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 September 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 October 31, 2001 was
167,988,904.
INGERSOLL-RAND COMPANY
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
Condensed Consolidated Balance Sheet at September 30, 2001 and
December 31, 2000
Condensed Consolidated Income Statement for the three and
nine months ended September 30, 2001 and 2000
Condensed Consolidated Statement of Cash Flows for the nine
months ended September 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 6 - Exhibits and Reports on Form 8-K
SIGNATURES
INGERSOLL-RAND COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
(in millions)
ASSETS
September 30, December 31,
2001 2000
Current assets:
Cash and cash equivalents $ 105.3 $ 97.0
Marketable securities 13.2 130.4
Accounts and notes receivable, net 1,512.8 1,562.8
Inventories 1,327.3 1,242.3
Prepaid expenses and deferred income taxes 213.0 235.5
Total current assets 3,171.6 3,268.0
Investments in and advances with
partially owned equity affiliates 161.4 174.7
Property, plant and equipment, net 1,610.1 1,653.4
Intangible assets, net 5,455.3 5,372.2
Deferred income taxes 160.4 152.9
Other assets 335.4 323.2
Total assets $10,894.2 $10,944.4
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accruals $ 1,906.1 $ 1,982.0
Loans payable 946.4 2,126.1
Income taxes 2.5 152.2
Total current liabilities 2,855.0 4,260.3
Long-term debt 2,907.9 1,540.4
Postemployment liabilities 952.2 957.8
Minority interests 113.4 113.4
Other liabilities 199.7 188.8
7,028.2 7,060.7
Company obligated mandatorily redeemable
preferred securities of subsidiary trust
holding solely debentures of the company - 402.5
Shareholders' equity:
Common stock 360.6 343.1
Other shareholders' equity 3,805.3 3,398.7
Accumulated other comprehensive income (299.9) (260.6)
Total shareholders' equity 3,866.0 3,481.2
Total liabilities and equity $10,894.2 $10,944.4
See accompanying notes to condensed consolidated financial statements.
INGERSOLL-RAND COMPANY
CONDENSED CONSOLIDATED INCOME STATEMENT
(in millions except per share figures)
Three months ended Nine months ended
September 30, September 30,
<c> <c> <c> <c>
2001 2000 2001 2000
Net sales $2,383.1 $2,511.9 $7,146.4 $7,160.9
Cost of goods sold 1,868.2 1,889.0 5,595.3 5,331.4
Selling and administrative expenses 364.7 341.5 1,053.1 943.6
Restructuring charges 25.6 38.2 57.2 38.2
Operating income 124.6 243.2 440.8 847.7
Interest expense (75.2) (84.5) (216.2) (203.2)
Other income (expense), net (15.6) 57.7 (10.1) 49.0
Minority interests (2.5) (10.1) (16.6) (30.2)
Earnings before income taxes 31.3 206.3 197.9 663.3
Provision for income taxes (2.6) 75.6 51.8 223.2
Earnings from continuing operations 33.9 130.7 146.1 440.1
Discontinued operations (net of tax) - 121.2 - 123.2
Net earnings $ 33.9 $ 251.9 $ 146.1 $ 563.3
Basic earnings per common share
Continuing operations $ 0.20 $ 0.81 $ 0.89 $ 2.73
Discontinued operations - 0.75 - 0.76
$ 0.20 $ 1.56 $ 0.89 $ 3.49
Diluted earnings per common share
Continuing operations $ 0.20 $ 0.80 $ 0.89 $ 2.70
Discontinued operations - 0.75 - 0.76
$ 0.20 $ 1.55 $ 0.89 $ 3.46
Dividends per share $ 0.17 $ 0.17 $ 0.51 $ 0.51
See accompanying notes to condensed consolidated financial statements.
