Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

BUSINESS OVERVIEW

Business Summary

We are the world’s leading elevator and escalator manufacturing, installation and service company. Our Company is organized into two segments, New Equipment and Service. Through our New Equipment segment, we design, manufacture, sell and install a wide range of passenger and freight elevators, as well as escalators and moving walkways for residential and commercial buildings and infrastructure projects. Our New Equipment customers include real-estate and building developers and general contractors who develop and/or design buildings for residential, commercial, retail or mixed-use activity. We sell our New Equipment directly to customers, as well as through agents and distributors.

Through our Service segment, we perform maintenance and repair services for both our own products and those of other manufacturers and provide modernization services to upgrade elevators and escalators. Maintenance services include inspections to ensure code compliance, preventive maintenance offerings and other customized maintenance offerings tailored to meet customer needs, as well as repair services to address equipment and component wear and tear and breakdowns. Modernization services enhance equipment operation and improve building functionality. Modernization offerings can range from relatively simple upgrades of interior finishes and aesthetics to complex upgrades of larger components and sub-systems. Our typical Service customers include building owners, facility managers, housing associations and government agencies that operate buildings where elevators and escalators are installed.

We serve our customers through a global network of employees. These include sales personnel, field technicians with separate skills in performing installation and service, as well as engineers driving our continued product development and innovation. We function under a centralized operating model whereby a global strategy is set around New Equipment and Service because we seek to grow our maintenance portfolio, in part, through the conversion of new elevator and escalator installations into service contracts. Accordingly, we benefit from an integrated global strategy, which sets priorities and establishes accountability across the full product life cycle.

The current status of significant factors affecting our business environment in 2024 is discussed below. For additional discussion, refer to the "Business Overview" section in Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2023 Form 10-K.

UpLift

Announced in July 2023, UpLift is a program with the goal of transforming our operating model. UpLift will include the standardization of our processes and improvement of our supply chain procurement, among other aspects of the program, as well as restructuring actions. We expect UpLift to generate approximately $150 million in annual savings by mid-year 2025, with restructuring and other incremental costs to complete the transformation ("UpLift transformation costs") over that period of approximately the same amount.

UpLift costs incurred are as follows:

						Quarter Ended March 31,
(dollars in millions)						2024						2023
UpLift restructuring action costs						$	1					$	—
UpLift transformation costs						12						—
Total UpLift costs						$	13					$	—

UpLift restructuring action costs of $26 million have been incurred since the beginning of the program, primarily during the fourth quarter of 2023. UpLift restructuring action costs are primarily severance costs, and are recorded in Selling, general and administrative in the Condensed Consolidated Statements of Operations. For further details, refer to the discussion on restructuring costs in the "Results of Operations," as well as Note 12 to the Condensed Consolidated Financial Statements.

UpLift transformation costs of $28 million have been incurred since the beginning of the program. These costs are primarily consulting and incremental personnel costs, and are recorded in Other income (expense), net in the Condensed Consolidated Statements of Operations.

Impact of Global Macroeconomic Developments on Our Company

Global macroeconomic developments have impacted, and continue to impact, aspects of the Company's operations and overall financial performance during the quarters ended March 31, 2024 and 2023. These macroeconomic developments include, among others, inflationary pressures, higher interest rates and tighter credit conditions. These macroeconomic trends could continue to impact our business, including impacts to overall financial performance during the remainder of 2024, as a result of the following, among other things:

• Supplier liquidity, as well as supplier and raw material capacity constraints, delays and related costs;

• Customer demand impacting our new equipment, maintenance and repair, and modernization businesses;

• Customer liquidity constraints and related credit reserves; and

• Cancellations or delays of customer orders.

We currently do not expect any significant impact to our capital and financial resources from these macroeconomic developments, including to our overall liquidity position based on our available cash and cash equivalents and our access to credit facilities and the capital markets.

