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, service and modernization 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, including the machine, ropes or belts, safety systems and the entire car or escalator. 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 we pursue a global strategy 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 lifecycle.

The current status of significant factors affecting our business environment in 2026 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 2025 Form 10-K.

UpLift

Announced in July 2023, UpLift is a program to transform our operating model. As of December 31, 2025, total restructuring and other incremental costs to complete the transformation ("UpLift transformation costs") were approximately $300 million, including trailing restructuring costs expected in 2026 of $18 million. The Company generated run-rate savings of approximately $200 million.

For further details, refer to the discussion on restructuring costs in the "Results of Operations," as well as Note 11 to the Condensed Consolidated Financial Statements.

German Tax Litigation

In August 2024, we received a favorable ruling regarding a German tax litigation. Pursuant to the Tax Matters Agreement ("TMA") with United Technologies Corporation ("UTC"), our former parent, subsequently renamed RTX Corporation ("RTX"), and based on the facts and contractual provisions, additional information received from RTX and indemnity payments during 2025, the Company estimated the amount payable to RTX as a result of the outcome of the German tax litigation to be $56 million as of December 31, 2025. Based on indemnity payments made to RTX and adjustments to the indemnity payable in the quarter ended March 31, 2026, the Company now estimates the remaining amount payable to RTX to be $55 million, resulting in indemnification expense of $5 million and $52 million for the quarters ended March 31, 2026 and 2025, respectively. This indemnification expense is included in Other income (expense), net in the Condensed Consolidated Statements of Operations for the quarters ended March 31, 2026 and 2025. This estimate could further change due to the parties' continuing dispute concerning the scope of the final indemnity amount, which will be resolved pursuant to the procedures set forth in the TMA.

For further details, refer to Note 10 and Note 15 to the Condensed Consolidated Financial Statements, as well as our Consolidated Financial Statements in the 2025 Form 10-K.

Impact of Global Macroeconomic Conditions on Our Company

Global macroeconomic conditions have impacted, and continue to impact, aspects of the Company's operations and overall financial performance during the quarters ended March 31, 2026 and 2025. These macroeconomic conditions include, among others, geopolitical conflicts, inflationary pressures, high interest rates, tighter credit conditions and changes in global trade policies including higher tariffs in the U.S. and other countries. These macroeconomic trends could continue to impact our business, including impacts to overall financial performance during the remainder of 2026, as a result of the following, among other things:

• Higher costs of products and services due to tariffs;

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

• Customer liquidity constraints and related credit reserve;

• Cancellations or delays of customer orders; and

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

We currently do not expect any significant impact to our capital and financial resources from these macroeconomic conditions, 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 2025 Form 10-K for macroeconomic risks related to our business.

Risks Associated with Ongoing Conflicts

The ongoing conflicts in the Middle East, as well as between Russia and Ukraine have resulted in worldwide geopolitical and macroeconomic uncertainty, including volatile commodity markets, foreign exchange fluctuations, supply chain disruptions, increased risk of cybersecurity 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 or Iran. Additionally, we do not have operations or material net sales in Israel, Gaza or Lebanon.

Although we have operations in the Middle East and transport products through the Middle East, we currently do not expect the recent conflicts in that region to have a material impact on our business.

To the extent possible, we continue to operate our business in Ukraine. We do not have material revenue or operating profit in Ukraine.

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 2025 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 2025 Form 10-K. Except as disclosed in Note 17 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)						2026						2025
Net sales						$	3,566					$	3,350
Percentage change year-over-year						6		%

The factors contributing to the total percentage change year-over-year in total Net sales for the quarter ended March 31, 2026 are as follows:

Components of Net sales change:						Quarter Ended March 31, 2026
Organic volume						1		%
Foreign currency translation						5		%
Acquisitions and divestitures, net and other						—		%
Total % change						6		%

The Organic volume increase of 1% for the quarter ended March 31, 2026 was driven by an increase of 5% in Service, partially offset by a decrease of (5)% in New Equipment.

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)						2026						2025
Total cost of products and services sold						$	2,484					$	2,349
Percentage change year-over-year						6		%

The factors contributing to the percentage change year-over-year for the quarter ended March 31, 2026 in total cost of products and services sold are as follows:

Components of Cost of Products and Services Sold change:						Quarter Ended March 31, 2026
Organic volume						2		%
Foreign currency translation						4		%
Acquisitions and divestitures, net and other						—		%
Total % change						6		%

The Organic volume for total cost of products and services sold increased 2% for the quarter ended March 31, 2026, primarily driven by the organic sales changes noted above and the impacts of higher labor and material costs, partially offset by productivity.

