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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
 ____________________________________ 
FORM 10-Q
____________________________________ 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                  to                 
Commission file number 001-39221
____________________________________ 
OTIS WORLDWIDE CORPORATION
(Exact name of registrant as specified in its charter)
____________________________________ 
Delaware 83-3789412
(State or other jurisdiction of incorporation)(I.R.S. Employer Identification No.)
One Carrier Place, Farmington, Connecticut 06032
(Address of principal executive offices, including zip code)

(860) 233-6847
(Registrant's telephone number, including area code)
____________________________________ 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange
on which registered
Common Stock ($0.01 par value)OTISNew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý.    No  ¨.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý.    No  ¨.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated FilerýAccelerated Filer¨
Non-accelerated Filer¨Smaller Reporting Company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ¨
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  .    No  ý.

At April 30, 2020 there were 433,079,455 shares of Common Stock outstanding.
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OTIS WORLDWIDE CORPORATION
CONTENTS OF QUARTERLY REPORT ON FORM 10-Q
Quarter Ended March 31, 2020
 
 Page

Otis Worldwide Corporation and its subsidiaries' names, abbreviations thereof, logos, and product and service designators are all either the registered or unregistered trademarks or tradenames of Otis Worldwide Corporation and its subsidiaries. Names, abbreviations of names, logos, and products and service designators of other companies are either the registered or unregistered trademarks or tradenames of their respective owners. As used herein, the terms "we," "us," "our," "the Business," or "Otis," unless the context otherwise requires, mean Otis Worldwide Corporation and its subsidiaries. References to internet websites in this Form 10-Q are provided for convenience only. Information available through these websites is not incorporated by reference into this Form 10-Q.
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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements
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OTIS WORLDWIDE CORPORATION
CONDENSED COMBINED STATEMENTS OF OPERATIONS
(Unaudited) 
 Quarter Ended March 31,
(amounts in millions, except per share amounts)20202019
Net sales:
Product sales$1,123  $1,271  
Service sales1,843  1,830  
2,966  3,101  
Costs and expenses:
Cost of products sold914  1,060  
Cost of services sold1,155  1,140  
Research and development38  39  
Selling, general and administrative465  441  
2,572  2,680  
Other (expense) income, net(65) (6) 
Operating profit329  415  
Non-service pension benefit(3) (11) 
Interest expense, net5  1  
Income from operations before income taxes327  425  
Income tax expense125  125  
Net income202  300  
Less: Noncontrolling interest in subsidiaries' earnings37  27  
Net income attributable to Otis Worldwide Corporation$165  $273  
Earnings Per Share of Common Stock - Basic and Diluted:
Net income attributable to Otis Worldwide Corporation$0.38  $0.63  
Number of Basic and Diluted shares outstanding433.1  433.1  

See accompanying Notes to Condensed Combined Financial Statements

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OTIS WORLDWIDE CORPORATION
CONDENSED COMBINED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

Quarter Ended March 31,
(dollars in millions)20202019
Net income $202  $300  
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments(122) 35  
Pension and postretirement benefit plan adjustments1  (22) 
Change in unrealized cash flow hedging11    
Other comprehensive income (loss), net of tax(110) 13  
Comprehensive income92  313  
Less: Comprehensive income attributable to noncontrolling interest(31) (26) 
Comprehensive income attributable to Otis Worldwide Corporation$61  $287  
See accompanying Notes to Condensed Combined Financial Statements
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OTIS WORLDWIDE CORPORATION
CONDENSED COMBINED BALANCE SHEETS
(Unaudited)
(dollars in millions)March 31, 2020December 31, 2019
Assets
Cash and cash equivalents$1,207  $1,446  
Accounts receivable (net of allowance for expected credit losses of $113 and $83)
2,888  2,861  
Contract assets, current491  529  
Inventories, net599  571  
Other assets, current329  251  
Total Current Assets5,514  5,658  
Future income tax benefits428  373  
Fixed assets1,776  1,803  
Less: Accumulated depreciation(1,088) (1,082) 
Fixed assets, net688  721  
Operating lease right-of-use assets

