EXHIBIT 13
Consolidated Statement of Income
In millions except per share amounts
For the years ended December 31 2000 1999 1998
Net sales $8,798.2 $7,842.6 $7,540.2
Cost of goods sold 6,461.0 5,690.9 5,543.3
Selling and administrative
expenses 1,146.7 1,052.4 1,027.8
Restructuring charges 76.2 - -
Operating income 1,114.3 1,099.3 969.1
Interest expense (253.7) (203.1) (224.1)
Other income (expense), net (15.3) (22.3) (15.3)
Minority interests (39.3) (29.1) (23.5)
Results from assets held for
sale (net of tax) 23.3 18.2 26.1
Earnings before income taxes 829.3 863.0 732.3
Provision for income taxes 283.1 299.9 250.7
Earnings from continuing
operations 546.2 563.1 481.6
Discontinued operations
(net of tax) 123.2 28.0 27.5
Net earnings $ 669.4 $ 591.1 $ 509.1
Basic earnings per share
Continuing operations $3.39 $3.44 $2.94
Discontinued operations 0.76 0.17 0.17
$4.15 $3.61 $3.11
Diluted earnings per share
Continuing operations $3.36 $3.40 $2.91
Discontinued operations 0.76 0.17 0.17
$4.12 $3.57 $3.08
See accompanying Notes to Consolidated Financial Statements.
Consolidated Balance Sheet
In millions except share amounts
December 31 2000 1999
Assets
Current assets:
Cash and cash equivalents $ 74.4 $ 222.9
Marketable securities 125.6 0.5
Accounts and notes receivable, less
allowance for doubtful accounts of
$42.8 in 2000 and $33.4 in 1999 1,323.5 988.5
Inventories 1,022.9 742.1
Prepaid expenses 82.0 60.7
Assets held for sale 612.4 799.7
Deferred income taxes 82.0 53.9
3,322.8 2,868.3
Investments in and advances with
partially owned equity affiliates 167.6 198.2
Property, plant and equipment, at cost:
Land and buildings 698.8 570.3
Machinery and equipment 1,719.1 1,514.6
2,417.9 2,084.9
Less-accumulated depreciation 889.9 844.7
1,528.0 1,240.2
Intangible assets, net 5,105.3 3,726.3
Deferred income taxes 114.1 158.0
Other assets 290.7 209.2
$10,528.5 $8,400.2
Liabilities and Equity
Current liabilities:
Accounts payable and accruals $ 1,698.7 $1,224.4
Loans payable 2,121.8 495.5
Income taxes 146.1 19.0
3,966.6 1,738.9
Long-term debt 1,540.1 2,113.3
Postemployment and other benefit
liabilities 824.8 805.0
Minority interests 110.5 95.7
Other liabilities 188.8 161.8
6,630.8 4,914.7
Company obligated mandatorily redeemable
preferred securities of subsidiary trust
holding solely debentures of the company 402.5 402.5
Shareholders' equity:
Common stock, $2 par value, authorized
600,000,000 shares; issued:
2000-171,466,627; 1999-171,168,096 343.1 342.3
Capital in excess of par value 258.8 237.8
Retained earnings 3,612.7 3,053.1
4,214.6 3,633.2
Unallocated LESOP shares, at cost (1.8) (16.5)
Treasury stock, at cost (471.0) (356.7)
Accumulated other comprehensive income (246.6) (177.0)
Shareholders' equity 3,495.2 3,083.0
$10,528.5 $8,400.2
See accompanying Notes to Consolidated Financial Statements.
Consolidated Statement of Shareholders' Equity
In millions
Capital in Accumulated
Total excess other
shareholders' Common stock of par Retained Unallocated Treasury comprehensive Comprehensive
equity Amount Shares value earnings LEOP stock income income
Balance at December 31, 1997 $2,364.8 $334.8 167.4 $ 92.4 $2,156.5 $(41.4) $ (44.5) $(133.0)
Net earnings 509.1 509.1 $509.1
Foreign currency translation 2.5 2.5 2.5
Total comprehensive income $511.6
Shares issued under stock and
incentive plans 48.0 3.0 1.5 45.0
Issuance of equity-linked
securities (16.4) (16.4)
Allocation of LESOP shares 26.8 12.4 14.4
Purchase of treasury shares (106.4) (106.4)
Cash dividends (98.3) (98.3)
Balance at December 31, 1998 2,730.1 337.8 168.9 133.4 2,567.3 (27.0) (150.9) (130.5)
Net earnings 591.1 591.1 591.1
Foreign currency translation (46.5) (46.5) (46.5)
Total comprehensive income $544.6
Shares issued under stock and
incentive plans 94.8 4.5 2.3 90.3
Allocation of LESOP shares 24.6 14.1 10.5
Purchase of treasury shares (205.8) (205.8)
Cash dividends (105.3) (105.3)
Balance at December 31, 1999 3,083.0 342.3 171.2 237.8 3,053.1 (16.5) (356.7) (177.0)
Net earnings 669.4 669.4 669.4
Foreign currency translation (86.0) (86.0) (86.0)
Unrealized gain on marketable
securities 16.4 16.4 16.4
Total comprehensive income $599.8
Acquisition of business 6.4 6.4
Shares issued under stock and
incentive plans 11.7 0.8 0.3 10.3 0.6
Allocation of LESOP shares 25.4 10.7 14.7
Purchase of treasury shares (121.3) (121.3)
Cash dividends (109.8) (109.8)
Balance at December 31, 2000 $3,495.2 $343.1 171.5 $ 258.8 $3,612.7 $ (1.8) $(471.0) $(246.6)
See accompanying Notes to Consolidated Financial Statements.
Consolidated Statement of Cash Flows
In millions
For the years ended December 31 2000 1999 1998
Cash flows from operating activities:
Income from continuing operations $ 546.2 $ 563.1 $ 481.6
Adjustments to arrive at net cash
provided by operating activities:
Restructure charges 76.2 - -
Depreciation and amortization 297.0 272.4 263.6
Gain on sale of businesses (36.1) (14.6) (6.6)
Gain on sale of property, plant
and equipment (5.0) (3.4) (8.9)
Minority interests, net of dividends 4.9 (0.2) 0.7
Equity earnings/losses,
net of dividends (6.1) (3.1) (6.9)
Deferred income taxes 8.5 41.8 6.2
Other items 35.7 40.9 26.7
Changes in assets and liabilities
(Increase) decrease in:
Accounts and notes receivable (18.1) (57.7) 109.3
Inventories (175.9) 56.7 (76.0)
Other current and noncurrent
assets 14.7 12.8 21.0
Increase (decrease) in:
Accounts payable and accruals 93.5 (55.6) 86.0
Other current and noncurrent
liabilities (61.4) 1.6 (11.0)
Net cash provided by operating
activities 774.1 854.7 885.7
Cash flows from investing activities:
Capital expenditures (186.6) (190.5) (200.9)
Proceeds from sales of property,
plant and equipment 27.4 30.4 22.9
Proceeds from business dispositions 950.3 84.8 58.0
Acquisitions, net of cash (2,336.6) (161.2) (55.6)
(Increase) decrease in marketable
securities (3.3) 1.5 1.8
Cash provided by (invested in) or
advances from(to) equity companies 11.6 (2.0) 11.9
Net cash used in investing
activities (1,537.2) (237.0) (161.9)
Cash flows from financing activities:
Increase (decrease) in short-term
borrowings 947.6 (36.8) (711.9)
Proceeds from long-term debt 3.1 21.5 0.2
Payments of long-term debt (80.9) (252.2) (261.2)
Net change in debt 869.8 (267.5) (972.9)
Net proceeds from issuance of equity-
linked securities - - 389.6
Proceeds from exercise of stock
options 8.3 70.2 36.2
Purchase of treasury stock (121.3) (205.8) (106.4)
Dividends paid (109.8) (105.3) (98.3)
Other - 63.3 10.0
Net cash provided by (used in)
financing activities 647.0 (445.1) (741.8)
Net cash (used in) provided by
discontinued operations (22.1) 14.6 (6.0)
Effect of exchange rate changes on cash
and cash equivalents (10.3) (7.8) 1.0
Net (decrease) increase in cash
and cash equivalents (148.5) 179.4 (23.0)
Cash and cash equivalents-
beginning of year 222.9 43.5 66.5
Cash and cash equivalents-end of year $ 74.4 $ 222.9 $ 43.5
*Acquisitions:
Working capital, other than cash $ (727.5) $ (61.0) $ (13.5)
Property, plant and equipment (298.3) (13.0) (14.5)
Intangibles and other assets (1,562.2) (101.4) (34.9)
Long-term debt and other liabilities 251.4 14.2 7.3
Net cash used to acquire businesses $(2,336.6) $ (161.2) $ (55.6)
Cash paid during the year for:
Interest, net of amounts capitalized $ 346.8 $ 230.4 $ 206.1
Income taxes 175.7 217.7 245.4
In 1999, the company acquired the remaining 49% interest in IDP in a noncash
transaction by issuing a note for $377.0 million.
