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What changed in Otis Worldwide's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Otis Worldwide's 2022 and 2023 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 2023 report.

+304 added−313 removedSource: 10-K (2024-02-02) vs 10-K (2023-02-03)

Top changes in Otis Worldwide's 2023 10-K

304 paragraphs added · 313 removed · 234 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

66 edited+17 added−22 removed34 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 in the U.S. and globally 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 and the ongoing economic recovery therefrom and their effects on, among other things, global supply, demand and distribution), 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. and other countries in which Otis and its businesses operate, including the effects of the ongoing conflict between Russia and Ukraine and related sanctions and export controls, on general market conditions, commodity costs, global trade policies, currency exchange rates and stakeholder perception 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, 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 COVID-19, the ongoing conflict between Russia and Ukraine or otherwise; • cost reduction or containment actions, restructuring costs and related savings and other consequences thereof; • 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, including as a result of the ongoing conflict between Russia and Ukraine; • 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 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 disputes that have or may hereafter arise under the agreements we entered into with RTX and Carrier in connection with the Separation. 12 Table o f Content s 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 (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.
Safety and Health Safety is one of the Otis Absolutes. For that reason, safety measures and indicators are regularly monitored by management and reported to our Board of Directors. To promote safety, we have a health and safety management system and regularly measure the effectiveness of our health and safety programs.
Health and Safety Safety is one of the Otis Absolutes. For that reason, safety measures and indicators are regularly monitored by management and reported to our Board of Directors. To promote safety, we have a health and safety management system and regularly measure the effectiveness of our health and safety programs.
Seasonality Our business and operating results are generally not subject to significant fluctuations as a result of seasonality, although we have experienced lower New Equipment sales in Asia in the first calendar quarter, coinciding with Lunar New Year celebrations.
Seasonality Our business and operating results are generally not subject to significant fluctuations as a result of seasonality, although we have experienced lower New Equipment net sales in Asia in the first calendar quarter, coinciding with Lunar New Year celebrations.
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, as well as COVID-19. 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") ESG is part of our culture and embedded in our long-term strategy.
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, 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 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.
Our Service sales personnel seek to win service contracts upon the expiration or termination of existing service contracts from customers by offering a superior value proposition through service excellence, an engaged and technically sophisticated group of field service technicians, a streamlined customer experience and strong elevator and escalator operating performance.
Our Service sales personnel seek to win service contracts upon the expiration or termination of existing service contracts from customers by offering a superior value proposition through service excellence, an engaged and technically sophisticated group of field service technicians, a streamlined customer experience and reliable elevator and escalator operating performance.
We coordinate our R&D efforts globally through an operating model that sets global and local priorities based on customer and segment needs. We have 11 R&D centers and 17 factories around the world, including major locations in China, India, France, Spain and the United States.
We coordinate our R&D efforts globally through an operating model that sets global and local priorities based on customer and segment needs. We have 11 R&D centers and 17 factories around the world, including major locations in China, India, Japan, France, Germany, Spain and the United States.
U.S. laws, regulations, orders, and other measures concerning the export or re-export of products, software, services and technology to, and other trade-related activities involving, non-U.S. countries and parties affect the operations of Otis and its affiliates, as do those of other countries pertaining to similar matters.
United States (the "U.S.") laws, regulations, orders, and other measures concerning the export or re-export of products, software, services and technology to, and other trade-related activities involving, non-U.S. countries and parties affect the operations of Otis and its affiliates, as do those of other countries pertaining to similar matters.
For further discussion of risks related to environmental matters and other government regulations, see in this Form 10-K Item 1A, Item 7 and "Note 2: Summary of Significant Accounting Policies" and "Note 22: Contingent Liabilities" in Item 8 in this Form 10-K.
For further discussion of risks related to environmental matters and other government regulations, see in this Form 10-K Item 1A, Item 7 and "Note 2: Summary of Significant Accounting Policies" and "Note 21: Contingent Liabilities" in Item 8 in this Form 10-K.
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 2022, we published our inaugural 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.
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.
While our programs vary by location and eligibility, they include base pay, short-term incentive bonuses, long-term incentive pay in the form of stock awards, retirement plans, health care and insurance benefits, tuition assistance through our Employee Scholar program, paid sick, bereavement, vacation, parental and family leaves, wellness and employee assistance programs.
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.
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 Diversity, Equity and Inclusion ("DE&I"). In 2021, we became a signatory to the U.N.
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.
Otis ONE is designed to continuously monitor equipment health and performance in real time to provide proactive, predictive and transparent information to our technicians and customers. The technology expands predictive and remote maintenance capabilities to support improved elevator up-time and service productivity.
Otis ONE is our latest cloud-based IoT technology, designed to continuously monitor equipment health and performance in real time to provide proactive, predictive and transparent information to our technicians and customers. The technology expands predictive and remote maintenance capabilities to support improved elevator up-time and service productivity.
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. 11 Table o f Content s 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.
Our international operations represented approximately 72% of our net sales for the year ended December 31, 2022. 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 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.
We have approximate ly 1,200 e ngineers 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 1,200 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 a maintenance portfolio of approximately 2.2 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 end-segments around the world.
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.
Approximately 64% of our workforce in the U.S. is covered by collective bargaining agreements. 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 .
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 .
Separation from United Technologies Corporation Otis is a Delaware corporation and was incorporated on March 1, 2019 in connection with the separation and distribution ("Separation") of each of Otis and C arrier Global Corporation ("Carrier") from United Technologies Corporation, subsequently renamed Raytheon Technologies Corporation ("UTC" or "RTX", as applicable) into separate independent publicly-traded companies.
Corporate Information Otis is a Delaware corporation and was incorporated on March 1, 2019 in connection with the separation and distribution ("Separation") of each of Otis and C arrier Global Corporation ("Carrier") from United Technologies Corporation, subsequently renamed RTX Corporation ("UTC" or "RTX", as applicable) into separate independent publicly traded companies. The Separation occurred on April 3, 2020.
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, 2022, contributed 43% and 57% of our net sales, and 17% and 83% of our segment 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 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.
We are a majority owner of Otis China, and Tianjin Tai Kang Investment Co. Ltd. is our joint venture partner. 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 is a joint venture established in 1998 for the purpose of manufacturing, installing and servicing elevators, escalators and related equipment. We are a majority owner of Otis China, and Tianjin Tai Kang Investment Co. Ltd. is our joint venture partner.
The DE&I Advisory Group is composed of eight 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. Our DE&I performance is reviewed by our DE&I Advisory Group three times a year.
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.
These platforms enhance the space-saving, energy-efficient design of the Gen2 elevator with the connectivity of the Otis ONE IoT (internet of things) digital service platform, while offering additional safety features for passengers and our colleagues who maintain the elevator.
Gen3 The successor to the Gen2 family of elevators, the Gen3 platform enhances the space-saving, energy-efficient design of the Gen2 elevator with the connectivity of the Otis ONE IoT (internet of things) digital service platform, while offering additional safety features for passengers and our colleagues who maintain the elevator.
Item 1. Business Our Company Otis is t he world’s leading elevator and escalator manufacturing, installation and service company. We serve customers in ov er 200 countries and territories around t he world. Otis has global scale and local focus, with over 1,400 bra nches and offices, and a direct physical presence in approximately 80 countries.
Item 1. Business Our Company Otis is t he world’s leading elevator and escalator manufacturing, installation and service company. We serve customers in ov er 200 countries and territories around t he world. Otis has global scale and local focus, with more than 1,400 branc hes and offices, and a direct physical presence in more than 70 co untries.
For a discussion of risks associated with ESG matters, see Item 1A in this Form 10-K. Human Capital As of December 31, 2022, our global workforce consists of approximately 69,000 colleagues, with 44% in Asia, 33% in Europe, the Middle East and Africa (“EMEA”) and 23% in the Americas.
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.
We currently own approximately 4,200 globally issued patents, and we have approximately 2,300 patent applications pending globally. We filed approximately 1,300 patent applicatio ns in the last three years. Our patents are primarily filed in Europe, the United States and Asia.
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.
See the “Environmental, Social and Governance ("ESG")” section of this Form 10-K above for more information regarding our ESG goals. For our colleagues to be effective, they need to be healthy.
See the “Environmental, Social and Governance ("ESG")” section of this Form 10-K above for more information regarding our ESG goals.
Our smart design and features enhance sustainability and passenger safety, such as sensor-equipped escalators and moving walkways that efficiently run only when passengers approach, or operate at reduced speeds to conserve energy when there are no riders.
Our smart design and features enhance sustainability and passenger safety, such as sensor-equipped escalators and moving walkways that efficiently run only when passengers approach, or operate at reduced speeds to conserve energy when there are no riders. Service Through our Service segment, we perform maintenance and repair services, as well as modernization services to upgrade elevators and escalators.
We believe our business strategies allow us to sustain New Equipment growth, accelerate Service portfolio growth, advance the digitalization of Otis, focus and empower the organization, support our ability to successfully compete across the New Equipment and Service segments, and will help deliver sustainable earnings growth. Compliance with Government Regulations We conduct our business through subsidiaries and affiliates worldwide.
