Otis Worldwide (OTIS) - 2024 Q3 - Quarterly Report

Report Overview This section provides an overview of Otis Worldwide Corporation's 10-Q quarterly report filing information and common stock outstanding as of specific dates Filing Information This report is Otis Worldwide Corporation's 10-Q quarterly filing for the period ended September 30, 2024, confirming compliance and its status as a Large Accelerated Filer - Otis Worldwide Corporation submitted its 10-Q quarterly report for the period ended September 30, 2024[1] - The company has filed all required reports in the past 12 months and has been subject to such filing requirements for the past 90 days[2] - The company is designated as a "Large Accelerated Filer"[3] Common Stock Outstanding As of October 15, 2024, Otis Worldwide Corporation had 399,460,524 shares of common stock outstanding Common Stock Outstanding | Date | Common Stock Outstanding | | :------------- | :----------------------- | | Oct 15, 2024 | 399,460,524 | PART I – FINANCIAL INFORMATION This part presents Otis Worldwide Corporation's unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations Item 1. Financial Statements This section includes Otis Worldwide Corporation's unaudited condensed consolidated financial statements for the period ended September 30, 2024, detailing financial performance and condition Condensed Consolidated Statements of Operations for the quarters ended September 30, 2024 and 2023 This statement provides Otis Worldwide Corporation's condensed consolidated operating results for the quarters ended September 30, 2024 and 2023 Quarterly Operating Data (2024 vs 2023) | Metric (Millions of USD) | Q3 2024 | Q3 2023 | | :----------------------- | :------ | :------ | | Product Sales | 1,309 | 1,435 | | Service Sales | 2,239 | 2,088 | | Net Sales | 3,548 | 3,523 | | Operating Profit | 363 | 571 | | Income Tax Expense (Benefit) | (45) | 137 | | Net Income | 557 | 395 | | Net Income Attributable to Otis Worldwide Corporation | 540 | 376 | | Basic Earnings Per Share | 1.35 | 0.92 | | Diluted Earnings Per Share | 1.34 | 0.91 | Condensed Consolidated Statements of Operations for the nine months ended September 30, 2024 and 2023 This statement presents Otis Worldwide Corporation's condensed consolidated operating results for the nine months ended September 30, 2024 and 2023 Nine-Month Operating Data (2024 vs 2023) | Metric (Millions of USD) | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :----------------------- | :----------------------------- | :----------------------------- | | Product Sales | 4,010 | 4,346 | | Service Sales | 6,576 | 6,243 | | Net Sales | 10,586 | 10,589 | | Operating Profit | 1,477 | 1,664 | | Income Tax Expense (Benefit) | 175 | 400 | | Net Income | 1,381 | 1,154 | | Net Income Attributable to Otis Worldwide Corporation | 1,308 | 1,083 | | Basic Earnings Per Share | 3.25 | 2.62 | | Diluted Earnings Per Share | 3.23 | 2.60 | Condensed Consolidated Statements of Comprehensive Income for the quarters and nine months ended September 30, 2024 and 2023 This statement details Otis Worldwide Corporation's condensed consolidated comprehensive income for the quarters and nine months ended September 30, 2024 and 2023 Comprehensive Income Data (2024 vs 2023) | Metric (Millions of USD) | Q3 2024 | Q3 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :----------------------- | :------ | :------ | :----------------------------- | :----------------------------- | | Net Income | 557 | 395 | 1,381 | 1,154 | | Other Comprehensive Income (Loss), Net of Tax | (46) | 35 | (59) | (72) | | Comprehensive Income (Loss), Net of Tax | 511 | 430 | 1,322 | 1,082 | | Comprehensive Income Attributable to Otis Worldwide Corporation | 487 | 417 | 1,254 | 1,027 | Condensed Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023 This statement provides Otis Worldwide Corporation's condensed consolidated balance sheet data as of September 30, 2024 and December 31, 2023 Balance Sheet Key Data (Sep 30, 2024 vs Dec 31, 2023) | Metric (Millions of USD) | Sep 30, 2024 | Dec 31, 2023 | | :----------------------- | :----------- | :----------- | | Cash and Cash Equivalents | 827 | 1,274 | | Total Current Assets | 6,495 | 6,400 | | Total Assets | 10,261 | 10,117 | | Short-Term Borrowings and Current Portion of Long-Term Debt | 1,667 | 32 | | Total Current Liabilities | 8,097 | 6,479 | | Long-Term Debt | 5,596 | 6,866 | | Total Liabilities | 15,041 | 14,837 | | Shareholders' Equity (Deficit) | (4,901) | (4,924) | | Total Equity (Deficit) | (4,835) | (4,855) | Condensed Consolidated Statements of Changes in Equity for the quarters ended September 30, 2024 and 2023 This statement outlines Otis Worldwide Corporation's condensed consolidated changes in equity for the quarters ended September 30, 2024 and 2023 Quarterly Equity Changes (2024 vs 2023) | Metric (Millions of USD) | Q3 2024 | Q3 2023 | | :----------------------- | :------ | :------ | | Net Income | 540 | 376 | | Other Comprehensive Income (Loss), Net of Tax | (53) | 41 | | Stock Repurchases | (202) | (228) | | Cash Dividends | (155) | (139) | | Total Equity (Deficit) Attributable to Otis Worldwide Corporation | 145 | 49 | Condensed Consolidated Statements of Changes in Equity for the nine months ended September 30, 2024 and 2023 This statement presents Otis Worldwide Corporation's condensed consolidated changes in equity for the nine months ended September 30, 2024 and 2023 Nine-Month Equity Changes (2024 vs 2023) | Metric (Millions of USD) | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :----------------------- | :----------------------------- | :----------------------------- | | Net Income | 1,308 | 1,083 | | Other Comprehensive