Delivering Safety, Comfort and Efficiency Around the World
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Ingersoll Rand 2010 Annual Report 2011 Notice and Proxy Statement Delivering safety, comfort and efficiency around the world Delivering safety, comfort and efficiency around the world For schools K-12, colleges and universities, we help create campuses where students succeed, teachers excel, and parents and the community can put their trust. Wherever there are people – and the need for safety, comfort and efficiency – you will find Ingersoll Rand. Our 58,000 employees and family of market-leading brands are committed to helping meet the critical need for clean and comfortable air, secure homes and buildings, safe and fresh food, energy efficiency and sustainable business practices around the globe. Our Values Integrity Respect Teamwork Innovation Courage We act in the highest We communicate and We work together We use our diverse We speak up for legal and ethical standards act in ways that respect and share resources skills, talents and ideas what is right and take in everything we do. and value the worth to provide greater to develop innovative, measured risks so our of all people, cultures, value to our customers, imaginative and company can thrive. viewpoints and fellow employees, creative solutions for backgrounds. business partners our customers. and shareholders. Our Well-Known Brands Ingersoll Rand is a diversified industrial manufacturer with market-leading brands serving customers in global commercial, industrial and residential markets. Our roster of brands includes well-known names, such as those listed here, and dozens of highly regarded regional brands serving a variety of market segments. This report and the sustainability pages at www.ingersollrand.com comprise the company’s Global Reporting Initiative (GRI) report. We self-declare this report meets the requirements of a B level standard under the GRI G3 guidelines. The following letter to shareholders contains “forward-looking statements,” which are any statements that are not historical facts. These include, but are not limited to, statements regarding our 2013 framework. These forward-looking statements are based on our current expectations and there can be no assurance that such expectations will prove to be correct. Forward- looking statements are subject to changes in circumstances, risks and uncertainties, which may cause actual results, performance or achievements to differ materially from anticipated results, performance or achievements. General U.S. and international economic and political conditions, the outcome of litigation and governmental proceedings, changes in government regulations and tax laws and the impact of our incorporation in a non-U.S. jurisdiction, such as Ireland, are examples of factors, among others, that could cause actual results to differ materially from those anticipated in the forward-looking statements. Other factors that could cause such differences can be found under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Form 10-K for the year ended December 31, 2010 and subsequent reports on Forms 10-Q and 8-K. We disclaim and do not undertake any obligation to update or revise any forward-looking statement in this letter to shareholders, except as required by applicable law or regulation. Dear Shareholder: 2010 was a turning point for our company. Thanks to the dedication and passion of 58,000 Ingersoll Rand employees around the globe, we emerged from a very diffi cult economic climate stronger and more focused on achieving higher levels of performance as we fulfi ll our mission of making the world safer, more comfortable and more effi cient. We realized strong fi nancial results in 2010, delivering 60 percent earnings per share (EPS) growth, improved return on invested capital, enhanced productivity and increased revenue from innovation. We are committed to sustaining and improving excellence in our fi nancial performance, and we have built a strong foundation for success. Today, Ingersoll Rand is in the right markets at the right time with growth-oriented businesses, market-leading brands and signifi cant opportunities to meet increasing global needs for safety, comfort and effi ciency. We are equally committed to excellence in how we serve our customers, engage our employees, manage our operations, support the communities in which we live and work, and protect the natural environment. As a visible demonstration of these commitments, we have combined our 2010 Annual Report with our annual Sustainability Report. Within this integrated report, we hope to communicate a transparent, straightforward and objective review of our Michael W. Lamach 2010 performance, along with the broader social and environmental trends infl uencing Chairman, President and Chief Executive Offi cer our business priorities and our outlook on the company’s opportunities. Delivering Strong Performance In my fi rst year as CEO, we laid out aggressive targets to achieve premier levels of fi nancial performance as benchmarked against 16 of our best diversifi ed industrial peers and