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.
Any changes in legislation or government policies impacting our industry, including with respect to employee safety, labor-related regulations, industrial equipment, licensing requirements, foreign ownership limitations and building and elevator safety codes, can affect our operations. We closely monitor local legislation and government policies in the locations in which we operate.
Compliance with Government Regulations We conduct our business through subsidiaries and affiliates worldwide. Any changes in legislation or government policies impacting our industry, including with respect to employee safety, labor-related regulations, industrial equipment, licensing requirements, foreign ownership limitations and building and elevator safety codes, can affect our operations.
We empower all of our colleagues and subcontractors with stop work authority if they perceive an unsafe condition or a behavior that may cause injury.
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.
The Gen360 elevator also features a new native 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 Otis ONE IoT solution adds a network of sensors for real-time status updates.
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.
For the year ended December 31, 2022 , research and development ("R&D") expense was $150 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 approximately $55 million , which in combination with R&D expense was 1.5% as a percentage of n et sales.
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.
To further accountability and transparency with respect to our DE&I progress, we established a DE&I Advisory Group which is responsible for setting Otis DE&I global strategy and priorities.
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.
We seek to grow our maintenance portfolio through conversion of newly installed units into maintenance contracts, through prospecting and winning units already in service from customers using another service provider and through acquisitions.
We also provide customers with repair services to address equipment and component wear and tear, as well as breakdowns. We seek to grow our maintenance portfolio through conversion of newly installed units into maintenance contracts, through prospecting and winning units already in service from customers using another service provider and through acquisitions.
As ERGs are vital in nurturing a culture of DE&I at Otis, we are continuing to expand our ERG offerings by supporting all abilities and increasing representation, and are partnering with them to further our DE&I initiatives. Engagement We believe that engaged colleagues deliver better service to our customers. We measure engagement by conducting colleague surveys twice yearly.
As ERGs are vital in nurturing a culture of inclusion at Otis, we are continuing to expand our ERG offerings globally by supporting all colleagues within the 4C framework (career, culture, community and customer) and partnering with them to further our inclusion initiatives. Colleague Engagement We believe that engaged colleagues deliver better service to our customers.
The Separation occurred on April 3, 2020. References to "UTC" relate to pre-Separation matters, and references to "RTX" relate to post-Separation matters.
References to "UTC" relate to pre-Separation matters, and references to "RTX" relate to post-Separation matters.
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 surveys, which anonymizes the data, cover topics such as safety, ethics, belonging, quality, company prospects, inclusion, empowerment, accountability and managerial effectiveness.
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.
Our ESG goals can be found in the Investor section of our corporate website, where we make updates from time to time. We set goals within each of these areas and aligned to the U.N. SDGs on which we can have the greatest impact.
We set goals within each of these areas and aligned them to the U.N. SDGs on which we can have the greatest impact.
In addition, we have also experienced lower New Equipment sales in the fourth quarter in China, due to a national holiday that occurs during the first week of October which may impact the relative mix of sales within the quarter. 8 Table o f Content s 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.
In addition, we have also experienced lower New Equipment net sales in the fourth quarter in China, due to a national holiday that occurs during the first week of October which may impact the relative mix of net sales within the quarter.
In 2023, 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. 6 Table o f Content s Research and Development & Intellectual Property Innovation is a fundamental characteristic of our history and is central to our strategy.
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.
Commitment to Change We aim to be both an equal-opportunity employer of choice for people of broad perspectives and experiences, cultures, genders, races, and generations, and whose workforce mirrors the diversity of our customers and the communities where we live and work, and a place where every voice feels safe, welcomed and heard.
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.
Otis offers a range of technologies for improving the passenger experience. Our proprietary Compass 360 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.
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.
In addition, our operations are subject to and affected by environmental regulations promulgated by federal, state and local authorities in the United States and regulatory authorities with jurisdiction over our foreign operations. We have incurred and will likely continue to incur liabilities under various government statutes and regulations for the cleanup of pollutants previously released into the environment.
We have incurred and will likely continue to incur liabilities under various government statutes and regulations for the cleanup of pollutants previously released into the environment.
Although at times high prices for some important raw materials have caused margin and cost pressures for our business, including in connection with the impact of COVID-19-and the uncertain recovery, we do not expect near-term unavailability or pricing of materials, components or supplies that would have a material adverse effect on our business.
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.
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.
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.
The ESG Council is composed of senior leaders representing multiple functions within the Company, including Communications, Engineering, Human Resources, Investor Relations, Legal, and Operations (Environmental, Health & Safety, Supply Chain and Quality & Continuous Improvement). Also, an internal ESG Working Group, comprised of subject matter experts assists the ESG Council in developing and effectuating the Company's ESG strategy.
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.
As elevator equipment ages, we work with customers to help renew or refresh their elevators with modernization solutions that enhance equipment operation, improve building functionality and contribute to more sustainable building systems. Modernization offerings can range from relatively simple upgrades of interior finishes and aesthetics to complex upgrades of larger components and sub-systems.
Similar to most other electro-mechanical equipment, elevators and escalators are subject to wear and tear, which over time erodes equipment functionality. As elevator equipment ages, we work with customers to help renew or refresh their elevators with modernization solutions that enhance equipment operation, improve building functionality and contribute to more sustainable building systems.
Both the ESG Council and ESG Working Group meet frequently, with the ESG Council reporting regularly to our CEO and the Executive Leadership Team on our ESG progress and actions.
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.
These include product and non-product suppliers, as well as subcontractors. We rely on approximately 500 key s uppliers for our manufacturing supply chain. 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.
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.
China 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”). Otis China is a joint venture established in 1998 for the purpose of manufacturing, installing and servicing elevators, escalators and related equipment.
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.
Having access to trained technicians is very important 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. 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.
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.
Customers securing services for elevators are frequently different from those who initially make purchasing decisions with respect to New Equipment solutions. As the largest service provider in the industry worldwide, we have a wide range of customers in our Service segment and do not have any single service contract material to Otis as a whole.
As the largest service provider in the industry worldwide, we have a wide range of customers in our Service segment and do not have any single service contract that is material to Otis as a whole. Contract duration depends on several factors, including customer needs, regulatory requirements and industry/geography dynamics.
We previously rolled out new voice and gesturing technologies for summoning elevators to customers in China and North America, with other geographies to follow. 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 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.
Our progress towards reducing Scope 1 and Scope 2 greenhouse gases is included as a performance multiplier in determining payouts under our executive short-term incentive plan. Our ESG goals and ESG report are available through the Investors section of our website (http://www.otis.com) under the heading "ESG".
Our progress towards our ESG goals was included as a performance multiplier in determining payouts under our 2023 executive short-term incentive plan.
During that month, all colleagues were encouraged to celebrate and learn about the different dimensions of diversity, engage with each other, and grow stronger together. Our employee resource groups (“ERGs”) also play a significant role in our ability to attract, retain, and develop diverse talent, and build allies across the organization.
This campaign allows our colleagues to self-report their demographic data, if they choose to do so. Our employee resource groups (“ERGs”) also play a significant role in our ability to attract, retain, and develop diverse talent, and build allies across the organization.
Since its launch in 2000, Otis has sold over one million Gen2 units, making it our best selling elevator platform. In 2021, we introduced the successors to the Gen2 family of elevators: the Gen3 and Gen360 digital elevator platforms.
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.
We provide our Service offerings to our customers through a global network of approximately 34,000 Service mechanics operating out of over 1,400 branches and offices typically located in close proximity to concentrations of customers. Our mechanics are critical to our ability to deliver a high level of service to our customers. Our OTISLINE operations provide personalized customer support 24/7.
Our mechanics are critical to our ability to deliver a high level of service to our customers. Our OTISLINE operations provide personalized customer support 24/7. They receive customer service requests and assign and dispatch field technicians, as necessary, to respond to service requests. We support our customers with our network of service parts centers and repair centers.
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. For taller, high-rise buildings, our most prominent product is the SkyRise elevator solution. The SkyRise advanced high-rise elevator platform combines cutting-edge technologies and precision engineering to deliver solutions for residential, commercial and mixed use skyscrapers.
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.
Our progress towards attaining gender parity across our executive leadership is a performance multiplier in determining payouts under our executive short-term incentive plan. 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.
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.
In 2022 , our Service segment had net sales of $7.8 billion and operating profit of $1.8 billion. Service customers typically comprise building owners, facility managers, housing associations and government agencies that operate buildings where elevators and escalators are installed.
Service customers typically comprise building owners, facility managers, housing associations and government agencies that operate buildings where elevators and escalators are installed. Customers securing services for elevators are frequently different from those who initially make purchasing decisions with respect to New Equipment solutions.
Increasing colleague favorability for the inclusive culture category in the Company’s engagement survey is part of our thirteen published ESG goals. See the “Environmental, Social and Governance ("ESG")” section of this Form 10-K above for more information regarding our ESG goals.
