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October 26, 2020

Otis Reports Third Quarter 2020 Results

Delivers strong third quarter results; improves 2020 outlook

- Net sales down 1.4%; organic sales down 1.2%

- GAAP operating profit down $28 million with 60 basis points of margin contraction

- Adjusted operating profit up $33 million with 120 basis points of margin expansion

- New Equipment orders up slightly; backlog up 5%, 3% at constant currency

- GAAP cash flow from operations of $348 million; free cash flow of $311 million

- Improved outlook* for full-year organic sales, adjusted operating profit, adjusted EPS and free cash flow

FARMINGTON, Conn., Oct. 26, 2020 /PRNewswire/ -- Otis Worldwide Corporation (NYSE:OTIS) reported third quarter 2020 net sales of $3.3 billion, a decrease of 1.2% organically versus the prior year. GAAP diluted earnings per share (EPS) decreased 16.4% to $0.61 and adjusted diluted EPS increased 25.5% to $0.69.

"Otis had another strong quarter as we continued to grow share, build backlog, expand adjusted margin and generate robust cash flow. These outcomes again demonstrate the resiliency of our business, the strength of our strategy and the dedication of our colleagues around the world to provide essential services to our customers while introducing innovative solutions to grow our business," said President and CEO Judy Marks. "We are improving our 2020 outlook reflecting our ability to deliver on near-term commitments and execute our long-term strategy."

Key Figures

 

($ millions, except per
share amounts)

Quarter Ended September 30,

 

Nine Months Ended September 30,

2020

 

2019

 

Y/Y

 

Y/Y (CFX)

 

2020

 

2019

 

Y/Y

 

Y/Y (CFX)

Net sales

$

3,268

   

$

3,313

   

(1.4)

%

 

(1.6)

%

 

$

9,263

   

$

9,765

   

(5.1)

%

 

(3.7)

%

Organic sales

           

(1.2)

%

             

(3.3)

%

                               

GAAP

Operating profit

$

454

   

$

482

   

$

(28)

       

$

1,199

   

$

1,378

   

$

(179)

     

Operating profit margin

13.9

%

 

14.5

%

 

(60) bps

       

12.9

%

 

14.1

%

 

(120) bps

     

Net income

$

266

   

$

317

   

(16.1)

%

     

$

655

   

$

898

   

(27.1)

%

   

Earnings per share

$

0.61

   

$

0.73

   

(16.4)

%

     

$

1.51

   

$

2.07

   

(27.1)

%

   
                               

Adjusted non-GAAP comparison

Operating profit

$

503

   

$

470

   

$

33

   

$

30

   

$

1,410

   

$

1,399

   

$

11

   

$

33

 

Operating profit margin

15.4

%

 

14.2

%

 

120 bps

   

110 bps

   

15.2

%

 

14.3

%

 

90 bps

   

90 bps

Net income

$

302

   

$

241

   

25.3

%

     

$

808

   

$

766

   

5.5

%

   

Earnings per share

$

0.69

   

$

0.55

   

25.5

%

     

$

1.86

   

$

1.77

   

5.1

%

   

Third quarter net sales of $3.3 billion decreased 1.4% versus the prior year, with a 1.2% decline in organic sales. Organic sales declined low single digits in both the New Equipment and Service segments.

Third quarter GAAP operating profit of $454 million decreased $28 million from the prior year driven by segment operating profit decline of $18 million, including incremental public company standalone costs, and non-recurring separation costs, partially offset by favorable transactional foreign exchange. GAAP operating profit margin contracted 60 basis points to 13.9%.

Adjusted operating profit of $503 million increased $33 million and $30 million at constant currency. Operating profit growth at constant currency was driven by profit growth of $19 million in the Service segment, lower corporate costs and favorable transactional foreign exchange, partially offset by profit decline of $9 million in the New Equipment segment. Adjusted operating profit margin expanded 120 basis points to 15.4%, with continued margin expansion in the Service segment.

GAAP EPS of $0.61 decreased $0.12, driven by the decline in operating profit and higher interest expense. Adjusted EPS of $0.69 increased $0.14, driven by adjusted operating profit growth and a lower adjusted tax rate.

Year-to-date net sales declined 5.1% versus the prior year, with a 3.3% decline in organic sales and 1.8% headwind from foreign exchange and the impact from divestitures. GAAP operating profit decreased $179 million, with margin contraction of 120 basis points primarily due to higher non-recurring separation costs, incremental public company standalone costs and a one-time charge taken in the first quarter. Adjusted operating profit increased $33 million at constant currency and margin expanded 90 basis points driven by strong performance in the Service segment.