INGERSOLL-RAND COMPANY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
Nine months ended
September 30,
2001 2000
Cash flows from operating activities:
Income from continuing operations $ 146.1 $ 440.1
Adjustments to arrive at net cash
provided by operating activities:
Restructure of operations 57.2 38.2
Depreciation and amortization 277.5 241.5
Changes in other asset and liabilities, net (393.0) (474.1)
Gain on sale of businesses - (42.8)
Other, net 23.0 30.5
Net cash provided by operating activities 110.8 233.4
Cash flows from investing activities:
Capital expenditures (130.0) (132.9)
Acquisitions, net of cash (141.3) (2,298.0)
Proceeds from business dispositions 17.5 977.3
Decrease in marketable securities 91.5 0.3
Other, net 27.2 32.5
Net cash used in investing activities (135.1) (1,420.8)
Cash flows from financing activities:
Net change in debt 194.3 1,270.3
Purchase of treasury stock (72.5) (118.4)
Dividends paid (84.5) (82.6)
Other, net 9.4 5.7
Net cash provided by financing activities 46.7 1,075.0
Net cash provided by discontinued operations - (22.1)
Effect of exchange rate changes on cash and
and cash equivalents (14.1) (11.6)
Net increase (decrease) in cash and cash
equivalents 8.3 (146.1)
Cash and cash equivalents - beginning of period 97.0 222.9
Cash and cash equivalents - end of period $ 105.3 $ 76.8
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
nine months ended September 30, 2001 and 2000.
The accompanying condensed consolidated financial statements restate the
previously presented amounts to report Dresser-Rand Company (Dresser-
Rand) on a fully-consolidated basis since acquisition. Previously, the
company reported the results and net assets of Dresser-Rand as assets
held for sale. The company is continuing the process to sell Dresser-
Rand.
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 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
4,100 employees, of which 85% have been terminated as of September 30,
2001. The restructuring program is expected to be substantially
complete by the end of 2001, with the remainder to be completed during
the first half of 2002.
The company recorded pretax restructuring charges by business segment
for the nine months ended September 30, 2001 as follows:
In millions
Climate Control $15.1
Industrial Productivity:
Air Solutions 8.9
Bearings and Components 13.2
Industrial Products 2.4
Infrastructure 5.7
Security and Safety 1.5
Dresser-Rand 1.6
Corporate 8.8
Total $57.2
A reconciliation of the restructuring provision is as follows:
Employee
termination Facility
In millions costs exit costs Total
Provision $74.2 $13.0 $87.2
Cash payments (33.7) (1.7) (35.4)
Non-cash write-offs (5.2) (8.6) (13.8)
Balance at December 31, 2000 35.3 2.7 38.0
Provision 54.6 2.6 57.2
Cash payments (50.1) (2.1) (52.2)
Non-cash write-offs (6.1) (2.0) (8.1)
Balance at September 30, 2001 $33.7 $1.2 $34.9
The company's reconciliation of the restructuring provision has been
restated to reflect the inclusion of Dresser-Rand. Included in the
balance at December 31, 2000 for Dresser-Rand is a provision of $8.4
million for employee termination costs, and $2.6 million for facility
exit costs. Payments against these provisions for Dresser-Rand were
$7.3 million and $1.2 million, respectively, as well as $0.9 million of
non-cash write-offs.
Note 3 - 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 nine months ended
September 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 nine months ended September 30, 2000
Sales $7,794.7
Net earnings 517.0
Basic earnings per common share
Continuing operations $ 2.44
Discontinued operations 0.76
$ 3.20
Diluted earnings per common share
Continuing operations $ 2.42
Discontinued operations 0.76
$ 3.18
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 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.
For all business combinations subsequent to June 30, 2001, the company
applied the provisions of Statement of Financial Accounting Standards
(SFAS) No. 141 "Business Combinations" and SFAS No. 142 "Goodwill and
Other Intangible Assets." Under the provisions of these standards
goodwill and intangible assets deemed to have indefinite lives are no
longer subject to amortization, while all other intangible assets are
to be amortized over their estimated useful lives. For the first nine
months of 2001 and 2000, amortization of goodwill totaled $108.9
million and $96.7 million, respectively.
Additional provisions of SFAS No. 141 and No. 142, including annual
impairment testing for goodwill and intangible assets, become effective
for the company on January 1, 2002. The company is currently assessing
the impact of adopting these provisions.
