

As of March 31, 2023, the Company is in compliance with all covenants in the revolving credit agreement and the indentures governing all outstanding long-term debt. Long-term debt consisted of the following:

(dollars in millions)						March 31, 2023						December 31, 2022
0.000% notes due 2023 (€500 million principal value)						$	539					$	531
2.056% notes due 2025						1,300						1,300
0.37% notes due 2026 (¥21.5 billion principal value)						163						163
0.318% notes due 2026 (€600 million principal value)						646						638
2.293% notes due 2027						500						500
2.565% notes due 2030						1,500						1,500
0.934% notes due 2031 (€500 million principal value)						539						531
3.112% notes due 2040						750						750
3.362% notes due 2050						750						750
Other (including finance leases)						8						8
Total principal long-term debt						6,695						6,671
Other (discounts and debt issuance costs)						(40)						(42)
Total long-term debt						6,655						6,629
Less: current portion						539						531
Long-term debt, net of current portion						$	6,116					$	6,098

We may redeem the notes at our option pursuant to certain terms. For additional details regarding the Company's debt activity in 2022, refer to Note 10 of the Company's audited consolidated financial statements and notes thereto included in our 2022 Form 10-K.

Debt discounts and debt issuance costs are presented as a reduction of debt on the Condensed Consolidated Balance Sheets and are amortized as a component of interest expense over the term of the related debt using the effective interest method. The Condensed Consolidated Statements of Operations for the quarters ended March 31, 2023 and 2022 reflects the following:

						Quarter Ended March 31,
(dollars in millions)						2023						2022
Debt issuance costs amortization						$	3					$	3
Total interest expense on external debt						33						36

The unamortized debt issuance costs as of March 31, 2023 and December 31, 2022 were $40 million and $42 million, respectively.

The weighted average maturity of our long-term debt as of March 31, 2023 is approximately 8.3 years. The weighted average interest expense rate on our borrowings outstanding as of March 31, 2023 and December 31, 2022 was as follows:

						March 31, 2023						December 31, 2022
Short-term borrowings						3.4		%				4.7		%
Total long-term debt						2.0		%				2.0		%

The weighted average interest expense rate on our borrowings during the quarters ended March 31, 2023 and 2022 was as follows:

						Quarter Ended March 31,
						2023						2022
Short-term borrowings						4.8		%				0.4		%
Total long-term debt						2.0		%				2.0		%

Note 8: Employee Benefit Plans

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

						Quarter Ended March 31,
(dollars in millions)						2023						2022
Defined benefit plans						$	14					$	12
Defined contribution plans						19						20
Multi-employer pension and postretirement plans						34						23

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

						Quarter Ended March 31,
(dollars in millions)						2023						2022
Service cost						$	7					$	10
Interest cost						8						4
Expected return on plan assets						(8)						(6)
Recognized actuarial net loss						—						3
Total net periodic benefit cost						$	7					$	11

Postretirement Benefit Plans. The Company sponsors postretirement benefit plans that provide health benefits to eligible retirees. The postretirement plans are unfunded. The net periodic benefit cost was less than $1 million for the quarters ended March 31, 2023 and 2022, respectively.

Stock-based Compensation. The Company adopted the 2020 Long-Term Incentive Plan (the "Plan") effective April 3, 2020. As of March 31, 2023, approximately 23 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 over the award's applicable vesting period. A forfeiture rate assumption is applied on grant date to adjust the expense recognition for awards that are not expected to vest.

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

						Quarter Ended March 31,
(dollars in millions)						2023						2022
Stock-based compensation expense (Share Based)						$	15					$	13
Stock-based compensation expense (income) (Liability Awards)						—						(1)
Total gross stock-based compensation expense						15						12
Less: future tax benefit						2						1
Stock-based compensation expense, net of tax						$	13					$	11

As of March 31, 2023, following our annual grant issuance on February 7, 2023, there was approximately $101 million of total unrecognized compensation cost related to non-vested equity awards granted under the Plan. This cost is expected to be recognized ratably over a weighted-average period of 2.1 years.

Note 9: Stock

Preferred Stock. There are 125 million shares of $0.01 par value Preferred Stock authorized, of which none were issued as of March 31, 2023 and December 31, 2022.

Common Stock. There are 2 billion shares of $0.01 par value Common Stock authorized. As of March 31, 2023, 436.1 million shares of Common Stock were issued, which includes 22.9 million shares of treasury stock. As of December 31, 2022, 435.6 million shares of Common Stock were issued, which included 20.8 million shares of treasury stock.

Share Repurchase Program. As of March 31, 2023, 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 $1.8 billion was remaining at such time.

