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What changed in Otis Worldwide's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Otis Worldwide's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+312 added−290 removedSource: 10-K (2025-02-04) vs 10-K (2024-02-02)

Top changes in Otis Worldwide's 2024 10-K

312 paragraphs added · 290 removed · 253 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

51 edited+14 added−19 removed47 unchanged
Biggest changeSuch risks, uncertainties and other factors include, without limitation: • the effect of economic conditions in the industries and markets in which Otis and its businesses operate and any changes therein, including financial market conditions, fluctuations in commodity prices, and other inflationary pressures, interest rates and foreign currency exchange rates, levels of end market demand in construction, pandemic health issues (including COVID-19 and variants thereof), natural disasters, whether as a result of climate change or otherwise, and the financial condition of Otis’ customers and suppliers; • the effect of changes in political conditions in the U.S., including in connection with the results of the 2024 election or otherwise, and other countries in which Otis and its businesses operate, including the effects of the conflict between Russia and Ukraine, the war between Israel and Hamas, and tensions between the U.S. and China, on general market conditions, commodity costs, global trade policies and related sanctions and export controls, and currency exchange rates in the near term and beyond; • challenges in the development, production, delivery, support, performance and realization of the anticipated benefits of advanced technologies and new products and services; • future levels of indebtedness, capital spending and research and development spending; • future availability of credit and factors that may affect such availability or costs thereof, including credit market conditions and Otis’ capital structure; • the timing and scope of future repurchases of Otis’ common stock ("Common Stock"), which may be suspended at any time due to various factors, including market conditions and the level of other investing activities and uses of cash; • fluctuations in prices and delays and disruption in delivery of materials and services from suppliers, whether as a result of changes in general economic conditions, geopolitical conflicts or otherwise; • cost reduction or containment actions, restructuring costs and related savings and other consequences thereof, including with respect to UpLift; • new business and investment opportunities; • the outcome of legal proceedings, investigations and other contingencies; • pension plan assumptions and future contributions; • the impact of the negotiation of collective bargaining agreements and labor disputes and labor inflation in the markets in which Otis and its businesses operate globally; • the effect of changes in tax, environmental, regulatory (including among other things import/export) and other laws and regulations in the U.S. and other countries in which Otis and its businesses operate; • the ability of Otis to retain and hire key personnel; • the scope, nature, impact or timing of acquisition and divestiture activity, the integration of acquired businesses into existing businesses and realization of synergies and opportunities for growth and innovation and incurrence of related costs; • the determination by the Internal Revenue Service (the "IRS") and other tax authorities that the distribution or certain related transactions in connection with the Separation should be treated as taxable transactions; and • our obligations and our disputes that have or may hereafter arise under the agreements we entered into with RTX and Carrier in connection with the Separation. 9 Table of Contents These and other factors are more fully discussed in the “Business”, “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections and elsewhere in this Form 10-K and may cause actual results to differ materially from those expressed or implied in the forward-looking statements.
Biggest changeSuch risks, uncertainties and other factors include, without limitation: • the effect of economic conditions in the industries and markets in which Otis and its businesses operate and any changes therein, including financial market conditions, fluctuations in commodity prices, and other inflationary pressures, interest rates and foreign currency exchange rates, levels of end market demand in construction, pandemic health issues, natural disasters, whether as a result of climate change or otherwise, and the financial condition of Otis’ customers and suppliers; • the effect of changes in political conditions in the U.S., including in connection with the new administration's policies and priorities, or otherwise, and other countries in which Otis and its businesses operate, including the effects of the conflict between Russia and Ukraine, the conflicts in the Middle East, and tensions between the U.S. and China, on general market conditions, commodity costs, global trade policies and related sanctions, export controls and tariffs, and currency exchange rates in the near term and beyond; • challenges in the development, production, delivery, support, performance and realization of the anticipated benefits of advanced technologies and new products and services; • future levels of indebtedness, capital spending and research and development spending; • future availability of credit and factors that may affect such availability or costs thereof, including credit market conditions and Otis’ capital structure; • the timing and scope of future repurchases of Otis’ common stock ("Common Stock"), which may be suspended at any time due to various factors, including market conditions and the level of other investing activities and uses of cash; • fluctuations in prices and delays and disruption in delivery of materials and services from suppliers, whether as a result of changes in general economic conditions, geopolitical conflicts or otherwise; • cost reduction or containment actions, restructuring or transformation costs and related savings and other consequences thereof, including with respect to UpLift and related impacts of reorganization and outsourcing activities and change management; • new business and investment opportunities; • the outcome of legal proceedings, investigations and other contingencies; • pension plan assumptions and future contributions; • the impact of the negotiation of collective bargaining agreements and labor disputes, labor actions, including strikes or work stoppages, and labor inflation in the markets in which Otis and its businesses operate globally; • the effect of changes in tax, environmental, regulatory (including among other things import/export, tariffs, and climate change or other ESG related legal and regulatory changes) and other laws and regulations in the U.S., including in connection with the new administration's policies and priorities, and other countries in which Otis and its businesses operate; • the ability of Otis to retain and hire key personnel; • the scope, nature, impact or timing of acquisition and divestiture activity, the integration of acquired businesses into existing businesses and realization of synergies and opportunities for growth and innovation and incurrence of related costs; • the determination by the Internal Revenue Service (the "IRS") and other tax authorities that the distribution or certain related transactions in connection with the Separation should be treated as taxable transactions; and 9 Table of Contents • our obligations and our disputes that have or may hereafter arise under the agreements we entered into with RTX and Carrier in connection with the Separation.
We offer additional technology and multimedia options to customers with voice, data and video digital services, leveraging our IoT technologies, as described below. These are often incorporated as an optional upgrade on maintenance contracts. eView Our in-car display streams live, customizable infotainment to passengers and can connect them to OTISLINE, Otis' 24-hour service call center, during an emergency.
We offer additional technology and multimedia options to customers with voice, data and video digital services, leveraging our IoT technologies, as described below. These are often incorporated as an optional upgrade on maintenance contracts. eView In-Car Display Our in-car display streams live, customizable infotainment to passengers and can connect them to OTISLINE, Otis' 24-hour service call center, during an emergency.
Compass 360 Our proprietary destination management system groups passengers by their desired destination and directs them to an assigned car that minimizes waiting and ride time.
Compass 360 Destination Management System Our proprietary destination management system groups passengers by their desired destination and directs them to an assigned car that minimizes waiting and ride time.
The system's algorithms anticipate traffic demand within a building and improve traffic flow. eCall Plus Otis' smartphone app enables passengers to summon their elevator remotely for a touchless experience. 3 Table of Contents Research and Development & Intellectual Property Innovation is a fundamental characteristic of our history and is central to our strategy.
The system's algorithms anticipate traffic demand within a building and improve traffic flow. eCall Plus Smartphone App Otis' smartphone app enables passengers to summon their elevator remotely for a touchless experience. 3 Table of Contents Research and Development & Intellectual Property Innovation is a fundamental characteristic of our history and is central to our strategy.
While our programs vary by location and eligibility, they include base and overtime pay, short-term incentive bonuses, long-term incentive pay in the form of stock awards, retirement plan benefits, health care and insurance benefits, tuition assistance through our Employee Scholar program, paid sick, bereavement, vacation, parental and family leaves, and wellness and employee assistance programs.
While our programs vary by location and eligibility, they generally include base and overtime pay, short-term incentive bonuses, long-term incentive pay in the form of stock awards, retirement plan benefits, health care and insurance benefits, tuition assistance through our Employee Scholar program, paid sick, bereavement, vacation, parental and family leaves, and wellness and employee assistance programs.
In 2023, we introduced the new Gen3 Core elevator in North America, which was designed specifically for low-rise buildings, bringing passengers connectivity, style, and comfort. The Gen3 Core helps minimize energy consumption, material usage and installation costs. Gen360 Initially launched in Europe, we have expanded the Gen360 elevator platform into China in 2023.
In 2023, we introduced the new Gen3 Core elevator in North America, which was designed specifically for low-rise buildings, bringing passengers connectivity, style, and comfort. The Gen3 Core helps minimize energy consumption, material usage and installation costs. Gen360 Initially launched in Europe, we expanded the Gen360 platform into China in 2023.
Otis Electric, a subsidiary of Otis China, is a joint venture established in 1997 for the purpose of manufacturing, installing and servicing elevators, escalators and related equipment. Otis China owns a controlling equity stake in Otis Electric. Otis China’s partner in Otis Electric is Xizi Elevator Group Co. Competition We operate in a global and highly competitive industry.
Otis Electric, a subsidiary of Otis China, is a joint venture established in 1997 for the purpose of manufacturing, installing and servicing elevators, escalators and related equipment. Otis China owns a controlling equity stake in Otis Electric. Otis China’s partner in Otis Electric is Xizi Elevator Group Co. Competition We operate in a highly competitive industry.
With 360-degree cameras in the hoistway, Otis service teams can visually confirm, fine-tune, diagnose and solve many issues remotely without stopping the elevator. The Otis ONE IoT solution adds a network of sensors for real-time status updates.
With optional 360-degree cameras in the hoistway, Otis service teams can visually confirm, fine-tune, diagnose and solve many issues remotely without stopping the elevator. The Otis ONE IoT solution adds a network of sensors for real-time status updates.
New Equipment orders are generally delivered w ithin 12 months of booking, though larger projects can take longer to deliver based on customer construction schedules, and in some regions, mostly in China, the order to delivery window is shorter. When placing New Equipment orders, customers typically make an advance payment to cover costs including design and contract engineering.
New Equipment orders are generally delivered w ithin 12 months of booking, although larger projects can take longer to deliver based on customer construction schedules, and in some regions, mostly in China, the order to delivery window is shorter. When placing New Equipment orders, customers typically make an advance payment to cover costs including design and contract engineering.
Certain types of customers, such as those owning or operating large properties or portfolios of properties, tend to execute long-term maintenance agreements. 2 Table of Contents We provide our Service offerings to our customers through a global network of 35,000 Service mechanics operating ou t of more than 1,400 bra nches and offices typically located in close proximity to concentrations of customers.
Certain types of customers, such as those owning or operating large properties or portfolios of properties, tend to execute long-term maintenance agreements. 2 Table of Contents We provide our Service offerings to our customers through a global network of 36,000 Service mechanics operating ou t of more than 1,400 bra nches and offices typically located in close proximity to concentrations of customers.
We have 1,200 engi neers globally, with increasing focus on digital initiatives, software, design of the user interface and the user experience. We maintain a portfolio of patents, trademarks, copyrights, trade secrets, licenses and franchises related to the Otis business to protect our R&D investments in products and services.
We have 1,300 engi neers globally, with increasing focus on digital initiatives, software, design of the user interface and the user experience. We maintain a portfolio of patents, trademarks, copyrights, trade secrets, licenses and franchises related to the Otis business to protect our R&D investments in products and services.
In addition, the SEC maintains a website (http://www.sec.gov) containing reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. 8 Table of Contents Cautionary Note Concerning Factors That May Affect Future R esults This Form 10-K contains statements which, to the extent they are not statements of historical or present fact, constitute “forward-looking statements” under the securities laws.
In addition, the SEC maintains a website (http://www.sec.gov) containing reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. 8 Table of Contents Cautionary Note Concerning Factors That May Affect Future R esults This Form 10-K contains statements which, to the extent they are not statements of historical or present fact, constitute "forward-looking statements" under the securities laws.
SkyRise For taller, high-rise buildings, the SkyRise advanced elevator platform combines cutting-edge technologies and precision engineering to deliver solutions for residential, commercial and mixed-use skyscrapers. In addition t o elevator solutions, we also offer escalators and moving walkways. With a range of finishes and aesthetics, Otis escalators integrate easily with building designs.
SkyRise High-Rise For taller, high-rise buildings, the SkyRise advanced elevator platform combines cutting-edge technologies and precision engineering to deliver solutions for residential, commercial and mixed-use skyscrapers. Escalators and Moving Walkways In addition t o elevator solutions, we also offer escalators and moving walkways. With a range of finishes and aesthetics, Otis escalators integrate easily with any building design.
See the “Environmental, Social and Governance ("ESG")” section of this Form 10-K above for more information regarding our ESG goals. We are focused on our colleagues' mental and physical well-being. We provide employee assistance plan benefits to all of our colleagues worldwide. We also offer flexible work arrangements to many salaried colleagues.
See the "Environmental, Social and Governance ("ESG")" section of this Form 10-K above for more information regarding our ESG goals. We are focused on our colleagues' mental and physical well-being. We provide employee assistance plan benefits to all of our colleagues worldwide. We also offer flexible work arrangements to many salaried colleagues.
We believe that our patents and trade secrets create a competitive advantage and that we have taken reasonable measures to build a portfolio of valid and enforceable intellectual property rights. However, these intellectual property rights might be challenged and could be found invalid or unenforceable. Loss of strategic patents and trade secrets could significantly affect our competitiveness.
We belie ve that our patents and trade secrets create a competitive advantage and that we have taken reasonable measures to build a portfolio of valid and enforceable intellectual property rights. However, these intellectual property rights might be challenged and could be found invalid or unenforceable. Loss of strategic patents and trade secrets could significantly affect our competitiveness.
Forward-looking statements may include, among other things, statements relating to future sales, earnings, cash flow, results of operations, uses of cash, dividends, share repurchases, tax rates, R&D spend, restructuring actions (including UpLift), credit ratings, net indebtedness and other measures of financial performance or potential future plans, strategies or transactions, or statements that relate to climate change and our intent to achieve certain ESG targets or goals, including operational impacts and costs associated therewith, and other statements that are not historical facts.
Forward-looking statements may include, among other things, statements relating to future sales, earnings, cash flow, results of operations, uses of cash, dividends, share repurchases, tax rates, R&D spend, restructuring or transformation actions (including UpLift and related reorganization and outsourcing activities), credit ratings, net indebtedness and other measures of financial performance or potential future plans, strategies or transactions, or statements that relate to climate change and our intent to achieve certain ESG targets or goals, including operational impacts and costs associated therewith, and other statements that are not historical facts.
In 2024, we expect to continue to innovate and expand our digital ecosystem and suite of digital solutions for both our existing service portfolio customers and for new equipment shipments from our factories.
In 2025, we expect to continue to innovate and expand our digital ecosystem and suite of digital solutions for both our existing service portfolio customers and for new equipment shipments from our factories.
Our largest joint ventures are located in China with the remainder of our joint ventures and non-wholly owned subsidiaries located in various other countries. We operate in China through two principal joint ventures: Otis Elevator (China) Investment Company Limited (“Otis China”) and Otis Electric Elevator Company Limited (“Otis Electric”).
Our largest joint ventures are located in China with the remainder of our joint ventures and non-wholly owned subsidiaries located in various other countries. We operate in China through two principal joint ventures: Otis Elevator (China) Investment Company Limited ("Otis China") and Otis Electric Elevator Company Limited ("Otis Electric").
Modernization offerings can range from relatively simple upgrades of interior finishes and aesthetics to complex upgrades of larger components and sub-systems. Launched in 2023 in the Americas, our GEN3 MOD Plus modernization offering for residential, commercial, hospitality, medical or industrial buildings includes built-in connectivity to our Otis ONE IoT digital platform.
Modernization offerings can range from relatively simple upgrades of interior finishes and aesthetics to complex upgrades of larger components and sub-systems. Our GEN3 MOD Plus modernization offering for residential, commercial, hospitality, medical or industrial buildings includes built-in connectivity to our Otis ONE IoT digital platform.
The Separation was completed pursuant to a Separation and Distribution Agreement ("Separation Agreement") and other agreements with UTC and Carrier related to the Separation, including but not limited to a transition services agreement ("TSA"), a tax matters agreement ("TMA"), an employee matter agreement ("EMA") and an intellectual property agreement (the "Intellectual Property Agreement").
The Separation was completed pursuant to a Separation and Distribution Agreement ("Separation Agreement") and other agreements with UTC and Carrier related to the Separation, including but not limited to a tax matters agreement ("TMA"), an employee matter agreement ("EMA") and an intellectual property agreement (the "Intellectual Property Agreement").
We have a maintenance portfolio of approximately 2.3 million unit s globally, which includes Otis equipment manufactured and sold by us, as well as equipment from other original equipment manufacturers. Through our network of service sales personnel, we sell our services directly to customers in all significant elevator and escalator verticals around the world.
We have a maintenance portfolio of approximately 2.4 million units globally, which includes Otis equipment manufactured and sold by us, as well as equipment from other original equipment manufacturers. Through our network of service sales personnel, we sell our services directly to customers in all significant elevator and escalator verticals around the world.
Digital Technology initiatives Otis offers a range of technologies for improving the passenger experience and we have been using technology to monitor elevator performance remotely for decades. As of December 31, 2023, approximately 900,000 units of our global portfolio, including units under the warranty period, are connected.
Digital Technology initiatives Otis offers a range of technologies for improving the passenger experience and we have been using technology to monitor elevator performance remotely for decades. As of December 31, 2024, approximately 1.0 million units of our global portfolio, including units under the warranty period, are connected.
The Gen360 elevator features a new electronic architecture, with many mechanical components replaced by electronic components that, in connection with our service, increase reliability, reduce the potential for entrapments and free hoistway space to accommodate larger cabins.
The Gen360 elevator frees hoistway space to accommodate larger cabins and features a new electronic architecture, with many mechanical components replaced by electronic components that, when combined with our service, increase reliability and reduce the potential for entrapments.
Our ESG goals and ESG reports can be found in the Investor section of our corporate website (http://www.otis.com) under the heading "ESG", which we update from time to time. Our ESG goals, our ESG reports and our corporate website are not incorporated by reference into this Form 10-K.
Our ESG goals and ESG reports can be found in the Investor section of our corporate website (http://www.otis.com) under the heading "ESG", which we update from time to time. Our ESG goals, our ESG reports and our corporate website are not incorporated by reference into this Form 10-K. The Company has developed an ESG governance model that supports our goals.
We also provide regular health and safety training to our field professionals. We empower all of our colleagues and subcontractors with stop work authority if they perceive an unsafe condition or behavior that may cause injury.
We also provide regular health and safety training to our field professionals. We follow local labor laws that address maximum working hours. We empower all of our colleagues and subcontractors with stop work authority if they perceive an unsafe condition or behavior that may cause injury.
