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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________
FORM 10-Q
_______________________________
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☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2022
or
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☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from
to
Commission File Number 001-34400
_____________________________
TRANE TECHNOLOGIES PLC
(Exact name of registrant as specified in its charter)
_______________________________
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Ireland |
98-0626632 |
(State or other jurisdiction of
incorporation or organization) |
(I.R.S. Employer
Identification No.) |
170/175 Lakeview Dr.
Airside Business Park
Swords Co. Dublin
Ireland
(Address of principal executive offices, including zip
code)
+(353) (0) 18707400
(Registrant’s telephone number, including area code)
_______________________________
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Securities registered pursuant to Section 12(b) of the
Act: |
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Title of each class |
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Trading Symbol |
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Name of each exchange on which registered |
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Ordinary Shares, Par Value $1.00 per Share |
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TT |
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New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90
days. Yes x No ¨
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the
registrant was required to submit such
files). Yes x No ¨
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or an emerging growth company. See
definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule
12b-2 of the Exchange Act.
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Large Accelerated Filer |
x |
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Accelerated filer |
¨ |
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Emerging growth company |
☐ |
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Non-accelerated filer |
¨ |
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Smaller reporting company |
☐ |
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If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act.
¨
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Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No x
The number of ordinary shares outstanding of Trane Technologies plc
as of October 21, 2022 was 230,307,296.
TRANE TECHNOLOGIES PLC
FORM 10-Q
INDEX
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Item 1 - |
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Item 2 - |
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Item 3 - |
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Item 4 - |
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Item 1 - |
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Item 1A - |
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Item 2 - |
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Item 6 - |
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PART I - FINANCIAL INFORMATION
Item 1.Financial
Statements
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TRANE TECHNOLOGIES PLC
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
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(Unaudited)
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Three months ended |
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Nine months ended |
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September 30, |
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September 30, |
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In millions, except per share amounts |
2022 |
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2021 |
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2022 |
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2021 |
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Net revenues |
$ |
4,371.9 |
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$ |
3,719.8 |
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$ |
11,917.9 |
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$ |
10,567.1 |
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Cost of goods sold |
(2,939.1) |
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(2,515.6) |
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(8,172.6) |
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(7,139.0) |
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Selling and administrative expenses |
(693.3) |
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(620.8) |
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(1,907.0) |
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(1,840.5) |
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Operating income |
739.5 |
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583.4 |
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1,838.3 |
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1,587.6 |
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Interest expense |
(55.8) |
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(57.7) |
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(167.6) |
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(177.7) |
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Other income/(expense), net |
(18.7) |
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(6.9) |
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(21.0) |
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(13.8) |
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Earnings before income taxes |
665.0 |
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518.8 |
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1,649.7 |
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1,396.1 |
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Provision for income taxes |
(104.7) |
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(96.8) |
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(302.4) |
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(268.0) |
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Earnings from continuing operations |
560.3 |
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422.0 |
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1,347.3 |
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1,128.1 |
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|
Discontinued operations, net of tax |
(7.9) |
|
|
(13.3) |
|
|
(16.6) |
|
|
(12.6) |
|
|
Net earnings |
552.4 |
|
|
408.7 |
|
|
1,330.7 |
|
|
1,115.5 |
|
|
Less: Net earnings from continuing operations attributable
to noncontrolling interests |
(4.5) |
|
|
(3.0) |
|
|
(13.3) |
|
|
(9.9) |
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to Trane Technologies plc |
$ |
547.9 |
|
|
$ |
405.7 |
|
|
$ |
1,317.4 |
|
|
$ |
1,105.6 |
|
|
|
|
|
|
|
|
|
|
|
Amounts attributable to Trane Technologies plc ordinary
shareholders: |
|
|
|
|
|
|
|
|
Continuing operations |
$ |
555.8 |
|
|
$ |
419.0 |
|
|
$ |
1,334.0 |
|
|
$ |
1,118.2 |
|
|
Discontinued operations |
(7.9) |
|
|
(13.3) |
|
|
(16.6) |
|
|
(12.6) |
|
|
Net earnings |
$ |
547.9 |
|
|
$ |
405.7 |
|
|
$ |
1,317.4 |
|
|
$ |
1,105.6 |
|
|
Earnings (loss) per share attributable to Trane Technologies plc
ordinary shareholders: |
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
Continuing operations |
$ |
2.40 |
|
|
$ |
1.76 |
|
|
$ |
5.72 |
|
|
$ |
4.68 |
|
|
Discontinued operations |
(0.04) |
|
|
(0.06) |
|
|
(0.08) |
|
|
(0.06) |
|
|
Net earnings |
$ |
2.36 |
|
|
$ |
1.70 |
|
|
$ |
5.64 |
|
|
$ |
4.62 |
|
|
Diluted: |
|
|
|
|
|
|
|
|
Continuing operations |
$ |
2.38 |
|
|
$ |
1.73 |
|
|
$ |
5.66 |
|
|
$ |
4.61 |
|
|
Discontinued operations |
(0.04) |
|
|
(0.05) |
|
|
(0.07) |
|
|
(0.06) |
|
|
Net earnings |
$ |
2.34 |
|
|
$ |
1.68 |
|
|
$ |
5.59 |
|
|
$ |
4.55 |
|
|
Weighted-average shares outstanding: |
|
|
|
|
|
|
|
|
Basic |
231.9 |
|
|
238.2 |
|
|
233.4 |
|
|
239.2 |
|
|
Diluted |
234.0 |
|
|
241.7 |
|
|
235.7 |
|
|
242.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to Condensed Consolidated Financial
Statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TRANE TECHNOLOGIES PLC
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(LOSS)
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
Three months ended |
|
Nine months ended |
|
September 30, |
|
September 30, |
|
In millions |
2022 |
|
2021 |
|
2022 |
|
2021 |
|
Net earnings |
$ |
552.4 |
|
|
$ |
408.7 |
|
|
$ |
1,330.7 |
|
|
$ |
1,115.5 |
|
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
Currency translation |
(189.5) |
|
|
(67.7) |
|
|
(383.8) |
|
|
(101.4) |
|
|
Cash flow hedges: |
|
|
|
|
|
|
|
|
Unrealized net gains (losses) arising during period |
(9.7) |
|
|
5.1 |
|
|
(31.3) |
|
|
1.3 |
|
|
Net (gains) losses reclassified into earnings |
3.3 |
|
|
(7.9) |
|
|
0.6 |
|
|
(5.1) |
|
|
Tax (expense) benefit |
(0.7) |
|
|
0.5 |
|
|
4.4 |
|
|
1.9 |
|
|
Total cash flow hedges, net of tax |
(7.1) |
|
|
(2.3) |
|
|
(26.3) |
|
|
(1.9) |
|
|
Pension and OPEB adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization reclassified into earnings |
5.3 |
|
|
9.7 |
|
|
16.2 |
|
|
29.1 |
|
|
Net curtailment and settlement (gains) losses reclassified to
earnings |
15.0 |
|
|
— |
|
|
15.0 |
|
|
6.9 |
|
|
Currency translation and other |
9.6 |
|
|
4.6 |
|
|
22.2 |
|
|
4.9 |
|
|
Tax (expense) benefit |
(3.6) |
|
|
(2.4) |
|
|
(6.4) |
|
|
(17.1) |
|
|
Total pension and OPEB adjustments, net of tax |
26.3 |
|
|
11.9 |
|
|
47.0 |
|
|
23.8 |
|
|
Other comprehensive income (loss), net of tax |
(170.3) |
|
|
(58.1) |
|
|
(363.1) |
|
|
(79.5) |
|
|
Comprehensive income, net of tax |
$ |
382.1 |
|
|
$ |
350.6 |
|
|
$ |
967.6 |
|
|
$ |
1,036.0 |
|
|
Less: Comprehensive income attributable to noncontrolling
interests |
(2.6) |
|
|
(1.9) |
|
|
(10.1) |
|
|
(8.1) |
|
|
Comprehensive income attributable to Trane Technologies
plc |
$ |
379.5 |
|
|
$ |
348.7 |
|
|
$ |
957.5 |
|
|
$ |
1,027.9 |
|
See accompanying notes to Condensed Consolidated Financial
Statements.
TRANE TECHNOLOGIES PLC
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited) |
|
|
|
In millions |
September 30,
2022 |
|
December 31,
2021 |
|
ASSETS |
|
|
|
|
Current assets: |
|
|
|
|
Cash and cash equivalents |
$ |
1,080.2 |
|
|
$ |
2,159.2 |
|
|
Accounts and notes receivable, net |
2,867.4 |
|
|
2,429.4 |
|
|
Inventories |
1,949.2 |
|
|
1,530.8 |
|
|
Other current assets |
402.3 |
|
|
351.5 |
|
|
Total current assets |
6,299.1 |
|
|
6,470.9 |
|
|
Property, plant and equipment, net |
1,432.1 |
|
|
1,398.8 |
|
|
Goodwill |
5,370.3 |
|
|
5,504.8 |
|
|
Intangible assets, net |
3,241.1 |
|
|
3,305.6 |
|
|
Other noncurrent assets |
1,397.2 |
|
|
1,379.7 |
|
|
Total assets |
$ |
17,739.8 |
|
|
$ |
18,059.8 |
|
|
LIABILITIES AND EQUITY |
|
|
|
|
Current liabilities: |
|
|
|
|
Accounts payable |
$ |
2,061.3 |
|
|
$ |
1,787.3 |
|
|
Accrued compensation and benefits |
477.9 |
|
|
544.8 |
|
|
Accrued expenses and other current liabilities |
1,956.4 |
|
|
2,069.9 |
|
|
Short-term borrowings and current maturities of long-term
debt |
1,049.9 |
|
|
350.4 |
|
|
Total current liabilities |
5,545.5 |
|
|
4,752.4 |
|
|
Long-term debt |
3,787.5 |
|
|
4,491.7 |
|
|
Postemployment and other benefit liabilities |
730.9 |
|
|
810.9 |
|
|
Deferred and noncurrent income taxes |
639.1 |
|
|
581.5 |
|
|
Other noncurrent liabilities |
1,168.4 |
|
|
1,150.2 |
|
|
Total liabilities |
11,871.4 |
|
|
11,786.7 |
|
|
Equity: |
|
|
|
|
Trane Technologies plc shareholders’ equity: |
|
|
|
|
Ordinary shares |
254.8 |
|
|
259.7 |
|
|
Ordinary shares held in treasury, at cost |
(1,719.4) |
|
|
(1,719.4) |
|
|
Capital in excess of par value |
— |
|
|
— |
|
|
Retained earnings |
8,320.4 |
|
|
8,353.2 |
|
|
Accumulated other comprehensive income (loss) |
(997.5) |
|
|
(637.6) |
|
|
Total Trane Technologies plc shareholders’ equity |
5,858.3 |
|
|
6,255.9 |
|
|
Noncontrolling interests |
10.1 |
|
|
17.2 |
|
|
Total equity |
5,868.4 |
|
|
6,273.1 |
|
|
Total liabilities and equity |
$ |
17,739.8 |
|
|
$ |
18,059.8 |
|
See accompanying notes to Condensed Consolidated Financial
Statements.
