Otis Reports Second Quarter 2020 Results

FARMINGTON, Conn., July 28, 2020 /PRNewswire/ -- Otis Worldwide Corporation (NYSE: OTIS) reported second quarter 2020 net sales of $3.0 billion, a decrease of 6.5% organically versus the prior year. Second quarter GAAP and adjusted diluted earnings per share (EPS) decreased 26.8% to $0.52 and 5.1% to $0.56, respectively.

"Otis' second quarter results, considering COVID-19 related challenges, demonstrated the resiliency of our business, the strength of our strategy, and our ability to contain costs. We generated robust free cash flow, reinforcing our strong liquidity, grew global share and partnered with customers to deliver safety, health, and performance solutions. Our Otis colleagues showed great dedication and commitment to providing essential services and continuity to our customers in supporting their efforts to safely reopen job sites and buildings around the world," said President and CEO Judy Marks. "Our solid first half performance and execution on our long-term growth strategies give us the confidence to improve our 2020 outlook."

Key Figures


                 ($ millions,
                  except per
                  share
                  amounts)                                
     
             Quarter Ended June 30, 2020                                          
       
     Six Months Ended June 30, 2020


       
            
              2020                    2019           Y/Y                       Y/Y (CFX)                2020   2019          Y/Y         Y/Y (CFX)


      Net sales                               $
        3,029                                              $
          3,351         (9.6)                         (7.0)                                             $
        5,995          $
       6,452           (7.1)             (4.8)
                                                                                                                               %                             %                                                                                         %                 %



     Organic sales                                                                            (6.5)                                                                               (4.4)
                                                                                                     %                                                                                   %





     
              GAAP


      Operating
       profit                                   $
        416                                                $
          481               $
         (65)                                                                 $
        745            $
       896                 $
     (151)


      Operating
       profit                             %                                                                                                                               %
       margin                          13.7                 14.4
         %                                     (70) bps                12.4
       %                           13.9                       (150) bps


      Net income                                $
        224                                                $
          308        (27.3)                                                              $
           389              $
      581            (33.0)
                                                                                                                               %                                                                                                              %


      Earnings per                             $
        0.52                                               $
          0.71        (26.8)                                                             $
           0.90             $
      1.34            (32.8)
       share                                                                                                                   %                                                                                                              %





     
              Adjusted non-GAAP comparison


      Operating
       profit                                   $
        457                                                $
          496               $
         (39)                                  $
          (24)                             $
      907                    $
      929           $
      (22) $
     3


      Operating
       profit                             %                                                                                                                               %
       margin                          15.1                 14.8
         %                                      30 bps  30 bps         15.1
       %                           14.4                 
           70 bps  
        80 bps


      Net income                                $
        244                                                $
          258         (5.4)                                                              $
           506              $
      525             (3.6)
                                                                                                                               %                                                                                                              %


      Earnings per                             $
        0.56                                               $
          0.59         (5.1)                                                             $
           1.17             $
      1.21             (3.3)
       share                                                                                                                   %                                                                                                              %

Second quarter net sales of $3.0 billion decreased 9.6% versus the prior year, with a 6.5% decline in organic sales, 2.6% headwind from foreign exchange and 0.5% impact from divestitures. Sales declined in both the New Equipment and Service segments primarily driven by the impact of COVID-19.

Second quarter GAAP operating profit of $416 million decreased $65 million from the prior year driven by segment operating profit decline of $66 million primarily from lower volume, incremental public company standalone costs and higher restructuring costs. GAAP operating profit margin contracted 70 basis points to 13.7%.

Adjusted operating profit of $457 million decreased $39 million with a $24 million decline at constant currency. Operating profit decline at constant currency was driven by a reduction of $46 million in the New Equipment segment, partially offset by operating profit growth of $14 million in the Service segment, lower corporate costs and the absence of unfavorable transactional foreign exchange impact from the prior year. Adjusted operating profit margin expanded 30 basis points to 15.1%, with continued margin expansion in the Service segment.

GAAP EPS of $0.52 decreased $0.19, driven by the decline in operating profit and higher interest expense. Adjusted EPS of $0.56 decreased $0.03, driven by adjusted operating profit decline partially offset by lower noncontrolling interest and a lower adjusted tax rate.

