Trane Technologies(TT) - 2022 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION This section provides the unaudited condensed consolidated financial statements and related notes for Trane Technologies PLC Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements of Trane Technologies PLC for the periods ended June 30, 2022, and December 31, 2021, including statements of earnings, comprehensive income, balance sheets, equity, and cash flows, along with detailed notes explaining accounting policies, significant events, and specific financial line items Condensed Consolidated Statements of Earnings This section details the company's revenues, operating income, and net earnings for the three and six months ended June 30, 2022 and 2021 Three Months Ended June 30: | Metric | 2022 (Millions) | 2021 (Millions) | Change (Millions) | % Change | | :-------------------------------- | :-------------- | :-------------- | :---------------- | :------- | | Net revenues | $4,190.4 | $3,829.7 | $360.7 | 9.4% | | Operating income | $710.6 | $651.0 | $59.6 | 9.2% | | Net earnings attributable to TT plc | $509.3 | $464.7 | $44.6 | 9.6% | | Diluted EPS (Continuing Ops) | $2.17 | $1.91 | $0.26 | 13.6% | | Diluted EPS (Net earnings) | $2.16 | $1.91 | $0.25 | 13.1% | Six Months Ended June 30: | Metric | 2022 (Millions) | 2021 (Millions) | Change (Millions) | % Change | | :-------------------------------- | :-------------- | :-------------- | :---------------- | :------- | | Net revenues | $7,545.9 | $6,847.3 | $698.6 | 10.2% | | Operating income | $1,098.8 | $1,004.2 | $94.6 | 9.4% | | Net earnings attributable to TT plc | $769.5 | $699.9 | $69.6 | 9.9% | | Diluted EPS (Continuing Ops) | $3.29 | $2.87 | $0.42 | 14.6% | | Diluted EPS (Net earnings) | $3.26 | $2.88 | $0.38 | 13.2% | Condensed Consolidated Statements of Comprehensive Income (Loss) This section presents the company's comprehensive income, including net earnings and other comprehensive income components, for the specified periods Comprehensive Income Attributable to Trane Technologies plc: | Period | 2022 (Millions) | 2021 (Millions) | Change (Millions) | % Change | | :------------------- | :-------------- | :-------------- | :---------------- | :------- | | Three months ended June 30 | $319.2 | $512.3 | $(193.1) | (37.7)% | | Six months ended June 30 | $578.0 | $679.2 | $(101.2) | (14.9)% | - Major Components of Other Comprehensive Income (Loss) for the six months ended June 30, 2022: - Currency translation: $(194.3) million (loss)[11] - Cash flow hedges, net of tax: $(19.2) million (loss)[11] - Pension and OPEB adjustments, net of tax: $20.7 million (gain)[11] Condensed Consolidated Balance Sheets This section provides a snapshot of the company's assets, liabilities, and equity as of June 30, 2022, and December 31, 2021 Balance Sheet Highlights: | Metric | June 30, 2022 (Millions) | December 31, 2021 (Millions) | Change (Millions) | % Change | | :-------------------------------- | :----------------------- | :----------------------- | :---------------- | :------- | | Total assets | $17,680.8 | $18,059.8 | $(379.0) | (2.1)% | | Total liabilities | $11,941.5 | $11,786.7 | $154.8 | 1.3% | | Total equity | $5,739.3 | $6,273.1 | $(533.8) | (8.5)% | | Cash and cash equivalents | $1,090.2 | $2,159.2 | $(1,069.0) | (49.5)% | | Short-term borrowings & current maturities of long-term debt | $1,049.8 | $350.4 | $699.4 | 199.6% | | Long-term debt | $3,786.7 | $4,491.7 | $(705.0) | (15.7)% | Condensed Consolidated Statements of Equity This section outlines the changes in the company's total equity, including net earnings, share repurchases, and dividends, for the six months ended June 30, 2022 - Total Equity Movement (Six months ended June 30, 2022): - Balance at December 31, 2021: $6,273.1 million[17] - Net earnings: $778.3 million[10] - Other comprehensive income (loss): $(191.4) million[11] - Repurchase of ordinary shares: $(650.1) million[23] - Dividends declared to common shareholders: $(311.1) million[17] - Balance at June 30, 2022: $5,739.3 million[17] Condensed Consolidated Statements of Cash Flows This section summarizes the company's cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2022 and 2021 Cash Flow Summary (Six months ended June 30): | Metric | 2022 (Millions) | 2021 (Millions) | Change (Millions) | | :------------------------------------------ | :-------------- | :-------------- | :---------------- | | Net cash provided by (used in) operating activities | $233.5 | $750.6 | $(517.1) | | Net cash provided by (used in) investing activities | $(258.7) | $(162.1) | $(96.6) | | Net cash provided by (used in) financing activities | $(1,001.6) | $(937.6) | $(64.0) | | Net increase (decrease) in cash and cash equivalents | $(1,069.0) | $(377.5) | $(691.5) | | Cash and cash equivalents - end of