TRANE TECHNOLOGIES PLC
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions, except per share amounts |
|
Total
equity |
|
Ordinary shares |
|
Ordinary shares held
in treasury,
at cost |
|
|
|
Capital in
excess of
par value |
|
Retained
earnings |
|
Accumulated other
comprehensive
income (loss) |
|
Noncontrolling Interests |
|
|
|
|
Amount at par value |
|
Shares |
|
|
|
|
|
|
|
|
|
Balance at December 31, 2021 |
|
$ |
6,273.1 |
|
|
$ |
259.7 |
|
|
259.7 |
|
|
$ |
(1,719.4) |
|
|
|
|
$ |
— |
|
|
$ |
8,353.2 |
|
|
$ |
(637.6) |
|
|
$ |
17.2 |
|
|
|
|
Net earnings |
|
263.4 |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
260.2 |
|
|
— |
|
|
3.2 |
|
|
|
|
Other comprehensive income (loss) |
|
(1.4) |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
— |
|
|
(1.4) |
|
|
— |
|
|
|
|
Shares issued under incentive stock plans |
|
(24.2) |
|
|
0.5 |
|
|
0.5 |
|
|
— |
|
|
|
|
(24.7) |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
Repurchase of ordinary shares |
|
(350.0) |
|
|
(1.9) |
|
|
(1.9) |
|
|
— |
|
|
|
|
3.3 |
|
|
(351.4) |
|
|
— |
|
|
— |
|
|
|
|
Share-based compensation |
|
21.4 |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
21.3 |
|
|
0.1 |
|
|
— |
|
|
— |
|
|
|
|
Dividends declared to noncontrolling interest |
|
(2.5) |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
— |
|
|
— |
|
|
(2.5) |
|
|
|
|
Dividends declared to common shareholders |
|
(156.7) |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
(156.7) |
|
|
— |
|
|
— |
|
|
|
|
Separation of Ingersoll Rand Industrial |
|
(6.7) |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
(6.7) |
|
|
— |
|
|
— |
|
|
|
|
Other |
|
0.1 |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
0.1 |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
Balance at March 31, 2022 |
|
$ |
6,016.5 |
|
|
$ |
258.3 |
|
|
258.3 |
|
|
$ |
(1,719.4) |
|
|
|
|
$ |
— |
|
|
$ |
8,098.7 |
|
|
$ |
(639.0) |
|
|
$ |
17.9 |
|
|
|
|
Net earnings |
|
514.9 |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
509.3 |
|
|
— |
|
|
5.6 |
|
|
|
|
Other comprehensive income (loss) |
|
(191.4) |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
— |
|
|
(190.1) |
|
|
(1.3) |
|
|
|
|
Shares issued under incentive stock plans |
|
4.1 |
|
|
0.2 |
|
|
0.2 |
|
|
— |
|
|
|
|
3.9 |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
Repurchase of ordinary shares |
|
(300.1) |
|
|
(2.3) |
|
|
(2.3) |
|
|
— |
|
|
|
|
(5.7) |
|
|
(292.1) |
|
|
— |
|
|
— |
|
|
|
|
Share-based compensation |
|
13.1 |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
13.9 |
|
|
(0.8) |
|
|
— |
|
|
— |
|
|
|
|
Dividends declared to noncontrolling interest |
|
(6.4) |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
— |
|
|
— |
|
|
(6.4) |
|
|
|
|
Dividends declared to common shareholders |
|
(311.1) |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
(311.1) |
|
|
— |
|
|
— |
|
|
|
|
Separation of Ingersoll Rand Industrial |
|
(0.3) |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
(0.3) |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2022 |
|
$ |
5,739.3 |
|
|
$ |
256.2 |
|
|
256.2 |
|
|
$ |
(1,719.4) |
|
|
|
|
$ |
12.1 |
|
|
$ |
8,003.7 |
|
|
$ |
(829.1) |
|
|
$ |
15.8 |
|
|
|
|
Net earnings |
|
552.4 |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
547.9 |
|
|
— |
|
|
4.5 |
|
|
|
|
Other comprehensive income (loss) |
|
(170.3) |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
— |
|
|
(168.4) |
|
|
(1.9) |
|
|
|
|
Shares issued under incentive stock plans |
|
6.5 |
|
|
0.2 |
|
|
0.2 |
|
|
— |
|
|
|
|
6.3 |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
Repurchase of ordinary shares |
|
(250.0) |
|
|
(1.6) |
|
|
(1.6) |
|
|
— |
|
|
|
|
(16.7) |
|
|
(231.7) |
|
|
— |
|
|
— |
|
|
|
|
Share-based compensation |
|
10.0 |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
10.7 |
|
|
(0.7) |
|
|
— |
|
|
— |
|
|
|
|
Dividends declared to noncontrolling interest |
|
(5.6) |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
— |
|
|
— |
|
|
(5.6) |
|
|
|
|
Acquisition of noncontrolling interest |
|
(15.1) |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
(12.4) |
|
|
— |
|
|
— |
|
|
(2.7) |
|
|
|
|
Dividends declared to common shareholders |
|
0.4 |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
0.4 |
|
|
— |
|
|
— |
|
|
|
|
Separation of Ingersoll Rand Industrial |
|
0.8 |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
0.8 |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2022 |
|
$ |
5,868.4 |
|
|
$ |
254.8 |
|
|
254.8 |
|
|
$ |
(1,719.4) |
|
|
|
|
$ |
— |
|
|
$ |
8,320.4 |
|
|
$ |
(997.5) |
|
|
$ |
10.1 |
|
|
|
See accompanying notes to Condensed Consolidated Financial
Statements.
TRANE TECHNOLOGIES PLC
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(CONTINUED)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions, except per share amounts |
|
Total
equity |
|
Ordinary shares |
|
Ordinary shares held
in treasury,
at cost |
|
|
|
Capital in
excess of
par value |
|
Retained
earnings |
|
Accumulated other
comprehensive
income (loss) |
|
Noncontrolling Interests |
|
|
|
|
Amount at par value |
|
Shares |
|
|
|
|
|
|
|
|
|
December 31, 2020 |
|
$ |
6,427.1 |
|
|
$ |
263.3 |
|
|
263.3 |
|
|
$ |
(1,719.4) |
|
|
|
|
$ |
— |
|
|
$ |
8,495.3 |
|
|
$ |
(631.5) |
|
|
$ |
19.4 |
|
|
|
|
Net earnings |
|
237.8 |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
235.2 |
|
|
— |
|
|
2.6 |
|
|
|
|
Other comprehensive income (loss) |
|
(70.7) |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
— |
|
|
(68.3) |
|
|
(2.4) |
|
|
|
|
Shares issued under incentive stock plans |
|
(7.0) |
|
|
1.0 |
|
|
1.0 |
|
|
— |
|
|
|
|
(8.0) |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
Repurchase of ordinary shares |
|
(104.2) |
|
|
(0.7) |
|
|
(0.7) |
|
|
— |
|
|
|
|
(16.7) |
|
|
(86.8) |
|
|
— |
|
|
— |
|
|
|
|
Share-based compensation |
|
24.2 |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
24.7 |
|
|
(0.5) |
|
|
— |
|
|
— |
|
|
|
|
Dividends declared to noncontrolling interest |
|
(3.5) |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
— |
|
|
— |
|
|
(3.5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared to common shareholders |
|
(141.0) |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
(141.0) |
|
|
— |
|
|
— |
|
|
|
|
Separation of Ingersoll Rand Industrial |
|
(49.9) |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
(49.9) |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2021 |
|
$ |
6,312.8 |
|
|
$ |
263.6 |
|
|
263.6 |
|
|
$ |
(1,719.4) |
|
|
|
|
$ |
— |
|
|
$ |
8,452.3 |
|
|
$ |
(699.8) |
|
|
$ |
16.1 |
|
|
|
|
Net earnings |
|
469.0 |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
464.7 |
|
|
— |
|
|
4.3 |
|
|
|
|
Other comprehensive income (loss) |
|
49.3 |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
— |
|
|
47.6 |
|
|
1.7 |
|
|
|
|
Shares issued under incentive stock plans |
|
25.7 |
|
|
0.5 |
|
|
0.5 |
|
|
— |
|
|
|
|
25.2 |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
Repurchase of ordinary shares |
|
(250.0) |
|
|
(1.4) |
|
|
(1.4) |
|
|
— |
|
|
|
|
(40.0) |
|
|
(208.6) |
|
|
— |
|
|
— |
|
|
|
|
Share-based compensation |
|
13.9 |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
14.8 |
|
|
(0.9) |
|
|
— |
|
|
— |
|
|
|
|
Dividends declared to noncontrolling interest |
|
(6.7) |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
— |
|
|
— |
|
|
(6.7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared to common shareholders |
|
(281.4) |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
(281.4) |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2021 |
|
$ |
6,332.6 |
|
|
$ |
262.7 |
|
|
262.7 |
|
|
$ |
(1,719.4) |
|
|
|
|
$ |
— |
|
|
$ |
8,426.1 |
|
|
$ |
(652.2) |
|
|
$ |
15.4 |
|
|
|
|
Net earnings |
|
408.7 |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
405.7 |
|
|
— |
|
|
3.0 |
|
|
|
|
Other comprehensive income (loss) |
|
(58.1) |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
— |
|
|
(57.0) |
|
|
(1.1) |
|
|
|
|
Shares issued under incentive stock plans |
|
43.1 |
|
|
0.6 |
|
|
0.6 |
|
|
— |
|
|
|
|
42.5 |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
Repurchase of ordinary shares |
|
(246.0) |
|
|
(1.3) |
|
|
(1.3) |
|
|
— |
|
|
|
|
(40.0) |
|
|
(204.7) |
|
|
— |
|
|
— |
|
|
|
|
Share-based compensation |
|
11.9 |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
12.6 |
|
|
(0.7) |
|
|
— |
|
|
— |
|
|
|
|
Dividends declared to noncontrolling interest |
|
(4.7) |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
— |
|
|
— |
|
|
(4.7) |
|
|
|
|
Dividends declared to common shareholders |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
Other |
|
0.2 |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
0.1 |
|
|
0.1 |
|
|
— |
|
|
— |
|
|
|
|
Balance at September 30, 2021 |
|
$ |
6,487.7 |
|
|
$ |
262.0 |
|
|
262.0 |
|
|
$ |
(1,719.4) |
|
|
|
|
$ |
15.2 |
|
|
$ |
8,626.5 |
|
|
$ |
(709.2) |
|
|
$ |
12.6 |
|
|
|
See accompanying notes to Condensed Consolidated Financial
Statements.
