01—Abstract
Summary
Summary of the 10-K filed February 22, 2011. Cited figures are marked; the original filing is the authoritative source.
Ingersoll-Rand plc (NYSE: IR, ticker shown in the filing as TT's predecessor context) reported fiscal 2010 net revenues of $14.08 billiona, up 7.5% from $13.10 billion in 2009, driven mainly by a 7.4% volume/product-mix increase across Climate Solutions, Residential Solutions and Industrial Technologies.
Operating income rose to $1,247.5 millionb (8.9% margin) from $872.3 million (6.7%), helped by about $280 million of productivity gains in Climate Solutions and roughly $155 million of annualized savings from 2008-2009 restructuring. Net earnings attributable to shareholders were $642.2 million, or $1.89 diluted EPS, versus $1.37 in 2009, though results were reduced by a $40.5 million non-cash tax charge from healthcare reform and by losses from discontinued operations of $116.7 million. Balance sheet and liquidity improved.
Total debt fell to $3.68 billionc from $4.10 billion, the debt-to-total-capital ratio dropped to 31.3% from 36.2%, and cash rose to $1.01 billion. Operating cash flow from continuing operations declined to $756.3 million from $1,764.9 million, largely because of inventory build and $444 million of discretionary pension contributions. The company completed divestitures of the KOXKA display case business and the Energy Systems microturbine business during 2010, and it remains a Irish-domiciled parent following its 2009 reorganization out of Bermuda.
Key risks for investors include the open IRS dispute over 2001-2002 intercompany financing (about $84 milliond plus interest and 30% penalties asserted), ongoing SEC and DOJ inquiries into potential Foreign Corrupt Practices Act matters, asbestos liabilities of about $1.02 billion offset by $346 million of insurance assets, and exposure to commodity and currency swings. The DOJ moved to dismiss the Oil for Food charges in February 2011, which is a positive development.
02—Key points
Key Highlights
- Net revenues grew 7.5% to $14.08 billion in 2010, with volume and product mix contributing 7.4 points of growth.
- Operating margin improved to 8.9% from 6.7%, supported by productivity actions and restructuring savings, despite higher material costs.
- Diluted EPS from continuing operations rose to $2.23 from $1.47; total diluted EPS was $1.89 after discontinued operations losses.
- Total debt declined to $3.68 billion and the debt-to-capital ratio improved to 31.3% from 36.2%, with cash of $1.01 billion on hand.
- Operating cash flow from continuing operations fell to $756.3 million due to inventory build and $444 million of discretionary pension contributions.
- The IRS continues to contest 2001-2002 intercompany debt treatment, with about $84 million of asserted additional tax plus interest and penalties; management believes reserves are adequate.
- Ongoing SEC and DOJ inquiries into potential FCPA violations pose contingent fine and reputational risk, even as the DOJ moved to dismiss Oil for Food charges in February 2011.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2010, Trane Technologies kept $0.05.
- Revenue$14.00B100.0%
- Cost of revenue−$10.16B72.6%
- Gross profit$3.84B27.4%
- Operating costs−$2.58B18.4%
- Operating income$1.26B9.0%
- Interest, other & tax−$619.2M4.4%
- Net income$642.2M4.6%
04—Financials
Financial Highlights
Figures from 10-KFY2010filed February 22, 2011Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Revenue | $14.00B$13.01B | +7.6% |
| Cost of Revenue | $10.16B$9.54B | +6.5% |
| Gross Profit | $3.84B$3.47B | +10.8% |
| R&D Expenses | $244.00M$255.00M | −4.3% |
| SG&A Expenses | $2.68B$2.69B | −0.3% |
| Operating Income | $1.26B$885.20M | +42.5% |
| Interest Expense | $283.20M$301.60M | −6.1% |
| Net Income | $642.20M$451.30M | +42.3% |
| EPS (Basic) | $1.98$1.41 | +40.4% |
| EPS (Diluted) | $1.89$1.37 | +38.0% |
| Shares Outstanding (Basic) | 324.70M321.10M | +1.1% |
| Shares Outstanding (Diluted) | 339.80M329.10M | +3.3% |
05—Questions
Frequently Asked Questions
How did revenue and profitability trend in 2010?
Net revenues increased 7.5% to $14,079.1 million, and operating income increased 38% to $1,247.5 million. Gains came mainly from higher volumes, productivity programs, and restructuring savings, partly offset by higher material and other costs.
What is the status of the IRS tax dispute?
The IRS has proposed adjustments to the 2001 and 2002 tax years tied to the intercompany debt used in the 2001 Bermuda reorganization. The IRS dropped its equity recharacterization in January 2010 but still asserts an alternative 30% withholding position, about $84 million for 2002 plus interest and penalties. Management is contesting the claims and believes reserves are adequate.
What are the main regulatory and legal risks?
The company disclosed ongoing SEC and DOJ inquiries into potential FCPA and anti-corruption matters, which could lead to fines, disgorgement, or injunctions. Asbestos liabilities total about $1,020.5 million against $346.2 million of insurance recovery assets. The DOJ moved in February 2011 to dismiss the earlier Oil for Food charges.
Why did operating cash flow decline so sharply?
Continuing operating cash flow fell to $756.3 million from $1,764.9 million in 2009. The decline reflects higher inventory levels as end markets stabilized and $444 million of discretionary pension contributions made during 2010, partly offset by improved working capital elsewhere.
How strong is the balance sheet and liquidity position?
Total debt fell to $3,683.9 million and cash rose to $1,014.3 million. Committed revolving credit facilities total $2.0 billion, of which $1.0 billion is unused and expires in May 2013 and $1.0 billion expires in June 2011. Credit ratings are Baa1 from Moody's and BBB+ from S&P, and the company says its debt covenants are far from their limits.
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