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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, 2021
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
____________________________________ 

https://cdn.kscope.io/0bfc0146796a01f9554541f6ffdf36e0-otis-20210331_g1.jpg
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  ¨.
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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.   ¨

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 15, 2021 there were 429,143,424 shares of Common Stock outstanding.
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OTIS WORLDWIDE CORPORATION
CONTENTS OF QUARTERLY REPORT ON FORM 10-Q
Quarter Ended March 31, 2021
 
 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 Company" 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

OTIS WORLDWIDE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) 
 Quarter Ended March 31,
(dollars in millions, except per share amounts)20212020
Net sales:
Product sales$1,458 $1,123 
Service sales1,950 1,843 
3,408 2,966 
Costs and expenses:
Cost of products sold1,187 914 
Cost of services sold1,202 1,155 
Research and development35 38 
Selling, general and administrative482 465 
2,906 2,572 
Other income (expense), net7 (65)
Operating profit509 329 
Non-service pension cost (benefit)2 (3)
Interest expense (income), net32 5 
Net income before income taxes475 327 
Income tax expense123 125 
Net income352 202 
Less: Noncontrolling interest in subsidiaries' earnings44 37 
Net income attributable to common shareholders$308 $165 
Earnings per share (Note 3):
Basic$0.71 $0.38 
Diluted$0.71 $0.38 

See accompanying Notes to Condensed Consolidated Financial Statements
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OTIS WORLDWIDE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

Quarter Ended March 31,
(dollars in millions)20212020
Net income$352 $202 
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments(22)(122)
Pension and postretirement benefit plan adjustments4 1 
Change in unrealized cash flow hedging(4)11 
Other comprehensive income (loss), net of tax(22)(110)
Comprehensive income (loss), net of tax330 92 
Less: Comprehensive income attributable to noncontrolling interest(30)(31)
Comprehensive income attributable to common shareholders$300 $61 

See accompanying Notes to Condensed Consolidated Financial Statements
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OTIS WORLDWIDE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(amounts in millions, except par value)March 31, 2021December 31, 2020
Assets
Cash and cash equivalents$1,725 $1,782 
Accounts receivable (net of allowance for expected credit losses of $172 and $161)
3,124 3,148 
Contract assets432 458 
Inventories, net686 659 
Other current assets379 446 
Total Current Assets6,346 6,493 
Future income tax benefits341 334 
Fixed assets (net of accumulated depreciation of $1,127 and $1,197)
765 774 
Operating lease right-of-use assets548 542 
Intangible assets, net448 484 
Goodwill1,727 1,773 
Other assets330 310 
Total Assets$10,505 $10,710 
Liabilities and (Deficit) Equity
Short-term borrowings$341 $701 
Accounts payable1,459 1,453 
Accrued liabilities1,769 1,977 
Contract liabilities2,826 2,542 
Total Current Liabilities6,395 6,673 
Long-term debt5,457 5,262 
Future pension and postretirement benefit obligations637 654 
Operating lease liabilities364 367 
Future income tax obligations 300 321 
Other long-term liabilities638 634 
Total Liabilities13,791 13,911 
Commitments and contingent liabilities (Note 18)
Redeemable noncontrolling interest65 83 
Shareholders' (Deficit) Equity:
Preferred Stock, $0.01 par value, 125 shares authorized; None issued or outstanding
  
