Ingersoll-Rand Company Limited
Clarendon House
2 Church Street
Hamilton HM 11
Bermuda
www.irco.com
NEWS RELEASE
Contact: Paul Dickard (Media)
(201) 573-3120
Joe Fimbianti (Analysts)
(201) 573-3113
Ingersoll-Rand 4Q 2002 Diluted EPS
Excluding Restructuring Totals $1.19,
Up 70% Over Comparable 4Q 2001;
Reports Strong Full-year Adjusted Free Cash Flow of $572 Million
Hamilton, Bermuda, January 23, 2003 - Ingersoll-Rand Company
Limited (NYSE:IR), a leading diversified industrial enterprise,
today announced fourth-quarter 2002 net earnings of $202.9
million, or diluted earnings per share (DEPS) of $1.19, excluding
charges related to restructuring and productivity investments
("restructuring"). This performance reflects a 70% increase, on
a comparable basis, to the $0.70 DEPS recorded in the fourth
quarter of 2001. GAAP reported total net earnings for the fourth
quarter were $183.3 million, or DEPS of $1.08. Fourth-quarter
earnings include the results of the company's Engineered
Solutions business, which has been reclassified to discontinued
operations for 2002 and preceding years due to its pending sale
to The Timken Company (see Table I below).
Fourth-quarter reported revenues of $2,444.6 million were
approximately 7% higher than in 2001 and increased by 6%,
excluding acquisitions. Currency translation added approximately
1% to fourth-quarter sales growth. All four sectors experienced
revenue growth in the quarter compared to last year. The Thermo
King, Air Solutions, Dresser-Rand, Club Car, and Portable Power
business units had double-digit year-over-year revenue growth.
IR continues its progress in increasing recurring revenues, which
includes revenues derived from installation, parts, service and
rental. Total recurring revenues grew by 17% compared to the
fourth quarter of 2001, and accounted for 27% of total revenues.
Discontinued operations for the fourth quarter included
approximately $68 million in pre-tax benefits related to
reimbursement payments from U.S. Customs for antidumping claims
under the Continued Dumping and Subsidy Offset Act (CDSOA)
related to IR's Engineered Solutions business.
The reported fourth-quarter tax expense was $20.7 million.
This is comprised of $38.5 million of taxes on discontinued
operations, offset by a tax benefit of $17.8 million on
continuing operations. The tax benefit on continuing operations
resulted from the reclassification to discontinued operations of
Engineered Solutions, which has a 39% tax rate, and an adjustment
to the full-year tax provision to reflect a lower tax rate than
had been previously forecasted.
Table I
Ingersoll-Rand Net Earnings
Fourth-quarter 2002
GAAP Reported Adjusted*
($ mil) ($) ($ mil) ($)
Net DEPS Net DEPS
Income Income
Continuing Operations 126.6 0.74 140.1 0.82
Discontinued Operations** 56.7 0.34 62.8 0.37
Total 183.3 1.08 202.9 1.19
* Adjusted for restructuring and productivity costs of $34.8
million pre-tax (DEPS $0.11)
** Includes pre-tax benefit of $68.0 million (DEPS of $0.26) in
CDSOA receipts
Full-year Results
Full-year 2002 net revenues were $8,951.3 million, a 4%
increase compared to 2001. Excluding acquisitions, revenues
increased by 3%, primarily due to improved sales at Security and
Safety, Dresser-Rand and Bobcat. Engineered Solutions, which is
now classified as a discontinued operation and reported as a
single line item, net of tax, had 2002 revenues of approximately
$1,200 million, which were not included in consolidated net
revenues.
Adjusted net earnings from operations for full-year 2002
were $528.3 million, or DEPS of $3.10, excluding restructuring
and goodwill impairment (see Table II below). These results
increased by 13% compared to $2.74 recorded for full year 2001.
As previously announced in the second quarter of 2002, and in
accordance with Financial Accounting Standard No. 142, the
company recorded a charge for goodwill impairment related to the
Thermo King operation of the Climate Control Sector. As a result
of this $634.5 million net of tax charge the company reported a
net loss of $173.6 million for the full year, or a loss of $1.02
in DEPS. Also included in the 2002 full-year reported earnings
were pre-tax restructuring charges of $102.0 million.
