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.

For discussion of Otis’ ESG goals and risks associated therewith, see the discussion under “Environmental, Social and Governance (“ESG”)” in Item 1 and under Item 1A. "Risk Factors" 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 $175 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 at least the same amount.

UpLift costs incurred in the quarters and nine months ended September 30, 2024 and 2023 are as follows:

						Quarter Ended September 30,												Nine Months Ended September 30,
(dollars in millions)						2024						2023						2024						2023
UpLift restructuring cost						$	4					$	—					$	11					$	—
UpLift transformation cost						18						4						45						4
Total UpLift costs						$	22					$	4					$	56					$	4

Total UpLift costs incurred to date are $97 million, including $36 million of restructuring costs and $61 million of transformation costs.

UpLift restructuring costs are primarily severance costs, and are recorded primarily in Selling, general and administrative in the Condensed Consolidated Statements of Operations. UpLift transformation costs are primarily consulting and incremental personnel costs, and are recorded in Other income (expense), net 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.

German Tax Litigation

In August 2024, we received a favorable ruling regarding a German tax litigation. As a result, we recorded income tax benefits of $185 million and related interest income of $200 million, which are included in Income tax expense (benefit), net and Interest expense (income), net, respectively, in the Condensed Consolidated Statements of Operations for the quarter and nine months ended September 30, 2024. Additionally, pursuant to the Tax Matters Agreement ("TMA") with RTX Corporation ("RTX", our former parent), the Company recorded indemnification expense of $194 million for amounts due to RTX resulting from the outcome of the German tax litigation. This expense is included in Other expense (income), net in the Condensed Consolidated Statements of Operations for the quarter and nine months ended September 30, 2024.

For further details, refer to Note 11 and Note 16 to the Condensed Consolidated Financial Statements.

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 and nine months ended September 30, 2024 and 2023. These macroeconomic developments include, among others, inflationary pressures, high 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 nine months ended September 30, 2024 and year ended December 31, 2023.

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

We cannot predict how the events described above will evolve. 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.

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 September 30,												Nine Months Ended September 30,
(dollars in millions)						2024						2023						2024						2023
Net sales						$	3,548					$	3,523					$	10,586					$	10,589
Percentage change year-over-year						0.7		%										—		%

The factors contributing to the total percentage change year-over-year in total Net sales for the quarter and nine months ended September 30, 2024 are as follows:

Components of Net sales change:						Quarter Ended September 30, 2024						Nine Months Ended September 30, 2024
Organic volume						1.2		%				1.2		%
Foreign currency translation						(0.8)		%				(1.4)		%
Acquisitions and divestitures, net						0.3		%				0.2		%
Total % change						0.7		%				—		%

The Organic volume increase of 1.2% for the quarter ended September 30, 2024 was driven by an increase of 7.7% in Service, partially offset by a decrease of (8.2)% in New Equipment. The Organic volume increase of 1.2% for the nine months ended September 30, 2024 was driven by an increase of 6.4% in Service, partially offset by a decrease of (6.3)% in New Equipment.

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

Cost of Products and Services Sold

						Quarter Ended September 30,												Nine Months Ended September 30,
(dollars in millions)						2024						2023						2024						2023
Total cost of products and services sold						$	2,470					$	2,477					$	7,401					$	7,464
Percentage change year-over-year						(0.3)		%										(0.8)		%

The factors contributing to the percentage change year-over-year for the quarter and nine months ended September 30, 2024 in total cost of products and services sold are as follows:

Components of Cost of Products and Services Sold change:						Quarter Ended September 30, 2024						Nine Months Ended September 30, 2024
Organic volume						0.7		%				0.5		%
Foreign currency translation						(0.9)		%				(1.4)		%
Acquisitions and divestitures, net and other						(0.1)		%				0.1		%
Total % change						(0.3)		%				(0.8)		%

The organic increase in total cost of products and services sold for the quarter and nine months ended September 30, 2024 was primarily driven by the organic sales changes noted above. Productivity and lower commodity prices, primarily steel, were partially offset by inflationary pressures, including annual wage increases and higher Service-related material costs.