period | $1,090.2 | $2,912.4 | $(1,822.2) | - Net cash provided by continuing operating activities decreased from $751.8 million in 2021 to $417.7 million in 2022, primarily due to higher working capital balances and $91.8 million QSF funding for continuing operations[184] - Capital expenditures increased from $77.5 million in 2021 to $143.9 million in 2022, and acquisitions of businesses, net of cash acquired, increased from $12.8 million in 2021 to $109.6 million in 2022[23][185] - Repurchase of ordinary shares increased from $354.2 million in 2021 to $650.1 million in 2022, and dividends paid to ordinary shareholders increased from $281.6 million in 2021 to $310.9 million in 2022[23][186] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements Note 1. Basis of Presentation This note describes the company's business and the basis for preparing the condensed consolidated financial statements - Trane Technologies plc is a global climate innovator providing sustainable and efficient HVAC and transport refrigeration solutions under its Trane® and Thermo King® brands[26] - On June 18, 2020, indirect wholly-owned subsidiaries Aldrich Pump LLC and Murray Boiler LLC filed for Chapter 11 relief to resolve asbestos-related liabilities, leading to their deconsolidation from the Company's financial statements[27][28] Note 2. Recent Accounting Pronouncements This note discusses the adoption and impact of new accounting standards on the company's financial statements - The Company adopted ASU 2021-10 (Government Assistance) on January 1, 2022, and early adopted ASU 2021-08 (Business Combinations) in Q4 2021, with no material impact on its financial statements[30][31] - ASU 2019-12 (Income Taxes) was adopted on January 1, 2021, simplifying certain aspects of income tax accounting with no material impact[32] Note 3. Inventories This note details the valuation methods and breakdown of the company's inventory balances - U.S. inventories are valued at the lower of cost or market using LIFO or FIFO, while non-U.S. inventories primarily use FIFO at the lower of cost and net realizable value[33] Inventory Breakdown (Millions): | Category | June 30, 2022 | December 31, 2021 | | :--------------- | :------------ | :---------------- | | Raw materials | $536.6 | $404.6 | | Work-in-process | $304.4 | $215.9 | | Finished goods | $1,140.7 | $982.9 | | Total (Gross) | $1,981.7 | $1,603.4 | | LIFO reserve | $(94.8) | $(72.6) | | Total (Net) | $1,886.9 | $1,530.8 | - Reserve balances for obsolete and slow-moving inventories were $80.7 million at June 30, 2022, and $79.0 million at December 31, 2021[33] Note 4. Goodwill This note provides a summary of changes in the company's goodwill balance by segment, including acquisitions and currency translation effects Goodwill Balance (Millions): | Segment | December 31, 2021 | Acquisitions | Currency Translation | June 30, 2022 | | :------------ | :---------------- | :----------- | :------------------- | :-------------- | | Americas | $4,185.2 | $42.1 | $(0.1) | $4,227.2 | | EMEA | $740.8 | $(1.0) | $(61.8) | $678.0 | | Asia Pacific | $578.8 | — | $(27.4) | $551.4 | | Total | $5,504.8 | $41.1 | $(89.3) | $5,456.6 | - The net goodwill balances at June 30, 2022, include $2,496.0 million of accumulated impairment, primarily related to the Americas segment from a charge recorded in 2008[34] Note 5. Intangible Assets This note presents the net balances of the company's intangible assets, including customer relationships and trademarks, and related amortization expense Intangible Assets (Millions): | Category | June 30, 2022 Net | December 31, 2021 Net | | :-------------------------- | :---------------- | :-------------------- | | Customer relationships | $615.9 | $635.5 | | Other finite-lived | $42.7 | $44.2 | | Trademarks (indefinite-lived) | $2,623.9 | $2,625.9 | | Total | $3,282.5 | $3,305.6 | - Intangible asset amortization expense was $36.0 million for the three months ended June 30, 2022, and $69.8 million for the six months ended June 30, 2022[35] Note 6. Debt and Credit Facilities This note outlines the company's short-term borrowings, long-term debt, and available credit facilities Short-term Borrowings & Current Maturities (Millions): | Category | June 30, 2022 | December 31, 2021 | | :------------------------------------------ | :------------ | :---------------- | | Debentures with put feature | $342.9 | $342.9 | | 4.250% Senior notes due 2023 | $699.4 | — | | Other current maturities of long-term debt | $7.5 | $7.5 | | Total | $1,049.8 | $350.4 | Long-term Debt (Millions): | Category | June 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 | $498.4 | $498.0 | | 6.480% Debentures due 2025 | $149.7 | $149.7 | | 3.500% Senior notes due 2026 | $398.1 | $397.8 | | 3.750% Senior notes due 2028 | $546.5 | $546.2 | | 3.800% Senior