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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________
FORM 10-Q
_______________________________
| | | | | |
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2024
or
| | | | | |
| ☐ | 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)
_______________________________
| | | | | |
| 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)
______________________________
| | | | | | | | | | | | | | |
| Securities registered pursuant to Section 12(b) of the Act: |
| | | | |
| Title of each class | | Trading Symbol | | Name of each exchange on which registered |
| Ordinary Shares, Par Value $1.00 per Share | | TT | | New York Stock Exchange |
| 5.250% Senior Notes due 2033 | | TT33 | | New York Stock Exchange |
5.100% Senior Notes due 2034 | | TT34 | | 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.
| | | | | | | | | | | | | | | | | | | | | | | |
| Large Accelerated Filer | x | | Accelerated filer | ¨ | | Emerging growth company | ☐ |
| | | | | | | |
| Non-accelerated filer | ¨ | | Smaller reporting company | ☐ | | | |
| | | | | | | |
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. ¨ |
|
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 July 26, 2024 was 225,670,231.
TRANE TECHNOLOGIES PLC
FORM 10-Q
INDEX
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PART I - FINANCIAL INFORMATION
Item 1.Financial Statements
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TRANE TECHNOLOGIES PLC CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS |
(Unaudited) |
| | | | | | | |
| Three months ended | | Six months ended |
| | June 30, | | June 30, |
| In millions, except per share amounts | 2024 | | 2023 | | 2024 | | 2023 |
| Net revenues | $ | 5,307.4 | | | $ | 4,704.7 | | | $ | 9,523.0 | | | $ | 8,370.6 | |
| Cost of goods sold | (3,371.9) | | | (3,120.3) | | | (6,127.6) | | | (5,642.7) | |
| Selling and administrative expenses | (901.3) | | | (699.0) | | | (1,727.4) | | | (1,385.7) | |
| Operating income | 1,034.2 | | | 885.4 | | | 1,668.0 | | | 1,342.2 | |
| Interest expense | (57.5) | | | (61.6) | | | (115.5) | | | (119.2) | |
| Other income/(expense), net | (4.1) | | | (57.4) | | | (29.2) | | | (66.8) | |
| Earnings before income taxes | 972.6 | | | 766.4 | | | 1,523.3 | | | 1,156.2 | |
| Provision for income taxes | (205.8) | | | (169.6) | | | (311.3) | | | (242.8) | |
| Earnings from continuing operations | 766.8 | | | 596.8 | | | 1,212.0 | | | 913.4 | |
| Discontinued operations, net of tax | (6.9) | | | (6.1) | | | (12.3) | | | (11.6) | |
| Net earnings | 759.9 | | | 590.7 | | | 1,199.7 | | | 901.8 | |
| Less: Net earnings from continuing operations attributable to noncontrolling interests | (4.6) | | | (4.5) | | | (8.1) | | | (8.5) | |
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| Net earnings attributable to Trane Technologies plc | $ | 755.3 | | | $ | 586.2 | | | $ | 1,191.6 | | | $ | 893.3 | |
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| Amounts attributable to Trane Technologies plc ordinary shareholders: | | | | | | | |
| Continuing operations | $ | 762.2 | | | $ | 592.3 | | | $ | 1,203.9 | | | $ | 904.9 | |
| Discontinued operations | (6.9) | | | (6.1) | | | (12.3) | | | (11.6) | |
| Net earnings | $ | 755.3 | | | $ | 586.2 | | | $ | 1,191.6 | | | $ | 893.3 | |
| Earnings (loss) per share attributable to Trane Technologies plc ordinary shareholders: | | | | | | | |
| Basic: | | | | | | | |
| Continuing operations | $ | 3.36 | | | $ | 2.59 | | | $ | 5.30 | | | $ | 3.95 | |
| Discontinued operations | (0.03) | | | (0.02) | | | (0.05) | | | (0.05) | |
| Net earnings | $ | 3.33 | | | $ | 2.57 | | | $ | 5.25 | | | $ | 3.90 | |
| Diluted: | | | | | | | |
| Continuing operations | $ | 3.33 | | | $ | 2.57 | | | $ | 5.25 | | | $ | 3.92 | |
| Discontinued operations | (0.03) | | | (0.02) | | | (0.05) | | | (0.05) | |
| Net earnings | $ | 3.30 | | | $ | 2.55 | | | $ | 5.20 | | | $ | 3.87 | |
| Weighted-average shares outstanding: | | | | | | | |
| Basic | 226.6 | | | 228.5 | | | 227.0 | | | 228.9 | |
| Diluted | 228.7 | | | 230.3 | | | 229.1 | | | 230.9 | |
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See accompanying notes to Condensed Consolidated Financial Statements.
