Otis Worldwide (US:OTIS)2025-07-24 20:14PART I – FINANCIAL INFORMATION Item 1. Financial Statements This section presents Otis Worldwide Corporation's unaudited condensed consolidated financial statements, including statements of operations, comprehensive income, balance sheets, changes in equity, and cash flows, accompanied by detailed explanatory notes Condensed Consolidated Statements of Operations (Quarterly) This table presents Otis Worldwide Corporation's condensed consolidated statements of operations for the quarters ended June 30, 2025 and 2024, highlighting key financial performance metrics | Metric | Q2 2025 (millions) | Q2 2024 (millions) | Change (millions) | Change (%) | | :----- | :----------------- | :----------------- | :---------------- | :--------- | | Net Sales | $3,595 | $3,601 | $(6) | (0.17)% | | Product Sales | $1,276 | $1,421 | $(145) | (10.20)% | | Service Sales | $2,319 | $2,180 | $139 | 6.38% | | Operating Profit | $547 | $570 | $(23) | (4.04)% | | Net Income attributable to Otis | $393 | $415 | $(22) | (5.30)% | | Diluted EPS | $0.99 | $1.02 | $(0.03) | (2.94)% | Condensed Consolidated Statements of Operations (Six Months) This table presents Otis Worldwide Corporation's condensed consolidated statements of operations for the six months ended June 30, 2025 and 2024, detailing year-to-date financial performance | Metric | 6M 2025 (millions) | 6M 2024 (millions) | Change (millions) | Change (%) | | :----- | :----------------- | :----------------- | :---------------- | :--------- | | Net Sales | $6,945 | $7,038 | $(93) | (1.32)% | | Product Sales | $2,439 | $2,701 | $(262) | (9.70)% | | Service Sales | $4,506 | $4,337 | $169 | 3.90% | | Operating Profit | $958 | $1,114 | $(156) | (14.00)% | | Net Income attributable to Otis | $636 | $768 | $(132) | (17.19)% | | Diluted EPS | $1.60 | $1.89 | $(0.29) | (15.34)% | Condensed Consolidated Statements of Comprehensive Income This table presents Otis Worldwide Corporation's condensed consolidated statements of comprehensive income for the quarters and six months ended June 30, 2025 and 2024 | Metric | Q2 2025 (millions) | Q2 2024 (millions) | 6M 2025 (millions) | 6M 2024 (millions) | | :----- | :----------------- | :----------------- | :----------------- | :----------------- | | Net income | $423 | $450 | $679 | $824 | | Foreign currency translation adjustments | $(170) | $0 | $(293) | $(25) | | Other comprehensive income (loss), net of tax | $(177) | $0 | $(299) | $(13) | | Comprehensive income attributable to Otis | $208 | $420 | $325 | $767 | Condensed Consolidated Balance Sheets This table presents Otis Worldwide Corporation's condensed consolidated balance sheets as of June 30, 2025, and December 31, 2024, detailing assets, liabilities, and equity | Metric | June 30, 2025 (millions) | Dec 31, 2024 (millions) | Change (millions) | Change (%) | | :----- | :----------------------- | :---------------------- | :---------------- | :--------- | | Cash and cash equivalents | $688 | $2,300 | $(1,612) | (70.09)% | | Total Current Assets | $6,387 | $7,670 | $(1,283) | (16.73)% | | Total Assets | $10,495 | $11,316 | $(821) | (7.26)% | | Total Current Liabilities | $7,246 | $7,749 | $(503) | (6.49)% | | Total Liabilities | $15,699 | $16,044 | $(345) | (2.15)% | | Total Equity (Deficit) | $(5,270) | $(4,785) | $(485) | (10.14)% | Condensed Consolidated Statements of Changes in Equity (Quarterly) This table presents Otis Worldwide Corporation's condensed consolidated statements of changes in equity for the quarters ended June 30, 2025 and 2024 | Metric | Q2 2025 (millions) | Q2 2024 (millions) | | :----- | :----------------- | :----------------- | | Balance as of March 31 | $(5,128) | $(5,024) | | Net income | $393 | $415 | | Other comprehensive income (loss), net of tax | $(185) | $5 | | Cash dividends declared | $(164) | $(157) | | Repurchase of Common Shares | $(302) | $(303) | | Balance as of June 30 | $(5,367) | $(5,046) | Condensed Consolidated Statements of Changes in Equity (Six Months) This table presents Otis Worldwide Corporation's condensed consolidated statements of changes in equity for the six months ended June 30, 2025 and 2024 | Metric | 6M 2025 (millions) | 6M 2024 (millions) | | :----- | :----------------- | :----------------- | | Balance as of Dec 31 | $(4,848) | $(4,924) | | Net income | $636 | $768 | | Other comprehensive income (loss), net of tax | $(311) | $(1) | | Cash dividends declared | $(319) | $(295) | | Repurchase of Common Shares | $(558) | $(605) | | Balance as of June 30 | $(5,367) | $(5,046) | Condensed Consolidated Statements of Cash Flows This table presents Otis Worldwide Corporation's condensed consolidated statements of cash flows for the six months ended June 30, 2025 and 2024, detailing operating, investing, and financing activities | Metric | 6M 2025 (millions) | 6M 2024 (millions) | Change (millions) | | :----- | :----------------- | :----------------- | :---------------- | | Net cash flows provided by operating activities | $405 | $479 | $(74) | | Net cash flows used in investing activities | $(320) | $(97) | $(223) | | Net cash flows used in financing activities | $(1,722) | $(679) | $(1,043) | | Net increase (decrease) in cash | $(1,618) | $(329) | $(1,289) | Notes to Condensed Consolidated Financial Statements This section provides detailed explanatory notes to the condensed consolidated financial statements, covering significant accounting policies and financial disclosures Note 1: General This note discusses macroeconomic impacts, German tax