New Equipment Segment

 
 

Quarter Ended September 30,

 

Nine Months Ended September 30,

($ millions)

2020

 

2019

 

Y/Y

 

Y/Y (CFX)

 

2020

 

2019

 

Y/Y

 

Y/Y (CFX)

Net sales

$

1,423

   

$

1,450

   

(1.9)

%

 

(1.6)

%

 

$

3,840

   

$

4,221

   

(9.0)

%

 

(7.3)

%

Organic sales

           

(1.0)

%

             

(7.0)

%

                               

GAAP

Operating profit

$

95

   

$

115

   

$

(20)

       

$

238

   

$

312

   

$

(74)

     

Operating profit margin

6.7

%

 

7.9

%

 

(120) bps

     

6.2

%

 

7.4

%

 

(120) bps

   
                               

Adjusted non-GAAP comparison

Operating profit

$

102

   

$

114

   

$

(12)

   

$

(9)

   

$

258

   

$

320

   

$

(62)

   

$

(52)

 

Operating profit margin

7.2

%

 

7.9

%

 

(70) bps

 

(50) bps

 

6.7

%

 

7.6

%

 

(90) bps

 

(80) bps

                                                               

In the third quarter, net sales of $1.4 billion decreased 1.9% with a 1.0% decline in organic sales. Organic sales were down low single digits in EMEA and down slightly in Asia and the Americas. China organic sales were up mid-single digits as the business continued to recover from the impacts of COVID-19.

GAAP operating profit decreased $20 million to $95 million. Adjusted operating profit decreased $12 million to $102 million as material productivity and cost containment actions were more than offset by under-absorption, other field inefficiencies, unfavorable mix and headwinds from foreign exchange. GAAP operating profit was also impacted by incremental public company standalone costs and higher restructuring costs. GAAP and adjusted operating profit margin contracted 120 and 70 basis points, respectively. 

New Equipment orders were up slightly at constant currency with low single digit growth in EMEA and Asia, partially offset by low single digit decline in the Americas. New Equipment orders in China were strong, up high single digits. New equipment backlog at constant currency increased 3% versus prior year.

Year-to-date net sales declined 9.0% with a 7.0% organic decline. GAAP operating profit declined $74 million with margin contraction of 120 basis points and adjusted operating profit, at constant currency, declined $52 million and margin contracted 80 basis points.

Service Segment

 
 

Quarter Ended September 30,

 

Nine Months Ended September 30,

($ millions)

2020

 

2019

 

Y/Y

 

Y/Y (CFX)

 

2020

 

2019

 

Y/Y

 

Y/Y (CFX)

Net sales

$

1,845

   

$

1,863

   

(1.0)

%

 

(1.7)

%

 

$

5,423

   

$

5,544

   

(2.2)

%

 

(1.1)

%

Organic sales

           

(1.4)

%

             

(0.5)

%

                               

GAAP

Operating profit

$

409

   

$

407

   

$

2

       

$

1,190

   

$

1,181

   

$

9

     

Operating profit margin

22.2

%

 

21.8

%

 

40 bps

     

21.9

%

 

21.3

%

 

60 bps

   
                               

Adjusted non-GAAP comparison

Operating profit

$

422

   

$

397

   

$

25

   

$

19

   

$

1,216

   

$

1,180

   

$

36

   

$

47

 

Operating profit margin

22.9

%

 

21.3

%

 

160 bps

 

140 bps

 

22.4

%

 

21.3

%

 

110 bps

 

110 bps

                                                               

In the third quarter, net sales of $1.8 billion decreased 1.0%, with a 1.4% decline in organic sales. Organic maintenance and repair sales declined 1.3% and organic modernization sales declined 2.1%.

GAAP operating profit increased $2 million to $409 million. Adjusted operating profit increased $25 million to $422 million as the benefit from productivity and cost containment actions and a $6 million tailwind from foreign exchange more than offset the impact from lower volume and price concessions. GAAP operating profit was also impacted by incremental public company standalone costs and higher restructuring costs. GAAP and adjusted operating profit margin expanded 40 and 160 basis points, respectively.

Year-to-date net sales declined 2.2% from a slight decline in organic sales and a 1.7% headwind from foreign exchange and the impact of net acquisitions and divestitures. GAAP operating profit increased $9 million with margin expansion of 60 basis points and adjusted operating profit, at constant currency, increased $47 million with margin expansion of 110 basis points.

Cash flow

 
 

Quarter Ended September 30,

 

Nine Months Ended September 30,

($ millions)

2020

 

2019

 

Y/Y

 

2020

 

2019

 

Y/Y

Cash flow from operations

$

348

   

$

364

   

$

(16)

   

$

1,171

   

$

1,015

   

$

156

 

Free cash flow

$

311

   

$

329

   

$

(18)

   

$

1,059

   

$

917

   

$

142

 

Free cash flow conversion

117

%

 

104

%

     

162

%

 

102

%

   

Third quarter cash from operations of $348 million decreased $16 million versus prior year primarily driven by lower GAAP net income. Third quarter free cash flow of $311 million decreased $18 million versus prior year.

Year-to-date cash from operations of $1.2 billion increased $156 million and free cash flow increased $142 million to $1.1 million.

2020 Outlook*

Otis is improving its full year outlook to reflect strong year-to-date performance and anticipated recovery profile.

  • Net sales down 3 to 4%
  • Organic sales down 2 to 3%
    • Organic New Equipment sales down mid to high single digits
    • Organic Service sales flat to down slightly
  • Adjusted operating profit up $30 to $40 million at constant currency and up $5 to $15 million at actual currency
  • Adjusted EPS of approximately $2.42; adjusted effective tax rate of ~30.5%
  • Free cash flow of approximately $1.15 billion with conversion of approximately 135% of GAAP net income

*Note: When we provide outlook for organic sales, adjusted operating profit, adjusted effective tax rate and free cash flow on a forward-looking basis, a reconciliation of the differences between the non-GAAP expectations and the corresponding GAAP measures generally is not available without unreasonable effort. See "Use and Definitions of Non-GAAP Financial Measures" below for additional information.