TRANE TECHNOLOGIES PLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended |
|
|
September 30, |
|
In millions |
2022 |
|
2021 |
|
Cash flows from operating activities: |
|
|
|
|
Net earnings |
$ |
1,330.7 |
|
|
$ |
1,115.5 |
|
|
Discontinued operations, net of tax |
16.6 |
|
|
12.6 |
|
|
Adjustments for non-cash transactions: |
|
|
|
|
Depreciation and amortization |
241.0 |
|
|
223.0 |
|
|
Pension and other postretirement benefits |
45.4 |
|
|
40.4 |
|
|
Stock settled share-based compensation |
46.0 |
|
|
52.2 |
|
|
Changes in assets and liabilities, net of the effects of
acquisitions |
(710.0) |
|
|
(258.9) |
|
|
Other non-cash items, net |
(36.3) |
|
|
(22.2) |
|
|
Net cash provided by (used in) continuing operating
activities |
933.4 |
|
|
1,162.6 |
|
|
Net cash provided by (used in) discontinued operating
activities |
(189.7) |
|
|
(1.4) |
|
|
Net cash provided by (used in) operating activities |
743.7 |
|
|
1,161.2 |
|
|
Cash flows from investing activities: |
|
|
|
|
Capital expenditures |
(202.8) |
|
|
(121.6) |
|
|
Acquisitions of businesses, net of cash acquired |
(109.6) |
|
|
(18.0) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other investing activities, net |
(12.8) |
|
|
(69.2) |
|
|
Net cash provided by (used in) continuing investing
activities |
(325.2) |
|
|
(208.8) |
|
|
Net cash provided by (used in) discontinued investing
activities |
(0.6) |
|
|
— |
|
|
Net cash provided by (used in) investing activities |
(325.8) |
|
|
(208.8) |
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Payments of long-term debt |
(7.5) |
|
|
(432.5) |
|
|
Debt issuance costs |
(2.1) |
|
|
(2.6) |
|
|
Dividends paid to ordinary shareholders |
(467.0) |
|
|
(421.9) |
|
|
Dividends paid to noncontrolling interests |
(14.5) |
|
|
(14.9) |
|
|
|
|
|
|
Proceeds (payments) from shares issued under incentive plans,
net |
(13.6) |
|
|
61.8 |
|
|
Repurchase of ordinary shares |
(900.1) |
|
|
(600.2) |
|
|
Settlement related to special cash payment |
(6.2) |
|
|
(49.5) |
|
|
Other financing activities, net |
(2.0) |
|
|
(5.2) |
|
|
Net cash provided by (used in) financing activities |
(1,413.0) |
|
|
(1,465.0) |
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash
equivalents |
(83.9) |
|
|
(38.5) |
|
|
Net increase (decrease) in cash and cash equivalents |
(1,079.0) |
|
|
(551.1) |
|
|
Cash and cash equivalents - beginning of period |
2,159.2 |
|
|
3,289.9 |
|
|
Cash and cash equivalents - end of period |
$ |
1,080.2 |
|
|
$ |
2,738.8 |
|
See accompanying notes to Condensed Consolidated Financial
Statements.
TRANE TECHNOLOGIES PLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
Trane Technologies plc, a public limited company, incorporated in
Ireland in 2009, and its consolidated subsidiaries (collectively,
we, our, the Company or Trane Technologies), is a global climate
innovator. The Company brings sustainable and efficient solutions
to buildings, homes and transportation through the Company's
strategic brands, Trane®
and Thermo King®,
and its environmentally responsible portfolio of products, services
and connected intelligent controls. The Company generates revenue
and cash primarily through the design, manufacture, sale and
service of solutions for Heating, Ventilation and Air Conditioning
(HVAC) and transport refrigeration. As an industry leader with an
extensive global install base, the Company’s growth strategy
includes expanding recurring revenue through services and rental
options. The Company’s unique business operating system,
uplifting culture and highly engaged team around the world are also
central to its earnings and cash flow growth.
The accompanying unaudited Condensed Consolidated Financial
Statements of Trane Technologies reflects the consolidated
operations of the Company and have been prepared in accordance with
United States Securities and Exchange Commission (SEC) interim
reporting requirements. Accordingly, the accompanying Condensed
Consolidated Financial Statements do not include all disclosures
required by accounting principles generally accepted in the United
States of America (GAAP) for full financial statements and should
be read in conjunction with the consolidated financial statements
included in the Company’s Annual Report on Form 10-K for the year
ended December 31, 2021. In the opinion of management, the
accompanying Condensed Consolidated Financial Statements contain
all adjustments, which include only normal recurring adjustments,
necessary to fairly state the condensed consolidated results for
the interim periods presented.
Reorganization of Aldrich and Murray
On May 1, 2020, certain subsidiaries of the Company underwent an
internal corporate restructuring that was effectuated through a
series of transactions (2020 Corporate Restructuring). As a result,
Aldrich Pump LLC (Aldrich) and Murray Boiler LLC (Murray), indirect
wholly-owned subsidiaries of Trane Technologies plc, became solely
responsible for the asbestos-related liabilities, and the
beneficiaries of the asbestos-related insurance assets, of Trane
Technologies Company LLC and Trane U.S. Inc, respectively. On a
consolidated basis, the 2020 Corporate Restructuring did not have
an impact on the Condensed Consolidated Financial Statements. In
connection with the 2020 Corporate Restructuring, certain
subsidiaries of the Company entered into funding agreements with
Aldrich and Murray (collectively the Funding Agreements), pursuant
to which those subsidiaries are obligated, among other things, to
pay the costs and expenses of Aldrich and Murray during the
pendency of the Chapter 11 cases to the extent distributions from
their respective subsidiaries are insufficient to do so and to
provide an amount for the funding for a trust established pursuant
to section 524(g) of the Bankruptcy Code, to the extent that the
other assets of Aldrich and Murray are insufficient to provide the
requisite trust funding.
On June 18, 2020 (Petition Date), Aldrich and Murray filed
voluntary petitions for relief under Chapter 11 of Title 11 of the
United States Code (the Bankruptcy Code) in the United States
Bankruptcy Court for the Western District of North Carolina (the
Bankruptcy Court) to resolve equitably and permanently all current
and future asbestos related claims in a manner beneficial to
claimants and to Aldrich and Murray. As a result of the Chapter 11
filings, all asbestos-related lawsuits against Aldrich and Murray
have been stayed due to the imposition of a statutory automatic
stay applicable in Chapter 11 bankruptcy cases. Only Aldrich and
Murray have filed for Chapter 11 relief. Neither Aldrich's
wholly-owned subsidiary, 200 Park, Inc. (200 Park), Murray's
wholly-owned subsidiary, ClimateLabs LLC (ClimateLabs), Trane
Technologies plc nor its other subsidiaries (the Trane Companies)
are part of the Chapter 11 filings. The Trane Companies are
expected to continue to operate as usual, with no disruption to
their employees, suppliers, or customers globally. As of the
Petition Date, Aldrich and its wholly-owned subsidiary 200 Park and
Murray and its wholly-owned subsidiary ClimateLabs were
deconsolidated and their respective assets and liabilities were
derecognized from the Company's Condensed Consolidated Financial
Statements. Refer to Note 18, "Commitments and Contingencies," for
more information regarding the status of Chapter 11 bankruptcy and
asbestos-related matters.
Note 2. Recent Accounting Pronouncements
The Financial Accounting Standards Board (FASB) Accounting
Standards Codification (ASC) is the sole source of authoritative
GAAP other than SEC issued rules and regulations that apply only to
SEC registrants. The FASB issues an Accounting Standards Update
(ASU) to communicate changes to the codification. The Company
considers the applicability and impact of all ASU's. ASU's not
listed below were assessed and determined to be either not
applicable or are not expected to have a material impact on the
Condensed Consolidated Financial Statements.
Recently Adopted Accounting Pronouncements
In November 2021, the FASB issued ASU 2021-10, “Government
Assistance (Topic 832): Disclosures by Business Entities about
Government Assistance” (ASU 2021-10), which requires additional
disclosures regarding government grants and cash contributions. The
additional disclosures required by this update include information
about the nature of the transactions and the related accounting
policy used to account for the transaction, the financial statement
line items affected by the transactions and the amounts applicable
to each financial statement line item and significant terms and
conditions of the transactions, including commitments and
contingencies. ASU 2021-10 is effective for annual periods
beginning after December 15, 2021 with early adoption permitted.
The Company adopted this standard on January 1, 2022 with no
material impact on its financial statements.
In October 2021, the FASB issued ASU 2021-08, “Business
Combinations (Topic 805): Accounting for Contract Assets and
Contract Liabilities from Contracts with Customers” (ASU 2021-08),
which requires contract assets and contract liabilities acquired in
a business combination to be recognized and measured by the
acquirer on the acquisition date in accordance with ASC 606,
“Revenue from Contracts with Customers” (ASC 606). ASU 2021-08 is
effective for fiscal years beginning after December 15, 2022
including interim periods therein with early adoption permitted.
The Company early adopted this standard during the fourth quarter
of 2021 and applied it retrospectively to all business combinations
for which the acquisition date occurred on or after January 1, 2021
resulting in no material impact on its financial
statements.
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic
740): Simplifying the Accounting for Income Taxes” (ASU 2019-12),
which simplifies certain aspects of income tax accounting guidance
in ASC 740, reducing the complexity of its application. Certain
exceptions to ASC 740 presented within the ASU include: intraperiod
tax allocation, deferred tax liabilities related to outside basis
differences and year-to-date loss in interim periods, among others.
ASU 2019-12 is effective for annual reporting periods beginning
after December 15, 2020 including interim periods therein with
early adoption permitted. The Company adopted this standard on
January 1, 2021 with no material impact on its financial
statements.