Income (Loss), Net of Tax | (54) | (56) | | Stock Repurchases | (807) | (580) | | Cash Dividends | (450) | (400) | | Total Equity (Deficit) Attributable to Otis Worldwide Corporation | 23 | 82 | Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2024 and 2023 This statement provides Otis Worldwide Corporation's condensed consolidated cash flow data for the nine months ended September 30, 2024 and 2023 Nine-Month Cash Flow Data (2024 vs 2023) | Metric (Millions of USD) | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :----------------------- | :----------------------------- | :----------------------------- | | Net Cash Flow from Operating Activities | 873 | 1,030 | | Net Cash Flow from Investing Activities | (210) | (132) | | Net Cash Flow from Financing Activities | (1,102) | (418) | | Effect of Exchange Rate Changes | (9) | (34) | | Net Increase (Decrease) in Cash and Cash Equivalents | (448) | 446 | | Cash and Cash Equivalents at End of Period | 827 | 1,636 | Notes to Condensed Consolidated Financial Statements This section provides detailed notes to Otis Worldwide Corporation's condensed consolidated financial statements, offering additional context and disclosures Note 1: General This note provides general information regarding the unaudited condensed consolidated financial statements and significant events during the reporting period - The condensed consolidated financial statements as of September 30, 2024, are unaudited but include all necessary normal recurring adjustments as deemed by management[29] - The company received a favorable ruling in a German tax litigation in August 2024, resulting in an income tax benefit of $185 million and related interest income of $200 million, while recording $194 million in indemnification expense to RTX Corporation[34][35] - The company acquired all outstanding shares of its Japanese consolidated subsidiary for approximately $70 million in the second quarter of 2024[36] Outstanding Obligations under Supplier Finance Programs | Date | Outstanding Obligations (Millions of USD) | | :------------- | :---------------------------------------- | | Sep 30, 2024 | 653 | | Dec 31, 2023 | 627 | Note 2: Earnings per Share This note details the calculation of Otis Worldwide Corporation's basic and diluted earnings per share for the reported periods Earnings Per Share (2024 vs 2023) | Metric (Millions of USD, except per share amounts) | Q3 2024 | Q3 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :----------------------------------------------- | :------ | :------ | :----------------------------- | :----------------------------- | | Net Income Attributable to Common Shareholders | 540 | 376 | 1,308 | 1,083 | | Basic Earnings Per Share | 1.35 | 0.92 | 3.25 | 2.62 | | Diluted Earnings Per Share | 1.34 | 0.91 | 3.23 | 2.60 | | Basic Weighted-Average Shares Outstanding | 400.2 | 410.8 | 402.7 | 412.6 | | Diluted Weighted-Average Shares Outstanding | 402.7 | 413.7 | 405.4 | 415.8 | - The calculation of diluted earnings per share excludes 1.1 million anti-dilutive share awards (compared to 1.0 million in the prior year period)[39] Note 3: Revenue Recognition This note provides information on Otis Worldwide Corporation's contract assets and liabilities and remaining performance obligations related to revenue recognition Contract Assets and Liabilities (Sep 30, 2024 vs Dec 31, 2023) | Metric (Millions of USD) | Sep 30, 2024 | Dec 31, 2023 | | :----------------------- | :----------- | :----------- | | Contract Assets, Current | 776 | 717 | | Contract Liabilities, Current | 2,787 | 2,696 | | Contract Liabilities, Non-Current | 41 | 48 | | Net Contract Liabilities | 2,052 | 2,027 | - As of September 30, 2024, remaining performance obligations (RPO) were approximately $18.6 billion, with about 90% expected to be recognized as sales within the next 24 months[45] Note 4: Accounts Receivable, Net This note details the composition of Otis Worldwide Corporation's net accounts receivable and changes in the allowance for expected credit losses Accounts Receivable, Net Composition (Sep 30, 2024 vs Dec 31, 2023) | Metric (Millions of USD) | Sep 30, 2024 | Dec 31, 2023 | | :----------------------- | :----------- | :----------- | | Trade Accounts Receivable | 3,431 | 3,390 | | Unbilled Accounts Receivable | 152 | 119 | | Miscellaneous Accounts Receivable | 95 | 96 | | Customer Finance Notes Receivable | 58 | 63 | | Less: Allowance for Expected Credit Losses | (132) | (130) | | Accounts Receivable, Net | 3,604 | 3,538 | Changes in Allowance for Expected Credit Losses (Nine Months Ended Sep 30, 2024 and 2023) | Metric (Millions of USD) | Nine Months 2024 | Nine Months 2023 | | :----------------------- | :--------------- | :--------------- | | Beginning Balance | 130 | 152 | | Provision for Expected Credit Losses | 19 | 21 | | Write-offs | (18) | (42) | | Foreign Exchange and Other | 1 | (5) | | Ending Balance | 132 | 126 | Note 5: Inventories This note outlines the composition of Otis Worldwide Corporation's inventories, including raw materials, work-in-process, and finished goods Inventory Composition (Sep 30, 2024 vs Dec 31, 2023) | Metric (Millions of USD) | Sep 30, 2024 | Dec 31, 2023 | | :----------------------- | :----------- | :----------- | | Raw Materials and Work-in-Process | 143 | 154 | | Finished Goods | 482 | 458 | | Total | 625 | 612 | - Inventories are net of valuation allowances of $89 million as of September 30, 2024, and $87 million as of December 31, 2023[48] Note 6: Business Acquisitions, Dispositions, Goodwill and Intangible Assets This note provides details on Otis Worldwide Corporation's business acquisitions, dispositions, changes in goodwill, and intangible assets