SEC Filing | Otis Elevator Company

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otis-20230630

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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 June 30, 2023


☐			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) 674-3000

(Registrant's telephone number, including area code)

____________________________________

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock ($0.01 par value)	OTIS	New York Stock Exchange
0.000% Notes due 2023	OTIS/23	New York Stock Exchange
0.318% Notes due 2026	OTIS/26	New York Stock Exchange
0.934% Notes due 2031	OTIS/31	New 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 Filer	ý	Accelerated 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.

As of July 14, 2023 there were 411,744,999 shares of Common Stock outstanding.

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OTIS WORLDWIDE CORPORATION

CONTENTS OF QUARTERLY REPORT ON FORM 10-Q

Quarter Ended June 30, 2023


			Page

PART I – FINANCIAL INFORMATION			4

Item 1. Financial Statements:			4

Condensed Consolidated Statements of Operations for the quarters ended June 30, 2023 and 2022			4

Condensed Consolidated Statements of Operations for the six months ended June 30, 2023 and 2022			5

Condensed Consolidated Statements of Comprehensive Income for the quarters and six months ended June 30, 2023 and 2022			6

Condensed Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022			7

Condensed Consolidated Statements of Changes in Equity for the quarters ended June 30, 2023 and 2022			8

Condensed Consolidated Statements of Changes in Equity for the six months ended June 30, 2023 and 2022			9

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022			10



Notes to Condensed Consolidated Financial Statements			11

Report of Independent Registered Public Accounting Firm			29

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			30

Item 3. Quantitative and Qualitative Disclosures About Market Risk			43

Item 4. Controls and Procedures			43

PART II – OTHER INFORMATION			46

Item 1. Legal Proceedings			46

Item 1A. Risk Factors			46

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			46

Item 5. Other Information			46

Item 6. Exhibits			47

SIGNATURES			48

Otis Worldwide Corporation's 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 June 30,
(dollars in millions, except per share amounts; shares in millions)	2023		2022
Net sales:
Product sales	$	1,604	$	1,534
Service sales	2,116		1,954
	3,720		3,488
Costs and expenses:
Cost of products sold	1,328		1,291
Cost of services sold	1,309		1,214
Research and development	36		38
Selling, general and administrative	479		439
	3,152		2,982
Other income (expense), net	12		(19)
Operating profit	580		487
Non-service pension cost (benefit)	1		1
Interest expense (income), net	37		35
Net income before income taxes	542		451
Income tax expense	135		103
Net income	407		348






Less: Noncontrolling interest in subsidiaries' earnings	31		27
Net income attributable to Otis Worldwide Corporation	$	376	$	321





Earnings per share (Note 2):
Basic	$	0.91	$	0.76
Diluted	$	0.90	$	0.76





Weighted average number of shares outstanding:
Basic shares	412.7		421.4
Diluted shares	416.0		424.2

See accompanying Notes to Condensed Consolidated Financial Statements.

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OTIS WORLDWIDE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



	Six Months Ended June 30,
(dollars in millions, except per share amounts; shares in millions)	2023		2022
Net sales:
Product sales	$	2,911	$	2,956
Service sales	4,155		3,946
	7,066		6,902
Costs and expenses:
Cost of products sold	2,426		2,481
Cost of services sold	2,561		2,432
Research and development	71		75
Selling, general and administrative	934		898
	5,992		5,886
Other income (expense), net	19		(3)
Operating profit	1,093		1,013
Non-service pension cost (benefit)	1		1
Interest expense (income), net	70		72
Net income before income taxes	1,022		940
Income tax expense	263		239
Net income	759		701
Less: Noncontrolling interest in subsidiaries' earnings	52		69








Net income attributable to Otis Worldwide Corporation	$	707	$	632

Earnings per share (Note 2):

Basic	$	1.71	$	1.49
Diluted	$	1.70	$	1.48

Weighted average number of shares outstanding:
Basic shares	413.5		422.8
Diluted shares	416.9		425.9

See accompanying Notes to Condensed Consolidated Financial Statements.