Table II
Ingersoll-Rand Net Earnings
Full-year 2002
GAAP Reported Adjusted*
($ mil) ($) ( $ mil) ($)
Net DEPS Net DEPS
Income Income
Continuing Operations 367.3 2.16 417.0 2.45
Discontinued Operations** 93.6 0.55 111.3 0.65
Total Operations 460.9 2.71 528.3 3.10
Goodwill Impairment (634.5) (3.73) (634.5) (3.73)
Total (173.6) (1.02) (106.2) (0.63)
* Adjusted for restructuring and productivity
costs of $102.0 million pre-tax (DEPS $0.40)
** Includes pre-tax benefit of $68.0 million
(DEPS of $0.26) in CDSOA receipts
The company continued to be a strong cash generator with
full-year adjusted free cash flow before restructuring of $572
million, compared to $505 million in 2001. For the five years
ended in 2002, the company has generated more than $2.5 billion
of adjusted free cash flow before restructuring. The company
finished the year with working capital below 5% of revenues from
continuing operations.
"2002 was a challenging year in many ways," said Herbert L.
Henkel, chairman, president and chief executive officer.
"However, despite stagnant market conditions, IR was able to meet
or exceed its earnings per share, free cash flow and working
capital to sales targets for the year.
"We also continued to execute our strategy of innovation in
products and services and our programs to promote recurring
revenue growth, operational excellence and leveraging the skills
of the organization."
Charges for Restructuring and Productivity Investments
IR completed a previously announced restructuring program in
the fourth quarter of 2002. It was initiated in 2000 to reduce
costs and accelerate productivity initiatives throughout the
company. Including the integration of the Hussmann acquisition,
this program has resulted in the closure of 29 manufacturing
facilities and a workforce reduction of more than 7,000
employees.
Pre-tax charges for the restructuring and productivity
investment program for full-year 2002 totaled $102.0 million,
including fourth-quarter charges totaling $34.8 million. Since
inception, this program resulted in total spending of $460.5
million and generated annual savings exceeding $200 million.
Goodwill Accounting
Effective January 1, 2002, the company adopted Financial
Accounting Standard No. 142 (FAS 142), which states that goodwill
and intangible assets deemed to have indefinite lives are no
longer subject to amortization, but are to be tested for
impairment at least annually. Full-year 2001 results from
continuing operations included pre-tax goodwill amortization
expense of $130.9 million, or $0.68 DEPS.
Pension Equity Charge
In the fourth quarter, the company recorded a $317.1 million
after-tax equity charge to reflect the additional minimum
liability under its pension plans. Including this charge and the
goodwill impairment, the debt-to-total capital ratio ended the
year at 47.5%, compared to 46.2% at the end of 2001. The decline
in pension asset values and changes in actuarial assumptions will
result in an additional pre-tax pension expense in 2003 of about
$0.35 DEPS.
Sale of Engineered Solutions
On October 16, 2002, IR announced that it has agreed to sell
its Engineered Solutions business to The Timken Company. The
proceeds from the transaction will consist of $700 million in
cash and $140 million of Timken common stock. The sale is
targeted to close by the end of first-quarter of 2003.
Fourth-quarter Business Review
The business sector review of 2002 operating income and
margins is on a comparable basis to 2001, excluding goodwill
amortization and charges for restructuring and productivity
investments. The Engineered Solutions business has been
reclassified as a discontinued operation, net of tax, for 2002
and preceding years.
The Climate Control Sector provides solutions to transport,
preserve, store and display temperature-sensitive products, and
includes the market leading brands of Hussmann and Thermo King.
Revenues for the sector increased by 5%, compared to the
fourth quarter of 2001. Operating margins of 5.9% in 2002 were
similar to 2001.