The engagement survey, which anonymizes the data, covers topics such as safety, ethics, belonging, quality, company prospects, inclusion, empowerment, accountability and managerial effectiveness. Increasing colleague favorability for the inclusive culture category in the Company’s engagement survey is part of our thirteen published ESG goals.
One of our flagship programs is “Otis University,” a global program that builds leadership and functional capabilities in sales, field, engineering, operations, and major projects. Our “Employee Scholar 10 Table o f Content s Program” is a comprehensive, company-sponsored education program that allows colleagues to expand their skills through degree or certification programs.
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.
We also offer flexible work arrangements to many salaried colleagues. 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. As a result, we provide a range of development and mentoring opportunities that vary based on a colleague's career stage and function.
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.
We have developed a range of elevator and escalator solutions to meet the varying needs and objectives of our diverse customers. Our primary elevator and escalator solutions are described below. 4 Table o f Content s The Gen2 family of elevators has been our principal low-and mid-rise elevator solution.
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 .
Otis eView in-car display streams live, customizable infotainment to passengers and can connect them to OTISLINE, Otis' 24-hour service call center, during an emergency. The Otis eCall Plus smartphone app enables passengers to summon their elevator remotely for a touchless experience.
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.
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In 2022 , our New Equipment segment had sales of $5.9 billion and operating profit of $358 million. In 2022, our New Equipment sales in China represented approximately one-third of our new equipment net sales and China represented over half of our global New Equipment unit volume.
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Revenues are recognized based on percentage of completion.
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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. 5 Table o f Content s Service Through our Service segment, we perform maintenance and repair services, as well as modernization services to upgrade elevators and escalators.
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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.
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Contract duration depends on a number of factors, including customer needs, regulatory requirements and industry/geography dynamics. We work closely with our customers to renew these contracts as appropriate. Certain types of customers, such as those owning or operating large properties or portfolios of properties, tend to execute long-term maintenance agreements.
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We work closely with our customers to renew these contracts as appropriate.
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We also provide customers with repair services to address equipment and component wear and tear, as well as breakdowns. Similar to most other electro-mechanical equipment, elevators and escalators are subject to wear and tear, which over time erodes equipment functionality.
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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.
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They receive customer service requests and assign and dispatch field technicians, as necessary, to respond to service requests. Our network of service parts centers, repair centers, and obsolescence management capabilities are key enablers to supporting customers by keeping their elevators and escalators in good working condition.
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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.
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Digital Technology initiatives Otis has been using technology to monitor elevator performance remotely for decades, culminating in our latest Otis ONE technology discussed under "New Equipment" above. We also offer multimedia subscription options with additional voice, data and video digital services to customers leveraging our IoT technologies.
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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.
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As of the end of 2022, approximately 800,000 units of our global portfolio, including units under the warranty period, are connected.
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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.

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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, adverse effects on employee morale, 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. 21 Table o f Content s 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.
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.
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 cyber-attacks, 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 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 expect that sales to emerging markets will continue to account for a significant portion of our 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. A slowdown in urbanization in emerging countries, such as China or India, could adversely affect our financial performance.
In addition, because of the global nature of our business, both our internal systems and products must comply with the applicable laws, regulations and standards in a number of jurisdictions, which continue to evolve, and in certain cases, include provisions that are unclear.
Because of the global nature of our business, both our internal systems and products must comply with the applicable laws, regulations and standards in a number of jurisdictions, which continue to evolve and in certain cases, include provisions that are unclear.
Furthermore, continuation of the conflict 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 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.
In addition, U.S. foreign policy may restrict or prohibit business dealings with certain individuals, entities or countries; changes in these prohibitions can happen suddenly and could result in a material adverse effect on our operations. For a description of current material legal proceedings, see "Note 22: Contingent Liabilities" in Item 8 of this Form 10-K.
In addition, U.S. foreign policy may restrict or prohibit business dealings with certain individuals, entities or countries; changes in these prohibitions can happen suddenly and could result in a material adverse effect on our operations. For a description of current material legal proceedings, see "Note 21: Contingent Liabilities" in Item 8 of this Form 10-K.
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 (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 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.
As a result of a cyber-attack, we could potentially be subject to production downtimes, operational delays or other detrimental impacts on our operations or ability to provide products and services to our customers; destruction or corruption of data; security breaches; manipulation or improper use of our or third-party systems, networks or products; financial losses from remedial actions, loss of business, potential liability, penalties, fines and/or damage to our reputation, any of which could have a material adverse effect on our competitive position, results of operations, cash flows or financial condition.
As a result of a cyberattack, we could potentially be subject to production downtimes, operational delays or other detrimental impacts on our operations or ability to provide products and services to our customers; destruction or corruption of data; security breaches; manipulation or improper use of our or third-party systems, networks or products; financial losses from remedial actions, loss of business, potential liability, penalties, fines and/or damage to our reputation, any of which could have a material adverse effect on our competitive position, results of operations, cash flows or financial condition.
See Item 7 "Business Overview" in this Form 10-K for more information regarding the recent sale of our business in Russia.
See Item 7 "Business Overview" in this Form 10-K for more information regarding the sale of our business in Russia.
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.
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.
These activities are complex and may involve or require significant changes to our operations. If we do not successfully manage restructuring activities, expected efficiencies and benefits might be delayed or not realized, and our operations and business could be disrupted.
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.
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.
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.
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) cyber-attacks 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.
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.
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.
Even if the distribution of Common Stock pursuant to the Separation 23 Table o f Content s were to otherwise qualify as a tax-free transaction under Sections 355 and 368(a)(1)(D) of the Code, it may result in a taxable gain to RTX (but not its shareholders) under Section 355(e) of the Code if the Separation were deemed to be part of a plan (or series of related transactions) pursuant to which one or more persons acquire, directly or indirectly, shares representing a 50% or greater interest (by vote or value) in RTX or Otis.
Even if the distribution of Common Stock pursuant to the Separation were to otherwise qualify as a tax-free transaction under Sections 355 and 368(a)(1)(D) of the Code, it may result in a taxable gain to RTX (but not its shareholders) under Section 355(e) of the Code if the Separation were deemed to be part of a plan (or series of related transactions) pursuant to which one or more persons acquire, directly or indirectly, shares representing a 50% or greater interest (by vote or value) in RTX or Otis.
We conduct our business on a global basis, with approxim ately 72% of our 2022 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.
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.
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.
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.
China is currently the largest end market for sales of new equipment in our industry, with our New Equipment sales in China representing approximately 35% 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 third of our global New Equipment net sales and over half of our global New Equipment unit volume .
Changes to market and economic conditions in China, including credit conditions for our customers, an escalation of trade conflicts between the U.S. and China or changes in the government's COVID-19 policies, may 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, may further impact our ability to continue New Equipment net sales in China at rates consistent with prior years.
Any delays could 15 Table o f Content s result in increased development costs or divert resources from other projects. If we are unable to successfully develop and timely introduce new products, services and technologies, our competitors may develop competing technologies that gain market acceptance in advance of or instead of our products or services.
Any delays could result in increased development costs or divert resources from other projects. If we are unable to successfully develop and timely introduce new products, services and technologies, our competitors may develop competing technologies that gain market acceptance in advance of or instead of our products or services.
The performance of the financial markets and interest rates can impact our defined benefit pension plan expenses and funding obligations. Significant decreases in the discount rate or investment losses on plan assets may increase our funding obligations and adversely impact our financial results.
The performance of the financial markets and interest rates as well statutory and/or regulatory changes can impact our defined benefit pension plan expenses and funding obligations. Significant decreases in the discount rate or investment losses on plan assets may increase our funding obligations and adversely impact our financial results.
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, capital market and political conditions in general, and conditions in the construction and infrastructure industries in particular.
If we are not successful in maintaining 17 Table o f Content s our joint ventures and other strategic partnerships, our financial condition, results of operations and cash flows may be adversely affected. Joint ventures and non-wholly owned subsidiaries inherently involve special risks.
If we are not successful in maintaining our joint ventures and other strategic partnerships, our financial condition, results of operations and cash flows may be adversely affected. Joint ventures and non-wholly owned subsidiaries inherently involve special risks.
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. 24 Table o f Content s Item 1B. Unresolved Staff Comments None.
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.
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 conflict between Russia and Ukraine below), including global credit market 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, trade policies, tariffs and trade barriers, political conditions, regulatory changes, fluctuations in residential and commercial construction activity, pandemic health issues (see discussion of COVID-19 below), natural disasters, including weather events caused by climate change, actual or anticipated default on sovereign debt 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 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 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. Given that the majority of our sales are non-U.S. based, a strengthening of the U.S.
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.
We may not realize expected benefits from our cost reduction and restructuring efforts, and our profitability may be hurt 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 activities.
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.
In addition, any such event could harm our reputation, cause unfavorable publicity or otherwise adversely affect certain potential customers’ perception of the security and reliability 19 Table o f Content s of our services as well as our credibility and reputation, which could result in lost sales.
