FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
or
X 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
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes . X . No . . .
The number of shares of common stock outstanding as of April 30, 2000 was
161,856,233.
INGERSOLL-RAND COMPANY
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
Condensed Consolidated Balance Sheet at March 31,
2000 and December 31, 1999
Condensed Consolidated Income Statement for the
three months ended March 31, 2000 and 1999
Condensed Consolidated Statement of Cash Flows for
the three months ended March 31, 2000 and 1999
Notes to Condensed Consolidated Financial Statements
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II. OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
SIGNATURES
INGERSOLL-RAND COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
(in millions)
ASSETS
March 31, December 31,
2000 1999
Current assets:
Cash and cash equivalents $ 86.0 $ 222.9
Accounts and notes receivable, net of
allowance for doubtful accounts 1,179.3 988.5
Inventories 835.0 742.1
Prepaid expenses and deferred income taxes 134.1 115.1
Assets held for sale 1,281.1 799.7
Total current assets 3,515.5 2,868.3
Investments in and advances with
Partially owned equity affiliates 160.7 198.2
Property, plant and equipment, at cost 2,100.1 2,084.9
Less - accumulated depreciation 865.2 844.7
Net property, plant and equipment 1,234.9 1,240.2
Intangible assets, net 3,714.6 3,726.3
Deferred income taxes 151.3 158.0
Other assets 236.6 209.2
Total assets $9,013.6 $8,400.2
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accruals $1,334.1 $1,224.4
Loans payable 910.7 495.5
Income taxes 63.1 19.0
Total current liabilities 2,307.9 1,738.9
Long-term debt 2,113.3 2,113.3
Postemployment liabilities 804.6 805.0
Minority interests 95.8 95.7
Other liabilities 161.0 161.8
5,482.6 4,914.7
Company obligated mandatorily redeemable
preferred securities of subsidiary trust
holding solely debentures of the Company 402.5 402.5
Shareholders' equity:
Common stock 342.5 342.3
Other shareholders' equity 2,980.8 2,917.7
Accumulated other comprehensive income (194.8) (177.0)
Total shareholders' equity 3,128.5 3,083.0
Total liabilities and equity $9,013.6 $8,400.2
See accompanying notes to condensed consolidated financial statements.
INGERSOLL-RAND COMPANY
CONDENSED CONSOLIDATED INCOME STATEMENT
(in millions except per share figures)
Three Months Ended March 31,
2000 1999
Net sales $1,976.7 $1,891.1
Cost of goods sold 1,437.9 1,390.2
Administrative, selling and service
engineering expenses 269.5 262.3
Operating income 269.3 238.6
Interest expense (48.2) (52.5)
Other income (expense), net 2.9 (3.1)
Minority interests (7.5) (6.3)
Earnings before income taxes 216.5 176.7
Provision for income taxes 76.9 62.7
Earnings from continuing operations 139.6 114.0
Discontinued operations (net of tax) (3.6) 7.1
Net earnings $ 136.0 $ 121.1
Basic earnings per share:
Continuing operations $ 0.86 $ 0.70
Discontinued operations (0.02) 0.04
$ 0.84 $ 0.74
Diluted earnings per share:
Continuing operations $ 0.85 $ 0.69
Discontinued operations (0.02) (0.04)
$ 0.83 $ 0.73
Dividends per share $ 0.17 $ 0.15
See accompanying notes to condensed consolidated financial statements.
INGERSOLL-RAND COMPANY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
Three Months Ended
March 31,
2000 1999
Cash flows from operating activities:
Income from continuing operations $ 139.6 $ 114.0
Adjustments to arrive at net cash
provided by operating activities:
Depreciation and amortization 69.0 73.1
Changes in other assets and liabilities, net (175.6) (122.2)
Other, net 8.1 14.2
Net cash provided by operating activities 41.1 79.1
Cash flows from investing activities:
Capital expenditures (45.8) (43.0)
Acquisitions, net of cash (576.3) (159.7)
Proceeds from business dispositions 79.7 -
Other, net 20.0 5.9
Net cash used in investing activities (522.4) (196.8)
Cash flows from financing activities:
Net change in debt 414.5 140.1
Purchase of treasury stock (62.3) (20.1)
Dividends paid (27.7) (24.7)
Proceeds from exercise of stock options 2.0 22.0
Net cash provided by financing activities 326.5 117.3
Net cash provided by (used in) discontinued
operations 20.4 (1.6)
Effect of exchange rate changes on cash and
and cash equivalents (2.5) 3.9
Net (decrease)/increase in cash and cash
equivalents (136.9) 1.9
Cash and cash equivalents - beginning of period 222.9 43.5
Cash and cash equivalents - end of period $ 86.0 $ 45.4
See accompanying notes to condensed consolidated financial statements.
