Otis Worldwide Corporation (NYSE:OTIS) Annual Bernstein Strategic Decisions Conference June 3, 2021 10:00 AM ET Company Participants Judy Marks - President and CEO Conference Call Participants Brendan Luecke - Bernstein Brendan Luecke Good morning. My name is Brendan Luecke and I will be covering multi-industry sector at Bernstein. I would like to welcome all of you to today’s fireside chat with Otis Elevator. Thank you very much for joining us. Before we dive in I do want to touch base on a few housekeepi ...

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 March 31, 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 ____________________________________ OTIS ...

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | |-------|-------|-------|-------|-------|-------|------------------------------------|-------------------------|---------------|-------|-------| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Q1 2021 April 26, 2021 | Earnings Call | | | | | | | | | | © 2021 OTIS WORLDWIDE CORPORATION. | | | | | Forward-Looking Statements Note: All results and expectations in this presentation reflect continuing opera ...

Financial Data and Key Metrics Changes - Net sales grew 14.9% to $3.4 billion, with organic sales up 10.3% [21] - Adjusted operating profit increased by approximately 18% or $83 million, with margin expansion of 40 basis points [21][22] - Free cash flow was robust at $541 million, with 176% conversion of GAAP net income [17] Business Line Data and Key Metrics Changes - New Equipment orders were up 18.4% at constant currency, with organic sales up 25.1% [24][32] - Service segment organic sales grew 1.3%, with adjusted operating profit margin expanding 60 basis points [26][27] Market Data and Key Metrics Changes - New Equipment orders in the Americas were up mid-teens, while Asia saw double-digit growth driven by China [16][24] - In China, the service portfolio grew in the low-teens, outperforming high-single digits from the previous year [50] Company Strategy and Development Direction - The company focuses on a Service model that drives approximately 80% of profit, with a strategy to leverage data and technology-based innovations [13][15] - The company aims to increase share repurchases to $0.5 billion for the year after completing $300 million in the first quarter [14][31] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the revised 2021 outlook, expecting net sales to be in the range of $13.6 billion to $13.8 billion, up 6.5% to 8.5% versus the prior year [18] - The company anticipates strong performance in the New Equipment segment, with organic sales growth projected at 7.5% to 8.5% [32] Other Important Information - The company completed a $150 million debt repayment ahead of schedule and announced a 20% increase in the quarterly dividend [14] - The company is committed to ESG initiatives, including advancing STEM education and supporting young innovators [15] Q&A Session Summary Question: What is driving the strength in New Equipment growth in the Americas? - Management noted strong indicators such as the Architect Billing Index and positive trends in major projects, with New Equipment organic sales up almost 22% [42][43] Question: How is the company performing in China, particularly in Tier 1 and Tier 2 cities? - Management reported significant growth in Tier 1 and Tier 2 cities, with a low-teens growth in the service portfolio [49][50] Question: What is the outlook for backlog conversion to revenue? - Management expressed above-average confidence in backlog sufficiency to drive growth, expecting revenue conversion to be higher than typical [58][59] Question: How are raw material and logistics costs impacting the business? - Management acknowledged commodity headwinds but indicated that material productivity and targeted pricing strategies are being implemented to offset these costs [75][76] Question: What is the expected quarterly pattern for New Equipment sales? - Management indicated that while Q2 is expected to be strong, it may not see the same extent of growth as in previous years due to COVID impacts [92]

OTIS ESG program March 30, 2021 © 2021 O TIS WO RLDWIDE CORPORATION. Forward-Looking Statements Note: All results and expectations in this presentation reflect continuing operations unless otherwise noted. This communication contains statements w hich, 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 w ritten forward-looking statements may also be included in other information released to the pu ...