Recently Issued Accounting Pronouncements
In September 2022, the FASB issued ASU 2022-04, “Liabilities -
Supplier Finance Program (Subtopic 405-50): Disclosure of Supplier
Program Finance Obligations”, which requires that a company that
enters into a supplier finance program disclose sufficient
information about the program to allow a user of financial
statements to understand the program’s nature, activity during the
period, changes from period to period, and potential magnitude. To
achieve that objective, the company should disclose qualitative and
quantitative information about its supplier finance programs. ASU
2022-04 is effective for fiscal periods beginning after December
15, 2022, including interim periods within those fiscal years, with
early adoption permitted. The Company is evaluating the impact of
this ASU on the financial statements, and does not expect a
material impact. The Company will adopt this standard on January 1,
2023.
Note 3. Inventories
Depending on the business, U.S. inventories are stated at the lower
of cost or market using the last-in, first-out (LIFO) method or the
lower of cost and net realizable value (NRV) using the first-in,
first-out (FIFO) method. Non-U.S. inventories are primarily stated
at the lower of cost and NRV using the FIFO method.
The major classes of inventory were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions |
September 30,
2022 |
|
December 31,
2021 |
|
Raw materials |
$ |
503.0 |
|
|
$ |
404.6 |
|
|
Work-in-process |
316.0 |
|
|
215.9 |
|
|
Finished goods |
1,243.6 |
|
|
982.9 |
|
|
|
2,062.6 |
|
|
1,603.4 |
|
|
LIFO reserve |
(113.4) |
|
|
(72.6) |
|
|
Total |
$ |
1,949.2 |
|
|
$ |
1,530.8 |
|
The Company performs periodic assessments to determine the
existence of obsolete, slow-moving and non-saleable inventories and
records necessary provisions to reduce such inventories to the
lower of cost and NRV. Reserve balances, primarily related to
obsolete and slow-moving inventories, were $80.3 million and
$79.0 million at September 30, 2022 and December 31,
2021, respectively.
Note 4. Goodwill
The changes in the carrying amount of goodwill for the nine months
ended September 30, 2022 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions |
Americas |
|
EMEA |
|
Asia Pacific |
|
Total |
|
Net balance as of December 31, 2021 |
$ |
4,185.2 |
|
|
$ |
740.8 |
|
|
$ |
578.8 |
|
|
$ |
5,504.8 |
|
|
Acquisitions
(1)
|
42.2 |
|
|
(1.0) |
|
|
— |
|
|
41.2 |
|
|
|
|
|
|
|
|
|
|
Currency translation |
(5.8) |
|
|
(113.0) |
|
|
(56.9) |
|
|
(175.7) |
|
|
Net balance as of September 30, 2022 |
$ |
4,221.6 |
|
|
$ |
626.8 |
|
|
$ |
521.9 |
|
|
$ |
5,370.3 |
|
(1)
Includes measurement period adjustment related to prior year
acquisition.
The net goodwill balances at September 30, 2022 and
December 31, 2021 include $2,496.0 million of accumulated
impairment, primarily related to the Americas segment. The
accumulated impairment relates entirely to a charge recorded in
2008.
Note 5. Intangible Assets
The gross amount of the Company’s intangible assets and related
accumulated amortization were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2022 |
|
December 31, 2021 |
|
In millions |
|
Gross carrying amount |
|
Accumulated amortization |
|
Net carrying amount |
|
Gross carrying amount |
|
Accumulated amortization |
|
Net carrying amount |
|
Customer relationships |
|
$ |
2,131.4 |
|
|
$ |
(1,550.9) |
|
|
$ |
580.5 |
|
|
$ |
2,110.8 |
|
|
$ |
(1,475.3) |
|
|
$ |
635.5 |
|
|
Other |
|
244.0 |
|
|
(205.6) |
|
|
38.4 |
|
|
245.5 |
|
|
(201.3) |
|
|
44.2 |
|
|
Total finite-lived intangible assets |
|
2,375.4 |
|
|
(1,756.5) |
|
|
618.9 |
|
|
2,356.3 |
|
|
(1,676.6) |
|
|
679.7 |
|
|
Trademarks (indefinite-lived) |
|
2,622.2 |
|
|
— |
|
|
2,622.2 |
|
|
2,625.9 |
|
|
— |
|
|
2,625.9 |
|
|
Total |
|
$ |
4,997.6 |
|
|
$ |
(1,756.5) |
|
|
$ |
3,241.1 |
|
|
$ |
4,982.2 |
|
|
$ |
(1,676.6) |
|
|
$ |
3,305.6 |
|
Intangible asset amortization expense was $35.8 million and $29.0
million for the three months ended September 30, 2022 and
2021, respectively. Intangible asset amortization expense was
$105.6 million and $90.7 million for the nine months ended
September 30, 2022 and 2021, respectively.
Note 6. Debt and Credit Facilities
Short-term borrowings and current maturities of long-term
debt
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions |
September 30,
2022 |
|
December 31,
2021 |
|
Debentures with put feature |
$ |
342.9 |
|
|
$ |
342.9 |
|
|
|
|
|
|
4.250% Senior notes due 2023
|
699.5 |
|
|
— |
|
|
Other current maturities of long-term debt |
7.5 |
|
|
7.5 |
|
|
|
|
|
|
Total |
$ |
1,049.9 |
|
|
$ |
350.4 |
|
Commercial Paper Program
The Company uses borrowings under its commercial paper program for
general corporate purposes. The maximum aggregate amount of
unsecured commercial paper notes available to be issued, on a
private placement basis, under the commercial paper program is
$2.0 billion. The Company had no outstanding balance under its
commercial paper program as of September 30, 2022 and
December 31, 2021.
Debentures with Put Feature
At September 30, 2022 and December 31, 2021, the Company
had $342.9 million of fixed rate debentures outstanding which
contain a put feature that the holders may exercise on each
anniversary of the issuance date. If exercised, the Company is
obligated to repay in whole or in part, at the holder’s option, the
outstanding principal amount of the debentures plus accrued
interest. If these options are not exercised, the final contractual
maturity dates would range between 2027 and 2028. Holders of these
debentures had the option to exercise the put feature on $37.2
million of the outstanding debentures in February 2022, subject to
the notice requirement. No exercises were made.
Long-term debt,
excluding current maturities, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions |
September 30,
2022 |
|
December 31,
2021 |
|
4.250% Senior notes due 2023
|
$ |
— |
|
|
$ |
699.1 |
|
|
7.200% Debentures due 2022-2025
|
14.9 |
|
|
22.4 |
|
|
3.550% Senior notes due 2024
|
498.5 |
|
|
498.0 |
|
|
6.480% Debentures due 2025
|
149.7 |
|
|
149.7 |
|
|
3.500% Senior notes due 2026
|
398.2 |
|
|
397.8 |
|
|
3.750% Senior notes due 2028
|
546.6 |
|
|
546.2 |
|
|
3.800% Senior notes due 2029
|
745.6 |
|
|
745.0 |
|
|
5.750% Senior notes due 2043
|
495.2 |
|
|
495.0 |
|
|
4.650% Senior notes due 2044
|
296.4 |
|
|
296.3 |
|
|
4.300% Senior notes due 2048
|
296.4 |
|
|
296.3 |
|
|
4.500% Senior notes due 2049
|
346.0 |
|
|
345.9 |
|
|
|
|
|
|
Total |
$ |
3,787.5 |
|
|
$ |
4,491.7 |
|
Other Credit Facilities
On April 25, 2022, the Company entered into a new $1.0 billion
senior unsecured revolving credit facility which matures in April
2027 (2027 Credit Facility) and terminated its $1.0 billion
credit facility that would have expired in April 2023. As a result,
the Company maintains two $1.0 billion senior unsecured revolving
credit facilities, one of which matures in June 2026 (2026 Credit
Facility) and the other which matures in April 2027 (collectively,
the Facilities) through its wholly-owned subsidiaries, Trane
Technologies HoldCo Inc., Trane Technologies Global Holding Company
Limited and Trane Technologies Financing Limited (collectively, the
Borrowers). On June 30, 2022, the Company amended its 2026 Credit
Facility to include a Secured Overnight Financing Rate (SOFR)
borrowing index provision and to eliminate the London Interbank
Offer Rate (LIBOR) index provision. These provisions are consistent
with the 2027 Credit Facility. Additionally, both Facilities
include Environmental, Social, and Governance (ESG) metrics related
to two of the Company’s sustainability commitments: a reduction in
greenhouse gas intensity and an increase in the percentage of women
in management. The Company's annual performance against these ESG
metrics may result in price adjustments to the commitment fee and
applicable interest rate.
The Facilities provide support for the Company’s commercial paper
program and can be used for working capital and other general
corporate purposes. Trane Technologies plc, Trane Technologies
Irish Holdings Unlimited Company, Trane Technologies Lux
International Holding Company S.à.r.l. and Trane Technologies
Company LLC each provide irrevocable and unconditional guarantees
for these Facilities. In addition, each Borrower will
guarantee the obligations under the Facilities of the other
Borrowers. Total commitments of $2.0 billion were unused at
September 30, 2022 and December 31, 2021.
Fair Value of Debt
The fair value of the Company's debt instruments at
September 30, 2022 and December 31, 2021 was $4.5 billion
and $5.6 billion, respectively. The Company measures the fair value
of its debt instruments for disclosure purposes based upon
observable market prices quoted on public exchanges for similar
assets. These fair value inputs are considered Level 2 within the
fair value hierarchy. See Note 8, “Fair Value Measurements” for
information on the fair value hierarchy.
Note 7. Financial Instruments
In the normal course of business, the Company is exposed to certain
risks arising from business operations and economic factors. These
fluctuations can increase the cost of financing, investing and
operating the business. The Company uses various financial
instruments, including derivative instruments, to manage the risks
associated with interest rate, commodity price and foreign currency
exposures. These financial instruments are not used for trading or
speculative purposes. The Company recognizes all derivatives in the
Condensed Consolidated Balance Sheets at their fair value as either
assets or liabilities.
On the date a derivative contract is entered into, the Company
designates the derivative instrument as a cash flow hedge of a
forecasted transaction or as an undesignated derivative. The
Company formally documents its hedge relationships, including
identification of the derivative instruments and the hedged items,
as well as its risk management objectives and strategies for
undertaking the hedge transaction. This process includes linking
derivative instruments that are designated as hedges to specific
assets, liabilities or forecasted transactions.
