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 June 30, 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
Telephone number of principal executive offices
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 July 30, 2001 was
168,385,245.
INGERSOLL-RAND COMPANY
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
Condensed Consolidated Balance Sheet at June 30, 2001 and
December 31, 2000
Condensed Consolidated Income Statement for the three and
six months ended June 30, 2001 and 2000
Condensed Consolidated Statement of Cash Flows for the six
months ended June 30, 2001 and 2000
Notes to Condensed Consolidated Financial Statements
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Part II. OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
Item 6 - Exhibits and Reports on Form 8-K
SIGNATURES
INGERSOLL-RAND COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
(in millions)
ASSETS
June 30, December 31,
2001 2000
Current assets:
Cash and cash equivalents $ 57.6 $ 74.4
Marketable securities 5.9 125.6
Accounts and notes receivable, net 1,357.3 1,323.5
Inventories 1,106.8 1,022.9
Prepaid expenses and deferred income taxes 159.4 164.0
Assets held for sale 586.7 612.4
Total current assets 3,273.7 3,322.8
Investments in and advances with
partially owned equity affiliates 159.6 167.6
Property, plant and equipment, at cost 2,408.2 2,417.9
Less - accumulated depreciation 935.1 889.9
Net property, plant and equipment 1,473.1 1,528.0
Intangible assets, net 5,158.7 5,105.3
Deferred income taxes 117.4 114.1
Other assets 337.1 290.7
Total assets $10,519.6 $10,528.5
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accruals $ 1,568.5 $ 1,698.7
Loans payable 938.8 2,121.8
Income taxes 31.6 146.1
Total current liabilities 2,538.9 3,966.6
Long-term debt 2,992.1 1,540.1
Postemployment liabilities 819.8 824.8
Minority interests 111.8 110.5
Other liabilities 199.7 188.8
6,662.3 6,630.8
Company obligated mandatorily redeemable
preferred securities of subsidiary trust
holding solely debentures of the company - 402.5
Shareholders' equity:
Common stock 360.5 343.1
Other shareholders' equity 3,811.6 3,398.7
Accumulated other comprehensive income (314.8) (246.6)
Total shareholders' equity 3,857.3 3,495.2
Total liabilities and equity $10,519.6 $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 Six months ended
June 30, June 30,
2001 2000 2001 2000
Net sales $2,285.6 $2,232.9 $4,405.2 $4,253.3
Cost of goods sold 1,782.8 1,614.8 3,420.5 3,096.4
Selling and administrative expenses 319.1 269.6 625.5 539.1
Restructuring charges 8.3 - 30.0 -
Operating income 175.4 348.5 329.2 617.8
Interest expense (62.1) (55.3) (128.0) (103.5)
Other income (expense), net (4.6) (4.0) 1.7 (1.2)
Minority interests (5.6) (12.7) (14.1) (20.1)
Results from assets held for sale
(net of tax) (6.1) (5.7) (14.3) (13.6)
Earnings before income taxes 97.0 270.8 174.5 479.4
Provision for income taxes 34.1 93.1 62.3 170.0
Earnings from continuing operations 62.9 177.7 112.2 309.4
Discontinued operations (net of tax) - (2.3) - 2.0
Net earnings $ 62.9 $ 175.4 $ 112.2 $ 311.4
Basic earnings per common share
Continuing operations $ 0.38 $ 1.10 $ 0.69 $ 1.92
Discontinued operations - (0.01) - 0.01
$ 0.38 $ 1.09 $ 0.69 $ 1.93
Diluted earnings per common share
Continuing operations $ 0.38 $ 1.09 $ 0.69 $ 1.90
Discontinued operations - (0.01) - 0.01
$ 0.38 $ 1.08 $ 0.69 $ 1.91
Dividends per share $ 0.17 $ 0.17 $ 0.34 $ 0.34
See accompanying notes to condensed consolidated financial statements.