litigation, and supplier finance programs, providing context for the financial statements - Management assesses macroeconomic developments (inflation, interest rates, tariffs) and geopolitical conflicts (Russia-Ukraine, Middle East) for potential material impacts, but none were material as of June 30, 2025. Future impacts from new tariffs could be $25-$35 million in 2025323334151 - The Company received a favorable ruling in German tax litigation in August 2024, expecting €307 million (~$355 million) in refunds by end of 2025. An indemnity payable to RTX (former parent) related to this outcome is estimated at $233 million as of June 30, 2025, up from $194 million at Dec 31, 20243536101105 | Metric | June 30, 2025 (millions) | Dec 31, 2024 (millions) | | :----- | :----------------------- | :---------------------- | | Income tax receivable | ~$175 | ~$175 | | Interest receivable | ~$145 | ~$140 | | Indemnity payable to RTX | $233 | $194 | - Outstanding obligations under supplier finance programs were $598 million as of June 30, 2025, down from $714 million at December 31, 202438 Note 2: Earnings per Share This note details basic and diluted earnings per share calculations, including the impact of anti-dilutive stock awards | Metric | Q2 2025 | Q2 2024 | 6M 2025 | 6M 2024 | | :----- | :------ | :------ | :------ | :------ | | Basic EPS | $1.00 | $1.03 | $1.61 | $1.90 | | Diluted EPS | $0.99 | $1.02 | $1.60 | $1.89 | | Basic shares (millions) | 393.7 | 402.9 | 395.1 | 404.0 | | Diluted shares (millions) | 395.8 | 405.5 | 397.3 | 406.8 | - Anti-dilutive stock awards excluded from diluted EPS computation decreased to 0.5 million for Q2 and 6M 2025, from 1.1 million for the same periods in 202440 Note 3: Revenue Recognition This note provides information on contract assets, liabilities, and remaining performance obligations related to revenue recognition | Metric | June 30, 2025 (millions) | Dec 31, 2024 (millions) | Change (millions) | | :----- | :----------------------- | :---------------------- | :---------------- | | Contract assets, current | $769 | $706 | $63 | | Total contract liabilities | $2,848 | $2,636 | $212 | | Net contract liabilities | $2,079 | $1,930 | $149 | - Total Remaining Performance Obligations (RPO) were approximately $19.3 billion as of June 30, 2025, with about 90% expected to be recognized as sales over the following 24 months46 Note 4: Accounts Receivable, Net This note details accounts receivable, net of the allowance for expected credit losses, as of June 30, 2025, and December 31, 2024 | Metric | June 30, 2025 (millions) | Dec 31, 2024 (millions) | Change (millions) | | :----- | :----------------------- | :---------------------- | :---------------- | | Accounts receivable | $3,817 | $3,553 | $264 | | Allowance for expected credit losses | $(121) | $(125) | $4 | | Accounts receivable, net | $3,696 | $3,428 | $268 | Note 5: Inventories This note provides a breakdown of inventories, including raw materials, work-in-process, and finished goods | Metric | June 30, 2025 (millions) | Dec 31, 2024 (millions) | Change (millions) | | :----- | :----------------------- | :---------------------- | :---------------- | | Raw materials and work-in-process | $129 | $134 | $(5) | | Finished goods | $473 | $423 | $50 | | Total Inventories | $602 | $557 | $45 | Note 6: Business Acquisitions, Dispositions, Goodwill and Intangible Assets This note details business acquisitions, dispositions, changes in goodwill, and intangible assets, including a loss on sale of a non-U.S. subsidiary - Acquisitions of businesses and intangible assets, net of cash, totaled $82 million in 6M 2025, up from $40 million in 6M 2024, primarily in the Service segment49 | Metric | Dec 31, 2024 (millions) | Business Combinations (millions) | Foreign Currency Translation and Other (millions) | June 30, 2025 (millions) | | :----- | :---------------------- | :------------------------------- | :---------------------------------------------- | :----------------------- | | Goodwill - New Equipment | $277 | $0 | $22 | $299 | | Goodwill - Service | $1,271 | $51 | $86 | $1,408 | | Total Goodwill | $1,548 | $51 | $108 | $1,707 | - The Company recorded a total pre-tax loss on sale of $28 million from selling a non-U.S. subsidiary during the quarter ended June 30, 202553 Note 7: Borrowings and Lines of Credit This note provides details on short-term and long-term borrowings, including commercial paper, debt repayments, and weighted average interest rates | Metric | June 30, 2025 (millions) | Dec 31, 2024 (millions) | Change (millions) | | :----- | :----------------------- | :---------------------- | :---------------- | | Commercial paper | $472 | $0 | $472 | | Total short-term borrowings | $528 | $51 | $477 | | Total principal long-term debt | $7,265 | $8,322 | $(1,057) | | Long-term debt, net of current portion | $7,074 | $6,973 | $101 | - On April 7, 2025, the Company repaid $1.3 billion of 2.056% notes due in 2025, upon maturity, using cash on hand and commercial paper borrowings57 | Metric | June 30, 2025 | Dec 31, 2024 | | :----- | :------------ | :----------- | | Weighted average interest rate on short-term commercial paper | 3.2% | —% | | Weighted average interest rate on total long-term debt | 2.8% | 2.7% | Note 8: Employee Benefit Plans This note outlines contributions to defined benefit, defined contribution, and multi-employer plans, along with stock-based compensation expense | Metric | 6M 2025 (millions) | 6M 2024 (millions) | Change (millions) | | :----- | :----------------- | :----------------- | :---------------- | | Defined