PART I [Business](index=4&type=section&id=Item%201.%20Business) Otis is the world's leading elevator and escalator company, operating globally with New Equipment and Service segments, becoming independent in April 2020 - Otis is the world's leading elevator and escalator company, serving customers in **over 200 countries** with a direct presence in approximately **80 countries**[19](index=19&type=chunk) - The company became an independent, publicly-traded company on **April 3, 2020**, following its separation from United Technologies Corporation (UTC)[19](index=19&type=chunk) 2020 Financial and Operational Highlights | Metric | Value | | :--- | :--- | | **Net Sales** | $12.8 billion | | **Operating Profit** | $1.6 billion | | **International Sales % of Net Sales** | 73% | | **New Equipment Segment % of Net Sales** | 42% | | **Service Segment % of Net Sales** | 58% | | **New Equipment Segment % of Operating Profit** | 16% | | **Service Segment % of Operating Profit** | 84% | - The company employs approximately **69,000 employees** globally, with **41% in Asia**, **37% in EMEA**, and **22% in the Americas**[59](index=59&type=chunk)[60](index=60&type=chunk) [New Equipment Segment](index=5&type=section&id=Item%201.%20Business%23New%20Equipment) This segment designs, manufactures, and installs elevators and escalators, generating **$5.4 billion** in sales in 2020, with China as a critical market New Equipment Segment Performance (2020) | Metric | Value | | :--- | :--- | | **Sales** | $5.4 billion | | **Operating Profit** | $318 million | - In 2020, New Equipment unit sales in China accounted for **over half** of the company's global unit sales[25](index=25&type=chunk) - Key product offerings include the digitally native Gen360 elevator and the Gen2 system, which has sold **over one million units** since 2000[27](index=27&type=chunk)[28](index=28&type=chunk) [Service Segment](index=6&type=section&id=Item%201.%20Business%23Service) This segment provides maintenance and modernization services for **over 2 million units** globally, generating **$7.4 billion** in sales in 2020, with a focus on IoT solutions Service Segment Performance (2020) | Metric | Value | | :--- | :--- | | **Net Sales** | $7.4 billion | | **Operating Profit** | $1.6 billion | - The company maintains a service portfolio of **over 2 million units** globally, including Otis and third-party equipment[34](index=34&type=chunk) - By the end of 2020, approximately **540,000 units** were connected globally, including nearly **100,000 Otis ONE units**[41](index=41&type=chunk) [Research and Development & Intellectual Property](index=7&type=section&id=Item%201.%20Business%23Research%20and%20Development%20%26%20Intellectual%20Property) In 2020, the company invested **$199 million** in R&D and digital initiatives, holding approximately **3,000 issued patents** globally 2020 Innovation Investment | Category | Amount (USD) | % of Net Sales | | :--- | :--- | :--- | | R&D Expense | $152 million | 1.2% | | Digital & Strategic Initiatives | $47 million | N/A | | **Total** | **$199 million** | **1.6%** | - The company holds approximately **3,000 globally issued patents** and has about **3,100 patent applications** pending worldwide[44](index=44&type=chunk) [Risk Factors](index=13&type=section&id=Item%201A.%20Risk%20Factors) The company faces diverse risks including global economic conditions, COVID-19 impacts, international operations, supply chain, debt, litigation, and post-separation challenges - **Business Risks:** Global economic conditions, the COVID-19 pandemic, and construction industry challenges affect the company, with international operations (73% of 2020 sales) facing currency and geopolitical risks, especially in China[75](index=75&type=chunk)[76](index=76&type=chunk)[77](index=77&type=chunk)[79](index=79&type=chunk) - **Financial & Operational Risks:** The company's **$6.0 billion debt** (as of Dec 31, 2020) may reduce flexibility, alongside risks from supply chain, competition, and litigation including FCPA and antitrust claims[82](index=82&type=chunk)[86](index=86&type=chunk)[88](index=88&type=chunk)[98](index=98&type=chunk) - **Separation-Related Risks:** Historical financial data may not be indicative of future performance, IT system transitions pose risks, and the Tax Matters Agreement (TMA) restricts certain strategic transactions and includes indemnification obligations[127](index=127&type=chunk)[129](index=129&type=chunk)[130](index=130&type=chunk)[132](index=132&type=chunk) [Properties](index=27&type=section&id=Item%202.