During the quarters ended March 31, 2023 and 2022, the Company repurchased 2.1 million and 2.6 million shares, respectively, for approximately $175 million and $200 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 ended March 31, 2023 and 2022 is provided below:

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

(dollars in millions)						Foreign Currency Translation						Defined Benefit Pension and Postretirement Plans												Unrealized Hedging Gains (Losses)						Accumulated Other Comprehensive Income (Loss)
Quarter Ended March 31, 2022
Balance as of December 31, 2021						$	(642)					$	(128)											$	7					$	(763)
Other comprehensive income (loss) before reclassifications, net						65						—												4						69
Amounts reclassified, pre-tax						—						3												(4)						(1)
Tax expense (benefit) reclassified						—						(1)												—						(1)
Balance as of March 31, 2022						$	(577)					$	(126)											$	7					$	(696)

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 decrease in the effective tax rate for the quarter ended March 31, 2023, is primarily due to the impact of foreign currency on a distribution of previously taxed income and a change in the mix of earnings.

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

A subsidiary of Otis engaged in tax-related litigation in Belgium received a favorable appellate court decision in 2018. The Belgian Tax Authorities appealed the decision to the Court of Cassation (the equivalent of Supreme Court in Belgium). On December 4, 2020, the Court of Cassation overturned the decision of the appellate court and remanded the case to the appellate court for reconsideration. Following a hearing on March 20, 2023, the Antwerp Appellate Court ruled against the Company. Otis is evaluating the decision to determine if grounds for appeal exist. The associated tax and interest have been fully reserved and are included in the range below.

In the ordinary course of business, there is inherent uncertainty in quantifying our income tax positions. We assess our income tax positions and record tax benefits for all years subject to examination based upon management’s evaluation of the facts, circumstances, and information available at the reporting date. The evaluation considers any additional worldwide uncertain tax positions, the closure of tax statutes or the re-valuation of current uncertain tax positions arising from the issuance of legislation, regulatory or other guidance or developments in examinations, in appeals, or in the courts. Based on the preceding factors, it is reasonably possible that within the next 12 months unrecognized tax benefits could change within the range of a $20 million increase to a $340 million decrease and associated interest could change within the range of a $5 million increase to a $145 million decrease.

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

Note 12: Restructuring 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.

During the quarters ended March 31, 2023 and 2022, we recorded restructuring costs totaling $5 million and $14 million, respectively, for new and ongoing restructuring actions. We recorded these charges as follows:

						Quarter Ended March 31,
(dollars in millions)						2023						2022
New Equipment						$	2					$	4
Service						3						10
Total						$	5					$	14

						Quarter Ended March 31,
(dollars in millions)						2023						2022
Cost of products and services sold						$	2					$	3
Selling, general and administrative						3						11
Total						$	5					$	14

The restructuring expenses incurred during the quarters ended March 31, 2023 and 2022, were primarily the result of restructuring programs initiated during 2023 and 2022. We are targeting to complete in 2023 the majority of remaining restructuring actions initiated in the quarter ended March 31, 2023 and the full year 2022, with certain utilization beyond 2023 due to legal requirements in the applicable jurisdictions. Expected total costs for the restructuring actions initiated are $71 million, including $26 million to New Equipment and $45 million to Service operating segments, respectively. Remaining costs to incur for the restructuring actions initiated are expected to be $10 million, including $3 million to New Equipment and $7 million to Service operating segments, respectively.

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

(dollars in millions)
Restructuring accruals as of December 31, 2022						$	41
Net restructuring costs						5
Utilization, foreign exchange and other costs						(10)
Balance as of March 31, 2023						$	36

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 $4.0 billion and $3.9 billion as of March 31, 2023 and December 31, 2022, respectively. The average of the notional amount of contracts hedging commodity purchases was $24 million and $20 million as of March 31, 2023 and December 31, 2022, respectively.

The following table summarizes the fair value and presentation on the Condensed Consolidated Balance Sheets for derivative instruments as of March 31, 2023 and December 31, 2022:

(dollars in millions)						Balance Sheet Classification						March 31, 2023						December 31, 2022
Derivatives designated as Cash flow hedging instruments:
						Asset Derivatives:
Foreign exchange contracts						Other current assets						$	3					$	3
Commodity contracts						Other current assets						1						—
Foreign exchange contracts						Other assets						3						2
						Total asset derivatives						$	7					$	5
						Liability Derivatives:
Foreign exchange contracts						Accrued liabilities						$	(2)					$	(4)
Commodity contracts						Accrued liabilities						(1)						(1)
						Total liability derivatives						$	(3)					$	(5)
Derivatives not designated as Cash flow hedging instruments:
						Asset Derivatives:
Foreign exchange contracts						Other current assets						$	20					$	25
Commodity contracts						Other current assets						1						—
Foreign exchange contracts						Other assets						4						3
						Total asset derivatives						$	25					$	28
						Liability Derivatives:
Foreign exchange contracts						Accrued liabilities						$	(42)					$	(20)
Commodity contracts						Accrued liabilities						(2)						(4)
Foreign exchange contracts						Other long-term liabilities						(2)						(2)
						Total liability derivatives						$	(46)					$	(26)

Derivatives designated as Cash flow hedging instruments*.* The amounts of gain or (loss) attributable to foreign exchange and commodity contract activity reclassified from Accumulated other comprehensive income (loss) were immaterial for the quarters ended March 31, 2023 and 2022, respectively.