INGERSOLL-RAND COMPANY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
Six months ended
June 30,
2001 2000
Cash flows from operating activities:
Income from continuing operations $ 112.2 $ 309.4
Adjustments to arrive at net cash
provided by operating activities:
Restructure of operations 30.0 -
Depreciation and amortization 170.2 135.3
Changes in other asset and liabilities, net (465.0) (339.0)
Other, net 16.8 24.3
Net cash (used in) provided by operating
activities (135.8) 130.0
Cash flows from investing activities:
Capital expenditures (76.6) (74.6)
Acquisitions, net of cash (103.5) (2,286.8)
Proceeds from business dispositions 17.5 79.7
Decrease in marketable securities 94.4 0.3
Other, net 18.2 22.9
Net cash used in investing activities (50.0) (2,258.5)
Cash flows from financing activities:
Net change in debt 276.2 2,094.1
Purchase of treasury stock (58.1) (77.8)
Dividends paid (55.9) (55.2)
Proceeds from exercise of stock options 8.5 5.7
Net cash provided by financing activities 170.7 1,966.8
Net cash provided by discontinued operations - 24.5
Effect of exchange rate changes on cash and
and cash equivalents (1.7) (5.3)
Net decrease in cash and cash equivalents (16.8) (142.5)
Cash and cash equivalents - beginning of period 74.4 222.9
Cash and cash equivalents - end of period $ 57.6 $ 80.4
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 and
six months ended June 30, 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 81% have been terminated as of
June 30, 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 six months ended June 30, 2001 as follows:
In millions
Climate Control $10.9
Industrial Productivity:
Air Solutions 1.3
Bearings and Components 10.5
Industrial Products 0.1
Infrastructure 2.9
Security and Safety 1.3
Corporate 3.0
Total $30.0
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 27.4 2.6 30.0
Cash payments (37.7) (1.5) (39.2)
Asset write-offs - (2.0) (2.0)
Balance at June 30, 2001 $23.9 $ 1.3 $25.2
Note 3 - The company continues the process to sell the 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 and six months ended June 30, 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 continues its efforts to complete the
sale of D-R.
Note 4 - In June 2001, the company acquired the assets of ITO Emniyet
Kilit Sistemleri A. (ITO Kilit), a leading manufacturer and distributor
of locks, cylinders and keys in the Turkish market. The acquisition
includes ITO Kilit's manufacturing facility in Duzce, Turkey, and
advanced-technology lock and cylinder production equipment. Also in
June 2001, the company acquired Superstav, spol. s.r.o., a manufacturer
of compact tractor loader backhoes located in the Czech Republic, and
its U.S. distributor. Due to the timing of these acquisitions, the
investment in these companies has been included at June 30, 2001 on the
balance sheet in other assets.
In May 2001, the company acquired National Refrigeration Services, Inc.
(NRS), a leading provider of commercial refrigeration products and
services for food storage distribution and display throughout the
United States. NRS serves customers in a variety of commercial
refrigeration applications, including supermarkets, convenience stores,
food processors, food service facilities, government institutions, cold
storage warehouses, and distribution facilities.
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 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 six months ended June
30, 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. (in
millions, except per share amounts):
For the six months ended June 30, 2000
Sales $4,887.1
Net earnings 280.6
Basic earnings per common share
Continuing operations $ 1.73
Discontinued operations 0.01
$ 1.74
Diluted earnings per common share
Continuing operations $ 1.71
Discontinued operations 0.01
$ 1.72
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.
Acquisitions are accounted for as purchases. The purchase price for
each acquisition is allocated to the acquired assets and liabilities
based on their estimated fair values. All purchase accounting is
finalized within a year of the acquisition. The company classifies 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 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):
June 30, December 31,
2001 2000
Raw materials and supplies $ 274.3 $ 280.2
Work-in-process 248.4 231.7
Finished goods 729.9 654.4
1,252.6 1,166.3
Less - LIFO reserve 145.8 143.4
Total $1,106.8 $1,022.9
Note 6 - The Statement of Financial Accounting Standards ("SFAS") No.
133, Accounting for Derivative Instruments and Hedging Activities, and
its amendments, 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 six
months 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, $0.7 million
was reclassified to earnings during the first six months of 2001. Of
the $0.5 million recorded in equity at June 30, 2001, $0.5 million is
expected to be reclassified to earnings over the 12-month period ending
June 30, 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 six months in connection with forecasted transactions
that were no longer considered probable of occurring.
At June 30, 2001, the maximum term of derivative instruments that hedge
forecasted transactions, for both foreign currency and commodity hedges,
was twelve months. The company also utilized an interest rate swap as a
cash flow hedge of the forecasted issuance of debt that occurred during
the second quarter. Approximately $2.6 million was included in accumulated
other comprehensive income at June 30, 2001 related to this transaction.