Our international operations represented appro ximately 72% of our net sales for the year ended December 31, 2023. New Equipment 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, commercial and infrastructure projects.
Our international operations represented appro ximately 70% of our net sales for 2024. New Equipment 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, commercial and infrastructure projects.
We currently own approximately 5,000 patents issued in various jurisdictions, and we have approximately 1,800 patent applications pending globally. We filed approximately 1,000 patent applicatio ns in the last three years. Our patents are primarily filed in Europe, the United States and Asia.
We currently own approximatel y 5,300 pa tents issued in various jurisdictions, and we have approximatel y 1,400 patent applications pending globally. We filed approximately 800 patent applications in the last three years. Our patents are primarily filed in Europe, the United States and Asia.
We seek to manage commodity price risk through locking and hedging strategies, as well as passing the increases onto our customers through pricing. See Item 1A in this Form 10-K for risks associated with raw material and supply chain. Environmental, Social and Governance ("ESG") ESG is part of our culture and embedded in our long-term strategy.
We seek to manage commodity price risk through locking and hedging strategies, as well as passing the increases onto our customers through pricing. See Item 1A in this Form 10-K for risks associated with raw material and supply chain. Environmental, Social and Governance ("ESG") Otis has an integrated approach to ESG.
Raw Materials and Supplies Due to the global and distributed nature of our operations, we partner with a diverse network of several thousand suppliers globally. These include product and non-product suppliers, as well as subcontractors. We rely on approximate ly 500 key suppliers for our manufacturing supply chain.
Raw Materials and Supplies Due to the global and distributed nature of our operations, we partner with a diverse network of several thousand suppliers globally. These include product and non-product suppliers, as well as subcontractors.
The following description of our busin ess should be read in conjunction with Item 7 in this Form 10-K, including the information contained therein under the heading "Business Overview." Description of Business by Segment Our Company is organized into two segments, New Equipment and Service, which, for the year ended December 31, 2023, contributed 41% and 59% of our net sales, and 15% and 85% of our s egment operating profit, respectively.
The following description of our busin ess should be read in conjunction with Item 7 in this Form 10-K, including the information contained therein under the heading "Business Overview." Description of Business by Segment Our Company is organized into two segments, New Equipment and Service, which, for 2024, contributed 38% and 62% of our net sales, and 13% and 87% of our segment operating profit, respectively.
For the year ended December 31, 2023 , research and development ("R&D") expense wa s $144 million and 1.0% as a percentage of net sales. In addition to R&D expense, we made investments in digital and strategic initiatives of $57 million, which in combination with R&D expense was 1.4% as a percentage of net sales.
For 2024 , research and development ("R&D") expense wa s $152 million and 1.1% as a percentage of net sales. In addition to R&D expense, we made investments in digital and strategic initiatives of $53 million , which in combination with R&D expense was 1.4% as a percentage of net sales.
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 eff ects of climate change or as a result of implementing our ESG initiatives.
Our progress towards our ESG goals was included as a performance multiplier in determining payouts under our 2024 executive short-term incentive plan. 6 Table of Contents 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.
We believe our business strategies allow us to sustain New Equipment growth, accelerate Service portfolio growth, deliver modernization value, advance the digitalization of Otis, focus and empower the organization, support our ability to successfully compete across the New Equipment and Service segments, and help deliver sustainable earnings growth.
We believe these results of our business strategies support our ability to successfully compete across the New Equipment and Service segments, and help deliver sustainable earnings growth.
While we strive to maintain good relationships with our employee representative bodies, our business may be adversely affected by work stoppages, union negotiations, labor disputes and other matters associated with our labor force.
Out side of the U.S., our colleagues are represented by workers' councils or statutory labor unions as may be customary or required in those jurisdictions . While we strive to maintain good relationships with our employee representative bodies, our business may be adversely affected by work stoppages, union negotiations, labor disputes and other matters associated with our labor force.
Once commissioned, New Equipment units are typically supported by a warranty for a limited period of time. 1 Table of Contents We have developed a range of elevator and escalator solutions to meet the varying needs and objectives of our diverse customers, primarily centered around the following platforms: Gen2 , Gen3 , Gen360 and SkyRise .
We have developed a range of elevator and escalator solutions to meet the varying needs and objectives of our diverse customers, primarily centered around the following elevator platforms: Gen2 , Gen3 , Gen360 and SkyRise . Our primary elevator and escalator solutions are described below. 1 Table of Contents Gen2 Historically, Gen2 is our principal low-and mid-rise elevator solution.
Our primary elevator and escalator solutions are described below. Gen2 Historically, our principal low-and mid-rise elevator solution. Since its launch in 2000, we have sold over one million units, making it our best-selling elevator platform.
Since its launch in 2000, we have sold over one million units, making it our best-selling elevator platform.
We measure engagement by periodically conducting colleague surveys. The results, which are reported to our Board of Directors and management, help us assess how our colleagues feel about working for us. We use the survey results to develop action plans to address areas of concern.
The results, which are reported to our Board of Directors and management, help us assess how our colleagues feel about working for us. We use the survey results to develop action plans to address areas of concern. The engagement survey, which anonymizes the data, covers topics such as safety, ethics, belonging, quality, company prospects, inclusion, empowerment, accountability and managerial effectiveness.
We implement mitigation actions to address potential disruption in and other risks relating to our supply chain, including the use of safety stock and alternative materials, as well as risk assessments, qualification of multiple supply sources and use of long-term supplier agreements. 5 Table of Contents Although at times high prices for some important raw materials have caused margin and cost pressures for our business, we do not expect near-term unavailability or pricing of materials, components or supplies that would have a material adverse effect on our business.
Although at times high prices for some important raw materials have caused margin and cost pressures for our business, we do not expect near-term unavailability or pricing of materials, components or supplies that would have a material adverse effect on our business.
Compensation Our colleagues are vital to our success, and we offer pay and benefits designed to attract, retain and motivate our colleagues and align their compensation with both individual and our overall performance.
Compensation and Benefits Our colleagues are vital to our success, and we offer pay and benefits designed to attract, retain and motivate our colleagues and align their compensation with both individual and our overall performance. We follow local labor laws that address minimum wages, insurance coverage of work-related accidents, severance pay and other employment provisions, including overtime and sick pay.
We believe our global presence, local relationships and proven track record in executing complex elevator and escalator solutions contribute to our iconic brand, reputation and competitive position in the industry.
We believe our global presence, local relationships and proven track record in executing complex elevator and escalator solutions contribute to our iconic brand, reputation and competitive position in the industry. 4 Table of Contents We believe our business strategies allow us to: • Sustain New Equipment growth; • Accelerate Service portfolio growth; • Deliver modernization value; • Advance the digitalization of Otis; and • Focus and empower the organization.
Our Board of Directors and its committees engage in extensive review and oversight of ESG-related topics. The Company's ESG Council monitors our performance towards our ESG goals. The ESG Council is composed of senior leaders representing multiple functions within the Company, including Communications, Engineering, Environment, Health & Safety, Human Resources, Investor Relations, Legal, Quality & Continuous Improvement and Supply Chain.
Our Board of Directors and its committees engage in extensive review and oversight of ESG-related topics. The Company's ESG Council, composed of senior leaders representing multiple functions within the Company, monitors our performance towards our ESG goals and addresses impacts and opportunities related to climate change, as well as those related to all other ESG programs.
These independent service providers have an aggregate portfolio of about 50% of service units, but account for a smaller percentage of the service business when measured by value because of the types of units and level of maintenance covered by these providers. 4 Table of Contents There are several factors that determine competitiveness in the industry, including local codes and compliance requirements, customer preferences, price, reputation, delivery and execution, product quality, equipment performance, reliability and long-term service and product support.
There are several factors that determine competitiveness in the industry, including local codes and compliance requirements, customer preferences, price, reputation, delivery and execution, product quality, equipment performance, reliability and long-term service and product support.
Components and systems necessary to effectively complete our New Equipment projects, as well as to satisfy our maintenance and repair obligations, are often available from two or more sources within the industry. While we believe no single supplier is material to our business, some components or applications require particular specifications or qualifications.
We rely on approximate ly 450 key suppliers for our manufacturing supply chain. 5 Table of Contents Components and systems necessary to effectively complete our New Equipment projects, as well as to satisfy our maintenance and repair obligations, are often available from two or more sources within the industry.
Increased regulation (including the pending Securities and Exchange Commission ("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 su ch regulations or concerns would affect our business, operations or financial results.
Increased regulation 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 a discussion of risks associated with ESG matters, see Item 1A in this Form 10-K.
The principles of ESG align with the foundation of our business: our Absolutes of Safety, Ethics, and Quality. We are committed to the health and safety of our colleagues and the riding public. We strive to reduce the environmental impact of our own products, operations and services and those of our customers.
Our four ESG pillars of Health & Safety, Environment & Impact, People & Communities and Governance & Accountability are embedded in our business strategy and align with our Otis Absolutes of Safety, Ethics and Quality. We are committed to the health and safety of our colleagues and the riding public.
Our Environment & Impact goals are as follows: • Achieve a 50% reduction of Scope 1 and Scope 2 emissions by 2030 • Reach carbon neutrality for factory electricity by 2030 • Achieve 100% factory eligibility for zero-waste-to-landfill certification by 2025 • Complete ISO 14001 certification for all factories by 2025 (goal completed in 2021) In April 2023, we published our second annual ESG report on our ES G activities, metrics and progress towards our goals in accordance with the Global Reporting Initiative Standards, as well as in alignment with the Sustainability Accounting Standards Board guidelines and the Task Force on Climate-related Financial Disclosures.
In June 2024, we published our third annual ESG report on our ESG activities, metrics and progress towards our goals in accordance with the Global Reporting Initiative Standards, as well as in alignment with the Sustainability Accounting Standards Board guidelines and the Task Force on Climate-related Financial Disclosures.
Forward-looking statements can be identified by the use of words such as “believe,” “expect,” “expectations,” “plans,” “strategy,” “prospects,” “estimate,” “project,” “target,” “anticipate,” “will,” “should,” “see,” “guidance,” “outlook,” “medium-term,” “near-term,” “confident,” “goals” and other words of similar meaning in connection with a discussion of future operating or financial performance.
Forward-looking statements can be identified by the use of words such as "believe," "expect," "expectations," "plans," "strategy," "prospects," "estimate," "project," "target," "anticipate," "will," "should," "see," "guidance," "outlook," "medium-term," "near-term," "confident," "goals" and other words of similar meaning in connection with a discussion of future operating or financial performance.
For a discussion of risks associated with ESG matters, see Item 1A in this Form 10-K. 6 Table of Contents Human Capital As of December 31, 2023, our global workforce consists of 71,000 colleagues (including 42,000 field professionals), with 44% in Asia, 33% in Europe, the Middle East and Africa (“EMEA”) and 23% in the Americas.
Human Capital As of December 31, 2024, our global workforce consists of 72,000 colleagues (including 44,000 field professionals), with 45% in Asia, 34% in Europe, the Middle East and Africa ("EMEA") and 21% in the Americas. Approximately 64% of our U.S. workforce is covered by a collective bargaining agreement.
Global Compact and published our thirteen ESG goals (including the four Environment & Impact goals below) aligned with the U.N. Sustainable Development Goals ("SDGs"). Our ESG goals and alignment to SDGs are categorized into four areas: Health & Safety, Environment & Impact, People & Communities and Governance & Accountability.
In 2021, we became a signatory to the U.N. Global Compact and published our thirteen ESG goals and aligned them with the U.N. Sustainable Development Goals.
One of our flagship programs is the “Employee Scholar Program”, a comprehensive, company-sponsored education program that allows colleagues to expand their skills through degree or certification programs. Having access to trained technicians is essential to our business. Our mechanics receive extensive training to service and install equipment safely. This training consists of live, virtual, and on-the-job modules with experienced mechanics.
Our mechanics receive extensive training to service and install equipment safely. This training consists of live, virtual, and on-the-job modules with experienced mechanics. We also offer various programs to build leadership and functional capabilities and provide development initiatives through our colleague-led ERGs.
Revenues are recognized based on percentage of completion.
Revenues are recognized based on percentage of completion. Once commissioned, New Equipment units are typically supported by a warranty for a limited period of time.
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We foster a culture that embraces all voices and diverse points of view and proactively engages in the communities we serve. See "Human Capital" below for additional information regarding certain ESG initiatives related to our colleagues, including health and safety, employee engagement and inclusion. In 2021, we became a signatory to the U.N.
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These independent service providers have an aggregate portfolio of about 50% of service units, but account for a smaller percentage of the service business when measured by value because of the types of units and level of maintenance covered by these providers.
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We set goals within each of these areas and aligned them to the U.N. SDGs on which we can have the greatest impact.
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While we believe no single supplier is material to our business, some components or applications require particular specifications or qualifications.
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On November 9, 2023, we announced our commitment to setting near-term science-based greenhouse gas ("GHG") reduction targets, which we formally submitted to the Science Based Target Initiative ("SBTi") for evaluation. Our submission includes proposed GHG emissions reduction targets for Scope 1, 2 and 3 emissions, against a 2021 baseline.
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We implement mitigation actions to address potential disruption in and other risks relating to our supply chain, including the use of safety stock and alternative materials, as well as risk assessments, qualification of multiple supply sources and use of long-term supplier agreements.
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Also, an internal ESG Working Group, comprised of subject matter experts, assists the ESG Council in developing and effectuating the Company's ESG strategy. Both the ESG Council and ESG Working Group meet regularly, with the ESG Council reporting regularly to our CEO on our ESG progress and actions.
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We are committed to managing our impact on the environment, aligning our products and services with our stakeholders’ expectations and aspirations. We proactively engage in the communities where we live and work. We focus on attracting, developing and retaining the best talent on the market. See "Human Capital" below for additional information regarding certain initiatives related to our colleagues.
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Our progress towards our ESG goals was included as a performance multiplier in determining payouts under our 2023 executive short-term incentive plan.
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Our Environment & Impact goals are as follows: • Near-term science-based greenhouse gas ("GHG") reduction targets: ▪ Reduce absolute scope 1 and 2 GHG emissions 55% by 2033 from 2021 base year (with the target boundary including biogenic land-related emissions and removals from bioenergy feedstocks) ▪ Reduce absolute scope 3 GHG emissions from purchased goods and services, business travel, and use of sold products 33% by 2033 from 2021 base year • Source 100% of factory electricity from renewable energy by 2030 • Achieve 100% factory eligibility for zero-waste-to-landfill certification by 2025 • Complete ISO 14001 certification for all factories by 2025 (goal completed four years early in 2021) In April 2024, the Science Based Target Initiative ("SBTi") validated our near-term science-based GHG reduction targets.
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Approximately 63% of our U.S. workforce is covered by a collective bargaining agreement. Out side of the U.S., our colleagues are represented by workers' councils or statutory labor unions as may be customary or required in those jurisdictions .
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Our new science-based targets replace our GHG target of 50% reduction in scope 1 and 2 GHG emissions by 2030 from 2019 base year. Our climate transition plan is based on the implementation of major initiatives focused on energy management and operational efficiency across our factories, real estate and fleet.
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In 2023, we established the Otis Colleague Disaster Relief Fund, which provides financial assistance to eligible colleagues who have been affected by a disaster. Training and Development We strive to emphasize development and training, as we believe that individual and corporate success is driven by lifelong learning and by empowering our colleagues.
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We also engaged third parties for limited assurance covering certain Health & Safety, Environment & Impact, and People & Community metrics discussed in the ESG report. In the Fall 2024, we conducted our initial double materiality assessment in accordance with the European Corporate Sustainability Reporting Directive.
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As a result, we provide an extensive range of options and opportunities that vary based on a colleague's career stage and function. We offer a comprehensive suite of programs to build leadership and functional capabilities to drive our culture and equip our leaders for today and tomorrow.
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The ESG Council reports regularly to our CEO on our ESG progress and actions.
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We are increasing our professional network to reach out to more communities when hiring through partnerships, and have developed several apprenticeship, training and internship programs.
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Hiring, Training, Development and Retention We position ourselves to attract and retain the best talent in the market and interact meaningfully in the global communities where we live and work. We aim to be both an equal opportunity employer of choice and a place where our colleagues feel safe, welcomed and heard.
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We have implemented initiatives to obtain access to a larger talent pool and increase the number of women in our mechanic population. 7 Table of Contents Inclusion & Diversity We aim to be both an equal-opportunity employer of choice for people of broad perspectives and experiences, cultures, genders, races, and generations, and a place where every voice feels safe, welcomed and heard.
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We partner with universities and nonprofit organizations and use our Employee Resource Groups ("ERGs") to broaden our hiring pool to meet our hiring needs.
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To further accountability and transparency with respect to our progress, we maintain an Inclusion Advisory Group which is responsible for setting Otis' global inclusion strategy and priorities.
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We seek others’ ideas, encourage innovation and empower our colleagues through various learning and development programs that are aligned with our business strategy and are designed to contribute to our broader success such as our "Employee Scholar Program", a company-sponsored education program that allows colleagues to expand their skills through degree or certification programs.
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The Inclusion Advisory Group is composed of nine members representing cross-functional and cross-regional areas and one Otis Board member, and includes four annual rotating members and four permanent members, including our Chief Executive Officer and our Chief People Officer. The Inclusion Advisory Group meets three times a year.
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Our ERGs’ missions aim at fostering an inclusive work environment through engagement that positively impacts business outcomes. 7 Table of Contents We track our colleagues’ voluntary attrition rate to help us assess our workplace initiatives. We also track our colleagues’ satisfaction through colleague surveys to anticipate attrition, as discussed further below.
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We have implemented various programs to support accelerating the development of our diverse talent, leadership and culture of inclusion. Our global inclusive leadership learning program provides training through virtual learning and group conversations to identify and mitigate bias using a common approach and vocabulary.
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Our commitment to fostering an inclusive workplace strengthens employee engagement and supports the retention of top talent. Colleague Engagement We believe that engaged colleagues deliver better service to our customers. We measure engagement by periodically conducting colleague surveys.
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As a signatory to the CEO Letter on Disability Inclusion with Disability:IN, an organization with the goal of creating an inclusive environment for people with disabilities, we are expanding our disability inclusion, neurodiversity and accessibility efforts.
