Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 ____________________________________ FORM 10-K ____________________________________ or ¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to ______. Commission file number 001-39221 ____________________________________ OTIS WORLDWIDE CORPORATION (Exact name of registrant as specified in its charter) ____________________________________ Delawar ...

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | |-------|-------|-------|-------|-------|------------------------------------|---------------------------|---------------|-------|-------| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Q4 2021 January 31, 2022 | Earnings Call | | | | | | | | | © 2022 OTIS WORLDWIDE CORPORATION. | | | | | Forward-Looking Statements Note: All results and expectations in this presentation reflect continuing operations unless otherwi ...

Financial Data and Key Metrics Changes - Net sales increased by 2.2% to $3.6 billion in Q4 2021, with organic sales growing for the fifth consecutive quarter, up 2.8% [23] - Adjusted operating profit rose by $11 million, with adjusted EPS up 9.1% or $0.06, driven by operating profit growth and a lower adjusted tax rate [24][37] - Free cash flow generated was $1.6 billion, representing approximately 115% to 120% conversion of GAAP net income [21] Business Line Data and Key Metrics Changes - New equipment orders increased by 7.3% in Q4 and 13.2% for the year, with significant growth in Asia Pacific and the Americas [11][25] - Maintenance portfolio grew by 3%, the best growth rate in over a decade, with a focus on digital connectivity [16] - Modernization orders were up 18.3% at constant currency, with service organic sales growing 4% [30] Market Data and Key Metrics Changes - The new equipment market is expected to grow mid- to high-single digits in the Americas, low single digits in EMEA, and down mid- to high single digits in Asia, particularly due to uncertainty in China [18] - Service growth is projected to be broad-based, with maintenance and repair expected to increase by 4% to 6% [42] Company Strategy and Development Direction - The company remains committed to shareholder value creation, completing $450 million in debt repayment and repurchasing $725 million of shares [10] - The focus on ESG initiatives continues, with the introduction of energy-efficient products and digital solutions [14][17] - The company aims to increase connectivity to approximately 60% of units under service by the medium term [16] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strong recovery experienced in 2021, expecting momentum to continue into 2022 despite market dynamics remaining fluid [18] - The outlook for 2022 includes organic sales growth of 2.5% to 4.5%, with adjusted EPS expected to be in the range of $3.20 to $3.30 [20][39] - Management highlighted the importance of project timing in the Americas affecting revenue guidance for 2022 [53] Other Important Information - The company achieved a 115 basis points new equipment share gain, building on the previous year's growth [33] - The adjusted effective tax rate was reduced by 190 basis points, contributing to profit growth [37] - The company plans to recommence share buybacks once deleveraging is complete [72] Q&A Session Summary Question: Guidance for new equipment sales in the Americas - Management explained that the low single-digit guidance reflects project timing on major projects that will drive revenue later in 2022 [53] Question: Trends in China and backlog conversion - Management clarified that the guidance for China reflects a cautious approach due to the book and ship business, which is a significant portion of revenue [64][66] Question: Capital allocation strategy post-deleveraging - Management confirmed that they are on track to complete $500 million in deleveraging and will resume share buybacks once this is achieved [72] Question: Expectations for new equipment margins - Management indicated that commodity headwinds are expected to be a first-half issue, with margins improving in the second half of the year [68] Question: Sustainability of market share gains in China - Management expressed confidence in the sustainability of market share gains, citing strong performance and effective cash management [105][106]

Otis Worldwide Corporation (NYSE:OTIS) Q3 2021 Earnings Conference Call October 25, 2021 8:30 AM ET Company Participants Judith Marks – President and Chief Executive Officer Michael Rednor – Senior Director and Investor Relations Rahul Ghai – Executive Vice President and Chief Financial Officer Conference Call Participants Nigel Coe – Wolfe Research Jeff Sprague – Vertical Research Julian Mitchell – Barclays Patrick Baumann – JPMorgan Cai von Rumohr – Cowen John Walsh – Credit Suisse Miguel Beauregard – BNP ...

PART I – FINANCIAL INFORMATION [Item 1. Unaudited Financial Statements](index=4&type=section&id=Item%201.%20Unaudited%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for Otis Worldwide Corporation, including statements of operations, comprehensive income, balance sheets, changes in equity, and cash flows, along with detailed notes explaining accounting policies, significant transactions, and financial positions for the periods ended September 30, 2021 and 2020 [Condensed Consolidated Statements of Operations (Quarterly)](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20for%20the%20quarters%20ended%20September%2030%2C%202021%20and%202020) For the quarter ended September 30, 2021, Otis reported a significant increase in net sales and operating profit compared to the same period in 2020, leading to higher net income attributable to common shareholders and diluted EPS | Metric | Q3 2021 (millions) | Q3 2020 (millions) | Change (millions) | % Change | | :--------------------------------- | :----------------- | :----------------- | :---------------- | :------- | | Net sales | $3,620 | $3,268 | $352 | 10.8% | | Operating profit | $542 | $454 | $88 | 19.4% | | Net income attributable to shareholders | $331 | $266 | $65 | 24.4% | | Diluted EPS | $0.77 | $0.61 | $0.16 | 26.2% | [Condensed Consolidated Statements of Operations (Nine Months)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20for%20the%20nine%20months%20ended%20September%2030%2C%202021%20and%202020) For the nine months ended September 30, 2021, Otis experienced substantial growth in net sales and operating profit, resulting in a significant increase in net income attributable to common shareholders and diluted EPS compared to the prior year | Metric | 9M 2021 (millions) | 9M 2020 (millions) | Change (millions) | % Change | | :--------------------------------- | :----------------- | :----------------- | :---------------- | :------- | | Net sales | $10,729 | $9,263 | $1,466 | 15.8% | | Operating profit | $1,612 | $1,199 | $413 | 34.4% | | Net income attributable to shareholders | $965 | $655 | $310 | 47.3% | | Diluted EPS | $2.23 | $1.51 | $0.72 | 47.7% | [Condensed Consolidated Statements of Comprehensive Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20for%20the%20quarters%20and%20nine%20months%20ended%20September%2030%2C%202021%20and%202020) Comprehensive income attributable to common shareholders increased for both the quarter and nine months ended September 30, 2021, driven by higher net income, despite foreign currency translation adjustments contributing to an overall other comprehensive loss | Metric | Q3 2021 (millions) | Q3 2020 (millions) | 9M 2021 (millions) | 9M 2020 (millions) | | :--------------------------------------- | :----------------- | :----------------- | :----------------- | :----------------- | | Net income | $379 | $310 | $1,110 | $777 | | Other comprehensive income (loss), net of tax | $(29) | $37 | $(27) | $(44) | | Comprehensive income attributable to shareholders | $307 | $290 | $953 | $594 | [Condensed Consolidated Balance Sheets](index=7&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20at%20September%2030%2C%202021%20and%20December%2031%2C%202020) As of September 30, 2021, total assets slightly decreased, while total liabilities also saw a reduction compared to December 31, 2020. The company maintained a strong cash position, though cash and cash equivalents decreased | Metric | Sep 30, 2021 (millions) | Dec 31, 2020 (millions) | Change (millions) | | :-------------------------------- | :---------------------- | :---------------------- | :---------------- | | Total