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 Six months ended
June 30, June 30,
2001 2000 2001 2000
Average number of basic
shares 164.1 161.5 162.5 161.7
Shares issuable assuming
exercise under incentive
stock plans 1.5 1.3 1.3 1.4
Average number of diluted
shares 165.6 162.8 163.8 163.1
Note 8 - The components of comprehensive income (loss) are as follows
(in millions):
Three months ended Six months ended
June 30, June 30,
2001 2000 2001 2000
Net earnings $ 62.9 $175.4 $112.2 $311.4
Other comprehensive income (loss)
Foreign currency equity adjustment (18.7) (40.8) (52.3) (58.6)
Cumulative effect of change in
accounting principal (SFAS
No. 133), net of tax - - (1.2) -
Cash flow hedges:
Unrealized gain, net of tax 2.3 - 1.0 -
Reclassification adjustments,
net of tax 0.2 - 0.7 -
Reclassification to realized
on marketable securities,
net of tax - - (16.4) -
Comprehensive income $ 46.7 $134.6 $ 44.0 $252.8
Note 9 - A summary of operations by reportable segment is as follows:
Three months ended Six months ended
June 30, June 30,
2001 2000 2001 2000
Sales
Climate Control $ 610.3 $ 398.6 $1,125.4 $ 723.0
Industrial Productivity
Air Solutions 205.9 217.8 402.6 414.4
Bearings and Components 270.0 314.8 542.3 621.6
Industrial Products 247.6 276.0 505.2 529.2
723.5 808.6 1,450.1 1,565.2
Infrastructure Development 606.4 669.7 1,149.3 1,273.3
Security and Safety 345.4 356.0 680.4 691.8
Total $2,285.6 $2,232.9 $4,405.2 $4,253.3
Operating income
Climate Control $ 11.5 $ 48.8 $ 1.1 $ 87.5
Industrial Productivity
Air Solutions 5.4 25.5 22.9 45.3
Bearings and Components 20.4 50.2 35.7 82.8
Industrial Products 19.1 39.9 52.8 76.1
44.9 115.6 111.4 204.2
Infrastructure Development 82.7 126.0 145.0 222.9
Security and Safety 56.3 75.3 110.6 138.2
Unallocated corporate expense (20.0) (17.2) (38.9) (35.0)
Total $175.4 $348.5 $329.2 $617.8
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 second quarter of 2001 were $2.3 billion, operating
income was $175.4 million and earnings from continuing operations
were $62.9 million or $0.38 diluted earnings per share (DEPS).
Operating income included $8.3 million of restructure charges and
$31.4 million of productivity investments. Excluding charges
relating to restructure and productivity investments, DEPS were
$0.55. The second quarter of 2000 did not include any charges for
restructure or productivity investments. The second quarter of 2001
includes a full quarter of Hussmann results which was acquired June
2000. For the second quarter of 2000, the company's sales were
approximately $2.2 billion, with operating income of $348.5 million
and earnings from continuing operations of $177.7 million or $1.09
DEPS.
Net sales for the three months ended June 30, 2001 were $2.3 billion,
an increase of 2% over last year's second quarter. Excluding
Hussmann, net sales decreased by 10% compared to last year's second
quarter. The decline was primarily due to lower North American
revenues caused by deteriorating end markets, delayed customers'
purchasing and continued weakness in the economy.
Cost of goods sold, and selling and administrative expenses in the
second 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.
Productivity investments recorded as cost of sales and selling and
administrative expenses for the second quarter of 2001 were $26.7
million and $4.7 million, respectively.
Cost of goods sold in the second quarter of 2001 was 78.0% of sales
as compared to 72.3% in the comparable quarter of 2000. The increase
in the ratio of cost of goods sold to sales was due to the inclusion
of productivity investments, Hussmann, reduced volume, unfavorable
product mix and some pricing pressure. In addition, the company is
continuing to spend on key product development projects, particularly
the Powerworks microturbines.