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These and other factors are more fully discussed in the "Business", "Risk Factors" and "Management’s Discussion and Analysis of Financial Condition and Results of Operations" sections and elsewhere in this Form 10-K and may cause actual results to differ materially from those expressed or implied in the forward-looking statements.
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In 2023, we launched a disability etiquette training program and established a global framework to simplify and unify the process by which our colleagues can request reasonable accommodations and workplace adjustments. We also continued in 2023 to build on our inclusion efforts by expanding our self-ID campaign from 33 to 40 countries.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeRisks associated with these actions and other workforce management issues include unfavorable political responses, unforeseen delays in the implementation of anticipated workforce reductions, additional unexpected costs, challenges in change management, adverse effects on employee morale and capacity, and the failure to meet operational targets due to the loss of employees or work stoppages, any of which may impair our ability to achieve anticipated cost reductions, otherwise harm our business or have a material adverse effect on our competitive position, results of operations, cash flows or financial condition. 12 Table of Contents Our debt levels and related debt service obligations could have negative consequences; we may need additional debt or equity financing in the future to meet our capital needs, and such financing may not be available on favorable terms, if at all, due to changes in global capital markets, our financial performance or outlook or our credit ratings and may be dilutive to existing shareholders.
Biggest changeRisks associated with these actions and other workforce management issues include unfavorable political responses, unforeseen delays in the implementation of anticipated workforce reductions, additional unexpected costs, challenges in change management, adverse effects on employee morale and capacity, and the failure to meet operational targets due to the loss of employees or work stoppages, any of which may impair our ability to achieve anticipated cost reductions, otherwise harm our business or have a material adverse effect on our competitive position, results of operations, cash flows or financial condition.
Quarterly cash dividends and share repurchases may be discontinued, accelerated or modified, are subject to a number of uncertainties and may affect the price of Common Stock. Quarterly cash dividends are a component of our capital allocation strategy, which we fund with operating free cash flow, borrowings and divestitures.
Quarterly cash dividends and share repurchases may be discontinued, accelerated or modified, are subject to a number of uncertainties and may affect the price of Common Stock. Quarterly cash dividends and share repurchases are a component of our capital allocation strategy, which we fund with operating free cash flow, borrowings and divestitures.
Important factors that could cause us to discontinue, limit, suspend, increase or delay our quarterly cash dividends or share repurchases include market conditions, the market price of Common Stock, the nature and timing of other investment and acquisition opportunities, changes in our business strategy, the terms of our financing arrangements, our outlook as to the ability to obtain financing at attractive rates, the impact on our credit ratings and the availability of domestic cash.
Important factors that could cause us to discontinue, limit, suspend, increase or delay our quarterly cash dividends or share repurchases include market conditions, the market price of our Common Stock, the nature and timing of other investment and acquisition opportunities, changes in our business strategy, the terms of our financing arrangements, our outlook as to the ability to obtain financing at attractive rates, the impact on our credit ratings and the availability of domestic cash.
While these attacks have not to our knowledge had a material adverse impact on the Company to date, our internal systems and products may be vulnerable to further cyber-attacks, security breaches, theft, programming errors or employee errors, which could lead to the compromise of confidential and sensitive data, unauthorized access, use, disclosure, modification or destruction of information, improper use of our systems, software solutions or networks, defective products, production downtimes and/or operational disruptions in violation of applicable law and/or contractual obligations.
While these attacks have not to our knowledge had a material adverse impact on the Company to date, our internal systems and products may be vulnerable to further cyberattacks, security breaches, theft, programming errors or employee errors, which could lead to the compromise of confidential and sensitive data, unauthorized access, use, disclosure, modification or destruction of information, improper use of our systems, software solutions or networks, defective products, production downtimes and/or operational disruptions in violation of applicable law and/or contractual obligations.
If these conflicts continue for a significant time or further expand to other countries and depending on the ultimate outcomes of these conflicts, which remain uncertain, they could have additional adverse effects on macroeconomic conditions, including but not limited to, increased costs, constraints on the availability of commodities, supply chain disruptions and decreased business spending.
If these conflicts continue for a significant time or further expand to other countries and depending on the ultimate outcomes of these conflicts, which remain uncertain, they or new geopolitical conflicts could have additional adverse effects on macroeconomic conditions, including but not limited to, increased costs, constraints on the availability of commodities, supply chain disruptions and decreased business spending.
We continue to make investments and adopt measures designed to enhance our protection, detection, response, and recovery capabilities, and to mitigate potential risks to our technology, products, services and operations from potential cyber-attacks. However, given the unpredictability, nature and scope of cyberattacks, it is possible that potential vulnerabilities could go undetected for an extended period.
We continue to make investments and adopt measures designed to enhance our protection, detection, response, and recovery capabilities, and to mitigate potential risks to our technology, products, services and operations from potential cyberattacks. However, given the unpredictability, nature and scope of cyberattacks, it is possible that potential vulnerabilities could go undetected for an extended period.
Examples of such risks include: (1) the availability and cost of low- or non-carbon-based energy sources and technologies, (2) third-party coordination and alignment over which we do not have control and may be unpredictable, (3) evolving regulatory requirements affecting ESG standards or disclosures, (4) the availability of suppliers that can meet our sustainability, diversity and other standards, and (5) our ability to recruit, develop, and retain diverse talent in our labor markets.
Examples of such risks include: (1) the availability and cost of low- or non-carbon-based energy sources and technologies, (2) third-party coordination and alignment over which we do not have control and may be unpredictable, (3) evolving regulatory requirements affecting ESG standards or disclosures, (4) the availability of suppliers that can meet our sustainability, inclusion and other standards, and (5) our ability to recruit, develop, and retain talent in our labor markets.
In addition, our business may be impacted by disruptions to our own or third-party information technology (“IT”) infrastructure, which could result from (among other causes) cyberattacks on or failures of such infrastructure or compromises to its physical security, as well as from damaging weather or other acts of nature.
In addition, our business may be impacted by disruptions to our own or third-party information technology ("IT") infrastructure, which could result from (among other causes) cyberattacks on or failures of such infrastructure or compromises to its physical security, as well as from damaging weather or other acts of nature.
Adverse changes in our relationships with, or the financial condition, performance or purchasing patterns of, key distributors and agents could adversely affect us. Certain of our businesses sell a significant amount of their products to distributors and agents, particularly in China, that have valuable relationships with customers.
Adverse changes in our relationships with, or the financial condition, performance or purchasing patterns, or compliance practices of, key distributors and agents could adversely affect us. Certain of our businesses sell a significant amount of their products to distributors and agents, particularly in China, that have valuable relationships with customers.
We are impacted by increasing stakeholder interest in public company performance, disclosure, and goal-setting with respect to ESG matters. We have increased reporting of our ESG programs and performance, as required by applicable law and voluntarily, and have established and announced goals and other objectives related to ESG matters.
We are impacted by evolving stakeholder interest in public company performance, disclosure, and goal-setting with respect to ESG matters. We have increased reporting of our ESG programs and performance, as required by applicable law and voluntarily, and have established and announced goals and other objectives related to ESG matters.
Our processes and controls for reporting of ESG matters may not always comply with evolving and disparate standards for identifying, measuring, and 15 Table of Contents reporting ESG metrics globally, our interpretation of reporting standards may differ from those of others, and such standards may change over time, any of which could result in significant revisions to our performance metrics, goals or reported progress in achieving such goals and increased compliance costs and risks.
Our processes and controls for reporting of ESG matters may not always comply with evolving and disparate standards for identifying, measuring, and reporting ESG metrics globally, our interpretation of reporting standards may differ from those of others, and such standards may change over time, any of which could result in significant revisions to our performance metrics, goals or reported progress in achieving such goals and increased compliance costs and risks.
Such attacks could disrupt our business operations, our systems or those of third parties, and could impact the ability of our products to work as intended. We and some of our third-party suppliers have experienced cyber-based attacks, and, due to the evolving threat landscape, may continue to experience them going forward, potentially with more frequency.
Such attacks could disrupt our business operations, our systems or those of third parties, and could impact the ability of our products to work as intended. We and some of our third-party suppliers have experienced cyber-based attacks, and, due to the evolving threat landscape, may continue to experience 17 Table of Contents them going forward, potentially with more frequency.
In addition, we are subject to Section 203 of the Delaware General Corporation Law (the “DGCL”), which could have the effect of delaying or preventing a change of control that you may favor.
In addition, we are subject to Section 203 of the Delaware General Corporation Law (the "DGCL"), which could have the effect of delaying or preventing a change of control that you may favor.
Failure to design, 16 Table of Contents develop and implement new technology infrastructure systems in an effective and timely manner, or to adequately invest in and maintain these systems, could result in the diversion of management’s attention and resources and could materially adversely affect our operating results, competitive position and ability to efficiently manage our business.
Failure to design, develop and implement new technology infrastructure systems in an effective and timely manner, or to adequately invest in and maintain these systems, could result in the diversion of management’s attention and resources and could materially adversely affect our operating results, competitive position and ability to efficiently manage our business.
As a result, we could be subject to criminal and civil penalties, disgorgement, changes or enhancements to our compliance measures that could increase our costs, decrease our access to certain sales channels, personnel changes or other remedial actions. Moreover, we are subject to antitrust and anti-collusion laws, including mandatory supply laws and bidding regulations, in various jurisdictions throughout the world.
As a result, we could be subject to criminal and civil penalties, disgorgement, changes or enhancements to our compliance measures that could increase our costs, decrease our access to certain sales channels, personnel changes or other remedial actions. 15 Table of Contents Moreover, we are subject to antitrust and anti-collusion laws, including mandatory supply laws and bidding regulations, in various jurisdictions throughout the world.
Furthermore, continuation of the conflicts could give rise to 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; regulatory enforcement; our ability to implement and execute our business strategy; terrorist activities; our exposure to foreign currency fluctuations; 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.
Furthermore, continuation of the conflicts could give rise to disruptions to our or our business partners’ global technology 11 Table of Contents infrastructure, including through cyberattack or cyber-intrusion; adverse changes in international trade policies and relations; regulatory enforcement; our ability to implement and execute our business strategy; terrorist activities; our exposure to foreign currency fluctuations; 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.
We collect, store, have access to and otherwise process certain confidential or sensitive data that may be subject to data privacy and cybersecurity laws, regulations or customer-imposed controls, including proprietary business information, personal data and other information.
We collect, store, have access to and otherwise process certain company and third-party confidential or sensitive data that may be subject to data privacy and cybersecurity laws, regulations or customer-imposed controls, including proprietary business information, personal data and other information.
Although we seek to protect such data and design our products to enable our customers to use them while complying with applicable data privacy and cybersecurity laws and/or customer-imposed controls, we have experienced cyber-attacks.
Although we seek to protect such data and design our products to enable our customers to use them while complying with applicable data privacy and cybersecurity laws and/or customer-imposed controls, we have experienced cyberattacks.
Issues with suppliers, (such as a disruption in deliveries, capacity and credit constraints, production disruptions, quality issues and supplier closings or bankruptcies), price increases or decreased availability of raw materials or commodities could have a material adverse effect on our ability to meet our commitments to customers or could increase our operating costs, either of which could have a material adverse effect on our competitive position, results of operations, cash flows or financial condition.
Issues with suppliers, (such as a disruption in deliveries, capacity and credit constraints, production disruptions, quality issues and supplier closings or bankruptcies), price increases or decreased availability of raw materials or commodities (particularly steel) have in the past had and could in the future have a material adverse effect on our ability to meet our commitments to customers or could increase our operating costs, either of which could have a material adverse effect on our competitive position, results of operations, cash flows or financial condition.
Item 1A. Risk Factors Risks Related to Our Business We may be affected by global economic, capital market and political conditions in general, and conditions in the construction and infrastructure industries in particular.
Item 1A. Risk Factors Risks Related to Our Business We may be affected by global economic conditions in general and conditions in the construction and infrastructure industries in particular.
See "Note 13: Employee Benefit Plans" in Item 8 of this Form 10-K for further discussion on pension plans and related obligations and contingencies. Information security, data privacy and identity protection may require significant resources and present certain risks to our business, reputation and financial condition.
See "Note 12: Employee Benefit Plans" in Item 8 of this Form 10-K for further discussion on pension plans and related obligations and contingencies. 16 Table of Contents Information security, data privacy and identity protection may require significant resources and present certain risks to our business, reputation and financial condition.
Changes to market and economic conditions in China, including credit conditions for our customers, or an escalation of trade conflicts between the U.S. and China, may further impact our ability to continue New Equipment net sales in China at rates consistent with prior years.
Changes to market and economic conditions in China, including credit conditions for our customers, or an escalation of trade conflicts between the U.S. and China, have recently impacted and may continue to impact our ability to maintain New Equipment net sales in China at rates consistent with prior years.
Our international sales and operations are subject to risks associated with changes in local government laws, regulations and policies, including those related to investments and limitations on foreign ownership of businesses, taxation, foreign exchange controls, capital controls, employment regulations and the repatriation of earnings.
Our international sales and operations are subject to risks associated with changes in local government laws, regulations and policies, including those related to investments and limitations on foreign ownership of businesses, taxation, foreign exchange controls, capital controls, local manufacturing, product content or supplier requirements, employment regulations and the repatriation of earnings.
Our financial statements are denominated in U.S. dollars. Accordingly, fluctuations in exchange rates have given and may continue to give rise to gains or losses when financial statements of non-U.S. operating units are translated into U.S. dollars.
Accordingly, fluctuations in exchange rates have given and may continue to give rise to gains or losses when financial statements of non-U.S. operating units are translated 10 Table of Contents into U.S. dollars.
We seek to grow through strategic acquisitions in addition to internal growth. Our due diligence reviews in connection with our acquisitions may not identify all of the material issues necessary to accurately estimate the cost and potential loss contingencies of a particular transaction, including potential exposure to regulatory sanctions resulting from an acquisition target’s previous activities.
Our due diligence reviews in connection with our acquisitions may not identify all of the material issues necessary to accurately estimate the cost and potential loss contingencies of a particular transaction, including potential exposure to regulatory sanctions resulting from an acquisition target’s previous activities.
Additionally, limitations on the ability of our customers and suppliers to access credit at interest rates and on terms that are acceptable to them could lead to insolvencies of customers and suppliers, limit or prevent customers from being able to finance purchases of our products and services, and cause delays in the delivery of key products from suppliers.
Additionally, limitations on the ability of our customers and suppliers to access credit at interest rates and on terms that are acceptable to them could lead to customer and supplier defaults and cancellations of existing orders, limit or prevent customers from being able to finance purchases of our products and services in the future, and cause delays in the delivery of key products from suppliers.
Additionally, we may not realize the degree or timing of benefits we anticipate when we first enter into a transaction, including as a result of current and proposed changes to U.S. and foreign regulatory approval processes and requirements in connection with an acquisition or divestiture. Any of the foregoing could adversely affect our business and results of operations.
Additionally, we may not realize the degree or timing of benefits we anticipate when we first enter into a transaction, including as a result of current and proposed changes to U.S. and foreign regulatory approval processes and requirements in connection with an acquisition or divestiture.
In addition, in connection with and prior to the Separation, UTC and its subsidiaries completed various internal reorganization transactions. With respect to certain transactions undertaken as part of the internal reorganization, UTC obtained tax rulings in certain non-U.S. jurisdictions and/or opinions of external tax advisors, in each case, regarding the tax treatment of such transactions.
With respect to certain transactions undertaken as part of the internal reorganization, UTC obtained tax rulings in certain non-U.S. jurisdictions and/or opinions of external tax advisors, in each case, regarding the tax treatment of such transactions.
China is currently the largest end market for sales of new equipment in our industry, with our New Equipment net sales in China representing approximately one third of our global New Equipment net sales and over half of our global New Equipment unit volume .
China is currently the largest end market for sales of new equipment in our industry, with our New Equipment net sales in China representing approximately one fourth of our global New Equipment net sales and over half of our global New Equipment unit volume and a growing part of our Service segment.
Additionally, in the ordinary course of business, we are subject to examinations by various tax authorities. In addition, governmental authorities in various jurisdictions could launch new examinations and expand existing examinations. The global and diverse nature of our operations means that these risks will continue and additional examinations, proceedings and contingencies will arise from time to time.
In addition, governmental authorities in various jurisdictions could launch new examinations and expand existing examinations. The global and diverse nature of our operations means that these risks will continue and additional examinations, proceedings and contingencies will arise from time to time.
The implementation of more restrictive trade policies, including the imposition of tariffs, or the renegotiation of existing trade agreements with the U.S. or countries where we sell large quantities of products and services, procure materials incorporated into our products, manufacture products or recruit and employ employees, including trade relations between the U.S. and China 10 Table of Contents (as discussed below), could have a material adverse effect on our business, results of operations and financial condition, including our ability to r ecruit and retain employees or deploy certain employees to the geographies where their skills are best utilized.
The implementation of more restrictive trade policies, including the imposition of further tariffs in connection with the new administration in the U.S. and retaliatory tariffs in response thereto, or the renegotiation of existing trade agreements with the U.S. or countries where we sell large quantities of products and services, procure materials incorporated into our products, manufacture products or recruit and employ employees (see discussion on China below), could have a material adverse effect on our business, results of operations and financial condition, including our ability to r ecruit and retain employees or deploy certain employees to the geographies where their skills are best utilized.
Failure of foreign jurisdictions to protect our intellectual property rights, an inability to effectively enforce such rights in foreign jurisdictions, or the imposition of foreign jurisdiction investment or sourcing restrictions or requirements could result in loss of valuable proprietary information and could impact our competitive position and financial results. 17 Table of Contents Additional tax expense or additional tax exposures could affect our future profitability.
Failure of foreign jurisdictions to protect our intellectual property rights, an inability to effectively enforce such rights in foreign jurisdictions, or the imposition of foreign jurisdiction investment or sourcing restrictions or requirements could result in loss of valuable proprietary information and could impact our competitive position and financial results.
While these factors and their impact are difficult to predict, any one or more of them could have a material adverse effect on our competitive position, results of operations, cash flows or financial condition.
While these factors and their impact are difficult to predict, any one or more of them could have a material adverse effect on our competitive position, results of operations, cash flows or financial condition. Our international operations subject us to risks associated with geopolitical conflicts. Our international sales and operations are subject to risks associated with geopolitical conflicts.
No assurance can be given as to what standard a court would apply to determine 20 Table of Contents insolvency or that a court would determine that Otis or any of its subsidiaries were solvent at the time of or after giving effect to the distribution. Item 1B. Unresolved Staff Comments None.