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OTIS WORLDWIDE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Quarter Ended June 30,				Six Months Ended June 30,
(dollars in millions)	2023		2022		2023		2022


Net income	$	407	$	348	$	759	$	701
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	(70)		(95)		(104)		(95)
Pension and postretirement benefit plan adjustments	—		2		—		4

Change in unrealized cash flow hedging	(6)		—		(3)		—
Other comprehensive income (loss), net of tax	(76)		(93)		(107)		(91)
Comprehensive income (loss), net of tax	331		255		652		610
Less: Comprehensive (income) loss attributable to noncontrolling interest	(18)		14		(42)		37
Comprehensive income attributable to Otis Worldwide Corporation	$	313	$	269	$	610	$	647

See accompanying Notes to Condensed Consolidated Financial Statements.

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OTIS WORLDWIDE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


(dollars in millions)	June 30, 2023		December 31, 2022
Assets
Cash and cash equivalents	$	1,219	$	1,189

Accounts receivable (net of allowance for expected credit losses of $143 and $152)	3,497		3,357
Contract assets	735		664
Inventories	640		617
Other current assets	326		316

Total Current Assets	6,417		6,143
Future income tax benefits	284		285
Fixed assets (net of accumulated depreciation of $1,205 and $1,151)	715		719
Operating lease right-of-use assets	438		449
Intangible assets, net	355		369
Goodwill	1,579		1,567
Other assets	347		287
Total Assets	$	10,135	$	9,819
Liabilities and Equity (Deficit)
Short-term borrowings and current portion of long-term debt	$	746	$	670
Accounts payable	1,744		1,717
Accrued liabilities	1,779		1,794
Contract liabilities	2,889		2,662


Total Current Liabilities	7,158		6,843
Long-term debt	6,117		6,098
Future pension and postretirement benefit obligations	398		392
Operating lease liabilities	308		315
Future income tax obligations	278		279
Other long-term liabilities	501		556
Total Liabilities	14,760		14,483
Commitments and contingent liabilities (Note 16)
Redeemable noncontrolling interest	126		135
Shareholders' Equity (Deficit):

Common Stock and additional paid-in capital	183		162

Treasury Stock	(1,927)		(1,575)
Accumulated deficit	(2,419)		(2,865)

Accumulated other comprehensive income (loss)	(689)		(592)
Total Shareholders' Equity (Deficit)	(4,852)		(4,870)
Noncontrolling interest	101		71
Total Equity (Deficit)	(4,751)		(4,799)
Total Liabilities and Equity (Deficit)	$	10,135	$	9,819

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 Capital	Treasury Stock		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Shareholders' (Deficit) Equity		Noncontrolling Interest		Total (Deficit) Equity		Redeemable Noncontrolling Interest

(dollars in millions, except per share amounts)

Quarter Ended June 30, 2023
Balance as of March 31, 2023		$	172	$	(1,750)	$	(2,653)	$	(626)	$	(4,857)	$	90	$	(4,767)	$	129
Net income		—		—		376		—		376		29		405		2
Other comprehensive income (loss), net of tax		—		—		—		(63)		(63)		(7)		(70)		(6)
Stock-based compensation and Common Stock issued under employee plans		11		—		(1)		—		10		—		10		—

Cash dividends declared ($0.34 per common share)		—		—		(141)		—		(141)		—		(141)		—
Repurchase of Common Shares		—		(177)		—		—		(177)		—		(177)		—
Dividends attributable to noncontrolling interest		—		—		—		—		—		(8)		(8)		(1)
Acquisitions, disposals and other changes		—		—		—		—		—		(3)		(3)		2



Balance as of June 30, 2023		$	183	$	(1,927)	$	(2,419)	$	(689)	$	(4,852)	$	101	$	(4,751)	$	126

Quarter Ended June 30, 2022
Balance as of March 31, 2022		$	121	$	(925)	$	(3,529)	$	(696)	$	(5,029)	$	107	$	(4,922)	$	1,572
Net income		—		—		321		—		321		25		346		2
Other comprehensive income (loss), net of tax, and foreign currency reclassifications (Note 10)		—		—		—		(52)		(52)		(7)		(59)		(34)
Stock-based compensation and Common Stock issued under employee plans		14		—		(1)		—		13		—		13		—
Cash dividends declared ($0.29 per common share)		—		—		(122)		—		(122)		—		(122)		—
Repurchase of Common Shares		—		(200)		—		—		(200)		—		(200)		—
Dividends attributable to noncontrolling interest		—		—		—		—		—		(9)		(9)		(1)
Acquisitions, disposals and other changes		(14)		—		86		—		72		(7)		65		(1,403)
Balance as of June 30, 2022		$	121	$	(1,125)	$	(3,245)	$	(748)	$	(4,997)	$	109	$	(4,888)	$	136