Business Acquisitions and Intangible Assets (Net Cash) | Period | Amount (Millions of USD) | | :------------- | :----------------------- | | Nine Months 2024 | 70 | | Nine Months 2023 | 27 | Goodwill Changes (Nine Months 2024) | Business Segment | Balance Dec 31, 2023 (Millions of USD) | Goodwill from Business Combinations (Millions of USD) | Foreign Currency Translation and Other (Millions of USD) | Balance Sep 30, 2024 (Millions of USD) | | :--------------- | :------------------------------------- | :------------------------------------ | :--------------------------------------- | :------------------------------------- | | New Equipment | 295 | — | 1 | 296 | | Service | 1,293 | 35 | 6 | 1,334 | | Total | 1,588 | 35 | 7 | 1,630 | - Assets and liabilities held for sale were $38 million and $9 million, respectively, as of September 30, 2024, primarily related to the operations of a non-U.S. subsidiary expected to be sold within the next 12 months[52][53] - The company recorded an $18 million impairment loss related to net assets held for sale during the third quarter and nine months ended September 30, 2024[53] Note 7: Borrowings and Lines of Credit This note details Otis Worldwide Corporation's short-term borrowings, long-term debt, and available credit facilities Short-Term Borrowings (Sep 30, 2024 vs Dec 31, 2023) | Metric (Millions of USD) | Sep 30, 2024 | Dec 31, 2023 | | :----------------------- | :----------- | :----------- | | Commercial Paper | 316 | — | | Other Borrowings | 51 | 32 | | Total Short-Term Borrowings | 367 | 32 | - As of September 30, 2024, the company had a $1.5 billion unsecured, unsubordinated five-year revolving credit facility with no borrowings outstanding[57] Long-Term Debt Composition (Sep 30, 2024 vs Dec 31, 2023) | Debt Type | Sep 30, 2024 (Millions of USD) | Dec 31, 2023 (Millions of USD) | | :------------------------ | :----------------------------- | :----------------------------- | | 2.056% Notes Due 2025 | 1,300 | 1,300 | | 0.318% Notes Due 2026 | 672 | 658 | | 5.250% Notes Due 2028 | 750 | 750 | | 2.565% Notes Due 2030 | 1,500 | 1,500 | | 0.934% Notes Due 2031 | 560 | 548 | | Total Long-Term Debt Principal | 6,934 | 6,910 | | Less: Current Portion | 1,300 | — | | Long-Term Debt, Net | 5,596 | 6,866 | - The weighted-average maturity of long-term debt was approximately 7.1 years as of September 30, 2024[61] Weighted-Average Interest Expense Rate on Borrowings (2024 vs 2023) | Borrowing Type | Q3 2024 | Q3 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------------------ | :------ | :------ | :----------------------------- | :----------------------------- | | Short-Term Commercial Paper | 5.5% | 5.4% | 5.5% | 5.0% | | Total Long-Term Debt | 2.5% | 2.1% | 2.5% | 2.0% | Note 8: Employee Benefit Plans This note provides information on Otis Worldwide Corporation's contributions to employee benefit plans and the net periodic benefit cost for defined benefit pension plans Employee Benefit Plan Contributions (2024 vs 2023) | Plan Type | Q3 2024 (Millions of USD) | Q3 2023 (Millions of USD) | Nine Months Ended Sep 30, 2024 (Millions of USD) | Nine Months Ended Sep 30, 2023 (Millions of USD) | | :--------------------------------------- | :------------------------ | :------------------------ | :----------------------------------------------- | :----------------------------------------------- | | Defined Benefit Plans | 10 | 8 | 34 | 32 | | Defined Contribution Plans | 16 | 16 | 52 | 50 | | Multi-Employer Pension and Postretirement Benefit Plans | 41 | 42 | 123 | 117 | Net Periodic Benefit Cost for Defined Benefit Pension Plans (2024 vs 2023) | Cost Component (Millions of USD) | Q3 2024 | Q3 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------------------------- | :------ | :------ | :----------------------------- | :----------------------------- | | Service Cost | 8 | 7 | 24 | 22 | | Interest Cost | 9 | 8 | 24 | 24 | | Expected Return on Plan Assets | (9) | (8) | (25) | (24) | | Net Settlement and Curtailment (Gain) Loss | 1 | — | 1 | — | | Total Net Periodic Benefit Cost | 9 | 7 | 24 | 22 | Equity Compensation Expense and Tax Benefit (2024 vs 2023) | Metric (Millions of USD) | Q3 2024 | Q3 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :----------------------- | :------ | :------ | :----------------------------- | :----------------------------- | | Equity Compensation Expense | 16 | 15 | 52 | 49 | | Less: Future Tax Benefit | (2) | (2) | (6) | (6) | | Equity Compensation Expense, Net of Tax | 14 | 13 | 46 | 43 | - Unrecognized compensation cost related to unvested equity awards was approximately $115 million as of September 30, 2024, expected to be amortized over a weighted-average period of 2.1 years[68] Note 9: Stock This note provides information on Otis Worldwide Corporation's common stock repurchase program and related activities - As of September 30, 2024, the company was authorized to purchase up to $2 billion of its common stock, with approximately $400 million remaining for repurchases[70] Common Stock Repurchase Activity (2024 vs 2023) | Period | Shares Repurchased (Millions) | Amount Repurchased (Millions of USD) | | :------------------------- | :---------------------------- | :----------------------------------- | | Q3 2024 | 2.1 | 200 | | Q3 2023 | 2.6 | 225 | | Nine Months Ended Sep 30, 2024 | 8.6 | 800 | | Nine Months Ended Sep 30, 2023 | 6.8 | 575 | Note 10: Accumulated Other Comprehensive Income (Loss) This note details the changes in Otis Worldwide Corporation's accumulated other comprehensive income (loss) by component for the reported periods Changes in Accumulated Other Comprehensive Income (Loss) (Q3 2024) | Component | Balance Jun 30, 2024 (Millions of USD) | Change (Millions of USD) | Balance Sep 30, 2024 (Millions of USD) | | :------------------------- | :------------------------------------- | :----------------------- | :------------------------------------- | | Foreign Currency Translation | (686) | (47) | (733) | | Defined Benefit Pension Plans | (69) | — | (69) | | Hedging | 4 | (6) | (2) | | Total | (751) | (53) | (804) | Changes in Accumulated Other Comprehensive Income (Loss) (Nine Months Ended Sep 30, 2024) | Component | Balance Dec 31, 2023 (Millions of USD) | Change (Millions of USD) | Balance Sep 30, 2024 (Millions of USD) | | :------------------------- | :------------------------------------- | :----------------------- | :------------------------------------- | | Foreign Currency Translation | (673) | (60) | (733) | | Defined Benefit Pension Plans | (78) | 9 | (69) | | Hedging | 1 | (3) | (2) | | Total | (750) | (54) | (804) | Note 11: Income Taxes This note explains the factors influencing Otis Worldwide Corporation's effective tax rate and provides estimates for future changes in unrecognized tax benefits - The effective tax rate decreased for the quarter and nine months ended September 30, 2024, primarily due to the estimated tax benefit recognized from the German tax litigation settlement[76] - The company anticipates that unrecognized tax benefits may fluctuate between an increase of $10 million and a decrease of $95 million in the next 12 months, with related interest potentially changing between an increase of $10 million and a decrease of $80 million[79] Note 12: Restructuring and Transformation Costs This note details Otis Worldwide Corporation's restructuring and transformation costs, including those related to the UpLift program Restructuring Costs (2024 vs 2023) | Cost Type (Millions of USD) | Q3 2024 | Q3 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :-------------------------- | :------ | :------ | :----------------------------- | :----------------------------- | | UpLift Restructuring | 4 | — | 11 | — | | Other Restructuring | 5 | 21 | 29 | 36 | | Total | 9 | 21 | 40 | 36 | - Total estimated costs for the UpLift restructuring actions are approximately $55 million, with about $19 million yet to be incurred, and are expected to be substantially complete by the end of 2024[86] - UpLift transformation costs were $18 million and $45 million for the third quarter and nine months ended September 30, 2024, respectively, primarily consisting of consulting and incremental personnel costs[87] Restructuring Accrued Liabilities (Sep 30, 2024) | Restructuring Type | Balance Dec 31, 2023 (Millions of USD) | Net Restructuring Costs (Millions of USD) | Utilization, Foreign Exchange and Other Costs (Millions of USD) | Balance Sep 30, 2024 (Millions of USD) | | :----------------- | :------------------------------------- | :---------------------------------------- | :-------------------------------------------------------------- | :------------------------------------- | | UpLift | 13 | 11 | (21) | 3 | | Other | 35 | 29 | (34) | 30 | | Total | 48 | 40 | (55) | 33 | Note 13: Financial Instruments This note describes Otis Worldwide Corporation's use of derivative instruments for risk management, including hedging foreign currency, commodity prices, and interest rate fluctuations - The company primarily uses derivative instruments to manage risks, including hedging foreign currency, commodity prices, and interest rate fluctuations[90] Fair Value of Derivative Instruments (Sep 30, 2024 vs Dec 31, 2023) | Derivative Type | Balance Sheet Classification | Sep 30, 2024 (Millions of USD) | Dec 31, 2023 (Millions of USD) | | :------------------------- | :--------------------------- | :----------------------------- | :----------------------------- | | Cash Flow Hedges: | | | | | Foreign Exchange Contracts | Other Current Assets | 3 | 2 | | Commodity Contracts | Other Current Assets | — | 1 | | Foreign Exchange Contracts | Other Assets | 2 | 2 | | Total Asset Derivatives | | 5 | 5 | | Foreign Exchange Contracts | Accrued Liabilities | (6) | (4) | | Foreign Exchange Contracts | Other Long-Term Liabilities | (2) | (1) | | Total Liability Derivatives | | (8) | (5) | | Non-Cash Flow Hedges: | | | | | Foreign Exchange Contracts | Other Current Assets | 16 | 20 | | Foreign Exchange Contracts | Other Assets | 2 | 4 | | Total Asset Derivatives | | 18 | 24 | | Foreign Exchange Contracts | Accrued Liabilities | (24) | (34) | | Foreign Exchange Contracts | Other Long-Term Liabilities | (3) | (7) | | Total Liability Derivatives | | (27) | (41) | - The company holds ¥21.5 billion (Japanese Yen) denominated long-term debt as a net investment hedge of its Japanese operations, and derivatives for certain European and Asian operations[99] Note 14: Fair Value Measurements This note provides information on Otis Worldwide Corporation's recurring fair value measurements and the carrying and fair values of financial instruments not measured at fair value Recurring Fair Value Measurements (Sep 30, 2024 vs Dec 31, 2023) | Metric (Millions of USD) | Sep 30, 2024 Total | Sep 30, 2024 Level 1 | Sep 30, 2024 Level 2 | Dec 31, 2023 Total | Dec 31, 2023 Level 1 | Dec 31, 2023 Level 2 | | :----------------------- | :----------------- | :------------------- | :------------------- | :----------------- | :------------------- | :------------------- | | Marketable Securities | 45 | 45 | — | 28 | 28 | — | | Derivative Assets | 23 | — | 23 | 29 | — | 29 | | Derivative Liabilities | (35) | — | (35) | (46) | — | (46) | Carrying and Fair Values of Financial Instruments Not Measured at Fair Value (Sep 30, 2024 vs Dec 31, 2023) | Metric (Millions of USD) | Sep 30, 2024 Carrying Value | Sep 30, 2024 Fair Value | Dec 31, 2023 Carrying Value | Dec 31, 2023 Fair Value | | :----------------------- | :-------------------------- | :---------------------- | :-------------------------- | :---------------------- | | Long-Term Accounts Receivable, Net | 47 | 46 | 55 | 54 | | Customer Finance Notes Receivable, Net | 21 | 19 | 26 | 23 | | Short-Term Borrowings | (367) | (367) | (32) | (32) | | Long-Term Debt (including current portion) | (6,931) | (6,347) | (6,906) | (6,224) | | Long-Term Liabilities (including current portion) | (132) | (123) | (197) | (185) | Note 15: Guarantees This note provides information on Otis Worldwide Corporation's service and product guarantees and outstanding letters of credit Carrying Value of Service and Product Guarantees | Date | Amount (Millions of USD) | | :------------- | :----------------------- | | Sep 30, 2024 | 13 | | Dec 31, 2023 | 12 | - As of September 30, 2024, Otis had standby letters of credit with a maximum potential payment of $139 million, with no estimated probable costs incurred[110] Note 16: Contingent Liabilities This note discusses Otis Worldwide Corporation's contingent liabilities, including the German tax litigation and asbestos-related claims - The German tax litigation was favorably resolved on August 13, 2024, with an expected refund of approximately $335 million (net of tax) and the release of approximately $50 million in remaining interest liabilities[115][116] - The company has estimated an additional $194 million in tax and interest indemnification payable to RTX Corporation due to this favorable ruling, under the Tax Matters Agreement[117] Estimated Range of Asbestos-Related Claim Liabilities | Date | Estimated Range (Millions of USD) | | :------------- | :-------------------------------- | | Sep 30, 2024 | 11 to 21 | | Dec 31, 2023 | 20 to 43 | - The company has recorded the minimum liability for asbestos-related claims, which was $11 million as of September 30, 2024, and $20 million as of December 31, 2023[120] Note 17: Segment Financial Data This note provides Otis Worldwide Corporation's financial data by business segment (New Equipment and Service) and geographical region - The company operates in two business segments: New Equipment and Service, and updated its segment performance measure (segment operating profit) in the first quarter of 2024[126][128] Segment Net Sales and Operating Profit (2024 vs 2023) | Metric (Millions of USD) | Q3 2024 | Q3 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :----------------------- | :------ | :------ | :----------------------------- | :----------------------------- | | Net Sales | | | | | | New Equipment | 1,309 | 1,435 | 4,010 | 4,346 | | Service | 2,239 | 2,088 | 6,576 | 6,243 | | Total | 3,548 | 3,523 | 10,586 | 10,589 | | Operating Profit | | | | | | New Equipment | 84 | 104 | 265 | 292 | | Service | 555 | 518 | 1,616 | 1,496 | | Total Segment Operating Profit | 639 | 622 | 1,881 | 1,788 | | Corporate and Unallocated | (276) | (51) | (404) | (124) | | Consolidated Operating Profit | 363 | 571 | 1,477 | 1,664 | Net Sales by Geographic Region (2024 vs 2023) | Geographic Region (Millions of USD) | Q3 2024 | Q3 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :---------------------------------- | :------ | :------ | :----------------------------- | :----------------------------- | | U.S. Operations | 1,058 | 1,004 | 3,187 | 3,015 | | International Operations: | | | | | | China | 469 | 596 | 1,436 | 1,832 | | Other | 2,021 | 1,923 | 5,963 | 5,742 | | Total | 3,548 | 3,523 | 10,586 | 10,589 | Net Sales by Product and Service Type (2024 vs 2023) | Type (Millions of USD) | Q3 2024 | Q3 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--------------------- | :------ | :------ | :----------------------------- | :----------------------------- | | New Equipment | 1,309 | 1,435 | 4,010 | 4,346 | | Maintenance and Repair | 1,821 | 1,715 | 5,360 | 5,116 | | Modernization | 418 | 373 | 1,216 | 1,127 | | Total Service | 2,239 | 2,088 | 6,576 | 6,243 | | Total | 3,548 | 3,523 | 10,586 | 10,589 | Note 18: Accounting Pronouncements This note outlines the adoption and assessment of new accounting pronouncements by Otis Worldwide Corporation and their impact on financial reporting - The company adopted ASU 2021-08 (Business Combinations: Accounting for Contract Assets and Contract Liabilities from Customer Contracts) effective January 1, 2023, with no material impact on financial statements[139] - The company adopted ASU 2022-04 (Liabilities: Disclosures by a Vendor for Supplier Finance Programs), with no material impact on financial statements[140] - The company is evaluating the impact of ASU 2023-05 (Business Combinations: Joint Venture Formations), which is not expected to have a material impact on financial statements[141] - The adoption of ASU 2023-07 (Segment Reporting) and ASU 2023-09 (Income Taxes) will result in additional disclosures but will not affect the company's financial position, operating results, or cash flows[142][143] Report of Independent Registered Public Accounting Firm PricewaterhouseCoopers LLP conducted a limited review of Otis Worldwide Corporation's condensed consolidated financial information, finding no material modifications needed for GAAP compliance - PricewaterhouseCoopers LLP performed a limited review of the condensed consolidated financial information for the quarters and nine months ended September 30, 2024 and 2023[146][147] - Based on the review, PricewaterhouseCoopers found no material modifications necessary for the financial information to conform with U.S. Generally Accepted Accounting Principles[147] - PricewaterhouseCoopers did not express an audit