In addition, any such event could harm our reputation, cause unfavorable publicity or otherwise adversely affect certain potential customers’ perceptions of the security and reliability of our services as well as our credibility and reputation, which could result in lost sales.
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 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.
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.
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.
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.
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.
Issues with suppliers, (such as a disruption in deliveries, capacity constraints, production disruptions, quality issues and supplier closings or bankruptcies, including in connection with the ongoing impact of COVID-19 and the unsettled economic recovery), price increases or decreased availability of raw materials or commodities (including in connection with the ongoing conflict between Russia and Ukraine) 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 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.
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.
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.
Examples of such risks include: (1) the availability and cost of low- or non-carbon-based energy sources and technologies, (2) evolving regulatory requirements affecting ESG standards or disclosures, (3) the availability of suppliers that can meet our sustainability, diversity and other standards, and (4) 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, diversity and other standards, and (5) our ability to recruit, develop, and retain diverse talent in our labor markets.
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).
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.
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, which have not to our knowledge had a material adverse impact on the Company to date.
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.
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. 22 Table o f Content s 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.
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.
If the conflict continues for a significant time or expands to other countries, it 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 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.
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.
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.
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.
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 we fail to accurately estimate our costs or the time required to complete a new equipment order, or the extent of required maintenance pursuant to a service contract, the profitability of our contracts may be materially and adversely affected. Some of our contracts provide for liquidated damages if we do not perform in accordance with the contract.
If we fail to accurately estimate our costs or the time required to complete a new equipment order, or the extent of required maintenance pursuant to a service contract, or execute on our productivity initiatives, the profitability of our contracts may be materially and adversely affected.
Quarterly cash dividends are a component of our capital allocation strategy, which we fund with operating free cash flow, borrowings and divestitures. 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.
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.
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.
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.
As of December 31, 2022, we had $6.6 billion outstanding long-term debt.
As of December 31, 2023, we had $6.9 billion o utstanding long-term debt.
Under these arrangements, nonperformance by those divested businesses could result in obligations being imposed on us that could have a material adverse effect on our competitive position, cash flows, results of operations or financial condition. For constraints on mergers and acquisition activity after the completion of the distribution, see “Risk Factors—Risks Related to the Separation” below.
Under these arrangements, nonperformance by those divested businesses could result in obligations being imposed on us that could have a material adverse effect on our competitive position, cash flows, results of operations or financial condition.
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.
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.
Any of these factors could have a material adverse effect on our business, results of operations, cash flows and financial condition. 13 Table o f Content s 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, and risks associated with China and other emerging markets.
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.
Otis has an investment grade credit rating from each of Moody’s Investor Services, Inc. and Standard & Poor’s.
We have an investment-grade credit rating from each of Moody’s Investors Service, Inc. and Standard & Poor’s.
Dollar against other major foreign currencies has adversely affected and could in the future adversely affect our results of operations.
Given that the majority of our net sales are non-U.S. based, a strengthening of the U.S. dollar against other major foreign currencies has adversely affected and could in the future adversely affect our results of operations.
Violations of the FCPA, antitrust or other anti-corruption or anti-collusion laws, or allegations of such violations, could disrupt our operations, cause reputational harm, involve significant management distraction and result in a material adverse effect on our competitive position, results of operations, cash flows or financial condition. 18 Table o f Content s We also must comply with various laws and regulations relating to the export of products, services and technology from the U.S. and other countries having jurisdiction over our operations.
Violations of the FCPA, antitrust or other anti-corruption or anti-collusion laws, or allegations of such violations, could disrupt our operations, cause reputational harm, involve significant management distraction and result in a material adverse effect on our competitive position, results of operations, cash flows or financial condition.
Additionally, we may not realize the degree or timing of benefits we anticipate when we first enter into a transaction. 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. Any of the foregoing could adversely affect our business and results of operations.
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.
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.
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.
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.
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. 14 Table o f Content s Risks associated with the ongoing conflict between Russia and Ukraine The ongoing conflict between Russia and Ukraine has resulted in worldwide geopolitical and macroeconomic uncertainty, and we cannot predict how the conflict will evolve.
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.
If we are required to pay under these indemnities to RTX and/or Carrier, our financial results could be negatively impacted.
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.
In the U.S., these laws include, among others, the Export Administration Regulations administered by the Department of Commerce and embargoes and sanctions regulations administered by the Department of the Treasury.
We also must comply with various laws and regulations relating to the export of products, services and technology from the U.S. and other countries having jurisdiction over our operations. In the U.S., these laws include, among others, the Export Administration Regulations administered by the Department of Commerce and embargoes and sanctions regulations administered by the Department of the Treasury.
If we raise additional funds through the issuance of equity securities, our shareholders will experience dilution of their ownership interest.
If we raise additional funds through the issuance of equity securities, our shareholders will experience dilution of their ownership interest. If we raise additional funds by issuing debt, we may be subject to limitations on our operations due to restrictive covenants or rating agencies may downgrade our credit rating.
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.
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.
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.
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.
Volatility in the world financial markets, including as a result of inflation concerns from the unsettled recovery from the COVID-19 pandemic or the ongoing conflict between Russia and Ukraine, could increase borrowing costs or affect our ability to access the capital markets.
Volatility in the world financial markets could further increase borrowing costs or affect our ability to access the capital markets.
These economic and political conditions affect businesses such as ours in a number of ways. In particular, a slowdown in building and remodeling activity or decreased public spending on infrastructure projects could adversely affect our financial performance. Our business may be further impacted by the COVID-19 pandemi c.
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.
If we raise additional funds by issuing debt, we may be subject to limitations on our operations due to restrictive covenants or rating agencies may downgrade our credit rating. 16 Table o f Content s 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 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.
There can be no assurance that our systems will not fail or experience disruptions, and any significant failure or disruption of these systems could prevent us from making sales, ordering supplies, delivering products, providing functional products and otherwise conducting our business. 20 Table o f Content s 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.
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.
Each of these risks could negatively affect our business, results of operations and financial condition. As a result of the Separation, certain members of management, directors and shareholders may own stock in RTX, Otis and Carrier , and as a result may face actual or potential conflicts of interest.
Each of these risks could negatively affect our business, results of operations and financial condition.
Removed
Item 1A. Risk Factors Our business, financial condition, operating results and cash flows can be impacted by the factors set forth below, any one of which could cause our actual results to vary materially from recent results or from our anticipated future results.
Added
These economic and political conditions affect businesses such as ours in a number of ways.
Removed
Since 2020, COVID-19, including variants of the original virus, has continued to spread throughout the world, impacting various geographies at varying levels of severity, and resulting in travel restrictions and shutdowns, occupancy limits or other restrictions of non-essential businesses, including construction and hospitality venues, impacting to various extents our factory operations, new equipmen t installations and access to units under maintenance.
Added
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.
Removed
The ultimate impact of the COVID-19 pandemic on our business is uncertain at this time and will depend on future developments, including the severity of evolving variants, availability, efficacy and distribution of various vaccines and treatments for COVID-19, but further restrictions or the rollback of reopening measures due to higher infection rates may further disrupt our operati ons and the operations of our suppliers, distributors and customers.
Added
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.
Removed
COVID-19 has adversely affected and could further affect the ability of our customers to pay for our products and services and to obtain financing for significant purchases and operations, which has resulted in, and could further result in, a decrease and/or cancellation of orders for our products and services and/or payment delays or defaults.
Added
Some of our contracts provide for liquidated damages if we do not perform in accordance with the contract.
Removed
Similarly, COVID-19 and the uncertain economic recovery from the virus have adversely affected and may further affect our supply base and increase the potential for one or more of our suppliers to experience production constraints, distribution challenges, financial distress or bankruptcy, which could impact our ability to fulfill orders on time or at anticipated cost.
Added
The reduction or elimination of our cash dividend or share repurchase program could adversely affect the market price of Common Stock.
Removed
Additionally, it is unclear what longer term effects the virus will have on the global economy, including the commercial building industry.
Added
Uncertainty relating to those laws or regulations may also affect how we operate, structure our investments and enforce our rights.
Removed
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
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.
Removed
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.
Removed
See Item 5 in this Form 10-K for more information regarding our share repurchase program. 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.

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Item 2. Properties

Properties — owned and leased real estate

4 edited+0 added−0 removed1 unchanged
Biggest changeWe operate over 1,400 branches and offices, 11 R&D centers a nd 17 manufac turing facilities globally. Our principal manufacturing facilities are located across Brazil, China, Japan, France, India, Korea, Spain, and the United States, of which 10 a re owned. Our principal R&D centers are located in China, the United States, India, France, Germany, Japan and Spain.
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.
Our fixed assets as of December 31, 2022 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, 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.
The facilities, warehouses, machinery and equipment in use as of December 31, 2022 are substantially in good operating condition.
The facilities, warehouses, machinery and equipment in use as of December 31, 2023 are substantially in good operating condition.
