Electrical Products Group. Longboat Key, Florida

Transcription

1 Electrical Products Group Longboat Key, Florida May 21, 2007

2 Full Disclosure Statement Comments in this presentation contain certain forward-looking statements, which are based on management s good faith expectations and beliefs concerning future developments. Actual results may differ materially from these expectations as a result of many factors, relevant examples of which are set forth in the company s 2006 Annual Report on Form 10-K and in the Management s Discussion and Analysis section of the company s Quarterly Reports on Form 10-Q. American does not undertake any obligation to update such forward-looking statements. This presentation contains certain non-gaap financial measures as that term is defined by the SEC. Non-GAAP financial measures are generally identified by adj. or adjusted and also include total segment income and free cash flow. Reconciliation of the non-gaap financial measures to the most comparable GAAP measure are set forth on the presentation. Certain historical data is presented on a proforma basis and are different from GAAP financial measures because of assumptions relating to tax rates and allocation of corporate expenses. They represent management s best estimates of proforma earnings and free cash flow. Data contained in subsequent filings resulting from the separation plan may modify these estimates and will include additional items as required for GAAP financials. All market and industry data, including American s percentage of market shares, are based on company estimates.

3 Our Agenda American 2007 The New ASD TRANE Look at 2007 Our Future - Growth - Profitability Questions and Answers Thanks It s s Nice to Be Here 3

4 First Quarter Results Adjusted Basis, Ex FX 1Q 06 1Q 07 Sales 2,552 2,824 Trane HVAC up 10% +11% WABCO VCS up 8% Bath & Kitchen up 3% Segment Income Trane HVAC up 19% +17% WABCO VCS Flat Bath & Kitchen up 260% Operating Margin 8.1% 8.8% Trane HVAC up 80 bps +0.7 pts EPS - Adjusted $0.43 $0.58 Up 35% - Reported $0.40 $0.84 Up 110% Free Cash Flow (61) 54 Up $115M WABCO VCS down 110 bps Bath & Kitchen up 140 bps Good Start to 2007, But It s s History 4

5 Full Year 2007 Outlook (1) February FY 07 Earnings Guidance: $3.15 to $3.25 FY 06 Adj. Seg.. Income $797M $269M $29M ($11M Excl. Venesta) Other Items: Segment Income Outlook Full Year 2007 Trane HVAC $960M Flat to + Commercial + Residential (-)( WABCO $285M + ~$30M Euro Truck Builds + Bath & Kitchen $70M + ~$20M $90M Even After Sale of Venesta Business - Corporate Contingency Remains ~ $55M - Tax Rate: Holding To 30.5% Rate - Shares / Interest / Corp. = $(0.02) Refer to Slide #29 for Footnotes Feb Est. (2) Increased Earnings Outlook For Full Year Outlook ~ $50M Better = +$0.17 New Range: $3.30 to $3.40 Vs. FY 06 Adj. EPS $2.67 Up ~ 25% 5

6 3 Separate Businesses: 2007 An Update Trane HVAC $6.8B Sales* WABCO Vehicle Controls $2.0B Sales* American Bath & Kitchen $2.4B Sales* Retain Spin Sell * Full Year 2006 Sales WABCO Spin-Off Form 10 Filed (Initial + Amended) Tax Rulings Filed Corporate Leadership Established Update Bath & Kitchen Sale First Round Bids Received Management Presentations Done Buyers Working Their Process On Track To Complete By Early Fall On Track To Complete By Early Fall Good Progress And On Schedule 6

7 Trane Overview Commercial Global Leader One Big Residential US Premium Leader Trane: The New ASD 7

8 Trane Sales Growth Trane $4.3B 20% 20% 60% Sales Growth, % CAGR % +11% +7% 11% CAGR Growth 7% CAGR Growth Limited Growth 14% CAGR Growth 17% CAGR Growth 6% CAGR Growth Trane $6.8B Trane $7.5B 25% 30% 45% Residential Parts, Services & Solutions Commercial Equipment & Systems Commercial Downturn in NA Service Growth Starting to Invest Residential Growth in Core Hot & Cold in Healthy Market Commercial Recovery in NA Service Growth Accelerates Residential Growth with Some Impact from Housing Large, Growing and Balanced 8