See accompanying Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
A summary of significant accounting policies used in the preparation
of the accompanying financial statements follows:
Principles of Consolidation: The consolidated financial statements
include all wholly owned and majority owned subsidiaries.
Intercompany transactions and balances have been eliminated.
Partially owned equity affiliates companiesare accounted for under
the equity method. In conformity with generally accepted accounting
principles, management has used estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and
expenses, and the disclosure of contingent assets and liabilities.
Significant estimates include accounting for doubtful accounts,
amortization and depreciation, warranty, sales returns, taxes,
environmental, product liability and other contingencies. Actual
results could differ from those estimates.
Reclassifications: Reclassifications were made to prior year
amounts to conform with the 2000 presentation. The results of
Dresser-Rand Company (D-R) have been reclassified from discontinued
operations on the consolidated income statement into results from
assets held for sale (net of tax) for all periods presented.
All amounts and percentages disclosed in these Notes do not include
discontinued operations or results from assets held for sale (net of
tax).
The company implemented Emerging Issues Task Force Issue No. 00-10
"Accounting for Shipping and Handling Fees and Costs" in the fourth
quarter of 2000. This required the company to include the revenues
billed for shipping and handling in net sales. The impact increased
net sales and cost of goods sold by $180.6 million in 2000, $175.9
million in 1999, and $155.5 million in 1998.
Cash Equivalents: The company considers all highly liquid
investments, consisting primarily of time deposits and commercial
paper with maturities of three months or less when purchased, to be
cash equivalents. Cash equivalents were $1.0 million and $73.0
million at December 31, 2000 and 1999, respectively.
Inventories: Inventories are stated at cost, which is not in excess
of market. Most domestically manufactured inventories, excluding
the Climate Control Sector, are valued on the last-in, first-out
(LIFO) method. The Climate Control Sector and foreign manufactured
inventories are valued using the first-in, first-out (FIFO) method.
Depreciation: The company principally uses accelerated depreciation
methods for assets placed in service prior to December 31, 1994.
Assets acquired subsequent to that date are depreciated using the
straight-line method over their estimated useful lives.
Intangible Assets: Intangible assets primarily represent the excess
of the purchase price of acquisitions over the fair value of the net
assets acquired. Such excess costs are being amortized on a
straight-line basis not to exceed 40 years. Net goodwill at
December 31, 2000 and 1999, was $4.9 billion and $3.7 billion,
respectively. Intangible assets are evaluated for impairment
whenever circumstances indicate that the carrying amounts may not be
recoverable. Intangible assets also include capitalized software,
debt issuance costs, and costs allocated to patents, trademarks and
other specifically identifiable assets arising from acquisitions.
These assets are amortized on a straight-line basis over their
estimated useful lives. Accumulated amortization at December 31,
2000 and 1999, was $481.8 million and $353.5 million, respectively.
Amortization expense was $135.4 million, $112.8 million and $110.1
million in 2000, 1999 and 1998, respectively.
Income Taxes: Deferred taxes are provided on temporary differences
between assets and liabilities for financial reporting and tax
purposes as measured by enacted tax rates expected to apply when
temporary differences are settled or realized. A valuation
allowance is established for deferred tax assets for which
realization is not likely.
Environmental Costs: Environmental expenditures relating to current
operations are expensed or capitalized as appropriate. Expenditures
relating to existing conditions caused by past operations, which do
not contribute to current or future revenues, are expensed. Costs
to prepare environmental site evaluations and feasibility studies
are accrued when the company commits to perform them. Liabilities
for remediation costs are recorded when they are probable and
reasonably estimable, generally no later than the completion of
feasibility studies or the company's commitment to a plan of action.
The assessment of this liability, which is calculated based on
existing technology, does not reflect any offset for possible
recoveries from insurance companies and is not discounted.
Revenue Recognition: Revenues are recognized on sales of product at
the time the goods are shipped and title has passed to the customer
or when services are performed. Provisions for discounts and
rebates to customers and other adjustments are provided for at the
time of sale.
Research and Development Costs: Research and development
expenditures, including qualifying engineering costs, are expensed
when incurred and amounted to $188.4 million in 2000, $186.2 million
in 1999 and $169.6 million in 1998.
Comprehensive Income: Comprehensive income includes net income,
foreign currency translation adjustments and unrealized holding
gains on marketable securities.
Foreign Currency: Assets and liabilities of foreign entities, where
the local currency is the functional currency, have been translated
at year-end exchange rates, and income and expenses have been
translated using weighted average-for-the-year exchange rates.
Adjustments resulting from translation have been recorded in
accumulated other comprehensive income and are included in net
earnings only upon sale or liquidation of the underlying foreign
investment.
For foreign entities where the U.S. dollar is the functional
currency, inventory and property balances and related income
statement accounts have been translated using historical exchange
rates, and resulting gains and losses have been credited or charged
to net earnings.
Foreign currency transactions and translations recorded in the
income statement decreased net earnings by $6.3 million in 2000 and
$8.0 in 1998 and increased net earnings by $2.5 million in 1999.
Accumulated other comprehensive income decreased in 2000 and 1999 by
$86.0 million and $46.5 million, respectively, due to foreign
currency equity adjustments related to translation and dispositions.
The company hedges certain foreign currency transactions and firm
foreign currency commitments by entering into forward exchange
contracts (forward contracts). Gains and losses associated with
currency rate changes on forward contracts hedging foreign
currency transactions are recorded currently in income. Gains and
losses on forward contracts hedging firm foreign currency
commitments are deferred off-balance sheet and included as a
component of the related transaction, when recorded; however, a loss
is not deferred if deferral would lead to the recognition of a loss
in future periods. Cash flows resulting from forward contracts
accounted for as hedges of identifiable transactions or events are
classified in the same category as the cash flows from the items
being hedged.
The company also purchases forward contracts to mitigate the
exposure of forecasted future cash flows of foreign subsidiaries.
These contracts range in duration from one to 12 months. Gains and
losses associated with the change in fair market value of these
contracts are recorded in other income (expense), net.
Earnings Per Share: Basic earnings per share is based on the
weighted average number of common shares outstanding. Diluted
earnings per share is based on the weighted average number of common
shares outstanding as well as potentially dilutive common shares,
which in the company's case comprise shares issuable under stock
benefit plans. The weighted average number of common shares
outstanding for basic earnings per share calculations were 161.2
million, 163.6 million, and 163.7 million for 2000, 1999 and 1998,
respectively. For diluted earnings per share purposes, these
balances increased by 1.2 million, 2.1 million, and 1.8 million
shares for 2000, 1999 and 1998, respectively, due to the effect of
common equivalent shares issuable under the company's stock benefit
plans.
