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, 1999
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 07675
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,
1999 was 163,575,919.
INGERSOLL-RAND COMPANY
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
Condensed Consolidated Balance Sheet at September 30, 1999
and December 31, 1998
Condensed Consolidated Income Statement for the three and
nine months ended September 30, 1999 and 1998
Condensed Consolidated Statement of Cash Flows for the nine
months ended September 30, 1999 and 1998
Notes to Condensed Consolidated Financial Statements
Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II. OTHER INFORMATION
SIGNATURES
INGERSOLL-RAND COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
(in millions)
ASSETS
September 30, December 31,
1999 1998
Current assets:
Cash and cash equivalents $ 61.8 $ 43.5
Marketable securities 1.8 2.1
Accounts and notes receivable, net of
allowance for doubtful accounts 1,106.8 963.7
Inventories 783.9 824.8
Prepaid expenses 76.4 55.6
Assets held for sale 267.0 302.8
Deferred income taxes 145.8 139.9
Total current assets 2,443.5 2,332.4
Investments in and advances with
partially-owned equity affiliates 187.8 183.6
Property, plant and equipment, at cost 2,138.2 2,061.7
Less - accumulated depreciation 886.8 825.0
Net property, plant and equipment 1,251.4 1,236.7
Intangible assets, net 3,772.0 3,765.7
Deferred income taxes 205.4 229.9
Other assets 177.1 175.7
Total assets $8,037.2 $7,924.0
LIABILITIES AND EQUITY
Current liabilities:
Loans payable $ 258.4 $ 318.0
Accounts payable and accruals 1,241.7 1,284.4
Income taxes 29.3 16.5
Total current liabilities 1,529.4 1,618.9
Long-term debt 2,116.2 2,166.0
Postemployment liabilities 822.2 820.5
Minority interests 33.6 33.6
Other liabilities 161.3 152.4
4,662.7 4,791.4
Company obligated mandatorily redeemable
preferred securities of subsidiary trust
holding solely debentures of the company 402.5 402.5
Shareholders' equity:
Common stock 342.2 337.8
Other shareholders' equity 2,788.5 2,522.8
Accumulated other comprehensive income (158.7) (130.5)
Total shareholders' equity 2,972.0 2,730.1
Total liabilities and equity $8,037.2 $7,924.0
See accompanying notes to condensed consolidated financial statements.
<TABLE>
INGERSOLL-RAND COMPANY
CONDENSED CONSOLIDATED INCOME STATEMENT
(in millions except per share figures)
<S> <S>
Three months ended Nine months ended
September 30, September 30,
<C> <C> <C> <C>
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net sales $1,846.1 $1,802.3 $5,779.2 $5,569.4
Cost of goods sold 1,324.7 1,320.1 4,183.3 4,091.5
Administrative, selling and service
engineering expenses 248.5 245.2 779.6 767.5
Operating income 272.9 237.0 816.3 710.4
Interest expense (50.1) (51.5) (155.7) (171.2)
Other income (expense), net (8.2) (11.7) (13.4) (14.9)
Minority interests (7.6) (7.4) (21.3) (15.9)
Earnings from continuing
operations before income taxes 207.0 166.4 625.9 508.4
Provision for income taxes 73.5 59.1 222.2 180.5
Earnings from continuing operations 133.5 107.3 403.7 327.9
Discontinued operations (net of
income taxes) 4.0 12.1 21.5 31.5
Net earnings $ 137.5 $ 119.4 $ 425.2 $ 359.4
Basic earnings per common share
- Continuing operations $ 0.81 $ 0.66 $ 2.46 $ 2.00
- Discontinued operations 0.03 0.07 0.13 0.19
$ 0.84 $ 0.73 $ 2.59 $ 2.19
Diluted earnings per common share
- Continuing operations $ 0.80 $ 0.65 $ 2.43 $ 1.98
- Discontinued operations 0.03 0.07 0.13 0.19
$ 0.83 $ 0.72 $ 2.56 $ 2.17
Dividends per common share $ 0.17 $ 0.15 $ 0.47 $ 0.45
</TABLE>
See accompanying notes to condensed consolidated financial statements.