benefit plans contributions | $27 | $24 | $3 | | Defined contribution plans contributions | $38 | $36 | $2 | | Multi-employer pension and postretirement plans contributions | $81 | $82 | $(1) | | Total net periodic benefit cost (defined benefit plans) | $17 | $15 | $2 | | Metric | 6M 2025 (millions) | 6M 2024 (millions) | Change (millions) | | :----- | :----------------- | :----------------- | :---------------- | | Stock-based compensation expense (Share Based) | $44 | $36 | $8 | | Stock-based compensation expense, net of tax | $40 | $32 | $8 | - As of June 30, 2025, approximately $133 million of total unrecognized compensation cost related to non-vested equity awards is expected to be recognized ratably over a weighted-average period of 1.9 years63 Note 9: Stock This note details the share repurchase program, including shares repurchased and the remaining authorization - On January 16, 2025, the Board of Directors approved a new share repurchase program for up to $2.0 billion of Common Stock, of which $1.5 billion was remaining as of June 30, 202565 | Metric | 6M 2025 | 6M 2024 | | :----- | :------ | :------ | | Shares repurchased (millions) | 5.8 | 6.5 | | Value of shares repurchased (millions) | $553 | $600 | Note 10: Accumulated Other Comprehensive Income (Loss) This note presents changes in accumulated other comprehensive income (loss), primarily driven by foreign currency translation adjustments | Metric | Dec 31, 2024 (millions) | June 30, 2025 (millions) | Change (millions) | | :----- | :---------------------- | :----------------------- | :---------------- | | Balance as of December 31 | $(745) | $(745) | N/A | | Other comprehensive income (loss) before reclassifications, net (6M) | $(314) | $(314) | N/A | | Balance as of June 30 | $(1,056) | $(1,056) | $(311) | - Foreign currency translation adjustments were the primary driver of the negative change in Accumulated other comprehensive income (loss), with a $(305) million impact for the six months ended June 30, 202568 Note 11: Income Taxes This note discusses the effective tax rate and factors influencing its change, including the impact of the OBBBA | Metric | Q2 2025 | Q2 2024 | 6M 2025 | 6M 2024 | | :----- | :------ | :------ | :------ | :------ | | Effective tax rate | 18.8% | 17.3% | 23.4% | 21.1% | - The increase in the effective tax rate is primarily due to the absence of the reduction in a deferred tax liability related to the mitigation of future repatriation costs recorded in 2024, and the tax effect of the increase in our estimated nondeductible TMA indemnity obligation payable to RTX recorded in Q1 202569181 - The One Big Beautiful Bill Act (OBBBA), enacted on July 4, 2025, is being evaluated but is not expected to have a material impact on the Condensed Consolidated Financial Statements70 Note 12: Restructuring and Transformation Costs This note details UpLift and other restructuring costs, transformation expenses, and accruals related to operational reorganizations | Metric | Q2 2025 (millions) | Q2 2024 (millions) | 6M 2025 (millions) | 6M 2024 (millions) | | :----- | :----------------- | :----------------- | :----------------- | :----------------- | | UpLift restructuring costs | $25 | $6 | $45 | $7 | | Other restructuring costs | $12 | $5 | $35 | $24 | | Total restructuring costs | $37 | $11 | $80 | $31 | - UpLift transformation costs, primarily for consultants and third-party service providers, increased to $18 million for Q2 2025 and $41 million for 6M 2025, from $15 million and $27 million respectively in 202478 - The reorganization of operations in China, announced in January 2025, is expected to result in approximately $40 million in restructuring actions, primarily severance-related, to be mostly completed and cash paid by the end of 202580 | Metric | Dec 31, 2024 (millions) | Net restructuring costs (6M 2025) (millions) | Utilization, foreign exchange and other costs (6M 2025) (millions) | June 30, 2025 (millions) | | :----- | :---------------------- | :------------------------------------------- | :--------------------------------------------------------------- | :----------------------- | | Total Restructuring accruals | $37 | $80 | $(52) | $65 | Note 13: Financial Instruments This note provides information on derivative instruments, including those designated as hedging and de-designated net investment hedges | Metric | June 30, 2025 (millions) | Dec 31, 2024 (millions) | | :----- | :----------------------- | :---------------------- | | Total asset derivatives (cash flow hedging) | $3 | $9 | | Total liability derivatives (cash flow hedging) | $(9) | $(5) | | Total asset derivatives (not designated as hedging) | $17 | $59 | | Total liability derivatives (not designated as hedging) | $(28) | $(45) | - During the six months ended June 30, 2025, the Company de-designated derivative instruments that qualified as net investment hedges in certain European and Asian businesses with notional amounts of €150 million and ¥2.1 billion respectively90 | Metric | Q2 2025 (millions) | Q2 2024 (millions) | 6M 2025 (millions) | 6M 2024 (millions) | | :----- | :----------------- | :----------------- | :----------------- | :----------------- | | Gains (losses) recognized in OCI related to net investment hedges | $(15) | $6 | $(16) | $13 | Note 14: Fair Value Measurements This note presents fair value measurements for marketable securities, derivative assets and liabilities, and long-term debt | Metric | June 30, 2025 (millions) | Dec 31, 2024 (millions) | | :----- | :----------------------- | :---------------------- | | Marketable securities (Level 1) | $48 | $44 | | Derivative assets (Level 2) | $20 | $68 | | Derivative liabilities (Level 2) | $(37) | $(50) | | Metric | June 30, 2025 (millions) | Dec 31, 2024 (millions) | | :----- | :----------------------- | :---------------------- | | Fair Value of Long-term debt, including current portion (excluding leases and other) | $(6,676) | $(7,600) | Note 15: Guarantees This note details service and product guarantees and stand-by letters of credit, including potential payment obligations | Metric | June 30, 2025 (millions) | Dec 31, 2024 (millions) | | :----- | :----------------------- | :---------------------- | | Service and product guarantees | $12 | $16 | - Otis has stand-by letters of credit with a maximum potential payment totaling $130 million as of June 30, 2025, and has determined there are no estimated costs probable under these guarantees98 Note 16: Contingent Liabilities This note discusses contingent liabilities, including German tax litigation refunds, indemnity payable to RTX, and asbestos claims - Otis expects to receive total refunds of approximately €307 million (approximately $355 million as of June 30, 2025) from a favorable German tax litigation ruling, with the refund process anticipated to continue through the end of 2025101 | Metric | June 30, 2025 (millions) | March 31, 2025 (millions) | Dec 31, 2024 (millions) | | :----- | :----------------------- | :------------------------ | :---------------------- | | Indemnity Payable (in Accrued liabilities) | $233 | $246 | $194 | - The estimated range of total liabilities to resolve all pending and unasserted potential future asbestos claims through 2059 is approximately $11 million to $21 million, with $10 million accrued as of June 30, 2025. An insurance recovery receivable of approximately $3 million is also recognized108 Note 17: Segment Financial Data This note provides detailed financial data for the New Equipment and Service segments, along with corporate and unallocated expenses | Segment | Q2 2025 Net Sales (millions) | Q2 2024 Net Sales (millions) | Q2 2025 Operating Profit (millions) | Q2 2024 Operating Profit (millions) | | :------ | :--------------------------- | :--------------------------- | :--------------------------------- | :--------------------------------- | | New Equipment | $1,276 | $1,421 | $68 | $110 | | Service | $2,319 | $2,180 | $578 | $538 | | Total segment | $3,595 | $3,601 | $646 | $648 | | Segment | 6M 2025 Net Sales (millions) | 6M 2024 Net Sales (millions) | 6M 2025 Operating Profit (millions) | 6M 2024 Operating Profit (millions) | | :------ | :--------------------------- | :--------------------------- | :--------------------------------- | :--------------------------------- | | New Equipment | $2,439 | $2,701 | $134 | $181 | | Service | $4,506 | $4,337 | $1,115 | $1,061 | | Total segment | $6,945 | $7,038 | $1,249 | $1,242 | - Corporate and Unallocated expenses increased significantly for 6M 2025 to $291 million from $128 million in 6M 2024, driven by UpLift restructuring ($45M vs $7M), other restructuring ($35M vs $24M), UpLift transformation costs ($41M vs $27M), and separation-related adjustments ($61M vs $(16)M)119 Note 18: Accounting Pronouncements This note outlines the adoption and evaluation of new accounting pronouncements and their expected impact on financial statements - Adoption of ASU 2020-04 (Reference Rate Reform) and ASU 2022-04 (Supplier Finance Programs) did not have a material impact on the Condensed Consolidated Financial Statements124125 - ASU 2023-07 (Segment Reporting) was adopted effective December 31, 2024, resulting in additional disclosure127 - ASU 2023-09 (Income Tax Disclosures) and ASU 2024-03 (Expense Disaggregation Disclosures) will result in additional disclosures but will not impact the condensed consolidated financial position, results of operations, or cash flows128129 - ASU 2025-03 (Accounting Acquirer in VIEs) is currently being evaluated but is not expected to have a material impact130 Report of Independent Registered Public Accounting Firm This report confirms PricewaterhouseCoopers LLP's limited review of the interim financial information and their unqualified opinion on the December 31, 2024 balance sheet - PricewaterhouseCoopers LLP performed a limited review of the interim financial information for the periods ended June 30, 2025 and 2024, and is not aware of any material modifications that should be made for it to be in conformity with U.S. GAAP134 - The firm previously audited the consolidated balance sheet as of December 31, 2024, expressing an unqualified opinion, and confirmed the accompanying condensed consolidated balance sheet as of December 31, 2024, is fairly stated135 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition and operational results for the quarter and six months ended June 30, 2025, covering business overview, critical accounting estimates, segment performance, and liquidity BUSINESS OVERVIEW This section provides an overview of Otis's business segments, strategic initiatives, and the impact of global macroeconomic conditions and ongoing conflicts Business Summary This section summarizes Otis's two operating segments, New Equipment and Service, and its global strategy to grow the maintenance portfolio - Otis operates two segments: New Equipment (design, manufacture, sell, install elevators, escalators, moving walkways) and Service (maintenance, repair, modernization for own