Hussmann revenues in the fourth quarter decreased by 3%,
compared to last year, as supermarket customers exhibited
continued restraint in capital spending due to their reduced
profits from sluggish revenue growth and competitive pricing in
the food industry. Display case sales declined by 11% in the
quarter compared to last year. The company continues to expand
large multi-store service programs, and currently provides
comprehensive service to more than 3,300 stores for several major
retail chains. Fourth-quarter recurring revenues increased by
12% compared to last year. The installation, service and parts
business accounted for approximately 38% of total stationary
refrigeration revenues in the quarter compared to about 32% at
the end of 2001.
Thermo King revenues for the quarter increased by 17%
compared to last year's fourth quarter. The North American
market for refrigerated trailers and trucks improved compared to
the first half of 2002 and the fourth quarter of 2001. Fourth-
quarter European truck and worldwide container volumes also
increased compared to last year.
The Industrial Solutions Sector is composed of a diverse
group of businesses focused on providing solutions to enhance
customers' industrial efficiency. Sector revenues of $696.9
million increased by 10% as the continued weakness in the
worldwide industrial economy was more than offset by increased
activity in oil- and gas-related markets served by Dresser-Rand,
and by recurring-revenue growth and market share gains in the Air
Solutions business. Fourth-quarter 2002 operating margins were
8.7% compared to 5.8% in 2001, reflecting the higher volumes and
cost and expense reductions related to IR's restructuring
program.
Air and Productivity Solutions provides equipment and
services for compressed air systems, tools, fluid power products
and the company's Energy Systems business, which produces
PowerWorksr microturbines. Total revenues increased by
approximately 9% to $349.5 million due to improvements in the Air
Solutions business. Air Solutions revenues increased by 15%
compared to the fourth quarter of 2001, despite weak end-market
demand. This gain reflects higher new product sales and market
share gains in complete units, and increased revenues from the
aftermarket business. Total recurring revenues accounted for 47%
of total Air Solutions revenues. The Air Care program, which
offers comprehensive service and maintenance for all brands of
air compressors, expanded to more than 8,000 customers, an
increase of more than 100% compared to year-end 2001. Fourth-
quarter operating margins for Air and Productivity Solutions were
9.4%, compared to 3.5% in 2001, with the increase reflecting
higher volumes and the benefits of restructuring. High natural
gas prices, which limited sales opportunities for the
microturbine product line for most of 2002, continued to be a
factor in the fourth quarter. Marketing and product development
activity continue to concentrate on environmental opportunities
in landfills and waste water treatment applications for the new
250 kilowatt machine, which is expected to be commercially
available in April 2003.
Dresser-Rand (D-R) is a leader in energy conversion
technology and is positioned to deliver complete package
solutions to the oil, gas, chemical and petrochemical industries.
D-R's fourth-quarter revenues of $347.4 million increased by 12%
compared to last year. Revenues excluding buyout components
increased by 9%. D-R reported an operating profit of $28.0
million in the fourth quarter of 2002, compared to $25.5 million
in the prior year. D-R's end markets continue to show good
activity levels. The backlog excluding buyouts totaled $565
million at December 31, 2002, a 10% increase compared to year-end
2001. Aftermarket business comprised 52% of D-R revenues in the
fourth quarter.
The Infrastructure Sector includes Bobcat compact
equipment, Club Car golf cars and utility vehicles and Ingersoll-
Rand road pavers, compactors, portable-power products and
drilling equipment. Total sector revenues increased by
approximately 9% to $662.8 million and operating margins were
6.5%, compared to 6.3% in 2001. Despite sluggish construction
markets in North America, Bobcat compact equipment revenues
increased by 5% compared to last year due to new product
introductions and higher market shares. Bobcat margins improved
as well, reflecting the volume gains and the benefits of
productivity initiatives. Road Development revenues increased
slightly compared to a weak 2001, and operating margins declined
substantially, reflecting soft road-repair markets and
unfavorable pricing in North America. Club Car experienced
fourth-quarter 2002 revenue gains of more than 20% compared to
2001, reflecting new product sales, including the GM Pathway
contract, and fleet golf car market share gains. For full-year
2002 Club Car expanded its market leading position in golf cars
by two share points and achieved a market share of approximately
47% at newly opened courses.