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TRANE TECHNOLOGIES PLC CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) |
| (Unaudited) |
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| Three months ended | | Six months ended |
| June 30, | | June 30, |
| In millions | 2024 | | 2023 | | 2024 | | 2023 |
| Net earnings | $ | 759.9 | | | $ | 590.7 | | | $ | 1,199.7 | | | $ | 901.8 | |
| Other comprehensive income (loss): | | | | | | | |
| Currency translation | (35.1) | | | (37.5) | | | (111.7) | | | 23.9 | |
| Cash flow hedges: | | | | | | | |
| Unrealized net gains (losses) arising during period | 0.8 | | | (12.7) | | | (4.1) | | | (12.4) | |
| Net (gains) losses reclassified into earnings | 1.2 | | | 3.9 | | | 4.2 | | | 10.8 | |
| Tax (expense) benefit | (0.1) | | | 1.9 | | | — | | | 0.4 | |
| Total cash flow hedges, net of tax | 1.9 | | | (6.9) | | | 0.1 | | | (1.2) | |
| Pension and OPEB adjustments: | | | | | | | |
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| Amortization reclassified into earnings | 1.4 | | | 1.7 | | | 2.7 | | | 3.5 | |
Net settlement (gains) losses reclassified to earnings | — | | | — | | | — | | | 1.1 | |
| Currency translation and other | — | | | (1.7) | | | 0.8 | | | (4.3) | |
| Tax (expense) benefit | (0.4) | | | (0.1) | | | (0.9) | | | (0.1) | |
| Total pension and OPEB adjustments, net of tax | 1.0 | | | (0.1) | | | 2.6 | | | 0.2 | |
| Other comprehensive income (loss), net of tax | (32.2) | | | (44.5) | | | (109.0) | | | 22.9 | |
| Comprehensive income, net of tax | $ | 727.7 | | | $ | 546.2 | | | $ | 1,090.7 | | | $ | 924.7 | |
| Less: Comprehensive income attributable to noncontrolling interests | (4.5) | | | (4.1) | | | (6.7) | | | (8.6) | |
| Comprehensive income attributable to Trane Technologies plc | $ | 723.2 | | | $ | 542.1 | | | $ | 1,084.0 | | | $ | 916.1 | |
See accompanying notes to Condensed Consolidated Financial Statements.
TRANE TECHNOLOGIES PLC
CONDENSED CONSOLIDATED BALANCE SHEETS
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| (Unaudited) | | |
| In millions | June 30,
2024 | | December 31,
2023 |
| ASSETS | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 874.6 | | | $ | 1,095.3 | |
Short-term investments | 451.2 | | | — | |
| Accounts and notes receivable, net | 3,433.3 | | | 2,956.8 | |
| Inventories | 2,203.5 | | | 2,152.1 | |
| Other current assets | 751.4 | | | 665.7 | |
| Total current assets | 7,714.0 | | | 6,869.9 | |
| Property, plant and equipment, net | 1,827.8 | | | 1,772.2 | |
| Goodwill | 6,057.7 | | | 6,095.3 | |
| Intangible assets, net | 3,351.6 | | | 3,439.8 | |
| Other noncurrent assets | 1,248.1 | | | 1,214.7 | |
| Total assets | $ | 20,199.2 | | | $ | 19,391.9 | |
| LIABILITIES AND EQUITY | | | |
| Current liabilities: | | | |
| Accounts payable | $ | 2,180.1 | | | $ | 2,025.2 | |
| Accrued compensation and benefits | 495.6 | | | 591.7 | |
| Accrued expenses and other current liabilities | 2,964.7 | | | 2,634.7 | |
| Short-term borrowings and current maturities of long-term debt | 952.0 | | | 801.9 | |
| Total current liabilities | 6,592.4 | | | 6,053.5 | |
| Long-term debt | 4,316.2 | | | 3,977.9 | |
| Postemployment and other benefit liabilities | 594.0 | | | 596.9 | |
| Deferred and noncurrent income taxes | 695.3 | | | 703.7 | |
| Other noncurrent liabilities | 1,033.7 | | | 1,042.9 | |
| Total liabilities | 13,231.6 | | | 12,374.9 | |
| Equity: | | | |
| Trane Technologies plc shareholders’ equity: | | | |
| Ordinary shares | 250.4 | | | 251.7 | |
| Ordinary shares held in treasury, at cost | (1,719.4) | | | (1,719.4) | |
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| Retained earnings | 9,194.7 | | | 9,133.7 | |
| Accumulated other comprehensive income (loss) | (778.4) | | | (670.8) | |
| Total Trane Technologies plc shareholders’ equity | 6,947.3 | | | 6,995.2 | |
| Noncontrolling interests | 20.3 | | | 21.8 | |
| Total equity | 6,967.6 | | | 7,017.0 | |
| Total liabilities and equity | $ | 20,199.2 | | | $ | 19,391.9 | |
See accompanying notes to Condensed Consolidated Financial Statements.