About Otis

Otis is the world's leading elevator and escalator manufacturing, installation and service company. We move 2 billion people a day and maintain more than 2 million customer units worldwide, the industry's largest maintenance portfolio. Headquartered in Connecticut, USA, Otis is 69,000 people strong, including 40,000 field professionals, all committed to meeting the diverse needs of our customers and passengers in more than 200 countries and territories worldwide. For more information, visit www.otis.com and follow us on LinkedIn, Instagram, Facebook  and Twitter @OtisElevatorCo.

Use and Definitions of Non-GAAP Financial Measures

Otis Worldwide Corporation ("Otis") reports its financial results in accordance with accounting principles generally accepted in the United States ("GAAP"). We supplement the reporting of our financial information determined under GAAP with certain non-GAAP financial information. The non-GAAP information presented provides investors with additional useful information, but should not be considered in isolation or as substitutes for the related GAAP measures. Moreover, other companies may define non-GAAP measures differently, which limits the usefulness of these measures for comparisons with such other companies. We encourage investors to review our financial statements and publicly filed reports in their entirety and not to rely on any single financial measure. A reconciliation of the non-GAAP measures (referenced in this press release) to the corresponding amounts prepared in accordance with GAAP appears in the attached tables. These tables provide additional information as to the items and amounts that have been excluded from the adjusted measures. 

Organic sales, adjusted selling, general and administrative ("SG&A") expense, earnings before interest taxes and depreciation ("EBITDA"), adjusted EBITDA, adjusted operating profit, adjusted net income, adjusted diluted earnings per share ("EPS"), adjusted effective tax rate and free cash flow are non-GAAP financial measures.

Organic sales represents consolidated net sales (a GAAP measure), excluding the impact of foreign currency translation, acquisitions and divestitures completed in the preceding twelve months and other significant items of a non-recurring and/or nonoperational nature ("other significant items"). Management believes organic sales is a useful measure in providing period-to-period comparisons of the results of the Company's ongoing operational performance.

Adjusted SG&A expense represents SG&A expense (a GAAP measure), excluding restructuring costs, other significant items and allocated costs for certain functions and services previously performed by United Technologies Corporation ("UTC") prior to our separation ("UTC allocated costs") and including estimated standalone public company costs, as though Otis' operations had been conducted independently from UTC ("standalone costs"). Standalone costs for the 2019 fiscal year are based on quarterly estimates determined during Otis' annual planning process for the 2020 fiscal year.

Adjusted operating profit represents income from continuing operations (a GAAP measure), excluding restructuring costs, other significant items and allocated costs for certain functions and UTC allocated costs and including estimated standalone public company costs.

Adjusted net income represents net income from continuing operations (a GAAP measure), excluding restructuring costs and other significant items and UTC allocated costs and including estimated standalone public company costs, estimated adjustments to non-service pension expense, net interest expense and income tax expense as if Otis was a standalone public company ("standalone operating income adjustments"). Adjusted EPS represents diluted earnings per share from continuing operations (a GAAP measure), adjusted for the per share impact of restructuring, other significant items and standalone operating income adjustments.

The adjusted effective tax rate represents the effective tax rate (a GAAP measure) adjusted for the tax impact of restructuring costs, significant items and the tax impact of the additional adjustments (estimated standalone public company costs, interest expense and non-service pension expense).

EBITDA represents net income from operations (a GAAP measure), adjusted for noncontrolling interests, income tax expense, net interest expense, non-service pension expense and depreciation and amortization. Adjusted EBITDA represents EBITDA, as calculated above, adjusted for the impact of restructuring, other significant items and UTC allocated costs, including estimated standalone public company costs. Management believes that adjusted SG&A, EBITDA, adjusted EBITDA, adjusted operating profit, adjusted net income, adjusted EPS and the adjusted effective tax rate are useful measures in providing period-to-period comparisons of the results of the Company's ongoing operational performance as if it had been a standalone public company.

Additionally, GAAP financial results include the impact of changes in foreign currency exchange rates ("AFX"). We use the non-GAAP measure "at constant currency" or "CFX" to show changes in our financial results without giving effect to period-to-period currency fluctuations. Under U.S. GAAP, income statement results are translated in U.S. dollars at the average exchange rate for the period presented. Management believes that this non-GAAP measure is useful in providing period-to-period comparisons of the results of the Company's ongoing operational performance.

Free cash flow is a non-GAAP financial measure that represents cash flow from operations (a GAAP measure) less capital expenditures. Management believes free cash flow is a useful measure of liquidity and an additional basis for assessing Otis' ability to fund its activities, including the financing of acquisitions, debt service, repurchases of common stock and distribution of earnings to shareholders.