%20Properties) The company maintains a global real estate portfolio of approximately **16 million square feet** across **2,300 facilities** in about **80 countries** - The company has a physical presence in approximately **80 countries** with a property portfolio of about **16 million square feet**[140](index=140&type=chunk) - The portfolio includes **over 1,400 branches**, **11 R&D centers**, and **18 manufacturing facilities** globally, with **10 owned**[140](index=140&type=chunk) [Legal Proceedings](index=27&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in various legal proceedings, including German tax litigation and asbestos-related lawsuits, with no material adverse effect expected - For a discussion regarding material legal proceedings, refer to **Note 21, Contingent Liabilities** in the 2020 Annual Report[142](index=142&type=chunk) PART II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer of Purchases of Equity Securities](index=28&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20of%20Purchases%20of%20Equity%20Securities) Otis common stock trades on the NYSE under 'OTIS'; a **$1 billion** share repurchase program was authorized in April 2020, but no shares were repurchased in 2020 - The company's common stock is listed on the NYSE under the symbol **"OTIS"**[145](index=145&type=chunk) - On April 27, 2020, the Board authorized a share repurchase program for up to **$1 billion** of Common Stock, with no repurchases made in 2020[147](index=147&type=chunk) [Selected Financial Data](index=28&type=section&id=Item%206.%20Selected%20Financial%20Data) This section presents a five-year financial summary, highlighting stable net sales, a decrease in 2020 net income, and a significant increase in total debt due to separation financing Five-Year Financial Summary (in millions, except per share data) | Metric | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | **Net sales** | $12,756 | $13,118 | $12,915 | | **Net income attributable to common shareholders** | $906 | $1,116 | $1,049 | | **Diluted earnings per share** | $2.08 | $2.58 | $2.42 | | **Cash dividends per common share** | $0.60 | — | — | | **Total assets** | $10,710 | $9,687 | $9,135 | | **Total debt** | $5,963 | $39 | $28 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=43&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In 2020, Otis's net sales decreased **2.8%** to **$12.8 billion**, impacted by the COVID-19 pandemic and separation costs, while operating profit was **$1.6 billion** and cash flow from operations remained strong at **$1.5 billion** [Results of Operations](index=45&type=section&id=Item%207.%20MD%26A%23Results%20of%20Operations) In 2020, net sales decreased **2.8%** to **$12.8 billion**, gross margin improved to **29.6%**, while SG&A expenses increased **6.3%** due to separation costs, leading to a decrease in operating profit to **$1.6 billion** Year-Over-Year Net Sales Change (2020 vs. 2019) | Driver | % Change | | :--- | :--- | | Organic volume | (2.1)% | | Foreign currency translation | (0.4)% | | Acquisitions and divestitures, net | (0.2)% | | Other | (0.1)% | | **Total % change** | **(2.8)%** | - SG&A expenses increased by **$114 million (6.3%)** in 2020, primarily due to non-recurring separation-related and incremental public company costs[218](index=218&type=chunk) - Restructuring costs for 2020 were **$77 million**, expected to generate recurring pre-tax savings of approximately **$57 million annually** once fully implemented[221](index=221&type=chunk)[222](index=222&type=chunk) [Segment Review](index=50&type=section&id=Item%207.%20MD%26A%23Segment%20Review) In 2020, New Equipment net sales fell **4.9%** to **$5.4 billion** with operating profit down **19.1%**, while Service net sales decreased **1.1%** to **$7.4 billion** but operating profit grew **0.5%** due to productivity and pricing Segment Performance (2020 vs. 2019) | Segment | 2020 Net Sales (in millions) | YoY % Change | 2020 Operating Profit (in millions) | YoY % Change | | :--- | :--- | :--- | :--- | :--- | | New Equipment | $5,371 | (4.9)% | $318 | (19.1)% | | Service | $7,385 | (1.1)% | $1,611 | 0.5% | - New Equipment operating profit decreased primarily due to lower volume and unfavorable rate drivers, including under-absorption, field inefficiencies, and higher bad debt expense[247](index=247&type=chunk) - Service operating profit increased due to favorable productivity, pricing, and mix, offsetting price concessions, lower volume, and higher bad debt expense[254](index=254&type=chunk) [Liquidity and Financial Condition](index=52&type=section&id=Item%207.%20MD%26A%23Liquidity%20and%20Financial%20Condition) As of December 31, 2020, Otis had **$1.8 billion** in cash and **$6.0 billion** in total debt, resulting in **$4.2 billion** net debt, with strong operating cash flow of **$1.5 billion** Financial Position (as of Dec 31, 2020) | Metric | Value (in millions) | | :--- | :--- | | Cash and cash equivalents | $1,782 | | Total debt | $5,963 | | **Net debt** | **$4,181** | | Total equity | $(3,284) | - In 2020, the company issued **$6.3 billion** in debt, with net proceeds used for cash distribution to UTC as part of the separation[262](index=262&type=chunk)[263](index=263&type=chunk) - Net cash provided by operating activities was **$1.48 billion** in 2020, slightly higher than **$1.47 billion** in 2019, demonstrating resilient cash generation[268](index=268&type=chunk)[269](index=269&type=chunk) [Critical Accounting Estimates](index=56&type=section&id=Item%207.