Item 2. Properties We have a direct physical presence in approximately 80 countries with an overall property portfolio comprising approximately 15 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, respectively.
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 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

5 edited+0 added−0 removed3 unchanged
Biggest changeComparison of Cumulative Total Return — Table April 3, 2020 December 31, 2020 December 31, 2021 December 31, 2022 Otis $ 100 $ 144 $ 188 $ 172 S&P 500 Index 100 153 197 161 S&P 500 Industrials Sector Index 100 160 193 183 Comparison of Cumulative Total Return — Graph 26 Table o f Content s Issuer Purchases of Equity Securities The following table provides information about our purchases during the quarter ended December 31, 2022 of equity securities that are registered by us pursuant to Section 12 of the Exchange Act. 2022 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 — $ — — $ 500 November 1 — November 30 2,006 74.79 2,006 $ 350 December 1 — December 31 — — — $ 2,000 Total 2,006 $ 74.79 2,006 (1) Average price paid per share includes costs 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 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.
Stock Performance Graph The following table and graph illustrate the total return from April 3, 2020 (date of Separation) through December 31, 2022, 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, 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.
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 21,100 registered shareholders as of January 20, 2023.
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.
On December 1, 2022, 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. As of December 31, 2022, the maximum dollar value of shares that may yet be purchased under this current program was $2.0 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, 2023, the maximum dollar value of shares that may yet be purchased under this current program was approximately $1.2 billion.
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. 27 Table o f Content s Item 6. [Reserved]
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.

Item 7. Management's Discussion & Analysis

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

84 edited+44 added−38 removed40 unchanged
Biggest changeCash Flow — Investing Activities (dollars in millions) 2022 2021 2020 Net cash flows provided by (used in) investing activities $ (33) $ (89) $ (353) Cash flows used in investing activities primarily reflect capital expenditures, acquisitions and dispositions of businesses and securities, proceeds received on the sale of fixed assets, and settlement of derivative contracts. 2022 compared to 2021 (dollars in millions) 2022 2021 Change Investing Activities: Capital expenditures $ (115) $ (156) $ 41 Acquisitions of businesses and intangible assets, net of cash (46) (80) 34 Dispositions of businesses, net of cash 61 — 61 Proceeds from sale of (investments in) marketable securities (7) 40 (47) Receipts (payments) on settlements of derivative contracts 65 73 (8) Other investing activities, net 9 34 (25) Net cash flows provided by (used in) investing activities $ (33) $ (89) $ 56 Cash flows used in investing activities in 2022 compared to 2021 decreased $56 million, including the following drivers: • $61 million of net proceeds from the sale of our business in Russia during 2022; and • $41 million lower capital expenditures and $34 million lower investments in businesses and intangible assets in 2022 compared to 2021; partially offset by • $47 million less cash from marketable securities, including $58 million of proceeds from the sale of equity securities in 2021.
Biggest changeThe primary drivers of the outflow were $115 million of capital expenditures and $46 million of acquisitions of businesses and intangible assets, which were partially offset by $65 million of net cash receipts from the settlement of derivative instruments and $61 million of net proceeds from the sale of our business in Russia.
Our New Equipment customers include real-estate and building developers and general contracto rs who develop and/or design buildings for residential, commercial, retail or mixed-use activity. We sell directly to customers as well as through agents and distributors. We also sell New Equipment to government agencies to support infrastructure projects, such as airports, railways or metros.
Our New Equipment customers include real-estate and building developers and general contracto rs who develop and/or design buildings for residential, infrastructure, commercial, retail or mixed-use activity. We sell directly to customers as well as through agents and distributors. We also sell New Equipment to government agencies to support infrastructure projects, such as airports, railways or metros.
Refer to "Note 10: Borrowings and Lines of Credit" in Item 8 in this Form 10-K for additional information. Highland is a wholly-owned, indirect consolidated subsidiary of OWC. OWC is incorporated under the laws of Delaware.
Refer to "Note 9: Borrowings and Lines of Credit" in Item 8 in this Form 10-K for additional information. Highland is a wholly-owned, indirect consolidated subsidiary of OWC. OWC is incorporated under the laws of Delaware.
The following tables set forth the summarized financial information as of and for the years ended December 31, 2022 and 2021 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, 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.
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 15: 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 3: Earnings Per Share" and "Note 14: Accumulated Other Comprehensive Income (Loss)" in Item 8 in this Form 10-K for further discussion.
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.
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.
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, 2022 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, 2023 are discussed below.
For additional discussion of borrowings, see "Note 10: 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.
Although we believe that the arrangements in place as of December 31, 2022 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.
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.
Additionally, see "Note 22: Contingent Liabilities" in Item 8 in this Form 10-K for discussion of administrative review proceedings with the German Tax Office. Goodwill We have generated goodwill as a result of our acquisitions.
Additionally, see "Note 21: Contingent Liabilities" in Item 8 in this Form 10-K for discussion of administrative review proceedings with the German Tax Office. Goodwill We have generated goodwill as a result of our acquisitions.
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 2022 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 2023 pension expense by approximately $2 million.
Sale of Russia business and risks associated with ongoing conflict between Russia and Ukraine 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 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 cyber-security incidents, reputational risk, increased operating costs (including fuel and other input costs), environmental, health and safety risks related to securing and maintaining facilities, additional sanctions and other regulations (including restrictions on the transfer of funds to and from Russia).
We have determined there are three reporting units within each business segment. 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. 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.
To the extent possible, we continue to operate our business in Ukraine, which represented less than 1% of our 2022, 2021 and 2020 revenue and operating profit.
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.
For additional discussion of income taxes and the effective income tax rate, see "Note 16: Income Taxes" in Item 8 in this Form 10-K.
For additional discussion of income taxes and the effective income tax rate, see "Note 15: Income Taxes" in Item 8 in this Form 10-K.
For details on the results of the Tender Offer and purchases of shares of Zardoya Otis not previously owned by the Company "Note 1: Business Overview" in Item 8 in this Form 10-K.
For details on the results of the Tender Offer and purchases of shares of Otis Mobility not previously owned by the Company, see "Note 1: Business Overview" in Item 8 in this Form 10-K.
Modifications are recognized as a cumulative catch-up or treated as a separate accounting contract if the modification adds distinct goods or services and the modification is priced at its stand-alone selling price. 45 Table o f Content s See "Note 2: Summary of Significant Accounting Policies" in Item 8 in this Form 10-K.
Modifications are recognized as a cumulative catch-up or treated as a separate accounting contract if the modification adds distinct goods or services and the modification is priced at its stand-alone selling price. See "Note 2: Summary of Significant Accounting Policies" in Item 8 in this Form 10-K.
See also "Note 13: 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 10: 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, 2022.
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.
New Equipment operating profit decreased $(101) million. Lower volume of $(37) million, under absorption from lower volume, unfavorable mix, higher commodity costs of ($107) million, primarily steel, and increased freight costs were partially mitigated by favorable productivity and lower selling, general and administrative expenses. Operating profit was also impacted by the sale of our Russia business of $(40) million.
Lower volume of $(37) million, under absorption from lower volume, unfavorable mix, higher commodity costs of ($107) million, primarily steel, and increased freight costs were partially mitigated by favorable productivity and lower selling, general and administrative expenses. Operating profit was also impacted by the sale of our Russia business of $(40) million. Operating margin decreased 100 basis points.
Income Taxes The future tax benefit arising from deductible temporary differences and tax carryforwards was $588 million as of December 31, 2022 and $647 million as of December 31, 2021.
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.
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, 2022: (dollars in millions) Increase in Discount Rate of 25 bps Decrease in Discount Rate of 25 bps Projected benefit obligation $ (18) $ 20 The impact on the net periodic pension (benefit) cost, the accumulated postretirement benefit obligation and the net periodic postretirement (benefit) cost is each less tha n $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, 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 timing of payments of total purchase obligations as of December 31, 2022: Payments Due by Period (dollars in millions) Total 2023 2024-2025 2026-2027 Thereafter Purchase obligations $ 1,150 $ 1,097 $ 41 $ 9 $ 3 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, 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.
See "Note 13: Employee Benefit Plans" in Item 8 in this Form 10-K for further discussion. 47 Table o f Content s 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. 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.
We currently do not expect any significant impact to our capital and financial resources from the COVID-19 pandemic, including 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 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.
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, 2022: Payments Due by Period (dollars in millions) Total 2023 2024-2025 2026-2027 Thereafter Other long-term liabilities $ 303 $ 11 $ 160 $ 67 $ 65 The balance above includes $203 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.
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.
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.
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.
In the following table, we show the timing of payments of interest on long-term debt as of December 31, 2022: Payments Due by Period (dollars in millions) Total 2023 2024-2025 2026-2027 Thereafter Long-term debt - future interest $ 1,570 $ 133 $ 253 $ 204 $ 980 Purchase Obligations Purchase obligations include amounts committed for the purchase of goods and services under legally enforceable contracts or purchase orders.