When we provide our expectations for organic sales, adjusted operating profit, adjusted net income, adjusted effective tax rate, adjusted EPS and free cash flow on a forward-looking basis, a reconciliation of the differences between the non-GAAP expectations and the corresponding GAAP measures (expected diluted EPS from continuing operations, operating profit, the effective tax rate, net sales and expected cash flow from operations) generally is not available without unreasonable effort due to potentially high variability, complexity and low visibility as to the items that would be excluded from the GAAP measure in the relevant future period, such as unusual gains and losses, the ultimate outcome of pending litigation, fluctuations in foreign currency exchange rates, the impact and timing of potential acquisitions and divestitures, and other structural changes or their probable significance. The variability of the excluded items may have a significant, and potentially unpredictable, impact on our future GAAP results.

Cautionary Statement
This communication contains statements which, to the extent they are not statements of historical or present fact, constitute "forward-looking statements" under the securities laws. From time to time, oral or written forward-looking statements may also be included in other information released to the public. These forward-looking statements are intended to provide management's current expectations or plans for Otis' future operating and financial performance, based on assumptions currently believed to be valid. Forward-looking statements can be identified by the use of words such as "believe," "expect," "expectations," "plans," "strategy," "prospects," "estimate," "project," "target," "anticipate," "will," "should," "see," "guidance," "outlook," "confident" and other words of similar meaning in connection with a discussion of future operating or financial performance or the separation and distribution. Forward-looking statements may include, among other things, statements relating to future sales, earnings, cash flow, results of operations, uses of cash, dividends, share repurchases, tax rates and other measures of financial performance or potential future plans, strategies or transactions of Otis following its separation from United Technologies Corporation, including the estimated costs associated with the separation and distribution and other statements that are not historical facts. All forward-looking statements involve risks, uncertainties and other factors that may cause actual results to differ materially from those expressed or implied in the forward-looking statements. For those statements, Otis claims the protection of the safe harbor for forward-looking statements contained in the U.S. Private Securities Litigation Reform Act of 1995. Such risks, uncertainties and other factors include, without limitation: (1) the effect of economic conditions in the industries and markets in which Otis and its businesses operate in the U.S. and globally and any changes therein, including financial market conditions, fluctuations in commodity prices, interest rates and foreign currency exchange rates, levels of end market demand in construction, the impact of weather conditions, pandemic health issues (including COVID-19 and its effects, among other things, on global supply, demand, and distribution disruptions as the outbreak continues and results in an increasingly prolonged period of travel, commercial and/or other similar restrictions and limitations), natural disasters and the financial condition of Otis' customers and suppliers; (2) challenges in the development, production, delivery, support, performance and realization of the anticipated benefits of advanced technologies and new products and services; (3) future levels of indebtedness and capital spending and research and development spending; (4) future availability of credit and factors that may affect such availability, including credit market conditions and Otis' capital structure; (5) the timing and scope of future repurchases of Otis' common stock, which may be suspended at any time due to various factors, including market conditions and the level of other investing activities and uses of cash; (6) delays and disruption in delivery of materials and services from suppliers; (7) cost reduction efforts and restructuring costs and savings and other consequences thereof; (8) new business and investment opportunities; (9) the anticipated benefits of moving away from diversification and balance of operations across product lines, regions and industries; (10) the outcome of legal proceedings, investigations and other contingencies; (11) pension plan assumptions and future contributions; (12) the impact of the negotiation of collective bargaining agreements and labor disputes; (13) the effect of changes in political conditions in the U.S. and other countries in which Otis and its businesses operate, including the effect of changes in U.S. trade policies or the United Kingdom's withdrawal from the European Union, on general market conditions, global trade policies and currency exchange rates in the near term and beyond; (14) the effect of changes in tax, environmental, regulatory (including among other things import/export) and other laws and regulations in the U.S. and other countries in which Otis and its businesses operate; (15) the ability of Otis to retain and hire key personnel; (16) the scope, nature, impact or timing of acquisition and divestiture activity, including among other things integration of acquired businesses into existing businesses and realization of synergies and opportunities for growth and innovation and incurrence of related costs; (17) the expected benefits of the separation and distribution; (18) the determination by the Internal Revenue Service and other tax authorities that the distribution or certain related transactions should be treated as taxable transactions; (19) risks associated with indebtedness incurred as a result of financing transactions undertaken in connection with the separation; (20) the risk that dis-synergy costs, costs of restructuring transactions and other costs incurred in connection with the separation will exceed Otis' estimates; and (21) the impact of the separation on Otis' businesses and Otis' resources, systems, procedures and controls, diversion of management's attention and the impact on relationships with customers, suppliers, employees and other business counterparties. The above list of factors is not exhaustive or necessarily in order of importance. For additional information on identifying factors that may cause actual results to vary from those stated in forward-looking statements, see Otis' registration statements on Form 10 and Form S-3 and the reports of Otis on Forms 10-K, 10-Q and 8-K filed with or furnished to the SEC from time to time. Any forward-looking statement speaks only as of the date on which it is made, and Otis assumes no obligation to update or revise such statement, whether as a result of new information, future events or otherwise, except as required by applicable law.