and other manufacturers' products)139140 - The Company functions under a centralized operating model, pursuing a global strategy to grow its maintenance portfolio by converting new installations into service contracts141 UpLift This section details the UpLift program's objectives, expected savings, and incurred restructuring and transformation costs - The UpLift program, announced in July 2023, aims to transform the operating model, standardize processes, and improve supply chain procurement, expecting approximately $200 million in annual run-rate savings by H2 2025, with total costs of approximately $300 million144 | Metric | Q2 2025 (millions) | Q2 2024 (millions) | 6M 2025 (millions) | 6M 2024 (millions) | | :----- | :----------------- | :----------------- | :----------------- | :----------------- | | UpLift restructuring costs | $25 | $6 | $45 | $7 | | UpLift transformation costs | $18 | $15 | $41 | $27 | | Total UpLift costs | $43 | $21 | $86 | $34 | - Total UpLift costs incurred to date are $223 million, including $101 million of UpLift restructuring costs and $122 million of UpLift transformation costs145 German Tax Litigation This section discusses the favorable German tax litigation ruling, related income tax benefits, and the indemnity payable to RTX - A favorable ruling in German tax litigation in August 2024 led to income tax benefits and related interest income recorded in 2024148 - Indemnification expense of $6 million for Q2 2025 and $58 million for 6M 2025 was recorded due to adjustments to the indemnity payable to RTX, with the estimated payable now at $233 million149 Impact of Global Macroeconomic Conditions on Our Company This section addresses the ongoing impact of global macroeconomic conditions, including inflation, interest rates, and potential tariffs, on the Company's operations - Global macroeconomic conditions, including inflationary pressures, high interest rates, tighter credit, and changes in global trade policies (tariffs), continue to impact operations151153 - New tariffs currently in effect could have an estimated potential impact of approximately $25 million to $35 million during 2025151 Risks Associated with Ongoing Conflicts This section discusses geopolitical and macroeconomic uncertainties arising from ongoing conflicts, including potential impacts on commodity markets and supply chains - Ongoing conflicts in Russia-Ukraine and the Middle East create geopolitical and macroeconomic uncertainty, including volatile commodity markets, foreign exchange fluctuations, and supply chain disruptions154155 - Otis has no operations in Russia and Ukraine represents less than 1% of revenue and operating profit for 6M 2025. No material impact is currently expected from Middle East conflicts155 - These conflicts could heighten various risks, including adverse macroeconomic conditions, cyber-incidents, changes in international trade policies, and supply chain disruption156 CRITICAL ACCOUNTING ESTIMATES This section confirms no material changes to the Company's significant accounting policies, except for newly adopted pronouncements - There have been no material changes in the Company's significant accounting policies described in the 2024 Form 10-K, except for the adoption of new accounting pronouncements as disclosed in Note 18158 RESULTS OF OPERATIONS This section details the Company's financial performance, analyzing net sales, cost of sales, gross margin, operating expenses, and net income drivers Net Sales This section analyzes net sales performance, including organic volume changes, foreign currency translation, and the impact of acquisitions and divestitures | Metric | Q2 2025 | Q2 2024 | 6M 2025 | 6M 2024 | | :----- | :------ | :------ | :------ | :------ | | Net sales (millions) | $3,595 | $3,601 | $6,945 | $7,038 | | Percentage change year-over-year | 0% | N/A | (1)% | N/A | | Component of Net sales change | Q2 2025 | 6M 2025 | | :---------------------------- | :------ | :------ | | Organic volume | (2)% | (1)% | | Foreign currency translation | 1% | (1)% | | Acquisitions and divestitures, net and other | 1% | 1% | | Total % change | 0% | (1)% | - The organic volume decrease was driven by (11)% in New Equipment for Q2 and (9)% for 6M, partially offset by a 4% increase in Service for both periods161 Cost of Products and Services Sold This section examines the total cost of products and services sold, highlighting the impact of organic volume changes, productivity, and inflationary pressures | Metric | Q2 2025 (millions) | Q2 2024 (millions) | 6M 2025 (millions) | 6M 2024 (millions) | | :----- | :----------------- | :----------------- | :----------------- | :----------------- | | Total cost of products and services sold | $2,506 | $2,522 | $4,855 | $4,931 | | Percentage change year-over-year | (1)% | N/A | (2)% | N/A | - The organic volume decrease of (2)% for Q2 and (1)% for 6M in total cost of products and services sold was primarily driven by organic sales changes, with productivity partially offset by inflationary pressures163 Gross Margin This section analyzes gross margin and gross margin percentage, attributing changes to sales mix, productivity, and inflationary pressures | Metric | Q2 2025 (millions) | Q2 2024 (millions) | 6M 2025 (millions) | 6M 2024 (millions) | | :----- | :----------------- | :----------------- | :----------------- | :----------------- | | Gross margin | $1,089 | $1,079 | $2,090 | $2,107 | | Gross margin percentage | 30.3% | 30.0% | 30.1% | 29.9% | - Gross margin percentage increased due to the