The effect of cash flow hedging relationships on Accumulated other comprehensive income (loss) as of March 31, 2023 and December 31, 2022 are presented in the table below:

(dollars in millions)						March 31, 2023						December 31, 2022
Gain (loss) recorded in Accumulated other comprehensive income (loss)						$	6					$	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 March 31, 2023 will mature by February 2027.

Net Investment Hedges. We have foreign-denominated long-term debt and foreign exchange forward contracts 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 March 31, 2023, the net investment hedge is deemed to be effective. During the quarters ended March 31, 2023 and 2022, we recognized a loss of $1 million and a gain of $12 million, respectively, associated with this net investment hedge in Other comprehensive income (loss).

As of March 31, 2023, we have a notional amount of a foreign exchange forward contract of €95 million, which qualifies as a net investment hedge against our investments in certain European businesses. The maturity date of this derivative instrument is in 2023. As of March 31, 2023, the net investment hedge is deemed to be effective. During the quarter ended March 31, 2023, we recognized a gain of $1 million 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 within Other income (expense) net, on the Condensed Consolidated Statements of Operations was as follows:

						Quarter Ended March 31,
(dollars in millions)						2023						2022
Foreign exchange contracts						$	3					$	6

The effects of derivatives not designated as Cash flow hedge instruments within Cost of products sold on the Condensed Consolidated Statements of Operations were gains of $1 million and losses of $3 million in the quarters ended March 31, 2023 and 2022, respectively.

Note 14: Fair Value Measurements

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

As of March 31, 2023, 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 March 31, 2023 and December 31, 2022:

						March 31, 2023
(dollars in millions)						Total						Level 1						Level 2						Level 3
Recurring fair value measurements:
Marketable securities						$	30					$	30					$	—					$	—
Derivative assets						32						—						32						—
Derivative liabilities						(49)						—						(49)						—

						December 31, 2022
(dollars in millions)						Total						Level 1						Level 2						Level 3
Recurring fair value measurements:
Marketable securities						$	30					$	30					$	—					$	—
Derivative assets						33						—						33						—
Derivative liabilities						(31)						—						(31)						—

Fair Value of Financial Instruments. The following table provides carrying amounts and fair values of financial instruments that are not carried at fair value as of March 31, 2023 and December 31, 2022:

						March 31, 2023												December 31, 2022
(dollars in millions)						Carrying Amount						Fair Value						Carrying Amount						Fair Value
Long-term receivables, net						$	47					$	45					$	55					$	53
Customer financing notes receivable, net						44						40						55						51
Short-term borrowings						(107)						(107)						(139)						(139)
Long-term debt, including current portion (excluding leases and other)						(6,687)						(5,818)						(6,663)						(5,661)
Long-term liabilities, including current portion						(222)						(197)						(222)						(197)

The following tables provide the valuation hierarchy classification of assets and liabilities that are not carried at fair value in the Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022:

						March 31, 2023
(dollars in millions)						Total						Level 1						Level 2						Level 3
Long-term receivables, net						$	45					$	—					$	45					$	—
Customer financing notes receivable, net						40						—						40						—
Short-term borrowings						(107)						—						(107)						—
Long-term debt, including current portion (excluding leases and other)						(5,818)						—						(5,818)						—
Long-term liabilities, including current portion						(197)						—						(197)						—

						December 31, 2022
(dollars in millions)						Total						Level 1						Level 2						Level 3
Long-term receivables, net						$	53					$	—					$	53					$	—
Customer financing notes receivable, net						51						—						51						—
Short-term borrowings						(139)						—						(139)						—
Long-term debt, including current portion (excluding leases and other)						(5,661)						—						(5,661)						—
Long-term liabilities, including current portion						(197)						—						(197)						—

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 quarters ended March 31, 2023 and 2022 are as follows:

(dollars in millions)						2023						2022
Balance as of December 31						$	13					$	20
Warranties						—						—
Settlements made						(1)						(4)
Foreign exchange and other						1						1
Balance as of March 31						$	13					$	17

The Company provides certain financial guarantees to third parties. As of March 31, 2023, Otis has stand-by letters of credit with maximum potential payment totaling $151 million. We accrue costs associated with guarantees when it is probable that a liability has been incurred and the amount can be reasonably estimated. The most likely cost to be incurred is accrued based on an evaluation of currently available facts, and where no amount within a range of estimates is more likely, the minimum is accrued. In accordance with ASC Topic 460: Guarantees, we record these liabilities at fair value. As of March 31, 2023, 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 as of March 31, 2023 and December 31, 2022, 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 $232 million as of March 31, 2023) 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 $127 million as of March 31, 2023).