Common Stock and additional paid-in capital, $0.01 par value, 2,000 shares authorized; 433.8 and 433.4 shares issued, respectively, and 429.1 and 433.4 shares outstanding, respectively
68 59 
Treasury Stock, 4.7 and 0.0 common shares at average cost, respectively
(300) 
Accumulated deficit(2,855)(3,076)
Accumulated other comprehensive income (loss)(823)(815)
Total Shareholders' (Deficit) Equity(3,910)(3,832)
Noncontrolling interest559 548 
Total (Deficit) Equity(3,351)(3,284)
Total Liabilities and (Deficit) Equity$10,505 $10,710 
See accompanying Notes to Condensed Consolidated Financial Statements
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OTIS WORLDWIDE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
Common Stock and Additional Paid-In CapitalTreasury StockAccumulated DeficitUTC Net (Deficit) InvestmentAccumulated Other Comprehensive Income (Loss)Total Shareholders'
(Deficit) Equity
Noncontrolling InterestTotal (Deficit) EquityRedeemable Noncontrolling Interest
(dollars in millions, except per share amounts)
Quarter Ended March 31, 2021
Balance at January 1, 2021$59 $ $(3,076)$ $(815)$(3,832)$548 $(3,284)$83 
Net income  308   308 44 352  
Other comprehensive income (loss), net of tax    (8)(8)(13)(21)(1)
Stock-based compensation and Common Stock issued under employee plans9     9  9  
Cash dividends declared ($0.20 per common share)
  (87)  (87) (87) 
Repurchase of Common Shares (300)   (300) (300) 
Dividends attributable to noncontrolling interest      (32)(32) 
Acquisitions, disposals and other changes in noncontrolling interest      12 12 (17)
Changes in redeemable noncontrolling interest redemption value         
Balance at March 31, 2021$68 $(300)$(2,855)$ $(823)$(3,910)$559 $(3,351)$65 
Quarter Ended March 31, 2020
Balance at January 1, 2020$ $ $ $2,458 $(758)$1,700 $531 $2,231 $95 
Net income— — — 165 — 165 37 202 — 
Other comprehensive income (loss), net of tax— — — — (104)(104)(4)(108)(2)
Net transfers (to) from UTC— — — (6,557)— (6,557)— (6,557)— 
Dividends attributable to noncontrolling interest— — — — — — (21)(21)— 
Acquisition, disposal and other changes in noncontrolling interest— — — — — — (6)(6)— 
Changes in redeemable noncontrolling interest redemption value— — — — — — — — 2 
Adoption of credit loss standard, net of tax (Note 6)— — — (25)— (25)— (25)— 
Balance at March 31, 2020$ $ $ $(3,959)$(862)$(4,821)$537 $(4,284)$95 

See accompanying Notes to Condensed Consolidated Financial Statements
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OTIS WORLDWIDE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Quarter Ended March 31,
(dollars in millions)20212020
Operating Activities:
Net income$352 $202 
Adjustments to reconcile net income to net cash flows provided by operating activities, net of acquisitions:
Depreciation and amortization51 43 
Deferred income tax expense (benefit)(28)16 
Stock compensation cost14 11 
Loss on fixed asset impairment 55 
Change in:
Accounts receivable, net(14)(116)
Contract assets and liabilities, current328 355 
Inventories, net(39)(49)
Other current assets61 (85)
Accounts payable29 (216)
Accrued liabilities(160)(73)
Pension contributions(13)(10)
Other operating activities, net4 26 
Net cash flows provided by operating activities585 159 
Investing Activities:
Capital expenditures(44)(39)
Investments in businesses, net of cash acquired (Note 8)(24)(5)
Investments in equity securities(18)(51)
Receipts (payments) on settlements of derivative contracts8 (21)
Other investing activities, net28 24 
Net cash flows used in investing activities(50)(92)
Financing Activities:
Net proceeds from (repayments of) borrowings (maturities of 90 days or less)(244)36 
Proceeds from borrowings (maturities longer than 90 days)152  
Repayments of borrowings (maturities longer than 90 days)(250) 
Proceeds from issuance of long-term debt199 6,300 
Payment of long-term debt issuance costs(2)(43)
Net transfers to UTC (6,550)
Dividends paid on Common Stock(87) 
Repurchases of Common Stock(300) 
Dividends paid to noncontrolling interest(32)(21)
Other financing activities, net(10)22 
Net cash flows used in financing activities(574)(256)
Effect of foreign exchange rate changes on cash and cash equivalents(17)(50)
Net increase in cash and cash equivalents(56)(239)
Cash, cash equivalents and restricted cash, beginning of year1,801 1,459 
Cash, cash equivalents and restricted cash, end of period1,745 1,220 
Less: Restricted cash20 13 
Cash and cash equivalents, end of period$1,725 $1,207 
See accompanying Notes to Condensed Consolidated Financial Statements
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OTIS WORLDWIDE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The Condensed Consolidated Financial Statements at March 31, 2021 and for the quarters ended March 31, 2021 and 2020 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 Consolidated Balance Sheet at December 31, 2020 was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles ("GAAP") in the United States ("U.S."). The results reported in these Condensed Consolidated 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 Company's annual consolidated financial statements and accompanying notes included in our Annual Report to Shareholders ("2020 Annual Report") incorporated by reference in our Annual Report on Form 10-K for fiscal year 2020 ("2020 Form 10-K" or "Form 10-K").