INGERSOLL-RAND COMPANY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
Nine months ended
September 30,
1999 1998
Cash flows from operating activities:
Earnings from continuing operations $ 403.7 $ 327.9
Adjustments to arrive at net cash
provided by operating activities:
Depreciation and amortization 204.5 198.5
Gain on sale of property, plant and equipment (0.5) (6.9)
Gain on sale of businesses - (6.6)
Equity earnings/loss, net of dividends (2.2) (8.0)
Minority interests in earnings, net of
dividends 0.3 1.0
Deferred income taxes 19.8 10.6
Other items 29.4 4.3
Changes in other assets and liabilities, net (179.1) 119.2
Net cash provided by operating activities 475.9 640.0
Cash flows from investing activities:
Capital expenditures (125.2) (149.6)
Proceeds from sales of property, plant
and equipment 17.0 20.3
Acquisitions, net of cash (160.2) (53.7)
Proceeds from business dispositions 47.0 58.0
Decrease in marketable securities 0.2 1.8
Cash advances from/(to) from equity companies (1.3) (8.4)
Net cash used in investing activities (222.5) (131.6)
Cash flows from financing activities:
Decrease in short-term borrowings (25.4) (623.5)
Proceeds from long-term debt 21.5 0.1
Payments of long-term debt (101.1) (145.3)
Net change in debt (105.0) (768.7)
Net proceeds from issuance of equity-linked
securities - 389.7
Purchase of treasury stock (167.1) (93.7)
Dividends paid (77.5) (73.7)
Proceeds from exercise of stock options 67.5 26.4
Net cash used in financing activities (282.1) (520.0)
Net cash provided by discontinued operations 41.1 8.1
Effect of exchange rate changes
on cash and cash equivalents 5.9 1.8
Net increase (decrease) in cash and cash
equivalents 18.3 (1.7)
Cash and cash equivalents - beginning of period 43.5 66.5
Cash and cash equivalents - end of period $ 61.8 $ 64.8
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 at September 30, 1999 and results of
operations for the three and nine months ended September 30, 1999 and
1998. As discussed in Note 2, the company's joint ventures in the
pump, and reciprocating compressor and turbomachinery businesses are
reported as discontinued operations. Certain prior period amounts in
the condensed consolidated financial statements have been reclassified
in order to conform with current year presentation.
NOTE 2 - On August 12, 1999, the company announced its intention to
dispose of its interest in Dresser-Rand Company (D-R), a joint venture
involved in the reciprocating compressor and turbo machinery business,
and Ingersoll-Dresser Pump Company (IDP), a joint venture involved in
the pump business. On October 5, 1999, the joint venture partner, as
permitted under the joint venture agreements, elected to sell its share
of the joint ventures to the company. The net cash price that the
company will pay to purchase the remaining ownership in the joint
ventures is approximately $925 million. The company intends to divest
both these businesses as soon as practical and expects to do so in the
first half of 2000. The businesses have been reported as assets held
for sale in the accompanying condensed financial statements, and prior
periods have been reclassified accordingly. Historically, IDP had been
reported as part of the Engineered Products Segment, while D-R had been
reported as equity in earnings of partially owned affiliates.
The net assets of discontinued operations held for sale are composed of
the following (in millions):
September 30, December 31,
1999 1998
Cash and cash equivalents $ 24.3 $ 28.5
Other current assets 298.4 345.5
Investment in partially-owned
affiliates 126.3 161.1
Property, plant and equipment, net 102.8 110.8
Other assets 19.2 18.4
Current liabilities (183.8) (230.0)
Other liabilities (78.1) (78.1)
Minority interests (95.3) (100.0)
Cumulative translation adjustment 31.3 22.6
Net assets of discontinued operations
held for sale $ 245.1 $ 278.8
Results reported separately by either D-R or IDP that are reported on a
stand-alone basis, may differ from the results based on discontinued
operations reporting.
In addition, at September 30, 1999, IDP had intercompany receivables
and payables with the company that have been eliminated for purposes of
presenting net assets of discontinued operations. The net payable to
D-R has been netted against the assets of discontinued operations held
for sale.
NOTE 3 - On March 30, 1999 the company completed the acquisition of
Harrow Industries Inc., a leading manufacturer of access control
technologies, architectural hardware, and decorative bath fittings and
accessories. The purchase price was approximately $160 million, which
includes the assumption and immediate repayment of certain debt. This
transaction has been accounted for as a purchase with the results
included since the second quarter of 1999. Included in assets held for
sale since acquisition are assets of Harrow that are expected to be
sold in the first quarter of 2000.