TRANE TECHNOLOGIES PLC
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
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| 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, 2023 | | $ | 7,017.0 | | | $ | 251.7 | | | 251.7 | | | $ | (1,719.4) | | | | | $ | — | | | $ | 9,133.7 | | | $ | (670.8) | | | $ | 21.8 | | | |
| Net earnings | | 439.8 | | | — | | | — | | | — | | | | | — | | | 436.3 | | | — | | | 3.5 | | | |
| Other comprehensive income (loss) | | (76.8) | | | — | | | — | | | — | | | | | — | | | — | | | (75.5) | | | (1.3) | | | |
| Shares issued under incentive stock plans | | 6.1 | | | 0.7 | | | 0.7 | | | — | | | | | 5.4 | | | — | | | — | | | — | | | |
| Repurchase of ordinary shares | | (300.3) | | | (1.2) | | | (1.2) | | | — | | | | | (25.3) | | | (273.8) | | | — | | | — | | | |
| Share-based compensation | | 18.5 | | | — | | | — | | | — | | | | | 19.8 | | | (1.3) | | | — | | | — | | | |
| Dividends declared to noncontrolling interest | | (2.9) | | | — | | | — | | | — | | | | | — | | | — | | | — | | | (2.9) | | | |
| Dividends declared to common shareholders | | (190.7) | | | — | | | — | | | — | | | | | — | | | (190.7) | | | — | | | — | | | |
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| Other | | 0.1 | | | — | | | — | | | — | | | | | 0.1 | | | — | | | — | | | — | | | |
| Balance at March 31, 2024 | | 6,910.8 | | | 251.2 | | | 251.2 | | | (1,719.4) | | | | | — | | | 9,104.2 | | | (746.3) | | | 21.1 | | | |
| Net earnings | | 759.9 | | | — | | | — | | | — | | | | | — | | | 755.3 | | | — | | | 4.6 | | | |
| Other comprehensive income (loss) | | (32.2) | | | — | | | — | | | — | | | | | — | | | — | | | (32.1) | | | (0.1) | | | |
| Shares issued under incentive stock plans | | 15.5 | | | 0.2 | | | 0.2 | | | — | | | | | 15.3 | | | — | | | — | | | — | | | |
| Repurchase of ordinary shares | | (324.1) | | | (1.0) | | | (1.0) | | | — | | | | | (38.8) | | | (284.3) | | | — | | | — | | | |
| Share-based compensation | | 22.7 | | | — | | | — | | | — | | | | | 23.5 | | | (0.8) | | | — | | | — | | | |
| Dividends declared to noncontrolling interest | | (5.3) | | | — | | | — | | | — | | | | | — | | | — | | | — | | | (5.3) | | | |
| Dividends declared to common shareholders | | (379.7) | | | — | | | — | | | — | | | | | — | | | (379.7) | | | — | | | — | | | |
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| Balance at June 30, 2024 | | $ | 6,967.6 | | | $ | 250.4 | | | 250.4 | | | $ | (1,719.4) | | | | | $ | — | | | $ | 9,194.7 | | | $ | (778.4) | | | $ | 20.3 | | | |
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| 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, 2022 | | $ | 6,105.2 | | | $ | 253.3 | | | 253.3 | | | $ | (1,719.4) | | | | | $ | — | | | $ | 8,320.9 | | | $ | (766.2) | | | $ | 16.6 | | | |
| Net earnings | | 311.1 | | | — | | | — | | | — | | | | | — | | | 307.1 | | | — | | | 4.0 | | | |
| Other comprehensive income (loss) | | 67.4 | | | — | | | — | | | — | | | | | — | | | — | | | 66.9 | | | 0.5 | | | |
| Shares issued under incentive stock plans | | 21.3 | | | 0.8 | | | 0.8 | | | — | | | | | 20.5 | | | — | | | — | | | — | | | |
| Repurchase of ordinary shares | | (300.0) | | | (1.6) | | | (1.6) | | | — | | | | | (45.0) | | | (253.4) | | | — | | | — | | | |
| Share-based compensation | | 23.8 | | | — | | | — | | | — | | | | | 24.4 | | | (0.6) | | | — | | | — | | | |
| Dividends declared to noncontrolling interest | | (2.9) | | | — | | | — | | | — | | | | | — | | | — | | | — | | | (2.9) | | | |
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| Dividends declared to common shareholders | | (171.7) | | | — | | | — | | | — | | | | | — | | | (171.7) | | | — | | | — | | | |
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| Other | | 0.1 | | | — | | | — | | | — | | | | | 0.1 | | | — | | | — | | | — | | | |
| Balance at March 31, 2023 | | 6,054.3 | | | 252.5 | | | 252.5 | | | (1,719.4) | | | | | — | | | 8,202.3 | | | (699.3) | | | 18.2 | | | |
| Net earnings | | 590.7 | | | — | | | — | | | — | | | | | — | | | 586.2 | | | — | | | 4.5 | | | |
| Other comprehensive income (loss) | | (44.5) | | | — | | | — | | | — | | | | | — | | | — | | | (44.1) | | | (0.4) | | | |
| Shares issued under incentive stock plans | | 7.5 | | | 0.3 | | | 0.3 | | | — | | | | | 7.2 | | | — | | | — | | | — | | | |
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| Share-based compensation | | 15.3 | | | — | | | — | | | — | | | | | 16.1 | | | (0.8) | | | — | | | — | | | |
| Dividends declared to noncontrolling interest | | (3.9) | | | — | | | — | | | — | | | | | — | | | — | | | — | | | (3.9) | | | |
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| Dividends declared to common shareholders | | (342.3) | | | — | | | — | | | — | | | | | — | | | (342.3) | | | — | | | — | | | |
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| Other | | 0.1 | | | — | | | — | | | — | | | | | 0.1 | | | — | | | — | | | — | | | |
| Balance at June 30, 2023 | | $ | 6,277.2 | | | $ | 252.8 | | | 252.8 | | | $ | (1,719.4) | | | | | $ | 23.4 | | | $ | 8,445.4 | | | $ | (743.4) | | | $ | 18.4 | | | |
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See accompanying notes to Condensed Consolidated Financial Statements.