The Company assesses at inception and at least quarterly
thereafter, whether the derivatives used in cash flow hedging
transactions are highly effective in offsetting the changes in the
cash flows of the hedged item. To the extent the derivative is
deemed to be a highly effective hedge, the fair market value
changes of the instrument are recorded to
Accumulated other comprehensive income (loss)
(AOCI). If the hedging relationship ceases to be highly effective,
or it becomes probable that a forecasted transaction is no longer
expected to occur, the hedging relationship will be undesignated
and any future gains and losses on the derivative instrument will
be recorded in
Net earnings.
The fair values of derivative instruments included within the
Condensed Consolidated Balance Sheets were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets |
|
Derivative liabilities |
|
In millions |
September 30,
2022 |
|
December 31,
2021 |
|
September 30,
2022 |
|
December 31,
2021 |
|
Derivatives designated as hedges: |
|
|
|
|
|
|
|
|
Currency derivatives |
$ |
0.1 |
|
|
$ |
0.1 |
|
|
$ |
5.5 |
|
|
$ |
2.7 |
|
|
Commodity derivatives |
— |
|
|
4.9 |
|
|
19.9 |
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedges: |
|
|
|
|
|
|
|
|
Currency derivatives |
2.1 |
|
|
10.5 |
|
|
1.4 |
|
|
14.0 |
|
|
|
|
|
|
|
|
|
|
Total derivatives |
$ |
2.2 |
|
|
$ |
15.5 |
|
|
$ |
26.8 |
|
|
$ |
16.9 |
|
Asset and liability derivatives included in the table above are
recorded within
Other current assets
and
Accrued expenses
and
other current liabilities,
respectively.
Currency Derivative Instruments
The notional amount of the Company’s currency derivatives was
approximately $400 million and $500 million at September 30,
2022 and December 31, 2021, respectively. At
September 30, 2022 and December 31, 2021, a net loss of
$5.1 million and $2.2 million, net of tax, respectively, was
included in AOCI related to the fair value of the Company’s
currency derivatives designated as accounting hedges. The amount
expected to be reclassified into
Net earnings
over the next twelve months is a net loss of $5.1 million. The
actual amounts that will be reclassified to
Net earnings
may vary from this amount as a result of changes in market
conditions. Gains and losses associated with the Company’s currency
derivatives not designated as hedges are recorded in
Net earnings
as changes in fair value occur. At September 30, 2022, the
maximum term of the Company’s currency derivatives was 12
months.
Commodity Derivative Instruments
At September 30, 2022 and December 31, 2021, a net loss
of $14.9 million and net gain of $3.5 million, net of tax,
respectively, was included in AOCI related to the fair market value
of the Company's commodity derivatives designated as accounting
hedges. A change in fair value of commodity derivative instruments
deemed highly effective is included in AOCI and is reclassified
to
Cost of goods sold
in the period the sale of the finished goods inventory containing
the commodity impacts
Net earnings.
The amount expected to be reclassified into
Net earnings
over the next twelve months is a net loss of $14.9 million.
The actual amounts that will be reclassified to
Net earnings
may vary from this amount as a result of changes in market
conditions. At September 30, 2022, the Company has commodity
contracts to hedge certain forecasted purchases over the next 12
months.
The Company had the following outstanding contracts to hedge
forecasted commodity purchases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume outstanding as of |
|
Commodity |
September 30,
2022 |
|
December 31,
2021 |
|
Aluminum |
22,149 metric tons
|
|
16,488 metric tons
|
|
Copper |
3,630,000 pounds
|
|
4,035,000 pounds
|
Other Derivative Instruments
Prior to 2015, the Company utilized forward-starting interest rate
swaps and interest rate locks to manage interest rate exposure in
periods prior to the anticipated issuance of certain fixed-rate
debt. These instruments were designated as cash flow hedges and had
a notional amount of $1,250.0 million. Consequently, when the
contracts were settled upon the issuance of the underlying debt,
any realized gains or losses in the fair values of the instruments
were deferred into AOCI. These deferred gains or losses are
subsequently recognized in
Interest expense
over the term of the related notes. The net unrecognized gain in
AOCI was $4.2 million at September 30, 2022 and $4.7 million
at December 31, 2021. The net deferred gain at
September 30, 2022 will continue to be amortized over the term
of notes with maturities ranging from 2023 to 2044. The amount
expected to be amortized over the next twelve months is a net gain
of $0.5 million. The Company had no forward-starting interest
rate swaps or interest rate lock contracts outstanding at
September 30, 2022 or December 31, 2021.
The following table represents the amounts associated with
derivatives designated as hedges affecting
Net earnings
and AOCI for the three months ended September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain (loss)
recognized in AOCI |
|
Location of gain (loss) reclassified from
AOCI and recognized
into Net earnings |
|
Amount of gain (loss)
reclassified from AOCI and
recognized into Net earnings |
|
In millions |
2022 |
|
2021 |
|
|
2022 |
|
2021 |
|
Currency derivatives designated as hedges
(1)
|
$ |
(2.1) |
|
|
$ |
(0.9) |
|
|
Cost of goods sold |
|
$ |
(2.5) |
|
|
$ |
7.5 |
|
|
Commodity derivatives designated as hedges |
(7.6) |
|
|
6.0 |
|
|
Cost of goods sold |
|
(1.0) |
|
|
0.2 |
|
|
Interest rate swaps & locks |
— |
|
|
— |
|
|
Interest expense |
|
0.2 |
|
|
0.2 |
|
|
Total |
$ |
(9.7) |
|
|
$ |
5.1 |
|
|
|
|
$ |
(3.3) |
|
|
$ |
7.9 |
|
(1)
Amounts excluded from effectiveness testing and recognized
into
Cost of goods sold
based on changes in fair value and amortization was a loss of
$0.2 million and a gain of $0.9 million for the three months
ended September 30, 2022 and 2021, respectively.
The following table represents the amounts associated with
derivatives not designated as hedges affecting
Net earnings
for the three months ended September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of gain (loss) recognized in Net earnings |
|
Amount of gain (loss)
recognized in Net earnings |
|
In millions |
|
2022 |
|
2021 |
|
Currency derivatives |
|
|
Other income (expense), net |
|
$ |
(3.3) |
|
|
$ |
0.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
$ |
(3.3) |
|
|
$ |
0.9 |
|
The gains and losses associated with the Company’s undesignated
currency derivatives are materially offset in
Net earnings
by changes in the fair value of the underlying
transactions.
The following table represents the amounts associated with
derivatives designated as hedges affecting
Net earnings
and AOCI for the nine months ended September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain (loss)
recognized in AOCI |
|
Location of gain (loss) reclassified from
AOCI and recognized
into Net earnings |
|
Amount of gain (loss)
reclassified from AOCI and
recognized into Net earnings |
|
In millions |
2022 |
|
2021 |
|
|
2022 |
|
2021 |
|
Currency derivatives designated as hedges
(1)
|
$ |
(10.2) |
|
|
$ |
(6.2) |
|
|
Cost of goods sold |
|
$ |
(6.3) |
|
|
$ |
4.4 |
|
|
Commodity derivatives designated as hedges |
(21.1) |
|
|
7.5 |
|
|
Cost of goods sold |
|
5.2 |
|
|
0.2 |
|
|
Interest rate swaps & locks |
— |
|
|
— |
|
|
Interest expense |
|
0.5 |
|
|
0.5 |
|
|
Total |
$ |
(31.3) |
|
|
$ |
1.3 |
|
|
|
|
$ |
(0.6) |
|
|
$ |
5.1 |
|
(1)
Amounts excluded from effectiveness testing and recognized
into
Cost of goods sold
based on changes in fair value and amortization was a loss of
$0.3 million and $0.7 million for the nine months ended
September 30, 2022 and 2021, respectively.
The following table represents the amounts associated with
derivatives not designated as hedges affecting
Other income/(expense), net
for the nine months ended September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of gain (loss)
recognized in Net earnings |
|
Amount of gain (loss)
recognized in Net earnings |
|
In millions |
|
2022 |
|
2021 |
|
Currency derivatives |
|
Other income (expense), net |
|
$ |
(9.0) |
|
|
$ |
(5.0) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
$ |
(9.0) |
|
|
$ |
(5.0) |
|
Concentration of Credit Risk
The counterparties to the Company’s forward contracts consist of a
number of investment grade major international financial
institutions. The Company could be exposed to losses in the event
of nonperformance by the counterparties. However, the credit
ratings and the concentration of risk in these financial
institutions are monitored on a continuous basis and present no
significant credit risk to the Company.
Note 8. Fair Value Measurements
Fair value is the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between
market participants at the measurement date. The fair value
hierarchy that prioritizes information used in developing
assumptions when pricing an asset or liability is as
follows:
•Level
1:
Observable inputs such as quoted prices in active
markets;
•Level
2:
Inputs, other than quoted prices in active markets, that are
observable either directly or indirectly; and
•Level
3:
Unobservable inputs where there is little or no market data, which
requires the reporting entity to develop its own
assumptions.
Observable market data is required to be used in making fair value
measurements when available. When inputs used to measure fair value
fall within different levels of the hierarchy, the level within
which the fair value measurement is categorized is based on the
lowest level input that is significant to the fair value
measurement.
The following table presents the Company’s fair value hierarchy for
those assets and liabilities measured at fair value on a recurring
basis as of September 30, 2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions |
Fair Value |
|
Fair value measurements |
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
Derivative instruments |
$ |
2.2 |
|
|
$ |
— |
|
|
$ |
2.2 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
Derivative instruments |
26.8 |
|
|
— |
|
|
26.8 |
|
|
— |
|
|
|
Contingent consideration |
$ |
80.8 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
80.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the Company’s fair value hierarchy for
those assets and liabilities measured at fair value on a recurring
basis as of December 31, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions |
Fair Value |
|
Fair value measurements |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
Derivative instruments |
$ |
15.5 |
|
|
$ |
— |
|
|
$ |
15.5 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Derivative instruments |
16.9 |
|
|
— |
|
|
16.9 |
|
|
— |
|
|
Contingent consideration |
$ |
96.2 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
96.2 |
|
Derivative instruments include forward foreign currency contracts
and instruments related to non-functional currency balance sheet
exposures and commodity swaps. The fair value of the foreign
exchange derivatives is determined based on a pricing model that
uses spot rates and forward prices from actively quoted currency
markets that are readily accessible and observable. The fair value
of the commodity derivatives is valued under a market approach
using published prices, where applicable, or dealer
quotes.