NOTE 4 - Inventories of domestically manufactured standard products
are valued on the last-in, first-out (LIFO) method and all other
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):
September 30, December 31,
1999 1998
Raw materials and supplies $ 165.6 $ 166.8
Work-in-process 208.6 195.7
Finished goods 560.5 607.7
934.7 970.2
Less - LIFO reserve 150.8 145.4
Total $ 783.9 $ 824.8
Work-in-process inventories are stated after deducting customer
progress payments of $3.0 million at September 30, 1999 and $5.6
million at December 31, 1998.
NOTE 5 - The company adopted SFAS No. 131 "Disclosures about Segments
of an Enterprise and Related Information" effective January 1, 1998.
The statement requires companies to report financial and descriptive
information about its operating segments in financial statements for
interim and annual periods.
A summary of operations by reportable segment for the three and nine
months ended September 30, is as follows:
Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
Sales
Specialty Vehicles $ 537.0 $ 534.8 $1,799.1 $1,684.5
Air & Temperature Control 541.2 547.3 1,645.9 1,672.5
Hardware & Tools 485.4 442.1 1,406.3 1,291.2
Engineered Products 282.5 278.1 927.9 921.2
Total $1,846.1 $1,802.3 $5,779.2 $5,569.4
Operating Income
Specialty Vehicles $ 92.9 $ 86.8 $ 315.7 $ 260.2
Air & Temperature Control 70.9 57.7 212.6 193.1
Hardware & Tools 93.0 79.2 237.0 209.2
Engineered Products 28.0 24.2 92.0 85.4
Unallocated corporate
expense (11.9) (10.9) (41.0) (37.5)
Total $ 272.9 $ 237.0 $ 816.3 $ 710.4
Long-lived asset information by geographic area at December 31, 1998,
excluding IDP, was United States assets of $4,211.9 million and foreign
assets of $966.2 million. IDP had previously been reported as part of the
Engineered Products Segment. No other significant changes in the restated
segment assets have occurred since December 31, 1998.
NOTE 6 - Information on basic and diluted earnings per share is as follows
(in millions except per shares figures):
Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
Earnings from continuing
operations $133.5 $107.3 $403.7 $327.9
Discontinued operations 4.0 12.1 21.5 31.5
Net earnings $137.5 $119.4 $425.2 $359.4
Average number of basic
shares 163.9 163.6 164.0 163.8
Shares issuable assuming
exercise under incentive
stock plans 2.2 1.6 2.2 1.9
Shares issuable in connection
with equity-linked
securities 0.3 -- -- --
Average number of diluted
shares 166.4 165.2 166.2 165.7
Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
Basic earnings per shares
Continuing operations $ 0.81 $ 0.66 $ 2.46 $ 2.00
Discontinued operations 0.03 0.07 0.13 0.19
$ 0.84 $ 0.73 $ 2.59 $ 2.19
Diluted earnings per share
Continuing operations $ 0.80 $ 0.65 $ 2.43 $ 1.98
Discontinued operations 0.03 0.07 0.13 0.19
$ 0.83 $ 0.72 $ 2.56 $ 2.17
NOTE 7 - The components of comprehensive income are as follows (in
millions):
Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
Net earnings $ 137.5 $ 119.4 $ 425.2 $ 359.4
Other comprehensive income -
Foreign currency equity
adjustment 22.9 13.6 (28.2) (10.3)
Comprehensive income $ 160.4 $ 133.0 $ 397.0 $ 349.1
NOTE 8 -SFAS No. 133 "Accounting for Derivative Instruments and
Hedging Activities" requires companies to record derivatives on the
balance sheet as assets or liabilities, measured at fair value. The
FASB recently delayed the required adoption to fiscal years beginning
after June 15, 2000. The company will adopt SFAS No. 133 by January
1, 2001, and is currently evaluating the impact this statement may
have on the company's financial position and results of operations.
INGERSOLL-RAND COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION
RESULTS OF OPERATIONS
The company's results for the third quarter of the year established a
new record for net earnings and earnings per share. Net earnings from
continuing operations totalled $133.5 million for the third quarter of
1999, reflecting an increase of $26.2 million (or 24.4 percent) over
last year's comparable third quarter figure of $107.3 million. Diluted
earning per share from continuing operations totalled $0.80 for the
1999 third quarter versus $0.65 for the third quarter of 1998. Diluted
earnings per share (from both continuing and discontinued operations)
totalled $0.83 for the three months ended September 30, 1999, as
compared to $0.72 for last year's third quarter.