Assets | $10,472 | $10,710 | $(238) | | Total Liabilities | $13,705 | $13,911 | $(206) | | Total (Deficit) Equity | $(3,295) | $(3,284) | $(11) | | Cash and cash equivalents | $1,553 | $1,782 | $(229) | | Total Current Assets | $6,375 | $6,493 | $(118) | | Total Current Liabilities | $6,363 | $6,673 | $(310) | [Condensed Consolidated Statements of Changes in Equity (Quarterly)](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Equity%20for%20the%20quarters%20ended%20September%2030%2C%202021%20and%202020) For the quarter ended September 30, 2021, the company's total shareholders' deficit slightly increased, primarily due to common stock repurchases and cash dividends, partially offset by net income | Item | Q3 2021 (millions) | Q3 2020 (millions) | | :--------------------------------- | :----------------- | :----------------- | | Net income | $331 | $266 | | Other comprehensive income (loss) | $(24) | $24 | | Stock-based compensation | $17 | $17 | | Cash dividends declared | $(102) | $(86) | | Repurchase of Common Shares | $(219) | $0 | [Condensed Consolidated Statements of Changes in Equity (Nine Months)](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Equity%20for%20the%20nine%20months%20ended%20September%2030%2C%202021%20and%202020) For the nine months ended September 30, 2021, the company's total shareholders' deficit increased, mainly due to significant common stock repurchases and cash dividends, despite strong net income | Item | 9M 2021 (millions) | 9M 2020 (millions) | | :--------------------------------- | :----------------- | :----------------- | | Net income | $965 | $490 (attributable to common shareholders) | | Other comprehensive income (loss) | $(12) | $(61) | | Stock-based compensation | $43 | $32 | | Cash dividends declared | $(291) | $(173) | | Repurchase of Common Shares | $(725) | $0 | [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20for%20the%20nine%20months%20ended%20September%2030%2C%202021%20and%202020) For the nine months ended September 30, 2021, operating activities generated significantly more cash, while investing activities used less cash. However, financing activities resulted in a substantial net cash outflow, primarily due to share repurchases and debt repayments | Activity | 9M 2021 (millions) | 9M 2020 (millions) | Change (millions) | | :----------------------------------- | :----------------- | :----------------- | :---------------- | | Net cash flows from operating activities | $1,473 | $1,171 | $302 | | Net cash flows used in investing activities | $(69) | $(289) | $220 | | Net cash flows used in financing activities | $(1,621) | $(589) | $(1,032) | | Net increase (decrease) in cash | $(228) | $293 | $(521) | [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed explanations and disclosures for the condensed consolidated financial statements, covering business description, accounting policies, significant transactions, and financial positions. They are essential for understanding the company's financial health and performance [Note 1: Description of Business and Separation from United Technologies Corporation](index=11&type=section&id=Note%201%3A%20Description%20of%20Business%20and%20Separation%20from%20United%20Technologies%20Corporation) Otis is a global leader in elevator and escalator manufacturing, installation, and service, operating through New Equipment and Service segments. The company announced a tender offer to acquire the remaining shares of Zardoya Otis and became an independent public company on April 3, 2020, following its spin-off from United Technologies Corporation (UTC) - Otis operates in two segments: New Equipment (design, manufacture, sell, install elevators/escalators) and Service (maintenance, repair, modernization)[31](index=31&type=chunk) - On **September 23, 2021**, Otis announced a tender offer to acquire all outstanding shares of Zardoya Otis not already owned by the Company at **€7.00 per share** (adjusted to **€6.93**). The total value of shares not owned is **€1.63 billion**[32](index=32&type=chunk) - Otis became an independent publicly-traded company on **April 3, 2020**, through a pro-rata distribution from United Technologies Corporation (UTC)[33](index=33&type=chunk) [Note 2: Basis of Presentation](index=12&type=section&id=Note%202%3A%20Basis%20of%20Presentation) The financial statements are presented on a consolidated basis post-Separation (April 3, 2020) and standalone combined basis prior to that. They are unaudited for interim periods and prepared in accordance with Form 10-Q instructions, with management's estimates and assumptions. The impact of COVID-19 was assessed, with no material impact as of September 30, 2021 - Financial statements are consolidated post-**April 3, 2020**, and standalone combined pre-Separation, prepared in accordance with Form 10-Q and Rule 10-01 of Regulation S-X[36](index=36&type=chunk) - Management makes estimates and assumptions that affect reported amounts; actual results could differ materially[39](index=39&type=chunk) - COVID-19 impact was assessed on accounting matters (credit losses, goodwill, long-lived assets, revenue recognition), with no material impact to Condensed Consolidated Financial Statements as of **September 30, 2021**[40](index=40&type=chunk) [Note 3: Earnings per Share](index=13&type=section&id=Note%203%3A%20Earnings%20per%20Share) The company's basic and diluted earnings per share significantly increased for both the quarter and nine months ended September 30, 2021, compared to the prior year, reflecting improved net income and a slightly lower weighted average number of shares outstanding | Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 | | :--------------------------------------- | :------ | :------ | :------ | :------ | | Net income attributable to common shareholders (millions) | $331 | $266 | $965 | $655 | | Basic EPS | $0.78 | $0.61 | $2.25 | $1.51 | | Diluted EPS | $0.77 | $0.61 | $2.23 | $1.51 | | Basic weighted average shares (millions) | 425.8 | 433.2 | 428.5 | 433.1 | | Diluted weighted average shares (millions) | 430.6 | 435.1 | 432.0 | 434.1 | - The computation of diluted EPS excludes anti-dilutive stock awards (**0.1 million** for **Q3 2021** and **9M 2021**, **5.0 million** for **Q3 2020**, and **4.8 million** for **9M 2020**)[44](index=44&type=chunk) [Note 4: Revenue Recognition](index=13&type=section&id=Note%204%3A%20Revenue%20Recognition) Otis recognizes revenue in accordance with ASC Topic 606. Revenue from new equipment, modernization, and repair services is recognized over time, while maintenance revenue is recognized on a straight-line basis. Contract assets increased by $78 million and contract liabilities increased by $218 million during the nine months ended September 30, 2021, primarily due to contract billings exceeding earned revenue. Total Remaining Performance Obligations (RPO) were $17.3 billion, with 88% expected to be recognized within 24 months - New equipment, modernization, and repair services revenue is recognized over time, while maintenance revenue is recognized on a straight-line basis[46](index=46&type=chunk)[47](index=47&type=chunk)[48](index=48&type=chunk) | Metric | Sep 30, 2021 (millions) | Dec 31, 2020 (millions) | Change (millions) | | :-------------------------- | :---------------------- | :---------------------- | :---------------- | | Contract assets, current | $536 | $458 | $78 | | Contract liabilities, current | $2,758 | $2,542 | $216 | | Total contract liabilities | $2,804 | $2,586 | $218 | - Total Remaining Performance Obligations (RPO) as of **September 30, 2021**, were **$17.3 billion**, with **88%** expected to be recognized as sales over the following 24 months[51](index=51&type=chunk) [Note 5: Related Parties](index=14&type=section&id=Note%205%3A%20Related%20Parties) Otis entered into various agreements (Separation, TSA, TMA, EMA, Intellectual Property) with UTC and Carrier following the Separation. Net transfers from UTC and separation-related transactions impacted the balance sheet, including a $191 million reduction in net tax-related liabilities. Shared costs were allocated to Otis prior to the Separation, and non-recurring separation costs were incurred - Otis entered into Separation, Transition Services (TSA), Tax Matters (TMA), Employee Matters (EMA), and Intellectual Property agreements with UTC and Carrier