Note 1: Description of Business and Separation from United Technologies Corporation

Otis (as defined below) is the world’s leading 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 "RTX", as applicable), announced its intention to spin-off its Otis reportable segment and its Carrier reportable segment into two separate publicly-traded companies (the "Separation"). On April 3, 2020, the Company became an independent publicly-traded company through a pro-rata distribution of 0.5 shares of Common Stock for every share of UTC common stock held at the close of business on the record date of March 19, 2020 (the "Distribution"). Otis began to trade as a separate public company (New York Stock Exchange ("NYSE"): OTIS) on April 3, 2020.

Unless the context otherwise requires, references to "Otis", "we", "us", "our" and "the Company" refer to (i) Otis Worldwide Corporation's business (the "Business") prior to the Separation and (ii) Otis Worldwide Corporation and its subsidiaries following the Separation, as applicable. References to "UTC" relate to pre-Separation matters, and references to "RTX" relate to post-Separation matters.

The Separation was completed pursuant to a Separation and Distribution Agreement ("Separation Agreement") and other agreements with UTC related to the Separation, including but not limited to a transition services agreement (the "Transition Service Agreement" or "TSA"), a tax matters agreement (the "Tax Matters Agreement" or "TMA"), an employee matters agreement (the "Employee Matters Agreement" or "EMA") and an intellectual property agreement (the "Intellectual Property Agreement"). For further discussion on these agreements, see Note 5.

Note 2: Basis of Presentation

Prior to the Separation on April 3, 2020, our historical financial statements were prepared on a standalone combined basis and were derived from the consolidated financial statements and accounting records of UTC. For the period subsequent to April 3, 2020, our financial statements are presented on a consolidated basis as the Company became a standalone public company (collectively, the financial statements for all periods presented, including the historical results of the Company prior to April 3, 2020, are now referred to as "Condensed Consolidated Financial Statements" to reflect this change). 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.

Prior to the Separation on April 3, 2020, the Condensed Consolidated Statements of Operations included 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 were 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 Consolidated Statements of Operations. Current and deferred income taxes were determined based on the standalone results of Otis. However, because the Company was included
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in our former parent UTC’s tax group in certain jurisdictions, the Company's actual tax balances may differ from those reported. The Company's portion of its domestic income taxes and certain income taxes for jurisdictions outside the U.S. are deemed to have been settled in the period the related tax expense was recorded prior to the Separation.

All significant intracompany accounts and transactions within the Company have been eliminated in the preparation of the Condensed Consolidated Financial Statements. Prior to the Separation, the Condensed Consolidated Financial Statements of the Company include assets and liabilities that have been determined to be specifically or otherwise attributable to the Company.

Use of Estimates. The preparation of these Condensed Consolidated Financial Statements and accompanying notes in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ materially from those estimates.