In August 1999, the company notified Dresser Industries Inc. (a wholly-
owned subsidiary of Halliburton Company) of its desire to terminate
their two joint ventures. The ventures are Dresser-Rand Company (D-R),
a producer of reciprocating compressors and turbomachinery products,
and Ingersoll-Dresser Pump Company (IDP) a manufacturer of pumps used
in industrial, commercial and municipal applications. In accordance
with the terms of the joint venture agreements, the company gave notice
of its intention to sell its 49-percent interest in D-R and its 51-
percent interest in IDP to Dresser Industries. Under the governing
agreements, Dresser Industries had the option of either buying one or
both of the joint ventures from or selling one or both of the joint
ventures to the company. However, the company also announced that if
Dresser Industries elected to sell its shares in these joint ventures
to the company, the company would divest these units, as soon as
practical.
On October 5, 1999, the company was notified by Dresser Industries that
it had elected to sell its interests in the joint ventures to the
company. The net cash price for the joint ventures will be
approximately $925 million, which represents a price of $555 million
for the 51-percent of D-R and $370 million for the 49-percent of IDP.
In 1998, D-R reported revenues for the year of $1,249 million, while
IDP reported revenues of $907 million for the comparable period. In
accordance with the company's decision to sell these units, as soon as
practical after their purchase, the results of operations (and related
activity) have been reclassified as "discontinued operations (net of
income taxes)" in the accompanying condensed consolidated income
statement for both the three and nine month periods ended September 30,
1999 and 1998. In addition, the net assets of these joint ventures
have been reclassified to "assets held for sale" on the accompanying
condensed consolidated balance sheet at September 30, 1999 and December
31, 1998. The company's discussion and analysis of its results for both
the three and nine month periods ended September 30, 1999 and 1998, are
after the effects of these reclassifications.
A comparison of key income statement amounts between the quarters,
is as follows:
o Net sales for the third quarter of 1999 totalled $1.8 billion, an
increase of 2.4-percent over last year's comparable quarter.
o The ratio of cost of goods sold to sales for the third quarter of
1999 was 71.8 percent and reflected a marked improvement over the
1998 third-quarter ratio of 73.2 percent.
o The ratio of administrative, selling and service engineering
expenses to sales was 13.4 percent for the three months ended
September 30, 1999, which was slightly lower than last year's third
quarter ratio, and emphasizes the company's continued commitment to
cost containment.
o Operating income for the third quarter of 1999 totalled $272.9
million, an increase of $35.9 million (or 15.1 percent) over the
$237.0 million for last year's third quarter. The ratio of
operating income to sales in the third quarter increased to 14.8
percent, as compared to 13.1 percent in 1998's third quarter.
o Other income (expense), net, is the sum of foreign exchange
activities, equity earnings from partially-owned affiliates and
other miscellaneous income and expense items. These activities
aggregated $8.2 million of net expense for the three months ended
September 30, 1999, as compared to $11.7 million of net expense in
the third quarter of 1998. This $3.5 million favorable change is
primarily attributed to decreased foreign exchange losses.
o The company's charges for minority interests are composed of (i)
interests of minority owners (less than 50 percent) in consolidated
units of the company and (ii) charges associated with the company's
equity-linked securities, issued in March of 1998. The charge for
minority interests totalled $7.6 million for the three months ended
September 30, 1999 versus $7.4 million in 1998. This change is
attributed to higher earnings from consolidated units which are not
fully owned by the company; therefore, generating a higher charge for
minority interests for the company during the third quarter of 1999.
o Interest expense for the third quarter of 1999 was $50.1 million
as compared to $51.5 million for the third quarter of 1998. The
reduction is attributed to lower outstanding debt balances during
the comparable periods.
o The company's effective tax rate for the third quarters of both
1999 and 1998 was 35.5 percent. The current year's estimated
effective tax rate for the full year 1999 is 35.5 percent, which
equaled last year's effective rate.
o During the third quarter of 1999, the company has decided to exit
the businesses served by its investments in D-R and IDP. The
caption "discontinued operations (net of income taxes)" represents
the net results of the company's 49-percent interest in the net
earnings of D-R, the net earnings of IDP, the minority interest
associated with IDP and the net tax effect of these results for
the periods presented. (See note 2 for additional information on
these entities.)