535  535  
Intangible assets, net462  490  
Goodwill1,608  1,647  
Other assets289  263  
Total Assets$9,524  $9,687  
Liabilities and (Deficit) Equity
Short-term borrowings$67  $34  
Accounts payable1,102  1,331  
Accrued liabilities1,645  1,739  
Contract liabilities, current2,541  2,270  
Total Current Liabilities5,355  5,374  
Long-term debt6,258  5  
Future pension and postretirement benefit obligations579  590  
Operating lease liabilities

379  386  
Future income tax obligations839  695  
Other long-term liabilities303  311  
Total Liabilities13,713  7,361  
Commitments and contingent liabilities (Note 16)
Redeemable noncontrolling interest95  95  
UTC Net (Deficit) Investment:
UTC Net (Deficit) Investment(3,959) 2,458  
Accumulated other comprehensive loss(862) (758) 
Total UTC Net (Deficit) Investment(4,821) 1,700  
Noncontrolling interest537  531  
Total (Deficit) Equity(4,284) 2,231  
Total Liabilities and (Deficit) Equity$9,524  $9,687  

See accompanying Notes to Condensed Combined Financial Statements
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OTIS WORLDWIDE CORPORATION
CONDENSED COMBINED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)

Quarter Ended March 31, 2020
(dollars in millions)UTC Net Investment (Deficit) Accumulated Other Comprehensive (Loss)Total UTC Net Investment (Deficit)Noncontrolling InterestTotal UTC Net Investment (Deficit)Redeemable Noncontrolling Interest
Balance January 1, 2020$2,458  $(758) $1,700  $531  $2,231  $95  
Net income165  —  165  37  202  —  
Other comprehensive loss, net of tax—  (104) (104) (4) (108) (2) 
Dividends attributable to noncontrolling interest—  —  —  (21) (21) —  
Acquisition, disposal and other changes in noncontrolling interest—  —  —  (6) (6) —  
Changes in redeemable noncontrolling interest redemption value—  —  —  —  —  2  
Adoption of credit loss standard, net of tax (Note 6)(25) —  (25) —  (25) —  
Net transfers to UTC(6,557) —  (6,557) —  (6,557) —  
Balance March 31, 2020$(3,959) $(862) $(4,821) $537  $(4,284) $95  



Quarter Ended March 31, 2019
(dollars in millions)UTC Net InvestmentAccumulated Other Comprehensive (Loss)Total UTC Net InvestmentNoncontrolling InterestTotal UTC Net InvestmentRedeemable Noncontrolling Interest
Balance January 1, 2019$2,277  $(708) $1,569  $537  $2,106  $109  
Net income273  —  273  27  300  —  
Redeemable noncontrolling interest in subsidiaries' earnings—  —  —  3  3  (3) 
Other comprehensive income (loss), net of tax—  14  14  1  15  (2) 
Dividends attributable to noncontrolling interest—  —  —  (30) (30) —  
Acquisition, disposal and other changes in noncontrolling interest—  —  —  4  4  —  
Changes in redeemable noncontrolling interest redemption value—  —  —  —  —  5  
Net transfers to UTC(298) —  (298) —  (298) —  
Balance March 31, 2019$2,252  $(694) $1,558  $542  $2,100  $109  


See accompanying Notes to Condensed Combined Financial Statements
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OTIS WORLDWIDE CORPORATION
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(Unaudited)
 Quarter Ended March 31,
(dollars in millions)20202019
Operating Activities:
Net income$202  $300  
Adjustments to reconcile net income to net cash flows provided by operating activities, net of acquisitions:
Depreciation and amortization43  45  
Deferred income tax provision (benefit)16  (2) 
Stock compensation cost11  7  
Loss on fixed asset impairment (Note 17)55    
Change in:
Accounts receivable, net(116) (56) 
Contract assets and liabilities, current355  268  
Inventories, net(49) 7  
Other assets, current(85) 7  
Accounts payable and accrued liabilities(289) (309) 
Pension contributions(10) (10) 
Other operating activities, net26  40  
Net cash flows provided by operating activities159  297  
Investing Activities:
Capital expenditures(39) (28) 
Investments in businesses, net of cash acquired (Note 8)(5) (19) 
Investments in equity securities(51)   
Other investing activities, net3  29  
Net cash flows used in investing activities(92) (18) 
Financing Activities:
Proceeds from issuance of long-term debt6,300    
Payment of long-term debt issuance costs(43)   
Increase in short-term borrowings, net36  15  
Net transfers to UTC(6,550) (306) 
Dividends paid to noncontrolling interest(21) (30) 
Other financing activities, net22  9  
Net cash flows used in financing activities(256) (312) 
Effect of foreign exchange rate changes on cash and cash equivalents(50) 20  
Net (decrease) in cash, cash equivalents and restricted cash(239) (13) 
Cash, cash equivalents and restricted cash, beginning of year1,459  1,346  
Cash, cash equivalents and restricted cash, end of period1,220  1,333  
Less: Restricted cash13  13  
Cash and cash equivalents, end of period$1,207  $1,320  