We assessed certain accounting matters that generally require consideration of forecasted financial information in the context of the information reasonably available to us and the unknown future impacts of COVID-19 at March 31, 2021 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 Consolidated Financial Statements as of March 31, 2021 and for the quarters ended March 31, 2021 and 2020, respectively, resulting from our assessments of these matters, 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 Consolidated Financial Statements in future reporting periods.

Certain amounts presented in the prior period have been reclassified to conform to the current period presentation, which are immaterial.

Note 3: Earnings per Share

On April 3, 2020, the date of consummation of the Separation, 433,079,455 shares of the Company's 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 quarter ended March 31, 2020, these shares are treated as issued and outstanding at January 1, 2020 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)20212020
Net income attributable to common shareholders$308 $165 
Basic weighted average number of shares outstanding431.6 433.1 
Stock awards and equity units (share equivalent)2.1  
Diluted weighted average number of shares outstanding433.7 433.1 
Earnings Per Share of Common Stock:
Basic:$0.71 $0.38 
Diluted:$0.71 $0.38 

The computation of diluted earnings per share excludes the effect of the potential exercise of stock awards, including stock appreciation rights and stock options, when the average market price of the common stock is lower than the exercise price of the related stock awards during the period because the effect would be anti-dilutive. In addition, the computation of diluted earnings per share excludes the effect of the potential exercise of stock awards when the awards' assumed proceeds exceed the average market price of the common shares during the period. There were 5.1 million of anti-dilutive stock awards excluded from the computation for the quarter ended March 31, 2021.

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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 Company's 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 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 in order 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.

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 at March 31, 2021 and December 31, 2020 are as follows:
(dollars in millions)March 31, 2021December 31, 2020
Contract assets, current$432 $458 
Total contract assets432 458 
Contract liabilities, current2,826 2,542 
Contract liabilities, noncurrent (included within Other long-term liabilities)39 44 
Total contract liabilities 2,865 2,586 
Net contract liabilities$2,433 $2,128 

Contract assets decreased by $26 million during the quarter ended March 31, 2021 as a result of the progression of current contracts and timing of billing on customer contracts. Contract liabilities increased by $279 million during the quarter ended March 31, 2021 primarily due to contract billings in excess of revenue earned. In the quarter ended March 31, 2021 and 2020, we recognized revenue of $1.1 billion and $0.9 billion related to contract liabilities as of January 1, 2021 and 2020, respectively.

Remaining Performance Obligations ("RPO"). RPO represents the aggregate amount of total contract transaction price that is unsatisfied or partially unsatisfied. As of March 31, 2021, our total RPO was approximately $17.3 billion. Of the total RPO as of March 31, 2021, we expect approximately 90% will be recognized as sales over the following 24 months.

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Note 5: Related Parties

In connection with the Separation as further described in Note 1, the Company entered into several agreements with our former parent UTC and Carrier. These agreements include the Separation Agreement that sets forth certain agreements with UTC and Carrier regarding the principal actions to be taken in connection with the Separation, including identifying the assets transferred, the liabilities assumed and the contracts transferred to each of UTC, Carrier and Otis as part of the Separation, and when and how these transfers and assumptions occurred.

Other agreements that we entered into that govern aspects of our relationship with RTX and Carrier following the Separation include the TSA, TMA, EMA and Intellectual Property Agreement. Under the TSA, RTX provides the Company certain services and we provide certain services to RTX for a limited time. The TMA governs the parties' respective rights, responsibilities and obligations with respect to tax matters, and among other things imposes restrictions on Otis during the two-year period following the Distribution that are intended to prevent certain transactions from failing to qualify as transactions that are generally tax-free. The EMA allocates among Otis, UTC, and Carrier the liabilities and responsibilities relating to employment matters, employee compensation and benefit plans, benefit programs and other related matters.