On October 15, 2021, the Company acquired 100% of Farrar Scientific
Corporation's (Farrar Scientific) assets. In connection with the
acquisition, the Company agreed to contingent consideration of up
to $115.0 million to be paid in 2025, tied to the attainment of key
financial targets during the period January 1, 2022 through
December 31, 2024. This additional payment, to the extent earned,
will be payable in cash. The fair value of the contingent
consideration is determined using the Monte Carlo simulation model
based on projections of revenues for Farrar Scientific during the
period of January 1, 2022 through December 31, 2024, implied
revenue volatility and a risk adjusted discount rate. Each quarter
the Company is required to remeasure the fair value of the
liability as assumptions change and such non-cash adjustments are
recorded in
Selling and administrative expenses
in the Condensed Consolidated Statements of Earnings.
Contingent consideration related to acquisitions are measured at
fair value each reporting period using Level 3 unobservable inputs.
The changes in the fair value of the Company's Level 3 liabilities
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions |
|
September 30,
2022 |
|
December 31,
2021 |
|
Balance at beginning of period |
|
$ |
96.2 |
|
|
$ |
— |
|
|
Fair value of contingent consideration recorded in connection with
acquisition |
|
— |
|
|
98.7 |
|
|
Change in fair value of contingent consideration |
|
(15.4) |
|
|
(2.5) |
|
|
Balance at end of period |
|
$ |
80.8 |
|
|
$ |
96.2 |
|
The fair value of the contingent consideration is measured on a
recurring basis at each reporting date. The following inputs and
assumptions were used in the Monte Carlo simulation model to
estimate the fair value of the contingent
consideration:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2022 |
|
December 31,
2021 |
|
Discount rate |
|
12.00 |
% |
|
8.00 |
% |
|
Volatility |
|
20.00 |
% |
|
20.00 |
% |
The carrying values of cash and cash equivalents, accounts
receivable, and accounts payable are a reasonable estimate of their
fair value due to the short-term nature of these
instruments.
There have been no transfers between levels of the fair value
hierarchy.
Note 9. Pensions and Postretirement Benefits Other than
Pensions
The Company sponsors several U.S. defined benefit and defined
contribution plans covering substantially all of the Company's U.S.
employees. Additionally, the Company has many non-U.S. defined
benefit and defined contribution plans covering eligible non-U.S.
employees. Postretirement benefits other than pensions (OPEB)
provide healthcare benefits, and in some instances, life insurance
benefits for certain eligible employees.
Pension Plans
The noncontributory defined benefit pension plans covering
non-collectively bargained U.S. employees provide benefits on a
final average pay formula while plans for most collectively
bargained U.S. employees provide benefits on a flat dollar benefit
formula or a percentage of pay formula. The non-U.S. pension plans
generally provide benefits based on earnings and years of service.
The Company also maintains additional other supplemental plans for
officers and other key or highly compensated
employees.
The components of the Company’s net periodic pension benefit cost
for the three and nine months ended September 30 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Nine months ended |
|
In millions |
2022 |
|
2021 |
|
2022 |
|
2021 |
|
Service cost |
$ |
11.8 |
|
|
$ |
12.6 |
|
|
$ |
35.7 |
|
|
$ |
38.2 |
|
|
Interest cost |
17.4 |
|
|
14.7 |
|
|
52.8 |
|
|
44.0 |
|
|
Expected return on plan assets |
(25.7) |
|
|
(26.5) |
|
|
(78.0) |
|
|
(79.7) |
|
|
Net amortization of: |
|
|
|
|
|
|
|
|
Prior service costs |
0.9 |
|
|
1.3 |
|
|
2.9 |
|
|
3.8 |
|
|
Net actuarial losses |
5.8 |
|
|
8.9 |
|
|
17.5 |
|
|
26.8 |
|
|
Net periodic pension benefit cost |
$ |
10.2 |
|
|
$ |
11.0 |
|
|
$ |
30.9 |
|
|
$ |
33.1 |
|
|
Net curtailment and settlement losses |
15.0 |
|
|
— |
|
|
15.0 |
|
|
6.9 |
|
|
Net periodic pension benefit cost after net curtailment and
settlement losses |
$ |
25.2 |
|
|
$ |
11.0 |
|
|
$ |
45.9 |
|
|
$ |
40.0 |
|
|
Amounts recorded in continuing operations: |
|
|
|
|
|
|
|
|
Operating income |
$ |
10.7 |
|
|
$ |
11.8 |
|
|
$ |
32.4 |
|
|
$ |
35.5 |
|
|
Other income/(expense),
net |
13.5 |
|
|
(1.8) |
|
|
10.6 |
|
|
1.4 |
|
|
Amounts recorded in discontinued operations |
1.0 |
|
|
1.0 |
|
|
2.9 |
|
|
3.1 |
|
|
Total |
$ |
25.2 |
|
|
$ |
11.0 |
|
|
$ |
45.9 |
|
|
$ |
40.0 |
|
The Company made contributions to its defined benefit pension plans
of $82.4 million and $47.1 million during the nine months ended
September 30, 2022 and 2021, respectively. The Company
currently projects that it will contribute a total of approximately
$90 million to its enterprise plans worldwide in 2022.
The
Net curtailment and settlement losses
are associated with lump sum distribution under supplemental
benefit plans for officers and other key employees.
Postretirement Benefits Other Than Pensions
The Company sponsors several postretirement plans that provide for
healthcare benefits, and in some instances, life insurance benefits
that cover certain eligible employees. These plans are unfunded and
have no plan assets, but are instead funded by the Company on a
pay-as-you-go basis in the form of direct benefit payments.
Generally, postretirement health benefits are contributory with
contributions adjusted annually. Life insurance plans for retirees
are primarily noncontributory.
The components of net periodic postretirement benefit cost for the
three and nine months ended September 30 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Nine months ended |
|
In millions |
2022 |
|
2021 |
|
2022 |
|
2021 |
|
Service cost |
$ |
0.4 |
|
|
$ |
0.6 |
|
|
$ |
1.4 |
|
|
$ |
1.6 |
|
|
Interest cost |
1.7 |
|
|
1.3 |
|
|
5.1 |
|
|
4.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amortization of net actuarial (gains) |
(1.4) |
|
|
(0.5) |
|
|
(4.2) |
|
|
(1.5) |
|
|
Net periodic postretirement benefit cost |
$ |
0.7 |
|
|
$ |
1.4 |
|
|
$ |
2.3 |
|
|
$ |
4.2 |
|
|
Amounts recorded in continuing operations: |
|
|
|
|
|
|
|
|
Operating income |
$ |
0.4 |
|
|
$ |
0.6 |
|
|
$ |
1.4 |
|
|
$ |
1.6 |
|
|
Other income/(expense),
net |
0.4 |
|
|
0.6 |
|
|
1.0 |
|
|
1.9 |
|
|
Amounts recorded in discontinued operations |
(0.1) |
|
|
0.2 |
|
|
(0.1) |
|
|
0.7 |
|
|
Total |
$ |
0.7 |
|
|
$ |
1.4 |
|
|
$ |
2.3 |
|
|
$ |
4.2 |
|
Note 10. Equity
The authorized share capital of Trane Technologies plc is
1,185,040,000 shares, consisting of (1) 1,175,000,000 ordinary
shares, par value $1.00 per share, (2) 40,000 ordinary shares,
par value EUR 1.00 and (3) 10,000,000 preference shares, par
value $0.001 per share. There were no Euro-denominated ordinary
shares or preference shares outstanding at September 30, 2022
or December 31, 2021.
Changes in ordinary shares and treasury shares for the nine months
ended September 30, 2022 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions |
Ordinary shares issued |
|
Ordinary shares held in treasury |
|
December 31, 2021 |
259.7 |
|
|
24.5 |
|
|
Shares issued under incentive plans, net |
0.9 |
|
|
— |
|
|
|
|
|
|
Repurchase of ordinary shares |
(5.8) |
|
|
— |
|
|
September 30, 2022 |
254.8 |
|
|
24.5 |
|
Share repurchases are made from time to time in accordance with
management's capital allocation strategy, subject to market
conditions and regulatory requirements. Shares acquired and
canceled upon repurchase are accounted for as a reduction of
Ordinary shares and Capital in excess of par
value,
or
Retained earnings
to the extent
Capital in excess of par value
is exhausted. Shares acquired and held in treasury are presented
separately on the balance sheet as a reduction to
Equity
and recognized at cost.
In February 2021, the Company's Board of Directors authorized the
repurchase of up to $2.0 billion of its ordinary shares under
a share repurchase program (2021 Authorization). During the nine
months ended September 30, 2022, the Company repurchased and
canceled approximately $900 million of its ordinary shares leaving
approximately $500 million remaining under the 2021 Authorization.
In February 2022, the Company's Board of Directors authorized the
repurchase of up to $3.0 billion of its ordinary shares under
a new share repurchase program (2022 Authorization) upon completion
of the 2021 Authorization.
Accumulated Other Comprehensive Income (Loss)
The changes in
Accumulated other comprehensive income (loss)
for the nine months ended September 30, 2022 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions |
|
Derivative Instruments |
|
Pension and OPEB |
|
Foreign Currency Translation |
|
Total |
|
Balance at December 31, 2021 |
|
$ |
7.1 |
|
|
$ |
(297.9) |
|
|
$ |
(346.8) |
|
|
$ |
(637.6) |
|
|
Other comprehensive income (loss) attributable to Trane
Technologies plc |
|
(26.3) |
|
|
47.0 |
|
|
(380.6) |
|
|
(359.9) |
|
|
Balance at September 30, 2022 |
|
$ |
(19.2) |
|
|
$ |
(250.9) |
|
|
$ |
(727.4) |
|
|
$ |
(997.5) |
|
Other comprehensive income (loss) attributable to noncontrolling
interests
for the nine months ended September 30, 2022 included a loss
of $3.2 million related to currency translation.
The changes in
Accumulated other comprehensive income (loss)
for the nine months ended September 30, 2021 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions |
|
Derivative Instruments |
|
Pension and OPEB |
|
Foreign Currency Translation |
|
Total |
|
Balance at December 31, 2020 |
|
$ |
10.8 |
|
|
$ |
(416.5) |
|
|
$ |
(225.8) |
|
|
$ |
(631.5) |
|
|
Other comprehensive income (loss) attributable to Trane
Technologies plc |
|
(1.9) |
|
|
23.8 |
|
|
(99.6) |
|
|
(77.7) |
|
|
Balance at September 30, 2021 |
|
$ |
8.9 |
|
|
$ |
(392.7) |
|
|
$ |
(325.4) |
|
|
$ |
(709.2) |
|
Other comprehensive income (loss) attributable to noncontrolling
interests
for the nine months ended September 30, 2021 included a loss
of $1.8 million related to currency translation.