Gross Margin

						Quarter Ended September 30,												Nine Months Ended September 30,
(dollars in millions)						2024						2023						2024						2023
Gross margin						$	1,078					$	1,046					$	3,185					$	3,125
Gross margin percentage						30.4		%				29.7		%				30.1		%				29.5		%

Gross margin percentage increased 70 and 60 basis points for the quarter and nine months ended September 30, 2024, respectively, when compared to the same periods in 2023, due to Service sales growing faster than New Equipment sales, the benefits from productivity and lower commodity prices, partially offset by the inflationary pressures described above.

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

Research and Development

						Quarter Ended September 30,												Nine Months Ended September 30,
(dollars in millions)						2024						2023						2024						2023
Research and development						$	40					$	36					$	115					$	107
Percentage of Net sales						1.1		%				1.0		%				1.1		%				1.0		%

Research and development was relatively flat for the quarter and nine months ended September 30, 2024, when compared to the same periods in 2023.

Selling, General and Administrative

						Quarter Ended September 30,												Nine Months Ended September 30,
(dollars in millions)						2024						2023						2024						2023
Selling, general and administrative						$	455					$	452					$	1,366					$	1,386
Percentage of Net sales						12.8		%				12.8		%				12.9		%				13.1		%

Selling, general and administrative expenses increased $3 million for the quarter ended September 30, 2024, when compared to the same period in 2023, driven by annual wage increases, higher other employment-related costs, and higher credit loss reserves, partially offset by savings resulting from UpLift, lower restructuring costs and favorable foreign exchange impacts.

Selling, general and administrative expenses decreased $(20) million for the nine months ended September 30, 2024, when compared to the same period in 2023, driven by savings resulting from UpLift, cost containment actions and favorable foreign exchange impacts, partially offset by annual wage increases.

Selling, general and administrative expenses as a percentage of Net sales were flat and decreased (20) basis points for the quarter and nine months ended September 30, 2024, respectively, when compared to the same periods in 2023.

Restructuring Costs

						Nine Months Ended September 30,
(dollars in millions)						2024						2023
UpLift restructuring						$	11					$	—
Other restructuring						29						36
Total restructuring costs						$	40					$	36

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 $11 million of UpLift restructuring costs for the nine months ended September 30, 2024. We also incurred $45 million of UpLift transformation costs in the nine months ended September 30, 2024, primarily consulting and incremental personnel costs, which are recorded in Other income (expense), net in the Condensed Consolidated Statements of Operations.

Other restructuring costs were $29 million for the nine months ended September 30, 2024 and included $17 million of costs related to 2024 actions and $12 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 nine months ended September 30, 2024, and the expected cash payments to complete the actions announced:

(dollars in millions)						UpLift Actions						Other Actions						Total Restructuring
Cash outflows during the nine months ended September 30, 2024						$	20					$	25					$	45
Expected cash payments remaining to complete actions announced						22						58						80

The approved UpLift restructuring actions are expected to generate approximately $55 million in annual recurring savings by 2025, primarily in Selling, general and administrative expenses, and of which approximately $26 million was realized during the nine months ended September 30, 2024.

For other restructuring actions, we generally expect to achieve annual recurring savings within the two-year period subsequent to initiating the actions, including $12 million for the 2024 actions and $42 million for the 2023 actions, split evenly in Cost of Products and Services Sold and in Selling, general and administrative expenses. Approximately $34 million of savings was realized for the 2024 and 2023 actions during the nine months ended September 30, 2024.

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

Other Income (Expense), Net

						Quarter Ended September 30,												Nine Months Ended September 30,
(dollars in millions)						2024						2023						2024						2023
Other income (expense), net						$	(220)					$	13					$	(227)					$	32

The changes in Other income (expense), net, of $(233) million and $(259) million for the quarter and nine months ended September 30, 2024, respectively, compared to the same periods in 2023, were primarily driven by Separation-related adjustments of $193 million and $177 million, respectively, UpLift transformation costs of $18 million and $45 million, respectively, $18 million of impairment loss related to net assets held for sale and foreign currency mark-to-market adjustments. The nine months ended September 30, 2024 was also impacted by non-recurring litigation-related settlement costs, including $18 million in the second quarter of 2024.