No assurance can be given as to what standard a court would apply to determine insolvency or that a court would determine that Otis or any of its subsidiaries were solvent at the time of or after giving effect to the distribution.
The conflict between Russia and Ukraine and the war between Israel and Hamas have resulted in worldwide geopolitical and macroeconomic uncertainty, and we cannot predict how the conflicts will evolve or the timing thereof.
The ongoing conflicts between Russia and Ukraine and in the Middle East have resulted in worldwide geopolitical and macroeconomic uncertainty, and we cannot predict how the conflicts will evolve or the timing thereof.
For this purpose, any acquisitions of RTX or Otis shares within the period beginning two years before the distribution of Common Stock pursuant to the Separation and ending two years after such distribution are presumed to be part of such a plan, although RTX or Otis may be able to rebut that presumption (including by qualifying for one or more safe harbors under applicable Treasury Regulations).
For this purpose, any acquisitions of RTX or Otis shares within the period beginning two years before the distribution of Common Stock pursuant to the Separation and ending two years after such distribution are presumed to be part of such a plan, although RTX or Otis may be able to rebut that presumption (including by qualifying for one or more safe harbors under applicable Treasury Regulations). 20 Table of Contents In addition, in connection with and prior to the Separation, UTC and its subsidiaries completed various internal reorganization transactions.
Otis’ amended and restated bylaws provide that, unless Otis’ Board of Directors otherwise determines, the state courts within the State of Delaware (or, if no state court located within the State of Delaware has jurisdiction, the federal district court for the District of Delaware) will be the sole and exclusive forum for any derivative action or proceeding brought on behalf of Otis, any action asserting a claim for or based on a breach of a fiduciary duty owed by any current or former director or officer or other employee of Otis to Otis or its shareholders, including a claim alleging the aiding and abetting of such a breach of fiduciary duty, any action asserting a claim against Otis or any current or former director or officer or other employee of Otis arising pursuant to any provision of the DGCL or our amended and restated certificate of incorporation or amended and restated bylaws, any action asserting a claim relating to or involving Otis governed by the internal affairs doctrine, or any action asserting an “internal corporate claim” as that term is defined in Section 115 of the DGCL. 18 Table of Contents To the fullest extent permitted by law, this exclusive forum provision applies to state and federal law claims, including claims under the federal securities laws, including the Securities Exchange Act of 1934, as amended (the "Exchange Act"), although Otis shareholders will not be deemed to have waived Otis’ compliance with the federal securities laws and the rules and regulations thereunder.
Otis’ amended and restated bylaws provide that, unless Otis’ Board of Directors otherwise determines, the state courts within the State of Delaware (or, if no state court located within the State of Delaware has jurisdiction, the federal district court for the District of Delaware) will be the sole and exclusive forum for any derivative action or proceeding brought on behalf of Otis, any action asserting a claim for or based on a breach of a fiduciary duty owed by any current or former director or officer or other employee of Otis to Otis or its shareholders, including a claim alleging the aiding and abetting of such a breach of fiduciary duty, any action asserting a claim against Otis or any current or former director or officer or other employee of Otis arising pursuant to any provision of the DGCL or our amended and restated certificate of incorporation or amended and restated bylaws, any action asserting a claim relating to or involving Otis governed by the internal affairs doctrine, or any action asserting an "internal corporate claim" as that term is defined in Section 115 of the DGCL.
If our ESG practices do not meet evolving investor or other stakeholder expectations and standards, then our reputation, our ability to attract or retain employees, and our attractiveness as an investment, supplier, or business partner could be negatively impacted, or could result in litigation.
If our ESG practices do not meet evolving regulations, investor or other stakeholder expectations and standards, then our reputation, our ability to attract or retain employees, and our attractiveness as an investment, supplier, or business partner could be negatively impacted, or could result in litigation. We may also be subject to penalties for non-compliance under applicable laws.
Alternatively, if a court were to find this exclusive forum provision inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings described above, we may incur additional costs associated with resolving such matters in other jurisdictions, which could negatively affect our business, results of operations and financial condition.
Alternatively, if a court were to find this exclusive forum provision inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings described above, we may incur additional costs associated with resolving such matters in other jurisdictions, which could negatively affect our business, results of operations and financial condition. 19 Table of Contents Risks Related to the Separation In connection with the Separation, each of RTX, Otis and Carrier agreed to indemnify the other parties for certain liabilities.
These activities are complex and may involve or require significant changes to our operations. If we do not successfully manage restructuring and other transformation activities, expected efficiencies and benefits might be delayed or not realized, and our operations and business could be disrupted.
If we do not successfully manage restructuring and other transformation activities, expected efficiencies and benefits might be delayed or not realized, and our operations and business could be disrupted.
These risks relate to, among other things, product safety, personal injuries, intellectual property rights, contract-related claims, taxes, environmental matters, competition laws and laws governing improper business practices. We could be charged with wrongdoing in connection with such matters.
These risks relate to, among other things, product safety, personal injuries, intellectual property rights, contract-related claims, taxes, environmental matters, competition laws and laws governing improper business practices. We could be charged with wrongdoing in connection with such matters. If convicted or found liable, we could be subject to significant fines, penalties, repayments and other damages (in certain cases, treble damages).
We expect that net sales to emerging markets will continue to account for a significant portion of our net sales as those and other developing nations and regions around the world increase their demand for our products and services. A slowdown in urbanization in emerging countries, such as China or India, could adversely affect our financial performance.
We expect that net sales to emerging markets will continue to account for a significant portion of our net sales as those and other developing nations and regions around the world increase their demand for our products and services.
In addition, currency fluctuations may affect the prices we pay for the materials used in our products. Though we engage in hedging strategies to manage foreign currency exposures in connection with certain cross-border transactions, our operating margins may be negatively impacted by currency fluctuations that result in higher costs or lower revenues for certain cross-border transactions.
Though we engage in hedging strategies to manage foreign currency exposures in connection with certain cross-border transactions, our operating margins may be negatively impacted by currency fluctuations that result in higher costs or lower revenues for certain cross-border transactions. Our financial statements are denominated in U.S. dollars.
The possibility also exists that our competitors might develop new technology or offerings that might cause our existing technology and offerings to become obsolete, which could have a material adverse effect on our competitive position, results of operations, cash flows or financial condition.
The possibility also exists that our competitors might develop new technology or offerings that might cause our existing technology and offerings to become obsolete, which could have a material adverse effect on our competitive position, results of operations, cash flows or financial condition. 12 Table of Contents We operate in a competitive environment and our profitability depends on our ability to accurately estimate the costs and timing of providing our products and services.
Our ability to issue debt or enter into other financing arrangements on acceptable terms could be adversely affected if there is a material decline in the demand for our products or services, or in the solvency of our customers, suppliers or distributors or other significantly unfavorable changes in economic conditions.
Our ability to issue debt or enter into other financing arrangements on acceptable terms could be adversely affected if there is a material decline in the demand for our products or services, or in the solvency of our customers, suppliers or distributors or other significantly unfavorable changes in economic conditions. 13 Table of Contents We have an investment-grade credit rating from each of Moody’s Investors Service, Inc. and Standard & Poor’s.
We seek to grow our business through the design, development, production, sale and support of innovative products that incorporate advanced technologies. The product and service needs of our customers change and evolve regularly, and we invest substantial amounts in research and development efforts to pursue advancements in technologies, products and services.
The product and service needs of our customers change and evolve regularly, and we invest substantial amounts in research and development efforts to pursue advancements in technologies, products and services.
Accordingly, notwithstanding receipt by UTC of the IRS ruling and the opinion of counsel, there can be no assurance that the IRS will not assert that the Separation and/or certain related transactions did not qualify for tax-free treatment for U.S. federal income tax purposes or that a court would not sustain such a challenge. 19 Table of Contents If the distribution of Common Stock pursuant to the Separation were to fail to qualify as a transaction that is generally tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code, in general, for U.S. federal income tax purposes, RTX would recognize a taxable gain as if it had sold the Common Stock in a taxable sale for its fair market value, and RTX shareholders who received Common Stock in the distribution would be subject to tax as if they had received a taxable distribution equal to the fair market value of such shares.
If the distribution of Common Stock pursuant to the Separation were to fail to qualify as a transaction that is generally tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code, in general, for U.S. federal income tax purposes, RTX would recognize a taxable gain as if it had sold the Common Stock in a taxable sale for its fair market value, and RTX shareholders who received Common Stock in the distribution would be subject to tax as if they had received a taxable distribution equal to the fair market value of such shares.
As of December 31, 2023, we had $6.9 billion o utstanding long-term debt.
As of December 31, 2024, we had $8.3 billion o utstanding long-term debt.
We are subject to income taxes in the United States and various international jurisdictions. Changes to tax laws and regulations, as well as changes and conflicts in related interpretations or other tax guidance could materially impact our tax receivables and liabilities and our deferred tax assets and deferred tax liabilities.
Changes to tax laws and regulations, as well as changes and conflicts in related interpretations or other tax guidance could materially impact our tax receivables and liabilities and our deferred tax assets and deferred tax liabilities. Additionally, in the ordinary course of business, we are subject to examinations by various tax authorities.
Our business, financial condition, operating results and cash flows may be adversely affected by changes in global economic conditions and geopolitical risks (see discussion of risks associated with the ongoing conflicts referred to in the immediately following Risk Factor), including global credit conditions, levels of consumer and business confidence, commodity prices, raw material and energy costs, supply chain issues, foreign currency exchange rates, interest rates, labor costs, levels of government spending and deficits, actual or anticipated default on sovereign debt, trade policies, tariffs and trade barriers, political conditions, including in connection with the results of the 2024 election in the U.S. or otherwise, regulatory changes, fluctuations in residential and commercial construction activity, natural disasters, including weather events caused by climate change, pandemic health issues, including COVID-19, and other challenges that could affect the global economy.
Our business, financial condition, operating results and cash flows may be adversely affected by changes in global economic conditions, including levels of consumer and business confidence, commodity prices, raw material and energy costs, supply chain issues, trade policies, tariffs and trade barriers, foreign currency exchange rates, interest rates, labor costs, levels of government spending and deficits, actual or anticipated default on sovereign debt, political conditions, including in connection with the new administration's policies and priorities in the U.S. or otherwise, regulatory changes and other challenges that could affect the global economy.
We operate in a competitive environment and our profitability depends on our ability to accurately estimate the costs and timing of providing our products and services. Our contracts are typically awarded on a competitive basis. Our quotations and bids are based upon, among other items, the cost to provide the products and services.
Our contracts are typically awarded on a competitive basis. Our quotations and bids are based upon, among other items, the cost to provide the products and services.
A significant downturn or deterioration in the business or financial condition of a joint venture partner could affect our results of operations in a particular period. Our joint ventures may experience labor strikes, diminished liquidity or credit unavailability, weak demand for products, delays in the launch of new products or other difficulties in their businesses.
Our joint ventures may experience labor strikes, diminished liquidity or credit unavailability, weak demand for products, delays in the launch of new products or other difficulties in their businesses.
We may not realize expected benefits from our cost reduction, restructuring and transformation efforts, including UpLift, and our profitability may be negatively impacted or our business otherwise might be adversely affected. In order to operate more efficiently and cost effectively, we may adjust employment, optimize our footprint or undertake other restructuring or transformation activities, including in connection with UpLift.
We may not realize expected benefits from our cost reduction, restructuring and transformation efforts, including UpLift, and our profitability may be negatively impacted or our business otherwise might be adversely affected.
In particular, a slowdown in building and remodeling activity or decreased public spending on infrastructure projects or decreased spending on commercial real estate or customer defaults due to higher levels of remote work in connection with the COVID-19 pandemic or otherwise, could adversely affect our financial performance.
More particularly, a slowdown in building and remodeling activity, whether due to remote work or otherwise, or decreased public spending on infrastructure projects could adversely affect our financial performance.
They may also change from time to time, as may related interpretations and other guidance. Changes in laws or regulations could result in higher expenses or changes to business operations that could impact our ability to sell our products and services or sell them at expected profit levels.
Changes in laws or regulations could result in higher expenses or changes to business operations that could impact our ability to sell our products and services or sell them at expected profit levels. Uncertainty relating to those laws or regulations may also affect how we operate, structure our investments and enforce our rights.
Furthermore, the amount of such dividends and repurchases may be changed, and the amount, timing and frequency of such dividends and repurchases may vary from historical practice or from the company’s stated expectations. Decisions with respect to dividends and share repurchases are subject to the discretion of our Board of Directors and will be based on a variety of factors.
Decisions with respect to dividends and share repurchases are subject to the discretion of our Board of Directors and are based on a variety of factors.
Adverse changes in our relationships with these distributors and other partners, or adverse developments in their financial condition, performance or purchasing patterns, or compliance practices, could adversely affect our reputation, competitive position, results of operations, cash flows or financial condition. 11 Table of Contents We design, manufacture, install and service products that incorporate advanced technologies; the introduction of new products and technologies involves risks, and we may not realize the degree or timing of benefits initially anticipated.
Adverse changes in our relationships with these distributors and other partners, or adverse developments in their financial condition, performance or purchasing patterns, or compliance practices, could adversely affect our reputation, competitive position, results of operations, cash flows or financial condition.
Furthermore, as is the case in many countries where we operate, the legal and regulatory regime in China is evolving, and accordingly, we could, in the future, be required to comply with significant requirements unique to China in order to maintain access to Chinese markets.
Furthermore, as is the case in many countries where we operate, the legal and regulatory changes in China, could impose significant requirements unique to China in order to maintain access to Chinese markets and negatively impact our overall financial performance. Our international operations subject us to risks associated with emerging markets.
Risks Related to the Separation In connection with the Separation, each of RTX, Otis and Carrier agreed to indemnify the other parties for certain liabilities. If we are required to pay under these indemnities to RTX and/or Carrier, our financial results could be negatively impacted.
If we are required to pay under these indemnities to RTX and/or Carrier, our financial results could be negatively impacted.
We conduct our business on a global basis, with approxim ate ly 72% of our 2023 n et sales derived from international operations. Changes in local and regional economic conditions, including credit conditions and fluctu ations in exchange rates, may affect product demand and reported profits in our non-U.S. operations, where transactions are generally denominated in local currencies.
Changes in local and regional economic conditions, including credit conditions and fluctu ations in exchange rates, may affect product demand and reported profits in our non-U.S. operations, where transactions are generally denominated in local currencies. In addition, currency fluctuations may affect the prices we pay for the materials used in our products.
If convicted or found liable, we could be subject to significant fines, penalties, repayments and other damages (in certain cases, treble damages). 14 Table of Contents As a global business, we are subject to complex laws and regulations in the U.S. and other countries in which we operate. Those laws and regulations may be interpreted in different ways.
As a global business, we are subject to complex laws and regulations in the U.S. and other countries in which we operate. Those laws and regulations may be interpreted in different ways. They may also change from time to time, as may related interpretations and other guidance.
Our international operations subject us to risk as our results of operations may be adversely affected by changes in local and regional economic conditions, such as fluctuations in exchange rates, risks associated with government policies on international trade and investments, risks associated with China and other emerging markets and geopolitical conflicts.
Our international operations subject us to risk as our results of operations may be adversely affected by changes in local and regional economic conditions, such as fluctuations in exchange rates and changes in credit conditions. We conduct our business on a global basis, with approxim ate ly 70% of our 2024 n et sales derived from international operations.
Although our share repurchase program is intended to enhance long-term shareholder value, changes in laws or regulations related thereto or short-term stock price fluctuations could reduce the program's effectiveness. 13 Table of Contents We engage in acquisitions and divestitures, and may encounter difficulties integrating acquired businesses with, or disposing of businesses from, our current operations; therefore, we may not realize the anticipated benefits of these acquisitions and divestitures.
The reduction or elimination of our cash dividend or share repurchase program could adversely affect the market price of Common Stock. Although our share repurchase program is intended to enhance long-term shareholder value, changes in laws or regulations related thereto or short-term stock price fluctuations could reduce the program's effectiveness.
Risks Related to Our Common Stock Anti-takeover provisions could enable our Board of Directors to resist a takeover attempt by a third party and limit the power of our shareholders.
See "Business Overview" and "Results of Operations – Income Taxes" in Item 7 and "Note 2: Significant Accounting Policies" and "Note 15: Income Taxes" in Item 8 in this Form 10-K, for further discussion on income taxes and related contingencies. 18 Table of Contents Risks Related to Our Common Stock Anti-takeover provisions could enable our Board of Directors to resist a takeover attempt by a third party and limit the power of our shareholders.
We are party to joint ventures which may not be successful and may expose us to special risks and restrictions. Our business operations depend on forming joint ventures. In certain regions, we operate our business through joint venture relationships or non-wholly owned subsidiaries, including: Otis Electric Elevator Company Limited and Otis Elevator (China) Investment Limited in China.
In certain regions, we operate our business through joint venture relationships or non-wholly owned subsidiaries, including: Otis Electric Elevator Company Limited and Otis Elevator (China) Investment Limited in China. A significant downturn or deterioration in the business or financial condition of a joint venture partner could affect our results of operations in a particular period.
We also have authority to repurchase our shares under a share repurchase program. In general, dividends and share repurchases, if commenced, may be discontinued, accelerated, suspended or delayed at any time without prior notice.
In general, dividends and share repurchases may be discontinued, accelerated, suspended or delayed at any time without prior notice. Furthermore, the amount of such dividends and repurchases may be changed, and the amount, timing and frequency of such dividends and repurchases may vary from historical practice or from the company’s stated expectations.
Removed
These economic and political conditions affect businesses such as ours in a number of ways.
Added
In addition, the current global economic environment has resulted, and may continue to result, in increased levels of commodity, materials and wage inflation. These various global economic conditions have affected and may continue to affect our business in a number of ways as discussed in more detail in this Item 1A and elsewhere in this Form 10-K.
Removed
We have an investment-grade credit rating from each of Moody’s Investors Service, Inc. and Standard & Poor’s.
Added
Our operations are subject to natural and man-made unexpected events that may increase our costs, limit access to building sites, interrupt production or our supply chain or otherwise adversely affect our business, results of operations or financial condition.
Removed
The reduction or elimination of our cash dividend or share repurchase program could adversely affect the market price of Common Stock.