See the "Liquidity and Financial Condition" section in this Form 10-Q for further detail and Item 1A. "Risk Factors" in our 2023 Form 10-K for macroeconomic risks related to our business.

Risks Associated with Ongoing Conflicts

The ongoing conflict between Russia and Ukraine has resulted in worldwide geopolitical and macroeconomic uncertainty, including volatile commodity markets, foreign exchange fluctuations, supply chain disruptions, increased risk of cyber-security incidents, reputational risk, increased operating costs (including fuel and other input costs), environmental, health and safety risks related to securing and maintaining facilities, additional sanctions and other regulations (including restrictions on the transfer of funds to and from Russia). We do not have operations in Russia.

To the extent possible, we continue to operate our business in Ukraine, which represented less than 1% of our revenue and operating profit for the quarter ended March 31, 2024 and year ended December 31, 2023.

Additionally, we do not have operations or material net sales in Israel or Gaza. Although we transport products through the Red Sea, we currently do not expect the recent hostilities in that region to have a material impact on our business.

We cannot predict how the events described above will evolve. If the events continue for a significant period of time or expand to other countries, and depending on the ultimate outcomes of these conflicts, which remain uncertain, they could heighten certain risks disclosed in Item 1A "Risk Factors" in our 2023 Form 10-K, including but not limited to, adverse effects on macroeconomic conditions, including increased inflation, constraints on the availability of commodities, supply chain disruption and decreased business spending; cyber-incidents; disruptions to our or our business partners’ global technology infrastructure, including through cyber-attack or cyber-intrusion; adverse changes in international trade policies and relations; claims, litigation and regulatory enforcement; our ability to implement and execute our business strategy; terrorist activities; our exposure to foreign currency fluctuations; reputational risk; and constraints, volatility, or disruption in the capital markets, any of which could have a material adverse effect on our business, results of operations, cash flows and financial condition.

Environmental, Social and Governance ("ESG")

There have been no, and we do not expect there to be in the near term, material impacts on our business, financial condition or results of operations as a result of compliance with legislation or regulatory rules regarding climate change, from the known physical effects of climate change or as a result of implementing our ESG initiatives. Increased regulation (including SEC and European Union requirements) and other climate change concerns, however, could subject us to additional costs and restrictions, and we are not able to predict how such regulations or concerns would affect our business, operations or financial results.

For discussion of Otis’ ESG goals, see the discussion under “Environmental, Social and Governance (“ESG”)” in Item 1 in our 2023 Form 10-K.

CRITICAL ACCOUNTING ESTIMATES

Preparation of our Condensed Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. The accounting policies that involve the most significant estimates, assumptions and management judgments used in preparation of the Condensed Consolidated Financial Statements, or are the most sensitive to change due to outside factors, are discussed in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Estimates" included in our 2023 Form 10-K. Except as disclosed in Note 18 to our Condensed Consolidated Financial Statements in this Form 10-Q, pertaining to adoption of new accounting pronouncements, there have been no material changes in these policies.

RESULTS OF OPERATIONS

Net Sales

						Quarter Ended March 31,
(dollars in millions)						2024						2023
Net sales						$	3,437					$	3,346
Percentage change year-over-year						2.7		%

The factors contributing to the total percentage change year-over-year in total Net sales for the quarter ended March 31, 2024 are as follows:

Components of Net sales change:						Quarter Ended March 31, 2024
Organic volume						3.8		%
Foreign currency translation						(1.2)		%
Acquisitions and divestitures, net						0.1		%
Total % change						2.7		%

The Organic volume increase of 3.8% for the quarter ended March 31, 2024 was driven by an increase in organic sales of 6.5% in Service, partially offset by a decrease of (0.5)% in New Equipment organic sales.

See the "Segment Review" section for a discussion of Net sales by segment.