Gross Margin

						Quarter Ended March 31,
(dollars in millions)						2026						2025
Gross margin						$	1,082					$	1,001
Gross margin percentage						30.3		%				29.9		%

Gross margin percentage increased 40 basis points for the quarter ended March 31, 2026, when compared to the same period in 2025, due to the increase in Service sales and decrease in New Equipment sales and the benefits from productivity, partially offset by the cost increases described above.

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

Research and Development

						Quarter Ended March 31,
(dollars in millions)						2026						2025
Research and development						$	38					$	37
Percentage of Net sales						1.1		%				1.1		%

Research and development was relatively flat for the quarter ended March 31, 2026, when compared to the same period in 2025.

Selling, General and Administrative

						Quarter Ended March 31,
(dollars in millions)						2026						2025
Selling, general and administrative						$	510					$	464
Percentage of Net sales						14.3		%				13.9		%

Selling, general and administrative expenses increased $46 million for the quarter ended March 31, 2026, when compared to the same period in 2025, driven by annual wage increases, higher costs resulting from organizational initiatives, costs to support ongoing operational execution and the impacts from foreign exchange, partially offset by savings resulting from restructuring actions and lower restructuring costs.

Selling, general and administrative expenses as a percentage of Net sales increased 40 basis points for the quarter ended March 31, 2026, when compared to the same period in 2025.

Restructuring Costs

						Quarter Ended March 31,
(dollars in millions)						2026						2025
UpLift restructuring						$	—					$	20
Other restructuring						7						23
Total restructuring costs						$	7					$	43

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. 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.

Transformation costs were $23 million in the quarter ended March 31, 2025, which are primarily for consultants, third-party service providers and personnel focused on designing and implementing a centralized service delivery model that supports our new organizational structure, including the standardization of our supply chain and digital technology procurement. These UpLift transformation costs are recorded in Other income (expense), net in the Condensed Consolidated Statements of Operations.

Other restructuring costs were $7 million for the quarter ended March 31, 2026 and included $4 million of costs related to 2026 actions and $3 million of costs related to 2025 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, 2026, and the expected cash payments to complete the actions announced:

(dollars in millions)						UpLift Actions						Other Actions						Total Restructuring
Cash outflows during the quarter ended March 31, 2026						$	8					$	6					$	14
Expected cash payments remaining to complete actions announced						58						26						84

The approved UpLift restructuring actions generated approximately $103 million in annual recurring savings at the end of 2025, primarily in Selling, general and administrative expenses, and of which approximately $25 million was realized during the quarter ended March 31, 2026, including $6 million of incremental savings compared to the same period in 2025.

For other restructuring actions, we generally expect to achieve annual recurring savings within the two-year period subsequent to initiating the actions, including $7 million for the 2026 actions and $38 million for the 2025 actions, of which approximately 25% relates to Cost of products and services sold and 75% relates to Selling, general and administrative expenses. Approximately $9 million of savings was realized for the 2026 and 2025 actions during the quarter ended March 31, 2026.

Reorganization of Operations in China

In January 2025, we announced the reorganization of our operations in China. Among other aspects, this reorganization will result in restructuring actions of approximately $30 million. These actions primarily included severance-related costs, and these actions were substantially completed as of December 31, 2025. Amounts related to the reorganization of operations in China are included within Other restructuring.

For additional discussion of restructuring, see Note 11 to the Condensed Consolidated Financial Statements.

Other Income (Expense), Net

						Quarter Ended March 31,
(dollars in millions)						2026						2025
Other income (expense), net						$	5					$	(89)

The change in Other income (expense), net of $94 million for the quarter ended March 31, 2026 compared to the same period in 2025, was partially driven by lower Separation-related adjustments of $47 million. The change is also impacted by the absence of prior period items including, $23 million of UpLift transformation costs, $21 million of non-recurring litigation-related settlement costs, $10 million of impairment loss related to net assets held for sale, and the gain on sale of fixed assets.

For additional discussion of the Separation-related adjustments, litigation-related settlement costs and held for sale impairment, see Note 16 to the Condensed Consolidated Financial Statements. For additional discussion of the restructuring and UpLift transformation costs, see Note 11 to the Condensed Consolidated Financial Statements.