notes due 2029 | $745.4 | $745.0 | | 5.750% Senior notes due 2043 | $495.1 | $495.0 | | 4.650% Senior notes due 2044 | $296.3 | $296.3 | | 4.300% Senior notes due 2048 | $296.4 | $296.3 | | 4.500% Senior notes due 2049 | $345.9 | $345.9 | | Total | $3,786.7 | $4,491.7 | - The Company has a $2.0 billion commercial paper program with no outstanding balance at June 30, 2022, and two $1.0 billion senior unsecured revolving credit facilities (maturing June 2026 and April 2027) with total unused commitments of $2.0 billion[37][40][41] - The credit facilities include Environmental, Social, and Governance (ESG) metrics related to greenhouse gas intensity and women in management, which may result in price adjustments to fees and interest rates[40] - The fair value of the Company's debt instruments was $4.7 billion at June 30, 2022, and $5.6 billion at December 31, 2021[42] Note 7. Financial Instruments This note details the fair values and impact of the company's derivative instruments used for hedging and other purposes Derivative Instruments Fair Values (Millions): | Category | June 30, 2022 Assets | June 30, 2022 Liabilities | December 31, 2021 Assets | December 31, 2021 Liabilities | | :-------------------------- | :------------------- | :---------------------- | :----------------------- | :------------------------ | | Currency derivatives (hedges) | $0.0 | $6.0 | $0.1 | $2.7 | | Commodity derivatives (hedges) | $0.2 | $15.5 | $4.9 | $0.2 | | Currency derivatives (non-hedges) | $2.0 | $0.3 | $10.5 | $14.0 | | Total Derivatives | $2.2 | $21.8 | $15.5 | $16.9 | - For the six months ended June 30, 2022, a net loss of $(8.1) million from currency derivatives and $(13.5) million from commodity derivatives was recognized in Accumulated Other Comprehensive Income (AOCI)[54] - Outstanding commodity contracts at June 30, 2022, include 22,791 metric tons of aluminum and 5,331,000 pounds of copper to hedge forecasted purchases over the next 12 months[50] Note 8. Fair Value Measurements This note explains the company's fair value hierarchy and measurements for financial instruments and contingent consideration - The Company uses a fair value hierarchy (Level 1, 2, and 3) to categorize inputs used in fair value measurements[56] Fair Value Measurements (June 30, 2022, Millions): | Category | Fair Value | Level 1 | Level 2 | Level 3 | | :---------------------- | :--------- | :-------- | :-------- | :-------- | | Derivative instruments (Assets) | $2.2 | — | $2.2 | — | | Derivative instruments (Liabilities) | $21.8 | — | $21.8 | — | | Contingent consideration (Liabilities) | $80.1 | — | — | $80.1 | - Contingent consideration of up to $115.0 million, related to the Farrar Scientific acquisition, is measured at fair value using a Monte Carlo simulation model with Level 3 unobservable inputs (discount rate 10.75%, volatility 20.00% at June 30, 2022) and decreased by $16.1 million during the six months ended June 30, 2022[58][60] Note 9. Pensions and Postretirement Benefits Other than Pensions This note details the net periodic benefit costs for the company's pension and postretirement plans Net Periodic Pension Benefit Cost (Six months ended June 30, Millions): | Component | 2022 | 2021 | | :------------------------------------------ | :----- | :----- | | Service cost | $23.9 | $25.6 | | Interest cost | $35.4 | $29.3 | | Expected return on plan assets | $(52.3) | $(53.2) | | Net amortization of prior service costs | $2.0 | $2.5 | | Net amortization of net actuarial (gains) losses | $11.7 | $17.9 | | Net periodic pension benefit cost | $20.7 | $22.1 | | Net curtailment and settlement (gains) losses | — | $6.9 | | Total | $20.7 | $29.0 | - The Company contributed $6.7 million to its defined benefit pension plans during the six months ended June 30, 2022, and projects total contributions of approximately $90 million worldwide in 2022[64] Net Periodic Postretirement Benefit Cost (Six months ended June 30, Millions): | Component | 2022 | 2021 | | :------------------------------------------ | :----- | :----- | | Service cost | $1.0 | $1.0 | | Interest cost | $3.4 | $2.8 | | Net amortization of net actuarial (gains) losses | $(2.8) | $(1.0) | | Net periodic postretirement benefit cost | $1.6 | $2.8 | Note 10. Equity This note provides information on the company's ordinary shares, share repurchases, and accumulated other comprehensive income (loss) - The Company's authorized share capital includes 1,175,000,000 ordinary shares with a par value of $1.00 per share[67] Ordinary Shares Outstanding (Millions): | Date | Issued | Held in Treasury | | :---------------- | :----- | :--------------- | | December 31, 2021 | 259.7 | 24.5 | | June 30, 2022 | 256.2 | 24.5 | - During the six months ended June 30, 2022, the Company repurchased and canceled $650.0 million of ordinary