First half net sales declined 7.1% versus the prior year, with a 4.4% decline in organic sales and 2.7% headwind from foreign exchange and the impact from divestitures. GAAP operating profit decreased $151 million, with margin contraction of 150 basis points primarily due to higher separation costs, incremental public company standalone costs and a one-time charge taken in the first quarter. Adjusted operating profit increased $3 million at constant currency and margin expanded 80 basis points driven by strong performance in the Service segment.

New Equipment Segment


                                                           
     
          Quarter Ended June 30, 2020                                              
       
     Six Months Ended June 30, 2020


                   ($
                    millions)          2020           2019      Y/Y                         Y/Y (CFX)                     2020    2019       Y/Y         Y/Y (CFX)


      Net sales                               $
        1,294                                             $
          1,500            (13.7)                     (10.5)                                  $
        2,417          $
       2,771    (12.8)         (10.2)
                                                                                                                                  %                          %                                                                        %              %



     Organic sales                                                                        (10.4)                                                                  (10.1)
                                                                                                  %                                                                       %





     
                GAAP


      Operating
       profit                                    $
        79                                               $
          138                    $
     (59)                                                      $
        143            $
       197           $
     (54)


      Operating
       profit                             %                     %                                                                          %                              %
       margin                           6.1                    9.2                                         (310) bps                       5.9                             7.1          (120) bps





     
                Adjusted non-GAAP comparison


      Operating
       profit                                    $
        91                                               $
          142                    $
     (51)                                  $
     (46)                         $
     156            $
       206                 $
     (50) $
     (43)


      Operating
       profit                             %                     %                                                                          %                              %
       margin                           7.0                    9.5                                         (250) bps (230) bps             6.5                             7.4          (90) bps       (80) bps

In the second quarter, net sales of $1.3 billion decreased 13.7% with a 10.4% decline in organic sales and a 3.2% impact from foreign exchange. Organic sales declined double digits in the Americas and EMEA, primarily due to the impact of COVID-19, offset by low single digit growth in Asia as China began to recover.

GAAP operating profit decreased $59 million to $79 million. Adjusted operating profit decreased $51 million to $91 million, primarily from the impact of lower volume and a $5 million headwind from foreign exchange. Material productivity and cost containment actions largely offset the impact of under-absorption, bad debt and unfavorable mix. GAAP operating profit was also impacted by higher restructuring costs. GAAP and adjusted operating profit margin contracted 310 and 250 basis points, respectively.

New Equipment orders were down 6.8% at constant currency as 8.3% growth in China was more than offset by declines in other regions. On a rolling twelve-month basis, orders were flat. New equipment backlog at constant currency increased 2% versus prior year.

First half net sales declined 12.8% with a 10.1% organic decline. GAAP operating profit declined $54 million and margin contracted 120 basis points. Adjusted operating profit declined $43 million and margin contracted 80 basis points at constant currency.

Service Segment


                                                                 
     
           Quarter Ended June 30, 2020                                               
     
           Six Months Ended June 30, 2020



     
                ($ millions)                 2020        2019       Y/Y                           Y/Y (CFX)                 2020            2019        Y/Y                        Y/Y (CFX)



     Net sales                                      $
       1,735                                                $
        1,851          (6.3)                (4.1)                                                       $
          3,578        $
       3,681    (2.8)       (0.8)
                                                                                                                                      %                    %                                                                                            %           %



     Organic sales                                                                                  (3.3)                                                                                         (0.1)
                                                                                                           %                                                                                             %





     
                GAAP



     Operating profit                                 $
       381                                                  $
        388                $
         (7)                                                                   $
          781          $
       774           $
     7



     Operating profit margin                   22.0                 21.0                                           100 bps                     21.8                                        21.0
                                                   %                   %                                                                         %                                          %                 80 bps





     
                Adjusted non-GAAP comparison



     Operating profit                                 $
       389                                                  $
        384                  $
         5                                             $
            14                      $
     794            $
        783            $
     11 $
     28



     Operating profit margin                   22.4                 20.7                                           170 bps 170 bps             22.2                                        21.3
                                                   %                   %                                                                         %                                          %                 90 bps      90 bps

In the second quarter, net sales of $1.7 billion decreased 6.3%, with a 3.3% decline in organic sales and a 3.0% headwind from foreign exchange and the impact of net acquisitions and divestitures. Organic maintenance and repair sales declined 3.6% and organic modernization sales declined 1.5%.