Interest Expense (Income), Net

						Quarter Ended March 31,
(dollars in millions)						2026						2025
Interest expense (income), net						$	59					$	45

The changes in Interest expense (income), net of $14 million for the quarter ended March 31, 2026, compared to the same period in 2025, were primarily driven by lower interest income and higher interest expense related to the $500 million unsecured, unsubordinated debt issued in September 2025, partially offset by lower interest expense related to the repayment of the $1.3 billion unsecured, unsubordinated debt in April 2025.

The average interest rate on our long-term debt for the quarters ended March 31, 2026 and 2025 was 3.0% and 2.7%, respectively. For additional discussion of borrowings, see Note 6 to the Condensed Consolidated Financial Statements.

Income Taxes

						Quarter Ended March 31,
						2026						2025
Effective tax rate						26.5		%				30.1		%

The decrease in the effective tax rate for the quarter ended March 31, 2026, compared to the same period in 2025, is primarily due to the absence of the impact of the increase in our estimated nondeductible TMA indemnity obligation payable to RTX recorded in the quarter ended March 31, 2025.

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 10 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)						2026						2025
Noncontrolling interest in subsidiaries' earnings						$	13					$	13
Net income attributable to Otis Worldwide Corporation						$	340					$	243

Noncontrolling interest in subsidiaries' earnings was flat for the quarter ended March 31, 2026 compared to the same period in 2025. Other than our acquisition of the noncontrolling shares of Otis Electric Elevator Company Limited during the fourth quarter of 2025, 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, 2026, compared to the same period in 2025, 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

Summary performance for our operating segments, reconciled to total operating profit, for the quarters ended March 31, 2026 and 2025 was as follows:

						Net Sales												Operating Profit												Operating Profit Margin
(dollars in millions)						2026						2025						2026						2025						2026						2025
New Equipment						$	1,149					$	1,163					$	38					$	66					3.3%						5.7%
Service						2,417						2,187						556						537						23.0%						24.6%
Total segment						$	3,566					$	3,350					594						603						16.7%						18.0%
Corporate and Unallocated
General corporate expenses and other																		44						43
UpLift restructuring																		—						20
Other restructuring																		7						23
UpLift transformation costs																		—						23
Separation-related adjustments																		5						52
Litigation-related settlement costs																		—						21
Held for sale impairment																		—						10
Other, net																		(1)						—
Consolidated Operating Profit																		$	539					$	411					15.1%						12.3%

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 who 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, 2026 and 2025 was as follows:

						Quarter Ended March 31,
(dollars in millions)						2026						2025						Change						Change
Net sales						$	1,149					$	1,163					$	(14)					(1)%
Cost of sales						956						962						(6)						(1)%
						193						201						(8)						(4)%
Operating expenses						155						135						20						15%
Operating profit						$	38					$	66					$	(28)					(42)%
Operating profit margin						3.3		%				5.7		%

Summary analysis of the Net sales change for New Equipment for the quarter ended March 31, 2026 compared with the same period in 2025 was as follows:

Components of Net sales change:						Quarter Ended March 31, 2026
Organic volume						(5)		%
Foreign currency translation						4		%
Acquisitions and divestitures, net and other						—		%
Total % change						(1)		%

Quarter Ended March 31, 2026

Net sales

The organic sales decrease of (5)% was primarily driven by a greater than (20)% decline in China, mid single-digit decline in Asia Pacific and low single-digit decline in Americas, partially offset by low single-digit growth in EMEA.

Operating profit

New Equipment operating profit decreased $(28) million. The impacts of lower volume, unfavorable price, regional and product mix and higher costs resulting from organizational initiatives were partially offset by productivity. Operating margin decreased (240) 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, including the machine, ropes or belts, safety systems and the entire car or escalator. 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, 2026 and 2025 was as follows:

						Quarter Ended March 31,
(dollars in millions)						2026						2025						Change						Change
Net sales						$	2,417					$	2,187					$	230					11		%
Cost of sales						1,525						1,363						162						12		%
						892						824						68						8		%
Operating expenses						336						287						49						17		%
Operating profit						$	556					$	537					$	19					4		%
Operating profit margin						23.0		%				24.6		%

Summary analysis of Service Net sales change for the quarter ended March 31, 2026 compared with the same period in 2025 was as follows:

Components of Net sales change:						Quarter Ended March 31, 2026
Organic volume						5		%
Foreign currency translation						5		%
Acquisitions and divestitures, net and other						1		%
Total % change						11		%

Quarter Ended March 31, 2026

Net sales

The organic sales increase of 5% is due to increases in maintenance and repair of 4% and in modernization of 6%.