The ratio of selling and administrative expenses to sales was 14.0%
for the second quarter of 2001, as compared to 12.1% for the second
quarter of 2000. Excluding productivity investments, the ratio of
selling and administrative expenses to sales for the second quarter
of 2001 was 13.8%. 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 second quarter of 2001 were $8.3
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 $5.9 million of severance and other
employee termination costs, while facility exit costs totaled $2.4
million. Charges related to employee severance and other employee
termination costs cover approximately 3,800 employees, of which 81%
have been terminated as of June 30, 2001. For the three months ended
June 30, 2001, the company recorded pretax restructuring charges for
the Industrial Productivity Sector of $4.8 million, Security and
Safety Sector of $0.5 million, and Corporate of $3.0 million.
Operating income for the second quarter of 2001 totaled $175.4
million, a decrease of $173.1 million over the $348.5 million
reported for last year's second quarter. Excluding productivity and
restructure charges, operating income was $215.1 million, a decrease
of $133.4 million from 2000's second quarter.
Interest expense for the second quarter of 2001 was $6.8 million
higher than last year's second quarter. The purchase of Hussmann
added $28.1 million and $5.2 million of interest expense to the
second quarter of 2001 and 2000, respectively. Excluding Hussmann-
related interest expense, interest expense for the second quarter of
2001 was $16.1 million below last year's level. The decrease is
attributable to lower average debt balances and interest rates during
the comparable periods. Additionally, interest expense from the debt
required to purchase D-R has been classified as a component of
results from assets held for sale (net of tax) and was not included
in interest expense.
Other income (expense), net, aggregated $4.6 million of net expense
for the second quarter of 2001, as compared to $4.0 million of net
expense for the three months ended June 30, 2000. The change was due
to decreased earnings from partially-owned equity companies,
increased miscellaneous expenses, which were offset by gains in
foreign currency activity.
Minority interest decreased from the second quarter of 2000 by $7.1
million. Charges associated with the company's equity-linked
securities decreased from $6.3 million last quarter to $2.4 million
due to their conversion to common stock in mid-May 2001.
Additionally, earnings from consolidated entities in which the
company has a majority ownership declined.
Results from assets held for sale, net of tax, reflects the
operating loss of D-R. D-R's second quarter net loss of $6.1
million included one-time after tax charges of $1.5 million for
charges relating to organizational realignments. Excluding these
charges, D-R's net loss amounted to $4.6 million, compared to $5.7
million net loss in the second 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
second quarter of the year was 35.2% as compared to 34.4% for the
three months ended June 30, 2000. Excluding D-R, the company's
effective tax rate was 33.0%. The tax rate excluding D-R for the
third and fourth quarters of the current year is expected to be
33.0%.
Earnings from discontinued operations (net of tax) for 2000 were the
results of Ingersoll-Dresser Pump Company (IDP) which was sold in the
third quarter of 2000.
Incoming orders for the second quarter of the year approximated $2.3
billion, which was higher than last year's second quarter total.
Excluding Hussmann, incoming orders decreased by approximately $200
million from $2.1 billion to $1.9 billion. The company's backlog of
orders at June 30, 2001, believed by it to be firm, was $1.2 billion,
which was higher than the backlog at December 31, 2000. Excluding
Hussmann, backlog at June 30. 2001 was approximately $100 million
less than the prior year. The company estimates that approximately
90% of the backlog will be shipped during the next twelve months.
A comparison of key income statement amounts between the six months
ended June 30, is as follows:
Net sales for the six months ended June 30, 2001 approximated $4.4
billion, an increase of 3.6% over last year's six month period.
Excluding Hussmann, net sales decreased over last year's comparable
period by 9%.
The ratio of cost of goods sold to sales for the first six months of
the year was 77.6% compared to last year's ratio of 72.8%. Included
in cost of goods sold for the six months ended June 30, 2001 were
charges related to productivity investments of $39.1 million. The
increase in the ratio of cost of goods sold to sales was due to the
inclusion of productivity investments, Hussmann, reduced volume,
unfavorable product mix and some pricing pressure. In addition, the
company increased spending on product development, particularly the
Powerworks microturbines.
The ratio of selling and administrative expenses to sales was 14.2%
for the first two quarters of 2001, as compared to 12.7% for the
comparable 2000 period. The period includes $14.4 million of charges
related to productivity investments. 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.
The company has undertaken a restructuring and productivity
investments program, which began in the third quarter of 2000.
Restructuring charges for the six months ended June 30, 2001 were
$30.0 million. Additionally, after tax charges of $4.8 million for
organizational realignments were incurred by D-R and have been
included in the results from the assets held for sale, net of taxes.