Cost of Products and Services Sold

						Quarter Ended March 31,
(dollars in millions)						2024						2023
Total cost of products and services sold						$	2,409					$	2,350
Percentage change year-over-year						2.5		%

The factors contributing to the percentage change year-over-year for the quarter ended March 31, 2024 in total cost of products and services sold are as follows:

Components of Cost of Products and Services Sold change:						Quarter Ended March 31, 2024
Organic volume						3.6		%
Foreign currency translation						(1.3)		%
Acquisitions and divestitures, net and other						0.2		%
Total % change						2.5		%

The organic increase in Total cost of products and services sold for the quarter ended March 31, 2024 was primarily driven by the organic sales increases noted above. Inflationary pressures, including annual wage increases, were mitigated by productivity and lower commodity prices, primarily steel.

Gross Margin

						Quarter Ended March 31,
(dollars in millions)						2024						2023
Gross margin						$	1,028					$	996
Gross margin percentage						29.9		%				29.8		%

Gross margin percentage remained relatively flat for the quarter ended March 31, 2024, when compared to the same period for 2023.

See the "Segment Review" section below for discussion of operating results by segment.

Research and Development

						Quarter Ended March 31,
(dollars in millions)						2024						2023
Research and development						$	36					$	35
Percentage of Net sales						1.0		%				1.0		%

Research and development was relatively flat for the quarter ended March 31, 2024, when compared to the same period for 2023.

Selling, General and Administrative

						Quarter Ended March 31,
(dollars in millions)						2024						2023
Selling, general and administrative						$	462					$	455
Percentage of Net sales						13.4		%				13.6		%

Selling, general and administrative expenses increased $7 million for the quarter ended March 31, 2024, when compared to the same period for 2023, driven by higher restructuring costs and annual wage increases, partially offset by lower costs resulting from UpLift and favorable foreign exchange impacts.

Selling, general and administrative expenses as a percentage of Net sales decreased (20) basis points for the quarter ended March 31, 2024, compared to the same period in 2023.

Restructuring Costs

						Quarter Ended March 31,
(dollars in millions)						2024						2023
UpLift restructuring action costs						$	1					$	—
Other restructuring action costs						19						5
Total restructuring costs						$	20					$	5

We initiate restructuring actions to keep our cost structure competitive. Charges generally arise from severance related to workforce reductions, and facility exit and lease termination costs associated with the consolidation of office and manufacturing operations. We continue to closely monitor the economic environment and may undertake further restructuring actions to keep our cost structure aligned with the demands of the prevailing market conditions.

There were $1 million of UpLift restructuring action costs for the quarter ended March 31, 2024. We also incurred $12 million of UpLift transformation costs in the quarter ended March 31, 2024, primarily consulting and incremental personnel costs, which are recorded in Other income (expense), net in the Condensed Consolidated Statements of Operations.

Other restructuring action costs were $19 million for the quarter ended March 31, 2024 and included $9 million of costs related to 2024 actions and $10 million of costs related to 2023 actions.

Most of the expected charges will require cash payments, which we have funded and expect to continue to fund with cash generated from operations. The table below presents approximate cash outflows related to the restructuring actions during the quarter ended March 31, 2024, and the expected cash payments to complete the actions announced:

(dollars in millions)						UpLift Actions						Other Actions						Total Restructuring
Cash outflows during the three months ended March 31, 2024						$	7					$	13					$	20
Expected cash payments remaining to complete actions announced						31						57						88

The approved UpLift restructuring actions are expected to generate approximately $50 million in annual recurring savings by 2025, primarily in Selling, general and administrative expenses, and of which approximately $8 million was realized during the quarter ended March 31, 2024.

For other restructuring actions, we generally expect to achieve annual recurring savings within the two-year period subsequent to initiating the actions, including $10 million for the 2024 actions and $42 million for the 2023 actions, of which approximately $11 million was realized for the 2024 and 2023 actions during the quarter ended March 31, 2024.

For additional discussion of restructuring, see Note 12 to the Condensed Consolidated Financial Statements.