Added
The occurrence of one or more unexpected events, including war (see discussion below regarding ongoing conflicts), acts of terrorism or violence, civil unrest, fires, tornadoes, hurricanes, earthquakes, floods and other forms of severe weather, whether as a result of climate change or otherwise, in the United States or in other countries in which we operate or in which our suppliers are located could adversely affect our operations and financial performance.
Removed
Uncertainty relating to those laws or regulations may also affect how we operate, structure our investments and enforce our rights.
Added
Natural disasters, pandemics, equipment failures, prolonged power outages or other unexpected events could result in physical damage to and complete or partial closure of one or more of our manufacturing facilities or temporary or long-term disruption in the supply of component products from some local, national and international suppliers, disruption and delay in the transport of our products to customers or limit our access building sites and to install our products or perform our services.
Removed
See “Business Overview” and “Results of Operations – Income Taxes” in Item 7 and "Note 2: Significant Accounting Policies" and "Note 16: Income Taxes" in Item 8 in this Form 10-K, for further discussion on income taxes and related contingencies.
Added
Existing insurance coverage may not provide protection for all of the costs that may arise from such events. The impacts of these unexpected events are difficult to predict, but could result in higher costs or delays in our operations and adversely affect our financial performance.
Added
Our international operations subject us to risks associated with government policies on international trade and investments and risks associated with China.
Added
A slowdown in urbanization in emerging countries, such as China or India, have and could continue to adversely affect our financial performance.
Added
We design, manufacture, install and service products that incorporate advanced technologies; the introduction of new products and technologies involves risks, and we may not realize the degree or timing of benefits initially anticipated. We seek to grow our business through the design, development, production, sale and support of innovative products that incorporate advanced technologies.
Added
In order to operate more efficiently and cost effectively, we have and may continue to adjust employment, optimize our footprint or undertake other restructuring or transformation activities, including in connection with UpLift and related outsourcing activities and change management. These activities are complex and may involve or require significant changes to our operations.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeWhile Otis has not experienced a material cybersecurity incident to date, please see Item 1A in this Form 10-K for more information regarding cybersecurity-related risks that could materially affect our business strategy, results of operations, or financial condition, under the headings “Information security, data privacy and identity protection may require significant resources and present certain risks to our business, reputation and financial condition”, “Our business and financial performance depend on continued substantial investment in information technology infrastructure, which may not yield anticipated benefits, and may be adversely affected by cyber-attacks on information technology infrastructure and products and other business disruptions” and “We depend on our intellectual property, and have access to certain intellectual property and information of our customers, suppliers and distributors; infringement or failure to protect our intellectual property could adversely affect our future growth and success”.
Biggest changeSuch contractual undertakings include requirements to comply with administrative, technical and physical safeguards to satisfy the requirements for certification under ISO 27001, to provide notification of cyber incidents involving our systems or data and an agreement to be subject to cybersecurity audits, which we conduct as appropriate. 22 Table of Contents While Otis has not experienced a material cybersecurity incident to date, see Item 1A in this Form 10-K for more information regarding cybersecurity-related risks that could materially affect our business strategy, results of operations, or financial condition, under the headings "Information security, data privacy and identity protection may require significant resources and present certain risks to our business, reputation and financial condition", "Our business and financial performance depend on continued substantial investment in information technology infrastructure, which may not yield anticipated benefits, and may be adversely affected by cyberattacks on information technology infrastructure and products and other business disruptions" and "We depend on our intellectual property, and have access to certain intellectual property and information of our customers, suppliers and distributors; infringement or failure to protect our intellectual property could adversely affect our future growth and success".
Our CDO and CISO collectively have over 20 years of prior work experience in various roles involving managing information security, developing cybersecurity strategy and implementing effective information and cybersecurity programs, as well as relevant degrees and certifications, including Certified Information Security Manager certification and NACD Cyber training.
Our CDO and CISO collectively have over 25 years of prior work experience in various roles involving managing information security, developing cybersecurity strategy and implementing effective information and cybersecurity programs, as well as relevant degrees and certifications, including Certified Information Security Manager certification and NACD Cyber training.
Our enterprise risk management (“ERM”) process considers cybersecurity threat risks alongside other company risks as part of our overall risk assessment process. Additionally, cybersecurity functional groups incorporate external research and intelligence gathering to keep the organization informed of new and evolving cyber risks.
Our enterprise risk management ("ERM") process considers cybersecurity threat risks alongside other company risks as part of our overall risk assessment process. Additionally, cybersecurity functional groups incorporate external research and intelligence gathering to keep the organization informed of new and evolving cyber risks.
Several members of our Board hold a CERT Certificate in Cybersecurity Oversight issued by the CERT Division of the Software Engineering Institute at Carnegie Mellon University, and in early 2023, two members of our Audit Committee attended a continuing education class related to cybersecurity through the National Association of Corporate Directors (“NACD”).
Several members of our Board hold a CERT Certificate in Cybersecurity Oversight issued by the CERT Division of the Software Engineering Institute at Carnegie Mellon University, and two members of our Audit Committee attended a continuing education class related to cybersecurity through the National Association of Corporate Directors ("NACD") in 2023.
All Otis colleagues engaged in cybersecurity are required to have a baseline certification (such as Security+, CISSP or CISM), as well as an operational cyber certification (for example, incident response or forensics analysis). 22 Table of Contents
All Otis colleagues engaged in cybersecurity are required to have a baseline certification (such as Security+, CISSP or CISM), as well as an operational cyber certification (for example, incident response or forensics analysis).
As part of the above processes, we conduct monthly third-party scanning of our network. 21 Table of Contents Otis also applies a risk-based approach to mitigate cybersecurity risks associated with our use of third-party service providers, including those in our supply chain that have access to our customer and employee data or our systems.
As part of the above processes, we conduct monthly third-party scanning of our network. Otis also applies a risk-based approach to mitigate cybersecurity risks associated with our use of third-party service providers, including those in our supply chain that have access to our customer and employee data or our systems. Third-party risks are included within our ERM process.
Our Chief Digital Officer (“CDO”) and Chief Information Security Officer (“CISO”) regularly brief the Audit Committee and other members of the Board on the Otis Cybersecurity Program and cyber-threat landscape, including twice in 2023.
Our Chief Digital Officer ("CDO") and Chief Information Security Officer ("CISO") regularly brief the Audit Committee and other members of the Board on the Otis Cybersecurity Program and cyber-threat landscape, including four times in 2024.
Third-party risks are included within our ERM process. In addition, cybersecurity considerations affect the selection and oversight of our third-party service providers.
In addition, cybersecurity considerations affect the selection and oversight of our third-party service providers.
Members of our Board also received briefings on risks associated with generative artificial intelligence, data protection (including data privacy laws) and our IT infrastructure in 2023. In 2022, in addition to periodic briefings on cybersecurity, the Audit Committee members participated in a simulated cybersecurity incident tabletop exercise and toured our Security Operations Center.
Members of our Board also received briefings on risks associated with quantum computing, artificial intelligence, data protection (including data privacy laws), our incident response plan and our IT infrastructure in 2024.
Removed
Such contractual undertakings include requirements to comply with administrative, technical and physical safeguards to satisfy the requirements for certification under ISO 27001, to provide notification of cyber incidents involving our systems or data and an agreement to be subject to cybersecurity audits, which we conduct as appropriate.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe operate more than 1,400 branches and offices, 11 R&D centers and 17 manufact uring facilities globally. Our principal manufacturing facilities are located across Brazil, China, Japan, France, India, Korea, Spain, and the United States, of which 14 are owned. Our principal R&D centers are located in China, India, Japan, France, Germany, Spain and the United States.
Biggest changeWe operate more tha n 1,400 branches and offices, 11 R&D center s and 17 manufacturing facilities globally. Our principal manufacturing facilities are located across Brazil, China, Japan, France, India, Korea, Spain, and the United States, of which 14 are owned. Our principal R&D centers are located in China, India, Japan, France, Germany, Spain and the United States.
Our fixed assets as of December 31, 2023 include manufacturing facilities and non-manufacturing facilities, such as warehouses, and a substantial quantity of machinery and equipment, most of which are general purpose machinery and equipment using special jigs, tools and fixtures and in many instances having automatic control features and special adaptations.
Our fixed assets as of December 31, 2024 include manufacturing facilities and non-manufacturing facilities, such as warehouses, and a substantial quantity of machinery and equipment, most of which are general purpose machinery and equipment using special jigs, tools and fixtures and in many instances having automatic control features and special adaptations.
The facilities, warehouses, machinery and equipment in use as of December 31, 2023 are substantially in good operating condition.
The facilities, warehouses, machinery and equipment in use as of December 31, 2024 are substantially in good operating condition.
Item 2. Properties We have a direct physical presence in more than 70 countries with an overall property portfolio comprising approximately 15 million square feet of space. We have approximately 2,300 facilities, of which approximately 45%, 42% and 13% of which are located in EMEA, Asia and the Americas, respectively.
Item 2. Properties We have a direct physical presence in more than 70 countries with an overall property portfolio comprising approximately 14 million square feet of space. We have approximately 2,300 facilities, of which approximately 46%, 41% and 13% of which are located in EMEA, Asia and the Americas, respectivel y.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

5 edited+1 added−0 removed3 unchanged
Biggest changeComparison of Cumulative Total Return — Table April 3, 2020 December 31, 2020 December 31, 2021 December 31, 2022 December 31, 2023 Otis $ 100 $ 144 $ 188 $ 172 $ 199 S&P 500 Index 100 153 197 161 203 S&P 500 Industrials Sector Index 100 160 193 183 216 Comparison of Cumulative Total Return — Graph 24 Table of Contents Issuer Purchases of Equity Securities The following table provides information about our purchases during the quarter ended December 31, 2023 of equity securities that are registered by us pursuant to Section 12 of the Exchange Act. 2023 Total Number of Shares Purchased (thousands) Average Price Paid per Share (1) Total Number of Shares Purchased as Part of a Publicly Announced Program (thousands) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (dollars in millions) October 1 — October 31 602 $ 76.48 602 $ 1,379 November 1 — November 30 1,809 81.39 1,809 $ 1,232 December 1 — December 31 367 86.67 367 $ 1,200 Total 2,778 $ 81.02 2,778 (1) Average price paid per share includes any broker commissions associated with the repurchases.
Biggest changeComparison of Cumulative Total Return — Table April 3, 2020 December 31, 2020 December 31, 2021 December 31, 2022 December 31, 2023 December 31, 2024 Otis $ 100 $ 144 $ 188 $ 172 $ 199 $ 209 S&P 500 Index 100 153 197 161 203 254 S&P 500 Industrials Sector Index 100 160 193 183 216 253 Comparison of Cumulative Total Return — Graph 24 Table of Contents Issuer Purchases of Equity Securities The following table provides information about our purchases during the quarter ended December 31, 2024 of equity securities that are registered by us pursuant to Section 12 of the Exchange Act. 2024 Total Number of Shares Purchased (thousands) Average Price Paid per Share (1) Total Number of Shares Purchased as Part of a Publicly Announced Program (thousands) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (dollars in millions) October 1 — October 31 129 $ 98.57 129 $ 387 November 1 — November 30 1,863 100.52 1,863 $ 200 December 1 — December 31 — — — $ 200 Total 1,992 $ 100.40 1,992 (1) Average price paid per share includes any broker commissions associated with the repurchases.
Stock Performance Graph The following table and graph illustrate the total return from April 3, 2020 (date of Separation) through December 31, 2023, fo r (1) our Common Stock, (2) the Standard and Poor's (the "S&P") 500 Index, and (3) the S&P 500 Industrials Sector Index.
Stock Performance Graph The following table and graph illustrate the total return from April 3, 2020 (date of Separation) through December 31, 2024, fo r (1) our Common Stock, (2) the Standard and Poor's (the "S&P") 500 Index, and (3) the S&P 500 Industrials Sector Index.
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 Exchange Act.
Under these programs, 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 Exchange Act.
On December 1, 2022, our Board of Directors approved a share repurchase program for up to $2.0 billion of Common Stock. As of December 31, 2023, the maximum dollar value of shares that may yet be purchased under this current program was approximately $1.2 billion.
On December 1, 2022, our Board of Directors approved a share repurchase program for up to $2.0 billion of Common Stock. As of December 31, 2024, the maximum dollar value of shares that may yet be purchased under this current program was approximately $200 million.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our Common Stock is listed on the New York Stock Exchange under the symbol "OTIS". There were approxim ately 19,900 registered shareholders as of January 19, 2024.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our Common Stock is listed on the New York Stock Exchange under the symbol "OTIS". There were approximately 18,100 registered shareholders as of January 21, 2025.
Added
On January 16, 2025, our Board of Directors revoked any remaining share repurchase authority under the prior share repurchase program and approved a new share repurchase program for up to $2.0 billion of Common Stock.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

101 edited+23 added−11 removed56 unchanged
Biggest changeNet income attributable to Otis Worldwide Corporation was relatively flat in 2022 compared to 2021, as lower noncontrolling interest in subsidiaries’ earnings and the benefit of a lower effective tax rate were offset by lower operating profit (including the impact of foreign exchange rates) and higher interest expense. 32 Table of Contents Segment Review Summary performance for our operating segments for the years ended December 31, 2023, 2022 and 2021 was as follows: Net Sales Operating Profit Operating Profit Margin (dollars in millions) 2023 2022 2021 2023 2022 2021 2023 2022 2021 New Equipment $ 5,812 $ 5,864 $ 6,428 $ 358 $ 358 $ 459 6.2 % 6.1 % 7.1 % Service 8,397 7,821 7,870 1,972 1,789 1,762 23.5 % 22.9 % 22.4 % Total segment 14,209 13,685 14,298 2,330 2,147 2,221 16.4 % 15.7 % 15.5 % General corporate expenses and other — — — (144) (114) (113) — — — Total $ 14,209 $ 13,685 $ 14,298 $ 2,186 $ 2,033 $ 2,108 15.4 % 14.9 % 14.7 % 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.
Biggest changeNet income attributable to Otis Worldwide Corporation increased in 2023 compared to 2022, due to higher operating profit (including the unfavorable impact of foreign exchange rates), lower noncontrolling interest in subsidiaries' earnings, and a lower effective tax rate. 33 Table of Contents Segment Review Summary performance for our operating segments for 2024, 2023 and 2022 was as follows: Net Sales Operating Profit Operating Profit Margin (dollars in millions) 2024 2023 2022 2024 2023 2022 2024 2023 2022 New Equipment $ 5,367 $ 5,812 $ 5,778 $ 329 $ 381 $ 381 6.1 % 6.6 % 6.6 % Service 8,894 8,397 7,801 2,185 2,014 1,832 24.6 % 24.0 % 23.5 % Total segment 14,261 14,209 13,579 2,514 2,395 2,213 17.6 % 16.9 % 16.3 % Corporate and Unallocated General corporate expenses and other — — — 158 126 87 UpLift restructuring — — — 31 25 — Other restructuring — — — 40 42 60 UpLift transformation costs — — — 65 16 — Separation-related reserve adjustment — — — 177 — — Russia operations — — 106 — — 5 Russia sale and conflict-related charges — — — — — 28 Litigation-related settlement costs — — — 18 — — Held for sale impairment — — — 18 — — Other, net — — — (1) — — Total $ 14,261 $ 14,209 $ 13,685 $ 2,008 $ 2,186 $ 2,033 14.1 % 15.4 % 14.9 % 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.
We review cost estimates on significant new equipment and modernization contracts on a quarterly basis and, for others, no less frequently than annually or when circumstances change and warrant a modification to a previous estimate.
We review cost estimates for modification on significant new equipment and modernization contracts on a quarterly basis and when circumstances change, and for others, no less frequently than annually or when circumstances change and warrant a modification to a previous estimate.
Although we believe that the arrangements in place as of December 31, 2023 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.
Although we believe that the arrangements in place as of December 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.
The following tables set forth the summarized financial information as of and for the years ended December 31, 2023 and 2022 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.
The following tables set forth the summarized financial information as of and for the years ended December 31, 2024 and 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.
See "Note 12: Employee Benefit Plans" in Item 8 in this Form 10-K for further discussion. 42 Table of Contents Off-Balance Sheet Arrangements and Contractual Obligations We extend a variety of financial guarantees to third parties in support of our business. We also have obligations arising from environmental, health and safety, tax and employment matters.
See "Note 12: Employee Benefit Plans" in Item 8 in this Form 10-K for further discussion. 45 Table of Contents Off-Balance Sheet Arrangements and Contractual Obligations We extend a variety of financial guarantees to third parties in support of our business. We also have obligations arising from environmental, health and safety, tax and employment matters.
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 that develop and/or design buildings for residential, commercial, retail or mixed-use activity.
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.
Circumstances that could cause the contingent obligations and liabilities arising from these arrangements to come to fruition include changes in the underlying transaction, non-performance under a contract or deterioration in the financial condition of the guaranteed party. Otis' contractual obligations and commitments as of December 31, 2023 are discussed below.
Circumstances that could cause the contingent obligations and liabilities arising from these arrangements to come to fruition include changes in the underlying transaction, non-performance under a contract or deterioration in the financial condition of the guaranteed party. Otis' contractual obligations and commitments as of December 31, 2024 are discussed below.
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).
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 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).
(“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.
("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.
Contract costs included in the calculation are comprised of labor, materials, subcontractors’ costs or other direct costs and indirect costs, which include indirect labor costs. 40 Table of Contents The long-term nature of the contracts, the complexity of the products and the scale of the projects can affect our ability to estimate costs precisely.
Contract costs included in the calculation are comprised of labor, materials, subcontractors’ costs or other direct costs and indirect costs, which include indirect labor costs. 43 Table of Contents The long-term nature of the contracts, the complexity of the products and the scale of the projects can affect our ability to estimate costs precisely.
See also "Note 12: Employee Benefit Plans" in Item 8 of this Form 10-K for further discussion of our expected pension and postretirement contributions. Long-term Debt See "Note 9: Borrowings and Lines of Credit" in Item 8 of this Form 10-K for further discussion of our long-term debt principal payments as of December 31, 2023.
See also "Note 12: Employee Benefit Plans" in Item 8 of this Form 10-K for further discussion of our expected pension and postretirement contributions. Long-term Debt See "Note 9: Borrowings and Lines of Credit" in Item 8 of this Form 10-K for further discussion of our long-term debt principal payments as of December 31, 2024.