Productivity investments charges of $53.5 million were included in
cost of goods sold and selling and administrative expenses.
Operating income for the six months ended June 30, 2001 totaled
$329.2 million, a decrease of $288.6 million from the $617.8 million
reported for 2000's first six months.
Other income (expense), net, aggregated $1.7 million of net income
for the first six months of the year, as compared to $1.2 million of
net expense for the six months ended June 30, 2000. The net increase
was due to the gain of $8.8 million on the sale of the stock
received as part of the sale of the reciprocating gas compressor
packaging and rental business of D-R, an increase in income from
currency transactions offset by a decrease in earnings from
partially owned equity companies and an increase in miscellaneous
expenses.
Minority interest decreased by $6.0 million during the first six
months of 2001 over last year's six month total mainly as a result
of the conversion of equity-linked securities into approximately 8.3
million common shares in May 2001 which eliminated the charges
associated with the securities.
Interest expense for the first six months of 2001 was $128.0
million, which was $24.5 million higher than last year's comparable
period. Increased expense associated with debt issued to acquire
Hussmann was partially offset by lower average debt balances and
interest rates during the comparable periods. Additionally, interest
expense from the debt required to purchase D-R has been classified
as a component of results from assets held for sale (net of tax) and
was not included in interest expense.
The company's effective tax rate for the continuing operations first
six months of the year was 35.7% as compared to 35.5% for the six
months ended June 30, 2000. Excluding D-R, the company's effective
tax rate was 33.0%. The tax rate excluding D-R for the remainder of
the current year is expected to be 33.0%.
Earnings from discontinued operations (net of tax) for the first two
quarters of 2000 were the result of IDP, which was sold in the third
quarter of 2000.
Second-Quarter Business Segment Review
The Climate Control Sector includes Thermo King transport
temperature control equipment and Hussmann International, the
world leader in display case refrigeration, which was acquired on
June 14, 2000. The sector's second quarter revenues totaled $610.3
million, an increase of 53% compared to last year, reflecting the
inclusion of Hussmann. Thermo King revenues decreased by 18% due to
a significant decline in the truck and trailer market. The effect
was lessened by an increase in the bus air conditioning and seagoing
container business. Operating income for the second quarter,
excluding productivity investments of $11.6 million, was $23.1
million. Operating margins declined primarily because of the
inclusion of Hussmann results (including goodwill amortization), the
significant decline in the truck and trailer volume, and the
unfavorable effects of currency. Hussmann added revenues of $327.5
million and contributed $8.8 million of operating income to the
second quarter's results.
The Industrial Productivity Sector is composed of a group of
businesses focused on providing solutions for customers to enhance
industrial efficiency. Revenues of $723.5 million decreased by
approximately 11% compared to the amount reported for the three
months ended June 30, 2000. Operating income decreased to $60.3
million, excluding restructure charges of $4.8 million and
productivity investments of $10.6 million. All businesses in the
sector reported a decrease in operating margins for the second
quarter of the year.
The Industrial Productivity Sector consists of three segments:
Air Solutions, a provider of equipment and services for compressed
air systems, had revenues in the second quarter of $205.9 million, a
decline of 5% compared to 2000, due to lower demand for larger
compressors used in industrial applications. Operating income
decreased to $13.1 million excluding restructure charges of $1.3
million and productivity investments of $6.4 million. Excluding
productivity investments and restructure charges, operating margins
decreased to 6.4% of sales in the second quarter of the year, as
compared to 11.7% in the comparable 2000 quarter.
Bearings and Components provides motion control technologies to the
automotive and industrial markets. Revenues for the quarter declined
by 14.2% to $270.0 million due to lower volumes in the U.S. auto-
motive and industrial equipment markets. Excluding restructure
charges of $3.4 million and productivity investments of $3.5 million,
operating income for the second quarter decreased by $22.9 million to
$27.3 million. Excluding productivity investments and restructure
charges, operating margins decreased from approximately 16% to 10%.
Industrial Products includes Club Car golf cars and utility
vehicles, tools, fluid products equipment, and the independent power
business. Reported revenues of $247.6 million in the second quarter
decreased by $28.4 million, compared to the second quarter of 2000.
Operating income, excluding charges for restructuring of $0.1 million
and productivity investments of $0.7 million, was $19.9 million for
the second quarter of the year, a decrease of $20.0 million from the
prior year's comparable quarter due to decreased demand at Club Car
and the fluid products business. Operating margins for the segment
also declined due to increased spending on new product introduction,
particularly the Powerworks microturbine.
The Infrastructure Development Sector includes Bobcat compact
equipment, road pavers and compactors, portable power products, and
drilling equipment. This sector's revenues for the second quarter
totaled $606.4 million, a decrease of 9% from last year's second
quarter. Operating income, excluding productivity investments of
$3.7 million, was $86.4 million, a decrease of $39.6 million from
the comparable quarter last year. The sector's revenues and margins
were negatively impacted by weaker demand in the North American road
development, portable power and compact equipment markets as well as
dramatically reduced demand from large U.S. rental companies.
The Security and Safety Sector includes architectural hardware
products and electronic access-control technologies. For this
sector, second quarter revenues decreased by 3% to $345.4 million,
when compared to the comparable quarter in the prior year. Operating
income, excluding charges of $0.5 million for restructuring and $5.5
million for productivity investments, decreased by $13.0 million to
$62.3 million. This sector's operating income margin decreased to
18% of sales for the quarter, as compared to 21% for the second
quarter of 2000. Revenues decreased due to inventory reductions by
commercial distributors and slowing consumer demand for residential
products. Operating margins decreased due to lower volumes and
increased development spending in the electronic security solutions
business.
Liquidity and Capital Resources
The company's working capital at June 30, 2001 was $734.8 million,
which reflects a significant increase from the negative working
capital balance of $643.8 million at December 31, 2000. The primary
reason for this change is the refinancing of $1.4 billion short-term
debt to long- term. The company's debt-to-total capital ratio at
June 30, 2001 was 50% compared with 48% reported at December 31,
2000.
The company's cash and cash equivalents totaled $57.6 million at
June 30, 2001, down from the $74.4 million at December 31, 2000.
During the first six months of the year, cash flows from operating
activities used $135.8 million, investing activities used $50.0
million and financing activities provided $170.7 million
Receivables totaled $1.4 billion at June 30, 2001, which represents
an increase of $33.8 million over the amount reported at December 31,
2000. Acquisitions and foreign currency translation nearly offset
each other. The increase is due to extension of credit terms for
certain customers.
Inventories totaled $1.1 billion at June 30, 2001, which represents
an increase of $83.9 million from the year-end balance. The increase
is primarily due to the decline in demand in the first half of 2001
and acquisitions, offset by foreign currency translation.
Assets held for sale were $586.7 million at June 30, 2001, a decrease
of $25.7 million over the December 31, 2000 balance. This change was
comprised of the decrease in net assets, primarily working capital,
as well as the net loss recorded by D-R for the first six months of
2001.
Intangible assets increased by approximately $53.4 million during the
first six months of 2001. Acquisitions increased the account balance
by approximately $47.7 million during the first six months of the
year. Amortization expense for the first six months of the year was
$80.1 million. The remaining change is attributed to foreign
currency translation and final purchase accounting adjustments for
the Hussmann acquisition of approximately $60 million.
Other assets totaled $337.1 million at June 30, 2001, an increase of
$46.4 million from the December 31, 2000 balance, primarily due to
investments in companies acquired at the end of June 2001.
Loans payable totaled $938.8 million at June 30, 2001 as compared to
$2.1 billion at December 31, 2000. During the first six months of
2001, the company refinanced $1.4 billion of short-term debt with
long-term debt, which included $600 million of 5.75% notes maturing
in 2003, $575 million of 6.25% notes maturing in 2006, and $250
million of 5.80% notes maturing in 2004. The company also repaid
$596.7 million of current maturities of long-term debt. The
remainder of the change was attributable to short-term debt changes
and translation.
During the second quarter of 2001, the company established a $2.5
billion line of credit with a number of banks to support the
commercial paper program and general corporate borrowings.
In May 2001, the company's equity-linked securities were converted
into 8.3 million common shares, and approximately $32 million of new
long-term debt.
During the first six months of 2001, the company repurchased
approximately 1.3 million shares of the company's common stock.
Approximately 350,000 were used in connection with an acquisition.