post-Separation[52](index=52&type=chunk)[53](index=53&type=chunk) - Net tax-related liabilities were reduced by **$191 million** on **April 3, 2020**, due to the Separation and TMA provisions, including a **$167 million** increase in Other current assets and a **$377 million** decrease in Future income tax obligations[57](index=57&type=chunk) | Metric | Q3 2021 (millions) | Q3 2020 (millions) | 9M 2021 (millions) | 9M 2020 (millions) | | :-------------------- | :----------------- | :----------------- | :----------------- | :----------------- | | Separation costs, net | $15 | $29 | $24 | $82 | [Note 6: Accounts Receivable, Net](index=16&type=section&id=Note%206%3A%20Accounts%20Receivable%2C%20Net) Accounts receivable, net, increased to $3,217 million at September 30, 2021, from $3,148 million at December 31, 2020. The allowance for expected credit losses increased to $177 million, with a current period provision of $27 million primarily from New Equipment trade and customer financing receivables | (dollars in millions) | September 30, 2021 | December 31, 2020 | | :-------------------------- | :----------------- | :---------------- | | Trade receivables | $3,073 | $2,987 | | Customer financing notes receivable | $106 | $130 | | Accounts receivable, net | $3,217 | $3,148 | | Less: allowance for expected credit losses | $177 | $161 | | Allowance for Credit Losses | 9M 2021 (millions) | 9M 2020 (millions) | | :-------------------------------- | :----------------- | :----------------- | | Balance as of January 1 | $161 | $83 | | Provision for expected credit losses | $27 | $28 | | Balance as of September 30 | $177 | $156 | [Note 7: Inventories, net](index=17&type=section&id=Note%207%3A%20Inventories%2C%20net) Total inventories, net, decreased to $628 million at September 30, 2021, from $659 million at December 31, 2020, primarily due to a reduction in finished goods, partially offset by an increase in raw materials and work-in-process. Valuation reserves also slightly decreased | (dollars in millions) | September 30, 2021 | December 31, 2020 | | :-------------------------- | :----------------- | :---------------- | | Raw materials and work-in-process | $127 | $113 | | Finished goods | $501 | $546 | | Total | $628 | $659 | | Valuation reserves | $108 | $112 | [Note 8: Business Acquisitions, Dispositions, Goodwill and Intangible Assets](index=17&type=section&id=Note%208%3A%20Business%20Acquisitions%2C%20Dispositions%2C%20Goodwill%20and%20Intangible%20Assets) Otis made investments in businesses and intangible assets totaling $59 million in the nine months ended September 30, 2021, primarily in the Service segment. Goodwill decreased to $1,702 million, mainly due to foreign currency translation. Identifiable intangible assets, primarily purchased service portfolios, remained significant - Investments in businesses and intangible assets, net of cash acquired, totaled **$59 million** for the nine months ended **September 30, 2021**, primarily in the Service segment[66](index=66&type=chunk) | Goodwill (dollars in millions) | Jan 1, 2021 | Sep 30, 2021 | Change | | :----------------------------- | :---------- | :----------- | :----- | | New Equipment | $357 | $343 | $(14) | | Service | $1,416 | $1,359 | $(57) | | Total | $1,773 | $1,702 | $(71) | - Amortization of intangible assets was **$22 million** for **Q3 2021** and **$67 million** for **9M 2021**, consistent with **2020**[67](index=67&type=chunk) [Note 9: Borrowings and Lines of Credit](index=18&type=section&id=Note%209%3A%20Borrowings%20and%20Lines%20of%20Credit) Otis significantly reduced short-term borrowings to $38 million by September 30, 2021, from $701 million at December 31, 2020, by repaying commercial paper. Long-term debt increased slightly to $5,458 million, including new ¥21.5 billion Yen Notes issued in March 2021. The company also entered into a €1.65 billion bridge loan credit facility for the Zardoya Otis Tender Offer | (dollars in millions) | Sep 30, 2021 | Dec 31, 2020 | | :-------------------------- | :----------- | :----------- | | Commercial paper | $0 | $664 | | Total short-term borrowings | $38 | $701 | - Otis has a **$1.5 billion** unsecured 5-year revolving credit facility with no outstanding borrowings as of **September 30, 2021**, serving as a backstop for commercial paper[71](index=71&type=chunk) - On **September 22, 2021**, Otis entered into a **€1.65 billion** bridge loan credit agreement for the Zardoya Otis Tender Offer, expected to be drawn only if permanent debt financing is not secured[75](index=75&type=chunk) | Long-term debt (dollars in millions) | Sep 30, 2021 | Dec 31, 2020 | | :----------------------------------- | :----------- | :----------- | | Total principal long-term debt | $5,499 | $5,305 | | Total long-term debt | $5,458 | $5,262 | | Average interest rate (9M) | 2.4% | 2.5% | [Note 10: Employee Benefit Plans](index=20&type=section&id=Note%2010%3A%20Employee%20Benefit%20Plans) Otis sponsors defined benefit, postretirement, and defined contribution plans. Contributions to defined benefit plans were $23 million for the nine months ended September 30, 2021. Total gross stock-based compensation expense was $50 million for the nine months ended September 30, 2021, with $73 million of unrecognized cost remaining | Contributions (dollars in millions) | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 | | :---------------------------------- | :------ | :------ | :------ | :------ | | Defined benefit plans | $5 | $8 | $23 | $28 | | Defined contribution plans | $14 | $12 | $47 | $42 | | Multi-employer pension plans | $38 | $46 | $118 | $119 | | Stock-based Compensation (dollars in millions) | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 | | :--------------------------------------------- | :------ | :------ | :------ | :------ | | Total gross stock-based compensation expense | $18 | $19 | $50 | $38 | | Unrecognized compensation cost (Sep 30, 2021) | | | $73 | | [Note 11: Stock](index=21&type=section&id=Note%2011%3A%20Stock) Otis has 2 billion authorized shares of common stock, with 434.5 million issued as of September 30, 2021. The company repurchased 9.7 million shares for $725 million during the nine months ended September 30, 2021, under a $1 billion program. Share repurchases are expected to be suspended through 2022 due to the Zardoya Otis Tender Offer - As of **September 30, 2021**, **434.5 million** shares of Common Stock were issued, including **9.7 million** shares of treasury stock[85](index=85&type=chunk) - During the nine months ended **September 30, 2021**, the Company repurchased **9.7 million shares** of Common Stock for approximately **$725 million** under a **$1 billion** share repurchase program[86](index=86&type=chunk) - Share repurchases are expected to be suspended through **2022** as the company focuses on deleveraging due to increased debt anticipated for the Zardoya Otis Tender Offer[86](index=86&type=chunk) [Note 12: Accumulated Other Comprehensive Income (Loss)](index=22&type=section&id=Note%2012%3A%20Accumulated%20Other%20Comprehensive%20Income%20(Loss)) Accumulated other comprehensive income (loss) for Otis was $(827) million as of September 30, 2021, primarily driven by foreign currency translation adjustments. Pension and postretirement benefit plan adjustments and unrealized hedging gains (losses) also contributed to the overall balance | Component (dollars in millions) | Sep 30, 2021 | Dec 31, 2020 | | :-------------------------------- | :----------- | :----------- | | Foreign Currency Translation | $(640) | $(616) | | Pension and Postretirement Plans | $(192) | $(203) | | Unrealized Hedging Gains (Losses) | $5 | $4 | | Total Accumulated Other Comprehensive Income (Loss) | $(827) | $(815) | [Note 13: Income Taxes](index=23&type=section&id=Note%2013%3A%20Income%20Taxes) The effective tax rate increased to 25.2% for Q3 2021 due to the absence of a prior-year tax benefit and was partially offset by an income tax settlement related to the Separation. For the nine months, the effective tax rate decreased to 26.7% due to the absence of prior-year separation-related tax costs, a reduction in deferred tax liability, and tax settlements | Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 | | :--------------- | :------ | :------ | :------ | :------ | | Effective tax rate | 25.2% | 24.9% | 26.7% | 30.2% | - The increase in **Q3 2021** effective tax rate is due to the absence of a cumulative tax benefit