Note 11. Revenue
The Company recognizes revenue when control of a good or service
promised in a contract (i.e., performance obligation) is
transferred to a customer. Control is obtained when a customer has
the ability to direct the use of and obtain substantially all of
the remaining benefits from that good or service. A majority of the
Company’s revenues are recognized at a point-in-time as control is
transferred at a distinct point in time per the terms of a
contract. However, a portion of the Company’s revenues are
recognized over time as the customer simultaneously receives
control as the Company performs work under a contract. For these
arrangements, the cost-to-cost input method is used as it best
depicts the transfer of control to the customer that occurs as the
Company incurs costs.
Disaggregated Revenue
Net revenues
by geography and major type of good or service for the three and
nine months ended September 30 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Nine months ended |
|
In millions |
2022 |
|
2021 |
|
2022 |
|
2021 |
|
Americas |
|
|
|
|
|
|
|
|
Equipment |
$ |
2,331.1 |
|
|
$ |
1,878.6 |
|
|
$ |
6,411.9 |
|
|
$ |
5,458.0 |
|
|
Services |
1,150.3 |
|
|
1,031.7 |
|
|
3,089.1 |
|
|
2,749.6 |
|
|
Total Americas |
$ |
3,481.4 |
|
|
$ |
2,910.3 |
|
|
$ |
9,501.0 |
|
|
$ |
8,207.6 |
|
|
EMEA |
|
|
|
|
|
|
|
|
Equipment |
$ |
345.1 |
|
|
$ |
322.7 |
|
|
$ |
1,015.8 |
|
|
$ |
996.7 |
|
|
Services |
168.0 |
|
|
172.3 |
|
|
460.2 |
|
|
465.4 |
|
|
Total EMEA |
$ |
513.1 |
|
|
$ |
495.0 |
|
|
$ |
1,476.0 |
|
|
$ |
1,462.1 |
|
|
Asia Pacific |
|
|
|
|
|
|
|
|
Equipment |
$ |
274.9 |
|
|
$ |
218.9 |
|
|
$ |
670.6 |
|
|
$ |
619.7 |
|
|
Services |
102.5 |
|
|
95.6 |
|
|
270.3 |
|
|
277.7 |
|
|
Total Asia Pacific |
$ |
377.4 |
|
|
$ |
314.5 |
|
|
$ |
940.9 |
|
|
$ |
897.4 |
|
|
|
|
|
|
|
|
|
|
|
Total Net revenues |
$ |
4,371.9 |
|
|
$ |
3,719.8 |
|
|
$ |
11,917.9 |
|
|
$ |
10,567.1 |
|
Revenue from goods and services transferred to customers at a point
in time accounted for approximately 82% and 81% of the Company’s
revenue for the nine months ended September 30, 2022 and 2021,
respectively.
Contract Balances
The opening and closing balances of contract assets and contract
liabilities arising from contracts with customers for the period
ended September 30, 2022 and December 31, 2021 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions |
Location on Condensed Consolidated Balance Sheets |
September 30,
2022 |
|
December 31, 2021 |
|
Contract assets- - current |
Other current assets |
$ |
193.6 |
|
|
$ |
164.8 |
|
|
Contract assets - noncurrent |
Other noncurrent assets |
237.7 |
|
|
218.5 |
|
|
Contract liabilities - current |
Accrued expenses and other current liabilities |
919.8 |
|
|
805.4 |
|
|
Contract liabilities - noncurrent |
Other noncurrent liabilities |
464.2 |
|
|
446.6 |
|
The timing of revenue recognition, billings and cash collections
results in accounts receivable, contract assets, and customer
advances and deposits (contract liabilities) on the Condensed
Consolidated Balance Sheets. In general, the Company receives
payments from customers based on a billing schedule established in
its contracts. Contract assets relate to the conditional right to
consideration for any completed performance under the contract when
costs are incurred in excess of billings under the
percentage-of-completion methodology. Accounts receivable are
recorded when the right to consideration becomes unconditional.
Contract liabilities relate to payments received in advance of
performance under the contract or when the Company has a right to
consideration that is unconditional before it transfers a good or
service to the customer. Contract liabilities are recognized as
revenue as (or when) the Company performs under the contract.
During the three and nine months ended September 30, 2022,
changes in contract asset and liability balances were not
materially impacted by any other factors.
Approximately 8% and 47% of the contract liability balance at
December 31, 2021 was recognized as revenue during the three
and nine months ended September 30, 2022, respectively.
Additionally, approximately 34% of the contract liability balance
at September 30, 2022 was classified as noncurrent and not
expected to be recognized as revenue in the next 12
months.
Note 12. Share-Based Compensation
The Company accounts for share-based compensation plans under the
fair value based method. Fair value is measured once at the date of
grant and is not adjusted for subsequent changes. The Company’s
share-based compensation plans include programs for stock options,
restricted stock units (RSUs), performance share units (PSUs) and
deferred compensation.
Share-based compensation expense related to continuing operations
is included in
Selling and administrative expenses.
The expense recognized for the three and nine months ended
September 30 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Nine months ended |
|
In millions |
2022 |
|
2021 |
|
2022 |
|
2021 |
|
Stock options |
$ |
2.1 |
|
|
$ |
2.9 |
|
|
$ |
12.3 |
|
|
$ |
14.7 |
|
|
RSUs |
3.0 |
|
|
3.6 |
|
|
16.7 |
|
|
19.0 |
|
|
Performance shares |
5.2 |
|
|
5.8 |
|
|
15.6 |
|
|
17.4 |
|
|
Deferred compensation |
0.8 |
|
|
0.8 |
|
|
0.6 |
|
|
2.4 |
|
|
|
|
|
|
|
|
|
|
Pre-tax expense |
11.1 |
|
|
13.1 |
|
|
45.2 |
|
|
53.5 |
|
|
Tax benefit |
(2.7) |
|
|
(3.2) |
|
|
(10.9) |
|
|
(13.1) |
|
|
After-tax expense |
$ |
8.4 |
|
|
$ |
9.9 |
|
|
$ |
34.3 |
|
|
$ |
40.4 |
|
|
Amounts recorded in continuing operations |
8.6 |
|
|
9.9 |
|
|
34.7 |
|
|
40.4 |
|
|
Amounts recorded in discontinued operations |
(0.2) |
|
|
— |
|
|
(0.4) |
|
|
— |
|
|
Total |
$ |
8.4 |
|
|
$ |
9.9 |
|
|
$ |
34.3 |
|
|
$ |
40.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grants issued during the nine months ended September 30 were
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 |
|
2021 |
|
|
Number
granted |
|
Weighted-
average fair
value per award |
|
Number
granted |
|
Weighted-
average fair
value per award |
|
Stock options |
429,796 |
|
|
$ |
35.96 |
|
|
582,657 |
|
|
$ |
29.55 |
|
|
RSUs |
135,625 |
|
|
$ |
165.32 |
|
|
149,214 |
|
|
$ |
153.53 |
|
|
Performance shares
(1)
|
192,826 |
|
|
$ |
170.30 |
|
|
283,412 |
|
|
$ |
181.71 |
|
(1)
The number of performance shares represents the maximum award
level.
Stock Options / RSUs
Eligible participants may receive (i) stock options, (ii) RSUs or
(iii) a combination of both stock options and RSUs. The fair value
of each of the Company’s stock option and RSU awards is expensed on
a straight-line basis over the required service period, which is
generally the 3-year vesting period. However, for stock options and
RSUs granted to retirement eligible employees, the Company
recognizes an expense for the entire fair value at the grant
date.
The average fair value of the stock options granted is determined
using the Black-Scholes option-pricing model. The following
assumptions were used during the nine months ended
September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 |
|
2021 |
|
Dividend yield |
1.60 |
% |
|
1.60 |
% |
|
Volatility |
28.23 |
% |
|
27.90 |
% |
|
Risk-free rate of return |
1.56 |
% |
|
0.45 |
% |
|
Expected life in years |
4.8 |
|
4.8 |
A description of the significant assumptions used to estimate the
fair value of the stock option awards is as follows:
•Dividend
yield
- The Company determines the dividend yield based upon the expected
quarterly dividend payments as of the grant date and the current
fair market value of the Company’s stock.
•Volatility
- The expected volatility is based on a weighted average of the
Company’s implied volatility and the most recent historical
volatility of the Company’s stock commensurate with the expected
life.
•Risk-free
rate of return
- The Company applies a yield curve of continuous risk-free rates
based upon the published U.S. Treasury spot rates on the grant
date.
•Expected
life in years
- The expected life of the Company’s stock option awards represents
the weighted-average of the actual period since the grant date for
all exercised or canceled options and an expected period for all
outstanding options.
Performance Shares
The Company has a Performance Share Program (PSP) for key
employees. The program provides awards in the form of PSUs based on
performance against pre-established objectives. The annual target
award level is expressed as a number of the Company’s ordinary
shares based on the fair market value of the Company’s stock on the
date of grant. All PSUs are settled in the form of ordinary
shares.
PSU awards are earned based 50% upon a performance condition,
measured by relative Cash Flow Return on Invested Capital (CROIC)
to the S&P 500 Industrials Index over a 3-year performance
period, and 50% upon a market condition, measured by the Company’s
relative total shareholder return (TSR) as compared to the TSR of
the S&P 500 Industrials Index over a 3-year performance period.
The fair value of the market condition is estimated using a Monte
Carlo simulation model in a risk-neutral framework based upon
historical volatility, risk-free rates and correlation
matrix.
Deferred Compensation
The Company allows key employees to defer a portion of their
eligible compensation into a number of investment choices,
including its ordinary share equivalents. Any amounts invested in
ordinary share equivalents will be settled in ordinary shares of
the Company at the time of distribution.