shares under the 2021 Authorization, leaving approximately $750 million remaining, and a new $3.0 billion share repurchase program (2022 Authorization) was authorized in February 2022[68] Accumulated Other Comprehensive Income (Loss) (Millions): | Component | Dec 31, 2021 | OCI (Loss) Attributable to TT plc | June 30, 2022 | | :-------------------- | :----------- | :------------------------------ | :------------ | | Derivative Instruments | $7.1 | $(19.2) | $(12.1) | | Pension and OPEB | $(297.9) | $20.7 | $(277.2) | | Currency Translation | $(346.8) | $(193.0) | $(539.8) | | Total | $(637.6) | $(191.5) | $(829.1) | Note 11. Revenue This note details the company's revenue recognition policies, geographical and type breakdown, and contract balances - A majority of the Company's revenues (approximately 83% for the six months ended June 30, 2022) are recognized at a point-in-time when control of goods or services is transferred to the customer[71][73] Net Revenues by Geography and Type (Six months ended June 30, Millions): | Segment | Equipment (2022) | Services (2022) | Total (2022) | Total (2021) | % Change (YoY) | | :------------ | :--------------- | :-------------- | :----------- | :----------- | :-------------- | | Americas | $4,080.6 | $1,938.9 | $6,019.5 | $5,297.3 | 13.6% | | EMEA | $670.7 | $292.2 | $962.9 | $967.1 | (0.4)% | | Asia Pacific | $395.8 | $167.7 | $563.5 | $582.9 | (3.3)% | | Total | $5,147.1 | $2,398.8 | $7,545.9 | $6,847.3 | 10.2% | Contract Balances (Millions): | Category | June 30, 2022 | December 31, 2021 | | :-------------------------- | :------------ | :---------------- | | Contract assets - current | $184.6 | $164.8 | | Contract assets - noncurrent | $234.1 | $218.5 | | Contract liabilities - current | $887.4 | $805.4 | | Contract liabilities - noncurrent | $456.8 | $446.6 | - Approximately 40% of the contract liability balance at December 31, 2021, was recognized as revenue during the six months ended June 30, 2022[75] Note 12. Share-Based Compensation This note outlines the company's share-based compensation expense and key assumptions for valuation Share-Based Compensation Expense (Six months ended June 30, Millions): | Category | 2022 | 2021 | | :--------------- | :----- | :----- | | Stock options | $10.2 | $11.8 | | RSUs | $13.7 | $15.4 | | Performance shares | $10.4 | $11.6 | | Deferred compensation | $(0.2) | $1.6 | | Pre-tax expense | $34.1 | $40.4 | | Tax benefit | $(8.2) | $(9.9) | | After-tax expense | $25.9 | $30.5 | - Key assumptions for stock option valuation in 2022 include a dividend yield of 1.60%, volatility of 28.23%, risk-free rate of 1.56%, and an expected life of 4.8 years[79] - Performance Share Program (PSP) awards are earned 50% based on relative Cash Flow Return on Invested Capital (CROIC) and 50% on relative Total Shareholder Return (TSR) compared to the S&P 500 Industrials Index over a 3-year period[81] Note 13. Other Income/(Expense), Net This note details the components of other income and expense, including interest income and foreign currency exchange losses Other Income/(Expense), Net (Six months ended June 30, Millions): | Component | 2022 | 2021 | | :------------------------------------------ | :----- | :----- | | Interest income | $2.8 | $2.2 | | Foreign currency exchange loss | $(7.6) | $(6.7) | | Other components of net periodic benefit credit/(cost) | $2.3 | $(4.5) | | Other activity, net | $0.2 | $2.1 | | Total | $(2.3) | $(6.9) | - Other activity, net primarily includes items associated with certain legal matters and asbestos-related activities of Murray[83] Note 14. Income Taxes This note discusses the company's effective income tax rate, unrecognized tax benefits, and ongoing tax examinations - The effective income tax rate for the six months ended June 30, 2022, was 20.1% (2021: 19.5%), 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 with lower effective tax rates[85] - Total unrecognized tax benefits were $62.9 million at June 30, 2022, and $65.2 million at December 31, 2021[86] - The Company's U.S. federal tax returns for 2016 to 2018 are currently under examination by the Internal Revenue Service (IRS)[87] Note 15. Acquisitions This note provides details on recent business acquisitions, including cash paid, intangible assets, and goodwill recognized - On April 1, 2022, the Company acquired a Commercial HVAC independent dealer for $110.0 million cash (net of cash acquired), recognizing $52.7 million in intangible assets (customer relationships) and $42.5 million in goodwill[88] - The acquired customer relationships had a weighted-average useful life of 15 years[89] Note 16. Earnings Per Share This note presents the weighted-average shares outstanding and dividends declared per ordinary share Weighted-Average Shares Outstanding (Six months ended June 30, Millions): | Category | 2022 | 2021 | | :-------------------------- | :----- | :----- | | Basic | 234.2 | 239.6 | | Diluted | 236.4 | 243.3 | - Dividends declared per ordinary share were $2.01 for the six months ended June 30, 2022, compared to $1.77 for the same period in 2021[90] Note 17. Business Segment Information This note provides financial information by the company's regional reportable segments: Americas, EMEA, and Asia Pacific - The Company operates under three regional reportable segments: Americas, EMEA (Europe, Middle East, and Africa), and Asia Pacific[91][92] Net Revenues by Segment (Six months ended June 30, Millions): | Segment | 2022 | 2021 | % Change | | :------------ | :------- | :------- | :------- | | Americas | $6,019.5 | $5,297.3 | 13.6% | | EMEA | $962.9 | $967.1 | (0.4)% | | Asia Pacific | $563.5 | $582.9 | (3.3)% | | Total | $7,545.9 | $6,847.3 | 10.2% | Segment Adjusted EBITDA (Six months ended June 30, Millions): | Segment | 2022 | 2021 | % Change | | :------------ | :------- | :------- | :------- | | Americas | $1,107.8 | $1,004.8 | 10.3% | | EMEA | $151.5 | $184.0 | (17.7)% | | Asia Pacific | $86.7 | $106.5 | (18.6)% | | Total | $1,346.0 | $1,295.3 | 3.9% | Note 18. Commitments and Contingencies This note details the company's legal, environmental, and warranty-related commitments and contingencies - Aldrich and Murray's Chapter 11 bankruptcy cases for asbestos claims remain pending as of August 3, 2022, with all related lawsuits against them and the Trane Companies stayed[96][97][107] - An agreement in principle was reached with the FCR to create a trust, to be funded with $545.0 million ($540.0 million cash, $5.0 million promissory note), but the ACC is not a party and is pursuing other claims[104][107] - A $270.0 million Qualified Settlement Fund (QSF) was funded on March 2, 2022, with $91.8 million allocated to continuing operations and $178.2 million to discontinued operations[107] - Environmental reserves were $41.1 million at June 30, 2022, and $39.6 million at December 31, 2021[113] - Standard product warranty liability was $303.3 million at June 30, 2022, with accruals of $66.9 million for warranties issued during the current six-month period[114] - Extended warranty liability (deferred revenue) was $312.4 million at June 30, 2022, with $56.5 million amortized into Net revenues for the six months ended June 30, 2022[116] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, including an overview of its business, sustainability commitments, significant events, economic trends, and detailed analysis of consolidated and segment-level financial performance, liquidity, and capital resources Overview This section provides a high-level summary of the company's business, strategic focus, and significant operational and economic factors impacting its performance - Trane Technologies plc is a global climate innovator focused on sustainable and efficient HVAC and transport refrigeration solutions, with ambitious 2030 Sustainability Commitments including the Gigaton Challenge to reduce customer carbon emissions[119] - The COVID-19 pandemic continues to impact global supply chains and resource availability, with localized shutdowns in China negatively affecting Asia Pacific volumes, despite healthy end-market demand[121] - The Chapter 11 bankruptcy cases for Aldrich and Murray regarding asbestos-related claims are ongoing, with a $270.0 million Qualified Settlement Fund (QSF) funded on March 2, 2022[124][128] - The Company has suspended all business activities indefinitely in Russia and Belarus due to the conflict, with no material impact on operations as of June 30, 2022[133] Results of Operations This section analyzes the company's consolidated and segment-level financial performance for the periods presented Three Months Ended June 30, 2022 Compared to the Three Months Ended June 30, 2021 - Consolidated Results This section compares the consolidated financial performance for the three months ended June 30, 2022, against the same period in 2021 - Net revenues increased by 9.4% to $4,190.4 million, driven by 10.4% pricing, 0.3% volume, and 0.7% acquisitions, partially offset by (2.0)% unfavorable currency translation[135][136] - Gross profit margin decreased by 160 basis points to 31.6% due to significant direct material and freight inflation and unfavorable product mix, partially offset by price increases[137] - Selling and administrative expenses decreased by 1.1% to $612.8 million, primarily due to lower marketing costs and a non-cash adjustment for contingent consideration, resulting in a 160 basis point decrease as a percentage of net revenues[138] - Operating income increased by 9.2% to $710.6 million[135] Six Months Ended June 30, 2022 Compared to the Six Months Ended June 30, 2021 - Consolidated Results This section