For additional discussion of the Separation-related adjustments, litigation-related settlement costs and held for sale impairment, see Note 17 to the Condensed Consolidated Financial Statements. For additional discussion of the restructuring and UpLift transformation costs, see the Note 12 to the Condensed Consolidated Financial Statements.

Interest Expense (Income), Net

						Quarter Ended September 30,												Nine Months Ended September 30,
(dollars in millions)						2024						2023						2024						2023
Interest expense (income), net						$	(150)					$	39					$	(79)					$	109

The changes in Interest expense (income), net of $(189) million and $(188) million for the quarter and nine months ended September 30, 2024, respectively, compared to the same periods in 2023, were primarily driven by $200 million related to a favorable ruling received in August 2024 regarding a tax litigation in Germany, partially offset by higher interest expense related to the $750 million unsecured, unsubordinated debt issued in August 2023. The nine months ended September 30, 2024 was also impacted by interest reserve adjustments related to non-recurring tax items, when compared to the same period in 2023.

The average interest rate on our long-term debt for the quarters and nine months ended September 30, 2024 and 2023, was 2.5% and 2.1%, respectively. For additional discussion of borrowings, see Note 7 to the Condensed Consolidated Financial Statements.

Income Taxes

						Quarter Ended September 30,												Nine Months Ended September 30,
						2024						2023						2024						2023
Effective tax rate						(8.8)		%				25.8		%				11.2		%				25.7		%

The decrease in the effective tax rate for the quarter and nine months ended September 30, 2024 is primarily due to recognition of estimated tax benefits arising as a result of the resolution of the German tax litigation. The effective tax rate for the nine months ended September 30, 2024 was also impacted by the reduction in a deferred tax liability related to the mitigation of future repatriation costs.

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 September 30,												Nine Months Ended September 30,
(dollars in millions)						2024						2023						2024						2023
Noncontrolling interest in subsidiaries' earnings						$	17					$	19					$	73					$	71
Net income attributable to Otis Worldwide Corporation						$	540					$	376					$	1,308					$	1,083

Noncontrolling interest in subsidiaries' earnings were relatively flat for the quarter and nine months ended September 30, 2024, compared to the same periods in 2023. Other than our acquisition of the noncontrolling shares of our subsidiary in Japan during the second quarter of 2024, ownership interest in the underlying non-wholly owned subsidiaries has remained generally consistent year-over-year. See Note 1 to the Condensed Consolidated Financial Statements for further discussion of the noncontrolling interest acquisition.

Net income attributable to Otis Worldwide Corporation increased for the quarter and nine months ended September 30, 2024, compared to the same periods in 2023, due to a lower effective tax rate and lower interest expense, partially offset by lower operating profit (including the impact of foreign exchange rates).

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 September 30, 2024 and 2023 was as follows:

						Net Sales												Operating Profit												Operating Profit Margin
(dollars in millions)						2024						2023						2024						2023						2024						2023
New Equipment						$	1,309					$	1,435					$	84					$	104					6.4%						7.2%
Service						2,239						2,088						555						518						24.8%						24.8%
Total segment						$	3,548					$	3,523					639						622						18.0%						17.7%
Corporate and Unallocated
General corporate expenses and other																		(40)						(27)
UpLift restructuring																		(4)						—
Other restructuring																		(5)						(21)
UpLift transformation costs																		(18)						(4)
Separation-related adjustments																		(193)						—
Held for sale impairment																		(18)						—
Other, net																		2						1
Consolidated Operating Profit																		$	363					$	571					10.2%						16.2%

Summary performance for our operating segments, reconciled to total operating profit, for the nine months ended September 30, 2024 and 2023 was as follows:

						Net Sales												Operating Profit												Operating Profit Margin
(dollars in millions)						2024						2023						2024						2023						2024						2023
New Equipment						$	4,010					$	4,346					$	265					$	292					6.6%						6.7%
Service						6,576						6,243						1,616						1,496						24.6%						24.0%
Total segment						$	10,586					$	10,589					$	1,881					$	1,788					17.8%						16.9%
Corporate and Unallocated
General corporate expenses and other																		(108)						(85)
UpLift restructuring																		(11)						—
Other restructuring																		(29)						(36)
UpLift transformation costs																		(45)						(4)
Separation-related adjustments																		(177)						—
Litigation-related settlement costs																		(18)						—
Held for sale impairment																		(18)						—
Other, net																		2						1
Consolidated Operating Profit																		$	1,477					$	1,664					14.0%						15.7%