Media Contact: Ray Hernandez
+1-860-674-3029
Ray.Hernandez@otis.com

IR Contact:   Stacy Laszewski
+1-860-676-6011
investorrelations@otis.com

 

Otis Worldwide Corporation

Condensed Consolidated Statements of Operations

 
   

Quarter Ended September 30,

 

Nine Months Ended September 30,

   

(Unaudited)

 

(Unaudited)

(amounts in millions, except per share amounts)

2020

 

2019

 

2020

 

2019

Net Sales

$

3,268

   

$

3,313

   

$

9,263

   

$

9,765

 

Costs and Expenses:

             
 

Cost of products and services sold

2,289

   

2,338

   

6,496

   

6,905

 
 

Research and development

37

   

39

   

112

   

118

 
 

Selling, general and administrative

481

   

444

   

1,387

   

1,329

 
 

Total Costs and Expenses

2,807

   

2,821

   

7,995

   

8,352

 

Other income (expense), net

(7)

   

(10)

   

(69)

   

(35)

 

Operating profit

454

   

482

   

1,199

   

1,378

 
 

Non-service pension expense (benefit)

2

   

(16)

   

   

(38)

 
 

Interest expense (income), net

39

   

(6)

   

85

   

(8)

 

Net income before income taxes

413

   

504

   

1,114

   

1,424

 
 

Income tax expense

103

   

143

   

337

   

411

 

Net income

310

   

361

   

777

   

1,013

 
 

Less: Noncontrolling interest in subsidiaries' earnings

44

   

44

   

122

   

115

 

Net income attributable to common shareholders

$

266

   

$

317

   

$

655

   

$

898

 

Earnings Per Share of Common Stock:

             
 

Basic

$

0.61

   

$

0.73

   

$

1.51

   

$

2.07

 
 

Diluted

$

0.61

   

$

0.73

   

$

1.51

   

$

2.07

 

Weighted Average Number of Shares Outstanding:

             
 

Basic shares

433.2

   

433.1

   

433.1

   

433.1

 
 

Diluted Shares

435.1

   

433.1

   

434.1

   

433.1

 

 

Otis Worldwide Corporation

Segment Net Sales and Operating Profit

 
 

Quarter Ended September 30,

 

Quarter Ended September 30,

 

(Unaudited)

 

(Unaudited)

(dollars in millions)

2020

 

2019

 

Reported

 

Adjusted

 

Reported

 

Adjusted

Net Sales

             

New Equipment

$

1,423

   

$

1,423

   

$

1,450

   

$

1,450

 

Service

1,845

   

1,845

   

1,863

   

1,863

 

Consolidated Net Sales

$

3,268

   

$

3,268

   

$

3,313

   

$

3,313

 
               

Operating Profit

             

New Equipment

$

95

   

$

102

   

$

115

   

$

114

 

Service

409

   

422

   

407

   

397

 

Segment Operating Profit

504

   

524

   

522

   

511

 

General corporate expenses and other

(50)

   

(21)

   

(40)

   

(41)

 

Consolidated Operating Profit

$

454

   

$

503

   

$

482

   

$

470

 
               

Segment Operating Profit Margin

             

New Equipment

6.7

%

 

7.2

%

 

7.9

%

 

7.9

%

Service

22.2

%

 

22.9

%

 

21.8

%

 

21.3

%

Total Operating Profit Margin

13.9

%

 

15.4

%

 

14.5

%

 

14.2

%

 
 

Nine Months Ended September 30,

 

Nine Months Ended September 30,

 

(Unaudited)

 

(Unaudited)

(dollars in millions)

2020

 

2019

 

Reported

 

Adjusted

 

Reported

 

Adjusted

Net Sales

             

New Equipment

$

3,840

   

$

3,840

   

$

4,221

   

$

4,221

 

Service

5,423

   

5,423

   

5,544

   

5,544

 

Consolidated Net Sales

$

9,263

   

$

9,263

   

$

9,765

   

$

9,765

 
               

Operating Profit

             

New Equipment

$

238

   

$

258

   

$

312

   

$

320

 

Service

1,190

   

1,216

   

1,181

   

1,180

 

Segment Operating Profit

1,428

   

1,474

   

1,493

   

1,500

 

General corporate expenses and other

(229)

   

(64)

   

(115)

   

(101)

 

Consolidated Operating Profit

$

1,199

   

$

1,410

   

$

1,378

   

$

1,399

 
               

Segment Operating Profit Margin

             

New Equipment

6.2

%

 

6.7

%

 

7.4

%

 

7.6

%

Service

21.9

%

 

22.4

%

 

21.3

%

 

21.3

%

Total Operating Profit Margin

12.9

%

 

15.2

%

 

14.1

%

 

14.3

%

 

Otis Worldwide Corporation

Reconciliation of Reported (GAAP) to Adjusted Operating Profit & Operating Profit Margin

 
 

Quarter Ended September 30,

 

Nine Months Ended September 30,

 

(Unaudited)

 

(Unaudited)

(dollars in millions)

2020

 

2019

 

2020

 

2019

New Equipment

             

Net sales

$

1,423

   

$

1,450

   

$

3,840

   

$

4,221

 

GAAP Operating profit

95

   

115

   

238

   

312

 

Restructuring

7

   

2

   

20

   

16

 

  UTC allocated corporate expenses

   

1

   

   

4

 

  Public company standalone costs1

   

(5)