Net Transfers from (to) UTC and Separation Transactions. In connection with the Separation, certain assets and liabilities were contributed to the Company by UTC leading up to and at the time of the Separation. During the quarter ended March 31, 2020, net liabilities of $43 million were contributed to the Company by UTC, primarily consisting of deferred tax assets and liabilities and fixed assets. Prior to the Separation, these non-cash contributions were recorded as Net transfers (to) from UTC on the Condensed Consolidated Statements of Changes in Equity through UTC Net Investment during the quarter ended March 31, 2020.

Upon Separation, the following were recorded as Net transfers (to) from UTC and Separation-related transactions on the Consolidated Statements of Changes in Equity through UTC Net Investment:

(dollars in millions)
Cash and cash equivalents$220 
Taxes and other187 
Total$407 

Prior to the Separation, UTC paid Otis Cash and cash equivalents of $190 million in connection with the Separation Agreement, and approximately $30 million as settlement of related party receivables due from UTC to Otis as a result of a cash overdraft as of March 31, 2020.

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Additionally, the Tax Cuts and Jobs Act (the "TCJA") imposed a non-recurring toll charge, paid in installments over an 8-year period, on deemed repatriated earnings of foreign subsidiaries as of December 31, 2017. Under the terms of the TMA, Otis will indemnify RTX for a percentage of the toll charge installment payments due after April 3, 2020. As a result, a portion of Otis' future income tax obligations corresponding to the toll charge has been reclassified as a contractual indemnity obligation within Other long-term liabilities on the Condensed Consolidated Balance Sheet. The TMA also provides for RTX to indemnify Otis for certain foreign tax obligations as a result of Otis' inclusion in certain foreign consolidated tax returns prior to the Separation. As a result, Otis has reflected this contractual indemnification asset within Other current assets and the related tax obligations within Accrued liabilities on the Condensed Consolidated Balance Sheet. As a result of the Separation and the provisions of the TMA, Otis' total net tax-related liabilities on April 3, 2020 were reduced by $191 million, comprising the following impacts to the Condensed Consolidated Balance Sheet:

(dollars in millions)Increase (Decrease)
Assets
Other current assets$167 
Total Current Assets167 
Future income tax benefits(4)
Total Assets$163 
Liabilities and (Deficit) Equity
Accrued liabilities$110 
Total Current Liabilities110 
Future income tax obligations(377)
Other long-term liabilities239 
Total Liabilities(28)
Total Shareholders' (Deficit) Equity191 
Total (Deficit) Equity191 
Total Liabilities and (Deficit) Equity$163 

There were also $4 million of Other long-term liabilities recorded upon Separation on the Condensed Consolidated Balance Sheet.

Shared Costs. The Condensed Consolidated Financial Statements have been prepared on a standalone basis for the periods prior to the Separation on April 3, 2020, and for those periods are derived from the consolidated financial statements and accounting records of UTC. Prior to the Separation, the Company had been managed and operated in the normal course of business with other affiliates of UTC, and 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 included 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 Company in the period in which the costs were recorded.

Accordingly, for periods prior to the Separation, certain shared costs were allocated to the Company and reflected as expenses in the Condensed Consolidated Financial Statements for the quarter ended March 31, 2020. These allocated centralized costs were $16 million in the quarter ended March 31, 2020, and are primarily included in Selling, general and administrative expense on the Condensed Consolidated Statements of Operations. There were no allocated centralized costs for the periods after the Separation.

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Separation Costs. We have incurred non-recurring Separation costs as follows:

Quarter Ended March 31,
(dollars in millions)20212020
Separation costs$9 $32 

We incurred non-recurring Separation-related costs of $9 million and $32 million in the quarters ended March 31, 2021 and 2020, respectively, which are recorded in Selling, general and administrative expense on the Condensed Consolidated Statements of Operations. These expenses prior to the Separation primarily consisted of employee-related costs, costs to establish certain stand-alone functions and information technology systems, professional services fees, costs to exit from certain services previously provided under the TSA and other transaction-related costs to transition to being a standalone public company. These expenses after the Separation primarily consist of costs to exit from certain services previously provided under the TSA and other transaction-related costs to transition to being a stand-alone public company.

