SEC Filing | Otis Elevator Company

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otis-20200630

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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, 2020


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-39221

____________________________________

OTIS WORLDWIDE CORPORATION

(Exact name of registrant as specified in its charter)

____________________________________


Delaware						83-3789412
(State or other jurisdiction of incorporation)						(I.R.S. Employer Identification No.)

One Carrier Place, Farmington, Connecticut 06032

(Address of principal executive offices, including zip code)

(860) 233-6847

(Registrant's telephone number, including area code)

____________________________________

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock ($0.01 par value)	OTIS	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 ¨.

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. ¨

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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐. No ý.

At June 30, 2020 there were 433,079,455 shares of Common Stock outstanding.

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OTIS WORLDWIDE CORPORATION

CONTENTS OF QUARTERLY REPORT ON FORM 10-Q

Quarter Ended June 30, 2020


			Page

PART I – FINANCIAL INFORMATION			4

Item 1. Unaudited Financial Statements:			4

Condensed Consolidated Statements of Operations for the quarters ended June 30 , 2020 and 2019			5

Condensed Consolidated Statement s of Operations for the six months ended June 30 , 2020 and 2019			6

Condensed Consolidated Statements of Comprehensive Income for the quarters and six months ended June 30 , 2020 and 2019			7

Condensed Consolidated Balance Sheets at June 30 , 2020 and December 31, 2019			8

Condensed Co nsolidated Statements of Changes in Equity for the quarters ended June 30 , 2020 and 2019			9

Condensed C onsolidated Statements of Changes in Equity for the six months ended June 30, 2020 and 2019			10

Condensed Consolidated Statements of Cash Flows for the six months ended June 30 , 2020 and 2019			11



Notes to Condensed Consolidated Financial Statements			12

Report of Independent Registered Public Accounting Firm			35

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			36

Item 3. Quantitative and Qualitative Disclosures About Market Risk			50

Item 4. Controls and Procedures			50

PART II – OTHER INFORMATION			54

Item 1. Legal Proceedings			54

Item 1A. Risk Factors			54

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			54

Item 5 . Other Information			54

Item 6. Exhibits			56

SIGNATURES			58

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" "the Business," or "Otis," unless the context otherwise requires, mean Otis Worldwide Corporation and its subsidiaries. References to internet websites in this Form 10-Q are provided for convenience only. Information available through these websites is not incorporated by reference into this Form 10-Q.

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

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OTIS WORLDWIDE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Quarter Ended June 30,
(dollars in millions, except per share amounts)	2020		2019
Net sales:
Product sales	$	1,294	$	1,500
Service sales	1,735		1,851
	3,029		3,351
Costs and expenses:
Cost of products sold	1,072		1,209
Cost of services sold	1,066		1,158
Research and development	37		40
Selling, general and administrative	441		444
	2,616		2,851
Other income (expense), net	3		(19)
Operating profit	416		481
Non-service pension cost (benefit)	1		(11)
Interest expense (income), net	41		(3)
Income from operations before income taxes	374		495
Income tax expense	109		143
Net income	265		352
Less: Noncontrolling interest in subsidiaries' earnings	41		44








Net income attributable to common shareholders	$	224	$	308
Earnings Per Share of Common Stock - Basic:

Net income attributable to common shareholders	$	0.52	$	0.71
Earnings Per Share of Common Stock - Diluted:

Net income attributable to common shareholders	$	0.52	$	0.71

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)	2020		2019
Net sales:
Product sales	$	2,417	$	2,771
Service sales	3,578		3,681
	5,995		6,452
Costs and expenses:
Cost of products sold	1,986		2,269
Cost of services sold	2,221		2,298
Research and development	75		79
Selling, general and administrative	906		885
	5,188		5,531
Other expense, net	(62)		(25)
Operating profit	745		896
Non-service pension benefit	(2)		(22)
Interest expense (income), net	46		(2)
Income before income taxes	701		920
Income tax expense	234		268
Net income	467		652
Less: Noncontrolling interest in subsidiaries' earnings	78		71








Net income attributable to common shareholders	$	389	$	581
Earnings Per Share of Common Stock - Basic:

Net income attributable to common shareholders	$	0.90	$	1.34
Earnings Per Share of Common Stock - Diluted:

Net income attributable to common shareholders	$	0.90	$	1.34

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)	2020		2019		2020		2019


Net income	265		352		467		652
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	38		(40)		(84)		(5)
Pension and postretirement benefit plan adjustments	3		3		4		(19)

Change in unrealized cash flow hedging	(12)		(2)		(1)		(2)
Other comprehensive income (loss), net of tax	29		(39)		(81)		(26)
Comprehensive income	294		313		386		626
Less: Comprehensive income attributable to noncontrolling interest	(51)		(45)		(82)		(71)
Comprehensive income attributable to common shareholders	$	243	$	268	$	304	$	555

See accompanying Notes to Condensed Consolidated Financial Statements

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OTIS WORLDWIDE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