   

   

(12)

 

 Other

   

1

   

   

 

Adjusted New Equipment Operating Profit

$

102

   

$

114

   

$

258

   

$

320

 

Adjusted operating profit margin

7.2

%

 

7.9

%

 

6.7

%

 

7.6

%

Service

             

Net sales

$

1,845

   

$

1,863

   

$

5,423

   

$

5,544

 

GAAP Operating profit

409

   

407

   

1,190

   

1,181

 

Restructuring

13

   

1

   

26

   

28

 

  UTC allocated corporate expenses

   

3

   

   

10

 

  Public company standalone costs1

   

(15)

   

   

(40)

 

 Other

   

1

   

   

1

 

Adjusted Service Operating Profit

$

422

   

$

397

   

$

1,216

   

$

1,180

 

Adjusted Operating Profit Margin

22.9

%

 

21.3

%

 

22.4

%

 

21.3

%

               

General corporate expenses and other

             

General corporate expenses and other

$

(21)

   

$

(41)

   

$

(64)

   

$

(101)

 

Adjusted Total Operating Profit

$

503

   

$

470

   

$

1,410

   

$

1,399

 
               

Total Otis

             

GAAP Operating profit

$

454

   

$

482

   

$

1,199

   

$

1,378

 

Restructuring

20

   

4

   

46

   

44

 

   Loss on disposal of business

   

(1)

   

   

18

 

   One-time separation costs

29

   

7

   

82

   

10

 

   Fixed asset impairment  

   

   

67

   

 

   UTC allocated corporate expenses

   

20

   

16

   

56

 

  Public company standalone costs1

   

(41)

   

   

(105)

 

Other

   

(1)

   

   

(2)

 

Adjusted Total Operating Profit

$

503

   

$

470

   

$

1,410

   

$

1,399

 

Adjusted Operating Profit Margin

15.4

%

 

14.2

%

 

15.2

%

 

14.3

%

 

1

- Public company standalone costs represent estimated costs such as personnel costs, risk management and incentive
compensation that have been incurred and are reflected in results for the quarter and nine months ended September 30,
2020 and are not adjusted.  For the quarter ended and nine months ended September 30, 2019, these standalone costs
have been included in the adjustments, as though Otis' operations had been conducted independently from UTC. 

 

Otis Worldwide Corporation

Reconciliation of Reported (GAAP) to Adjusted (Non-GAAP) Net Income, Earnings Per Share, and Effective Tax Rate

 
 

Quarter Ended
September 30,

 

Nine Months Ended
September 30,

 

(Unaudited)

 

(Unaudited)

(dollars in millions, except per share amounts)

2020

 

2019

 

2020

 

2019

Adjusted Operating Profit

$

503

   

$

470

   

$

1,410

   

$

1,399

 

Non-service pension cost (benefit)3

2

   

(4)

   

   

(5)

 

Net interest expense2

(39)

   

(48)

   

(85)

   

(111)

 

Adjusted income from operations before income taxes

462

   

418

   

1,325

   

1,283

 

Income tax expense

103

   

143

   

337

   

411

 

Tax impact on restructuring and non-recurring items

8

   

2

   

47

   

11

 

Tax impact on other adjustments

   

(14)

   

   

(29)

 

Non-recurring tax items

5

   

2

   

11

   

9

 

Adjusted net income from operations

346

   

285

   

930

   

881

 

Noncontrolling interest

44

   

44

   

122

   

115

 

Adjusted net income attributable to common shareholders

$

302

   

$

241

   

$

808

   

$

766

 
               

GAAP income attributable to common shareholders

$

266

   

$

317

   

$

655

   

$

898

 

Restructuring

20

   

4

   

46

   

44

 

Loss on disposal of business

   

(1)

   

   

18

 

One-time separation costs

29

   

7

   

82

   

10

 

Fixed asset impairment

   

   

67

   

 

UTC allocated corporate expenses

   

20

   

16

   

56

 

Public company standalone costs1

   

(41)

   

   

(105)

 

Non-service pension cost3

   

(20)

   

   

(43)

 

Net interest expense2

   

(54)

   

   

(119)

 

Other

   

(1)

   

   

(2)

 

Tax effects of restructuring, non-recurring items and other adjustments

(8)

   

12

   

(47)

   

18

 

Non-recurring tax items

(5)

   

(2)

   

(11)

   

(9)

 

Adjusted net income attributable to common shareholders

$

302

   

$

241

   

$

808

   

$

766

 
               

Diluted Earnings Per Share

$

0.61

   

$

0.73

   

$

1.51

   

$

2.07

 

  Impact to diluted earnings per share

0.08

   

(0.18)

   

0.35

   

(0.30)

 

Adjusted Diluted Earnings Per Share

$

0.69

   

$

0.55

   

$

1.86

   

$

1.77

 
               

Effective Tax Rate

24.9

%

 

28.4

%

 

30.2

%

 

28.9

%

  Impact of adjustments on effective tax rate

0.3

%

 

3.4

%

 

(0.4)

%

 

2.4

%

Adjusted Effective Tax Rate

25.2

%

 

31.8

%

 

29.8

%

 

31.3

%

 

1

- Public company standalone costs represent estimated costs such as personnel costs, risk management and incentive compensation that have been incurred
and are reflected in results for the quarter ended and nine months ended September 30, 2020 and are not adjusted.  For the quarter ended and nine months
ended September 30, 2019, these standalone costs have been included in the adjustments, as though Otis' operations had been conducted independently from UTC. 