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 and nine months ended September 30, 2024 and 2023 was as follows:

						Quarter Ended September 30,																								Nine Months Ended September 30,
(dollars in millions)						2024						2023						Change						Change						2024						2023						Change						Change
Net sales						$	1,309					$	1,435					$	(126)					(8.8)%						$	4,010					$	4,346					$	(336)					(7.7)		%
Cost of sales						1,088						1,188						(100)						(8.4)%						3,317						3,613						(296)						(8.2)		%
						221						247						(26)						(10.5)%						693						733						(40)						(5.5)		%
Operating expenses						137						143						(6)						(4.2)%						428						441						(13)						(2.9)		%
Operating profit						$	84					$	104					$	(20)					(19.2)%						$	265					$	292					$	(27)					(9.2)		%
Operating profit margin						6.4		%				7.2		%																6.6		%				6.7		%

Summary analysis of the Net sales change for New Equipment for the quarter and nine months ended September 30, 2024 compared with the same periods in 2023 was as follows:

Components of Net sales change:						Quarter Ended September 30, 2024						Nine Months Ended September 30, 2024
Organic volume						(8.2)		%				(6.3)		%
Foreign currency translation						(0.7)		%				(1.5)		%
Acquisitions and divestitures, net and other						0.1		%				0.1		%
Total % change						(8.8)		%				(7.7)		%

Quarter Ended September 30, 2024

Net sales

The organic sales decrease of (8.2)% was primarily driven by a greater than 20% decline in China, partially offset by low single-digit organic sales growth in Americas and Asia Pacific.

Operating profit

New Equipment operating profit decreased $(20) million. The impacts of lower volume and unfavorable regional and product mix were partially offset by favorable price, productivity, and commodity tailwinds. Operating margin decreased 80 basis points.

Nine Months Ended September 30, 2024

Net sales

The organic sales decrease of (6.3)% was driven by a greater than 20% decline in China, partially offset by mid single-digit organic sales growth in Americas and Asia Pacific.

Operating profit

New Equipment operating profit decreased $(27) million including foreign exchange headwinds of $(7) million. The impacts of lower volume and unfavorable regional and product mix were partially offset by favorable price, productivity, and commodity tailwinds. Operating margin decreased 10 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 and nine months ended September 30, 2024 and 2023 was as follows:

						Quarter Ended September 30,																								Nine Months Ended September 30,
(dollars in millions)						2024						2023						Change						Change						2024						2023						Change						Change
Net sales						$	2,239					$	2,088					$	151					7.2		%				$	6,576					$	6,243					$	333					5.3		%
Cost of sales						1,379						1,280						99						7.7		%				4,070						3,840						230						6.0		%
						860						808						52						6.4		%				2,506						2,403						103						4.3		%
Operating expenses						305						290						15						5.2		%				890						907						(17)						(1.9)		%
Operating profit						$	555					$	518					$	37					7.1		%				$	1,616					$	1,496					$	120					8.0		%
Operating profit margin						24.8		%				24.8		%																24.6		%				24.0		%

Summary analysis of Service Net sales change for the quarter and nine months ended September 30, 2024 compared with the same periods in 2023 was as follows:

Components of Net sales change:						Quarter Ended September 30, 2024						Nine Months Ended September 30, 2024
Organic volume						7.7		%				6.4		%
Foreign currency translation						(0.8)		%				(1.3)		%
Acquisitions and divestitures, net						0.3		%				0.2		%
Total % change						7.2		%				5.3		%

Quarter Ended September 30, 2024

Net sales

The organic sales increase of 7.7% is due to organic sales increases in maintenance and repair of 6.4% and in modernization of 13.7%.