Stock-based Compensation: The company continues to apply the
principles of APB No. 25 "Accounting for Stock Issued to
Employees,"and has provided pro forma fair value disclosures in Note
16.
New Accounting Standard: The company adopted SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities" and
its amendments as of January 1, 2001. The statement requires all
derivatives to be recognized as assets or liabilities on the balance
sheet and measured at fair value. Changes in the fair value of
derivatives will be recognized in earnings or other comprehensive
income, depending on the designated purpose of the derivative. The
company recorded approximately $1.2 million after tax as the
cumulative effect adjustment as a decrease to accumulated other
comprehensive income at January 1, 2001.
NOTE 2 - RESTRUCTURING: The company has undertaken a restructuring
program which includes such actions as plant rationalizations,
organizational realignments consistent with the company's new market-
based structure and the consolidation of back-office processes.
Restructuring charges incurred consist of costs associated with
severance and other employee termination benefits, and facility exit
costs including lease terminations. Charges related to employee
severance and other employee termination costs cover approximately
2,100 employees, of which 55% have been terminated as of December 31,
2000. The restructuring plan is expected to be substantially
complete by the end of 2001.
The company recorded pretax restructuring charges by business segment
for the year ended December 31, 2000 as follows:
In millions
Climate control $ 3.6
Industrial productivity
Air solutions 10.5
Bearings and components 11.5
Industrial products 6.0
Infrastructure 11.4
Security and safety 15.1
Corporate 18.1
Total $76.2
A reconciliation of the restructuring provision is as follows:
Employee
termination Facility
In millions costs exit costs Total
Provision $65.8 $10.4 $76.2
Cash payments (31.6) (0.5) (32.1)
Asset write-offs - (7.7) (7.7)
Balance at December 31, 2000 $34.2 $ 2.2 $36.4
NOTE 3 - ASSETS HELD FOR SALE: In August 1999, the company announced
its intention to dispose of its interest in D-R, a joint venture
involved in the reciprocating compressor and turbo machinery
business. On October 5, 1999, the joint venture partner, as
permitted under the joint venture agreement, elected to sell its
share of D-R to the company. On February 2, 2000, the company
purchased the 51% of D-R not previously owned by acquiring the joint
venture partner's share for a net purchase price of approximately
$543.0 million in cash.
On September 5, 2000, the company completed the sale of the reciprocating
gas compressor packaging and rental business of D-R to Hanover Compressor
Company (Hanover). The sale was completed for $190.0 million, $95.0
million cash with the balance in Hanover common stock. The company
recorded a $30.2 million after-tax gain on the sale.
The company continues the process to sell the remaining portion of
D-R, which is classified on the consolidated income statement as
results from assets held for sale (net of tax) for all periods
presented. The net assets of D-R have been included in assets held
for sale on the balance sheet. The company expects to complete the
divestiture in 2001.
Summarized financial information at and for the year ended December
31, for D-R, is as follows:
In millions 2000 1999 1998
Net sales $871.3 $1,194.7 $1,248.5
Cost of goods sold 730.2 950.7 1,008.4
Selling and administrative
expenses 134.1 164.3 152.2
Restructure charges 10.9 - -
Operating (loss) income (3.9) 79.7 87.9
Interest expense (30.2) - -
Other income (expense), net 50.4 (3.0) (6.6)
Earnings before income taxes 16.3 76.7 81.3
Income taxes 1.3 39.6 28.0
Net earnings 15.0 37.1 53.3
Partner's interest (8.3) 18.9 27.2
Results from assets held for
sale, net of tax $ 23.3 $ 18.2 $ 26.1
The gain on the sale of the reciprocating gas compressor packaging
and rental business is included in other income (expense), net.
In millions 2000 1999
Cash and cash equivalents $ 11.0 $ 34.5
Other current assets 448.4 509.7
Due from partners - 128.9
Property, plant and equipment, net 114.4 178.0
Intangibles and other assets 438.1 129.4
Current liabilities (251.4) (306.6)
Other liabilities (148.1) (167.1)
Net partners' equity $ 612.4 $ 506.8
The company's investment in D-R at December 31, 2000 and 1999, was
$612.4 million and $217.4 million, respectively. The $506.8
million net partners' equity in 1999 includes the investment of the
majority partner. The payable to D-R has been netted against the
assets held for sale in 1999. Results reported separately by D-R
that are presented on a stand-alone basis may differ from the
results presented above.
NOTE 4 - DISCONTINUED OPERATIONS: In August 1999, the company
announced its plan to divest Ingersoll-Dresser Pump Company (IDP).
On August 8, 2000, the company sold IDP for $775.0 million. The
company realized an after-tax gain of $124.8 million. The net assets
of IDP had been classified as assets held for sale. IDP's results
have been reported as discontinued operations (net of tax) in the
accompanying financial statements.
Earnings from discontinued operations included the following results
for the years ended December 31:
In millions 2000 1999 1998
Net sales $421.8 $837.9 $906.8
Operating income 5.3 63.9 75.3
Other income (expense), net (1.2) 7.4 7.0
Interest expense (10.1) (1.4) (1.6)
Minority interest - (23.7) (30.7)
Earnings (loss) before income
taxes (6.0) 46.2 50.0
Income taxes (4.4) 18.2 22.5
Earnings (loss) from operations (1.6) 28.0 27.5
Gain on disposal of discontinued
operations (net of tax) 124.8 - -
Net earnings from
discontinued operations $123.2 $ 28.0 $ 27.5
The net assets of IDP included in assets held for sale at December
31, 1999 were as follows:
In millions
Cash and cash equivalents $ 49.9
Other current assets 351.0
Investments in and advances
with partially owned affiliates 12.2
Property, plant and equipment, net 103.1
Intangibles and other assets 278.8
Current liabilities (194.5)
Other liabilities (74.3)
Cumulative translation adjustment 24.5
Net assets of discontinued operations
held for sale $ 550.7
NOTE 5 - ACQUISITIONS OF BUSINESS: In June 2000, the company
acquired Hussmann International, Inc. (Hussmann), for approximately
$1.7 billion in cash after consideration of amounts paid for
outstanding stock options, debt retirement, employee contracts and
transaction costs. Hussmann's business is the design, production,
installation and service of merchandising and refrigeration systems
for the global food industry. Hussmann is included in the
Climate Control Sector.
The results of Hussmann's operations have been included in the
consolidated financial statements from acquisition date. The
following unaudited pro forma consolidated results for the years
ended December 31, 2000 and 1999 reflect the acquisition as though
it occurred at the beginning of the respective periods after
adjustments for interest on acquisition debt, depreciation and
amortization of assets, including goodwill, based upon the
preliminary purchase price allocations.
In millions, except per share amounts:
2000 1999
Sales $9,432.0 $9,157.6
Net earnings 631.0 533.5
Continuing operations
Basic earnings per common share $3.15 $3.09
Diluted earnings per common share 3.13 3.05
The above pro forma results are not necessarily indicative of what
the actual results would have been had the acquisition occurred at
the beginning of the respective periods. Further, the pro forma
results are not intended to be a projection of future results of the
combined companies.
During 2000, the company acquired Sambron S.A. (Sambron) for
approximately $19.0 million. Sambron manufactures and distributes a
range of telescopic material handlers and is included in the
Infrastructure Sector. For approximately $23.0 million in cash, the
company purchased a majority interest in Zexel Cold Systems, a
manufacturer of bus air-conditioning equipment and refrigeration units
for small trucks and is included in the Climate Control Sector. The
company purchased Interflex Datensysteme GmbH (Interflex) for
approximately $60.0 million. Interflex provides integrated products
and services for electronic access control, time and attendance
recording, personnel scheduling and industrial data management and is
included in the Security and Safety Sector. In addition, during 2000,
the company also made several small acquisitions for cash and stock.