2

- Otis issued debt and began to incur interest expenses in February 2020 associated with the debt issuance.  The current quarter year-to-date actual interest expense
incurred has been reflected in the comparative period in 2019 as though Otis incurred those expenses in the prior year.

3

- Non-service pension included in GAAP net income attributable to Otis includes amounts associated with Otis' participation in UTC retained pension plans. The
amounts related to these plans are removed from Otis' results in 2019, as though Otis' operations had been conducted independently from UTC.  


 

Otis Worldwide Corporation 

Components of Changes in Net Sales

 

Quarter Ended September 30, 2020 Compared with Quarter Ended September 30, 2019

   
   

Factors Contributing to Total % Change in Net Sales

   

Organic

 

 

FX
Translation

 

Acquisitions /
Divestitures,
net

 

Other

 

Total

New Equipment

 

(1.0)%

 

(0.3)%

 

(0.1)%

 

(0.5)%

 

(1.9)%

Service

 

(1.4)%

 

0.7%

 

(0.3)%

 

—%

 

(1.0)%

Maintenance and Repair

 

(1.3)%

 

0.7%

 

(0.1)%

 

—%

 

(0.7)%

Modernization

 

(2.1)%

 

0.6%

 

(0.9)%

 

—%

 

(2.4)%

Total Net Sales

 

(1.2)%

 

0.2%

 

(0.2)%

 

(0.2)%

 

(1.4)%

                     
                     

Nine Months Ended September 30, 2020 Compared with Nine Months Ended September 30, 2019

   
             
   

Factors Contributing to Total % Change in Net Sales

   

Organic

 

FX
Translation

 

Acquisitions /
Divestitures,
net

 

Other

 

Total

New Equipment

 

(7.0)%

 

(1.7)%

 

(0.1)%

 

(0.2)%

 

(9.0)%

Service

 

(0.5)%

 

(1.1)%

 

(0.6)%

 

—%

 

(2.2)%

Maintenance and Repair

 

(0.8)%

 

(1.1)%

 

(0.4)%

 

—%

 

(2.3)%

Modernization

 

0.9%

 

(0.9)%

 

(1.5)%

 

—%

 

(1.5)%

Total Net Sales

 

(3.3)%

 

(1.4)%

 

(0.4)%

 

—%

 

(5.1)%

                     
                     
                     
                     

 

Components of New Equipment Backlog

         
 

Growth %

             
 

Q3 2020

             

New Equipment Backlog increase at actual currency

5.0%

             

Foreign exchange impact to New Equipment Backlog

(2.0)%

             

New Equipment Backlog at constant currency

3.0%

             

 

Otis Worldwide Corporation

Reconciliation of Adjusted Operating Profit at Constant Currency

 

Quarter Ended September 30, 2020 Compared with Quarter Ended September 30, 2019

   
             

(dollars in millions)

 

2020

 

2019

 

Y/Y

New Equipment

           

Adjusted Operating Profit

 

$

102

   

$

114

   

$

(12)

 

Impact of foreign exchange

 

3

   

   

3

 

Adjusted Operating Profit at constant currency

 

$

105

   

$

114

   

$

(9)

 
             

Service

           

Adjusted Operating Profit

 

$

422

   

$

397

   

$

25

 

Impact of foreign exchange

 

(6)

   

   

(6)

 

Adjusted Operating Profit at constant currency

 

$

416

   

$

397

   

$

19

 
             

Otis Consolidated

           

Adjusted Operating Profit

 

$

503

   

$

470

   

$

33

 

Impact of foreign exchange

 

(3)

   

   

(3)

 

Adjusted Operating Profit at constant currency

 

$

500

   

$

470

   

$

30

 
             
             

Nine Months Ended September 30, 2020 Compared with Nine Months Ended September 30, 2019

   
             

(dollars in millions)

 

2020

 

2019

 

Y/Y

New Equipment

           

Adjusted Operating Profit

 

$

258

   

$

320

   

$

(62)

 

Impact of foreign exchange

 

10

   

   

10

 

Adjusted Operating Profit at constant currency

 

$

268

   

$

320

   

$

(52)

 
             

Service

           

Adjusted Operating Profit

 

$

1,216

   

$

1,180

   

$

36

 

Impact of foreign exchange

 

11

   

   

11

 

Adjusted Operating Profit at constant currency

 

$

1,227

   

$

1,180

   

$

47

 
             

Otis Consolidated

           

Adjusted Operating Profit

 

$

1,410

   

$

1,399

   

$

11

 

Impact of foreign exchange

 

22

   

   

22

 

Adjusted Operating Profit at constant currency

 

$

1,432

   

$

1,399

   

$

33

 

 

Otis Worldwide Corporation

Condensed Consolidated Balance Sheet

 
 

September 30, 2020

 

December 31, 2019

(amounts in millions, except per share amounts)

(Unaudited)

 

(Unaudited)