Components of Net sales change:						Maintenance and Repair						Modernization
Organic volume						4		%				6		%
Foreign currency translation						5		%				3		%
Acquisitions and divestitures, net and other						2		%				1		%
Total % change						11		%				10		%

Operating profit

Service operating profit increased $19 million including foreign exchange tailwinds of $29 million. Higher volume and improved pricing were more than offset by higher costs resulting from organizational initiatives, costs to support ongoing operational execution, higher labor and material costs, and mix. Operating margin decreased (160) basis points.

Corporate and Unallocated

						Quarter Ended March 31,
(dollars in millions)						2026						2025
General corporate expenses and other						$	44					$	43
UpLift restructuring						—						20
Other restructuring						7						23
UpLift transformation costs						—						23
Separation-related adjustments						5						52
Litigation-related settlement costs						—						21
Held for sale impairment						—						10
Other, net						(1)						—
Total Corporate and Unallocated						$	55					$	192

General corporate expenses and other was relatively flat for the quarter ended March 31, 2026 compared to the same period in 2025.

For additional discussion of the Separation-related adjustments, litigation-related settlement costs and held for sale impairment, see Note 16 to the Condensed Consolidated Financial Statements. For additional discussion of the restructuring and UpLift transformation costs, see Note 11 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, available bank lines of credit and access to capital markets.

As of March 31, 2026, we had cash and cash equivalents of $834 million, of which approximately 83% 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, 2026 and December 31, 2025, the amount of such restricted cash was $10 million and $9 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, 2026 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, 2026						December 31, 2025
Cash and cash equivalents									$	834					$	1,096
Total debt									7,818						7,956
Net debt (total debt less cash and cash equivalents)									6,984						6,860
Total equity									(5,509)						(5,346)
Total capitalization (total debt plus total equity)									2,309						2,610
Net capitalization (total debt plus total equity less cash and cash equivalents)									1,475						1,514
Total debt to total capitalization									339		%				305		%
Net debt to net capitalization									473		%				453		%

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, 2026, 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, 2026, 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.

As of March 31, 2026, there was $35 million in borrowings outstanding under the Company's $1.5 billion commercial paper program, consisting of €30 million of Euro denominated commercial paper. For additional discussion of borrowings, see Note 6 to the Condensed Consolidated Financial Statements.

On March 16, 2026, the Company repaid the Japanese Yen denominated 0.370% notes due in 2026, upon maturity, using cash on hand.

Share Repurchase Program

On January 16, 2025, 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, 2026.

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)						2026						2025
Net cash flows provided by (used in):
Operating activities						$	413					$	190
Investing activities						15						(161)
Financing activities						(694)						(428)
Effect of exchange rate changes on cash and cash equivalents						5						7
Net increase (decrease) in cash and cash equivalents and restricted cash						$	(261)					$	(392)

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 increase in net cash provided by operating activities was primarily driven by working capital balances during the periods, including a larger inflow in Contract assets and liabilities, current, in the quarter ended March 31, 2026 compared to the same period in 2025, due to the timing of billings on contracts compared to the progression on current contracts, a decrease in Other current assets in the quarter ended March 31, 2026 compared to an increase in the same period in 2025, due to the refunds received in 2026 from the German tax litigation, and a smaller decrease in Accounts payable in the quarter ended March 31, 2026 compared to the same period in 2025, due to the timing of payments to suppliers, partially offset by a decrease in Accrued Liabilities in the quarter ended March 31, 2026 compared to an increase in the same period in 2025, due to payments on the indemnity obligation to RTX and restructuring liabilities, and a larger increase in Accounts receivable, net, in the quarter ended March 31, 2026 compared to the same period in 2025, due to timing of billings and collections. Additionally, UpLift-related net payments were approximately $12 million in the quarter ended March 31, 2026, compared to $30 million in the quarter ended March 31, 2025. Separation-related payments were approximately $6 million in the quarter ended March 31, 2026. There were no Separation-related payments in the quarter ended March 31, 2025.