See accompanying Notes to Condensed Combined Financial Statements
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OTIS WORLDWIDE CORPORATION

NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
(Unaudited)

The Condensed Combined Financial Statements at March 31, 2020 and for the quarters ended March 31, 2020 and 2019 are unaudited, but in the opinion of management include all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of the results for the interim periods. The Condensed Combined Balance Sheet at December 31, 2019 was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles ("GAAP") in the United States. The results reported in these Condensed Combined Financial Statements should not necessarily be taken as indicative of results that may be expected for the entire year. The financial information included herein should be read in conjunction with the financial statements and notes in our registration statement on Form 10 (File No. 001-39221), initially filed with the Securities and Exchange Commission (“SEC”) on February 7, 2020, as amended by Amendment No. 1 filed on March 11, 2020 ("Form 10").

Note 1: Description of Business

Otis Worldwide Corporation (“Otis,” “the Business,” “we,” “us” or “our”) is the world’s largest elevator and escalator manufacturing, installation and service company. Our operations are classified into two segments: New Equipment and Service. Through the 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 building and infrastructure projects. The Service segment provides maintenance and repair services for both our products and those of other manufacturers, and provides modernization services to upgrade elevators and escalators.

On November 26, 2018, United Technologies Corporation, subsequently renamed to Raytheon Technologies Corporation on April 3, 2020 ("UTC" or “Parent”), announced its intention to spin-off its Otis reportable segment into a separate publicly traded company (the "Separation"). On April 3, 2020, UTC completed the spin-off of Otis through a pro-rata distribution of 0.5 shares of Otis common stock for every share of UTC common stock held at the close of business on the record date of March 19, 2020. Otis began to trade as a separate public company (New York Stock Exchange ("NYSE"): OTIS) on April 3, 2020.

Note 2: Basis of Presentation

These accompanying Condensed Combined Financial Statements reflect the historical financial position, results of operations and cash flows of the Business for the periods presented as historically managed within UTC. The Condensed Combined Financial Statements have been derived from the consolidated financial statements and accounting records of UTC. They have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X and accordingly, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted. The Condensed Combined Financial Statements at March 31, 2020 and for the quarters ended March 31, 2020 and 2019 are prior to the Separation and thus are prepared on a "carve-out" basis.

The Condensed Combined Statements of Operations include all revenues and costs directly attributable to Otis, including costs for facilities, functions and services used by Otis. Costs for certain functions and services performed by centralized UTC organizations are directly charged to Otis based on specific identification when possible or based on a reasonable allocation driver such as net sales, headcount, usage or other allocation methods. All charges and allocations for facilities, functions and services performed by UTC organizations have been deemed settled in cash by Otis to UTC in the period in which the cost was recorded on the Condensed Combined Statements of Operations. Current and deferred income taxes have been determined based on the stand-alone results of Otis. However, because the Business was included in UTC’s tax group in certain jurisdictions, the Business’ actual tax balances may differ from those reported. The Business’ portion of its domestic income taxes and certain income taxes for jurisdictions outside the United States are deemed to have been settled in the period the related tax expense was recorded.

All significant intracompany accounts and transactions within the Business have been eliminated in the preparation of the Condensed Combined Financial Statements. The Condensed Combined Financial Statements of the Business include assets and liabilities that have been determined to be specifically or otherwise attributable to the Business.