increase in Service sales and decrease in New Equipment sales, and benefits from productivity, partially offset by inflationary pressures164 Research and Development This section presents research and development expenses and their percentage of net sales for the reported periods | Metric | Q2 2025 (millions) | Q2 2024 (millions) | 6M 2025 (millions) | 6M 2024 (millions) | | :----- | :----------------- | :----------------- | :----------------- | :----------------- | | Research and development | $38 | $39 | $75 | $75 | | Percentage of Net sales | 1.1% | 1.1% | 1.1% | 1.1% | Selling, General and Administrative This section analyzes selling, general, and administrative expenses, noting increases due to restructuring and wage costs, offset by productivity savings | Metric | Q2 2025 (millions) | Q2 2024 (millions) | 6M 2025 (millions) | 6M 2024 (millions) | | :----- | :----------------- | :----------------- | :----------------- | :----------------- | | Selling, general and administrative | $499 | $449 | $963 | $911 | | Percentage of Net sales | 13.9% | 12.5% | 13.9% | 12.9% | - Selling, general and administrative expenses increased due to higher restructuring costs, annual wage increases, and other employment costs, partially offset by savings from UpLift and lower credit loss reserves167 Restructuring Costs This section details UpLift and other restructuring costs, transformation expenses, and cash outflows related to reorganization actions | Metric | 6M 2025 (millions) | 6M 2024 (millions) | Change (millions) | | :----- | :----------------- | :----------------- | :---------------- | | UpLift restructuring | $45 | $7 | $38 | | Other restructuring | $35 | $24 | $11 | | Total restructuring costs | $80 | $31 | $49 | - UpLift transformation costs were $41 million for the six months ended June 30, 2025, compared to $27 million in the same period of 2024, primarily for consultants and third-party service providers170 - Cash outflows related to restructuring actions were $51 million during the six months ended June 30, 2025, with $126 million in expected cash payments remaining to complete announced actions172 - The reorganization of operations in China, announced in January 2025, is expected to result in approximately $40 million in restructuring actions, primarily severance-related, to be mostly completed and cash paid by the end of 2025174 Other Income (Expense), Net This section explains changes in other income (expense), net, driven by separation-related adjustments, transformation costs, and litigation settlements | Metric | Q2 2025 (millions) | Q2 2024 (millions) | 6M 2025 (millions) | 6M 2024 (millions) | | :----- | :----------------- | :----------------- | :----------------- | :----------------- | | Other income (expense), net | $(5) | $(21) | $(94) | $(7) | - The change in Other income (expense), net, for the six months ended June 30, 2025, was primarily driven by separation-related adjustments ($61M), UpLift transformation costs ($41M), litigation-related settlement costs ($21M), and impairment loss related to net assets held for sale ($10M), partially offset by gains on the sale of fixed assets ($14M)177 Interest Expense (Income), Net This section analyzes interest expense (income), net, highlighting the impact of new debt, debt repayments, and interest rate changes | Metric | Q2 2025 (millions) | Q2 2024 (millions) | 6M 2025 (millions) | 6M 2024 (millions) | | :----- | :----------------- | :----------------- | :----------------- | :----------------- | | Interest expense (income), net | $26 | $27 | $71 | $71 | - Interest expense (income), net, was relatively flat due to higher interest expense from new debt (November 2024) being offset by interest reserve adjustments related to non-recurring tax items, lower interest expense from the repayment of $1.3 billion debt in April 2025, and higher interest income179 - The average interest rate on long-term debt increased to 2.8% for the quarter and six months ended June 30, 2025, from 2.5% for the same periods in 2024180 Income Taxes This section discusses the effective tax rate and the factors contributing to its increase, including deferred tax liability and indemnity obligations | Metric | Q2 2025 | Q2 2024 | 6M 2025 | 6M 2024 | | :----- | :------ | :------ | :------ | :------ | | Effective tax rate | 18.8% | 17.3% | 23.4% | 21.1% | - The increase in the effective tax rate is primarily due to the absence of the reduction in a deferred tax liability related to the mitigation of future repatriation costs recorded in 2024, and the tax effect of the increase in our estimated nondeductible TMA indemnity obligation payable to RTX recorded in Q1 2025181 Noncontrolling Interest in Subsidiaries' Earnings and Net Income Attributable to Otis Worldwide Corporation This section analyzes noncontrolling interest in subsidiaries' earnings and net income attributable to Otis, explaining the drivers of their changes | Metric | Q2 2025 (millions) | Q2 2024 (millions) | 6M 2025 (millions) | 6M 2024 (millions) | | :----- | :----------------- | :----------------- | :----------------- | :----------------- | | Noncontrolling interest in subsidiaries' earnings | $30 | $35 | $43 | $56 | | Net income attributable to Otis Worldwide Corporation | $393 | $415 | $636 | $768 | - Noncontrolling interest in subsidiaries' earnings decreased primarily due to increased ownership of a subsidiary in Japan during Q2 2024 and lower net income from non-wholly owned subsidiaries183 - Net income attributable to Otis Worldwide Corporation decreased due