from TCJA regulations in **Q3 2020**, partially offset by a Separation-related income tax settlement[89](index=89&type=chunk)[182](index=182&type=chunk) - The decrease in **9M 2021** effective tax rate is due to the absence of prior-year Separation-related expenses and fixed asset impairment, a reduction in deferred tax liability from foreign earnings repatriation, and net income tax settlements related to the Separation[90](index=90&type=chunk)[183](index=183&type=chunk) [Note 14: Restructuring Costs](index=23&type=section&id=Note%2014%3A%20Restructuring%20Costs) Otis recorded $35 million in restructuring costs for the nine months ended September 30, 2021, primarily for workforce reductions and facility consolidations. The company expects to make $49 million in cash payments to complete announced actions and anticipates achieving $27 million in annual recurring savings for 2021 actions and $58 million for 2020 actions | Restructuring Costs (dollars in millions) | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 | | :---------------------------------------- | :------ | :------ | :------ | :------ | | Total restructuring costs | $9 | $20 | $35 | $46 | - Restructuring actions primarily relate to ongoing cost-reduction efforts, including workforce reductions[95](index=95&type=chunk)[168](index=168&type=chunk) - Expected cash payments of **$49 million** are anticipated to complete announced restructuring actions, with **$47 million** in annual recurring savings realized for **2021** and **2020** actions during the nine months ended **September 30, 2021**[170](index=170&type=chunk)[171](index=171&type=chunk) [Note 15: Financial Instruments](index=24&type=section&id=Note%2015%3A%20Financial%20Instruments) Otis uses derivative instruments, including foreign exchange and commodity contracts, for risk management. The notional amount of foreign exchange contracts was $3.0 billion. The company also utilizes net investment hedges, such as the ¥21.5 billion Japanese Yen denominated long-term debt, which generated $5 million in gains for the nine months ended September 30, 2021 - Otis uses derivative instruments (swaps, forward contracts, options) to manage foreign currency, commodity price, and interest rate exposures[97](index=97&type=chunk) - The average notional amount of foreign exchange contracts hedging foreign currency transactions was **$3.0 billion** at **September 30, 2021**[98](index=98&type=chunk) - The **¥21.5 billion** Japanese Yen denominated long-term debt qualifies as a net investment hedge against investments in Japanese businesses, recognizing gains of **$5 million** for the nine months ended **September 30, 2021**[105](index=105&type=chunk) [Note 16: Fair Value Measurements](index=26&type=section&id=Note%2016%3A%20Fair%20Value%20Measurements) Otis classifies its financial instruments into a valuation hierarchy. Equity securities are measured at fair value using Level 1 inputs, while derivative assets and liabilities are measured using Level 2 inputs. The fair values of current financial instruments approximated their carrying values due to their short-term nature | (dollars in millions) | Sep 30, 2021 (Total) | Dec 31, 2020 (Total) | | :-------------------------- | :------------------- | :------------------- | | Equity securities | $24 | $59 | | Derivative assets | $31 | $46 | | Derivative liabilities | $(14) | $(43) | - Equity securities are measured at fair value using closing stock prices from active markets (**Level 1**)[107](index=107&type=chunk) - Derivative assets and liabilities (foreign exchange contracts) are measured at fair value using internal models based on observable market inputs (**Level 2**)[107](index=107&type=chunk) [Note 17: Guarantees](index=28&type=section&id=Note%2017%3A%20Guarantees) Otis provides service and product guarantees, with a liability of $21 million as of September 30, 2021. The company also has stand-by letters of credit totaling $146 million. In connection with the Zardoya Otis Tender Offer, Otis entered into agreements for €1.65 billion in financial guarantees to the CNMV, as required by Spanish takeover code | Service and Product Guarantees (dollars in millions) | 2021 | 2020 | | :--------------------------------------------------- | :--- | :--- | | Balance as of December 31 | $25 | $27 | | Balance as of September 30 | $21 | $24 | - Otis has stand-by letters of credit with a maximum potential payment totaling **$146 million** as of **September 30, 2021**[111](index=111&type=chunk) - In connection with the Tender Offer, Otis entered into agreements for **€1.65 billion** in financial guarantees to the CNMV, as required by the Spanish takeover code[112](index=112&type=chunk) [Note 18: Contingent Liabilities](index=28&type=section&id=Note%2018%3A%20Contingent%20Liabilities) Otis faces various contingent liabilities, including environmental obligations of $12 million, ongoing German tax litigation for approximately $252 million in disallowed tax benefits plus $139 million in interest, and asbestos-related claims with an estimated liability range of $23 million to $45 million. A putative class action lawsuit was also filed regarding long-term incentive awards - Environmental obligations totaled **$12 million** as of **September 30, 2021**[114](index=114&type=chunk) - German Tax Litigation concerns approximately **€215 million ($252 million)** of disallowed tax benefits and an estimated **€118 million ($139 million)** in associated interest. Otis has accrued **€45 million ($52 million)** for remaining interest[115](index=115&type=chunk)[117](index=117&type=chunk) - Asbestos claims have an estimated total liability range of **$23 million to $45 million** through **2059**, with **$23 million** recorded. An insurance recovery receivable of **$5 million** is also recognized[119](index=119&type=chunk) - A putative class action lawsuit was filed on **August 12, 2020**, against Otis, RTX, and Carrier, alleging decreases in the value of long-term incentive awards and deferred compensation[120](index=120&type=chunk) [Note 19: Segment Financial Data](index=30&type=section&id=Note%2019%3A%20Segment%20Financial%20Data) Otis operates in two segments: New Equipment and Service. Both segments showed strong growth in net sales and operating profit for the quarter and nine months ended September 30, 2021. The Service segment consistently maintains a higher operating profit margin. Geographic sales are primarily from International Operations, with China being a significant market | Segment Performance (dollars in millions) | Q3 2021 Net Sales | Q3 2020 Net Sales | Q3 2021 Operating Profit | Q3 2020 Operating Profit | Q3 2021 Operating Margin | Q3 2020 Operating Margin | | :---------------------------------------- | :---------------- | :---------------- | :----------------------- | :----------------------- | :----------------------- | :----------------------- | | New Equipment | $1,681 | $1,423 | $131 | $95 | 7.8% | 6.7% | | Service | $1,939 | $1,845 | $444 | $409 | 22.9% | 22.2% | | Total segments | $3,620 | $3,268 | $575 | $504 | 15.9% | 15.4% | | Segment Performance (dollars in millions) | 9M 2021 Net Sales | 9M 2020 Net Sales | 9M 2021 Operating Profit | 9M 2020 Operating Profit | 9M 2021 Operating Margin | 9M 2020 Operating Margin | | :---------------------------------------- | :---------------- | :---------------- | :----------------------- | :----------------------- | :----------------------- | :----------------------- | | New Equipment | $4,866 | $3,840 | $382 | $238 | 7.9% | 6.2% | | Service | $5,863 | $5,423 | $1,315 | $1,190 | 22.4% | 21.9% | | Total segments | $10,729 | $9,263 | $1,697 | $1,428 | 15.8% | 15.4% | | Geographic External Net Sales (dollars in millions) | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 | | :-------------------------------------------------- | :------ | :------ | :------ | :------ | | United States Operations | $927 | $855 | $2,802 | $2,550 | | China | $811 | $624 | $2,176 | $1,557 | | Other International Operations | $1,882 | $1,789 | $5,751 | $5,156 | | Total | $3,620 | $3,268 | $10,729 | $9,263 | [Note 20: Accounting Pronouncements](index=32&type=section&id=Note%2020%3A%20Accounting%20Pronouncements) Otis adopted ASU 2019-12 (Income Taxes) effective January 1, 2021, with no material impact. The company is evaluating ASU 2020-04 (Reference Rate Reform) but does not expect a material impact. Other new pronouncements