Long-Term Debt, Accounts Receivable and Accounts Payable. Certain related party transactions between the Company and UTC have been included within UTC Net Investment on the Condensed Consolidated Balance Sheets in the historical periods presented. The total effect of the settlement of these related party transactions is reflected as a financing activity on the Condensed Consolidated Statements of Cash Flows.

Note 6: Accounts Receivable, Net

Accounts receivable, net consisted of the following at March 31, 2021 and December 31, 2020:

(dollars in millions)March 31, 2021December 31, 2020
Trade receivables$2,956 $2,987 
Customer financing notes receivable133 130 
Unbilled receivables121 104 
Miscellaneous receivables86 88 
3,296 3,309 
Less: allowance for expected credit losses172 161 
Accounts receivable, net$3,124 $3,148 

The changes in allowance for credit losses related to Accounts receivable, net for the quarters ended March 31, 2021 and 2020, respectively, are as follows:
Quarter Ended March 31,
(dollars in millions)20212020
Balance as of January 1$161 $83 
Impact of credit standard adoption 28 
Current period provision for expected credit losses16 4 
Write-offs charged against the allowance for expected credit losses(2)(3)
Foreign exchange and other(3)1 
Balance as of March 31$172 $113 

The current period provision for expected credit losses was the result of reserves recorded on trade receivables and customer financing receivables in New Equipment, partially offset by the reversal of reserves in Service.

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Note 7: Inventories, net

(dollars in millions)March 31, 2021December 31, 2020
Raw materials and work-in-process$111 $113 
Finished goods575 546 
Total$686 $659 

Raw materials, work-in-process and finished goods are net of valuation reserves of $113 million and $112 million as of March 31, 2021 and December 31, 2020, respectively.

Note 8: Business Acquisitions, Goodwill and Intangible Assets

Business Acquisitions. Our investments in businesses, net of cash acquired, totaled $24 million and $5 million in the quarters ended March 31, 2021 and 2020, respectively. The acquisitions consisted of a number of immaterial acquisitions in our Service segment. Transaction costs incurred were not considered significant.

Goodwill. Changes in our Goodwill balances during the quarter ended March 31, 2021 were as follows:

(dollars in millions)Balance as of January 1, 2021Goodwill Resulting
From Business Combinations
Foreign Currency
Translation 
and Other
Balance as of March 31, 2021
New Equipment$357 $ $(9)$348 
Service1,416  (37)1,379 
Total$1,773 $ $(46)$1,727 

Intangible Assets. Identifiable intangible assets are comprised of the following:

March 31, 2021December 31, 2020
(dollars in millions)Gross AmountAccumulated
Amortization
Gross AmountAccumulated
Amortization
Amortized:
Purchased service portfolios$2,063 $(1,635)$2,123 $(1,661)
Patents, trademarks/trade names21 (16)22 (16)
Customer relationships and other52 (44)54 (45)
2,136 (1,695)2,199 (1,722)
Unamortized:
Trademarks and other7  7 — 
Total$2,143 $(1,695)$2,206 $(1,722)

Amortization of intangible assets for the quarters ended March 31, 2021 and 2020 was $23 million and $22 million, respectively. Excluding the impact of currency translation adjustments, there were no significant changes in our Intangible assets during the quarter ended March 31, 2021.

Note 9: Borrowings and Lines of Credit

(dollars in millions)March 31, 2021December 31, 2020
Commercial paper$299 $664 
Other borrowings42 37 
Total short-term borrowings$341 $701 

Commercial Paper. As of March 31, 2021, we had an aggregate of $1.5 billion unsecured, unsubordinated commercial paper programs in place. We 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.
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In September 2020, we issued €420 million of Euro denominated commercial paper, €166 million of which was repaid in the quarter ended March 31, 2021. The Euro denominated commercial paper qualifies as a net investment hedge against our investments in European businesses. As of March 31, 2021, the net investment hedge is deemed to be effective.