The consolidated results for the third quarter of the year
benefited from the combination of business improvements in a number of
the company's domestic and selected foreign markets and a continued
emphasis on the company's productivity-improvement programs. The
company's backlog of orders at September 30 1999, believed by it to be
firm, was $1.1 billion, which approximated the adjusted backlog at
December 31, 1998. The company estimates that approximately 90 percent
of the backlog will be shipped during the next twelve months.
A comparison of key income statement amounts between the first
three quarters of both years, is as follows:
o Net sales for the first nine months of 1999 totalled $5.8 billion,
an increase of 3.8 percent over last year's nine month total of
$5.6 billion.
o The ratio of cost of goods sold to sales for the first nine months
of 1999 was 72.4 percent and reflected an improvement over the
1998 nine month ratio of 73.5 percent.
o The ratio of administrative, selling and service engineering
expenses to sales was 13.5 percent for the nine months ended
September 30, 1999 and reflected an improvement over the 13.8
percent ratio for the comparable 1998 period.
o Operating income for the first three quarters of 1999 totalled
$816.3 million, an increase of $105.9 million (or 14.9 percent)
over the $710.4 million for last year's nine month total. The
ratio of operating income to sales in the period increased to 14.1
percent, as compared to 12.7 percent the comparable 1998 period.
o Other income (expense), net, aggregated $13.4 million of expense
for the nine months ended September 30, 1999, as compared to $14.9
million of net expense for the first three quarters of 1998. This
$1.5 million net favorable change is the net result of (i) a
favorable change in foreign currency activities (which generated
gains in 1999 as compared to losses in 1998); (ii) reduced
earnings from interest, commissions and royalties; (iii) reduced
equity earnings from partially-owned equity companies; and (iv)
slightly higher charges of a miscellaneous nature.
o The company's charges for minority interests are composed of (i)
interests of minority owners (less than 50 percent) in a
consolidated unit of the company and (ii) charges associated with
the company's equity-linked securities (which were issued in March
of 1998). The charges for minority interests totalled $21.3
million for the nine months ended September 30, 1999 versus $15.9
million in 1998. This change is attributed mainly to the fact the
equity-linked securities were outstanding for the full nine months
in 1999. In addition, overall lower net earnings for the nine
months of 1999 for minority owners in consolidated units of the
company were also a factor.
o Interest expense for the first three quarters of 1999 was $155.7
million as compared to $171.2 million for the first nine months of
1998. The reduction is attributed to lower outstanding debt
balances during the comparable periods.
o The company's effective tax rate for the nine months ended
September 30, 1999 was 35.5 percent, which equalled 1998's rate
for the comparable period.
o Discontinued operations, (net of income taxes), during the third
quarter of 1999, represents the net results of the company's 49-
percent interest in the net earnings of D-R, the net earnings of
IDP, the minority interest associated with IDP and the net tax
effect of these results for the periods provided.
Liquidity and Capital Resources
The following comments relate strictly to continuing operations.
During the first three quarters of 1999 the company experienced
improvements in its overall financial position. The company's working
capital increased by $200.6 million to $914.1 million at September 30,
1999, from the restated December 31, 1998 balance of $713.5 million.
The current ratio increased to 1.6 to 1.0 at the end of the first nine
months from the restated 1.4 to 1.0 ratio at the end of 1998. The
company's debt-to-total capital ratio at September 30, 1999, totalled
41 percent, which reflects an improvement from the restated 44 percent
reported at December 31, 1998. This improvement is even more significant
after considering the company's March 30, 1999 acquisition of Harrow
Industries, Inc. for approximately $160 million (see Note 3).
The company's cash and cash equivalents totalled $61.8 million at
September 30, 1999, which reflects an increase of $18.3 million from
the $43.5 million at December 31, 1998. Cash flows from operating
activities provided $475.9 million, investing activities used $222.5
million, financing activities used $282.1 million, and discontinued
operations provided an additional $41.1 million. Exchange rate changes
during the first nine months of 1999 decreased cash and cash
equivalents by $5.9 million.
Receivables totalled $1.1 billion at September 30, 1999, which
represents a $143.1 million increase from the $963.7 million at
December 31, 1998. The increase is attributed to strong sales for the
first nine months of the year and the effect of an acquisition, which
were partially offset by the effects of foreign currency translation of
$33.8 million.