TRANE TECHNOLOGIES PLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| | | | | | | | | | | |
| Six months ended |
| | June 30, |
| In millions | 2024 | | 2023 |
| Cash flows from operating activities: | | | |
| Net earnings | $ | 1,199.7 | | | $ | 901.8 | |
| Discontinued operations, net of tax | 12.3 | | | 11.6 | |
| Adjustments for non-cash transactions: | | | |
| Depreciation and amortization | 187.7 | | | 168.2 | |
| Pension and other postretirement benefits | 20.0 | | | 26.4 | |
| Stock settled share-based compensation | 43.3 | | | 40.5 | |
| Other non-cash items, net | (5.5) | | | (5.4) | |
| Changes in assets and liabilities, net of the effects of acquisitions | (498.9) | | | (595.0) | |
| Net cash provided by (used in) continuing operating activities | 958.6 | | | 548.1 | |
| Net cash provided by (used in) discontinued operating activities | (15.5) | | | (15.6) | |
| Net cash provided by (used in) operating activities | 943.1 | | | 532.5 | |
| Cash flows from investing activities: | | | |
| Capital expenditures | (156.7) | | | (134.0) | |
| Acquisitions of businesses, net of cash acquired | (5.2) | | | (506.2) | |
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Purchases of short-term investments, net | (450.0) | | | — | |
| Other investing activities, net | (14.7) | | | (6.8) | |
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| Net cash provided by (used in) investing activities | (626.6) | | | (647.0) | |
| Cash flows from financing activities: | | | |
| Short-term borrowings (payments), net | — | | | 197.9 | |
| Proceeds from long-term debt | 498.5 | | | 699.1 | |
| Payments of long-term debt | (7.5) | | | (707.5) | |
| Net proceeds from (payments of) debt | 491.0 | | | 189.5 | |
| Debt issuance costs | (3.3) | | | (6.5) | |
| Dividends paid to ordinary shareholders | (379.4) | | | (341.4) | |
| Dividends paid to noncontrolling interests | (8.2) | | | (6.8) | |
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| Proceeds (payments) from shares issued under incentive plans, net | 21.6 | | | 28.8 | |
| Repurchase of ordinary shares | (624.4) | | | (300.0) | |
| Other financing activities, net | (1.6) | | | — | |
| Net cash provided by (used in) financing activities | (504.3) | | | (436.4) | |
| | | |
| Effect of exchange rate changes on cash and cash equivalents | (32.9) | | | (6.0) | |
| Net increase (decrease) in cash and cash equivalents | (220.7) | | | (556.9) | |
| Cash and cash equivalents - beginning of period | 1,095.3 | | | 1,220.5 | |
| Cash and cash equivalents - end of period | $ | 874.6 | | | $ | 663.6 | |
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, sales and service of solutions for Heating, Ventilation and Air Conditioning (HVAC), transport refrigeration, and custom refrigeration solutions.
The accompanying unaudited Condensed Consolidated Financial Statements of Trane Technologies reflect 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, 2023. 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.
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 ASUs. ASUs 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 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, a company should disclose qualitative and quantitative information about its supplier finance programs. The Company adopted this standard on January 1, 2023, except for the amendment on roll forward information which is effective on an annual basis for fiscal years beginning after December 15, 2023. See Note 7, "Supplier Financing Arrangements" for more information regarding the Company's supplier financing program.
Accounting Pronouncements Issued but not yet Adopted
In December 2023, the FASB issued ASU 2023-09, "Improvements to Income Tax Disclosures (Topic 740)" (ASU 2023-09) which improves the transparency of income tax disclosures by requiring consistent categories and greater disaggregation of information in the rate reconciliation and income taxes paid disaggregated by jurisdiction. The ASU is effective for annual periods beginning after December 15, 2024. Early adoption is permitted. The Company expects ASU 2023-09 to require additional disclosures in the notes to its consolidated financial statements and does not plan to early adopt.
In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures" (ASU 2023-07) which requires public entities to disclose information about their reportable segments' oversight and significant expenses on an interim and annual basis. The ASU is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company expects ASU 2023-07 to require additional disclosures in the notes to its consolidated financial statements and does not plan to early adopt.
In October 2023, the FASB issued ASU 2023-06, "Disclosure Improvements: Codification Amendments in Response to SEC's Disclosure Update and Simplification Initiative" (ASU 2023-06) to amend a variety of disclosure requirements in the ASC. The effective date for each amendment will be the date on which the SEC's removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective. Early adoption is prohibited. Upon adoption, this ASU is not expected to have a material impact on the Company's financial statements and related disclosures.
Note 3. Inventories
The major classes of inventory were as follows:
| | | | | | | | | | | |
| In millions | June 30,
2024 | | December 31,
2023 |
| Raw materials | $ | 579.3 | | | $ | 605.1 | |
| Work-in-process | 429.3 | | | 385.1 | |
| Finished goods | 1,374.5 | | | 1,332.3 | |
| 2,383.1 | | | 2,322.5 | |
| LIFO reserve | (179.6) | | | (170.4) | |
| Total | $ | 2,203.5 | | | $ | 2,152.1 | |
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 net realizable value. Reserve balances, primarily related to obsolete and slow-moving inventories, were $163.1 million and $143.5 million at June 30, 2024 and December 31, 2023, respectively.