compares the consolidated financial performance for the six months ended June 30, 2022, against the same period in 2021 - Net revenues increased by 10.2% to $7,545.9 million, driven by 9.1% pricing, 2.4% volume, and 0.4% acquisitions, partially offset by (1.7)% unfavorable currency translation[143][144] - Gross profit margin decreased by 190 basis points to 30.6% due to significant direct material and freight inflation and unfavorable product mix, partially offset by price increases[145] - Selling and administrative expenses decreased by 0.5% to $1,213.6 million, primarily due to a non-cash contingent consideration adjustment and lower marketing costs, resulting in a 170 basis point decrease as a percentage of net revenues[146] - Operating income increased by 9.4% to $1,098.8 million[143] Three Months Ended June 30, 2022 Compared to the Three Months Ended June 30, 2021 - Segment Results This section analyzes the financial performance of each business segment for the three months ended June 30, 2022, compared to the prior year - Americas Net revenues increased by 14.0% to $3,386.3 million, driven by 11.8% pricing, 1.5% volume, and 0.9% acquisitions, while Segment Adjusted EBITDA margin decreased by 20 basis points to 20.7% due to inflation and unfavorable productivity[153][154][155] - EMEA Net revenues decreased by 0.3% to $521.6 million, primarily due to (11.1)% unfavorable currency translation, despite pricing and volume growth, and Segment Adjusted EBITDA margin decreased by 280 basis points to 17.7% due to inflation, supply chain issues, and currency impact[153][157][158] - Asia Pacific Net revenues decreased by 15.6% to $282.5 million, driven by (16.1)% lower volumes (China shutdowns) and (3.5)% currency translation, with Segment Adjusted EBITDA margin decreasing by 350 basis points to 15.3% due to inflation, supply chain issues, lower volumes, and currency impact[153][158][159] Six Months Ended June 30, 2022 Compared to the Six months ended June 30, 2021 - Segment Results This section analyzes the financial performance of each business segment for the six months ended June 30, 2022, compared to the prior year - Americas Net revenues increased by 13.6% to $6,019.5 million, driven by 10.3% pricing, 2.9% volume, and 0.5% acquisitions, while Segment Adjusted EBITDA margin decreased by 60 basis points to 18.4% due to inflation, unfavorable productivity, and product mix[162][163][164] - EMEA Net revenues decreased by 0.4% to $962.9 million, primarily due to (9.1)% unfavorable currency translation, despite pricing and volume growth, and Segment Adjusted EBITDA margin decreased by 330 basis points to 15.7% due to inflation, supply chain issues, and currency impact[162][166][167] - Asia Pacific Net revenues decreased by 3.3% to $563.5 million, driven by (4.1)% lower volumes (China shutdowns) and (2.7)% currency translation, with Segment Adjusted EBITDA margin decreasing by 290 basis points to 15.4% due to inflation, supply chain issues, unfavorable product mix, lower volumes, and currency impact[162][167][168] Liquidity and Capital Resources This section discusses the company's ability to generate and manage cash, including its cash position, debt, credit facilities, and cash flow activities Liquidity This section provides an overview of the company's cash position and its debt-to-total capital ratio - Cash and cash equivalents totaled $1,090.2 million at June 30, 2022, with $606.8 million held by non-U.S. subsidiaries, and repatriation of non-U.S. cash generally has no significant incremental U.S. tax[170][179] - The debt-to-total capital ratio was 45.7% at June 30, 2022, up from 43.6% at December 31, 2021[179] Debt and Credit Facilities This section details the company's short-term and long-term debt obligations and available credit lines - Short-term obligations include $342.9 million in fixed-rate debentures with a put feature, and the Company has a $2.0 billion commercial paper program with no outstanding balance[180] - Long-term debt maturities range from 2023 to 2049, and the Company maintains two $1.0 billion senior unsecured revolving credit facilities with $2.0 billion in unused commitments[181] Cash Flows This section summarizes the company's cash flows from operating, investing, and financing activities Major Categories of Cash Flows (Six months ended June 30, Millions): | In millions | 2022 | 2021 | | :------------------------------------------ | :----- | :----- | | Net cash provided by (used in) continuing operating activities | $417.7 | $751.8 | | Net cash provided by (used in) continuing investing activities | $(258.1) | $(162.1) | | Net cash provided by (used in) continuing financing activities | $(1,001.6) | $(937.6) | - Net cash from continuing operating activities decreased primarily due to higher working capital balances and