opinion on the unaudited condensed consolidated financial information and noted that its report is not within the scope of liability provisions of Section 11 of the Securities Act of 1933[146][149] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's discussion and analysis of Otis Worldwide Corporation's financial condition and operating results for the quarter ended September 30, 2024, including business overview, key estimates, and segment review Business Overview This section provides an overview of Otis Worldwide Corporation's business, including its global leadership in elevators and escalators, the "UpLift" program, and the impact of macroeconomic and geopolitical factors - Otis is a global leader in the manufacture, installation, and service of elevators and escalators, with operations divided into New Equipment and Service segments[151] - The company announced its "UpLift" program in July 2023, aiming to transform its operating model and achieve approximately $175 million in annual savings by mid-2025[155] UpLift Costs (2024 vs 2023) | Cost Type (Millions of USD) | Q3 2024 | Q3 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :-------------------------- | :------ | :------ | :----------------------------- | :----------------------------- | | UpLift Restructuring Costs | 4 | — | 11 | — | | UpLift Transformation Costs | 18 | 4 | 45 | 4 | | Total UpLift Costs | 22 | 4 | 56 | 4 | - A favorable ruling in German tax litigation led to the recognition of an $185 million income tax benefit and $200 million in interest income in Q3 2024, alongside recording $194 million in indemnification expense to RTX Corporation[159] - Global macroeconomic developments (e.g., inflationary pressures, high interest rates) and geopolitical conflicts (e.g., Russia-Ukraine, Middle East) continue to affect company operations, but are not currently expected to materially impact capital and financial resources[161][162][163][164] Critical Accounting Estimates This section highlights that the preparation of condensed consolidated financial statements requires estimates and assumptions affecting reported amounts, with no significant changes to key accounting policies - The preparation of condensed consolidated financial statements requires estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses[166] - There have been no significant changes to the company's critical accounting policies, except for the adoption of new accounting pronouncements disclosed in Note 18[166] Results of Operations This section analyzes Otis Worldwide Corporation's operating results, including net sales, cost of sales, gross margin, and various expenses for the reported periods Net Sales Changes (2024 vs 2023) | Metric (Millions of USD) | Q3 2024 | Q3 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :----------------------- | :------ | :------ | :----------------------------- | :----------------------------- | | Net Sales | 3,548 | 3,523 | 10,586 | 10,589 | | Year-over-Year Change % | 0.7% | | 0.0% | | | Organic Sales Change | 1.2% | | 1.2% | | | Foreign Currency Translation Impact | (0.8)% | | (1.4)% | | - Quarterly and nine-month organic sales growth was primarily driven by service business growth (7.7% quarterly, 6.4% nine-month), partially offset by a decline in new equipment business (-8.2% quarterly, -6.3% nine-month)[168] Cost of Product and Service Sales Changes (2024 vs 2023) | Metric (Millions of USD) | Q3 2024 | Q3 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :----------------------- | :------ | :------ | :----------------------------- | :----------------------------- | | Total Cost | 2,470 | 2,477 | 7,401 | 7,464 | | Year-over-Year Change % | (0.3)% | | (0.8)% | | | Organic Sales Change | 0.7% | | 0.5% | | | Foreign Currency Translation Impact | (0.9)% | | (1.4)% | | Gross Margin (2024 vs 2023) | Metric (Millions of USD) | Q3 2024 | Q3 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :----------------------- | :------ | :------ | :----------------------------- | :----------------------------- | | Gross Profit | 1,078 | 1,046 | 3,185 | 3,125 | | Gross Margin % | 30.4% | 29.7% | 30.1% | 29.5% | - Gross margin percentage increased by 70 and 60 basis points for the quarter and nine months, respectively, primarily due to faster service sales growth, productivity improvements, and lower commodity prices[173] Research and Development Expenses (2024 vs 2023) | Metric (Millions of USD) | Q3 2024 | Q3 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :----------------------- | :------ | :------ | :----------------------------- | :----------------------------- | | R&D Expenses | 40 | 36 | 115 | 107 | | % of Net Sales | 1.1% | 1.0% | 1.1% | 1.0% | Selling, General and Administrative Expenses (2024 vs 2023) | Metric (Millions of USD) | Q3 2024 | Q3 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :----------------------- | :------ | :------ | :----------------------------- | :----------------------------- | | SG&A Expenses | 455 | 452 | 1,366 | 1,386 | | % of Net Sales | 12.8% | 12.8% | 12.9% | 13.1% | - Quarterly selling, general and administrative expenses increased by $3 million, mainly due to annual wage increases and higher credit loss provisions, partially offset by UpLift savings and lower restructuring costs[176] - Nine-month selling, general and administrative expenses decreased by $20 million, primarily due to UpLift savings, cost control actions, and favorable foreign exchange impacts[177] Restructuring Costs (Nine Months 2024) | Cost Type (Millions of USD) | Nine Months 2024 | | :-------------------------- | :--------------- | | UpLift Restructuring | 11 | | Other Restructuring | 29 | | Total Restructuring Costs | 