We also issued $150 million of U.S. Dollar commercial paper in November 2020, which was fully repaid during the quarter ended March 31, 2021. The commercial paper issued in 2020 was used to pay down the term loan that is described further below.

Long-term debt. As of March 31, 2021, we had a credit agreement, as amended, with various banks providing for a $1.5 billion unsecured, unsubordinated 5-year revolving credit facility, effective as of April 3, 2020, with an interest rate of LIBOR plus 125 basis points and a commitment fee rate of 12.5 basis points. As of March 31, 2021, 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.

On February 10, 2020, the Company entered into a term loan credit agreement, as amended, providing for a $1.0 billion unsecured, unsubordinated 3-year term loan credit facility (the "term loan"). The Company drew on the full amount of the term loan on March 27, 2020 and then prepaid the full amount during 2020, resulting in termination of the term loan credit agreement. Additionally, on February 27, 2020, we issued $5.3 billion unsecured, unsubordinated notes. The net proceeds of the term loan and the notes of approximately $6.3 billion were distributed to UTC during the quarter ended March 31, 2020.

On March 11, 2021,we issued ¥21.5 billion Japanese Yen denominated ($199 million), unsecured, unsubordinated 5-year notes due March 2026 ("Yen Notes"). The net proceeds of the Yen Notes were used to repay a portion of our outstanding Euro denominated commercial paper. The Yen Notes qualify as a net investment hedge against our investments in Japanese businesses. As of March 31, 2021, the net investment hedge is deemed to be effective.

The Company is in compliance with all covenants in the revolving credit agreement and the indenture governing the notes as of March 31, 2021.

Long-term debt consisted of the following:

(dollars in millions)March 31, 2021December 31, 2020
LIBOR plus 45 bps floating rate notes due 2023 1,2
$500 $500 
2.056% notes due 2025 2
1,300 1,300 
0.37% notes due 2026 (¥21.5 billion principal value) 2
196  
2.293% notes due 2027 2
500 500 
2.565% notes due 2030 2
1,500 1,500 
3.112% notes due 2040 2
750 750 
3.362% notes due 2050 2
750 750 
Other (including finance leases)5 5 
Total principal long-term debt5,501 5,305 
Other (discounts and debt issuance costs)(44)(43)
Total long-term debt5,457 5,262 
Less: current portion  
Long-term debt, net of current portion$5,457 $5,262 

1 The three-month LIBOR rate at March 31, 2021 was approximately 0.19%.
2 We may redeem these notes at our option pursuant to certain terms.

Debt issuance costs are presented as a reduction of debt on the Condensed Consolidated Balance Sheets and are amortized as a component of interest expense over the term of the related debt using the effective interest method. The Condensed Consolidated Statements of Operations for the quarters ended March 31, 2021 and 2020 include debt issuance costs amortization of $1 million and $0 million, respectively, and total interest expense on external debt of $33 million and $13 million, respectively. The unamortized debt issuance costs at March 31, 2021 and December 31, 2020 was $44 million and $43 million, respectively.
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The average maturity of our long-term debt at March 31, 2021 is approximately 10.8 years. The average interest expense rate on our borrowings for the quarters ended March 31, 2021 and 2020 and as of March 31, 2021 and December 31, 2020 was as follows:
Quarter Ended March 31,
20212020
Average interest rate - average outstanding during period:
Short-term borrowings(0.3)%0.0 %
Total long-term debt2.4 %1.7 %
Average interest rate - average as of:March 31, 2021December 31, 2020
Short-term borrowings(0.3)%(0.2)%
Total long-term debt2.4 %2.4 %

Note 10: Employee Benefit Plans

Pension and Postretirement Plans. The Company sponsors 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)20212020
Defined benefit plans$13 $10 
Defined contribution plans19 16 
Multi-employer pension and postretirement plans38 37 

The following table illustrates the components of net periodic benefit cost for the Company's defined benefit pension plans:

 Quarter Ended March 31,
(dollars in millions)20212020
Service cost$11 $10 
Interest cost3 4 
Expected return on plan assets(6)(7)
Recognized actuarial net loss5 4 
Total net periodic benefit cost$13 $11 

Postretirement Benefit Plans. The Company sponsors 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, 2021 and 2020, respectively.