INGERSOLL-RAND COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - In the opinion of management, the accompanying condensed
consolidated financial statements contain all
adjustments (including normal recurring accruals)
necessary to present fairly the consolidated unaudited
financial position and results of operations for the
three months ended March 31, 2000, and 1999.
Note 2 - On February 2, 2000, the company completed the purchase
of Dresser-Rand Company (D-R) by acquiring the joint
venture partner's 51% share for a net purchase price of
approximately $536 million in cash. As previously announced,
the company intends to divest of D-R as soon as possible.
On February 7, 2000, the company acquired for
approximately $19 million in cash the stock of Sambron
S.A. (Sambron). Sambron, based in France, manufactures
and distributes a range of telescopic material handlers.
On February 28, 2000, the company acquired for
approximately $20 million in cash a 70% interest in
Zexel Cold Systems (Zexel). Zexel, based in Japan,
manufactures bus air-conditioning equipment and
refrigeration units for small trucks.
Note 3 - On February 4, 2000, the company sold Corona Clipper for
approximately $43 million. Corona Clipper manufactures
hand tools for pruning and harvesting. Corona Clipper
was acquired March 1999 with the Harrow Industries Inc.
acquisition. No gain on this transaction was recorded
as proceeds in excess of the net assets sold reduced
goodwill.
On February 9, 2000, the company agreed to sell
Ingersoll-Dresser Pump Company (IDP) to Flowserve
Corporation for $775 million in cash. The transaction
is subject to regulatory approval and is expected to
close during the second quarter of 2000.
On February 25, 2000, the company sold its interests in
three joint ventures related to the manufacture of full
steering-column assemblies to its partner, NSK Limited
and affiliates, for approximately $37 million in cash.
Note 4 - Net assets of IDP and D-R are shown as "Assets held for
sale" on the consolidated balance sheet and their results
have been included as "Discontinued operations (net of
tax)" on the consolidated income statement. The 1999
first quarter has been restated.
Note 5 - Inventories of domestic 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):
March 31, December 31,
2000 1999
Raw materials and supplies $ 170.8 $ 161.7
Work-in-process 213.0 191.7
Finished goods 596.6 532.9
980.4 886.3
Less - LIFO reserve 145.4 144.2
Total $ 835.0 $ 742.1
Note 6 -Basic earnings per share is based on the weighted average
number of common shares outstanding of 162.0 million
and 163.6 million for the first three months of 2000 and
1999, respectively. Diluted earnings per share is based
on the weighted average number of common shares
outstanding, as well as potentially dilutive common
shares, which in the company's case comprise shares issuable
under stock benefit plans (1.3 million and 1.8 million for
the first three months of 2000 and 1999, respectively).
Note 7 -The components of comprehensive income are as follows
(in millions):
For the three months ended March 31, 2000 1999
Net earnings $ 136.0 $ 121.1
Other comprehensive income -
foreign currency equity adjustment (17.8) (31.2)
Comprehensive income $ 118.2 $ 89.9
Note 8 -During the first quarter of 2000, the company realigned
its business to reflect its change to a market-focused
organization. A summary of operations by reportable
segment is as follows:
For the three months ended March 31,
2000 1999
Sales
Climate Control $ 320.4 $ 290.8
Industrial Productivity 741.4 761.7
Infrastructure Development 581.4 548.2
Security and Safety 333.5 290.4
Total $1,976.7 $1,891.1
Operating Income
Climate Control $ 38.7 $ 37.9
Industrial Productivity 88.6 72.9
Infrastructure Development 96.9 88.9
Security and Safety 62.9 53.9
Unallocated corporate expense (17.8) (15.0)
Total $ 269.3 $ 238.6
No significant changes in assets by geographic area have
occurred since December 31, 1999.