40 | - UpLift restructuring actions are expected to generate approximately $55 million in annual recurring savings by 2025, with about $26 million realized in the nine months ended September 30, 2024[182] Other Income (Expense), Net (2024 vs 2023) | Metric (Millions of USD) | Q3 2024 | Q3 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :----------------------- | :------ | :------ | :----------------------------- | :----------------------------- | | Other Income (Expense), Net | (220) | 13 | (227) | 32 | - Changes in other income (expense), net, were primarily influenced by separation-related adjustments ($193 million quarterly, $177 million nine-month), UpLift transformation costs ($18 million quarterly, $45 million nine-month), an $18 million impairment loss on net assets held for sale, and foreign currency mark-to-market adjustments[186] Interest Expense (Income), Net (2024 vs 2023) | Metric (Millions of USD) | Q3 2024 | Q3 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :----------------------- | :------ | :------ | :----------------------------- | :----------------------------- | | Interest Expense (Income), Net | (150) | 39 | (79) | 109 | - Changes in interest expense (income), net, were primarily impacted by a $200 million benefit from the German tax litigation ruling, partially offset by higher interest expense related to $750 million of unsecured debt issued in August 2023[188] Effective Tax Rate (2024 vs 2023) | Metric | Q3 2024 | Q3 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--------------- | :------ | :------ | :----------------------------- | :----------------------------- | | Effective Tax Rate | (8.8)% | 25.8% | 11.2% | 25.7% | - The effective tax rate decreased primarily due to the estimated tax benefit recognized from the German tax litigation settlement and a reduction in deferred tax liabilities during the nine-month period[190] Non-Controlling Interests and Net Income Attributable to Otis Worldwide Corporation (2024 vs 2023) | Metric (Millions of USD) | Q3 2024 | Q3 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :----------------------- | :------ | :------ | :----------------------------- | :----------------------------- | | Non-Controlling Interests | 17 | 19 | 73 | 71 | | Net Income Attributable to Otis Worldwide Corporation | 540 | 376 | 1,308 | 1,083 | - Net income attributable to Otis Worldwide Corporation increased due to a lower effective tax rate and lower interest expense, partially offset by lower operating profit[194] Segment Review This section provides a detailed review of the financial performance of Otis Worldwide Corporation's New Equipment and Service segments - New Equipment net sales organically decreased by 8.2% for the quarter and 6.3% for the nine months, primarily due to a decline of over 20% in the China market[203][205] - New Equipment operating profit decreased by $20 million for the quarter and $27 million for the nine months, mainly due to lower volume and unfavorable regional and product mix, partially offset by favorable pricing, productivity, and commodity tailwinds[204][207] - Service net sales organically grew by 7.7% for the quarter and 6.4% for the nine months, driven by organic growth in maintenance and repair (6.4% quarterly, 5.7% nine-month) and modernization (13.7% quarterly, 9.7% nine-month)[211][212][214][215] - Service operating profit increased by $37 million for the quarter and $120 million for the nine months, primarily due to higher volume, improved maintenance contract pricing, and productivity gains, partially offset by inflationary pressures[213][216] - Corporate and unallocated expenses increased by $13 million for the quarter and $23 million for the nine months, mainly due to foreign currency mark-to-market adjustments and higher corporate costs[217] Liquidity and Financial Condition This section discusses Otis Worldwide Corporation's liquidity sources, financial position, and changes in cash flows for the reported periods - The company primarily meets its operating, investing, and financing needs through operating cash flow, cash on hand, available bank credit facilities, and capital markets[220] Financial Condition and Liquidity Key Metrics (Sep 30, 2024 vs Dec 31, 2023) | Metric (Millions of USD) | Sep 30, 2024 | Dec 31, 2023 | | :----------------------- | :----------- | :----------- | | Cash and Cash Equivalents | 827 | 1,274 | | Total Debt | 7,263 | 6,898 | | Net Debt | 6,436 | 5,624 | | Total Equity | (4,835) | (4,855) | | Total Capitalization | 2,428 | 2,043 | | Net Capitalization | 1,601 | 769 | | Total Debt as % of Total Capitalization | 299% | 338% | | Net Debt as % of Net Capitalization | 402% | 731% | - As of September 30, 2024, the company had a $1.5 billion revolving credit facility with no borrowings, and $316 million outstanding in commercial paper[224][225] - Approximately $400 million remained available for repurchases under the $2 billion common stock repurchase program authorized by the Board of Directors as of September 30, 2024[226] Cash Flow Changes (2024 vs 2023) | Cash Flow Type (Millions of USD) | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------------------------- | :----------------------------- | :----------------------------- | | Net Cash Flow from Operating Activities | 873 | 1,030 | | Net Cash Flow from Investing Activities | (210) | (132) | | Net Cash Flow from Financing Activities | (1,102) | (418) | | Effect of Exchange Rate Changes | (9) | (34) | | Net Increase (Decrease) in Cash and Cash Equivalents | (448) | 446 | - Operating cash flow decreased year-over-year, primarily due to changes in working capital balances, lower accounts payable, and the timing of income tax payments[229] - Cash outflows from investing activities increased, primarily for capital expenditures ($87 million), business and intangible asset acquisitions ($70 million), and derivative settlements ($47 million)[233] - Cash outflows from financing activities increased, mainly due to common stock repurchases ($800 million), common stock and non-controlling interest dividend payments ($450 million and $81 million), and acquisition of non-controlling interest shares ($75 million), partially offset by $325 million in short-term borrowings[237] Guaranteed Securities: Summarized Financial Information This section provides summarized financial information for Otis Worldwide Corporation (OWC) and Highland Holdings S.