Risks and Uncertainties. In March 2020, the World Health Organization declared the outbreak of the novel strain of coronavirus ("COVID-19") a global pandemic and recommended a number of restrictive measures to contain the spread. Many governments in the regions where we generate the majority of our revenue have adopted such policies, including social distancing and restrictions on businesses deemed non-essential. The Business is closely monitoring the impact of the
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COVID-19 pandemic and managing the effects on its business globally as the situation continues to evolve. It is difficult to estimate at this time the duration and extent of the impact of the pandemic on the business, financial position, cash flow and results of operations. The results of our operations and overall financial performance were impacted during the quarter ended March 31, 2020, with varied impacts across all regions.
Due to existing conditions and uncertainty, the Business believes that COVID-19 will have an impact on its business, cash flow and results of operations for the three months ended June 30, 2020 and likely for the remainder of the year ending December 31, 2020. The extent of the impact will depend largely on future developments, which are highly uncertain and cannot be predicted with certainty, including the emergence of new information concerning the severity of the outbreak and actions by government authorities to contain the outbreak or treat its impact, among other things.

Use of Estimates. We assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to us and the unknown future impacts of COVID-19 at March 31, 2020 and through the date of this report. The accounting matters assessed included, but were not limited to, our allowance for credit losses, the carrying value of our goodwill and other long-lived assets, financial assets and revenue recognition. While there was not a material impact to our Condensed Combined Financial Statements as of and for the quarter ended March 31, 2020 resulting from our assessments, future assessment of our current expectations at that time of the magnitude and duration of COVID-19, as well as other factors, could result in material impacts to our Condensed Combined Financial Statements in future reporting periods.

Note 3: Earnings per Share
On April, 3, 2020, the date of consummation of the Separation, 433,079,455 shares of the Business' common stock, par value $0.01 per share, were distributed to UTC shareholders of record as of March 19, 2020. This share amount is being utilized for the calculation of basic and diluted earnings per share for all periods presented prior to the Separation as all common stock was owned by UTC prior to the Separation. For the 2020 and 2019 year to date calculations, these shares are treated as issued and outstanding at January 1, 2020 and 2019 for purposes of calculating historical basic and diluted earnings per share.

 Quarter Ended March 31,
(dollars in millions, except per share amounts; shares in millions)20202019
Net income attributable to Otis Worldwide Corporation$165  $273  
Basic and diluted number of shares outstanding433.1  433.1  
Earnings Per Share:
Basic and Diluted$0.38  $0.63  
Note 4: Revenue Recognition

We account for revenue in accordance with Accounting Standards Codification ("ASC") Topic 606: Revenue from Contracts with Customers.

Performance Obligations. The Business' revenue streams include new equipment, maintenance and repair and modernization (including related installation). New equipment, modernization and repair services revenue is typically recognized over time as we are enhancing an asset the customer controls. Maintenance revenue is recognized on a straight-line basis over the life of the maintenance contract.

For new equipment and modernization transactions, equipment and installation are typically procured in a single contract providing the customer with a complete installed elevator or escalator unit. The combination of equipment and installation promises are typically a single performance obligation. For repair services, the customer typically contracts for specific short-term services which form a single performance obligation. For these performance obligations, revenue is recognized over time using costs incurred to date relative to total estimated costs at completion to measure progress.

For maintenance contracts, given the continuous nature of the maintenance services throughout the year, we recognize revenue on maintenance contracts on a straight-line basis which aligns with the cost profile of these services.


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Contract Assets and Liabilities. Contract assets reflect revenue recognized in advance of customer billing. Contract liabilities are recognized when a customer pays consideration, or we have a right to receive an amount of unconditional consideration, in advance of the satisfaction of performance obligations under the contract. We typically receive progress payments from our customers as we perform our work over time.

Total contract assets and contract liabilities as of March 31, 2020 and December 31, 2019 are as follows:
(dollars in millions)March 31, 2020December 31, 2019
Contract assets, current$491  $529  
Total contract assets
491  529  
Contract liabilities, current2,541  2,270  
Contract liabilities, noncurrent (included within Other long-term liabilities)25  18  
Total contract liabilities
2,566  2,288  
Net contract liabilities$2,075  $1,759  

Contract assets decreased by $38 million during the quarter ended March 31, 2020 as a result of timing of billing on customer contracts and contract completions. Contract liabilities increased by $278 million during the quarter ended March 31, 2020 primarily due to customer billings in excess of revenue earned. In the quarters ended March 31, 2020 and 2019, we recognized revenue of $0.9 billion related to the contract liabilities as of January 1, 2020 and as of January 1, 2019.