Components of Net sales change:						Maintenance and Repair						Modernization
Organic volume						6.4		%				13.7		%
Foreign currency translation						(0.7)		%				(1.1)		%
Acquisitions and divestitures, net						0.4		%				—		%
Total % change						6.1		%				12.6		%

Operating profit

Service operating profit increased $37 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 and higher material costs. Operating margin was flat.

Nine Months Ended September 30, 2024

Net sales

The organic sales increase of 6.4% is due to organic sales increases in maintenance and repair of 5.7% and in modernization of 9.7%.

Components of Net sales change:						Maintenance and Repair						Modernization
Organic volume						5.7		%				9.7		%
Foreign currency translation						(1.3)		%				(1.8)		%
Acquisitions and divestitures, net						0.3		%				0.1		%
Total % change						4.7		%				8.0		%

Operating profit

Service operating profit increased $120 million including foreign exchange headwinds of ($18) million. Higher volume, improved pricing on maintenance contracts, and productivity were partially offset by inflationary pressures, including annual wage increases and higher material costs. Operating margin increased 60 basis points.

Corporate and Unallocated

						Quarter Ended September 30,												Nine Months Ended September 30,
(dollars in millions)						2024						2023						2024						2023
General corporate expenses and other						$	(40)					$	(27)					$	(108)					$	(85)
UpLift restructuring						(4)						—						(11)						—
Other restructuring						(5)						(21)						(29)						(36)
UpLift transformation costs						(18)						(4)						(45)						(4)
Separation-related adjustments						(193)						—						(177)						—
Litigation-related settlement costs						—						—						(18)						—
Held for sale impairment						(18)						—						(18)						—
Other, net						2						1						2						1
Total Corporate and Unallocated						$	(276)					$	(51)					$	(404)					$	(124)

General corporate expenses and other for the quarter and nine months ended September 30, 2024 increased $13 million and $23 million, respectively, compared to the same periods in 2023, primarily due to the impact of foreign currency mark-to-market adjustments and higher corporate costs.

For additional discussion of the Separation-related adjustments, litigation-related settlement costs and held for sale impairment, see Note 17 to the Condensed Consolidated Financial Statements. For additional discussion of the restructuring and UpLift transformation costs, see the Note 12 to the Condensed Consolidated Financial Statements.

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 September 30, 2024, we had cash and cash equivalents of $827 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 September 30, 2024 and December 31, 2023, the amount of such restricted cash was approximately $5 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 September 30, 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)									September 30, 2024						December 31, 2023
Cash and cash equivalents									$	827					$	1,274
Total debt									7,263						6,898
Net debt (total debt less cash and cash equivalents)									6,436						5,624
Total equity									(4,835)						(4,855)
Total capitalization (total debt plus total equity)									2,428						2,043
Net capitalization (total debt plus total equity less cash and cash equivalents)									1,601						769
Total debt to total capitalization									299		%				338		%
Net debt to net capitalization									402		%				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 September 30, 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 September 30, 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 $316 million of commercial paper outstanding as of September 30, 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 $400 million was remaining as of September 30, 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.

						Nine Months Ended September 30,
(dollars in millions)						2024						2023
Net cash flows provided by (used in):
Operating activities						$	873					$	1,030
Investing activities						(210)						(132)
Financing activities						(1,102)						(418)
Effect of foreign exchange rate changes on cash and cash equivalents						(9)						(34)
Net increase (decrease) in cash and cash equivalents and restricted cash						$	(448)					$	446

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 a larger decrease in Accounts payable in the nine months ended September 30, 2024 compared to the decrease the same period in 2023 due to the timing of payments to suppliers, as well as the timing of income tax payments and the related income tax expense in the nine months ended September 30, 2024 compared to the same period in 2023. Additionally, Separation-related and UpLift-related net payments were approximately $49 million and $54 million, respectively, in the nine months ended September 30, 2024, compared to net payments of approximately $25 million and $2 million, respectively, in the same period in 2023. These were partially offset by a smaller increase in Accounts receivable, net, in the nine months ended September 30, 2024 compared to the increase the same period in 2023 due to the timing of billings and collections.