GAAP operating profit decreased $7 million to $381 million. Adjusted operating profit increased $5 million to $389 million as the benefit from favorable pricing and mix, productivity and cost containment actions more than offset the impact from lower volume, price concessions, bad debt and a $9 million headwind from foreign exchange. GAAP operating profit was also impacted by incremental public company standalone costs. GAAP and adjusted operating profit margin expanded 100 and 170 basis points, respectively.

First half net sales declined 2.8% from a slight decline in organic sales and a 2.7% headwind from foreign exchange and the impact of net acquisitions and divestitures. GAAP operating profit increased $7 million and margin expanded 80 basis points. Adjusted operating profit increased $28 million and margin expanded 90 basis points at constant currency.

Cash flow


                                             Quarter Ended June 30, 2020                Six Months Ended June 30, 2020



     
                ($ millions) 2020    2019                           Y/Y    2020 2019                 Y/Y



     Cash flow from operations      $
     664                                $
     354                           $
             310      $
     823 $
     651 $
     172



     Free cash flow                 $
     628                                $
     319                           $
             309      $
     748 $
     588 $
     160



     Free cash flow conversion  280                                  104                             192                   101
                                   %                                   %                              %                    %

Second quarter cash from operations of $664 million increased $310 million versus prior year primarily driven by favorable working capital performance. Second quarter free cash flow of $628 million increased $309 million versus prior year. The cash balance at the end of the second quarter was $1.9 billion.

First half cash from operations of $823 million increased $172 million and free cash flow increased $160 million to $748 million.

2020 Outlook*
Otis is improving its full year outlook to reflect strong first half performance and the anticipated recovery profile in the second half.

    --  Net sales down 4.5 to 6.5%
    --  Organic sales down 2 to 4%
        --  Organic New Equipment sales down mid to high single digits
        --  Organic Service sales flat to down low single digits
    --  Adjusted operating profit flat to down $50 million at constant currency
        and down $40 to $100 million at actual currency
    --  Adjusted EPS of $2.20 to $2.30; adjusted effective tax rate down 50
        basis points to ~31.5%
    --  Free cash flow of $1.0 to 1.1 billion with conversion of 130 to 140% of
        GAAP net income
    --  2020 debt repayment increased $100 million versus prior outlook to $350
        million

*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 June 30,                            Six Months Ended June 30,


                                                            
              (Unaudited)                         
       (Unaudited)


                                  (dollars in millions, except
                                   per share amounts)          2020                           2019           2020                           2019


                   Net Sales                                      $
              3,029                            $
              3,351                         $
        5,995    $
        6,452



     
                Costs and Expenses:


                 Cost of products and services sold         2,138                                    2,367                              4,207                     4,567


      
              Research and development                      37                                       40                                 75                        79


                 Selling, general and administrative          441                                      444                                906                       885


      
              Total Costs and Expenses                   2,616                                    2,851                              5,188                     5,531


      Other income (expense), net                             3                                     (19)                              (62)                     (25)



     Operating profit                                      416                                      481                                745                       896


                 Non-service pension expense
                  (benefit)                                     1                                     (11)                               (2)                     (22)


                 Interest expense (income), net                41                                      (3)                                46                       (2)


      Income from operations
       before income taxes                                  374                                      495                                701                       920


      
              Income tax expense                           109                                      143                                234                       268


      Net income from operations                            265                                      352                                467                       652


                 Less: Noncontrolling interest in
                  subsidiaries' earnings                       41                                       44                                 78                        71


      Net income attributable to
       common shareholders                                          $
              224                              $
              308                           $
        389      $
        581


                   Earnings Per Share of Common Stock:


      
              Basic                                               $
              0.52                             $
              0.71                          $
        0.90     $
        1.34


      
              Diluted                                             $
              0.52                             $
              0.71                          $
        0.90     $
        1.34


                   Weighted Average Number of Shares
                    Outstanding:


      
              Basic shares                               433.1                                    433.1                              433.1                     433.1


      
              Diluted Shares                             434.1                                    433.1                              433.6                     433.1



     
                Otis Worldwide Corporation





     
                Segment Net Sales and Operating Profit




                                                                           Quarter Ended June 30,                                Quarter Ended June 30,


                                                                 
            (Unaudited)                                   
           (Unaudited)