%20MD%26A%23Critical%20Accounting%20Estimates) Management identifies critical accounting estimates including revenue recognition for long-term contracts, income taxes, goodwill impairment, contingent liabilities, and employee benefit plans, all requiring significant judgment - **Revenue Recognition:** For new equipment and modernization contracts, revenue is recognized over time using a cost-to-cost method, requiring significant judgment in estimating total costs to completion[286](index=286&type=chunk)[330](index=330&type=chunk) - **Goodwill:** Annual impairment testing in 2020 determined no adjustment was necessary as the fair value of each reporting unit significantly exceeded its carrying value[296](index=296&type=chunk) - **Employee Benefit Plans:** Pension accounting is sensitive to assumptions like the discount rate and expected return on assets; a **25 basis point** change in discount rate would alter the projected benefit obligation by approximately **$33-34 million**[298](index=298&type=chunk)[299](index=299&type=chunk) [Financial Statements and Supplementary Data](index=28&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section incorporates the company's audited consolidated financial statements for 2018-2020, reflecting its transition to a standalone public entity, with 2020 net sales of **$12.8 billion** and a total equity deficit of **$3.3 billion** Consolidated Statement of Operations Highlights (Year Ended Dec 31, 2020) | Metric | Value (in millions) | | :--- | :--- | | Net sales | $12,756 | | Operating profit | $1,639 | | Net income | $1,056 | | Net income attributable to common shareholders | $906 | Consolidated Balance Sheet Highlights (As of Dec 31, 2020) | Metric | Value (in millions) | | :--- | :--- | | Total Current Assets | $6,493 | | Total Assets | $10,710 | | Total Current Liabilities | $6,673 | | Long-term debt | $5,262 | | Total Liabilities | $13,911 | | Total (Deficit) Equity | $(3,284) | Consolidated Statement of Cash Flows Highlights (Year Ended Dec 31, 2020) | Metric | Value (in millions) | | :--- | :--- | | Net cash provided by operating activities | $1,480 | | Net cash used in investing activities | $(353) | | Net cash used in financing activities | $(844) | [Controls and Procedures](index=29&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2020 - Management concluded that as of **December 31, 2020**, the company's disclosure controls and procedures were effective[153](index=153&type=chunk) - Management concluded that the company's internal control over financial reporting was effective as of **December 31, 2020**, based on the COSO framework[154](index=154&type=chunk) PART III [Directors, Executive Officers and Corporate Governance](index=29&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) This section provides information on executive officers, including Judith F. Marks as CEO and Rahul Ghai as CFO, and references corporate governance details from the 2021 Proxy Statement - Judith F. Marks serves as President and Chief Executive Officer, and Rahul Ghai serves as Executive Vice President and Chief Financial Officer[158](index=158&type=chunk) - The company has adopted a code of ethics, **"The Otis Absolutes,"** applicable to all directors, officers, employees, and representatives[160](index=160&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=31&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) This section details equity compensation plans as of December 31, 2020, showing approximately **3.8 million** securities to be issued and **27.9 million** available for future issuance Equity Compensation Plan Information (as of Dec 31, 2020) | Plan Category | Securities to be Issued Upon Exercise (a) | Weighted-Average Exercise Price of Outstanding Options (b) | Securities Remaining for Future Issuance (c) | | :--- | :--- | :--- | :--- | | **Approved by Shareholders** | 3,825,504 | $60.41 | 27,938,146 | | **Not Approved by Shareholders** | - | - | - | PART IV [Exhibits and Financial Statement Schedule](index=33&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedule) This section lists all exhibits filed with the 10-K, including key separation agreements from UTC and the financial statement schedule for Valuation and Qualifying Accounts - Key agreements filed as exhibits include the Separation and Distribution Agreement, Transition Services Agreement (TSA), Tax Matters Agreement (TMA), and Employee Matters Agreement (EMA), all dated **April 2, 2020**[169](index=169&type=chunk)[170](index=170&type=chunk) Schedule II - Valuation and Qualifying Accounts (in millions) | Account | Balance at Dec 31, 2019 | Balance at Dec 31, 2020 | Key 2020 Changes | | :--- | :--- | :--- | :--- | | **Allowance for Doubtful Accounts** | $83 | $161 | +$28 (credit standard adoption), +$40 (provision) | | **Future Income Tax Benefits - Valuation Allowance** | $55 | $242 | +$63 (charged to expense), +$137 (Separation activity) |

Otis Worldwide Corporation (NYSE:OTIS) Q4 2020 Earnings Conference Call February 1, 2021 10:00 AM ET Company Participants Stacy Laszewski - Vice President of FP&A and Investor Relations Judy Marks - President and Chief Executive Officer Rahul Ghai - Executive Vice President and Chief Financial Officer Conference Call Participants Jeff Sprague - Vertical Research Nigel Coe - Wolfe Research Steve Tusa - JPMorgan Cai von Rumohr - Cowen Julian Mitchell - Barclays John Walsh - Crédit Suisse Carter Copeland - Mel ...