Assets

     

Cash and cash equivalents

$

1,733

   

$

1,446

 

Accounts receivable, net

2,958

   

2,861

 

Contract assets

481

   

529

 

Inventories, net

667

   

571

 

Other current assets

432

   

251

 

Total Current Assets

6,271

   

5,658

 

Future income tax benefits

456

   

373

 

Fixed assets, net

721

   

721

 

Operating lease right-of-use assets

548

   

535

 

Intangible assets, net

489

   

490

 

Goodwill

1,700

   

1,647

 

Other assets

288

   

263

 

Total Assets

$

10,473

   

$

9,687

 
       

Liabilities and (Deficit) Equity

     

Short-term borrowings

$

538

   

$

34

 

Accounts payable

1,392

   

1,331

 

Accrued liabilities

1,858

   

1,739

 

Contract liabilities

2,503

   

2,270

 

Total Current Liabilities

6,291

   

5,374

 

Long-term debt

5,512

   

5

 

Future pension and postretirement benefit obligations

601

   

590

 

Operating lease liabilities

375

   

386

 

Future income tax obligations

448

   

695

 

Other long-term liabilities

629

   

311

 

Total Liabilities

13,856

   

7,361

 
       

Redeemable noncontrolling interest

98

   

95

 

Shareholders' (Deficit) Equity:

     

Preferred Stock, $0.01 par value, 125 share authorized; None issued or outstanding

   

 

Common Stock, $0.01 par value, 2,000 shares authorized; 433.2 shares issued and
outstanding

4

   

 

Additional paid-in capital

32

   

 

Accumulated deficit

(3,241)

   

 

UTC Net Investment

   

2,458

 

Accumulated other comprehensive loss

(819)

   

(758)

 

Total Shareholders' (Deficit) Equity

(4,024)

   

1,700

 

Noncontrolling interest

543

   

531

 

Total (Deficit) Equity

(3,481)

   

2,231

 

Total Liabilities and (Deficit) Equity

$

10,473

   

$

9,687

 

 

Debt Ratios:

     

Debt to total capitalization

236

%

 

2

%

Net debt to net capitalization

516

%

 

(171)

%

Debt to total capitalization equals total debt divided by total debt plus equity. Net debt to net capitalization equals total debt less cash and cash equivalents divided by total debt plus equity less cash and cash equivalents.

Otis Worldwide Corporation

Condensed Consolidated Statement of Cash Flows

 
 

Quarter Ended
September 30,

 

Nine Months Ended
September 30,

 

(Unaudited)

 

(Unaudited)

(dollars in millions)

2020

 

2019

 

2020

 

2019

Operating Activities:

             

Net income from operations

$

310

   

$

361

   

$

777

   

$

1,013

 

Adjustments to reconcile net income to net cash flows provided by
operating activities:

             

Depreciation and amortization

48

   

44

   

140

   

135

 

Stock compensation cost

17

   

13

   

44

   

29

 

Loss on fixed asset impairment

   

   

55

   

 

Loss on disposal of business

   

   

   

19

 

Change in:

             

Accounts receivable, net

(20)

   

(59)

   

(79)

   

(153)

 

Contract assets and liabilities, current

11

   

31

   

277

   

108

 

Inventories, net

(30)

   

7

   

(101)

   

31

 

Accounts payable

2

   

(10)

   

19

   

(42)

 

Pension contributions

(8)

   

(7)

   

(28)

   

(25)

 

Other operating activities, net

18

   

(16)

   

67

   

(100)

 

Net cash flows provided by operating activities

348

   

364

   

1,171

   

1,015

 

Investing Activities:

             

Capital expenditures

(37)

   

(35)

   

(112)

   

(98)

 

Investments in businesses, net of cash acquired

(34)

   

(7)

   

(50)

   

(39)

 

Investments in equity securities

   

   

(51)

   

 

Other investing activities, net

(76)

   

(16)

   

(76)

   

(13)

 

Net cash flows used in investing activities

(147)

   

(58)

   

(289)

   

(150)

 

Financing Activities:

             

Issuance of long-term debt, net

   

   

6,300

   

 

Payment of long-term debt issuance costs

   

   

(43)

   

 

Repayment of long-term debt

(750)

   

   

(750)

   

 

Increase in short-term borrowings, net

509

   

2

   

510

   

18

 

Net transfers from (to) UTC

   

(268)

   

(6,330)

   

(598)

 

Dividends paid on common stock

(86)

   

   

(173)

   

 

Dividends paid to noncontrolling interest

(82)

   

(77)

   

(125)

   

(132)

 

Other financing activities, net

   

2

   

22

   

18

 

Net cash flows provided by (used in) financing activities

(409)

   

(341)

   

(589)

   

(694)

 

Summary of Activity:

             

Net cash provided by operating activities

348

   

364

   

1,171

   

1,015

 

Net cash used in investing activities

(147)

   

(58)

   

(289)

   

(150)

 

Net cash provided by (used in) financing activities

(409)

   

(341)

   

(589)

   

(694)

 

Effect of foreign exchange rate changes on cash and cash equivalents

33

   

(45)

   

   

(41)

 

Net increase in cash, cash equivalents and restricted cash

(175)