                                  (dollars in
                                   millions)                                                        2020                                                 2019


                                                          Reported                                 Adjusted          Reported                             Adjusted



     
                Net Sales


      New Equipment                                                $
              1,294                                          $
              1,294                           $
       1,500         $
       1,500



     Service                                                1,735                                          1,735                                              1,851            1,851


                   Consolidated Net
                    Sales                                          $
              3,029                                          $
              3,029                           $
       3,351         $
       3,351




                   Operating Profit


      New Equipment                                                   $
              79                                             $
              91                             $
       138           $
       142



     Service                                                  381                                            389                                                388              384


      Segment Operating
       Profit                                                  460                                            480                                                526              526


      General corporate
       expenses and other                                     (44)                                                $
         (23)                                        (45)               (30)


                   Consolidated
                    Operating Profit                                 $
              416                                            $
              457                             $
       481           $
       496




                   Segment Operating Profit Margin


      New Equipment                                            6.1                                            7.0                                                9.2              9.5
                                                                 %                                             %                                                 %               %



     Service                                                 22.0                                           22.4                                               21.0             20.7
                                                                 %                                             %                                                 %               %


      Total Operating                                         13.7                                           15.1                                               14.4             14.8
       Profit Margin                                             %                                             %                                                 %               %






                                                                         Six Months Ended June 30,                             Six Months Ended June 30,


                                                                 
            (Unaudited)                                   
           (Unaudited)


                                  (dollars in
                                   millions)                                                        2020                                                 2019


                                                          Reported                                 Adjusted          Reported                             Adjusted



     
                Net Sales


      New Equipment                                                $
              2,417                                          $
              2,417                           $
       2,771         $
       2,771



     Service                                                3,578                                          3,578                                              3,681            3,681


                   Consolidated Net
                    Sales                                          $
              5,995                                          $
              5,995                           $
       6,452         $
       6,452




                   Operating Profit


      New Equipment                                                  $
              143                                            $
              156                             $
       197           $
       206



     Service                                                  781                                            794                                                774              783


      Segment Operating
       Profit                                                  924                                            950                                                971              989


      General corporate
       expenses and other                                    (179)                                          (43)                                              (75)                   $
     (60)


                   Consolidated
                    Operating Profit                                 $
              745                                            $
              907                             $
       896           $
       929




                   Segment Operating Profit Margin


      New Equipment                                            5.9                                            6.5                                                7.1              7.4
                                                                 %                                             %                                                 %               %



     Service                                                 21.8                                           22.2                                               21.0             21.3
                                                                 %                                             %                                                 %               %


      Total Operating                                         12.4                                           15.1                                               13.9             14.4
       Profit Margin                                             %                                             %                                                 %               %



     
                Otis Worldwide Corporation





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




                                                                                     Quarter Ended June 30,                      Six Months Ended June 30,


                                                                          
              (Unaudited)                            
          (Unaudited)


                                  (dollars in millions)          2020                                         2019       2020                               2019



     
                New Equipment



     Net sales                                                                    $
              1,294                                  $
              1,500                  $
        2,417       $
         2,771


                   GAAP Operating profit                           79                                                138                                    143                   197


      Restructuring                                                12                                                  8                                     13                    14


        UTC allocated
         corporate expenses                                         -                                                 2                                                           3


        Public company
         standalone costs(1)                                        -                                               (4)                                                        (7)



     
                  Other                                                                                  (2)                                                  (1)


                   Adjusted New Equipment
                    Operating Profit                                     $
              
                91                          $
           
                142              $
       
          156  $
        
           206


      Adjusted operating                                          7.0                                                9.5                                    6.5                   7.4
       profit margin                                                %                                                 %                                     %                    %



     
                Service



     Net sales                                                                    $
              1,735                                  $
              1,851                  $
        3,578       $
         3,681


                   GAAP Operating profit                          381                                                388                                    781                   774


      Restructuring                                                 8                                                  8                                     13                    27


        UTC allocated
         corporate expenses                                         -                                                 4                                                           7


        Public company
         standalone costs(1)                                        -                                              (16)                                                       (25)


                   Adjusted Service
                    Operating Profit                                    $
              
                389                          $
           
                384              $
       
          794  $
        
           783


      Adjusted Operating                                         22.4                                               20.7                                   22.2                  21.3
       Profit Margin                                                %                                                 %                                     %                    %