à r.l. (Highland) related to OWC's unconditionally guaranteed Euro notes - This section provides summarized financial information for Otis Worldwide Corporation (OWC) and Highland Holdings S.à r.l. (Highland) concerning the 2026 and 2031 Euro notes unconditionally guaranteed by OWC[240][243] - Highland is a wholly-owned indirect consolidated subsidiary of OWC, governed by Luxembourg insolvency law, which may be less favorable to creditors than U.S. bankruptcy law[241] OWC Statement of Operations Summary (Nine Months Ended Sep 30, 2024) | Metric (Millions of USD) | Amount | | :----------------------- | :----- | | Revenue | — | | Operating Expenses | 10 | | Income from Consolidated Subsidiaries | 49 | | Operating Income (Loss) (excluding subsidiary income) | (228) | OWC Balance Sheet Summary (Sep 30, 2024 vs Dec 31, 2023) | Metric (Millions of USD) | Sep 30, 2024 | Dec 31, 2023 | | :----------------------- | :----------- | :----------- | | Current Assets (excluding receivables from subsidiaries) | 106 | 63 | | Non-Current Assets (investments in consolidated subsidiaries) | 1,241 | 1,236 | | Current Liabilities (excluding payables to subsidiaries) | 1,962 | 119 | | Non-Current Liabilities (excluding payables to subsidiaries) | 4,510 | 5,880 | Highland Statement of Operations Summary (Nine Months Ended Sep 30, 2024) | Metric (Millions of USD) | Amount | | :----------------------- | :----- | | Revenue | — | | Operating Expenses | — | | Income from Consolidated Subsidiaries | 365 | | Net Income (Loss) (excluding subsidiary income) | (187) | Highland Balance Sheet Summary (Sep 30, 2024 vs Dec 31, 2023) | Metric (Millions of USD) | Sep 30, 2024 | Dec 31, 2023 | | :----------------------- | :----------- | :----------- | | Non-Current Assets (investments in consolidated subsidiaries) | 15,711 | 15,711 | | Non-Current Assets (receivables from subsidiaries) | 496 | 518 | | Non-Current Liabilities (payables to subsidiaries) | 3,721 | 3,467 | | Non-Current Liabilities (excluding payables to subsidiaries) | 1,226 | 1,199 | Off-Balance Sheet Arrangements and Contractual Obligations This section states that there have been no material changes to Otis Worldwide Corporation's off-balance sheet arrangements and contractual obligations, beyond those disclosed in Note 7 - As of September 30, 2024, there have been no material changes to the company's off-balance sheet arrangements and contractual obligations, other than those disclosed in Note 7[249] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section indicates no material changes in Otis Worldwide Corporation's market risk for the reported periods, referencing the 2023 10-K annual report for detailed disclosures - There have been no material changes in the company's market risk for the quarter and nine months ended September 30, 2024[250] Item 4. Controls and Procedures This section confirms the effectiveness of Otis Worldwide Corporation's disclosure controls and procedures as of September 30, 2024, with no significant internal control changes during the quarter - As of September 30, 2024, company management concluded that its disclosure controls and procedures are effective[251] - There were no material changes in the company's internal control over financial reporting during the quarter ended September 30, 2024[252] Cautionary Note Concerning Factors That May Affect Future Results This section contains forward-looking statements regarding Otis's future performance, highlighting various risks and uncertainties that could cause actual results to differ materially from expectations - This report contains forward-looking statements regarding future sales, earnings, cash flows, operating results, dividends, stock repurchases, tax rates, R&D expenditures, restructuring actions (including UpLift), and other matters[253] - All forward-looking statements involve risks, uncertainties, and other factors that could cause actual results to differ materially from those expressed or implied[253] - Key risk factors include economic conditions, financial market conditions, commodity price fluctuations, inflationary pressures, interest rates, foreign exchange rates, geopolitical conflicts (e.g., Russia-Ukraine, Middle East, U.S.-China tensions), technological challenges, debt levels, capital expenditures, restructuring costs, legal proceedings, pension plans, labor disputes, tax and regulatory changes, and acquisition activities[253] PART II – OTHER INFORMATION This part includes other information such as legal proceedings, risk factors, equity security sales, and exhibits Item 1. Legal Proceedings This section refers to Note 16 of the condensed consolidated financial statements for discussions on material legal proceedings, noting no significant developments otherwise - Discussions regarding material legal proceedings are provided in Note 16 to the condensed consolidated financial statements[256] - There have been no other material developments in legal proceedings beyond those di