In June 2001, SFAS No. 143, "Accounting for Asset Retirement
Obligations" was issued. The standard requires that legal obligations
associated with the retirement of tangible long-lived assets be recorded
at fair value when incurred and is effective January 1, 2003 for the
company. The company is currently reviewing the provisions of SFAS No.
143 to determine the standard's impact upon adoption.
In August 2001, SFAS No. 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets" was issued, which provides guidance on the
accounting for the impairment or disposal of long-lived assets and is
effective January 1, 2002 for the company. The company is currently
reviewing the provisions of SFAS No. 144 to determine the standard's
impact upon adoption.
Note 4 - Inventories are stated at cost, which is not in excess of
market. Most domestically manufactured inventories, excluding Climate
Control and Dresser-Rand, are valued on the last-in, first-out (LIFO)
method. All other inventories are valued using the first-in, first-out
(FIFO) method. The composition of inventories were as follows (in
millions):
September 30, December 31,
2001 2000
Raw materials and supplies $ 334.1 $ 358.4
Work-in-process 394.4 372.9
Finished goods 745.6 654.4
1,474.1 1,385.7
Less - LIFO reserve 146.8 143.4
Total $1,327.3 $1,242.3
Note 5 - 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 nine 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.
All of the approximate $1.2 million, after tax, recorded in equity at
January 1, 2001, upon the adoption of these new standards, was
reclassified to earnings during the first nine months of 2001. The
$0.4 million recorded in equity at September 30, 2001 is expected to be
reclassified to earnings over the twelve month period ending September
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 nine months in connection with forecasted transactions
that were no longer considered probable of occurring.
At September 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 September 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 6 - Information on basic and diluted earnings per share is as follows
(in millions):
Three months ended Nine months ended
September 30, September 30,
2001 2000 2001 2000
Average number of basic
shares 168.3 160.9 164.3 161.4
Shares issuable assuming
exercise under incentive
stock plans 0.9 1.2 1.2 1.4
Average number of diluted
shares 169.2 162.1 165.5 162.8
Diluted earnings per share computations for the three months ended September
30, 2001 and 2000 excluded the weighted average effect of the assumed
exercise of approximately 10.5 million and 6.5 million stock options,
respectively. Excluded for the nine months ended September 30, 2001 and 2000
were 5.3 million and 4.0 million, respectively. These shares were excluded
because the effect would be anti-dilutive.
Note 7 - The components of comprehensive income are as follows (in millions):
Three months ended Nine months ended
September 30, September 30,
2001 2000 2001 2000
Net earnings $33.9 $251.9 $146.1 $563.3
Other comprehensive income (loss):
Foreign currency equity adjustment 31.2 (26.7) (23.3) (87.4)
Cumulative effect of change in
accounting principle (SFAS
No. 133), net of tax - - (1.2) -
Cash flow hedges:
Unrealized (loss) gain, net of tax (0.6) - 0.4 -
Reclassification adjustments,
net of tax 0.5 - 1.2 -
Unrealized gain on marketable
securities - 0.7 - 0.7
Reclassification to realized on
marketable securities, net of tax - - (16.4) -
Comprehensive income $65.0 $225.9 $106.8 $476.6
Note 8 - A summary of operations by reportable segment is as follows:
Three months ended Nine months ended
September 30, September 30,
2001 2000 2001 2000
Sales
Climate Control $ 656.0 $ 676.3 $1,781.4 $1,399.3
Industrial Productivity
Air Solutions 203.4 219.4 606.0 633.8
Bearings and Components 254.4 283.5 796.7 905.1
Industrial Products 203.8 211.9 709.0 741.0
661.6 714.8 2,111.7 2,279.9
Infrastructure Development 499.1 545.6 1,648.4 1,818.9
Security and Safety 360.4 364.0 1,040.8 1,055.9
Dresser-Rand 206.0 211.2 564.1 606.9
Total $2,383.1 $2,511.9 $7,146.4 $7,160.9
Operating income
Climate Control $ 24.4 $ 57.3 $ 25.5 $144.8
Industrial Productivity
Air Solutions 3.4 21.5 26.3 66.8
Bearings and Components 13.4 40.6 49.0 123.4
Industrial Products 2.0 13.4 54.8 89.5
18.8 75.5 130.1 279.7
Infrastructure Development 40.8 74.0 185.8 296.9
Security and Safety 61.1 75.9 171.7 214.1
Dresser-Rand 3.5 (2.8) (9.4) (16.1)
Unallocated corporate expense (24.0) (36.7) (62.9) (71.7)
Total $124.6 $243.2 $440.8 $847.7
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 third quarter of 2001 were $2.4 billion, operating
income was $124.6 million and earnings from continuing operations
were $33.9 million or $0.20 diluted earnings per share (DEPS).