                   General corporate expenses and other


      General corporate
       expenses and other                                                           $
              (23)                                  $
              (30)                  $
        (43)       $
         (60)


                   Adjusted Total
                    Operating Profit                                    $
              
                457                          $
           
                496              $
       
          907  $
        
           929





     
                Total Otis


                   GAAP Operating profit                          416                                                481                                    745                   896


      Restructuring                                                20                                                 15                                     26                    40


         Loss on disposal of
          business                                                  -                                                19                                                          19


         One-time separation
          costs                                                    21                                                  3                                     53                     3


         Fixed asset impairment                                     -                                                                                      67


         UTC allocated
          corporate expenses                                        -                                                19                                     16                    36


        Public company
         standalone costs(1)                                        -                                              (42)                                                       (64)



     Other                                                         -                                                 1                                                         (1)


                   Adjusted Total
                    Operating Profit                                                 $
              457                                    $
              496                    $
        907         $
         929


                   Adjusted Operating                            15.1                                               14.8                                   15.1                  14.4
                    Profit Margin                                   %                                                 %                                     %                    %



                            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 six months ended June
                             30, 2020 and are not adjusted.
                             For the quarter ended and six
                             months ended June 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 June 30,                           Six Months Ended June 30,


                                                 
              (Unaudited)     
              (Unaudited)


                                  (dollars in
                                   millions)         2020                    2019        2020                     2019


                   Adjusted Operating
                    Profit                            457                     496         907                      929


      Non-service pension
       cost (benefit)(3)                                1                     (4)        (2)                     (1)


      Net interest
       expense(2)                                    (41)                   (49)       (46)                    (63)


                   Adjusted income from
                    operations before
                    income taxes                      415                     443         863                      865


      Income tax expense                              109                     143         234                      268


      Tax impact on
       restructuring and
       non-recurring
       items                                           20                       4          39                       10


      Tax impact on other
       adjustments                                      -                   (13)                               (16)


      Non-recurring tax
       items                                            1                       7           6                        7


                   Adjusted net income
                    from operations                   285                     302         584                      596


      Noncontrolling
       interest                                        41                      44          78                       71


                   Adjusted net income
                    attributable to
                    common shareholders               244                     258         506                      525




                   GAAP income
                    attributable to
                    common shareholders               224                     308         389                      581


      Restructuring                                    20                      15          26                       40


      Loss on disposal of
       business                                         -                     19                                  19


      One-time separation
       costs                                           21                       3          53                        3


      Fixed asset
       impairment                                       -                                67


      UTC allocated
       corporate expenses                               -                     19          16                       36


      Public company
       standalone costs(1)                              -                   (42)                               (64)


      Non-service pension
       cost(3)                                          -                   (15)                               (23)


      Net interest
       expense(2)                                       -                   (52)                               (65)



     Other                                             -                      1                                 (1)


      Tax effects of
       restructuring, non-
       recurring items and
       other adjustments                             (20)                      9        (39)                       6


      Non-recurring tax
       items                                          (1)                    (7)        (6)                     (7)


                   Adjusted net income
                    attributable to
                    common shareholders               244                     258         506                      525




                   Diluted Earnings Per
                    Share                            0.52                    0.71        0.90                     1.34


        Impact to diluted
         earnings per share                          0.04                  (0.12)       0.27                   (0.13)


                   Adjusted Diluted
                    Earnings Per Share               0.56                    0.59        1.17                     1.21




                   Effective Tax Rate                29.1                               28.9                     33.4                               29.1

                                                        %                                 %                       %                                 %


        Impact of                                     2.2                                2.9                    (1.1)                               2.0
         adjustments on
         effective tax rate                             %                                 %                       %                                 %


                   Adjusted Effective                31.3                               31.8                     32.3                               31.1
                    Tax Rate
                                                        %                                 %                       %                                 %



                            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 six months ended
                             June 30, 2020 and are not
                             adjusted.  For the quarter ended
                             and six months ended June 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 June 30, 2020 Compared with Quarter Ended June 30, 2019




                                                                                   Factors Contributing to Total % Change in Net Sales


                                                                                   Organic                   
              
                FX           Acquisitions /   Total
                                                                                                              
                Translation    
      Divestitures,
                                                                                                                                            net



     New Equipment                                                                (10.4)%                                         (3.2)%                 (0.1)% (13.7)%