In the following table, we show the timing of payments of interest on long-term debt as of December 31, 2023: Payments Due by Period (dollars in millions) Total 2024 2025-2026 2027-2028 Thereafter Long-term debt - future interest $ 1,629 $ 172 $ 304 $ 269 $ 884 Purchase Obligations Purchase obligations include amounts committed for the purchase of goods and services under legally enforceable contracts or purchase orders.
For additional discussion of borrowings activity, see "Note 10: Borrowings and Lines of Credit" in Item 8 in this Form 10-K. 43 Table o f Content s 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 2023 Euro Notes, 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 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.
See the "Liquidity and Financial Condition" section of this item of this Form 10-K for further detail and Item 1A in this Form 10-K for additional risks related to COVID-19.
See the "Liquidity and Financial Condition" section of this item of this Form 10-K for further detail and Item 1A in this Form 10-K for macroeconomic risks related to our business.
Research and Development (dollars in millions) 2022 2021 2020 Research and development $ 150 $ 159 $ 152 Percentage of Net sales 1.1 % 1.1 % 1.2 % Research and development was relatively flat in 2022 compared to 2021 and 2020.
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.
Gross Margin (dollars in millions) 2022 2021 2020 Gross margin $ 3,920 $ 4,193 $ 3,779 Gross margin percentage 28.6 % 29.3 % 29.6 % Gross margin 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 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.
Income Taxes 2022 2021 2020 Effective tax rate 27.5 % 27.6 % 30.1 % The 2022, 2021 and 2020 effective tax rates are higher than the statutory U.S. rate primarily due to higher international tax rates as co mpared to the lower U.S. federal statutory rate.
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.
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.
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.
Operating margin increased 50 basis points. 2021 Compared with 2020 Net Sales The organic sales increase of 4.1% is due to organic sales increases in maintenance and repair of 4.4%, and modernization of 2.5%.
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%.
Summary performance for Service for the years ended December 31, 2022, 2021 and 2020 was as follows: Total Increase (Decrease) Year-Over-Year for: (dollars in millions) 2022 2021 2020 2022 compared with 2021 2021 compared with 2020 Net sales $ 7,821 $ 7,870 $ 7,385 $ (49) (0.6) % 485 6.6 % Cost of sales 4,816 4,812 4,538 4 0.1 % 274 6.0 % 3,005 3,058 2,847 (53) (1.7) % 211 7.4 % Operating expenses 1,216 1,296 1,236 (80) (6.2) % 60 4.9 % Operating profit $ 1,789 $ 1,762 $ 1,611 $ 27 1.5 % $ 151 9.4 % Operating profit margin 22.9 % 22.4 % 21.8 % Summary analysis of the Net sales change for Service f or the years ended December 31, 2022 and 2021 compared with the prior years was as follows: Components of Net sales change: 2022 2021 Organic 6.0 % 4.1 % Foreign currency translation (6.7) % 2.2 % Acquisitions/Divestitures, net and Other 0.1 % 0.3 % Total % change (0.6) % 6.6 % 36 Table o f Content s 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%.
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%.
There can be no assurance that we will continue to have access to the capital markets on terms acceptable to us. There was no long-term debt issued in 2022.
There can be no assurance that we will continue to have access to the capital markets on terms acceptable to us.
Net income attributable to Otis Worldwide Corporation increased in 2021 compared to 2020, primarily driven by higher operating profit and the benefit of a lower effective tax rate, partially offset by higher noncontrolling interest in subsidiaries' earnings and higher interest expense. 34 Table o f Content s Segment Review Summary performance for our operating segments for the years ended December 31, 2022, 2021 and 2020 was as follows: Net Sales Operating Profit Operating Profit Margin (dollars in millions) 2022 2021 2020 2022 2021 2020 2022 2021 2020 New Equipment $ 5,864 $ 6,428 $ 5,371 $ 358 $ 459 $ 318 6.1 % 7.1 % 5.9 % Service 7,821 7,870 7,385 1,789 1,762 1,611 22.9 % 22.4 % 21.8 % Total segment 13,685 14,298 12,756 2,147 2,221 1,929 15.7 % 15.5 % 15.1 % General corporate expenses and other — — — (114) (113) (290) — — — Total $ 13,685 $ 14,298 $ 12,756 $ 2,033 $ 2,108 $ 1,639 14.9 % 14.7 % 12.8 % 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.
Net 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.
COVID-19 related trends impacting our business, customers and suppliers have had, and could continue to have, an impact on our business, including impacts to overall financial performance in 2023, as a result of the following, among other things: • Supplier and raw material capacity constraints, delays and related costs; • Customer demand impacting our new equipment, maintenance and repair, and modernization businesses; • Customer liquidity constraints and related credit reserves; and • Cancellations or delays of customer orders.
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.
See "Segment Review" below for a discussion of Net sales by segment. 30 Table o f Content s Cost of Products and Services Sold (dollars in millions) 2022 2021 2020 Cost of products and services sold $ 9,765 $ 10,105 $ 8,977 Percentage change year-over-year (3.4) % 12.6 % (3.4) % The factors contributing to the percentage change year-over-year in total cost of products and services sold are as follows: 2022 2021 Organic volume 3.7 % 9.1 % Foreign currency translation (6.1) % 3.3 % Acquisitions and divestitures, net (1.0) % 0.2 % Total % change (3.4) % 12.6 % The organic increase in total cost of products and services sold in 2022 was driven primarily by the organic sales increases noted above and inflationary pressures including higher commodity prices of $107 million, primarily driven by steel, higher freight and fuel costs and annual wage increases, partially mitigated by productivity.
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.
Summary performance for New Equipment for the years ended December 31, 2022, 2021 and 2020 was as follows: Total Increase (Decrease) Year-Over-Year for: (dollars in millions) 2022 2021 2020 2022 compared with 2021 2021 compared with 2020 Net sales $ 5,864 $ 6,428 $ 5,371 (564) (8.8) % $ 1,057 19.7 % Cost of sales 4,949 5,293 4,439 (344) (6.5) % 854 19.2 % 915 1,135 932 (220) (19.4) % 203 21.8 % Operating expenses 557 676 614 (119) (17.6) % 62 10.1 % Operating profit 358 459 318 (101) (22.0) % 141 44.3 % Operating profit margin 6.1 % 7.1 % 5.9 % Summary analysis of the Net sales change for New Equipment for the years ended December 31, 2022 and 2021 compared with the prior years was as follows: Components of Net sales change: 2022 2021 Organic (1.7) % 15.8 % Foreign currency translation (4.9) % 4.1 % Acquisitions/Divestitures, net and Other (2.2) % (0.2) % Total % change (8.8) % 19.7 % 2022 Compared with 2021 Organic sales declined (1.7)% as a 10% decline in China was partially offset by high single digit growth in Asia Pacific and mid single digit growth in EMEA.
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.
Net 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.
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.
For additional discussion of restructuring, see Note 17, "Restructuring Costs" in the Consolidated Financial Statements. 32 Table o f Content s Other Income (Expense), Net (dollars in millions) 2022 2021 2020 Other income (expense), net $ 26 $ 22 $ (64) 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, non-recurring Separation-related expenses and certain other operating items.
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.
Management regularly analyzes current information about these matters and accrues for contingent losses that are probable and reasonably estimable. To assess the exposure to potential liability, we consult with relevant internal and external counsel.
The outcome of these matters may have a material effect on the financial position, results of operations or cash flows. Management regularly analyzes current information about these matters and accrues for contingent losses that are probable and reasonably estimable. To assess the exposure to potential liability, we consult with relevant internal and external counsel.
Year Ended December 31, (dollars in millions) 2022 2021 OWC Statement of Operations - Standalone and Unconsolidated Revenue $ — $ — Cost of revenue — — Operating expenses 1 13 Income from consolidated subsidiaries 70 19 Income (loss) from operations excluding income from consolidated subsidiaries (2) (18) Net income (loss) excluding income from consolidated subsidiaries (109) (116) As of December 31, (dollars in millions) 2022 2021 OWC Balance Sheet - Standalone and Unconsolidated Current assets (excluding intercompany receivables from non-guarantor subsidiaries) $ 94 $ 197 Current assets (intercompany receivables from non-guarantor subsidiaries) — — Noncurrent assets (investments in consolidated subsidiaries) 1,236 1,271 Noncurrent assets (excluding investments in consolidated subsidiaries) 45 48 Current liabilities (intercompany payables to non-guarantor subsidiaries) 3,090 1,516 Current liabilities (excluding intercompany payables to non-guarantor subsidiaries) 166 73 Noncurrent liabilities 5,186 5,725 44 Table o f Content s Year Ended December 31, (dollars in millions) 2022 2021 Highland Statement of Operations - Standalone and Unconsolidated Revenue $ — $ — Cost of revenue — — Operating expenses — — Income from consolidated subsidiaries 1,242 635 Income (loss) from operations excluding income from consolidated subsidiaries — — Net income (loss) excluding income from consolidated subsidiaries (10) (3) As of December 31, (dollars in millions) 2022 2021 Highland Balance Sheet - Standalone and Unconsolidated Current assets (excluding intercompany receivables from non-guarantor subsidiaries) $ — $ — Current assets (intercompany receivables from non-guarantor subsidiaries) 195 2 Noncurrent assets (investments in consolidated subsidiaries) 12,524 12,524 Noncurrent assets (intercompany receivables from non-guarantor subsidiaries) 572 666 Noncurrent assets (excluding investments in consolidated subsidiaries) — — Current liabilities (intercompany payables to non-guarantor subsidiaries) — 171 Current liabilities (excluding intercompany payables to non-guarantor subsidiaries) 532 2 Noncurrent liabilities 1,160 1,795 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) 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.