the $91.8 million QSF funding for continuing operations[184] - Net cash used in continuing investing activities increased due to capital expenditures of $143.9 million and business acquisitions of $109.6 million[185] - Net cash used in continuing financing activities increased due to $650.1 million in ordinary share repurchases and $310.9 million in dividends paid to ordinary shareholders[186] Free Cash Flow This section reconciles net cash from operating activities to free cash flow, a non-GAAP measure Free Cash Flow Reconciliation (Six months ended June 30, Millions): | Metric | 2022 | 2021 | | :------------------------------------------ | :----- | :----- | | Net cash provided by (used in) continuing operating activities | $417.7 | $751.8 | | Capital expenditures | $(143.9) | $(77.5) | | Cash payments for restructuring | $14.2 | $15.7 | | Transformation costs paid | $7.4 | $6.4 | | QSF funding (continuing operations component) | $91.8 | — | | Free cash flow | $387.2 | $696.4 | - Free cash flow, a non-GAAP measure, is defined as Net cash provided by (used in) continuing operating activities, less capital expenditures, plus cash payments for restructuring, transformation costs, and the continuing operations component of QSF funding[187] Pensions This section outlines the company's pension plan investment objectives and projected contributions - The Company's investment objective for defined benefit plan assets is to meet benefit obligations while mitigating volatility by matching plan assets to liabilities[189] - The Company projects total contributions of approximately $90.0 million to its enterprise plans worldwide in 2022[190] Supplemental Guarantor Financial Information This section provides summarized financial information for the company's guarantor subsidiaries - Trane Technologies plc and certain 100% owned subsidiaries provide full and unconditional guarantees on a joint and several basis for public debt, with no significant restrictions on the Parent Company or guarantors to obtain funds from subsidiaries[191] Summarized Statements of Earnings (Six months ended June 30, 2022, Millions): | In millions | Obligor group 1 | Obligor group 2 | | :------------------------------------------ | :-------------- | :-------------- | | Net earnings (loss) attributable to Trane Technologies plc | $(166.6) | $(3.0) | Commitments and Contingencies This section discusses the company's involvement in various legal and environmental matters - The Company is involved in various legal proceedings, including asbestos-related and environmental matters, but management believes these are not expected to have a material adverse effect on financial condition, results of operations, liquidity, or cash flows[195] Critical Accounting Estimates This section addresses the company's critical accounting estimates and any changes thereto - Management believes there have been no significant changes to the critical accounting estimates disclosed in the Annual Report on Form 10-K for the year ended December 31, 2021[197] Recent Accounting Pronouncements This section refers to the notes to the financial statements for recent accounting pronouncements - Refer to Note 2 to the Condensed Consolidated Financial Statements for a discussion of recent accounting pronouncements[198] Safe Harbor Statement This section provides a cautionary statement regarding forward-looking information and associated risks - The report contains forward-looking statements, identified by terms like 'believe,' 'expect,' and 'anticipate,' which are subject to risks and uncertainties that could cause actual results to differ materially from expectations[199][200] - Key risk factors include impacts of the COVID-19 pandemic, economic/political conditions, commodity shortages, supply chain risks, national/international conflict, trade protection, capital market conditions, currency fluctuations, litigation, IT failures, data privacy, climate change, tax law changes, and the Aldrich and Murray Chapter 11 proceedings[201][205] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section refers to the Company's Annual Report on Form 10-K for a discussion of its exposure to market risk - For a discussion of the Company's exposure to market risk, refer to Part II, Item 7A, 'Quantitative and Qualitative Disclosures About Market Risk,' in the Annual Report on Form 10-K for the fiscal year ended December 31, 2021[206] Item 4. Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures as of June 30, 2022, and states that there have been no material changes to internal control over financial reporting during the second quarter - The Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of June 30, 2022[207] - There has been no material change in the Company's internal control over financial reporting during the second quarter of 2022[208] PART II - OTHER INFORMATION This section includes legal proceedings, risk factors, equity security sales, other information, and exhibits Item 1. Legal Proceedings This section details the company's involvement in various legal proceedings, with a primary focus on the ongoing Chapter 11 bankruptcy cases of Aldrich and Murray related to asbestos claims, outlining the proposed resolution plan, QSF funding, and challenges from current asbestos claimants - The Company is involved in various lawsuits, claims, and legal proceedings, including those related to the Aldrich and Murray bankruptcy, commercial disputes, product liability, and environmental matters[211] - Aldrich and Murray's Chapter 11 filings aim to permanently resolve asbestos-related claims through a court-approved plan of reorganization and the creation of a Section 524(g) trust[213] - An agreement in principle with the FCR proposes funding the trust with $545.0 million, and a $270.0 million Qualified Settlement Fund (QSF) was funded on March 2, 2022, to support this[214][215][216] - The committee representing current asbestos claimants (ACC) is not part of the agreement and is pursuing claims, including fraudulent conveyance and substantive consolidation, which the Company is vigorously opposing[214][216] Item 1A. Risk Factors This section highlights various risks and uncertainties, particularly those associated with the Aldrich and Murray Chapter 11 cases, which could materially affect the company's financial condition, results of operations, or future prospects - The Aldrich and Murray Chapter 11 cases involve significant risks, including uncertainty regarding the ultimate asbestos liability, the ability to consummate the settlement with the FCR, and the outcome of negotiations with the ACC and other participants[220][226] - The ACC is pursuing claims against Trane Technologies plc, including fraudulent conveyance and substantive consolidation, which could potentially challenge the 2020 corporate restructuring or assert liability for Aldrich and Murray's asbestos liabilities[225][228] - The Company's subsidiaries are obligated under Funding Agreements to cover Aldrich and Murray's costs during Chapter 11 and contribute to the trust if other assets are insufficient, with the ultimate amount of obligations being uncertain[221][229] - There is no assurance that the Bankruptcy Court will approve the proposed plan of reorganization, and the timing and outcome of the Chapter 11 cases remain unpredictable[224][227] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section provides details on the company's ordinary share repurchase activities during the second quarter of 2022 under its authorized programs, as well as shares reacquired for tax purposes Issuer Purchases of Equity Securities (Q2 2022): | Period | Total number of shares purchased (000's) | Average price paid per share | | :---------------- | :--------------------------------------- | :--------------------------- | | April 1 - April 30 | 0.6 | $152.69 | | May 1 - May 31 | 970.9 | $133.62 | | June 1 - June 30 | 1,298.4 | $131.52 | | Total | 2,269.9 | $132.43 | - During the three months ended June 30, 2022, the Company repurchased and canceled $300.0 million of ordinary shares under the 2021 Authorization, leaving approximately $750 million remaining, and a new $3.0 billion 2022 Authorization was approved in February 2022[232] - The Company also reacquired 650 shares in April and 3,596 shares in June outside the repurchase programs to cover taxes on vesting of share-based awards[233] Item 5. Other Information This section reports on the execution of deed poll indemnities by Trane Technologies plc and a subsidiary to provide indemnification and expense advancement for directors, officers, and other specified functionaries - On August 2, 2022, Trane Technologies plc and Trane Technologies Lux International Holding Company S.à.r.l entered into deed poll indemnities[234] - These indemnities provide for the indemnification of, and advancement of expenses to, directors, officers, and certain other specified functionaries of Trane Technologies and its subsidiaries, to the fullest extent permitted by law[234] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including legal documents, financial certifications, and interactive data files - Key exhibits filed include Deed Poll Indemnities (10.1, 10.2), First Amendment to Credit Agreement (10.3), Certifications of CEO and CFO (31.1, 31.2, 32), and iXBRL Financial Data (101, 104)[237] SIGNATURES This section confirms the official signing of the report by authorized executives - The report was signed on August 3, 2022, by Christopher J. Kuehn, Executive Vice President and Chief Financial Officer, and Heather R. Howlett, Vice President and Chief Accounting Officer[239]