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 Capital		Treasury Stock		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Shareholders' (Deficit) Equity		Noncontrolling Interest		Total (Deficit) Equity		Redeemable Noncontrolling Interest


(dollars in millions, except per share amounts)

Six Months Ended June 30, 2023
Balance as of December 31, 2022	$	162	$	(1,575)	$	(2,865)	$	(592)	$	(4,870)	$	71	$	(4,799)	$	135
Net income	—		—		707		—		707		47		754		5
Other comprehensive income (loss), net of tax	—		—		—		(97)		(97)		(5)		(102)		(5)
Stock-based compensation and Common Stock issued under employee plans	21		—		(1)		—		20		—		20		—
Common Stock issued under employee plans	—		—		—		—		—		—		—		—
Cash dividends declared ($0.63 per common share)	—		—		(261)		—		(261)		—		(261)		—
Repurchase of Common Shares	—		(352)		—		—		(352)		—		(352)		—
Dividends attributable to noncontrolling interest	—		—		—		—		—		(9)		(9)		(9)

Acquisitions, disposals and other changes	—		—		1		—		1		(3)		(2)		—



Balance as of June 30, 2023	$	183	$	(1,927)	$	(2,419)	$	(689)	$	(4,852)	$	101	$	(4,751)	$	126

Six Months Ended June 30, 2022
Balance as of December 31, 2021	$	119	$	(725)	$	(2,256)	$	(763)	$	(3,625)	$	481	$	(3,144)	$	160
Net income	—		—		632		—		632		58		690		11
Other comprehensive income (loss), net of tax, and foreign currency reclassifications (Note 10)	—		—		—		15		15		(8)		7		(98)
Stock-based compensation and Common Stock issued under employee plans	19		—		(1)		—		18		—		18		—
Cash dividends declared ($0.53 per common share)	—		—		(224)		—		(224)		—		(224)		—
Repurchase of Common Shares	—		(400)		—		—		(400)		—		(400)		—
Dividends attributable to noncontrolling interest	—		—		—		—		—		(12)		(12)		(11)
Reclassification of noncontrolling interest to redeemable noncontrolling interest	—		—		(1,482)		—		(1,482)		(403)		(1,885)		1,476
Acquisitions, disposals and other changes	(17)		—		86		—		69		(7)		62		(1,402)
Balance as of June 30, 2022	$	121	$	(1,125)	$	(3,245)	$	(748)	$	(4,997)	$	109	$	(4,888)	$	136

See accompanying Notes to Condensed Consolidated Financial Statements.

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OTIS WORLDWIDE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six Months Ended June 30,
(dollars in millions)	2023		2022
Operating Activities:
Net income	$	759	$	701
Adjustments to reconcile net income to net cash flows provided by operating activities, net of acquisitions and dispositions:
Depreciation and amortization	99		97
Deferred income tax expense (benefit)	(16)		6
Stock compensation cost	34		28



Change in operating assets and liabilities:
Accounts receivable, net	(204)		(104)
Contract assets and liabilities, current	154		134
Inventories	(21)		(39)
Other current assets	(38)		—
Accounts payable	43		135
Accrued liabilities	(85)		(140)


Pension contributions	(24)		(21)
Other operating activities, net	23		60
Net cash flows provided by operating activities	724		857
Investing Activities:
Capital expenditures	(62)		(57)
Acquisitions of businesses and intangible assets, net of cash (Note 6)	(20)		(28)

Proceeds from the sale of (investments in) marketable securities	—		(7)

Receipts (payments) on settlements of derivative contracts	(13)		78
Other investing activities, net	4		4
Net cash flows provided by (used in) investing activities	(91)		(10)
Financing Activities:
Net proceeds from (repayments of) borrowings (maturities of 90 days or less)	57		57




Repayment of long-term debt	—		(500)


Dividends paid on Common Stock	(261)		(224)
Repurchases of Common Stock	(350)		(400)
Dividends paid to noncontrolling interest	(15)		(41)
Acquisition of Zardoya Otis shares	—		(1,802)
Other financing activities, net	(16)		(27)
Net cash flows provided by (used in) financing activities	(585)		(2,937)





Effect of exchange rate changes on cash and cash equivalents	(16)		(122)
Net increase (decrease) in cash, cash equivalents and restricted cash	32		(2,212)
Cash, cash equivalents and restricted cash, beginning of year	1,195		3,477
Cash, cash equivalents and restricted cash, end of period	1,227		1,265
Less: Restricted cash	8		13
Less: Cash and cash equivalents held for sale included in Other current assets (Note 6)	—		34
Cash and cash equivalents, end of period	$	1,219	$	1,218

See accompanying Notes to Condensed Consolidated Financial Statements.