to lower operating profit (including foreign exchange impact) and a higher effective tax rate, partially offset by lower noncontrolling interest in subsidiaries' earnings184 Segment Review This section provides a detailed review of the financial performance for the New Equipment and Service segments, along with corporate and unallocated expenses New Equipment This section reviews the New Equipment segment's net sales, operating profit, and margin, highlighting regional performance and cost impacts | Metric | Q2 2025 (millions) | Q2 2024 (millions) | 6M 2025 (millions) | 6M 2024 (millions) | | :----- | :----------------- | :----------------- | :----------------- | :----------------- | | Net sales | $1,276 | $1,421 | $2,439 | $2,701 | | Operating profit | $68 | $110 | $134 | $181 | | Operating profit margin | 5.3% | 7.7% | 5.5% | 6.7% | - Organic sales decreased by (11)% for Q2 and (9)% for 6M, primarily driven by a greater than (20)% decline in China, high single-digit decline in Americas, and low single-digit decline in Asia Pacific, partially offset by high single-digit growth in EMEA188190 - Operating profit decreased due to lower volume, unfavorable price, and regional and product mix, partially offset by productivity, including benefits of UpLift and other restructuring actions189191 Service This section reviews the Service segment's net sales, operating profit, and margin, driven by increases in maintenance, repair, and modernization | Metric | Q2 2025 (millions) | Q2 2024 (millions) | 6M 2025 (millions) | 6M 2024 (millions) | | :----- | :----------------- | :----------------- | :----------------- | :----------------- | | Net sales | $2,319 | $2,180 | $4,506 | $4,337 | | Operating profit | $578 | $538 | $1,115 | $1,061 | | Operating profit margin | 24.9% | 24.7% | 24.7% | 24.5% | - Organic sales increased by 4% for Q2 and 4% for 6M, driven by increases in maintenance and repair (4% Q2, 3% 6M) and modernization (5% Q2, 7% 6M)194197 - Operating profit increased due to higher volume, improved pricing on maintenance contracts, and productivity (including UpLift benefits), partially offset by inflationary pressures and mix196199 Corporate and Unallocated This section details corporate and unallocated expenses, including restructuring, transformation, and separation-related adjustments | Metric | Q2 2025 (millions) | Q2 2024 (millions) | 6M 2025 (millions) | 6M 2024 (millions) | | :----- | :----------------- | :----------------- | :----------------- | :----------------- | | General corporate expenses and other | $34 | $35 | $77 | $68 | | UpLift restructuring | $25 | $6 | $45 | $7 | | Other restructuring | $12 | $5 | $35 | $24 | | UpLift transformation costs | $18 | $15 | $41 | $27 | | Separation-related adjustments | $9 | $(1) | $61 | $(16) | | Litigation-related settlement costs | $0 | $18 | $21 | $18 | | Held for sale impairment | $0 | $0 | $10 | $0 | | Total Corporate and Unallocated | $99 | $78 | $291 | $128 | - The significant increase in Total Corporate and Unallocated for 6M 2025 was primarily due to higher UpLift restructuring, other restructuring, UpLift transformation costs, and separation-related adjustments200202 LIQUIDITY AND FINANCIAL CONDITION This section discusses the Company's cash flows, borrowings, lines of credit, and share repurchase program, outlining its overall financial liquidity and condition Borrowings and Lines of Credit This section outlines the Company's revolving credit facility, commercial paper program, and recent long-term debt repayments - As of June 30, 2025, Otis had a $1.5 billion unsecured, unsubordinated five-year revolving credit facility with no outstanding borrowings, which serves as a backstop for commercial paper208 - There were $472 million borrowings outstanding under the Company's $1.5 billion commercial paper program as of June 30, 2025209 - On April 7, 2025, the Company repaid its $1.3 billion principal amount of 2.056% notes due in 2025, upon maturity, using cash on hand and commercial paper borrowings209 Share Repurchase Program This section details the Board-approved share repurchase program, including the total authorized amount and remaining capacity - On January 16, 2025, the Board of Directors approved a new share repurchase program for up to $2.0 billion of Common Stock, with approximately $1.5 billion remaining as of June 30, 2025210 Discussion of Cash Flows This section analyzes net cash flows from operating, investing, and financing activities, highlighting key drivers of changes | Metric | 6M 2025 (millions) | 6M 2024 (millions) | Change (millions) | | :----- | :----------------- | :----------------- | :---------------- | | Net cash flows provided by operating activities | $405 | $479 | $(74) | | Net cash flows used in investing activities | $(320) | $(97) | $(223) | | Net cash flows used in financing activities | $(1,722) | $(679) | $(1,043) | - The decrease in net cash provided by operating activities was primarily driven by lower net income and changes to working capital balances, including a larger decrease in Accounts Payables and higher UpLift-related payments ($52 million vs. $35 million)215216 - Net cash used in investing activities increased primarily due to $200 million of net cash payments from derivative settlements, $82 million of acquisitions of businesses and intangible assets, and $70 million of capital expenditures219 - Net cash used in financing activities increased primarily due to repayments of long-term debt of $1.3 billion, repurchases of Common Stock of $561 million, and dividends paid on Common Stock of $319 million223 Guaranteed Securities: Summarized Financial Information This section provides summarized financial information for Highland Holdings S.