Operating income included $25.6 million of restructure charges and
$37.6 million of productivity investments. Excluding charges
relating to restructure and productivity investments, DEPS were
$0.45. For the third quarter of 2000, the company's sales were
approximately $2.5 billion, with operating income of $243.2 million
and earnings from continuing operations of $130.7 million or $0.80
DEPS. Operating income for the third quarter of 2000 included $38.2
million of restructure charges and $22.5 million of productivity
investments. Excluding charges relating to restructure and
productivity investments, DEPS were $0.86.
Since October 1, 2000, the company reported the results and net
assets of Dresser-Rand as assets held for sale for all periods. The
company filed a Form 8-K on October 15, 2001 restating the
consolidated financial statements to report Dresser-Rand on a fully
consolidated basis. The accompanying condensed consolidated
financial statements report Dresser-Rand on a fully consolidated
basis.
Net sales for the three months ended September 30, 2001 were $2.4
billion, a decrease of 5% compared to last year's third 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. The effects of currency
translation also had a slight impact on net sales.
Cost of goods sold, and selling and administrative expenses in the
third quarters of 2001 and 2000 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 third quarter of 2001
were $24.4 million and $13.2 million, respectively and for the third
quarter of 2000 were $13.2 million and $9.3 million, respectively.
Cost of goods sold in the third quarter of 2001 was 78.4% of sales as
compared to 75.2% in the comparable quarter of 2000. Excluding
productivity investments, the ratio of cost of goods sold to sales
was 77.4% in the third quarter 2001 and 74.7% for the comparable
prior period. The increase in the ratio of cost of goods sold to
sales was due to 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 15.3%
for the third quarter of 2001, as compared to 13.6% for the third
quarter of 2000. Excluding productivity investments, for both
quarters, the ratio of selling and administrative expenses to sales
for the third quarter of 2001 and 2000 was 14.8% and 13.2%,
respectively. The increase in the ratio of selling and
administrative expenses to sales is due to lower sales volumes and
recent acquisitions of sales and service businesses, which
historically maintained higher ratios.
Restructuring charges for the third quarter of 2001 were $25.6
million. The restructuring program began in the third quarter of
2000 and is expected to be substantially complete by the end of 2001,
with the remainder completed during the first half of 2002. Charges
related to employee severance and other employee termination costs
cover approximately 4,100 employees, of which 85% have been
terminated as of September 30, 2001. For the three months ended
September 30, 2001, the company recorded pretax restructuring charges
for Climate Control of $4.2 million, Air Solutions of $7.6 million,
Bearing and Components of $2.7 million, Industrial Products of $2.3
million, Infrastructure of $2.8 million, Security and Safety of $0.2
million, and Corporate of $5.8 million.
Operating income for the third quarter of 2001 totaled $124.6
million, a decrease of $118.6 million over the $243.2 million
reported for last year's third quarter. Excluding restructure
charges and productivity investments for both quarters, operating
income decreased by $116.1 million from the $303.9 million in 2000's
third quarter.
Interest expense for the third quarter of 2001 was $9.3 million lower
than last year's third quarter. The decrease is attributable to
lower average debt balances and interest rates during the comparable
periods.