9 Global Commercial Orders U.S Commercial Orders, YOY % Change +5% +7% +13% International Commercial Orders, YOY % Change ex FX, ex Aus divest 60-65% 65% of Global Orders +25% 35-40% of Global Orders +12% +6% +19% +16% Q 2007 Steady Order Growth on Annual Basis Individual Quarters Impacted by Price Increase Timing - Price Increase in 2Q 2006 Unitary Orders Strong Since 2004 Applied Orders Flat to Negative 03-05, 05, Sustained Upturn Began in 2006 Overall Upward Trend, Individual Quarters Fluctuate Q 2007 Europe / Middle East - Strong Applied Orders Driven by Large Middle East Projects Latin America - Venezuela, Mex., Brazil Growing 20% Asia: - Up 25% in 2006, Slower Start to 07 9

10 2007 U.S. Residential Outlook Market for Residential New Construction and Replacement Units New Housing Down Further Than Expected Now Estimate Down as Much as 20% Aging Installed Base Continues to Drive Replacement Trane and American s s Sweet Spot Overall, Market Flat to Down Modestly May Be Tougher Market, Weather Still Important 10

11 Update on Commodities Copper Market Price, $/lb Aluminum Market Price, $/lb $4.00 April YTD $2.90 $4.00 $3.50 $3.00 $2.50 $ % $ % $3.50 $3.00 $2.50 5/17 $1.26 $2.00 $1.50 $1.00 $0.50 $1.64 5/11 $3.60 5/ / / / $2.00 $1.50 $1.00 $0.50 $0.90 $ % $ % $0.00 1Q 05 2Q 05 3Q 05 4Q 05 1Q 06 2Q 06 3Q 06 4Q 06 1Q 07 2Q 07 3Q 07 4Q 07 $0.00 1Q 05 2Q 05 3Q 05 4Q 05 1Q 06 2Q 06 3Q 06 4Q 06 1Q 07 2Q 07 3Q 07 4Q 07 Purchase ~70M lbs Direct Guidance Assumes Market Price of ~$3.50 / lb for Q2-Q4 Q4 Sensitivity: 2Q 4Q 2007 $0.10 Δ in Cu = $0.02 Δ in EPS Purchase ~80M lbs Guidance Assumes Market Price of ~$1.26 / lb for Q2-Q4 Q4 Sensitivity: 2Q 4Q 2007 $0.10 Δ in Al = $0.02 Δ in EPS Copper: $3.50 Plus or Minus Who Knows? 11

12 Trane Segment Income and Margin $M Segment Inc. Growth, % CAGR % +15% +10% Trane Adjusted For Streamlining, Goodwill, Options & Asset Sale Trane 11.2% $556M 11.1% 10.3% 11. 1% 11.2% 10.5% 10.4% Trane $797M 11.8% Trane $960M 12.8% Commercial Downturn in NA Stable Commodities Limited Productivity, More Investment Residential Growth in Healthy Mkts Commercial Recovery in NA Commodities vs Price Causes Headwinds Better Productivity, Continued Investment Residential Remains Good, Despite Housing Progress And More To Come 12

13 Global HVAC Equipment & Systems = % of Trane global equipment sales Commercial 45% Industrial 22% Institutional 33% Lodging Airports Stadiums Entertainment Retail Offices Food & Beverage Pharma / Life Science Other Electronics Process Healthcare Gov t Education Segment Size $7B+ $3B+ $5B+ # Customers Segment Attributes 100,000 s 1,000 s 10,000 s Local/Regional Customers Comfort Cooling &Heating Air Management Many Global Customers Process Cooling System Efficiency/Reliability Local, State And Federal Comfort Cooling & Heating Energy Management Customer Requirements Tenant Satisfaction Staff And Energy Efficiency Reliability Local Service Capability Process Yield And Reliability Ownership Cost Compliance Monitoring/Svc. Response Energy Efficiency Occupant Outcomes & Environment Facilities Management Leadership In Diverse Markets Lots & Lots of Customers 13

14 Solutions Development Roadmap Solutions Value Customer Value Drivers Equipment & Systems Differentiated Products & Features Sys. Integration Controls Quality And Reliability Delivery & Availability Price Equip.-Based Services Current Maint. & Repair Installation & Commissioning Start-up Spare Parts Mat ls/supplies Emerging Component Rebuild Perf. Monitoring System-Based Services Installation & Commissioning Nat l / Global Servicing 24/7 Monitoring System Audit & Optimization Owner / Operator Solutions Customers Trust Trane s Knowledge & Abilities Project Mgmt. Energy Mgmt. Plant Mgmt. Turnkey Plant Development & Replacement Perf. Contracts Market Potential $25B $40B $15B $40B $120B Addressable $15B $25B $5B $2-5B $46-50B Trane Maturity Doing More For Our Customers 14