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. 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 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.
Otis will reimburse RTX for those tax payments through 2027. Unrecognized Tax Benefits Otis has unrecognized tax benefits of $386 million as of December 31, 2022 , the timing of which is uncertain to become payable.
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.
See "Note 16: Income Taxes" in Item 8 in this Form 10-K for additional discussion on unrecognized tax benefits. 48 Table o f Content s
See "Note 15: Income Taxes" in Item 8 in this Form 10-K for additional discussion on unrecognized tax benefits. 43 Table of Contents
Contract costs are usually incurred over a period of time, which can be several years, and the estimation of these costs requires management’s judgment. 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.
Contract costs are usually incurred over a period of time, which can be several years, and the estimation of these costs requires management’s judgment.
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.
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.
These fluctuations can increase the costs of financing, investing and 40 Table o f Content s operating the business. We use derivative instruments, including forward contracts and options, to manage certain foreign currency and commodity price exposures.
We operate internationally and, in the normal course of business, are exposed to fluctuations in interest rates, foreign exchange rates and commodity prices. These fluctuations can increase the costs of financing, investing and operating the business. We use derivative instruments, including forward contracts and options to manage certain foreign currency and commodity price exposures.
See Item 1A in this Form 10-K for risks associated with ongoing conflict between Russia and Ukraine. 28 Table o f Content s Zardoya Otis Tender Offer As previously disclosed, the Company announced the Tender Offer to acquire all issued and outstanding shares of Zardoya Otis not owned by Otis, at an offer price of €7.07 per share in cash, after adjusting for dividends.
Zardoya Otis Tender Offer As previously disclosed, the Company announced the Tender Offer to acquire all issued and outstanding shares of Zardoya Otis not owned by Otis, at an offer price of €7.07 per share in cash, after adjusting for dividends.
The increase in Interest expense (income), net of $7 million in 2022 compared to 2021 was primarily driven by interest expense related to the financing of the Tender Offer for Zardoya Otis.
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.
RESULTS OF OPERATIONS Net Sales (dollars in millions) 2022 2021 2020 Net sales $ 13,685 $ 14,298 $ 12,756 Percentage change year-over-year (4.3) % 12.1 % (2.8) % The factors contributing to the total percentage change year-over-year in total Net sales are as follows: 2022 2021 Organic volume 2.5 % 9.0 % Foreign currency translation (5.9) % 3.0 % Acquisitions and divestitures, net (0.9) % 0.1 % Total % change (4.3) % 12.1 % 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.
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.
As previously disclosed, we stopped taking new equipment orders in Russia and making new investments in the country in March 2022, while reassessing our operations in the country, which represented approximately 1% and 2% of both our revenue and operating profit in 2022 and 2021, respectively. The operations were comprised mostly of New Equipment.
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.
Foreign currency tailwinds of $30 million were more than offset by higher selling, general and administrative costs of $40 million. Service The Service segment performs maintenance and repair services for both our products and those of other manufacturers and provides modernization services to upgrade elevators and escalators.
Service The Service segment performs maintenance and repair services for both our products and those of other manufacturers and provides modernization services to upgrade elevators and escalators.
For a discussion of Otis’ ESG goals, see the discussion under “Environmental, Social and Governance (“ESG”)” in Item 1 in this Form 10-K. Impact of COVID-19 on Our Company The COVID-19 pandemic has impacted, and continues to impact, aspects of the Company's operations and overall financial performance.
For a discussion of Otis’ ESG goals, see the discussion under “Environmental, Social and Governance (“ESG”)” in Item 1 in this Form 10-K.
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. Most of the expected charges will require cash payments, which we have funded and expect to continue to fund with cash generated from operations.
Most of the expected restructuring charges will require cash payments, which we have funded and expect to continue to fund with cash generated from operations.
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.
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.
Restructuring Costs (dollars in millions) 2022 2021 2020 Restructuring costs $ 60 $ 56 $ 77 We initiate restructuring actions to keep our cost structure competitive. Charges generally arise from severance related to workforce reductions, an d to a lesser degree, facility exit and lease termination costs associated with the consolidation of office and manufacturing operations.
Charges generally arise from severance related to workforce reductions and, to a lesser degree, facility exit and lease termination costs associated with the consolidation of office and manufacturing operations.
Noncontrolling Interest in Subsidiaries' Earnings and Net Income Attributable to Otis Worldwide Corporation (dollars in millions) 2022 2021 2020 Noncontrolling interest in subsidiaries' earnings $ 116 $ 174 $ 150 Net income attributable to Otis Worldwide Corporation $ 1,253 $ 1,246 $ 906 Noncontrolling interest in subsidiaries' earnings decreased in 2022 in comparison to 2021 primarily due to Otis' acquisition of the remaining outstanding shares in Otis Mobility (previously Zardoya Otis) in the second quarter of 2022.
Noncontrolling interest in subsidiaries' earnings decreased in 2022 in comparison to 2021 primarily due to Otis' acquisition of the remaining outstanding shares in Otis Mobility in the second quarter of 2022.
Interest Expense (Income), Net (dollars in millions) 2022 2021 2020 Interest expense (income), net $ 143 $ 136 $ 122 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.
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.
Modernization offerings can range from relatively simple upgrades of interior finishes and aesthetics, to complex upgrades of larger components and sub-systems. Our typical Service customers include building owners, facility managers, housing associations and government agencies that operate buildings where elevators and escalators are installed.
Our typical Service customers include building owners, facility managers, housing associations and government agencies that operate buildings where elevators and escalators are installed.
The table below presents approximate cash outflows related to the restructuring actions during the year ended December 31, 2022, and the expected cash payments to complete the actions announced: (dollars in millions) Cash outflows during the year ended December 31, 2022 $ 59 Expected cash payments remaining to complete actions announced 49 We generally expect to achieve annual recurring savings within the two-year period subsequent to initiating the actions, including $67 million for the 2022 actions and $37 million for the 2021 actions, of which approximately $68 million was realized for the 2022 and 2021 actions during the year ended December 31, 2022.
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.
Research and development includes product development and innovation, including for IoT and developing the next generation of connected elevators and escalators. 31 Table o f Content s Selling, General and Administrative (dollars in millions) 2022 2021 2020 Selling, general and administrative $ 1,763 $ 1,948 $ 1,924 Percentage of Net sales 12.9 % 13.6 % 15.1 % Selling, general and administrative expenses decreased $185 million in 2022 compared to 2021, as other employment related cost reductions, cost containment actions, lower credit loss reserves, as well as the impact from foreign exchange of $104 million, were partially offset by annual wage increases.
Selling, general and administrative expenses decreased $185 million in 2022 compared to 2021, as other employment-related cost reductions, cost containment actions, lower credit loss reserves, as well as the impact from foreign exchange of $104 million, were partially offset by annual wage increases.
We completed the annual goodwill impairment test for all of our reporting units as of July 1, 2022 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. 46 Table o f Content s Contingent Liabilities Otis is party to litigation related to a n umber of matters as described in "Note 22: Contingent Liabilities" in Item 8 in this Form 10-K.
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.
The following is a summary of the long-term debt issuances in 2021: (dollars in millions) Issuance Date Description of Debt Aggregate Principal Balance 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 The proceeds from the March 2021 issuance of Japanese Yen notes listed above were used to repay a portion of our outstanding Euro denominated commercial paper.
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.
This is partially offset by the absence of a reduction in the deferred tax liability related to repatriation of foreign earnings recorded in the year ended December 31, 2021, and the absence of a favorable income tax settlement related to the Separation recorded in the year ended December 31, 2021. 33 Table o f Content s The 2021 effective tax rate is lower than the 2020 effective tax rate primarily due to a $16 million tax benefit related to the repatriation of foreign earnings as a result of changes to planned debt repayments and in estimates related to Otis’ pre-Separation tax attributes and a decrease of $16 million in U.S. tax related to base erosion and anti-abuse tax in 2021.
This is partially offset by the absence of a reduction in the deferred tax liability related to repatriation of foreign earnings recorded in the year ended December 31, 2021, and the absence of a favorable income tax settlement related to the Separation recorded in the year ended December 31, 2021.