Note 4. Goodwill
The changes in the carrying amount of goodwill for the six months ended June 30, 2024 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| In millions | Americas | | EMEA | | Asia Pacific | | Total |
| Net balance as of December 31, 2023 | $ | 4,675.3 | | | $ | 869.0 | | | $ | 551.0 | | | $ | 6,095.3 | |
| Acquisitions | 6.3 | | | — | | | — | | | 6.3 | |
| | | | | | | |
| Measurement period adjustments | (3.9) | | | 1.8 | | | — | | | (2.1) | |
| Currency translation | (2.9) | | | (26.7) | | | (12.2) | | | (41.8) | |
| Net balance as of June 30, 2024 | $ | 4,674.8 | | | $ | 844.1 | | | $ | 538.8 | | | $ | 6,057.7 | |
The net goodwill balances at June 30, 2024 and December 31, 2023 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:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2024 | | December 31, 2023 |
| In millions | | Gross carrying amount | | Accumulated amortization | | Net carrying amount | | Gross carrying amount | | Accumulated amortization | | Net carrying amount |
| Customer relationships | | $ | 2,376.0 | | | $ | (1,802.6) | | | $ | 573.4 | | | $ | 2,384.4 | | | $ | (1,731.4) | | | $ | 653.0 | |
| Other | | 431.1 | | | (254.9) | | | 176.2 | | | 419.6 | | | (243.1) | | | 176.5 | |
| Total finite-lived intangible assets | | 2,807.1 | | | (2,057.5) | | | 749.6 | | | 2,804.0 | | | (1,974.5) | | | 829.5 | |
| Trademarks (indefinite-lived) | | 2,602.0 | | | — | | | 2,602.0 | | | 2,610.3 | | | — | | | 2,610.3 | |
| Total | | $ | 5,409.1 | | | $ | (2,057.5) | | | $ | 3,351.6 | | | $ | 5,414.3 | | | $ | (1,974.5) | | | $ | 3,439.8 | |
Intangible asset amortization expense was $44.8 million and $42.1 million for the three months ended June 30, 2024 and 2023, respectively. Intangible asset amortization expense was $89.7 million and $77.0 million for the six months ended June 30, 2024 and 2023, respectively.
Note 6. Debt and Credit Facilities
Short-term borrowings and current maturities of long-term debt consisted of the following:
| | | | | | | | | | | |
| In millions | June 30,
2024 | | December 31,
2023 |
| Debentures with put feature | $ | 295.0 | | | $ | 295.0 | |
| | | |
3.550% Senior Notes due 2024 | 499.8 | | | 499.4 | |
7.200% Debentures due 2024-2025 | 7.5 | | | 7.5 | |
6.480% Debentures due 2025 | 149.7 | | | — | |
| | | |
| | | |
| | | |
| Total | $ | 952.0 | | | $ | 801.9 | |
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. Under the commercial paper program, the Company may issue notes from time to time through Trane Technologies HoldCo Inc. or Trane Technologies Financing Limited. Each of Trane Technologies plc, Trane Technologies Irish Holdings Unlimited Company, Trane Technologies Lux International Holding Company S.à.r.l., Trane Technologies Americas Holding Corporation, Trane Technologies Global Holding II Company Limited, and Trane Technologies Company LLC provide irrevocable and unconditional guarantees for any notes issued under the commercial paper program. In addition, Trane Technologies HoldCo Inc. and Trane Technologies Financing Limited provide irrevocable and unconditional guarantees for any notes issued by the other. The Company had no outstanding balance under its commercial paper program as of June 30, 2024 and December 31, 2023.
Debentures with Put Feature
At June 30, 2024 and December 31, 2023, the Company had $295.0 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 who had the option to exercise puts up to $37.2 million for settlement in February 2024 did not exercise such option. No exercises were made during the six months ended June 30, 2024.
Long-term debt, excluding current maturities, consisted of the following: | | | | | | | | | | | |
| In millions | June 30,
2024 | | December 31,
2023 |
7.200% Debentures due 2024-2025 | $ | — | | | $ | 7.5 | |
6.480% Debentures due 2025 | — | | | 149.7 | |
3.500% Senior Notes due 2026 | 399.1 | | | 398.9 | |
3.750% Senior Notes due 2028 | 547.6 | | | 547.3 | |
3.800% Senior Notes due 2029 | 746.8 | | | 746.4 | |
5.250% Senior Notes due 2033 | 693.6 | | | 693.3 | |
5.100% Senior Notes due 2034 | 493.9 | | | — | |
5.750% Senior Notes due 2043 | 495.6 | | | 495.4 | |
4.650% Senior Notes due 2044 | 296.7 | | | 296.6 | |
4.300% Senior Notes due 2048 | 296.7 | | | 296.6 | |
4.500% Senior Notes due 2049 | 346.2 | | | 346.2 | |
| | | |
| | | |
| Total | $ | 4,316.2 | | | $ | 3,977.9 | |
Issuance of Senior Notes
In June 2024, the Company, through its wholly-owned subsidiary Trane Technologies Financing Limited, issued $500 million aggregate principal amount of 5.100% Senior Notes due 2034. The notes are guaranteed by each of Trane Technologies plc, Trane Technologies Global Holding II Company Limited, Trane Technologies Americas Holding Corporation, Trane Technologies Lux International Holding Company S.a.r.l., Trane Technologies Irish Holdings Unlimited Company, Trane Technologies Company LLC and Trane Technologies Holdco Inc. The Company has the option to redeem the notes in whole or in part at any time prior to their stated maturity date at redemption prices set forth in the indenture agreement. The notes are subject to certain customary covenants, however, none of these covenants are considered restrictive to the Company’s operations. Together with cash on hand, the net proceeds from the offering will be used to repay at maturity the $500 million aggregate principal amount of the outstanding 3.550% Senior Notes due in November 2024, including payment of fees, expenses, and accrued interest in connection therewith, and any remaining proceeds for general corporate purposes.