[PART I – FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20%E2%80%93%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Unaudited%20Financial%20Statements%3A) This section presents the unaudited condensed consolidated financial statements for the quarter and nine months ended September 30, 2020, compared with the same periods in 2019, including statements of operations, comprehensive income, balance sheets, changes in equity, and cash flows, along with detailed notes and the independent auditor's report Condensed Consolidated Statements of Operations (Q3 2020 vs Q3 2019) | (dollars in millions) | Quarter Ended Sep 30, 2020 | Quarter Ended Sep 30, 2019 | | :--- | :--- | :--- | | **Net Sales** | **$3,268** | **$3,313** | | Product sales | $1,423 | $1,450 | | Service sales | $1,845 | $1,863 | | **Operating Profit** | **$454** | **$482** | | **Net Income** | **$310** | **$361** | | Net Income Attributable to Common Shareholders | $266 | $317 | | **Diluted EPS** | **$0.61** | **$0.73** | Condensed Consolidated Statements of Operations (Nine Months 2020 vs 2019) | (dollars in millions) | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | **Net Sales** | **$9,263** | **$9,765** | | Product sales | $3,840 | $4,221 | | Service sales | $5,423 | $5,544 | | **Operating Profit** | **$1,199** | **$1,378** | | **Net Income** | **$777** | **$1,013** | | Net Income Attributable to Common Shareholders | $655 | $898 | | **Diluted EPS** | **$1.51** | **$2.07** | Condensed Consolidated Balance Sheets (Sep 30, 2020 vs Dec 31, 2019) | (dollars in millions) | Sep 30, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | **Total Current Assets** | **$6,271** | **$5,658** | | **Total Assets** | **$10,473** | **$9,687** | | **Total Current Liabilities** | **$6,291** | **$5,374** | | Long-term debt | $5,512 | $5 | | **Total Liabilities** | **$13,856** | **$7,361** | | **Total (Deficit) Equity** | **($3,481)** | **$2,231** | Condensed Consolidated Statements of Cash Flows (Nine Months 2020 vs 2019) | (dollars in millions) | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | **Net cash flows provided by operating activities** | **$1,171** | **$1,015** | | Net cash flows used in investing activities | ($289) | ($150) | | Net cash flows used in financing activities | ($589) | ($694) | | **Net increase in cash and cash equivalents** | **$293** | **$130** | - On April 3, 2020, Otis became an independent, publicly-traded company following its separation from United Technologies Corporation (UTC)[32](index=32&type=chunk) - The COVID-19 pandemic impacted financial results for the quarter and nine months ended September 30, 2020, and its future impact remains uncertain[38](index=38&type=chunk)[39](index=39&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=38&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management analyzes the company's financial condition and results of operations, covering business segments, the impacts of the UTC separation and COVID-19, detailed operating results, and discussions on liquidity, capital resources, and contractual obligations [Business Overview](index=38&type=section&id=BUSINESS%20OVERVIEW) This section outlines Otis's global business structure, comprising New Equipment and Service segments, and highlights the impacts of the UTC separation and the ongoing COVID-19 pandemic - Otis is the **world's largest elevator and escalator company**, operating through two segments: New Equipment (design, manufacture, sale, and installation) and Service (maintenance, repair, and modernization)[146](index=146&type=chunk)[147](index=147&type=chunk) - The company completed its **separation from UTC on April 3, 2020**, and now trades on the NYSE under the symbol "OTIS", leading to non-recurring separation-related costs and ongoing expenses as a standalone public company[150](index=150&type=chunk)[152](index=152&type=chunk) - The COVID-19 pandemic **negatively impacted operations** during the first nine months of 2020 due to factory and job site closures, customer liquidity constraints, and reduced demand, with anticipated negative impact for at least the remainder of 2020[160](index=160&type=chunk)[162](index=162&type=chunk) [Results of Operations](index=41&type=section&id=RESULTS%20OF%20OPERATIONS) This section details the company's operating results for Q3 and the nine months ended September 30, 2020, showing net sales decreases due to lower organic volume, increased SG&A from separation costs, and a higher effective tax rate Net Sales Change (Year-over-Year) | Period | Total % Change | Organic Volume | Foreign Currency | Acquisitions/Divestitures | | :--- | :--- | :--- | :--- | :--- | | **Q3 2020** | (1.4)% | (1.2)% | 