Remaining Performance Obligations ("RPO"). RPO represents the aggregate amount of total contract transaction price that is unsatisfied or partially unsatisfied. As of March 31, 2020, our total RPO was approximately $16.3 billion. Of the total RPO as of March 31, 2020, we expect approximately 91% will be recognized as sales over the following 24 months. On December 31, 2019, we had approximately $16.4 billion of remaining performance obligations, at which time we expected to recognize approximately 91% of these remaining performance obligations as sales in the next 24 months.

Note 5: Related Parties

Historically, the Business has been managed and operated in the normal course of business with other affiliates of UTC. Accordingly, certain shared costs had been allocated to the Business and reflected as expenses in these Condensed Combined Financial Statements.

Allocated Centralized Costs. The Condensed Combined Financial Statements have been prepared on a stand-alone basis and are derived from the consolidated financial statements and accounting records of UTC.

UTC incurred significant corporate costs such as treasury, tax, accounting, human resources, audit, legal, purchasing, information technology and other such services. The costs associated with these services generally include all payroll and benefit costs, as well as overhead costs related to certain functions. All such amounts have been deemed to have been incurred and settled by the Business in the period in which the costs were recorded. The allocated functional service expenses and general corporate expenses for the quarters ended March 31, 2020 and 2019 were approximately $16 million and $17 million, respectively, and are primarily included in Selling, general and administrative on the Condensed Combined Statements of Operations. The future results of operations, financial position and cash flows could differ materially from the historical results presented herein.

Separation Costs. In connection with the Separation as further described in Note 1, we have incurred pre-Separation costs of approximately $32 million for the quarter ended March 31, 2020. The Separation costs are primarily recorded in Selling, general and administrative on the Condensed Combined Statements of Operations and primarily consist of employee-related costs, costs to establish certain stand-alone functions and information technology systems, professional services fees and other transaction-related costs to transition to being a stand-alone public company. There were no costs incurred in connection with the Separation for the quarter ended March 31, 2019.

Cash Management and Financing. The Business participated in UTC's centralized cash management and financing programs. Disbursements were made through centralized accounts payable systems which were operated by UTC. Cash receipts were transferred to centralized accounts, which were also maintained by UTC. As cash is received and disbursed by UTC, it was
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accounted for by the Business through UTC Net (Deficit) Investment. All short and long-term debt was financed by UTC prior to the issuance of the notes and the term loan in connection with the Separation, and the financing decisions for wholly and majority owned subsidiaries were determined by UTC. The Business' cash that is not included in the centralized cash management and financing programs was classified as Cash and cash equivalents on the Condensed Combined Balance Sheets.

At March 31, 2020, the Business was in bank overdraft position of approximately $30 million, which is included in Short term borrowings on the Condensed Combined Balance Sheets. The bank overdraft amount is due from UTC and is recorded through UTC Net (Deficit) Investment on the Condensed Combined Balance Sheets. The balance from UTC was paid in full to the Business prior to the Separation.

During the quarter ended March 31, 2020, net liabilities of $43 million were contributed to the Business by UTC, primarily consisting of deferred tax assets and liabilities and fixed assets. These non-cash contributions are recorded as Net transfers to UTC on the Condensed Combined Statements of Changes in Equity through UTC Net (Deficit) Investment.

Long-Term Debt, Accounts Receivable and Accounts Payable. Certain related party transactions between the Business and UTC have been included within UTC Net (Deficit) Investment on the Condensed Combined Balance Sheets in the historical periods presented. The UTC Net Investment includes related party receivables due from UTC and its affiliates of $0.0 billion and $7.7 billion as of March 31, 2020 and December 31, 2019, respectively. The UTC Net (Deficit) Investment includes related party payables due to UTC and its affiliates of $278 million and $750 million as of March 31, 2020 and December 31, 2019, respectively, which primarily relate to centralized cash management and financing programs. The UTC Net (Deficit) Investment includes related party debt due to UTC and its affiliates of $0 million and $100 million as of March 31, 2020 and December 31, 2019, respectively. The total effect of the settlement of these related party transactions is reflected as a financing activity on the Condensed Combined Statements of Cash Flows.