Other Credit Facilities
The Company maintains two $1.0 billion senior unsecured revolving credit facilities, one of which matures in June 2026 and the other which matures in April 2027 (collectively, the Facilities), through its wholly-owned subsidiaries, Trane Technologies HoldCo Inc. and Trane Technologies Financing Limited (collectively, the Borrowers). The 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., Trane Technologies Americas Holding Corporation, Trane Technologies Global Holding II Company Limited 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 June 30, 2024 and December 31, 2023.
Fair Value of Debt
The fair value of the Company's debt instruments at June 30, 2024 and December 31, 2023 was $5.1 billion and $4.7 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. Supplier Financing Arrangements
The Company has agreements with financial institutions, primarily in the US, that allow its suppliers to sell their receivables to the financial institution at the sole discretion of both the supplier and the financial institution on terms that are negotiated between them. The Company may not always be notified when its suppliers sell receivables under these arrangements.
The Company’s obligations to its suppliers, including the amounts due and scheduled payment dates, are not impacted by the suppliers’ decisions to sell their receivables under the program. Outstanding invoices under the supplier financing arrangements were $264.9 million and $246.0 million at June 30, 2024 and December 31, 2023, respectively, which are included within Accounts payable in the Condensed Consolidated Balance Sheet.
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 June 30, 2024:
| | | | | | | | | | | | | | | | | | | | | | | | |
| In millions | Fair Value | | Fair value measurements | |
| Level 1 | | Level 2 | | Level 3 | |
| | | | | | | | |
| Assets: | | | | | | | | |
| Derivative instruments | $ | 5.3 | | | $ | — | | | $ | 5.3 | | | $ | — | | |
| | | | | | | | |
| Liabilities: | | | | | | | | |
| Derivative instruments | 7.8 | | | — | | | 7.8 | | | — | | |
| Contingent consideration | 77.3 | | | — | | | — | | | 77.3 | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
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, 2023:
| | | | | | | | | | | | | | | | | | | | | | | |
| In millions | Fair Value | | Fair value measurements |
| Level 1 | | Level 2 | | Level 3 |
| | | | | | | |
| Assets: | | | | | | | |
| | | | | | | |
| Derivative instruments | $ | 4.1 | | | $ | — | | | $ | 4.1 | | | $ | — | |
| | | | | | | |
| Liabilities: | | | | | | | |
| Derivative instruments | 4.8 | | | — | | | 4.8 | | | — | |
| Contingent consideration | 90.3 | | | — | | | — | | | 90.3 | |
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 derivative instruments 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 derivative instruments is valued under a market approach using published prices, where applicable, or dealer quotes.
The carrying values of cash and cash equivalents, short-term investments, 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.
On November 2, 2023, the Company acquired 100% of Nuvolo Technologies Corporation. In connection with the acquisition, the Company agreed to two contingent consideration arrangements. The first contingent consideration arrangement, payable up to $90.0 million in cash, is based on the attainment of key revenue targets from November 2, 2023 through April 2025. If the first contingent consideration targets are met, a second contingent consideration arrangement with no maximum earnout is available to the sellers based on revenues in excess of the initial targets attained from a specified customer contract through April 2025.
Each quarter the Company remeasures 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 fair value of the contingent consideration is determined using the Monte Carlo simulation model based on revenue projections during the earnout period, implied revenue volatility and a risk adjusted discount rate.
The changes in the fair value of the Company's Level 3 liabilities were as follows:
| | | | | | | | | | |
| In millions | | June 30,
2024 | | |
| Balance at beginning of period | | $ | 90.3 | | | |
| | | | |
| Change in fair value of contingent consideration | | (8.9) | | | |
| Measurement period adjustment | | (4.1) | | | |
| Balance at end of period | | $ | 77.3 | | | |
The following inputs and assumptions were used in the Monte Carlo simulation model to estimate the fair value of the contingent consideration:
| | | | | | | | | | | | | | |
| | June 30,
2024 | | December 31,
2023 |
| Discount rate | | 8.73%-8.59% | | 8.14% - 8.48% |
| Volatility | | 15.70 | % | | 16.20 | % |
Certain assets are measured at fair value on a non-recurring basis. The Company's equity investments without a readily available fair value are accounted for using the measurement alternative and are measured at fair value when observable transactions of identical or similar securities occurs, or due to an impairment. When indicators of impairment exist or observable price changes of qualified transactions occur, the respective equity investment would be classified within Level 3 of the fair value hierarchy due to the absence of quoted market prices, the inherent lack of liquidity and unobservable inputs used to measure fair value that require management’s judgment. During the three and six months ended June 30, 2023, the Company recorded an impairment of an equity investment of $52.2 million within Other income/(expense), net.