are not expected to have a material impact - ASU **2019-12**, 'Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,' was adopted effective **January 1, 2021**, with no material impact[132](index=132&type=chunk) - ASU **2020-04**, 'Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting,' is being evaluated, with no material impact expected[133](index=133&type=chunk) [Report of Independent Registered Public Accounting Firm](index=33&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) PricewaterhouseCoopers LLP conducted a limited review of Otis' interim financial information for the periods ended September 30, 2021 and 2020, and is not aware of any material modifications needed for conformity with GAAP. They also expressed an unqualified opinion on the consolidated balance sheet as of December 31, 2020 - PricewaterhouseCoopers LLP applied limited procedures for a review of the unaudited interim financial information and is not aware of any material modifications needed[136](index=136&type=chunk)[138](index=138&type=chunk) - An unqualified opinion was expressed on the audited consolidated balance sheet as of **December 31, 2020**[139](index=139&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=34&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on Otis' financial condition and results of operations, highlighting key business developments, financial performance drivers, and liquidity. It covers the company's segments, the Zardoya Otis Tender Offer, COVID-19 impacts, and detailed analysis of revenues, costs, and cash flows [BUSINESS OVERVIEW](index=34&type=section&id=BUSINESS%20OVERVIEW) Otis is the world's leading elevator and escalator company, operating through New Equipment and Service segments with a global, integrated strategy. Key business developments include the company's separation from UTC, the ongoing Zardoya Otis Tender Offer, and the continued assessment of COVID-19's impact on operations - Otis is the world's leading elevator and escalator manufacturing, installation, and service company, organized into New Equipment and Service segments[143](index=143&type=chunk) - The company operates under a centralized operating model with a global strategy to grow its maintenance portfolio through new installations[145](index=145&type=chunk) [Separation from United Technologies Corporation](index=34&type=section&id=Separation%20from%20United%20Technologies%20Corporation) Otis became an independent, publicly-traded company on April 3, 2020, following its spin-off from United Technologies Corporation (UTC). The transition services agreement (TSA) and tax matters agreement (TMA) with UTC and Carrier are substantially completed as of September 30, 2021 - Otis became an independent, publicly-traded company on **April 3, 2020**, listed on the NYSE under 'OTIS', following its separation from UTC[147](index=147&type=chunk) - The transition services agreement (TSA) and related trailing exit costs are substantially completed as of **September 30, 2021**[149](index=149&type=chunk) [Zardoya Otis Tender Offer](index=35&type=section&id=Zardoya%20Otis%20Tender%20Of%20er) On September 23, 2021, Otis announced a tender offer to acquire all outstanding shares of Zardoya Otis not owned by the company at €6.93 per share, with the intention to delist its shares from Spanish stock exchanges. Financing arrangements are in place for this proposed transaction - Otis announced a tender offer on **September 23, 2021**, to acquire all outstanding shares of Zardoya Otis not owned by the company at **€7.00 per share** (adjusted to **€6.93**)[151](index=151&type=chunk) - The company intends to delist Zardoya Otis shares from the Madrid, Barcelona, Bilbao, and Valencia stock exchanges subsequent to the Tender Offer[151](index=151&type=chunk) [Impact of COVID-19 on our Company](index=35&type=section&id=Impact%20of%20COVID-19%20on%20our%20Company) The COVID-19 pandemic impacted Otis' operations and financial performance in 2021 and 2020, with potential future effects on customer demand, order delays, liquidity, and supplier constraints. However, no significant impact on capital and financial resources or overall liquidity is currently expected - COVID-19 impacted operations and financial performance, with potential future effects on customer demand, order cancellations/delays, customer liquidity, and supplier constraints[152](index=152&type=chunk)[155](index=155&type=chunk) - No significant impact to capital and financial resources or overall liquidity is currently expected from the COVID-19 pandemic[152](index=152&type=chunk) [CRITICAL ACCOUNTING ESTIMATES](index=35&type=section&id=CRITICAL%20ACCOUNTING%20ESTIMATES) Management's critical accounting estimates, which involve significant judgments and assumptions, are detailed in the company's Form 10-K. There have been no material changes to these policies, except for the adoption of new accounting pronouncements as disclosed in Note 20 - No material changes in critical accounting policies, except for the adoption of new accounting pronouncements as disclosed in Note **20**[155](index=155&type=chunk) [RESULTS OF OPERATIONS](index=36&type=section&id=RESULTS%20OF%20OPERATIONS) Otis demonstrated strong financial performance for the quarter and nine months ended September 30, 2021, with significant increases in net sales, operating profit, and net income attributable to common shareholders. This growth was driven by organic volume increases, favorable foreign currency translation, and improved segment performance, partially offset by higher employment costs and commodity headwinds [Net Sales](index=36&type=section&id=Net%20Sales) Total net sales increased by 10.8% for the quarter and 15.8% for the nine months ended September 30, 2021, driven primarily by strong organic volume growth in both New Equipment and Service segments, complemented by favorable foreign currency translation | Metric | Q3 2021 (millions) | Q3 2020 (millions) | 9M 2021 (millions) | 9M 2020 (millions) | | :------- | :----------------- | :----------------- | :----------------- | :----------------- | | Net sales | $3,620 | $3,268 | $10,729 | $9,263 | | % change YoY | 10.8% | | 15.8% | | | Components of Net Sales Change | Q3 2021 | 9M 2021 | | :----------------------------- | :------ | :------ | | Organic volume | 8.1% | 11.2% | | Foreign currency translation | 2.5% | 4.4% | | Acquisitions and divestitures, net | 0.2% | 0.2% | | Total % change | 10.8% | 15.8% | - Organic volume increase was driven by **14.1% growth** in New Equipment and **3.6%** in Service for the quarter, and **21.1%** in New Equipment and **4.2%** in Service for the nine months[157](index=157&type=chunk)[158](index=158&type=chunk) [Cost of Products and Services Sold](index=36&type=section&id=Cost%20of%20Products%20and%20Services%20Sold) Total cost of products and services sold increased by 11.8% for the quarter and 16.6% for the nine months ended September 30, 2021, primarily due to higher organic sales volume and overall segment mix | Metric | Q3 2021 (millions) | Q3 2020 (millions) | 9M 2021 (millions) | 9M 2020 (millions) | | :-------------------------------- | :----------------- | :----------------- | :----------------- | :----------------- | | Total cost of products and services sold | $2,560 | $2,289 | $7,575 | $6,496 | | % change YoY | 11.8% | | 16.6% | | | Components of Cost of Sales Change | Q3 2021 | 9M 2021 | | :--------------------------------- | :------ | :------ | | Organic volume | 9.0% | 11.7% | | Foreign currency translation | 2.9% | 4.7% | | Acquisitions and divestitures, net | 0.1% | 0.2% | | Restructuring | (0.2)% | 0.0% | | Total % change | 11.8% | 16.6% | - The organic increase in cost of products and services sold was primarily driven by organic sales increases and overall segment mix between New Equipment and Service[160](index=160&type=chunk) [Gross Margin](index=37&type=section&id=Gross%20Margin) Gross margin percentage decreased by 70 basis points for the quarter and 50 basis points for the nine months ended September 30, 2021, primarily due to overall segment mix, despite improvements in gross margins within the New Equipment and Service segments for the nine-month period | Metric | Q3 2021 (millions) | Q3 2020 (millions) | 9M 2021 (millions) | 9M 2020 (millions) | | :-------------------- | :----------------- | :----------------- | :----------------- | :----------------- | | Gross margin | $1,060 | $979 | $3,154 | $2,767 | | Gross margin percentage | 29.3% | 30.0% | 29.4% | 29.9% | - Gross margin decreased primarily due to overall segment mix for both the quarter and nine months[161](index=161&type=chunk)[162](index=162&type=chunk) [Research and Development](index=37&type=section&id=Research%20and%20Development) Research and development expenses remained relatively flat for both the quarter and nine months ended September 30, 2021, at approximately 1.1% of net sales. The company continues to invest in strategic projects, including Internet of Things (IoT) technologies | Metric | Q3 2021 (millions) | Q3 2020 (millions) | 9M 2021 (millions) | 9M 2020 (millions) | | :------------------------ | :----------------- | :----------------- | :----------------- | :----------------- | | Research and development | $39 | $37 | $113 | $112 | | Percentage of Net sales | 1.1% | 1.1% | 1.1% | 1.2% | - R&D funding continues for strategic investment projects, including Internet of Things technologies[164](index=164&type=chunk) [Selling, General and Administrative](index=37&type=section&id=Selling%2C%20General%20and%20Administrative) Selling, general and administrative (SG&A) expenses were relatively flat for the quarter but increased by $58 million for the nine months ended September 30, 2021. This increase was driven by higher employment and IT costs, and the absence of prior-year COVID-19 cost containment, partially offset by lower non-recurring Separation-related costs and the absence of UTC allocations | Metric | Q3 2021 (millions) | Q3 2020 (millions) | 9M 2021 (millions) | 9M 2020 (millions) | | :-------------------------------- | :----------------- | :----------------- | :----------------- | :----------------- | | Selling, general and administrative | $479 | $481 | $1,445 | $1,387 | | Percentage of Net sales | 13.2% | 14.7% | 13.5% | 15.0% | - SG&A expenses for the nine months increased due to higher employment and IT costs, absence of **2020** COVID-19 cost containment, and unfavorable foreign exchange (**$42 million**), partially offset by lower non-recurring Separation-related costs and absence of UTC allocations (**$71 million**)[167](index=167&type=chunk) [Restructuring Costs](index=38&type=section&id=Restructuring%20Costs) Otis incurred $35 million in restructuring costs for the nine months ended September 30, 2021, primarily for workforce reductions. The company expects $49 million in future cash payments for these actions and anticipates $27 million in annual recurring savings from 2021 actions and $58 million from 2020 actions | Metric | 9M 2021 (millions) | 9M 2020 (millions) | | :---------------- | :----------------- | :----------------- | | Restructuring costs | $35 | $46 | - Total restructuring costs for **9M 2021** included **$24 million** for **2021** actions, **$10 million** for **2020** actions, and **$1 million** for pre-**2020** actions[169](index=169&type=chunk) - Expected cash payments of **$49 million** are anticipated to complete announced actions, with **$47 million** in annual recurring savings realized for **2021** and **2020** actions during the nine months ended **September 30, 2021**[170](index=170&type=chunk)[171](index=171&type=chunk) [Other Income (Expense), Net](index=38&type=section&id=Other%20Income%20(Expense)%2C%20Net) Other income (expense), net, improved significantly, changing from $(7) million to $0 for the quarter and from $(69) million to $16 million for the nine months ended September 30, 2021. This was driven by gains on fixed asset sales, changes in derivative fair values, and the absence of a prior-year fixed asset impairment and related licensing costs | Metric | Q3 2021 (millions) | Q3 2020 (millions) | 9M 2021 (millions) | 9M 2020 (millions) | | :------------------------ | :----------------- | :----------------- | :----------------- | :----------------- | | Other income (expense), net | $0 | $(7) | $16 | $(69) | - The change was primarily driven by gains on sales of fixed assets, changes in fair value and settlement of embedded and foreign exchange derivatives, and the impact from settlements of certain TMA transactions[174](index=174&type=chunk) - For the nine months, the change was also due to the absence of a fixed asset impairment of **$(55) million** and related licensing costs of **$(12) million** recognized in **Q1 2020**[175](index=175&type=chunk) [Interest Expense (Income), Net](index=39&type=section&id=Interest%20Expense%20(Income)%2C%20Net) Interest expense (income), net, decreased by $6 million for the quarter ended September 30, 2021, due to lower interest expense from debt refinancings and repayments. However, it increased by $7 million for the nine months, primarily due to a full nine-month impact of interest on external debt associated with the Separation | Metric | Q3 2021 (millions) | Q3 2020 (millions) | 9M 2021 (millions) | 9M 2020 (millions) | | :-------------------------- | :----------------- | :----------------- | :----------------- | :----------------- | | Interest expense (income), net | $33 | $39 | $92 | $85 | - The decrease in **Q3** was primarily driven by lower interest expense due to debt refinancings and repayments during **2021**[178](index=178&type=chunk) - The increase in **9M** was primarily driven by a full nine-month impact of interest expense on external debt associated with the Separation, offset by favorable debt activity[179](index=179&type=chunk) [Income Taxes](index=39&type=section&id=Income%20Taxes) The effective tax rate increased to 25.2% for the quarter ended September 30, 2021, due to the absence of a prior-year tax benefit, partially offset by a Separation-related settlement. For the nine months, the rate decreased to 26.7% due to the absence of prior-year tax costs, a reduction in deferred tax liability, and net income tax settlements | Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 | | :--------------- | :------ | :------ | :------ | :------ | | Effective tax rate | 25.2% | 24.9% | 26.7% | 30.2% | - The increase in **Q3** effective tax rate is primarily due to the absence of a cumulative tax benefit related to TCJA tax regulations recorded in **Q3 2020**, partially offset by an income tax settlement related to the Separation[182](index=182&type=chunk) - The decrease in **9M** effective tax rate is due to the absence of tax costs from Separation-related expenses and fixed asset impairment in **Q1 2020**, a reduction in deferred tax liability, and net income tax settlements related to the Separation[183](index=183&type=chunk) [Noncontrolling Interest in Subsidiaries' Earnings](index=39&type=section&id=Noncontrolling%20Interest%20in%20Subsidiaries'%20Earnings) Noncontrolling interest in subsidiaries' earnings increased for both the quarter and nine months ended September 30, 2021, primarily due to higher net income from non-wholly owned subsidiaries and the impact of foreign exchange | Metric | Q3 2021 (millions) | Q3 2020 (millions) | 9M 2021 (millions) | 9M 2020 (millions) | | :---------------------------------------- | :----------------- | :----------------- | :----------------- | :----------------- | | Noncontrolling interest in subsidiaries' earnings | $48 | $44 | $145 | $122 | - The increase is primarily due to higher net income from non-wholly owned subsidiaries and the impact from foreign exchange[185](index=185&type=chunk) [Net Income Attributable to Common Shareholders](index=40&type=section&id=Net%20Income%20Attributable%20to%20Common%20Shareholders) Net income attributable to common shareholders increased significantly for both the quarter and nine months ended September 30, 2021, driven by higher operating profit and a lower effective tax rate for the nine-month period | Metric | Q3 2021 (millions) | Q3 2020 (millions) | 9M 2021 (millions) | 9M 2020 (millions) | | :---------------------------------------- | :----------------- | :----------------- | :----------------- | :----------------- | | Net income attributable to common shareholders | $331 | $266 | $965 | $655 | | Diluted earnings per share from operations | $0.77 | $0.61 | $2.23 | $1.51 | - The increase for the quarter was primarily driven by higher operating profit[186](index=186&type=chunk) - The increase for the nine months was primarily driven by higher operating profit and the benefit of a lower effective tax rate, partially offset by higher noncontrolling interest and interest expense[187](index=187&type=chunk) [Segment