During 1999, the company completed the acquisition of Harrow
Industries, Inc. (Harrow), a leading manufacturer of access control
technologies, architectural hardware, and decorative bath fittings
and accessories. Harrow is part of the Security and Safety Sector.
The purchase price was approximately $160.0 million, which included
the assumption of certain debt.
During 1998, the company acquired for approximately $15.4 million in
cash, substantially all the assets of Johnstone Pump Company
(Johnstone). Johnstone, part of the Industrial Products Sector,
manufactures industrial piston pumps, automated dispensing systems and
related products. The company acquired for approximately $18.0 million
certain manufacturing assets used to produce residential locks for its
Security and Safety Sector. The company acquired full ownership of a
joint venture which manufacturers air ends for air compressors for its
Air Solutions Segment.
All acquisitions have been accounted for as purchases. Each
purchase price is preliminarily allocated to the acquired assets and
liabilities based on their estimated fair values. The purchase
price allocation is subject to final adjustment within one year of
acquisition. The company has classified as goodwill the cost in
excess of the fair value of the net assets acquired. Such excess
cost is being amortized on a straight-line basis not to exceed forty
years. Intangible assets also represent costs allocated to patents
and trademarks and other specifically identifiable assets arising
from the acquisition. These assets are being amortized over their
estimated useful lives.
NOTE 6 - DISPOSITIONS: During 2000, the company sold the Corona
Clipper business for approximately $43.0 million, which approximated
book value. The company also sold its interests in three joint
ventures relating to the manufacture of full steering-column
assemblies for approximately $37.0 million in cash. In August 2000,
the company sold IDP for $775.0 million (Note 4).
During 1999, the company received proceeds of $47.0 million, which
approximated book value, on the sale of a portion of the Harrow
assets. In December 1999, the company also sold certain net assets
of the Automation Division of the Industrial Products Segment. The
transaction resulted in a net gain of approximately $4.4 million.
The company also made several minor dispositions during 1999.
In 1998, the company sold the Spra-Coupe product line, which
was reported as part of the Infrastructure Sector. The sale price of
approximately $35.0 million resulted in a $9.0 million gain.
The company also sold Ing. G. Klemm Bohrtechnik GmbH which was
also part of the Infrastructure Sector.
NOTE 7 - INVENTORIES: At December 31, inventories were as follows:
In millions 2000 1999
Raw materials and supplies $ 280.2 $161.7
Work-in-process 231.7 191.7
Finished goods 654.4 532.9
1,166.3 886.3
Less-LIFO reserve 143.4 144.2
Total $1,022.9 $742.1
Work-in-process inventories are stated after deducting customer
progress payments of $13.3 million in 2000 and $2.8 million in 1999.
At December 31, 2000 and 1999, LIFO inventories comprised
approximately 44% and 51%, respectively, of consolidated
inventories. There were no material liquidations of LIFO layers for
all periods presented.
NOTE 8 - INVESTMENTS IN PARTIALLY OWNED EQUITY AFFILIATES: The
company has numerous investments, ranging from 20% to 50%, in
companies that operate in similar lines of business.
The company's investments in and amounts due to/(from) partially
owned equity affiliates amounted to $178.2 million and $(10.6)
million, respectively, at December 31, 2000, and $197.4 million and
$0.8 million, respectively, at December 31, 1999. The company's
equity in the net earnings of its partially owned equity affiliates
was $8.9 million, $9.5 million and $13.6 million in 2000, 1999 and
1998, respectively.
The company received dividends based on its equity interests in
these companies of $2.8 million, $6.4 million, and $6.7 million in
2000, 1999 and 1998, respectively.
Summarized financial information for these partially owned equity
affiliates at December 31, and for the years then ended:
In millions 2000 1999
Current assets $267.2 $329.8
Property, plant and equipment, net 214.6 260.0
Other assets 15.2 14.1
Total assets $497.0 $603.9
Current liabilities $147.8 $171.5
Long-term debt 31.6 61.3
Other liabilities 17.6 22.8
Total shareholders' equity 300.0 348.3
Total liabilities and equity $497.0 $603.9
In millions 2000 1999 1998
Net sales $511.7 $609.3 $665.8
Gross profit 74.5 88.1 94.9
Net earnings 15.6 19.5 26.1
NOTE 9 - ACCOUNTS PAYABLE AND ACCRUALS: Accounts payable and
accruals at December 31, were:
In millions 2000 1999
Accounts payable $ 599.9 $ 319.2
Accrued:
Payrolls and benefits 218.7 215.1
Insurance and claims 139.2 116.1
Postemployment benefits 121.9 82.3
Warranties 63.9 57.8
Taxes other than income 51.8 36.9
Interest 43.5 60.6
Other 459.8 336.4
$1,698.7 $1,224.4
NOTE 10 - FINANCIAL INSTRUMENTS: The company, as a large
multinational company, maintains significant operations in foreign
countries. As a result of these global activities, the company is
exposed to changes in foreign currency exchange rates, which affect
the results of operations and financial condition. The company
manages exposure to changes in foreign currency exchange rates
through its normal operating and financing activities, as well as
through the use of financial instruments. Generally, the only
financial instruments the company utilizes are forward exchange
contracts and options.
Starting in late 1999, the company began purchasing on a limited
basis, commodity derivatives to hedge the variable portion in
supplier contracts of the costs of metals used in its products.
Gains and losses on the derivatives are included in cost of sales in
the same period as the hedged transaction.
The purpose of the company's hedging activities is to mitigate the
impact of changes in foreign currency exchange rates. The company
attempts to hedge transaction exposures through natural offsets. To
the extent that this is not practicable, major exposure areas
considered for hedging include foreign currency denominated
receivables and payables, intercompany loans, firm committed
transactions, anticipated sales and purchases, and dividends
relating to foreign subsidiaries. The following table summarizes by
major currency the contractual amounts of the company's forward
contracts in U.S. dollars. Foreign currency amounts are translated
at year-end rates at the respective reporting date. The "buy"
amounts represent the U.S. equivalent of commitments to purchase
foreign currencies, and the "sell" amounts represent the U.S.
equivalent of commitments to sell foreign currencies. Some of the
forward contracts involve the exchange of two foreign currencies
according to local needs in foreign subsidiaries.
At December 31, the contractual amounts were:
In millions 2000 1999
Buy Sell Buy Sell
British pounds $ 59.0 $ 3.4 $ 29.2 $ 16.3
Canadian dollars 106.8 33.1 107.3 17.9
Euro and euro-linked
currencies 54.7 151.0 44.3 5.8
Japanese yen 27.6 0.3 4.9 0.6
Other 6.1 26.4 20.2 25.7
Total $254.2 $214.2 $205.9 $66.3
Forward contracts utilized by the company have maturities of one to
12 months.
The company's forward contracts that hedge transactions or firm
commitments do not subject the company to risk due to foreign
exchange rate movement, since gains and losses on these contracts
generally offset losses and gains on the assets, liabilities or
other transactions being hedged. Contracts purchased to mitigate
the variability of future cash flows of foreign subsidiaries bear
market risk to the extent actual transacted amounts vary from the
forecasted amounts. All gains and losses on these contracts have
been included in earnings.
The counterparties to the company's forward contracts consist of a
number of major international financial institutions. The company
could be exposed to loss in the event of nonperformance by the
counterparties. However, credit ratings and concentration of risk
of these financial institutions are monitored on a continuing basis
and present no significant credit risk to the company.