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 non-contributory 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 six months ended June 30 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended | | Six months ended |
| In millions | 2024 | | 2023 | | 2024 | | 2023 |
| Service cost | $ | 7.9 | | | $ | 8.9 | | | $ | 16.0 | | | $ | 17.5 | |
| Interest cost | 28.3 | | | 30.1 | | | 56.5 | | | 59.9 | |
| Expected return on plan assets | (29.4) | | | (30.1) | | | (58.8) | | | (60.0) | |
| Net amortization of: | | | | | | | |
| Prior service costs (benefits) | 0.8 | | | 0.8 | | | 1.5 | | | 1.7 | |
| Net actuarial (gains) losses | 3.7 | | | 4.0 | | | 7.5 | | | 8.0 | |
| Net periodic pension benefit cost | 11.3 | | | 13.7 | | | 22.7 | | | 27.1 | |
| Net settlement losses | — | | | — | | | — | | | 1.1 | |
| Net periodic pension benefit cost after net settlement losses | $ | 11.3 | | | $ | 13.7 | | | $ | 22.7 | | | $ | 28.2 | |
| Amounts recorded in continuing operations: | | | | | | | |
| Operating income | $ | 7.0 | | | $ | 7.9 | | | $ | 14.0 | | | $ | 15.4 | |
| Other income/(expense), net | 2.7 | | | 4.3 | | | 5.4 | | | 9.6 | |
| Amounts recorded in discontinued operations | 1.6 | | | 1.5 | | | 3.3 | | | 3.2 | |
| Total | $ | 11.3 | | | $ | 13.7 | | | $ | 22.7 | | | $ | 28.2 | |
The Company made required and discretionary contributions to its defined benefit pension plans of $19.3 million and $29.5 million during the six months ended June 30, 2024 and 2023, respectively. The Company currently projects that it will contribute approximately $59 million to its enterprise plans worldwide in 2024.
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 six months ended June 30 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended | | Six months ended | |
| In millions | 2024 | | 2023 | | 2024 | | 2023 | | | |
| Service cost | $ | 0.2 | | | $ | 0.3 | | | $ | 0.5 | | | $ | 0.7 | | | | |
| Interest cost | 2.9 | | | 3.4 | | | 5.8 | | | 6.7 | | | | |
| Net amortization of: | | | | | | | | | | |
| Prior service costs (benefits) | 0.2 | | | 0.1 | | | 0.3 | | | 0.3 | | | | |
| Net actuarial (gains) losses | (3.3) | | | (3.2) | | | (6.6) | | | (6.5) | | | | |
| Net periodic postretirement benefit cost | $ | — | | | $ | 0.6 | | | $ | — | | | $ | 1.2 | | | | |
| Amounts recorded in continuing operations: | | | | | | | | | | |
| Operating income | $ | 0.3 | | | $ | 0.3 | | | $ | 0.6 | | | $ | 0.7 | | | | |
| Other income/(expense), net | — | | | 0.4 | | | — | | | 0.7 | | | | |
| Amounts recorded in discontinued operations | (0.3) | | | (0.1) | | | (0.6) | | | (0.2) | | | | |
| Total | $ | — | | | $ | 0.6 | | | $ | — | | | $ | 1.2 | | | | |
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 June 30, 2024 or December 31, 2023.
Changes in ordinary shares and treasury shares for the six months ended June 30, 2024 were as follows:
| | | | | | | | | | | |
| In millions | Ordinary shares issued | | Ordinary shares held in treasury |
| December 31, 2023 | 251.7 | | | 24.5 | |
| Shares issued under incentive plans, net | 0.9 | | | — | |
| | | |
| Repurchase of ordinary shares | (2.2) | | | — | |
| June 30, 2024 | 250.4 | | | 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 2022, the Company's Board of Directors authorized a share repurchase program of up to $3.0 billion of its ordinary shares (2022 Authorization). During the six months ended June 30, 2024, the Company repurchased and canceled approximately $624 million of its ordinary shares, leaving $1.9 billion remaining under the 2022 Authorization. Additionally, in July 2024, the Company repurchased approximately $107 million of its ordinary shares under the 2022 Authorization.
Accumulated Other Comprehensive Income (Loss)
The changes in Accumulated other comprehensive income (loss) for the six months ended June 30, 2024 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| In millions | | Derivative Instruments | | Pension and OPEB | | Foreign Currency Translation | | Total |
| Balance at December 31, 2023 | | $ | 3.0 | | | $ | (198.9) | | | $ | (474.9) | | | $ | (670.8) | |
| Other comprehensive income (loss) attributable to Trane Technologies plc | | 0.1 | | | 2.6 | | | (110.3) | | | (107.6) | |
| Balance at June 30, 2024 | | $ | 3.1 | | | $ | (196.3) | | | $ | (585.2) | | | $ | (778.4) | |
Other comprehensive income (loss) attributable to noncontrolling interests for the six months ended June 30, 2024 included a loss of $1.4 million related to currency translation.