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OTIS WORLDWIDE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1: General

The Condensed Consolidated Financial Statements as of June 30, 2023 and for the quarters and six months ended June 30, 2023 and 2022 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 as of December 31, 2022 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 on Form 10-K for fiscal year 2022 ("2022 Form 10-K" or "Form 10-K").

Unless the context otherwise requires, references to "Otis," "we," "us," "our" and "the Company" refer to Otis Worldwide Corporation and its subsidiaries.

There have been no changes to the Company's significant accounting policies described in the Company's 2022 Form 10-K that have a material impact on the Company's Condensed Consolidated Financial Statements and the related notes. Certain amounts presented in the prior period have been reclassified to conform to the current period presentation, which are immaterial.

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 macroeconomic developments, including inflationary pressures, higher interest rates and tighter credit conditions, as of June 30, 2023 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 June 30, 2023 and for the quarters and six months ended June 30, 2023 and 2022, respectively, resulting from our assessments of these matters, future assessment of our expectations of the magnitude and duration of these macroeconomic developments, as well as other factors, could result in material impacts to our Condensed Consolidated Financial Statements in future reporting periods.

We also assessed certain accounting matters as they relate to the ongoing conflict between Russia and Ukraine, including, but not limited to our allowance for credit losses, the carrying value of long-lived assets, revenue recognition and the classification of assets. There was not a material impact to our Condensed Consolidated Financial Statements as of June 30, 2023 and for the quarters and six months ended June 30, 2023 and 2022, respectively, resulting from our assessment of these matters. We continue to assess the impact on our results of operations, financial position and overall performance as the situation develops and any broader implications it may have on the global economy.

Supplier Finance Programs. On January 1, 2023, we adopted ASU No. 2022-04, Liabilities - Supplier Finance Programs (Topic 450-50): Disclosure of Supplier Finance Program Obligations that requires entities that use supplier finance programs in connection with the purchase of goods and services to disclose the key terms of the programs and information about obligations outstanding at the end of the reporting period.

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Certain Otis subsidiaries participate in supplier finance programs, under which we agree to pay third-party financial institutions the stated amounts of confirmed invoices from suppliers on the original maturity dates of the invoices, while the participating suppliers generally have the ability to sell, or otherwise pledge as collateral, their receivables from the Company to the participating financial institutions. Our obligations to suppliers, including the amounts due and scheduled payment dates, are not impacted by the suppliers' decisions to sell their receivables to the financial institutions, or otherwise pledge their receivables as collateral, under these arrangements. The Company is not a party to the arrangements between the suppliers and the financial institutions, and the Company's payment terms to the financial institutions, including the timing and amount of payments, are based on the original supplier invoices. Based on the applicable supplier agreements, the maturity dates of these supplier invoices can range between 30 and 105 days from the invoice date.

The outstanding obligations confirmed by the Company as valid to the financial institutions under our supplier finance programs were $577 million and $564 million as of June 30, 2023 and December 31, 2022, respectively. These obligations are included in Accounts payable in the Condensed Consolidated Balance Sheets, and all activity related to the obligations is presented within operating activities on the Consolidated Statements of Cash Flows.

The Company or the finance institutions may terminate the agreements with advanced notice. Otis has pledged no assets in connection with its supplier finance programs.

Note 2: Earnings per Share


	Quarter Ended June 30,				Six Months Ended June 30,
(dollars in millions, except per share amounts; shares in millions)	2023		2022		2023		2022


Net income attributable to Otis Worldwide Corporation	$	376	$	321	$	707	$	632
Impact of redeemable noncontrolling interest	—		—		—		—
Net income attributable to common shareholders	$	376	$	321	$	707	$	632

Basic weighted average number of shares outstanding	412.7		421.4		413.5		422.8
Stock awards and equity units (share equivalent)	3.3		2.8		3.4		3.1
Diluted weighted average number of shares outstanding	416.0		424.2		416.9		425.9

Earnings Per Share of Common Stock:


Basic	$	0.91	$	0.76	$	1.71	$	1.49



Diluted	$	0.90	$	0.76	$	1.70	$	1.48

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 1.1 million and 2.7 million of anti-dilutive stock awards excluded from the computation for the quarters ended June 30, 2023 and 2022, respectively, and 1.1 million and 2.5 million for the six months ended June 30, 2023 and 2022, respectively.