Inventories totalled $783.9 million at September 30, 1999, which
represents a decrease of $40.9 million from the year-end balance of
$824.8 million. The net decrease is attributed to the effects of
foreign currency translation of approximately $24 million, with the
balance being the effect of inventory reduction programs which more
than offset increases caused by the company's acquisition program
during the first three quarters of the year.
Assets held for sale totalled $267.0 million at September 30,
1999, and reflects a reduction of $35.8 million from the December 31,
1998 total of $302.8 million. This decrease primarily represents
changes in the payable/receivable balances due D-R and IDP from the
joint venture partners for the periods presented.
Intangible assets totalled $3,772.0 million at September 30, 1999
which was $6.3 million above the $3,765.7 million balance at December
31, 1998. Intangible assets increased by approximately $100 million
from acquisitions and were reduced by amortization of $84.3 million and
the effects of foreign currency translation.
Long term debt, including current maturities, at September 30,
1999, totalled $2.3 billion. The company's debt-to-total capital ratio
was 41 percent at September 30, 1999, which represented a reduction
from the 44 percent at December 31, 1998. It should be noted that, this
improvement takes into account the company's March 30, 1999 acquisition
of Harrow Industries, Inc. for approximately $160 million less proceeds
of $47 million from the sale of certain Harrow assets during the third
quarter. The company is in the process of securing short-term
financing of approximately $900 million, for the acquisition of Dresser
Industries interests in D-R and IDP, which will be sold, as soon as
practical after their acquisition. (See note 2 for additional
information).
During the first nine months of 1999, foreign currency translation
adjustments resulted in a decrease of approximately $28.2 million in
shareholders' equity, caused by the strengthening of the U.S. dollar
against other currencies. Currency changes in Brazil, Czech Republic,
France and Germany accounted for most of this change.
Computer Systems and the Year 2000
The company has in place a year 2000 compliance program to address
the issues raised by computer date programs using the last two digits
of a year. Pursuant to its year 2000 program, the company reviewed its
computer information systems, computer hardware and embedded technology
used in the company's products and processes. This review was designed
to identify which computer systems and embedded technology might fail
to correctly process the year 2000. Based upon this review, which is
now complete, the company is replacing, modifying and/or upgrading
certain computer systems and embedded technology with the objective
being that no significant systems or devices will malfunction as the
result of failing to correctly process the year 2000. The company,
through the use of both internal resources and outside consultants, has
actively engaged in this replacement, modification and upgrading and
had substantially completed its remediation program and testing by the
end of 1998. The review of company products revealed that all products
currently being produced are year 2000 compliant.
The total cost of the year 2000 compliance program since 1997, is
approximately $60 million. Although the company had incurred expenses
prior to 1997, these costs were not separately identified. Management
estimates that as of September 30, 1999, all of the costs
have been incurred and were funded through operating cash flow.
Approximately 45 percent of these expenses were internal costs of the
company. The company believes that all internal systems are completed.
In addition to its internal review process, the company has
contacted suppliers and distributors on the year 2000 issue to minimize
problems in its supply and distribution chains. Most major suppliers
have given assurances that their ability to supply the company will not
be affected by the year 2000 issue; however, the company cannot assure
timely compliance of third parties and may be adversely affected by
failure of a significant third party to become year 2000 compliant.
The company believes that the costs to address the issues raised by
the year 2000 problem will not have a material impact on the company's
financial condition, results of operations, liquidity or cash flows for
any period. The schedule for successful completion of the year 2000
program and the estimated costs are based upon certain assumptions by
management on future events, including the continued availability of
qualified resources to implement the program and current costs for such
resources.
If the company fails to successfully complete a significant portion
of its year 2000 compliance program, such failure may have a material
adverse impact on the company's financial condition. Currently
management does not consider the possibility of such a failure to be
reasonably likely; however, in the event management's assessment
changes an appropriate contingency plan is being developed.
Euro Conversion
The company continues to identify and address all euro conversion
compliance issues. At this time, the company has not experienced
significant difficulties.
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 30 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 and Dispositions
On March 30, 1999, the company completed the acquisition of Harrow
Industries, Inc.(Harrow), a leading manufacturer of access control
technologies, architectural hardware, and decorative bath fittings and
accessories. The purchase price was approximately $160 million, which
includes the assumption of certain debt. At acquisition, the company
segregated certain net assets of Harrow that would be sold within
twelve months. During the third quarter, the company received proceeds
of $47 million on the sale of a portion of these assets. At September
30, 1999, the remainder of such Harrow assets are classified as "assets
held for sale" on the accompanying condensed consolidated balance
sheet.