The carrying value of cash and cash equivalents, marketable
securities, accounts receivable, short-term borrowings and accounts
payable are a reasonable estimate of their fair value due to the
short-term nature of these instruments. The following table
summarizes the estimated fair value of the company's remaining
financial instruments at December 31:
In millions 2000 1999
Long-term debt:
Carrying value $1,540.1 $2,113.3
Estimated fair value 1,537.1 2,083.9
Forward contracts:
Contract (notional) amounts:
Buy contracts $ 254.2 $ 205.9
Sell contracts 214.2 66.3
Fair (market) values:
Buy contracts 266.7 209.2
Sell contracts 232.1 66.5
Fair value of long-term debt was determined by reference to the
December 31, 2000 and 1999, market values of comparably rated debt
instruments. Fair values of forward contracts are based on dealer
quotes at the respective reporting dates.
NOTE 11 - LONG-TERM DEBT AND CREDIT FACILITIES:
At December 31, long-term debt consisted of:
In millions 2000 1999
6 7/8% Notes Due 2003 $ 100.0 $ 100.0
6.255% Notes Due 2001 - 400.0
9% Debentures Due 2021 125.0 125.0
7.20% Debentures Due 2025 150.0 150.0
6.48% Debentures Due 2025 150.0 150.0
6.391% Debentures Due 2027 200.0 200.0
6.443% Debentures Due 2027 200.0 200.0
Medium-term Notes Due 2002-2028, at
an average rate of 6.61% 377.0 609.9
6.75% Hussmann International senior notes 124.0 -
due 2008
9.75% Clark Debentures Due 2001 - 100.0
Clark Medium-term Notes Due 2023,
at an average rate of 8.22% 50.2 50.2
Other domestic and foreign
loans and notes, at end-
of-year average interest
rates of 6.248% in 2000
and 5.756% in 1999, maturing
in various amounts to 2015 63.9 28.2
$1,540.1 $2,113.3
Debt retirements for the next five years are as follows:
$742.9 million in 2001, $91.1 million in 2002, $208.3 million in
2003, $321.9 million in 2004 and $205.5 million in 2005.
At December 31, 2000, the company's committed revolving credit lines
consisted of a 364-day line totalling $1.3 billion and a five-year
line totalling $750.0 million, respectively. These lines were
unused and provide support for commercial paper and indirectly
provide support for other financing instruments, such as letters of
credit and comfort letters, as required in the normal course of
business. The company compensates banks for these lines with fees
equal to a weighted average of 0.06375% per annum. Available
foreign lines of credit were $602.8 million, of which $433.3 million
were unused at December 31, 2000. No major cash balances were
subject to withdrawal restrictions. At December 31, 2000 and 1999,
the average rate of interest for loans payable, excluding the
current portion of long-term debt, was 6.914% and 4.186%,
respectively.
Capitalized interest on construction and other capital projects
amounted to $4.4 million, $4.0 million and $4.0 million in 2000,
1999 and 1998, respectively. Interest income, included in other
income (expense), net, was $7.6 million, $5.4 million and $7.5
million in 2000, 1999 and 1998, respectively.
NOTE 12 - COMMITMENTS AND CONTINGENCIES: The company is involved in
various litigations, claims and administrative proceedings,
including environmental matters, arising in the normal course of
business. In assessing its potential environmental liability, the
company bases its estimates on current technologies and does not
discount its liability or assume any insurance recoveries. Amounts
recorded for identified contingent liabilities are estimates, which
are reviewed periodically and adjusted to reflect additional
information when it becomes available. Subject to the uncertainties
inherent in estimating future costs for contingent liabilities,
management believes that recovery or liability with respect to these
matters would not have a material effect on the financial condition,
results of operations, liquidity or cash flows of the company for
any year.
The company has established two wholly owned special purpose
subsidiaries to purchase accounts and notes receivable at a discount
from the company on a continuous basis. These special purpose
subsidiaries simultaneously sell an undivided interest in these
accounts and notes receivable to a financial institution up to a
maximum of $210.0 million in 2000 and $170.0 million in 1999. The
additional $40.0 million of accounts receivable was reflected as a
benefit to operating activities in the consolidated statement of
cash flows. The agreements between the special purpose corporations
and the financial institution do not have a predefined expiration
date. The company is retained as the servicer of the pooled
receivables. During 2000, 1999 and 1998, such sales of receivables
amounted to $753.0 million, $781.8 million and $723.7 million,
respectively. At December 31, 2000 and 1999, $210.0 million and
$170.0 million of such sold receivables remained uncollected.
Receivables, excluding the designated pool of accounts and notes
receivable, sold during 2000 and 1999 with recourse, amounted to
$47.9 million and $57.5 million, respectively. At December 31, 2000
and 1999, $18.6 million and $18.7 million, respectively, of such
receivables sold remained uncollected.
As of December 31, 2000, the company had no significant
concentrations of credit risk in trade receivables due to the large
number of customers which comprised its receivables base and their
dispersion across different industries and countries. In the normal
course of business, the company has issued several direct and
indirect guarantees, including performance letters of credit,
totalling approximately $194.6 million at December 31, 2000. The
company sells product under various arrangements through
institutions that provide leasing and product financing alternatives
to retail and wholesale customers. Under these arrangements, the
company is contingently liable for loan guarantees and residual
values of equipment of approximately $31.2 million after
consideration of ultimate net loss provisions. The risk of loss to
the company is minimal, and historically, only immaterial losses
have been incurred relating to these arrangements. Management
believes these guarantees will not adversely affect the consolidated
financial statements.
Certain office and warehouse facilities, transportation vehicles and
data processing equipment are leased. Total rental expense was
$74.5 million in 2000, $71.6 million in 1999 and $71.2 million in
1998. Minimum lease payments required under noncancellable
operating leases with terms in excess of one year for the next five
years and thereafter, are as follows: $56.4 million in 2001, $47.1
million in 2002, $33.6 million in 2003, $25.9 million in 2004, $20.4
million in 2005 and $37.2 million thereafter.
NOTE 13 - EQUITY-LINKED SECURITIES: In March 1998, the company,
together with Ingersoll Financing I, a Delaware statutory business
trust of the company (Finance Trust), issued an aggregate of (a)
16,100,000 equity-linked securities, and (b) 1,610,000 Finance Trust
6.22% capital securities, each with a $25 stated liquidation amount
(the capital securities). The equity-linked securities consisted of
(a) 14,490,000 income equity-linked securities (income securities),
and (b) 1,610,000 growth equity-linked securities (growth
securities).
Each equity-linked security consists of a unit comprised of (a) a
contract to purchase from the company no later than May 16, 2001, a
number of shares of the company's common stock determined in
accordance with a specified formula and to receive an annual
contract adjustment payment until May 15, 2001 of 0.53%, (in the
case of an income security), or 0.78% (in the case of a growth
security), and (b) either beneficial ownership of a capital security
(in the case of an income security), or a 1/40 undivided beneficial
interest in a zero coupon U.S. Treasury Security maturing May 15,
2001 (in the case of a growth security). Under the terms of the
stock purchase contracts, the company will issue between 6.9 million
and 8.3 million common shares by May 16, 2001. The capital
securities associated with the income securities and the U.S.
Treasury Securities associated with the growth securities have been
pledged as collateral to secure the holders' obligations in respect
of the common stock purchase contracts.
The capital securities were issued by the Finance Trust and are
entitled to a distribution rate of 6.22% per annum of their $25
stated liquidation amount. The Finance Trust utilized the proceeds
from the issuance of the equity-linked and capital securities to
purchase $402.5 million of the company's 6.22% Debentures due May
16, 2003. The Debentures are the sole asset of the Finance Trust.
The interest rate on the 6.22% Debentures and the distribution rate
on the capital securities and common securities of the Finance Trust
are to be reset, subject to certain limitations, effective May 16,
2001.
The company has recorded the present value of the contract
adjustment payments, totalling $6.4 million, as a liability and a
reduction of shareholders' equity. The liability has been reduced
as the contract adjustment payments are made. The company has the
right to defer the contract adjustment payments and the payment of
interest on the 6.22% Debentures, but any such election will subject
the company to restrictions on the payment of dividends on, and
redemption of, its outstanding shares of common stock, and on the
payment of interest on, or redemption of, debt securities of the
company junior in rank to the 6.22% Debentures.