15 Strong Future Growth Global New Construction and Replacement - Non-Residential: Strong Growth Continues - US Residential: Return to Normal in 08 and 09 Global Service Opportunities Growing Impact of: + - Energy Pricing at High Levels - Global Warming Concerns - Indoor Air Quality Awareness Focus on Energy Efficiency Strong Short and Long Term Growth Drivers 15

16 % +1% U.S. Non-Residential Market Construction Put in Place ($M) 2.1% CAGR 8.3% CAGR Growth Rate 4.5% Incl. Price -6% -3% +6% +6% +10% +9% +9% +8% +8% Manufacturing 0.7% 11.5% Communication -3.2% 6.2% Transportation 4.6% 7.2% Amusement 1.3% 7.5% Public Safety 1.6% 9.0% Religious -0.5% 3.5% Education 5.7% 9.2% Health Care 9.0% 10.0% Commercial 2.6% 7.2% Source: FMI Trane Projections Based on 6-7% 6 Growth All 9 Key Segments Growing 06 to 10, Particular Strength in - Education, Health Care and Manufacturing Trane Strong In All These Growth Areas 16

17 U. S. Energy Use By Sector Transportation 28% Residential Buildings 21% Industry 33% 72% Energy Consumed by HVAC as % of Total Sector Residential 40-50% Commercial 30-50% Commercial Industry 10-20% Buildings 18% Source: DOE Source: IEA 2004 Energy Consumption 100 Quadrillion BTUs Operating HVAC Systems Uses 15-25% of Total US Energy Consumption Improving HVAC System Efficiency is a Large Opportunity 17

18 Energy Costs and HVAC Chillers 100% 80% 60% 40% 20% 0% 22K Units Shipped 25K 30K 40K 0.45 kw/ton % Units Shipped Still in Place COP - Trane COP - Others 1960's 1970's 1980's 1990's Payback Analysis based on Current Coefficient of Performance Paybacks are Approximate Vintage Others Trane Today Trane Future 60 s 3 Yrs 2 Yrs 1.5 Yrs 70 s 6 Yrs 4 Yrs 3.5 Yrs 80 s 12 Yrs 8 Yrs 6.5 Yrs 90 s 22 Yrs 15 Yrs 12 Yrs Trane Future = 20% Improvement Higher Energy and Efficiency Can Accelerate Chiller Replacement Cycle 18

19 Reducing Energy and Operational Costs Today 35% Energy Reduction Plus Install / Service Benefits Energy = Energy = 240 units Fundamental Operational 155 units Advanced Compression Easy to Install Chiller Chiller Next Gen Heat Exchangers Improved Reliability 100 units 80 units High Speed Drives Reduced Footprint/Size Auxilliaries 85 Systems Integration Optimize Flow & Delta T Reduce Transport Losses Smaller Pipes Easier to Install / Lower Cost Less Install Time / Labor Aux. 50 A/H 55 3D Aero Design Variable Speed Drives High Efficiency Motors Smaller Foot Print Occupant Productivity Energy Savings A/H 25 Controls Adaptive Control Real-Time Optimization Self-Healing Networks Self Configure/Tune Plug-n-Play Play Installation Failure Avoidance Advanced Controls Building and Systems Knowledge Enables Even More Reductions Creating a Fast Replacement Cycle - A More Valuable Service Business 19

20 Residential HVAC Better Efficiency, Comfort, Reliability, IAQ Fewer Callbacks 20 Energy 100 units Dual Compressor Duty Cycle Savings True Redundancy Less On/Off Cycles Variable Speed Motors Higher Efficiency Better SHR / Comfort Communicating Controls Charge Monitor/Assist Auto Air Flow Set-up Real-Time Optimization 30% Energy Reduction Energy 70 units + Superior Value Humidity Control Indoor Air Quality Low Noise Less Temperature Fluctuations Improved Comfort Diagnostics / Peace of Mind 13 SEER 19 SEER

21 Buildings and Carbon Emissions Energy Consumed in Existing Buildings Responsible for Significant nt Carbon Emissions % of Carbon Emissions Attributed to Existing Buildings 79% Retrofits Enable 20-50% Energy Savings 30% >30%, But Significant New York City United States World Improving Energy Efficiency Addresses This Issue 21

