01—Abstract
Summary
Summary of the 10-K filed February 4, 2022. Cited figures are marked; the original filing is the authoritative source.
Otis Worldwide Corporation's 2021 Form 10-K reports net sales of $14.30 billiona, up from $12.76 billion in 2020, with organic volume growth of 8.9%.
Net income attributable to Otis Worldwide Corporation was $1.25 billionb, or $2.89 diluted earnings per share, compared with $906 million, or $2.08 per share, in 2020. Operating profit rose to $2.11 billion from $1.64 billion, and gross margin was 29.3%. The Service segment generated $7.87 billion of net sales and $1.76 billion of operating profit (22.4% margin), while New Equipment produced $6.43 billion of net sales and $459 million of operating profit (7.1% margin).
The balance sheet and capital allocation were dominated by the pending Zardoya Otis tender offer, which the filing describes at €7.07 per share and an implied value of €1.66 billion for shares not already owned. To fund it, the company issued €1.6 billion of Euro notes in November 2021, which are held in escrow and shown as $1.91 billionc of restricted cash. Total debt rose to $7.27 billion from $5.96 billion, and net debt to net capitalization increased to 223%.
Share repurchases of $725 milliond were made during 2021 but have been temporarily suspended to focus on deleveraging. Cash from operations was $1.75 billion.
The tender offer remained subject to CNMV approval as of February 4, 2022. Key risks highlighted include COVID-19 effects on demand and supply, China concentration (New Equipment sales in China about 35% of global New Equipment net sales), and tax indemnities owed to RTX under the Tax Matters Agreement, including a pending German tax litigation with approximately €215 million of disallowed tax benefits plus about €118 million of interest.
02—Key points
Key Highlights
- Net sales rose 12.1% to $14.30 billion in 2021, driven by 8.9% organic volume growth; Service accounted for 55% of net sales and 79% of segment operating profit.
- Net income attributable to Otis Worldwide Corporation was $1.25 billion ($2.89 diluted EPS) versus $906 million ($2.08) in 2020.
- Service segment operating profit was $1.76 billion on $7.87 billion of sales (22.4% margin); New Equipment operating profit was $459 million on $6.43 billion of sales (7.1% margin).
- Pending Zardoya Otis tender offer at €7.07 per share (about €1.66 billion value for shares not owned); €1.6 billion of Euro notes were issued in November 2021 and placed in escrow to fund it.
- Total debt increased to $7.27 billion from $5.96 billion, and net debt to net capitalization rose to 223% from 532% in 2020's comparable measure as stated in the filing.
- Cash flow from operating activities was $1.75 billion; $725 million was spent on share repurchases in 2021, which have since been temporarily suspended to focus on deleveraging.
- Management reports a maintenance portfolio of over 2.1 million units and approximately 35% of the global portfolio connected to digital services by year-end 2021.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2021filed February 4, 2022Financial Statements
FY2021 against FY2020
| Line item | FY2021FY2020 | Change |
|---|---|---|
| Revenue | $14.30B$12.76B | +12.1% |
| R&D Expenses | $159.00M$152.00M | +4.6% |
| SG&A Expenses | $1.95B$1.92B | +1.2% |
| Operating Expenses | $12.21B$11.05B | +10.5% |
| Operating Income | $2.11B$1.64B | +28.6% |
| Interest Expense | $136.00M$124.00M | +9.7% |
| Net Income | $1.25B$906.00M | +37.5% |
| EPS (Basic) | $2.91$2.09 | +39.2% |
| EPS (Diluted) | $2.89$2.08 | +38.9% |
| Shares Outstanding (Basic) | 427.70M433.20M | −1.3% |
| Shares Outstanding (Diluted) | 431.40M434.60M | −0.7% |
05—Questions
Frequently Asked Questions
Why did Otis's debt increase significantly in 2021?
Total debt rose to $7.27 billion from $5.96 billion, mainly because of the €1.6 billion Euro notes issued in November 2021 to fund the Zardoya Otis tender offer. The proceeds are held in escrow as restricted cash of $1.91 billion until the offer completes.
Has Otis suspended its share buybacks?
Yes. The company repurchased 9.7 million shares for about $725 million in 2021, leaving about $275 million under its $1 billion program. Management has temporarily suspended repurchases as a result of the increased debt incurred to fund the Tender Offer, focusing on deleveraging.
What are the main risks tied to China?
China is the largest end market for new equipment, representing about 35% of global New Equipment net sales and over half of global New Equipment unit volume. The filing notes that changes in Chinese market conditions or escalating U.S.-China trade conflicts could affect New Equipment sales there.
What tax exposure does Otis carry from the Separation?
Under the Tax Matters Agreement, Otis indemnifies RTX and Carrier for certain separation-related taxes, and it carries a $220 million contractual payable to RTX for tax reimbursements through 2027. Separately, Otis is in German tax litigation over approximately €215 million of disallowed tax benefits plus about €118 million of associated interest, with a decision expected in the first quarter of 2022.
How did the Service segment perform relative to New Equipment?
Service delivered $7.87 billion of net sales and $1.76 billion of operating profit, a 22.4% margin, while New Equipment delivered $6.43 billion of sales and $459 million of operating profit, a 7.1% margin. Service accounted for 79% of segment operating profit in 2021, showing the greater profitability of its recurring maintenance business.
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