Other income (expense), net, aggregated $15.6 million of net expense
for the third quarter of 2001, as compared to $57.7 million of net
income for the three months ended September 30, 2000. The change was
due to the gain of $50.4 million from the sale of the compression
services business and additional asset sale gains of Dresser-Rand in
the third quarter of 2000, as well as increased losses in foreign
currency activity of $7.8 million in the current quarter.
Minority interest decreased by $7.6 million during the third quarter
of 2001 over last year's third quarter mainly as a result of the
conversion of equity-linked securities into approximately 8.3
million common shares in May 2001. This eliminated the charges
associated with the securities. Additionally, earnings from
consolidated entities in which the company has a majority ownership
declined.
The company's third-quarter provision for taxes was a credit of $2.6
million, reflecting $13.5 million in tax credits realized through
the company's foreign sales corporation. Excluding the tax credits,
the company's effective tax rate for continuing operations for the
third quarter of 2001 was 34.8%, as compared to 36.6% for the
comparable quarter of 2000.
Earnings from discontinued operations, net of tax, were $121.2
million for the third quarter of 2000, representing the operating
results of Ingersoll-Dresser Pump Company (IDP), a $3.6 million net
loss in the third quarter of 2000, and an after-tax gain of $124.8
million recorded on the sale of IDP to Flowserve Corporation
(Flowserve).
Incoming orders for the third quarter of the year approximated $2.5
billion, which was higher than last year's third quarter total.
The company's backlog of orders at September 30, 2001, believed by it
to be firm, was $1.3 billion, which was higher than the backlog at
December 31, 2000. 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 nine months
ended September 30, is as follows:
Net sales for the nine months ended September 30, 2001 approximated
$7.1 billion, a slight decrease over last year's nine month period.
The ratio of cost of goods sold to sales for the first nine months of
the year was 78.3% compared to last year's ratio of 74.5%. Included
in cost of goods sold for the nine months ended September 2001 and
2000 were charges related to productivity investments of $65.8
million and $13.2 million, respectively. Excluding productivity
investments, the ratio of cost of goods sold to sales for the first
nine months of 2001 was 77.4% compared to last year's ratio of 74.3%.
The increase in the ratio of cost of goods sold to sales was due to
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 14.7%
for the first three quarters of 2001, as compared to 13.2% for the
comparable 2000 period. The comparable periods for 2001 and 2000
include $31.1 million and $9.3 million, respectively, of charges
related to productivity investments. Excluding productivity
investments, the ratio of selling and administrative expenses to
sales was 14.3% for the first three quarters of 2001, as compared to
13.1% for the comparable 2000 period. The increase in the ratio of
selling and administrative expenses to sales is due to lower sales
volumes and recent acquisitions of sales and service businesses,
which historically maintained higher ratios.
The company's restructuring and productivity investments program
began in the third quarter of 2000. Restructuring charges for the
nine months ended September 30, 2001 and 2000 were $57.2 million and
$38.2 million, respectively.
Operating income for the nine months ended September 30, 2001
totaled $440.8 million, a decrease of $406.9 million from the $847.7
million reported for 2000's first nine months. Excluding
restructure charges and productivity investments for both periods,
operating income was $594.9 million for the nine months ended
September 30, 2001, a decrease of $313.5 million from the prior
period.
Other income (expense), net aggregated $10.1 million of net expense
for the first nine months of the year as compared to $49.0 million
of net income for the nine months ended September 30, 2000. The
nine months ended September 30, 2000 includes $50.4 million from the
sale of compression services business and additional asset sale
gains of Dresser-Rand offset by normal miscellaneous expenses. The
nine months ended September 30, 2001, includes a $8.8 million gain
on the sale of stock, increased foreign exchange losses of $4.7
million, and other normal miscellaneous expenses.
Minority interest decreased by $13.6 million during the first nine
months of 2001 over last year's nine month total mainly as a result
of the conversion of equity-linked securities into approximately 8.3
million common shares in May 2001. This eliminated the charges
associated with the securities. Additionally, earnings from
consolidated entities in which the company has a majority ownership
declined.
Interest expense for the first nine months of 2001 was $216.2
million, which was $13.0 million higher than last year's comparable
period. Increased expense beginning in the second quarter of 2000
associated with debt issued to acquire Hussmann was partially offset
by lower average interest rates.