0.2% | (0.2)% | | **9M 2020** | (5.1)% | (3.3)% | (1.4)% | (0.4)% | - Selling, general and administrative (SG&A) expenses **increased by $37 million in Q3 and $58 million in the first nine months of 2020**, driven by non-recurring separation-related costs and incremental standalone public company costs[177](index=177&type=chunk) - Restructuring costs for the nine months ended September 30, 2020, were **$46 million**, primarily for ongoing cost reduction actions, including workforce reductions[179](index=179&type=chunk) - **Interest expense increased significantly** in 2020 due to new external debt of **approximately $6.3 billion** issued in connection with the separation from UTC[186](index=186&type=chunk)[187](index=187&type=chunk)[81](index=81&type=chunk) [Segment Review](index=46&type=section&id=Segment%20Review) This section analyzes the New Equipment and Service segments, noting declines in New Equipment sales and profit due to COVID-19 and mix, while the Service segment showed resilient operating profit despite slightly lower sales, driven by productivity gains Segment Performance (Q3 2020 vs Q3 2019) | Segment (in millions) | Net Sales 2020 | Net Sales 2019 | Operating Profit 2020 | Operating Profit 2019 | Operating Margin 2020 | Operating Margin 2019 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **New Equipment** | $1,423 | $1,450 | $95 | $115 | 6.7% | 7.9% | | **Service** | $1,845 | $1,863 | $409 | $407 | 22.2% | 21.8% | - **New Equipment Q3 organic sales declined 1.0%**, and **operating profit fell 17.4%** due to under-absorption, field inefficiencies, and unfavorable mix, which more than offset material productivity and cost actions[201](index=201&type=chunk)[202](index=202&type=chunk)[203](index=203&type=chunk) - **Service Q3 organic sales decreased 1.4%**, but **operating profit grew 0.5%** as **productivity gains (8.8%)** offset the impact of lower volume and price concessions[209](index=209&type=chunk)[212](index=212&type=chunk) [Liquidity and Financial Condition](index=50&type=section&id=LIQUIDITY%20AND%20FINANCIAL%20CONDITION) This section details the company's financial position as of September 30, 2020, highlighting total debt of **$6.05 billion** and net debt of **$4.32 billion** from separation financing, alongside strong operating cash flow of **$1.17 billion**, indicating sufficient liquidity Financial Condition (as of Sep 30, 2020) | (dollars in millions) | Sep 30, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $1,733 | $1,446 | | Total debt | $6,050 | $39 | | **Net debt** | **$4,317** | **($1,407)** | - In Q1 2020, the company issued **$6.3 billion in debt** (notes and a term loan) to fund a cash distribution to UTC as part of the separation[224](index=224&type=chunk)[225](index=225&type=chunk) - The company made a **$750 million prepayment** on its term loan on September 28, 2020[224](index=224&type=chunk)[80](index=80&type=chunk) - **Cash from operating activities for the first nine months of 2020 was $1,171 million**, a **$156 million increase** from 2019, primarily due to improved working capital management[230](index=230&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=53&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section reports no significant changes in the company's market risk exposure during Q3 2020, including interest rate and foreign currency risks, noting the use of **€420 million** in euro-denominated commercial paper as a net investment hedge - There has been **no significant change** in the company's exposure to market risk during the quarter and nine months ended September 30, 2020[245](index=245&type=chunk) - The company holds **€420 million of euro-denominated commercial paper** which serves as a net investment hedge against its investments in European businesses[244](index=244&type=chunk) [Item 4. Controls and Procedures](index=53&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded the company's disclosure controls and procedures were effective as of September 30, 2020, with no material changes to internal control over financial reporting during the quarter - Management concluded that the company's **disclosure controls and procedures were effective** as of September 30, 2020, providing reasonable assurance that required information is recorded and reported in a timely manner[246](index=246&type=chunk) - There were **no changes in internal control over financial reporting** during the quarter ended September 30, 2020, that have materially affected, or are reasonably likely to materially affect, internal controls[247](index=247&type=chunk) [PART II – OTHER INFORMATION](index=56&type=section&id=PART%20II%20%E2%80%93%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=56&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 17 for details on material legal proceedings, confirming no material developments since previous quarterly filings - For details on material legal proceedings, the report refers to **Note 17**, which covers German tax litigation, asbestos matters, and a putative class action lawsuit[253](index=253&type=chunk)[121](index=121&type=chunk)[122](index=122&type=chunk)[124](index=124&type=chunk) [Item 1A. Risk Factors](index=56&type=section&id=Item%201A.