In August 2012, a suit was filed in the local German Tax Court (Berlin-Brandenburg). In 2015, our former parent United Technologies Corporation ("UTC"), now Raytheon Technologies Corporation ("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. 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. The local German Tax Court has scheduled a hearing for June 12, 2023, and a decision is expected later this year.

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 $48 million as of March 31, 2023), net of payments and other deductions, included within Accrued liabilities on the Condensed Consolidated Balance Sheets as of March 31, 2023. 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 March 31, 2023 and December 31, 2022.

The estimated range of total liabilities to resolve all pending and unasserted potential future asbestos claims through 2059 is approximately $21 million to $43 million as of March 31, 2023 and December 31, 2022. Because no amount within the range of estimates is more likely to occur than any other, we have recorded the minimum amount of $21 million, which is principally recorded in Other long-term liabilities on our Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022. 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 March 31, 2023 and December 31, 2022.

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"), each of their directors, and various incentive and deferred compensation plans in connection with the separation of Otis and Carrier from UTC (the "Separation") in April 2020. 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. The plaintiffs appealed the decision on October 26, 2022. 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 March 31, 2023 and 2022 are as follows:

						Net Sales												Operating Profit												Operating Profit Margin
(dollars in millions)						2023						2022						2023						2022						2023						2022
New Equipment						$	1,307					$	1,422					$	67					$	93					5.1		%				6.5		%
Service						2,039						1,992						476						447						23.3		%				22.4		%
Total segments						3,346						3,414						543						540						16.2		%				15.8		%
General corporate expenses and other						—						—						(30)						(14)						—						—
Total						$	3,346					$	3,414					$	513					$	526					15.3		%				15.4		%

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 ended March 31, 2023 and 2022.

						Quarter Ended March 31,
(dollars in millions)						2023						2022
United States Operations						$	976					$	977
International Operations
China						501						568
Other						1,869						1,869
Total						$	3,346					$	3,414

Disaggregated Sales by Type. Segment Net sales disaggregated by product and service type for the quarters ended March 31, 2023 and 2022 are as follows:

						Quarter Ended March 31,
(dollars in millions)						2023						2022
New Equipment						$	1,307					$	1,422
Maintenance and Repair						1,679						1,633
Modernization						360						359
Total Service						2,039						1,992
Total						$	3,346					$	3,414

Major Customers. There were no customers that individually accounted for 10% or more of the Company's consolidated Net sales for the quarters ended March 31, 2023 and 2022.

Note 18: Accounting Pronouncements

Recent Accounting Pronouncements.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU clarifies that an acquirer of a business should recognize and measure contract assets and contract liabilities in a business combination in accordance with ASC Topic 606, Revenue from Contracts with Customers. ASU 2021-08 is effective for fiscal years beginning after December 15, 2022, with early application permitted. The Company adopted ASU 2021-08 effective January 1, 2023. The adoption of this ASU did not have a material impact on our Condensed Consolidated Financial Statements.

In September 2022, the FASB issued ASU 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. The Company adopted ASU 2022-04 effective January 1, 2023. The adoption of this ASU did not have a material impact on our Condensed Consolidated Financial Statements, as disclosed in Note 1, "General".

Future 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. 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.

Other new accounting pronouncements issued but not effective until after March 31, 2023 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 ended March 31, 2023 and 2022, PricewaterhouseCoopers LLP (PricewaterhouseCoopers) reported that it has applied limited procedures in accordance with professional standards for a review of such information. However, its report dated April 27, 2023, appearing below, states that the firm did not audit and does not express an opinion on that unaudited condensed consolidated financial information. PricewaterhouseCoopers has not carried out any significant or additional review procedures beyond those that would have been necessary if their report had not been included. Accordingly, the degree of reliance on its report on such information should be restricted in light of the limited nature of the review procedures applied. PricewaterhouseCoopers is not subject to the liability provisions of Section 11 of the Securities Act of 1933, as amended (the Act) for its report on the unaudited condensed consolidated financial information because that report is not a "report" or a "part" of a registration statement prepared or certified by PricewaterhouseCoopers within the meaning of Sections 7 and 11 of the Act.

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Otis Worldwide Corporation

Results of Review of Interim Financial Information

We have reviewed the accompanying condensed consolidated balance sheet of Otis Worldwide Corporation and its subsidiaries (the “Company”) as of March 31, 2023, and the related condensed consolidated statements of operations, of comprehensive income, of changes in equity and cash flows for the three-month periods ended March 31, 2023 and 2022, 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, 2022, 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 3, 2023, 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, 2022, 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

April 27, 2023