The Security and Safety Sector includes architectural
hardware products, mechanical locks, and electronic and biometric
access-control technologies. Fourth-quarter revenues increased
by 6% (1% excluding acquisitions) to $387.7 million. Electronic
access control revenues were particularly strong with an increase
in fourth-quarter revenues of more than double compared to last
year due to market growth and the acquisition of Electronic
Technologies Corporation (ETC) in the second quarter. Operating
margins remained strong at 19.9%, compared to 18.1% in 2001. The
improved operating margins reflect increased sales of highly
profitable electronic products and software and ongoing
productivity and cost reduction actions, partially offset by
continued investments in growth initiatives.
Comparisons of Other Income Statement Items
Interest expense of $53.3 million for the fourth quarter of
2002 was $7.9 million less than the 2001 fourth quarter due to
lower year-over-year debt levels and a decline in interest rates.
Other expense totaled $4.3 million of net expense for the
fourth quarter, compared to $19.4 million of net expense in last
year. The fourth quarter of 2001 included certain non-recurring
expense items.
The company's effective tax rate for continuing operations,
excluding restructuring, for the full year 2002 was 9.9%,
compared to 21.8% last year. The tax rate declined for continuing
operations due to the realization of tax benefits from IR's tax
planning initiatives and the reclassification of Engineered
Solutions to discontinued operations.
2003 Outlook
"Activity in most of IR's major industrial and construction
end markets continued to be sluggish as we closed out 2002," said
Henkel. "Fourth quarter orders for the total company increased
by approximately 4% compared to last year's depressed fourth-
quarter activity. From our recent order pattern we do not see
any rapid near-term improvement in most of our major North
American markets and we see growing weakness in Europe.
"In this uncertain market we are continuing to focus on
permanent reductions in our operating cost structures while
continuing to make strategic business investments to generate
future growth."
Based on the current macro-economic environment, diluted EPS
from total operations for full year 2003 is expected to be $3.10
to $3.30. This estimate excludes the gain on the anticipated
sale of Engineered Solutions. Operating margins will improve
from operating cost reductions. Full-year 2003 expectations
include a tax rate of approximately 14%. Additionally, the CDSOA
payment is expected to add approximately $50 million to the pre-
tax earnings of discontinued operations. Higher pension expense
will negatively impact earnings by about $0.35 per share.
Free cash flow from operations is expected to exceed $400
million. The company expects to use the cash from the sale of
Engineered Solutions to further reduce its debt, which will
strengthen our balance sheet and allow us to pursue bolt-on
acquisitions and stock buybacks with the cash flow generated from
operations in 2003.
"First-quarter 2003 earnings are expected to be $0.60 to
$0.65 per share, including $0.08 of earnings from discontinued
operations," said Henkel. "This forecast compares to earnings of
$0.58 per share in the first quarter of 2002 and is based on end
market conditions which are similar to the fourth quarter of
2002. We expect to offset medical and pension cost increases
with improved productivity."
IR is a leading innovation and solutions provider for the
major global markets of Security and Safety, Climate Control,
Industrial Solutions and Infrastructure. The company's diverse
product portfolio encompasses such leading industrial and
commercial brands as Schlage locks and security solutions; Thermo
King transport temperature control equipment; Hussmann commercial
and retail refrigeration equipment; Bobcat compact equipment;
Club Car golf cars and utility vehicles; Torrington bearings and
components; PowerWorks microturbines; and Ingersoll-Rand
industrial and construction equipment. In addition, IR offers
products and services under many more premium brands for
customers in industrial and commercial markets. Further
information on IR can be found on the company's web site at
www.irco.com.
This news release includes "forward-looking statements"
that involve risks and uncertainties. Political, economic,
climatic, currency, tax, regulatory, technological, competitive
and other factors could cause actual results to differ materially
from those anticipated in the forward-looking statements.
Additional information regarding these risk factors and
uncertainties is detailed from time to time in the company's SEC
filings, including but not limited to its report on Form 10-Q for
the three months ended September 30, 2002.
# # #
1/23/03
(See Accompanying Tables)