22 The Clean Air Spectrum Your Home $1,400 Solution 99.98% Removal Of Particles Low Pressure Drop Low Maintenance Breakthrough Technology Installed Base Opportunity 70 M Homes - With Central Heating & A/C units average per home - 60% Concerned about IAQ 5M Buildings in U.S. - Equals 78 B sq. ft. - Concerns Increasing about IAQ - Additional Safeguards Considered against Chem / Bio Threats Federal Building ~ $50,000 Solution Combination of Multiple Technologies HEPA Filters Photocatalytic (PCO) Photoplasma Activated Carbon Germicidal Trane Technology & Products Cover Full Range of Buildings 22

23 $4.3B 20% 20% 60% Sales Growth, % CAGR Comm l Downturn in NA Service Growth Starting to Invest Residential Growth in Core Hot & Cold in Healthy Market Trane Sales Growth +3% +11% +10% $7.5B $6.8B $5.0B NA Comm l Recovery Service Growth Accelerates Residential Growth w/ Some Housing Impact 25% 30% 45% 9+% Growth Recovery Continues Service Continues Healthy Growth Residential Growth Beyond Hot & Cold - Housing Improves Even Larger, Healthy Growth, More Balance $9.8B Could be $10B Residential Parts, Services & Solutions Commercial Equipment & Systems 23

24 Trane Segment Income and Margin 1,600 1,400 1,200 1, Segment Inc. Growth, % CAGR % +15% +15% Adjusted For Streamlining, Goodwill, Options Expensing 10.3% 10.5% 11.8% EBIT Margin 9.6% 12.8% EBIT Margin 10.0% Op. Margin ~14% EBIT Margin 11.7% Comm l Downturn in NA Stable Commodities Residential Growth in Core Hot & Cold in Healthy Market EBIT Margin on Stand-alone alone Basis NA Comm l Recovery Commodity Cost Inflation, Some Price Residential Growth and Better Mix Higher Growth Enhanced Productivity May be Tailwinds from Commodity / Price More Growth, Better Productivity Drive Higher Profits 24

25 Trane Summary Commercial Global Leader One Big Residential US Premium Leader Bigger and Better Business Today Even More Tomorrow Markets are Stronger Today Even Stronger Tomorrow Materials Headwinds Today May be Tailwinds Tomorrow Productivity Better Today Even More Tomorrow Trane: The New ASD 25

26 Appendix Reconciliation of Non-GAAP Financial Measures

27 27 Sales Growth Reconciliation Reconciles Information on Slide 3 1Q 2006 $M Air Conditioning Vehicle Controls Systems Continuing Operations Disc. Ops Bath & Kitchen Total Sales, Reported $ $479.9 $ $608.7 $ Less: Divestiture $(16.7) -- $(16.7) -- $(16.7) Adj. Sales $ $479.9 $ $608.7 $ Q 2007 $M Air Conditioning Vehicle Controls Systems Continuing Operations Disc. Ops Bath & Kitchen Total Sales $ Foreign Exchange $(14.1) Adj. Sales $ $558.8 $ $657.9 $ $(42.1) $(56.2) $(32.8) $(89.0) $516.7 $ $625.1 $ YOY% 10.1% 7.7% 9.5% 2.7% 7.9%

28 Segment Income Reconciliation Reconciles Information on Slide 3 $M Air Conditioning Vehicle Controls Systems 1Q 2007 Continuing Operations Disc. Ops Bath & Kitchen Total Sales Foreign Exchange Adj. Sales $ $(14.1) $ (A) $558.8 $(42.1) $516.7 $657.9 $(32.8) $625.1 $ $(89.0) $ Segment Income $157.3 $73.7 $231.0 $105.9 $336.9 Reported Operating Margin* % 9.8% 13.2% 10.7% 16.1% 11.9% Add Back / Less: Operational Cons. Exp. $0.2 $0.9 $1.1 $7.7 $8.8 Depr. & Amort $(14.8) $(14.8) Asset Sale ($80.8) $(80.8) Adj. Segment Income $157.5 $74.6 $232.1 $18.0 $250.1 Adj. Operating Margin % 9.8% 13.3% 10.7% 2.7% 8.9% Less: Foreign Exchange $(0.8) $(5.7) $(6.5) $(3.7) $(10.2) Adj. Segment Income $156.7 $68.9 $225.6 $14.3 $239.9 Adj. Margin % 9.8% (A) 13.3% $ $(56.2) $ % (A) 2.3% (A) 8.8% (B) (A) See explanation on next page (B) See explanation on next page *Operating Margin is segment income as a percent of segment sales 28