The changes in Accumulated other comprehensive income (loss) for the six months ended June 30, 2023 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| In millions | | Derivative Instruments | | Pension and OPEB | | Foreign Currency Translation | | Total |
| Balance at December 31, 2022 | | $ | (4.5) | | | $ | (214.1) | | | $ | (547.6) | | | $ | (766.2) | |
| Other comprehensive income (loss) attributable to Trane Technologies plc | | (1.2) | | | 0.2 | | | 23.8 | | | 22.8 | |
| Balance at June 30, 2023 | | $ | (5.7) | | | $ | (213.9) | | | $ | (523.8) | | | $ | (743.4) | |
Other comprehensive income (loss) attributable to noncontrolling interests for the six months ended June 30, 2023 included a gain of $0.1 million related to currency translation.
Note 11. Revenue
Disaggregated Revenue
Net revenues by geography and major type of good or service for the three and six months ended June 30 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended | | Six months ended |
| In millions | 2024 | | 2023 | | 2024 | | 2023 |
| Americas | | | | | | | |
| Equipment | $ | 2,916.1 | | | $ | 2,526.8 | | | $ | 5,149.5 | | | $ | 4,427.4 | |
| Services | 1,374.8 | | | 1,165.7 | | | 2,476.3 | | | 2,126.1 | |
| Total Americas | $ | 4,290.9 | | | $ | 3,692.5 | | | $ | 7,625.8 | | | $ | 6,553.5 | |
| EMEA | | | | | | | |
| Equipment | $ | 457.5 | | | $ | 450.7 | | | $ | 842.2 | | | $ | 815.8 | |
| Services | 187.8 | | | 166.9 | | | 356.5 | | | 312.4 | |
| Total EMEA | $ | 645.3 | | | $ | 617.6 | | | $ | 1,198.7 | | | $ | 1,128.2 | |
| Asia Pacific | | | | | | | |
| Equipment | $ | 255.3 | | | $ | 284.4 | | | $ | 477.7 | | | $ | 486.1 | |
| Services | 115.9 | | | 110.2 | | | 220.8 | | | 202.8 | |
| Total Asia Pacific | $ | 371.2 | | | $ | 394.6 | | | $ | 698.5 | | | $ | 688.9 | |
| | | | | | | |
| Total Net revenues | $ | 5,307.4 | | | $ | 4,704.7 | | | $ | 9,523.0 | | | $ | 8,370.6 | |
Revenue from goods and services transferred to customers at a point in time accounted for approximately 81% and 82% of the Company’s revenue for the six months ended June 30, 2024 and 2023.
Contract Balances
The opening and closing balances of contract assets and contract liabilities arising from contracts with customers for the period ended June 30, 2024 and December 31, 2023 were as follows:
| | | | | | | | | | | | | | |
| In millions | Location on Condensed Consolidated Balance Sheets | June 30,
2024 | | December 31, 2023 |
| Contract assets - current | Other current assets | $ | 492.0 | | | $ | 458.4 | |
| | | | |
| Contract liabilities - current | Accrued expenses and other current liabilities | 1,322.7 | | | 1,301.2 | |
| Contract liabilities - noncurrent | Other noncurrent liabilities | 277.0 | | | 247.2 | |
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 six months ended June 30, 2024, changes in contract asset and liability balances were not materially impacted by any other factors.
Approximately 19% and 49% of the contract liability balance at December 31, 2023 was recognized as revenue during the three and six months ended June 30, 2024, respectively. Additionally, approximately 17% of the contract liability balance at June 30, 2024 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. 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 six months ended June 30 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended | | Six months ended |
| In millions | 2024 | | 2023 | | 2024 | | 2023 |
| Stock options | $ | 4.8 | | | $ | 2.8 | | | $ | 8.9 | | | $ | 11.8 | |
| RSUs | 8.8 | | | 6.0 | | | 14.6 | | | 16.6 | |
| Performance shares | 9.6 | | | 6.9 | | | 19.1 | | | 11.3 | |
| Deferred compensation | 0.9 | | | 1.2 | | | 1.6 | | | 2.2 | |
| | | | | | | |
| Pre-tax expense | 24.1 | | | 16.9 | | | 44.2 | | | 41.9 | |
| Tax benefit | (5.8) | | | (4.1) | | | (10.7) | | | (10.2) | |
| After-tax expense | $ | 18.3 | | | $ | 12.8 | | | $ | 33.5 | | | $ | 31.7 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Grants issued during the six months ended June 30 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| | 2024 | | 2023 |
| | Number
granted | | Weighted-
average fair
value per award | | Number
granted | | Weighted-
average fair
value per award |
| Stock options | 249,579 | | | $ | 76.85 | | | 389,355 | | | $ | 46.70 | |
| RSUs | 98,948 | | | $ | 276.15 | | | 173,364 | | | $ | 176.82 | |
Performance shares (1) | 161,030 | | | $ | 332.17 | | | 206,018 | | | $ | 207.07 | |
(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. Beginning with the 2024 grant year, for stock options and RSUs granted to retirement eligible employees, the Company recognizes expense over the period during which an employee is required to provide service in exchange for the award, which is generally 12 months. For awards granted to retirement eligible employees prior to 2024, the Company recognized expense for the 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 six months ended June 30: