FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-985
INGERSOLL-RAND COMPANY
(Exact name of registrant as specified in its charter)
New Jersey 13-5156640
(State of incorporation) (I.R.S. Employer Identification No.)
Woodcliff Lake, New Jersey 07677
(Address of principal executive offices) (Zip Code)
(201) 573-0123
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes . X . No . . .
The number of shares of common stock outstanding as of April 30, 2001 was
159,897,672.
INGERSOLL-RAND COMPANY
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
Condensed Consolidated Balance Sheet at March 31,
2001 and December 31, 2000
Condensed Consolidated Income Statement for the
three months ended March 31, 2001 and 2000
Condensed Consolidated Statement of Cash Flows for
the three months ended March 31, 2001 and 2000
Notes to Condensed Consolidated Financial Statements
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II. OTHER INFORMATION
Item 6 - Exhibits and Reports of Form 8-K
SIGNATURES
INGERSOLL-RAND COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
(in millions)
ASSETS
March 31, December 31,
2001 2000
Current assets:
Cash and cash equivalents $ 76.2 $ 74.4
Marketable securities 4.6 125.6
Accounts and notes receivable, net 1,326.7 1,323.5
Inventories 1,106.5 1,022.9
Prepaid expenses and deferred income taxes 151.8 164.0
Assets held for sale 571.9 612.4
Total current assets 3,237.7 3,322.8
Investments in and advances with
partially owned equity affiliates 167.9 167.6
Property, plant and equipment, at cost 2,418.2 2,417.9
Less - accumulated depreciation 913.8 889.9
Net property, plant and equipment 1,504.4 1,528.0
Intangible assets, net 5,054.2 5,105.3
Deferred income taxes 103.0 114.1
Other assets 345.5 290.7
Total assets $10,412.7 $10,528.5
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accruals $ 1,525.6 $ 1,698.7
Loans payable 1,681.4 2,121.8
Income taxes 118.0 146.1
Total current liabilities 3,325.0 3,966.6
Long-term debt 2,140.3 1,540.1
Postemployment liabilities 818.0 824.8
Minority interests 111.6 110.5
Other liabilities 185.0 188.8
6,579.9 6,630.8
Company obligated mandatorily redeemable
preferred securities of subsidiary trust
holding solely debentures of the company 402.5 402.5
Shareholders' equity:
Common stock 343.5 343.1
Other shareholders' equity 3,385.4 3,398.7
Accumulated other comprehensive income (298.6) (246.6)
Total shareholders' equity 3,430.3 3,495.2
Total liabilities and equity $10,412.7 $10,528.5
See accompanying notes to condensed consolidated financial statements.
INGERSOLL-RAND COMPANY
CONDENSED CONSOLIDATED INCOME STATEMENT
(in millions except per share figures)
Three Months Ended
March 31,
2001 2000
Net sales $2,119.6 $2,020.4
Cost of goods sold 1,637.7 1,481.6
Selling and administrative expenses 306.4 269.5
Restructuring charges 21.7 -
Operating income 153.8 269.3
Interest expense (65.9) (48.2)
Other income (expense), net 6.3 2.9
Minority interests (8.5) (7.5)
Results from assets held for sale (net
of tax) (8.2) (7.9)
Earnings before income taxes 77.5 208.6
Provision for income taxes 28.2 76.9
Earnings from continuing operations 49.3 131.7
Discontinued operations (net of tax) - 4.3
Net earnings $ 49.3 $ 136.0
Basic earnings per share:
Continuing operations $ 0.31 $ 0.81
Discontinued operations - 0.03
$ 0.31 $ 0.84
Diluted earnings per share:
Continuing operations $ 0.31 $ 0.80
Discontinued operations - 0.03
$ 0.31 $ 0.83
Dividends per share $ 0.17 $ 0.17
See accompanying notes to condensed consolidated financial statements.
INGERSOLL-RAND COMPANY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
Three months ended
March 31,
2001 2000
Cash flows from operating activities:
Income from continuing operations $ 49.3 $ 131.7
Adjustments to arrive at net cash
provided by operating activities:
Restructure of operations 21.7 -
Depreciation and amortization 84.9 69.0
Changes in other asset and liabilities, net (310.9) (160.2)
Other, net 8.3 8.1
Net cash (used in) provided by operating
activities (146.7) 48.6
Cash flows from investing activities:
Capital expenditures (36.0) (45.8)
Acquisitions, net of cash (21.2) (576.3)
Proceeds from business dispositions 17.5 79.7
Decrease in marketable securities 95.4 0.2
Other, net 9.9 19.8
Net cash provided by (used in) investing
activities 65.6 (522.4)
Cash flows from financing activities:
Net change in debt 164.9 414.5
Purchase of treasury stock (58.1) (62.3)
Dividends paid (27.3) (27.7)
Proceeds from exercise of stock options 3.8 2.0
Net cash provided by financing activities 83.3 326.5
Net cash provided by discontinued operations - 12.9
Effect of exchange rate changes on cash and
and cash equivalents (0.4) (2.5)
Net increase (decrease) in cash and cash
equivalents 1.8 (136.9)
Cash and cash equivalents - beginning of period 74.4 222.9
Cash and cash equivalents - end of period $ 76.2 $ 86.0
See accompanying notes to condensed consolidated financial statements.
INGERSOLL-RAND COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - In the opinion of management, the accompanying
condensed consolidated financial statements contain all
adjustments (including normal recurring accruals) necessary to
present fairly the consolidated unaudited financial position and
results of operations for the three months ended March 31, 2001
and 2000.
Note 2 - During the third quarter of 2000, the company began 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 3,800 employees, of which 58% have been
terminated as of March 31, 2001. 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 three months ended March 31, 2001 as follows:
In millions
Climate Control $10.9
Industrial Productivity:
Bearings and Components 7.1
Infrastructure 2.9
Security and Safety 0.8
Total $21.7
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
Provision 21.5 0.2 21.7
Cash payments (18.0) (1.4) (19.4)
Asset write-offs - (0.1) (0.1)
Balance at March 31, 2001 $37.7 $0.9 $38.6
Note 3 - The company continues the process to sell the remaining
portion of Dresser-Rand Company (D-R). D-R's results were
reclassified on the condensed consolidated income statement into
results from assets held for sale, net of tax for the three months
ended March 31, 2000 from discontinued operations, net of tax.
The net assets of D-R have been included in assets held for sale
on the condensed balance sheet for all periods presented. The
company expects to complete the transaction in the current year.
Note 4 - In March 2001, the company acquired, for common stock and
cash, Taylor Industries, Inc. (Taylor) and an affiliate business,
Taylor Refrigeration. Taylor distributes, installs and services
refrigeration equipment, food service equipment and electric doors.
In June 2000, the company acquired Hussmann International, Inc.
(Hussmann), for approximately $1.7 billion in cash after taking
into account 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.
The acquisition has been accounted for as a purchase. The
purchase price was preliminarily allocated to the acquired assets
and liabilities based on their estimated fair values and the
allocation is subject to final adjustment. 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 over 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.
The results of Hussmann's operations have been included in the
consolidated financial statements from the acquisition date. The
following pro forma consolidated results for the three months
ended March 31, 2000 reflect the acquisition as though it occurred
at the beginning of the period 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):
For the three months ended March 31, 2000
Sales $2,315.4
Net earnings 112.2
Basic earnings per common share
Continuing operations $ 0.66
Discontinued operations 0.03
$ 0.69
Diluted earnings per common share
Continuing operations $ 0.66
Discontinued operations 0.03
$ 0.69
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 period. Further, the pro forma
results are not intended to be a projection of future results of
the combined companies. Historically, Hussmann's operating profits
tend to be more heavily concentrated during the second half of the
year.
Note 5 - 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. The composition of inventories for the
balance sheets presented were as follows (in millions):
March 31, December 31,
2001 2000
Raw materials and supplies $ 274.9 $ 280.2
Work-in-process 247.2 231.7
Finished goods 728.9 654.4
1,251.0 1,166.3
Less - LIFO reserve 144.5 143.4
Total $1,106.5 $1,022.9
Note 6 - The Statement of Financial Accounting Standards ("SFAS")
No. 133, Accounting for Derivative Instruments and Hedging
Activities, became effective for the company on 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. If a derivative qualifies
for cash flow hedge accounting the effective portion of changes
in fair value is recorded temporarily in other comprehensive
income then recognized in earnings along with the related effects
of the hedged items. If a derivative qualifies for fair value
hedge accounting, the changes in fair value of the derivative and
the hedged item are recognized currently in earnings. There was
no ineffective portion of hedges reported in earnings in the
first quarter of 2001.
The company operates internationally, with manufacturing and
sales facilities in various locations around the world and
utilizes primarily forward and option contracts to manage its
foreign currency and commodity exposures, primarily related to
forecasted transactions.
Of the approximate $1.2 million, after tax, recorded in equity at
January 1, 2001, upon the adoption of these new standards, $0.5
million was reclassified to earnings during the first quarter of
2001. Of the $2.0 million recorded in equity at March 31, 2001,
$2.0 million is expected to be reclassified to earnings over the
12 month period ending March 31, 2002. The actual amounts that
will be reclassified to earnings over the next twelve months will
vary from this amount as a result of changes in market conditions.
No amounts were reclassified to earnings during the first quarter
in connection with forecasted transactions that were no longer
considered probable of occurring.
At March 31, 2001, the maximum term of derivative instruments
that hedge forecasted transactions, for both foreign currency and
commodity hedges, was twelve months.
Derivatives not designated as hedges primarily consist of options
and forward contracts. Although these instruments are effective
as hedges from an economic perspective, they do not qualify for
hedge accounting under SFAS No. 133, as amended.
Note 7 - Information on basic and diluted earnings per share is as
follows (in millions):
Three months ended
March 31,
2001 2000
Average number of basic
shares 160.3 162.0
Shares issuable assuming
exercise under incentive
stock plans 1.0 1.3
Average number of diluted
Shares 161.3 163.3
Note 8 - The components of comprehensive income (loss) are as
follows (in millions):
Three months ended
March 31,
2001 2000
Net earnings $ 49.3 $136.0
Other comprehensive income (loss)
Foreign currency equity adjustment (33.6) (17.8)
Cumulative effect of change in
accounting principal (SFAS No. 133),
net of tax (1.2) -
Cash flow hedges:
Unrealized loss, net of tax (1.3) -
Reclassification adjustments,
net of tax 0.5 -
Reclassification to realized
on marketable securities (16.4) -
Comprehensive income (loss) $ (2.7) $118.2
Note 9 - A summary of operations by reportable segment is as
follows:
Three months ended
March 31,
2001 2000
Sales
Climate Control $ 515.1 $ 324.4
Industrial Productivity
Air Solutions 196.7 196.6
Bearings and Components 272.3 306.8
Industrial Products 257.6 253.2
726.6 756.6
Infrastructure Development 542.9 603.6
Security and Safety 335.0 335.8
Total $2,119.6 $2,020.4
Operating income
Climate Control $(10.4) $ 38.7
Industrial Productivity
Air Solutions 17.5 19.8
Bearings and Components 15.3 32.6
Industrial Products 33.7 36.2
66.5 88.6
Infrastructure Development 62.3 96.9
Security and Safety 54.3 62.9
Unallocated corporate expense (18.9) (17.8)
Total $153.8 $269.3
No significant changes in assets by geographic area have occurred
since December 31, 2000.
INGERSOLL-RAND COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Net sales for the first quarter of 2001 were $2.1 billion, an
increase of 5% compared to the first quarter of 2000. Operating
income was $153.8 million, which included $21.7 million of
restructure changes and $22.1 million of productivity investments.
The company's net earnings for the first quarter of the year from
continuing operations was $49.3 million or diluted earnings per
share (DEPS) of $0.31. Excluding charges relating to restructure
and productivity investments, DEPS were $0.51. For the first quarter
of 2000, sales were $2.0 billion, operating income was $269.3 million
and net earnings from continuing operations was $131.7 million or
$0.80 of DEPS. The first quarter of 2000 did not include any charges
for restructure or productivity investments. The first quarter of 2001
included the results of Hussmann, acquired in June 2000.
Net sales for the first three months of 2001 were $2.1 billion, an
increase of 5% over last year's first quarter. Excluding Hussmann,
net sales decreased by 7% compared to the first quarter of 2000,
primarily due to a 10% decline in North American revenues.
Costs of goods sold, and selling and administrative expense in
the first quarter of 2001 include charges for productivity
investments. Productivity investments consist of costs for
equipment moving, facility redesign, employee relocation and
retraining, and systems enhancements. Charges for productivity
investments are expensed as incurred. All business segments
incurred productivity investments. The following table shows the
2001 results adjusted for productivity investments:
Reported Productivity Adjusted
In millions results investments results
Cost of goods
sold $1,637.7 12.4 $1,625.3
Selling and
administrative
expenses 306.4 9.7 296.7
Cost of goods sold in the first quarter of 2001 was 77.3% of
sales as compared to 73.3% in the comparable quarter of 2000. The
increase in the ratio of cost of goods sold to sales was due to
the inclusion of Hussmann, which historically has had a higher
ratio than the company has maintained.
The ratio of selling and administrative expenses to sales was
14.5% for the first three months of 2001, as compared to 13.3%
for the first quarter of 2000. Hussmann's earnings have
historically followed a distinct seasonal pattern with two-thirds
of the earnings produced in the second half of the year, while
selling and administrative expenses are incurred fairly evenly
throughout the year.
Restructuring charges for the first quarter of 2001 were $21.7
million. The restructuring program began in the third quarter of
2000 and is expected to be substantially complete by the end of
2001. Restructuring charges include $21.5 million of severance
and other employee termination costs, while facility exit costs
totaled $0.2 million. Charges related to employee severance and
other employee termination costs cover approximately 3,800
employees, of which 58% have been terminated as of March 31,
2001. For the three months ended March 31, 2001, the company
recorded pretax restructuring charges for the Climate Control
Sector of $10.9 million, Bearings and Components Sector of $7.1
million, Infrastructure Sector of $2.9 million, and Security and
Safety Sector of $0.8 million.
Operating income for the first quarter of 2001 totaled $153.8
million, a decrease of $115.5 million over the $269.3 million
reported for last year's first quarter. Excluding productivity
and restructure charges, operating income was $197.6 million, a
decrease of $71.7 million from 2000's first quarter.
Interest expense for the first quarter of 2001 was $65.9 million,
which was $17.7 million higher than last year's first quarter due
to the impact of the debt incurred for the purchase of Hussmann
in June 2000. Additionally, interest expense from the debt
required to purchase Dresser-Rand Company (D-R) is included in
results from assets held for sale, net of tax.
Other income (expense), net, aggregated $6.3 million of income
for the three months ended March 31, 2001, as compared to $2.9
million of income in the first quarter of 2000. This favorable
change includes a gain of $8.8 million on the sale of the stock
of Hanover Compressor Company. This gain was partially offset by
increased foreign exchange losses in the first quarter of 2001
over the comparable period of 2000.
Minority interest increased from the first quarter of 2000 as a
result of higher earnings from consolidated jointly owned entities
in which the company has a majority ownership. Charges associated
with the company's equity-linked securities were comparable.
Results from assets held for sale, net of tax, contains the loss
from the unsold portion of D-R. D-R's first quarter net loss of
$8.2 million included one-time after tax charges of $3.3 million
for restructuring charges relating to organizational
realignments. Excluding these charges, D-R's net loss amounted
to $4.9 million, compared to $7.9 million net loss in the first
quarter of 2000. D-R's earnings also include interest expense,
net of tax on debt incurred for the acquisition and amortization
of goodwill.
The company's effective tax rate for continuing operations for
the first quarter of 2001 and 2000 were 36.4% and 36.9%,
respectively. Excluding D-R the company's effective tax rate
was 33.0% compared to 35.5 % in the first quarter of 2000.
Earnings from discontinued operations (net of tax) for 2000 were
the results of Ingersoll-Dresser Pump Company (IDP) sold in the
third quarter of 2000.
Incoming orders for the first quarter of the year totaled $2.2
billion, compared to $2.1 billion in the first quarter of 2000.
The company's backlog of orders at March 31, 2001, believed by it
to be firm, was $1.2 billion, which approximated the backlog at
December 31, 2000. The company estimates that approximately 90%
of the backlog will be shipped during the next twelve months.
First-quarter Business Segment Review
The Climate Control Sector includes Thermo King transport
temperature control equipment, and Hussmann display case
refrigeration. The sector's first quarter revenues totaled
$515.1 million, with operating income of $5.0 million, excluding
restructuring charges of $10.9 million and productivity
investments of $4.5 million. Thermo King's revenues declined 15%
as growth in the bus air conditioning and seagoing container
businesses was more than offset by a severe decline in the North
American truck and trailer markets and continued weakness in the
European truck and trailer market. Operating margins were
significantly lower due to the decline in the higher margin North
American business and unfavorable currency comparisons. Deferred
capital spending by several major supermarkets chains negatively
impacted Hussmann operating results. Backlog and bid activity is
strong, indicating that the spending decline appears to be a
deferral rather than a permanent loss of business.
The Industrial Productivity Sector is composed of a group of
businesses focused on providing solutions for customers to
enhance industrial efficiency. First-quarter revenues on a
comparable basis declined by approximately 4%. Revenues were
$726.6 million, compared to last year's revenues of $756.6
million. Operating earnings, excluding restructure charges of
$7.1 million and productivity investments of $4.6 million,
decreased by 12% to $78.2 million. All businesses in the sector
experienced weaker operating margins. The Industrial
Productivity Sector consists of three segments:
O Air Solutions, which provides equipment and services for
compressed air systems, reported sales of $196.7 million
in the first quarter of 2001, as compared to sales in the
first quarter of 2000 of $196.6 million. Operating income
excluding the impact of restructuring and productivity
investments was approximately the same for the first quarter
of 2001 as it was in 2000.
O Bearings and Components provides motion control technologies
to the automotive and industrial markets. Revenues for the
quarter declined by 11% to $272.3 million. Operating income,
excluding charges for restructure of $7.1 million and
productivity investments of $1.7 million, was $24.1 million
as compared to $32.6 million in the first quarter of 2000.
Continued softness in the U.S. automotive and industrial
equipment markets contributed significantly to this decline.
O Industrial Products which includes Club Car golf cars and
utility vehicles, tools, fluid products, and the independent
power business, showed year-over-year revenue growth of 2%,
principally reflecting gains at Club Car. Operating margins
for the segment declined slightly, mainly due to increased
spending on new product introduction, particularly the
Powerworks microturbine.
The Infrastructure Sector includes Bobcat compact equipment,
road pavers and compactors; portable power products, and drilling
equipment. This sector's revenues totaled $542.9 million, a
decrease of 10% over last year's first-quarter revenues.
Operating earnings, excluding charges of $2.9 million for
restructuring and $4.0 million for productivity investments was
$69.2 million, a decrease of $27.7 million. The decline reflects
weaker North American road development, portable power, and
drilling markets combined with dramatically reduced demand from
U.S. rental accounts.
The Security and Safety Sector includes architectural hardware
products and electronic access-control technologies. For this
sector, revenues were flat year-over-year, reflecting the slowing
in the U.S. and European commercial and residential markets,
offset by an increase in electronic solutions revenues. Sector
operating income was $61.5 million excluding charges from
restructure of $0.8 million and productivity investments of $6.4
million, as compared to $62.9 million during the first quarter of
2000.
Liquidity and Capital Resources
The company's debt-to-total capital ratio at March 31, 2001, was
49%, compared with 48% reported at December 31, 2000. The increase
is attributable to a slight increase in total debt outstanding.
The company's working capital increased by $556.5 million. Working
capital was a negative $87.3 million at March 31, 2001, compared to
the December 31, 2000 negative balance of $643.8 million.
The company's cash and cash equivalents totaled $76.2 million at
March 31, 2001, a slight increase over the $74.4 million at
December 31, 2000. Cash flows from operating activities used
$146.7 million, investing activities provided $65.6 million and
financing activities provided $83.3 million.
Marketable securities decreased from $125.6 million at December
31, 2000 to $4.6 million at March 31, 2001. During the first
quarter, the company sold the stock received as partial payment
for the reciprocating gas compressor packaging and rental
business sold in 2000.
Receivables totaled $1.3 billion at March 31, 2001, which is
comparable to the amount reported at December 31, 2000.
Inventories totaled $1,106.5 million at March 31, 2001, which
represents an increase of $83.6 million from the year-end balance
of $1,022.9 million. The slowing U.S. economy has impacted the
company's results. Weakness has been noted in the North American
truck and trailer market, continuing weakness in European truck
and trailer market, a falloff in North American light vehicle
production, deferred capital spending by supermarkets and a
decline in purchasing by large U.S. rental companies.
Assets held for sale were $571.9 million at March 31, 2001, a
decrease of $40.5 million from December 31, 2000. This account
includes the company's remaining investment in D-R. The decrease
in net assets as well as the net loss recorded by D-R for the
first quarter of 2001 comprised this change.
Intangible assets decreased by $51.1 million during the first
three months of 2001. Amortization expense for the quarter was
$39.8 million. The remaining change was attributable to
acquisitions offset by foreign currency translation.
Loans payable were $1,681.4 million in the first quarter of 2001
compared to $2,121.8 million at December 31, 2000. Short-term
debt was refinanced with long-term notes of $600 million in
February 2001. The notes are due in 2003 and carry an interest
rate of 5.75%.
During the first quarter of 2001, the company repurchased
approximately 1.3 million shares of the company's stock. Of
this, approximately 350,000 shares were used in connection with
the acquisition of Taylor Industries, Inc. A total of 11.2
million shares have been purchased since the inception of the
program in 1997.
During the first three months of 2001, foreign currency
translation adjustments resulted in a net decrease of $33.6
million in shareowners' equity, caused by the continued
strengthening of the U.S. dollar against European currencies.
Environmental Matters
The company is a party to environmental lawsuits and claims, and
has received notices of potential violations of environmental
laws and regulations from the Environmental Protection Agency and
similar state authorities. It is identified as a potentially
responsible party (PRP) for cleanup costs associated with off-
site waste disposal at approximately 26 federal Superfund and
state remediation sites, excluding sites as to which the
company's records disclose no involvement or as to which the
company's liability has been fully determined. For all sites,
there are other PRPs and in most instances, the company's site
involvement is minimal. In estimating its liability, the company
has not assumed that it will bear the entire cost of remediation
of any site to the exclusion of other PRPs who may be jointly and
severally liable. The ability of other PRPs to participate has
been taken into account, based generally on the parties'
financial condition and probable contributions on a per site
basis. Additional lawsuits and claims involving environmental
matters are likely to arise from time to time in the future.
Although uncertainties regarding environmental technology, state
and federal laws and regulations and individual site information
make estimating the liability difficult, management believes that
the total liability for the cost of remediation and environmental
lawsuits and claims will not have a material effect on the
financial condition, results of operations, liquidity or cash
flows of the company for any year. It should be noted that when
the company estimates its liability for environmental matters, such
estimates are based on current technologies, and the company does
not discount its liability or assume any insurance recoveries.
Acquisitions
In March 2001, the company acquired Taylor Industries, Inc.
(Taylor) and its affiliate business, Taylor Refrigeration. Taylor
distributes, installs and services refrigeration equipment, food
service equipment and electric doors. Taylor is included in the
Climate Control Sector.
On August 7, 2000, the company acquired Interflex Datensysteme
GmbH (Interflex). 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.
On June 14, 2000, the company acquired Hussmann for approximately
$1.7 billion. Hussmann is a world leader in the design,
production, installation and service of merchandising and
refrigeration systems for the global food industry. Hussmann's
results have been reported as part of the Climate Control Sector
since acquisition.
Discontinued Operations and Dispositions
In September 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.
During February 2000, the company sold one of the businesses
acquired with the Harrow acquisition for approximately $43.0
million, which approximated book value. Also in February 2000,
the company sold its interest 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, a venture involved in the
engineered pump business for $775.0 million, realizing an after-
tax gain of $124.8 million. IDP's results were reported as
discontinued operations (net of tax) in the income statement for 2000.
New Accounting Standard
The Statement of Financial Accounting Standards ("SFAS") No. 133,
Accounting for Derivative Instruments and Hedging Activities,
became effective for the company on 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. If a derivative qualifies
for cash flow hedge accounting the effective portion of changes
in fair value is recorded temporarily in other comprehensive
income then recognized in earnings along with the related effects
of the hedged items. If a derivative qualifies for fair value
hedge accounting, the changes in fair value of the derivative and
the hedged item are recognized currently in earnings. There was
no ineffective portion of hedges reported in earnings in the
first quarter of 2001.
The company operates internationally, with manufacturing and
sales facilities in various locations around the world and
utilizes primarily forward and option contracts to manage its
foreign currency and commodity exposures, primarily related to
forecasted transactions.
Of the approximate $1.2 million, after tax, recorded in equity at
January 1, 2001, upon the adoption of these new standards, $0.5
million was reclassified to earnings during the first quarter of
2001. Of the $2.0 million recorded in equity at March 31, 2001,
$2.0 million is expected to be reclassified to earnings over the
12 month period ending March 31, 2002. The actual amounts that
will be reclassified to earnings over the next twelve months will
vary from this amount as a result of changes in market
conditions. No amounts were reclassified to earnings during the
first quarter in connection with forecasted transactions that
were no longer considered probable of occurring.
Derivatives not designated as hedges primarily consist of options
and forward contracts. Although these instruments are effective
as hedges from an economic perspective, they do not qualify for
hedge accounting under SFAS No. 133, as amended.
Safe Harbor Statement
Information provided by the company in reports such as this
report on Form 10-Q, in press releases and in statements made by
employees in oral discussions, to the extent the information is
not historical fact, constitutes "forward looking statements"
within the meaning of the Securities Act of 1933 and the
Securities Exchange Act of 1934. Forward looking statements by
their nature involve risk and uncertainty.
The company cautions that a variety of factors, including but not
limited to the following, could cause business conditions and
results to differ from those expected by the company: changes in
the rate of economic growth in the United States and in other
major international economies; significant changes in trade,
monetary and fiscal policies worldwide; currency fluctuations
among the U.S. dollar and other currencies; demand for company
products; distributor inventory levels; failure to achieve the
company's productivity targets; and competitor actions including
unanticipated pricing actions or new product introductions.
INGERSOLL-RAND COMPANY
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
12 Computations of Ratios of
Earnings to Fixed Charges
(b) Reports on Form 8-K
A Current Report on Form 8-K (Item 5) dated February 6,
2001 reporting the Debt Securities Underwriting
Agreement Standard Provisions relating to Registration
Statement No. 33350902.
A Current Report on Form 8-K (Item 5) dated February 9,
2001 reporting the filing of Exhibit 12 - Computation of
the Ratio of Earnings to Fixed Charges and Exhibit 13 -
Audited Financial Statements at and for the year ended
December 31, 2000.
A Current Report on Form 8-K/A (Item 5) dated February
9, 2001 amending the filing of Exhibit 23 - Consent of
PricewaterhouseCoopers LLP.
INGERSOLL-RAND COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
INGERSOLL-RAND COMPANY
(Registrant)
Date May 11, 2001 /S/ D.W. Devonshire
D. W. Devonshire, Executive Vice
President & Chief Financial Officer
Principal Financial Officer
Date May 11, 2001 /S/ S.R. Shawley
S. R. Shawley, Vice President and
Controller
Principal Accounting Officer