INGERSOLL-RAND COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The company's results for the first quarter of the year
established a new record. Sales approximated $2.0 billion,
operating income was $269.3 million and earnings from continuing
operations reached $139.6 million ($0.85 diluted earnings per
share). For the first quarter of 1999, the company reported
sales of $1.9 billion, operating income of $238.6 million and
earnings from continuing operations of $114.0 million ($0.69
diluted earnings per share).
A comparison of key income statement amounts between the
quarters, is as follows:
o Net sales for the first three months of 2000 approximated
$2.0 billion, an increase of 4.5% over last year's first
quarter.
o The ratio of cost of goods sold to sales for the first
quarter of 2000 improved to 72.7% compared to the 1999 first
quarter ratio of 73.5%. The improvement is attributable to
the benefits of cost reduction, efficiency and strategic
sourcing programs.
o The ratio of administrative, selling and service engineering
expenses to sales was 13.6% for the first three months of
2000, as compared to 13.9% for the first quarter of 1999.
The quarterly improvement is attributed to continued success
of the cost-containment programs.
o Operating income for the first quarter of 2000 totalled
$269.3 million, an increase of $30.7 million (or 12.9%) over
the $238.6 million reported for last year's first quarter.
The ratio of operating income to sales in 2000 was 13.6%, as
compared to 12.6% for the first three months of the prior
year.
o Other income (expense), net, aggregated $2.9 million of
income for the three months ended March 31, 2000, as
compared to $3.1 million of expense in the first quarter of
1999. This favorable change is attributed to the gain on
the sale of three joint ventures and higher earnings from
partially-owned affiliates in the first quarter of 2000.
o Minority interest increased from the first quarter of 1999 as
a result of higher earnings from consolidated jointly-owned
entities in which the company has a majority ownership.
Charges associated with the company's equity-linked
securities were comparable.
o Interest expense for the first quarter of 2000 was $48.2
million, which was $4.3 million below last year's first
quarter due to lower average debt balances compared to 1999.
Additional interest expense from the debt required to
purchase IDP and D-R was classified as a component of
discontinued operations and was not included in interest
expense.
o The company's effective tax rate for the first quarter of
both years was 35.5%.
o Discontinued operations (net of tax) for 2000 resulted in a
loss of $3.6 million compared with income of $7.1 million in
1999. Included in the 2000 results were all of IDP results
and 100% of D-R since February 2, 2000 and interest expense
from the debt required to purchase IDP and D-R. The first
quarter of 1999 includes 51% of IDP's earnings and 49% of D-R.
The consolidated results for the first quarter of the year
benefited from the combination of business improvements in a
number of the company's domestic and foreign markets and a
continued emphasis on the company's productivity-improvement
programs. Incoming orders for the first quarter of the year
totalled $2.1 billion, which is higher than last year's first
quarter total of $2.0 billion. The company's backlog of orders
at March 31, 2000, believed by it to be firm, was $1.1 billion,
which was approximately 15% higher than the backlog at December
31, 1999. The company estimates that approximately 90% of the
backlog will be shipped during the next twelve months.
Liquidity and Capital Resources
The company's working capital increased by $78.2 million to
$1,207.6 million at March 31, 2000, from the December 31, 1999
balance of $1,129.4 million. The current ratio was 1.5 and 1.6 at
the end of the first quarter and at the end of 1999, respectively.
The company's debt-to-total capital ratio at March 31, 2000 was 45%,
compared with 42% reported at December 31, 1999. This increase is
attributable to the February 2, 2000 purchase of the remaining 51%
of D-R.
The company's cash and cash equivalents totalled $86.0
million at March 31, 2000 down significantly from the $222.9
million at December 31, 1999, primarily due to the D-R
transaction. Cash flows from operating activities provided $41.1
million, investing activities used $522.4 million and financing
activities provided $326.5 million.
Receivables totalled $1.2 billion at March 31, 2000, which
represents a $190.8 million increase over the amount reported at
December 31, 1999. The increase was attributed to the timing of
strong first quarter sales and acquisition activity.