Note 3: Revenue Recognition

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

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.

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Total Contract assets and Contract liabilities as of June 30, 2023 and December 31, 2022 are as follows:


(dollars in millions)	June 30, 2023		December 31, 2022
Contract assets, current	$	735	$	664

Total contract assets	735		664

Contract liabilities, current	2,889		2,662
Contract liabilities, non-current (included within Other long-term liabilities)	45		52
Total contract liabilities	2,934		2,714
Net contract liabilities	$	2,199	$	2,050

Contract assets increased by $71 million during the six months ended June 30, 2023 as a result of the progression of current contracts and timing of billing on customer contracts. Contract liabilities increased by $220 million during the six months ended June 30, 2023 primarily due to contract billings in excess of revenue earned.

In the six months ended June 30, 2023 and 2022, we recognized revenue of $1.5 billion and $1.6 billion related to contract liabilities as of January 1, 2023 and 2022, respectively.

Remaining Performance Obligations ("RPO"). RPO represents the aggregate amount of total contract transaction price that is unsatisfied or partially unsatisfied. As of June 30, 2023, our total RPO was $18.3 billion. Of the total RPO as of June 30, 2023, we expect approximately 90% will be recognized as sales over the following 24 months.

Note 4: Accounts Receivable, Net

Accounts receivable, net consisted of the following as of June 30, 2023 and December 31, 2022:


(dollars in millions)	June 30, 2023		December 31, 2022
Trade receivables	$	3,353	$	3,231
Unbilled receivables	129		103
Miscellaneous receivables	91		91
Customer financing notes receivable	67		84
	3,640		3,509
Less: allowance for expected credit losses	143		152
Accounts receivable, net	$	3,497	$	3,357

The changes in allowance for expected credit losses related to Accounts receivable, net for the six months ended June 30, 2023 and 2022, respectively, are as follows:


	Six Months Ended June 30,
(dollars in millions)	2023		2022
Balance as of January 1	$	152	$	175
Provision for expected credit losses	18		4
Write-offs charged against the allowance for expected credit losses	(25)		(13)
Foreign exchange and other	(2)		—
Balance as of June 30	$	143	$	166

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Note 5: Inventories


(dollars in millions)	June 30, 2023		December 31, 2022
Raw materials and work-in-process	$	168	$	166
Finished goods	472		451
Total	$	640	$	617

Raw materials, work-in-process and finished goods are net of valuation write-downs of $95 million and $96 million as of June 30, 2023 and December 31, 2022, respectively.

Note 6: Business Acquisitions, Goodwill and Intangible Assets

Business Acquisitions. Our acquisitions of businesses and intangible assets, net of cash, totaled $20 million and $28 million in the six months ended June 30, 2023 and 2022, respectively. The acquisitions consisted of a number of acquisitions primarily in our Service segment. Transaction costs incurred were not considered significant.

Goodwill. Changes in our Goodwill balances during the six months ended June 30, 2023 were as follows:


(dollars in millions)	Balance as of December 31, 2022		Goodwill Resulting from Business Combinations		Foreign Currency Translation and Other		Balance as of June 30, 2023
New Equipment	$	292	$	—	$	1	$	293
Service	1,275		5		6		1,286
Total	$	1,567	$	5	$	7	$	1,579

Intangible Assets. Intangible assets cost and accumulated amortization were $2,052 million and $1,697 million, respectively, as of June 30, 2023, and $2,026 million and $1,657 million, respectively, as of December 31, 2022.

Amortization of intangible assets for the quarter and six months ended June 30, 2023 was $17 million and $34 million, respectively, compared to $18 million and $37 million for the same periods in 2022. Excluding the impact of currency translation adjustments, there were no other significant changes in our Intangible assets during the quarters and six months ended June 30, 2023 and 2022.

Held For Sale Assets and Liabilities. As of June 30, 2023 and December 31, 2022, assets held for sale were $11 million and $9 million, respectively, and are included in Other current assets in the Condensed Consolidated Balance Sheets.

In June 2022, we entered into an agreement to sell our business in Russia to a third party. As of June 30, 2022, our operations in Russia were classified as assets and liabilities held for sale, and the Company recorded an impairment loss of $18 million related to the net assets in Other expense (income), net in the Condensed Consolidated Statements of Operations for the quarter and six months ended June 30, 2022.