Guarantees. UTC provided parent guarantees to certain customers or other third parties regarding the product performance obligations of Otis under certain installation and long-term maintenance contracts. The guarantees terminated upon Separation.

UTC provided parent guarantees on behalf of Otis to guarantee ordinary course of business performance obligations as required by certain Otis customers and banks to support credit facilities to Otis' affiliates. At December 31, 2019, the total outstanding parent guarantees were approximately $1.8 billion and have since been terminated in connection with the Separation.

UTC provided parent guarantees of the Otis long-term debt that terminated upon Separation.

Note 6: Accounts Receivable, Net

Adoption of Credit Loss Standard

In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU and its related amendments (collectively, the Credit Loss Standard) modifies the impairment model to utilize an expected loss methodology in place of the incurred loss methodology for financial instruments including trade receivables, contract assets, long term receivables and off-balance sheet credit exposures. The Credit Loss Standard requires consideration of a broader range of information to estimate expected credit losses, including historical information, current conditions and evaluate this assessment through a reasonable forecast period. This ASU requires that the income statement reflect the measurement of credit losses for newly recognized financial assets as well as the expected increase or decrease of expected credit losses that have taken place during the period, which may result in earlier recognition of certain losses. We adopted this standard effective January 1, 2020 utilizing a modified retrospective approach. A cumulative-effect non-cash after-tax adjustment to retained earnings as of January 1, 2020 was recorded in the amount of approximately $25 million.

We are exposed to credit losses primarily through our net sales of products and services to our customers which are recorded as Accounts Receivable, net on the Condensed Combined Balance Sheet. We evaluate each customer's ability to pay through assessing customer creditworthiness, historical experience, current economic conditions and through a reasonable forecast period. Factors considered in our evaluation of assessing collectability and risk include: underlying value of any collateral or security interests, significant past due balances, historical losses and existing economic conditions including country and political risk. There can be no assurance that actual results will not differ from estimates or that consideration of these factors in the future will not result in an increase or decrease to the allowance for credit losses. We may require collateral or prepayment to mitigate credit risk.

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We estimate expected credit losses of financial assets with similar risk characteristics. We determine an asset is impaired when our assessment identifies there is a risk that we will be unable to collect amounts due according to the contractual terms of the agreement. We monitor our ongoing credit exposure through reviews of customer balances against contract terms and due dates, current economic conditions and dispute resolution. Estimated credit losses are written off in the period in which the financial asset is no longer collectible.

Accounts receivable, net consisted of the following at March 31, 2020 and December 31, 2019:

(dollars in millions)March 31, 2020December 31, 2019
Trade receivables$2,780  $2,723  
Unbilled receivables116  108  
Miscellaneous receivables105  113  
3,001  2,944  
Less: Allowance for expected credit losses1
113  83  
Balance$2,888  $2,861  
1 Prior to January 1, 2020 allowances for doubtful accounts were recorded when accounts receivable were determined to be uncollectible.

The changes in allowance for credit losses related to Accounts receivable for the quarter ended March 31, 2020 is as follows:

(dollars in millions)March 31, 2020
Balance as of December 31, 2019$83  
Impact of credit standard adoption28  
Current period provision for expected credit losses4  
Write-offs charged against the allowance for expected credit losses(3) 
Other1  
Balance as of March 31, 2020$113  
Note 7: Inventories, net
(dollars in millions)March 31, 2020December 31, 2019
Raw materials and work-in-process$108  $103  
Finished goods491  468  
Total$599  $571  

Raw materials, work-in-process and finished goods are net of valuation reserves of $102 million and $103 million as of March 31, 2020 and December 31, 2019, respectively.

Note 8: Business Acquisitions, Goodwill and Intangible Assets

Business Acquisitions. Our investments in businesses, net of cash acquired, totaled $5 million and $19 million in the quarters ended March 31, 2020 and 2019, respectively. The acquisitions consisted of a number of individually insignificant acquisitions in our Service segment. Transaction costs incurred were not considered significant.