%20Risk%20Factors) This section highlights no material changes to the company's risk factors, except for the ongoing and uncertain impact of the COVID-19 pandemic, which continues to pose risks to operations, supply chains, and customer demand - The **COVID-19 pandemic remains a significant risk factor**, with the potential for prolonged business restrictions, supply chain disruptions, and adverse effects on customer liquidity and demand, which could materially impact the company's business and financial condition[256](index=256&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=56&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reports no unregistered sales of equity securities or use of proceeds from such sales during the reporting period - There were **no unregistered sales of equity securities** to report for the period[257](index=257&type=chunk) [Item 6. Exhibits](index=57&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including amendments to credit agreements, an executive severance plan, officer certifications, and XBRL-formatted financial statements - The exhibits filed with this report include amendments to the Revolving Credit and Term Loan Agreements, the Executive Leadership Group Severance Plan, and various officer certifications[259](index=259&type=chunk)

Table of Contents ☐ 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 ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Exact name of registrant as specified in its charter) ____________________________________ For the quarterly period ended June 30, 2020 OR UNITED STATES SECURITIES AND EXCHANGE COMM ...

[PART I – FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20%E2%80%93%20FINANCIAL%20INFORMATION) [Item 1. Unaudited Financial Statements](index=4&type=section&id=Item%201.%20Unaudited%20Financial%20Statements) The unaudited Q1 2020 financial statements reflect decreased sales and income due to COVID-19 and separation costs Condensed Combined Statements of Operations (Q1 2020 vs Q1 2019) | Indicator | Q1 2020 (in millions) | Q1 2019 (in millions) | Change | | :--- | :--- | :--- | :--- | | **Net Sales** | **$2,966** | **$3,101** | **-4.4%** | | Product Sales | $1,123 | $1,271 | -11.6% | | Service Sales | $1,843 | $1,830 | +0.7% | | **Operating Profit** | **$329** | **$415** | **-20.7%** | | **Net Income Attributable to Otis** | **$165** | **$273** | **-39.6%** | | **Diluted EPS** | **$0.38** | **$0.63** | **-39.7%** | Condensed Combined Balance Sheets (As of March 31, 2020) | Indicator | March 31, 2020 (in millions) | Dec 31, 2019 (in millions) | | :--- | :--- | :--- | | Cash and cash equivalents | $1,207 | $1,446 | | Total Assets | $9,524 | $9,687 | | Long-term debt | $6,258 | $5 | | Total Liabilities | $13,713 | $7,361 | | Total (Deficit) Equity | $(4,284) | $2,231 | Condensed Combined Statements of Cash Flows (Q1 2020 vs Q1 2019) | Indicator | Q1 2020 (in millions) | Q1 2019 (in millions) | | :--- | :--- | :--- | | Net cash from operating activities | $159 | $297 | | Net cash used in investing activities | $(92) | $(18) | | Net cash used in financing activities | $(256) | $(312) | - The company's operations are classified into two segments: **New Equipment** and **Service**[27](index=27&type=chunk) - The spin-off from UTC was completed on April 3, 2020, with prior financial statements prepared on a **"carve-out" basis**[28](index=28&type=chunk)[29](index=29&type=chunk) - The company issued approximately **$6.3 billion in long-term debt** to fund a distribution to UTC in connection with the separation[68](index=68&type=chunk)[69](index=69&type=chunk)[71](index=71&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Net sales declined 4.4% in Q1 2020 due to COVID-19 impacts, while debt increased significantly to fund the UTC spin-off Net Sales Change Drivers (Q1 2020 YoY) | Driver | Percentage Change | | :--- | :--- | | Organic volume | (2.1)% | | Foreign currency translation | (1.8)% | | Acquisitions and divestitures, net | (0.5)% | | **Total % change** | **(4.4)%** | - The **COVID-19 pandemic** impacted financial performance in Q1 2020 and is expected to have a continued negative impact[136](index=136&type=chunk)[137](index=137&type=chunk) - Selling, general