Note 7: Borrowings and Lines of Credit


(dollars in millions)	June 30, 2023		December 31, 2022
Commercial paper	$	156	$	94
Other borrowings	44		45
Total short-term borrowings	$	200	$	139

Commercial Paper. As of June 30, 2023, there were $156 million in borrowings outstanding under the Company's $1.5 billion commercial paper programs, including €30 million of Euro denominated commercial paper. We use our commercial paper borrowings for general corporate purposes including to finance acquisitions, pay dividends, repurchase shares 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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For details regarding the Company's short-term borrowing activity in 2022, refer to Note 10 of the Company's audited consolidated financial statements and notes thereto included in our 2022 Form 10-K.

Long-term debt. On March 10, 2023, the Company entered into a new credit agreement ("Credit Agreement") with various banks providing for a $1.5 billion unsecured, unsubordinated 5-year revolving credit facility, with an interest rate on US Dollar denominated borrowings at Otis' option of the Term Secured Overnight Financing Rate ("SOFR") plus 0.10% or a base rate, and an interest rate on Euro denominated borrowings at Otis' option of the EURIBO rate or a daily simple Euro Short Term Rate ("ESTR"), plus, in each case, an applicable margin. The applicable margin initially is 1.25% for Term SOFR rate, EURIBO rate and daily simple ESTR rate borrowings, and 0.25% for base rate borrowings, and can fluctuate determined by reference to Otis' public debt ratings, as specified in the Credit Agreement. As of June 30, 2023, there were no borrowings under the Credit Agreement. The undrawn portion of the Credit Agreement serves as a backstop for the issuance of commercial paper. On March 10, 2023, we also terminated all commitments outstanding under the previous existing credit agreement, which was scheduled to expire on April 3, 2025.

As of June 30, 2023, the Company is in compliance with all covenants in the revolving credit agreement and the indentures governing all outstanding long-term debt. Long-term debt consisted of the following:


(dollars in millions)	June 30, 2023		December 31, 2022

0.000% notes due 2023 (€500 million principal value)	$	546	$	531
2.056% notes due 2025	1,300		1,300
0.37% notes due 2026 (¥21.5 billion principal value)	150		163
0.318% notes due 2026 (€600 million principal value)	655		638
2.293% notes due 2027	500		500
2.565% notes due 2030	1,500		1,500
0.934% notes due 2031 (€500 million principal value)	546		531
3.112% notes due 2040	750		750
3.362% notes due 2050	750		750
Other (including finance leases)	4		8
Total principal long-term debt	6,701		6,671
Other (discounts and debt issuance costs)	(38)		(42)
Total long-term debt	6,663		6,629
Less: current portion	546		531
Long-term debt, net of current portion	$	6,117	$	6,098

We may redeem the notes at our option pursuant to certain terms. For additional details regarding the Company's debt activity in 2022, refer to Note 10 of the Company's audited consolidated financial statements and notes thereto included in our 2022 Form 10-K.

Debt discounts and 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 and six months ended June 30, 2023 and 2022 reflects the following:


	Quarter Ended June 30,				Six Months Ended June 30,
(dollars in millions)	2023		2022		2023		2022
Debt issuance costs amortization	$	2	$	2	$	4	$	5
Total interest expense on external debt	34		35		67		71

The unamortized debt issuance costs as of June 30, 2023 and December 31, 2022 were $38 million and $42 million, respectively.

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The weighted average maturity of our long-term debt as of June 30, 2023 is approximately 8.1 years. The weighted average interest expense rate on our borrowings outstanding as of June 30, 2023 and December 31, 2022 was as follows:


	June 30, 2023	December 31, 2022
Short-term borrowings	5.0%	4.7%
Total long-term debt	2.0%	2.0%

The weighted average interest expense rate on our borrowings during the quarters and six months ended June 30, 2023 and 2022 was as follows:


	Quarter Ended June 30,		Six Months Ended June 30,
	2023	2022	2023	2022
Short-term borrowings	4.9%	1.1%	4.9%	0.7%
Total long-term debt	2.0%	2.0%	2.0%	2.0%

Note 8: 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 June 30,				Six Months Ended June 30,
(dollars in millions)	2023		2022		2023		2022
Defined benefit plans	$	10	$	9	$	24