(amounts in millions, except per share amounts)	June 30, 2020		December 31, 2019
Assets
Cash and cash equivalents	$	1,912	$	1,446
Accounts receivable (net of allowance for expected credit losses of $140 and $83)	2,865		2,861
Contract assets, current	484		529
Inventories, net	629		571
Other assets, current	502		251
Total Current Assets	6,392		5,658
Future income tax benefits	427		373
Fixed assets	1,828		1,803
Less: Accumulated depreciation	(1,124)		(1,082)
Fixed assets, net	704		721
Operating lease right-of-use assets	530		535
Intangible assets, net	458		490
Goodwill	1,639		1,647
Other assets	291		263
Total Assets	$	10,441	$	9,687
Liabilities and (Deficit) Equity
Short-term borrowings	$	33	$	34
Accounts payable	1,349		1,331
Accrued liabilities	1,917		1,739
Contract liabilities, current	2,463		2,270

Total Current Liabilities	5,762		5,374
Long-term debt	6,260		5
Future pension and postretirement benefit obligations	589		590
Operating lease liabilities	377		386
Future income tax obligations	439		695
Other long-term liabilities	590		311
Total Liabilities	14,017		7,361
Commitments and contingent liabilities (Note 17)
Redeemable noncontrolling interest	96		95
Shareholders' (Deficit) Equity:
Preferred Stock, $0.01 par value, 125 shares authorized; None issued or outstanding	—		—
Common Stock, $0.01 par value, 2,000 shares authorized; 433.1 shares issued and outstanding	4		—
Additional paid-in capital	15		—
Accumulated deficit	(3,418)		—
UTC Net Investment	—		2,458
Accumulated other comprehensive loss	(843)		(758)
Total Shareholders' (Deficit) Equity	(4,242)		1,700
Noncontrolling interest	570		531
Total (Deficit) Equity	(3,672)		2,231
Total Liabilities and (Deficit) Equity	$	10,441	$	9,687

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					Additional Paid-In Capital		Accumulated Deficit		UTC Net (Deficit) Investment		Accumulated Other Comprehensive (Loss)		Total Shareholders' (Deficit) Equity		Noncontrolling Interest		Total (Deficit) Equity		Redeemable Noncontrolling Interest

(amounts in millions)	Shares	Amount
Quarter Ended June 30, 2020
Balance April 1, 2020	—	$	—	$	—	$	—	$	(3,959)	$	(862)	$	(4,821)	$	537	$	(4,284)	$	95
Net transfers from UTC and Separation-related transactions	—	—		—		—		407		—		407		—		407		—
Issuance of common stock and reclassification of deficit	433	4		—		(3,556)		3,552		—		—		—		—		—
Net income	—	—		—		224		—		—		224		41		265		—
Stock-based compensation	—	—		15		—		—		—		15		—		15		—

Other comprehensive income (loss), net of tax	—	—		—		—		—		19		19		11		30		(1)

Cash dividends declared ($0.20 per common share)	—	—		—		(87)		—		—		(87)		—		(87)		—
Dividends attributable to noncontrolling interest	—	—		—		—		—		—		—		(18)		(18)		—
Acquisition, disposal and other changes in noncontrolling interest	—	—		—		4		—		—		4		(1)		3		—
Changes in redeemable noncontrolling interest redemption value	—	—		—		(3)		—		—		(3)		—		(3)		2

Balance at June 30, 2020	433	$	4	$	15	$	(3,418)	$	—	$	(843)	$	(4,242)	$	570	$	(3,672)	$	96

Quarter Ended June 30, 2019
Balance April 1, 2019	—	$	—	$	—	$	—	$	2,252	$	(694)	$	1,558	$	542	$	2,100	$	109
Net transfers to UTC	—	—		—		—		(15)		—		(15)		—		(15)		—
Net income	—	—		—		—		308		—		308		44		352		—
Redeemable noncontrolling interest in subsidiaries' earnings	—	—		—		—		—		—		—		3		3		(3)
Other comprehensive (loss) income, net of tax	—	—		—		—		—		(40)		(40)		1		(39)		—
Purchase of subsidiary shares from noncontrolling interest	—	—		—		—		—		—		—		(1)		(1)		—
Dividends attributable to noncontrolling interest	—	—		—		—		—		—		—		(76)		(76)		—

Changes in redeemable noncontrolling interest redemption value	—	—		—		—		—		—		—		—		—		3
Balance at June 30, 2019	—	$	—	$	—	$	—	$	2,545	$	(734)	$	1,811	$	513	$	2,324	$	109

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					Additional Paid-In Capital		Accumulated Deficit		UTC Net Investment (Deficit)		Accumulated Other Comprehensive (Loss)		Total Shareholders' (Deficit) Equity		Noncontrolling Interest		Total (Deficit) Equity		Redeemable Noncontrolling Interest

(amounts in millions)	Shares	Amount
Six Months Ended June 30, 2020
Balance January 1, 2020	—	$	—	$	—	$	—	$	2,458	$	(758)	$	1,700	$	531	$	2,231	$	95
Net transfers to UTC and Separation-related transactions	—	—		—		—		(6,150)		—		(6,150)		—		(6,150)		—
Issuance of common stock and reclassification of deficit	433	4		—		(3,556)		3,552		—		—		—		—		—
Net income	—	—		—		224		165		—		389		78		467		—
Stock-based compensation	—	—		15		—		—		—		15		—		15		—

Other comprehensive (loss) income, net of tax	—	—		—		—		—		(85)		(85)		7		(78)		(3)

Cash dividends declared ($0.20 per common share)	—	—		—		(87)		—		—		(87)		—		(87)		—
Dividends attributable to noncontrolling interest	—	—		—		—		—		—		—		(39)		(39)		—
Acquisition, disposal and other changes in noncontrolling interest	—	—		—