     Service                                                                       (3.3)%                                         (2.2)%                 (0.8)%  (6.3)%



     Maintenance and Repair                                                        (3.6)%                                         (2.4)%                 (0.5)%  (6.5)%



     Modernization                                                                 (1.5)%                                         (1.8)%                 (1.9)%  (5.2)%



     Total Net Sales                                                               (6.5)%                                         (2.6)%                 (0.5)%  (9.6)%





     
                
                  Six Months Ended June 30, 2020 Compared with Six Months Ended June 30, 2019




                                                                                   Factors Contributing to Total % Change in Net Sales


                                                                                   Organic                   
              
                FX           Acquisitions /   Total
                                                                                                              
                Translation    
      Divestitures,
                                                                                                                                            net



     New Equipment                                                                (10.1)%                                         (2.6)%                 (0.1)% (12.8)%



     Service                                                                       (0.1)%                                         (2.0)%                 (0.7)%  (2.8)%



     Maintenance and Repair                                                        (0.6)%                                         (2.1)%                 (0.5)%  (3.2)%



     Modernization                                                                   2.6%                                         (1.7)%                 (2.0)%  (1.1)%



     Total Net Sales                                                               (4.4)%                                         (2.3)%                 (0.4)%  (7.1)%



     
                Otis Worldwide Corporation





     
                Reconciliation of Adjusted Operating Profit at Constant Currency





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




                                  dollars in millions          2020                           2019            Y/Y


                   New Equipment


      Adjusted Operating Profit                                        $
              91                             $
     142     (51)


      Impact of foreign exchange                                  5                                                       5


      Adjusted Operating Profit at
       constant currency                                               $
              96                             $
     142     (46)




                   Service


      Adjusted Operating Profit                                       $
              389                             $
     384        5


      Impact of foreign exchange                                  9                                                       9


      Adjusted Operating Profit at
       constant currency                                              $
              398                             $
     384       14




                   Otis Consolidated


      Adjusted Operating Profit                                       $
              457                             $
     496     (39)


      Impact of foreign exchange                                 15                                                      15


      Adjusted Operating Profit at
       constant currency                                              $
              472                             $
     496     (24)







     
                
                  Six Months Ended June 30, 2020 Compared with Six Months Ended June 30, 2019




                                  dollars in millions          2020                           2019            Y/Y


                   New Equipment


      Adjusted Operating Profit                                       $
              156                             $
     206     (50)


      Impact of foreign exchange                                  7                                                    7


      Adjusted Operating Profit at
       constant currency                                              $
              163                             $
     206     (43)




                   Service


      Adjusted Operating Profit                                       $
              794                             $
     783       11


      Impact of foreign exchange                                 17                                                   17


      Adjusted Operating Profit at
       constant currency                                              $
              811                             $
     783       28




                   Otis Consolidated


      Adjusted Operating Profit                                       $
              907                             $
     929     (22)


      Impact of foreign exchange                                 25                                        0              25


      Adjusted Operating Profit at
       constant currency                                              $
              932                             $
     929        3



       
                Otis Worldwide Corporation





       
                Condensed Consolidated Balance Sheet




                                                                          June 30, 2020                  December 31, 2019


                                    (dollars in millions)            (Unaudited)                      (Unaudited)



       
                
                  Assets

    ---


       Cash and cash equivalents                                                        $
         1,912                               $
        1,446



       Accounts receivable, net                                                  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




        Redeemable noncontrolling interest                                           96                                          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; 433.1 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






       
                Debt Ratios:



       Debt to total capitalization                                               240%                                         2%



       Net debt to net capitalization                                             618%                                     (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 June 30,                      Six Months Ended June 30,


                                                                  
            (Unaudited)                 
          (Unaudited)


                                  (dollars in millions)          2020                         2019       2020                         2019



     
                Operating Activities:


      Net income from operations                                        $
              265                                   $
             352                 $
        467    $
       652


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


      Depreciation and amortization                                49                                     46                           92                        91


      Stock compensation cost                                      15                                      9                           27                        16


      Loss on disposal of business                                  -                                    19                                                    19


      Loss on fixed asset impairment                                -                                             55



     Change in:


      Accounts receivable, net                                     57                                   (38)                        (59)                     (94)


      Contract assets and
       liabilities, current                                      (89)                                 (191)                         266                        77