29 29 Segment Income Reconciliation (A) Segment income for Air Conditioning, Bath and Kitchen, and Vehicle Control Systems are not individually reconciled to income before income taxes as a significant portion of the items excluded from segment income are not directly related to the individual segments. These items include, but are not limited to, interest expense, corporate and other expenses, and income taxes. Since these items are not directly controlled by the individual segment managers, and any allocation would be arbitrary, we do not believe reconciliations on an individual segment basis would be meaningful to understanding the Company s financial condition or results of operations. Accordingly, segment income for each business excluding the items identified above, more accurately presents the performance of each business over which management of each business has the ability to control. (B) The most comparable GAAP measure is income before income taxes. The reconciliation is as follows: Income before income taxes of $250.1 million equals total segment income of $336.9 million, plus equity in net income of unconsolidated joint ventures of $7.5 million, less interest expense of $28.5 million and corporate and other expenses of $65.8 million.

30 Segment Income Reconciliation Reconciles Information on Slide 3 1Q 2006 $M Air Conditioning Vehicle Controls Systems Continuing Operations Disc. Ops Bath & Kitchen Total Sales $ $479.9 $ $608.7 $ Segment Income, Reported $130.8 Add Back: Operational Cons. Exp. Adj. Segment Income Adj. Operating Margin % $0.5 $1.5 $2.0 $6.0 $131.3 $69.3 $200.6 $ % (A) $67.8 $198.6 $(0.5) $198.1 Reported Operating Margin* % 8.9% 14.1% 10.2% (0.1)% 7.8% 14.4% (A) 10.3% (A) 0.9% (A) $8.0 $ % (B) (A) See explanation on prior page (B) See explanation on prior page *Operating Margin is segment income as a percent of segment sales 30

31 Earnings Per Share Reconciliation Reconciles Information on Slide 3, 4 $M Net Income Reported Streamlining Expenses, Net of Tax Asset Sales and Tax Items Adjusted Net Income 1Q 06 $ $89.4 FY 06 $ (33.8) $550.8 Reported EPS Adjusted EPS $0.40 $0.43 $2.62 $2.67 Diluted Shares

32 Reconciles Information on Slide 3, EPS Reconciliation $M 1Q 07 Outlook FY 07 Net Income Reported Add Back: Streamlining, Net of Tax Adjusted Net Income $ $ Asset Sales & Certain Tax Items (56.2) (56.2) Separation Costs, Net of Tax Other Adjustments (A) $119.0 $ $701.3 Reported EPS $0.84 $ $3.73 Adjusted EPS $0.58 $ $3.40 Diluted Shares (10.8) (64.0) (A) Includes Depreciation & Amortization From Discontinued Operations, Net of Tax 32

33 Free Cash Flow 33 Reconciles Information on Slide 3 ( ) = Unfavorable to Cash Flow $ in Millions Net Income (Reported) Depreciation & Amortization Capital Expenditure 1Q 07 $173 $68 ($53) 1Q 06 $84 $68 ($49) Working Capital ($129) ($110) Other Items Free Cash Flow ($5) $54* ($54) $(61) * Includes $65M Insurance Settlement and Includes Bath & Kitchen Results

34 34 Reconciles Information on Slide 4 Segment Income Segment Income Reconciliation ($M) Outlook 2007 FY 2006 Trane Segment Income, Reported Add Back: Streamlining Less: Asset Sale -- (15.4) Trane Segment Income, Adjusted WABCO Segment Income, Reported ~ Add Back: Streamlining WABCO Segment Income, Adjusted ~ Bath & Kitchen Segment Income, Reported ~ (18.4) Add Back: Streamlining Less: Asset Sale (80.8) (6.3) Less: Deprecation / Amortization (85.2) -- Bath & Kitchen Segment Income, Adjusted ~ Less: Contingency (55.0) N/A Total ASD Segment Income, Adjusted ~

35 35 Reconciles Information on Slide 9, 24 Trane Segment Income Reconciliation ($M) e Sales Seg. Income, Rpt d Add Back: Streamlining Goodwill Amort Less: Asset Sale (15.4) -- Stock Option Exp. (7.2) (9.2) (9.5) (11.1) (9.5) (8.3) (9.9) Seg. Income, Adj Adj. Seg. Margins 10.3% 11.1% 11.1% 11.2% 10.5% 10.4% 11.2% 11.8% 12.8%

36 Reconciles Information on Slide 24 Trane EBIT & EBITDA Reconciliation Proforma $M Net Income Income Tax Interest Expense EBIT ,150 Depreciation & Amortization EBITDA ,005 1,270 36