The company paid costs of approximately $12.9 million in connection
with the issuance of the equity-linked securities and the capital
securities. The portion of such costs which relate to the issuance
of the stock purchase contracts has been recorded as a reduction of
shareholders' equity.
NOTE 14 - COMMON STOCK: In May 1997, the board of directors
authorized the repurchase of up to 15.0 million shares of the
company's common stock at management's discretion. Shares
repurchased will be used for general corporate purposes. The number
of treasury shares at December 31, 2000, and 1999, were 10.9 million
and 8.0 million, respectively.
In November 1998, the company adopted a new shareholder rights plan
to replace the plan which expired on December 22, 1998. Under the
new plan, one right was distributed for each share of Ingersoll-Rand
common stock outstanding at the close of business on
December 22, 1998.
Initially, the rights are attached to the common stock and are not
exercisable. The rights become exercisable and will trade
separately from the common stock 10 days following the first
public announcement that any person or group has acquired at least
15% of the company's outstanding common stock, or on the 10th day
following the commencement or the announcement of an intention to
commence a tender offer, which would result in that person or group
acquiring beneficial ownership of att least 15 % of the outstanding
shares of common stock. Each right would entitle the holder to
purchase one-thousandth of a share of Series A Preference Stock at
an exercise price of $200.
If any person or group acquires 15% or more of the company's common
stock, the rights not held by the 15% shareholder would become
exercisable to purchase the company's common stock at a 50%
discount. The plan provides that, at any time after a person or
group becomes an acquiring person and prior to the acquisition by
that person or group of 50% or more of the outstanding common stock,
the board may exchange the rights (other than the rights held by the
acquiring person, which will have become void), at an exchange ratio
of one share of common stock per right.
The new rights will expire on December 22, 2008, unless earlier
redeemed or exchanged by the company, as provided in the rights
plan. The company may elect to redeem the rights at $0.01 per
right.
NOTE 15 - LEVERAGED EMPLOYEE STOCK OWNERSHIP PLAN: The company's
sponsors a Leveraged Employee Stock Ownership Plan (LESOP) for
eligible employees. The LESOP is used to fund certain employee
benefit plans. At December 31, 2000, and 1999, the LESOP held less
than 0.1 million and 0.7 million shares, respectively, which are
unallocated. The carrying value of the unallocated shares was
$1.8 million and $16.5 million at December 31, 2000 and 1999,
respectively, and is classified as a reduction of shareholders'
equity pending allocation to participants. At December 31, 2000, the
LESOP owed the company $1.2 million payable in monthly installments
through 2001. Company contributions to the LESOP and dividends on
unallocated shares are used to make loan principal and interest
payments. With each principal and interest payment, the LESOP
allocates a portion of the common stock to participating employees.
NOTE 16 - INCENTIVE STOCK PLANS: Under the company's Incentive Stock
Plans, key employees have been granted options to purchase common
shares at prices not less than the fair market value at the date of
the grant. Options issued before December 31, 1998, became
exercisable one year after the date of the grant and expire at the
end of 10 years. Options issued after January 1, 1999, become
exercisable ratably over a three-year period from their date of
grant and expire at the end of 10 years. The plans, approved in
1990, 1995 and 1998, also authorize stock appreciation rights (SARs)
and stock awards, which result in compensation expense.
Under SFAS No. 123, compensation cost for the applicable provisions
of the company's incentive stock plans would be determined based
upon the fair value at the grant date for awards issued since 1996.
Applying this methodology would have reduced net earnings and
diluted earnings per share by approximately $16.7 million and $0.10
cents per share for 2000; $8.5 million and five cents per share for
1999; and $14.7 million and nine cents per share for 1998. The
average fair values of the options granted during 2000, 1999, and
1998 were estimated at $16.89, $14.15, and $8.06, respectively, on
the date of grant, using the Black-Scholes option-pricing model,
which included the following assumptions:
2000 1999 1998
Dividend yield 1.32% 1.27% 1.42%
Volatility 34.31% 29.59% 25.76%
Risk-free interest rate 6.45% 4.93% 5.39%
Expected life 4 years 4 years 4 years
Changes in options outstanding under the plans were as follows:
Shares subject Option Price Weighted average
to option range per share exercise price
January 1, 1998 6,043,400 $13.83-41.28 $27.06
Granted 2,280,250 37.03-47.03 42.45
Exercised (1,419,525) 13.83-40.47 25.65
Cancelled (69,600) 24.08-41.28 33.75
December 31, 1998 6,834,525 14.77-47.03 32.43
Granted 2,816,480 49.09-69.75 50.50
Exercised (2,216,558) 14.77-46.00 31.74
Cancelled (93,590) 26.21-26.63 48.99
December 31, 1999 7,340,857 15.13-69.75 39.35
Granted 2,626,785 37.63-53.03 51.41
Exercised (243,499) 15.13-42.31 28.78
Cancelled (392,630) 20.67-62.59 46.77
December 31, 2000 9,331,513 $15.13-69.75 $42.75
At December 31, 2000, there were 490,233 SARs outstanding with no
stock options attached. The company has reserved 7,585,318 shares
for future awards at December 31, 2000. In addition,554,875 280,809
shares of common stock were reserved for future issue, contingent
upon attainment of certain performance goals and future service and
308,172 shares have been earned but deferred at December 31, 2000.
The following table summarizes information concerning currently
outstanding and exercisable options:
Options Options
outstanding exercisable
Weighted Weighted Weighted
Number average average Number average
Range of outstanding remaining exercise exercisable exercise
exercise price at 12/31/00 life price at 12/31/00 price
$15.13-$24.08 1,171,150 3.22 $22.63 1,171,150 $22.63
24.21- 33.67 1,482,700 5.83 30.49 1,482,700 30.49
37.62- 42.03 265,066 8.05 40.04 152,498 41.06
42.31- 42.31 1,293,050 7.06 42.31 1,293,050 42.31
42.84- 48.13 570,550 9.04 46.39 97,047 45.17
49.09- 49.09 1,921,862 7.92 49.09 868,568 49.09
51.09- 51.09 300,000 8.19 51.09 233,333 51.09
53.03- 53.03 2,087,885 8.95 53.03 76,365 53.03
53.63- 65.41 221,250 8.54 62.21 73,744 62.21
69.75- 69.75 18,000 8.34 69.75 18,000 69.75
$15.13-$69.75 9,331,513 7.21 $42.75 5,466,455 $36.87
The weighted average number of shares exercisable and the weighted
average exercise prices were 4,524,667 shares at a price of $32.53
for December 31, 1999, and 4,561,025 shares at a price of $27.44
for December 31, 1998.
The company also maintains a shareholder-approved Management
Incentive Unit Award Plan. Under the plan, qualifying executives
are awarded incentive units. When dividends are paid on common
stock, dividends are awarded to unit holders, one-half of which is
paid in cash, the remaining half of which is credited to the
participant's account in the form of so-called common stock equivalents.
The fair value of accumulated common stock equivalents is paid in cash
upon the participant's retirement. The number of common stock
equivalents credited to participants' accounts at December 31, 2000
and 1999, are 399,352 and 484,341, respectively.