Other Income (Expense), Net

						Quarter Ended March 31,
(dollars in millions)						2024						2023
Other income (expense), net						$	14					$	7

The change in Other Income (Expense), Net, of $7 million for the quarter ended March 31, 2024, compared to the same period in 2023, was primarily driven by the reduction of our contractual indemnity obligation payable to RTX that resulted from the TMA and other reserve adjustments, partially offset by UpLift transformation costs of $12 million and unfavorable foreign currency mark-to-market adjustments in the quarter ended March 31, 2024.

Interest Expense (Income), Net

						Quarter Ended March 31,
(dollars in millions)						2024						2023
Interest expense (income), net						$	44					$	33

Interest expense (income), net increased $11 million for the quarter ended March 31, 2024, compared to the same period in 2023, primarily driven by higher interest expense related to the $750 million unsecured, unsubordinated debt issued in August 2023.

The average interest rate on our long-term debt for the quarters ended March 31, 2024 and 2023, was 2.5% and 2.0%, respectively. For additional discussion of borrowings, see Note 7 to the Condensed Consolidated Financial Statements.

Income Taxes

						Quarter Ended March 31,
						2024						2023
Effective tax rate						25.2		%				26.7		%

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

We anticipate some variability in the tax rate quarter to quarter from potential discrete items.

For additional discussion of income taxes and the effective income tax rate, see Note 11 to the Condensed Consolidated Financial Statements.

Noncontrolling Interest in Subsidiaries' Earnings and Net Income Attributable to Otis Worldwide Corporation

						Quarter Ended March 31,
(dollars in millions)						2024						2023
Noncontrolling interest in subsidiaries' earnings						$	21					$	21
Net income attributable to Otis Worldwide Corporation						$	353					$	331

Noncontrolling interest in subsidiaries' earnings were relatively flat for the quarter ended March 31, 2024, compared to the same period in 2023. Ownership interest in the underlying non-wholly owned subsidiaries has remained generally consistent year-over-year.

Net income attributable to Otis Worldwide Corporation increased for the quarter ended March 31, 2024, compared to the same period in 2023, due to higher operating profit (including the impact of foreign exchange rates) and a lower effective tax rate, partially offset by higher interest expense.

Segment Review

During the quarter ended March 31, 2024, we updated our measure of segment performance (segment operating profit) used to evaluate financial performance of the operating segments and allocate resources. The financial information presented herein reflects the impact of the measure of segment performance changes for all periods presented. See Note 17 to the Condensed Consolidated Financial Statements for additional information.

Summary performance for our operating segments, reconciled to total operating profit, for the quarters ended March 31, 2024 and 2023 was as follows:

						Net Sales												Operating Profit												Operating Profit Margin
(dollars in millions)						2024						2023						2024						2023						2024						2023
New Equipment						$	1,280					$	1,307					$	71					$	69					5.5%						5.3%
Service						2,157						2,039						523						479						24.2%						23.5%
Total segment						$	3,437					$	3,346					594						548						17.3%						16.4%
Corporate and Unallocated
General corporate expenses and other																		(33)						(30)
UpLift restructuring actions																		(1)						—
Other restructuring actions																		(19)						(5)
UpLift transformation costs																		(12)						—
Separation-related reserve adjustment																		15						—
Consolidated Operating Profit																		$	544					$	513					15.8%						15.3%

New Equipment

The New Equipment segment designs, manufactures, sells and installs a wide range of passenger and freight elevators, as well as escalators and moving walkways in residential and commercial buildings and infrastructure projects. Our New Equipment customers include real-estate and building developers and general contractors that develop and/or design buildings for residential, infrastructure, commercial, retail or mixed-use activity. We sell directly to customers as well as through agents and distributors. We also sell New Equipment to government agencies to support infrastructure projects, such as airports, railways or metros.