During the nine months ended September 30, 2024, net cash provided by operating activities was $873 million. Net income of $1.4 billion includes $185 million of income taxes benefits, $200 million of interest income and $194 million of indemnification expense resulting from the outcome of the German tax litigation during the third quarter of 2024, none of which resulted in cash flow activity during the nine months ended September 30, 2024. Net income was also 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 collections, a decrease in Accrued liabilities and an increase in Other current assets due to the timing of payments, including employee-related benefits, income taxes and supplier payments. For additional discussion of the German tax litigation, see Note 1 and Note 16 to the Condensed Consolidated Financial Statements.

During the nine months ended September 30, 2023, net cash provided by operating activities was $1.0 billion. The primary drivers of the inflow related to $1.2 billion 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 an increase in Accounts receivable, net, due to the timing of billings.

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 nine months ended September 30, 2024, net cash used in investing activities was $210 million. The primary drivers of the outflow related to $87 million of capital expenditures, $70 million of acquisitions of businesses and intangible assets and $47 million of net cash payments from the settlement of derivative instruments.

During the nine months ended September 30, 2023, net cash used in investing activities was $132 million. The primary drivers of the outflow related to $96 million of capital expenditures, $27 million of acquisitions of businesses and intangible assets and $21 million of net cash payments 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 nine months ended September 30, 2024, net cash used in financing activities was $1.1 billion. The primary drivers of the outflow were the repurchases of our Common Stock of $800 million, dividends paid on our Common Stock and to noncontrolling shareholders of $450 million and $81 million, respectively, and acquisitions of noncontrolling interest shares of $75 million, including approximately $70 million for our subsidiary in Japan. These were partially offset by short term borrowings of $325 million.

During the nine months ended September 30, 2023, net cash used in financing activities was $418 million. The primary drivers of the outflow were repurchases of our Common Stock of $575 million, dividends paid on our Common Stock and to noncontrolling shareholders of $400 million and $76 million, respectively, and net repayments of short-term borrowings of $90 million. These were partially offset by $741 million of net proceeds from the issuance of long-term debt, a portion of which was used to fund the repayment at maturity of the €500 million 0.000% notes due November 12, 2023.

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 nine months ended September 30, 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)						Nine Months Ended September 30, 2024
OWC Statement of Operations - Standalone and Unconsolidated
Revenue						$	—
Cost of revenue						—
Operating expenses						10
Income from consolidated subsidiaries						49
Income (loss) from operations excluding income from consolidated subsidiaries						(228)
Net income (loss) excluding income from consolidated subsidiaries						(330)

(dollars in millions)						September 30, 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)						106						63
Noncurrent assets (investments in consolidated subsidiaries)						1,241						1,236
Noncurrent assets (excluding investments in consolidated subsidiaries)						37						43
Current liabilities (intercompany payables to non-guarantor subsidiaries)						4,825						3,753
Current liabilities (excluding intercompany payables to non-guarantor subsidiaries)						1,962						119
Noncurrent liabilities (intercompany payables to non-guarantor subsidiaries)						—						—
Noncurrent liabilities (excluding intercompany payables to non-guarantor subsidiaries)						4,510						5,880

(dollars in millions)						Nine Months Ended September 30, 2024
Highland Statement of Operations - Standalone and Unconsolidated
Revenue						$	—
Cost of revenue						—
Operating expenses						—
Income from consolidated subsidiaries						365
Income (loss) from operations excluding income from consolidated subsidiaries						—
Net income (loss) excluding income from consolidated subsidiaries						(187)

(dollars in millions)						September 30, 2024						December 31, 2023
Highland Balance Sheet - Standalone and Unconsolidated
Current assets (intercompany receivables from non-guarantor subsidiaries)						$	33					$	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)						496						518
Noncurrent assets (excluding investments in consolidated subsidiaries)						—						—
Current liabilities (intercompany payables to non-guarantor subsidiaries)						—						—
Current liabilities (excluding intercompany payables to non-guarantor subsidiaries)						6						1
Noncurrent liabilities (intercompany payables to non-guarantor subsidiaries)						3,721						3,467
Noncurrent liabilities (excluding intercompany payables to non-guarantor subsidiaries)						1,226						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 September 30, 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.