Components of Net sales change: Maintenance and Repair Modernization Organic 7.8 % 7.3 % Foreign currency translation (0.3) % (0.8) % Acquisitions/Divestitures, net and Other — % 0.4 % Total % change 7.5 % 6.9 % Operating profit Service operating profit increased $183 million including foreign exchange tailwinds of $4 million, primarily driven by higher volume, improved pricing on maintenance contracts and productivity, which were partially offset by annual wage increases and other inflationary pressures, including higher material costs.
Components of Net sales change: Maintenance and Repair Modernization Organic 7.8 % 7.3 % Foreign currency translation (0.3) % (0.8) % Acquisitions/Divestitures, net and Other 0.3 % 0.4 % Total % change 7.8 % 6.9 % Operating Profit Service operating profit increased $182 million including foreign exchange tailwinds of $4 million, primarily driven by higher volume, improved pricing on maintenance contracts and productivity, which were partially offset by annual wage increases and other inflationary pressures, including higher material costs.
We completed the annual goodwill impairment test for all of our reporting units as of July 1, 2023 and d etermined that no adjustment to goodwill was necessary as the fair value of each reporting unit was in excess of the carrying value of each reporting unit.
We completed the annual goodwill impairment test for all of our reporting units as of July 1, 2024 and d etermined that no adjustment to goodwill was necessary as the fair value of each reporting unit was in excess of the carrying value of each reporting unit.
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.
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.
Pension expense is also sensitive to changes in the expected long-term rate of asset return. An increase or decrease of 25 basis points in the expected long-term rate of asset return would have decreased or increased 2023 pension expense by approximately $2 million.
Pension expense is also sensitive to changes in the expected long-term rate of asset return. An increase or decrease of 25 basis points in the expected long-term rate of asset return would have decreased or increased 2024 pension expense by approximately $2 million.
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.
Under these programs, 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.
Revenue Recognition from Contracts with Customers We recognized revenue in accordance with FASB ASC Topic 606: Revenue from Contracts with Customers and its related amendments, (referred to, collectively, as "ASC 606”). For new equipment and modernization contracts, equipment and installation are typically procured in a single contract providing the customer with a complete installed elevator or escalator unit.
Revenue Recognition from Contracts with Customers We recognize revenue in accordance with FASB ASC Topic 606: Revenue from Contracts with Customers and its related amendments, (referred to, collectively, as "ASC 606"). For new equipment and modernization contracts, equipment and installation are typically procured in a single contract providing the customer with a complete installed elevator or escalator unit.
The weighted-average discount rates used to measure pension liabilities and costs utilize each plan’s specific cash flows and are then compared to high-quality bond indices for reasonableness. Global market interest rates decreased in 2023 as compared with 2022, and, as a result, the weighted-average discount rate used to measure pension liabilities was 3.4% in 2023 and 3.8% in 2022.
The weighted-average discount rates used to measure pension liabilities and costs utilize each plan’s specific cash flows and are then compared to high-quality bond indices for reasonableness. Global market interest rates decreased in 2024 as compared with 2023, and, as a result, the weighted-average discount rate used to measure pension liabilities was 3.3% in 2024 and 3.4% in 2023.
In the following table, we show the sensitivity of our pension plan liabilities to a 25 basis point change in the discount rates for benefit obligations, as of December 31, 2023: (dollars in millions) Increase in Discount Rate of 25 bps Decrease in Discount Rate of 25 bps Projected benefit obligation $ (21) $ 23 The impact on the net periodic pension (benefit) cost, the accumulated postretirement benefit obligation and the net periodic postretirement (benefit) cost is each less than $1 million.
In the following table, we show the sensitivity of our pension plan liabilities to a 25 basis point change in the discount rates for benefit obligations, as of December 31, 2024: (dollars in millions) Increase in Discount Rate of 25 bps Decrease in Discount Rate of 25 bps Projected benefit obligation $ (22) $ 23 The impact on the net periodic pension (benefit) cost, the accumulated postretirement benefit obligation and the net periodic postretirement (benefit) cost is each less than $1 million.
The 2023 effective tax rate is lower than the 2022 effective tax rate primarily due to the absence of the tax impact related to the sale of our Russia business recorded in the year ended December 31, 2022, as well as the release of valuation allowances on non-U.S. losses and U.S. foreign tax credits, reduction in the deferred tax liability related to lower withholding tax on repatriation of certain foreign earnings, and reversal of tax reserves related to the U.S. foreign tax credit regulations, all recorded in the year ended December 31, 2023.
The 2023 effective tax rate is lower than the 2022 effective tax rate primarily due to the absence of the tax impact related to the sale of our Russia business recorded in 2022, as well as the release of valuation allowances on non-U.S. losses and U.S. foreign tax credits, reduction in the deferred tax liability related to lower withholding tax on repatriation of certain foreign earnings, and reversal of tax reserves related to the U.S. foreign tax credit regulations, all recorded in 2023.
For additional discussion of borrowings, see "Note 9: Borrowings and Lines of Credit" in Item 8 of this Form 10-K. 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 $1.2 billion was remaining as of December 31, 2023.
For additional discussion of borrowings, see "Note 9: Borrowings and Lines of Credit" in Item 8 of this Form 10-K. 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 $200 million was remaining as of December 31, 2024.
See "Note 1: Business Overview" and "Note 9: Borrowings and Lines of Credit" in Item 8 in this Form 10-K for further details regarding this transaction and financing arrangements entered into in connection with the Tender Offer. 28 Table of Contents RESULTS OF OPERATIONS Net Sales (dollars in millions) 2023 2022 2021 Net sales $ 14,209 $ 13,685 $ 14,298 Percentage change year-over-year 3.8 % (4.3) % 12.1 % The factors contributing to the total percentage change year-over-year in total Net sales are as follows: 2023 2022 Organic volume 5.6 % 2.5 % Foreign currency translation (1.2) % (5.9) % Acquisitions and divestitures, net (0.6) % (0.9) % Total % change 3.8 % (4.3) % The Organic volume increase of 5.6% for 2023 was driven by an increase in organic sales of 7.7% in Service and 2.6% in New Equipment.
See "Note 1: Business Overview" and "Note 9: Borrowings and Lines of Credit" in Item 8 in this Form 10-K for further details regarding this transaction and financing arrangements entered into in connection with the Tender Offer. 28 Table of Contents RESULTS OF OPERATIONS Net Sales (dollars in millions) 2024 2023 2022 Net sales $ 14,261 $ 14,209 $ 13,685 Percentage change year-over-year 0.4 % 3.8 % (4.3) % The factors contributing to the total percentage change year-over-year in total Net sales are as follows: 2024 2023 Organic volume 1.4 % 5.6 % Foreign currency translation (1.2) % (1.2) % Acquisitions and divestitures, net 0.2 % (0.6) % Total % change 0.4 % 3.8 % The Organic volume increase of 1.4% for 2024 was driven by an increase in organic sales of 6.8% in Service, offset by a decrease of (6.4)% in New Equipment.
Increased regulation (including pending 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 su ch regulations or concerns would affect our business, operations or financial results. For a discussion of risks associated with ESG matters, see Item 1A in this Form 10-K.
Increased regulation and other climate change concerns, however, could subject us to additional costs and restrictions, and we are not able to predict how su ch regulations or concerns would affect our business, operations or financial results. For a discussion of risks associated with ESG matters, see Item 1A in this Form 10-K.
Other Income (Expense), Net (dollars in millions) 2023 2022 2021 Other income (expense), net $ 21 $ 26 $ 22 Other income (expense), net primarily includes the impact of changes in the fair value and settlement of derivatives, gains or losses on sale of businesses and fixed assets, earnings from equity method investments, fair value changes on equity securities, impairments, UpLift transformation costs, non-recurring Separation-related expenses and certain other operating items.
Other Income (Expense), Net (dollars in millions) 2024 2023 2022 Other income (expense), net $ (236) $ 21 $ 26 Other income (expense), net primarily includes the impact of changes in the fair value and settlement of derivatives, gains or losses on sale of businesses and fixed assets, earnings from equity method investments, fair value changes on equity securities, impairments, UpLift transformation costs, non-recurring Separation-related adjustments and certain other operating items.
The decrease in Total cost of products and services sold due to Acquisitions and divestitures, net and Other is primarily the result of the sale of our Russia business in the third quarter of 2022. 29 Table of Contents Gross Margin (dollars in millions) 2023 2022 2021 Gross margin $ 4,193 $ 3,920 $ 4,193 Gross margin percentage 29.5 % 28.6 % 29.3 % Gross margin percentage increased 90 basis points in 2023 compared to 2022, due to the benefit from favorable pricing, Service sales growing faster than New Equipment sales, lower commodity prices, and the benefits from productivity, partially offset by the inflationary pressures described above.
The decrease in Total cost of products and services sold due to Acquisitions and divestitures, net and Other in 2023 is primarily the result of the sale of our Russia business in the third quarter of 2022. 29 Table of Contents Gross Margin (dollars in millions) 2024 2023 2022 Gross margin $ 4,257 $ 4,193 $ 3,920 Gross margin percentage 29.9 % 29.5 % 28.6 % Gross margin percentage increased 40 basis points in 2024 compared to 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.
The Organic volume increase of 2.5% for 2022 was driven by an increase of 6.0% in Service, offset by a decrease of (1.7)% in New Equipment. The decrease in Net sales due to Acquisitions and divestitures, net is primarily the result of the sale of our Russia business in the third quarter of 2022.
The Organic volume increase of 5.6% for 2023 was driven by an increase in organic sales of 7.7% in Service and 2.6% in New Equipment. The decrease in Net sales due to Acquisitions and divestitures, net in 2023 is primarily the result of the sale of our Russia business in the third quarter of 2022.
We have determined there are three reporting units within each business segment. 41 Table of Contents In accordance with Accounting Standards Codification (“ASC”) 350, Intangibles – Goodwill and Other , we initially perform a qualitative assessment (commonly known as “step zero”) to determine whether further impairment testing is necessary before performing the two-step test.
We have determined there are three reporting units within each business segment. 44 Table of Contents In accordance with Accounting Standards Codification ("ASC") 350, Intangibles – Goodwill and Other , we initially perform a qualitative assessment (commonly known as "step zero") to determine whether further impairment testing is necessary before performing the two-step test.
For additional discussion of the Tender Offer and of borrowing activity, see "Note 1: Business Overview" and "Note 9: Borrowings and Lines of Credit", respectively, in Item 8 in this Form 10-K. 38 Table of Contents 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.
For additional discussion of borrowing activity, see "Note 9: Borrowings and Lines of Credit" in Item 8 in this Form 10-K. 41 Table of Contents 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.
As previously disclosed, we sold our business in Russia, which represented approximately 1% and 2% of both our revenue and operating profit in 2022 and 2021, respectively, to a third party on July 27, 2022. The operations were comprised mostly of New Equipment.
As previously disclosed, we sold our business in Russia, which represented approximately 1% of our revenue and operating profit in 2022, respectively, to a third party in July 2022. The operations were comprised mostly of New Equipment.
In the following table, we show the timing of payments of total purchase obligations as of December 31, 2023: Payments Due by Period (dollars in millions) Total 2024 2025-2026 2027-2028 Thereafter Purchase obligations $ 1,179 $ 1,137 $ 35 $ 6 $ 1 Other Long-term Liabilities Other long-term liabilities in the table below includes obligations related to product service and warranty policies, estimated remediation costs and contractual indemnities, and are included in Other long-term liabilities on the "Consolidated Balance Sheets" in Item 8 of this Form 10-K.
In the following table, we show the timing of payments of total purchase obligations as of December 31, 2024: Payments Due by Period (dollars in millions) Total 2025 2026-2027 2028-2029 Thereafter Purchase obligations $ 1,606 $ 1,062 $ 477 $ 67 $ — Other Long-term Liabilities Other long-term liabilities in the table below includes obligations related to product, service and warranty policies, estimated remediation costs and contractual indemnities, and are included in Other long-term liabilities on the "Consolidated Balance Sheets" in Item 8 of this Form 10-K.
These macroeconomic trends could continue to impact our business, including impacts to overall financial performance in 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 and Service businesses; • Customer liquidity constraints and related credit reserves; and • Cancellations or delays of customer orders.
These macroeconomic trends could continue to impact our business, including impacts to overall financial performance in 2025, as a result of the following, among other things: • 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.
Research and Development (dollars in millions) 2023 2022 2021 Research and development $ 144 $ 150 $ 159 Percentage of Net sales 1.0 % 1.1 % 1.1 % Research and development was relatively flat in 2023 compared to 2022 and 2021.
Research and Development (dollars in millions) 2024 2023 2022 Research and development $ 152 $ 144 $ 150 Percentage of Net sales 1.1 % 1.0 % 1.1 % Research and development was relatively flat in 2024 compared to 2023 and 2022.
Selling, general and administrative expenses as a percentage of Net sales increased 40 basis points in 2023 compared to 2022, and decreased 70 basis points in 2022 compared to 2021.
Selling, general and administrative expenses as a percentage of Net sales decreased 30 basis points in 2024 compared to 2023, and increased 40 basis points in 2023 compared to 2022.
For a discussion of Otis’ ESG goals, see the discussion under “Environmental, Social and Governance (“ESG”)” in Item 1 in this Form 10-K.
For a discussion of Otis’ ESG goals, see the discussion under "Environmental, Social and Governance ("ESG")" in Item 1 in this Form 10-K.
See "Note 15: Income Taxes" in Item 8 in this Form 10-K for additional discussion on unrecognized tax benefits. 43 Table of Contents
See "Note 15: Income Taxes" in Item 8 in this Form 10-K for additional discussion on unrecognized tax benefits.
These macroeconomic developments include, among others, inflationary pressures, higher interest rates and tighter credit conditions.
These macroeconomic conditions include, among others, inflationary pressures, high interest rates and tighter credit conditions.
At the time of acquisition, we account for business acquisitions using the purchase method of accounting, in accordance with which assets acquired and liabilities assumed are recorded at their respective fair values at the acquisition date.
Goodwill We have generated goodwill as a result of our acquisitions. At the time of acquisition, we account for business acquisitions using the purchase method of accounting, in accordance with which assets acquired and liabilities assumed are recorded at their respective fair values at the acquisition date.
Income Taxes The future tax benefit arising from deductible temporary differences and tax carryforwards was $618 million as of December 31, 2023 and $588 million as of December 31, 2022.
Income Taxes The future tax benefit arising from deductible temporary differences and tax carryforwards was $576 million and $618 million as of December 31, 2024 and 2023, respectively.
(dollars in millions) 2023 2022 2021 Net cash flows provided by (used in): Operating activities $ 1,627 $ 1,560 $ 1,750 Investing activities (183) (33) (89) Financing activities (1,350) (3,652) 58 Effect of exchange rate changes on cash and cash equivalents (9) (157) (43) Net increase (decrease) in cash and cash equivalents and restricted cash $ 85 $ (2,282) $ 1,676 Operating activities Cash flows from operating activities primarily represent inflows and outflows associated with our operations.
(dollars in millions) 2024 2023 2022 Net cash flows provided by (used in): Operating activities $ 1,563 $ 1,627 $ 1,560 Investing activities (164) (183) (33) Financing activities (309) (1,350) (3,652) Effect of exchange rate changes on cash and cash equivalents (49) (9) (157) Net increase (decrease) in cash and cash equivalents and restricted cash $ 1,041 $ 85 $ (2,282) Operating activities Cash flows from operating activities primarily represent inflows and outflows associated with our operations.
Where it is not practically feasible to determine the legally enforceable portion of our obligation under certain of our long-term purchase agreements, we include additional expected purchase obligations beyond what may be legally enforceable.
Purchase Obligations Purchase obligations include amounts committed for the purchase of goods and services under legally enforceable contracts or purchase orders. Where it is not practically feasible to determine the legally enforceable portion of our obligation under certain of our long-term purchase agreements, we include additional expected purchase obligations beyond what may be legally enforceable.
These were partially offset by a larger increase in Accounts payable in 2022 compared to 2021 due to the timing of payments to suppliers. During 2023, net cash provided by operating activities was $1.6 billion. The primary driver of the inflow related to $1.5 billion of net income and an increase in Accounts payable.
During 2023, net cash provided by operating activities was $1.6 billion. The primary driver of the inflow related to $1.5 billion of net income and an increase in Accounts payable. These were partially offset by an increase in Accounts receivable, net, due to the volume and timing of billings.
Restructuring Costs (dollars in millions) 2023 2022 2021 UpLift restructuring action costs $ 25 $ — $ — Other restructuring action costs 42 60 56 Total restructuring costs $ 67 $ 60 $ 56 We initiate restructuring actions to keep our cost structure competitive.
Restructuring Costs (dollars in millions) 2024 2023 2022 UpLift restructuring costs $ 31 $ 25 $ — Other restructuring costs 40 42 60 Total restructuring costs $ 71 $ 67 $ 60 We initiate restructuring actions to keep our cost structure competitive.
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.
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. 27 Table of Contents We cannot predict how the events described above will evolve.
Gross margin percentage decreased 70 basis points in 2022 compared to 2021 , due to the inflationary pressures described above, partially offset by favorable Service pricing, productivity and the benefit from Service sales growing faster than New Equipment sales.
Gross margin percentage increased 90 basis points in 2023 compared to 2022 , due to the benefit from favorable pricing, Service sales growing faster than New Equipment sales, lower commodity prices, and the benefits from productivity, partially offset by the inflationary pressures described above.
The table below presents approximate cash outflows related to the restructuring actions during the year ended December 31, 2023, and the expected cash payments to complete the actions announced: (dollars in millions) UpLift Actions Other Actions Total Restructuring Cash outflows during the year ended December 31, 2023 $ 12 $ 47 $ 59 Expected cash payments remaining to complete actions announced 38 65 103 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 $5 million was realized during the year ended December 31, 2023.
The table below presents approximate cash outflows related to the restructuring actions during 2024, and the expected cash payments to complete the actions announced: (dollars in millions) UpLift Actions Other Actions Total Restructuring Cash outflows during the year ended December 31, 2024 $ 31 $ 34 $ 65 Expected cash payments remaining to complete actions announced 37 53 90 The approved UpLift restructuring actions are expected to generate approximately $80 million in annual recurring savings by the end of 2025, primarily in Selling, general and administrative expenses, and of which approximately $39 million was realized during 2024.