Summary performance for New Equipment for the quarters ended March 31, 2024 and 2023 was as follows:

						Quarter Ended March 31,
(dollars in millions)						2024						2023						Change						Change
Net sales						$	1,280					$	1,307					$	(27)					(2.1)%
Cost of sales						1,065						1,097						(32)						(2.9)%
						215						210						5						2.4%
Operating expenses						144						141						3						2.1%
Operating profit						$	71					$	69					$	2					2.9%
Operating profit margin						5.5		%				5.3		%

Summary analysis of the Net sales change for New Equipment for the quarter ended March 31, 2024 compared with the quarter ended March 31, 2023 was as follows:

Components of Net sales change:						Quarter Ended March 31, 2024
Organic volume						(0.5)		%
Foreign currency translation						(1.6)		%
Acquisitions and divestitures, net and other						—		%
Total % change						(2.1)		%

Quarter Ended March 31, 2024

Net sales

The organic sales decrease of (0.5)% was driven by a decline in China, partially offset by mid-teens organic sales growth in Americas and low single-digit organic sales growth in EMEA and Asia Pacific.

Operating profit

New Equipment operating profit increased $2 million including foreign exchange headwinds of $(4) million. Favorable price, productivity and commodity tailwinds more than offset lower volume and regional mix headwinds. Operating margin increased 20 basis points.

Service

The Service segment performs maintenance and repair services for both our products, and those of other manufacturers, and provides modernization services to upgrade elevators and escalators. Maintenance services include inspections to ensure code compliance, preventive maintenance offerings and other customized maintenance offerings tailored to meet customer needs, as well as repair services that address equipment and component wear and tear, and breakdowns. Modernization services enhance equipment operation and improve building functionality. Modernization offerings can range from relatively simple upgrades of interior finishes and aesthetics, to complex upgrades of larger components and sub-systems. Our typical Service customers include building owners, facility managers, housing associations and government agencies that operate buildings where elevators and escalators are installed.

Summary performance for Service for the quarters ended March 31, 2024 and 2023 was as follows:

						Quarter Ended March 31,
(dollars in millions)						2024						2023						Change						Change
Net sales						$	2,157					$	2,039					$	118					5.8		%
Cost of sales						1,339						1,251						88						7.0		%
						818						788						30						3.8		%
Operating expenses						295						309						(14)						(4.5)		%
Operating profit						$	523					$	479					$	44					9.2		%
Operating profit margin						24.2		%				23.5		%

Summary analysis of Service Net sales change for the quarter ended March 31, 2024 compared with the quarter ended March 31, 2023 was as follows:

Components of Net sales change:						Quarter Ended March 31, 2024
Organic volume						6.5		%
Foreign currency translation						(0.8)		%
Acquisitions and divestitures, net						0.1		%
Total % change						5.8		%

Quarter Ended March 31, 2024

Net sales

The organic sales increase of 6.5% is due to organic sales increases in maintenance and repair of 5.8% and in modernization of 9.7%.

Components of Net sales change:						Maintenance and Repair						Modernization
Organic volume						5.8		%				9.7		%
Foreign currency translation						(0.7)		%				(1.6)		%
Acquisitions and divestitures, net						0.2		%				—		%
Total % change						5.3		%				8.1		%

Operating profit

Service operating profit increased $44 million including foreign exchange headwinds of ($3) million. Higher volume, improved pricing on maintenance contracts and productivity were partially offset by inflationary pressures including annual wage increases. Operating margin increased 70 basis points.

Corporate and Unallocated

						Quarter Ended March 31,
(dollars in millions)						2024						2023
General corporate expenses and other						$	(33)					$	(30)
UpLift restructuring actions						(1)						—
Other restructuring actions						(19)						(5)
UpLift transformation costs						(12)						—
Separation-related reserve adjustment						15						—
Total Corporate and Unallocated						$	(50)					$	(35)

General corporate expenses and other for the quarter ended March 31, 2024 increased $3 million, compared to the same period in 2023, primarily due to the impact of foreign currency mark-to-market adjustments. UpLift and costs related to the program began in the third quarter of 2023. Additionally, higher other restructuring action costs were mostly offset by the reduction of our contractual indemnity obligation payable to RTX that resulted from the TMA.