Inventories totalled $835.0 million at March 31, 2000, which
represents an increase of $92.9 million from the year-end balance
of $742.1 million. This change represents the building of
inventory to fulfill orders in the second and third quarters, and
acquisition activity.
Assets held for sale were $1,281.1 million at March 31,
2000, an increase of $481.4 million. This account increased by
approximately $536 million due to the February 2, 2000 purchase
of the remainder of D-R, and decreased due to the sale of Corona
Clipper.
Intangible assets decreased by approximately $11.7 million
during the first three months of 2000. Amortization expense for
the quarter was $27.9 million. The remaining change was
attributable to acquisitions and foreign currency translation.
Loans payable were $910.7 million in the first quarter of
2000 compared to $495.5 million in 1999. The increased borrowing
was attributed mainly to the funding of the acquisition of the
remaining ownership of D-R on February 2, 2000.
During the first three months of 2000, foreign currency
translation adjustments resulted in a net decrease of $17.8
million in shareowners' equity, caused by the strengthening of
the U.S. dollar against European currencies.
Environmental Matters
The company is a party to environmental lawsuits and claims,
and has received notices of potential violations of environmental
laws and regulations from the Environmental Protection Agency and
similar state authorities. It is identified as a potentially
responsible party (PRP) for cleanup costs associated with off-
site waste disposal at approximately 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
On February 7, 2000, the company acquired for approximately
$19 million in cash the stock of Sambron S.A. (Sambron).
Sambron, based in France, manufactures and distributes a range of
telescopic material handlers that extend the Bobcatr and
Ingersoll-Randr compact equipment lines in Europe. Sambron's
results have been reported as part of the Infrastructure
Development Sector since acquisition.
On February 28, 2000 the company acquired for approximately
$20 million in cash a 70% interest in Zexel Cold Systems, (Zexel).
Zexel, based in Japan, manufactures bus air-conditioning equipment
and refrigeration units for small trucks. Zexel's results have been
reported as part of the Climate Control Sector since acquisition.
Dispositions
In December 1999, the company sold substantially all of net assets
of the Automation Division.
On February 4, 2000 the company sold Corona Clipper for
approximately $43 million. Corona Clipper is a manufacturer of
hand tools for pruning and harvesting. Corona Clipper was
acquired March 1999 with the Harrow Industries, Inc. acquisition.
On February 25, 2000 the company sold its interest in three joint
ventures related to the manufacture of full steering-column
assemblies to its partner, NSK Limited and affiliates, for
approximately $37 million in cash and recorded the gain in "other
income (expense), net". The transaction involved the sale of the
company's 50% interest in NASTECH, based in Bennington, Vermont;
the company's 50% interest in NASTECH Europe Ltd., based in
Coventry, England; and its 25% interest in Siam NASTECH Company
Ltd., based in Bangkok, Thailand.
Discontinued Operations
On August 12, 1999, the company announced its intention to
dispose of its interest in D-R, a joint venture involved in the
reciprocating compressor and turbo machinery business, and IDP, a
joint venture involved in the engineered 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. Effective December 31, 1999, the
company completed the purchase of IDP by acquiring the joint
venture partner's 49% share for a net purchase price of $377.0
million. A note for the full purchase price was issued to the
joint venture partner and was redeemed on January 14, 2000. The
company subsequently financed this obligation using cash and cash
equivalents, and short-term debt. On February 2, 2000, the
company completed the purchase of D-R by acquiring the joint
venture partner's 51% share for a net purchase price of
approximately $536 million in cash. On February 9, 2000, the
company agreed to sell its IDP unit to Flowserve Corporation
for $775 million in cash. This transaction is subject to
regulatory approval and is expected to close during the second
quarter of 2000. The sale of D-R is anticipated to occur in the
third quarter of 2000. The net assets of IDP and D-R have been
reported as assets held for sale in the accompanying financial
statements, and prior periods have been restated to reflect these
businesses as discontinued operations. Historically, IDP had been
reported as part of the former Engineered Products Segment, while
D-R had been reported in other income (expense), net.
New Accounting Standard
In June 1998, the Financial Accounting Standards Board issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This Statement will become effective beginning
January 1, 2001. SFAS No. 133 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. The
company is currently evaluating the impact of adopting the
standard and will comply as required.