During the first six months of 2001, foreign currency translation
adjustments resulted in a net decrease of $52.3 million in
shareholders' equity, caused primarily by the 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 28 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 June 2001, the company acquired Superstav, spol. s.r.o., a
manufacturer of compact tractor loader backhoes located in the Czech
Republic, and its U.S. distributor.
In June 2001, the company acquired the assets of ITO Emniyet Kilit
Sistemleri A. (ITO Kilit), a leading manufacturer and distributor of
locks, cylinders and keys in the Turkish market. The acquisition
includes ITO Kilit's manufacturing facility in Duzce, Turkey, and
advanced-technology lock and cylinder production equipment.
In May 2001, the company acquired National Refrigeration Services,
Inc. (NRS), a leading provider of commercial refrigeration products
and services for food storage distribution and display throughout the
United States. NRS serves customers in a variety of commercial
refrigeration applications, including supermarkets, convenience
stores, food processors, food service facilities, government
institutions, cold storage warehouses, and distribution facilities.
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.
New Accounting Standard
In September 2000, the Financial Accounting Standards Board (FASB),
issued SFAS No. 140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." This statement
revises the accounting standards for securitizations and other
transfers of financial assets and collateral and requires certain
disclosures. This statement is effective for transfers and services
of financial assets occurring after March 31, 2001. Adoption of SFAS
No. 140 did not have a material effect on the company's consolidated
financial position, consolidated results of operations, or liquidity.
In June 2001, the FASB issued two statements, Statement 141,
"Business Combinations", and Statement 142, "Goodwill and Other
Intangible Assets", that amend APB Opinion No. 16, "Business
Combinations, and supersede APB Opinion No. 17, "Intangible Assets."
The two statements modify the method of accounting for business
combinations entered into after June 30, 2001 and address the
accounting for intangible assets. Beginning January 1, 2002, the
company will no longer amortize goodwill, but will, however, evaluate
for impairment annually. We are currently reviewing the statements
to determine their effect on the Company.
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 and
services; distributor inventory levels; failure to achieve the
company's productivity targets; and competitor actions including
unanticipated pricing actions or new product introductions.
Quantitative and Qualitative Disclosures about Market Risk
There has been no significant change in the company's exposure to
market risk during the first six months of 2001. For discussion of
the company's exposure to market risk, refer to Item 7A, Quantitative
and Qualitative Disclosure about Market Risk, contained in the
company's Annual Report incorporated by reference in Form 10-K for
the calendar year 2000.
INGERSOLL-RAND COMPANY
PART II OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders of the company held on May
2, 2001, the shareholders, in addition to electing directors,
acted upon the approval of amendment of Incentive Stock Plan of
1998, and ratified the appointment of PricewaterhouseCoopers LLP
as independent accountants of the company for the year ending
December 31, 2001. The shareholders voted as follows on the
following matters:
1. Election of directors of the First Class to hold office for three
years. The voting result for each nominee is as follows:
Name Votes For Votes Withheld
Peter C. Godsoe 133,659,785 1,510,835
Constance J. Horner 133,606,914 1,563,706
Orin R. Smith 133,646,473 1,524,147
Joseph P. Flannery, Herbert L. Henkel, H. William Lichtenberger,
Theodore E. Martin, Richard J. Swift, and Tony L. White all
continue as directors of the company.
2. A vote of 99,778,610 votes for, 34,193,971 votes against, and
1,198,039 votes abstaining reapproved the amendment of the Incentive
Stock Plan of 1998.
3. The reappointment of the company's independent accountants was
approved by a vote of 129,525,308 votes for, 5,063,446 votes against,
and 581,866 votes abstaining.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
10(i)(a) Credit Agreement dated July 2, 2001,
among Ingersoll-Rand Company and
Citibank N.A. and Deutsche Banc
Alex. Brown Inc. (5 year term)
10(i)(b) Credit Agreement dated July 2, 2001,
among Ingersoll-Rand Company and
Citibank N.A. and Deutsche Bank
Alex. Brown Inc. (364 day term)
12 Computations of Ratios of
Earnings to Fixed Charges
(b) Reports on Form 8-K
None
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 August 2, 2001 /S/ D.W. Devonshire
D.W. Devonshire, Executive Vice
President & Chief Financial Officer
Principal Financial Officer
Date August 2, 2001 /S/ S.R. Shawley
S.R. Shawley, Vice President &
Controller
Principal Accounting Officer