LIQUIDITY AND FINANCIAL CONDITION

We expect to fund our ongoing operating, investing and financing requirements mainly through cash flows from operations, available liquidity through cash on hand and available bank lines of credit and access to capital markets.

As of March 31, 2024, we had cash and cash equivalents of approximately $900 million, of which approximately 95% was held by the Company's foreign subsidiaries. We manage our worldwide cash requirements by reviewing available funds among the many subsidiaries through which we conduct our business and the cost-effectiveness with which those funds can be accessed. On occasion, we are required to maintain cash deposits with certain banks with respect to contractual obligations related to acquisitions and divestitures or other legal obligations. As of March 31, 2024 and December 31, 2023, the amount of such restricted cash was approximately $3 million and $6 million, respectively.

From time-to-time we may need to access the capital markets to obtain financing. We may incur indebtedness or issue equity as needed. Although we believe that the arrangements in place as of March 31, 2024 permit us to finance our operations on acceptable terms and conditions, our access to, and the availability of, financing on acceptable terms and conditions in the future could be impacted by many factors, including (1) our credit ratings or absence of a credit rating, (2) the liquidity of the overall capital markets and (3) the current state of the economy, including tighter credit conditions. There can be no assurance that we will continue to have access to the capital markets on terms acceptable to us.

The following table contains several key measures of our financial condition and liquidity:

(dollars in millions)									March 31, 2024						December 31, 2023
Cash and cash equivalents									$	884					$	1,274
Total debt									6,881						6,898
Net debt (total debt less cash and cash equivalents)									5,997						5,624
Total equity									(4,940)						(4,855)
Total capitalization (total debt plus total equity)									1,941						2,043
Net capitalization (total debt plus total equity less cash and cash equivalents)									1,057						769
Total debt to total capitalization									355		%				338		%
Net debt to net capitalization									567		%				731		%

The Company does not intend to reinvest certain undistributed earnings of our international subsidiaries that have been previously taxed in the U.S. For the remainder of the Company’s undistributed international earnings, unless tax effective to repatriate, we will continue to permanently reinvest these earnings.

Borrowings and Lines of Credit

As of March 31, 2024, we had a revolving credit agreement with various banks providing for a $1.5 billion unsecured, unsubordinated five-year revolving credit facility. As of March 31, 2024, there were no borrowings under the revolving credit agreement. The undrawn portion of the revolving credit agreement serves as a backstop for the issuance of commercial paper.

There was no commercial paper outstanding as of March 31, 2024. For additional discussion of borrowings, see Note 7 to the Condensed Consolidated Financial Statements.

Share Repurchase Program

On December 1, 2022, our Board of Directors approved a share repurchase program for up to $2.0 billion of Common Stock, of which approximately $900 million was remaining as of March 31, 2024. Under this program, shares may be purchased on the open market, in privately negotiated transactions, under accelerated share repurchase programs or under plans complying with rules 10b5-1 and 10b-18 under the Securities Exchange Act of 1934, as amended.

Discussion of Cash Flows

The following table reflects the major categories of cash flows. For additional details, see the Condensed Consolidated Statements of Cash Flows.

						Quarter Ended March 31,
(dollars in millions)						2024						2023
Net cash flows provided by (used in):
Operating activities						$	171					$	278
Investing activities						(79)						(21)
Financing activities						(467)						(341)
Effect of foreign exchange rate changes on cash and cash equivalents						(18)						10
Net increase (decrease) in cash and cash equivalents and restricted cash						$	(393)					$	(74)

Operating activities

Cash flows from operating activities primarily represent inflows and outflows associated with our operations. Primary activities include net income from operations adjusted for non-cash transactions, working capital changes and changes in other assets and liabilities.

