01—Abstract
Summary
Summary of the 10-K filed February 21, 2012. Cited figures are marked; the original filing is the authoritative source.
Ingersoll-Rand plc (NYSE: IR, the filing's stated ticker, though the document is titled Trane Technologies-era materials and the request references TT) reported 2011 net revenues of $14.78 billiona, up 5.6% year over year, driven by volume/mix gains of 2.7%, pricing of 2.7%, and favorable currency of 1.6%.
Operating income fell to $860.3 millionb (5.8% margin) from $1,261.4 million (9.0%), primarily because of a $646.9 million loss on sale and asset impairment tied to the Hussmann refrigerated display case divestiture. Excluding that charge, operating margin improved about 1.2 points, reflecting pricing, restructuring savings, and productivity gains. Diluted EPS from continuing operations was $1.18, down from $2.24, and net earnings attributable to the company were $343.2 million.
Segment performance was mixed. Industrial Technologies was the standout, with revenue up 14.8%c and segment margin expanding to 14.6%. Climate Solutions grew revenue 6.2% and lifted segment margin to 10.0%.
Residential Solutions was the weak spot, with revenue down 5.1% and segment margin collapsing to 3.1% from 9.0% on lower residential HVAC volumes and a mix shift to lower-SEER units. Security Technologies was roughly flat, with a 20.3% margin. Backlog declined to $2.06 billiond from $2.27 billion, largely in Climate Solutions.
Cash generation and capital returns were strong. Operating cash flow from continuing operations rose to $1.23 billion from $756 million, helped by the absence of 2010's $444 million pension contribution. The company repurchased 36.3 million shares for about $1.2 billion under a $2.0 billion authorization and raised the quarterly dividend from $0.07 to $0.12 in 2011, then to $0.16 for 2012.
Total debt was $3.64 billion, and the debt-to-capital ratio was 34.2%. Key risks include an IRS dispute over 2002 intercompany debt (about $84 million plus interest and penalties), asbestos liabilities, goodwill and tradename headroom that is thin in Residential Solutions and Security, and exposure to non-U.S. operations, which generate more than 40% of revenue.
02—Key points
Key Highlights
- Revenue rose 5.6% to $14.78B, led by volume/mix (+2.7%) and pricing (+2.7%), with favorable FX adding 1.6%.
- Reported operating margin fell to 5.8% from 9.0% due to a $646.9M Hussmann divestiture loss; ex-charge, margin improved about 1.2 points.
- Diluted EPS from continuing operations fell to $1.18 from $2.24, reflecting the Hussmann charge and tax effects.
- Industrial Technologies grew revenue 14.8% with a 14.6% segment margin, while Residential Solutions margin dropped to 3.1% from 9.0% on weak residential HVAC demand.
- Operating cash flow from continuing operations more than doubled to $1.23B, and the company returned capital through roughly $1.2B of buybacks and a higher dividend.
- Backlog declined 9% to $2.06B, with Climate Solutions backlog down about $257M.
- Total debt of $3.64B against $7.0B of total equity; debt-to-capital of 34.2%; credit ratings Baa1/BBB+ with $2B of committed revolving credit.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2011, Trane Technologies kept $0.03.
- Revenue$12.76B100.0%
- Cost of revenue−$9.28B72.7%
- Gross profit$3.48B27.3%
- Operating costs−$3.04B23.8%
- Operating income$438.7M3.4%
- Interest, other & tax−$95.5M0.7%
- Net income$343.2M2.7%
Where FY2011 revenue went
$12.76B- Cost of revenue: $9.28B, 73% of revenue
- SG&A: $2.40B, 19% of revenue
- Net income: $343.2M, 2.7% of revenue
- R&D: $218.4M, 1.7% of revenue
- Other operating costs: $428.5M, 3.4% of revenue
- Interest, other & tax: $95.5M, 0.7% of revenue
Kept 2.7% as net incomeNet income $343.2M · 2.7%Interest, other & tax $95.5M · 0.7%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2011filed February 21, 2012Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Revenue | $12.76B$14.00B | −8.9% |
| Cost of Revenue | $9.28B$10.16B | −8.6% |
| Gross Profit | $3.48B$3.84B | −9.4% |
| R&D Expenses | $218.40M$244.00M | −10.5% |
| SG&A Expenses | $2.40B$2.68B | −10.6% |
| Operating Income | $438.70M$1.26B | −65.2% |
| Interest Expense | $278.50M$283.20M | −1.7% |
| Net Income | $343.20M$642.20M | −46.6% |
| EPS (Basic) | $1.06$1.98 | −46.5% |
| EPS (Diluted) | $1.01$1.89 | −46.6% |
| Shares Outstanding (Basic) | 324.80M324.70M | 0.0% |
| Shares Outstanding (Diluted) | 339.30M339.80M | −0.1% |
05—Questions
Frequently Asked Questions
Why did operating income drop so sharply in 2011?
Operating income fell to $860.3M from $1,261.4M mainly because of a $646.9M pre-tax loss on sale and impairment related to the Hussmann refrigerated display case divestiture. Excluding that charge, operating margin rose about 1.2 points on better pricing, restructuring savings, and higher volumes, partly offset by material cost inflation and weak Residential Solutions results.
Is the dividend and buyback program sustainable?
Operating cash flow from continuing operations of $1.23B covered the roughly $1.2B of 2011 repurchases and the dividend payments of about $137M, and the company has $843M remaining under its $2.0B program. The quarterly dividend was raised to $0.16 for 2012. Sustainability depends on maintaining cash generation, since 2010 operating cash flow was only $756M after a $444M pension contribution.
What are the main legal and tax risks?
The most significant item is an IRS dispute over 2002 intercompany debt tied to the 2001 Bermuda reorganization. The IRS alternative theory implies about $84M of additional tax plus interest and 30% penalties, and the company says it is adequately reserved. Asbestos liabilities total about $938M, offset by roughly $322M of insurance recovery assets. Management believes neither matter will be materially adverse, but an adverse IRS outcome would be.
Which segments are driving growth and which are under pressure?
Industrial Technologies (+14.8% revenue, 14.6% margin) and Climate Solutions (+6.2% revenue, 10.0% margin) drove growth, helped by commercial HVAC recovery, transport refrigeration, and air compression. Residential Solutions was the main drag, with revenue down 5.1% and margin falling to 3.1% because of weak U.S. residential construction and a shift to lower-SEER units. Security Technologies was roughly flat, with a 20.3% margin.
How much goodwill and intangible impairment risk is there?
Goodwill of $6.1B and indefinite-lived intangibles of $2.6B are tested annually. Most reporting units exceed carrying value by at least 15%, but the Residential Solutions and Security Technologies goodwill units cleared by only 5.8% and 10.9%, and two tradenames cleared by 7.3% and 11.6%. Adverse changes in discount rates, long-term growth, or end-market volumes could trigger impairment charges.
06—Continue