competitors. This focus resulted in strong progress last year toward those targets. Across the company, we feel that we made a commitment to you and that we met that commitment in 2010. Our full-year revenues increased 7.5 percent to $14 billion, exceeding our target range, as innovation and new product programs gained traction. In 2010, about $2.4 billion, or 17 percent of our revenues, were from products introduced over the last three years. An example is our Trane ComfortLink™ Thermostat that serves as an easy-to-use central planning center to keep homeowners comfortable while better managing energy use. Another is our Schlage aptiQ™ Smart Card that gives business owners peace of mind with the highest security in the industry to prevent unauthorized access and ensure the safety of their most sensitive data. Balancing innovations like these with the continued pursuit of productivity is critical to market share gain and margin expansion. Our operating margins increased by 2.2 percentage points as we made excellent gains in productivity and began our long-term lean transformation journey. Productivity savings added close to $1.50 to 2010 EPS and helped offset more than $400 million of infl ation. We generated strong cash fl ow of 1.4 times after-tax income and restored our balance sheet. We also made progress on aligning our organization and incentive structure to our metrics of operating margin expansion, revenue growth and cash generation to drive profi table growth. Accelerating Toward Premier Performance Last year we demonstrated our unrelenting focus on driving premier performance. We set aggressive targets and held the course, determined to make progress toward the long-term goals laid out in our 2013 framework. We capitalized on increased investment in innovation, realizing productivity and building strong leadership focused on meeting our commitments. You can expect to see constant progress on an annual basis toward the targets we have set. 2010 Annual Report 1 2013 Framework ● Annual revenue growth of 7 to 8 percent ● Two percentage points of annual operating margin growth to achieve an earnings per share (EPS) of $5.00 to $5.75 ● Available cash fl ow equal to or greater than 100 percent of after-tax income ● 25 percent of revenue from any product or service developed in the last three years Revenues I am confi dent we have the capability, opportunity and tenacity to continually challenge In Billions ourselves and become the premier performer in the marketplace. 7.5% $15 Moving forward, we are more focused than ever on balancing short-term results with long-term value creation. Our priorities for winning over the long term are as follows: 1) Growth through innovative, customer-driven solutions, along with expansion in $10 emerging markets and services; 2) Building a progressive, diverse and inclusive culture that fosters a sense of belonging and engagement, and spurs innovation and creativity; and $5 3) Deploying and executing an operational excellence transformation plan to reduce waste and delight our customers with value as they defi ne it. 0 Grow through Innovation 2009 2010 In each of the past two years, we have increased our product development investment by $50 million. This continued investment enables Ingersoll Rand employees to fi nd new opportunities to serve customer needs, enhance operations and improve fi nancial performance. Operating Margins Much of our growth over the past fi ve years, and our outlook for the next few years, is a direct result of increased investment in product and service development, as well as 2.2 percentage points 9% distribution in emerging markets, which represent our areas of strongest opportunity. We are building a workplace that promotes innovation and provides an environment where reasonable risk to test new ideas is encouraged and rewarded. Expanding our investment and commitment to innovation will continue to play a key role in helping us 6% enhance our overall performance and realize new growth opportunities with customers around the world, regardless of market conditions. 3% Build a Progressive, Diverse and Inclusive Work Environment An Ingersoll Rand workplace that is progressive, diverse and inclusive is essential to enable innovation and creativity, growth through globalization and development of customer 0 2009 2010 solutions in a way that distinguishes us from our competitors. We are creating an environment where differences are understood and appreciated – a progressive workplace where we embrace diversity of thought, rapidly adapt to change, empower employees to effect change, and reward and recognize those who do. Earnings Per Share Achieve Operational Excellence $3.00 At its core, operational excellence is about continuous improvement – not just in the manufacturing facility, but anywhere and everywhere we do work. It enables us to reduce 60% waste, improve and standardize work fl ow, and engage those closest to the process. Through $2.00 operational excellence initiatives, we ensure that we are meeting customer expectations for quality, delivery and cost that bring value and secure long-term loyalty.