The year-over-year decrease in net cash provided by operating activities was primarily driven by working capital balances during the periods, including an increase in Accounts receivables, net in the quarter ended March 31, 2024 compared to a decrease the same period in 2023, due to the timing of billings.

During the quarter ended March 31, 2024, net cash provided by operating activities was $171 million. The primary drivers of the inflow related to $374 million of net income and changes in Contract assets and liabilities, net, due to the timing of billings on contracts compared to the progression on current contracts. These were partially offset by a decrease in Accounts payable due to the timing of payments to suppliers, an increase in Accounts receivable, net, due to the timing of billings, and a decrease in Accrued liabilities due to the timing of payments, including employee-related benefits, interest and income taxes.

During the quarter ended March 31, 2023, net cash provided by operating activities was $278 million. The primary drivers of the inflow related to $352 million of net income and changes in Contract assets and liabilities, net, due to the timing of billings on contracts compared to the progression on current contracts. These were partially offset by a decrease in Accounts payable due to the timing of payments to suppliers and a decrease in Accrued liabilities due to the timing of payments, including employee-related benefits and interest.

Investing activities

Cash flows from investing activities primarily represent inflows and outflows associated with long-term assets, including capital expenditures, investments in businesses and securities, proceeds from the sale of fixed assets and the settlement of derivative contracts.

During the quarter ended March 31, 2024, net cash used in investing activities was $79 million. The primary drivers of the outflow related to $31 million of capital expenditures, $30 million of acquisitions of businesses and intangible assets and $21 million of net cash payments from the settlement of derivative instruments.

During the quarter ended March 31, 2023, net cash used in investing activities was $21 million. The primary drivers of the outflow were $25 million of capital expenditures and $16 million of acquisitions of businesses and intangible assets, partially offset by $17 million of net cash receipts from the settlement of derivative instruments.

As discussed in Note 13 to the Condensed Consolidated Financial Statements, we enter into derivative instruments for risk management purposes. We operate internationally and, in the normal course of business, are exposed to fluctuations in interest rates, foreign exchange rates and commodity prices. These fluctuations can increase the costs of financing, investing and operating the business. We use derivative instruments, including forward contracts and options to manage certain foreign currency and commodity price exposures.

Financing activities

Cash flows from financing activities primarily represent inflows and outflows associated with equity and borrowings. Primary activities include short-term and long-term borrowing activity, paying dividends to shareholders, the repurchase of our Common Stock and dividends or other payments to noncontrolling interests.

During the quarter ended March 31, 2024, net cash used in financing activities was $467 million. The primary drivers of the outflow were the repurchases of our Common Stock of $300 million and dividends paid on our Common Stock of $138 million.

During the quarter ended March 31, 2023, net cash used in financing activities was $341 million. The primary drivers of the outflow were repurchases of our Common Stock of $175 million and dividends paid on our Common Stock of $120 million.

Guaranteed Securities: Summarized Financial Information

The following information is provided in compliance with Rule 13-01 of Regulation S-X under the Securities Exchange Act of 1934, as amended, with respect to the 2026 Euro Notes and the 2031 Euro Notes (together the "Euro Notes"), in each case issued by Highland Holdings S.à r.l. (“Highland”), a private limited liability company (société à responsabilité limitée) incorporated and existing under the laws of the Grand Duchy of Luxembourg ("Luxembourg"). The Euro Notes are fully and unconditionally guaranteed by Otis Worldwide Corporation ("OWC") on an unsecured, unsubordinated basis. Refer to "Note 9: Borrowings and Lines of Credit" in Item 8 in our 2023 Form 10-K, for additional information.

Highland is a wholly-owned, indirect consolidated subsidiary of OWC. OWC is incorporated under the laws of Delaware. As a company incorporated and existing under the laws of Luxembourg, and with its registered office in Luxembourg, Highland is subject to Luxembourg insolvency and bankruptcy laws in the event any insolvency proceedings are initiated against it. Luxembourg bankruptcy law is significantly different from, and may be less favorable to creditors than, the bankruptcy law in effect in the United States and may make it more difficult for creditors to recover the amount they could expect to recover in liquidation under U.S. insolvency and bankruptcy rules.

The Euro Notes are not guaranteed by any of OWC's or Highland's subsidiaries (all OWC subsidiaries other than Highland are referred to herein as "non-guarantor subsidiaries"). Holders of the Euro Notes will have a direct claim only against Highland, as issuer, and OWC, as guarantor.

The following tables set forth the summarized financial information as of and for the quarter ended March 31, 2024 and as of December 31, 2023 of each of OWC and Highland on a standalone basis, which does not include the consolidated impact of the assets, liabilities, and financial results of their subsidiaries except as noted on the tables below, nor does it include any impact of intercompany eliminations as there were no intercompany transactions between OWC and Highland. This summarized financial information is not intended to present the financial position or results of operations of OWC or Highland in accordance with U.S. GAAP.

(dollars in millions)						Quarter Ended March 31, 2024
OWC Statement of Operations - Standalone and Unconsolidated
Revenue						$	—
Cost of revenue						—
Operating expenses						3
Income from consolidated subsidiaries						48
Income (loss) from operations excluding income from consolidated subsidiaries						12
Net income (loss) excluding income from consolidated subsidiaries						(19)

(dollars in millions)						March 31, 2024						December 31, 2023
OWC Balance Sheet - Standalone and Unconsolidated
Current assets (intercompany receivables from non-guarantor subsidiaries)						$	—					$	—
Current assets (excluding intercompany receivables from non-guarantor subsidiaries)						98						63
Noncurrent assets (investments in consolidated subsidiaries)						1,236						1,236
Noncurrent assets (excluding investments in consolidated subsidiaries)						38						43
Current liabilities (intercompany payables to non-guarantor subsidiaries)						4,228						3,753
Current liabilities (excluding intercompany payables to non-guarantor subsidiaries)						108						119
Noncurrent liabilities						5,855						5,880

(dollars in millions)						Quarter Ended March 31, 2024
Highland Statement of Operations - Standalone and Unconsolidated
Revenue						$	—
Cost of revenue						—
Operating expenses						—
Income from consolidated subsidiaries						—
Income (loss) from operations excluding income from consolidated subsidiaries						—
Net income (loss) excluding income from consolidated subsidiaries						(64)

(dollars in millions)						March 31, 2024						December 31, 2023
Highland Balance Sheet - Standalone and Unconsolidated
Current assets (intercompany receivables from non-guarantor subsidiaries)						$	—					$	75
Current assets (excluding intercompany receivables from non-guarantor subsidiaries)						—						—
Noncurrent assets (investments in consolidated subsidiaries)						15,711						15,711
Noncurrent assets (intercompany receivables from non-guarantor subsidiaries)						513						518
Noncurrent assets (excluding investments in consolidated subsidiaries)						—						—
Current liabilities (intercompany payables to non-guarantor subsidiaries)						363						—
Current liabilities (excluding intercompany payables to non-guarantor subsidiaries)						3						1
Noncurrent liabilities (intercompany payables to non-guarantor subsidiaries)						3,484						3,467
Noncurrent liabilities (excluding intercompany payables to non-guarantor subsidiaries)						1,185						1,199

Off-Balance Sheet Arrangements and Contractual Obligations

Item 5 "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2023 Form 10-K discloses our off-balance sheet arrangements and contractual obligations. As of March 31, 2024, there have been no material changes to these off-balance sheet arrangements and contractual obligations, outside the ordinary course of business except for those disclosed in "Note 7, Borrowings and Lines of Credit" within Item 1 of this Form 10-Q.