Goodwill. Changes in our Goodwill balances during the quarter ended March 31, 2020 were as follows:
(dollars in millions)Balance as of January 1, 2020Goodwill Resulting
From Business Combinations
Foreign Currency
Translation and Other
Balance as of March 31, 2020
New Equipment$337  $  $(8) $329  
Service1,310    (31) 1,279  
Total$1,647  $  $(39) $1,608  
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Intangible Assets. Identifiable intangible assets are comprised of the following:

March 31, 2020December 31, 2019
(dollars in millions)Gross AmountAccumulated
Amortization
Gross AmountAccumulated
Amortization
Amortized:
Purchased service portfolios$2,016  $(1,572) $2,069  $(1,598) 
Patents, trademarks/trade names20  (15) 21  (15) 
Customer relationships and other45  (39) 46  (40) 
2,081  (1,626) 2,136  (1,653) 
Unamortized:
Trademarks and other7  —  7  —  
Total$2,088  $(1,626) $2,143  $(1,653) 

Amortization of intangible assets for the quarters ended March 31, 2020 and 2019 was $22 million and $24 million, respectively. Excluding the impact of currency translation adjustments, there were no other significant changes in our Intangible Assets during the quarters ended March 31, 2020 and 2019.

Note 9: Borrowings and Lines of Credit
(dollars in millions)March 31, 2020December 31, 2019
Commercial paper$  $  
Other borrowings67  34  
Total short-term borrowings$67  $34  

As of March 31, 2020, we have entered into a revolving credit agreement with various banks. This revolving credit facility permits aggregate borrowings of up to $1.5 billion available on April 3, 2020, pursuant to an unsecured, unsubordinated 5-year revolving credit facility with an interest rate of LIBOR plus 125 basis points and a commitment fee rate of 12.5 basis points. As of March 31, 2020, there were no borrowings under the revolving credit facility. The undrawn portion of the revolving credit facility serves as a backstop for the issuance of commercial paper.

As of March 31, 2020, we have entered into a $1.5 billion unsecured, unsubordinated commercial paper program that became available on April 3, 2020. We plan to use our commercial paper borrowings for general corporate purposes including to finance acquisitions, pay dividends and for debt refinancing. The need for commercial paper borrowings may arise if the use of domestic cash for general corporate purposes exceeds the sum of domestic cash generation and foreign cash repatriated to the U.S.

On February 10, 2020, the Business entered into a Term Loan Credit Agreement ("Term Loan") providing for a $1.0 billion unsecured, unsubordinated 3-year loan credit facility. On March 27, 2020, the Business drew on the full amount of the term loan.

Additionally, on February 27, 2020, we issued $5.3 billion unsecured, unsubordinated notes ("the Notes").

The net proceeds of the financing arrangements described above of approximately $6.3 billion in the aggregate were distributed to UTC.

The revolving credit agreement, term loan agreement and indenture contain affirmative and negative covenants customary for financings of these types that, among other things, limit the Business and its subsidiaries’ ability to incur additional liens, to make certain fundamental changes and to enter into sale and leaseback transactions. In addition, the revolving credit agreement and the term loan credit agreement require that we maintain a maximum consolidated total leverage ratio. The revolving credit agreement, term loan credit agreement and indenture also contain events of default customary for financings of these types.
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Long-term debt as of March 31, 2020 and December 31, 2019 consisted of the following:
(dollars in millions)March 31, 2020December 31, 2019
LIBOR plus 112.5 bps Term Loan due 2023 2,4
$1,000  $  
LIBOR plus 45 bps floating rate notes due 2023 1,3
500    
2.056% notes due 2025 3
1,300    
2.293% notes due 2027 3
500    
2.565% notes due 2030 3
1,500    
3.112% notes due 2040 3
750    
3.362% notes due 2050 3
750    
Other (including finance leases)5  5  
Total principal long-term debt$6,305  $5  
Other (discounts and debt issuance costs)(47)   
Total long-term debt$6,258  $5  
Less: current portion    
Long-term debt, net of current portion$6,258  $5  
1 The three-month LIBOR rate at March 31, 2020 was approximately 1.45%.
2 The six-month LIBOR rate at March 31, 2020 was approximately 1.18%.
3 On February 27, 2020, we issued $5.3 billion of unsecured, unsubordinated notes. We may redeem these notes at our option pursuant to their terms.
4 On March 27, 2020, we drew down $1.0 billion of our unsecured, unsubordinated term loan.