Note 13. Other Income/(Expense), Net
The components of
Other income/(expense), net
for the three and nine months ended September 30 were as
follows:
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Nine months ended |
|
In millions |
2022 |
|
2021 |
|
2022 |
|
2021 |
|
Interest income |
$ |
2.4 |
|
|
$ |
0.8 |
|
|
$ |
5.2 |
|
|
$ |
3.0 |
|
|
Foreign currency exchange loss |
(5.5) |
|
|
(2.2) |
|
|
(13.1) |
|
|
(8.9) |
|
|
Other components of net periodic benefit credit/(cost) |
(13.9) |
|
|
1.2 |
|
|
(11.6) |
|
|
(3.3) |
|
|
Other activity, net
|
(1.7) |
|
|
(6.7) |
|
|
(1.5) |
|
|
(4.6) |
|
|
Other income/(expense), net |
$ |
(18.7) |
|
|
$ |
(6.9) |
|
|
$ |
(21.0) |
|
|
$ |
(13.8) |
|
Other income/(expense), net
includes the results from activities other than core business
operations such as interest income and foreign currency gains and
losses on transactions that are denominated in a currency other
than an entity’s functional currency. In addition, the Company
includes the components of net periodic benefit credit/(cost) for
pension and post retirement obligations other than the service cost
component. During the three and nine months ended
September 30, 2022, the Company recorded a $15.0 million
settlement charge for a retired executive within other components
of
net periodic benefit credit/(cost).
Other
activity, net
primarily includes items associated with certain legal matters, as
well as asbestos-related activities of Murray. During the three and
nine months ended September 30, 2021, the Company recorded a
charge of $7.2 million to increase its Funding Agreement liability
from asbestos-related activities of Murray within other activity,
net. Refer to Note 18, "Commitments and Contingencies," for more
information regarding asbestos-related matters.
Note 14. Income Taxes
The Company accounts for its
Provision for income taxes
by applying an estimate of the annual effective income tax rate for
the full year to the respective interim period, taking into account
year-to-date amounts and projected results for the full year. For
the nine months ended September 30, 2022 and
September 30, 2021, the Company’s effective income tax rate
was 18.3% and 19.2%, respectively. The effective income tax rate
for the nine months ended September 30, 2022 was lower than
the U.S. statutory rate of 21% primarily due to a
$33.1 million reduction in valuation allowances on certain net
state deferred tax assets partially offset by a related
$4.2 million expense associated with a deferred tax
revaluation resulting from U.S. legal entity restructurings. These
items have reduced the effective tax rate for the nine months ended
September 30, 2022 by 1.7 percentage points. In addition,
excess tax benefits from employee share-based payments and earnings
in non-U.S. jurisdictions, which in aggregate have a lower
effective tax rate, partially offset by U.S. state and local taxes,
provided net effective tax rate benefits. The effective tax rate
for the nine months ended September 30, 2021 was lower than
the U.S. statutory rate of 21% primarily due to excess tax benefits
from employee share-based payments and earnings in non-U.S.
jurisdictions, which in aggregate have a lower effective tax rate,
partially offset by U.S. state and local taxes.
Total unrecognized tax benefits as of September 30, 2022 and
December 31, 2021 were $63.2 million and $65.2 million,
respectively. Although management believes its tax positions and
related provisions reflected in the Condensed Consolidated
Financial Statements are fully supportable, it recognizes that
these tax positions and related provisions may be challenged by
various tax authorities. These tax positions and related provisions
are reviewed on an ongoing basis and are adjusted as additional
facts and information become available, including progress on tax
audits, changes in interpretations of tax laws, developments in
case law and closing of statute of limitations. To the extent that
the ultimate results differ from the original or adjusted estimates
of the Company, the effect will be recorded in
Provision for income taxes.
The
Provision for income taxes
involves a significant amount of management judgment regarding
interpretation of relevant facts and laws in the jurisdictions in
which the Company operates. Future changes in applicable laws,
projected levels of taxable income and tax planning could change
the effective tax rate and tax balances recorded by the Company. In
addition, tax authorities periodically review income tax returns
filed by the Company and can raise issues regarding its filing
positions, timing and amount of income or deductions, and the
allocation of income among the jurisdictions in which the Company
operates. A significant period of time may elapse between the
filing of an income tax return and the ultimate resolution of an
issue raised by a revenue authority with respect to that return. In
the normal course of business, the Company is subject to
examination by taxing authorities throughout the world, including
such major jurisdictions as Belgium, Brazil, Canada, China, France,
Germany, Ireland, Italy, Luxembourg, Mexico, Spain, the
Netherlands, the United Kingdom and the United States. These
examinations on their own, or any subsequent litigation related to
the examinations, may result in additional taxes or penalties
against the Company. If the ultimate result of these audits differ
from original or adjusted estimates, they could have a material
impact on the Company’s tax provision. In general, the examination
of the Company’s U.S. federal tax returns is complete or
effectively settled for years prior to 2016. The Company’s U.S.
federal returns for 2016 to 2018 are currently under examination by
the Internal Revenue Service (IRS). In general, the examination of
the Company’s material non-U.S. tax returns is complete or
effectively settled for the years prior to 2013, with certain
matters prior to 2013 being resolved through appeals and litigation
and also unilateral procedures as provided for under double tax
treaties.
Note 15. Acquisitions
On April 1, 2022, the Company acquired a Commercial HVAC
independent dealer, reported within the Americas segment, to
support the Company’s ongoing strategy to expand its distribution
network and service area. The aggregate cash paid, net of cash
acquired, totaled $110.0 million and was financed through cash
on hand. Intangible assets associated with this acquisition totaled
$52.7 million and primarily relate to customer relationships.
The excess purchase price over the estimated fair value of net
assets acquired was recognized as goodwill and totaled
$42.5 million.
The fair values of the customer relationship intangible assets were
determined using the multi-period excess earnings method based on
discounted projected net cash flows associated with the net
earnings attributable to the acquired customer relationships. These
projected cash flows are estimated over the remaining economic life
of the intangible asset and are considered from a market
participant perspective. Key assumptions used in estimating future
cash flows included projected revenue growth rates and customer
attrition rates. The projected future cash flows are discounted to
present value using an appropriate discount rate. The customer
relationships had a weighted-average useful life of 15 years. The
Company has not included pro forma financial information as the pro
forma impact was deemed not material.
On October 31, 2022, the Company acquired 100% of AL-KO Air
Technology (AL-KO). AL-KO designs, engineers, manufactures, sells,
installs, and services air handling and extraction systems in
commercial applications. The results of the acquisition will be
reported within the EMEA and Asia Pacific segments starting in the
fourth quarter of 2022.
Due to the close proximity of the acquisition date and the
Company's filing of its quarterly report on Form 10-Q for the nine
months ended September 30, 2022, the initial accounting for the
business combination is still in process, and therefore the Company
has not disclosed the information required by ASC 805, Business
Combinations. Such information will be included in the Company's
subsequent Form 10-K for the year ended December 31,
2022.
Note 16. Earnings Per Share
Basic EPS is calculated by dividing
Net earnings attributable to Trane Technologies plc
by the weighted-average number of ordinary shares outstanding for
the applicable period. Diluted EPS is calculated after adjusting
the denominator of the basic EPS calculation for the effect of all
potentially dilutive ordinary shares, which in the Company’s case,
includes shares issuable under share-based compensation plans. The
following table summarizes the weighted-average number of ordinary
shares outstanding for basic and diluted earnings per share
calculations for the three and nine months ended
September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Nine months ended |
|
In millions, except per share amounts |
2022 |
|
2021 |
|
2022 |
|
2021 |
|
Weighted-average number of basic shares |
231.9 |
|
|
238.2 |
|
|
233.4 |
|
|
239.2 |
|
|
Shares issuable under incentive share plans |
2.1 |
|
|
3.5 |
|
|
2.3 |
|
|
3.6 |
|
|
|
|
|
|
|
|
|
|
Weighted-average number of diluted shares |
234.0 |
|
|
241.7 |
|
|
235.7 |
|
|
242.8 |
|
|
Anti-dilutive shares |
0.7 |
|
|
— |
|
|
0.9 |
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per ordinary share |
$ |
— |
|
|
$ |
— |
|
|
$ |
2.01 |
|
|
$ |
1.77 |
|
Note 17. Business Segment Information
The Company operates under four regional operating segments
designed to create deep customer focus and relevance in markets
around the world. The Company determined that its two Europe,
Middle East and Africa (EMEA) operating segments meet the
aggregation criteria based on similar operating and economic
characteristics, resulting in one reportable segment. Therefore,
the Company has three regional reportable segments, Americas, EMEA
and Asia Pacific. Intercompany sales between segments are
immaterial.
•The
Company’s Americas segment innovates for customers in North America
and Latin America. The Americas segment encompasses commercial
heating and cooling systems, building controls, and energy services
and solutions; residential heating and cooling; and transport
refrigeration systems and solutions.
•The
Company’s EMEA segment innovates for customers in the Europe,
Middle East and Africa region. The EMEA segment encompasses heating
and cooling systems, services and solutions for commercial
buildings, and transport refrigeration systems and
solutions.
•The
Company’s Asia Pacific segment innovates for customers throughout
the Asia Pacific region. The Asia Pacific segment encompasses
heating and cooling systems, services and solutions for commercial
buildings, and transport refrigeration systems and
solutions.
Management measures operating performance based on net earnings
excluding interest expense, income taxes, depreciation and
amortization, restructuring, non-cash adjustments for contingent
consideration, insurance settlement on property claim in Q3 2022,
unallocated corporate expenses and discontinued operations (Segment
Adjusted EBITDA). Segment Adjusted EBITDA is not defined under GAAP
and may not be comparable to similarly-titled measures used by
other companies and should not be considered a substitute for net
earnings or other results reported in accordance with GAAP. The
Company believes Segment Adjusted EBITDA provides the most relevant
measure of profitability as well as earnings power and the ability
to generate cash. This measure is a useful financial metric to
assess the Company’s operating performance from period to period by
excluding certain items that it believes are not representative of
its core business and the Company uses this measure for business
planning purposes. Segment Adjusted EBITDA also provides a useful
tool for assessing the comparability between periods and the
Company’s ability to generate cash from operations sufficient to
pay taxes, to service debt and to undertake capital expenditures
because it eliminates non-cash charges such as depreciation and
amortization expense.
A summary of operations by reportable segment for the three and
nine months ended September 30 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Nine months ended |
|
In millions |
2022 |
|
2021 |
|
2022 |
|
2021 |
|
Net revenues |
|
|
|
|
|
|
|
|
Americas |
$ |
3,481.4 |
|
|
$ |
2,910.3 |
|
|
$ |
9,501.0 |
|
|
$ |
8,207.6 |
|
|
EMEA |
513.1 |
|
|
495.0 |
|
|
1,476.0 |
|
|
1,462.1 |
|
|
Asia Pacific |
377.4 |
|
|
314.5 |
|
|
940.9 |
|
|
897.4 |
|
|
|