NOTE 17 - INCOME TAXES: Earnings before income taxes for the years
ended December 31, were taxed within the following jurisdictions:
In millions 2000 1999 1998
United States $673.5 $687.2 $566.0
Foreign 155.8 175.8 166.3
Total $829.3 $863.0 $732.3
The provision for income taxes was as follows:
In millions 2000 1999 1998
Current tax expense:
United States $227.1 $220.5 $183.2
Foreign 43.5 37.6 61.3
Total current 270.6 258.1 244.5
Deferred tax expense:
United States 17.5 26.4 12.0
Foreign (5.0) 15.4 (5.8)
Total deferred 12.5 41.8 6.2
Total provision for
income taxes $283.1 $299.9 $250.7
The provision for income taxes differs from the amount of income
taxes determined by applying the applicable U.S. statutory income
tax rate to pretax income, as a result of the following differences:
Percent of pretax income
2000 1999 1998
Statutory U.S. rates 35.0% 35.0% 35.0%
Increase (decrease) in rates
resulting from:
Amortization of goodwill 2.8 2.0 2.5
Foreign operations (0.8) (1.0) 0.1
Foreign sales corporation (2.4) (1.7) (2.0)
State and local income taxes,
net of U.S. tax 2.2 2.1 2.3
Puerto Rico - Sec 936 Credit (1.7) (1.8) (2.2)
Other (1.0) 0.2 (1.5)
Effective tax rate 34.1% 34.8% 34.2%
A summary of the deferred tax accounts at December 31, follows:
In millions 2000 1999 1998
Current deferred assets and (liabilities):
Differences between book and tax bases
of inventories and receivables $ 24.2 $ 21.1 $ 21.4
Differences between book and tax
expense for other employee related
benefits and allowances 24.5 8.5 16.7
Other reserves and valuation
allowances in excess of tax deductions 21.3 35.4 28.3
Other differences between tax and
financial statement values 12.0 (11.1) 2.4
Gross current deferred net tax assets 82.0 53.9 68.8
Noncurrent deferred tax assets and
(liabilities):
Postretirement and postemployment
benefits other than pensions in
excess of tax deductions 269.6 262.4 255.1
Other reserves in excess of tax expense 124.0 119.2 124.0
Tax depreciation in excess of book
depreciation (159.4) (124.7) (96.0)
Pension contributions in excess of
book expense (45.6) (38.5) (32.6)
Taxes provided for unrepatriated
foreign earnings (22.5) (22.5) (22.5)
Gross noncurrent deferred net tax
assets 166.1 195.9 228.0
Less: deferred tax valuation
allowances (52.0) (37.9) (22.0)
Total net deferred tax assets $196.1 $211.9 $274.8
A total of $22.5 million of deferred taxes have been provided for a
portion of the undistributed earnings of subsidiaries operating
outside of the United States. As to the remainder, these earnings
have been, and under current plans, will continue to be reinvested.
Therefore, it is not practicable to estimate the amount of additional
taxes which may be payable upon repatriation.
NOTE 18 - POSTRETIREMENT BENEFITS OTHER THAN PENSIONS: The company
sponsors several postretirement plans that cover most domestic
employees. These plans provide for health care benefits and in some
instances, life insurance benefits. Postretirement health plans
are contributory and are adjusted annually. Life insurance plans
are noncontributory. When fulltime employees retire from the
company between age 55 and 65, most are eligible to receive, at a
cost to the retiree, certain health care benefits identical to
those available to active employees. After attaining age 65, an
eligible retiree's health care benefit coverage becomes coordinated
with Medicare. The company funds the benefit costs principally on
a pay-as-you-go basis. The company retained retiree health care
benefits as a liability for all qualified retired IDP employees.
Summary information on the company's plans at December 31, was as
follows:
In millions 2000 1999
Change in benefit obligations:
Benefit obligation at beginning of year $566.4 $610.3
Service cost 8.4 8.8
Interest cost 40.7 38.0
Plan participants' contributions 4.3 4.3
Acquisitions 17.0 -
Actuarial losses (gains) 3.1 (36.8)
Benefits paid (47.1) (58.4)
IDP benefits 18.0 -
Other (0.2) 0.2
Benefit obligation at end of year $ 610.6 $ 566.4
Funded status:
Plan assets less than benefit obligations $(610.6) $(566.4)
Unrecognized:
Prior service gains (49.9) (54.5)
Plan net gains (52.8) (55.7)
Accrued costs in the balance sheet $(713.3) $(676.6)
Weighted-average assumptions:
Discount rate 7.75% 7.50%
Current year medical inflation 6.75% 6.50%
Ultimate inflation rate (2003) 5.25% 5.00%
The components of net periodic postretirement benefits cost for the
years ended December 31, were as follows:
In millions 2000 1999 1998
Service cost $ 8.4 $ 8.8 $ 9.6
Interest cost 40.7 38.0 38.9
Net amortization of
unrecognized prior
service gains (4.4) (4.2) (4.5)
Net periodic postretirement
benefits cost $44.7 $42.6 $44.0
A 1% change in the medical trend rate assumed for postretirement
benefits would have the following effects at December 31, 2000:
In millions 1% Increase 1% Decrease
Effect on total of service and
interest cost components $ 4.8 $ (3.9)
Effect on postretirement
benefit obligation 44.6 (37.2)
NOTE 19 - PENSION PLANS: The company has noncontributory
pension plans covering substantially all domestic employees. In
addition, certain employees in other countries are covered by
pension plans. The company's domestic salaried plans principally
provide benefits based on a career average earnings formula.
The company's hourly pension plans provide benefits under flat
benefit formulas. Foreign plans provide benefits based on
earnings and years of service. Most of the foreign plans
require employee contributions based on the employee's earnings.
In addition, the company maintains other supplemental benefit
plans for officers and other key employees. The company's
policy is to fund an amount which could be in excess of the
pension cost expensed, subject to the limitations imposed by
current statutes or tax regulations. The company retained the
pension plan and its assets for all vested IDP plan participants.
Information regarding the company's pension plans at December 31,
was as follows:
In millions 2000 1999
Change in benefit obligations:
Benefit obligation at beginning of year $1,934.7 $1,985.7
Service cost 40.6 42.0
Interest cost 141.3 132.1
Employee contributions 4.5 4.5
Amendments 1.3 3.6
Acquisitions 182.1 35.7
Expenses paid (2.3) (3.9)
Actuarial (gains)/losses (13.3) (113.2)
Benefits paid (153.7) (142.4)
Foreign exchange impact (31.4) (14.0)
IDP obligation 65.7 -
Curtailments and other 4.7 4.6
Benefit obligation at end of year $2,174.2 $1,934.7
Change in plan assets:
Fair value at beginning of year $2,246.9 $2,133.2
Actual return on assets 95.9 197.7
Company contributions 25.0 17.4
Employee contributions 4.5 4.5
Acquisitions 208.6 48.7
Expenses paid (1.9) (3.8)
Benefits paid (152.8) (140.2)
Foreign exchange impact (34.1) (10.6)
Assets from IDP 50.8 -
Fair value of assets at end of year $2,442.9 $2,246.9
Funded status:
Plan assets in excess of benefit
obligations $ 268.7 $ 312.2
Unrecognized:
Net transition asset 19.0 6.9
Prior service costs 50.6 58.1
Plan net gains (239.9) (317.2)
Net amount recognized $ 98.4 $ 60.0
Costs included in the balance sheet:
Prepaid benefit cost $ 195.1 $ 136.7
Accrued benefit liability (101.5) (79.7)
Intangible asset 4.8 3.0
Net amount recognized $ 98.4 $ 60.0
Weighted-average assumptions:
Discount rate:
U.S. plans 7.75% 7.50%
International plans 6.00% 6.00%
Rate of compensation increase:
U.S. plans 5.50% 5.25%
International plans 3.50% 3.50%
Expected return on plan assets:
U.S. plans 9.00% 9.00%
International plans 7.75% 7.75%
The components of the company's pension related costs (income) for
the years ended December 31, include the following:
In millions 2000 1999 1998
Service cost $ 40.6 $ 42.0 $ 37.7
Interest cost 141.3 132.1 130.3
Expected return on plan assets (200.8) (183.0) (170.3)
Net amortization of unrecognized:
Prior service costs 6.1 5.9 3.7
Transition amount 0.7 0.7 0.7
Plan net losses (8.5) 2.9 2.3
Net pension (income) cost (20.6) 0.6 4.4
Curtailment losses 11.5 0.4 0.5
Net pension (income) cost after
curtailments $ (9.1) $ 1.0 $ 4.9
The projected benefit obligation, accumulated benefit obligation,
and fair value of plan assets for pension plans with accumulated
benefit obligations more than plan assets were $152.0 million,
$116.3 million and $39.7 million, respectively, as of December 31,
2000 and $151.9 million, $117.3 million and $37.7 million,
respectively, as of December 31, 1999.