UTC Sponsored Defined Benefit Plans. Defined benefit pension and postretirement benefit plans were sponsored by our former parent UTC have been accounted for as multi-employer plans in these Condensed Consolidated Financial Statements. The Company's participation in the defined pension and postretirement benefit plans sponsored by UTC concluded upon the completion of the Separation. The amounts for pension and postretirement expenses for the quarter ended March 31, 2020 for Service cost and Non-service pension benefit were $1 million and $5 million, respectively.

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Stock-based Compensation. In conjunction with the Separation, the Company adopted the 2020 Long-Term Incentive Plan (the "Plan"). The Plan became effective on April 3, 2020. As of March 31, 2021, approximately 26 million shares remain available for awards under the Plan.

Stock-based Compensation Expense

The Company measures the cost of all share-based payments, including stock options, at fair value on the grant date and recognize this cost in the Condensed Consolidated Statements of Operations. A forfeiture rate assumption is applied on grant date to adjust the expense recognition for awards that are not expected to vest. For the quarter ended March 31, 2020, stock-based compensation expense includes expense attributable to Otis, which is based on the awards and terms previously granted under the UTC incentive compensation plan to Otis employees. Accordingly, the amounts presented for the quarter ended March 31, 2020 are not necessarily indicative of future awards and do not necessarily reflect the results that Otis would have experienced as an independent publicly-traded company.

Stock-based compensation expense and the resulting tax benefits were as follows:

Quarter Ended March 31,
(dollars in millions)
20212020
Stock-based compensation expense (Share Based)$14 $11 
Stock-based compensation expense (Cash Based) (9)
Total gross stock-based compensation expense$14 $2 
Less: future tax benefit2 2 
Stock-based compensation expense, net of tax$12 $ 

As of March 31, 2021, there was approximately $96 million of total unrecognized compensation cost related to non-vested equity awards granted under the Plan. This cost is expected to be recognized ratably over a weighted-average period of 2.1 years.

Note 11: Share Repurchases

As of March 31, 2021, the Company was authorized by the Board of Directors to purchase up to $1 billion of Common Stock under a share repurchase program, of which $300 million has been utilized. During the quarter ended March 31, 2021, the Company repurchased 4.7 million shares of Common Stock for approximately $300 million. The Company's share repurchase program does not obligate it to acquire any specific number of shares. Under this program, shares may be purchased on the open market, in privately negotiated transactions or under accelerated share repurchase programs under plans complying with rules 10b5-1 and 10b-18 under the Securities Exchange Act of 1934, as amended (the "Exchange Act").

Note 12: Accumulated Other Comprehensive Income (Loss)

A summary of the changes in each component of Accumulated other comprehensive income (loss), net of tax for the quarters ended March 31, 2021 and 2020 is provided below:

(dollars in millions)Foreign
Currency
Translation
Defined Benefit
Pension and
Postretirement
Plans
Unrealized
Hedging Gains
(Losses)
Accumulated
Other
Comprehensive
Income (Loss)
Quarter Ended March 31, 2021
Balance at December 31, 2020$(616)$(203)$4 $(815)
Other comprehensive income (loss) before
reclassifications, net
(8) (9)(17)
Amounts reclassified, pre-tax 5 5 10 
Tax benefit reclassified (1) (1)
Balance at March 31, 2021$(624)$(199)$ $(823)