During the quarter ended March 31, 2026, net cash provided by operating activities was $413 million. The primary drivers of the inflow related to $353 million of net income, changes in Contract assets and liabilities, net, due to the timing of billings on contracts compared to the progression on current contracts, and a decrease in Other current assets due to refunds received in 2026 from the German tax litigation were partially offset by an increase in Accounts receivable, net, due to the timing of billings and collections, a decrease in Accounts payable due to timing of payments to suppliers and a decrease in Accrued liabilities due to timing of payments, including employee-related benefits, interest and income taxes. For additional discussion of the German tax litigation, see Note 1 and Note 15 to the Condensed Consolidated Financial Statements.

During the quarter ended March 31, 2025, net cash provided by operating activities was $190 million. Net income of $256 million includes $52 million of indemnification expense resulting from the outcome of the German tax litigation, $21 million of litigation-related settlement costs and $10 million of impairment loss related to net assets held for sale, none of which resulted in cash flow activity during the quarter ended March 31, 2025. Net income and the change in Contract assets and liabilities, net, due to timing of billings on contracts compared to the progression on current contracts, were also partially offset by a decrease in Accounts payable due to the timing of payments to suppliers and an increase in Accounts receivable, net, due to the timing of billings and collections. For additional discussions of the German tax litigation, see Note 1 and Note 15 to the Condensed Consolidated Financial Statements.

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, 2026, net cash provided by investing activities was $15 million. The primary driver of the inflow related to $49 million of net cash receipts from the settlement of derivative instruments, which was partially offset by $33 million of capital expenditures.

During the quarter ended March 31, 2025, net cash used in investing activities was $161 million. The primary drivers of the outflow related to $34 million of capital expenditures, $36 million of acquisitions of businesses and intangible assets and $93 million of net cash payments from the settlement of derivative instruments.

As discussed in Note 12 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, 2026, net cash used in financing activities was $694 million. The primary drivers of the outflow were repurchases of our Common Stock of $400 million, dividends paid on our Common Stock of $163 million and repayments of long-term debt of $135 million. These were partially offset by the net proceeds from short-term borrowings of $29 million.

During the quarter ended March 31, 2025, net cash used in financing activities was $428 million. The primary drivers of the outflow were repurchases of our Common Stock of $253 million and dividends paid on our Common Stock of $155 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, the 2027 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 8: Borrowings and Lines of Credit" in Item 8 in our 2025 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, 2026 and as of December 31, 2025 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, 2026
OWC Statement of Operations - Standalone and Unconsolidated
Revenue						$	—
Cost of revenue						—
Operating expenses						(1)
Income from consolidated subsidiaries						—
Income (loss) from operations excluding income from consolidated subsidiaries						(3)
Net income (loss) excluding income from consolidated subsidiaries						(44)

(dollars in millions)						March 31, 2026						December 31, 2025
OWC Balance Sheet - Standalone and Unconsolidated
Current assets (intercompany receivables from non-guarantor subsidiaries)						$	—					$	—
Current assets (excluding intercompany receivables from non-guarantor subsidiaries)						171						188
Noncurrent assets (investments in consolidated subsidiaries)						1,031						1,031
Noncurrent assets (excluding investments in consolidated subsidiaries)						37						39
Current liabilities (intercompany payables to non-guarantor subsidiaries)						8,228						7,508
Current liabilities (excluding intercompany payables to non-guarantor subsidiaries)						210						333
Noncurrent liabilities (intercompany payables to non-guarantor subsidiaries)						—						—
Noncurrent liabilities (excluding intercompany payables to non-guarantor subsidiaries)						5,398						5,412

(dollars in millions)						Quarter Ended March 31, 2026
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						(63)

(dollars in millions)						March 31, 2026						December 31, 2025
Highland Balance Sheet - Standalone and Unconsolidated
Current assets (intercompany receivables from non-guarantor subsidiaries)						$	—					$	—
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)						464						470
Noncurrent assets (excluding investments in consolidated subsidiaries)						—						—
Current liabilities (intercompany payables to non-guarantor subsidiaries)						370						20
Current liabilities (excluding intercompany payables to non-guarantor subsidiaries)						707						708
Noncurrent liabilities (intercompany payables to non-guarantor subsidiaries)						4,168						4,174
Noncurrent liabilities (excluding intercompany payables to non-guarantor subsidiaries)						1,557						1,577

Off-Balance Sheet Arrangements and Contractual Obligations

Item 5 "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2025 Form 10-K discloses our off-balance sheet arrangements and contractual obligations. As of March 31, 2026, 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 6, Borrowings and Lines of Credit" within Item 1 of this Form 10-Q.