Review](index=40&type=section&id=Segment%20Review) Both the New Equipment and Service segments demonstrated strong performance, with significant increases in net sales and operating profit for the quarter and nine months ended September 30, 2021. The Service segment continued to show higher operating profit margins [New Equipment Segment Performance](index=40&type=section&id=New%20Equipment%20Segment%20Performance) The New Equipment segment experienced robust growth, with net sales increasing by 18.1% for the quarter and 26.7% for the nine months ended September 30, 2021. Operating profit surged by 37.9% and 60.5% respectively, driven by higher volume and favorable field installation productivity, despite commodity headwinds | Metric (dollars in millions) | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 | | :--------------------------- | :------ | :------ | :------ | :------ | | Net sales | $1,681 | $1,423 | $4,866 | $3,840 | | Operating profit | $131 | $95 | $382 | $238 | | Operating profit margin | 7.8% | 6.7% | 7.9% | 6.2% | - Organic sales increase of **14.1%** for the quarter was driven by mid-teens growth in Americas, high-teens growth in Asia, and low single-digit growth in EMEA[191](index=191&type=chunk) - Operating profit increase was primarily due to higher volume and favorable field installation productivity, partially offset by commodity headwinds and unfavorable price and mix[192](index=192&type=chunk)[194](index=194&type=chunk) [Service Segment Performance](index=42&type=section&id=Service%20Segment%20Performance) The Service segment also showed strong performance, with net sales increasing by 5.1% for the quarter and 8.1% for the nine months ended September 30, 2021. Operating profit grew by 8.6% and 10.5% respectively, driven by higher volume, favorable pricing and mix, and lower restructuring costs, despite headwinds from prior year cost containment actions | Metric (dollars in millions) | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 | | :--------------------------- | :------ | :------ | :------ | :------ | | Net sales | $1,939 | $1,845 | $5,863 | $5,423 | | Operating profit | $444 | $409 | $1,315 | $1,190 | | Operating profit margin | 22.9% | 22.2% | 22.4% | 21.9% | - Organic sales increase for the quarter was due to **4.7% growth** in maintenance and repair, partially offset by a **1.2% decrease** in modernization[197](index=197&type=chunk) - Operating profit increase was driven by higher volume, favorable pricing and mix, and lower restructuring costs, partially offset by headwinds from prior year cost containment and field actions in response to COVID-19[199](index=199&type=chunk)[202](index=202&type=chunk) [General Corporate Expenses and Other](index=43&type=section&id=General%20Corporate%20Expenses%20and%20Other) General corporate expenses and other decreased by $(17) million for the quarter and $(144) million for the nine months ended September 30, 2021. This reduction was primarily due to lower non-recurring Separation costs and the absence of a prior-year fixed asset impairment charge and related licensing costs | Metric (dollars in millions) | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 | | :--------------------------- | :------ | :------ | :------ | :------ | | General corporate expenses and other | $(33) | $(50) | $(85) | $(229) | - The decrease for the nine months was primarily due to the absence of a fixed asset impairment of **$(55) million** and related licensing costs of **$(12) million** recognized in **Q1 2020**, and lower non-recurring Separation costs and absence of UTC allocations of **$(74) million**[204](index=204&type=chunk) [LIQUIDITY AND FINANCIAL CONDITION](index=44&type=section&id=LIQUIDITY%20AND%20FINANCIAL%20CONDITION) Otis maintains a strong liquidity position with $1.6 billion in cash and cash equivalents as of September 30, 2021. The company's net debt decreased to $3,943 million. Future funding requirements are expected to be met through cash flows from operations, available credit lines, and capital markets access. Share repurchases are suspended through 2022 to focus on deleveraging due to the Zardoya Otis Tender Offer | Metric (dollars in millions) | Sep 30, 2021 | Dec 31, 2020 | | :--------------------------------------- | :----------- | :----------- | | Cash and cash equivalents | $1,553 | $1,782 | | Total debt | $5,496 | $5,963 | | Net debt | $3,943 | $4,181 | | Total equity | $(3,295) | $(3,284) | - Approximately **97%** of cash and cash equivalents (**$1.6 billion**) was held by foreign subsidiaries as of **September 30, 2021**[206](index=206&type=chunk) - Otis expects to fund ongoing operating, investing, and financing requirements mainly through cash flows from operations, available liquidity, and access to capital markets[212](index=212&type=chunk) [Cash Flow - Operating Activities](index=45&type=section&id=Cash%20Flow%20-%20Operating%20Activities) Net cash flows provided by operating activities increased by $302 million to $1,473 million for the nine months ended September 30, 2021. This improvement was primarily driven by higher net income and increased cash inflows from current assets and liabilities, partially offset by lower non-cash adjustments and other operating activities | Metric | 9M 2021 (millions) | 9M 2020 (millions) | | :--------------------------------------- | :----------------- | :----------------- | | Net cash flows provided by operating activities | $1,473 | $1,171 | - Cash generated from operating activities was **$302 million** higher, primarily due to higher net income (**$333 million**) and increased cash inflows from current assets and liabilities (**$172 million**)[215](index=215&type=chunk) - Cash inflows from current assets and liabilities for **9M 2021** were **$264 million**, driven by increases in accounts payable (**$230 million**) and net contract assets/liabilities (**$140 million**), and a decrease in inventories (**$18 million**)[216](index=216&type=chunk) [Cash Flow - Investing Activities](index=46&type=section&id=Cash%20Flow%20-%20Investing%20Activities) Net cash flows used in investing activities decreased by $220 million to $69 million for the nine months ended September 30, 2021. This reduction was mainly due to $58 million in proceeds from equity security sales, $43 million higher other investing activities (including property damage insurance proceeds), and $33 million lower investments in equity securities | Investing Activities (dollars in millions) | 9M 2021 | 9M 2020 | Change | | :----------------------------------------- | :------ | :------ | :----- | | Net cash flows used in investing activities | $(69) | $(289) | $220 | - Key drivers for the decrease in cash used include **$58 million** from equity security sales, **$43 million** higher other investing activities (e.g., property damage insurance proceeds), and **$33 million** lower investments in equity securities[225](index=225&type=chunk) - Settlement of derivative instruments resulted in net cash receipts of **$35 million** in **9M 2021**, compared to payments of **$63 million** in **9M 2020**[224](index=224&type=chunk) [Cash Flow - Financing Activities](index=47&type=section&id=Cash%20Flow%20-%20Financing%20Activities) Net cash flows used in financing activities increased by $1.0 billion to $1,621 million for the nine months ended September 30, 2021. This was primarily driven by $725 million in common stock repurchases, $118 million higher dividends paid, and higher net repayments on borrowings, contrasting with significant net transfers to UTC in the prior year | Financing Activities (dollars in millions) | 9M 2021 | 9M 2020 | Change | | :----------------------------------------- | :------ | :------ | :----- | | Net cash flows used in financing activities | $(1,621) | $(589) | $(1,032) | | Repurchases of Common Stock | $(725) | $0 | $(725) | | Dividends paid on Common Stock | $(291) | $(173) | $(118) | | Net proceeds from (repayments of) borrowings | $(645) | $510 | $(1,155) | | Net transfers to UTC | $0 | $(6,330) | $6,330 | - The increase in cash used was primarily due to **$725 million** in Common Stock repurchases and **$118 million** higher dividends paid[231](index=231&type=chunk) - Higher net repayments on borrowings (**$457 million** in **9M 2021** vs. **$240 million** in **9M 2020**) also contributed, with **9M 2020** including **$6.3 billion** net transfers to UTC funded by long-term