First-quarter Business Segment Review
During the first quarter, the company realigned its businesses
to reflect its change to a market-focused organization.
The Climate Control Sector includes Thermo King transport
temperature control equipment. The sector's first quarter
revenues totaled $320.4 million, an increase of 10% compared to
last year, reflecting improved results for the North American
trailer and the worldwide container businesses. Operating
earnings increased by 2% to $38.7 million. Operating margins
declined primarily because of unfavorable currency movements.
The Industrial Productivity Sector is composed of a group of
businesses focused on providing solutions for customers to
enhance industrial efficiency. First-quarter revenues on a
comparable basis increased approximately 1%. Revenues of $741.4
million declined slightly, compared to last year's revenues of
$761.7 million. Operating earnings increased by 22% to $88.6
million. All businesses in the sector reported improved
operating margins. The Industrial Productivity Sector consists
of three segments:
O Air Solutions, which provides equipment and services
for compressed air systems, had revenues in the first
quarter of $188.9 million, an improvement of 9% compared
to 1999. Earnings improved by 18% to $19.8 million,
reflecting ongoing cost-reduction and efficiency programs.
O Bearings and Components provides motion control
technologies to the automotive and industrial markets.
Revenues for the quarter declined by 7% to $304.8 million,
as lower revenues for industrial bearings and automotive
components, related to the loss of the camshaft business in
1999, more than offset gains made in automotive bearings.
Earnings and margins improved because of better product mix
and ongoing cost and expense reduction activities.
O Industrial Products includes Club Car golf cars and
utility vehicles; tools; and related industrial
production equipment. Reported revenues of $247.7 million
in the first quarter declined by 5%, compared to the first
quarter of 1999, reflecting the absence of revenues related
to the sale of the Automation Division, which had been part
of the Industrial Products businesses. First-quarter
revenues on a comparable basis increased by 7%. Club Car
revenues improved by more than 10% and tool revenues
improved slightly. Operating earnings of $36.2 million
increased by 33% because of improved volume for continuing
businesses, cost reduction activities, and the absence of
the Automation Division.
The Infrastructure Development Sector includes Bobcat compact
equipment; road pavers and compactors; portable power products;
and drilling equipment. This sector's revenues totaled $581.4
million, an increase of 6% over last year's first-quarter.
Operating earnings of $96.9 million increased by 9% and the
operating margin was 16.7% of sales. Revenues of Bobcat and
U.S. paving equipment increased by approximately 10%, while
portable power and drill revenues increased modestly. Operating
earnings increased in all the businesses because of higher
revenues and ongoing productivity actions.
The Security and Safety Sector includes architectural hardware
products and electronic access-control technologies. For this
sector, revenues increased by 15% to $333.5 million, compared to
the prior year. The first quarter of 2000 benefited from the
results of Harrow Industries, Inc., acquired on March 31, 1999.
Operating earnings increased by 17% to $62.9 million. Revenues
and earnings were strong in both residential and commercial
markets during the quarter.
Safe Harbor Statement
Information provided by the company in reports such as this
report on Form 10-Q, in press releases and in statements made by
employees in oral discussions, to the extent the information is
not historical fact, constitutes "forward looking statements"
within the meaning of the Securities Act of 1933 and the
Securities Exchange Act of 1934. Forward looking statements by
their nature involve risk and uncertainty.
The company cautions that a variety of factors, including
but not limited to the following, could cause business
conditions and results to differ from those expected by the
company: changes in the rate of economic growth in the United
States and in other major international economies; significant
changes in trade, monetary and fiscal policies worldwide;
currency fluctuations among the U.S. dollar and other
currencies; demand for company products; distributor inventory
levels; failure to achieve the company's productivity targets;
and competitor actions including unanticipated pricing actions
or new product introductions.
INGERSOLL-RAND COMPANY
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the registrant
during the period covered by this report.
INGERSOLL-RAND COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
INGERSOLL-RAND COMPANY
(Registrant)
Date May 5, 2000 /S/ D. W. Devonshire
D. W. Devonshire, Executive Vice
President & Chief Financial Officer
Principal Financial Officer
Date May 5, 2000 /S/ S. R. Shawley
S. R. Shawley, Vice President and
Controller
Principal Accounting Officer
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