The following table contains several key measures of our financial condition and liquidity: (dollars in millions) December 31, 2023 December 31, 2022 Cash and cash equivalents $ 1,274 $ 1,189 Total debt 6,898 6,768 Net debt (total debt less cash and cash equivalents) 5,624 5,579 Total equity (4,855) (4,799) Total capitalization (total debt plus total equity) 2,043 1,969 Net capitalization (total debt plus total equity less cash and cash equivalents) 769 780 Total debt to total capitalization 338 % 344 % Net debt to net capitalization 731 % 715 % The Company does not intend to reinvest certain undistributed earnings of our international subsidiaries that have been previously taxed in the U.S.
The following table contains several key measures of our financial condition and liquidity: (dollars in millions) December 31, 2024 December 31, 2023 Cash and cash equivalents $ 2,300 $ 1,274 Total debt 8,324 6,898 Net debt (total debt less cash and cash equivalents) 6,024 5,624 Total equity (4,785) (4,855) Total capitalization (total debt plus total equity) 3,539 2,043 Net capitalization (total debt plus total equity less cash and cash equivalents) 1,239 769 Total debt to total capitalization 235 % 338 % Net debt to net capitalization 486 % 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 further details, refer to the discussion on restructuring costs in the "Results of Operations," as well as " Note 16: Restructuring and Transformation Costs" to the Consolidated Financial Statements in Item 8 in this Form 10-K.
These costs are recorded in Other income (expense), net in the Consolidated Statements of Operations. 26 Table of Contents For further details, refer to the discussion on restructuring costs in the "Results of Operations," as well as " Note 16: Restructuring and Transformation Costs" to the Consolidated Financial Statements in Item 8 in this Form 10-K.
Net income attributable to Otis Worldwide Corporation increased in 2023 compared to 2022, due to higher operating profit (including the unfavorable impact of foreign exchange rates), lower noncontrolling interest in subsidiaries' earnings, and a lower effective tax rate.
Net income attributable to Otis Worldwide Corporation increased in 2024 compared to 2023, due to a lower effective tax rate and lower interest expense, partially offset by lower operating profit (including the unfavorable impact of foreign exchange rates).
The decrease in net cash used in financing activities in 2023 compared to 2022 was primarily due to the absence of the settlement of the Tender Offer in 2022.
The decrease in net cash used in financing activities in 2024 compared to 2023 was primarily due to the net proceeds from the long-term debt issued in 2024. The decrease in net cash used in financing activities in 2023 compared to 2022 was primarily due to the absence of the settlement of the Tender Offer in 2022.
Income Taxes 2023 2022 2021 Effective tax rate 26.2 % 27.5 % 27.6 % The 2023, 2022 and 2021 effective tax rates are higher than the statutory U.S. rate primarily due to higher international tax rates as compared to the lower U.S. federal statutory rate.
The 2023 and 2022 effective tax rates are higher than the statutory U.S. rate primarily due to higher international tax rates as compared to the lower U.S. federal statutory rate.
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. 30 Table of Contents UpLift restructuring action costs were $25 million in 2023, which are recorded in Selling, general and administrative in the Consolidated Statements of 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. 30 Table of Contents UpLift restructuring costs were $31 million and $25 million in 2024 and 2023, respectively.
Year Ended December 31, (dollars in millions) 2023 2022 OWC Statement of Operations - Standalone and Unconsolidated Revenue $ — $ — Cost of revenue — — Operating expenses 9 1 Income from consolidated subsidiaries 143 70 Income (loss) from operations excluding income from consolidated subsidiaries (11) (2) Net income (loss) excluding income from consolidated subsidiaries (119) (109) As of December 31, (dollars in millions) 2023 2022 OWC Balance Sheet - Standalone and Unconsolidated Current assets (intercompany receivables from non-guarantor subsidiaries) $ — $ — Current assets (excluding intercompany receivables from non-guarantor subsidiaries) 63 94 Noncurrent assets (investments in consolidated subsidiaries) 1,236 1,236 Noncurrent assets (excluding investments in consolidated subsidiaries) 43 45 Current liabilities (intercompany payables to non-guarantor subsidiaries) 3,753 3,090 Current liabilities (excluding intercompany payables to non-guarantor subsidiaries) 119 166 Noncurrent liabilities 5,880 5,186 39 Table of Contents Year Ended December 31, (dollars in millions) 2023 2022 Highland Statement of Operations - Standalone and Unconsolidated Revenue $ — $ — Cost of revenue — — Operating expenses 1 — Income from consolidated subsidiaries 477 1,242 Income (loss) from operations excluding income from consolidated subsidiaries (1) — Net income (loss) excluding income from consolidated subsidiaries (196) (10) As of December 31, (dollars in millions) 2023 2022 Highland Balance Sheet - Standalone and Unconsolidated Current assets (intercompany receivables from non-guarantor subsidiaries) $ 75 $ 195 Current assets (excluding intercompany receivables from non-guarantor subsidiaries) — — Noncurrent assets (investments in consolidated subsidiaries) 15,711 12,524 Noncurrent assets (intercompany receivables from non-guarantor subsidiaries) 518 572 Noncurrent assets (excluding investments in consolidated subsidiaries) — — Current liabilities (intercompany payables to non-guarantor subsidiaries) — — Current liabilities (excluding intercompany payables to non-guarantor subsidiaries) 1 532 Noncurrent liabilities (intercompany payables to non-guarantor subsidiaries) 3,467 — Noncurrent liabilities (excluding intercompany payables to non-guarantor subsidiaries) 1,199 1,160 CRITICAL ACCOUNTING ESTIMATES Preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses.
Year Ended December 31, (dollars in millions) 2024 2023 OWC Statement of Operations - Standalone and Unconsolidated Revenue $ — $ — Cost of revenue — — Operating expenses 10 9 Income from consolidated subsidiaries 49 143 Income (loss) from operations excluding income from consolidated subsidiaries (191) (11) Net income (loss) excluding income from consolidated subsidiaries (364) (119) As of December 31, (dollars in millions) 2024 2023 OWC Balance Sheet - Standalone and Unconsolidated Current assets (intercompany receivables from non-guarantor subsidiaries) $ — $ — Current assets (excluding intercompany receivables from non-guarantor subsidiaries) 1,490 63 Noncurrent assets (investments in consolidated subsidiaries) 1,198 1,236 Noncurrent assets (excluding investments in consolidated subsidiaries) 37 43 Current liabilities (intercompany payables to non-guarantor subsidiaries) 6,277 3,753 Current liabilities (excluding intercompany payables to non-guarantor subsidiaries) 1,625 119 Noncurrent liabilities (intercompany payables to non-guarantor subsidiaries) — — Noncurrent liabilities (excluding intercompany payables to non-guarantor subsidiaries) 5,100 5,880 42 Table of Contents Year Ended December 31, (dollars in millions) 2024 2023 Highland Statement of Operations - Standalone and Unconsolidated Revenue $ — $ — Cost of revenue — — Operating expenses 1 1 Income from consolidated subsidiaries 420 477 Income (loss) from operations excluding income from consolidated subsidiaries (1) (1) Net income (loss) excluding income from consolidated subsidiaries (248) (196) As of December 31, (dollars in millions) 2024 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) 460 518 Noncurrent assets (excluding investments in consolidated subsidiaries) — — Current liabilities (intercompany payables to non-guarantor subsidiaries) — — Current liabilities (excluding intercompany payables to non-guarantor subsidiaries) 4 1 Current liabilities (intercompany payables from non-guarantor subsidiaries) 9 — Noncurrent liabilities (intercompany payables to non-guarantor subsidiaries) 3,513 3,467 Noncurrent liabilities (excluding intercompany payables to non-guarantor subsidiaries) 2,017 1,199 CRITICAL ACCOUNTING ESTIMATES Preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses.
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.
UpLift includes the standardization of our processes and improvement of our supply chain procurement, among other aspects of the program, as well as organizational changes which result in restructuring actions.
Selling, General and Administrative (dollars in millions) 2023 2022 2021 Selling, general and administrative $ 1,884 $ 1,763 $ 1,948 Percentage of Net sales 13.3 % 12.9 % 13.6 % Selling, general and administrative expenses increased $121 million in 2023 compared to 2022, driven by annual wage increases, higher other employment-related costs, higher restructuring costs and higher credit loss reserves, partially offset by favorable foreign exchange impacts of $8 million.
Selling, general and administrative expenses increased $121 million in 2023 compared to 2022, driven by annual wage increases, higher other employment-related costs, higher restructuring costs and higher credit loss reserves, partially offset by favorable foreign exchange impacts of $8 million.
To the extent possible, we continue to operate our business in Ukraine, which represented less than 1% of our 2023, 2022 and 2021 revenue and operating profit.
As discussed below, 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 2024, 2023 and 2022 revenue and operating profit.
Operating margin increased 60 basis points. 2022 Compared with 2021 Net Sales The organic sales increase of 6.0% is due to organic sales increases in maintenance and repair of 5.6%, and modernization of 8.1%.
Operating margin increased 60 basis points. 36 Table of Contents 2023 Compared with 2022 Net Sales The organic sales increase of 7.7% is due to organic sales increases in maintenance and repair of 7.8%, and modernization of 7.3%.
Otis will reimburse RTX for those tax payments through 2026. Unrecognized Tax Benefits Otis has unrecognized tax benefits o f $394 million as of December 31, 2023. The timing of when such unrecognized tax benefits will become payable is uncertain.
Otis will reimburse RTX for those tax payments through 2026. 46 Table of Contents Unrecognized Tax Benefits Otis has unrecognized tax benefits of $149 million as of December 31, 2024. The timing of when such unrecognized tax benefits will become realizable is uncertain.
These were offset by a smaller increase in Accounts payable in 2023 compared to 2022 due to the timing of payments to suppliers and higher balances due as of December 31, 2022 compared to December 31, 2021 and other working capital changes.
These were offset by a smaller increase in Accounts payable in 2023 compared to 2022 due to the timing of payments to suppliers and higher balances due as of December 31, 2022 compared to December 31, 2021 and other working capital changes. 39 Table of Contents During 2024, net cash provided by operating activities was $1.6 billion.
We function under a centralized operating model whereby we pursue a global strategy set around New Equipment and Service, in large measure, because we seek to grow our maintenance portfolio, in part, through the conversion of new elevator and escalator installations into service contracts.
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.
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 in this 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. 27 Table of Contents 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 eff ects of climate change or as a result of implementing our ESG initiatives.
Depending on the ultimate outcomes of these conflicts, which remain uncertain, they could heighten certain risks disclosed in Item 1A in this 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 cyberattack 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.
For additional discussion of borrowings, see "Note 9: Borrowings and Lines of Credit" in Item 8 in this Form 10-K.
For additional discussion of borrowings, see "Note 9: Borrowings and Lines of Credit" in Item 8 in this Form 10-K. For additional discussion of German tax litigation, see "Note 21: Contingencies" and "Note 22: Segment Financial Data" in Item 8 in this Form 10-K.
Additionally, net repayments of short-term borrowings of $113 million and repayments of long-term debt of $534 million were funded by $741 million of net proceeds from the issuance of long-term debt. During 2022, net cash used in financing activities was $3.7 billion.
Additionally, net repayments of short-term borrowings of $113 million and repayments of long-term debt of $534 million were funded by $741 million of net proceeds from the issuance of long-term debt.
Cost of Products and Services Sold (dollars in millions) 2023 2022 2021 Cost of products and services sold $ 10,016 $ 9,765 $ 10,105 Percentage change year-over-year 2.6 % (3.4) % 12.6 % The factors contributing to the percentage change year-over-year in total cost of products and services sold are as follows: 2023 2022 Organic volume 4.8 % 3.7 % Foreign currency translation (1.3) % (6.1) % Acquisitions and divestitures, net and Other (0.9) % (1.0) % Total % change 2.6 % (3.4) % The organic increase in total cost of products and services sold in 2023 was primarily driven by the organic sales increases noted above and inflationary pressures, including annual wage increases and higher Service-related material costs, partially offset by productivity and lower commodity prices, primarily steel.
Cost of Products and Services Sold (dollars in millions) 2024 2023 2022 Cost of products and services sold $ 10,004 $ 10,016 $ 9,765 Percentage change year-over-year (0.1) % 2.6 % (3.4) % The factors contributing to the percentage change year-over-year in total cost of products and services sold are as follows: 2024 2023 Organic volume 0.9 % 4.8 % Foreign currency translation (1.3) % (1.3) % Acquisitions and divestitures, net and Other 0.3 % (0.9) % Total % change (0.1) % 2.6 % The organic increase in total cost of products and services sold in 2024 and 2023, were primarily driven by the organic sales changes noted above.
For those income tax positions where it is not more likely than not that a tax benefit will be sustained, no tax benefit has been recognized in the Consolidated Financial Statements. See "Note 3: Earnings Per Share" and "Note 14: Accumulated Other Comprehensive Income (Loss)" in Item 8 in this Form 10-K for further discussion.
For those income tax positions where it is not more likely than not that a tax benefit will be sustained, no tax benefit has been recognized in the Consolidated Financial Statements. See "Note 21: Contingent Liabilities" in Item 8 in this Form 10-K for discussion of administrative review proceedings with the German Tax Office.
Interest expense (income), net increased $7 million in 2022 compared to 2021, primarily driven by interest expense related to the financing of the Tender Offer for Zardoya Otis. The average interest rate on our external debt for 2023, 2022 and 2021 was 2.1%, 2.0% and 2.3%, respectively.
Interest expense (income), net increased $7 million in 2023 compared to 2022, primarily driven by higher interest expense related to the $750 million unsecured, unsubordinated debt issued in August 2023, partially offset by higher interest income. The average interest rate on our external debt for 2024, 2023 and 2022 was 2.5%, 2.1% and 2.0%, respectively.
For additional discussion of restructuring and transformation costs, see "Note 16: Restructuring and Transformation Costs" in Item 8 in this Form 10-K.
Approximately $50 million of savings was realized for the 2024 and 2023 actions during 2024. For additional discussion of restructuring and transformation costs, see "Note 16: Restructuring and Transformation Costs" in Item 8 in this Form 10-K.
The primary drivers of the outflow related to $138 million of capital expenditures, $36 million of acquisitions of businesses and intangible assets and $28 million of net cash payments from the settlement of derivative instruments. During 2022, net cash used in investing activities was $33 million.
During 2024, net cash used in investing activities was $164 million. The primary drivers of the outflow related to $126 million of capital expenditures and $87 million of acquisitions of businesses and intangible assets, partially offset by $49 million of net cash receipts from the settlement of derivative instruments. During 2023, net cash used in investing activities was $183 million.
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.
We expect UpLift to generate approximately $200 million in annual run-rate savings by the second half of 2025, with restructuring and other incremental costs to complete the transformation ("UpLift transformation costs") of approximately $300 million.
Accordingly, we benefit from an integrated global strategy, which sets priorities and establishes accountability across the full product lifecycle. For additional discussion of our business, refer to Item 1 in this Form 10-K. UpLift Announced in July 2023, UpLift is a program with the goal of transforming our operating model.
For additional discussion of our business, refer to Item 1 in this Form 10-K. UpLift Announced in July 2023, UpLift is a program with the goal of transforming our operating model.
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 can range from relatively simple upgrades of interior finishes and aesthetics to complex upgrades of larger components and sub-systems.
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.
We also incurred $16 million of UpLift transformation costs in 2023, primarily consulting and incremental personnel costs, which are recorded in Other income (expense), net in the Consolidated Statements of Operations. Other restructuring action costs were $42 million in 2023 and included $38 million of costs related to 2023 actions and $4 million of costs related to 2022 actions.
These costs are recorded in Other income (expense), net in the Consolidated Statements of Operations. Other restructuring action costs were $40 million in 2024 and included $24 million of costs related to 2024 actions and $16 million of costs related to 2023 actions.
UpLift costs incurred are as follows: (dollars in millions) 2023 UpLift restructuring action costs $ 25 UpLift transformation costs 16 Total UpLift costs $ 41 UpLift restructuring action costs in 2023 were primarily severance costs, and are recorded in Selling, general and administrative in the Consolidated Statements of Operations.
UpLift restructuring costs are primarily severance costs and are recorded primarily in Selling, general and administrative in the Consolidated Statements of Operations.
Borrowings and Lines of Credit The following is a summary of the long-term debt issuances and repayments in 2023, 2022 and 2021: (dollars in millions) Issuance Date Description of Debt Aggregate Principal Balance August 16, 2023 5.25% notes due 2028 $ 750 November 12, 2021 0.000% notes due 2023 (€500 million principal value) 572 November 12, 2021 0.318% notes due 2026 (€600 million principal value) 687 November 12, 2021 0.934% notes due 2031 (€500 million principal value) 572 March 11, 2021 0.37% notes due 2026 (¥21,500 million principal value) 199 Repayment Date Description of Debt Aggregate Principal Paid November 13, 2023 0.000% notes due 2023 (€500 million principal value) $ 534 January 14, 2022 LIBOR plus 45 bps floating rate notes due 2023 500 36 Table of Contents The proceeds from the August 2023 issuance of $750 million notes listed above were used to fund the repayments of Otis' commercial paper and €500 million 0.000% notes that were due in November 2023, with the remainder used for other general corporate purposes.
Borrowings and Lines of Credit The following is a summary of the long-term debt issuances and repayments in 2024, 2023 and 2022: (dollars in millions) Issuance Date Description of Debt Aggregate Principal Balance November 19, 2024 2.875% notes due 2027 (€850 million principal value) $ 899 November 19, 2024 5.125% notes due 2031 600 August 16, 2023 5.25% notes due 2028 750 Repayment Date Description of Debt Aggregate Principal Paid November 13, 2023 0.000% notes due 2023 (€500 million principal value) $ 534 January 14, 2022 LIBOR plus 45 bps floating rate notes due 2023 500 38 Table of Contents A portion of the proceeds from the November 2024 issuance of the Euro and USD notes listed above will be used to fund the repayment at maturity of the Company's currently outstanding $1.3 billion 2.056% notes due April 5, 2025.