à r.l., a subsidiary whose Euro Notes are fully guaranteed by Otis Worldwide Corporation - Highland Holdings S.à r.l. (Luxembourg), a wholly-owned indirect consolidated subsidiary of OWC, issued Euro Notes that are fully and unconditionally guaranteed by Otis Worldwide Corporation (OWC)226227 - Highland is subject to Luxembourg insolvency and bankruptcy laws, which may be less favorable to creditors than U.S. bankruptcy law227 | Metric | OWC 6M 2025 (millions) | Highland 6M 2025 (millions) | | :----- | :--------------------- | :-------------------------- | | Revenue | $0 | $0 | | Income (loss) from operations excluding income from consolidated subsidiaries | $(72) | $0 | | Net income (loss) excluding income from consolidated subsidiaries | $(135) | $(122) | | OWC Current assets (excluding intercompany receivables) | $99 | $0 | | Highland Noncurrent assets (investments in consolidated subsidiaries) | N/A | $15,711 | | OWC Current liabilities (intercompany payables) | $6,652 | $0 | | Highland Noncurrent liabilities (intercompany payables) | N/A | $4,018 | Off-Balance Sheet Arrangements and Contractual Obligations This section confirms no material changes to the Company's off-balance sheet arrangements or contractual obligations, except as disclosed in Note 7 - There have been no material changes to the Company's off-balance sheet arrangements and contractual obligations as of June 30, 2025, outside the ordinary course of business, except for those disclosed in Note 7, 'Borrowings and Lines of Credit'232 Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that there have been no material changes to the Company's market risk during the quarter and six months ended June 30, 2025 - There have been no material changes to the Company's market risk during the quarter and six months ended June 30, 2025233 Item 4. Controls and Procedures Management concluded the Company's disclosure controls and procedures were effective as of June 30, 2025, ensuring timely and accurate financial reporting, with no material changes in internal control during the quarter - Management concluded that the Company's disclosure controls and procedures were effective as of June 30, 2025, providing reasonable assurance that information required to be disclosed is recorded, processed, summarized, and reported timely234 - There have been no material changes in the Company's internal control over financial reporting during the quarter ended June 30, 2025235 PART II – OTHER INFORMATION Item 1. Legal Proceedings This section refers to Note 16: Contingent Liabilities for a discussion of material legal proceedings and states that no other material developments in legal proceedings have occurred since the last report - Material legal proceedings are discussed in Note 16: Contingent Liabilities to the Condensed Consolidated Financial Statements241 - Except as noted, there have been no material developments in legal proceedings241 Item 1A. Risk Factors This section directs readers to the 'Recent Developments' and 'Cautionary Note Concerning Factors That May Affect Future Results' sections within Management's Discussion and Analysis for additional risk factor information, noting no material changes from the 2024 Form 10-K except as specified - No material changes in the Company's risk factors from those disclosed in Item 1A 'Risk Factors' in the 2024 Form 10-K, except as noted in 'Recent Developments' and 'Cautionary Note Concerning Factors That May Affect Future Results' sections242 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2025, Otis repurchased 3.142 million shares for an average of $95.48 per share, with $1.5 billion remaining under the $2.0 billion share repurchase program approved in January 2025 | Period | Total Number of Shares Purchased (thousands) | Average Price Paid per Share | | :----- | :----------------------------------------- | :--------------------------- | | April 1 - April 30 | 2,063 | $94.48 | | May 1 - May 31 | 1,079 | $97.39 | | June 1 - June 30 | — | — | | Total Q2 2025 | 3,142 | $95.48 | - As of June 30, 2025, the maximum dollar value of shares that may yet be purchased under the current $2.0 billion share repurchase program (approved January 16, 2025) was approximately $1.5 billion244 Item 5. Other Information This section explicitly states 'None,' indicating that there is no other information to report under this item for the current period - No other information to report under this item246 Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including various certifications, an offer letter, and XBRL documents for the condensed consolidated financial statements - The exhibits include an offer letter, Rule 13a-14(a)/15d-14(a) Certifications, Section 1350 Certifications, and XBRL Instance, Schema, Calculation, Definition, Label, and Presentation Linkbase Documents for the financial information247248 SIGNATURES The report is officially signed by the Executive Vice President and Chief Financial Officer, Cristina Méndez, and the Senior Vice President and Chief Accounting Officer, Michael P. Ryan, on behalf of Otis Worldwide Corporation, dated July 24, 2025 - The report was signed by Cristina Méndez (Executive Vice President and Chief Financial Officer) and Michael P. Ryan (Senior Vice President and Chief Accounting Officer) on behalf of Otis Worldwide Corporation on July 24, 2025251