     Inventories, net                                           (22)                                    17                         (71)                       24


      Other assets, current                                        18                                     18                         (67)                       25


      Accounts payables and accrued
       liabilities                                                368                                    153                           79                     (156)


      Contract liabilities, current                                 -


      Pension contributions                                      (10)                                   (8)                        (20)                     (18)


      Other operating activities,
       net                                                         13                                   (23)                          54                        15


      Net cash flows provided by
       operating activities                                       664                                    354                          823                       651



     
                Investing Activities:


      Capital expenditures                                       (36)                                  (35)                        (75)                     (63)


      Investments in businesses, net
       of cash acquired                                          (11)                                  (13)                        (16)                     (32)


      Investments in equity
       securities                                                   -                                                              (51)


      Other investing activities,
       net                                                        (3)                                  (26)                                                    3


      Net cash flows used in
       investing activities                                      (50)                                  (74)                       (142)                     (92)



     
                Financing Activities:


      Issuance of long-term debt,
       net                                                          -                                                             6,300


      Payment of long-term debt
       issuance costs                                               -                                                              (43)


      Increase in short-term
       borrowings, net                                           (35)                                     1                            1                        16


      Net transfers from (to) UTC                                 220                                   (24)                     (6,330)                    (330)


      Dividends paid on common stock                             (87)                                                              (87)


      Dividends paid to
       noncontrolling interest                                   (22)                                  (25)                        (43)                     (55)


      Other financing activities,
       net                                                          -                                     7                           22                        16


      Net cash flows provided by
       (used in) financing
       activities                                                  76                                   (41)                       (180)                    (353)



     
                Summary of Activity:


      Net cash provided by operating
       activities                                                 664                                    354                          823                       651


      Net cash used in investing
       activities                                                (50)                                  (74)                       (142)                     (92)


      Net cash provided by (used in)
       financing activities                                        76                                   (41)                       (180)                    (353)


      Effect of foreign exchange
       rate changes on cash and cash
       equivalents                                                 17                                   (16)                        (33)                        4


      Net (increase) in cash, cash
       equivalents and restricted
       cash                                                       707                                    223                          468                       210


      Cash, cash equivalents and
       restricted cash, beginning of
       period                                                   1,220                                  1,333                        1,459                     1,346


      Cash, cash equivalents and
       restricted cash, end of
       period                                                   1,927                                  1,556                        1,927                     1,556


      Less: Restricted cash                                        15                                     14                           15                        14


      Cash and cash equivalents, end
       of period                                                      $
              1,912                                 $
             1,542               $
        1,912  $
       1,542



       
                Otis Worldwide Corporation



       
                Free Cash Flow Reconciliation




                                                            
            
            Quarter Ended June 30,


                                                                      
          (Unaudited)


                     (dollars in millions)                              2020                          2019




        Net income
         attributable to
         common shareholders                                       $
          224                                      $
     308


        Net cash flows
         provided by operating
         activities                                                $
          664                                      $
     354


        Net cash flows provided by
         operating activities as a
         percentage of net income                                          %                                     %
         attributable to common
         shareholders                                                    296                                    115


        Capital expenditures                                  (36)                                       (35)


        Capital expenditures as a
         percentage of net income
         attributable to common                                            %                                     %
         shareholders                                                   (16)                                  (11)


        Free cash flow                                             $
          628                                      $
     319


        Free cash flow as a percentage of                                280                                    104
         net income attributable to common
         shareholders                                                      %                                     %




                                                          
            
            Six Months Ended June 30,


                                                                      
          (Unaudited)


                                    (dollars in millions)               2020                          2019

    ---



        Net income
         attributable to
         common shareholders                                       $
          389                                      $
     581


        Net cash flows
         provided by operating
         activities                                                $
          823                                      $
     651


        Net cash flows provided by
         operating activities as a
         percentage of net income                                          %                                     %
         attributable to common
         shareholders                                                    212                                    112


        Capital expenditures                                  (75)                                       (63)


        Capital expenditures as a
         percentage of net income
         attributable to common                                            %                                     %
         shareholders                                                   (20)                                  (11)


        Free cash flow                                             $
          748                                      $
     588


        Free cash flow as a percentage of                                192                                    101
         net income attributable to common
         shareholders                                                      %                                     %

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SOURCE Otis Worldwide Corporation