General Corporate Expenses and Other (dollars in millions) 2022 2021 2020 General corporate expenses and other $ (114) $ (113) $ (290) General corporate expenses and other increased $1 million in 2022 compared to 2021, which includes the impact of the loss on the sale of our Russia business, offset by favorable foreign currency mark-to-market adjustments and lower non-recurring Separation-related costs. 37 Table o f Content s General corporate expenses and other decreased $(177) million in 2021 compared to 2020, primarily due to the absence of a fixed asset impairment of $(71) million and related licensing costs of $(14) million recognized in 2020, as well as lower non-recurring Separation costs and the absence of UTC allocations of $(108) million.
General Corporate Expenses and Other (dollars in millions) 2023 2022 2021 General corporate expenses and other $ (144) $ (114) $ (113) General corporate expenses and other increased $30 million in 2023 compared to 2022, primarily due to the UpLift related transformation costs of $16 million and higher corporate costs, partially offset by the impact of foreign currency mark-to market adjustments and the absence of the loss on the sale of our Russia business and related charges when compared to 2022.
On December 1, 2022, 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, of which none had been utilized as of December 31, 2022.
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.
As discussed in "Note 18: Financial Instruments" in Item 8 in this Form 10-K, we enter into derivative instruments for risk management purposes. We operate internationally and, in the normal course of business, are exposed to fluctuations in interest rates, foreign exchange rates and commodity prices.
See "Note 8: Business Acquisitions, Dispositions, Goodwill and Intangibles" in Item 8 of this Form 10-K for further details regarding the sale of our business in Russia. As discussed in "Note 17: Financial Instruments" in Item 8 in this Form 10-K, we enter into derivative instruments for risk management purposes.
These increases were partially offset by lower non-recurring Separation-related costs and the absence of UTC allocations of $105 million. Selling, general and administrative expenses as a percentage of Net sales decreased 70 basis points in 2022 compared to 2021, and decreased 150 basis points in 2021 compared to 2020.
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.
These were partially offset by $66 million of higher non-cash adjustments from Net income and $48 million of higher Other operating activities, net, primarily due to long-term accruals and other activities in 2022. 2022 Changes in Working Capital Cash outflows related to current assets and current liabilities operating activity were $96 million, including the following main drivers: • Accounts receivable, net, which increased by $309 million, due to the increased volume and timing of billings; • Accrued liabilities, which decreased by $84 million, primarily due to the timing of payments of income taxes, employee-related benefits and other accruals; and • Inventories, which increased by $65 million, primarily to support backlog conversion and to mitigate supply chain disruptions, which were partially offset by • Accounts payable, which increased by $272 million, primarily due to the timing of payments to suppliers; and • Contract assets, current and Contract liabilities, current, net change of $38 million, driven by the timing of billings on contracts compared to the progression on current contracts. 2021 Compared with 2020 Cash generated from operating activities in 2021 was $270 million higher than in 2020, primarily due to higher net income of $364 million and increased cash inflows related to current assets and current liabilities of $83 million, as described below.
An increase in Accounts receivable, net, due to increased volume and the timing of billings, a decrease in Accrued liabilities due to the timing of payments of employee-related benefits, income taxes and other accruals, and an increase in Inventories to support backlog conversion and to mitigate supply chain disruptions were partially offset by changes in Contract assets, current and Contract liabilities, current, net, due to the timing of billings on contracts compared to the progression on current contracts.
The organic increase in total cost of products and services s old in 2021 was driven primarily by the organic sales increases noted above.
The organic increase in total cost of products and services sold in 2022 was primarily driven by the organic sales increases noted above and inflationary pressures, including higher commodity prices of $107 million, primarily driven by steel, higher freight and fuel costs and annual wage increases, partially mitigated by productivity.
The proceeds from the November 2021 issuance of the Euro notes listed above were used to fund the Tender Offer in 2022. The Company redeemed the $500 million floating notes originally due in 2023 during 2022. There was no long-term debt repayments in 2021.
The proceeds from the November 2021 issuance of the Euro notes listed above were used to fund the Tender Offer in 2022. The proceeds from the March 2021 issuance of Japanese Yen notes listed above were used to fund the repayment of a portion of Otis' commercial paper. There is no commercial paper outstanding as of December 31, 2023.
Components of Net sales change: Maintenance and Repair Modernization Organic 4.4 % 2.5 % Foreign currency translation 2.2 % 1.9 % Acquisitions/Divestitures, net and Other 0.4 % 0.1 % Total % change 7.0 % 4.5 % Operating Profit Service operating profit increased $151 million, primarily due to higher volume of $120 million, with an operating margin increase of 60 basis points.
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.
We manage our worldwide cash requirements by reviewing available funds among the many subsidiaries through which we conduct our business and the cost-effectiveness with which those funds can be accessed. On occasion, we are required to maintain cash deposits with certain banks with respect to contractual obligations related to acquisitions and divestitures or other legal obligations.
As of December 31, 2023, we had cash and cash equivalents of approximately $1.3 billion, of which approximately 97% was held by the Company's foreign subsidiaries. We manage our worldwide cash requirements by reviewing available funds among the many subsidiaries through which we conduct our business and the cost-effectiveness with which those funds can be accessed.
For the remainder of the Company’s undistributed international earnings, unless tax effective to repatriate, we will continue to permanently reinvest these earnings. We expect to fund our ongoing operating, investing and financing requirements mainly through cash flows from operations, available liquidity through cash on hand and available bank lines of credit and access to the capital markets.
For the remainder of the Company’s undistributed international earnings, unless tax effective to repatriate, we will continue to permanently reinvest these earnings.
Noncontrolling interest in subsidiaries' earnings increased in 2021 in comparison to 2020 primarily driven by an increase in net income from non-wholly owned subsidiaries and the impact of foreign exchange rates.
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.
LIQUIDITY AND FINANCIAL CONDITION (dollars in millions) December 31, 2022 December 31, 2021 Cash and cash equivalents $ 1,189 $ 1,565 Total debt 6,768 7,273 Net debt (total debt less cash and cash equivalents) 5,579 5,708 Total equity 1 (4,799) (3,144) Total capitalization (total debt plus total equity) 1,969 4,129 Net capitalization (total debt plus total equity less cash and cash equivalents) 780 2,564 Total debt to total capitalization 1 344 % 176 % Net debt to net capitalization 1 715 % 223 % 1 Our total debt to total capitalization ratio and net debt to net capitalization ratio increased in 2022 due to the $1.5 billion reduction in equity as a result of the Tender Offer.
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.
See Note 1, "Business Overview" and Note 10, "Borrowings and Lines of Credit" to the Consolidated Financial Statements 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.
See "Note 1: Business Overview" in Item 8 in this Form 10-K for further discussion on costs related to the Separation.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

11 edited+2 added−1 removed10 unchanged
Biggest changeOtis does not enter into hedging contracts for speculative purposes. As discussed in "Note 18: Financial Instruments" in Item 8 in this Form 10-K, as of December 31, 2022 we have ¥21.5 billion ($163 million) of Japanese Yen denominated long-term debt, which qualifies as a net investment hedge against our investments in Japanese businesses.
Biggest changeAs 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.
We believe these foreign currency forward exchange contracts and the offsetting underlying commitments, 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. For our non-U.S. based entities, a substantial portion of revenues are generated and costs are incurred in local currencies.
Refer to "Note 2: Summary of Significant Accounting Policies", "Note 10: Borrowings and Lines of Credit" and "Note 18: 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 2022 and 2021.
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.
An unfavorable exchange rate movement of 10% to our portfolio of foreign currency contracts would have resulted in an increase in unrealized losses of $39 million and $8 million as of December 31, 2022 and 2021, respectively. Such losses or gains would be offset by corresponding gains or losses in the remeasurement of the underlying transactions 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 $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.
A 100 basis points increase in interest rates would have had an approximate $400 million and $600 million reduction on the fair value of our fixed-rate debt as of December 31, 2022 and 2021, 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.
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, 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.
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. 50 Table o f Content s
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
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 sales, purchases, investments and other international transactions. International sales were approxi mately $9.9 billion, $10.6 billion and $9.3 billion in 2022, 2021 and 2020, respectively .
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.
The aggregate notional amount of our outstanding foreign currency hedges was $3.7 billion and $3.2 billion as of December 31, 2022 and 2021, 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 $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.
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. 49 Table o f Content s Commodity Price Risk The fluctuation in prices of certain raw materials may impact Otis' financial results.
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.
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. More than insignificant exposures, that cannot be naturally offset, are generally hedged with foreign currency derivatives.
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.
This debt was issued by a subsidiary with Euro functional currency and the proceeds were used to fund the Tender Offer for Zardoya Otis.
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.
Removed
As of December 31, 2022, the net investment hedge is deemed to be effective. As discussed in "Note 10: Borrowings and Lines of Credit" in Item 8 in this Form 10-K, as of December 31, 2022 we have €1.6 billion ($1.7 billion) of Euro denominated long-term debt.
Added
Otis does not enter into hedging contracts for speculative purposes.
Added
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.

Other OTIS 10-K year-over-year comparisons