We recorded $47 million of debt issuance costs related to the Notes. Debt issuance costs are presented as a reduction of debt on the Condensed Combined Balance Sheets and are amortized as a component of interest expense over the term of the related debt using the effective interest method.

We had no debt payments during the quarter ended March 31, 2020. The average maturity of our long-term debt at March 31, 2020 is approximately 10.6 years. The average interest expense rate on our total borrowings for the quarter ended March 31, 2020 is approximately 2.5%. The schedule of principal payments required on long-term debt for the next five years and thereafter is:

(dollars in millions)
2020$  
20212  
20221  
20231,501  
20241  
Thereafter4,800  
Total $6,305  
Note 10: Employee Benefit Plans

Pension and Postretirement Plans. We sponsor both funded and unfunded domestic and foreign defined benefit pension and other postretirement benefit plans, and defined contribution plans. Contributions to our plans were as follows:
 Quarter Ended March 31,
(dollars in millions)20202019
Defined benefit plans$10  $10  
Defined contribution plans16  11  
Multi-employer pension and postretirement plans
37  38  


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The following table illustrates the components of net periodic benefit cost for our defined benefit pension plans:
 Quarter Ended March 31,
(dollars in millions)20202019
Service cost$10  $8  
Interest cost4  5  
Expected return on plan assets(7) (6) 
Amortization of prior service credit  (1) 
Recognized actuarial net loss 4  3  
Net settlement and curtailment loss   1  
Total net periodic benefit cost$11  $10  

Postretirement Benefit Plans. We sponsor postretirement benefit plans that provide health and life benefits to eligible retirees. The postretirement plans are unfunded. The net periodic benefit cost was less than $1 million for the quarters ended March 31, 2020 and 2019, respectively.

UTC Sponsored Defined Benefit Plans. Defined benefit pension and postretirement benefit plans sponsored by UTC have been accounted for as multi-employer plans in these Condensed Combined Financial Statements, in accordance with FASB ASC Topic 715-30: Defined Benefit Plans – Pension and FASB ASC Topic 715-60: Defined Benefit Plans – Other Postretirement. FASB ASC Topic 715: Compensation-Retirement Benefits provides that an employer that participates in a multi-employer defined benefit plan is not required to report a liability beyond the contributions currently due and unpaid to the plan. Therefore, no assets or liabilities related to these plans have been included on the Condensed Combined Balance Sheets.

These pension and post retirement expenses were allocated to the Business and reported in Cost of products and services sold, Selling, general and administrative and Non-service pension benefit on the Condensed Combined Statements of Operations. The amounts for pension and retirement expenses for the quarters ended March 31, 2020 and 2019 were as follows:
Quarter Ended March 31,
(dollars in millions)
20202019
Service cost$1  $4  
Non-service pension benefit(5) (13) 
Total$(4) $(9) 
Note 11: Accumulated Other Comprehensive Loss

A summary of the changes in each component of Accumulated other comprehensive loss, net of tax for the quarters ended March 31, 2020 and 2019 is provided below:
(dollars in millions)
Foreign
Currency
Translation
Defined Benefit
Pension and
Postretirement
Plans
Unrealized
Hedging
(Losses)
Gains
Accumulated
Other
Comprehensive
(Loss) Income
Quarter Ended March 31, 2020
Balance at December 31, 2019$(588) $(167) $(3) $(758) 
Other comprehensive (loss) income before
reclassifications, net
(116)   11  (105) 
Amounts reclassified, pre-tax  4    4  
Tax benefit reclassified  (3)   (3) 
Balance at March 31, 2020$(704) $(166) $8  $(862) 

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(dollars in millions)
Foreign
Currency
Translation
Defined Benefit
Pension and
Postretirement
Plans
Unrealized
Hedging
(Losses) Gains
Accumulated
Other
Comprehensive
(Loss) Income
Quarter Ended March 31, 2019
Balance at December 31, 2018$(573) $(135) $  $(708) 
Other comprehensive income (loss) before
reclassifications, net
36