Plan investment assets of domestic plans are balanced between
equity securities and cash equivalents or debt securities. Assets
of foreign plans are invested principally in equity securities.
Most of the company's domestic employees are covered by savings and
other defined contribution plans. Employer contributions and costs
are determined based on criteria specific to the individual plans
and amounted to approximately $32.0 million, $25.1 million and
$29.0 million in 2000, 1999 and 1998, respectively.
The company's costs relating to foreign defined contribution plans,
insured plans and other foreign benefit plans were $6.1 million,
$4.1 million and $5.3 million in 2000, 1999, and 1998,
respectively.
NOTE 20 - BUSINESS SEGMENT INFORMATION: Operating segments are
defined as components of a company engaging in business activities
for which separate financial information is available and evaluated
regularly by the chief operating decision maker in assessing
performance and allocating resources.
The accounting policies of the operating segments are the same as
those described in the summary of significant accounting policies
except that the operating segments results are prepared on a
management basis that is consistent with the manner in which the
company disaggregates financial information for internal review and
decision making. The company evaluates performance based on
operating income contribution rates. Intercompany sales
transactions are entirely contained within each segment and are
eliminated at the segment level. A description of the company's
reportable segments is as follows:
The Climate Control Sector focuses on markets requiring refrigerant-
gas compression technology and services to provide gas pressure for
distribution to end users or to maintain a refrigeration cycle.
This sector includes Thermo King transport temperature control
equipment, and Hussmann, a leader in display case refrigeration,
which was acquired in June 2000.
The Industrial Productivity Sector is composed of a group of
businesses focused on providing solutions for customers to enhance
industrial efficiency. The Industrial Productivity Sector consists
of three segments:
o Air Solutions Segment provides equipment and services for
compressed air systems.
o Bearings and Components Segment provides motion control
technologies to the automotive and industrial markets.
These products include Torrington and Fafnir bearings and
components.
o Industrial Products Segment includes Club Car golf cars and
utility vehicles, tools and related industrial production
equipment.
The Infrastructure Sector designs, manufactures and markets powered
vehicles that are utilized in infrastructure development, commercial
construction and material movement fields. The Infrastructure Sector
includes Bobcat skid-steer loaders and compact hydraulic excavators,
Blaw-Knox and ABG pavers, and Ingersoll-Rand compactors, drilling
equipment, and portable power products.
The Security and Safety Sector concentrates on manufacturing,
marketing, and managing the distribution channels required to reach
end user customers seeking products that enhance productivity and
security in the industrial, construction, and do-it-yourself
markets. Security and Safety includes architectural hardware
products, such as Schlage locks, Von Duprin exit devices,
door-control hardware, steel doors, and electronic access control
technologies including, power-operated doors and architectural
columns.
Sales by destination and long-lived assets by geographic area for
the years ended December 31 were as follows:
In millions 2000 1999 1998
Sales
United States $5,790.4 $5,167.4 $4,871.3
Foreign 3,007.8 2,675.2 2,668.9
Total $8,798.2 $7,842.6 $7,540.2
In millions 2000 1999
Long-lived assets
United States $1,305.3 $ 803.4
Foreign 513.4 646.0
Total $1,818.7 $1,449.4
A summary of operations by reportable segments for the years ended
December 31, were as follows:
Dollar amounts in millions 2000 1999 1998
Climate Control
Sales $2,021.1 $1,221.8 $1,206.8
Operating income 206.4 166.5 159.3
Operating income as %
of sales 10.2% 13.6% 13.2%
Depreciation and
amortization 114.5 79.7 82.4
Industrial Productivity
Air Solutions
Sales 859.5 764.3 778.0
Operating income 93.7 89.3 72.1
Operating income as %
of sales 10.9% 11.7% 9.3%
Bearings & Components
Sales 1,185.3 1,239.5 1,249.6
Operating income 159.8 145.7 137.2
Operating income as %
of sales 13.5% 11.8% 11.0%
Industrial Products
Sales 980.2 987.3 965.5
Operating income 112.4 113.5 106.3
Operating income as %
of sales 11.5% 11.5% 11.0%
Industrial Productivity
Sales 3,025.0 2,991.1 2,993.1
Operating income 365.9 348.5 315.6
Operating income as %
of sales 12.1% 11.7% 10.5%
Depreciation and
amortization 83.7 96.4 92.7
Infrastructure
Sales 2,341.7 2,341.5 2,224.1
Operating income 375.5 393.1 326.8
Operating income as %
of sales 16.0% 16.8% 14.7%
Depreciation and
amortization 57.8 57.7 56.8
Security & Safety
Sales 1,410.4 1,288.2 1,116.2
Operating income 271.6 248.4 219.3
Operating income as %
of sales 19.3% 19.3% 19.6%
Depreciation and
amortization 35.1 36.4 29.1
Total
Sales $8,798.2 $7,842.6 $7,540.2
Operating income from
reportable segments 1,219.4 1,156.5 1,021.0
Unallocated corporate
expenses (105.1) (57.2) (51.9)
Total operating income $1,114.3 $ 1,099.3 $ 969.1
Total operating income as
% of sales 12.7% 14.0% 12.9%
Depreciation and
amortization from
reportable segments 291.1 270.2 261.0
Unallocated depreciation
and amortization 5.9 2.2 2.6
Total depreciation and
amortization $ 297.0 $ 272.4 $ 263.6
Report of Management
The accompanying consolidated financial statements have been
prepared by the company. They conform with generally accepted
accounting principles and reflect judgments and estimates as to the
expected effects of incomplete transactions and events being
accounted for currently. The company believes that the accounting
systems and related controls that it maintains are sufficient to
provide reasonable assurance that assets are safeguarded,
transactions are appropriately authorized and recorded, and the
financial records are reliable for preparing such financial
statements. The concept of reasonable assurance is based on the
recognition that the cost of a system of internal accounting
controls must be related to the benefits derived. The company
maintains an internal audit function that is responsible for
evaluating the adequacy and application of financial and operating
controls, and for testing compliance with company policies and
procedures.
The Audit Committee of the board of directors is comprised entirely
of individuals who are not employees of the company. This committee
meets periodically with the independent accountants, the internal
auditors and management to consider audit results and to discuss
significant internal accounting controls, auditing and financial
reporting matters. The Audit Committee recommends the selection of
the independent accountants, who are then appointed by the board of
directors, subject to ratification by the shareholders.
The independent accountants are engaged to perform an audit of the
consolidated financial statements in accordance with generally
accepted auditing standards. Their report follows.
David W. Devonshire
Executive Vice President and Chief Financial Officer
Report of Independent Accountants
PricewaterhouseCoopers LLP
400 Campus Drive
Florham Park, NJ 07932
February 6, 2001
To the Board of Directors and
Shareholders of Ingersoll-Rand Company:
In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of income, shareholders' equity and
cash flows present fairly, in all material respects, the financial
position of Ingersoll-Rand Company and its subsidiaries at December
31, 2000 and 1999, and the results of their operations and their
cash flows for each of the three years in the period ended December
31, 2000, in conformity with accounting principles generally
accepted in the United States of America. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted
in the United States of America, which require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
PricewaterhouseCoopers LLP