01—Abstract
Summary
Summary of the 10-K filed February 26, 2010. Cited figures are marked; the original filing is the authoritative source.
Ingersoll-Rand plc (NYSE: IR) reported FY2009 net revenues of $13.2 billiona, roughly flat versus 2008 (down 0.2%), as a 15.5% volume/mix decline was largely offset by the full-year contribution of the June 2008 Trane acquisition (+15.9%).
Operating margin recovered to 6.4% from a negative 19.5% in 2008, which was distorted by a $3.7 billionb non-cash goodwill and intangible impairment. Excluding that charge, operating margin fell about 2.2 points on lower volumes, unfavorable currency and weaker Trane margins, partially offset by roughly $194 million of annualized restructuring savings and productivity actions. Net earnings attributable to the company were $451.3 million, or $1.37 diluted EPS, compared with a $2.6 billion loss in 2008.
Balance sheet and liquidity improved materially during 2009. Total debt fell to $4.1 billionc from $5.1 billion, and the debt-to-total-capital ratio dropped to 36.2% from 43.1%. Operating cash flow from continuing operations rose to $1.75 billion from $374 million, aided by working-capital releases in receivables and inventory.
The company completed a refinancing in April 2009, issuing $1.0 billiond of new notes to repay the $950 million Trane bridge loan, and cash ended the year at $877 million. Dividends were cut to $0.07 per quarter in the second half of 2009, and no shares were repurchased under the $2.0 billion authorization. Key risks for investors include the company's pending exposure to a European Commission bathroom fixtures competition investigation, with a potential fine of up to about $1.1 billion that is indemnified by WABCO Europe.
WABCO's ability to fund that indemnity is contingent, so the indemnity is a material uncertainty. Additional risks include an open IRS dispute over 2001-2002 intercompany interest deductions (about $84 million plus interest and 30% penalties), ongoing FCPA matters tied to Trane and a China business, and a DOJ deferred prosecution agreement that remains in force. The company also reincorporated from Bermuda to Ireland in July 2009, a change that faces ongoing U.S. legislative scrutiny.
02—Key points
Key Highlights
- Net revenues of $13,195.3M in 2009, essentially flat (-0.2%) versus $13,227.4M in 2008; organic revenues fell about 16% ex-Trane, with volume/mix down 15.5%.
- Operating income rebounded to $841.6M (6.4% margin) from a $2,573.8M loss in 2008, which included a $3,710M non-cash impairment charge.
- Diluted EPS from net earnings attributable to IR plc was $1.37 in 2009, versus a loss of $(8.73) in 2008; continuing operations diluted EPS was $1.41.
- Operating cash flow from continuing operations increased to $1,751.5M from $374.3M, driven by receivables and inventory reductions and the absence of the roughly $700M tax payment seen in 2008.
- Total debt declined to $4,096.6M from $5,124.1M; debt-to-total-capital improved to 36.2% from 43.1%, and the Trane bridge loan was fully refinanced with $1.0B of new notes.
- Restructuring program since Q4 2008 has cost about $182M and is expected to yield roughly $194M of annual pretax savings in 2009.
- Material contingent liabilities include a European Commission fine of up to ~$1.1B (indemnified by WABCO Europe, whose ability to pay is contingent) and an IRS dispute over 2001-2002 tax years; the company's $80.3M of accrued tax interest and penalties and $525.1M of unrecognized tax benefits reflect this exposure.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2009, Trane Technologies kept $0.03.
- Revenue$13.01B100.0%
- Cost of revenue−$9.54B73.4%
- Gross profit$3.47B26.6%
- Operating costs−$2.58B19.8%
- Operating income$885.2M6.8%
- Interest, other & tax−$433.9M3.3%
- Net income$451.3M3.5%
04—Financials
Financial Highlights
Figures from 10-KFY2009filed February 26, 2010Financial Statements
FY2009 against FY2008
| Line item | FY2009FY2008 | Change |
|---|---|---|
| Revenue | $13.01B$13.04B | −0.3% |
| Cost of Revenue | $9.54B$9.55B | −0.1% |
| Gross Profit | $3.47B$3.50B | −0.9% |
| R&D Expenses | $255.00M$201.10M | +26.8% |
| SG&A Expenses | $2.69B$2.31B | +16.4% |
| Operating Income | $885.20M-$2.52B | +135.1% |
| Interest Expense | $301.60M$243.20M | +24.0% |
| Net Income | $451.30M-$2.62B | +117.2% |
| EPS (Basic) | $1.41$-8.73 | +116.2% |
| EPS (Diluted) | $1.37$-8.73 | +115.7% |
| Shares Outstanding (Basic) | 321.10M300.60M | +6.8% |
| Shares Outstanding (Diluted) | 329.10M303.70M | +8.4% |
05—Questions
Frequently Asked Questions
Why did reported operating results swing so sharply between 2008 and 2009?
The 2008 results included a non-cash asset impairment of $3,710.0M (goodwill, indefinite-lived tradenames and a small marketable securities write-down), which drove an operating loss of $2,573.8M and a 19.5% negative margin. 2009 had no comparable impairment; operating income was $841.6M, or 6.4% of revenues. Excluding the 2008 charge, operating margins actually declined about 2.2 points, reflecting lower volumes and currency headwinds.
How much of the company's 2009 revenue came from the Trane acquisition, and how did the rest of the business perform?
Trane added $2,096.3M of revenue in 2009 versus 2008, a 15.9 percentage-point contribution, because 2008 included Trane only from June 5. Excluding Trane, revenue fell about 16.1% ($2,128.4M), driven by volume and mix declines across most end markets, partially offset by about 1% pricing gains.
What is the biggest legal and financial risk facing investors?
The European Commission investigation into bathroom fixtures competition is the largest identified exposure. If the maximum fine were levied in 2010, liability could reach about $1.1 billion before any leniency reduction. Trane and certain former subsidiaries are jointly and severally liable, but WABCO Europe has agreed to indemnify them, and WABCO has said its ability to pay depends on its funding capacity at the time. The company says it could face material adverse effects if the indemnity is not honored.
Is the dividend safe, and did the company buy back shares in 2009?
The quarterly dividend was cut from $0.18 to $0.07 beginning in Q3 2009, for $0.50 per share in total for 2009 versus $0.72 in 2008. Future dividends remain at the board's discretion and are subject to Irish distributable-reserves rules. No shares were repurchased in 2009, and about $1.998 billion remained available under the existing repurchase authorization.
06—Continue