and administrative (SG&A) expenses increased by $24 million, driven by **$32 million in separation costs** and **$22 million in standalone public company costs**[150](index=150&type=chunk) - Other expense increased by $59 million year-over-year, primarily due to a **$55 million fixed asset impairment charge**[158](index=158&type=chunk) - The capital structure changed significantly with the issuance of **$6.3 billion in debt**, resulting in a total debt to total capitalization ratio of 310%[184](index=184&type=chunk)[190](index=190&type=chunk) [Segment Review](index=38&type=section&id=Segment%20Review) The New Equipment segment's sales declined due to COVID-19, while the Service segment demonstrated resilient organic growth Segment Performance (Q1 2020 vs Q1 2019) | Segment | Net Sales (Q1 2020) | Net Sales (Q1 2019) | % Change | Operating Profit (Q1 2020) | Operating Profit (Q1 2019) | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | New Equipment | $1,123M | $1,271M | -11.6% | $64M | $59M | +8.5% | | Service | $1,843M | $1,830M | +0.7% | $400M | $386M | +3.6% | - New Equipment organic sales **declined 9.8%**, with a double-digit decline in Asia due to COVID-19[174](index=174&type=chunk) - Service segment organic sales **grew 3.3%**, supported by growth in both maintenance and repair and modernization[179](index=179&type=chunk) [Liquidity and Financial Condition](index=42&type=section&id=Liquidity%20and%20Financial%20Condition) The company's financial condition was transformed by incurring $6.3 billion in debt to fund a distribution to UTC for the spin-off Key Financial Condition Metrics | Indicator (in millions) | March 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $1,207 | $1,446 | | Total debt | $6,325 | $39 | | Net debt | $5,118 | $(1,407) | - In Q1 2020, Otis issued **$5.3 billion in long-term notes** and drew down a **$1.0 billion term loan**, using the proceeds for a distribution to UTC[187](index=187&type=chunk)[188](index=188&type=chunk)[190](index=190&type=chunk) - Net cash from operating activities **decreased by $138 million** year-over-year, impacted by separation costs and working capital changes[196](index=196&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=38&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk exposure relates to interest rates on its variable-rate debt, with no significant changes in Q1 2020 - The company's long-term debt is primarily fixed-rate, but variable-rate debt creates **exposure to interest rate changes** like LIBOR[207](index=207&type=chunk) - There was **no significant change** in the company's exposure to market risk during the quarter ended March 31, 2020[208](index=208&type=chunk) [Item 4. Controls and Procedures](index=38&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of March 31, 2020, with no material changes identified - Based on an evaluation as of March 31, 2020, the CEO and CFO concluded that the company's disclosure controls and procedures were **effective**[209](index=209&type=chunk) - **No material changes** to internal control over financial reporting were identified during the first quarter of 2020[210](index=210&type=chunk) [PART II – OTHER INFORMATION](index=41&type=section&id=PART%20II%20%E2%80%93%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=41&type=section&id=Item%201.%20Legal%20Proceedings) There were no material developments in legal proceedings since the disclosures in the company's Form 10 registration statement - For details on material legal proceedings, the report refers to Note 16, which discusses matters such as **German Tax Litigation** and **Asbestos claims**[96](index=96&type=chunk)[97](index=97&type=chunk)[215](index=215&type=chunk) [Item 1A. Risk Factors](index=41&type=section&id=Item%201A.%20Risk%20Factors) The COVID-19 pandemic is highlighted as a significant ongoing risk factor with the potential to materially impact the business - The **COVID-19 pandemic** is identified as a key risk, with potential for further disruption to operations and financial condition[217](index=217&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=41&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities or use of proceeds from such sales during the first quarter - There were **no unregistered sales of equity securities** in the period[218](index=218&type=chunk) [Item 6. Exhibits](index=41&type=section&id=Item%206.%20Exhibits) This section lists key exhibits filed with the Form 10-Q, including separation and financing agreements - Key exhibits filed include the **Separation and Distribution Agreement**, Tax Matters Agreement, and the Indenture for newly issued notes[219](index=219&type=chunk)[220](index=220&type=chunk)