The company's effective tax rate from continuing operations for the
first nine months of 2001 and 2000 were 26.2% and 33.6%, respectively.
The effective tax rates for 2001 and 2000 reflect $13.5 million and
$11.0 million, respectively, in tax credits realized through the
company's foreign sales corporation. Excluding the tax credits, the
company's effective tax rate for the first nine months of 2001 was
33.0% as compared to 35.3% for the nine months ended September 30,
2000.
Earnings from discontinued operations, net of tax, were $123.2
million for the first nine months of 2000, representing the
operating results of IDP, a $1.6 million net loss in 2000, and an
after-tax gain of $124.8 million recorded on the sale of IDP to
Flowserve.
Third-Quarter Business Segment Review
Climate Control includes Thermo King transport temperature control
equipment and Hussmann International, the world leader in display
case refrigeration, which was acquired on June 14, 2000. Third
quarter revenues totaled $656.0 million, a decrease of 3% compared to
last year. Thermo King revenues decreased by 15% due to a
significant decline in the truck and trailer market. Hussmann
revenues increased by 7% compared to last year because of bolt-on
acquisitions in the first half of 2001. Revenues without these
acquisitions declined by 8% compared to the third quarter of 2000
because of cautious spending by major supermarket customers.
Restructuring charges and productivity investments in both years were
$4.3 million and $10.4 million in third quarter of 2001 and $5.0
million and $1.0 million in the third quarter of 2000, respectively.
Operating income excluding restructuring charges and productivity
investments was $39.1 million in 2001, a decrease of $24.2 million
from 2000. Operating margins declined primarily because of the
significant decline in the truck and trailer volume, and cautious
spending by U.S. supermarket chains.
Air Solutions, a provider of equipment and services for compressed
air systems, had revenues in the third quarter of $203.4 million, a
decline of 7% compared to 2000, due to declining U.S. industrial
production. Restructuring charges and productivity investments in
both years were $7.5 million and $7.1 million in the third quarter of
2001 and $2.3 million and $3.3 million in the third quarter of 2000,
respectively. Operating income excluding restructuring charges and
productivity investments was $18.0 million in 2001, a decrease of
$9.1 million from 2000. Excluding productivity investments and
restructure charges for both years, operating margins decreased to
8.8% of sales in the third quarter of 2001, as compared to 12.4% in
the comparable 2000 quarter, due to lower demand for medium and large
compressors used in industrial applications.
Bearings and Components provides motion control technologies to the
automotive and industrial markets. Revenues for the quarter declined
by 10% to $254.4 million. Restructuring charges and productivity
investments in both years were $2.7 million and $4.3 million in the
third quarter of 2001 and $1.5 million and $0.7 million in the third
quarter of 2000, respectively. Operating income excluding
restructuring charges and productivity investments was $20.4 million
in 2001, a decrease of $22.4 million from 2000. Excluding
productivity investments and restructure charges in both years,
operating margins decreased from approximately 15.1% to 8.0%.
Declines in revenues and operating margins are due to lower volumes
in the U.S. automotive and industrial equipment markets and in the
industrial bearings aftermarket.
Industrial Products includes Club Car golf cars and utility
vehicles, tools, fluid products equipment, and the independent power
business. Revenues of $203.8 million in the third quarter decreased
by $8.1 million, compared to the third quarter of 2000. Restructuring
charges and productivity investments in both years were $2.3 million
and $0.5 million in the third quarter of 2001 and $5.3 million and
$1.1 million in the third quarter of 2000, respectively. Operating
income excluding restructuring charges and productivity investments
was $4.8 million in 2001, a decrease of $15.0 million from 2000.
Declines in revenues and operating margins are due to decreased
demand for air tools and fluid power products. Operating margins
also declined due to increased spending on new product introduction,
particularly the Powerworks microturbine. Club Car sales and
operating margins improved compared to last year's third quarter due
to market share gains.
Infrastructure Development includes Bobcat compact equipment, road
pavers and compactors, portable power products, and drilling
equipment. Revenues for the third quarter totaled $499.1 million, a
decrease of 9% from last year's third quarter. Restructuring charges
and productivity investments in both years were $2.8 million and $2.0
million in the third quarter of 2001 and $3.8 million and $6.0
million in the third quarter of 2000, respectively. Operating income
excluding restructuring charges and productivity investments was
$45.6 million in 2001, a decrease of $38.2 million from 2000.
Decreased revenues and margins for the third quarter are a reflection of
the declining demand from the company's distribution channel. Equipment
dealers are aggressively managing inventory, and retail sales for the
last three weeks of September declined dramatically. Also,
significantly reduced demand from large U.S. rental companies for
infrastructure products continued in the third quarter.
Security and Safety includes architectural hardware products and
electronic access-control technologies. Third quarter revenues
decreased slightly to $360.4 million, when compared to the comparable
quarter in the prior year. Restructuring charges and productivity
investments in both years were $0.2 million and $11.3 million in the
third quarter of 2001 and $0.5 million and $3.0 million in the third
quarter of 2000, respectively. Operating income excluding
restructuring charges and productivity investments was $72.6 million
in 2001, a decrease of $6.8 million from 2000. Excluding restructure
charges and productivity investments in both years, operating income
margin decreased to 20.1% of sales for the quarter, as compared to
21.8% for the third quarter of 2000. Revenues decreased due to
declining demand in both commercial and residential markets,
partially offset by higher electronic solutions revenues. Margins
were affected by increased development spending in the electronic
security solutions business and the acceleration of product and
market related growth initiatives during the quarter.
Dresser-Rand, a provider of large compression equipment for the
extraction and distribution of gas and oil, and the refining of oil,
had revenues of $206.0 million for the third quarter of 2001, a
decrease of 2% compared with the third quarter of 2000. Operating
income, excluding productivity investments of $0.8 million, was $4.3
million, a decrease from $5.3 million in the comparable quarter of
2000, which excludes restructure charges of $8.0 million. Results in
2000 include the operating results of Dresser-Rand's compression
services business until its sale on September 5, 2000.
Excluding these results, Dresser-Rand's third quarter revenues
increased by 7% compared to 2000, and operating earnings increased by
$5.7 million, reflecting the increased volume and cost reductions
from restructuring actions.
Liquidity and Capital Resources
The company's working capital at September, 2001 was $316.6 million,
which reflects a significant change from the negative working
capital balance of $992.3 million at December 31, 2000. The primary
reason for this change is the refinancing of $1.4 billion short-term
debt to long-term debt. The company's debt-to-total capital ratio at
September 30, 2001 was 49% compared with 48% reported at December
31, 2000.
The company's cash and cash equivalents totaled $105.3 million at
September 30, 2001, up from $97.0 million at December 31, 2000.
During the first nine months of the year, cash flows from operating
activities provided $110.8 million, investing activities used $135.1
million and financing activities provided $46.7 million.
Receivables totaled $1.5 billion at September 30, 2001, which
represents a decrease of $50.0 million from the amount reported at
December 31, 2000. During the third quarter, the company increased
its sale of receivables program by $65.0 million, which was partially
offset by an increase in receivables due to acquisitions.
Inventories totaled $1.3 billion at September 30, 2001, which
represents an increase of $85.0 million from the year-end balance.
The increase is primarily due to the decline in demand during the
first nine months of 2001 and acquisitions, offset by foreign
currency translation.
Intangible assets increased by approximately $83.1 million during the
first nine months of 2001. Acquisitions increased the account balance
by approximately $96.3 million during the first nine months of the
year. Amortization expense for the first nine months of the year was
$127.4 million. Capitalized software and debt issuance cost
increased the account by $41.8 million. The remaining change is
attributed to foreign currency translation and purchase accounting
adjustments for the Hussmann acquisition of approximately $60
million.
Loans payable totaled $946.4 million at September 30, 2001 as
compared to $2.1 billion at December 31, 2000. During the first
nine 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 $604.9 million of current maturities of long-term debt.
The remainder of the change was attributable to short-term debt
changes and translation.