Summary performance for Service for the years ended December 31, 2023, 2022 and 2021 was as follows: Total Increase (Decrease) Year-Over-Year for: (dollars in millions) 2023 2022 2021 2023 compared with 2022 2022 compared with 2021 Net sales $ 8,397 $ 7,821 $ 7,870 $ 576 7.4 % $ (49) (0.6) % Cost of sales 5,173 4,816 4,812 357 7.4 % 4 0.1 % 3,224 3,005 3,058 219 7.3 % (53) (1.7) % Operating expenses 1,252 1,216 1,296 36 3.0 % (80) (6.2) % Operating profit $ 1,972 $ 1,789 $ 1,762 $ 183 10.2 % $ 27 1.5 % Operating profit margin 23.5 % 22.9 % 22.4 % Summary analysis of the Net sales change for Service f or the years ended December 31, 2023 and 2022 compared with the prior years was as follows: Components of Net sales change: 2023 2022 Organic 7.7 % 6.0 % Foreign currency translation (0.4) % (6.7) % Acquisitions/Divestitures, net and Other 0.1 % 0.1 % Total % change 7.4 % (0.6) % 34 Table of Contents 2023 Compared with 2022 Net Sales The organic sales increase of 7.7% is due to organic sales increases in maintenance and repair of 7.8% and modernization of 7.3%.
Summary performance for Service for 2024, 2023 and 2022 was as follows: Total Increase (Decrease) Year-Over-Year for: (dollars in millions) 2024 2023 2022 2024 compared with 2023 2023 compared with 2022 Net sales $ 8,894 $ 8,397 $ 7,801 $ 497 5.9 % $ 596 7.6 % Cost of sales 5,533 5,173 4,791 360 7.0 % 382 8.0 % 3,361 3,224 3,010 137 4.2 % 214 7.1 % Operating expenses 1,176 1,210 1,178 (34) (2.8) % 32 2.7 % Operating profit $ 2,185 $ 2,014 $ 1,832 $ 171 8.5 % $ 182 9.9 % Operating profit margin 24.6 % 24.0 % 23.5 % Summary analysis of the Net sales change for Service f or 2024 and 2023 compared with the prior years was as follows: Components of Net sales change: 2024 2023 Organic 6.8 % 7.7 % Foreign currency translation (1.2) % (0.4) % Acquisitions/Divestitures, net and Other 0.3 % 0.3 % Total % change 5.9 % 7.6 % 2024 Compared with 2023 Net Sales The organic sales increase of 6.8% is due to organic sales increases in maintenance and repair of 5.7% and modernization of 11.7%.
Noncontrolling Interest in Subsidiaries' Earnings and Net Income Attributable to Otis Worldwide Corporation (dollars in millions) 2023 2022 2021 Noncontrolling interest in subsidiaries' earnings $ 92 $ 116 $ 174 Net income attributable to Otis Worldwide Corporation $ 1,406 $ 1,253 $ 1,246 Noncontrolling interest in subsidiaries' earnings decreased in 2023 in comparison to 2022 primarily driven by Otis' increased ownership in Otis Mobility (formerly Zardoya Otis) in the second quarter of 2022, as well as impacts of foreign exchange, partially offset by higher net income from non-wholly owned subsidiaries.
See "Note 1: Business Overview" in Item 8 in this Form 10-K for further discussion of the noncontrolling interest acquisition. 32 Table of Contents Noncontrolling interest in subsidiaries' earnings decreased in 2023 in comparison to 2022 primarily driven by Otis' increase to full ownership in Otis Mobility (formerly Zardoya Otis) in the second quarter of 2022, as well as impacts of foreign exchange, partially offset by higher net income from non-wholly owned subsidiaries.
Summary performance for New Equipment for the years ended December 31, 2023, 2022 and 2021 was as follows: Total Increase (Decrease) Year-Over-Year for: (dollars in millions) 2023 2022 2021 2023 compared with 2022 2022 compared with 2021 Net sales $ 5,812 $ 5,864 $ 6,428 $ (52) (0.9) % $ (564) (8.8) % Cost of sales 4,843 4,949 5,293 (106) (2.1) % (344) (6.5) % 969 915 1,135 54 5.9 % (220) (19.4) % Operating expenses 611 557 676 54 9.7 % (119) (17.6) % Operating profit $ 358 $ 358 $ 459 $ — — % $ (101) (22.0) % Operating profit margin 6.2 % 6.1 % 7.1 % Summary analysis of the Net sales change for New Equipment for the years ended December 31, 2023 and 2022 compared with the prior years was as follows: Components of Net sales change: 2023 2022 Organic 2.6 % (1.7) % Foreign currency translation (2.1) % (4.9) % Acquisitions/Divestitures, net and Other (1.4) % (2.2) % Total % change (0.9) % (8.8) % 2023 Compared with 2022 The organic sales increase of 2.6% was driven by mid single-digit organic sales growth in EMEA and low single-digit organic sales growth in Americas and Asia.
Summary performance for New Equipment for 2024, 2023 and 2022 was as follows: Total Increase (Decrease) Year-Over-Year for: (dollars in millions) 2024 2023 2022 2024 compared with 2023 2023 compared with 2022 Net sales $ 5,367 $ 5,812 $ 5,778 $ (445) (7.7) % $ 34 0.6 % Cost of sales 4,443 4,837 4,855 (394) (8.1) % (18) (0.4) % 924 975 923 (51) (5.2) % 52 5.6 % Operating expenses 595 594 542 1 0.2 % 52 9.6 % Operating profit $ 329 $ 381 $ 381 $ (52) (13.6) % $ — — % Operating profit margin 6.1 % 6.6 % 6.6 % 34 Table of Contents Summary analysis of the Net sales change for New Equipment for 2024 and 2023 compared with the prior years was as follows: Components of Net sales change: 2024 2023 Organic (6.4) % 2.6 % Foreign currency translation (1.4) % (2.1) % Acquisitions/Divestitures, net and Other 0.1 % 0.1 % Total % change (7.7) % 0.6 % 2024 Compared with 2023 The organic sales decrease of (6.4)% was driven by a greater than 20% decline in China, partially offset by mid single-digit organic sales growth in Americas and Asia Pacific and low single-digit organic sales growth in EMEA.
The timing of expected cash flows associated with these obligations is based upon management's estimates over the terms of these agreements and is largely based upon historical experience and were as follows as of December 31, 2023: Payments Due by Period (dollars in millions) Total 2024 2025-2026 2027-2028 Thereafter Other long-term liabilities $ 281 $ 24 $ 170 $ 9 $ 78 The balance above includes $149 million of non-current contractual payables due to RTX for reimbursement of tax payments that RTX is responsible to pay after the Separation pursuant to the TMA.
In the following table, we show the timing of these payments as of December 31, 2024: Payments Due by Period (dollars in millions) Total 2025 2026-2027 2028-2029 Thereafter Other long-term liabilities $ 192 $ 10 $ 105 $ 14 $ 63 The amounts above include $80 million of non-current contractual payables due to RTX for reimbursement of tax payments that RTX is responsible to pay after the Separation pursuant to the TMA.
For other restructuring actions, we generally expect to achieve annual recurring savings within the two-year period subsequent to initiating the actions, including $42 million for the 2023 actions and $63 million for the 2022 actions, of which approximately $15 million was realized for the 2023 actions and $63 million for the 2022 actions during the year ended December 31, 2023.
For other restructuring actions, we generally expect to achieve annual recurring savings within the two-year period subsequent to initiating the actions, including $45 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.
The change in Other income (expense), net of $4 million in 2022 compared to 2021 was primarily driven by favorable foreign currency mark-to-market adjustments, lower non-recurring Separation-related costs and settlement of certain legal matters, partially offset by the impact of the loss on the sale of our Russia business.
The change in Other income (expense), net of $(257) million in 2024 compared to 2023, was primarily driven by Separation-related adjustments of $177 million, UpLift transformation costs of $65 million, $18 million of impairment loss related to net assets held for sale, foreign currency mark-to market adjustments, and non-recurring litigation-related settlement costs, including $18 million in the second quarter of 2024, partially offset by other reserve adjustments.
Interest Expense (Income), Net (dollars in millions) 2023 2022 2021 Interest expense (income), net $ 150 $ 143 $ 136 Interest expens e (income), net primarily relates to interest expense on our external debt, offset by interest income earned on cash balances and short-term investments. 31 Table of Contents Interest expense (income), net increased $7 million for 2023, compared to 2022, primarily driven by higher interest expense related to the $750 million unsecured, unsubordinated debt issued in August 2023, partially offset by higher interest income.
For additional discussion of UpLift transformation costs, see "Note 16: Restructuring and Transformation Costs" in Item 8 in this Form 10-K. 31 Table of Contents Interest Expense (Income), Net (dollars in millions) 2024 2023 2022 Interest expense (income), net $ (31) $ 150 $ 143 Interest expens e (income), net primarily relates to interest expense on our external debt, offset by interest income earned on cash balances and short-term investments, and also includes interest related to tax matters.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeA 100 basis points increase in interest rates would have had an approximate $400 million reduction on the fai r value of our fixed-rate debt as of December 31, 2023 and 2022, respectively. Additionally, the investors in our fixed-rate debt obligations generally do not have the right to demand we pay off these obligations prior to maturity.
Biggest changeTherefore, we believe these commodity hedging contracts and the offsetting underlying purchases, when taken together, do not create material market risk. Interest Rate Risk A 100 basis points increase in interest rates would have had an approximate $400 million reduction on the fai r value of our fixed-rate debt as of December 31, 2024 and 2023 .
Refer to "Note 2: Summary of Significant Accounting Policies", "Note 9: Borrowings and Lines of Credit" and "Note 17: Financial Instruments" i n Item 8 in this Form 10-K for additional discussion of foreign currency exchange, interest rates and financial instruments, including the average aggregate notional amount of our outstanding foreign currency and commodity price hedges during 2023 and 2022.
Refer to "Note 2: Summary of Significant Accounting Policies", "Note 9: Borrowings and Lines of Credit" and "Note 17: Financial Instruments" i n Item 8 in this Form 10-K for additional discussion of foreign currency exchange, interest rates and financial instruments, including the average aggregate notional amount of our outstanding foreign currency and commodity price hedges during 2024 and 2023 .
Derivative instruments utilized by us in our hedging activities are viewed as risk management tools, involve relatively little complexity and are not used for trading or speculative purposes. We diversify the counterparties used and monitor the concentration of risk to limit our counterparty exposure.
Derivative instruments utilized in our hedging activities are viewed as risk management tools, involve relatively little complexity and are not used for trading or speculative purposes. We diversify the counterparties used and monitor the concentration of risk to limit our counterparty exposure.
The hedges would be designated as fair value hedges and the gains and losses on the swaps would be reported in interest expense, reflecting that portion of interest expense at a variable rate. 45 Table of Contents
The hedges would be designated as fair value hedges and the gains and losses on the swaps would be reported in interest expense, reflecting that portion of interest expense at a variable rate. 48 Table of Contents
An unfavorable exchange rate movement of 10% to our portfolio of foreign currency contracts would have resulted in an increase in unrealized losses of $120 million and $39 million as of December 31, 2023 and 2022, respectively. Such losses or gains would be offset by corresponding gains or losses in the remeasurement of the underlying transactions or investments being hedged.
An unfavorable exchange rate movement of 10% to our portfolio of foreign currency contracts would have resulted in an increase in unrealized losses of $124 million and $120 million as of December 31, 2024 and 2023, respectively. Such losses or gains would be offset by corresponding gains or losses in the remeasurement of the underlying transactions or investments being hedged.
More than insignificant exposures, that cannot be naturally offset, are generally hedged with foreign currency derivatives. The aggregate notional amount of our outstanding foreign currency hedges was approximately $4.9 billion and $3.7 billion as of December 31, 2023 and 2022, respectively. Foreign currency forward contracts are sensitive to changes in foreign currency exchange rates.
More than insignificant exposures that cannot be naturally offset are generally hedged with foreign currency derivatives. The aggregate notional amount of our outstanding foreign currency hedges was approximately $5.1 billion and $4.9 billion as of December 31, 2024 and 2023 , respectively. Foreign currency forward contracts are sensitive to changes in foreign currency exchange rates.
Therefore, when commodity price risk is not mitigated by other methods, we may enter into hedging contracts. Otis does not enter into hedging contracts for speculative purposes. Commodity hedging contracts are sensitive to changes in commodity prices, but any losses or gains would be offset by corresponding gains or losses in the underlying commodity purchases being hedged.
Otis does not enter into hedging contracts for speculative purposes. Commodity hedging contracts are sensitive to changes in commodity prices, but any losses or gains would be offset by corresponding gains or losses in the underlying commodity purchases being hedged.
We are exposed to volatility in the prices of commodities used in some of our products and component parts, such as steel, aluminum and copper, among others. When possible and appropriate, we maintain fixed price contracts on raw materials and component parts. However, we are prone to exposure as these contracts expire.
Commodity Price Risk The fluctuation in prices of certain raw materials may impact Otis' financial results. We are exposed to volatility in the prices of commodities used in some of our products and component parts, such as steel, aluminum and copper, among others. When possible and appropriate, we maintain fixed price contracts on raw materials and component parts.
The currency effects of this debt are reflected in the Accumulated other comprehensive income (loss) within Shareholder's (Deficit) Equity in the Balance Sheet in Item 8 in this Form 10-K.
The currency effects of this debt are reflected in the Accumulated other comprehensive income (loss) within Shareholder's (Deficit) Equity in the Balance Sheet in Item 8 in this Form 10-K. Refer to "Note 9: Borrowings and Lines of Credit" in Item 8 in this Form 10-K for additional discussion of our borrowings.
As discussed in "Note 17: Financial Instruments" in Item 8 in this Form 10-K, as of December 31, 2023 we have ¥21.5 billion ($150 million) of Japanese Yen denominated long-term debt that qualifies as a net investment hedge against our investments in Japanese businesses, and foreign exchange forward contracts of €120 million ($132 million) and HK$2,262 million ($18 million) that qualify as net investment hedges against our investments in c ertain European and Asian businesses, respectively.
As discussed in "Note 17: Financial Instruments" in Item 8 in this Form 10-K, as of December 31, 2024 we have ¥21.5 billion ($137 million) of Japanese Yen denominated long-term debt that qualifies as a net investment hedge against our investments in Japanese businesses, as well as derivative instruments that qualify as net investment hedges against our investments in certain European businesses with notional amounts of €150 million ($156 million) and Asian businesses with notional amounts of HK$1.3 billion and ¥2.1 billion ($178 million total) .
Therefore, we believe these commodity hedging contracts and the offsetting underlying purchases, when taken together, do not create material market risk. Interest Rate Risk Our long-term debt portfolio consists of fixed-rate instruments, and, therefore, any fluctuation in market interest rates is not expected to have a material effect on the Company's results of operations.
Our long-term debt portfolio consists of fixed-rate instruments, and, therefore, any fluctuation in market interest rates is not expected to have a material effect on the Company's results of operations. Additionally, the investors in our fixed-rate debt obligations generally do not have the right to demand we pay off these obligations prior to maturity.
As of December 31, 2023, these net investment hedges are deemed to be effective. As of December 31, 2023 we have €1.1 billion ($1.2 billion) of Euro denominated long-term debt. This debt was issued by a subsidiary with Euro functional currency, and the original proceeds of €1.6 billion were used to fund the Tender Offer for Zardoya Otis.
As of December 31, 2024, these net investment hedges are deemed to be effective. 47 Table of Contents As of December 31, 2024 we have approximately €2.0 billion ($2.0 billion) of Euro denominated long-term debt. This debt was issued by a subsidiary with Euro functional currency.
When possible and appropriate, we also include price escalation linked to commodity prices in contracts with our customers and take pricing actions for future contracts. However, products and services delivered to our customers can be provided a year or more after being agreed to, and not all raw material price increases can be passed along to customers with existing contracts.
However, products and services delivered to our customers can be provided a year or more after being agreed to, and not all raw material price increases can be passed along to customers with existing contracts. Therefore, when commodity price risk is not mitigated by other methods, we may enter into hedging contracts.
We believe these foreign currency forward exchange contracts and the offsetting underlying commitments or investments, when taken together, do not create material market risk. For our non-U.S. based entities, a substantial portion of revenues are generated and costs are incurred in local currencies.
We believe these foreign currency forward exchange contracts and the offsetting underlying commitments or investments, when taken together, do not create material market risk.
We transact business in various foreign currencies, which exposes our cash flows and earnings to changes in foreign currency exchange rates. We periodically enter into sales contracts denominated in currencies other than the functional currency of the parties to the transaction, which can create foreign exchange exposure.
We periodically enter into sales contracts denominated in currencies other than the functional currency of the parties to the transaction, which can create foreign exchange exposure. The value of certain foreign currencies as compared to the U.S. dollar may impact Otis’ financial results.
International net sales were approxi matel y $10.2 billion, $9.9 billion and $10.6 billion in 2023, 2022 and 2021, respectively . We manage foreign currency exposures that are associated with committed foreign currency purchases and sales as well as foreign currency denominated assets and liabilities that are created in the ordinary course of business.
We manage foreign currency exposures associated with committed foreign currency purchases and sales, as well as foreign currency denominated assets and liabilities that are created in the ordinary course of business. Foreign exchange exposures arising from intercompany loan and deposit transactions are also hedged regularly.
Foreign Currency Exposures The value of certain foreign currencies as compared to the U.S. dollar may impact Otis’ financial results. We have a high volume of foreign currency exposures that result from our international net sales, purchases, investments and other international transactions.
We have a high volume of foreign currency exposures that result from our international net sales, purchases, investments and other international transactions. International net sales were approxi matel y $10.0 billion, $10.2 billion and $9.9 billion in 2024 , 2023 and 2022, respectively .
Removed
Refer to "Note 9: Borrowings and Lines of Credit" in Item 8 in this Form 10-K for additional discussion of our borrowings. 44 Table of Contents Commodity Price Risk The fluctuation in prices of certain raw materials may impact Otis' financial results.
Added
Foreign Currency Risk For our non-U.S. based entities, a substantial portion of revenues are generated, and costs are incurred, in local currencies. We transact business in various foreign currencies, which exposes our cash flows and earnings to changes in foreign currency exchange rates.
Added
However, we are prone to exposure as these contracts expire. When possible and appropriate, we also include price escalation linked to commodity prices in contracts with our customers and take pricing actions for future contracts.

Other OTIS 10-K year-over-year comparisons