On March 20, 1998 the company completed the sale of Ing. G. Klemm
Bohrtechinik GmbH. Also in the first quarter, the company sold certain
assets of Newman Tonks Group Limited. Sales proceeds approximated the
book value of these assets.
Third-quarter Business Segment Review
The Specialty Vehicles Segment includes Bobcat skid-steer loaders
and compact hydraulic excavators; Club Car golf cars; Blaw-Knox
pavers; and Ingersoll-Rand compactors, drilling equipment and rough-
terrain material handlers. This segment's sales totaled $537.0 million
for the third quarter of 1999, representing a slight increase over the
$534.8 million reported for 1998's third quarter. Operating income of
$92.9 million increased by seven percent compared to last year's third
quarter. Excluding the third quarter 1998 $9 million gain on the sale
of the Spra-coupe product line, third quarter operating income improved
20 percent. Strong operating income improvements at Bobcat, Club Car
and the paving business were partially offset by weaker sales and
earnings at the company's drill business.
The Air and Temperature Control Segment includes Thermo King
transport temperature-control equipment and Ingersoll-Rand air
compressors. The segment's third quarter 1999 sales totaled $541.2
million versus $547.3 million last year. However, operating income for
the third quarter of 1999 increased by approximately 23 percent to $70.9
million from $57.7 million last year. Air compressor sales declined in
the third quarter; however, operating margins increased due to continuing
cost reductions. Thermo King sales increased approximately two percent,
when compared to last year's third quarter and operating earnings
improved by more than 10 percent because of a improved sales mix and
productivity improvement actions.
The Hardware and Tools Segment includes architectural hardware
products, such as Schlage locks, as well as exit devices, door-control
hardware, steel doors and power-operated doors; and Ingersoll-Rand
tools and related industrial-production equipment. For this segment,
third-quarter 1999 sales increased by 10 percent to $485.4 million.
Operating income for the quarter totaled $93.0 million, an increase of
more than 17 percent over last year's third quarter. Architectural
hardware products reported a double-digit sales increase and improved
operation margins. Production Equipment sales increased by
approximately five percent with improved operating margins from ongoing
cost reduction activities.
The Engineered Products Segment includes Torrington and Fafnir
bearings and components. The results of IDP were formerly included in
this segment, but have been reclassified as discontinued operations.
Third-quarter 1999 sales of $282.5 million improved slightly, while
operating income increased by approximately 16 percent, when compared
to last year's third quarter performance. Continued strong sales of
needle bearings and operating improvements from cost containment
programs offset weaknesses in the industrial bearings business.
Forward-Looking Statements
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 may constitute or contain "forward-looking statements"
as that term is defined in the Private Securities Litigation Reform Act
of 1995 or by the Securities and Exchange Commission in its rules,
regulations and releases. Forward-looking statements represent the
company's expectations concerning future events and, by their nature,
involve risk and uncertainty.
The company cautions investors that forward-looking statements are
not guarantees of future performance. A variety of factors could cause
business conditions and actual results to differ materially from
expected results contained in forward-looking statements. The company
includes among those factors the following: changes in the rate of
economic growth in the United States and in other major international
economies; impacts of unusual items resulting from ongoing evaluations
of organizational structures, business strategies and acquisitions and
dispositions; significant changes in trade, monetary and fiscal
policies worldwide; currency fluctuations among the U.S. dollar and
other currencies; demand for company products; distributor inventory
levels; performance issues with key suppliers and subcontractors;
impact of the year 2000; failure to achieve the company's productivity
targets; costs and effects of unanticipated legal and administrative
proceedings; and, competitor actions, such as unanticipated pricing
actions or cost reduction strategies and entry into direct product line
competition.
INGERSOLL-RAND COMPANY
PART II OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
27 Financial Data Schedules
(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 November 15, 1999 /S/ D.W. Devonshire
D.W. Devonshire, Senior Vice
President & Chief Financial Officer
Principal Financial Officer
Date November 15, 1999 /S/ S.R. Shawley
S.R. Shawley, Vice President &
Controller
Principal Accounting Officer
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