debt issuance[231](index=231&type=chunk) [Off-Balance Sheet Arrangements and Contractual Obligations](index=48&type=section&id=Off-Balance%20Sheet%20Arrangements%20and%20Contractual%20Obligations) There have been no material changes to Otis' off-balance sheet arrangements and contractual obligations as of September 30, 2021, outside the ordinary course of business, except for those disclosed in Note 9, 'Borrowings and Lines of Credit' - No material changes to off-balance sheet arrangements and contractual obligations, except for those disclosed in Note **9**, 'Borrowings and Lines of Credit'[232](index=232&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=48&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) There have been no material changes to Otis Worldwide Corporation's exposure to market risk during the quarter and nine months ended September 30, 2021 - No material changes to the Company's market risk during the quarter and nine months ended **September 30, 2021**[233](index=233&type=chunk) [Item 4. Controls and Procedures](index=48&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO, CFO, and CAO, concluded that Otis' disclosure controls and procedures were effective as of September 30, 2021. There have been no material changes in internal control over financial reporting during the quarter - Disclosure controls and procedures were effective as of **September 30, 2021**, providing reasonable assurance that required information is recorded, processed, summarized, and reported timely[234](index=234&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended **September 30, 2021**[235](index=235&type=chunk) [Cautionary Note Concerning Factors That May Affect Future Results](index=49&type=section&id=Cautionary%20Note%20Concerning%20Factors%20That%20May%20Affect%20Future%20Results) This section provides a cautionary note regarding forward-looking statements, outlining various risks and uncertainties that could cause actual results to differ materially. These factors include economic conditions, R&D challenges, future indebtedness (especially from the Zardoya Otis Tender Offer), credit availability, share repurchase timing, supply chain disruptions, legal outcomes, pension costs, political changes, regulatory shifts, ability to retain key personnel, and M&A activity - Forward-looking statements are subject to risks, uncertainties, and other factors that may cause actual results to differ materially[238](index=238&type=chunk) - Key risks include economic conditions (commodity prices, interest rates, foreign exchange, COVID-19 impacts), challenges in technology development, future indebtedness (including from the Tender Offer), credit availability, timing of share repurchases, supply chain disruptions, restructuring costs, legal proceedings, pension plan assumptions, political and regulatory changes, and M&A activity[239](index=239&type=chunk) - Otis undertakes no obligation to publicly update or revise any forward-looking statements, except as required by applicable law[241](index=241&type=chunk) PART II – OTHER INFORMATION [Item 1. Legal Proceedings](index=51&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 18, 'Contingent Liabilities,' for a detailed discussion of material legal proceedings. No other material developments in legal proceedings have occurred since previous reports - Material legal proceedings are discussed in Note **18**, 'Contingent Liabilities,' to the Condensed Consolidated Financial Statements[243](index=243&type=chunk) - No other material developments in legal proceedings have occurred[244](index=244&type=chunk) [Item 1A. Risk Factors](index=51&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the company's risk factors from those disclosed in the 2020 Form 10-K, except for new risks specifically related to the pending Zardoya Otis Tender Offer. These risks include uncertainties regarding CNMV approval, financing, and the realization of expected benefits - No material changes to risk factors from the **2020** Form 10-K, except for new risks related to the pending Zardoya Otis Tender Offer[245](index=245&type=chunk)[246](index=246&type=chunk) - Risks for the Tender Offer include the need for CNMV approval, potential for competing offers, challenges in obtaining permanent financing, and the possibility that expected cost and operational efficiencies may not be fully realized[246](index=246&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=51&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Procee

Q3 2021 Performance Highlights - New Equipment orders increased by 3.8% at constant currency, and up 10.3% on a rolling 12-month basis[8] - The company's Maintenance portfolio grew by 3%[6] - Otis achieved organic sales growth of 8.1%, with New Equipment sales up 14.1% and Service sales up 3.6%[9] - Adjusted operating profit margin expanded by 20 bps[9] - Free cash flow reached $324 million, representing a 141% conversion of GAAP net income[9] Revised 2021 Outlook - Net sales are projected to increase by approximately 11.8% to 12.3%, with organic sales growth of 8.5% to 9.0%[9] - Adjusted operating profit is expected to range from $2.18 billion to $2.19 billion, an increase of $260 million to $270 million[10] - Adjusted diluted EPS is anticipated to be around $2.95, reflecting a growth of approximately 17%[10] - Free cash flow is projected to be between $1.5 billion and $1.55 billion, with a conversion rate of approximately 125% of GAAP net income[10] Segment Results - New Equipment net sales increased by 18.1%, with organic sales up 14.1%[15] - Service net sales increased by 5.1%, with organic sales up 3.6%[19]

Summary of Otis Worldwide Corporation Conference Call Company Overview - **Company**: Otis Worldwide Corporation (NYSE:OTIS) - **Event**: Morgan Stanley Virtual Conference - **Date**: September 14, 2021 - **Participants**: Judy Marks (President and CEO), Josh Pokrzywinski (Morgan Stanley Analyst) Key Points Discussed Financial Performance - The company will discuss results from continuing operations, excluding restructuring and significant non-recurring items [3] - Adjusted results will be presented as if Otis was a stand-alone company for the current period and prior year [3] - Reconciliation of these measures is available in the appendix of the earnings presentations [3] Forward-Looking Statements - The discussion includes forward-looking statements that are subject to risks and uncertainties [3] - Important factors that could cause actual results to differ materially are detailed in Otis' SEC filings, including Form 10-K and quarterly reports on Form 10-Q [3] Industry Context - The conference is part of a broader discussion on the electrical equipment and multi-industry sectors, indicating the relevance of Otis within these industries [1][2] Company Strategy - The company has had a busy year and a half, suggesting ongoing developments and strategic initiatives [3] Additional Important Information - The call emphasizes the importance of understanding the context of financial results and the potential impact of external factors on future performance [3] - The presence of a dedicated analyst from Morgan Stanley indicates a focus on investor relations and market perception [1]

Table of Contents 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, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 001-39221 ____________________________________ | | | ...

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | |-------|-------|-------|-------|-------|------------------------------------|------------------------|---------------|-------|-------| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Q2 2021 July 26, 2021 | Earnings Call | | | | | | | | | © 2021 OTIS WORLDWIDE CORPORATION. | | | | | Forward-Looking Statements Note: All results and expectations in this presentation reflect continuing operations unless otherwise not ...

Otis Worldwide Corporation (NYSE:OTIS) Q2 2021 Earnings Conference Call July 26, 2021 8:30 AM ET Company Participants Judith Marks – President & Chief Executive Officer Michael Rednor – Senior Director of Investor Relations Rahul Ghai – Vice President & Chief Financial Officer Conference Call Participants Jeff Sprague – Vertical Research Nick Housden – RBC Capital Markets John Walsh – Credit Suisse Steve Tusa – JPMorgan Cai von Rumohr – Cowen Julian Mitchell – Barclays Nigel Coe – Wolfe Research Operator Go ...