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 nine months of 2001, the company repurchased
approximately 1.7 million shares of the company's common stock.
Approximately 350,000 shares were used in connection with an
acquisition.
During the first nine months of 2001, foreign currency translation
adjustments resulted in a net decrease of $23.3 million in
shareholders' equity, caused primarily by the strengthening of the
U.S. dollar against European currencies.
In October 2001, the company announced that its board of directors
approved a plan to change its place of incorporation from New Jersey
to Bermuda. Under the plan, Ingersoll-Rand Company Limited, a newly
formed Bermuda corporation, will become the parent company of
Ingersoll-Rand Company. The proposal is subject to approval by the
company's shareholders.
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 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 the third quarter of 2001, the company acquired Grenco
Transportkoeling B.V. (Grenco), a transport refrigeration equipment
sales and service business. Grenco, based in the Netherlands, sells
and services trailer and truck refrigeration units, for which it
also supplies associated parts. Grenco will become part of Climate
Control. The company also acquired Kryptonite Corporation
(Kryptonite), a leading manufacturer of locks for recreational and
portable security applications. Kryptonite will become part of
Security and Safety.
In the second quarter of 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. The company also
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 Turkey, and advanced-technology lock and
cylinder production equipment. Additionally, 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 the first quarter of 2001, the company acquired, for common stock
and cash, Taylor Industries, Inc. and an affiliate business, Taylor
Refrigeration (Taylor). Taylor distributes, installs and services
refrigeration equipment, food service equipment and electric doors.
New Accounting Standards
In September 2000, SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities"
was issued. 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.
The company adopted the provisions of SFAS No. 141 "Business
Combinations" and SFAS No. 142 "Goodwill and Other Intangible
Assets" applicable to business combinations completed after June 30,
2001. These standards require the use of the purchase method of
accounting for business combinations and set forth the accounting for
the goodwill and intangible assets. Under the provisions of these
standards, goodwill and intangible assets deemed to have indefinite
lives are no longer subject to amortization. All other intangible
assets are to be amortized over their estimated useful lives.
Goodwill and intangible assets are subject to annual impairment
testing using the specific guidance and criteria described in the
standards.
In June 2001, SFAS No. 143, "Accounting for Asset Retirement
Obligations" was issued. The standard requires that legal obligations
associated with the retirement of tangible long-lived assets be
recorded at fair value when incurred and is effective January 1, 2003
for the company. The company is currently reviewing the provisions of
SFAS No. 143 to determine the standard's impact upon adoption.
In August 2001, SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" was issued, which provides guidance on
the accounting for the impairment or disposal of long-lived assets
and is effective January 1, 2002 for the company. The company is
currently reviewing the provisions of SFAS No. 144 to determine the
standard's impact upon adoption.
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 nine 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 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
2 The Agreement and Plan of Merger
among Ingersoll-Rand Company
Limited, Ingersoll-Rand Company
and IR Merger Corporation.
Incorporated by reference to
Exhibit 2 to Form S-4 of
Ingersoll-Rand Company Limited,
Registration number 333-71642
dated October 16, 2001.
12 Computations of Ratios of
Earnings to Fixed Charges
(b) Reports on Form 8-K
A Current Report on Form 8-K (Item 7) dated October 15, 2001
reporting the filing of Consolidated Financial Statements
for the six months ended June 30, 2001, three months ended
March 31, 2001, and years ended December 31, 2000, 1999, 1998,
1997, and 1996, and Exhibit 12 - Computation of the Ratio of
Earnings to Fixed Charges.
A Current Report on Form 8-K (Item 5) dated October 16,
2001 reporting the filing of Exhibit 99.1 - Press Release
issued by Ingersoll-Rand Company concerning the approval by
the Board of Directors to change the company's place of
incorporation to Bermuda.
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 November 14, 2001 /S/ D.W. Devonshire
D.W. Devonshire, Executive Vice
President & Chief Financial Officer
Principal Financial Officer
Date November 14, 2001 /S/ S.R. Shawley
S.R. Shawley, Vice President &
Controller
Principal Accounting Officer